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 £17.9 million on Hurricane Energy plc and
£3.7 million in Equals Group plc. Successful sales of investments
in Boku Inc. and NCC Group during the year, realising profits of
£3.1 million and £2.5 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 £1 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 £238.8
million, compared with an unaudited NAV of £213.8 million at
31 December 2018 and an audited
£238.1 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 £1 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 £420 million (2018: £491 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 share |
Percentage of NAV |
Percentage of investee equity held |
Contribution to NAV performance(1) |
| Hurricane Energy
plc |
54.9 |
22.0% |
5.0% |
3.6% |
| Equals Group plc
(formerly FairFX Group plc) |
49.8 |
20.0% |
23.4% |
2.0% |
| 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
shareholdings |
229.9 |
|
|
|
| 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
£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 £0.8 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 £17.9 million and
exercised its warrants over 23.3 million shares. Despite banking
total profits of £41.8 million on Hurricane, the year-end carrying
value includes an unrealised profit of £28.0 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 £26
million (up 69%) and adjusted profit after tax increasing from £1
million to £7 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
£60 million of management-adjusted operating profits included an
unexpected £7 million benefit from an accounting standard change
and ignored an £18 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 £18 million from this customer.
Shamefully, the board of De La Rue awarded the CEO of De La Rue a
bonus of £197,000 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 £53.1 million capital return,
which was effected in August 2019 by
means of pro-rata share cancellation.
The Fund invested £13.0 million in Leaf Clean. By the year end,
it had received £7.8 million from the 2015 special dividend and the
2018 capital return. In August 2019,
it received £13.4 million from the latest capital return. The value
of the Fund’s holding at the end of August
2019 was £4.5 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
£398m. In December 2016, it raised
£64m 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 £3 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 £100 million and £1,000 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 £100
million at the time of investment;
- pure technology based businesses; or
- unlisted companies or companies in pre-IPO situations.
It is expected that no single investment in any one company will
represent more than 20% of the Gross Asset Value of the Company at
the time of investment. However, there is no guarantee that this
will be the case after any investment is made, or where the
Investment Manager believes that an investment is particularly
attractive.
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:
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 £100 million and £1,000 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 £2,433,145 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 £2,412,832 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
£2,369,550, 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 £100 million at the time of investment.
Companies with a market capitalisation of less than £100 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
£100 million. However, the Investment Adviser may, from time to
time, identify exceptional investment opportunities with a market
capitalisation of less than £100 million.
The Company’s risk of investment in companies with market
capitalisation of less than £100 million is mitigated as all
investments are monitored by the Board on a quarterly basis. Any
proposals to invest in companies below £100 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 shares |
Total
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 Management Engagement Committee |
Tenure as at 30 June 2019 |
| 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 £20,000 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 financial assets designated at fair value
through profit or loss and derivatives held for trading
£241,366,149;
(2018: £249,009,853)
Refer to the Report of the Directors and note 1 for the Significant
Accounting Policies and notes 9 and 14 for the disclosures |
Basis:
The Company has invested 101% of its net assets as at 30 June 2019
into equity investments, debt investments and derivative financial
instruments (together, the “investments”)
The Company’s listed or quoted equities are valued based on market
prices obtained from a third party pricing provider while the
Company’s unlisted derivative financial instruments are valued
using a Black Scholes Option valuation technique.
The Company’s unlisted equity investment is valued at 30 June 2019
based on a revenue multiples technique. The unlisted debt
investment at 30 June 2019 is valued by the reference to the market
price of the issuer’s equity had the debt investment been converted
to equity and valued at the closing bid price on the reporting
date.
Risk:
The valuation of the Company’s investments, given that they
represent the majority of the net assets of the Company is
considered to be a significant area of our audit. Of the Company’s
investments, the holdings in listed or quoted investments and
derivatives represent 96%, and those which are subject to
estimation risk because they are unlisted represent 4%. |
Our audit procedures included, but were not limited to:
Internal controls:
We tested the design and implementation of controls over the
valuation of investments
Challenging managements’ assumptions and inputs including use of
KPMG valuation specialists:
For listed investments, we used our own valuation specialist to
independently price all fair values to a third party source.
For derivative financial instruments, our valuation specialist
derived valuations using a Black Scholes Option model to evaluate
against the valuations used by the Company.
For the unlisted debt investment, our valuation specialist derived
an independent valuation using a discounted cash flow model to
evaluate against the valuation used by the Company.
For the unlisted equity investment, we assessed and challenged the
Investment Manager’s key assumptions used in preparing the
valuation. In particular, we focused on the appropriateness
of the valuation basis selected as well as the underlying
assumptions and compared key underlying financial data inputs to
external sources as applicable.
Assessing disclosures:
We also considered the Company’s disclosures (see Note 1) in
relation to the use of estimates and judgments regarding the
valuation of investments and the Company’s valuation policies
adopted and fair value disclosures in Notes 9 and 14 for compliance
with IFRS. |
Our application of materiality and an
overview of the scope audit
Materiality for the financial statements as a whole was set at
£7,163,000, determined with reference to a benchmark of the
Company’s Net Assets of £238,775,597, of which it represents
approximately 3% (2018: 3%).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £358,000, 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 |
£ |
£ |
£ |
|
£ |
£ |
£ |
| Income |
|
|
|
|
|
|
|
|
| Dividend income from
listed investments |
|
4,177,239 |
- |
4,177,239 |
|
3,064,520 |
- |
3,064,520 |
| Interest income from
listed debt instruments |
|
- |
- |
- |
|
184,727 |
- |
184,727 |
| Arrangement fee
received from debt instruments |
|
- |
- |
- |
|
46,531 |
- |
46,531 |
| 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 unrealised
(losses)/gains |
9 |
- |
(10,119,377) |
(10,119,377) |
|
- |
27,608,248 |
27,608,248 |
| Debt
instruments |
|
|
|
|
|
|
|
|
| Net realised
gains |
9 |
- |
2,540,559 |
2,540,559 |
|
- |
917,152 |
917,152 |
| Movement in unrealised
gains/(losses) |
9 |
- |
765,302 |
765,302 |
|
- |
(86,784) |
(86,784) |
| Derivative
financial instruments |
|
|
|
|
|
|
|
|
| Net realised
(losses)/gains |
9 |
- |
(7,015,764) |
(7,015,764) |
|
- |
5,402,504 |
5,402,504 |
| Movement in unrealised
(losses)/gains |
9 |
- |
(3,830,544) |
(3,830,544) |
|
- |
4,042,406 |
4.042,406 |
|
|
- |
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
movements on revaluation of investments and working capital |
|
(247,085) |
147,999 |
(99,086) |
|
96,087 |
547,884 |
643,971 |
| 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'
remuneration |
16 |
155,000 |
- |
155,000 |
|
155,157 |
- |
155,157 |
| 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
earnings/(loss) per share (pence) |
5 |
0.05 |
9.49 |
9.54 |
|
(0.88) |
46.04 |
45.15 |
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 |
£ |
|
£ |
| 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 derivatives held for trading |
9 |
241,366,149 |
|
249,009,853 |
| 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 shares |
Distributable |
|
Retained earnings |
|
Total |
|
Notes |
capital |
reserve |
reserve |
|
Capital |
Revenue |
Total |
|
equity |
|
|
£ |
£ |
£ |
|
£ |
£ |
£ |
|
£ |
| Opening balance at 1
July 2018 |
|
991,248 |
(3,212,448) |
100,156,159 |
|
143,277,348 |
(3,134,823) |
140,142,525 |
|
238,077,484 |
| Issue of Ordinary
shares |
|
2,500 |
- |
- |
|
- |
- |
- |
|
2,500 |
| Purchase of Ordinary
shares into Treasury |
12 |
- |
(3,683,192) |
- |
|
- |
- |
- |
|
(3,683,192) |
| Dividends paid in the
year |
13 |
- |
- |
(4,845,977) |
|
- |
- |
- |
|
(4,845,977) |
| 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 shares |
Distributable |
|
Retained earnings |
|
Total |
|
Notes |
capital |
reserve |
reserve |
|
Capital |
Revenue |
Total |
|
equity |
|
|
£ |
£ |
£ |
|
£ |
£ |
£ |
|
£ |
| Opening balance at 1
July 2017 |
|
989,998 |
(972,800) |
105,058,397 |
|
98,217,020 |
(2,268,810) |
95,948,210 |
|
201,023,805 |
| Issue of Ordinary
shares |
|
1,250 |
- |
- |
|
- |
- |
- |
|
1,250 |
| Purchase of Ordinary
shares into Treasury |
12 |
- |
(2,239,648) |
- |
|
- |
- |
- |
|
(2,239,648) |
| Dividends paid in the
year |
13 |
- |
- |
(4,902,238) |
|
- |
- |
- |
|
(4,902,238) |
| 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 |
£ |
|
£ |
| Cash flows from
operating activities |
|
|
|
|
| Dividend income
received from listed investments |
|
4,176,269 |
|
3,063,793 |
| Bank interest
received |
|
9,681 |
|
3,615 |
Interest
income from listed debt instruments
Interest received |
|
-
307,596 |
|
184,727 |
| Arrangement fee
received from debt instruments |
|
- |
|
46,531 |
| 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 instruments |
|
(11,742,025) |
|
(18,079,220) |
| Sale of derivative
financial instruments |
|
7,902,140 |
|
19,953,704 |
| Transaction charges on
purchase and sale of investments |
|
(517,258) |
|
(560,187) |
| 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 during the year |
|
(236,814) |
|
(6,789,214) |
| Cash and cash
equivalents at beginning of year |
|
1,168,729 |
|
7,957,943 |
| Cash and cash
equivalents at end of year |
7 |
931,915 |
|
1,168,729 |
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 £100 million and £1,000
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 prepayment features with negative compensation and
modifications of financial liabilities) |
1 January 2019 |
| IFRS 11 |
Joint arrangements (Amendments
resulting from Annual Improvements 2015 – 2017 Cycle) |
1 January 2019 |
| IFRS 16 |
Leases |
1 January 2019 |
| IFRS 17 |
Insurance Contracts |
1 January 2021 |
| IAS 1 |
Presentation of Financial statements
(Amendments regarding the definition of material) |
1 January 2020 |
| IAS 8 |
Accounting policies, Changes in
Accounting Estimates and Errors (Amendments regarding the
definition of material) |
1 January 2020 |
| IAS 12 |
Income Taxes (Amendments resulting
from Annual Improvements 2015 – 2017 Cycle) |
1 January 2019 |
| 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 £1,200 (2018: £1,200).
4. TRANSACTION COSTS
The transaction charges incurred in relation to the acquisition
and disposal of investments during the year were as follows:
|
2019 |
|
2018 |
|
£ |
|
£ |
| 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 |
£9,224,782 |
|
£44,194,315 |
| 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 |
£238,775,597 |
|
£238,077,484 |
| Total number of issued
Ordinary shares (excluding Treasury shares) at 30 June |
95,846,980 |
|
97,325,780 |
| 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 |
|
£ |
|
£ |
| Cash available on
demand |
931,915 |
|
1,168,729 |
|
931,915 |
|
1,168,729 |
8. TRADE AND OTHER RECEIVABLES
|
2019 |
|
2018 |
|
£ |
|
£ |
| 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: £Nil).
9. FINANCIAL ASSETS
DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS AND DERIVATIVES
HELD FOR TRADING
|
2019 |
|
2018 |
|
£ |
|
£ |
| 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 held for
trading |
241,366,149 |
|
249,009,853 |
| 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 held for
trading |
241,366,149 |
|
249,009,853 |
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 |
|
£ |
|
£ |
| Realised gains |
37,215,339 |
|
36,636,873 |
| Realised losses |
(11,705,453) |
|
(9,942,338) |
| Net realised gains in
financial assets designated at FVTPL and derivatives held for
trading |
25,509,886 |
|
26,694,535 |
|
|
|
|
| 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 financial assets designated at FVTPL
and derivatives held for trading |
(13,184,619) |
|
31,563,870 |
The following table details the Company’s positions in
derivative financial instruments:
|
Nominal amount |
|
Value |
| 30 June
2019 |
|
|
£ |
| 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 |
|
|
£ |
| 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 |
|
£ |
|
£ |
| 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 £3,000,000
divided into 300 million Ordinary shares of £0.01 each.
The issued share capital of the Company, including Treasury
shares, is comprised as follows:
|
2019 |
|
2018 |
|
Number |
£ |
|
Number |
£ |
| Opening balance |
99,124,762 |
991,248 |
|
98,999,762 |
989,998 |
| Ordinary shares issued
during the year |
250,000 |
2,500 |
|
125,000 |
1,250 |
| Issued, called up and
fully paid Ordinary shares of £0.01 each |
99,374,762 |
993,748 |
|
99,124,762 |
991,248 |
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 £4,845,977 (2018:
£4,902,238) 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 |
£ |
|
Number |
£ |
| Opening balance |
(1,798,982) |
(3,212,448) |
|
(635,000) |
(972,800) |
| Treasury shares
purchased during the year |
(1,728,800) |
(3,683,192) |
|
(1,163,982) |
(2,239,648) |
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. DIVIDENDS
On 06 July 2018, the Company
declared an interim dividend of £2,433,145 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 £2,412,832 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
£2,369,550, 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
Balance |
|
Cash
Balance |
|
|
|
2019 |
|
2018 |
|
|
|
£ |
|
£ |
| ABN AMRO (Guernsey)
Limited* |
Guernsey |
A |
920,009 |
|
965,789 |
| Barclays Bank plc -
Isle of Man Branch |
Isle of Man |
A |
11,906 |
|
202,940 |
|
|
|
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 £231,250,515
(2018: £230,648,518) 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 £13,018,939 (2018:
£19,587,937) includes £6,585,515 (2018: £12,969,938) warrant
instruments, £4,035,128 (2018: £5,320,186) loan notes issued by GI
Dynamics Inc., £415,000 (2018: £1,080,000) put derivative options
held by the option broker, £11,906 (2018: £202,940) cash held by
Barclays Bank plc and the remaining £1,971,390 (2018: £57,873) 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 average interest rate |
Less
than 1 year |
1-5
years |
5+
years |
Total |
| Assets |
|
£ |
£ |
£ |
£ |
| Non-interest
bearing |
|
239,314,317 |
- |
- |
239,314,317 |
| Variable interest rate
instruments |
0.45% |
920,009 |
- |
- |
920,009 |
| Fixed interest rate
instruments |
5.00% |
4,035,128 |
- |
- |
4,035,128 |
|
Liabilities |
|
|
|
|
|
| Non-interest
bearing |
|
(5,493,857) |
- |
- |
(5,493,857) |
|
|
238,775,597 |
- |
- |
238,775,597 |
| 2018 |
Weighted average interest rate |
Less
than 1 year |
1-5
years |
5+
years |
Total |
| Assets |
|
£ |
£ |
£ |
£ |
| Non-interest
bearing |
|
243,950,480 |
- |
- |
243,950,480 |
| Variable interest rate
instruments |
0.19% |
965,789 |
- |
- |
965,789 |
| Fixed interest rate
instruments |
5.00% |
3,983,468 |
- |
- |
3,983,468 |
| Fixed interest rate
instruments |
10.00% |
- |
1,336,718 |
- |
1,336,718 |
|
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 £16,714
(2018: £10,577);
- the Company’s return for the year ended 30 June 2019 would have decreased by £Nil (2018:
£1,305);
- 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
£415,000 (2018: £1,080,000) 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
Equity Investments |
Sector |
Value
£ |
|
Percentage of Company’s
Gross Assets |
| Hurricane Energy
plc |
Oil and Gas |
52,610,205 |
|
22 |
| Equals Group plc
(formerly ‘FairFX Group plc’) |
Financial
Services |
47,702,796 |
|
20 |
| Northgate plc |
Transportation
Services |
35,199,130 |
|
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
Equity Investments |
Sector |
Value
£ |
|
Percentage of Company’s
Gross Assets |
| Hurricane Energy
plc |
Oil and Gas |
60,425,938 |
|
24 |
| Northgate plc |
Transportation
Services |
34,323,506 |
|
14 |
| 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 Trust |
Financial
Services |
15,477,592 |
|
6 |
| 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
Equity Investments |
Place of
Business |
Place of
Incorporation |
Percentage Ownership 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
Equity Investments |
Place of
Business |
Place of
Incorporation |
Percentage Ownership 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 £44,628,853,
net of any impact on performance fee accrual (2018:
£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 £27,395,147,
net of any impact on performance fee accrual (2018: increased by
£30,996,678), 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 |
|
|
£ |
£ |
| Financial assets
designated at FVTPL: |
|
|
|
| Listed equity
investments denominated in Australian Dollars |
|
14,799,550 |
4,176,092 |
| 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
£1,479,955 (2018: £417,609).
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 £87,428.
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 £403,513
(2018: £532,019) and the fair value of the derivative financial
instruments would increase/decrease by £658,551 (2018:
£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 |
£ |
£ |
£ |
£ |
| Financial assets
designated at FVTPL and derivatives held for trading: |
|
|
|
|
| Equities – listed
equity investments |
224,804,265 |
- |
- |
224,804,265 |
| Equities – unlisted
equity investments |
- |
- |
5,526,242 |
5,526,242 |
| Debt – loan notes |
- |
- |
4,035,127 |
4,035,127 |
| Derivatives – listed
derivative instruments |
415,000 |
- |
- |
415,000 |
| 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 |
£ |
£ |
£ |
£ |
| 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 instruments |
1,080,000 |
- |
- |
1,080,000 |
| 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 £0.4 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
£1,820,125. 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 |
|
|
£ |
£ |
| 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, £4,717,201 of loan notes were converted into listed
equity investments at a value of £7,257,760, 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 £161,405 (2018:
£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 £971,387, 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
£995,617, 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
Method |
Fair
Value at 30 June 2019 |
Unobservable inputs |
Factor |
Sensitivity to changes in significant unobservable
inputs |
| Discount to Comparable
Company Multiples |
5,526,242 |
Comparable Revenue multiple |
9.2x |
The
estimated fair value would increase if: |
|
|
Discount
to comparable multiple |
50.5% |
- the
Discount was decreased |
| Valuation
Method |
Fair
Value at 30 June 2018 |
Unobservable inputs |
Factor |
Sensitivity to changes in significant unobservable
inputs |
| Price of Recent
Investment |
3,706,117 |
n/a |
n/a |
|
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
£3,476,006 (2018: £3,249,247) of which £829,822 were outstanding at
the year end (2018: £Nil). The Company also incurred performance
fees of £2,456,957 (2018: £12,095,146) of which £2,456,957 were
outstanding and are included in trade and other payables as at
30 June 2019 (2018: £10,964,740).
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 Ordinary shares |
Total
voting rights |
|
Number of Ordinary shares |
Total
voting rights |
|
|
|
|
|
|
|
|
|
|
|
|
| Christopher
Waldron(2) |
15,000 |
0.02% |
|
10,000 |
0.01% |
| 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 |
|
|
£ |
|
£ |
| 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 £47,500 (2018: £42,500). The
Chairman of the Audit Committee is entitled to annual remuneration
of £42,500 (2018: £37,500) and the Chairman of the Remuneration and
Management Engagement Committee is entitled to annual remuneration
of £40,000 (2018: £35,000), of which £2,500 relates to representing
the Board at the Risk Committee meetings of the Investment Manager.
Independent Directors are entitled to annual remuneration of
£35,000 (2018: £30,000).
At 30 June 2019, Directors’ fees
of £41,250 (2018: £36,250) 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 (£73.5
million) (the “Base Amount”). To the extent that an amount equal to
the lower of the Company's NAV and market capitalisation, at the
relevant time of calculation, 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
£2,456,957 (2018: £12,095,146) of which £2,456,957 was payable at
30 June 2019 (2018: £10,964,740).
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 £150 million and 0.1% (2018:
0.1%) of that part of the NAV over £150 million (subject to a
minimum of £75,000 per annum). During the year, the Company
incurred administration fees of £267,031 (2018: £234,486).
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 £25,000 per annum. Transaction charges of £100 per trade for the
first 200 trades processed in a calendar year and £75 per trade
thereafter are also payable. During the year, the Company incurred
custodian fees of £114,705 (2018: £98,666).
*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 £2,369,550, 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 £0.01 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
“£” or “Pounds Sterling” or “Sterling”
means British pounds sterling and “pence” means British
pence.
Directors and
General Information
Directors
Christopher Waldron (Chairman)
Fred Hervouet
Jane Le Maitre (Chairman of Audit Committee)
Nigel Ward (Chairman of Remuneration and Management Engagement
Committee)
Investment Adviser
Crystal Amber Advisers (UK) LLP
17c Curzon Street
London W1J 5HU
Administrator and Secretary
Estera International Fund Managers (Guernsey) Limited
PO Box 286
Floor 2, Trafalgar Court
Les Banques, St Peter Port
Guernsey GYI 4LY
Broker
Winterflood Investment Trusts
The Atrium Building
Cannon Bridge House
25 Dowgate Hill
London EC4R 2GA
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St. Peter Port
Guernsey GY1 1WR
Registered Office
PO Box 286
Floor 2, Trafalgar Court
Les Banques, St Peter Port
Guernsey GYI 4LY
Identifiers
ISIN: GG00B1Z2SL48
Sedol: B1Z2SL4
Ticker: CRS
Website: crystalamber.com |
Investment Manager
Crystal Amber Asset Management (Guernsey) Limited
PO Box 286
Floor 2, Trafalgar Court
Les Banques, St Peter Port
Guernsey GYI 4LY
Nominated Adviser
Allenby Capital Limited
5 St. Helen’s Place
London EC3A 6AB
Legal Advisers to the Company
As to English Law
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
As to Guernsey Law
Carey Olsen
PO Box 98
Carey House
Les Banques
St. Peter Port
Guernsey GY1 4BZ
Custodian
Butterfield Bank (Channel Islands) Limited
PO Box 253
Martello Court
Admiral Park
St. Peter Port
Guernsey GY1 3QJ
Registrar
Link Asset Services
65 Gresham Street
London
EC2V 7NQ |