During the period, follow-on investments were made in Superfos and Arcorus amounting to SEK 239m. Exits were effected in Hilton Group, Esselte, Exceed and Kronans Droghandel for a total sales amount of approximately SEK 1,750m. Furthermore, Industri Kapital completed three stock exchange listings during the period which made a positive contribution to Ratos's earnings. In the third quarter the focus was on developing the holdings. New CEOs were appointed for Atle Industri, DataVis, Dynal Biotech, Gadelius, Hilding Anders and Lindab.
In July, a total of SEK 3,105m was paid 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 amounted to SEK 264m.
Up until the date of this report, 283,686 Ratos B shares had been repurchased. Ratos thus owns 2.5% of the total number of shares outstanding.
Business environment and market
In the first nine months of 2002 the global economy continued to show weak development, although the differences between regions and sectors remain considerable. Overall, Ratos's holdings showed a satisfactory earnings trend. For the subsidiaries and associated companies held by Ratos at the end of the period, the combined EBITA (profit before net financial items, tax and goodwill amortisation) increased by 14% compared with the same period in 2001. Taking Ratos's different ownership stakes into account, EBITA rose 11%. The corresponding changes in EBT (profit before tax) are +34% 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 to the extensive action programmes initiated in 2001 and 2002 having the desired impact, although the full effect of streamlining measures will not be felt until 2003 and, in some cases, 2004.
The economic hypotheses which Ratos has been working with for just over one year are as follows:
- the weakening trends in the economy at the end of 2001 were cyclical rather than structural in nature
- the main hypothesis was that the global economy in 2002 would be characterised by a modest upturn - not a strong recovery, but not a recession either
- even a modest recovery should have positive effects on the companies' earnings, since the companies' extensive rationalisation programmes mean that the marginal effects on earnings of only a modest upturn become noticeable.
Essentially, macro-economic development in 2002 was well in line with these working hypotheses. Ratos's portfolio was no exception. Through a combination of forceful efforts, primarily with processes of change and efficiency enhancement, and a certain element of luck, to the extent that our portfolio companies experienced a relatively favourable business trend, it has been possible to maintain earnings at satisfactory levels.
In general, development within Ratos's segment has been considerably more stable than the average stock market trend. On the whole it can be said that the way many people see the economy today is determined by what happens in certain sectors. Ignoring some crisis industries - primarily IT/telecom, media/entertainment and parts of the finance industry - large and heavy sectors of the economy are developing relatively well. For Ratos this meant that our segment was not swept along in the substantial price rises in earlier years, nor have we experienced any subsequent dramatic fall.
Ratos's basic scenario for the economy in the immediate future is a continued modest upturn. At the same time the level of risk has increased slightly. For this reason we are already planning for any additional measures we need to take in our portfolio companies should development be less favourable than is now expected.
The acquisition market within Ratos's segment remains favourable and we are currently analysing and negotiating a number of investment opportunities. In the exit market development has become increasingly sluggish during the year, although the situation in general remains stable. This is shown by Ratos's five exits during the year (Esselte, Exceed, Hilton, Kronans Droghandel and Ratos's share of Industri Kapital's exits), producing overall favourable results.
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.
The full report including tables can be downloaded from the enclosed link.