Welcome to Investor’s Q2 presentation. Today we will start off with our CEO, Johan Forssell, presenting the results and then followed by our CFO, Helena Saxon. After that, we will open up for a Q&A session. You can follow this presentation over the web or over the phone. By that, I would like to hand over to you, Johan.
Thank you, Viveka. And welcome everybody to this report about our second quarter result. As we all know, we are living in a very, very turbulent times. The combination of sharply rising inflation and increased interest rates and most macro economies worrying about the macro outlook, of course, we have seen a sharp correction in the stock market. If we look forward, I think we should be prepared for tougher times. As always, the outlook is uncertain. We are for sure preparing for tougher times if they should come. In this environment, we stay very close to our companies, and I must say that I'm pleased with the development of our subsidiaries within Patricia during the quarter.
We are seeing price increases gradually coming through, and I think that is important given the cost increases we see worldwide. From that perspective, of course, it is a strength that our companies have market leading positions in attractive segments. That means that they have pricing power, so they can gradually now put prices up, and price management remains a key priority for us. If I then move over to the second quarter, we can see that our share price was down more or less in line with the market being down 17% compared to the stock market being down 16%. We can also see that our net asset value was much more resilient, being down only about half of the development in the stock market. There are two main explanations for that.
The first one being that our listed companies were down only half of the stock market in the quarter, and the second one is the strong operational performance in our subsidiaries during the quarter. If I then say a few words about the listed companies, as mentioned, the total shareholder return was down 8% in the quarter, while the stock market was down 16%. Here, of course, AstraZeneca, Saab, and Sobi performed strongly, and significantly outperformed the stock market. There are two main reasons I think for that. First, we have had good positive news flow in these three companies. Secondly, there is of course also market shift to more defensive stocks.
As mentioned previously, we are staying close to the companies and we are basically working both when it comes to managing the current challenges, make sure our companies invest for the future, R&D, in transformation within sustainability, for example. Finally, also, in some cases to make sure you prepare for potentially tougher times, even though many other companies, of course, are active in more resilient industries. For some of these companies, the focus is more capturing all the growth that is out there at the moment. Moving over to Patricia Industries, the total return was up 2% in the quarter, and that's a combination of a strong operational performance, currency gains, and mitigated then by multiple contraction.
If we look on the operational performance, the aggregate sales was up 26%, of which 8% organic in constant currency. The adjusted profit was up 17% in the quarter. Advanced Instruments and Piab completed the strategic add-on acquisitions of Artel and Joulin. Patricia Industries invested about SEK 0.7 billion in these investments. We have a continued high focus on capturing additional opportunities, and the pipeline remains strong. A few words about the different companies. Atlas Antibodies grew at 21% organically and with increased profit margins. We see a very strong development, not the least the latest acquisition, Evitria, which today is a very sizable part of this business. BraunAbility continued the recovery growing nicely and also improving profitability.
In Piab, we saw 17% organic growth in the quarter and the profit margin remained at a good level, but was down somewhat, and that is driven by a combination of investments in sales and marketing and also increased costs. Advanced Instruments had a very strong development once again with 16% organic growth and a high profitability. Here, the margin deterioration compared to the previous year is a combination of significant investments to grow this business and also the mix effect of the acquisition of Solentim, which have lower margins. That is a pure mix effect. The underlying performance here is very strong. Laborie grew 9% in the quarter, and here we actually saw that the margin was down 6%-7% compared to last year.
That's a combination of increased costs and some supply chain challenges. It's also, to a large extent, related to significant investments in new product launches. One important one being the recently acquired Optilume that the company acquired. Sarnova is good, solid development, growing 6% organically with good profitability. Mölnlycke, I will come back to. Finally, Permobil was the only company that didn't grow organically in the quarter. We saw a good growth in Europe, but the growth in the U.S. was negatively affected by supply constraints. I should also say that when it comes to Permobil, during the quarter, the company also changed their ERP system, which affected both sales and profitability somewhat. Moving over to Mölnlycke.
Here we saw a very good development in the quarter with organic sales of 5%. If we exclude the PPE contract last year, the organic growth was 9%. This was the last quarter with the PPE customer contracts in the comparison period. Now we are through that comparison period. If we exclude the PPE contracts, all business areas actually grew in the quarter. Wound Care reported a very strong growth at 11% organically. I think it's great to see that gloves is now also back growing again, and they grew 6% organically in the quarter following a period with severe production and distribution challenges. The production is now up and running, but the company is continuing now to invest in more manufacturing capacity because the underlying demand out there is very strong.
If we then look on the profitability, you can see that we continue to see a sequential improvement. If you look on the development in the quarter, we can see that despite continued cost increases in raw material and logistic cost, the EBITDA level was EUR 125 million, and that can be compared with about EUR 110 million on average for the last three quarters that were also unaffected by the PPE contracts. We are seeing an improvement also in the profitability in the quarter sequentially. Moving over to Advanced Instruments. This is the first quarter that we market value Advanced Instruments. We have held it at cost for the first 18 months since we acquired the company. Just to repeat, this is an excellent company which I've highlighted before.
They have really leading market position in attractive segments with strong growth. Since we acquired this company, the average annual organic growth has been about 20% per quarter. You can see that the profit margin has been well above 40% over this period. The company has also made two important strategic acquisitions with Solentim and Artel, really strengthening the position within the important biopharma segment. If we then look on the valuation of the company, in total, we have invested SEK 7.5 billion in this company. The estimated market value now is SEK 10.6 billion.
The value increase has mainly been driven by the very strong operational performance I just showed, but also strong positive currency effects since this company has a very significant part in the U.S., and we have seen a much stronger U.S. dollar. This has been offset by a multiple contraction. Just to give you a flavor of it, when we acquired Advanced Instruments, we paid 24 times profit for it. Now in this valuation, we value the same legacy Advanced Instruments at 19 times. The add-on acquisitions we will keep at cost for an 18 months period like we did with the original acquisition. All in all, this means that we have seen a multiple contraction of about 20% since we bought it.
Still we can actually show this good value increase, which I think is an excellent start of this company. Moving over to EQT, down 26% in the quarter, and that is mainly the key reason here is the sharp decline in EQT AB on the stock market being down 43%. The funds actually was up somewhat in the quarter. We had an excellent cash flow of SEK 3.8 billion in the quarter. As you can see to the right, of course, one should be aware that this can be lumpy over time. A very strong cash flow this quarter driven by a couple of successful exits. To summarize, I must say that I do believe that we are well-positioned if we will now enter tougher times.
I should say I don't have a crystal ball. I read the newspapers as everybody else. It is not unlikely that all the headwinds facing the consumers worldwide will gradually start to affect the demand in the world economy and not as now, mainly the supply challenges. I think that if we enter tougher times, we are in a very good position for two main reasons. First, we have, for many years, invested in and built up a strong portfolio of companies within healthcare, med tech, automation, companies that have high profitability and strong cash flow generation. Of course, this is a strength if we enter tougher times. I do believe we have a strong and resilient portfolio. Secondly, we have been active over the last three and a half to four years to really refinance our debt.
Helena will come back to that later on, but that means that we have a very good duration and low interest rates on our long-term bonds, and we have a strong cash position. I think the combination of a solid, strong portfolio and a very good financial position puts us in a good position if we enter tougher times. Of course, if tougher times come, one needs to be prepared for it, but I do believe we are well-positioned if that would happen. With that, I hand over to Helena.
Thank you, Johan. We will have a look at the net asset value development over the last five years, and we can see that the quarter ended at SEK 610 billion, and the average annual growth with dividend added back was 12% during the last five years. Looking at the return by business area, we can see that it is a mixed performance between the three areas. Patricia Industries being up 2%, Listed Companies down 8%, and Investments in EQT down 26%. With the mix that you see on the pie chart on the right-hand side, this all combined comes down to -9% in the quarter compared to SIXRX -16%.
Looking a bit more carefully at 2/3 of the core portfolio, which are the listed companies, we can see that also here there is mixed performance. While some of the capital goods companies had a tougher quarter from a share price perspective, we had strong contributions from AstraZeneca and Saab in the quarter. This all-listed portfolio's TSR was actually down 8% then compared to SIXRX 16%. Moving over to Patricia Industries, almost a quarter of the portfolio, this graph shows the sequential change in estimated market values, or i.e. the change here in Q2 compared to Q1. Johan has already touched upon it, but an important contributor to the value increase here is the fact that we no longer value Advanced Instruments at cost, but we try to estimate a market value for it.
We can also see that Mölnlycke, 3, and BraunAbility contributed, while Piab and Permobil had tougher development. As Johan also mentioned, SEK 700 million has been provided in the quarter in acquisition financing, which affects Patricia's cash position. Looking more carefully at the drivers of estimated market value, again, Advanced Instruments for the first time valued at estimated market value. Here also SEK half a billion was provided in acquisition financing during the quarter. Mölnlycke's value was up SEK 0.4 billion, and this was driven by currency, higher earnings, and cash flow that were all impacting the value positively. Here we saw multiple contraction impacting the value negatively. Looking at three, also up SEK 0.4 billion. This was due to higher multiples as peers have had multiple expansion and higher earnings impacted both positively.
There was also distribution in the quarter of SEK 80 million. Piab was down SEK 0.3 billion. This was due to higher earnings which were positive, but then mitigated by lower multiples which impacted the value negatively. Yes, also here there was financing provided by Patricia in the quarter. Permobil down more than SEK 1 billion due to lower multiples impacting the value negatively. Johan mentioned our strong balance sheet. Having a look at this graph, I just wanna start by saying we all know that we have a very long-term ownership horizon when we think about our companies. With this perspective on the asset side, we in the finance and treasury department try to match that by borrowing really long-term debt.
We have managed actively the balance sheet for the last three to four years and borrowed as much as SEK 23 billion in the Eurobond market. The average maturity of these bonds is 14 years, and the average fixed interest rate roughly 1.5%. Our next maturity, as you can see in this graph, is in 2029. If you compare this graph to what is in the quarterly report, you might be missing something on 2023, but that is actually a repayment that went out earlier this week. We have nothing to repay until 2029. The average maturity out of the total debt portfolio is now over 12 years.
In this turbulent quarter, we still have leverage at the low end of the target range for leverage 0%-10%. We are at 2.3% currently. Finally, looking at the average annual total shareholder return. Of course, it has been weaker in the last few periods here, but looking at all periods, we have managed to outperform SIXRX, which is very positive.
Thank you, Helena, and thank you, Johan. We will now open up for questions, and we will start with questions over the phone. Over to you, Ariana, who will be facilitating our questions over the phone.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. The first question is from Joachim Gunell with DNB Markets. Please go ahead.
Thank you and good afternoon. Starting off with a topic that we're seeing across most industries, with the inventory build up across several steps across the value chain to secure delivery capability. Can you just talk a bit on a broader level, and we can stick to Patricia Industries if you want to. What's your view on, say, risk that it could pose a threat to order books for the remainder of the year?
Sorry. The inventory build up, that we have seen and that we see of course in many cases, what was the question related to that?
Whether you think that there could be some error in order books, so to say?
Ah.
If order books are boosted, could that pose headwinds for the Patricia Industries?
Yeah.
Holding for the remainder of the year?
Yeah. It's of course a very relevant question, Joachim, and it's also very difficult to answer it. It's very clear that we are seeing supply constraints out there. Many companies are of course building extra inventory of components to be able to deliver. I think that is especially true in companies with very high gross margin because then it's actually very favorable economics to do that. For sure that is the case. This means that I do believe that you call it front run some of the purchasing, and that is one area. That must not lead, of course, to cancellations going forward. That's a different topic. For sure, we have probably seen some pre-buying, so to speak.
Understood. Speaking to Patricia in Mölnlycke and the pretty strong organic growth in light of the tougher comps here, can you say anything about the mix of volume versus pricing in this case?
No, no. You know, we report the organic part, but what I can say is that of course, pricing is normally lagging because in some cases you have contracts while the cost increases in many cases comes quicker. There is a very high focus in Mölnlycke to increase prices, and we are gradually seeing that coming through. The biggest price increases have been done with the ORS business, and that is basically because of we need to improve or the company needs to improve the profitability within the ORS business. The company has a high focus on continuing to work with price management to offset cost increases. We can see that it's gradually bearing fruit.
Understood. A final one with regard to that, we have seen, let's say, limited investment activity in the listed portfolio despite your very strong balance sheet and asset decline year to date. Should this be seen in the light of that you expect, say, valuations to decline further or that you want to emphasize building the Patricia Industries platform?
No, you should not read that into it. First of all, I should say that, you know, we continuously try to invest in all business cycles. Actually we looked into it and on the investments we have done over the last three strong years in the stock market, 2019, 2020, and 2021, where we had very low interest rates and high market valuations. During these periods, we have actually invested SEK 28 billion, SEK 10 billion on the listed market and SEK 18 billion in Patricia. Even in these strong markets, when we look on the return, the return on the listed part has been well above our return requirement on these investments.
Also, it looks very good on the investment we've done in Patricia, the biggest one you saw today with Advanced Instruments in that area. That's the first comment. We are for sure always looking into new investments. The one thing that I can say is if you talk about the listed companies, one should of course be aware of the fact that in many companies, we own 30% or more or very close to 30%, which basically makes it impossible for us to buy in those shares because then we need to put a bid on the company. Secondly, we are actively working on the boards in our companies, and that means that we are quite often restricted, definitely ahead of the quarterly report, but also for other reasons, we are restricted in many of the companies.
We have a strong financial position as Helena presented earlier, and we are for sure ready to act if we should see attractive opportunities here in these turbulent stock markets.
That's very clear. Thank you.
The next question is from Derek Laliberté with ABG. Please go ahead.
Good afternoon. I was wondering if you could give some details on what drove this really impressive performance in the wound care business of Mölnlycke. Whether some resolved supply chain issues made deliveries possible, and also if there are any sort of underlying reasons in the market or product specific, and also if there are any specific markets within EMEA that drove this. Thank you.
I think that the strong development, first of all, we have seen for a number of years that Mölnlycke has gained market share in wound care, and that, of course, is really good to see. From a demand perspective, I think we are also seeing, and that is affecting wound care, but also other parts of Mölnlycke positively, is we have seen a comeback when it comes to elective surgeries. That has also had a positive impact on the company after, of course, the low levels during the pandemic.
Okay, great. Thanks for that color. That was all from me right now.
Thank you.
The next question is from Oskar Lindström with Danske Bank. Please go ahead.
Yes. Good afternoon, Johan and Helena. Two questions from my side. I mean, first, maybe following up on this question regarding Mölnlycke Health Care and the strong performance in wound care in particular. I mean, is there a specific segment or new product which is driving this growth? Or is it more what you mentioned last year, sort of, pent-up demand after the pandemic? And if it's the latter, I mean, do you see a risk that we're in a bit of a sort of a bubble in terms of demand right now due to this pent-up demand and that there will be a shadow effect after it? That was my first question.
You know, I don't have a crystal ball. What I can say is that if you talk about the development in Wound Care, I think the company in itself has a very strong market position, and it's gradually bringing forward new products. In some cases, it might be bigger improvements, in some it might be smaller, but they are really actively working on that and investing heavily behind that. In addition to that, we write about it in the report, the company, I should say, is taking significant investments within sales and marketing to grow sales in this very profitable business. That is an area, for example. There's also geographical expansion where we are putting more feet on the ground in, for example, China.
Significant investments is taken and was taken in the quarter within sales and marketing, and that is also one area, I think.
Okay, thank you. My second question, and maybe this is more for you, Helena, is on the revaluation or the valuation of Advanced Instruments. I mean, what peers are you basing your multiples on?
We normally don't disclose peers, but we find companies are very similar to the one we try to value. We also use a broader index, which is a healthcare pharma index. Actually,
Mm-hmm.
Med-tech index in this case. I won't disclose the actual peers, but there are several, and we actually looked at the same ones when we went into the acquisition, and we're sticking to the same ones. As Johan said, the multiples for those companies have actually come down since we acquired it, and we still have managed to show a value increase in the company. As you know, also for Mölnlycke and the others, we never actually mention exactly which peers.
I think what we can say is that if we compare the performance of Advanced Instruments when it comes to sales growth and profitability compared to the peer group, Advanced Instruments have stronger financials than the peer group that we use to compare it with.
Mm-hmm.
Thank you. Is that something you consider when you translate the multiples of the peer group into multiples for Advanced Instruments? That you sort of say, "Well, this should be valued at a premium.
No.
No, we don't.
Okay. Thank you very much, anyway.
Thank you.
Thanks.
There are no more questions registered at this time. I will give the floor back to Viveka. Thank you.
Thank you, Ariana. We have a few questions from Samarth Agrawal over the web. Four questions. I'll take them one by one. The first one relates to what drove the difference in adjusted EBITDA versus sales growth within Patricia Industries portfolio. Just strong operating leverage, or is there also a caution on spending?
Caution on spending?
Mm-hmm.
I mean, basically, you can say that even though the profit growth was above the organic growth, but we had the currency benefits. Actually, on aggregate, there was some margin deterioration in the quarter. That is a combination of that we have increased costs on one side, that we are investing heavily in some companies. We are investing heavily in Atlas Antibodies, Advanced Instruments, in Laborie with Optilume, as I mentioned before. Significant investment and some cost increases, which has been mitigated, of course, by good growth and the price management that I talked about. That is roughly, I would say, the equation.
The second question would be great if you can quantify the impact of multiple contraction on 2022 or the 2Q net asset value, and then specifically for Patricia Industries.
I mean, we report the multiples in our quarterly report.
Mm-hmm.
You can easily go in and look on how that has developed. Remember that we put the multiples on last 12 months rolling. I think if you would just take the average of the ones that we have reported in this quarter, it's about 15x earnings.
There is a follow-up question here, if you believe that multiples have bottomed out?
No, I don't speculate. I don't wanna speculate in that. I think that what we show with Advanced Instruments here as one example, the key is that if you develop the companies well, you will create value even if you see multiple contraction. Of course, the multiple contraction, we have already seen significant multiple contraction. Of course that will gradually come to a level where there is too much value into it, but I will not speculate into when that will happen.
There's a third question here relating to EQT fund commitments. How much of the outstanding EQT fund commitments reflect commitments for EQT X fund?
You mean EQT X?
Yeah, sorry, Ten.
We have a total commitment to EQT of SEK 17.5 billion. If you look on the commitment to EQT X, they have a target fund size of EUR 20 billion, and we have a commitment to that of about 3%. That's something like SEK 6 billion-SEK 7 billion out of the SEK 17+ billion.
There is a final question here, related to the capital deployment plan over the remainder of 2022. Do you expect net debt levels to increase due to higher investments?
No, I would say, you know, it will all depend on what opportunities arise, but I will not say that I expect higher leverage.
That was the final question we had over the web, and by that, I think we have no more questions. We, on behalf of all of Investor, would like to thank you for joining us today, and we will be back in October with our Q3 results. Thank you.
Thank you very much.
Thank you.