13 January 2016
CRYSTAL AMBER FUND LIMITED
(“Crystal Amber Fund” or the “Fund”)
Monthly Net Asset Value and Interim Dividend Declaration
Crystal Amber Fund announces that its unaudited net asset value (“NAV”) per share on 31 December 2015 was 155.90p (30 November 2015: 159.75p per share).
The proportion of the Fund’s NAV at 31 December 2015 represented by the ten largest holdings, other investments and cash (including accruals), was as follows:
|Top ten holdings
||Pence per share
||Percentage of investee equity held
|STV Group plc
|Dart Group plc
|Leaf Clean Energy Co.
|Pinewood Group plc
|Hurricane Energy plc
|Sutton Harbour Holdings plc
|Coats Group plc
|NBNK Investments Plc
|Total of ten largest holdings
|Cash and accruals
Investment Adviser’s commentary on the portfolio
Over the quarter to 31 December 2015, NAV per share declined by 5.9 per cent. Over the calendar year, NAV per share has increased by 2.1 per cent or 3.7 per cent adjusting for the 2.5p dividend paid.
The top three positive contributors to NAV growth over the quarter to 31 December 2015 were Dart Group plc (1.7 per cent contribution), STV Group plc (1.7 per cent) and Pinewood Group plc (0.2 per cent). The three main detractors were Hurricane Energy plc (-3.3 per cent), Tribal Group plc (-2.6 per cent) and Johnston Press plc (-0.5 per cent).
Grainger plc (“Grainger”)
Over the period, Grainger announced the sale of its stake in a German joint venture and its intention to sell its wholly-owned German portfolio. Following the period, Grainger also announced the sale of its FCA regulated Equity Release division. The Fund welcomes those disposals.
Since engaging with Grainger, we have urged the company to focus on streamlining the business, to reduce its debt and to significantly cut its administration costs. In July 2015, we requested a strategic review. On 28 January 2016 Grainger is due to report the outcome of its strategic review. The sale of the Equity Release division will further reduce both the level and the cost of debt as Grainger was paying 6.9 per cent on the debt being transferred to the acquirer against a group average of 4.6 per cent.
In the year to 30 September 2015, Grainger’s administrative and other expenses were £41.7 million. We regard such a cost base as excessive both in comparison to its net asset value of £1.3 billion and to the expenses ratios of similar businesses such as Mountview Estates plc (“Mountview”). Grainger’s annual cost ratio at 3.1 per cent compares to 1.9 per cent at Mountview.
As well as trading at a 26 per cent discount to net asset value, Grainger’s net asset value excludes the £507 million (121p a share) of reversionary surpluses which will be crystallised when properties are sold on vacancy. This off balance sheet asset assumes no house price inflation.
We believe that the sale of the Equity Release division makes the business simpler and more attractive to an acquirer. In November 2015, we wrote to the company requesting that the interests of Grainger’s new CEO be aligned with those of shareholders in the event of an offer for the company. At present, this is not the case.
Pinewood Group plc (“Pinewood”)
Despite a very favourable release schedule backdrop including both Spectre and Star Wars Episode VII-The Force Awakens, which resulted in a 20 per cent increase in media services revenue to £32.5m, group profit after tax rose by just £0.5 million in the first half, even assisted by a £0.2m reduction in losses at its media investment division.
The Fund believes that profitability remains well below potential as the business is not efficiently run and maintains excessive administration and management costs. The Fund commissioned its own analysis from industry experts which concluded that operating profits at Pinewood could be increased by more than 50 per cent.
On 2 December 2015, the Investment Adviser met with Pinewood’s Chief Executive Ivan Dunleavy. Mr Dunleavy was unable to provide a breakdown of the activities of 102 staff (out of a total of 222 employees excluding 17 in management). The Investment Adviser then proposed to Pinewood that it would pay for management consultants to carry out work at Pinewood in order to provide recommendations to improve profitability. Last week, Pinewood responded to the proposal and rejected it. The Fund is baffled by management’s obstructive and unhelpful approach.
The Fund believes that key management is simply not aligned with shareholders’ interests. Despite being Chairman and Chief Executive respectively since 2000, Lord Grade and Ivan Dunleavy own only 17,500 shares and 177,884 shares respectively, representing 0.34 per cent of Pinewood’s issued share capital. The Fund notes that Lord Grade sold shares at IPO which were granted at nominal value and that until the exercise of long term incentive shares in the last financial year, Ivan Dunleavy was not a shareholder in Pinewood. In the last financial year, Ivan Dunleavy was paid £1.46 million, including long term incentive shares. Lord Grade was paid £105,000.
The Fund now proposes to share its commissioned analysis directly with the owners of the business.
Leaf Clean Energy Co. (“Leaf “)
In December 2015, Leaf’s main investee company, Invenergy Wind, completed a disposal of assets to Terraform Energy. Leaf has opposed the transaction and filed a complaint seeking payment by Invenergy to Leaf of US$126.0 million. Leaf’s 2.3 per cent stake in Invenergy is valued at $95 million, which represents 55p a share. Leaf’s current share price is 37p.
Hurricane Energy plc (“Hurricane Energy”))
Oil prices continued to move lower over the quarter as did Hurricane Energy’s share price. The company continues to make progress towards farming out and announced the subdivision of the license containing the Lancaster discovery. This will increase the flexibility of the company to farm down the asset. Despite a very unfavourable oil price environment, the Fund continues to believe in the store of value at Hurricane Energy.
Tribal Group (“Tribal”)
In March 2015, the Fund reduced its holding in Tribal at 176p per share. In October 2015, Tribal issued a profit warning, citing lengthening procurement cycles with its university customers. A working capital outflow contributed to higher net debt. The Fund then increased its holding to 6.4 per cent of Tribal’s issued share capital paying 67p a share.
In December 2015, Tribal issued a further warning and announced an underwritten rights issue. A new chairman has been appointed. He intends to streamline the business, reduce costs and appoint a new CEO.
The size and pricing of the rights issue will be determined after the company has reported its 2015 results. The current hiatus has contributed in a substantial fall in Tribal’s share price: the current market capitalisation is £22 million.
The Fund’s holding in Tribal represents less than one per cent of its net asset value.
Transaction in shares
During the quarter, the Fund sold 295,000 from Treasury at an average of 171.56p a share. These shares were purchased in prior periods at an average price of 146p a share.
The Board has declared an interim dividend of 2.5p per ordinary share in respect of the half year ended 31 December 2015. The dividend will be paid on 19 February 2016 to shareholders on the register (the record date) on 22 January 2016. The shares will be quoted ex-dividend on 21 January 2016.
For further enquiries please contact:
Crystal Amber Fund Limited
William Collins (Chairman)
Tel: 01481 716 000
Sanlam Securities UK Limited - Nominated Adviser
David Worlidge/James Thomas
Tel: 020 7628 2200
Numis Securities Limited - Broker
Nathan Brown/Hugh Jonathan
Tel: 020 7260 1426
Crystal Amber Advisers (UK) LLP – Investment Adviser
Tel: 020 7478 9080