Interim Report January – June 2020

      Reporting period January – June

• Net sales declined by 2.5 per cent to SEK 6,720 (6,893) million. Organically, net sales declined by 10.3 per cent.
• EBITA* decreased by 4.3 per cent to SEK 1,221 (1,276) million.
• The EBITA margin* declined by 0.3 percentage points to 18.2 (18.5) per cent.
• Profit before tax grew 0.4 per cent to SEK 979 (975) million.
• Net profit for the period grew by 0.4 per cent to SEK 734 (731) million.
• Earnings per share increased by 1.0 per cent to SEK 7.98 (7.90).
• Cash flow from operating activities increased by 144 per cent to SEK 1,259 (516) million.
• In April and May, the effects of the COVID-19 pandemic had a significant impact on demand and profitability for many of the Group’s subsidiaries. In June, all European dental markets recovered, and an improvement was also noted in the European markets for the operations in Systems Solutions that were affected by the pandemic.
• Five businesses were acquired during the period with total annual sales of about SEK 555 million.
   

Reporting period April – June

• Net sales declined by 12.9 per cent to SEK 3,079 (3,536) million. Organically, net sales declined by 18.1 per cent.
• EBITA* decreased by 17.4 per cent to SEK 569 (689) million.
• The EBITA margin* declined by 1.0 percentage point to 18.5 (19.5) per cent.
• Profit before tax declined by 19.2 per cent to SEK 439 (543) million.
• Net profit for the period decreased by 18.8 per cent to SEK 329 (405) million.
• Cash flow from operating activities increased by 109 per cent to SEK 784 (375) million.

Summary of financial performance  

COMMENTS FROM THE CEO

In April and May, the effects of the COVID-19 pandemic had a significant impact on demand and profitability for many of the Group’s subsidiaries. Lifco’s more than 160 subsidiaries operate in a large number of industries that have been affected by the outbreak of the pandemic to varying degrees. The impact has been particularly significant in the Dental business area and several of the operations in Systems Solutions, where the companies do not have any order backlog, but where deliveries normally take place in connection with orders being made. However, many companies in Systems Solutions have been relatively unaffected by the pandemic. In June, all European dental markets recovered, and an improvement was also noted in the European markets for the operations in Systems Solutions that were affected by the pandemic. The Demolition & Tools business area experienced a decline in demand resulting from a generally more uncertain and weakened market as well as particularly high uncertainty in the second quarter as a result of the pandemic.

As Lifco stated in the interim report for the first quarter on 24 April, the pandemic impacted financial earnings for the second quarter significantly. During the second quarter, sales decreased by 12.9 per cent to SEK 3,079 (3,536) million and EBITA* fell by 17.4 per cent to SEK 569 (689) million. The EBITA margin* declined by 1.0 percentage point to 18.5 (19.5) per cent. Earnings per share declined by 18.9 per cent during the second quarter to SEK 3.56 (4.39). Cash flow increased by 109 per cent for the second quarter to SEK 784 (375) million as a result of a decrease in working capital.

During the first half of the year, Lifco strengthened Dental with four acquisitions: two manufacturing companies in Denmark, one in Sweden and a leading distributor in Croatia. The Italian company, Cramaro Tarpaulin Systems, a niche manufacturer of tarpaulin systems for trucks and agricultural vehicles, was acquired in Systems Solutions. The acquisitions jointly had a positive impact on Lifco’s earnings and financial position during the quarter.

On 25 March 2020, Lifco decided that, given the then current market conditions in light of the pandemic, to refinance two unsecured bonds through bridge financing with Skandinaviska Enskilda Banken AB (publ). The bonds totalled SEK 1,750 million and fell due on 3 April 2020. In addition to this bridge financing, Lifco has bonds outstanding of SEK 1,000 million and standard short-term credit facilities. Lifco’s financial position remains solid and interest-bearing net debt amounted to 1.4 times EBITDA* at 30 June 2020, which is well in line with our target of interest-bearing net debt of a maximum of three times EBITDA* and means that Lifco possesses the financial scope to make additional acquisitions.

Per Waldemarson

President and CEO

GROUP PERFORMANCE IN JANUARY – JUNE

Net sales declined 2.5 per cent to SEK 6,720 (6,893) million, driven by the effects of the COVID-19 pandemic and a weaker market in the Demolition & Tools business area. Organic growth was -10.3 per cent, acquisitions contributed 7.7 per cent while foreign exchange gains had a positive impact of 0.1 per cent. During the first half of the year, the Danish companies Rönvig Dental Manufacturing A/S and the Workplace Safety division of KiiltoClean A/S, TrollDentals product portfolio as well as the majority of the Croatian company Dental Grupa and the Italian Cramaro Tarpaulin Systems were acquired.

EBITA* declined 4.3 per cent to SEK 1,221 (1,276) million and the EBITA margin* fell by 0.3 of a percentage point to 18.2 (18.5) per cent as a result of lower volumes. Foreign exchange gains impacted EBITA* with -0.1%. During the period, 34 (35) per cent of EBITA* was generated in EUR, 29 (27) per cent in SEK and 14 (16) per cent in NOK, 8 (8) per cent in DKK, 7 (3) per cent in GBP, 3 (6) per cent in USD and 5 (5) per cent in other currencies.

Net financial items were SEK -28 (-32) million.

Profit before tax grew by 0.4 per cent to SEK 979 (975) million and net profit for the period increased by 0.4 per cent to SEK 734 (731) million. Non-recurring items amounted to SEK 0 (56) million for the six-month period.

Average capital employed excluding goodwill declined by SEK 172 million during the period to SEK 2,173 million at 30 June 2020, compared with SEK 2,345 million at 31 December 2019. EBITA* relative to average capital employed excluding goodwill was at 108 per cent at year-end and increased to 114 per cent during the first half of the year.

The Group’s net debt declined by SEK 277 million from 31 December 2019 to SEK 5,275 million at 30 June 2020, of which liabilities related to put/call options and additional considerations for acquisitions amounted to SEK 908 (698) million. Interest-bearing net debt declined by SEK 225 million since year-end and amounted to SEK 3,815 (4,312) million at 30 June 2020.

On 25 March 2020, Lifco announced that, given the then current market conditions in light of the pandemic, the company had chosen to refinance two unsecured bonds through bridge financing with Skandinaviska Enskilda Banken AB (publ). The bonds totalled SEK 1,750 million and fell due on 3 April 2020.

The net debt/equity ratio at 30 June 2020 was 0.7 (0.8) and net debt/EBITDA* was 1.9 (2.0) times. Interest-bearing net debt/EBITDA* was 1.4 (1.6) times. At period-end, 41 (33) per cent of the Group’s interest-bearing liabilities were denominated in EUR.

Cash flow from operating activities increased by 144 per cent to SEK 1,259 (516) million for the first half of the year, primarily as a result of increased current operating liabilities. Cash flow from investing activities was SEK -871 (-945) million, which was mainly attributable to acquisitions.

GROUP PERFORMANCE IN THE SECOND QUARTER

Net sales declined in the second quarter by 12.9 per cent to SEK 3,079 (3,536) million, driven by the effects of the COVID-19 pandemic and a weaker market in the Demolition & Tools business area. Organic growth was -18.1 per cent, acquisitions contributed 6.2 per cent while foreign exchange gains had a negative impact of 1.0 per cent.

Due to dividends to minorities in the second quarter, Other income and expenses was impacted by SEK -24 (-46) million for revaluations of put options issued in connection with acquisitions.

EBITA* declined 17.4 per cent to SEK 569 (689) million and the EBITA margin* fell by 1.0 percentage point to 18.5 (19.5) per cent as a result of lower volumes. Foreign exchange gains impacted EBITA* with -1.0%. During the second quarter, 32 (35) per cent of EBITA* was generated in EUR, 30 (28) per cent in SEK and 16 (16) per cent in NOK, 7 (8) per cent in DKK, 8 (4) per cent in GBP, 1 (6) per cent in USD and 6 (3) per cent in other currencies.

Net financial items were SEK -22 (-19) million.

Profit before tax declined by 19.2 per cent to SEK 439 (543) million. Net profit for the period decreased by 18.8 per cent to SEK 329 (405) million.

Average capital employed excluding goodwill declined by SEK 215 million to SEK 2,173 million at 30 June 2020, compared with SEK 2,388 million at 31 March 2020. EBITA* relative to average capital employed excluding goodwill increased from 108 per cent at 31 March 2020 to 114 per cent at 30 June 2020.

The Group’s net debt fell during the quarter by SEK 854 million to SEK 5,275 million. Dividends amounted to SEK 33 (418) million for the quarter. At the Annual General Meeting on 24 June 2020, the dividend for the 2019 financial year was set at SEK 5.25 per share. The total dividend to shareholders for the 2019 financial year was SEK 476.9 million, and was paid on 1 July 2020. The dividend to shareholders for the 2018 financial year was paid during the second quarter of 2019.

Cash flow from operating activities increased by 109 per cent to SEK 784 (375) million during the second quarter as a result of lower accounts receivable and inventory. Cash flow from investing activities was SEK -44 (-365) million, which was attributable to acquisitions and investments.

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 has operations in the US. Lifco sells dental technology to dentists in the Nordic countries and Germany, and develops and sells medical record systems in Denmark, Sweden and Germany. The business area also includes a number of manufacturers which produce fitting products for dentures, disinfectants, saliva ejectors, bite registration and dental impression materials, bonding agents and other consumables that are sold to dentists through distributors around the world. In recent years, Dental has through acquisitions and organic growth increased its earnings in manufacturing, dental technology and software faster than in distribution, which has had a positive impact on margin growth in the business area.

Net sales in Dental declined by 10.7 per cent to SEK 2,012 (2,252) million in the first half of the year as a result of the impact of the COVID-19 pandemic in April and May. EBITA* declined by 17.2 per cent to SEK 385 (465) million for the six-month period and the EBITA margin was 19.1 (20.6) per cent as a consequence of lower volumes during April and May. All European dental markets recovered in June, contributing to improved sales and profit at the end of the second quarter.

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. The pandemic had a significant negative impact on the dental market during the second quarter of 2020. The effects were different in different markets, but demand in all countries decreased significantly. In June, all European dental markets recovered.

As of January 2020, Lifco consolidated Rönvig Dental Manufacturing A/S of Denmark. The company is a niche manufacturer of dental products. Rönvig had a turnover of around DKK 30 million in 2018 and has 17 employees. As of February 2020, Lifco also consolidated the Workplace Safety division of KiiltoClean A/S. The business is a leading niche manufacturer of eyewashes, plasters and first aid stations. The products are sold under the Plum brand and generated net sales of around DKK 79 million in 2019. The business has ten employees. As of February 2020, Lifco consolidated the majority of the Croatian company Dental Grupa, a leading distributor of equipment and consumables for dentists in Croatia. Dental Grupa had net sales of around HRK 66 million in 2019 and has around 40 employees. As of June 2020, TrollDentals product portfolio was consolidated, which had net sales of about SEK 25 million in 2019. 

Demolition & Tools

Demolition & 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 business area’s EBITA margin might fluctuate between quarters due to single, major special orders and changes to the product mix.

During the first half of the year, sales decreased by 10.2 per cent to SEK 1,637 (1,823) million and EBITA* decreased by 14.5 per cent to SEK 355 (415) million with an EBITA margin of 21.7 per cent (22.8). The decline in demand and profitability was a result of a more uncertain and weakened market in general as well as particularly high uncertainty in the second quarter following the COVID-19 pandemic.

Systems Solutions

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

Net sales in Systems Solutions increased by 9.0 per cent to SEK 3,071 (2,818) million for the first half of the year on the back of acquisitions. Several of the operations in Systems Solutions have been negatively impacted by the COVID-19 pandemic during the second quarter, particularly those who do not have any order backlog, but where deliveries normally take place in connection with orders being made. In June, an improvement was noted in the European markets for operations in Systems Solutions that were affected by the pandemic.

During the first quarter, EBITA* increased by 20.4 per cent to SEK 536 (445) million and the EBITA margin* improved by 1.7 percentage points to 17.5 (15.8) per cent.

The Construction Materials division has reported a stable performance for the first half of the year. The division was relatively unaffected by the pandemic given that deliveries of input materials to the construction industry continued during the pandemic.

The Contract Manufacturing division is directed at industries that have not been particularly affected by the pandemic and have reported strong sales growth in both the first half of the year and the second quarter with improved result.

Growth in the Environmental Technology division is primarily the result of acquisitions. In the first half of the year, the results improved while the second quarter was weak as the result of a relatively large impact due to the pandemic.

Growth in the Service and Distribution division is primarily the result of acquisitions. The division improved its results both in the first half of the year and in the second quarter.

The Forest division reported a weak first half of the year and second quarter with decreased sales and weaker result following lower volumes.

The majority of Italian company Cramaro Tarpaulin Systems was consolidated in the Service and Distribution division as of February 2020. The company is a niche manufacturer of tarpaulin systems for trucks and agricultural vehicles. The company had net sales of around EUR 27 million in 2019 and has 90 employees.

ACQUISITIONS

Lifco made the following acquisitions in the period:

Further information on the acquisitions is provided on page 16. The figures for net sales and number of employees refer to 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 was 5,446 (5,236) in the first half of the year. At the end of the period, the number of employees was 5,382 (5,328). Acquisitions added around 160 employees.

Events after the end of the reporting period

Lifco continues to monitor the effects of the COVID-19 pandemic. No significant events for the Group occurred after the end of the reporting period

Related party transactions

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

Annual General Meeting 2020

The 2020 Annual General Meeting was held on 24 June in Stockholm. The main resolutions of the Meeting were as follows: • The dividend for the 2019 financial year was set at SEK 5.25 per share. The record date for the rights to dividends was set at 26 June 2020, with a payment date of 1 July 2020. • Carl Bennet, Ulrika Dellby, Erik Gabrielson, Ulf Grunander, Annika Espander Jansson, Johan Stern Axel Wachtmeister and Per Waldemarson were re-elected members of the Board and Dan Frohm and Caroline af Ugglas were elected new members of the Board. Carl Bennet was re-elected Chairman of the Board. • The audit firm PricewaterhouseCoopers AB was re-appointed as the company’s auditors for a one-year term of office. • Fees for the Board and auditors were adopted, as were principles for the work of the Nomination Committee and guidelines on remuneration of senior executives. • The Articles of Association were changed in accordance with the Board’s proposals.

Risks and uncertainties

The risk factors which have the biggest impact for Lifco are global macroeconomic factors, 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.

Lifco operates in a large number of industries that have been affected by the outbreak of COVID-19 during April and May of 2020 to varying degrees. In June, all European dental markets recovered, and an improvement was also noted in the European markets for the operations in Systems Solutions that were affected by the pandemic. Lifco continues to monitor the effects of the COVID-19 pandemic.

The Parent Company is affected by the above risks and uncertainties in its capacity as owner of the subsidiary companies. For further information on Lifco’s risks and risk management, see the 2019 Annual Report.

Accounting policies

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 policies have been applied in accordance with those which are presented in the 2019 Annual Report and should be read in conjunction with these. In many countries, Lifco’s companies have received state aid from short-time work schemes and other aid which has reduced personnel costs for the second quarter.

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, 17 July 2020

FINANCIAL CALENDAR

The report for the third quarter will be published on 22 October.

The 2020 year-end report will be published on 1 February 2021.

FURTHER INFORMATION

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

TELECONFERENCE

Media and analysts are welcome to call in to a teleconference, where CEO Per Waldemarson and CFO Therése Hoffman will present the interim report. After the presentation, there will be an opportunity to ask questions.

Time: Friday, 17 July at 1:00 p.m. CEST

Link to the presentation: https://tv.streamfabriken.com/lifco-q2-2020

Telephone numbers:

Sweden +46 8 505 583 54
UK +44 3333 00 92 64
US +1 646 722 49 02

ABOUT LIFCO

Lifco offers a safe haven for small and medium-sized businesses. Lifco’s business concept is to acquire and develop market-leading niche businesses with the potential to deliver sustainable earnings growth and robust cash flows. Lifco is guided by a clear philosophy centred on long-term growth, a focus on profitability and a strongly decentralised organisation. The Group has three business areas: Dental, Demolition & Tools and Systems Solutions. At year-end, the Lifco Group consisted of 164 operating companies in 30 countries. In 2019, Lifco reported EBITA of SEK 2,523 million on net sales of SEK 13.9 billion. The EBITA margin was 18.2 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, Contract Manufacturing, Environmental Technology, Service and Distribution and Forest.

NET SALES TO EXTERNAL CUSTOMERS

No sales are made between the segments.

Net sales by type of income:

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:

¹ Of which, change in put/call options and additional considerations for the current year, SEK 2 (-48) million.

² Pertaining to costs in connection with management change.

CONDENSED CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

ACQUISITIONS IN 2020

Five new businesses were consolidated in the first half of the year. The acquisitions refer to TrollDental’s product portfolio, all shares in the Danish companies Rönvig Dental Manufacturing A/S and the Workplace Safety division of KiiltoClean A/S as well as the majority of the Croatian company Dental Grupa and the Italian Cramaro Tarpaulin Systems.

The purchase price allocation includes all acquisitions made during the first half of the year.

Acquisition-related expenses of SEK 12 million are included in administrative expenses in the consolidated income statement for the first half of the year. If consolidation had taken place on 1 January 2020, the Group’s net sales would have been positively impacted by about SEK 33 million and earnings by about SEK 9 million.

FINANCIAL INSTRUMENTS

¹ Other liabilities classified as financial instruments refer to mandatory put/call options related to non-controlling interests and additional considerations.

The carrying amount is the same as the fair value. 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.

KEY PERFORMANCE INDICATORS

CONDENSED PARENT COMPANY INCOME STATEMENT

¹ Invoicing of Group-wide services.

² Net financial items include SEK 771 (738) million in dividends received during the six-month period.

CONDENSED PARENT COMPANY BALANCE SHEET