Lifco AB (publ)

Thank you and good morning everyone and welcome to the LIFTO Q2 presentation. We can start with going directly into page number two in our investor presentation and have a look at the high level of overall second quarter figures. If we start with the net sales numbers, we're growing net sales with about 13%. And in this quarter, we actually had a slight negative organic development of minus 1%. I will come back to that in a moment. We had acquisitions that positively contributed net sales with about 13%. And then we had foreign exchange also positive and then a small divestment in those numbers. The reason for the slight organic drop in these quarters is mainly to do with the slightly lower volumes in our demolition tool segments. And also, in certain portal assistance solutions, we have some more project-related business that had a slightly weaker sales than previous years. And this is a business that typically can be volatile between quarters and even years when it relates to more project-related business, not so much related to the overall underlying demands. If we go further and look at our EBITDA, we're growing with 22%, which basically means that we have very strong margin development in most of our companies and also better growth in the high margin companies. So there's also some mix effect that's basically contributing. So the demand is strong in the more high margin business. Going further down, we are growing profitable tax with about 15%. which, of course, interest rates are now, as we all know, going up rapidly. And this has quite immediate impact on LIFCO, giving our variable interest rates up. And then we are growing our operating cash flow with about 27 percent, which is quite OK. But we have still not yet seen any major release of the inventory situation. And this has to do with a lot of companies still being quite busy and also still some challenges with the supply chain. Of course, not as dramatic as it was 12 to 18 months ago, but still challenges in that area. So with that, we can go into page number three and just briefly look at each business area. If we start with the dental area, it's, I would say, a quite normal quarter for us. Things are stable for the most part and small margin improvement, sales growth of 12%, partly related to a sort of weaker situation last year. In the quarter, we still have some issues in part of our dental business due to COVID issues in China. But that's basically been normalized now for the last three quarters. So it's a quite normal situation in the dental business area. If you look at demolition tools more specifically, as you all who follow us have seen, we have had a period for the last three years with Very dramatic demand increases following the pandemic led to extraordinary high order intakes in 2021 and early 2022. We have now been in a situation for quite some time, for a number of quarters, with a more, I would say, normalized situation of demand and still on good levels, if you look on the relative historical long-term perspective. And yes, but now we are now after a period of time of more normalization coming down. And in this area, we had a slight organic decline down in this quarter. Fortunately enough for us, the high margin part of the business is performing well. So we have a positive mix effect, which led to very good margins also in this quarter. So we have, I think, a record margin here of 28% in the mission tools. I would also like to mention that we have also done a few acquisitions here that's also contributing positively on all dimensions. If we go down to the third area, season solutions, overall, it's a very strong quarter. I think the slightly maybe lower sales development is mainly due to a few companies that are more specific issues related to projects that can come and go, a little bit more volatile. Most part of our portfolio here is still performing well and meets strong and stable demand in this quarter. So that's basically why we are growing profit a lot. The companies that are doing a bit weaker sales here are also typically lower margin companies in this area. So also in this area, we have record high margins of 24.6% in this quarter. So I think it's also worthwhile mentioning on this slide that You know, LIFCO has a portfolio of very niche, highly differentiated companies. So we have a strong margin potential and it's very pleasing to see now in the last, I would say, nine to 12 months that the margins are now where they should be and they're going in the right direction. After a period of time of lagging behind in the 21, basically, when it came to margin. If we then go to page number four, We actually don't have any updated data. We update these slides only once per year. But I can mention after halfway into the 23 year, we are still performing very well on the organic dimension. And the EBITDA growth, as you can probably understand from the module expansion we had, is still very strong, both organically and from acquisition. So it looks like also 23 so far is a very good year in terms of organic development. And as you can see here, the average Organic EBITDA growth has been 8% per year since our IPO. And so far this year, it looks very promising also when it comes to our most important or one of our most important targets is to grow organically our profits. And then we can go into page number six. Just talk a little bit more about the balance sheet. We are basically having the same relative balance sheet that we had one year ago. Despite quite a number of acquisitions and also dividend paid out, we have the same net debt to EBT of 1.9 if you include all the option agreements, future option agreements, and also the IFRS 16 leasing. If you look at the interest bearing debt only, we are at 1.3, which looks also the same number we had one year ago. And here, typically, in the second quarter where we pay also dividend, it's normal that that we have an increase in net debt, and we also had that in this year. That's more of a seasonality effect when it comes to that number. But with this type of balance sheet, it means that we still have a good financial capacity to continue the requisition, which we've also done quite a number of already this year. And then we can move quickly into page number seven. want to give the perspective on the long-term development of IFCO once again. Our margins are very good in this quarter, but I also want to pinpoint or highlight that this is a typical and a key focus area for us. We have a strong focus for improving our profitability in all our existing companies through a lot of organic development and making our more products more differentiated and basically making making the most of our potential in those companies. And we've done that for quite a number of years. And then we also complement that with acquisitions that so far on average has helped the margin development as well, which basically means that we are very picky when it comes to the quality of the business we acquired. We like companies that are highly differentiated and had a strong proven position with high margins. And then we can move all the way down to page number 31 and just have a little bit quick look on our acquisition. that we have basically signed and press released this year. And as always, it's a mix of small, very high-quality companies in various niches in all areas we have also acquired in these years and also in various countries out in Europe, which you've seen now for a number of years. That's our core focus. And basically the acquisition volume this year has been... already almost the same level as previous years. So a good start to the year when it comes to acquisitions. And with that, I'd 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 Nords. Please go ahead.

Good morning. It's Carl here from Nordea. A couple of questions from my side. Looking into demolition, you said that organic growth obviously turned negative in the quarter. Is it possible to give any more flavor on which sub-segment or geographies this is due to? And also whether you have seen any sort of accelerating trend during the quarter where perhaps the start of the quarter was better and worse in the end?

When it comes to geographies, I think I mentioned in previous calls that one of the weakest areas is probably the Nordics or Sweden when it comes to the construction-related segments. But for demolition tools as a whole, that's a relatively small part of that area. So if you take the main markets out in Europe and also in North America, I don't think there's any specific thing I would like to highlight when it comes to that. And the second question regarding, there's nothing to comment regarding different months in the quarter. The most important message here is that we had very strong order intake and extraordinary strong order intake during a period of time leading up to somewhere around March, April 2022. And since then we have had, if you look historically, we have order intake on solid levels and especially for companies with short order books that have more relevance measurement of water intake, it's been on a stable level. Then in any given quarter, you can have certain effects that lead to a decline in organic sales. But I think, as I mentioned before, maybe the main message is that we have stronger development in sales in the more high-module business and a little bit less in the low-module. And that's maybe an indication that the lower-module maybe is then maybe going more purely into some construction later, whereas the infrastructure and more other things are going into other products. So that could be, but I think I don't want to make too big of a statement around that. It's more related to a general situation where the market was crazy until early 2022, and now it's been on a solid high level. And we are meeting, of course, very high comparables in many companies.

And is it possible to try to quantify the order intake in demolition at all? Or would you say that it's fairly imparted organic sales drop during the quarter in that range?

I think now, as I mentioned before, there was a time when we did not trust the order intake numbers in 2021. Because there were a lot of queuing tickets, I call it. people put orders in to be first in line not maybe not not knowing the end user but we talked about oems and distributors i think we're now reaching a point where where it would be more uh visible the sales numbers and and there will always be a short some lag but the lag will not be like it was back then so we're reaching the point that you know but but also it also means that you know predictability is of course going down like it was pre-covered levels you know we would we wouldn't maybe know the next month or next two months, but we don't know three, four months out. So it means that we don't know the demand situation for the next three, four months ahead of us, which is normal and how it was. So we're reaching that point now in many of our companies.

Okay, very good. And also in dental, I mean, we're slightly squeezed consumer currently. Have you seen any shifts in demand between various products, categories, for instance, where one could be cutting back on sort of more maybe nice to have or more expensive procedures as well, maybe because young ones is delivering a bit better. Have you seen any trends at all in that segment?

I mean, I think our exposure is more related to a number of visits in dental clinics. I don't think our profit generation is so much depending on what type of treatment is done. Of course, there's always some of that, but on average, we are more related to the activity level in dental offices. It's a relatively small impact on what type of treatment that's carried out for the most part. And that's also true even within... If you look at all our manufacturing companies and all our distribution companies, we're not making profits on... very expensive treatment methods. It's quite, you know, normalized or normal dental visits that our products go into. When it comes to prosthetics, of course, you can argue that, you know, the more complicated, the more sales and more profits we get. But on the other hand, we're also operating in a segment where we have a cost advantage towards competition. So we're also offering a attractive product there, which will not have any impact in any short-term impact. These are more very slow-moving trends, just to make that clear as well. The potential benefits that we have in our offering there will not be dramatically changing from one month to the other and so forth, depending on the consumer base.

Okay, very good. Thank you.

Thank you.

The next question comes from Carl Bockwist. Please go ahead.

Yes. Hi. Thank you. Most of the questions I was curious about have been answered. But within system solutions, you do highlight a couple of comments around the growth areas in the different segments. But do you feel there is anything on a kind of quarterly basis worth highlighting in terms of change in demand or growth? I think you may refer to kind of a first six month period.

No, I think the comment there, you know, quarterly basis is quite difficult. I mean, there's nothing in this quarter that changed so much in my view, basically things are, are, are basically the trends that we've been seeing now since the last 12 months is the same. And which basically means that many of our companies are seeing still very good demand. There's a few companies in certain sub-segments that have a slightly weaker situation, but they've done a really good job to compensate and increase their margin anyways. And that's a relatively small part of the business. And then you have these two examples of companies that maybe have a more volatile sales profile that impacted sales more than profits because they are lower margin. So I don't think there's so much to comment on the quarterly basis around that for the most part. So this solution is performing very well, and most companies are having a good development. But as you can imagine, visibility here is, of course, not extremely long. So it doesn't mean that we know how it's going to be in six months from now, but I think so far most of the companies are seeing solid demand and good market development.

Understood. And you did mention some areas about dental sort of being back to normal. But in terms of the potential profitability mix effects from the prosthetics business and so on, would you say that that profitability effect is also now back to a normal situation, so to say?

Yes. I mean, in any given quarter, there's always many things that happen in the portfolio. But for that part, this business is performing as it should be performing now. in the last two quarters and even I think given in, if I remember correctly, even the last quarter last year. So it's been quite normal for nine months in that business.

All right. And my final one, I understand it's mainly done out at the kind of company level, but working capital development, anything worth highlighting here in case you see kind of more normalized order patterns and so on? Could we start to see less safety stock in those sorts of aspects, thereby helping working capital effects into the second half.

I think it's very much down to each individual company, how we operate now. Some companies are still working with supply chain issues and delivery problems to customers, and they are not in the mood of maybe reducing inventory. Whereas others are now in that phase of getting the inventories slightly back to normal. So that's basically where we stand right now. And I think I pointed out already in the course last year that this will not happen dramatically. It will be sort of a slow progress into normality because supply chains are not perfect yet. I mean, they are definitely better than a year ago for sure. And also some companies are in a situation where where it's not been so easy to focus on that, given that we're still focusing on getting things out to customers. And others maybe should improve quicker on that. So we have quite different approaches, different companies.

Understood. That's all for me. Thank you.

Thank you very much.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. 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. I wish everyone a nice Friday and eventually a nice weekend. Thank you very much.