Lifco AB (publ)
STO:LIFCO B
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
Abbvie Inc
NYSE:ABBV
|
Biotechnology
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Realty Income Corp
NYSE:O
|
Real Estate
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
This note will be permanently deleted.
Lifco AB (publ)
You don't have any saved screeners yet
Hello, and welcome to Lifco Q4 report 2019. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I'm pleased to present, CEO, Per Waldemarson. Please go ahead with your meeting.
Thank you, and welcome, everyone, to this Q4 conference call. I would like to start to go already to Page #2 in our presentation and just quickly go through the summary of the quarter. If we take the quarterly numbers, first, we had a sales growth of about 8% in total. However, we had actually an organic decline of 2% on the sales side in the quarter and also a 3% decline in the EBITDA numbers.In the quarter, however, we had very strong cash flow, a growth of 44.5%. So I would like to point out that the work that we initiated during the year to get inventory levels into better a position paid off in the last quarter. And also, thanks to lower receivables, we showed a very strong operating cash flow. And while staying on this page, I can also comment slightly on the full year number. We had overall 16% net sales and 4% organic sales growth for the whole year and EBITDA growth of 16% for the full year. And also the full year numbers are very solid, cash flow development of 30% growth in operating cash flow. Also, just to comment, we have a proposed dividend of SEK 5.25, which is an increase of 14% compared to previous year. And then we can turn to Page #3, where we go through the different business areas. And if we start with Dental, we had, in this quarter, a somewhat weak development in the -- especially in the distribution business, and this is relating to many small things. It's not one specific company or a geography that is sort of the problem area, where, in general, it was a slightly weaker quarter than normal. I also want to emphasize that this is a quarter we have no acquisition growth in this business area. And if you look at the whole year for Dental, it's been actually quite a good year. We grew the EBITDA of 9% in the year, which we are quite happy with. And then if we go over to the Demolition & Tools segment, we had a quarter that, although we grow the sales numbers with 12%, that's impacted by acquisitions. So organically, it was clearly a weaker market condition of the business area, especially if you compare back from the period starting in -- already in Q4 or even Q3 2018 up until the summer of 2019. We have now felt a little bit weaker market conditions, but also more unclear market condition. It's basically a little bit month-to-month. It's been the last few months. And we don't give any forward-looking statement, but I want to emphasize already here that we have not -- we normally don't have very long order books in this business area. So the visibility is not so long for us on what will come.On the quarter, if you look at the profit development in Demolition & Tools, where we have a decline of 21% in profit, that is related to the overall weaker organic development in sales, but mainly due to the negative impact from product mix. In this quarter, we didn't have any major special projects that can be very profitable. And also, in general, the growth characteristics of the business has led to a negative product mix in the quarter. And this has also historically been fluctuating up and down in this group.When it comes to the last business area, Systems Solutions. We had, overall, a pretty good development, a growth of 13% and EBITDA growth -- overall sales numbers and EBITDA growth of 14%. So generally, it was pretty good, Systems Solutions, but the weakness in the Forest project business still continued in the Q4, and we also had quite -- we're not so happy with the organic development in service and distribution for the quarter specifically. And overall, for the year, if we comment on the System Solutions, we had a very strong development of 20% EBITDA growth. Also coming back to Demolition & Tools, I want to emphasize that we grew the year with 15% EBITDA for Demolition & Tools as a whole. If we then turn to Page #4, we update once per year we update the acquired versus organic EBITDA growth. So I just would like to make a short comment on this slide, where you can see 2019 numbers. We had a growth of 10% from acquisitions. And actually, most of that growth came from acquisitions made in 2019. We only carried over SEK 43 million from 2018 due to quite low acquisition activity in 2018. And then we can also at -- in December, we see that at the second to last row that we have a total acquired estimated annualized EBITDA of EUR 287 million in the year 2019, which is actually an all-time high for Lifco.And also on this slide, on the last row, we have the net debt-to-EBITDA numbers. And this is now -- the comparison between '18 and '19 is not fully comparable as beginning 2019 has now the IFRS 16 effect in our net debt-to-EBITDA ratio. But as you can see, we still run a -- no matter how you define this net debt-to-EBITDA was still below the 2x EBITDA target range. But then we can flip to Page #5. And I just would like to look at the long-term development of net debt-to-EBITDA. It's the black line in the graph to the left. And as you can see, we end also 2019 with a very solid balance sheet, and there's obviously more capacity for acquisitions going forward in Lifco. Now then I would like to flip to Page #7. We'll skip one slide. And just to comment on our return on capital employed, where we -- if you take the right-hand graph, you see a quite sharp decline in our return on capital employed. And this has to do -- mainly has to do with the new IFRS 16 calculation. So from this year on, we will have more comparable numbers in this graph. Lifco still has a huge emphasis on the return on capital employed. And we have a very good overall portfolio, which leads to this good cash flow and cash conversion in general.And then we can page all -- we can move all the way over to Page 14 in the presentation, where we also, once a year, update -- or actually once every second year, update our organic development. And I just want to give everyone the background. This is when we have measured purely organic our original dental companies on the left. These are now -- this is based on public information, the Nordic region. You can find this data publicly available. And we have now tracked exactly same companies over a long time period. And as you can see, the historical development has been very good in the Dental on the left-hand side. However, in the last 2 years, we've had a decline of -- or an annual average decline of 3% in our profit level in this subset of companies. And that has to do, basically, of one distribution company that has suffered some problems in the Nordic region during this time period. And I think we're still running on overall healthy margins, but I just want to comment on that as well.On the right-hand side, we can follow the Swedish entity of the Brokk Group, basically the Brokk AB factory. And as you can see, it continues to develop very strongly also in 2019.And then we turn all the way to Page 27, where I just want to emphasize on the acquisition side that we have, since the last conference call, you'll find 5 acquisitions, 2 in Systems Solutions and 3 in Dental and -- just to clear on that as well. And I think with that, I will open up for questions.
[Operator Instructions] Our first question is from Oskar Vikström from ABG.
So just one -- first question here is a bit on the margin and Demolition & Tools. You mentioned that the lack of these highly profitable special orders. Could you develop a bit more on what they are usually? And is this a trend that you think will last? Or is it just -- will this come back in the next quarter? How do you view that?
Yes. And just before I answer that question, just to be very clear, I think the lower margin in the quarter has to do with a general product mix effect. And on top of that, we did not have any of these special products that can be highly profitable that sometimes come and go. And the predictability of the special orders is very difficult to foresee in the future because, first of all, the lead time can be long and also the timing of them are very difficult to foresee. So it's -- but it's not something we had historically as well in this division. But I think on top of that, we also had a weaker development in the high-margin part of the Demolition & Tools business in the quarter.
And so that development is -- why is that? Do you think is that -- is it increase in competition? Is there pricing pressure? Or people choosing other options? Or how do you view that development?
No. We view it as we had a somewhat weaker market condition in this quarter compared to previous years. I also would like to emphasize. In general, I didn't mention that in the Q4 2018, we had an overall organic growth in this of 10%. So we're meeting a somewhat strong Q4 2018 as well, industry-wise. But I think the market itself has been more unpredictable also the last 4, 6 months when it comes to market condition for the Demolition & Tools segment, which has a cyclical component or a very strong cyclical component.
Yes. And this is -- so it's really just market? There's no company-specific in this segment really? It's more...
No. Not really.
It's more the overall market? Yes?
Yes.
And in terms of -- I was also wondering a bit on Dental. You're mentioning that distribution was -- the distribution companies were doing a bit worse or it's a bit softer. But I also noticed that the recent acquisitions, there are a few that seem to be more falling into the category of distribution. Could you just develop your thoughts there? Is that -- do you think the market is solid? Why do you choose to acquire these type of companies if you're seeing a slower development?
Well, I think you're referring to -- we have done one distribution acquisition recently. It's a creation company, where we think we have quite a strong market leader in a market where we think distribution can be attractive long term. But in general, it's also for an attractive front and attractive valuation. But in general, we have been quite open with you in the last few years that our main focus in Dental has been in the other segments, in the manufacturing side and in the prosthetic side. And the dealt distribution business is a very good cash flow business for us. But we are running on a high-margin level, and the growth characteristics of that business has been quite low for some years. And I think this quarter, Dental is a mix of many small factors, the results.
Okay. So the margin in Dental, could you just develop a bit more? Because -- so if the distribution business is doing worse, could you just develop on why the margin is down? I thought that was the lower margin business. Or is that wrong? So the margin is -- so the EBITDA margin is down 1% basically year-over-year.
Sure, sure. But I think...
Can you just develop why that is?
Yes. But I think the margin, exact margin by quarter can fluctuate a bit as well. So if you look at the overall 2019 numbers, which is also a relevant factor, we have been growing the margin in the overall in Dental and also in quite a lot of the companies. But in this quarter, we have, especially in the distribution, a weaker level.
And our next question is from Julius Rapeli from SEB.
Yes. One question first relating to the System Solutions division. And could you, Per, just elaborate a bit on the different segments in there and give a short update on the Forest side? Yes, you mentioned that it was still weak in the quarter. And how do you see the outlook for Q1?
Now the problem with the Forest division is that it contains this sawmill product business. And I think in previous calls, I've been explaining that it's a very difficult business to predict. Because even if you have good order book or good orders, it's very difficult to have a certain profitability until you reach a certain point in the project, and actually after delivering the clearance of the product. So it's a very -- you have the -- this very unpredictable business area. So I think it's a -- yes, it's something that we can't really predict to those. And I think we've been very open with that. As I said, it contributes to our cash flow over time. And it's been good if you take the average over the year. But quarter-to-quarter, it can be very difficult to forecast for us.
Okay. Overall, the Systems Solutions saw quite nice development during the quarter. Is there some divisions or segments that are standing out? I mean, for instance, the Environmental Technology had a quite good growth year-over-year. Something you can comment on there?
Are you referring to the quarter now is the question? Or...
Yes. Yes. Exactly. Q4.
Yes. Yes. I think Environmental Technology has been doing well in the quarter, and I think also the other areas have been doing quite well. It's only the Forest and the service and distribution where we're not fully happy with the report.
All right. All right. And then the last one from my side. This ongoing coronavirus being -- do you see any -- this having any impact in your manufacturing facilities in Asia? Or how do you see this?
Well, first of all, it's a very difficult topic to predict the outcome of this. But again the element that we have in our Dental prosthetics business, we have a joint business with a production facility in China. And that is -- if this corona situation would be becoming worse or continue for a very long time, that can be a problematic area for us. Because as of now, we still are able to operate right now, but this is a day-by-day development that we have to follow on track.
[Operator Instructions] Our next question is from Robert Redin from Carnegie.
So on Demolition & Tools, again, would it be possible to sort of say how much of the decline in the quarter is related to sort of this lower or worse project or product mix? And how much is due to, say, a cyclical slowdown?
It's difficult to break it down into this level, but I can say, it relates to both. And I want to be clear that the market conditions in Q4 2018 was better than in the Q4 2019 or in general for the whole business area. So I want to make that clear. We had that modification the year before. And on top of that, we didn't have any special products in the quarter, which we normally have something of. Not every quarter, but in Q4, we had a little bit of that effect in 2018. So it's a combination of both.
Right. Right. I guess, the mix can vary, but you haven't -- the other maybe is more of an underlying positive. Could you say something about the development through the quarter? Was sort of October, November better or worse than November, December? Or was the...
But I should say, it has -- I should say that in general, it's been very, very fluctuating month-to-month since the December period, I will say. It's been -- in certain months, we've been feeling really bad. And the next month, it looks okay. And that's how it's been throughout the last 4 or 5 months for us. So it's been very difficult of a market to understand for us also month by month. And as I said before, the visibility for us giving our order books is not very long. So it's a very -- we are very curious how 2020 will be for this year.
Okay. Right. And another question on acquisitions. So you had a period with sort of not so many acquisitions during -- was it off the summer and sometime in [ Europe ]? And now you've had a flurry of acquisitions. So how do you view the pipeline? It's better or worse than normal?
Yes. I can only say that -- comment on that the way I normally do, that some of these companies we bought we've been in discussion for a very long period of time. And suddenly, a deal comes through. And some of the others we learn about 6 or 7 weeks before we sign the deal. So that's why I think it's always impossible to discuss the pipeline of companies. Because, of course, we have ongoing contacts with many companies that can happen in March or April or in 10 years. And then we will -- sometimes, we find a company in November, and we make an acquisition before end of December. So it's very difficult to comment on this.And now we had some activity in the last 2 months. And we work as hard all the time. We try to buy good companies for a reasonable price. That's what we do all the time. And we increase our work with -- we have a little bit more people involved in that work, and we try to do as best we possibly can. But to expect timing of acquisition, it's not -- it's impossible to predict.
[Operator Instructions] Our next question is from Christian Hellman from Nordea.
Just a question on Demolition & Tools. Just to understand it correctly, is it true that the organic growth in Demolition & Tools was negative in this quarter?
We don't communicate organic growth by business area. But I think it's -- yes, it's clear that it has not -- it's been a weak organic performance in the quarter. You have to keep in mind that we have, in this business area, acquired 2 companies in 2019 that has then positively contributed in the quarter. So if you do the math there, you can understand that there's been a big development, organically, in the quarter.
Yes. Yes. In my model, it's made it down. I'm just sort of trying to get a confirmation on that because...
Yes. I mean you're directly correct.
Okay. And then a question on the drop-through in Dental. I mean, you -- compared to Q4 last year, you're losing 1% of revenues in Dental in Q4 and about 6% on EBITDA. I'm just wondering if that's sort of a normal drop-through for you guys, and that's something that we can sort of model going forward in case you were going to continue to lose a bit of revenues in Dental? Or if there's anything unusual or extraordinary that we should sort of take into account?
So first of all, at Dental -- it's only organic in Dental because there's no acquisition effect basically in that area. But we dropped 1% in the quarter. I think that has happened organically in the past. That will drop a little bit more in EBITDA. That's maybe not so usual. But on the other hand, it comes from many small events. It's not one big event. So we don't give any forecast. We cannot predict, but, yes, we will see how the future will develop at this area.
But there were some positive FX tailwinds, right, in Dental in Q4? Or if that's correct?
Yes, a small positive FX.
Yes. Yes. Okay. So the organic drop was a bit more than 1% then?
Yes.
Okay. And then just a final question on your presentation on Slide 8, where you're comparing Lifco, I guess, the total return share price versus some other companies. I'm just sort of trying to -- because when I compare you guys, I have a totally different peer group comparing you to Henry Schein, for example, in the U.S. and Ad-Tech and those. So can you please elaborate on where it's firing -- on which of those names?
Yes. So Page #8 is Lifco was listed back in '98. And then Carl Bennet voted out just shortly after we were listed in '98. So there was a multi-price list for '98. And then we tracked all the dividends and made a total return analysis of Lifco since '98 and compared it to the best-performing shares in Stockholm Stock Exchange that were listed in '98. So Lifco turned out to be #2. And then we just added Berkshire Hathaway as a reference. It's the line -- the bottom line in this graph when it comes to returns. But it's just showing the returns that Lifco has had for shareholders since May '98. So the peer group is the best-performing shares that were listed in Stockholm in '98 and are listed today.
And our next question is from Daniel Lindkvist from Handelsbanken.
So I had most of my questions answered and basically the one I'm going to ask you as well. But just looking at Dental, should we perceive it as it's one distribution company, specifically, that's added more problems, and the rest is temporary issues? And also, just talking about the holiday effect from these workers-friendly holiday, have you seen more effects from that than maybe perceived by us?
Yes. So we don't want to blame bad performance on calendar effects. The only time we do it is when Easter is moved around between quarters. So we haven't done a deep analysis on that. We can just conclude that this quarter was not so good for the Dental company. It's a mixture of many things. We have some extra costs there that has explanation, but then none of them are big and important enough for us to bring up in this. So we -- and when I refer to Q4 results, then I'll refer to the graph ratio, the very long organic development is our Dental companies. There we have one company that suffered in the last 4 or 5 years, but that you've been seeing through our numbers for many, many years.
So not specifically in Q4?
Not specifically Q4. Q4 is a mixture of different small things, and then also lower sales, as you can see.
Okay. So going into Q1, should we expect still some temporary issues from what you've seen?
No. We don't give any forecast. And we can only conclude that the Dental area, in general, organically, has been very slow growth. It's been fairly stable. This quarter was weaker than maybe normal, but we don't give a forecast on that.
And our next question is from Jon Hyltner from Enter Fonder.
Just a quick one on net working capital. How did the net working capital to sales develop for the full year compared to last year?
You mean, net working -- I don't have that number in front of me right now. But I can only say in the beginning of the year, we had a quite negative effect on billing inventory. And we probably ended the year with a positive effect on accounts receivables, for sure, if you look at the full year numbers. So I don't have that data right in front of me right now.
Okay. I'll look at it later on then.
And as there are no further questions, I will hand over back to the speakers for any final comments.
Okay. If there's -- there are no further questions, I thank everyone for listening, and wish you a good weekend. Thank you.