THORNEY TECHNOLOGIES LTD — Management Reports 2019

Jun 27, 2019

Thorney Technologies Ltd

ABN 66 096 782 188

27 June 2019

Dear fellow TEK shareholder

Chairman’s Update

With the end of the 2018/19 financial year upon us, I wanted to provide
you with a brief summary of your company’s performance over the past year
and to highlight one of TEK’s most unique attributes by focussing on a
few companies from our growing portfolio of unlisted investments.

TEK’s most recently reported post tax Net Tangible Assets (NTA) backing
per share after fees as at the end of May was 30.7 cents per share
(cps), up from 29.7 cps a month earlier.  This compares to 24.7 cps at
the same time last year and represents an increase of about 25% on an
annual basis.

At a time when many active fund managers are experiencing large cash
redemptions and some are even closing because of under performance, the
growing trend to in-sourcing by superannuation funds and the explosion
of exchange traded funds (ETFs), it is pleasing that TEK has been able
to consistently outperform the share market since inception.

TEK’s continued significant NTA growth reflects the inherent strength of
our portfolio and its ability to deliver solid growth over time. This
comes from our relentless approach to due diligence and continuing to work
closely with the companies we decide to invest in.

The past 12 months has seen strong share market performances by many
of the leading listed stocks in TEK’s portfolio including Afterpay
Touch Group (APT), Zip Co Limited, (Z1P), Credible Labs Inc (CRD),
Dubber Corporation Limited (DUB) and Next Science Limited (NXS) to name
a few.

I will be writing more fully on these and other listed companies in my
next Chairman’s update after the 2018/19 financial results
reporting season. But for this brief note I wanted to highlight what is
becoming an increasingly important aspect of the TEK portfolio - our
growing number of UNLISTED companies.  It is this feature which helps
set TEK apart and which offers investors access to an exciting
range of otherwise unavailable opportunities.

Level 39, 55 Collins Street, Melbourne Vic 3000
Telephone: + 61 3 9921 7116 Facsimile: + 61 3 9921 7100
Website: http://www.thorneytechnologies.com.au/

Chairman’s Update continued

Thorney Technologies Ltd

This is because, since its inception TEK has had a mandate to invest in
both listed and unlisted companies in the tech space at every stage of
the business life cycle from start up right through to IPO and beyond.
As we continue to grow and mature, our focus is shifting more towards
increasing the number of unlisted and pre IPO companies in our portfolio.

TEK’s extensive connections to the technology industry and private
investment sectors not only in Australia but also in countries such as
the USA and Israel gives us visibility and participation potential in
opportunities which would not otherwise be available to retail investors.

There can be no guarantees of course. In addition, operating in the
unlisted space also presents challenges for investment managers because
the companies they are exposed to have no day to day publicly traded
market to set values and/or offer an easy exit.

For these and other reasons TEK has always taken a very conservative
approach to the valuations we place on our unlisted holdings. We will mark
down holdings if we perceive they may not be meeting our growth/value
projections, and we only revalue companies upwards when there has been a
material event that can more than justify a new holding valuation.

Our largest unlisted investment by value, UPDATER INC., delisted from the
ASX late last year to position itself to take advantage of the USA private
investment markets where the company operates.

Updater continues to perform well and in its most recent communication to
shareholders, the company reported that its total transaction value had
increased by more than 320% to $US50 million in the first quarter of 2019
compared to the previous year.

In March this year, Updater decided to delay a foreshadowed capital raise.
However this company’s fundraising process is still actively ongoing and
Updater management remains optimistic that it will be successful, based
on the strong investor interest it has received, and its continuing
business growth.

Another of our unlisted investments based in the USA, NJOY, has already
twice raised new capital at significantly higher valuations than TEK’s
initial entry price.

NJOY operates in the controversial, but booming “e-cigarette” and “vaping”
sector which is exploding in popularity in the USA and other countries as
a perceived less harmful alternative to traditional combustible
cigarettes. The FDA is actively monitoring this phenomenon which has seen
e cigarette companies such as JUUL achieve market valuations in excess of
$US30 billion.  There remains considerable regulatory risk of the FDA
limiting the growth of e-cigarette and nicotine vaping companies and
accordingly TEK’s exposure to the sector through NJOY is comparatively
small and exploratory.

Nevertheless since TEK was introduced to NJOY through our US connections
and made its investment late last year at a whole of company valuation of
around $US800 million, the company has raised further capital at
valuations of $US1.2 billion in February and $US2 billion only a few
months later.

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Chairman’s Update continued

Thorney Technologies Ltd

I have attached a recent Morgan Stanley report on NJOY for your interest.
My purpose in sharing the NJOY information with you is by no means an
endorsement of the booming e-cigarette and vaping industry. It is merely
to illustrate the sorts of value uplifts which are possible in the unlisted
tech sector and why TEK will continue to be very active in the private
and pre IPO tech space.

Closer to home and much less controversially, TEK has recently invested
in a pre IPO round, $75 million capital raise by an exciting Australian
high technology manufacturing company, CARBON REVOLUTION. Based in
Geelong, Carbon Revolution has its origins in the advanced Materials
Science R&D sector.

From there it has emerged to become a world leader in the manufacture of
single piece carbon fibre wheels for the high end automotive industry
while still having partnerships with research organisations including
Deakin University and RMIT University.

The company is already supplying its high technology lightweight wheels
to car manufacturers including Ferrari and Ford as options for their top
of the range high performance models. It has several other major supply
deals in the pipeline.  Carbon Revolution is expected to seek an IPO
listing later this year or early in 2020.

The company has had a great deal of interest from a wide range of global
car manufacturers and plans to dramatically scale up its manufacturing
capacity and bring down costs in order to meet demand from mainstream car
manufacturers.

If it can achieve this it will be a brilliant Australian high tech
manufacturing success story and a bright silver lining in the cloud of
the exit of the car manufacturing injury from Australia which had a
significant impact on Geelong.

I have included a recent press item on Carbon Revolution as well as a
photo of the newest Ferrari model with Carbon Revolution wheels fitted.

Carbon Revolution has attracted Victorian Government support for its
expansion plans and the pre IPO capital raise was heavily oversubscribed.
We will watch its progress with great interest and keep you informed of
developments.

Another highly prospective pre IPO company in which TEK has invested is
CREDIT CLEAR.

Credit Clear has developed a mobile app that reduces the cost and increases
the effectiveness of collecting receivables. It is ideally suited to
larger corporates and utilities that have many thousands of customers and
spend large amounts of money collecting their overdue accounts.

Credit Clear sends SMS messages to the debtors and makes it easy for them
to pay the outstanding account via their phone. Utilities and other
companies that have been using Credit Clear’s product, including some in
the Thorney network, report lower collection costs and better recoveries
than from competing systems.

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Chairman’s Update continued

Thorney Technologies Ltd

We like the Credit Clear model and believe it to be highly scalable. The
company is expected to IPO by early 2020 and on current indications has a
bright future ahead of it.

There are many other companies in TEK’s unlisted portfolio, some of which
I have detailed in previous newsletters. I hope you have enjoyed learning
about three of the recent additions - NJOY, Carbon Revolution and Credit
Clear.

As mentioned above I will be sending a more comprehensive update after
the conclusion of the 2018/19 financial year profit reporting season.

Thank you for your continuing support of TEK and I look forward to communicating
with you again soon

Click to download the Morgan Stanley Research on NJOY

Click to download the Geelong Advertiser article on Carbon Revolution

Yours sincerely

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Alex Waislitz
Chairman

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