Half Yearly Report

RNS Number : 6362H

Crystal Amber Fund Limited

25 February 2010

 



25 February 2010

Crystal Amber Fund Limited

(the 'Fund' or the 'Company')

Interim results for the six months ended 31 December 2009

The Company announces its interim results for the six months ended 31 December 2009.

Highlights:

·      Net asset value up from £68.5m to £74.1m (from 114.21p to 123.45p per share)

·      Total return for the period of £5.5m (2008: £0.3m), including realised gains of £6.2m (2008: £2.3m)

·      Increased deployment of funds into targeted investments

·      Carefully selected, focused portfolio

·      Promising indications that the Company's strategy is sound and sensible

·      Continued active engagement with management of investee companies

William Collins, Chairman, commented:

"The Board is greatly encouraged by the progress the Company has made so far and the indications that its strategy is sound and sensible"

Enquiries

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

CHAIRMAN'S STATEMENT

I am pleased to present the interim results of the Crystal Amber Fund Limited (the "Company"), covering the six month period to 31 December 2009.  The Company was admitted to trading on AIM and the CISX on 17 June 2008.

For the period under review, the Company made a total return of £5.5 million as shown in the Statement of Comprehensive Income. This compares to a total return of £0.3 million in the six months to 31 December 2008.

 
Net asset value ("NAV") rose from £68.5 million (114.21p per share) on 30 June 2009 to over £74.0 million (123.45p per share) on 31 December 2009.  Since the initial level at flotation of 95.02p per share, which reflected the Company's launch costs, NAV has grown approximately 30 per cent. Historically, the Company's NAV has been reported quarterly. With effect from, January 2010, the NAV is being reported monthly, to provide more frequent information to investors.

The Company has been implementing its investing policy, as set out in its Admission Document, to form a carefully selected, focused portfolio of investments in UK listed companies and has launched a programme of active engagement with the management of these companies. In some cases, this engagement has already borne fruit; in others, the process will take some time. 

Our goal is to support the management of investee companies, where possible, and, if necessary, to encourage them to adopt a different approach, aimed at the realisation of intrinsic value. On the whole, we are encouraged by the reaction of the management of the companies. The current economic environment is far from ideal for the realisation of value, which adds to the importance of carefully identifying and pursuing the correct strategy.

It has been an uncertain and volatile period for the world economy, although the financial markets rallied strongly during the course of 2009.  The Company's focus, as set out in the admission document, is on absolute return. 

Following the initial period after launch, when cash was successfully conserved, the Company has deployed an increasing proportion of its resources. At the same time, the realisation of profits from a selection of our holdings has resulted in the Company continuing its strong cash position. At 31 December 2009, equity holdings represented 69 per cent. of total assets and cash and liquid resources were in excess of £23 million. A proportion of these cash and liquid resources available at period end has been subsequently invested or earmarked for investment. It has become apparent that the ability to commit cash quickly is a considerable advantage when attractive opportunities arise.

Although we share the widespread hope that 2010 will be a year of recovery for the world economy, many risks remain.  The continued efforts of governments and central banks to stimulate their economies must be tempered in order to avert a destructive new bout of inflation, but without upsetting a recovery that remains vulnerable.  While keenly aware of the risks and dangers, the Board is greatly encouraged by the progress the Company has made so far and the indications that its strategy is sound and sensible.

William Collins

Chairman

INVESTMENT MANAGER'S REPORT

The economic and market background to the Company's investment operations remained challenging in the second half of 2009.

The UK economy experienced its worst year for several decades in 2009, when gross domestic product is estimated to have contracted by as much as 4.8 per cent. Strong retail trading over the Christmas and New Year period has prompted hopes of recovery in 2010, but with unemployment still rising and public finances extremely stretched, conditions remain fragile. Despite these conditions, a massive injection of cheap funds by central banks (the "quantitative easing" policy) enabled stock markets to rebound, leading some commentators to fear that they had run ahead of fundamental value. 

The Company's NAV rose from 114.21p per share on 30 June 2009 to 123.45p per share on 31 December 2009, an increase of 8 per cent*.  This followed a weakening of the share price of the largest investment, JJB Sports, in December 2009, which is discussed in more detail below. Although it did not match overall stock market gains in the second half of 2009, the Company's NAV growth has outperformed the broader market since its inception.  Over the 12 months to 31 December 2009, NAV rose from 95.58p to 123.45p, an increase of 29 per cent. The focus remains on absolute, rather than relative return, in line with the brief set out at admission.

Top five holdings at 31 December 2009

	Value (£m)	% of equity portfolio		% of net assets
JJB Sports Plc	19.41	38.2		26.2
Pinewood Shepperton Plc	8.43	16.6		11.4
Chloride Group Plc	5.19	10.2		7.0
The Conygar Investment Company Plc	3.17	6.2		4.3
Kentz Corporation Limited	2.93	5.8		4.0

The Company has continued to build a targeted and focused portfolio in line with the brief set out at admission. The top five holdings listed above comprised 77 per cent. of the total equity portfolio at 31 December 2009 and the top seven holdings comprised 87 per cent..

JJB Sports Plc ("JJB")

The holding in JJB is the largest in the portfolio and where engagement and activism have been most important in the period. The current holding was purchased at an average cost of 25p per share. Having experienced serious difficulties earlier in the year, before our initial investment in April, JJB secured its future in October with a £100 million share issue, which the Fund supported. The fundraising increased JJB's issued share capital by 160 per cent.

 
Throughout the period the Company has sought to engage with JJB's board and management, has supported its efforts to deliver a recovery strategy and attempted to ensure that its management remained focused on recovery, despite unwelcome distractions. We have supported JJB's efforts to strengthen its executive team. The appointment of a new chief executive was announced on 10 December 2009, and is due to take effect on 1 March 2010. On 28 January 2010, JJB announced further board changes, with chairman Sir David Jones stepping down for health reasons and senior independent director John Clare becoming acting chairman. JJB also reported that, although sales showed some signs of recovery, for the 52 weeks to 24 January 2010 total revenues on a like-for-like basis were 28 per cent. below those of the previous year.

We believe that JJB has made considerable progress since the extreme difficulties experienced in early 2009, which threatened its survival.  However, we also believe that it still has a distance to travel before delivering the full recovery of which it is capable. We will continue to engage with its board with the aim of supporting and enabling such delivery.

Pinewood Shepperton Plc ("PWS")

The holding in PWS was purchased at an average cost of 124p per share.  The Pinewood and Shepperton studios have produced some of the world's best known films. In addition to its leading role in the film industry, PWS is developing its property assets, which include over 200 acres west of London. Its application for planning permission to develop a further 105 acres for "Project Pinewood", which would create an important centre for film and creative industries in Britain, was rejected by the local district council on 21 September 2009. PWS is appealing the decision at national level.

This holding is now the second largest in the portfolio and amounts to more than 15 per cent. of the equity of PWS. Since our initial purchase, we have engaged actively with the group's management. While the film industry can be volatile in the short term, we believe that PWS continues to offer intrinsic long-term value.

Chloride Group Plc ("Chloride")

The holding in Chloride was purchased at an average cost of 150p per share.  Chloride is a leader in 'power protection' - safeguarding companies and institutions against power blackouts and associated data loss. This market is growing and has been resilient in the global downturn, so that we remain convinced of Chloride's long term growth prospects and attractions.

Kentz Corporation Limited ("Kentz")

The holding in Kentz was purchased at an average cost of 112p per share. Kentz is an oil services group focused mainly on the Middle East, where new developments are viable at crude oil prices far below current levels. On 14 September 2009 Kentz reported a 9.9 per cent. rise in pre-tax profits for the first half of 2009. It has a strong balance sheet with net cash of approximately $161 million (£100 million) and an order book in excess of $1.1 billion (£680 million).  In recent months Kentz has won important new contracts giving it access to some of the largest oil and gas projects in the world, from the Middle East to Canada, Australasia and Russia.

We have engaged actively and constructively with the management and board of Kentz and are encouraged at the company's progress and the increasing recognition of its strengths by UK investors.  The shares have recently traded in excess of 200p and the opportunity has been taken to realise profits on part of the holding.

The Conygar Investment Company Plc ("Conygar")

The holding in Conygar was purchased at an average cost of 105p per share.  Conygar has a very experienced management team which has shown its capability of delivering value from large property transactions. It sees major opportunities in 2010 and beyond as banks and other lenders seek to deal with extensive portfolios of properties left on their hands as a result of the credit crunch.  Following a placing in September 2009, Conygar has significant cash resources to take advantage of these opportunities.  The management team has made an encouraging start in deploying the funds raised in the placing, purchasing a portfolio of business park properties in November for £44.6 million. We have engaged actively and constructively with the management of Conygar and remain convinced of its ability to take advantage of current conditions in the property market, which may involve further opportunities with potential for active engagement.

OTHER LARGE HOLDINGS IN THE PERIOD

Profits were taken during the period on two previously large holdings, Tate & Lyle Plc ("Tate") and SSL International Plc ("SSL") after strong gains in their share prices which took both close to or above our estimate of fundamental value.

Tate shares reached a peak of 478p during the period, compared to the average cost of 279p for the holding. Though some shares were sold for a profit, the Company retains an ongoing position.

SSL shares also performed very strongly. Following a review of our estimate of underlying value, the holding was sold, realising a profit of £1.2 million and a return, before dividends, of 34 per cent.

ENGAGEMENT
The Company's brief is to engage with investee companies and to promote active steps to correct undervaluation, thus realising value for Crystal Amber's shareholders. We have met all the investee companies, with the exception of one which was recently added to the portfolio. We recognise the sensitivity of some of the issues raised with the management of investee companies and are encouraged that the response has, on the whole, been positive and constructive.

The issues raised range from concerns about the strength and composition of company boards, the desirability of strengthening the management team, the identification and implementation of recovery strategies, the identification and promotion of growth sectors in the business, the clarification of the investee company's strategy and potential and its understanding by investors, and the adoption of optimal capital structures including, where appropriate, the return of cash to shareholders. 

OUTLOOK
Hopes that the UK and other leading Western economies will return to growth in 2010 are offset by concerns about the actions necessary to constrain government borrowing and to restore monetary policy to a sustainable long term basis following the tide of cheap funds unleashed to combat the credit crisis.

This is a challenging background against which we aim to continue with our brief of delivering value from carefully selected investments which have the potential to realise value through active engagement.

Much work remains to be done in order to maximise the returns from the current portfolio. In addition, a promising pipeline of potential new investments has been identified and is undergoing further assessment. Although the outlook seems destined to remain challenging for some time to come, we remain confident that our strategy can continue to deliver good results for investors.

 

Crystal Amber Asset Management (Guernsey) Limited

Investment Manager

*On 5 February 2010 the Company reported that its unaudited NAV at 31 January 2010 was 121.48p per share.


Statement of Comprehensive Income (Unaudited)

For the six months ended 31 December 2009

 

 

		Six months ended 31 December				Six months ended 31 December
		2009				2008
		Revenue	Capital	Total		Revenue	Capital	Total
	Notes	£	£	£		£	£	£
Income
Dividend income from listed investments		800,663	-	800,663		499,985	-	499,985
Interest income from UK government bonds		492,678	-	492,678		-	-	-
Fixed deposit interest		17,147	-	17,147		315,627	-	315,627
Bank interest		8	-	8		333,182	-	333,182
		1,310,496	-	1,310,496		1,148,794	-	1,148,794
Net gains on financial assets at fair value through profit or loss
Realised gain	6	-	6,203,171	6,203,171		-	2,339,953	2,339,953
Unrealised loss	6	-	(800,517)	(800,517)		-	(2,199,509)	(2,199,509)
Total income		1,310,496	5,402,654	6,713,150		1,148,794	140,444	1,289,238
Expenses
Transaction costs	3	-	114,812	114,812		-	218,790	218,790
Management fees		711,113	-	711,113		582,062	-	582,062
Performance fees		-	187,610	187,610		-	-	-
Directors' fees		47,500	-	47,500		47,695	-	47,695
Administration fees		37,500	-	37,500		37,654	-	37,654
Custodian fees		19,541	-	19,541		12,671	-	12,671
Audit fees		8,560	-	8,560		-	-	-
Other expenses		41,021	-	41,021		56,387	-	56,387
		865,235	302,422	1,167,657		736,469	218,790	955,259
Return for the period		445,261	5,100,232	5,545,493		412,325	(78,346)	333,979
Basic and diluted earnings/(loss) per share  (pence)	4	0.74	8.50	9.24		0.69	(0.13)	0.56

 

 

All items in the above statement derive from continuing operations.

The total column of this statement represents the Company's Statement of Comprehensive Income prepared in accordance with International Financial Reporting Standards. The supplementary income return and capital return columns are presented under guidance published by the Association of Investment Companies.

 

Statement of Financial Position (Unaudited)

As at 31 December 2009

		As at		As at		As at
		31 December		30 June		31 December
		2009		2009		2008
		(Unaudited)		(Audited)		(Unaudited)
ASSETS	Notes	£		£		£
Cash and cash equivalents		23,668,734		12,228,732		10,727,957
Trade and other receivables		172,752		209,753		437,386
Financial assets designated at fair value through profit or loss	6	50,808,022		58,907,174		46,296,833
Total assets		74,649,508		71,345,659		57,462,176
LIABILITIES
Trade and other payables		579,008		2,820,652		113,486
Total liabilities		579,008		2,820,652		113,486
EQUITY
Capital and reserves attributable to the Company's  shareholders
Share capital		600,000		600,000		600,000
Distributable reserve		56,447,261		56,447,261		56,447,261
Retained earnings		17,023,239		11,477,746		301,429
Total equity		74,070,500		68,525,007		57,348,690
Total liabilities and equity		74,649,508		71,345,659		57,462,176
Net asset value per share (pence)	5	123.45		114.21		95.58

Statement of Changes in Equity (Unaudited)

For the six months ended 31 December 2009

 

		Share	Share	Distributable	Retained earnings			Total
	Notes	capital	premium	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	6	-	-	-	6,203,171	-	6,203,171	6,203,171
Net unrealised losses on investments	6	-	-	-	(800,517)	-	(800,517)	(800,517)
Revenue profit for the year		-	-	-	-	445,261	445,261	445,261
Transaction costs	3	-	-	-	(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
		Share	Share	Distributable	Retained earnings			Total
	Notes	capital	premium	reserve	Capital	Revenue	Total	equity
		£	£	£	£	£	£	£
Opening balance at 1 July 2008		600,000	56,447,261	-	-	(32,550)	(32,550)	57,014,711
Net realised gains on investments	6	-	-	-	2,339,953	-	2,339,953	2,339,953
Net unrealised losses on investments	6	-	-	-	(2,199,509)	-	(2,199,509)	(2,199,509)
Revenue profit for the year		-	-	-	-	412,325	412,325	412,325
Transaction costs	3	-	-	-	(218,790)	-	(218,790)	(218,790)
Performance fees		-	-	-	-	-	-	-
Transfer to distributable reserve		-	(56,447,261)	56,447,261	-	-	-	-
Balance at 31 December 2008		600,000	-	56,447,261	(78,346)	379,775	301,429	57,348,690

Statement of Cash Flows (Unaudited)

For the six months ended 31 December 2009

		Six months ended		Six months ended
		31 December		31 December
		2009		2008
		£		£
Cashflows from operating activities
Dividend income received from listed investments		853,732		93,868
Interest income received from UK government bonds		563,500		-
Fixed deposit interest received		12,008		346,963
Bank interest received		1,050		341,047
Management fees paid		(711,113)		(582,062)
Performance fee paid		(1,040,581)		-
Directors' fees paid		(47,500)		(100,408)
Other expenses paid		(105,650)		(75,346)
Net cash (outflow)/inflow from operating activities		(474,554)		24,062
Cashflows from financing activities
Proceeds from issuance of ordinary shares		-		2,462,075
Share issue expenses		-		(50,802)
Net cash inflow from financing activities		-		2,411,273
Cashflows from investing activities
Purchase of investments		(30,687,726)		(58,994,257)
Sale of investments		42,717,094		12,888,980
Transaction charges on purchase and sale of investments		(114,812)		(218,790)
Net cash inflow/(outflow) from investing activities		11,914,556		(46,324,067)
Net increase/(decrease) in cash and cash equivalents during the period		11,440,002		(43,888,732)
Cash and cash equivalents at beginning of period		12,228,732		54,616,689
Cash and cash equivalents at end of period		23,668,734		10,727,957

 

Condensed Notes to the Unaudited Financial Statements

for the six months ended 31 December 2009

General Information

Crystal Amber Fund Limited is a 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 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 2009. The annual financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").

Except as described in Note 2, 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 2009.

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 Association of Investment Companies ("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 Company is organised and operates as one segment, both in terms of business and geography.  Consequently, no segmental reporting is provided in the Company's financial statements.

2.  CHANGES IN ACCOUNTING POLICIES

Determination and presentation of operating segments

The Company has adopted IFRS 8, 'Operating segments' from 1 July 2009. The new standard requires a 'management approach' under which segment information is presented on the same basis as that used for internal reporting purposes. The Board has considered the requirements of IFRS 8 'Operating Segments', and is of the view that the Company is engaged in a single segment of business, being investment in 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 NAV, 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 the condensed financial statements.

Presentation of financial statements

The Company has applied revised IAS1 "Presentation of Financial Statements" (2007), which became effective on 1 January 2009. As a result, all owner changes in equity are presented in the Statement of Changes in Shareholders' Equity, whereas all non-owner changes in equity are presented in the Statement of Comprehensive Income. This presentation has been applied in these condensed interim financial statements as at and for the six months period ended 31 December 2009.

Since the change in accounting policy only impacts the presentation of the results, there is no impact on earnings per share.

3.  TRANSACTION COSTS

During the period transaction charges relating to the acquisition and disposal of investments amounting to £114,812 were paid (2008: £218,790). These are analysed as follows:

	Six months ended		Six months ended
	31 December		31 December
	2009		2008
	£		£
Stamp duty	45,209		133,134
Commissions and custodian transaction charges	69,603		85,656
	114,812		218,790

4.  BASIC AND DILUTED EARNINGS PER SHARE

 

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

			Six months ended		Six months ended
			31 December		31 December
			2009		2008
Return for the period			£5,545,493		£333,979
Average number of issued Ordinary Shares			60,000,000		60,000,000
Basic and diluted earnings per share (pence)			9.24		0.56

5.  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
	2009		2009		2008
	(Unaudited)		(Audited)		(Unaudited)
Net asset value per balance sheet	£74,070,500		£68,525,007		£57,348,690
Number of Ordinary Shares outstanding	60,000,000		60,000,000		60,000,000
Net asset value per share (pence)	123.45		114.21		95.58

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

	1 July 2009 to 31 December 2009		1 January 2009 to 30 June 2009		1 July 2008 to 31 December 2008
	(Unaudited)		(Audited)		(Unaudited)
	£		£		£
Equity investments - UK equity securities	50,808,022		38,870,094		23,280,237
Bond investments - UK government bonds	-		20,037,080		23,016,596
	50,808,022		58,907,174		46,296,833
Opening balance	58,907,174		46,296,833		-
Purchases	29,305,334		75,324,863		59,045,369
Sales	(42,807,133)		(75,013,139)		(12,888,980)
Realised gain	6,203,171		4,862,848		2,339,953
Unrealised (loss)/gain	(800,517)		7,439,734		(2,199,509)
Effect of exchange rate movements	(7)		(3,965)		-
Closing balance	50,808,022		58,907,174		46,296,833

7.  RELATED PARTIES

Mark Huntley, a 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 £37,500 (2008: £37,654) of which £18,750 (2008: £18,904) was outstanding at the period end. Mark Huntley also received a director's fee of £10,000 (2008: £10,040) of which £5,000 (2008: £5,041) was outstanding at the period end.

Richard Bernstein is a director of the Investment Manager, a member of the Investment Adviso and a holder of 600,000 Ordinary Shares, representing 1 per cent. (2008: 0.58 per cent.) of the issued share capital of the Company at the period end. During the period the Company incurred management fees of £711,113 (2008: £582,062) all of which had been paid at period end. The Company also accrued performance fees of £187,610 (2008: £nil) all of which was outstanding at the period end.

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

8.  POST BALANCE SHEET EVENTS

On 5 February 2010 the Company reported that its unaudited NAV at 31 January 2010 was 121.48p per share.

9.  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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