Formulafirst : Jahresbericht 2020

Formulafirst Ltd.

Annual Report 2020

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 31.12.2020
Share price:	CHF 32.-
Year High:	CHF 32.-
Year Low:	CHF 21.-
NAV per share:	CHF 32.-
Premium/Discount vs. NAV:	0.0%
Performance 2020:	3.39%
Performance since Jan. 2018	-2.77%
Performance since June 14, 1995	7.54% p.a.
Total market capitalization	CHF 12'655'136
Net Asset Value (NAV)	CHF 12'653'245
Liquid funds	CHF 86'903
Number of outstanding shares	395'473

DEVELOPMENT OF NET ASSET VALUE IN 2020

CHF

32

30

28

26

24

22

20

03/01/20

03/02/20

03/03/20

03/04/20

03/05/20

03/06/20

03/07/20

03/08/20

03/09/20

03/10/20

03/11/20

03/12/20

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

www.formulafirst.vg

AT A GLANCE

CONTENTS

4-6 LETTER TO SHAREHOLDERS

7-8 MARKET OUTLOOK FOR THE YEAR 2021

9 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
2. DIRECTORS' REPORT

13-16 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF FORMULAFIRST LTD.

17-40 FINANCIAL INFORMATION

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

21-40 Notes to the Financial Statements

41-46 CORPORATE GOVERNANCE

47 SHAREHOLDERS' INFORMATION

3

CONTENTS

DEAR SHAREHOLDERS

News of the Phase 1 trade deal between the US and China sent stock markets to new all-time highs in mid-January 2020. That upward trend was interrupted in the final week of January by the outbreak of the coronavirus in China. Investor confidence abruptly changed in the last week of February when investors, confronted with daily headlines about the coronavirus disease, realized that the virus would probably impact the world economy more than expected. In March, the coronavirus outbreak was declared a pandemic and that declaration put a swift end to the 11-year-old bull market on world stock markets. Huge government aid programs in several countries and regions to prop up the economy as well as liquidity and securities purchase programs by various central banks led to a sharp rebound by major stock indexes in April. Global stock markets continued to claw back lost ground in May. Stocks surged in the middle of May because the biotech company Moderna published positive results from its initial clinical trial of a COVID-19 vaccine candidate. Bad news about the economy was overlooked because unprecedented fiscal stimulus plans and growing liquidity attracted investors to the stock market in droves. The positive trend in the financial markets continued in June on hopes of growing economic momentum in the wake of the huge fiscal stimulus packages and the lifting of government-imposed restrictions. Led by NASDAQ, the US technology bellwether index, stocks moved higher in July until the middle of the month. Most of those gains were surrendered during the final week of trading though. Half-year results generally topped investors' low expectations and the general response seemed to be "sell on good news". On the political front, the biggest headline was the EUR 750 billion recovery plan EU leaders passed, primarily to help EU members whose economies had been hit particularly hard by the pandemic. That marked the introduction of eurobonds with joint liability in all but name, and this decision stabilized the euro and weakened the dollar. Global stock markets sustained their upward trend in August. The S&P 500, NASDAQ Composite and other indexes hit new all-time highs. Investor confidence was fueled by better-than-expected economic data and increasing hopes that an effective vaccine against COVID-19 would soon be available. Rising tension between Washington and Beijing didn't bother the market's good mood. At Jackson Hole, the chairman of the Federal Reserve unveiled a more flexible framework targeting inflation. This means the central bank is no longer pressured to take immediate action if inflation climbs above the 2% mark. The new policy clears the way for an extended period of low interest rates and accommodative monetary policy. Investors took some profits in September. Reasons for the consolidation were the increasingly aggressive tone of the US election and the dim prospects that Congressional leaders would reach an agreement on another economic stimulus package before the elections. Stock markets began the final quarter of the year with renewed vigor. The prospects of a "Blue sweep" fueled hopes of more generous government spending. A second wave of infections began to roll across Europe around the middle of October and will probably lead to a weaker-than-anticipated recovery of the region's economy in the fourth quarter. European stocks fell back to their June levels as a result and, as in the spring, this dragged down the US market too. The outcome of the elections in the US, with Joe Biden winning the White House but without a crushing "Blue sweep", put the markets in a good mood. The news that the COVID-19 vaccine being developed by US pharma giant Pfizer and its German partner Biontech was highly effective gave markets more uplift. Shortly after their positive readout, Moderna and AstraZeneca also published promising data on their vaccine candidate. Consensus now expects a return to normalcy during the second half of 2021. While US stocks continued to advance in December, following the lead of the bellwether tech stocks, European markets were stuck for a while. News that the European Central Bank was launching another monetary stimulus program and expanding its bond-buying activity triggered little response from the market. Around mid- December markets rose on hopes that leaders in Washington would reach a compromise on another fiscal stimulus plan and by comments from the Fed chair that monetary policy would remain expansionary for a long time to come. The UK and the EU reached a breakthrough at the very last minute, averting a hard Brexit. Despite the coronavirus pandemic and collapse in economic activity, many stock markets ended the year higher than they were a year ago.

LETTER TO SHAREHOLDERS

4

DEAR SHAREHOLDERS - CONTINUED

During the March 2020 correction, cash was reinvested in top-quality companies whose share prices had fallen to very low levels. After the impressive market recovery, positions in stocks that had made hefty gains and whose portfolio weightings had climbed to high levels were reduced and replaced with laggards that had catch-up potential.

A currency hedge on all euro-denominated positions was maintained throughout the year because a weakening of the Eurozone economy and the anticipated ECB response in the form of a further loosening of the monetary policy portended downside risks for the euro.

At the beginning of 2020, the Net Asset Value (NAV)* of Formulafirst Ltd. trended sideways between CHF 30 and CHF 31.20. When the pandemic broke out in late February, its NAV fell to just under CHF 21 by mid-March in the wake of the worldwide market sell-off. Thanks to extensive aid programs in countries and regions across the world, stock markets staged a sustained recovery in the spring that was interrupted only briefly when the second wave of the pandemic hit Europe in mid-October. In this movement Formulafirst Ltd's NAV recovered to just over CHF 31 by mid-October, briefly corrected to just over CHF 27 and then advanced again, ending the year at CHF 32, not far from its high for the year.

Formulafirst's Net Asset Value rose by 3.39% year-on-year (+19.41% in 2019), while the MSCI Europe benchmark index closed 2020 with a negative return of 5.37% (+22.24% in 2019). The NAV of Formulafirst Ltd. stood at CHF 32 on December 31, 2020 (year-end 2019: CHF 30.95).

105.00
100.00
95.00
90.00
85.00
80.00
75.00
70.00					NAV Formulafirst Ltd.
65.00					MSCI Europe Index
12/31/19	02/29/20	04/30/20	06/30/20	08/31/20	10/31/20	12/31/20

Our selection of top-quality stocks performed very well in the extremely difficult market environment in 2020, resulting in an outperformance of 8.8%-points against the benchmark index MSCI Europe! We expect another positive development of the portfolio in 2021.

Our selection of stocks from a universe of 50 owner-managed companies constitutes a solid portfolio of well-performing and well-managed globally active companies. The average dividend yield is attractive at 1.6% compared to the recent interest levels. Valuations are fair considering the anticipated profit growth (average P/E for 2021E is 27.9), balance sheets are solid (average equity ratio is 51.7%) and the average price/book ratio 2021 is a moderate 4.9.

The challenge facing many companies today is: How can I improve my innovative power and productivity in the face of rising competition to defend if not increase my pricing power? In this race, owner-managed companies are clearly at the head of the pack.

*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.

5	LETTER TO SHAREHOLDERS