Lifco AB (publ) (LIFCOB) Earnings Call Transcript & Summary

Thank you very much, and welcome again. We had some technical difficulties, so we will restart the call again. And we start again at Page #2 and look at the overall performance of the Lifco Group. And we can then conclude that the third quarter is a solid quarter despite some difficult market conditions in parts of our business, especially in Systems Solutions. In the third quarter, we grew net sales with 9%, of which 5% was organic growth, 8% growth came from acquisitions, and we had a negative foreign exchange rate effect of 4% in the quarter. EBITA grew with 10% and the margin -- EBITA margin of 22.6% was slightly higher than the same quarter last year. We have very solid and strong cash flow in the quarter. And then I'd like to highlight when we look at net profit, where we had a growth of 90% that we had an impact of a onetime effect in this quarter where of about SEK 63 million, and this has to do with the revaluation effect on deferred taxes due to a decision in Germany that they will, in year 2028 onwards, gradually lower the German corporate tax rate. So this is a onetime revaluation effect. So there will be no further impact of this tax effect in the coming years until 2028, when we'll see gradual lowering of taxes in Germany. If you then look at the 9-month period in 2025, we grew our net sales with 9%, of which 4% was organic growth. We had 7% positive impact from acquisitions and then a negative impact of 3% from foreign exchange rates. And then EBITA grew with 7% and margin for 9-month period was 22.2%, which is slightly lower than the year before due to weaker market conditions in parts of our Systems Solutions business, which has led to an organic decline in sales and lower margins in some areas of our business. We can then go over to Page #3 and look into the different business areas. If we start with Dental, it's overall quite stable development, which is not unusual for this area. So for the full year, we have a small growth in profit and sales. Of course, we also have some negative foreign exchange effects dragging down those numbers. In Q3, we grew the profit with 9% and margins was a bit higher than last year. But I just want to highlight that there could always be variation between quarters, and we've seen that also in historically. So I look more at the full year performance here. In Demolition & Tools, we have improved organically now in 2025, and this has to do with a quite weak development in '24. So we see a comeback. So this organic growth that we see in '25 also leads us to improve margins because we have a positive operational leverage effect when we have slightly higher volumes. We can also get normally better margins. And the EBITA margin of 25% for 9 months is strong, but I also want to highlight that the market conditions are still not back to the levels we saw a few years back when we had our record years in this business area. If we go then further down to Systems Solutions, we are growing with 14% for the 9-month period, but margin is slightly lower than previous year at 22.4%. And once again, the main reason for our lower margin is that we are experiencing weaker market conditions throughout this year in some areas, which led to lower organic sales and then slightly lower margins organically in those companies. And this is mainly in our Transportation Products and Special Products subdivisions, but also some other areas we experienced this depending on what situation the companies are in. And I also want to highlight that our companies, as always, are focusing very hard to now get back the margins to normal levels, despite not the perfect market conditions. I just also want to remind everyone that another reason for the lower margin in Systems Solutions for the 9-month period is that we, especially in the beginning of '25, had a very strong organic sales growth in Contract Manufacturing, which is an area with slightly lower margin than the other part of Systems Solutions. So we get sort of a little bit negative mix effect in this year in the numbers. And then we can go to Page #7 and take a look at our financial position. And our interest-bearing net debt to EBITDA remains at low levels at 1.3x net debt to EBITDA. And this is a number where we -- despite the fact that we have done quite a number of acquisitions this year and have pretty good activity, we are still having a very solid position when it comes to our opportunity to continue doing acquisitions. So we will, as always, continue to look to find attractive opportunities to acquire good companies all around Europe that can contribute to the future development of our group. And I would like to remind everyone we focus on acquiring very high-margin companies with strong positions in small niches. And we also keep our focus on staying disciplined and finding reasonable valuation. So this is always a difficult task, but we have historically done a good job. Once again, I remind everyone, the timing of acquisition when they materialize it's always difficult to predict, and they will be a bit lumpy. So far in 2025, we have had acquisitions carried out at quite a good level. Also, I want to remind everyone that we are working very hard on continuously developing our organization so that we can do more acquisitions. Over the last -- past 5 to 7 years, we have grown our capacity to make more acquisitions with around, I would say, 10% every year. And this, of course, is an area we will continue to work very hard in the future so we can continue to develop Lifco step-by-step. And with that comment, I would like to open up if there are any potential questions. Thank you.

[Operator Instructions] The next question comes from Zino Engdalen Ricciuti from Handelsbanken.

I would like to start out in Demolition & Tools. If you can nuance a bit in terms of, so to say, end markets, both in terms of products and geographies.

Yes. So if we start -- thank you for the questions. I think if we start with products, where we see maybe the most clear comeback in this year is obviously where we have the most difficulties last year. It's a typical effect we see that we had a quite difficult situation in 2024, especially when it came to the attachment business. And I think they are now seeing improvement from those low levels. When it comes to the other areas, the more machinery-based equipment that we sell, it's a more mixed picture in this year, I have to say. We see in some areas quite good development and the other is more difficult development. And that's a little bit more volatile area. Also maybe a little bit an area where for some companies, tariffs can have an impact short-term. The more uncertainty in the market makes customers wait, et cetera. So I think that's more on the product side. When it comes to geography, yes, then you would conclude that based on the first comment that United -- USA business is dropping dramatically this year, it's not really true because we see also a mixed picture. Some companies are still doing quite fine in the U.S. despite tariffs, so they're able to continue, whereas others are having more problems there. And in Europe, I think, the area where we -- in general, and that's maybe not the Demolition & Tools comment, U.K. has been quite difficult, I think, this year in general. Germany has been difficult for a while. That's maybe not a change in this year. So that's basically maybe the markets that stand out. But it's -- yes, that's as much I can mention on this question.

Very, very clear. And jumping into Systems Solutions, 2 questions for me. Firstly, quickly on Contract Manufacturing, if there are any new comments on how, so to say, your expectations in the quarter that we had from -- and comments from the clients.

Well, yes, as you maybe can read from the numbers, it was a quarter where we sort of matched -- roughly matched to last year when it was starting to pick up. So it's an improvement from Q2, which we indicated also in the last earnings call that it looks a bit better in July. So -- and just a comment on that. So now -- right now, it feels that we're on a stable level compared to previous years when it picked up. But given the uncertainty that we saw also in Q2, we are very careful in making any promises around this area. But you can say so far, so good, basically.

Very clear. And if we look at Systems Solutions adjusted, so to say, for Contract Manufacturing, you highlighted some of the -- maybe the weaker areas. Can you talk a bit about how the momentum in the business area adjusted for Contract Manufacturing feels? Of course, it's varied, but more in general.

Sorry, I couldn't really hear you. You want -- your question was about Contract Manufacturing or the other areas?

No, excluding Contract Manufacturing.

Okay. All right. No, but there is -- I mean, there is a number of things that -- some companies are doing quite well, actually growing -- they have their structural growth and they continue with that in this year. And then we have some companies in the U.K. For example, we -- the companies that are more exposed to U.K., we see more reluctant market in this year. And also, of course, some companies are impacted by tariffs, not in the way that we think we can sell in the future. But we have -- for example, if you have a bigger CapEx investment, it seems to be taking a longer time to close deals in the U.S. So we're also impacting from that. And then I think in some other areas, it's just a general maybe weaker market in the industrial parts of Europe that also impact us. So it's a combination of some companies dropping a little bit more, maybe due to this stop in the U.S. temporarily and then other companies just dropping a little bit because of slightly weaker market conditions in industrial parts of Europe. And then I would say, as I mentioned before, maybe a little bit more in the U.K. exposed business in this year.

And just a follow-up. You mentioned quite a lot now impacts from tariffs. It would just be more interesting to hear more what your feeling is regarding the tariff situation and what the companies need to see for investments to pick up?

No -- but it's good that you asked that question because I don't think, in general, we have a huge problem with tariffs. We haven't commented that specifically report, but some specific companies with maybe more higher CapEx investment products they have -- it's a little bit -- takes a bit longer time to get that done because the customers are maybe a little bit reluctant to make a decision because the uncertainty of if tariffs will be removed, et cetera. But we also have companies in the U.S. where we are actually growing this year. So I think it's -- I don't want to overstate that the problem but a slightly lower margin this year has to do with tariffs. So it's a bit mixed picture for us actually in the tariff situation. So I wouldn't make it too big of a point at this stage for Lifco, even though you have individual companies that are -- there are maybe a few companies that have really, really a decline in the U.S., but it's marginal for Lifco overall. And we have others that are growing quite well despite the fact that they have, of course, increased prices to compensate for tariffs and they're still growing. So it's a mixed picture for us, yes.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Okay. Thank you very much for listening. We apologize for the technical issues and hope that it worked anyways. And I wish everyone a good day and eventually a good weekend.