- Net asset value on December 31, 2011, was SEK 104 per share, compared with SEK 149 per share at the start of the year. Net asset value on February 6, 2012, was SEK 128 per share, an increase of 23% during the year to date.
- The equities portfolio was worth SEK 56.9 billion on December 31, 2011, compared with SEK 71.1 billion at the start of the year. On February 6, 2012, the equities portfolio was worth SEK 66.2 billion, an increase during 2012 of 16%.
- The total return for the year was -25% for the Class A shares and -28% for the Class C shares, compared with -14% for the return index.
- Income for the year was SEK -15.6 billion (14.9), or SEK -40.51 per share (38.50).
- During the year, shares were purchased in portfolio companies for a total of SEK 4.5 billion, net, including purchases of stock in Volvo, Handelsbanken and Sandvik.
- At the start of 2011 Industrivärden issued six-year convertible bonds worth EUR 550 M, for which the conversion price was set at a premium to net asset value.
- The Board of Directors proposes a dividend of SEK 4.50 (4.00) per share.
CEO’s message
The second half of 2011 came to be overshadowed by two government financial crises – the euro crisis in Europe and the galloping federal budget deficit in the U.S. Serious crises create anxiety and feed pessimism for the future. This pattern is repeating itself and is now being expressed in two interrelated effects – downward adjustments of growth forecasts and falling stock prices. The world’s stock markets, and the Swedish market in particular, fell sharply and as the crisis reached its culmination in early October 2011 there were many who feared a collapse, among other things as a result of the disintegrating euro cooperation. The stock markets, which normally focus on evaluating company-specific factors, now shifted over to judging macro risks, with sharply falling prices as a result. Now a growing number of observers believe that the actions taken as ECB’s bank financing program and the euro pact are moving the development in the right direction. Signs of more normal growth figures in the U.S. is setting the stage for reduced budget deficits. A strengthened confidence is reflected in the stock market. Since hitting bottom in October 2011, the Stockholm Stock Exchange has gained 25%, and Industrivärden’s Class C stock has risen more than 50%.
2011 was characterized by a high level of activity and a number of important events in our portfolio companies.
SCA announced in rapid succession the acquisition of Georgia Pacific’s European tissue business and the sale of its European packaging operation. Through this shift SCA has obtained a fine operation that has substantial synergies with its other hygiene businesses. SCA has thereby become a consumer products company backed up by a well-run forest products business. Its ownership of Europe’s largest private forest holdings is a vital source of raw material and tempers the sensitivity of fluctuations in commodity prices for the hygiene business.
Sandvik – under the direction of CEO Olof Faxander, who took office in February 2011 – has further developed its strategy. The objective is to achieve sharper profitability targets, efficiency improvements and greater synergies between the company’s different business areas, mainly in administration. The announced ambition to divest Medtech and the acquisition of Seco Tools are clear expressions of Sandvik’s efforts to strengthen its core business. The new group management that has been installed represents a rejuvenation with added international breadth.
Also Volvo, under the direction of its new CEO, Olof Persson, who took office in September 2011, has announced changes in the form of a new organization. Its goal has been to achieve efficiency improvements and a greater focus on profitability. The declared ambition to sell Volvo Aero is an expression of a greater concentration on the core business. Volvo’s nominating committee has proposed Carl-Henrik Svanberg to succeed Louis Schweitzer as Chairman, who has declined re-election.
Handelsbanken continues to perform well. The bank is standing firmly on its own legs and did not need state support or subsidies to manage its funding during this bank crisis, either. It is worth noting that in 2011 alone, Handelsbanken paid SEK 1.1 billion in government fees, of which the Swedish Stability Fund accounted for the greater share. This is an added burden for the company and its shareholders. The new calculation bases for calculating the bank’s capital adequacy, under Basel III, have now been set. It is gratifying and impressive that Handelsbanken, with slightly more than 14% in core tier 1 capital, is one of the most well capitalized banks in Europe. It would be unfortunate from a competition perspective if Handelsbanken and other Swedish banks would have greater demands from the Swedish FSA than their European competitors. Handelsbanken’s organic growth with good profitability in the UK is a textbook example of how a company – step-by-step, with limited risk and a successful business model – can gain a foothold in a new market.
Ericsson is today an industry leader in mobile telecom systems and related services. While Ericsson has strengthened its position over time, most of its European and American competitors have been diminished or disappeared, and its lead over the Chinese competitors has widened. The company is today a major player in terms of both volume and profitability in the important U.S. market. During the year, Ericsson invested in capturing market shares in Europe at a time when the European operators were modernizing their networks. This investment in market shares has put pressure on profitability in the near term. Ericsson’s sale of its 50% stake in Sony Ericsson to Sony and the acquisition of Telcordia are good examples of investments in the core business. In April 2011 Leif Johansson was elected as Ericsson’s new chairman.
Skanska is pursuing further expansion – both in scope and geographically – of its highly successful project development business. Currently it is concluding the first commercial property development projects in the U.S., with good results. At the same time, Skanska’s success, which is the result of a large and profitable construction operation combined with a successful project development business, has enabled the company to deliver a favorable total return over time.
A second convertible loan was successfully issued in January 2011. Through these loans we have obtained a favorable form of financing for stock purchases in quality companies with historically low multiples.
In 2011 we bought shares in portfolio companies worth SEK 4.5 billion, net. Among other things, we continued to strengthen our ownership position in Volvo – a portfolio company that we believe has good future opportunities with major value potential. In total we bought Volvo stock for SEK 2.9 billion, after which our ownership now amounts to slightly more than 15% of the votes.
Earnings from our short-term trading amounted to SEK 152 M, compared with our management costs of SEK 105 M, or 0.18% of managed assets. We have now passed SEK 1 billion in profits from our short-term trading since the start in 2003.
Industrivärden has a proven ability to create shareholder value, and over the last fifteen years, Industrivärden has delivered an annual total return that is 2 percentage points higher than the Stockholm Stock Exchange, which for a long time has been a strong performer in an international comparison. In 2011 we were affected by the negative trend in the stock market and the portfolio’s exposure to the industrial and banking sectors. The portfolio value fell by slightly more than SEK 14 billion, to SEK 57 billion, and net asset value was SEK 104 per share, or SEK 106 per share after full conversion. The total return for Industrivärden’s stock was -28%, compared with -14% for the return index. During the start of 2012, the stock market has assigned a higher value to our portfolio companies, and to date this year Industrivärden’s stock has risen by 25%, compared with 10% for the Stockholm Stock Exchange.
The Board proposes a dividend of SEK 4.50 per share, which entails that – as in previous years – we will fulfill our goal of paying a dividend yield that is higher than the average for the Stockholm Stock Exchange.
Anders Nyrén
