28 September 2021

Crystal Amber Fund Limited

Final results for the year ended 30 June 2021

The Company announces its final results for the year ended 30 June 2021.

Key Points

·    Net Asset Value ("NAV") per share grew by 38.5% to 146.81 pence (106.02 pence at 30 June 2020 and 128.99 pence at 31 December 2020); 41.2% after adjusting for dividends paid.

·    Stable portfolio continues to deliver progress, including De la Rue, GI Dynamics, Equals and Allied Minds.

·    Decisive action was taken to protect shareholder value at Hurricane Energy, including board changes and successful legal action against proposed financial restructuring. After the year end, $22 million of capital and interest saved as a direct result of the Fund's intervention.

·    Exited several positions upon completion of activist strategy or on revaluation, including Redde Northgate, STV Group and Kenmare Resources.

·   Increased cash returns to shareholders, with £6.9 million spent on share buybacks and £2.1 million on an interim dividend. A further dividend of £2.1 million was paid in August 2021, bringing cash returns since July 2020 to £11.1 million equivalent to approximately 13p a share.

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(1) All capitalised terms are defined in the Glossary of Capitalised Defined Terms unless separately defined.
 

Chairman's Statement

I hereby present the fourteenth annual report of Crystal Amber Fund Limited ("the Fund"), for the year to 30 June 2021. At the year end, NAV was £122.9 million, compared with an unaudited NAV of £108.9 million at 31 December 2020 and an audited NAV of £97.4 million at 30 June 2020. NAV per share was 146.81 pence at 30 June 2021 compared with 128.99 pence at 31 December 2020 and 106.02 pence at 30 June 2020.

The improvement in NAV from the 2020 lows of below 90 pence has continued during the period, in line with the broader economic recovery from the COVID-19 pandemic. Whilst infection rates in the UK remain relatively high, it is to be hoped that the ongoing vaccination programme will be sufficient to maintain growth into 2022.

During the year, the Manager has been working hard to maximise value from the Fund's concentrated portfolio. As an activist investor, this work takes many forms and generally the Fund's preference is to engage constructively in private with investee companies. However, this is not always possible and was certainly not the case recently with Hurricane Energy, where it was necessary to take legal action to protect the position of shareholders in the face of egregious proposals by Hurricane's board. If not opposed, these would have seen a 95% dilution of shareholders. It's pleasing to report that the Fund's swift action saw this proposal blocked in the High Court and the Fund is supportive of Hurricane's reconstituted board as it seeks to create value for all stakeholders.

The Fund has also been outspoken in its criticism of Allied Minds, where we have lost confidence in the Chairman after the poor handling of its investee companies, and we hope for constructive changes there.

The continued engagement with Equals, GI Dynamics and De La Rue has been more in line with the Fund's traditional approach and it was particularly pleasing to see the progress at De La Rue, where the current management's focus and clear strategy is in sharp contrast to its predecessors.

A more detailed review of investee companies is set out below in the Investment Manager's Report.

During the year, the Fund bought back 8,249,567 of its own shares at an average price of 83.96 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 24.7%. At the year end, the shares traded at a discount of 26.1% to NAV. The share buyback programme had a positive contribution of 5.3% to NAV per share during the year.

The Fund declared an interim dividend of 2.5 pence in December 2020. The Fund did not declare an interim dividend in July 2020 due to the COVID-19 pandemic. At the 2020 AGM, interim dividends previously paid were ratified by shareholders.

The Fund has regularly submitted itself to continuation votes and at this year's AGM an extraordinary resolution will be tabled, requiring a 75% majority for continuation. It was always intended that this year's vote would provide a very high hurdle for continuation and the Manager has been positioning the portfolio accordingly for some time, with no new positions being opened since De La Rue was first held in 2018.

We announced on 25 June 2021 that the communication received from Saba Capital, the Fund's largest shareholder, indicated that it would not support continuation and should the vote to continue not pass, the Articles require the Fund to "formulate proposals…to reorganise, reconstruct, or wind up the Company."

In that event, the proposals will be the result of consultation with shareholders. In any event, the Board believes it is in shareholders' interests for the Manager to continue its current focus and any proposals are likely to reflect the importance of accelerating growth in core long term holdings, including provision for the future funding requirements of GI Dynamics.

Moreover, during the year under review, the Manager's primary focus has been to position the Fund's strategic holdings to appeal to trade or financial buyers. In recent months, the Manager has been able to commence discussions with a number of potential buyers and we will update market participants as and when appropriate.

Christopher Waldron

Chairman

27 September 2021

Investment Manager's Report

Performance

The Fund's NAV per share grew by 38.5% during the year. Adjusting for dividends paid, the total return in the Fund's NAV per share for the year was 41.2%. This compares to the Numis Smaller Companies Index which grew by 52.3% in the same period.

Positive contributors to performance were De La Rue (19.8%), GI Dynamics (8.7%), Equals Group (8.6%), Redde Northgate (1.8%) and Kenmare Resources (1.2%). The detractors were Allied Minds (-6.0%) and Hurricane Energy (-0.2%).

The Fund did not purchase FTSE put options in the year given the high cost of portfolio protection. 

Portfolio and Strategy

At 30 June 2021, the Fund held equity investments in ten companies (2020: 15), including three unlisted companies. The Fund also held a debt instrument in GI Dynamics, an unlisted company at the year end.

The Fund's month-end average net cash and accruals position was 0.3% of NAV (2020: 2%), meaning that it has remained fully invested throughout the year. Cash realisations were principally utilised to fund share buybacks and pay an interim dividend.

The Fund's strategy remains focused on a limited number of special situations where the Fund believes 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 but levels of investment in individual companies are closely monitored and parameters are set to ensure this risk is managed and kept to an appropriate level.

As at 30 June 2021, the weighted average market capitalisation of the Fund's listed investee companies was £229 million (30 June 2020: £171 million).

The table below lists the Fund's top five shareholdings as at 30 June 2021, the equity stake that those positions represent in the investee company and their percentage contribution to NAV performance over the year.

^{(1) Percentage contribution stated for equity holdings only. Other instruments such as outstanding warrants and debt are included in the performance contribution calculation in the prior section of this report.}

^{(2) GI Dynamics Inc. is a private company, and its shares are not listed on a stock exchange. Therefore, the percentage held is not disclosed.} 

The Fund's top five positions as at 30 June 2021 were amongst the top ten at 30 June 2020. The last new quoted investment purchase was in April 2018. During the year, £9 million was returned to shareholders through share buybacks and dividends. As reported last September, the Fund increased its investment in GI Dynamics with a $10 million Series A investment. This investment and returns of capital were funded by reducing the Fund's shareholding in De La Rue and Allied Minds. The holding of 18.3% in De La Rue decreased to 12.3%. The position in Allied Minds decreased from 22.5% to 19%. The position in Equals remained broadly stable, with the Fund increasing its holding last autumn from around 21% to 25% at approximately 24 pence a share, and subsequently taking profits on these shares. The position in Hurricane Energy grew from 6.6% to 22.6% as the Fund successfully defeated the proposal to restructure in the High Court and was able to take advantage of the distressed share price to acquire further shares.

The Fund exited positions in Redde Northgate, Camellia and Kenmare Resources, which were formerly in the top ten holdings.

Investee companies

Our comments on a number of our principal investments are as follows: 

De La Rue plc ("De la Rue")

De La Rue's Currency Division designs and prints banknotes and produces related components, including security features. The Authentication Division supplies tax stamps and products and software to authenticate and track individual products throughout their supply chains, and it produces components for inclusion within individual identity documents such as passports. The Fund's previous annual reports include additional background information on this investment.

In July 2020, De La Rue completed a £100 million equity fundraise, which was priced at 110 pence per share. The Fund participated in the firm placing and open offer elements of the raise. The company now has an almost debt-free balance sheet, a vastly improved pension funding schedule, bank facilities extended until December 2023 and, most significantly, a fully funded turnaround plan. This is proceeding well, with a reduced cost base and revised strategy for the currency division focused on polymer note printing and a renewed focus on authentication opportunities.

De La Rue published full year results to 31 March 2021 on 26 May 2021 and reported adjusted operating profits of £38.1 million. The Currency Division achieved 100% banknote capacity utilisation and strong margin progression. Its polymer growth plans also saw encouraging progress. The Authentication Division secured £195 million of expected multi-year contract value.

The Fund continues to believe that De La Rue enjoys a combination of strong competitive positions in high return businesses and attractive growth opportunities. It holds a 30% market share of global commercial banknote printing. Bank notes will continue to be in demand even in cashless societies as they are needed for currency reserves and wealth storage. The product cycle of 7-12 years is mainly driven by counterfeit risks. This drives the conversion of notes to polymer substrates, which currently only accounts for 4% of notes in issue. Furthermore, the company's core market is developing countries where demand for cash is expected to track economic and demographic growth. De la Rue is well placed to capitalise on the structural shift towards polymer notes. Over the year, the company has announced new contracts in its higher margin Authentication Division. The H2 2021 revenues of £45.9 million suggest that the £100 million Authentication target revenue for FY22 is well underpinned.

Over the year, the essential management changes instigated by the Fund continued to bear fruit. Nevertheless, De La Rue's share price trades on a multiple of just 0.9 of current year revenues and on a PE multiple of 12 times earnings. On consensus estimates for the following year, the revenue multiple is forecast at 0.8 and the PE multiple at 9. The Fund strongly believes that De La Rue's equity valuation is significantly underpriced. Unless the stock market is prepared to value De La Rue appropriately, Crystal Amber anticipates that a trade buyer or buyers are likely to intervene to acquire the business.

Allied Minds plc ("Allied Minds")

Allied Minds is an IP commercialisation business focused on early-stage company development within the US technology sector. In 2019, it announced that it would henceforth focus on maximising returns and shareholder distributions from its existing portfolio, rather than continuing to invest in new businesses. The portfolio contains three significant holdings: Federated Wireless, BridgeComm and Orbital Sidekick, all of which have raised capital from third parties including strategic investors. As at 30 June 2021, Allied Minds had cash of $17.8 million, plus three smaller stakes in other technology and life-sciences companies. The Fund's previous annual reports include additional background to this investment.

Over the year, the Fund focused on securing further reductions in parent company costs and improved transparency of progress of the underlying investments, all of which are unlisted.

In January 2021, the CEO left the business, shortly after Allied Minds revealed that its investee company Spin Memory faced a "significant liquidity issue," stating "a down-round financing is not uncommon in early venture companies." The Fund notes that Allied Minds commenced its investment in Spin Memory in 2007 and considers that if Spin Memory was still characterised as an early venture company some 13 years later, this reflects poorly on the management of Allied Minds given that Allied Minds is the largest shareholder of Spin Memory with an interest of 43%. In June 2021, Allied Minds announced that Spin Memory would be liquidated and there could be no guarantee that Allied Minds would receive any return of capital. Allied Minds has invested $50.5 million in Spin Memory since 2007.

The investments are now managed directly by the three non-executive board directors.

In August 2021, Allied Minds reported that Federated Wireless Inc had met its revenue expectations for its first half and was on track to meet its full year plan. The most encouraging aspect of last month's update related to Occu Terra Therapeutics Inc ("Occu Terra Therapeutics"), a clinical stage ophthalmology drug development company in which Allied Minds has a fully diluted holding of 13%. This had been a passive holding and had been provided for in full. Occu Terra Therapeutics has recently closed a $31.5 million funding round at a post money valuation of $48.9 million.

In May 2021, the Fund voted against the re-election of Chairman Harry Rein and non-executive director Bruce Failing. At the meeting, the vote against Harry Rein's re-election was 47.1% and 37.3% against Bruce Failing. 

Whilst the Fund believes that the current share price of 23 pence fails to reflect the net asset value of around 45 pence, realising the inherent value of the portfolio and return of proceeds to shareholders would be accelerated and enhanced either by the removal of Harry Rein and Bruce Failing and replacement with alternative directors, or a corporate solution. Accordingly, the Fund has commenced discussions with third parties with this objective in mind.

Equals Group plc ("Equals")

Equals is an e-banking and international payment services provider. It serves retail and business customers mainly in the United Kingdom under an e-money licence. Equals provides faster, cheaper and more convenient money management than traditional banking services with bank-grade UK domestic clearance. 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. The Fund's previous annual reports include additional background to this investment.

Inevitably, from March 2020 Equals was adversely affected by the enormous restrictions on international travel. Shortly after, its supply chain was temporarily disrupted with the demise of payment processor Wirecard. These two events impacted Equals after a period of increased investment in its product suite which also increased its cost base. Equals successfully dealt with these challenges and continued its transition towards B2B, growing those revenues by 10% in 2020. It also improved its supply chain with new payment processors and user interfaces that will become available across product lines. Management also realigned its cost base from £1.2 million of base pay per month in January 2020 to £0.9 million in June 2021. In 2020, B2C revenues fell by 30% due to the impact of the pandemic on travel. However, as a result of strong growth elsewhere in the business, this represented less than 5% of revenue in Q2 2021.

Equals' proposition to SMEs is compelling relative to that offered by legacy banks. The Fund believes that better understanding of the economics of higher lifetime value business customers will improve perceptions of Equals' prospects. The company's assets include over one million customers, an upgraded technology platform and licences and industry relationships built over many years. With larger players keen to acquire fintech capabilities, the Fund believes Equals is an attractive takeover candidate.

On 14 September 2021, Equals reported strong underlying sales growth, positive operational cash flow and current quarter revenue up by 58 per cent year on year. As the largest shareholder in Equals and having worked closely with management over the last 18 months, it is pleasing to report on both the turnaround and the momentum that the business now enjoys.

Hurricane Energy ("Hurricane")

Hurricane is an oil exploration and production company targeting naturally fractured basement reservoirs in the West of Shetland. The Fund's previous annual reports include background information on this investment. The Fund has been an investor in Hurricane since 2013 and has to date realised profits of £43 million.

For the year under review, our intensive engagement with the board of directors culminated in the resignation of all five of the company's non-executive directors. This took place only hours before the AGM shareholder vote.  In their stead, John Wright and David Craik, two experienced sector specialists who have been advising the Fund on Hurricane for several years, were appointed. The general meeting that the Fund had requisitioned to make these changes was therefore no longer required.

In June 2021 at the High Court, Mr Justice Zacaroli refused to sanction the Hurricane board's attempt to force through a highly dilutive debt for equity swap. The board had proposed that $50 million of the $230 million repayable to bondholders in July 2022 be converted into 95% of Hurricane's equity, with the remaining $180 million debt earning cash interest of 9.4% per annum plus payment in kind interest of 5% per annum. The coupon on the existing bonds is 7.5%.

Mr Justice Zacaroli referred in his judgment to the continued profitable trading at Hurricane and the prospects of that continuing long into the future. In this regard, Bluewater Energy Services B.V. (from whom Hurricane leases the FPSO - Floating Production Storage and Offloading - vessel) made contact directly with Crystal Amber and stated that it remains very keen to progress discussions and investigate solutions and proposals to extend the charter beyond June 2022. Last month, Hurricane confirmed that it is engaged in positive negotiations on securing an extension.

The threat of massive equity dilution combined with continued downbeat comments from the previous board with regard to the company's future prospects, heavily contributed to what has been a dreadful share price performance. Whilst there is no doubt that the fall in oil price in 2020 was entirely beyond management's control, the decision not to use some of its cash to buyback the bonds when they were trading at a discount of 70%, as urged to do so at the time by Crystal Amber, has proven extremely costly in addition to legal costs of $17 million on a restructuring plan that both Crystal Amber and more importantly the High Court found to be inappropriate.

The Fund has written to the Hurricane Board under Article 94 of the company's articles of association to request that a committee (comprising the non-executive directors) be established with a mandate to investigate what happened and to engage external advisers (should that be needed) for the investigation. The committee would then make a recommendation to the Hurricane Board.

Whilst the Fund would have preferred not to have had to endure the past 18 months as a shareholder in Hurricane, the share price weakness enabled the Fund to take advantage by more than doubling its shareholding from 1 January 2021 to 30 June 2021 to 22.6% and it successfully defended the interests of all shareholders on a crucial point of law.  The Fund currently owns more than 25% of Hurricane and is the largest shareholder.

In August 2021, after a further request from Crystal Amber, Hurricane finally launched a tender offer for up to 50% of the outstanding bonds. Allocating up to $80 million of its cash, initially the tender was priced at up to 72 cents, but this was increased to 78 cents. Whilst the Fund fails to understand the amount of time taken by the board to implement the buyback of the bonds (in early July 2021, the bonds were trading at just 49.25 cents), purchasing just over one third of the bonds in issue has reduced Hurricane's capital and interest obligations by approximately $22 million.  This represents an important and material saving. Without the Fund's successful intervention at the High Court, this would not have happened.

The Fund now believes that Hurricane must secure an extension with Bluewater Energy Services B.V. (from whom Hurricane leases the Floating Production Storage and Offloading vessel). This will secure the prospects of significantly increased free cash flow generation for equity holders. The Fund believes that a twelve month extension is required.

Latest production information from Hurricane is that its P6 well is producing 11,100 barrels per day. This compares well with the company's production forecasts (released in May 2021) estimating production for August 2021 at 9,500 barrels per day. Production for June and July were also ahead of forecast. The latest production shipment in August 2021 was for 505,000 barrels and it is estimated that this generated around $34 million of revenue.

At anticipated production levels, the Fund estimates that by February 2024, 8.3 million barrels will be produced. At a selling price of $68 a barrel, $570 million of revenues will be achieved. Based on historic margins, this would deliver operating cash flows of around $250 million. By the time the bonds are due to be repaid, the Fund estimates that 3.3 million barrels can be produced, generating $227 million of revenue and around $110 million of operating cash flow. These revenues and cash flows are taken from the current oil producing asset within Hurricane's portfolio. Set against this context, whilst inevitable production risk remains, the Fund believes the prospects for Hurricane are far better than has been presented by its executives.

The Fund notes and welcomes that since the court hearing, actual production achieved has been running materially ahead of budget and in August, it exceeded budget by more than 20 per cent at 11,467 barrels a day.

GI Dynamics Inc ("GI Dynamics")

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.

During the year, GI Dynamics delisted from the Australian stock exchange. Its board and CEO were replaced with new executives and directors with medical device experience. As part of a $10 million investment in preferred stock, the Fund's senior secured loan was converted, and warrants were cancelled. The Fund currently owns one $4.9 million convertible loan note, together with preferred and common stock.

While COVID 19 delayed the company's progress in 2020, it highlighted the need to address the prevalence of Type II diabetes and obesity. During this year, as a result of the lifting of COVID19 restrictions and widespread vaccine access in the US, GID has been able to recommence enrolment to its clinical trial. After delays due to the COVID 19 surge in India, the I-STEP application for a randomised clinical trial (to be conducted in conjunction with Apollo Sugar Clinics) was reviewed by regulators in India in June 2021. GI Dynamics is in the process of filing its application to commercialise EndoBarrier under the new Medical Device Regulations (MDR) which will allow access throughout the EU. The first milestone toward achieving CE Mark for European regulatory approval was achieved in November 2020 as GI Dynamics successfully completed the required ISO Certification audit.

The global pandemic has reaffirmed the importance of gaining control of the significant risk factors associated with Type II diabetes and obesity. More than ever, medical professionals and patients alike are seeking minimally invasive and effective therapies so help control and resolve these chronic conditions. GI Dynamics is preparing to meet this large unmet clinical need.

Outlook

The Fund's mature and highly concentrated portfolio of special situations is well placed to deliver not only value accretion but importantly the release of value.  As the Fund's investee companies continue to make progress, we have been able to enter discussions with strategic and corporate buyers of the majority of our portfolio companies. In the coming weeks and months, we look forward to providing specific details. 

Crystal Amber Asset Management (Guernsey) Limited

27 September 2021

Investment Policy

The Company is an activist fund which aims to identify and invest in undervalued companies and, where necessary, take steps to enhance their value. The Company aims to invest in a concentrated portfolio of undervalued companies which are expected to be predominantly, but not exclusively, listed or quoted on UK markets (usually the Official List or AIM) and which have a typical market capitalisation of between £100 million and £1 billion. Following investment, the Company and its advisers will also typically engage with the management of those companies with a view to enhancing value for all their shareholders.

Investment objective

The objective of the Company is to provide its shareholders with an attractive total return, which is expected to comprise primarily capital growth but with the potential for distributions from realised distributable reserves, including distributions arising from the realisation of investments, if this is considered to be in the best interests of its shareholders. 

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 a proportion of the income received from the Company's portfolio holdings to shareholders. In certain circumstances, the Company may make distribution payments out of realised investments if considered to be in the best interests of shareholders. 

Due to the nature of the Company's investment objectives 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. There was no interim dividend paid in 2020, as a result of COVID-19, which created uncertainty as to the timing and quantum of dividend receipts from the Company's portfolio companies. The interim dividend for 2021 of £2,107,375 equating to 2.5 pence per Ordinary share, was paid on 3 February 2021 to shareholders on the register on 8 January 2021.

Composition of the portfolio

The Board, Investment Manager and Investment Adviser believe that the number of potential target companies is high with more than 2,000 companies quoted on AIM or the Official List and they consider that a significant number of these are in the Company's targeted range.

Target investee companies typically operate in one or more of the following sectors:

·    consumer products;

·    industrial products;

·    retail;

·    support services;

·    healthcare; or

·    financial services.

However, the Company is not restricted to these sectors and investment decisions are taken based on market conditions and other investment considerations at the time.

Report of the Directors

Incorporation

The Company was incorporated on 22 June 2007 and was admitted to trading on AIM on 17 June 2008.

Principal activities

The Company is a Guernsey registered closed ended company established to provide shareholders with an attractive total return, which is expected to comprise primarily capital growth and distributions from accumulated retained earnings taking into consideration unrealised gains and losses at that time. This will be achieved through investment in a concentrated portfolio of companies that are considered to be undervalued and which are expected to be predominantly, but not exclusively, listed or quoted on UK markets and which mostly have a market capitalisation of between £100 million and £1 billion.

The Company became a member of the AIC on 26 March 2009.

Business review

A review of the business together with likely future developments is contained in the Chairman's Statement and the Investment Manager's Report.

Results and dividend

The results for the year are set out in the Statement of Profit or Loss and Other Comprehensive Income.

The Company has declared dividends twice yearly in the sum of 2.5 pence per share totalling 22.5 pence per share over the last five years (the exception being the 2020 interim dividend which was withheld as a result of the emergence of COVID-19, which created uncertainty as to the timing and quantum of dividend receipts from the Company's portfolio companies). Traditionally, the dividends have been largely funded by dividends received from portfolio companies.

In view of the effects of COVID-19, there is significant uncertainty as to the timing and quantum of dividend receipts from the Company's portfolio companies. The Directors are also mindful that changes in the composition of the portfolio could mean that there will be lower dividend receipts than in past years.

On 23 December 2020, the Company declared an interim dividend of £2,107,375 equating to 2.5 pence per Ordinary share, which was paid on 3 February 2021 to shareholders on the register on 8 January 2021.

On 7 July 2021, the Company declared an interim dividend of £2,096,650 equating to 2.5 pence per Ordinary share, which was paid on 4 August 2021 to shareholders on the register on 16 July 2021.

Continuation vote

The Company has regularly submitted itself to continuation votes. An extraordinary resolution was passed at the 2019 AGM under which 75% of the votes would be required to continue as currently constituted and an extraordinary resolution will be tabled at the 2021 AGM, requiring a 75% majority for continuation.

As announced on 25 June 2021, communication received from Saba Capital indicated that it would not support continuation. Should the vote to continue not pass, the Articles require the Company to "formulate proposals…to reorganise, reconstruct, or wind up the Company."  In that event, the proposals will be the result of consultation with shareholders.

The Investment Manager is engaging with shareholders in anticipation of the vote and to explore alternatives to continuation, such as a company reorganisation and reconstruction.

Going concern

The Directors are confident that the Company has adequate resources to continue in operational existence for the foreseeable future and as a result of this, do not consider there to be any threat to the going concern status of the Company. As disclosed further in Note 1, the Directors have considered the potential impact of the effects of COVID-19 on the Company's activities and do not consider that this will impact the Company's ability to operate as a going concern. The Directors have also considered the continuation vote scheduled for the 2021 AGM and note Saba Capital's stated intention to vote against continuation. In that circumstance, the Company will be obliged to return to shareholders with proposals to either reorganise, restructure or wind up the Company. Although the wind up option is included within the Articles amended in 2013, the Directors believe that the nature of the Company's investments mean that a wind up in the short term would not be in shareholders' interests.  In line with accounting standards, the Directors are nevertheless obliged to disclose that this uncertainty exists, which is material and therefore if a wind up was actioned, may cast doubt on the Company's ability to continue as a going concern. The Directors also note that no new investments have been undertaken by the company since April 2018 and that the Investment Manager's focus is currently on optimising performance of existing investments.

Long term viability

As further disclosed in the corporate governance note in the Report of the Directors, the Company is a member of the AIC and complies with the AIC Code. In accordance with the AIC Code, the Directors have made a robust assessment of the prospects of the Company over the three year period ending 30 June 2024. The Directors consider that three years is an appropriate period to assess the viability of the Company given the average length of investment in each portfolio company and the time horizon over which investment decisions are made.

In considering the prospects of the Company, the Directors have considered the risks facing the Company, giving particular attention to the principal risks identified below, the effectiveness of controls over those risks, the process in place for identifying emerging risks and have evaluated the sensitivities of the portfolio to market volatility.

The Directors have also considered the Company's income and expenditure projections over the 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 continuation vote to take place at the 2021 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. This ensures that procedures are in place to identify principal risks, mitigate and minimise the impact of those risks should they crystallise, and to identify emerging risks and determine whether any action is required. The Investment Manager has created a Risk Committee from which the Board receives quarterly reports. Fred Hervouet, one of the Board Directors, liaises with the Risk Committee and attends its regular meetings to offer an independent view and to enhance communication between the committee and the Board. The Directors have carried out a robust assessment of the principal risk areas relevant to the performance of the Company including those that would threaten its business model, future performance, solvency and liquidity and these are detailed below. As it is not possible to eliminate risks completely, the purpose of the Investment Manager's risk management policies and procedures is to reduce and manage risk and to ensure that the Company is as adequately prepared as reasonably possible to respond to such risks and to minimise their impact should they occur.

Continuation

The Company is subject to a continuation vote at its 2021 AGM. The Investment Manager is engaging with shareholders in anticipation of the vote and to explore alternatives to continuation, such as a company reorganisation and reconstruction. Should the continuation vote not pass, alternatives would be put to a shareholder vote in accordance with the Articles. The Directors note the Investment Manager's focus since 2018 has been to optimise outcomes from existing investments and do not anticipate that this process will be disrupted. Whilst there is uncertainty surrounding the outcome of the continuation vote which is material, the Directors are confident in the company's ability to continue to operate on a going concern basis.

Regulatory compliance risk

A breach of regulatory rules could lead to a suspension of the Company's stock exchange listing or financial penalties. The Company Secretary monitors the Company's compliance with the AIM Rules in conjunction with the Nominated Adviser and compliance with these rules is reviewed by the Directors at each Board meeting.

One of the most significant regulatory risks for an activist investor such as the Company is in relation to market abuse provisions. The FCA has published guidance stating that in general it would not consider an activist shareholder's conduct to amount to market abuse where the shareholder merely carried out acquisitions of a target company's securities on the basis of the target company's intentions and the Company's knowledge of the target company's strategy.

However, the FCA has stated that if, for example, other shareholders trade in the target's shares on the basis of another shareholder's strategy, they may view such conduct as amounting to market abuse. There is no guarantee that other shareholders will not follow the Company's strategy, and, in certain circumstances the Company may act with, or be dependent upon, the support of other shareholders to implement its strategies. There is also no guarantee that the FCA's guidance will not change. The Company and its Advisers operate in a highly regulated environment and whilst they will always seek to take appropriate professional advice, there is a risk of an inadvertent breach of securities laws or regulations, or allegations of such breach, taking place.

The following risks, whilst they may affect the performance of the Company, will not in themselves affect the ability of the Company to operate.

'Key Man' risk

The Investment Adviser and the Investment Manager rely heavily on the expertise, knowledge and network of Richard Bernstein when sourcing investment opportunities. He is a shareholder of the Company, a director and shareholder of the Investment Manager and a member of the Investment Adviser and his loss to these service providers could have an adverse effect on the Company's performance. In the absence of Richard Bernstein, the Board and Investment Manager have sufficient relevant experience to manage the Company's portfolio while considering the future of the Company.

Portfolio concentration risk

By its very nature as an activist fund, the Company is exposed to the risk that its portfolio of investee companies is not sufficiently diversified to absorb the impact of a fall in value of some of its major investments. As noted in the Investment Policy, the Company seeks to invest in companies and use activism to unlock value. An inherent consequence of this policy is a portfolio concentrated on a number of key investee companies. The Board is aware of this risk and feels it is a necessary risk to take in order to provide returns through the investment strategy. Levels of investment in individual companies 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 and share price movements on a daily basis. The Administrator prepares weekly portfolio valuation reports. The Investment Adviser engages with investee companies through regular meetings and reports to the Board. The Investment Manager and Investment Adviser also compare the Company's performance to the Numis Smaller Companies Index and investigate all underperformance and unrealised losses of the Company.

Market risk

The Company's investments include investments in companies the securities of which are publicly traded or are offered to the public and investments in unlisted companies. The market prices and values of these securities may be volatile and are likely to fluctuate due to a number of factors beyond the Company's control. These include actual and anticipated fluctuations in the quarterly, half yearly and annual results of the companies in which investments are made and other companies in the industries in which they operate and market perceptions concerning the availability of additional securities for sale.

They also include general economic, social or political developments, changes in industry conditions, shortfalls in operating results from levels forecast by securities analysts, the general state of the securities markets and other material events, such as significant management changes, 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 periodically 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 8 investors with holdings of 3% or more each of the shares of the Company hold a combined total of 79.16% 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 may be realised in connection with investments. The ability to assess future values and the timing thereof, whether in connection with the making of an investment or exiting from an investment, may be particularly important in the case of investments over which the Company has little or no control on its own. The ability of the Company to exit certain investments on favourable terms will be dependent (inter alia) upon the successful implementation of the strategic plans for such investee company and, in particular, the ability to persuade management to adopt such strategic plans. It will also depend on the relative liquidity of the stock of the investee company at that time.

Risks were identified in relation to the ongoing COVID-19 pandemic. Further details including mitigation strategies, are included within the going concern section of Note 1 to the Financial Statements.

In summary, the risks noted above are mitigated and managed by the Board, the Investment Manager and Investment Adviser through continual review of the portfolio, policy setting and updating the Company's risk matrix to ensure that procedures are in place to minimise their impact.

Further detail on the Company's risk factors is set out in the Company's admission document, available on the Company's website (www.crystalamber.com) and should be reviewed by shareholders.

Details about the financial risks associated with the Company's investment portfolio and the way that investments are managed are given in Note 14 to the Financial Statements.

Ongoing charges

For the year ended 30 June 2021 the ongoing charges ratio of the Company was 2.07% (2020: 2.13%). The ongoing charges ratio has been calculated using AIC recommended methodology and is made up as follows:

Ongoing charges are those expenses of a type which are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the Company as a collective fund, excluding the costs of acquisition/disposal of investments, performance fees, financing charges and gains/losses arising on investments. Ongoing charges are based on costs incurred in the year as being the best estimate of future costs. The ongoing charges ratio is calculated by dividing the annualised ongoing charges by the average NAV for the financial year.

Directors

The Directors of the Company who served during the year and up to the date of this report are shown on the Directors section. Biographies of the Directors holding office as at 30 June 2021 and at the date of signing these Financial Statements are shown on the Directors section. 

Directors' interests

The interests of the Directors in the share capital of the Company at the year-end are disclosed in Note 16.

Directors' remuneration

The remuneration of the Directors during the year is disclosed in Note 16.

Directors' responsibilities to stakeholders

Section 172 of the UK Companies Act 2006 applies directly to UK domiciled companies. Nonetheless the AIC Code requires that the matters set out in Section 172 are reported by all companies, irrespective of domicile. This requirement does not conflict with the Companies Law in Guernsey.

Section 172 recognises that Directors are responsible for acting in a way that they consider, in good faith, is most likely to promote the success of the Company for the benefit of all of its shareholders. In doing so, they are also required to consider the broader implications of their decisions and operations on other key stakeholders and their impact of those decisions on the wider community and the environment.

Key decisions are defined as those that are material to the Company, but also those that are significant to any of the Company's key stakeholder groups. The Company's engagement with its key stakeholders is discussed further in the corporate governance section of this report.

The Directors made or approved the following key decisions during the year, with the overall aim of promoting the success of the Company taking into account the likely impact on its members and wider stakeholders;

Dividends

The Directors concluded that an interim dividend should be paid in this financial year, as further disclosed in the Report of the Directors.

Continuation

As outlined earlier, there is uncertainty as to the outcome of an upcoming continuation vote, but the Directors are confident in the company's ability to continue on a going concern basis.

Charitable shares

During the year, the Company approved the issue of 125,000 shares to five separate charitable organisations in accordance with the authority granted to the Company by shareholders at the 2019 AGM. As disclosed within the Chairman's Statement, the Company issued 125,000 shares on 25 September 2020 split equally amongst the following five charitable organisations: St Andrews Clinic for Children, Cancer Research UK, Feis Ceoil, James' Place and Sentable. The Directors recognise that more recently, the shareholder base has changed significantly and consequently, the Directors have decided that in recognition of the views articulated by newer shareholders, the Fund will suspend future share issues to charities at this time.

Substantial interests

As at 26 August 2021, the Company had been notified of the following voting rights of 3% or more of its total voting rights:

Statement of Directors' responsibilities

The Directors are responsible for preparing the Directors' Report and the Financial Statements in accordance with applicable law and regulations. 

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with International Financial Reporting Standards, as issued by the IASB, and applicable law.

The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

·    select suitable accounting policies and then apply them consistently;

·    make judgements and estimates that are reasonable and prudent;

·    state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

·    assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

·    use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. 

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (www.crystalamber.com), and for the preparation and dissemination of financial statements. Legislation in the United Kingdom and Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Disclosure of information to the Auditor

The Directors each confirm that they have complied with the above requirements in preparing the Financial Statements. They also confirm that so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware and that they have taken all the steps they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Corporate governance

As a Guernsey registered company, the share capital of which is admitted to trading on AIM, the Company is not required to comply with the FRC Code. However, the Directors recognise the value of sound corporate governance and it is the Company's policy to comply with best practice on good corporate governance that is applicable to investment companies.

The Board has considered the principles and provisions of the AIC Code. The AIC addresses the principles and provisions set out in the FRC Code and includes additional provisions on issues that are of specific relevance to the Company. The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the FRC and the Guernsey Financial Services Commission, provides more relevant information to shareholders. The Company has complied with the principles and provisions of the AIC Code. The AIC Code is available on the AIC's website, www.theaic.co.uk, which includes an explanation of how the AIC Code adapts the principles and provisions set out in the FRC Code to make them relevant for investment companies. The FRC Code is available on the FRC's website, www.frc.org.uk.

The GFSC Code came into force in Guernsey on 1 January 2012. Under the GFSC Code, the Company is deemed to satisfy the GFSC Code provided that it continues to conduct its governance in accordance with the requirements of the AIC Code.

The Company adheres to a Stewardship Code adopted from 14 June 2016. The Company's Stewardship Code incorporates the principles of the UK Stewardship Code. A copy of the Stewardship Code is available on the Company's website.

Environmental, social and governance report

As an investment company, the Company's activities only have a limited impact on the environment in which it operates. The Company has no employees and its registered office is based in Guernsey, where all of the Directors reside, thus minimising the need for extensive travel to attend Board or other meetings, with associated environmental impact.

Responsible investment principles have been applied to each of the investments made. These policies require the Company to make reasonable endeavours to procure the ongoing compliance of its portfolio companies with its own policies on responsible investment. The Company is an activist fund which aims to identify and invest in undervalued companies and, where necessary, take steps to enhance their value. Following investment, the Company and its advisers will also typically engage with the management of those companies with a view to enhancing value for all their shareholders, in line with the UK Stewardship Code.

Purpose, culture and values

The Company's purpose remains clear: to provide its shareholders with an attractive total return, which is expected to arise primarily from 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. 

The Board has considered the Company's culture and values. As an investment company with no employees, it is considered that the culture and values of the Board are aligned with those of the Investment Manager and Investment Adviser, with a focus on long term relationships with the Company's key stakeholders.

The Board

The Company is led and controlled by a Board of Directors, which is collectively responsible for the long-term success of the Company. The Company believes that the composition of the Board is a fundamental driver of its success as the Board must provide strong and effective leadership of the Company. The current Board was selected, as their biographies illustrate, to bring a breadth of knowledge, skills and business experience to the Company.

As at the date of this report, the Board comprises three Non-Executive Directors (2020: three), all of whom are considered to be independent of the Investment Manager and Investment Adviser and free from any business or other relationship that could materially interfere with the exercise of their judgement. Board appointments are considered by all members of the Board and have been made based on merit against objective criteria.

The Chairman of the Board is Christopher Waldron. The Board has taken note of the provisions of the AIC Code relating to independence and has determined that Mr Waldron is an independent director. The Company has no employees and therefore there is no requirement for a Chief Executive, nor has it established a Senior Independent Director due to the size of the Board and the Company. The Board is satisfied that any relevant issues that arise can be properly considered by the Board.

A biography for the Chairman and all the other Directors follows in the next section, which sets out the range of investment, financial and business skills and experience they bring to the Board. The Directors believe that the current mix of skills, experience and length of service represented on the Board are appropriate for the requirements of the Company.

In view of the Board's non-executive nature and the requirement of the Articles of Incorporation that one third of Directors retire by rotation at least every three years, the Board considers that it is not appropriate for Directors to be appointed for a specified term as recommended by principle 3 of the AIC Code. In accordance with the recent publication of the 2019 AIC Code, which the Board adopted from 1 July 2019, all Directors will be subject to annual re-election. 

None of the Directors has a contract of service with the Company. The Company has no executive Directors and no employees. However, the Board has engaged external companies to undertake the investment management, administrative and custodial activities of the Company. Clearly documented contractual arrangements are in place with these companies which define the areas where the Board has delegated certain responsibilities to them, but the Board retains accountability for all delegated responsibilities.

Chair tenure policy

The Company has adopted a chair tenure policy, whereby the Chair should normally serve no longer than nine years as a Director and Chair but, where it is considered to be in the best interests of the Company, its shareholders and stakeholders, the Chair may serve for a limited time beyond that. In such circumstances, the independence of the other Directors will ensure that the Board as a whole remains independent.

The Company's view is that the continuity and experience of its Directors are important and that a suitable balance needs to be struck between the need for independence and refreshing the skills and expertise of the Board.  The Company believes that some limited flexibility in its approach to Chair tenure will enable it to manage succession planning more effectively.  

Diversity policy

The Company monitors developments in corporate governance to ensure the Board remains aligned with best practice with respect to the increased focus on diversity. The Company has a Board diversity policy, which acknowledges the importance of diversity, 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, knowledge and experience which bring a wide range of perspectives to the Company.

Performance and evaluation

Internal evaluation of the Board, the Committees and individual Directors is undertaken on an annual basis in the form of questionnaires, peer appraisal, and discussions to determine effectiveness and performance in various areas as well as the Directors' continued independence.

New Directors receive an induction on joining the Board, and all Directors receive other relevant training as necessary. Directors have regular contact with the Investment Manager to ensure that the Board remains regularly updated on all issues. All members of the Board are members of professional bodies and serve on other Boards, which ensures they are kept abreast of the latest technical developments in their areas of expertise.

Board responsibilities

The Board is responsible to shareholders for the overall management of the Company. The Board has adopted a set of reserved powers which set out the particular duties of the Board. Such reserved powers include decisions relating to the determination of investment policy and oversight of the Investment Manager and their advisers, strategy, risk assessment, Board composition, capital raising, statutory obligations and public disclosure, financial reporting and entering into any material contracts by the Company.

The Directors have access to the advice and services of the Administrator and Secretary, who are responsible to the Board for ensuring that Board procedures are followed and that it complies with the Companies Law and applicable rules and regulations of the GFSC and the London Stock Exchange. Where necessary, in carrying out their duties, the Directors may seek independent professional advice at the expense of the Company.

The Company maintains appropriate directors' and officers' liability insurance in respect of legal action against its Directors on an ongoing basis. Investment Advisory services are provided to the Company by Crystal Amber Advisers (UK) LLP through the Investment Manager. The Board is responsible for setting the overall investment policy and has delegated day to day implementation of the Company's strategy to the Investment Manager but retains responsibility to ensure that adequate resources of the Company are directed in accordance with their decisions. The Board monitors the actions of the Investment Adviser and Investment Manager at regular Board meetings. The Board has also delegated administration and company secretarial services to Ocorian Administration (Guernsey) Limited but retains accountability for all functions it delegates.

The Directors are responsible for ensuring the effectiveness of the internal controls of the Company which are designed to ensure that proper accounting records are maintained, the financial information on which business decisions are made and which is issued for publication is reliable, and the assets of the Company are safeguarded. A formal review of the effectiveness of the Company's risk management and internal control systems is conducted at least once a year and this was completed successfully during the year under review. The Investment Manager has established a Risk Committee to monitor and manage risks faced by the Company.

The Board meets at least four times a year for regular, scheduled meetings and should the nature of the business of the Company require it, additional meetings may be held, some at short notice. Prior to each of its quarterly meetings, the Board receives reports from the Investment Adviser and Administrator covering activities during the period, performance of relevant markets, performance of the Company's assets, finance, compliance matters, working capital position and other areas of relevance to the Board. The Board also considers from time to time reports provided by the Investment Manager and other service providers. The Board also receives quarterly reports from the Risk Committee. There is regular contact between the Board, the Investment Manager and the Administrator. The Directors maintain overall control and supervision of the Company's affairs.

There may be a requirement to hold Board meetings outside the scheduled quarterly meetings in order to review and consider investment opportunities and/or formal execution of documents and to consider ad hoc business.

Between meetings there is regular contact with the Investment Manager and the Administrator, and the Board requires information to be supplied in a timely manner by the Investment Manager, the Company Secretary and other advisers in a form and of a quality to enable it to discharge its duties.

The Board, through the Remuneration and Management Engagement Committee, is responsible for the appointment and monitoring of all service providers including the Investment Manager.  It conducts a formal review of all service providers on an annual basis and confirms that such a review has taken place during the year.

Audit committee

Due to the size of the Board, all Directors are members of the Audit Committee. Jane Le Maitre acts as 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 2021. 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 2020;

•     review of the Interim Report and Unaudited Interim Condensed Financial Statements for the six months ended 31 December 2020;

•     review of the audit plan and timetable for the preparation of the Annual Report and Audited Financial Statements for the year ended 30 June 2021;

•     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 2021 Annual Report in relation to the AIC Code and determining the period of assessment for the long term viability of the Company.

The Committee considers the valuation of investments to be a significant matter in relation to these Financial Statements. The Company's accounting policy is to value investments as designated at fair value through profit or loss or as derivatives held for trading, and to recognise sales and purchases of those investments using trade date accounting. This is significant as the Company's investments and derivatives amount to 98.9% (30 June 2020: 91.4%) of the NAV. The Committee has satisfied itself that the sources used for pricing the Company's investments are appropriate and reliable.

The Committee also reviews the objectivity and independence of the Auditor. The Board considers KPMG Channel Islands Limited ("KPMG") to be independent of the Company. The audit fees disclosed in the profit or loss section of the Statement of Profit or Loss and Other Comprehensive Income are in relation to the audit of the Financial Statements. During the year, KPMG did not receive any remuneration from the Company for non-audit services. 

The Committee assessed the effectiveness of the audit process by considering KPMG's fulfilment of the agreed audit plan through the reporting presented to the Committee by KPMG and discussions at Committee meetings which highlighted the major issues that arose during the course of the audit. In addition, the Committee also sought feedback from the Investment Manager and the Administrator on the effectiveness of the audit process. The Committee was satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be good.

The external audit was initially put out to tender in 2008 when the Company's shares were listed and admitted to trading on AIM and KPMG was appointed. The lead audit partner changed in 2010 and 2015. The current lead audit partner took charge in 2020, and will change again by rotation in 2025. There are no obligations to restrict the Company's choice of external auditor. The external audit was put out to tender in 2017. Following a robust competitive tender process, the Committee concluded that the interests of the Company and its shareholders would be best served by retaining the services of KPMG to provide a consistent audit approach.

The Board considers that an internal audit function specific to the Company is unnecessary and that the systems and procedures employed by the Investment Manager and the Administrator, including their own internal control functions, provide sufficient assurance that a sound system of internal control is maintained, which safeguards the Company's assets. Formal terms of reference for the Committee are available on the Company's website www.crystalamber.com.

Other committees

Although the AIC Code recommends that companies appoint a Nomination Committee, as the Board is wholly comprised of non-executive Directors the Board has not deemed this necessary and as such all matters are considered by the full Board.

The Board has established a Remuneration and Management Engagement Committee. Due to the size of the Board, all Directors are members of this committee. With effect from 22 November 2019, Fred Hervouet (previously Nigel Ward who retired from the Board with effect from 22 November 2019) acts as Chairman of the committee. The Remuneration and Management Engagement Committee meets at least once a year pursuant to its terms of reference. It provides a formal mechanism for the review of the remuneration of the Chairman and Directors and review of the performance and remuneration of the Investment Manager, Investment Adviser and other service providers.

Remuneration policy

The Company aims to ensure remuneration is competitive, aligned with shareholder interests, relatively simple and transparent, and compatible with the aim of attracting, recruiting and retaining suitably qualified and experienced directors.

In addition, the Board reviews the arrangements for the provision of management and other services to the Company on an ongoing basis. The Company receives regular reporting from the Investment Adviser and regular valuations of the Company's investments, which allows the Board to form a judgement as to the performance of its portfolio.

Board meetings, Committee meetings and Directors' attendance

One of the key criteria the Company uses when selecting Directors is their confirmation prior to their appointment that they will be able to allocate sufficient time to the Company to discharge their responsibilities in a timely and effective manner.

The Board formally met four times during the year and other ad hoc Board committee meetings were called in relation to specific events or to issue approvals, often at short notice and did not necessarily require full attendance. Directors are encouraged to give the Chairman their views and comments on matters to be discussed, in advance when they are unable to attend a meeting.

Attendance at the quarterly Board meetings is further set out below:

In addition to the above, there were two additional Board committee meetings during the year.

Engagement with stakeholders

The Company is committed to maintaining good communications and building positive relationships with all stakeholders, including shareholders, suppliers, investee companies, and the wider community and environment in which the Company and its investee companies operate. This includes regular engagement with the Company's shareholders and other stakeholders by the Board, the Investment Manager, Investment Adviser and the Administrator. Regular feedback is provided to Board members to ensure they understand the views of stakeholders.

Relations with shareholders

The Board welcomes the views of shareholders and places great importance on communication with its shareholders. Senior members of the Investment Adviser make themselves available to meet with principal shareholders and key sector analysts. The Chairman and other Directors are also available to meet with shareholders, if required.

All shareholders have the opportunity to ask questions of the Company at its registered office. The Annual General Meeting of the Company provides a forum for shareholders to meet and discuss issues with the Directors and Investment Adviser. Company information is also available to shareholders on the Company's website www.crystalamber.com.

The Board regularly monitors the shareholder profile of the Company and receives comprehensive shareholder reports from the Company's Broker at all quarterly board meetings.

Relations with other stakeholders

The Company recognises that relationships with suppliers are enhanced by prompt payment and the Company's Administrator ensures all payments are processed within the contractual terms agreed with individual suppliers.

During the year, the Company created and issued 125,000 shares split equally between five charities: St Andrews Clinic for Children, Cancer Research UK, Feis Ceoil, James' Place and Sentable. The Directors were delighted to assist so many worthy causes and seek to make a positive difference. However, the Directors recognise that more recently, the shareholder base has changed significantly and consequently, the Directors have decided that in recognition of the views articulated by newer shareholders, the Fund will suspend future share issues to charities at this time.

Key decisions made or approved by the Directors during the year and the impact of those decisions on the Company's shareholders and wider stakeholders is disclosed further above.

Whistleblowing

The Board has considered the AIC Code recommendations in respect of arrangements by which staff of the Investment Adviser or Administrator may, in confidence, raise concerns within their respective organisations about possible improprieties in matters of financial reporting or other issues. It has concluded that adequate arrangements are in place for the proportionate and independent investigation of such matters and, where necessary, for appropriate follow up action to be taken within their respective organisations.
 

AIFM Directive

The Company is categorised as an externally managed non-EU AIF under the AIFM Directive. The Investment Manager of the Company is its non-EU AIFM. The Investment Manager as the AIFM has created a Risk Committee which meets at least quarterly to consider the risks faced by the Company and the investment process, consistent with the requirements of the AIFM Directive. The AIFM has adopted a remuneration policy which accords with the principles established by the AIFM Directive. The remuneration policy is in compliance with the requirements of the AIFM Directive and the guidance issued by the FCA. The Investment Manager as the AIFM does not have any employees. Mark Huntley and Laurence McNairn of Crystal Amber Asset Management (Guernsey) Limited and as directors of the AIFM received total aggregate remuneration of £20,000 by way of a fixed fee for the year ended 30 June 2021. 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 2021 at the offices of Ocorian Administration (Guernsey) Limited, Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey.

On behalf of the Board

Christopher Waldron                         Jane Le Maitre

Chairman                                             Director

27 September 2021                              27 September 2021

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. From 2014 to 2020 he was a member of the States of Guernsey's Investment and Bond Sub-Committee. He is a Fellow of the Chartered Institute of Securities and Investment.

Jane Le Maitre, Guernsey Resident, Non-Executive Director (appointed 8 May 2017)

Jane Le Maitre has over 30 years' experience in the Finance Industry in the UK and Guernsey.  She is a Fellow of the Institute of Chartered Accountants in England & Wales, a Chartered Tax Adviser and a member of the Institute of Directors. She trained in audit with Coopers & Lybrand in the UK and joined the tax and fiduciary division of KPMG (Channel Islands) in 1989. She became a Partner in 1995 where she remained until 2000 before becoming a director in the fiduciary division at Kleinwort Benson. After 5 years with Kleinwort Benson, she joined the Intertrust Group in Guernsey becoming Managing Director of Intertrust Reads Private Clients Limited for a period of 6 years. 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 over 20 years' experience of working in different areas of the Financial Markets and Asset Management Industry. His experience includes Fixed Income and Derivatives Markets, Structured Finance, Structured Products, Trading and Risk Management. Prior to moving to Guernsey in December 2013, he was Managing Director and Head of Commodity Derivatives Asia for BNP Paribas. He holds a number of non-executive director positions on LSE listed funds and Private Equity funds including Chenavari Toro Income Fund Limited, where he is chairman. He holds a Masters' Degree in Financial Markets, Commodity Markets and Risk Management from University Paris Dauphine and an MSc in Applied Mathematics and International Finance. He is a member of the UK Institute of Directors and the UK Association of Investment Companies.

In addition to their directorships of the Company, the Directors currently hold the following directorships of listed companies;

Independent Auditor's Report

to the Members of Crystal Amber Fund Limited