Lifco AB (publ)

Good morning, everyone, and welcome to the LIFCO Q4 presentation. We can, as usually, go into page number two in our investor presentation and start with a quick review of the overall performance for LIFCO as a group in the last quarter and also some comments on the full year. And if we start by the quarter specifically, we end 2024 with a strong quarter where we have organic growth of nearly 4%. in the group in sales. And then we also have contribution from acquisition of 6.4% and some positive foreign exchange effect. In total, that leads to 11% growth in sales for the quarter. We also go EBITDA, we run 9%. We come back to more details around that. And profit for tax increases with 12.5%. Operating cash flow is on a high solid level. We also had strong cash flow in last quarter, 2023. We also grow earnings per share with around 8%. And then if we looked at the whole year, it's been a relatively more difficult year for LIFCO given the difficult or more difficult market conditions, especially in our demolition tools division or business area where we have exposure to the construction market. So overall, we grow sales 6.9% for the full year and EBITDA grows with 4.5%. And in the full year numbers, we actually have a slight organic decline in sales of negative 0.5%. And acquisition is then contributing with around 8% in sales and pretty flat for an exchange effect for the full year. You'll also like to mention that the LIFCO board has also proposed a dividend of 2.4 Swedish kronor per share, which is an increase of about 14% compared to the dividend in 2024 that was paid out. And then we can go in a little bit more into details on the next slide, page number three. If we then go into the dental business area first, Maybe we should start on the full year numbers and it's been, I would say, a quite stable and normal year for dental. We are growing low single digit organically and also profits with stable margins and a little bit extra growth coming from a few acquisitions also in this year. If you look specifically for the quarter, it's a little bit weaker than the previous quarters. I would say that In margins, we are almost one percentage point down there. This is more what I would say normal quarterly variation, some extra costs in certain companies. I wouldn't extrapolate that too much. More variations between quarters is our view on that. If we go further into the next business area, demolition tools, we can just I know it sounds like we're repeating ourselves here, but it's actually how the market is. It's still relatively weak market conditions out there. We are still facing negative organic decline or negative numbers organically, which, of course, given the high margin characteristics of this business, it's difficult to keep the profit levels. But in relative terms, we still have very solid margins. Just worth highlighting on the last quarter, the last quarter of 2003, we had actually extraordinary good margin due to a very strong business mix effect and also some extra deliveries of special characters that helped up that mortgage. So in 2024, we did not have anything of that. And if you look at the full year numbers, you can see here it's been really, you know, throughout the year, weak market conditions, and therefore that leads to decline. But I can already hear mentioned that our companies have done a really good job in protecting our margins. There's been substantial volume decline from very high levels in 2022, but throughout this last, I would say, 18-24 months, really good job in making sure we do everything we can to protect our margins. Of course, also maintaining a good focus on the long-term future development of the business, meaning that we also want to continue to invest in the right people development to make sure we maintain very strong when the market picks up at some point. And then if we go further down to system solutions, it's a very strong quarter and also a very strong year. We are growing in the quarter 22% sales and Evita 26% and margin is actually increasing here. And this is of course in general, very strong development. We also have some effects which we also had in Q3 from strong deliveries in contract manufacturing that continues. And so that's basically something that is going very well the last six months. In the last quarter we had one special effect which we have mentioned in our report that impacts profitability positively. We had one completion of a project. We don't have many of those products anymore, but in the Q4 we had a sort of release of the final calculation of that project that impacted profit only positively. It's not an enormous amount, but it's worth mentioning that has some positive impact to SysSolutions. And then also, maybe also worth mentioning here, we have also in SysSolutions one part, which is a division called Infrastructure Products, and they are similar to definition tools facing the weaker construction markets to some extent. So they have been in the fourth quarter and also throughout the year suffering from that. But there are many other areas in the solution that are developing very strongly. So the organic growth as a whole is very solid in this division. Sorry, this business area, I should say. And then also, just by rounding off, When it comes to the construction of the role, we are not seeing any improvement in Q4. We don't see any worsening. So the message is very much the same as previous quarters. So we're still waiting for hopefully improvements in the future, but we don't know when. If we go down further to page number four, and then we will take a step back, because once per year, we actually do present a little bit more detailed numbers around our EBITDA development. In this table, you can see every year how much LIFCO has grown from acquisitions in profits and also how much we've grown from organically every year. And if you look at 2024, I guess this is not a big surprise to anyone. We have actually a negative development in EBITDA in the group, and this has entirely to do with the demolition tools division. The weaker market condition has had a major impact in that division, in that business area. And if you look at acquisitions for 2024, we are growing at 9%, which is not the best year in this group, but it's still okay, we would say. We have done, as always, working very hard to find the best possible companies to buy, and this is the outcome, 9%. And the average for the whole period since we were listed, the annual average has been around 12%. And for the organic EBITDA growth, it's been 7%, also now including one week a year. This is the first time it's a listing that we actually have a weak market condition here throughout. And if you go further down on slide space number four, we also have listed out some data on the average organic EBITDA growth in the listing, so from 2015 to 2024. And there you see that The 7% that we have as a total average for this period, which is now the annual average of growth, has actually been coming from quite slow growth in the dental part, which partly has to do that we have over this last 10-year period had some challenges in our distribution markets. I think this is not so dramatic in any given year, but accumulated over this period of time, we had more difficult parts of distribution, and then we have been growing more in the manufacturing and prosthetics and software part. And as we see today, and you can look further down at the presentation later on, we will not present that slide specifically, LIFCO now in dental is the dental distribution part is now a quite small part of our profits making. So that effect of sort of keeping the growth lower for LIFCO was more an effect up until I would say, you know, 2021, 22, and it's less of an effect nowadays. If you look down at demolition tools, an area that is volatile, and we're coming out of a fairly weak year here in 2024. On average, however, this division, this area, once again, has grown by 9% per year, including a week 2024. And this shows that this is a business area with a very strong growth profile, and many companies have opportunity to develop new products, get into new markets, and also have some positive effect from the efficiency measures and the safety measures that they offer their customers. If we then go all the way down to our system solutions area, here we have on average been growing 12% organically per year since the listing in 2014. And this number is, I think, a good indication of how many strong companies in these niches that we are developing and how good of a job the management of these companies are doing to actually grow this business. And we have many companies with strong potential in this area. This doesn't mean that we know that for the next 10 years we will have the same growth rates, but it's an indication of how LIFCO has developed the last 10 years. And once again, I'd like to mention that this is not happening just like that. It's a lot of great work from very good management and management teams in our LIFCO companies and make sure that this profit development has been taking place. And then we can go further to page number five, and this is also a long-term slide, and now we have added another year in 2024. And there you can then, we can then conclude that our average growth, the CAGR, this, I will just, before I go further, the previous slide was not the CAGR, it was more, you know, the flat average of growth, because that's how we can do with the organic side. When you look at this slide, we have the CAGR numbers. EBITDA has been growing 20% since 2015. Earnings per share, 70%. We have grown our interest-bearing debt to 70%, which basically means that we grow profits more than debt, and therefore our interest-bearing net debt has gone down since we were listed 10 years ago. Operating cash flow has been growing 90% on average, and dividend, we have now grown 17% throughout this period. If you go further down this slide, you can also afterwards also present on this slide how much we have spent on acquisition and the enterprise value of the acquisition we made and also the full year effect, estimated full year effect, I should say, because it's an estimation of first year in the beginning when we make an acquisition of what we have bought in every year. And there you can see we were not able to get the same effect from acquisitions in 2024 as 2023. But I think I mentioned it in the past that this is a more volatile. We cannot have it exactly linear every year, and it should not be exactly linear because we should only buy the best companies when they are readily available for us to acquire them. If we then go to page number six, a very important measure for us is, of course, the cash flow. And the way we measure cash flow here is that we look at the free cash flow per share after basically everything, but before dividends and acquisitions, which we basically say that we control from the central level of NISCO. And then we have been growing that since 2014 with around 23% on average. In this year, we have only a moderate growth, but we had a very good comeback year in cash flow in 2023. And the problem we measure in cash flow is that it's a very good indication for long-term development, but short-term, there's always some turbulence in exactly when cash flow coming. And it's, of course, an extremely important measure for the long-term success of a company. And then just going into page number seven, we will only then comment once again that our, you know, our financial position remains very strong despite quite a number of acquisitions in last year. We still sit at an interest-bearing net depth of 1.2, which was only slightly up from 1.1 times EBITDA one year ago. So we have plenty of room to continue looking for great companies to acquire. But once again, we are very selective and with very high ambition, of course, to continue this journey, but also making sure we don't acquire the wrong companies. And then just to round everything off on page number eight, we have reached our target also in 2024 to improve our profits. It was a difficult year. We had weak market conditions throughout the years in demolition tools. But we are still satisfied with being able to grow profits, even though with slightly lower margins due to the negative operational leverage in demolition tools, we end up with 22.6%. but still a quite satisfying level given the circumstances. So with that, I'd like to open up for questions.

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 Carl Ragnastam from Nordea. Please go ahead.

Good morning. It's Carl here from Nordea. A few questions from my side. Firstly, you mentioned the margin drop in dental 110 basis points. You also talked about extra cost. And you said that we should not extrapolate them. So I'm a bit curious now what these extra costs are. Yeah, you start there.

Basically, it's related to many small things that just happens to take place in the same quarter. And if you look at the full year numbers, it's a very stable picture. And what I'm saying here is that we will see how the future goes. This is not a guidance in any way, but I'm just saying that We are not overly concerned about the margin drop in the last quarter yet. I mean, if this continues for more quarters, of course, it's not good. But sometimes this can happen to be in relation to, you know, we have strict rules for inventory valuation. And then some companies sometimes need to do some small changes of organization that can increase the cost temporarily. Stuff like this that can take place in quarters. And then I think also we had, you know, we didn't comment on that. We also had a little bit, maybe compared to previous year, even more difficult Christmas period. But, you know, now I've said it, I shouldn't really say it. I don't like to talk about these calendar effects too much. But this is where we sit. But we will see next quarter call how this develops. But it's not something that is, you know, the business is pretty much as usual, I would say.

And what portion is related to inventory write-downs or obsolescence in inventory or or discounting of inventories, is it anything related to that?

I think in this quarter it's a little bit of that and then it's some extra cost that was taken in some companies to a little bit go down in size and then it was more like that. So it's not anything that is major specifically, but then if it happens in a few, you know, And I think this happens in every quarter, maybe one company, then you have a little bit more companies this quarter. That's why you can see the numbers.

Okay, sure. And you also mentioned, of course, the project completions in special products. If you have pocket accounting, obviously, it could be margin boosts. But could you mention a bit on roughly the size of this on the margin, especially on absolute EBITDA as well?

Yes, I think the model would be more in line with previous year in this solution area if this delivery didn't come. I think it's always dangerous to say that because, you know, no quarter is, I mean, every quarter is special. But this was for sure this final product delivery, which only impacts profit because you basically released the product reserve. It's not something we have very often nowadays because we don't have much profit project companies left. So therefore, we thought it was. good to sort of mention that especially when we look at the numbers one year in the future so that's it so it has some special but also maybe just to round this off is that it means that if this is Lucius we have if it looks really down into the different parts there's some companies that have a bit difficult market condition I already mentioned the infrastructure products there are a few others and then there are quite a number of companies that are doing quite well and overall they're

we stay solid in this area okay very clear and also on the contract manufacturing side last time we asked you I think at least it sounded like it will continue in the short term but it's hard to tell do you have any update on your view of the time frame of the momentum in that business area because it's actually growing quite heavily now right 60% yes

But when you're in contract manufacturing, it means that you're dealing with OEMs. So we don't really control the... Unlike the rest of LIFCO, we have more control of the... We have more contact with end users. In this area, we don't. So it's more difficult to predict. Even more difficult. It's always difficult to predict. But in this area, even more difficult. But now we have two strong quarters. So I think that indicates that it's lasting longer. So we will see how long this very positive trend... So we don't have any signals right now that it would suddenly stop right now but on the other hand we have also the very difficult to predict in this area.

Okay perfect and the final one from my side is you touched upon cash flows it's it grew three and a half percent year in the quarter but looking at your inventory levels they are still quite a bit above pre-pandemic levels right then So, I mean, how should we look at the possibilities to reduce inventories to pre-pandemic levels? I guess it's two to three percentage points lower in that case. Or are you fine with this level? Because it seems to have stabilized here.

I think it's a good reflection. I think the gradual improvement is, of course, the targets. But it's not going to be dramatic from this level. But we still have companies that are, especially in the more cyclical companies, they are not happy with the inventory levels they have right now. I can say. So they are still working on getting it done.

But are you pushing the companies or managers to reduce it? Because I guess when you're getting used to have more inventories at hand, I guess it's quite comfortable as a salesperson to always have inventory, right? Yes. I guess the stickiness is difficult to tackle, I guess.

No, we have systems to ensure that people focus on inventory and receivables, yes. Okay, thank you so much. So we have incentives, we have incentives, and then we have a culture around that. So it's always a trade-off between profit and capital input in every company. Very important part of business.

Okay, thank you.

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

Thank you. Good morning. A follow-up on the dental comments you made there, and apologies if I didn't hear you properly there, but was it part to some company realignments and the If so, is it due to some change in market dynamics in any particular regions worth knowing about?

No. The change in dental is extremely slow trends. I mentioned this when I presented one of the slides here. We have two negative effects that have been hitting the dental market for 20 years. One is know a more difficult distribution market it doesn't impact in in in any given uh quarter and even give a year but over five year periods you see it's been slightly more difficult um especially if you compare to how it was 20 years ago this is this is one trend and the other trend is of course in some product areas you have slow change of technology uh that in one of our companies that is a production company they have to you know they have to to to to realign their product assortment in that but that's not happening over over quarters or years but that's gradually that's the trend and sometimes then you have to do a little bit of small changes around that but i think we're getting a little bit too much into this comment now um so it's a mix of a few effects and therefore the volume was slightly lower in the fourth quarter i think that's the concluding message around that understood and then on uh

on the on demolition and tools again we know we might get maybe a little bit too much into detail but do you hear anything different when you look between like more pure construction related forestry the different kind of businesses that you have within the division regarding potential changes in the market and such

And you can say that in general, the more infrastructure part of the business has been holding up better. But actually, the forest part and the construction part has been both kind of depressed recently, you can say. But then you have to remember, you know, it can be slightly lower and it can be a lot lower. So it's not, you know, we're still on pretty okay levels in this. We're coming from very high levels and we are on lower levels. I just want to be clear to everyone that this is nothing compared to how it was with the financial crisis. Of course, the financial crisis was a very short-term crisis as things came back. So this is more of a slow crisis and not so severe. But if you look at last year, we had a pretty weak market for actually also the forestry report as well. Infrastructure was maybe the driving of all of them. And then, of course, you have a little bit different geographies. Some construction markets were a little bit better than others. We don't go into those details, but I would say pretty much everywhere it was weekly construction.

Understood. My final one is just on contract manufacturing here. Could it also be that some of the businesses within that group that they've now won or obtained new contracts and so on, i.e. that we could see actually more than just a quarter or in fact perhaps a year or two or three where you see a notable step up in deliveries?

It can be so, yes. But we don't promise that. Okay.

All right. Thank you.

The next question comes from Zeno Engdalen-Richuti from Handelsbanken. Please go ahead.

good morning i've just got one follow-up question on the margin in system solutions you said that it probably was in line with last year when adjusting for the the project delivery but i'm thinking i think last quarter we said that the contract manufacturing part has a lower margin than the rest so Should you see that the rest of the group, when adjusting for that, has performed better? Is that the correct way to see it?

Yes. Slightly better for the rest of the system solutions, comparing Q3 to Q4, yes. But still, the overall message here is that we have some companies, including the contract manufacturing example, and some others that are developing very well. not due to specific, you know, market, but more general, you know, bigger trends that they're developing very well and do a great job there. And then we have actually a number of companies, thankfully fewer than the positive ones that are having a quite difficult market. And, you know, once again, mentioning the infrastructure products and also some other special niches where they have more, you know, difficult due to the general weaker, you know, economy out there right now. So it's a very mixed, it's still a very mixed picture within this area. But overall, very strong companies in this business area. I think it's worth noting that we have some very strong niche companies that can do great things over a long period of time.

Very good. Thank you. I'll get back in line.

Thank you.

The next question comes from Christian Binder from Red Eye. Please go ahead.

Thanks so much for taking my questions. First one, I wonder whether you could elaborate a little bit more when it comes to the difference in organic growth over time for a different business area, so specifically dental, these structural challenges that you cited, does that in any way either positively or negatively affect your view of M&A in that sector?

No, yes and no. I would say that we have not been acquiring much where we have seen more negative market or general situations. So we have acquired more in areas where we think we can have a better potential for organic growth. And once again, we're talking dental. It's not going to be dramatic organic growth, but it should be more than 1% on average that we have here. This has to do with special effects. that we've been suffering through over many years in the distribution area. Now distribution is, if you go further down in our presentation, you can find a slide where we present that. Do you see the sales mix? But I can openly mention that all our profits in dental distribution is now less than one third of our profits. So it means that we have now built a portfolio of companies with slightly better opportunities for organic roles going forward. And we also see in the last couple of years, without going into too much details, that this effect of the negative, you know, trends is tapering off. So we should hopefully, we are seeing a better, slightly better organic growth in the last couple of years, even though there was some turbulence with COVID and all that. So to answer your question, yes, of course, you know, we learn and we adapt and we try to grow where we want to be successful. But definitely as a group, it's still an interesting area for us to acquire companies. But once again, the strength of LIFCO is that we are not forced to buy any specific company. We're never forced to buy any company. We think we get the best possible companies to grow with for many years to come. I hope that answers your question, Liv.

Yes, perfect. Got it. My second question, and I'm sure you receive it all the time, but I frequently get asked when it comes to LIFCO versus potential competitors, are there any specific things that you're implementing to kind of differentiate yourself versus other acquirers? And as an extension of that also, obviously key persons in your M&A machinery, you kind of teach them the craft, so to speak. Do you do anything to prevent them from eventually quitting and, so to speak, starting their own serial acquirers?

Well, I don't really know how to answer that question. We don't spend much time following other companies. We are trying to focus all our energy on developing LIFCO. We've done so for the last 25 years. So I think there are probably better, other people are better to answer your differences between different companies than I am. So I don't know how to get into that. When it comes to keeping very important employees, it's of course one of my most important jobs to make sure we have a culture and the right system and incentives in place, and also giving people the right opportunities to develop in LIFCO. I think we have been very successful with that so far, and we hope that continues also in the future. It's one of the key success factors in LIFCO, maybe the most important one, is how we have been able to keep very successful people growing in the company. And if you look at the team around me, the average seniority of my major team members is I would say 15 years, just guessing now, but around that level, 15 years in LIFCO, that's extremely important, not only for ensuring that we have a very strong governance culture and very strong ownership, implementation of our ownership thinking of different companies and acting where we need to act, but also it's a key factor when we acquire companies is that we don't send out someone who worked two years in LIFCO trying to represent us. We send out people that really know how it's like to run a business in LIFCO. They'll be raised and born in our culture. They know also how to be a leader of new people in that situation. That's extremely important. And then how others are working, I think they should comment on that.

Understood. That was all from my side. Thank you so much.

Thank you very much.

The next question comes from Ingvall Jankvist from Savilla GmbH. Please go ahead.

Hello, Per. Congratulations to a great year, given the tough circumstances in the world. I have a question. If we look at slide number 17 in the presentation with the footprint, is this sales originating from the country or Norway, or is it in this country? It has percentages, it doesn't say.

Oh, sorry. This is where the sale takes place. So this is, as you know, Ingvar, this is basically to which market do we sell our products. All right. and where the customer is located. So, for example, you know, we might have slightly more, you know, companies located in Sweden, but they were export-driven, and therefore, you know, Sweden is 9%. So I think we have... And the same thing for Italy. You know, we have more companies than we have sales in Italy because of a lot of export-driven companies, et cetera.

Okay, so more... Okay, so... So that's... This is... Once again, so this is sales in the country of Italy or in the country of Norway? Or is it from the company that's based in... No, no, it's sales into that market.

So, for example, of LIFCO business, 10% is sold into U.S. to U.S. customers.

Understand, understand. And would there be any difference in...

regional profitability for you or is it pretty much the same well the profitability in region depending on sales is totally do what type of companies are selling mostly to those countries we have very we have a range of different profitability levels so if we have a high a high proportion of high margin come product sold into the North America that of course the modern from North America is higher and vice versa. But we don't communicate that specifically where we have. Right. Yep.

So, and then dividends. I must congratulate you on increasing the dividends. So the long-term dividend growth is coming up more on par with the growth in the long-term cash flow and then EBITDA. So that's very well done.

Okay. We're happy as shareholders. Thank you. Okay.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Matt Sliss from Kepler-Tuvriux. Please go ahead.

Hi, thank you. Two questions, please. i mean you mentioned the tough conditions in demolition and tools and i would just sort of think about i mean you're still performing very strongly on margin and so but what kind of recovery potential do you see there when sort of markets normalize and and could it be a sort of a bullwhip impact i mean when well supply chains are refilled or so of course you mentioned that inventory thing in construction side was maybe not what you like them to be, but could you give some more flavor there about the definition of recovery potential?

Well, I think, you know, we had before things were starting to fall down, we had a short period of time where things were almost perfect for demolition tools. I can't remember exactly what this was because it was not perfect after COVID because then we had supply chain issues and then inflation came and we had order books At some point, I think it was perfect. Maybe it was beginning of 2023. This rarely happens. But when that happens, we can have, of course, a higher margin than today because we have perfect operational leverage in our companies and everything is perfect. So, of course, there is potential for better margins in demolition tools. And I think we can show that historically. But when does this market situation occur? We don't know. Right now, we're in a situation where, you know, even if we see some small improvement in certain parts of the energy tools, we still have other areas where they are, you know, a little bit later into falling down and they maybe have even bigger water books. So we don't know right now when that will take place. And even if we see some improvement in some areas, it could also be that some other areas is having a slightly more difficult part. And that's the only thing we can really conclude so far is that in 2044, it was throughout the year, a weak market condition, even in Q4.

of course the longer we have had that situation relatively easier to meet tonight okay great thank you and then when i looked at well the numbers there are selling expenses grew quite substantially here in the fourth quarter 30 percent and if i compare that year of year and if i compare that to the third quarter it was only of eight or nine or so were there any specific reasons behind the or is it more of a seasonal impact in in q4 you have but i guess it's quite sorry so i could not really are you referring specifically to sdn cost or something yeah it's a look at the pnl and if you well the selling expense line there is growing 30 in q4 And if you compare that to the third quarter, it was 8% or 10% or so year-over-year. Are there any sort of specific extracts there that impact the fourth quarter?

No, but I think this is normal seasonality effect. And then we also have different quarters. We have different, you know, the third quarter also includes some companies quite an extensive vacation period and stuff like this.

Okay, yeah, I thought it was quite a big difference here. Okay, 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 everyone for listening and thank you for the questions and I wish everyone a good continued day.