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