Interview: Living With Lumpiness No Liability For TRENDLINES

ISRAELI INCUBATOR The Trendlines Group Ltd (SGX: TTGL) is able to absorb a few lackluster quarters given the nature of its private equity business, and shareholders also understand the metrics at play, executives told Asia Fund Space.

Israel, an ancient civilization with millennia of history but only 68 years of modern statehood, is one of the global powerhouses in the incubator sector, and has the world's highest percentage of spending on R&D -- 4.8% -- or nearly a nickel on the dollar.

And its most recent financial results were part and parcel of the PE space, and no cause for long-term tentativeness.
 
The Singapore listco, which focuses on developing technology-based companies in the medical and agricultural fields, recently announced that total April-June income decreased from a net profit of 5.9 million usd in 2Q2015 to a net loss of 2.9 million in 2Q2016, primarily due to the loss from changes in the fair value of the portfolio companies.

The change in the fair value of investments in portfolio companies resulted in a loss of approximately 4.7 million usd in 2Q2016 compared to a gain of approximately 4.5 million in 2Q2015, mainly due to (i) a decrease of approximately 2.6 million in the fair market value of various portfolio companies; the write off of four portfolio companies during the second quarter in the amount of 1.8 million; (iii) and a reduction in the quarter of approximately one million in the fair value of Trendlines Group's Most Valuable Portfolio Company due to a delay in a product launching, as the purchaser needs additional time to make minor changes to an accessory.

These losses were partially offset by an aggregate gain in fair value of approximately 0.8 million usd during the second quarter for some portfolio companies as a result of the completion of fund raising exercises at higher valuation and general commercial and technological progress in 2Q2016.

Asia Fund Space:  Regarding your April-June financial results, were they within expectations, an upside or downside surprise, and why/why not?

Todd Dollinger, Chairman & CEO, The Trendlines Group; Chairman, Trendlines Medical:  Trendlines results are event-driven and, therefore, lumpy.

As the fundraising process and the pace of technological/commercial development tends to vary at different portfolio companies, portfolio value fluctuates over short timeframes.

Although we were disappointed that in this particular quarter we showed a loss, in the long term, we expect the portfolio value and income to become less volatile as the number of companies increases, and the total portfolio value continues to grow as they make business progress.

Asia Fund Space:  As an Israel-based incubator listed in Singapore, how much do your investors/portfolio companies pay attention to events/developments a continent away, specifically the rather unorthodox US general election campaign? The recent stronger than expected US jobs report? And expectations that there will likely be further US interest rate action before October this year?

Ms. Judith Kleinman, The Trendlines Group, Director, Investor Relations & Corporate Communications:  International events, especially the US economy and the financial performance of US-based multinationals, are things of interest to us and our companies.

These multinationals are more acquisition-focused in better times and M&A activity is important to our companies and to Trendlines.

Lower interest rates have the double benefit of both making the multinationals more profitable and more acquisition oriented.

These macroeconomic issues are important to us all, especially as in good times they help to establish or maintain an investment and acquisition-friendly environment with the multinationals.

Ironically -- as was made very clear in 2008/2009 -- very bad capital markets will slow or stop acquisitions by the multinationals but cash that smaller investors take from public equities becomes available for the private placements necessary for funding our companies.

We alter our activities based on market conditions and we find opportunities in both good markets and bad.

Asia Fund Space:  For your executive team, I think readers might be interested to know what portion of your workday is spent meeting/communicating with your portfolio firms/investors in these portfolio firms/holders of your Singapore-listed shares/others?

Ms. Judith Kleinman:  The management team, Steve Rhodes and Todd Dollinger, spend considerable time communicating with portfolio companies and investors in those companies.

However, it is important to note that we have a team of 40 professionals inside the Trendlines Group who are spending 100% of their time with the companies on business development, R&D development, marcom, financial strategy (fundraising), and administrative tasks so that the staff at our portfolio companies can be focusing on developing their products.

Regarding IR with holders of Singapore listed shares, we take investor communications very seriously.

I work full-time, communicating with investors, analysts and journalists -- not just in Asia, but also in North America.

In addition, we have an IR program where the CEOs, or myself as Director of Investor Relations, are traveling regularly throughout Asia and the US to meet current investors and potential investors.

We also have a series of investor conferences in Asia and in the US during the coming year where we will be presenting the company.

Asia Fund Space:  Any upcoming investor events to announce, and any sector concentration?

Ms. Judith Kleinman:  We also host two major events in Israel for the international investment community to meet Trendlines' portfolio companies because we strongly believe that a critical way to understand Trendlines and our portfolio value is to meet and understand our portfolio companies.

On 27 September 2016, we will be hosting the fourth AgriVest International Agritech Investment Conference here in Israel.

This will be an opportunity for investors from around the world to understand the agtech sector and the value that Trendlines is building in companies in the sector.

Then in the spring of 2017, Trendlines will host its annual Company Showcase which will feature approximately 10 of our portfolio companies from both Trendlines Medical and Trendlines Agtech, as well as industry experts from both sectors.

We also issue a monthly newsletter that reaches almost 9,000 people and we post a monthly update to the SGXNet.

Trendlines Group Ltd is a commercialization company that creates and develops companies to improve the human condition. The Company invents, discovers, invests in, and incubates medical and agricultural technologies. Trendlines Group is involved in all aspects of its portfolio companies from technology development to business building.

(Note: This story is contributed by Andrew Vanburen. Mr. Vanburen has served as a
government official focused on international trade at the American Institute of Taiwan in
Taipei, and worked in financial journalism for nearly a decade in both Beijing and
Shenzhen. He holds a Master's Degree from New York University. He is currently Director at
Hong Kong-based Asia Fund Space. For more information, please visit:
www.asiafundspace.com)