Quarterly Report • Oct 5, 2010
Quarterly Report
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| Net asset value | Sept. 30, 2010 | Sept. 30, 2009 | Dec. 31, 2009 | ||
|---|---|---|---|---|---|
| Equities portfolio, SEK billion | 63.5 | 49.6 | 53.5 | ||
| Interest-bearing net debt, SEK billion | -12.6 | -10.7 | -10.8 | ||
| Net asset value, SEK billion | 50.9 | 38.9 | 42.8 | ||
| Net asset value per share, SEK | 132 | 101 | 111 | ||
| Total return | 9 months | 1 year | 5 years | 10 years | 15 years |
| Class A shares (yearly average) | 15% | 22% | 4% | 3% | 13% |
| Class C shares (yearly average) | 19% | 32% | 5% | 4% | 13% |
| Benchmark index (SIXRX) | 18% | 26% | 8% | 4% | 11% |
| Excess return for Class C shares, percentage points | 1 | 6 | -3 | 0 | 2 |
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.
The global economic recovery is continuing, and with it, concerns over another sharp economic downturn are subsiding. The International Monetary Fund's projections point to global GDP for 2010 that is higher than at the peak reached before the financial crisis. However, there are clear differences in the rate of growth and strength of the recovery in various parts of the world. In emerging economies, spearheaded by China, the rapid expansion continues, with a high level of economic activity. In the U.S., Japan and southern Europe the recovery has been weak, with continued high unemployment, which has forced the central banks to adopt additional stimulus measures. However, the stimulus effects are being counteracted by large budget deficits in these regions, which is forcing governments to implement further austerity measures. For the Swedish economy, the situation is different. Growth is over 4%, and the state's finances are in good shape, with a large surplus in the trade balance. The strengthening of the Swedish krona is a confirmation of this.
The credit and capital markets are now functioning increasingly better, even though the so-called PIGS countries (Portugal, Ireland, Greece and Spain) are having to pay high interest on new loans. The corporate bond market has gained momentum again, with borrowing rates that are once again making this form of financing attractive for companies. This is important, since the bank system – above all in southern Europe – is still struggling with high borrowing costs and impending regulations. I am also happy to note that the fears I described in the halfyear report regarding Basel III did not materialize. Following the Basel Committee's publication of new rules in early September, we now have a regulatory code for banks that is built upon more realistic levels for solvency and liquidity requirements. Moreover, the new rules will not be fully implemented until January 2019. This will give the banks time to adapt, which will help improve their ability to provide credits.
The world's stock markets remain nervous and are clearly marked by the uncertainty that exists regarding developments in various parts of the global economy. The Swedish stock market is somewhat
of an exception, with a gain of 14% thus far for the year to date. This can be compared with, for example, the U.S. stock market, which has gained about 2%, which is level with the European index. The fact that gold – a metal with limited use – has been the most popular investment object when the global economy is projected to grow by 3%-4% this year, is a clear sign of the market's risk aversion.
Net asset value has developed well during the year and reached SEK 50.9 billion. This entails an increase of SEK 8.1 billion during the first nine months of the year, or 22% including reinvested dividends. The total return index rose 18% during the same period.
The total return for the nine-month period was 15% for the Class A shares and 19% for the Class C shares, compared with 18% for the return index.
During the year we have used some of the proceeds from our convertible issue to carry out several share purchases for the future. In total we have made net purchases of stocks for approximately SEK 2.1 billion. These consisted mainly of shares in Volvo, for SEK 1.0 billion, and in companies like SSAB, Sandvik and Skanska, for a combined total of SEK 1.1 billion. These investments have had accumulated growth in value of 23% for the year to date.
Our short-term trading has generated a profit during this year of SEK 98 M, with limited risk. Through good market knowledge and a well-defined work method, our short-term trading has generated a total profit of approximately SEK 900 M since the start in 2003.
Industrivärden has decided to divest its holding in Munters by accepting Alfa Lavals cash offer for our shares under certain conditions. On October 1 Alfa Laval raised its original offer from SEK 68 to SEK 75 per share after Nordic Capital offered SEK 73 per share at the end of September. Alfa Laval's offer of SEK 75 per share corresponds to a bid premium of
50% on the average price during the three months period preceding the initial offer. Industrivärden has accepted the raised bid provided that no rival offer is made that exceeds the current offer by at least 5%. The acceptance period expires on October 15.
Our portfolio companies continue to perform well, which is illustrated by their half-year reports. The significance of emerging economies on profitability performance is growing increasingly clear, so it is gratifying to note that many of our portfolio companies, such as Volvo and Sandvik, are well positioned for future growth.
One company where we have clearly been able to see the results of normalized demand coupled with the completion of productivity improvements is Volvo. In pace with the return to profitability, the positive effects of the swift and powerful structural measures that were taken after the financial crisis in 2008 are now becoming apparent. This is clearly illustrated by the return of profitability to the level before the financial crisis, but based on considerably lower volumes. During the same period, Volvo took yet another step forward in key emerging markets in Asia and South America, which today account for more than a third of sales. I am pleased to note that we now have a surplus value in our Volvo holding. Our investment perspective in Volvo is long term, and we see substantial growth potential in the company.
Anders Nyrén President and CEO
Net asset value on September 30, 2010, was SEK 50.9 billion, an increase of SEK 8.1 billion for the year to date. Net asset value per share increased by SEK 21 to SEK 132, or 22% including reinvested dividends. During the same period, the total return index (SIXRX) rose 18%.
During the first nine months of the year, the value of the equities portfolio grew by SEK 7.8 billion, or 15%, to SEK 63.5 billion. The total return for the portfolio during the same period was 17%, which is level with the total return index (SIXRX).
Interest-bearing net debt was SEK 12.6 billion at September 30. The debt-equity ratio was 19.9%, and the equity ratio was 78% (78%). After full conversion of outstanding convertible loans, corresponding to SEK 4.3 billion, the debt-equity ratio amounts to 13.1%.
The convertible loan is hedged, entailing that translation effects on loans, investments, and cash and cash equivalents do not affect net asset value.
Interest-bearing liabilities have an average, fixed interest term of approximately 4 years and carry average interest of 3.8%.
| September 30, 2010 | Dec. 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 | 140,443,752 | 11.8 | 11.8 | 23 | 14,508 | 37 | 11,701 | 30 |
| Handelsbanken A | 63,208,291 | 10.1 | 10.3 | 22 | 13,963 | 36 | 12,896 | 34 |
| Volvo A | 85,375,467 | 4.0 | 10.4 | 13 | 8,042 | 21 | 4,283 | 11 |
| Volvo B | 43,800 | |||||||
| SCA A | 45,100,000 | 10.0 | 29.5 | 11 | 7,248 | 19 | 6,754 | 18 |
| SCA B | 25,700,000 | |||||||
| SSAB A | 56,205,597 | 17.4 | 22.6 | 10 | 6,049 | 16 | 6,313 | 16 |
| SSAB B | 73,498 | |||||||
| Ericsson A | 76,680,600 | 2.3 | 13.6 | 9 | 5,521 | 14 | 4,984 | 13 |
| Skanska A | 15,091,940 | 7.2 | 27.6 | 6 | 3,773 | 10 | 3,533 | 9 |
| Skanska B | 15,462,457 | |||||||
| Indutrade | 14,727,800 | 36.8 | 36.8 | 4 | 2,747 | 7 | 1,992 | 5 |
| Munters | 10,950,000 | 14.6 | 14.6 | 1 | 835 | 2 | 510 | 1 |
| Höganäs B | 3,550,000 | 10.1 | 8.1 | 1 | 776 | 2 | 582 | 2 |
| Equities portfolio | 100 | 63,462 | 164 | 53,548 | 139 | |||
| Interest-bearing net debt | 12,607 | 32 | 10,766 | 28 | ||||
| Net asset value | 50,855 | 132 | 42,782 | 111 | ||||
| Debt-equity ratio, % | 19.9 | 20.1 | ||||||
| Debt-equity ratio after full conversion, % | 13.1 | – |
Market value pertains to Industrivärden's share of the respective portfolio companies' total market capitalization.
Industrivärden's active ownership has generated competitive growth in value in the portfolio companies over time, entailing that over the long term, Industrivärden's stock has been a good investment delivering a higher total return than the return index.
During the first nine months of 2010 the shareholdings in Munters, Volvo, Indutrade and Höganäs generated a higher return than the return index. On the whole, the total return for the equities portfolio was 17%, which is level with the return index.
During the last five-year period, Indutrade, Volvo and SSAB have generated higher returns than the return index, while Handelsbanken, Skanska, Sandvik, Munters and Höganäs were level with the index.
For the ten-year period, all of the portfolio companies except Ericsson delivered a total return that is higher than 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 | Average annual | |||
|---|---|---|---|---|
| Jan.–Sept. 2010 | total return, % | |||
| Five years | Ten years | |||
| Portfolio companies | SEK billion | % | Sept. '05–Sept. '10 | Sept. '00–Sept. '10 |
| Munters | 0.3 | 67 | 8 | 10 |
| Volvo | 2.8 | 54 | 13 | 17 |
| Indutrade | 0.8 | 42 | 25 | – |
| Höganäs | 0.2 | 35 | 9 | 8 |
| Sandvik | 2.5 | 21 | 10 | 15 |
| Ericsson | 0.7 | 14 | -10 | -17 |
| Handelsbanken | 1.6 | 12 | 9 | 8 |
| SCA | 0.8 | 11 | 6 | 10 |
| Skanska | 0.3 | 7 | 8 | 9 |
| SSAB | -0.8 | -11 | 12 | 21 |
| Equities portfolio | 9.2 | 17 | ||
| Index (SIXRX) | 18 | 8 | 4 | |
| Industrivärden C | 19 | 5 | 4 |
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.
During the first nine months of 2010, stocks were purchased for SEK 3,029 M and sold for SEK 885 M. Major purchases were in Volvo, for SEK 1,008 M, SSAB, for SEK 560 M, and Sandvik, for SEK 428 M.
Alfa Laval has made a cash offer of SEK 75 per share for Munters, corresponding to a bid premium of 50% on the average share price during the quarter through September 3. Industrivärden has accepted the offer provided that no rival offer above the current offer by at least 5% is made. The acceptance period expires on October 15.
During the first nine months of 2010, Industrivärden's short-term trading generated a profit of SEK 98 M (76) and thereby covered management costs, which amounted to SEK 67 M (63). During the last five-year period, management costs have varied between 0.11% and 0.25% of managed assets, which is considerably lower than for most comparable investment alternatives.
Industrivärden's active ownership perspective fosters a keen understanding of the portfolio companies' business, operating environment and ongoing development. By contributing to value creation in the portfolio companies, the value of the assets increases at the same time that Industrivärden's equities risk decreases. Work is conducted in a structured manner with the knowledge, involvement and influence that is required to exercise high-quality active ownership.
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 has resulted in high customer satisfaction and enabled good profitability. www.handelsbanken.com
Strong position with acquisition-driven expansion in
www.volvogroup.com
Through innovative, customer-adapted product development and high quality, the company has a world-leading position in commercial transport solutions.
Asia Strong adaptation of operating costs to lower de-
mand
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
World-leading position in high strength steel niche creates solid base for growth and high profitability. www.ssab.com
The market's largest and most profitable supplier of mobile telecom infrastructure, with a leading position in telecom development. www.ericsson.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
Global leader in energy efficient air treatment solutions. www.munters.com
Market leader in the growing niche of metal powders, used primarily for component manufacturing in the auto industry. www.hoganas.com
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 2.3, Accounting for Legal Entities, and the Swedish Annual Accounts Act. Starting on 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. In accordance with an IFRIC pronouncement, the option component is reported as a liability, since the currency is different from the functional currency. In accordance with IAS 39, the option is measured on a continuous basis at fair value through profit or loss. Transaction costs are allocated over the term of the loan and are included in change in value in the income statement.
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 on the balance sheet date 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 September 30, 2010, would have affected the market value by approximately +/– SEK 650 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 first nine months of 2010, except for the receipt of dividend income from associated companies.
Stockholm, October 5, 2010
Anders Nyrén President and CEO
We have reviewed the interim report for AB Industrivärden (publ) for the period January 1– September 30, 2010. 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, October 5, 2010
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, 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.
INDUC SS in Blomberg INDUc.ST in Reuters
The information provided in this interim 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 a.m. on October 5, 2010.
Year-end report 2010: February 9 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 | 2009 | |
|---|---|---|---|---|---|
| SEK M | July–Sept. | July–Sept. | Jan.–Sept. | Jan.–Sept. | Jan.–Dec. |
| Income statement | |||||
| Dividend income from stocks | 0 | 0 | 1,379 | 1,871 | 1,871 |
| Change in value of stocks, etc. | 4,348 | 8,440 | 7,352 | 15,385 | 19,307 |
| Other income and expenses* | -25 | -3 | 32 | 14 | 14 |
| Operating income | 4,323 | 8,437 | 8,763 | 17,270 | 21,192 |
| Financial items | -131 | -129 | -392 | -399 | -523 |
| Income after financial items | 4,192 | 8,308 | 8,371 | 16,871 | 20,669 |
| Tax | - | - | - | - | - |
| Net income for the period | 4,192 | 8,308 | 8,371 | 16,871 | 20,669 |
| Earnings per share, SEK | 10.85 | 21.51 | 21.67 | 43.68 | 53.51 |
| Earnings per share after full conversion, SEK | 10.27 | 20.74 | |||
| Statement of comprehensive income | |||||
| Income for the period | 4,192 | 8,308 | 8,326 | 16,871 | 20,669 |
| Change in hedging reserve | 30 | 30 | 28 | 30 | 30 |
| Comprehensive income for the period | 4,222 | 8,338 | 8,354 | 16,901 | 20,699 |
| Balance sheet as per end of period | |||||
| Equities | 63,462 | 49,594 | 53,548 | ||
| Other non-current assets | 210 | 24 | 25 | ||
| Total non-current assets | 63,672 | 49,618 | 53,573 | ||
| Short-term equity investments** | 56 | 109 | 128 | ||
| Other current assets | 33 | 231 | 89 | ||
| Total current assets | 89 | 340 | 217 | ||
| Total assets | 63,761 | 49,958 | 53,790 | ||
| Shareholders' equity | 49,784 | 38,746 | 42,544 | ||
| Non-current interest-bearing liabilities | 10,554 | 8,507 | 8,513 | ||
| Non-current noninterest-bearing liabilities | 824 *** |
14 | 13 | ||
| Total non-current liabilities | 11,378 | 8,521 | 8,526 | ||
| Current interest-bearing liabilities | 2,238 | 2,381 | 2,330 | ||
| Other liabilities | 361 | 310 | 390 | ||
| Total current liabilities | 2,599 | 2,691 | 2,720 | ||
| Total shareholders' equity and liabilities | 63,761 | 49,958 | 53,790 | ||
| Cash flow | |||||
| Cash flow from operating activities | 1,047 | 1,464 | 1,341 | ||
| Cash flow from investing activities | -2,144 | 392 | 440 | ||
| Cash flow from financing activities**** | 1,232 | -2,952 | -2,877 | ||
| Cash flow for the period | 135 | -1,096 | -1,096 | ||
| Exchange rate difference in cash and cash equivalents* | -135 | - | - | ||
| Cash and cash equivalents at the end of the period | 0 | 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 of SEK 814 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 | 2009 | ||
|---|---|---|---|---|
| SEK M | Jan.–Sept. | Jan.–Sept. | Jan.–Dec. | |
| Changes in shareholders' equity | ||||
| Opening shareholders' equity as per balance sheet | 42,544 | 23,583 | 23,583 | |
| Comprehensive income for the period | 8,399 | 16,901 | 20,699 | |
| Dividend | -1,159 | -1,738 | -1,738 | |
| Closing shareholders' equity as per balance sheet | 49,784 | 38,746 | 42,544 | |
| Key data as per end of period | ||||
| Net asset value per share, SEK | 132 | 101 | 111 | |
| Share price (Class A), SEK | 98.10 | 83 | 88 | |
| Share price (Class C), SEK | 95.00 | 75 | 82 | |
| Number of shares (thousands)* | 386,271 | 386,271 | 386,271 | |
| Interest-bearing net debt at end of period | ||||
| Interest-bearing assets | 185 | 195 | 77 | |
| Non-current interest-bearing liabilities | 10,554 ** |
8,507 | 8,513 | |
| Current interest-bearing liabilities | 2,238 | 2,381 | 2,330 | |
| Interest-bearing net debt | 12,607 | 10,693 | 10,766 |
* Number of shares upon full conversion (thousands), 430,539.
** Of which, convertible loan totaling SEK 4,277 M.
| 2010 | 2009 | 2009 | |
|---|---|---|---|
| SEK M | Jan.–Sept. | Jan.–Sept. | Jan.–Dec. |
| Income statement | |||
| Operating income* | 5,607 | 9,162 | 11,373 |
| Income after financial items | 5,253 | 8,801 | 10,901 |
| Income for the period | 5,253 | 8,801 | 10,901 |
| Statement of comprehensive income | |||
| Income for the period | 5.253 | 8.801 | 10.901 |
| Change in hedging reserve | 28 | 30 | 30 |
| Comprehensive income for the period | 5.281 | 8.831 | 10.931 |
| Balance sheet as per end of period | |||
| Non-current assets** | 51,886 | 41,789 | 44,078 |
| Current assets | 173 | 334 | 223 |
| Total assets | 52,059 | 42,123 | 44,301 |
| Shareholders' equity** | 37,888 | 31,663 | 33,766 |
| Non-current liabilities | 10,378 | 7,507 | 7,513 |
| Current liabilities | 3,793 | 2,953 | 3,022 |
| Total shareholders' equity and liabilities | 52,059 | 42,123 | 44,301 |
| * Effect of changed accounting policies regarding associated companies |
651 | 1,931 | |
| ** Effect of changed accounting policies regarding associated companies | 3,501 | 4,784 |
Long-term industrial developer of listed Nordic companies
AB Industrivärden (publ) Reg. no. 556043-4200
Box 5403 SE-114 84 Stockholm Sweden
Phone +46-8-666 64 00 [email protected]
www.industrivarden.net
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