Press release

15 February 2018, 08:30

Sdiptech AB (publ) publishes Year-end report 2017

The Year-end report will be available on the company's website: www.sdiptech.com.

Good organic growth in 2017 except elevators where improvement program is launched

Fourth quarter

• Net sales increased by 22.0 percent to SEK 340.4 million (279.1)
• EBITA increased to SEK 115.1 million (55.1)
• Sdiptech's business model includes downside protection on acquisitions, and EBITA for the quarter includes a positive contribution of SEK 78.0 million from the application of such downside protection
• Write-down of goodwill of SEK 32.4 million is included in Ope­rating earnings
• Net financial items were negative in the amount of SEK 15.8 million (-4.8), which includes costs of SEK 24.1 million from discounting of liabilities regarding additional purchase consi­derations that do not affect cash flow.
• Earnings after tax for the period for remaining operations amounted to SEK 57.5 million (42.2) and for earnings attributa­ble to the Parent Company's shareholders to SEK 54.7 million (35.8)
• Earnings per ordinary share for remaining operations, less di­vidends on preferred shares and to minority interests, amoun­ted to SEK 1.69 (1.51)
• During the period, Polyproject Environment AB was acquired, specializing in customized components and facilities for de­contamination of liquids, gases and water, as well as Tello Ser­vice Partner AB, specializing in roof repainting and installation of personal protection on roofs.

January to December

• Net sales increased by 39.0 percent to SEK 1,077.8 million (775.5)
• EBITA increased to SEK 189.4 million (110.9)
• Sdiptech's business model includes downside protection on acquisitions, and EBITA for the year includes a positive contri­bution of SEK 78.0 million from the application of such down­side protection
• Write-down of goodwill of SEK 32.4 million is included in Ope­rating earnings
• Net financial items were negative in the amount of SEK 36.2 million (-7.3), which includes costs of SEK 24.1 million from discounting of liabilities regarding additional purchase consi­derations that do not affect cash flow.
• Earnings after tax for the period for remaining operations amounted to SEK 93.2 million (79.4) and earnings attributable to the Parent Company's shareholders amounted to SEK 87.1 million (73.9) Earnings per ordinary share for remaining operations, less di­vidends on preferred shares and to minority interests, amoun­ted to SEK 2.70 (2.61)
• Cash flow from current operations amounted to SEK 70.1 mil­lion (61.6)

Events after the reporting date

• Four acquisitions were completed after the end of the re­porting period: On 31 January, Multitech Site Services Limi­ted was acquired; on 11 January, Optyma Security Systems Limited was acquired; on 9 January, Aviolinx Communication and Services AB was acquired; on 3 January Centralmontage i Nyköping AB was acquired
• On 17 January, 80 percent of the support operations, Insider­Log, was sold to Euronext Invitation to Extraordinary General Meeting on 5 March 2018, at which a decision will be made regarding options program­mes for senior executives
• Sdiptech's Board of Directors made a decision on 14 February 2018 to divest Support Services, subject to approval from the Annual General Meeting

CEO Comments

Good organic growth in the business areas in 2018 with the exception of elevators

As we sum up 2017, we can see that sales increased in both of our business areas. The installation side increased in 2017, compared with 2016 - underlying net sales by 7.2 percent and Products & Services increased by 5.4 percent.

Profitability is also developing favorably in all areas of opera­tions, with the exception of our elevators segment. Excluding elevators, the combined business areas increased their under­lying EBITA by 8.5 percent in 2017. This is an important acknow­ledgement of the inherent quality of our acquisitions.

Actions for elevator operations launched

Including elevators, underlying EBITA decreased by 5.8 percent, which is far from satisfactory. For the full-year, earnings from our elevator operations were positive, although profitability was noticeably down in 2017. That said, our profitability is in line with the market for elevator modernization in general. Profitability is cyclical and is paradoxically weaker during economic upswings. New installations increase during upswings, the strong upswing of recent years in particular. But this is at the expense of mainte­nance and renovation, where we have our principal business. For many years, our companies have been focused on growth, new customers and recruitment. Growth is deeply rooted in our skil­led managers in the elevator segment, but we are now shifting our focus towards profitability. A program of measures has been launched for our elevator operations, with concrete mea­sures for each affected company to restore profitability.

Downside protection in acquisition model strengthens EBITA

Our acquisition model is designed to share risks and oppor­tunities with sellers of companies. Sellers' future additional purchase considerations grow if profits rise and, vice versa, shrink if profits fall. Additional purchases considerations are liabilities that are repaid after completion of earn-outs. In case of a decline, as we experienced in the area of elevators, this debt decreases, thus giving a corresponding boost to EBITA. While I know this effect may be perceived as abstract, the truth is that it involves real money and is a direct consequence of our acquisi­tion model, where the downside protection mechanism has a real and positive impact on earnings.

Support operations discontinued in current format

Our support operations were created with the purpose of sup­porting our own companies and external ones with business support services. For Sdiptech, these consulting operations have ended up disadvantaging our EBITA growth and thereby counteracting their purpose. Consequently, Sdiptech's Board of Directors has decided to divest the operations to their manage­ment. In the divestment plan, there are two key parts over which Sdiptech will retain control. One part consists of the crucial ac­quisition operations, which will continue focusing on Sdiptech, and the other part comprises a small number of tech products in which Sdiptech will retain its minority ownership. The discon­tinuation is a healthy move that streamlines Sdiptech to its core operations, urban infrastructure.

ACQUISITIONS

In the final quarter of the year, the Group acquired two compa­nies and another four after the end of the period. The installation side was complemented with two new niches in the form of roofs (Tello Service Partner) and security (Optyma Security Systems), and expanded in electrical automation (Centralmontage i Nykö­ping) for a total EBITA of SEK 26 million. Products & Services were complemented with three new niches: water purification (Polyproject Environment), air traffic radio infrastructure (Avi­olinx Communications and Services) and temporary infrastruc­ture (Multitech Site Services) for a total EBITA of SEK 31 million.

We have been processing the UK market for some time, to be able to access a larger acquisition market. A pipeline of attrac­tive companies has gradually been built up and it is very grati­fying that we have now completed our first two acquisitions in the London area.

FUTURE PROSPECTS

The size of our total pipeline of acquisition candidates is normal, about 360 companies at the time of writing. Since the last inte­rim report, none of the agreements of intention that had been entered into are still active. At the time of writing, bidding discu­ssions are being held with a handful of companies, two of which are at an advanced stage, although no agreements of intention have been entered into.

Balance between growth and profitability

The discontinuation of the support activities is healthy, reduces profit fluctuations and streamlines Sdiptech to its core opera­tions. In the elevator operations, an improvement programme has been launched to restore profitability. It is expected that the effects of this will be visible from the second quarter of 2018, gradually reaching full impact in 2019.

The operations alongside the elevator operations, which com­bined constitute the greater part of both the Group's sales and earnings, are developing well. We have profitable growth there but also an important differentiation, with 18 companies that are growing in pace with further acquisitions. Our plan for 2018 includes a good balance between growth and profitability, and I look towards the year ahead with confidence.

Jakob Holm

CEO

Sdiptech AB's ordinary Series B share is traded under the short name SDIP B with ISIN code SE0003756758. Sdiptech AB's preferred shares are traded under the short name SDIP PREF with ISIN code SE0006758348. Sdiptech AB's Certified Adviser at Nasdaq First North Stockholm is Erik Penser Bank. Further information is available on the company's website: www.sdiptech.com  

For additional information, please contact:

Carl Johan Åkesson, CFO, +46 708 30 70 57, cj.akesson@sdiptech.com
Jakob Holm, CEO, +46 761 61 21 91, jakob.holm@sdiptech.com

Sdiptech AB is a technology group with a primary focus on urban infrastructures. The Group offers deeply niched services and products for both expanding and renovating rapidly growing metropolitan areas. The company is based in Stockholm.

Sdiptech AB (publ) is required to disclose this information pursuant to EU Market Use Regulation 596/2014. The information was provided by the above contact persons for publication 15 February 2018 at 08:30 CET.