Good morning, and warm welcome to the presentation of Investor's Interim Report for the second quarter and the first half of 2024. I'm joined here today by our CFO, Helena Saxon, and for the first time, by CEO, Christian Cederholm. Welcome to the both of you.
Thank you.
We'll hear the presentations from them in a minute, but first, a quick reminder of the opportunities to ask questions on this call. Either you go through the phone operator, Sonia, or online through the webcast. With that, over to you, Christian.
Thank you, Jacob, and welcome everyone. Good morning. So overall, performance in Q2 was strong. Our adjusted net asset value grew by 8%, and our total return was 9%, compared to 2% for SIXRX. Listed companies had a total return of 11%, and several of our largest holdings performed well. Good sales growth and good profit growth. Investments in EQT decreased in value due to EQT AB's share price performance. Significant investments were made in Q2, almost SEK 10 billion in total across all three business areas. Let me go through then each of the business areas. So, in total, net asset value amounted to SEK 969 billion by the end of the quarter, and listed, which represents 70% of that.
Here, total return was, as I said, strong, with a broad outperformance, not the least driven by the strong Q1 results. Ericsson has a world-leading technology and a strong market position. Its core mobile network business is profitable, and we believe the company is well-positioned to find new growth avenues. Based on this, we invested SEK 2.8 billion in the quarter. During this year's AGM season, we again continued to strengthen our boards with additional skills and competences. Moving over to Patricia Industries, which represents 20% of our portfolio. Total return was 2%, which was mainly driven by earnings growth. Our major subsidiaries grew organically by 7%, and adjusted earnings grew by 10%. It's great to see that we've had strong contribution from new innovative products in a number of companies. In terms of investments, this was a busy quarter.
As we flagged, there was a number of add-on acquisitions that closed. Sarnova and BraunAbility both made significant add-on investments, and I will come back to this in a minute. Let me highlight a few companies. Laborie continued to show good growth with significant contribution from Optilume. Continued investments in the organization, including for Optilume sales force, impacted the margins. Permobil had a strong quarter, with growth supported by several recently launched products. Margin expanded nicely as operating leverage compensated investments in the organization, as well as higher freight costs that we saw towards the end of the quarter. Piab currently faces some headwinds in demand, not the least within vacuum conveying, which declined in the quarter. Margins here were impacted by costs for strategic projects and continuing investments in the organization.
Atlas Antibodies, their sales remain at a low but stable level, not the least impacted by the biopharma end- market demand. Management has done a good job on the cost side to protect profit, and over time, returning to growth is, of course, key. Mölnlycke then, 8% organic growth and encouraging to see all business areas and regions contributing. The margin was largely unchanged. Underlying profitability was supported by sales growth and product mix, partly offset then by increased logistics cost also here. Wound care grew 8%, with good growth in all regions. Encouragingly, following a number of challenging quarters, gloves returned to growth, supported by slightly easing U.S. market environment and light comps last year. The previously communicated closing and relocation of production in Malaysia was successfully completed during the quarter.
After the end of the quarter, earlier this week, Mölnlycke announced a minority investment in a next generation enzymatic debridement company called MediWound. In total then, aggregated reported EBITDA run rate stands at SEK 15.8 billion at the end of Q2. So Q2 this year is our best quarter ever, beating with a slight margin, Q3 of last year in 2023, which also was a very strong quarter. So on add-on acquisitions, a key priority for in the Patricia Industries is to strengthen the companies through continued add-on acquisitions. This is as a complement to organic growth, and when well executed, it's a great way to add people, products, technologies, customers, et cetera, to strengthen the long-term development. During the quarter, Sarnova completed three significant add-on acquisitions.
First, it increased its ownership in Digitech, a provider of software and services for revenue cycle management to emergency medical services or EMS providers, basically ambulances to a large extent. It also acquired One Beat, which is a leading company for distribution and training in automated external defibrillator or AED AEDs. This will complement the current cardiac response business in a great way. Finally, it acquired QuadMed, which is a distributor of equipment and supplies for pre-hospital care, basically, again, ambulances. And this business will be part of the emergency preparedness or the Sarnova business. BraunAbility then acquired the remaining 49% of the wheelchair procurement solution company, Q'STRAINT. Braun made its first investment in this company in 2021, and the company has developed strongly under Braun's ownership.
All of these add-ons have been funded by the company's cash on hand and debt, so no contribution from Patricia or Investor. So add-on acquisition were high this quarter, and we had a little bit, as we flagged in Q1, a lot of closings happening in one quarter here. It's important to note that the companies and the team work continuously and consistently with scouting and executing on add-on acquisitions. However, as you can also see from this graph, the size and the number of closed acquisitions is inherently lumpy, and it will continue to be so over time. But the important thing, again, is we continue to work continuously with scouting and executing here. Investments in EQT, our third business area, make up about 10% of the portfolio.
Here, the development was a - 4%, which is driven entirely by negative return in the listed EQT AB share, while the fund performance was more or less flat in the quarter. Please remember here that the fund values are reported with a one-quarter lag. Investment activity remained on a good level, and net cash flow to Investor in the quarter was close to zero, again, on a net basis. We believe that EQT continues to generate attractive investment opportunities and, over time, cash flow to Investor. Finally, our priorities remain the same. Focus continues to be on performance, both here and now, and investments to future-proof the businesses. We will continue using our financial strength to capture accretive investment opportunities as they arise, but we are picky, and we are in no stress.
Let me now hand over to Helena, who will give you some more color on the business and the financials.
Thank you, Christian. Let's move over to the financials then. As you have seen many times before, this graph shows the strong development of our net asset value over time, and we landed the quarter at an all-time high of SEK 969 billion, as Christian mentioned. This equals 20% average annual growth with dividend added back over the last five years, and this, of course, compares favorably to SIXRX 13%. Looking at the total return by business area, the three business areas developed quite differently in the quarter. Listed companies up 11%, Patricia up 2%, and EQT -4%. But looking at the year-to-date development, we can see that all three business areas developed positively, and contributed to a total return of 0.20%.
Looking more closely at the listed companies, Christian already mentioned that there was strong development from a number of the companies, not the least based on Q1 reporting. We can see that the 11% return significantly outperforms SIXRX. I want to highlight that Wärtsilä, ABB, and Ericsson had a very strong performance in this quarter. Looking at the absolute terms of NAV contribution, we can see that the larger companies in the portfolio, of course, contributed the most in the quarter, ABB, Atlas Copco, and AstraZeneca. Moving over to Patricia Industries, 2% increase from SEK 214 billion, including cash, to SEK 219 billion, including cash. We can see that there was a positive development on the earnings side, but this was mitigated by a multiple contraction and negative FX effects.
So this is mainly translation effects. This graph shows the change in estimated market values in the quarter, split by company, and we can see that many of the subsidiaries had a positive development, despite the multiple contraction in the FX, which is very positive. And we can also see here that two of the companies made significant distributions to Patricia Industries, EUR 200 million from Mölnlycke in the quarter, and SEK 600 million from Permobil. We are, of course, always working on ensuring that we have the financial strength to maximize investment capacity. And, the treasury team has actively managed our balance sheet and made sure that we have very long tenure debt, and the average maturity is more than 10 years, and we have no maturities to take care of until the end of the decade.
Our leverage is at the low end of the target range of 1.4%, and our ratings, from the credit ratings from the main credit rating agencies remain very strong. On this last slide, we see the performance, over the short and long term, and we can see that the Investor share, has not only managed to beat our return requirement, of 8%-9%, which is the dotted line, but also managed to beat SIXRX, in both the short and the long term. On that positive note, I hand back to you, Jacob. Welcome back to us.
Thank you very much, Helena. Thank you, Christian, as well. We are now ready to take your questions, and we will start with questions through our operator. Sonia, over to you.
Thank you. To ask a question, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. Please wait for your name to be announced. To withdraw your question, please press star one one again. We will now take our first question. Please stand by. The first question comes from the line of David Johansson from Nordea Markets. Please go ahead, your line is now open.
Hello, good morning. Thank you for taking my questions. So maybe start, to start off on Mölnlycke. It's good to finally see an acquisition in wound care and also another solid quarter in terms of growth. But just to expand on the margin a bit, I would guess maybe that you're perhaps not fully satisfied with the margin, given the high organic growth. So is it still that you are investing a lot in growth areas, as it or is it more that sort of inflationary pressure in the organization? And perhaps also, if you could expand on the gross margin, how it has developed over this period as well. I think that could be helpful. Yeah, I'll stop there for my first one. Thank you.
Thank you for the question. I would say it's a little bit of both. So, underlying, of course, with the high gross margin profile, sales growth tends to generate some operating leverage. But we have chosen to invest quite heavily in the organization, not the least to drive growth. And, on top of that, we of course see some inflationary pressures. I mentioned logistics costs, which we in several companies saw ticking up, not the least towards the end of the quarter.
Okay, great. Then if I could follow up on Laborie. Another strong result from Optilume. Could you elaborate a bit more on the drivers for this business? And in terms of investments that you are making, could you perhaps expand on the impact to the margin that you were referring to, and if this is something you expect to continue, say, for the remainder of the year? Thank you.
Okay, thank you. So, in terms of the margin impact and the investment, yes, we think this will continue for some time. Starting with your second question. And then, as for Optilume and the growth, it's great to see that that was a very significant contributor to Laborie's growth in this quarter. We have two Optilume products, as you know. One is for urethral strictures, and that is still the one that is. I t's most developed and is the largest contributor in terms of sales. And then more recently, they launched the BPH version application of Optilume. Same technology, but another application, and that, too, is seeing a good initial pickup and reception in the market, which is really good.
But of course, this is a long game. We're bringing to market a significant new technology and we don't expect it to happen overnight, but we think we have a great product, and we will continue pushing it.
Okay, that's great. And then I also wanted to follow up on Atlas Antibodies. Obviously, a very small investment, but we have seen this kind of turning more sour with evitria for some time now. So if you could elaborate a bit more on the results, I think that could be helpful, particularly the evitria business. And I know that you don't like to make forward-stating comments, but if you could say that the business is at least bottoming out now or starting to at least, I think that could be helpful. Thank you.
Thank you. I wish we could make forward-looking statement, but we don't always know the future, as you know. But if I talk about what we know, we see a business that, to your point, has seen a quite significant demand drop, driven not the least by the biopharma customers that have invested less in R&D. And exactly as you say, the evitria part of the business is the one most exposed to that drop. Management has done a very good job with protecting profit, working on the cost side here, as we've seen this drop. And as we state, of course, longer term, we need to return to growth, that is the key, the key value driver.
And I can only say, I think that the, in terms of the drop, it started basically around this time of last year and has continued. And then on a sequential level, we've seen it relatively more stable in recent quarters.
Okay. That's great. Thank you. That was all for me.
Thank you. We will now take our next question. The next question comes from the line of Linus Sigurdsson from DNB Markets. Please go ahead. Your line is now open.
Okay. Thank you, and good morning. Thinking about the add-on acquisitions that you did in the quarter in Sarnova and BraunAbility, is there anything you can say about how they affect your outlook for the respective companies? Is there any sort of near-term addition to sales, earnings, or is this more a long-term addition? Thank you.
Thank you for the question. And on Q'STRAINT and on Digitech, it's important to note that since we have acquired and made the first investment in those companies in 2021 for Q'STRAINT, in 2020 for Digitech, and since then have owned the majority of the shares, the sales and EBITDA have been consolidated since then. Helena, anything else to add there?
Not see an immediate effect of these two acquisitions. Longer term, however, it's contributing to the overall development of these companies, of course.
Yes. And with the increased ownership, it will of course own, t hese units or businesses will of course be even more closely integrated in Sarnova and BraunAbility, respectively.
Mm.
Good point.
Okay, thanks. And then I understand it's difficult to be sort of specific here, but given the recent quite sizable investment in Ericsson, I mean, on a general level, should we interpret this that there will be more investment into the listed portfolio going forward?
I can start. I think that we have been making investments into listed companies consistently. If we go back to 2000 or from 2015, we've invested on average SEK 2.6 billion each year in listed companies. So, we don't see this as a change in trend or change in direction, and we continue to remain open for, and we think that over time, we will see good opportunities to invest across all three business areas, really.
Sometimes we highlight that some of the companies, we cannot buy more shares because we already have a very high ownership shares, share of those companies. It would trigger takeover. And we have also highlighted the good returns we've had on those investments in the listed companies.
Okay, thanks for taking my questions.
Thank you. We will now take the next question. The next question comes from the line of Derek Laliberté from ABG Sundal Collier. Please go ahead. Your line is now open.
Okay, thank you, and good morning. I have a few questions on Mölnlycke. First off, I was wondering about, y ou mentioned that all regions contributed to growth there. I was wondering what you're seeing in the Chinese market specifically, as had some other players involved in wound care that are seeing some weakness currently. Thank you.
Thank you. We generally don't go into that level of detail, but I think in China, no one is totally immune to the slower market. But we have generally and over time seen good traction, not the least in the wound care business. I think I will stop there.
Okay. Well, that's helpful, and on the U.S. market here for Mölnlycke, this proposed tariffs on Chinese medtech products, including surgical gloves, which you sell, how do you think this potentially could affect Mölnlycke going forward? Any thoughts around that?
Yeah. I think if you take gloves in the U.S., and think about the segments, we are, Mölnlycke is primarily in the high-end surgical gloves segment of the market. And there, competition is not primarily from Chinese players, but more from the likes of Ansell and so on. So I think that we'll see how it plays out, but we don't anticipate a very significant change to that dynamic.
Okay. And on that topic, I just wanted to make sure on this, I mean, you have reimbursement levels of skin grafts in the U.S. being changed. I don't think you have any exposure to that really. Is that the correct assessment?
That is correct, yes.
Okay, great. And finally, on the MediWound acquisition that you mentioned here. I mean, from your perspective, what is the rationale behind this? Is it a sort of an attempt to move into more even higher margin business and boost growth within the wound care segment or any comments on that, please?
Well, if I start with the MediWound as such, it is basically what they have is an enzymatic product or solution for debridement of wounds. They have one product that is out and sold already that is primarily used for burns. And they have a clinical study running for a more broader application of the same or very similar solution, basically. And I think you can see this as a complement to organic or in-house R&D. And we think that no matter how big or good we are, it's very unlikely that all good innovation will come from inside.
And so therefore, we are generally open, including in Mölnlycke to partnerships like this or sometimes outright acquisitions to bolster innovation further. And I think Optilume is another good example of that. Want to add anything on that?
No, it's a good description.
Yeah, that's extremely helpful. Okay, that was all for me. Thanks.
Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. We will now take our next question. Please stand by. From the line of Oskar Lindström from Danske Bank. Please go ahead. Your line is now open.
Yes. Good morning. Thank you. Oskar Lindström from Danske Bank. Two questions from my side. First one is just on your acquisition in or your purchase in Ericsson. I think you listed the reasons for your investment, but I didn't quite catch them. And if you could perhaps go into a little bit more detail about the reasons or reasoning behind that investment. And then my second question is also on Mölnlycke. I mean, we've been seeing quite high growth, and you say that you're investing in continued growth. How sustainable is this level of growth? Because I imagine you must be taking market shares or growing in new segments. So, is this a sort of reasonable level going forward or something that you believe is more temporary?
Also on Mölnlycke there, you know, how are your competitors reacting to, well, if it is the case that you do take market share? So two questions, Ericsson and Mölnlycke. Hello? I'm unable to hear you.
But if you could please repeat your question, we can hear you now, and, then we'll be able to start. So go ahead, please.
Yeah. So two questions. The first one is on your investment in Ericsson. You listed initially, you know, some of the reasons for that investment, but could you go into a bit more detail on that? So that is my first question. My second question is also on Mölnlycke. Given that you, you've seen quite high organic growth amount for a couple of quarters, and you say that you're investing in continued growth, yeah, how sustainable is this level of growth? Because I imagine you must be taking market share, and if that is the case, how are your competitors reacting? So those are the two questions.
Okay, thank you for the questions. Let's start with Ericsson. As we said, we see that the company has world-leading technology and very strong market shares. The core mobile network business is profitable, and we think that the company is in a good position to find several new growth avenues over time. And that is really the essence of how we see the situation and why we invested. And in terms of growth avenues, then if you ask for a little bit more detail, there are, of course, a couple of areas that stand out.
One is the enterprise part, and another one is now using the platform that was acquired with Vonage to grow the, call it, the network API business. And it's early days, but the important thing here is what management in the company can do with this. And then on the continued growth in Mölnlycke, your question was basically if it's sustainable, and we'll see. We continue to invest behind further growth, as you say. And we think that we have world-leading products, including in wound care, and we continue to see high demand from that.
Of course, there's been lots of, call it volatility or increased volatility around COVID, with first the drop and then the bounce and whatnot. So I think no one really knows exactly what, where the long-term level of demand is. But we continue to work with both our existing products and really getting them out. We think they're great. And to the previous question, a little bit and comment on innovation, we're always paranoid and want to make sure that we continue to lead also on innovation.
Okay, thank you.
Thank you.
Thank you, Oskar. Are you back, Sonia?
There are no further audio questions. If you would like to proceed with the webcast questions.
Thank you very much. We have a few questions coming in from the webcast. [Maikel Gielkens] has three questions. I'll take them one by one. And first of all, good luck to Mr. Cederholm in his new role as CEO. In your letter to shareholders, you mentioned that you will also work with your own portfolio composition over time. As your background is from Patricia Industries, can we expect that Investor will focus more on its portfolio of unlisted companies to allocate capital?
Thank you for the question and for the good luck wish. That's not how one should read it. What we mean with portfolio composition is that we want to make sure that our companies and our portfolio is exposed to structural beneficial long-term growth trends, really, so that we are in areas where we see good prospects for future profitable growth. And that can, of course, be done and should be done in each company, managing the portfolio, but also on an investor level. And I do think, to your point, that the building of, for example, the MedTech and life science vertical and franchise in Patricia Industries is a good example of such a portfolio development.
That said, as we go forward, we see good opportunity to continue investing across all three business areas.
Good. Second, second question from [Maikel Gielkens]: Based on the report, it seems Investor AB has sold 226,804 shares from Husqvarna. Can you comment on this, please? Maybe you wanna take that one.
Yes. It's a good observation, so read the table carefully. But if you re-read a little bit further on in the report, you can see that it's related to the options program that we try to use, when possible, to incentivize chair in our board. And here, a chair has exercised their options, and we have sold shares to him.
Thank you. And the last question, the most recent share purchase is in the listed portfolio have been at quite attractive moment in time. In hindsight, this is the second time you've bought Ericsson, and previously you bought Atlas Copco as well. You seem to have a knack for timing the market. Can you give us, as investors, an insight into your secret sauce?
Thank you. I think. Thank you for the question. I think the key here lies in the word hindsight, as you mentioned yourself. In hindsight, everything is easy. I do not think that we have a more clear crystal ball than anyone else in terms of macro environment or stock market development. Our approach to investment is to find attractive companies in attractive industries with, as I said, structural long-term growth trends, and with a leading position in those industries and niches. Valuation-wise, we have a fundamental approach, so we have our DCF, and we have our base case, and you know, sometimes it works, and sometimes it doesn't.
But I think over time, if we, if we follow that logic, it, it should, pay off. Lena, what do you?
No, I, I think, the timing is always difficult, but we are quite fundamental when it comes to valuation. And every business team, they have their own DCF and very, very clear on what the value of each share should be. So we never buy anything that looks overvalued in those, DCF models.
There are a couple of more questions. These come from [Marcus Otterham]. First one, what's the long-term revenue growth target for Patricia Industries in general? And the second one is, will you start reporting the CapEx just for Patricia Industries?
CapEx for Patricia Industries as a whole, I think every company in the portfolio is reported very carefully in Patricia section, and you can see exactly what kind of cash flow they've had in the quarter. So I think aggregating that, maybe it will add some value. We'll have to think about that, but, I think you will find the numbers on each company level.
And the growth target for Patricia. Will there be a single growth target for Patricia, or can you explain that?
No, we don't provide that. We work on driving a profitable growth in each of the companies, then we aggregate.
Good. I can't see any further questions, so that means it's time to conclude this webcast. Many thanks to Helena. Many thanks to you, Christian. Next scheduled call is the Q3 results on the October 17th. And until then, we wish you a good summer. Thank you, and goodbye.
Thank you.