Go.
Good morning, everyone. My name is Magnus Dalhammar, and I'm head of the Investor Relations here at Investor. Welcome everyone to our Q1 conference call. We will do this as we usually do with presentations by our CEO, Johan Forssell, and CFO, Helena Saxon. Afterwards, you will be able to ask any questions that you would like. By that, over to you, Johan.
Thank you, Magnus, warmly welcome everybody to this conference call. I will start on slide number two. Here you can see, if you look on the left part of the page, that overall performance, whether we measure it by net asset value growth, total shareholder return, or if we compare it with the stock market, was more or less flat. If we go to the business areas, the listed core investment was up 1% in the quarter. If we now look how much dividends we expect to receive from our core investment this year, we believe we will get about SEK 8.6 billion, and that compares to SEK 8.3 billion last year. On Patricia Industries, the estimated market values was down 6%, but that was mainly due to multiple contraction in the peer groups. On a positive note, we did see profit growth in Mölnlycke.
Actually, the top line growth was 2%, but wound care grew 4%, which of course is important, and we saw margin expansion. In EQT, we saw a continued good performance with a value increase of 3% in constant currency. We received half a billion SEK in cash flow, and they successfully closed the biggest fund ever in the history when they closed EQT VIII at EUR 10.75 billion. If we then move to slide number three, you can see that this has been a very active quarter for us. Let me touch both on our role as an active owner and our decision when it comes to capital allocation. Starting with the active ownership side.
During this AGM season, we have nominated Ronnie Leten as chair of Ericsson, Staffan Bohman as chair of Electrolux, and Gunnar Brock has joined the board of ABB, and Jacob Wallenberg rejoined the board of Nasdaq. Important additions to some of our companies when it comes to board representation. Epiroc, the preparations are going on to put Epiroc on the stock market, and as you know, that is the part of Atlas Copco in mining and construction. During the quarter, new financial targets were presented to the market, and here the key focus is good growth and resilient and best-in-class profitability. On digitalization, you know that digitalization and sustainability are prioritized areas for us, and to support our companies in digitalization, we have developed an internal framework to evaluate the digital maturity of the companies we own.
Within sustainability, we continue to step up our activities. During the quarter, I think it was very much encouraging that MSCI upgraded our rating from BBB to A in their ESG rating assessment. I then move over to the M&A activity. You can see that a number of our companies did big M&A moving forward. Wärtsilä did an important acquisition of Transas within advanced navigation equipment, which will support the smart marine strategy. Laborie did a very large acquisition of Cogentix, which is basically a public bid for a company in the U.S. market for $250 million. We look on the revenue of the acquired companies, more than one-third of the revenues of Laborie. This is a very sizable acquisition, and we are enthusiastic about it because it will really strengthen the position of the company in the core business.
BraunAbility also did an add-on acquisition actually here in Sweden. On the product development side, I would like to highlight two things. First, that Mölnlycke has now initiated the European launch of their wound care product, Mepilex Border Flex. That is used, for example, when you do hip and knee surgeries and all things where you need to have a good flexible wound care equipment. Secondly, we have Permobil that launched the digital solution, Permobil Connect, and that is helping wheelchair users follow their health regime, and also provide remote monitoring when it comes to maintenance of the wheelchair itself. I then move over to the right part of this slide and turn to our other part to create net asset value, which is to make sound capital allocation.
You have seen that we have invested SEK 1 billion in Ericsson. In total now over the last 18 months, we have invested SEK 3.3 billion in Ericsson at an average price of SEK 50 per share. In Patricia, we did an acquisition of Sarnova. I will say a little bit more about that. That represents an equity check for us of about SEK 4.3 billion. Finally, we have committed SEK 5.7 billion to EQT VIII. In total, we have in this quarter invested or committed about SEK 11 billion to these investment opportunities. We then move over to slide number four. You look on the highlights of Sarnova. It is a company with revenues of about $550 million-$560 million with a margin of 12%. The historic growth has been about 12%.
You move to slide number five. You see a little bit more what the company is doing. This is a company that has a clear market leadership in both its end markets, and these are attractive niche markets, acute care and emergency preparedness. The company offers critical products that often are actually life-threatening conditions that they need to handle, and also value-added services like training the users of these equipments. Customers could be hospitals, fire departments, and ambulance companies, just to mention a few. Within acute care, the key products are respiratory and anesthesia equipment. Within emergency preparedness, key products are defibrillators, emergency response kits, and other consumables. This is a company with a very strong culture, and the founder will remain with the minority share. We will have an ownership of 86% in the company.
We see an attractive growth potential. The fact that this is a very asset-light business model also gives it a very strong cash flow profile. Moving over to slide number six and Mölnlycke. You have seen that the organic sales growth was 2% in the quarter. It was good to see that wound care grew 4%, while we did see surgical being flat in the quarter. Growth was mainly driven by emerging markets. China, Brazil continued to deliver very good growth. In this quarter, the Middle East was somewhat weaker, but we do not see a change in the underlying trend. It is more of quarterly fluctuations. Overall, emerging market was very good. The EBITDA margin increased, driven by increased gross margin and improved cost efficiency.
The improvement in the gross margin was supported by mix as wound care grew faster. As you all know, wound care is having a higher profitability than surgical. Then we had this important launch of Mepilex Flex initiated in the European market. Moving over to Permobil, solid development in Permobil with an organic growth of 5%. The growth was strong at the empowered wheelchairs, but also seating and positioning had a good growth, while manual part was actually down year-over-year. The profit margin was somewhat lower, but it is mainly impacted by acquisition-related costs. You know that this company has done a number of acquisitions that we are now integrating into the company. Then finally, we have the Permobil Connect that I talked about previously. Moving over to BraunAbility, we saw a very strong growth, 20% in constant currency in the quarter.
It was a very high growth in the consumer segment, but also high growth in lifts. While the commercial side was down in the quarter, that is mainly due to a delay related to the replacement of some taxis in the U.S. market. Overall, a very strong performance. The profit margin expanded rapidly, driven, of course, both by leverage on the high sales growth, but also improved operational efficiency in the production, which is important. Then you can see some of the figures on the acquisitions that they will now buy the remaining 52.5% of Ottobock. That is a company with sales of about $50 million, that will strengthen the position in the European market. Moving over to Aleris, organic growth 2% in the quarter.
Here, the focus is to really go through all the restructuring initiatives and operational efforts that we have talked about before. I'm pleased to see that there is a lot of activities in the company to take care and handle these important areas. When it comes to forward-looking investments, we are taking significant investment in Doktor24, which is the digital platform that we believe will be important for the future development. In Norway, Aleris won a large healthcare contract within orthopedics and general surgery with the quality as the key criteria. We saw an improved cash flow in the quarter, mainly driven by working capital. Moving over to Laborie. Laborie, if you look on the figure, it does not look good, but we are not worried at all, to be honest.
On the contrary, I must say that I'm very enthusiastic about the prospects for this company in the years ahead. In the quarter, the organic sales growth was down 6%. Sales decline is mainly driven by the shipment delays in Europe related to delayed regulatory certification. They are now in place. As we speak, we are now shipping these products in the quarter. Profitability in the quarter was impacted by these delayed shipments, but also significant restructuring costs in the European business where we are restructuring the setup and also acquisition-related costs related to this large acquisition of Cogentix. If I look on the company going forward, of course, the delayed shipments will start to switch to a positive already in the second quarter now, and the restructuring cost in European will, of course, gradually start to fade.
On the other hand, to integrate Cogentix into Laborie, that will be work that will continue to affect the profitability going forward in the short term. If we look long term, we see really good growth prospects for this company, and we are very encouraged about the initiatives that they are taking to develop the franchise for the future. On 3 Scandinavia, the subscription base grew by 26,000 in the quarter, driven by both Sweden and Denmark. The service revenue was down somewhat, primarily reflecting the lower revenue per subscription, and that in turn was impacted by the new VAT ruling in Denmark. If you look on the figures on the EBITDA, you will see that it didn't move that much, but here we have actually been helped by accounting IFRS 15.
Excluding this change, the EBITDA would have decreased by about 10%, but that has been impacted by the new VAT ruling in Denmark. The apples to apples is a lower decline than that. Finally, the company did a distribution of about half a billion SEK, of which about SEK 200 million came to us. Moving over to EQT, I mentioned the figures before. Just to reiterate that we have committed SEK 5.7 billion to EQT VIII, and that's about 5% of the total committed capital to that fund. My last slide before I hand over to Helena. Our strategy remains firm, and I will not even try to predict what will happen with the stock market going forward, and I will not try to predict where the macroeconomy will go in the next couple of years.
I must say that when I see on the activities that we and our companies are taking, both when it comes to important add-on acquisitions, both when it comes to restructuring and when it comes to new product launches, like I mentioned, Mepilex Border Flex and the Permobil Connect, and also the capital allocation, the acquisition of Sarnova, EQT VIII, and the investments we have made on the listed side. I must say that I am at least very encouraged by the fact that I do believe that we are now taking, and our companies are taking important initiatives to drive value going forward. With that, I will hand over to Helena.
Thank you, Johan. If we move to page 15, financial highlights Q1 2018, we can see that based on estimated market values for Patricia Industries, adjusted net asset value amounted to SEK 383 billion and was roughly flat in the quarter. Moving over to the next page, listed core investments. We can see that this part of Investor is 72% of total adjusted assets and SEK 285 billion. The total contribution in the quarter was almost SEK 4 billion. TSR was 1% versus a small decline in the SIXRX index. This flat development actually hides a big deviation between the companies in the portfolio, which you can see in the graph on the right-hand side. There was strong return in Sobi, positive development also in Nasdaq, Wärtsilä, and AstraZeneca, while ABB's return was weak.
Within this part of Investor, we also made the investment of SEK 1 billion in Ericsson in the quarter. Moving to page 17, we see the estimated market value development in Patricia Industries in the quarter, this is related to how the year ended 2017. Three companies drove the negative value development and one had a significant positive impact. Moving over to page 18, we can see the major drivers of the estimated market value. Starting with Mölnlycke, minus SEK 3.3 billion. Here, profits were actually slightly higher, currency impacted positively while multiples were lower. Laborie, minus SEK 1.6 billion, was market valued for the first time as it is now more than 18 months since the acquisition. At the same time, profits in the quarter were impacted by delayed shipments, restructuring, and transaction costs that Johan already mentioned.
This, of course, affects the rolling 12-month earnings and reported profits in this quarter, as Johan already explained, we believe is not representative of the full potential of Laborie. Permobil was up almost SEK 1 billion because of its significantly higher profits. Three, finally, was down SEK 1.6 billion. Multiples contracted and impacted the value negatively, and we also had SEK 200 million of distribution to Patricia Industries. Moving over to page 19, financial investments. Here, the realization of the portfolio continues. Despite net divestments of SEK 100 million, the remaining value of this portfolio actually increased in the quarter, that is due to value appreciation in the portfolio. Coming to my last slide, we can see that leverage development in the quarter was rather flat. We still have a low leverage of 3.6%.
Net debt amounted to SEK 12.8 billion, Investor's gross cash position amounted to more than SEK 19 billion. The average maturity of our debt portfolio is 9.6 years. That was my final slide. Over to Magnus.
Okay. Thank you, Johan and Helena. We are now ready for questions, please.
Ladies and gentlemen, if you wish to ask a question, please press 0 and 1 to enter the queue for the question and answer session. We have a first question from Mr. Magnus Råman from Handelsbanken. Sir, please go ahead.
Thank you. Maybe I can start with Mölnlycke. Your ambitions here for financial performance, are you content with low single-digit organic growth? Looking at key peers in the sector, they all pace at around 2% or 3% organic growth, with the exception of the star here, Coloplast, with much higher growth. With this backdrop, are there any reasons to expect that organic growth should be trending up, or should we expect performance to be in line with the current trend in Mölnlycke?
Okay, thank you for that question. As you know, we do not give any forecast, but I can tell you that if you have a well-run company like Mölnlycke with high profitability and high cash flow, strong position in its market, our ambition, of course, is to get a high organic growth in this company. That is what we are working on. We are trying to do it both when it comes to expanding in geographical markets and now accelerating the product renewal in the portfolio. I think the team is doing a good job on that, and hopefully we will see the effects of this. What kind of figures that will lead to, I will not speculate, but we are working very hard, both as an owner and from a management perspective, to drive organic growth in this company.
All right, that is clear. On profitability in Mölnlycke, you mentioned here lifting gross margins on mix effect, also in the report you wrote about cost control. I guess that the two percentage points year-on-year improvement in the EBITDA margin was mainly explained by an easy comp. The margin was down, I believe, 1.5 percentage point in the comparison quarter. Speaking of comps, they will be increasingly easy in the coming two quarters for Mölnlycke. Does Mölnlycke have an ambition to improve versus the profitability levels of 2016? Should we consider that to be a peak year where EBITDA margin was 30%?
If I start on the profitability side, I think that you are absolutely right. The margin improvement is an effect both of the fact that the wound care is growing faster than surgical, and of course, wound care has a much higher profitability than surgical. When wound care grew faster, that is supportive. In addition to that, we are also seeing efficiency improvements. It is a mix of them both. When it comes to looking at the decimals on the margin, if it is 29 or something else on the EBITDA margin, I will not go into that. We will try to drive this company as efficient as we can, and the ultimate target is to grow profits, of course. When it comes to the top-line comparisons, you all know how it looked last year.
We had an organic growth of 5% in the first quarter of 2017, and after that it has been about 1% to 2%. Of course, that is the fact. Once again, our focus is more on driving the company, supporting management in driving organic growth, and we will see where we will end up.
Okay. I was also thinking on comps on profitability since EBITDA margin was down 3 percentage points in Q2 2017 and 4 percentage points in Q3 2017. I guess maybe we should look at comparisons on two-year comps rather than these exceptionally weak quarters. Yes.
I think you should think that we will do whatever we can to grow top line organically through product renewals, emerging markets, and be doing that as efficiently as we can, and that is our aim.
Okay
You know the market development, there can be different things happening in different quarters. It is not that I'm hiding anything. It's always difficult on a quarterly basis to know, our ambitions internally here and also from the management is very clear what we are aiming for.
Sure. Maybe I can move over to your investments. You mentioned here that you invested SEK 3.3 billion in Ericsson over the past one and a half years, your ownership increased from around 5% to 7% of total capital in this period. These investments in total represent less than 1% of total assets in Investor. I guess it could be debated whether this is a lot or not. Nevertheless, you have plenty of dry powder for new investment. I guess you look at the gearing of 3% that you have right now, at the stated ceiling of 10%, I guess you have around SEK 25 billion in available capital for new investments, so to speak. Two things around Ericsson.
Can you explain the upside you see in Ericsson, which has driven your decision to invest more, and perhaps also offer an explanation to why you did not invest more than what you have done?
Let me say it like this. We are trying to, number one, improve and drive and be a very supportive owner so we get good development of the 380-plus billion of assets. That's the key. The second one, of course, is to allocate capital as good as we try. As I said before, in this quarter, we have invested about SEK 5 billion-SEK 6 billion in this quarter, and we have committed SEK 5.7 billion to EQT. My view is that I do believe that we will get a good return on the SEK 5.7 billion we are committing to EQT. I believe that the investments that we are doing in Sarnova, which is SEK 4.3 billion on equity, will give us a good return long-term. I also believe that investing SEK 3.3 billion in Ericsson at SEK 50 per share, I believe will give us a good long-term return.
That's my focus. If you go back a couple of years back, you will see that we have invested at those times in Atlas Copco, ABB, and Ericsson, and other companies. We have bought Permobil and so forth. We are continuously trying to allocate the capital that we get because we have the fortunate situation that we own companies with strong cash flow, not only in Patricia, with Mölnlycke being the biggest one, but also actually on the listed side. Companies like Atlas Copco and ABB and so forth are generating good cash flow. That means that we have good opportunities to give a good dividend and allocate the capital for investment, and we will always try to allocate the capital where we believe we will get good returns.
Speaking about the commitment to invest SEK 5.7 billion in EQT, the new fund, can you give us a rough sense of the timeline here for these investments?
No, I cannot, because when it comes to the listed core and Patricia, we are very close to these companies, and we are really an active owner. When it comes to EQT, it's a different setup. Yes, I am on the board of EQT, but in the board, we discuss new funds strategy. When it comes to the investment and divestment decisions, that is made by EQT. So from our point of view, we are sending in the checks, and so far we have received a bigger check back, which is good enough for me as a CEO.
Yeah. It's been really good, of course, the performance in EQT and the returns. I guess at least there must be a framework for how investments would be rolled out in this fund.
Yeah. The duration of the funds can always vary, but normally when they invest, they might own it for six, seven years or sometimes shorter, sometimes longer, and then they of course have a buy to sell strategy, and we have a buy to build strategy. That's the framework. To what extent, how fast they will allocate the capital is, as you know, not only related to the market development and opportunities to make good deals. It's also a reflection of the opportunities that arise for EQT. Will it be a couple of big ones early on, or will it be a couple of smaller ones? That will, of course, have a significant impact on the speed of the allocation of the capital.
Sure. Thank you for that.
Thank you.
Next question from Maria Cheva from Nordea Markets. Madam, please go ahead.
Hi. Thank you. I wonder if you could tell us a bit more on the cost efficiency program in Mölnlycke. Just give us an update on the status, what length of the program you see, and if it's going according with the plan.
I would not define it as a cost efficiency plan. If I should try to guide you on that one, more see it as a continued cost efficiency work, and that's actually the best way we like to have it.
Okay. Thank you. Regarding the development in U.S. and Europe for Mölnlycke, could you give us a comment on that?
I think as I said, on a geographic basis, the biggest part of growth was in emerging markets. We did see slight growth also in the U.S. and in Europe. In Europe, the development was strong in France while it was somewhat weaker in the U.K. Those are the biggest differences we see.
Okay, thank you. Also regarding Permobil, will we see more of this? Is it a better positioning by Permobil or is it a just temporary uptick?
Sorry, I missed the question.
Oh, sorry. In Permobil, will we see more of this stellar growth or is it more one-offs?
No, as always, I don't give any guidance on growth. We are encouraged about the development in the company. Of course, we acknowledge that 20% organic growth is a very high figure. That is of course not sustainable to be a long-term growth over years. On a quarterly basis, we can of course see fluctuations. If we look on the demand situation, we are seeing good demand for our new products being launched on the consumer side. We continue to see good demand on the lift side, while on the commercial side, when you look on the regulatory framework and how they can postpone the replacement of taxis, for example, Nissan Taxi in New York, it is likely that it will remain a little bit sluggish for a couple of more quarters.
Okay.
That's what we see.
Thank you so much.
Thank you.
Next question from Joachim Gunell from DNB Markets. Sir, please go ahead.
Yes, thank you. First of all, congratulations on the Sarnova acquisition. My question is to start off with regarding the timing and why does it make sense from your perspective to make the deal now? Also, perhaps if you can elaborate a bit more on the cash flow profile compared to other Patricia Industries holdings.
Okay, thank you for that. I think from a timing perspective, I can only say that fortunately, this was an exclusive process. We have known this company for a number of years, and we have been in close dialogue with the management team and the former owners of this company. It has been a very good process, and eventually that led to us being comfortable that this is a strong company that fits very well with us, not only from a financial point of view, but also from a culture point of view. They decided to sell. I cannot say more than that we met them, and we shake hands and both sides were happy. When it comes to the cash flow profile, if you look on the cash flow in relation to the earnings of this company, it's a very high cash flow ratio.
All right, thank you. A follow-up question here on Mölnlycke. What is your view on the timing of when we see new product launches materialize on your top-line figures?
You know what? I will not give you any guidance except to say that we are pushing like crazy to get new products out, because it's not only important to drive growth, as we all know, it's also important for profitability. We talked about before that, of course, given the fact that the profitability in Wound is much higher than Surgical, that is having an impact. I talked about cost efficiency. We should not forget that product innovation and product renewable is extremely important for Mölnlycke and all companies to really drive profitability long term.
All right. Also, the revaluation of the EQT by 4% here. Could you elaborate if it was more related to exit gains or if it related to more general positive view on the operational performance?
To be honest, I don't have that figure in front of me. I would believe that it is actually a mix of both.
The question is related to the growth of the asset values in the quarter.
Yes.
Yes. Well, that is the valuation that EQT makes every quarter based on the principles for PE companies to value their company.
That's probably a mix of both.
Operational performance, and it could be multiple expansion as well. It's not the process that we control-
No
The number that we receive from them. It's of course audited by their auditors and so on. It's not for us to comment really.
All right. Thank you very much, Johan and Helena. Finally, regarding the internal framework to evaluate the digital maturity of your holdings, which holding in particular would you highlight still have the most work to do?
I will not answer that. Let me say like this, I think that the speed and the actions that we are taking in important areas, such as really setting the tone from the top, really thinking about not only how to drive opportunities and top line, but also to trying to find business models so you can sustainably have good earnings in these new models, because that of course is key. I must say that I am very encouraged about the speed that I have seen over the last one to one and a half years in this area. I can also say that I actually see for all our companies, there is much more to do.
All right. Thank you very much.
Thank you.
We don't have any more questions for the moment. Ladies and gentlemen, let me remind you that if you wish to ask a question, you have to dial zero and one on your telephone keypad. We don't have any questions. Back to you for the conclusion, sir.
Okay. Thank you very much for listening in and for the questions. We look forward to hearing back from you in the Q2 conference call. Thank you. Have a great weekend.
Okay. Thank you.
Thank you, everyone.