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?