Formulafirst : Halbjahresbericht 06/2022

Formulafirst Ltd.

Incorporated in Tortola, British Virgin Islands

Interim Financial Report 2022, six months ended 30 June 2022

www.formulafirst.vg

AT A GLANCE

Formulafirst Ltd. is an investment company domiciled on the British Virgin Islands that was created in 2002 through the merger of Sucellus Trading Ltd. and Optimum Securities 1000 Ltd. The investment company was incorporated on the British Virgin Islands and is subject to the local laws. As a British Virgin Islands investment company listed on SIX, Formulafirst Ltd. offers considerable advantages compared to other collective investment vehicles with conventional legal structures.

Formulafirst Ltd. invests

In owner-managed companies in Central Europe.

Key Figures as of 30.06.2022
Share price:	CHF 27.40
Year High:	CHF 33.80
Year Low:	CHF 27.40
NAV per share:	CHF 27.44
Discount share price vs. NAV:	0.15%
Performance Ytd:	-18.86%
Total market capitalization:	CHF 7,637,175
Net Asset Value (NAV):	CHF 7,647,468
Liquid funds:	CHF 1,233,800
	(16.13%)
Number of outstanding shares:	278,729

DEVELOPMENT OF NET ASSET VALUE FIRST HALF OF 2022

CHF

35

34

33

32

31

30

29

28

27

01/22

02/22

03/22

04/22

05/22

06/22

Details concerning our investment philosophy, organisation etc. are published on our homepage: www.formulafirst.vg

AT A GLANCE

INTERIM FINANCIAL REPORT 2022

2

CONTENTS

4-7 LETTER TO SHAREHOLDERS

1. OUTLOOK FOR THE SECOND HALF OF 2022
2. INVESTMENT PORTFOLIO

10-11 BACKGROUND TO THE COMPANY

1. Capital Structure and Shareholders

1. Objectives and Strategy

1. Investment Guidelines of Formulafirst Ltd.

1. Investment Criteria

1. Investment Strategy
2. Market Positioning

1. Information Policy

1. Fees

12-35 FINANCIAL INFORMATION

1. Statement of Comprehensive Income
2. Statement of Financial Position
3. Statement of Changes in Shareholders' Equity
4. Cash Flow Statement

16-35 Notes to the Financial Statements

36 SHAREHOLDERS' INFORMATION

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INTERIM FINANCIAL REPORT 2022

CONTENTS

DEAR SHAREHOLDERS

The release of the minutes from the Federal Reserve's meeting in December 2021 cast a cloud over stock market sentiment worldwide. The meeting minutes showed growing concern about inflation and indicated that the FOMC members were ready to tighten monetary policy more quickly and decisively than anticipated. This news pushed bond yields and stock market volatility considerably higher. Consumer price inflation rose to 5% in the Eurozone and was clocked at 7% in the US, which was the highest reading since June 1982. The Fed's pivot away from an accommodative policy stance was confirmed at the January FOMC meeting. Markets began to worry that the US central bank would announce more rate hikes than expected during the course of 2022, which put stocks under more pressure. Fed chair Powell did not rule out rate hikes at each of the bank's rate-setting meetings. This set a sector rotation in motion and growth stocks with high valuations traded sharply lower. After giving up considerable ground in January, stock markets appeared to stabilize in early February, but surprisingly high rates of inflation led to renewed selling. Eurozone inflation stood at 5.1% in January and an even higher rate of 7.5% was recorded in the US. The ECB said a rate hike during the course of 2022 was increasingly likely and the minutes from the Fed's latest FOMC meeting revealed that US monetary policy would be tightened more quickly than previously communicated and that an initial rate hike was imminent. The conflict in the Ukraine escalated during the course of the month of February and caused even more market turmoil. Russia's invasion of Ukraine drove energy prices to new highs and sent global stock markets on a roller-coaster ride. Due to Europe's geographic closeness to the conflict and its reliance on Russian gas imports, a market sell-off in early March hit European stocks the hardest. Western sanctions on Russia fanned fears of a slowdown in economic growth. Inflation climbed to 5.8% in the Eurozone and hit 7.9% in the US, the highest reading in more than 40 years. Central banks reiterated their hawkish stance despite the elevated economic risks. The Fed upped its overnight lending rate by 25 basis points, its first rate hike since 2018, and flagged more to come as the year progressed. In Europe, the ECB said it would wind down its bond buying program faster than scheduled. These developments caused government bond yields to move sharply higher over the month of March. Meanwhile stock markets staged a strong rebound, regaining all of the ground they had lost since the full-fledged war in Ukraine broke out and then some more. The armed conflict continued in April. Russia announced that it would halt natural gas deliveries to Poland and Bulgaria. China's strict zero-Covid strategy put the city of Shanghai under a lockdown. Stubbornly high inflation compelled central bankers to tighten monetary policy more quickly. The minutes from the Fed's meeting revealed that 50 basis point rate hikes were possible at the next few scheduled meetings. Against this backdrop, global stocks showed a mixed performance. A temporary increase in 10-year US Treasury yields beyond the 3% mark led to hefty stock-market losses in May. Inflation in the US remained high at 8.3% in April and began to put a dent in consumer confidence. Other negative factors were the ongoing war in the Ukraine and the related increases in commodity and energy prices plus the hard lockdowns in China, which worsened supply-chain issues. In late May, with markets in oversold territory, a technical rebound set in. In June, the reported rate of inflation in the Eurozone for the month of May was again higher than expected at 8.1%. In the US, inflation was an even higher 8.6%. Nervous investors sent global stock markets deeper into the red. Against this backdrop, major central banks stepped up their efforts to normalize their monetary policy. A big surprise came from the SNB, which increased its key lending rate by

0.5 percentage points. Policy action by various central banks made investors increasingly worried about a recession and put stock markets under further pressure. A number of companies warned that their first-half profits would be lower than expected and many said supply-chain issues were getting worse and that lockdowns in China were having a negative effect on their business operations.

Early in the year the NAV* of Formulafirst Ltd. hovered around CHF 34, its year-end 2021 level, until mid-January. Sharply higher inflation readouts prompted worries about higher interest rates. In the wake of these developments, NAV traded within a slightly lower range of CHF 32 to CHF 33 for most of February. The invasion of Ukraine by ­Russian troops caused stocks to tumble globally, and Formulafirst Ltd.'s NAV dipped to about CHF 28.50 by mid-March. Despite a significant increase in bond yields, stock markets then staged a strong rebound. NAV followed the general trend and traded within a range from CHF 30 to CHF 32 to the end of April. A temporary increase in 10-year US Treasury yields above the 3% mark led to steep stock-market losses in May. NAV dipped to nearly CHF 28. A technical rebound in late May after markets had entered oversold territory lifted NAV back above CHF 30. Confronted with stubbornly high inflation, major central banks began to intensify their efforts to normalize their monetary policy in mid-June even more. NAV headed south along with the broader market and closed the period under review at approx­. CHF 27.50.

• The above calculation of Formulafirst Ltd.'s Net Asset Value (NAV) does not differ from the calculation methods used in the periodic disclosures given in the interim and annual reports. NAV is presented on a per share basis.

LETTER TO SHAREHOLDERS

INTERIM FINANCIAL REPORT 2022

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DEAR SHAREHOLDERS - CONTINUED

The U.S. economy will cool, probably more quickly than most anticipate, while China's economy will gradually ­rebound as the Omicron wave subsides and the stimulative impact of infrastructure spending as well as the loosening credit conditions kicks in. China's zero-Covid policy means that the reopening process will be slow und choppy, as Covid outbreaks continue to cause periodic lockdowns in different spots of the country. Therefore, China's economic growth will remain below potential, even after the economy is reopened on a national level. Rising inflation is forcing the ECB into a tightening cycle. This could hurt the weakest links of the eurozone economy, already weighed down by the energy shock and surging borrowing costs as sovereign credit spreads continue to widen. While the entire Western world is experiencing high inflation, Japan is still dealing with low inflation/deflation at the core level. Although prices seem to have stopped their descent thanks to a falling yen, chronic weak investment, lower levels of "herd immu- nity" to the Covid virus, and a lack of fiscal spending during the crisis have all constrained Japan's demand growth. Overall, global growth will likely slow in the second half of the year. The Citi Inflation Surprise Index is down, and supply disruptions are easing resulting in lower prices. Besides, markets have already discounted a load of rate hikes. If inflation starts to fall in the coming months, stocks will recover. This will allow the Fed to pause later this year and the stock markets to rise.

Formulafirst's euro exposure remained fully hedged because the ECB's comparatively very loose monetary policy and the tense geopolitical situation are likely to keep the euro weak.

The net asset value per share of Formulafirst Ltd. decreased by 18.86% during the period under review (+7% in the first half of 2021) and closed the first half of 2022 at CHF 27.44 (end of June 2021 at CHF 34.24).

The stocks selected from our investment universe for Formulafirst Ltd. (companies belonging to the Smart Owners ­Index) delivered a very strong outperformance compared to the Smart Owners Index (consisting of 50 owner-managed companies)

210

190

170

150

130

110

90

70

50

Formulafirst

30 SO Index

Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20 Jan 21 Jan 22

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INTERIM FINANCIAL REPORT 2022

LETTER TO SHAREHOLDERS