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.
