Highlights of the 2007 fiscal year for Investor AB: A strong first and second quarter, weak third and a dramatic fourth: fiscal 2007 was definitely an interesting year for Investor AB.
The year contained such pleasing developments as an all-time high of SEK 183 bn. for our net asset value (NAV) in the second quarter and a number of large exciting investments in new unlisted companies in the first half. It ended in a less satisfactory manner with the drama of the credit market crisis and its negative impact on market valuations of listed holdings and our NAV, which was reduced to SEK 155 bn.
Although we wrapped up 2007 with a weak total return to shareholders (-10%), our NAV, including reinvested dividends, was only marginally down (-0.3%), despite the effects of the turbulent fourth quarter.
Core Investments hit hard by stock market downturn
The majority of Investor’s assets (81%) are in listed companies and the general downturns on stock markets in the fourth quarter hit these investments hard, contracting their value by 11 percent.
In our Core Investments business area, ABB contributed strongly to our NAV by almost SEK 11 bn., as well as OMX (+116% or SEK 1.8 bn.) and Scania (+ 38% or SEK 4.9 bn.). ABB is now Investor’s largest holding and ABB, Atlas and SEB together represented almost 56 percent of the portfolio at year-end.
Accounting for a substantial part of the NAV loss in Core Investments was Ericsson (Investor’s third largest holding), whose value fell by nearly SEK 8.5 billion in the fourth quarter after the company revised its profit outlook. SEB also reduced our NAV by SEK 6.6 bn. since the bank was also negatively affected by the credit market crunch. Investor’s add-on investment in SEB before the credit crisis was not optimally timed, but we will now focus on regaining the lost value in SEB and we have an unchanged positive long-term view of this holding.
Events creating value
A number of value-creating events had a positive impact on NAV, such as the agreement to sell OMX (expected to be closed in February), the sale of Gambro Healthcare (clinics business) at an attractive price, the successful lifting of the U.S. import ban for Gambro Renal Products and the subsequent increase in Scania’s value after our rejection of MAN’s bid (almost SEK 5 bn. in value appreciation), which was later echoed by Scania’s largest owner, Volkswagen.
Other events included the acquisition of Mölnlycke Health Care, one of the largest transactions in Northern Europe in 2007.
Investor also took advantage of a weaker market in the second half of 2007 to strategically increase its stakes in selective Core Investments, such as Atlas Copco, Ericsson, Electrolux and Husqvarna.
The proposed dividend, SEK 4.75, is a balanced increase over last year’s SEK 4.50 per share.
Strong year for Private Equity
Investor’s Private Equity Investments business area contributed positively to Investor’s income during all of 2007 and even during the turbulent fourth quarter. Both Investor Growth Capital (venture capital) and EQT (buyouts) had a positive effect, demonstrating the viability of their investment strategies, their capability to build businesses and the quality of their portfolios. Private Equity was a healthy NAV generator in 2007, adding close to SEK 6 billion. The cash flow from Private Equity was positive in spite of significant efforts and investments by IGC and EQT to rebuild their portfolios.
Investor Growth Capital alone closed on 21 healthcare and IT investments in 2007 and exited ten holdings.
Operating Investments doubles its size
The relatively new Operating Investments business area (7% of assets) has almost doubled its size since 2006 after the addition of Mölnlycke Health Care in mid-2007 and the Gambro companies we took private in 2006.
Holdings in this business area are valued using the equity method and had a negative contribution to NAV of almost SEK 1 billion. This is the result of the investments we make in these companies, which hamper short-term profits but build value in the long term.
Several of the holdings are showing promising development. 3 Scandinavia is continuing to develop well, reducing its losses and growing by 30 percent in 2007 with a market-leading ARPU. The plan remains that the company will reach EBITDA breakeven on a monthly basis during 2008.
Gambro Renal Products and Gambro BCT strengthened their management teams. Renal succeeded in getting the import ban lifted in the U.S. in an unusually short period of time and launched efficiency programs, which started to take effect and produce strong Q4 results. The U.S. blood bank tech company BCT, launched two new advanced products, Atreus and Mirasol, earlier than planned. They both address new and expanded markets for BCT. On the whole, both Gambro units are showing good margins and healthy growth.
Investor’s wholly owned subsidiary, the Grand Hôtel, also posted much higher earnings in 2007, and is expanding its business with a new spa. As of January 1, the hotel is also part of the global InterContinental Hotels & Resorts’ reservation system, which is expected to have a positive impact on reservations.
Mölnlycke Health Care – added in April 2007 – strengthened its management team, formed a new board and is taking measures to accelerate future growth. As for all its holdings, Investor has developed a growth-oriented plan for Mölnlycke. Among other measures, Mölnlycke is now basically putting “more feet on the ground” by expanding the sales force and is also stepping up R&D.
Increasing transparency
Investor’s share of unlisted investments increased from 13 to 19 percent in 2007, due to new investments and the fact that values of listed holdings contracted at the end of 2007. In view of the growing size of the unlisted portfolio – notably within Operating Investments – we have now included additional information in the fourth-quarter report about their financial performance to give the market a more complete view of these companies and provide input for their valuation.
The Operating Investments section of the Q4 report now gives some key figures for holdings, such as their sales and normalized EBITDA per company (after eliminating extraordinary items and specific investments). The Private Equity section has been enhanced by including the average valuation multiples we use for holdings, on a portfolio level.
Well positioned to create future value
In mid-2007, Investor took advantage of a favorable financial market by extending the average maturity of its debt portfolio and issuing a new bond with a maturity of 30 years, which were well-timed transactions. During the year, the company also deliberately shored up its balance sheet with other measures to meet current weak conditions and to maintain financial flexibility with a view to capturing emerging investment opportunities. Leverage was only 2 percent (SEK 3.6 bn. in debt in relation to SEK 159.8 bn. in assets) at year-end 2007.
A number of priorities have been established for the coming year:
Although Investor will continue to be cautious about the present market environment, the company aims to use its strong balance sheet and high financial flexibility in the current weak market to act on investment opportunities and strengthen ownership in selected existing investments, if opportunities arise. Investor is also focusing on continuing to expand Operating Investments, make additional Private Equity investments and relentlessly drive value creation in all holdings, all for the purpose of creating long-term sustainable value for shareholders.
More detailed information is available in the webcast from our Q4 release (in English) and in the year-end report, both available on this website.
Information updated 2008-01-30 10:49:41