Within Operating Investments we are building a unique portfolio of companies with the potential to generate significant value and cash flow. Cash flow is generated by optimizing leverage over time and returning surplus liquidity to owners through dividends and refinancing. Most of the companies are unlisted, and therefore relatively illiquid. This implies that they could take longer to divest compared to listed holdings. In this sense, unlisted holdings could be regarded as riskier than listed ones. From an operational viewpoint, however, there may not necessarily be any difference in risk between unlisted and listed holdings.

Since the creation of this business area in 2006, the majority of its new investments have been made through partnership with other investors. These partnerships provide for risks and efforts to be shared and make the networks of both of the owners available. We tend to have a longer holding horizon than our partners, but any differences in the investment horizon are dealt with in shareholder agreements.


DEBT FINANCING WITHIN OPERATING INVESTMENTS
Debt financing for all Operating Investments (except for 3 Scandinavia) are ring fenced and without guarantees from Investor. The leverage in some of our Operating Investments is high, but adapted to the stability of earnings and cash flow generation of each company. Most of our companies operate in industries with moderate cyclicality in sales and thus show a better stability of earnings. All companies met their covenants as per year end. If a covenant is breached, it is possible to take corrective action before any financial implications go into effect. We are comfortable with current financing agreements, but we are actively monitoring opportunities to adjust financing structures, if deemed value-creative. The debt is long in duration and no major debt falls due within the next four years, with the exception of 3 Scandinavia in late 2012.

Investment Strategy

• Medium-size to large companies with international operations.
• Preferably companies with potential for stable growth and high profitability.
• Majority ownership or significant minority position for strategic influence.
• Listed and unlisted companies.
• Long ownership horizon.

Goal

To generate a return significantly exceeding market cost of capital defined as the the risk-free interest rate plus a risk premium over a business cycle, appropriately reflecting the holdings liquidity as well as its financial and operating risk profile. Currently, the return objective exceeds 15 percent per year.

Strategy

• Develop existing holdings with a long-term ownership horizon.
• Grow the business area by creating value in existing holdings and making new investments.
• Ensure that the Board and management have ownerships stakes and remuneration linked to value creation for the owners.

Information updated 2010-04-06 09:52:23