TIDMCRS
13 September 2017
Crystal Amber Fund Limited
Final results for the year ended 30 June 2017
The Company announces its final results for the year ended 30 June 2017.
Highlights
* NAV (1) per share increased by 32.9 per cent over the year to 204.37 pence
(153.79 pence per share at 30 June 2016). Including the dividends paid
during the period, NAV total return per share over the year ended 30 June
2017 was 36.1 per cent. This performance makes the Company the seventh best
performing investment trust of Trustnet's 119 UK Investment Trusts, over
the 12 months to 30 June 2017.
* Successful exits from investments in Grainger plc ("Grainger"), Pinewood
Group plc ("Pinewood") and Restaurant Group plc ("Restaurant Group"),
realised gains of GBP6.1 million, GBP5.3 million and GBP1.3 million,
respectively. GBP15.7 million profit was realised from Hurricane Energy plc
("Hurricane") sales. Total net realised gains for the year were GBP19.3
million, including realised losses on derivatives.
* The buy-back programme helped to limit the average discount to NAV of 5.7
per cent over the year, which compares to an average discount of 7.7 per
cent for the Company's peer group(2). Premium to NAV at 30 June 2017 was
3.5 per cent.
* New positions were initiated in NCC Group plc ("NCC") and Ocado Group plc
("Ocado"). The Company materially increased its position in GI Dynamics Inc
("GI Dynamics").
William Collins, Chairman of the Company, commented: "It has been an eventful
year for global equity markets, which have faced a great deal of uncertainty in
the wake of the Brexit vote and the beginnings of the Trump presidency. Despite
this, the Company has achieved exceptional performance thanks to its focus on
undervalued opportunities where it sees the potential to act as a catalyst for
change. The NAV total return per share of 36.1 per cent over the year deepens
our confidence in the Company's activist investment process. Going forward, the
Company will continue to use its proven screening process to identify activist
opportunities."
For further enquiries please contact:
Crystal Amber Fund Limited
William Collins (Chairman) Tel: 01481 716 000
Allenby Capital Limited - Nominated Adviser
David Worlidge/James Thomas Tel: 020 7167 6431
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.
(2) AIC UK Smaller Companies Peer Group: Source: Thomson Reuters Datastream as
at 30 June 2017.
Chairman's Statement
I hereby present the tenth Annual Report of the Company for the year ended 30
June 2017.
Despite last year's Brexit vote, the beginnings of the Trump presidency, and
the subsequent uncertainty these events created, equity markets continued to
push higher over the year to 30 June 2017.
Following the Brexit vote, the Bank of England cut interest rates from 0.5 to
0.25 per cent in August 2016, and announced further stimulus measures. In
December 2016 and March 2017, the US Federal Reserve raised interest rates by
0.25 per cent to 1.00 per cent and further increased the range to 1.00 to 1.25
per cent in June 2017.
NAV at 30 June 2017 was GBP201.0 million, compared with an unaudited NAV of GBP
214.5 million at 31 December 2016 and GBP151.5 million at 30 June 2016. NAV per
share was 204.37 pence at 30 June 2017 compared with 218.02 pence at 31
December 2016 and 153.79 pence at 30 June 2016.
NAV per share increased 32.9 per cent over the year to 204.37 pence. Including
the dividends paid during the year, NAV total return per share over the twelve
months ended 30 June 2017 was 36.1 per cent. This performance makes the Company
the seventh best performing investment trust of Trustnet's 119 UK Investment
Trusts, over the 12 months to 30 June 2017.
During the year, the Company bought back 160,000 of its own shares at an
average price of 157.70 pence as part of its programme to eliminate any
material discount to NAV. Over the year, the shares traded at an average
discount to NAV of 5.7 per cent. At the year end the shares traded at a premium
to NAV of 3.5 per cent.
The Company declared interim dividends of 2.5 pence in both July 2016 and
December 2016, in line with the dividend policy of 5.0 pence per year. Guernsey
registered companies are not required to obtain shareholder approval in respect
of interim dividends and this has been the Company's policy to date. However,
the Board wishes to afford shareholders the ability to approve the interim
dividends paid in this financial year and there will be an ordinary resolution
proposed at the forthcoming AGM in this regard.
The Directors have specifically considered the implications of the continuation
vote to be proposed at the 2017 AGM on the application of the going concern
basis. The continuation vote is scheduled to occur every two years. The
Directors have no reason to doubt that shareholders will vote for the Company
to continue as constituted at the 2017 AGM, given the positive performance of
the Company since the previous continuation vote at the 2015 AGM.
The Company remains cautious on the overall outlook for markets as uncertainty
remains, not only about the implications of Brexit, but underlying issues still
facing the global economy. However, we believe Brexit has created several
activist opportunities: Sterling's weakness has made UK companies particularly
attractive to overseas acquirers. The Company remains committed to its strategy
of identifying opportunities in the market and working with companies to
realise shareholder value.
Finally, having served as a Director and Chairman of the Company since 2008, I
will be retiring from the Board at the AGM in November this year. Christopher
Waldron, who was appointed as Director in July 2014, will succeed me as
chairman and I wish him every success in the role. I would like to thank my
fellow Directors for their support during the period of my chairmanship and
wish the Adviser, the Manager and the Board continuing success in the future.
William Collins
Chairman
12 September 2017
Investment Manager's Report
Performance
The Fund's NAV per share increased 32.9 per cent over the year to 204.37 pence
(153.79 pence at 30 June 2016, 218.02 pence at 31 December 2016). Including the
2.5 pence dividend paid in both July 2016 and December 2016, the total return
per share for the year was 36.1 per cent. This compares to the FTSE 250 total
return of 18.9 per cent and FTSE Small Cap total return of 24.9 per cent. Over
the year, investments in equities represented an average 100.6 per cent of net
assets. The purchase of FTSE put options in the year resulted in a net decrease
in NAV of GBP10.8 million. Whilst impacting returns, the Fund's exposure to broad
market risk was reduced.
The main performance contributors were Hurricane (19.5 per cent), FairFX Group
plc ("FairFX") (5.1 per cent), Grainger (5.1 per cent) and Northgate plc
("Northgate") (4.3 per cent). The main performance detractors were Ocado (0.3
per cent), a recent investment, Hansard Global plc ("Hansard") (0.2 per cent)
and Sutton Harbour Holdings plc ("Sutton Harbour") (0.2 per cent).
Portfolio
The table below lists the Fund's top ten holdings at 30 June 2017. It details
the stake that those positions represent as a proportion of the Fund's NAV and
their contribution to the Fund's NAV performance over the year.
Top ten holdings Pence per Percentage of Percentage of Contribution to
share NAV investee NAV performance
equity held
Hurricane Energy plc 49.6 24.3% 12.2% 19.5%
Northgate plc 29.5 14.4% 4.9% 4.3%
STV Group plc 25.7 12.6% 16.8% 2.0%
FairFX Group plc 16.0 7.8% 25.7% 5.1%
Leaf Clean Energy Co. 12.9 6.3% 29.9% 0.7%
NCC Group plc 11.6 5.7% 2.5% 2.3%
Ocado Group plc 9.6 4.7% 0.5% (0.3%)
GI Dynamics Inc 9.4 4.6% 46.1% 3.0%
Sutton Harbour Holdings plc 7.5 3.7% 29.3% (0.2%)
Johnston Press plc 3.3 1.6% 21.4% 0.0%
Total of ten largest 175.1
holdings
Other investments 26.8
Cash and accruals 2.5
Total NAV 204.4
At the end of the year, the Fund's top ten positions represented 85.7 per cent
of NAV, compared with 87.8 per cent at 30 June 2016. The Fund's total number of
equity positions was 17 (2016: 20). The cash and accruals position at 1.2 per
cent of NAV had increased from 0.3 per cent at 30 June 2016.
Six of the Fund's top ten positions at the end of the year, Hurricane,
Northgate, STV Group plc ("STV"), FairFX, Leaf Clean Energy Co ("Leaf") and
Sutton Harbour were within the top ten holdings at the beginning of the year.
Over the year, the Fund added to its investments in GI Dynamics, Johnston Press
plc ("Johnston Press"), Northgate and STV.
Over the year, the Fund increased its position in Northgate to 4.9 per cent of
Northgate's share capital and in STV to 16.8 per cent of STV's share capital.
The Fund also increased its stakes in FairFX to 25.7 per cent, in GI Dynamics
to 46.1 per cent and in Johnston Press to 21.4 per cent. The Fund has continued
to engage constructively with the management and board of each of these
companies.
The Fund continued to build its position in Hurricane, investing a further GBP
10.7 million at the company's placing of shares in October 2016 and taking the
Fund's stake in Hurricane to 15.3 per cent. In April 2017, the Fund announced
that it had reduced its position in Hurricane into demand to manage its
exposure to this successful investment, realising gains of GBP15.7 million. In
July 2017, Hurricane completed a placement of ordinary shares to raise $300
million at a price of 32 pence per share. The company also raised an additional
$230 million via the placement of convertible bonds. The Fund invested $10
million in this raising ($3 million equity and $7 million convertible bonds).
The Fund exited its position in Grainger, realising a total profit of GBP6.1
million, (GBP7.1 million including dividends received to date). Following
engagement, and as recommended by the Investment Adviser, Grainger undertook a
strategic review, streamlined the business, reduced its administrative and
other expenses from GBP42 million per year to GBP27.5 million per year and reduced
its cost of debt from 5.3 per cent to 3.6 per cent. Following a significant
share price re-rating, which saw its discount to net assets narrow from 17.1
per cent at 31 December 2016 to 8.5 per cent in June 2017, the Fund exited its
position in Grainger, realising total sale proceeds of GBP37.3 million.
The Fund exited its position in Pinewood, realising a profit of GBP5.3 million.
Following the completion of a strategic review, the Pinewood board received and
recommended a takeover offer valuing the company at GBP320 million. The offer was
made by a real estate fund, Aermont Capital, reinforcing the Fund's view that
Pinewood's real estate portfolio was undervalued. Taking into account all
realisations since the initial investment in July 2011, the total profit on the
Fund's investment in Pinewood was GBP14.7 million.
The Fund also realised gains of GBP1.3 million on its holding in Restaurant Group
and received the final payment following the closure of NBNK Investments plc
("NBNK"), realising a profit of GBP0.6 million.
In addition, over the year, the Fund exited its investments in Providence
Resources ("Providence") and San Leon Energy plc ("San Leon"), realising losses
of GBP0.6 million and GBP0.5 million respectively.
Strategy
The Fund remains focused on special situations where the Investment Manager
believes value can be released regardless of the market direction.
The Fund held 20 positions at the start of the period and 17 positions at the
period end. The top 10 positions represented 85.7 per cent of NAV. By its
nature as an activist fund, and to ensure a sufficient stake so as to allow
engagement as a major shareholder, the Fund is exposed to concentration risk.
However, this is considered to be a necessary risk in order to provide returns
through the investment strategy. Levels of investment in individual companies
are monitored and parameters are set to ensure this risk is kept to an
acceptable level.
Over the year to 30 June 2017, the weighted average market capitalisation of
the Fund's investee companies has increased from GBP346 million to GBP430 million
(30 June 2015: GBP372 million).
Activist Investment Process
The Fund originates ideas from its screening processes and its network of
contacts, including its shareholders. Companies are valued with focus on their
replacement value, cash generation ability and balance sheet strength. During
the process, the Fund's goal is to examine the company both 'as it is' and 'as
it could be' to maximise shareholder value.
Investments are normally made after an initial engagement, which in some cases
may have been preceded by the purchase of a modest position in the company, to
allow the Investment Adviser to meet the company as a shareholder. Engagement
includes dialogue with the company chairman, management and non-executive
directors, as we build a network of knowledge around our holdings. Where
appropriate, site visits are undertaken to deepen our research and independent
research is commissioned. Investee company annual general meetings are often
attended to maintain close contact with the board and other stakeholders.
Wherever possible, the Fund strives to develop an activist angle and aims to
contribute to the companies' strategy. Where value is hidden, or trapped, the
Fund looks for ways to release it. The activist approach in some cases requires
long holding periods, which facilitate effective engagement.
Most of the Fund's activism takes place in private, but we are willing to make
our concerns public, when appropriate. The response of management and boards to
our recommendations has generally been encouraging. We remain determined to
ensure that our investments deliver their full potential for all shareholders,
and we are committed to engage to the degree required to achieve this.
The opportunities for engaged investment are supported by a continued
improvement in the corporate governance of UK listed companies, and the
positive perception of active ownership in government reports such as the Kay
Review.
Investee companies
Our comments on a number of our principal investments are as follows;
Hurricane
Hurricane is an oil exploration company targeting naturally fractured basement
rock reservoirs in the West of Shetland. Hurricane controls 728 million barrels
of certified resources, including 62 million barrels of reserves, in licences
that are 100 per cent owned.
Since 2005, Hurricane has acquired and explored fractured basement rock
formations. Hurricane's assets had, in the past, proven to be oil bearing but
had been abandoned due to the view that those reservoirs were not commercial.
According to GeoScience, a research services firm, basement reservoirs could
hold as much as 20 per cent of the world's remaining oil and gas resources.
Naturally fractured rock with high permeability allows the oil to rise and
collect under a thick layer of shale rock and clay. The fractures provide
storage capacity and fluid pathways. This source of oil has been successfully
developed in locations in countries such as Vietnam and Yemen, but not yet in
the UK.
In our view, Hurricane's assets stand out due to the size of the resources. In
comparison to Hurricane's resource size, the average North Sea exploration
target in 2014 was just over 30 million barrels of oil equivalent (BOE),
according to UK Oil and Gas. The Fund's previous annual reports include
additional background information on this investment.
The Fund initially invested in Hurricane at a pre-IPO stage, helping the
company secure an exploration rig to drill a horizontal producing well on its
core Lancaster licence. The company listed in February 2014 with a valuation of
GBP272 million. Despite the success of the 2014 Lancaster exploration campaign,
the fall in oil prices from $109 at the time of the IPO to the sub-$50 prices
of the last two years took a toll on the company's share price. The oil price
fall also resulted in a dearth of capital for exploration.
Taking advantage of reduced exploration costs, in April 2016 the Fund and
Kerogen Capital, an energy investor, participated in a GBP52.1 million fund
raising. This allowed the company to drill two wells which increased the flow
rate and resource estimates of Lancaster. To retain the exploration rig at its
attractive rental rates the company raised GBP70 million in October 2016, with
our support. The deal also included funds for long lead items necessary for an
early production system for Lancaster. The early production system would target
first oil production in 2019 and be the first step towards the full field
development of Lancaster. It would contribute to the understanding of the
reservoir and generate an attractive investment return.
Funds raised also allowed the company to begin drilling at a new licence,
Halifax, which it was awarded in November 2016. In March 2017, Hurricane
announced that oil at Halifax was of a similar quality to that encountered at
Lancaster and was found at even greater depth, indicating that Lancaster and
Halifax could form one large structure. The Greater Lancaster Area, which
includes Lancaster and Halifax, is 30 kilometres long and, in our estimates,
could hold 2 billion barrels of oil.
The Fund sold stock into demand between January and April 2017, and in the
process realised gains of GBP15.7 million, whilst retaining a significant
position.
In May 2017, Hurricane announced that it was granting 25 million warrants to
its Broker, Stifel Nicolaus Europe Limited (SNEL). This had the effect of
Hurricane selling its own shares through a market maker, rather than placing
its shares with investors. The Fund remains baffled as to why Hurricane
embarked on this course and in particular, despite regular dialogue and
engagement with the Fund, which was and remains its largest independent
shareholder, why on this occasion, it chose not to discuss or consult with the
Fund. This, together with an interview given by the company's Finance Director
mentioning that he intended to "pass the begging bowl" to raise funds for the
early production system, led to retail investors reducing their holdings and a
significant increase in "short interest" in Hurricane's shares.
Combined with the uncertainty created regarding future funding, Hurricane's
share price fell by more than 50 per cent. In June 2017, the Fund released an
announcement expressing its disappointment at Hurricane's poor handling of the
warrant issue and comments made at its AGM earlier in that month.
On 29 June 2017, Hurricane announced a proposed placement of ordinary shares to
raise $300 million at a price of 32 pence per share. The company also announced
its intention to raise $220 million via the placement of convertible bonds.
Proceeds of the placing are to be used to fund the early production system
development of the Lancaster field. The early production system is expected to
produce 17,000 barrels of oil per day and provide data required to plan a full
field development of Lancaster. This project is currently scheduled to achieve
first oil in the first half of 2019. The placing was approved at the company's
AGM on 21 July 2017. The Fund invested $3 million in this raising, taking its
stake in the company to 8 per cent.
The Fund's serious concerns regarding the fund raisings, associated comments by
Hurricane's Finance Director and corporate governance weaknesses remain. The
Fund also notes that despite an excellent exploration campaign over the last 18
months following the latest fund raise, Hurricane's enterprise value is less
than the amount it has raised from investors since inception. The Fund is
currently in dialogue with Hurricane regarding these concerns and will update
shareholders accordingly.
Notwithstanding management issues, the Fund maintains the view that there
remains a significant disconnect between the operational value of Hurricane and
its strategic value. Drilling results over the 12 months to 30 June 2017
indicate that Hurricane holds a very large, quality asset, with a resource that
the Fund believes could be in excess of 1.6 billion barrels of oil,
significantly undervalued by the current market capitalisation. Indeed, a
recent statement from the Chief Executive of BP, specifically mentioned
"Hurricane Energy's big discovery opening the prospect of major new resources
west of Shetland."
Northgate
Northgate is the leading light commercial vehicle hire business in the UK,
Ireland and Spain. Its core product is flexible rental, offering van hire
without a long-term commitment at a premium to the cost of fixed term
contracts. The company has a fleet of over 93,000 commercial vehicles,
available from more than 100 sites across the UK, Ireland and Spain. It
currently generates a return on capital employed of 10.5 per cent on GBP510
million of net tangible assets.
Flexible rental is growing because customers can tailor their vehicle fleets to
their requirements and have the flexibility to change vehicles as their needs
evolve. Northgate primarily serves businesses which vary in size from owner
operators to corporate customers. The company benefits from purchasing scale
and service capabilities from its own network of garages. Northgate also has
its own retail vehicle disposal channel, VanMonster, through which it sells
vehicles at the end of their useful rental life.
The Fund first invested in Northgate in 2012, when Bob Mackenzie and Bob
Contreras were chairman and CEO of the company, respectively. They were in
advanced stages of turning around the company from its debt fuelled rollup
strategy which resulted in a rights issue. The Fund supported a re-financing of
Northgate's debt that cut its interest cost from 7 per cent to 2.8 per cent.
Following a re-rating of the shares, the Fund had fully exited its position by
2015 and realised a GBP3.5 million profit. In 2016, it became apparent that
Northgate's turnaround had gone awry in the UK: a planned roll-out into new
sites was put on hold and turnover of the sales team reached 40 per cent. As
subsequently became clear, Northgate was losing market share. Andrew Page, the
new chairman, had to recruit a new Finance Director and, by the end of 2016, a
new CEO as well.
The Fund re-invested in Northgate during 2016 in the belief that Northgate's
share price failed to reflect the strategic value of the company's position at
a time of growing industry consolidation. In June 2016, following a meeting
with Northgate's then CEO, Bob Contreras, the Fund set out its assessment of
the company's prospects with recommended actions, including a strategic review
that could result in a sale of all or part of the business.
At 443 pence at 30 June 2017, Northgate's shares are trading at a modest
premium to the company's net tangible asset value of 383 pence. The net
tangible asset value is roughly the liquidation value of Northgate's fleet.
Over the next three years, we expect the 4 per cent dividend and the return on
capital to increase as its UK fleet returns to growth.
STV
STV owns the leading commercial channel in Scotland, where it broadcasts free
to air TV through the Channel 3 licence. Following ITV plc's (ITV) acquisition
of UTV Ireland in 2016, STV is the only Channel 3 business not owned by ITV.
The channel's broadcast business generates 80 per cent of STV's GBP120 million
revenues. Other revenue sources include digital advertising sales through the
STV Player and third-party programme making through STV Productions.
The company has exclusive access to the ITV Network's content in Scotland in
return for an affiliate fee that represents around 50 per cent of STV's cost
base. While TV advertising revenues are cyclical, STV's content agreement with
ITV cushions that impact on STV's margins. Over the last decade, and despite
the rapid growth of digital advertising, TV's share of the advertising market
has remained broadly stable at 40 per cent of total spend. Similarly, TV
viewing has remained stable at an average of around four hours per day. STV's
national airtime is sold by ITV and represents 85 per cent of its advertising
revenues, with the balance being regional airtime. STV's peak time viewing
figures have remained above ITV's for seven consecutive years, and this
outperformance translates into higher advertising rates.
The Fund initially invested in STV in 2013 when the company was completing its
turnaround, having already exited non-core assets and brought net debt under
control. During the Fund's investment period, management has avoided
distractions and has delivered consistently on its strategy to deepen the
company's reach within Scotland. Non-broadcast revenues have grown to 23 per
cent in 2016, from 11 per cent in 2010. Digital products have been the key
contributor to this, in particular "Video On Demand" revenues from STV Player,
and they now generate GBP7.9 million of revenues, with a margin of 52 per cent.
STV's digital products have captured data insights from 2.1 million Scottish
viewers, a valuable resource for consumer services that the company is only
starting to monetise. STV has struggled to grow external production revenues,
and it is the consumer division that generates all of STV's GBP19.7 million
operating profits.
In 2014 STV recommenced dividend payments and these have grown seven-fold. Over
the Fund's holding period, net debt has halved and at GBP26.4 million represents
one times' EBITDA. In 2016, the company reached an agreement with its pension
scheme trustees over the future contributions to the scheme, clarifying the
funding needs of the company.
STV's share price de-rated for a brief period following the Brexit referendum
results and the resulting weakness of advertising markets. The Fund increased
its stake over the period from 7.8 per cent to 16.8 per cent and engaged with
management over the use of the company's surplus cash. After the period end,
STV announced a buyback programme worth GBP10 million per annum, which the Fund
welcomes. Trading at 9 times current year earnings, STV can retire substantial
amounts of stock at an attractive price and accrue the most value to its
shareholders.
In April 2017, the company also announced that its CEO, Rob Woodward, would
step down within 12 months. In August 2017, the company announced that Simon
Pitts will join the Board as CEO in January 2018. Simon will join from ITV
where he is a member of the executive board, holding the position of Managing
Director, Online, Pay TV, Interactive & Technology. Over a 17 year career at
ITV, Simon has held a number of senior roles, was central to the company's
recent transformation, and oversaw strong growth in ITV's digital
businesses.
FairFX
FairFX has been offering international payment services to retail and corporate
customers in the UK since 2007. Its payments platform enables low-cost
multi-currency accounts and pre-paid cards in a market estimated to be worth GBP
60 billion a year. FairFX can deliver better value to consumers than
full-service banks burdened with regulation and legacy systems, or high street
Bureaux de Change providers that carry the cost of retail estates.
Unlike most in the FinTech space, the company grew until 2014 by prudently
re-investing profits in product and marketing investments. But like others, it
sought to secure funds at a high valuation when it came to list in 2014. The
IPO was however too small at GBP2.6 million, providing the company with
insufficient growth capital in an increasingly competitive industry. Additional
fund raisings were completed in December of the same year and in 2015, but were
also in aggregate insufficient to tackle FairFX's opportunities.
In March 2016, the Fund engaged with the company's board to undertake a placing
at 20 pence per share that would fund materially increased marketing
expenditure for growth. In 2016, we saw a step change at FairFX. Transaction
revenues are up 28 per cent and international payments turnover is up 49 per
cent.
The acquisition of Q Money's e-Money licence increased the capabilities of
FairFX. Additionally, the growth of the executive team underpins FairFX's move
towards general SME banking services. For corporates and SMEs, FairFX can
deliver expense management platforms, banking capabilities and payment services
in a low-cost environment. The opportunity there is compelling: banks are
unattractive to SMEs and offer expensive payment solutions.
The acquisition of CardOne, announced in July 2017, brings a full service
digital banking platform as a part of a GBP25 million fund raising which will
also help with overseas expansion, marketing and IT.
Leaf
Leaf is an investment company focused on clean energy, largely in North
America. As a consequence of the Fund's activism, Leaf has been in orderly
realisation since July 2014. It currently owns four assets, the largest of
which is an equity stake in Invenergy Wind that represents 97 per cent of
Leaf's $102.2 million assets. The Fund's previous annual reports provide the
background on our investment in Leaf and our engagement with the company's
board.
Invenergy Wind is North America's largest independent privately held renewable
energy provider. It has developed over 15,000 MW of generation capacity in over
100 projects. Leaf initially invested $40 million in convertible notes in 2008
and 2009. It elected to convert its interest into a 2.3 per cent equity stake
in June 2015. In July 2015, TerraForm Power announced the signing of definitive
agreements for a proposed purchase from Invenergy of 930 MW of contracted wind
power generation facilities. On 16 December 2015, the transaction closed and on
21 December 2015, Leaf filed a complaint against Invenergy for breach of
contract. The complaint alleges that Invenergy was required either to obtain
Leaf's consent to the sale prior to its consummation or, in the absence of such
consent, make a payment to Leaf upon the closing of the sale. Leaf did not
consent to the sale and Invenergy made no payment to Leaf. The complaint sought
payment of $126 million plus interest and the case will be heard in October
2017.
After the filing of the complaint, Invenergy Wind exercised its call option on
Leaf's stake, and Leaf followed by exercising its put option. An appraisal
process to determine the market value of the investment resulted in valuations
of $73 million from Leaf's appraiser and $36 million from Invenergy Wind's. On
30 June 2016, in a partial judgement on the case, the court ruled that
Invenergy Wind had breached the contract by not obtaining Leaf's consent to the
transaction. Pending further proceedings, the court has not yet determined the
amount of damages, which Leaf argues should be determined by applying the
target rate of return of 23 per cent, as agreed between Invenergy Wind and
Leaf. On 10 October 2016, the court rejected Invenergy Wind's argument that the
exercise of a put option voided Leaf's claim for breach of contract.
Leaf is actively exploring its options to realise the value of its other
investments in VREC, Lehigh and Energia Escalona.
The full value of Leaf's claim against Invenergy Wind, with interest but net of
tax, is over 95 cents (72 pence) per share. This compares to Leaf's share
price at 30 June 2017 of 37.5 pence and its latest available NAV per share at
31 December 2016, of 77.65 cents (58.8 pence).
The Fund remains confident in the value underpinning the Invenergy Wind
investment and that Leaf will successfully realise it.
NCC
NCC is an IT support services business with two divisions, Assurance and
Escrow, which generate revenues of GBP205 million and GBP37 million respectively.
In NCC's Assurance division, 'ethical hackers' advise companies on their
cybersecurity needs by undertaking penetration testing, systems monitoring and
governance reviews. This breadth of capability is superior to most of its
competitors, which include professional service firms such as Accenture and
small niche players. In its Escrow division, NCC provides a legal and technical
framework to facilitate its customers' business continuity, should their
independent software vendors cease to exist. In the US, Escrow competes against
safe record-keeping company, Iron Mountain, but in the UK, its main market,
NCC's Escrow has a dominant position.
Operating in rapidly growing markets, NCC was able to grow revenues by over 25
per cent per annum over the last ten years. Earnings and the share price grew
quickly until in 2016 the company issued a profit warning. Conflicts of
interest at board level, together with the nature of certain payments made by
the company that the CEO later agreed to reimburse, proved to be the tip of the
iceberg, but this was sufficient to see the chairman stand down in January
2017. A month later, the company again warned on profits, cancelled a capital
markets day due to take place the following day and initiated a strategic
review. In February 2017, after three profit warnings, the share price plunged
to value the equity at GBP243 million.
After the first profit warning, the Fund assessed the attractiveness of NCC's
markets and the company's position. The investment was initiated after the
February 2017 sell-off. We engaged with the company over the need to replace
the CEO, who resigned in March 2017.
During its growth phase, NCC had failed to put in place adequate controls and
procedures to monitor and forecast its performance, collect cash promptly and
generate business. 2015's Assurance acquisitions had grown the cost base faster
than revenues so that profits were down by 36 per cent in 2017
After 30 June 2017, the Fund expressed its support for the strategic review's
findings. This established the size of the Assurance division's addressable
market at $38 billion and growing at double digits over the next five years.
The process changes underway to improve its performance require delicate
management. However, they do not require cash investments or risky
acquisitions. In our view, as the turnaround benefits accrue, Assurance margins
should recover to the previous highs of 17 per cent. We believe that NCC's
stock remains undervalued and the company can rebuild its investor reputation.
Cyber security is an exceptionally attractive market, and NCC's position in it
has a strategic value not reflected in its share price.
Ocado
Ocado is the world's largest dedicated online grocery retailer with over
580,000 active customers and GBP1.3 billion of sales. It was established in 2001
in the UK with a sourcing arrangement with Waitrose and commenced deliveries to
customers. The company's objective is to provide customers with the best online
shopping experience in terms of service, range and price. This has contributed
to revenue growth of 14 per cent per annum since its 2010 IPO. Ocado's
performance metrics are outstanding, examples being 99 per cent order accuracy
and 95 per cent delivery punctuality. To achieve this, the company has had to
tackle the most complex of consumer supply chains, one that mixes over 50,000
stock keeping units with different characteristics of temperature, freshness,
product size and weight.
As online sales grew, the UK's main grocers developed a proposition utilising
their stores. For example, Tesco's solution includes sourcing goods from its
supermarkets and from its so-called "dark stores", which are not open to the
public. This was an efficient strategy when online sales were in their infancy.
However, we believe that it has prevented grocers such as Tesco from
successfully tackling the internal changes needed to deliver the best customer
proposition efficiently. Meanwhile, we believe that as sales continue to move
online, the economics of maintaining a store estate from which to fulfil online
orders are deteriorating.
By 2013, Morrisons was the only big UK grocer without an online offering. Its
management turned to Ocado to set up its entire service. Within six months, the
first deliveries to customers started, with the same excellent customer service
standards. With this deal, Ocado evolved its strategy: rather than launch
sub-scale retail operations abroad, the company decided to monetise its
expertise by becoming an enabler for other retailers such as Morrisons. This
became the Ocado Smart Platform ("OSP"), an end-to-end operating solution for
online grocery retail based on proprietary technology and intellectual
property, suitable for operating its own business and those of commercial
partners.
Judged solely on its price-earnings ratio, Ocado's shares are highly rated.
However, the lack of free cash flows is the result of heavy investment in
developing a deep expertise in efficient online grocery solutions. OSP has the
potential to transform the economics and generate material free cash flows over
the next decade. While the timing of partnerships is uncertain, the trajectory
is visible and we believe the current risk/reward profile to be extremely
favourable.
In June 2017, Ocado announced the signing of an agreement with a regional
European retailer, a promising indicator. Just a month later, Amazon announced
the purchase of Whole Foods, sending tremors through the grocery market. We
believe that competing retailers are in a poor position to develop an in-house
solution on their own. We expect this to be a game-changer, forcing incumbents
to address their online capability.
GI Dynamics
GI Dynamics is the developer of EndoBarrier, a minimally invasive therapy for
the treatment of Type 2 Diabetes and obesity. EndoBarrier is a temporary bypass
sleeve that is endoscopically delivered to the duodenal intestine, offering
similar effects to the surgical gastric bypass. It received the safety approval
CE Mark in 2010, making it commercially available in Europe and several
countries outside of the US.
Founded in 2003 and headquartered in Boston, GI Dynamics listed in September
2011 on the Australian Stock Exchange, with a share price of AU$1.10 and market
capitalisation of AU$300 million. Following what the Fund considers to be
several remarkable operational failures by previous management, including a
terminated FDA trial, GI Dynamics' share price stood at 6.2 cents at 30 June
2017, valuing the company at AU$34.6 million, approximately GBP20.9 million.
Shareholders since listing include Johnson & Johnson and Medtronic Inc.
Since launch, the EndoBarrier therapy has been used in over 3,700 patients
worldwide. In 2017, a meta-analysis presented at the Digestive Disease Week
meeting reviewed all clinical trials and confirmed its safety and efficacy in
reducing weight, HbA1c (blood glucose) levels and the need for insulin and
other prescribed medications. EndoBarrier stands as a minimally invasive
alternative to bariatric surgery and pharmacotherapy, which have well
documented side effects and safety issues. The prevalence of Type 2 Diabetes
and obesity present a market opportunity expected to reach 355 million patients
in 2030.
The Fund supports the current management's strategy to commercialise the device
in Europe, initiate a new FDA trial and continue to gather clinical data. This
would build on 2016's successes, including the 300 patient UK trials led by the
Association of British Clinical Diabetologists (ABCD) and the data announced
from the German registry, which included 243 patients. The company has achieved
partial reimbursement in Germany (NUB status 1) and Israel and has received
preliminary reimbursement codes in Holland and Switzerland. Regulatory issues
from its mismanaged past haunt GI Dynamics: in May 2017, the company announced
the suspension of its CE Mark due to administrative failures by the company. We
believe that these issues are being corrected in a timely manner.
The Fund first invested in GI Dynamics in 2014 and increased its position in
2016. We have engaged with the company over the strengthening of the board and
the departure from its haphazard strategy to focus on fewer, key objectives. We
have also advocated listing in London to increase the company's investor
profile in its main European markets. On 3 May 2017, GI Dynamics announced that
it had selected Allenby Capital to explore this option. Over the year, the Fund
continued to build its position in GI Dynamics and in June 2017, the Fund
subscribed to a $5 million convertible note.
The Fund believes that GI Dynamics has a world-class technology, addressing an
unmet clinical need, with its current share price a function of shareholder
disillusionment resulting from past mismanagement. The Fund continues to work
closely with the GI Dynamics' management and board to fully capitalise on what
the Fund believes is GI Dynamics' highly scalable potential.
Sutton Harbour
Sutton Harbour owns and operates Sutton Harbour in the Barbican, Plymouth's
historic old port. This includes a leisure marina, the second largest fresh
fish market in England and an estate of investment properties around the
harbour. The Marina at Sutton Harbour is a 5 Gold Anchor rated facility, which
can berth securely 523 vessels thanks to its tidal lock that shelters them from
the elements. It is considered to be one of the best deep water harbours in the
South West. Ideally located to explore the world-class cruising waters around
the South West of England, the Marina remains a popular choice with both
regular berth holders and visiting boat owners. In 2013, the company added
capacity to its estate by opening the King Point Marina in the neighbouring
Millbay site. King Point Marina now provides berthing for 171 boats. Sutton
Harbour also holds the lease to Plymouth's 113-acre former airport site,
entitling it to 25 per cent of any disposal proceeds. Since 2013, Sutton
Harbour has remained focused on its waterfront assets, maintaining annuity
revenues at its core marina and growing revenues at King Point. The Fund's
previous annual reports provide further background to this investment.
Since 2016, the company has been exploring options to realise value from its
assets, as part of a strategic review assisted by Rothschild & Co.
In June 2017, Sutton Harbour made a preliminary announcement of results for the
year ended 31 March 2017. Highlights included a Heads of Terms signed with a
major developer for the company's East Quays site and a record year for the
Plymouth Fisheries Hub with GBP19.7 million of fish throughput. As at 30 June
2017, net assets were GBP40.1 million and the market cap of the company was GBP26.5
million, representing a 33.9 per cent discount to NAV.
Johnston Press
Johnston Press owns over 200 local newspapers and websites around the UK,
including the Yorkshire Post and the Scotsman and a national publication, the
i. The company grew by acquisition but got into financial difficulty after the
financial crisis due to its heavy debt burden and the falling revenues from
lower circulation and reduced printed press advertising.
The current CEO, Ashley Highfield, was appointed in 2011 and started
transforming the production process to reduce cost and increase digital
revenues. For example, all titles are now produced following the same layout,
and more content is either reader-generated or used across titles (e.g.
reviews).
In April 2016, Johnston Press purchased the i newspaper, a UK national daily
newspaper providing concise quality editorial content. It has a 20 per cent
market share of the newspaper "quality market" and was named National Newspaper
of the Year in 2015 at the industry's News Awards.
Investors' concerns over declining advertising and circulation revenues and
questions over the company's ability to refinance in 2019 might be behind the
de-rating of the stock. In our view, the measures put in place by management
are slowing the fall in print revenues and growing digital revenues but a
timely restructuring of the debt burden is essential and the earlier it is
completed, the more value will be preserved for all stakeholders. The strategic
review of financing options for the company is key at this stage and continues
to progress.
After the period end, in August 2017, Johnston Press reported its results for
the first half of the year, which were broadly in line with expectations:
highlights included revenues up 4.6 per cent (excluding classifieds) compared
to the same period last year, and a group EBITDA of GBP19.7 million. Performance
continues to be driven by the i newspaper, which lifted earnings by 42 per
cent, delivering revenues of GBP14.5 million and EBITDA of GBP3.7 million in the
first half of the year and countering ongoing tough trading for regionals,
particularly in classified advertising. Digital advertising also performed
strongly with revenues (excluding classifieds) growing nearly 15 per cent in
the six months to June.
The Fund maintains the view that Johnston Press has the potential to benefit
from further industry consolidation.
Realisations
Over the year, net realised gains, after taking into account losses realised on
put options purchased for portfolio insurance purposes, amounted to GBP19.3
million.
The Fund's total realised gains since inception now amount to GBP72.7 million.
Previous profitable exits include Dart Group plc, Pinewood Group plc, 4imprint
Group plc, Aer Lingus Group plc, Thorntons plc, Norcros plc, 3i Quoted Limited
Private Equity, Delta plc, Kentz Corporation Limited, Tate & Lyle and Chloride
Group plc.
Outlook
Despite continued political uncertainty, global equity markets have performed
strongly over the year to 30 June 2017. However, the Fund remains cautious on
the overall outlook for markets, as uncertainty remains not only about the
implications of Brexit but as regards the underlying issues still facing the
global economy.
Going forward, the Fund will continue to use its proven screening process to
identify activist investment opportunities that it feels are less exposed to
broader market conditions. With its focus on UK companies, the Fund believes
that Brexit has created several activist opportunities with Sterling's weakness
making UK companies particularly attractive to overseas acquirers.
The Fund continues to follow its policy of purchasing put options to provide
some protection against a significant market sell-off.
Crystal Amber Asset Management (Guernsey) Limited
12 September 2017
Investing 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 GBP100 million and GBP1,000 million. 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.
At the date of signing of these Financial Statements the investment strategy
and investment restrictions which applied to the Company following Admission
and after the passing of Resolution 1 at the EGM held on 15 August 2013, were
as follows:
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 company. 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 sale of certain
businesses of the investee company.
Pending investment of the type referred to above, the Company's funds will be
placed on deposit but the Company also has the flexibility to make other
investments which are considered to be reasonably liquid in order to ensure
that its funds are appropriately deployed (including in money market
instruments). The Company may, in certain circumstances, acquire stakes in
target companies from investors in exchange for shares in the 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 GBP100 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 per cent 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.
Dividend policy
With effect from 1 January 2015, the annual target dividend was increased to 5
pence per share. The Company's dividend policy is to distribute to
shareholders, as a dividend, a proportion of the income received from the
Company's portfolio holdings. In certain circumstances, the Company may make
distribution payments out of realised investments if it is considered to be in
the best interests of shareholders.
Due to the nature of the Company's investment objective and strategy, the
timing and amount of investment income cannot be predicted and is dependent on
the composition of the Company's portfolio. Before recommending any dividend,
the Board will consider the capital and cash positions of the Company, and the
impact on such capital and cash by virtue of paying that dividend, and will
ensure that the Company will satisfy the solvency test, as prescribed by the
Law, immediately after payment of any dividend. Therefore, there can be no
guarantee as to the timing and amount of any distribution payable by the
Company. The projected dividends set out above are intentions only and there
can be no assurance that these intentions can, or will, be met.
Composition of the portfolio
The Board, Investment Manager and Investment Adviser believe that the number of
potential target companies is high with more than 2,000 companies quoted on AIM
or the Official List and they consider that a significant number of these are
in the Company's targeted range.
Target investee companies typically operate in one or more of the following
sectors:
* consumer products;
* industrial products;
* retail;
* support services;
* healthcare; or
* financial services.
However, the Company is not restricted to these sectors and investment
decisions are taken based on market conditions and other investment
considerations at the time.
Report of the Directors
Incorporation
The Company was incorporated on 22 June 2007 and the Company 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 the unrealised gains and losses at that
time. This will be achieved 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 mostly have a market
capitalisation of between GBP100 million and GBP1,000 million.
The Company became a member of the AIC on 26 March 2009.
Business review
A review of the business together with the 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.
On 14 July 2016, the Company declared an interim dividend of GBP2,460,369,
equating to 2.5 pence per Ordinary share, which was paid on 19 August 2016 to
shareholders on the register on 22 July 2016.
On 14 December 2016, the Company declared an interim dividend of GBP2,459,120,
equating to 2.5 pence per Ordinary share, which was paid on 19 January 2017 to
shareholders on the register on 22 December 2016.
Subsequent to the year end, on 11 July 2017, the Company declared an interim
dividend of GBP2,459,120, equating to 2.5 pence per Ordinary share, which was
paid on 18 August 2017 to shareholders on the register on 21 July 2017.
Going concern
The Directors 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.
Continuation vote
The Directors have specifically considered the implications of the continuation
vote to be proposed at the 2017 AGM on the application of the going concern
basis. The continuation vote is scheduled to occur every two years. The
Directors have no reason to doubt that shareholders will vote for the Company
to continue as constituted at the 2017 AGM, given the positive performance of
the Company since the previous continuation vote at the 2015 AGM.
Long term viability
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 three year period ending 30 June 2020.
The Directors consider that three years 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, 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 three year period, 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 the Directors have a reasonable
expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the three year period of their assessment.
Principal risks and uncertainties
The Company has a rigorous risk management framework including a comprehensive
risk matrix that is reviewed and updated regularly. The Investment Manager has
created a Risk Committee from which the Board receives quarterly reports. Nigel
Ward, one of the 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 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.
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 Listing 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 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 the target company's securities on the basis of its intentions
and knowledge of its 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 the 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 the loss
of him 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. Key Man risk is covered in the
Investment Adviser's continuity plan. The Board is aware of this risk and
continues to discuss possible strategies to mitigate its impact.
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 major investment falling in value. 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 feel it
is a necessary risk to take in order to provide returns through the investment
strategy. Levels of investment in individual companies are monitored and
parameters are set to ensure that the risk is kept to an acceptable level,
while also ensuring a sufficiently high level of stock is purchased to allow
engagement as a major shareholder, if required.
Underlying investment performance risk
The Company invests in underlying investee companies, 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 on a daily basis and investigate returns of more
or less than 10 per cent based on weekly valuations prepared by the
Administrator. 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 Small
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. 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, market perceptions concerning the
availability of additional securities for sale, 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, refinancings, 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. The Company hedges price risk by
holding put options linked to the FTSE index to provide some protection against
a significant market sell-off.
Shareholder concentration risk
A total of six investors with holdings of 3 per cent or more each of the shares
of the Company hold a combined 79.98 per cent of the voting rights. A
significant shareholder seeking liquidity could have a negative impact on the
Company through 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
time and value other than the optimum. 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.
It is not intended that the Company will invest, save in exceptional
circumstances, in companies with a market capitalisation of less than GBP100
million at the time of investment. Companies with a market capitalisation of
less than GBP100 million are in many cases considered to be higher risk and may
also be less liquid than companies with a market capitalisation of more than GBP
100 million. However, the Investment Adviser may, from time to time, identify
exceptional investment opportunities with a market capitalisation of less than
GBP100 million.
The Company's risk of investment in companies with market capitalisation of
less than GBP100 million is mitigated as all investments are monitored by the
Board on a quarterly basis. Any proposals to invest in companies below GBP100
million market capitalisation are considered in detail by the Investment
Manager and are recommended in exceptional circumstances only.
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 are clear on insider trading rules and that
all procedures are adhered to.
Implementation risk
The Company's ability to generate attractive returns for shareholders depends
upon the Investment Adviser's ability to assess future values that can 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.
In summary, the above risks are mitigated and managed by the Board, the
Investment Manager and Investment Adviser through continual review of the
portfolio, policy setting and updating of the Company's risk matrix to ensure
that procedures are in place to minimise the impact of the above mentioned
risks.
Further detail on the Company's risk factors is set out in the Company's
prospectus, 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 they are managed are given in note 14 to the Financial
Statements.
Ongoing charges
The ongoing charges ratio of the Company is 1.88 per cent (2016: 2.07 per cent)
for the year ended 30 June 2017. The ongoing charges ratio has been calculated
using the AIC recommended methodology.
Directors
The Directors of the Company who served during the year and up to the date of
this report are shown in the Directors and general information section.
Biographies of the Directors holding office as at 30 June 2017 and at the date
of signing these Financial Statements are shown in the Directors section.
Directors' interests
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:
2017 2016
Number of Total Number of Total
Ordinary shares voting Ordinary shares voting
rights rights
William Collins 25,000 0.03% 25,000 0.03%
Sarah Evans 25,000 0.03% 25,000 0.03%
Total 50,000 0.06% 50,000 0.06%
Directors' remuneration
During the year the Directors earned the following remuneration in the form of
Directors' fees from the Company:
2017 2016
GBP GBP
William Collins(1) 35,000 35,000
Sarah Evans(2) 30,000 30,000
Nigel Ward 27,500 29,750
Christopher Waldron 25,000 25,000
Jane Le Maitre(3) 3,630 -
Total 121,130 119,750
(1) Chairman of the Company
(2) Senior Independent Director of the Company and Chairman of the Audit
Committee
(3) Appointed as Director of the Company on 8 May 2017
During the year ended 30 June 2016, Nigel Ward received a one-off fee of GBP3,500
for services undertaken in respect of assisting the Investment Manager during
2015 to establish the Risk Committee with the appropriate terms of reference.
With effect from 1 January 2016, Nigel Ward received an increase in
remuneration of GBP2,500 to reflect additional services provided to the Company
in respect of managing risk.
Substantial interests
As at 15 August 2017, the Company has been notified of the following voting
rights of 3 per cent or more of its total voting rights:
Number of Ordinary Total
shares voting rights
Invesco Perpetual 28.81%
28,305,510
Woodford Investment Management 16.04%
15,764,788
Wirral BC 13.17%
12,938,214
Baring Asset Management 11.16%
10,969,839
Aviva Investors 6.75%
6,633,373
Crystal Amber Asset Management (Guernsey) 4.05%
3,976,509
Total 79.98%
78,588,233
Statement of Directors' responsibilities
The Directors are responsible for preparing the Report of the Directors and the
Financial Statements in accordance with applicable law and regulations.
The Companies Law requires the Directors to prepare Financial Statements for
each financial year. Under the Companies Law, they have elected to prepare the
Financial Statements in accordance with IFRS 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; and
* prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records, which
disclose with reasonable accuracy at any time, the financial position of the
Company and to enable them to ensure that the Financial Statements comply with
the Companies Law. They 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 ensuring that the Annual Report and Audited Financial
Statements, taken as a whole, are fair, balanced, and understandable and
provide the information necessary for shareholders to assess the Company's
performance, business model and strategy.
The Directors are also 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. The
FRC Code became effective for reporting periods beginning on or after 29 June
2010 and has been updated for periods beginning on or after 17 June 2016.
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 considered the principles and recommendations of the AIC Code and
decided to follow the AIC Guide. The AIC Code and AIC Guide were updated in
July 2016 to take into account the updated FRC Code, and the Company has used
this revised AIC Code and AIC Guide for the financial year ended 30 June 2017.
The AIC Code and the AIC Guide are available on the AIC's website,
www.theaic.co.uk. The FRC Code is available on the FRC's website,
www.frc.org.uk.
The GFSC Code came into force in Guernsey on 1 January 2012. Under the GFSC
Code, the Company shall be 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 through the Company's website
www.crystalamber.com.
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.
The Board comprises five Non-Executive Directors (2016: four), 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 independent judgement. Board appointments
are considered by all members of the Board and have been made based on merit,
against objective criteria. Jane Le Maitre was appointed to the Board on 8 May
2017, following a comprehensive recruitment process conducted by the Board, in
conjunction with an external search consultancy.
The Board monitors developments in corporate governance to ensure the Board
remains aligned with best practice especially with respect to the increased
focus on diversity. The Board acknowledges the importance of diversity,
including gender, 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; in addition to gender diversity, the Board
also values diversity of business skills and experience which bring a wide
range of perspectives to the Company.
The Chairman of the Board is William Collins. In considering the independence
of the Chairman, the Board has taken note of the provisions of the AIC Code
relating to independence, and has determined that Mr Collins is an independent
director. The Company has no employees and therefore there is no requirement
for a Chief Executive.
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 represented. The Directors believe that the current mix of
skills, experience, ages and length of service represented on the Board are
appropriate to the requirements of the Company.
Internal evaluation of the Board, the Committee and individual Directors is
undertaken on an annual basis in the form of peer appraisal, questionnaires and
discussions to determine the effectiveness and performance in various areas as
well as the Directors' continued independence.
The AIC Code recommends that a board should appoint one independent Non
Executive Director to be the Senior Independent Director. Sarah Evans is the
Senior Independent Director to the Company and fulfils the role of deputy
chairman and takes the lead in the annual evaluation of the Chairman.
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 the Directors
to be appointed for a specified term as recommended by principle 3 of the AIC
Code. At the forthcoming AGM, William Collins will be retiring after nine years
as a Director and Chairman of the Company. At the same time, Sarah Evans and
Nigel Ward will be retiring and offering themselves for re-election, having
served on the Board for nine years. On 8 May 2017, Jane Le Maitre was appointed
as a Director of the Company. In accordance with the Company's Articles, Jane
Le Maitre will also be retiring and offering herself for re-election at the
forthcoming Annual General Meeting of the Company.
Any Director who has held office with the Company, for a continuous period of
nine years or more at the date of the Annual General Meeting, shall retire from
office and may offer themselves for re-appointment by the members. The Company
will consider whether there is any risk that such a Director might reasonably
be deemed to have lost independence through such long service. The Board
considers its composition and succession planning on an ongoing basis. As two
Directors were appointed, and the Company commenced operations, over nine years
ago, the nine year tenure point has been reached. We confirm that any Directors
intending to continue after their nine year anniversary will put themselves
forward for re-election then and annually thereafter if appropriate. Sarah
Evans and Nigel Ward will therefore be retiring and offering themselves for
re-election at the forthcoming Annual General Meeting and on an annual basis if
appropriate.
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.
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 Heritage
International Fund Managers 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, these committee meetings are attended by Nigel Ward.
The Board meets at least four times a year for regular, scheduled meetings and
should the nature 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.
Between meetings there is regular contact with the Investment Manager and the
Administrator, and the Board requires to be supplied in a timely manner with
information 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
established on 27 March 2017, is responsible for the appointment and monitoring
of all service providers, including the Investment Manager, and conducts a
formal review of them on an annual basis and confirms that such a review has
taken place during the year.
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.
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.
Audit committee
Due to the size of the Board, all Directors are members of the Audit Committee.
Sarah Evans acts as Chairman 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 the appointment of the Auditor,
together with their remuneration. It is also the forum through which the
Auditor reports to the Board.
The Committee met twice in the year ended 30 June 2017. 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 2016;
* review of the Interim Report and Unaudited Interim Condensed Financial
Statements for the six months ended 31 December 2016;
* review of the audit plan and timetable for the preparation of the Annual
Report and Audited Financial Statements for the year ended 30 June 2017;
* 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;
* detailed review of the 2017 Annual Report in relation to the AIC Code
including the period of assessment and long term viability of the Company;
and
* consideration of putting the Company's audit out to tender.
The Committee considered the following significant issue in relation to these
Financial Statements:
Valuation of assets
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.
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 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 the discussions at the Committee meeting, 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. For this financial
year, 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 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 was changed in 2010 and changed again by rotation in 2015. There are no
obligations to restrict the Company's choice of external auditor.
The Company is committed to the highest standards of corporate governance and,
whilst not mandatory, the Committee decided to put the audit out to tender
during the year. The tender process commenced in the second half of the
financial year with the identification of three suitably experienced audit
firms, including the current incumbent, KPMG.
The three candidate firms were interviewed by members of the Audit Committee
and asked to present detailed written proposals to the Committee. Following
consideration of these proposals, the Committee concluded that the interests of
the Company and its shareholders would be best served by retaining the services
of KPMG.
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 website www.crystalamber.com.
Other committees
Although the AIC Code recommends that companies appoint a Nomination Committee,
the Board has not deemed this necessary, as being wholly comprised of
non-executive Directors, the full Board considers these matters.
On 27 March 2017, the Board resolved to establish a Remuneration and Management
Engagement Committee. Due to the size of the Board, all Directors are members
of the Remuneration and Management Engagement Committee. Nigel Ward acts as
Chairman of the committee. The Remuneration and Management Engagement Committee
meets at least once year pursuant to its terms of reference. The Remuneration
and Management Engagement Committee provides a formal mechanism for the review
of the remuneration of the Chairman and Directors and the review of the
performance and remuneration of the Investment Manager, Investment Adviser and
other service providers. The Remuneration and Management Committee held its
first meeting following the year end on 7 September 2017.
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 when they are unable to attend a meeting
to give the Chairman their views and comments on matters to be discussed, in
advance.
Attendance at the quarterly Board meetings is further set out below:
Board Audit Committee
Scheduled Attended Scheduled Attended
William Collins 4 4 2 2
Sarah Evans 4 4 2 2
Nigel Ward 4 4 2 2
Christopher Waldron 4 4 2 2
Jane Le Maitre(1) 1 1 - -
(1) Appointed as Director of the Company on 8 May 2017, at which point 3 Board
meetings and 2 Audit Committee meetings had already taken place
In addition to the above, there were four additional ad hoc Board meetings and
one additional Board committee meeting during the year.
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 raise questions to 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 the shareholders through 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. A post-results programme of visits to major
shareholders is conducted by the Company's Broker and Investment Adviser.
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 as the AIFM does not have any employees. The Directors of
the AIFM received total aggregate remuneration of GBP20,000 by way of a fixed fee
for the year ended 30 June 2017. No variable fee elements of remuneration were
paid to the Directors of the AIFM.
The AIFM Directive outlines the required 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 through 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
Following the conclusion of the audit tender process described above, 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 2017 at Lefebvre Place, Lefebvre Street, St. Peter Port, Guernsey.
On behalf of the Board
Sarah Evans Nigel Ward
Director Director
12 September 2017 12 September 2017
Directors
William Collins (aged 68), Guernsey Resident, Non-Executive Chairman (appointed
20 November 2007)
William Collins has over 40 years' experience in banking and investment. From
September 2007 he was employed by Bank J. Safra Sarasin (formerly Bank Sarasin)
in Guernsey as Director - Private Clients, retiring at the end of December
2014. Prior to that he worked for Barings in Guernsey for over 18 years. In
1995 he was appointed a Director and from 2003 to August 2007 was Managing
Director of Baring Asset Management (C.I.) Limited. Mr Collins is an Associate
of the Institute of Financial Services, a Chartered Member of the Chartered
Institute for Securities and Investment, and a member of the Institute of
Directors.
Sarah Evans (aged 62), Guernsey Resident, Senior Independent Director
(appointed 22 June 2007*)
Sarah Evans is a chartered accountant and is a non-executive Director of
several listed investment funds and the Association of Investment Companies.
She is a member of the Institute of Directors and has been resident in Guernsey
for over twelve years. Whilst in the UK she spent six years with the Barclays
Group, firstly as a treasury director. From 1996 to 1998 she was finance
director of Barclays Mercantile (a Barclays Bank subsidiary providing large and
middle ticket leasing finance). Prior to joining Barclays she ran her own
consultancy business advising UK financial institutions on all aspects of
securitisation. From 1982 to 1988, she worked at Kleinwort Benson Limited
latterly as head of group finance.
Nigel Ward (aged 60), Guernsey Resident, Non-Executive Director (appointed 22
June 2007*)
Nigel Ward is currently an independent non-executive Director on the board of
several offshore funds and companies, including London and TISE listings.
Investment mandates include property, agricultural land, student accommodation,
UK equities, European SME credit, and distressed debt. He has over 40 years'
experience of international investment markets, credit and risk analysis,
corporate and retail banking, corporate governance, compliance and the managed
funds industry. He spent 20 years at Baring Asset Management, and also at TSB
Bank, National Westminster Bank and Bank Sarasin. He is a founding Commissioner
of the Guernsey Police Complaints Commission, an Associate of the Institute of
Financial Services, a member of the Institute of Directors and holds the IoD
Diploma in Company Direction.
Christopher Waldron (aged 53), Guernsey Resident, Non-Executive Director
(appointed 1 July 2014)
Christopher Waldron has over 30 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. He
is also a member of the States of Guernsey's Policy and Resources Investment
and Bond Sub-Committee. He is a Fellow of the Chartered Institute of Securities
and Investment.
Jane Le Maitre (aged 57), Guernsey Resident, Non-Executive Director (appointed
8 May 2017)
Jane Le Maitre 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 started her career with Coopers & Lybrand in the UK and has been resident
in Guernsey for more than 25 years. She joined KPMG (Channel Islands) in 1989
and 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. She became
Managing Director of Intertrust Reads Private Clients Limited in January 2007
before stepping down in 2013 to concentrate on client matters and continues to
hold a number of executive positions in unlisted property and investment
related entities.
In addition to their directorships of the Company, the Directors currently hold
the following directorships of listed companies;
William Collins Sarah Evans
Aberdeen Emerging Markets Investment Apax Global Alpha Limited
Company Limited NB Distressed Debt Investment
Fund Limited
Real Estate Credit Investments
PCC Limited
Ruffer Investment Company Limited
Nigel Ward Christopher Waldron
Acorn Income Fund Limited JZ Capital Partners Limited
Fair Oaks Income Fund Limited Ranger Direct Lending Fund plc
Hadrian's Wall Secured Investments Ranger Direct Lending ZDP plc
Limited
UK Mortgages Limited
*Please refer to The Report of the Directors for clarification regarding
tenure.
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
2017, 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 2017; 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 FRC Ethical Standards 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:
The risk Our response
Valuation of Basis: Our audit procedures
financial assets The Company has invested included, but were not
at fair value 101% of its net assets as limited to:
through profit or at 30 June 2017 into
loss equity, debt and derivative Use of KPMG specialists:
GBP202,370,814; financial instruments Our valuation specialist
(2016: GBP (collectively known as "the independently priced the
151,090,246) investments") listed equity and debt
investments using a third
Refer the Report The Company's listed or party source and assessed
of the Directors, quoted equity and debt the trading volumes of such
note 1 significant investments are valued prices
accounting based on market prices
policies and notes obtained from a third party For derivative financial
9 and 14 pricing provider while its instruments, our valuation
unlisted derivative specialist derived
financial instruments (3% valuations using a Black
of investments) are valued Scholes Option model to
using a Black Scholes evaluate against the
option valuation technique valuation used by the
Company
Risk:
The valuation of the Assessing disclosures:
Company's investments, We also considered the
given that they represent Company's disclosures (see
the majority of the net Note 1) in relation to the
assets of the Company is use of estimates and
considered to be a judgments regarding the
significant area of our valuation of investments and
audit the Company's valuation
policies adopted and fair
value disclosures in Notes 9
and 14 for compliance with
IFRS
Our application of materiality and an overview of the scope audit
Materiality for the financial statements as a whole was set at GBP6,030,000,
determined with reference to a benchmark of the Company's Net Assets of GBP
201,023,805, of which it represents approximately 3%.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding GBP301,500, in addition to other identified misstatements
that warranted reporting on qualitative grounds.
We have nothing to report on going concern
We are required to report to you if we have concluded that the use of the going
concern basis of accounting is inappropriate or there is an undisclosed
material uncertainty that may cast significant doubt over the use of that basis
for a period of at least twelve months from the date of approval of the
financial statements. We have nothing to report in these respects.
We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual
Report together with the financial statements. 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.
Our responsibility is to read the other information and, in doing so, consider
whether, based on our financial statements audit work, the information therein
is materially misstated or inconsistent with the financial statements or our
audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
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.
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.
KPMG Channel Islands Limited
Chartered Accountants, Guernsey
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 30 June 2017
2017 2016
Revenue Capital Total Revenue Capital Total
Notes GBP GBP GBP GBP GBP GBP
Income
Dividend income from 2,708,065 - 2,708,065 1,945,040 - 1,945,040
listed investments
Other income - - - 25,000 - 25,000
Interest received 253 - 253 18,306 - 18,306
2,708,318 - 2,708,318 1,988,346 - 1,988,346
Net gains on
financial assets
designated at FVTPL
and derivatives held
for trading
Equities
Net realised gains/ 9 - 29,991,758 29,991,758 - (18,643,875) (18,643,875)
(losses)
Movement in 9 - 35,560,845 35,560,845 - 14,319,109 14,319,109
unrealised gains
Debt instruments -
Movement in 9 - 290,017 290,017 - - -
unrealised gains
Derivative financial
instruments
Realised losses 9 - (10,675,030) (10,675,030) - (2,984,294) (2,984,294)
Movement in 9 - 4,095,788 4,095,788 - (254,277) (254,277)
unrealised gains/
(losses)
- 59,263,378 59,263,378 - (7,563,337) (7,563,337)
Total income 2,708,318 59,263,378 61,971,696 1,988,346 (7,563,337) (5,574,991)
Expenses
Transaction costs 4 - 597,327 597,327 - 544,681 544,681
Exchange movements on - 245,911 245,911 - (653,049) (653,049)
revaluation of
investments
Management fees 15,17 3,232,888 - 3,232,888 2,617,425 - 2,617,425
Performance fees 15,17 - 2,354,752 2,354,752 - - -
Directors' 16 121,130 - 121,130 119,750 - 119,750
remuneration
Administration fees 17 251,064 - 251,064 188,411 - 188,411
Custodian fees 17 107,604 - 107,604 77,868 - 77,868
Audit fees 22,683 - 22,683 19,826 - 19,826
Other expenses 366,792 - 366,792 277,888 - 277,888
4,102,161 3,197,990 7,300,151 3,301,168 (108,368) 3,192,800
Return/(loss) for the (1,393,843) 56,065,388 54,671,545 (1,312,822) (7,454,969) (8,767,791)
year
Basic and diluted 5 (1.42) 56.99 55.57 (1.37) (7.81) (9.18)
earnings/(loss) per
share (pence)
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 2017
2017 2016
Assets Notes GBP GBP
Cash and cash equivalents 7 7,957,943 1,317,389
Trade and other receivables 8 48,468 463,510
Financial assets designated at FVTPL and 9 202,370,814 151,090,246
derivatives held for trading
Total assets 210,377,225 152,871,145
Liabilities
Trade and other payables 10 9,353,420 1,347,074
Total liabilities 9,353,420 1,347,074
Equity
Capital and reserves attributable to the
Company's equity shareholders
Share capital 11 989,998 989,998
Treasury shares reserve 12 (972,800) (720,478)
Distributable reserve 105,058,397 109,977,886
Retained earnings 95,948,210 41,276,665
Total equity 201,023,805 151,524,071
Total liabilities and equity 210,377,225 152,871,145
NAV per share (pence) 6
204.37 153.79
The Financial Statements were approved by the Board of Directors and authorised
for issue on 12 September 2017.
Sarah Evans Nigel Ward
Director Director
12 September 2017 12 September 2017
Statement of Changes in Equity
For the year ended 30 June 2017
Share Treasury Distributable Retained earnings Total
shares
Notes capital reserve reserve Capital Revenue Total equity
GBP GBP GBP GBP GBP GBP GBP
Opening 989,998 (720,478) 109,977,886 42,151,632 (874,967) 41,276,665 151,524,071
balance at 1
July 2016
Purchase of 12 - (252,322) - - - - (252,322)
Ordinary
shares into
Treasury
Dividends paid 13 - - (4,919,489) - - - (4,919,489)
in the year
Return for the - - - 56,065,388 (1,393,843) 54,671,545 54,671,545
year
Balance at 30 June 989,998 (972,800) 105,058,397 98,217,020 (2,268,810) 95,948,210 201,023,805
2017
Share Treasury Distributable Retained earnings Total
shares
Notes capital reserve reserve Capital Revenue Total equity
GBP GBP GBP GBP GBP GBP GBP
Opening balance 989,998 (9,009,985) 114,181,017 49,606,601 437,855 50,044,456 156,205,486
at 1 July 2015
Purchase of 12 - (1,113,539) - - - - (1,113,539)
Ordinary shares
into Treasury
Sale of 12 - 9,989,766 - - - - 9,989,766
Ordinary shares
from Treasury
Premium on sale 12 - (586,720) 586,720 - - - -
of Ordinary
shares from
Treasury
Dividends paid - - (4,789,851) - - - (4,789,851)
in the year
Loss for the - - - (7,454,969) (1,312,822) (8,767,791) (8,767,791)
year
Balance at 30 June 989,998 (720,478) 109,977,886 42,151,632 (874,967) 41,276,665 151,524,071
2016
Statement of Cash Flows
For the year ended 30 June 2017
2017 2016
Notes GBP GBP
Cash flows from operating activities
Dividend income received from listed investments 3,121,215 1,585,052
Bank interest received 2,286 20,140
Other income received - 25,000
Management fees paid (3,232,888) (2,617,425)
Performance fees paid - (653,962)
Directors' fees paid (117,500) (119,125)
Other expenses paid (678,869) (557,586)
Net cash outflow from operating activities (905,756) (2,317,906)
Cash flows from financing activities
Purchase of Ordinary shares into Treasury (252,322) (1,113,539)
Sale of Ordinary shares from Treasury - 9,989,766
Dividends paid (4,919,489) (4,789,851)
Net cash (outflow)/inflow from financing (5,171,811) 4,086,376
activities
Cash flows from investing activities
Purchase of equity investments (82,415,871) (85,356,749)
Sale of equity investments 109,680,734 68,746,091
Purchase of debt instruments (3,945,084) -
Purchase of derivative financial instruments (10,098,112) (11,773,346)
Sale of derivative financial instruments 86,082 8,977,557
Transaction charges on purchase and sale of (589,628) (544,681)
investments
Net cash inflow/(outflow) from investing 12,718,121 (19,951,128)
activities
Net increase/(decrease) in cash and cash 6,640,554 (18,182,658)
equivalents during the year
Cash and cash equivalents at beginning of year 1,317,389 19,500,047
Cash and cash equivalents at end of year 7 7,957,943 1,317,389
Notes to the Financial Statements
For the year ended 30 June 2017
General information
Crystal Amber Fund Limited (the "Company") was incorporated and registered in
Guernsey on 22 June 2007 and is governed under the provisions of the Companies
Law. The registered office address is Heritage Hall, Le Marchant Street, St.
Peter Port, Guernsey, GYI 4HY. 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 GBP100 million and GBP1,000 million.
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 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 and presentational currency.
The Financial Statements have been prepared under the historic 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.
The Company has adopted the Investment Entity Amendments to IFRS 10, IFRS 12
and IAS 27 which define investment entities together with disclosure
requirements.
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
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 of
its investments on a fair value basis.
To determine that 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.
Going concern
The Directors 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.
Continuation vote
The Directors have specifically considered the implications of the continuation
vote to be proposed at the 2017 AGM on the application of the going concern
basis. The continuation vote is scheduled to occur every two years. The
Directors have no reason to doubt that shareholders will vote for the Company
to continue as constituted at the AGM, scheduled for November 2017, given the
positive performance of the Company since the previous continuation vote at the
2015 AGM.
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 as an investment entity is a critical judgement,
as discussed above. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates. The Black Scholes option valuation technique has been utilised to
value warrant instruments which uses certain assumptions related to risk-free
interest rates, expected volatility, expected life and future dividends as
disclosed below. The loan notes have been valued based on cost plus accrued
interest which is approximate to fair value.
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, who 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 recognised initially at cost,
which is deemed to be fair value. Subsequent to initial recognition financial
instruments are measured as described below.
Financial assets designated at FVTPL and derivatives held for trading
All the Company's investments including debt instruments and derivative
financial instruments are held at FVTPL. They are initially recognised at cost
at acquisition, which is deemed to be their 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 the bid price on the reporting date or at the
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.
Debt instruments
Loan notes are classified as debt instruments and are recognised initially at
cost incurred in their acquisition, which is deemed to be their fair value.
Subsequent to initial recognition, loan notes are valued based on cost plus
accrued interest outstanding at the year end. The Board has concluded that fair
value is approximate to cost plus accrued interest.
Convertible bonds are classified as debt instruments and are recognised
initially at cost incurred in their acquisition, which is deemed to be their
fair value. Subsequent to initial recognition, quoted convertible bonds are
valued at the bid price on the reporting date. 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.
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 the 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.
Warrant instruments which are unlisted are valued at the reporting date using a
Black Scholes option valuation technique, which uses certain assumptions
related to risk-free interest rates, expected volatility, expected life and
future dividends. 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.
De-recognition of financial instruments
The Company de-recognises 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 de-recognition of a financial asset, the difference between the carrying
amount of the asset (or the carrying amount allocated to the portion of the
asset de-recognised), 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 de-recognises a financial liability when its contractual
obligations are discharged, cancelled or expire. Any gain or loss on
de-recognition 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.
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. Dividends receivable are 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 non-UK countries 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. Withholding tax is recorded in 'other expenses' in 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 has treated the 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 disposed of. 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
In the preparation of these Financial Statements, the Company followed the same
accounting policies and methods of computation as compared with those applied
in the previous year.
None of the new standards or amendments to existing standards and
interpretations, effective from 1 January 2016, had a material impact on the
Company's Financial Statements. As disclosed in Note 1, the Company has adopted
the Investment Entity Amendments to IFRS 10, IFRS 12 and IAS 27.
At the date of authorisation of these Financial Statements, the following
standards and interpretations, which have not been applied in these Financial
Statements, were issued but not yet effective:
New standards Effective for periods
beginning on or after
IFRS 9 Financial Instruments 1 January 2018
IFRS 15 Revenue from Contracts with Customers 1 January 2018
The Company has not early adopted IFRS 9 and IFRS 15. The impact of these
standards is not expected to be significant.
IFRS 9 - Financial Instruments: As the majority of the Company's financial
assets are held at FVTPL, this treatment, and the related measurement methods,
will not change after implementing IFRS 9. Accordingly, the Company does not
expect that the implementation of IFRS 9 will have any material impact on its
Financial Statements.
Amended standards and interpretations Effective for periods
beginning on or after
IFRS 1 First time Adoption of IFRS - 1 January 2018
Amendments as a result of Annual
Improvements: 2014 - 2016 cycle
IFRS 12 Disclosure of Interests in Other 1 January 2017
Entities - Amendments as a result of
Annual Improvements: 2014 - 2016
cycle
IAS 7 Statement of Cash Flows - Amendments 1 January 2017
as a result of the Disclosure
Initiative - January 2016
IAS 28 Investments in Associates and Joint 1 January 2018
Ventures - Amendments as a result of
Annual Improvements: 2014 - 2016
cycle
IFRIC 22 Foreign Currency Transactions and 1 January 2018
Advance Consideration
The Directors anticipate that the adoption of the amended standards and
interpretations in future periods will not have a material impact on the
Financial Statements 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 GBP1,200 (2016: GBP1,200).
4. TRANSACTION COSTS
The transaction charges incurred in relation to the acquisition and disposal of
investments during the year were as follows:
2017 2016
GBP GBP
Stamp duty 262,933 201,631
Commissions and custodian transaction charges:
In respect of purchases 245,825 133,937
In respect of sales 88,569 209,113
597,327 544,681
5. BASIC AND DILUTED EARNINGS/(LOSS) PER SHARE
Earnings/(loss) per share is based on the following data:
2017 2016
Return/(loss) for the year GBP54,671,545 (GBP8,767,791)
Weighted average number of issued Ordinary shares 98,380,022 95,504,794
Basic and diluted earnings/(loss) per share (pence) 55.57 (9.18)
6. NAV PER SHARE
NAV per share is based on the following data:
2017 2016
NAV per Statement of Financial Position GBP201,023,805 GBP151,524,071
Total number of issued Ordinary shares (excluding 98,364,762 98,524,762
Treasury shares) at 30 June
NAV per share (pence) 204.37 153.79
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:
2017 2016
GBP GBP
Cash available on demand 7,957,943 1,317,389
7,957,943 1,317,389
8. TRADE AND OTHER RECEIVABLES
2017 2016
GBP GBP
Current assets:
Trade receivables 23,038 438,221
Prepayments 25,430 25,289
48,468 463,510
There are no past due or impaired receivable balances outstanding at the year
end (2016: GBPNil).
9. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS AND
DERIVATIVES HELD FOR TRADING
2017 2016
GBP GBP
Equity investments 186,431,885 148,086,522
Debt instruments 9,502,417 -
Financial assets designated at FVTPL 195,934,302 211,706,765
Derivative financial instruments held for 6,436,512 3,003,724
trading
202,370,814 151,090,246
Equity investments
Cost brought forward 153,875,142 160,110,908
Purchases 82,612,821 81,096,969
Sales (109,680,734) (68,688,860)
Net realised gains/(losses) 29,991,758 (18,643,875)
Cost carried forward 156,798,987 153,875,142
Unrealised losses brought forward (5,852,434) (20,171,543)
Movement in unrealised gains/(losses) 35,560,845 14,319,109
Unrealised gains/(losses) carried forward 29,708,411 (5,852,434)
Effect of exchange rate movements (75,513) 63,814
Fair value of equity investments 186,431,885 148,086,522
Debt instruments
Cost brought forward - -
Purchases 9,318,984 -
Cost carried forward 9,318,984 -
Unrealised gains brought forward - -
Movement in unrealised gains 290,017 -
Unrealised gains carried forward 290,017 -
Effect of exchange rate movements (106,584) -
Fair value of debt instruments 9,502,417 -
Total financial assets designated at FVTPL 202,370,814 151,090,246
Derivative financial instruments held for
trading
Cost brought forward 1,023,001 1,078,000
Purchases 10,098,112 11,773,346
Sales (86,082) (8,844,051)
Net realised losses (10,675,030) (2,984,294)
Cost carried forward 360,001 1,023,001
Unrealised gains brought forward 1,980,723 2,235,000
Movement in unrealised gains 4,095,788 (254,277)
Unrealised gains carried forward 6,076,511 1,980,723
Fair value of derivatives held for trading 6,436,512 3,003,724
Total derivative financial instruments held for 6,436,512 3,003,724
trading
Total financial assets designated at FVTPL and 202,370,814 151,090,246
derivatives held for trading
Total realised gains and losses and unrealised gains and losses in the
Company's equity, debt and derivatives are made up of the following gain and
loss elements:
2017 2016
GBP GBP
Realised gains 31,290,256 19,025,712
Realised losses (11,973,528) (40,653,881)
Net realised gains/(losses) in financial assets 19,316,728 (21,628,169)
designated at FVTPL and derivatives held for trading
Movement in unrealised gains 32,274,263 (8,601,122)
Movement in unrealised losses 7,672,387 22,665,954
Net movement in unrealised gains in financial assets 39,946,650 14,064,832
designated at FVTPL and derivatives held for trading
On 15 June 2017, the Company purchased $5 million of convertible loan notes
from GI Dynamics. Interest on these loan notes is accrued at a rate equal to 5
per cent per annum, compounded annually. At the reporting date, the Company's
loan notes were classified as debt instruments and measured at FVTPL.
On 30 June 2017, the Company purchased 7 million shares of quoted convertible
bonds issued by Hurricane for $7 million. The convertible bonds have a coupon
rate of 7.5 per cent per annum and mature on 24 July 2022. At the reporting
date, the Company's convertible bond shares were classified as debt instruments
and measured at FVTPL.
At the reporting date the Company's derivative financial instruments consisted
of one (2016: two) FTSE 100 Index Put Option position, purchased as protection
against a significant market sell-off and two warrant instruments in FairFX and
Hurricane (2016: two) for the purchase of ordinary shares.
At the reporting date, the warrant instruments in FairFX and Hurricane were
valued using a Black Scholes valuation technique.
The following table details the Company's positions in derivative financial
instruments:
Nominal amount Value
30 June 2017 GBP
Derivative financial instruments
Puts on UKX P7100 (expiry: July 2017) 1,000 290,000
FairFX warrant instrument 6,000,000 2,001,252
Hurricane warrant instrument 23,333,333 4,145,260
29,334,333 6,436,512
Nominal amount Value
30 June 2016 GBP
Derivative financial instruments
Puts on UKX P5800 (expiry: July 2016) 700 49,000
Puts on UKX P6000 (expiry: August 2016) 1,000 665,000
FairFX warrant instrument 7,500,000 734,370
Hurricane warrant instrument 23,333,333 1,555,354
30,835,033 3,003,724
10. TRADE AND OTHER PAYABLES
2017 2016
GBP GBP
Current liabilities:
Accruals 199,137 126,092
Unsettled trade purchases 6,799,531 1,220,982
Performance fee accrual 2,354,752 -
9,353,420 1,347,074
The carrying amount of trade payables approximates to their fair value.
11. SHARE CAPITAL AND RESERVES
The authorised share capital of the Company is GBP3,000,000 divided into 300
million Ordinary shares of GBP0.01 each.
The issued share capital of the Company, including Treasury shares, is
comprised as follows:
2017 2016
Number GBP Number GBP
Issued, called up and fully paid 98,999,762 989,998 98,999,762 989,998
Ordinary shares of GBP0.01 each
Capital risk management
The Company's objectives when managing capital are to safeguard the Company's
ability to continue as a going concern in order to provide returns to
shareholders and to maintain an optimal capital structure to reduce the cost of
capital.
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.
As per the Company's Memorandum and Articles of Incorporation the retained
earnings are distributable by way of dividend in addition to distributable
reserve held on the Company's Statement of Financial Position at the year end.
The Company may carry the returns of the Company to 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 2017, the Company paid dividends of GBP4,919,489
(2016: GBP4,789,851) from distributable reserves, as disclosed in Note 13, and
transferred the premium of GBPNil (2016: GBP586,720) received on the sale of
Treasury shares to distributable reserves, as disclosed in Note 12.
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
2017 2016
Number GBP Number GBP
Opening balance (475,000) (720,478) (6,163,486) (9,009,985)
Treasury shares purchased during (160,000) (252,322) (725,000) (1,113,539)
the year
Treasury shares sold during the - - 6,413,486 9,989,766
year
Premium transferred to - (586,720)
distributable reserve - -
Closing balance (635,000) (972,800) (475,000) (720,478)
During the year ended 30 June 2017, 160,000 (2016: 725,000) Treasury shares
were purchased at an average price of 157.70 pence per share (2016: 153.59
pence per share), representing an average discount to NAV at the time of
purchase of 4.5 per cent (2016: 3.4 per cent). During the year ended 30 June
2017, Nil (2016: 6,413,486) Treasury shares were sold, representing a premium
above cost of GBPNil (2016: GBP586,720). The Company purchased 290,000 of its own
Ordinary shares during the period between 1 July 2017 and 12 September 2017,
which were held as Treasury shares. Following these purchases, the total number
of Ordinary shares held as Treasury shares by the Company was 925,000.
13. DIVIDS
On 14 July 2016, the Company declared an interim dividend of GBP2,460,369,
equating to 2.5 pence per Ordinary share, which was paid on 19 August 2016 to
shareholders on the register on 22 July 2016.
On 14 December 2016, the Company declared an interim dividend of GBP2,459,120,
equating to 2.5 pence per Ordinary share, which was paid on 19 January 2017 to
shareholders on the register on 22 December 2016.
Subsequent to the year end, on 11 July 2017, the Company declared an interim
dividend of GBP2,459,120, equating to 2.5 pence per Ordinary share, which was
paid on 18 August 2017 to shareholders on the register on 21 July 2017.
14. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS
Financial risk management objectives
The Investment Manager, Crystal Amber Asset Management (Guernsey) Limited and
the Administrator, Heritage International Fund Managers 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 risks. 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 the significant observable inputs on a
regular basis and has deemed no changes are required from prior years.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will
default on its contractual obligations that it has with the Company, resulting
in financial loss to the Company. At 30 June 2017 the major financial assets
which were exposed to credit risk included financial assets designated at FVTPL
and derivatives held for trading and cash and cash equivalents.
The carrying amounts of financial assets best represent the maximum credit risk
exposure at 30 June 2017. 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 Statement of Financial Position
date and the S&P's credit rating for each counterparty at that date.
Location Rating Cash Cash
Balance Balance
2017 2016
GBP GBP
ABN AMRO (Guernsey) Limited Guernsey A 7,895,397 867,364
Barclays Bank plc - Isle of Man Isle of A- 62,546 450,025
Branch Man
7,957,943 1,317,389
The credit ratings disclosed above are the credit ratings of the parent
entities of each of the counterparties namely ABN AMRO Bank N.V. and Barclays
Bank plc.
The Company's credit risk on financial assets designated at FVTPL and
derivatives held for trading is considered minimal as these assets consist
mainly of quoted equities. The Company is also exposed to credit risk on the
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 available credit ratings for
the debt instruments held by the Company. At 30 June 2017 GBP199,983,312 (2016: GBP
148,953,886) of the financial assets of the Company were held by the Custodian,
ABN AMRO (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. 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 A (2016: A). The remaining balance of GBP10,393,913 (2016: GBP3,917,259)
includes GBP6,146,512 (2016: GBP2,289,724) warrant instruments, GBP3,846,387 (2016: GBP
Nil) loan notes held directly with GI Dynamics Inc, GBP290,000 (2016: GBP714,000)
put derivative options held with the option broker, GBP62,546 (2016: GBP450,025)
cash held with Barclays Bank plc and the remaining GBP48,468 (2016: GBP463,510)
held as trade receivables.
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 maturity for its financial
assets and liabilities:
2017 Weighted Less than 1 1-5 years 5+ years Total
average year
interest
rate
Assets GBP GBP GBP GBP
Non-interest bearing 192,979,411 - 192,979,411
-
Variable interest rate 0.01% 7,895,397 - 7,895,397
instruments -
Fixed interest rate 5.00% - 3,846,387 - 3,846,387
instruments
Fixed interest rate 7.50% 5,656,030 - - 5,656,030
instruments
Liabilities
Non-interest bearing (9,353,420) - - (9,353,420)
197,177,418 3,846,387 - 201,023,805
2016 Weighted Less than 1 1-5 years 5+ Total
average year years
interest
rate
Assets GBP GBP GBP GBP
Non-interest bearing 151,553,756 - - 151,553,756
Variable interest rate 0.23% 1,317,389 - - 1,317,389
instruments
Liabilities
Non-interest bearing (1,347,074) - - (1,347,074)
151,524,071 - - 151,524,071
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. 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 Investment Manager monitors market interest rates and will place interest
bearing assets at best available rates but also taking into consideration the
counterparty's credit rating and financial position.
Interest rate sensitivity analysis
The sensitivity analysis below has been based on the exposure to interest rates
for financial assets held at the Statement of Financial Position date. An
increase/decrease of 0.01 percentage points (2016: 0.15 percentage points)
represents management's assessment of the effect of a possible change in
interest rates due to the weighted average interest rate for variable interest
rate instruments decreasing from 0.23 per cent to 0.01 per cent for the year
ended 30 June 2017. If interest rates had been 0.01 percentage points (2016:
0.15 percentage points) higher/lower and all other variables were held
constant:
* the Company's return for the year ended 30 June 2017 would have increased
by GBP659 (2016: GBP6,238);
* the Company's return for the year ended 30 June 2017 would have decreased
by GBPNil (2016: GBP6,238);
* there would have been no impact on equity reserves other than retained
earnings.
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. Generally
the Company will seek not to invest more than 20 per cent of the Company's
gross assets in any single investment at the time of investment. However, there
is no guarantee that this will be the case after any investment is made,
particularly where it is believed that an investment is exceptionally
attractive.
During the year to 30 June 2017 the Company entered into various index put
derivative option contracts to protect the Company's value against a
significant fall in the market. At 30 June 2017, GBP290,000 (2016: GBP714,000) of
these contracts were outstanding.
The following tables detail the Company's positions in derivative financial
instruments:
2017 Derivative financial instruments Nominal Amount Value
Options GBP
Puts on UKX P7100 (Expiry: July 2017) 1,000 290,000
1,000 290,000
No. of warrants Value
Warrant instruments GBP
FairFX plc (Expiry: May 2019) 6,000,000 2,001,252
Hurricane Energy plc (Expiry: March 2019) 23,333,333 4,145,260
29,333,333 6,146,512
2016 Derivative financial instruments Nominal Amount Value
Options GBP
Puts on UKX P5800 (expiry: July 2016) 700 49,000
Puts on UKX P6000 (expiry: August 2016) 1,000 665,000
1,700 714,000
No. of warrants Value
Warrant instruments GBP
FairFX plc (Expiry: May 2019) 7,500,000 734,370
Hurricane Energy plc (Expiry: March 2019) 23,333,333 1,555,354
30,833,333 2,289,724
As at 30 June 2017, the following tables detail the Company's equity
investments.
2017 Sector Value Percentage of Company's
Equity Investments GBP Gross Assets
Hurricane Energy plc Oil and Gas 48,750,000
23
Northgate plc Transportation Services 28,999,626
14
STV Group plc Media 25,279,105
12
FairFX Group plc Financial Services 15,762,816
7
Leaf Clean Energy Company Financial Services 12,717,526
6
NCC Group plc Technology 11,426,577
5
Ocado Group plc Retail 9,402,233
4
GI Dynamics Inc Medical Technology 9,250,854
4
Sutton Harbour Holdings plc Transportation Services 7,327,886
3
Other Various 17,515,262
8
Total 186,431,885 86
2016 Sector Value Percentage of
Equity Investments GBP Company's
Gross Assets
Grainger plc Property 30,061,400 20
Hurricane Energy plc Oil and Gas 25,967,783 17
Pinewood Group plc Media 16,881,800 11
Northgate plc Transportation Services 13,000,000 9
Leaf Clean Energy Company Renewable Energy 11,657,732 8
STV Group plc Media 9,342,455 6
FairFX Group plc Financial Services 7,701,900 5
Sutton Harbour Holdings plc Transportation Services 7,609,728 5
Restaurant Group plc Food and Beverage 6,218,801 4
Hansard Global plc Financial Services 4,688,716 3
NBNK Investments plc Financial Services 4,600,631 3
Coats Group plc Textiles 3,977,180 3
Other Various 6,378,396 4
Total 148,086,522 98
The following tables detail the investments in which the Company holds a
greater than 20 per cent holding in the underlying entities. These have been
recognised at fair value as the Company is regarded as an investment entity as
referred to in Note 1.
2017 Place of Business Place of Percentage Ownership
Equity Investments Incorporation Interest
GI Dynamics Inc United States United States 46.1
Leaf Clean Energy Company United States Cayman Islands 29.9
Sutton Harbour Holdings plc United Kingdom United Kingdom 29.3
FairFX Group plc United Kingdom United Kingdom 25.7
Johnston Press plc United Kingdom United Kingdom 21.4
2016 Place of Business Place of Percentage Ownership
Equity Investments Incorporation Interest
Leaf Clean Energy Company United States Cayman Islands 29.9
Sutton Harbour Holdings plc United Kingdom United Kingdom 29.3
FairFX Group plc United Kingdom United Kingdom 24.9
NBNK Investments plc United Kingdom United Kingdom 28.5
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 per cent higher (2016: 25 per cent higher), the
Company's return and net assets for the year ended 30 June 2017 would have
increased by GBP47,731,979 (2016: GBP36,309,140);
* If market prices of listed equity, debt and derivative financial
instruments had been 25 per cent lower (2016: 25 per cent lower), the
Company's return and net assets for the year ended 30 June 2017 would have
decreased by GBP32,161,979 (2016: GBP19,519,031), reflecting the effect of the
derivative financial instruments held at the reporting date.
* 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 held in Australian Dollars, Euro and US Dollars (2016: Australian
Dollars and New Zealand Dollars).
The table below illustrates the Company's exposure to foreign exchange risk at
30 June 2017:
2017 2016
GBP GBP
Financial assets designated at FVTPL:
Listed equity investments denominated in Australian 9,250,855 804,878
Dollars
Listed equity investments denominated in Euro 189,383 -
Listed equity investments denominated in US Dollars 3,039,519 -
Debt instruments denominated in US Dollars 9,502,417 -
Total assets 21,982,174 804,878
If the Australian Dollar weakened/strengthened by 10 per cent (2016: 10 per
cent) against Sterling with all other variables held constant, the fair value
of equity investments would increase/decrease by GBP925,086 (2016: GBP80,488).
If the Euro weakened/strengthened by 10 per cent (2016: 10 per cent) against
Sterling with all other variables held constant, the fair value of equity
investments would increase/decrease by GBP18,938 (2016: GBPNil).
If the US Dollar weakened/strengthened by 10 per cent (2016: 10 per cent)
against Sterling with all other variables held constant, the fair value of
equity investments would increase/decrease by GBP303,952 (2016: GBPNil) and the
fair value of debt instruments would increase/decrease by GBP950,242 (2016: GBP
Nil).
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 2017 and 30 June 2016:
Level 1 Level 2 Level 3 Total
2017 GBP GBP GBP GBP
Financial assets designated at
FVTPL and derivatives held for
trading:
Equities - listed equity 186,431,885 - - 186,431,885
investments
Debt - listed debt instruments - 5,656,030 - 5,656,030
Debt - loan notes - - 3,846,387 3,846,387
Derivatives - listed derivative 290,000 - - 290,000
instruments
Derivatives - warrant instruments - 6,146,512 - 6,146,512
186,721,885 11,802,542 3,846,387 202,370,814
Level 1 Level 2 Level 3 Total
2016 GBP GBP GBP GBP
Financial assets designated at
FVTPL and derivatives held for
trading:
Equities - listed equity 143,406,419 - 4,680,103 148,086,522
investments
Derivatives - listed derivative 714,000 - - 714,000
instruments
Derivatives - warrant instruments - 2,289,724 - 2,289,724
144,120,419 2,289,724 4,680,103 151,090,246
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 derivative investments were valued using a Black Scholes valuation
technique. The listed debt instruments were valued with reference to the last
available bid price of the convertible bond on the reporting date, which are
considered to be Level 2 investments due to the level of trading activity of
the bond.
The Level 3 equity investments were valued by reference to the last available
price of the shares in each investee company on the reporting date. The loan
notes were classified as Level 3 debt instruments as there was no observable
market data. The Board has concluded that fair value is approximate to cost
plus accumulated interest.
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:
2017 2016
GBP GBP
Opening balance at 1 July 4,680,103
-
San Leon Energy plc - Transfer to Level 3 on 21 January - 79,471
2016
NBNK Investments plc - Transfer to Level 3 on 20 June - 4,600,632
2016
Purchases 3,945,084 -
Movement in unrealised gain 912,103 -
Sales (5,607,825) -
Net realised gain 23,506 -
Effect of exchange rate movements (106,584) -
Closing balance at 30 June 3,846,387 4,680,103
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 investment in San Leon Energy plc was transferred from Level 1 to Level 3
on 21 January 2016, when its shares were suspended from trading on the LSE. As
no quoted price was available at 30 June 2016, the valuation was determined
using unobservable inputs. During the year ended 30 June 2017, the Company sold
its entire holding in San Leon Energy plc, realising a loss of GBP549,193.
The investment in NBNK Investments plc was transferred from Level 1 to Level 3
on 20 June 2016, when its shares were de-listed from trading on the LSE. As no
quoted price was available at 30 June 2016, the valuation was determined using
unobservable inputs. During the year ended 30 June 2017, the Company received
two distributions totalling GBP5.5 million with respect to its entire holding in
NBNK, realising a gain of GBP572,699.
At the year end and assuming all other variables are held constant:
* If unobservable inputs in Level 3 investments had been 5 per cent higher/
lower (2016: 5 per cent higher/lower), the Company's return and net assets
for the year ended 30 June 2017 would have increased/decreased by GBP192,319
(2016: GBP234,005); and
* There would have been no impact on the other equity reserves.
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 (2016: 10,000) Ordinary
shares in the Company, representing 0.01 per cent (2016: 0.01 per cent) of the
voting share capital of the Company at the year end.
During the year the Company incurred management fees of GBP3,232,888 (2016: GBP
2,617,425) none of which were outstanding at the year end. The Company also
accrued performance fees of GBP2,354,752 (2016: GBPNil) all of which were
outstanding and are included in trade and other payables as at 30 June 2017
(2016: GBPNil). A further GBP983,000 performance fee is payable in respect of the
year ended 30 June 2017 and has been accrued and recognised in the August 2017
NAV.
As at 30 June 2017 the Investment Manager held 4,015,606 Ordinary shares (2016:
4,015,606) of the Company, representing 4.08 per cent (2016: 4.08 per cent) of
the voting share capital. Subsequent to the year end, the Investment Manager
held 3,976,509 Ordinary shares of the Company, following a transfer of 39,097
Ordinary shares of the Company to an employee of the Investment Adviser on 10
July 2017.
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:
2017 2016
Number of Total Number of Total
Ordinary shares Voting Ordinary shares Voting
Rights Rights
William Collins 25,000 0.03% 25,000 0.03%
Sarah Evans 25,000 0.03% 25,000 0.03%
Total 50,000 0.06% 50,000 0.06%
During the year the Directors earned the following remuneration in the form of
Directors' fees from the Company:
2017 2016
GBP GBP
William Collins(1) 35,000 35,000
Sarah Evans(2) 30,000 30,000
Nigel Ward 27,500 29,750
Christopher Waldron 25,000 25,000
Jane Le Maitre(3) 3,630 -
Total 121,130 119,750
(1) Chairman of the Company
(2) Senior Independent Director of the Company and Chairman of the Audit
Committee
(3) Appointed as Director of the Company on 8 May 2017
At 30 June 2017, directors' fees of GBP33,005 (2016: GBP29,375) were accrued within
trade and other payables.
During the year ended 30 June 2016, Nigel Ward received a one-off fee of GBP3,500
for services undertaken in respect of assisting the Investment Manager during
2015 to establish the Risk Committee with the appropriate terms of reference.
With effect from 1 January 2016, Nigel Ward received an increase in
remuneration of GBP2,500 to reflect additional services provided to the Company
in respect of managing risk.
17. MATERIAL AGREEMENTS
The Company has entered into the following material agreements:
Crystal Amber Asset Management (Guernsey) Limited
With effect from 27 January 2015, under the addendum to the management
agreement, the Investment Manager receives a management fee of 2 per cent
applied to the Market Capitalisation of the Company at 30 June 2013 (GBP73.5
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, exceeds the Base Amount (the "Excess Amount"), the applicable fee
rate on the Excess Amount will be 1.5 per cent.
In addition, the Investment Manager is entitled to a performance fee in certain
circumstances. This fee is calculated by reference to the increase in NAV per
Ordinary share over the course of each performance period.
Payment of the performance fee is subject to:
1. the achievement of a performance hurdle condition: the NAV per Ordinary
share at the end of the relevant performance period (adding back for this
purpose the aggregate amount of any dividends per share paid to
shareholders since payment of the last performance fee) must exceed an
amount equal to the placing price, increased at a rate of; (i) 7 per cent
per annum on an annual compounding basis in respect of that part of the
performance period which falls from (and including) the date of Admission
up to (but not including) the date of the 2013 Admission; (ii) 8 per cent
per annum on an annual compounding basis in respect of that part of the
performance period which falls from (and including) the date of the 2013
Admission up to (but not including) the date of the 2015 Admission; and
(iii) 10 per cent per annum on an annual compounding basis in respect of
that part of the performance period which falls from (and including) the
date of the 2015 Admission up to the end of the relevant performance period
("the Basic Performance Hurdle"); and
1. the achievement of a "high watermark": the NAV per Ordinary share at the
end of the relevant performance period must be higher than the highest
previously reported NAV per Ordinary share at the end of a performance
period in relation to which a performance fee, if any, was last earned.
If the Basic Performance Hurdle is met, and the high watermark exceeded, the
performance fee is an amount equal to 20 per cent of the excess of the NAV per
Ordinary share at the end of the relevant performance period over the higher
of:
1. the Basic Performance Hurdle;
1. the NAV per Ordinary share at the start of the relevant performance period;
and
1. the high water mark.
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.
Performance fee for year ended 30 June 2017
At 30 June 2017, the Basic Performance Hurdle was 194.79 pence (2016: 176.62
pence) and the NAV per share before any accrual for any performance fee payable
in respect of the year then ended was 206.76 pence (2016: 153.79 pence).
Accordingly, a performance fee was payable equating to 20 per cent of the
excess NAV per share and is adjusted for dividends declared since payment of
the last performance fee, over the respective Basic Performance Hurdle
multiplied by the weighted average number of shares. The performance fee for
the year ended 30 June 2017 amounted, in aggregate, to GBP3,338,552 of which GBP
2,354,752 was accrued at 30 June 2017 (2016: GBPNil). The remaining GBP983,800 has
been accrued and recognised in the August 2017 NAV.
Heritage International Fund Managers 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 per cent (2016: 0.12 per cent) of that part of the NAV of the Company up
to GBP150 million and 0.1 per cent (2016: 0.1 per cent) of that part of the NAV
over GBP150 million (subject to a minimum of GBP75,000 per annum).
ABN AMRO (Guernsey) Limited
Under the custodian agreement, the Custodian receives a fee, calculated and
payable quarterly in arrears at the annual rate of 0.05 per cent (2016: 0.05
per cent) of the NAV per annum, subject to a minimum fee of GBP25,000 per annum.
Transaction charges of GBP100 per trade for the first 200 trades processed in a
calendar year and GBP75 per trade thereafter are also payable.
18. ULTIMATE CONTROLLING PARTY
In the opinion of the Directors, on the basis of the shareholdings advised to
them, the Company has no ultimate controlling party.
19. POST BALANCE SHEET EVENTS
On 10 July 2017, the Investment Manager transferred 39,097 Ordinary shares of
the Company to an employee of the Investment Adviser. Following the transfer,
the Investment Manager held 3,976,509 Ordinary shares of the Company.
On 11 July 2017, the Company declared an interim dividend of GBP2,459,120,
equating to 2.5 pence per Ordinary share, which was paid on 18 August 2017 to
shareholders on the register on 21 July 2017.
The Company purchased 290,000 of its own Ordinary shares during the period
between 1 July 2017 and 12 September 2017, which were held as Treasury shares.
Following these purchases, the total number of Ordinary shares held as Treasury
shares by the Company is 925,000.
On 4 August 2017, the Company reported that its unaudited NAV at 31 July 2017
was 196.71 pence per share.
On 8 September 2017, the Company reported that its unaudited NAV at 31 August
2017 was 191.79 pence per share.
Glossary of Capitalised Defined Terms
"Admission" means admission, 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, of the Ordinary shares;
"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;
"AIC Guide" means the AIC's Corporate Governance Guide for Investment
Companies, dated July 2016;
"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 their operations and financial conditions, together with the
Company's financial statements;
"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 Ltd;
"Bank of England" means the Bank of England, the central bank of the UK;
"Black Scholes" means the Black Scholes model, a mathematical model of a
financial market containing derivative instruments;
"Board" or "Directors" or "Board of Directors" means the directors of the
Company;
"Brexit" means the departure of the UK from the European Union;
"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;
"FATCA" means Foreign Account Tax Compliance Act;
"FCA" means the Financial Conduct Authority;
"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;
"FVTPL" means Fair Value Through Profit or Loss;
"GFSC" means the Guernsey Financial Services Commission;
"GFSC Code" means the GFSC Finance Sector Code of Corporate Governance;
"Gross Asset Value" means the value of the assets of the Company, before
deducting its liabilities, and is expressed in Pounds Sterling;
"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, formerly the International
Financial Reporting 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 and
further amended on 27 January 2015;
"Kay Review" means the Kay Review of UK equity markets and long-term decision
making as published by the UK Government's Department for Business, Innovation
and Skills;
"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 GBP0.01 each;
"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;
"SME" means small and medium sized enterprises;
"SORP" means Statement of Recommended Practice;
"Stewardship Code" means the Stewardship Code of the Company adopted from 14
June 2016, as published on the Company's website www.crystalamber.com;
"TISE" means The International Stock Exchange, formerly the Channel Islands
Securities 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 Federal Reserve" means the Federal Reserve System, the central banking
system of the US; and
"GBP" or "Pounds Sterling" or "Sterling" means British pound sterling and "pence"
means British pence.
Directors and General Information
Directors Registered Office
William Collins (Chairman) Heritage Hall
Sarah Evans (Senior Independent Director) Le Marchant Street
Nigel Ward St. Peter Port
Christopher Waldron Guernsey GY1 4HY
Jane Le Maitre (Appointed 8 May 2017)
Investment Manager
Investment Adviser Crystal Amber Asset Management (Guernsey)
Crystal Amber Advisers (UK) LLP Limited
17c Curzon Street Heritage Hall
London W1J 5HU Le Marchant Street
St. Peter Port
Administrator and Secretary Guernsey GY1 4HY
Heritage International Fund Managers
Limited Nominated Adviser
Heritage Hall Allenby Capital Limited
Le Marchant Street 5 St. Helen's Place
St. Peter Port London EC3A 6AB
Guernsey GY1 4HY
Legal Advisers to the Company
Broker As to English Law
Pre 09/09/2016: Norton Rose Fulbright LLP
Numis Securities Limited 3 More London Riverside
The London Stock Exchange Building London SE1 2AQ
10 Paternoster Square
London EC4M 7LT As to Guernsey Law
Carey Olsen
Post 09/09/2016: PO Box 98
Winterflood Investment Trusts Carey House
The Atrium Building Les Banques
Cannon Bridge House St. Peter Port
25 Dowgate Hill Guernsey GY1 4BZ
London EC4R 2GA
Custodian
Independent Auditor ABN AMRO (Guernsey) Limited
KPMG Channel Islands Limited PO Box 253
Glategny Court Martello Court
Glategny Esplanade Admiral Park
St. Peter Port St. Peter Port
Guernsey GY1 1WR Guernsey GY1 3QJ
Identifiers Registrar
ISIN: GG00B1Z2SL48 Capita Registrars (Guernsey) Limited
Sedol: B1Z2SL4 Longue Hougue House
Ticker: CRS St Sampson
Website: www.crystalamber.com Guernsey GY2 4JN
END
(END) Dow Jones Newswires
September 13, 2017 02:00 ET (06:00 GMT)
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