Peter Hofvenstam’s comments in Nordstjernan’s 2019 Annual Report
2019 – a year of focus on concentrating ownership
Nordstjernan’s objective is to generate long-term value growth, defined as an increase in net asset value and annual profit. To succeed in this, we need to own the right companies and act as efficient and committed owners. We must also reshape ourselves over time so that we can top up with new, profitable investments.
Being an active, long-term owner requires considerable commitment, time and resources. In 2019, Nordstjernan’s organization intensified its work on formulating a new ownership plan for each individual holding. In the ownership plans, ambitious targets are set and value-creating measures are listed, which we intend to pursue through the companies’ boards of directors in order to increase their value growth. These plans could involve management issues, operational efficiency or how we generate profitable growth, either organically or through acquisitions.
For an investment company such as Nordstjernan, there are several reasons to concentrate ownership to those companies that have the greatest potential in absolute and relative terms. This reduces complexity. It also frees up time to find new companies to invest in. In 2019, we therefore focused on streamlining ownership to larger and somewhat fewer companies. We choose to define largecompanies as holdings with a market value of SEK 1 billion or more. Such holdings accounted for 96 percent of Nordstjernan’s portfolio at year-end.
In line with this, Nordstjernan completed four major transactions during the year.
Divestment of Salcomp and Ramirent
Salcomp is an unlisted company that is a world leader in mobile phone chargers. Nordstjernan became an owner in 2007. Since our initial investment, the market has experienced a number of large-scale shifts and old products have been replaced by new ones. We believe that Salcomp’s next phase will be better managed by an owner who can give the company a broader customer and product range. For this reason, we sold the holding in Salcomp to the Chinese company Lingyi iTech during the year. The transaction was conducted jointly with the Sixth Swedish National Pension Fund, which was Salcomp’s other owner. Our investment generated an annual return of 10 percent.
We also successfully negotiated an offer from the French company Loxam for our holding in Ramirent, a publicly traded equipment rental company in which we had been the principal owner since 2004. Through this transaction, Ramirent moves from being one of Europe’s largest companies in its sector to being owned by Loxam, the pan-European leader in an increasingly consolidated industry. The offer corresponded to a premium of a full 65 percent in relation to the closing price the day before the offer was disclosed. The investment generated an annual return of 35 percent during our 15-year holding period.
Merger between Momentum Group and Swedol
Momentum Group, in which Nordstjernan held 15 percent of the share capital and 23 percent of the votes at the end of 2019, is one of the leading resellers of industrial consumables and industrial components in the Nordic region. Swedol, in which Nordstjernan held 67 percent of the share capital and 72 percent of the votes, is one of the leading companies for workwear and protective gear in Sweden.
In November 2019, Momentum Group submitted a recommended public takeover bid to the shareholders of Swedol. Nordstjernan facilitated the transaction by accepting consideration in the form of newly issued shares in Momentum Group. With a holding of slightly more than 50 percent of both the capital and voting rights, we become the clear principal owner of the company.
The transaction creates conditions for a merger between Momentum Group’s TOOLS operation and Swedol. The new group is estimated to have sales of about SEK 9.8 billion. The merger will create an even stronger and more efficient operation, with a competitive customer offering in tools, supplies, workwear and protective gear.
Acquisition of HoverTech
In 2019, our wholly owned subsidiary Etac acquired 70 percent of the shares of HoverTech, a leading US player in air-assisted patient handling technologies. Since our first investment in Etac in 2007, the company has built a strong position in the global market for technical aids and appliances and patient handling, with a focus on technical aids for children. With the investment in HoverTech, Etac is now also building a global position in patient handling. Over time, Etac has more than tripled its sales, created profitability in line with the most profitable companies in the industry and is now one of Nordstjernan’s largest and most global holdings in terms of value. HoverTech was founded and owned by Dave Davis and his family. The transaction shows that Nordstjernan, as a long-term, family-controlled investment company, has an attractive and competitive model. Through the acquisition, Nordstjernan sharply increases its exposure to the United States and the transaction also makes Nordstjernan increasingly noncyclical.
The investment in HoverTech also harmonizes with our ambition of building a stronger presence in the healthcare and medical services area. This area currently accounts for 20 percent of Nordstjernan’s net asset value, through the holdings in Etac, Attendo and Lideta, including Mama Mia.
Through acquisitions, Lideta continues to grow in primary care and is currently Sweden’s third largest private operator, with 50 care units and approximately 250,000 listed patients in five county councils. The acquisition of Aleris’s Primary Care business area in 2019 further strengthened Lideta’s position.
Attendo has an action plan for addressing the challenges faced by the company’s Finnish operations. As the owner, we will continue to support Attendo in order to build a leading and profitable quality player.
We see a growing need for private welfare services and, ultimately, a combination of demographics and increased requirements, with greater demand in the population, will impose pressure on tax-paying capacity and thus provide potential for new payment models in this sector.
Net asset value increased to SEK 31.8 billion
Nordstjernan’s net asset value totaled SEK 31.8 billion at the end of 2019. This is equal to an increase of 8 percent in 2019. Our listed holdings noted an average total return of 24 percent in 2019, compared with 31 percent for the Stockholm stock exchange. The primary positive contributors to the increase in net asset value were Nobia, Swedol and Ramirent, while Attendo and Bonava brought down the total return due to sharp drops in their share prices caused by weak operational performance. Both of these companies almost halved their profit year-on-year. We also experienced challenges within the unlisted businesses, in part in the Dacke Industri holding. Nordstjernan will support the companies’ boards of directors and management teams in their efforts to turn the tide. All of the portfolio holdings reported a profit in 2019 and the holdings’ combined profit increased by an average of 14 percent compared with 2018.
In the wake of the corona crisis, which took off in earnest in March 2020, we have witnessed substantial drops in share prices generally on the Stockholm stock exchange, and also for a number of Nordstjernan’s listed holdings.
Nordstjernan strongly equipped
Back in 2019, there were already signs of economic weakening, at the same time as the stock market continued to perform favorably. The picture varied among different industries and geographic areas, impacted, for example, by political factors such as trade relations. This has an impact on psychology and confidence in the future in the world around us. The global corona pandemic, which subsequently arose, will naturally have a major impact on the economy, the market, the business community and the rest of society.
Organizationally and financially, Nordstjernan stands strong with ample cash assets. This will enable us to provide long-term support to the holdings when they face problems or opportunities. This applies particularly to the effects of the corona crisis. Our investment scope amounts to approximately SEK 4 billion. This allows us to act forcefully even in these declining markets and to capitalize on business opportunities now that the global economy is developing negatively.
For a long sequence of years, increasing numbers of competitive and professional players have been fighting to invest in sound companies. In the publicly listed market, Nordstjernan offers a competitive alternative through active and long-term ownership. In the private market, Nordstjernan, as a family-controlled investment company, offers opportunities for long-term partnerships through commercial investments.
For Nordstjernan, being able to pursue investments in both listed and unlisted companies, as well as credit investments, is a huge advantage. This means that we can search more widely for value-creating investments. Our strategy also means that we will have an increased diversification of risks, that we can retain a larger share of the value created and obtain a more controlled internally generated cash flow.
Nordstjernan has a strong balance sheet and invests its own equity. We always look for attractive opportunities in both good and weaker times. Historically, the size of an equity investment has amounted to SEK 500–1,000 million, but considering our ambition to grow and concentrate the portfolio to major holdings, the size of our investments may move upward with time.
Finally, I would like to thank all employees, colleagues, the Board and the shareholders for their fine contributions and excellent cooperation over the past year.
Stockholm, 8 April 2020
President and CEO