IVSBF - Investor AB (publ) (IVSXF) Q2 2023 Earnings Call Transcript
2023-07-17 10:18:06 ET
Investor AB (publ) (IVSXF)
Q2 2023 Earnings Call Transcript
July 14, 2023 07:00 AM ET
Company Participants
Viveka Hirdman-Ryrberg - Head of Corporate Communication and Sustainability
Johan Forssell - CEO
Helena Saxon - CFO
Conference Call Participants
Joachim Gunell - DNB Markets
Derek Laliberte - ABG Sundal Collier
Oskar Lindstrom - Danske Bank
Presentation
Viveka Hirdman-Ryrberg
Hello, and welcome to Investor's Q2 Results Presentation. As usual, we will start off with our CEO, Johan Forssell, presenting the results and also followed by our CFO, Helena Saxon, and then we will welcome you to a Q&A session. We will start, as usual, with questions over the phone, and we will have our facilitator, Sharon, helping us out with that and then we will take some questions over the web as well.
And by that, welcome once again. And Johan, please.
Johan Forssell
Thank you, Viveka, and also from me, warmly welcome to this presentation. If I start with a short summary, we had a very strong performance in the second quarter. Actually, we recorded a highest net asset value ever at SEK773 billion. We thought that the listed companies outperformed the Swedish stock market and the subsidiaries within Patricia Industries reported very strong performance with double-digit organic sales growth and also sharply rising profit. And, gladly, I have to say is that, after a couple of weak quarters we saw that cash flow conversion came back to more normal levels.
However, the macro outlook remains uncertain. We see that even though inflation is coming back around the world, it's still on a high level, forcing Central Banks to increase interest rates, which, of course, continue to put pressure on the consumer. In addition to that, of course, we have a pretty tough geopolitical situation, not the least between China and the US, and there is also more and more debate to what -- when it comes to the strings of the recovery in China after the pandemic. So, there is clearly a lot of uncertainties out there.
On the other hand, we continue -- on a positive note, we continue to see that the supply chains are improving, and we are also seeing, for a number of the industries, significant investments related to mega trends, climate change and digitalization. And due to this geopolitical situation, we are also seeing more investments regionally to increase the resilience in the company, so there are plus and minuses. In this environment, we continue, which is key for us, make sure we have high flexibility in our companies and that we can act swiftly to changes in the environment around us.
If I then move over to the quarterly figures, you can see that our net asset value was up 9% in the quarter. Our TSR was up 6%, both outperforming the Swedish stock market that was up 2%. And if we look during the first half of the year, you can see that both our net asset value and TSR had grown some 16% and 17% compared to the stock market up 11%.
A few words about the Listed Companies. Sharp outperformance in the quarter, 9% compared to the stock market being up 2%. The key reason here is the two -- our two biggest companies. Atlas Copco and ABB representing 45% of the Listed portfolio, they were up 18%, 19% in the quarter, so that, of course, clearly helped the performance. We also divested nearly 30% of our holding in Accelleron for about SEK1 billion.
Moving over to Patricia Industries, very strong performance. Total return amounted to 11% in the quarter and that actually means that the total return year-to-date is 25%. If we look on the operational development, strong development, sales growth of 22%, of which 13% organically in constant currency and the profit growth was strong at 34%.
Vectura divested its portfolio consisting of elderly care properties, which is almost half of the property value in Vectura and that is in line with the company's new strategic focus on developing real estate for innovation clusters. It is clusters like Forskaren in Stockholm and GoCo in Gothenburg. And I think this is important, because these innovation clusters are not doing attractive opportunities in itself, it also creates synergies with other companies in our portfolio. For example, AstraZeneca, Molnlycke, and Atlas Antibodies.
Here, you can see the development in Patricia Industries. As you can see, we are now running on a 12-month rolling basis at the level of SEK60 billion in sales and an EBITDA of SEK14 billion and you can see here that it was really a record quarter. If we look forward, one should remember that the third quarter last year, as you can see here, was a very strong quarter, while the fourth quarter last year was a weaker quarter due to the fact that Molnlycke's profitability was below normal levels in the fourth quarter last year. So this will, of course, impact the year-over-year gross figures in the third quarter and the fourth quarter.
If I then look on the operational performance in the companies, we saw a strong and good organic growth in many companies. All companies grew organically, except Advanced Instruments and Atlas Antibodies. And these two companies continue to be affected by soft development from the biopharma sector. That is the key reason. But other than that, strong development and also, as you can see to the right in the picture, all the other six companies actually recorded very good operational performance in terms of profitability.
A few words then on Molnlycke, it continued good quarter with organic sales of 6% in constant currency and we also saw margin improving year-over-year and that was driven by both the sales growth and also lower logistic cost, and this was partly offset by investment in R&D and the sales force, as well as that in the margin there was actually negative currency impact in the quarter. Also, for Molnlycke, the cash conversion improved significantly compared to last year.
It's great to see that wound care continue to perform strongly with an organic sales growth of 8%. It's actually a broad demand improvement, even though APAC showed the strongest growth. And to further support growth going forward, investments are being made in the key factory in Mikkeli in Finland and investment will also be made in localized China manufacturing, so we're investing, continue to invest behind the strong growth we see.
Operating room solutions also had a good performance with organic growth of 10%. It's driven by increased elective surgery activity, price increases, and also improved mix. And from a product perspective trays is really driving it. Gloves actually saw lower sales than last year, organically minus 6% in the quarter. And the key reason here is the US market, where distributors are reducing excess inventory that has been built-up during the second half of 2022 and we expect that we will probably see challenges also in the third quarter, but let's see how it plays out.
Moving down to equity. The total return was 3% and we had a positive cash flow of SEK0.5 billion in the quarter. If we look on the Listed Company, Equity AB, the total return was almost flat while the fund investments were up 8%, of which, about half is currency related.
So, in summary, strong performance during the second quarter, record net asset value, strong outperformance in the Listed Companies, double-digit organic sales growth in Patricia combined with sharply rising profits. If we look forward, we will continue all the efforts we are doing to make sure that our companies come out stronger compared to competition, its investment in R&D, investment in sales force, and we are clearly trying to drive improvements related to the mega trends we see out there. I think, we are well prepared. We have a strong portfolio companies with strong market positions, high profitability and cash flow, but I think also that we and our companies are ready both for upsides and potential downside should they come.
So, with that, I will hand over to Helena.
Helena Saxon
Thank you, Johan. Let's have a look at our net asset value development over a little longer period. We can see that we landed the quarter at a record level of SEK773 billion, and this means a 16% average annual growth with a dividend added back for the last five years and, of course, that compares favorably to SIXRX, 11%. And, as Johan already described, there was a little bit of a mix in the portfolio, the three business areas developed differently, but all in all 9% in Listed, 11% in Patricia, 3% in equity, and that is a total then of 9% for the quarter.
Looking at Listed Companies, almost 70% of the portfolio, SEK546 billion, Johan explained that a couple of companies contributed the most and this slide shows in absolute terms that Atlas Copco and ABB had a stellar performance and in absolute terms they contributed almost SEK20 billion and SEK18 billion in the quarter, respectively, and TSR of 9% is then outperforming SIXRX, 2%.
Moving over to Patricia, 22% of the portfolio and as much as SEK173 billion at the end of the quarter. The main drivers in the quarter were earnings, currency, multiple-end cash flows, or tailwinds from all of this this quarter. And excluding cash flow development -- or including cash flow development of 10% compared to the 11% mentioned. And looking at the sequential development of estimated market values during the quarter, we can see here by a company that five of the companies contributed significantly in the quarter, which is, of course, very positive. Molnlycke has the largest company in the portfolio, of course, in absolute term contributed the most. And here we see all four factors that I mentioned on the last page contributing positively, but earnings and currency being the main drivers of the value there.
Moving over to Vectura. In this graph, maybe not so interesting from a value perspective. We know that there were a couple of contradicting factors in the quarter, resulting in a net development of roughly flat from a value perspective, but here I want to flag that we are planning capital contribution of SEK3.5 billion in the quarter, in the quarters to come, i.e., Q3, and this is -- as Johan mentioned before, the company is going through a strategic change and divesting its community services, properties and now focusing more on developing innovation clusters, building property for innovation clusters and, therefore, in this transition, we're contributing capital.
Some of the larger projects in that new strategic portfolio is entering an intensive phase, but it's also true that a couple of the larger ones, Forskaren, for example, in Solna and GoCo in Moelndal are all expected -- are both expected to generate cash flow over next year as they are close to completion and almost fully rented. When the community services transaction closes in Q1 next year, we expect to be repaid a majority of the capital contribution. And from an investment in Patricia point of view, with a strong balance sheet we have, we believe this is the most efficient financial solution to support Vectura in this strategic transition.
Talking about our strong balance sheet and the financial position, we can see that our leverage ended the quarter at 1.7%. And here, at my final slide and also the final slide of this presentation, we can see that the performance of the Investor share has been strong, not only in the long-term, short-term, and medium term, but we have also managed to achieve our internal return requirement for all these periods.
So, with that, I will hand over to Viveka for the Q&A session.
Viveka Hirdman-Ryrberg
Thank you, Helena, and Johan. We are now open to take questions. And I will hand over to our operator or facilitator, who will start off by moderating or handling the questions over the phone. So, over to you, Sharon.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And your first question comes from the line of Joachim Gunell from DNB Markets. Please go ahead.
Joachim Gunell
Thank you very much, and good afternoon. So, starting off with the divestment of Accelleron shares and perhaps also the timing and how you think about the -- what role that holding place as a core listed holding over the coming years?
Johan Forssell
Okay. Thank you, Joachim for the question. We divested shares during the second quarter. We went from about 14% ownership to just above 10%. We have flagged off the debt that we have gone just below 10%. We have said all the way that we will do -- when it comes to the ownership in Accelleron that we will do what we believe will maximize the value for our shareholders, and that is the comment that I will continue to make. So, let's see what happens.
Joachim Gunell
Understood. And since you very seldom comment about or make any, call it, forward-looking statements, you mentioned here, Johan, that we should bear in mind that Q3 will face a rather challenging year-over-year comparison. Is there anything that you can tell us about, call it, operating environment today versus, say, 2019, days ago that is adding to this more cautious view or are there any, call it, other drivers that make you actually accentuate this tougher comparison?
Johan Forssell
No. That is nothing that I have seen in the stock in the first weeks of this quarter. The only reason why I wanted to mention it is that normally for Patricia, there has been some changes due to the pandemic and so forth, but normally the fourth quarter is a strong quarter for Patricia. And as you can see last year, the third quarter was very strong, while the fourth quarter was actually relatively weaker. So, I just wanted to pinpoint that when people like you make your forecast that the comparison base are very high in the third quarter last year and weak actually in the fourth quarter, but that has nothing to do with what I see in the demand situation at the moment.
Joachim Gunell
That's very clear. That's all for me for now. Have a great summer. Thank you.
Johan Forssell
Thank you.
Operator
Thank you. We will now go to next question. And your next question comes from the line of Derek Laliberte from ABG Sundal Collier. Please go ahead.
Derek Laliberte
Okay. Thank you very much, and then hello all. I wanted to ask, Johan, Molnlycke, you mentioned that the wound care segment that APAC showed the strongest growth. Was this also the case last quarter? And is the China's reopening boosting this time a meaningful degree?
Johan Forssell
The development between the quarters in the different geographical regions can always vary a bit and I actually don't recall exactly whether APAC was higher or lower in the first quarter compared to this one, but it was a strong quarter in the first quarter and the growth in China for Molnlycke in the second quarter was very strong.
Derek Laliberte
Okay. Sounds good. And, also, in Molnlycke, you had some negative effects from destocking in gloves and the supply chain issues in antiseptic. You mentioned that the gloves should improve at least after Q3, you can't say anything about whether the supply chain issues in antiseptics are being alleviated or what to expect over the coming quarters?
Johan Forssell
Yes. If you go back a bit a couple of quarters, actually Molnlycke had challenges when it comes to supply chain, both in the US and Europe when it comes to the antiseptics business. Now, the situation is much, much better in the US and management is working heavily on improving the situation also in Europe side. I hope that this will improve going forward. But the exact timing, I will -- we will have to see how fast, but they are working hard on it.
Derek Laliberte
Okay. Thanks for that. Very clear. That's all I have right now. Have a great summer. And keep up the good work. Thanks.
Johan Forssell
Thank you. Same to you.
Operator
Thank you. We will now go to our next question. And your next question comes from the line of Oskar Lindstrom from Danske Bank. Please go ahead.
Oskar Lindstrom
Yes. Good afternoon. A couple of questions still for me. The first one is just on the Vectura capital contribution. When did you say you expected to get repaid this money and what share? So, that's my first question. Should I go ahead with the other two questions?
Johan Forssell
Let me -- I can take that rather quickly. And the plan is to inject about SEK3.5 billion and we expect to take back most of that in the first quarter next year when we get the proceeds from the divestments of the elderly care properties. The remaining part, we expect to get back later when the rents start to kick-in in the innovation clusters of Forskaren and GoCo. So, it is -- for us, it's actually a very financially efficient way of doing this bridge financing instead of paying too high rates and fees to banks.
Oskar Lindstrom
Right. Thank you. I understand. And that brings me to my second question, which is the topic of acquisitions, which you've talked about on and off recently that you would like to sort of make a more substantial addition to your unlisted holdings. And I'm wondering a little bit about the sort of macro -- uncertain macro environment. Is that sort of creating more opportunities for acquisitions, or is it actually making owners less willing to divest? And what's your feeling here? And, also, on this topic, I mean, have the private prices come down towards the public market prices, or are they still substantially higher than the expectations?
Johan Forssell
Thank you. I mean, it's a very difficult question to answer. But, I think, the way I would say is that, our focus is, number one, to try -- try to find the right segments within our prioritized industries. Secondly, find good leading players there. And then, of course, the second questions to your -- second part of your question is, it takes two to tango, and we are working on it. And I've said it before and I continue to say it, we have a good pipeline, we are working on it and let's see how many of that will really kick-in.
Oskar Lindstrom
Right. Thank you. And then my third and final question is more of a detailed one on Molnlycke and the Malaysian factory. Was that sort of operating at full in Q2, or is there sort of further positive net impact during H2 from ramping up that factory?
Johan Forssell
I would say like this, when it comes to the factory in Malaysia, we have seen a gradual improvement in the utilization of that factory, but it's still not at, call it, top maximum level. But, in the quarter, the key problem from a sales point of view was actually the demand situation in the US, which was negatively impacted by destocking among the distributors, that was the key effect in the second quarter, not the factory.
Oskar Lindstrom
Right. Thank you very much.
Johan Forssell
Thank you.
Operator
Thank you. [Operator Instructions] We will now go to your next question. And your next question comes from the line of [Juno Engellan Richuitti] (ph) from Handelsbanken. Please go ahead.
Unidentified Participant
Thanks for taking our questions. Just wondering a bit on the supply chain side, which you are mentioning seeing -- that you see continue easing, how much do you feel that you have left in further recruitment from -- for further supply chain improvements?
Johan Forssell
Hi. It's an important question that you've raised. I would rather say like this, that for some companies that there are certain product groups that are still being hit by supply chain challenges, while others might have a much easier situation. So, it's very company dependent.
If I give you a few examples, I mean, we talked about the antiseptics in Molnlycke previously. Another example is that, in Laborie, the urology equipment part have a number of components where we see continued challenges to get them in time. While in other companies like Permobil, we have seen a much, much better supply chain. So, it differs a little bit between products and thereby which components you need. And also, of course, which supplier base you have. And many companies are also working on redesigning certain products to be able to have more flexibility when it comes to [Technical Difficulty] mixed picture, but overall we see an improvement.
Unidentified Participant
Okay. Thank you. And maybe a bit on a similar note, the increased CapEx you feel is required, is that also a bit mixed or company-specific or do you see that, sort of, require basically across the board?
Johan Forssell
That comment is actually more from a macro perspective than -- we are not expecting -- it's not -- the comment on increased CapEx, it's not related to increased CapEx in our subsidiaries, it's more a comment on the global macro economy where we do see that due to the geopolitical situation, not the least between China and the US. Many global companies need to invest in, for example, the US right now to get more regional manufacturing and supplier base to increase the resilience, given the geopolitical situation. And on a global level, of course, that also leads to higher demand in CapEx. So, it is not related to the subs.
Unidentified Participant
Okay…
Johan Forssell
Even though they are also investing, of course.
Unidentified Participant
Yes, of course. Thank you. That's all for me.
Johan Forssell
Thank you.
Operator
Thank you. There are currently no further phone questions. I will hand the call back for the webcast questions.
Viveka Hirdman-Ryrberg
Thank you, Sharon. We have some questions over the web and let's take them one by one. From [indiscernible] we have a question on how do you explain the positive development recorded by Atlas Copco and ABB over the quarter?
Johan Forssell
Yes. I mean, of course, the strong performance relate to the excellent performance both had in the first quarter, but they delivered strong topline and also very good margins. So, I think, it was overall a good development.
Viveka Hirdman-Ryrberg
And then we have the second question from Michael [Gilkens] (ph) relating more to the macro. As we have seen several months of declining economic indicators, especially the manufacturing PMI, can you comment on the -- what if any impact you can see within the investor portfolio, either Listed or Patricia Industries?
Johan Forssell
No, I will not comment the Listed portfolio, given the fact that they are coming up with their 2Q report in the coming days and weeks. So I will refrain from that. When it comes to our companies in the Patricia portfolio, I can only conclude that for this not so far so good with the exception of capital equipment to the biopharma segment, where we have seen continued subdued demand also in this quarter.
Viveka Hirdman-Ryrberg
And then we had two questions from Samarth Agrawal. He starts up with congratulating on the results. But the questions are, first question is on the impact from China to your industrial portfolio, particularly as the economic data released today was weaker, what impact do you think would be around volumes and margins given muted stimulus expectations? Let's take that [indiscernible].
Johan Forssell
No, I think it's a very tricky question to answer, because the companies we have are being big in China, companies like Atlas Copco and ABB, but also AstraZeneca, and they are active in many different segments. Or the rule what we see is, to be honest, quite a mixed picture in China. You see certain sectors being tougher and certain sectors actually continue well. But I am, of course, watching closely and following, and our companies are to see to what extent the recovery will continue or if we will see a softening party in China, and of course what actions needed to be taken to make sure that materialize.
Viveka Hirdman-Ryrberg
Then we have a second question. It's relating to the margins within Patricia, where EBITDA margins improved 70 basis points Q-on-Q, is this largely driven by operating leverage given 5% to 6% increase in sales Q-on-Q or are there any other factors?
Johan Forssell
I would say there are if I would generalize it, because it differs between the different companies. It's definitely operating leverage. You saw the strong sales growth. Secondly, we have lower transportation cost, lower logistic cost, that is also broad-based phenomenon. And, thirdly, we have price increases filtering through.
Viveka Hirdman-Ryrberg
That were all the questions we had over the web. And if there are no more questions over the phone, we would like to thank you for today and we will be back in October with our Q3 results. Thank you for joining us today.
Johan Forssell
Okay. Thank you.
For further details see:
Investor AB (publ) (IVSXF) Q2 2023 Earnings Call Transcript