Lifco AB (publ)

Thank you and good morning everyone and welcome to our Q3 presentation. And we can start directly by going into page number two in our investor presentation. And on a very high level, we can conclude that this was another strong quarter for LIFCO with strong underlying market demand in demolition tools and system solutions specifically. And just briefly on Denzel, we had marginally weaker market situation compared to the comeback quarter in Q3 2020. I'll come back a little bit more to that later. On the overall level, we have a sales growth of 26%, of which 8% is organic growth. Acquisitions contributed with 16%. And in this quarter, we actually had a positive effect from exchange rates of 2%. On the EBITDA level, we are growing 23% in the quarter. And on the margin level, we have slightly lower margin compared to the Q3 2020, which was a quarter with very high margins due to solid sales volumes combined with, at that time, very low cost levels due to the early phase of the pandemic where all companies were in a sort of low level mood following the the extreme situation in q2 2020. uh if we talk about cash flow uh it's on a solid level same level as last year partly thanks to the increased profits which is then a little bit offset by increasing receivables due to the market conditions that are very strong and also inventory uh build up that is is taking place in many areas now due to the strong market conditions and companies getting ready for fulfilling the map Our return on capital employed is on a very high level, at 23%, and actually at 161% when we exclude Goodwill, which is a very good level. And this is, of course, an explanation for the strong cash development that we can have despite the growth period that most companies are in right now. And then we can go into the more specifics on page number three and talk firstly about dental area, which... Had a very strong quarter actually in last year in Q3 2020. And, you know, especially the cost levels in this area was at a very low level, which we indicated already a year ago, which was leading to extraordinary high margins last year. And this quarter, Q3 2020, is more a normal quarter. I would say more in line with quarter three in 2019. And, of course, complemented that with some acquisitions added to our sales growth. and we are now seeing activity levels in sales and marketing coming back to more normal levels as the markets are coming back also to a more forward-looking mindset in terms of future looking. Last year was a bit different in that respect. In WSL tools we see very you know continued strong market conditions And we are growing sales with 55% thanks to both very strong organic development and complemented by acquisitions in this year. And the higher margins in this year is mainly thanks to the operational leverage in this area. But also, of course, in this area, we're also getting more forward-looking and mindset in terms of sales and marketing and other costs that will come back to more normal levels. But I think the sales growth itself is is taking that effect away and so the operation leverage is more important in dimension tools and when it comes to sister solutions um we are growing sales both thanks to strong demand and market situation and complemented with acquisitions and the margins in q3 2020 are slightly lower than the previous year uh also here due to to the cost levels were extraordinary low last year and they are starting to come back to more to normal levels And also in this area, we have a few entities which are pointing out their report. And those entities are having longer order books, which means that they have not fully compensated the raw material price increases yet into the market. This is an ongoing process of trying to compensate. It varies between companies how quickly that can come in due to the order books mainly. And with that, we can go to page number four and just have a little bit of a short reminder on... for everyone how LIFCO over many years have been growing the business both organically and through acquisitions without any capital infusion or increasing debt ratios. In addition to that we also pay the small dividend every year. And obviously the data for 2021 is not yet ready as we only present full year numbers here and it will be presented in next quarter but after nine months we have can conclude that we have continued this journey with both strong organic development and acquisitions, and we are keeping our net debt to EBITDA ratio fairly constant, which we can see then in the next page, if we go to page number five. We are on a very solid level when it comes to net debt to EBITDA, and thanks to our strong cash flow characteristics of the business and the profit improvement, we still have a net debt to EBITDA of 1.8 times, if you include everything. and the interest bearing acceptivity is 1.2 which is actually lower than one year ago and this is despite the fact that we have been very active in acquiring companies in this year and once again this is a proof of the strong cash flow generation of our portfolio also in times of organic growth and with that we can go into page number six and on this page i'd like to just talk on the on the margin side as you can see we have a very strong development in terms of profit over the years But specifically looking at the margins, I'd like to remind you here that we have a long-term trend where LIFCO has increased our margins dramatically since our IPO in 2014. And this is, of course, a combination of operational improvements and our strategy to make our niche companies even more niche and more differentiated over time. And also acquisition has helped. And I think my final remark here is that the pandemic led to a faster than normal growth in margins. As you can see now, we are a little bit coming down in this quarter compared to last month in last quarter. But it was an extraordinary time here in the pandemic where basically cost levels were at a very low level. But still, the long-term trend is looking very good. And then we can go to page number seven. And here you can see also the capital employed ratios, return on capital employed on very good levels. And this is, of course, part of our focus. to always acquire and develop companies with very high return capital which once again is very fundamental part of our culture the fact that this we can combine strong organic growth with acquisitions uh without stretching our value sheets and we can do that over many years and then we can move all the way down to page number 12. uh and once again just a small reminder uh we have you know a very strong LIFCO philosophy of running our portfolio companies. It's based on the decentralized fundamentals where we let strong management in each individual company take the responsibility and get the mandate to deliver in each individual business. And we do that thanks to a philosophy of only acquiring and having companies that can be very successful on a standalone basis. And then we work with making these companies more profitable over time by having a clear strategy of focusing on the more profitable part of the business and sometimes then actively sort of sacrificing lower margin business for the long-term benefit of our group. And we do this in a very lean and simplified way where we try to keep every company very entrepreneurial and having the focus on the value-adding functions. And then we try to outsource things that are not absolutely crucial, which leads to a strong focus for the management of each company on the most value-creating parts. Which would then of course combine with a strong cash flow focus and a very long-term perspective. We have all our companies, we have the ambition to keep them forever, and therefore we are making sure that we also make the investment for the long-term growth of our business. And this was my last remark, and then I will open up for 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. Our first question comes from the line of . Please go ahead.

Good morning, it's Carl here from Nordia. A couple of questions on my side. Firstly, on the ramp-up of costs in the quarter, which you talked a bit about, is it fair to assume a further sequential uptick in Q4 in the market selling and marketing activities? And also, do you plan to return to pre-pandemic cost levels, or how should we look at it?

Well, I think if you take the first question, This quarter, and I think it has been in the planning for a while, is that we are now getting back to a more forward-looking mindset, not only in sales and marketing, but also in all other areas of the company. One year ago, the companies were just coming out of a shock period after Q2 when everything was uncertain. They were keeping everything at the minimum, especially sales and marketing, but there was no hiring taking place one year ago. Now, companies are more forward-looking. in the in their in their mindset which means that they're you know they are hiring people they are they are uh getting out to you know more actively to to to do sales marketing whether it's you know physical or digital it's it's it's more active across the board will it will it wrap up it's very difficult to forecast and you have to look into how things you know in the previous course but we are coming back to more novel levels and for lisco where most of the cost levels are you know outside or customer related, it's not so much internal cost that we can save on. Maybe the corporate with more internal complex organization can also have internal savings. We don't have much of that. So we expect to see it coming back more to normal. Will it be fully back pre-pandemic? It's not clear yet exactly how that will play out.

Okay, perfect. And on the dental side, I mean, as you said, you're back on or just above 2019 levels, but could you help us understand the driver in the quarter, if it's purely selling and marketing expenses, burdening the margin year over year, or if you had any mix effects or anything like that impacting as well?

If you only talk about the quarter here now, comparing very short time periods, There is effect. I mean, last year was a little bit of a comeback situation. It was so depressed in Q2. Q3 was a comeback. On top of that, you know, the sales of safety material and those things were on a little bit higher level last year. And now, of course, as the markets have normalized, it's off to the same level. So that's where I can give you directional input. But other than that, I think now it's more of a normal situation. The market can still, you know, be a little bit, you know, In some areas, a little bit still pandemic affected, but I think we're more now in a normal level. And I think it's also before we look at mindset, it's back in the companies. Last year, it was still in a freeze period, if you like, coming out of the pandemic shock of our companies.

And on the raw material side, I think you mentioned somewhere in the report that you saw some headwinds. Is it primarily in system solutions? You see slight raw material headwinds, and do you think they will accelerate during Q4, or how do you handle it?

So I would say this is very different between our companies, and it's not so much correlated where the companies are located in our portfolio, but It relates to companies where we have a little bit of headwind in this quarter. It's a few companies where you have long order books and basically the prices we're giving out on the old raw material prices. And then we've taken the long-term approach of not going in and chasing the order book, mainly because we have distribution. companies in between, and we have to act responsibly here in those few companies that are affected by this. For the most part, we've been doing very well in this. We've been able to quickly handle this situation, but it's a very, very big situation. You have to go into each and every company to get the full answer on how this is playing out. I can only conclude, as I've said in previous quarters, that we are, of course, in every company, making extraordinary price increases. This year, the only thing is that they have different effects when they come into the P&L, depending on the order book mainly.

Okay, so it sounds like no major drama coming then.

If there is drama, it's very short-term drama in my book, because most of our companies have very strong B2B situations where we should be able, and we have been able historically without any problems to handle this. But of course, the timing effect is a bit unclear.

and the final one from my side is uh it's just on on the demand throughout the quarter we have seen some companies talking about the fluctuations between the core between the months have you seen any changes in demand throughout the quarter and and also especially focusing on them on the end of the quarter if you could give any flavor that as well no we overall

I mean, there's, of course, many different companies and title companies, but overall, we see the market condition being strong across the board, and that's been so for quite some time now. So no specific things to mention there in this short period.

Perfect. Thank you.

And just as a final reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. We have another question from the line of Pierre Janssen from INC Asset Management. Please go ahead.

Yes, thank you for taking my question. I have two. If we go back to, Pierre, your slide, page four with acquired and organic growth, if one should take your comments, then it's more realistic that in the coming years that the organic EBITDA growth will actually grow quite substantially due to better markets. We can see that you in 2021 have also included some from 2020. You made some quite substantial acquisitions. So in short, my question is more organic, less acquired growth in the coming years. That's my first question, and the second question is, do you see any structural changes in the dental area post-pandemic, or is it just business as usual, given that 2020 was so special?

Thank you, Per. Well, the first question, coming back to phase number four, organic versus acquisitive growth, Well, first of all, as you know, we don't give any guidance on what we're going to do in the future. We can only conclude that historically we've seen and we still see acquisition as a very fundamental part of our growth. Also, organic growth is very important. But as you know, the business cycle and the market underlying demand has quite substantial impact on certain parts of it, not for the whole part. We strive to grow organically. profits every year we we didn't succeed last year but but uh most of the years previously that we've done organic growth we hope we hope to see i mean this year we as i said we have you know very strong uh development the first nine months so so hopefully this year will be a stronger growth but this year will also be a year of very strong acquisition growth and i think because of our you know return on capital employed and the business characteristics we've been able to do both and of course the ambition and the hopes is that we can continue to do both there's no There's no need for us to actually differentiate between. We can continue our equity growth, I would say, almost without taking the organic situation into consideration in a normal situation. Of course, it is a big crisis, you know, like pandemic, start of the pandemic that made us a bit, you know, different minded. But other than that, you know, it's something that we continue to strive to do. And we have shown historically that we can do both. We can combine this. So we don't see it like that because if there will be stronger growth, then we can do less acquisitions. We hope to do both if that happens. But we cannot promise anything. We work hard. We never know.

But it was just more, you know, after your comments that now it's more normalized, that your companies are out again trying to get orders and so on. So one could argue that the organic growth could be quite strong in the coming years.

Yeah, that's in the future. So we'll see how that goes.

Yeah.

and then i had a question we don't see any any any limitation that we cannot grow acquisitions if we have strong organic growth i think we've proven that all the years yeah And then the other question about the dental area. I'm not really sure what... Can you repeat that question, Parasite?

Yes. You mentioned that 2020 was quite unusual, also in the dental area, and then Q3 last year was very strong. That's a fair point. But do you see any structural changes in the dental area, you know, production versus distribution and so on? Or is it Just back to normal business in the dental area, like before the pandemic.

I don't think it's fully back to normal business. The pandemic is not fully over yet. We're still keeping a close look at this. And it's been relative to our very normal business. stable business in dental. It was, of course, a very strange last 15, 18 months for us, where we had a shock. And then it was a little bit difficult to follow the market, because if you look at the last 12 months, the markets were maybe not back to full volume, but maybe we compensated that through selling more in our safety materials and all these things. And now, in this quarter, I think it was a more normal quarter. So we'll see how it goes. It feels like it's getting back to more normal levels, but I think it's too early to conclude on that, given that the pandemic is still not not fully over for us. But it's feeling more like normal now.

Yeah, but you don't see any structural changes in distribution or production or anything. It's just back to normal like before.

Yeah, but I think those structural changes, they are very slow moving in them to normal. It's not a big factor. Okay, fair enough. Great. Thanks.

And if there are no further audio questions, I'll hand it back for any closing remarks.

Okay, thank you everyone for listening, and thank you for the questions, and I wish everyone a good day. Thank you.