Lifco AB (publ)

Good morning everyone and welcome to the LIFCO Q2 presentation. I'd like to directly turn to page number two in our investor presentation and just on a very high level conclude that this was a very strong quarter for LIFCO with strong underlying market demand in I would say almost all our segments. And that resulted in a very strong sales development, organic growth of 34% in the quarter. Acquisitions contributed with 15% on the top line. And then we had a slight negative effect on exchange rates of about 3%. And I'd also like to continue. We have then obviously an even stronger development on the EBITDA numbers, going 79% in the quarter. Obviously, the comparison numbers here from quarter two last year are obviously fairly weak. We were quite affected in the early phase of the pandemic, especially in the dental area and also in the demolition tools area. And this year, we obviously see a strong market condition across the board. But despite that, we are very satisfied with the results in this quarter. The strong EBITDA number is obviously due to greater sales and operational leverage combined with our acquisition work that tends to help the margins. And then we are also in this quarter, as we've now been saying for quite some time, seeing an effect of lower sales and marketing costs due to the pandemic. And already here I can mention that it's still no doubt exactly how that will develop in the future. now when the societies are open up. So we are still having a close look at that, but also open for all possibilities when it comes to this. Going further down in the numbers here, we have a solid cash flow in the quarter. We're growing cash flow, despite that last year in the early part of the year and in the pandemic phase, we had a strong cash release in working capital. This year we have a little bit of the other effect when the strong sales growth also leads to especially high receivables as normal. But still very solid cash flow. And then we can turn to page number three and go a little bit more into the different areas in Lithgow. If we start with the dental business area, this was the area where we had the most dramatic COVID effect last year where basically all the markets were very low level in April and early May, and then it came back to more normal level in last year's June. This year, the market conditions were more, I would say, normal. Even you can argue in some areas of dental, there could be some effects of some stock buildup coming back in the customer end of the business, because what happened last year was that all customers were keeping stock at lower levels. when uncertainty in the lower market level was apparent. In this area, we have a very strong EBITDA development due to acquisitions and also due to the fact that we have lower sales and marketing costs also here. If we then move over to demolition tools, it's a very strong quarter. Last year, we had more uncertain market conditions in the early phase of the pandemic. this year we it's a very strong market condition across the board i'd like to highlight already here that it is an area where profits and sales can fluctuate quite a bit between quarters and also obviously over between years depending on the on the underlying market conditions um and then if we go further and look at the the profit level in dimension tools it's also done um mainly due to operational leverage but also here we have acquisitions helping us in this year on top of that we also have in this very good quarter also a positive effect for for some extra possible special products projects that as most of you are aware of can fluctuate and will fluctuate between quarters and even between years so uh the measure tools is it's um yeah a super good quarter basically um the system solutions uh this was the area where we had relatively the least negative effect last year due to the pandemic and also this is the area where we grow the least this year still very solid development most this is obviously an area with many different type of market exposure but for the most part it's good market conditions all over the board almost all of our companies are performing very well in this year And last year, in the second quarter, we had some companies that had some positive effects from COVID and some that had some negative effects. And this year, it's more flattening out the effects of this. But I also want to highlight here that it's still very good market conditions for the most part. The only area where we had some weaker development in the first half of the year is in the forest area, where it's not so much correlated with the market conditions. It's more correlated with what type of products we are taking in and how they are developing. So I'd like to remind everyone about the forest division here, that it's not really a market-driven situation. It's by itself a volatile area that I've mentioned in previous calls. And then we can move from page number three to page number five and look a little bit at our balance sheet and mainly focusing on the net debt to EBITDA level. We are now, despite the fact that we've done a record high acquisition pace the last 69 months. We are still at lower interest period net debt compared to the same period last year. Also, our total net debt TBT is lower than last year. So still a very solid financial position, which gives us room for further acquisition opportunities if we find great companies to buy in the future. I also like to just highlight that last year we did pay the dividend in the Q3 due to the pandemic, and this year we paid in Q2. So that's also something that shows that we are in a strong position here. And then we can move over to page number six and just look at the high level and the long-term history performance of NIPCO. And looking at the EBIT margin development in 2014, we have a continuous and gradual improvement of margins. And this is not a coincidence. We always strive to make our great niche companies even more niche and more differentiated and focus on the high margin part of every segment where we can. We have learned through many, many years that it builds greater barriers for our companies and better competitive situations. This is a long-term development. And what other drivers that helps our margin is obviously acquisitions. We have been, you know, the last seven years acquiring on average better quality companies with higher margins coming into LIFCO. And then in the recent period, the very last year or so, we have also been increasing our margins more than the normal due to the lower costs for sales and marketing due to the pandemic. But I think I'd like to remind everyone that it's not only that, it's also the long-term strategy of LIFCO going in that direction. And then we can turn to the next page, number seven, and also more on the high level. Remind everyone that we have a very high return on the capital employed, especially on the right-hand side where we measure it exclusively goodwill. This is basically looking at each individual company and summing them up. And here you can see that we are now on record high levels also on return on capital employed. It's an indication that we buy and own high-quality companies with great cash conversion, which is fundamental for our long-term strategy of growing LIFCO gradually from acquisitions. And then we can actually move all the way back to page 29, which is listing our acquisitions that were being carried out in the last six months. and um it's quite quite a long list at this time we have carried out 14 acquisitions that have been consolidated from january 1st or announced now uh in june some of them have not uh one of them have not been consolidated yet will be done in in the next couple of weeks um and this activity of buying companies of course very fundamental for us it's um it's a key focus area for lisco we involve today much more people in the work of doing this i'm not talking only about acquisition dedicated people, we also involve a lot of our group managers sitting in the subsidiary levels in taking care of new companies and developing in these roles. Our target is to acquire very good companies with typically market leaders in small niches with very solid financial history. And then we, as always, stay very disciplined and strict to quality standards, but also valuations. This means that if you want to do this in a very long-term perspective, which LIFCO is trying to do, we have a very long-term perspective on this, it leads to a situation where sometimes we get great results that we had in this year, and some other times it could be lower activity because we are not forcing this. We try to avoid mistakes and we try to develop LIFCO with high quality. And I often get the question, what is our pipeline? And that's always difficult to predict because there's so many factors and it's so unclear when the deal will happen or not happen. And we also are backing off quite often things that we don't feel fully comfortable about because we're going to own the company forever. That's our mindset. So with that, I would like to open up for any questions about the development in the second quarter.

Thank you. If you would like 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. There will be a brief pause while questions are being registered. The first question comes from the line of Eric Castle from ABG Sandal Collier. Please go ahead, your line is open.

Hi, good morning, Brad. So first off, in demolition of tools, obviously an exceptionally strong margin at 28%, but I would like to understand it a bit better. So could you please help us bridge this margin uplift in terms of special orders, margin accretion from M&A and OPEC savings to understand how sustainable this is going forward?