Lifco AB (publ)

Thank you very much and good morning and welcome to the LIFCO Q3 conference call of 2022. We can start directly by going into page number two in our investor presentation. And on this slide, we present the data for the quarter and for the last 12-month period. And we can conclude that the third quarter of 2022 was another very successful quarter for LIFCO. The trend with increasing sales continued, and also the margins came back to a stronger level for many other companies. And for the group as a whole, sales grew with about 21% in the quarter, of which 10% was related to organic growth. Acquisitions contributed with about 7%, and then we also had some help from exchange rates that helped us with 6% positivity. I'd also like to highlight that we had a small negative impact on the sales from a divestment that we made in the second quarter of the company Ecotech, which impacted sales negatively with a bit less than 3%. Going further down and looking at the profit levels, the strong growth in sales translated into very strong development in Evita. where we had a growth of 28% in the quarter and also the EBITDA margin increased to 22% compared to 20.7% in the similar quarter in 2021. And here I could comment that general inflation and of course specific price increases from our suppliers have been a challenging situation for us for quite some time and not only for us, for many companies in the world. But we have now, after a period of time, can we conclude that the vast majority of our companies are adjusting very well to the increased cost levels and basically been able to pass this through price increases. And here I can already mention also that the LIFCO portfolio companies are typically in very strong niche positions with high value propositions to our customers. And that helps us in this period of time because it means that our products are very valued by the customers and we have a pricing power position. And the issue that we have experienced in the last, let's say, 12-month period has been more related to timing effects of increasing our prices rather than the actual ability to do that. And I think now in this quarter we can show that this works very well. Going further down on page number two, looking at the cash flow, and there we are still a bit lower than normal, I would say, and also lower than the Q3 in 2021. And this has to do with the same explanation that we had now for a few quarters, that the increase in inventory levels has been necessary for our companies to basically create some safety stock to compensate for the difficulties that we have experienced in the supply chain with unstable deliveries from our suppliers because of all the supply chain constraints. And you're all very aware of this situation. And many of our companies are now in a mood where they're trying to gradually reverse these effects step by step. But this also takes some time because the supply chain issues have led to a situation where some of the goods that we receive now have been ordered quite early in the year. It takes some time to reverse this. And also here in the cash flow situation, it's worth reflecting on that we still have very strong demand and strong sales growth. So it's not something that will dramatically change into low inventories. But also here, despite the higher inventory levels and the increase of that during the last 12 months, we still managed to generate a very healthy cash flow. But of course, we want to improve on this dimension going forward. Just to round off page number two, we can also mention that for the nine-month period, accumulated numbers for 2022, sales has grown with 24%, of which 12% is organic growth. And then EBITDA has also grown with the same percentage number, 24%, for the whole nine-month period. So a very strong first nine months in 2022 for LIVCO. And then we can move over to page number three, where we highlight the different business areas. And going directly into the dental area, we had a slightly weaker quarter here compared to the same period last year. And the trend from the second quarter basically continues. And within dental, we are still suffering a bit from the production issues that we had in China early in the year due to the COVID-19 restrictions. This actually took place in the first quarter, and the production issue itself has been working, has been sold for quite some time now. and but basically we still suffer from lower uh lower demand by dentists uh basically seem to favor more locally produced uh dental procedures uh and we think that time uh will be helping us here and we're working very hard to to uh to get the customer uh comfort back uh and that deliveries actually works and they do work very well right now uh but that's something that is an ongoing uh work for our companies here, getting that trend reversed, basically. And the reason we bring this up is that it's not a very big part of NIFCO, but it's a highly possible part of dental groups when we have lower sales in the dental prosthesis business. It affects also profits and margins quite quickly. Going further to the next area, demolition tools, we have continued strong market conditions now, and we have that for quite some time. And also the third quarter, 2022, was a very good quarter, with sales growth of 33%, thanks to a combination of strong organic development and acquisitions. And then EBITDA grew 31%, and also a very strong EBITDA margin of 26%. And the reason why it's actually slightly lower than the previous year is more related to a mixed effect. that last year we saw a little bit more of the high margin or even more high margin products compared to this year where we have high growth of the more just high margin products. So that's basically a product mix effect. And then going into the third area, system solutions, also I would say an excellent quarter with sales growth of 13%, driven by also their combination of organic growth and acquisitions, and then profit grew even more by 47%. leading to a very strong margin. And also here, it's a combination of very strong organic development in our companies, but also, of course, acquisitions that are helping the margin development. And here we can also conclude that ongoing work on managing the high cost levels with price compensation to customers have resulted in very good results. And then we can move over to page number five and look a little bit about our NetDebt situation. And if you take the longer, well, actually starting about the situation right now, LIFCO ended the quarter with a net debt to EBITDA of 1.9 times, which is slightly above the level for one year ago. And the interest-bearing net debt to EBITDA is now at 1.3, which is also done slightly higher than the 1.1 we had one year ago. But here it's worth mentioning that LIFCO has been very active in acquiring companies in the last 12-month period. And also we can look at the graph on the left-hand side to also look at that Lyft has kept the debt ratios fairly constant over quite a long time now since the IPO, while being able to grow our profits both organically and through acquisitions quite substantially during this period over the last seven, eight years. And also worth highlighting that Lyft has paid dividend every year. And with the current debt level situation, LIFCO has a very strong financial capacity to continue to acquire companies if we find the right ones. And I would like to remind everyone that we try to buy very good companies at very reasonable valuations. So it's always more important for us to buy the right companies rather than maximizing acquisitions at any given point of time. And this work is continuing and ongoing as usual within LIFCO. On page number six, I'd just like to round the whole presentation off by looking at our very long-term history. And here we track the long-term development of our profits. And our target is obviously to every year improve our profits. And for the very most part, we have succeeded with this through a combination of organic development and then complemented that with acquisitions. We have been doing that once again while still paying a dividend every year, and we have never requested any money from our shareholders via capital infusions to Lithgow. And after nine months in 2022, we can then conclude that we are now on a record high level. And it's also very pleasing to see that the margin now on the bottom of this slide is back on track, actually on par with 2021. And also, as you can see from the last quarter, a very strong momentum. And I think this is the last point I'd like to make, and instead I'd like to open up for any questions.

Thank you. Ladies and gentlemen, 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. And our first question comes from the line of Carl Ragnarstam from Nordea. Please go ahead. Your line is now open.

Good morning. It's Carl here from Nordea. Just coming back here on the dental margin. So is it fair to assume that the full year-over-year decline in the margin is sort of driven by the lower prosthetics volumes, or is it anything else we should sort of consider in the margin drop? Maybe it could be raw material, headwinds, et cetera.