Hello everyone, welcome to the Q1 presentation. I would like to start directly on page two, and just give a quick overview of the quarter that we just reported this morning. Overall, we can say that the first quarter this year was a stable, solid quarter, with some COVID-19 effects during the last couple of weeks in the quarter. Overall, we were rather unaffected. Most of our business is done in the Europe and the U.S. end-use market, so we were not really affected by the early problems in China with demand. However, we had slight effect on the dental side, where we have a production unit in China that had some difficulties keeping up the production in the early part of the quarter, but it turned out to work out fine on that side.
I also like to highlight that we also this quarter grow our profits more than sales, which is one of our ambitions in Lifco. Not maybe every quarter, but over time, we always strive for driving our profit more than sales to reach high and solid margins. We did that in this quarter, quarterly, or mainly thanks to acquisitions. Our organic growth on the top line was actually negative of 2%. Acquisitions contributed with 9% sales growth in the quarter. This translated in total into an EBITDA growth of 11%, and actually a higher growth in profit before tax and net profit of about 25% in the profit before tax, which has to do with the effect we had in the quarter one last year of a one-time cost of SEK 56 million, that we didn't have this year, obviously.
We also like to comment quickly on the cash flow. It was also a stable, solid quarter in terms of cash flow. The comparison figure here last year, we had some difficulties generating the cash in the first quarter in 2019, which had to do mainly with the very high level of growth and business activity in that quarter that led to working capital issues as well as also some effects on the prepayments last year. This year's quarter was more normal and quite good actually in terms of cash flow. We're very happy about that. All in all also just commenting on our return on capital employed, excluding goodwill. If you compare the quarterly numbers, you have to keep in mind that IFRS 16 has a major effect on that number. We are fairly similar overall underlying across our performance.
With that, I would like to turn to page number three, where we look into the different business areas. If we take dental, we did see some effects of the COVID-19 and the lockdown in certain markets in the last, I would say, couple of weeks, especially the last week of the quarter. Other than that, it was a stable and solid quarter for us. As I said before, some issues we had with increased costs relating to the China production entity in our prosthetic business, but that's very marginal as you can see in these numbers. If we turn to the Demolition & Tools business area, I'd like to summarize the quarter that I think the underlying market was very similar to the Q4 of 2019, where we reported actually lower profits in that quarter compared to the year before.
This quarter, we report improved profits, that has partly to do with the effect of actually having some deliveries of project business or slightly larger orders with good margins. As I mentioned in previous quarters, these type of orders tend to fluctuate between different quarters. Overall, my comment on Demolition & Tools and underlying market is that if you take maybe the last week of the quarter and exclude that part and then look at what was the market before, it was very similar to what we saw in Q4. Basically slightly weaker market condition than we had in the beginning of 2019, where everything was very strong in this segment. Still on a very good level, I have to say. We have to compare to the long-term trend and still good in that sense.
If we come to the last business area, the Systems Solutions, the growth there of sales in 15% and profit in 25% is mainly driven to acquisitions. As you all know, a lot of our acquisitions tend to end up in this division or business area, where we have a very broad definition of what type of companies that can be included in the area. That contribute to that growth there. I just want to make one more comment on Systems Solutions. We still have a rather weak development in our forest product business, and also saw that in this quarter. We have that now for quite some time, but we're working hard on trying to address those issues. With that, I'd like to go to page number four and just make a summary of the effects.
Most of the comments I've had up until now has been related to how the situation was before the last two weeks of March. Since then, we have seen quite some changes. What we did in the very early part of March, obviously, like most companies, we did actions to reduce our risk for employees when it comes to health and safety, and also to make sure we could continue operating our businesses in the Europe and U.S. despite the demand on basically making it more difficult for people to go to work. We did quite well in keeping our operations running. We did obviously see some effects, but very limited effects in the Q1 due to the demand over the last two quarters, and that's quite general.
It was more specific and more immediate in the dental area, where we saw quite a few markets, both in Europe and the U.S., where both due to legislation or clear regulations that certain dental treatments were not allowed, and also due to a general attitude of patients not wanting to go to the dental office. This type of trend continued in the beginning of April, and it has also been affecting many of our other subsidiaries outside dental in terms of demand during the last couple of weeks. With that, we actually believe that the COVID-19 will have effects on sales and profitability levels in Q2 2020. Very difficult to say exactly how, because obviously it depends on many different factors. First of all, how will the markets in Europe and the U.S. open up.
How will it impact our very different type of business that we operate in. Once again, the short-term impact has been clear on the dental side and also on the Systems Solutions side in certain areas where we have very little order book to work with. We also see the demand going down in Demolition & Tools, but there we have slightly longer lead times and some order books to work on. The effect is quite broadly spread these last few weeks. All I'm saying now is referring to how things have been in early April. Obviously, we don't know how May and June will be. That's still an unknown to us, and we are as curious as anyone else to understand how the markets will develop in the next weeks and months.
In summary, it's basically impossible for us to predict exactly how the impact will be and for how long it will last. That's how we leave that comment. With that, I'd like to go to page six. Just very shortly make one more comment in addition to the data on this slide, and that's that we still exit this first quarter with an interest-bearing net debt to EBITDA of 1.6 times. Our leverage ratio is still on a quite low level, despite high activity in acquisitions in the last six to nine months. We can move directly over to page 28, all the way back to page 28, and just comment briefly on the most recent acquisitions. As you can see that we made them in early 2020, we finalized four acquisitions, three in Dental and one in Systems Solutions.
Just a comment on the acquisition level or acquisition activity right now. We are obviously a little bit in a situation where we are still keeping our discussions going on. It's difficult to enter new discussions due to difficult to travel around in Europe to meet the entrepreneurs and the business owners. We do as much as we can to keep things going, and we hope that once we get more visibility in our portfolio and also in the companies that we are targeting, we can go back to more normal situation. Also there, it's of course difficult to predict when and how that will develop exactly. With that comment, I'd like to open up for questions. Thank you very much.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. There will now be a brief pause while questions are being registered. Our first question comes from the line of Mats Nystr ö m of SEB. Please go ahead. Your line is open.
Yes. Hello, everyone. Mats Nyström here SEB Credit Research. I have a question on the balance sheet, on the liquidity, which obviously is topic on everyone's mind these days. At the year-end, I believe you had SEK 1.2 billion in overdraft facility. In addition to the cash at balance sheet, could you tell us what is the situation at the end of Q1? Is it the same financing package, or have you extended the liquidity? That is my question. Thank you.
We have extended the liquidity at the end of the first quarter. We have both with an RCF solution and also through our normal overdraft credit.
Is that something you could share without the details or are they non-public?
We haven't normally communicated those details. What we have communicated in the end of the quarter was that we had a bond that was terminated on April 3rd that instead of making a new bond, we had to go out and make a bridge financing. We are currently working on our long-term financing solutions. In addition to that, we also took certain steps to make sure that we have more liquidity sort of backup, which of course is overdraft facility for this company.
Finally, is it fair to conclude that the cash at balance sheet and the undrawn trade lines are greater than they were at the end of last year?
Sure.
Thank you very much.
Thank you. Our next question comes from the line of Jørgen Jørgensen of INT Asset Management. Please go ahead. Your line is open.
Yes. Thank you for taking my question. Per, I have a question regarding the Systems Solutions business. It's doing very well, thanks to acquisitions. If we go back, when you really started after the IPO, and you saw in 2017, 2018, 2019, you acquired a lot of businesses in the Systems Solutions area. I know it's a very fragmented area, but if you take a look at these companies, are they doing better than the old companies in the portfolio? If you take a look at what has happened in April, they are protecting the margin better, they're protecting their businesses better than the old businesses. Is that a fair assumption that they are doing very okay, actually?
Is your question related to how they're doing after the lockdown of the European and U.S. market in April?
Yes.
I think that's a very difficult question to answer because we really have to go into every company. They all have specific situations, but also the timing of how quickly you fall into effects of COVID-19 lockdown is also quite difficult to predict. It's been almost on a daily basis discussion with different companies. Certain companies that felt everything was perfect last week of March suddenly start feeling problems second week of April. It's that type of situation right now where it's very difficult to predict. I think, yes, some of the companies for sure are maybe less affected, but I would also say some companies are affected quite a lot. It's very difficult to make a statement like you tried to make me here in this, because it's really company specific. It's also day- by- day or week- by- week that's difficult how it has developed.
Yeah.
Over the last five, six weeks.
Yeah. If you look back, it's fair to assume that the companies that you have bought for Systems Solutions, they are of a much better quality than you actually had before. All things being equal, they should be doing better.
If you take a bigger perspective on this and look at it in a more normal marketization, I would totally agree to that statement that the companies on average that we have brought into Lifco has had an even stronger niche position and even stronger market position and margin opportunity, and also margins coming into Lifco as well as I would say quite a few of them also have opportunities to do something to develop their business going forward. Yes, we are quite happy with the portfolio we have acquired, but we are also very humble in this period of time to say that many companies that you normally would not think would be very volatile could have severe impact in this at a time where demand suddenly can from one day to the other almost be wiped out at least very short term.
Yeah.
It's also very difficult to predict how things develop in the next few weeks or a month.
Yeah. Okay. Well, it's a fair assumption. Just my last question regarding dental. It's very obvious that the dental clinics, for example, here in Denmark where I am, they have been closed for a month or so, and they are coming back to business now. It's probably also fairly difficult to analyze, but is it fair to assume that there's some sort of pent-up demand? There'll probably be some lost revenue that will never come back, but there will also be a pent-up demand. How do you see that for the dental business in general?
Yeah, I thought about that topic. I got that question actually before we got into the silent period from some people as well. I think it's very difficult to predict that because some of the treatments, they will never come back. Some are related to annual checkups and more stuff like this. You have some treatments like bigger prosthetic treatments and implants and all that. Will that come back with a? It's always difficult. Even if it would be so that there is a pent-up demand, how quickly will the dental market have capacity to increase that. There's only so many dentists available, and depending on how the [audio distortion].
Yeah, fair enough. Just lastly here on the M&A, if we assume that you are discussing with potential sellers like you always have done, is there anything on the financing side that you see an obstacle or are the banks ready to, because your balance sheet is actually quite sound and you are very cash generative and so on. Are there any issues with banks that you see it, or is it mainly you can't agree on the price with the potential seller?
I think to maybe comment a bit more on the M&A, I mean, the last four to six weeks, due to obvious reasons, have not been focusing on maybe finalizing deals. We've not been in that phase over the last weeks. We have some smaller add-ons that we are still might or might not do in the near future. The more normal standalone Lifco type of acquisitions that we've done in the last five years have been a little bit on hold in terms of, because we've been very busy trying to understand really what is going and to make sure our companies are going in the right direction, as well as making sure we focus on our cash flow and operations. As we turn now, the next few weeks and months, hopefully the situation will slightly improve and we can get into a discussion.
You're right, we have a strong balance sheet, so we have the capacity to take on more acquisitions, but we also have to be making sure that we know a little bit more about the future before we make major steps forward.
Yeah.
Because the whole portfolio is our financing source for the future acquisitions as well. It would be nice to see at least a little bit more opening up of dental markets the next few days and weeks. You can understand what I mean.
Yeah. You don't see any problem on the financing side, like from banks and so on when you do the acquisitions?
As I told you, we have not been in a deal striking mode the last couple of months.
Okay.
We're more in focusing on building up our cash positions and our liquidity situation more enough.
Yeah.
Of course, we plan on continuing our acquisition activity at some point in the next weeks, months, or at least quarters. When it will come back to a more position, I don't know today.
All right. Okay. Fair enough. Great. Thank you.
Just to remind everyone, if you would like to ask a question, please press zero one on your telephone keypad. You can withdraw your question by pressing zero two to cancel. Our next question comes from the line of Jon Hyltner of Enter Fonder. Please go ahead. Your line is now open.
Hi, thank you for taking my questions. Some more questions on the Dental side. How has the Swedish market developed during this period that Sweden has been locked down? I guess it's still heavily affected.
Yeah, it's been heavily affected. Some of the big public dentistries in Stockholm and Southern Sweden, they basically decided to close down dentistry with the argument that the materials that go into dentistry should instead be used in hospitals. There only have been a few clinics been open for emergency dentistry. On top of that, when lot of people now get the recommendation to stay at home, I think a lot of people also cancel their dental annual checkups. If you don't have severe pain in your teeth, you maybe don't go to dentist right now. Obviously, that's not completely true because there still are a lot of dental offices open, and there's still patients there. To summarize, we saw also substantial decrease on our markets in Sweden in the last four or five weeks.
Yeah. How is the timing of your sales to the dentist? How far ahead do they typically order your products?
It's a very direct link. There's no long lead time. Majority of our sales and profits in our Dental business comes from either distribution of dental consumables or the prosthetics, which is, of course, order by order type of business. There's not a lot of lead time. Normally dentist does lot of orders on a weekly or biweekly basis.
The impact will be very direct given the activity the dentists have in their business.
Yeah. Maybe what did happen in March was that there was maybe a little bit of increased demand at the beginning of March. When everyone was stocking up on food in their kitchen, they also bought some more material because they didn't know what's going to happen. That was maybe the only effect, but that was also marginal. You're right, it's direct the link to the end user demand and our sales.
Okay. When you look at your overall market in dental, have you seen any timeline for how government recommend the dentist to act now? Are they supposed to open in May or are they supposed to be limited?
The only market that I'm aware of, I know in Denmark, they had some discussion about making it now allowed to do certain dental treatments from, I think this week or early next week. That was the only that I've heard of positive regulatory or governmental decision making. Most of the other decisions are more, like in Sweden, there's no real rules, it's more how people act, and how patients act, and also how dentists act. That is more important here maybe than what's actually regulated. We do hope, and this is more hope than. There is discussion now in Germany, which is a very important market for us, that they will see a little bit more opening up of the society in the next few weeks, and we hope that that will have some effect.
We don't know how much, and we don't believe it's going to be back to full normal, but we hope to see that it's going to go in the right direction for us. Actually, that's more hope than a prediction of what's going to happen.
Okay. Finally on your cash flow, it looks pretty strong. More or less all net income turns into cash. Have you done anything extraordinary, encourage your subsidiaries maybe to increase factoring or anything? Or is this just a normally strong cash flow that wouldn't take anything away from coming quarters?
I think like most companies, when we saw this coming in March, we had a very strong internal focus on cash flow, but we still have a very strong internal focus on cash flow. It's difficult for me to say exactly how all 164 subsidiaries have acted exactly on the last week of March. I would say in general, maybe more importantly, to compare the cash flow this quarter compared to last year, is that last year we had a pretty sloppy cash flow. Because of the huge organic growth we had. If you remember back then, I commented that we were not so happy with our inventories and things like this, now we are more stabilized there and focused on that.
Maybe we have a little bit effect in this quarter on the supplier side that the certification, for example, in the dental market, we have been asking some of the manufacturers to share a little bit of the burden of the dental lockdown so that we can help them together. That's the marginal effect overall, I think.
Okay. If you just look back at what happened during the financial crisis for many similar companies to Lifco, as everyone released working capital, cash flow was the strongest ever. Is there anything in this situation that would make one believe that cash flow wouldn't be strong? Could it be that, well, if sales completely gets wiped out, you don't get the cash flow? I guess you're such a widespread group that you should have some sales, and then cash flow would be strong.
I had the same thought that if we get a total stop, the inventory will just sit there. I don't think we're there, and I think we definitely will not be there. Even if we were there for a few days in the beginning of this month, we will not be there for the whole quarter. It's not what I'm seeing right now, at least. Once again, we have to be very humble to predict anything in these very troubling times. we hope that-.
The most reasonable scenario is that cash flow will be very strong if volumes are weak in general.
We focused on that. We don't predict cash flow, and we don't communicate any forecast. We try to do our best.
All right. Thank you very much.
Thank you.
There are no further questions on the line at this time. Please go ahead, speakers.
Okay. Thank you, everyone, for listening, and have a good day. Thank you.