Svolder : Interim Report #1 22/23

Interim Report 1 2022/2023

A more dramatic quarter than initially apparent

The Managing Director's comments, page 2

Current reporting period

3 months: 1st September-30th November 2022

• The company posted a result for the period of SEK 74 million (291 m), corresponding to SEK 0.70 (2.80) per share
• The net worth increased by 1.3%, including reinvested dividend, to SEK 57.10 per share
• The listed price of the Class B share increased by 17.3%, including reinvested dividend, to SEK 62.34 per share
• The Carnegie Small Cap Return Index increased by 1.2%
• A dividend of SEK 92 million, corresponding to SEK 0.90 per share, was paid during the period.

Major contributors to net worth

• Positive: Beijer Electronics Group, New Wave, Troax − Negative: FM Mattsson, engcon, XANO Industri

Major changes in the equities portfolio

• Bought: Nolato, Troax, Profoto − Sold: -

Latest published figures

9th December 2022

Share price	Net worth
61.52	58

SEKSEK/share

Dear

Shareholder,

Svolder's thirtieth year in business has begun. At first		Gloomy macroeconomic
glance, the current reporting period of 1st September-30th		outlook, but several
November looks relatively undramatic in terms of how net
	cheap companies
worth and the CSRX comparison index have developed.
There have, however, been significant fluctuations during	We adhere to the assessment we made in our annual report.
the quarter, and there is still great uncertainty surrounding	Swedish and foreign households are facing at least a year of
the global economy, geopolitics							high energy prices, rising inter-
and capital markets. Small and	»	There have, however, been significant		est payments, higher food costs,
medium-sized Swedish compa-		fluctuations during the quarter,		lower asset values and seriously
nies have not performed nearly			high inflation. At the same
	and there is still great uncertainty
as well as the larger companies.			time, though, this is no news
Equities in the major banks		surrounding the global economy,		to investors, who in their valu-
particularly have	exceeded		geopolitics and capital markets.  »		ation models can instead start
those of the real estate compa-			making assumptions regarding
nies, although the comparison							future lower government bond
is universal. Net worth and CSRX improved slightly during	interest rates, decreasing inflation and long-term economic
the period.						growth. Also, many companies' shares have become less ex-
						pensive in 2022, especially Swedish ones when adjusted for
						the weak Swedish krona. It is as yet unclear which of these
						valuation forces will be the strongest in 2023. It is more
						likely that investors will occasionally shift in their future
			Total return1) 10 years in % on 30th November 2022
1800										1800
1600	Svolder		1 year	3 years	5 years 10 years				1600
1400	Net worth	−19	81	131	791				1400
1200	Share price (Class B) −29	116	157	1102				1200
	Stock market index
1000	CSRX	−28	24	69	356				1000
800	SIXRX	−17	31	62	228				800
600										600
400										400
200										200
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.

Source: Morningstar, Svolder and Infront

2

judgements and thereby create volatile stock exchanges and other capital markets.

Svolder's share price is more volatile than its net worth and the CSRX. This is also reflected in large changes in premium and discount respectively for the share. The share price rose palpably during the current reporting period. The share therefore once again traded on the market at a premium relative to net worth. Taken over the long periods by which we assess the company's portfolio development, the results remain good, as shown in the graph.

Rationalising

national ownership

I recently read an interesting book about the lack of financial management when it comes to public assets, and also

1. well-foundedanalysis of investment companies' ability to create added value. The first was a book by Dag Det- ter and Stefan Fölster on the art of losing 4 trillion kronor and how our public assets are managed (Konsten att tappa bort 4 000 miljarder - så sköts våra offentliga tillgångar), and the second was by Den Norske Bank (DNB) analyst Joachim Gunell, entitled Investment Companies: Cracking the 'good owner' code.
   The Detter-Fölster book notes that since the new mil- lennium, Sweden has fallen back into unprofessional gov- ernance by state-owned companies. One reason mentioned is the fact that a proposal to the Social Democratic Party's board in 2001, to bring all commercial public enterprises into a single holding company, was rejected. Instead, the opposite was put into effect: state-owned companies could act with- out owners and make expansive investments worldwide. The most distinctive and alarming examples are Telia, PostNord and Vattenfall. During the period 2004-2020, the authors estimate that the state-owned company portfolio remained unchanged in terms of value, while the largest listed Swed- ish companies measured as OMXS30 doubled in value. This equates to an opportunity cost of SEK 500 billion. Moreo- ver, the OMXS30 performed far worse than the Swedish stock market overall (SIXRX), and to an even greater extent than equities in Swedish small and medium-sized companies (CSRX). In addition to state-owned companies, there are a great many municipally and regionally owned enterprises.
   Detter-Fölster suggest professional, value-creating gov- ernance with influences from e.g. New Zealand and Singa- pore. Temasek is a Public Wealth Fund (PWF) that was start- ed in Singapore in 1974, and has seen an annual return of 14 per cent. The country has been very successful in transform- ing its economy from that of a developing country to a mod- ern welfare economy in just one generation. On Temasek's inception, one of its architects noted: "One of the tragic il- lusions that many countries of the Third World entertain is the notion that politicians and civil servants can successfully perform entrepreneurial functions." According to Detter- Fölster, a Swedish state-owned holding company organised to work independently, transparently and in a focused way would have similar opportunities. It would, however, need to work to manage assets at arm's length from politics, not just

passively, rather it would need to be able to take the initiatives required to develop and restructure, with the aim of creating value for taxpayers.

Investment companies' performance

Source:

Annual average increase in net worth (%) 2010-2022 (Q3)

DNB

Sector

Markets

0

5

10

15

20

Svolder

Bure

Creades1)

Latour

Investor

Lundbergs

Öresund

Traction

SIXRX2)

Kinnevik

Industrivärden

1. Creades since 2012.  2) Stockholm Stock Exchange.

Investment companies

deliver

In his comprehensive analysis of Swedish investment and portfolio management companies (dated 1st Dec 2022), Joachim Gunell notes: "The Nordic 'good owner' model holds consistent and sustainable outperformance characteristics in a world increasingly influenced by passive in- vestors. The DNB analyst observes an ever-increasing need for investment companies, backed up by family spheres of "sweat and blood", to be active "good owners" with significant ownership and incentives to maximise the long-termvalue-creating potential (strategically, operationally, structurally and economically). This is achieved through tried- and-testedlong-term perspectives, established governance models with decentralised decision-making between own- ers, boards and management teams, as well as strong balance sheets that allow strategic flexibility.

Gunell shows that most investment companies generate excess return relative to the stock exchange (SIXRX). Over the past 12-year period, the average return on net worth has been 14 per cent, i.e. four percentage points above the stock exchange. Five companies have exceeded the average: Svolder, Bure, Creades, Latour and Investor, in that order. In my opinion, this is a good reason to value these compa- nies' shares at a premium in relation to net worth. It would also be of benefit if Joachim Gunell were to be invited to present his conclusions to Sweden's Minister for Commerce or Finance. I am convinced that a number of employees, board members and owner representatives from the successful investment companies could create the Swedish PWF that Detter-Fölster propose.

Yours faithfully

ulf hedlundh

Managing Director

3

the equities portfolio

30th November 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	5,097,200	210.40	1,072	18.3	7.7	2.1
Troax Group	3,050,000	185.80	567	9.7	5.1	5.1
Beijer Electronics Group	4,390,000	112.00	492	8.4	15.1	15.2
GARO	4,172,142	114.50	478	8.2	8.3	8.3
Elanders	3,290,056	143.00	470	8.0	9.3	6.4
engcon	5,434,783	66.00	359	6.1	3.6	1.2
XANO Industri	3,413,148	100.00	341	5.8	5.8	1.8
FM Mattsson Group	6,258,256	49.75	311	5.3	14.8	6.5
MilDef Group	2,948,673	79.40	234	4.0	7.4	7.4
Profoto Holding	2,305,000	94.50	218	3.7	5.8	5.8
Viva Wine Group	4,188,370	45.72	191	3.3	4.7	4.7
Nolato	3,200,000	55.45	177	3.0	1.2	0.6
ITAB Shop Concept	12,332,953	10.40	128	2.2	5.7	5.7
Wästbygg Gruppen	2,833,916	45.00	128	2.2	8.8	7.5
Arla Plast	2,639,527	38.35	101	1.7	13.2	13.2
Lime Technologies	422,665	194.80	82	1.4	3.2	3.2
Boule Diagnostics	4,828,388	13.00	63	1.1	12.4	12.4
Nivika Fastigheter	1,186,000	39.50	47	0.8	2.1	0.4
Serneke Group	1,777,608	25.85	46	0.8	6.2	6.2
AGES Industri	584,000	38.60	23	0.4	8.3	2.5
Equities portfolio			5,529	94.6
Net receivable (+)/net debt (−)			319	5.4
Total/net worth			5,847	100.0
			57.10	SEK per Svolder share

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

1. In calculating the market capitalisation (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 1,072 million, corresponding to 18.3 per cent of net worth. A one-per-cent change in New Wave's share price would affect Svolder's net worth by SEK 11 million, which equates to SEK 0.10 per Svolder share.

Interim Report 1

Current reporting period:

1st September-30th November 2022

Market commentary

The current reporting period, which is also the interim pe- riod, i.e. 1st September-30th November 2022, was characterised by volatile stock markets worldwide. Following a weak September, stock exchanges began to improve again at the end of October, and November was a strong month for stock exchanges. On the whole, however, the changes in value on the global stock exchanges were relatively mi- nor, apart from European exchanges (9.4 per cent in EUR) and large Swedish companies, which instead reported high growth figures. The Swedish OMXS30, which has a high proportion of major banks, rose by 10.1 per cent, and the Swedish stock exchange overall (SIXRX) increased by 5.8 per cent. Small and medium-sized companies measured as CSRX, however, rose by a mere 1.2 per cent.

The US dollar bucked a long-term upward trend and instead fell by 1.7 per cent against the Swedish krona during the three-month period. At the same time the euro rose by 1.9 per cent against the SEK.

During the reporting period, both long- and short- term government bond interest rates increased, worldwide. This can be attributed to higher key interest rates from the world's central banks in the wake of ever-increasing inflation figures. Commodity prices rose slightly in USD, apart from oil and the industrial metal zinc. Measured in SEK, the changes during both the reporting period and the 2022 calendar year are quite small, as falls in prices have been compensated for by a strong USD exchange rate and vice versa.

Tosumup,itisclearthatthecurrentreportingperiodhas seen many altered trends. The USD weakened after a long- term upward trend, as did the price of oil. The increased interest rates are now primarily for short terms, while the upturn in longer-term bond interest rates has slowed. Commodity prices are increasing, but are countered by a weaker US dollar. Investors are likely to think that the US central bank primarily is getting inflation under control, and that the rise in interest rates will slow and later decline. Further- more, China's relaxing of COVID-19 restrictions is tending to once again increase economic growth and China's industrial production, which results in higher demand for raw materials. The recovery among European stock exchanges, including Sweden's, comes after a period of relatively weak price development. Despite rises in interest rates, the US economy appears still to be creating new jobs and showing growth. Inflation remains high in most countries, although there are signs that it has peaked.

Index performance (12 months)

110

100

90

80

70

60

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

Share price trends

The closing price for Svolder's Class B share on the balance sheet date was SEK 62.34. This equates to an increase during the current reporting period of 17.3 per cent, including reinvested dividend. The Class B share's value on the closing day represented a premium of 9.2 per cent on its net worth. The Class B share was traded on all trading days during the period, with an average of just over 148,000 shares traded each day of trading on Nasdaq Stockholm.

Svolder's Class A share is only traded through three auctions (known as Auction Only Market Segments) during the trading day: one on opening, one at about 13:30 and one when the market closes. The closing price for Svolder's Class A share was SEK 86, which means that the Class A share was valued at a premium of 50.6 per cent in relation to net worth.

Under the terms of Svolder's Articles of Association, Class A shareholders wishing to convert Class A shares into Class B shares may do so by application to Svolder's Board of Directors.

Total return1) %

			Rolling
	3 months	12 months	12 months
	1/9 2022-	1/12 2021-	1/9 2021-
Svolder	30/11 2022	30/11 2022	31/8 2022
Share price (Class B)		17.3	−29.1	−27.6
Net worth		1.3	−19.0	−16.9
Stock market index
Carnegie Small Cap Return Index	1.2	−28.0	−28.3
SIX Return Index		5.8	−16.5	−21.0

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.

Source: Infront

Source: Svolder, Infront and Morningstar

5