TIDMCRS
13 September 2019
Crystal Amber Fund Limited
Final results for the year ended 30 June 2019
The Company announces its final results for the year ended 30 June 2019.
Highlights
* Net Asset Value ("NAV") (1) per share rose by 1.8% to 249.12p (244.62p at
30 June 2018, 221.67p at 31 December 2018). NAV total return for the year
was 4.1% including reinvested dividends.
* Over the last three years, the Fund has delivered an annualised total NAV
return of 20.5%.
* Realised gains of GBP17.9 million on Hurricane Energy plc and GBP3.7 million in
Equals Group plc. Successful sales of investments in Boku Inc. and NCC
Group during the year, realising profits of GBP3.1 million and GBP2.5 million
respectively.
* Key contribution to NAV performance derived from Leaf Clean Energy
Company's successful litigation against Invenergy Renewables.
* NAV growth held back by the performance of De La Rue plc and Northgate plc.
* Share buy-back programme maintained, with average discount to month end NAV
through the year of 7.8% (2018: 3.0%).
* To date the value of shares created and gifted to charitable organisations
amounts to approximately GBP1 million.
For further enquiries please contact:
Crystal Amber Fund Limited
Christopher Waldron (Chairman) Tel: 01481 742 742
Allenby Capital Limited - Nominated Adviser
David Worlidge/Liz Kirchner Tel: 020 3328 5656
Winterflood Investment Trusts - Broker
Joe Winkley/Neil Langford Tel: 020 3100 0160
Crystal Amber Advisers (UK) LLP - Investment Adviser
Richard Bernstein Tel: 020 7478 9080
(1) All capitalised terms are defined in the Glossary of Capitalised Defined
Terms unless separately defined.
Chairman's Statement
I am pleased to present the twelfth annual report of Crystal Amber Fund Limited
("the Fund"), for the year to 30 June 2019. At that point, NAV was GBP238.8
million, compared with an unaudited NAV of GBP213.8 million at 31 December 2018
and an audited GBP238.1 million at 30 June 2018. NAV per share was 249.12 pence
at 30 June 2019 compared with 221.67 pence at 31 December 2018 and 244.62 pence
at 30 June 2018.
The period was dominated by the uncertainty around Brexit. Equities moved
sideways as deal activity reduced and consumer confidence weakened. Globally,
the ongoing trade negotiations between the US and China made little progress.
The frail economic outlook saw a monetary policy about turn at the Federal
Reserve towards easing, after a period of timid interest rate hikes.
In my interim statement in March, I described the possibility of a "no deal"
Brexit at the then deadline of March 29 as "incredible". Six months later, with
a new prime minister and a new deadline of 31 October, a "no deal" outcome
looks far from incredible and is, in fact, a realistic possibility. The extent
to which the threat of "no deal" turns out to be an extreme negotiating gambit
rather than a serious policy decision is unknown at the time of writing, but it
continues to unsettle markets. It is also increasingly likely that there will
be a general election before the end of the year, which has the potential to
result in a business-unfriendly Labour led administration.
It is hardly surprising, therefore, that international investors have reduced
their exposure to UK assets to historically low levels, sterling has continued
to weaken and domestic UK equities have underperformed. Given this background,
the Fund's NAV performance has been very encouraging. NAV per share increased
by 1.8% during the year and, with dividends reinvested, NAV total return was
4.1%. The Fund has delivered an excellent annualised total return on NAV of
20.5% over the last three years, and 11.6% over the last five years. This
compares favourably to the Numis Smaller Companies Index total returns of 10.9
and 7.5% over the same three-year and five-year periods.
The Fund remains focused on its activist approach which can generate positive
returns regardless of market direction. During the year this patient approach
proved particularly successful with Leaf Clean Energy and, although progress
has been frustrating in some areas, such as De La Rue and Northgate, we remain
confident that there is significant value to be unlocked from the Fund's
portfolio.
During the year, the Fund bought back 1,728,800 of its own shares at an average
price of 213.05 pence as part of its strategy to limit any substantial discount
of the Fund's share price to NAV. Over the year, the Fund's shares traded at an
average month-end discount to NAV of 7.8%. At the year end, the shares traded
at a discount of 16.9% to NAV. The share buyback programme contributed 0.3% to
NAV per share growth during the year.
The Fund declared interim dividends of 2.5 pence in July 2018 and December
2018, in line with the dividend policy of paying 5.0 pence per year. At the
2018 AGM, interim dividends previously paid were ratified by shareholders.
During the year, the Fund created and issued 250,000 shares to ten charities.
Today, it has issued an additional 125,000 shares. This follows the authority
granted at the Fund's Annual General Meeting in November 2017, and renewed in
November 2018. The total value of shares gifted to date is approximately GBP1
million. The Fund is delighted to assist so many worthy causes including Cancer
Research UK, UNICEF and the World Wildlife Fund. The Fund always seeks to make
a positive difference and I believe that these donations do just that. Were all
listed companies to follow Crystal Amber's initiative, for a dilution of just
0.25% per annum, every year, several billion pounds could be directed towards
less fortunate members of society.
Christopher Waldron
Chairman
12 September 2019
Investment Manager's Report
Performance
The Fund's NAV per share increased by 1.8% during the year. With dividends
reinvested, total returns per share for the year were 4.1%. This compares
favourably to the Numis Smaller Companies Index total return of -1.8% over the
same period.
Key contributors to performance were Leaf Clean Energy Company (7.1%), GI
Dynamics Inc. (4.2%), Hurricane Energy plc (3.6%), Equals Group plc (2.0%) and
Boku Inc. (0.6%). The main detractors were De La Rue plc (5.1%), STV Group plc
(2%), Northgate plc (1.4%), Cenkos plc (0.7%) and Sutton Harbour Holdings plc
(0.3%).
The Fund's performance is calculated after portfolio protection through the
purchase of FTSE put options. Over the year, this reduced NAV performance by
1.9%.
Portfolio and Strategy
At 30 June 2019, the Fund held equity investments in 18 companies (2018: 16),
including one unlisted company. The Fund also held warrants and a senior debt
instrument in GI Dynamics. Warrants over Hurricane Energy plc and Equals Group
plc shares were exercised during the year.
Taking account of all investment instruments, the Fund's exposure to its top
ten investee companies amounted to 96.8% of NAV at 30 June 2019 (2018: 90.7%).
The Fund's month-end average net cash and accruals position was -0.8% (2018:
0%), meaning that it has been fully invested over the year.
The Fund's strategy remains focused on a limited number of special situations
where value can be realised regardless of market direction. By its nature as an
activist fund, the Fund needs to hold sufficiently large stakes to facilitate
engagement as a significant shareholder. Therefore, the Fund is exposed to
concentration risk. Levels of investment in individual companies are closely
monitored and parameters are set to ensure this risk is kept to an appropriate
level.
Over the year to 30 June 2019, the weighted average market capitalisation of
the Fund's listed investee companies was GBP420 million (2018: GBP491 million).
The table below lists the Fund's top ten shareholdings as at 30 June 2019, the
equity stake that those positions represent in the investee company and their
percentage contribution to NAV performance over the year.
Top ten shareholdings Pence per Percentage of Percentage of Contribution to
share NAV investee NAV performance
equity held (1)
Hurricane Energy plc 54.9 22.0% 5.0% 3.6%
Equals Group plc (formerly 49.8 20.0% 23.4% 2.0%
FairFX Group plc)
Northgate plc 36.7 15.0% 7.6% (1.4%)
De La Rue plc 20.9 8.0% 6.4% (5.1%)
Leaf Clean Energy Co. 18.0 7.0% 25.3% 7.1%
STV Group plc 16.1 6.0% 11.4% (2.0%)
GI Dynamics Inc.(2) 15.4 6.0% 65.1% 1.7%
Allied Minds plc 9.1 4.0% 5.0% 0.5%
Board Intelligence 5.8 2.0% * 0.8%
Sutton Harbour 3.2 1.0% 10.7% (0.3%)
Total of ten largest 229.9
shareholdings
Other investments 21.9 0.2%
Cash and accruals (2.7)
Total NAV 249.1
(1) Percentage contribution stated for equity holdings only, including warrants
exercised during the period. Other instruments such as outstanding warrants and
debt are included in the performance contribution calculation of the prior
section of this report.
(2) Following the conversion of unsecured loan notes.
* Board Intelligence Ltd is a private company and its shares are not listed on
a stock exchange. Therefore, the percentage held is not disclosed.
Seven of the Fund's top ten positions at 30 June 2019 were amongst the top ten
at 30 June 2018. Over the year, the position in Equals Group plc increased to
23.4% (2018: 19.2%) of the issued equity of Equals Group plc through the
exercise of warrants and open market purchases, despite the Fund realising a GBP
3.7 million profit on the sale of part of this investment. The Fund increased
its position in Northgate plc to 7.6% (2018: 6.3%) and De La Rue plc to 6.4%
(2018: 3.2%). Leaf Clean's position was reduced taking a profit of GBP0.8 million
after its successful appeal. STV Group's position was reduced to 11.4% of the
equity (2018: 18.2%). The Fund increased its investment in GI Dynamics through
the conversion of loan notes to equity at the end of the period and market
purchases, as explained in the GI Dynamics section of this report, taking the
Fund's stake to 65.1%.
The holding in Allied Minds was acquired during the year. NCC Group plc and
Boku Inc. were sold outright.
Investee companies
Our comments on a number of our principal investments are as follows;
Hurricane Energy plc
Hurricane is an oil exploration company targeting naturally fractured basement
reservoirs in the West of Shetland. It controls 2.6 billion Barrels of Oil
Equivalent ("BOE") certified resources and reserves. The Fund's previous annual
reports include additional background information on this investment.
This was a year of great achievement for Hurricane. In September, it agreed a
farm-in deal with Spirit Energy over 50% of its Greater Warwick acreage. The
company's first farm-in deal with an industry partner supports the case for
basement reservoirs in the UK continental shelf. The deal also re-started
Hurricane's exploration operations with an intensive three-year appraisal
campaign. As Warwick had only been drilled once by Hurricane in 2016, it was
behind Lancaster in the appraisal and development process. Spirit's commitment
of $387 million should accelerate this. As such, we believe that the deal with
Spirit is transformational for Hurricane.
The Greater Warwick exploration campaign started in the spring of 2019 with a
three-well programme, fully funded by Spirit. The first well was the riskiest
due to its depth, and unfortunately results were disappointing. Oil was
discovered but it did not flow at commercial rates and so the well was
abandoned. The campaign has continued with the Lincoln Crestal well. In
parallel, long lead items have been ordered so that in 2020 one of the wells
drilled in 2019 will be tied back to the Floating Production and Storage vessel
for production appraisal. As with the Lancaster Early Production System
("EPS"), this step will enable collection of additional reservoir data ahead of
an initial full field development of 500 million barrels of reserves. This
approach is expected to leverage Hurricane's Lancaster infrastructure, and
generate incremental revenues to the company at little additional cost.
In June 2019, Hurricane announced first oil from its EPS. This has been
delivered on time and on budget albeit with a protracted final hook-up phase.
In July 2019, following the period end, the company advised that the EPS was
performing above expectations during the first month of operation and increased
its production forecast. The two horizontal wells are producing 20k BOE per day
under natural flow conditions, that is, without electrical pumps. Whilst it is
too early to establish the asset's long-term potential, initial production data
supports the company's reservoir model. Hurricane retains 100% ownership of
this asset that is expected to generate US$200 million per annum at US$60/BOE.
This cash flow underpins Hurricane's options to appraise further its Great
Lancaster asset either independently or in partnership.
The Fund is a longstanding supporter of Hurricane, having funded its
exploration efforts since 2013 and its production strategy since 2016, when the
EPS's long lead items were first purchased. Over the last year, Hurricane has
developed in size and complexity and continued to perform well. Over the
period, the Fund reduced its opening position by 22% as it took profits of GBP
17.9 million and exercised its warrants over 23.3 million shares. Despite
banking total profits of GBP41.8 million on Hurricane, the year-end carrying
value includes an unrealised profit of GBP28.0 million.
Equals Group plc ("Equals")
Equals is an international payment services provider operating under an e-money
licence. It serves retail and business customers mainly in the United Kingdom.
Equals provides faster, cheaper and more convenient money management than
traditional banking services. In June 2019, the company rebranded from FairFX
to Equals to reflect the broader range of services it now offers that go beyond
foreign currency. Equals' reliability and excellent customer service have
earned it a five-star Trustpilot score.
Equals' strategy to date has been focused on improving scale and operational
efficiencies across its platform, which has been driven through R&D investment,
acquisition and rationalising its supply chain. Equals' services include
international payments, corporate expenses, current accounts, credit
facilities, currency cards and travel cash. Through its subsidiary, Spectrum
Payment Services Ltd (SPS), Equals has access to real-time settlement accounts
with the Bank of England and is a member of the UK faster payments scheme,
meaning customers can transfer and receive funds instantly. In 2018, Equals
processed more than 1 million transactions, which it is now able to process in
real-time and at lower cost. SPS is also approved by the FCA to provide credit
facilities, acting as a broker, which is a significant cross-selling
opportunity.
During the year, Equals announced a binding term sheet with Metropolitan
Commercial Bank for a multi-year contract to provide payment services in the
US. The agreement covers both international payments and prepaid card
issuance. Equals' is confident that there is strong demand for their corporate
expense platform in the US, which could provide an additional growth engine for
the business.
Equals' 2018 full year results showed revenue increasing to GBP26 million (up
69%) and adjusted profit after tax increasing from GBP1 million to GBP7 million.
Equals has also surpassed the one million customers milestone.
The Fund's position in Equals dates from a 20p per share placing in March 2016.
This included warrants that were fully exercised in the period. Following very
favourable share price performance over the Fund's 2018 financial year, the
stock has been range bound with headwinds from Brexit and UK macro uncertainty.
The Fund has continued to provide strategic advice to Equals throughout the
year and advocated the development of a broader platform of services that take
advantage of regulatory and technological change. Equals is embarking on a
major marketing and product refresh over the latter months of 2019.
Northgate plc
Northgate is the leading light commercial vehicle flexible hire business in the
UK, Spain and Ireland. The company is expanding its minimum term hire offering
to help its customers accelerate their switch away from vehicle ownership.
Northgate has a fleet of around 106,000 vehicles and operates from more than
100 sites.
In March 2019, for only the second time in its eleven-year history, the Fund
judged it necessary to requisition a shareholder general meeting to effect
change at the board of an investee company. This followed extensive attempts to
engage with Northgate's executive and non-executive directors since the Fund's
investment in April 2016. In response to the meeting requisition, Northgate
announced the resignation of its chairman, Andrew Page, with immediate effect.
The Fund's assessment is that Northgate has suffered from inadequate strategic
leadership, overseen by a board lacking in direct experience within hire
industries. Following the departure of Andrew Page, we expressed our view that
the new chair should be someone with relevant industry experience, and who
would be focused on delivering the best outcome for Northgate's stakeholders,
including being supportive of releasing Northgate's strategic value. The Fund
is therefore encouraged by last month's announcement of the appointment of
Avril Palmer-Baunack as the new chair of Northgate.
At 347.5p as of 28 June 2019, Northgate's shares traded at a substantial
discount to the company's reported net tangible asset value of 412p per share
as at 30 April 2019, which is roughly equivalent to the market value of
Northgate's fleet.
Northgate's well-managed Spanish business, which generates over half of the
group's operating profit, is the clear leader in its market with a strong
brand, good geographic coverage and an attractive return on assets. The Fund
believes that the considerable value of the Spanish business is not reflected
in Northgate's share price and that the company should therefore properly
explore all options to realise the value of this asset. For example, if the
Spanish business were to be worth 130% of net asset value to an acquirer, then
investors in Northgate would be currently paying less than one third of net
asset value for the residual UK and Ireland businesses.
Whilst the Fund takes some comfort from the progress made to date in returning
UK vehicle-on-hire numbers to growth, it is disappointed that UK margins and
returns on capital remain very depressed.
The Fund would have welcomed share purchases by Northgate's directors following
the full year results announcement, as a demonstration of their belief in the
company's prospects and undervaluation. The Fund expects rental margins,
returns on capital and the dividend (5.7% current yield) to grow, driven
predominantly by further fleet growth and consequent scale benefits in all
geographies.
De La Rue plc
De La Rue designs and prints banknotes and produces related components,
including security features. The company also supplies tax stamps as well as
products and software to authenticate and track individual products throughout
their supply chains, and it produces components for inclusion within individual
identity documents. De La Rue is the incumbent provider of passports to the UK,
under a long-term contract due to end in March 2020.
Following its latest full-year results announcement on 30 May 2019, De La Rue's
share price fell by 34%, despite management's claims that the company's
performance had been "reasonable" and had "broadly met market expectations."
These claims did not reflect the reality that the GBP60 million of
management-adjusted operating profits included an unexpected GBP7 million benefit
from an accounting standard change and ignored an GBP18 million provision charge
related to the supply of banknotes to Venezuela. Along with its results, De La
Rue also announced that chief executive Martin Sutherland would be leaving the
company following the appointment of a successor. To date, the total
shareholder return during his five-year tenure has been -45%.
Following the Fund's meeting in June 2019 with De La Rue's chairman Philip
Rogerson, the chairman subsequently reneged on an agreement to engage with a
leading industry player who had indicated to Crystal Amber that it was open to
a dialogue with the company to explore mutually beneficial strategic
opportunities. As a result, on 20 June 2019 Crystal Amber wrote to Philip
Rogerson stating that "we have concluded that all stakeholders would be better
served if you now stand down from the board." On 24 June 2019, De La Rue
announced that Philip Rogerson would be leaving the board once a new chief
executive had been recruited. On 2 September 2019, De La Rue announced that
Philip Rogerson will be leaving the board on 1 October 2019. To date, no chief
executive has been recruited.
On 23 July 2019 the UK Serious Fraud Office announced the commencement of an
investigation into De La Rue and its associated persons in relation to
suspected corruption in the conduct of business in South Sudan. This caused
the share price to fall a further 22% over the subsequent two days.
At De La Rue's annual general meeting on 25 July 2019, only 52% of votes were
cast in approval of the directors' remuneration report. The Fund had objected
strenuously to the payment of bonuses to executive management following a year
of poor underlying financial performance (as was recognised by the stock
market).
As far back as September 2018, the Fund introduced De La Rue to a director of
the Swiss National Bank, with the hope and expectation that the Swiss National
Bank would become both a long-standing customer and a shareholder. The Fund
subsequently witnessed how this opportunity was squandered. It was equally as
baffling as the decision to continue to print banknotes for the Central Bank of
Venezuela without requiring payment in advance, despite the political
environment and tightening sanctions. De La Rue has since provided in full for
the non-payment of GBP18 million from this customer. Shamefully, the board of De
La Rue awarded the CEO of De La Rue a bonus of GBP197,000 by including the
invoice for the Central Bank of Venezuela in calculating his bonus yet
excluding the full provision. The destruction of shareholder value at De La Rue
is the direct result of an appalling level of mismanagement, arrogance and lack
of accountability at this once great British company.
Notwithstanding these recent developments, the Fund continues to believe that
De La Rue enjoys a combination of strong competitive positions in high return
businesses and attractive growth opportunities backed by a capacity for both
significant organic investment and the acquisition of further technological
competencies. Regrettably, the mismanaged and opaque communication surrounding
the full year results overshadowed some material positive developments,
including a 20% increase in the company's total order book (now disclosed,
following repeated requests by the Fund) and a 38% increase in its revenue from
security features.
De La Rue also has obvious strategic value, as evidenced by the takeover
approach from its competitor Oberthur in late 2010, and the acquisition last
year of another banknote producer, Crane Currency, for US$800 million. The Fund
notes that the shares now trade at below one quarter of the price offered by
Oberthur, a cash bid rejected by De La Rue's board at the time.
In the Fund's view, De La Rue has suffered from a lack of strong and
knowledgeable leadership, including an insufficient understanding of investor
expectations and how to deliver against them. This has resulted in an
unacceptable financial performance over many years, evidenced amongst other
factors by a drop in earnings per share despite tailwinds from the company's
various end-markets.
The Fund believes that the board departures announced recently create an
opportunity to build a higher-quality leadership team able to maximise the
value of the banknote business and to capitalise on the opportunities presented
by De La Rue's high-growth, high-margin authentication activities.
Leaf Clean Energy Co ("Leaf Clean")
Leaf Clean is an investment company focused on clean energy, largely in North
America. It currently owns three assets the largest of which is a claim against
Invenergy Renewables ("Invenergy", formerly Invenergy Wind) that accounted for
substantially all of Leaf's NAV at 31 December 2018. The Fund's previous Annual
Reports contain the background to this investment.
The investment in Leaf Clean has been a key contributor to performance of the
Fund this year. The Fund first invested in Leaf Clean in October 2013.
Following engagement with the then company board, the Fund took decisive action
to change the leadership of the company. An EGM requisition resulted in the
replacement of the chairman and executive directors. The Fund supported a new
executive chairman with a clear mandate to realise investments in an orderly
fashion. An incentive package was agreed based on the cash returned to
shareholders. The new board decisively cut additional funding to unsuccessful
investments, initiated disposals and reduced running costs.
As a direct result of the Fund's activism, Leaf Clean has been in orderly
realisation since July 2014. In 2015, management advised that the realisation
of all investments would probably take two years. However, the Fund noted that
timings were unpredictable, given the private nature of the investments.
Unfortunately, the unwillingness of the company's main investment, Invenergy,
to abide by the terms of the investment agreement has extended the process to
the present date.
Invenergy 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 Clean initially invested $40 million in convertible notes in
2008 and 2009. It elected to convert its interest into a 2.3% 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 Clean filed a complaint against Invenergy for breach of
contract. The complaint alleges that Invenergy was required either to obtain
Leaf Clean's consent to the sale prior to its consummation or, in the absence
of such consent, make a payment to Leaf Clean upon the closing of the sale.
Leaf Clean did not consent to the sale and Invenergy made no payment to Leaf
Clean.
In July 2016 Leaf Clean announced a favourable preliminary decision, which was
subsequently reversed. In September 2017, the Fund provided a commitment of up
to US$2.5 million to support the company's ongoing litigation with Invenergy.
In April 2018, Leaf Clean received the Chancery Court decision which found that
Invenergy had breached its contractual obligations but surprisingly held that
Leaf Clean was only entitled to nominal damages. The final market value for
Leaf Clean's stake in Invenergy was set at US$50.7 million. Leaf Clean lodged
an appeal at the Supreme Court against this judgement seeking an additional
payment of US$85.8 million.
In May 2019, the Delaware Supreme Court held that Leaf Clean was entitled to
damages in the full amount of its contractually defined Target Multiple and,
therefore, reversed the Court of Chancery's decision to award only nominal
damages. In June 2019, the Chancery Court entered its ?nal order and judgement,
ordering Invenergy to pay Leaf Clean US$114.5 million. Consistent with its
litigious stance throughout the process, Invenergy notified Leaf Clean of its
intention to appeal and filed for a review of the interest payment calculation
at the Supreme Court.
Following the year end, in July 2019, Leaf Clean announced a GBP53.1 million
capital return, which was effected in August 2019 by means of pro-rata share
cancellation.
The Fund invested GBP13.0 million in Leaf Clean. By the year end, it had received
GBP7.8 million from the 2015 special dividend and the 2018 capital return. In
August 2019, it received GBP13.4 million from the latest capital return. The
value of the Fund's holding at the end of August 2019 was GBP4.5 million. The
Fund is pleased that its intensive engagement with Leaf Clean and subsequent
strategic support has delivered an excellent outcome for Leaf Clean's
shareholders.
STV Group plc
STV broadcasts free to air TV in Scotland through the Channel 3 licence.
Following ITV plc's ("ITV") acquisition of UTV Ireland in 2016, STV is the only
franchise in that channel not owned by the ITV network. 95% of STV's broadcast
content is produced by ITV and purchased by STV through long term agreements.
These agreements have a revenue share component that distinguishes STV's
business model from that of other broadcasters. STV's programming costs
fluctuate with its advertising revenues, limiting its operational gearing. The
Fund's previous Annual Reports contain additional background on the company.
Over the period, STV initiated the execution of its new strategy, focused on
growing digital revenues and the production division. Two new divisional heads
were recruited, and substantial operational progress has been made.
On the digital division, the company has focused on optimising the user
experience in its Player product and on making this available in additional
platforms. Bugs have been ironed out and the user experience improved. For
those who prefer to watch advert free, STV launched a subscription service for
Apple's iOS, which will be rolled out across other platforms. It also announced
deals with two retransmission partners, Virgin TV and Sky, and has already
launched on Virgin´s platform. The increased availability of STV's own player
product on additional platforms and the improved user experience will give the
company more digital video advertising inventory to sell. This inventory has
achieved and sustained premium rates relative to other digital channels. In the
first quarter of 2019, the digital audience was up 30% year on year.
The Fund has been an investor since 2013. As a result of renewed Brexit
concerns, the Fund realised profits on part of this holding during the second
half of the year. At 30 June 2019, it was the Fund's sixth largest position.
GI Dynamics Inc.
GI Dynamics is the developer of the 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. It
offers similar effects to the surgical gastric bypass, without the risks of a
major surgical procedure. The Fund's previous annual reports contain the
background to the company and the Fund's investment.
Over the period, GI Dynamics took its first steps to rebuild its strategy by
securing a US FDA pivotal trial, appointing a new CE Mark accreditation body
and reaching an agreement with Apollo Sugar for a trial in India.
The company secured permission for its new US clinical trial, the STEP-1 trial,
in August 2018. This was obtained without a costly product re-design. During
the remainder of the period, GI Dynamics has undertaken the necessary
preparations for the trial. It has expanded its team, fulfilled the relevant
regulatory steps and finalised agreements with high calibre research centres.
For example, the principal trial site will be Brigham and Women's Hospital, a
teaching affiliate of Harvard Medical School. Another centre is the Thomas
Jefferson University Hospital of Philadelphia, a top 100 facility in America
according to Becker's Hospital Review.
The trial will begin enrolling patients who have type 2 diabetes and obesity
during the second half of 2019. The primary endpoint of STEP-1 is reduction in
average blood sugar levels (HbA1c) at 12 months of treatment. The pivotal trial
will consist of randomized EndoBarrier implant and control groups; patients in
both groups will receive identical lifestyle therapy that complies with the
most current American Diabetes Association guidelines.
In November 2018, GI Dynamics announced an agreement with Apollo Sugar to study
the safety and efficacy of EndoBarrier in India. Apollo Sugar is a division of
Apollo Hospitals Group ("Apollo") in partnership with Sanofi. It is focused on
the treatment of metabolic disorders and operates a network of centres of
excellence for diabetes, obesity and endocrinology. Apollo is the largest
hospital system in India. The agreement provides for the commencement of a
clinical trial with 100 patients which would enable the commercialisation of
the EndoBarrier in India.
The Fund participated in an equity placing in November 2018 worth $2.4m and
purchased two convertible loan notes worth a combined $4 million in March and
May 2019. The Fund converted its three outstanding unsecured loan notes to
equity at the end of June 2019, with an aggregate principal of $5.75 million.
The maturity of the Fund's $5 million secured loan note was extended. The Fund
retained the warrants issued in conjunction with the loan notes.
The agreement with Apollo Sugar is an excellent endorsement of the
attractiveness of GI Dynamics' EndoBarrier. It creates an additional path to
create value in parallel to the FDA and the CE Mark certifications. Despite the
company's limited resources, the company continues to make progress toward
regulatory approval for the EndoBarrier.
Allied Minds plc
Allied Minds describes itself as an early-stage investor in technology and life
science companies. In 2014, it listed on the London Stock Exchange at 190p per
share, valuing the company at GBP398m. In December 2016, it raised GBP64m at 367p
per share. Since its formation, Allied Minds has invested in over 40 companies.
In 2017, it discontinued funding of several portfolio companies in order to
focus primarily on its six largest remaining portfolio companies. From 2014 to
2018, Allied Minds reported total operating losses of US$464 million.
The net asset value of Allied Minds now comprises four significant technology
and space-related investments, two life-sciences investments that have been
substantially written-down, four small new investments made since 2017, and a
cash balance of around US$25-30 million after two recently announced follow-on
investments. Based on the disclosure regarding individual investee company
holding values, we estimate that Allied Minds' net asset value currently stands
at between 95p and 105p per share.
The Fund initiated an investment in Allied Minds during autumn 2018 and
currently owns 6.9% of its issued share capital at an average cost of 60.6p per
share.
Following the Fund's investment, concerns were expressed to the company
regarding its excessive parent company running costs and the urgent need to
realign its cost base. The Fund also objected to elements of the management's
compensation, specifically the long-term incentive shares that had cost around
US$3.9 million during the first half of 2018, and also the unprecedented
practice of paying out 10% of gains arising from any successful individual
investment independent of the scale of losses incurred on other investments in
the portfolio (the "Phantom Plan").
On 7 February 2019, Allied Minds announced that its annualised HQ cash
operating expenses would fall by over 40%, extending its cash runway into 2021.
However, this left total HQ expenses at a still-unacceptable level of around
US$13m per annum. Following a meeting with then-chief executive Jill Smith, the
manager wrote to the company reiterating the Fund's concerns.
On 26 April 2019, along with its 2018 results, Allied Minds announced that it
would henceforth focus on maximising returns from its ten portfolio companies
and related shareholder distributions, rather than continuing to invest in new
businesses. It also stated that annualised HQ cash operating expenses would be
cut by a further US$2-3 million compared to the implied target from February,
extending its cash runway from around two years to three or four years.
Furthermore, the company ceased disclosing a proxy for net asset value, which
enabled it to avoid specifying the scale of markdown to its two largest life
sciences investments, SciFluor and Precision Biopsy.
On 10 June 2019, Allied Minds announced that Jill Smith had resigned as Chief
Executive, to be replaced as co-CEOs by the chief financial officer and the
General Counsel. The remuneration terms for the co-CEOs have not yet been
disclosed, but the Fund questions why a portfolio of only ten holdings and with
a stated aim of reducing HQ costs is better served by having two CEOs rather
than one. Allied Minds also disclosed its decision not to make any further
grants under its long-term incentive plan, including cancelling the issuance
that had been planned for May following the 2018 results.
On 20 June 2019, Allied Minds announced that its chairman and senior
independent director would no longer seek re-election to the board at the AGM
scheduled for 28 June. This leaves a board composed of three non-executive
directors (appointed in April 2014, November 2017 and May 2018) plus the
co-CEOs.
On 6 August 2019 HawkEye 360, one of the top-four portfolio companies,
announced it had raised US$70 million at a valuation more than double its
September 2018 round. The Fund believes that this fundraising added at least 8p
to Allied Mind's net asset value per share, after accruing for the Phantom
Plan. On 4 September 2019 Federated Wireless, another of the top-four portfolio
companies, announced it had raised US$51 million at a valuation more than 20%
higher than its September 2017 round, adding a further 3 to 4p to Allied Mind's
net asset value per share.
Notwithstanding the recent positive news regarding HawkEye 360 and Federated
Wireless, the Fund notes that the share price of Allied Minds continues to
trade at a very material discount to its estimated net asset value. The Fund
attributes this to the continued excessive level of central operating expenses
for a company now in run-off where four investments plus parent-level cash
account for more than 90% of asset value and the board's failure to cancel the
egregious Phantom Plan that ignores all portfolio losses when calculating
management bonuses.
The Fund believes that the scale of share price discount has not been addressed
by the board of Allied Minds and therefore intends to take appropriate action.
Board Intelligence ("BI")
BI is a privately-owned UK company with a mission to improve the quality of
board decision-making. The company offers cloud-based board-pack tools on a
Software-as-a-Service (SaaS) basis. The product encompasses workflow management
for the drafting of meeting packs, structured communication templates to
improve the effectiveness of meetings, and an app-based portal allowing meeting
participants to access information securely. The primary audience is corporate
boards, but the tools can also be used by other committees.
SaaS products have high contribution margins: platform costs are relatively
fixed, so they experience significant operating leverage as volumes increase -
profit margins are higher than is evident during the growth phase. BI's
customer acquisition cost is low relative to the customer lifetime value, so
growth in the customer base is incremental to the company's enterprise value.
Price is a secondary consideration relative to the high value attributed to any
improvement in board meeting productivity and data security. Furthermore, once
a solution is adopted by a company there are switching costs to change to
another provider, which results in low organic churn.
BI has a very impressive client list, including UK large-caps and government
departments, and has emphatic public testimonials from leading companies such
as Rolls Royce and National Grid. The Fund does not invest in unquoted
companies save in exceptional circumstances but was attracted by the economics
of the business and the many growth opportunities amongst the 9,350 UK
organisations employing over 250 people that could make use of this product. BI
also has options to expand the product internationally.
The Fund invested in BI in 2018 at a significant discount to the valuation
multiples of listed cloud/SaaS companies. The company's Annual Recurring
Revenue (ARR) has subsequently continued to grow at an impressive rate without
the cash burn shown by many high growth companies. BI has a dynamic
entrepreneurial management team who have used our investment to strengthen the
organisation and enhance the product. The Fund continues to engage with
management on how to maximise long-term value.
Sutton Harbour Group plc
Sutton Harbour owns and operates Sutton Harbour in the Barbican, Plymouth's
historic old port, and holds the lease to Plymouth's 113-acre former airport
site. Sutton Harbour includes a leisure marina, the second largest fresh fish
market in England and an estate of investment properties around the harbour.
The marina is a 5 Gold Anchor rated facility and considered to be one of the
best deep water harbours in the South West. The Fund's previous annual reports
provide further background to this investment.
From the beginning of 2018, FB Investors LLP have been the majority
shareholders in the company and have been shaping Sutton Harbour's new
strategy. In July 2018, the new management submitted a planning application for
the redevelopment of Sugar Quay and Harbour Arch Quay. This was approved in
November 2018 and the company launched a GBP3 million open offer to fund post
planning pre-construction phase project costs, capital maintenance project
costs and to provide cash headroom. The Fund took its full entitlement and has
continued to grow this position.
In March 2019, the government inspectors' report concerning the local
authority's new planning framework was issued. It affirmed the safeguarding of
the former airport site for possible general aviation use for a period not to
exceed five years.
Final results to the end of March 2019 reported NAV of 39.4 pence per share
versus a then share price of 26.8 pence.
The Fund maintains an open dialogue with the company and remains supportive of
its new management strategy.
Outlook
The Fund is increasingly cautious on the outlook for markets. Trade tensions,
Brexit uncertainty and political divisiveness have increased. With its focus on
UK companies, the Fund believes that Sterling's weakness has created several
activist opportunities particularly attractive to overseas acquirers. In the
coming year, the Fund may opportunistically increase its cash balances and will
continue to focus on activist opportunities that can generate attractive
returns regardless of broader market conditions. In the interim, 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 2019
Investment Policy
The Company is an activist fund which aims to identify and invest in
undervalued companies and, where necessary, take steps to enhance their value.
The Company aims to invest in a concentrated portfolio of undervalued companies
which are expected to be predominantly, but not exclusively, listed or quoted
on UK markets (usually the Official List or AIM) and which have a typical
market capitalisation of between 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 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 business. The Company and its advisers seek the
co-operation of the target company's management in connection with such
corrective measures as far as possible. Where a different ownership structure
would enhance value, the Company will seek to initiate changes to capture such
value. The Company may also seek to introduce measures to modify existing
capital structures and introduce greater leverage and/or seek the sale of
certain businesses or assets of the investee company.
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 (including money market instruments) which are considered to be
reasonably liquid in order to ensure that its funds are appropriately deployed.
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% 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
Companies 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 targets only and there can
be no assurance that these targets 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 unrealised gains and losses at that time.
This will be achieved through investment in a concentrated portfolio of
companies that are considered to be undervalued and which are expected to be
predominantly, but not exclusively, listed or quoted on UK markets and which
mostly have a market capitalisation of between 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 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 6 July 2018, the Company declared an interim dividend of GBP2,433,145 equating
to 2.5 pence per Ordinary share, which was paid on 17 August 2018 to
shareholders on the register on 20 July 2018.
On 13 December 2018, the Company declared an interim dividend of GBP2,412,832
equating to 2.5 pence per Ordinary share, which was paid on 18 January 2019 to
shareholders on the register on 21 December 2018.
Subsequent to the year end, on 10 July 2019, the Company declared an interim
dividend of GBP2,369,550, equating to 2.5 pence per Ordinary share, which was
paid on 19 August 2019 to shareholders on the register on 19 July 2019.
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.
Discontinuation vote
The Company is subject to a discontinuation vote scheduled to occur every two
years. Following the results of the 2018 AGM, an extraordinary resolution was
passed under which 75% of votes would be required to cease to continue as
currently constituted. The next discontinuation vote will be proposed at the
2019 AGM. Following due inquiry, the Directors have no reason to doubt that
shareholders will vote to enable the Company to continue as constituted at the
2019 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 2022.
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, 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 and mindful of the discontinuation vote
to take place at the 2019 AGM, 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 implemented 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 AIM Rules in conjunction with the Nominated
Adviser and compliance with these rules is reviewed by the Directors at each
Board meeting.
One of the most significant regulatory risks for an activist investor such as
the Company is in relation to market abuse provisions. The FCA has published
guidance stating that in general it would not consider an activist
shareholder's conduct to amount to market abuse where the shareholder merely
carried out acquisitions of a target company's securities on the basis of 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 its Advisers operate in a
highly regulated environment and whilst they will always seek to take
appropriate professional advice, there is a risk of an inadvertent breach of
securities laws or regulations, or allegations of such breach, taking place.
The following risks, whilst they may affect the performance of the Company,
will not in themselves affect the ability of the Company to operate.
'Key Man' risk
The Investment Adviser and the Investment Manager rely heavily on the
expertise, knowledge and network of Richard Bernstein when sourcing investment
opportunities. He is a shareholder of the Company, a director and shareholder
of the Investment Manager and a member of the Investment Adviser and his loss
to these service providers could have an adverse effect on the Company's
performance. In the absence of Richard Bernstein, the Board and Investment
Manager have sufficient relevant experience to manage the Company's portfolio
while considering the future of the Company. Key Man risk is covered in the
Investment Adviser's continuity plan.
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 feels 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% 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 Smaller Companies Index and
investigate all underperformance and unrealised losses of the Company.
Market risk
The Company's investments include investments in companies the securities of
which are publicly traded or are offered to the public. The market prices and
values of these securities may be volatile and are likely to fluctuate due to a
number of factors beyond the Company's control. These include actual and
anticipated fluctuations in the quarterly, half yearly and annual results of
the companies in which investments are made and other companies in the
industries in which they operate and market perceptions concerning the
availability of additional securities for sale. They also include general
economic, social or political developments, changes in industry conditions,
shortfalls in operating results from levels forecast by securities analysts,
the general state of the securities markets and other material events, such as
significant management changes, 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 6 investors with holdings of 3% or more each of the shares of the
Company hold a combined 76.40% of the voting rights. A significant shareholder
seeking liquidity could have a negative impact on the Company causing movements
in Company share price, through voting at an AGM, or by placing pressure on the
Board to act to realise value in the portfolio at a sub-optimal time and value.
To manage this risk the Investment Manager maintains regular contact with
significant shareholders to discuss the performance of the Company and any
views the shareholder may have.
Liquidity risk
The Company's ability to meet its obligations arising from financial
liabilities could be reliant on its ability to reduce or exit investment
holdings. This could be more difficult with the Company's less liquid portfolio
holdings. To manage this risk, the cash and trade positions are monitored on a
daily basis by the Investment Adviser and the Administrator. The liquidity of
stocks is also considered at the point of recommendation by the Investment
Adviser and prior to investment.
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 clearly understand insider trading rules and adhere to
all relevant procedures.
Implementation risk
The Company's ability to generate attractive returns for shareholders depends
upon the Investment Adviser's ability to assess future values that 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
admission document, available on the Company's website (www.crystalamber.com)
and should be reviewed by shareholders.
Details about the financial risks associated with the Company's investment
portfolio and the way they are managed are given in note 14 to the Financial
Statements.
Ongoing charges
For the year ended 30 June 2019 the ongoing charges ratio of the Company was
1.93% (2018: 2.00%). The ongoing charges ratio has been calculated using the
AIC recommended methodology. Ongoing charges are those expenses of a type which
are likely to recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the Company as a collective fund,
excluding the costs of acquisition/disposal of investments, performance fees,
financing charges and gains/losses arising on investments. Ongoing charges are
based on costs incurred in the year as being the best estimate of future costs.
The ongoing charges ratio is calculated by dividing the annualised ongoing
charges by the average NAV for the financial year.
Directors
The Directors of the Company who served during the year and up to the date of
this report are shown. Biographies of the Directors holding office as at 30
June 2019 and at the date of signing these Financial Statements are shown.
Directors' interests
The interests of the Directors in the share capital of the Company at the
year-end are disclosed in Note 16.
Directors' remuneration
Following a review of the Directors' remuneration for similar AIM listed
investment companies and, after benchmarking these against the current fees and
recognising the level of activity of the Company and increased regulatory
obligations on the Company, the Board concluded in September 2017 that the
Directors' fees should be increased with effect from 1 January 2019. The
remuneration of the Directors during the year is disclosed in Note 16.
Substantial interests
As at 20 August 2019, the Company had 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 28,305,510 29.88%
Wirral BC 12,938,214 13.66%
Baring Asset Management 12,119,839 12.79%
1607 Capital Partners 9,725,400 10.27%
Crystal Amber Asset Management (Guernsey) 6,386,395 6.74%
Aviva Investors 2,896,440 3.06%
Total 72,371,798 76.40%
Statement of Directors' responsibilities
The Directors are responsible for preparing the Directors' Report and the
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the Financial
Statements in accordance with International Financial Reporting Standards, as
issued by the IASB, and applicable law.
The financial statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these financial statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
* assess the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and
* use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies (Guernsey) Law, 2008. They are responsible for such internal control
as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website
(www.crystalamber.com), and for the preparation and dissemination of financial
statements. Legislation in the United Kingdom and Guernsey governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Disclosure of information to the Auditor
The Directors each confirm that they have complied with the above requirements
in preparing the Financial Statements. They also confirm that so far as they
are each aware, there is no relevant audit information of which the Company's
auditor is unaware and that they have taken all the steps they ought to have
taken as Directors to make themselves aware of any relevant audit information
and to establish that the Company's auditor is aware of that information.
Corporate governance
As a Guernsey registered company, the share capital of which is admitted to
trading on AIM, the Company is not required to comply with the FRC Code.
However, the Directors recognise the value of sound corporate governance and it
is the Company's policy to comply with best practice on good corporate
governance that is applicable to investment companies.
The Board has considered the principles and recommendations of the AIC Code and
decided to follow the AIC Guide. The AIC Code and AIC Guide were updated in
July 2016, and further updated in February 2019, 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 2019. The 2019 AIC Code will be applicable
for the financial year ended 30 June 2020. 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 on 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 four Non-Executive Directors (2018: 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.
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 Christopher Waldron. 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 Waldron 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 questionnaires, peer appraisal,
and discussions to determine effectiveness and performance in various areas as
well as the Directors' continued independence.
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. In accordance with the recent publication of the 2019 AIC Code, which the
Board adopted from 1 July 2019, all Directors will be subject to annual
re-election. Currently, Nigel Ward is the only Director who has served for more
than nine years. It is intended that Mr. Ward will step down, as originally
intended, at the forthcoming AGM in November 2019.
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 Estera
International Fund Managers (Guernsey) Limited but retains accountability for
all functions it delegates.
The Directors are responsible for ensuring the effectiveness of the internal
controls of the Company which are designed to ensure that proper accounting
records are maintained, the financial information on which business decisions
are made and which is issued for publication is reliable, and the assets of the
Company are safeguarded. A formal review of the effectiveness of the Company's
risk management and internal control systems is conducted at least once a year
and this was completed successfully during the year under review. The
Investment Manager has established a Risk Committee to monitor and manage risks
faced by the Company. 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 business of the Company require it, additional
meetings may be held, some at short notice. Prior to each of its quarterly
meetings, the Board receives reports from the Investment Adviser and
Administrator covering activities during the period, performance of relevant
markets, performance of the Company's assets, finance, compliance matters,
working capital position and other areas of relevance to the Board. The Board
also considers from time to time reports provided by the Investment Manager and
other service providers. The Board also receives quarterly reports from the
Risk Committee. There is regular contact between the Board, the Investment
Manager and the Administrator. The Directors maintain overall control and
supervision of the Company's affairs.
There may be a requirement to hold Board meetings outside the scheduled
quarterly meetings in order to review and consider investment opportunities and
/or formal execution of documents and to consider ad hoc business.
Between meetings there is regular contact with the Investment Manager and the
Administrator, and the Board requires 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, is
responsible for the appointment and monitoring of all service providers
including the Investment Manager, and conducts a formal review of all service
providers on an annual basis and confirms that such a review has taken place
during the year.
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.
Jane Le Maitre 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 appointment and remuneration of the
Auditor. It is also the forum through which the Auditor reports to the Board.
The Committee met twice in the year ended 30 June 2019. 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 2018;
* review of the Interim Report and Unaudited Interim Condensed Financial
Statements for the six months ended 31 December 2018;
* review of the audit plan and timetable for the preparation of the Annual
Report and Audited Financial Statements for the year ended 30 June 2019;
* discussions and approval of the fee for the external audit;
* assessment of the effectiveness of the external audit process as described
below;
* review of the Company's significant risks and internal controls;
* review and consideration of the AIC Code, the GFSC Code and the Stewardship
Code; and
* detailed review of the 2019 Annual Report in relation to the AIC Code
including the period of assessment and long term viability of the Company.
The Committee considered the following significant issue in relation to these
Financial Statements:
Valuation of Investments
The Company's accounting policy is to value investments as designated at fair
value through profit or loss or as derivatives held for trading, and to
recognise sales and purchases of those investments using trade date accounting.
This is significant as the Company's investments and derivatives amount to
101.1% of the NAV. The Committee has satisfied itself that the sources used for
pricing the Company's investments are appropriate and reliable.
The Committee also reviews the objectivity and independence of the Auditor. The
Board considers KPMG 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. The Committee was
satisfied that there had been appropriate focus and challenge on the primary
areas of audit risk and assessed the quality of the audit process to be good.
The external audit was initially put out to tender in 2008 when the Company's
shares were listed and admitted to trading on AIM and KPMG was appointed. The
lead audit partner changed in 2010 and 2015, and will change again by rotation
in 2020. There are no obligations to restrict the Company's choice of external
auditor. The external audit was put out to tender again in 2017. Following a
robust competitive tender process, the Committee concluded that the interests
of the Company and its shareholders would be best served by retaining the
services of KPMG to provide a consistent audit approach.
The Board considers that an internal audit function specific to the Company is
unnecessary and that the systems and procedures employed by the Investment
Manager and the Administrator, including their own internal control functions,
provide sufficient assurance that a sound system of internal control is
maintained, which safeguards the Company's assets. Formal terms of reference
for the Committee are available on the Company's website www.crystalamber.com.
Other committees
Although the AIC Code recommends that companies appoint a Nomination Committee,
as the Board is wholly comprised of non-executive Directors the Board has not
deemed this necessary and as such all matters are considered by the full Board.
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 a 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.
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. The Board conducted a review of the Directors' fees
during the prior year and concluded that the fees should be increased with
effect from 1 January 2019.
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 Remuneration and Tenure as at 30
Management June 2019
Engagement
Committee
Nigel Ward 4 of 4 2 of 2 1 of 1 12 years, 1 month
Christopher Waldron 4 of 4 2 of 2 1 of 1 5 years
Jane Le Maitre 4 of 4 2 of 2 1 of 1 2 years, 2 months
Fred Hervouet 4 of 4 2 of 2 1 of 1 1 year, 7 months
In addition to the above, there were three additional Board committee meetings
during the year. One Board committee meeting has occurred since the year end.
Relations with shareholders
The Board welcomes the views of shareholders and places great importance on
communication with its shareholders. Senior members of the Investment Adviser
make themselves available to meet with principal shareholders and key sector
analysts. The Chairman and other Directors are also available to meet with
shareholders, if required.
All shareholders have the opportunity to ask questions of the Company at its
registered office. The Annual General Meeting of the Company provides a forum
for shareholders to meet and discuss issues with the Directors and Investment
Adviser. Company information is also available to shareholders on the Company's
website www.crystalamber.com.
The Board regularly monitors the shareholder profile of the Company and
receives comprehensive shareholder reports from the Company's Broker at all
quarterly board meetings. 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 2019. No variable fee elements of remuneration were
paid to the Directors of the AIFM.
The AIFM Directive outlines the information which has to be made available to
investors in an AIF and directs that material changes to this information be
disclosed in the Annual Report of the AIF. All information required to be
disclosed under the AIFM Directive is either disclosed in this Annual Report or
on the Company's website www.crystalamber.com.
AEOI Rules
Under AEOI Rules, the Company is registered under FATCA and continues to comply
with both FATCA and CRS requirements to the extent relevant to the Company.
NMPI
The Board has been advised that the Company would satisfy the criteria for
being an investment trust if it was resident in the UK. Accordingly, the Board
has concluded that the Company's Ordinary shares are not non-mainstream pooled
investments for the purposes of the FCA rules regarding the restrictions on the
promotion to retail investors of unregulated collective investment schemes and
close substitutes. This means that the restrictions on promotion imposed by the
FCA rules do not apply to the Company. It is the Board's intention that the
Company conducts its affairs so that these restrictions will continue to remain
inapplicable.
Independent auditor
KPMG has agreed to offer itself for re-appointment as Auditor of the Company
and a resolution proposing re-appointment and authorising the Directors to
determine remuneration will be presented at the Annual General Meeting.
Annual General Meeting
The Annual General Meeting of the Company will be held at 10:00am on 22
November 2019 at the offices of Estera International Fund Managers (Guernsey)
Limited, Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey.
On behalf of the Board
Nigel Ward Jane Le Maitre
Director Director
12 September 2019 12
September 2019
Directors
Christopher Waldron Guernsey Resident, (appointed 1 July 2014)
Non-Executive Chairman (with effect from 23 November 2017)
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.
Nigel Ward 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 was a founding
Commissioner of the Guernsey Police Complaints Commission, is an Associate of
the Institute of Financial Services, a member of the Institute of Directors and
holds the IoD Diploma in Company Direction.
Jane Le Maitre, 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 qualified with Coopers & Lybrand in the UK and joined KPMG (Channel
Islands) in 1989. She became a Partner in 1995 where she remained until 2000
before becoming a director in the fiduciary division at Kleinwort Benson. After
5 years with Kleinwort Benson, she joined the Intertrust Group in Guernsey
becoming Managing Director of Intertrust Reads Private Clients Limited for a
period of 6 years. She continues to hold a number of executive positions in
unlisted property and investment holding entities.
Fred Hervouet, Guernsey Resident, Non-Executive Director (appointed 6 December
2017)
Fred Hervouet has 20 years' experience of working in different areas of the
Financial Markets and Asset Management Industry. His experience includes Fixed
Income and Derivatives Markets, Structured Finance/Project Finance, Structured
Products, and Commodity Markets, Hedge Funds, Trading and Risk Management.
Prior to moving to Guernsey in December 2013, he was Managing Director and Head
of Commodity Derivatives Asia for BNP Paribas including Trading, Structuring
and Sales. He holds a number of non-executive director positions including
Funding Circle SME Income Fund Limited, and Chenavari Toro Income Fund Limited,
where he is chairman. He holds a Master Degree in Financial Markets, Commodity
Markets and Risk Management from University Paris Dauphine and an MSc in
Applied Mathematics and International Finance. He is a member of the UK
Institute of Directors, of the UK Association of Investment Companies, of the
Guernsey Chamber of Commerce and of the Guernsey Investment Fund Association.
In addition to their directorships of the Company, the Directors currently hold
the following directorships of listed companies;
Nigel Ward Christopher Waldron
Acorn Income Fund Limited JZ Capital Partners Limited
Fair Oaks Income Fund Limited UK Mortgages Limited
Hadrian's Wall Secured Investments
Limited
Fred Hervouet Jane Le Maitre
Chenavari Toro Income Fund Limited None at present
Funding Circle SME Income Fund Limited
Independent Auditor's Report
to the Members of Crystal Amber Fund Limited
Our opinion is unmodified
We have audited the financial statements of Crystal Amber Fund Limited (the
"Company"), which comprise the statement of financial position as at 30 June
2019, 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 2019, and of the Company's financial performance and the Company's
cash flows for the year then ended;
* are prepared in accordance with International Financial Reporting Standards
("IFRS"); 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 matter, was as follows:
The risk Our response
Valuation of Basis: Our audit procedures
financial assets The Company has invested included, but were not
designated at fair 101% of its net assets as limited to:
value through at 30 June 2019 into equity
profit or loss and investments, debt Internal controls:
derivatives held investments and derivative We tested the design and
for trading GBP financial instruments implementation of controls
241,366,149; (together, the over the valuation of
(2018: GBP "investments") investments
249,009,853)
Refer to the The Company's listed or Challenging managements'
Report of the quoted equities are valued assumptions and inputs
Directors and note based on market prices including use of KPMG
1 for the obtained from a third party valuation specialists:
Significant pricing provider while the For listed investments, we
Accounting Company's unlisted used our own valuation
Policies and notes derivative financial specialist to independently
9 and 14 for the instruments are valued price all fair values to a
disclosures using a Black Scholes third party source.
Option valuation technique.
For derivative financial
The Company's unlisted instruments, our valuation
equity investment is valued specialist derived valuations
at 30 June 2019 based on a using a Black Scholes Option
revenue multiples model to evaluate against the
technique. The unlisted valuations used by the
debt investment at 30 June Company.
2019 is valued by the For the unlisted debt
reference to the market investment, our valuation
price of the issuer's specialist derived an
equity had the debt independent valuation using a
investment been converted discounted cash flow model to
to equity and valued at the evaluate against the
closing bid price on the valuation used by the
reporting date. Company.
Risk: For the unlisted equity
The valuation of the investment, we assessed and
Company's investments, challenged the Investment
given that they represent Manager's key assumptions
the majority of the net used in preparing the
assets of the Company is valuation. In particular, we
considered to be a focused on the
significant area of our appropriateness of the
audit. Of the Company's valuation basis selected as
investments, the holdings well as the underlying
in listed or quoted assumptions and compared key
investments and derivatives underlying financial data
represent 96%, and those inputs to external sources as
which are subject to applicable.
estimation risk because
they are unlisted represent Assessing disclosures:
4%. We also considered the
Company's disclosures (see
Note 1) in relation to the
use of estimates and
judgments regarding the
valuation of investments and
the Company's valuation
policies adopted and fair
value disclosures in Notes 9
and 14 for compliance with
IFRS.
Our application of materiality and an overview of the scope audit
Materiality for the financial statements as a whole was set at GBP7,163,000,
determined with reference to a benchmark of the Company's Net Assets of GBP
238,775,597, of which it represents approximately 3% (2018: 3%).
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding GBP358,000, in addition to other identified misstatements
that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
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
12 September 2019
Statement of Profit or Loss and Other Comprehensive Income
For the year ended 30 June 2019
2019 2018
Revenue Capital Total Revenue Capital Total
Notes GBP GBP GBP GBP GBP GBP
Income
Dividend income from 4,177,239 - 4,177,239 3,064,520 - 3,064,520
listed investments
Interest income from - - - 184,727 - 184,727
listed debt
instruments
Arrangement fee - - - 46,531 - 46,531
received from debt
instruments
Interest received 8,357 - 8,357 5,941 - 5,941
4,185,596 - 4,185,596 3,301,719 - 3,301,719
Net gains on
financial assets
designated at FVTPL
and derivatives held
for trading
Equities
Net realised gains 9 - 29,985,091 29,985,091 - 20,374,879 20,374,879
Movement in 9 - (10,119,377) (10,119,377) - 27,608,248 27,608,248
unrealised (losses)/
gains
Debt instruments
Net realised gains 9 - 2,540,559 2,540,559 - 917,152 917,152
Movement in 9 - 765,302 765,302 - (86,784) (86,784)
unrealised gains/
(losses)
Derivative financial
instruments
Net realised (losses) 9 - (7,015,764) (7,015,764) - 5,402,504 5,402,504
/gains
Movement in 9 - (3,830,544) (3,830,544) - 4,042,406 4.042,406
unrealised (losses)/
gains
- 12,325,267 12,325,267 - 58,258,405 58,258,405
Total income 4,185,596 12,325,267 16,510,863 3,301,719 58,258,405 61,560,124
Expenses
Transaction costs 4 - 545,479 545,479 - 555,047 555,047
Foreign exchange (247,085) 147,999 (99,086) 96,087 547,884 643,971
movements on
revaluation of
investments and
working capital
Management fees 15,17 3,476,006 - 3,476,006 3,249,247 - 3,249,247
Performance fees 15,17 - 2,456,957 2,456,957 - 12,095,146 12,095,146
Directors' 16 155,000 - 155,000 155,157 - 155,157
remuneration
Administration fees 17 267,031 - 267,031 234,486 - 234,486
Custodian fees 17 114,705 - 114,705 98,666 - 98,666
Audit fees 25,889 - 25,889 23,270 - 23,270
Other expenses 344,100 - 344,100 310,819 - 310,819
4,135,646 3,150,435 7,286,081 4,167,732 13,198,077 17,365,809
Return for the year 49,950 9,174,832 9,224,782 (866,013) 45,060,328 44,194,315
Basic and diluted 5 0.05 9.49 9.54 (0.88) 45.15
earnings/(loss) per 46.04
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 2019
2019 2018
Assets Notes GBP GBP
Cash and cash equivalents 7 931,915 1,168,729
Trade and other receivables 8 1,971,390 57,873
Financial assets designated at FVTPL and 9 241,366,149 249,009,853
derivatives held for trading
Total assets 244,269,454 250,236,455
Liabilities
Trade and other payables 10 5,493,857 12,158,971
Total liabilities 5,493,857 12,158,971
Equity
Capital and reserves attributable to the
Company's equity shareholders
Share capital 11 993,748 991,248
Treasury shares reserve 12 (6,895,640) (3,212,448)
Distributable reserve 95,310,182 100,156,159
Retained earnings 149,367,307 140,142,525
Total equity 238,775,597 238,077,484
Total liabilities and equity 244,269,454 250,236,455
NAV per share (pence) 6
249.12 244.62
The Financial Statements were approved by the Board of Directors and authorised
for issue on 12 September 2019.
Nigel Ward Jane Le Maitre
Director
Director
12 September 2019 12
September 2019
The Notes to the Financial Statements form an integral part of these Financial
Statements.
Statement of Changes in Equity
For the year ended 30 June 2019
Share Treasury Distributable Retained earnings Total
shares
Notes capital reserve reserve Capital Revenue Total equity
GBP GBP GBP GBP GBP GBP GBP
Opening balance at 991,248 (3,212,448) 100,156,159 143,277,348 (3,134,823) 140,142,525 238,077,484
1 July 2018
Issue of Ordinary 2,500 - - - - - 2,500
shares
Purchase of 12 - (3,683,192) - - - - (3,683,192)
Ordinary shares
into Treasury
Dividends paid in 13 - - (4,845,977) - - - (4,845,977)
the year
Return for the year - - - 9,174,832 49,950 9,224,782 9,224,782
Balance at 30 June 2019 993,748 (6,895,640) 95,310,182 152,452,180 (3,084,873) 149,367,307 238,775,597
Share Treasury Distributable Retained earnings Total
shares
Notes capital reserve reserve Capital Revenue Total equity
GBP GBP GBP GBP GBP GBP GBP
Opening balance at 989,998 (972,800) 105,058,397 98,217,020 (2,268,810) 95,948,210 201,023,805
1 July 2017
Issue of Ordinary 1,250 - - - - - 1,250
shares
Purchase of 12 - (2,239,648) - - - - (2,239,648)
Ordinary shares
into Treasury
Dividends paid in 13 - - (4,902,238) - - - (4,902,238)
the year
Return for the year - - - 45,060,328 (866,013) 44,194,315 44,194,315
Balance at 30 June 2018 991,248 (3,212,448) 100,156,159 143,277,348 (3,134,823) 140,142,525 238,077,484
The Notes to the Financial Statements form an integral part of these Financial
Statements.
Statement of Cash Flows
For the year ended 30 June 2019
2019 2018
Notes GBP GBP
Cash flows from operating activities
Dividend income received from listed 4,176,269 3,063,793
investments
Bank interest received 9,681 3,615
Interest income from listed debt - 184,727
instruments 307,596
Interest received
Arrangement fee received from debt - 46,531
instruments
Management fees paid (2,646,184) (3,249,247)
Performance fees paid (10,964,740) (3,485,158)
Directors' fees paid (150,000) (151,912)
Other expenses paid (713,956) (662,788)
Net cash outflow from operating activities (9,981,334) (4,250,439)
Cash flows from investing activities
Purchase of equity investments (62,884,085) (69,638,065)
Sale of equity investments 88,632,836 73,610,743
Purchase of debt instruments (3,120,419) (7,440,542)
Sale of debt investments - 6,755,428
Purchase of derivative financial (11,742,025) (18,079,220)
instruments
Sale of derivative financial instruments 7,902,140 19,953,704
Transaction charges on purchase and sale (517,258) (560,187)
of investments
Net cash inflow from investing activities 18,271,189 4,601,861
Cash flows from financing activities
Proceeds from issuance of Ordinary shares 2,500 1,250
Purchase of Ordinary shares into Treasury (3,683,192) (2,239,648)
Dividends paid (4,845,977) (4,902,238)
Net cash outflow from financing activities (8,526,669) (7,140,636)
Net decrease in cash and cash equivalents (236,814) (6,789,214)
during the year
Cash and cash equivalents at beginning of 1,168,729 7,957,943
year
Cash and cash equivalents at end of year 7 1,168,729
931,915
The Notes to the Financial Statements form an integral part of these Financial
Statements.
Notes to the Financial Statements
For the year ended 30 June 2019
General information
Crystal Amber Fund Limited (the "Company") was incorporated and registered in
Guernsey on 22 June 2007 and is governed in accordance with the provisions of
the Companies Law. The registered office address is PO Box 286, Floor 2,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GYI 4LY. The Company was
established to provide shareholders with an attractive total return, which is
expected to comprise primarily capital growth with the potential for
distributions of up to 5 pence per share per annum following consideration of
the accumulated retained earnings as well as the unrealised gains and losses at
that time. The Company seeks to achieve this through investment in a
concentrated portfolio of undervalued companies, which are expected to be
predominantly, but not exclusively, listed or quoted on UK markets and which
have a typical market capitalisation of between GBP100 million and GBP1,000
million.
GI Dynamics Inc., is a subsidiary of the Company and was incorporated in
Delaware. It has five wholly-owned subsidiaries and its principal place of
business is Boston. Refer to Note 15 for further information.
The Company's Ordinary shares were listed and admitted to trading on AIM, on 17
June 2008. The Company is also a member of the AIC.
All capitalised terms are defined in the Glossary of Capitalised Defined Terms
unless separately defined.
1. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of the Financial
Statements are set out below. These policies have been consistently applied to
those balances considered material to the Financial Statements throughout the
current year, unless otherwise stated.
Basis of preparation
The Financial Statements have been prepared to give a true and fair view, are
in accordance with IFRS and the SORP "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" issued by the AIC in November 2014 and
updated in January 2017 to the extent to which it is consistent with IFRS, and
comply with the Companies Law. The Financial Statements are presented in
Sterling, the Company's functional and presentational currency.
The Financial Statements have been prepared under the historical cost
convention with the exception of financial assets designated at fair value
through profit or loss ("FVTPL") and derivatives held for trading which are
measured at fair value.
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.
As the Company has met the definition of an investment entity under IFRS 10, it
is exempt from preparing consolidated financial statements.
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.
Discontinuation vote
The Company is subject to a discontinuation vote scheduled to occur every two
years. Following the results of the 2018 AGM, an extraordinary resolution was
passed under which 75% of votes would be required to cease to continue as
currently constituted. The next discontinuation vote will be proposed at the
2019 AGM. Following due inquiry, the Directors have no reason to doubt that
shareholders will vote to enable the Company to continue as constituted at the
2019 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 is 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 and uses certain assumptions related to risk-free
interest rates, expected volatility, expected life and future dividends as
disclosed below. The unquoted equity and debt securities have been valued based
on unobservable inputs (see Note 14).
Segmental reporting
Operating segments are reported in a manner consistent with internal reporting
provided to the chief operating decision maker. The chief operating decision
maker, 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
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 bid price on the reporting date or at
realisable value if the Company has entered into an irrevocable commitment
prior to the reporting date to sell the investment. Where investments are
listed on more than one securities market, the price used is that quoted on the
most advantageous market, which is deemed to be the market on which the
security was originally purchased. If the price is not available as at the
accounting date, the last available price is used. The valuation methodology
adopted is in accordance with IFRS 13.
Loan notes are classified as debt instruments and are recognised initially at
cost incurred in their acquisition. Subsequent to initial recognition, loan
notes are valued at fair value.
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 bid price on the reporting date. If the price is not available as at
the accounting date, the last available price is used.
In the absence of an active market, the Company determines fair value of its
unquoted investments by taking into account the International Private Equity
and Venture Capital ("IPEV") guidelines.
Derivatives held for trading
When considered appropriate the Company will enter into derivative contracts to
manage its price risk and provide protection against the volatility of the
market.
Quoted derivatives are valued at bid price on the reporting date. Where
derivatives are listed on more than one securities market, the price used is
that quoted on the most advantageous market, which is deemed to be the market
on which the security was originally purchased. If the price is not available
as at the accounting date, the last available price is used. Gains and losses
arising from changes in fair value are presented in the profit or loss section
of the Statement of Profit or Loss and Other Comprehensive Income in the period
in which they arise.
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 countries other than the UK
on dividend income; these dividends are recorded gross of withholding tax in
the profit or loss section of the Statement of Profit or Loss and Other
Comprehensive Income.
Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis
between revenue and capital items presented within the Statement of Profit or
Loss and Other Comprehensive Income, all expenses have been presented as
revenue items except as follows:
* expenses which are incidental to the acquisition and disposal of an
investment are charged to capital; and
* expenses are split and presented partly as capital items where a connection
with the maintenance or enhancement of the value of the investments held
can be demonstrated. Accordingly the performance fee is charged to capital,
reflecting the Directors' expected long-term view of the nature of the
investment returns of the Company.
Treasury shares reserve
The Company has adopted the principles outlined in IAS 32 'Financial
Instruments: Presentation' and treats consideration paid including directly
attributable incremental cost for the repurchase of Company shares held in
Treasury as a deduction from equity attributable to the Company's equity
holders until the shares are cancelled, reissued or 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.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition
and Measurement for annual periods beginning on or after 1 January 2018,
bringing together all three aspects of the accounting for financial instruments
being classification and measurement, impairment and hedge accounting.
The Company has applied IFRS 9 retrospectively, with an initial application
date of 1 January 2018 and has adjusted the comparative information for the
period beginning 1 July 2017. There was no financial impact and no change to
the comparative information due to the application of IFRS 9.
(a) Classification and measurement
The Company continues to classify its investments at fair value through profit
or loss under IFRS 9. The Company continues to classify its trade receivables
and payables at amortised cost under IFRS 9. The classification is based on two
criteria: the Company's business model for managing the assets; and whether the
instruments' contractual cash flows represent solely payments of principal and
interest on the principal amount outstanding (the "SPPI criterion").
(b) Impairment
The adoption of IFRS 9 has fundamentally changed the Company's accounting for
impairment losses for financial assets by replacing IAS 39's incurred loss
approach with a forward-looking expected credit loss (ECL) approach.
ECLs are based on the difference between the contractual cash flows due in
accordance with the contract and all the cash flows that the Company expects to
receive. The shortfall is then discounted at an approximation to the asset's
original effective interest rate.
The only assets subject to the ECL model are trade and other receivables. The
Company has applied the standard's simplified approach and has calculated ECLs
based on lifetime expected credit losses. The adoption of the ECL model has not
given rise to a material change in impairment.
(c) Hedge accounting
The Company does not use hedge accounting.
(d) Transition disclosures
The application of IFRS 9 did not change the measurement and presentation of
the current financial instruments and therefore there is no impact on the
Financial Statements.
None of the other new standards or amendments to existing standards and
interpretations, effective from 1 January 2018, had a material impact on the
Company's Financial Statements.
At the date of authorisation of these Financial Statements, the following
standards and interpretations, which have not been applied in these Financial
Statements, had been issued but were not yet effective:
Amended standards and interpretations Effective for
periods beginning
on or after
IFRS 3 Definition of a Business 1 January 2020
IFRS 9 Financial Instruments (Amendments regarding 1 January 2019
prepayment features with negative compensation
and modifications of financial liabilities)
IFRS 11 Joint arrangements (Amendments resulting from 1 January 2019
Annual Improvements 2015 - 2017 Cycle)
IFRS 16 Leases 1 January 2019
IFRS 17 Insurance Contracts 1 January 2021
IAS 1 Presentation of Financial statements (Amendments 1 January 2020
regarding the definition of material)
IAS 8 Accounting policies, Changes in Accounting 1 January 2020
Estimates and Errors (Amendments regarding the
definition of material)
IAS 12 Income Taxes (Amendments resulting from Annual 1 January 2019
Improvements 2015 - 2017 Cycle)
IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019
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 (2018: GBP1,200).
4. TRANSACTION COSTS
The transaction charges incurred in relation to the acquisition and disposal of
investments during the year were as follows:
2019 2018
GBP GBP
Stamp duty 199,715 234,290
Commissions and custodian transaction charges:
In respect of purchases 233,483 208,436
In respect of sales 112,281 112,321
545,479 555,047
5. BASIC AND DILUTED EARNINGS PER SHARE
Earnings per share is based on the following data:
2019 2018
Return for the year GBP9,224,782 GBP44,194,315
Weighted average number of issued Ordinary shares 96,693,152 97,875,863
Basic and diluted earnings per share (pence) 9.54 45.15
6. NAV PER SHARE
NAV per share is based on the following data:
2019 2018
NAV per Statement of Financial Position GBP238,775,597 GBP238,077,484
Total number of issued Ordinary shares (excluding 95,846,980 97,325,780
Treasury shares) at 30 June
NAV per share (pence) 249.12 244.62
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:
2019 2018
GBP GBP
Cash available on demand 931,915 1,168,729
931,915 1,168,729
8. TRADE AND OTHER RECEIVABLES
2019 2018
GBP GBP
Current assets:
Unsettled trade sales 1,923,459 -
Trade receivables 25,737 26,091
Prepayments 22,194 31,782
1,971,390 57,873
There were no past due or impaired receivable balances outstanding at the year
end (2018: GBPNil).
9. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS AND
DERIVATIVES HELD FOR TRADING
2019 2018
GBP GBP
Equity investments 230,330,507 229,682,729
Debt instruments 4,035,127 5,320,186
Financial assets designated at FVTPL 234,365,634 235,002,915
Derivative financial instruments held for trading 7,000,515 14,006,938
Total financial assets designated at FVTPL and derivatives 241,366,149 249,009,853
held for trading
Equity investments
Cost brought forward 172,761,740 156,798,987
Purchases 71,094,830 69,198,617
Sales (90,557,836) (73,610,743)
Net realised gains 29,985,091 20,374,879
Cost carried forward 183,283,825 172,761,740
Unrealised gains brought forward 57,316,659 29,708,411
Movement in unrealised (losses)/gains (10,119,377) 27,608,248
Unrealised gains carried forward 47,197,282 57,316,659
Effect of exchange rate movements on revaluation (150,600) (395,670)
Fair value of equity investments 230,330,507 229,682,729
Debt instruments
Cost brought forward 5,547,350 9,318,984
Purchases 3,120,419 2,066,642
Sales - (6,755,428)
Conversion of loans (7,257,760) -
Net realised gains 2,540,559 917,152
Cost carried forward 3,950,568 5,547,350
Unrealised gains brought forward 203,233 290,017
Movement in unrealised gains/(losses) 765,302 (86,784)
Unrealised gains carried forward 968,535 203,233
Effect of exchange rate movements on revaluation (883,976) (430,397)
Fair value of debt instruments 4,035,127 5,320,186
Total financial assets designated at FVTPL 234,365,634 235,002,915
Derivative financial instruments held for trading
Cost brought forward 3,888,021 360,001
Purchases 11,742,025 18,079,220
Sales (7,902,140) (19,953,704)
Net realised (losses)/gains (7,015,764) 5,402,504
Cost carried forward 712,142 3,888,021
Unrealised gains brought forward 10,118,917 6,076,511
Movement in unrealised (losses)/gains (3,830,544) 4,042,406
Unrealised gains carried forward 6,288,373 10,118,917
Fair value of derivatives held for trading 7,000,515 14,006,938
Total derivative financial instruments held for trading 7,000,515 14,006,938
Total financial assets designated at FVTPL and derivatives 241,366,149 249,009,853
held for trading
Total realised gains and losses and unrealised gains and losses in the
Company's equity, debt and derivative financial instruments are made up of the
following gain and loss elements:
2019 2018
GBP GBP
Realised gains 37,215,339 36,636,873
Realised losses (11,705,453) (9,942,338)
Net realised gains in financial assets designated at 25,509,886 26,694,535
FVTPL and derivatives held for trading
Movement in unrealised gains 409,802 37,869,919
Movement in unrealised losses (13,594,421) (6,306,049)
Net movement in unrealised (losses)/gains in (13,184,619) 31,563,870
financial assets designated at FVTPL and derivatives
held for trading
The following table details the Company's positions in derivative financial
instruments:
Nominal amount Value
30 June 2019 GBP
Derivative financial instruments
Puts on FTSE100 Index P7100 (expiry: July 2019) 5,000 225,000
Puts on FTSE100 Index P7000 (expiry: August 2019) 1,000 190,000
GI Dynamics Inc. warrant (Expiry: May 2023) 97,222,200 1,546,564
GI Dynamics Inc. warrant (Expiry: June 2024) 78,984,823 1,262,671
GI Dynamics Inc. warrant (Expiry: July 2024) 236,220,480 3,776,280
412,433,503 7,000,515
Nominal amount Value
30 June 2018 GBP
Derivative financial instruments
Puts on FTSE100 Index P7200 (expiry: July 2018) 2,000 180,000
Puts on FTSE100 Index P7400 (expiry: July 2018) 4,000 900,000
FairFX warrant instrument 6,000,000 5,259,942
Hurricane warrant instrument 23,333,333 6,511,213
GI Dynamics Inc. warrant instrument 97,222,200 1,155,783
126,561,533 14,006,938
10. TRADE AND OTHER PAYABLES
2019 2018
GBP GBP
Current liabilities:
Accruals 1,076,190 213,188
Unsettled trade purchases 1,960,710 981,043
Performance fee accrual 2,456,957 10,964,740
5,493,857 12,158,971
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:
2019 2018
Number GBP Number GBP
Opening balance 99,124,762 991,248 98,999,762 989,998
Ordinary shares issued during the 250,000 2,500 125,000 1,250
year
Issued, called up and fully paid 99,374,762 993,748 99,124,762 991,248
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 the distributable
reserve shown in the Company's Statement of Financial Position at the year end.
The Company may carry the returns of the Company to the distributable reserve
or use them for any purpose to which the returns of the Company may be properly
applied and either employed in the business of the Company or be invested, in
accordance with applicable law. The distributable reserve includes the amount
transferred from the share premium account which was approved by the Royal
Court of Guernsey on 18 July 2008.
During the year ended 30 June 2019, the Company paid dividends of GBP4,845,977
(2018: GBP4,902,238) from distributable reserves, as disclosed in Note 13.
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
2019 2018
Number GBP Number GBP
Opening balance (1,798,982) (3,212,448) (635,000) (972,800)
Treasury shares purchased (1,163,982) (2,239,648)
during the year (1,728,800) (3,683,192)
Closing balance (3,527,782) (6,895,640) (1,798,982) (3,212,448)
During the year ended 30 June 2019, 1,728,800 (2018: 1,163,982) Treasury shares
were purchased at an average price of 213.05 pence per share (2018: 192.41
pence per share), representing an average discount to NAV at the time of
purchase of 9.6% (2018: 3.7%).
13. DIVIDS
On 06 July 2018, the Company declared an interim dividend of GBP2,433,145
equating to 2.5 pence per Ordinary share, which was paid on 17 August 2018 to
shareholders on the register on 20 July 2018.
On 13 December 2018, the Company declared an interim dividend of GBP2,412,832
equating to 2.5 pence per Ordinary share, which was paid on 18 January 2019 to
shareholders on the register on 21 December 2018.
Subsequent to the year end, on 10 July 2019, the Company declared an interim
dividend of GBP2,369,550, equating to 2.5 pence per Ordinary share, which was
paid on 19 August 2019 to shareholders on the register on 19 July 2019.
14. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS
Financial risk management objectives
The Investment Manager, Crystal Amber Asset Management (Guernsey) Limited and
the Administrator, Estera International Fund Managers (Guernsey) Limited
provide advice to the Company which allows it to monitor and manage financial
risks relating to its operations through internal risk reports which analyse
exposures by degree and magnitude of 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 2019 the major financial assets
which were exposed to credit risk included financial assets designated at
FVTPL, 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 2019. 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 credit rating for each counterparty at that date.
Location Rating Cash Cash
Balance Balance
2019 2018
GBP GBP
ABN AMRO (Guernsey) Limited* Guernsey A 920,009 965,789
Barclays Bank plc - Isle of Man Isle of A 11,906 202,940
Branch Man
931,915 1,168,729
*Effective from 15 July 2019, Butterfield Bank (Channel Islands) Limited with a
credit rating of BBB+, acquired ABN AMRO (Guernsey) Limited.
The credit ratings disclosed above are the credit ratings of the parent
entities of each of the counterparties being ABN AMRO Bank N.V. (effective from
15 July 2019, The Bank of N. T. Butterfield & Son Limited) and Barclays Bank
plc.
The Company's credit risk on financial assets designated at FVTPL and
derivatives held for trading is considered acceptable as these assets consist
mainly of quoted equities or are linked to quoted equities. The Company is also
exposed to credit risk on financial assets with its brokers for unsettled
transactions. This risk is considered minimal due to the short settlement
period involved and the high credit quality of the brokers used. There are no
credit ratings available for the debt instruments held by the Company. At 30
June 2019 GBP231,250,515 (2018: GBP230,648,518) 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. 94%
(2018: 92%) of the Company's financial assets are held by the Custodian in
segregated accounts. The Company monitors its risk by monitoring the credit
quality and financial position of the Custodian. The parent of the Custodian
has an S&P credit rating of A (2018: A). The remaining balance of financial
assets of GBP13,018,939 (2018: GBP19,587,937) includes GBP6,585,515 (2018: GBP
12,969,938) warrant instruments, GBP4,035,128 (2018: GBP5,320,186) loan notes
issued by GI Dynamics Inc., GBP415,000 (2018: GBP1,080,000) put derivative options
held by the option broker, GBP11,906 (2018: GBP202,940) cash held by Barclays Bank
plc and the remaining GBP1,971,390 (2018: GBP57,873) 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:
2019 Weighted Less than 1 1-5 years 5+ Total
average year years
interest
rate
Assets GBP GBP GBP GBP
Non-interest bearing 239,314,317 - - 239,314,317
Variable interest rate 0.45% 920,009 - - 920,009
instruments
Fixed interest rate 5.00% 4,035,128 - - 4,035,128
instruments
Liabilities
Non-interest bearing (5,493,857) - - (5,493,857)
238,775,597 - - 238,775,597
2018 Weighted Less than 1 1-5 years 5+ Total
average year years
interest
rate
Assets GBP GBP GBP GBP
Non-interest bearing 243,950,480 - - 243,950,480
Variable interest rate 0.19% 965,789 - - 965,789
instruments
Fixed interest rate 5.00% 3,983,468 - - 3,983,468
instruments
Fixed interest rate 10.00% - 1,336,718 - 1,336,718
instruments
Liabilities
Non-interest bearing (12,158,971) - - (12,158,971)
236,740,766 1,336,718 - 238,077,484
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 0.45 percentage points (2018: 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 increasing from 0.19% to 0.45% for the year ended 30 June
2019. If interest rates had been 0.45 percentage points (2018: 0.15 percentage
points) higher/lower and all other variables were held constant:
* the Company's return for the year ended 30 June 2019 would have increased
by GBP16,714 (2018: GBP10,577);
* the Company's return for the year ended 30 June 2019 would have decreased
by GBPNil (2018: GBP1,305);
* 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 not invest more than 20% 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 2019 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 2019 GBP415,000 (2018: GBP1,080,000) of
these contracts were outstanding.
Refer to the tables in Note 9 for the Company's positions in derivative
financial instruments.
The following tables detail the Company's equity investments as at 30 June
2019.
2019 Sector Value Percentage of Company's
Equity Investments GBP Gross Assets
Hurricane Energy plc Oil and Gas 52,610,205
22
Equals Group plc (formerly Financial Services 47,702,796 20
'FairFX Group plc')
Northgate plc Transportation 35,199,130
Services 14
De La Rue plc Consumer 20,071,111 8
Leaf Clean Energy Company Financial Services 17,286,537
7
STV Group plc Media 15,417,505 6
GI Dynamics Inc. Medical Technology 14,799,550 6
Allied Minds plc Financial Services 8,735,787 4
Other Various 18,507,886 8
Total 230,330,507
95
2018 Sector Value Percentage of Company's
Equity Investments GBP Gross Assets
Hurricane Energy plc Oil and Gas 60,425,938 24
Northgate plc Transportation 34,323,506 14
Services
FairFX Group plc Financial Services 33,925,629 14
STV Group plc Media 31,211,184 12
De La Rue plc Consumer 18,321,963
7
Woodford Patient Capital Financial Services 15,477,592 6
Trust
Leaf Clean Energy Company Financial Services 8,639,177 3
Other Various 27,357,740 11
Total 229,682,729 91
The following tables detail the investments in which the Company holds a
greater than 20% holding in the underlying entities. These have been recognised
at fair value as the Company is regarded as an investment entity as set out in
Note 1.
2019 Place of Business Place of Percentage Ownership
Equity Investments Incorporation Interest
GI Dynamics Inc. United States United States 65.1
Leaf Clean Energy Company United States Cayman Islands 25.3
Equals Group plc United Kingdom United Kingdom 23.5
2018 Place of Business Place of Percentage Ownership
Equity Investments Incorporation Interest
GI Dynamics Inc. United States United States 48.3
Leaf Clean Energy Company United States Cayman Islands 29.9
At the year end and assuming all other variables are held constant:
* If market prices of listed equity, debt and derivative financial
instruments had been 25% higher (2018: 25% higher), the Company's return
and net assets for the year ended 30 June 2019 would have increased by GBP
44,628,853, net of any impact on performance fee accrual (2018: GBP
44,331,322);
* If market prices of listed equity, debt and derivative financial
instruments had been 25% lower (2018: 25% lower), the Company's return and
net assets for the year ended 30 June 2019 would have increased by GBP
27,395,147, net of any impact on performance fee accrual (2018: increased
by GBP30,996,678), reflecting the effect of the derivative financial
instruments held at the reporting date; and
* There would have been no impact on the other equity reserves.
Foreign exchange risk
Foreign exchange risk is the risk that the value of financial instruments will
fluctuate due to changes in foreign exchange rates and arises when the Company
invests in financial instruments and enters into transactions that are
denominated in currencies other than its functional currency. During the year
the Company was exposed to foreign exchange risk arising from equity and debt
investments and derivative financial instruments held in Australian Dollars,
Euro and US Dollars (2018: Australian Dollars, Euro and US Dollars).
The table below illustrates the Company's exposure to foreign exchange risk at
30 June 2019:
2019 2018
GBP GBP
Financial assets designated at FVTPL:
Listed equity investments denominated in 14,799,550 4,176,092
Australian Dollars
Listed equity investments denominated in Euro 874,281 -
Debt instruments denominated in US Dollars 4,035,127 5,320,186
Warrant instruments denominated in US Dollars 6,585,514 1,155,782
Total assets 26,294,472 10,652,060
If the Australian Dollar weakened/strengthened by 10% (2018: 10%) against
Sterling with all other variables held constant, the fair value of equity
investments would increase/decrease by GBP1,479,955 (2018: GBP417,609).
If the Euro weakened/strengthened by 10% against Sterling with all other
variables held constant, the fair value of equity investments would increase/
decrease by GBP87,428.
If the US Dollar weakened/strengthened by 10% (2018: 10%) against Sterling with
all other variables held constant, the fair value of debt instruments would
increase/decrease by GBP403,513 (2018: GBP532,019) and the fair value of the
derivative financial instruments would increase/decrease by GBP658,551 (2018: GBP
115,578).
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 2019 and 30 June 2018:
Level 1 Level 2 Level 3 Total
2019 GBP GBP GBP GBP
Financial assets designated at FVTPL
and derivatives held for trading:
Equities - listed equity investments 224,804,265 - - 224,804,265
Equities - unlisted equity - - 5,526,242 5,526,242
investments
Debt - loan notes - - 4,035,127 4,035,127
Derivatives - listed derivative 415,000 - - 415,000
instruments
Derivatives - warrant instruments - 6,585,515 - 6,585,515
225,219,265 6,585,515 9,561,369 241,366,149
Level 1 Level 2 Level 3 Total
2018 GBP GBP GBP GBP
Financial assets designated at FVTPL
and derivatives held for trading:
Equities - listed equity investments 225,976,612 - - 225,976,612
Equities- unlisted equity investments - - 3,706,117 3,706,117
Debt - loan notes - - 5,320,186 5,320,186
Derivatives - listed derivative 1,080,000 - - 1,080,000
instruments
Derivatives - warrant instruments - 12,926,938 - 12,926,938
227,056,612 12,926,938 9,026,303 249,009,853
The Level 1 equity investments were valued by reference to the closing bid
prices in each investee company on the reporting date. Johnston Press plc
appointed administrators in November 2018 and accordingly the value of the
investment was written down (2018: valued at GBP0.4 million).
The Level 2 derivative instruments were valued using a Black Scholes valuation
technique.
The Level 3 equity investment in Board Intelligence was valued by reference to
the valuation multiples of publicly-listed cloud software companies, after
applying a discount equivalent to that which prevailed at the time of
investment in March 2018, resulting in a write-up of GBP1,820,125. 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 the share
market price had the loan notes been converted to equity and valued at the
closing bid price on the reporting date.
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:
2019 2018
GBP GBP
Opening balance at 1 July 9,026,303 3,846,387
Purchases 3,120,419 5,772,759
Movement in unrealised gain 2,585,427 83,324
Sales - (744,491)
Conversion of loans (7,257,760) -
Net realised gain 2,540,559 115,666
Effect of exchange rate movements (453,579) (47,342)
Closing balance at 30 June 9,561,369 9,026,303
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.
During the year ended 30 June 2019, GBP4,717,201 of loan notes were converted
into listed equity investments at a value of GBP7,257,760, resulting in a
transfer from Level 3 to Level 1.
At the year end and assuming all other variables are held constant:
* If unobservable inputs in Level 3 debt investments had been 5% higher/lower
(2018: 5% higher/lower), the Company's return and net assets for the year
ended 30 June 2019 would have increased/decreased by GBP161,405 (2018: GBP
212,807), net of any impact on performance fee accrual in each case;
* If the comparable revenue multiples used in the valuation of Level 3 equity
investments had been 25% higher/lower, while all other inputs remained
constant, the Company's return and net assets for the year ended 30 June
2019 would have increased/decreased by GBP971,387, net of any impact on
performance fee accrual in each case. If the discount to comparable
multiples used in the valuation of Level 3 equity investments had been 25%
lower/higher, while all other inputs remained constant, the Company's
return and net assets for the year ended 30 June 2019 would have increased/
decreased by GBP995,617, net of any impact on performance fee accrual in each
case; and
* There would have been no impact on the other equity reserves.
The table below sets out information about significant unobservable inputs used
at 30 June 2019 in measuring equity financial instruments categorised as Level
3 in the fair value hierarchy.
Valuation Fair Value at Unobservable inputs Factor Sensitivity to changes in
Method 30 June 2019 significant unobservable inputs
Discount to 5,526,242 Comparable Revenue 9.2x The estimated fair value would
Comparable multiple increase if:
Company
Multiples
Discount to 50.5% - the Discount was decreased
comparable multiple
Valuation Fair Value at Unobservable inputs Factor Sensitivity to changes in
Method 30 June 2018 significant unobservable inputs
Price of 3,706,117 n/a n/a
Recent
Investment
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 (2018: 10,000) Ordinary
shares in the Company, representing 0.01% (2018: 0.01%) of the voting share
capital of the Company at the year end.
During the year the Company incurred management fees of GBP3,476,006 (2018: GBP
3,249,247) of which GBP829,822 were outstanding at the year end (2018: GBPNil). The
Company also incurred performance fees of GBP2,456,957 (2018: GBP12,095,146) of
which GBP2,456,957 were outstanding and are included in trade and other payables
as at 30 June 2019 (2018: GBP10,964,740).
As at 30 June 2019 the Investment Manager held 6,313,326 Ordinary shares (2018:
3,530,930) of the Company, representing 6.54% (2018: 3.63%) of the voting share
capital.
Following the conversion to listed equity of GI Dynamics' loans, the Company
now holds 65.1% of the voting rights, causing GID to become an unconsolidated
subsidiary. There is no restriction on the ability of GI Dynamics to pay cash
dividends or repay loans, but it is unlikely that GID will make any
distribution or loan repayments given its current strategy. During the year the
Company participated in an equity placing and purchased convertible loan notes
(neither of which were driven by a contractual obligation) for the purpose of
supporting GID in pursuing its strategy. Subsequent to the year end, the
Company committed to a further investment of $10 million.
GI Dynamics Inc. was incorporated in Delaware, has five wholly-owned
subsidiaries and its principal place of business is Boston. The five
subsidiaries are as follows:
* GI Dynamics Securities Corporation, a Massachusetts-incorporated nontrading
entity;
* GID Europe Holding B.V., a Netherlands-incorporated nontrading holding
company;
* GID Europe B.V., a Netherlands-incorporated company that conducts certain
European business operations;
* GID Germany GmbH, a German-incorporated company that conducts certain
European business operations; and
* GI Dynamics Australia Pty Ltd, an Australia-incorporated company that
conducts Australian business operations.
16. DIRECTORS' INTERESTS AND REMUNERATION
The interests of the Directors in the share capital of the Company at the year
end and as at the date of this report are as follows:
2019 2018
Number of Total Number of Total
Ordinary shares voting Ordinary shares voting
rights rights
Christopher 15,000 0.02% 10,000 0.01%
Waldron(2)
Jane Le Maitre(1) 6,000 0.01% - -
Total 21,000 0.03% 10,000 0.01%
(1) Ordinary shares held indirectly
(2) On 22 July 2019, Chris Waldron purchased a further 5,000 Ordinary shares.
Following the purchase, the total number of Ordinary shares held by Chris
Waldron was 20,000.
During the year the Directors earned the following remuneration in the form of
Directors' fees from the Company:
2019 2018
GBP GBP
William Collins(1) - 16,753
Sarah Evans(2) - 17,808
Nigel Ward 37,500 33,750
Christopher Waldron(3) 45,000 36,741
Jane Le Maitre(4) 40,000 32,985
Fred Hervouet(5) 32,500 17,120
Total 155,000 155,157
(1) Resigned 23 November 2017
(2) Resigned 4 January 2018
(3) Chairman of the Company with effect from 23 November 2017
(4) Chairman of Audit Committee with effect from 4 January 2018
(5) Appointed 6 December 2017
The level of remuneration of the Directors reflects the time commitment and
responsibilities of their roles. Following a review of the Directors'
remuneration for similar AIM listed investment companies and, after
benchmarking these against the current fees and recognising the level of
activity of the Company and increased regulatory obligations on the Company,
the Board concluded in September 2017 that the Directors' fees should be
increased with effect from 1 January 2019. Following this review, the Chairman
is entitled to annual remuneration of GBP47,500 (2018: GBP42,500). The Chairman of
the Audit Committee is entitled to annual remuneration of GBP42,500 (2018: GBP
37,500) and the Chairman of the Remuneration and Management Engagement
Committee is entitled to annual remuneration of GBP40,000 (2018: GBP35,000), of
which GBP2,500 relates to representing the Board at the Risk Committee meetings
of the Investment Manager. Independent Directors are entitled to annual
remuneration of GBP35,000 (2018: GBP30,000).
At 30 June 2019, Directors' fees of GBP41,250 (2018: GBP36,250) were accrued within
trade and other payables.
17. MATERIAL AGREEMENTS
The Company has entered into the following material agreements:
Crystal Amber Asset Management (Guernsey) Limited
Under the management agreement, the Investment Manager receives a management
fee of 2% 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%.
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 must exceed an
amount equal to the placing price, increased at a rate of; (i) 7% 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 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 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 (with all dividends and other distributions paid in
respect of all outstanding Ordinary shares (on a per share basis) during any
performance period being deducted on their respective payment dates (and after
compounding the distribution amount per share at the relevant annual rate or
rates for the period from and including the payment date to the end of the
performance period) ("the Basic Performance Hurdle"). Such Basic Performance
Hurdle at the end of a Performance Period is compounded at the relevant annual
rate to calculate the initial per share hurdle level for the next performance
period, which will subsequently be adjusted for any dividends or other
distributions paid in respect of all outstanding Ordinary shares during that
performance period; and
2. the achievement of a "high-water mark": 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 (less any
dividends or other distributions in respect of all outstanding Ordinary shares
declared (on a per share basis) since the end of the performance period in
relation to which a performance fee was last earned).
If the Basic Performance Hurdle is met, and the high-water mark exceeded, the
performance fee is an amount equal to 20% 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;
2. the NAV per Ordinary share at the start of the relevant performance
period (less any dividends or other distributions in respect of all outstanding
Ordinary shares declared (on a per share basis) since then; and
3. the high-water mark (in each case on a per Ordinary share basis)
multiplied by the time weighted average of the number of Ordinary Shares in
issue in the Performance Period.
The excess is multiplied by the time weighted average of the number of Ordinary
shares in issue in the performance period, which shall only include such number
of Ordinary shares as reduced by the number of any Ordinary shares redeemed or
repurchased by the Company. If the Company issues new shares during a relevant
performance period, the performance fee in respect of that period shall be
adjusted in such manner to be fair and reasonable to take account of the new
issue of shares. If a time-weighted number of shares calculation is applied to
a new pot of shares issued, then the denominator for the calculation shall be
the number of days from the date of such issuance until the end of the relevant
Performance Period, inclusive. During 2019, the Company agreed that performance
fees accruing in respect of the current year be calculated as if no charitable
shares had been issued during that year.
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 2019
As a result of the issues of Ordinary shares on 2 August 2018 and 14 March
2019, the performance fee calculation has been accrued for 30 June 2019 based
on the weighted average number of ordinary shares outstanding excluding
charitable shares. At 30 June 2019, the Basic Performance Hurdle was 214.53
pence (as adjusted for all dividends paid during the performance period on
their respective payment dates, compounded at the applicable annual rate)
(2018: 200.13 pence), and the high-water mark (adjusted for dividends) was
239.62 pence.
The NAV per share before any accrual for the performance fee payable in respect
of the year was 252.34 pence and the time weighted average number of shares was
96,542,152, excluding the issuance of charitable shares in each case.
Accordingly, a performance fee was payable equating to 20% of the excess of NAV
per share (excluding the impact of charitable issuance during the year) over
the high-water mark, multiplied by the time weighted average number of shares
excluding charitable shares. The performance fee for the year ended 30 June
2019 amounted, in aggregate, to GBP2,456,957 (2018: GBP12,095,146) of which GBP
2,456,957 was payable at 30 June 2019 (2018: GBP10,964,740).
Estera International Fund Managers (Guernsey) Limited
The Administrator provides administration and company secretarial services to
the Company. For these services, the Administrator is paid an annual fee of
0.12% (2018: 0.12%) of that part of the NAV of the Company up to GBP150 million
and 0.1% (2018: 0.1%) of that part of the NAV over GBP150 million (subject to a
minimum of GBP75,000 per annum). During the year, the Company incurred
administration fees of GBP267,031 (2018: GBP234,486).
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% (2018: 0.05%) 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. During the year, the Company
incurred custodian fees of GBP114,705 (2018: GBP98,666).
*Effective from 15 July 2019, Butterfield Bank (Channel Islands) Limited
acquired ABN AMRO (Guernsey) Limited.
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 2019, the Company declared an interim dividend of GBP2,369,550,
equating to 2.5 pence per Ordinary share, which was paid on 19 August 2019 to
shareholders on the register on 19 July 2019.
On 22 July 2019, Chris Waldron purchased a further 5,000 Ordinary shares.
Following the purchase, the total number of Ordinary shares held by Chris
Waldron was 20,000.
On 9 August 2019, the Company reported that its unaudited NAV at 31 July 2019
was 234.81 pence per Ordinary share.
On 10 September 2019, the Company reported that its unaudited NAV at 31 August
2019 was 224.06 pence per Ordinary share.
On 11 September 2019, the Company approved a further issue of 125,000 shares to
five separate charitable organisations.
The Company purchased 1,115,000 of its own Ordinary shares during the period
between 1 July 2019 and 11 September 2019, which were held as Treasury shares.
Following these purchases, the total number of Ordinary shares held as Treasury
shares by the Company was 4,642,782.
Glossary of Capitalised Defined Terms
"Admission" means admission of the Ordinary shares on 17 June 2008, to the
Official List and/or admission to trading on the Alternative Investment Market
of the London Stock Exchange, as the context may require;
"AEOI Rules" means the Automatic Exchange of Information Rules;
"AGM" or "Annual General Meeting" means the annual general meeting of the
Company;
"AIF" means Alternative Investment Funds;
"AIFM" means AIF Manager;
"AIFM Directive" means the EU Alternative Investment Fund Managers Directive
(no. 2011/61/EU);
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Code of Corporate Governance;
"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 its operations and financial conditions, together with the
Company's financial statements;
"ARR" means annual recurring revenue;
"Articles of Incorporation" or "Articles" means the articles of incorporation
of the Company;
"Audited Financial Statements" or "Financial Statements" means the audited
annual financial statements of the Company, including the Statement of Profit
or Loss and Other Comprehensive Income, the Statement of Financial Position,
the Statement of Changes in Equity, the Statement of Cash Flows and associated
notes;
"Australian Stock Exchange" means the Australian Stock Exchange Limited;
"Bank of England" means the Bank of England, the central bank of the UK;
"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;
"BOE" means barrels of oil equivalent;
"Brexit" means the departure of the UK from the European Union;
"CEO" means chief executive officer;
"CE Mark" means a certification mark that indicates conformity with health,
safety, and environmental protection standards;
"Chancery Court" or "Court of Chancery" means a court that is authorised to
apply principles of equity, as opposed to those of law, to cases brought before
it;
"Channel 3" means the British commercial network legally named Channel 3;
"Committee" means the Audit Committee of the Company;
"Company" or "Fund" means Crystal Amber Fund Limited;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as amended);
"CRS" means Common Reporting Standard;
"EBITDA" means earnings before interest, taxes, depreciation and amortisation;
"EGM" or "Extraordinary General Meeting" means an extraordinary general meeting
of the Company;
"EndoBarrier" means a minimally invasive medical device for treatment of type 2
diabetes;
"EPS" means Early Production System;
"Equals" means Equals Group plc;
"FATCA" means Foreign Account Tax Compliance Act;
"FCA" means the Financial Conduct Authority;
"FDA" means the United States Food and Drug Administration;
"Floating Production and Storage" means a floating vessel used by the offshore
oil and gas industry;
"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;
"General Counsel" means the main lawyer who gives legal advice to a company;
"GFSC" means the Guernsey Financial Services Commission;
"GFSC Code" means the GFSC Finance Sector Code of Corporate Governance;
"GID" means GI Dynamics, Inc.;
"Gross Asset Value" means the value of the assets of the Company, before
deducting its liabilities, and is expressed in Pounds Sterling;
"HbA1c" means average blood sugar levels test;
"HQ" means headquarters;
"IAS" means international accounting standards as issued by the Board of the
International Accounting Standards Committee;
"IASB" means the International Accounting Standards Board;
"IFRIC" means the IFRS Interpretations Committee, which issues IFRIC
interpretations following approval by the IASB;
"IFRS" means the International Financial Reporting Standards, being the
principles-based accounting standards, interpretations and the framework by
that name issued by the International Accounting Standards Board;
"Interim Financial Statements" means the unaudited condensed interim financial
statements of the Company, including the Condensed Statement of Profit or Loss
and Other Comprehensive Income, the Condensed Statement of Financial Position,
the Condensed Statement of Changes in Equity, the Condensed Statement of Cash
Flows and associated notes;
"Interim Report" means the Company's interim report and unaudited condensed
financial statements for the period ended 31 December;
"Investment Management Agreement" means the agreement between the Company and
the Investment Manager, dated 16 June 2008, as amended on 21 August 2013,
further amended on 27 January 2015 and further amended on 12 June 2018;
"iOS" means a mobile operating system created and developed by Apple Inc.;
"IPEV Capital Valuation Guidelines" means the International Private Equity and
Venture Capital Valuation Guidelines on the valuation of financial assets;
"ITV" means a British free-to-air television channel;
"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;
"Phantom Plan" means the practice within Allied Minds plc of paying to
executives 10% of gains arising from any successful individual investment
independent of the scale of losses incurred on other investments;
"R&D" means research and development;
"Risk Committee" means the Risk Committee of the Investment Manager;
"S&P" means Standard & Poor's Credit Market Services Europe Limited, a credit
rating agency registered in accordance with Regulation (EC) No 1060/2009 with
effect from 31 October 2011;
"SaaS" means a Software-as-a-Service;
"Smaller Companies Index" means an index of small market capitalisation
companies;
"SME" means small and medium sized enterprises;
"SORP" means Statement of Recommended Practice;
"SPS" means Spectrum Payment Services Ltd;
"STEP-1" means the US clinical trial of the EndoBarrier due to be undertaken by
GI Dynamics Inc.;
"Stewardship Code" means the Stewardship Code of the Company adopted from 14
June 2016, as published on the Company's website www.crystalamber.com;
"Supreme Court" means the highest court in the federal judiciary of the US;
"Target Multiple" means the maximum multiple of the original investment that
could be paid, given value drivers, and receive a desired return on investment;
"TISE" means The International Stock Exchange;
"Treasury" means the reserve of Ordinary shares that have been repurchased by
the Company;
"Treasury shares" means Ordinary shares in the Company that have been
repurchased by the Company and are held as Treasury shares;
"Trustpilot" means a consumer review website;
"TV" means television;
"UK" or "United Kingdom" means the United Kingdom of Great Britain and Northern
Ireland;
"UK Stewardship Code" means the UK Stewardship Code published by the FRC in
July 2010 and revised in September 2012;
"US" means the means the United States of America, its territories and
possessions, any state of the United States and the District of Columbia;
"US$" or "$" means United States dollars.
"US Federal Reserve" means the Federal Reserve System, the central banking
system of the US;
"UTV" means a British free-to-air television channel; and
"GBP" or "Pounds Sterling" or "Sterling" means British pounds sterling and
"pence" means British pence.
Directors and General Information
Directors Investment Manager
Christopher Waldron (Chairman) Crystal Amber Asset Management (Guernsey)
Fred Hervouet Limited
Jane Le Maitre (Chairman of Audit PO Box 286
Committee) Floor 2, Trafalgar Court
Nigel Ward (Chairman of Remuneration and Les Banques, St Peter Port
Management Engagement Committee) Guernsey GYI 4LY
Investment Adviser Nominated Adviser
Crystal Amber Advisers (UK) LLP Allenby Capital Limited
17c Curzon Street 5 St. Helen's Place
London W1J 5HU London EC3A 6AB
Administrator and Secretary Legal Advisers to the Company
Estera International Fund Managers As to English Law
(Guernsey) Limited Norton Rose Fulbright LLP
PO Box 286 3 More London Riverside
Floor 2, Trafalgar Court London SE1 2AQ
Les Banques, St Peter Port
Guernsey GYI 4LY As to Guernsey Law
Carey Olsen
Broker 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 Butterfield Bank (Channel Islands) 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
Registered Office Registrar
PO Box 286 Link Asset Services
Floor 2, Trafalgar Court 65 Gresham Street
Les Banques, St Peter Port London
Guernsey GYI 4LY EC2V 7NQ
Identifiers
ISIN: GG00B1Z2SL48
Sedol: B1Z2SL4
Ticker: CRS
Website: crystalamber.com
END
(END) Dow Jones Newswires
September 13, 2019 02:00 ET (06:00 GMT)
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