REG - Crystal Amber Fund - Half-year Report
28/03/2024 07:00
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RNS Number : 6070I Crystal Amber Fund Limited 28 March 2024
Crystal Amber Fund Limited
("Crystal Amber Fund", the "Company" or the "Fund")
Interim Report and Unaudited Condensed Financial Statements
For the six months ended 31 December 2023
Key Points
· Net Asset Value ("NAV") per share increased by 13.7% over the
six-month period to 31 December 2023 to 107.33p.
· According to Trustnet over the last six months, the Fund is second
out of 24 peer group funds and over one and three years, first out of 23 peer
group funds.
· £5 million asset enhancing share buyback announced within the
period. Further buybacks anticipated in the second quarter of 2024.
· Further realisations since the period end, with more than half of the
Prax Exploration Deferred Consideration Units now sold.
· De La Rue plc share price increased by more than 75% over the six
months to 31 December 2023.
· Strong operational progress at Morphic Medical Inc. Regulatory
approval expected in the coming months.
· In February 2024, Morphic Medical Inc's competitor, Fractyl Health
Inc ("Fractyl") listed on NASDAQ, raising $110 million. Current enterprise
value of Fractyl is $275 million. Fractyl had historic revenues of $102,000.
This peer group comparison serves to demonstrate the potential significant
upside in the value of Morphic Medical Inc.
( )
For further enquiries please contact:
Crystal Amber Fund Limited
Chris Waldron (Chairman)
Tel: 01481 742 742
www.crystalamber.com (http://www.crystalamber.com)
Allenby Capital Limited - Nominated Adviser
Jeremy Porter/ Dan Dearden-Williams
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 below unless separately defined.
Chairman's Statement
During the six month period to 31 December 2023, net asset value increased
from £77.7 million (93.33 pence per share) to an unaudited NAV of £88.3
million (107.33 pence per share) representing an increase of 13.7% in NAV.
This compares to a 5.5% increase in the Numis Small Cap Index over the same
period.
This strong absolute and relative performance continues the trend of the last
three years, where according to Trustnet, the Fund's share price has risen by
20.8% over six months, 19.1% over one year and 35.6% over three years. This
compares with returns for the Investment Trust UK Smaller Companies index of
5.2%, -2.8% and 0.1% over the equivalent periods.
July 2023 also saw the payment of an interim dividend of 25p per share in
respect of the year to 30 June 2023, with £20.8 million returned to
shareholders. This brings the total returned to shareholders since the new
investment strategy was proposed in February 2022, excluding buybacks, to
£45.8 million.
During the period under review, the largest contributor to the increase in net
asset value was the 79% rise in the share price of De La Rue. In September
2023 we reported that following a prolonged period of intense and successful
activism at De La Rue, the Fund purchased 15.3 million shares at a cost of
£6.3 million, equivalent to 41.2p a share. Whilst the Fund's investment
strategy remains to maximise value through returns of capital, this well-timed
purchase demonstrates the benefit to shareholders of retaining a degree of
flexibility in respect of existing holdings.
In December 2023, De La Rue reported operating profits ahead of previous
guidance, net debt below previous guidance and a currency order book that had
more than doubled over the previous three months to £220 million. The Fund
notes both the cross-selling revenue benefits and the elimination of a
substantial plc and head office overhead that would accrue to a trade
acquiror. The Fund is De La Rue's largest shareholder, with a holding close to
17 per cent of its issued share capital. Crystal Amber remains of the view
that the strategic value of De La Rue is substantially more than its
operational value and that it is now a highly attractive takeover target in an
industry requiring consolidation.
In December 2023, the Fund announced the recommencement of on-market purchases
under a share buyback programme to repurchase Ordinary shares to an aggregate
amount of £5 million, pursuant to the authority obtained at the Company's
annual general meeting on 22 November 2023 (the "Buyback"). The purpose of the
Buyback is to reduce the share capital of the Company and continue the process
of returning cash to shareholders. In addition, the Buyback is intended to
help narrow the discount of the share price to NAV. The Buyback has been
funded from the Company's existing surplus cash resources. By 31 December
2023, close to one million shares had been acquired at an average cost of
71.38p a share. The Buyback continued after the period end, and to date, over
6.2 million shares have been acquired, reducing the total voting rights by
7.5% and increasing net asset value per share by approximately 1.9%.
Last month, the Fund announced that it had disposed of over one-third of its
holding of Deferred Consideration Units ("DCUs") in Prax Exploration &
Production plc at a 20% premium to carrying value. Combined with the
anticipated payment in the coming days from the DCUs, this is expected to
increase cash receipts by £5.7 million, equivalent to 7.3p a share. In
aggregate, these are expected to increase net asset value by 2.3p a share.
Earlier this month, the Fund realised an additional £1.2 million from the
sale of further DCUs. More than half of this unquoted holding has now been
sold at a 20% premium to the carrying value at 31 December 2023.
It is now two years since the current investment strategy was approved and the
Investment Manager continues to work to maximise the value received within the
portfolio to allow for timely returns of capital. In the resolution proposing
this strategy, it was envisaged that "predominantly all of the Company's
assets" would have been sold by the end of 2023, with the noted exception of
the unlisted Morphic Medical Inc. Aside from De La Rue, this has been
substantially achieved in respect of the listed positions and, as noted here
and in previous reports, we believe that careful engagement and management of
the De La Rue position will yield a significantly better outcome for
shareholders than a forced sale.
As detailed below in the Investment Manager's Report, the Fund's primary focus
beyond De La Rue is to achieve the regulatory approval at Morphic Medical Inc
that will enable sales to re-commence. This should
not only underpin but should significantly enhance the value of this core
holding. At this point, the Board will seek to consult with the Fund's
shareholders and advisors over the future structure of the Fund, given that
almost all of its assets may well be unlisted by then.
Christopher Waldron
Chairman
27 March 2024
Investment Manager's Report
Performance
During the six month period to 31 December 2023, net asset value increased
from £77.7 million (93.33 pence per share) to an unaudited NAV of £88.3
million (107.33 pence per share).
Investee companies
Morphic Medical Inc ("MMI") formerly GI Dynamics Inc ("GI Dynamics")
The Fund has a fully diluted equity interest of 81.5%, in addition to interest
bearing loan notes.
Last summer, GI Dynamics changed its name to Morphic Medical Inc. MMI is a
privately held company, headquartered in Boston, MA, that develops an
endoscopically delivered medical device for patients with Type 2 Diabetes and
Obesity. The device is called RESET, formerly known as the Endobarrier. RESET
is a thin, flexible implant that lines the proximal intestine and mimics
gastric bypass bariatric surgery as food bypasses the duodenum and the upper
intestines.
Unlike gastric bypass surgery, RESET is reversible, minimally invasive, and
temporary. It does not permanently alter the patient's anatomy but uniquely
targets the body's own blood glucose control mechanisms. This is achieved
through a 20-minute endoscopic procedure. The patient will typically retain
the device for nine months, after which the device is removed.
According to the World Obesity Federation, the impact of being overweight and
obese on the UK economy will continue to grow and is projected to reach 2.4%
of GDP or £125 billion by 2060. This is both a global problem and a global
market.
Over the last year, treatments for Type 2 Diabetes and Obesity have become a
huge area of focus in both the general and the financial press. Novo Nordisk,
the manufacturer of Ozempic and Wegovy has seen its market capitalisation
surpass that of Tesla, with its share price rising by 85% over the last year.
The "trickle down" effect of investor attention has found its way to MMI's
close competitor, Fractyl Health. This is a company with historic annual
revenues of $102,000. Last month, it successfully raised $110 million on
NASDAQ. Its current market capitalisation is $385 million, equivalent to an
enterprise value of $275 million.
Whilst MMI still requires CE Mark certification, it believes that its RESET
device can deliver superior and durable results without change to the anatomy.
A UK study by Dr Bob Ryder of the Sandwell and West Birmingham NHS Trust
demonstrated an average 17.9 Kg reduction in weight and a 2% reduction in
HBA1C at the end of treatment with RESET. Three years after treatment, 75% of
patients maintained most of the improvement achieved.
During the period under review and in anticipation of the re-instatement of
the CE Mark which will enable sales to re-commence, the board of MMI was
significantly strengthened by the appointment of an ex-Medtronic Executive and
by the appointment of the former Chairman of Apollo Endosurgery, which, last
year, was acquired by Boston Scientific for an enterprise value of $615
million.
De La Rue
Following a prolonged period of intense and successful activism at De La Rue, the Fund purchased 15.3 million shares in De La Rue during the summer of 2023 at a cost of £6.3 million, equivalent to 41.2p a share.
In December 2023, De La Rue reported first-half operating profits ahead of
previous guidance at £7.9 million, net debt of £82 million, which was £18
million below previous guidance. Its currency order book had more than doubled
over the previous three months to £220 million, with a very high win rate.
The Fund is De La Rue's largest shareholder, with a holding close to 17 per
cent of its issued share capital. The Investment Manager remains of the view
that the strategic value of De La Rue is substantially more than its
operational value and that it is now a highly attractive takeover target in an
industry requiring consolidation. The Fund notes both the cross-selling
revenue benefits and the elimination of a substantial plc and head office
overhead that would accrue to a trade acquiror.
Allied Minds
Allied Minds is an investor in technology and life science sectors and
operates as a private equity firm of early-stage companies. The Fund first
invested in November 2018 and it owns 18.4% of the company's issued share
capital.
In late 2022, the company delisted from the market to reduce costs and
preserve cash as it pursues its strategy to realise assets. After delisting,
the company undertook a review of internal costs and external providers. It is
understood that Allied Minds has sufficient cash to continue until 2027.
Nevertheless, Allied Minds has failed to provide positive news flow from its
remaining portfolio, with news from Federated Wireless, where Allied Minds has
a 24% interest, particularly scant. Earlier in the month, portfolio company
Orbital Sidekick launched two satellites, which to date are responding as
expected. Given the continuing lack of evidence of realisations and returns of
capital at Allied Minds, the Investment Manager is currently in discussions
with Allied Minds regarding its optimal structure.
Hedging activity
The Fund did not engage in hedging activity during the period.
Outlook
Following two years of successful realisations and consequential shareholder
distributions, the remaining portfolio is, as a consequence, intensely
concentrated. With two remaining listed investments, De La Rue represents 95%
of the value of the quoted portfolio. Overall, MMI comprises more than 40% of
net asset value and the Investment Manager is heavily focused on the
re-instatement of MMI's CE Mark, which is expected in the coming months.
Crystal Amber Asset Management (Guernsey) Limited
27 March 2024
Condensed Statement of Profit or Loss and Other Comprehensive Income (Unaudited)
For the six months ended 31 December 2023
Six months ended 31 December Six months ended 31 December
2023 2022
Revenue Capital Total Revenue Capital Total
Note £ £ £ £ £ £
Income
Interest received 60,955 - 60,955 10,182 - 10,182
60,955 - 60,955 10,182 - 10,182
Net gains on financial assets designated at FVTPL
Equities
Net realised gains 4 - 6,128,586 6,128,586 - 7,135,460 7,135,460
Movement in unrealised gains / (losses) 4 - 5,982,219 5,982,219 - (2,393,065) (2,393,065)
Debt Instruments
Movement in unrealised gains 4 - 329,851 329,851 - 327,869 327,869
- 12,440,656 12,440,656 - 5,070,264 5,070,264
Total income 60,955 12,440,656 12,501,611 10,182 5,070,264 5,080,446
Expenses
Transaction costs - 9,716 9,716 - 38,624 38,624
Exchange movements on revaluation of investments and working capital 215,315 507,438 (3,401) (40,747) (44,148)
292,123
Management fees 9 270,000 - 270,000 540,000 - 540,000
Directors' remuneration 65,000 - 65,000 65,000 - 65,000
Administration fees 44,155 - 44,155 60,435 - 60,435
Custodian fees 18,037 - 18,037 27,626 - 27,626
Audit fees 30,075 - 30,075 30,488 - 30,488
Other expenses 253,303 - 253,303 184,066 - 184,066
895,885 301,839 1,197,724 904,214 (2,123) 902,091
Return/(loss) for the period (834,930) 12,138,817 11,303,887 (894,032) 5,072,387 4,178,355
Basic and diluted earnings per share (pence) 2 (1.00) 14.59 13.59 (1.07) 6.09 5.02
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 Unaudited Condensed Financial Statements below form an
integral part of these Interim Financial Statements.
Condensed Statement of Financial Position (Unaudited)
As at 31 December 2023
As at As at As at
31 December 30 June 31 December
2023 2023 2022
(Unaudited) (Audited) (Unaudited)
Note £ £ £
Assets
Cash and cash equivalents 3,905,308 12,254,948 177,083
Trade and other receivables 62,223 71,338 77,314
Financial assets designated at FVTPL 4 84,664,567 69,859,825 108,290,491
Total assets 88,632,098 82,186,111 108,544,888
Liabilities
Trade and other payables 343,983 4,509,400 306,148
Total liabilities 343,983 4,509,400 306,148
Equity
Capital and reserves attributable to the Company's equity shareholders
Share capital 6 997,498 997,498 997,498
Treasury shares reserve 7 (20,459,580) (19,767,097) (19,767,097)
Distributable reserve 40,586,958 40,586,958 61,394,708
Retained earnings 67,163,239 55,859,352 65,613,631
Total equity 88,288,115 77,676,711 108,238,740
Total liabilities and equity 88,632,098 82,186,111 108,544,888
NAV per share (pence) 3 107.33 93.33 130.05
The Interim Financial Statements were approved by the Board of Directors and
authorised for issue on 27 March 2024.
Christopher Waldron
Jane Le Maitre
Chairman
Director
27 March 2024
27 March 2024
The Notes to the Unaudited Condensed Financial Statements below form an
integral part of these Interim Financial Statements.
Condensed Statement of Changes in Equity (Unaudited)
For the six months ended 31 December 2023
Share Treasury Distributable Retained earnings
Capital Shares Reserve Capital Revenue Total Total Equity
Note £ £ £ £ £ £ £
Opening balance at 1 July 2023 997,498 (19,767,097) 40,586,958 64,910,222 (9,050,870) 55,859,352 77,676,711
Purchase of Ordinary shares into Treasury 7 - (692,483) - - - - (692,483)
Return for the period - - - 12,138,817 (834,930) 11,303,887 11,303,887
Balance at 31 December 2023 997,498 (20,459,580) 40,586,958 77,049,039 (9,885,800) 67,163,239 88,288,115
For the six months ended 31 December 2022
Share Treasury Distributable Retained earnings
Capital Shares Reserve Capital Revenue Total Total Equity
Note £ £ £ £ £ £ £
Opening balance at 1 July 2022 997,498 (19,767,097) 78,040,908 68,401,964 (6,966,688) 61,435,276 120,706,585
Dividends paid in the period 8 - - (16,646,200) - - - (16,646,200)
Return for the period - - - 5,072,387 (894,032) 4,178,355 4,178,355
Balance at 31 December 2022 997,498 (19,767,097) 61,394,708 73,474,351 (7,860,720) 65,613,631 108,238,740
Condensed Statement of Cash Flows (Unaudited)
For the six months ended 31 December 2023
Six months Six months
ended ended
31 December 31 December
2023 2022
(Unaudited) (Unaudited)
£ £
Cash flows from operating activities
Bank interest received 60,955 10,182
Management fees paid (270,000) (540,000)
Directors' fees paid (97,500) (65,000)
Other expenses paid (432,284) (277,090)
Net cash outflow from operating activities (738,829) (871,908)
Cash flows from investing activities
Purchase of equity investments (1,556,709) (1,152,316)
Sale of equity investments 1,778,758 19,612,051
Purchase of debt instruments (7,666,911) (2,273,290)
Sales of debt instruments 536,250 1,500,000
Transaction charges on purchase and sale of investments (9,716) (38,624)
Net cash (outflow)/ inflow from investing activities (6,918,328) 17,647,821
Cash flows from financing activities
Purchase of Company shares into Treasury (692,483) -
Dividends paid - (16,646,200)
Net cash outflow from financing activities (692,483) (16,646,200)
Net (decrease)/ increase in cash and cash equivalents during the period (8,349,640) 129,713
Cash and cash equivalents at beginning of period 12,254,948 47,370
Cash and cash equivalents at end of period 3,905,308 177,083
The Notes to the Unaudited Condensed Financial Statements below form an
integral part of these Interim Financial Statements.
Notes to the Unaudited Condensed Financial Statements
For the six months ended 31 December 2023
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
was 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. Following changes to the Company's investment policy in March
2022, the Company's strategy is to optimise outcomes for a limited number of
special situations where the Company believes value can be realised regardless
of market direction.
Morphic Medical Inc is an unconsolidated subsidiary of the Company and was
incorporated in Delaware. As at 31 December 2023 it had 5 wholly-owned
subsidiaries and its principal place of business is Boston. Refer to Note 9
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
below unless separately defined.
1. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these Interim
Financial Statements are set out below. These policies have been consistently
applied to those balances considered material to the Interim Financial
Statements throughout the current period, unless otherwise stated.
Basis of preparation
The Interim Financial Statements have been prepared in accordance with IAS 34,
Interim Financial Reporting.
The Interim Financial Statements do not include all the information and
disclosures required in the Annual Financial Statements and should be read in
conjunction with the Company's Annual Financial Statements for the year to 30
June 2023. The Annual Financial Statements have been prepared in accordance
with IFRS.
The same accounting policies and methods of computation are followed in the
Interim Financial Statements as in the Annual Financial Statements for the
year ended 30 June 2023.
The presentation of the Interim Financial Statements is consistent with the
Annual Financial Statements. Where presentational guidance set out in the SORP
"Financial Statements of Investment Trust Companies and Venture Capital Trust
(issued by the AIC in November 2014 and updated in February 2018, October
2019, April 2021 and July 2022) is consistent with the requirements of IFRS,
the Directors have sought to prepare the Interim Financial Statements on a
basis compliant with the recommendations of the SORP. In particular,
supplementary information which analyses the Statement of Profit or Loss and
Other Comprehensive Income between items of a revenue and capital nature has
been presented alongside the total Statement of Profit or Loss and
Comprehensive Income.
Going concern
As at 31 December 2023, the Company had net assets of £88.3 million (30 June
2023: £77.7 million) and cash balances of £3.91 million (30 June 2023:
£12.25 million) which are sufficient to meet current obligations as they fall
due.
In relation to the Company's investment portfolio, 44% of the Company's
investments are valued by reference to the market bid price as at the date of
the balance sheet date.
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 extensive Shareholder consultation in the early part of 2022, a
change of investment policy was approved by Shareholders which prioritised the
intention to maximise the return of capital, representing a change of
strategy, as noted above.
The Company has a track record of returning cash to Shareholders via share
buybacks and dividends: the Company has returned £114.9 million to
Shareholders via such means since 2013 when the requirement for the
continuation vote to be proposed at the 2021 AGM was introduced.
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.
For management purposes, the Company is domiciled in Guernsey and is engaged
in investment in UK equity instruments, mainly in one geographical area, and
therefore the Company has only one operating segment.
2. BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share is based on the following data:
Six months Six months
ended ended
31 December 31 December
2023 2022
(Unaudited) (Unaudited)
Return for the period £11,303,887 £4,178,355
Weighted average number of issued Ordinary shares 83,177,141 83,231,000
Basic and diluted earnings per share (pence) 13.59 5.02
3. NAV PER SHARE
NAV per share is based on the following data:
As at As at As at
31 December 30 June 31 December
2023 2023 2022
(Unaudited) (Audited)
(Unaudited)
NAV per Condensed Statement of Financial Position £88,288,115 £77,676,711 £108,238,740
Total number of issued Ordinary shares (excluding Treasury shares) 82,261,500
83,231,000 83,231,000
NAV per share (pence) 107.33 93.33 130.05
4. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS
1 July 2023 to 1 July 2022 to 1 July 2022 to
31 December 2023 30 June 2023 31 December 2022
(Unaudited) (Audited) (Unaudited)
£ £ £
Equity investments 68,854,742 57,258,110 96,525,470
Debt instruments 15,809,825 12,601,175 11,765,021
Financial assets designated at FVTPL 84,664,567 69,859,825 108,290,491
Total financial assets designated at FVTPL 84,664,567 69,859,825 108,290,491
Equity investments
Cost brought forward 94,072,155 132,232,346 132,232,346
Purchases 1,556,709 16,692,050 1,152,316
Sales Proceeds (1,778,758) (65,588,276) (19,612,051)
Net realised gain 6,128,586 10,736,035 7,135,460
Cost carried forward 99,978,692 94,072,155 120,908,071
Unrealised losses brought forward (37,704,443) (24,168,635) (24,168,635)
Movement in unrealised gains / (losses) 5,982,218 (13,535,808) (2,393,065)
Unrealised (losses) carried forward (31,722,225) (37,704,443) (26,561,700)
Effect of exchange rate movements 598,275 890,398 2,179,100
Fair value of equity investments 68,854,752 57,258,110 96,525,471
Debt instruments
Cost brought forward 10,713,124 8,965,416 8,965,416
Purchases 3,629,824 3,867,708 2,273,290
Debt Repayments (536,250) (2,120,000) (1,500,000)
Cost carried forward 13,806,698 10,713,124 9,738,706
Unrealised gains brought forward 2,311,120 1,682,934 1,682,934
Movement in unrealised gains 329,851 628,186 327,869
Unrealised gains carried forward 2,640,971 2,311,120 2,010,803
Effect of exchange rate movements (637,844) (422,529) 15,511
Fair value of debt instruments 15,809,825 12,601,715 11,765,020
Total financial assets designated at FVTPL 84,664,567 69,859,825 108,290,491
5. FINANCIAL INSTRUMENTS
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 that are 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 if an asset was
sold or a liability transferred 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 31 December 2023 and 30 June 2023:
Level 1 Level 2 Level 3 Total
Unaudited Unaudited Unaudited Unaudited
31 December 2023 £ £ £ £
Financial assets designated at FVTPL
Equity instruments - listed equity investments 28,380,000 1,817,225 - 30,197,225
Equity instruments - unlisted equity investments - 8,410,246 30,247,271 38,657,517
Debt instruments - loan notes - - 15,809,825 15,809,825
28,380,000 10,227,471 46,057,096 84,664,567
Level 1 Level 2 Level 3 Total
Audited Audited Audited Audited
30 June 2023 £ £ £ £
Financial assets designated at FVTPL
Equity instruments - listed equity investments 14,261,875 2,376,371 - 16,638,246
Equity instruments - unlisted equity investments - 10,189,005 30,430,859 40,619,864
Debt instruments - loan notes - - 12,601,715 12,601,715
14,261,875 12,565,376 43,032,574 69,859,825
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. Prax Exploration & Production PLC is traded on an over-the-counter
basis by JP Jenkins 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 Allied Minds (which delisted on 30 November
2022) was valued at the net asset value per share on 31 December 2023
converted at an exchange rate of $1.2736 to £1 and reduced by a 25% liquidity
discount. The Level 3 equity and debt investments in MMI. 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 by reference to a third party funding of the company. The third party
is an external investor buying the investment for equity.
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:
Six months ended 31 December 2023 Year Ended
30 June 2023
Six months ended 31 December 2022
Reconciliation in Level 3 (Unaudited) (Audited) (Unaudited)
£ £ £
Opening balance 43,032,574 40,628,276 40,628,276
Purchases 3,629,824 3,867,708 2,273,290
Allied Minds transferred in from Level 1 - 15,007,031 -
Movement in unrealised (losses)/gains - (10,315,139) 1,761,952
Sales - (2,000,000) (3,500,000)
Repayments of debt instruments (536,250) (2,120,000) -
Net realised loss - (352,974) (352,974)
Effect of exchange rate movements (69,052) (1,682,328) 44,415
Closing balance 46,057,096 43,032,574 40,854,959
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 31 December 2023 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 31 December 2023 Unobservable inputs Factor Sensitivity to changes in significant unobservable inputs
Morphic Medical Inc Discounted cash flow 18,981,489 Discount rate 43% An increase (decrease) in the discount rate to 48% (38%) would reduce
(increase) FV by £6.2m (£8.9m)
A decrease (increase) in the near-term growth rate to 38% (58%) would decrease
(increase) FV by £4.1m
High growth rate over 9 year period 48%
An increase (decrease) in the dilution discount to 30% (to 10%) would reduce
(increase) FV by £3.6m
Dilution discount
20%
Sigma Broking Limited Third party funding 6,794,101 N/A N/A N/A
Allied Minds NAV 4,471,681 Illiquidity discount 25% An increase (decrease) in the liquidity discount to 35% (to 15%) would reduce
(increase) FV by £0.6m
Valuation Method Fair Value at 30 June 2023 Unobservable inputs Factor Sensitivity to changes in significant unobservable inputs
Morphic Medical Inc Discounted cash flow 19,165,077 Discount rate 43% An increase (decrease) in the discount rate to 48% (38%) would reduce
(increase) FV by £6.3m (£8.1m)
A decrease (increase) in the near term growth rate to 38% (58%) would decrease
(increase) FV by £4.1m
High growth rate over 9 year period 48%
An increase (decrease) in the dilution discount to 30% (to 10%) would reduce
(increase) FV by £3.6m
Dilution discount
20%
Sigma Broking Limited Third party funding 6,794,101 N/A N/A N/A
Allied Minds NAV 4,471,681 Illiquidity discount 25% An increase (decrease) in the liquidity discount to 35% (to 15%) would reduce
(increase) FV by £0.6m
6. 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, is
comprised as follows:
31 December 2023 30 June 2023
(Unaudited) (Audited)
Number £ Number £
Issued, called up and fully paid Ordinary shares of £0.01 each
99,749,762 997,498 99,749,762 997,498
During the period, the Company did not create or issue any Ordinary shares
(2022: nil).
7. TREASURY SHARES RESERVE
Six months ended Year ended
31 December 2023 30 June 2023
(Unaudited) (Audited)
Number £ Number £
Opening balance 16,518,762 19,767,097 16,518,762 19,767,097
Treasury shares purchased during the period/year 969,500 692,483 - -
Closing balance 17,488,262 20,459,580 16,518,762 19,767,097
During the period ended 31 December 2023, 969,500 Treasury shares were
purchased at an average price of 71.43 pence per share (2022: nil),
representing an average discount to NAV at the time of purchase of 33.4%. All
of these shares will be subsequently cancelled. No Treasury shares were sold
during the period ended 31 December 2023 or 31 December 2022.
8. DIVIDENDS
No Dividend has been declared for the six months ended 31 December 2023.
9. 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 (30 June 2023: 10,000)
Ordinary shares in the Company, representing 0.01% (30 June 2023: 0.01%) of
the voting share capital of the Company at 31 December 2023.
During the period the Company incurred management fees of £270,000 (2022:
£960,000), none of which was outstanding at 31 December 2023 (30 June 2022:
£Nil). No performance fees were payable during the period (2022: £Nil) (30
June 2023: £Nil) and none outstanding at the period end.
As at 31 December 2023, the Company's investment in MMI is treated as an
unconsolidated subsidiary due to the Company's percentage holding in the
voting share capital of MMI. As MMI is a private company and its shares are
not listed on a stock exchange, the percentage held is not disclosed. During
the period, the Company purchased convertible loan notes (not driven by any
contractual obligation) for the purpose of supporting MMI in pursuing its
strategy.
There is no restriction on the ability of MMI to pay cash dividends or repay
loans, but it is unlikely that MMI will make any distribution or loan
repayments given its current strategy.
MMI was incorporated in Delaware, had five wholly-owned subsidiaries as at 31
December 2023 and its principal place of business is Boston. The five
subsidiaries were as follows:
· Morphic Medical 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.
In accordance with the revised Investment Management Agreement approved by
shareholders on 7 March 2022 the management fee payable to the investment
manager was intended to cease on 31 December 2023. In order to ensure that
the Fund continued to have active portfolio management in 2024, a new
Investment Management Agreement was agreed with the Investment Manager on 25th
October 2023. It has been agreed that the Fund will continue to pay a monthly
management fee to the Investment Manager calculated on the basis of amounts
paid in 2023. Accordingly, the IMA has been amended such that from 1 January
2024, the monthly fee due to the Investment Manager is £57,500 (£690,000
annually, as per 2023). This fee equates to approximately 0.83% of the current
NAV on an annual basis. The monthly management fee will be subject to review
by the Fund on one month's notice and will be formally reviewed by the Board
at regular intervals. It is intended that this will provide the Fund with
flexibility and control, depending on the status of the portfolio and progress
with realisations.
In accordance with the revised Investment Management Agreement, the
performance fee will continue to 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 31 December 2023, the Investment Manager held 6,899,031 Ordinary shares
(30 June 2023: 6,899,031) of the Company, representing 8.30% (30 June 2023:
8.30%) of the voting share capital.
Performance fee for period ended 31 December 2023
At 31 December 2023, the Basic Performance Hurdle was £Nil (as adjusted for
all dividends paid during the performance period on their respective payment
dates, compounded at the applicable annual rate) (June 2023: Nil pence).
The aggregate cash returned to Shareholders after 1 July 2022 was £Nil.
Accordingly, no performance fee was earned during the period ended 31 December
2023 (2022: £Nil).
The interests of the Directors in the share capital of the Company at the
period/year end, and as at the date of this report, are as follows:
31 December 2023 30 June 2023
Number of Ordinary shares Total voting rights Number of Ordinary shares Total voting rights
Christopher Waldron((1)(2)) 30,000 0.03% 30,000 0.03%
Jane Le Maitre((2)) 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) ) Chairman of the Company
((2) ) Ordinary shares held indirectly
All related party transactions are carried out on an arm's length basis.
10. POST BALANCE SHEET EVENTS
On 22 February 2024, the Company reported that its unaudited NAV at 31 January 2024 was 109 pence per Ordinary share.
11. AVAILABILITY OF INTERIM REPORT
Copies of the Interim Report will be available to download from the Company's website www.crystalamber.com.
Glossary of Capitalised Defined Terms
"AGM" means the annual general meeting of the Company;
"AIC" means the Association of Investment Companies;
"AIM" means the Alternative Investment Market of the London Stock Exchange;
"Annual 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;
"Board" or "Directors" or "Board of Directors" means the directors of the
Company;
"Buyback" means the share buyback programme announced in December 2023, up to
an aggregate amount of £5 million;
"Company" or "Fund" means Crystal Amber Fund Limited;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as amended);
"EBITDA" means earnings before interest, taxes, depreciation and amortisation;
"Fractyl" means Fractyl Health Inc;
"FV" means Fair Value
"FVTPL" means Fair Value Through Profit or Loss;
"General Meeting" means a general meeting of the Company;
"GID" or "GI Dynamics" means GI Dynamics, Inc;
"HBA1C" means Hemoglobin A1C test;
"IAS" means international accounting standards as issued by the Board of the
International Accounting Standards Committee;
"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, as adopted
by the European Union
"IMA" means the investment management agreement between the Company and the
Investment Manager dated 16 June 2008, as amended on 21 August 2013, further
amended on 27 January 2015, further amended on 12 June 2018 and further
amended and restated on 7 March 2022.
"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;
"Market Capitalisation" means the total number of Ordinary shares of the
Company multiplied by the closing share price;
"MMI" means Morphic Medical Inc;
"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;
"Ordinary share" means an allotted, called up and fully paid Ordinary share of
the Company of £0.01 each;
"Small Cap Index" means an index of small market capitalisation companies;
"SMEs" means small and medium-sized enterprises and businesses whose personnel
numbers fall below certain limits. The abbreviation "SME" is used by
international organizations such as the World Bank, the European Union, the
United Nations and the World Trade Organization;
"SORP" means Statement of Recommended Practice;
"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; "US$" or "$" means United States dollars; and
"£" or "Pounds Sterling" or "Sterling" means British pound sterling and
"pence" means British pence.
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