No-lockdown strategy helped companies in Sweden avoid the worst-case scenario predicted by experts. Despite many debates and scary predictions Sweden seems to choose the correct course with one after another Swedish companies have been beating expectations: from telecoms equipment maker Ericsson to consumer appliances manufacturer Electrolux via lender Handelsbanken and lockmaker Assa Abloy. “I have never seen such a high proportion of companies coming in with better profits than expected. It’s almost every company,” said Esbjorn Lundevall, chief equity strategist at lender SEB.
“Keeping society open, schools open, doesn’t mean that we haven’t been hit. But it does mean that we haven’t suddenly not been able to leave our homes. That has undoubtedly helped companies,” Alrik Danielson, chief executive of Swedish bearings manufacturer SKF.
SKF, whose ball bearings are used in everything from paper machines to cars has kept its offices in Sweden open throughout the crisis and expects workers to come in unless they are ill. Its second-quarter underlying operating profits in the three months to June fell by almost half compared with a year ago but were still a third ahead of analyst expectations. “We have quickly adapted to the new reality, even though we don’t know how it will be going forward,” said Mr Danielson. SKF’s sashed are steadily flat since the start of the year but have increased by more than half since their lowest point in March, when the pandemic started. Sweden’s death rate has been a way higher than neighbouring Norway, Denmark and Finland, causing controversial discussions around the world. But its excess mortality levels have been lower than in many European countries, such as UK, France and Spain, which were under a lockdown.
It is a similar situation terms of the predicted economic impact. Economists and central banks forecast that GDP level in Sweden should decrease by roughly 5 per cent, similar to Norway and Denmark and far better than in Italy, the UK or France. Despite predictions, Swedbank reported pre-tax profit in the second quarter of SKr6bn, down slightly year-on-year but almost 40 per cent ahead of analyst expectations. Jens Henriksson, a Chief executive commented: “I’m not going to say yes or no. We have not been as closed down. And that translates into a positive effect. If you look at the Swedish economy, we’ve seen signs that it’s picking up.”He added that big companies, which had rushed to Swedbank for loans at the start of the coronavirus pandemic have already started repaying, while smaller businesses had not borrowed as much as many had expected.
The housing market has also stayed robust, with SEB’s confidence indicator showing its biggest ever improvement from June to July. Experts highlight that there is a split between Swedish companies into those with a heavy domestic focus, such as retail banks, and the manufactures. The first benefited the most from anti-lockdown approach while the second as large contributors to the export sector were exposed to reduced global demand.
Car manufacturer Volvo Group, industrial groups Alfa-Laval, Trelleborg and SKF, and medical technology company Getinge all have not done much profits in the past quarter but beat experts’ forecasts. Ericsson boosted its operating profit in the quarter while Electrolux almost broke even, showing much more positive results than was estimated. One possible explanation is simply that experts were too negative about the impact of coronavirus, not just in Sweden but across Europe.
Thechief executive at Volvo, Martin Lundstedt, said the 38% drop in sales in the period was “unprecedented” but due to quickly made deep cost cuts the group was able to make profit despite disruption to the group’s supply chains. However, he has mentioned that the Swedish approach to the lockdown had “rather limited effect” given the disruption to supply chains beyond the country’s borders. “We are too intertwined with other countries,” he said. “It’s more about the fact that a lot of Swedish companies have been working on flexibility.”
All industrial groups were encouraged by signs of recovery in China and a robust early rebound in other countries in Europe, as well as government support to maintain jobs.
Today Porsche had its annual press conference, remotely of course. Among all the big claims is the one that 2019 was one of the most successful year with sales increase by 10 percent at 280,000 cars globally. The company is planning to pour 15 billion euros into futureproofing its products over the next a couple of years.
Investments will be split between electrifying and digitalising its cars, while a third of it is going into venture capitalism, including its 15 per cent stake in Rimac. Does this mean investment has stopped in good old internal combustion powered cars? Nope. We can hear your sigh of relief from our self-isolation booth.
“We’ll continue with petrol engines in the 911 and improve them step by step,” Porsche CEO Oliver Blume told TopGear.com. “We keep on investing in combustion engines. It’s core to Porsche – especially the 911. We underlined the investment in future technology but we have future investment in internal combustion also.
“We made a very deep analysis of what would be the best opportunity to reduce CO2 in these engines and we’re looking at synthetic fuels.”
These are a carbon-neutral way of powering petrol engines, one which Blume’s team are trialling now.
“We are running tests already with historic cars like the 993, with very good results. The costs are too high at the moment and we haven’t got the ability to produce the fuels in a very sustainable way, so with the help of partners we are looking to produce them with wind or solar. It would be very attractive for cars already in the market.”
Motorsport could be the way to develop them further, where end cost for customers is less of an issue. And it should help justify racing programmes in a company whose entire message is heading towards cutting CO2 at every stage of car production and development.
“Hydrogen – for us – is not useful for sports cars,” added Blume. “You need a lot of space to introduce it and the whole supply chain is complicated. It’s very costly.”
Blume also stressed that the company can reach its goal of 50 per cent electric car sales in 2025 without the help of plug-in 911 and 718 sports cars.
“The 911 isn’t the concept to be fully electrified and our strategy is more to engineer and develop purpose cars which are either 100 per cent electric, or internal combustion combined with hybrid. The 911 is more a concept we can combine with hybrid in future, like we have already done in motorsport with the 919 in the World Endurance Championship.
“This technology can carry over to a 911 with a very powerful hybrid version. With the 718, we haven’t decided which direction we will go in. We are very happy with our current six-cylinder offer in the GTS and GT4. We are working on several concepts. We are very creative and you will see something this year of where we will go with this model range.”
The Boxster and Cayman have a future, though, despite being Porsche’s lowest selling models. “What’s important is that we don’t think about volume – that comes as a consequence of a good product strategy. It’s more important to have tailor-made cars that are special to our customers.”
The fully electric Taycan, meanwhile, is bringing completely new people to Porsche. “We have very traditional customers on one side, who already have a Porsche. But on the other side, around 50 per cent are new customers. They are ‘first movers’ and very interested in sustainability, innovation and digitalisation. And with an average age younger than our traditional customers.”
Original source: Top Gear 2020.
