Interim Report, January 1 - September 30, 2007
- Net asset value increased by SEK 2,661 M (SEK 7 per share), or 5%, to
SEK 61,172 M (SEK 158 per share) as per October 29, 2007. Net asset value on
September 30, 2007, was SEK 66,872 M (52,156), or SEK 173 (135) per share.
- Consolidated earnings for the first nine months of the year totaled SEK 10,095
M (SEK 26.14 per share), compared with SEK 5,263 M for the corresponding period
in 2006 (SEK 13.63 per share).
- The total return as per October 29, 2007 was 5% for the Class A shares as well
as for the Class C shares, compared with 6% for the return index.
- During the first ten months of the year, share purchases totaled SEK 8,768 M,
including SEK 4,216 M in Volvo A. Shares worth a total of SEK 2,275 M were
purchased in SSAB's rights issue. Shares were sold for SEK 2,059 M.
- Short-term trading generated a profit of SEK 139 M (104) during the first nine
months of the year, which amply covered management costs.
CEO´s COMMENTS
The stock market was unsteady during the past quarter to say the least. Against
this backdrop I am happy to say that we now have an entirely transparent
portfolio whose value is easy to assess over time. Taking into account dividends
and redemption programs, our portfolio has generated a total return of 8% for
the year to date, compared with 6% for the market as a whole. As per October 29
the total return was 5% for Industrivärden's Class A shares as well as for the
Class C shares, compared with 6% for the return index. During the first ten
months of the year we purchased stocks for SEK 8.8 billion and sold for SEK 2.1
billion.
In the four months that have passed since mid-year, we have witnessed a nearly
unprecedented level of drama in the world's financial markets. At the end of the
summer, a liquidity crisis unfolded in the financial system due to credit losses
in the U.S. subprime lending market. These problems spread quickly to other
parts of the credit market. The crisis culminated in September, and the
interbank markets virtually stopped working. It was not until the U.S. Federal
Reserve Bank cut its federal funds rate by 0.5 percentage points, to 4.75%, and
the European Central Bank injected substantial liquidity into the system, that
signs of a more normally functioning market could be seen. The price of risk is
now higher at the same time that access to liquidity has deteriorated. Many
market watchers expect that the effects of this crisis will be long-term and
tangible for players in the international financial markets. The imbalances in
valuations of the private equity market and the stock market - which I have
previously noted - have become smaller. This is because borrowing has become
more expensive and encumbered with more traditional credit requirements than
what was the case prior to the credit worries. From this perspective, a sound
correction has taken place.
The effects on the real economy, which is the reality in which our portfolio
companies work, appears to be limited so far. However, the global uncertainty
regarding the future effects on the real economy have prompted investors to
increase the price of risk. This has resulted in falling and sharply fluctuating
stock markets. In our contacts with our portfolio companies, we have not
received any signals of a weakening in the prevailing strong economy.
The favorable development of our portfolio companies continues. During the
reporting period, Handelsbanken announced the sale of its SPP insurance business
to Norway's Storebrand. We have a positive view of the sale, which will enable
Handelsbanken to focus more clearly on its strategy - to grow organically with
the customer in focus. In line with this strategy, Handelsbanken has opened 20
new branches outside Sweden thus far this year.
In connection with SSAB's rights issue, in addition to our allotment we
subscribed for an additional approximately 3.0 million shares, mainly through
acquisitions of subscription rights. In all we invested approximately SEK 2.3
billion in SSAB - a post today that is worth approximately SEK 3.0 billion,
representing a gain of 29%. SSAB's interim report confirms the favorable
performance of the company, which is substantially larger following the
acquisition of IPSCO.
Ericsson issued a profit warning for the third quarter as a result of a
significant drop in sales volume at the end of the quarter. Despite this, the
company's accumulated profit was SEK 23 billion, which is marginally lower than
the same period a year earlier. At the same time, Ericsson continues to take
shares in the market for mobile infrastructure. It thereby has a considerable
advantage in terms of scale economies over its competitors, which all have
considerably lower profitability than Ericsson. Naturally, for us as owners the
dramatic drop in Ericsson's share price is unsatisfactory. Our involvement in
Ericsson is long-term, and in the longer perspective it is our view that
Ericsson and its management are taking the right steps to maintain and develop
their very profitable business.
Thus far during the year we have bought SEK 4.2 billion in stock in Volvo - an
investment that we believe holds promise over the long term. As a result of this
and other measures, our debt-equity ratio has risen to 15%.
In conclusion, I am happy to note that most of our debt portfolio today is
long-term, with fixed interest at favorable terms that were renegotiated prior
to the turbulence in the financial market.
Anders Nyrén
