Lifco AB (publ)

Thank you and welcome everyone to the LIFCO Q1 presentation. I'd like to start directly by going into page number two and give a short overview of the overall performance in the quarter. And as you can see from the numbers, we are quite satisfied. It was a solid quarter across the board. We can conclude now that the first quarter of this year had not the same effects of COVID-19 that we were experiencing during 2020, especially in the second quarter. And we had some of these effects also remaining in the fall and now in this first quarter we are overall very limited impacted by COVID-19. I'd like also on this high level summary to Just pinpoint the operating cash flow, which is the only number that maybe stands out. All the others are very good. But here I would like to highlight that the numbers from last year are extraordinary good. We had record cash flow in Q1 2020, partly due to release of inventories, but also the fact that COVID-19 came in in early March had an effect on extraordinary good cash flow. And it's also important to acknowledge that normally LIFCO has the weakest cash flow quarter in the first quarter. So what typically happens is that we have a release of special receivables and also to some extent inventory in Q4 and then we build that up in Q1. You can look back in historical numbers, for example, in 1918 as a reference and conclude that also the cash flow in this year was stronger than historical numbers. also to summarize the high level we had an organic growth of around two percent in the first quarter we had a negative effect from exchange rates of about three percent and then acquisitions contributed with about seven percent for the quarter but with that we can go into page number three and talk a little bit about each business area yes the dental area came back quite strongly in the first quarter and we now see that I would say most or all of our markets in dental are back to more novel levels. We are then helped by acquisitions that we've been carrying out in the dental field that also contributes to the growth and then we have a very strong margin expansion in the quarter partly due to acquisitions but also due to the fact that we have lower sales and marketing activities because of the basically, it's not possible to carry out the normal activities. And this is the same trend we have now for the last couple of quarters that remains in the dental field. If we then move over to the demolition tools area, we experience better market conditions. They were quite good in the first quarter. And here I would like to highlight that the numbers from Q1 2020 actually included some special projects that we didn't have this year. So that's important to understand. It has not a huge impact, but it has an impact on that. So there was that. And also we are helped here by better margins. It's the strong market conditions and then the continuous work on trying to improve margins in LIFTCO is coming up well here. Also in this area, of course, we have some lower sales and marketing activities as many companies are experienced during the COVID-19 times. And in sister solutions, the same story. We have good market conditions. And the reason we are not growing top line here is more related to specific companies. For example, we have a product business that is volatile and they had a fairly weak quarter that is dragging down the overall sales numbers. But for the most part, most of our companies in this area are performing well in the first quarter. And also here we are improving our margins due to acquisitions, due to organic improvements. And then on top of that, we also have some effect of the lockdowns that we are carrying out lower sales and marketing activities also in this area. And with that, we can move over to page number four. And this is just a reminder for everyone who's listening that LIFCO, what we're trying to do is to grow LIFCO on a continuous basis from acquisitions. Historically, we've been generating around 9% to 14% every year from acquisition in EBITDA growth. And then, of course, we are striving to also improve our organic performance in our EBITDA. And for the most part, we've been successful historically, with the exception of last year, where we had a lot of difficulties during the COVID-19 times. So that's just a reminder that acquisition is extremely important for us. Also on this slide, we can highlight that we have been able to do this type of growth from acquisitions without stretching our balance sheet, which is an indication that our cash flows from operations are very strong over time. So we can go to page number five and just continue on the cash flow and balance sheet. We are at the end of this quarter. Despite quite a few acquisitions, we are having a very strong financial position. Our interest bearing net debt to EBITDA is 1.2 times, which is very, very low. So it gives us good room to continue to try to buy good high margin companies that are very strong in their niches also going forward. I can also highlight that the 1.2 times EBITDA in this quarter should be compared to the 1.6 one year ago. So we are actually in a better position now than one year ago. And then we can go into page number six. And normally I don't talk much about this slide, but I just would like to remind everyone that LIFCO, we are striving for profits and for margins. We have it in our DNA. to continuously make all our companies even more niche so that they become even stronger in the more profitable part of their business. And as you can see on the bottom of this slide, LIFCO has been growing our margins continuously over the last six, seven years. And we are now standing at an EBITDA margin on rolling 12 months at 20.5% compared to 14.2% in 2014. And this is a continuous work that we're doing in all our companies. It's also being, of course, helped by acquisitions that we've been making over the last seven years that they have been on a higher margin level than the portfolio we had going into the stock exchange in 2014. And then we can go to page number seven and just conclude that our focus on strong margins and trying to buy assets like companies leads to a situation where our return on capital employed, excluding goodwill in our operations, is very strong. now standing at 151 percent if you take the rolling 12 months data and this is a key criteria in our acquisition work we want all our companies to be very cash generative so we can continue to build let's go to acquisitions for many years to come so after that i'd like to go to page 28 all the way back in the presentation and just highlight that we had a very strong period in acquisitions in the last few months or last few quarters. So we have actually now from the 1st of January this year consolidated in roughly 1.2 billion Swedish kronor of businesses into LIFCO. And it's a good mix of dental, assisted solution and demolition tools companies that we've been able to acquire. It's also a good mix of geographic spread. And I can come into page 29 and just highlight that we have during the last four years on the right hand side of this slide, we can see that we have now a very broad sort of hunting grounds for companies to acquire. And as you can see, the period from 17 to 21, we've been pretty broadly spread out between Sweden, Germany, Norway, Italy and UK, and then added complementing geographies from time to time. And this is continuous work to expand our our acquisition opportunities in as many markets as possible because we're looking for really good companies that we hopefully can acquire at reasonable valuations and to do that we need a huge or enormous big funnel to be able to source these deals and that's not an easy job but we work very hard on improving that and get as many good opportunities as possible and that was my last point here in this presentation, and with that I'd like to open up for any questions.

Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. There will be a brief pause while questions are being registered. And our first question comes from the line of Carl Reintalsam from Nordea. Please go ahead, your line is open.

Good morning, it's Carl here from Nordia. In devolution of tools, obviously quite strong margin for a Q1. So could you please help us bridge the 460 basis points, year-over-year margin uplift, especially as regards that you have fewer special orders today compared to last year? Thank you.

Thank you. It's a combination of a few things. We have been lifting our margins in a few of the companies we've been doing some work in the last i would say 12 to 18 months that now generates the effect uh coming into somebody started actually pre-covered and some of these effects came in the in the in the covet phase that we basically went through our our companies and and and made some some uh you know restructuring during last years that now is paying off uh on top of that we have acquisitions that is helping on the margin and um and then basically solid performance across the board. So it's pretty solid in this area right now.

Okay, perfect. On that note also, would you say that the low or the lower level of special orders is due to a somewhat cautious end market still for capex-driven demand or is it just that it is fluctuating between the quarters?

So the special projects, they like our project business. They don't really correlate with underlying market conditions. Typically a very long process to get sold. It's about, you know, it's in cases where we, you know, have one customer very specific need that can take years in discussions and planning of the project. And then, you know, it can materialize at any point in time. So it's not so correlated with market conditions at all. So as I'm trying to explain in the presentation, the market conditions or underlying market conditions are better now in Dimension Tools than it was in last year. But we had also to highlight that, given our sales numbers, we also want to show that in Q1 last year we had this positive effect of a special product delivery.

Okay, perfect. And on dental, when I look at utilization rates for practices in different parts of Europe as well as US, we could see that they are down quite a bit compared to normal levels, but you're guiding for a quite normal level during the quarter. Is it Is it fair to assume that the somewhat lower utilization rate is fully compensated by a higher degree of consumables? And also, if so, would you say that you have more favorable margin on the consumable side?

I don't think the margins are much different there. But I think you're right. For the markets where there still is a little bit lower utilization rate, there's a higher use of what I call disposable material. the dental offices still it's difficult to really you know exactly guide you in this effect but that there is some some effect around that yeah and i guess the prosthetics business is it's it's still quite low levels i guess sir no so that's i think we're trying to write that in our comments that the overall the markets are back to more normal conditions now okay perfect

And also in terms of, you're talking a bit about lower selling, traveling, marketing expenses and so on. When I look at the gross margins up 60 basis points year to year, EBITDA margin expanded, I think, 300 basis points year-over-year, meaning that the delta comes from SG&A contraction, or the main delta at least. I mean, would you say that the long-term sustainable margin uplift is the gross margin uplift, or how much of the SG&A reduction, or SG&A to sales reduction, rather, is long-term sustainable?

It's very difficult to say, because I can say that some of it are more sustainable activities that we have been carrying out during the last 18 months. When COVID came, also a lot of companies took the opportunity to review their organization, their setup and everything around it. So some of it will be sustainable, but also a substantial part that could be not sustainable, given that if things go back to normal, which you can debate if that will happen. If things go back to pre-COVID activities, of course, quite a big part will come back. But it's not clear when that will happen and how quickly it will happen, if at all it will happen in a normal way. So I think it's very difficult to say. But I think it's clear that we strive in LIFCO for a good morning, good profitability all the time. So when COVID came, also a lot of our companies took the chance to review if there are things they could save on. And some of that will remain. Some will not remain, but exactly how and when, I cannot tell you.

Okay, perfect. And the final one from my side is that we could obviously see that the contract manufacturing is still growing quite nicely in the quarter. I guess it's MedTech related still. How should we look at that coming quarter? Do you expect facing more shares in comparisons when you go into Q2 or H2? And also, I guess, have a lower margin on the MedTech side. So you should, in that case, have a more positive margin mix in the second half.

So we don't communicate margins into different industries in that segment. But I can only conclude that after quarter one, we see no major changes from the trend so far. So it's still holding up well in that area. So we don't see margins by industry. Okay, thank you.

Thank you. Our next question comes from the line of Jacob Adler from Endos Banking. Please go ahead, your line is open.

Good morning and thank you for taking my questions. I only have two ones, Carl touched upon a few of my questions already. But if we start off by looking at the margins within dental, it's obviously stronger. And should we interpret this as a cost effect or a mixed effect from more software income? Or how does that look?

So the modern expansion dental is partly acquisition related and mainly related to lower sales and marketing costs.

Okay, that's clear. And if we just touch upon the system solutions, it seems like the project-driven business has been, or some of the project-driven business has been underperforming in relation to the rest. Are you able to kind of elaborate a bit on that? How is it looking for you know, the project-driven businesses here ahead. Yeah.

Well, the project-driven business has always been very volatile in LibCo. They come and go with different quarters. And, you know, they're a little bit the same as the special orders in demolition tools. You know, you can't really plan it. You know, it comes when it comes, and it's not always correlated with underlying market conditions. It's even for us very, very difficult to know what's going to happen in any given quarter for this business. and some of them you might you know might have a solid backlog but that doesn't mean that there would be good result in next quarter because you know you have to you know how you generate the accounting for that it depends really what's what's happening and how much step four you make in each product etc so that is a very you know difficult business to forecast even for me sitting in the head of lisco so so um yeah it's been for many many years a very volatile area i can only conclude that okay that's very clear

that was all for me just two quick ones there thank you thank you thank you i remind you that if you want to ask a question you have to press zero one on your telephone keypad and as we have no further questions i'll hand it back for closing remarks okay thank you everyone for listening and i wish everyone a good day thank you