Letter from CEO 2001 by katiealibrandi




The past year has entailed major changes – for the world, for the economic climate, and for
me personally.

When I took office as CEO of Industrivärden at the Annual General Meeting last May, the
stock market was enjoying a relatively good recovery from the plunge that had taken place
primarily during the first quarter of the year. However, the course of events during the summer
and autumn was far more dramatic than any of us could imagine. On September 11 our view
of the future as well as our sense of security changed forever. The terrorist attacks against
the World Trade Center in New York and the Pentagon in Washington were not only attacks
against the United States, but against the entire lifestyle that the U.S. represents – and
thereby an attack against the entire Western world in general and Sweden in particular.
An open society – free of trade barriers and with effective and safe transportation – is a
prerequisite for the favorable development of a small country like Sweden, with a large base
of foreign trade. In the longer perspective, what happened in New York could have just as
large consequences for us as for the U.S. It is therefore a sign of hope that the world
community has so strongly taken up the fight against terrorism, not only in Afghanistan, but all
around the world.

I was in the World Trade Center on the morning of September 10 and was scheduled to
return there for additional meetings on September 13. Getting stranded in New York and
witnessing the New Yorkers’ sense of solidarity, generosity and decisiveness first-hand in
Manhattan is a vivid memory that I will always carry with me. The way in which the people of
New York dealt with this almost incomprehensible crisis sheds a bright ray of hope for the

In addition to getting to know Industrivärden, its organization, and its major holdings, I have
dedicated a great amount of energy working together with my colleagues on defining
Industrivärden’s role in an increasingly global economy. We are part of a market in which an
almost unfathomable amount of financial resources are gathered in the hands of various
professional asset managers. In a world in which most everyone is continuously striving to
outperform the index, in my view there is a clear need of a player like Industrivärden. Our goal
is to generate high growth in net asset value over time by combining a professional
investment operation with long-term active ownership. This also means that the total return for
Industrivärden’s stock should be analyzed from a long-term perspective. From this
perspective Industrivärden’s stock has delivered solid returns, and it is my hope that we will
be able to build upon this positive track record in a world of changed market conditions that
are being created by a deregulated and globalized capital market.
Our continued favorable development requires that we take a number of steps aimed at
further strengthening Industrivärden’s position and ability.

The key to our success can be found in a professional investment operation and our active
ownership. As a logical consequence, we will work with a concentrated portfolio. Our
investments will essentially be targeted at large and medium-sized listed companies with the
potential for long-term profitability and a strong cash flow.

This means that for new investments, we will propose clear expectations on anticipated value
in connection with our initial investment, which will then form the basis of decisions on an exit
strategy. This strategy for new investments will be applied with a base in the Nordic countries.
Our adopted strategy entails that ordinarily we will not be directly involved in venture capital
investments. However, in spring 2001 Industrivärden gained a window on this market by
taking a 25% stake in Ericsson Venture Partners, where our commitment is to contribute up to
USD 75 million in venture capital.

Industrivärden today has three wholly owned subsidiaries. They are all managed very well,
with good profitability and strong cash flows generated by good market positions and well-
executed strategies. Industrivärden will sell all or parts of the holdings in these companies
when the conditions emerge in which they will be able to continue developing well in another
ownership arrangement, for example by an industrial owner.

A change toward being more of an active investment company rather than a holding company
in the practical sense will entail a different way of working and thus a changed organization.
We will be focusing our activity on investing rather than on pure equities analysis. We will also
have a structured market presence whereby, through various market activities, we will convey
market information in a structured manner and create value-added – above all – in the
derivatives market. The work on building up this new organization, which will consist roughly
of the same number of employees as today, is currently in progress.

It should be possible to increase our borrowing, which at present is conservative, assuming
that our investment opportunities are apparent and have a return potential that amply exceeds
Industrivärden’s cost of capital. However, so as not to jeopardize Industrivärden’s sound
finances, our borrowing will not exceed 20% of our market-valued assets. Since our business
concept is to create long-term growth in value through active ownership, and the discount to
net asset value presents an obstacle to new issues, we are currently not planning any stock
repurchase programs.

Our work will henceforth continue to be characterized by the factors that have been so
successfully applied to date, namely, responsible, active ownership and a long-term
approach. We do not deny the position of power that this business concept entails; on the
contrary, we see it as a prerequisite for our strategy and feel a great sense of responsibility
for what it entails. Power is not a goal in itself, but a necessary means that enables us to live
up to our business concept of creating value through active ownership.
It is very pleasing that an Extraordinary General Meeting on October 25, 2001, decided to
prematurely cancel the convertible participating notes in accordance with the original terms of
the CPN loan in 1988. This redemption effectively reduces the number of securities classes in
Industrivärden to two – Class A and Class C shares – and will facilitate valuations of

It is our hope that this simplification will improve the liquidity of our stock and make
Industrivärden even more transparent and easy to analyze, which should benefit all investors
– particularly foreign investors who have shown an interest in Industrivärden.
Another prerequisite is that Industrivärden’s tax situation is not disadvantageous relative to
other investment alternatives. It is therefore gratifying to note that the standard income
assumption used by the tax authorities is being reduced from 2.0% to 1.5%, starting in fiscal
2002. However, if and when the new act governing taxation of business-related shares takes
effect, I am counting on an additional adjustment of the standard-income assumption, since
holding companies will otherwise be put at a disadvantage in relation to operating companies.
Even with the 1.5% standard-income assumption, we would be paying out more in dividends
than we have in our current cash flow. This situation is not acceptable in the long run if we are
to deliver on our long-term ownership mission particularly in Sweden.
In light of the 27% drop in our net asset value and the -16% total return for Industrivärden’s
stock, compared with -15% for the Total Return Index, it cannot be said that our performance
during the past year was satisfactory. Industrivärden’s exposure to growth stocks in the form
of Ericsson and Skandia dealt a severe blow to our net asset value. As a result of the
measures now taken by Ericsson, together with the company’s considerably strengthened
position in the systems business, we have a confident view of the future.
Our involvement in the pharmaceutical sector has been a successful undertaking which,
together with the strong performance of SCA, in particular, helped moderate the negative
impact of Ericsson’s stock price.

I want to underscore the importance of adopting a correct time perspective in conducting a
valuation. We work as long-term active owners, and consequently our own performance
should be studied over the span of several years. From this slightly longer time perspective,
we measure up well against the Total Return Index. Despite the unsatisfactory development
during the past year, in the longer perspective Industrivärden’s stock has enjoyed an annual
average growth that has far outpaced the Stockholm Stock Exchange in both the five- and
ten-year perspectives. It is my hope that Industrivärden’s stock will continue to show this
satisfactory level of returns.

Finally, I would like to extend a warm thanks to all employees of the Industrivärden Group –
including my colleagues in the Parent Company as well as the employees of the wholly
owned subsidiaries. Without their exceptional performance and loyalty, not only would our
result have been worse, but my work at Industrivärden would also have been considerably
more difficult and far less stimulating!

Industrivärden’s chairman, Bo Rydin, who has served as a director on Industrivärden’s board
since 1973 and as chairman since 1988, has announced that for reasons of age he will
decline re-election at Industrivärden’s 2002 Annual General Meeting, and will thereby leave
Industrivärden’s board. On behalf of all the shareholders and employees, I would like to
extend a warm thanks to Bo for the outstanding contribution he has made to Industrivärden.
Bo is a very wise, knowledgeable, experienced and well-read person with a high level of
integrity. Industrivärden has benefited greatly from his contribution.

Stockholm, Sweden, February 2002

Anders Nyrén
President and CEO

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