Quarterly Report • Jul 5, 2011
Quarterly Report
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| Net asset value | June 30, 2011 | Dec. 31, 2010 | Dec. 31, 2009 | ||
|---|---|---|---|---|---|
| Equities portfolio, SEK billion | 67.9 | 71.1 | 53.5 | ||
| Interest-bearing net debt, SEK billion | -15.9 | -13.4 | -10.8 | ||
| Net asset value, SEK billion | 52.0 | 57.7 | 42.8 | ||
| Net asset value per share, SEK | 135 | 149 | 111 | ||
| Net asset value per share after full conversion, SEK | 132 | 144 | – | ||
| Total return | 6 months | 1 year | 5 years | 10 years | 15 years |
| Class A shares (yearly average) | -5% | 30% | 6% | 6% | 13% |
| Class C shares (yearly average) | -8% | 29% | 7% | 7% | 13% |
| Benchmark index (SIXRX) | -1% | 17% | 7% | 7% | 11% |
| Excess return for Class C shares, percentage points | -7% | 12% | 0% | 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.
During the second quarter, Industrivärden's net asset value decreased by 5%, or SEK 2.9 billion. At the same time, those of our portfolio companies that are exposed towards growth markets are performing well and our other holdings have had a stable development. How can this be? By theory, the price of a stock refl ects the discounted value of anticipated future profi ts and the stock markets are concerned by the economic development in parts of the world. The greatest source of concern is what will happen with Greece and what consequences this could have for the euro as a currency and for the European banking system. I personally feel that these worries are exaggerated, or more precisely, that the worries themselves are more harmful than the actual problem – the need for a debt write-down in Greece.
The fact that the Greek government has now passed an austerity package, which will enable the EU and the IMF to provide additional support to Greece, presents a short-term solution to a liquidity problem, but not to the actual solvency problem with excessively high debt. The latter problem can only be remedied by writing down Greece's debt or by extending maturities. But such a solution may take time, since it is a complicated political process in which the ECB, the euro countries' governments, the EU Commission and the IMF must come to an agreement. Until this happens, we can count on a continued tentative stock market with wide fl uctuations.
It is worth noting that the global GDP trend continues to be positive thanks to the favorable development in the world's emerging regions, driven by increased domestic private consumption and continued infrastructure investments.
As a result of the greater uncertainty, the Stockholm Stock Exchange is down by slightly less than 4% since the start of the year. More defensive sectors, such as pharmaceuticals and infrastructure, have performed better than the index, while banks are level with the index. Companies in the engineering and construction industries have performed below the index, which naturally has affected the value of Industrivärden's portfolio. During the fi rst half of the year, the total return for our equities portfolio was -6%, compared with -1% for the return index.
Our portfolio companies are fi nancially strong, with good earnings, increased market shares and favorable future outlooks. I have said it before, but it bears repeating – well-managed companies with leading positions in their respective areas will always perform better than the market over time. This applies most of all for Industrivärden's portfolio companies, which are well positioned for continued profi table growth. In Industrivärden they have an engaged owner to the benefi t of their long-term growth in value as well as that of Industrivärden's stock.
Ericsson is a prime example of how a company can strengthen its market position through a concerted effort. The company is today the world's leading supplier of communication networks and related services for telecom operators. In June Ericsson acquired the American software company Telcordia for slightly more than SEK 7 billion, thereby strengthening its service offering. In July Ericsson also announced that it is a part of the consortium that will acquire Nortel's remaining patent portfolio for approximately SEK 2 billion. The portfolio comprises 6,000 patents within information and communication technologies.
During the fi rst half of 2011 we remained active and purchased stocks for SEK 3.5 billion net. This pertains primarily to net purchases of Volvo, for SEK 1.6 billion, Handelsbanken for SEK 1.1 billion, and Sandvik for SEK 0.5 billion. We are now, along with Handelsbanken's pension foundations, Volvo's largest shareholder.
Our short-term trading showed a profi t of SEK 92 M for the fi rst half of the year, and management costs totaled SEK 51 M.
I would like to conclude with a few words on the EU Commission's Green Paper on corporate governance within the EU. The document lays out the overarching framework for the EU's coming regulation in the area
with the aim of boosting trust in the capital market. The stated ambition to curb harmful short-termism and excessive risk-taking is praiseworthy. What is worrying are the proposed measures – strongly increased regulation. The detailed regulations proposed are based primarily on an Anglo-Saxon model of corporate governance, with management control and few long-term principal owners. But large parts of the European corporate environment, including Sweden's, are based on boards that are independent in relation to the management work and on strong principal owners. Greater detail regulation risks making things more diffi cult for long-term owners – actors that the EU's Green Paper states that it seeks to favor. It is my hope that in its continued work, the EU Commission will conduct a thorough analysis of the Swedish system of corporate governance, for example. It is a model that is built on self-regulation and transparency, with independent boards and strong owners. The results speak clearly: a large number of successful, global companies, responsible ownership and balanced risk-taking.
Anders Nyrén
Net asset value on June 30, 2011, was SEK 52.0 billion, a decrease of SEK 5.7 billion for the year to date. Net asset value per share decreased by SEK 14 to SEK 135, or by 7% including reinvested dividends. During the same period, the total return index (SIXRX) decreased by 1%.
During the fi rst half of 2011, the value of the equities portfolio, adjusted for purchases and sales, decreased by SEK 6.7 billion to SEK 67.9 billion. The total return for the portfolio during the same period was -6%, compared with -1% for the total return index (SIXRX).
| June 30, 2011 | December 31, 2010 | |||||||
|---|---|---|---|---|---|---|---|---|
| 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 | 142,580,752 | 12.0 | 12.0 | 23 | 15,812 | 41 | 18,150 | 47 |
| Handelsbanken A | 70,200,796 | 11.3 | 11.5 | 20 | 13,696 | 35 | 14,015 | 36 |
| Volvo A | 103,324,784 | 5.0 | 12.7 | 18 | 11,854 | 31 | 10,713 | 28 |
| Volvo B | 4,140,243 | |||||||
| Ericsson A | 77,680,600 | 2.4 | 13.8 | 10 | 6,933 | 18 | 5,748 | 15 |
| SCA A | 43,148,461 | 10.2 | 29.1 | 10 | 6,467 | 17 | 7,487 | 19 |
| SCA B | 28,651,539 | |||||||
| SSAB A | 56,105,972 | 17.6 | 22.6 | 8 | 5,368 | 14 | 6,347 | 17 |
| SSAB B | 754,985 | |||||||
| Skanska A | 12,659,940 | 7.7 | 24.4 | 5 | 3,663 | 9 | 4,280 | 11 |
| Skanska B | 19,694,586 | |||||||
| Indutrade | 14,727,800 | 36.8 | 36.8 | 4 | 2,982 | 8 | 3,417 | 9 |
| Höganäs B | 4,408,046 | 12.6 | 10.0 | 2 | 1,115 | 3 | 934 | 2 |
| Equities portfolio | 100 | 67,890 | 176 | 71,092 | 184 | |||
| Interest-bearing net debt | 15,852 | -41 | 13,401 | -35 | ||||
| Net asset value | 52,038 | 135 | 57,691 | 149 | ||||
| Debt-equity ratio | 23% | 19% | ||||||
| Net asset value after full conversion | 132 | 144 | ||||||
| Debt-equity ratio after full conversion | 11% | 13% |
Market value pertains to Industrivärden's share of the respective portfolio companies' total market capitalization.
Interest-bearing net debt totaled SEK 15.9 billion at June 30, 2011. The debt-equity ratio was 23%, and the equity ratio was 74% (75%). After full conversion of outstanding convertible loans, corresponding to SEK 8.7 billion, the debt-equity ratio was 11%.
The convertible loans are hedged, entailing that translation effects do not affect net asset value.
At mid-year, interest-bearing liabilities had an average, fi xed interest term of approximately 4 years and carried an average interest rate of 3.5%.
In January 2011 Industrivärden issued six-year convertible bonds worth EUR 550 M. The conversion price is SEK 162/share at a fi xed euro exchange rate of SEK 8.8803, representing a premium of 35% and an annual coupon of 1.875%.
Industrivärden's ownership has contributed to competitive growth in value for the portfolio companies. Industrivärden's stock has been a good long-term investment that has delivered a higher total return than the return index.
During the fi rst half of 2011, the shareholdings in Ericsson and Höganäs generated higher returns than the return index. Overall, the total return for the equities portfolio was -6%, compared with -1% for the return index.
During the last fi ve-year period, Indutrade, Volvo, Höganäs and Sandvik have generated higher returns than the return index, while Skanska and Handelsbanken have been level with the index.
For the ten-year period, all of the portfolio companies except Ericsson have delivered total returns in excess of or level with the return index.
The total return for Industrivärden's stock for various time periods is shown in a table on the fi rst page.
| Total return Jan.–June 2011 |
Average annual total return, % |
||||
|---|---|---|---|---|---|
| Five years | Ten years | ||||
| Portfolio companies | SEK billion | % | June '06–June '11 | June '01–June '11 | |
| Ericsson | 1.4 | 24 | -3 | -7 | |
| Höganäs | 0.0 | 0 | 13 | 8 | |
| Volvo | -0.2 | -2 | 14 | 18 | |
| Handelsbanken | -0.8 | -5 | 6 | 7 | |
| Skanska | -0.3 | -7 | 7 | 7 | |
| SCA | -0.9 | -10 | 2 | 6 | |
| Indutrade | -0.4 | -11 | 19 | - | |
| Sandvik | -2.4 | -13 | 10 | 14 | |
| SSAB | -0.9 | -15 | -4 | 17 | |
| Equities portfolio | -4.4 | -6 | |||
| Index (SIXRX) | -1 | 7 | 7 | ||
| Industrivärden C | -8 | 7 | 7 |
The total return expressed 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 fi rst half of 2011, stocks were purchased for SEK 4,960 M and sold for SEK 1,436 M. Large net purchases were in Volvo, for SEK 1,605 M, Handelsbanken, for SEK 1,057 M, Sandvik, for SEK 501 M, and Höganäs, for SEK 199 M.
In May 2011, 2,432,000 Class A shares in Skanska were exchanged for 10% more Class B shares, thereby lowering Industrivärden's share of the votes from 27.9% to 24.3%. The exchange enabled Industrivärden to increase its share of capital in Skanska within the framework of the takeover rules (30% of the votes in the company).
During the fi rst half of 2011, Industrivärden's short-term trading generated a profi t of SEK 92 M (102). Management costs amounted to SEK 51 M (44). Management costs corresponded to 0,15% of managed assets, which is considerably lower than for most comparable investment alternatives.
With more than 60 years of active ownership, Industrivärden has a unique position in creating long-term value in listed Nordic companies. The ambition is to work in a structured manner and thereby actively contribute to growth in value of the portfolio companies. Operations rest on a foundation of signifi cant owner infl uence, extensive experience, knowledgeable employees, a strong business model and a large network. Our portfolio companies are leaders in their respective segments and all have strong global positions.
Through Industrivärden, they have a professional and active owner, to the benefi t of their as well as Industrivärden's long-term growth in value. Current overarching ownership matters include ensuring adherence to long-term growth plans, evaluating potential growth investments, and monitoring the companies' capital structures.
Following is a general description of Industrivärden's investment cases along with strategic options and activities in brief.
Through a niche focus and strong R&D profi le, Sandvik has established a world-leading position in materials technology with products primarily for the manufacturing and mining industries. www.sandvik.com
A well-developed universal banking operation and decentralized branch network with local customer responsibility contribute to high customer satisfaction and good profi tability. 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 a fast-growing line of personal care products – and in packaging products. Europe's largest private forest owner.
www.sca.com
The market's largest and most profi table supplier of mobile telecom infrastructure, with a leading position in telecom development.
www.ericsson.com
World-leading position in high strength steel sheet niche creates solid foundation for growth and sustained high profi tability. www.ssab.com
Substantial 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 high-tech industrial consumables, good organic growth and a highly refi ned model for acquisition-based growth has resulted in strong profi tability growth. www.indutrade.com
Establishment in new geographic markets. Flexibility through decentralized business model.
Market leader in growing niche of metal powders, used primarily for component manufacturing in the automotive industry.
www.hoganas.com
This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting. The consolidated fi nancial 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 fi nancial statements have been prepared in accordance with RFR 2, Accounting for Legal Entities, and the Swedish Annual Accounts Act. 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 fi nancial position.
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, 2011, would have affected its market value by approximately +/– SEK 700 M.
During the fi rst half of 2011 dividend income from associated companies have been received.
In May 2011 Industrivärden exchanged 2,432,000 Class A shares in Skanska for 10% more Class B shares from L E Lundbergföretagen.
The Board of Directors and President certify that the halfyear interim report gives a true and fair view of the Parent Company's and Group's fi nancial 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, 2011 AB Industrivärden (publ)
| Sverker Martin-Löf | Christian Caspar |
|---|---|
| Chairman | Director |
| Boel Flodgren | Stuart Graham |
| Director | Director |
| Hans Larsson | Fredrik Lundberg |
| Director | Director |
Anders Nyrén President and CEO, Director
The 2011 Annual General Meeting was held on May 5, 2011, at which the following resolutions, among others, were made.
The dividend was set at SEK 4.00 per share (3.00). Boel Flodgren, Hans Larsson, Fredrik Lundberg, Sverker Martin-Löf and Anders Nyrén were re-elected as directors on the Board. Olof Faxander, Finn Johnsson and Lennart Nilsson had declined re-election. Christian Caspar and Stuart Graham were elected as new directors on the Board. Christian Caspar (born 1951, B.Sc. Econ.) has served for more than 30 years in a number of leading positions for McKinsey & Company and is a board member of Stena, among others. Stuart Graham (born 1946, B.S. Econ.) is a board member of PPL Corporation and Skanska, among others, and former CEO of Skanska.
The Annual General Meeting resolved to adopt the Board's proposal to add a share conversion clause to the Articles of Association, entailing that owners of Class A shares can request conversion to Class C shares.
We have reviewed the interim report for AB Industrivärden (publ) for the period January 1–June 30, 2011. 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 fi nancial 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 signifi cant matters that might be identifi ed 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, July 5, 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 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 10:00 a.m. on July 5, 2011.
Interim report January–September: October 5
| 2011 | 2010 | 2011 | 2010 | 2010 | |
|---|---|---|---|---|---|
| SEK M | April–June | April–June | Jan.–June | Jan.–June | Jan.–Dec. |
| Income statement | |||||
| Dividend income from stocks | 1,771 | 1,326 | 2,403 | 1,379 | 1,379 |
| Change in value of stocks, etc. | -2,456 | -1,103 | -6,475 | 3,004 | 13,991 |
| Other income and expenses* | 49 | 31 | 41 | 57 | 22 |
| Operating income | -636 | 254 | -4,031 | 4,440 | 15,392 |
| Financial items Income after fi nancial items |
-142 -778 |
-132 122 |
-287 -4,318 |
-261 4,179 |
-522 14,870 |
| Tax | – | – | – | – | – |
| Net income for the period | -778 | 122 | -4,318 | 4,179 | 14,870 |
| Earnings per share, SEK | -2.01 | 0.32 | -11.18 | 10.82 | 38.50 |
| Earnings per share after full conversion, SEK | -2.67 | 0.11 | -9.78 | 10.47 | 37.11 |
| Statement of comprehensive income | |||||
| Income for the period | -778 | 122 | -4,318 | 4,179 | 14,870 |
| Change in hedging reserve | -8 | 5 | 29 | -2 | 72 |
| Comprehensive income for the period | -786 | 127 | -4,289 | 4,177 | 14,942 |
| Balance sheet as per end of period | |||||
| Equities | 67,890 | 58,917 | 71,092 | ||
| Other non-current assets | 46 | 217 | 207 | ||
| Total non-current assets | 67,936 | 59,134 | 71,299 | ||
| Short-term equity investments | 202 | 142 | 176 | ||
| Cash and cash equivalents | 0 | 1,542 | 0 | ||
| Other current assets | 144 | 8 | 72 | ||
| Total current assets | 346 | 1,692 | 248 | ||
| Total assets | 68,282 | 60,826 | 71,547 | ||
| Shareholders' equity | 50,493 | 45,562 | 56,327 | ||
| Non-current interest-bearing liabilities | 14,203 | 11,663 | 11,123 | ||
| Non-current noninterest-bearing liabilities** | 1,626 | 634 | 1,344 | ||
| Total non-current liabilities | 15,829 | 12,297 | 12,467 | ||
| Current interest-bearing liabilities | 1,690 | 2,654 | 2,458 | ||
| Other liabilities | 270 | 313 | 295 | ||
| Total current liabilities | 1,960 | 2,967 | 2,753 | ||
| Total shareholders' equity and liabilities | 68,282 | 60,826 | 71,547 | ||
| Cash fl ow | |||||
| Cash fl ow from operating activities | 2,069 | 1,093 | 827 | ||
| Cash fl ow from investing activities | -3,524 | -2,090 | -2,547 | ||
| Cash fl ow from fi nancing activities*** | 1,445 | 2,661 | 1,810 | ||
| Cash fl ow for the period | -10 | 1,664 | 90 | ||
| Exchange rate difference in cash and cash equivalents | 10 | -122 | -90 | ||
| Cash and cash equivalents at end of period | 0 | 1,542 | 0 |
* Including short-term trading and management costs.
** Of which, the option portion of the convertible loans, totaling SEK 1,613 M (752), which at the time of issue amounted to a combined total of SEK 982 M (383).
*** Of which, dividend of SEK 1,545 M paid to the shareholders in 2011 and dividend of SEK 1,159 M in 2010.
| 2011 | 2010 | 2010 | |
|---|---|---|---|
| SEK M | Jan.–June | Jan.–June | Jan.–Dec. |
| Changes in shareholders' equity | |||
| Opening shareholders' equity as per balance sheet | 56,327 | 42,544 | 42,544 |
| Comprehensive income for the period | -4,289 | 4,177 | 14,942 |
| Dividend | 1,545 | -1,159 | -1,159 |
| Closing shareholders' equity as per balance sheet | 50,493 | 45,562 | 56,327 |
| Key data as per end of year | |||
| Net asset value per share, SEK | 135 | 120 | 149 |
| Net asset value per share after full conversion, SEK | 132 | 118 | 144 |
| Share price (Class A), SEK | 111 | 88 | 120 |
| Share price (Class C), SEK | 105 | 84 | 118 |
| Number of shares (thousands)* | 386,271 | 386,271 | 386,271 |
| Interest-bearing net debt at end of period | |||
| Cash and cash equivalents | 0 | 1,542 | 0 |
| Interest-bearing assets | 41 | 190 | 180 |
| Non-current interest-bearing liabilities** | 14,203 | 11,663 | 11,123 |
| Current interest-bearing liabilities | 1,690 | 2,654 | 2,458 |
| Interest-bearing net debt | 15,852 | 12,585 | 13,401 |
* Number of shares upon full conversion (thousands), 460,688.
** Of which, convertible loans SEK 8,656 M (4,353).
| 2011 | 2010 | 2010 | |
|---|---|---|---|
| SEK M | Jan.–June | Jan.–June | Jan.–Dec. |
| Income statement | |||
| Operating income | -2,128 | 4,051 | 11,614 |
| Income after fi nancial items | -2,265 | 3,815 | 11,141 |
| Income for the period | -2,265 | 3,815 | 11,141 |
| Statement of comprehensive income | |||
| Income for the period | -2,265 | 3,815 | 11,141 |
| Change in hedging reserve | - | -2 | 171 |
| Comprehensive income for the period | -2,265 | 3,813 | 11,312 |
| Balance sheet as per end of period | |||
| Non-current assets | 51,119 | 50,119 | 52,022 |
| Current assets | 1,312 | 1,688 | 972 |
| Total assets | 52,431 | 51,807 | 52,994 |
| Shareholders' equity | 40,109 | 36,420 | 43,919 |
| Non-current liabilities | 10,658 | 11,297 | 6,367 |
| Current liabilities | 1,664 | 4,090 | 2,708 |
| Total shareholders' equity and liabilities | 52,431 | 51,807 | 52,994 |
Long-term industrial developer of listed Nordic companies
AB Industrivärden (publ) Reg. no. 556043-4200
Box 5403 SE-114 84 Stockholm, Sweden Tel. +46-8-666 64 00 [email protected]
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