Half Yearly Report

RNS Number : 2315C

Crystal Amber Fund Limited

03 March 2011

 



3 March 2011

Crystal Amber Fund Limited

(the 'Fund' or the 'Company')

Interim results for the six months ended 31 December 2010

The Company announces its interim results for the six months ended 31 December 2010.

Highlights:

·      Continued policy of constructive activism

·      The Company has been actively involved in the refinancing at JJB Sports plc ("JJB") and has secured board representation

·      Share price weakness of JJB has affected Net Asset Value (NAV)

·      Gains in value for several of the Company's other large holdings

·      Bid approaches for the private equity portfolio of Trading Emissions PLC and, since January 2011 for JJB and Omega Insurance Holdings Limited ("Omega")

·      Since the period end significant uplift in the share price of PayPoint plc ("PayPoint").

"In the six months to the end of 2010 we have continued to pursue our policy of constructive activism, especially in respect of JJB. Clearly the issues affecting JJB have become more challenging, but we remain convinced that there is potential, which is why we played a leading role in discussions leading up to its recent fundraising and board changes. Although our NAV decline, principally due to JJB's share price weakness, is disappointing, that fall has been offset to some extent by better news elsewhere in the portfolio. Since the period end there has been a significant uplift in the share price of PayPoint, the Company's second largest holding."

William Collins, Chairman

Enquiries

Crystal Amber Fund Limited
William Collins - Chairman	Tel: [phone]
Merchant Securities Limited
Bidhi Bhoma/David Worlidge	Tel: [phone]

CHAIRMAN'S STATEMENT

I hereby present the interim results of Crystal Amber Fund Limited ("the Company" or "the Fund"), covering the six month period to 31 December 2010 ("the period").

Net asset value ("NAV") fell from £69.3 million (115.50p per share) at 30 June 2010 to an unaudited £61.1 million (101.92p per share) at 31 December 2010.  Although the NAV has grown since the initial level of 95p per share after flotation, the Fund's performance over the period has clearly been disappointing. This is principally due to the fall in the share price of JJB.

We have been very active in respect of JJB, culminating in the announcement by JJB just before Christmas of the intention to raise £31.5 million via a placing. During the period, we pressed JJB's management, led by chief executive Keith Jones, to push through operational improvements. However, the depth of legacy issues, combined with poor weather and fragile consumer demand among its core customer base, have lengthened the recovery timeframe for JJB.  Subsequently on 2 February 2011 JJB announced the terms of a placing and open offer to raise £31.5 million, of which the Fund committed to subscribe for up to £4.5 million. Following the placing, open offer and share consolidation the Fund held 20,265,338 shares in JJB representing 15.7 per cent of the issued share capital. JJB intends to seek further company voluntary arrangements in relation to the leases on its properties as a key part of its recovery plan. We believe that the new board led by Mike McTighe, a turnaround specialist, together with representatives of shareholders - including the Company - can help to put JJB's turnaround on track and deliver value for shareholders. The bid approach from JD Sports plc disclosed in February 2011 suggests that rival retailers see the recovery potential of the business.

Elsewhere, we are encouraged by the successful outcomes we have already delivered for shareholders and remain committed to delivering value from all companies in the portfolio.  Profits in excess of £0.5 million were realised during the period, mainly on the Fund's holding in Ashtead Group plc and part of the holding in Devro plc. We note that bid or partial bid approaches have been made since the period end to Omega Insurance Holdings Limited and Trading Emissions PLC, two of our top five holdings. Since the period end there has also been a significant uplift in the share price of PayPoint plc, the Company's second largest holding.

Although the international economic outlook has improved it remains fragile, and whilst stock markets have gained ground, the Fund's target area UK mid-cap companies still face many challenges. While this can pose problems for the portfolio companies, it also offers opportunities for us.

The Fund was fully invested for much of the period, although the successful realisation of investments enabled it to maintain a healthy cash position by the end of the period.

At 31 December 2010, equity holdings represented 93 per cent of total assets, and cash and liquid resources were in excess of £4.4 million.

We continue to believe that our strategy is sound; it is to identify undervalued companies and engage with boards and management to help them generate better returns for shareholders.

William Collins

Chairman

INVESTMENT MANAGER'S REPORT

Economic and market conditions improved during the second half of 2010 but the improvement remained fragile and markets remained volatile.

For the Fund, this has been a period of intensified activism with the companies which comprise the core holdings of the portfolio. Sustained efforts have been, and continue to be made to improve the performance of these companies in particular.

The Fund's NAV was 115.5p per share on 30 June 2010. Having risen to 116.72p per share on 30 August, it fell to 99.90p on 30 November, then rose to 101.92p per share on 31 December 2010. The decline over the period was largely due to the weakness of JJB's share price, discussed in more detail below.

Top five holdings at 31 December 2010

	£m	% of equity portfolio	Pence per share of net assets
Pinewood Shepperton plc	18.2	32.1	30.3
Paypoint plc	10.3	18.2	17.2
Omega Insurance Holdings Ltd	7.5	13.3	12.5
JJB Sports plc	4.9	8.7	8.2
Trading Emissions plc	4.3	7.6	7.2

The top five holdings listed above comprised 79.8 per cent of the total equity portfolio at 31 December 2010 and the top eight holdings comprised 92.8 per cent.

Pinewood Shepperton plc ("Pinewood")

At 31 December 2010 the Fund held 27.3 per cent of Pinewood at a cost of £16.9 million and was the largest shareholder. The value of the holding at 31 December 2010 was £18.2 million. Pinewood's application to develop its "Project Pinewood" site, which would be an important centre for film and creative industries in Britain, will be the subject of a public hearing in April 2011.

In August 2010, Pinewood reported results for the six months to 30 June 2010. Revenues, operating profits and basic earnings per share fell compared to the corresponding period of 2009. Although Pinewood said that revenues for the full year should be better than expected, we remain of the view that the full potential of the company's assets is not being achieved.

We have engaged repeatedly with the board and management of Pinewood, urging it to improve the transparency of its reporting, to clarify the value of its assets and to strengthen the board. At the Pinewood annual general meeting we took the unusual step for the Fund of publicly calling for the resignation of the chairman.  Although progress in forcing through change has been slower than we would have liked, we remain determined to ensure that the company is run in the interests of shareholders. We believe there is scope for significant operational improvements and anticipate progress in this and in the release of latent value.

JJB Sports plc ("JJB")

The Fund's activism has been particularly marked in respect of JJB, whose performance has obviously been disappointing. We believe that the slow pace of operational improvements and a delay in pursuing equity funding were the drivers behind a 63 per cent fall in the JJB share price over the period.

Throughout the period, the Fund engaged increasingly with JJB's management.  On 24 December 2010 this culminated in JJB announcing measures to strengthen its short-term financing and its board, including a proposed £31.5 million capital raising, the appointment of a new chairman, Mike McTighe, and a new finance director who has a retail background. These measures were supported by key shareholders and the Fund was actively involved in the discussions to secure the funding and in the negotiations on the terms. The Fund has committed to subscribe for up to £4.5 million in the fundraising. Subscribers in the capital raising receive warrants to subscribe for JJB shares for the next three years at the lower of 5p and the prevailing share price. Importantly for the Fund, the number of warrants is linked to the number of shares in issue at the time of exercise, and the Fund's entitlement is equivalent to 2.7 per cent of the shares in issue. JJB has also agreed to invite appointees of certain investors, including the Fund, to join the board. In addition JJB agreed to pay the Fund a fee of £580,000 (payable in shares) for introducing a new shareholder.

At 31 December 2010, the Fund held 15.8 per cent of JJB at a cost of £23.2 million and was the second largest shareholder. The value of the holding was £4.9 million, equivalent to 8.2p of the Fund's NAV per share.  Profits of £4.6 million have been taken on JJB in previous periods.

Following JJB's placing, open offer and share consolidation the Fund held 20,265,338 shares on 21 February 2011, representing 15.7 per cent of the issued share capital. The board of JJB has made clear that a significant restructuring of the business and the property portfolio will be required, and has announced plans to implement a company voluntary arrangement involving the compromise and release of certain liabilities owed by JJB to its landlords. We still believe that JJB has strong turnaround potential and that we will have greater opportunities to help drive that recovery by taking a seat on the board.

PayPoint plc ("PayPoint")

At 31 December 2010 the Fund held 4.3 per cent of PayPoint at a cost of £9.1 million, and the value of the holding was £10.3 million, following the realisation of profits of £0.06 million.  PayPoint is a specialist payments company with a network of more than 28,000 terminals in the UK, Ireland and Eastern Europe, a growing internet and mobile phone payments business, a parcel delivery operation, and new payment services. In November 2010 PayPoint reported a 5.4 per cent rise in pretax profits for the six months to 30 September 2010, with dividends up five per cent to 7.8p. It is making encouraging progress in moving its newer services toward profitability.

The main short term threat to PayPoint was Camelot's effort to use lottery terminals for bill payments.  Though this was provisionally rejected by the National Lottery Commission ("NLC"), Camelot's efforts to pursue this strategy continued. The NLC's recent ruling has led to a significant appreciation in Paypoint's share price.

PayPoint continues to expand into new services, enabling it to meet the growing demand for telephone payment services, such as payment for parking, where it has won business from leading UK local authorities. Internet payment transactions rose by 33 per cent in the six months to 30 September 2010. It has also launched a cash refund payments scheme in the UK.  Following strong share price appreciation, further profits were taken on part of the Fund's holding.

Omega Insurance Holdings Limited ("Omega")

At 31 December 2010 the Fund held 3.2 per cent of Omega at a cost of £7.8 million and the value was £7.5 million. Omega is a Lloyd's insurer and reinsurer focusing on diversified, short-tail property risks and on small to medium sized companies. The Fund invested following the appointment of a new chairman and chief executive and has engaged with the new management.

Omega is debt free and has a good underwriting track record and a progressive dividend policy. In our view, the shares have been undervalued in a sector where consolidation continues, as seen in the recent bid for Brit Insurance and approach for Hardy Underwriting. On 10 January 2011 Omega disclosed an approach from Canopius Group Limited proposing an offer comprising a mixture of cash and unquoted shares. Omega's directors said that, while any approach which might be in shareholders' interest would be considered, they would continue to build the business. Following the approach, the value of the Fund's holding has risen to £8.1 million.

Trading Emissions PLC ("TRE")

At 31 December 2010, the Fund held 1.8 per cent of TRE at a cost of £4.2 million and the value was £4.3 million. Essentially, the value of TRE rests on its cash, its portfolio of carbon credits and its private equity projects - biofuels, biodiesel and carbon credit-generating schemes across the world. At 30 June 2010 it reported net asset value, adjusted for deferred advisory fees, of 146.77 pence per share.

Following pressure from shareholders, TRE's board ordered a controlled realisation programme to optimise the cash value of its assets. Its investment adviser is incentivised by a performance fee triggered if realisations reach between 150p and 230p per share.

Delays and political uncertainty have held up progress toward a global market in carbon trading, and may also affect the value of carbon credit generating projects.

In November 2010, TRE disclosed it had received an approach to purchase its private equity portfolio. In January 2011, it announced that it had received several expressions of interest in the portfolio, and also in its carbon portfolio. The TRE board made clear that it would consider an offer for the entire business if this would realise more value for shareholders than its own realisation programme.  Following these developments, profits were taken on part of the Fund's holding.

Other holdings

The Fund disclosed a 2.99 per cent holding in Tribal Group plc, the public sector outsourcing consultant, in December 2010 following the receipt of a takeover approach for the company. Seventy five per cent of the position was purchased in November 2010 at 30 pence per share.  At 31 December 2010 the cost of the holding was £1.2 million and the value was £1.3 million.

At 31 December 2010 the Fund held 11.2 per cent of Sutton Harbour Holdings ("SUH") at a cost of £2.8 million and the value was £2.5 million. SUH owns quayside properties and a marina in Plymouth in addition to other property interests in Wales and the South West. In December 2010 SUH reported first half losses of £9.2 million, including an £8.6m loss on disposal of its airline business, and axed its interim dividend. Net assets fell to 53p per share from 68p in March 2010. We have made it clear to management that this is unsustainable and that visible improvements in performance are necessary.

Engagement
The Fund's brief is to engage with investee companies and to promote active steps to correct undervaluation, thereby realising value.

In accordance with this brief, we have engaged intensely with the companies which represent the major holdings in the portfolio. We are pleased that many of our suggestions and ideas have been welcomed constructively by the investee companies' managers and boards. Where this is not the case, we seek alternative routes to deliver for all shareholders in investee companies.

Outlook
The economic outlook for the UK is more encouraging than a year ago but clear dangers remain in the uncertainty surrounding the eurozone, the negative effect of public spending cuts at a time when growth is fragile, and the persistence of inflation.

We are determined to continue the drive to realise value. Although there are clearly difficulties to overcome, we remain confident that our strategy will deliver good returns for shareholders.

 

Crystal Amber Asset Management (Guernsey) Limited

Investment Manager

Condensed Statement of Comprehensive Income (Unaudited)

For the six months ended 31 December 2010

 

		Six months ended 31 December				Six months ended 31 December
		2010				2009
		Revenue	Capital	Total		Revenue	Capital	Total
	Notes	£	£	£		£	£	£
Income
Dividend income from listed investments		1,013,756	-	1,013,756		800,663	-	800,663
Interest income from UK Government securities		-	-	-		492,678	-	492,678
Fixed deposit interest		5,506	-	5,506		17,147	-	17,147
Bank interest		3,837	-	3,837		8	-	8
		1,023,099	-	1,023,099		1,310,496	-	1,310,496
Net gains on financial assets at fair value through profit or loss
Realised gain	4	-	883,693	883,693		-	6,203,171	6,203,171
Movement in unrealised loss	4	-	(9,105,187)	(9,105,187)		-	(800,517)	(800,517)
Total income		1,023,099	(8,221,494)	(7,198,395)		1,310,496	5,402,654	6,713,150
Expenses
Transaction costs		-	91,302	91,302		-	114,812	114,812
Management fees		682,764	-	682,764		711,113	-	711,113
Performance fees		-	-	-		-	187,610	187,610
Directors' fees		47,500	-	47,500		47,500	-	47,500
Administration fees		38,454	-	38,454		37,500	-	37,500
Custodian fees		15,553	-	15,553		19,541	-	19,541
Audit fees		8,988	-	8,988		8,560	-	8,560
Other expenses		62,619	-	62,619		41,021	-	41,021
		855,878	91,302	947,180		865,235	302,422	1,167,657
Return/(loss) for the period		167,221	(8,312,796)	(8,145,575)		445,261	5,100,232	5,545,493
Basic and diluted earnings/(loss) per share (pence)	2	0.28	(13.85)	(13.57)		0.74	8.50	9.24

 

Condensed Statement of Financial Position (Unaudited)

As at 31 December 2010

		As at		As at		As at
		31 December		30 June		31 December
		2010		2010		2009
		(Unaudited)		(Audited)		(Unaudited)
ASSETS	Notes	£		£		£
Cash and cash equivalents		4,459,954		12,419,482		23,668,734
Trade and other receivables		63,976		1,015,805		172,752
Financial assets designated at fair value through profit or loss	4	56,695,250		56,557,754		50,808,022
Total assets		61,219,180		69,993,041		74,649,508
LIABILITIES
Trade and other payables		66,256		694,542		579,008
Total liabilities		66,256		694,542		579,008
EQUITY
Capital and reserves attributable to the Company's equity shareholders
Share capital		600,000		600,000		600,000
Distributable reserve		56,447,261		56,447,261		56,447,261
Retained earnings		4,105,663		12,251,238		17,023,239
Total equity		61,152,924		69,298,499		74,070,500
Total liabilities and equity		61,219,180		69,993,041		74,649,508
Net asset value per share (pence)	3	101.92		115.50		123.45

Condensed Statement of Changes in Equity (Unaudited)

for the six months ended 31 December 2010

		Share	Distributable	Retained earnings			Total
	Notes	Capital	Reserve	Capital	Revenue	Total	Equity
		£	£	£	£	£	£
Opening balance at 1 July 2010		600,000	56,447,261	11,073,859	1,177,379	12,251,238	69,298,499
Net realised gains on investments	4	-	-	883,693	-	883,693	883,693
Net unrealised losses on investments	4	-	-	(9,105,187)	-	(9,105,187)	(9,105,187)
Revenue profit for the period		-	-	-	167,221	167,221	167,221
Transaction costs		-	-	(91,302)	-	(91,302)	(91,302)
Balance at 31 December 2010		600,000	56,447,261	2,761,063	1,344,600	4,105,663	61,152,924
		Share	Distributable	Retained earnings			Total
	Notes	Capital	Reserve	Capital	Revenue	Total	Equity
		£	£	£	£	£	£
Opening balance at 1 July 2009		600,000	56,447,261	10,929,368	548,378	11,477,746	68,525,007
Net realised gains on investments	4	-	-	6,203,171	-	6,203,171	6,203,171
Net unrealised losses on investments	4	-	-	(800,517)	-	(800,517)	(800,517)
Revenue profit for the period		-	-	-	445,261	445,261	445,261
Transaction costs		-	-	(114,812)	-	(114,812)	(114,812)
Performance fees		-	-	(187,610)	-	(187,610)	(187,610)
Balance at 31 December 2009		600,000	56,447,261	16,029,600	993,639	17,023,239	74,070,500

Condensed Statement of Cash Flows (Unaudited)

for the six months ended 31 December 2010

 

 

		Six months		Six months
		ended		ended
		31 December		31 December
		2010		2009
		£		£
Cashflows from operating activities
Dividend income received from listed investments		1,665,445		853,732
Interest income received from UK Government securities		-		563,500
Fixed deposit interest received		8,139		12,008
Bank interest received		3,837		1,050
Management fees paid		(682,764)		(711,113)
Performance fee paid		-		(1,040,581)
Directors' fees paid		(47,500)		(47,500)
Other expenses paid		(181,200)		(105,650)
Net cash inflow/(outflow) from operating activities		765,957		(474,554)
Cashflows from investing activities
Purchase of investments		(13,109,670)		(30,687,726)
Sale of investments		4,475,487		42,717,094
Transaction charges on purchase and sale of investments		(91,302)		(114,812)
Net cash (outflow)/inflow from investing activities		(8,725,485)		11,914,556
Net (decrease)/increase in cash and cash equivalents during the period		(7,959,528)		11,440,002
Cash and cash equivalents at beginning of period		12,419,482		12,228,732
Cash and cash equivalents at end of period		4,459,954		23,668,734

 

Notes to the Unaudited Condensed Financial Statements

for the six months ended 31 December 2010

General Information

Crystal Amber Fund Limited is a closed-ended company incorporated and registered in Guernsey on 22 June 2007 under the Companies (Guernsey) Law, 1994 which has been superseded by the Companies (Guernsey) Law 2008.  The address of the registered office is given on page 3.  The Company has been established to provide shareholders with an attractive total return which is expected to comprise primarily capital growth but with the potential for distributions.  The Company will achieve this through the investment in a concentrated portfolio of undervalued companies which are expected to be predominantly, but not exclusively, listed or quoted on UK markets and which have a typical market capitalisation of between £100 million and £1,000 million.  The Company was listed and admitted to trading on AIM, the market of that name operated by the London Stock Exchange on 17 June 2008. The Company was also listed on the CISX on 17 June 2008. The Company is also a member of the AIC.

1.  SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below.  These policies have been consistently applied throughout the current period, unless otherwise stated.

Basis of preparation

The interim financial statements have been prepared in accordance with the International Accounting Standard ("IAS") 34, Interim Financial Reporting.

The interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company's annual financial statements for the year to 30 June 2010. The annual financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").

The same accounting policies and methods of computation are followed in the interim financial statements as in the annual financial statements for the year ended 30 June 2010.

The presentation of the interim financial statements is consistent with the annual financial statements.  Where presentational guidance set out in the Statement of Recommended Practice ("SORP") for Investment Trusts issued by the AIC in January 2003 (revised December 2005) is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.  In particular, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the total Statement of Comprehensive Income.

The Company does not operate in an industry where significant or cyclical variations as a result of seasonal activity are experienced during the financial year.  Income and dividends from investments will vary according to the construction of the portfolio from time to time.

Segmental reporting

The Board has considered the requirements of IFRS 8 'Operating Segments', and is of the view that the Company is domiciled in Guernsey and is engaged in a single segment of business, being UK equity instruments.  The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company. The key measure of performance used by the Board to assess the Company's performance and to allocate resources is the total return on the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in these financial statements.

2.  BASIC AND DILUTED (LOSS)/EARNINGS PER SHARE

 

Basic and diluted earnings per share is based on the following data:

				Six months		Six months
				ended		ended
				31 December		31 December
				2010		2009
(Loss)/return for the period				(£8,145,575)		£5,545,493
Average number of issued Ordinary Shares				60,000,000		60,000,000
Basic and diluted (loss)/earnings per share (pence)				(13.57)		9.24

3.  NET ASSET VALUE PER SHARE

Net asset value per share is based on the following data:

		As at		As at		As at
		31  December		30 June		31 December
		2010		2010		2009
		£		£		£
		(Unaudited)		(Audited)		(Unaudited)
Net asset value per balance sheet		£61,152,924		£69,298,499		£74,070,500
Number of Ordinary Shares outstanding		60,000,000		60,000,000		60,000,000
Net asset value per share (pence)		101.92		115.50		123.45

4.    FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

	1 July 2010 to		1 July 2009		1 July 2009 to
	31 December 2010		to 30 June 2010		31 December 2009
	(Unaudited)		(Audited)		(Unaudited)
	£		£		£
Equity investments - UK equity securities	56,695,250		56,557,754		50,808,022
	56,695,250		56,557,754		50,808,022
Cost brought forward	65,840,714		53,670,914		58,907,174
Purchases	12,508,668		78,023,962		29,305,334
Sales	(4,175,278)		(80,950,980)		(42,807,133)
Realised gain	883,693		15,096,818		6,203,171
Cost carried forward	75,057,797		65,840,714		51,608,546
Unrealised (losses)/gains brought forward	(9,247,423)		5,240,225		-
Movement in unrealised losses	(9,105,187)		(14,487,648)		(800,517)
Unrealised losses carried forward	(18,352,610)		(9,247,423)		(800,517)
Effect of exchange rate movements	(9,937)		(35,537)		(7)
Fair value	56,695,250		56,557,754		50,808,022

5.    RELATED PARTIES

Mark Huntley, director of the Company, is also a director of the Company's Administrator, Heritage International Fund Managers Limited, the CISX Listing Sponsor, Heritage Corporate Services Limited and the Investment Manager.  During the period the Company incurred administration fees of £38,454 (2009: £37,500) of which £20,176 (2009: £18,750) was outstanding at the period end. Mark Huntley also received a director's fee of £10,000 (2009: £10,000) of which £5,000 (2009: £5,000) was outstanding at the period end.

Richard Bernstein is a director of the Investment Manager, a member of the Investment Adviser and a holder of 800,000 Ordinary Shares, representing 1.33 per cent. (2009: 1 per cent.) of the issued share capital of the Company at the period end.  During the period the Company incurred management fees of £682,764 (2009: £711,113) all of which had been paid at period end. The Company also accrued performance fees of £Nil (2009: £187,610).

All related party transactions are carried out on an arm's length basis.

6.    POST BALANCE SHEET EVENTS

On 2 February 2011 the Company committed to subscribe up to £4.5 million in the planning and placing and open offer by JJB, 50 per cent. of which is subject to clawback by shareholders under the open offer.

At JJB's EGM on 18 February 2011 shareholders also approved the issue of 1,160,000 new shares to the Company as consideration for the introduction of a new shareholder. On 21 February 2011 JJB announced that, following the placing, open offer, and share consolidation, the Company held 20,265,338 shares in JJB, 15.7 per cent of the issued share capital.

On 7 February 2011 the Company reported that its unaudited NAV at 31 January 2011 was 102.29 pence per share.

7.  COPIES OF THE INTERIM REPORT

Copies of the Interim Report will be available to download from the Company's website www.crystalamber.com.

 

END

 

 

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