Svolder : YEAR-END REPORT, 12 MONTHS, 2021/2022

Year-End Report 2021/2022

Good management performance in tough times

The Managing Director's comments, page 2

Results for the financial year

12 months: 1st September 2021-31st August 2022

• The company posted a result for the period of SEK -1,186 million (3,485 m), corresponding to SEK -11.60 (34.00) per share
• The net worth decreased by 16.9%, including reinvested dividend, to SEK 57.30 per share
• The listed price of the Class B share decreased by 27.6%, including reinvested dividend, to SEK 53.97 per share
• The Carnegie Small Cap Return Index fell by 28.3%
• Proposed dividend SEK 0.90 (0.63) per share

Major contributors to net worth

• Positive: New Wave Group, engcon, MilDef Group
  - Negative: Troax Group, GARO, XANO Industri

Major changes in the equities portfolio

• Bought: engcon, Viva Wine Group, Elanders
  - Sold: Nordic Waterproofing, Nolato, Saab

Result for current reporting period

3 months: 1st June-31st August 2022

• The company posted a result for the period of SEK -242 million (1,304 m), corresponding to SEK -2.40 (12.70) per share
• Net worth decreased by 4.0%
• The listed price of the Class B share fell by 14.3%
• The Carnegie Small Cap Return Index fell by 11.5%

Latest published figures

9th September 2022

Share price	Net worth
54.88	56

SEKSEK/share

Dear

Shareholder,

Svolder's 2021/2022 financial year has come to an end, barring a few formalities. For example, the Annual Report will be published at the end of October, and the AGM will be held on 17th November. As usual, in the Annual Report we look at the past year from Svolder's perspective, the main focus being on our portfolio companies. There will also be some comments on our view of economic and stock market developments moving forward. Even though the macroeconomic situation is complex and uncertain, this does not mean that there are no interesting investment opportunities for an investment company like Svolder, which primarily invests in listed Swedish companies that have a market capitalisation of up to approximately SEK 20 billion.

Even so, I must say that the 2021/2022 financial year has been one of the most turbulent years on the stock exchange in Svolder's almost 30-year history. For the people of Europe, it was probably the most dramatic and eventful year since the Second World War. The financial year began, however, much like the previous one ended, i.e. with rising stock exchanges and a high level of activity in most countries in the wake of the COVID-19pandemic.Significantrisesininterestratesandinflation made themselves increasingly felt around the new year, which led to rising return requirements from investors while there was mounting concern about an imminent economic

downturn. Stock exchanges fell generally. Russia's invasion of Ukraine in late February threatened peace in Europe, reduced access to energy and further complicated supply chains for various input goods. Higher interest rates worldwide, lower market values on stock exchanges, higher inflation and even higher energy costs have since been a reality. Many uncertainties remain, although companies and investors can generally adapt to a new global situation in some way.

Good management

performance in tough times

In this context, Svolder has managed its equities portfolio based on its set strategy of virtually always being fully invested. By that, we mean that the share of liquid assets or borrowing should not normally amount to more than 10 per cent of net worth. This has been a winning concept through various market crises in Svolder's history. Relative to our primary comparison index, CSRX, our net worth trend was just over 11 percentage points higher during the financial year, and just over 4 percentage points higher than the Stockholm Stock Exchange (SIXRX), even though the outcome in absolute terms was negative. Svolder's share price was hit harder, however, and the net worth premium

Total return1) 10 years in % on 31st August 2022

1600											1600
1400	Svolder	1 year	3 years	5 years	10 years					1400
1200		Net worth	-17	100	125	787					1200
		Share price (Class B) -28	105	125	867
1000	Stock market index									1000
800		CSRX	-28	32	70	373					800
	SIXRX	-21	35	59	225
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.

Infront and Morningstar Svolder, Source:

2

SVOLDER JUST OVER

11%

BETTER THAN CSRX

turned into a net worth discount over these 12 months.Our 'three-stage rocket' - our belief that equities are better than interest rate investments, small companies are better than listed ones, and Svolder is better than small companies - has consequently led to a slightly different outcome in this financial year, even though the long-

term development remains.

The higher interest rate situation and consequential rise in return requirements from investors has particularly hit shares in companies with perceived accelerated sales and profits far into the future. Equities in real estate companies have also been adversely affected by the development. The outcome has been particularly tough for heavily leveraged real estate companies, serial acquirers and promising companies without profitability where there is uncertainty regarding their business models' ability to achieve any significant, profit

producing market position. Equities in small companies performed less well than those in large companies, which is common in a more turbulent stock market climate when a premium is placed on equities' rate of turnover.

Altered price patterns in portfolio companies

Having said that, I can see that some of the largest contributors to Svolder's net worth in recent years, such as Troax, GARO and XANO, have had a tough time on the stock exchange during the financial year. Instead, the shares of other portfolio companies developed strongly. This is particularly true of New Wave, which is the largest holding in the portfolio. Active cost cutting during the pandemic has resulted in dramatically rising operating margins, and this is particularly evident as different markets recover. Despite this, we believe that several of the subsidiaries, such as the well-known Craft and Cutter & Buck brands, have not seen the same kind of increase in value as other companies in the sector. We have therefore continued to acquire shares in the publicly listed parent company.

Altered investor focus

Another two phenomena particularly characterised the Swedish stock market during the financial year: a dramatically altered IPO market, and views on equities in companies in the defence industry.

Following 2021, when there seemed to be no limit on how many companies investment banks and marketplaces felt they could list, the IPO window essentially closed in 2022. Although for valuation reasons Svolder has been restrictive as regards the raft of IPOs in recent years, we do aim to selectively act as an anchor investor in IPOs. As well as a reasonable share valuation in the initial phase, we particularly value well-established, profitable business models, a good group

of owners, listing on the Nasdaq Stockholm main list, a solid foundation for growth and long-term dividend capacity. One quality company, engineering company engcon from northern Sweden, did however buck the listing trend and meet Svolder's investment criteria. Svolder was therefore one

of the biggest investors in the IPO to an amount totalling SEK 250 million, a holding that had increased to SEK 436 million on the closing day.

Following Russia's invasion of Ukraine and aggressive agitation against the West, attitudes towards military defence among politicians and citizens have changed dramati- cally. The ever more important role played by defence companies in society becomes clear to investors as the need for actual defence increases. This has also affected investors' sustainability strategies, even though there are still some financial players who apparently don't understand the

importance of a defence industry in democratic nations. Svolder's exposure to the defence industry comes in the

shape of MilDef, a specialist provider of rugged IT communication systems, which has contributed a valuable SEK 63 million to net worth during the financial year.

Dividend in focus

Election campaigns tend to question share dividends and stock investment generally. Criticism has been directed at the low tax rates for individual equity savings accounts when the stock market is performing well, while there is silence when the stock market is in decline. Share dividends are not handouts, but the most natural way of compensating shareholders for invested capital, and are fundamental to a company's long-term supply of capital. Also, these are profits that have already been taxed, and the way I see it they should not be taxed yet again.

Svolder's dividend policy is based on paying dividends received on to shareholders over time, with a deduction for ongoing management costs. Moreover, the ambition is to create long-term dividend growth. The Board of Directors proposes a dividend of SEK 0.90/share (SEK 92 m) for the ended financial year, an increase of 44 per cent. Since the dividend policy was revised in 2012, the average annual growth rate is approximately 15 per cent. In this context, it should also be noted that Svolder has paid out a dividend every year it has been a listed company. Even before this year's proposed dividend, almost SEK 1.3 billion (about SEK 12.50 per Svolder share) has been paid out to shareholders since the company's inception, whether the year has been good or bad for the stock market.

Yours faithfully

ulf hedlundh

Managing Director

3

the equities portfolio

31st August 2022

					% of the	% of the
		Share price	Market cap.	% of net	company's	company's
Share	Number	(SEK)1)	(SEK m)	worth	capital 2)	votes2)
New Wave Group	5,139,800	171.90	884	15.1	7.8	2.1
Troax Group	2,733,600	173.20	473	8.1	4.6	4.6
GARO	4,036,751	116.10	469	8.0	8.1	8.1
Elanders	3,087,500	151.20	467	8.0	8.7	6.0
engcon	5,434,783	80.15	436	7.4	3.6	1.2
XANO Industri	3,413,148	119.00	406	6.9	5.8	1.8
FM Mattsson Group	6,189,507	63.70	394	6.7	3.6	1.2
Beijer Electronics Group	4,381,875	62.80	275	4.7	15.1	15.2
Viva Wine Group	4,188,370	50.00	209	3.6	4.7	4.7
MilDef Group	2,768,673	72.00	199	3.4	7.6	7.6
Profoto Holding	1,833,853	97.50	179	3.0	4.6	4.6
Wästbygg Gruppen	2,833,916	57.50	163	2.8	8.8	7.5
Lime Technologies	422,665	306.20	129	2.2	3.2	3.2
Arla Plast	2,639,527	41.85	110	1.9	13.2	13.2
ITAB Shop Concept	12,172,550	8.75	107	1.8	5.6	5.6
Serneke Group	2,077,608	40.40	84	1.4	7.2	2.8
Nivika Fastigheter	1,186,000	59.30	70	1.2	2.1	0.4
Boule Diagnostics	2,414,194	23.10	56	1.0	12.4	12.4
AGES Industri	584,000	60.60	35	0.6	8.3	2.5
Equities portfolio			5,146	87.7
Net receivable (+)/net debt (-)			719	12.3
Total/net worth			5,865	100.0
			57.30	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 884 million, corresponding to 15.1 per cent of net worth. A one-per-cent change in New Wave's share price would affect Svolder's net worth by SEK 9 million, which equates to SEK 0.10 per Svolder share.

Year-End Report

1st September 2021 - 31st August 2022

Market commentary

Svolder's 2021/2022 financial year, 1st September 2021 to 31st August 2022, was a very weak year for listed companies in most countries around the world. All in all, the European stock exchanges fell by just over 17 per cent, and the US exchange (S&P 500) by almost 13 per cent. The World Index (WDJ) declined by as much as 18 per cent. Currency fluctuations were dramatic overall across the year as a whole. The US dollar, for example, increased by 24 per cent against the Swedish krona, which also weakened by 5 per cent against the euro. Measured in SEK, therefore, the above-mentioned World and US indices increased in va- lue. Measured in USD, the Swedish stock market weakened dramatically: the SIXRX fell by 21 per cent, while shares in small and medium-sized companies (CSRX) dropped a further seven percentage points.

Index performance (12 months)

110

100

90

80

70

60

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

Several macroeconomic trends changed or were reinforced during the financial year. The strong recovery from the coronavirus pandemic evident at the start of the financial year led to significant price increases for most input goods. Energy, food and commodity prices in particular increased, while the labour market grew stronger and stronger in most industrialised nations. Around the beginning of the calendar year, investors began growing more concerned about how this would impact on future interest rates, return requirements and economic growth. A period of falling prices for equities, bonds and real estate began. Global concern in-

Infront Source:

creased when Russia invaded Ukraine, while access to electronics components, raw materials, industrial products, transport and energy worsened. This concern remained during the latter part of the financial year, even though the bleakest prophecies have thankfully failed to materialise.

Interest rate increases were dramatic during the year, and pertained to most durations and interest rate-based products. American, German and Swedish five-year government bonds, for example, rose by over 200 basis points (two percentage points). The rhetoric from the central banks changed during the financial year to being far more restrictive, and active monetary policy measures were taken to combat the rising inflation. This was most obvious at the US FED, while the need to fight inflation is probably even greater outside of the US, based on the strengthening of the dollar and the shortage of domestic energy sources.

Commodity prices also rose dramatically early in the financial year, only to fall partially again during the latter part. For market players outside the US, however, the far more expensive US dollar has affected the final outcome either positively or negatively, depending on whether they are importers or exporters. For Swedish consumers the outcome is generally negative, which impacts on the future expectations of households. In addition, the rising price of electricity is a serious problem for households and busines- ses, both in Sweden and across Europe.

In addition to Ukraine and its neighbouring area, geopolitical trouble spots have grown in intensity during the financial year. This particularly applies to the great powers' interests and view of democracy, which risks creating conflict in and around Hong Kong and Taiwan, for example.

Share price trends

The closing price for Svolder's Class B share on the balance sheet date was SEK 53.97, which corresponds to a decrease during the financial year of 27.6 per cent, including reinvested dividend. The Class B share's value on the closing day represented a discount of 5.8 per cent on net worth. The Class B share was traded on all trading days during the period, with an average of just over 257,000 shares traded each day of trading on Nasdaq Stockholm.

5