Interim Report January 1–September 30, 2013

• The total return for the first nine months of the year was 17% for the Class A shares and 15% for the Class C shares, compared with 20% for the SIXRX total return index. For the longer ten-year period, the Class C shares generated an excess return of +1 percentage point per year above the total return index.

• Net asset value on September 30, 2013, was SEK 145/share, an increase of SEK 16/share, or 16% including reinvested dividends of SEK 5/share. Earnings per share for the first nine months of the year were SEK 21.31 (21.30).

• Divestment of holding in Indutrade for SEK 3.3 bn, at an average selling price of SEK 222/share. Aggregate cash-flow during the holding time was approximately SEK 6.7 billion.

CEO’s message

Signs of a turnaround, albeit with concerns in the near term

The economic improvement that we have been able to see in the U.S., but also in Japan and China, is now becoming increasingly more evident. The U.S. is once again in a political deadlock over the budget, which has resulted in a partial shutdown of the federal government. There is a clear risk that, without congressional accord, the U.S. will reach its debt ceiling at the end of October, which would have negative effects on the perceptible but not particularly strong economic recovery in the U.S. In the euro zone we are seeing some signs of stabilization, albeit at a low level. Northern Europe continues to perform relatively strongly, however. The turbulence caused by the uncertainty over when the U.S. Federal Reserve Bank will begin tapering its QE bond purchasing program, will likely continue in the near term.

However, it is growing increasingly clear that, over the longer term, the U.S. has gained a very important competitive advantage – cheap energy. Owing to the so-called shale oil and gas revolution, natural gas and electricity prices are now considerably lower in the U.S., to the benefit of energy-intensive industries like steel and petrochemicals. For Europe, this presents yet another competitive disadvantage as the EU, led by Germany, is in the midst of a costly energy transformation. It will take time for Europe to compensate for this disadvantage absent any expansion of nuclear power. Strong measures will be needed to support basic industry in this new competitive climate. It is therefore unfortunate that the competitiveness of Swedish industry is being undermined by an unnecessarily strong krona as a result of the country’s interest rate policies. 

Efficiency improvement measures for the future

Our portfolio companies continue to implement ongoing structural and efficiency improvement measures to boost profitability. Parallel with this, continuous activities are under way to strengthen the portfolio companies’ positions in key growth markets. SCA’s cash offer for Asia-based Vinda and Volvo’s launch of a new series of so-called value trucks, UD Trucks Quester brand, that are specially designed for emerging markets are good examples of this. Overall, this work is creating favorable conditions for strengthened competitiveness and higher profitability once growth gains momentum again.

Successful transactions during the year

During the first nine months of the year we carried out a number of changes in the portfolio with good results. Through the sales of our holdings in Höganäs and Indutrade for SEK 1.5 billion and SEK 3.3 billion, respectively, we have freed up a total of SEK 4.8 billion. Of these funds, we have invested SEK 2.4 billion including SEK 0.5 billion in the new issue by ICA Gruppen – a holding that today is worth SEK 4.0 billion. Owing to its stable cash flow generation, our investment in ICA Gruppen is a valuable complement to our industrial portfolio.

Indutrade was built up as a wholly owned subsidiary of Industrivärden and was introduced on the stock market in 2005, when we stayed on as the principal owner. During the 24 years that we served as an active owner of Indutrade, the company’s sales grew from SEK 0.9 billion to more than SEK 8 billion, with good profitability. Our original investment was modest and amounted to approximately SEK 300 M. Our aggregate cash flow during the holding period was approximately SEK 6.7 billion, of which roughly SEK 1.7 billion consisted of received dividends and Group contributions, etc.

We have also built up a small holding in the Finnish elevator manufacturer Kone – a quality company that matches our investment criteria in many respects. The investment has been made in consensus with Kone's principal owner.

At the close of the third quarter, Industrivärden’s net asset value amounted to SEK 56.8 billion, an increase of SEK 7.0 billion during 2013, or 16% including reinvested dividends. The total return was 17% for the Class A shares and 15% for the Class C shares, compared with 20% for the total return index.

During the year to date, our short-term trading has generated a profit of SEK 83 M (86), which is on a par with Industrivärden’s management costs.

Anders Nyrén

The information provided in this interim report is such that AB Industrivärden (publ) is obligated to publish pursuant to the Securities Market Act. Submitted for publication at 10.00 a.m. on October 7, 2013.