Good morning, everyone. This is Magnus Dahlhammer, Head of Investor Relations at Investor. Welcome, everyone, to this conference call, where we will go through our interim report for January June 2018. And as always, we will start with our CEO, Johan Fuschl and followed by CFO, Helena Sandstone. And after that, we will open up for Q and A.
With that, please, over to you, Johan.
Thank you, Magnus. Welcome, everybody, to this conference call. I will start on Slide 2. During the Q2, as you have seen, our adjusted net asset value reached a record level of SEK 394 billion. Adjusted for dividend, that's an increase of 5.3%.
The listed core investment was up just about 4%, but the strongest performance came from our unlisted assets with the Patricia Industries' estimated market values up close to 9% and EKG generating a value change of 9% in constant currency. This performance has not been reflected in the share price performance as we have seen a widening of the discount. Moving then over to the Slide number 3. Our activity has remained high during the 1st part of the year. Of course, we are following the spin off from Atlas Copco, we now have our 12th listed core investment in Epiroc.
We have now acquired 2 new subsidiaries with PIAB and Sanova, and I'm very pleased to see that they both showed strong organic growth in the quarter with PIA growing organically by 10% and Cernova by 8%. Overall, the operational performance was good in this quarter with Mennelikke growing its operating profit by 10% in euro terms. And if we look on the major subsidiaries, the organic growth was 6%, and the profit grew by 9%. If we exclude Lavery as its reported figures are not currently reflecting down the line performance due to the large cost related to the public bid in the U. S.
For Coventyx and the big restructuring in Europe, the operating profits for the remaining companies on aggregate actually grew 18% in the quarter. That was driven by strong operational performance but also helped by a weaker Swedish krona. Finally, the balance sheet remains strong with the leverage of 5.3%. And despite the fact that we have invested $11,000,000,000 during the first half of the year, we have also had a strong cash flow with DKK2.6 billion from Nernlisky and DKK1.7 billion in mandatory redemption from Atlas Copco and also a good dividend from our listed core investments. Moving to the It is a company with a It is a company with a strong management team and corporate culture.
It provides very important products, critical products in this market, and they represent a very small part of the cost for the customer. And of course, the combination of that is very attractive. We see significant growth opportunity driven by the trend towards increased automation, and the company has a strong market position. Importantly, the company also has a large share of recurring revenues. We are talking about roughly 35% to 40% of revenues.
And equally important, the company is capital light. The CapEx to sales is only about 1%, and the company also has a low working capital. So of course, we all know that business cycle goes up and down, but this is a company with a significant part of recurring revenues and the capital light business model. Moving then to the next slide, you see the performance in the quarter. As I mentioned before, the organic growth was 10%.
The profit margin was 26%. That was impacted by product changed product mix but also inventory step up related to the 2 acquisitions, SAS Automation and FIBA. They are now launching a new line for grippers for collaborative robots, and they are working on integrating the 2 acquisitions. So all in all, a good start for TIA. Moving then over to Melnik.
The organic growth was 3% in the quarter, with Wound Care growing faster at 4% while Surgical surgical grew 2%. Looking on the geographical regions, we can see that the U. S. Grew slightly, but the emerging markets remained the key growth drivers. In the quarter, the growth was about roughly 15% to 20%.
And in this quarter, it was mainly driven by Asia and Brazil, while the Middle East was more or less flat in this quarter. The profit margin increased, as you have seen, driven by higher gross margin and also cost efficiency. The gross margin was supported by a mix of more wound care versus surgical. We make more money on the wound care side as well as a positive mix within bunker. Due to the strong profits and the strong cash flow, the company made a €250,000,000 distribution or about SEK 2,600,000,000.
And finally then, the company announced acquisition of a German company called Sustemed. This is not a large company, but we believe it will be important in the total offering. The offer is basically a hemoglobin spray that increases the oxygen in the wound, leading to quicker healing. So the company is positioning more and more into also improving the healing effect with this acquisition. Moving now to Permobil.
Bengtusan has been appointed a new CEO after June Sinton, and he will start in September. He is currently President of the EMEA region at Domestik, but prior to that, he has spent 20 7 years in Scania. Permobil had good development in the quarter with an organic growth of 5%. All business areas and geographies contributed to this growth. So quite an even distribution in this quarter.
And we also see somewhat improved margins, and that was driven by the higher gross margin. Moving down to Cerro Nova, our 2nd acquisition this year. They had a strong start with an organic growth of 8% in constant currency, and we saw good growth in both business areas, acute care and emergency preparedness. Profit growth exceeded sales growth in the quarter, and they are continuing to expand the Curaflex private label products and also custom kits. That's when you make kits, especially for the emergency preparedness business.
And there are a number of initiatives going on to really make sure we get the good growth going forward and, of course, also efficiency, investment in sales force, capital of new products on the way out, warehouse optimization and then, of course, the digital part of the business. Moving to BraunAbility. Here, it was a very strong quarter, as you can see, with an organic sales growth of 22%, and the growth was mainly driven by the consumer segment. Within the commercial segment, lifts performed well, while the taxi business is still weak. We saw a strong profit margin expansion, and I think profit was actually up more than 80% in the quarter.
And the reason for that is, of course, a combination of leverage on the rapid sales but also that we are now seeing more efficiency in our factory. Moving then to La Brea. The picture to the right does not look that nice, but that is related to the fact that we are not adjusting, as you know, for extraordinary costs. We are putting it all in. If I start with the top line, the organic sales growth was 11% in constant currency.
Here I should say that this growth is boosted by shipments that were delayed in the Q1 and shipped in the Q2. So you can say that this organic growth is above, call it, normal level. The growth was, however, strong in the urology business. When it comes to the profitability, it was impacted by this restructuring in Europe. We are restructuring the European operation and significant expenses related to the public bid in the U.
S. For COYENTIX MEDICA. This was a company on the New York Stock Exchange. So quite substantial costs for that. We expect the more normal profitability level in the second half of this year.
Moving over to Alaris. Growth was 3% during the quarter. Profitability improved in care, slightly lower margins in Healthcare. Healthcare was weaker due to investments in the digital platform Doctor. 24 and also Stockholm Radiology at lower prices starting in the Q1 next year, and this makes it even more important with continuous focus on operational improvement and restructuring initiative to sustainably improve performance, and that is our top priority and focus in the company at the moment.
Moving over to 3 Scandinavia. The subscription based growth in the quarter. The service revenue declined by 2%, but that was mainly reflecting lower revenue due to the Danish VAT ruling that we have discussed before. If I adjust that, the service revenue would have been more or less flat. The profit margin or the EBITDA, I should say, improved if you look in our quarterly report, but that is actually boosted by IFRS 15, where we have to capitalize certain costs.
That's why we show you that the underlying profitability adjusted for IFRS was actually down 8%. But that decline was partly driven by this Danish VAT ruling. So you can say that about half of that decline is related to that. So all in all, apples to apples, it is a rather flat quarter. Moving then to EKT.
You see a very strong performance with a value change of 9 percent in the quarter. This quarter, we had a negative cash flow, and that is mainly due to the fact that we have drawn down from previous acquisitions and they have made a number of exits. But some of these exits, we have not yet received the money. So it is a little bit of a timing question. So the underlying performance is very strong and the cash flow guidance we have given to you before over the longer period, of course, remains.
The fact that we have invested more money into IKG and the fact that the value change was so strong means that we now have almost $20,000,000,000 on our balance sheet in EKT, dollars 19,400,000,000 The strategic priorities moving to my left slide remains the same. If I should do one caveat here, it would be that in the near term, we will focus on driving operational improvements. Focus will be on really make sure we deliver in our companies. Over the medium term, our strong cash flow generation, both on But for the next coming quarters, we will have a strong focus and make sure we really deliver on our plans. So with that, I hand over to Helena.
Thank you, Johan. And then moving over to Page 16, financial highlights. Adjusted net asset value reached $394,000,000,000 at the end of Q2, an increase of 5%. On the next page, looking at listed core investments, representing some 70% of total adjusted assets, we see that overall total shareholder return was 4.2% in the quarter compared to 6 Eric's 4.6%. And the biggest contributors in the quarter were Sobe and Ericsson with total shareholder returns of around 30%, while Electrolux weighed on performance in the quarter.
On June 18, it was the 1st day of trading for Epiroc, and we now have 12 listed core investments. Moving to the next page, looking at Patricia Industries, we see that estimated market values developed well in the quarter and that Mannlicke was the main value driver. We also see in this graph that Mannlicke distributed 2.6 $1,000,000,000 to Patricia. Permobil and Braun also contributed positively to the estimated market values, while Alire's value decreased in the quarter. Patricia also added 2 new subsidiaries in the quarter, as Johan has already gone through and used cash to pay for it.
On the next page, major drivers of the estimated market values in Q2 going into the specific companies, we can see that Maliki's value increase of SEK 6,400,000,000 was driven by multiples and profits as well as cash flow and some currency. Permobil market value was up $700,000,000 and the increase was generated by higher profits, and the company also benefited from multiple expansion. Vulnerability's estimated market value was up 0.6 $1,000,000,000 driven by significantly higher profit, strong cash flow and was also helped by currency while multiples contracted. Alira's estimated market value decreased in the quarter due to multiple contractions and slightly lower profits. On the next page, financial investments, we can see that the value of the financial investment portfolio is currently SEK 8,000,000,000, an increase of 6% in the quarter, supported by currency.
Here, our strategic intent remains to gradually decrease the portfolio. On my last slide, you can see that leverage was 5.3% at the end of the quarter. Net debt amounted to approximately $20,000,000,000 and gross cash was almost $13,000,000,000 at the end of the quarter. The average maturity of our debt portfolio remains known at 9.3 years. That concludes the presentation.
Thanks for your attention.
Thank you, Juliane and Johan. And we will now open up for questions, please.
Thank you. And we have a question from Magnus Roeman from Handelsbanken. Please go ahead. Your line is now open.
And you mentioned in the presentation that it's not a large acquisition. But can you give any leads to the financials here and impact on Mannlic's numbers, please?
What I can say is that they are still in a very early phase of the development, and it will take time before it make any meaningful contribution to the sales figures. So I cannot give you the figures, but it is very small. So it's more that what you do is that you put this spray on and then you actually put our wound dressing over that. So it's a very good complementary business because we can tuck it in with our sales force and it's directed to the same customers that we have today. So it's more of a broadening the total offering being one of the many parts that we are trying to do to accelerate the long term growth.
But in the short term, if you read the year, it will not be material.
Right. So it's predominantly same synergies rather than cost synergies that you look for in this acquisition, I guess?
That's correct.
And just for this Granolox product, the hemoglobin spray, I guess it's available today in from the company in 24 countries. Is there a major expansion that you see there when you look at the footprint of your sales organization for Molokar?
I mean when our companies acquire these smaller companies, there are normally 2 parts that we want to tackle. First is to use the sales force for the same customers. That's an easy synergies. And most of you know that I'm very skeptical to synergies because they are normally tricky to get. But if you can do that, normally, you can actually get good synergies because it's a very efficient way of selling more.
The other, which is more medium to long term, is that we always try to expand into new geographical areas. In Mel Liquor's case, of course, there are a couple of regions in what I normally refer to as emerging markets. And of course, in these markets, we also have sales reps. So but from a timing point of view, it will actually be a question for the management of Nelllicka to decide where to pick the first effort, so to speak, where do you see the really the easiest wins and then gradually go from there. But that's more of an operational question and that I should not decide upon or comment on.
All right. That was clear. On total financial performance in Malenk here in the quarter, you mentioned 8% EBITDA growth as a positive. But I guess it's based on easy comps. EBITDA growth in Q2 2017 was negative 9 So in terms if we look at comparing to Q2 2016, it's actually flat earnings more or less.
Just in that regard, are you satisfied with Mannlic's current financial performance or its margins? Or do you want to see more?
I would never say that I'm satisfied with any financial figures because that could be the start of the end, so to speak. You always need to drive for improvements. But what I can say is that I am satisfied with all the efforts that the company now is driving, both to drive sales, a number of important products that we have discussed before, like Netflix Flex that's being launched, efficiency improvements that are taking place. So if you look on the operating profit, whether it's 8% on EBITDA or 10% on EBITDA level, Of course, I believe that, that is a good growth in the operating profit. You say that there was an easier an EBITA margin of 28%, and of course, that's at a good level.
I would say that the key for value creation for us is not to squeeze 1% or more on the margin going forward, but rather to make sure that we get good organic growth. Having said that, of course, as you have seen and I've tried to explain it, the margin is impacted not only by efficiency improvements but also by the mix of the products because there are quite a big difference between a couple of the products in terms of profitability. So there are a lot of moving parts, but I think the management are doing a good job at the moment.
Okay. And then you mentioned here that you will focus on performance in existing holdings. Should we expect that you then do not plan to make any new investments in the next couple of quarters?
I would never say that we of course, we are here to make money. So if there are opportunities popping up, we will, of course, take a serious look at it, and we will always try to use opportunities if they arise. But more generally, on your question, yes. I think we have made 2 new or we have acquired 2 new subsidiaries. And it's important to get the arms around to deliver on the plans we have for those.
And also in the other companies, we need to work hard on Alaris, as I said. We need to work hard to make sure we get good growth in Nellik and position the company well for the future. So in the next couple of quarters, more focus on really driving efficiency and performance in the companies. But we are always open to find a good idea or good opportunities.
Yes, sure. But you also mentioned that you have a low gearing now at the low end of the range and perhaps also some cash flow coming from EBT in the coming quarters for even better cash position. So I mean just looking a bit ahead then for new investments, should we expect more of the same, I. E. Focus on unlisted investments?
Or do you see potential in the listed market? Perhaps you can give us a feeling of your view of valuations in the listed versus the unlisted markets. And I mean, if we look at the Sanova acquisition, you paid trailing EV EBITDA of 14 times. Is this valuation levels that you're prepared to pay for the right targets also moving forward?
I think that and I have said that before that we the split between the unlisted part and the listed part is impossible to give you an answer because it will depend on where we find the value opportunities. It is for sure so that when we buy companies on the unlisted side, like with Piazza and Nova, those are two good examples what we look for. 2 companies where we see good opportunities for growth going forward, companies with good profitability and especially good cash flow in relation to earnings. That will give us ample opportunities to create value over time, and we are willing to pay for these high quality companies in attractive niches. They both have very strong market position in these niches that they operate in.
On the listed side, you know that if you go back a couple of years, we invested quite a lot in companies like ABB and Atlas Copco and Wartsen and so forth. Over the last one and a half, two years, the only investments we have made is that we have invested SEK3.3 billion in Ericsson at SEK50 per share. So it will depend. In Ericsson, we saw good opportunity over the last time. In this quarter, we have not invested.
On the listed side, I've said it before, frankly, it depends on what happens on the stock market, and I have no idea.
All right. I love that you mentioned the target or the price that you paid for the Ericsson share. Thank you for the advice.
Thanks.
And the next question comes from the line of Marie Sheyer from Nordea. Please go ahead. Your line is now open.
Hi and thank you. I have a follow-up question from Melnick. I wonder if you could be a bit more explicit on the current condition. What is the growth in the U. S.
And in Europe? And also how big share of the total share how big share is emerging markets on the total share?
If I start on the latter one, the emerging market is still a rather small part of the business if you compare with Europe and the U. S. But if you look on the growth, that in growth in absolute amount, it's starting to contribute meaningful in a good way due to the rapid growth. So it's still a rather small part, but Asia is becoming larger. And in Latin America, it's mainly Brazil.
And then there are a couple of important markets in the Middle East. When it comes to Europe and the U. S, I can say that U. S. Grew slightly in the quarter, as we said in the report.
Europe was a little bit weaker. And that is the weakest market that we see in Europe is the U. K.
And then you have a it's a drop in growth and it's a negative growth development then, I guess?
Europe was the weakest region. And within Europe, the U. K. Was the weakest.
Okay. Super. And also, you mentioned that the cash the strong cash flow has been contributed mainly more or partly by SEK 1 point 7,000,000,000 in mandatory redemption from Atlas Copco. Could you explain what that is?
Yes. That is a you can see that's an extra distribution from Atlas Copco. The company had such a strong balance sheet. So in addition to the ordinary dividend, they gave roughly the similar size in an extra distribution, and they do it through a mandatory redemption because for some investors, that can be a little bit more tax efficient, and that's the way they have done it before. But it's an extra distribution.
Okay. And also one last question on Sanova. I wonder that's the only company that you're distributing instead of a manufacturer. Could you tell us about a bit more on your plans going forward for that company?
Yes. I would say it's a specialty distributor because they are extremely strong in their niches. And it's within for example, in acute care, we are talking about respiratory being a big part. And emergency preparedness is basically selling to ambulances and find apartments, etcetera. So they have very strong position in those niches.
And in addition to being a distributor, they also have, as we say, their own private label, Curaflex, and they are also trying to add even more value by giving by producing what we call kits, basically doing a kit of different products that fits for particular circumstances when you need to have a couple of items. In addition to that, for this company, training of the customer is a big part of the total offering. And then you can say these are nice words, but I can tell you if we look on the gross margin of Cerneurova and compare it to the gross margin of a normal distributor, the gross margin is much higher. You can see also on the profit margin and EBITDA level of about 12% that, that is much higher than a normal distributor. So that's a little bit what Carnival Business is.
For us now, the focus will be to make sure we can use this strong platform, really make sure we deliver on the plans within the current key segments. But of course, we will also look for tuck on acquisitions and see if there are adjacencies that could be attractive to grow the business even further.
Thank you.
And the next question comes from the line of Joakim Bunely from DNB Markets. Please go ahead. Your line is open.
So just two follow-up questions on non looking here. You have previously mentioned in previous quarters that we have launched new product launches in, for instance, MetellX Flex in the Wound Care segment, etcetera. You also mentioned in this quarter that we have a positive mix effect in GUNK driving the gross margin as well. So can you tell us a little bit more about how much new product launches have contributed to the growth we've seen in this quarter?
I mean, we should say it has had a positive contribution, but I will not say it's that particular product that had been the major driver to one extent. If I would look on the big figures, I would rather say that emerging market has been a key driver to the growth figures. If you look on some of the products like Mepilex Flex, it has been launched in certain regions but not in all regions. And during the second half of the year, it will be launched in more markets. So there is more to come on that.
All right, Johan. And also regarding the emerging markets, is there any general scene there where your margin levels, are they in line with the developed markets for Mannliche? Or are they slightly below?
In general, the margins are good in those markets. I will not go into the details about it, but they are good margins. It's not very, very low margins in those regions.
That's clear. And lastly then, having seen quite high activity level here in the first half of twenty eighteen to increase your net assets value both in terms of the active ownership and capital allocation. We've seen your adjusted NAV perform basically in line here with the benchmark index. So we've already mentioned or you have already mentioned some of the holdings in the unlisted space, which will receive some extra focus here to improve the underlying performance. But in the listed space, what strategic priorities?
And which holdings will receive the most focus? Or is there anything there you want to highlight?
I will actually be a little bit cautious on the Leadsden side. And the reason is that we will have we have the Essendon Husqvarna out this morning, but we will have every company out this week except AstraZeneca and Aspect that will come a little bit later. So I will not comment on those.
And the next question comes from the line of Andreas Lindber from Berenz Nussela. Please go ahead. Your line
is now open.
Yes. I have a few wider questions. In the CEO comments, you say that we might be at the end of a cycle of a very strong economy coming to Zygiel, as you say in Swedish. What do you think about that?
I think from an overall level, if we look on the business right now, most regions are doing well. The level of activity around the world is generally good. Of course, it differs between different regions. But in general, we have a good demand level. Then we are seeing that some leading indicators, if you take, for example, IFO index in Germany, those kind of leading indicators for the business activity, they have come down though from very high levels.
And so I think we have a strong activity. We will see how long it lasts. And that will, of course, partially be related to what will happen on the discussions between different tariffs around the world, etcetera, that could have an implication on the overall business cycle in the world. And as I mentioned in my CEO lecture, I believe that the biggest risks that we are facing right now is that we will have an escalating trade war around the world. That will not be good for the business cycle.
So let's hope that will not take place, and let's hope the business will remain at a good level. Other than that, we have already started to see normalizing interest rates in the U. S. In Europe and especially here in Sweden, of course, that remains.
Okay. So that's the indicators. And how far away do you think we are of some kind of turning point? Are we there now? Or do you see it in the future?
Actually, we are not speculating on that. What we are trying to do is to prepare all our make sure our company is prepared so they are ready if it happens, so they can adapt to different demand environments. And so that's why we always pray agility as a keyword.
Okay. So how do you make them prepare?
It is, of course, different parts of the business. It could be that if you add, for example, you need to add employees, you can, of course, in some cases, add temporary employees because then you're more flexible on the cost side. It's also about more long term structural initiatives like growing the recurring business to growing the aftermarket because that will create stability in the downturn. So it's both long term structural actions and you can more say more tactical short term actions. And of course, I should say also those differs a lot between different companies because we have companies in many different industries.
Yes, of course. Thank you. Thank you.
As there are no further questions, I hand back to you, speakers.
Okay. Then if we don't have any additional questions, thank you for listening in. And if you can't think of anything else, please let us know. Otherwise, we wish you all a great summer, and we will be back with the Q3 numbers in October. Thanks, everyone.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.