Financial strength, strategic focus, analytical expertise and an international scope are the four cornerstones that constitute the Foundation for Proventus’ business activities. In a world that is changing rapidly, both politically and economically, each of these four factors has, in its way, been important in enabling the Company to maintain its strength as it enters 1992.

Proventus adopted a cautious attitude toward large new investments during 1991. Our shareholders may note that the price of Proventus’ shares has developed in a manner that coincides closely with the general trend of the stock market in Sweden, and that Proventus has been affected by the overall recession-related decline in share prices. This negative environment similarly affected our holding in Transport Development Group (TDG), a British transport company, and our new investment in Von Roll, a Swiss industrial conglomerate. Our holding in Kansallis-Osake-Pankki (KOP), a Finish bank, was also affected by a falling share price.

As a result, Proventus’ net asset value did not develop as favorably in 1991 as we would have preferred. During the early part of 1992, however, the prices of both TDG and Von Roll shares have increased favorably. Proventus’ income before taxes amounted to SEK 480 million in 1991. The net asset value of the common shares changed from SEK 2.9 billion to SEK 2.8 billion, and the Company’s liquidity at year-end was very good, with liquid funds exceeding SEK 2.7 billion, plus available credit facilities of more than SEK 2.7 billion. The total net asset value, including the preferred shares, amounted to SEK 3.7 billion.

Events during the year clearly illustrated the importance of sustaining a strong balance sheet. As a consequence of our financial strength, in conjunction with our highly selective and focused investment strategy, precise analytical work and international expertise, in 1991, Proventus again succeeded in maintaining a strong position from which to undertake projects in Sweden and in international markets. Proventus’ assets currently consist of liquid funds and investments outside of Sweden. Accordingly, we have the financial capacity to undertake a limited number of additional, yet significant, investment Projects.

We intend to seek out these projects in the Swedish market; in particular, the current economic crisis is instigating structural changes across many industries. The undervaluation of share prices in the Swedish stock market during the 1970s and the sustained period of favorable economic conditions in the decade that followed were principal causes of the sharp increase in listed share prices during the 1980s. Most investors who took risks made money.

Ultimately, however, the capital market became transaction-driven rather than value driven, which resulted in the excessive prices paid by investors during the latter part of the 1980s, in both the equity market and the property markets. While this speculative phenomenon was international in scope, the overvaluation of shares and properties was more excessive in Sweden than in many other countries. This trend has now been broken with attendant repercussions, notably in the banking systems and the property markets. Nevertheless, we have an optimistic view of Sweden’s industrial economy.

Proventus may be able to find attractive investment opportunities in such an environment. Consequently, Proventus may make one or more strategic Swedish investments during 1992. In Western Europe and North America, fundamental changes in the national economies are taking place, which will mandate a different approach on the part of those who invest capital in the future, compared with the situation in the 1980s.

In Europe, current deregulatory measures, which increase cross-border competition by removing barriers to entry in formerly protected markets, are having a dynamic impact on business prospects. Hence, it is increasingly important for companies and Investors to focus on competitive advantages. Patterns of production and consumption are changing, due particularly to demographic, political and behavioral changes. Additionally, savings and investments are likely to increase at the expense of consumption.

We believe that these changes will have substantial financial consequences for companies and their shareholders. Increased long-term capital investments will be essential to improve productivity while companies simultaneously expand their businesses. Unlike the 1980s, European companies must avoid misguided diversification, while the generally high corporate debt levels imply that the risk capital will be scarce. For Proventus, this implies that our sustained financial strength is essential in order to provide the staying power that may be required for the long-term creation of value in companies. This strong, long-term approach will enable us to contribute risk capital and strategic ideas.

Our presence in Europe and the United States has been enhanced through our current projects and the expansion of our business contacts for present and future investments. In order to gain adequate insights and be able to contribute constructively, we are establishing dialogues through our Stockholm, New York, Paris and Helsinki offices with, for example company managements, boards of directors, shareholders and banks. General contacts are also being developed on both the industrial and political level.

Furthermore, during 1991 we began to explore the possibility of working with substantial United States institutions in our investment Projects. Many companies are currently operating under difficult market conditions at the same time, as major structural changes are under way both in and outside Sweden. We believe that change creates opportunities and are therefore optimistic that the future will provide attractive investment possibilities that should prove beneficial to Proventus and its shareholders.

Annual report 1991