Interim Report January - June 2017

Reporting period January – June

• Net sales increased by 10.2 per cent to SEK 4,876 (4,424) million. Organically, net sales grew by 0.5 per cent
• EBITA* increased by 20.1 per cent to SEK 818 (681) million
• The EBITA margin* increased to 16.8 (15.4) per cent
• Earnings before tax grew by 14.3 per cent to SEK 699 (612) million
• Net profit for the period grew by 14.3 per cent to SEK 524 (459) million
• Earnings per share increased by 14.3 per cent to SEK 5.67 (4.96)
• Cash flow from operating activities increased by 3.1 per cent to SEK 438 (425) million
• During the period Lifco acquired four businesses with combined annual sales of around SEK 427 million
• After the end of the reporting period the following acquisitions will be consolidated: Perfect Ceramic Dental of China and majority stakes in Hydal and Fiberworks of Norway and Pro Optix of Sweden

Reporting period April – June

• Net sales increased by 3.4 per cent to SEK 2,453 (2,373) million. Organically, net sales decreased by 5.6 per cent
• EBITA* increased by 6.3 per cent to SEK 433 (407) million
• The EBITA margin* increased to 17.6 (17.2) per cent
• The profit before tax was SEK 366 (369) million
• The net profit for the period was SEK 274 (277) million
• Cash flow from operating activities increased by 7.6 per cent to SEK 302 (281) million

Summary of financial performance

   * Before restructuring, integration and acquisition costs.

COMMENTS FROM THE CEO

Net sales increased by 10.2 per cent in the first half of 2017, to SEK 4,876 (4,424) million, mainly through acquisitions and foreign exchange gains. All three business areas reported robust sales and earnings growth for the six-month period. All divisions in all business areas apart from Forest have had a good first half of the year. The market environment in the three business areas remained generally favourable.

EBITA before restructuring, integration and acquisition costs increased by 20.1 per cent to SEK 818 (681) million in the first half while the EBITA margin expanded by 1.4 percentage points to 16.8 (15.4) per cent. The improvement in profitability is attributable to acquisitions, organic growth and foreign exchange gains. Earnings per share increased by 14.3 per cent in the first half, to SEK 5.67 (4.96).

Cash flow from operating activities increased by 3.1 per cent during the six-month period to SEK 438 (425) million.

In the first half Lifco consolidated four new businesses with total annual sales of around SEK 427 million. At the end of June, we announced the acquisitions of Perfect Ceramic Dental, a Chinese dental laboratory, as well as a majority stake in Pro Optix, a Swedish provider of equipment for the European fibre optic market. After the end of the reporting period we have announced the acquisition of majority stakes in Hydal of Norway, Scandinavia’s leading manufacturer of aluminium cabinets, and Fiberworks of Norway, another equipment provider for the European fibre optic market. The eight acquisitions will together have a positive impact on Lifco’s results and financial position in the current year.

Even after the acquisitions made in 2017 we still have significant financial scope for further acquisitions, as net debt is 2.4 times EBITDA before restructuring, integration and acquisition costs, well below our target of a net debt of less than three times EBITDA.

Fredrik Karlsson

CEO

GROUP PERFORMANCE IN JANUARY – JUNE

Net sales increased by 10.2 per cent to SEK 4,876 (4,424) million, driven by acquisitions, foreign exchange gains and organic growth. Acquisitions contributed 7.3 per cent, foreign exchange gains 2.4 per cent and organic growth 0.5 per cent to the increase in net sales. During the six-month period four new businesses were consolidated: Haglöf Sweden, Hultdins, Solesbee’s and Silvent.

EBITA* increased by 20.1 per cent to SEK 818 (681) million and the EBITA margin* expanded by 1.4 percentage points to 16.8 (15.4) per cent. EBITA* improved on the back of organic growth, acquisitions and changes in exchange rates. Exchange rate changes had a positive impact on EBITA* of 2.4 percentage points. In the first six months 33 per cent of EBITA* was generated in EUR, 31 per cent in SEK, 14 per cent in NOK, 7 per cent in DKK, 7 per cent in USD, 3 per cent in GBP and 5 per cent in other currencies.

Net financial items were SEK -21 (-17) million.

Earnings before tax increased by 14.3 per cent to SEK 699 (612) million. Net profit grew by 14.3 per cent to SEK 524 (459) million.

Average capital employed excluding goodwill increased by SEK 59 million over the six-month period, to SEK 1,033 million at 30 June 2017, compared with SEK 974 million at 31 December 2016. EBITA* relative to average capital employed excluding goodwill increased by 5 percentage points in the first half of 2017 to 146 per cent. At 30 June 2016 EBITA* relative to average capital employed excluding goodwill was 135 per cent. The improvement was due chiefly to stronger earnings and good control of capital employed.

The Group’s net interest-bearing debt increased by SEK 811 million from 31 December 2016 to SEK 3,829 million at 30 June 2017. Dividend payments during the six-month period totalled SEK 335 (280) million. The net debt/equity ratio at 30 June 2017 was 0.8 (0.7) and net debt to EBITDA* was 2.4 (2.1) times. At the end of the period 32 per cent of the Group’s interest-bearing liabilities were denominated in EUR.

Cash flow from operating activities increased by 3.1 per cent to SEK 438 (425) million in the first six months. Cash flow from investing activities was SEK -943 (-1,006) million, which was mainly attributable to acquisitions.

GROUP PERFORMANCE IN THE SECOND QUARTER

The Group’s performance in the second quarter was slightly weaker following a strong first quarter. Net sales increased by 3.4 per cent to SEK 2,453 (2,373) million, driven by acquisitions and foreign exchange gains. Acquisitions added 6.1 per cent while foreign exchange gains had a positive impact of 2.8 per cent. Organic growth was -5.6 per cent due to a smaller number of working days in the quarter compared with the same period in 2016 as well as a continued weak performance in the Forest division.

EBITA* increased by 6.3 per cent to SEK 433 (407) million and the EBITA margin* improved by 0.4 percentage points to 17.6 (17.2) per cent. Acquisitions and changes in exchange rates had a positive impact on EBITA*, with exchange rate changes adding 2.7 percentage points. In the second quarter 35 per cent of EBITA* was generated in EUR, 29 per cent in SEK, 13 per cent in NOK, 10 per cent in USD, 4 per cent in DKK, 3 per cent in GBP and 6 per cent in other currencies.

Net financial items were SEK -12 (-9) million.

Earnings before tax decreased by 0.7 per cent to SEK 366 (369) million. Net profit for the period declined by 0.7 per cent to SEK 274 (277) million.

Average capital employed excluding goodwill increased by SEK 16 million to SEK 1,033 million at 30 June 2017, up from SEK 1,017 million on 31 March 2017. EBITA relative to average capital employed excluding goodwill was largely flat compared with 31 March 2017, at 146 per cent.

The Group’s net interest-bearing debt increased by SEK 400 million to SEK 3,829 million over the three-month period. Dividend payments during the period totalled SEK 330 (277) million. The net debt/equity ratio increased from 0.7 at 31 March 2017 to 0.8.

Cash flow from operating activities improved by 7.6 per cent to SEK 302 (281) million over the three-month period. Cash flow from investing activities was SEK -381 (-35) million, which was mainly attributable to acquisitions.

FINANCIAL PERFORMANCE – BUSINESS AREAS

Dental

The companies in Lifco’s Dental business area are leading suppliers of consumables, equipment and technical service to dentists across Europe and the business area also operates in the US. Lifco sells dental technology to dentists in the Nordic countries and Germany, and develops and sells medical record systems in Denmark and Sweden. The business area also includes a number of manufacturers which produce disinfectants, saliva ejectors, bite registration and dental impression materials, bonding agents and other consumables that are sold to dentists through distributors around the world.

Dental’s net sales grew by 10.6 per cent to SEK 1,961 (1,773) million in the first half of 2017. EBITA* improved by 10.5 per cent to SEK 362 (328) million during the period and the EBITA margin* was 18.5 (18.5) per cent.

The dental market remains generally stable. The results of individual companies in Lifco’s dental business may in any individual quarter be influenced by significant fluctuations in exchange rates, calendar effects such as Easter, gained or lost contracts in procurements of consumables by public-sector or major private-sector customers and fluctuations in the delivery of equipment. In the first quarter, the late Easter in 2017 had a positive impact on net sales and earnings. In the second quarter, the late Easter in 2017 had a correspondingly negative impact on organic growth in Dental.

In late June Lifco announced that it had acquired the Chinese dental company Perfect Ceramic Dental (PCD). PCD is a dental laboratory for which Lifco’s German dental company MDH accounts for around 80 per cent of net sales. It is expected that PCD will be consolidated in the latter part of the third quarter.

Demolition & Tools

DDemolition & Tools develops, manufactures and sells equipment for the construction and demolition industries. The Group is the world’s leading supplier of demolition robots and crane attachments. The Group is also one of the leading global suppliers of excavator attachments. The operations are divided into two divisions, Demolition Robots and Crane & Excavator Attachments, which are roughly equal in terms of sales. As of March 2017, the business area includes Sweden-based Hultdins, a leading manufacturer of tools and attachments for forestry and construction machinery. As of May 2017, Demolition & Tools also includes US-based Solesbee’s, a leading provider of attachments for excavators and wheel loaders in the North American market.

In the first six months net sales increased by 24.0 per cent to SEK 1,058 (853) million. The market situation was generally good. Among the larger markets, the US, Australia, UK and Germany saw the fastest growth.

EBITA* increased by 35.3 per cent over the six-month period to SEK 261 (193) million and the EBITA margin* expanded by 2.1 percentage points to 24.7 (22.6) per cent.

Systems Solutions

Through its operating units, Systems Solutions operates in industries offering systems solutions. Systems Solutions is divided into five divisions: Construction Materials, Interiors for Service Vehicles, Contract Manufacturing, Environmental Technology and Forest.

Net sales in Systems Solutions increased by 3.3 per cent to SEK 1,857 (1,798) million in the first half of 2017. All divisions except Interiors for Service Vehicles and Forest increased their sales in the first six months of the year.

EBITA* increased by 17.9 per cent to SEK 246 (208) million in the first half. The Construction Materials and Environmental Technology divisions improved their earnings in the first six months of the year. The EBITA margin* expanded by 1.6 percentage points to 13.2 (11.6) per cent.

Construction Materials reported good sales and earnings growth for the six-month period thanks to robust organic growth and improved profitability in all areas of operation. In late June Lifco announced that it had acquired Sweden-based Pro Optix, which provides fibre optic transceivers and cables, wavelength multiplexers, test and measurement instruments, and communication equipment for the European fibre optic market. Pro Optix will be consolidated from July 2017.

Net sales in the Interiors for Service Vehicles division were unchanged for the six-month period while profitability declined slightly due to a weaker UK market and increased product development costs.

Contract Manufacturing improved its sales amid slightly lower profitability in the first six months of the year. The market situation remained stable. The division’s customers include world-leading manufacturers of equipment for the pharmaceutical industry as well as manufacturers of railway equipment, which have high quality requirements for delivery flexibility as well as documentation.

Environmental Technology performed well over the six-month period as sales and profitability both improved. As of June, the division includes Sweden-based Silvent, which specialises in energy optimisation and occupational health and safety, and has unique expertise in the area of compressed air dynamics.

In Forest, sales and earnings fell over the six-month period, despite the consolidation from February 2017 of Haglöf Sweden, a world-leading supplier of instruments for professional forestry surveyors, which added to both sales and earnings. The decline in the division is due to continued problems in certain projects.

ACQUISITIONS

In the first six months of 2017 Lifco made the following acquisitions:

Further information on acquisitions is provided on page 14 of the interim report. The figures for net sales and number of employees refer to the estimated annual net sales and the number of employees at the acquisition date.

Taken together, the acquisitions will have a positive impact on Lifco’s results and financial position in the current year.

OTHER FINANCIAL INFORMATION

Employees

The average number of employees in the six-month period was 3,732 (3,569) and the number of employees at the end of the period was 3,851 (3,577). Acquisitions added 214 employees.

Events after the end of the reporting period

In late June Lifco announced that it had acquired Sweden-based Pro Optix (majority stake) and Perfect Ceramic Dental (PCD) of China. Pro Optix was consolidated from July 2017 and it is expected that PCD will be consolidated in latter part of the third quarter.

After the end of the reporting period Lifco has announced the acquisition of majority stakes in Hydal and Fiberworks of Norway, which will be consolidated in the third quarter.

Related party transactions

No significant transactions with related parties took place during the period.

Annual General Meeting 2017

The Annual General Meeting 2017 was held on 4 May in Stockholm. The following principal resolutions were adopted at the AGM: · The Board of Directors and auditor were re-elected. · Anna Hallberg was elected as a new Director. · Resolutions were adopted on Directors’ and auditors’ fees, the payment of a dividend for 2016 and remuneration of senior executives.

Risks and uncertainties

The risk factors which have the biggest impact for Lifco are the competitive situation, structural changes in the market and general level of economic activity. Lifco is also exposed to financial risks, including currency risks, interest rate risks, credit and counterparty risks.

The Parent Company is affected by the above risks and uncertainties through its function as owner of the subsidiaries.

For further information on Lifco’s risks and risk management, see the annual report for 2016.

Accounting principles

The Group’s interim report has been prepared in accordance with IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act. In respect of the Parent Company the report has been prepared in accordance with the Annual Accounts Act and Recommendation RFR 2 Financial Reporting for Legal Entities of the Swedish Financial Reporting Board. The accounting principles have been applied in accordance with those which are presented in the annual report for 2016 and should be read in conjunction with these.

The Group is currently evaluating the effects of those new accounting standards which become effective on 1 January 2018 (IFRS 9 and IFRS 15). Senior management’s current assessment is that the standards will not result in any significant differences for the Group.

This report has not been examined by the Company’s auditors.

DECLARATION OF THE Board of Directors

The Board of Directors and Chief Executive Officer warrant and declare that this six-month report gives a true and fair view of the Parent Company’s and Group’s operations, financial positions and results, and that it describes significant risks and uncertainties faced by the Parent Company and the companies included in the Group.

Enköping, 18 July 2017

FINANCIAL CALENDAR

The report for the third quarter will be published on 26 October

The year-end report for 2017 will be published on 15 February 2018

FURTHER INFORMATION

Media and investor relations: Åse Lindskog, ir@lifco.se, telephone +46 (0)730 24 48 72

TELECONFERENCE

Media and analysts are welcome to call in to a teleconference, where CEO Fredrik Karlsson, CFO Therése Hoffman and Head of Business Area Dental Per Waldemarson will present the interim report. The presentation is expected to take around 20 minutes, after which participants will be invited to ask questions.

Time: Tuesday 18 July, 9 a.m.

Link to the presentation:

https://tv.streamfabriken.com/lifco-q2-2017

Telephone numbers:

Sweden: +46 8 566 426 93
UK: +44 203 008 98 01
US: +1 855 753 22 35

LIFCO IN BRIEF

Lifco acquires and develops market-leading niche businesses with the potential to deliver sustainable earnings growth and robust cash flows. The Group has three business areas: Dental, Demolition & Tools and Systems Solutions. Lifco is guided by a clear philosophy centred on long-term growth, a focus on profitability and a strongly decentralised organisation. At year-end, the Lifco Group consisted of 132 companies in 26 countries. In 2016 Lifco reported EBITA of SEK 1,377 million on net sales of SEK 9.0 billion. The EBITA margin was 15.3 per cent. Read more at www.lifco.se

CONDENSED CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

SEGMENT OVERVIEW

Lifco’s operations are monitored and evaluated by the CEO and resources are allocated based on information from the three operating segments: Dental, Demolition & Tools and Systems Solutions. The defined quantitative limits have been exceeded only by Dental and Demolition & Tools. One further operating segment, Systems Solutions, is presented. This operating segment consists of a merger of those divisions which have similar economic characteristics and which do not individually meet the defined quantitative limits. These divisions are Construction Materials, Interiors for Service Vehicles, Contract Manufacturing, Environmental Technology and Forest.

NET SALES TO EXTERNAL CUSTOMERS

No sales are made between the segments.

EBITA

A breakdown of results by segment is made up to and including EBITA. EBITA is reconciled to profit before tax in accordance with the following table:

CONDENSED CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

ACQUISITIONS IN 2017

During the six-month period four new businesses were consolidated. The acquisitions refer to all shares of Haglöf Sweden and Hultdin System as well as majority shareholdings in Silvent and Solesbee’s.

The purchase price allocation includes the above four acquisitions. Purchase price allocations are preliminary until one year after the acquisition date.

Expenses related to the four acquisitions in a total amount of SEK 10 million are included in administrative expenses in the consolidated income statement for the first half of 2017. If the businesses had been consolidated from 1 January 2017 consolidated net sales would have increased by around SEK 123 million. The four acquisitions would have had a positive impact on earnings if the companies had been consolidated from 1 January 2017.

FINANCIAL INSTRUMENTS

Financial instruments at fair value are classified into different levels depending on how fair value is determined. All financial instruments at fair value in the Lifco Group have been classified as level 3, i.e. non-observable inputs. The fair value of short-term borrowings is equal to the carrying amount, as the discount effect is insignificant. Other liabilities classified as financial instruments refer to mandatory put/call options related to non-controlling interests.

KEY PERFORMANCE INDICATORS

CONDENSED PARENT COMPANY INCOME STATEMENT

* Preliminary invoicing of Group-wide services.

CONDENSED PARENT COMPANY BALANCE SHEET

OBJECTIVE AND DEFINITIONS

RECONCILIATION OF ALTERNATIVE KEY PERFORMANCE INDICATORS

The interim report presents alternative key performance indicators for assessing the Group’s performance. The primary alternative KPIs presented in this interim report are EBITA, EBITDA, net debt and capital employed. Definitions of the alternative KPIs are presented on pages 17–18.

EBITA compared with financial statements in accordance with IFRS

EBITDA compared with financial statements in accordance with IFRS

Net interest-bearing debt compared with financial statements in accordance with IFRS

Capital employed and capital employed excluding goodwill and other intangible assets compared with financial statements in accordance with IFRS

Capital employed and capital employed excluding goodwill and other intangible assets calculated as the average of the last four quarters compared with financial statements in accordance with IFRS

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