Letter from CEO 1999 by katiealibrandi




For Industrivärden the conclusion of the millennium was most satisfactory. Our profit after tax in
1999 was SEK 4.3 billion - the highest yearly result since the Company's start in 1944. Our
reported earnings do not show the whole picture, however, as substantial surplus value was also
created in our portfolio of listed stocks. Therefore, an alternative way of describing 1999 would be
to add this rise in surplus value to our reported earnings. This value amounted to a full SEK 22.2
billion, giving a total "outcome" for the year of no less than SEK 26.5 billion!
This performance can be credited to own measures as well as to an extraordinarily strong year on
the stock market. The Affärsvärlden General Index rose 66 percent for the year - the largest gain in
a single year since 1983. Our own portfolio performed even better, and its value - adjusted for
purchases and sales - rose by a full 87 percent.
Choice of stocks is the most crucial factor underlying value growth in a particular stock portfolio - in
terms of risk as well as reward. This obvious fact is clearly illustrated by the wide variation in price
growth shown by the various sectors included in the General Index. Telecom and IT stocks were
the hottest in 1999, with gains in excess of 100 percent, while bank and pharmaceutical stocks -
both of which did very well in 1998 - were quoted at essentially unchanged prices.

At the end of 1999 the value of our holding in Ericsson was worth SEK 26.2 billion, corresponding
to 48 percent of the portfolio value and 45 percent of our total assets. Undeniably, this is a large
proportion of the portfolio and a risk factor in terms of economic theory. However, when judging the
balance in the portfolio you must not forget at the same time that Ericsson accounts for nearly 30
percent of total market capitalization on the Stockholm Stock Exchange. I do not see our
overweight in Ericsson as any reason for alarm at the moment. On the contrary - I am highly
confident about the company's future development. Granted, 1999 was a fairly flat year, but
Ericsson rallied to a strong finish. Earnings for the final quarter, in which Ericsson posted its finest
quarterly results ever, clearly illustrate the company's future potential. My view, therefore, is that
even in the coming years Ericsson will continue to contribute to the good performance of
Industrivärden's stock portfolio.
Our holding in Ericsson is not the entire explanation for our strong result, however. This can be
illustrated by a comparison of the performance of our portfolio and the General Index, excluding
Ericsson in both cases. Even in such a comparison, our shareholdings beat the index. I see this as
solid support for my previous claims about the very high quality of Industrivärden's portfolio.

One important event during the year was our exit from AGA, with a capital gain of SEK 3.3 billion.
This divestment was made in light of the restructuring that is currently under way in the gas
industry. In the wake of recent years' refocusing efforts and investments in expansion, AGA had
become an attractive target. Since the alternative options - that AGA would be the acquiring party
or that AGA would continue as an independent company - would have entailed a significantly lower
outcome for us as a shareholder, we made the decision to sell our holding in AGA. The sale is yet
another example of my intimations in last year's shareholders letter that no holding is sacred. If the
companies in which we are major owners can develop better with another owner, and if we at the
same time receive a share in the buyer's coordination gains, then we are always prepared to
consider a deal for the benefit of Industrivärden's shareholders.
Industrivärden clearly has the lowest management costs of any holding company on the Stockholm
Stock Exchange - less than 0.2 percent of managed assets. In recent years we have strengthened
our research resources while maintaining our low level of costs. The search for and analysis of
new investment opportunities is a continuous process alongside the monitoring of our existing
holdings. An example of the result of our analysis work can be seen in our investment in Skandia.
We began investing at an early stage and have therefore been able to benefit from Skandia's entire
upswing. In all we have invested SEK 1.2 billion in Skandia, and by year-end 1999 the holding had
grown to a stock market value of SEK 5.2 billion.
As I said above, I feel that our portfolio is of very high quality. At the same time, we have financial
resources for further improvement. Among potential investments we are analyzing are companies
in the pharmaceutical and IT sectors. We are also studying other growth sectors. In view of our
indirect IT exposure in Ericsson, the pharmaceutical sector has highest priority. Our research
points to strong growth in the industry, among other things due to the current, global shift in the age
pyramid. The lackluster performance of drug stocks in 1999 does not affect our positive view of the
The result of our management has tangibly benefited our shareholders through the growth in value
of Industrivärden's stock. In 1999 we delivered a total return of 76 percent, compared with 70
percent for the Total Return Index. This strong performance was no one-time occurrence. As the
chart at opposite shows, regardless of what measurement period you look at, Industrivärden has
given its shareholders an added return to the tune of 3 percentage points a year.
History repeats itself, as the saying goes. Despite this, of course I cannot guarantee the same
excess return in the years immediately ahead. But I can tell you with confidence that, as a
shareholder myself, I feel very secure with my investment in Industrivärden.

Clas Reuterskiöld
President and CEO

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