The first European government to actively manage its public assets.

Swedish Case Study

Economic crisis in the 1990’s

• Open unemployment reached 8-10 %

• Negative growth 1991-93

• Banking crisis erupted in 1992• Outsized public expenditures

• Poor industrial competitiveness

• Vital sectors in need of restructuring

• Inefficiently regulated markets

Swedish model crumbled

A fundamental break with the post-war economic model

Challenges with public ownership

Financial and Accounting

• Manage commercial risk

• Cash budget vs investments• Assign accountability

• Efficient capital allocation• Capital structure

Political Economy

• Vested interests protecting status quo

• Ownership vs regulation

• Ownership fragmentation

• Political vs economic interests

Resulting in mismanagement and wasteSource: Public Wealth of Nations

The elephant in the room

State capitalism in crisis

• The country's largest owner

• 1/4 of the business sector

• Some of largest companies

• Largest employer in the country

• Massive real estate portfolio

Disrupted business models

• Globalization

• Deregulation• EU market liberalization

• New technologies e.g. internet, and mobile telephony

Privatisation was the obvious remedy, globallySource: Public Wealth of Nations

Private sector discipline

Transparency• ’As if listed portfolio’Value maximization• Outsourcing policy obligationsCommercial capital structure• Dividend policyProfessionalizing boards • Recruiting new NEDs (85%)• CEOs (75%) and CFOs (50%)

..and privately ownedAs if listed holding company

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• 60+ companies

• Improved returns and dividends

• Intensified market competition

• Increased productivity

• Boosted growth in the economy

Introduced equity culture

Outperformed stock market

Value growth 2 x the local stock market

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Source: Swedish Government and UBS

HoldCo – bridge to the private sector

Private sector discipline

Accounting: • As-if listed company

Political insulation: • Arms-length from short-term

political influence

Clear objective: • Maximize value

Meeting on equal terms

• IFRS gives shared language and ability to hold board accountable

• Commercial objective a foundation to attract talent

• Clarity help prevent waste, mismanagement and corruption

Avoiding an undue transfer of public wealth to the private sector

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Price

ASSIDOMAN W:ASDO SK VECKANS AFFARER PULP & PAPER - PRICE INDEX

Assi - the forestry giant

• Controlling 14% of Swedish forest• One of the largest in Europe• Loss making for years• Divested/demerged all paper

divisions• Ultimate IRR, almost 16%

Turn-around in 3 yearsLossmaking conglomerate

Frantschach-transaction

Billerud

Redemption Iannounced

Kappa-transactionand redemption II

Sveaskog’sbid

Billerudlisted

Source: Carnegie Investment Banking

Best performing stock of the year

Streamlined and slimed

• Focus on mail and parcels

• Divested all non-core businesses• Capitalised pension fund ahead

of early retirements

• Outsourced retail network

Postal transformation

Outdated service offering

• Sweden early to deregulate

• Mail core business under threat• Costly retail network

• Outdated payment system• Urgent call for capital injection

January 2000London

J.P. Morgan Securities Ltd.Nick Ward (44-20) 7325 1500 ward_nick@jpmorgan.comTorbjørn Andreassen (44-20) 7325 4898 andreassen_torbjorn@jpmorgan.com

This document is provided solely for the use of the Ministry of Industry, Employment and Communications (“the Ministry”) and Posten AB(“Posten”), and may not be reproduced or redistributed without the approval of J.P. Morgan’s compliance department other than (i) togovernmental departments or agencies with whom the Ministry customarily liaises in the course of its responsibilities for Posten; and (ii) toPosten itself, including subsidiaries and affiliated companies or organisations. In particular, neither this document nor any copy hereof maybe (i) taken or transmitted into the United States or redistributed in the United states or to any U.S. person; or (ii) distributed orcommunicated to the press or any wire service for transmission.

Valuation Report

Posten ABProductivity Has Been Delivered but the Cheque isStill in the Mail

• We estimate the equity value of Posten AB, excluding Postgirot, to be in the order of Skr15.2 billion (firm value Skr 16.7 billion).

• Posten is, together with Deutsche Post, the European postal operator that has improvedefficiency the most over the last five years, and Posten is today second only to TPG interms of productivity among the European postal operators.

• However, profitability is lagging. The combination of a liberalised market, universalservice obligation and a high operating leverage represents a formidable challenge forPosten’s management. Further restructuring is necessary in order to improve profitabilityand capture the full value potential.

• The bulk of Posten’s revenues, profit and value are dervived from the letter relatedoperations – Brev, Försäljning and Utrikes – that offer modest growth prospects in theircurrent form.

• We believe that Posten must take the lead – and assume the associated risks and capitalexpenditure requirements required – to develop the new information processingapplications that over time will become an important part of a postal operator.

• In order to develop a detailed understanding of the key value drivers in Posten’s businessportfolio, we recommend the use of economic value added (“EVA”) analysis. It mayalso be appropriate to consider the value impact of the strategic review recentlycompleted by Posten’s management.

European Equity Research:

Nick WardVice President(44-20) 7325 1500

European Advisory:

Torbjørn AndreassenAssociate(44-20) 7325 4898

Unprecedented turn-around

• Failed merger with Telenor

• Non-core assets sold bulk to PE• IPO at the hight of tech bubble

• Outperformed telecom-index• Merged with Sonera, in first ever

telecom cross-border transaction

Telia merger and IPO

Mobile pioneer lost in space Ready for lift-off

• Unwieldly structure and costs

• Fast changing technology • Rapidly increasing competition

• Mobile telephony growing• Economies of scale required

• Broadband in its infancy

Source: UBS Warburg

Financial success – but not political

• SAS brand – 3 government owners/corporates

• Triple listings• Triple complexity and costs• Higher cost-of capital• Far behind low-cost carriers

Overdue three-way merger

One share, still overweight

• Single listing on STO• Head Office in Stockholm• Hub in Copenhagen• Positive impact on share price• Facilitated capital raising

Stuck in post-war structure

Source: Nordea Investment Banking

Political success – commercial laggard

Provincial cash-calf

Incoherent local giant

• Dominant incumbent in early deregulation

• Strong earnings and excessive equity

• Incoherent international expansion

• Unprepared for increased competition in Sweden

EU expansion at a cost

• Commercialise capital structure and dividend policy

• Divested international assets in LatAm and SE Asia

• Geographic focus on the Baltic• Soon one of the larger power

utilities in the EU• Not without political debate

Source: Merrill Lynch

In great need of financial discipline

Gordian Railway

Opening Pandoras Box

• Incorporation from agency• Three-way demerger;

• Passengers – ‘SJ’• Cargo – ‘Green Cargo’• Non-core - ‘Swedcarrier’

Jernhusen• focused real estate co.

Finally Profitable

• Prepared for a deregulated market

• Support services under neutral third-party ownership

• EBIT more than doubled; from SEK 10 to 21m for the group between 1998–2001

Source: Carnegie Investment Banking

Investment backlog leads to public backlash

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• Wholly owned by the state

• Demerged from the railway

• $2 bn real estate portfolio – incl. stations, freight terminals

and office buildings

Former railway properties Funding major infrastructure

• Doubled national rail capacity

• Projects with impact on economy

• More than 400 jobs created

• 2 thousand housing units built

• ROE averaging 12%

Source: The Public Wealth of Cities (2017)

Developing infrastructure

Potential role model

Peace dividend for defence

Creating a Swedish champion

• Bofors sold to United Defence in the US (Carlyle)

• Kockum sold to German HDW

• SAAB Group subsequently acquired Celsius in a public bid

• Shareholder return for stock ultimately positive

• Domestic concentration across Europe

• Swedish SAAB required divestitures prior to merger

Post USSR – defence cuts

Political mistake to sell submarinesSource: Goldman Sachs

Source: annual reports

Agency turned PWF

USD 15 bn portfolio

• Former State Property Agency

• Redevelopment projects

• 178 properties

• Total area 2.4mio sqm

• ROE 19%, (last 5 years)

New homes and offices

• Central Stockholm 240% increase in space

• 7 thousand new homes

• Uppsala Science Park with 500 workplaces

• Pioneering incentive system

Private sector equal

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Desk Note21 June 2001

Juli Collins-Thompson

1

Sweden: Blazing the Reform Trail

! Current reforms taking place in theSwedish public sector can be considered"revolutionary" in the context of economicreforms taking place across Europe.

! After having tackled its fiscal imbalances,the Government is now in the process ofrestructuring the public corporate sector.This is crucial, given that it is the largestindustrial owner in Sweden.

! These public sector reforms have keyimplications for the economy, includingintensifying competitive pressures,boosting productivity, bringing downprices and freeing up public resources.

Reforming the public sectorThe "buzz word" in Europe is structural reform, withGovernments across the European Union havingcommitted to stepping up the pace of economicreforms in their respective countries. Here, Swedenstands out as a leader, tackling the growingimbalances in its pension system, reforming thelabour market, liberalising the domestic markets and,finally, improving the efficiency of the public sector.

With the Swedish Government having alreadyimplemented extensive public sector reforms in theearly '90s, tackling its Budget imbalances by turningaround its deficit of 12.3% of GDP ('93) to a surplusworth around 4% at present, it has taken reforms onestep further. After its project launch in '99, theGovernment is taking an active role in reforming itsmanagement of public sector corporations.

This has clear implications for the economy, given theGovernment is the largest industrial owner inSweden, with public corporations (listed andunlisted) valued at around SEK500bn, with the value-added to total GDP estimated at 7.5%, and state firmsvalued at about 25% to domestic corporate valuation.Given its extensive ownership, the Government isalso the largest employer in Sweden, responsible forabout 230,000 jobs.

The benefits from the metamorphosis of the Swedishpublic sector are becoming evident. The reform of thepublic corporate sector will boost the growthpotential of the Swedish economy through improving

the returns of public corporations, intensifyingmarket competition, increasing productivity and,ultimately, supporting dis-inflation. Indeed, asalready seen from the deregulation of public utilities(telecommunications and electricity, for example) thiscontributed to a significant fall in prices in thesesectors over the late '90s and early '00.

The latest phase of reforms in the Swedish publicsector are particularly important given that they canbe considered "revolutionary" in the context ofeconomic reforms taking place across the rest ofEurope. Notably, the Swedish Government hasdirectly intervened to change the management styleof public corporations, adopting a "private sector"discipline. The changes introduced in the operation ofstate-owned companies have meant the Governmentis breaking away from "old-style" policies - includingregulation to curb competition, ineffective usage ofcapital and labour, inventory mismanagement and

Chart 1: Government Corporate Portfolio*B aseIndustry ,11 .2% Production /

Investm ent, 0.6%

Producer Serv ices,1.6%Transport, 9 .1%

Consum er goods,3.4%

Finance,38%

Property,5 .9%

Telecom s,IT , 18 .8%

E nergy,11.5%

Source: Ministry of Industry, Employment and Communication, * By sector andshareholder equity, as of December '00

Chart 2: Utilities' Prices - CPI

-20.0

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35.0 Electricity Prices - CPI, (% y/y)

Telephone Prices - CPI, (% y/y)

90 91 92 9493 9695 9897 0099 01

Source: Sweden Statistics

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