Investor AB (publ)

results presentation. As usual, we will start off with our CEO, Johan Fussell, presenting the results and also followed by our CFO, Helena Saxon. And then we will welcome you to a Q&A session. We will start as usual with questions over the phone and we will have our facilitator, Sharon, helping us out with that. And then we will take some questions over the web as well. And by that, welcome once again, Johan.

Thank you, Vivica. And also from me, warmly welcome to this presentation. If I start with a short summary, we had a very strong performance in the second quarter. Actually, we recorded the highest net asset value ever at 773 billion. We saw that the listed companies outperformed the Swedish stock market And the subsidiaries within Patricia Industries reported very strong performance with double-digit organic sales growth and also sharply rising profits. And gladly I have to say is that after a couple of weak quarters, we saw that cash flow conversion came back to more normal levels. However, the macro outlook remains uncertain. We see that even though inflation is coming back around the world, it's still on a high level, forcing central banks to increase interest rates, which of course continue to put pressure on the consumer. In addition to that, of course, we have a pretty tough geopolitical situation, not the least between China and the US. And there is also more and more debate when it comes to the strings of the recovery in China after the pandemic. So there is clearly a lot of uncertainties out there. On the other hand, we continue on a positive note. We continue to see that the supply chains are improving. And we are also seeing, for a number of industries, significant investments related to megatrends, climate change and digitalization. And due to the geopolitical situation, we are also seeing more investments regionally to increase the resilience in the companies. So there are pluses and minuses. In this environment, we continue, which is key for us, make sure we have high flexibility in our companies and that we can act swiftly to changes in the environment around us. If I then move over to the quarterly figures, you can see that our net asset value was up 9% in the quarter. Our TSR was up 6%, both outperforming the Swedish stock market that was up 2%. And if we look during the first half of the year, you can see that both our net asset value and TSR have grown some 60-70% compared to the stock market up 11%. A few words about the listed companies. Sharp outperformance in the quarter, 9% compared to the stock market being up 2%. The key reason here is that our two biggest companies, Atlas Copco and ABB, representing 45% of the listed portfolio, they were up 80-90% in the quarter. So that, of course, clearly helped the performance. We also divested nearly 30% of our holding in Acceleron for about 1 billion SEK. Moving over to Patricia Industries. Very strong performance, total return amounted to 11% in the quarter, and that actually means that the total return year-to-date is 25%. If we look on the operational development, strong development, sales growth of 22%, of which 13% organically in constant currency, and the profit growth was strong at 34%. Vektura divests its portfolio consisting of elderly care properties, which is almost half of the property value in Vektura. And that is in line with the company's new strategic focus on developing real estate for innovation clusters. It is clusters like Forskaren in Stockholm and GoCo in Gothenburg. And I think this is important because these innovation clusters are not only attractive opportunities in itself, it also creates synergies with other companies in our portfolio. For example, AstraZeneca, Mönlycke, and Atlas Antibodies. Here you can see the development in Patricia Industries. As you can see, we are now running on a 12-month ruling basis at the level of 60 billion in sales and an EBITDA of 14 billion. And you can see here that it was really... record quarter. If we look forward, one should remember that the third quarter last year, as you can see here, was a very strong quarter, while the fourth quarter last year was a weaker quarter due to the fact that Manly's profitability was below normal levels in the fourth quarter last year. So this will, of course, impact the year-over-year growth figures in the third quarter and the fourth quarter. If I then look on the operational performance in the companies, we saw strong and good organic growth in many companies. All companies grew organically except advanced instruments and ATAS antibodies. And these two companies continued to be affected by soft development from the biopharma sector. That is the key reason. But other than that, strong development and also, as you can see to the right in the picture, All the other six companies actually recorded very good operational performance in terms of profitability. A few words then on Mönlycke. A continued good quarter with organic sales of 6% in constant currency. And we also saw margin improving year over year. And that was driven by both the sales growth and also lower logistic costs. And this was partly offset by investment in R&D and the sales force, as well as that in the margin, there was actually a negative currency impact in the quarter. Also for Mönlycke, the cash conversion improved significantly compared to last year. It's great to see that wound care continues to perform strongly with an organic sales growth of 8%. It's actually a broad demand improvement, even though APEC showed the strongest growth. And to further support growth going forward, investments are being made in the key factory in Mikkeli in Finland. And investment will also be made in localized China manufacturing. So we are investing, continue to invest behind the strong growth we see. Operating room solutions also had a good performance with organic growth of 10%. It's driven by increased elective surgery activity, price increases and also improved mix. And from a product perspective, Trace is really driving it. Gloves actually saw a lower sales than last year, organically minus 6% in the quarter. And the key reason here is the U.S. market. where distributors are reducing excess inventory that has been built up during the second half of 2022. And we expect that we will probably see challenges also in the third quarter. But let's see how it plays out. Moving down to EQT, the total return was 3%, and we had a positive cash flow of half a billion in the quarter. If we look on the listed company, EQT AB, The total return was almost flat, while the fund investments were up 8%, of which about half is currency-related. So, in summary, strong performance during the second quarter, record net asset value, strong outperformance in the listed companies, double-digit organic sales growth in Patricia, combined with sharply rising profits. If we look forward, we will continue all the efforts we are doing to make sure that our companies come out stronger compared to competition. It's investment in R&D, investment in Salesforce, and we are clearly trying to drive improvements related to the megatrends we see out there. I think we are well prepared. We have a strong portfolio, companies with strong market positions, high profitability and cash flow. But I think also that we and our companies are ready both for upsides and potential downsides should they come. So with that, I will hand over to Helena.

Thank you, Johan. Let's have a look at our net asset value development over a little longer period. We can see that we landed the quarter at a record level of 773 billion. And this means a 16% average annual growth with dividend added back for the last five years. And of course, that compares favorably to 6RX 11%. And as Johan already described, there was a little bit of a mix in the portfolio. The three business areas developed differently, but all in all, 9% enlisted, 11% in Patricia, 3% in IKT, and that is a total then of 9% of the quarter. Looking at listed companies, almost 70% of the portfolio, 546 billion. Johan explained that a couple of companies contributed the most, and this slide shows in absolute terms that Atlas Copco and ABB had stellar performance, and in absolute terms, they contributed almost 20 and 18 billion in the quarter, respectively. and the TSR of 9% is then outperforming 6RX 2%. Moving over to Patricia, 22% of the portfolio and as much as 173 billion krona at the end of the quarter. The main drivers in the quarter were earnings, currency multiple and cash flow so tailwind from all of these this quarter and excluding cash the development or including cash development was 10 percent compared to the 11 percent mentioned and looking at the sequential development of estimated market values during the quarter we can see here by a company that five of the companies contributed significantly in the quarter which is, of course, very positive. Manlyke, as the largest company in the portfolio, of course, in absolute terms, contributed the most. And here we see all four factors that I mentioned on the last page contributing positively, but earnings and currency being the main drivers of the value there. Moving over to Vektura... In this graph, maybe not so interesting from a value perspective. We know that there were a couple of contradicting factors in the quarter, resulting in a net development of roughly flat from a value perspective. But here I want to flag that we're planning a capital contribution of 3.5 billion Swedish kronor in the quarter to come, i.e. Q3. And this is, as Johan mentioned before, the company is going through a strategic change and divesting its community services properties and now focusing more on developing innovation clusters, building properties for innovation clusters. And therefore, in this transition, we're contributing capital. Some of the larger projects in that new strategic portfolio is entering an intensive phase But it's also true that a couple of the larger ones, Forskaren, for example, in Solna, in GOKO, in Möndal, are both expected to generate cash flow already next year as they are close to completion and almost fully rented. When the community services transaction closes in Q1 next year, we expect to be repaid a majority of the capital contribution. And from an investor and practitioner point of view, with the strong balance sheet we have, we believe this is the most efficient financial solution to support Vectura in this strategic transition. Talking about our strong balance sheet and the financial position, we can see that our leverage ended the quarter at 1.7%. And here at my final slide and also the final slide of this presentation, we can see that the performance of the investor share has been strong, not only in the long term, short term and medium term, but we have also managed to achieve our internal return requirement for all these periods. So with that, I will hand over to Vivica for the Q&A session.

Thank you, Gillian and Johan. We are now open to take questions. And I will hand over to our operator or facilitator, who will start off by moderating or handing the questions over the phone. So over to you, Sharon.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. If you wish to withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please type it into the box and click submit. We will now go to your first question. One moment, please. And your first question comes from the line of Joachim Gunnell from D&B Markets. Please go ahead.

Thank you very much and good afternoon. So starting off with the divestment of Acceleron shares and perhaps also the timing and how you think about what role that holding plays as a core listed holding over the coming years.

Okay, thank you, Akin, for the question. We divested shares during the second quarter, so we went from about 14% ownership to just above 10%. We have flagged after that that we have gone just below 10%. We have said all the way that we will do, when it comes to the ownership in Acceleron, that we will do what we believe will maximize the value for our shareholders, and that is the comment I will continue to make. So let's see what happens.

Understood. And since you very seldom comment about or make any forward-looking statements, you mentioned here, Johan, that we should bear in mind that Q3 will face a rather challenging year-over-year comparison. Is there anything that you can tell us about the operating environment today versus, say, 19 days ago, that is... adding to this more cautious view, or are there any other drivers that make you actually accentuate this tougher comparison?

No, there is nothing that I have seen in the first weeks of this quarter. The only reason why I wanted to mention it is that normally for Patricia, there has been some changes due to the pandemic and so forth, but normally the fourth quarter is is a strong quarter for Patricia. And as you can see, last year, the third quarter was very strong, while the fourth quarter was actually relatively weaker. So I just wanted to pinpoint that when people like you make your forecast that the comparison base are very high in the third quarter last year and weak actually in the fourth quarter, But that has nothing to do with what I see in the demand situation at the moment.

That's very clear. That's all from me for now. Have a great summer. Thank you.

Thank you. Thank you.

Thank you. We will now go to your next question. And your next question. It comes from the line of Derek Laliberti from ABG Sundal Collier. Please go ahead.

Okay, thank you very much and hello. I wanted to ask you on, Malik, you mentioned that the wound care segment, that APEC showed the strongest growth. Was this also the case last quarter and is the Chinese reopening boosting this to a meaningful degree?

Yeah. The development between the quarters in the different geographical regions can always vary a bit. And I actually don't recall exactly whether APEC was higher or lower in the first quarter compared to this one. But it was a strong quarter in the first quarter. And the growth in China for Manly in the second quarter was very strong.

Okay, sounds good. And also in Manly... You had some negative effects from de-stocking in gloves and the supply chain issues and antiseptics. You mentioned that gloves should improve at least after Q3. Can you say anything about whether the supply chain issues and antiseptics are being alleviated or what to expect over the coming quarters?

Yeah. If you go back a bit, a couple of quarters, actually, Manlyke had challenges when it comes to supply chain, both in the U.S. and Europe, when it comes to the antiseptics business. Now the situation is much, much better in the U.S., and management is working heavily on improving the situation also in Europe. So I hope that this will improve going forward. But the exact timing, we will have to see how fast, but they are working hard on it.

Okay, thanks for that clarity. That's all I have right now.

Have a great summer and keep up the good work. Thanks. Thank you. Thank you.

Thank you. We will now go to your next question. And your next question comes from the line of Oskar Lindström from Danske Bank. Please go ahead.

Yes, good afternoon. A couple of questions still from me. The first one just on the Victoria capital contribution. When did you say you expected to get repaid this money and what share? So that's my first question. Should I go ahead with the other two questions?

I can take that rather quickly. The plan is to inject about 3.5 billion, and we expect to take back most of that in the first quarter next year when we get the proceeds from the divestments of the elderly care properties. The remaining part we expect to get back later when the rents start to kick in in the innovation clusters of Forskaren and GoPro. So for us, it's actually a very financially efficient way of doing this bridge financing instead of paying too high rates and fees to banks.

Right. Thank you. I understand. And that brings me to my second question, which is the topic of acquisitions, which you've talked about on and off recently that you would like to sort of make a more substantial addition to. to your unlisted holdings. I'm wondering a little bit about the sort of macro, uncertain macro environment. Is that sort of creating more opportunities for acquisitions or is it actually making owners, you know, less willing to divest and what's your feeling here? And also on this topic, I mean, have the private prices come down to where the public market prices are, or are they still substantially higher, the expectations?

Thank you. I mean, it's a very difficult question to answer, but I think the way I would say it is that our focus is, number one, to try to find the right segments within our prioritized industries. Secondly, find good leading players there. And then, of course, the second part to your question is it takes two to tangle. And we are working on it, and I've said it before, and I continue to say it. We have a good pipeline. We are working on it. And let's see how many that will kick in.

Right. Thank you. And then my third and final question is more of a detailed one on Mönnlycke and the Malaysian factory project. Was that sort of operating at full in Q2, or is there sort of further positive net impact during H2 from ramping up that factory?

I would say like this. When it comes to the factory in Malaysia, we have seen a gradual improvement in the utilization of that factory, but it's still not at the quality top maximum level. But in the quarter, the key problem from a safe point of view was actually the demand situation in the U.S., which was negatively impacted by destocking among the distributors. That was the key effect in the second quarter, not the factory.

Right. Thank you very much. Thank you.

Thank you. Once again, if you would like to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. If you wish to ask a question via the webcast, please type it into the box and click submit. We will now go to your next question. And your next question comes from the line of Zeno Angdalen with COT from Handelsbanken. Please go ahead.

Thanks for taking our questions. Just wondering a bit on the supply chain side, which you're mentioning that you see continuing easing. How much do you feel that you have left in further recoupment from further supply chain improvements?

It's an important question that you raise. I would rather say like this. that for some companies, there are certain product groups that are still being hit by supply chain challenges, while others might have a much easier situation. So it's very company dependent. If I give you a few examples, I mean, we talked about the antiseptics in Menrike previously. Another example is that in Labori, the urology equipment part have a number of components where we see continued challenges to get them in time while in other companies like Permobil we have seen a much much better supply chain so it differs a little bit between products and thereby which components you need and also of course which supplier base you have and many companies are also working on redesigning certain products to be able to have more flexibility when it comes to the a mixed picture, but overall we see an improvement.

Okay, thank you. Maybe on a bit of a similar note, the increased capex you feel is required, is that also a bit mixed or company-specific, or do you see that required basically across the board?

That comment is actually more from a macro perspective. We are not expecting... The comment on increased capex is not related to increased capex in our subsidiaries. It's more a comment on the global macroeconomy, where we do see that due to the geopolitical situation, not at least between China and the U.S., many global companies need to invest in, for example, the U.S. right now to get more regional manufacturing and supplier base to increase the resilience given the geopolitical situation. And on a global level, of course, that also leads to higher demand in CapEx. It's not related to the subs. Okay, all good. Even though they are also investing, of course.

Yeah, of course. Thank you. Thank you.

Thank you. There are currently no further phone questions. I will hand the call back for the webcast questions.

Thank you, Sharon. We have some questions over the web, and let's take them one by one. From Hussain, we have a question on how do you explain the positive development recorded by Atlas Coco and ABB over the quarter?

Yeah, I mean, of course, the strong performance relates to the excellent performance Booth had in the first quarter. But they delivered strong top line and also very good margins. So I think it was overall good development.

And then we have a second question from Michael Gilkens. uh relating more to the macro we have seen several months of declining economic indicators especially the manufacturing pmi can you comment on the what if any impact you can see within the investor portfolio either listed or patricia industry no i will not comment the listed portfolio given the fact that they are coming up with their

two pure reports in the coming days and weeks. So I will refrain from that. When it comes to our companies, in the Patricia portfolio, I can only conclude that for these knock-knocks, so far so good, with the exception of capital equipment to the biopharma segment, where we have continued to view demand also in this quarter.

And then we have two questions from Samar Agrawal, who starts out with congratulating on the results. But the questions are, first question is on impact from China to your industrial portfolio, particularly as the economic data released today was weaker. What impact do you think would be around volumes and margins given news today? stimulus expectation? Let's take that one first.

No, I think it's a very tricky question to answer because the companies we have being big in China, companies like Atlas Copen, ABB, but also AstraZeneca, and they are active in many different segments. Overall, what we see is, to be honest, quite a mixed picture in China. You see certain sectors being tougher and certain sectors actually continuing well. But I am, of course, watching closely and following, and our companies are, to see to what extent the recovery will continue, or if we will see a softening party in China, and, of course, what actions need to be taken should that materialize.

Then we have a second question relating to the margins within Patricia, where EBITDA margins improved 70 basis points Q and Q. Is this largely driven by operating leverage, given 5% to 6% increase in sales Q&Q, or are there any other factors?

I would say there are, if I would generalize it, because it differs between the different companies, it's definitely operating leverage. You saw the strong sales growth. Secondly, we have lower earnings. transportation costs, lower logistic costs. That is also a broad-based phenomenon. And thirdly, we have price increases filtering through.

That were all the questions we had over the web. And if there are no more questions over the phone, we would like to thank you for today. And we will be back in October with our Q3 results. Thank you for joining us today.