Investor AB (publ)

Q4 and annual accounts presentation. Today as usual we have our CFO Johan Forssell, CEO Johan Forssell and our CFO Helena Saxon to go through the results. After Johan's and Helena's presentation we will have a Q&A session both over the phone, you can post your questions or you can write your questions over the web and we will address the questions. And by that, Johan, please go ahead.

Thank you, Vivica, and warmly welcome everybody to this presentation of our post quarterly report. So let me see. There we go. Well, as we all know, this was a tough quarter for the global or the year was very tough for the global economy. We had, as we all know, sharply rising inflation, interest rate, energy prices. There were significant supply disturbances during the year. But most of all, of course, the terrible war in Ukraine. In this environment, I do believe that investor and our companies had a very resilient performance. If we look on 2022, in summary, our net asset value and total share of the return outperform the stock market in Sweden. And we had an overall good operational performance in the companies. At Investor we had a strong cash flow generation and that meant that our financial position that was strong when we entered the year strengthened further and that in turn made it possible for the board to propose a dividend increase of 10% which is in line with our dividend policy to have a steadily rising dividend to our shareholders. If we then dig into the figures a bit during 22, our net asset value was down 10% and our TSR was down 15%. And that can then be compared with the stock market being down 23% during the year. Same four figures for the fourth quarter. The net asset value was up 7%. The TSR was up 16% compared to the stock market being up 11%. Moving then over to listed companies and you can see here that the total return continued to be very strong, up 12% in the fourth quarter, just ahead of the stock market being up 11%. More importantly, I think if we look on 22, full year 22, there was a significant outperformance in the listed companies being down only 5% compared to the stock market being down 23%. And Helena will later on come back to the reasons for that. If we look on the focus during this year, of course, there has been a high focus to handle the very volatile market environment that the companies have seen. It has very much been about handling the disturbances in the supply chain, but also, of course, high work with price management to offset the cost increases that we have seen in many places during 2022. But there has also been a number of important strategic initiatives taking place within portfolio management. I think ABB is a good example that did a spin-off of Acceleron during the year and actually this morning released that they are now also divesting the power conversion business for about 5 billion SEK. Working with the portfolio within the companies is a very important part of creating long-term value. Many other companies are spending a lot of money on R&D and actually accelerating those investments. I think one good example here is the strong development we have seen within AstraZeneca's Oncology franchise. And then many companies are also making complementary acquisitions to put the stronger foothold across different segments and regions. I think two good examples during last year was Atlas Copco and Epiroc that really strengthened the position within a number of important segments and technologies, I should say. And then finally, of course, there are many initiatives going on in the companies to improve the climate footprint, both in their own operations, but also to bring forward energy-efficient, environmental-friendly products and services to the customers. Moving then over to Patricia Industries, for the full year, total return was minus 2%. We saw good underlying growth with an organic sales growth of 9% during the year and a profit growth of 20%. Also within the companies, within Patricia Industries, of course, there has been a high focus on handling the volatility in the market with the supply chains and the price management that I talked about when I talked about the listed companies. There has been a number of important strategic investments. You know that these companies compared to the listed companies, they are smaller. And that means that we are spending significant efforts and money to really build these companies, invest more in R&D and development, building out the sales organizations, building strong footprints to really continue the long-term journey of growing these companies. There was also important add-on acquisitions made by a number of the companies during the year, for example Laboree, Advanced Instruments, PIAB and Permobil also made good acquisitions during the year. And also here of course there is a high focus on improving the climate footprint. Moving down to the fourth quarter, you can see that the organic sales growth was strong, up 11%, and the profit grew 34%. And I think this is interesting. That was achieved despite the weak margin in Mänlycke during the quarter. So the weak margin in Mänlycke was this quarter compensated by a very good development of the rest of the portfolio, which gives a strength, I think, to the Patricia portfolio. If you look on the total return being down 4%, given the fact that the stock market was up 11% in the quarter and we had a good profit growth, of course, that might look a little bit strange. So let me try to give a brief explanation for that number. You know that when we present our estimated market values, the purpose of that is basically saying that if our companies should have been on the stock market, roughly what would have been the value of the companies if we look on the multiples in the public market and just put those on our company's earnings. That's basically the basics of it. The mechanics we do to do that is that in this particular quarter, as an example, we take the average market cap of the peers during the fourth quarter. We add the net debt at the end of December to get an enterprise value. And then we put that enterprise value in relation to the last 12 months EBITDA. And then we get the multiples for the companies. And of course, the multiple is dependent on both the share price performance of the peers, earnings and the net debt development. And we use the median multiples of the peer groups and normally have quite broad peer groups. So that's the mechanic. In this particular quarter, we had a very pronounced V shape of the stock market. As you can see on the graph from September 30 to December 31, the Swedish stock market was up 11%. But if you look on the weighted average market cap in the fourth quarter compared to the average market cap in the third quarter, it was more or less unchanged. If we do the same for the peer group of Mönlycke, the development from September 30 to December 31 is plus 10%. while the weighted average 4Q versus 3Q is actually down somewhat. So that is an explanation. All else equal, this will of course mean that we will have higher multiples expansion in the first quarter. So it can of course be timing between the quarters, but the basic is the same. We take how the market values public companies and we put it on our earnings. And the reason why we see this call it a little bit strange this quarter is just because of the v-shape during these two quarters. So with that explanation let me then move over to what is much more important. The operational performance in the companies. Here you can see on the blue bars the quarterly profit within Patricia. and we reached 3.3 billion in profit in the fourth quarter which is the second best after the last quarter and on a rolling 12 months basis we reached 12.3 billion during the year here is a short summary of the development of the different companies as you can see both Braunability and Permobil had a very strong development during the quarter. And the reason for that is that both companies saw strong demand, but also the fact that these two companies have had significant supply chain challenges during the year. And that, especially in the beginning of the year, and that has now eased up. So they have also been able to deliver good out to the customers. And that in turn has led to good operating leverage. So you see good growth and good margin expansion in these two companies. Menlycke, I will come back to. Labori, good development, organic growth of 9% and a good margin expansion. Atlas Antibody, organic growth of 9%. Here the margin was down, but there is a good development in this company. This is, as you know, a small company, and we are investing heavily behind this company to put the right platform for long-term growth. Piab had an organic growth of 7%, and here the margin was down due to strategic projects that are going on in the company. Saranova had an organic growth of 6% and a good margin expansion. And then Advanced Instrument to Befair had a tougher quarter. And the main reason for that is that in the quarter, the sales of instruments to the biopharma sector was down. And we have very good gross margins on these products. So let me then go over to Männlycke. If we start on the top line, it continues to be a very strong development, as you can see, with an organic growth of 9%, mainly driven by wound care and gloves. On the other hand, the margin was weak in the quarter, and to be fair, the margin should not be at the level where we were in the fourth quarter. There are three main reasons for the weak margin. Number one being customer care reorganization, mainly in Europe. Secondly, disturbances in the U.S. wound care manufacturing plant. And thirdly, the new factory in Malaysia within Glaus. So let me expand a little bit on these three areas. The customer care, basically what the company has done is that they have had, call it a central customer care organization in Belgium. And to be more agile, they have pushed out these service people out in the sales organization in Europe. And that has led to extra cost during the quarter. So that is one reason. The second one is the production disturbances in the wound care plant in Maine in the US. As a reminder, wound care has two major plants in the world, one in Mikkeli in Finland and one in Maine in the US. The disturbance is related to supply issues, but even more perhaps due to staff shortages. Staff shortages is actually a big problem generally in the US today. After the pandemic, not all workers have come back to work. And to give you some information of what has happened, I can say that the staffing shortage has gradually improved during the quarter. so the situation we are now is clearly better than it was in the fourth quarter but there are still challenging remaining so that is the short summary and of course the management is putting all efforts now to normalize the situation in the plant moving then finally to the third factor and that's related to the new plant in Malaysia producing gloves And here we are in a ramp up phase with the new factory. So the utilization in the fourth quarter was low. But here we can see when we look forward that the utilization will gradually improve in the coming quarters. So those are the three main explanations for the weak margin in the quarter. But as you all know, disregarding this quarter, It's a good cash flow generation in the company, so Manrique was able to distribute 300 million euro to Patricia during the quarter. If we then look forward, I think we have an excellent portfolio and I'm very pleased to see that the rest of the companies were able to cover up for the week. These companies have very good growth opportunities due to the industries and the positions they have. So one of the key priorities going forward is clearly now moving into 2023 to make sure that we achieve a good organic growth. That's number one. The second priority for this year, of course, is to come back to higher margins in Vanrycke. Moving to EKT, the total return was weak during the year, as you can see, being down 35%, driven by the weak share price development of EKT AB on the stock market being down actually more than 50%. On the other hand, we had a record cash flow during the year, as you can see, more than 6 billion, which can be compared to an average of about 2 to 3 billion over this period. In the quarter, the performance or the TSR was up slightly in EQT. So summarizing then, I think that we are well prepared, both for challenges and opportunities. If we look forward now, it looks like if we look on leading indicators that we We are entering a tougher period. On the other hand, we can also see that most macroeconomists believe that inflation will come back during the latter part of this year or the second half of this year. And of course, if this would ease a little bit on the central banks, that could, of course, support consumers. We also know that China has opened up and we also see that the gas prices in Europe has come down significantly. Let's see how sustainable that is. But there are, of course, a potential that this could change going forward. Irregardless of how the market will develop, I think we are ready. So let's see if it will become more of a mild downturn or a tougher one, but I think we are ready. We have a good cash position, good financials, good cash flow at the investor, and our companies are really well prepared with plans should it be tough out there. So to summarize, what are our priorities for this year? We will continue to stay here and now, manage the current market environment and that is a top priority for us and of course all our companies. But we will also continue to make sure that the companies invest in areas which are important to drive continued good organic growth long term. So all continuous plan contains two parts. If it gets tough, why should we cut? And the second one, why should we not cut? Why should we continue to invest? Because it's so important to win long term. And we will use our financial strengths to capture opportunities. And I do believe, continue to believe that there is an advantage of being able to act both in the public and the private setting here. So with that, I will hand over to Helena.

Thank you, Johan. Let's go into the financials. The adjusted net asset value ended the year at 673 billion, and the average annual growth with dividend added back was 14% for the last five years, and that should be compared to 6.10. Looking at the total return by business area, the 7% in the quarter that Johan talked about was built up of So somewhat mixed picture with excellent development in the listed companies of 12%, Patricia down two and EQT around 2%. Looking at the full years minus 10%, we can see that the listed companies and Patricia's return was negative five and 2% respectively, while investments in EQT, the return was minus 35%. Looking more carefully at the listed companies, 70% of total adjusted assets or 475 billion. We can see that the return here was also a mixed picture. The massive outperformance of minus 5% compared to 6 Rx minus 23%. It was built up of strong absolute return in our healthcare companies and Saab. And we also had significant outperformance in some of our larger holdings, ABB, SEB and Nasdaq. Going over to Patricia Industries, some 20% of the assets or 138 billion, we can see that the estimated market value was down compared to the end of Q3. And here two companies stand out, Permobil on the positive side and Manlyke on the negative side. And this graph also shows significant distributions in the quarter. Looking at the major drivers of estimated market value in the quarter, we can see that Malnyke's estimated market value declined by 8.5 billion in the quarter, and this was due to lower multiples and the distribution. 3, Scandinavia was down 1.6 billion also due to lower multiples and distribution related to the divestment of the passive network infrastructure and this is the last distribution from that exit. Advanced instruments estimated market was market value was down due to lower multiples and here also FX We see the same development in Laboree, lower multiples and negative impact from currency, but here higher earnings impacted positively, so we had a slight mitigation there. Permobil had a positive development. So estimated market value of Permobil increased 2.6 billion and this was due to higher earnings, actually a doubling of earnings in the quarter. And this of course increased the value even though multiples contracted in the quarter. Our financial position remains strong and leverage at 1.5% at the end of the quarter. We have no debt maturities until 2029. And looking at this graph, we have added a year to this summary of cashflow generation. And we can see that all business areas contribute to the 145 billion generated accumulated over the period and this has allowed of course for investments in both listed companies Patricia it's also allowed for net debt reduction and distribution to our shareholders And talking about distribution, this morning it was announced that our board of directors proposed a dividend of 4.4 krona per share to be paid in two installments during 2023. And this represents a 10% increase compared to the dividend paid last year. And then I always end with this slide showing the total shareholder return. And we can see that the investor share was resilient in a very difficult year, but has also outperformed the stock market, both in the long term and the short term. So with this summary of our performance, I'd like to conclude the presentation and hand over to you, Vivica.

Thank you, and by that, thank you, Johan, and thank you, Helena. We will now start our Q&A session, and we will start off with the questions over the phone. And we have our facilitator, Sabrina, who will lead and take your questions over the phone. So I hand over to you, Sabrina.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Joachim Jumel of DNB Markets. Please go ahead.

Thank you and good day. So three questions from me, starting off with the fact that Corporate Governance Advisor, ISS, were out in their proposed policy changes here, saying that unequal voting rights perhaps isn't the way to go. So as an active owner, what scenarios do you see out here and how would this basically impact investors' owner model?

Okay, if I start with that, first of all, I must say that I think it's a very strange thing that they came out with, saying that that should be one of the decision points for approving the boards and also whether they get sort of ansvarsfrihet, what's... Liability. Discharge of liability, thank you. Because that's actually not the ownership structure and the ownership of ENB is not the question for the board. It's an ownership question. Secondly, I think it's important to remember that there are a number of countries around the world that have different votings. And thirdly, I would say I personally believe that it has served Sweden well and Swedish companies well over a number of years. We have had strong long-term owners that have really been behind the companies with a combination of, on the one hand, being tough, of course, on the quarterly reports and all that, but also willing to invest to win long-term. So that is my view.

understood and secondly given the the ongoing call it structure action in in in in abb can you just comment here on on how acceleron fits your investment criteria going forward and yeah basically how that ties into your elizabeth core investments

Thank you. Our view is that we will and we are evaluating the ownership in Acceleron and we will do what we believe is best for our shareholders.

Very clear. Just coming back to the margin development in Malmö Lycke, can you say anything about the longevity of these extra cost impacts or what the underlying adjusted profitability would have been without this?

What I can say is that when it comes to how long it will stay, so to speak, clearly the utilization in the gloves factory will improve going forward. And it will improve already in the first quarter, and it will gradually improve. That we see in the plans. And of course, unless there would be a dramatic change in the market demand, but that is what we see that coming through. And when it comes to the situation in the plant in Maine for wound care, what I can say is that the situation right now is better than in the fall quarter, but it is not yet resolved. There are still some challenges, but the staffing shortage in the plant is clearly less now than it was during the fall quarter. And then when it comes to the reorganization in Europe with the customer care, the majority of that was taken in the first quarter. A little bit will continue in the first quarter, but then it will be done. And all three, I should say, all three factors have a material impact on the margin in the quarter.

Thank you.

The next question is from David Johansson of Nordea. Please go ahead.

Yeah, I think one question for me is related to the demand situation in the, mostly in the healthcare vertical in Patricia, which up here remains strong in the quarter. What can you tell us about the underlying demand situation going into three? Some companies in the sector have commented on rising stocking levels at hospitals. Is this something that could become a factor for changing demand trend going forward? Thank you.

Sorry if I missed it. Was the question specifically to our medtech companies? Yes, maybe Malik in particular. It's a very good question when it comes to the inventory situation, because if you talk more broadly and not about our medtech companies, it's clearly the case if you look on the global economy, that during the period when we have had this significant supply chain challenges a number of distributors and customer centers have built up inventory so of course if you then get the more moderate demand situation that can have an effect until you clean out the inventory when we look on our companies in within patricia within the medtech areas of course it varies between regions it varies between the companies But I would say that, yes, there might be some areas where you have excess inventory that can affect the quarter or so. But in other areas, it's more lean. So it differs between the companies.

Thank you. Very clear. That's all from me. Thank you.

The next question is from Oskar Lindström of Danske Bank. Please go ahead.

Yes. Good morning. Three sets of questions from me. The first one on Mönlöke. You mentioned that one of your key priorities will be recovering your margins here in 2023. I mean, apart from the sort of special costs that you incurred here in the fourth quarter, and it sounds like it also slightly in the first quarter, what are the actions that you see will drive a recovery of margins, and to what level do you seek to recover those margins or what's the plan? And also here on Menelike, are there any kind of structural changes to this industry post-COVID that might make it different to or might make profitability growth different to what they were before? So that's my first question. And the second one is on the strategy. You talked earlier about the interest in acquiring a new unlisted asset, and I think it popped up as one of your priorities for 2023 as well. What is the outlook for this in terms of sort of attractive assets that are available, valuation levels, any new thinking on this? Those are those two. Thank you.

Okay, thank you for all those questions. When it comes to the margin development, I think I was quite explicit how it affected the fourth quarter. And as you know, we never give guidance for the coming quarter. But let me give you a couple of comments. First of all, even though there was a lot of extra cost in the quarter, and as I said, one should be fair, the margin should not be at this level as it was in the fourth quarter. If we look forward though, first of all, one should of course acknowledge that first quarter normally somewhat seasonal weaker. What will drive margins going forward? Of course, high focus on continuing organic growth and fixing the plant in Maine. will be important and then given the plans that are in place it will gradually come through also on gloves with improved utilization so that is what we see when it comes to more structural questions I think that, you know, it's always a battle out there. But I think that if you relate it to the COVID situation, one structural change is, of course, that the competition within clothes part within ORS business has increased. And that is a fact. But as you know, that is also low margin business. So one of the key priorities for Mönlycke is to focus the ORS business on the areas where you can have a really competitive advantage and build better margins going forward. Areas such as, for example, the trades business. When it comes to new assets, your third question, we continue to look for opportunities. The key priority for us is to grow our companies organically, because coming back to your margin question, that is of course essential, that in combination with good price management. Secondly, continue to do add-on acquisitions in our strong platforms we have. In addition to that, we are also open for new platforms, companies, should we find a sizable acquisition within our priority segments. We are not looking for adding a small one, but if we can find a quite sizable company, that could also be interesting. So that is how we see it.

Thank you. And what do you think about valuations and the availability of the sort of new platform companies?

I think the key question for us would be to find the right assets. That is where we are spending our time. Hopefully, the pricing levels have become a little bit better than it was during the really good heydays out there.

All right, thank you.

The next question is from Derek Laliberte of ABG. Please go ahead.

Yes, thank you and good morning. I'd like to follow up one more time on Lykke. You very explicitly explained the situations around these one-off elements, but I was wondering if you could also comment on sort of the underlying cost pressure here, whether that's actually eased, because in Q3 you mentioned rising

or elevated raw material costs as well as logistical costs but have these eased compared to earlier thank you I think it's quite complicated because it's different products in different regions but more generally on when it comes to the logistics costs they have eased from the peaks previously

Okay, great. And also in terms of the potential to increase prices here, I mean, we've seen some other peers in the sector actually having a positive selling price environment. How do you view the opportunity for Manolike here?

I can only say that price management is a top priority for management in a company. And that is, of course, something that management needs to handle for each business area and for each region, depending on what they believe create most value. But it's top on the agenda, especially, I would say, on the ORS business. Mönlik is clearly focusing on improving prices to get profitability up.

Okay, thank you very much. Thank you.

Any further questions, please press star and 1 on your telephone. The next question is from Andreas Lumberg of SEB. Please go ahead.

Yeah, thank you. Back a little bit to pricing in the Patricia companies. So the around 10% organic growth you have now for a few quarters, how much is price and how much we say is volumes? Thank you.

We don't say how much is price. I can only say that how much is the volume component and how much is the price component differs quite a lot between the different companies. given average ballpark figure I mean it is a material figure on average that is a positive price effect but I would say that in total for the total Patricia industries the volume component is the bigger of them okay thank you so much thank you

Vivica, there are no more questions registered from the phone at this time.

Okay, thank you, Sabrina. We have some questions over the web. I will start with the first one that came in from Samar who asks if you sort of a big picture question, if you see demand recovery to pan out in 2023, especially compared to what we saw in the second half of 2022. Clearly, some of the strong growth we saw within Patricia Industries also reflected a lower base. So in that context, any commentary that you can provide on demand and margin outlook within your private investments would be very helpful.

Okay, thank you. When it comes to the demand for 2023, I think that in general, We see that, of course, that there are a number of challenges in the global macroeconomy, as I said before. But we also see potential for easing going later or going into the year later stage. But let's see how that plays out. I think it's very difficult to be general here because the companies are in different situations, different customer groups, different situations. I will not even dare to go into and try to generalize that question. When it comes to Patricia and the growth and the base levels and so forth, of course, having an organic growth of 10% is a very strong number. We will push organic growth, as you know. That's the top priority to really grow long-term value for this company. And I do believe that the companies have excellent positions because they have strong market positions in attractive niches. with growing end customers. But of course, 10% is a very high growth figure long term, given the fact that the global economy might grow something like 3-4%. But we will, of course, try to grow as high organic growth as possible. That's the plan.

Then we have a question from Michael Gilkins. Maybe this is for Helena. Can you give a rough percentage estimate of the impact of the multiple change after year end on the Patricia Industries valuation?

After year end? Yes. Well, we'll talk about that in the QS report. But yeah, as you once said, there is a factor when we use averages. But, you know, we have no idea where the quarter ends. Yeah.

Then we have a second question from Samarth Agarwal. It may relate to the comment on higher financial flexibility. Your leverage levels are conservative and of the target range. Is it intentional given the current markets or is this also a reflection of muted deal activity generally? If latter, should we reasonably expect the investments by investor to increase in 2023? You have commented on a similar question before.

I think it's a relevant question. I would twist it around. Last year we invested some 3 billion, 2.5 billion we invested in Patricia to grow them through acquisitions and we invested in Atlas Copco in the third quarter. And now we also announced a dividend increase of 10%, which is a good dividend increase. Our plan is to, we are fortunate, we generate strong cash regeneration and we will use that to invest and continue our dividend policy of giving a steadily rising dividend. The size depends on what opportunities that arise. Last year it was, you might say, on the lower level, but it was very attractive acquisitions we made. If there would be larger acquisitions coming up this year, of course, the figures could be much larger, but it depends on where we see attractive opportunities. rather than the figures that we have a strong financial position, so we are ready to act if we find good opportunities.

And then we have a fourth and last question from Mark Arrowsmith. Could you give a bit more color on what was driving staff shortages at the US wound care plant of Manlycke? Is this COVID or just a function of a very tight labor market?

It's a great question and I can only say what I see not only in this particular plant in Mönlycke. I can see generally that there is a challenge in the US with getting the staff to many manufacturing plants. And there it could of course be a number of reasons for that. I think one of the reasons is that after the pandemic some people have chosen not to come back to the labor force. And it is a tight market. But I cannot say how it will play out. I can say that what I see is that actually it is a tight labor market in the U.S. at the moment.

Okay. We don't have any more questions over the web. And Sabrina, has there been any more questions over the phone? no we do not have more questions okay but that we would like to thank you for joining us today uh for our q4 uh report and on your accounts presentation and we will be back with our q1 in april so until then bye for now