Lifco AB (publ) (1L30.F) Earnings Call Transcript & Summary

Welcome to Lifco Q4 report for 2025. [Operator Instructions] Now I will hand the conference over to CEO, Per Waldemarson; and CFO, Therese Hoffman. Please go ahead.

Thank you, and good morning, and welcome, everyone, to the Q4 2025 earnings call for Lifco. We will start with the overall summary on Page #2 in our presentation. And we can start looking at the quarterly numbers where we can conclude that Lifco Group then had a sales growth of 6%, of which organic growth was 4%, acquisition growth 7%. And then we had, like many others in this quarter, a negative exchange rate effect. In our case, the negative effect was 5% on sales in the quarter. If we go further down, we had an EBITA growth of 5%, net profit growth of 7%. And in this quarter, we had a strong growth in operating cash flow with an increase of 23%, thanks to our increased results and also some release of working capital. And earnings per share grow in the quarter with 7%. If we then look at the right-hand side of the graph and take the full year figures, we had a sales growth of 8% in '25, of which organic growth was 4% growth, acquisition contributed with 7% and we had for the full year, a negative exchange rate effect of 4%. EBITA grew for the whole year with 7% and net profit growth was 10%. And also for the full year, we had a solid operating cash flow of growing 11% and our earnings per share grew for the full year numbers with 10%. And I'd also like to just highlight that the Lifco Board has proposed a dividend of SEK 2.7 per share, which is an increase of last year's SEK 2.4 per share. And this is, of course, a proposal that will be finalized as a decision on the Annual Meeting. If we then go further to Page #3 in our investor presentation, we can have a little more deeper look at the different business areas. And if we start then with Dental, we had overall a stable underlying organic development during the full year 2025 and also in the last quarter, the same pattern. And for the full year -- sorry, both in the quarter, especially and also for the full year, we had negative effects from currency, which then overall led to a moderate increase in profit of 2% for the full year numbers and 1% in the quarter. So quite stable underlying development in this area. In Demolition & Tools, we have, we have during the whole 2025, seen a slightly improving market conditions with some organic growth. And this is then following quite difficult year in 2024 when the markets were very weak in most part of the Demolition & Tools area. The organic growth continued also in the last quarter, but was offset by even more negative exchange rate effect when we translate our numbers into Swedish krona. And during the Q4, we also -- the margin in Dem & Tools was slightly lower than previous year due to some product mix effect. But I would also like to highlight that we had the opposite situation in Q3. And this is an area where we have and has always had some volatility in margin between different quarters, depending on product -- what products are taking a bigger share of the total in the area. For the full year in 2025, Demolition & Tools grew the EBITA with 9% despite quite strong negative foreign exchange effect and the margin overlook for the full year period increased with 1 percentage point. If we then go further down and look at our Systems Solutions area, we have now mentioned throughout the year that it's been a somewhat challenging year for many parts of Systems Solutions, especially in the Transportation Products and Special Products area. They have actually faced more difficult market conditions compared to previous years. And the lower sales volumes in parts of these areas led to slightly lower EBITA margins. If we then talk a little bit about other areas, Infrastructure Products saw some improvements in 2025, both for the full year and in the quarter. And that's thanks to the same trend that we saw in Demolition & Tools a slightly improving construction markets and infrastructure markets making this area coming back organically. Environmental Products had a stable development through '25. And as you all know, Contract Manufacturing had very strong growth in the first 9 months and a more stable development in the last quarter of 2025. And during the last quarter, Systems Solutions improved EBITA with 10% despite also here a negative foreign exchange, but also, of course, helped by a number of acquisitions that contributed to this growth. And margin was slightly lower than previous year due to -- also here, we have some negative product mix effects, but areas with slightly lower margin is having a better organic development in this area. So if we go further to Page #4, we can then take a little bit of a step back and take a look at the longer perspective of Lifco. But before we do that, we can then also give some information on how the EBITA growth for Lifco in 2025 was split. We had another year with strong contribution from acquisitions of 10% in '25. And as you can see here, we had flat organic EBITA development in -- throughout the year. And this is then mainly due to the weak market conditions in parts of Systems Solutions that has led to lower sales volumes and then shrinking organic profits in some parts of this. And then foreign exchange had a negative impact of 3% for the full year on the EBITA level. If we then look at the longer time period of Lifco, we can then conclude that for the last 11 years, we have had an average growth from acquisitions of 12% per year. The average organic EBITA growth has been 6%. And I think now we have also had a couple of years with tougher market conditions. So even with those years included in the data, we have been able to grow on average 6% per year throughout the last 11 years. And if we go further down on this slide, you can see then also the split of the average organic EBITA growth on different business areas. Dental, quite stable development with 1% growth on average per year. Demolition & Tools having a higher growth of 9% per year and Systems Solutions then had on average 11% organic growth over the last 11 years. And then we can go further into Page #5, also a long-term perspective graph. And here, we can just see that Lifco has grown the EBITA, and now we talk about CAGRs, compounded average growth rates of 18% from 2015 to '25. Earnings per share has grown 16%. Our net debt has actually been -- is lower than at the time of the IPO. So we are now sitting at 1.1 interest-bearing net debt to EBITA. We had a strong growth in operating cash flow. And also, we've been growing our dividends with around 70% CAGR. Also on this slide, we also list how much we've spent on acquisitions in the years. And also on the bottom of this slide, you can see basically what we paid equivalent to the 100% ownership of the companies that we've taken in, in every year and also the estimated profit impact of the companies that we have acquired in each and every year. And if you look into details there, you can see that we continue to have -- we're adding high-margin, strong companies, and we're able through our very hard work and very diversified screening of companies all around Europe to find very high-quality companies at fairly reasonable valuations. If we then go further down to Page #6, which is maybe the most important part, if you take a long-term perspective -- short-term cash flow is, of course, a volatile measurement. It can vary between months and quarters. But if you take a very long-term perspective, cash flow is the best way of measuring the underlying performance of the company and especially when you measure it on the cash flow per share. And just to clear the data we have here in this slide, we then look at the free cash flow per share after CapEx and after all interest payment, taxes, et cetera. And the only thing we don't include is dividends and acquisitions that we view as more decisions on the Board level, at an annual meeting level. So if you look at that measurement, we have actually grown cash flow per share with 22% CAGR since Lifco was listed, which basically means 9x higher cash flow per share than back to 2014. So a very strong development here. And this is also a fundamental part of why we're able to continue to grow Lifco from acquisitions without stretching our balance sheet. If we then go further down to Page #7, we can also see on a more graphical level that our net debt-to-EBITDA ratios are very stable. So you can -- basically, it means that we are using our free cash flow in a stable way to pay dividends and also make acquisitions. We have net debt -- total net debt, including IFRS and our option debt for future payments, it's 1.7. It's down from 1 year ago. And the interest-bearing net debt-to-EBITDA is 1.1x, which is also down from 1 year ago despite all the acquisitions that we carried out in this year. And this obviously means that we still have plenty of room to continue our growth journey, both organically and from acquisitions. And I would also like to highlight that our M&A capacity is continuously increasing. We took -- we take every year some steps to develop this, and we did also very good development in our capacity in 2025. And then we can go all the way down to Page #33 where we just look at the acquisitions that we carried out in '25. And in total, we announced 17 acquisitions with a total estimated sales level of SEK 2.2 billion in combined turnover. And once again, we have acquired in '25, a very good collection of companies. They have high margin, super niche, super specialized and strong positions in their respective niches. I'd also like to highlight, and this is not new for '25, but in general, when we acquire these super niche strong market companies, we also get very strong profit-oriented company cultures. So we're very happy to welcome these companies into -- to the culture that's matching Lifco in a very good way. So that's all for me. And then I'd like to open up for any questions. Thank you.

[Operator Instructions] The next question comes from Carl Ragnerstam from Nordea.

It's Carl here from Nordea. A couple of questions from my side. Firstly, looking at the other operating income and expenses in the quarter, SEK 60 million, that is seemingly the highest level in -- ever, I think. What is behind that, you say?

Yes, you're right. It's -- we have not had that situation before, and we can be transparent. And this comes from a fire in one of our subsidiaries that we had some time ago, where we had extra costs, obviously, relating to moving the company and setting the production up. And with that, we have taken part of the insurance money that we received and put that as an operating income -- other operating income. But you can say, for the full year '25, this has not been any positive effect. On the contrary, we've been a bit conservative in our bookings. So this is not material...

And do you expect more to come?

There could be some more, slight more coming in as we took a conservative approach around the full clearance of the insurance claim. Sorry, the majority is '25 issue, yes.

Okay. And then it's Q1, if anything, or...

Difficult to say. But the way to look at this, if you want to be very detailed oriented around this topic is that you can say part of the problems we had in our profit in this company was partly offset by this other operating income.

Okay. That is very clear. On Demolition, you touched a little bit upon the mix and the margin in the quarter surprised me a little bit at least. Obviously, we've seen volatility before. Is it solely the mix you're referring to as less special machinery sold. Or is it any other mixes? And also on that note, have you seen anything related to pricing that could also be one effect on the margin side?

So when we look -- no, it's relating to the mix. And you refer -- I mean, so when we say more -- sell more super niche machinery products, we obviously have slightly higher margin compared to some of the other parts in this. And we had -- so you can basically draw the conclusion that we had slightly higher part of that in Q3 and slightly lower in Q4. And the margin, if you look at individual entities, is we are strong in pricing. So it's not that effect here.

And on the mix side, is it a mix you see in the quarter that could be sustainable over more quarters ahead? Or is it more of a temporary, as we've seen before, Lifco selling a few less machinery of a certain niche?

I think if you look at the full year numbers, we're increasing our margins. If you look at Q3, we had very strong margins compared to previous year. And now we have a little bit the opposite effect in Q4. I think it's way too early to draw any major conclusion around this. And I think we've seen this over -- if you go back over the last 10 years, we had this 1 percentage point margin difference between quarters, I would say, quite normal in this area. It's on a high level. And we have to look at a little bit longer time periods here to draw more conclusion. The main message for this area is that we saw some comeback in 2025. We're not on booming levels. It's not a heyday that we're seeing at all, but it's coming back from quite depressed situation in '24.

Okay. Very clear. And the final one, if I may, is on Contract Manufacturing. Sorry for bringing that up. I know that you're not super willing to talk to it by a subsidiary or subsegment. But entering Q1, I think comps will be -- I mean, even tougher to some extent. So should we see that you keep this level flat year-over-year? Should we see that also coming up in Q1 here as well? Or I mean, how should we look at the volatility we've seen historically? And also how you manage your procurement with the, I guess, budgets you have for that segment in order to minimize the risk of over or procuring too little.

Well, as I -- we talked about this a few times in the last 15 months here. And we had sort of a hiccup in Q2. In Q3, Q4, we've seen a more stable development. So that's where we stand right now, and that's what we can see right now. So based on that, it looks stable. But as you know, this has changed quite quickly during Q2. So we had temporary slower development in Q2. But all we can see now is that it's quite stable. And when it comes to the material, I think we had we have -- based on what happened in Q2, we have stepped up in many of our operations in being prepared for this. But of course, if demand changes very quickly, it will have a short-term impact on maybe cash flow and that situation. But we managed that quite well. If you look at how we end up '25, we have very strong cash flow also in this part of the operations.

And as you view 2026 right now, do you see a quite flattish sequential development of this business? Or is it cyclicality we should consider entering '26 in this, I mean, quarterly?

Okay. So if you take the first quarter in '25, we had very strong development last year. But we also have now a quite strong development in -- during the fall, and we're matching our Q4 '24 numbers quite well. So I think that's the best estimate. I can't give you any better estimate than following the trend that we're seeing right now. And the visibility is maybe in theory, quite longer. But in reality, we saw in Q2 that we had to be very careful in predicting too far ahead in this area. But right now, we see stability. So that's the best guess.

The next question comes from Karl Bokvist from ABG Sundal Collier.

On Dental there, anything worth highlighting in terms of a similar question really on the other segments in terms of mix or anything like that on the margin then?

No, I think in general, in Dental, we have -- maybe I should answer this question here on a more long-term perspective. We have had now for a number of years an increasing trend where we are becoming more and more of a manufacturer, partly due to acquisitions and partly also to the organic development of the companies we have. And I think we saw that trend also in '25 where we had slightly more difficulty in our distribution companies. They are becoming less and less important part of our profits in this area. And I think that's also the trend we saw in '25. And as I mentioned probably a year ago, hopefully, we are now reaching a point where the sort of transition of Lifco Dental Group into a company with own products and own R&D and unique proprietary products is reaching a point where we can hopefully see some high growth in coming years. But it's too early to say whether that's in this year or it takes another year or so before we're at that point.