Hello, everyone. I'm Magnus Dalhammar, and I'm head of Investor Relations here at Investor. A warm welcome to you all to our capital markets update this afternoon. I'm standing here with Johan Forssell, our CEO, and Christian Cederholm, head of Patricia Industries. Johan, you actually announced in October that you will step down as CEO at our AGM in May, and Christian, this Monday, it was announced that you will take over. So before we start with today's agenda, I thought it would be interesting to hear a little bit more about this transition. So, Christian, I can't miss this chance to ask you the classic sports question: How does this feel? What are your first reflections?
Thank you for the question, Magnus.
You're welcome.
I am, first of all, super grateful for the trust shown here, and I'm very humble for the task at hand, and I am super excited. I've been with this company for 22 years, and I've come to really appreciate the people, the culture, the value, and not the least, the great portfolio of companies that we have. So, it was an opportunity that was hard to say no to.
Understand. In your words, how would you describe your leadership style?
It's always risky to assess yourself in that dimension, but I think for me, there are a couple of key ingredients, and it's really about delegating and giving people freedom, a clear target, and it's built on trust, right? So clear target and then empowering people and teams to run with it.
Okay, sounds good. The one question that I'm sure is on many people's minds right now is about our strategy. What are your view on our strategy? Are there any big shifts ahead, or should we expect more of the same, that you will stay the course?
Sorry if I disappoint you here, but, but the answer is no. I, I think it's clear that we are on a, on a journey now with a strategy that is, is, is working fine and serving us well. And, well, in fact, I've been part of, of shaping this as well in my role in the executive leadership team, so the answer is no.
Okay. Thank you for that, Christian. Now, Johan, you are gonna remain CEO until the AGM on May seventh, and how will you and Christian work during this period to ensure a smooth transition?
First of all, after having worked more than 20 years with Christian, I know I'm very confident that Christian will be a great CEO of Investor. But if we look forward now, of course, I have my responsibility up until the AGM in May, so I will focus 100% on that. At the same time, Christian has his responsibility as head of Patricia, so that will be a 100% focus up until the AGM. Having said that, of course, during this period, I will do my best to support Christian in this transition phase, and it goes without saying that if we do or contemplate doing significant investments, for example, I will, of course, consult Christian regarding these opportunities.
Well, great. Thanks to both of you. Now, let's start this capital markets update. We will start with strategy presentations by our CEO, Johan Forssell, and our CFO, Helena Saxon. Then Christian Cederholm will present Patricia Industries. After that, we'll have a Q&A session with both Johan, Helena, and Christian. And you can ask your questions online, and we'll answer as many of them as possible. And if you have a question that doesn't get answered, we will get back to you regarding that one afterwards. Following the Q&A session, there will be a short break, and after that, we'll move on with the CEO presentations, so you get to listen to interesting presentations by Mölnlycke, Piab, Laborie, and Advanced Instruments. There will, of course, be Q&A sessions for each company, so you get to ask the questions directly to them as well.
Once we're through with those, we will ask Johan back to join me for some key takeaways from the day. Our first speaker today is Johan Forssell, who will talk about strategy and engaged ownership. Over to you, Johan.
Thank you, Magnus. Our purpose is to create value for people and society by building strong and sustainable businesses. It's important to stress that for us, sustainability has two meanings. First, what we normally discuss, for example, related to climate change and so forth, but for us, it's also important that the profit and cash flow development is sustainable over time. We are not interested at all in cutting, for example, R&D to boost profitability short term. Our focus in developing strong company for the long term. When we invest in new companies, one of the first things we really try to understand is what is really the DNA of the company that we look into? So what is the DNA of Investor? We are a long-term engaged owner of great companies.
We have a buy-to-build strategy, and that means that if we look into a new investment opportunity, we actually think, is this a company we believe we would like to own in 50+ years? Our ambition is that our company should be best in class, and with that we mean they should outperform competition in terms of growth, profitability, quality, and sustainability. We always focus on what we believe is best for each individual company. They are in different phases, different industries. So for example, of course, the situations differ between companies like ABB, AstraZeneca, and SEB. We are truly a long-term owner of our companies, but we also need to make sure that we and our company always, every day, focus on improving the efficiency.
Perhaps this is one of our most important messages to our companies, that on the one hand, they need to invest behind important trends, like, for example, automation, electrification, demographics, climate change, and so forth. On the other hand, they need to work extremely hard on improving the efficiency. There is no contradiction between the two. Finally, our model builds on clear roles of responsibilities between us as an owner, the boards in our companies, and the management teams. This means that we do not take operational decisions in our companies. That's up for the management to take. This is, I think, one important part behind our historical good development. Even more important is to make sure we have great people at Investor and running our companies.
And I'm not exaggerating, if I say that I probably spend about one-third of my time on people-related questions, making sure we always have the best people running our companies. This is our life. These are the 24 companies where we are an engaged long-term owner. As of the third quarter, our total assets amounted to a little bit more than SEK 770 billion. As you can see, listed company represents about two-thirds of our assets, and here, the biggest companies are Atlas Copco, ABB, and AstraZeneca. Patricia Industries, slightly below a quarter of our total assets, and here, the biggest company is Mölnlycke Health Care. And finally, we have just below 10% of our investments in EQT.
Roughly 50% of that is our ownership in EQT AB, where we have close to 15% of ownership in the company, and about half of this is related to our investment in the funds. We have a great option, and that is that we at Investor can invest in EQT funds up to 3% in the new funds without paying carry. So normally, we try to take advantage of that. EQT has a very strong track record, have given us a good financial return, and of course, this having this carry fee is a big advantage. Over time, we have also received a good net cash flow from EQT. We have a clear strategy and a well-defined clear and well-defined strategy.
Our ultimate target is to generate an attractive total share of the return to our shareholders. Then we have three strategic priorities: grow Net Asset Value, pay a steadily rising dividend, and deliver on our ESG targets. Then we have our four operating priorities. That is the how. How should we reach our target and achieve our strategic priorities? And the most important one, of course, is that we are a good, engaged owner in our companies. Secondly, make sure we have an attractive portfolio. Thirdly, that we operate efficiently. We demand that our companies are efficient, and then we also need to be efficient at Investor. And finally, make sure we have a strong financial flexibility. Let me now quickly run through the development of our three strategic priorities.
Over the last five years, we have grown the Net Asset Value by 15% per year on average, and that is almost two times the development of the stock market that has been up about 8% per year during this period. We have delivered an annual growth in dividends per share of 10%, and we have delivered a steadily rising dividend in line with our strategy, with one exception, as you can see, and that is related to 2019. I should say that this is the dividend for the year 2019 that was paid out in 2020. The reason here, of course, was the outbreak of the pandemic, where many companies cut down on their dividends.
But let me be clear, our ambition and target going forward is to continue to deliver a steadily rising dividend to our shareholders. We have three prioritized areas when it comes to ESG: business, ethics, and governance, which of course, is very close to us as an engaged owner. Secondly, climate and resource efficiency, and finally, diversity and inclusion. I will not have time here and now to go through all this, but let me say a few words about the climate-related part. All our companies today have targets that are aligned with the Paris Agreement. When it comes to CO2 emissions from their own operation, what's normally called scope one and scope two, we have a target that from 2016 to 2030, that all our companies' absolute amounts of tons of CO2 should be reduced by 70%.
As you can see, we are already down by 57%, which is a good achievement, and here I can tell you that there are many activities going on in our companies, putting solar panels on the manufacturing plants, et cetera. But we also know that Scope three is even more important, and here we have a target that all our companies should have a specific target for Scope 3. And as you can see today, a little bit less than two-thirds of our company have a target related to Scope 3. I should stress that we do not say what the target should be, and the reason for that is that our companies operate in very different industries, different situations, so it's up to each board and management team to come up with the right targets.
But to give you an example, in Wärtsilä, for example, the target is to make sure that in 2030, the company has a portfolio of engines with ready with green fuels. If we succeed in growing the net asset value, developing the companies in a good way, pay a steadily rising dividend, and do all this in a sustainable way, of course, we should generate an attractive return to our shareholders. And this is the historical performance. We have a return requirement of 8%-9% per year. You can see the and that's the red dotted line. Our investors took the return per year is seen in the blue bars, and then we also compare with the Swedish stock market, which is, the gray bar on the slide.
As you can see, if we look on 1-year, 5-year, 10-year, or 20-year periods, we have exceeded not only our return requirement, but also the development on the Swedish stock market. So I think we have a clear strategy. We have been able to deliver on our strategic priorities and also delivered a good return to our shareholders. Our ambition, of course, is to continue this journey, and to succeed with that, we will focus heavily on our operating priorities. In my presentation, I will cover the two at the top, our role as an engaged owner, and also how we should make sure that we have an attractive portfolio.
Before I move into and go through a couple of things on engaged ownership, once again, I want to stress that the companies are different, they operate in different industries, so each value creation plan, of course, looks different. But there are a couple of topics that are important for most of our companies. One is to make sure we maximize the business opportunity within sustainability. Sustainability is for sure changing the world and the competitive landscape. And we, in our companies, they are making good progress in this area, and really incorporating, working in incorporating sustainability into their businesses, because that's the most important part. Let me here give you an example, and one of our companies in our portfolio, Atlas Copco.
What I think they have done successfully is identifying a couple of mega trends out in the world, for which they have a strong product offering and can supply both products and services. To give a few examples, wastewater, there will be a lot of cleaning of water, and they have low pressure compressors for that segment. We have solar power, which we all know will grow, and if you make solar panels, you need to have both compressed air, you need to have vacuum equipment, and so forth. On the slide, you see wind turbines. Atlas Copco is a leading player in tools that assemble these turbines. And then you have other examples, such as batteries, electric vehicles. For that segment, Atlas has a very broad offering from adhesives, riveting, tools, compressors, to machine vision.
Finally, digitalization will also have, it represents a huge opportunity for Atlas Copco, not the least within the vacuum business to the semi side. This is one example, and the reason why I bring it up is the way we look at it is that we want all our companies to identify the trends that can benefit them. It could be demographics, it can be geographic expansion, and so forth, and then try to find the product, services to reach that potential. Because it's not only about growing, you need to grow and be a leading player in that segment to do it in a profitable way. Another big opportunity, of course, is related to capturing the all the opportunities related to the rapid technology around the world, and not the least when it comes to AI.
We see many opportunities in this area, both when it comes to improving the operating efficiency in the companies, but also when it comes to bringing forward new customer solutions, and take a lead compared to competition. So what are we doing as an owner? Well, we are making sure that this topic is a priority in the board, in the boards of our companies. And we are also spending significant amount of time on reskilling. Reskilling, of course, at Investor, but also boards and managements in our companies. So let me give you a few examples of what we have done during the year. We have something we call share circles. We invite all the shares in our companies. On that meeting, the latest meeting, this was a key topic.
Recently, we had our network conference, which is a conference where we bring together some 150 top executives in our companies, and also there, technology was a key topic. Finally, technology has been a key priority in all our value creation plans during the year. Looking forward, there are many activities going on, not the least within generative AI, trying to find new use cases, use cases where you can hopefully get a rather quick payback so you can get a good buy-in in the organization. What will be important is that you have a very clear data strategy and a clear data infrastructure. Data will be key going forward. A third priority for us is to make sure we have the right corporate structures in our companies. We are a strong believer in decentralized organization with clear focus and clear responsibility.
We have had a number of companies that have done split, splits, for the biggest one being Epiroc out of Atlas. Another good example in this respect is the decentralization that has been very successful within ABB, and they have also divested a number of non-core operations. Final example could be Mölnlycke, that today have four dedicated business units with their own P&Ls. We are for sure living in a challenging geopolitical landscape. We know the tough situations or awful situations we have in Ukraine and the Middle East and so forth. From a business perspective, of course, there is an intense pressure between the US and China. So for the companies, China is probably one of the questions that are debated the most at the moment.
For the companies that are having a significant presence in China, I would summarize the strategy as engage and de-risk. Engage, because it's a huge market, more than 1.3 billion people, and also one should not forget that they are the technology leader in many important areas such as solar, batteries, EVs, and so forth. On the other hand, the companies must also de-risk, make sure that the supply chain is more regionalized. To be honest, this is not a quick fix. There are many things you need to consider. Do you have a strong supply base in another region? Of course, manufacturing, the economics around it, and so forth. So it's more a gradual process. In some companies, it might go a little bit faster, in some, a little bit slower.
But the important part, it's top on the agenda. Moving down to the other operating priority, which is to make sure we have an attractive portfolio. We are a long-term owner, but of course, from time to time, we might come to the conclusion that either we are not the right owner of a company, or we don't see the long-term potential. And in that case, we should, of course, try to find a better home for the company. Over the last couple of years, we have divested, for example, Aleris. Aleris is a company that runs hospitals and elderly care facilities. We came to the conclusion that while we are very strong in med tech and pharmaceuticals, we are not the best owner in running hospitals and elderly care. Another example is that we divested Grand Hotel.
Grand Hotel is a fantastic hotel, but we are not the best at running hotel operations. Instead, we have used the proceeds from a number of divestments and the cash flow generated to invest in high-quality companies within our prioritized areas. The two latest subsidiaries we have bought are Advanced Instruments and Piab. Advanced Instruments, a world-leading player within measurement instruments for the clinical and biopharma segments, and then Piab being a leader in suction cups for automation. Gladly, both of these companies will present during this capital markets update.
We are fortunate we have a portfolio with very strong companies, companies that have attractive long-term trend, trends behind them so they can grow, but also our companies, most of our companies have good profitability or very high profitability and are also capital light, so they generate a strong cash flow.... As you can see on the picture, the two largest segments is Industrial Technology and MedTech and Pharmaceuticals, each comprising about one-third of our total assets. Within Industrial Technology, Atlas Copco and ABB are the two largest, and within MedTech and Pharmaceutical, Mölnlycke Health Care and AstraZeneca are the two largest. So we have a great portfolio of companies, but the world is complex, fast-moving. In this situation, our focus is, number one, handle here and now. Make sure we have the flexibility and the agility, and we are prepared for whatever happens.
And secondly, make sure that our companies invest for the future behind the mega trends. That is our focus. Over to you, Magnus.
Thank you, Johan. Very interesting. So our strategy is intact, it's clear and well-defined, and we will continue to work hard to future-proof our companies. Our next speaker is our CFO, Helena Saxon. She will go through the financial parts of our strategy. So welcome, Helena, and the floor is yours.
Thank you, Magnus, and thank you for the opportunity to present the two remaining operating priorities. The first one being operate efficiently. It is, of course, super important for a company like Investor to operate efficiently, not the least, because we need to be disciplined with our costs, because that's what we demand from our companies. But from time to time, this is a difficult balancing act, because we also need to invest in the organization to build the resources to be a better engaged owner, but sometimes also into systems to automate and make financial processes more scalable.
I think we have been quite good at this balance, and our track record is pretty good, because as assets have grown, and we have added several new subsidiaries that we consolidate every quarter, we still haven't grown costs as much. We've had a moderate growth of our cost base. Comparing it to the net asset value, you can see here on this slide that our management cost of roughly SEK 600 million is only ten basis points compared to the net asset value, which is, of course, very competitive. Moving over to the next operating priority, which is to maintain financial flexibility, you might ask, what do we mean by financial flexibility?
Well, for us, it means that we ensure that we have the financial flexibility to both support our companies, if and when they need capital, but also capture attractive investment opportunities, as well as serving our dividend policy. Our ambition is that our balance sheet should never be a constraint, from, from this perspective. Looking at our leverage, it is as low as 2%, i.e., the lower end of the target range of 0%-10%, and we have worked very proactively with our balance sheets, not the least during the period now when the interest rates have been very low. We've managed to refinance up to SEK 23 billion of maturities at very long tenure.
The average tenure of those Euro bonds was 14 years at a fixed interest rate of 2%, and we are now at the very fortunate position of actually being able to generate more interest on our gross cash position than we pay on our debt. And this proactive management that I just mentioned has resulted in this maturity profile, where you can see that the maturities are well spread out over time. The average tenure is more than 11 years, and our next maturity is not until 2029. In addition to our strong balance sheet, we also have very strong cash-generating capacity. Looking at these two pie charts, you can see on the left-hand side the sources of our cash flow, and you can see that all business areas actually contribute to the cash flow generation.
Most of it, of course, in the form of distribution from our listed companies. Patricia has also contributed a lot here, mainly Mölnlycke, and the net proceeds from equity has been positive. On the right-hand side, you can see, so what have we used this cash flow for? Well, more than half has been distributed to our shareholders. A significant part has been used to acquire six new subsidiaries within Patricia Industries, and we've also invested in selected listed names. During this period since 2015, we have actually generated as much as SEK 158 billion, and during the period, we've also reduced our net debt, or our leverage to 2% from 7% in the beginning of the period. Of course, cash flow will be lumpy.
From time to time, we will have a weaker year, but I think this picture really illustrates that we have managed to build a platform with multiple sources of cash flow, which will contribute to our financial flexibility, which is so strategic to value creation. So the takeaway from these two operating priorities and my presentation today is that Investor is in a very strong financial position, and that this allows us not only to take advantage of interesting investment opportunities, but also to serve our dividend policy, i.e., to distribute steadily the rising dividends to shareholders. So that's it from me. Over to you, Magnus.
Thank you, Helena. It's good to know that financial strength and flexibility is in place in this class-changing environment, so we'll be able to support our companies and make great investments, at the same time. Our next speaker is Christian Cederholm, who's still the head of Patricia Industries for a few more months, and he will continue to update us on, the strategy and the priorities of Patricia. So Christian, please go ahead.
Thanks a lot, Magnus. Hi, everyone, and thank you for the opportunity to talk about Patricia, what, who we are and what we do. Let me start with who we are. We strive... There you go. We strive to be a great home for great companies. If we do that well, we will contribute to Investor’s mission of creating value for people in society by building strong and sustainable businesses. We are long-term in what we do, meaning that we buy to build, not to sell. You can think about it as private equity, but without exit as part of our strategy. Given that long-term horizon, we want to make sure we engage in companies with strong market positions in industries and niches where we see good opportunities for long-term structural growth.
We operate in a highly decentralized way, where each company has high degrees of freedom. As owners, we engage primarily through the board, but of course, we also engage with each respective company outside the boardroom on matters such as M&A, capital structure, strategic assessment, et cetera. So, they should look up us, upon us as, as a resource that can be leveraged. In addition to bringing capital and, and the clear governance model that I just mentioned, we, we also want to make sure that we add the strength of our network, and that goes well, well beyond Patricia, but rather the, the broader ecosystem of, of the sphere.
We have in place an incentive program, equity-based incentive program, to make sure that we get as good alignment as possible between us as main shareholders, the management teams who runs the companies, and the boards. This is the great team. We have about 30 people, split roughly equally between New York and Stockholm, under Juris and Thomas' leadership, respectively. It's a diverse team with both investment and operational experience. And in addition, we of course work with our broader network as well, including board members, but also industrial advisors outside that. These are the great companies then. As you can see, ten companies focused in three verticals. Taken together, it's relatively grown a lot.
It's about 18,000 employees and sales of more than SEK 60 billion, with strong profitability and good cash conversion. However, we think about it mostly as ten companies. Six of these have been added since Patricia was founded, and across these platforms, there have been about 100 add-on acquisitions, and I'll get back to that a little bit later. We've also, as Johan mentioned, divested two companies, Grand Hotel and Aleris. With a mission of being a great home for great companies also comes a responsibility, so that if there is a greater home for a company, it is upon us to act. In fact, we do see that active portfolio management is a key part in many successful companies.
If you look at what we're trying to do then, it is basically about building around what we have in the three verticals. We're heavy in medtech and healthcare, and we for sure continue to invest here. We're also committed to building the two other verticals, real estate and infrastructure and industrial technology. In terms of our strategic priorities then, they have actually looked rather similar over the years, and that is something we're proud of. Our top priority has always been, and must always be, to build and develop our existing companies. This is for at least two reasons. One is mathematical, right? We have 90% plus of our assets in the existing companies. That means that there is no smart investment that can save us if we don't perform in the portfolio companies.
But the other reason goes back to our ambition of being a, a great home for great companies. And the day we start focusing more on the next platform tab, for example, there may be greater homes for these great companies. We continue to invest in what we have, both organically and by way of add-on acquisitions. In addition, we remain open for new business and adding new platforms as well. Looking at the first priority then, to develop our existing companies, in short, this is about performing here and now and future-proofing the businesses. As long-term owners, our job is to build for the future, to create platforms that can continue to deliver sustainable, profitable growth in the future. Performance here and now is also needed, however.
It gives us the license to operate as well as the means to reinvest in the business, again, to future-proof them. So we need both. Looking at the profit growth here, earnings have almost tripled since 2015, with a strong growth in earnings post-COVID. As you understand, this is slightly flattened by the fact that the Swedish krona is weak, but importantly, the underlying earnings growth is also very healthy here. Turning to the future-proofing part then, of course, priorities differ between the companies, and there is no one size fits all here. That said, there are a number of themes that we think are relevant for most companies in the portfolio, and let me say a few words on each of them.
If we start with geographic expansion, this is simply about selling our great products and solutions in new countries, getting it out to more people, more customers, because we think that the world deserves that. And if I move to—and importantly, this is not just developing market, but we also have a lot to do in developed market and markets where we're already in. Moving to talent then, we think we have the potential to do even better in terms of developing and retaining talent from within the group. It makes for good career opportunities for good people, and it also makes us less dependent on external recruitment over time. We, of course, try to do our part.
We measure, make sure we have targets for internal recruitment, et cetera, and getting people together is an important part of it, both in terms of forums, for example, around M&A, CFO forum, digital, et cetera. And now, recently, also an executive development program exclusively for talent within Patricia Industries companies. On innovation then, including digital and data, for all our companies in the portfolio, innovation has been a key part and a key reason for them to come to the position they're in. And as market leaders, we also have a responsibility to lead in innovation. Several companies have increased their ambitions in terms of investments in R&D, and there are explicit plans to increase even further. We are clearly prepared and willing to invest here.
I'll get back to the digital and the data opportunity in just one or two slides. Finally, on sustainability, we see a lot of opportunity here, not the least to reduce our own CO2 footprint and that of our customers, and I'll mention this in a separate slide. So on digital and data, we have a lot of untapped potential here. We really think it's across the board, from internal efficiency to how you go to market, to even new revenue streams and potentially new business models for some companies. We think this can be done with limited technology risk, and this is the silver lining here. That means the hardware and the software is here. Instead, we think it's gonna be about data, to have relevant, structured, actionable data.
That is where the battle will be. Encouragingly, there is a lot of good initiatives ongoing in all of the companies. Here, we're doing our part here, primarily by encouraging and maybe pushing a little bit, trying to facilitate sharing of experiences between the companies. So that, to that end, early this week, we had our third digital forum this year, this time focused on very concrete use of generative AI as a productivity tool. Moving to sustainability then, this obviously entails several dimensions. One very important is, again, the reduction of CO2 and other greenhouse gases. If I take healthcare as an example, global healthcare represents about 4%-5% of global CO2 emissions. That's twice as much as airlines, and had it been a country, it would have been the fifth largest country in the world.
Our own footprint, including purchased electricity, is roughly 100,000 metric tons, down about one third since 2021, and this is despite growing the business a lot. Basically, all our companies have targets to reduce between 50% and 70%. We've come some way, but a lot of further investment is needed. And to be clear, some of the low-hanging fruit has been picked, and so it will require hard work and further investment to get all the way to the target. Now, that's on Scope one and two. As in any business that makes and sells stuff, you would expect to find the vast majority of CO2 footprint in Scope 3, and this is the case also for us.
This is basically the scope one and two of our suppliers and our customers, and in that lies the great business opportunity. By innovating, we can provide products and solutions that can help our customers reduce their CO2 footprint. Increasingly, we see this as a real and very substantial business opportunity. I know that, for example, Zlatko, CEO of Mölnlycke, will talk about this in his presentation as well. Add-on acquisitions then. This is a tool to help in building our companies and complement organic growth. We could do everything organic, and that is great, but it also takes a lot of time, and it creates a lot of growing pains.
So we think that once we know the direction of travel, if we can find and execute well on add-ons, it's a great way to accelerate the journey by bringing on good people, good technologies, products, and/or market access. We've done almost one per month, so close to 100 in total, and deployed about SEK 35 billion in enterprise value equivalent over the years. And that remains an important growth lever for us. So that's on developing existing companies. As I said, we also remain open for new business and adding new platforms.
So in terms of what we look for then, we focus on the existing verticals, and given our long-term horizon, we are truly picky in what we look for, both in terms of the industry and the industry niche, as well as the company and the strength of the company. We think this is the right approach. It takes longer, but over time, I do think we've proven that we are capable of finding good investment opportunities. Finally, then, if we look at the returns since acquisitions per investment, so far, returns in eight out of ten companies have been above our return requirement, and only one, Atlas Antibodies, which is early on in its journey, has negative returns.
So by way of concluding then, we think that while we've come a some way in developing this group of great companies, everywhere we look, in each company, there is a lot of opportunities. Our view is that we're really early on in a great journey here. Thank you very much.
Thanks, all three of you, for great presentations. Now it's time for Q&A, so please send in your questions via the web. Before we have any questions there, I have a few ones to start with, and we actually have a few from the web already. From Karen Patak, for example: Could you talk a bit about how we view leverage in our companies? And if you start, perhaps, Johan, we can move on from there.
Yeah. Overall, I think, coming back to we have a number of companies in different industries, different situation, and of course, in general, the higher the operational risk you have, the lower the leverage must be. The second part is that, that the leverage, of course, can be somewhat higher in the unlisted environment compared to a listed company, because it's much easier if you own hundred percent to adjust the balance sheet. If we then look on our companies, I would say overall, we have very strong balance sheets. The listed companies are strong. If you take the biggest companies in the listed portfolio, Atlas Copco, ABB, AstraZeneca, SEB, all have very strong balance sheets. And in Patricia, we also have strong balance sheets, but Christian, maybe you can add a little bit more color on that.
Well, thanks. I think that what Johan said is the same basic principle we apply, right? That you have operating leverage and risk, and then you have financial leverage and risk, and the two needs to be balanced. And over the recent year or so, we have actually deleveraged quite a lot in the Patricia companies overall. And we continue to strive for a moderate leverage, and then being prepared to go a little bit higher in connection to good add-on acquisitions.
Mm-hmm.
Then we make sure that after that, we track and make sure to deleverage.
Mm-hmm. I think it's fair to say, if you take it on an aggregate picture, that the leverage we have within our subsidiaries in Patricia is higher than the listed, but clearly lower than what you see in private equity.
Yeah.
Good, thanks. We have a question from Samarth Agrawal as well, and he's wondering about our return requirement. Is that going to change, or is there a chance of it changing if the portfolio mix changes, perhaps towards more private holdings? What do you say about that? I know we've had the same return requirement for quite some time, so.
No, I think that a return requirement of 8%-9% makes good sense. We can, of course, have a long debate about it, but on the one hand, you can say an interest rate of, say, four or five percent, and then you add the risk premium to that. The other way to look at it is that I truly believe that the underlying profit growth should be something like 5% in the portfolio, and if you then add the cash flow in relation to the value, should add another, say, let's say, 4%, and that can of course be used for dividends and acquiring, doing add-on acquisitions. So I think it's a reasonable long-term ambition to have that.
We have succeeded clearly better historically, but that's the way we think about it.
Okay. Thank you. Also, I have a question about which industries do we find the most attractive?
Yeah, I think that attractive for me has two dimensions. There are a number of industry segments, number of opportunities out there in the world, but for us, it needs, number one, to be attractive, but secondly, we also need to have a deep knowledge, a broad network for us to engage in them, because otherwise, of course, you become a 50/50 player. So we are very, very focused. We focus on a couple of industry segments, like we have heard, med tech, healthcare, industrial technologies, to mention a few, and we leave a lot of opportunities to others out there. But, of course, in our business, industrial technology and healthcare med tech are two very important sectors for us that we focus on.
Thank you. Christian, we often get a very few, or many questions, I should say, about both add-on acquisitions in Patricia Industries and also the new platforms we're looking for. So if you start with the pipeline, is there anything more you can give in terms of details? How many companies are we looking at?
would say-
Opportunity of landing them and so on.
If we start with the add-on acquisitions, that's really a very continuous and ongoing work, and I think that almost at any point in time, you will find that across the ten companies, there is a healthy pipeline of good opportunities, varying in size, geography, whether it's call it early or more mature businesses we had, et cetera. And I think that is also a little bit what you see in the numbers over the years. That said, between years, it varies a lot, right? But over time, that continues to be an important growth lever, as I mentioned.
Mm.
And then, in terms of new platforms, that is a more, you know, that happens in more discrete steps, and it's clearly fewer of them. As I said, we are really picky, and I think that is the right approach, because again, back to our long-term horizon, we need to be able to live with and live in harmony with these companies for, you know, a very long time.
Mm.
I put a lot of trust in the process here. I think we've shown over the years that when we do the right things and the team go look for the right opportunities, we don't know when they come, but over time, they seem to come.
I know you presented the split of the companies in Patricia Industries, and you sometimes refer to it as a three-legged stool. If we fast-forward a bit, how would you like that split to look, if you could choose?
We-
Coming back to this question that you already-
Yeah
... talked about.
It's a good question, but I would say that is not something by which we steer and sort of dimension the way we work with the portfolio. We want to continue to invest in all of the verticals, really, and
Coming back to that again, there's another question here, about: could you describe the process behind sourcing new investments? Where do we find these?
Yep, it's a broad sourcing work, a broad and deep sourcing work, and it ranges from, call it, relatively open sources with investment banks and, you know, looking around in known portfolios, et cetera. But I'm happy to see that in a lot of the situations, we managed to find, and the team manages to find some kind of angle to it, so that we're somehow unique in our approach.
Mm. Thanks. Helena, over to you now. We've provided what we call the estimated market values for the unlisted companies for quite some time now, but I think it would still be good to update us on how do we arrive at them? What's the process behind that?
Yes, thank you, Magnus. That's a question that we get quite frequently, and it's true that in 2017, we started providing what we call estimated market values as a, you know, additional service to shareholders and institutional investors, as we had realized that it wasn't that easy from the outside to put a market value on our unlisted holdings. And we have said several times that this is maybe not the intrinsic value that we attribute to these companies, but how these companies could be valued were they listed on the stock exchange.
Mm.
And, uh-
... as you refer to, we use multiples to value them, public multiples. It's often a mix of peers, listed peers, and a broader index. These multiples are then applied on the reported last 12-month EBITDA, and that gives us the enterprise price value, from which we subtract the net debt, which is also reported. So it's not that difficult now, I think, for someone from the outside to look at this and say, "Maybe I think another multiple is more relevant, then I put that in," and then you might arrive at another value, and that's fine. This is what we do just to support that process and help someone from the external perspective to understand the value of these companies.
Great, thank you. Johan and Christian, anything to add to that?
No, I think that, of course, when we talk about peers, you can normally, for most companies, you might have two or three key competitors. But of course, if you use a peer group of two or three players, and the multiple for whatever reason, a big earnings drop or whatever, changes a lot, that could have huge fluctuations. For that reason, we have a rather... For most companies, we use broader peer groups to get some stability, so maybe that is the only addition.
Okay, thanks. Another question: When one of our companies is not best in class, what do you do? Can you describe the process and share any examples?
Yeah. I mean, I think we are, when we work and when we take an engaged ownership, and we work through the boards, of course, if a company is not performing, then the focus needs to be to create stability and profitability before you take the next step. So stability, profitability before growth, I think, is one key area. Another, of course, is to continuously make sure that you have the right people that can do the turnaround necessary, if that is necessary.
Mm-hmm.
Good. Capital allocation, that's another topic that we often get in meetings with investors, and what's our view there?
If you look from a broad perspective, I would say that the flexibility we have, the flexibility to be able to invest, both in the listed market and in the unlisted market, I see as a big strength, because to be honest, sometimes you find great opportunities in the listed market, and sometimes you find them on the unlisted part. I see a big advantage of having that flexibility, and that we intend to keep. Having said that, if you look historically over the last five, ten years, of course, we have had a very strong focus in growing the unlisted part, and that has been very successful.
Good, thank you for that. We also get some questions about our portfolio composition sometimes, number of companies, relative sizes, mix between listed and unlisted. Basically, anyone can start here about how we view that?
Maybe I can start to take the overall picture, and, and Christian can get some time to think about, Patricia. But I think that today we have 24 companies. We do not have any plans to move to, call it 34, companies. I think it's a reasonable size, today.
Mm-hmm.
But of course, as Christian said before, if we would find a great opportunity within one of our priorities, the segments, a top-quality company with good tailwind, strong market position, and the financial metrics we look for, and especially the strong culture we look for, then we would try to hit it. So it's a reasonable size. When it comes to the size of the companies per se, we always do what's right for each individual companies. So sometimes it might be that you do a split, and then we get a smaller company. For example, Electrolux Professional is quite small, to be honest, in our portfolio, but we believe the decision was the correct one for the company-
Mm.
That's where we always start. If we look for a new company within Patricia, I would say that we would ideally try to find a bigger one, so it moves the needle.
Mm.
Maybe you want to add something.
Yeah, no, I agree. It's decided by what is best for the company in each case. And I think that, as Johan said, if I look at Patricia, similarly, we could clearly add maybe one or two companies, but we're not looking to do six new platforms as we did in the previous nine years.
Mm.
In terms of sizing, I think it's really nice to see how the companies have grown quite a lot. So if you look in Patricia now, I think we have five at least companies with an EBITDA of about above SEK 1 billion. So they're getting to a certain size, and that also goes to show that the companies have proven the ability to actually grow from being relatively small to bigger.
Great, thank you. One question on the listed side, is there anything preventing us from investing in a new listed company?
No, there is nothing preventing us from investing in the listed companies. However, the opportunities are less than in the unlisted part, and there are a couple of reasons for it. But one reason is that within Patricia Industries, we are looking both in the Nordic region and in the U.S. market, while for the listed part, we focus solely on the Nordic companies. And of course, if you do the metrics for a company to be sizable, let's say it must be a SEK 10-15 billion stake for it, at least, then, of course, you need to have a market cap. If we would invest 20%, you need to have a market cap of 5x that, and then it needs to be within our priority sectors, and it needs to be available.
So there are clearly fewer opportunities on that side than we see on the unlisted part.
All right. I think it's time to conclude the Q&A for now. I think it's fair to say that we are ready and willing to invest when we find the right assets, and Helena, you've made sure that we have the money to use to do that.
Of course.
Great! So thanks for all the good questions, and the good answers, for that matter. So now we'll have a short break, and we'll be back, and then we will start with the company presentations. Thank you. Hello, we're back, and now it's time for the company presentations. The first one now to present is our world-leading company in the MedTech sector, Mölnlycke. We first invested in Mölnlycke in 2007, and we became the sole owners in 2010. Since then, the company has performed very strongly. Today, it's Patricia Industries' largest holding, and at the end of Q3 this year, it was actually Investor's fourth largest holding overall. Zlatko Rihter joined Mölnlycke as CEO in 2020, and we will now hear him present the company. So welcome, Zlatko.
Thank you so much, Magnus, and a pleasure to be here. My name is Zlatko Rihter, and I've been CEO here at Mölnlycke for three years, basically. And what I would like to do today is a little bit give a little bit of insights into Mölnlycke, who we are, and also our kind of key strategies. So we ended last year north of 1.8 billion EUR sales. We are today present in more than 100 countries. Just some other kind of facts, we have factories, 14 factories in eight countries, soon to be 16 in ten countries, so we are expanding, and we are close to 9,000 employees.
If you look from a business perspective, and I think both you and Christian mentioned this, we are now, since 2.5 years, basically, organized into four separate business areas that have kind of end-to-end responsibility to really drive the business. The largest one is wound care, close to 60% of our sales today, very much focusing on innovative, intuitive wound care products for prevention and wound management. And of course, here is also an area where we can move into wound healing and increase focus on diagnosis, wound diagnosis over time. So there are plenty of opportunities to further grow that business. The second-largest areas, representing 25% of sales, is Operating Room Solutions, where we talk about sustainable services that focus on enhancing, improving the workflow in an operating room.
And I'll also come back with a few more concrete examples of that. The third largest area, gloves, surgical gloves, representing 14% of our sales, with two focus areas, really around hand health for the surgeons, but also to make sure that we have optimized the performance. And in that is also included safety, to make sure that the hands are not contaminated by blood and other things during a surgery. And the third, fourth and smallest, at this stage, at least, business area is antiseptic, representing 3% of the sales, focusing on infection prevention across the patient journey, especially connected to surgeries, pre and post. Three percent doesn't sound that much, but in U.S., it's a big business for us.
If you look a little bit about the business areas a little bit more in-depth, I think what we see today, I'll come back to that also a bit later, is that we do gain market share across the segments today. We are typically what is common for all four areas is that we are a premium brand. That basically means that if you just look at the price point, we are more expensive than any competitor. But if you look at the total value or the holistic performance of the products and solutions we offer, we are usually very, very competitive from a cost perspective.
And that is, of course, our role, to always make sure that we show to our customers that if you take the holistic perspective, we are the, the first choice for you. So that's kind of our red thread throughout the whole business. If you look at presence, wound care is our global business, but also having strongholds in U.S., France, Germany, U.K., and Nordics, but we are present all over the world. ORS today, to this date, is very much still focused on Western Europe and Middle East. We have expanded into Middle East the last two years and been quite successful in that, and that is part of the ORS growth today. Gloves, focus very much in U.S.
Half of the business or more is there, but we have ambitions to expand outside and have active programs in other countries. And then antiseptics, as I said before, very strong in U.S. and opportunities outside that we have not yet captured. So that is a little bit about that part of the business. If we then little bit deep dive on our ambitions right now, is that you can see that we are very much an EMEA-based business still. 56% of the sales is in EMEA, 35% in Americas, and 9% in APAC. And of course, if you look at the demographics, 60% of the world population lives in APAC. So of course, we have very big, big areas of focus to drive organic and other type of sales there.
But we have good growth in mature markets, and we have ambitious expansion plans and activities in China, Latin America, and Japan right now to really strengthen our position there. And we have a strong and evident growth in Middle East since a few years back. That's part of the EMEA numbers, but still very much of a kind of emerging markets. I think we have a good mix today, and to further be successful. If you look a little bit about our growth ambitions, and I think what we have spent a lot of time on the last two to three years to figure out, you know, how can we accelerate organic growth? Because at the end of the day, that's the most healthy part.
You see, if you look at Mölnlycke in the past ten years, it's been a 5-ish type of organic growth in average, and also somewhat challenges the years before the pandemic. We had one special one-time deal around PPE or mostly face masks during the pandemic. That is grayish here. But if you look at the underlying growth, it's been somewhere around 5. What we have managed the last two years now is to accelerate that, and we're around 8% right now with this type of activities, as I explained before in the previous slide. So that is, of course, a key focus for us to continue on that journey.
If we look a little bit more per business area, we have a continuous strong performance in wound care, around 10%, if you look at year to date, first three quarters. Also, ORS has picked up quite a lot, more than 10% growth. Where we have struggled a little bit this year is around surgical gloves. As you see, it's -6%, and the explanation for that is quite simple. We had quite big challenges on elective surgeries during the COVID pandemics. It was a big backlog. Then when that was kind of a little bit over, what happened was that we had a lockdown due to COVID in our manufacturing sites in Malaysia, and that hits us and all the competitors.
And then last year or this year, into this year, we tried to kind of catch up. So we, so we and our distributors that we are dependent on in, in most markets like US, also built up stock, and that ended up with destocking. So a really good growth last year, destocking this year, and I think now finally, the last few months, we are back to a more normal situation where we can drive business again. But it's been a, been a, been a tough year for us there, but it's improving. And then antiseptics also came out of a very weak performance and now have more and more growth. So, so year to date, September, ended up 4%. But all in all, as company, Mölnlycke, we grew 7.4% the first nine months this year.
Of course, our ambition is to continue on that path. If you look then at profitability and margin development the last ten years, you see we've been a company that's been around 28, 29-ish. We had a peak during COVID, and here also the one-time business is included, so you see it was a little bit higher, and then we had a big challenge just last year. What happened there was that we had the challenge of, as you all know, around sea freights and raw material increases. So at hike, we had around EUR 130 million at the added cost to our cost base, basically, that we had to handle, and that hit us last year.
A big part of that has been gone away now, so we're back to normal, not fully, but to a large degree. And also, I think we spent a lot of time during the last two years to really keep the ship tight, keep the ship tight, and I think that is now paying off. And you see the first nine months this year, we're back to 28.6%, which is, I would say, back to pre-pandemic levels, but with a higher growth than in the pre-pandemic levels. And if you look a little bit about the profitability per BA, Wound Care is a fantastic business. As you see, it's around 40% EBITDA, we have 10% growth, and we, of course, will continue to fuel our plans to make sure that that continues to happen.
We have turned around our RS business. If you would look at that two and a half years ago, it was minus 10%. Now it's approaching, I would say, 10% EBITDA. And I think that's been—they've been mostly hit by all these cost increases, but they've also done a great job in that business area to turn around that business, and it's becoming quite healthy now. Gloves is stable around 15%-20%, despite all the challenges we have. And then also, Antiseptics has gone from being a negative profit business into profitability this year, and we're around 5% the first nine months. So we have four different challenges, but I think what is positive now is that all four are kind of moving into the right direction.
If we then look a little bit shortly at the capital structure, and of course, here we work very close with our owners, Investor. We have a target, when it comes to net debt versus EBITDA, around 3-3.5, and I think we've been in that span the last few years. You can see that being illustrated. And of course, with all the challenges that we did have in our supply chain, with cost increases and all the problems we had during COVID, one area that has been hit negatively is cash conversion. You can see that's been reduced pretty dramatically, especially last year.
And of course, our way to mitigate all the challenges on top of all the cost has been really to, in some cases, add to the inventory to be on the safe side, because we have products that when the customer orders, they need to get them. If you don't get the glove, for example, you cannot perform an operation or surgery, and, and that cannot happen. So we took that hit, but you can also see now, end of Q3, that cash conversion is rising again and going back to, if I may say, more normal levels, 74%. So I think we're doing a quite good job to do that. So let's move a little bit more into then our world and where we kind of find opportunities and challenges.
If it's something that kind of bothers me, both as a professional but also as a private person, is that I've spent a lot of time out in hospitals. I've been around the last year, at least in hospitals in ten countries. I get the same kind of message when I talk to nurses, physicians, and healthcare professionals, is that they struggle a lot. I mean, they lack people, basically. The normal situation when you come to a ward or a function in a hospital is that they have vacancies of up to 50%. So basically, what they do, they ask their nurses and doctors to do the job for two persons at the end of the day, and they don't fully get, you know, compensated for that, neither with more vacation or pay.
So we will continue to have a staff shortage. We will have less skilled and experienced caregivers. That's kind of a challenge we have. And what's happening then, of course, is that there is a huge pressure on acute care, which is normally the hospital care, and patients are pushed out right now to post-acute ambulatory care or even home care. And even relatives are many times asked to do more of the caring of the patients. And of course, the need for intuitive and products and solutions will increase.
I think one way for the healthcare systems to address that, to kind of handle this super tough situation that is chronic, it's nothing that will disappear, and it's been even more chronic, I would say, post-COVID, because we see that, is that, of course, one way to do that is to increase efficiencies, introduce digital tools, and connected health, but we haven't fully found that solution. So we are in a situation that is quite tough. And, of course, we at Mölnlycke see this as one of our opportunities and challenges to really truly address that, for our solutions, to make sure that we can help out. But I think we are not the only ones that have to help out here. It's a big challenge. I think we are well-positioned, though, to meet these post-COVID customer demands.
As I just talked about the staff shortages and low-skilled staff, I mean, we offer improved workflow efficiencies with our products and solutions. One positive thing is that the elective surgeries are now back on pre-pandemic levels, so that means that there are still queues, but at least patients gets the needed surgeries in most countries. I think another downside of COVID, which is that, we see more and more patients with chronic and severe wounds. They have been mistreated during the COVID, and if you're not treated, a pressure ulcer, for example, can emerge very fast. So we see more and more patients that need help in that area, and of course, that is addressed for our wound care business. And then we see, of course, as part of the...
As a result of the COVID situation, we see that the infection prevention is very high on the agendas in more or less all countries. So that's, of course, a very central theme, partly as a consequence of the COVID pandemic. If we then move a little bit into what we try to do and our operating model and strategic focus, as I said, we have organized ourselves into four business areas with end-to-end responsibilities. They have slightly different call points, and we really try to work on customer segmentation, the go-to-market strategies, and understand. I think if you understand healthcare, you can still have a global offering, but each country's healthcare system is differently set up, so there is no kind of unisex approach of how to go to market.
You have to act differently in U.S., you have to act differently in China, differently in Sweden, differently in Germany, if you want to be successful and truly understand that market. So, so that is something that we have to have with us, and that goes for all four BS, of course, in any, I would say, med tech or healthcare company. But there are certain macro trends, and there are three areas where we strive to be a leader, to be the best in our industry. One is customer centricity. What we did different than many other companies there is that we based our whole strategy on ethnographic studies. So we basically ask a bunch of anthropologists to come and visit the different hospitals and tell us what is the number one pain point for our customers and patients in the different areas.
So we ran four separate projects on that, and that is the base for our innovation, but also go-to-market strategy. Two other macro trends that we really try to deal with is sustainability and digitalization. And I think Christian talked a little bit, but I will show a little bit more around sustainability. We could give different examples, but I will highlight sustainability here today. And I will do that by movie. And basically, what we'll show in this movie that we will share with you in a few seconds, it's very short but interesting, is that if you go into an OR room, traditionally, the OR operating room or the hospital, they acquired what we call single pack products. So they bought all kinds.
So you needed a drape, you need a staff clothing, all the components were bought, brought in, individually. What Mölnlycke offers and what we focus on and really try to convert the market into is to, to what we call tray or procedure pack business. So if you have a hip surgery, we prepare all the single-use components that goes into the operating room, package them, sterilize them, and make sure that they are ready to use. And by that, you can save around 90% of waste when it comes to packaging, and you can also save around 40% of preparation time in the hospital. So we help with the workflow, and as you all know, time is money. So let's show the movie.
So here you see an example of how we try to operate and kind of add value to the healthcare society. Basically, by offering procedure packs, we configure them in our production facilities to the need of the customer, and thereby, for example, you can save up to 90% of waste when it comes to packaging, but also a lot on preparation time. I think other areas where sustainability plays a role directly in our product offering is that if you look at our advanced wound care products, the intended use normally is that they stay on the patient for seven days. Traditional, conventional type of products stays maybe half the time. So that means that you spend half the material over time if you use them the right way.
And we also perform life cycle, full life cycle assessment on our gloves, for example, to really understand where we have our weak spots. And of course, we have we are on a journey to what we call net zero by 2050 at latest, so following the Paris Agreement and really to drive sustainability. So I think this is three examples that are more, you know, towards the Scope three type of emission to emission area. So we're really, really trying now to drive that. So a little bit key takeaways and to summarize, where Mölnlycke stands today. I think first of all, we have a strong growth right now. It's also profitable.
We see us bouncing back towards pre-pandemic type of profitability levels with a higher growth, and also coming back on the cash conversion to a more solid level. We see ourself as being market leader in key segments. Where we participate, we are always top one, two, three. We have a healthy innovation pipeline based on these ethnographic studies, where we truly try to figure out, you know, what is the number one or two pain points for our patients and customers. And that is not always the easiest to solve because we are not always, you know, have the history there, but we really try to take that challenge. And then I think, as you saw also, that there is a very strong focus from us on sustainability going forward.
That will be one of our key focus areas for a long time. So with that, thank you, and I hope that you will continue to follow us on our journey.
Thank you, Zlatko, for a very interesting presentation. Again, don't forget to send in your questions to Zlatko. We have a few questions for you, surprise, surprise. The first one is: Why are you gaining market share, and how come you can have pricing above competition?
I think, as I said before, I mean, we are a premium brand, and this is something that, you know, we don't know how to sell cheap products. We really know how to sell premium products because we back that with clinical evidence, health economics, training, professional education, and whatever is needed. So we are closer to the customer in that sense. So they get... Once you get used to that as a customer, you know, changing us to somebody else, and you lose that part, it's tough. So we see customers that try something else, they come back to us. I think we know how to do that, and I think that is why we are seen as a strong player.
Mm-hmm. You talked a lot about different growth opportunities, but maybe not so much about any inorganic opportunities. Could you shed some light on that?
Absolutely, and I see that as a portfolio. For me, you know, growth can be done in many different ways. I mean, our core focus is, of course, to create, profitable organic growth, but then you have strategic collaboration. We do a lot of those. You have joint ventures, which are more kind of formalized, and of course, eventually, when it come to a situation where you do, and, full acquisitions, of course, and, and we operate in all four. And we try to use the whole toolbox dependent on where we need them, and, and we are doing several, already now, I mean, bolt-on, acquisitions, small technologies could be that we, invest into a certain segment somewhere, but we also do a lot of the other stuff.
I think we try to have a balanced approach in that, and a high ambition level.
Mm-hmm. We have a question about the potential in different geographies, and of course, Asia or APAC is still a limited part of the operations. What are sort of the keys to success there or to grow that part?
Yeah. I think here we also have to kind of bring in the geopolitical situation that is emerging right now. You have to be, in one or another way... If you take the big, big markets where you want to make-- try to move a needle, you have EU, you have US, they were quite well presented. Then you have China, you have, I would say, Middle East, where Saudi is a very strong market. You have, India and Japan, and maybe Brazil in the future, so that's kind of where stuff is happening right now. You have to have specific strategies to be successful in all those, and I think I can give one concrete example now. If you take China, we are present in two segments.
It's the acute care, which is the normal, where patients go to hospitals, but we also, in China, scar management is a big thing because you have a lot of surgeries with young females. So that, there we're going digital, but on the acute care side, if you want to be successful and be part of the tenders in the future, you have to have local manufacturing. So our way to solve that is that we decided this summer to invest into capacity. So we will build a factory there, basically, to support that. And you have to understand each market because they're all different, and that's the way to be successful. So you have to take an end-to-end perspective.
Many times you have to bring in capacity or local production, and then you get access to the market, or you find partners, et cetera, et cetera. So you have to really understand the healthcare system in those markets to be successful.
Okay. At the end of the presentation, you talked a little bit about your innovation pipeline, and I know that you sometimes talk about radical innovation and innovation, but could you please distinguish a little bit-
Yeah
between the two?
So what we try to do in each BA is that we define what we call radical innovation. That is basically something that is new to Mölnlycke and something that is new to the world, so you cannot copy what others have done, and it's not incremental innovation. So we try to dedicate roughly 30% of our R&D budget, if I may say so, or spend, to radical innovation, which is a little bit out of our comfort zone, you know?
Mm.
It's new stuff. And then still 70% is sustaining engineering or more traditional product development, because we would really like to put some new things on the market that moves the needle or disruptive at the end of the day. The radical innovation is based on these ethnographic studies I talk about, that we studied the kind of the pain points that customer have by observation, and we have started around ten new projects the last two years to really drive that radical innovation path. And what is interesting now is that all 10, or nine out of 10, have a high digital component. That's, I mean, the way you solve the customer's problems.
You combine traditional technology, which is our core and comfort zone, and then you have to go out of your comfort zone and introduce digital components to combine those two.
Mm.
An example of that could be that you're looking to sensor technology in a wound care dressing to help, help the customer to understand when they have to replace them and also assess the wound, for example, could be one area that we look into.
Very interesting. So digitalization and new technology is certainly a highly important thing in med tech as well, of course.
Yeah. You cannot hide away from that these days.
You can't. Okay. Thank you very much. We have a question that maybe is more for me, I think, and that question I really like: How do I buy shares in Mölnlycke? I'm very happy to be able to answer that. You need to invest in Investor. So thank you for that question. I think with that, thank you very much, Zlatko, and great.
Thank you.
Thanks. Our next presenting company is Piab, a world leader within vacuum-based material handling. We acquired Piab back in 2018, and the company has certainly made an impressive progress since then. And here to tell us more about that is Peter Laurin. He will talk about the exciting journey ahead for Piab, and Peter joined as CEO in 2022. So welcome. The floor is yours.
Thank you, Magnus. My name is Peter Laurin. I'm CEO of Piab Group. Piab, we are an industrial tech company focused on vacuum-based material handling in the automation industry. To give you a little bit of feeling of what we do and our product and solutions in actions, I would like to show this quick video. Please roll. ...So Piab was founded in 1951 in the Stockholm area, and our headquarters is still based in Stockholm. We are 1,200 staff in 27 countries worldwide. We are also a company of SEK 3 billion in size and with a 26% EBITDA margin. The company is primarily in Europe, but North America, as well as sizable in Asia. We are serving 100 countries on a day-to-day basis. In 2020, we also decentralized and divisionized.
So we've had a successful strategy of having three divisions since that time. The largest division, then, vacuum automation. Here, we have our products and solutions, enabling robots and machines to grip and lift items in the manufacturing and packaging lines. Segments, large variety of segments, but the largest ones being packaging, automotive, as well as food and beverage. The second division we have is lifting automation. Here's where we assist individuals, humans, to lift items in an ergonomic way. Normally, payloads or weights of, say, ten kilos to 300 kilos. Here we serve a wide variety of segments, but the largest one being warehousing and logistics. Thirdly, then, the third division. Here we move powder, so dry material. It could be in pharmaceuticals, could be in food and beverage, could be in additive manufacturing, where we move metal powders, primarily in 3D printing.
So that is Piab in short. How about our financial performance then? So this is a little bit of a historic view on the growth of Piab, and during the Patricia Industries ownership, we actually accelerated the growth. So now we are at 19% CAGR, and this is, of course, both organic and inorganic, but focusing on the organic growth, we had both product extensions as well as geographical extensions, and we've also taken market share. Profitability, healthy levels of 26%-28% during that time frame on EBITDA level, and our cash conversion is around 80%-90%. All right, how about the inorganic part then? We supplement, and we complement our inorganic growth, or I say our organic growth with inorganic growth.
This has been a really exciting journey, and we are still in a very fragmented landscape, so there are opportunities here continuing. But we've had 13 acquisitions to date, and these 13 acquisitions also bring in both a lot of assets and competence, of course, but also brands. And we've kept around seven of the 13 brands to date, and we do that based on market, market's value and performance. We integrate them lightly sometimes, and we also then have more deeper integration, depending on. We see a continued opportunity in the acquisition space. If we then look at the larger market, and this is interesting because the industrial automation market is huge, actually SEK 5 trillion of industrial automation out there, and with a healthy growth.
So this whole industry has a tailwind of 7%-9% growth, but it's really driven by five macro trends, and these macro trends are then what we call robot economics. And what is that, then? Robot economics is that the prices of the robots are coming down at the same time as the performance goes up, and the application areas are expanding. So there's more things that you can do with robots now than just a few years back. Then secondly, and Zlatko also mentioned it, labor shortage. We see labor shortages also in the industrial space, and this could, of course, be for repetitive tasks or mundane tasks, but also for more advanced tasks across the globe, actually. But they're, of course, even more so in North America and the more Western markets. Then we talk about near and onshoring.
This is really linked to the disrupting of the supply chains, where we see more factories are being built, nearshore and onshore. Then fourthly, and this is a hugely interesting space from a technology aspect, that with the technology advancements like in Vision, AI, 5G and connectivity, Industry 4.0, we see huge opportunities for automation, and this is, further fueling this industry. Last but not least, health and safety. Health and safety, this is a great opportunity to automate away tasks that are dangerous. And of course, this is also regulatory driven, but even so, this is a big trend globally that drives the industry for industrial automation. All right, but what about the addressable market for Piab then? So if we zoom in on our niches. So here we have a market of around SEK 25 billion, growing 7%-10% per year.
Interesting is that if we slice this market up on our divisions, each divisions have a sizable addressable market with great growth of around 7%-10%. What we see, though, which is interesting, is that there are pockets of growth substantially better than that, and that is in areas, for example, like warehousing market, battery, as well as additive. And if I take warehousing as an example, here we are working with a lot of the, for example, Amazon and other large players that are key customers of ours, where we see a lot of the focus and investments. Battery, naturally, and here our products come well into play, and additive manufacturing, this is really around 3D printing in industrial environments.
So then if we would zoom in on the segments or the divisions, this is a historical performance of our three divisions. So from 2020 to 2023, we've had good growth in all three divisions. And you see first the total growth, and then you see the organic growth. And I'm happy to share that we then have outgrown, or we have, better growth than the market itself. So we are taking market share. However, then, our customers. Our customer base is large, and this is the asset of Piab. Since we have been in business for 70 years, we have a large installed base. So we have more than 70,000 customers, actually, and we serve them in two ways.
One is through distributors, and we have a large distributor network of 900 distributors, and we have direct sales channels as well. Little bit depending on market and size of customer. This, the large installed base here, which I come back to, is a huge asset. It also gives us a great recurring revenue. So these customers, when we define them as active customers, that means that they have purchased from Piab within the last three years. And we have a very strong stickiness with our customers. So, the recurring business is around 50% in our largest division, which is vacuum automation, 20% in lifting automation, and 25% in vacuum conveying. The customer base also drives our R&D, and this is an important part because really the DNA of Piab is around innovation.
If I would just double-click on a few of our innovations ongoing, which we are extremely excited about. If I start in the top left corner here, which is around our core technology, which is then vacuum. Here we use compressed air, and we convert it with our COAX technology to vacuum. This is a main technology, and we are now making it next, or in the next generation, making it significantly more energy efficient for our customers. So we are driving down the energy consumption with 50% in the next generation, which is quite substantial. Then going to the bottom of the left side here, this is very exciting. This is where robots and AGVs and other machinery is not linked to compressed air anymore.
So compressed air will, for the long run, be present in most factories, but there are environments when there are limited amounts of compressed air or none. For example, warehousing or robots that are moving. And here, electrical pumps will be much more important going forward. So this is an area we are investing in. We have platforms, we have product, but we're going to continue to invest in this space. All right. Then, to the middle part, and this is very exciting from a lifting automation division with a completely new product line using our ergonomic handling tools in a new, new application. Where you go into containers, unload containers with unstructured goods in an ergonomic way, and you do that using our traditional tube lifter, but in a new context, a new...
This is a quite long R&D project that just came to fruition, and we launched it mid-2023, where you can unload containers in an ergonomic way with less staff and to half the time. So very, very interesting, and we're going to focus on that in 2024. Then around sustainability. This is a red thread in our strategy. And to just take one example, is that we have a lot of material science within Piab Group, and what we now have is recycled material for all our advanced grippers, which is a very strong part of our offering. To the right side of this chart, we now move into the more digital space, and this is a digitalization that started a few years ago and will continue. And this is to put connectivity and digital into our products.
And this is one example from our vacuum conveying division, where the pumps that pulls the material, for example, in a 3D printing environment, pull metal powder, but it's able to take all the data around that, including the filters and so on, and knowing when to change, when to update. And it's both from a performance and capacity and energy point of view, but also from a preventive maintenance point of view. Bottom right corner here, this is from our lifting automation division. And this is where we see that digitalization has a lot of different values for our customers. And it's not only about knowing how many lifts you've done, knowing if your staff is using it or not using it in an ergonomic handling environment, but it's also around energy savings.
In our next generation, we're able to reduce the energy consumption with 90% in our vacuum lifters. So hugely exciting. So what does this mean for our future, then? Looking ahead then, these are the next five years or four years, up to 2027. And as we see here, we feel confident that we can continue to have a double-digit organic growth. And it's really centered around five pillars in our strategy. A strategy that we launched in 2023, that we call actually our 2020-2027 strategy.
It's firstly then building on the core installed base that we have, and we will not sort of shift away from any segments we are in, but we will put extra focus on three segments where we see extra growth or additional growth in our industry, and that is within warehouse, battery, and additive manufacturing. Then we also will put extra focus on geographies, and here we see the largest manufacturing market in the world in the years ahead will be North America and China, and we're gonna continue to have focus on those markets. Then we talk about R&D. Here we have long-term R&D plans, and we will extend and invest further in our R&D to keep and extend our technology leadership in our core technologies. Then sustainability.
Here we see a huge opportunity for Piab as we are addressing the energy consumption in the industrial automation space, and this will be a focus as we go forward. Last but not least, channels. We will go much more digital. This is quite traditional industry, selling engineer to engineer, and we will now build on that and extend that in with digital channels, both in lead generation but also in the long-term relationship with our customers. On that note, I would like to take the opportunity to show two examples of what we do on that topic. Why we believe this is important to share is that we believe that this will be building blocks in our future when it comes to our relationship with our customers. So let me start on the first, on the left side here.
On the OVM Pro RD, this is optimization vacuum management. This is a platform to digitalize and simulate the environment. So in this engineer-to-engineer sales engagement that we've had in the past, it's very much when you design, you configure, and you optimize your solution, could take days. In this digitalized environment that we now created, this goes down to minutes. And interestingly enough, then, is that actually the performance that you normally measures in cycles, where you can lift an item, how many can you lift a minute? That goes down with 25% on average from what we did engineer to engineer, when we use a digitalization and simulation tool, because we use much more parameters when we define it in the simulation tool versus more advanced engineers doing the work.
So this is a complement to the human interface, but we believe that this could add a lot of value as we scale the business. Then when we go to the Pixi part, the AI assistant that we launched, this is around enabling all our staff, as well as our distributors, to have access to advanced platforms and tools. In this case, it's an AI-based tool, based on ChatGPT-4, that has our product and database, and this is comes back to, of course, a lot of rigor around our data strategy. But we see a large opportunity there to enhance our staff with the latest and greatest tools. So with that, I would like to summarize that we are optimistic for the Piab Group future, and we have a strong culture based on innovation. That's our DNA.
And then we have a technology leadership and, in our niches, and we have a very attractive installed base that we stand on. We also have a proven platform of growth, both organically and inorganically, and all of this in the market that we have, the industrial automation market, which is sort of built in a, how should I say it, a growth and a tailwind that we are benefiting from. So with that, I would like to end, and thank you for listening. I hope you're gonna follow our journey in the future. Thank you, and over to you, Magnus.
Thank you, Peter. See if you have some questions. I would just like to start on the R&D side of things.
Mm-hmm.
How do you work there? How much do you collaborate with customers and others-
Mm.
to be able to do all the things you're supposed to be doing in the next few years?
Yeah.
It's a big task, it seems.
It's a great opportunity, I would say, and I think the closeness with our customers is really what drives this. So we have a few, or a lot of customers, but a few main ones that we work with in our product development that guides our work. Amazon being one in the packaging space, for example.
Mm-hmm. Great. Thank you. And another question is, now, Piab and yourself, you've been part of the Patricia Industries-
Mm
Investor family for a few years.
Yeah.
What are your reflections so far on being part of this portfolio, the family, the network?
Yeah.
How does it help you grow and evolve Piab in the future?
No, it is a lot of strength in that, and I don't say that, Magnus, just because we are at the Investor Capital Markets Day, but there are a couple of things that makes it a good base to grow faster than the market. And it's primarily around the network and the governance that we have asset when it comes to a really good board, an active board, a good network when we have questions in the industry. And it's also linked to the practical, hands-on support that we get, specifically in our M&A work, but also in the strategy work, and then, of course, access to capital.
Thank you very much for that. At this point, there seems to be no further questions. I think it was a very clear presentation, so I think that's the explanation to that.
Mm-hmm.
Thank you again very much, Peter.
Thank you, Magnus.
Thanks. With that, we'll move on to our next break. In 2016, we acquired the med tech company, Laborie, which became our second subsidiary in the North American part of Patricia Industries. Since then, Laborie has grown both organically and through some very exciting acquisitions. We will now hear CEO Mike Frasetti talk about Laborie and its attractive prospects. Welcome, Mike.
Great. Thank you, Magnus, and good afternoon, everybody. As you just heard, my name is Mike Frasetti. I'm the CEO of Laborie Medical Technologies. I joined the company back in September 2017, about a year after Patricia Industries acquired Laborie. And for the next few minutes, if you go to the next slide, you'll see what I'm going to talk about. I'll provide a business overview. I want to talk a little bit about the market dynamics in our competitive spaces, discuss our strategic imperatives or how we intend to win in these spaces, and then provide you my outlook on our business, and assuming we'll have a few minutes, I can take some questions at the end. So starting with the business overview, and if we just go to the fundamentals slide here, vision, mission, and values.
Our vision is to be one Laborie in the way we operate. We build global business units around very unique customers, but in culture, especially the resource and control functions, the way we get things done, we operate lean and efficiently and very much as one company. Our mission to preserve and restore human dignity is essentially what gets us up every morning, every employee up every morning, and we work hard every day, striving to be world-class at that. The five values that are most important to our employees are aspire to greatness, not mediocrity. We respect all because everyone has a role to play. Own it, because it's about—it's all about accountability. Work together because we have common purposes, and persist with passion. I think two traits that rarely, if they're missing, does anything good happen.
If you look at Laborie by the numbers on the next slide, as I said, we're one company made up of four distinct global business units. We have about 1,000 employees around the world. We will exit 2023 approaching $400 million in annualized sales and growing above market in each of those. We sell to over 10,000 customers in over 110 countries. We have direct presence in 17 of those countries today, including the Nordics, which we just converted from distributor to direct. And we have eight manufacturing and distribution operation centers, most of them in the U.S., but around the world. And we continue to scale up our direct presence, as you can see on the bottom right-hand side there in key markets and geographies.
If you look back a year ago, we probably would have had about 70 fewer direct sales people in our markets. On the next slide, you'll see we've got four global business units, and they're represented here. I'm going to click through each one of these and then focus on interventional urology, our newest one, when we talk about the market dynamics. The first one is urology, or UR. So the next slide. If we start there, this business unit focuses on urologists and urogynecologists who are diagnosing and also treating patients who present to them with lower urinary tract symptoms, or LUTS. This is the legacy Laborie business that established way back in the mid-1980s and still today is a key contributor to our value. We have high relative share in this business, and we're viewed as the global leader.
Most urologists and urogynecologists that have urodynamic diagnostics as part of their practice do so with Laborie products and services, and were likely trained on, on Laborie or legacy Laborie systems. The next business unit is our interventional urology business. This, as I said, is our newest global business unit, and here we exclusively focus on the interventional urologists, treating patients who are suffering from urological strictures and benign prostate hyperplasia, or BPH. We have a very novel technology here. It's called Optilume. It's a drug-coated balloon catheter. We currently have two indications, one's for urethral strictures, the one on the left, and benign prostate hyperplasia, the one on the right. These are disruptive technologies in very attractive markets, and I'll speak about them a little bit more in just a few minutes.
The next business unit is our GI business unit, and it consists of both diagnostics and some interventional technologies used for both upper and lower GI tract, symptoms and treatments. Again, we have high relative share in the pediatric GI diagnostics, and we have a growing presence in the adult GI lab as well. We have a couple leading technologies used in colonoscopy, SpotEx for endoscopic tattoos and EverLift, submucosal lifting agent. And then finally, we have a niche play in the interventional radiology space with our Renova Synthesys system. And then last, but certainly not least, our OB business is focused on moms and babies in labor and delivery in the neonatal intensive care unit. Again, high relative share, procedure-based products that are used worldwide to help provide safe deliveries for moms and babies, like our Kiwi vacuum-assisted delivery system and our Koala intrauterine pressure catheters.
Also some very novel technologies in the NICU, like our LifeBubble securement device that provides a new standard in the securement protection of umbilical cord catheters on neonates. It's just a tremendous product. So if you go to the next slide, those are our business units. I want to spend a little bit of time on our markets and the size of those markets and the growth dynamics as well. So if you take a look at the next slide, again, you can see we have four global business units built around specific, unique customers. Those business units have varied portfolio and channel scale, and therefore, different total addressable markets within each. And you can see on this chart, moving left to right, the UR total addressable market is $31 billion, growing at 4% annually.
The GI addressable market is $13 billion, growing at 8% annually, so a very attractive market. OB is $21 billion, growing at 6%. And our interventional urology, our newest business, the total addressable market there is $15 billion and growing at about 6%. There's also some shift going on in interventional urology, so that's a little more fluid. I'd say 6% is the minimum growth there. So total Laborie addressable market is an $80 billion market growing at 6%. The takeaways here are four global business units with channel scale focused on unique customers. We've got global leadership positions with novel portfolios. We are operating in attractive markets. We've got attractive growth rates across the board. So let me spend a little bit of time on our newest business unit, the interventional urology business.
If you go to the next slide. We closed on Urotronic in October, and what we acquired was very much a start-up company with a very novel drug-coated balloon technology called Optilume. And you can see the pictures on the slide here. The product consists of a catheter that is inserted into the urethra, and a drug-coated balloon is placed at the stricture junction in the urethra and then inflate it, where it opens the stricture and also disperses an anti-proliferative drug that has a clinical a lasting clinical effect on the tissue. And today, we have two indications. The one on the left is stricture. The one on the right is benign prostate hyperplasia, or BPH. Two very attractive markets, but two very different markets. The stricture market is about $2 billion today. It's growing at about 6%.
It's historically been a very underserved market. No new technologies here in the last 20 years. And urethral strictures, they cause bladder distension. Patients have a difficult time urinating. These patients are typically using intermittent catheters, or they're going in regularly to the urologist and getting balloon dilation every few months. Or they're using other instruments to dilate the urethra and unblock the stricture. And in extreme cases, they have, they have what's called urethral reconstruction surgery, and this is a maximally invasive procedure that isn't without its risks and potential side effects. Even so, that's the gold standard in stricture. There are about 11,000 maximally invasive urethral reconstruction surgeries performed every year. Okay?
When Optilume was able to show a durable improvement in flow rates with no adverse events, you can imagine the enthusiasm that we generated in the urology community. Already in this year, this is only the second year since launch, we will exceed 12,000 Optilume stricture cases. So think about that. 11,000 per year is the gold standard, and we're already at 12,000 in just our second year. So it's a great product, great results, very low adverse events, and I think a lot of, a lot of headroom to go with stricture. Likewise, in BPH, there are many options for treatment, from pharmaceuticals to minimally invasive surgical treatments, also called MIS, up to the gold standard, which is transurethral prostatectomy, and that's obvious, that's usually referred to as a TURP procedure or a TUR.
The BPH market is bigger. It's about $13 billion today. It's growing at about 6%. It's very competitive. If you look at the names of the companies there, you would recognize most, if not all. The treatment options are varied, and it usually depends on patient selection and the clinician experience on what treatment pathway the patient will go down. Again, none of the procedures are perfect. None of the pharmaceuticals are perfect. They all have varying levels of effectiveness and come with varying levels of side effects and risk. The clinical results are typically tracked in post-surveillance studies, so we have a pretty good view of what's available out there and how effective it is.
And so, again, when the clinical results in the PINNACLE study, that was the landmark study for Optilume BPH, were published in September, in the September Journal of Urology, we found that Optilume BPH provided immediate and sustained improvement with virtually no adverse events, that the procedure can be done in the office or in the clinic. Again, you can imagine, when we looked at results one year post-procedure, and those results were very durable, the enthusiasm for Optilume BPH now is very high. That product is just being launched today. It's being met with tremendous enthusiasm, and I think we've got two great technologies that are going to provide us some real growth opportunities here in interventional urology for a long, long time.
I want to spend a few minutes now on the strategic imperatives and, you know, what else are we doing to deliver on our growth opportunities, and, you know, how, how do we benefit from new technologies? What are we doing in terms of innovation, sustainability, M&A, and also geographic expansion? Go to the next slide. At Laborie, we divide up our strategic imperatives by the rooms that they support. For example, any imperatives that are designed to improve the customer experience and deliver revenue growth are in the customer room. Those would be, you know, voice of customer, commercial, clinical support, service. Any imperatives that support supply chain manufacturing, logistics, deliver improved, or margin expansion, lower costs are in the engine room. The future room is exactly what it sounds like.
Those are imperatives that address evolving technologies and techniques, deliver new products and services, so R&D, new product development, PLM, M&A, all resides in the future room. And then finally, imperatives that concern our employees' skills, capabilities, and broader goals that support our company are in the people room. If you look at a couple examples on the next slide in our customer room, you know, we continue to invest in artificial intelligence and virtual reality to elevate our customer experience. Two areas where we're, where we're—we've just launched into, and we're, we're meeting really nice success. One of them is in virtual reality training on NXT PRO, which is our latest generation of urodynamic systems. This system can support training from basic all the way to advanced levels.
I think you heard from one of the previous speakers about the turnover rate in, in healthcare workers, and staff turnover is, is an ongoing issue. Having technology that allows for modular training or virtual training has been a real godsend for us and for our customers, and so we're very proud of this. We're going to continue to invest in it. Another example is the virtual reality training that we have in place for urologists, so they can actually practice the Optilume BPH procedure, perfect their technique before performing it on a live procedure. So two real good examples of using technology in the customer room. If you go to the next slide... as our portfolio evolves and matures, we see a continuing need for R&D investments.
Only instead of spending heavily, like we have in the past, on next-generation hardware, we see an increasing focus on software, on consumable, procedure-based products, and on clinical research to differentiate outcomes, especially, and also AI for procedure automation and support that I just spoke on. The other R&D area of investment that we're making is in sustainability. So sustainability in designs, in materials, and packaging. We're looking for ways to not only take costs out, but also to reduce waste and emissions, and we're tracking those. Other sustainability initiatives are on the next slide, so if you'll flip to there. We track and measure ourselves against four meaningful sustainability targets. The first one is 100% code of conduct, training, and adherence for all employees and agents. There's a zero tolerance to anything less than that.
The second one is health and safety goals, which include world-class incident rate targets at all sites. We want to provide a safe environment for our employees, for all stakeholders involved with Laborie. The third one is we strive for a diverse workforce and leadership team from a gender perspective. The fourth one is we've set a 50% reduction goal for Scope one, two, and three CO2 emissions by 2030. We report out on this on a monthly basis to our board, and I'm pleased to say that we're on track to deliver on each of these sustainability targets. So let me just take a breath here and wrap up a little bit by providing a little bit of history on the company, and maybe a little bit of outlook on where we're going.
The next slide. As I said, Patricia bought Laborie in 2016, and I joined one year later, and since then, with, with a lot of their help, we've aggressively used organic growth, but also M&A to help future-proof the business. Starting with the Cogentix acquisition, as you're moving left to right on this, on this slide, in 2018. Even during the lockdown years, we integrated Clinical Innovations, which added our OB global business unit. We added GI Supply in 2022, which gave us scale, both channel scale and portfolio scale, and also a basis for more bolt-ons in the GI space. Up until last quarter, when we signed the Urotronic deal, which, which closed at the end of October, which provides us, again, an innovative technology in the, in the interventional urology space.
So you can see, we've been very busy, both organically, launching new products, iterating on the existing portfolio, but also doing quite a bit of M&A work to help future-proof the business going forward. If we look at the next slide, which is a recreation of that timeline across the top. But below the timeline, we can look at the Laborie revenue growth from 2017 through 2023. And being that we just closed the third quarter, that's a quarter three last twelve months view, the last box there. But our base Laborie UR business, which isn't on this chart, has grown at 5%, which is about 1% above the competitive urology market that I showed you earlier, 4%.
When you include all of our aggregated acquired businesses, the total revenue CAGR is 17% over the same time horizon. During that same time frame, we've also expanded our recurring EBITDA margin by about 900 basis points, going from 25% of sales to 34% today. Which doesn't include, you know, some of the one-time costs associated with those acquisitions, but it's a recurring, a recurring EBITDA. And I would point out, you know, similar dynamic to what you've seen in other companies going through the lockdown years, a slight dip in 2019, and then a return back, dealing with some of the some of the supply chain and cost pressures, some of the inventory issues last year. But, you know, as we're sitting here today, the trajectory is pretty powerful, and it's pretty, it's pretty optimistic.
So again, market-leading growth and margin expansion, which especially given those middle lockdown years, I think is a pretty good trajectory. And one we believe, you know, will only improve as we continue to see a return to pre-pandemic procedure rates, as well as the scale-up of Optilume stricture and the launch of Optilume BPH. We believe, clearly, our best days are ahead of us. If we slip... Go to the last slide. So let me just conclude by saying that, you know, Laborie is well positioned in very attractive markets. We're focused on maintaining our leadership and expanding our leadership. We see complementary acquisitions and talent as differentiators. Innovation, agility, and continuous improvement are keys to our long-term success, and we'll continue to invest in those key initiatives.
With that, I will. I'll pause, and I'm happy to take some questions.
Thank you, Mike, for that very good run-through of Laborie. Very exciting indeed. And seeing if there are any questions, I'd like to start with, as you say, you've made quite a few significant acquisitions in the past few years. So what would you say are the key learnings from these when it comes to integration, realizing synergies, and so on?
That's a good question. Thank you for that, Magnus. I think I've been in this space now for over 35 years, and previous companies I was with were also very active in M&A. And I would say the first learning is that in a dynamic space like medical technology, I believe M&A is critical. It's a critical tool to future-proof the company. So that's kind of above all. And then in terms of doing M&A, what are the learnings? There's a lot of them, but I would start with diligence. I don't think there's any shortcuts when you do an M&A. Got to diligence a company, and it doesn't matter whether it's a large company with multiple platforms, and we've made a couple acquisitions of some pretty mature companies.
We've also acquired some bolt-on technologies or single SKU companies. They both require complete diligence in all of your resource and control functions. If you don't do that, and you don't do it well, you can run into problems. So, that's probably my biggest takeaway. And I guess the only other thing I would add is, it's okay to say no. So we, we've got an ongoing effort to, you know, scan the horizon in terms of what's available out there, what looks like a good fit for our business, what do we think we could buy and be a great owner for?
But not everything works out, and so it's okay to say no, and if it doesn't meet your requirements, if it doesn't look like it's gonna fit, you have to have the ability to just walk away.
Thanks. But I guess the appetite for additional M&A is still there, but perhaps... Or would you say that more of the growth would be organic in the next few years, given the Optilume opportunities and so on?
Well, I think there's a, I think there's an opportunity to do both. I don't think they're mutually exclusive. We are already investing in indication expansion for Optilume. There are other pathologies, like urethral strictures, bladder neck constriction, and there are even other potential indication outside of urology that might make sense and that we may be interested in pursuing. And within our own—and with the rest of the tech, with the rest of the portfolio, we also have opportunities to grow organically. But yeah, we also will balance that with M&A. We'll continue to look for opportunities, whether those are single SKU-type companies or larger enterprises. And, you know, I think we would start in our existing business units because there's plenty of...
As I showed you, there's plenty of opportunities to grow, you know, within those four global business units.
Well, thanks a lot, Mike. There seems to be no further questions right now, but very helpful and informative presentation, and it's gonna be great coming back to you over the next few years to see the development. So big thanks for today.
Thank you, Magnus.
Thank you.
Have a great day.
You too. We acquired Advanced Instruments, a true leader in very attractive niche, just a couple of weeks before we had our capital markets day back in 2020. And given that, we thought we'd better give the management some time to focus on the business and get to know the new owners, instead of pump-producing a lot of slides for external use. But now, three years have passed since then, and having made great progress during this period, it's a great pleasure for me to introduce CEO Byron Sellman. So welcome, Byron.
Thank you, Magnus, and good morning, good afternoon, good evening, depending on where you are. It's really great to be here today, and I appreciate the opportunity to present Advanced Instruments, talk a bit about who we are, how we're gonna grow. So a little bit of history. I joined Advanced Instruments back in 2017, and I would say it's been an incredibly rewarding journey for myself and my team, bringing a relatively slow-paced, single-digit growth company to a fast-paced, double-digit growth company that we are today. And what's even more exciting is the fact that we've just really scratched the surface with regard to our opportunities. So let's go ahead and begin with a quick overview of who we are. So who is Advanced Instruments?
Well, certainly, we are a global leader in the lab-based analytical systems in the applications that we serve, but when you dig down into our DNA, we really are an innovation company, and that's something that started very, very early on in our creation. You know, we were founded back in 1955. We were a distributor. We actually acquired the product we were distributing, transformed that technology into an osmometer that was gold standard then, and interestingly, is gold standard today. That core technology still remains today. I know it's been significantly enhanced, of course, but the core technology remains the same. And, you know, through our history, we've gone through a series of growth segments, right?
After the Patricia acquisition, we've seen our largest growth, and that was nearly doubling our business, $76 million-$150 million. And we did that through both organic and inorganic. We'll talk about both of those, but it's through a number of new product launches, expansion internationally, and through three very strategic acquisitions, our Solentum acquisition, our SAL Scientific, and most recently, our Artel acquisition. All these drive very profitable growth for us. We've consistently been over 40% EBITDA margin. We target very attractive markets, clinical, biopharma, food and beverage. Clinical is kind of our core, where we've been for decades, represents roughly half. Biopharma, probably our most exciting, to be honest with you, not only where biopharma has gone, but maybe more exciting about where it's going.
And a global platform of our products. We've been heavily North America-based, and you can kind of see that in our split, 75% in the US, 25% international. And that just screams opportunity for us. You know, our products are global in nature, and it's really about putting the right commercial effort and... Which is exactly what we're doing in our investments to get that moving forward. And we're gonna do that all through heightened, I'll say, sustainability. It's something that was always important to us, but it certainly has accelerated with the acquisition with Patricia and Investor AB. So if we can go to the next slide, I just want to take a deeper look at some of the characteristics.
If we go to the next slide. Thank you. If you take, you know, the top row of this slide, what you'll see is that innovation, kind of, kind of screaming out. We've launched six new products in the past two years. And we expect that to continue, incidentally. We've gained quite a bit of market leadership through these core technologies. We have over 12,000 systems installed globally. So basically, every hospital in North America has one of our osmometers, and we can absolutely leverage that as we bring our new products. Which go on to the next bullet, which is our three acquisitions that we've had, which has really complemented and added to our overall strength in terms of technology. And what's exciting about all of the products that we have, we see significant recurring revenues.
Over half of our business is based on recurring revenues, and that is everything from the plastics that are used, the reagents that are used. Also, one of our biggest growing areas, in terms of recurring revenue, has been our service that we provide to our customers. We do all this, as I said, in very attractive markets. In fact, if you look at our biopharma market, the top ten biopharma companies in the world are our customers, and that's across the globe, throughout the international markets. All of this is being led by a very strong management team with some deep experience. You know, I'm fortunate enough to be able to have that team on board, and it's certainly a key critical element of our success.
But if we go to the next slide, you know, it is all about our products and our technology, and we have four, four, product portfolios. The first I want to talk about—all of these, incidentally, are highly differentiated. All represent gold standard in terms of what they provide in the space they serve, and that's what we go after, whether it's our organic development or inorganic in terms of acquisitions. But, let me talk about the first one. It's in biodrug development, and this is, the Solentum portfolio, is one of our recent acquisitions. This is an automated platform. It's actually an ecosystem of three products that work seamlessly together to identify key cells that are used to develop biologic drugs. Think of it as, as finding the raw material, for your biodrug process. It's very untapped.
I'll say that, too, with a whole series of new products that are going to be coming out. Next is our osmometer portfolio. It's split into two, clinical, as well as bioprocessing. On the clinical side, used to rapidly diagnose patient illness and setting treatment. It is, it really is a standard of care, used throughout the world. On the bioprocessing side, our osmometers increase yield, better quality, purity of pharmaceuticals. It's you know, regulatory requirements are such that every infused product, and I should say FDA, every infused product, through the FDA requires an osmolality test. So it's, it's really, again, standard of use, I guess, in bioprocessing.
Finally, our Artel product, which is our latest acquisition, and this one's particularly exciting because it doesn't focus necessarily on any single industry. It's any lab, anywhere that has a pipette, has a liquid handling, automated liquid handling, is an application, is a customer of ours. And so it's something that recent acquisition, small company, lots of potential and expansion. We're very excited about that. So if we can go to the next slide and take a look at where we are geographically. And what you'll see here is that we are in very key, very important, geographic spots around the world. Our corporate headquarters are in Norwood, Massachusetts. We're about 30 minutes outside of Boston. One of our recent acquisitions, Artel, is in Westbrook, Maine. It's about two hours away. You'll see we're located in the Northeast.
The Northeast represents the largest biotech growth sector in the world today. So we're incredibly well positioned for that. Another acquisition brought us into a much larger location within the UK, in Wimborne. That's where we house our Solentum products, and we have R&D manufacturing to help support also EMEA, which, in 2023, our fastest growing.
Okay, we have some difficulties here, so we'll be back shortly.
... Can you hear me now?
Now you're getting after me.
Can you, can you guys hear me?
Yep.
Okay, sorry about that. Appears my main system just went down. So hopefully you can hear me all right, and we'll continue this way.
You can well.
Okay. Okay, if we could, we could go to the next slide. Okay, let's talk a little bit about the markets. You know, we talked about the key markets that we're in, bioclinical and food and beverage. And, you know, despite some of the challenges that we faced due to COVID, what we continue to see is the fundamentals have remained strong, and the industry trends all heavily support our long-term growth across all these segments. You take biopharma as an example, right? Just look at the biologic drug market. It's projected to more than double by 2032, with nearly 9% CAGR. If you look at cell and gene therapy, which is a key segment within bio, one of the fastest-growing segments, is a key area of focus for us at 23% growth.
All of this is moving towards a more complex drug modality, advanced therapies. All of that support or I should say that our strategy supports some of the complexity of these drugs with the systems that we have. One of the key areas that has developed in our industry, and certainly we've been on the leading edge of within our applications, is automation. We'll talk a bit more about that. And that feeds not only greater accuracy and speed, but also staff shortages that have plagued the industry and in particular on the clinical side. I mentioned, you know, COVID did have an impact. Some overcapacity was built. We see that as abating, and in fact, we're seeing an uptick in 2023.
And then some of these geopolitical and macroeconomic factors are having a bit of an impact as well. But again, we see that as relatively temporary and not as impactful. Overall, as I mentioned, innovative platforms, all of these focused on not only where the industry is today, but where we see it going in the future as we support our customers. So if we could go to the next slide. So how are we going to grow? Well, our growth is going to be driven by three core areas: our technological innovations, again, something that's driven us since our beginning, a direct customer engagement and continued evolution of our global expansion with our product lines.
So let me just talk a bit about our technology, and, you know, there's no doubt that automation has been in the forefront of what we do. And you can split automation into two categories. All right? It's hardware with robotics, and it's software with artificial intelligence. All of these are key in driving products that not only serve the demand for rapid analysis of high data loads and predictive analysis and extreme line workflows, but also where regulatory agencies are developing. So, you know, our products are designed not only to improve workflows and, and, and provide purity and, and accuracy, but also satisfy the regulatory agencies. And you see three examples down below of some of our key products. Our Osmo PRO MAX, which provides automation in terms of pipetting and testing in hospitals.
Our Cell Metric, which is part of our Solentum product line, that drives cell analysis and automated plate handling. Our Studio Software, which enables an AI engine across all of our Solentum products, our ecosystem, that drives predictive analysis and brings drug development to, to a whole new level. We're very excited about all these technologies that are out there. The next slide, Magnus. In terms of direct customer engagement, you know, it's something that, that has led to our position in the market in North America, and we're looking to leverage that in other regions. You know, the complexity of our products and the efficiency of being able to drive these technologies, can done best only by direct customer engagement. You know, as a smaller company, we relied quite a bit on distributors.
We're evolving away from that in key areas and transitioning, in particular, areas like Germany, Benelux, China, South Korea. All these markets are moving towards, for us, direct engagement with a direct sales team, and we see that accelerating. It's not just having that direct engagement, but it's having the right type of engagement. It's not just a sales rep, for example. It's bringing service, scientific support, customer service. It's multifaceted customer engagement that leads to a much better experience for our customers, which will enable us to continue to expand and grow. Finally, if we go to the next slide, Magnus. Ability to now take a product and products of ours that are heavily commercialized within North America and expanding globally, and Artel, great example of this. We recently acquired Artel.
Over 90% of their penetration was in North America, and we see that expanding significantly over the next year or two. And, we're investing, as I say, in a team to support that and really excited where that's going. If we go to the next slide, Magnus. All of this is being future-proofed. It's something that I talked about with regard to sustainability in the first slide. It's something that we certainly have always taken seriously but have really accelerated under the guidance of Patricia and Investor, which has been great. And as we think about sustainability, you know, it's certainly minimizing an environmental impact and understanding the impact that we do have, but it's also the ability to continuing to deliver innovation, to deliver these products, and to support our stakeholders, our customers across the board.
Understanding that has really been a key pillar of our business, and we've taken a number of meaningful steps. We now have a dedicated resource that specifically leads our sustainability effort corporate-wide. We've embedded that now in our culture, and so we have a number of initiatives that are underway and certainly embedded it within our code of conduct and other communications internally. So we're making steady progress. We know we have more to do, but it's something that, as I say, is very much embedded within our culture, and we'll continue to help support and drive our growth moving forward. So if we go to the next slide, what does it all mean in terms of numbers? You know, I mentioned we've gone through multiple phases of growth throughout our history.
You know, the early part of the years, or I would say the majority part of the years, was about that scientific foundation, about innovation. When I came on board, it was, it was a lot about execution, where we were able to go from 9% - 13% CAGR, and more recently, it's been now accelerating growth and accelerating that platform. We've been able to, to drive 25% CAGR since acquisition by Patricia. If we go to the next slide, my last slide, I just wanna summarize and kind of bring it all together, and I hope you see that, not only are we in attractive markets, but we're an innovation-based company that has significant opportunities from a global expansion perspective.
It's something that is in our DNA, and started as soon as we formed as a company and certainly continues. We continue to invest heavily in R&D to support our long-term growth. And I would say that goes parallel to investing heavily on our commercial team, you know, as we think about our international expansion, which is absolutely key to us here in North America. So it's a platform that, as I mentioned, is growth organically and inorganically. And inorganically is an area that is something we've just accelerated over the last few years under Patricia ownership, and it's an area where we see significant opportunities to bring additional technologies on board. So overall, we're excited about where we're going.
We believe we're well positioned for long-term profitable growth, and it is absolutely realistic for us to expect from ourselves, you know, doubling our business within the next five years, and look forward to leading that charge, as does my team. So hopefully... Apologies for the technical glitch, but hopefully that was a bit informative for you, and happy to answer any questions that you have.
Thank you very much for that, Byron, and I can assure you that you've raised the knowledge about Advanced Instruments by 1,000% or so externally through this presentation. We have a question for you from one of the participants, and that is: Could you give us the rough split of revenues between the different segments, please? Okay, we seem to have some technical difficulties. We'll just give it one more shot.
Magnus, I'm sorry, I can't hear you, but can you hear me?
I can hear you.
Is it possible to type a question maybe on the chat box?
Um-
Oh, I can hear you now, Magnus. You just came on.
All right, great. So I'll just repeat the question then. It was about the revenue split between the different segments to begin with, and then if you could-
Yeah
... provide a little more color on the long-term prospects of the different segments.
Yep. So from a revenue split right now, clinical and bio are fairly equal in terms of size. We've seen over the recent years, bio accelerating quite a bit. Food and beverage maintains a really, a relatively small area for us. It's not an area of investment, but it is an area of opportunity for us in the future. With regard to where each segment is going, we see clinical continuing to grow at a strong pace. In fact, we are in the double-digit range, and that's gonna be driven quite a bit by international, and some of the new product technologies that we're launching as we accelerate our replacement cycle. I should mention that planned obsolescence is really key for us.
And when you have a very large install base like we do in clinical, the key is to continue to innovate and continuing to change out our equipment earlier than the service life, because of the value and the features, and we see that continuing on clinical. On bio, we see significant acceleration, and that's driven not only by the technology that we have, but just where the market is going. I think there's been a bit of a slowdown during COVID, but we are seeing some real signs of that picking up, investments coming back in, and we're very well positioned for that.
Thank you. I'm also gonna ask you the same question that PM got before. You've now been part of the family for a few years, and, and what's your reflection so far? How, how has it been being owned by Patricia Industries, and how has that helped you and will hopefully help you to continue to grow the business going forward?
Magnus, I think you just came.
All right. Last question again. You've been a part of the Patricia family for a few years now, and, curious to hear your reflections on how has it been owned by Patricia Industries, and, how can we help you continue to grow going forward?
Yeah, absolutely. Thanks for the question, and I’ll start with more in general. It’s been great to be part of the Patricia family and the support that we’ve received. I would say specifically, I talked a bit about acquisitions and organic growth. M&A has been a strong growth area for us, and that’s really been through the guidance and the consultation through Patricia, which has been great. We had not acquired a company in the previous ownership, and we’re in the right position now to do that, and Patricia helps us to find the companies to side by side with us in due diligence, and ultimately help provide some guidance with how we should think about integration, which has been really helpful, and it’s been a real partnership.
I would also say just some of the expertise across the Patricia and Investor family, and our ability to work with some of the portfolio companies, has been great and brought significant value for us. So we enjoy the Patricia model, and I speak for my team when I say that, and look forward to the continued partnership.
Well, with that, thank you very much, Byron.
Thank you, Magnus, and thank you.
All right, Johan, you're back with me here at the table, and I must say, I think we've had a great afternoon. And I think and hope that our main messages have come across fairly clearly, but what would you say are the key takeaways from today from your side?
Thank you, Magnus. First of all, I hope that you have all enjoyed this afternoon. I certainly have. But there are a couple of things that I would like you to bring with you. First of all, we have a well-proven business model. We have a clear strategic direction, and we are an owner of fantastic companies, companies with strong market leading positions, profitable companies, and with good growth opportunities. We also have a very strong financial position, so we are ready to capture opportunities out there. And finally, we have excellent people, and people really makes the difference. So thank you very much for participating today. And with that, over to you, Magnus.
Thank you, Johan, and thank you everyone who has listened in and participated today. Thank you all the participating companies as well. We hope you have gained an increased understanding of Investor, of our strategy, and our portfolio, that you said, Johan, is made up of great companies. You will find all the presentations from today on our website, and you can also go back there if you want to re-watch this event. We hope to see you again on January 19, when we re-release our Q4 results. With that, thank you very much and have a great weekend. Bye.