Apologies. Half the previous quote missing. In full:-
"Swedish companies profit from country’s Covid-19 approach"
It was supposed to be a terrible start to summer. As a debate rages in Sweden over whether its more lenient approach to dealing with the coronavirus has been on the right track, most European analysts were bracing for the Scandinavian country’s terrible quarterly profits at the height of the crisis. pandemic.
But every day for the past two weeks, Swedish company after Swedish company has exceeded expectations.
From telecommunications equipment maker Ericsson to consumer device maker Electrolux to lender Handelsbanken and locksmith Assa Abloy, Swedish companies have made profits far beyond what the market expected, although in some cases it simply meant a less steep drop than analysts had feared.
“I have never seen such a high proportion of companies with better profits than expected. It’s almost all companies, ”said Esbjorn Lundevall, chief equity strategist at lender SEB.
The bumper harvest raises the question of how many positive surprises are due to Sweden’s more controversial approach to dealing with the coronavirus. Unlike the rest of Europe and North America, the country did not have a lockdown and kept schools and many stores and businesses open – a public health experiment that drew global scrutiny and prompted people to both praise and censorship.
“Keeping society open, schools open, doesn’t mean we haven’t been affected. But that means we weren’t suddenly unable to leave our homes. It has definitely helped businesses, ”Alrik Danielson, managing director of Swedish bearing manufacturer SKF, told FT.
The Gothenburg-based group has kept its offices in Sweden open throughout the crisis and expects workers to arrive unless they are sick. Its underlying second-quarter operating profits in the three months ending in June fell almost in half from a year ago, but were still a third ahead of analysts’ expectations.
“We have quickly adapted to the new reality, although we don’t know how it will evolve,” Mr. Danielson said. Shares of SKF, whose ball bearings are used in everything from paper machines to cars, have been broadly flat since the start of 2020, but have risen by more than half from their low this year in March, when the pandemic broke out.
The Swedish approach to the coronavirus has been highly controversial internationally as its per capita death rate has been much higher than that of neighboring Norway, Denmark and Finland. But its excess mortality levels have been lower than those of other European countries that have locked down like the UK, France, Spain and Belgium.
It’s a similar story in terms of expected economic impact. Economists and central banks predict that Sweden’s GDP is expected to decline this year by around 5 percent, overall like Norway and Denmark and much better than Italy, UK or France.
Swedbank, Sweden’s oldest lender and one of its three big banks, reported second-quarter pre-tax profit of SEK 6 billion, down slightly year-on-year, but by nearly 40 % ahead of analysts’ expectations.
Managing Director Jens Henriksson said of the stimulating potential of the Swedish approach to the coronavirus: “I’m not going to say yes or no. We weren’t so closed. And that translates into a positive effect. If you look at the Swedish economy, we have seen signs of recovery. ”
He added that large companies, which at the onset of the coronavirus crisis in March rushed to Swedbank for new loans, were starting to pay them back as small businesses did not borrow as much as many had expected. .
While most banks have made high provisions for potential credit losses – but lower than many analysts expected – Handelsbanken surprised investors by taking its lowest level of provisions in years.
“There has been a very low number of bankruptcies in general in the country,” Lundevall said. “I would find it reasonable to assume that it depends on how we have handled the crisis differently, and this is reflected in the rather low credit losses in the banks.
The housing market also remained robust, with SEB’s confidence indicator showing its biggest improvement on record from June to July.
Analysts point out that there is a divide between Swedish companies between those with a strong domestic focus, such as retail banks, which have benefited the most from the country’s approach, while the manufacturers that make up the large Swedish export sector were more exposed to reduced demand. Swedish profits exceed expectations
Truckmaker Volvo Group, industry groups Alfa-Laval, Trelleborg and SKF, and medical technology company Getinge all reported lower second-quarter profits but beat consensus analysts’ forecasts. Ericsson increased operating profit in the quarter while Electrolux almost broke even, well ahead of estimates of a heavy loss.
One possible explanation is simply that analysts were too gloomy about the impact of the coronavirus, not only in Sweden but across Europe.
Martin Lundstedt, chief executive of Volvo, said the 38% drop in sales during the period was “unprecedented”, but drew strength from the opportunity to turn a profit despite the disruption in the supply chains of the group because it quickly made deep cost reductions.
However, he described the light approach to the coronavirus as having a “rather limited effect” given the disruption of supply chains beyond the country’s borders. “We are too closely linked to other countries,” he said. “It’s more about the fact that many Swedish companies have been working on flexibility.”
Mr Danielson said the auto industry was one of the most important for SKF and noted that although car sales in Sweden performed much better than in most European countries, the abrupt halt to the industry in April and the first half of May hit the group. hard.
All industry groups have been helped by signs of recovery in China and a robust early rebound across much of Europe, as well as by major government support programs to maintain employment.
The big worry for them now is whether a second wave of coronavirus hits Europe and the United States in the fall.
“How likely are you to get more lockouts?” How likely is this fear factor to go away? Mr. Danielson asked. “It will be the big question of the speed of the recovery. Now it’s about psychology, about people.
He’s not the only one who thinks that Sweden has a subtle psychological advantage in being more open and less afraid of working, shopping and socializing outside the home.
Mr Lundevall said that although many Swedish employees, including himself, have chosen to work from home until recently, the decision to keep schools and kindergartens open has been a game-changer for those who have young children.
“I guess it makes the average Swedish worker more productive. There will be a long-term effect of out-of-school children. It is difficult to calculate the exact financial effect, but it is really important, ”he added.
While they are happy with how their businesses weathered the first chapter of the Covid-19 crisis, Swedish executives are keenly aware of how little visibility they have for the rest of the year.
Johan Torgeby, managing director of SEB, said that “other things being equal” Sweden’s no-foreclosure approach had improved the credit quality of its businesses.
But he warned, “That doesn’t take the worry out of a second wave. There might be more murky waters on our way. Is the world going to shut it all down again or not? “
