As 2013 progressed it grew clearer that the world economy is returning to a period of improved growth, even though this development was weaker than anticipated in emerging markets. What is particularly interesting and which benefits Industrivärden’s investments, is that it is now the developed economies that are showing increasingly stronger signs that the effects of the worst financial crisis in our time are beginning to trail off. These signs of higher growth are most apparent in the U.S. In Japan we can also see positive effects of the country’s expansionary policies – the so-called Abenomics – even though consumers are still clutching hard to their wallets. From a global economic perspective, it is good that inflation is now rising in Japan and that the country’s economy appears to have removed the threat of deflation. In euroland, the negative trend has slowed, and signs of a turnaround could be seen not only in Germany, but also in the countries hit most severely by the financial crisis, such as Spain. France, on the other hand, is still a major source of concern, with an increasingly stagnant economy and lack of necessary reforms toward a clearer market economy. It is also positive to see that the UK is showing signs of a stronger recovery than anticipated.
In 2013 the Stockholm Stock Exchange rose 23%, while in the U.S., the S&P 500 index gained a full 30%. For Industrivärden’s Class A stock the price increase was 18%, mainly owing to weaker performance for Volvo, Sandvik and SSAB. Industrivärden’s net asset value, including reinvested dividends, grew 24% to SEK 155 per share. The total return for the Class A and C shares was 23% and 18%, respectively, compared with 28% for the return index.
In this relatively favorable stock market climate, Industrivärden has carried out a number of good deals that have contributed to our growth in net asset value and created better balance in the portfolio. In 2013 we sold our holdings in Höganäs and Indutrade for SEK 1.5 billion and SEK 3.3 billion, respectively, which freed up a total of SEK 4.8 billion. Of these funds, we invested SEK 2.4 billion, including SEK 0.5 billion, in a rights issue in ICA Gruppen, and SEK 0.5 billion in the Finnish company Kone.
During 2013 our holdings were characterized operationally as well as in terms of their stock performance by the divergent economic trend we have seen during the last 18 months. Overall, the economy has performed well during this period. But in our traditional industrial companies, like Sandvik, Volvo and SSAB, order bookings have fallen since the euro crisis gained new momentum in summer 2011. This negative trend continued until September 2013. This stands in contrast to the financial sector, where the banking systems have rebounded and activity has increased, with favorable performance for the banking sector.
Handelsbanken is performing well, with good profitability, and the bank scores considerably higher in customer satisfaction surveys than the industry as a whole. Outside Sweden, the bank is continuing its successful organic growth in the UK and the Netherlands.
SCA has successfully built upon the accomplishments from recent years’ transformation to a consumer- and hygiene products company. In 2013 SCA’s stock rose 40% to a new all-time high at year-end. The company is now expanding in China, the world’s largest and fastest growing market for tissue products.
Sandvik is currently in the midst of a change process aimed at accelerating growth and strengthening profitability, while dampening the effects of future economic swings. In 2013 the Machining Solutions and Materials Technology business areas showed favorable earnings and signs of improved demand. Restructuring pro-grams are being carried out in the Mining and Construction business areas to adapt to changes in the market and boost profitability.
Modern-day Volvo has been created through a series of major acquisitions – in both the trucks and construction equipment segments – financed by the sale of Volvo Cars in 1999. Volvo is now in the midst of a major phase of change, with the introduction of a new, functional organization and improvements in cost effectiveness. The aim of these measures is to better capitalize on the efficiency improvement and synergy effects created by a global manufacturing and business system, with a number of different brands. The ultimate aim is to boost Volvo’s profitability while making the Group more resilient to cyclical fluctuations. Order bookings for trucks have stabilized at the same time that Volvo’s largest model renewal program ever has been very well received by customers.
Ericsson is continuing its success in the profitable services segment, which today accounts for roughly half of Ericsson’s total sales. In 2013 Ericsson won several important contracts for the fourth generation mobile network (LTE), where it has a leading position. The scope of the recently announced patent settlement with Samsung illustrates the value of Ericsson’s substantial R&D activities.
Skanska continues to further develop its proven successful model for international construction and project development activities. The company is now also implementing its model for infrastructure and commercial real estate development projects in the U.S.
SSAB, like the European steel industry as a whole, has struggled with high commodity costs, overcapacity and soft demand. The merger with Rautaruukki is therefore a logical deal that will generate tangible cost synergies. SSAB is issuing new shares and acquire Rautaruukki. Industrivärden has declared its intent to stay on as a principal owner in the new company.
Our short-term trading posted a strong profit of SEK 140 M during the year, which again exceeded our management costs, which corresponded to 0.17% of managed assets. Our short-term trading has now earned roughly SEK 1.2 billion since the start in 2003.
The Board of Directors proposes a dividend of SEK 5.50 per share, which entails that – as in previous years – we have achieved our goal of paying a dividend yield that is higher than the average for the Stockholm Stock Exchange.