Annual / Quarterly Financial Statement • Feb 9, 2011
Annual / Quarterly Financial Statement
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| Net asset value | Dec. 31, 2010 | Dec. 31, 2009 | ||
|---|---|---|---|---|
| Equities portfolio, SEK billion Interest-bearing net debt, SEK billion |
71.1 -13.4 |
53.5 -10.8 |
||
| Net asset value, SEK billion | 57.7 | 42.8 | ||
| Net asset value per share, SEK Net asset value per share after full conversion, SEK |
149 144 |
111 – |
||
| Total return | 1 year | 5 year | 10 year | 15 year |
| Class A shares (yearly average) | 40% | 6% | 6% | 15% |
| Class C shares (yearly average) | 48% | 8% | 7% | 16% |
| Benchmark index (SIXRX) | 27% | 8% | 6% | 12% |
| Excess return for Class C shares, percentage points | 21% | 0% | 1% | 4% |
Industrivärden is one of the Nordic region's largest holding companies, with ownership in a concentrated selection of listed Nordic companies with good development potential. The goal is to generate high growth in net asset value over time.
As 2010 progressed it became increasingly apparent that the world economy was recovering at a pace that few had expected during the turbulent 2009. During the year it also became clear that growth was being driven by the so-called BRIC countries, headed by China. The traditional engines of growth, such as the U.S. and Europe, continue to struggle with large public deficits and unemployment. It now appears that growth is getting under way even in these regions. So there is reason to take a positive view of the current development, despite the lingering effects of the euro crisis caused by problems with weak government finances and a fragile banking system, primarily in southern Europe. The global economy is still being stimulated by historically low interest rates from central banks. This, together with sharply higher commodities prices, is increasing the risk for inflation. At the same time, unemployment is high in large parts of the Western world, which suggests that we won't be seeing the high level of inflation and interest rates that we experienced during the 1970s. The situation today is different than for two years ago, and there is reason to view 2011 with optimism, even though e.g. current developments in north Africa are creating uncertainty.
As for Industrivärden, we have a strong position for the future. Our portfolio companies are active primarily in industrial and infrastructure products, which are key areas associated with rapidly growing prosperity in emerging countries. They have leading positions in their business areas, global coverage and a large and growing presence in growth regions around the world.
In January 2011, like in 2010, we took advantage of strong market conditions to issue convertible bonds at favorable terms. The principal amount is approximately SEK 5 billion, or EUR 550 M, and the term is six years with a coupon of 1.875%. The price was set at a premium of 35%, corresponding to a conversion price of SEK 162 per share. With net asset value of SEK 151 per share at the time of the issue, this represents a premium of 7% to underlying net asset value, or 12% after full conversion of the first bond issue.
The first convertible bonds were issued in January 2010 for approximately SEK 5 billion, or EUR 500 M, with a five-year term and a coupon of 2.5%. The conversion price was set at SEK 115.50 per share, or at a premium of 37.5% to the share price, which was level with net asset value at the time of the issue.
Through the two convertible bond issues we have obtained favorable debt financing at low interest rates. Moreover, if Industrivärden achieves favorable growth in value, it means the company will carry out two issues of equity at a par with or above net asset value. Naturally, this is an attractive opportunity for Industrivärden's shareholders, since the discount to net asset value makes it difficult to raise new capital by issuing new equity. Through these two bond issues we have been able to substantially increase our financial flexibility. The share dilution (number of shares) upon full conversion of the bonds is 11% and 8%, respectively. The financial dilution is limited, however.
Thus far we have invested SEK 3 billion of the SEK 5 billion from the first issue, generating growth in value of about 40%, compared with index growth of 23%. As earlier, we see great opportunities to manage the additional capital in a manner that creates value for the shareholders.
2010 was a good year for Industrivärden's shareholders. Net asset value including dividends rose 37% to SEK 149 per share. The Class A and Class C shares generated total returns of 40% and 48%, respectively, compared with 27% for the Stockholm stock exchanges return index. This can be credited to the favorable performance of our portfolio companies, good investments during the year and financial leverage.
In 2010 we purchased additional shares in Volvo for SEK 1.8 billion. This included the purchase of 12.5 million shares for SEK 64 per share through exercise of a total return swap that we entered into in autumn 2009. Today we have an average cost of SEK 89 per share for our holding in Volvo, which translates to growth in value of
approximately SEK 1.8 billion. We believe that Volvo has very favorable development prospects, to the benefit of the shareholders.
In November 2010 we sold our holding in Munters for approximately SEK 850 M. Munters has not developed at the pace we had anticipated when we took a position in the company seven years ago. We actively contributed to restructuring measures and the divestment of the service business (MCS), which opened up for a bid for the company. In the end, Nordic Capital acquired Munters for SEK 77 per share, corresponding to a premium of 47% over the stock's value before the bid process began in November. The total return from our investment in Munters is 50%.
In 2010 our short-term trading generated a profit of SEK 114 M (100) and again covered our total management costs. We have now earned more than SEK 900 M from this operation since its start in 2003.
The proposed dividend of SEK 4.00 (3.00) per share represents a dividend yield of 3.3% for the Class A shares and 3.4% for the Class C shares, which again is expected to represent a dividend yield that exceeds the average for the Stockholm Stock Exchange.
With a portfolio of successful companies, value-creating active ownership and substantial financial strength, Industrivärden is well poised to continue creating competitive value for its shareholders.
Anders Nyrén President and CEO
Net asset value on December 31, 2010, was SEK 57.7 billion, an increase of SEK 14.9 billion for the year. Net asset value per share increased by SEK 38 to SEK 149, or 37% including reinvested dividends. During the same period, the total return index (SIXRX) rose 27%. The substantial excess return is mainly attributable to strong share price development for the portfolio companies, investments
with favorable excess returns during the year and financial leverage in the growth in value.
The value of the equities portfolio grew by SEK 15.0 billion in 2010, or 28%, to SEK 71.1 billion. The total return for the portfolio during the same period was 31%, which was 4 percentage points higher than the total return index (SIXRX).
| December 31, 2010 | December 31, 2009 | |||||||
|---|---|---|---|---|---|---|---|---|
| Portfolio | Ownership in company | Share of port | Market value | Market value | ||||
| companies | No. of shares | Capital. % | Votes. % | folio value. % | SEK M | SEK/share | SEK M | SEK/share |
| Sandvik | 138,443,752 | 11.7 | 11.7 | 25 | 18,150 | 47 | 11,701 | 30 |
| Handelsbanken A | 65,217,930 | 10.5 | 10.6 | 20 | 14,015 | 36 | 12,896 | 34 |
| Volvo A | 87,646,151 | 4.4 | 10.7 | 15 | 10,713 | 28 | 4,283 | 11 |
| Volvo B | 5,345,661 | |||||||
| SCA A | 45,100,000 | 10.0 | 29.5 | 11 | 7,487 | 19 | 6,754 | 18 |
| SCA B | 25,700,000 | |||||||
| SSAB A | 56,105,972 | 17.3 | 22.5 | 9 | 6,347 | 17 | 6,313 | 16 |
| SSAB B | 73,498 | |||||||
| Ericsson A | 77,680,600 | 2.4 | 13.8 | 8 | 5,748 | 15 | 4,984 | 13 |
| Skanska A | 15,091,940 | 7.6 | 27.8 | 6 | 4,280 | 11 | 3,533 | 9 |
| Skanska B | 17,019,386 | |||||||
| Indutrade | 14,727,800 | 36.8 | 36.8 | 5 | 3,417 | 9 | 1,992 | 5 |
| Höganäs B | 3,550,000 | 10.1 | 8.1 | 1 | 934 | 2 | 582 | 2 |
| Equities portfolio | 100 | 71,092 | 184 | 53,548 | 139 | |||
| Interest-bearing net debt | 13,401 | -35 | 10,766 | 28 | ||||
| Net asset value | 57,691 | 149 | 42,782 | 111 | ||||
| Debt-equity ratio | 19% | 20% | ||||||
| Net asset value after full conversion | 144 | - | ||||||
| Debt-equity ratio after full conversion | 13% | - |
Market value pertains to Industrivärden's share of the respective portfolio companies' total market capitalization.
Interest-bearing net debt totaled SEK 13.4 billion at December 31, 2010. The debt-equity ratio was 18.9%, and the equity ratio was 79% (79%). After full conversion of outstanding convertible loan, corresponding to SEK 4.2 billion, the debt-equity ratio amounts to 13.0%.
The convertible loan is hedged, entailing that translation effects do not affect net asset value.
At year-end, interest-bearing liabilities had an average, fixed interest term of approximately 4 years and carried an average interest rate of 3.8%.
In January 2010 Industrivärden issued five-year convertible bonds worth EUR 500 M. The conversion price is SEK 115.50/share at a fixed euro exchange rate of SEK 10.2258, and the annual coupon is 2.5%.
In January 2011 Industrivärden issued six-year convertible bonds worth EUR 550 M. The issue, which was oversubscribed, is subject to approval by an Extraordinary General Meeting on February 9, 2011. The conversion price is SEK 162.00/share at a fixed euro exchange rate of SEK 8.8803, representing a premium at the time of issue of 7% over net asset value and an annual coupon of 1.875%. The stock dilution is limited and corresponds upon full conversion to approximately 8% of the capital and 1% of the votes.
In 2010 the shareholdings in Volvo, Indutrade, Munters, Höganäs and Sandvik generated a higher return than the return index. On the whole, the total return for the equities portfolio was 31%, which was 4 percentage points higher than the return index.
During the last five-year period, Indutrade, Sandvik, Volvo and Höganäs generated higher returns than the return index, while Handelsbanken, Skanska, and SSAB were level with the index.
For the ten-year period, all of the portfolio companies except Ericsson delivered total returns in excess of the return index.
The total return for Industrivärden's stock for various time periods is shown in a table on the first page.
| Total return 2010 |
Average annual total return, % |
|||
|---|---|---|---|---|
| Portfolio companies | SEK billion | % | Five years | Ten years |
| Volvo | 4.7 | 89 | 15 | 19 |
| Indutrade | 1.5 | 77 | 25 | – |
| Munters | 0.4 | 69 | 4 | 6 |
| Höganäs | 0.4 | 63 | 15 | 11 |
| Sandvik | 6.4 | 53 | 16 | 16 |
| Ericsson | 0.8 | 17 | -9 | -14 |
| Skanska | 0.6 | 15 | 8 | 8 |
| SCA | 1.0 | 15 | 5 | 8 |
| Handelsbanken | 1.2 | 9 | 7 | 7 |
| SSAB | -0.5 | -7 | 8 | 20 |
| Equities portfolio | 16.5 | 31 | ||
| Index (SIXRX) | 27 | 8 | 6 | |
| Industrivärden C | 48 | 8 | 7 |
The total return in SEK billion pertains to the change in value during the period including dividend income for the respective portfolio companies. Indutrade was listed in October 2005.
In 2010, stocks were purchased for SEK 5,644 M and sold for SEK 3,097 M. Large net purchases were in Volvo, for SEK 1,770 M; SSAB, for SEK 540 M, Handelsbanken, for SEK 428 M, Skanska, for SEK 363 M, and Sandvik, for SEK 232 M.
During the year, additional purchases were made of shares in Volvo, for SEK 1,770 M, corresponding to 2.2% of the votes and an average purchase price of SEK 78/ share. Some of the shares were acquired through a total return swap, which generated a profit of SEK 257 M.
In November Industrivärden sold its holding of 14.6% of the shares in Munters to Nordic Capital for SEK 843 M.
Industrivärden's total return amounted to slightly more than 50% during the time of the holding. Industrivärden actively contributed to restructuring measures and the divestment of the service business (MCS), which opened up for a bid for Munters. The bid premium was 47%.
For the full year 2010, Industrivärden's short-term trading generated a profit of SEK 114 M (100) and thereby covered the company's management costs, which amounted to SEK -94 M (-86). Management costs was 0.13% of managed assets, which is considerably lower than for most comparable investment alternatives.
An active ownership perspective fosters a keen understanding of the portfolio companies' business, operating environment and continuing development. Industrivärden contribute to value creation in the portfolio companies, which increases the value of the assets while lowering the equities risk. Through Industrivärdens influence, work can be conducted in a structured manner based on knowledge and involvement.
Following is a general description of Industrivärden's investment cases along with strategic options and activities.
Through a niche focus and strong R&D profile, Sandvik has established a world-leading position in materials technology with products primarily for the manufacturing and mining industries. www.sandvik.com
A decentralized branch operation with local customer responsibility contributes to high customer satisfaction and good profitability. www.handelsbanken.com
Through innovative, customer-adapted product development and high quality, Volvo has a worldleading position in commercial transport solutions. www.volvogroup.com
The European leader in hygiene products – with fast-growing brands – and in packaging and forest products. Europe's largest private forest owner. www.sca.com
The market's largest and most profitable supplier of mobile telecom infrastructure, with a leading position in telecom development.
World-leading position in high strength steel sheet niche creates solid base for growth and
www.ericsson.com
high profitability. www.ssab.com
Unique turnkey know-how in construction combined with a process focus has created a leading construction services company with world-class value-creating project development.
www.skanska.com
The combination of sales of industrial consumables and good organic growth with a highly refined model for acquisition-based growth has resulted in impressive profitability growth.
www.indutrade.com
Market leader in growing niche of metal powders, used primarily for component manufacturing in the auto industry.
www.hoganas.com
Industrivärden 12M:2010 7
The Board of Directors proposes a dividend of SEK 4.00 (3.00) per share and May 10, 2011, as the record date, for a total dividend payout of SEK 1,545 M.
This year-end 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. Effective January 1, 2010, the Parent Company also applies the revised IAS 1 Presentation of Financial Statements. This change has affected the Parent Company's accounting retrospectively and entails that income and expenses that were previously reported directly against shareholders' equity are now reported in a separate statement directly after the income statement. The Parent Company also applies a new accounting policy pertaining to the reporting of associate companies, following an amendment to Ch. 4 § 14 b of the Annual Accounts Act. Associated companies are now measured at fair value also by the Parent Company. Other new or revised IFRSs as well as IFRIC interpretations have not had any effect on the Group's or Parent Company's results of operations or financial position.
The convertible loan, which was issued in euros, consists of two components: a debt component and an option component. The debt component is measured at amortized cost using the effective interest method, in accordance with IAS 39. This entails that the loan is revalued over its term at nominal value. This revaluation is reported as a change in value in the income statement, while the coupon interest is reported as an interest expense. The option component is reported as a liability, since the currency is different than the functional currency. In accordance with IAS 39, the option is measured on a continuous basis at fair value through profit or loss in "Change in
value of stocks, etc." Transaction costs are allocated over the term of the loan and are included in changes in value in the income statement.
Reporting of assets and liabilities in foreign currency Assets and liabilities in foreign currency are subject to translation in accordance with the rules of IAS 21 and are restated at the exchange rate in effect at the end of each reporting period.
The dominant risk in Industrivärden's business is share price risk, i.e., the risk of a decrease in value caused by changes in share prices.
A 1% change in the share price of the holdings in the equities portfolio as per December 31, 2010, would have affected market value by approximately +/– SEK 700 M.
No transactions have taken place between Industrivärden and related parties that have materially affected the Company's position or result of operations for the 2010 financial year, except for the receipt of dividend income from associated companies.
Stockholm, February 9, 2011
CEO Anders Nyrén
We have reviewed the year-end report for AB Industrivärden (publ) for the period January 1–December 31, 2010. The Board of Directors and President are responsible for the preparation and presentation of this year-end report in accordance with the Annual Accounts Act and IAS 34. Our responsibility is to express a conclusion on this year-end report based on our review.
We conducted our review in accordance with the Swedish Standard for such reviews, SÖG 2410 – Review of Interim Financial Information 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 Standards on Auditing in Sweden (RS) and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.
Based on our review, nothing has come to our attention that causes us to believe that the year-end report is not prepared, in all material respects, in accordance with the Annual Accounts Act and IAS 34.
Stockholm, February 9, 2011
PricewaterhouseCoopers AB Anders Lundin Authorized Public Accountant
For further information, please visit Industrivärden's website: www.industrivarden.net.
Anders Nyrén, President and CEO, tel. +46-8-666 64 00 Sverker Sivall, IRO, tel. +46-8-666 64 19 Carl-Olof By, Executive Vice President, tel. +46-8-666 64 00 Martin Hamner, CFO, tel. +46-8-666 64 00
Industrivärden's complete contact information can be found on page 12.
INDUC SS in Bloomberg INDUc.ST in Reuters
The information provided in this year-end report is such that AB Industrivärden (publ) is obligated to publish pursuant to the Securities Market Act and/or the Financial Instruments Trading Act. Submitted for publication at 10:30 a.m. on February 9, 2011.
Interim report January–March: April 5 Annual General Meeting 2011: May 5, in Stockholm Interim report January–June: July 5 Interim report January–September: October 5
| 2010 | 2009 | 2010 | 2009 | |
|---|---|---|---|---|
| SEK M | Oct.–Dec. | Oct.–Dec. | Jan.–Dec. | Jan.–Dec. |
| Income statement | ||||
| Dividend income from stocks | 0 | 0 | 1,379 | 1,871 |
| Change in value of stocks, etc. | 6,639 | 3,922 | 13,991 | 19,307 |
| Other income and expenses* | -10 | 0 | 22 | 14 |
| Operating income | 6,629 | 3,922 | 15,392 | 21,192 |
| Financial items | -130 | -124 | -522 | -523 |
| Income after financial items | 6,499 | 3,798 | 14,870 | 20,669 |
| Tax | – | – | – | – |
| Net income for the period | 6,499 | 3,798 | 14,870 | 20,669 |
| Earnings per share, SEK | 16.82 | 9.83 | 38.50 | 53.51 |
| Earnings per share after full conversion, SEK | 16.37 | 37.11 | ||
| Statement of comprehensive income | ||||
| Income for the period | 6,499 | 3,798 | 14,870 | 20,669 |
| Change in hedging reserve | 44 | 0 | 72 | 30 |
| Comprehensive income for the period | 6,543 | 3,798 | 14,942 | 20,699 |
| Balance sheet as per end of year | ||||
| Equities | 71,092 | 53,548 | ||
| Other non-current assets | 207 | 25 | ||
| Total non-current assets | 71,299 | 53,573 | ||
| Short-term equity investments** | 176 | 128 | ||
| Other current assets | 72 | 89 | ||
| Total current assets | 248 | 217 | ||
| Total assets | 71,547 | 53,790 | ||
| Shareholders' equity | 56,327 | 42,544 | ||
| Non-current interest-bearing liabilities | 11,123 | 8,513 | ||
| Non-current noninterest-bearing liabilities | 1,344 *** |
13 | ||
| Total non-current liabilities | 12,467 | 8,526 | ||
| Current interest-bearing liabilities | 2,458 | 2,330 | ||
| Other liabilities | 295 | 390 | ||
| Total current liabilities | 2,753 | 2,720 | ||
| Total shareholders' equity and liabilities | 71,547 | 53,790 | ||
| Cash flow | ||||
| Cash flow from operating activities | 827 | 1,341 | ||
| Cash flow from investing activities | -2,547 | 440 | ||
| Cash flow from financing activities**** | 1,810 | -2,877 | ||
| Cash flow for the year | 90 | -1,096 | ||
| Exchange rate difference in cash and cash equivalents* | -90 | - | ||
| Cash and cash equivalents at the end of year | 0 | 0 |
* Including short-term trading and management costs.
** Including Hemtex, for which the change in value is included in short-term trading.
*** Of which, the option portion of the convertible loan, totaling SEK 1,319 M, which at the time of issue amounted to SEK 383 M.
**** Of which, dividend of SEK 1,159 M paid to the shareholders in 2010 and SEK 1,738 M in 2009.
*****Hedging of convertible loan.
| 2010 | 2009 | |
|---|---|---|
| SEK M | Jan.–Dec. | Jan.–Dec. |
| Changes in shareholders' equity | ||
| Opening shareholders' equity as per balance sheet | 42,544 | 23,583 |
| Comprehensive income for the period | 14,942 | 20,699 |
| Dividend | -1,159 | -1,738 |
| Closing shareholders' equity as per balance sheet | 56,327 | 42,544 |
| Key data as per end of year | ||
| Net asset value per share, SEK | 149 | 111 |
| Net asset value per share after full conversion, SEK | 144 | – |
| Share price (Class A), SEK | 120 | 88 |
| Share price (Class C), SEK | 118 | 82 |
| Number of shares (thousands)* | 386,271 | 386,271 |
| Interest-bearing net debt at end of year | ||
| Interest-bearing assets | 180 | 77 |
| Non-current interest-bearing liabilities | 11,123 ** |
8,513 |
| Current interest-bearing liabilities | 2,458 | 2,330 |
| Interest-bearing net debt | 13,401 | 10,766 |
* Number of shares upon full conversion (thousands), 430,539.
** Of which, convertible loan SEK 4,155 M.
| 2010 | 2009 | |
|---|---|---|
| SEK M | Jan.-Dec. | Jan.-Dec. |
| Income statement | ||
| Operating income* | 11,614 | 11,373 |
| Income after financial items | 11,141 | 10,901 |
| Income for the year | 11,141 | 10,901 |
| Statement of comprehensive income | ||
| Income for the year | 11,141 | 10,901 |
| Change in hedging reserve | 171 | 30 |
| Comprehensive income for the year | 11,312 | 10,931 |
| Balance sheet as per end of year | ||
| Non-current assets** | 52,022 | 44,078 |
| Current assets | 972 | 223 |
| Total assets | 52,994 | 44,301 |
| Shareholders' equity** | 43,919 | 33,766 |
| Non-current liabilities | 6,367 | 7,513 |
| Current liabilities | 2,708 | 3,022 |
| Total shareholders' equity and liabilities | 52,994 | 44,301 |
| * Effect of changed accounting policies regarding associated companies. | 1,931 | |
** Effect of changed accounting policies regarding associated companies. 4,784
Long-term industrial developer of listed Nordic companies
AB Industrivärden (publ) Reg. no. 556043-4200
Box 5403 SE-114 84 Stockholm Phone +46-8-666 64 00 [email protected]
www.industrivarden.net
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