Lifco AB (publ)

Thank you and good morning, everyone, and welcome to the LIFCO Q1 presentation. And we can start by directly going into page number two in our investor presentation, where we have the overall numbers for the group in the quarter. And as you can see on this page, it's been a very good quarter, basically in all dimensions. We have a net sales growth of 19%, and it consists of organic growth of about 8%, acquisitions of about 10%, helping positively, and then also positive effect from exchange rates of about 4.5%. We also have a negative impact of one divestment that was done in 2032 of about minus 3% in those numbers. If we go further into the numbers, we also have even stronger growth in our EBITDA profits, which basically means that our margins are improving up to 22.3% in the quarter, which basically has to do with a few factors. Obviously, our continuous improvements in our companies continues to go very well. We always strive for improving our margins and being more differentiated and strong in our niches. We also have implemented price increases during the last, I would say, quarters, but also earlier than that, and that now has come into full effect. It also demonstrates our pricing power in many parts of our portfolio. What also is impacting our profit is that our dental business area had a more normal quarter. If you remember last year, we had this first quarter where we had some issues with one part of the dental where there was some lockdowns in China that impacted that business negatively. In this quarter, it was more back to normal. And also, obviously, as I mentioned, the price increases are now coming into play. That also is contributing both in net sales growth, but also in the margin expansion. If we go further down, we see that profit-for-tax is increasing 26%, which is then obviously lower than our EBITDA growth. This has maybe to do with the increasing interest rates. That comes as no surprise, and that's obviously going up rapidly also for LIFCO. We always had certain debt, and now those debt items have obviously higher interest rates, and that is very much correlated with the overall market. And then if we talk a little bit further down about cash flow, we had a very strong growth in cash flow, which is of course satisfying, but we should mention here that last year In first quarter, we had a very weak cash flow due to the buildup of inventories during that period about a year ago. These quarters were more like the normal cash flow for the first quarter, which is not the best cash flow for the first quarter. We normally build up more receivables and also some inventory in the first quarter seasonally. And then we can go over to page number two and look a little bit more into the different business areas. uh if we start with dental as i already mentioned it was a quarter more back to normal uh we are growing sales and and profits um and the main impact here is of course the normalization of the prosthetics business that's now been uh going uh more normal also in the last quarter of last year and then this first quarter of this year is also more normalized so that's satisfied to see that we are back to normal there uh if we go further down to demolition tools uh there we had We have had strong growth for quite some time and that also continues in the first quarter and it's a combination once again of organic growth and acquisitions and that translates also into a strong profit margin. I can already hear also mention that I normally get some questions about the ordering take in this part of the business and basically the same pattern continues. We had the extreme ordering take in many of these businesses up until about a year ago. the order intake has been more in a normal, still solid level, and that continues also in the first quarter. That order intake is strong, but it's not on that peak level that it used to be in the period where there was very strong demand and also the value chain issues was also maybe leading to some pre-ordering here and there that we don't see now. So the orders that come in now are very relevant and for deliveries that are, on average, a bit closer to the order intake time. But still lower levels than, for example, one year ago in the order intake. When we talk about system solutions, here we have, first of all, we should mention this is the area where we have the divestment last year, so that also impacts the sales growth numbers. But underlying development is still very strong with 10% growth in sales and 24% growth in profit. So continued strong development in margin, which is supported both by organic development and also acquisitions in this field. So all in all, if you look at all these areas, we are developing margins in all areas, which is very pleasing and also important part for LIFCO. We can then go into page number four, the next slide. And this is a slide that we already talked about last quarter. I just want to remind everyone that LIFCO, this is now looking back for the last eight years. We only publish this data annually, but on this page, I just want to highlight that LIFCO is extremely important with our organic development. We have a strong ambition in every company to develop profits every year organically. On average, we've done that with about 8% over the last eight years. But then we also, as you know, are very actively and trying to find very good companies to take into LIFCO, and that has contributed on average with 12% of our growth. So the combination is extremely important. Obviously, the organic development has been more volatile because it's more related to, of course, market development that can go a little bit up and down. And then we can jump further to page number six. And just briefly looked at our net depth and our balance sheet. And here you can see on the net depth situation, we are very stable in the ratio net depth to EBITDA. And we've been that quite some time, which basically means that we are, the cash flow we generate is then being consumed on the same pace on average in terms of acquisitions. And where we sort of end this quarter, we end with an interest-bearing net debt to EBITDA of 1.2, which is well below our target of 2 to 3 times. And we've been below that for quite some time. But it means, once again, that we have a very solid financial position and also further room for acquisitions going forward. So this is quite normal. And then we can go to page number seven. And this is, once again, a more long-term graph looking at our development. And I just would like to, once again, highlight that we are continuously looking to improve our businesses, and we have done so. If you look from 2014 until now, our average EBITDA margin has gone from 14% up to now rolling 12 months to 22%, which is, once again, a combination of constant small improvements in our companies combined with on average, better quality companies coming into Lithgow over this time period. So nothing new in this perspective either. And then we can move all the way down to page number 18. And just look a little bit about the dental numbers. I mentioned in previous slides that we had some problems in last year, especially with the prosthetics business. And as you can see on the right-hand side of the graph, we actually dropped EBITDA in dental due to this effect last year. And now with a strong first quarter, we are back to more normal levels, and the margins is also moving in the right direction. It's also worthwhile highlighting that the margins in 2021 were extraordinarily strong due to the still lower cost levels following the pandemic, and the companies had lower activity in the beginning of that year, but now it's getting back more to normal, especially now in the last two quarters. And if you go to page 20, we can look at the same type of data then for the initial tools, a more long-term perspective, and here we can see that We've had now for quite a long time, very strong development in terms of sales and also profit development. And the margins are on a high level, as we have been noticing for many quarters. It can be a bit volatile between quarters, but the business area as a whole has a very strong margin and has been on a high level for quite some time. And then if we do the same thing on page 22, looking at our system solution area, Here we are still improving our margins. So if you look at the right-hand side, we are going up. This is, once again, a combination of many small improvements of the existing companies combined with, on average, very high-quality companies coming into this area, which leads to a record high margin also in this field now in the rolling 12-month numbers. And then we can go to page 31. just to round things off and just mention briefly that we have actually been quite active in acquisitions in the first quarter. We have acquired a number of companies and it's always a combination of companies in our demolition tools area, our dental area and also Some more, I would say, unrelated niche companies for system solutions. And this is the same pattern we've seen for quite some time. So it's a strong start of the year. But once again, as I've said many times before, when it comes to acquisitions, we are very, very careful to make sure we buy the right companies at reasonable valuations. It's something that comes and goes a little bit, but our ambition is very high and our focus on developing in this dimension is, of course, very high. But the actual outcome can vary between quarters and months, as you've seen historically. But a strong story to be here, which is very good. And that's basically all I wanted to say on this stage of the presentation. So I 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 Bockvist from ABG Sundal Collier. Please go ahead.

thank you and good morning my my first one is just on the acquisitions that you have made so far this year um and based on the numbers that you you provide uh it's it's still just one quarter but the implied profitability is very very high in those companies i'm just curious i mean yeah we're used to you acquiring companies with you know plus 20 margins but is there any or a few of the companies that really stand out there or is just the aggregate of all of this business reflective of that margin?

Yeah, we don't normally communicate the profitability of the companies. But you have, of course, a data point that you can look at. It's, of course, not the exact data point because you're looking at one quarter, but it's basically another quarter of very strong margin companies that are required. And the exact amount we will see when we have the full year numbers, but So we cannot exactly extrapolate like one quarter, but it's a very strong combination of business that we have acquired.

Understood. And then your comment there on a bit more normalized, let's call it lead times. I appreciate the differences between the business units, but your kind of average or rough estimate now on how long it takes from order to delivery now compared to half a year ago or so?

Well, it's very different between different companies of LIFCO, but if you look at the ones, we still have a few companies with very long lead times, and they're still trying to ramp up. But that's a relatively small proportion of it. For the most part, our companies are running with, I would say right now, quite normal, if you can say normal nowadays. But if you look pre-pandemic type of order books in terms of delivery, And then, obviously, we have a quite big portfolio with very short order books. If you look at the whole dental division and the whole, this area, and also the number of distribution companies, they always run with a short order book, especially if you're in a distribution company or even some manufacturing companies that have, you know, sort of lower value product that normally are shipped within a week or so from order. So it's, of course, very different. But, I mean, maybe you're referring more to the ones with long order books, especially in demolition tools from there. We still have a few companies with very long order books, and they're still scrambling and trying to get components in and cannot really ramp up as fast as we can. But the majority of this area now has more normalized order books, which also means that the visibility is, of course, not huge. It's never huge in that sense. And also with long order books, you have to be careful. because if we experienced 2008-2009 and in such a situation then maybe we're not too relevant to look at in some situations. But if we're in more normal market development we're back to normalization.

Understood. My final one is just now if it's two quarters now at least where you kind of highlighted that dental is in a normalized market situation but In terms of work you have made when it comes to kind of regaining dentists and making sure that they acquire products, etc. What kind of efforts did you feel were really successful in making sure that you came back to a normal market condition in a fairly quick time?

Well, actually, I think the biggest factor was actually time. when you have this type of uncertainty, then time is our friend. The longer we can show that we have stability in deliveries, the easier it is to convince the customers. But obviously, we've been very close, and we're always very close to our customers in this business area. We are working with high level of service and very close contacts to our dentists in Germany in this business area. But I think the main factor was the time. And it was, of course, difficult to say how long it would take. But now we have two good quarters, so it looks It looks promising, to say the least. We think that unless there's something new things happening, it should be hopefully more normalized also going forward.

Understood. I'll get back in the queue. Thank you.

Thank you.

The next question comes from Carl Ragnastam from Nordea. Please go ahead.

Hi, it's Carl here from Rodea. A couple of questions. Firstly, just to clarify here on the demand in demolition during the quarter. I mean, could you firstly maybe give some more granular comments whether you have seen shift in demand? I mean, during the individual months and also by end markets where you feel that if it's tools and attachments that it's better currently than other parts. Yeah, start there.

Well, when it comes to within the month, actually, there's no real pattern. I think the quarter as a whole had quite stable development. So there's no difference between March and January. I mean, it's very difficult to say because every month is a little bit unique, but we don't see any trend shift within the quarter. So I think the trend shift that we've seen has been more happening about a year ago when things were getting more normal. So I mentioned that now a few quarters, I think. Sorry, the second question call was,

If you have seen any, I mean, a shift in demand if you try to split up the division a bit by more end market or by product area.

There's one thing I could mention that maybe the Nordic or Swedish regions have been more weaker than others, actually. It's interesting to reflect. We see that both in the initial tools and also in a few companies in the now called infrastructure area. These are actually companies within that area. It's more related to construction, but most of these companies are, of course, infrastructure related. So we see that's actually one thing we have seen. Other than that, it's difficult to see clear patterns. We've seen pretty good development in the quarter in North America, so that's more the positive side. But other than that, I don't think there's anything that stands out especially. The more you are related to a pure construction product, maybe a little bit weaker compared to something that's more infrastructure or stuff like this. These are small differences. But overall, it's difficult to pinpoint anything more than that.

And also, you explained a bit on orders, just so I understand there. I mean, you said that orders had a good development, right? But not as strong as during the peak levels. So should we interpret that as negative organic growth, meaning that you compare it to the peak levels, or should we interpret that as still positive organic order intake growth, but you mentioned that the peak levels might be in Q2 and Q3 2022, if you understand what I mean.

Well, basically what I'm saying is that the order intake that came in In the period there in 21 and early 22, they were on so high levels that we were a little bit astonished. So from that perspective, they are on the lower level now. But you can also then compare it to what we ship out and what we get in, then it's more close to normalization. So a little bit, you have to... don't publish these data so we have to be careful how how deep we go into this and also uh you know order intake for all these type of companies of course a little bit difficult to value on the high level how you define an order and all these things but but i would say that the orders that came in you know a year ago or even more than that they were on extremely high levels in certain parts of our business and now now we are overall on a quite good level uh stable stable level but but of course predictability is As we said now, for many quarters, it's quite short. We don't know so much what will happen next two or three quarters in this area. So that's the same situation around that.

Okay.

So you said that book-to-bill is one then, or maybe... I mean, it is not a huge gap there. We're not ramping up a lot in that specific area.

Okay. And also... I mean, obviously quite strong margin in dental again. Would you say that the year-over-year margin delta is solely driven by the prosthetics business recovery? And also, if you could give some comment maybe on the underlying market for manufacturing and distribution and whether you have seen maybe a catch-up, sequential catch-up effect from Q4, maybe as well, I mean, when looking at market data, at least, it looked like Q4 had lower utilization in dental clinics in Europe due to high sick leaves. Is that something you have seen a catch-up effect from?

Well, the main comment I have here is related to the prosthetics business. That's back to normal. In the numbers, that's the main effects. The other effects that you're referring to, they could have a smaller impact, but not close to the first effect that I'm trying to mention here. These are very small changes, if anything, that you referred to.

Okay, so the main year-over-year delta then is prosthetics in margin.

Like we commented last year, also the main negative deviation last year was also in the prosthetics, and now we have the reverse effect there.

And also on the M&A pace here year to date, obviously quite strong. Would you say that it's an effect of the expanded M&A team getting up to speed, or is it a bit stochastic? And also, would you say that you worked through the near-term pipeline and that you need to rebuild, or is it still quite solid?

Well, first of all, our wrapping up of activity is very gradually, you know, it's not, it's not, you know, we do small, small increases constantly to get better capacity looking at companies. So that's not the main effect. So it's actually more the stochastic part that, you know, sometimes we get more, more, you know, more luck or more success, depending how you look at it, and more more in more basically we get we find the right companies right entrepreneurs and then we agree on the price and everything is going all the way and then in other quarters you can have the reverse effect that we might have still a very big pipeline but for various reasons we don't go all the way this could be partially driven by us not being 100 sure about the quality of the company or the price level or or maybe the entrepreneur wants to wait a bit there could be many reasons like this so this is As I've said many times before, this is something we work very hard. We constantly improve our capacity step by step, not dramatically. And then the outcome will always be a bit volatile. And it should be volatile because it's not a goal-seeking process. It's a process of finding the right acquisitions. And when they happen, they happen. But as you've seen now for many years, we are... the activity level is high enough to normally see some good results, not in every month and every quarter, but over time it tends to be working, basically.

Okay, that's very true, thank you.

But also the last question, of course, if you close a lot of companies in a short period of time, That probably means that a lot of your hot leads have transferred into discussions. But our deal-making is always a combination of things that we've worked on for years, things that we worked for six months, and things that we maybe worked only for one or two months. It's always new things coming up. And we always have things that we've been discussing for years that might or might not pop up. So the pipeline is always there. difficult thing to reverse it but of course the more we we've closed in one month obviously it's it's it's uh uh has some impact on the on the on the short-term effect okay very good thank you thank you as a reminder if you wish to ask a question please dial star 5 on your telephone keypad

The next question comes from Anna Whitstrom from Handelsbanken. Please go ahead.

Hello Per, thank you for taking my question. I'm just wondering if you maybe could give us some details on this sort of cost side development. I mean, you do refer to doing continued price increases to some cost inflation. But maybe give us some details on what's happening on raw materials and transport or just if you're experiencing a general cost inflation and if it's sequentially getting better or anything.

Yes, and I think here we have to differentiate by different ports of Lithgow. We have very different type of companies in that sense. Some companies always have a higher... proportion of raw material impact into the business. And those companies have, of course, done a lot of price increases in the last few years. And there you could start to see in some areas some sort of at least stabilization and even maybe potentially some special benefits. But then you have other areas where we are so differentiated products that the actual raw material is only a part of it. There's many steps in between and much engineering done both by us and also by sub-suppliers. I think the more general inflation is still coming into play in that sense. I think still we experience price increase in inflation, obviously, overall. I think for the most part, if you take the whole dental area, the raw material part in dental is obviously very small. So there are now general inflation that will come into play there. If you take other parts, a company that makes maybe more, less, I would say, relative to other companies, less differentiated product that has more steel, it of course has more relationship with raw material. But overall in Livko, our companies are highly differentiated, highly engineered products. So there the raw material, of course, has an impact, but also inflation has an impact in general right now.

Okay, thank you. That's my only question.

Thank you very much.

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