Welcome, everyone, to this press conference and webcast teleconference. My name is Stefan Stein. I'm Head of Corporate Relations and Communications at Investcor. This call is about presenting our Q2 report, and the presentation is available afterwards on our website, but it could also be viewed now in real time online. We will hear presentations by CEO, Johan Fochel and CFO, Julianna Saxon and we also have our Head of Investor Relations, Magnus Dahlhammer, here with us.
After the 2 introductions presentations, we're going to take Q and As. Once again, very welcome. And with that, I'm leaving over to Mr. Fochel.
Thank you, Mr. Soren, and hello and welcome everybody to this conference call. Given that it's summer and reporting season, we will try to make this brief. But of course, we will leave time for questions after the presentations. If I start on Slide number 2, on the overview, we had an adjusted net asset value growth based on the estimated market values values for our subsidiaries and street 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 slightly even contribution between the companies. 10 out of 11 holdings generated positive growth, while Nasdaq's contribution was slightly down in Swedish kroner, but actually up slightly in U. S. Dollar.
Within Patriche Industries, the performance of the companies was mixed, and I will get back to that in short. And EKT had a very strong quarter with a value change on our investments of 6% in constant currency and the net cash flow in the quarter to investor amounted to SEK0.7 billion. So 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, but the activity in the companies remained high.
Importantly, SAW passed the milestones through a successful first flight of the next generation smart flight, the Gripenia. In Sobe, Guido Eelkers 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 Medica, but some of you may also remember that he used to be the CEO of Gambra when we divested it to Baxter a few years ago. Wartsila acquired the U.
S. Company Greensmith Energy System. It's a leader within energy storage. So 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 shareperson as Leju Hasan has announced that he will not be available for reelection at the AGM in 2018.
And finally, in Atlas Copco, Ron Lieuten has been appointed Chairperson of Epiroc, the part of the company that is focusing on mining and civil engineering. And yesterday, Per Lindbergh, currently President and CEO of Villered Kossnes was appointed CEO of Epiroc. And 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 $98,000,000,000 The total return was plus 2.5%.
When it comes to the operations, we had a mixed performance in the quarter. And I think the best way to describe it is that we have a capital companies with good organic growth and improved profitability such as Laboree, 3 Scandinavia and Vectura. Then we have the capital companies, Permobil and Vulnerability, 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 Alaris, we have a number of challenges and the team is working hard to improve and fix that and I will come back to that.
And finally, in the quarter, we saw lower growth in Melnik and performance in the quarter is below our ambitions, but I will come back to that later on. So, let me then start with Menloek on the following slide. Merlikh, 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 1, we had a tough comparison.
The Q2 last year was a very strong quarter and also there are also fewer days in the Q2 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 effects from the ban on certain gloves that has benefited Menelik has tapered off. And thirdly, the reimbursement cut 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 4 quarters, but we saw growth. Europe declined slightly, mainly due to this reimbursement cut. The growth in emerging market was strong and we actually have a couple of individual regions and countries generating very high growth.
So even though the market 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, but also we saw increased raw material prices and that is related to gloves and some currency effects. Regarding gloves, the raw material prices has 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, but our view of membrik's attractive long term potential remains intact.
The company has strong market positions and a number of new products are being launched. And there are good prospects when it comes to emerging markets that I just mentioned. And the company is focusing on realizing these opportunities, while of course ensuring cost competitiveness in the business. Moving then over to Alaris. Alaris reported an organic sales decline of 2% during the quarter, mainly due to Healthcare Sweden and also lower utilization within certain parts of Cairn Norway.
The profit margin was also lower as the addition of Keralta could not fully compensate the negative impact from Norway? And that's a utilization question. In radiology, Marineris has a very strong position. There is an ongoing tender process in Stockholm. The outcome of this initial tender has been appealed.
And as this could be a long process, it is far too early to specify the impact. However, it is reasonable to assume that Alaris 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 Alaris. However, Alaris we 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 costs.
But again, it's far too early to specify the impact of this project and also the outcome And this will for sure not affect this year. And how long the process will take in 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 Cairn Norway, and importantly, decentralized decision making closer to the customer. We fully support the Board and management in these initiatives.
Moving then 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 vulnerability.
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. LaVaurie 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 new bank loans and 1.7 $1,000,000,000 was distributed to Patricia. And importantly on this new bank loan, investor does not need to guarantee this loan, which also is very important. Moving then over to EKT.
EKT had a strong quarter with a value increase of 6% and a net cash flow of $700,000,000 So far this year, the net cash flow to investor has amounted to $1,400,000,000 On average, the annual net cash flow to investor has amounted to about $1,500,000,000 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 equity is strong. Finally, please reiterate our strategic priorities going forward. For listed core investment, more companies to become best in class and gradually strengthen in selected holdings when we deem it attractive from a financial point of view.
Patricia Industries, we talked about it on call, strong focus on achieving profitable growth in the existing companies and also, of course, to look for attractive investment opportunities in the Nordic and North America. EKT continue to invest in their funds and of course that we maintain high quality and cost efficiency. And 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 the steadily rising dividend and of course, a good return. Thank you.
And now over to you, Helena.
Thank you, Johan. Let me start with the financial highlights. This is Page 14. Reported adjusted value amounted to $331,000,000,000 an increase of $1,000,000,000 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 $377,000,000,000 Total shareholder return was 11% compared to 6 Rx index 4%. On the next page, we can see the contribution to reported net asset value, and listed core investment was the part of investors that contributed the most, dollars 9,500,000,000 EQT also added almost 1,000,000,000 and 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 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 $98,000,000,000 excluding cash at the end of the quarter versus 97,000,000,000 dollars at the end of Q1, and this compares to $52,000,000,000 in reported value. The main deviations that you see between adjusted and reported values are found in Melnik, where the difference is almost $37,000,000,000 Permobil, dollars 4,000,000,000 and 3,000,000 Scandinavia, dollars 3,500,000,000 Regarding 3,000,000 $1,000,000,000 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. So looking at the drivers, it's the 4 companies listed here that made the biggest move in the quarter. Mannlica's market value was up $3,000,000,000 in the quarter, mainly driven by multiple expansions, 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 $800,000,000 in the quarter, mainly driven by multiple expansion as well, while the operating performance was quite stable. For Alaris, the estimated market value was down $700,000,000 in the quarter. While the multiple was fairly stable, lower value decline. And again then for 3 Scandinavia, we can see that the estimated market value was down $1,100,000,000 but please take into account that $1,700,000,000 was distributed and adjusted for this, the underlying value increase was approximately $600,000,000 driven by a significant improvement in operating profit and cash flow. And maybe I should add also that vulnerability, which was acquired in October 2015, was for the first time recorded an estimated market value, which led to an increase of SEK 200,000,000.
Moving over to financial investments, which is a part of Patricia Industries. Widne reported a net divestment of SEK 400,000,000 dollars in line with its strategy. The value decrease that we see from $9,200,000,000 to $7,900,000,000 was mainly attributable to NNS Focus, the Chinese IT security company that is listed in China. And my last slide, we can look at leverage development. And 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 16,200,000,000 dollars Cash and readily available placements amounted to 14,700,000,000 for a total of $1,400,000,000 and another $1,500,000,000 matured in June. The average maturity of our debt portfolio is now 10.4 years. And that is the end of my presentation.
Thank you, Helena. And with that, I'm leaving over to any questions that might come from the audience. Let me start by telephone.
Thank you.
Our first question comes from the line of Elias Porsche from Nordea.
Estimated market values versus the reported values. It's a quite big difference, as you noted, of SEK 46,000,000,000 Would it make sense for you in the future to abandon the reported values in favor of the more fair values and the estimated market values that you use since then? Thank you.
Yes. Thank you, Elias, for that question. It's good that you bring it up. But the estimated market values are only supplementary information, as you know. And we report according to IFRS, according to the acquisition and the equity methods, and we will stick with that.
So we think this is an interesting information that we know the market has interest in, but we're not planning to change our IFRS reporting.
Okay. Well, IFRS also allows for fair values, of course. But moving on, on the valuation side, EQT, the management company in your NAV is reported at €84,000,000 Do you think that this is a fair value or partly misleading value? Or 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 value the fair value is higher than we have in the books. The reason why we do not put that at call it an estimated market value is actually for competitive reason 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.
So that's the reason compared to the subsidiaries where we are the major owner.
All right. Fair enough. And on Malleke, the slower organic growth, Previously, the Medicus CEO has said that they have quite also on the Capital Markets Day, they have quite ambitious growth targets. And 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 Malleke, partly driven by higher multiples.
But you also mentioned the potential multiple contraction acquisition prospects for Mundeleke? 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 Menelik or some of the other companies in our portfolios that conduct them. The key will always be to find companies there where you have 2 interesting parts or 2 important parts. Number 1, 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. And 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 3rd 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 Melendlyk and the other companies to find potential targets here
going forward? Yes, I do.
But the timing and the size of many of our other companies, of course, are working through a pipeline of opportunities.
But 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 Melnik, I would say, valuation is not the key. But 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. But I would say the key is always to find the right company with the right fit with our company.
Thank you.
Our next question comes from the line of Magnus Raman from SHB. Please go ahead with your question. Your line is now open.
Thank you and thank you for the presentation. Coming back to Munich in terms of drivers behind the 3 percentage points margin set back 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. And there are also some smaller other things, of course, that come into it. But the biggest one is the reimbursement and the 2 others are shared number 2, you can say.
Right. And is it fair to assume that the negative effect from reimbursement cut will be annualized so to speak in Q1 2018?
It is when you have this, of course, you have it's very difficult to answer because you have a reimbursement cut. But the way it filters through into the business, of course, is a gradual process. So I cannot be specific on it. But of course, if you go a couple of quarters ahead gradually, then the growth effect will start to taper off.
Right. So at least it's fair to expect a certain drag on earnings growth for molecules in H2 2017 from this reimbursement cut?
I mean the reimbursement cut, of course, is what it is. And in the next quarter, if you compare year over year, it will have a continued negative impact.
Okay. Thank you. Then 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 build up on order books here already in Q2. But should we expect positive effects on growth and profitability already in second half of twenty seventeen from these drug 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. But what I can say is that if you look on Permobil and more be fact based, I can see that we reported an organic sales growth of 1%. But if we look on the organic order intake in the quarter, it was mid single digits.
And when it comes to vulnerability, we have a strong backlog. And hopefully, of course, we will deliver part of that going forward. But 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 Enf Focus in the quarter. Does this imply that this holding is no longer under lockup? And even in total, you made divestments of SEK 500,000,000 in the quarter.
Should we expect an increase in the pace of divestment from financial investments in coming quarters?
Helena, what do you say on Energetics?
You are right that the look up expired earlier this year, and we are free to sell half of our investment in Ennen Focus this year and the rest next year. How fast? And that's not something we can comment on right now, but we have sold in the quarter for about $7,000,000
All right.
Thank you.
Our next question comes from the line of Oskar Lindstrom from Danske Bank. Please go ahead with your question. Your line is now open.
Yes, good morning. Some more questions on Manlik and the margin contraction there. I mean, 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 that sort of 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 we have seen has now plateaued. So we don't see an increase quarter over quarter. When it comes to the reimbursement cut, of course, the cut is what it is. So if you compare it before the cat, 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. And of course, the way you have to do it is to handle it and adjust for that. And the company, of course, is working hard on not only growing the business in emerging markets and new product launches, etcetera, but also, of course, improving the efficiency to counteract these kind of activities. But the reimbursement cut is what it is and that we have to live with, but we need to adjust.
And 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. But of course, there is a tough competition in many markets disregarding this. But I will not say that the reimbursement cap per SEIA 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 Michael Lodder, 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?
And I guess you're saying that the profitability would have been higher year on year in this quarter. And 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 because 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?
Yes. If you look on the Q2 last year, we had the margin of if you take it on an EBITDA level, you had the margin of 20%. And this year
I was meaning what it is, what it refers to, the settlement call?
It is I want to go into the details, but it is a legacy product where there is a certain thing that we have needed to set down.
Okay. Okay. Thanks. 2nd question and that is more, I guess, how you look at this market valuation and
what kind of multiples you use and earnings and
so on. If you look at while you are then comparing and using a peer group, I guess, with also the last 12 months multiples. But in a situation where Melendyk 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?
I mean it can always be different things on how you do it, but we do not give forecast, as you know, for our companies. And if we wanted 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, but 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, and that is what we use. Then when it comes to the growth and so forth, of course, it can differ between quarters, but we see this more as a long term and our long term view of the company remains intact.
Yes, sure. But you're still seeing Melnik right now underperforming, but still you raised 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 4 quarters.
The reason, to be honest, why we don't do it is like 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. And the organization that is working with the development of these companies in the Patricia organization, including Manlyk, 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 subjective adjustments when their payment is tied to the performance, that would be a very cumbersome process that would add little value. So 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. So that's the reason.
We want to have it simple, transparent and very clear.
Okay. Thanks. Final question on Manlik. Could you say something? I mean, there are several moving parts here that affects both top line and margins.
But could you say something about how you believe that Melnik is performing relative to the market and competitors?
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. And there I mentioned that the U. S. Was slightly up and while Europe was down a little bit mainly due to this reimbursement cap.
I could perhaps add that the capital markets within the emerging market segments, we have markets like China being up 30%. We have Middle East also being up 30%. So there are a capital growth region still small, but that really adds to the growth of the total if you look on the growth of the company.
Okay. Okay. Thanks. Thanks.
We appear to have no further questions at this time. I hand the conference back to you, sir.
Okay. Thank you for that. Any questions on the web, Mr. Dan Ammer? No.
Okay. No questions on the website. I'm leaving over for if there are any more questions via telephone, please
It looks like we've got no questions from the telephone participants.
Okay. Thank you. And