Interim report, January 1-June 30, 2010
The first half year
 Net asset value on June 30 was SEK 120 per share, an increase of 11% for the year including reinvested dividends.
 The value of the equities portfolio increased by SEK 3.3 billion to SEK 58.9 billion, or 6%, during the first half of the year. The Stockholm Stock Exchange rose 4%.
 The total return was 3% for the Class A shares and 5% for the Class C shares during the first half of the year, compared with 7% for the return index.
 Earnings for the first half of the year amounted to SEK 4.2 billion (8.6), corresponding to SEK 10.82 per share (22.17).
 In May 2010, Volvo Class A shares were acquired for SEK 800 M from an equity swap at an average purchase price of SEK 63 per share.
 Shares worth a total of SEK 2.1 billion net were acquired during the first half of the year.
CEOs comment
Stock purchases for slightly more than SEK 2 billion
The past quarter was characterized by growing concerns over the budget situation in the EU, with main focus on Greece, Spain, Portugal and Ireland. Credit spreads for these countries' loans have once again widened to alarmingly high levels at the same time that the interbank market is increasingly faltering. As a result, Spain's banks are having difficulty obtaining financing in the normal manner, and are instead relying on liquidity support from the European Central Bank. As a result of a worsened financing situation, the European bond market is working to an ever-poorer degree for the companies.
What I have described above is mainly an European problem. The U.S. economy continues to improve, even though few new jobs have yet been created. The rapid growth in South America and Asia continues, driven above all by China, India and Brazil. Many countries are now posting growth that is on a par with or better than the levels prior to the crash in 2008. As a result, the global economy is becoming increasingly divided, with favorable growth in emerging markets and weaker growth primarily in Europe, but also in Japan and to some extent in the U.S. As a result, the euro has weakened, and indications are high that this trend will continue.
Continued investments in the portfolio
During the first half of the year, net asset value increased by SEK 3.5 billion to SEK 46.3 billion. This represents an increase of 11% including reinvested dividends, compared with 7% for the total return index. The total return was 3% for the Class A shares and 5% for the Class C shares.
Our short-term trading continues to perform well and generated a profit of SEK 102 M (62). As previously, the profit from this activity amply covered Industrivärden's management costs, which totalled SEK 44 M (43).
For a long-term player as Industrivärden, the past half-year offered favorable investment opportunities. Accordingly, during the second quarter of 2010 we have continued to invest in a number of our portfolio companies. In all we purchased shares for approximately SEK 1.4 billion, of which approximately SEK 1.0 billion was in Volvo. We also purchased shares in SSAB, Sandvik and Skanska. During the first half of the year we thus made investments worth a total of SEK 2.1 billion.
These investments were financed by the convertible loan we issued in January. By investing in our portfolio of quality companies with favorable price potential, we increase the return on our capital at the same time that we maintain a continued high preparedness to act. Parts of the loan have also been used to replace existing credits that carried higher interest than the convertible loan. We have thereby been able to take advantage of both a favorable financing opportunity and good investment occasions to enhance our return. It is worth noting that the convertible market is now significantly weaker than it was in January, and thus as things currently stand we would hardly have been able to carry out the issue today.
Increased holding in Volvo
In early May we announced that we increased our ownership in Volvo by 12.5 million Class A shares, corresponding to SEK 800 M, to slightly more than 10% of the votes. The acquisition was carried out after we decided to purchase the shares in the equity stock swap what was built up during the autumn of 2009. We thereby took advantage of an opportunity to conduct a favorable transaction at an attractive average price of SEK 63 per share. The average price we have paid for our entire Volvo holding today amounts to SEK 88 per share.
Structural measures generating results
The foundation of our business is made up of the ten quality companies in which we seek to contribute to favorable growth in value through a structured work approach and strong involvement.
Our equities portfolio consists of companies that have leading positions in their respective niches. In short, they aspire to be the best in their class and preferably on a global basis. Our portfolio companies have their origins in Sweden, but operate internationally to the highest degree. Most of their sales are outside Sweden, with a third derived from emerging markets, and their operations are conducted in more than 180 countries.
During the economic decline that came in the wake of the credit crisis, several of our portfolio companies carried out extensive restructuring measures in the aim of lowering costs and working capital, also securing their financing. The economy has now once again gained momentum in several major markets in which our portfolio companies are active, which is reflected in stronger demand. In time, volumes will return to more normal levels, which together with the positive impact from the restructuring measures that have been brought out, will increase profitability. I know that our portfolio companies have been successful in their actions, and in several cases they have even strengthened their market positions. Profitability will therefore be strong as soon as growth once again comes up to speed. This applies in particular to the companies in which the drop in demand was the greatest as a result of the crisis, such as Sandvik, Volvo and SSAB.
Basel III must be formulated in the right way
As a result of the financial crisis, work has been started to review the rules that govern the risk level in banks - the so-called Basel rules. Just prior to the financial crisis, a transition was begun to Basel II, which allowed an extensive balance of risks in the banks' asset base. This will favor more secure bank lending, such as home mortgages, in relation to lending with a higher level of risk. Basel II went a bit far, perhaps, but as the new rules are now being formulated, it is a matter of major changes rather than an adaptation. The idea now is to introduce a financial strength requirement, i.e., equity in relation to assets, independent of the assets' risk quality. This, together with new requirements for calculating banks' liquidity risks will limit the credit expansion in the banking system. This is an unfortunate development, since the banking system's willingness to extend credits is so central for stimulating and promoting growth.
More and more voices are now being raised for a review of the proposal of the Basel III rules and for a delay in the implementation of these until the sores from the financial crisis have entirely healed - which I welcome. It is most urgent that the new Basel III rules are well thought out and not so indiscriminant in their impact. They must also give the banking system enough time to adapt itself. My hope is that they draw from bank structures whose business models have proved to work well even during financial crises. Handelsbanken is a prime example of such a bank. It has endured the crisis without any need for government support or capital injections, and with continued favorable growth in its share price.
Anders Nyrén President and CEO
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