Yearly reports, 2011

2012-03-13

2011 started with fairly high expectations in the automotive industry. After good growth in 2010 many were hoping that we were on our way to gaining back what was lost during the crisis years of 2008 and 2009.

During the summer of 2011 the optimism for the future was replaced by pessimism due to the growing state budget crises, particularly in Southern Europe. These problems significantly slowed down the European economy which created uncertainty and led to a cautious attitude among many players. The uncertainty is having a negative impact on suppliers, making their advance planning and production planning more complicated. In Sweden the issue of the ownership and eventual bankruptcy of Saab continued to cause considerable turbulence in the supplier chain. This opened the door for many investment applications and resulted in our investment in a new engineering company in Trollhättan in January 2012. Although companies are in general better equipped now than during the previous crisis and have better sustainability, 2012 could be another difficult year and this was underscored by the decline in industrial production in the final quarter of 2011.

Growing interest in clusters

Many companies have been forced to expand their business into sectors outside the automotive industry and are trying to find new ways to reach automotive manufacturers outside Sweden. This has resulted in an intensified interest in working together in clusters with the help of Fouriertransform. What we have learned from 2008 is that few are strong enough to penetrate new markets on their own because considerable critical mass is needed to handle such a venture.

This reflects a general problem, namely the hourglass-shaped industrial structure in Sweden. Sweden has relatively few companies in the middle segment, where the vital growth, which requires a certain size over a prolonged period, normally takes place. This is why many large Swedish automotive manufacturers are now using foreign suppliers, while the small Swedish suppliers are not given the same chance. Fourertransform's smaller companies need to be able to run new projects in order to grow strong and create sustainability. Their chance for growth lies in being able to reach out to the foreign markets where the big growth is taking place.

Investment activity

Since the start in 2009 Fouriertransform has received and carefully reviewed several hundred investment applications, and invested a total of around SEK 463 million in 13 companies around the country. These investments have led to other investors joining in, making the total new investment level SEK 1,400 million when other co-investors are included in the calculation. One of our portfolio companies, NovaCast Technologies, was forced to file for bankruptcy due to large losses that resulted in an acute liquidity crisis. The fact that this happens is regrettable, but it is a natural aspect of the venture capital business.

2011 was an increasingly intense year from a work perspective with many investment applications coming in after the summer. We received close to 100 applications. About 60 were considered of interest and 25 of those were under review with a view to investment as we entered the new year. In reviewing the applications we have focused on our strategic areas looking for companies in growth and mature phases to achieve a better balance in our portfolio, and we have identified several potentially positive future investments. A new venture capital company almost always starts with investments in early phases and with relatively small investment amounts.

Outlook

Going forward, Fouriertransform is mainly focusing on the strategic investment areas of More Efficient Production, Smart Vehicles and Sustainable Vehicles. These are areas where Fouriertransform has determined that Sweden has expertise that holds up well in international competition. In the area of More Efficient Production, which involves things like sheet metal processing and pressing, Fouriertransform believes there is much work to be done in 2012 to build clusters and create critical mass so that these companies will be able to offer niche offerings to other countries in the next phase.

The Smart Vehicles area is focusing on seizing opportunities for cross-fertilization between Swedish IT competence and automotive expertise. Fouriertransform's network includes very capable players who can develop growth opportunities. One example is the portfolio company Pelagicore. With respect to sustainability, the big question is still how to find the right battery technology. Here, Fouriertransform is also looking for peripheral projects and services in the energy storage systems segment. 2012 will be a challenging and difficult year for Swedish suppliers to the automotive industry, but together we can generate strength and confidence in the future.