Lifco AB (publ) (LIFCOB) Earnings Call Transcript

Welcome to Lifco Q3 Report for 2026. [Operator Instructions] Now I will hand the conference over to CEO, Per Waldemarson; and CFO, Therese Hoffman. Please go ahead.

Thank you, and good morning, everyone, and welcome to the Lifco Q3 2026 Earnings Call. And as usual, we can go in directly to Page #2 in our investor presentation, and we will take a look at the overall development of the Lifco Group. If we start then with the third quarter specifically, we presented a sales growth with 8%, of which acquisition contributed with 6%. Organic growth was 2%, and we had a slight positive impact from currency of 1% in the quarter. If we go further down to the EBITA, we grew that with 11%. EBITA margin improved to 23.1%, driven by strong margin development in Dental and System Solutions. Profit before tax increased with 18% due to the growth we had in operating profit and lower financial costs. And then if we look at the net profit, it grew with around 10%. And here, I'd just like to highlight that the comparison number for net profit in the quarter was impacted by a lower-than-normal effective tax rate in the third quarter last year, where there was a the reduction in the corporate tax rate in Germany, which resulted in lower deferred tax liabilities. And this revaluation last year then decreased the tax expenses in the third quarter of 2025 with SEK 63 million. If we then look at operating cash flow, we had a growth of 19% in the quarter. Moving on to the 9-month period, we have increased sales with 8%, where 7% of the growth came from acquisition, 3% organic growth, and we had a negative 2% impact on currencies for the 9-month period. Further down, going into EBITA, we have grown that year-to-date with 10% and profit before tax has increased with 14%. Operating cash flow has grown with 12%. If we then go into Page #3 and take a deeper look at our different business areas. Starting by the dental area, we are experiencing a stable development overall. And the sales growth is mainly coming from acquisition, both in the quarter and for the 9-month period. The margin continues to improve due to the mix -- the positive mix effect we have where higher-margin companies with unique proprietary products are developing slightly better than our distribution companies. And I'd like to also once again remind everyone that during the last decade, we have gradually shifted our exposure into more unique proprietary products mainly through acquisition and also from organic developments in this area. If we then go to the Demolition & Tools business area, we have during 2026, had overall a quite stable development, slightly stronger growth in the third quarter in the sales, but margins are negatively impacted by negative mix effects where the market for our demolition robots are a bit weaker than for the attachment side of the business, and that trend has sort of remained throughout the year. If we go further down to Environmental Technology, we have grown sales and profit and margins for the 9-month period. I'd like to highlight that the more stable development in Q3 mainly has to do with a very strong comparison number and a very strong quarter in the same period last year. Going further to Transportation Products, we have during the first 9 months, grown, thanks to acquisition and organic growth. The development in Q3 was a bit weaker organically, mainly related to weaker market conditions in the U.K., which is the largest country within the Transportation Products area. And then finally, going into Systems Solutions, we have a strong development in 2026, supported both by acquisition and organic growth, which has led to improved profits and margins. And here, all subdivisions within the area are developing strongly. And I can also highlight after several years of weaker market conditions in Infrastructure Products, we are now experiencing better underlying markets in that segment now for the last few quarters. I'd also like to mention in the System Solutions area, we have in our quarter report mentioned that a large customer within Contract Manufacturing division, which accounts for approximately 5% of total sales has reduced forecast going into 2027. And the customer has also announced that they have intentions to, in the future, shift purchases to other suppliers outside Europe. And based on the information we have today, which is not complete, we have to highlight that we expect that this will have a negative impact on our System Solutions revenue and earnings in 2027. I also like to highlight and just give a comment that this is an area within Contract Manufacturing where we saw larger than normal growth during 2024 and 2025. It's been more on a stable high level in '26. And we made strategically the decision quite some time ago not to continue to grow this specific customer further. And we will also, going forward, limit so we don't grow too far in specific customer segments. We can then go further on to Page #4 in our investor presentation. And on this page, we take a much longer-term perspective on Lifco development. And our most important metric is the free cash flow per share after CapEx and only before dividend and acquisition. This is a measurement that, of course, quarterly can have volatility because cash flow doesn't always linearly grow every quarter. But over long periods of time, it's a very good indication of how we develop. And since our listing in 2014, Lifco has then grown our cash flow per share with 21%. And also, if you look in the more recent period, the growth since 2019, the compounded annual growth rate is 17%. If we then go further into Page #5, we take a quick look at our balance sheet and specifically into our net debt situation. And after closing of Q3 2026, our interest-bearing net debt to EBITDA is at 1x, which is quite low and means that we have plenty of room for further acquisitions. And speaking of acquisition, we can then go all the way down to the next page at Page 43, where we are basically looking at the acquisitions so far in this year. We have, during 2026 announced -- acquired 8 companies with a total combined turnover of more than SEK 1 billion. I'd like to highlight that we are also in '26, expanding our capacity, both to identify and take care of new acquisitions. And our internal ambition levels are very high. I'd also like to, as always mentioned, that we are very long-term oriented when it comes to acquisitions. And it's more important that we make the right deals rather than being overly stressed in periods of slightly lower deal volumes that we have experienced so far this year. The activity level is very high, and we have many interesting targets that we are working with, as always, but the timing -- exact timing of when acquisition materializes is very difficult to predict. And we look for highly differentiated niche companies with a long history of high margins, sustainable financial development and we acquired great companies from entrepreneurs and families. And once again, the exact timing on when they are ready to sell to us is difficult to predict. And that was all from my side. And with that, I'd like to open up for any potential questions. Thank you.

[Operator Instructions] The next question comes from Zino Engdalen Ricciuti from Handelsbanken.

Starting off in Systems Solutions with the customer in contract manufacturing that you highlight. Could you give some more possible flavor to how much do you believe this will impact? Will you -- is it half of the sales base? Or is it that they're just moving incremental volumes?

Thank you, Zino. We still have uncertainty around that, but we take a very cautious approach, and that's also why we would like to mention this in this report, even though we don't have full clarity on how exactly this will develop. So we have to come back around that. But we want -- it's serious enough to highlight it in this quarterly report. And exactly the timing effect of it is very hard to predict today.

Understood. Just a follow-up, do you believe that this is a result of you strategically limiting the growth that you've been willing to have to this company?

Yes, it's very difficult to say. But I think this is a very special situation for Lifco during the last 25 years. We have not had this type of situation. And we are normally working in very stable situations where we gradually grow step-by-step with our customers. So it's not something that we normally do. And of course, given the growth that has taken place, it could, of course, have an impact. But we take also here a very long-term look at things. And for us, it's important that we have the right type of exposure and right type of segments that we operate in. So we are not a company that can go for super high volume type of -- on manufacturing. .

Understood. And moving to the comments you made about seeing growth in the infrastructure products. Do you make any sort of, I would say, read across when you think about the appetite for demolition robots in the Demolition & Tools segment?

I think the only -- it's quite difficult to understand. We know that we are keeping our market shares and why the market is a bit more depressed. The only explanation I can logically think about is that it has more impact on the geopolitical uncertainty, what happened earlier this year with -- in the Middle East and so forth has more impacted on the sentiment on the buying of more expensive equipment in that area. That's still the explanation that we have been able to identify, but there's no clear -- we see also, of course, in that segment that the aftermarket is developing in well, which is a strong signal. But the exact -- once again, the exact timing of the CapEx investments for our customers is more difficult to predict. .

Understood. And lastly for me on Transportation Products. Sorry if I missed your explanation, but could you give some more flavor as to the lower margin despite by the higher sales and how we should think about that going forward?

Yes. But there we have a combination of organic and acquisitions that are blending out. But we saw in this quarter a weaker development organically in our U.K. operations. So that's the main comment for that area.

Yes. And you expect that to be -- of course, the U.K. market generally isn't doing great, but it's so to say sticking.

Sorry, can you repeat that question, sorry?

Yes. And U.K. generally isn't performing great, it's fair to assume that it's something we should see this margin -- something we should see ahead as well.

Well, that's difficult for me to predict. But we have -- in all business areas, we have a little bit different exposures in different type of companies. But we saw in this quarter some more reluctancy of investments in the transportation area in the U.K. .