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Industrivärden

Quarterly Report Aug 4, 2008

2928_ir_2008-08-04_b1821c47-4b8d-47ba-a97e-f94952eef7f6.pdf

Quarterly Report

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The information provided herein is such that AB Industrivärden (publ) is obligated to disclose pursuant to the Securities and Clearing Operations Act (SFS 1992:543) and/or the Financial Instruments Trading Act (SFS 1991:980). Submitted for publication at 9 a.m. on August 4, 2008.

Interim Report January 1 – June 30, 2008

Value development

  • Net asset value on July 31, 2008, was SEK 101 per share, including reinvested dividends a decrease of 26% since the start of the year. On June 30, 2008, net asset value was SEK 108 per share.
  • The total return for the Class A shares was -20% for the first seven months.
  • Consolidated earnings per share for the first half of 2008 were SEK -29.01 (34.16).
  • During the first half of the year, Industrivärden purchased Class A shares in Volvo for SEK 1.2 billion, after which Industrivärden's ownership amounts to 6.9% of the votes. The purchases were financed through sales of stock.

Significant events for portfolio companies

  • SSAB's sale of IPSCO's tubular operations was completed, whereby SSAB's debtequity ratio was reduced from 150% to 42%.
  • Sandvik is carrying out additional measures aimed at improving the profitability of Sandvik Materials Technology.
  • SCA's sale of its corrugated board business in the UK enhance profitability and strengthens the company's focus on products that provide higher value-added.

Long-term return

During the last ten-year period, the average annual return for Industrivärden's Class A shares has exceeded the return index by 1 percentage point.

Financial summary July 31, 2008 June 30, 2008 Dec. 31, 2007
Value of equities portfolio, SEK billion 49.7 52.2 65.8
- total return, % -21 -17 -2
Borrowings, interest-bearing net debt, SEK billion 10.6 10.4 11.0
- debt-equity ratio, % 21.3 19.9 16.6
- average interest rate, % 4.6 4.6 4.6
Net asset value, SEK billion 39.0 41.7 54.8
Net asset value, SEK per share 101 108 142
- development, incl. reinvested dividend, % -26 -21 -3
Management cost, % 0.17 0.17 0.13
Dividend yield, Class A shares, % 5.8 5.5 4.4
Total return, Class A shares, % -20 -16 -14

uLong-term industrial developer of listed Nordic companies

Industrivärden is one of the Nordic region's leading 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.

CEO's Message

During the first seven months of the year, concerns about the economic development have grown increasingly strong. The international credit crisis has continued and can be expected to remain until clear signs appear that the U.S. housing market has hit bottom. At the same time, sharply higher prices for oil, commodities and agricultural products have fueled inflation expectations in the West. All this comes at a time in which we are seeing ever-greater signs of a distinct economic slowdown. In pace with sharply rising oil prices and higher interest rates, concerns for stagflation have taken hold. Personally I do not think the situation is quite as dark as it may seem; however, we will see a slowing in the global rate of growth. The question is how strong this slowdown will be.

Stock markets in the West have reacted strongly to these worries. Seldom has the risk premium for owning stock been as great as now. This is reflected in the fact that companies that are reporting performance beyond expectations and positive forecasts have seen their stock prices drop upon releasing their reports. Anxiety and thus volatility in the stock market can be expected to continue until the economic scenario becomes clearer.

The companies in our portfolio that are exposed to the infrastructure development that is taking place in emerging markets such as Asia, South America and Eastern Europe are seeing continued good demand. However, the companies that are more exposed to consumer products have reported a softening in demand. On the whole, company descriptions of future demand are more positive than reflected by the market.

During the period January–July, Industrivärden's net asset value including reinvested dividends fell by SEK 13.9 billion, or 26%, which was 8 percentage points worse than the return index. This is due to the fact that several of our portfolio companies have had a sharper price decline than the stock market so far this year. At the same time, we know that at current prices, the expected dividend yield for our portfolio will be high. Industrivärden posted a negative total return for the period, -20% for the Class A shares and -22% for the Class C shares, compared with -18% for the return index.

During the first seven months we bought Class A shares in Volvo for SEK 1.2 billion and sold Class A shares in SSAB for SEK 0.8 billion. These transactions are a prime example of how we continuously make minor changes in our portfolio and can thereby strengthen our positions in our portfolio companies.

Through the additional purchases of shares we have made in Volvo during the year, our ownership now amounts to just under 7% of the votes in the company. I am convinced that, based on its leading positions and established economies of scale, Volvo has favorable conditions for continued profitable growth.

A debate is currently being conducted on whether owners with various classes of stock should have the right to the same price per share in bid situations. Some argue that voting rights lack value when a party makes a bid for a company and that the market's pricing should therefore be disregarded. We and many other class-A shareholders do not share that view. Clearly, share classes with different voting power are traded at different prices. Disregarding this in connection with a bid would seem to be a peculiar questioning of the market's right and ability to price various goods at different values. With today's rules, there is scope to achieve this in particular. It is then an entirely different matter that most bids end up at the same price or at the same premium expressed as a percentage, for the different stock classes. In such case it is the market that has set the price and not the rules.

Last year and during the first half of 2008, Industrivärden has had a good influx of new shareholders. In turbulent times like these, it is important to keep an eye on the fundamentals. Industrivärden has a portfolio of well-managed companies that are well-positioned in their respective markets. Given the historical profitability and growth that we have seen in these companies, there is every reason to expect the same also in the future. I therefore see it as a good sign that increasing numbers of investors see the strength of our investment philosophy and the favorable performance this has given our shareholders over time.

Net Asset Value per Share

Industrivärden 2 Interim Report January 1 – June 30, 2008

Industrivärden's Value Development

The refinement of Industrivärden's business to that as an active owner in listed Nordic companies was completed in 2007. The Company today is the leading Nordic player in its niche, with the goal of creating growth in value through long-term, structured ownership work in a transparent portfolio of a limited number of listed companies. This work is conducted with low management costs. Through this active ownership, Industrivärden's stock, over time, has been a good investment that has generated a higher return than the return index.

Total return for the equities portfolio decreased by 17% during the first half of the year, which was level with the return index. Of the major holdings, SSAB showed positive growth in value, while shares in Handelsbanken, Sandvik and Volvo had a weak trend.

During the first seven months of the year, the total return for the equities portfolio was -21%, which was 3 percentage points worse than the return index.

Average annual total return, %
Total return,
Jan.-July 2008,
Total return, % Five years Ten years
SEK bn Jan.-July 2008 Jan.-June 2008 June 2003-June 2008 June 1998-June 2008
SSAB 0.0 -2 14 48 23
Indutrade -0.1 -9 -1
Ericsson -0.8 -14 -14 8 -10
Höganäs 0.0 -1 -16 -5 -2
Munters -0.2 -19 -22 3 10
Sandvik -3.8 -25 -23 20 11
SCA -3.0 -38 -23 3 7
Skanska -1.1 -30 -24 20 7
Handelsbanken -2.7 -19 -25 6 5
Hemtex -0.1 -40 -28
Volvo -1.7 -30 -30 23 9
Total -13.5 -21 -17
Index (SIXRX) -18 -17 16 5
Industrivärden A -20 -16 15 7

Total Return for Portfolio Companies and Industrivärden

Total returns, expressed in SEK billion, pertain to the change in value during the period including dividend income for the respective portfolio companies. Of the shareholdings listed above, Munters and Höganäs have been held for less than five years. Indutrade and Hemtex became listed in October 2005.

Development for the Portfolio Companies – Active Ownership

Industrivärden's influence in its portfolio companies is based on sizeable ownership stakes and a strong position of trust. With this as the starting point, Industrivärden exercises its active ownership role through interaction with other major owners in the aim of finding ways to increase the value of the shareholdings. Active ownership is exercised by board members of the portfolio companies with ties to Industrivärden, through work on nominating committees and through direct dialog between Industrivärden's investment organization and leading representatives of the portfolio companies.

Sandvik Invoicing increased by 8%. Income after financial items was down 16% for the first half of the year, to SEK 6.0 billion, mainly due to a poorer result for Sandvik Materials Technology. To improve profitability, efficiency enhancement work is being intensified. Order intake showed continued favorable growth. Cash flow was strengthened.

Handelsbanken Net interest income rose 17% to SEK 8.9 billion, while the net result of financial items stated at fair value decreased by SEK 1.7 billion. Loan losses increased by SEK 0.8 billion. Operating income for the first six months of 2008 decreased by 22% to SEK 6.4 billion. For the branch operations outside Sweden, net interest income rose 26%. Handelsbanken is showing continued good development and growth of its core business – a decentralized branch operation. During the period, Handelsbanken opened 15 new branches outside Sweden of the 35–45 that are planned for opening in 2008. The newly established branches have quickly shown good profitability.

SSAB Income after financial items rose 35% during the first half of 2008, to SEK 5.4 billion. Demand for the company's products remained strong, with a positive earnings trend. Price increases have compensated for sharply higher commodity prices. The acquisition of IPSCO's steel operation strengthens SSAB's position as the leading manufacturer in the high-strength steel growth segment. The sale of IPSCO's tubular operations has now been completed, which reduced the debt-equity ratio from 150% to 42%.

SCA Income after financial items for the first half of 2008 decreased by 6% to SEK 3.6 billion. SCA's focus on growth in the hygiene segment is yielding results, and hygiene products account for a growing part of the business. Operating income for Personal Care products improved slightly, while Tissue showed a 49% gain in operating income as a result of acquisitions and higher prices. Packaging and Forest Products had weaker development. The work continues on developing the packaging operations, with focus on achieving higher value-added. A current example is the sale of the conventional corrugated board business in the UK.

Ericsson Despite continued good organic growth, income after financial items for the first half of the year fell 48% to SEK 9.2 billion (excluding SEK 2.6 billion in restructuring charges). The drop is mainly attributable to a changed product mix in the Networks segment and lower profitability for Sony Ericsson. Cash flow improved significantly. With weak growth in the mobile infrastructure market, Ericsson is continuing its work on adjusting its costs.

Volvo Net sales rose 19% to SEK 157 billion. Income after financial items for the first half of 2008 increased by 20% to SEK 13.6 billion, with an improved operating margin. Operating income during the second quarter reached its highest level to date for a single quarter. Development in Eastern Europe, South America and Asia – markets in which Volvo has advanced its positions in recent years – continues to be favorable, while markets in North America and Japan remained weak. A joint-venture company has been established with the Indian company Eicher Motors for trucks and buses.

Skanska Income after financial items for the first half of 2008 rose 17% to SEK 2.7 billion. The company's largest business stream, Construction, showed favorable development in several markets, but earnings fell, mainly due to project write-downs in the U.K. A new management team has been installed for the UK operations in order to restore profitability. Most of Skanska's other business streams showed favorable earnings development.

Höganäs Profitability improved, and income after financial items for the first half of the year rose 26%, to SEK 418 M, with favorable volume growth. Höganäs has acquired the Japanese company Kobe Steel's U.S. metal powder business.

Equities Portfolio, July 31, 2008

Company Share of
portfolio
Market value,
SEK bn
Investment case and strategic events P/E mul
tiple*
Sandvik 22% 10.9 Through a niche focus and a strong position in research and
development, the company has established a world-leading
position in materials technology with products primarily for
the manufacturing and mining industries.
11
Acquisitions are being made in strategic areas with greater ex
posure to emerging markets in Asia and Eastern Europe.
Handelsbanken 22% 10.7 A decentralized branch operation with local customer
responsibility is contributing to high customer satisfaction and
render favorable profitability.
9
Organic growth in priority markets.
SSAB 18% 8.9 World-leading position in the quenched steel and advanced
high strength sheet niches creates a solid base for growth and
high profitability.
7
The acquisition of IPSCO's North American steel mills has
strengthened SSAB's position as a leading player in quenched
steels and is enabling continued expansion.
SCA 10% 5.0 The European leader in hygiene products, with high-growth
niche products, and in packaging.
8
New organization and focus on profitable growth with strong
brands in the hygiene segment and improved profitability in
packaging.
Ericsson 10% 4.7 The market's largest and most profitable supplier of mobile
telecom systems, with a leading position in telecom develop
ment.
14**
Strong position ahead of operators' investments in the next
generation of telecom systems (LTE) and favorable growth in
the Services segment.
Volvo 8% 4.1 Through innovative, customer-adapted product development
and high quality, the company has a world-leading position in
commercial transport solutions.
8
Expansion in Asia e.g. through the acquisitions of Nissan Die
sel and Lingong.
Skanska 5% 2.5 Unique turnkey know-how in construction combined with
a process focus has created a leading construction company
with value-creating project development.
8
New business plan and new financial targets. Greater invest
ment in infrastructure activities.
Indutrade 3% 1.6 By combining sales of industrial consumables with good orga
nic growth and a highly refined model for acquisition-based
growth, the company has succeeded in showing impressive
profitability growth.
9
Establishment in new geographic markets.
Munters 1% 0.7 Strong global position in a business area with major growth
potential through organic growth as well as further develop
ment of products, services and application areas.
14
Acquisitions are adding new product areas and geographic
markets.
Höganäs 1% 0.4 Market leader in the growing niche of metal powders, used
primarily for component manufacturing in the auto industry.
8
Strong focus on improved profitability and collaboration with
customers on development of new components.
Hemtex 0% 0.2 The Nordic region's leading retail chain for home textiles.
Actions taken to strengthen strategic position in core business.
12
Total 100% 49.7 Equities portfolio

* External consensus estimate for 2008 according to Bloomberg as per July 31, 2008. ** Excluding restructuring charges.

Portfolio Transactions, Short-Term Trading and Management Costs

During the first half of 2008, reallocations were made in the equities portfolio through purchases of Volvo A shares and sales of Ericsson B, Skanska B and SSAB A shares. Shares were purchased for a total of SEK 2,214 M and sold for SEK 2,051 M. The value of the equities portfolio decreased during the first half of the year from SEK 65,844 M to SEK 52,201 M.

Short-term trading during the first half generated a profit of SEK 2 M (120). Management costs amounted to SEK 43 M (43).

Net Debt and Liquidity

Interest-bearing net debt amounted to SEK 10,370 M as per June 30, a decrease of SEK 581 M in 2008. The net debt-equity ratio was 19.9% as per June 30. On July 31 the net debt-equity ratio was 21.3%. The average interest rate, which is fixed for just under five years, is 4.6%, which can be put in relation to the dividend yield of the equities portfolio, which was 5.6% as per June 30, 2008. Unutilized bank facilities for long-term borrowing amount to SEK 3.9 billion. Dividends received and redemption programs for 2008 generates a liquidity surplus of approximately SEK 500 M after deducting the dividend payout, and taking into account estimated interest expenses and management costs.

Net Asset Value

Net asset value was SEK 41.7 billion on June 30, 2008, a decrease of SEK 13.1 billion during the year to date. The value of the equities portfolio decreased by 21%, while net debt decreased by SEK 0.5 billion. Net asset value decreased during the first half of the year by SEK 34 per share, to SEK 108 per share, corresponding to a decrease of 24%. Net asset value on July 31, 2008, was SEK 39.0 billion, or SEK 101 per share, a decrease of 29% during the first seven months of the year. Net asset value including reinvested dividends fell by 26%. The discount to net asset value narrowed during the same period, which is why Industrivärden's share price, which fell by 20% including reinvested dividends, performed better than net asset value.

SEK billion July 31, 2008 June 30, 2008 Dec. 31, 2007 Dec. 31, 2006
Equities portfolio 49.7 52.2 65.8 63.3
Interest-bearing net debt -10.6 -10.4 -11.0 -4.5
Other items, net -0.1 -0.1 -0.0 -0.3
Net asset value
Net asset value per share (SEK)
39.0
101
41.7
108
54.8
142
58.5
151
Debt-equity ratio 21.3% 19.9% 16.6% 7.2%

Other Information

Accounting Principles

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 adopted by the EU, and the Swedish Annual Accounts Act. The Parent Company's financial statements have been prepared in accordance with RFR 2.1, Accounting for Legal Entities, and the Swedish Annual Accounts Act. No changes have taken place in the Group's or Parent Company's accounting and valuation principles compared with the accounting and valuation principles applied and described in the 2007 Annual Report.

Risks and Uncertainties

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 June 30, 2008, would have affected the market value by approximately +/– SEK 500 M.

Related-Party Transactions

No transactions have taken place between Industrivärden and related parties that have materially affected the Company's position or earnings for the first half of the year, apart from the dividends received from the associated companies Indutrade, SCA, Skanska and SSAB.

Certification

The Board of Directors and President certify that the half-year interim report provides a fair view of the Parent Company's and Group's operations, financial position and results of operations, and that it describes the significant risks and uncertainties facing the Parent Company and the companies included in the Group.

Stockholm, August 4, 2008

Tom Hedelius Sverker Martin-Löf Boel Flodgren Finn Johnsson

Chairman Vice Chairman Director Director

Fredrik Lundberg Lennart Nilsson Anders Nyrén Director Director President and CEO, Director

Auditors' Review Report

We have reviewed the interim report for AB Industrivärden (publ) for the period January 1 – June 30, 2008. The Board of Directors and President are responsible for the preparation and presentation of this interim report in accordance with the Annual Accounts Act and IAS 34. Our responsibility is to express a conclusion on this interim 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 interim report is not prepared, in all material respects, in accordance with the Annual Accounts Act and IAS 34.

Stockholm, August 4, 2008

Öhrlings PricewaterhouseCoopers AB Anders Lundin Authorized Public Accountant

Information About Industrivärden and Its Portfolio Companies

www.industrivarden.net www.sandvik.com www.handelsbanken.com www.ssab.com www.sca.com www.ericsson.com www.volvogroup.com www.skanska.com www.indutrade.com www.munters.com www.hoganas.com www.hemtex.com

Contact Information

Anders Nyrén, President and CEO, tel. +46 8 666 64 00 Sverker Sivall, IR, 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.

Financial Calendar 2008

The interim report for January–September will be published on October 31.

Equities Portfolio

July 31, 2008 Market value Share of
capital in
Shares of
votes in
No. of shares SEK M SEK/share portfolio
value, %
company, % company, %
Sandvik 136.431.200 10,880 28 22 11.5 11.5
Handelsbanken A
Handelsbanken B
69,386,500
118,900
10,738 28 22 11.2 11.3
SSAB A
SSAB B
52,789,646
121,794
8,887 23 18 16.3 21.2
SCA A
SCA B
48,600,000
23,000,000
5,013 13 10 10.2 29.6
Ericsson A 74,400,000 4,717 12 10 2.3 13.3
Volvo A
Volvo B
56,599,550
1,962,000
4,120 11 8 2.8 6.9
Skanska A
Skanska B
15,010,700
17,314,800
2,546 7 5 7.6 27.0
Indutrade 14,757,800 1,594 4 3 36.9 36.9
Munters 10,950,000 652 2 1 14.6 14.6
Höganäs B 3,550,000 414 1 1 10.1 8.1
Hemtex 3,700,000 165 0 0 12.6 12.6
Total 49,726 129 100

Market value pertains to Industrivärden's share of the respective portfolio companies' total market capitalization.

June 30, 2008 and June 30, 2008 December 31, 2007
December 31, 2007 Market value Market value
No. of shares SEK M SEK/share Share of port
folio value, %
SEK M SEK/share
Sandvik 136,431,200 11,256 29 22 15,178 39
SSAB 52,911,440 10,315 27 20 9,951 26
Handelsbanken 69,197,430 9,930 26 19 14,159 37
SCA 70,800,000 6,157 16 12 8,289 21
Ericsson 74,400,000 4,724 12 9 5,866 15
Volvo 57,599,550 4,107 11 8 4,916 13
Skanska 32,325,500 2,796 7 5 4,066 11
Indutrade 14,757,800 1,740 4 3 1,819 5
Munters 10,950,000 627 2 1 840 2
Höganäs 3,550,000 350 1 1 485 1
Hemtex 3,700,000 199 0 0 275 0
52,201 135 100 65,844 170

In June Ericsson carried out a 1:5 reverse split, whereby each five shares held were combined to form one share.

Industrivärden Group

SEK M 2008
April-June
2007
April-June
2008
Jan.-June
2007
Jan.-June
2007
Jan.-Dec.
Income statement
Dividend income from stocks 2,625 2,094 2,908 2,094 2,107
Change in value of stocks -7,201 4,505 -13,822 11,134 -3,975
Other income and expenses* -42 5 -38 76 55
Operating income/loss -4,618 6,604 -10,952 13,304 -1,813
Financial items -122 -60 -252 -103 -289
Income/loss after financial items -4,740 6,544 -11,204 13,201 -2,102
Tax -3 -7 160
Net income/loss for the period -4,740 6,541 -11,204 13,194 -1,942
Earnings per share, SEK -12.28 16.94 -29.01 34.16 -5.03
Balance sheet as per end of period
Equities 52,201 76,698 65,844
Other non-current assets 96 152 90
Total non-current assets 52,297 76,850 65,934
Short-term equity investments 71 143 73
Cash and cash equivalents 5 1,403 257
Other current assets 50 19 29
Total current assets 126 1,565 359
Total assets 52,423 78,415 66,293
Shareholders' equity 41,719 69,947 54,837
Non-current interest-bearing liabilities 9,459 6,283 9,857
Non-current noninterest-bearing liabilities 17 31 18
Total non-current liabilities 9,476 6,314 9,875
Current interest-bearing liabilities 985 1,728 1,416
Other liabilities 243 426 165
Total current liabilities 1,228 2,154 1,581
Total shareholders' equity and liabilities 52,423 78,415 66,293
Cash flow
Cash flow from operating activities 2,694 2,065 1,926
Cash flow from investing activities -163 -2,322 -6,598
Cash flow from financing activities** -2,783 922 4,191
Cash flow for the period -252 665 -481
Cash and cash equivalents at the end of the period 5 1,403 257

* Including short-term trading and management costs.

** Of which dividend paid to shareholders of SEK 1,931 M 2008 and SEK 1,738 M 2007.

SEK M 2008
Jan.-June
2007
Jan.-June
2007
Jan.-Dec.
Changes in shareholders' equity
Opening shareholders' equity as per balance sheet 54,837 58,491 58,491
Change in hedging reserve 17 8
Translation differences 18
Income/loss for the period -11,204 13,194 -1,942
Dividend -1,931 -1,738 -1,738
Closing shareholders' equity as per balance sheet 41,719 69,947 54,837
Key ratios as per end of period
Shareholders' equity per share, SEK 108 181 142
Share price per share, SEK (Class A) 91 150 113
Share price per share, SEK (Class C) 82 142 105
Number of shares (thousands) 386,271 386,271 386,271
Interest-bearing net debt as per end of period
Cash and cash equivalents 5 1,403 257
Interest-bearing receivables 69 65 65
Non-current interest-bearing liabilities 9,459 6,283 9,857
Current interest-bearing liabilities 985 1,728 1,416
Interest-bearing net debt 10,370 6,543 10,951

Industrivärden – Parent Company

SEK M 2008
Jan.-June
2007
Jan.-June
2007
Jan.-Dec.
Income statement
Operating income/loss -6,078 8,146 -1,272
Income/loss after financial items -6,315 8,041 -1,548
Income/loss for the period -6,315 8,041 -1,383
Balance sheet as per end of period
Non-current assets
Current assets
40,889
1,851
56,659
1,483
51,576
341
Total assets 42,740 58,142 51,917
Shareholders' equity
Non-current liabilities
Current liabilities
31,854
9,457
1,429
49,501
6,280
2,361
40,083
9,856
1,978
Total shareholders' equity and liabilities 42,740 58,142 51,917

Long-term industrial developer of listed Nordic companies

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