Ladies and gentlemen, welcome to the Lifco Q3 reports 2018. For the first part of the call, all participants are in listen-only mode. Afterwards, there'll be a question and answer session. I'll now hand the floor to CEO and President, Fredrik Karlsson. Please begin.
Hello. Welcome, everybody. I will say some words on our Q3 report. Could all please turn to page one? Page two, I mean. Page two. 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 lots of prepayments from our clients. In the rest of the businesses where we manufacture goods, we still have delivery problems on components. Therefore, we are overstocking, and we have high stock levels. Let me turn to page three. Here you see the performance on each individual business area. I think the numbers, they speak for themselves. We can turn to page five.
On page five 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. The ratio between net debt and EBITDA constant at around two. We have plenty of room for further acquisitions. Please, I would like then you to ask some questions on this report. Thank you. Are there any questions?
Thank you. Ladies and gentlemen, if you wish to ask a question, please dial 01 on your telephone keypads now to enter the queue. Once your name's announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial 02 to cancel. Once again, that's 01 to ask a question or 02 if you need to cancel. Our first question comes from Per Jørgensen of IMTS 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 take your comment about overstocking in 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 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 companies that you have bought, that you state that it will actually be positive for this year in the results. Just remind me, 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 share. Is that correct remembered? Thank you.
The first question on the incentive program, basically it's like this, that it's basically, we require at least 25% return. If they stock 100 too much, they have at least to increase the profits by 25. The penalty is not so tough on the capital employed. If they have good margins in the business, they tend to prefer to overstock than not to deliver.
Yeah.
The second question, what is material? You can say we're doing around 2 billion Swedish kronor operating profit. To have a material acquisition, it has to be well above SEK 100 million Swedish kronor profit level.
Yeah. My question is actually, I can see that you have actually bought these companies at a fairly nice multiple. It's fair to assume that they will actually bring over SEK 100 million or close to SEK 100 million on EBIT. Yeah.
Yes, in total.
On a-
all acquisitions can bring SEK 100 million EBIT, we don't comment that. There will be comments when maybe we send out our press releases, we just say if an individual acquisition has a material effect.
Yeah.
Of course, as we have an objective to keep our margins, at least 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 margin.
Yeah. Fair enough. Just to follow up on the M&A, I know the market is a bit shaky for the moment. You can see that also the reaction to your very fine results. Can you feel that the sellers are more inclined to speak to you now? 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 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 is very slow in reaction. If something happens on the stock market, it takes years before something happens on the private market, or it never happens.
Okay. Can you say something about your pipeline? Do you think it's still okay on acquisitions or?
Our pipeline is never okay.
Okay. Fair enough.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Emmy Östlund of ABG. Please go ahead. Your line is open.
Hi there. 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 Per Waldemarson, Head of Dental. Yes, it's two things. I mean, first of all, we always strive for margin, not sales. It's a long-term growth. If you look at our Dental business, we always strive for margin, not for sales growth. That's number one. I cannot say specifically this quarter, but that's an underlying principle we have. Secondly, we have also done some acquisitions that on the margin slightly contributed there.
Hello?
Yes. 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 prosthetic business that on the average is contributing to our overall margin.
Could you say anything about the margin difference between those segments or just that they are?
We don't communicate that, no.
Okay. Fair enough. Just a small question regarding the receivable that you booked in Demolition & Tools in quarter one. I was just wondering, is that still out there, or did it-
Exactly. To be honest, the last news I had on that one-
Yes
This happened after 30th of September. We have the check. I hope the check is covered. It's not in the books yet, but we have the check, so maybe it's paid now.
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 Fredrik. Just a quick question on your Demolition & 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 demand from construction.
I don't know if we are late. We don't see any big demand changes. What has been softer for a while is the U.K. market. Other markets have been stronger. September was still good.
In terms of order book visibility, how does that look in the Demolition & Tools business?
It's still good. We have
Okay
we don't see any signs of that the world is stopping.
Yeah. I presume visibility is better in that area compared to your other business areas?
It's difficult to say. I remember 2009. The stock market crashed before, half a year before we saw anything in our order intake.
Sure.
We are lagging the stock market. The real world is lagging.
All right. Thanks, Fredrik.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. There seem 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 dialing in and thank you for asking some questions. Looking forward to the next quarter. Thank you. Bye.
Thank you. Bye.