Added value created by Solidium
Professional manager of the State’s minority interest in listed companies
In accordance with the government resolution issued in May 2016, Solidium is responsible for the steering of listed companies where the State has a minority interest. Solidium holds the existing shares and it may decrease and increase the number, as well as buy new shares in listed companies, which considered important for society.
The State has not only financial interests but also the interest of defending Finnish ownership through Solidium’s holdings. Solidium’s core task is to strengthen and stabilise Finnish ownership in companies of national importance and grow the value of its holdings in the long term. Solidium’s operations do not involve any regional, employment or other political objectives.
Solidium’s investment decisions are made by the Board of Directors, which has a broad authority granted by the owner to make decisions concerning the portfolio companies and new investments. We keep senior officials responsible for ownership steering and political decision-makers updated on matters related to Solidium as well as on the key arrangements in preparation related to the portfolio companies. Insider regulations are taken into consideration when disclosing information.
The framework for Solidium’s operations and independent decision-making is defined in the detailed mandate prepared by the Cabinet Committee on Economic Policy. Although we operate close to the political interface, we do not carry political messages, but provide the portfolio companies our individual view based on the shareholder value perspective.
Solidium’s operating model as a long-term owner differs considerably from portfolio investing. The objective is not to pursue optimisation of the portfolio return in the short term against stock market indices, but to support the development of the companies’ shareholder value in the long term. This operating model also requires in-depth familiarisation with the portfolio companies, including their business operations, strategy, market environment, responsibility and value creation.
A dual role as a dividend payer and a long-term owner
When Solidium was established in 2008, the objective was to accelerate decision-making and increase transparency concerning the State ownership in listed companies. The establishment of Solidium separated political decision-making from financial decision-making related to the ownership of listed companies. The objective was to create an ownership model for professional and long-term operations.
Independent decision-making as well as a strong balance sheet and financial position establish conditions for Solidium to make investment decisions and participate in the portfolio companies’ financing rounds swiftly, if required.
Solidium’s objective is to grow shareholder value in its portfolio companies by means of long-term, active ownership. Our objectives are thus aligned with the objectives of other investors operating in the long term.
Taking into account the profit distribution from the financial year that will be paid autumn 2016, Solidium’s profit distribution to the State has totalled EUR 4.7 billion since its establishment. The total amount of profit distribution from the portfolio companies over this period has been approximately EUR 2.8 billion. Thus far, the favourable development in the stock market has enabled us to maintain our operating capacity, although the amount distributed has considerably exceeded the dividend flow received by Solidium. However, as a result of share divestments, the dividends received have decreased considerably.
Even if Solidium’s value to the State is most concrete and visible in the cash flow from profit distribution, what best manifests our purpose is the work we do to develop the portfolio companies to grow the market value of the holdings. Our role is to be a supporter for the companies in their operations and to challenge them to generate profitable growth. We have established our position as an owner supporting the companies in improving their performance in the long term.
Defending Finnish ownership
Finland is a small, periphery market, sensitive to fluctuations in the global economy. A major share of the Finnish companies operate in cyclical industries. Companies such as Solidium, whose objective is to own significant Finnish companies in the long term, are rare in Finland.
There is a need in Finland for an anchor owner who is able to uphold companies in times of restructuring or temporary adversities. It is also essential to ensure the operating conditions for Finland-based companies who have global growth opportunities. We want to do our part to ensure that the core ownership or headquarters of such companies stay in Finland, unless reasonable grounds and long-term valuation speak in favour of other types of arrangements.
Although Solidium is one of the largest owners of Finnish listed companies, the amount of investable capital is limited. When investing this capital, we thoroughly assess the portfolio company or a potential investment target, as well as the competence needs and growth opportunities related to their sectors. In making an investment decision, it is also important to ensure that we can gain sufficient influence in order to meet our objectives.