Investor AB (publ)

Today we will start off with our CEO Johan Forssell presenting the results and then followed by our CFO Helena Saxon. After that we will open up for a Q&A session. You can follow this presentation over the web or over the phone and by that I would like to hand over to you Johan.

Thank you Viveka and welcome everybody to this report about our second quarterly result. As we all, let me see, I should probably flip here. As we all know, we are living in very turbulent times. And the combination of sharply rising inflation and an increased interest rates and most macro economies worrying about the macro outlook, of course, we have seen a sharp correction in the stock market. If we look forward, I think we should be prepared for tougher times, but as always, the outlook is uncertain, but we are for sure preparing for tougher times if they should come. In this environment we stay very close to our companies and I must say that I'm pleased with the development of our subsidiaries within Patricia during the quarter. We are seeing price increases gradually coming through and I think that is important given the cost increases we see worldwide. And from that perspective, of course, it is a strength that our companies have market leading positions in attractive segments. And that means that they have pricing power so they can gradually now put prices up and price management remains a key priority for us. If I then move over to the second quarter, we can see that our share price was down more or less in line with the market being down 17% compared to the stock market being down 16%. But we can also see that our net asset value was much more resilient, being down only about half of the development in the stock market. And there are two main explanations for that. The first one being that our listed companies were down only half of the stock market in the quarter. And the second one is the strong operational performance in our subsidiaries during the quarter. If I then say a few words about the listed companies, as mentioned, the total share of the return was down 8% in the quarter, while the stock market was down 16%. And here, of course, AstraZeneca, Saab and Subi performed strongly. And significantly outperformed the stock market. And there are two main reasons, I think, for that. First, we have had good positive news flow in these three companies. And secondly, there is, of course, also a market shift to more defensive stocks. As mentioned previously, we are staying close to the companies and we are basically working both when it comes to managing the current challenges, make sure our companies invest for the future, R&D, in transformation within sustainability, for example. And finally, also, in some cases, to make sure you prepare for potentially tougher times, even though many other companies, of course, are active in more resilient industries. And for some of these companies, the focus is more capturing all the growth that is out there at the moment. Moving over to Patricia Industries, the total return was up 2% in the quarter and that's a combination of a strong operational performance, currency gains and mitigated then by multiple contraction. If we look on the operational performance, the aggregate sales was up 26%, of which 8% organic in constant currency. And the adjusted profit was up 17% in the quarter. Advanced Instrument and PIA completed the strategic add-on acquisitions of Artela and Jolan, and Patricia invested about 0.7 billion in these investments. And we have a continued high focus on capturing additional opportunities and the pipeline remains strong. Then a few words about the different companies. Atta's antibodies grew at 21% organically and with increased profit margins. And we see a very strong development, not the least the latest acquisition in Vitria, which today is a very sizable part of this business. Bronability continued the recovery, growing nicely and also improving profitability. In PIAB we saw an organic growth of 17% in the quarter and the profit margin remained at a good level but was done somewhat and that is driven by a combination of investments in sales and marketing and also increased costs. Advanced Instruments had a very strong development, once again, with 16% organic growth and a high profitability. Here, the margin deterioration compared to the previous year is a combination of significant investments to grow this business and also the mix effect of the acquisition of Celentim, which have lower margins. So that is a pure mix effect, but the underlying performance here is very strong. Laboree grew 9% in the quarter and here we actually saw that the margin was down 6-7% compared to last year. That's a combination of increased cost and some supply chain challenges. But it's also to a large extent related to significant investments in new product launches. And one important one being the recently acquired Optilum that the company acquired. Sanova, good solid development, growing 6% organically with good profitability. Menlycke, I will come back to. And then finally Permobil was the only company that didn't grow organically in the quarter. We saw good growth in Europe, but the growth in the US was negatively affected by supply constraints. I should also say that when it comes to Permobil, that during the quarter, the company also changed their ERP system, which affected both sales and profitability somewhat. Then moving over to Mänlycke, here we saw a very good development in the quarter with organic sales of 5%. If we exclude the PPI contract last year, the organic growth was 9%. And this was the last quarter with the PPI customer contracts in the comparison period. So now we are through that comparison period explanations. If we exclude the PPE contracts, all business areas actually grew in the quarter. Boomcare reported a very strong growth at 11% organically. And I think it's great to see that gloves is now also back growing again. They grew 6% organically in the quarter, following a period with severe production and distribution challenges. The production is now up and running, but the company is continuing now to invest in more manufacturing capacity because the underlying demand out there is very strong. If we then look on the profitability, you can see that we continue to see a sequential improvement. And if you look on the development in the quarters, we can see that despite continued cost increases in raw material and logistic cost, the EBITDA level was 125 million euro. And that can be compared with about 110 on average for the last three quarters that were also unaffected by the PPE contracts. So we are seeing an improvement also in the profitability in the quarter, sequentially. Moving then over to advanced instrument. This is the first quarter that we market value advanced instrument. We have held it at cost for the first 18 months since we acquired the company. And just to repeat, this is an excellent company which I've highlighted before. They have really leading market position in attractive segments with strong growth. And since we acquired this company, the average annual organic growth has been about 20% per quarter. And you can see that the profit margin has been well above 40% over this period. The company has also made two important strategic acquisitions with Sollentum and Artel, really strengthening the position within the important biopharma segment. If we then look on the valuation of the company, in total we have invested 7.5 billion in this company, and the estimated market value now is 10.6 billion. The value increase has mainly been driven by the very strong operational performance I just chose, but also strong positive currency effects, since this company has a very significant part in the US, and we have seen a much stronger US dollar. this has been offset by a multiple contraction and just to give you a flavor of it when we acquired advanced instrument we paid 24 times profit for it and now in this We value the same legacy advanced instrument at 19 times. The add-on acquisitions we will keep at cost for an 18-month period like we did with the original acquisition. But all in all this means that we have seen a multiple contraction of about 20% since we bought it and still we can actually show this good value increase which I think is an excellent start of this company. Moving over to EKT, down 26% in the quarter. And that is mainly the key reason here is the sharp decline in EKT AB on the stock market being down 43%. The funds actually was up somewhat in the quarter. We had an excellent cash flow of 3.8 billion in the quarter and as you can see to the right of course one should be aware that this can be lumpy over time. But a very strong cash flow this quarter driven by a couple of successful exits. So to summarize, I must say that I do believe that we are well positioned if we will now enter tougher times. And I should say, I don't have a crystal ball. I read the newspapers as everybody else. It is not unlikely that all the headwinds facing the consumers worldwide will gradually start to affect the demand in the world economy and not as now mainly the supply chain challenges. But I think that if we enter tougher times, we are in a very good position for two main reasons. First, we have for many years invested in and built up a strong portfolio of companies within healthcare, medtech, automation, companies that have high profitability and strong cash flow generation. And of course, this is a strength if we enter tougher times. So I do believe we have a strong and resilient portfolio. Secondly, we have been active over the last three and a half to four years to really refinance our debt. And Helena will come back to that later on. But that means that we have a very good duration and low interest rates on our long-term bonds, and we have a strong cash position. So I think the combination of a solid, strong portfolio and a very good financial position puts us in a good position if we enter tougher times. Of course if tougher times come one need to be prepared for it but I do believe we are well positioned if that would happen. So with that I hand over to Helena.

Thank you Johan. Then we will have a look at the net asset value development over the last five years and we can see that the quarter ended at 610 billion krona and the average annual growth with dividend added back was 12% during the last five years. And looking at the return by business area, we can see that it is a mixed performance between the three areas, Patricia Industries being up 2%, listed down 8%, and investments in EQT down 26%. And with the mix that you see on the pie chart on the right-hand side, this all combined comes down to minus 9% in the quarter compared to 6RX minus 16%. And looking a bit more carefully at two-thirds of the portfolio, which are the listed companies, we can see that also here there is mixed performance. While some of the capital goods companies had a tougher quarter from a share price perspective, we had strong contributions from AstraZeneca and Saab in the quarter. And this all listed portfolios TSR was actually down 8% then compared to 6RX, 16%. Moving over to Patricia Industries, almost a quarter of the portfolio. This graph shows the sequential change in estimated market values, i.e. the change here in Q2 compared to Q1. And Joanna has already touched upon it, but an important contribution. contributed to the value increase here is the fact that we no longer value advanced instruments at cost, but we try to estimate a market value for it. We can also see that Manlyke 3 and Braunability contributed, while Piab and Permobil had tougher development. And as Johan also mentioned, 700 million has been provided in the quarter in acquisition financing, which affects Patricia's cash position. Looking more carefully at the drivers of estimated market value, again advanced instruments for the first time valued at estimated market value and here also half a billion was provided in acquisition financing during the quarter. Menelikets value was up 0.4 billion and this was driven by currency, higher earnings and cash flow that were all impacting the value positively but here we saw multiple contraction impacting the value negatively. Looking at three, also up 0.4 billion. This was due to higher multiples as peers have had multiple expansion and higher earnings impacted both positively. There was also distribution in the quarter of 80 million krona. PIA was down 0.3 billion, and this was due to higher earnings, which were positive, but then mitigated by lower multiples, which impacted the value negatively. And also here, there was financing provided by Patricia in the quarter. And then Permobil down more than a billion due to lower multiples impacting the value negatively. Johan mentioned our strong balance sheet and having a look at this graph I just want to start by saying we all know that we have a very long-term ownership horizon when we think about our companies and with this perspective on the asset side we in the finance and treasury department try to match that by borrowing really long-term debt and we have managed actively the balance sheet for the last three to four years and borrowed as much as 23 billion krona in the euro bond market and the average maturity of these bonds is 14 years and the average fixed interest rate roughly one and a half percent. Our next maturity as you can see in this graph is in 2029 and if you compare this graph to what is in the quarterly report you might be missing something on 2023 but that is actually a repayment that went out earlier this week so we have nothing to repay until 2029. And the average maturity of the total debt portfolio is now over 12 years. And in this turbulent quarter, we still have leverage at the low end of the target range for leverage, 0 to 10%. We are at 2.3% currently. And finally, looking at the average annual total shareholder return, of course, it has been weaker in the last few periods here. But looking at all periods, we have managed to outperform Six Erics, which is very positive.