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Edited Transcript of LIFCO B.ST earnings conference call or presentation 23-Oct-19 12:30pm GMT

Q3 2019 Lifco AB (publ) Earnings Call

ENKOPING Oct 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Lifco AB (publ) earnings conference call or presentation Wednesday, October 23, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Per Waldemarson

Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director

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Conference Call Participants

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* Christian Hellman

Nordea Markets, Research Division - Director of Small and Mid Cap

* Johan Dahl

Danske Bank Markets Equity Research - Analyst

* Julius Rapeli

SEB, Research Division - Analyst

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Presentation

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Operator [1]

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(Operator Instructions) And just to remind you, this conference call is being recorded.

Today, I'm pleased to present Per Waldemarson, CEO. Please go ahead with your meeting.

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [2]

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Hello, everyone, and welcome to the Q3 quarterly presentation from Lifco. If we already flip to Page #2 in our presentation, I'd like to give some high-level comments on the quarterly performance. And if we start with the sales, we are growing our sales with about 15%. It's a combination of 8% coming from acquisitions, 5% organically and also some help from currencies in the quarter. And as we can see also the EBITDA numbers are growing, but slightly lower rate, which means that our margins are a little bit lower than the last year in the quarter, which is related to the performance of Systems Solutions, which I will get back to shortly.

Also on the high level for the group, we had a pretty strong cash flow in the quarter, which is mainly due to lower receivables. And just to comment also on the high level, we think that overall we had good performance across the line, and also the sales and profits in our more cyclical part of the business was quite good in the quarter. But we could comment that, as many of you know from the overall market, there is a more uncertain situation right now. So the coming months and quarters will be interesting to follow the development. But so far, everything has been good for Lifco.

If we then flip to Page #3, we can go through the different business areas. And on Dental, there's not much to say. This quarter, we have not had any help from acquisitions as it was more than 1 year ago that we made the latest acquisition in Dental. So it's all driven from organic and currency in that division -- in that business area. And as we can see here in Demolition & Tools, we had strong development both organically and from acquisitions. And then we come to the Systems Solutions area, where we have also in our quarterly report commented that we have had a weak performance in our Forest division partly related to lower margin, which can fluctuate between the quarters. And in addition to that we also made some reserves for increased project costs for the projects that we are running and then also specific reserve for restructuring or savings, organizational restructuring in one of our companies in that division. And that in total, the reserve is about SEK 15 million.

And then we can flip to Page #5 and look at our net debt and balance sheet. And as we can see the net debt-to-EBITDA, including our leasing IFRS 16 effect and also the option agreement that we have in our debt position, is about 2x EBITDA. If you look only after interest-bearing net debt-to-EBITDA, then we have 1.5x. So that is giving our financial targets quite low level, which gives us room for future acquisition potential.

Just also to comment on the balance sheet. We have on the tangible fixed assets and the interest-bearing liabilities in both sides of the balance sheet. We have an IFRS 16 effect of SEK 488 million that has impacted compared to last year.

And then we can turn to Page #7. And just to highlight once again, and this is a similar story that we discussed in last quarter. When it comes to our return on capital employed, we have now -- during this year, we include IFRS 16 effect in the calculation, which means that in the asset side we include them -- all the leasing effects, which then brings down the return on capital employed. And from next year, we will then have more comparable figures when we compare the return on capital employed. So it's mainly an IFRS 16 effect that drags down these numbers.

And then we can flip all the way back to Page 27 and just shortly comment on the acquisitions made so far this year. We have only made 5 acquisitions. But in total, they have contributed with SEK 930 million. And as you all know, we are continuously looking for more acquisitions, but the timing and exactly when it will happen is always an uncertainty for us as we have pointed out in previous calls like this.

So with that, I would like to open up if there are any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Julius Rapeli from SEB.

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Julius Rapeli, SEB, Research Division - Analyst [2]

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My first question would be relating to the Systems Solutions, especially on the margins there. You mentioned some struggles in the Forest division. But is there anything else -- could you put some more color on the other divisions as well? And are the acquisitions you made there margin accretive or dilutive?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [3]

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Well, as we have pointed out in our report, it's -- basically, the explanation can be found in the Forest division. In the other division, there is -- it's -- there's no material impact that's worth mentioning. So in the Forest division, we have pretty weak quarter in terms of the margins. And on top of that, we have this extra reserve that we made, but it's a combination of those 2 factors.

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Julius Rapeli, SEB, Research Division - Analyst [4]

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Okay. And if I may continue...

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [5]

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Sorry. On the acquisitions, they are not impacting the overall picture so much in this quarter.

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Julius Rapeli, SEB, Research Division - Analyst [6]

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All right. All right. It's good. Then on the Demolition & Tools, is there any differences in the development regarding growth and profitability between Brokk or the demolition robot side and the attachment side or is it going as business usual?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [7]

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It's pretty stable in the quarter overall.

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Julius Rapeli, SEB, Research Division - Analyst [8]

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Okay. So no big differences between the segments?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [9]

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No. But I think -- no. It's not material.

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Operator [10]

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And the next question comes from the line of

Johan Dahl from Danske Bank.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [11]

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If I other -- just had a question on -- I hope I'm not repeating because I came in later. But the Demolition & Tools, it appears to be quite significant slowdown in organic growth here in the quarter. Can you just talk about what you're seeing in the market? Are we seeing some significant weakness among other sort of construction-related peers? Would be interested in your view on that.

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [12]

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So overall, we had a good development in the quarter in the figures presented. But we do, as I mentioned early on the phone call here, we as everyone else think that the market situation is a bit more uncertain now than it was compare -- if you compare to how it was in the beginning of the year. But in the third quarter, it was good for us, so to say. But I think the uncertainty has increased since the spring is what we're feeling.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [13]

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And am I correct in Demolition & Tools that we're going from high double-digit organic growth to sort of low single digits here in the quarter?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [14]

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We don't -- I don't think we present that on a divisional level. But we still had -- yes, I mean we can say that the organic growth, yes, was high in the beginning of year, it's fair to assume, but we still had organic growth in the quarter.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [15]

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Also on the sort of acquisition cost, I was thinking the additional consideration and change in call and put option values. Can you just explain your visibility on that particular items going forward here? Anything that we should be aware of or any numbers that you can sort of share with us?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [16]

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So these numbers are every quarter. We update the valuation of all option agreement based on the last 12-month performance. So that can go -- so how these companies develop during any quarter have impact on this. And this quarter, we had positive development in those -- in that part of the portfolio, which led to higher costs for us.

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Johan Dahl, Danske Bank Markets Equity Research - Analyst [17]

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Okay. So there's no sort of visibility in terms of capital changes in the subsidiaries? Or I mean I guess the best way to model that would be just to assume according to your financial target in the group sort of a steady increase in earnings in those minorities there?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [18]

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Yes, we don't give any guidance on that.

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Operator [19]

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And the next question comes from the line of Christian Hellman from Nordea.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [20]

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I have one question on Systems Solutions and I was just looking at the historical performance, and in Q4 last year, the EBITDA margin was almost 17% in Q4. And I just want to sort of recollect on -- if there was sort of positive one-off or anything else that sort of missed the margin in Q4 last year -- sort of -- to have in back of my head when I model going forward.

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [21]

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I'm sorry, but I don't have that in my -- off the top of my mind right now. So I will have to come back on that question later.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [22]

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Okay. Okay. And then, my other question was one that Johan just asked about the organic growth because I also have it sort of slowing quite considerably from at least 20% or something to, well, at least below 10% for Q3 now. Can you confirm that it is at least single digit organic growth in Q3?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [23]

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The organic growth in Q3 for the group?

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [24]

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Yes. For Demolition & Tools.

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [25]

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For Demolition & Tools. It's also lower rate than in the beginning on the year. Yes.

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Christian Hellman, Nordea Markets, Research Division - Director of Small and Mid Cap [26]

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Yes. But is it single digits?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [27]

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Yes. It's below 10% in this quarter.

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Operator [28]

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(Operator Instructions) And we have a follow-up question from the line of Julius Rapeli from SEB.

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Julius Rapeli, SEB, Research Division - Analyst [29]

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Yes. Just one thing to follow up on. You mentioned something on the M&A pipeline. Is there something you can discuss about the pipeline? How does it look? Do you see any differences compared to previous quarters, years in the activity in the market?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [30]

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No. I think the comment on -- and I tried to make that comment earlier, but the comment is as always that there's always a lot of discussions ongoing. But the timing on when we will make it a deal is always very difficult to predict. So unfortunately, we cannot give any guidance. And we work very hard on this, but there's many things that have to be right to get the deals done as always. There is no change in them.

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Julius Rapeli, SEB, Research Division - Analyst [31]

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But no change in the pipeline. I mean you don't see any slowdown in companies available or anything like that?

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [32]

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No. I think it's pretty much the same as it's been the last couple of years. It's very difficult to comment on because it's -- every deal is unique in a way.

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Operator [33]

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As there are no further questions, I'll hand it back to the speakers.

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Per Waldemarson, Lifco AB (publ) - CEO, President, Head of Business Area Dental & Director [34]

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Okay. Thank you very much for dialing in. And we hand it over to the coordinator again. Thank you.

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Operator [35]

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This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.