Welcome to the Lifco Q1 Report 2018. For the first part of this conference, all participants will be on listen-only mode, and afterwards there will be a question and answer session. I'll now hand the floor to our host, CEO and President, Fredrik Karlsson. Please begin.
Thank you very much. This is Fredrik Karlsson speaking. We just issued our quarterly numbers. If you turn to page two in the presentation, we can have a look at the sales figures first. There it says that organic growth was minus 0.6%. This is, for us, a disappointment, because in general, markets are good and demand is good, yes, it's a disappointment. In many cases, we are delayed in deliveries. We are experiencing difficulties to source components, and we get delays in our deliveries in many of our manufacturing entities. If you look at the EBITA margin, it's also disappointing. It's even worse than the turnover, our EBITA growth. We always want to grow faster EBITA than turnover. Now we had a slower growth in EBITA than in turnover. It's all our fault.
One thing is that there are a number of small issues we have had. The biggest issue we had in the Demolition & Tools area, we can look at that later. We had, among other problems, that we had some receivables not paid by our customers, which we are working hard on to have these payments within this year. We also have, in the Demolition & Tools area, a product mix question. We sell cheaper products and smaller products, less complicated with less margins, and we have some problems with the currencies as well in the Demolition & Tools area. All in all, not so good EBITA development, and the operating EBITA margin is due to Demolition & Tools. As they acquired some companies, so the profit before tax is growing even slower.
We have one thing which is also disappointing this quarter, and that is the cash flow, and we don't have it in the presentation. On page 14 in the quarterly report, we have a cash flow statement, and there you can see that the stocks have increased by more than SEK 130 million, and that is also due to delayed deliveries. We are sitting on stock waiting for components to be able to deliver. On the positive side is that current liabilities have increased, and that is actually due to more prepayments from customers for ongoing orders and trade liabilities. All in all, cash flow was not good this quarter. Let me turn to page three. On page three, you see Dental has a normal development. If you think about Dental is a little bit affected by Easter, I think it is not much to comment.
Per, do you want to comment something on Dental?
I think we can just highlight here that we had Easter in April 2017, this year it was end of March, beginning of April, which had a negative impact on the first quarter somewhat, which we should get a little bit positive than in the second quarter.
Yes. In Demolition & Tools, we had good growth in turnover, but had very disappointing growth in EBITA. One is these reserves were made for receivables. We have for Kinshofer, for our German factory, they have a problem that the dollar has weakened against the euro, we have the mix problem I spoke about. All in all, we had a very disappointing margin development. Systems Solutions, I think it's a normal development, even though in Systems Solutions, we had some problems in deliveries as well in our manufacturing units. Then we can turn to page number four. 18th of May, Lifco will be 20 years. 18th of May 1998, it was public, was part of Getinge, it was distributed to Getinge shareholders, it had a market cap of SEK 360 million.
Now our market cap is around SEK 3.1 billion, we are the blue line in this graph, we have 80 times in 20 years, that's very good. We're actually the top performer among the large caps on the Swedish Stock Exchange over 20 years. This graph is of the 10 best performers on the Swedish large cap. We were also listed in 1998. The interesting thing to see is that Sweco is another top performer. Both Lifco and Sweco, they have an extremely decentralized model. If you look at the gray line, that's property company Balder, I don't know much about it. NIBE is the fourth company, they have been very acquisitive as well. The fourth one is Hexagon. Also, they have an acquisitive decentralized model. The model has paid off long term.
You also can see since our reintroduction to the stock exchange in November 2014, we have a very good development since the listing began. Next page. This is page five. I do not want to comment it too much. Now, as we have figured out over the years that we are a good buyer for family businesses. If you read on page five, this is essentially why we are a good buyer of family businesses and that people prefer to sell us than to private equity. We can flip. Then we can turn to page nine. Even though we had a bad cash flow last quarter, still our net debt to EBITA ratio is around two, so we have plenty margin for acquisition as our target is three. Actually, then we can have a look at page 13.
Then you see we have three acquisitions which are included into the Lifco accounts from starting in 2018, is Computer konkret. Software Products is in Germany. Spocs is for our contract manufacturing. Dental Direct is a dental wholesaler in Norway and Denmark. That was all I had to say. Please, if you have any questions, you are welcome to ask them.
Thank you. If you wish to ask a question, please dial 01 on your telephone keypads now to enter the queue. Once your name is announced, you can ask your question. If you find it is answered before it is your turn to speak, you can dial 02 to cancel. Once again, that is 01 to ask a question or 02 to cancel. There will be a brief pause now whilst you register any questions. Once again, if there are any questions, please dial 01 on your telephone keypads now. We have one question coming forward. That is from Robert Radin of Carnegie. Please go ahead, your line is open.
Hi, sorry if you covered this before, you wrote in the report about provisions for doubtful trade receivables in Demolition & Tools, and I was wondering if you could say something more about that, maybe quantify and also what receivables those are.
I can take that
going forward.
We have a small company called Aalbergs. They have a big delivery to a nuclear site in the U.S. It's a government nuclear site which is trading old nuclear material. There is basically a misunderstanding on the delivery content. We have delivered 99% of what the customer expected, the 1% is missing, and the customer won't pay until we get the 100%. The thing is this little component, which has no big value, takes a lot of time to produce. We can't deliver it until end of this quarter, then the customer hopefully pays next quarter. Then we have some other water in North America receivables which we have to collect on the Brokk side. Hello?
Okay. This Aalbergs one is the big part, is it?
Yes.
These Brokk receivables, are they a part of some kind of trend or?
Brokk in North America, they have grown very rapidly. We have a small organization. It can happen that they have to collect. You have to be on the customers all the time, see to that they pay in time. That they had so much to deliver that they maybe have not paid too much attention to this issue. Now they pay attention.
Okay. It sounds like you're expecting to get paid in the end, but still there was a.
We hope so.
Okay. Yeah. Could you quantify how much that this adds up to? Because it said in the text-
No, we said it's the majority of the-
Margin decline
margin in it.
All right. 2%-3% of a quarter sales. Okay.
Yeah.
All right. You also wrote about Dental having seen some kind of Easter impact in Q1. You branded that as slight or small. Was it smaller than you expected or bigger than you expected or?
This is Per here. Yes, I think it is like expected. It is difficult to know exactly because, this year it was right in between March and April where you had the sweet spot of Easter. Then in some cases, the week before Easter is weaker than the week after in other countries. It is a little bit complicated on exactly how it plays out, depending on where Easter ends up. I think it is pretty much as expected from our side. We are not so surprised about this effect.
All right. For Q2, you are expecting a negative Easter effect.
No. The slight negative effect we had in the first quarter should have, if we don't make a mistake here, it should be, if anything, positive. There are, of course, other things that can happen, but from pure Easter effect, it should be somewhat positive in April.
All right. Got it. You also wrote about the late deliveries from suppliers, capping your own production a little bit in the quarter. Was that mostly in Systems Solutions or where was that?
In Demolition & Tools and Systems Solutions. Both.
Okay, both.
Do you foresee those problems getting solved anytime soon, or have they been solved, or will they be a problem also in Q2 or Q3?
Yeah. If the order intake increases even further, we will have problems, but under normal circumstances, it should be solved during Q2.
All right. Thanks. Those were my questions. Thank you.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. We do have one further question coming through. That's from Daniel Lindquist of Handelsbanken. Please go ahead. Your line is open.
Yes. Hi, guys. Just a quick question on the margin of the Dental business. I was a bit surprised with the stronger EBITDA margin during this quarter with slower organic or negative organic growth. Could you just elaborate, are there any currency effects or are there acquired companies, or is there an explanation for the improvement?
Yeah, this is Per again. First of all, I don't think that effect is so major. I think it's something that can just happen between quarters, when this happens. I wouldn't say such a major effect from my perspective. There is a slight positive effect on the currency. Not major either. Yeah. It's like that. Things can move a little bit between quarters, also even in Dental.
Okay. There's no change. We became used to the margins being at around the same levels and not improving as much as historically. Nothing special with this quarter, just a coincidence with the-
I think so
margin.
Yeah. Sorry, while I'm on the line there, can I just make it clear about the Easter as well, because I had a question previously. What I mean is that we had a negative effect in the first quarter from Easter, because Easter last year was in April. This mean that this year, April should be slightly better than April last year. Of course, slightly worse than the year where we have no Easter at all in April. Just to make it very clear on the Easter effect.
That's lovely. No further question from my side. Perfect. Thank you.
Thank you. Once again, any further questions, please dial zero one. As there are no further questions coming through, I'll hand back to our speakers for the closing comments.
Okay. Thank you very much for listening in to us. That was all from us. Thank you.