Crystal Amber Regulatory News (CRS)

25 January 2021 

CRYSTAL AMBER FUND LIMITED

("Crystal Amber Fund" or the "Fund")

Monthly Net Asset Value

Crystal Amber Fund announces that its unaudited net asset value ("NAV") per share at 31 December 2020 was 128.99 pence (30 Nov 2020: 133.96 pence per share). 

The proportion of the Fund's NAV at 31 December 2020 represented by the ten largest shareholdings, other investments and cash (including accruals), was as follows:

*Board Intelligence Ltd, GI Dynamics Inc. and Leaf Clean Energy Co are private companies and their shares are not listed on a stock exchange. Therefore, the percentage held is not disclosed.

**Within the percentage of investee company held in Allied Minds plc and De La Rue plc, contracts for difference were held amounting to 3.0% and 2.1%, respectively, of such holdings. The holdings in Camellia plc and Kenmare Resources plc are held on contracts for difference.

Investment Adviser's commentary on the portfolio

Over the quarter to 31 December 2020, NAV per share grew by 20.0%.

The top three positive contributors to NAV over the quarter to 31 December 2020 were De La Rue plc (11.8%), GI Dynamics Inc (4.8%) and Equals Group plc (2.1%). Top detractors were Hurricane Energy plc (-2.5%) and Allied Minds plc (-1.8%).

De La Rue plc ("De la Rue")

During the quarter, De La Rue released interim results for the six months to 30 September 2020. The company's turnaround plan is proceeding well. The Fund continues to believe that De La Rue enjoys a combination of strong competitive positions in high return businesses and attractive growth opportunities. It holds a 30% market share of global commercial banknote printing, which enables the Currency division to accelerate and fully capitalise on the structural shift towards polymer notes. The higher margin Authentication division is forecasted to generate revenues for the year to March 2022 of £100 million as against £68.5 million for the year to March 2020.

The Fund believes that De La Rue's current equity valuation of 11 times calendar 2021 forecast earnings does not reflect either its growth prospects or its operational upside. The Fund also believes that its strategic value is considerably in excess of its current market capitalisation.

Over the period, the De La Rue share price increased by 29.2%.

Allied Minds plc ("Allied Minds")

Following its initial investment in the fourth quarter of 2018, the Fund focused on securing a major reduction in the excessive parent company costs of Allied Minds: ongoing HQ expenses were running at an estimated US$17-20 million at the time. These have now been reduced to approximately $5.75 million per annum. In response to concerted pressure exerted by the Fund, Allied Minds ended its extraordinary practice of paying management 10% of gains arising from any successful individual investment, without taking account of the losses incurred on other investments in the portfolio (the "Phantom Plan"). 

In October 2020, Allied Minds released its interim results and referred to the "underlying strength of the portfolio". Spin Memory was described as "the preeminent MRAM IP provider […] transforming the semiconductor industry". Reassuringly, it was stated that "Spin Memory has made significant progress against its key operational objectives since its last funding round". Allied Minds'43% shareholding in Spin Memory, based on that last funding round, was valued at $77 million. This compares with its $44 million cash cost since 2006. In July 2020, Allied Minds invested a further $4 million into Spin Memory. Spin Memory's carrying value therefore comprised around 35% of net asset value. After 15 years, Spin Memory remains a "pre-revenue" business.

Following this update, the Fund held detailed discussions with the board of Allied Minds and expressed its concerns.

On 4 January 2021, Allied Minds announced that due to COVID-19, the required testing of Spin Memory's chip had been delayed for nearly nine months, that this delay had affected Spin Memory's ability to secure new customers and that as a result, this, coupled with an unexpected loss of a government bid in late Q4 2020, Spin Memory is now facing liquidity issues. The contemplated funding round is expected to be at a far lower valuation than its carrying value.

On 15 January 2021, Allied Minds announced that its Chief Executive had "decided to step down from the board with immediate effect." Going forward, the portfolio will be managed by the three non-executive directors. The Fund welcomes the streamlined management of the portfolio, in which three companies comprise more than 90% of the latest reported carrying value.

The Fund notes that the current 28p share price compares with an estimated 26p per share carrying value of the 36.6% holding in Federated Wireless together with parent company cash of 6p per share. Holdings in BridgeComm, Orbital Sidekicks, TableUp and Spark Insights are together valued at 12p per share. Whilst there is uncertainty as to the current value of the Spin Memory holding, the Fund estimates that at least 5p per share could be achievable. Overall, therefore, to trade at the Fund's estimated net asset value of Allied Minds, the share price would have to increase by 75%.

The Fund expects the Allied Minds board to proactively seek to realise the inherent value of the portfolio in a timely manner and return proceeds to shareholders. It should be open to any structure that could achieve this objective including, if considered appropriate, reversing Federated Wireless into a Special Purpose Acquisition Vehicle (SPAC).

Over the period, the share price of Allied Minds declined by 10%.

Hurricane Energy plc ("Hurricane")

During the quarter, Hurricane maintained guidance of producing average daily production of between 12,000 and 14,000 barrels a day for the period from September to December 2020. Earlier this month, the company confirmed that it had achieved average daily production of 12,500 barrels per day. The Fund believes that production uptime of 98% is impressive. Partially reflecting the recent sharp recovery in crude oil prices, Hurricane reported cash at 31 December of $106 million, an increase of $19 million from a month earlier.

From the Fund's detailed engagement, it is clear that the board of Hurricane does not seem to be focusing on the upside potential of the fractured basement play within Hurricane's licences. It is unclear why Hurricane is not keen to tie back the existing Lincoln Crestal well which was reported to have tested at a sustained commercial rate. Production from Lincoln could significantly increase overall output with minimal pressure drawdown at Lancaster. The Fund is unconvinced that investment in water injection at Lancaster will stabilise pressure decline in the reservoir and increase recovery. The Lancaster basement play may contain resources greatly in excess of the pool currently being developed by the Early Production System at Lancaster. The Fund believes a farm-out ought to provide the optimum mechanism to both fully access and maximise the value of Hurricane's substantial assets.

Over the period, the Hurricane share price declined by 30.7%.

GI Dynamics Inc ("GI Dynamics")

The company had a successful inspector audit in November 2020 and continues to make progress toward gaining regulatory approval to commercialize in Europe.

The Fund is delighted that Joseph Virgilio was appointed the company's CEO in November 2020.

Transactions in Own Shares

Over the quarter to 31 December 2020, the Fund bought back 6,149,567 of its own ordinary shares at an average price of 82.61p per share as part of its buyback programme.

The buyback contributed 2.9% to NAV per share growth.

Interim dividend declaration

On 23 December 2020, the Fund announced the declaration of an interim dividend of 2.5 pence per share in respect of the financial year ending 30 June 2021. This dividend will be payable, to shareholders on the register as at 8 January 2021, on or around 5 February 2021.

For further enquiries please contact:

Crystal Amber Fund Limited

Chris Waldron (Chairman)

Tel: 01481 742 742

www.crystalamber.com

Allenby Capital Limited - Nominated Adviser

David Worlidge/Liz Kirchner

Tel: 020 3328 5656

Winterflood Investment Trusts - Broker

Joe Winkley/Neil Langford

Tel: 020 3100 0160

Crystal Amber Advisers (UK) LLP - Investment Adviser

Richard Bernstein

Tel: 020 7478 9080