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
January to December
Events after the reporting date
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.
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.
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.
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, firstname.lastname@example.org
Jakob Holm, CEO, +46 761 61 21 91, email@example.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.