Lifco AB (publ)

Welcome to LIFCO Q2 Report for 2025. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound five on their telephone keypad. Now I will hand the conference over to CEO Per Waldemarsson and CFO Therese Hoffman. Please go ahead.

Thank you and good morning and welcome to everyone. We can start with page number two in our investor presentation and take a look at the overall numbers for the LIFCO group. And if we start with the second quarter on the sales line, it was a softer quarter where some segments faced more difficult market conditions. We will come back to that shortly. Overall, the sales grow with roughly 3%. with a slight positive organic growth around 0.5%. We had negative effect from foreign exchange rates of 4.4% and around 7% growth from acquisition in the quarter. In the quarter dental had somewhat negative effect in the second quarter from a later Easter this year compared to previous year. overall if we go further down and look at profit and margins we can mention already here that in general the areas with slightly higher margins had weaker development than the areas with slightly lower margins in let's go we will come back to that in different areas later on and this led to a negative product mix effect in the quarter both in solutions and also in demolition tools had similar effects So the EBITDA declined by 2.8% because of that. And also this product mix effect had negative impact on the EBITDA margin, which declined from 23.9% in previous year to 22.5% in this quarter. I'd also like to mention in the cash flow line, it declined 8.5%. which partly has to do with a small decline in EBITDA, but also due to working capital build-up, mainly in the contract manufacturing subdivision within System Solutions. For the six-month period, looking at a little bit longer period, we had organic growth of 4%, but lower EBITDA margin also there due to the negative product mix effect in Demolition Tools and System Solutions. And overall for design, nine six month period sales grew with nine percent and the beta grow with six percent and then we can go into page number three and take a little bit deeper look on different areas in the dental area in the second quarter sales decline with around two percent and a beta with five percent the lower development here mainly had to do with the negative effect from Easter, and also we had negative effects obviously in foreign exchange rates in this area. If we then go further down to demolition tools, the sales grew with 2% in the quarter, where we actually had some organic growth that was offset by negative foreign exchange impact. The margin in the second quarter declined from 26% in 2024, to around 25% in 2025, and then obviously EBITDA declined with 2%. And here in Demolition Tools in the first quarter, as we mentioned in the last call, we saw some small indications of slightly improved market conditions. And then we also mentioned in the last call that uncertainty obviously increased in the beginning of April with the tariff situation. If we now then round off the first six months, We can conclude that the business area has stabilized on a demand level. And also mentioning here that given the fairly low order books we have in this area, the numbers we present in the second quarter is a pretty good indication of how the market was in the second quarter. I'd also like to mention here in Demolition Tools once again that we experienced negative product mix effects where areas slightly lower margin developed stronger in terms of sales than slightly higher margin areas. But also in Demolition Tools, I think it's important to mention that we have historically had variations in margins between quarters. So a variation of one percentage point up or down is nothing unusual for this business area. And then if we take a look at the six month period for Demolition Tools, we have developed well with 5.5% sales growth and 13.7% growth in EBITDA with increased margins for the first six months. If we then go further down to system solutions, we did experience somewhat weaker development in the second quarter. Net sales grew with 7%, but the growth engine was once again coming from contract manufacturing subdivision. Obviously, the growth rates went down significantly from previous quarters. Just to mention here, we had 95% growth in contract manufacturing in Q1, and this now went down to 17%. This is something we also indicated that we saw lower volume in April in the last earnings call, and this now translated into 17% growth in the quarter. But still, it had impact on sales in the growth numbers of this area with 17% growth. If we go further down and look at the beta, it declined 2.8% in the quarter. And this mainly has to do with weaker market conditions in several parts of the business area. A beta margin declined from 25.1% to 32.8%. And this is a combination of the negative product mix effect that we see here, but also some areas, obviously, that are declining sales organically. which led to lower margins like for like in those areas. In addition to the above effects, we also experienced almost a percentage point, 0.9 percentage points lower margin in the business area due to what we called onward invoicing of surplus material within contract manufacturing. And this is an effect of the growth rates going down significantly in this area. which led to too much material coming into LIFCO in entities from sub-supplies. And there we can then invoice those materials without any margins to the customers. And I also would like them to round off by saying the areas where we saw the weaker market conditions in Q2 were within environmental products, transportation products, and special products. And these areas have exposure to many sub-segments. But there was, I think, in this quarter in general, a lower willingness from our customers to make decisions to invest in our products and solutions in the second quarter compared to the first quarter. And then we can go into page number seven and just take a little bit look on the financial position. The net debt to EBITDA remains stable at 1.3 times interest bearing net debt to EBITDA. And this means that we continue to have a very solid financial positions and are able to make or to continue our stripe for making more acquisitions in profitable and interesting niche companies. We continue to gradually increase our capacity to be able to every year evaluate more opportunities. But once again, the actual outcome of when acquisitions materials will and should always be a bit volatile. We should only acquire great companies when we feel comfortable about those synthesis and when the valuations are at reasonable levels. And then we can go into page number eight and take a little bit longer perspective on LIFCO. We have now for quite some time had a little bit slower growth in LIFCO in 2023 and 2024. They were difficult years for us mainly due to our construction exposed businesses within demolition tools and in the first six months of 2025 at least we see stabilization and even some growth in those areas from quite at least from lower levels. And after six months in 2025, we have grown our EBITDA with about 6%, which is obviously lower than what we strive for and lower than our historical average. But we work very hard to, once again, try to achieve our target to increase our profit every year, even if the market situations were not the best in some areas during the second quarter of this year. If we then go all the way down to page number 34, We can just have a quick look at the outcome of our acquisition work in this year. We have announced nine acquisitions so far this year. It's once again a good mix of high margin niche companies and in total these acquisitions had net sales of slightly more than one billion Swedish krona. And with that I'd like to open up for any potential questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Carl Ragnarstam from Nordia. Please go ahead.

Good morning. It's Carl here from Nordia. A couple of questions from my side. Firstly, starting with... contract manufacturing business you mentioned that you have the 90 basis points margin headwind from forward invoicing of materialized you mentioned the reason why but I wonder how sticky is it of course you said that growth rates are deteriorating while you ordered maybe not too much but a little bit in that direction at least how sticky is it should it continue a couple of quarters or how should we think about that then what materials are we talking about

So first of all, in some of these areas, we call it the material supply chain has a long lead time. So to be able to produce in the second quarter this year, you have to make commitments way before that time. So that's the effect that we experience now when growth did not materialize the way things were looking maybe three months earlier. So that's the effect that happened here. And then we can then invoice those excess material to the customer. I guess maybe also looking forward, how will things go in this area going forward? I'd like to remind everyone that the growth started to take place in the third quarter of last year. So now we are sort of meeting more higher sales periods going forward. Having said that, maybe I should have mentioned that it was in the beginning of quarter actually lower activity and activity in this area. went up a little bit gradually during the quarter, but we still don't know exactly how the activity level will be in the second half of the year.

And do you think that the customer, if we see continued or demand levels at the current level, do you think that the customer of yours will continue to accept the material you're pushing forward or do they have any clauses that they could say no and you need to sit on the material with

i guess some risk of uh yeah price changes this is of course of course we don't go into specific contracts but in general in this area uh you have these type of clauses where where where based on the forecast from the customer if that does not then materialize in actual sales we have the ability to to to get rid of our inventory levels in that way

Okay, that's clear. And when you were talking about an increase at the end of the quarter with a slow start, could you give some flavor to the dynamics of it? Because it's been quite volatile when we're talking 95% to 17%. What is a bad or less good start to the quarter and a better end? Could you give any dynamics what the growth rates really are for us to determine what levels we should think about ahead?

Well, within the quarter we had, of the 70%, more of it came in in the second part of the quarter. We won't go into more details on that. Once again, keep in mind that in the third quarter last year, the growth already started being very high. So we are now meeting, so to say, more difficult comparison numbers in the second half of the year. But the indication of this looks better now in the second half of this quarter that it's coming back in. So there was a little bit of a temporary decline in the you know, first half of this quarter.

And my final question on it, you've said before that you, I mean, in typical IFCO manner, you don't want to be dependent on a single customer and single contract. It sounded a bit like you wanted to restrict how big this agreement could really be. So when you've seen a slowdown, 95 to 17, how much are you managing yourself and how much is determined by your customer in the volatility we have seen.

Sorry, can you repeat that part? I didn't fully hear you in the second part of the question.

No, no, sure. So how much, what portion of the volatility, now that we saw the 17% versus 95, and now you've seen a better end, how much is it you determining what the volume should be? Because you've said historically that you want, maybe don't want to grow this business much further, right? You said that before, I think. So is the slower pace and the ups and downs totally determined by the customer, or is it you, to some extent, managing?

You can say the following. We, of course, dictate how much we would like to co-invest in any customer agreement, obviously. But when the volumes decline or the growth rates go down substantially, that is, of course, more coming from the customer perspective.

Okay, sure.

Stable deliveries and very predictable deliveries is much better from a supplier perspective.

For sure. Of the working capital build-up you had in the quarter, much was due to inventory, right? 150 million. What portion of the year-to-year delta stems from the contract manufacturing business?

If you compare the quarter, it's a significant part of the decline in cash flow. Obviously, at the top, we had lower profits. But if you look at the working capital segment, I can put it this way. The numbers in cash flow would have looked pretty decent without this effect.

Okay, so the absolute majority, it sounds like.

Yes. It's always difficult to pinpoint the individual. In a diversified group like LIFCO, things are, of course, happening all the time. But in this quarter, this had a significant impact. That's also why we decided to specifically mention that in our quarterly report.

The final one, if I may, is on system solutions again here. You said that you saw weaker market conditions in environmental technologies, but also in other segments. Have you seen a significantly worsening market? Is it due to the terrorist general macroeconomic situation, or is it more or less the same trend as you've seen before? Could you give some insight into what you see there in the different subsegments?

Well, it's a bit difficult to, you know, we cannot say it's all, you know, it's not tariff related in a way that, you know, all our sales into the North America just dropped. That's not what's happening. It's more a general slowdown in some areas, which we will now follow closely and see how things develop in the coming quarters. So it's not so easy to say that it's because of this macroeconomic factor or that one. I think in general, when we talk to our companies and our different entities out there, of course, maybe the reluctance to make decisions on buying more capital-intensive goods has been a bit bigger reluctance following the uncertainty that took place in the beginning of April this year. But it's a bit too early to draw a major conclusion around that.

Okay, very clear. Thank you. Thank you.

The next question comes from Zeno Engdahl and Rick Chudy from Handelsbanken. Please go ahead.

Yes, good morning, and thanks for taking our questions. Just to follow up on the systems solutions there with the more, so to say, uncertainty related to customers' willingness to invest. Could you see that there was a difference if we take it month by month in the quarter given they are particularly uncertain in the beginning of the quarter?

Not really. It was pretty spread out throughout the three months in this quarter but having said that It's of course always difficult to understand the exact timing effect. A lot of decisions made in early April were maybe already made in late March and then the orders came in. So it's a bit difficult to draw too much conclusion around that, to be quite frank.

Understood. And on demolition and tools, as you said, you saw some early indications of improvements in the past quarter. instead if it's stabilized on this level do you mean so to say that underlying demand was relatively stable or that or on the same level or that you see that the growth rate so to say organically is what you expect or see in the quarter?

Well I'm not saying that you know things is in demolition tools or construction activity is back to the heydays that's not what we're saying but at least we now see also this quarter, some organic growth in this segment from not great base levels, but at least that's a positive sign compared to how things were in the past two years, you can say. So that's what we see now. So at least we have big developments in the past, and therefore it's easier to remain stable. But also in the second quarter, it felt pretty okay compared to If you take for example system solutions we had more decline in those areas from higher level obviously.

Yeah and I think in last quarter they were underlying in demolition tools also pretty broad. Was it similar in this quarter where there are certain areas that stood out?

I think the problem with demolition tools is that it's always a bit difficult with that area of quarter by quarter. It can be a bit volatile. We saw the margin in this quarter was slightly lower than last year, and it was, I think, slightly higher in the first quarter. So these type of effects have always been there in this area. I think the main message with demolition tools is that we have seen now for six months, with some organic growth and overall at least stabilizing so far. That doesn't mean that we know exactly how things will move in the next 6 to 12 months, but at least that's the indication we have now.

Okay, very good. I got back in line. Thank you. Thank you.

The next question comes from Carl Boakvist from ABG Sundahl Collier. Please go ahead.

Thank you. Good morning. The question I had was just one point if you could clarify when you talked about order books and how order books kind of were short and that the sales matched the current demand. Was that to comment on demolition and tools specifically?

Yes, this was my comment trying to indicate, you know, we have short order books and the demand in the second quarter was shown some organic growth of course negative foreign exchange effect so that was an indication to show that at least you know stability was there also the second quarter on the overall level understood and then we follow up is how one should think about the order book duration for areas such as environmental transportation special products In general, if you take the whole LISCO, we don't work with long order books. Then we have specific areas where we have longer order books. But if you take that as a relation to the whole LISCO and even within the subdivision, it's predominantly we have talking about one, two, three months order books in general. And then there are a few exceptions where you could sit up with six to nine months order books. When you have more bigger type of, I wouldn't say projects, but bigger Big deliveries that requires more planning and more adaptation to customers. But in general, it's quite short. Understood. It's normal. The only exception what we had in order books going up was during the aftermath of the COVID situation where supply chain and all that happened. But that's the only time we had that situation.

Understood. And then the comments here are that perhaps demolition tools, that things might be improving now. Do you think we could have a similar expectation for the infrastructure products area?

Well, first of all, we haven't said that things are improving. We just concluded after six months in demolition tools, we have seen a stabilizing and some growth. So we have to be clear around that. We don't forecast the future in this code. Yes, you could say that the infrastructure product is the area with the solution with the most commonality with demolition tools. It's not, you know, one-to-one, but it has underlying market, some similarities, yes. And you see that also in the number.

All right, thank you. I'll get back in line. Thank you.

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's list from Kepler Shoebrew.

Please go ahead.

Yeah, hi, thank you. A couple of questions. First on dental there, you mentioned the Easter holiday had a somewhat negative year-over-year impact. And, well, the question is, is it back to normal now? Should we expect dental to perform here in the third quarter as normal?

Yes, DEMTEL historically has been a quite stable base area and the reason we measure this is the effect that it can impact between the first and the second quarter. Now when we sum up the first half of the year that effect is of course not included in the total numbers. So from now on we have no such effect for the rest of the year.

Okay great and then I mean you mentioned the nine acquisitions made so far this year I mean it seems well it's a pretty good momentum I guess and they will add on gradually will this is it sort of a momentum will continue throughout the year I mean I know you don't give any forecasts or it depends but What about the backlog there? Do you see continued opportunities, of course? But can you say something about the outlook for the second half and next?

Well, I've got this question, I think, many times in the past. And the way I usually answer is that, you know, you could say that the theoretical backlog is always very, very full. But you never know when. transaction materialize. You have to keep in mind that we only acquire companies where we feel comfortable taking on the risks in the companies we evaluate and where we think the valuation from a LIFCO relative valuation perspective, when we look at different opportunities out there, is reasonable. And therefore, you know, the theoretical pipeline is never a perfect indication of how much will come in the next six months. But I can only once again say that we gradually increase our activity levels. Every year we look at more opportunities. So hopefully this will over time lead to a gradual increase in the acquisition activity. I think that's how we have developed it during the last five years that we gradually do more and more. But in any given year that does not mean that we will by default make more acquisition than previous year. But on average more activities should lead to, or more opportunities should lead to hopefully more transactions. But we're also very prudent. So if we don't feel comfortable, then it could be a wee quarter. We've seen that also. If you look historically the last two years, I think there's been periods of sometimes five months without any announcement from LIFCO. And this does not mean that we are not very active behind the scenes, so to say. So very difficult to predict when things will come into play. I normally also say that It's only, I think, a week before signing where I can actually say that this is a very hot lead, because there's so many things for us to feel comfortable to make an acquisition.

Thanks. And finally, just so I got it right, about the inventory buildup there in the second quarter, is it sort of made now, or should we expect the inventories to continue to be a bit

You mean the comment around the working capital effect and contract manufacturing? Is that the question? Yeah. So it depends on what happens with deliveries in that area. If deliveries continue to stabilize and we have stable and good development in that area, then this should hopefully improve in the second half of the year.

Okay, great. Thanks a lot. Thank you.

Next question comes from Carl Boakvist from ABG Sundahl Collier. Please go ahead.

Thank you. I just had a follow-up here just for kind of a bit of clarification, also going a bit more just into the subdivisions of systems. Transportation and special both to my understanding at least grew quite nicely last year. So I'm just curious to figure out here if it's also partly tough comparables when we just look at a year-over-year basis or if it's more that the kind of collective end market situation for the companies in those divisions have worsened.

That's a very good question. I think it's a bit of both, to be honest. We had very good development in many of these areas in 2023-2024, and now slightly weaker development. But also, it's a combination of tough comparison and then maybe a little bit weaker demand in this quarter. So it's a bit early to draw maybe a major conclusion around that, but yeah, that's where we stand. But you're right, Carl. It was, I think, in some of these areas, very good performance last year.

All right. That was the only follow-up. Thank you. Yep. Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad.

are no more questions at this time so I hand the conference back to the speakers for any closing comments yes thank you very much everyone for listening and for the questions and I wish everyone a nice day and look forward to to talk to you in end of October again thank you very much