Quarterly Report • Apr 5, 2016
Quarterly Report
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January 1 – March 31, 2016
ANNUAL AVERAGE CHANGE PER MARCH 31, 2016
| Total return | |||||
|---|---|---|---|---|---|
| Net asset value* Industrivärden C | Index (SIXRX) | ||||
| 3M: 2016 | 4% | -5% | -3% | ||
| 1 year | -8% | -11% | -8% | ||
| 3 years | 7% | 10% | 13% | ||
| 5 years | 7% | 9% | 10% | ||
| 7 years | 20% | 20% | 18% | ||
| 10 years | 5% | 7% | 8% | ||
*Including reinvested dividend.
During the first quarter of 2016 the stock market was volatile and in a downward trend. Although the uncertainty remains, negative interest rates and overall good levels of profitability and dividend yield point to a certain underlying support for the stock market. Global growth is forecast to be flat, around three per cent in 2016. From a regional perspective, several key European economies and the U.S. continue to show positive signs. This is important, as a significant share of the portfolio companies' sales are derived from these markets.
The nominating committees of the portfolio companies have now presented their recommendations to the respective companies' Annual General Meetings. The proposed boards are considered to be well-suited for the respective companies and entail several new directors on the companies' boards. In my role as nominating committee member I feel that we have broaden our network with potential candidates to propose for election in the nominating processes.
Industrivärden's portfolio companies are currently in various stages of development, with varying market conditions. While some of the companies are conducting extensive structural work and facing significant challenges, I believe that the portfolio companies have favorable value potential over time.
Handelsbanken is showing continued favorable earnings and profitability. Its operations in the UK and the Netherlands are growing organically, with major long-term profitability potential. Some uncertainty exists regarding changes in capital adequacy regulations.
SCA is carrying out several value-focused activities combined with a clear focus on efficiency. Sales and earnings have developed well. Strategic investments in emerging markets are creating further, favorable opportunities for the future.
Sandvik is encountering continued weak demand, which is putting greater demands than normal on productivity improvements in order to maintain competitiveness. The company's strong positions combined with the new management's focus on decentralization and efficiency improvement have set the stage for favorable performance in an improved market situation.
Volvo is struggling with a challenging market situation in several key markets. The company has carried out a large efficiency improvement program, and a number of organizational changes have recently been carried out in its operations, above all in the trucks segment. These actions and continuous work on improvement will generate a better outcome from Volvo's global positions over time.
Ericsson's earnings are improving, but its organic growth remains weak. The company though continues to grow its profitable services business as well as in selected growth areas. The company's technologically leading position with various strategic partnerships creates good future potential.
Skanska is showing favorable operational and financial performance. The company has a clear ambition to further develop its successful construction business and to continue growing the volume of its profitable project development business.
ICA Gruppen is performing well on the foundation of its strong market position. At the same time, competition is growing, which requires focus on the core business in order to defend its position.
SSAB is encountering tough market conditions in the form of weak demand and low prices as well as an already high level of debt. This is putting high demands on efficiency improvement and a strong focus on cash flow.
During the first quarter we carried out a number of stock transactions in our long-term shareholdings, aimed at lowering our level of debt and increasing our financial flexibility.
At the end of the quarter, net asset value was SEK 71.8 billion, or SEK 166 per share, corresponding to an increase of 4 %. During the same period, the total returns for the Class A and C shares were -4 % and -5 %, respectively, compared with -3 % for the total return index.
In connection with the publication of the 2015 year-end report in early February 2016, the Board of Directors adopted new debt and dividend policies. These changes were made to strengthen our financial capacity and flexibility. As a result of this, Standard & Poor's upgraded Industrivärden's credit rating one notch to A/Stable/A-1.
Industrivärden's Annual General Meeting will be held on May 9 in the Vinterträdgården hall at the Grand Hotel in Stockholm. I look forward to meet with the shareholders and talking more in-depth about my views on Industrivärden's challenges and opportunities in the year ahead. I also intend to touch upon the strategic development steps that were decided on by the Board in February 2016.
Helena Stjernholm
Industrivärden conducts long-term asset management that creates value through active ownership. The long-term goal is to increase net asset value and thereby generate a return for Industrivärden's shareholders that exceeds the market's required rate of return. Taking into account the risk profile of the portfolio's investments, the shareholders are to be given a total return which over time is higher than the average for the Stockholm Stock Exchange.
In February 2016 Industrivärden's board adopted a new, refined strategy. The aim is to enhance the return on Industrivärden's stock over time. Important changes include a stronger corporate governance model, a broader investment universe, and greater capacity and flexibility to act over time.
| 3/31/2016 | 3M: 2016 | |||||||
|---|---|---|---|---|---|---|---|---|
| Share of ownership, % |
Market value | Total return |
TR for the stock |
|||||
| Share of | ||||||||
| Portfolio companies | No. of shares | Capital | Votes | value, % | SEK M SEK/share | SEK M | % | |
| Handelsbanken A | 192 023 948 | 10.1 | 10.2 | 24 | 19 836 | 46 | -744 | -3 |
| SCA A | 35 250 000 | 9.5 | 29.5 | 21 | 8 950 | 39 | 545 | 3 |
| SCA B | 31 550 000 | 8 004 | ||||||
| Volvo A | 142 154 571 | 6.7 | 21.3 | 16 | 12 709 | 30 | 1 216 | 10 |
| Volvo B | 1 500 000 | 134 | ||||||
| Sandvik | 148 584 257 | 11.8 | 11.8 | 15 | 12 481 | 29 | 1 478 | 13 |
| Ericsson A | 86 052 615 | 2.6 | 15.2 | 8 | 6 833 | 16 | 4 | 0 |
| ICA Gruppen | 20 625 000 | 10.3 | 10.3 | 7 | 5 540 | 13 | -819 | -13 |
| Skanska A | 12 667 500 | 6.9 | 23.9 | 7 | 2 347 | 12 | 609 | 12 |
| Skanska B | 16 343 995 | 3 029 | ||||||
| SSAB A | 63 105 972 | 11.6 | 19.2 | 2 | 1 846 | 4 | 431 | 29 |
| SSAB B | 754 985 | 18 | ||||||
| Other | 0 | 203 | 0 | 16 | ||||
| Equities portfolio | 100 | 81 930 | 190 | 2 737 | 3 | |||
| Interest-bearing net debt | -10 122 | -23 | Index: | -3 | ||||
| of which, convertible bond | -4 973 | -12 | ||||||
| Net asset value | 71 808 | 166 | ||||||
| Debt-equities ratio | 12% | |||||||
| Net asset value after full conversion | 166 | |||||||
| Debt-equities ratio after full conversion | 6% |
Net asset value on March 31, 2016, was SEK 71.8 billion, or SEK 166 per share, an increase of SEK 2.8 billion, or SEK 6 per share, equivalent to 4%, during the quarter compared with -3 % for the Stockholm Stock Exchange's total return index (SIXRX).
During the last ten-year period, net asset value grew by 1 % per year and by 5 % per year including reinvested dividend. The SIXRX total return index increased by 8 % during the same period.
| 3/31/2016 | 12/31/2015 | ||||
|---|---|---|---|---|---|
| SEK bn | SEK/share SEK bn SEK/share | ||||
| Equities portfolio | 81.9 | 190 | 81.8 | 189 | |
| Interest-bearing net debt | -10.1 | -23 | -12.6 | -29 | |
| Adjustment exchangeable | - | - | -0.1 | 0 | |
| Net asset value | 71.8 | 166 | 69.1 | 160 |
During the first quarter of 2016 the value of the equities portfolio, adjusted for purchases and sales, increased by SEK 1.6 billion, or SEK 4 per share to SEK 81.9 billion, or SEK 190 per share. The shareholdings in Sandvik and Volvo made significant positive contributions to the equities portfolio's value performance, while the shareholdings in ICA Gruppen and Handelsbanken had the most negative contribution impact.
During the last three-year period the shareholdings in ICA Gruppen, Skanska and SCA have had higher total returns than the total return index (SIXRX), while the shareholdings in SSAB, Sandvik, Volvo and Ericsson have had lower total returns than the total return index. The shareholding in Handelsbanken generated total return on par with the total return index.
During the first quarter of 2016, stocks were sold for SEK 1.6 billion and purchased for SEK 0.1 billion. The largest stock sale were in SCA, for SEK 1.0 billion.
The Board of Directors has proposed a dividend of SEK 5.00 per share (6.25), to be approved by the Annual General Meeting on May 9, 2016. The total dividend payout as proposed would amount to SEK 2 162 M (2 702).
The management cost during the first quarter amounted to SEK 31 M (61), which on a yearly basis corresponded to 0.15 % of the equities portfolio's value on March 31, 2016.
| Annual average | |
|---|---|
| 3/31/2016 | total return, % |
| Handelsbanken | 9 |
| SCA | 18 |
| Volvo | 1 |
| Sandvik | -2 |
| Ericsson | 4 |
| ICA Gruppen | 22 |
| Skanska | 21 |
| SSAB | -16 |
| Total return index (SIXRX) | 13 |
| Stock | No. shares | Amount (SEK bn) |
|---|---|---|
| Purchases of stock | ||
| SSAB A | 5 000 000 | -0.1 |
| Sales of stock | ||
| SCA B | 4 000 000 | 1.0 |
| SHB A | 1 961 089 | 0.2 |
| Skanska B | 1 000 000 | 0.2 |
| ICA Gruppen | 500 000 | 0.1 |
| Other | 0.1 | |
| Total | 1.5 |
Interest-bearing net debt amounted to SEK 10.1 billion on March 31, 2016. The debt-equities ratio was 12 %, and the equity ratio was 84 % (82). The debt-equities ratio is calculated as interest-bearing net debt in relation to the market value of the equities portfolio.
Upon full conversion of the outstanding convertible bond, totaling SEK 5.0 billion, interest-bearing net debt amounts to SEK 5.1 billion, with a debt-equities ratio of 6 %.
On March 31, 2016, interest-bearing liabilities had an average capital duration of slightly more than 2 years and carried an average interest rate of approximately 1.8 %.
No part of Industrivärden's borrowings is conditional on any covenants. On February 11, 2016, Standard & Poor's upgraded Industrivärden's credit rating to A/Stable/A-1.
| Utilized | |||
|---|---|---|---|
| Framework, | amount, | ||
| SEK M | SEK M | Maturity | |
| Convertible bond | 4 973 | 2017 | |
| Exchangeable bond | 4 190 | 2019 | |
| Bank loans | 2 000 | 2017 | |
| MTN-program | 8 000 | 500 | 2018 |
| Commercial paper | 2 000 | 600 | 2016 |
| Convertible bond | Exchangeable bond | |
|---|---|---|
| Nominal amount | EUR 550 M | SEK 4,4 bn |
| Term | 2011-2017 | 2014-2019 |
| Underlying | Industrivärden | ICA Gruppen |
| Coupon | 1.875% | 0.0% |
| Conversion price | SEK 163.74/share* | SEK 298.52/share |
*Conversion price of SEK 157.57/share (EUR 17.74/share), but current FX-level of SEK 9.23/EUR 1 gives the above stated actual conversion price. For further information on the convertible bond, see Note 15 in the 2015 Annual Report.
The market prices for Industrivärden's Class A and C shares were SEK 152.00 and SEK 138.40 on March 31, 2016. At year-end 2015 the corresponding market prices were SEK 158.90 and SEK 145.10.
The total return for Industrivärden's Class A and C shares during the first quarter of 2016 were -4 % and -5 %, respectively, compared with -3 % for the total return index. The total returns for Industrivärden's shares over longer periods of time are shown in the table on page 1.
At the 2011 Annual General Meeting, a share conversion clause was added to the Articles of Association. Shareholders have the right at any time to request conversion of Class A shares to Class C shares. No shares were converted during the first quarter of 2016.
| No. of | ||||
|---|---|---|---|---|
| Share class | shares* No. of votes | Capital, % | Votes, % | |
| A (1 vote) | 268 185 430 268 185 430 | 62.0 | 94.2 | |
| C (1/10 vote) | 164 155 841 | 16 415 584 | 38.0 | 5.8 |
| Total | 432 341 271 284 601 014 | 100.0 | 100.0 |
*Upon full conversion of the outstanding convertible bond a maximum of 31.0 million Class C shares would be added.
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 March 31, 2016, would have affected its market value by approximately +/– SEK 800 M.
During the quarter, no material related party transactions took place.
During the first quarter of 2016, Refaat el-Sayed directed demands on Industrivärden, demanding payment of SEK 1 645 M, including interest of approximately SEK 1 224 M, pertaining to agreements made between Industrivärden and Refaat el-Sayed in connection with the so-called Fermenta affair in 1986. Following a review by legal experts, the claims are considered to be incorrect and also expired due to the statute of limitations. The dispute will be resolved through arbitration.
The 2016 Annual General Meeting will be held on Wednesday, May 9 at 2 p.m. at the Grand Hotel, Vinterträdgården hall, in Stockholm. Notification to attend can be made by post, by electronic application on Industrivärden's website, or by phone, at +46-8-402 92 86.
The Board of Directors has proposed that the AGM vote in favor of a dividend of SEK 5.00 per share. Dividends will be paid out to shareholders who are listed in the shareholder register on the record date. The Board has proposed May 11, 2016, as the record date. Provided that the AGM approves the Board's proposal, this entails that Industrivärden shares purchased not later than the day of the AGM, May 9, 2016, will carry entitlement to the dividend (provided that the purchase was recorded in the shareholder register on May 11, 2016). Payment of the dividend is expected to be made via Euroclear Sweden on May 16, 2016.
Industrivärden's 2015 Annual Report was published on February 25, 2016, and is available on the Company's website and can be ordered from the Company.
The Nominating Committee recommends re-election of board members Pär Boman, Christian Caspar, Bengt Kjell, Nina Linander, Fredrik Lundberg, Annika Lundius and Lars Pettersson. Industrivärden's CEO, Helena Stjernholm, has been proposed as a new board member. In addition, Fredrik Lundberg has been nominated for re-election as Chairman of the Board. Information about the nominated board members is provided on Industrivärden's website.
Annual General Meeting: May 9, 2016 Interim report January–June: July 6, 2016 Interim report January–September: October 6, 2016
Anders Gustavsson, Investor Relations tel. +46-8-666 64 41, [email protected] Sverker Sivall, Head of Corporate Communication Martin Hamner, CFO Helena Stjernholm, CEO
AB Industrivärden (publ) Box 5403, SE-114 84 Stockholm, Sweden Registered office: Stockholm Reg. no.: 556043-4200 Switchboard: +46-8-666 64 00 E-mail: [email protected] Website: www.industrivarden.net
INDUC:SS, Bloomberg INDUc.ST, Reuters INDU C, NASDAQ OMX
The information provided in this interim report is such that AB Industrivärden (publ) is obligated to publish pursuant to the Securities Market Act. Submitted for publication at 10:00 a.m. on April 5, 2016.
Stockholm, April 5 2016
Helena Stjernholm, CEO
This interim report has not been reviewed by the Company's auditors.
GROUP
| 2016 | 2015 | 2015 | |
|---|---|---|---|
| SEK M | Jan.-Mar. | Jan.-Mar. | Jan.-Dec. |
| INCOME STATEMENT | |||
| Dividend income from stocks | 1 152 | 1 165 | 3 184 |
| Change in value of stocks, etc. | 2 064 | 10 665 | 406 |
| Management cost | -31 | -61 | -229 |
| Operating income | 3 185 | 11 769 | 3 361 |
| Financial items | -51 | -71 | -257 |
| Income after financial items | 3 134 | 11 698 | 3 104 |
| Tax | - | - | - |
| Net income for the period | 3 134 | 11 698 | 3 104 |
| Earnings per share, SEK | 7.25 | 27.06 | 7.18 |
| Earnings per share after dilution, SEK | 6.41 | 26.13 | 7.18 |
| STATEMENT OF COMPREHENSIVE INCOME | |||
| Comprehensive income for the period | 3 134 | 11 699 | 3 146 |
| BALANCE SHEET as per end of period | |||
| Equities | 81 930 | 93 744 | 81 835 |
| Non-current receivables, etc. Total non-current assets |
485 82 415 |
649 94 393 |
466 82 301 |
| Cash and cash equivalents | 1 115 | 270 | 5 |
| Other current assets | 689 | 1 366 | 231 |
| Total current assets | 1 804 | 1 636 | 236 |
| Total assets | 84 219 | 96 029 | 82 537 |
| Shareholders' equity | 70 984 | 79 105 | 67 850 |
| Non-current interest-bearing liabilities | 6 797 | 11 100 | 11 163 |
| Non-current non interest-bearing liabilities* | 515 | 1 208 | 1 122 |
| Total non-current liabilities | 7 312 | 12 308 | 12 285 |
| Current interest-bearing liabilities* | 5 575 | 4 298 | 2 149 |
| Other liabilities | 348 | 318 | 253 |
| Total current liabilities | 5 923 | 4 616 | 2 402 |
| Total shareholders' equity and liabilities | 84 219 | 96 029 | 82 537 |
| CASH FLOW | |||
| Cash flow from operating activities | 1 105 | 1 096 | 2 775 |
| Cash flow from investing activities | 1 540 | 322 | 1 894 |
| Cash flow from financing activities** | -1 535 | -1 148 | -4 664 |
| Cash flow for the period | 1 110 | 270 | 5 |
| Cash and cash equivalents at end of period | 1 115 | 270 | 5 |
* Of which, the option components of the convertible bond and exhangeable bond, totaling SEK 518 M (1 081), which at the times of issue amounted to a combined total of SEK 934 M. ** Of which, dividends of SEK 2 702 M paid to shareholders in 2015.
| 2016 | 2015 | 2015 | |
|---|---|---|---|
| SEK M | Jan.-Mar. | Jan.-Mar. | Jan.-Dec. |
| CHANGES IN SHAREHOLDERS' EQUITY | |||
| Opening shareholders' equity as per balance sheet | 67 850 | 67 406 | 67 406 |
| Comprehensive income for the period | 3 134 | 11 699 | 3 146 |
| Dividend | 0 | 0 | -2 702 |
| Closing shareholders' equity as per balance sheet | 70 984 | 79 105 | 67 850 |
| INTEREST-BEARING NET DEBT at end of period | |||
| Cash and cash equivalents | 1 115 | 270 | 5 |
| Interest-bearing assets | 1 135 | 1 971 | 659 |
| Non-current interest-bearing liabilities* | 6 797 | 11 100 | 11 163 |
| Current interest-bearing liabilities* | 5 575 | 4 298 | 2 149 |
| Interest-bearing net debt | 10 122 | 13 157 | 12 648 |
* Of which, convertible bond of SEK 4 973 M (4 881).
| 2016 | 2015 | 2015 | |
|---|---|---|---|
| SEK M | Jan.-Mar. | Jan.-Mar. | Jan.-Dec. |
| INCOME STATEMENT | |||
| Operating income | 3 243 | 8 469 | -143 |
| Income after financial items | 3 218 | 8 430 | -261 |
| Income for the period | 3 218 | 8 430 | -261 |
| Comprehensive income for the period | 3 218 | 8 431 | -219 |
| BALANCE SHEET as per end of period | |||
| Non-current assets | 46 278 | 53 889 | 43 603 |
| Current assets | 2 383 | 5 508 | 3 039 |
| Total assets | 48 661 | 59 397 | 46 642 |
| Shareholders' equity | 37 461 | 45 595 | 34 243 |
| Non-current liabilities | 5 312 | 10 308 | 10 285 |
| Current liabilities | 5 888 | 3 494 | 2 114 |
| Total shareholders' equity and liabilities | 48 661 | 59 397 | 46 642 |
This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU, and the Swedish Annual Accounts Act. The Parent Company's financial statements have been prepared in accordance with RFR 2 – Accounting for Legal Entities, and the Swedish Annual Accounts Act. New or amended IFRSs and IFRIC interpretations have not had any effect on the Group's or Parent Company's earnings for financial position.
In accordance with IFRS 13, financial instruments are measured at fair value according to a three level hierarchy. Classification is based on input data that is used in measuring the instruments. Instruments in Level 1 are valued according to quoted prices for identical instruments in an active market. Instruments in Level 2 are valued in a valuation model which uses input data that are directly or indirectly observable in the market. Instruments in Level 3 are valued using a valuation technique based on input data that are not observable in a market.
Responsibility for fair value measurement, which is based on documentation produced by the company's risk manager, rests with management. ISDA master agreements exist with the pertinent counterparties.
| 3/31/2016 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Assets | ||||
| Equities | 81 750 | - | 180 | 81 930 |
| Derivatives | 4 | 10 | - | 14 |
| Total assets | 81 754 | 10 | 180 | 81 944 |
| Level 1 | Level 2 | Level 3 | Total | |
| Liabilities | ||||
| Non-current liabilities | ||||
| Option component of | ||||
| exchangeable bond | - | 401 | - | 401 |
| Derivatives | - | 110 | - | 110 |
| Current liabilities | ||||
| Option component of | ||||
| convertible bond | - | 117 | - | 117 |
| Derivatives | 50 | 2 | - | 52 |
| Total liabilities | 50 | 630 | - | 680 |
No changes have been made between levels compared with the preceding year.
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