Ratos: Interim Report, January-June 2002
Stable development in uncertain business climate
-- Improved earnings in holdings -- Pre-tax profit SEK 397m (1,898) -- Hilton, Esselte, Exceed and Kronans Droghandel sold -- Total return on Ratos shares +21%
Four exits were completed during the period for a total sales amount of approximately SEK 1,750m.
The entire holding in Hilton Group plc was sold in the first quarter for SEK 614m. The deal provided an exit gain of SEK 50m.
On 7 June, Ratos sold its entire holding in Esselte to the American private equity fund J.W. Childs which had made a public offer for the whole of Esselte two weeks earlier. The purchase price amounted to SEK 520m and the deal provided a SEK 98m exit gain.
The sale of the wholly owned subsidiary Exceed to Wilson Logistics Group was completed during the period. The purchase price amounted to approximately SEK160m which meant that Ratos made a capital gain of approximately SEK 90m.
During the period the sale of the holding in Kronans Droghandel was approved by the relevant competition authorities. The purchaser was the Finnish company Orion and the purchase price received by Ratos amounted to SEK 460m and had a positive impact on earnings for the period of SEK 54m, taking Kronans Droghandel's sale of the Norwegian operations into account.
Martinsson, Lindab and Superfos made important strategic follow-on acquisitions during the period. In March Ratos made a DKK 66m follow-on investment in Superfos in connection with the acquisition of Jotipac. A SEK 159m follow-on investment in Arcorus was made in April which increased Ratos's holding from 49% to 77%.
After the end of the period payments were made to owners in Telia Overseas following an earlier decision to reduce the company's share capital. For Ratos, which owns approximately 9% of the capital, this payment corresponded to SEK 264m. Telia Overseas' book value in the Ratos Group therefore decreased to SEK 64m.
Development of the portfolio
The global economy continued to show weak development in the first half of 2002 although there are still major differences between regions and sectors. Nevertheless, Ratos's holdings overall showed a satisfactory earnings trend. The combined EBITA (profit before net financial items, tax and goodwill amortisation) for the subsidiaries and associated companies held by Ratos at the end of the period increased by 13% compared with the first half of 2001. Taking Ratos's different stakes into account, EBITA rose 9%. The corresponding changes in EBT (profit before tax) are +30% and +32% respectively.
This positive earnings trend was achieved despite many of the holdings operating in a tough market. In several of the companies this was due partly to the extensive action programmes which were launched in 2001 and are now starting to have an effect and partly to new adjustment programmes which were speedily introduced during the year when the sales trend failed to meet expectations.
In general, development for the holdings can be summarised as stable in an uncertain business climate. Five holdings provided pleasant surprises. Dynal Biotech continued its powerful expansion with sustained good margins. Industri Kapital listed three companies which led to favourable value development. Hilding Anders succeeded in maintaining earnings at a good level despite a combination of some highly recessionary markets, primarily Germany, negative currency effects and serious disruptions in one production unit due to flooding. The positive trend for Superfos continued due to a combination of ongoing action programmes and strong development for recently acquired Jotipac. Distribution of funds from Telia Overseas, together with a favourable situation in remaining portfolio holdings, led to a trend which differs positively from the telecom sector in general.
Development for four holdings was less favourable than expected. Atle Industri continues to show weak earnings. However, extensive efforts are under way here, both at Atle Industri and portfolio company level, to handle these problems and a positive EBITA and EBT were achieved in the second quarter. At Gadelius the newly appointed CEO has started extensive efforts to reverse the downward trend for order bookings. DIAB encountered problems in the first half in both its main markets - pleasure boats in the US and the wind power industry - although an improvement can now be seen in the order books. A cost reduction programme has been initiated to improve profitability. At Intervect, efficiency enhancement measures are continuing to provide results and the company's full year result will be positive and considerably better than last year. Nevertheless, development in the second quarter was a disappointment and additional action programmes will now be carried out. To facilitate analysis an extensive table is provided on page 18 with key figures for all the holdings. A summary of profit and loss accounts and balance sheets for Ratos's unlisted associated companies and subsidiaries is available at www.ratos.se in downloadable Excel files.
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