Earnings Call: Q3 2018

Oct 25, 2018

Ladies and gentlemen, welcome to the Lifeco Q3 Reports 2018. For the first part of the call, all participants are in listen only mode. I'll now hand the floor to CEO and President, Fred Carlson. Please begin. Hello. Welcome, everybody. I will say some words on our Q3 report. Could you all please turn to Page 1 Page 2, I mean. Page 2, and that's the group's financial performance. I think it's not much to say about the performance. It is what it is. I just wanted to comment on the cash flow. It's actually the forest division saving us on the cash flow because we got a lot of prepayments from our clients because in the rest of the business is where we manufacture goods. We have still have delivery problems on components. Therefore, we are overstocking and we have high stock levels. And let me turn to Page 3. You see the performance on each individual business area. I think the numbers, they speak for themselves. So we can turn to Page 5. And on Page 5 is the development for the balance sheet and on the net debt. I think the main message here is that we still keep the debt level as of the ratio between net debt and EBITDA constant at around 2, as we have plenty of room for further acquisitions. So please, I would like then you to ask some questions on this report. Thank you. Are there any questions? Thank Our first question comes from Per Jorgensen of INTS Asset Management. Please go ahead. Your line is open. Hello, Fredrik. Very short and sweet, I must say. Fair enough. Two questions actually. If you would take your comment about overstocking in your a lot of your daughter companies, and I know that the incentive program for the management is actually to keep the invested capital very low. Do you compensate your management so that they don't so they can do business, so they don't would be inclined to say no to business due to the incentive program. That's my first question. My second question is regarding your confidence with your Board that you state that it will actually be positive for this year in the results. So just remind me, is it fair isn't it that it's over 5% on the EBIT level? If you acquire companies that will have an effect over 5%, then it's actually a positive influence on the salt. Is that correct? Remember. Thank you. The first question on incentive program, basically it's like this. And basically it's like this that if they over is basically we require at least 25% return. So if they stock 100 too much, they have at least to increase the profits by 25. So the dependency is not so tough on the capital employed. So if they have good margins in the business, they tend to prefer to overstock than not to deliver. And then the second question, what is material? You can say we're doing around SEK 2,000,000,000 operating profit. So to have a material acquisition, it has to be well above SEK 100 million profit level. Yes. So my question is actually, I can see that you have bought these companies at a fairly nice multiple. So it's fair to assume that they will actually bring over our $100,000,000 or close to $100,000,000 on EBIT. Yes. Yes. In total, all acquisitions can bring $100,000,000 EBIT, but we don't comment that. So there will be comments when we now when we send out our press releases, we just say if an individual acquisition has a material effect. And of course, as we have an objective to keep our margins, that is keep them at this level we're having right now, the objective with acquisition is to acquire companies which are close to our average operating model. Yes. Fair enough. Fair enough. And then just to follow-up on the M and A. I know that the market is a bit shaky for the moment. You can see that also the reaction to your very fine results. Do you see any can you feel that the sellers are more inclined to speak to you now? Or is it too short term to take a look? Do we need some more, let's say, I can see some of the bigger companies, Sandvik has stated that and some of the others that actually that sellers of companies are more inclined to talk to potential buyers. Do you see that for a moment? Or is it still too early to say? It is too early to say. The private market outside, it's very slow in reaction. So it's if something happens on the stock market, it takes years before something happens on the private market. All year, it's been Yes. Okay. Can you say something about your pipeline? Do you think it's still okay on acquisitions? Our pipeline is never okay. Our next question comes from the line of Emily Ostrand of ABG. I was just wondering on the Dental margin, it was fairly high. Could you give us a bit more color about that? Yes. This is Karl Balde Mohsen, Head of Dental. Yes, it's 2 things. I mean, first of all, we always strive for margin, not sales. It's not a it's a long term growth. If you look at our general business, we always strive for margin, not for sales growth. That's number 1. That's in sort of I cannot say specific in this quarter, but that's an underlying principle we have. Secondly, we have also done some acquisitions that is on the margin cycle continuity. Yes. And as you can see also, the long term trend is that we have been moving more from the distribution into other segments. Not specifically, maybe this quarter, but in general, we have been going more for more manufacturing business. We have software. We have prosthetics business that, on the average, is contributing to our overall margin. And could you say anything about sort of the margin difference between those segments or just that they are We don't communicate that, no. Okay. Okay. Fair enough. And then just a small question regarding the receivable that you booked in demolition and tools in quarter 1. I was just wondering, is that still sort of out there? Or did it Exactly, to be honest, the last news I had on that one, it happened after 30 September. We have the check. I hope the check is covered. We can't deposit in the books yet, but we have the check. So maybe it's paid off. Okay, perfect. Well, thank you. That's all for me. Thank you. Our next question comes from the line of Johan Dahl of SEB. Please go ahead. Your line is open. Yes. Hi, Per and Frederic here. Just a quick question on your Demolition and Tools business. Obviously, very good results in the quarter. Are you seeing any sort of change when you talk to your subsidiaries there with regards to demand patterns, either geographically or customer segments? We're hearing from some other companies some mixed messages on the global sort of demand from construction. As we as I don't know if we are late so we don't see any big demand changes. What has been softer for a while is the U. K. Market, but other markets have been strong have been stronger. So but there is September was still good. As in terms of order book visibility, how does that look in the demolition tools business? Yes, I mean, it's still good. So we have no we don't see any signs of that the world is stopping. Yes. And I presume visibility is better in that area compared to your other business areas? Well, it's I don't know. It's difficult to say. I remember 2,009. The stock market crashed before, half a year before we saw anything in our order intake. So it's we are lagging the stock market. The real world is lagging. All right. Thanks, Erik. Thank you. Okay. There seems to be no further questions at this time. So I'll hand back to our speakers for the closing comments. Okay. Thank you all for diving in and thank you for asking some questions. Looking forward to the next quarter. Thank you. Bye.