CEO comments

We can look back on 2024 as another year of moderate growth in the global economy. Many of the challenges the global economy has faced in recent years, such as geopolitical tensions, political uncertainty and inflation, had an impact once again over the past year.

The global economic picture has been mixed. Economic development in Europe has been subdued, particularly in the larger economies such as Germany, France and Italy, where low growth and structural challenges continue to dominate. High production costs and low demand in the automotive industry, which is a key sector for Germany, has contributed to the weak performance. Growth in China has slowed, but India and several other Asian economies have shown good growth.

The economy in Sweden stabilized in 2024 and recorded weak but positive GDP growth, following negative growth in 2023. The recovery in private consumption has been slower than was expected at the beginning of the year, but a positive trend was observed toward the end of the year. Un-employment has increased, however, despite a decrease in redundancies during the fall.

The US economy has remained stable over the year, despite the extensive interest rate hikes of recent years. Household consumption has continued to grow and the labor market remains strong, with low unemployment.

The declining inflation trend that began in 2023 continued throughout the year, enabling several major central banks to cut their policy interest rates. The ECB and the Riksbank in particular have made relatively large interest rate cuts.

Equity markets experienced stable to slightly positive development in most places in 2024. The total return of the Swedish stock exchange was 9%. The stock market has performed particularly strongly in the US, with the tech sector behind much of the rise. Lower policy interest rates combined with the stable performance of the US economy are key reasons for the positive trend.

This year has begun well, with a strong stock market. The US economy continues to perform well. As the world’s largest economy, the US is an important driver for the whole world. Sentiment and growth expectations among US business leaders have improved following the election results. This is important for the Swedish economy, and for the stock market in particular, as it often sets the tone for development.

Lundbergs is an investment company that has significant shareholdings in nine listed companies. We also have a wholly owned real estate business with a property value of just over SEK 28 bn. We exercise active ownership in all our companies. We do this through participation in company boards and nomination committees. Through our principal ownership of Industrivärden, we indirectly have large ownership interests in a further four companies, as well as those directly owned by Lundbergs. This means that, directly and indirectly, we are a major shareholder in twelve publicly traded companies, alongside our wholly owned real estate operations. We have focused on these companies for many years and have continued to increase our holdings through share acquisitions. Over the past ten years, we have invested a total of SEK 14.3 bn. in shares.

During the same period, SEK 7.5 bn. has been invested in real estate operations. Our interest-bearing net debt has increased from SEK 4.8 bn. to SEK 6.0 bn., while net debt has decreased from 9% to 4%. The financial position therefore remains very strong. It has been possible to finance all investments predominantly out of profits. Last year, dividends received exceeded dividends paid to Lundbergs’ shareholders by SEK 2.1 bn.

Our finance policy allows real estate operations to be leveraged up to a maximum of 50%, while investments in our portfolio companies must be unleveraged. All liabilities are therefore attributable to real estate operations, which at year-end had a leverage ratio of 21%. As an investment company, it is vital for us to have a strong financial position. We want to be in a position to increase our shareholdings when we deem it beneficial and to have the capacity to participate in capital contributions when justified. This is to ensure we have the best possible conditions for continued value creation in the portfolio companies. Equity investments in strong and healthy companies have provided good returns for a long time. I am convinced that this will continue to be the case in the future. As a major shareholder with influence, however, we must demonstrate competence and patience. Ownership is a demanding job and is vital for success and the character and values of the investor are of great importance here. Speculators have a very different attitude than investors of our type. Historically, long-term investors have received a real return on equities of 7%, which is a good result that doubles the capital in real terms in 10 years.

It is not uncommon for the media, analysts and shareholders to adopt opinions that aim to bring about a rapid change in the valuation of a company. This is not unreasonable for those wishing to sell shares, but for long-term investors it is not an optimal scenario. It is important for the latter that the company develops in the right way, which usually takes a long time. The payoff usually means that patience is worth it, however.

Splitting up companies can sometimes be the right thing to do, but that is certainly not always the case. The important question to ask is what benefit this achieves for the business. Short-term thinking about changing the valuation multiples may seem attractive, but this does not always materialize. Splitting off and listing Alleima separately from Sandvik in 2022 is an example of the successful demerger of a company. At the time of its separation from Sandvik, Alleima accounted for around 10% of the Sandvik Group and had somewhat different conditions than the other business areas within Sandvik. With the benefit of hindsight, we can see that this split has been highly beneficial for the business and value creation of Alleima. However, the change in valuation multiples that many argued for has yet to materialize.

In our work, we focus strongly on leadership, decentralization and financial strength. Broad accountability is important and establishes a good platform for success. Recruiting and appointing the right leaders is a priority and we prefer to recruit internally for a number of reasons. It motivates the organization and we usually have much greater know­ledge of the person in question than in external recruitment. Nominating Board members at our portfolio companies is also a priority issue and we do so based on skills, experience and suitability. This is an important task, where our wide network of contacts comes in very useful.

The dividends we receive from the portfolio companies are very important. They provide us with strong cash flow that establishes a platform for making new investments without increasing our debt. This builds net asset value over time and therefore also shareholder value. The key principle of compound interest adds great value over time. In the event of a capital adjustment, it may also be appropriate on occasion to buy back shares, although the timing and price must be right. Otherwise, it is better to pay an extra dividend and let each shareholder decide for themselves how to allocate their funds. In some of our portfolio companies, we have successfully participated in both buybacks and extra dividends when this was justified in order to adjust the capital structure.

Performance in 2024

In 2024, Lundbergs reported consolidated after-tax profit of SEK 8.4 bn. (8.7). After non-controlling interests, the figure was SEK 6.3 bn. (7.3). Excluding unrealized value changes, profit after financial items was SEK 9.5 bn. (13.7). Net asset value per share after deferred tax increased by 2% during the year to SEK 555 (545). On February 18 this year, the corresponding value was SEK 617. Lundbergs’ shareholders received a total return of -8% (24) in 2024, compared with the corresponding stock exchange index of 9% (19). This means that Lundbergs’ net asset value at year-end was lower than the previous year. The discount to net asset value therefore returned. Over the past ten years, the Lundberg share has provided an average annual total return of 12.4%, compared with the corresponding stock exchange index of 10.6%. Inflation has averaged 2.9% per year, which means that Lundbergs’ annual total return has averaged 9.5% in real terms. This is clearly a satisfactory level for an investor and one that I feel satisfied with.

The number of shareholders in Lundbergs has increased in recent years and now totals around 64,000. It is pleasing to see that so many investors have confidence in our business model and the way we run our business.

The fall of 2024 marked 80 years since Lundbergs launched its business. This was when my father, Lars Erik Lundberg, founded a construction company in Norrköping in 1944. The company subsequently developed real estate operations and an investment business. The construction business was divested in 1994.

Over the past three decades, the investment business has gradually taken shape. Investments are now fully concentrated in nine listed companies and our wholly owned real estate operations. The business model has worked well for a long time and feels very robust. The various companies operate in a wide range of sectors and are of high quality. Below, I will comment on the performance of each of the individual companies.

Lundbergs Fastigheter

Lundbergs’ consolidated financial statements include Lundbergs Fastigheter with operating profit of SEK 1.1 bn. (0.0). This includes unrealized changes in value of SEK -0.1 bn. (-1.0) which, together with slightly higher net current assets under management, accounts for the improvement in profits during the year. The change in value is due to increased yields through higher rental income as a result of tenant-specific modifications and good cost control. Having increased in recent years, yield requirements in the real estate market stabilized during the year.

Our occupancy rate was at a high level at the beginning of the year but weakened slightly over the course of the year. The tougher rental market was particularly evident in the retail sector, but also in the office and residential markets in some places. There continues to be increased focus on city locations and high-quality properties. The trend of working from home some days of the week now seems to have reversed, with a gradual return to office workplaces now taking place. I believe this trend will continue in the coming years.

We have continued to carry out extensive refurbishments on a number of older residential properties built in the 1960s and 1970s with good results. The transformation of Norrköping city is also underway, including the conversion of retail space to office space. Among other things, a major lease has been agreed with a company that runs a co-working facility.

Lundbergs Fastigheter also carries out extensive maintenance and updating of older office properties to meet modern standards. The aim is to attract new tenants, retain existing ones and adapt to their space requirements.

For several years, I have highlighted social development as a serious threat to the real estate market. Unfortunately, it is clear that these problems have not diminished, but in fact escalated. Crime is very serious and dangerous for society. Politicians are trying to take action, of course, but the process is long and difficult. Investment in real estate and in companies depends on having a stable and secure society with good economic growth. It is therefore very important for us as investors that society addresses these issues.

In 2024, we invested a total of SEK 0.6 bn. in real estate operations. No new acquisitions were made.

Financing conditions in the real estate market improved during the year. Interest expenses, on the other hand, have increased, placing greater demands on the operating profit from current real estate operations. The result of this is a reduction in the realistic leverage ratio, which requires higher equity financing. I think this is a healthy development that curbs speculative bubbles. As on the stock market, investments should be financed with a sufficiently high proportion of equity.

The transaction volume on the real estate market remained relatively low last year, as buyers and sellers were unable to agree on terms. The tougher financing conditions are also having an impact on the transaction market.

In 2024, Johan Ladenberg took over as the new CEO of Lundbergs Fastigheter. He has settled into his new role well and done a good job. I would like to thank Johan and his staff for their dedicated work over the past year.

Portfolio companies

In 2024, the Parent Company acquired publicly traded shares for SEK 2,282 m., of which SEK 1,240 m. in Industrivärden, SEK 579 m. in Sandvik, SEK 267 m. in Alleima and SEK 197 m. in Handelsbanken. At the end of 2024, Lundbergs’ holdings in the nine publicly traded portfolio companies represented a market value of SEK 116 bn., compared with SEK 114 bn. a year earlier. Adjusted for acquisitions during the year, the value was largely unchanged, which may be compared with a 5.6% rise in the SIX general index. I believe there are still good opportunities for significant value creation in these companies in the long term. Our ownership in Industrivärden also means there is no need for any further diversification.

Our wholly owned operation in L E Lundberg Kapitalförvaltning engages in asset management in both the short and medium term, as well as analytical activities. The company also serves as a support function for the Parent Company. The balance sheet is limited to less than 1% of that of the Parent Company. In 2024, another year of strong profit was reported, at SEK 155 m. L E Lundberg Kapitalförvaltning does not invest in shares in our portfolio companies or related instruments.

I would like to thank the company’s CEO Claes Boustedt and his colleagues for their excellent work over the past year. Claes is also Executive Vice President of the Group and so my closest colleague and right-hand man. He also represents Lundbergs on the boards of several of our portfolio companies, including Sandvik and Alleima, as well as on several nomination committees. Claes is very knowledgeable and experienced and is therefore highly valued in these roles.

Holmen achieved strong earnings in 2024, although somewhat lower year-on-year. The newly merged Board and Paper business area continued to perform strongly. Despite a challenging market situation and a shortage of forest raw materials, Holmen managed to improve its positions in both paperboard and paper. Holmen’s focus on niches that utilize virgin fiber has worked well. One of the paper machines at Braviken paper mill was converted so that it can also produce packaging paper. Its well-invested production facilities provide Holmen with excellent opportunities to continue creating good added value.

In recent years, forest raw materials have been unable to meet the growing demand from the forestry industry and the energy sector. Wood prices have risen by more than 50% over the past three years, increasing the return on forest assets. At the same time, it is becoming increasingly clear that forests have a key role to play in the transition to a fossil-free world.

The market for wood products continues to be affected by weak construction activity as well as by global raw material shortages. In the slightly longer term, however, there is major interest in building with wood. Holmen’s well-invested sawmills and proprietary raw material base mean it is well positioned to take advantage of this.

Electricity prices were high at the beginning of the year, but dropped during the fall. Holmen is focusing on developing new wind power in locations with good wind conditions. There is a large project portfolio and it was decided during the year to invest SEK 1.5 bn. in Blisterliden wind farm. This investment will increase electricity generation from hydro and wind by around 20%.

Holmen’s financial position remains strong, with a net debt to equity ratio of 6%.

The management team, led by CEO Henrik Sjölund and Deputy CEO Anders Jernhall, is highly competent. To further strengthen Holmen’s position and competitiveness, Anders will now be focusing on strategic issues in a dedicated role as Deputy CEO. I would like to express my sincere thanks to Henrik, Anders and the rest of the management team for their outstanding work.

The Board of Directors proposes to the Annual General Meeting an ordinary dividend of SEK 9.00 per share (8.50) and an extra dividend of SEK 3.00 per share (3.00).

Hufvudstaden’s properties are located in the most attractive areas of central Stockholm and Gothenburg. The overall portfolio is unique and contains the premises the market wants. This has become increasingly evident in recent years. The properties are of a high standard, most of them with admired architecture. Hufvudstaden also focuses strongly on customer satisfaction. For the seventh year in a row, it topped the CSI, meaning it has the industry’s most satisfied office tenants in the large-cap category.

Hufvudstaden’s current profit from property management increased slightly due to higher rental revenue. Changes in the value of the real estate portfolio remained negative, but at a much lower level. Overall, net profit for the year increased significantly compared with the previous year.

The office market in Stockholm was stable. There was also a growing demand for high-quality office premises in central Gothenburg, where rents were stable and new peak rents were recorded. Companies are increasingly requiring a higher level of office attendance, which also increases the demands on the quality of premises, street environment and surroundings.

It was a challenging year for the retail sector in 2024, leading to continued downward pressure on retail rents. Thanks to its high-quality locations, however, Hufvudstaden fared relatively well. The NK department stores in both Stockholm and Gothenburg have performed well. The NK Retail operations run by Hufvudstaden have increased net sales, but profitability remains insufficient. A new CEO has been recruited for the NK business area and will take up the role in the first quarter of 2025.

The extensive central development project in the Johanna district of Gothenburg is progressing according to plan. The project will be completed in 2026 and high-intensity leasing work is under way and achieving good results.

Hufvudstaden’s CEO Anders Nygren is a solid professional and is doing a very good job. Under difficult circumstances, he has implemented a series of changes aimed at improving efficiency and performance. I would like to thank Anders and his organization for their great work that bodes well for the future.

The Board of Directors proposes a small increase in the dividend to SEK 2.80 per share (2.70).

Husqvarna occupies strong market positions and is one of the world’s leading companies in products for the upkeep of forests, parks and gardens. The company has a history of innovative and successful product development and has several strong brands, principally Husqvarna and Gardena, that cover a range of product and market segments.

Performance has been weak in recent years. The year 2024 was another in which the company failed to meet its financial targets, whether in terms of growth, margins or capital efficiency. The company adjusted expectations downwards on two occasions during the fall, owing to challenging market conditions. A restructuring program was also launched in October to reduce the fixed cost base and so mitigate the weak performance.

With a high-quality product offering and strong brands, the conditions should be right for reversing this trend. In the fall, the nomination committee announced its intention to propose Torbjörn Lööf as the new Chair of the Board after Tom Johnstone declined re-election. I would like to wish Torbjörn the very best of luck in his challenging change work.

The Board of Directors proposes a reduced dividend of SEK 1.00 per share (3.00).

Industrivärden’s portfolio companies achieved strong operational performance overall in 2024. Many of the companies also enjoyed favorable share price performance, which made a strong contribution to increasing Industrivärden’s net asset value by 6%. The total return for both the A and C shares was 9%, on a par with the Stockholm Stock Exchange’s corresponding index.

Dividends received from the portfolio companies in 2024 exceeded dividends paid to Industrivärden’s shareholders by SEK 5.2 bn. This enabled continued investment in the shares of the portfolio companies without increasing debt, which strengthens the potential for future value creation. Total investments amounted to SEK 4.6 bn.

Industrivärden’s portfolio companies are of very high quality and are market leaders in several different industries. The concentrated portfolio focuses strongly on these companies, which creates good conditions for continued positive development.

The portfolio companies are generally characterized by strong market positions, proven business models and good cash flows. They have also been well established for a long time. Industrivärden’s ownership role is also managed in a highly professional manner.

CEO Helena Stjernholm is doing an excellent job and is well respected by the various portfolio companies. She took up her first Chair position at SCA in 2024 and has been highly valued there. I would like to express my thanks to her and to Deputy CEO Karl Åberg, who has taken on increasing responsibilities in recent years. The Board of Directors proposes a dividend of SEK 8.25 per share (7.75) to the Annual General Meeting.

Indutrade is continuing its growth journey with good profitability, both organically and through acquisitions. Profits were on a par with the previous year. There were 16 acquisitions made during the year, with combined net sales of SEK 1.6 bn. Operating cash flow was strong and the company’s financial position is robust. The business model has now been working well and evolving since 1978. At its core is decentralization with strong local ownership and leadership. There are over 200 companies in the Indutrade Group and they each know their markets and customers well and are able to act quickly to adapt to the prevailing market conditions. It is impressive to see that this group of companies and business model are so stable and resilient.

The new group structure introduced last year, with five business areas focused on market segments and technology areas, has been implemented in an exemplary manner. This has improved the organizational conditions for continuing to grow the group, both organically and through acquisitions.

CEO Bo Annvik leads the group very well and helps the dynamic forces in the organization to flourish.

The Board of Directors proposes a dividend of SEK 3.00 per share (2.85) to the Annual General Meeting.

Alleima has performed well during its relatively short time as a listed company. At the core of Alleima’s business is advanced materials technology. The company’s products are used in a large number of applications in several different customer segments, which provides stability in the business.

Alleima has performed well during the year, with an order backlog that remains strong. Investment decisions have been made on the refurbishment and reopening of a production facility for steam generator tubes for the nuclear industry. Several orders were also signed in this segment during the year. In Kanthal, the med-tech sector has shown strong growth in recent years. A decision was taken in the fall to establish a production presence in Asia and increase the company’s production capacity for medical wire.

Göran Björkman has grown exceptionally well into his role as CEO of a listed company. He has sound industrial knowledge and has developed and strengthened the management team in recent years. He is also well respected both within the company and in the market.

In view of the continued stable profit trend and the very strong financial situation, the Board of Directors has proposed a dividend of SEK 2.30 per share (2.00).

Handelsbanken stands out as one of the world’s most stable banks, as reflected in the fact that no other privately owned bank in the world has a higher overall credit rating from the leading rating agencies. The reason for this is the bank’s locally rooted, long-term and customer-oriented business model with low risk tolerance and financial strength.

The decentralized branch operations are at the heart of the bank, where customer relationships are established and developed. This has been very successful over a long period of time and has enabled a high-quality credit portfolio to be built up gradually. Credit losses at group level have again been entirely avoided in 2024. The bank takes a long-term view in its work and has a customer offering and service level that has given the bank satisfied customers and creates value.

In 2024, work began to reduce the number of staff and consultants in central units and so increase cost efficiency. In contrast, the number of customer-facing staff in branches in-creased slightly. A presence was also established in new locations.

Michael Green took over as the new President and CEO in 2024. He has had a long and successful career with the bank and has quickly grown into the role of CEO in a reassuring manner.

Handelsbanken reported very strong profits for 2024, on a par with the previous year. The bank’s capital position also remains very strong.

The Board of Directors proposes to the Annual General Meeting a higher ordinary dividend of SEK 7.50 per share (6.50) and an extra dividend of SEK 7.50 per share (6.50).

Sandvik is a very interesting company that occupies world-leading positions in its business areas. The “shift to growth” strategy has continued to be implemented. Innovation and product development are providing new products and solutions. Complementary acquisitions are strengthening the product and service offerings and increasing the company’s presence in key emerging markets.

Demand in the mining segment has continued to develop at a stable, high level. The aftermarket business, which accounts for around two-thirds of the mining business, continued to perform strongly with good growth and stable margins. The offering within mining continued to be developed and strengthened during the year, including within automation, battery-electric solutions and surface drilling rigs.

It has been a challenging year for the tools business, with weak economic development in Europe in particular. Despite falling volumes, the business has managed to defend its margins in an exemplary manner. This is also in line with the strategic objective of establishing greater stability over the business cycle. In order to strengthen its position on the Chinese market, primarily in the local premium segment, the company has acquired Chinese firm Suzhou Ahno.

Despite a challenging year, CEO Stefan Widing has steered the company commendably. A well-executed restructuring program was launched at the beginning of the year and has improved resilience. Cash flow has also been strong during the year, reducing the company’s debt.

The Board of Directors proposes to the Annual General Meeting that the dividend be increased to SEK 5.75 per share (5.50).

Skanska operates a very successful business in construction and property development. It has also begun to build up its own portfolio of investment properties in recent years. Its financial position is strong and enables major undertakings in various kinds of projects.

In 2024, Skanska’s profits increased considerably. It was pleasing to see the construction margin rise to its highest level in a long time. The company’s US operations now account for just over half of all business and have a good market and order intake. The corporate culture at Skanska is strong, with a focus on efficiency and profitability. The company has a competent organization and a lot of talented people. In a project-driven business, this is particularly important for achieving success.

The construction industry is generally characterized by low barriers to entry and intensive price competition. As a result, profitability in the sector is weak and many companies go out of business. It is therefore pleasing to see Skanska stand out from the crowd for so long. Expertise, financial strength and a long-term approach are key reasons for this.

CEO Anders Danielsson leads the business with aplomb. He is an experienced professional with good leadership skills.

The Board of Directors proposes to the Annual General Meeting that the dividend be increased to SEK 8.00 per share (5.50).

After 14 years on the Board, I will be stepping down at the 2025 Annual General Meeting. It has been a very stimulating job in an exciting industry. I am pleased to say that Skanska is now stronger than ever and has good prospects for continued success. I wish the Board of Directors, the management and the entire organization the very best of luck.

Outlook

Lundbergs’ business model is clear and stable and has worked well for many years. There has always been satisfactory growth in the net asset value. This is the reason why the total return for shareholders has been good and has exceeded the corresponding stock market index for a long period of time, while at the same time the financial risk has been very low.

We have gradually grown into the role of responsible shareholder in our various companies, which has required a significant accumulation of knowledge. This has been achieved through our operational organization and also by driving the recruitment of suitable board members in the various companies. In doing so, we have gradually expanded our network in the business community and in society at large.

The quality of company management at the portfolio companies is of a consistently very high level. This is absolutely vital for success and is therefore something we are closely monitoring. Our focus on decentralized responsibility alignes well with the importance of leadership.

A strong balance sheet provides resilience when times are hard. It also enables us to seize business opportunities. As an investment company, we therefore want our various portfolio companies to work toward this and to attach significant value to financial stability. We believe this will pay off over time.

Lundbergs’ cash flow is strong and enables new investments to be made without increasing our debt. We intend to do this again in 2025 and beyond by increasing our shareholdings in some of our portfolio companies. In addition, we will continue to work to develop our existing property portfolio and potentially also make complementary acquisitions.

We believe there are good opportunities for continued value creation at our existing portfolio companies. Our ownership of Industrivärden also indirectly increases our exposure to a number of companies, giving us sufficient breadth in our investment portfolio. There is no need to overcomplicate things, as our twelve portfolio companies are entirely sufficient. Further diversification would only create more risk. In terms of timing, obviously we aim to invest at the most favorable times possible, but this is difficult to judge and it is easy to fall out of step. I therefore believe that the best way to invest is to do so regularly and not risk being left behind on the platform as the train departs.

Esteemed shareholders, our business model endures. My belief and ambition is that in the coming years we will continue to provide a competitive return to our shareholders with limited risk.

Finally, I would like to extend my sincere thanks to all the Boards of Directors, company management teams and other employees of our portfolio companies and of Lundbergs for their good work.

Stockholm, February 2025

Fredrik Lundberg