Year-End Report 2018

Reporting period January – December 

• Net sales increased by 19.2 per cent to SEK 11,956 (10,030) million. Organically, net sales grew by 6.4 per cent
• EBITA* increased by 25.2 per cent to SEK 2,168 (1,732) million
• The EBITA margin* increased to 18.1 (17.3) per cent
• Earnings before tax grew by 26.1 per cent to SEK 1,858 (1,473) million
• Net profit for the period grew by 28.3 per cent to SEK 1,420 (1,107) million
• Earnings per share increased by 28.1% till SEK 15.29 (11.94)
• Cash flow from operating activities increased by 15.6 per cent to SEK 1,533 (1,326) million
• During the year, Lifco acquired nine businesses with total annual sales of around SEK 580 million
• Dividend per share is proposed with SEK 4.60 (4.00) SEK per share, corresponding to SEK 418 (363) million

Reporting period October – December 

• Net sales increased by 23.8 per cent to SEK 3,454 (2,789) million. Organically, net sales grew by 9.9 per cent
• EBITA* increased by 31.4 per cent to SEK 670 (510) million
• The EBITA margin* increased to 19.4 (18.3) per cent
• Earnings before tax grew by 35.3 per cent to SEK 598 (442) million
• Net profit for the period grew by 37.7 per cent to SEK 453 (329) million
• Cash flow from operating activities decreased by 4.6 per cent to SEK 562 (589) million

Summary of financial performance 

   * Before acquisition costs.

COMMENTS FROM THE CEO 

In 2018, net sales increased by 19.2 per cent to SEK 11,956 (10,030) million, driven by acquisitions, organic growth and foreign exchange gains. All three business areas reported robust sales and earnings growth and all divisions had a solid development during the year. The market environment in the three business areas remained generally favourable during the year.

EBITA before acquisition costs increased by 25.2 per cent during the year to SEK 2,168 (1,732) million and the EBITA margin expanded by 0.8 percentage points to 18.1 (17.3) per cent. The improvement in profitability was mainly due to acquisitions and organic growth. Earnings per share increased by 28.1 per cent to SEK 15.29 (11.94).

Cash flow from operating activities for the year increased by 15.6 per cent to SEK 1,533 (1,326) million. During the year, we experienced delivery problems in many businesses, which led to increased inventories. This was, on the other hand, compensated to a certain degree by an increased level of advance payments from customers within the divisions Forest and Environmental Technology.

In 2018, Lifco consolidated nine new businesses with combined annual sales of around SEK 580 million. The acquisitions have had a positive impact on Lifco’s results and financial position during the year. After the end of the year, we acquired the Swedish company Indexator Rotator Systems, a world-leading manufacturer of rotators, and the Italian company Hammer, a provider of hydraulic hammers and other demolition tools for excavators. Both businesses will be consolidated in the Demolition & Tools business area.

Even after the acquisitions made in 2018, Lifco has ample financial scope for further acquisitions, as net debt stands at 1.6 times EBITDA before acquisition costs, still well below our target of a net debt of up to three times EBITDA.

Fredrik Karlsson

CEO

GROUP PERFORMANCE IN JANUARY – DECEMBER

Net sales increased by 19.2 per cent to SEK 11,956 (10,030) million, driven by acquisitions, organic growth and foreign exchange gains. Acquisitions contributed 8.6 per cent and organic growth 6.4 per cent while changes in exchange rates had a positive impact of 4.2 per cent. During the year, Computer konkret, Dental Direct, Denterbridge, ERC Systems, Flörchinger Zahntechnik, Rhein83, Spocs, Toolpack’s Norwegian service vehicle interior business and Wexman were consolidated.

EBITA* increased by 25.2 per cent to SEK 2,168 (1,732) million and the EBITA margin* expanded by 0.8 percentage points to 18.1 (17.3) per cent. EBITA* improved on the back of acquisitions, organic growth and foreign exchange gains. Foreign exchange gains accounted for 3.9% of the increase in EBITA*. During the year 37 (33) per cent of EBITA* was generated in EUR, 28 (31) per cent in SEK and 15 (14) per cent in NOK, 6 (8) per cent in USD, 6 (5) per cent in DKK, 2 (3) per cent in GBP and 6 (6) per cent in other currencies.

Net financial items were SEK -44 (-46) million.

The profit before tax increased by 26.1 per cent to SEK 1,858 (1,473) million and the net profit for the year increased by 28.3 per cent to SEK 1,420 (1,107) million. After corporation tax rates were cut in Norway, the UK and Sweden, deferred tax liabilities were restated during the year, which had a positive one-off effect of SEK 23 million.

Average capital employed excluding goodwill increased by SEK 157 million over the year, to SEK 1,312 million at 31 December 2018, compared with SEK 1,155 million at 31 December 2017. EBITA* relative to average capital employed excluding goodwill increased by 15 percentage points during the year, to 165 per cent. At 31 December 2017, EBITA* in relation to average capital employed excluding goodwill was 150 per cent. The improvement was due chiefly to higher earnings.

The Group’s net debt decreased by SEK 109 million from 31 December 2017 to SEK 3,685 million at 31 December 2018. In the first quarter of 2018, Lifco issued SEK 1,750 million in two series of unsecured bonds with maturities of two years. The proceeds of the bond issues were used to refinance existing bank loans and bonds. At year-end, liabilities related to call/put options and additional considerations for acquisitions totalled SEK 515 (258) million.

The net debt to equity ratio at 31 December 2018 was 0.5 (0.7) and net debt to EBITDA* was 1.6 (2.0) times. At year-end, 29 per cent of the Group’s interest-bearing liabilities were denominated in EUR.

Cash flow from operating activities increased with 15.6 per cent to SEK 1,533 (1,326) million during the year, mainly as a result of stronger earnings. Cash flow from investing activities was SEK -669 (-1,524) million, which was mainly attributable to acquisitions.

GROUP PERFORMANCE IN THE FOURTH QUARTER  

Net sales for the three-month period increased by 23.8 per cent to SEK 3,454 (2,789) million, driven by organic growth, acquisitions and foreign exchange gains. Organic growth was 9.9 per cent, acquisitions contributed 6.5 per cent while changes in exchange rates had a positive impact of 7.4 per cent.

EBITA* increased by 31.4 per cent to SEK 670 (510) million and the EBITA margin* improved by 1.1 percentage points to 19.4 (18.3) per cent. EBITA* improved on the back of organic growth, acquisitions and foreign exchange gains. Foreign exchange gains accounted for 5.9% of the increase

in EBITA*. In the fourth quarter, 38 (33) per cent of EBITA* was generated in EUR, 29 (33) per cent in SEK and 15 (15) per cent in NOK, 7 (3) per cent in DKK, 5 (9) per cent in USD, 2 (2) per cent in GBP and 4 (5) per cent in other currencies.

Net financial items were SEK -11 (-14) million.

Earnings before tax grew by 35.3 per cent to SEK 598 (442) million Net profit for the period grew by 37.7 per cent to SEK 453 (329) million.

Average capital employed excluding goodwill increased by SEK 61 million, to SEK 1,312 million at 31 December 2018, compared with SEK 1,251 million at 30 September 2018. EBITA in relation to average capital employed excluding goodwill increased from 161 per cent at 30 September 2018 to 165 per cent at 31 December 2018.

The Group’s net debt decreased by SEK 556 million to SEK 3,685 million over the three-month period. Net debt/equity decreased to 0.5 as per 31 December 2018, compared to 0.7 at 30 September 2018.

Cash flow from operating activities decreased by 4.6 per cent to SEK 562 (589) million in the fourth quarter, mainly as a result of still high levels of inventories in combination with high sales in December. Cash flow from investing activities was SEK -89 (-191) 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 the last few years, Dental has, through acquisitions and organic growth, increased the performance within manufacturing, dental technology and software faster than within distribution, resulting in a positive impact of the margin development within the business area.

Net sales in Dental increased by 9.6 per cent to SEK 4,185 (3,817) during the year. EBITA* increased by 14.4 per cent to SEK 802 (701) million during the period and the EBITA margin* expanded by 0.8 percentage points to 19.2 (18.4) 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 fourth quarter, there were no individual events having a substantial impact on the earnings of the Dental group as a whole.

Lifco’s majority stake in Computer konkret, a German software provider to dentists and orthodontists, was consolidated as of January 2018. The company generated net sales of around EUR 3.8 million in 2017 and has about 50 employees. Lifco’s majority stake in Dental Direct of Norway and its Danish subsidiary 3D Dental, which have around 20 employees and generated combined net sales of around SEK 135 million in 2017, were consolidated as of April 2018. Flörchinger Zahntechnik of Germany, which has around 25 employees and generated net sales of EUR 1.7 million in 2017, was consolidated as of May 2018. The acquisitions of Denterbridge of France and a majority stake in Rhein 83 of Italy were consolidated from July 2018. The two companies generated net sales of EUR 9 million and EUR 8 million, respectively, in 2017 and have about 20 employees each.

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.

Net sales increased by 24.7 per cent during the year, to SEK 2,820 (2,261) million. The market situation was generally good. Among the larger markets, France and Germany saw the fastest growth. EBITA* increased by 21.1 per cent during the year to SEK 724 (598) million and the EBITA margin* was 25.7 (26.5) 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 25.3 per cent to SEK 4,951 (3,952) million during the year on the back of a good performance across all divisions.

EBITA* increased by 40.8 per cent during 2018, to SEK 756 (537) million. All divisions improved their earnings during the period, except for Contract Manufacturing, where the performance was on par with 2017. The EBITA margin* expanded by 1.7 percentage points to 15.3 (13.6) per cent.

Construction Materials reported good sales and earnings growth during 2018 as a result of acquisitions and organic growth. ERC Systems of Sweden was consolidated in the Proline Group from October 2018. The company had net sales of around SEK 20 million in 2017 and has eleven employees.

Interiors for Service Vehicles saw good sales growth during the year with increased profitability. Toolpack’s Norwegian service vehicle interiors business, which has around 15 employees and generated net sales of about NOK 40 million in 2017, was consolidated with effect from May 2018.

Contract Manufacturing saw good sales growth during 2018, with an unchanged performance compared to 2017. Spocs, a Swedish provider of final assembly and testing services for electronic products, was consolidated from March 2018. The company had net sales of around SEK 61 million in 2017 and has 23 employees.

Environmental Technology saw a steady increase in sales and improved its profitability during the year.

Forest reported good sales and earnings growth in 2018. The projects which created problems in Forest in 2017 have been concluded. This, coupled with strong demand, led to a good performance during the year. Lifco’s majority stake in Wexman of Sweden, which makes professional workwear, was consolidated with effect from June 2018. The company generated net sales of around SEK 46 million in 2017 and has twelve employees.

ACQUISITIONS  

During 2018, Lifco made the following acquisitions:

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 had a positive impact on Lifco’s results and financial position in 2018.

OTHER FINANCIAL INFORMATION 

Employees 

The average number of employees during the year was 4,860 (4,107) and the number of employees at year-end of the period was 4,926 (4,758). Acquisitions added 201 employees.

Events after the end of the reporting period 

On 3 January 2019, the acquisition of the Swedish company Indexator Rotator Systems was announced. The Company is a producer and manufacturer of rotators, mainly for the forest industry. Indexator Rotator Systems generated sales of approximately SEK 300 million in 2018, and will be consolidated as of January 2019 in the Demolition & Tools business area.

On 23 January, the acquisition of the Italian company Hammer was announced, a provider of hydraulic hammers and other demolition tools for excavators. Hammer generated approximately EUR 20 million in 2018 and will be consolidated as of February 2019 in the Demolition & Tools business area.

Proposed dividend 

The Board of Directors and Chief Executive Officer propose that the Annual General Meeting authorise the payment of a dividend of SEK 4.60 per share for 2018, representing a total distribution of SEK 418 million. This is equal to 30.1 per cent of the net profit for the year attributable to

shareholders of Lifco AB, which is consistent with Lifco’s dividend policy. The proposed record date is 30 April. Euroclear Sweden expects to be able to send the dividend to the shareholders on 6 May, subject to the resolution of the Annual General Meeting.

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.

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 annual report for 2017.

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 pre-pared 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 2017 and should be read in conjunction with these.

The Group has evaluated the effects of implementing IFRS 9 Financial Instruments, which became effective on 1 January 2018, and has established that the impact is marginal. No adjustments have therefore been made to the opening balances for 2018. IFRS 15 Revenue from Contracts with Customers became effective on 1 January 2018, and the effects of the standard in Lifco’s subsidiaries have been assessed in a project that was initiated in 2016. No material differences compared with the previous standards have been identified, and no adjustments have therefore been made to the opening balances for 2018. IFRS 15 is being applied from 1 January 2018 and the disclosures in the interim report have been adapted in accordance with this new standard.

The Group applies IFRS 16 from 1 January 2019, and the implementation of the standard will imply that nearly all leases will be recognised in the balance sheet of the lessee, as there is no longer any distinction made between operational and financial leases. According to the new standard, a tangible asset (the right to use a leased asset) and a financial liability (non-current and current) regarding the obligation to pay leasing fees will be reported in the balance sheet. In the consolidated income statement, depreciation and interest costs are recognised instead of costs of operational leases, which have been recognised in their entirety within operating income. IFRS 16 will impact the cash flow insofar that leasing payments impact the cash flow from operating activities (e.g. interest and leases for which the underlying asset is of a lower value and short-term leases) and cash flow from financing activities (repayment of the leasing debt).

The Group will apply the simplified transition method, which implies that rights of use are valued at an amount corresponding to the leasing debt of 1 January 2019 (adjusted for prepaid and accrued leasing fees). The transition to IFRS 16 will, therefore, not have an impact of equity for the Group. As the simplified transition method will be used, comparative amounts for 2018 will not be adjusted.

The Group has chosen to apply the exception and not recognise short-term leases and leases for which the underlying asset is of a lower value as a portion of the right of use of the asset and the leasing debt in the balance sheet. Payments attributable to these leases will instead be recognised at cost at a straight-line basis over the lease term. Remaining leases consist, in all significant aspects, of premises, such as offices, warehouses and factories. For these leasing obligations, the Group expects to recognise rights of use amounting to approximately SEK 400 million and a leasing debt of approximately SEK 400 million as per 1 January 2019.

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 year-end 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, 6 February 2019

FINANCIAL CALENDAR 

The annual report for 2018 will be published in week 13

The report for the first quarter will be published on 26 April

The report for the second quarter will be published on 18 July

The report for the third quarter will be published on 23 October

ANNUAL GENERAL MEETING 2019 

The Annual General Meeting of Lifco AB will be held on Friday 26 April 2019, at 2 p.m. CET, at Bonnierhuset, Torsgatan 21, Stockholm. Shareholders wishing to raise an issue for discussion at the AGM may do so by submitting their proposal to the Chairman of Lifco by e-mail: ir@lifco.se or by post to: Lifco AB, Attn: Bolagsstämmoärenden, Verkmästaregatan 1, SE-745 85 Enköping, Sweden. To ensure their inclusion in the notice and thus on the agenda for the AGM, proposals must be received by the Company no later than 8 March 2019.

THE NOMINATION COMMITTEE 

Prior to the Annual General Meeting 2019 the Nomination Committee consists of Carl Bennet, Carl Bennet AB, Per Colleen, the Fourth Swedish National Pension Fund (AP4), Hans Hedström, Carnegie Fonder, Marianne Nilsson, Swedbank Robur Fonder and Adam Nyström, Didner & Gerge Fonder. Carl Bennet is chairman of the Nomination Committee.

Shareholders wishing to submit proposals to the Nomination Committee for the 2019 AGM may do so by sending an e-mail to ir@lifco.se or writing to: Lifco, Attn: Valberedningen, Verkmästaregatan 1, SE-745 85 Enköping, Sweden.

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 Fredrik Karlsson, CFO Therése Hoffman and Deputy CEO Per Waldemarson will present the interim report. After the presentation, there will be an opportunity to ask questions.

Time: Wednesday 6 February, 3 p.m. CET

Link to the presentation: https://tv.streamfabriken.com/lifco-q4-2018

Telephone numbers:

Sweden +46 8 505 583 50

UK +44 3333 009 266

US +1 646 722 4957

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 146 operating companies in 29 countries. In 2018, Lifco reported EBITA of SEK 2,168 million on net sales of SEK 12.0 billion. The EBITA margin was 18.1 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.

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:

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

CONDENSED CONSOLIDATED BALANCE SHEET 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

CONDENSED CONSOLIDATED CASH FLOW STATEMENT 

ACQUISITIONS IN 2018

Nine new businesses were consolidated during the year. The acquisitions comprised all shares of Denterbridge, ERC Systems and Spocs as well as majority stakes in Computer konkret, Dental Direct, Rhein 83 and Wexman. Through asset deals, Lifco has also acquired the assets of Toolpack’s Norwegian service vehicle interiors business and of Flörchinger Zahntechnik.

The purchase price allocation includes all acquisitions made during 2018.  Purchase price allocations are preliminary until one year after the acquisition date.

Acquisition-related expenses of SEK 14 million are included in administrative expenses in the consolidated income statement for 2018. The acquired businesses have, since their dates of consolidation, contributed SEK 371 million to the consolidated group sales, and SEK 73 million to EBITA. If the businesses had been consolidated from 1 January 2018, consolidated net sales would have increased further by SEK 213 million and EBITA by SEK 37 million.

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 and additional considerations.

KEY PERFORMANCE INDICATORS 

CONDENSED PARENT COMPANY INCOME STATEMENT 

* Invoicing of Group-wide services.

** Net financial items include SEK 560 (558) million in dividends received during the nine-month period

CONDENSED PARENT COMPANY BALANCE SHEET 

DEFINITIONS AND OBJECTIVE 

*New definition as of 30 June 2018.

** Added definition as of 31 December 2018.

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 19-20.

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*

* Key performance indicators have been restated as at 30 June 2018 in accordance with the new definition of net debt on page 19. The comparative periods have also been restated in accordance with the new definition.

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

* Key performance indicators have been restated as at 30 June 2018 in accordance with new definitions of capital employed as well as capital employed excluding goodwill and other intangible assets on page 20. The comparative periods have also been restated in accordance with the new definitions.

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*

* Key performance indicators have been restated as at 30 June 2018 in accordance with new definitions of capital employed as well as capital employed excluding goodwill and other intangible assets on page 20. The comparative periods have also been restated in accordance with the new definitions.

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