- The total return for the year was 15% for the Class A shares and 11% for the Class C shares, compared with 10% for the SIXRX total return index.
- Net asset value was SEK 160/share on December 31, 2015, representing an increase of 1% for the year, and 5% including reinvested dividend. Earnings per share for the year were SEK 7.18 (12.62). Net asset value was SEK 155/share on February 4, 2016.
- At the AGM on May 6, 2015 Fredrik Lundberg was elected as new Chairman of the Board, and in September 2015 Helena Stjernholm took office as new CEO.
- In order to increase Industrivärden’s financial flexibility and capacity the Board of Directors has decided on a new dividend policy and a new debt policy.
- The Board of Directors proposes a dividend of SEK 5.00 per share (6.25), corresponding to a dividend yield of 3.4% for the Class C shares.
CEO’s message
Since taking office as CEO nearly a half-year ago I have dedicated myself primarily to learning more about Industrivärden and our investments. A great deal of time has also been spent on the review of Industrivärden’s strategy. The aim is to improve our asset management model with the goal of maximizing our full potential. This work has been conducted in close dialog with Industrivärden’s board of directors. I have also benefited greatly from all of the meetings I have had with shareholders, co-investors and other key stakeholder groups as well as with my co-workers. A few important insights that I have gained from this review are that there are not any direct synergies between the portfolio companies, and that every investment must be evaluated on its own merits. It is also important that we increase our room to maneuver by achieving a lower level of debt over time. Last, but not least, Industrivärden should have a dividend policy that enables a positive cash flow and that gives us flexibility to adapt to external circumstances.
Based on my analysis and on my previous, professional experience, I can say that Industrivärden stands on firm ground. We have substantial knowledge and experience as an owner, a long-term asset management perspective, strong positions of influence, and investments with good growth potential. At the same time, there are areas in need of development. Industrivärden’s overall strategy – to be a long-term, value-creating asset manager through active ownership in Nordic companies – remains firm. Within the framework of this strategy we are now taking a number of important development steps in order to strengthen our ability to create shareholder value. In some cases it is a matter of more concrete measures, while in others it is about a changed approach that will bear effect over time. In short, it is a matter of bringing about an accelerated pace of change and having less patience with low-performing investments.
A stronger Industrivärden
The development steps that are now being taken are summarized in the following points:
• We are sharpening our focus on returns and clarifying our active ownership
Industrivärden invests with a long-term time perspective. This is a natural consequence of the fact that we have chosen an asset management strategy that builds upon involvement through active ownership. Long-termism is a strength that gives us the opportunity to support short-term, difficult development steps that can generate a high return over time. At the same time, it is a challenge to determine when it is time to exit or reduce our holding in a portfolio company in favor of some other alternative. We are now sharpening our focus on returns, which will likely affect the pace of change in the portfolio over time.
As an active owner with substantial shareholdings, we have the opportunity to exert influence over our investments. It is therefore important that we become clearer in exercising our ownership role. We are doing this by strengthening our involvement in the board nomination process, among other measures. Industrivärden will be represented by individuals from the Company’s board or management. I personally have the benefit of participating in this important work in my position as chair of the nominating committees of Handelsbanken, SCA, Skanska and SSAB. Within the framework of this nominating committee work we are continuously broadening our network with talented individuals who we can nominate for board election. This is having an impact already during the current board nomination season.
We will also work in various ways to bring about a faster pace of change in portfolio companies facing substantial challenges. The appointments of new CEOs at Sandvik and Volvo by those companies’ boards are good examples of important changes that we support in our role as an engaged owner. Finally, steps have been taken to strengthen Industrivärden’s corporate governance structure, among other things by preventing so-called personal constellations.
• We are strengthening our relationships with other owners and various capital market actors
By developing our relationships and cooperation with other owners and important market actors, we can increase our ownership influence. We will be a responsive and professional investor that is perceived as being an attractive business partner. This is work that will permeate the entire organization, and for my own part, I have already met a large number of representatives in the areas I mentioned above, and this work is continuing.
• We are broadening our investment universe
Industrivärden will continue to invest in Nordic, listed companies with good return potential. Our active ownership in companies will build upon a foundation of trust and ownership-based influence. Our share of ownership should therefore amount to at least 10% of the votes. We are now broadening our investment universe by also looking at slightly smaller companies than previously. For new investments, a portfolio company candidate should have a minimum market cap of roughly SEK 3 billion. In cases where we invest in a company with a market cap between SEK 3 billion and SEK 10 billion, an ownership share of 20%–30% of the capital is desirable. The idea is to have a genuine position of influence and that the investment’s potential return will make a tangible contribution to the equities portfolio as a whole.
Relatively good growth in value in 2015
Global growth slowed somewhat in 2015, but remained on par with a year earlier and the IMF’s forecast for 2016–2017. Certain, positive signs can be seen in the U.S. and Europe, while emerging markets such as China have shown weaker performance. This also applies for Latin America as a result of falling commodity prices and political uncertainty, among other factors. From a global perspective, falling commodity prices, low productivity growth and geopolitical tensions are a major challenge.
Despite the uncertain outlook, the stock market continued to perform well, and in 2015 the Stockholm Stock Exchange gained 7%, after reaching a peak in April, when the market was up 19%. Industrivärden’s equities portfolio had mixed performance in 2015, with SCA’s stock generating a very good total return of nearly 50%. For other portfolio companies the total return was below the market, and SSAB showed a clear negative return. From a three-year perspective, ICA Gruppen and SCA have generated clear excess returns, while Volvo, Sandvik and SSAB have performed considerably worse than the market. Other portfolio companies have generated a return that is level with the market’s return index.
During the year, net asset value grew by SEK 0.7 billion to SEK 69.1 billion, or 5% including reinvested dividend, compared with 10% for the total return index. The total return was 15% for the Class A shares and 11% for the Class C shares. The considerably higher growth in the share price during the year than the growth in net asset value points to a sharp narrowing in the discount to net asset value. During 2015 stocks were sold for SEK 1.9 billion, net. The single largest stock sale pertained to Kone, where the entire holding was sold for SEK 1.2 billion.
Investments with favorable return potential
During 2015 our portfolio companies had varying performance. Handelsbanken, SCA, Ericsson, ICA Gruppen and Skanska are showing favorable, stable performance, while Sandvik and Volvo are undergoing major, strategic change processes. Following its merger with Ruukki, SSAB is developing in the right direction, but is affected by very difficult market conditions.
Handelsbanken continues to perform well and is growing organically primarily in the UK. Like other banks, its business is adapting to changed regulations and digitalization in society. During the year Frank Vang-Jensen took office as new CEO, and Pär Boman was elected as new Chairman of the Board.
SCA is performing very well both operationally and in terms of value. Over several years the company has focused its business, carried out a number of product portfolio changes, and strengthened its positions in its core businesses, hygiene and forest products. A split into two divisions is therefore a natural step in SCA’s ongoing development. In 2015 Magnus Groth took office as new CEO, and Pär Boman was elected as new Chairman of the Board.
The Volvo Group is currently in a process of change and is facing major challenges. This work is being led by CEO Martin Lundstedt, who newly took office during the year and has many years of experience from the heavy automotive industry. An extensive process is now being carried out in an effort to simplify the company’s structure, increase profitability and strengthen its presence in key growth markets. Volvo has overall strong market positions and favorable conditions to develop well over time.
Significant management changes were also carried out at Sandvik in 2015. Johan Molin was elected as new Chairman of the Board, and Björn Rosengren took office as new CEO. The company has been carrying out a transformation process for the past couple of years, but a number of important steps remain before Sandvik will be able to realize its full potential. With a foundation in the company’s exceptional products, dedicated employees and strong brand, I feel that Sandvik has good prospects for future value creation.
Ericsson is showing an impressive ability to adapt and build strong positions in a rapidly changing industry with continuously shifting technology. Ericsson’s strategic partnership with the IP company Cisco is a good example. At the same time, Ericsson must gain a better financial outcome from its positions of strength and increase profitability in several areas of its business.
During 2015 ICA Gruppen made several important structural deals, including the divestment of ICA Norway and the acquisition of Apotek Hjärtat. The company has an impressive market position and is showing favorable, stable performance.
Skanska continued to deliver growth in its profitable construction business and value-creating project development business. At the end of 2015 a new, strategic plan was presented for the coming five years. Skanska’s business plan and financial targets have been updated, but is strategic direction remains firm. The company’s nominating committee has proposed Hans Biörck for election as Chairman of the Board at the 2016 Annual General Meeting.
For SSAB, 2015 largely involved creating continued synergies following its merger with Ruukki as well as improving the efficiency of operations and adapting to the difficult market situation. At its 2015 Annual General Meeting, Bengt Kjell was elected as the new Chairman of the Board.
Strong position for competitive returns over time
Industrivärden is in a favorable position in many respects to conduct a successful, long-term asset management operation with a foundation in active ownership. With a starting point from our strengths, a professional organization and the development steps that are now being taken, I look forward to lead the business to generate competitive shareholder value over time.
Stockholm, February 5, 2016
Helena Stjernholm
