Hello everyone, welcome to the Investor AB Q1 2020. Throughout this call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. I will now hand the call over to Head of Communications, Viveka Hirdman-Ryrberg. Please go ahead.
Welcome everyone, to our Q1 conference call and presentation. You have the slides, you find them on the web. We will start out with our CEO, Johan Forssell, who will present results, followed by our CFO, Helena Saxon, and then we will open up for a Q&A session. Welcome again.
All right. Welcome to our first quarter presentation. This has in many ways been a very special quarter. If I start with the overall comments on page number two, and of course, specifically commenting on COVID-19. The world is currently in the midst of a historic battle to handle the pandemic, which is hurting, of course, both people and societies in many different ways, and putting an enormous strain on the world economy. The initial impact of the coronavirus spreading in Wuhan was related to production capacity and logistics in China and other parts of Asia. As the virus spread to Italy and then other parts of Europe and North America and the rest of the world, the extreme lockdown measures affected not only supply, but also demand in a significant way.
Different companies have, of course, been affected in different ways, but the overall focus has been on mitigating the negative impact on employees, customers, supply chains and production, and of course, an extra focus in these times on securing liquidity and cash flow. The crisis has again highlighted the importance of the business community for our society, and we hope to see more of a joint commitment, both from the political side and the business community, to secure a gradual path back to an increased economic operation in order to avoid a total breakdown in demand. While of course, it's extremely important that we, at the same time, secure people through increased testing, tracking, and safety measures. As owners, we have supported our companies to balance short-term efficiency.
In some areas, they need to take out cost with long-term investments. This could be in innovation, technology, growing in new geographical areas. Of course, these investments, the critical ones, needs to continue, because in the end, it's highly important, of course, that our companies come out stronger after the crisis, because in the end, it's all about beating competition out there. Investor is well prepared. We have a strong balance sheet. We have focused on agility and financial flexibility well before COVID-19. I believe that our companies generally enter this crisis in a good shape. That said, and I will come back to that, the second quarter will clearly be tougher for many of them. Moving down to page number three. This is the highlights of the quarter.
We had an adjusted net asset value growth of -10% and a TSR of -11%. This can be compared to the Swedish stock market of -18%. We invested SEK 2.9 billion in the listed companies during the quarter. The adjusted profit growth in the subsidiaries amounted to 12%. The main adjustment we have done here is integration cost in Laborie's acquisition of Clinical Innovations. We saw a good increase, also 11% up in EQT during the quarter, of which 9% up in EQT AB that is listed on the stock market. Finally, we also announced three focus areas and related targets within sustainability. I will come back to that later on. Moving down over, slide number four. The listed companies, as you know, represents a little bit less than 2/3 of our asset base. Moving to slide number five.
During the quarter, we invested SEK 1.6 billion in ABB, SEK 1.1 billion in Ericsson, and SEK 0.2 billion in Electrolux Professional, at what we believe are good and attractive levels. Also, of course, Electrolux Professional became our 13th listed company in the spin-off. Investment is one part of our focus, of course, the other, and even more important, is our engaged ownership role. Of course, a lot of focus during the last quarter has been on adapting to the current situation and also working on free cash flow and other financial measures. Let me bring up a couple of important areas that have taken place that are also more forward-looking in the companies. Sobi, that released a positive profit warning a couple of weeks ago due to strong demand for some of their healthcare products.
They have also initiated a clinical study for the treatment of complications associated with COVID-19, for example, the product KINERET. AstraZeneca had a very positive readout for their biggest product, TAGRISSO, within lung cancer. This, of course, is very important because this product has good patent protection and is also a profitable product. Ericsson continued their investment to capture 5G opportunities and have been awarded good contracts around the world. Finally, within Wärtsilä, the company has reorganized the marine business to simplify the business structure. These are examples of things that we believe will be important for the years ahead. Moving over to Patricia Industries, page eight. As you know, Patricia represents 25%-30% of our assets. In the quarter, we saw on average an organic sales growth of 6%.
Here you can see that we had a number of companies like Sarnova, Mölnlycke, and Three that all were growing at a very good pace. While we saw lower growth in Grand Group, Laborie, and Piab, and as you know, Grand, of course, is a very small part of our holding. Among the bigger ones, we saw slightly lower sales in the quarter in Piab and Laborie. Moving over to page nine. Of course, this was a strong quarter that we reported with organic growth of 6% and a profit growth underlying of 12%. What do we see if we look forward, and especially what do we see in the latter part of March and also in the beginning of April? We have tried to give you as good picture as we can right now.
I want to stress already now that, of course things might change during the quarter. This is the best what we see right now. We see that three companies in our portfolio are more resilient, and that is Mölnlycke, Sarnova, and Three, and they represent about 70% of the estimated market value of Patricia Industries. On the other side, we see that about 30% of the portfolio, Laborie, Piab, and Permobil and BraunAbility, here we see a tougher outlook going forward. Let me go through this in more detail. Moving to page number 10. In Mölnlycke, what we see is that we see that sales is supported by personal protective equipment, gowns and masks and so forth, gloves, antiseptics. We also see a relative resilience in chronic and prevention wound care. In Sarnova, we see a very strong demand for respiratory products and also personal protective equipment.
Finally, Three, our mobile operator, of course here revenues is supported by a very high data usage and calls given the environment we live in. These are the companies where we saw a strong development in the quarter and where we see more resilience. Moving down to page number 11. In these companies, some of them actually had a strong quarter, but here we saw in the latter part of the quarter or the latter part of March, I should say, and beginning of April, a little bit of a tougher situation, and we expect these companies to have a tougher second quarter. Let me say a few words about them. Laborie, here the main reason is fewer elective procedures within urology and GI.
While I should also stress that the Clinical Innovations business in maternal and child health business, that is more resilient as demand here is tied to childbirth, which of course is not elective. Within Piab, we saw that revenues were down organically 2% in the first quarter. Here we saw a deterioration in the latter part of the quarter, also in the beginning of this quarter. This is related to a number of important customer industries that are affected by the lockdowns within general industry, also partly automotive. Moving down to Permobil. The underlying demand, of course, in many of these companies is there. In Permobil, the biggest challenge is just to get access to the customers. We are talking about fitting centers, also hospitals.
The same is true for BraunAbility, where there is also a limited access coming, basically, we're talking about the dealers here. For these companies, we expect a tougher second quarter. Moving down into the companies, starting with Mölnlycke on page number 12, going through the first quarterly results. The organic sales amounted to 7% in constant currency. All regions grew in the quarter. We actually this quarter saw the highest growth in the U.S. followed by emerging markets. The wound care business was up 6%, and here chronic and prevention had good growth. The surgical business was up 7%, driven by gloves, antiseptics, and personal protective equipment. Growth in these areas that I just mentioned, both within wound care and surgical, have to some extent been supported by COVID-19.
On the other hand, we have products related more to elective procedures, like for example, procedure trays, that have been negatively impacted by COVID-19. This mix between the different products, we expect to continue also going forward in the short term. Finally, the underlying profitability was up about 1 percentage point. Moving down to Permobil on the next page. Here we saw that organic sales was up 3% in constant currency. We saw very strong growth in APAC, while North America grew slightly. Europe was down in the quarter. As you can see, the first quarter as a whole was relatively unaffected by COVID-19, but we saw a material impact during the latter part, especially in Europe, and increasingly also in North America, as access to customer became more limited, and that was what I just mentioned. Profitability improved slightly compared to last year.
Moving down over to Laborie. This quarter, of course, has been heavily impacted, if you look on the slide, by the integration cost of Clinical Innovations. Let me give you a few comments. The organic sales was -4% in constant currency. Within urology and GI, sales weakened significantly in March, driven by a sharp decline in elective procedures. As I said, the Clinical Innovations business just being acquired, the business within maternal and child health business grew strongly. Finally, on the profitability. The reported profitability includes $14 million in costs related to the acquisition of Clinical Innovations. Adjusted for that, the underlying profit was somewhat lower than last year. Moving down to Sarnova. This is a company that have had strong support due to COVID-19, you can see that the organic sales growth was 14% during the quarter.
Here we see strong growth in both business areas. Both acute, where we have a lot of respiratory products, and emergency preparedness, where we have protective equipment or protective clothes. It's a very strong development, and EBITA margin continues to be impacted by commercial resources, digital platform, but you can see it was slightly higher than last year. BraunAbility. Organic sales growth was up 5% in the quarter. We saw strong growth in both the consumer and commercial WAV business, while the lift business was more or less flat. Since the beginning of the second quarter, demand has been depressed significantly by COVID-19 lockdowns affecting dealers and consumers in several geographies. Excluding a cost for a strategic project, the operating profit was slightly ahead of last year. In Piab, we saw that the organic sales growth held up and was only - 2% in constant currency.
Americas actually grew slightly while Europe and Asia was down. We saw solid growth within ergonomic handling and the biggest business area, the key fraction cups was vacuum automation, was flat in the quarter. However, we continue to see significantly lower growth in robotic gripping. We saw increased COVID-19 impact on demand and supply chain in the beginning of the second quarter. Excluding some costs related to the integration of TAWI, the profit margin was down and amounted to 23%. Three, our mobile operator subscription base grew by 32,000 during the quarter. The service revenue was up 6%, and if we exclude from a positive impact from a VAT reclaim that we got, the underlying profit was up in line with sales of +6%. There was also a distribution of a little bit more than SEK 300 million to the owners, of which Patricia received SEK 133 million.
That was a summary of the performance during the first quarter and also some comments what we see going forward when it comes to the subsidiaries within Patricia and Three. Let me say a few words about EQT and moving to page number 20. In the quarter, the total value change amounted to 11%, of which 8% in constant currency. Today, we have about SEK 40 billion investments in EQT, and it’s roughly half of that, or SEK 20 billion, is our ownership in the listed company on the stock market. That was up 9% in the quarter. The other SEK 20 billion is our investment in the funds. Here we saw a value change of 14%. Here I would like to remind you that here, since we cannot reveal the figures before EQT is releasing their results, we, since the IPO, are recording this with one quarter lag.
Finally, the cash flow during the quarter was strong, a little bit less than SEK 1 billion. Before I hand over to Helena Saxon to go through the numbers more in detail, let me just give you some words on the longer-term perspective. The world is going through challenges not experienced in a very long time. For strong companies, difficult times also mean opportunities, and from history we know that eventually crisis subside and things gradually normalize. Our ownership model is all about creating long-term value, and we enter this crisis with a strong financial position. In Q1, now I move to page 22, we announced our sustainability focus areas and the 2030 targets to further future-proof Investor in our portfolio companies. This relates to our ambition that our company should remain or become best in class and outperform competition out there.
The first target is business ethics and governance. Investor has a zero tolerance for non-ethical business behavior. We are convinced that good business ethics and governance are key to build strong and successful companies. An Investor sustainability guideline set clear expectations for Investor and our companies to conduct their operation in a responsible and ethical manner. Within climate and resource efficiency, the business community has a key role in taking action and coming up with new solution to combat climate change. Investor is committed to climate targets aligned with Paris Agreement and has set the target to halve our greenhouse gas emissions by 2030. We have also a target that all our companies to set relevant reduction targets related to their product services or value chains. That's the Scope 3. Finally, diversity and inclusion.
At Investor, we believe that building long-term successful companies requires people with different backgrounds, experience, mindsets, and perspectives. We strive for diversity across all dimensions, national origin, age, gender, education, as well as differences in perspectives and experiences. All in all, it's very important not to lose focus on key long-term initiatives while simultaneously working on the short-term need to adapt the business. Let me summarize on page 23. I think we had a solid first quarter, we expect, as I said, tougher times ahead for some of our companies. We have a robust balance sheet, we have a strong liquidity, finally, we will use that strong liquidity wisely. What I mean by that, we will act in a balanced way. We will make sure we maintain strong financial flexibility and act on the best opportunities we find out there.
With that, I hand over to Helena.
Thank you, Johan. Let's move to page 25. Looking at the 10-year graph of our net asset value development, we of course see a drop in the quarter. The adjusted net asset value ended the quarter at SEK 438 billion , -10% since the beginning of the year. On the next page, listed companies, we see that the value landed at SEK 297 billion at the end of the quarter, and the total shareholder return was -14%, compared to SIXRX -18%. Except for the newly listed Electrolux Professional and Sobi, all companies generated negative total returns. Although Ericsson, Nasdaq, and AstraZeneca outperformed the market. On the next page, Patricia Industries development in the quarter. Based on estimated market values, the total return for Patricia Industries, excluding cash, was -2% due to negative impact from lower valuation multiples.
Looking at this in more detail on page 28, we can see that the sequential change in estimated market values was down 2%, as I said. Including cash, it was -1%, and we saw positive impact from Laborie, Mölnlycke, Sarnova, and BraunAbility, while the other subsidiaries and Three Scandinavia had a weaker development in terms of value. There was in the quarter a capital injection into Laborie to support the acquisition of Clinical Innovations. In the quarter there was also an internal trimester. On page 29, the major drivers of estimated market values in the quarter, we can see that Mölnlycke estimated market value increased by SEK 1.1 billion due to higher profits and currency, however, mitigated by lower valuation multiples. Sarnova's estimated market value also increased by around SEK 1 billion due to currency, higher profits, but was also mitigated by lower multiples.
Piab, on the other hand, Piab's estimated market value was down SEK 600 million. Here it was mainly multiples that impacted the value negatively. The value of Three Scandinavia was down SEK 900 million, as lower multiples mitigated the higher profits that they generated in the quarter. There was also a distribution of SEK 133 million in the quarter. Finally, Laborie's value was impacted by the acquisition of Clinical Innovations by lower profits and lower multiples in legacy Laborie before the acquisition. Then our financial position, as Johan already mentioned, we have a robust financial position going into this crisis. Our leverage at the end of the first quarter was 4.7%, which is below our target range. The net debt was just below SEK 18 billion, while gross cash close to SEK 20 billion at the end of the quarter.
The average maturity of our debt portfolio is close to 11 years, and our credit ratings are AA- from S&P and Aa3 from Moody's, both with stable outlooks. Finally, my last slide is showing our long and short-term relative performance and the total shareholder return at -11% in the quarter. That concludes my part of the presentation, and I hand it back to Viveka, and we will start the Q&A session now.
Thank you, Johan, and thank you, Helena. We will now start a Q&A session. I will hand over to our conference facilitator, who will organize the Q&A session.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero and then one on your telephone keypad now. The first question is from Derek Laliberte from ABG. Please go ahead. Your line is open.
Thank you. Wound care in Mölnlycke grew very strongly at 6%. I was wondering if you could give some flavor on to what degree, roughly, the positive demand effects from COVID-19 had on this segment. How meaningful were they? Thank you.
Okay. Thank you. I think that overall, the COVID-19 had the biggest impact on some of the products within surgical. For example, gloves and personal protective equipment and antiseptics. On the wound care side, I am more pleased to see that the demand related to chronic wounds and prevention actually developed well in the quarter. Of course, some of the things within surgical equipment has had a very positive impact on COVID-19. Importantly, as I mentioned, procedure trays, which represents perhaps 1/3 of the business in surgical, are actually also having a couple of the parts of that business that is negatively affected because these are trays that are used in connection with elective surgeries. It is really a mixed picture, but overall, a solid performance.
Thanks. Yeah, it's quite clear that the overall financial impact from COVID-19 on Mölnlycke was positive. Would you say for the second quarter that should we expect these effects to continue to be positive and also what are the biggest risks you're seeing for Mölnlycke continuing to deliver strongly for the remainder of the year? I'm thinking if you could give some hint of the different scenarios here, depending on what will happen with the virus spread and the lockdowns, et cetera. Maybe supply chains could see some issues. Thank you.
Thank you for the question. As you all know, we normally never give guidance, and there is a reason for that, because we don't sit with a crystal ball either. This time, given the special situation in the world economy, we have tried to give you guidance on what we see at the latter part of March and the beginning of April when it comes to stability. From that perspective, we believe that Mölnlycke is one of the companies where we see relatively more resilience. What that actually means, we actually don't know because it will be affected both on the demand side, but also, of course, what happened to COVID-19, as you say. That's the best guess I can give you. What are the risks here?
Of course, in a turbulent time like this, we have had a situation where Mölnlycke earlier was not able to export equipment out of France, that has now been sold. There is still some challenges when it comes to, for example, people moving between the border of Poland and the Czech Republic to our plant where we make the trays. There is also some challenges in some cases when it comes to exporting from Europe to Middle East, mainly within the surgical business. There are all these kind of challenges that are popping up all the time, but I have to say that I'm very pleased to see how proactive and forceful the company has been, both adapting internally and also taking the discussion with key politicians to solve these problems in the best way they have been able to do.
Great. Thank you. That's all for me.
Thank you.
Next question is from the line of Joachim Gunell from DNB Markets. Please go ahead. Your line is open.
Thank you. Good morning, Johan and Helena. I know visibility is clouded here, but can you talk a bit about the general economy assumption you've made when you made the investments here in the listed portfolio? Do you assume that 2020 is entirely a lost year, or how should we think there?
Thank you for that easy question. We have never made investments based on the fact that we believe we are more clever to forecast the world economy. The way we do it is that we have fundamental values. That is based on what we believe in terms of long-term growth, profitability for our companies, how strong they are compared to competition, the cash free generation over time, and so forth. When we see that our fundamental values are above the share prices, sometimes we act on that and invest, and that is how we do it. I have no crystal ball. Of course, I hope that this will become gradually better after the second quarter. We don't know because I'm not a medical expert. I don't know how the spread of the virus will be contained or if we will see a second wave, et cetera.
That, of course, is extremely important to answer your question. What we believe, though, as an owner, is that it is very important that we now can find the right balance between, on the one hand, of course, continue to protect the people around the world from this horrible virus, but also to make sure that we gradually start the economy again. This, of course, is a balance where you need to work on flexibility. You need to do it gradual, and so forth. That we believe is important because if the economy is not coming back, we could, of course, have a very severe economic development, and that would, of course, lead to very severe social negative aspects. That is our view.
Okay. Thank you. Also regarding distributions to Patricia Industries, it forms parts of the basis of your own dividend, and we saw almost no distributions here in Q1. Can you elaborate a bit if this is an effect of that you're looking to utilize some government schemes for some of your Patricia Industries holdings, or how should we think there?
When it comes to these different schemes, there are different ways of tackling challenges. First of all, we have a number of companies, as you have seen, that are less affected, and in some cases, even positive effects on the revenue side. Of course, for these companies, there is not an urgent need to act. Others are being more affected, as I also mentioned. Then, of course, it's up to the operational management to figure out what is the right one, internal solution, using some of the schemes or layoffs or other. It depends on the situation, and that is a question for the operational management to decide on.
All right. I think we touched upon this on Derek's question, but can you provide any comments on the business momentum in Mölnlycke and Sarnova, say, for the first weeks in April, as you did with some of the other holdings?
I think what I can say that we have not seen a negative effect. We see good resilience in these businesses.
Thank you. That's all for me.
The next question is from Elise Miliatis from Bank of America. Please go ahead. Your line is open.
Good morning, thank you for taking my questions. It's Elise Miliatis here. My first question is on investments and potential opportunities. You mentioned that you would definitely be considering any opportunities out there, you have strong financial flexibility. Are you actively looking for things at the moment? Are you more focused on your current portfolio and managing all the issues with that, COVID and oil prices?
Okay. Thank you very much for that question. If I start on the size of our investment, it is always difficult to say because, of course, we do not know what opportunities will arise. What I can say is that we will balance the opportunities we see with the need to have a continued strong financial situation. That is the first one. The second one, of course, in an environment like this, our top priority is to work very closely with our companies to handle the current situation. Also, as you have seen during the first quarter, to strengthen up in some of them if we see great opportunities. Having said that, as an investment company, we are always open to new opportunities. Right now, of course, a key focus is to manage this situation we are in.
Okay. Thank you. A second question. You mentioned that there's an impact on Laborie, BraunAbility, and Permobil due to COVID, Laborie because of elective surgeries and accessibility to clients for BraunAbility and Permobil. Do you think that in a worst case scenario, if we're in a coming in and out of lockdown situation or maybe a prolonged lockdown situation over one year, is there potential for elective surgeries or demand for wheelchairs and all that sort of stuff that's discretionary to some degree to come back over time? Obviously, people are delaying that for the moment. If we're in a lockdown for 12 months, would we expect that some of that demand might come back?
That's a great question. Yes, we believe that a number of these elective procedures that are being delayed will come back because these are procedures, operations, and, or what have you, that needs to be done. When it comes to, for example, BraunAbility and Permobil, there is an underlying need. Right now the problem is that if you cannot go out and touch the customer, you have a problem of selling. We for sure believe that we will have a large part of this coming back. To what extent and especially how fast will, of course, depend on how fast the system can ramp up after this crisis.
Okay. Thank you.
Next question is from the line of Johan Schubert from Danske Bank. Please go ahead. Your line is open.
Thank you. I have a couple of questions. Starting off with Mölnlycke, if I may. Could you tell us a little bit about the new CEO that you're looking for in this company, and a little bit what sort of characteristics or what you're looking for in that new person?
Thank you for that question. This is, of course, a work that is being conducted by the board of Mölnlycke, and it is their responsibility to find the person that is right given the phase this company is in. What I would say would be more general comments. I have nothing detailed to add about that. Of course, you need a strong leader. You need a person that can take this fantastic company to the next level, and that is what the board is looking for.
Okay. If I rephrase the question, then, if you look at the past couple of years of performance on Mölnlycke, where do you see the most room for improvement, so to speak, compared with earlier management?
First of all, I should say that I think Rickard and the management have done an excellent job in developing this company, and we are very pleased with the development we have seen. It's more about the next phase now. Given the profitability and cash flow generation in this company, of course, we will continue to have a high focus on driving organic growth in this company.
Okay.
That is both through new innovation, product upgrades, and also, of course, continuing the expansion in new emerging markets.
Okay, great. I remember quite a few quarters ago, you were talking about you had a couple of lawsuits also in North America for Mölnlycke. Have these now been sorted out? Are you now seeing the impact from these in North America? Is that part of the reason behind the strong growth in the quarter or is that more new product driven, would you say?
I have no information to say that that is affecting the current quarter.
Okay. If I continue a little bit upon new investments, I'm very happy to see that you bought shares in ABB, Ericsson, and also Electrolux Professional in the quarter. Could you tell us a little bit about how it takes two persons to tango here. You want to buy, are there many forced sellers out there right now? What is the atmosphere upon owners? I guess there are quite a few companies with quite a geared balance sheet. The banks are on their back end. How is that atmosphere right now?
I guess you are referring to the unlisted side because the stock market is always there, and if somebody is a forced seller, we might be happy buyer. In the unlisted side, I would say that given the situation we are in, of course, it is much more difficult to do deals in general, because of the uncertainty and because of some credit spreads have come up and so forth. The deal activity has for sure come down. Will that mean that we will not find opportunities or not? I cannot say because our companies are continuously looking for new add-on acquisition opportunities. The companies have a pipeline that they are executing on.
Even though we are in a stressful situation and with big uncertainty, we are continuing to focus on it even though given the COVID situation and the need to stay apart, there is less dancing.
Got it. My last and final question. I know it is very early days in this crisis, but when you look at your unlisted companies and look at the demand drivers in those companies and you take this crisis into consideration. Do you see any reason to believe in the future that you see a structured shift in demand here, i.e., for example, there is a higher tension within Mölnlycke on high demand for their products going forward? i.e., is this crisis just triggering a new demand pattern for your unlisted companies?
It's a very good question. I think the crisis that we are in, when that will have passed, we will see structure changes. I think it's too early to say exactly what that will mean. Of course, it will involve the way we work with digital solutions. It could very well be within automation that could have an effect on a company like Piab. For example, right now, of course, if you have a good automation business that would support given that you need to have safety restrictions of the employees. I think inventory situation, value chain and also of course the behavior of the consumer can directly and indirectly have implications. To what extent? That is too early to tell.
Got it. Thanks so much.
Next question is from the line of Johan Lindberg from Sveriges Television. Please go ahead. Your line is open.
Thank you very much. I'd like to put some questions in Swedish to Johan Forssell. [Foreign language]
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Okay. To our conference facilitator, I think this was the last question.
Yes, that's correct. No further questions registered.
We have one question from the web, from a Michael Gilkins: Do you see a relatively lower economic impact in Sweden as compared to other areas that have more strict lockdown measures in place?
The answer is no, I cannot say that. Even though we might have lower lockdown restrictions than some other countries, we should also know that Sweden is a relatively small country and we have a big export out of Sweden to the world. If the world is affected, Sweden is also affected.
We don't have any more questions. On behalf of Investor, we would like to thank you for participating in our conference call today. Thank you all.
Thank you.
Thank you.
This concludes the conference call. Thank you all for attending and you may now disconnect your lines.