Formulafirst : Halbjahresbericht 06/2021

Formulafirst Ltd.

Incorporated in Tortola, British Virgin Islands

Interim Financial Report 2021, six months ended 30 June 2021

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 30.06.2021
Share price:	CHF 34.00
Year High:	CHF 34.60
Year Low:	CHF 31.00
NAV per share:	CHF 34.24
Discount share price vs. NAV:	0.70%
Performance Ytd:	7.00%
Total market capitalization:	CHF 13,455,602
Net Asset Value (NAV):	CHF 13,551,767
Liquid funds:	CHF 880,062
	(6.49%)
Number of outstanding shares:	395,753

DEVELOPMENT OF NET ASSET VALUE FIRST HALF OF 2021

CHF

35.5

35

34.5

34

33.5

33

32.5

32

31.5

31

04/01/21

11/01/21

18/01/21

25/01/21

01/02/21

08/02/21

15/02/21

22/02/21

01/03/21

08/03/21

15/03/21

22/03/21

29/03/21

05/04/21

12/04/21

19/04/21

26/04/21

03/05/21

10/05/21

17/05/21

24/05/21

31/05/21

07/06/21

14/06/21

21/06/21

28/06/21

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

AT A GLANCE

INTERIM FINANCIAL REPORT 2021

2

CONTENTS

4-7 LETTER TO SHAREHOLDERS

1. OUTLOOK FOR THE SECOND HALF OF 2021
2. 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

12-35 FINANCIAL INFORMATION

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

16-35 Notes to the Financial Statements

36 SHAREHOLDERS' INFORMATION

3

INTERIM FINANCIAL REPORT 2021

CONTENTS

DEAR SHAREHOLDERS

The new year started with plenty of fireworks, mostly in Washington. The violent attack on the U.S. Capitol was to no avail. Just hours before the Capitol was breached, it was announced that the Democratic candidates had won both Senate seats in Georgia's runoff elections, giving the president-elect's party control over both chambers of Congress. Contrary to expectations, this perfect Blue Wave did not rattle financial markets. The Biden administration's USD 1.9 trillion stimulus proposal was cheered by Wall Street. And markets took a sanguine view of negative news flow about coronavirus mutations and extended or tougher anti-pandemic measures. Global stock markets lost some ground in late January but bounced back quickly in early February, buoyed by growing hope that the initially slow pace of vaccinations would shift into a high gear and that a strong economic recovery was on the horizon. In mid-February investor attention turned to rising yields at the long end of the curve. The yield on 10-year U.S. Treasuries matched the S&P 500's dividend yield. Fear of rising inflation rates and higher interest rates hit tech stocks the hardest and caused a spike in volatility during the final days of February. Fed Chairman Powell was able to calm the market. He played down the threat of inflation and pledged powerful support for the US economy. Despite the upward creep in US capital market rates, major stock markets advanced to new highs in March. Investors viewed the upturn in bond yields as an indicator of positive economic activity. After a meeting of its Governing Council, the European Central Bank announced it would significantly increase the pace of its weekly securities purchases during the second quarter to prevent an undesired increase in interest rates. A few days after that announcement, the US central bank confirmed its expansive monetary policy and said it would keep its key lending rate near zero for at least two more years. Chairman Jerome Powell dismissed concern about higher inflation, stating that the recent increase in prices was only transitory. The collapse of hedge fund Archegos and supply chain finance specialist Greensill Capital did not faze the financial markets. Global stock markets sustained their upward trend in April. Major indexes set new record highs. Investor confidence was mostly buoyed by good economic data from the US. Retail sales in March surged nearly 10% month-on-month, for example, well ahead of expectations. Bullish sentiment was also fueled by loose monetary policy combined with vast economic stimulus programs in various countries. President Biden's plans to nearly double the capital gains tax for wealthier households irritated markets only briefly. Markets corrected in May after the release of US inflation data. The sharp increase in inflation is attributed to a low comparison base, a surge in demand as the economy reopened and supply bottlenecks for many goods. That shock was quickly overcome as consensus sided with the Fed's view that the surge in inflation would be an only temporary phenomenon. The bull market showed no signs of weakening in June and markets rose to new record highs. US inflation data stood at 5% in May, once again well above expectations and reaching a peak not seen since August 2008. This didn't bother stock markets and US Treasury yields actually declined. Fed chairman Powell pointed out once again that the surge in prices was only temporary and largely attributable to the broader reopening of the economy.

Formulafirst Ltd. advanced early in the year and NAV* topped CHF 33 by mid February. A general market downturn due to fears of higher inflation subsequently led a temporary dip in NAV to CHF 31. Investors eventually viewed the rise in bond yields as an indicator of positive economic developments, leading to a renewed increase in NAV towards CHF 33 by the end of March. In April and May NAV traded within a range from just over CHF 33 to slightly more than CHF 34. In June, NAV traded between CHF 34 and CHF 35 as long-term yields receded.

As the strong economic recovery should continue into 2022 and the Fed is continuing to stand pat, the "reflation trade" should dominate, along with rising commodity and equity prices. Vaccination activity in Europe has caught up and Covid-19 cases are falling rapidly. This will lead to an accelerated economic recovery in Europe. Therefore, the growth focus may shift from the U.S. to the Eurozone. This argues for exposure to Eurozone assets. All the more so as an acceleration of growth in the Eurozone strengthens the pro-cyclical Euro currency.

• The method used to calculate the Net Asset Value (NAV) of Formulafirst Ltd. depicted above does not differ from the method used in the annual and half-year reports. NAV is depicted on a per-share basis.

LETTER TO SHAREHOLDERS

INTERIM FINANCIAL REPORT 2021

4

DEAR SHAREHOLDERS - CONTINUED

Protecting portfolio assets from very expansive central bank and government fiscal policies is only possible by maintaining or increasing equity allocations. The tremendous boost that monetary and fiscal policy has given the economy has sparked a very sudden global recovery and a corresponding strong rebound in company earnings. The stock market's advance is well underpinned then. Record-low interest rates also remain an argument for equity investments.

The portfolio's exposure to the euro remained fully hedged because of the potential currency weakness arising from the ECB's very loose monetary policy, slow Eurozone growth and persisting uncertainties in Italy.

The net asset value per share of Formulafirst Ltd. increased by 7.00 % during the period under review (-13.18% in the first half of 2020) and closed the first half of 2021 at CHF 34.24 (end of June 2020 at CHF 26.87).

The stocks selected from our investment universe for Formulafirst Ltd. (companies belonging to the Smart Owners­ ­Index) delivered a very strong outperformance compared to the Smart Owners Index (consisting of 50 owner-­managed companies).

190

170

150

130

110

90

70

NAV Formulafirst Ltd.

50

Smart Owners Index

30

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Jan 14

Jan 15

Jan 16

Jan 17

Jan 18

Jan 19

Jan 20

Jan 21

5

INTERIM FINANCIAL REPORT 2021

LETTER TO SHAREHOLDERS