- The total return for the first half of the year was 12% for the Class A shares and 12% for the Class C shares, compared with 9% for the SIXRX total return index. For longer periods of time, the shares have generated a higher total return than the total return index.
- Net asset value on June 30, 2014, was SEK 156/share, an increase of SEK 1/share, or 4% included reinvested dividend. Earnings per share for the first half of the year were SEK 11.63 (11.58).
- By the end of June, the whole convertible loan that matures in 2015 had been converted, to 46.1 million new Class C shares, and SEK 5.8 billion added to shareholder’s equity.
- An exchangeable bond of SEK 4.4 billion was issued in May as part of the ongoing refinancing of the debt portfolio. The bond was issued at a premium to the existing share price in ICA Gruppen of approximately 38% and carries no interest.
CEO’s message
Continued slow economic improvement
Slowly but surely the world economy is stabilizing, with a more positive growth trend. But it is not a strong recovery. It is mainly the U.S. and Europe that are showing signs of economic improvement, while several of the world’s emerging economies continue to slow. In the U.S., the underlying economy has strengthened, with positive effects on the job market, among other areas. Europe has turned from negative to positive GDP growth. However, due to the lingering risk for deflation, the European Central Bank (ECB) continues to pursue an expansive monetary policy. In the euro zone, the banking system has not yet been fully strengthened, which inhibits the business lending and thus growth in Europe.
We have repeatedly argued for the importance of adapting the Swedish interest rate to the rate within the euro zone. The high Swedish interest rates and thus the relatively strong Swedish krona has affected the Swedish export industry's competitiveness negatively. In this context, we welcome the Riksbank's (Sweden's central bank) repo rate adjustment even though it should have been done earlier.
As the effects and fears from the major financial crisis have subsided, the world’s stock markets have generally experienced positive development. The monetary stimulus measures in recent years have contributed to substantial liquidity in the global economy. This, in turn, increases the risk for new imbalances as this liquidity seeks returns.
We can only hope that confidence in the financial system and in a more positive development increases. If so, this liquidity will be poured into the real economy rather than be invested in seemingly safe but very low-yielding financial assets. The Western world today is in great need of infrastructure investments and investments in energy.
Portfolio companies well-positioned for the future
Our portfolio companies have overall performed well, although a few businesses are struggling with challenging market conditions. As an active owner we are involved in the work on strengthening the companies’ strategic positions over time. With a foundation in strong market positions and concerted efficiency improvement work, the portfolio companies are well equipped to deliver long-term, competitive shareholder value.
Stable performance for Industrivärden
During the first half of the year, Industrivärden performed in line with the Stockholm Stock Exchange. Net asset value grew by SEK 6.7 billion, or 8% including reinvested dividends and adjusted for conversions. Industrivärden’s total return was 12% for the Class A shares and 12% for the Class C shares, compared with 9% for the Stockholm Stock Exchange’s total return index.
New issue for slightly more than SEK 5 billion in Industrivärden
The convertible loan of EUR 500 million that we issued in January 2010 has now been converted to new Class C shares in Industrivärden. We have thereby carried out a kind of new issue in an investment company that is traded at a discount to net asset value. This was possible because the loan could be issued at a redemption price that was higher than the net asset value at the time of issue, and since the proceeds were invested directly in the equities portfolio, there was no economic dilution for the shareholders. The transaction was made possible by Industrivärden’s high credit rating and a certain measure of good timing. Through the convertible loan, we created a low-cost form of financing for the buildup of our ownership position in Volvo. As our equity has now increased by SEK 5.8 billion, this strengthens our financial muscles to the benefit of Industrivärden and its shareholders.
Creative financing at favourable terms
As part of the ongoing refinancing of our debt portfolio, in May we issued an exchangeable bond based on 14.7 million underlying shares in ICA Gruppen, with a redemption price of SEK 300 per share. In this way – as with our short-term equity trading – we have managed to create an excess return based on our long-term shareholdings. The SEK 4.4 billion issue was carried out at favourable terms – including a 0% coupon during the bond’s five-year term.
Short-term equity trading performed well
Despite difficult market conditions, with relatively low volatility, our short-term equity trading generated a record profit of SEK 130 million for the first half of the year.
Anders Nyrén
