Svolder : Interim Report #2 21/22

Interim Report 2 2021/2022

A great deal of uncertainty

The Managing Director's comments, page 2

Result for current reporting period

3 months: 1st December 2021-28th February 2022

• The company posted a result for the period of SEK -1,400 million (754 m), corresponding to SEK -13.70 (7.40) per share
• The net worth decreased by 19.1% to SEK 58.00 per share
• The listed price of the Class B share decreased by 30.8% to SEK 61.72 per share
• The Carnegie Small Cap Return Index fell by 16.0%
• 4:1 share split conducted January 2022

Major contributors to net worth

• Positive: Viva Wine Group

• Negative: Troax, GARO, Nordic Waterproofing

Major changes in the equities portfolio

• Bought: Viva Wine Group, Elanders, Nivika Fastigheter
  - Sold: Nolato, Saab

Result for the interim period

6 months: 1st September 2021-28th February 2022

• The company posted a result for the period of SEK -1,109 million (1,195 m), corresponding to SEK -10.80 (11.70) per share
• The net worth decreased by 15.8%, including reinvested dividend
• The listed price of the Class B share decreased by 17.2%, including reinvested dividend
• The Carnegie Small Cap Return Index fell by 15.3%

Latest published figures

4 March 2022

Share price	Net worth
55.54	53

SEKSEK/share

Dear

Shareholder,

A great deal of uncertainty	Western democracies have responded with powerful
The second quarter of the financial year (1st December	economic sanctions, as well as weapons, protective equip-
ment and other assistance to support the democratically
2021-28 February 2022) was characterised by dramatic
elected Ukrainian government. At the time of writing, the-
stock exchange movements. This can be explained by a glo-
re is great uncertainty regarding whether the conflict will
bal business environment which, to begin with, featured
	escalate further. There is no
a strong economy and rising
» During February, growing aggression	historical experience of how
share prices. Palpably rising
all this will affect Western
inflation, progressively hig-	on Russia's part towards Ukraine,
economies, infrastructure,
her interest rates on govern-	but also linked to other near-lying states,	energy supply, global trade,
ment bonds and expectations
created an increasing sense of concern	defence armament, the risk
of more austere monetary po-
of warfare and so on. A lot
licy from most central banks	and uncertainty regarding the future.  »
of this will be determined by
later caused investors to begin
		Russia and its president. In

increasing the return require-	uneasy times, however, risk premiums and return require-
ment on financial assets such as shares. During February,
ments tend always to rise. This reduces the value of equities.
growing aggression on Russia's part towards Ukraine, but
In addition, the currencies of small countries are affected.
also linked to other near-lying states, created an increasing
Commodity prices also go up, particularly for precious
sense of concern and uncertainty regarding the future.
metals and energy, when the supply-and-demand situation
When Russia then invaded Ukraine later in the month, there
changes dramatically.
were reasons for investors to further raise their risk premi-
ums and return requirements.

Total return1) 10 years in % on 28th February 2022

1500											1500
1350											1350
1200	Svolder	1 year	3 years	5 years	10 years					1200
	Net worth	24	115	148	741
1050		Share price (Class B) 35	162	147	972					1050
900	Stock market index									900
750		CSRX	9	74	105	419					750
600		SIXRX	11	62	82	252					600
450											450
300											300
150											150
0											0
	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022

1. Total return is calculated using comparable methods to reinvestment indices and funds, i.e. assuming that the dividend paid is reinvested at the time of the dividend in underlying types of assets.

Infront and Svolder Morningstar, Source:

2

Altered investor perspective

The previous financial year, which ended on 31st August, was a very successful year for Svolder in both absolute and relative terms. Ahead of this year, in our latest annual report completed in October 2021, we said we predicted rising inflation following higher producer prices, particularly caused by rising energy, transport and commodity prices. We considered that this would result in higher interest rates and therefore higher return requirements. With this in mind, we could foresee strong economic development in the wake of the pandemic, leading to rising orders and company profits. Virtually indiscriminate euphoria among investors regarding growth companies and promising companies focusing on e-commerce, new technology, biotechnology and new energy was deemed unlikely to be able to continue in this cli- mate. The focus would instead be on more well-established companies with increasing profits, growth and dividend capacity, along with healthy finances.

Much of this has influenced share price movements during the current reporting period. The formerly sustained price rises in the profitable growth companies Troax and GARO were transformed into dramatic declines. The share price trend for equities in companies like New Wave, FM Mattsson and Wästbygg, on the other hand, was far less weak. Svolder reduced its holdings in Troax and GARO earlier in the year, while increasing its holdings primarily in New Wave, Elanders and IPOs like Viva Wine Group and Nivika Fastigheter.

Although Svolder's portfolio management has produced historically good results, one cannot live on old achievements for ever. We can of course see that the share price and net worth have declined a lot during the current reporting period. The 'three-stage rocket' we have long presented has, in terms of the past three months, been reversed. This means that interest rate investments have outperformed the stock exchange (SIXRX), which in turn has developed better than the small cap market (CSRX) and Svolder's net worth. Svolder has an express strategy to be almost fully invested in equities. Over long periods, this has been suc- cessful. Even so, towards the end of

the current reporting period we have increased our liquidity slightly by selling equities with higher market values than we aim to invest in long-term, i.e. selling shares with market values of over SEK 20 billion such as Saab and Nolato. We also judge that during the dividend season, we will have an injection of more than SEK 100 million from Svolder's portfolio companies. To sum up the first half of the financial year, Svolder's net worth trend follows our CSRX comparison index relatively closely, although slightly better during the first quarter and less well during the second.

Focus on quality

companies with established

business models

In this very uncertain global environment, we are striving to maintain a concentrated equities portfolio of high-quality companies, characterised by dividend capacity, organic growth, and with share valuations that are defensible in a normal market. In our opinion, at present most of the equities in our portfolio are valued low based on long-term and normal return requirements. To that extent, our strategy tallies well with the way we acted in the early days of the pandemic in 2020. As an unleveraged investment company, Svolder is in an advantageous position compared to other investment options, which are often forced into portfolio changes as fund capital flows in and out. At the same time, there is scope for Svolder to raise loans if interesting investment alternatives present themselves. This is because, after all, uncertain times also present opportunities for healthy, long-term portfolio management, even though it feels cynical to say so in a time of nuclear brinkmanship and serious threats to democracy and prosperity.

Yours faithfully

ulf hedlundh

Managing Director

3

the equities portfolio

28th February 2022

					% of the	% of the
		Share price	Market cap.	% of	company's	company's
Share	Number	(SEK)1)	(SEK m)	net worth	capital 2)	votes2)
New Wave Group	4,981,420	144.20	718	12.1	7.5	2.0
Nordic Waterproofing	3,880,000	170.60	662	11.1	16.1	16.1
GARO	4,364,553	148.80	649	10.9	8.7	8.7
Troax Group	2,564,110	252.00	646	10.9	4.3	4.3
XANO Industri	1,750,810	262.00	459	7.7	6.0	1.9
FM Mattsson Mora Group	2,000,000	225.00	450	7.6	14.2	6.2
Elanders	3,077,157	142.20	438	7.4	8.7	6.0
Wästbygg Gruppen	2,833,916	95.20	270	4.5	8.8	7.5
Beijer Electronics Group	4,381,875	58.00	254	4.3	15.1	15.2
Viva Wine Group	4,188,370	54.30	227	3.8	4.7	4.7
ITAB Shop Concept	12,172,550	13.08	159	2.7	5.6	5.6
Profoto Holding	1,532,240	99.80	153	2.6	3.8	3.8
MilDef Group	2,881,523	47.48	137	2.3	7.9	7.9
Boule Diagnostics	2,414,194	53.50	129	2.2	12.4	12.4
Arla Plast	2,639,527	47.00	124	2.1	13.2	13.2
Lime Technologies	422,665	283.20	120	2.0	3.2	3.2
Serneke Group	2,077,608	46.10	96	1.6	7.2	2.8
Nivika Fastigheter	1,186,000	74.00	88	1.5	2.1	0.4
AGES Industri	584,000	49.00	29	0.5	8.3	2.5
Equities portfolio			5,808	97.7
Net receivable (+)/net debt (-)			135	2.3
Total/net worth			5,942	100.0
			58.00	SEK per Svolder share

All securities holdings come under level 1 of the value hierarchy.

1. In calculating the market value (fair value), the last price paid for the securities on Nasdaq Stockholm on the closing day has been used. 
2. Based on outstanding shares in the portfolio company.

The following information, for example, can be obtained from the table. Svolder's largest holding is New Wave Group, which has a market value of SEK 718 million, corresponding to 12.1 per cent of net worth. A one-per-cent change in New Wave's share price would affect Svolder's net worth by SEK 7 million, which equates to SEK 0.10 per Svolder share.

Interim Report 2

Current reporting period:

1st December 2021 - 28th February 2022

Market commentary

The current reporting period of 1st December 2021- 28th February 2022 was characterised by volatile, and in January and February dramatically declining, stock mar- kets. Following a positive net worth trend in December, investor optimism turned into pessimism. This was originally due to ever-increasing inflation based primarily on dramatic increases in energy prices, as well as price rises for other input goods. Anticipated high inflation normally leads to rising interest rates, which raises return requirements and reduces the value of financial assets. Strong year-end reports for 2021 and continued positive economic statistics did counter this to some extent, but also altered views on investors' share selection and portfolio focus. From focusing particularly on highly valued equities in companies with strong sales growth, there was instead higher demand for more stable companies with lower valuations. This is a common historical price pattern on stock markets when interest rates are rising.

Concern regarding the geopolitical situation between Russia and the West/NATO in general and Russia/Ukraine in particular intensified during the three-month period. During the last week of February, the situation deteriorated dramatically when Russia invaded Ukraine. Ukraine is defending itself militarily and the West has responded with various kinds of sanctions against Russia, with a particular focus on Russia's economy. Stock market prices continued to fall in the wake of sanctions and acts of war. There is great uncertainty as to how this will affect citizens, nations and businesses.

The overall Swedish stock exchange (SIXRX) fell by almost 12 per cent during the three-month period. The difference in results between small and large companies was striking. While the CSRX fell 16 per cent, the large companies declined by only just under 5 per cent (OMXS30). Stock exchange indices for Europe, the US and the world fell by just over 4 per cent measured in EUR and USD respectively.

Because the Swedish krona weakened against these curren- cies, the result in SEK was virtually unchanged during the current reporting period.

Government bond interest rates increased during the quarter, particularly for long-term US government bonds. European long-term interest rates also rose, while they have mostly continued to trade at negative interest rates. Central banks are decreasing their bond purchases, and the US FED in particular is indicating that key interest rates need to be raised starting in 2022. The reason is rising inflation and a strong economy. The central banks have yet to communicate whether the serious security crisis in Europe will have an impact on monetary policy.

Commodities are showing an extremely positive price trend, particularly oil (+40 per cent) and natural gas. Industrial metals are also increasing in price, and aluminium especially rose during the quarter. Commodities produced in Russia, and where imposed sanctions could have the largest negative impact on supply, are seeing the biggest price rises. The price of gold rose by 7.6 per cent, which is modest in the context. When the risk appetite is low on capital and commodity markets, gold and dollars tend to perform more strongly than in uncertain times, relatively speaking.

Index performance (12 months)

140

130

120

110

100

90

mar apr may jun	jul aug sep oct nov dec jan feb
2021			2022
	CSRX		SIXRX

Infront Source:

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