Shareholders and the Securities Investors Association of Singapore submitted questions ahead of the AGM, and the answers were provided by Trendlines Group on the SGX website. Here are 2 out of 4 questions and answers:

agm logoDate: 17 June 2020

Q1. In his statement, the chairman reflected on a hugely successfully 2019 for the group and stated the accomplishments which included:

- Private placement with Librae Holdings and successful rights offering

- First close of our Singapore-based Trendlines Agrifood Fund - Completed raises for 22 portfolio companies

- Portfolio value at record level of US$102.8 million

- NAV per share US$0.13/SGD 0.18, compared to US$0.15/SGD 0.19 at 31 Dec 2018 

(i) Would the board help shareholders understand why the net asset value (“NAV”) per share of US$0.13 is considered an achievement when the NAV per share was US$0.15 as at 31 December 2018?

SteveTodd3.18Trendlines Co-Chairmen Steve Rhodes (left) and Todd Dollinger enjoying nasi lemak at The Coconut Club.
File photo.
The Chairmen’s comments about a successful year related to our results overall, including fundraising exercises completed for our portfolio companies, the record level of the portfolio value, and the first close of our new Singapore-based venture fund, among other factors.

Certain performance indicators are foci for improvement, including the NAV per share. Our total NAV increased significantly in FY2019 from US$86.0 million as at the end of FY2018 to US$100.0 million as at the end of FY2019, while our NAV per share declined due to additional shares being issued as part of the private placement and rights offering.

Premium pricing

Although these issuances were dilutive, we are proud of the fact that they were carried out at 34.6% and 19.3% premiums, respectively, over last traded prices.

"Rights offerings and private placements are generally completed at discounts to market price, resulting in even larger dilution to existing shareholders; our fundraising exercises were completed at premiums, reducing shareholder dilution.

-- Trendlines Group

We also note with some satisfaction that, since the offerings, average daily trading volume in our shares has increased markedly, providing increased liquidity for our shareholders.

(ii) The company is itself an investor of early stage companies. As an investor, did the board consider the dilutive impact to shareholders who were unable to participate (as with the placement) or unwilling to participate in the fund raising exercise that were carried out at a price below the NAV per share?

The Board considered the dilutive impact of the fundraising exercises and rejected the market norm of raising capital in such transactions at a discount to market price.

As stated above, the private placement and the rights offering were issued at a premium over the last traded prices prior to the date of the subscription agreement for the private placement and the announcement date of the rights offering respectively, resulting in reduced dilution.

We also believe that the strategic impact of bringing in Librae Holdings Limited as a controlling shareholder of the Company justified the dilution; since their investment in the Company, Librae has committed US$10 million to the Trendlines Agrifood Fund and has additionally invested directly into multiple portfolio companies, strengthening our Company and our portfolio companies.

(iii) Going forward, would the board consider how it might raise funds without causing undue dilution to shareholders who might be unable/unwilling to participate?

The Trendlines Board and management are highly sensitive to shareholder dilution and building shareholder value. Our Board is obliged to weigh, at all times, the financial needs of the Group, risks, and opportunities.

Balancing matters that have aspects of conflict is a critical task for Board and management; we will always explore financing opportunities with an understanding of, and sensitivity to dilution, as demonstrated when we raised additional capital at a premium to market price.

Q3. The group stated that the fair value of its investments in portfolio companies increased by US$5.6 million compared to FY2018 reaching US$102.8 million. This increase is 5.8%. In FY2017, the increase was 15.6%. In FY2018, the company stated that the non-Stimatix GI Ltd. portion of the portfolio increased by 56.4% in three years.

(i) Has the board evaluated the pace of increase in the fair value of its investments? What were the main reasons for the relative underperformance in FY2019?

It should be noted that in FY2019, the non-Stimatix portion of the portfolio increased by 19.9%.

In addition, as at the end of FY2019, we had 10 portfolio companies that were consolidated and, accordingly, not given value in the portfolio; had those 10 companies been given value, the total value of the portfolio would have been greater as at the end of FY2019.

Given these two factors, the Board was satisfied, overall, with the pace of the valuation increase for the financial year.

(ii) Would the board disclose the “external independent valuator”?

Stimatix GI Ltd. is valued by Boston MedTech Advisors and other portfolio companies are valued by Variance Escola.

(iii) Can the company help shareholders understand the role played by management and the board in the valuation process?

Every portfolio company is valued at least annually after they have fully deployed our initial investment.

The entire valuation process is performed directly between the portfolio company and the valuation company without involvement of the Company. The Company verifies the valuation data that was provided and accepts the valuation report.

The valuation report is then sent to the Company’s external auditors, being Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global, in FY2019, for audit and assurance. Valuation results are presented to the Company’s Audit Committee and Board as part of the approval process of the Company’s financial results.

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