20162016 2016 English Contents Outline of Lundbergs 2 The year in brief 3 President’s review 4 Lundbergs as an investment company 9 Net asset value 12 Cash flow report 13 Alternative performance measures 13 The Lundberg share 14 Subsidiaries and other portfolio companies Fastighets AB L E Lundberg 16 Hufvudstaden 22 Holmen 24 Indutrade 26 Husqvarna Group 27 Industrivärden 28 Handelsbanken 29 Sandvik 30 Skanska 31 Annual report 33 Board of Directors’ Report 34 Definitions 43 Group Financial statements 44 Notes 47 Parent company Financial statements 71 Notes 74 Proposed distribution of earnings 80 Auditors’ report 81 Board of Directors and Auditors 86 Senior executives 88 Annual General Meeting and Financial statements 90 Addresses 91 This is a translation of the original Swedish Annual Report. In the event of differences between the English translation and the Swedish original, the Swedish Annual Report shall prevail. Outline of Lundbergs Share of Lundbergs holdings, Lundbergs is an investment company that manages and develops a number of SEK 71 billion, on February 21, 2017 companies based on active, long-term ownership. Other 0.7% Fastighets AB L E Lundberg Skanska 5.6% 16.8% The portfolio of assets includes the wholly owned real estate company Fastighets AB Sandvik 5.3% L E Lundberg, the publicly traded subsidiaries Hufvudstaden and Holmen and the Handels- associated companies Industrivärden, Indutrade and Husqvarna. Lundbergs also has banken 7.2% major shareholdings in Handelsbanken, Sandvik and Skanska. Industri- Lundbergs’ objective is to generate a return on invested capital over time that värden 18.8% Hufvudstaden 19.1% substantially exceeds the yield on a risk-free interest-bearing investment. Husqvarna 4.8% Indutrade 7.8% Holmen 13.9% The holdings are measured at market value. Fastighets AB L E Lundberg, with investment properties valued at SEK 17,9 billion, is recognized at net asset value. The Lundberg share SEK 600 Lundbergs 550 500 100 Fastighets AB L E Lundberg Industrivärden 16 (23) 450 45 (88) Hufvudstaden Handelsbanken 2.0 (2.0) 400 Jan 16 March May July Sept Nov Jan 17 Feb 33 (62) Holmen Sandvik 2.4 (2.4) Lundbergs B OMX Stockholm Index 26 (26) Indutrade Skanska 4.3 (12) Net asset value after 7.6 (25) Husqvarna deferred tax, per share 6(. Subsidiaries and associated companies Other major shareholdings The figures denote the percentage of share capital (voting rights) held on February 21, 2017. )HE Chairman of the Board Mats Guldbrand President and CEO Fredrik Lundberg LUNDBERGS 2016 www.lundbergforetagen.se 2 The year in brief • On December 31, 2016, net asset value after deferred tax amounted to SEK 546 per share (451). • Consolidated net sales amounted to SEK 19,357 m. (20,347). • Profit after financial items totaled SEK 17,419 m. (8,258). Profit also includes a transitional effect for accounting purposes of SEK 5,112 m., resulting from Industrivärden being recognized as an associated company as of the first quarter. • Profit after financial items excluding impairment losses and unrealized changes in value amounted to SEK 11,511 m. (3,783). • Consolidated profit after taxes amounted to SEK 15,457 m. (6,652), of which non-controlling interests accounted for SEK 3,215 m. (2,276). • Earnings per share attributable to the Parent Company shareholders amounted to SEK 98.73 (35.29). • Investments in investment properties in Fastighets AB L E Lundberg totaled SEK 602 m. (468). • Publicly traded shares were acquired för SEK 2,075 m. (1,012). • An increase in the dividend to SEK 5.60 per share (5.30) is proposed. Earnings and key data 2016 2015 Net asset value after deferred tax, SEK billion 67.7 55.9 Net asset value per share after deferred tax, SEK 546 451 Shareholders’ equity per share attributable to Parent Company’s shareholders, SEK 461 387 Net sales, SEK m. 19,357 20,347 Profit after financial items 17,419 8,258 excluding impairment losses and unrealized changes in value 11,511 3,783 Profit after tax, SEK m. 15,457 6,652 of which, non-controlling interests, SEK m. 3,215 2,276 Earnings per share, attributable to Parent Company’s shareholders, SEK 98.73 35.29 Dividend/share, SEK 5.60 1 5.30 Debt/equity ratio 0.18 0.21 Equity/assets ratio, % 69 67 1) Board of Directors’ proposal. 3 President’s review Although the past year was characterized by major uncertainty in terms of the global economy, politics and geopolitical developments, economic perform- ance was relatively favorable in many parts of the world. Parts of Europe, the US and China showed healthy growth, particularly late in the year. The Swedish economy performed well with GDP growth of 3.3%. The weak SEK contributed positively to the Swedish export industry’s performance. The surprising outcome of the UK’s Brexit referendum and the election of Donald Trump as president of the US gave rise to many question marks. Finance markets initially reacted negatively, but stabilized quickly. In Europe, the EU is being increasingly ques- tioned and a number of political elections will be held during 2017, which could impact on the EU collaboration in the future. Raw material prices, including oil, stabilized and rose during the year. Stock markets worldwide declined sharply during the early part of 2016. This was followed by stabilization and the year ended with upswings in most parts of the world. The total return on the Stock- holm Exchange was 9.6% for the full-year. Although interest rates remained at historically low levels, they rose slightly late in the year. Lundbergs’ performance in 2016 For 2016, Lundbergs reported consolidated after-tax profit of SEK 15.5 billion (6.7). After minority interests, profit amounted to SEK 12.2 billion (4.4). Excluding impairment losses and unrealized changes in value, profit after financial items was SEK 11.5 billion (3.8). Profit for 2016 also includes a transitional effect for account- ing purposes of SEK 5.1 billion, because Industrivärden switched to being recognized as an associated company. Net asset value per share after deferred tax increased more than 21% during the ACQUISITION OF SHARES IN MINOR SHARE HUSQVARNA. CONTINUING ACQUISITIONS IN SHARE ACQUISITIONS IN SANDVIK, HUSQVARNA HANDELSBANKEN, INDUSTRI- AND CARDO. VÄRDEN AND SANDVIK. LUNDBERGS 2016 2007 2008 2009 4 year to SEK 546 (451). On February 21, 2017, the corresponding holm and our only property in Uppsala were divested for a total of value was SEK 562 per share. In 2016, holders of Lundbergs shares SEK 911 m. At the end of 2016, the market value of our investment received a total return of 20.9%. properties was SEK 17.9 billion (16.7). Lundbergs’ Board of Directors proposes that the Annual The residential rental market remained strong in 2016. General Meeting approve an increase in the dividend to SEK 5.60 Demand for offices was also generally healthy, while demand for (5.30). Our long-term aim is to offer shareholders favorable and retail space varied between markets. The vacancy rate remained steady dividend growth. low during the year. Our financial policy entails that we leverage our properties to The real estate market was extremely strong in 2016, with a a maximum of 50% and that our listed shares are to be unlever- record transaction volume of approximately SEK 200 billion. aged. At year-end 2016, interest-bearing net debt totaled SEK Important reasons are low interest rates and good access to 5.4 billion (4.9), corresponding to 7.3% (7.9) of total assets. If our capital, as well as a lack of attractive investment alternatives. The property company was to account for our entire net indebtedness, strong growth of the Swedish economy and the positive rental this would correspond to a loan-to-value ratio of 29.7% of the trend, as well as institutional owners’ desire to increase their share properties’ market value. of real estate, are further reasons for the strong real estate market. Our credit rating with Standard & Poor’s, which was confirmed A residential new-build project (SEK 69 m.) in Sörbyängen, in December 2016, remains unchanged at a strong A+, with a stable Örebro, was completed in spring 2016 and another housing project outlook. Conditions in the credit market are currently highly favor- (SEK 93 m.) was completed in the same area late in the year. able. In addition to bank loans, we are financed through corporate Örebro is an attractive and rapidly growing university city. We bonds and short-term commercial papers. In October, a 7-year, SEK aim to continue investing in additional housing projects. 1 billion corporate bond was issued at a fixed interest rate of 1.34%. A smaller housing project (SEK 28 m.) was completed in Karlstad At year-end 2016, the average interest rate on our debt financing towards the end of the year. There are additional plans for new was 2.37% and the average term of the loans was 2.9 years. production of housing units. A major housing project (some SEK 810 m.) containing 392 Fastighets AB L E Lundberg rental apartments has been in progress in central Norrköping Lundbergs’ consolidated financial statements include the wholly since late 2015. The project will not be entirely completed until owned subsidiary Fastighets AB L E Lundberg, which reported 2019, but tenants will gradually move in beginning in summer operating profit of SEK 2,251 m. (2,117). Profit includes unrealized 2018. Norrköping is moving in a positive direction, with strong increases in the value of investment properties of SEK 1,464 m. population growth. Demand for new housing units is expected (1,328), equal to a value increase during the year of 8.8% (8.9).