Welcome everyone to this press conference and webcast teleconference. My name is Stefan Stern. I am Head of Corporate Relations and Communications at Investor. This call is about presenting our Q2 report, and the presentation is available afterwards on our website, but can also be viewed now in real-time online. We will hear presentations by CEO, Johan Forssell, and CFO, Helena Saxon. We also have our Head of Investor Relations, Magnus Dalhammar, here with us. After the two introductions presentations, we are going to take Q&As. Once again, very welcome. With that, I am leaving over to Mr. Forssell.
Thank you, Mr. Stern. Hello and welcome everybody to this conference call. Given that it is summer and reporting season, we will try to make this brief. Of course, we will leave time for questions after the presentations. If I start on slide number two on the overview, we had an adjusted net asset value growth based on the estimated market values for our subsidiaries and 3 Scandinavia. That was up 3% in the quarter. Our total share return was up 11%, while the Swedish stock market gained 4%. The listed portfolio generated a return of 3% with fairly even contribution between the companies. 10 out of 11 holdings generated positive growth, while Nasdaq's contribution was slightly down in Swedish krona, but actually up slightly in US dollar. Within Patricia Industries, the performance of the companies was mixed, I will get back to that within short.
EQT had a very strong quarter with a value change on our investments of 6% in constant currency. The net cash flow in the quarter to Investor amounted to SEK 0.7 billion. Let me then turn over to the listed core investments. As I mentioned, the return was up 3%. We made no investments during the quarter, the activity in the companies remained high. Importantly, Saab passed the milestone through a successful first flight of the next-generation smart fighter, the Gripen E. In Sobi, Guido Oelkers was appointed the new CEO. He has a very strong track record and solid background in the healthcare industry. Most recently, he was the CEO of BSN Medical. Some of you may also remember that he used to be the CEO of Gambro when we divested it to Baxter a few years ago.
Wärtsilä acquired the U.S. company Greensmith Energy Systems. It is a leader within energy storage. This acquisition will strengthen the company's position when it comes to global leading energy system integration. In Ericsson, the nomination committee has started the important search for a new Chairperson, as Leif Johansson has announced that he will not be available for re-election at the AGM in 2018. Finally, in Atlas Copco, Ronnie Leten has been appointed Chairperson of Epiroc, the part of the company that is focusing on mining and civil engineering. Yesterday, Per Lindberg, currently President and CEO of BillerudKorsnäs, was appointed CEO of Epiroc. I can also say that the preparations for the proposed split continues in a good way. Moving then over to Patricia Industries. The adjusted market value, excluding the cash amounted to SEK 98 billion. The total return was +2.5%.
When it comes to the operations, we had a mixed performance in the quarter. I think the best way to describe it is that we have a couple of companies with good organic growth and improved profitability, such as Laborie, 3 Scandinavia, and Vectura. We have a couple of companies, Permobil and BraunAbility, that are in the midst of important product launches. That affects the financials in the quarter, but also of course give good prospects for the future. In Aleris, we have a number of challenges. The team is working hard to improve and fix that, and I will come back to that. Finally, in the quarter, we saw lower growth in Mölnlycke. Performance in the quarter is below our ambitions, but I will come back to that later on. Let me then start with Mölnlycke on the following slide.
Mölnlycke, as I said, reported a sales growth of only 1% in constant currency in the quarter. There are a few reasons for the lower growth. Number one, we had a tough comparison. The second quarter last year was a very strong quarter. There are also fewer days in the second quarter this year compared to last year. Combined, this most likely had an impact on the growth in the quarter. Secondly, within surgical, gloves did not grow as fast as during the past few quarters, as the positive effect from the ban on certain gloves that has benefited Mölnlycke has tapered off. Thirdly, the reimbursement cap in France, which we have talked about before, of course, continued to affect growth negatively. Over time, the impact on growth will, of course, go away, although the absolute levels remain the same.
Geographically, growth in the U.S. was lower than during the past four quarters, but we saw growth. Europe declined slightly, mainly due to this reimbursement cut. The growth in emerging markets was strong. We actually have a couple of individual regions and countries generating very high growth. Even though the markets are quite small, if you measure it in terms of growth to the company, it's starting to become meaningful. The profit margin was down year-on-year, mainly due to the reimbursement cut in France. Also we saw increased raw material prices. That is related to gloves, and some currency effects. Regarding gloves, the raw material prices have flattened out compared to Q1, but if we compare with Q2 last year, they still affected negatively.
The performance in the quarter, as I said, does not reflect our ambition. Our view on Mölnlycke's attractive long-term potential remains intact. The company has strong market positions. A number of new products are being launched. There are good prospects when it comes to emerging markets that I just mentioned. The company is focusing on realizing these opportunities while, of course, ensuring cost competitiveness in the business. Moving then over to Aleris. Aleris reported an organic sales decline of 2% during the quarter, mainly due to Healthcare Sweden and also lower utilization within certain parts of CARE Norway. The profit margin was also lower as the additional Kerecis could not fully compensate the negative impact from CARE Norway. That's a utilization question. In radiology, where Aleris has a very strong position, there is an ongoing tender process in Stockholm.
As this could be a long process, it is far too early to specify the impact. However, it is reasonable to assume that Aleris will get a substantial part of the tender, but somewhat less than today and at lower prices. Given this, it is likely that this will result in lower volumes and also prices for Aleris. However, Aleris will need to work to compensate for this as much as possible. For example, by attracting other volumes such as insurance and, of course, by adapting cost. Again, it's far too early to specify the impact of this process and also the outcome, and this will for sure not affect this year, and how long the process will take and the outcome we will have to see later.
There are several initiatives going on to improve efficiency in the company. Management needs to fix Healthcare Sweden, improve utilization, as I mentioned, in CARE Norway, and importantly, decentralize decision-making closer to the customer. We fully support the board and management in these initiatives. Moving over to Permobil. Permobil reported organic sales growth of 1% in constant currency, mainly driven by North America. Underlying profitability was slightly higher, adjusted for some settlement costs related to a legacy product. The new products have been positively received by the customers, and I'm mainly talking about the M3, and the organic order intake was higher than the organic sales growth in the quarter. Moving to BraunAbility. The organic sales growth in constant currency was down 4%, and the profit margin was lower than last year. This company is in the midst of a very large product launch.
Importantly, the new products being launched have been well-received, and the order backlog was strong at the end of the second quarter. Laborie reported 5% organic sales growth in constant currency with improved profitability. Significant investments are being made to develop the company to reach the long-term potential. This company developed very well in the quarter. Also, 3 Scandinavia developed well in the quarter with a reported growth of 5% when we talk about the service revenue and the EBITDA margin moved to 30%. The company was able to raise a new bank loan and SEK 1.7 billion was distributed to Patricia Industries. Importantly, on this new bank loan, Investor does not need to guarantee this loan, which also is very important. Moving over to EQT. EQT had a strong quarter with a value increase of 6% and a net cash flow of SEK 0.7 billion.
Far this year, the net cash flow to Investor has amounted to SEK 1.4 billion. On average, the annual net cash flow to Investor has amounted to about SEK 1.5 billion per year historically. Given the high investment activity that you have seen and the new funds that have been launched, we would expect additional drawdowns during the remainder of the year. Overall, the performance in EQT is strong. Finally, please let me reiterate our strategic priorities going forward. For listed core investment, more companies to become best in class, and gradually strengthening selected holdings when we deem it attractive from a financial point of view. Patricia Industries, we talked about it on this call. Strong focus on achieving profitable growth in the existing companies. Also, of course, to look for attractive investment opportunities in the Nordic and North America.
EQT continue to invest in their funds. Of course, that we maintain high quality and cost efficiency. If you look on the management cost, you will see that we are well on track on that. All this with the ultimate target to generate a steadily rising dividend, of course, a good return. Thank you. Now over to you, Helena.
Thank you, Johan. Let me start with the financial highlights. This is page 14. Reported net asset value amounted to SEK 331 billion, an increase of SEK 1 billion during the quarter. Adjusted for dividend paid, growth was 3% in the quarter. Based on estimated market values of Patricia Industries, adjusted net asset value amounted to SEK 377 billion. Total shareholder return was 11%, compared to SIX-RX Index 4%. On the next page, we can see the contribution to reported net asset value. Listed core investment was the part of Investor that contributed the most, SEK 9.5 billion. EQT also added almost SEK 1 billion. Our dividend was paid in May. Moving over to the listed core investments, we see that all the companies in the portfolio contributed to performance. Even Nasdaq was actually up in U.S. dollars. Patricia Industries on the next page.
Looking at Patricia Industries and the estimated market values, we can see that the market value of Patricia Industries amounted to SEK 98 billion, excluding cash at the end of the quarter, versus SEK 97 billion at the end of Q1. This compares to SEK 52 billion in reported value. The main deviations that you see between adjusted and reported values are found in Mölnlycke, where the difference is almost SEK 37 billion, Permobil SEK 4 billion, and 3 Scandinavia, SEK 3.5 billion. Regarding 3 Scandinavia, please remember that the distribution of SEK 1.7 billion has impacted both the estimated market value and the reported value. On the next slide, we see major drivers of the estimated market value change in Q2. Looking at the drivers, it's the four companies listed here that made the biggest move in the quarter.
Mölnlycke's market value was up SEK 3 billion in the quarter, mainly driven by multiple expansion, some cash flow, and currency effects, while the lower operating profit affected the estimated market value negatively. For Permobil, we can see that the estimated market value was up SEK 0.8 billion in the quarter, mainly driven by multiple expansion as well, while the operating performance was quite stable. For Aleris, the estimated market value was down SEK 700 million in the quarter. While the multiple was fairly stable, lower operating profit was the main explanation for the value decline. Again then, for 3 Scandinavia, we can see that the estimated market value was down SEK 1.1 billion, but please take into account that SEK 1.7 billion was distributed. Adjusted for this, the underlying value increase was approximately SEK 0.6 billion, driven by a significant improvement in operating profit and cash flow.
Maybe I should add also that BraunAbility, which was acquired in October 2015, was for the first time recorded an estimated market value, which led to an increase of SEK 200 million. Financial investments, which is a part of Patricia Industries. They reported a net divestment of SEK 400 million, in line with its strategy. The value decrease that we see from SEK 9.2 billion to SEK 7.9 billion was mainly attributable to NSFOCUS, the Chinese IT security company that is listed in China. My last slide, we can look at leverage development, looking at our balance sheet, we can see that leverage fell to 4.7% at the end of June this year. Net debt amounted to SEK 16.2 billion. Cash and readily available placements amounted to SEK 14.7 billion.
In May, we proactively repurchased bonds for a total of SEK 1.4 billion, another SEK 1.5 billion matured in June. The average maturity of our debt portfolio is now 10.4 years. That is the end of my presentation.
Thank you, Helena. With that, I'm leaving over to any questions that might come from the audience. Let me start by telephone.
Thank you. Ladies and gentlemen, if you do have a question for the speaker, please press 01 on your telephone keypads, and you'll enter in the queue. Our first question comes from the line of Elias Porsche from Nordea. Please go ahead, your line is now open.
Thank you, Elias. Elias Nordea here. First, a question on your estimated market values versus the reported values. It's a quite big difference, as you noted, of SEK 46 billion. Would it make sense for you in the future to abandon the reported values in favor of the fairer values, the estimated market values that you use instead? Thank you.
Thank you, Elias, for that question. It's good that you bring it up. The estimated market values are only supplementary information, as you know, we report according to IFRS, according to the acquisition and the equity methods, we will stick with that. We think this is interesting information that we know the market has an interest in, we're not planning to change our IFRS reporting.
Okay. IFRS also allows for fair values, of course. Moving on the valuation side, EQT, the management company in your NAV is reported at SEK 84 million. Do you think that this is a fair value or partly misleading value, would it make sense to also include this in the market value estimates?
Thank you for that question. I think it's fair to say that the fair value is higher than we have in the books. The reason why we do not call it an estimated market value is actually for competitive reasons, considering EQT's position that they have also competitors that do not want to go out with certain kind of information. We are not the sole owner here, we are a minority owner, that's the reason compared to the subsidiaries where we are the major owner.
All right. Fair enough. On Mölnlycke, the slower organic growth. Previously, the Mölnlycke CEO has said that they have quite, also on the Capital Markets Day, have quite ambitious growth targets. Of course, if the organic growth is slow, maybe you are looking at acquisitions. In the quarter, you have increased the market-based value of Mölnlycke, partly driven by higher multiples. You also mentioned the potential multiple contraction going forward in the CEO statement, and that's on a broader basis, of course. How do you view the acquisition prospects for Mölnlycke currently? Do you believe valuations are too stretched now, or are there no suitable targets? Thank you.
Thank you for that question. As always, when you do acquisitions, whether it's Mölnlycke or some of the other companies in our portfolios that conduct them, the key will always be to find companies where you have two interesting parts or two important parts. Number one, the company that you acquire, of course, needed to be in a segment and an area where you have the prospects to make good money over time. Secondly, if one of our companies buy it, you also need to add something as a buyer. You can call it synergies. That is how we look at it. The third part, of course, is that you need to pay a price where the value that you create through the acquisition exceeds the price you pay. That's how we work. Is it easy to find a lot of acquisition targets in this market? No, it's not.
Do I believe we have prospects in Mölnlycke and the other companies to find potential targets here going forward? Yes, I do. The timing and the size of them is very difficult to predict. In Mölnlycke, as many of our other companies, of course, are working through a pipeline of opportunities.
Has valuation been the main factor holding you back, or are there other reasons?
I would say when it comes to our companies looking for opportunities and in Mölnlycke, I would say valuation is not the key. Of course, in some cases, you might end up in a situation where you have an opportunity, but you just can't get the mathematics to work. I would say the key is always to find the right company with the right fit with our company.
Thank you.
Once again, ladies and gentlemen, if you wish to ask a question, press zero one on your telephone keypad. Our next question comes from the line of Magnus Rhenman from SHB. Please go ahead with your question. Your line is now open.
Thank you, thank you for the presentation. Coming back to Mölnlycke in terms of drivers behind the three percentage points margin setback in Q2, can you help us get a sense of the split between reimbursement cut in France and all the other explanatory factors?
I would say that the biggest one is the reimbursement cut. The size of the raw material and the currency are smaller, but they are roughly of equal size.
Okay.
There are also some smaller other things, of course, that come into it, but the biggest one is the reimbursement, and the two others are shared number two, you can say.
Right. Is it fair to assume that the negative effect from reimbursement cut will be annualized, so to speak, in Q1 2018?
When you have this, of course, it's very difficult to answer because you have a reimbursement cut. The way it filters through into the business, of course, is a gradual process. I cannot be specific on it. Of course, if you go a couple of quarters ahead gradually, the growth effect will start to taper off.
Right. At least it's fair to expect a certain drag on earnings growth for Mölnlycke also in H2 2017 from this reimbursement cut.
The reimbursement cap, of course, is what it is. In the next quarter, if you compare year-over-year, it will have a continued negative impact.
Okay, thank you. Just in terms of performance in Permobil and BraunAbility, you mentioned here that they've been affected by major product launches, and you also mentioned a positive buildup on order books here already in Q2. Should we expect positive effects on growth and profitability already in the second half of 2017 from these product launches?
It's a fair question. I don't want to give forecast, and the reason for that is that there are always a number of things that you can't control, and one is the market development. What I can say is that if you look on Permobil and more be fact based, I can say that we reported on organic sales growth of 1%, but if we look on the organic order intake in the quarter, it was mid-single digit. When it comes to BraunAbility, we have a strong backlog. Hopefully, of course, we will deliver part of that going forward. I do not want to give a specific forecast.
All right, fair enough. I have one final question on your financial investments. You made a minor divestment in NSFOCUS in the quarter. Does this imply that this holding is no longer under lockup? Even in total, you made divestments of SEK 0.5 billion in the quarter. Should we expect an increase in the pace of divestment from financial investments in coming quarters? Thank you.
Helena, what do you say on NSFOCUS?
You are right that the lockup expired earlier this year, and we are free to sell half of our investment in NSFOCUS this year and the rest next year. How fast, that's not something we can comment on right now, but we have sold in the quarter for about SEK 7 million.
All right. Thank you.
Once again, ladies and gentlemen, if you do have a question, press 01 on your telephone keypad. Our next question comes from the line of Oskar Lindström from Danske Bank. Please go ahead with your question. Your line is now open.
Yes, good morning. Some more questions on Mölnlycke and the margin contraction there. You mentioned a number of factors which should be temporary, like the tough comparables and the fewer trading days. However, the reimbursement cut in France and the higher raw material prices, are those effects fully in, or should the headwind or the drag from those two factors increase further going forward in your view?
When it comes to the raw material prices, I will not even try to give you a forecast of it. I can just say that the increase that we have seen has now plateaued, we don't see an increase quarter-over-quarter. When it comes to the reimbursement cut, of course, the cut is what it is. If you compare it before the cut, of course, it is now a lower price level. In the healthcare business in general, this is something that happens from time to time that you get reimbursement cuts. Of course, the way you have to do it is to handle it and adjust for that. The company, of course, is working hard on not only growing the business in emerging markets and new product launches, et cetera, but also, of course, improving the efficiency to counteract these kind of activities.
The reimbursement cut is what it is, and that we have to live with, but we need to adjust.
Has the reimbursement cut, or any other factors for that matter, generated increased competition in the market so that as the total market size shrank, have your competitors become more aggressive and therefore that you're also sort of there's price pressure?
I would not say that the reimbursement cap has increased the competition. Of course, there is a tough competition in many markets disregarding this, but I would not say that the reimbursement cap per se has increased the competition.
All right. Thank you very much. Those were all my questions.
Thank you.
Our next question comes from the line of Mikael Lodahl, sorry for the pronunciation, from Carnegie. Please go ahead. Your line is now open.
Yes. Hi. Excuse my last name is not easy to pronounce in English, but nevertheless. First question on Permobil. Could you specify the settlement costs? I guess you're saying that the profitability would have been higher year-on-year in this quarter. Do you mean by that the EBITDA margin would have been higher than last year's margin?
On the question, I think if I answer the last question, you will get a good feeling for the magnitude of it. You're absolutely right. If we would have not had this extra settlement cost, the profitability in the quarter would have been slightly higher compared to last year's quarter.
Okay. Could you say what that is, that settlement cost?
Yeah. If you look on the second quarter last year, we had the margin of, if you take it on an EBITDA level, you had the margin of 20%. This year-
I was meaning what it is, what it refers to, the settlement cost.
Sorry. It's a legacy product, where there is a certain thing that we just needed to settle.
Okay, thanks. Second question, that is more, I guess, how you look at this market valuation and what kind of multiples you use in earnings and so on. If you look at Mölnlycke now, for instance, you use the last 12 months' EBITDA while you are then comparing and using a peer group, I guess with also the last 12 months multiples. In a situation where Mölnlycke is either underperforming versus what you think and perhaps the market thinks, or outperforming, doesn't that make the value always become a bit too high or too low by looking at last 12 months and also using it strictly to a peer group?
It can always be different things and how you do it, we do not give forecast, as you know, for our companies. If we want to be transparent to you how we do it, we have said that this is the easiest and best way to do it. There might, of course, be different movements that you can have different views on. We have a very broad peer group and also medical indexes, and what we can say is that right now, this is the multiple that is used in the market for similar companies. That is what we use. When it comes to the growth and so forth, of course, it can differ between quarters. We see this more as a long term, and our long-term view of the company remains intact.
Yeah. Sure. You're still seeing Mölnlycke right now underperforming, but still you raise the multiple. I guess it could be up to you to not use a straight comparable multiple as the peer group to sort of adjust for a bit lower or weaker performance than in the past four quarters.
The reason, to be honest, why we don't do it is if you have a share that is traded on the stock market, you can always have different views on it, is that I'm a firm believer in transparency and also in terms of focus. The organization that is working with the development of these companies in the Patricia organization, including Mölnlycke, they have one target, and that is to increase one key target, I should say. That is to increase the value of the Patricia portfolio. If we would do a lot of subjective adjustments when their payment is tied to the performance, that would be a very cumbersome process that would add little value.
The ones that are working with it, they will have to live with small changes, exactly like myself that have shares that is, of course, affected by a lot of things out there. That's the reason. We want to have it simple, transparent, and very clear.
Okay, thanks. Final question on Mölnlycke. Could you say something, there are several moving parts here that affects both top line and margins. Could you say something about how you believe that Mölnlycke is performing relative to the market and competitors?
No, it's too early to say because we have seen too little of the competition yet. We can see how we develop in the different regions. There I mentioned that the U.S. was slightly up while Europe was down a little bit, mainly due to this reimbursement cap. I could perhaps add that within the emerging market segments, we have markets like China being up 30%. We have Middle East also being up 30%. There are a couple of growth regions, still small, but that really adds to the growth of the total if you look on the growth of the company.
Okay. Thanks.
Thanks.
We appear to have no further question at this time. I hand the conference back to you, sir.
Okay, thank you for that. Any questions on the web, Mr. Dalhammar?
No.
Okay, no questions on the website. I'm leaving over for if there are any more questions by telephone, please tell now.
Once again, ladies and gentlemen, if you wish to ask a question, press zero one on your telephone keypad. There will be a brief pause while questions are being registered. It looks like we've got no questions from the telephone participants.
Okay, thank you. Thank you for listening in, and have a great summer. Thank you.
Thank you.
Thank you.