Interim Report January-March 2020

Reporting period January – March

• Net sales increased by 8.5 per cent to SEK 3,641 (3,357) million. Organically, net sales declined by 2.0 per cent.
• EBITA* increased by 11.1 per cent to SEK 652 (587) million.
• The EBITA margin* expanded by 0.4 percentage points to 17.9 (17.5) per cent.
• Profit before tax grew 25.0 per cent to SEK 540 (432) million.
• Net profit for the period grew by 24.2 per cent to SEK 405 (326) million.
• Earnings per share increased by 25.9 per cent to SEK 4.42 (3.51).
• Cash flow from operating activities increased by 237 per cent to SEK 475 (141) million.
• The COVID-19 pandemic has had a limited impact on financial earnings for the quarter. The negative financial effects are expected to be significant during the second quarter.
• Four businesses were acquired during the period with total annual sales of
  about SEK 530 million.
• As a result of the Swedish government’s response to the COVID-19 pandemic, Lifco’s Board of Directors announced on 31 March that the Annual General Meeting had been postponed to 24 June 2020.

Summary of financial performance

   * Before acquisition costs and non-recurring items.

COMMENTS FROM THE CEO

Lifco is carefully following the outbreak and spread of COVID-19 all over the world. During the first quarter proactive measures were taken by the Group to reduce risks for employees and to ensure continuity in operations. The financial effects of the COVID-19 pandemic were limited during the period, as the downturn in demand took place during the last two weeks of the quarter. Net sales increased in the quarter by 8.5 per cent to SEK 3,641 (3,357) million, driven by acquisitions and foreign exchange gains.

At the beginning of April, the COVID-19 pandemic had a significant impact on demand in many of the Group’s subsidiaries. The negative financial effects are expected to be significant for the Group during the second quarter. Lifco’s 164 subsidiaries operate in a large number of industries that are affected by the outbreak of COVID-19 to varying degrees. The impact is short-term especially large in the Dental business area and many 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. Also the Demolition & Tools business area noted reduced demand at the beginning of April as a result of the COVID-19 pandemic. It is not currently possible for us to predict to what degree and for how long the different operations will be affected.

During the first quarter, EBITA* increased by 11.1 per cent to SEK 652 (587) million and the EBITA margin* improved by 0.4 of a percentage point to 17.9 (17.5) per cent. The improvement in profitability was mainly due to acquisitions. Earnings per share increased by 25.9% to SEK 4.42 (3.51) in the first quarter of 2020. Performance in the first quarter of 2019 was negatively impacted by a non-recurring cost of SEK 56 million from changes in management. Cash flow increased by 237 per cent to SEK 475 (141) million.

During the period, Lifco strengthened Dental with three acquisitions: two manufacturing companies in Denmark 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.

In the prevailing market conditions resulting from the COVID-19 pandemic, Lifco has chosen to refinance two unsecured bonds through bridge financing with Skandinaviska Enskilda Banken AB (publ). The bonds total 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 1.6 times EBITDA* at 31 March 2020, which is well in line with our target of interest-bearing net debt of a maximum of three times EBITDA*.

Per Waldemarson

President and CEO

GROUP PERFORMANCE IN JANUARY – MARCH

Net sales increased 8.5 per cent to SEK 3,641 (3,357) million, driven by acquisitions and foreign exchange gains. Organic growth was -2.0 per cent, acquisitions contributed 9.2 per cent while foreign exchange gains had a positive impact of 1.3 per cent. During the quarter, 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 were consolidated.

EBITA* increased by 11.1 per cent to SEK 652 (587) million and the EBITA margin* improved by 0.4 percentage points to 17.9 (17.5) per cent. EBITA* improved on the back of acquisitions and foreign exchange gains. Foreign exchange gains added 0.8 per cent to EBITA*. During the period, 35 (36) per cent of EBITA* was generated in EUR, 28 (27) per cent in SEK and 12 (16) per cent in NOK, 8 (8) per cent in DKK, 4 (6) per cent in USD, 6 (2) per cent in GBP and 7 (5) per cent in other currencies.

Net financial items were SEK -6 (-13) million.

Profit before tax grew by 25.0 per cent to SEK 540 (432) million and net profit for the period increased by 24.2 per cent to SEK 405 (326) million. Non-recurring items amounted to SEK 0 (56) million for the quarter.

Average capital employed excluding goodwill increased by SEK 43 million during the quarter, to SEK 2,388 million at 31 March 2020, compared with SEK 2,345 million at 31 December 2019. EBITA* relative to average capital employed excluding goodwill was at 108 per cent and unchanged from year-end.

The Group’s net debt increased by SEK 577 million from 31 December 2019 to SEK 6,129 million at 31 March 2020, of which liabilities related to put/call options and additional considerations for acquisitions amounted to SEK 971 (709) million. Interest-bearing net debt increased by SEK 518 million from year-end and amounted to SEK 4,558 (3,804) million at 31 March 2020.

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

The net debt/equity ratio at 31 March 2020 was 0.7 (0.7) and net debt/EBITDA* was 2.1 (2.0) times. Interest-bearing net debt/EBITDA* was 1.6 (1.5) times. At period-end, 41 (34) per cent of the Group’s interest-bearing liabilities were denominated in EUR.

Cash flow from operating activities increased by 237 per cent to SEK 475 (141) million during the quarter, mainly due to improved earnings and increased current liabilities. Cash flow from investing activities was SEK -827 (-580) 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 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 increased by 3.9 per cent to SEK 1,171 (1,127) during the first quarter, positively impacted by acquisitions. The impact of the COVID-19 pandemic was limited during the first quarter.

EBITA* increased by 3.9 per cent during the period to SEK 241 (232) million and the EBITA margin was 20.6 (20.6) 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. The COVID-19 pandemic had a significant negative impact on the dental market in the beginning of April 2020. The effects are different in different markets, but demand in all countries has decreased significantly.

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 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.

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.

Net sales increased by 3.6 per cent to SEK 862 (832) million in the quarter, driven by foreign exchange gains and acquisitions. Demolition & Tools faced continued uncertainty and a weakened market in the first quarter, while sales and earnings were positively impacted by a favourable product mix with the delivery of highly profitable special orders. Among the larger markets, China saw the fastest growth, primarily due to the delivery of special orders. EBITA* increased by 4.1 per cent during the period to SEK 179 (172) million and the EBITA margin* was 20.8 (20.7) per cent. In the beginning of April 2020, the Demolition & Tools business area noted reduced demand as a result of 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, and Forest.

Net sales in Systems Solutions increased by 15.0 per cent to SEK 1,608 (1,398) million during the quarter on the back of acquisitions. The impact of the COVID-19 pandemic was limited during the first quarter.

EBITA* increased by 25.4 per cent to SEK 262 (209) million in the first three months of the year, with improved earnings in the Contract Manufacturing, Environmental Technology as well as Service and Distribution divisions. The Forest division had once again a weak quarter with decreased sales and low profitability. The EBITA margin* expanded by 1.4 percentage points to 16.3 (14.9) per cent.

The COVID-19 pandemic had a significant negative impact on many of the businesses in Systems Solutions in the beginning of April 2020.

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 15. 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 5,496 (5,137) in the first quarter. At the end of the period, the number of employees was 5,542 (5,219). Acquisitions added around 160 employees.

Events after the end of the reporting period

Lifco is carefully following the outbreak and spread of COVID-19 all over the world. At the beginning of April, the COVID-19 pandemic had a significant impact on demand in many of the Group’s subsidiaries. The negative financial effects are expected to be significant for the Group during the second quarter.

Related party transactions

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

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.

Lifco operates in a large number of industries that are affected by the outbreak of COVID-19 to varying degrees. The negative financial effects are expected to be significant for the Group during the second quarter. It is not currently possible for us to predict to what degree and for how long the different operations will be affected.

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.

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 three-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, 24 April 2020

FINANCIAL CALENDAR

The report for the second quarter will be published on 17 July

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

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

ANNUAL GENERAL MEETING 2020

On 31 March 2020, the Board of Directors announced its decision to postpone the AGM to Wednesday, 24 June 2020 in Stockholm as a result of the government’s decision to ban public gatherings and official meetings of more than 50 individuals, which also applies to other types of gatherings. The notice of the AGM will be distributed no later than four weeks ahead of the new date.

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, 24 April at 11.00 a.m. CEST

Link to the presentation: https://tv.streamfabriken.com/lifco-q1-2020

Telephone numbers:

Sweden +46 8 5055 83 59

UK +44 3333 00 90 30

US +1 646 722 49 04

LIFCO IN BRIEF

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 5 (-8) 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

In the first three months of the year four new businesses were consolidated. These acquisitions referred to all of the 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 shares in Croatian Dental Grupa and Italian Cramaro Tarpaulin Systems.

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

Acquisition-related expenses of SEK 9 million are included in administrative expenses in the consolidated income statement for the first three months 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 0 (26) million in dividends received during the three-month period.

CONDENSED PARENT COMPANY BALANCE SHEET

DEFINITIONS AND OBJECTIVES

RECONCILIATION OF ALTERNATIVE KEY PERFORMANCE INDICATORS

20. 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 18-19.

EBITA compared with financial statements in accordance with IFRS

EBITDA compared with financial statements in accordance with IFRS

Net 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