Interim Report 1-99

INTERIM REPORT JANUARY - MARCH 1999 * Investor's total return during the 12-month period ended March 31, 1999, amounted to -12 percent. * Investor's net asset value on March 31, 1999, was SEK 107,832 m. or SEK 539 per share. In the past twelve-month period, Investor's net asset value rose by SEK 3,757 m. or 4 percent. In the first three months of the year, the net asset value increased by SEK 14,330 m. or 15 percent. * On March 31, 1999, the value of Investor's core holdings was SEK 100,798 m. In the first three months of the year, the value of the core holdings increased by 13 percent. * In Investor's largest holding, Astra, the merger was formally completed with the British pharmaceutical company Zeneca. * During the period an exchange of shares was carried out in Stora Enso through the purchase of Stora Enso A and the sale of a corresponding number of Stora Enso R. As a result, Investor's share of the voting rights in Stora Enso rose from 11.0 percent to 15.8 percent. This interim report can also be accessed on the Internet at www.investor.se INTERIM REPORT JANUARY - MARCH 1999 NEW REPORT STRUCTURE This interim report has been prepared using new guidelines which differ from those used for previous reports from Investor. The intention is to provide a clearer focus on Investor's investment activities and their different areas - core holdings, new investments and other holdings. The aim is to illustrate the development of each of these three areas. The change involves extending the descriptive section of the report while the formal section will meet current recommendations and requirements. This is motivated by the fact that traditional income statements and balance sheets provide an incomplete picture of the operations of an industrial holding company. The most obvious example of the change is the new table on page 6 which describes the development of the different areas from an investment perspective while allowing this information to be related to the traditional income statement. In the formal section, the earlier statement of changes in financial position has been replaced by a statement of cash flows in accordance with new recommendations from the Swedish Financial Accounting Standards Council. TOTAL RETURN [REMOVED GRAPHICS] The diagram shows the total return for Investor and an average company listed on the Stockholm Stock Exchange respectively over the past 12 months. Source: SIX AB [REMOVED GRAPHICS] The diagram shows the change in value of SEK 1 invested in Investor and in an average company listed on the Stockholm Stock Exchange respectively at year- end 1993, including reinvested dividends. Investor's total return during the 12-month period ended March 31, 1999, amounted to -12.2 percent, compared with +1.4 percent for the Stockholm Stock 1) Exchange . In the five-year period 1994 through 1998, the average annual total return was 22.9 percent for Investor compared with 21.6 percent for the Stockholm Stock Exchange. 1) Total return refers to the sum of share price change and dividends. CHANGE IN VALUE [REMOVED GRAPHICS] On March 31, 1999, Investor's net asset value amounted to SEK 107,832 m. This corresponds to SEK 539 per share after full conversion. The increase in net asset value in the first three months of the year was 15 percent or SEK 14,330 1) m., of which SEK 11,865 m comprises an increase in the value of Investor's core holdings. The largest contributions came from the holdings in AstraZeneca with SEK 4,049 m. and Scania with SEK 3,978 m., excluding Scania shares restricted by distributed covered warrants. If these shares are included, the total contribution from Scania is SEK 5,462 m. The remaining change in net asset value is mainly due to appreciation in the new investments portfolio. 1)T his figure comprises realized gains and changes in surplus values taking purchase and sales settlements into account. Net Asset Value 3/31 1999 12/31 1998 SEK/share SEK m. SEK/share SEK m. Core Holdings 503 100 798 444 88 923 New Investments 32 6 386 28 5 509 Other Holdings 50210 053 444 49 9 836 Other assets and -1 -184 debts Total Investments 588 117 681 520 104 084 Net debt/ cash -83 -16 691 -80 -15 966 Scania shares restr 34 6 842 27 5 384 by warr Total Net Asset Value 539 107 832 467 93 502 INVESTOR'S CORE HOLDINGS Investor's core holdings (at March 31, 1999) Company Number of Market ShareShareShare Share Market value 3) shares value price of of of SEK m. SEK m.perfor portfcapitvotin 12/31 1998 3/31 1999 mance olio al g 1999 (%) (%)right 1) (%) s (%) Pharmaceuticals/ Health care 38 Astra 176 254 905 33 217 +14 33 11 13 29 168 Gambro 68 638 225 5 422 -9 5 20 26 6 040 Engineering 33 2) Scania 52 994 181 11 882 +50 12 26 42 7 904 ABB 90 274 796 9 208 +18 9 10 13 7 809 Atlas Copco 27 523 100 6 138 +25 6 15 21 4 899 Electrolux 13 347 390 2 176 +17 2 4 21 1 912 Saab AB 21 611 925 1 416 2 20 36 1 837 SKF 14 955 052 1 727 +24 2 13 30 1 376 IT/Telecoms 16 Ericsson 64 019 000 13 283 +4 13 3 22 12 964 WM-data 10 060 500 3 229 -7 3 13 6 3 481 Financial 6 services SEB 48 486 300 4 873 +18 5 8 9 4 146 OM Gruppen 8 867 307 913 +1 1 11 11 904 Forest 6 products Stora Enso 77 892 748 6 340 +16 6 10 16 5 503 Service 1 SAS Sweden 13 155 980 974 -1 1 19 19 980 Total 100 798 100 88 923 1)M ost heavily traded class of share. 2)R elates to the 52,994,181 shares not restricted by distributed covered warrants. 3)G ross holding, including any shares on loan. In the first three months of the year, shares were purchased for SEK 1,293 m. and shares were sold for SEK 1,283 m. This entire change corresponds to an exchange of shares that was carried out in Stora Enso through the purchase of Stora Enso A and the sale of a corresponding number of Stora Enso R. After this transaction, Investor owns 10.3 percent of the capital and 15.8 percent of the voting rights in the company. Investor's previous holding corresponded to 10.3 percent of the capital and 11.0 percent of the voting rights. At March 30, 1999, shareholders representing 96.2 percent of the capital and 96.4 percent of the voting rights in Astra had approved the proposed merger. Investor's ownership in the merged company is expected to amount initially to 5.0 percent of voting rights and share capital. [REMOVED GRAPHICS] The value of the core holdings, adjusted for net changes, rose by SEK 11,865 m. corresponding to 13 percent during the period. Both the AFGX index and the OMX index rose by 6 percent in the same period. Based on Investor's holdings at the end of the period, dividends from Investor's core holdings are expected to increase by some 14 percent to approximately SEK 2,100 m. NEW INVESTMENTS Investor actively seeks new investments in future-oriented investments which can generate a high return and thus provide our shareholders with good growth in value. The aim is that new investments should amount to 15 percent of Investor's assets over time. Investor's largest holding within new investments, MedImmune, continued to develop favorably in the first three months of the year. Novare Kapital's operations continued to expand and the number of investments at the end of the period was more than 20. EQT*, through EQT Scandinavia I, acquired all the shares in the packaging company Stenqvist from Duni. In addition, EQT Scandinavia II, together with the investment company Ratos, made a public offer for Dahl. During the period, EQT Scandinavia I and J. Lauritzen Holding A/S concluded an agreement on the sale of 100 percent of Sabroe Refrigeration A/S to the U.S. company York International Corporation. [REMOVED GRAPHICS] At the end of the period, the total value of new investments amounted to SEK 6,386 m. compared with SEK 5,509 m. at year-end 1998. In the first three months of the year, shares were purchased for SEK 387 m. and shares were sold for SEK 214 m. OTHER HOLDINGS This area consists of holdings added to Investor due to factors such as dividends or acquisitions. The area also includes Investor's securities trading, Investor's holding of own convertibles, and the holdings in Grand Hôtel Holdings and Saab Automobile. The operations within Grand Hôtel Holdings developed well during the first three months of the year and income for the period after net financial items amounted to SEK 3 m. The hotel business area achieved a higher volume during the period which compensated for some decline in the food & beverage business area. The work of integrating and developing Berns, which was acquired in 1998, is continuing according to plan together with the international partner Conran Restaurants. Saab Automobile continued to increase sales in the first three months of the year compared with the previous year. As expected, the launch of the Saab 9-5 Wagon at the beginning of the year was successful and demand for the model is high. * Joint name for the funds EQT Scandinavia I (formerly Scandinavian Equity Partners), EQT Scandinavia II and EQT Danmark. Other holdings 3/31 1999 12/31 1998 SEK/share Market SEK/share Market value value SEK m. SEK m. Other Holdings and securities trading 14 2 815 13 2 460 1) Saab Automobile 50% 14 2 890 14 2 890 GHH Grand Hôtel 6 1 180 6 1 180 Holdings Investor's own 15 2 868 15 3 006 convertibles Land and real estate 1 300 1 300 Total 50 10 053 49 9 836 1) Saab Automobile is reported at book value of the subordinated loan. The total value of other holdings amounted to SEK 10,497 m. at the end of the period compared with SEK 9,652 m. at year-end 1998. In the first three months of the year, shares were purchased for SEK 6,640 m. while shares were sold for SEK 6,596 m. CONSOLIDATED RESULTS Development by segment Core New OtherInves Total Total HoldingsInvestmHolding tor 3/31 12/31 ents s misc 1999 1998 Dividends 678 35 713 1 945 3) Realized 772 75 21 18 886 3 995 profit/loss Write-downs -38 70 32 -404 Adm expenses -174 -174 -787 Other revenues and -78 3 16 -59 -99 1) expenses Net financial 101 -231 -130 -939 income/expenses Tax -100 -100 -246 Income for the 1 450 -6 125 -401 1 168 3 465 period 3) Change in surplus 11 093 783 -1101 396 13 162 3 535 value Dividend paid 0 -1 907 Total contribution 12 543 777 15 995 14 330 5 093 to 2) NAV growth Assets per segment Book value 34 030 4 375 8 3181 858 48 581 46 624 Accumulated 66 768 2 011 1 7355 428 75 942 62 844 surplus value 3) Market Value 100 798 6 386 10 0537 286 124 523109 468 1@P ertains to income from Grand Hôtel Holdings, hedging and other operations. 2@E xcluding purchases and sales 3) Includes Scania shares restricted by distributed covered warrants. Investor's pretax income, excluding unrealized increases in value, amounted to SEK 1,268 m. (262). Net income amounted to SEK 1,168 m. (262). The change in earnings compared with the previous year was mainly due to the capital gain from the exchange of shares in Stora Enso, earlier approval of dividends and improved net financial items due to interest income received from Saab Automobile. CONSOLIDATED NET DEBT [REMOVED GRAPHICS] At the end of the period, the Group had a net debt of SEK 16,691 m. compared with a net debt of SEK 15,966 m. at year-end 1998. Investor's net debt thus amounted to 13 percent of the market value of total assets at the end of the period. During the period, the rating agency Moody's upgraded Investor's long- term rating from A3 to A2. STRUCTURE OF SHARE CAPITAL AND CONVERTIBLES On March 31, 1999, Investor's share capital amounted to SEK 4,773 m., represented by 191 million shares. On the same date, the nominal amount of Investor's convertible debenture loans totaled SEK 1,315 m. Of this amount, SEK 1,022 m. pertained to the loan denominated in Swedish kronor and SEK 293 m. to the loan denominated in ECU. On March 31, 1999, the nominal amount of Investor's own holding in the loan denominated in Swedish kronor was SEK 899 m. and SEK 293 m. in the loan denominated in ECU. In total, this corresponds to 91 percent of the volume of convertible loans outstanding. Structure of share capital and convertibles Before conversion Number of Number of Percentage of Class of share shares voting capital voting rights rights A 1 vote 77 922 71177 922 711 40.8 87.3 B 1/10 vote 113 005 37211 300 537 59.2 12.7 Total 190 928 08389 223 984 100.0 100.0 Convertible debenture loans 1) B 1/10 vote 9 267 667 926 767 After conversion A 1 vote 77 922 71177 922 711 38.9 86.4 B 1/10 vote 122 273 03912 227 304 61.1 13.6 Total 200 195 75090 150 015 100.0 100.0 1) The nominal value of the loans is SEK 1,315 m. and they carry 8.00% interest until June 21, 2001. The conversion price is SEK 141.90. Of the convertible debenture loans corresponding to 9,267,667 shares, Investor's holding corresponds to 8,400,639 shares. ACCOUNTING PRINCIPLES This interim report has been prepared in accordance with the Swedish Annual Accounts Act. The accounting principles applied are unchanged. Consolidated accounts according to the equity method will be prepared in conjunction with the interim report for the first six months of the year and will be available in August 1999. Stockholm, April 14, 1999 Claes Dahlbäck President and Chief Executive Officer For information: Nils Ingvar Lundin, Managing Director, Corporate Relations, phone +46 8 614 20 49, +46 70 514 20 49 Per Spångberg, Vice President, Investor Relations, phone +46 8 614 20 31, +46 70 624 20 31 This interim report has not been subject to specific review by the Company's auditors. INVESTOR GROUP INCOME STATEMENT Purchase method 1 1999 1998 1998 ) SEK m. 1/1- 1/1- 1/1- 3/31 3/31 12/31 Net revenue Dividend income, core holdings 678 353 1 841 Sale of other securities, etc. 6 971 4 374 20 396 Cost of sold other securities, -6 867 -4 295 -19 543 etc. Capital gains, core holdings 790 263 2 743 2) Administrative expenses, -174 -158 -787 investment operations Operating income 1 398 537 4 650 Net financial expenses -130 -275 -939 Income after financial items 1 268 262 3 711 Tax -97 - -246 Minority interest -3 - - Income for the period 1 168 262 3 465 1) Saab AB is not consolidated in the comparative figures. 2) The administrative expenses disclosed in the 1998 annual report of SEK 814 m. refer to the entire Investor Group. INVESTOR GROUP BALANCE SHEET Purchase method 1 1999 1998 1998 ) SEK m. 3/31 3/31 12/31 Assets Equipment and real estate, etc. 1 681 1 908 1 684 Shares and participations 44 544 38 408 42 908 Receivables 4 512 3 672 3 821 Cash and short-term investments 146 2 755 138 Total assets 50 883 46 743 48 551 Shareholders' equity and liabilities 2) Shareholders' equity 30 525 27 144 29 269 Convertible debenture loans 1 365 1 355 1 389 Provision for pensions 325 313 325 Loan Saab AB - 8 825 - Other loan liabilities 16 512 8 516 15 779 Other liabilities 2 156 590 1 789 Total shareholders' equity and 50 883 46 743 48 551 liabilities Net debt Cash and short-term investments 146 2 755 138 Loan Saab AB - -8 825 - Other loan liabilities -16 512 -8 516 -15 779 Provision for pensions -325 -313 -325 Total net debt -16 691 -14 899 -15 966 1) Saab AB is not consolidated in the comparative figures. The value of Saab AB is included in Shares and participations with SEK 3,091 m. corresponding to 100% of shareholders' equity as of December 31, 1997. 2) Shareholders' equity changed during the period: Opening balance 29 269 26 878 26 878 Dividend to shareholders -1 907 Effect on shareholders' equity of distribution of Saab AB purchase rights to 758 Investor's shareholders Income for the period 1 168 262 3 465 Other changes 88 4 75 Closing balance 30 525 27 144 29 269 INVESTOR GROUP STATEMENT OF CASH FLOWS 1999 1998 1998 SEK m. 1/1- 1/1- 1/1- 3/31 3/31 12/31 CASH FLOW FROM OPERATING ACTIVITIES Core holdings Dividend income 40 249 1 841 New investments and other holdings Dividend income 35 51 239 Other operations, trading and administrative expenses Payments received 6 676 3 673 17 467 Payments made -7 150 -4 342-19 426 Cash flow from operating activities before interest expenses and income taxes -399 -369 121 Interests received/paid -66 -204 -596 Income tax paid -83 -15 -25 Cash flow from operating activities -548 -588 -500 INVESTMENT Core holdings Purchases -1 293 - -5 582 1) Payment ABB shares - -6 368 -6 368 Sales 1 309 166 570 Broadening of ownership in Saab AB 5 637 New investments and other holdings 2) Purchases etc. -397 -440 -3 688 Sales 214 666 4 009 Investments in tangible and -10 -324 -370 intangible fixed assets Sold tangible fixed assets - - 257 Cash flow from investment -177 -6 300 -5 535 FINANCING Long-term loans raised 103 2 350 6 932 Increase/decrease in short-term 630 2 311 -3 834 financial debts Dividend paid - - -1 907 Cash flow from financing 733 4 661 1 191 Cash flow for the period 8 -2 227 -4 844 Liquid assets, opening balance 138 4 983 4 983 Translation difference in liquid - -1 -1 assets Liquid assets, closing balance 146 2 755 138 1) Debt according to agreement with Incentive (since July 1, 1998, Gambro), repaid in January 1998. 2) Excluding trading. PRESIDENT'S COMMENTS Compared with 1998, the development of the global economy was less dramatic in the first quarter of this year. Economic development was characterized by the continued strength of the U.S. economy and stabilization of the economic situation in the developing countries. The economic problems in Japan appear to have culminated. Possibilities for a recovery of the weak trend in Western Europe have improved. The introduction of the euro as a common currency throughout most of the EU and a credible start for the European Central Bank are strengthening this scenario. Taken as a whole, this means that the risk of a global recession has now further decreased. The stock markets worldwide developed more strongly in the first quarter than many people had dared to expect. A reversal of the economic trend in Europe is anticipated which can be seen through rising interest in cyclical shares. What is the significance of this development for Investor's activities? In our most recent annual report we tried to explain how operations are conducted within Investor - that the active ownership we seek to uphold is ultimately exercised through representation on the boards of the various companies, and that through this representation we endeavor to achieve better corporate governance that will lead to greater value for our shareholders. One example of this is the merger between Astra and Zeneca which has now been accepted by more than 96 percent of Astra's shareholders and by a unanimous Zeneca annual general meeting. The merger has led to a sharp upswing in Astra shares which in turn contributed to a considerable increase in Investor's net asset value in the first quarter. In the spring, the spotlight was on Scania, one of our largest holdings. The background to this was the surprising purchase by Volvo, one of Scania's major competitors, of 13 percent of the shares in Scania. Volvo's declared intention with this acquisition was to "ensure inclusion in discussions about Scania's future ownership." At Investor we expressed our opinion that Scania is a strong company with excellent opportunities for continued positive development through its own efforts. At the same time, Investor explained the importance of detailed examination of all possible future alternatives for Scania, from remaining as an independent company to various forms of cooperation or merger. Scania's preliminary report for the first quarter strengthens Investor's opinion. The rise in Scania's share price in the spring, just like Astra's, made a substantial contribution to the increase in Investor's net asset value. Investor's management believes that growth in net asset value is the most important way in which we create shareholder value. Another is to try to reduce the discount to net asset value. Unfortunately, the discount rose further in the spring which meant that Investor's shares developed considerably less favorably than we had hoped. During my 21 years as president of Investor, I have seen a wide variation in the size of the discount to net asset value, from close to 40 percent to below 10 percent. Naturally, I have devoted a lot of thought to the reasons for the discount and its development over the years and many different theories have been set forth. To some extent the discount is probably related to purely technical matters in the stock market but naturally it also reflects the market's confidence in our ability to generate shareholder value. For my part, I am entirely convinced that Investor will continue to provide a highly attractive investment alternative led by an exceptionally wise new CEO and a very competent new management group. Claes Dahlbäck ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/14/19990414BIT00290/bit0001.doc http://www.bit.se/bitonline/1999/04/14/19990414BIT00290/bit0002.pdf