Sdiptech AB (publ) (SDIPB) Earnings Call Transcript

Hi, and welcome to Sdiptech's webcast. Jakob Holm, who is the CEO; and Bengt Lejdstrom, the CFO of Sdiptech, will be presenting today. My name is Martin Westerlund, and I'm from Finwire.tv [Operator Instructions] With that said, I'll give Jakob and Bengt the stage.

Thank you very much, and very welcome, everybody. We have invited to this webcast in specific relation to the 3 deals that we did on Friday. And Bengt is with me, as always, but even more important, also Fredrik Navjord, who is our Business Area Manager for Water & Energy to which the recent acquisition Rolec will be included. So Fredrik is here to introduce the company to you. Okay. So we will run through summary of the deals that were done on Friday, and then Fredrik will introduce Rolec Services Ltd to you all. And then finally, we will walk through the impact that all of these 3 deals have on Sdiptech going forward. Okay. So Friday, we concluded 3 deals, 2 divestments and 1 acquisition. We divested Tello Services, a company focused on roof renovation and roof safety, local services business in the Stockholm region. Tello has been part of Sdiptech business area, PTS, and that also goes for the Swedish elevator businesses that we also divested. The Swedish elevator businesses have been in Sdiptech Group as 4 separate business units. So we sold them as a group. The divestment to Tello was done to Fasadgruppen. And the elevator businesses were divested to thyssenkrupp Elevators. Regarding the divestment of the elevator businesses, that is pending a permission from the Swedish Competition Authority, which we expect to have in April. We don't foresee any problems with that. It's just a formality that needs to be passed through. And then the acquisition of Rolec, we will move into it in more detail, but it is a company that is focused on charging equipment, and it has a fantastic history, 30 years of experience from charging equipment and charging solutions to marinas and to camping parks. And it has taken that experience into the electrical vehicle market 2 years ago -- 10 years ago, sorry, and that's given them a head start there. And one natural question that comes is, of course, why are you divesting. That is right. That's a good question. We are -- our business model is to acquire companies, to build a group and add one divestment after the other to create a growing group of companies. However, the divestment in these 2 cases makes sense to us. The business area, Property Technical Services, is a stable business area. The companies, Tello and the Swedish elevator businesses, they are also stable on sales and also stable on margins. However, we haven't done any acquisitions in this business area for over the past 3.5 years. And our focus is and has been over the past 3 years to put our growth efforts on the other 2 business areas, Water & Energy and Special Infrastructure Solutions. And our long-term goal is to create sustainable growth within critical needs within infrastructure. So we have the set direction on our business areas, Water & Energy and Special Infrastructure Solutions. So there's no change in our strategy. It's really just a logical consequence of our focus area. And then with that said, we will then move forward then to Rolec and to Fredrik. Please go ahead.

Thank you very much, Jakob. First of all, I would like to say that we are very happy to introduce Rolec today. It's a great company. We have it on our radar for over 1.5 years [indiscernible]. Rolec's revenue for 2020 was approximately SEK 265 million with an EBIT of SEK 80 million, and an absolute EBIT margin of roughly 30%. The company has 155 employees, working in their 3 business areas, electrical vehicle charging, marine and leisure, and leisure is primarily English caravan parks. Rolec was established in 1990 and specializes in developing, manufacturing and installing electrical charging products for the electrical vehicle, marine and leisure segments. The company's 30-plus years experience in supplying highly durable products to the demanding marine and leisure segments has enabled them to build a strong reputation in the U.K. as a supplier of high-quality charging infrastructure. In addition to their experience in hardware, Rolec also has a fully integrated software back-end solution for their respective market segments. This means future-proofing their products, providing the customers with a complete solution. Their experience, long-standing reputation of making quality products and their established network of distributors and installers enable them to quickly take position in the expanding EV charging market. And for the past 10 years, Rolec has built an installed base of over 200,000 EV charging units. And this makes Rolec one of the largest independent EV charging equipment manufacturers in the U.K. The company has its headquarters in Boston, U.K. where the 2 manufacturing facilities and the main office are located. So Rolec targets both the B2B and B2C segments. B2B is Rolec's main focus area. The level of product complexity is higher here. Rolec can utilize its vast experience in developing turnkey charging solutions for demanding applications. The majority of sales is done through wholesaler distributors, where they have over 2,000 wholesale points and over 1,500 builders merchants and in addition, their own direct sales organization, targeting primarily private networks and fleets. For the consumer segment, Rolec utilizes their own online sales channel, EV One Stop. This is an online website, primarily focused on the EV charging market in the U.K. EV One Stop offers an ultimate route to market, enabling Rolec to access end consumers directly. It's currently run as an independent company, but only sells Rolec EV products, and Sdiptech has bought 100% of both companies. Through these combined market channels, Rolec's product range has a potential to reach over 250,000 electrical contractors in the U.K. Rolec has a strong sales channel structure where, as just previously mentioned, the EV charging segment is sold through wholesalers and via direct sales and for consumers through EV One Stop. The marina sales is conducted through a global network of over 40 sales agents and via direct sales. And the leisure segment is served via direct sales and through their wholesaler network. They have a very comprehensive range of products for both EV charging stations, marine and leisure. And this is something that keeps coming up as a key strength when talking to wholesale customers, that Rolec's product range fulfills almost every application. So in combination with their software back-end solution, the end customers have a one-stop shop that fulfills the majority of their needs. The EV charging market can roughly be divided into 2 segments. We have the private networks, which is domestic, but also mostly workplace, commercial and fleet installations as opposed to the public network, which is publicly accessible EV chargers, such as roadside charging and the equivalent of charging gas stations. And as you probably know who follow Sdiptech, we like companies with a strong focus. And Rolec has a very good position on the private network segment. Private networks, especially workplace, shopping center, private fleets, et cetera, place a very high demand from the supplier in terms of product quality, support, high-quality back-end solutions and access to installers, et cetera as opposed to private charging points at home, which is, in many cases, a very basic. The private network installations are complex by nature and places high demand on technical know-how of the installer. And this creates a barrier for new entrants to establish a strong position. And here, Rolec really can leverage its 30-plus experience in the business. So looking at the underlying market drivers of EV and Rolec. I'm sure that it doesn't come as a surprise to anyone that we are in the beginning of a strong global megatrend connected to electrification that will provide a stable underlying market growth for the foreseeable future. The private networks segment is expected to comprise 95% of the charging infrastructure. And as previously mentioned, within this segment is where Rolec has a very strong position, business-to-business, private networks and complex installations. Electrification will continue to provide opportunities as markets mature. And one such example is, for instance, solar to EV charging. And here, Rolec will be releasing a new product during 2021, Solar EV. I think the main message for this slide is actually to show the breadth and the knowledge that they've accumulated over the past 30 years from starting in the leisure industry, caravan park hook-ups and marine in 1990. Just 5 years later, establishing a great back-end solution for marinas and caravan park hook-ups via the old segment and really giving the customer a good end-to-end solution and over the years establishing Wallpod products for the EV side, EV One Stop through online sales and also getting the online sales upper money with great back-end solutions. We're looking forward to 2021 and forward with new innovative products coming out from the company. So one of the aspects that we really love about Rolec is the level of customer satisfaction that they have. And for those of you that have followed Sdiptech for a while, it comes as no surprise that we really try to get to know the companies before we do an acquisition. And in terms of Rolec, this has been a very pleasant experience. As you can see from just some of the customer feedback we got during the due diligence, Rolec's product quality, product range, sales and support organization are second to none. This provides good barriers to entry against competitors in the B2B private networks segment. And these are the type of companies that we're really proud to bring into Sdiptech. So I'm sure you're all reading already, but I think some of these quotes are quite impressive, that GBP 400,000 sales, one supplier did not have a single product being returned; they have a product range that fulfills almost every application for the customers. And it's -- for some of these, it's the only one they sell. It's the only one they try to market because they know they can count on them. So in terms of Sdiptech fit, I would say that Rolec fits all our criterias. It contributes to creating more sustainable, efficient and safe societies, delivers solutions to critical needs of the infrastructure sector. The company has strong historic profit performance and very stable cash flows. And it has a unique value proposition and a very robust business model, looking at all of their 3 segments combined. So in summary, Rolec is the 14th business unit within Water & Energy. And it's the eighth business unit we acquired in the U.K. Sales, as previously mentioned, was SEK 265 million with EBIT of SEK 80 million and a profit margin of approximately 30%. Our expected EBIT margin going forward is about 28%, and the expected growth combined for EV, marine and leisure is between 12% and 15%. And with that, I would like to hand over back to Jakob. Thank you very much.

Thank you, Fredrik. So to sum it up to have a look at the impact then on Sdiptech as a group. Since we're divesting and acquiring at the same time, we would like to share some more details around the impact of each deal. So starting off by the acquisition. The multiples that we paid was slightly above 9x operating profit. And we're quite happy then to also present the multiple for the divestments, the blended multiple was higher than that, around 11. And then moving over to the profit side. Rolec is about 3x the size of the divested units, the SEK 80 million in EBIT compared to SEK 27 million. And the margin also has a positive impact on the group, contributing expected then 28% going forward compared to approximately 8% for the divested units as a blended margin. So all in all, we're very happy to have the opportunity to present these things at the same time. And all of this combined going forward, we raised our guidance to 19% to 20% operating profitability going forward in 2021. And I also would like to make an extra note then on the divestments that we did. Natural question would be, okay, so now you have divested some of the business units, will you continue to divest going forward. And first of all, I really would like to be very clear that we are proud of all our business units within Property Technical Services. We know the companies very well. We know the management very well. They're performing very good. And we are in absolutely no rush at all. We are the owners of the companies that still are in PTS. We will always take care of them. And if it might be come as a question for further divestment, we will only do that if the price is good and attractive and also that we can ensure that the new homes or new owners for our companies are the best possible. So that was an important message as well to all of you. With that said, I think we open up for questions.

Thank you. And like you said, now it's time for the Q&A. [Operator Instructions] And the first question is, why do you expect Rolec's EBIT margin to decline over time?

Okay. Well, we don't expect it to decline over time. We just want to send the right expectations going forward, and the expectations should be at 28% going forward.

And the next question is, does this acquisition have any long-term competitive advantage?

Yes, it is for sure that the electrical vehicle market is, of course, a fast-growing market, and it will continue to be so. It will attract many new companies and players. And eventually, all of those fast-growing markets, they come to a point in time when the market is consolidated and there's some margin pressure. So that is something that we have focused a lot when we had a look at the company in the beginning, but also during our due diligence and all the discussions with the management of Rolec. And there are 3 clear distinct niches that we believe are sustainable going forward and also in the future during consolidation period. The first 2 are their legacy and the region, one being charging solutions for marinas and the other one being charging solutions for caravan parks. They've done this for 30 years, and it's a very clear, distinct niches that they are in. And then when coming over to the electric vehicle side, which is, of course, very attractive, we believe that the long-term position is really to continue based on the strengths that Rolec already has. And that is, as Fredrik described, towards private networks as opposed to "public charging points as gas stations", those are the public. So we believe in private. They're the solutions typically that Rolec is strong, is towards the business-to-business segment, where also the demands are higher, the solutions are more complex, and Rolec's competency comes into play in the best possible way. And also the combination then between the extent hardware, but also then the important back-end software solution that is key for complex private installations. So the long-term position is within business-to-business, complex private installations.

And the next question is what is Rolec's split between EV, marine and caravan in terms of sales?

Yes, we had disclosed the numbers that we have decided that we want to disclose. And the exact split between the segments and how they are characterized, we haven't disclosed those at this point in time.

And what is the market structure in terms of market shares for Rolec?

Let me see. We understand the question. The market structure for market shares?