Earnings Call: Q1 2018

Apr 24, 2018

Welcome to the Lifeco Q1 Reports 2018. I'll now hand the floor to our host, CEO and President, Fredrik Carlson. Please begin. Thank you very much. This is Fredrik Carlson speaking. We just issued our quarterly numbers. If you turn to Page 2 in the presentation, we can have a look at the sales figures first. And 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. So yes, it's a disappointment. We have in many cases, we have 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 EBITDA margin, it's also disappointing. It's even worse than the turnover. Our EBITDA growth. We always want to grow faster EBITDA than turnover. And now we have a slower growth in EBITDA than in turnover. And the it's all our fault. One thing is that we the number of small issues we have had. The big issue we had in the demolition and tools area, we can look at that later. We had, among others, that they have some receivables not paid by our customers, which we are working hard on to have these payments within these years. We also have in the demolition tools area product mix. Will sell cheaper products or the smaller products, less complicated with less margins, and we have some problems with the currencies as well in the demolition tools area. So all in all, not so good EBITDA development and the EBITDA, the operating rate margin is due to demolition tools. As big companies, the profit for tax is growing even slower. Let me have one thing, which also this point in this quarter, and that is the cash flow. And we don't have it in the presentation, but on Page 14, in the quarterly report, we have a cash flow statement. And then you can see that the stocks have increased by more than SEK 130,000,000 and that is also due to delayed deliveries here, sitting on stock waiting for components to be able to deliver. And on the positive side is that current liabilities have increased, and that's actually due to more prepayments for customers for ongoing orders. And for and trade liabilities. But all in all, cash flow was not good this quarter. Let me turn to Page 3. On Page 3, you see Dempel has a normal development. If you think about dental is a little bit affected by the Easter. So I think it's not much to comment. Pierre, do you want to comment something on Dental? Yes. I think we can just highlight here that we had Easter in April in 'seventeen, and this year it was end of March, beginning of April, which had a negative impact on the Q1 somewhat, which we should get a little bit positive then in the second growth in EBITDA. And once these reserves were made for receivables, we have the before Kinsof, our German factory, factory, they have a problem that the dollar has weakened against the euro. And then we have the mix problem I spoke All in all, we had a very disappointing margin development. Dents Systems Solutions, I think it's a normal development, even though in Systems Solutions, we had some progress in deliveries as well in our manufacturing units. And then we can turn to Page number 4. 18th May, Lifeco will be 20 years. 18th May 1998, we were it was public, it was part of Jiteng and it was distributed to Jiteng and shareholders. And then it had a market cap of 3 60,000,000. Now our market cap is around SEK 3,100,000,000. And we are the blue line and that's in this graph. And we are our portfolio, we have the value 80x in 20 years, and that's very good. We're actually the top performer among the large caps on the Swedish Stock Exchange over 20 years. So this graph is of the 10 best performers on the Swedish Large Cap, which are also listed in the 98. The interesting thing to see is that Zviq is another top performer. And both Zviq and Zviq, they have an extremely decentralized model. And if you look at the gray line, that's property company in Balsam, I don't know much about it. Nide is the 4th company, and they have been very accretive as well. And the 4th one is Hexagon. Also, they have an equity decentralized model. So the model has paid off long term. And you also can see since our reintroduction to the stock exchange in November October in November 2014, we had a very good development since the listing. This is Page 5. I don't 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 look if you read on Page 5, this is essentially why we are a good buyer of Family Businesses and that people prefer to sell us in auto price equity. And then we can turn to Page 9. Even though we had a better cash flow last quarter, still our net debt to EBITDA ratio is around 2%, so we have kept the margin for acquisition as our target is 3%. And actually, when we can have a look at Page 13. And then you see we have 3 acquisitions, so which are included into the Lifeco cans from starting in 2018 is completely concrete, Software for dentists in Germany. Fox is for our contact manufacturing. And Dental Direct is a Dental Hosea in Norway and Denmark. That was all I had to say. Please, if you have any questions, you're welcome to ask them. Thank And we have one question coming forward. That's from Robert Radin of Carnegie. Sorry if you covered this before, but you wrote in the report about provisions for doubtful trade receivables in what receivables those are and if that's I can say something going forward. So it's actually we have a small company called Allbirds. They have a big delivery to a nuclear site in the U. S. As a government's nuclear site, which is trading old nuclear what the customer expected and the 1% what the customer expected and the 1% is missing and the customer won't pay until get the 100%. And the thing is this little component, which has no big value, takes a lot of time to produce. So we can't deliver it until end of this quarter, then the customer hopefully pays next quarter. And then we have some other water in North America receivables, which we have to collect on the block side. Okay. And so this Alberts one is the big part, is it? Yes. And this other these progress, brokers, are they part of some kind of trend? Or Brok, in North America, they have grown very rapidly. We have a small organization. It can happen that they have to be they have to collect you have to be on the customers all the time, see so that they pay in time and that they have so much to deliver that they maybe have not paid too much attention to this issue. So we but now they're paying attention. Okay. But it sounds like you're expecting to get paid in the end, but still We hope so. Okay. Yes. And could you quantify how much this sort of adds up to? Because it's said in the text No, we said it's the majority of the margin in there. All right. So 2%, 3% of our quarter sales. Okay. All right. And you also wrote about Dental having seen some kind of Easter impact in Q1, but you branded that as slight or small. Was it smaller than you expected or bigger than you expected or This is Thad here. Yes, I think it's like expected. It's difficult to know exactly because this year, it was right in between March April where you had a sweet spot of Easter. And then in some cases, the week before Easter is weaker and the week after in other countries. So it's a little bit complicated on exactly how it plays out depending on where Easter ends up. But I think it's pretty much as expected from our side. We're not sort of surprised about this effect. All right. And for Q2, do you expect any negative history effects or No, no, no. So the small, the slight negative effect we had in the Q1 should have, if we don't make a mistake here, it should be, if anything, positive. But then there are, of course, other things that can happen, but from pure Easter effect, it be somewhat positive in April. All right. Got it. And then you also wrote about 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. And do you foresee those problems getting solved anytime soon? Or have they been solved? Or will there be a problem also in Q2, Q3? Yes. It's the order intake increases even further, we will have problems that if it's under normal circumstances, it should be sold during Q2. All right. Thanks. Those are my questions. Thank you. Thank you. And we do have one further question coming through. That's from Daniel Lindqvist of Handelsbanken. So just a quick question on the margin of the Dental business. I was a bit surprised with the stronger EBITA margin during this quarter with slower organic or negative organic growth. So could you just elaborate? Are there any currency effects? Or are there any there are acquired companies? Or is there an explanation for the improvement? This is a quarters when this happens. So I wouldn't say such a major effect from my perspective. There is a slight positive effect on the currency, not major either. But yes, it's like that things can move a little bit between quarters also in dividend. Okay. So there's no change we became used to the margins being at around the same levels and not improving as much as historically. So nothing special this quarter, just coincidence with the I think so. Sorry, while I'm on the line, can I just make it clear about the Easter as well because I had a question previously? So what I mean is that we had a negative effect in the first quarter from Easter because Easter last year was in April. And this means that this year, April will be slight should be slightly better than April last year, but of course, slightly worse than a year where we have no Easter at all in April. You have to make it very clear on the Easter effect. So no further questions from my side. Perfect. Thank you. As there are no further questions coming through, I'll hand back to our speakers for the closing comments. Okay. Thanks very much for listening in to us. That was all from us. Thank you.