Lifco AB (publ)

Thank you, and good morning, and welcome to everyone. We will now present the LIFCO Q1 2024 earnings. We can start directly by going into page number two in our investor presentation, where we present the high-level numbers for the entire LIFCO group for the first quarter. And as we can see on that page, sales grows with 1%. with an organic decline of negative 7.8%, which is then offset by 8.4% growth from acquisition and a marginal positive effect from foreign exchange. If you go further down and look at EBITDA, EBITDA declines with 4%, mainly due to the negative operational leverage that we have in Demolition II's business area. which is the area where organic sales is declining due to weak market, continued weak market conditions, I should say, which we have now experienced since the spring-summer of 2023. We will come back to that in the next slide. Profit before tax declined by 11 percent, which is obviously more than the decline in EBITDA, and this is related to higher financing costs compared to one year ago as interest rates have increased during the last 12-month period. And if we also look at operating cash flow, it's 14% lower in the first quarter, and this is mainly related to lower profits. I can also then mention that quarter one is normally and the seasonally weaker cash flow quarter, just so everyone is aware of that. If we then go further into page number three, we will go a little bit deeper into each business area within LIFCO. And we can start at the top with dental. And the overall message here is that it's very much business as usual. We have in the first quarter some negative effects from an early Easter that obviously impacts sales and profits to some extent. This effect is then partly offset by small positive effects from acquisitions. And overall, this led to a flat development in profits in the first quarter for the dental business area. If we then move on to the demolition tools area, we have now experienced actually the fourth consecutive quarter with weaker market conditions, which is then related to the weaker construction market. And this is then impacting our attachment and also the machinery business negatively. It's important to remember that we still had a very strong quarter or first quarter in 2023, which was following a long period of very high demand in 2021 and 2022, which then led to high leverage all the way into early 2023. And then, as you remember, during the second half of last year, we actually saw a similar weakness in market conditions that we now experience in the first quarter of 2024. But the effect during the second half of last year was then partly offset by strong delivery of non-construction-related machinery. We had, for example, in Q4 2023, we had extraordinary impact, positive impact from those type of deliveries. And I just want to highlight that these type of deliveries can then vary, have been varying over all these years between different quarters. And I think many of you are aware of that effect. And in the first quarter of this year, we didn't have any impact on that. So now it is basically, I would say, weak market condition affecting the whole demolition tools area in Q1. And if we go further looking at the beta, the negative development in sales for this business area has then led to a negative operational leverage. So despite a lot of actions to reduce cost levels, it's not possible to fully compensate as many of the products we sell in this area have very high gross mortgages. So that also leads down to a lower EBITDA margin compared to one year ago. If we then go further down and look at the system solutions area, we have a sales growth of 12% and a beta growth of 60%. And the main driver for growth in this area is coming from acquisitions. which means that the underlying organic development continues to be on a stable level during, actually during the last 12 months, we have been in this type of situation here in this area. And this is unfolding a period of very high growth up until Q1 2023. And as you all are aware of, these solutions consist of many different companies with different end market exposures. And also in this quarter, there are, you know, some companies with market development. I can just give an example. In the infrastructure product segment, we have a few companies that are exposed to construction, which are having tougher market conditions. But we also have companies in this area that have actually continued to grow sales and profits. So it's a mixed picture, just like we saw in Q4 2023. So it follows the same pattern in this area. And then we can go further into page, all the way to page number seven. and look at the balance sheet, and I would like them to just conclude that the interest-bearing net depth EBITDA is now at 1.0 times, which is a solid level and actually slightly lower than one year ago, despite that we have done quite a number of acquisitions during 2023. And this leverage situation gives LIFCO plenty of room to continue to make acquisitions. Once again, when we find attractive, profitable niche companies to acquire at reasonable valuation, we are very motivated to do more deals. And we are continuing to increase our capacity in this dimension. So we are able to identify and also then obviously take care of new acquisitions at an increasing level. But as I mentioned in many of these previous calls, the timing of when acquisition materialize will and should always be fluctuating. The development of LIFCO is not a short-term sprint. It's a long-term perspective. And we then try to combine our high ambitions levels to continue to grow from acquisition with a very disciplined strategy in acquisitions where we always are ready to sort of turn down potential transactions if we don't feel fully comfortable that this is a company LIFCO should own forever or if the price tag of the potential acquisition is too high. And so far this year, we have acquired two companies with a combined turnover of around 650 million Swedish kronor. And we can just put that in perspective that during the full year of 2023, we acquired a total of 2.2 billion Swedish kronor. We continue the hunt, and we have the financial capacity to do so going forward. If we then go to slide number eight, this is the long-term trend that we normally also would like to show in every quarterly call. And as you all know, LIFCO has one overall target, which is to increase our profits every year. And we have actually done that every year, except for 2009 and 2013, since LIFCO started its journey in the late 90s. And now, after a period of very high growth during the last few years, we have now started with a weaker start in 2024 compared to last year. Our EBITDA margin remains solid at 22.9% on the rolling 12-month basis. But did fall slightly in Q1 as we have looked in previous slides. And this is basically related to the weaker market conditions and demolition tools and the operational or the negative operational leverage that we then have when volumes are falling in this extent. And I just want to round off by saying we continue to very hard to achieve our target every year to work with organic improvements and also acquisitions. And this is our target also for this year. With that final remark, I would like to open up for any potential questions. Thank you.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Zeno Engdalen Richuti from Handelsbanken. Please go ahead.

Good morning, Per, and thank you for taking our questions. I would just like to start off with demolition and tools. If you could give some more insight into how you're thinking about the development going forward for the underlying markets, if you expect it to get worse before it gets better in that kind of sense.

Thank you for the question. It is a difficult question. And as you know, we don't give forward-looking statements. But I can give some more flavor and say that the situation has been on a similar level now for a few quarters. I think we were in the second half of last year. We had some companies, we had some order books effect that helped us. We had some special immigration in Q4. which we mentioned in the previous earnings calls. And this quarter, we basically didn't have any of that. So now the market is really what we see now. And I think also now we are, we did discuss maybe nine months, 12 months ago, the effect of dealer inventory reduction, all that. I think that is also played out. So we are now in a situation where it's basically the market is where it is in the numbers we present. And the feeling we have so far is that it's moving sideways. We don't have exact data around, but that's the feeling we have right now. And it's been like that for not only, I'm not only talking about March or February, but I'm talking about maybe a little bit longer period now, last six months or so.

Okay, so then there hasn't been any material changes, so to say, within the quarter, within the individual months?

No, not really. I think March was, you know, we commented on the Easter effect in a slightly shorter month in dental. It's not really relevant to mention that in Demolition Tools, but it was a little bit shorter monthly also. But we don't see any changes within the quarter, not really. And not even maybe even comparing with the previous quarters. On the underlying market, I'm not referring to.

Yeah. And then when looking at the margins of Demolition Tools, of course, you say that there's some operating leverage effects. But is there anything...

others regarding regarding mix or similar with exception to the non-construction sales that you had you know i think in this i mean the difference between this quarter and the previous ones is that we didn't have that positive mix effect that we saw previously so now it's pretty you know it's of course it varies between companies a little bit but it's pretty much a clear picture now that The weaker market conditions relating to mainly the construction segment is now affecting many of those companies that have that exposure. So it's mainly the operational leverage effect. But basically, we have very high gross mortgages on companies. And even if you save on overhead and SGD and different costs, you cannot save all the way down when you're losing mortgages like this.

Yeah, yeah. Very helpful, Per. I'll get back in line.

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

Good morning, it's Carl here from Nordea. A few questions. Firstly, I mean, on the inventory situation or the amount of products in the channel currently, did you say that the situation is normalized now from a distributor point of view? I know it's maybe not your biggest, I mean... selling vertical, but would you say that it's normalized now?

Are you referring to dealers? In definition, yes. Once again, we don't have perfect data for all our distribution or even OEM customers, but I would say that now the market condition has been on a weaker level for quite some time, so the majority of the effect has been taken care of. for sure.

And how is that impacting your order if you could give some brief comments on the order intake in demolition? I guess given that it must be a little bit better than what you saw during I guess second half of the year?

No I think it's been basically the orders overall for the companies where we where we basically don't have, you know, where we did not have this effect that customers were trying to be first in line with queuing tickets, which we had in some companies where order books were not really relevant to look at at some point. If you take for the more, the other part of the business, I think that effect has been gradually coming in. So now the orders has been on a, quite stable level for quite some time, I can say. And I think now in the Q1, we really see, you know, it's never perfect, the order intake and the sales output, but it's now matching pretty well where we are. Okay. And I think the deal inventory thing has been coming into effect for the last 15, 18 months, gradually, so it's not a dramatic effect in any given month or so, the ones you were referring to first.

And also in terms of pricing, have you seen any terms of higher pricing competition now that the market is weaker and been weaker for quite some time now in demolition, both in tools and attachments, as well as for a demolition machine, or I guess BROCK is less impacted than perhaps Kinsoft or...

Yeah, I mean, you would normally, in this type of market conditions, you normally see the competition being more active. I guess I would put it this way, that the price increases that we saw in 21, 22 were extremely high, and now we're down to moderate price increases in this area. That's basically how we act.

Okay, so you're still raising prices in the weaker markets?

In the moderate level. And then, of course, there are some products with very high raw material that could be a different discussion point. But for the majority of LIFCO products, we sell final products, not raw material.

Okay. So on the net, on the segment level, you expect prices to be up, I guess, than low single-digit Fourier 24? Yes. That is pretty impressive, inevitably. And will you do any more sort of harsh cost out measures in order to sort of endure the softening markets or the currently soft market in demolition? I guess it's up to the local subsidiaries, but what's the thinking there?

Well, the thinking is, as always in LIFCO, we take action all the time in all our companies. I think the first companies that started to take cost action was 18 months ago. So we don't comment on individual companies and the action we take, but we saw some companies already in the end of 22 taking restructuring in that. And there's been a gradual process depending on the situation in each individual company. So it's happening continuously in our company. It's not something we do as a big project in the center. We do it every day out in the different certificates.

That sounds fair. And also finally on dental here, I mean, if you look at the margin year-over-year, would you say that the drop of perhaps 60 basis points is driven by the Easter effect purely, or is it anything else we should consider there in the drop?

I think part of it is probably the Easter effect, and then there's always, you know, we're talking about one quarter, and there can always be some special effects. Minor effects... we don't tend to bring up on this level. There could always be some minor effects from other things, ERP system changes and all that, but we don't tend to bring that up. So the majority of it is Easter because in all these other effects, they tend to sort of even out in a big group like a crop. So then you have always some fluctuations between quarters.

Okay, that's fair. Thank you so much.

The next question comes from Carl Bockwist from ABG Sundal Collier. Please go ahead.

Thank you. Good morning. Just to follow up on what you commented there about the competitive situation in demolition. I think you started by saying normally we would see a certain kind of behavior when the market is weak. Just in general, how would you assess the competitive dynamics within simulation? I understand there are quite a few different end markets in there as well, of course.

I mean, it varies a lot between different companies. There's a full range. I mean, we are ranging from companies that are selling relatively standard products with some more competition. And there we try to stay firm, as always. We don't want to participate in any competition. any sort of battles down. We rather lose some volume and stick to our quality products and service levels. And then there, of course, on the other end of that range, we have companies with highly differentiated products where basically the price, whether the price is this or that, would not impact the volume very much. It's the market itself. We know that from previous iterations. For example, a financial crisis, et cetera, it doesn't really matter

certain situations you know okay on the margin you know what a few sales could be impacted but on the overall you know we try to stay disciplined also in this respect so even if it could be in certain areas turbulence we try to stay firm understood then the comment you started by making regarding special projects as you said you flagged it last quarter and they don't always come every quarter but How should we think about these kinds of orders in future quarters? Do they usually occur when the markets begin to improve again? Or can it just be, you know, they come and they go, really?

They basically come and go. And these type of products are not construction related. They are not, you know, it depends. It could be, you know, it could be a nuclear project for Brock. It could be another special machinery. So it's not really correlated with that. So it's not following that pattern. I think we even had those type of deliveries in 2009, 2010, when it was weak in market conditions. So it can happen often when the construction market is weak. But when they come, you know, it's also normally a long lead time from order to shipment. So we also don't know exactly when they will come in, if we have them. So we decided not to make the big forecast around that. But we had, you know, I think it's important to remember that my main message is that The market we experienced now in the first quarter is very similar to the market we experienced in Q4. Then, of course, you have seasonal differences. Q4 is normally a stronger quarter, and Q1 is normally, I think, a weaker quarter for the emission tools. So that's normal. But the market felt pretty much the same in Q4 as in Q1, but we had some external effects and mixed effects that basically made Q4 maybe look a little bit better than the underlying market, which we tried to highlight in the last earnings call.

And then within systems, if we exclude the effect of acquisitions, any segment worth highlighting there, either being weaker or stronger? You do mention contract environmental infrastructure and so on, but to my understanding, these generally include the impact of acquisition when you describe them.

No, it's really company-specific. If you're talking about the growth companies now, or what are you referring to?

Just curious to understand any differences in end-market conditions, if anything had picked up or anything had weakened further.

No, but I think there are some segments there that are similar patterns to the demolition tools on the more extreme side of the negative there. And then the majority is more in the middle, maybe a little bit softer market conditions. And there is a few companies and a few areas where we have still very strong growth, actually, for very specific reasons, which we don't tend to pinpoint individual companies in this. But there are certain companies. And they are actually in different divisions in this category. So we have that effect in transportation products. environmental technology we have that also in contract manufacturing we have companies with that positive effect and even in special products so it's it's a mix in there so so and there are specific reasons for that but now we're down to individual companies okay understood thank you 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 calling in and for the questions. And I wish everyone a nice day. Thank you.