Earnings Call: Q3 2019

Oct 23, 2019

All participants will be in a listen only mode. Afterwards, there will be a question and answer session. And just to remind you, this conference call is being recorded. Today, I'm pleased to present Per Waldemarsen, CEO. Please go ahead with your meeting. Hello, everyone, and welcome to the Q3 quarterly presentation from Lifeco. If we already flip to Page number 2 in our presentation, I'd like to give some high level comments on the quarterly performance. And if we start with sales, we are growing our sales with about 15%. It's a combination of 8% coming from acquisitions, 5% organically and also some help from currencies in the quarter. And as you can see, also the EBITDA numbers are growing, but slightly lower rate, which means that our margins are a little bit lower than last year in the quarter, which is related to the performance in CEC Solutions, which I will get back to shortly. Also on the high level for the group, we had pretty strong cash flow in the quarter, which is mainly due to lower receivables. And just to comment also on the high level, we think that overall, we had good performance across the line and also the sales and profits in our more cyclical part of the business was quite good in the quarter. But we could comment that as many of you know from the overall market, there is a more uncertain situation right now. So the coming months and quarters will be interesting to follow the development. But so far, everything has been good for IFCO. If we then flip to Page number 3, we can go through the different business areas. And on Dental, there's not much to say. This quarter, we have not had any help from acquisitions as it was more than 1 year ago that we made the latest acquisition in Dental. So it's all driven from organic and currency in that position, in that piece area. And as you can see here in Demolition Tools, we have a strong development, both organically and from acquisitions. And then we come to the CECL Solutions area where we have also in our quarterly report commented that we have had a weak performance in our forest division, partly related to low margin, which can fluctuate between the quarters. And in addition to that, we also made some reserves for increased project cost for the projects that we're running and then also specific reserve for restructuring or savings, organizational restructuring in one of our companies in that division. And that in total, the reserves are more than SEK 15,000,000. Then we can flip to Page 5 and look at our net debt and balance sheet. And as you can see, the net debt to EBITDA, including our leasing IFRS 16 effect and also the option agreements that we have in our debt position, it's about 2x EBITDA. If you look only at the interest bearing net debt to EBITDA, then we have 1.5x. So that is giving our financial targets quite low level, which gives us room for future acquisition potential. Just also to comment on the balance sheet we have on the tangible fixed assets and the interest bearing liabilities in both sides of the balance sheet, we have an IFRS 16 effect of SEK 488,000,000 that has impacted compared to last year. And then we can turn to Page 7. And just to highlight once again, and this is a similar story that we discussed in last quarter, when it comes to our return on capital employed, we have now during this year, we include the IFRS 16 effect in the calculation, which means that in the asset side, we include then all the leasing effect, which then brings down the return on capital employed. And from next year, we will then have more comparable figures when we compare the return on capital employed. So it's mainly an IFRS 16 effect that drags down these numbers. And then we can flip all the way back to Page 27 and just shortly comment on the acquisitions made so far this year. We have only made 5 acquisitions, But in total, they have contributed with SEK 930,000,000. And as you all know, we are continuously looking for more acquisitions. But the timing and exactly when it will happen is always an uncertainty for us, as we have pointed out in previous calls like this. So with that, I would like to open up if there are any questions. Thank Our first question comes from the line of Julius Raffeti from SEB. Please go ahead. Thank you. Good afternoon, and thanks for the presentation. My first question would be relating to the Systems Solutions, especially on the margins there. You mentioned some struggles in the Forest division, but is there anything else Could you put some more color on the other divisions as well? And are the acquisitions you made there margin accretive or dilutive? Well, as we have pointed out in our report, it's basically the explanation can be found in the forest division. In the other division, there is no material impact that's worth mentioning. And so in the Forest division, we have a pretty weak quarter in terms of the margins. And on top of that, we have this extra reserve that we've made. So it's a combination of those two factors. Okay. And if I may continue on the Sorry, on the acquisition, they are not impacting the overall picture so much in this quarter. All right. Then on the demolition tools, is there any differences in the development regarding growth and profitability between Brot or demolition robot side and the attachment side? Or is it going as business usual? It's pretty stable in the quarter overall. Okay. So no big differences between the segments? No. But I think, no, it's not material. Okay. Thank you. That's all for me. And the next question comes from the line of Johan Eyl from Danske Bank. Please go ahead. Yes. Hi, there. I just had a question on, I hope I'm not repeating it, but if I came in later, but the demolition of tools, it appears to be quite significant slowdown in organic growth here in the quarter. Can you just talk about what you're seeing in the market there? We're seeing some significant weakness among other sort of construction related peers. Would be interested in your view on that. So overall, we had a good development in the quarter in the figures presented. But we do, as I mentioned earlier in the phone call here, we as everyone else think that the market situation is a bit more uncertain now than it was compared if you compare to how it was in the beginning of the year. But in the Q3, it was good for us, so to say. But I think the uncertainty increased since the spring is what we're feeling. But am I correct in the Malaysian Tools that we're going from some high double digit organic growth to sort of low single digits here in the quarter? We don't, I mean, I don't think we present that on a divisional level, but we still had, yes, I mean, you could say that the organic growth, yes, was high in the beginning of the year. It's fair to assume, but we still have organic growth in the quarter. Also on the sort of acquisition cost, I was thinking the additional consideration and change in call and put option values. Can you just explain your visibility on that particular item going forward here? Anything that we should be aware of or any numbers that you can sort of share with us? So these numbers are, every quarter, we update the valuation of all option agreements based on the last 12 months performance. So that can go so how these companies develop can in any quarter have impact on this. And this quarter, we had positive development in those, in that part of the portfolio, which led to higher costs. Okay. So there's no sort of visibility in terms of capital changes in the subsidiaries? Or I mean, I guess the best way to model that would be just assume according to your financial targets in the group, sort of a steady increase in earnings in those minorities here? Fields? Yes. We don't give any guidance on that. And the next question comes from the line of Klatin Hellman from Nordea. Please go ahead. Hi, thanks. I have one question on System Solutions. And I was just looking at the historical performance. And in Q4 last year, the EBITDA margin was almost 17% in Q4. And I just want to sort of recollect on if there was a sort of positive one off or anything else that sort of missed the margin in Q4 last year, sort of to have in the back of my head when want my module going forward? I'm sorry, but I don't have that in my head, on the top of my mind right now. I will have to come back on that question later. Okay. Okay. And then my other question was this one that Johan just asked about the organic growth because I also have it sort of slowing quite considerably from at least 20% or something to, well, at least below 10% for Q3 now. Can you confirm that it is at least single digits, the organic growth in Q3? So the organic growth in Q3 for the group Yes, for Demolition EBITDA. For EBITDA, it's also a lower rate than in the beginning of the year, yes. Yes, but it's in the 6 digits. Yes. It's below 10% in this quarter. Yes. Okay. Thank you. And we have a follow-up question from the line of Julius Raffelli from Just one thing to follow-up on. You mentioned something on the M and A pipeline. Is there something you can discuss about the pipeline? How does it look? Do you see any differences compared to the previous quarters, years in the activity in the market? Yes. So I think the comment on the and I tried to make that comment earlier, but the comment is, as always, that there's always a lot of discussions ongoing, but the timing on when we will make a deal is always very difficult. So unfortunately, we cannot give any guidance. And we worked very hard on this, but there's many things that we're right to get That's all. But no change in the pipeline. I mean, you don't see any slowdown in companies available or anything like that? No, I think it's pretty much the same as it's been the last couple of years. Okay, perfect. Thank you. But it's a very difficult to pull metal because it's, every deal is unique in a way. Yes, sure. Thanks, Mark. As there are no further questions, I'll hand it back to the speakers. Okay. Thank you very much for dialing in, and we hand it over to the coordinator again. Thank you.