Hello, and welcome to Lifco Q4 Report 2019. Throughout the call, all participants will be in a listen-only mode, and afterwards there will be a question-and-answer session. Just to remind you, this conference call is being recorded. Today, I'm pleased to present CEO Per Waldemarson. Please go ahead with your meeting.
Thank you. Welcome everyone to this Q4 conference call. I would like to start to go already to page number two in our presentation and just quickly go through the summary of the quarter. If we take the quarterly numbers first, we had a sales growth of about 8% in total. However, we had actually an organic decline of 2% on the sales side in the quarter, and also a 3% decline in the EBITDA numbers. In the quarter, however, we had very strong cash flow, a growth of 44.5%. I would like to also like to point out that the work that we initiated during the year to get the inventory levels into a better position paid off in the last quarter, and also thanks to the lower receivables, we showed a very strong operating cash flow.
While staying on this page, I can also comment slightly on the full-year number. We had overall a 16% growth and 4% organic sales growth for the whole year, and EBITDA growth of 16% for the full year. Also on the full-year numbers, a very solid cash flow development of 30% growth in operating cash flow. Also just to comment, we have a proposed dividend of SEK 5.25, which is an increase of 14% compared to previous year. We can turn to page number three, where we go through the different business areas. If we start with Dental, we had in this quarter a somewhat weak development, especially in the distribution business. This is relating to many small things. It's not one specific company or geography that is the problem area, or in general was a slightly weaker quarter than normal.
Want to emphasize that this is a quarter we have no acquisition goal in this business area. If you look at the whole year for Dental, it's been actually quite good year. We grow the EBITDA of 9% in the year, which we are quite happy with. If we go over to the Demolition & Tools segment, we had a quarter that although we grow the sales numbers with 12%, that's impacted by acquisitions. Organically it was clearly a weaker market condition for the business area, especially if you compare back from the period starting already in Q4 or even Q3 2018 up until the summer of 2019. We have now felt a little bit weaker market conditions, but also more unclear market condition. It's basically a little bit month to month. It's been the last few months.
We don't give any forward-looking statements, but I want to emphasize already here that we normally don't have very long order books in this business area, so the visibility is not so long for us on what will come in this area. On the quarter, if you look at the profit development in Demolition & Tools, where we have a decline of 21% in profit, that is related to the overall weaker organic development in sales, but mainly due to the negative impact from product mix. In this quarter, we didn't have any major special projects that can be very profitable. Also in general, the growth characteristics of the business has led to a negative product mix in the quarter. This has also historically been fluctuating up and down in the scope.
When it comes to the last business area, Systems Solutions, we had overall a pretty good development, a growth of 13% and EBITDA growth on sales numbers and EBITDA growth of 14%. In general it was pretty good, the Systems Solutions, but the weakness in the forest project business still continued in the Q4, and we're not so happy with the organic development in service and distribution for the quarter specifically. Overall for the year, if we come on to service and Systems Solutions, we had a very strong development of 20% EBITDA growth. Also coming back to Demolition & Tools, I want to emphasize that we grow the year with 15% EBITDA growth for Demolition & Tools as a whole. If we then turn to page number four, we update once per year. We update the acquired versus organic EBITDA growth.
I just would like to make a short comment on this slide where you can see the 2019 numbers. We had a growth of 10% from acquisitions. Actually most of that growth came from acquisitions made in 2019. We only carried over SEK 43 million from 2018 due to quite low acquisition activity in 2018. We can also in this summary see that at the second to last row that we have a total acquired estimated annualized EBITDA of SEK 287 million in the year 2019, which is actually all-time high for Lifco. On this slide on the last row, we have the net debt to EBITDA numbers, and this is now the comparison between 2018 and 2019 is not fully comparable as we in 2019 have now the IFRS 16 effect in our net debt to EBITDA ratio.
As you can see, we still run at, no matter how you define this net debt to EBITDA, we're still below the 2 x EBITDA target range. We can flip to page number five, and I just would like to look at the long-term development of net debt to EBITDA. It's the black line in the graph to the left. As you can see, we end also 2019 with a very solid balance sheet, and there is obviously more capacity for acquisitions going forward in Lifco. I would like to flip to page number seven. Please skip one slide. Just to comment on our return on capital employed, if you take the right-hand graph, you see a quite sharp decline in our return on capital employed, and mainly it has to do with the new IFRS 16 calculation.
From this year on, we will have more comparable numbers in this graph. Lifco still has a huge emphasis on the return on capital employed, and we have a very good overall portfolio, which leads to this good cash flow and cash conversion in general. We can move all the way over to page 14 in the presentation, where we also once a year update, or actually once every second year update our organic development. I just want to give everyone the background. This is when we have measured purely organic, our original dental companies on the left. This is based on public information. The Nordic region, you can find this data publicly available. We have now tracked exactly the same companies over a long time period. As you can see, the historical development has been very good in the dental on the left-hand side.
However, in the last two years, we had an annual average decline of 3% in our profit level in this subset of companies. That has to do basically with one distribution company that has suffered some problems in the Nordic region during this time period. I think we're still running on overall healthy margins, but I just want to comment on that as well. On the right-hand side, you can follow the Swedish entity of the Brokk Group, basically the Brokk AB factory, and as you can see, it continues to develop very strongly also in 2019. We turn all the way to page 27, where I just want to emphasize on the acquisition side that we have since the last conference call signed five acquisitions, two in Systems Solutions and three in Dental. Just to clear on that as well.
I think with that, I will open up for questions.
Thank you. If you wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw a question, you may do so by pressing zero two to cancel. That is 01 if you would like to ask a question. Our first question is from Oskar Vikström from ABG. Please go ahead. Your line is open.
Hello. Thank you. Just one first question here is a bit on the margin in Demolition & Tools. You mentioned that the lack of these highly profitable special orders. Could you develop a bit more on what they are usually, and is this a trend that you think will last, or will this come back in the next quarter? How do you view that?
Yeah. Just before I answer that question, just to be very clear, I think the lower margin in the quarter has to do with a general product mix effect. On top of that, we did not have any of the special products that can be highly profitable that sometimes come and go. The predictability of the special orders is very difficult to foresee in the future because, first of all, the lead time can be long and also the timing of them are very difficult to foresee. It's not something we had historically as well in this division. I think on top of that, we also had a weaker development in the high margin part of the Demolition & Tools business in Q4.
That development, why is that, do you think? Is it increase in competition? Is there pricing pressure? Are people choosing other options, or how do you view that development?
We view it as we had a somewhat weaker market condition in this quarter compared to previous years. I also would like to emphasize, in general, I didn't mention that in Q4 2018, we had a overall organic growth in Lifco of 10%. We're meeting a somewhat strong Q4 2018 as well in this report.
Yeah.
I think the market itself has been more unpredictable also the last four, six months when it comes to market condition for the Demolition & Tools segment, which has a cyclical component or a very strong cyclical component.
Yeah. It's really just market. There's no company specific in this segment, really?
No, not really.
it's more the overall market. Yeah.
Yeah.
I was also wondering a bit on dental, you mentioning that the distribution companies were doing a bit worse or was a bit softer. I also noticed that the recent acquisitions, there are a few that seem to be more falling into the category of distribution. Could you just develop your thoughts there? Do you think the market is solid? Why do you choose to acquire these type of companies if you're seeing a slower development?
Well, I think you're referring to, we have done one distribution acquisition recently. It's a Croatian company where we think we have quite a strong market leader in a market where we think distribution can be attractive long term, also for an attractive price and attractive valuation. In general, we have been quite open within the last few years that our main focus in Dental has been in the other segments, in the manufacturing side and in the prosthetic side, I would say. The distribution business is a very good cash flow business for us, but we are running on a high margin level, and the growth characteristics of that business has been quite low for some years.
Yeah.
I think this quarter in dental is a mix of many small factors, the results.
Okay. The margin in dental, could you develop a bit more? If the distribution business is doing worse, could you just develop on why the margin is down? I thought that was the lower margin business, or is that wrong? The EBITDA margin is down 1% basically year-over-year.
Sure.
Could you develop why that is?
Yeah. I think the exact margin by quarter can fluctuate a bit as well. If you look at the overall 2019 numbers, which is also a relevant factor, we have been growing the margin in the overall dental and also in quite a lot of the companies itself. In this quarter, we have, especially in the distribution, a weak development.
All right. Okay. Yeah, thanks. That's all for me. Thank you.
Our next question is from Julius Rapeli from SEB. Please go ahead. Your line is open.
Yes, thank you, and good afternoon. One question first relating to the Systems Solutions division, could you perhaps just elaborate a bit on the different segments in there and give a short update on the forest side? You mentioned that it was still weak in the quarter, how do you see the outlook for Q1?
The problem with the forest division is that it contains this sawmill project business. I think in previous calls, I've been explaining that it's a very difficult business to predict because even if you have good order book or good orders, it's very difficult to understand the profitability until you reach a certain point in the project, and actually until you reach the clearance of the project. You have this very unpredictable business area. I think it's something that we can't really predict, to be honest. I think we've been very open with that. It's a bit fair that it contributes to our cash flow over time, and it's been good if you take the average over the years. Quarter- to- quarter, it can be very difficult to forecast for us.
Okay. Overall, the Systems Solutions saw quite nice development during the quarter. There is some divisions or segments that are standing out. For instance, the environmental technology had a quite good growth year-over-year. Something you can comment on there?
Are you referring to the quarter now with the question?
Yeah. Exactly, Q4.
Yeah. I think the environmental technology has been doing well in the quarter. I think also the other areas have been doing quite well. It's only the forest and the service and distribution where we're not fully happy with the quarter.
All right. Thanks. The last one from my side. This ongoing coronavirus thing, do you see this having any impact in your manufacturing facilities in Asia, or how do you see this?
First of all, it's a very difficult topic to predict the outcome of what's going to happen.
Absolutely, yeah.
I can only mention that we have in our dental prosthetics business, we have a German business with a production facility in China.
Exactly. Yeah.
That if this corona situation would be becoming worse or continue for a very long time, that can be a problematic area for us. As of now, we still are able to operate right now, but this is a day-by-day development that we have to follow and track.
All right. Thank you very much. That's all from my side.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad. Our next question is from Robert Redin from Carnegie. Please go ahead, your line is open.
Yeah, hi. On Demolition & Tools, again, would it be possible to say how much of the decline in the quarter is related to this lower or worse project or product mix, and how much is due to, say, a cyclical slowdown?
It's difficult to break it down into this level, but I can say it relates to both. I want to be clear that the market conditions in Q4 2018 was better than in the Q4 2019, in general, for the whole business area. I want to make that clear. We had a better market position the year before. On top of that, we didn't have any special products in the quarter, which we normally have something of. Not every quarter, but in Q4, we had a little bit of that effect in 2018. It's a combination.
Right. I guess that mix can vary, but the other maybe is more of a one-time deposit. Could you say something about the development through the quarter? Was October, November better or worse than November, December, or what was going on?
I can say that in general, it's been very fluctuating month-to-month since the summer period, I would say. In certain months we've been feeling really bad, and the next month it looks okay again. That's how it's been throughout the last four or five months for us. It's been very difficult market to understand for us also month-by-month. As I said before, the visibility for us giving our order books is not very long. We're very curious how 2020 will be for this business area.
Okay. Right. Another question on acquisitions. You had a period with not so many acquisitions during, was it after summer, until sometime in the autumn, and now you've had a flurry of acquisitions. How do you view the pipeline, if that's a word, than normal?
I can only comment on that the way I normally do it, that some of these companies we bought, we’ve been in discussion for a very long period of time, and suddenly a deal comes through. Some of the others, we learn about six or seven weeks before we sign a deal. That’s why I think it’s almost impossible to discuss a pipeline because, of course, we have ongoing contacts with many companies that can happen in March or April or in 10 years. Sometimes we find a company in November, and we make an acquisition before end of December. It’s very difficult to comment on this. Now we had some activity in the last two months, and we work as hard all the time, and we try to buy good companies for a reasonable price.
That's what we do all the time, and we increase our work. We have a little bit more people involved in that work, and we try to do as best we possibly can in this. To expect timing of acquisition, it's impossible to predict.
Okay, perfect. Those are my questions. Thanks.
Just as a final reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. Our next question is from Christian Hellman from Nordea. Please go ahead, your line is open.
Hi. Thanks. Just a question on the Demolition & Tools. Just so I understand correctly, is it true that the organic growth in Demolition & Tools was negative in this quarter?
We don't communicate organic growth like this. I think it's clear that it has been a weak organic performance in the quarter. You have to keep in mind that we have, in this business area, acquired two companies in 2019 that have positively contributed to the quarter. If you do the math there, you can observe that there's been a weak development organically in the quarter.
Yeah. In my model it's negative. I'm just sort of trying to get a confirmation on that.
Yeah. You're directly correct.
Okay. Another question on the drop through in Dental. Compared to Q4 last year, you're losing 1% of revenues in Dental in Q4 and about 6% on EBITA. I'm just wondering if that's sort of a normal drop through for you guys, and that's something that we can sort of model going forward, in case you were going to continue to lose a bit of revenues in Dental, or if there's anything unusual or extraordinary that we should take into account.
First of all, it's only organic in Dental because there's no acquisition effect basically in that area. That we dropped 1% in the quarter, I think that has happened organically in the past. That we dropped a little bit more in EBITDA, that's maybe not so usual. On the other hand, it comes from many small events. It's not one big event. We don't give any forecast, we cannot predict. We will see how the future will develop in this area.
There were some positive FX tailwinds, right, in Dental in Q4, or is that not correct?
We have small positive effects.
Yeah. Okay. The organic drop was a bit more than 1% then.
Yes.
Okay. Just a final question on your presentation on slide eight, where you're comparing Lifco, I guess the total return share price versus some other companies. When I compare you guys, I have a totally different peer group comparing you to Henry Schein, for example, in the U.S. and Addtech and those. Can you please elaborate on why you're comparing?
No, but this.
to those names?
Yeah. Page number eight, Lifco was listed back in 1998. Carl Bennet bought it out just shortly after it was listed in 1998. There was a market price for Lifco in 1998. We tracked all the dividends and made a total return analysis of Lifco since 1998 and compared it to the best performing shares in Stockholm Stock Exchange that were listed in 1998. Lifco turns out to be number two. We just added Berkshire Hathaway as a reference. It's the bottom line in this graph when it comes to returns. It's just showing the returns that Lifco has had for shareholders since May 1998.
Okay.
The peer group is the best performing shares that were listed in Stockholm 1998 and are listed today.
All right. I understand. Thank you.
Our next question is from Daniel Lindkvist from Handelsbanken. Please go ahead. Your line is open.
Thank you. Hi, Per. I had most of my questions answered, and basically the one I'm going to ask you as well. Just looking at dental, should we perceive it as it's one distribution company specifically that's having more problems, and the rest is temporary issues? Also just talking about the holiday effect from this workers' friendly holiday, have you seen more effects from that than may be perceived by us?
We don't want to blame bad performance on calendar effects. The only time we do it is when Easter is moved around between quarters. We haven't done a deep analysis on that. We can just conclude that this quarter was not so good for the dental company. It's a mixture of many things. We have some extra costs here and there that has explanation. None of them are big and important enough for us to bring up in this.
Going into Q1.
When I refer to Q4 results now, then I refer to the graph where I showed a very long organic development in some of the dental companies. There we have one company that has suffered in the last four or five years. That you've been seeing through our numbers for many, many years.
Not specifically Q4?
Not specifically Q4. Q4 is the mixture of different small things. Also lower sales, as you can see.
Okay. Going into Q1, should we expect still some temporary issues from what you see now?
We don't give any forecast. We can only conclude that the dental area in general organically has been very slow growth. It's been fairly stable, and this quarter was weaker than maybe normal. We don't give any forecast.
Okay. Perfect. No further questions on my side. Thank you.
Our next question is from Jon Hyltner from Enter Fonder. Please go ahead. Your line is open.
Thank you. Hi, Per. Just a quick one on net working capital. How did the net working capital to sales develop for the third quarter compared to last year?
You mean network capital? I don't have that number in front of me right now. I can only say in the beginning of the year, we had quite negative effects on building inventory, and we probably ended the year with a positive effect on accounts receivables for sure, if you look at the full-year numbers. I don't have that data in front me right now.
Okay. Okay, I'll look at it later on then. Thanks.
Sure.
As there are no further questions, I will hand it right back to the speaker for any final comments.
Okay. If there are no further questions, I thank everyone for listening and wish you a good weekend. Thank you.