Svolder : Interim Report #3 22/23

Interim Report 3 2022/2023

Svolder increases net worth in a declining market

The Managing Director's comments, page 2

Result for current reporting period

3 months: 1st March-31st May 2023

• The company posted a result for the period of SEK 77 million (166 m), corresponding to SEK 0.70 (1.60) per share
• The net worth increased 1.3% to SEK 57.90 per share
• The listed price of the Class B share decreased by 9.8% to SEK 60.30 per share
• The Carnegie Small Cap Return Index fell by 4.1%

Major contributors to net worth

• Positive: engcon, Ependion − Negative: Elanders, GARO

Major changes in the equities portfolio

• Bought: GARO, XANO Industri, Nordic Waterproofing − Sold: engcon, AGES Industri

Result for the interim period

9 months: 1st September 2022-31st May 2023

• The company posted a result for the period of SEK 156 million (-944 m), corresponding to SEK 1.50 (-9.20) per share
• The net worth increased by 2.8%, including reinvested dividend
• The listed price of the Class B share increased by 13.4%, including reinvested dividend
• The Carnegie Small Cap Return Index increased by 4.5%

Latest published figures

9th June 2023

Share price	Net worth
63.10	57

SEKSEK/share

Dear

Shareholder,

Svolder has for many years been one of the most successful	have of course spent some time with my new colleagues, and
investment companies on the Stockholm stock exchange in	it is clear that we have a strong team in place. The period has
terms of financial returns.		been very much about reports from listed companies, this
As the new Managing Director, I am proud and ener-	time coinciding with AGMs - an ideal opportunity to meet
gised by this new assignment. With almost 30 years' expe-	the companies, while also visiting other nearby businesses.
rience of stock management focusing on companies of all si-	We have attended AGMs everywhere from Malmö in the
zes in Sweden and the Nordics, it is now my responsibility to	south to Strömsund in the north.
take Svolder into the future. I have always been particularly	I am always struck by the quality of small companies
interested in small companies, as it is an opportunity to sup-	we have in Sweden. Some are in the early stages of their
port good businesses with sustainable			development, and have the potential
business models over the long term.	» I am always struck by the	to expand and change the sectors they
I would like to take this opportunity	quality of small companies	operate in. Others are more well esta-
to thank my predecessor Ulf Hedlundh,	blished and doing a great job of nur-
we have in Sweden.  »
who led Svolder from day one.	turing their market position. There

are of course risks involved in inves-

The third quarter	ting in small companies, but careful analysis and dedica-
Svolder's net worth increased by 1.3 per cent during the	tion reduce these risks significantly. As so often in life, it
very much comes down to the people. To building long-term
three-month period (1st March-31st May 2023), while the
relations, being there to offer support in adversity and cele-
small cap market (CSRX) fell by 4.1 per cent. It is a true
brate in triumph. This is an important part of how Svolder
sign of strength to increase net worth in a declining market.
creates value for you, the shareholder.
My first period as new MD has got off to a flying start. I

Total return1) 10 years in % on 31st May 2023

12001200

	Svolder	1 year	3 years	5 years	10 years
1000	Net worth	−1	107	118	615					1000
	Share price (Class B) −3	145	171	772
800	Stock market index								800
	CSRX	−8	31	63	289
600	SIXRX	3	44	67	197					600
400										400
200										200
0										0
2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023

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: Svolder and Infront

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Market development

During the quarter, the small cap index (CSRX) fell by 4 per cent. This is largely explained by continued weak development in real estate equities. A lot of this is very much related to persistently higher interest rates and in some cases lower credit ratings, which in turn have led to higher financing costs. Since November 2021, listed real estate companies have declined by 46 per cent and the CSRX by 11 per cent. Virtually all of the 11 per cent decline in the CSRX is attributable to the collapse of real estate equities.

One trend that has been evident since the new year is that larger companies are performing better than smaller ones, one likely reason being profit expectations. Profit expectations in larger companies have developed positively while those in smaller companies

remain unchanged. Smaller companies are often more local in na- ture, and therefore more exposed to Sweden and the Swedish con- sumer, who relatively speaking is expected to be worse off due to rapidly rising mortgage costs and so on.

What Svolder has

done and how it has affected net worth

During this past period, Svolder has taken advantage of the weak development of GARO share prices to acquire further shares, which led to a disclosure notice as its holding increased to more than 10 per cent of the votes and capital. We also increased our holding in XANO Indu- stri. XANO develops, acquires and runs niche tech companies that offer production and deve-

lopment services for industrial products and automation equipment.

Svolder decreased its holding slightly in engcon following strong development during the period. Svolder has sold all its shares in AGES Industri.

engcon delivered highly impressive figures for profit, operating margin and return on capital employed. The share price rose during the current reporting period, entailing a major contribution to net worth. Ependion performed strongly during the interim period and was a positive contributor to net worth. Ependion is the former Beijer Electronics Group, which changed name during the quarter.

Elanders made a negative contribution to net worth during the quarter. As communicated previously, Svolder feels that Elanders is somewhat misunderstood by the stock market. The company's operation has undergone significant changes in recent years, and now mainly focuses on logistics.

Focus moving forward

We are in exciting times, although there is reason to urge caution. The Swedish economy may be performing far more strongly than expected, according to new GDP figures, but higher interest rates have very probably not had a full impact yet. This will lead to less access to capital for many players on the market. Companies with business models ba-

sed on a reliance on financing will have problems. A strong balance sheet and positive cash flows will increase flexibility, as well as the ability to take advantage of any business situations that arise. This is something we need to focus on as we manage our port- folio. With all this in mind, it is pleasing to note that Svolder's holdings are generally financially strong, and that Svolder has an unlevered balance sheet.

Like all companies, it is important that we at Svolder continue to develop and constantly reassess tools and models if we are to remain relevant. So do not expect any major changes in the short term. I am far more about evolution than revolution. Having said that, it is important not to take anything for granted and to keep an open mind. Development and change are not only a fine tradition, they are also a matter of survival. Investing in

companies with profitable growth, stable cash flows and regular dividends is something Svolder will continue to do moving forward.

It is an honour to lead Svolder, and we will do our utmost to create value for you, the shareholder. Finally, I feel a quote by Magnus Molin, Svolder's Equity Manager, is appropriate: "Think for yourself, be meticulous, and act long-term."

Best wishes

Tomas Risbecker

Managing Director

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the equities portfolio

31st May 2023

					% 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	5,150,000	182.40	939	15.8	7.8	2.1
Troax Group	3,005,000	221.20	665	11.2	5.0	5.0
Ependion	4,390,000	127.00	558	9.4	15.0	15.2
engcon	5,030,200	104.00	523	8.8	3.3	1.1
XANO Industri	4,233,075	108.60	460	7.8	7.2	2.2
Elanders	3,550,000	120.20	427	7.2	10.0	6.9
FM Mattsson Group	6,189,108	61.00	378	6.4	14.6	6.4
GARO	5,401,020	68.35	369	6.2	10.8	10.8
Profoto Holding	2,419,811	85.00	206	3.5	6.1	6.1
MilDef Group	2,868,673	68.80	197	3.3	7.2	7.2
Nolato	3,200,000	53.60	172	2.9	1.2	0.6
Viva Wine Group	4,188,370	36.35	152	2.6	4.7	4.7
Arjo B	3,166,842	42.36	134	2.3	1.2	0.7
Wästbygg Gruppen	3,581,754	36.90	132	2.2	11.1	12.1
Lime Technologies	422,665	281.00	119	2.0	3.2	3.2
ITAB Shop Concept	13,195,880	8.92	118	2.0	6.1	6.1
Arla Plast	2,639,527	36.00	95	1.6	13.2	13.2
Nordic Waterproofing	429,851	142.00	61	1.0	1.8	1.8
Boule Diagnostics	4,289,159	10.80	46	0.8	11.1	11.1
Serneke Group	1,660,000	27.65	46	0.8	5.8	5.8
Nivika Fastigheter	1,193,000	37.90	45	0.8	1.5	0.4
Equities portfolio			5,841	98.5
Net receivable (+)/net debt (-)			88	1.5
Total/net worth			5,929	100.0
			57.90	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.
3. Of the shares in Wästbygg Gruppen, 110,000 are Class A.

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 939 million, corresponding to 15.8 per cent of net worth. A one-per-cent change in New Wave's share price would affect Svolder's net worth by SEK 9 million, which equates to SEK 0.10 per Svolder share.

Interim Report 3

Current reporting period: 1st March - 31st May 2023

Market commentary

Since 28th February, the small cap index (CSRX) has fallen by 4 per cent up to and including 31st May.Of this decline, the real estate index accounts for 3 percentage points, as this subindex has fallen by a full 17 per cent. The trend is related to persistently higher interest rates and in some cases lower credit ratings, which in turn have led to higher financing costs. The real estate index today accounts for 13 per cent of the CSRX, from 15 per cent at the end of February and as much as 22 per cent on 30th November 2021. It is notable that since November 2021, the real estate index has declined by 46 per cent and the CSRX by 11 per cent. Of this 11 per cent, the drop in the real estate index accounts for 10 percentage points. This would suggest that anyone with no exposure to real estate ought to have a portfolio virtually unaffected by the decline of the past 18 months.

Looking at the engineering sector, companies and their share prices there have shown greater resilience during 2023. Engineering has declined 2 per cent since the end of February.

As well as large changes and fluctuations in the CSRX, a trend is also discernible in the small cap index, related to size. Since the new year the CSRX has risen by 5 per cent, but if we look at operating companies (real estate excluded) with a market value of SEK 20 billion or more at the end of 2022, the average company has risen by 10 per cent. At the same time, the average company with a market value of SEK 5 billion has essentially declined by 10 per cent. One reason for this is that profit expectations for the larger companies have been adjusted upwards, while the 2023 profit outlook for the smaller companies remains unchanged. Fundamen- tally, this could indicate that certain small companies have found it harder to adapt their operations to a wider market rife with higher interest rates and cost inflation. Smaller companies are also more often more local in nature, and therefore more exposed to Sweden and the Swedish con- sumer, who relatively speaking is expected to be worse off in light of rapidly rising mortgage costs and so on.Other factors worth highlighting, albeit less fundamental, are risk propensity and liquidity. Anecdotally, we can also see that a sharper focus on liquidity risk in small cap funds has led to lower interest in, specifically, small companies.

Having started the year with somewhat subdued expectations of profit outlook for Swedish small companies in 2023, as we now approach the middle of the year it is evident that the trend has changed for the positive, now that profits and the profit outlook have held up better than expected. This particularly applies for engineering companies.

The market has been calmer in recent months in terms of transactions, especially in the wake of problems in March for the international banking sector. There has been less capital acquisition in the companies that need it, while those with a high level of debt but sufficient cash flow are waiting to see what happens. The major theme has of course been the real estate sector where there have been some share issues, although judging by the market's pricing further capital contributions are needed. Among operating companies, acquisition plans are more cautious at present, given the uncertainty regarding the economic outlook. Some companies have made it clear they have put the brakes on. The IPO climate remains cool. Last year there were a few in the first six months, but there are none to speak of in the first half of 2023.

Swedish small companies are currently valued in line with how large companies were valued over the past 20 years.

Index performance (12 months)

110

100

90

80

70

jun jul	aug sep oct nov dec jan feb mar apr may
2022		2023
	CSRX			SIXRX

Share price trends

The closing price for Svolder's Class B share on the balance sheet date was SEK 60.30, corresponding to a fall during the current reporting period of 9.8 per cent. The Class B share's value on the closing day represented a premium of

4.1 per cent on its net worth. The Class B share was traded on all trading days during the period, with an average of approximately 120,000 shares traded each day of trading on Nasdaq Stockholm.

Svolder's Class A share is only traded through three auc- tions (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 94.00, which means that the Class A share was va- lued at a premium of 62.3 per cent in relation to net worth.

Source: Infront

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