Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

It would be great to take a step back and understand how you came across Lifco. How did you join the company?

It was somewhat of a coincidence. I was offered two jobs at the same time in early 2001. I had a managerial role at a manufacturing facility belonging to ABB's ventilation division in Norrköping. They asked me to start with facility management in Västerås. At the same time, the job at Lifco came up. So, I had to make a choice.

What was the role at Lifco?

I started as a warehouse manager and purchasing manager. At that time, Lifco already had a central warehouse supporting the Swedish market. The dental division of Lifco was quite small in 2001. We had two companies in sales, Nordenta and DAB Dental, which we supported with warehouse services. We also had a company in Denmark, Dansk Nordenta, and one in Norway, LIC Scadenta. That was about it. There was also an industrial division. When Fredrik hired me, he and Carl Bennet agreed that Fredrik should manage not only Lifco but also the industrial Sorb Industri. A year before I started, there was also a division, which dealt with health consumables, like prep things, medicine, etc.

Were they selling to hospitals, doctors, or pharmacies?

No, it was not so much to the pharmacists, it was to private stores. The business was initially part of the Lifco organization. When it first entered the stock market, there was no significant development in the share value. It remained flat. Consequently, Carl Bennet decided to buy the entire business out of the stock market and merge it with Sorb Industri, which he fully owned.

Carl separated the dental business from Getinge, correct? And he took over that business?

The dental business has never been a part of Getinge, nor has it ever been connected.

So, what did he spin out of Getinge to list, because he listed in 1998 and took it private in 2001? What businesses were on the stock exchange in 1998? The industrial businesses?

No, it was not the industrial, just the trade business. Lifco. It was named Lifco when it was listed on the stock exchange. At that time, they were distributing natural medicines and health-related products. But that was phased out, I believe, at the end of 1999 or early 2000.

So, there were no dental or industrial businesses when it was originally listed?

In 1998, it was not solely, it was more or less the health side.

The health side. And then that didn't work out. Why didn't that work out in the market? What do you think?

I believe the market didn't understand the business, so there was no interest in buying a share where the purpose isn't clear. It's quite simple.

Carl bought the business back in 2001, took it private, sold the health business, and then bought the dental businesses and the industrial side?

Yes, he sold the health business and got back the same amount of money he had spent when he bought the group out of the stock exchange market. It was a good position at the time.

And then he bought the dental business?

Yes, he acquired the dental business, which was operating in the Swedish, Norwegian, and Danish markets. It was placed under the Lifco umbrella. The industrial part was completely separated from Lifco at the time. It was named Sorb, which is actually the name of a berry. The third leg was Getinge, the production unit. When I started in the dental business, I soon began to expand. The first expansion was in the Baltic, where DAB bought a small group. It was a Swedish guy named Anders, I think. So, those three companies in Estonia, Latvia, and Lithuania joined Lifco under the Lifco umbrella, along with DAB. You can still find them as a DAB company. After a few years, I believe Fredrik was the driving force to expand in Norway. So, Jacobsen Dental came into discussion. Jacobsen Dental was acquired. It was also the first time I was a part of the due diligence process. We went down to Germany for [Mieleweigant]. Fredrik evaluated the [Mieleweigant] and presented an offer. It was later purchased, I believe, by Henry Schein or a similar company.

These were all originally distribution businesses, specifically dental distribution?

Yes, they focused on dental distribution. Only one company had some manufacturing capabilities, which was Directa. Towards the end of my tenure at Lifco in 2015, Directa, under new management, began to expand and acquire smaller manufacturing businesses within the dental field, both in England and the States.

So, originally it was purely distribution. You had sales and warehousing for dental OEMs abroad into Scandinavia. Where did the original assets come from? Where were they acquired from? What was the first dental asset that was acquired when Lifco AB was created?

The first merger was between DAB Dental and Nordenta. I'm not sure if Carl was involved in the business at that time, so I can't say for certain who initiated the merger.

It's mentioned that it was originally a Swedish county council buy-in organization. Can you elaborate on that?

LIC was a development from the Swedish county councils. They realized they couldn't run the business, so it was bought out from the county councils and merged with DAB Dental, which was a competitor to LIC. LIC was also part of an old company in called Nordenta. I know the person who started Nordenta with his father. They sold Nordenta and developed a machinery wholesale distribution idea.

Who were the main customers you were selling to at Lifco Dental? I assume you were selling hundreds of different OEM products.

Actually, thousands.

What types of consumables were you selling and to whom?

We sold to both private and public dentists. When I started, we had one product that was the largest. It was x-ray film. Around 2007, the market for x-ray film died as it was replaced with digital cameras. Everything was sold to dental practitioners, both private and public.

How fragmented is that market? Who's the biggest player? What's the market consolidation like?

During my time at Lifco, the Lifco group and the Finnish group were the two major players, each controlling almost 50% of the market. The Finnish player, Plandent, also produced equipment like chairs, which Lifco didn't have.

But you competed with Henry Schein, right?

Yes, Henry Schein was a competitor because a major part of the Swedish market is run by tenders. At the time, public tenders made up about 50% of the market, though it might be a bit less now. Then, there's the PTJ, Praktikertjänst, a group of private dentist corporations.

Purchasing group.

Yes, it's more than just a purchasing group, as they also offer financial services and insurances. A significant portion of the Swedish and Norwegian markets was run by tender business. The demands from these tenders were so challenging for a player like Henry Schein that they were not operating in the Swedish market at all.

Why was it difficult for them?

The difficulty was mainly due to delivery. Overnight delivery wasn't sufficiently developed. If you didn't have a warehouse or logistic organization in the country, it was hard to guarantee overnight delivery.

They didn't have a warehouse in Sweden. Do they have one now?

Actually, I'm not sure. I don't think so. They might have acquired a smaller player, but I don't really know.

Do you see that as a risk? How do you perceive that? If Henry Schein were to acquire a local player?

It could pose a significant risk for Lifco if Henry Schein were to enter the market. However, Lifco is more than just dental today. It's driven by highly committed individuals, which I believe is Lifco's greatest strength.

I want to discuss that later. So when, how, and why did Lifco shift from distribution? From dental distribution companies to dental manufacturers?

As I mentioned, they didn't exactly shift, it was more of an evolution in that direction. Perhaps it was due to the people in Directa who could think in a broader perspective than their predecessors. Directa was a distribution and manufacturing company.

When did they acquire Directa?

I believe it was before my time.

They were already there.

Yes, it was quite early. They started by acquiring a Swedish manufacturer, TrollDental, and then it just continued. I think the major shift from solely dental distribution was around 2012. That's when it became more apparent that OEM production could also be a part of the business, similar to how Plandent already had that type of structure.

When you joined the dental group, what was the organizational structure?

It was, and I believe still is, quite simple. We had sales companies that were very strong. All the sales companies were evaluated and they had the authority to make all marketing and selling decisions. We had a contract where they bought services from Lifco Dental, which you could say was a group supplier. When I was at Lifco Dental, we had a purchasing volume of about 500 to 600 million Swedish krona a year. The market value was quite high, so the earnings were substantial.

Suppose you have directors and other operating companies. These are the sales and marketing businesses that sell thousands of SKUs from foreign dental OEMs into Scandinavia. What assets do these operating companies have? Are they just sales teams, or do they also have warehousing?

No, they only consist of sales teams.

They're responsible for organizing logistics. For example, if I work at Directa and want to ship 10 million krona worth of certain dental equipment, I would organize the shipment directly from the OEM to the customer.

The warehouses for Directa were managed under my supervision. Their product portfolio consisted of a lot of small, niche products, such as wedges for teeth. They only sold in the Nordic region and Germany. Essentially, Directa sold primarily in the Nordic region. We took care of the logistics for Directa, and they paid a certain part for it.

Did they own a warehouse themselves that you then managed?

Lifco provided the warehouse, which was located here in Norrköping. However, there was a small production unit in Directa, in Upplands Väsby. They had a workshop where they assembled certain products, which were then stocked and distributed.

Initially, when the dental business, Lifco Dental, started, did Carl Bennet start with the idea of having centralized warehouses, or did he just buy sales companies that had outsourced their logistics to someone else?

I'm not sure who made the decision, but before 1997, Lifco, Nordenta, and DAB Dental in Norrköping and Upplands Väsby, decided to merge. They were still competitors in the market with different warehouses. Then a decision was made, possibly involving Fredrik, to merge these two warehouses. I believe it must have been Frederik who managed this idea of combining the two warehouses. Then Lifco Dental was formed because it was deemed inappropriate for two competitors to have all their material in the same warehouse owned by one of them. So, everything was separated under a different organization. This was all set when I joined in 2001.

They kept them separate to compete but stored everything in the same warehouse?

Yes.

Or did they merge the companies?

You could say that behind the scenes, the warehouses were where everything cooperated. Nordenta's private label products were placed beside DAB's private label, and they sold a lot of the same products. It was a win-win situation because you could have double sales volume and easier control over logistics instead of having stock levels for two separate companies.

So, Lifco Dental AB owns the warehousing, and then the sales companies, like Nordenta, store their inventory in these warehouses and pay you a warehousing fee per square foot or per product.

Lifco Dental owns all the products and is responsible for the service level and purchasing volumes. I was always evaluated based on a high service level in terms of complete order lines delivered the same day. We had a service level between 97% and 98%. The number of complete order lines delivered per day was quite high.

You were purchasing 600 million at Lifco Dental, taking that ownership yourself. The sales companies were then buying it from you to sell to their customers.

Yes, they were buying.

And you were taking a 10% to 12% margin?

No, it was a cost plus. We had a cost budget per year. For instance, if Lifco Dental's cost was 40 million Swedish krona, depending on how many order lines were delivered to each company, they had their share of Lifco Dental's cost. When pricing the products, it was a cost plus, and then they had monthly cost for that.

Obviously, Lifco owned the operating companies as well, so they were earning the sales margin and the service warehousing layer margin.

It was strategic not to create margin in different steps. In this case, it's full transparency because if you buy a product for 50 Swedish krona, then this product is sold to the sales company for 50 Swedish krona upon delivery. No extra charge for that. This allows the sales company to measure their own margins in separate sales and better monitor how their pricing affects the result.

Who was employed at Lifco Dental AB? Fredrik was the CEO of that division, correct?

In 2007, I was appointed as Managing Director for Lifco Dental. Before that, between 2001 and 2007, my colleague Gunnar Samuelsson was the CEO.

Gunnar, whose special field is economy, helped Fredrik a lot with acquisitions. He moved up to CFO at the group level and I took over as Managing Director for Lifco Dental.

Who reported to you at Lifco Dental?

I managed the warehousing and all the other managers reported to Fredrik, as chairman

You mean the managers of Directa and Nordenta? So, it was just one person managing. You were managing all the warehouses, reporting to Fredrik or the CEO?

My responsibility was quite limited. It was to take care of the logistics and the services which we also had developed for Norway. We had overnight delivery to Norway. So, the central warehouse and airshipping expanded during this time to also take care of the Norwegian and Finnish markets.

How were you compensated and incentivized? What were the metrics you had?

Are you asking about my personal compensation?

Yes.

On what were you primarily focused?

You mentioned delivery. Did you also focus on profitability? Did you have a P&L?

We didn't have any earnings, so my performance was measured on a cost basis. The goal was to keep the costs down, maintain as high a service level as possible, and minimize scrapping.

You didn't have a P&L. You were selling at cost plus to the operating companies, but you weren't earning any profits. You were essentially just covering your costs.

We were only measured on hard facts. If we did a better job, the earnings would be visible at the operating company. The operating companies received the earnings.

Were you paid a bonus if you hit certain delivery metrics?

Yes, exactly. Also, if the sales company managed to meet certain growth and earnings targets, we had a quite good bonus system.

What other services were you offering? You mentioned warehousing.

We also provided IT support. We managed all the IT systems.

Let's say if Lifco bought a dental distributor and they had their own ERP and a central warehouse somewhere else in Sweden, how would you then do business?

First, we would analyze it. Take Jacobsen Dental as an example. Jacobsen Dental is in Norway and they had their own warehouse for one or two years. Then the manager at Jacobsen and I sat down and discussed how operations were done at Lifco. He decided, and it was approved, to move their warehouse to Sweden. They had their own ERP system. We started with a philosophy to have an integrator between the two systems. This is a good way to go because the sales organization stays in an environment they are familiar with. The two systems are defined. Information from one system to another can easily be directed. It's fairly simple to integrate two systems, as long as you know what information is sent and how to receive it in both ways. So the ERP systems mainly stay the same at the sales company, but the logistics are physically moved to the central warehouse.

But how do you integrate their ERP with your ERP?

There are products and contacts we use.

You brought in another solution to integrate them?

Yes, exactly. The company that delivered our system, IBS, had developed an integration platform, which they called Integrator. That was the first thing we started with because it was connected to our ERP system. But then, some guys from IBS started their own business and began to develop and modernize this integration platform. During my last four years there, we started to work closely with these guys with our new system.

Suppose you acquire a business like Jacobsen's. You move the warehouse, sell it, terminate the lease, and relocate the warehouse to Sweden under Lifco AB's management. How does centralized purchasing operate? As a sales company, I manage my own inventory based on what I'm selling. How would you manage my inventory? How would you determine what and how much to buy for me?

As a manager, it's crucial to rely on communication. If there are special campaigns, for instance, these need to be communicated so we can stock up if necessary.

Let's say, for instance, I say, I need you to purchase one million dentures for me in the next year.

We have a reliable forecasting tool in our system. I've spent a lot of time adjusting the parameters in the forecasting. I believe we didn't overstock, and we managed to meet the inventory demands. Of course, this also requires fine-tuning and an efficient purchasing department.

Was the purchasing department managed by you or someone else?

The department was under my supervision. It consisted of five people.

You were managing the warehouse and a purchasing department of five people. Did you have any other teams reporting to you?

Lifco Dental had a total of 50 employees.

50 employees, I see.

We had an IT department of four people, a purchasing department of five people, HR, finance, which handled the bookkeeping, and the rest were operational personnel in the warehouse, including a dedicated warehouse manager.

What were the finance people responsible for? Was it bookkeeping for the director?

They handled bookkeeping for Lifco Dental, for the warehouse.

What were the HR team's responsibilities?

They managed the salaries for the Swedish company, for Directa, Lifco Dental and Nordenta.

They were selling services to the operating companies?

Yes, we provided the Swedish companies, subsidiaries with salary services.

What would you charge for these services? For example, if I'm the director and I need HR to hire someone, would it be a cost-plus charge?

Yes, you could say that. It was part of the monthly cost and was paid through the charge of how many order lines you used.

If you have Directa, DAB and Nordenta, and they have a 33% split in the stocks of the products they sell, they would evenly split the fixed cost of HR. Even if they're not using any HR services, they would still have to share that cost?

Yes, that's correct. It was a one-person team.

Could you explain the change in inventory terms or inventory efficiency when Jacobsen's inventory management was transitioned to your team?

Jacobsen gained a couple of things from this transition. Firstly, they gained access to a wider product range than they had before. They also experienced a better service level, at least that's what they felt. We managed to deliver complete order lines more efficiently than Jacobsen could on their own. However, one area where we didn't improve was overnight delivery. Only a limited region of Oslo could receive overnight delivery. When they had their own warehouse, they were able to serve a larger part of Norway with overnight delivery, but this wasn't a deal-breaker.

Does Lifco provide these centralized services for other divisions, such as Industrial and System Solutions or Demolition Tools?

Each division was separate. The Demolition division, for example, had its own setup and sawmills, functioning as independent entities.

Does the Demolition business unit have a centralized warehouse that Lifco owns, or are they all standalone operating companies?

I haven't been involved in that, so I can't provide an accurate answer. However, I do know that Lifco has a system where all reporting from the separate divisions is set up in a group reporting system. This allows for results to be generated from the bottom up. This is quite efficient, as my old colleague developed this group reporting system. It only takes a few days for the entire group to be consolidated.

Given the dental division, it seems there have been synergies where you could procure all of the products they sell. Do they have a similar system in the System Solution side or Demolition Tool side? They seem to be very different segments compared to Dental.

Until 2015, we didn't discuss any kind of group benefits in that respect. I believe there is a significant difference in how the markets operate, making it difficult to transfer demands from the dental area to the industrial area.

I see, it's different.

Yes, I've experienced both worlds.

Did you also stock the Directa and dental OEM, the dental manufacturing products, in the Lifco warehouse?

Yes, the Directa items were also stored in a separate section of the warehouse. As I recall, they actually owned that part. So, it was in the same warehouse. We had one section defined as Directa. Lifco Dental, as a central warehouse, we placed orders to Directa and they were lifted 15 meters into the central warehouse. The remaining part was still a part of Directa, so they sold to other competitors and other parts of the world.

What are the challenges of centralizing these services in Lifco Dental? Given that Lifco Group claims to be very decentralized, this still involves centralizing services. How do you balance that?

The differences in rules can be challenging. Perhaps that was one of the reasons I decided to start my own business. When you have seven different sales-oriented managers each with their own unique demands, it's quite difficult to satisfy all of them completely. There's always a risk of criticism. It requires resilience.

Did the subsidiary managers appreciate your efforts to centralize their stock and manage their purchases, or were they occasionally upset?

Of course, they were upset at times, especially when there were issues with deliveries. I had a philosophy that didn't sit well with one of the sales managers. He was very keen on buying gray market products from Germany at a very low cost. The problem with these products is that there's no warranty if something goes wrong. This manager wanted the profit margin without the associated risk.

That's not how it works.

Aside from that, everything was generally okay.

How many subsidiaries were in the dental business when you left in 2015?

In Sweden, we had DAB Dental, Nordenta, Directa, and another IT company whose name I can't recall. There were a few manufacturers under Directa. In Norway and Denmark, we had two or three each. So, in the dental field, there were 15 different subsidiaries.

Who managed those? You were in charge of warehousing, but who was the head of Lifco Dental?

That would be Per Waldemarson.

What was it like working with him? Did you report to him?

Yes, I reported to Per. He was a good guy, very determined, and quite adept at analyzing situations. He had a challenging role because he had to manage so many different managers. It's not easy to keep track of 20 different subsidiaries.

He had 15 subsidiaries and 15 people reporting to him?

Yes, the entire dental division was reporting to Per at that time. He came from the demolition sector, but he didn't demolish anything, he built.

Each of the 15 subsidiary managers reported to Per. Did they report their financials annually, quarterly, or how did that work?

They submitted monthly reports, which were then consolidated at the group level. They kept a close eye on sales and monitored how things were developing.

On a subsidiary level, let's say I run the Jacobsen business and sell to Lifco. If I'm the director of the Jacobsen dental business, does Per cover my board? Or is there someone else on my board? How does that typically work?

The report is prepared and then sent by the bookkeeper at Jacobsen Dental to the CFO at the group level for consolidation.

And do I have a chairman of my board or do I have anyone who works with me?

Per is the chairman of the board in all different companies.

He's the chairman of all 15 dental companies, each with a subsidiary manager?

That's correct.

How were they incentivized? What were the targets for the subsidiaries? How were they set?

They were based on growth, I believe. Growth in EBITA, I think. The EBIT figures were quite important at the time.

In 2014, the dental business had a 13% EBITA margin. Last year it was 20%. How has the margin grown so much in the last 10 years? 

I'm not entirely sure, but it could be due to efficiency and cost management. I also think price management is a vital part. Lifco has never been known for high price competition. We sell at a certain level with a very high service level, and that comes with a price. It's a combination of factors. Within the Lifco Group, when you buy, you can add the margin from sales into the center.

Who is involved in M&A for Lifco Dental? Let's say you were going to buy another dental business. Per was head of Lifco Dental, you were in charge of warehousing, and there were 15 subsidiary managers. Who would be responsible for M&A?

A small staff group at the group level.

How would the subsidiaries get involved, given that they might know the market better?

They might suggest a company that they've seen at an exhibition or something similar. A lot of things happen at exhibitions. You can see different companies and assess their marketing, etc. Then you start to discuss. Fredrik Karlsson was interested in [Mieleweigant] in Germany for a long time. The owner of [Mieleweigant], a lady, wasn't prepared to sell. But when she finally decided to sell, Henry Schein bought it. However, Henry Schein was forced to sell due to a market situation in Germany.

They had too much market share?

They were too dominant.

What was it like to work with Fredrik?

I enjoyed it. He was very clear, sometimes impulsive, but once you got to know him, he was very straightforward. He had simple targets. He could analyze a balance sheet in seconds. You couldn't hide anything from him. As long as you were honest and didn't try to be too smart, it was very good. He was very much like me, actually.

Could you compare Fredrik's character to Per's?

As I mentioned earlier, I believe Per is perhaps a bit calmer than Fredrik. With Fredrik, it always seemed to be a competition.

Why is Fredrik so competitive? He often talks about sailing, and I believe he's quite a good sailor, correct?

Yes, indeed. My colleague Gunnar Samuelsson recently met Fredrik and mentioned that Fredrik, now realizing he's over 60, has decided that while he still enjoys competing, it's no longer necessary for him to win.

What do you think is the biggest risk to this model? These companies claim to be very decentralized, but when you delve deeper, there's always some level of centralization to drive synergies. Is this the same in Demolition Tools? In dental, it seems more centralized. How do you perceive the risk here?

I believe there's a significant level of centralization in terms of reporting structure and financial structure. It's rare to find a group this size that can finalize a report in such a short period of time. Financially, it's centralized, but the spirit remains decentralized. Lifco, for instance, tries to retain the manager or previous owner when they acquire a company, providing incentives for them to stay for a couple of years.

For two or three years, or how long exactly?

It varies, but if they stay and also build EBITA, thus contributing to growth, they receive a substantial incentive.

How many of them stay beyond that period?

There's no issue with staying longer. Once they've proven their loyalty, they often stay for many years.

What's the biggest risk?

This risk is if you lose your direction and try to be something else. The dedication of all managers in subsidiaries is crucial. Even though it's a large family, maintaining that family feeling is vital. Every manager contributes to the overall result.

Do you think they could lose that sense of family?

Possibly. If Per leaves and they can't find a suitable replacement, it could be a risk. However, I believe they would likely recruit internally to maintain continuity.

Per is quite young though, right?

Yes, Per is only in his 40s.

Thank you very much for your time.