Lifco AB (publ)

Thank you and good morning and welcome to the LIFCO Q4 conference call. And we can start with moving directly into page number two in our semester presentation. On this page, we looked at the overall performance on the whole group, both for the whole year 2022 and also for the last quarter. And we can directly then conclude that for the full year 2022, it was another record year for LIFCO. with the strong sales growth of 23% and EBITDA growth of 26%. The trend with increase in sales continued also in our last quarter with 21% growth and our EBITDA growth with 31%, which means then that our margin actually improved to 22% from 20.5% in the year before for the quarter. In the quarter specifically, the total sales growth of 21% was generated thanks to 10% organic growth. And then we had a help from acquisitions of 9% and also a positive effect from exchange rate with about 6%. I would also like to just remind everyone that we have also a divestment in the spring of 2022 of our company HecoTech in Estonia. which then also impacted sales negatively with about 3% divestment effect there. For the full year 2022, LIFCO growth of 23% and consists of 11% organic growth, 9% growth from acquisitions, and currency effect was positive 5%, talking about the full year figures there. And on the whole year, the divestment of Hekatek had negative 2% impact on our sales numbers. And then if we go further here, after a period of slightly lower margins due to the effect that we've been discussing throughout the last 18 months of timing effect of not being able to pass through the cost increases into the prices, we have now during the last two quarters in Q3 and Q4 to come back to very strong levels. So we are quite satisfied with that effect, and we saw that trend already in Q3, and we're pleased to see that continue also in Q4. And I would like to once again remind everyone that the LIFCO portfolio typically consists of very strong niche companies with differentiated products and strong positions. And this means that our products and companies have pricing power. And the issues with the lower margins that we saw through Portugal 2021 and 2022 are have more to do with timing-related effects of the timing of making it. So we're very pleased to see that coming back. It's still, of course, a constant work in our companies to continue this work, to basically balance and get the margins right. I'd also like to comment already here on this first, on page number two, about our cash flow, which is very strong in the quarter. We actually had some positive effect from inventory reductions in the quarter. And also I'd like to highlight that the last quarter is typically a quite strong cash flow quarter, but it was even stronger than normal in this quarter. And I think we also mentioned this in previous calls that we have been building up inventory and for the full year numbers here, the cash flow is only growing with about 5%, which of course has to do with mainly inventory buildup in the previous part of 2022. And also, of course, the strong organic growth leading to higher receivables, which is quite normal. But, of course, there is hard work going on right now in many of our companies to address this issue. And I think, as I also mentioned in previous calls, this will be more of a step change in addressing the inventory levels, as we still have quite not perfect situation with supply chains and longer than normal lead times still existing in for many of our companies, so we have to do a step-by-step approach in working with inventory and getting our cash flow back to normal levels. But despite all these effects for the full year, we can, thanks to our high-margin business and our relative asset-light business, still generate operating cash flow of more than 3 billion Swedish kronor in a year like 2022. I think that shows that we have a fundamental strength in our businesses. Going on to page number three, we look a little bit more into the specifics of the different business areas. And we can start with the dental, which had a quite normal quarter with 10% sales growth and actually slightly higher margin than the previous year, if we talk specifically for the quarter. And the growth in the quarter of 10% consists both of organic growth, also some acquisition, and also some positive exchange rates. a quite normal development for dental business. We also saw improvement in the prosthetics business, which we have been suffering from the supply chain issues that we had in the first quarter that led to some reluctance to some of our customers in Germany to trust basically delivery capacity, even though our capacity was up and running. There were bit reluctance there in especially in the second and third quarter in the fourth quarter we saw that normalizing and of course we don't have you know future visibility around that but we hope that this will be stabilizing also going forward but this is of course something that is future and we have to be careful to say too much but it's so far it looks better in that area Going further down, we can look at Demolition Tools, which has had a very strong year and had strong market conditions for quite some time now. And the sales growth continued in Q4, 2022 as well. For the full year, sales grew with 34%, and EBITDA growth with 27%. And this area is growing both from very strong organic development and also supported by acquisitions. The slightly lower margin, both in the quarter and the full year numbers, is mainly explained by business mix effects. This area is overall a highly profitable segment. And then within that segment, there's also some variation. All of our companies here are profitable and strong, but some are even more so. And basically, the different growth profiles in quarters or between years can make an impact there. And I think we have seen over many years now that the EBITDA margin here will vary on a high level. So we have been for many years on very strong margin levels, but it can vary depending on quarters due to both general business mix effects, and also in some quarters, some special projects that have even higher margin normally can also impact. This was not the main effect for 2032 numbers, but we've seen that in previous years. If we go further down to our last business area system solutions, we had another very solid quarter with sales growth of 21%, driven both by organic growth that was very, very good, and also acquisitions. And also here, I would like to just remind that the growth of 21% is also offset by the divestment of HECOTEC, which belongs to this division. So the growth actually is higher than the 21% when you adjust for that. EBITDA in the quarter grew by 44%, once again driven by strong organic development and acquisitions. And I can just say that for the full year 2022, we had a very strong development in many of our companies in system solutions. So we're very pleased to see that. Going into page number four. We take a little bit different perspective on LIFCO. This is basically summering our development since the IPO in end of 2014. And I'd like to just put some focus on the average annual growth in EBITDA. So during this time period, LIFCO has grown on average every year, 22% in EBITDA. And one very important reason for that is actually our organic EBITDA growth, which on average has been 8% per year. which basically is an indication that, of course, we had strong and a nice market condition during this time period, but also we have had very strong development in our companies, really good work being carried out in many companies. And also the companies that we required have been selected very carefully, and these have been able to also continue to grow and develop well during the LIFCO ownership. That in total is 8%. And then if you go to the acquisition perspective, All of you are aware that LIFCO has been sort of an acquisition company for many years, and we have here an average contributed with 12% annual growth from the acquisition coming in any given year. And then also during this time period, we had some positive effect on average 1% from exchange rate, which of course can vary from time to time. And this in total leads to 22% performance. So I think that's something perspective I'd like to show that we are growing. both organically and through acquisition, which is, of course, very fundamental for Australia. And then we can go into page number five, also continue to look at the longer-term or at least medium-term development, 2015 to 2022 development of LIVCO. And I'd like to, you know, we still on this slide, we list a beta growth, average growth per year on 22 percent, but it also translates into earnings per share growth of 19 percent. And we've done this development, While thankful to our strong operating cash flow that has been growing year on year, I can say here in 2022, the inventory buildup led to slightly lower growth, but over the time period, we grow still 18% on average per year. Yeah, once again, we've done this while actually decreasing our net debt to EBITDA ratio. It used to be 1.5 in the stock of this period, and now we're down at 1.1 times net debt to EBITDA. As you see at the bottom of this slide, we spent a substantial amount of money on acquisitions, which have basically been able to do that through our strong cash flow and through the very strong performance of the companies we have had for many years and also the new companies that gradually have come into LIFTO. And also, just to remind everyone, we pay the dividend every year. That dividend has grown by, on average, 16% per year during this time period. And I think There's many perspectives on this development. One is, of course, that organic development and our job in our companies. There are many good managers doing a very good job. But I think there's also the fact that we are very selective in the acquisitions we're bringing in. So we have strong fundamental companies that can step-by-step develop. Most of our companies don't grow enormously high growth, but they have development opportunities and can do the step-by-step improvement. I think the last remark on this slide is that another important reason we have been able to do this growth from acquisitions on a quite high level while still being able to reduce our net debt levels to ratios i should say is that we've been very disciplined in valuations and one of the reasons here is that we can you know we can be very selective and we are also willing not to buy companies in our 60 segments if you don't think the valuation and the quality of the company is good enough for our uh for lift to take care of the company going forward After page five, I would like to go into page six and just basically conclude once again that our net debt position is relatively low. Despite a number of acquisitions and some stock buildup in 2022, we end the year with the same net debt to EBT ratio of 1.1 times if you look at the interest bearing, and also the same if you look at the total net debt, including All the IFRS 16 effects and the option debt that we have in our company is still the same level as the previous year. We can here also conclude that LIFKA has a strong balance sheet and a strong financial capacity to continue acquiring companies when we find the right companies to buy at reasonable valuation levels. Once again, I repeat myself here, we are very focused on quality and that's more important that maximizes short-term acquisition growth in any quarter or any given year. And then on the last slide I would like to show on page number seven, this is taking an even longer-term perspective on LIFCO, which I think is important. And we can see, if we look even longer, that we also have strong development. Since 2006, LIFCO has on average grown our EBITDA by 19% per year. And our most important target is to grow our profits in every given company every year. And for the most part, we have succeeded with that through a combination of very successful organic development and also, of course, helped by acquisitions that are contributed positively. And I would like to highlight once again, the very important fact is that most of our companies perform very well also after we've taken over them for many years to come. And then 2032 was another record year where we grow our profits once again, despite some problems in the dental area, which we've been referring to in previous earnings call. But at least the quarter four numbers there were more stable and back to more normal levels. So with that final comment, I would like to open up for any questions.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Carl Ragnastam from Nordea. Please go ahead.

Good morning. It's Carl here from Nordea. A few questions. Firstly, I mean, you said that you start to see normalizing volumes in your prosthetics business in dental. Could you give some percentage where you are now versus sort of a normalized level? I guess you're not fully back right now. And I'm also a bit curious to know, I mean, how you managed to sort of convince the German practitioners to come back to you in a period of still uncertainties in China?

Well, first of all, the reason we use the word seeing it to come back is that it's been one quarter. We had three quarters with some lower development and now we had one quarter with strong development. So we just want to take a cautious approach to that. And normally back, it means that we are We're not growing that business on previous year, but we are closing in numbers. So the gap has sort of shrank a lot if you compare it to Q2 and Q3. Once again, now we have to remind everyone this is, you know, we are now in a very specific subport of Lisko. We are a big company, now we're down there. The reason we are commenting on this is that it's a very profitable business. Sorry, Carl, the second part of your question. Can you just remind me of that?

No, I mean, how... How did you manage to sort of win back the German practitioners? They sort of left you when you had supply chain challenges in China. But of course, during the period when you obviously managed to win them back, Q4, we still had, I mean, uncertainties in China. I mean, if anything, they had, I mean, a lot of COVID spread.

I would say that, you know, it's not like customers left us totally, but they shifted part of their volumes back into the, back into the local production so so it's been you know there's been of course a few customers that probably stopped buying in any given year you would have that any case but this has been more of a on the effect that there was a general uh uh more waiting and and c mode for our dentists and though in the in this last quarter we saw those those volumes being brought more back to normal but once again it's one quarter we have to be careful to to to extrapolate that, but at least it's a good indication that things are normalizing in that sense.

And you haven't seen any big changes so far in Q1, or I guess you would have communicated that in that case.

Yes, I think we would have been a bit more careful in our communication if we saw a big change. So basically, we see so far that the pattern from Q4 is holding up, but also now it's a bit special period. Chinese New Year is just taking place, so it's a little bit... uh special season for this business but uh but uh yeah so we will we will track this of course very carefully and i just like without talking too much about this specific issue you know our company here working has been very very you know active throughout the year also in the quarters where sales were not back normally very close to our customers and very very very active in in in trying to get the comfort back

Okay, very good. And also on demolition tools continuing to deliver quite solid numbers volume-wise. I mean, with the high uncertainty in the European construction market, could you shed some light on where order intake is heading currently or if you have seen any changes in some sub-segments of demolition? Yeah, if you could give some highlights on that. Thank you. Well, I think that

Our order intake, which we don't report, but we do mention them from time to time in our calls here, has been more affected by what type of order books you had and what type of order time that we're talking about. The good news for us is that the companies that have relatively shorter order intake, they've been performing quite well, whereas some of them with very long order books have been able to basically go through their order books and and make some, in some case, some adjustment into it because it's been too long. And this has to do with companies that basically are dealing only through distribution sales or OEM sales. And they are, of course, a little bit different, the type of orders you get there, versus the companies that sell directly to the end user. So we can always say that, same comment as in the previous quarter, the order intake in some of our companies were extreme for a certain period of time up until about a year ago, and then it's been on more normalized, strong levels, you can say. And then it's been a little bit more tricky to evaluate order intake in the companies that have very long order books and more OEM distribution type of customers that don't have the end user direct effect in their order making, whereas we see quite strong development in the companies with more direct sales, which is pleasing. But also, once again, means that the visibility is not that long. because if you don't have long order books, you're very dependent on the order intake in the coming quarters for the success of this year.

Okay, very good. And also the final one from my side is it's a bit of working capital, quite impressive release though from high levels, but still given the organic growth you're delivering. I mean, should we expect you to continue to sort of release working capital and reducing inventory entering

first half of 23 as well well we don't give any forecast call as you know but we are working on it and I think my comment here in the call earlier was that I think I will see you know most likely see more of a step you know a gradual step change in this it will not be something that we go you know from one day to the other and just squeeze because we still have good demand we still have have some companies with longer than the normal lead time from suppliers. So we have to be careful here. But it's a common, every company is now addressing this issue. Having too high inventories is not what we like to have. But we have been forced, like many other county companies in this last two years to do that. But yeah, we are happy with Q4 and we will work on it. But we don't promise that everything will come in certain months. But the work and the focus is on this issue for quite some time now.

Okay, perfect. Thank you.

Thank you. The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

Thank you and good morning. More of a... Well, partly technical thing. I appreciate the transparency here on the components of the EBITDA growth. On the 401 million from acquisitions, does that include the negative effect from the divestments of Hecotec? No. Okay. So it's only from the kind of 9.3.

We don't see a divestment as a typical part of our business. We didn't include that in ours. It was more of a one-off effect than it had to do with the Russia situation.

All right. Understood. So by that reasoning, then, your organic EBITDA might have been even better in 2022 if you do the... No, I think... No, no.

So if you look... You're referring to slide number four now in our presentation.

Correct.

Yes. So no, no. So the EBITDA growth from acquisition is then... should be the correct number here in this.

Okay, so sorry, but so the total kind of net impact from acquisitions and divestments is the 401. That's, yeah, we can talk about it later anyway. I'm just curious about the organic earnings. But okay, I'll move on instead. The order book You mentioned here now the companies with shorter order books have been performing very well. But otherwise, when it comes to component shortages, supply constraints, do you feel that this has gradually improved, that lead times are coming back to a more kind of normal lead time process?

I think if you ask some of our companies, they're still struggling. But on the overall Cisco level, I think we are in it. it feels like we're in a better situation now than in the previous period that we've been going through here. So I would say it's getting better. But, you know, if you go into individual companies, there are still some companies that are struggling a bit, especially with, you know, electronic components and certain things. But it's not, you know, it's not a major problem overall for Lifco. And I think also due to this time period that we had these challenges, we've been, you know, our small, very focused operations uh has been very successful in adjusting to this and being able to to find solutions but i can give you one you know one reflection is that during the 2022 as a whole year many of the different companies with own products have to put a tent on the yard to be able to put the almost finished products out there that have assembled and then bring them back in when they get the final components hopefully that will be less and less of an issue going forward but that's that's been the situation for many companies but It's been not so noticeable in the overall numbers because they've been doing a very good job in handling this. And maybe what you can say about it is that we could have grown perhaps even quicker in the early part of this growth period if we didn't have this constraint. But I think now we're getting to a better situation.

Understood. And then on system solutions, my final question here. Are there any areas here that you could highlight which you're particularly pleased with, so to say. I mean, in terms of total sales growth, it seems like environmental technology is growing very nicely year over year, for example.

Yes, but I have to say when, you know, I look at every individual business and then we sum up the numbers in this divisional things to make some kind of reporting structure. But if you look at 2022 as a full year, it's been many companies developing very nicely. Of course, part of the growth, of course, has to do with, you know, some price increase effects, but also volume-wise, it's been a very good year. And it's really across the board, I have to say. Obviously, with some differences, but not something I would like to pinpoint. But you're right, environmental technology has very strong development in many of the companies. And many of these are very good, important companies for us. We're pleased to see that.

Okay. That is all from me. Thank you.

Thank you.

The next question comes from Anna L. Dott-Widstrom from Handels Bank and Capital Markets. Please go ahead.

Thank you for taking my question. Firstly, I have some questions on the cost development in the group and maybe some details on each of the divisions. On group level, the gross margin looks very solid and quite high. you maybe explain sort of what your cost on development has been in in the recent quarters and maybe if you have sort of details on when your companies have increased their prices and so on well this is a very tricky question because the cost development is of course very different between different parts of lift companies and uh but as a common theme uh the companies with a you know higher raw material

had, of course, a much quicker impact on the cost increases. But also in the recent quarters and, you know, 2022, we're getting more and more effect of a general inflation, energy prices effect. So we see more, and also some of the companies where, you know, you maybe are selling goods that are not so high in raw material, they also start to see price increases coming in maybe now and a bit later. And so it is, of course, a general price increase or cost increase effect there. As you can see in our last two quarters, we have now, after a time period of adjusting with longer order books than normal, we've been able to get our price increases implemented into the sales numbers and generate profits. But it's, of course, a very difficult question to answer because it varies a lot between different companies, how big the cost increase has been. And also between countries, how energy prices and also general cost inflation is impacting us. But it is a common theme, I think, for every company, also for LIFCO. And we are adjusting. And I just would like to remind that the good news for us is that we have the vast majority of our company has a strong price and power position. So we are able to basically lift our prices when needed to compensate for this.

That's very clear. And have you started to see any sort of indication of prices or costs in some segments coming down? I mean, we started to see that in raw materials, but not that much in maybe components.

Yes. I mean, you can say the closer you are to the raw material, you start to see some emerging effects of that. But it's not, you know, there's also timing effects of that, you know, inventories, lead times, all that. So that's something. But you have to keep in mind that most of our companies have a have an outsourced supply chain where there are some suppliers, so we can obviously see a direct link to that immediately, so to say. So we will, of course, see certain pockets of this, because there could be areas where we will see slightly lower raw material prices, but then we have all the other things that are still going up. So we take a cautious approach on that when it comes to that, and we are we are still in a price increases mode and compensating mode, so to speak.

Okay, great. And then my final question is just if you have any more details and descriptions of the product mix effect in demolition tools compared to the same quarter last year.

Well, what I'm trying to explain by the product mix comment is that we have certain parts of demolition tools with very high margins, certain parts that i would you know characterize as high margins but not as high as the average model and if you grow sales higher in the in the slightly lower margin sales then you have this impact and this is the main explanation also if you look at the full year numbers you know we were not fully compensating for all our cost increases in the beginning of the year so this was more maybe a comment on the last quarter so the full year numbers you can also say that there's been some some difficulties in the beginning of the year for all our companies to sustain the margins, which is now coming back. So we are quite pleased with that trend-looking company, company-specific in the last two quarters is going quite well there. But the mixed effect has an impact. So if you're growing quicker in certain parts that have slightly low margins, which can happen in certain quarters, you can have the reverse effect in other quarters that has an impact. So that's more to do with that. But I think, you know, once again, this area has always been a little bit volatile quarter to quarter in margins. And I think we will continue to see that on a very high level, obviously.

Okay, great. That's all my questions. Thank you.

Thank you.

The next question comes from Robert Redding from Carnegie. Please go ahead.

Morning, Per. Hi. I wanted to ask a small detail question on the sales mix for demolition tools. And so you introduced some other category there in addition to the demolition and the crane and excavator attachments. But I was wondering about the crane and excavator attachments. If you could say something about the split there. Of course, the excavator attachment has grown a lot the last couple of years. What's the relative size now? Are they approaching the 50-50 crane and X-ray attachments business, or is one of the products bigger?

Robert, just to answer your question, we don't publish exact numbers around that, but you're right. We have grown more as we have developed LIFCO into acquisitions in this field. The crane attachment basically is consisting of the old Kinsofa group that was very strong in that, but also Kinsofa organically developed into more excavator applications and other types of attachment applications. The most important acquisition in the attachment and crane segment has been basically in excavator or even forestry machinery and other types of applications. The bigger part of that is now non-crane attachments, if you like, of that sub-segment.

Okay, perfect. Thanks.

Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Okay. Thank you very much for listening, and thank you for the questions. And we will hear back for the next quarter call later on this year. Thank you very much.