REG - Crystal Amber Fund - Final Results
30/09/2022 07:00
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RNS Number : 2566B Crystal Amber Fund Limited 30 September 2022
30 September 2022
Crystal Amber Fund Limited
Final results for the year ended 30 June 2022
The Company announces its final results for the year ended 30 June 2022.
Key Points
· Net Asset Value ("NAV") per share including dividends paid increased
by 7.3%. After dividends, NAV declined by 1.2% to 145.03 pence (146.81 pence
at 30 June 2021 and 143.19 pence at 31 December 2021).
· Following the result of the continuation vote, a new investment
policy was approved by Shareholders to maximise returns of capital.
· Concentrated portfolio continues to deliver progress: from July 2021,
the Hurricane Energy share price has almost tripled and the share price of
Equals Group has doubled. The Company is actively engaged with all investee
companies to deliver on their potential.
· Hurricane Energy prospects transformed with company now debt free
with net cash accounting for around 50% of market capitalisation and
production of three million barrels forecast over the next year.
· Completed exit from Leaf Clean Energy upon receipt of its final
(£1.6 million) wind down distribution. Final distribution received equivalent
to £61.17 per share against £4.54 per share carrying value.
· Increased cash returns to Shareholders, with £10.4 million
distributed in two dividends and £0.5 million in share buybacks. A further 10
pence dividend, amounting to £8.3 million, was paid in August 2022.
For further enquiries please contact:
Crystal Amber Fund Limited
Christopher Waldron (Chairman) Tel: 01481 742 742
Allenby Capital Limited - Nominated Adviser
David Worlidge/Freddie Wooding 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
(1) All capitalised terms are defined in the Glossary of Capitalised Defined
Terms unless separately defined.
Chairman's Statement
I hereby present the fifteenth annual report of Crystal Amber Fund Limited
("the Company"), for the year to 30 June 2022. At the year end, NAV was
£120.7 million, compared with an unaudited NAV of £119.4 million at 31
December 2021 and an audited NAV of £122.9 million at 30 June 2021. NAV per
share was 145.03 pence at 30 June 2022 compared with 143.19 pence at 31
December 2021 and 146.81 pence at 30 June 2021. Underlying NAV, reflecting
dividends paid, increased by 7.3% over the year.
During the year, the Company has continued to optimise outcomes for its
portfolio companies and while the NAV has remained broadly flat, the Company's
positive returns have been distributed to Shareholders. Two dividends,
totalling 12.5 pence per share were paid in the period and another of 10 pence
per share was paid after the year end in August 2022.
The Company also bought back 506,000 of its own shares at an average price of
113.73 pence as part of its strategy to limit any substantial discount of the
Company's share price to NAV. Over the year, the Company's shares traded at an
average month-end discount to NAV of 24.6%. At the year end, the shares traded
at a discount of 20.0% to NAV. The share buyback programme had a positive
contribution of 0.16% to NAV per share during the year.
The significant dividend distributions are a tangible product of the Company's
revised investment policy, which was approved by Shareholders in March 2022
following the 2021 AGM, when the continuation vote did not achieve the
requisite 75% majority. The revised policy commits the Company to maximising
capital returns through the timely disposal of its holdings. This was
initially envisaged to be largely completed by the end of 2023, with the
exception of GI Dynamics, which was highlighted in the February circular as
being a longer-term project. However, after consultation with Shareholders, it
was clear that setting December 2023 as a fixed deadline could be
counterproductive and consequently the Board reiterated its focus on the best
outcomes for all Shareholders.
A good example of this measured progress is Equals, which the Company has held
for some years, but refrained from selling until the management had built on
its undoubted promise and made tangible improvements in its product offering.
This was finally evident in 2022 and resulted in a rerating of the shares, at
which point the Company began the process of reducing its stake from over 20%
to less than 3% at the time of writing.
Whilst we hope that similar incremental improvements will lead to
opportunities to reduce other holdings, the Company has had to act more
purposefully in some cases, especially Hurricane Energy and Allied Minds.
Allied Minds is covered in detail in the Investment Manager's report below,
but Hurricane is worth noting here, as an example of the Company's
determination to fight for Shareholders when necessary and the financial
reward in doing so.
At the start of the year, the Company had received a favourable judgment from
the High Court which had prevented a wholly unnecessary 95% dilution which the
Hurricane management had sought to push through. Whilst market participants
had written off Hurricane as little more than an embarrassment, the Company,
with its long standing and deep technical knowledge, fought and succeeded in
blocking the restructuring. Having previously suffered from the headwinds of a
falling oil price, in the year under review, the tailwinds of a rising oil
price fast tracked Hurricane's renaissance. Without the Company's
intervention, Shareholders would have been deprived of any meaningful exposure
to this improvement in the Company's fortunes. During the year, the Company
also nominated a member of the Investment Adviser to the board of Hurricane
Energy to continue to protect Shareholders' interests.
The Manager's focus on the Company's remaining companies has increased as
investments have been realised and portfolio concentration increased. As an
activist investor, this engagement takes many forms but generally the
Company's preference is to engage constructively, in private, with investee
companies, although Hurricane proved to be a necessary exception to this
strategy of quiet engagement.
A more detailed review of investee companies is set out below in the
Investment Manager's Report.
Christopher Waldron
Chairman
29 September 2022
Investment Manager's Report
Performance
The Company's NAV per share fell by 1.2% during the year. Adjusting for
dividends paid, the total return in the Company's NAV per share for the year
was 8%. This compares to the Numis Smaller Companies Index which fell by 13.6%
in the same period.
Key positive contributors to performance were Hurricane Energy (15.9%) and
Equals Group (9.6%). Key detractors were De la Rue (-16.8%) and Board
Intelligence (-2.2%). The Company did not purchase FTSE put options in the
year.
Portfolio and Strategy
At 30 June 2022, the Company held equity investments in nine companies (2021:
10). The Company also held a debt instrument in GI Dynamics and Sigma Broking
Limited.
The Company's month-end average net cash and accruals position was -0.1% of
NAV (2021: 0.3%), meaning that it has remained fully invested throughout the
year. Cash realisations were principally utilised to fund two interim
dividends and the share buybacks.
The Company's strategy is to optimise outcomes on a limited number of special
situations where the Company believes value can be realised regardless of
market direction. By its nature as an activist fund, the Company needs to hold
sufficiently large stakes to facilitate engagement as a significant
shareholder. Therefore, the Company is inevitably exposed to concentration
risk but levels of investment in individual companies continue to be closely
monitored and parameters are set to ensure this risk is managed and kept to an
appropriate level.
As at 30 June 2022, the weighted average market capitalisation of the
Company's listed investee companies was £129 million (30 June 2021: £229
million).
The Company's key positions remained the same over the year. The Company
received the final distribution from the wind down of Leaf Clean Energy
Company. A smaller position in Hansard Global was also sold. The Company
increased its investment in GI Dynamics with a £3.2 million convertible note
instrument. A new position in an unlisted business, Sigma Broking Limited
was opened in the first half of the period, following a commitment by the
Company in its last financial year. The Company increased its stake in
Hurricane Energy to 28.9% of Hurricane's equity (2021: 22.6%), although the
last new quoted investment purchase was made in April 2018. During the year,
£10.9 million was returned to Shareholders through share buybacks and
dividends (2021: £9 million).
The Company believes that because of its intensive activism, the investment in
GI Dynamics now has considerable strategic value. This was recently evidenced
by two approaches from US trade parties that have expressed an interest in
making a significant investment in GI Dynamics. The Company looks forward to
continuing to work with the company to achieve its operational milestones and
to further develop the pathway to maximise shareholder value.
Additional investments and shareholder returns were funded by reducing the
Company's shareholding in De La Rue and Equals Group. The holding in De la Rue
decreased to 9.8% of De La Rue's equity (2021: 12.3%). The position in Equals
was reduced as shares re-rated to 10% of the company.
Investee companies
Our comments on a number of our principal investments are as follows:
De La Rue Plc ("De La Rue")
De La Rue stands out as a case study of how poor leadership is the ultimate
destroyer of shareholder returns. The company has a long and proud history,
having been established in 1821 and has been printing banknotes since 1860. In
1982, the share price was 617.5 pence Forty years later it is 82 pence. Ten
years ago, De La Rue paid an annual dividend of 42.3 pence a share. In 2019,
the dividend was shelved.
In July 2020, De La Rue completed a £100 million fundraise which was priced
at 110 pence a share. Over the last two years, the business has been
transformed. However, a combination of failing to fully capitalise on pricing
in a buoyant currency market in 2020 as central buyers stocked up, limited
contract wins in both its Currency and Authentication divisions, cost
inflation and continuing to work through legacy issues inherited from the
previous Chief Executive Martin Sutherland, has seen the market capitalisation
decline to £164 million. During the year to June 2022, De La Rue's share
price fell by 55 per cent.
The Company notes that since March, the current management team has achieved
significant success with two legacy issues. Firstly, in March, the De La Rue
Pension Trustee agreed that the planned £9.5 million per annum increase in
pension contributions for the next six years was no longer required. Secondly,
in July, De La Rue and Portals Paper Limited ("Portals") terminated the
agreement they signed in 2018, which had committed De La Rue to purchase
substantial quantities of paper until 2028. Without this termination, in the
remaining years of the relationship, De La Rue would have been committed to
paying Portals volume shortfall payments, which the Company estimates would
have been approximately £8 million per annum.
In the year to March 2022, De La Rue delivered adjusted earnings per share of
13 pence. Current year market estimates are for adjusted earnings per share of
11.7 pence.
Despite these two legacy "wins," De La Rue's share price trades on just seven
times current year earnings. Whilst this reflects in part the market's
understandable scepticism in the context of two profit warnings since January
and a lack of pricing power, it has left De La Rue very vulnerable to
corporate action. In the year to March 2022, the Authentication division
achieved revenues of £90 million. Management is guiding to current year
revenues of £100 million and close to 20 per cent operating margins. The
Company believes that this division, with its long-term earnings visibility
could now be sold for between £200 million and £250 million.
The Company believes that De La Rue is now at a critical position, with
essential strategic decisions required, but unfortunately, over many years, De
La Rue's track record demonstrates its poor judgment when it comes to making
business decisions in the interests of its owners. The Company believes that
now is the time for better decision making, with input from stakeholders.
Consequently, in early July, the Company wrote to the Chairman and Chief
Executive of De La Rue to request that Crystal Amber, as a 10 per cent
shareholder, be invited to nominate a director in a non-executive capacity and
a decision is expected on this in the near future. With corporate action most
likely, the Company believes it is in the interests of all stakeholders that a
long-term and significant shareholder now has representation at board level.
Allied Minds plc ("Allied Minds")
The Company has been an investor in Allied Minds since November 2018, and
currently owns more than 18% of its issued share capital. Engagement to date
has secured a 70% reduction in the annual cost base.
Allied Minds' 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." The board had no Chief
Executive and Allied Minds was managed by its three non-executive directors.
The Company considers, in practical terms, that Harry Rein was the key
decision maker.
During the year, the Company expressed several governance concerns to Allied
Minds, none of which was adequately resolved. In February 2022, Crystal Amber
announced that it had sent a requisition notice to the board of Allied Minds
requiring Allied Minds to convene a general meeting at which a resolution
would be proposed to remove Harry Rein as a non-executive director. The
Company considered Harry Rein to be a major impediment to value protection and
realisation. Prior to the requisition meeting and following discussions with
shareholders, Harry Rein agreed to step down from the board and as a result,
the Company withdrew its requisition notice.
In March 2022, Allied Minds announced that it was undertaking a formal
strategic review, aimed at creating and / or realising shareholder value. It
also launched a formal sales process and the commencement of an offer period.
Disappointingly, earlier this month, the board of Allied Minds has stated that
whilst the process is ongoing, to date, no notable interest has been
forthcoming.
Last month, Allied Minds announced that it considers that the costs of
maintaining a premium listing on the Official List and the Main Market of the
London Stock Exchange are now prohibitively high relative to Allied Minds'
current size and maintaining a public listing is no longer in its best
interests. It stated that it therefore intends to formally consult with
shareholders regarding a possible delisting of the company. In response to the
potential delisting, shares in Allied Minds fell by 40% to 10 pence.
The Company estimates that net asset value per share at Allied Minds is
approximately 36 pence, placing the shares on a 70% discount to net asset
value. If a delisting is to proceed, the Company believes that Allied Minds
first must communicate to market participants a timeline of cash realisations
and return of sale proceeds. Furthermore, it should explain how its three
non-executive directors are going to be more than spectators at portfolio
companies and fight for the interests of Allied Minds. The Company also
believes that were a delisting to proceed, Allied Minds should offer private
investors with shareholdings of up to 100,000 shares, the opportunity to
tender their shares to the company for purchase. Allied Minds could purchase
up to 5 per cent of its issued share capital, around 12 million shares. Doing
so would be accretive to net asset value whilst providing private investors
with a liquidity facility.
Equals Group plc ("Equals")
Equals has delivered impressive growth in the period as a result of
substantial investments in product and marketing capabilities undertaken since
2019. These developed multi-currency capabilities for a range of users,
including larger businesses and other financial intermediaries.
Sales efficiency also improved with the deployment of new tools. Since May
2021, growth in revenues across products has been aided by the launch of
Equals Solution. This is a new multicurrency product with own-name IBAN
capability targeted at larger corporations.
The Company has reduced its position from over 20% to 10% as the shares
re-rated. Following the period end, additional disposals have taken the
Company's equity holding in the company down to less than 3%.
The Company expects Equals to continue to deliver strong top line growth and
to benefit from industry consolidation. Having engaged intensively with
management over the last two years, it is pleasing to have converted this
investment into substantial realised profits.
Hurricane Energy ("Hurricane")
In June 2021, Mr Justice Zacaroli in the High Court refused to sanction the
Hurricane board's attempt to force through a highly dilutive debt for equity
swap. At the time, Hurricane claimed that without a debt for equity swap,
bondholders would not be able to recover more than 56% of their investment.
The board had proposed that $50 million of the $230 million repayable to
bondholders in July 2022 be converted into 95% of Hurricane's equity, with the
remaining $180 million debt earning cash interest of 9.4 % per annum plus
payment in kind interest of 5% per annum.
In July 2022, Hurricane announced that the bond had been repaid in full,
thanks to recovered oil prices and an excellent operational performance.
Furthermore, the company had net free cash of $89 million at the end of July.
This is a remarkable transformation within 12 months. The Company's actions
not only averted a wholly unnecessary 95% dilution but has positioned the
Company to benefit from Hurricane's exciting prospects within its own assets
and beyond.
Other strategic decisions materially contributed to the company's current
strength. In August 2021, after a further request from Crystal Amber,
Hurricane finally launched a tender offer for up to 50% of the outstanding
bonds. Allocating up to $80 million of its cash, initially the tender was
priced at up to 72 cents, but this was increased to 78 cents. Whilst the
Company fails to understand the amount of time taken by the board to implement
the buyback of the bonds (in early July 2021, the bonds were trading at just
49.25 cents), purchasing just over one third of the bonds in issue reduced
Hurricane's capital and interest obligations by approximately $22 million. An
additional buyback was implemented in December 2021, bringing the total
savings to $29 million. Without the Company's successful intervention at the
High Court, this would not have happened.
During the period, the Company engaged with management regarding the
utilisation of tax losses. In its 2021 results, Hurricane disclosed that it
had $382 million of ring-fenced trading losses at group level and other
allowances and supplementary charge losses and investment allowances of $693
million, which have no expiry date and would be available for offset against
future trading profits. Additionally, it had $328 million of capital
allowances available against future ring-fenced trading profits. It commented
that the estimated value of these losses and allowances at prevailing tax
rates, including the Group's pre-trading expenditure, future decommissioning
costs and non-ring-fenced losses, is $410 million. In the event of a corporate
transaction, the Company believes that the benefit arising to Hurricane's
shareholders could be very substantial.
Hurricane Energy ("Hurricane")
In 2020 and 2021, the threat of massive equity dilution combined with continued downbeat comments from the previous board about the company's outlook, heavily contributed to what became a dreadful share price performance. Whilst there is no doubt that the fall in oil price in 2020 was entirely beyond management's control, the decision not to use some of its cash to buy-back the bonds when they were trading at a discount of 70%, as urged to do so at the time by Crystal Amber, has proven extremely costly in addition to legal costs of $17 million on a restructuring plan that both Crystal Amber and more importantly the High Court found to be inappropriate.
The share price weakness enabled the Company to take advantage by increasing
its shareholding to 29% of the company. Having previously banked profits of
£43 million on Hurricane, the average cost of the Company's current
shareholding is 6.7 pence a share.
In February 2022, the Company requested and were offered a position on the
Hurricane board to assist Hurricane to fully realise its potential. In March
2022, Juan Morera was appointed to the board. Subsequently, the arrival of two
additional independent non-executive directors means that the Hurricane board
now meets the necessary governance standards.
GI Dynamics Inc ("GI Dynamics")
The company has continued preparations to initiate a randomised clinical trial
in India. It is readying the necessary supporting team for the trial and its
local partner Apollo Sugar Clinics have started to screen for patients in its
hospitals. After delays due to the COVID-19 surge in India, the I-STEP
clinical trial application was approved in December 2021 and the remaining
approvals have been secured since then. The company expects to have initiated
implants by the end of this year.
GI Dynamics has added new sites to its US trial and improved its design in a
way that should facilitate patient enrolment. For example, requirements for
certain minimum Vitamin D levels have been reduced. The US market opportunity
is substantial.
The company has continued to make progress toward recovering the CE Mark for
its device, albeit this has taken longer than expected. Encouragingly, recent
publication of data gathered in its prior US trial supports a positive
risk/benefit assessment of the treatment. Further data is expected to be
published in a peer review journal over the coming months.
Outlook
The Manager is mindful of the concentration risk of the portfolio and the
unhelpful macro-economic backdrop. However, its holdings are of strategic
value, and this is expected to bear fruit in terms of maximising returns of
capital. The Manager is optimistic that the strong relative performance of the
last 12 months can be repeated in the coming 12 months.
Crystal Amber Asset Management (Guernsey) Limited
29 September 2022
Investment Policy
The Company is an activist fund which aims to identify and invest in
undervalued companies and, where necessary, take steps to enhance their value.
The Company aims to invest in a concentrated portfolio of undervalued
companies which are expected to be predominantly, but not exclusively, listed
or quoted on UK markets (usually the Official List or AIM) and which have a
typical market capitalisation of between £100 million and £1 billion.
Following investment, the Company and its advisers will also typically engage
with the management of those companies with a view to enhancing value for all
their Shareholders.
Investment objective
The objective of the Company is to provide its Shareholders with an attractive
total return, which is expected to comprise primarily capital growth but with
the potential for distributions from realised distributable reserves,
including distributions arising from the realisation of investments, if this
is considered to be in the best interests of its Shareholders.
Investment strategy
The Company focuses on investing in companies which it considers are
undervalued and will aim to promote measures to correct the undervaluation. In
particular, it aims to focus on companies which the Company's Investment
Manager and Investment Adviser believe may have been neglected by fund
managers and investment funds due to their size; where analyst coverage is
inadequate or where analysts have relied on traditional valuation techniques
and/or not fully understood the underlying business. The Company and its
advisers seek the co-operation of the target company's management in
connection with such corrective measures as far as possible. Where a different
ownership structure would enhance value, the Company will seek to initiate
changes to capture such value. The Company may also seek to introduce measures
to modify existing capital structures and introduce greater leverage and/or
seek the sale of certain businesses or assets of the investee company.
Where it considers it to be appropriate, the Company may (i) utilise leverage
for the purpose of investment and enhancing returns to Shareholders and/or
(ii) enter into derivative transactions, for example to provide portfolio
protection against significant falls in the market or for the purposes of
efficient portfolio management, in seeking to manage its exposure to interest
rate and currency fluctuations through the use of currency and interest rate
hedging arrangements, and to acquire exposure to target companies through
contracts for difference.
Investment restrictions
It is not intended that the Company will invest, save in exceptional
circumstances, in:
· companies with a market capitalisation of less than £100 million at
the time of investment;
· pure technology-based businesses; or
· unlisted companies or companies in pre-IPO situations.
It is expected that no single investment in any one company will represent
more than 20% of the Gross Asset Value of the Company at the time of
investment. However, there is no guarantee that this will be the case after
any investment is made, or where the Investment Manager believes that an
investment is particularly attractive.
New Investment Policy
On 7 March 2022 a revised investment policy, as summarised in the following
paragraphs, to reflect a realisation strategy, was approved by Shareholders at
an Extraordinary General Meeting.
The Company adopted a strategy of maximising capital returned to Shareholders
by way of timely disposals, including trade sales of the Company's strategic
holdings, where appropriate (with the potential exception of GI Dynamics Inc)
and returns of cash to Shareholders intended to be completed by 31 December
2023, although after consultation with Shareholders it was noted that this
should be seen as a target rather than a deadline.
In seeking the realisation of predominantly all the Company's investments
(with the possible exception of GI Dynamics), the Directors will aim to
achieve a balance between maximising their net value and progressively
returning cash to Shareholders. In so doing, the Board will take account of
the continued costs of operating the Company. The Company's admission to AIM
and the capacity to trade in its shares will be maintained for as long as the
Directors believe it to be practicable and cost-effective within the
requirements of the AIM Rules.
The Company will cease to make any new investments except where, in the
opinion of the Investment Manager and with the approval of the Board, the
investment is considered necessary by the Board to protect or enhance the
value of any existing investments of the Company or to facilitate orderly
disposals of assets held by the Company. Any cash received by the Company as
part of the realisation process prior to its distribution to Shareholders will
be held by the Company, on behalf of the Shareholders, as cash on deposit
and/or as cash equivalents.
At 31 December 2023, should any of the Company's investments remain
unrealised, the Board will consider consulting Shareholders and/or make
arrangements to seek Shareholder approval on the future strategy of the
Company, including any steps that might be necessary to maximise the
opportunity to realise value from the remaining assets of the Company.
Any material change to the New Investment Policy would require Shareholder
approval before being implemented in accordance with the AIM Rules.
Dividend Policy
Following any material realisations of the Company's investments, the
Directors intend to return cash to Shareholders using tax-efficient means such
as redeemable shares and/or tender offers. The Directors intend to seek
Shareholder approval to put mechanisms in place to enable such distributions
to take place at the appropriate time. The Board intends to return cash to
Shareholders by way of capital distributions. Accordingly, the Board intends
to suspend the declaration of dividends until further notice.
Report of the Directors
Incorporation
The Company was incorporated on 22 June 2007 and was admitted to trading on
AIM on 17 June 2008.
Principal activities
The Company is a Guernsey registered closed ended company established to
provide Shareholders with an attractive total return, which is expected to
comprise primarily capital growth and distributions from accumulated retained
earnings taking into consideration unrealised gains and losses at that time.
This will be achieved through investment in a concentrated portfolio of
companies that are considered to be undervalued and which are expected to be
predominantly, but not exclusively, listed or quoted on UK markets and which
mostly have a market capitalisation of between £100 million and £1 billion.
The Company became a member of the AIC on 26 March 2009.
Business review
A review of the business together with likely future developments is contained
in the Chairman's Statement and the Investment Manager's Report.
Results and dividend
The results for the year are set out in the Statement of Profit or Loss and
Other Comprehensive Income.
Historically, the Company has declared dividends twice yearly in the sum of
2.5 pence per share totalling 22.5 pence per share over the last five years to
30 June 2021 (the exception being the 2020 interim dividend which was withheld
as a result of the emergence of COVID-19, which created uncertainty as to the
timing and quantum of dividend receipts from the Company's portfolio
companies). Traditionally, the dividends have been largely funded by dividends
received from portfolio companies.
On 7 July 2021, the Company declared a second interim dividend of £2,093,425
in respect of the financial year ended 30 June 2021 equating to 2.5 pence per
Ordinary share, which was paid on 30 July 2021 to Shareholders on the register
on 15 July 2021.
On 22 December 2021, the Company declared an interim dividend of £8,338,000
in respect of the financial year ended 30 June 2022 equating to 10 pence per
Ordinary share, which was paid on 2 February 2022 to Shareholders on the
register on 14 January 2022.
On 7 July 2022, the Company declared an interim dividend of £8,338,000
equating to 10 pence per Ordinary share, which was paid on 5 August 2021 to
Shareholders on the register on 15 July 2022.
Continuation vote
The Company has regularly submitted itself to continuation votes. An
extraordinary resolution was passed at the 2019 AGM under which 75% of the
votes would be required to continue as currently constituted and an
extraordinary resolution was tabled at the 2021 AGM, requiring a 75% majority
for continuation.
On 22 December 2021, the Company provided an update following the results of
its 2021 AGM where the resolution that the Company continue as constituted
received a majority of votes, but did not achieve the requisite 75% majority
of votes cast and accordingly was not passed.
On 15 February 2022, the Company issued a circular which included a notice of
Extraordinary General Meeting to be held on 7 March 2022 in connection with
proposals for a change of investment policy and new management and incentive
arrangements.
On 7 March 2022, Shareholders approved the change in investment policy and new
management and incentive arrangements.
Going concern
The Directors are confident that the Company has adequate resources to
continue in operational existence for the foreseeable future and as a result
of this, do not consider there to be any threat to the going concern status of
the Company. As disclosed further in Note 1, the Directors have considered the
potential impact of the effects of COVID-19, the Russian invasion of Ukraine
and the current inflationary environment on the Company's activities and do
not consider that these will impact the Company's ability to operate as a
going concern.
The Directors have also considered the result of the continuation vote which
occurred at the 2021 AGM and results of the subsequent EGM which did not
conclude that the Company should be wound up. Following the AGM, the Company
was obliged to return to Shareholders with proposals to either reorganise,
restructure, or wind up the Company. Following extensive Shareholder
consultation, a new investment policy was put before Shareholders which
prioritised the intention to maximise the return of capital representing a
change of strategy. In March 2022, this change of investment policy was
approved by Shareholders.
The Board believes that it was in the interests of Shareholders as a whole for
the Company to adopt a strategy of maximising capital returned to Shareholders
by way of timely disposals, including trade sales of the Company's mature
listed strategic holdings, where appropriate. The Company has a track record
of returning cash to Shareholders via share buybacks and dividends. Since
2013, when the requirement for the continuation vote to be proposed at the
2021 AGM was introduced, £76.7 million has been returned to Shareholders via
such means.
In 2014, the Company acquired an initial shareholding in GI Dynamics. The
Company believes that because of its intensive activism, it has been able to
acquire majority ownership of a strategically valuable shareholding, which
comprises 81.5% of GI Dynamic's diluted share capital. With board
representation, the Company is actively involved in the management of GI
Dynamics.
The Company looks forward to continuing to work with GI Dynamics to achieve
its operational milestones and to further develop the pathway to maximise
shareholder value. Given the anticipated value accretive milestones, the
Company believes it is appropriate that it gives GI Dynamics the time it
requires to maximise Shareholder returns.
In due course, the Company will consult with investors about the longer-term
plans for GI Dynamics to realise value for the Company's Shareholders. A trade
sale is a potential crystallisation path. Alternatively, as the Company
continues its disposal programme of its listed investment portfolio, it is
possible that the Company's listing may provide a suitable and cost-effective
vehicle for GI Dynamics to be listed, raise its profile and potentially,
following the achievement of milestones, provide the Company's Shareholders
with direct exposure to its growth prospects, as well as liquidity.
Long term viability
As further disclosed in the corporate governance note in the Report of the
Directors, the Company is a member of the AIC and complies with the AIC Code.
In accordance with the AIC Code, the Directors have made a robust assessment
of the prospects of the Company over the two-year period ending 30 June 2024.
The Directors consider that this is an appropriate period to assess the
viability of the Company given the average length of investment in each
portfolio company and the time horizon over which investment decisions are
made.
In considering the prospects of the Company, the Directors have considered the
risks facing the Company, giving particular attention to the principal risks
identified below, the effectiveness of controls over those risks, the process
in place for identifying emerging risks and have evaluated the sensitivities
of the portfolio to market volatility.
The Directors have also considered the Company's income and expenditure
projections over the two-year period ending 30 June 2024, the fact that the
Company currently has no borrowings and that most of its investments comprise
readily realisable securities which can be expected to be sold to meet funding
requirements if necessary.
Based on the results of this analysis, including the Investment Manager
Agreement, change in investment strategy and future strategic plans involving
GI Dynamics, the Directors have a reasonable expectation that the Company will
be able to continue in operation and meet its liabilities as they fall due for
the foreseeable future.
Principal risks and uncertainties
The Company has implemented a rigorous risk management framework including a
comprehensive risk matrix that is reviewed and updated regularly. This ensures
that procedures are in place to identify principal risks, mitigate and
minimise the impact of those risks should they crystallise, and to identify
emerging risks and determine whether any action is required. The Investment
Manager has created a Risk Committee from which the Board receives quarterly
reports. Fred Hervouet, one of the Board Directors, liaises with the Risk
Committee and attends its regular meetings to offer an independent view and to
enhance communication between the committee and the Board. The Directors have
carried out a robust assessment of the principal risk areas relevant to the
performance of the Company including those that would threaten its business
model, future performance, solvency and liquidity and these are detailed
below. As it is not possible to eliminate risks completely, the purpose of the
Investment Manager's risk management policies and procedures is to reduce and
manage risk and to ensure that the Company is as adequately prepared as
reasonably possible to respond to such risks and to minimise their impact
should they occur.
Continuation
As a result of the loss of the continuation vote, the Board, with Shareholder
approval, adopted a strategy of maximising capital returned to Shareholders by
way of timely disposals, including trade sales of the Company's strategic
holdings, where appropriate. The Company previously announced, based on the
Investment Manager's assessment of the status and timing of anticipated
corporate transactions, that it was targeting additional Shareholder returns
of at least £40 million or 50 pence per Share before 30 June 2022. The
payment of the 10 pence a share dividend to Shareholders on 9 February 2022,
representing a gross return of £8.3 million, was the first shareholder return
towards achieving that target.
As stated in the Company's circular to Shareholders dated 15 February 2022 to
convene an EGM, the Company, following consultation with several Shareholders,
determined it was no longer in the interests of the Company to impose a fixed
deadline for the return of capital, but would retain 31 December 2023 as a
target. On 7 July 2022 the Company declared a further interim dividend of 10
pence per share in respect of the financial year ended 30 June 2022.
Regulatory compliance risk
A breach of regulatory rules could lead to a suspension of the Company's stock
exchange listing or financial penalties. The Company Secretary monitors the
Company's compliance with the AIM Rules in conjunction with the Nominated
Adviser and compliance with these rules is reviewed by the Directors at each
Board meeting.
One of the most significant regulatory risks for an activist investor such as
the Company is in relation to market abuse provisions. The FCA has published
guidance stating that in general it would not consider an activist
shareholder's conduct to amount to market abuse where the shareholder merely
carried out acquisitions of a target company's securities on the basis of the
target company's intentions and the Company's knowledge of the target
company's strategy.
However, the FCA has stated that if, for example, other shareholders trade in
the target's shares on the basis of another shareholder's strategy, they may
view such conduct as amounting to market abuse. There is no guarantee that
other shareholders will not follow the Company's strategy, and, in certain
circumstances the Company may act with, or be dependent upon, the support of
other shareholders to implement its strategies. There is also no guarantee
that the FCA's guidance will not change. The Company and its Advisers operate
in a highly regulated environment and whilst they will always seek to take
appropriate professional advice, there is a risk of an inadvertent breach of
securities laws or regulations, or allegations of such breach, taking place.
The following risks, whilst they may affect the performance of the Company,
will not in themselves affect the ability of the Company to operate.
'Key Man' risk
The Investment Adviser and the Investment Manager rely heavily on the
expertise, knowledge and network of Richard Bernstein when sourcing investment
opportunities. He is a Shareholder of the Company, a director and Shareholder
of the Investment Manager and a member of the Investment Adviser and his loss
to these service providers could have an adverse effect on the Company's
performance. In the absence of Richard Bernstein, the Board and Investment
Manager have sufficient relevant experience to manage the Company's portfolio
while considering the future of the Company.
Portfolio concentration risk
By its very nature as an activist fund, the Company is exposed to the risk
that its portfolio of investee companies is not sufficiently diversified to
absorb the impact of a fall in value of some of its major investments. As
noted in the Investment Policy, the Company seeks to invest in companies and
use activism to unlock value. An inherent consequence of this policy is a
portfolio concentrated on a number of key investee companies. The Board is
aware of this risk and feels it is a necessary risk to take in order to
provide returns through the investment strategy.
Levels of investment in individual companies have been monitored and
parameters used to ensure that the aggregated risk of a more concentrated
portfolio has been kept to an acceptable level.
Underlying investment performance risk
The Company invests in underlying investee companies, the majority of the
securities of which are publicly traded or are offered to the public. The
performance of these companies is likely to fluctuate due to a number of
factors beyond the Company's control. The Investment Manager and Investment
Adviser monitor investee company performance and share price movements on a
daily basis. The Administrator prepares weekly portfolio valuation reports.
The Investment Adviser engages with investee companies through regular
meetings and reports to the Board. The Investment Manager and Investment
Adviser also compare the Company's performance to the Numis Smaller Companies
Index and investigate all underperformance and unrealised losses of the
Company.
Market risk
The Company's investments include investments in companies the securities of
which are publicly traded or are offered to the public and investments in
unlisted companies. The market prices and values of these securities may be
volatile and are likely to fluctuate due to a number of factors beyond the
Company's control. These include actual and anticipated fluctuations in the
quarterly, half yearly and annual results of the companies in which
investments are made and other companies in the industries in which they
operate and market perceptions concerning the availability of additional
securities for sale.
They also include general economic, social or political developments, changes
in industry conditions, shortfalls in operating results from levels forecast
by securities analysts, the general state of the securities markets and other
material events, such as significant management changes, refinancing,
acquisitions and disposals. Changes in the values of these investments may
adversely affect the Company's NAV and cause the market price of the Company's
shares to fluctuate.
Shareholder concentration risk
A total of 10 investors with holdings of 3% or more each of the shares of the
Company hold a combined total of 84.42% of the voting rights. A significant
shareholder seeking liquidity could have a negative impact on the Company
causing movements in Company share price through voting at an AGM, or by
placing pressure on the Board to act to realise value in the portfolio at a
sub-optimal time and value. To manage this risk the Investment Manager
maintains regular contact with significant shareholders to discuss the
performance of the Company and any views the shareholder may have.
Liquidity risk
The Company's ability to meet its obligations arising from financial
liabilities could be reliant on its ability to reduce or exit investment
holdings. This could be more difficult with the Company's less liquid
portfolio holdings. To manage this risk, the cash and trade positions are
monitored on a daily basis by the Investment Adviser and the Administrator.
The liquidity of stocks is also considered at the point of recommendation by
the Investment Adviser and prior to investment.
Inside information risk
The Company may, from time to time, be exposed to insider information. A
breach of insider trading rules could lead to a suspension of the Company's
stock exchange listing or financial penalties. This risk is mitigated and
managed through continual monitoring and policy setting, which ensures all
employees of the Investment Adviser clearly understand insider trading rules
and adhere to all relevant procedures.
Implementation risk
The Company's ability to generate attractive returns for Shareholders depends
upon the Investment Adviser's ability to assess future values that may be
realised in connection with investments. The ability to assess future values
and the timing thereof, whether in connection with the making of an investment
or exiting from an investment, may be particularly important in the case of
investments over which the Company has little or no control on its own. The
ability of the Company to exit certain investments on favourable terms will be
dependent (inter alia) upon the successful implementation of the strategic
plans for such investee company and, in particular, the ability to persuade
management to adopt such strategic plans. It will also depend on the relative
liquidity of the stock of the investee company at that time.
Risks were identified in relation to the ongoing COVID-19 pandemic. Further
details including mitigation strategies, are included within the going concern
section of Note 1 to the Financial Statements.
In summary, the risks noted above are mitigated and managed by the Board, the
Investment Manager and Investment Adviser through continual review of the
portfolio, policy setting and updating the Company's risk matrix to ensure
that procedures are in place to minimise their impact.
Further detail on the Company's risk factors is set out in the Company's
admission document, available on the Company's website (www.crystalamber.com)
and should be reviewed by Shareholders.
Details about the financial risks associated with the Company's investment
portfolio and the way that investments are managed are given in Note 14 to the
Financial Statements.
Alternative Performance Measures ("APMs")
We assess our performance using a variety of measures that are not
specifically defined under IFRS and therefore termed APMs. The APMs that we
use may not be directly comparable with those used by other companies. These
APMs are detailed in full in the APMs section.
Ongoing charges
For the year ended 30 June 2022 the ongoing charges ratio of the Company was
1.95% (2021: 2.07%). The ongoing charges ratio has been calculated using AIC
recommended methodology and is made up as follows:
Ongoing charges ratio Year ended Year ended
30 June 2022
30 June 2021
£ £
Annualised ongoing expenses (2,469,478) (2,244,051)
Weighted average NAV 125,257,263 108,461,324
Ongoing charges ratio 1.97% 2.07%
Ongoing charges are those expenses of a type which are likely to recur in the
foreseeable future, whether charged to capital or revenue, and which relate to
the operation of the Company as a collective fund, excluding the costs of
acquisition/disposal of investments, performance fees, financing charges and
gains/losses arising on investments. Ongoing charges are based on costs
incurred in the year as being the best estimate of future costs. The ongoing
charges ratio is calculated by dividing the annualised ongoing charges by the
average NAV for the financial year.
Directors
The Directors of the Company who served during the year and up to the date of
this report are shown on the Directors section. Biographies of the Directors
holding office as at 30 June 2022 and at the date of signing these Financial
Statements are shown on the Directors section.
Directors' interests
The interests of the Directors in the share capital of the Company at the
year-end are disclosed in Note 16.
Directors' remuneration
The remuneration of the Directors during the year is disclosed in Note 16.
Directors' responsibilities to stakeholders
Section 172 of the UK Companies Act 2006 applies directly to UK domiciled
companies. Nonetheless the AIC Code requires that the matters set out in
Section 172 are reported by all companies, irrespective of domicile. This
requirement does not conflict with the Companies Law in Guernsey.
Section 172 recognises that Directors are responsible for acting in a way that
they consider, in good faith, is most likely to promote the success of the
Company for the benefit of all of its Shareholders. In doing so, they are also
required to consider the broader implications of their decisions and
operations on other key stakeholders and their impact of those decisions on
the wider community and the environment.
Key decisions are defined as those that are material to the Company, but also
those that are significant to any of the Company's key stakeholder groups. The
Company's engagement with its key stakeholders is discussed further in the
corporate governance section of this report.
The Directors made or approved the following key decisions during the year,
with the overall aim of promoting the success of the Company taking into
account the likely impact on its members and wider stakeholders;
Dividends
During the year ended 30 June 2022, the Company paid dividends of £10,431,425
(2021: £2,107,376) from distributable reserves, as disclosed in Note 13.
The Directors also concluded that a dividend should be paid in this financial
year. On 7 July 2022, the Company declared a dividend of £8,338,000 equating
to 10 pence per Ordinary share, which was paid on 12 August 2022.
Charitable shares
During the prior year, the Company approved the issue of 125,000 shares to
five separate charitable organisations in accordance with the authority
granted to the Company by Shareholders at the 2019 AGM. The Company issued
125,000 shares on 25 September 2020 split equally amongst the following five
charitable organisations: St Andrews Clinic for Children, Cancer Research UK,
Feis Ceoil, James' Place and Sentable. The Directors recognise that more
recently, the Shareholder base has changed significantly and consequently, the
Directors decided that in recognition of the views articulated by newer
Shareholders, the Company suspended future share issues to charities at this
time. All Charitable shares issued have been redeemed and no charitable shares
were issued in the year to 30 June 2022.
Substantial interests
As at 8 August 2022 the Company had been notified of the following voting
rights of 3% or more of its total voting rights:
Number of Total
Ordinary Shares
Voting Rights
Saba Capital Management 21,754,592 26.14%
Wirral BC 12,938,214 15.54%
1607 Capital Partners 9,452,513 11.36%
Crystal Amber Asset Management (Guernsey) 6,899,031 8.29%
Rath Dhu 4,056,030 4.87%
Noble Grossart Investments 4,035,000 4.85%
CG Asset Management 3,035,000 3.65%
Charles Stanley 2,748,948 3.30%
Odey Asset Management 2,715,735 3.26%
Winterflood Platform Services 2,631,614 3.16%
Total 70,266,677 84.42%
Statement of Directors' responsibilities
The Directors are responsible for preparing the Directors' Report and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the Financial
Statements in accordance with International Financial Reporting Standards, as
issued by the IASB, and applicable law.
The financial statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
· assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either intend
to liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with
the Companies (Guernsey) Law, 2008. They are responsible for such internal
control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website
(www.crystalamber.com), and for the preparation and dissemination of financial
statements. Legislation in the United Kingdom and Guernsey governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Disclosure of information to the Auditor
The Directors each confirm that they have complied with the above requirements
in preparing the Financial Statements. They also confirm that so far as they
are each aware, there is no relevant audit information of which the Company's
auditor is unaware and that they have taken all the steps they ought to have
taken as Directors to make themselves aware of any relevant audit information
and to establish that the Company's auditor is aware of that information.
Corporate governance
As a Guernsey registered company, the share capital of which is admitted to
trading on AIM, the Company is not required to comply with the FRC Code.
However, the Directors recognise the value of sound corporate governance and
it is the Company's policy to comply with best practice on good corporate
governance that is applicable to investment companies.
The Board has considered the principles and provisions of the AIC Code. The
AIC addresses the principles and provisions set out in the FRC Code and
includes additional provisions on issues that are of specific relevance to the
Company. The Board considers that reporting against the principles and
provisions of the AIC Code, which has been endorsed by the FRC and the
Guernsey Financial Services Commission, provides more relevant information to
Shareholders. The Company has complied with the principles and provisions of
the AIC Code. The AIC Code is available on the AIC's website, www.theaic.co.uk
(http://www.theaic.co.uk) , which includes an explanation of how the AIC Code
adapts the principles and provisions set out in the FRC Code to make them
relevant for investment companies. The FRC Code is available on the FRC's
website, www.frc.org.uk (http://www.frc.org.uk) .
The GFSC Code came into force in Guernsey on 1 January 2012. Under the GFSC Code, the Company is deemed to satisfy the GFSC Code provided that it continues to conduct its governance in accordance with the requirements of the AIC Code.
The Company adheres to a Stewardship Code adopted from 14 June 2016. The
Company's Stewardship Code incorporates the principles of the UK Stewardship
Code. A copy of the Stewardship Code is available on the Company's website.
Environmental, social and governance report
As an investment company, the Company's activities only have a limited impact
on the environment in which it operates. The Company has no employees and its
registered office is based in Guernsey, where all of the Directors reside,
thus minimising the need for extensive travel to attend Board or other
meetings, with associated environmental impact.
Responsible investment principles have been applied to each of the investments
made. These policies require the Company to make reasonable endeavours to
procure the ongoing compliance of its portfolio companies with its own
policies on responsible investment. The Company is an activist fund which aims
to identify and invest in undervalued companies and, where necessary, take
steps to enhance their value. Following investment, the Company and its
advisers will also typically engage with the management of those companies
with a view to enhancing value for all their shareholders, in line with the UK
Stewardship Code.
Purpose, culture and values
Under the revised investment policy the Company has adopted a strategy of
maximising capital returned to Shareholders by way of timely disposals,
including trade sales of the Company's strategic holdings, where appropriate
(with the potential exception of GI Dynamics Inc) and returns of cash to
Shareholders.
The Board has considered the Company's culture and values. As an investment
company with no employees, it is considered that the culture and values of the
Board are aligned with those of the Investment Manager and Investment Adviser,
with a focus on constructive long term relationships with the Company's key
stakeholders.
The Board
The Company is led and controlled by a Board of Directors, which is collectively responsible for the long-term success of the Company. The Company believes that the composition of the Board is a fundamental driver of its success as the Board must provide strong and effective leadership of the Company. The current Board was selected, as their biographies illustrate, to bring a breadth of knowledge, skills and business experience to the Company.
As at the date of this report, the Board comprises three Non-Executive Directors (2021: three), all of whom are considered to be independent of the Investment Manager and Investment Adviser and free from any business or other relationship that could materially interfere with the exercise of their judgement. Board appointments are considered by all members of the Board and have been made based on merit against objective criteria.
The Chairman of the Board is Christopher Waldron. The Board has taken note of
the provisions of the AIC Code relating to independence and has determined
that Mr Waldron is an independent director.
The Company has no employees and therefore there is no requirement for a Chief
Executive, nor has it established a Senior Independent Director due to the
size of the Board and the Company. The Board is satisfied that any relevant
issues that arise can be properly considered by the Board.
A biography for the Chairman and all the other Directors follows in the next
section, which sets out the range of investment, financial and business skills
and experience they bring to the Board. The Directors believe that the current
mix of skills, experience and length of service represented on the Board are
appropriate for the requirements of the Company.
In view of the Board's non-executive nature and the requirement of the
Articles of Incorporation that one third of Directors retire by rotation at
least every three years, the Board considers that it is not appropriate for
Directors to be appointed for a specified term as recommended by principle 3
of the AIC Code. In accordance with the publication of the 2019 AIC Code,
which the Board adopted from 1 July 2019, all Directors will be subject to
annual re-election.
None of the Directors has a contract of service with the Company. The Company
has no executive Directors and no employees. However, the Board has engaged
external companies to undertake the investment management, administrative and
custodial activities of the Company. Clearly documented contractual
arrangements are in place with these companies which define the areas where
the Board has delegated certain responsibilities to them, but the Board
retains accountability for all delegated responsibilities.
Chair tenure policy
The Company has adopted a chair tenure policy, whereby the Chair should
normally serve no longer than nine years as a Director and Chair but, where it
is considered to be in the best interests of the Company, its Shareholders and
stakeholders, the Chair may serve for a limited time beyond that. In such
circumstances, the independence of the other Directors will ensure that the
Board as a whole remains independent.
The Company's view is that the continuity and experience of its Directors are
important and that a suitable balance needs to be struck between the need for
independence and refreshing the skills and expertise of the Board. The
Company believes that some limited flexibility in its approach to Chair tenure
will enable it to manage succession planning more effectively.
Diversity policy
The Company monitors developments in corporate governance to ensure the Board
remains aligned with best practice with respect to the increased focus on
diversity. The Company has a Board diversity policy, which acknowledges the
importance of diversity, for the effective functioning of the Board and
commits to supporting diversity in the boardroom. It is the Board's ongoing
aspiration to have a well-diversified membership.
Performance and evaluation
Internal evaluation of the Board, the Committees and individual Directors is
undertaken on an annual basis in the form of questionnaires, peer appraisal,
and discussions to determine effectiveness and performance in various areas as
well as the Directors' continued independence.
New Directors receive an induction on joining the Board, and all Directors
receive other relevant training as necessary. Directors have regular contact
with the Investment Manager to ensure that the Board remains regularly updated
on all issues. All members of the Board are members of professional bodies and
serve on other Boards, which ensures they are kept abreast of the latest
technical developments in their areas of expertise.
Board responsibilities
The Board is responsible to Shareholders for the overall management of the
Company. The Board has adopted a set of reserved powers which set out the
particular duties of the Board. Such reserved powers include decisions
relating to the determination of investment policy and oversight of the
Investment Manager and their advisers, strategy, risk assessment, Board
composition, capital raising, statutory obligations and public disclosure,
financial reporting and entering into any material contracts by the Company.
The Directors have access to the advice and services of the Administrator and
Secretary, who are responsible to the Board for ensuring that Board procedures
are followed and that it complies with the Companies Law and applicable rules
and regulations of the GFSC and the London Stock Exchange. Where necessary, in
carrying out their duties, the Directors may seek independent professional
advice at the expense of the Company.
The Company maintains appropriate directors' and officers' liability insurance
in respect of legal action against its Directors on an ongoing basis.
Investment Advisory services are provided to the Company by Crystal Amber
Advisers (UK) LLP through the Investment Manager. The Board is responsible for
setting the overall investment policy and has delegated day to day
implementation of the Company's strategy to the Investment Manager but retains
responsibility to ensure that adequate resources of the Company are directed
in accordance with their decisions. The Board monitors the actions of the
Investment Adviser and Investment Manager at regular Board meetings. The Board
has also delegated administration and company secretarial services to Ocorian
Administration (Guernsey) Limited but retains accountability for all functions
it delegates.
The Directors are responsible for ensuring the effectiveness of the internal
controls of the Company which are designed to ensure that proper accounting
records are maintained, the financial information on which business decisions
are made and which is issued for publication is reliable, and the assets of
the Company are safeguarded. A formal review of the effectiveness of the
Company's risk management and internal control systems is conducted at least
once a year and this was completed successfully during the year under review.
The Investment Manager has established a Risk Committee to monitor and manage
risks faced by the Company.
The Board meets at least four times a year for regular, scheduled meetings and
should the nature of the business of the Company require it, additional
meetings may be held, some at short notice. Prior to each of its quarterly
meetings, the Board receives reports from the Investment Adviser and
Administrator covering activities during the period, performance of relevant
markets, performance of the Company's assets, finance, compliance matters,
working capital position and other areas of relevance to the Board. The Board
also considers from time to time reports provided by the Investment Manager
and other service providers. The Board also receives quarterly reports from
the Risk Committee.
There is regular contact between the Board, the Investment Manager and the
Administrator. The Directors maintain overall control and supervision of the
Company's affairs.
There may be a requirement to hold Board meetings outside the scheduled
quarterly meetings in order to review and consider investment opportunities
and/or formal execution of documents and to consider ad hoc business.
Between meetings there is regular contact with the Investment Manager and the
Administrator, and the Board requires information to be supplied in a timely
manner by the Investment Manager, the Company Secretary and other advisers in
a form and of a quality to enable it to discharge its duties.
The Board, through the Remuneration and Management Engagement Committee, is
responsible for the appointment and monitoring of all service providers
including the Investment Manager. It conducts a formal review of all service
providers on an annual basis and confirms that such a review has taken place
during the year.
Audit committee
Due to the size of the Board, all Directors are members of the Audit
Committee. Jane Le Maitre acts as Chair of the Committee. The responsibilities
of the Committee include reviewing the Annual Report and Audited Financial
Statements, the Interim Report and Financial Statements, the system of
internal controls and risk management, and the terms of appointment and
remuneration of the Auditor. It is also the forum through which the Auditor
reports to the Board.
The Committee met twice in the year ended 30 June 2022. Matters considered at
these meetings included but were not limited to:
• review of the accounting policies and format of the financial
statements;
• review of the Annual Report and Audited Financial Statements for
the year ended 30 June 2021;
• review of the Interim Report and Unaudited Interim Condensed
Financial Statements for the six months ended 31 December 2021;
• review of the audit plan and timetable for the preparation of the
Annual Report and Audited Financial Statements for the year ended 30 June
2022;
• discussions and approval of the fee for the external audit;
• assessment of the effectiveness of the external audit process as
described below;
• review of the Company's significant risks and internal controls;
• review and consideration of the AIC Code, the GFSC Code and the
Stewardship Code; and
• detailed review of the 2022 Annual Report in relation to the AIC
Code and determining the period of assessment for the long term viability of
the Company.
The Committee considers the valuation of investments to be a significant
matter in relation to these Financial Statements. The Company's accounting
policy is to value investments as designated at fair value through profit or
loss or as derivatives held for trading, and to recognise sales and purchases
of those investments using trade date accounting. This is significant as the
Company's investments and derivatives amount to 100.1% (30 June 2021: 98.9%)
of the NAV. The Committee has satisfied itself that the sources used for
pricing the Company's investments are appropriate and reliable.
The Committee also reviews the objectivity and independence of the Auditor.
The Board considers KPMG Channel Islands Limited ("KPMG") to be independent of
the Company. The audit fees disclosed in the profit or loss section of the
Statement of Profit or Loss and Other Comprehensive Income are in relation to
the audit of the Financial Statements. During the year, KPMG did not receive
any remuneration from the Company for non-audit services.
The Committee assessed the effectiveness of the audit process by considering
KPMG's fulfilment of the agreed audit plan through the reporting presented to
the Committee by KPMG and discussions at Committee meetings which highlighted
the major issues that arose during the course of the audit. In addition, the
Committee also sought feedback from the Investment Manager and the
Administrator on the effectiveness of the audit process. The Committee was
satisfied that there had been appropriate focus and challenge on the primary
areas of audit risk and assessed the quality of the audit process to be good.
The external audit was initially put out to tender in 2008 when the Company's
shares were listed and admitted to trading on AIM and KPMG was appointed. The
lead audit partner changed in 2010 and 2015. The current lead audit partner
took charge in 2020 and will change again by rotation in 2025. There are no
obligations to restrict the Company's choice of external auditor. The external
audit was put out to tender in 2017. Following a robust competitive tender
process, the Committee concluded that the interests of the Company and its
Shareholders would be best served by retaining the services of KPMG to provide
a consistent audit approach.
The Board considers that an internal audit function specific to the Company is
unnecessary and that the systems and procedures employed by the Investment
Manager and the Administrator, including their own internal control functions,
provide sufficient assurance that a sound system of internal control is
maintained, which safeguards the Company's assets. Formal terms of reference
for the Committee are available on the Company's website www.crystalamber.com
(http://www.crystalamber.com) .
Other committees
Although the AIC Code recommends that companies appoint a Nomination
Committee, as the Board is wholly comprised of non-executive Directors the
Board has not deemed this necessary and as such all matters are considered by
the full Board.
The Board has established a Remuneration and Management Engagement Committee.
Due to the size of the Board, all Directors are members of this committee.
Fred Hervouet acts as Chairman of the committee. The Remuneration and
Management Engagement Committee meets at least once a year pursuant to its
terms of reference. It provides a formal mechanism for the review of the
remuneration of the Chairman and Directors and review of the performance and
remuneration of the Investment Manager, Investment Adviser and other service
providers.
Remuneration policy
The Company aims to ensure remuneration is competitive, aligned with
Shareholder interests, relatively simple and transparent, and compatible with
the aim of attracting, recruiting and retaining suitably qualified and
experienced directors.
In addition, the Board reviews the arrangements for the provision of
management and other services to the Company on an ongoing basis. The Company
receives regular reporting from the Investment Adviser and regular valuations
of the Company's investments, which allows the Board to form a judgement as to
the performance of its portfolio.
Board meetings, Committee meetings and Directors' attendance
One of the key criteria the Company uses when selecting Directors is their
confirmation prior to their appointment that they will be able to allocate
sufficient time to the Company to discharge their responsibilities in a timely
and effective manner.
The Board formally met four times during the year and other ad hoc Board
committee meetings were called in relation to specific events or to issue
approvals, often at short notice and did not necessarily require full
attendance. Directors are encouraged to give the Chairman their views and
comments on matters to be discussed, in advance when they are unable to attend
a meeting.
Attendance at the quarterly Board meetings is further set out below:
Board Audit Committee Remuneration and Management Engagement Committee Tenure as at 30 June 2022
Christopher Waldron 4 of 4 2 of 2 1 of 1 8 years
Jane Le Maitre 4 of 4 2 of 2 1 of 1 5 years, 2 months
Fred Hervouet 4 of 4 2 of 2 1 of 1 4 years, 7 months
( )
In addition to the above, there were two additional Board committee meetings
during the year.
Engagement with stakeholders
The Company is committed to maintaining good communications and building
positive relationships with all stakeholders, including Shareholders,
suppliers, investee companies, and the wider community and environment in
which the Company and its investee companies operate. This includes regular
engagement with the Company's Shareholders and other stakeholders by the
Board, the Investment Manager, Investment Adviser and the Administrator.
Regular feedback is provided to Board members to ensure they understand the
views of stakeholders.
Relations with Shareholders
The Board welcomes the views of Shareholders and places great importance on
communication with its shareholders. Senior members of the Investment Adviser
make themselves available to meet with principal Shareholders and key sector
analysts. The Chairman and other Directors are also available to meet with
Shareholders, if required.
All Shareholders have the opportunity to ask questions of the Company at its
registered office. The Annual General Meeting of the Company provides a forum
for Shareholders to meet and discuss issues with the Directors and Investment
Adviser. Company information is also available to Shareholders on the
Company's website www.crystalamber.com.
The Board regularly monitors the shareholder profile of the Company and
receives comprehensive shareholder reports from the Company's Broker at all
quarterly board meetings.
The Company recognises that relationships with suppliers are enhanced by
prompt payment and the Company's Administrator ensures all payments are
processed within the contractual terms agreed with individual suppliers.
Key decisions made or approved by the Directors during the year and the impact
of those decisions on the Company's Shareholders and wider stakeholders is
disclosed further in Report of the Directors section of the financial
statements.
Whistleblowing
The Board has considered the AIC Code recommendations in respect of
arrangements by which staff of the Investment Adviser or Administrator may, in
confidence, raise concerns within their respective organisations about
possible improprieties in matters of financial reporting or other issues. It
has concluded that adequate arrangements are in place for the proportionate
and independent investigation of such matters and, where necessary, for
appropriate follow up action to be taken within their respective
organisations.
AIFM Directive
The Company is categorised as an externally managed non-EU AIF under the AIFM
Directive. The Investment Manager of the Company is its non-EU AIFM. The
Investment Manager as the AIFM has created a Risk Committee which meets at
least quarterly to consider the risks faced by the Company and the investment
process, consistent with the requirements of the AIFM Directive. The AIFM has
adopted a remuneration policy which accords with the principles established by
the AIFM Directive. The remuneration policy is in compliance with the
requirements of the AIFM Directive and the guidance issued by the FCA. The
Investment Manager in its capacity as the AIFM does not have any employees.
Mark Huntley and Laurence McNairn of Crystal Amber Asset Management (Guernsey)
Limited and as directors of the AIFM received total aggregate remuneration of
£30,000 by way of a fixed fee for the year ended 30 June 2022. No variable
fee elements of remuneration were paid to the Directors of the AIFM.
The AIFM Directive outlines the information which has to be made available to
investors in an AIF and directs that material changes to this information be
disclosed in the Annual Report of the AIF. All information required to be
disclosed under the AIFM Directive is either disclosed in this Annual Report
or on the Company's website www.crystalamber.com.
AEOI Rules
Under AEOI Rules, the Company is registered under FATCA and continues to
comply with both FATCA and CRS requirements to the extent relevant to the
Company.
NMPI
The Board has been advised that the Company would satisfy the criteria for
being an investment trust if it was resident in the UK. Accordingly, the Board
has concluded that the Company's Ordinary shares are not non-mainstream pooled
investments for the purposes of the FCA rules regarding the restrictions on
the promotion to retail investors of unregulated collective investment schemes
and close substitutes. This means that the restrictions on promotion imposed
by the FCA rules do not apply to the Company. It is the Board's intention that
the Company conducts its affairs so that these restrictions will continue to
remain inapplicable.
Independent auditor
KPMG has agreed to offer itself for re-appointment as Auditor of the Company
and a resolution proposing re-appointment and authorising the Directors to
determine remuneration will be presented at the Annual General Meeting.
Annual General Meeting
The Annual General Meeting of the Company will be held at 10:00am on 23
November 2022 at the offices of Ocorian Administration (Guernsey) Limited,
Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey.
On behalf of the Board
Christopher Waldron Jane Le
Maitre
Chairman
Director
29 September 2022 29
September 2022
Directors
Christopher Waldron Guernsey Resident, (appointed 1 July 2014)
Non-Executive Chairman (with effect from 23 November 2017)
Christopher Waldron has over 35 years' experience as an investment manager,
specialising in fixed income, hedging strategies and alternative investment
mandates and until 2013 was Chief Executive of the Edmond de Rothschild Group
in the Channel Islands. Prior to joining the Edmond de Rothschild Group in
1999, Mr Waldron held investment management positions with Bank of Bermuda,
the Jardine Matheson Group and Fortis but he is now primarily an independent
non-executive director of a number of listed funds and investment companies.
From 2014 to 2020 he was a member of the States of Guernsey's Investment and
Bond Sub-Committee. He is a Fellow of the Chartered Institute of Securities
and Investment.
Jane Le Maitre, Guernsey Resident, Non-Executive Director (appointed 8 May
2017)
Jane Le Maitre has over 30 years' experience in the Finance Industry in the UK
and Guernsey. She is a Fellow of the Institute of Chartered Accountants in
England & Wales, a Chartered Tax Adviser and a member of the Institute of
Directors. She trained in audit with Coopers & Lybrand in the UK and
joined the tax and fiduciary division of KPMG (Channel Islands) in 1989. She
became a Partner in 1995 where she remained until 2000 before becoming a
director in the fiduciary division at Kleinwort Benson. After 5 years with
Kleinwort Benson, she joined the Intertrust Group in Guernsey becoming
Managing Director of Intertrust Reads Private Clients Limited for a period of
6 years and held other Intertrust Board positions until September 2021. She is
now an independent Director and Trustee of a number of private client
structures and continues to hold executive positions in a number of unlisted
property and investment holding entities.
Fred Hervouet, Guernsey Resident, Non-Executive Director (appointed 6 December
2017)
Fred Hervouet has over 20 years' experience of working in different areas of
the Financial Markets and Asset Management Industry. His experience includes
Fixed Income and Derivatives Markets, Structured Finance, Structured Products,
Trading and Risk Management. Prior to moving to Guernsey in December 2013, he
was Managing Director and Head of Commodity Derivatives Asia for BNP Paribas.
He holds a number of non-executive director positions on LSE listed funds and
Private Equity funds including Chenavari Toro Income Fund Limited, where he is
chairman. He holds a Masters' Degree in Financial Markets, Commodity Markets
and Risk Management from University Paris Dauphine and an MSc in Applied
Mathematics and International Finance. He is a member of the UK Institute of
Directors and the UK Association of Investment Companies.
In addition to their directorships of the Company, the Directors currently
hold the following directorships of listed companies:
Christopher Waldron Jane Le Maitre
UK Mortgages Limited None at present
Fred Hervouet
Chenavari Toro Income Fund Limited
SME Credit Realisation Fund Limited
Boussard and Gavaudan Holdings Limited
Independent Auditor's Report
to the Members of Crystal Amber Fund Limited
Our opinion is unmodified
We have audited the financial statements of Crystal Amber Fund Limited (the
"Company"), which comprise the statement of financial position as at 30 June
2022, the statements of profit or loss and other comprehensive income,
changes in equity and cash flows for the year then ended, and notes,
comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
· give a true and fair view of the financial position of the Company as
at 30 June 2022, and of the Company's financial performance and cash
flows for the year then ended;
· are prepared in accordance with International Financial Reporting
Standards; and
· comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of the Company in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to listed entities. We believe
that the audit evidence we have obtained is a sufficient and appropriate basis
for our opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these
matters. In arriving at our audit opinion above, the key audit matters were
as follows (unchanged from 2021):
The risk Our response
Valuation of financial assets designated at fair value through profit and loss Basis: Our audit procedures included:
£120,862,525; (2021: £121,642,713) The Company has invested 100.1% of its net assets as at 30 June 2022 into Internal Controls:
equity investments (£110,202,065) and debt investments (£10,660,460)
Refer to the Report of the Directors, note 1 accounting policies and note 9 (together, the "investments"). We tested the design and implementation of the control over the valuation of
and 14 disclosures.
investments.
The Company's listed or quoted equities (£80,234,249) are valued based on
market prices obtained from a third-party pricing provider. Challenging managements' assumptions and inputs including use of a KPMG
valuation specialist:
The Company's unlisted investments, with a value of $40,628,276 are valued by
using recognised valuation methodologies and models, in accordance with the For listed or quoted investments, we used our own valuation specialist to
International Private Equity and Venture Capital Valuation Guidelines. independently price all fair values to a third party source. We compared our
independent price to the price as utilised by the Company.
Risk:
For the unlisted investments we:
The valuation of the investments, given that they represent the majority of
the net assets of the Company, is considered to be a significant area of our · assessed the appropriateness of the valuation methodology applied to
audit. each investment and where relevant, derived an independent reference price;
Of the investments which are unlisted (representing 33.7% of net assets), · compared the assumptions used in the valuation to observable market
these investment valuations are subject to a risk of fraud and error given the data (where possible) or supporting documentation;
high level of subjectivity, estimation uncertainty and complexity when
deriving a fair value. · corroborated significant investee company inputs used in the
valuation models to supporting documentation;
· assessed the effect of the investee entity's financial performance
upon the fair value.
Assessing disclosures:
We also considered the Company's disclosures (see note 1) in relation to the
use of estimates and judgments regarding the valuation of investments and the
Company's valuation policies adopted and fair value disclosures in notes 9 and
14 for compliance with IFRS.
The risk Our response
Going concern Basis: Our audit procedures included:
The Company has regularly submitted itself to continuation votes which Following the outcome of the continuation vote at the 2021 AGM and the ensuing We performed an assessment of the revised investment strategy of the Company
requires 75% of the votes to continue as currently constituted ('the revision to the investment strategy of the Company, the financial statements and challenged the reasonability of the Directors' judgment by holding
continuation vote'). At the 2021 AGM, the 75% threshold was not met. explain how the Directors have formed a judgment that it is appropriate to discussions with them and the Investment Manager regarding their intentions,
adopt the going concern basis of preparation for the Company. future plans and available options for maximising the return on GI Dynamics.
The outcome of the continuation vote resulted in a revision of the investment
strategy of the Company. The judgment is based on the Directors' intention for the Company to continue We considered whether the going concern disclosure in note 1 to the financial
to actively manage for the foreseeable future its investment in GI Dynamics in statements gives a full and accurate description of the Directors' assessment
Refer to the Report of the Directors and note 1 of the financial statements. order to maximise shareholder returns. of the going concern basis of preparation for the Company, including the
identified risks and dependencies.
Risk:
Given the significance of the outcome of the continuation vote and the ensuing
change to the investment strategy to the determination of the appropriate
basis of preparation of the financial statements, this judgment is a
significant area of our audit.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at £2,398,000,
determined with reference to a benchmark of net assets of £120,706,584, of
which it represents approximately 2% (2021: 1.8%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Company was set at 75% (2021: 75%) of materiality for the financial
statements as a whole, which equates to £1,798,000. We applied this
percentage in our determination of performance materiality because we did not
identify any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding £119,900, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
Going concern
The directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and they have concluded that the Company's financial position
means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of approval
of the financial statements (the "going concern period").
In our evaluation of the directors' conclusions, we considered the inherent
risks to the Company's business model and analysed how those risks might
affect the Company's financial resources or ability to continue operations
over the going concern period. The risks that we considered most likely to
affect the Company's financial resources or ability to continue operations
over this period were:
· Availability of capital to meet operating costs and other financial
commitments; and
· The outcome of the continuation vote and changes to the investment
strategy of the Company (an explanation of how we evaluated management's
assessment of going concern in relation to this is set out in the related key
audit matters section of this report).
Our conclusions based on this work:
· we consider that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
· we have not identified, and concur with the directors' assessment
that there is not, a material uncertainty related to events or conditions
that, individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern for the going concern period;
and
· we found the going concern disclosure in the notes to the financial
statements to be acceptable.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgments
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
· enquiring of management as to the Company's policies and procedures
to prevent and detect fraud as well as enquiring whether management have
knowledge of any actual, suspected or alleged fraud;
· reading minutes of meetings of those charged with governance; and
· using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, and taking into account possible incentives
or pressures to misstate performance and our overall knowledge of the control
environment, we perform procedures to address the risk of management override
of controls, in particular the risk that management may be in a position to
make inappropriate accounting entries, and the risk of bias in accounting
estimates such as valuation of unquoted investments. On this audit we do not
believe there is a fraud risk related to revenue recognition because the
Company's revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources or
agreements with little or no requirement for estimation from management. We
did not identify any additional fraud risks.
We performed procedures including:
· identifying journal entries and other adjustments to test based on
risk criteria and comparing any identified entries to supporting
documentation;
· incorporating an element of unpredictability in our audit procedures;
and
· assessing significant accounting estimates for bias.
Further detail in respect of valuation of unquoted investments is set out in
the key audit matter section of in this report.
Identifying and responding to risks of material misstatement due to
non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our sector
experience and through discussion with management (as required by auditing
standards), and from inspection of the Company's regulatory and legal
correspondence, if any, and discussed with management the policies and
procedures regarding compliance with laws and regulations. As the Company is
regulated, our assessment of risks involved gaining an understanding of the
control environment including the entity's procedures for complying with
regulatory requirements.
The Company is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation and taxation
legislation and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement
items.
The Company is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or
litigation or impacts on the Company's ability to operate. We identified
financial services regulation as being the area most likely to have such an
effect, recognising the regulated nature of the Company's activities and its
legal form. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of management and
inspection of regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or
regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection
of fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual report but does
not include the financial statements and our auditor's report thereon. Our
opinion on the financial statements does not cover the other information and
we do not express an audit opinion or any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
We have nothing to report on other matters on which we are required to report
by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· the Company has not kept proper accounting records; or
· the financial statements are not in agreement with the accounting
records; or
· we have not received all the information and explanations, which to
the best of our knowledge and belief are necessary for the purpose of our
audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement, the directors are responsible
for: the preparation of the financial statements including being satisfied
that they give a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error; assessing the
Company's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and using the going concern basis of
accounting unless they either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) .
The purpose of this report and restrictions on its use by persons other than
the Company's members, as a body
This report is made solely to the Company's members, as a body, in accordance
with section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the Company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
Rachid Frihmat
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
29 September 2022
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 30 June 2022
2022 2021
Revenue Capital Total Revenue Capital Total
Notes £ £ £ £ £ £
Income
Dividend income from listed investments 20,311 - 20,311 288,935 - 288,935
Interest received - - - - - -
20,311 - 20,311 288,935 - 288,935
Net gains/(losses) on financial assets at FVTPL
Equities
Net realised losses 9 - (2,934,478) (2,934,478) - (14,412,551) (14,412,551)
Movement in unrealised gains 9 - 9,241,539 9,241,539 - 50,646,556 50,646,556
Debt instruments
Movement in unrealised gains 9 - 428,347 428,347 - 3,259,261 3,259,261
Derivative Financial Instruments
Movement in unrealised losses 9 - - - - (21,080) (21,080)
- 6,735,408 6,735,408 - 39,472,186 39,472,186
Total income 20,311 6,735,408 6,755,719 288,935 39,472,186 39,761,121
Expenses
Transaction costs 4 - 299,972 299,972 - 89,266 89,266
Exchange movements on revaluation of investments and working capital (847,496) (3,981,544) (4,829,040) 584,291 1,909,832 2,494,123
Management fees 15,17 1,649,299 - 1,649,299 1,586,269 - 1,586,269
Directors' remuneration 16 130,000 - 130,000 130,000 - 130,000
Administration fees 17 168,247 - 168,247 134,392 - 134,392
Custodian fees 17 124,454 - 124,454 55,465 - 55,465
Audit fees 56,255 - 56,255 34,050 - 34,050
Facility fees 18 - - - 316,925 - 316,925
Other expenses 375,053 - 375,053 351,440 - 351,440
1,655,812 (3,681,572) (2,025,760) 3,192,832 1,999,098 5,191,930
Return for the year (1,635,501) 10,416,980 8,781,479 (2,903,897) 37,473,088 34,569,191
Basic and diluted (loss)/earnings per share (pence) 5 (1.95) 12.48 10.53 (3.34) 43.25 39.91
All items in the above statement derive from continuing operations.
The total column of this statement represents the Company's Statement of
Profit or Loss and Other Comprehensive Income prepared in accordance with
IFRS. The supplementary information on the allocation between revenue return
and capital return is presented under guidance published by the AIC.
The Notes to the Financial Statements form an integral part of these Financial
Statements.
Statement of Financial Position
As at 30 June 2022
2022 2021
Assets Notes £ £
Cash and cash equivalents 7 47,370 5,447,571
Trade and other receivables 8 70,728 406,272
Financial assets designated at FVTPL 9 120,862,525 121,642,713
Total assets 120,980,623 127,496,556
Liabilities
Trade and other payables 10 274,039 4,564,568
Total liabilities 274,039 4,564,568
Equity
Capital and reserves attributable to the Company's equity Shareholders
Share capital 11 997,498 997,498
Treasury shares 12 (19,767,097) (19,191,639)
Distributable reserve 78,040,908 88,472,333
Retained earnings 61,435,275 52,653,796
Total equity 120,706,584 122,931,988
Total liabilities and equity 120,980,623 127,496,556
NAV per share (pence) 6 145.03 146.81
The Financial Statements were approved by the Board of Directors and
authorised for issue on 29 September 2022.
Christopher Waldron Jane Le
Maitre
Chairman
Director
29 September 2022 29
September 2022
The Notes to the Financial Statements form an integral part of these Financial
Statements.
Statement of Changes in Equity
For the year ended 30 June 2022
Share Treasury Distributable Retained earnings Total
Notes capital shares reserve Capital Revenue Total equity
£ £ £ £ £ £ £
Opening balance at 1 July 2021 997,498 (19,191,639) 88,472,333 57,984,984 (5,331,188) 52,653,796 122,931,988
Purchase of Ordinary shares into Treasury 12 - (575,458) - - - - (575,458)
Dividends paid in the year 13 - - (10,431,425) - - - (10,431,425)
Profit for the year - - - 10,416,980 (1,635,501) 8,781,479 8,781,479
Balance at 30 June 2022 997,498 (19,767,097) 78,040,908 68,401,964 (6,966,689) 61,435,275 120,706,584
Share Treasury Distributable Retained earnings Total
Notes capital shares reserve Capital Revenue Total equity
£ £ £ £ £ £ £
Opening balance at 1 July 2020 996,248 (12,265,601) 90,579,709 20,511,896 (2,427,291) 18,084,605 97,394,961
Issue of Ordinary shares 1,250 - - - - - 1,250
Purchase of Ordinary shares into Treasury 12 - (6,926,038) - - - - (6,926,038)
Dividends paid in the year 13 - - (2,107,376) - - - (2,107,376)
Profit for the year - - - 37,473,088 (2,903,897) 34,569,191 34,569,191
Balance at 30 June 2021 997,498 (19,191,639) 88,472,333 57,984,984 (5,331,188) 52,653,796 122,931,988
The Notes to the Financial Statements form an integral part of these Financial
Statements.
Statement of Cash Flows
For the year ended 30 June 2022
2022 2021
Note £ £
Cashflows from operating activities
Dividend income received from listed investments 20,311 288,935
Management fees paid (1,649,299) (1,586,269)
Directors' fees paid (130,000) (130,000)
Other expenses paid (309,818) (943,672)
Net cash outflow from operating activities (2,068,806) (2,371,006)
Cashflows from investing activities
Purchase of equity investments (47,581,132) (6,949,972)
Sale of equity investments 61,399,209 31,476,434
Purchase of debt instruments (5,707,461) (4,056,625)
Purchase of derivative financial instruments - (33,238,926)
Sale of derivative financial instruments - 23,991,363
Transaction charges on purchase and sale of investments (299,972) (69,305)
Net cash inflow from investing activities 7,810,644 11,152,969
Cashflows from financing activities
Proceeds from loan facility - 22,785,705
Repayments of loan facility - (23,125,126)
Proceeds from issuance of ordinary shares - 1,250
Purchase of Ordinary shares into Treasury (710,614) (6,805,000)
Dividends paid (10,431,425) (2,107,376)
Net cash outflow from financing activities (11,142,039) (9,250,547)
Net decrease in cash and cash equivalents during the year (5,400,201) (468,584)
Cash and cash equivalents at beginning of year 5,447,571 5,916,155
Cash and cash equivalents at end of year 7 47,370 5,447,571
The Notes to the Financial Statements form an integral part of these Financial
Statements.
Notes to the Financial Statements
For the year ended 30 June 2022
General information
Crystal Amber Fund Limited (the "Company") was incorporated and registered in
Guernsey on 22 June 2007 and is governed in accordance with the provisions of
the Companies Law. The registered office address is PO Box 286, Floor 2,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GYI 4LY. The Company
was established to provide Shareholders with an attractive total return, which
is expected to comprise primarily capital growth with the potential for
distributions of up to 5 pence per share per annum following consideration of
the accumulated retained earnings as well as the unrealised gains and losses
at that time. The Company seeks to achieve this through 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.
GI Dynamics Inc. ("GID"), is an unconsolidated subsidiary of the Company and
was incorporated in Delaware. As at 30 June 2022 it had five wholly-owned
subsidiaries and its principal place of business is Boston. Refer to Note 15
for further information.
The Company's Ordinary shares were listed and admitted to trading on AIM, on
17 June 2008. The Company is also a member of the AIC.
All capitalised terms are defined in the Glossary of Capitalised Defined Terms
unless separately defined.
1. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of the Financial
Statements are set out below. These policies have been consistently applied to
those balances considered material to the Financial Statements throughout the
current year, unless otherwise stated.
Basis of preparation
The Financial Statements have been prepared to give a true and fair view, are
in accordance with IFRS and the SORP "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" issued by the AIC in November 2014 and
updated in January 2017 to the extent to which it is consistent with IFRS, and
comply with the Companies Law. The Financial Statements are presented in
Sterling, the Company's functional currency.
The Financial Statements have been prepared under the historical cost
convention with the exception of financial assets designated at fair value
through profit or loss ("FVTPL") and derivatives held for trading which are
measured at fair value.
Investment Entities
To determine whether the Company meets the definition of an investment entity,
further consideration is given to the characteristics of an investment entity
that are demonstrated by the Company.
The Company meets the definition of an investment entity on the basis of the
following criteria:
· The Company obtains funds from multiple investors for the purpose of
providing those investors with investment management services;
· The Company commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
· The Company measures and evaluates the performance of substantially
all its investments on a fair value basis.
As the Company has met the definition of an investment entity under IFRS 10,
it is exempt from preparing consolidated financial statements.
The Company has taken the exemption permitted by IAS 28 "Investments in
Associates and Joint Ventures" and IFRS 11 "Joint Arrangements" for entities
similar to investment entities and measures its investments in associates at
fair value. The Directors consider an associate to be an entity over which the
Group has significant influence by means of owning between 20% and 50% of the
entities' shares. The Company's associates are disclosed in Note 14.
The Company meets the definition of an investment entity and complies with
disclosure requirements in IFRS 10, IFRS 12 and IAS 27.
Going concern
As at 30 June 2022, the Company had net assets of £120.7 million (30 June
2021: £122.9 million) and cash balances of £0.05 million (30 June 2021:
£5.4 million) which are sufficient to meet current obligations as they fall
due.
In the period prior to 30 June 2022 and up to the date of this report, the
COVID-19 pandemic has had a negative impact on the global economy. Whilst the
public health risks have largely been contained, there are lingering supply
chain and staffing issues in many industries, which result in some
uncertainties and additional risks for the Company and its investments.
The Directors and Investment Manager continue to monitor the effect of the
COVID-19 pandemic on the Company and its investment portfolio. In particular,
they have considered the potential impact of the following specific key
matters:
• Unavailability of key personnel at the Investment
Manager or Administrator;
• Increased volatility in the fair value of investments,
including any potential impairment in value; and
• Increased uncertainty as to the timing and quantum of
dividend receipts.
In considering the potential impact of COVID-19 on the Company and its
investment portfolio, the Directors have taken account of the mitigation
measures already in place. At company level, key personnel at the Investment
Manager and Administrator have successfully implemented business continuity
plans to ensure business disruption is minimised.
On 24 February 2022, Russia invaded Ukraine. This poses significant challenges
and uncertainty to business activities and continues to have potentially
adverse consequences for investee companies as energy costs rise, but the
effects of this on the Company should be somewhat offset by increased revenue
from Hurricane Energy.
In relation to the Company's investment portfolio, 66% of the Company's
investments are valued by reference to the market bid price as at the date of
this report.
As these are quoted prices in an active market, any volatility in the global
economy is reflected within the value of the financial assets designated at
fair value through profit or loss. As such, the Company has not included any
fair value impairments in relation to its investments.
Following the continuation vote which did not obtain the requisite 75% to
pass, the Company was obliged to return to Shareholders with proposals to
either reorganise, restructure, or wind up the Company. Following extensive
Shareholder consultation, a new investment policy was put before Shareholders
which prioritised the intention to maximise the return of capital,
representing a change of strategy. In March 2022, the change of investment
policy was approved by Shareholders.
The Board believed that it was in the interests of Shareholders as a whole for
the Company to adopt a strategy of maximising capital returned to Shareholders
by way of timely disposals, including trade sales of the Company's mature
listed strategic holdings, where appropriate. The Company has a track record
of returning cash to Shareholders via share buybacks and dividends: since
2013, when the requirement for the continuation vote to be proposed at the
2021 AGM was introduced, £76.7 million has been returned to Shareholders via
such means.
In 2014, the Company acquired an initial shareholding in GI Dynamics. The
Company believes that because of its intensive activism, it has been able to
acquire majority ownership of a strategically valuable shareholding, which
comprises 81.5% of GI Dynamic's diluted share capital. With board
representation, the Company is actively involved in the management of GI
Dynamics.
The Company looks forward to continuing to work with GI Dynamics to achieve
its operational milestones and to further develop the pathway to maximise
shareholder value. Given the anticipated value accretive milestones, the
Company believes it is appropriate that it gives GI Dynamics the time it
requires to maximise shareholder returns.
In due course, the Company will consult with investors about the longer-term
plans for GI Dynamics to realise value for the Company's Shareholders. A trade
sale is a potential crystallisation path. Alternatively, as the Company
continues a disposal programme of its listed investment portfolio, it is
possible that the Company's listing may provide a suitable and cost-effective
vehicle for GI Dynamics to be listed, raise its profile and potentially,
following the achievement of milestones, provide the Company's Shareholders
with direct exposure to its growth prospects, as well as liquidity.
The Directors have considered the contributing factors set out above and are
confident that the Company has adequate resources to continue in operational
existence for the foreseeable future, and do not consider there to be any
threat to the going concern status of the Company. Accordingly, they continue
to adopt the going concern basis of accounting in preparing these financial
statements.
Use of estimates and judgements
The preparation of the Financial Statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of the reported amounts in these Financial Statements. The
determination that the Company is an investment entity is a critical
judgement, as set out above. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to
be reasonable in the circumstances. Actual
results may differ from these estimates. The unquoted equity and debt
securities have been valued based on unobservable inputs (see Note 14).
Segmental reporting
Operating segments are reported in a manner consistent with internal reporting
provided to the chief operating decision maker. The chief operating decision
maker, which is responsible for allocating resources and assessing performance
of the operating segments, has been identified as the Board as a whole. 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
these Financial Statements.
For management purposes, the Company is domiciled in Guernsey and is engaged
in a single segment of business mainly in one geographical area, being
investment mainly in UK equity instruments, and therefore the Company has only
one single operating segment.
Foreign currency translation
Monetary assets and liabilities are translated from currencies other than
Sterling ('foreign currencies') to Sterling (the 'functional currency') at the
rate prevailing on the reporting date. Income and expenses are translated from
foreign currencies to Sterling at the rate prevailing at the date of the
transaction. Exchange differences are recognised in the profit or loss section
of the Statement of Profit or Loss and Other Comprehensive Income.
Financial instruments
Financial instruments comprise investments in equity, debt instruments,
derivatives, trade and other receivables, cash and cash equivalents, and trade
and other payables. Financial instruments are initially recognised at fair
value unless they are trade receivables. The cost of the instrument may be
indicative of the fair value. Subsequent to initial recognition financial
instruments are measured as described below.
Financial assets designated at FVTPL
All the Company's investments including equity, debt instruments and
derivative financial instruments are held at FVTPL. Financial instruments are
initially recognised at fair value. The cost of the instrument may be
indicative of the fair value. Transaction costs are expensed in the profit or
loss section of the Statement of Profit or Loss and Other Comprehensive
Income. Gains and losses arising from changes in fair value are presented in
the profit or loss section of the Statement of Profit or Loss and Other
Comprehensive Income in the period in which they arise.
Purchases and sales of investments are recognised using trade date accounting.
Quoted investments are valued at bid price on the reporting date or at
realisable value if the Company has entered into an irrevocable commitment
prior to the reporting date to sell the investment. Where investments are
listed on more than one securities market, the price used is that quoted on
the most advantageous market, which is deemed to be the market on which the
security was originally purchased. If the price is not available as at the
accounting date, the last available price is used. The valuation methodology
adopted is in accordance with IFRS 13.
Loan notes are classified as debt instruments and are initially recognised at
fair value. The cost of the instrument may be indicative of the FV. Subsequent
to initial recognition, loan notes are valued
at fair value. In the absence of an active market, the Company determines the
fair value of its unquoted investments by taking into account the
International Private Equity and Venture Capital ("IPEV") guidelines.
Derivatives held for trading
When considered appropriate the Company will enter into derivative contracts
to manage its price risk and provide protection against the volatility of the
market.
Quoted derivatives are valued at bid price on the reporting date. Where
derivatives are listed on more than one securities market, the price used is
that quoted on the most advantageous market, which is deemed to be the market
on which the security was originally purchased. If the price is not available
as at the accounting date, the last available price is used. Gains and losses
arising from changes in fair value are presented in the profit or loss section
of the Statement of Profit or Loss and Other Comprehensive Income in the
period in which they arise.
Trade and other receivables
The Company's trade and other receivables are classified as financial assets
at amortised cost. They are measured at amortised cost less impairment
assessed using the general approach of the expected credit loss model based on
experience of previous losses and expectations of future losses.
Trade and other payables
The Company's trade and other payables are measured at amortised cost and
include trade and other payables and other short term monetary liabilities
which are initially recognised at fair value and subsequently measured at
amortised cost using the effective interest rate method.
Derecognition of financial instruments
The Company derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows in a transaction in which substantially all the risks
and rewards of ownership of the financial asset are transferred.
On derecognition of a financial asset, the difference between the carrying
amount of the asset (or the carrying amount allocated to the portion of the
asset derecognised), and consideration received (including any new asset
obtained less any new liability assumed) is recognised in the profit or loss
section of the Statement of Profit or Loss and Other Comprehensive Income.
The Company derecognises a financial liability when its contractual
obligations are discharged, cancelled or expire. Any gain or loss on
derecognition is recognised in the profit or loss section of the Statement of
Profit or Loss and Other Comprehensive Income.
Cash and cash equivalents
The Company considers all highly liquid investments with original maturities
of less than 90 days when acquired to be cash equivalents. Due to the credit
rating of the financial institutions holding the Company's cash and cash
equivalents, no impairment has been recognised.
Share issue expenses
Share issue expenses of the Company directly attributable to the issue and
listing of its own shares are charged to the distributable reserve.
Share capital
Ordinary shares are classified as equity where there is no obligation to
transfer cash or other assets.
Dividends
Dividends paid during the year from distributable reserves are disclosed in
the Statement of Changes in Equity. Dividends declared post year end are
disclosed in the Notes to the Financial Statements.
Distributable reserves
Distributable reserves represent the amount transferred from the share premium
account, approved by the Royal Court of Guernsey on 18 July 2008, and amounts
transferred to distributable reserves in relation to the sale of Treasury
shares above cost.
Income
Investment income and interest income have been accounted for on an accruals
basis using the effective interest method. Dividend income is recognised in
the profit or loss section of the Statement of Profit or Loss and Other
Comprehensive Income when the relevant security is quoted ex-dividend.
The Company currently incurs withholding tax imposed by countries other than
the UK on dividend income. These dividends are recorded gross of withholding
tax in the profit or loss section of the Statement of Profit or Loss and Other
Comprehensive Income.
Expenses
All expenses are accounted for on an accruals basis. In respect of the
analysis between revenue and capital items presented within the Statement of
Profit or Loss and Other Comprehensive Income, all expenses have been
presented as revenue items except as follows:
· expenses which are incidental to the acquisition and disposal of an
investment are charged to capital; and
· expenses are split and presented partly as capital items where a
connection with the maintenance or enhancement of the value of the investments
held can be demonstrated. Accordingly, the performance fee is charged to
capital, reflecting the Directors' expected long-term view of the nature of
the investment returns of the Company.
Treasury shares reserve
The Company has adopted the principles outlined in IAS 32 'Financial
Instruments: Presentation' and treats consideration paid including directly
attributable incremental cost for the repurchase of Company shares held in
Treasury as a deduction from equity attributable to the Company's equity
holders until the shares are cancelled, reissued or sold. No gain or loss is
recognised within the statement of Profit or Loss and Other Comprehensive
Income on the purchase, sale, issue or cancellation of the Company's own
equity investments.
Any consideration received, net of any directly attributable incremental
transaction costs upon sale or re-issue of such shares, is included in equity
attributable to the Company's equity holders.
2. NEW STANDARDS AND INTERPRETATIONS
New and amended standards and interpretations applied in these financial
statements
There were no new standards or interpretations effective for the first time
for periods beginning on or after 1 July 2021 that had a significant effect on
the Company's financial statements. Furthermore, none of the amendments to
standards that are effective from that date had a significant effect on the
financial statements.
New and amended standards and interpretations not applied in these financial
statements (issued but not yet effective)
Other accounting standards and interpretations have been published and will be
mandatory for the Company's accounting periods beginning on or after 1 January
2022 or later periods. The impact of these standards is not expected to be
material to the reported results and financial position of the Company.
3. TAXATION
The Company is exempt from taxation in Guernsey under the provisions of the
Income Tax (Exempt Bodies) (Guernsey) Ordinance, 2008 and is charged an annual
fee of £1,200 (2021: £1,200).
4. TRANSACTION COSTS
The transaction charges incurred in relation to the acquisition and disposal
of investments during the year were as follows:
2022 2021
£ £
Stamp Duty 163,701 31,402
Commissions and custodian transaction charges:
In respect of purchases 51,976 11,036
In respect of sales 84,295 46,828
299,972 89,266
5. BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share is based on the following data:
2022 2021
Return for the year £8,781,479 £34,569,191
Weighted average number of issued Ordinary shares 83,430,611 86,648,736
Basic and diluted earnings per share (pence) 10.53 39.91
6. NAV PER SHARE
NAV per share is based on the following data:
2022 2021
NAV per Statement of Financial Position £120,706,584 £122,931,988
Total number of issued Ordinary shares (excluding Treasury shares) at 30 June 83,231,000 83,737,000
NAV per share (pence) 145.03 146.81
7. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash held by the Company available on
demand. Cash and cash equivalents were as follows:
2022 2021
£ £
Cash on demand 47,370 5,447,571
47,370 5,447,571
8. TRADE AND OTHER RECEIVABLES
2022 2021
£ £
Current assets:
Other receivables 56,958 391,790
Prepayments 13,770 14,482
70,728 406,272
There were no past due or impaired receivable balances outstanding at the year
end (2021: £Nil).
9. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS AND
DERIVATIVES HELD FOR TRADING
2022 2021
£ £
Equity investments 110,202,065 117,965,568
Debt instruments 10,660,460 3,677,145
Financial assets designated at FVTPL 120,862,525 121,642,713
Total financial assets designated at FVTPL and derivatives held for trading 120,862,525 121,642,713
Equity investments
Cost brought forward 153,218,932 167,187,388
Purchases 43,347,101 11,184,002
Conversion of Loans* - 8,902,985
Sales proceeds (61,399,209) (28,890,455)
Net realised losses (2,934,478) (5,164,988)
Cost carried forward 132,232,346 153,218,932
Unrealised (losses) brought forward (33,410,174) (84,056,730)
Movement in unrealised losses/gains 9,241,539 50,646,556
Unrealised losses carried forward (24,168,635) (33,410,174)
Effect of exchange rate movements 2,138,354 (1,843,190)
Fair value of equity investments 110,202,065 117,965,568
Debt instruments
Cost brought forward 3,257,955 8,104,315
Purchases 5,707,461 4,056,625
Conversion of Loans* - (8,902,985)
Cost carried forward 8,965,416 3,257,955
Unrealised gains/(losses)brought forward 1,254,587 (2,004,674)
Movement in unrealised gains/(losses) 428,347 3,259,261
Unrealised gains carried forward 1,682,934 1,254,587
Effect of exchange rate movements 12,110 (835,397)
Fair value of debt instruments 10,660,460 3,677,145
Total financial assets designated at FVTPL 120,862,525 121,642,713
*During the prior year, debt instruments in relation to GID worth £8.9
million were transferred to Equity Investments, making up 79,032,963 common
shares and 116,499,889 Series A shares.
2022 2021
£ £
Derivative financial instruments held for trading
Cost brought forward - -
Purchases - 33,238,926
Sales proceeds - (23,991,363)
Net realised losses - (9,247,563)
Cost carried forward - -
Unrealised gains brought forward - 21,080
Movement in unrealised gains - (21,080)
Unrealised gains carried forward - -
Fair value of derivatives held for trading - -
Total derivative financial instruments held for trading - -
Total financial assets designated at FVTPL and derivatives held for trading
120,862,525 121,642,713
Total realised gains and losses and unrealised gains and losses on the
Company's equity, debt and derivative financial instruments are made up of the
following gain and loss elements:
2022 2021
Realised gains 8,438,985 5,286,855
Realised losses (11,373,463) (19,699,406)
Net realised losses in financial assets designated at FVTPL and derivatives (14,412,551)
held for trading
(2,934,478)
Movement in unrealised gains 6,270,840 9,326,603
Movement in unrealised losses 3,399,046 44,558,134
Net movement in unrealised (losses)/gains in financial assets designated at 9,669,886 53,884,737
FVTPL and derivatives held for trading
10. TRADE AND OTHER PAYABLES
2022 2021
£ £
Current liabilities:
Accruals 274,039 195,392
Unsettled trade purchases - 4,369,176
274,039 4,564,568
The carrying amount of trade payables approximates to their fair value.
11. SHARE CAPITAL AND RESERVES
The authorised share capital of the Company is £3,000,000 divided into 300
million Ordinary shares of £0.01 each.
The issued share capital of the Company, including Treasury shares (See note
12), is as follows:
2022 2021
Number £ Number £
Opening balance 99,749,762 997,498 99,624,762 996,248
Ordinary shares issued during the year - - 125,000 1,250
Issued, called up and fully paid Ordinary shares of £0.01 each 99,747,762 997,498 99,749,762 997,498
Capital risk management
In order to maintain or adjust the capital structure, the Company may adjust
the amount of dividends paid to Shareholders, return capital to Shareholders,
issue new shares or sell assets.
In accordance with the Company's Memorandum and Articles of Incorporation the
retained earnings and distributable reserve shown in the Company's Statement
of Financial Position at the year end are distributable by way of dividend.
The Company may carry the returns of the Company to the distributable reserve
or use them for any purpose to which the returns of the Company may be
properly applied and either employed in the business of the Company or be
invested, in accordance with applicable law. The distributable reserve
includes the amount transferred from the share premium account which was
approved by the Royal Court of Guernsey on 18 July 2008.
During the year ended 30 June 2022, the Company paid dividends of £10,431,425
(2021: £2,107,376) from distributable reserves, as disclosed in Note 13. On 7
July 2022, the Company declared an interim dividend of £8,338,000 equating to
10 pence per Ordinary share, which was paid on 12 August 2022.
Externally imposed capital requirement
There are no capital requirements imposed on the Company.
Rights attaching to shares
The Ordinary shares carry the right to vote at general meetings and the
entitlement to receive any dividends and surplus assets of the Company on a
winding up.
12. TREASURY SHARES RESERVE
2022 2021
Number £ Number £
Opening balance 16,012,762 19,191,639 7,763,195 12,265,601
Treasury shares purchased during the year 506,000 575,458
8,249,567 6,926,038
Closing balance 16,518,762 19,767,097 16,012,762 19,191,639
During the year ended 30 June 2022, 506,000 (2021: 8,249,567) Treasury shares
were purchased at an average price of 113.73 pence per share (2021: 83.96
pence per share), representing an average discount to NAV at the time of
purchase of 42.1% (2021: 33.8%).
13. DIVIDENDS
On 7 July 2021, the Company declared a second interim dividend of £2,093,425
in respect of the financial year ended 30 June 2021 equating to 2.5 pence per
Ordinary share, which was paid on 30 July 2021 to Shareholders on the register
on 15 July 2021.
On 22 December 2021, the Company declared an interim dividend of £8,338,000
in respect of the financial year ended 30 June 2022 equating to 10 pence per
Ordinary share, which was paid on 2 February 2022 to Shareholders on the
register on 14 January 2022.
On 30 June 2022 it was announced that the Company expected to return a further
10 pence a share (representing a gross return of £8.3 million) by mid-August
2022 and to have returned an additional 60 pence a share (equivalent to £50
million) by the end of September 2022.
On 7 July 2022, the Company declared an interim dividend of £8,338,000
equating to 10 pence per
Ordinary share, which was paid on 12 August 2022 to Shareholders on the
register on 15 July 2022.
14. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS
Financial risk management objectives
The Investment Manager, Crystal Amber Asset Management (Guernsey) Limited and
the Administrator, Ocorian Administration (Guernsey) Limited provide advice to
the Company which allows it to monitor and manage financial risks relating to
its operations through internal risk reports which analyse exposures by degree
and magnitude of risk. The Investment Manager and the Administrator report to
the Board on a quarterly basis. The risks relating to the Company's operations
include credit risk, liquidity risk, and the market risks of interest rate
risk, price risk and foreign currency risk. The Board has considered the
sensitivity of the Company's financial assets and monitors the range of
reasonably possible changes in significant observable inputs on a regular
basis and does not consider that any changes are required this year to the
categories used in prior years.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will
default on its contractual obligations with the Company, resulting in
financial loss to the Company. At 30 June 2022 the major financial assets
which were exposed to credit risk included financial assets designated at
FVTPL and cash and cash equivalents.
The carrying amounts of financial assets best represent the maximum credit
risk exposure at 30 June 2022. The Company's credit risk on liquid funds is
minimised because the counterparties are banks with high credit ratings
assigned by an international credit-rating agency.
The table below shows the cash balances at the accounting date and the S&P
credit rating for each counterparty at that date.
Location Rating Cash Balance Cash Balance
2022 2021
Butterfield Bank (Channel Islands) Limited Guernsey BBB+ 37,413 5,311,151
Barclays Bank PLC - Isle of Man Branch Isle of Man A 9,957 136,420
47,370 5,447,571
The credit ratings disclosed above are the credit ratings of the parent
entities of each of the counterparties being The Bank of N. T. Butterfield
& Son Limited and Barclays Bank plc.
The Company's credit risk on financial assets designated at FVTPL arises on
debt instruments. The Company's credit risk on financial assets designated at
FVTPL is considered acceptable as debt instruments make up only a small
percentage of the financial assets. The Company is also exposed to credit risk
on financial assets with its brokers for unsettled transactions. This risk is
considered minimal due to the short settlement period involved and the high
credit quality of the brokers used. There are no credit ratings available for
the debt instruments held by the Company. At 30 June 2022, £110,239,478
(2021: £123,276,719) of the financial assets of the Company were held by the
Custodian, Butterfield Bank (Guernsey) Limited.
Bankruptcy or insolvency of the Custodian may cause the Company's rights with
respect to financial assets held by the Custodian to be delayed or limited.
91% (2021: 97%) of the Company's financial assets are held by the Custodian in
segregated accounts. The Company monitors its risk by monitoring the credit
quality and financial position of the Custodian. The parent of the Custodian
has an S&P credit rating of BBB+ (2021: BBB+). The remaining balance of
financial assets of £10,741,145 (2021: £4,219,837) includes £9,957 (2021:
£136,420) cash held by Barclays Bank plc, £70,728 (2021: £406,272) trade
receivables and £7,987,857 (2021: £3,677,145) loan notes issued by GI
Dynamics Inc and £2,672,603 (2021: £nil) loan notes issued by Sigma Broking
Limited.
Liquidity risk
Liquidity risk is the risk that the Company will be unable to meet its
obligations arising from financial liabilities. Ultimate responsibility for
liquidity risk management rests with the Board of Directors, which has built
an appropriate framework for the management of the Company's liquidity
requirements.
The Company adopts a prudent approach to liquidity risk management and
maintains sufficient cash reserves to meet its obligations. All the Company's
Level 1 investments are listed and are subject to a settlement period of three
days.
The following tables detail the Company's expected and contractual maturities
for its financial assets and liabilities:
2022 Weighted average interest rate Less than 1 year 1-5 years 5+ years Total
Assets £ £ £ £
Non-interest bearing 110,282,750 - - 110,282,750
Variable interest rate instruments 0.29 % 37,413 - - 37,413
Fixed interest rate instruments 5.00% 10,660,460 - - 10,660,460
Liabilities
Non-interest bearing (274,039) - - (274,039)
120,706,584 - - 120,706,584
2021 Weighted average interest rate Less than 1 year 1-5 years 5+ years Total
Assets £ £ £ £
Non-interest bearing 118,508,260 - - 118,508,260
Variable interest rate instruments 0.00% 5,311,151 - - 5,311,151
Fixed interest rate instruments 5.00% 3,677,145 - - 3,677,145
Liabilities
Non-interest bearing (4,564,568) - - (4,564,568)
122,931,988 - - 122,931,988
Market risk
The Company is exposed through its operations to market risk which encompasses
interest rate risk, price risk and foreign exchange risk.
Interest rate risk
Interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates. The Company is exposed to
interest rate risk as it has current account balances with variable interest
rates and debt instruments at fair value through profit and loss. The
Company's exposure to interest rates is detailed in the liquidity risk section
of this note. Interest rate repricing dates are consistent with the maturities
stated in the liquidity risk section of this note. The Company is exposed to
fixed interest rate risk on the loans receivable as where an instrument is a
fixed rate security, the value of the Financial Instruments is expected to be
particularly affected by the current climate of rising interest rate.
The Investment Manager monitors market interest rates and will place interest
bearing assets at best available rates but will also take the counterparty's
credit rating and financial position into consideration.
The cash at hand balances are the only assets with variable interest rates and
the movement in variable interest rates is an immaterial amount, therefore, no
sensitivity analysis for the movement is disclosed.
Price risk
Price risk is the risk that the fair value of investments will fluctuate as a
result of changes in market prices. This risk is managed through
diversification of the investment portfolio across business sectors. In
general, the Company will not invest more than 20% of its gross assets in any
single investment at the time of investment. However, there is no guarantee
that the value will not rise above 20% after any investment is made,
particularly where it is believed that an investment is exceptionally
attractive.
The Company's positions in derivative financial instruments are set out in
Note 9.
Price risk
The following tables detail the Company's equity investments as at 30 June
2022:
Equity Investments Sector Value Percentage
£
of Gross Assets
Hurricane Energy plc Oil and Gas 40,583,325 34
GI Dynamics Inc Healthcare 23,057,072 19
De La Rue plc Commercial Services 14,944,854 12
Equals Group plc Financial Services 13,875,400 11
Allied Minds plc Private Equity 7,938,679 7
Sigma Broking Limited Financial Services 5,664,818 5
Other Various 4,137,917 3
Total 110,202,065 91
2021 Percentage of Gross Assets
Equity Investments Sector Value
£
De La Rue plc Commercial Services 44,560,772 35
GI Dynamics Inc Healthcare 20,000,482 16
Equals Group plc Financial Services 18,797,414 15
Hurricane Energy plc Oil and Gas 16,200,000 13
Allied Minds plc Private Equity 9,567,511 8
Board Intelligence Ltd Commercial Services 4,004,232 3
Other Various 4,835,157 4
Total 117,965,568 93
The following tables detail the investments in which the Company holds more
than 20% of the relevant entities. These have been recognised at fair value as
the Company is regarded as an investment entity as set out in Note 1.
2022 Place of Business Place of Incorporation Percentage Ownership Interest
Equity Investments
Hurricane Energy plc United Kingdom United Kingdom 28.9
GI Dynamics Inc. United States United States 81.5
2021 Place of Business Place of Incorporation Percentage Ownership Interest
Equity Investments
Leaf Clean Energy plc United Kingdom United Kingdom 23.7
Hurricane Energy plc United Kingdom United Kingdom 22.6
Equals Group plc United Kingdom United Kingdom 22.4
Allied Minds plc United States United States 21.2
GI Dynamics Inc. United States United States 73.1
The Company has assessed the price risk of the listed equity, debt and
derivative financial instruments based on a potential 25% (2021: 25%)
increase/decrease in market prices, which the Company believes represents the
effect of a possible change in market prices and provides consistent analysis
for Shareholders, as follows:
At the year end and assuming all other variables are held constant:
· If market prices of listed equity, debt and derivative financial
instruments had been 25% higher (2021: 25% higher), the Company's return and
net assets for the year ended 30 June 2022 would have increased by
£20,058,562, net of any impact on performance fee accrual (2021:
£23,152,596);
· If market prices of listed equity, debt and derivative financial
instruments had been 25% lower (2021: 25% lower), the Company's return and net
assets for the year ended 30 June 2022 would have decreased by £20,058,562,
net of any impact on performance fee accrual (2021: decreased by £23,152,596
reflecting the effect of the derivative financial instruments held at the
reporting date); and
· There would have been no impact on the other equity reserves.
Foreign exchange risk
Foreign exchange risk is the risk that the value of financial instruments will
fluctuate due to changes in foreign exchange rates and arises when the Company
invests in financial instruments and enters into transactions that are
denominated in currencies other than its functional currency. During the year,
the Company was exposed to foreign exchange risk arising from equity and debt
investments and derivative financial instruments held in Euro and US Dollars
(2021: Australian Dollars, Euro and US Dollars).
The table below illustrates the Company's exposure to foreign exchange risk at
30 June 2022
2022 2021
£ £
Financial assets designated at FVTPL:
Listed equity investments denominated in Euro 96,261 84,727
Unlisted equity investments denominated in US Dollars 23,057,072 20,000,483
Debt instruments denominated in US Dollars 7,987,857 3,677,145
Total assets 31,141,190 23,762,355
If the Euro weakened/strengthened by 10% (2021: 10%) against Sterling with all
other variables held constant, the fair value of equity investments would
increase/decrease by £9,626 (2021: £8,473).
If the US Dollar weakened/strengthened by 10% (2021: 10%) against Sterling
with all other variables held constant, the fair value of debt instruments
would increase/decrease by £798,796 (2021: £367,715) and the fair value of
the unlisted equity investments would increase/decrease by £2,305,707.
Fair value measurements
The Company measures fair values using the following fair value hierarchy that
prioritises the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy under IFRS 13 are as follows:
Level 1: Quoted price (unadjusted) in an active market for an identical
instrument.
Level 2: Valuation techniques based on observable inputs, either directly
(i.e. as prices) or indirectly (i.e. derived from prices). This category
includes instruments valued using quoted prices in active markets for similar
instruments; quoted prices for identical or similar instruments in markets
that are considered less than active; or other valuation techniques for which
all significant inputs are directly or indirectly observable from market data.
Level 3: Valuation techniques using significant unobservable inputs. This
category includes all instruments for which the valuation technique includes
inputs not based on observable data and the unobservable inputs have a
significant effect on the instrument's valuation. This category includes
instruments that are valued based on quoted prices for similar instruments for
which significant unobservable adjustments or assumptions are required to
reflect differences between the instruments.
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement. For this purpose, the
significance of an input is assessed against the fair value measurement in its
entirety. If a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that measurement is a
Level 3 measurement. Assessing the significance of a particular input to the
fair value measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires significant
judgement by the Company. The Company considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary, and provided by independent sources
that are actively involved in the relevant market.
The objective of the valuation techniques used is to arrive at a fair value
measurement that reflects the price that would be received to sell an asset or
transfer a liability in an orderly transaction between market participants at
the measurement date.
The following tables analyse within the fair value hierarchy the Company's
financial assets measured at fair value at 30 June 2022 and 30 June 2021:
Level 1 Level 2 Level 3 Total
2022 £ £ £ £
Financial assets designated at FVTPL and derivatives held for trading:
Equities - listed equity investments 77,438,519 2,795,730 - 80,234,249
Equities - unlisted equity investments - - 29,967,816 29,967,816
Debt - loan notes - - 10,660,460 10,660,460
77,438,519 2,795,730 40,628,276 120,862,525
Level 1 Level 2 Level 3 Total
2021 £ £ £ £
Financial assets designated at FVTPL and derivatives held for trading:
Equities - listed equity investments 89,741,685 2,868,699 - 92,610,384
Equities - unlisted equity investments - - 25,355,184 25,355,184
Debt - loan notes - - 3,677,145 3,677,145
89,741,685 2,868,699 29,032,329 121,642,713
The Level 1 equity investments were valued by reference to the closing bid
prices in each investee company on the reporting date.
The Level 2 equity investment relates to Sutton Harbour due to the low volume
of trading activity in the market for this investment and has been valued by
reference to the closing bid price in the investee company on the reporting
date.
The Level 3 equity investment in Board Intelligence Limited was valued by
reference to the valuation multiples of publicly listed cloud software
companies, after applying a discount equivalent to that which prevailed at the
time of its last investment round in June 2020. The Level 3 equity and debt
investments in GI Dynamics were valued by reference to the discounted cash
flow valuation of the company with an additional discount for dilution risk.
The total valuation was then allocated through a waterfall to the loan note,
Series A shares and common stock owned by the Company. The Level 3 equity
investment in Sigma Broking Limited was valued using a multiple of EBITDA of
the company with an additional discount for lack of liquidity.
For financial instruments not measured at FVTPL, the carrying amount is
approximate to their fair value.
Fair value hierarchy - Level 3
The following table shows a reconciliation from the opening balances to the
closing balances for fair value measurements in Level 3 of the fair value
hierarchy:
2022 2021
£ £
Opening balance at 1 July 2021 29,032,329 11,684,980
GI Dynamics Inc - Transfer to Level 3 - 4,294,452
Purchases 10,707,462 15,776,344
Movement in unrealised (losses)/gains (3,912,815) 12,187,394
Conversion of loans - (8,902,985)
Sales (1,660,933) (3,183,907)
Net realised gain 1,633,412 1,830,764
Effect of exchange rate movements 4,828,821 (4,654,713)
Closing balance at 30 June 2022 40,628,276 29,032,329
The Company recognises transfers between levels of the fair value hierarchy on
the date of the event of change in circumstances that caused the transfer.
The table below provides information on significant unobservable inputs used
at 30 June 2022 in measuring equity financial instruments categorised as Level
3 in the fair value hierarchy. It also details the sensitivity to changes in
significant unobservable inputs used to measure value in each case.
Valuation Method Fair Value at 30 June 2022 Unobservable inputs Factor Sensitivity to changes in significant unobservable inputs
Board Intelligence Limited Discount to comparable company multiples 1,245,926 Comparable Revenue multiple 5.7x A 25% increase (decrease) in the revenue multiple would increase (decrease) FV
by £0.7m (£0.7m)
Discount to comparable multiple
A 25% decrease (increase) in the discount to the revenue multiple would
increase (decrease) FV by £0.7m (£0.6m)
52.7%
GI Dynamics Inc Discounted cash flow 23,057,072 Discount rate 43% An increase (decrease) in the discount rate to 48% (38%) would reduce
(increase) FV by £8.9m (£13m)
High growth rate over 9 year period 48%
A decrease (increase) in the near term growth rate to 38% (58%) would decrease
(increase) FV by £4.1m
An increase (decrease) in the dilution discount to 30% (to 10%) would reduce
(increase) FV by £3.6 million
Dilution discount
20%
Sigma Broking Limited EBITDA Multiple 5,664,818 Discount rate 50% An increase (decrease) in the liquidity discount to 60% (to 40%) would reduce
(increase) FV by £0.9million.
Valuation Method Fair Value at 30 June 2021 Unobservable inputs Factor Sensitivity to changes in significant unobservable inputs
Board Intelligence Limited Discount to comparable company multiples 4,004,233 Comparable Revenue multiple 13.8x A 25% increase (decrease) in the revenue multiple would increase (decrease) FV
by £1.6m (£1.2m)
Discount to comparable multiple
A 25% decrease (increase) in the discount to the revenue multiple would
increase (decrease) FV by £1.4m (£1.1m)
52.7%
GI Dynamics Inc Discounted cash flow 20,000,283 Discount rate 43% An increase (decrease) in the discount rate to 48% (38%) would reduce
(increase) FV by £7.5m (£11.1m)
High growth rate over 9 year period 48%
A decrease (increase) in the near term growth rate to 58% (38%) would decrease
(increase) FV by £3.6m
An increase (decrease) in the dilution discount to 30% (to 10%) would reduce
(increase) FV by £2.7 million
Dilution discount
20%
Leaf Clean Energy Co Discounted cash flow on expected wind down proceeds 1,350,468 Discount rate 10% A 20% change to the discount rate would impact FV by £0.02 million
15. RELATED PARTIES
Richard Bernstein is a director and a member of the Investment Manager, a
member of the Investment Adviser and a holder of 10,000 (2021: 10,000)
Ordinary shares in the Company, representing 0.01% (2021: 0.01%) of the voting
share capital of the Company at the year end.
During the year, the Company incurred management fees of £1,649,299 (2021:
£1,586,269) of which £Nil were outstanding at the year-end (2021: £ Nil).
There were no performance fees incurred in the year (2021: £Nil) and none
outstanding at the year-end (30 June 2021: Nil).
As at 30 June 2022 the Investment Manager held 6,899,031 Ordinary shares (2021
6,904,330) of the Company, representing 8.29% (2021 6.92%) of the voting share
capital.
As at 30 June 2022, the Company's investment in GI Dynamics Inc. is an
unconsolidated subsidiary due to the Company's percentage holding in the
voting share capital of GID. There is no restriction on the ability of GID to
pay cash dividends or repay loans, but it is unlikely that GID will make any
distribution or loan repayments given its current strategy. During the year,
the Company purchased convertible loan notes (not driven by any contractual
obligation) for the purpose of supporting GID in pursuing its strategy.
GI Dynamics Inc. was incorporated in Delaware, had five wholly owned
subsidiaries as at 30 June 2022 and its principal place of business is Boston.
The five subsidiaries were as follows:
· GI Dynamics Securities Corporation, a Massachusetts-incorporated
non-trading entity;
· GID Europe Holding B.V., a Netherlands-incorporated non-trading
holding company;
· GID Europe B.V., a Netherlands-incorporated company that conducts
certain European business operations;
· GID Germany GmbH, a German-incorporated company that conducts certain
European business operations; and
· GI Dynamics Australia Pty Ltd, an Australian-incorporated company
that conducts Australian business operations.
16. DIRECTORS' INTERESTS AND REMUNERATION
The interests of the Directors in the share capital of the Company at the year
end and as at the date of this report are as follows:
2022 2021
Number of Ordinary shares Total Number of Ordinary shares Total
voting rights voting rights
Christopher Waldron 30,000 0.03% 30,000 0.03%
Jane Le Maitre((1)) 13,500 0.01% 13,500 0.01%
Fred Hervouet 7,500 0.01% 7,500 0.01%
Total 51,000 0.05% 51,000 0.05%
((1)) Ordinary shares held indirectly
During the year, the Directors earned the following remuneration in the form
of Directors' fees from the Company:
2022 2021
£ £
Christopher Waldron((1)) 47,500 47,500
Jane Le Maitre((2)) 42,500 42,500
Fred Hervouet((3)) 40,000 40,000
Total 130,000 130,000
((1)) Chairman of the Company with effect from 23 November 2017.
((2)) Chairman of Audit Committee with effect from 4 January 2018.
((3)) Chairman of Remuneration and Management Engagement Committee with effect
from 22 November 2019.
At 30 June 2022, Directors' fees of £32,500 (2021: £32,500) were accrued
within trade and other payables.
17. MATERIAL AGREEMENTS
The Company was party to the following material agreements:
Crystal Amber Asset Management (Guernsey) Limited
Until 7(th) March 2022, the management agreement with the Investment Manager
provided for a management fee of 2% applied to the Market Capitalisation of
the Company at 30 June 2013 (£73.5 million) (the "Base Amount"). To the
extent that an amount equal to the lower of the Company's NAV and market
capitalisation, at the relevant time of calculation, exceeded the Base Amount
(the "Excess Amount"), the applicable fee rate on the Excess Amount would have
been1.5%.
The Investment Manager was also entitled to a performance fee in certain
circumstances. The fee was originally calculated by reference to the increase
in NAV per Ordinary share over the course of each performance period.
At an EGM on 7 March 2022, Shareholders agreed with the Company's proposals to
enter into a new Investment Management Agreement incorporating revised
management and performance fee arrangements and to make changes to the
termination provisions to reflect the future strategy of the Company.
The management fee has been reduced to £106,666 per month from 1 April 2022
until 30 June 2022, falling in stages to £40,000 per month until 31 December
2023 (or if earlier, the date on which all of the Company's investments have
been substantially realised) when the management fee will cease.
The Investment Manager is also entitled to a performance fee in certain
circumstances. This fee was previously calculated by reference to the increase
in NAV per Ordinary share over the course of each performance period. In
accordance with the new Investment Management Agreement, the performance fee
will be calculated by reference to the aggregate cash returned to Shareholders
after 1 January 2022. The Investment Manager will receive 20% of the
aggregate cash paid to Shareholders after 1 January 2022 (including the
interim dividend of 10 pence per Ordinary Share declared on 22 December 2021)
in excess of a threshold of £216,000,000.
Depending on whether the Ordinary shares are trading at a discount or a
premium to the Company's NAV per share when the performance fee becomes
payable, the performance fee will be either payable in cash (subject to the
restrictions set out below) or satisfied by the sale of Ordinary shares out of
Treasury or by the issue of new fully paid Ordinary shares (the number of
which shall be calculated as set out below):
· If Ordinary shares are trading at a discount to the NAV per Ordinary
share when the performance fee becomes payable, the performance fee shall be
payable in cash. Within a period of one calendar month after receipt of such
cash payment, the Investment Manager shall be required to purchase Ordinary
shares in the market of a value equal to such cash payment.
· If Ordinary shares are trading at, or at a premium to, the NAV per
Ordinary share when the performance fee becomes payable, the performance fee
shall be satisfied by the sale of Ordinary shares out of Treasury or by the
issue of new fully paid Ordinary shares. The number of Ordinary shares that
shall become payable shall be a number equal to the performance fee payable
divided by the closing mid-market price per Ordinary share on the date on
which such performance fee became payable.
As at 30 June 2022, the Investment Manager held 6,899,031 Ordinary shares (30
June 2021: 6,904,330) of the Company, representing 8.29% (30 June 2021: 6.92%)
of the voting share capital.
Performance fee for year ended 30 June 2022
At 30 June 2022, the Basic Performance Hurdle was £216,000,000 (as adjusted
for all dividends paid during the performance period on their respective
payment dates, compounded at the applicable annual rate) (2021: 249.84 pence).
The aggregate cash returned to Shareholders after 1 January 2022 was
£8,338,000. Accordingly, no performance fee was earned during the year ended
30 June 2022 (2021: £Nil).
Ocorian Administration (Guernsey) Limited
The Administrator provides administration and company secretarial services to
the Company. For these services, the Administrator is paid an annual fee of
0.12% (2021: 0.12%) of that part of the NAV of the Company up to £150 million
and 0.1% (2021: 0.1%) of that part of the NAV over £150 million (subject to a
minimum of £75,000 per annum). During the year, the Company incurred
administration fees of £168,247 (2021: £134,392).
Butterfield Bank (Guernsey) Limited
Under the custodian agreement, the Custodian receives a fee, calculated and
payable quarterly in arrears at the annual rate of 0.05% (2021: 0.05%) of the
NAV per annum, subject to a minimum fee of £25,000 per annum. Transaction
charges of £100 per trade for the first 200 trades processed in a calendar
year and £75 per trade thereafter are also payable. During the year, the
Company incurred custodian fees of £124,454 (2021: £55,465).
18. LOAN FACILITY
On 1 July 2020, the Company entered into a loan facility with Intertrader
Limited whereby it transferred an amount of equity holdings with a value of
£19.1 million as at 1 July 2020 to Intertrader Limited to be held as
collateral for CFD instruments. The interest charged on the loan facility is
2% per annum of the daily overnight loan balance. The Company may draw on the
loan facility of up to 25% of the value of the initial equity holdings
transferred. The balance of this facility is as follows:
2022 2021
£ £
Opening balance - -
Drawdowns - 22,785,705
Repayments by way of sale of CFD instruments - (22,975,306)
Repayments by way of dividends receivable on CFD instruments - (149,820)
Facility fees payable - 316,925
Facility commissions payable - 22,496
Closing balance - -
As at the date of this report, the amount owed to Intertrader Limited under
the loan facility was £Nil (30 June 2021: £Nil). The loan facility remains
in place without incurring any costs.
19. ULTIMATE CONTROLLING PARTY
In the opinion of the Directors and on the basis of the shareholdings advised
to them, the Company has no ultimate controlling party.
20. POST BALANCE SHEET EVENTS
On 7 July 2022, the Company declared an interim dividend of £8,323,100
equating to 10 pence per Ordinary share, which was paid on 12August 2021 to
Shareholders on the register on 15 July 2022.
The Company reported that its unaudited NAV at 31 July 2022 was 149.32 pence
per Ordinary share.
The Company reported that its unaudited NAV at 31 August 2022 was 137.02 pence
per Ordinary share.
There were no other events subsequent to the reporting date, 30 June 2022.
Glossary of Capitalised Defined Terms
"Admission" means admission of the Ordinary shares on 17 June 2008, to the
Official List and/or admission to trading on the Alternative Investment Market
of the London Stock Exchange, as the context may require;
"AEOI Rules" means the Automatic Exchange of Information Rules;
"AGM" or "Annual General Meeting" means the annual general meeting of the
Company;
"AIF" means Alternative Investment Funds;
"AIFM" means AIF Manager;
"AIFM Directive" means the EU Alternative Investment Fund Managers Directive
(no. 2011/61/EU);
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Code of Corporate Governance;
"AIM" means the Alternative Investment Market of the London Stock Exchange;
"Annual Report" means the annual publication of the Company to the
Shareholders to describe its operations and financial conditions, together
with the Company's financial statements;
"APMs" means Alternative Performance Measures.
"ARR" means annual recurring revenue;
"Articles of Incorporation" or "Articles" means the articles of incorporation
of the Company;
"Audited Financial Statements" or "Financial Statements" means the audited
annual financial statements of the Company, including the Statement of Profit
or Loss and Other Comprehensive Income, the Statement of Financial Position,
the Statement of Changes in Equity, the Statement of Cash Flows and associated
notes;
"Australian Stock Exchange" means the Australian Stock Exchange Limited;
"Bank of England" means the Bank of England, the central bank of the UK;
"Board" or "Directors" or "Board of Directors" means the directors of the
Company;
"BOE" means barrels of oil equivalent;
"Brexit" means the departure of the UK from the European Union;
"CBRS" means Citizens Broadband Radio Service;
"CEO" means chief executive officer;
"CE Mark" means a certification mark that indicates conformity with health,
safety, and environmental protection standards;
"CFD" means Contracts for Difference;
"Committee" means the Audit Committee of the Company;
"Company" or "Fund" means Crystal Amber Fund Limited;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as amended);
"CRS" means Common Reporting Standard;
"EBITDA" means earnings before interest, taxes, depreciation and amortisation;
"EGM" or "Extraordinary General Meeting" means an extraordinary general
meeting of the Company;
"EndoBarrier" means a minimally invasive medical device for treatment of type
2 diabetes;
"EPS" means Early Production System;
"Equals" means Equals Group plc;
"FATCA" means Foreign Account Tax Compliance Act;
"FCA" means the Financial Conduct Authority;
"FDA" means the United States Food and Drug Administration;
"FRC" means the Financial Reporting Council;
"FRC Code" means the UK Corporate Governance Code published by the FRC;
"FTSE" means the Financial Times Stock Exchange;
"FV" means Fair Value;
"FVTPL" means Fair Value Through Profit or Loss;
"General Counsel" means the main lawyer who gives legal advice to a company;
"GFSC" means the Guernsey Financial Services Commission;
"GFSC Code" means the GFSC Finance Sector Code of Corporate Governance;
"GID" means GI Dynamics, Inc.;
"Gross Asset Value" means the value of the assets of the Company, before
deducting its liabilities, and is expressed in Pounds Sterling;
"HQ" means headquarters;
"IAS" means international accounting standards as issued by the Board of the
International Accounting Standards Committee;
"IASB" means the International Accounting Standards Board;
"IFRIC" means the IFRS Interpretations Committee, which issues IFRIC
interpretations following approval by the IASB;
"IFRS" means the International Financial Reporting Standards, being the
principles-based accounting standards, interpretations and the framework by
that name issued by the International Accounting Standards Board;
"Interim Financial Statements" means the unaudited condensed interim financial
statements of the Company, including the Condensed Statement of Profit or Loss
and Other Comprehensive Income, the Condensed Statement of Financial Position,
the Condensed Statement of Changes in Equity, the Condensed Statement of Cash
Flows and associated notes;
"Interim Report" means the Company's interim report and unaudited condensed
financial statements for the period ended 31 December;
"Investment Management Agreement" means the agreement between the Company and
the Investment Manager, dated 16 June 2008, as amended on 21 August 2013,
further amended on 27 January 2015 and further amended on 12 June 2018.
Additionally, the Investment Management Agreement was further amended and
restated on 14 February 2022.
"IPEV Capital Valuation Guidelines" means the International Private Equity and
Venture Capital Valuation Guidelines on the valuation of financial assets;
"KPMG" means KPMG Channel Islands Limited;
"LSE" or "London Stock Exchange" means the London Stock Exchange plc;
"Market Capitalisation" means the total number of Ordinary shares of the
Company multiplied by the closing share price;
"MW" means megawatt;
"NAV" or "Net Asset Value" means the value of the assets of the Company less
its liabilities as calculated in accordance with the Company's valuation
policies and expressed in Pounds Sterling;
"NAV per share" means the Net Asset Value per Ordinary share of the Company
and is expressed in pence;
"NMPI" means Non-Mainstream Pooled Investments;
"Official List" is the list maintained by the Financial Conduct Authority
(acting in its capacity as the UK Listing Authority) in accordance with
Section 74(1) of the Financial Services and Markets Act 2000;
"Ordinary share" means an allotted, called up and fully paid Ordinary share of
the Company of £0.01 each;
"R&D" means research and development;
"Risk Committee" means the Risk Committee of the Investment Manager;
"S&P" means Standard & Poor's Credit Market Services Europe Limited, a
credit rating agency registered in accordance with Regulation (EC) No
1060/2009 with effect from 31 October 2011;
"SaaS" means a Software-as-a-Service;
"Smaller Companies Index" means an index of small market capitalisation
companies;
"SME" means small and medium sized enterprises;
"SORP" means Statement of Recommended Practice;
"SPS" means Spectrum Payment Services Ltd;
"Stewardship Code" means the Stewardship Code of the Company adopted from 14
June 2016, as published on the Company's website www.crystalamber.com
(http://www.crystalamber.com) ;
"Supreme Court" means the highest court in the federal judiciary of the US;
"Target Multiple" means the maximum multiple of the original investment that
could be paid, given value drivers, and receive a desired return on
investment;
"TISE" means The International Stock Exchange;
"Treasury" means the reserve of Ordinary shares that have been repurchased by
the Company;
"Treasury shares" means Ordinary shares in the Company that have been
repurchased by the Company and are held as Treasury shares;
"UK" or "United Kingdom" means the United Kingdom of Great Britain and
Northern Ireland;
"UK Stewardship Code" means the UK Stewardship Code published by the FRC in
July 2010 and revised in September 2012;
"US" means the means the United States of America, its territories and
possessions, any state of the United States and the District of Columbia;
"US$" or "$" means United States dollars;
"US Federal Reserve" means the Federal Reserve System, the central banking
system of the US; and
"£" or "Pounds Sterling" or "Sterling" means British pounds sterling and
"pence" means British pence.
Alternative Performance Measures
ALTERNATIVE PERFORMANCE MEASURES ("APMs")
We assess our performance using a variety of measures that are not
specifically defined under IFRS and therefore termed APMs. The APMs that we
use may not be directly comparable with those used by other companies.
ONGOING CHARGES
Ongoing charges are calculated using the AIC Ongoing Charges methodology,
which was last updated in April 2022 and is available on the AIC website
(theaic.co.uk). They represent the Company's investment management fee and all
other operating expenses, excluding currency loss/profit, ad-hoc costs
associated with portfolio transactions, ad-hoc research expenses and
non-recurring legal and professional fees and are expressed as a percentage of
the average Net Asset Value for the year. The Board continues to be conscious
of expenses and works hard to maintain a sensible balance between good quality
service and cost. The ongoing charges calculation is shown below:
2022 2021
£ £
Average NAV for the year (a) 125,257,263 108,461,324
Investment management fee 1,649,299 1,586,269
Other company expenses 820,179 657,782
Total recurring company expenses (b) 2,469,478 2,244,051
Ongoing Charges Ratio (b/a) 1.97% 2.07%
NET ASSET VALUE ("NAV")
The NAV is the net assets attributable to shareholders that is, total assets
less total liabilities, expressed as an amount per individual share.
NAV PER SHARE INCLUDING DIVIDENDS
A measure showing how the NAV per share has performed in the year, taking into
account both capital returns and dividends paid to shareholders.
NAV total return is calculated by adjusting for dividends paid. It considers
the changes in market value as well as other surges of income such as
dividends expressed as a percentage. It shows a more accurate valuation of a
stock's return.
The AIC shows NAV total return as a percentage change from the start of the
year. It assumes that dividends
(https://www.theaic.co.uk/aic/glossary/D?item=989) paid to shareholders are
reinvested at NAV at the time the shares are quoted ex-dividend
(https://www.theaic.co.uk/aic/glossary/E?item=993)
2022
Pence
NAV PER SHARE INCLUDING DIVIDENDS
Opening NAV per share (a) 146.81
Add Dividends for the year (b) 12.50
Opening NAV per share (c) 146.81
Closing NAV per share (d) 145.03
Movement in NAV per share in the year (e) = (d) - (c) (1.78)
NAV per share including Dividends (f) = (a) + (b) + (e) 157.53
Increase in NAV per share in the year (g) = (f) - (a) 10.72
Percentage increase in NAV per share in the year 7.3%
(h) = (g) / (a) * 100
Net Asset Value ("NAV") per share including dividends paid increased by 7.3%.
TOTAL RETURN
Total return is calculated by taking the difference between the number of
shares multiplied by NAV per share at both the start and end of the year. The
increase or decrease percentage is calculated based on the opening value.
Adjusting for dividends paid, the total return in the Company's NAV per share
for the year was 8%
2022
Pence
TOTAL RETURN
Number of shares (a) 1000.00
Opening NAV for the year (pence) (b) 146.81
(c) = (a) + (b) 1468.10
Number of shares (d) 1093.70
Closing NAV per share (e) 145.03
(f) = (d) + (e) 1586.19
Movement in the year (pence) (g) = (c) + (f) 118.09
Percentage Total Return (h) = (g) / (c) * 100 8%
Directors and General Information
Directors Investment Manager
Christopher Waldron (Chairman) Crystal Amber Asset Management (Guernsey) Limited
Fred Hervouet (Chairman of Remuneration and Management Engagement Committee) PO Box 286
Jane Le Maitre (Chairman of Audit Committee) Floor 2, Trafalgar Court
Les Banques, St Peter Port
Investment Adviser Guernsey GYI 4LY
Crystal Amber Advisers (UK) LLP
17c Curzon Street Nominated Adviser
London W1J 5HU Allenby Capital Limited
5 St. Helen's Place
Administrator and Secretary London EC3A 6AB
Ocorian Administration (Guernsey) Limited
PO Box 286 Legal Advisers to the Company
Floor 2, Trafalgar Court As to English Law
Les Banques, St Peter Port Norton Rose Fulbright LLP
Guernsey GYI 4LY 3 More London Riverside
London SE1 2AQ
Broker
Winterflood Investment Trusts As to Guernsey Law
The Atrium Building Carey Olsen
Cannon Bridge House PO Box 98
25 Dowgate Hill Carey House
London EC4R 2GA Les Banques
St. Peter Port
Independent Auditor Guernsey GY1 4BZ
KPMG Channel Islands Limited
Glategny Court Custodian
Glategny Esplanade Butterfield Bank (Guernsey) Limited
St. Peter Port PO Box 25
Guernsey GY1 1WR Regency Court
Glategny Esplanade
Registered Office St. Peter Port
PO Box 286 Guernsey GY1 3AP
Floor 2, Trafalgar Court
Les Banques, St Peter Port Registrar
Guernsey GYI 4LY Link Asset Services
65 Gresham Street
Identifiers London
ISIN: GG00B1Z2SL48 EC2V 7NQ
Sedol: B1Z2SL4
Ticker: CRS
Website: http://crystalamber.com (http://crystalamber.com)
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