Svolder : YEAR-END REPORT, 12 MONTHS, 2022/2023

Year-End Report 2022/2023

Turbulent times create long-term opportunities

The Managing Director's comments, page 2

Results for the financial year

12 months: 1st September 2022-31st August 2023

• The company posted a result for the period of SEK -525 million (-1,186 m), corresponding to SEK -5.10 (-11.60) per share
• The net worth decreased by 9.0%, including reinvested dividend, to SEK 51.20 per share
• The listed price of the Class B share increased by 7.0%, including reinvested dividend, to SEK 56.90 per share
• The Carnegie Small Cap Return Index increased by 0.3%
• Proposed dividend SEK 1.00 (0.90) per share

Major contributors to net worth

• Positive: Ependion, Troax, MilDef

• Negative: GARO, Elanders, XANO Industri

Major changes in the equities portfolio

• Bought: Nolato, Arjo, GARO

• Sold: engcon, Doxa, AGES Industri

Result for current reporting period

3 months: 1st June-31st August 2023

• The company posted a result for the period of SEK -681 million (-242 m), corresponding to SEK -6.70 (-2.40) per share
• Net worth decreased by 11.5%
• The listed price of the Class B share fell by 5.6%
• The Carnegie Small Cap Return Index fell by 4.0%

Latest published figures

8th September 2023

Share price	Net worth
55.25	50

SEKSEK/share

Dear

Shareholder,

The 'first 100 days' in a new leadership role are said top be		Reflection
crucial, and the expression is certainly fraught with expec-	Since I started as MD, I have repeatedly been surprised in all
tations. Indeed, it is worth considering whether it is a myth.
kinds of good ways. Some of the nicest surprises are the ex-
It has been an eventful quarter, both on the stock market
cellent working relationship and support from colleagues.
and here at Svolder. With a new reporting period behind us,
The teamwork in the company has exceeded my already
many of us are bound to have our own ideas about where
high expectations. The level of commitment and the posi-
the wider world is headed, beholding the economic cycle as
tive atmosphere are also impressive. I am proud to be part
we do through different eyes. The value of bringing these
of a corporate culture where everyone pulls together to do
various jigsaw pieces together lies not so much in predict-
		what's best for you, our Svolder
ing exactly what will happen, but
» Despite these challenging times,		shareholders.
more in the insight they give us
into what could happen.	I am optimistic about the future.  »	I have confidence in Svolder's
portfolio and investment pro-
The fourth quarter			cess. This means that the portfo-
lio is not being reshuffled just because there's a new Man-
The stock exchange developed negatively during the fourth	aging Director. Rather, as before, changes will be made on
quarter, and small companies were particularly affected.	an ongoing basis, as the need arises and in accordance with
For Svolder it has been an especially challenging period,	Svolder's investment process.
with weak development in both absolute and relative terms.	We have a well-functioning, tried and tested model for
Svolder's net worth decreased by 11.5 per cent during the	creating value, and that will not change. The focus is not
three-month period, while the small cap market (CSRX)	only on short-term profits, but also on achieving sustaina-
fell by 4.0 per cent.		ble long-term growth for our investments. We will contin-

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

12001200

1000	Svolder		1 year	3 years	5 years	10 years					1000
	Net worth	−9	48	82	497
800	Share price (Class B) 7	67	134	665					800
	Stock market index
600	CSRX		0	9	46	262					600
SIXRX		10	27	53	189
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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ue to play an active role as a shareholder in our portfolio companies. We need to regularly appraise our investments and make adjustments where necessary, and this includes selling holdings in companies that are underperforming. I am convinced of the importance of continuing our careful analysis. We really need to understand the companies we hold shares in and those in which we consider investing. In this way, we can continue to make well-founded decisions based on a balanced assessment of both potential and risk.

At Svolder, we have always viewed our portfolio com- panies' potential to contribute to sustainable development as a fundamental criterion in the investment process. I can see a need to establish clearer guidelines, both for our own conduct in-house and for our portfolio companies. This process has begun, and we will be presenting an updated sustainability strategy over the next year.

The focus moving forward remains on companies with a market capitalisation below SEK 20 billion. This means genuinely small companies, a segment that receives less attention from institutional investors and analysts. This can create opportunities for us to find attractively value small companies.

Market development

Small caps (CSRX) fell by 4.0 per cent during the three-month period. 2023 continues to be a year of surprises, and after a strong stock exchange recovery early on, led by the small companies, recent months have developed in the opposite direction.

In times of greater uncertainty, it is common for Swedish small companies to decrease more in value than the market generally. Anecdotally, we can see international investors being more cautious regarding Swedish small companies, which at times contributes to more negative share price movements than fundamentally justified. For example, the

summer's interim reporting period was characterised by relatively large negative price movements, when profit estimates at an aggregate level remained virtually unchanged.

What have we done, and

what has affected net worth?

Svolder has increased its holding in Arjo during the quarter. The holding in Troax was reduced, which prompted a disclosure notice on 9th August as the holding fell below 5 per cent of capital and votes. The entire holding in Doxa, an investment company in the real estate sector, has been sold. Svolder has also slightly reduced its holding in Profoto. One of the main factors burdening our net worth is our exposure to New Wave Group. The company reported record figures for Q2, but did not quite live up to the stock market's expectations. Perimeter protection company Troax delivered a Q2 report that met stock market ex-

pectations. Nevertheless, the share price continued on an already downward trend after the report's publication, and was a major negative contributor to net worth. Tiltrotator manufacturer engcon was also a negative contributor to net worth. The company delivered a good report, but also mentioned lower orders in the Nordics and Europe.

Positive contributions during the quarter primarily came from MilDef Group. Ependion and Nordic Waterproofing also had a positive impact on our net worth during the period. MilDef Group is a provider of tactical IT for demanding environments with customers in the global security and defence market, as well as other areas critical to society. Its Q2 results provided important proof that the company's business model is scalable, and that higher volumes contribute positively to the development of its margin.

Focus moving forward

There is no doubt that we are going into recession. Even so, the overall picture is that there are relatively good chances of avoiding an economic hard landing. Many countries are showingawillingnesstoinvestinsociallycrucialinfrastruc- ture. At the same time, high inflation and the interest rate situation are having an adverse impact on the global economy.

We therefore anticipate continued fragmentation in terms of demand.

Despite these challenging times, I am optimistic about the future. We have companies with strong market positions and good management teams, as well as balance sheets that afford the companies opportunities to overcome the presently weak market. While the market is expected to be challenging in the financial quarters ahead, there are opportunities to take market share and benefit from the possibilities that harder times can offer.

The companies are focusing on cost control, and on bolstering gross margins through production efficiency and price

adjustments. With a continued focus on sustainability work and, in some cases, strong order books, they have a stable foundation on which to build. In times like these, the ability to continuously adapt to changing circumstances is particularly important, as is the companies' ongoing endeavour for sustainable, profitable growth.

The expression 'first 100 days' was probably coined in the US in relation to President Franklin D. Roosevelt's intention to quickly deal with the problems the nation was facing in the 1930s. Thankfully, Svolder's challenges are not on the same scale.

Finally, a quote from Charlie Munger might be fitting: "Mimicking the herd invites regression to the mean".

Best wishes

Tomas Risbecker

Managing Director

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the equities portfolio

31st August 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	10,280,607	78.12	803	15.3	7.7	2.1
Ependion	4,390,000	130.00	571	10.9	15.0	15.2
Troax Group	2,645,000	175.80	465	8.9	4.4	4.4
engcon	5,030,200	80.55	405	7.7	3.3	1.1
XANO Industri	4,263,075	94.10	401	7.6	7.3	2.2
Elanders	3,595,113	105.00	377	7.2	10.2	7.0
FM Mattsson Group	6,189,108	51.00	316	6.0	14.6	6.4
GARO	5,496,530	52.00	286	5.4	11.0	11.0
MilDef Group	2,868,673	81.00	232	4.4	7.2	7.2
Profoto Holding	2,100,000	83.00	174	3.3	5.3	5.3
Arjo B	3,666,842	43.16	158	3.0	1.4	0.8
Nolato	3,200,000	46.94	150	2.9	1.2	0.6
Viva Wine Group	4,188,370	34.15	143	2.7	4.7	4.7
ITAB Shop Concept	13,195,880	9.26	122	2.3	6.1	6.1
Wästbygg Gruppen3)	3,581,754	34.10	122	2.3	11.1	12.1
Lime Technologies	422,665	252.00	107	2.0	3.2	3.2
Arla Plast	2,639,527	34.50	91	1.7	13.2	13.2
Nordic Waterproofing	458,474	154.20	71	1.3	1.9	1.9
Boule Diagnostics	4,289,159	9.80	42	0.8	11.1	11.1
Nivika Fastigheter	1,193,000	30.90	37	0.7	1.5	0.4
Equities portfolio			5,074	96.7
Net receivable (+)/net debt (-)			174	3.3
Total/net worth			5,248	100.0
			51.20	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. 
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 capitalisation of SEK 803 million, corresponding to 15.3 per cent of net worth. A one-per-cent change in New Wave's share price would affect Svolder's net worth by SEK 8 million, which equates to SEK 0.10 per Svolder share.

Year-End Report

1st September 2022 - 31st August 2023

Market development

since 1st September 2022

During the 2022/2023 financial year, Swedish small companies have experienced dramatic, irregular development. The year (autumn) began with a drop of almost 15 per cent, reaching bottom in October 2022. The small cap index (CSRX) remains unchanged for the period, as compared to large companies (OMX30) which are up 17 per cent. We can also see that the 'smallest' small companies as a category have seen the worst development. An unweighted small cap index has fallen by −6 per cent during the financial year, and companies with a market capitalisation of less than SEK 5 billion have dropped by about −10 per cent on average. There are several reasons behind this, such as less liquidity and appetite for risk generally, and relatively lower profit outlooks. Sweden is often the domestic market, so the share of exports is lower and the impact of a weaker Swedish krona does not favour small companies to the same degree.

Index performance (12 months)

120

110

100

90

80

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

Looking at the past 15 years, we have never seen Swedish small companies falling when American small companies rise, or the small cap index in Sweden falling for two consecutive years. This may not be a hard-and-fast rule, but it does offer some hope that we may have seen the worst in terms of market correction. For example, we can see that since

Source: Infront

the stock exchange peak at the end of 2021/beginning of 2022, the small cap index (CSRX) has fallen by 33 per cent, while the forward-looking profit estimates are about 3 per cent higher now. So the downturn is the product of a falling valuation, where the P/E ratio for Swedish small companies has decreased from 24 to 14.

The high inflation during 2022 and 2023 has resulted in a dramatic fall in real wages. We have to go right back to the early 1980s to see a similar kind of development. Falling consumption and housing investments mean that the Swed- ish economy is expected to be weaker for a few quarters more compared to the economies of many other countries. During the summer, the Swedish krona reached record low levels against the euro. In May and June the krona's weaker development was mainly due to growing concern for the Swedish real estate sector, while in August the principal explanation was falling appetite for risk globally. A weak krona per se is not the problem; the problem is that over the past decade, the krona has seen a trend of falling against both the euro and the US dollar, even though the Swedish economy has developed more strongly compared to other countries.

One challenging factor for many companies during the year has been the shortage of components and the disruptions to various supply chains. This situation has gradually improved, and some companies now assert that these problems are virtually at an end. As a result, prices for various input goods have now begun to fall.

Share price trends

The closing price for Svolder's Class B share on the balance sheet date was SEK 56.90, which corresponds to an increase during the financial year of 7.0 per cent, including reinvested dividend. The Class B share's value on the closing day represented a premium of 11.0 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 130,000 shares traded each day of trading on Nasdaq Stockholm.

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