Interim / Quarterly Report • Jul 5, 2018
Interim / Quarterly Report
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January 1 – June 30, 2018
Annual average change as per June 30, 2018
| Total return | |||
|---|---|---|---|
| Net asset value* | Industrivärden C | Index (SIXRX) | |
| 6M:2018 | 2% | -12% | 4% |
| 1 year | 4% | -11% | 3% |
| 3 years | 11% | 7% | 8% |
| 5 years | 14% | 13% | 13% |
| 7 years | 11% | 11% | 11% |
| 10 years | 11% | 12% | 11% |
*Including reinvested dividend.
The first half of the year was characterized by high economic activity in the major economies, and the outlook for 2018 remains positive. Good corporate earnings growth and low interest rates have underpinned the stock market's performance, and in the U.S. the stock market has reached record highs. However, signs of growing concerns have begun to surface during the year over a weakening in the economic cycle, rising interest rates and political uncertainty. There are also clear signs of growing protectionism, which is affecting global trade and the companies negatively. All in all this has contributed to an increased volatility on the stock market during the first half of 2018.
Activity has remained high in the portfolio companies, which will publish their half year reports in July and August. However, I would like to mention a few activities during the second quarter of 2018 – without any particular order of merit – which I believe demonstrate important steps in the realization of the respective portfolio companies' strategies.
Sandvik has acquired the French software company Metrologic Group, which is in line with Sandvik Machining Solution's strategy to broaden its customer offering in digital solutions. As part of its streamlining, Sandvik has also divested its ownership in the joint venture Fagersta Stainless as well as parts of its wire business.
Volvo has continued its efforts in electrified transport solutions and has launched its second entirely electric truck, giving the company a complete program of electric trucks for urban traffic. In addition, Volvo recently received its largest order ever for electric hybrid buses.
Essity has restructured its production within Consumer Tissue in Spain, which is a good example of the company's focused efforts on continuously increasing its cost and capital efficiency.
In June SCA's expanded Östrand pulp mill began operating according to plan. The mill will double its production capacity and is expected to be one of Europe's most competitive and environmentally sound pulp mills.
Construction the world's first pilot plant for fossil-free steel production has started in Luleå as part of the HYBRIT project. SSAB is one of the owners and financiers of the project, which aims to produce steel using hydrogen gas instead of coking coal.
In recent years we have stepped up our active owner role in the portfolio companies, with special focus on the companies that have shown a clear need for change. A good example is SSAB, where we subscribed for our share of the rights issue that was carried out in 2016. In April 2018 we could note that SSAB's stock had delivered very favorable returns during the last two years period – roughly 100 percent compared with about 20 percent for the total return index. Against this background we chose to realize part of the value growth by selling SSAB shares for approximately SEK 3 billion. Through the transaction we reduced our debt, which has increased our financial flexibility.
On June 30, 2018, net asset value was SEK 96.4 billion, or SEK 222 per share, which corresponds to an increase of 2% during the first half of the year including reinvested dividend. At the end of the period the portfolio was worth SEK 103.6 billion, and net debt was SEK 7.2 billion, corresponding to a debt-equities ratio of 7%. This means that the debtequities ratio has decreased by 3 percentage points since the start of the year, of which most of the decrease is attributable to the sale of shares in SSAB. As a result of our strengthened financial position, in mid-May 2018 S&P Global Ratings upgraded Industrivärden's credit rating to A+. During the first half of the year the total return for the Class A as well as the Class C shares was -12%, compared with 4% 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. In summary, it can be noted that the share's total return was weak during the first half of the year. However, I see a clear potential in our portfolio companies, which creates a solid foundation for long-term shareholder value.
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.
| 06/30/2018 | 6M: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 | 23 | 23,502 | 54 | 2,806 | 13 | |
| Volvo A | 142,600,000 | 6.7 | 22.1 | 20 | 20,392 | 47 | -854 | -4 | |
| Handelsbanken A | 199,923,948 | 10.3 | 10.5 | 19 | 19,904 | 46 | -1,079 | -5 | |
| Essity A Essity B |
35,000,000 31,800,000 |
9.5 | 29.8 | 14 | 7,770 7,034 |
34 | -323 | -2 -3 |
|
| SCA A SCA B |
35,000,000 31,800,000 |
9.5 | 29.7 | 6 | 3,427 3,095 |
15 | 623 | 5 17 |
|
| Ericsson A Ericsson B |
86,052,615 1,000,000 |
2.6 | 15.1 | 6 | 5,895 69 |
14 | 1,438 | 31 31 |
|
| ICA Gruppen | 20,625,000 | 10.3 | 10.3 | 5 | 5,666 | 13 | -264 | -4 | |
| Skanska A Skanska B |
12,667,500 16,343,995 |
6.9 | 23.9 | 5 | 2,062 2,661 |
11 | 37 | 1 1 |
|
| SSAB A | 44,334,933 | 4.3 | 11.8 | 2 | 1,876 | 4 | 186 | -4 | |
| Other | 0 | 242 | 1 | 34 | |||||
| Equities portfolio | 100 | 103,595 | 238 | 2,605 | 2 | ||||
| Interest-bearing net debt | -7,158 | -16 | Index: | 4 | |||||
| Adjustment regarding exchangeable bond | 0 | 0 | |||||||
| Net asset value | 96,437 | 222 | |||||||
| Debt-equities ratio | 7% |
Net asset value on June 30, 2018, was SEK 96.4 billion, or SEK 222 per share, an increase during the first half of 2018 of SEK 1 per share. Including reinvested dividend, net asset value increased by 2% during the period. The dividend paid out in 2018 was SEK 5.50 per share. The Stockholm Stock Exchange's total return index (SIXRX) increased by 4% during the first half of the year.
During the last five and ten-year periods, net asset value grew by 14% and 11%, respectively, per year including reinvested dividend. The total return index (SIXRX) increased by 13% and 11%, respectively, during the same periods.
During the first half of the 2018 the value of the equities portfolio, adjusted for purchases and sales, decreased by SEK 1.2 billion. On June 30, 2018 the equities portfolio was worth SEK 103.6 billion, or SEK 238 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 SCA, Sandvik, Volvo, and Essity generated higher total returns than the total return index (SIXRX). SSSAB performed in line with the total return index. The shareholdings in Skanska, ICA Gruppen, Handelsbanken and Ericsson had lower total returns than the total return index (SIXRX).
During the first half of 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 half of 2018 was SEK 70 M (55), which on a yearly basis corresponded to 0.14% of the equities portfolio's value on June 30, 2018.
| 06/30/2018 | 12/31/2017 | |||
|---|---|---|---|---|
| SEK bn | SEK/share | SEK bn | SEK/share | |
| Equities portfolio | 103.6 | 238 | 107.3 | 247 |
| Interest-bearing net debt | -7.2 | -16 | -10.9 | -25 |
| Adjustment exchangeable | 0.0 | 0 | -0.1 | -0 |
| Net asset value | 96.4 | 222 | 96.3 | 221 |
| Annual average total return, % | |
|---|---|
| 3 years | |
| SCA* | 32 |
| Sandvik | 23 |
| Volvo | 15 |
| Essity* | 13 |
| SSAB | 10 |
| Skanska | 3 |
| ICA Gruppen | 1 |
| Handelsbanken | -1 |
| Ericsson | -3 |
| Total return index (SIXRX) | 8 |
*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 June 30, 2018. The debt-equities ratio was 7% (10%), and the equity ratio was 92% (88%). The debt-equities ratio is calculated as interest-bearing net debt in relation to the market value of the equities portfolio.
On June 30, 2018, interest-bearing liabilities had an average capital duration of approximately 3 years, an average interest duration of approximately 1 year 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 June 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 June 30, 2018, were SEK 181.30 and SEK 173.70 respectively. The corresponding market prices on December 31, 2017, were SEK 211.60 and SEK 202.50 respectively.
The total return during the first half of 2018 was -12% for the Class A shares as well as for the Class C shares. The Stockholm Stock Exchange's total return index (SIXRX) increased by 4% during the same period. The total returns for Industrivärden's shares over longer periods of time are shown in the table on page 1.
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 half of 2018, 869 shares were converted.
| Credit | Utilized | ||
|---|---|---|---|
| facility, SEK M |
amount, SEK M |
Maturity | |
| Exchangeable bond | 4,392 | 2019 | |
| MTN-program | 8,000 | 2,812 | 2019-2021 |
| Commercial paper | 3,000 | 700 | 2018 |
| Pension debt | 117 | ||
| Other short-term borrowing | 215 | ||
| Total borrowing | 8,236 | ||
| Less: | |||
| Interest-bearing receivables | 833 | ||
| Cash and cash equivalents | 245 | ||
| Interest-bearing net debt | 7,158 |
| Capital, | Votes, | |||
|---|---|---|---|---|
| Share class | No. of shares | No. of votes | % | % |
| A (1 vote) | 268,183,471 | 268,183,471 | 61.6 | 94.1 |
| C (1/10 vote) | 167,026,406 | 16,702,640 | 38.4 | 5.9 |
| Total | 435,209,877 | 284,886,111 | 100.0 | 100.0 |
The Board of Directors and CEO certify that the half-year interim report gives a true and fair presentation of the Parent Company's and Group's business, financial position and result of operations, and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.
Stockholm, July 5, 2018 AB Industrivärden (publ)
| Fredrik Lundberg Chairman |
Pär Boman Vice Chairman Director |
Christian Caspar |
|---|---|---|
| Bengt Kjell Director |
Director | Nina Linander Annika Lundius Director |
| Lars Pettersson Director |
Helena Stjernholm CEO and director |
The 2018 Annual General Meeting was held on April 17, at which the following resolutions, among others, were made. The dividend was set at SEK 5.50 (5.25) per share. All board members and the Chairman of the Board were re-elected.
On August 1, 2018, Martin Hamner will leave his position as Chief Financial Officer. The recruitment of his successor is underway.
Interim report January–September: October 5, 2018
Sverker Sivall, Head of Corporate Communication and Sustainability Phone: +46-8-666 64 19 E-mail: [email protected] Martin Hamner, CFO 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
This information is such that AB Industrivärden is required to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. 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 July 5, 2018.
INDUC:SS, Bloomberg INDUc.ST, Reuters INDU C, NASDAQ OMX
Following is the auditors' review report of interim financial information prepared in accordance with IAS 34 and Ch. 9 of the Swedish Annual Accounts Act.
We have reviewed the condensed interim financial information (interim report) of AB Industrivärden (publ) as of 30 June 2018 and the six-month period then ended. The Board of Directors and the CEO are responsible for the preparation and presentation of the interim financial information in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.
We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with the International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.
Stockholm, July 5, 2018 PricewaterhouseCoopers AB
Magnus Svensson Henryson Authorized Public Accountant
| 2018 | 2017 | 2018 | 2017 | 2017 | |
|---|---|---|---|---|---|
| SEK M | Apr.-Jun. | Apr.-Jun. | Jan.-Jun. | Jan.-Jun. | Jan.-Dec. |
| INCOME STATEMENT | |||||
| Dividend income from stocks | 2,089 | 1,724 | 3,764 | 2,786 | 2,786 |
| Change in value of stocks, etc. | -910 | 1,552 | -1,046 | 10,924 | 12,957 |
| Management cost | -40 | -29 | -70 | -55 | -111 |
| Operating income | 1,139 | 3,247 | 2,648 | 13,655 | 15,632 |
| Financial items | -5 | -25 | -7 | -70 | -77 |
| Income after financial items | 1,134 | 3,222 | 2,641 | 13,585 | 15,555 |
| Tax | - | - | - | - | - |
| Net income for the period | 1,134 | 3,222 | 2,641 | 13,585 | 15,555 |
| Earnings per share, SEK | 2.61 | 7.40 | 6.07 | 31.25 | 35.76 |
| STATEMENT OF COMPREHENSIVE INCOME | |||||
| Comprehensive income for the period | 1,134 | 3,222 | 2,641 | 13,585 | 15,549 |
| BALANCE SHEET as per end of period | |||||
| Equities | 103,595 | 105,328 | 107,289 | ||
| Other non-current assets | 11 | 12 | 12 | ||
| Total non-current assets | 103,606 | 105,340 | 107,301 | ||
| Cash and cash equivalents | 245 | 0 | 613 | ||
| Other current assets | 844 | 336 | 446 | ||
| Total current assets | 1,089 | 336 | 1,059 | ||
| Total assets | 104,695 | 105,676 | 108,360 | ||
| Shareholders' equity | 96,127 | 93,912 | 95,880 | ||
| Non-current interest-bearing liabilities | 2,178 | 7,248 | 7,292 | ||
| Non-current non interest-bearing liabilities | 60 | 636 | 368 | ||
| Total non-current liabilities | 2,238 | 7,884 | 7,660 | ||
| Current interest-bearing liabilities | 6,058 | 3,750 | 4,523 | ||
| Other liabilities* | 272 | 130 | 297 | ||
| Total current liabilities | 6,330 | 3,880 | 4,820 | ||
| Total shareholders' equity and liabilities | 104,695 | 105,676 | 108,360 | ||
| CASH FLOW | |||||
| Cash flow from operating activities | 3,666 | 2,662 | 2,594 | ||
| Cash flow from investing activities | 2,525 | 0 | -103 | ||
| Cash flow from financing activities** | -6,559 | -3,485 | -2,701 | ||
| Cash flow for the period | -368 | -823 | -210 | ||
| Cash and cash equivalents at end of period | 245 | 0 | 613 |
* Of which, the option component of the exhangeable bond, totaling SEK 148 M, which at the time of issue amounted to a total of SEK 335 M.
** Of which, dividends of SEK 2,394M (2,285) paid to shareholders.
| 2018 | 2017 | 2017 | |
|---|---|---|---|
| SEK M | Jan.-Jun. | Jan.-Jun. | Jan.-Dec. |
| CHANGES IN SHAREHOLDERS' EQUITY | |||
| Opening shareholders' equity as per balance sheet | 95,880 | 82,129 | 82,129 |
| Conversion and other | 0 | 482 | 486 |
| Comprehensive income for the period | 2,641 | 13,585 | 15,549 |
| Dividend | -2,394 | -2,285 | -2,285 |
| Closing shareholders' equity as per balance sheet | 96,127 | 93,912 | 95,880 |
| INTEREST-BEARING NET DEBT at end of period | |||
| Cash and cash equivalents | 245 | 0 | 613 |
| Interest-bearing assets | 833 | 327 | 272 |
| Non-current interest-bearing liabilities | 2,178 | 7,248 | 7,292 |
| Current interest-bearing liabilities | 6,058 | 3,750 | 4,523 |
| Interest-bearing net debt | 7,158 | 10,671 | 10,930 |
| 2018 | 2017 | 2017 | |
|---|---|---|---|
| SEK M | Jan.-Jun. | Jan.-Jun. | Jan.-Dec. |
| INCOME STATEMENT | |||
| Operating income | 3,388 | 10,289 | 12,145 |
| Income after financial items | 3,384 | 10,271 | 12,121 |
| Income for the period | 3,384 | 10,271 | 12,121 |
| Comprehensive income for the period | 3,384 | 10,271 | 12,115 |
| BALANCE SHEET as per end of period | |||
| Non-current assets | 62,612 | 62,264 | 63,883 |
| Current assets | 670 | 416 | 2,021 |
| Total assets | 63,282 | 62,680 | 65,904 |
| Shareholders' equity | 54,638 | 51,799 | 53,647 |
| Non-current liabilities | 2,238 | 7,884 | 7,660 |
| Current liabilities | 6,406 | 2,997 | 4,597 |
| Total shareholders' equity and liabilities | 63,282 | 62,680 | 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.
| 06/30/2018 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Assets | ||||
| Equities | 103,353 | - | 242 | 103,595 |
| Short term investments | 659 | - | - | 659 |
| Total assets | 104,012 | - | 242 | 104,254 |
| Level 1 | Level 2 | Level 3 | Total | |
| Liabilities | ||||
| Option component of | ||||
| exchangeable bond | - | -148 | - | -148 |
| Derivatives, etc. | - | -63 | - | -63 |
| Total liabilities | - | -211 | - | -211 |
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 June 30, 2018, would have affected its market value by approximately +/– SEK 1,000 M.
During the first half of 2018, dividend income was received from associated companies.
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