Lifco AB (publ)

Good morning and welcome, everyone. We can, as usual, move directly into page number two in our investor presentation and take a look at the numbers for the LIFCO Group as a whole. And the overall message remains very much the same. As we have mentioned in previous quarters, we are still facing what I would say less favorable market conditions in our demolition and tools business area. due to the continued weak end market in construction and demolition markets. And as a whole, then, in the third quarter, we have, on the total group level, a small positive organic growth in sales of 2%. And the exchange rate had a negative effect on sales with about 3%. Acquisitions added around 8% in the quarter on the sales numbers. So, in summer, we can conclude that the continued organic decline in demolition tools is basically offset by acquisitions made during the previous year and some organic sales growth in the non-talented system solutions. We'll come back to that in a few moments. And the decline in the most profitable business area demolition tools is then obviously hurting the margins on the group level. And therefore, the EBITDA growth is 3%. And the EBITDA margin is almost 1% percentage point lower than the same quarter in 2023. If we move further down and look at cash flow, it's in the quarter lower than previous year, mainly due to higher cash payments or taxes in the quarter. And the operating cash flow in the accumulated period for the whole year is in line with previous year. And for the nine-month period, if you look a little bit longer term here, sales grew with 6%, with a negative 2% organic growth, and around 8% growth also there coming from acquisitions. And the same trend with the weak market conditions in special demolition tools has now been in place for the entire year, which explains the slightly lower EBITDA margin also for the nine-month period. And then I think we can go a little bit more into the details on page number three. and look at the different business areas. If we start them by dental, we continue to see a solid and stable development as expected in this area. This is the area where we have the least exposure to cyclical markets and also, I have to say, also the lowest structural growth over long periods of time compared to our other areas, so it's a quite stable area. And for the nine-month period, EBITDA growth is around 7.5%, which is a combination of organic growth and some growth from acquisitions. And then moving further on to the demolition tools area, we are still, as I mentioned, experiencing weaker market conditions. And I can already now mention that we don't really see any market improvement in the third quarter. and the weaker market conditions that leads to a net sales decline of 8% in this quarter, and an EBITDA decline of 15%. And we have actually included some small requisition in this area during the last year, so the organic development is even a little bit more declined than these numbers. I would also just like to mention here that our portfolio companies have been doing, I think, a great job in protecting the markets, even though we are decline in the margin in the quarter with two percentage points. In this area where we have quite high gross margins, when the volume drops are significant like now, it's very difficult to fully protect the margins. But I think we're still in the quarter for the ninth month period showing a 24 percent EBITDA margin, which is quite healthy in these market conditions. And also just a final remark on this area, we have now had a period of time for quite some time with what I would call weaker market conditions. So most of our companies in this segment now have quite low order books. And that also means that our visibility for the coming quarters is as always quite low. We don't really have anything more to say around that. We will follow the markets very closely and be adapting to the market situation as we move on. If we then go further down to the system solutions area, we have quite high sales growth of 90% and EBITDA growth of 40% in the quarter. And the main driver for growth is coming from acquisition. And also in this quarter, we have higher than I would say normal organic growth in our contract manufacturing subdivision. And this is an area where we have slightly lower than average EBITDA margins. which also means that the EBITDA margin in the business area as a whole is down lower in this quarter. So there's really a mixed effect in those margin numbers. If we then look a little bit more in the nine-month period for this area, it's more solid and stable. EBITDA margin is quite stable and as it should be on that level. And the underlying development within this area is, as I also mentioned in previous quarter, it differs quite a lot between different parts of the area. Some companies are growing nicely in their respective niches, whereas other parts of the solutions are facing more difficult market conditions. And as one example on the negative side is, of course, as I mentioned previously, also the infrastructure product division where we have exposure to construction market in that segment. If we then move further down to page number seven, we can look a little bit at our financial position and once again conclude that the net debt in relation to EBITDA is on a stable level, relatively low levels at around 1.2 times net debt to EBITDA if we measure the interest bearing debt. And this is then on this level despite that we do in the last 12 months have closed a number of acquisitions. And we still have plenty opportunities to continue to look for great companies to acquire where we find them basically With that we can move into page number eight and Take a little bit more long-term perspective on LIFCO. We take a step back here and since the downturn the severe downturn in 2008-2009 we had many years of stable and what I would call friendly development or market conditions, which gave us the opportunity to have high organic growth combined with acquisitions. And during the last 18 months, it has been a little bit tougher market conditions, especially in certain areas of NECO. And therefore we have now a year where EBITDA so far only has grown with 3%, which is way below our average historical numbers. But I think it's important to in this period of slightly more difficult conditions, remind everyone of the strong operational profit culture we have in LIFCO. We are not panicking in this period of time, but we have a very strong organization of both group managers and subsidiary management that really take daily actions to make sure that we do everything we can to defend our profits and also improve our profits in many areas of LIFCO. And we do that both for the next week, next month, next year, and also the very long term perspective. It's a combination of all these things. But we, as a conclusion, we continue to work very hard to hopefully reach our target of improving our profits every year. And then we can go all the way down to page 33, and just as a final remark, look at the acquisitions that we have concluded in this year. And yeah, it's, we have basically bought in 1.7 billion Swedish kronor of revenue. As I mentioned many times before, the outcome of when acquisition materializes is always unpredictable, and it should be unpredictable because it's way more important for us to buy the right companies. We want to buy great companies for reasonable valuation rather than maximizing any outcome acquisition in any quarter. We continue to work very hard to find great niche companies, but despite high activity levels, we always try to stay patient and make sure we don't make transactions if we don't feel it's the right long-term decision for Lidco. Yes, with that as my last comment, I'd like to open up for any potential questions. Thank you very much.

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 Ritchie from Handelsbanken. Please go ahead.

Yes, good morning, Per. I would just like to start off on the group in aggregate when it comes to underlying demand. I'd just like to hear if you compare it to what you had expected going into the quarter and the outcome, if there was any material difference on an aggregate level.

well uh first of all as you know we don't really spend too much time with future expectations we are we are always trying to to adapt to the situation as it comes but uh having said that i think it's uh it's very much a similar overall picture as we've seen in the previous quarters in this year um and that basically means that dental is is stable um demolition tools is is i would say the feeling is the same and it has been then of course you know we can vary between quarter on the exact you know output of sales but but the overall feeling has been on this this level for quite some time and we don't really see any any you know we don't see any improvement we don't see any dramatic decline either of course it can vary between different sub segments you know a little bit you know we have many different types of products and and things within this area but but overall it's it's pretty much as we've been feeling now for quite some time and what is the solution it is As I've also mentioned before, it's a very mixed picture. You know, we have some companies that are still growing nicely. And then we have, you know, we mentioned, I mentioned here before that we have infrastructure product. We have some construction exposure. We also have some other companies that have, you know, more exposure to the higher interest rates, you know, more capital goods type of deliveries having a difficult time. But overall, you know, with a group like Cisco, we have, you know, we have a very diversified portfolio. So that's maybe... what you could expect in this situation that we will see this outcome. So in summary, I would say maybe as expected, even though we don't have big expectations.

Okay, very good. Thank you. And jumping into the contract manufacturing, of course, we see the growth high and there is some acquisition effects in there as well. Could you give some more color on these larger deliveries?

uh worried from a group of companies are the are the deliveries completed so to say do you think there will be more in the coming quarter which you have seen from the orders that you have now yeah so without going into too much detail here because now we're quite far down in the lisco structure but but yes we had we had a very strong uh sales quarter here in this in this division and whether it will continue i it's not I saw some of the comments here coming from analysts. It's not a project-type delivery. It's more of a run rate. But in this area, you know, with, you know, OEM customers, we can never be sure about, you know, stability of such a high growth that we have. So we don't extrapolate that fully, but it's not a product delivery. So in that sense, it's not, you know, it could also be on a slightly higher level going forward. But, yeah, we will see in the next quarter basically how that develops. in that area.

Okay, thank you. I'll get back in line.

Thank you.

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

Good morning, it's Carl here from Nordea. Coming back to the contract manufacturing delivery, sorry for that, but Would you say that the 100 basis points margin delta in system solutions is mainly or solely due to the contract manufacturing mix?

I would say because this time I actually did the calculation call because I checked so it's more than half of that change. And then we have some other, you know, in a group like LIFCO with so many companies, there's many, many mixed effects into play, but the others are less material compared to this one. Okay, very good. And then on the whole LIFCO, just sorry to interrupt here, but on the whole LIFCO, we also have the mixed effects between the different business areas on top of that, of course, having a lower mix.

Very good. Thank you. And looking at the central group function cost, it looks a bit lower in the quarter than in Q1, Q2, as well as year-over-year. Is it anything we should consider there, or is it normal fluctuations?

No, it's lower than normal, so I wouldn't extrapolate that either. Why is that? I think it's you know we have different releases of bonuses and it's also as a reserve for that and it's also you know cost can jump between quarters a little bit also in that field.

So a normal level you'd say is the Q1 Q2 level I mean meaning?

It's a more normal run rate.

Okay very helpful. You touched upon the construction market. Is it possible to give any flavors on what you said but on sub-segment levels and also if you could come back a little bit on pricing. I know that I asked it before but of course it might be tougher to maintain pricing in the market trending downwards perhaps.

Well, I think the subsegment comment, maybe we shouldn't take too much out of that, because in general, it's very much across the board in that segment. Then it can vary exactly how severe the market condition is. But in general, I don't think there's any area in the measure tools that is growing right now. So it's just a matter of slight variations on the lower level in market conditions. And sorry, the second question.

Coming back to that, you see no variations on order intake as well? Or is it just on deliveries?

No, but it's always some variations when you have different types of products and different types of markets. But I wouldn't say that there's any area that is significantly strong right now in this area. So it's small variations on lower levels. So I wouldn't draw too much into that comment I made earlier. It's pretty much across the board. But of course, it's not exactly the same in every product segment and every geographies. But it's relatively across the board weak in market conditions now in this year.

Outside of the block machines, do you see pricing getting tougher on the more sort of commoditized products? I mean, you have little commoditized products, but still you have some attachment with the business that could be more impacted, I guess.

No, not really. We stay firm in this. Okay, very helpful. The pricing question, yes, sure. No, we pay for them on that.

Okay, thanks. Thanks.

As a reminder, if you wish to ask a question, please dial pound key five 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. The next question comes from Robert Redding from Carnegie. Please go ahead.

Hi, morning. Maybe I could just ask on system solutions. So in this quarter, contract manufacturing had more deliveries than normal. Were there any other trends in the quarter, any segments within system solutions that accelerated or decelerated through Q3?

No, I would say that the trends that we've been experiencing throughout this year remains in the third quarter. Basically meaning that we see, as I said, some areas where we have niche segments where they're growing nicely. have you know a vast vast majority of maybe you know more industrial exposure of not capital goods and they are sort of maybe a little bit weaker but not you know dramatic and then we have a few areas uh such as infrastructure products and the you know construction exposed area and also some some companies with more i would say capex type of deliveries to to customers that still remain weaker in the course so it's I haven't seen any trend shift in this quarter compared to what we saw in Q2 or Q1 in that respect. Then, of course, the exact outcome can always vary a little bit, but as a general underlying feeling of the market condition hasn't changed.

Okay, perfect. Thanks so much.

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 for the questions. And I wish everyone a nice continued day. Thank you.