China trip to pave the way for new deals

Prime Minister Stefan Löfven is to begin a three-day trip to China next week, including a meeting with Chinese Prime Minister Li Keqiang, accompanied by Enterprise Minister Mikael Damberg, Trade Minister Ann Linde and Environment Minister Karolina Skog, along with a business delegation that includes Ericsson, ABB, Astra Zeneca, Scania and Volvo Cars and Volvo Group.

Sweden’s exports to China amounted to SKr 46 billion in 2016. During the first quarter this year exports grew by 33%, compared to the same period last year.

Mikael Damberg says that China’s efforts to move forward on the global political arena in terms of trade and climate makes it easier to find a shared agenda.

Moderates – corporate tax drop is a rise on the sly

Sweden is lowering corporate tax for the third time since 2009, now to 20% (see SPR 20/6 Early Ed.). However the Moderates are calling it a tax rise on the sly.

Finance Minister Magdalena Andersson wrote in a Dagens Industri (DI) debate article yesterday that the lower tax will be compensated for by limits to interest deductions.

The Moderates have welcomed the limits to the tax deduction, which aims to stop companies’ aggressive tax planning, although. Maria Malmer Stenergard, tax policy spokesperson for the Moderates, would have liked a larger cut in corporate tax as compensation.

Meanwhile the Confederation of Swedish Enterprise (Svenskt Näringsliv) welcomes the tax decrease but is critical of limiting the right to a tax deduction.

“We are lowering corporate tax”

Today the Ministry of Finance is putting out a memorandum on new tax for the corporate sector, write Finance Minister Magdalena Andersson and deputy Finance Minister Per Bolund in Dagens Industri (DI).

It proposes a general rule for limiting tax deductions for interest in the corporate sector in order to increase tax neutrality between different forms of financing. The memorandum also includes other proposals such as new tax rules for financial leasing, new hybrid rules, and a primary deduction for rental properties. Additionally, the current interest rate deduction rules are to be tightened. The proposals are fully financed and are proposed to come into force on 1 July 2018.

As limiting the tax deduction for interest means that the tax regulations are tighter, it is proposed that companies are compensated by lowering corporate tax from 22 to 20 per cent. This lower rate is fully financed by tightening the other rule. Thus the proposal is a redistribution of total tax within business.

The proposal is out for consultation before the government makes a final decision.

Telia receiving preferential treatment

In 2014 the Swedish government decided to open the 700 MHz band for mobile broadband, but in 2016 cancelled the auction of the frequency, which is suitable for mobile broadband services in rural areas, pending an investigation into whether the emergency services could use part of band. The government has now decided that the Post and Telecom Agency (PTS) may continue with the auction, starting 1 November. The problem now is that PTS is impairing competition on the Swedish market, writes Johan Johansson, chief executive of 3 in DI on Saturday.

Sweden has four mobile operators providing strong competition on the market, but under new PTS guidelines this will be impaired. Not only will rights cost more, which will make it harder for smaller operators to take part in the bidding process, but in reality just two actors will be able to buy the rights to the entire 700 MHz band, which will probably be used for 5G. The government is thereby giving Telia preferential treatment allowing it to offer 5G services on unequal terms, claims Johansson.

Speculation over Hexagon

Hexagon yesterday commented the news that it is in early-stage talk with rivals on a potential sale (see SPR 14/6 Early Ed.), saying that it had “noted the recent speculation in media regarding a potential acquisition of the company. Hexagon regularly evaluates various opportunities to optimise the company’s positioning and shareholder value. Should these evaluations lead to concrete results, the market will be immediately informed”.

One analyst tells DI that this is nothing less than an invitation to other parties. “They’re talking to someone and want other interested parties to be aware of this.”

According to the Financial Times, Hexagon has been working with Goldman Sachs and HSBC to gauge interest from rivals such as ABB, Schneider Electric, Siemens and GE.

Daniel Djurberg, Handelsbanken analyst, believes Hexagon’s IES would suit ABB Robotics, but leans towards an American conglomerate such as Honeywell, while SEB’s Daniel Schmidt believes GE and Siemens are likely candidates.

Johansson could face vote of no confidence

Sweden’s much-criticised Public Employment Service (Arbetsförmedlingen) plans to split into three, providing a job matching service, and two centres, one for employers and one for job seekers. The agency describes the reorganisation as a “quantum leap” but does not intend to cut its 14,700-strong workforce.

The board has already approved a change in IT service management, and will decide on the other changes in the autumn.

Employment Minister Ylva Johansson does not wish to be interviewed, but suppliers are critical, with one saying that the proposal shows the agency is out of touch with reality.

Elisabeth Svantesson, the Moderates’ labour market policy spokesperson, slates the agency’s timing, given that a majority in Parliament want to close the Employment Service. Johansson is taking a risk by defying the wishes of the Riksdag and not ordering an inquiry into its possible closure and could face a vote of no confidence, according to Svantesson.

 

Time for reflection

Sterling suffered a steep fall on Friday after the shock election result in the UK, wallowing at 1.2735 against the dollar and 0.8783 against the euro.

The weakness of the pound is negative for Swedish export firms as well as for those in the UK importing components to their end products, comments Ulla Nilsson, head of the Swedish Chamber of Commerce in London.

Kitchen company Nobia, which is exposed to the UK market and saw its share price fall by 2.6% on Friday, is already feeling the effects, while construction firm Skanska says it is not greatly affected since it has its revenues and expenses in the same currency.

Claes Jacobsson, head of Scania UK, argues that the outcome of the election will allow time for reflection. “A hard Brexit is not what companies and industry want; it creates too much uncertainty,” he says.

Finance Minister Magdalena Andersson is cautiously optimistic, saying, “If the outcome is that the British want a close relationship to us after they have left the EU then that is good.”

Government backs down over banking fee

The government is backing down on the proposal to raise the resolution reserve fund fee. This is the second time in a short period that the government reverses on taxation of banks. In February, it withdrew a proposal for a new bank tax, replacing it instead with this rise in the resolution fee.

The purpose of the resolution fee is to create a buffer for any future financial crises. In its final form, presented yesterday, the original changes were either gone or had been toned down significantly.

Nordea has discussed plans to move its head office to Copenhagen or Helsinki because of the fee. However, the bank had no comment to make on Thursday.

Finance Minister Magdalena Andersson had previously commented that there are benefits for taxpayers if Nordea leaves the country. However yesterday her tone was milder, “Nordea is of course welcome to stay in Sweden and we see a significant point with having a head office in Sweden.”

Representatives of the alliance were pleased with the government’s U-turn.

Trump policy hitting Swedish export companies

After almost five months in the White House, Donald Trump’s trade policy is still unclear. This uncertainty is affecting Swedish export companies.

“The only concrete things we have seen is that he wants to renegotiate the North American free trade agreement Nafta, and that he has withdrawn the USA from TPP, the deal with Asia. We do not know more than this,” says Anna Stellinger, director general for the National Board of Trade. She continues, “Uncertainty is never positive. Not for trade and not for companies that want to invest.”

Anna Stellinger points out how important a market the USA is for Swedish companies. The board has calculated that 139,000 Swedish jobs are linked to Swedish exports to the USA.

Successful deal for Sandvik

FAM, which manages the Wallenberg Foundations, is purchasing Sandvik’s golden nugget Process Systems (SPS) for five billion kronor after a tough bidding war. The sales price exceeded even Sandvik’s expectations.

SPS had a turnover of 1.7 billion kronor in 2016, and DI reports it has an operating margin of around 20%.

SPS is the first larger acquisition that FAM owns 100%. “We feel mature enough to work with a wholly owned subsidiary,” says Lars Wedenborn, FAM’s CEO.