Interim / Quarterly Report • Oct 5, 2018
Interim / Quarterly Report
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January 1 – September 30, 2018
Annual average change as per September 30, 2018
| Total return | |||||
|---|---|---|---|---|---|
| Net asset value* | Industrivärden C | Index (SIXRX) | |||
| 9M:2018 | 9% | 0% | 11% | ||
| 1 year | 10% | -1% | 8% | ||
| 3 years | 17% | 14% | 12% | ||
| 5 years | 13% | 15% | 13% | ||
| 7 years | 18% | 20% | 16% | ||
| 10 years | 14% | 15% | 14% |
*Including reinvested dividend.
During the first nine months of the year the world's major economies continued to perform well. Activity was particularly strong in the U.S., where consumer confidence was high, companies showed good earnings growth, and the stock market has reached new highs. In Europe, economic activity has slowed somewhat, while demand continues to be at a favorable level. Emerging markets have once again ended up in focus, as several growth countries are vulnerable to a stronger dollar, rising interest rates and potential disruptions in world trade. China is proceeding with its financial and industrial reforms at the same time that its economy is under pressure from new trade restrictions from the U.S. Even though the underlying market climate is relatively positive, a number of concerns are looming, such as signs that the economy has reached its peak, an increased risk for trade restrictions and other geopolitical uncertainties. The world economy has long been supported by low interest rates and other financial stimulus measures, which has led to record levels of global debt. This, in turn, is raising questions about development once the economy turns. The mounting uncertainty has manifested itself in higher volatility in the stock market in 2018 compared with 2017.
On the whole our portfolio companies have performed well during 2018. This can be credited both to the companies' own work and to the favorable underlying economy. In our previous interim reports during the year I commented on a number of strategic measures and deals carried out by our portfolio companies. These have consisted of a number of concrete activities that illustrate how the companies are consciously working to realize their strategies. A good example during the third quarter is Ericsson's 5G order worth USD 3.5 billion from the American mobile communications operator T-Mobile. It is gratifying that the company can now begin reaping the fruits of its strong position in fifth generation mobile communications systems.
Equally important as such major strategic measures is the daily perseverance, that is, the continuous improvement measures and the aspiration to always be better. For us as a long-term active owner it is of critical importance that our portfolio companies have a clear ability to continuously adapt to changed market conditions, to find new business opportunities and to strengthen their positions.
Net asset value on September 30, 2018, was SEK 102.8 billion, or SEK 236 per share, which corresponds to an increase of 9% during the first nine months of the year including reinvested dividend. At the end of the period the portfolio was worth SEK 110.0 billion, and net debt was SEK 7.2 billion, corresponding to a debt-equities ratio of 7%. This means that the debt-equities ratio has decreased by 3 percentage points since the start of the year. During the first nine months of the year the total return for the Class A and Class C shares was -1% and 0%, respectively, compared with 11% for the total return index (SIXRX). The difference between the change in net asset value and the share price reflects a larger discount to net asset value during the year.
Following a couple years of very competitive returns, Industrivärden has had weaker performance in 2018. Even though our stock should be evaluated from a longer time perspective, this is spurring us in our efforts to create longterm competitive shareholder value.
Stockholm, October 5, 2018
Helena Stjernholm CEO
Industrivärden conducts long-term value-creating asset management through active ownership. The long-term objective is to increase net asset value and thereby generate a return for Industrivärden's shareholders that exceeds the market's required rate of return. Taking into account the risk profile of the portfolio's investments, the shareholders are to be given a total return which over time is higher than the average for the Stockholm Stock Exchange.
More information can be found at www.industrivarden.net.
| 09/30/2018 | 9M:2018 | |||||||
|---|---|---|---|---|---|---|---|---|
| Share of ownership, % |
Market value | Total return |
TR for the stock |
|||||
| Portfolio companies | No. of shares | Capital | Votes | Share of value, % |
SEK M SEK/share | SEK M | % | |
| Sandvik | 147,814,054 | 11.8 | 11.8 | 21 | 23,318 | 54 | 2,617 | 12 |
| Handelsbanken A | 199,923,948 | 10.3 | 10.5 | 20 | 22,441 | 52 | 1,641 | 7 |
| Volvo A | 142,600,000 | 6.7 | 22.1 | 20 | 22,402 | 51 | 1,215 | 6 |
| Essity A Essity B |
35,000,000 31,800,000 |
9.5 | 29.8 | 14 | 7,875 7,104 |
34 | -143 | 0 -2 |
| Ericsson A Ericsson B |
86,052,615 1,000,000 |
2.6 | 15.1 | 6 | 6,936 79 |
16 | 2,508 | 54 49 |
| SCA A SCA B |
35,000,000 31,800,000 |
9.5 | 29.7 | 6 | 3,542 3,202 |
15 | 850 | 8 21 |
| ICA Gruppen | 20,625,000 | 10.3 | 10.3 | 5 | 5,816 | 13 | -108 | -2 |
| Skanska A Skanska B |
12,667,500 16,343,995 |
6.9 | 23.9 | 5 | 2,211 2,853 |
12 | 395 | 8 8 |
| SSAB A | 44,334,933 | 4.3 | 11.8 | 2 | 1,981 | 5 | 299 | 2 |
| Other | 0 | 242 | 1 | 34 | ||||
| Equities portfolio | 100 | 110,003 | 253 | 9,309 | 9 | |||
| Interest-bearing net debt | -7,186 | -17 | Index: | 11 | ||||
| Adjustment regarding exchangeable bond | 0 | 0 | ||||||
| Net asset value | 102,817 | 236 | ||||||
| Debt-equities ratio | 7% |
Net asset value on September 30, 2018, was SEK 102.8 billion, or SEK 236 per share, an increase during the first nine months 2018 of SEK 15 per share. Including reinvested dividend, net asset value increased by 9 %. The Stockholm Stock Exchange's total return index (SIXRX) increased by 11 % during the same period.
During the last five and ten-year periods, net asset value grew by 13 % and 14 %, respectively, per year including reinvested dividend. The total return index (SIXRX) increased by 13 % and 14 %, respectively, during the same periods.
During the first nine months 2018 the value of the equities portfolio, adjusted for purchases and sales, increased by SEK 5.2 billion. On September 30, 2018 the equities portfolio was worth SEK 110.0 billion, or SEK 253 per share. The shareholdings in Sandvik and Ericsson made a significant positive contribution to the equities portfolio's value performance.
During the last three-year period the shareholdings in Sandvik, SCA, Volvo and SSAB generated higher total returns than the total return index (SIXRX). Essity performed in line with the total return index. The shareholdings in Skanska, Ericsson, ICA Gruppen and Handelsbanken had lower total returns than the total return index (SIXRX).
During the first nine months 2018 shares were bought in Handelsbanken for SEK 0.4 billion and in Volvo for SEK 0.1 billion. During the same period shares in SSAB were sold for SEK 3.1 billion.
The Annual General Meeting on April 17, 2018 approved the Board of Directors' proposed dividend of SEK 5.50 per share (5.25). The total dividend payout amounted to SEK 2,394 M (2,285).
The management cost during the first nine months 2018 was SEK 90 M (82), which on a yearly basis corresponded to 0.11 % of the equities portfolio's value on September 30, 2018.
| 09/30/2018 | 12/31/2017 | |||
|---|---|---|---|---|
| SEK bn | SEK/share | SEK bn | SEK/share | |
| Equities portfolio | 110.0 | 253 | 107.3 | 247 |
| Interest-bearing net debt | -7.2 | -17 | -10.9 | -25 |
| Adjustment exchangeable | - | - | -0.1 | 0 |
| Net asset value | 102.8 | 236 | 96.3 | 221 |
| Annual average total return, % | |
|---|---|
| 3 years | |
| Sandvik | 34 |
| SCA* | 30 |
| Volvo | 29 |
| SSAB | 28 |
| Essity* | 10 |
| Skanska | 7 |
| Ericsson | 5 |
| ICA Gruppen | 4 |
| Handelsbanken | 3 |
| Total return index (SIXRX) | 12 |
*The total returns for Essity and SCA have been calculated as the respective companies' share of the original company SCA's total return before the split (based on share of value at the time of the split) and thereafter based on the value performance of the respective companies. The split was carried out on June 9, 2017, and the first day of trading in Essity shares was June 15, 2017.
Interest-bearing net debt amounted to SEK 7.2 billion on September 30, 2018. The debt-equities ratio was 7 % (10 %), and the equity ratio was 93 % (88 %). The debt-equities ratio is calculated as interest-bearing net debt in relation to the market value of the equities portfolio.
On September 30, 2018, interest-bearing liabilities had an average capital duration of approximately 3 years, an average interest duration of approximately 6 months and carried an average interest rate of approximately 0.1 %. Current unutilized committed bank loans that can be used for refinancing needs amount to SEK 3 billion.
No part of Industrivärden's borrowings is conditional on any covenants. In May 2018 S&P Global Ratings upgraded Industrivärden's credit rating from A/Stable/A-1 to A+/Stable/A-1.
In 2014 a SEK 4.4 billion exchangeable bond was issued based on ICA Gruppen's stock. The bond matures in 2019 and was issued at a premium of approximately 38 % to ICA Gruppen's share price at the time of issue and carries no interest. The strike price was SEK 290,52 per share as per September 30, 2018. In the event of a potential future exchange, there is a possibility to pay either with shares or with cash.
The market prices for Industrivärden's Class A and C shares on September 30, 2018, were SEK 203.20 and SEK 197.50 respectively. The corresponding market prices on December 31, 2017, were SEK 211.60 and SEK 202.50 respectively.
The total return during the first nine months 2018 was -1 % for the Class A shares and 0 % for the Class C shares. The Stockholm Stock Exchange's total return index (SIXRX) increased by 11 % during the same period. The total returns for Industrivärden's shares over longer periods of time are shown in the table on page 1 and for specific years in the table to the right.
At the 2011 Annual General Meeting, a share conversion clause was added to the Articles of Association. Shareholders have the right at any time to request conversion of Class A shares to Class C shares. During the first nine months 2018, 883 shares were converted.
| Credit | Utilized | ||
|---|---|---|---|
| facility, | amount, | ||
| SEK M | SEK M | Maturity | |
| Exchangeable bond | 4,395 | 2019 | |
| MTN-program | 8,000 | 2,811 | 2019-2021 |
| Commercial paper | 3,000 | 100 | 2018 |
| Pension debt | 114 | ||
| Other short-term borrowing | 277 | ||
| Total borrowing | 7,697 | ||
| Less: | |||
| Interest-bearing receivables | 391 | ||
| Cash and cash equivalents | 120 | ||
| Interest-bearing net debt | 7,186 |
| Capital, | Votes, | |||
|---|---|---|---|---|
| Share class | No. of shares | No. of votes | % | % |
| A (1 vote) | 268,183,457 | 268,183,457 | 61.6 | 94.1 |
| C (1/10 vote) | 167,026,420 | 16,702,642 | 38.4 | 5.9 |
| Total | 435,209,877 | 284,886,099 | 100.0 | 100.0 |
Jan Öhman has been appointed as new chief financial officer and will assume his position in March 2019, at the latest.
Year-end report 2018: February 8, 2019 Annual report 2018: February 21, 2019 Interim report January–March: April 9, 2019 Annual General Meeting: April 17, 2019 in Stockholm Interim report January–June: July 5, 2019 Interim report January–September: October 7, 2019
Sverker Sivall, Head of Corporate Communication and Sustainability Phone: +46-8-666 64 19 E-mail: [email protected] Helena Stjernholm, CEO
AB Industrivärden (publ) Box 5403, SE-114 84 Stockholm, Sweden Registered office: Stockholm Reg. no.: 556043-4200 Switchboard: +46-8-666 64 00 [email protected] www.industrivarden.net
INDUC:SS, Bloomberg INDUc.ST, Reuters INDU C, NASDAQ OMX
This information is such that AB Industrivärden is required to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the Head of Corporate Communication and Sustainability stated above, at 10:00 a.m. CET on October 5, 2018.
This interim report has not been reviewed by the Company's auditors.
| 2018 | 2017 | 2018 | 2017 | 2017 | |
|---|---|---|---|---|---|
| SEK M | Jul.-Sep. | Jul.-Sep. | Jan.-Sep. | Jan.-Sep. | Jan.-Dec. |
| INCOME STATEMENT | |||||
| Dividend income from stocks | 0 | 0 | 3,764 | 2,786 | 2,786 |
| Change in value of stocks, etc. | 6,397 | 1,551 | 5,351 | 12,475 | 12,957 |
| Management cost | -20 | -27 | -90 | -82 | -111 |
| Operating income | 6,377 | 1,524 | 9,025 | 15,179 | 15,632 |
| Financial items | -5 | -5 | -12 | -75 | -77 |
| Income after financial items | 6,372 | 1,519 | 9,013 | 15,104 | 15,555 |
| Tax | - | - | - | - | - |
| Net income for the period | 6,372 | 1,519 | 9,013 | 15,104 | 15,555 |
| Earnings per share, SEK | 14.64 | 3.49 | 20.71 | 34.73 | 35.76 |
| STATEMENT OF COMPREHENSIVE INCOME | |||||
| Comprehensive income for the period | 6,372 | 1,519 | 9,013 | 15,104 | 15,549 |
| BALANCE SHEET as per end of period | |||||
| Equities | 110,003 | 106,740 | 107,289 | ||
| Other non-current assets | 11 | 12 | 12 | ||
| Total non-current assets | 110,014 | 106,752 | 107,301 | ||
| Cash and cash equivalents | 120 | 0 | 613 | ||
| Other current assets | 401 | 332 | 446 | ||
| Total current assets | 521 | 332 | 1,059 | ||
| Total assets | 110,535 | 107,084 | 108,360 | ||
| Shareholders' equity | 102,499 | 95,431 | 95,880 | ||
| Non-current interest-bearing liabilities | 2,174 | 7,268 | 7,292 | ||
| Non-current non interest-bearing liabilities | 62 | 503 | 368 | ||
| Total non-current liabilities | 2,236 | 7,771 | 7,660 | ||
| Current interest-bearing liabilities | 5,523 | 3,733 | 4,523 | ||
| Other liabilities* | 277 | 149 | 297 | ||
| Total current liabilities | 5,800 | 3,882 | 4,820 | ||
| Total shareholders' equity and liabilities | 110,535 | 107,084 | 108,360 | ||
| CASH FLOW | |||||
| Cash flow from operating activities | 3,635 | 2,633 | 2,594 | ||
| Cash flow from investing activities | 2,525 | 0 | -103 | ||
| Cash flow from financing activities** | -6,653 | -3,456 | -2,701 | ||
| Cash flow for the period | -493 | -823 | -210 | ||
| Cash and cash equivalents at end of period | 120 | 0 | 613 |
* Of which, the option component of the exhangeable bond, totaling SEK 149 M, which at the time of issue amounted to a total of SEK 335 M.
** Of which, dividends of SEK 2,394 M (2,285) paid to shareholders.
| 2018 | 2017 | 2017 | |
|---|---|---|---|
| SEK M | Jan.-Sep. | Jan.-Sep. | Jan.-Dec. |
| CHANGES IN SHAREHOLDERS' EQUITY | |||
| Opening shareholders' equity as per balance sheet | 95,880 | 82,129 | 82,129 |
| Conversion and other | - | 482 | 486 |
| Comprehensive income for the period | 9,013 | 15,104 | 15,549 |
| Dividend | -2,394 | -2,285 | -2,285 |
| Closing shareholders' equity as per balance sheet | 102,499 | 95,431 | 95,880 |
| INTEREST-BEARING NET DEBT at end of period | |||
| Cash and cash equivalents | 120 | 0 | 613 |
| Interest-bearing assets | 391 | 323 | 272 |
| Non-current interest-bearing liabilities | 2,174 | 7,268 | 7,292 |
| Current interest-bearing liabilities | 5,523 | 3,733 | 4,523 |
| Interest-bearing net debt | 7,186 | 10,678 | 10,930 |
| 2018 | 2017 | 2017 | |
|---|---|---|---|
| SEK M | Jan.-Sep. | Jan.-Sep. | Jan.-Dec. |
| INCOME STATEMENT | |||
| Operating income | 6,729 | 11,797 | 12,145 |
| Income after financial items | 6,720 | 11,776 | 12,121 |
| Income for the period | 6,720 | 11,776 | 12,121 |
| Comprehensive income for the period | 6,720 | 11,776 | 12,115 |
| BALANCE SHEET as per end of period | |||
| Non-current assets | 65,984 | 63,674 | 63,883 |
| Current assets | 275 | 511 | 2,021 |
| Total assets | 66,259 | 64,185 | 65,904 |
| Shareholders' equity | 57,974 | 53,304 | 53,647 |
| Non-current liabilities | 2,236 | 7,771 | 7,660 |
| Current liabilities | 6,049 | 3,110 | 4,597 |
| Total shareholders' equity and liabilities | 66,259 | 64,185 | 65,904 |
This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU, and the Swedish Annual Accounts Act. The Parent Company's financial statements have been prepared in accordance with RFR 2 – Accounting for Legal Entities, and the Swedish Annual Accounts Act. New or amended IFRSs and IFRIC interpretations have not had any effect on the Group's or Parent Company's earnings or financial position.
The definitions of the alternative performance measures net asset value, debt-equities ratio, equity ratio, market value of the equities portfolio and interest-bearing net debt are provided in the 2017 Annual Report. These alternative performance measures are essential for the understanding and evaluating an investment company's business.
In accordance with IFRS 13, financial instruments are measured at fair value according to a three level hierarchy. Classification is based on input data that is used in measuring the instruments. Instruments in Level 1 are valued according to quoted prices for identical instruments in an active market. Instruments in Level 2 are measured in a valuation model which uses input data that are directly or indirectly observable in the market. Instruments in Level 3 are measured using a valuation technique based on input data that are not observable in a market.
Responsibility for the measurement of fair value rests with management. ISDA master agreements exist with pertinent counterparties.
| 09/30/2018 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Assets | ||||
| Equities | 109,761 | - | 242 | 110,003 |
| Derivatives, etc. | - | 1 | - | 1 |
| Short term investments | 264 | - | - | 264 |
| Total assets | 110,025 | 1 | 242 | 110,268 |
| Level 1 | Level 2 | Level 3 | Total | |
| Liabilities | ||||
| Option component of | ||||
| exchangeable bond | - | -149 | - | -149 |
| Derivatives, etc. | - | -68 | - | -68 |
| Total liabilities | - | -217 | - | -217 |
No changes have been made between levels compared with the preceding year.
The dominant risk in Industrivärden's business is share price risk, i.e., the risk of a change in value caused by changes in share prices. A 1% change in the share price of the holdings in the equities portfolio as per September 30, 2018, would have affected its market value by approximately +/– SEK 1,100 M.
During the first nine months 2018, dividend income was received from associated companies.
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