Welcome to Lifco Q4 report for 2022. 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 star five on their telephone keypad. Now I will hand the conference over to CEO Per Waldemarson. Please go ahead.
Thank you, good morning, and welcome to the Lifco Q4 conference call. We can start with moving directly into page number two in our financial presentation. On this page, we look at the overall performance on the whole group, both for the whole year 2022 and also for the last quarter. We can directly then conclude that for the full year 2022, it was another record year for Lifco, with strong sales growth of 23%, and EBITDA growth of 26%. The trend with increase in sales continued also in our last quarter with 21% growth and our EBITDA growth with 31%, which means then that our margin actually improved to 22% from 20.5% in the year before for the quarter.
In the quarter, specifically on the total sales growth of 21% was generated thanks to 10% organic growth. We had a help from acquisitions of 9% and also a positive effect from exchange rate with about 6%. I would also like to just remind everyone that we have also a divestment in spring of 2022 of our company, Hekotek in Estonia, which then also impacted sales negatively with about 3%, the divestment effect there. For the full year 2022, Lifco growth of 23% then consists of 11% organic growth, 9% growth from acquisitions, currency effect was positive 5%, talking about the full year figures there. On the whole year, the divestment of Hekotek had negative 2% impact on our sales numbers.
If we go further here, after a period of slightly lower margins, due to the effect that we've been discussing throughout the last 18 months of timing effect of not being able to pass through the cost increases into the prices. We have now during the last two quarters in Q3 and Q4 2022, come back to very strong levels. We are quite satisfied with that effect. We saw that trend already in Q3, and we're pleased to see that continue also in Q4. I would like to once again remind everyone that the Lifco portfolio typically consists of very strong niche companies with differentiated products and strong positions. This means that our products and companies have pricing power.
The issues with the lower margins that we saw through parts of 2021 and 2022, have more to do with timing related effects of the timing of our making it. We're very pleased to see that coming back. It's still, of course, a constant work in our companies to continue this work to basically balance and get the margins right. I'd like to also like to comment already here on this first on the page number two about our cash flow, which is very strong in the quarter. We actually had some positive effect from inventory reductions in the quarter.
Also I'd like to highlight that the last quarter is typically quite strong cash flow quarter, but it was even stronger than normal in this quarter, though. I think we also mentioned this in previous calls that we have been building up inventory. For the full year numbers here, the cash flow is only growing with about 5%, which of course has to do with mainly inventory buildup in the previous part of 2022. Also of course, the strong organic growth leading to higher receivables, which is quite normal. Of course, there is a hard work going on right now in many of our companies to address this issue.
I think as I also mentioned in previous calls, this will be more of a step change in addressing the inventory levels as we still have quite, you know, quite not perfect situation with supply chains and, longer than normal lead times still existing in for many of our companies. We have to do a step-by-step approach in working with the inventory and getting our cash flow back to normal levels. Despite of all these effects for the full year, we can, thanks to our high margin business and our relative asset light business, still generate a cash flow, operating cash flow more than SEK 3 billion in a year, like 2022. I think that shows that we have a fundamental strength in our businesses.
Going now to page number three, we look a little bit more into the specifics of the different business areas. We can start with the dental, which had a quite normal quarter with 10% sales growth, and actually a slightly higher margin than the previous year, if we talk specifically for the quarter. The growth in the quarter of 10% consists both of organic growth, also some acquisition and also some positive exchange rate. It's a quite normal development for our dental business. We also saw improvement in the prosthetics business, which we have been suffering from the supply chain issues that we had in the Q1 that led to some reluctance to some of our customers in Germany to trust basically delivery capacity.
Even though our capacity was up and running, there were little bit reluctance there in, especially in the second and Q3. In the Q4, we saw that normalizing. Of course, we don't have, you know, future visibility around that, but we hope that this will be stabilizing also going forward. This is of course, something that is future, and we have to be careful to say too much. So far, it looks better in that area. Going further, we can look at Demolition & Tools, which has had, you know, a very strong year, and had strong market conditions for quite a time, some time now. The sales growth continued in Q4 2022 as well.
For the full year, sales grew with 34% and the EBITDA growth with 27%. This area is growing both from a very strong organic development and also supported by acquisitions. The slightly lower margin, both in the quarter and the full year numbers, is mainly explained by business mix effects. This area is overall a highly profitable segment. Within that segment, there is also some variation. All our companies here are profitable and strong, but some are even more so. Basically, the different growth profiles in giving quarters or between years can make an impact there. I think we have seen over many years now that the EBITDA margin here will vary on a high level.
We have been, for many years, on very strong margin levels, but it can vary depending on quarters due to both general business mix effects and also in some quarters, some special projects that have even higher margin than normal can also impact. This was not the main effect for 2022 numbers, but we've seen that in previous years. If we go further down to our last business area, Systems Solutions, we had another very solid quarter with sales growth of 21%, driven both by organic growth that was very, very good and also acquisitions. Also here, I would like just to remind that the growth of 21% is also offset by the divestment of Hekotek, which belongs to this division.
The growth actually is higher than the 21% when you adjust for that. EBITDA in the quarter grow by 44%, once again driven by strong organic development and acquisitions. I can just say that for the full year 2022, we had a very strong development in many of our companies in Systems Solutions. We're very pleased to see that. Going into page number four, we take a little bit different perspective on Lifco. This is basically summarizing our development since the IPO in end of 2014. I'd like to just give put some focus on the average annual growth in EBITDA. During this time period, Lifco has grown on average every year, 22% in EBITDA.
One very important reason for that is actually our organic EBITDA growth, which on average has been 8% per year, which basically is an indication that of course, we had strong and a nice market condition during this time period. Also we have had, you know, very strong development in our companies, really good work being carried out in many companies. Also, the companies that we acquired have been, you know, selected very carefully, and these have been able to also continue to grow and develop well during the Lifco ownership. That in total leads to the 8%. If you go to the acquisition perspective, all of you are aware that Lifco has been a sort of an acquisition company for many years.
We have here an average contributed with 12% annual growth from the acquisition coming in any given year. Also during this time period, we had some positive effect of on average 1% from exchange rate, which of course can vary from time to time. This in total leads to the 22% performance. I think that's something that perspective I'd like to show that we are growing both organically and through acquisition, which is of course, very fundamental for our strategy. Then we can go into page number five, also continue to look at the longer-term or at least medium-term development, 2015 to 2022 development for Lifco. I'd like to y ou know, we still on this slide, we list the EBITDA growth, average growth per year on 22%.
It also translates into earnings per share growth of 19%. We've done this development while thankful to our strong operating cash flow that has been growing year-on-year. I can say here in 2022, the inventory buildup led to slightly lower growth, but over the time period, we grow still 18% on average per year. Yeah, once again, we've done this while actually decreasing our net debt to EBITDA ratio. It used to be 1.5 in the start of this period, and now we're down at 1.1x net debt to EBITDA.
As you see at the bottom of this slide, we spent a substantial amount of money on acquisitions, which have basically been able to do that through our strong cash flow and through the very strong performance of the companies we have had for many years and also the new companies that gradually have come into Lifco. Just to remind everyone, we pay the dividend every year. That dividend has grown by on average 16% per year during this time period. I think there's many perspective on this development. One is, of course, that, you know, organic development in our job, in our companies. There are many good managers doing a very good job. I think it's also the fact that we are very, you know, selective in the acquisitions we're bringing in.
We have strong fundamental companies that can step-by-step develop. Most of our companies don't grow enormously high growth, but they have development opportunities and can do the step-by-step improvement. I think the last remark on this slide is that another important reason that we have been able to do this growth from acquisitions, on a quite high level while still being able to reduce our net debt levels, or ratios, I should say, is that we've been very disciplined in valuations. One of the reasons there is that we can, you know, we can be very selective, and we are also willing not to buy companies in our existing segments if we don't think the valuation and the quality of the company is good enough for our, for Lifco to take care of the company going forward.
After page five, I would like to go in to page six and just basically conclude once again that our net debt position is relatively low. Despite a number of acquisitions and some stock buildup in 2022, we end the year with the same net debt to EBIT ratio of 1.1 x if you look at the interest bearing. Also the same if you look at the total net debt, including all the IFRS 16 effects and the option debt that we have in our company is still the same level as the previous year. We can here also conclude that Lifco has the strong balance sheet and a strong financial capacity to continue acquire companies when we find the right companies to buy at reasonable valuation levels.
Once again, I repeat myself here, we are very focused on quality, and that's more important than maximizing short-term acquisition goals in any quarter or any given year. Then on the last slide I would like to show on page seven, this is taking an even longer-term perspective of Lifco, which I think is important. We can see if we look even longer that we also had strong development. Since 2006, Lifco has on average grown our EBITDA by 19% per year. Our most important target is to grow our profits in every given company every year. For the most part, we have succeeded with that through a combination of very successful organic development and also of course helped by acquisitions that have contributed positively.
I would like to highlight once again, the very important fact is that most of our companies perform very well also after we take over them for many years to come. 2022 was another record year where we grow our profits once again despite some problems in the dental area, which we've been referring to in previous earnings call. At least the quarter four numbers there were more stable and back to more normal levels. With that, final comment, I would like to open up for any questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Carl Ragnerstam from Nordea. Please go ahead.
Good morning. It's Carl here from Nordea. A few questions. Firstly, I mean, you said that you start to see normalizing volumes in your prosthetics business in dental. Could you give some percentage where you are now versus sort of a normalized level? I guess you're not fully back right now. I'm also a bit curious to know, I mean, how you managed to sort of convince the German practitioners to sort of come back to you, I mean, in a period of still uncertainties in China?
Well, first of all, the reason we use the word seeing it to come back is that it's been one quarter. We had three quarters with some lower development, now we had one quarter with strong development. We just want to take a cautious approach on that. Normally back, it means that we are not growing that business on previous year, but we are close in numbers. The gap has sort of shrinked a lot if you compare it to Q2 and Q3. Once again, now we have to remind everyone this is, you know, we are now in a very specific sub-part of Lifco. We are a big company, now we're down there. The reason we are commenting on this is that it's a very profitable business. Sorry, Carl, the second part of your question, can you just remind me that?
No, no. I mean, how did you manage to sort of win back the German practitioners? They sort of left you when you had supply chains challenges in China. Of course, during the period when you obviously managed to win them back, Q4, we still had, I mean, uncertainties in China.
Yes.
If anything, they had, I mean, a lot of COVID spread. I'm a bit curious to.
I would say that, you know, it's not like customers left us totally, but they shifted part of their volumes back into the back into the local production. It's been, you know, there's been of course a few customers that probably stopped buying. In any given year, you would have that in any case. This has been more of a, on a effect that there was a general, a more waiting and see mode for our dentists. Now in this last quarter, we saw those volumes being brought more back to normal. Once again, it's one quarter. We have to be careful to extrapolate that, but at least it's a good indication that.
Yeah.
That things are normalizing in that sense.
And you have.
Yeah.
You haven't seen any big changes so far in Q1, or I guess you have. You would have communicated that in that case, or?
Yes. I think we will be a little bit more careful in our communication if we saw a big change. Basically we see so far that the pattern from Q4 is holding up. Also now it's a bit special period. You know, Chinese New Year is just taking place, so it's a little bit special season for this business. Yeah. We will track this of course very carefully. I just like, without talking too much about this specific issue, you know, our company here working has been very, you know, active throughout the year, also in the quarters where sales were not that normal. We've been very close to our customers and very active in trying to get the comfort back.
Okay. Very good. Also on, I mean, Demolition & Tools continuing to deliver quite solid numbers volume-wise. I mean, with the high uncertainty in the European construction market, could you shed some light on where order intake is heading currently? If you have seen any changes in some sub-segments of Demolition & Tools? If you could give some highlights on that. Thank you.
Well, I think, our order intake, which we don't report, but we do mention them, from time to time in our calls here, has been more affected, you know, what type of order books you had and what type of time frame, order time that we're talking about. The, the good news for us is that the companies that have relatively shorter order intake, they've been performing quite well, whereas some of them with very long order books have been able to basically, you know, re-go through their order books and make some, in some cases, you know, some adjustment into it because it's been, you know, too long. This has to do with companies that basically are dealing, you know, only through distribution sales or OEM sales.
They, and they are of course, a little bit different, the type of orders you get there versus the company that sell directly to the end user. We can only say that, you know, same comment as in the previous quarter, the order intake in some of our companies were extreme for a certain period of time, you know, up until about a year ago. Then it's been on more normalized strong levels, we can say. Then it's been a little bit more tricky to evaluate the order intake in the companies that had very long order books and more OEM distribution type of customers that don't have the end user, direct effect in their order making.
We see a quite strong development in the companies with more direct sales, which is pleasing. Also, once again, means that the visibility is not that long, because, you know, if you don't have long order books, you're very dependent on the order intake in the coming quarters for the success of this year.
Okay. Very good. Also the final one from my side is, it's a bit working capital, quite impressive release, though from high levels, but still given the organic growth you're delivering, I mean, should we expect you to continue to sort of, release working capital, and reducing inventory entering, H1 of 2023 as well?
Well, we don't give any forecast call, as you know, we are working on it. I think my comment here in the call earlier was that I think I will see, you know, most likely see more of a step, you know, a gradual step change in this. It will not be something that we go, you know, from one day to the other and just squeeze. We still have good demand, we still have, you know, some companies with the longer than the normal lead time from suppliers. We have to be careful here. You know, it's a common, you know, every company in Lifco is now addressing this issue. You know, having too high inventories is not what we like to have.
We have been forced, like many other kind of companies in this last few years to do that. Yeah, we are happy with Q4 and we will work more on it, but we don't, you know, promise that everything will come in a certain month. The work and the focus is on this issue for quite some time now.
Okay, perfect. Thank you.
Thank you.
The next question comes from Karl Bokvist from ABG Sundal Collier. Please go ahead.
Thank you and good morning. More of a, well, partly technical thing I appreciate with transparency here on the components of the EBITDA growth. On the SEK 401 million from acquisitions, does that include the negative effect from the divestments of Hekotek?
No.
That we should Okay. It's only from the kind of 9.3.
Exactly. We don't see a divestment as a typical part of our business. We didn't include that in our graph. It was more of a one-off effect and, you know, had to do with the Russia situation.
All right. Understood. By that reasoning, then or your organic EBITDA might have been even better in 2022, if you do the kind of.
No.
Net.
No, I think. No. If you're referring to slide number four now in our presentation.
Mm. Correct.
Yes. No. The EBITDA growth from acquisition is then, should be the correct number here in this.
Okay. sorry, but so the total kind of net impact from acquisitions and divestments is SEK 401. That's, yeah. We can talk about it later anyway. I'm just curious about the.
Yeah.
Organic earnings. Okay. I'll move on instead. The order book then you mentioned here now the companies with shorter order books have been performing very well. Otherwise, when it comes to like component shortages, supply constraints, do you feel that this has gradually improved, that lead times are coming back to a more kind of normal, lead time process?
I think if you ask some of our companies, they're still struggling. On the overall Lifco level, I think we are in a better situation now than in the previous period that we've been going through here. I would say it's getting better. You know, if you go into individual companies, there's still some companies that are struggling a bit, especially with, you know, electronic components and certain things. It's not, you know, a major problem overall for Lifco. I think also during this time period that we had these challenges, we've been, you know, our small, very focused operations has been very successful in adjusting to this and being able to find solutions.
I can give you one, you know, one reflection is that during the 2022 as a whole year, many of the Lifco companies with own products had to put a tent on the yard to be able to put the almost finished products out there that they have assembled, and then bring them back in when they get the final components. Hopefully, that will be less and less of an issue going forward, but that's been the situation for many companies. It's been not so noticeable in the overall numbers because they've been doing a very good job in handling this. Maybe what you can say about it is that we could have grown perhaps even quicker in the early part of this growth period, if we didn't have this constraint. I think now we're getting to a better situation slightly. Yes.
Understood. Then on Systems Solutions, my final question here. Are there any areas here that you could highlight which you're particularly pleased with, so to say? I mean, in terms of total sales growth, it seems like environmental technology is growing very nicely year-over-year, for example.
Yes. I have to say when y ou know, I look at every individual business, and then we sum up the numbers in these divisional things to make some kind of reporting structure. If you look at 2022 as a full year, it's been many companies developing very nicely. Of course, part of the growth, of course, has to do with, you know, some price increase effects, but also volume-wise, it's been a very good year. It's really across the board, I have to say. Obviously, with some differences, but not something I would like to pinpoint. You're right, environmental technology has had very strong development in many of the companies, and many of these are very good important companies for us, so we're pleased to see that.
Okay. That is all for me. Thank you.
Thank you.
The next question comes from Zino Engdalen Ricciuti from Handelsbanken Capital Markets. Please go ahead.
Hi, Per. Thank you for taking my question.
Thank you.
Firstly, I have some questions on the cost development in the group and maybe some details on each of the divisions. On group level, the gross margin looks very solid and quite high. Could you maybe explain sort of what your cost on development has been in the recent quarters, and maybe if you have sort of details on when your companies have increased their prices and so on?
Well, it's a very tricky question because the cost development is of course very different between different parts of Lifco companies and. As a common theme, the companies with a, you know, higher raw material impact had, of course, a much quicker impact on the cost increases. Also in the recent quarters and, you know, 2022, it's been getting more and more an effect of a general inflation, energy prices effect. So we see more. Also some of the companies where, you know, you maybe are selling goods that are not so high raw material, they also start to see price increases coming in maybe now, a bit later in. It's, it is of course a general price increase or cost increase effect there.
As you can see in our last two quarters, we have now, after a time period of adjusting, you know, with longer order books than normal and all that, we've been able to get our price increases implemented into the sales numbers and generating profits. It's of course a very difficult question to answer because it varies a lot between different companies how big the cost increase has been and also between countries how, you know, energy prices and also cost, general cost inflation is impacting us. It is a common theme, I think, for every company, also for Lifco, and we are adjusting. I just would like to remind that, you know, the good news for us is that we have, the vast majority of our company has a strong pricing power position, so we are able to basically lift our prices when needed to compensate for this.
That's very clear. Have you started to see any sort of indication of prices or costs in some segments coming down? I mean, we started to see that in raw materials, but not that much in maybe components.
Yes. I mean, we. You can say the closer you are to the raw material, you start to see some emerging effects of that. It's not. You know, there's also a timing effect of that, you know, inventories, lead times, all that. That's something. You have to keep in mind that most of our companies have, you know, an outsourced supply chain where there are, you know, some suppliers. We cannot in all our companies see a direct link to that immediately, so to say. We will of course see in certain pockets of Lifco, there could be areas where we'll see slightly lower raw material prices. We have all the other things that are still going up. We take a cautious approach on that when it comes to that, and we are still in a price increasing mode and compensating mode, so to say.
Okay, great. My final question is just if you have any more details and descriptions of the product mix effect in Demolition & Tools compared to the same quarter last year.
Well, what I'm trying to explain by the product mix comment is that we have certain parts of Demolition & Tools with very high margins. Certain parts that I would, you know, characterize as high margins, but not as high as the average margin. If you grow sales higher in the slightly lower margin sales, then you have this impact. This is the main explanation. Also, if you look at the full year numbers, you know, we were not fully compensating for all our cost increases in the beginning of the year. This was more maybe a comment on the last quarter.
For the full year numbers, you can also say that there's been some difficulties in the beginning of the year for all our companies to sustain the margins, which is now coming back. We're quite pleased with that kind of looking company specific in the last two quarters is going quite well there. The mix effect has an impact. If you're growing quicker in certain parts that have slightly lower margins, which can happen in certain quarters, and it can have the reverse effect in other quarters, that has an impact. That's more to do with that. I think, you know, once again, this area has always been a little bit volatile quarter to quarter in margins, and I think we will continue to see that all at very high level, obviously.
Okay, great. That's all my questions are. Thank you.
Thank you.
The next question comes from Robert Redin from Carnegie. Please go ahead.
Morning, Per. Hi.
Hello.
Wanted to ask you a small detail question on the sales mix with the Demolition & Tools. I saw you introduced some other category there in addition to the Demolition & Tools and the crane and excavator attachments. I was wondering about the crane and excavator attachments, if you could say something about the split there. Of course, the excavator attachment has grown a lot the last couple of years. What's the relative size now? Are they approaching this? Is it a 50/50 crane and excavator attachments business, or it's?
So, so we, we don't.
One of the products bigger?
Robert, just to answer your question, we don't publish exact numbers around that. You're right. We have grown more, as we have developed Lifco into, through acquisitions in this field. The crane attachment basically is consisting of the old Kindsäter group that has Was very strong in that. Also Kindsäter organically developed into more excavator application and other type of attachment applications. Through the most part of our acquisition in the attachment and crane segment has been basically in excavator or even forestry machinery and other type of applications. Yes, we are now, the bigger part of that is now, sort of non-crane attachments, if you like, on the, on that sub-segment.
Okay, perfect. Thanks.
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 thank you for the questions. We will hear back in for the next quarter call later on this year. Thank you very much.