Letter from the CEO

At Ferd, we are always working to achieve our vision of creating enduring value and leaving clear footprints. For us, this is a question of generating a return at more than just the financial level. We want to develop businesses, investment teams and organisations, and to make changes that contribute to the development of society and individuals. Ferd has been doing this for a long time, both through our work as an active owner and investor and through other initiatives, such as the work we do with social entrepreneurs.

We are continually on the hunt for attractive companies to which we can contribute through our expertise, whether alone or in partnership with others.

Ferd’s long-term approach enables us to develop continually. In 2018 we worked on refining the investment strategies of a number of our business areas, and we clarified our approach in terms of our investment philosophy and industry dimensions. The core of much of what we do is exercising active ownership in relation to our major individual investments. We now increasingly employ our fundamental and long-term approach to ownership in relation to our investments in stock exchange listed companies as well as in private companies. Together with the activities of the other business areas, we make good use Ferd’s flexibility. We are continually on the hunt for attractive companies to which we can contribute through our expertise, whether alone or in partnership with others. We also work actively to identify strategic bolt-on investments and value-creating initiatives capable of strengthening and developing our companies. Fürst’s WebMed solution and Interwell’s Plug & Abandonment product are good examples of such initiatives, and illustrate how Ferd invests in and drives forward new solutions and technologies.

In 2018 we continued our work to enhance our industry expertise, and we have now clearly focused on specific industries. Aquaculture, technology and energy, in addition to real estate, are some of the most obvious. We also broadened our geographic exposure in 2018 and have chosen to invest in some selected Asian markets via equity funds. We have also built up significant positions in a number of European companies through stock exchange investments, for example in the British company Benchmark Holdings and in the Danish company Nilfisk. One of Ferd’s ambitions is to further increase its exposure outside Norway in the years ahead.

In 2018 stock markets were characterised by high levels of uncertainty and volatility, which were particularly in evidence in the final quarter of the year. This volatility affected Ferd as well, and we saw a decrease of approximately 2% in total assets over the course of the year. More important than annual fluctuations in value, however, is ensuring that our companies and Ferd as a system become stronger over time. It is pleasing that the majority of our private companies were again able to report earnings growth in 2018, even if the valuation calculated for a number of them decreased due to falls in the stock market valuations of comparable companies. Particularly positive was the progress made at Interwell, Fürst and Mestergruppen. In 2018 Brav continued its journey to become a leading brand warehouse. The company invested significant resources in developing its digital infrastructure, which will equip it for profitable growth in the years ahead. Of the listed companies in Ferd Capital’s portfolio, those that made the greatest contribution were Scatec Solar and PGS, while the Danish company NKT was the worst performer in 2018. Ferd Real Estate was again able to report robust results, with a return of 12% that was driven by the strong performance of some individual projects and the continuing strength of the real estate market. Ferd External Managers reported a positive return for the year, which is particularly pleasing given that the majority of the world’s stock markets delivered a negative return in 2018.

It is pleasing that the majority of our private companies were again able to report earnings growth in 2018.

Ferd Invest’s return was disappointing, and was 4.9 percentage points below the Nordic index against which its portfolio is measured. Because we now have multiple business areas that can invest in listed companies, we have adjusted Invest’s investment mandate such that the portfolio now concentrates on large companies whose shares are relatively liquid. We have recruited new people to help continue to drive this business area forward in the years ahead.

Ferd Social Entrepreneurs made a number of equity investments in promising social entrepreneurs in 2018. We continued our work to further develop Social StartUp, FSE’s tailor-made accelerator for companies seeking to solve social challenges.

2018 marked the tenth anniversary of the Nordic Microfinance Initiative, and it also raised NOK 850 million for its fourth fund. We are proud to have been part of its journey from the start and, as a major investor, we will continue to take an active approach to ownership.

In our overall risk management activities, we are focused on liquidity in order to ensure that we have the capacity to make the investments we think will give a particularly strong basis for long-term value creation. In the first half of 2018, we used the good market conditions to complete significant realisations of real estate, shares and external funds, and our liquidity was further strengthened by the sizeable dividends we received from our portfolio companies. We also refinanced our long-term credit facilities at the group level, increasing our total borrowing capacity to NOK 7 billion and extending its maturity. In the fourth quarter, which was a period in which the level of uncertainty in the markets increased and share prices fell across the board, the level of activity at Ferd was at its highest point for the year. In just a few weeks, we invested over NOK 1 billion in a number of companies and funds, including included NOK 250 million in Asian funds and significant increases to our ownership interests in several listed companies such as Benchmark Holdings, XXL and Nilfisk. With regard to private companies, in 2018 we invested in Mnemonic, a cyber security company, in partnership with its founders and employees.

In the fourth quarter, which was a period in which the level of uncertainty in the markets increased and share prices fell across the board, the level of activity at Ferd was at its highest point for the year.

In 2018 we also worked on how all parts of our organisation can address sustainability in a more joined-up and systematic way. In order to deliver returns over the long term, we need to understand the opportunities and risks presented by issues around sustainability. We want to use our position to contribute to sustainable development to an even greater extent in future. We are expanding our focus on impact investing, which is to say investing in companies that have solid commercial potential and make a clear contribution to achieving the UN’s Sustainable Development Goals. Ferd will particularly focus on companies that have new tech solutions or business models that target climate and environment issues, with our aim being to invest in partnership with others or through funds in Norway and beyond. In addition to the value creation these investments will generate, this focus will be a driving force for Ferd’s unified work on sustainability and will complement the activities of Ferd Social Entrepreneurs.

We want to use our position to contribute to sustainable development to an even greater extent in future.

All things considered, I am satisfied with the underlying progress made by the majority of our companies and business areas and with Ferd’s development as an organisation. Even if 2018, viewed in isolation, did not provide us with the financial results we target, I am pleased with how we adapted to the more volatile and uncertain market conditions seen during the year. With its current organisation and investment capacity of approximately NOK 9 billion, Ferd is well placed to make the most of the new opportunities that will present themselves in the time ahead.

With its current organisation and investment capacity of approximately NOK 9 billion, Ferd is well placed to make the most of the new opportunities that will present themselves in the time ahead.

Morten Borge

CEO

Morten Borge