This call is being recorded. Your line is muted. Welcome to Lifco Q3 report for 2024 . For the first part of the Conference Call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO, Per Waldemarson. Please go ahead.
Good morning, and welcome, everyone. We can, as usual, move directly into page number 2 in our investor presentation, and take a look at the numbers for the Lifco Group as a whole. The overall message remains very much the same as we have mentioned in previous quarters. We are still facing what I would say less favorable market conditions in our demolition and tools business area, due to the continued weak end market in construction and demolition markets. As a whole, then, in the Q3, we have, on the total group level, a small positive organic growth in sales of 2%. The exchange rate had a negative effect on sales, with about 3%. Acquisitions added around 8% in the quarter on the sales numbers.
So in summary, we can conclude that the continued organic decline in demolition tools is basically offset by acquisitions made during the previous year and some organic sales growth in dental and system solutions. We will come back to that in a few moments, and the decline in the most profitable business area, demolition tools, is then obviously hurting the margins on the group level, and therefore, the EBITDA growth is 3%, and the EBITDA margin is almost 1 percentage point lower than the same quarter in 2023. If we move further down and look at cash flow, it's in the quarter lower than previous year, mainly due to higher cash payments on taxes in the quarter.
And the operating cash flow in the accumulated period for the whole year is in line with previous year. And for the nine-month period, if you look a little bit longer term here, sales grew with 6%, with a negative 2% organic growth and around 8% growth also there coming from acquisitions. And the same trend with the weak market conditions in special demolition tools has now been in place for the entire year, which explains the slightly lower EBITDA margin also for the nine-month period. And then I think we can go a little bit more into the details on page number three, and look at the different business areas.
If we start then by dental, we continue to see a solid and stable development as expected in this area, and this is the area where we have the least exposure to cyclical markets, and also, I have to say, also the lowest structural growth over long periods of time compared to our other areas, so it's a quite stable area, and for the nine-month period, EBITDA growth is around 7.5%, which is a combination of organic growth and some growth from acquisitions, and then moving further on to the demolition tools area, we are still, as I mentioned, experiencing weaker market conditions.
And I can already now mention that we don't really see any market improvement in the Q3, and the weaker market conditions that leads to a net sales decline of 8% in this quarter, and an EBITDA decline of 15%. And we have actually included some smaller acquisition in this area during the last year, so the organic development is even a little bit more declined than these numbers. I would also just like to mention here that our portfolio companies have been doing, I think, a great job in protecting the margins, even though we are declining the margins in the quarter with two percentage points. In this area, where we have quite high gross margins, when the volume drops are significant, like now, it's very difficult to fully protect the margins.
I think we're still in the quarter and for the ninth- month period, showing a 24% EBITDA margin, which is quite healthy in these market conditions. Also just a final remark on this area, you know, we have now had a period of time, for quite some time, with what I would call weaker market conditions. So most of our companies in this segment now have quite low order books, and that also means that our visibility for the coming quarters is, as always, quite low. We don't really have anything more to say around that. We will follow the markets very closely and be adapting to the market situation as we move on.
If we then go further down to the system solutions area, we have quite high sales growth of 19% and EBITDA growth of 40% in the quarter. And the main driver for growth is coming from acquisition, and also in this quarter, we have higher than I would say normal organic growth in our contract manufacturing subdivision. And this is an area where we have slightly lower than average EBITDA margin, which also means that the EBITDA margin in this area as a whole is then lower in this quarter. So there's really a mixed effect in those margin numbers. If we then look a little bit more in the nine-month period for this area, it's more solid and stable.
EBITDA margin is quite stable and as it should be on that level. The underlying development within this area is, as I also mentioned in previous quarter, quite. It differs quite a lot between different parts of the area. Some companies are growing nicely in their respective niches, whereas other parts of the solutions are facing more difficult working conditions. And as one example on the negative side is, of course, as I mentioned previously, also the infrastructure product division, where we have exposure to construction market in that segment.
If we then move further down to page number seven, we can look a little bit at our financial position, and once again conclude that the net debt in relation to EBITDA is on a stable level, relatively low levels at around 1.2 times net debt to EBITDA, if we measure the interest-bearing debt. And this is then on this level, despite that we during the last 12 months have closed a number of acquisitions. And we still have plenty of opportunities to continue to look for great companies to acquire where we find them, basically. With that, we can move into page number eight and take a little bit more long-term perspective on Lifco. Let me take a step back here.
And since the downturn, the severe downturn in two thousand and eight, two thousand and nine, we had many years of stable and what I would call friendly development or market conditions, which gave us the opportunity to have high organic growth combined with acquisitions. And during the last eighteen months, it has been a little bit tougher, market conditions, especially in certain areas of Lifco. And therefore, we have now a year where EBITDA so far only has grown with 3%, which is way below our average, historical numbers. But I think it's important to, in this, period of slightly more difficult market conditions, remind everyone of the strong operational profit culture we have in Lifco.
We are not panicking in this period of time, but we have a very strong organization of both group managers and subsidiary managements that really take daily actions to make sure that we do everything we can to defend our profits and also improve our profits in many areas of Lifco. And we do that, you know, both for the next week, next month, next year, and also the very long-term perspective. It's a combination of all these things. But we, as a conclusion, continue to work very hard to hope to reach our targets of improving our profits every year. Then we can go all the way down to page 33, and just as a final remark, look at the acquisitions that we have concluded in this year.
Yeah, we have basically brought in SEK 1.7 billion Swedish krona of revenue. As I mentioned many times before, the outcome of when acquisition materialize is always unpredictable, and it should be unpredictable, because it's way more important for us to buy, you know, the right companies, and we want to buy great companies for reasonable valuation rather than maximizing any outcome acquisition in any quarter. We continue to work very hard to find great niche companies, but despite high activity levels, we always try to stay patient and make sure we don't make transactions if we don't feel it's the right long-term decision for Lifco. Yes, with that as my last comment, I'd like to open up for any potential questions.
Thank you very much.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Zino Engdalen Ricciuti from Handelsbanken. Please go ahead.
Yes, good morning, Per. I would just like to start off on the group in aggregate, when it comes to underlying demand. I would just like to hear if you compare it to what you had expected going into the quarter and the outcome, if there was any material difference on an aggregate level?
Well, first of all, as you know, we don't really spend too much time with future expectations. We are always trying to adapt to the situation as it comes. But, having said that, I think it's very much a similar overall picture as we've seen in the previous quarters in this year. And that basically means that dental is stable. Demolition tools is. I would say the feeling is the same as it has been. Then, of course, you know, it can vary between quarter on the exact, you know, output of sales, but the overall feeling has been on this level for quite some time. And we don't really see any, you know, we don't see any improvement, we don't see any dramatic decline either.
Of course, it can vary between different subsegments, you know, a little bit. We have, you know, we have many different types of products and things within this area, but overall, it's pretty much as we've been feeling now for quite some time, and when you see the solution, it is, as I've also mentioned before, a very mixed picture. You know, we have some companies that are still growing nicely, and then we have, you know, I mentioned here before that we have infrastructure product, we have some construction exposure. We also have some other companies that have, you know, more exposure to the higher interest rates, you know, more capital goods type of deliveries having a difficult time.
But overall, you know, with a group like this, we have, you know, we have a very diversified portfolio, so that's maybe what you could expect in this situation, that we will see this outcome. So, you know, in summary, I would say, yeah, maybe as expected, though, even though we don't have big expectations.
Okay, very good. Thank you, and jumping into the contract manufacturing, of course, we see the growth high, and there is some acquisition effect in there as well. Could you give some more color on these larger deliveries, where from a group of companies, are the deliveries completed, so to say, or do you think there will be more in the coming quarter, which you have seen from the orders that you have now?
Yeah, so without going into too much details here, because now we're quite far down in the Lifco structure. But yes, we had a very strong sales quarter here in this division. And whether it will continue, I saw some of the comments here coming from analysts. It's not a project type delivery, so it's more of a run rate. But in this area, you know, with you know, OEM customers, we can never be sure about you know, stability of such a high growth that we have. So we don't extrapolate that fully, but it's not a product delivery.
So in that sense, it's not, you know, it could also be on a slightly higher level going forward. But yeah, we will see in next quarter, basically, how that develops in that area.
Okay, thank you. I'll get back in line.
Thank you.
The next question comes from Carl Ragnerstam from Nordea. Please go ahead.
Good morning, it's Carl here from Nordea. Coming back to the contract manufacturing delivery, sorry for that, but would you say that the 100 basis points margin that was playing in system solutions is mainly or solely due to the contract manufacturing mix?
I would say, because this time I actually did the calculation call, because I checked, so it's more than half of that of that change. And then we have some other, you know, in a group like Lifco, with so many companies, there's many mix effects into play, but the others are less material compared to this one.
Okay, very good.
And then specifically to the solution. Yeah, and then on the whole Lifco, just sorry to interrupt here, but on the whole Lifco, we also have the mix effect between the different business areas on top of that, of course, the solution tools.
Yeah, for sure.
Having a lower mix. Yeah.
Very good, thank you. And looking at the central group function cost, it looks a bit lower in the quarter than in Q1, Q2, as well as year-over-year. Is it anything we should I mean consider there, or is it more of a fluctuations, or?
No, it's lower than normal, so don't. I wouldn't extrapolate that either. You can look at the-
But why is that?
I think it's, you know, we have different releases of its bonuses, and it's also as a reserve for that, then it's also, you know, costs can jump between quarters, a little bit also in that field, you know?
So a normal level, you'd say, is the Q1, Q2 level? I mean, meaning-
It's a more normal run rate, yes.
Okay, very helpful. If you look, I mean, you touched upon the construction market. Is it possible to give any flavors on what you said, but on sub-segment levels? Also, if you could come back a little bit on pricing. I know that I asked it before, but of course, it might be tougher to maintain pricing in a market trending downwards, perhaps.
I think the sub-segment comment, maybe we shouldn't take too much out of that, because in general, it's very much across the board in that segment. Then it can vary exactly how severe the market condition is. But in general, it. I don't think there's any area in demolition tools that is sort of growing right now. So it's just a matter of slight variations on the lower level in market conditions. And sorry, the second question.
No, but coming back to that, you see no variations on order intake as well, or is it just-
No, no, it-
-on deliveries?
No, but it's always some variations when you have different type of products and different types of markets. But I wouldn't say that there's any area that is, you know, significantly strong right now in this area. So it's small variations on the lower level, so I wouldn't draw too much into that comment I made earlier. It's pretty much across the board, but of course, it's not exactly the same in every product segment and every geography. But it's relatively across the board, weak in market conditions now in this year.
Mm-hmm. Outside of the Brokk machines, do you see pricing getting tougher on the more sort of commoditized products? I mean, you have little commoditized products, but still you have some attachment business that could be more impacted, I guess.
No, not really. We stay firm in this.
Okay.
That was the pricing question. Yes, sure. No, we stay firm on that level, yes.
Okay, thanks.
Thanks.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. The next question comes from Robert Redin from Carnegie. Please go ahead.
... Yeah. Hi, morning. Maybe I could just ask on system solutions. So in this quarter, contract manufacturing had more deliveries than normal. Were there any other trends in the quarter, any segments within system solutions that accelerated or decelerated through Q3?
No, I would say that it's the trends that we've been experienced throughout this year. It remains in the Q3. Basically, meaning that we see, as I said, some areas where we have, you know, niche segments, where they're growing nicely. We have, you know, a vast majority of maybe, you know, more industrial exposure of not capital goods, and they are sort of maybe a little bit weaker, but not, you know, dramatic. And then we have a few areas, such as infrastructure products and, you know, construction exposed area, and also some companies with more, I would say, CapEx type of deliveries to customers that still remain weaker in the quarter.
It's. I haven't seen any trend shift in this quarter compared to what we saw in Q2 or Q1, in that respect. Of course, you know, we get the exact outcome can always vary a little bit, but as a general underlying feeling of the market condition hasn't changed.
Okay, perfect. Thanks so much.
Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay. Thank you very much for listening and for the questions, and I wish everyone a nice continued day. Thank you.