Exelity Monthly Report – April 2023

The net return for Exelity during the month of April amounted to +0.1 %, which means that the net return so far this year adds up to a total of +5.3 %, to be compared with the goal of at least 10% annually. The return from financial transactions during the month amounted to +1.5 % in relation to the fund's total current asset mass (AUM), of which 0.9 % from guarantee compensation and 0.6 % from interest. The high and continuously stable return from the transactions explains why we work hard to increase this exposure. Future income during the year from existing loans and guarantees respectively amounts to 3.1 % and 1.3 % in relation to AUM. We continue to receive many requests for guarantees, but the appetite for risk in the market is generally low and the terms are usually not attractive enough, given Exelity's high demands. A significant part of our pipeline has therefore not materialized, but we have nevertheless entered into four new guarantee agreements during the period for a total of 16% of AUM. We can particularly highlight a major warranty deal in Starbreeze, a company we have followed for a long time. If we are allowed to subscribe for shares in the Starbreeze issue, it gives us a great opportunity to get in cheaply before the company's long-awaited release of the game Payday 3.

After disbursed tranches on existing loans, the loan exposure rose by two percentage points to 33 %, which is excluding a new larger credit commitment where the agreement is structured so that the credit facility constitutes a Plan B in which the borrower in the main scenario seeks alternative financing. If the credit commitment is not used as planned, this means that we receive the set-up fee without lending a single kroner. However, we are dissatisfied that we still have not reached a conclusion with our outstanding loan discussions, and in particular the negotiations concerning larger loans. During April, we expect early repayment of some of our larger loans, and thus new attractive loan deals become an extra important priority.

The listed portfolio performed weakly in April (-1.6 %), caused by price declines in Biovica, Upsales and Smart Eye as well as a failed trading position in Enea ahead of the Q1 report. Smart Eye, where market confidence was already low after the issue, suffered a double blow after the change of CFO and the new competitor Tobii winning a deal, but none of this has affected our basic view of the investment case. In Biovica's case, it is likely the lack of news about the commercialization in the US that has caused the stock market to lose patience. We return to Upsales below.

A smaller percentage of the portfolio has reported, with mixed results. Brødrene A & O Johansen (AOJ), where we believe that the stock market overestimates the cyclical sensitivity of the company, reported in line with expectations. However, the stock traded down 5 % on the report's outlook for an uncertain second half of the year, but the company has a long history of keeping expectations down and over-delivering on them. Our largest holding CTT came in with a strong report with sales growth of 53 %, driven by the recovery of the OEM business, growing 85 %. Like AOJ, CTT has a tendency to be restrained in its reports, but the comments in the CEO's speech in the Q1 report were very forward-looking and thus, together with the strong guidance, represent an interesting change in tone. In closing, Upsales traded down -18 % during the month after the company failed to grow its ARR numbers for the first time in 20 years, which coincided with the company's CEO needing to sell 15 % of his holdings. After closer analysis of the situation, our conclusion is that Q1 is just a speed bump for Upsales.

May's increase in guarantee commitments from 10 % to 26 % of AUM is satisfactory. We assess that we have every opportunity to make a corresponding shift within the loans.