Investor AB (publ)

Good morning and welcome to Investors Results Call for the first quarter of 2025. I'm joined here in our updated studio in Stockholm by our CFO Jenny Aschmann-Hakvinius and our CEO Christian Sederholm. Both will soon be giving their presentations and after that we will be opening up for questions as usual both on the call via our operator and online. And with that over to you Christian.

Thank you, Jacob. Can we get the correct slides online? There we go. Thank you. Hello, everyone. Given what the world looks like, we thought it made sense to say a few words about our posture in these turbulent times before we jump into the actual quarter. So... Our general approach here is to stay close to the companies to understand and to support. So for instance, we of course assess what the direct impact of tariffs could be in different scenarios and what to do to mitigate this in the short term. It's way too early to tell what the financial impact will be. When it comes to the direct effects, it remains to be seen where the tariffs as such end up, but also how the burden is shared in the different value chains. And importantly, the larger effects from all this may well come from the more indirect effects, not the least impact on the US and global business cycle, as well as on interest rates, inflation and FX movements. We note that it's a good starting point to have healthy gross margins and a production footprint that is relatively balanced. As for other mitigations, we note that most companies will have to work with price to compensate for the higher cost. As we think about supply chain, we of course do all the tactical adjustments we can in the short term to ensure timely and cost-efficient delivery of our goods and offerings to our customers. But when it comes to longer-term mitigations, such as moving footprint in a big way, such moves cannot really be decided and actions cannot be taken when facts are still in flux as they are right now. OPEX is another given in terms of mitigations. Efficiency work is always ongoing, but may well need to be accelerated depending on where all this ends up. In all of this, we of course stick to our decentralized model, recognizing that decisions, especially in turbulent times like this, are best taken close to the business and as close to the customers as possible, company by company. This has proven successful before, and in that respect, this time is no different. Finally, challenging times also brings opportunities. Investor has a portfolio of strong companies, a strong and flexible balance sheet. And hence, while the situation is indeed challenging, our ambition is, of course, to come out further strengthened, at least on a relative basis. With that, let me now move on to the first quarter results. Our net asset value declined by 3%, while our investor B share returned a positive 2%, compared to six Rx that was essentially flat in the quarter. Listed companies had a negative 1% total shareholder return, with mixed performance in the portfolio. Patricia Industries grew sales organically by 4%, and adjusted earnings grew by 5%. The strengthening of the Krona and end contracting multiples waited on valuation for a total of a minus 9% total return in the quarter. Investments in EQT delivered a positive 1% total return with steady investment activity. Our portfolio companies generally perform well in a demanding environment, delivering profitable growth and cash flow. Also, they have invested significantly to continue future-proofing their businesses, both through organic initiatives as well as by way of M&A. And to that end, advanced instruments announced that they will acquire and merge with Nova Biomedical, and we'll come back to this later. At the end of the quarter, our net asset value stood at 944 billion kronor. And let me now briefly go through the three different business areas, starting with listed companies that represents about 70% of our total assets. The total return was minus 1%, as mentioned, with most companies generating negative returns. ABB and Atlas Copco were the two largest drags, while SEB and Saab were the biggest positive contributors in Q1. The companies have been active, delivering both here and now, and, as I said, also investing for the future. AstraZeneca, for example, announced a $2.5 billion investment in a second R&D center in China, an important market for the company. Wärtsilä concluded the strategic review of the energy storage business and decided to split the energy business into two separate units, Wärtsilä Energy, focusing on power generation, and Wärtsilä Energy Storage, for increased focus and efficiency. Last week, as you saw, ABB announced its intention to spin off robotics. We fully support this decision, which makes industrial sense and creates further focus in both robotics and the remaining ABB. And we look forward to engaging as active owners also in ABB robotics. We see good activity levels in a number of nomination committees this year, and so far 17 recruitments have been proposed to the AGMs, further strengthening the boards of the listed companies. Several companies have also announced increased board remuneration, and that we see as an important first step to close the gap on compensation compared to international listed peers. As for cash flow, based on announcements thus far, we expect ordinary dividends of roughly 14 billion for an increase of about 3% versus last year. Now over to Patricia Industries, where the total return was minus 9%, with significant headwind from both FX and multiple contraction. Our major subsidiaries grew sales organically by 4% and adjusted EBITDA increased by 5%. Mölnlycke had a tougher quarter with slower sales in ORS in the Middle East and margin declining due to, in large part, FX and continued investments in sales and marketing. Advanced Instruments and Laboree both showed strong organic growth of both top-line and earnings, and innovative products continue to drive growth in several of our companies in the Patricia portfolio, with, for example, OptiLoom for Laboree, Osmo Pro Max for advanced instruments. It's an automated osmometer solution improving lab efficiency. And in Piab Group, their innovative container unloader solution contributed meaningfully to growth. As for people, Don Petulia was appointed new group CEO of Atlas Antibody with a clear mission to revitalize the business and find a way back to growth. Advanced instruments acquisition and merger with NOVA Biomedical is a truly transformative move and we'll come back to this in a few slides. For the major subsidiaries and our 40% in three Scandinavia on aggregate reported long-term or last 12 months or rolling 12-month sales was close to 68 billion Swedish and EBITDA was 16.7 billion Swedish. We should note here that this is in Swedish kronor, so rather sensitive to FX. If we double click a little on Advanced Instruments acquisition of Nova Biomedical, Nova was founded in 1976 and has consistently demonstrated a commitment to innovation for better patient care. There are two key product categories serving two distinct end markets. The first is the clinical products providing, for example, handheld point-of-care analysis of critical analytes, including glucose, in a hospital setting. The other key category is the biopharmaceutical products providing cell culture analytics for research laboratories and biopharma manufacturing facilities. It's a well diversified business with tools and consumables used and sold in over 100 countries. As for the combination then, the two companies have highly complementary products, but largely selling to the same end users and often with same call points even. The companies share a passion for customer-focused innovation and both have a track record of developing category-defining products. Merging the companies creates a truly global life science tools company. And we feel confident that the combined business will be a robust platform from which we can accelerate innovation and profitable growth as we go forward. On 2024 numbers, as mentioned before, performance sales was 621 billion US dollar with a margin of approximately 30% on EBITDA level. The merged company will go under the name of Nova Biomedical and be led by Byron Selman, who is currently the CEO of Advanced Instruments. Closing is expected in Q3 of this year, subject of course to normal regulatory approvals. And once we've gotten to that point, to closing, we'd of course be happy to share more about this great business. For investor in Patricia then, this is a big investment and another example of how we prioritize and allocate capital towards building and future-proofing our existing portfolio companies. Moving to our third business areas then, investments in EQT, which makes up about 10% of the portfolio. In Q1, total return from investments in EQT was a positive 1%, with flat returns from EQT AB and slightly positive value development in the funds. In a tough environment, EQT managed well with fundraising or, for example, EQT Infrastructure 6, which ended up at its hard caps at the higher end of the target range. Investment activity has remained at good levels. And when it comes to exits, year-to-date exit activity has been good. Of course, the current market conditions are not helpful for exits, but let's see what happens from here. It was announced in the quarter that EQT veteran Per Francén will take over as CEO, effective late May. This marks another successful internal transition at the helm. So, to summarize, we have a strong platform and a clear strategic direction. To continue to deliver, we focus relentlessly on our three P's, performance, portfolio, and people. If we do this well, we will be able to deliver on our strategic priorities, which are to grow net asset value, to pay a steadily rising dividend, and to deliver on our ESG targets. All, of course, in line with our overall purpose, to create value for people and society by building strong and sustainable business. Thank you. And over to you, Jenny.

Perfect. Thank you, Christian. And good morning, everyone. So for Q1 2025, adjusted net asset value was 944 billion. And this implies a decrease of 3% compared to Q4 2024. Performance was mixed across business areas. We saw a positive 1% return for EQT while we saw a decline in listed companies of 1% and Patricia Industries of 9%. This implies a total negative return of 3% for the quarter. And now I will comment specifically on each of the business areas and I will start with listed companies. Within listed companies, share price performance was mixed, with Saab being a really strong contributor in the quarter, followed by SEB. We also saw positive share price development in Epiroc and in AstraZeneca. The remaining holdings, however, had a tougher quarter in terms of share price development, and the total return for listed companies was a negative 1%, which was largely in line with 6RX, which we use as benchmark index. Looking at absolute contribution, it paints a similar picture. But we do see ABB and Atlas Copco as the biggest negative impact on our net asset value, given the weight and the size in our portfolio. And now I will move to Patricia Industries. In Patricia Industries, we saw a 9% decline in estimated market values compared to Q4 last year, so from 239 billion to 214 billion. The decline was 50-50, explained by FX, so a stronger Swedish krona, and also contraction in valuation multiples. The decline was however somewhat offset by underlying earnings growth and cash flow generation in the portfolio companies. If we look at performance across the companies in the Patricia Industries portfolio, again, that was mixed. And I will highlight a few themes and I will comment specifically on Mönlycke on the following slide. But first to highlight a few positives, we saw strong organic growth in Advanced Instruments, Laboree and Piab. For advanced instruments, we saw notably strong clinical instrument sales, and that was due to the launch of Osmo Pro Max, but also strong consumable sales. For Laboree, we continue to see a good runway with the Optilum products. In the short term, comps are getting tougher, as both of the Optilum products are now included in the benchmark quarters, but longer term, there is a lot of potential in both urethral strictures and the BPH product. And for PIA, we see a strong demand given the increased need of automation on the back of labor shortages and wage inflation and the recently launched innovative products. For all of these companies, we saw top-line growth translated into earnings growth, and that's despite continued investment in R&D and commercial expansion. On the contrary, we continue to see tougher performance for Bronability and Atlas antibodies as the weaker market demand remains. Moving on to Mönlycke. Mönlycke had a weaker quarter with an organic growth of 3% and growth was driven by wound care, gloves and antiseptics. ORS however declined following weaker demand in the Middle East. Wound care specifically continued to be driven by strong demand and innovative products, particularly in incision care and prevention. Mönlycke continues to ensure a competitive product offering and launched Meppelix app in Europe. Wound care was negatively impacted by supply constraints in the US, and that was due to the implementation of a new warehouse management system in one of the wound care factories in the US. In terms of profitability, the EBITDA margin contracted, and this is despite growth and positive VIX, and that's primarily explained by negative FX as well as continued increase in sales and marketing spend. So if we look at value development across companies, we see that the North American companies and Munnycke had the biggest drag on valuation, and that's mainly explained by currency as well as multiple contraction. Worth highlighting here is a capital distribution from Victura of one billion, and that was a repayment of the last part of the shareholder loan that was contributed to Victura in early 2024 to fund ongoing projects. And then finally on to investments in EQT. The total value change was 1% in the quarter and that was driven by fund investments. And a reminder that we report EQT fund investments with one quarter lag. So fund investments are based on EQT's Q4 report. For Q1, EQT reported 1% positive development in key fund investments. But note that this is in euros and that the correlation to our EQT fund investments is not one-to-one. On the right hand side, we illustrate net cash flow from EQT to investor. And this was negative with one billion in the quarter. And that's because the sum of drawdowns were larger than the sum of dividend and proceeds. Our balance sheet remains strong, and that's a clear priority given these volatile times. Leverage was 1% in the quarter, which, as you know, is in the bottom end of our policy range. If we would include the acquisition of Nova Biomedical, the number would be roughly 3%, still in the bottom end of our policy range. We have a strong rating by both Standard & Poor's and Moody's. We have an average debt maturity of 10 years, and that is somewhat higher compared to last quarter due to a new issue of a nine-year and a 13-year Euro bond, Euro 600 million per tranche. We have roughly two-thirds of our debt in Euro and approximately one-third in dollars, and this provides a natural hedge to the currency mix in underlying cash flow as well as assets. We have no repayment due until 2029. Investor provides a strong platform with three business areas, all of which generate cash flow to support steadily rising dividend to our shareholders, deleveraging if necessary, as well as continued investments to future proof our companies long term. Onto my last slide, here we illustrate average annual total return for the investor B share. And we are concluding that the investor B share has beaten our internal return requirement, which is highlighted in orange, as well as our benchmark index 6RX in the short term, as well as in the long term. And with that, I will leave the word back to Jacob.

Thank you, Jenny, and thank you, Christian, as well. We are now ready to take your questions, and we will start with the questions through our operator. So, Sharon, please.

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. To withdraw your question, please press star 1 and 1 again. If you wish to ask a question via the webcast, please type it into the box and click submit. We will now take the first question. One moment please. And your first question comes from the line of Linus Sigurdsson from D&B Markets. Please go ahead.

Okay, thank you very much. So starting with a question on tariffs, I recognize that you say, I mean, it's tough to quantify the actual impacts across the portfolio, but could you perhaps remind us with a general comment to what extent you have local for local production in the unlisted portfolio? Thank you.

Thank you for the question. It's to a relatively large extent is the short and simple answer. I mean, if you look at the Patricia portfolio, we have a high share of sales in the US in total, above 50%. But to your point, a lot of that is produced and sourced locally. But as for all companies, we will have to look at this on a company-by-company basis. looking at what our exposure is and what the mitigants are.

Okay, thanks. And then a question on the temporary US supply issues that you talked about in wound care. Is there any reason to expect this to continue in Q2?

Yes, well, we had the supply issues specifically within wound care in the US, and that was due to the implementation of a warehouse management system. And the effect is isolated to Q1 and in the order of magnitude at a couple of percentage points of wound care sales for the quarter. And we do expect to recoup that during the remainder of this year, but it will be spread out.

Thanks. That's very helpful. And then my last question, you talk about a slower ramp of ORS in Saudi Arabia. Could you point to the factors behind this? Is it simply lower demand, or is there something that could be improved on, say, the execution side of things?

Yes, thank you for the question. We did see a decline within ORS, specifically in the Middle East. And the reason for that is due to relatively high inventory levels with customers. So this has an impact on demand. But the work within ORS to continue to scale the Middle East business is ongoing and the longer term prospects remain optimistic.

Okay, thank you very much.

Thank you. We will now go to our next question. Your next question comes from the line of Derek Laliberte from ABG Sunda Okoye. Please go ahead.

Thank you and good morning. Relating to the tariffs, I appreciate your comments. Also wondering on Manlycke specifically if that also holds true about the local production there and if you could give some details on where the production is of the products sold in the U.S. and sort of an overview of where the components are sourced from for Maliki specifically. Thank you.

Thank you. You point in your question to some of the complexities, because obviously it's not only about where the product is produced, but also, as you say, where components are sourced from is another important factor. Another key factor is, of course, to look at what is our footprint in each of the companies compared to competition. So there are a lot of moving parts here. With that said, I think it's fair to say that if you look at Männlycke, a couple of comments, by no way sort of comprehensive. If you look at the gloves business, we have production primarily in Malaysia, and the U.S. is our main end market there. So has most of our competitors, as far as we know. It's Malaysia, Thailand and less so in the U.S. The other one to point out maybe is on wound care, where we have a production capacity and facilities both in Finland and in the U.S. and with some net exporting from the European or Finland facility in Mikkele to the U.S.

Thank you. I appreciate the color there. On LaBrie, to follow up, could you give some detail around how the launch of the Optilum BPH treatment is going and also how much of the company's overall growth is currently driven by Optilum? Thank you.

Yes, thank you for the question. Well, we continue to see good growth in both Optilum products and growth is not linear. So we will see varying growth over quarters. And what we can say this quarter is that both of the Optilum products are included in the benchmark quarter. So year over year, that will impact the comparison. But we do remain committed and optimistic that both of these products will contribute meaningfully to growth going forward. And I think specifically we can comment on urethral strictures and also the reason for growth not being linear is that there's currently work ongoing to, first of all, secure reimbursement, secondly, also insurance coverage, and then ultimately, of course, sales.

And maybe to add your question as to how significant growth contributor the OptiLum products are, it is significant for Laboree.

Okay, great. And also on Laboree, could you comment on what the underlying margin was like adjusted for these significantly increased investments relating to the OptiLum launches?

We prefer not to go into more details than we have before, but just stopping at saying that it's significant investments behind the launch of both these products. And that's back to Jenny's comment. I mean, we're quite excited about what these products can do for patients out there. So we want to make sure we get out there to the largest possible extent.

All right. And finally, on Sarnova, When should we expect this weaker market demand? I suppose it's due to high inventory still in the market. When should we expect this to ease within cardiac response specifically?

Yes, well I think that's of course very hard to say. What we can say is that we've had a period of tough comparison quarters, but we did see some easing at the end of this quarter.

Okay, I appreciate it also.

Thank you. We will now take the next question. And the next question comes from the line of Jakob Hesselvik from SEB. Please go ahead.

Good morning. My first question is a bit broader. Considering the recent macro developments, as you mentioned, which of your sectors, financials, capital, goods, or healthcare, The anticipated will be the least affected moving forward.

Well, I'll start at that one. It's actually really hard to say because, again, you have the direct effects and you have the indirect effects. And just to give an example, it's quite clear that if you're exporting goods from Europe, for example, into the U.S., then you will be impacted by the direct effects, most notably. However, look at what's happening with financial markets in recent weeks. I mean, you see the direct effects are quite significant. So it's too early to tell sort of sector by sector. Another example, pharma so far has been exempt from tariffs. But as you know, there are ongoing discussions about what's to come or not. So we rather come back to that later.

Thank you. And my second question is on advanced acquisition of Nova, which is a fairly large merger with Nova actually being even larger than advanced. How do you make sure the integration is as successful as possible? And can you comment anything on the culture fit and what preparations you made for any potential challenges?

Thank you. Well, let me start by saying that I think in terms of cultural fit, it's strong here. Both companies share this passion for true innovation, ultimately for the betterment of patients and patients. and the biopharma industry. So strong cultural fit. The companies have known each other for quite some time and have had discussions, of course, along the journey here. So we're quite optimistic that the cultural factors are with us here. That said, we're of course very humble to the fact that it is a large project to bring the two companies together. But we have great trust in both teams to make this happen in a good way. And importantly, I should also say that we're, of course, cautious not to jump the gun here. I mean, we're waiting for regulatory approval until we start any sort of real integration work. But planning and thinking, of course, we can do and do. So that's sort of on the short of our approach. And then just going back to, again, the rationale for the merger, highly complementary products. and largely to the same end customers, and often actually to the same call point. So we really think that bringing this together will broaden the portfolio, make it an even more relevant supplier, and the scale will of course give it more muscles in R&D, innovation, and again, in commercial. So we think that this combined company will be a really strong platform for continued and accelerated innovation and profitable growth.

Great. Yeah, I agree with the acquisition. It sounds to be quite promising. And my final question is just whether if you have, similar to EKT, ever analyzed the components of value creation within Patricia, specifically how much of the value creation is attributable to growing sales, EBITDA, margin expansion versus the benefits from multiple expansions?

I can start. I'm sure EQT maybe has done it in their way. I mean, we look at that all the time. And the first comment is that if we look at it over longer time periods, it's very clear that the number one by a large margin contributor is profitable growth or earnings growth and cash flow from the companies. And then you have multiples and FX and leverage as factors in single quarters. But over time, it's the underlying profitable growth that's the key driver. And then... In terms of if you break that down then and say what's organic growth versus multiple expansion, I think what I can say is that we are quite picky in trying to find companies that are in attractive industries with growth tailwind and so sort of structural growth tailwinds and with the right to win in those markets over time.

Thank you so much.

Thank you. As a reminder, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. If you wish to ask a question via the webcast, please type it into the box and click Submit. We will now go to our next question. And your next question comes from the line of Oscar Lindstrom from Danske Bank. Please go ahead.

Good morning. Three sets of questions for me. The first one is on acquisitions and capital allocation. I mean, as you mentioned, your leverage is still at the lower end of the range, even after the most recent acquisition. And at the same time, you also talk about volatile markets creating some opportunities. Where do you see those opportunities? Is it more on the on the unlisted or more on the listed side given how equity markets have developed and you know should we expect you to acquire some more shares in some of your listed assets as a consequence of this going forward so that's my first question

I can start. Well, thank you for the question. And just as the first comment, we think it's very important for us to continuously have financial flexibility. And that's to be able to execute on our strategy and also capture attractive opportunities when we find them. And for us, there is always a continuous work to look for new opportunities across all of our three business areas. And we do this in every economic cycle. And we do see strong opportunities across all three of them. And I think in general, we tend to comment investments that we have made and not investments that are more hypothetical. I don't know if you want to add something.

I think it's a good summary. You can also see that over time that we have deployed capital in all three business areas and we continue to do so. And I should say, we've said that before, we continue to say that we see a strong pipeline, for example, for add-on acquisitions in Patricia Industries.

Right. Okay. Thank you. um and then um two more specific or or technical questions first one has there been any impact of sort of share trading activities during the quarter um i couldn't find that in the results but sorry can can you uh repeat the question if there's been results yeah i mean on your in your trading operation i mean Has that impacted the results in any way in the quarter?

Okay, thank you for the question. No, not meaningfully.

All right, good. And then my final question is on the composition of peer multiples. Has that changed in the first quarter here compared to how you did it last year? I mean, have you changed the mix in peers, essentially?

Well, we continuously make sure that we have relevant peer groups, but we continuously also focus on keeping them as fixed as possible over time. So any adjustments we make are typically if we see a transformation in one of our companies making other peers relevant, or if there are any other structural changes to the peers. But for this quarter, there's no meaningful change that would have had an impact on valuations.

All right. Wonderful. Thank you. Those were all my questions that I had.

Thank you.

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

Thank you, Sharon. And thanks for all the good questions. Today, I can't see any questions online, actually. So that means that it's time to conclude this call. Many thanks to Christian, to Jenny. to all of those who have joined and for the good questions, as I said. The next scheduled call is our interim report for the first half of 2025, which is scheduled for the 17th of July. And until then, thank you and goodbye.