Thank you, good morning, everyone, and welcome to our Q3 presentation. We can start directly by going into page number 2 in our investor presentation. On a very high level, we can conclude that this was another strong quarter for Lifco, with strong underlying market demand in Demolition & Tools and Systems Solutions specifically. Just briefly on Dental, we had marginally weaker market situation compared to the comeback quarter in Q3 2020. I'll come back a little bit more to that later. On the overall level, we have a sales growth of 26%, of which 8% is organic growth. Acquisitions contribute with 16%, and in this quarter, we actually had a positive effect from exchange rates of 2%. On the EBITDA level, we are growing 23% in the quarter.
On the margin level, we have slightly lower margin compared to the Q3 2020, which was a quarter with very high margins due to solid sales volumes, combined with, at that time, very low cost levels due to the early phase of the pandemic, where all companies were in a sort of low-level mood following the extreme situation in Q2 2020. If we talk about cash flow, it's on a solid level, same level as last year, partly thanks to the increased profits, which is then a little bit offset by increasing receivables due to the market conditions that are very strong and also inventory build-up that is taking place in many areas now due to the strong market conditions and companies getting ready for fulfilling the demand.
Our return on capital employed is on a very high level at 23%, and actually at 161% when we exclude goodwill, which is a very good level. This is, of course, an explanation for the strong cash development that we can have despite the growth period that most companies are in right now. We can go into the more specifics on page 3 and talk firstly about Dental, which had a very strong quarter actually in last year in Q3 2020. Especially the cost levels in this area was at a very low level, which we indicated already a year ago, which was leading to extraordinary high margins last year. This quarter, Q3 2021, is more a normal quarter, I would say more in line with quarter three in 2019 and, of course, complemented then with some acquisitions adding to our sales growth.
We are now seeing activity levels in sales and marketing coming back to more normal levels as the markets are coming back also to a more forward-looking mindset in terms of future looking. Last year was a bit different in that respect. In Demolition & Tools, we see very continued strong market conditions, and we are growing sales with 55%, thanks to both very strong organic development and complemented by acquisitions in this year. The higher margins in this year is mainly thanks to the operational leverage in this area. Also, of course, in this area, we also are getting more forward-looking and mindset in terms of sales and marketing and other costs that will be coming back to more normal levels. I think the sales growth itself is taking that effect away. The operational leverage is more important in Demolition & Tools.
When it comes to Systems Solutions, we are growing sales both thanks to strong demand and market situation and complemented with acquisitions. The margins in Q3 2020 are slightly lower than previous year, also here due to the cost levels were extraordinarily low last year, and they are starting to come back more to normal levels. Also in this area, we have a few entities, which we are pointing out in our report. Those entities are having longer order books, which means that they have not fully compensated the raw material price increases yet into the market. This is an ongoing process of trying to compensate. It varies between companies how quickly that can come in due to the order books mainly.
With that, we can go to page number four and just have a little bit of a short reminder on everyone how Lifco over many years have been growing the business both organically and through acquisitions without any capital infusion or increase in debt ratios. In addition to that, we also paid a small dividend every year. Obviously the data for 2021 is not yet ready as we only present full year numbers here, and it will be presented in next quarter. After nine months, we can conclude that we have continued the journey with both a strong organic development and acquisitions, and we are keeping our net debt to EBITDA ratio fairly constant, which we can see then in the next page if we go to page number 5.
We are on very solid level when it comes to net debt to EBITDA, and thanks to our strong cash flow characteristics of the business and the profit improvement, we still have a net debt to EBITDA of 1.8 x if you include everything. The interest bearing net debt to EBITDA is 1.2x, which is actually lower than one year ago. This is despite the fact that we have been very active in acquiring companies in this year. Once again, this is a proof of the strong cash flow generation of our portfolio also in times of organic growth. With that, we can go into page number 6. On this page, I'd like to just talk on the margin side. As you can see, we have a very strong development in terms of profit over the years.
Specifically looking at the margins, I'd like to remind you here that we have a long-term trend where Lifco has increased our margins dramatically since our IPO in 2014. This is, of course, a combination of operational improvements and our strategy to make our niche companies even more niche and more differentiated over time, and also acquisitions help. I think my final remark is that the pandemic led to a faster than normal growth in margins. As you can see now, we are a little bit coming down in this quarter compared to last 12 months in last quarter. It was an extraordinary time here in the pandemic where basically cost levels were at a very low level. Still the long-term trend is looking very good. We can go to page number 7.
Here you can see also the capital employed ratios, return on capital employed are on very good levels. This is, of course, part of our focus to always acquire and develop companies with very high return on capital employed. Which once again is very fundamental part of our culture. Thanks to this, we can combine strong organic growth with acquisitions without stretching our balance sheets. We can do that over many years. Then we can move all the way down to page number 12. Once again, just a small reminder, we have a very strong Lifco philosophy of running our portfolio companies. It's based on the decentralized fundamentals, where we let strong management in each individual company take the responsibility and get the mandate to deliver in each individual business.
We do that thanks to a philosophy of only acquiring and having companies that can be very successful on a standalone basis. Then we work with making these companies more profitable over time by having a clear strategy and focusing on the more profitable part of the business. Sometimes then actively sacrificing lower margin business for the long-term benefit of our group. We do this in a very lean and simplified way where we try to keep every company very entrepreneurial and having the focus on the value-adding functions. Then we try to outsource things that are not absolutely crucial, which leads to a strong focus for the management of each company on the most value-creating parts. Which we then, of course, combine with a strong cash flow focus and a very long-term perspective.
We have all our companies, we have the ambition to keep them forever. Therefore we are making sure that they also make the investment for the long-term growth of our business. This was my last remark, then I will open up for questions.
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. Our first question comes from the line of Carl Ragnerstam from Nordea. Please go ahead.
Good morning, it's Carl here from Nordea. A couple of questions from my side. Firstly, on the ramp-up of costs in the quarter, which you talked a bit about. Is it fair to assume a further sequential uptick in Q4 in the selling marketing activities? Do you plan to return to pre-pandemic cost levels, or how should we look at it?
Well, I think if you take the first question, this quarter, and I think it has been in the planning for a while, is that we are now getting back to a more forward-looking mindset. Not only in sales and marketing, but also in all other areas of the company. One year ago, the companies were just coming out of a shock period after Q2 when everything was uncertain. They were keeping everything at the minimum, especially sales and marketing, but there was no hiring taking place one year ago. Now companies are more forward-looking in their mindset, which means that they are hiring people, they are getting out more actively to do sales and marketing, whether it's physical or digital, it's more active all across the board. Will it ramp up?
It's very difficult to forecast. You have to look into how were things in the previous quarters. We are coming back to more normal levels. For Lifco, where most of the cost levels are outside or customer related, there's not so much internal cost that we can save on. Maybe the corporate with more internal complex organization can also have internal savings. We don't have much of that. We expect to see it coming back more to normal. Will it be fully back pre-pandemic? It's not clear yet exactly how that will play out.
Okay, perfect. On the Dental side, as you said, you're back on or just above 2019 levels, but could you help us understand the driver of the quarter? If it's purely selling and marketing expenses burdening the margin year-over-year, or if you had any mix effects or anything like that impacting as well?
If you only talk about the quarter here now comparing very short time periods, there is effect. Last year was a little bit of a comeback situation. It was so depressed in Q2. Q3 was a comeback. On top of that, the sales of safety material and those things were on a little bit higher level last year. Now, of course, as the markets have normalized, it's not at the same level. That's where I can give you directional input. Other than that, I think now it's more of a normal situation. The market can still be a little bit, in some areas, a little bit still pandemic affected, but I think we're more now in a normal level. I think it's also the forward-looking mindset is back in the companies.
Last year it was still in a freeze period, if you like, coming out of the pandemic shock of our companies.
On the raw material side, I think you mentioned somewhere in the report that you saw some headwinds. Is it primarily in Systems Solutions you see slight raw material headwinds, and do you think they will accelerate during Q4, or how do you handle it?
I would say this is very different between our companies, and it's not so much correlated where the companies are located in our portfolio, but it relates to companies where we have a little bit of headwinds in this quarter. It's a few companies where you have long order books and basically the prices we're giving out on the old raw material prices. We're taking the long-term approach of not going in and changing the order book. Mainly because we have distribution companies in between, and we have to act responsibly here in those few companies that are affected by this. For the most part, we've been doing very well in this and been able to quickly handle the situation. It's a very mixed situation. You have to go into each and every company to get the full answer on how this is playing out.
I can only conclude, as I've said in previous quarters, that we are, of course, in every company, making extraordinary price increases this year. The only thing is that they have different effects when they come into the P&L, so to say, depending on the order book mainly in those companies.
Okay, it sounds like no major drama coming then.
If there is drama, it's very short-term drama in my booking, because most of our companies are very strong B2B situations where we should be able, and we have been able historically, without any problems to handle this. Of course, the timing effect is a bit unclear, obvious.
The final one from my side is just on the demand throughout the quarter. We have seen some companies talking about the fluctuations between the months. Have you seen any changes in demand throughout the quarter and also especially focusing on the end of the quarter, if you could give a flavor on that as well?
No. There's of course many different companies and type of companies in Lifco, but overall, we see the market condition as being strong across the board, and that's been so for quite some time now. No specific things to mention there in this working.
Perfect. Thank you.
Just as a final reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. We have another question from the line of [Per Jansson] from [ING Asset Management] . Please go ahead.
Yes, thank you for taking my question. I have two. If we go back to, Per, your slide, page 4, with acquired on organic growth. If one should take your comments, it's more realistic that in the coming years that the organic EBITA growth will actually grow quite substantially due to better markets. We can see that you in 2021 have also included some from 2020. You made some quite substantial acquisitions. In short, my question is, more organic, less acquired growth in the coming years? That's my first question. The second question is, do you see any structural changes in the Dental area post-pandemic, or is it just business as usual, given that 2020 was so special?
Thank you, Per. On the first question, coming back to page number four, organic versus acquisitive growth. Well, first of all, as you know, we don't give any guidance on what we're going to do in the future.
No.
We can only conclude that historically we've seen, and we still see acquisition as a very fundamental part of our growth. Also, organic growth is very important, but as you know the business cycle and the market underlying demand has quite substantial impact on certain parts of Lifco, not for the whole part. We strive to grow organically profits every year. We didn't succeed last year, but most of the years previously we've done organic growth. This year, as I said, we have seen a very strong development the first nine months, so hopefully this year will be a year of stronger growth. This year will also be a year of very strong acquisitive growth. I think because of our return on capital employed and the business characteristics, we've been able to do both.
Of course, the ambition and the hope is that we can continue to do both. There's no need for us to actually differentiate between, we can continue our acquisitive growth, I would say, almost without taking the organic situation into consideration in a normal situation. Of course, if there's a big crisis, like pandemic, total pandemic that made us a bit different-minded. Other than that it's something that we continue to strive to do. We have shown historically that we can do both. We can combine this in a smart way. We don't see it like that because of if there will be strong organic growth, then we can do less acquisitions. We hope to do both if that happens, so to say.
Yeah.
We cannot promise anything. We work hard.
No
We never know.
No. It was just more, after your comments that now it's more normalized that your companies are out again, trying to get orders and so on. One could argue that the organic growth could be quite strong in the coming years.
Yeah, that's in the future. We will see how that goes.
Yeah. Then I had a question.
Just to follow up.
I'm sorry. Yeah.
Just to repeat myself, we don't see any limitation that we cannot grow acquisitions if we have strong organic growth. I think we've proven that over the years.
Yeah.
The other question about the Dental area, I'm not really sure. Can you repeat that question, Per?
Yes. You mentioned that 2020 was quite unusual, also in the Dental area, and that Q3 last year was very strong. That's a fair point. Do you see any structural changes in the Dental area, production versus distribution and so on? Is it just back to normal business in the Dental area, like before the pandemic?
Yes, I don't think it's fully back to normal business. The pandemic is not fully over yet, and we're still keeping a close look at it. It's been a very, relative to our very normal, stable business in Dental, it was, of course, a very strange last 15, 18 months for us.
Yeah
where we had the shock.
Yeah.
Then it was a little bit difficult to follow the market because if you look at the last 12 months, the markets were maybe not back to full volume, but maybe we compensate that through selling more safety material and all these things. Now, in this quarter, I think it was a more normal quarter. We'll see how it goes. It feels like it's getting back to more normal levels, but I think it's too early to conclude on that, given that the pandemic is still not fully over for us.
Yeah.
We'll see. It's feeling more like normal now. Yeah.
Yeah, you don't see any structural changes in distribution or production or anything. It's just back to normal like before?
Yeah, I think those structural changes, they are very slow-moving in Dental normally.
Yeah.
It's not a big factor in that sense.
Okay. Fair enough. Great. Thanks.
As there are no further audio questions, I'll hand it back for any closing remarks.
Okay. Thank you everyone for listening in, and thank you for the questions. I wish everyone a good day. Thank you.