Investor AB (publ) (INVEA) Earnings Call Transcript & Summary

Good morning, and welcome to Investor's results call for the second quarter and first half of 2026. I'm joined in our Stockholm Studio by CFO, Jenny Ashman Haquinius; and CEO, Christian Cederholm. Following the presentations, we will be opening up for questions, both via our operator as well as online. And with that, over to you Christian.

Thank you, Jacob, and hi, everyone. In Q2, net asset value growth was 9%, total shareholder return for Investor's B share was 15%. The growth was all driven by Listed Companies, while both Patricia Industries and Investments in EQT contributed negatively. Importantly, while multiples were down, underlying performance in the Patricia companies was solid. At the end of the second quarter, adjusted net asset value stood at SEK 1,215 billion. Let me briefly go through the 3 business areas: Listed Companies, Patricia Industries and Investments in EQT. Starting with Listed Companies. Listed Companies generated a total return of 14% in Q2. Performance was primarily driven by a few of our industrial companies, led by ABB, which benefits from electrification and demand related to the build-out of data centers. During the quarter, we participated with our pro-rata share of SEK 1.7 billion in Electrolux's rights issue as they strengthened their balance sheet. The joint ventures with Midea is another important strategic step aimed at improving profitability in North America. As you know, Wärtsilä recently completed a number of divestments of nonstrategic assets, basically pruning its portfolio. In Q2, Wärtsilä announced a joint venture for its global energy storage business, teaming up with a seasoned partner who knows the business and has a proven track record of performing also on the challenging market conditions. We believe this can unlock further potential from the storage business itself, while also allowing Wärtsilä to focus even more on its remaining core marine and energy businesses, where they continue to expand capacity to meet strong demand. Börje Ekholm announced his departure from Ericsson. And Narvinger, his successor, takes over company in strong shape. Ericsson today is a company with technology and market leadership and with a number of opportunities for accelerated growth. Per has been a key contributor to the journey thus far, knows the customers, the technologies and the company well. Now over to Patricia Industries. Total return here was minus 3% with lower multiples outweighted earnings growth and cash flow in the quarter. For the major subsidiaries, organic sales growth was 7% and adjusted EBITDA grew by 16% with solid cash flow conversion. For the first time in quite a while, FX was not a big drag on reported earnings. A few highlights then. Nova Biomedical performed strongly, with healthy growth and efficiency improvements from the ongoing integration work. However, a lot of work remains. Mölnlycke formed the JV with Zhende Medical to broaden access to high-quality wound care solutions in China and to help Mölnlycke adapt to China's speed, for example, product development. And in the quarter, Mölnlycke and Three Scandinavia both distributed cash to Patricia Industries. Now for the major subsidiaries and our 40% in Three Scandinavia, revenues amounted to almost SEK 71 billion in the last 12 months. And EBITDA for the corresponding period was just north of SEK 18 billion. Now remember, this is all in Swedish krona, of course, sensitive to FX. And finally then, investments in EQT, our third business area. Here, total return was a negative 2%, dragged down by the decline in EQT AB's share price. Dividends from EQT AB and a net positive fund flow more than offset the SEK 349 million investment we made in EQT AB shares. Activity remained high. And for example, EQT was selected to lead the scale-up Europe fund, a EUR 5 billion initiative designed to support the growth of Europe's most promising technology companies and to strengthen the continent's innovation ecosystem. Also, EQT successfully raised USD 15.6 billion for its new Asia flagship fund, making it the largest Asia Pacific dedicated private equity fund ever raised. These are both great testaments to the strength of EQT. Now as we all know, the world remains complex and increasingly competitive. Right now, the ongoing conflict in the Middle East causes additional volatility and uncertainty, with clear risks to cost inflation for many input goods, for freight, et cetera, and potential disturbances in supply chains. In this operating environment, companies need to focus on improving efficiency and strengthening resilience. In general, our companies continue to do a good job to adapt, protecting the businesses and the profits here and now. They're staying close to customers and are able to make quick decisions and adapt as the world around them changes. Our companies do have a strong starting point with excellent customer offerings and leading market positions. And over time, prosperity hinges on innovation. Offering truly differentiated and sustainable solutions to customers is the only way to ensure long-term profitable growth. This is why we will always encourage our companies to make well-considered investments in innovation. AI and sustainability are, of course, 2 key dimensions of innovation, with opportunities really across the whole value chain. In R&D, in products and aftermarket, of course, but also in manufacturing, go-to-market, administration, et cetera. Within AI, our companies are making progress when it comes to finding and implementing and scaling relevant, high-value use cases for AI. That said, we've only scratched the surface so far, and we need to continue accelerating our efforts here. Sustainability also offers attractive opportunities. Creating added value for customers while also contributing to the green transition remains a very powerful proposition. As I've said many times, we're confident in our platform. Investor has a clear purpose and a focused strategy, a portfolio of high-quality companies, engaged ownership model that's been proven over time, financial flexibility with low leverage and strong underlying cash flow and importantly, great people here at Investor in our companies and in our network. We remain focused on building and supporting great companies and are confident that this will create shareholder value over time. And with that, I leave the floor to you, Jenny.

Thank you, Christian, and good morning. So let's move over to the financials for the quarter. So in Q2 2026, adjusted net asset value was SEK 1,215 billion, and this implies an increase of 9% compared to Q1. And for the quarter, the value uptick was driven by Listed Companies, increasing with 14%, while Patricia Industries and Investments in EQT declined. And now double-clicking on each of the business areas, and I will start with Listed Companies. And within Listed Companies, share price performance was mixed, particularly strong quarter for the ABB share, which, of course, benefits from electrification and strong data center-related demand. Saab had a tougher quarter looking at total return and total return for the Listed Companies portfolio was 14%, which is 5 percentage points ahead of SIXRX. And this strong relative outperformance is largely driven by ABB. And as for absolute contribution, ABB, again, in particular, stands out, given strong share price performance as well as width and size in our portfolio. And then moving on to Patricia Industries. Although the adjusted net asset value for Patricia Industries contracted in Q2, we did see solid performance by the portfolio companies. The major subsidiaries grew 7% organically and adjusted EBITDA increased by 16%. And for the first time in quite a while, as Christian mentioned, FX was not a big drag on reported earnings. And now double-clicking on performance across the companies in Patricia Industries, and I will comment on a few of them. So for Laborie, growth was driven by all business areas and also this quarter, to a large extent by the Optilume urethral strictures. And if we adjust for USD 17 million in expense related to the JADA acquisition, profitability for Laborie was up, and this is despite continued commercial investments. Nova Biomedical grew 10% organically, and profitability increased on the back of efficiency improvements from the integration, and integration is off to a good start. It is still early days, but performance thus far underpins the potential of this platform. BraunAbility and Sarnova also delivered double-digit organic growth in the quarter. For BraunAbility, operating leverage was offset by unfavorable product mix, and for Sarnova, by continued strengthening of the organization. We saw single-digit organic growth for Permobil and Piab. For Piab, the margin was pressured by SEK 46 million in restructuring costs and increasing sales cost. For Permobil, the margin was impacted by costs related to the production facility relocation mentioned in Q1 as well as investments in the commercial organization. And then moving on to Mölnlycke. Mölnlycke had a quarter with 2% organic growth, with growth driven by all of the 4 business areas. And if we focus on Wound Care specifically, we saw 2% organic growth and we recognize that we have yet another quarter with more modest growth. And first of all, we are comparing to a strong quarter last year. And for Wound Care U.S., specifically was essentially flat this quarter, reduced somewhat softer market conditions, including continued destocking in some channels, and we're also seeing increased competition in some product categories. The more established and mature wound care markets, such as the U.S., are growing low to mid-single digit, but Mölnlycke's ambition to outgrow the market over time remains. And this is on the back of an innovative premium product offering, focused commercial execution and continued geographic expansion. And in the quarter, great to see strong momentum in APAC, specifically China, which is a very attractive growth market. And here, Mölnlycke strengthened its position through the partnership with Zhende. And also positive to say that EMEA grew in the quarter. Mölnlycke protects share in France, which has been a challenging market, and this is on the back of the company working agile to continuously adapt product assortment to meet changing reimbursement landscape. Despite modest growth in the quarter, it's very positive to see improving profitability as the company is doing a really good work with efficiency improvements and cost control. For this quarter, we had a couple of nonrecurring items that were net positive in total, including a tariff refund. And if we adjust for this, the underlying margin is almost 30%. So for Patricia Industries, we saw a 3% contraction in estimated market values compared to Q1. So from SEK 230 billion to SEK 222 billion. And this drop was explained by contracting multiples, which more than offset earnings growth and cash flow generation. And as a reminder, our multiple-based valuation method uses a 3-month value-weighted average price and not the quarter-end spot price. And then if we look at value development across the companies, it's a mixed bag, main positive contribution from Nova Biomedical and BraunAbility, while Mölnlycke is the biggest drag in the quarter, and this is explained by the multiple contraction. Also worth highlighting is the distribution, roughly SEK 2 billion from Mölnlycke, and also SEK 300 million from Three Scandinavia, and then also an equity contribution to Vectura of SEK 300 million to fund the recent GoCo acquisition. Moving on to Investments in EQT. Total value change was a negative 2% in the quarter, and that's explained by EQT AB, which was down 4%. Fund investments were essentially flat. And as a reminder, we report EQT fund investments with one quarter lag. So the 0% is based on EQT's Q1 report. And here on the right-hand side, you see the net cash flow from EQT to Investor, which was SEK 500 million roughly in Q2. And here, we also illustrate net cash flow from investments in EQT to Investor over time. And while it's quite lumpy on a quarterly basis, over the past 10 years, we've received a net cash inflow of SEK 1.6 billion on average per year. And our balance sheet remains strong. Our leverage as of Q2 is 1.9%. And it remains in the lower end of our policy range, and we closed the quarter with SEK 29 billion in cash at hand. And then on to my final slide. If we look at the longer-term perspective, the performance of the Investor ABB share truly demonstrates the strength and the resilience of our portfolio and our strategy. And with that, I will leave the word back to Jacob.

Thank you very much, Jenny. Thank you, Christian. Now it's time to take your questions, and we'll start with questions through our operator. So Sharon, please.

[Operator Instructions] And the first question comes from the line of [ Bjorn Olsen ] from SEB.

Just a question on Patricia. Your listed portfolio has outperformed the Patricia for quite a few quarters now. And the Medtech focus, I mean, you're facing pressure both from multiples, but also you're mentioning that Mölnlycke is facing softer market conditions. And earlier this week, Coloplast flagged down sales outlook. I was just wondering, at what point would you reconsider the strategic Medtech concentration in Patricia?

Okay. Thank you. I can start on that one. So if you look at Medtech, we remain convinced about the long-term outlook for profitable growth in Medtech. You have an interesting combination of an almost endless demand, if you think about it with the demographics of aging people, the ability to treat more diseases, et cetera, et cetera. And then you have technological development that enables both better outcomes, but also importantly, better efficiency and cost efficiency in doing so. And then you couple that with funding systems that are, of course, always sort of strained, that is a very fertile ground for growing and developing business. So we remain all committed to Medtech. And of course, we recognize that trading in many of the peer companies have been less positive in recent quarters. But there also, I would just look at what the earnings growth in Patricia is and in the Medtech company specifically, for a better indication of long-term performance.

Okay. So if anything, the current multiple environment actually make this part of your portfolio more interesting rather than that it sounds like?

I mean, in a way, you could say that I think when it comes to -- if you're referring to sort of the opportunity to go in and buy on the cheap, unfortunately, it's quite hard to do that for a couple of reasons. One is timing, of course, but also typically, the companies that we are looking to buy, the sellers aren't that keen to sell in a tougher environment. So normally, we're not here to make a bargain. But of course, as you say, there will continue to be good opportunities in this market environment and also if or when multiples recover.

[Operator Instructions] We will now take the next question, and the question comes from the line of Johan Sjöberg from Nordea.

I would like to start off with Mölnlycke talking a little bit upon the outlook -- growth outlook in the Wound Care business. You talked about the positive trends in Asia, but flattish in North America and also in Europe. And I would like to sort of -- if you could start off talking a little bit about the U.S. market here. What is sort of hammering the growth in this business? We are used to sort of mid- to high single-digit growth rates in Wound Care now where I know it's -- will be 2 quarters, but we are sort of at 2% growth in this business during these quarters. Could you -- could you say something about what you are doing in order to drive growth? Or is it -- yes, talk a little bit about that, please?

Yes. I can start. Well, thank you for the question, Johan. Well, as you very rightly point out, we have a second quarter where we do see some more modest growth from Mölnlycke. And if we zoom in on Wound Care, so the biggest business area and also U.S. or the biggest market, it's actually flat if we compare to the same quarter last year. And there are a few factors at play here. I mean, first, we do see some softness in the market. If we look at the market data, it's quite early signals, and it's too early to draw any clear conclusions. If it's clear signals for softness or if it's actually noise, but we do see some destocking similar to Q1. But here, the company is really close to the market and looking at the data and really trying to understand what is what. So some softness. But in addition to that, we also see specifically within prevention, fierce competition. And I think Advanced Wound Care, for a definition, is a competitive space. But in the quarter per se, we see some added intensity in competition and that's prevention and also specifically on price. And here, it's back to Mölnlycke really pushing the health economic case of Mölnlycke's products. So continue to invest in the sales force but also education for customers within both the clinicians and procurement. And then in addition to that, I think it's also worth mentioning that we are coming from a very strong quarter last year as well. So that's some kind of nuance around it. But then I think we have the ambition to grow above and beyond that. If you look at the more mature markets, I think a good reference point to keep in mind is that the underlying market growth is low to mid-single digits. But on the back on a really qualitative premium product offering and strong commercial execution, the ambition is to grow above what we see in the quarter. And then in addition to that, of course, the geographic expansion. And as you also mentioned, we have APAC for the quarter and specifically China. Very positive to see growth there. And also the strengthening of the position with the joint venture with Zhende. And I think another point, which I think is worth highlighting for the quarter is that even though we see this modest growth in Q2, we have a really good development in terms of profitability, and that's on the back of really good work from the company. As we mentioned last year, focus on finding efficiencies. So Mölnlycke still contributes with roughly 60% of the profit increase for the quarter.

Yes, I understand that. And the previous quarters, you have been impacted by the tariffs and the inability to -- well, you've been lagging in terms of price increases and also, I mean, could you talk a little bit about how that price or the price component now given the tariffs also, that's one thing? And the second thing, I also want to -- you talked about the competition also in the U.S. market. I know it's always a tough competition and you have great respect for your competitors. And -- but do you see that the competitive landscape changing somewhat recently, i.e., has it intensified? Because, I mean, given the sort of mind-blowing margins you have in the Wound Care business, I would assume that would attract a lot of competition, you can say.

Again, I can -- do you want to say? Okay. Now in terms of the competition, I would say it's intensifying. We are seeing the same kind of competitors as we typically say. And we've seen similar situations before because in the health care sector and specifically Wound Care, the hospitals are always under pressure in terms of quite strained budgets, so you could actually compete on price. And that's why it's so important to offer true value to the customer. So over time, you will actually more push the health economics rather than the unit price. So this is the name of the game in Wound Care, so to say. So I wouldn't say that there are any new types of competitors. It's more in the quarter, we see specifically within prevention, competitors pushing price a bit more.

Yes. Okay. And then the question regarding pricing.

I can take a first shot about that, Johan. So as you referred to, I mean, tariffs has been one inflationary factor. But one should remember that we've had a lot of different things in recent years, driving the cost. I mean, we have rate cost. Now we're looking at oil and oil derivatives, et cetera. So really in our discussions with the companies, typically, we try to talk about the value that we bring rather than pointing to a specific and especially not tying any price increases to specific factors. Of course, there has been intense price discussions in a number of companies, Mölnlycke included. And of course, it's always, let's say, tough discussions. But by and large, there is an appreciation for the value that our products bring. And if you look at, for example, gloves, there's certainly been some real price increases.