REG - Crystal Amber Fund - Crystal Amber requisitions GM of Allied Minds plc

Crystal Amber FundAnnouncement

18/02/2022 16:30

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RNS Number : 1800C  Crystal Amber Fund Limited  18 February 2022

18 February 2022

CRYSTAL AMBER FUND LIMITED

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

 

Crystal Amber Fund requisitions General Meeting of Allied Minds plc

to propose the removal of the Chairman, Harry Rein, as a director

 

Crystal Amber Fund, the activist investment fund, announces that it has sent
to the board of Allied Minds plc ("Allied Minds") a requisition notice
requiring Allied Minds to convene a general meeting at which a resolution will
be proposed to remove Harry Rein as a non-executive director.

 

Since November 2018, the Fund has been an investor in Allied Minds and
currently owns 18.2 per cent. of its issued share capital.

 

In 2019, Allied Minds announced that it would henceforth focus on maximising
returns and shareholder distributions from its existing portfolio, rather than
continuing to invest in new businesses. The portfolio contains three
significant holdings: Federated Wireless, BridgeComm and Orbital Sidekick.

In March 2020, Harry Rein was appointed Chairman of the Allied Minds board,
having joined the board in November 2017. In January 2021, following a
strategic review, Allied Minds introduced what it described as "a new form of
governance better suited to achieve value creation." With no Chief Executive,
Allied Minds is now managed by its three non-executive directors. The Fund
considers, in practical terms, that Harry Rein is the key decision maker. The
2020 Report and Accounts for Allied Minds states that "the Chairman is
responsible for the leadership and conduct of the board."

 

Since Harry Rein has become Chairman, the share price of Allied Minds has
declined by 40 per cent. Over the same period, the NASDAQ US Small Cap Index
has risen by 85 per cent. Over the last 12 months, the share price of Allied
Minds has fallen by 36 per cent.

The Fund has conveyed several concerns to Harry Rein including:

1.    Lack of updating market participants regarding core portfolio company
Federated Wireless Inc. ("Federated Wireless"), where the current carrying
value significantly exceeds the market capitalisation of Allied Minds. In
April 2021, at the Capital Markets Day held by Allied Minds, it was disclosed
that revenues for 2021 for Federated Wireless were forecast to be $17 million
with $35 million to $45 million expected for the year to December 2022. It was
stated that during Q3 of 2021, the company would have "a really good idea" of
the 2021 outturn. In August 2021, Allied Minds reported that Federated
Wireless had met its revenue expectations for its first half and was on track
to meet its full year plan.  In October 2021, house broker, Numis Securities
wrote: "Federated Wireless accounts for c.26p NAV per ALM share (but is likely
worth a multiple of this) in our view, and, most importantly, the company
keeps producing more evidence to assure that it is on track to turn over $17m
in FY21 and $40m in FY22, and earn high, SaaS-type, profit margins." The Fund
believes that price sensitive information is being withheld.

2.    The publication of a "rogue" press release by Federated Wireless, a
company also chaired by Harry Rein. In November 2021, Federated Wireless
issued a press release stating that revenue growth was four times higher than
expected. When Crystal Amber wrote to Harry Rein to seek clarification as to
why this information had not been released to market participants, Harry Rein
responded: "A marketing manager at Federated released the initial Federated
release without the Board of Federated's knowledge." The release was
subsequently amended to exclude any reference to revenue growth.

3.    Breach of provision 20 of the 2018 UK Corporate Governance Code. No
external search consultancy was used to identify and recruit Bruce Failing as
a non-executive director.

4.    Bruce Failing acts as the Senior Independent Director but the Fund
does not believe he is independent: both Bruce Failing and Harry Rein are
directors of DelliveryCare RX. Bruce Failing was proposed by Harry Rein who
advised the Fund that he "persuaded Bruce Failing to join the board."

5.    Breach of provision 24 of the 2018 UK Corporate Governance Code.
Harry Rein is a member of the Audit Committee.

6.    Withdrawing of paid-for research from Edison, after the Fund
highlighted an error with the percentage holding in a portfolio company.
Edison also apologised for a previous error pointed out to Harry Rein by the
Fund: for several months, estimated net asset value had been materially
overstated, as a result of not deducting the special dividend paid to
shareholders in February 2020. It would appear there was a lack of oversight
of these figures from Harry Rein.

7.    Failure to invite investors to the 2021 Capital Markets Day:
invitations were only sent to analysts and not to investors. The Fund was
aware of two (paid for) analysts who cover Allied Minds being sent
invitations. Subsequently, investors were made aware of the Capital Markets
Day, with only a few days' notice. The company's broker subsequently
apologised to the Fund for this error.

In its engagement with Harry Rein, the Fund has found him to be a major
impediment to value protection and realisation. Moreover, his track record
evidenced by the concerns outlined above, speaks for itself. Over recent
months, on a number of occasions, the Fund has asked Harry Rein to announce
his resignation. He has declined to do so. Therefore, in order to safeguard
against any further erosion of shareholder value, the Fund is now seeking his
removal.

 

For further enquiries please contact:

 

Crystal Amber Fund Limited

Chris Waldron (Chairman)

Tel: 01481 742 742

www.crystalamber.com (http://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

 

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