Quarterly Report • Jul 5, 2017
Quarterly Report
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January 1 – June 30, 2017
Annual average change as per June 30, 2017
| Total return | |||
|---|---|---|---|
| Net asset value* | Industrivärden C | Index (SIXRX) | |
| 6M:2017 | 16% | 22% | 11% |
| 1 year | 39% | 52% | 26% |
| 3 years | 15% | 19% | 12% |
| 5 years | 17% | 22% | 17% |
| 7 years | 12% | 18% | 13% |
| 10 years | 5% | 8% | 7% |
*Including reinvested dividend.
Growth forecasts as well as macroeconomic indicators for the major economies look good in general, although there are significant differences between countries and regions. Stable growth is forecast for the U.S. economy, but the effects of Trump's policies and interest rate hikes are sources of uncertainty. The recovery is continuing in Europe, but the uncertainty surrounding Brexit remains. Growth in the Chinese economy has stabilized, while the situation remains strained for several emerging markets. However, the stock market has shown resilience to adverse events in the world in general. Supported by strong earnings reports and continued low interest rates, the stock market has continued to perform well.
Activity in the portfolio companies has remained high, and measures taken by the companies combined with improved market conditions point overall to strong earnings performance. I can point to a few examples of significant measures for future value creation that were taken during the first half of the year.
At the end of March Ericsson presented a more focused business strategy. The aim is to restore profitability and regain the technology and market leadership in the company's core businesses. The new strategy involves a number of steps toward change, encompassing everything from the composition of the business portfolio to the company's organizational structure and efficiency.
Sandvik continues to focus on its businesses in tools and mining technology systems, and advanced steel and special alloys. As part of this work, in June the company signed an agreement to sell Sandvik Process Systems, for SEK 5 billion. This creates greater scope for Sandvik to grow further in selected core businesses.
Volvo is continuing its work on strengthening profitability and growing organically in selected areas, including a stronger focus on its service business. Through a clearer customer and brand orientation, the company is strengthening its product offering and increasing flexibility in its business. The focus on continuous improvement remains. It is good to see that this work starts to yield results. Volvo's share price has developed strongly and accounted for the largest value growth in Industrivärden's equities portfolio during the first half of the year.
In June 2017 the portfolio company SCA was split into two companies – the hygiene and health company Essity, and the forest products company SCA. We support this strategy for greater focus and believe that the businesses have greater development potential as two separate companies. Since the two new companies have the same share structure as the former SCA, our ownership position was unchanged at mid-year. It is gratifying to note that the market has embraced both companies in a positive way. We see good value potential in these companies, and it is our ambition to stay on as a long-term active owner of both Essity and SCA.
On June 30, 2017, net asset value was SEK 94.4 billion, or SEK 217 per share, representing an increase during the first half of the year by 16 % including reinvested dividend. At the end of the period, the portfolio's value was SEK 105.3 billion, and net debt was SEK 10.7 billion, corresponding to a debt-equities ratio of 10 %. This means that the debt-equities ratio has decreased by two percentage points during the year thus far. The total return for the Class A as well as the Class C shares was 22 %, compared with 11% for the return index (SIXRX).
A key component in Industrivärden's refined strategy has involved further strengthening the investment operations in various ways. It therefore feels especially exciting to welcome Karl Åberg in August, who will assume the role as head of our investment and analysis organization.
Helena Stjernholm CEO
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.
More information can be found on www.industrivarden.net.
| 6/30/2017 | 6M:2017 | |||||||
|---|---|---|---|---|---|---|---|---|
| Share of ownership, % |
Market value | Total return |
TR for the stock |
|||||
| Portfolio companies | No. of shares | Capital | Votes | Share of value, % |
SEK M SEK/share | SEK M | % | |
| Handelsbanken A | 194 923 948 | 10.0 | 10.2 | 22 | 23 508 | 54 | -208 | -1 |
| Volvo A | 142 154 571 | 6.7 | 21.7 | 19 | 20 456 | 47 | 5 751 | 38 |
| Sandvik | 147 584 257 | 11.8 | 11.8 | 19 | 19 555 | 45 | 3 307 | 20 |
| Essity A Essity B |
35 000 000 31 800 000 |
9.5 | 29.7 | 15 | 8 078 7 330 |
35 | 2 152 | 17 15 |
| ICA Gruppen | 20 625 000 | 10.3 | 10.3 | 6 | 6 468 | 15 | 967 | 17 |
| Skanska A Skanska B |
12 667 500 16 343 995 |
6.9 | 23.9 | 6 | 2 532 3 267 |
13 | -204 | -3 -3 |
| Ericsson A Ericsson B |
86 052 615 1 000 000 |
2.6 | 15.1 | 5 | 5 129 60 |
12 | 668 | 14 15 |
| SCA A SCA B |
35 000 000 31 800 000 |
9.5 | 29.7 | 4 | 2 555 2 027 |
11 | 1 114 | 35 23 |
| SSAB A SSAB B |
63 105 972 54 633 318 |
11.4 | 18.2 | 4 | 2 426 1 707 |
9 | 379 | 11 9 |
| Other | 0 | 229 | 1 | 39 | ||||
| Equities portfolio | 100 | 105 328 | 242 | 13 964 | 15 | |||
| Interest-bearing net debt | -10 671 | -25 | Index: | 11 | ||||
| Adjustment regarding exchangeable bond | -293 | -1 | ||||||
| Net asset value | 94 364 | 217 | ||||||
| Debt-equities ratio | 10% |
The total return for Essity and SCA has been calculated as the respective company's share of the original company, SCA's, total return before the split (based on share of value), and then based on the value development in each company. The split was carried out on June 9 and the first trading day in Essity was on June 15, 2017.
Net asset value on June 30, 2017, was SEK 94.4 billion, or SEK 217 per share, an increase during the first half of the year of SEK 26 per share corresponding to 14 % or by 16 % including reinvested dividend. The dividend payed out in 2017 amounted to SEK 5.25 per share. The Stockholm Stock Exchange's total return index (SIXRX) increased by 11 % during the same period.
During the last five and ten-year period, net asset value grew by 17 % and 5 %, respectively, per year including reinvested dividend. The SIXRX total return index increased by 17 % and 7 %, respectively, during the same period.
During the first half of the year 2017 the value of the equities portfolio increased by SEK 11.1 billion. On June 30, 2017 the equities portfolio amounted to SEK 105.3 billion, or SEK 242 per share. The shareholdings in Volvo, Sandvik and Essity made significant positive contributions to the equities portfolio's value performance.
During the last three-year period the shareholdings in SCA/Essity, Volvo and Sandvik have had higher total returns than the total return index (SIXRX) while the shareholdings in ICA Gruppen and Skanska have had a development in line with the total return index. The shareholdings in Handelsbanken, Ericsson and SSAB have had lower total returns than the total return index.
During the first half of 2017 no purchases or sales were made in the portfolio companies.
On April 5, 2017 the Annual General Meeting of SCA decided to distribute all shares in Essity (formerly SCA Hygiene) to SCA's shareholders. The distribution to the shareholders was conducted in accordance with the Swedish "Lex Asea" rules, entailing that the distribution was exempt from taxation. One share of Class A in SCA carried entitlement to one share of Class A in Essity and one share of Class B in SCA carried entitlement to one share of Class B in Essity. The first day of trading was on June 15, 2017. Industrivärden remains a long-term active owner in Essity as well as SCA.
The Annual General Meeting on May 9, 2017 approved the Board of Directors' proposal of a dividend of SEK 5.25 per share (5.00). The total dividend payout amounted to SEK 2 285 M (2 162).
The management cost during the first half of the year 2017 amounted to SEK 55 M (60), which on a yearly basis corresponded to 0.10 % of the equities portfolio's value on June 30, 2017.
| 6/30/2017 | 12/31/2016 | ||||
|---|---|---|---|---|---|
| SEK bn | SEK/share | SEK bn | SEK/share | ||
| Equities portfolio | 105.3 | 242 | 94.2 | 218 | |
| Interest-bearing net debt | -10.7 | -25 | -11.5 | -27 | |
| Adjustment exchangeable | -0.3 | -1 | - | - | |
| Net asset value | 94.4 | 217 | 82.8 | 191 |
| Annual average total return, % | |
|---|---|
| 3 years | |
| SCA/Essity | 29 |
| Volvo | 19 |
| Sandvik | 16 |
| ICA Gruppen | 15 |
| Skanska | 14 |
| Handelsbanken | 8 |
| Ericsson | -5 |
| SSAB | -6 |
| Total return index (SIXRX) | 12 |
Interest-bearing net debt amounted to SEK 10.7 billion on June 30, 2017. The debt-equities ratio was 10 %, and the equity ratio was 89 % (84). The debt-equities ratio is calculated as interest-bearing net debt in relation to the market value of the equities portfolio.
On June 30, 2017, interest-bearing liabilities had an average capital duration of over 2 years and carried an average interest rate of approximately 0.3 %. Current unutilized committed bank loans that can be used for refinancing needs amounts to SEK 2 billion.
No part of Industrivärden's borrowings is conditional on any covenants. Standard & Poor's credit ranking on Industrivärden's is A/Stable/A-1.
In 2014 a SEK 4.4 billion exchangeable bond was issued based on ICA Gruppen's stock. The bond matures in 2019 and was issued at a premium of approximately 38 % to ICA Gruppen's, share price at the time and carries no interest. The strike price amounted to SEK 293.86 per share as per June 30, 2017. In the event of a potential future exchange, there is a possibility to pay either with shares or with cash equivalents.
The six-year convertible bond worth EUR 550 M that was issued in January 2011 matured on February 27, 2017, whereby approximately 9 % of the convertible bond, corresponding to 50.9 MEUR, was converted to 2 868 606 new Class C shares.
The market prices for Industrivärden's Class A and C shares were SEK 214.50 and SEK 202.00 on June 30, 2017. At year-end 2016 the corresponding market prices were SEK 180.20 and SEK 169.80.
The total return, for both the Class A and C shares, amounted to 22 % during the first half of the year 2017, compared with 11 % 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. During the first half of the year 2017, 1 025 shares were converted.
| Credit | Utilized | ||
|---|---|---|---|
| facility, SEK M |
amount, SEK M |
Maturity | |
| Exchangeable bond | 4 307 | 2019 | |
| MTN-program | 8 000 | 3 318 | 2018-2021 |
| Bank loans | 500 | 2017 | |
| Commercial paper | 2 000 | 1 901 | 2017 |
| Pension debt | 123 | ||
| Other short-term borrowing | 849 | 2017 | |
| Total borrowing | 10 998 | ||
| Less: | |||
| Interest-bearing receivables | 327 | ||
| Interest-bearing net debt | 10 671 |
| Capital, | Votes, | ||
|---|---|---|---|
| % | |||
| 268 184 405 | 268 184 405 | 61.6 | 94.1 |
| 167 025 472 | 16 702 547 | 38.4 | 5.9 |
| 435 209 877 | 284 886 952 | 100.0 | 100.0 |
| No. of shares | No. of votes | % |
The Board of Directors and CEO certify that the half-year interim report gives a true and fair presentation of the Parent Company's and Group's business, financial 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, 2017 AB Industrivärden (publ)
| Fredrik Lundberg | Pär Boman | Christian Caspar | ||
|---|---|---|---|---|
| Chairman | Vice Chairman Director | |||
| Bengt Kjell | Nina Linander Annika Lundius | |||
| Director | Director | Director | ||
| Lars Pettersson | Helena Stjernholm | |||
| Director | CEO and director |
The 2017 Annual General Meeting was held on May 9, at which the following resolutions, among others, were made. The dividend was set at SEK 5.25 (5.00) per share. All board members and the Chairman of the Board were re-elected.
Interim report January–September: October 5, 2017
Sverker Sivall, Head of Corporate Communication and Sustainability, 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 [email protected], www.industrivarden.net
INDUC:SS, Bloomberg INDUc.ST, Reuters INDU C, NASDAQ OMX
This information is information that AB Industrivärden is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency by the Head of Corporate Communication and Sustainability stated above, at 10:00 a.m. CET on July 5, 2017.
Following is the auditors' review report of interim financial information prepared in accordance with IAS 34 and Ch. 9 of the Swedish Annual Accounts Act.
We have reviewed the interim report for AB Industrivärden (publ) for the period January 1–June 30, 2017. The Board of Directors and CEO are responsible for the preparation and presentation of this interim financial information in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.
We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report 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 the International Standards on Auditing (IAS) 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 IAS 34 and the Annual Accounts Act for the Group, and in accordance with the Annual Accounts Act for the Parent Company.
Stockholm, July 5, 2017 PricewaterhouseCoopers AB
Magnus Svensson Henryson Authorized Public Accountant
| 2017 | 2016 | 2017 | 2016 | 2016 | |
|---|---|---|---|---|---|
| SEK M | Apr.-Jun. | Apr.-Jun. | Jan.-Jun. | Jan.-Jun. | Jan.-Dec. |
| INCOME STATEMENT | |||||
| Dividend income from stocks | 1 724 | 1 926 | 2 786 | 3 078 | 3 078 |
| Change in value of stocks, etc. | 1 552 | -2 056 | 10 924 | 8 | 13 687 |
| Management cost | -29 | -29 | -55 | -60 | -112 |
| Operating income | 3 247 | -159 | 13 655 | 3 026 | 16 653 |
| Financial items | -25 | -50 | -70 | -101 | -202 |
| Income after financial items | 3 222 | -209 | 13 585 | 2 925 | 16 451 |
| Tax | - | - | - | - | - |
| Net income for the period | 3 222 | -209 | 13 585 | 2 925 | 16 451 |
| Earnings per share, SEK | 7.40 | -0.48 | 31.25 | 6.77 | 38.05 |
| Earnings per share after dilution, SEK | 7.40 | -0.53 | 31.25 | 5.88 | 34.93 |
| STATEMENT OF COMPREHENSIVE INCOME | |||||
| Comprehensive income for the period | 3 222 | -209 | 13 585 | 2 925 | 16 441 |
| BALANCE SHEET as per end of period | |||||
| Equities | 105 328 | 80 514 | 94 250 | ||
| Other non-current assets | 12 | 494 | 214 | ||
| Total non-current assets | 105 340 | 81 008 | 94 464 | ||
| Cash and cash equivalents | 0 | 314 | 823 | ||
| Other current assets | 336 | 346 | 337 | ||
| Total current assets | 336 | 660 | 1 160 | ||
| Total assets | 105 676 | 81 668 | 95 624 | ||
| Shareholders' equity | 68 613 | 82 129 | |||
| Non-current interest-bearing liabilities | 7 248 | 6 820 | 7 382 | ||
| Non-current non interest-bearing liabilities* | 636 | 552 | 414 | ||
| Total non-current liabilities | 7 884 | 7 372 | 7 796 | ||
| Current interest-bearing liabilities | 3 750 | 5 527 | 5 425 | ||
| Other liabilities | 130 | 156 | 274 | ||
| Total current liabilities | 3 880 | 5 683 | 5 699 | ||
| Total shareholders' equity and liabilities | 105 676 | 81 668 | 95 624 | ||
| CASH FLOW | |||||
| Cash flow from operating activities | 2 662 | 2 960 | 2 854 | ||
| Cash flow from investing activities | 0 | 901 | 834 | ||
| Cash flow from financing activities** | -3 485 | -3 552 | -2 870 | ||
| Cash flow for the period | -823 | 309 | 818 | ||
| Cash and cash equivalents at end of period | 0 | 314 | 823 |
* Of which, the option component of the exhangeable bond, totaling SEK 547 M, which at the time of issue amounted to a total of SEK 335 M.
** Of which, dividends of SEK 2 285 (2 162) M paid to shareholders.
| 2017 | 2016 | 2016 | |
|---|---|---|---|
| SEK M | Jan.-Jun. | Jan.-Jun. | Jan.-Dec. |
| CHANGES IN SHAREHOLDERS' EQUITY | |||
| Opening shareholders' equity as per balance sheet | 82 129 | 67 850 | 67 850 |
| Conversion | 482 | - | - |
| Comprehensive income for the period | 13 585 | 2 925 | 16 441 |
| Dividend | -2 285 | -2 162 | -2 162 |
| Closing shareholders' equity as per balance sheet | 93 912 | 68 613 | 82 129 |
| INTEREST-BEARING NET DEBT at end of period | |||
| Cash and cash equivalents | 0 | 314 | 823 |
| Interest-bearing assets | 327 | 801 | 503 |
| Non-current interest-bearing liabilities | 7 248 | 6 820 | 7 382 |
| Current interest-bearing liabilities | 3 750 | 5 527 | 5 425 |
| Interest-bearing net debt | 10 671 | 11 232 | 11 481 |
| 2017 | 2016 | 2016 | |
|---|---|---|---|
| SEK M | Jan.-Jun. | Jan.-Jun. | Jan.-Dec. |
| INCOME STATEMENT | |||
| Operating income | 10 289 | 2 013 | 11 343 |
| Income after financial items | 10 271 | 1 974 | 11 259 |
| Income for the period | 10 271 | 1 974 | 11 259 |
| Comprehensive income for the period | 10 271 | 1 974 | 11 249 |
| BALANCE SHEET as per end of period | |||
| Non-current assets | 62 264 | 44 209 | 53 333 |
| Current assets | 416 | 754 | 1 284 |
| Total assets | 62 680 | 44 963 | 54 617 |
| Shareholders' equity | 51 799 | 34 056 | 43 330 |
| Non-current liabilities | 7 884 | 5 372 | 5 796 |
| Current liabilities | 2 997 | 5 535 | 5 491 |
| Total shareholders' equity and liabilities | 62 680 | 44 963 | 54 617 |
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.
The definitions for the alternative performance measures net asset value, debt-equities ratio, market value of the equities portfolio and interest-bearing net debt are provided in the 2016 Annual Report. The equity ratio is defined as equity in relation to total assets. These alternative performance measures are essential for the understanding and evaluation of an investment company's business.
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.
| 6/30/2017 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Assets | ||||
| Equities | 105 115 | - | 213 | 105 328 |
| Derivatives, etc. | - | 3 | - | 3 |
| Total assets | 105 115 | 3 | 213 | 105 332 |
| Level 1 | Level 2 | Level 3 | Total | |
| Liabilities | ||||
| Non-current liabilities | ||||
| Option component of | ||||
| exchangeable bond | - | -547 | - | -547 |
| Derivatives, etc. | - | -89 | - | -89 |
| Total liabilities | - | -636 | - | -636 |
No changes have been made between levels compared with the preceding year.
The dominant risk in Industrivärden's business is share price risk, i.e., the risk of a change 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, 2017, would have affected its market value by approximately +/– SEK 1 100 M.
During the first half of the year 2017, dividend income was received from associated companies.
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