Interim Report January 1 – June 30, 2007

- Net asset value increased by SEK 10,385 M (SEK 27 per share), or 18%, to SEK 68.876 M (SEK 178 per share) as per July 31, 2007. Net asset value on June 30, 2007, was SEK 69,947 M (49,390), or SEK 181 (128) per share.

- Consolidated earnings for the first half of the year totaled SEK 13,194 M (SEK 34.16 per share), compared with SEK 2,500 M for the corresponding period in 2006 (SEK 6.47 per share).

- The total return during the first seven months of the year was 12% for the Class A shares and 13% for the Class C shares, compared with 12% for the return index.

- During the first seven months of the year, share purchases totaled SEK 5,530 M, including SEK 3,868 M in Volvo A. Shares were sold for SEK 2,059 M.

- Industrivärden has guaranteed to participate in its share of SSAB’s rights issue.


The strong performance by Industrivärden and its portfolio companies continued during the second quarter. At the end of July the total return was 12% for Class A shares and 13% for the Class C shares, compared with 12% for the return index.

The economic trend has been very good in recent years. I share the view of many commentators that growth in the economy is being driven not only by traditional, cyclical variations, but also by more fundamental structural changes. Most of all, the expanding prosperity in Asia and the former communist bloc is being driven by an increasingly global economy with major IT-based efficiency gains. Today it is not only the economies in Europe and the U.S. that play a central role in the development of the goods and finance markets; performance of countries like China and India is growing increasingly important.

Industrivärden’s portfolio companies all have operations which in one way or another are benefiting from this new world order. This is reflected in the continued favorable earnings and profitability gains reported by these companies. Sandvik’s rapid sales and profit growth is a prime example of how a company can take advantage of the opportunities that are emerging from this new situation. It is especially pleasing that Sandvik is succeeding in combining a growth strategy based on organic and acquisition-based growth with transfers to the shareholders in the form of redemptions and dividends.

SSAB is a good example of Industrivärden’s priority of long-term value creation – first through profitable investments and thereafter through shareholder transfers where scope exists. Through the acquisition of IPSCO – a deal worth approximately SEK 51 billion – a new company is being created with good prospects to further strengthen SSAB’s leading global position in high strength and quenched steel products. In connection with this acquisition, SSAB’s shareholders have approved a new issue of SEK 10 billion. As SSAB’s largest shareholder, with 17% of the capital and 22% of the votes, we have supported the new issue by guaranteeing subscription of our portion. This was a natural decision, since we believe this deal is very favorable for SSAB and its shareholders. Handelsbanken’s earnings and profitability during the first half of the year – and especially its sequential development – make us highly confident about the bank’s business model of putting focus on the customer.

During the first seven months of the year we purchased stocks for SEK 5.5 billion and sold for SEK 2.0 billion. Among other things, we have bought additional shares in Volvo, for SEK 3.9 billion. Our holding today corresponds to nearly 5% of the votes and is an expression of our belief in Volvo’s leading position in the interesting heavy trucks industry.

Our short-term trading showed a half-year result of SEK 120 M, which was SEK 54 M better than the corresponding period a year ago and amply covered our management costs of SEK 43 M.

In association with Investor’s half-year report, my CEO counterpart at Investor initiated a discussion on the need to make some improvements to the Swedish Code of Corporate Governance – in particular, on how it has come to be applied. I welcome this initiative. In a modern market economy, it is sound and proper that there is a large variation of owners with varying views, time horizons and goals. The problem is that in the Swedish model for appointing nominating committees, the selection criteria is based only on the size of ownership at a specific point in time. In addition, a company’s board is normally only represented by the chairman, who in a collective effort, is responsible for both defending and evaluating the board’s work, its members and thereby indirectly him- or herself. Moreover, in many cases, the chairman must report on this evaluation to representatives of more or less passive owners. Sometimes these nominating committee members are people with little or no experience in running a business or in qualified board work.

Another problem is that short-sighted players, using derivative positions and other modern financial instruments, can qualify as major shareholders at a given point in time despite a limited financial risk-taking. These players do not always have the company’s long-term growth in value as their top priority. We must find ways to strike a better balance in this nomination work. A first step is to keep in mind what a nominating committee is intended to do – to prepare for the election of board members prior to a company’s annual meeting, and nothing else. Discussions on strategies, incentive programs, capital structure and so on should not be a part of a nominating committee’s work – these issues should be reserved for the elected board. Perhaps nominating committees would be more effective if they had at least one more representative from the board plus the chairman. It would also be wise to define a major owner as one that has been so for a certain period of time or, in the case of a new owner, one that has issued some form of declaration of intent to own the shares for a certain period of time. My concerns about these issues are shared by many prominent business leaders in our neighboring Nordic countries. This debate thus must be brought to a head so that we can improve practice in Sweden. Otherwise the work on creating a Nordic stock exchange will be at risk of coming to naught.

Anders Nyrén

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