Annual Report 2008 Overview 2008
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Annual Report 2008 Overview 2008 INVESTMENTS INVESTMENT STRATEGY GOAL • Well established global companies. To generate a return • Significant minority ownership exceeding the market cost of for strategic influence. capital defined as the risk-free • Listed companies. interest rate plus a risk premi- • Long ownership horizon. um over a business cycle. Currently this corresponds to approximately 8 percent nvestments per year. I Core • Medium-size to large companies with To generate a return significantly international operations. exceeding market cost of capital • Preferably companies with potential for defined as the risk-free interest stable growth and high profitability. rate plus a risk premium over • Majority ownership or significant a business cycle, appropriately mino rity position for strategic influence. reflecting the holding’s liquidity nvestments • Listed and unlisted companies. I as well as its financial and • Long ownership horizon, longer than 5-10 years. operating risk profile. Currently, the return objective exceeds 15 percent per year. perating O Investor INVESTOR GROWTH CAPITAL Average annualized return Growth Capital • Small and medium-size growth (IRR) of 20 percent or more companies in the U.S., on realized investments before Northern Europe and Asia. administrative expenses, over • Minority ownership. a business cycle. nvestments I • Mainly unlisted companies within healthcare and IT. • Ownership horizon 3-7 years. quity E EQT’s funds (PARTLY OWNED) • Buyout investments in Northern Europe, China and the U.S. • Majority ownership. • Ownership horizon 3-7 years. Private OVERVIEW – INVESTOR 2008 MAIN EVENTS SHARE OF TOTAL ASSETS • Holdings in OMX and Scania were divested with good returns. • Ownership positions were strengthened in Atlas Copco, SEB, Husqvarna and Electrolux. 69% • Dividends received amounted to share of total assets SEK 3.8 bn. • Core Investments had an impact of SEK –31.5 bn. on net income. • Mölnlycke Health Care regained growth momentum while maintaining strong margins despite currency headwind. • We acquired 57 percent (after full conversion) of Lindorff. 15% • Gambro launched new products and share of total assets continued its efficiency program. • CaridianBCT’s core business continued to develop strongly and investments in new products for future growth continued. • 3 Scandinavia was EBITDA positive on a monthly basis as of mid-2008. • Operating Investments had an impact of SEK –710 m. on net income (according to the equity method). • Investor Growth Capital invested for SEK 1.9 bn. and sold holdings for SEK 1.1 bn. during the year. Investor Growth Capital had an impact of SEK –0.4 bn. on net income. • EQT funds invested a total of SEK 1.8 bn. 15% and exited holdings for SEK 1.8 bn. during share of total assets 2008. EQT had an impact of SEK –2.9 bn. on net income. • Private Equity Investments contributed SEK –3.5 bn. to net income after a positive currency effect of about SEK 2 bn. Cash flow for the year was SEK –0.8 bn. In addition to these business areas, Financial Investments represents 1 percent of total assets. Welcome to Investor CONTENTS President’s comments................... 2 Investor is a Nordic-based industrial Key figures . 5 Vision, business concept and goal ......... 6 holding company founded almost one Active ownership ...................... 8 Core Investments ..................... 10 hundred years ago by the Wallenberg Operating Investments................. 16 Private Equity Investments .............. 24 family. Today we have investment activities Employees and network................ 28 Investor shares . 30 in Europe, the United States and Asia. Letter from the Chairman . 32 The business concept is to generate Corporate Governance Report ........... 34 Management Group . 51 long-term attractive returns for our Board of Directors . 52 shareholders by owning and developing FINANCIALS Contents of Financials ................. 54 companies with solid potential for value Administration Report ................. 55 Proposed Disposition of Earnings . 60 creation. We are an engaged owner Consolidated Income Statement . 61 and apply experience, knowledge and Consolidated Balance Sheet............. 62 Consolidated Statement of a unique network to develop listed and Changes in Equity . 63 Consolidated Statement of Cash Flows . 64 unlisted companies to make them Parent Company Income Statement ....... 65 Parent Company Balance Sheet . 66 best-in-class. Parent Company Statement of Changes in Equity . 68 Parent Company Statement of Cash Flows . 69 Notes to the Financial Statements ........ 70 Audit Report ....................... 108 History............................ 109 Ten-Year Summary ................... 110 Definitions ......................... 111 Shareholder information . 112 % 20 Total return Investor shares, –18 percent Average total return, Investor shares The total return (sum of share price change and % 20 10 reinvested dividend) was an unsatisfactory –18 per cent during 2008. However, this was better than the 10 0 Stockholm Stock Exchange (SIXRX), which had a total return of –39 percent. Over the last 10 and 20 years, 0 -10 respectively, our total return to our shareholders has –10 averaged 6 percent and 12 percent. –20 -20 1 year 5 years 10 years 20 years 1 year 5 years 10 years 20 years Unlisted investments, 30 percent Percentage of assets by business area In line with our strategy, the share of unlisted % 100 Private Equity holdings grew and totaled 30 percent by year-end. Investments 80 Operating This increase was not only the result of a greater Investments 60 Core number of investments in unlisted companies, but Investments 40 was also due to falling values in our listed companies, 20 and the sales of Scania and OMX. We remain 0 committed to investing in additional unlisted assets. 2005 2006 2007 2008 Net cash position, SEK 9.4 bn. Leverage We have focused in recent years on strengthening % 30 our financial flexibility by building up a net cash position 20 of SEK 9.4 bn. by year-end. Our gross cash position 10 amounted to SEK 28 bn. We also have long maturity 0 of our debt, amounting to an average of 12.6 years. –10 –20 Borrowings amount to SEK 18 bn., of which SEK 6 bn. 2000 2001 2002 2003 2004 2005 2006 2007 2008 matures over the coming five years. Net debt Maximum leverage target range Leverage target range, 5-10% Net asset value, SEK 115.3 bn. Development of net asset value The net asset value declined from SEK 155.2 bn. SEK bn. 200 to SEK 115.3 bn. during 2008. This corresponds to a decline of 26 percent. Adding back dividends, the 150 net asset value declined by 23 percent. 100 50 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Net asset value, including reinvested dividends Net asset value INVESTOR 2008 – OVERVIEW 1 Downturn confirmed Regrettably, I must open my comments to you about our 2008 performance in the same way I did a year ago; 2008 was an unsatisfactory year to be a shareholder of Investor AB. We are not satisfied with a total return of –18 percent for 2008. While this was significant outperformance relative to the Swedish market, which was down 39 percent (SIXRX), relative performance can never pay for breakfast. Only absolute value creation matters. Our objective is to generate a total return to shareholders exceeding the cost of capital over a business cycle. Going forward, our financial strength positions us well for delivering on this. 2008 was an exceptional year which cannot be easily summarized. by bank crises typically are more severe and last longer than other We experienced stock market declines of a magnitude not seen slowdowns. This underlines the need to quickly restore the health since the 1930s. Governments have launched unprecedented of the financial system. As we have noted before, the global stimulus packages, guaranteed and injected equity in banks and in banking system suffers from a lack of loss-absorbing capital. If some cases even nationalized financial institutions. I am convinced not restored, the banks will have to continue to de-lever, further our grandchildren’s textbooks will cover these times in great detail. hurting real economies. The financial turmoil started in mid-2007 and accelerated during 2008 in a way few could have imagined. Although we had Uncharted territory previously expressed concerns about risks in the financial system Governments are intervening in an unprecedented way to and its effect on the real economy, we failed to see the force and contain the current economic downturn. It is difficult to predict speed of the correction. Demand seems to have ground to a halt the outcome of all efforts as we are in uncharted territory. towards the end of the year. While large stimulus packages may seem a good cure for deflation worries, the risk of inflation in a few years should Necessary to plan for severe downturn not be underestimated. Delaying a normalization of the savings We do not think the current slowdown can compare in length ratio may just make the pain even greater in the future. Public and magnitude to what we have seen during the last few spending may help in the short term, but the U.S. and many decades. Instead we believe it is necessary to plan for a more European countries also suffer, or will suffer, from a dangerously severe downturn. Anything else ought to be a pleasant surprise. high budget deficit. The need to contain those deficits will The consumer has over-spent for a number of years, resulting in further dampen growth in the medium term. Basically, there a long period of low savings. While more extreme in the U.S., it is is a significant risk that the developed world will be challenged also true in much of Europe. Historically, the U.S. savings rate has to grow in the medium term. averaged some 10 percent of disposable income, but over the last The ripple effects of slowing consumer demand will be felt 20 years it has gradually fallen to close to zero.