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Lifco AB (publ)
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Welcome to the Lifco Q1 Reports 2018. [Operator Instructions]I'll now hand the floor to our host, CEO and President, Fredrik Karlsson. Please begin.
Thank you very much. This is Fredrik Karlsson speaking. We just issued our quarterly numbers.If you turn to Page 2 in the presentation, we can have a look at the sales figures first, and there it says that organic growth was minus 0.6%. This is, for us, a disappointment because, in general, markets are good and demand is good. So yes, it's a disappointment. We have -- in many cases, we have -- we are delayed in deliveries. We are experiencing difficulties to source components and we get delays in our deliveries in many of our manufacturing entities. If you look at the EBITA margins, it's also disappointing. It’s even worse than the turnover. We have -- our EBITA growth -- we always want to grow faster EBITA than turnover. And now we had a slower growth in EBITA than in turnover, and the – it is all our fault. One thing is that we -- the number of small issues we have had. The biggest issue we had in the Demolition & Tools area. We can look at that later. We had, among others, problems that we have some receivables not paid by our customers which we are working hard on to have these payments within this year. We also have, in the Demolition & Tools area, a product mix. [ We sell ] cheaper products or smaller products, less complicated with less margins. And we have some problems with the currencies as well in the Demolition & Tools area. So all in all, not so good EBITA development. And the EBITA -- drop in EBITA margin is due to Demolition & Tools. As we acquired some companies, profit before tax is growing even slower.Let me add one thing, which is also disappointing this quarter, that is the cash flow. And we don't have it in the presentation. On Page 14 in the quarterly report, we have the cash flow statement. And there you can see that the stocks have increased by more than SEK 130 million, and that is also due to delayed deliveries. We are sitting on stock waiting for components to be able to deliver. On the positive side is that current liabilities have increased, and that's actually due to more prepayments for customers for ongoing orders and for -- and trade liabilities. But all in all, cash flow was not good this quarter.Then we can turn to Page 3. On Page 3, you see Dental has a normal development. If you think about Dental, it's a little bit affected by the Easter. So I think, it's not much to comment. Per, do you want to comment something on Dental?
I think we can just highlight here that we had Easter in April in '17 and this year it was end of March, beginning of April, which had a negative impact on the first quarter somewhat, which we should get a little bit positive down in the second quarter.
And in Demolition & Tools, we had good growth in turnover, but bad, very disappointing growth in EBITA. And once these -- the reserves [ have been made ] for receivables, we have the -- for Kinshofer, for our German factory, they have a problem that the dollar has weakened against the euro and then we have the mix problem I spoke about. All in all, we had a very disappointing margin development. Then Systems Solutions, I think it's a normal development, even though in Systems Solutions, we had some problems in deliveries as well in our manufacturing units.And then we can turn to Page #4. 18th of May, Lifco will be 20 years. 18th of May 1998, we were -- and it was partly -- first part of the year and it was distributed to the listing of shareholders and then it had a market cap of SEK 360 million. Now our market cap is around SEK 3.1 billion. And we are the blue line, and as you -- in this graph, and we are -- we have increased the value 80x in 20 years, and that's very good. We're actually the top performer among the large caps on the Swedish Stock Exchange over 20 years. So this graph is of the 10 best performers on the Swedish large cap. We were also listed in the '98. The interesting thing to see is that Sweco is another top performer. And both, Lifco and Sweco, they have extremely decentralized model. And if you look at the gray line, that's property company Wallenstam; I don't know much about it. NIBE is the fourth company, and they have been very accretive as well. And the fourth one is Hexagon; also they have an accretive decentralized model. So the model has paid off long term. And you also can see, since our reintroduction to the stock exchange in November -- October -- no, November 2014, we had a very good development since the listing began.Next page. This is Page 5. I don't want to comment it too much. Now as we have figured out over the years that we are a good buyer for family businesses. If you look -- if you read on Page 5, this is essentially why we are a good buyer of family businesses and that people prefer to sell us -- to sell to us and not to private equities.And then we can turn to Page 9. Even though we had a better cash flow last quarter, still our net debt to EBITDA ratio is around 2, so we have [ plenty ] of margin for acquisition as our target is 3.And next, we can have a look at Page 13. And then you see we have 3 acquisitions, which -- so which are included into the Lifco accounts from the starting of 2018, is: Computer konkret, software for dentists in Germany; Spocs is for our contract manufacturing; and Dental Direkt is the dental wholesaler in Norway and Denmark. That was all I had to say. Please, if you have any questions, you're welcome to ask them.
[Operator Instructions] And we have one question coming forth, that's from Robert Redin of Carnegie.
Yes. Sorry, if you covered this before, but you wrote in the report about provisions for doubtful trade receivables in Demolition & Tools. And I was wondering if you could say something more about that, maybe quantify, and also what receivables those are and if that's [ potentially the program ] going forward?
I can’t say that. So it's actually -- we have a small company called Ahlberg. They have a big delivery to a nuclear site in U.S. It's a government nuclear site which is trading old nuclear material. And there is basically a misunderstanding on the delivery content. So we have delivered 99% of the -- what the customer expected and 1% is missing, and the customer won't pay you until you get to 100%. And the thing is, these little components which has no big value takes a lot of time to produce. So we can't deliver it until end of this quarter, then the customer hopefully pays next quarter. And then we have some other North America receivables, which we have to collect on the Brokk side. Hello?
Okay. And so this Ahlberg one is the big part, is it?
Yes.
And this other -- these Brokk receivables, so they report of some kind of trend or...
Brokk in North America, they have grown very rapidly. We have a small organization. It can happen that they have to be -- they have to collect -- you have to be on the customers all the time, see to that they pay in time. And that they had so much to deliver, they maybe have not paid too much attention to this issue. So we -- but now they pay attention.
Okay. But it sounds like you're expecting to get paid in the end, but still little short...
We hope so.
Okay, yes. And could you quantify how much does this sort of adds up to because you said in the...
No, we said this majority of the…
Margin decline.
Margin in this.
All right. So 2%, 3% of quarterly sales, okay. Right. And you also wrote about Dental having seen some kind of Easter impact in Q1, but you branded that as slight or small. Was it sort of smaller than you expected or bigger than you expected or...
This is Per here. Yes, I think it's like expected. It's difficult to know exactly because this year it was right in between March and April where you had the sweet spot of Easter, and then in some cases, the week before Easter is weaker and the week after in other countries. So it's a little bit complicated on exactly how it plays out, depending on where Easter ends up. But I think it's pretty much as expected from our side. We're not so surprised about this effect.
All right. And for Q2, you're expecting in the negative. That's terrific, so...
No, no, no. So the small -- the slight negative effect we had in the first quarter should have -- if we don't make a mistake here, it should be, if anything, positive. But then there are, of course, other things that can happen. But from pure Easter effect, this should be somewhat positive in April.
All right. Got it. And then you also wrote about late deliveries from suppliers capping your own production a little bit in the quarter. Was that mostly in Systems Solutions or where was that and...
In Demolition & Tools and Systems Solutions, both.
Okay, both. And do you foresee those problems getting solved anytime soon or have they been solved? Or will there be a problem also in Q2, Q3?
Yes. If the order intake increases even further, we will have problem. But if it's -- under normal circumstances, it should be solved during Q2.
[Operator Instructions] And we do have one further question coming through, that's from Daniel Lindkvist of Handelsbanken.
So just a quick question on the margin of the Dental business. I was a bit surprised with the stronger EBITA margin during this quarter, where it was lower organic or negative organic growth. So could you just elaborate? Are there any currency effects? Or are there any other acquired companies or if there’s an explanation for the improvement?
This is Per again. I think it's -- first of all, I don't think that effect is so major. I think you saw that it can just happen between quarters, when this happens. So I wouldn't say such a major effect from my perspective. There is a slight positive effect on the currency, not major either, but yes. It's like that, things can move a little bit between quarters also in -- even in Dental.
Okay. So there's no change. We've became used to the margins being at around the same levels and not improving as much as historically. So nothing special with this quarter just a coincidence with the margin?
I think so. Sorry, while I'm on the line, can I just make it clear about the Easter as well because I had a question previously. So what I mean is that we had a negative effect in the first quarter from Easter because Easter last year was in April. And this mean that this year, April will be slight -- should be slightly better than April last year, but of course slightly worse than a year where we have no Easter at all in April. You have to make it very clear on the Easter effect.
[Operator Instructions] As there are no further questions coming through, I'll hand back to our speakers for the closing comments.
Okay. Thanks very much for listening in to us. That was all from us. Thank you.