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

Welcome to Lifco Q2 Report for 2026. [Operator Instructions] Now I will hand the conference over to CEO Per Waldemarson, and CFO, Thérese Hoffman. Please go ahead.

Good morning, and welcome to the Lifco Q2 presentation, and we can start, as always, by going into Page #2 in our investor presentation. And if we look at the second quarter, we are presenting a solid quarter overall with sales growth of 11%. And in this second quarter, we had organic growth of around 5%. Acquisitions contributed with around 7%, and we had a slight negative minor effect from currencies. If we go further down, we grew the EBITDA with 14% and obviously, margin increased then from 22.5% in last year's quarter to 23.1%, which is a combination of organic development and also some effect of higher-margin acquisitions coming into the group. And also the profit before tax, net profit grew healthy with 18%. Operating cash flow with 14% and earnings per share also grew with 18%. If we look at the first 6 month period, we -- after a little bit weaker start to the year, we grew in the first 6 months now with a stronger second quarter with 7% EBITA in sales -- EBITA grew with 10%. I can also go back and just mention the 7% sales growth in the first 6 months, it's also -- it's a 3% organic development and 7% from acquisition and obviously, a higher negative impact of 3% in the first 6 months. For the 6 months, we grow profit before tax and net profit with around 13%. With that, we can go into Page #3, the following slide and look into the different business areas. And just to remind everyone, we have now -- this is now the first quarter where we have splitted out 2 business areas. So we have Environmental Technology and Transportation Products, which have been previously subdivisions under Systems Solutions, they are now sort of separated out. And the System Solutions that we refer to in this page is now the remaining part of Systems Solutions or the [ previous ] solutions. But going back to the first area, Dental, we are reporting also here solid numbers, growing in the second quarter with 5% and profit growing with EBITA growing with 10%, obviously, higher margin here which is a combination of higher-margin acquisitions coming into play and also some continued effect of positive product mix that we saw in the first quarter. And positive product mix in this area means that typically means that our own manufactured or our own products are gradually taking a bigger share of the Dental business area. Going back 15 years ago, we were only a distribution business. We still have those companies in the group, but we have gradually slowly over the last 15 years, step-by-step went more into own proprietary products. If we go to the second area, Demolition & Tools, I would say the second quarter was overall quite stable. Sales grew with 2% and profit with 3% of stable margins here. If you take the full -- the first 6 months figures in Demolition & Tools after the first quarter, we had for that period, a negative mix effect where which we also covered in our report that demolition robots had a more difficult market conditions, especially in the first quarter, which have an impact on our margins. As a slightly lower margins for the first 6 months in Demolition & Tools. But overall, the second quarter was quite stable and in line with previous years. If we then go into Environmental Technology, we have quite good organic growth, leading to improved net sales of 10% in the second quarter. And the growth also translates into operational leverage and higher margins. So we grew the EBITA with 17% in Environmental Technology. In Transportation Products, the next area, we have a combination of acquisitions that are contributing and also strong organic growth in the second quarter. So we grew sales with 22% and profit or EBITA in this case with 26%, also with higher margins. And I'd like to make a general comment when it comes to many of our industrial companies, they had in 2025, it was probably the most difficult years for the industrial side of Lifco in the last -- at least since the IPO in 2014. And this first half year has been a little bit of a comeback situation more to normality in 2026. It doesn't mean that everything is perfect, but at least we -- the suffering we had in 2025 is at least now a bit better numbers and beneficiation for many of the companies in 2026. If we go to the last area, the System Solution, which is now remaining 3 divisions. It's our Contract Manufacturing, our Infrastructure Products and our Special Products. Here, we had in the second quarter, also a strong growth of 19%, also growing profit more, 23% growth in EBITA, which is a combination of acquisitions and also organic growth in the segment. Overall, I would say, in most areas, quite stable and good development. So we can then go into Page #4, which is the following slide, and that's just a slide that we take very seriously because it's measuring the most important thing, our growth in cash flow per share. And once again, the way we measure cash flow per share and this is the cash flow after CapEx and taxes and interest and everything. The only thing that is not included is dividends to shareholders and payments for acquisitions. So it's a pure cash flow of the operations in our view. And since the IPO in 2014, we have grown the cash flow per share with around 20% CAGR, also improving slightly in this year. Of course, cash flow can vary quite heavily between quarters, and you have to look at this in a very long-term perspective. We can go in then to Page #5 and look a little bit more into our financial position. We have a stable situation. We actually have a lower net debt-to-EBITDA of 1.8x EBITDA, it was 1.9x a year ago. And that's the net debt, including all the option debt and also the leasing liabilities. If you look at the pure interest-bearing net debt to EBITDA, it's also down from 1.3x last year to 1.2x this year. And then this, as I normally say, this also leads to plenty of room for further acquisitions. And we are, as always, continue to increase our capacity, our way of finding great companies in many different geographies and different subsectors, and that work is continuing step by step. However, as I always say, the timing and how and when the acquisition materialize, can vary and will vary within quarters and even 6-month period. So we continue and have many interesting discussions as always ongoing. And the timing is always difficult to predict as we are extremely focused on buying really good companies for a reasonable valuation. And with that, we can move a bit further down to Page #13 which is a little bit lifting the high-level picture of Lifco again. I just want to remind everyone how we work and also especially give a huge credit to the entire Lifco team and all the great people that are working around Lifco. This is a slide that we've had for many years, describing how we work. And before we even get to this page, everything starts with selecting highly differentiated companies to acquire that have a sustainable business model and very interesting subsectors that we believe can be interested to develop over long periods of time in the future. And then the second point is that we have a very good team of senior experienced former or current managing directors in our subsidiaries. that gradually take the coordination role and the cultural leadership role in all our different subsidiaries that we have. And the job of these people are -- is the most important job is to recruit and coach new MDs into each -- at every subsidiary. So we have a potential for very good growth of these highly differentiated companies. And then obviously, we come into this slide, and then we -- number 1 is that we have to have very motivated managers and we work very hard to ensure we have that. And once we have them and the coaching has taken place, we let great people have a lot of responsibility in different subsidiaries. And we've seen over now several decades that they can lead to very good results, both in terms of growth and margins. The second point here is extremely important for us. As I mentioned, we focused on highly differentiated companies, and we try to make them even more differentiated over time. We focus on customers and product areas. Where there is a potential for sustainable profit growth. And we also are willing to sacrifice situations where there is more competition or where we cannot be as special as we want to be. And there, we sometimes shrink out of these segments and continue focusing on the areas where we can make the biggest difference. And I'd like to emphasize how important this is in the decentralized model like Lifco an industrial conglomerate like us, it's very, very important that we focus on areas where we can make a huge difference and not going into segments where volume is the only way to make margin. And that's very important for us. And then we have a situation where we can have these decentralized models and really work efficiently and have very simple, efficient and entrepreneurial companies. And we try to have in each and every company, a very strong focus on sales, on product development and assembly. And these type of -- the people are doing this job should be the shining stars in our model and not have a [ brokers ] level in between. We try to outsource as much as we possibly can, which leads to an asset-light business group. Most of the companies required, they're already outsourced from day 1. If they have some in-sourcing, we try to over a decade step-by-step make them more efficient. The focus that, that creates is very important because we can spend more time in the company, developing new products that are better and more value for customers, you can also think more about how to do global sales expansion of the products that we have developed instead of focusing too much on what machinery that is going to be installed in the production. And then we have a very strong focus on cash flow. We have different measures to implement that and also incentives in the system for that. And maybe the last point, the most important, we are doing this as a multi-decade project. So we don't -- even though we focus very much on the profits every month, we also invest step-by-step in activities to create long-term growth in all our companies. So with that, I would like to open up for any questions. Thank you very much.

[Operator Instructions] The next question comes from Opeyemi Otaniyi from Goldman Sachs.

Maybe 3 from my end. Firstly, on Systems Solutions at least based on how it was previously reported, growth was quite solid across the 3 segments. Do you mind just sort of giving a bit more detail on what's driving that? And maybe what's driving Environmental Technology and then the various subsegments. Secondly, on Demolition & Tools sort of gross -- organic growth seems to be sort of low single digit. Could you kind of go through how that trended versus expectations and sort of forward-looking outlook for the rest of the year? And then just lastly, on mix, margin seems to be positively surprised. Can you just go through Dental has had sort of positive mix for a few quarters now. So anything surprising there? And also maybe the same question for Demolition & Tools just because, again, mix is a headwind to margins. So maybe any thoughts on that?

Thank you. There were quite a number of questions, and I'm not sure I really got all of them, but I'll try my best. I think the first question was regarding Systems Solutions. And I think for this quarter, it was pretty solid across the board. Maybe I could mention, I don't know if you specifically ask for it, there is a reason we didn't mention for the first time in quite a while, anything about Contract Manufacturing because we had quite stable development over there. And in this specific quarter, when it comes to Contract Manufacturing, we had actually quite good growth -- quite stable development in the areas that had strong growth since now almost 2 years. So that was more of a normal quarter, but other areas had quite good growth in this quarter. And just to remind everyone, this can vary between quarters depending on how deliveries play out and so forth. But in this quarter, it was pretty good across the board. The question around Demolition & Tools. I think I can only repeat what we said in the last Q2 -- it's been, overall, the Demolition & Tools area peaked around '23 level and then had a very difficult '24. We saw somewhat of a come back in '25. And then we had maybe a bit surprisingly to many observers, a bit weaker start in Q1 2026. In this quarter, I would say, overall stable. But given the uncertainty in the global economy and especially the areas where we have more CapEx-related products there's still a lot of uncertainty around those areas. And so the machinery sales, for example, we -- although this quarter was quite stable, it's still very difficult to predict what will happen there going forward. And then the last question was regarding mix effects. If we go specifically into Dental. I think in this first 6 months, we have 2 things that come into play at the same time. We have done some super niche acquisitions in the recent 12 months, that increased our margins. And then we see the general trend that we had for some time that we have a little bit better development in our own product areas in our own proprietary products. On top of that, maybe we haven't had any sort of negative surprises in the last 6 months that also helps the margin. So I think these 3 things play together. And I guess the mix effect was also referring to Demolition & Tools. And I can only repeat, we have slightly higher margin in our machinery part if you compare to our attachment side. The attachment side has been more stable and developing more positive in the last 6 months. And therefore, we have over the first 6-month period, it a negative mix effect where we had slightly slower development in our higher-margin parts. In the second quarter, it was more stable, but for the first 6-month period. I don't know if I answered all the questions here, but maybe if you have any follow up, feel free to.

Largely, you largely did. Maybe just one follow-up on Transport Products. Growth there was 22%. I think you've done some in that segment in previous quarters, but sort of was driving quite strong organic growth there?

Well, I would say that last year, I had a general comment here earlier on that 2025 was the most difficult year in more than a decade for our industrial companies, including Transportation Products. And this year, we felt that the markets were a little bit more -- I wouldn't say maybe fully back to normal, but at least more friendly class. So in general, we feel that things are coming back across the board in this year. But keep in mind that last year was very, very difficult. And the reason maybe just to be very clear, the reason things look on the top line, maybe not as bad last year as it felt was that we had this extra growth from Contract Manufacturing throughout the most part of 2025, but made the numbers a little bit strange. But under the hood, there was a lot of difficult situations in 2025 in many of our industrial exposure. So this first 6 months have been a bit more...

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

Follow-up there on contract just to understand like if there's anything left, so to say, of those one or fewer larger contracts for lack of better words, that was really supportive. I mean have they now run through their course and now it's just another kind of leg up in general product deliveries and so on? I'm just trying to think about volatility and comparables.

I wouldn't really describe it like that. I think what happened, it's actually now it started, I think, about 2 years ago, the growth in Contract Manufacturing that was very high for a while. And now it's sort of stabilized on a -- maybe not at the peak level that we saw in some -- I can't remember exactly it was 9 or 12 months ago. But it's more stabilizing on a higher level compared to how it was 2 years ago. Specifically in this quarter, as I mentioned before, we saw quite strong growth in many other areas in Contract Manufacturing and more stable development compared to previous year in the areas that sort of took off 2 years ago. So it was a bit different type of quarter to see. So right now, you can say it's very difficult to predict. But right now, we sort of grinding along in the areas that took off 2 years ago, and we'll see how that develops. And other areas have now at least in this quarter, had a strong momentum, and we'll see how the future develops.

All right. And my second question, correct me if I'm wrong here. But within environmental, would it be fair to assume that the marine side of things is doing well? And then the follow-up would be, I know that you are very agnostic in terms of M&A, but kind of just your view when you assess the marine market for M&A opportunities?

Well, the short answer is that without going into too much specifics, it was, in general, a solid quarter for the environmental areas. So they consist of quite different type of companies, but we saw quite strong growth, including the marine market. But just to keep in mind, the business we have in marine is very much an aftermarket driven business. So it's not an area that even though top line can vary, but from a profit development is very much driven by a stable and continuous growth in aftermarket. So it's not coming only from one area in Environmental Products, the more general increase in this quarter.

The next question comes from Dan Heimer from SEB.

Just 2 follow-ups from my side. Maybe starting a bit on the comment you had about the industrial part of your business that is a little bit better first half here. I know a lot has happened throughout the quarter with geopolitical uncertainty in the beginning of the quarter. Do you see any impact from that increased level of uncertainty in April and then later catch up in June? Or was it sort of even performance throughout the full quarter and quite limited impact from what's happening in the world?