2013 was a difficult year for the European economies with persistent financial imbalance. In Sweden although the economy experienced weak development, we were still relatively successful in achieving some growth.
It was a particularly difficult time for the European automotive industry, even though demand for heavy vehicles was temporarily driven by the EU’s upcoming new emissions goals. 2014 will therefore be an important year for the automotive industry in the EU. The industry is still suffering from structural problems and overcapacity that it has not managed to fix in the same way as the US did after the major crisis in the automotive industry there a few years ago. We still believe that there is reason for some realistic optimism about growth.
What is needed to bring about growth?
Fouriertransform’s creation in 2009 was strongly linked to the automotive crisis of 2008. Our original mandate was to ensure development for the Swedish automotive industry in strategic areas where innovative subcontractors were finding it hard to secure long-term financing from other players. We have now completed our fourth year in business and during this time we have gained a good insight into the Swedish industrial structure in which the automotive industry is, of course, an important sector. The most obvious things to emerge are first of all how important the competition-exposed manufacturing industry is for the whole of the Swedish economy and secondly that some structural problems are impeding economic and job growth. This is resulting in the so-called hourglass-shaped structure of the Swedish economy.
There are plenty of small innovative companies in early development phases and there is a relatively large number of multinational corporations which, although often most of their employees are located outside Sweden, still have an incredibly important role to play in the dynamics of Swedish industry.
It is the companies in the layer in between that need to become stronger and grow in number. Companies with 50–100 employees that have built their business on innovative ideas are the ones with the potential to become commercial successes. This is the breeding ground for new jobs. But many of these companies are dependent on one or a couple of customers and are strongly tied to domestic and European markets. They are in a vulnerable position, which we clearly saw during the automotive crisis and in the way it affected the sector’s subcontractors. A certain degree of strength is required to have the courage to grow, employ new staff and branch out into new markets, and perhaps new customer segments as well. The automotive crisis showed that companies that were less dependent on the Swedish market and were in forward-looking sectors fared better.
Increased internationalization is therefore crucial if Sweden’s manufacturing industry is to remain strong. Fouriertransform, which is a state-owned player, has an important mission in this context. Companies need ownership capital as well as access to international expertise and skilled board members to drive the internationalization process. The experienced and well-qualified individuals in our network provide portfolio companies with new interfaces and bring international influences that are very valuable for them. As far as Fouriertransform is concerned, we have experienced a strong interest in cooperation in clusters that may be able to help these businesses expand outside Sweden, which is something that Fouriertransform and our network can help them with.
Our focused efforts as an owner of the portfolio companies continue to bring value creation, and today our portfolio companies are well-established players in the automotive industry. Proof of this is that we are now seeing interest from other companies in acquiring individual portfolio companies.
In light of the cautious market situation this past year, it is also gratifying to witness an increase in interest in Fouriertransform’s activities following the decision to expand our investment mandate. The new mandate includes investing in the manufacturing industry and related services. Our investment area is broad and we will continue to focus on companies with unique, innovative products and high production complexity with potential for future internationalization.
New investments in four forward-looking companies
In 2013 we continued to strengthen our position in the Swedish automotive cluster and we have also made our first investment within the framework of our expanded mandate. Altogether we approved investments in four new companies: Smart Eye AB and TitanX Engine Cooling AB in Gothenburg, Rototest International AB in Rönninge and SciBase AB in Stockholm. The investment in TitanX is the single largest one so far for us.
In total our new investments amounted to SEK 283 million during the year and we also made follow-on investments totaling SEK 125 million in existing portfolio companies.
It is gratifying to witness how the portfolio company boards and our strong network have quickly united to achieve positive development for the companies in a short period of time. One example of this is LeanNova, an engineering company in Trollhättan which was born out of Saab’s bankruptcy. Fouriertransform has been involved from the start. The company has developed well – from 59 employees at the end of last year to around 180 today. There are also plans to employ an additional 100 people in 2014. Right from the start LeanNova successfully sought customers outside Sweden and has also opened on office in Shanghai.
One of our fastest growers, Pelagicore, has been voted onto the board of GENIVI Alliance, which represents 50 percent of all global automotive sales and has more than 170 active member companies, including 12 leading automotive manufacturers GENIVI is the driving force behind the adoption of the Linux-based system for in-vehicle infotainment, a sector that is growing with exceptional speed.
Since the start in 2009 Fouriertransform has approved investments totaling SEK 986 million in 20 companies and, combined with investments from syndication partners, the total investment is around SEK 3 billion. Fouriertransform’s mission includes providing its owner with a market rate of return and investing along commercial lines. The total invested capital of SEK 986 million compared to the estimated fair value of the existing portfolio including repaid capital from the portfolio companies is equivalent to an increase in value of around 10 percent since Fouriertransform was formed.
In the year ahead our ownership agenda remains the same for our companies; we will help them develop their full potential. We will also continue to work towards having a more balanced portfolio that includes companies in the later phases of development.
I welcome the expansion of our mandate outside the automotive sector. It provides us with a bigger arena and I see it as confirmation of the fact that we have proved it is possible to find good companies and to work in partnership with others to make a difference. This is a good investment in the competitiveness of Swedish industry.