Carpenter Technology
Annual Report 2023

Plain-text annual report

Crystal Amber Fund Limited Annual Report and Audited Financial Statements For the year ended 30 June 2023 Company No. 47213 CRYSTAL AMBER FUND LIMITED Contents Highlights Chairman’s Statement Investment Manager’s Report Investment Policy Report of the Directors Directors Independent Auditor’s Report Statement of Profit or Loss and Other Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Glossary of Capitalised Defined Terms Alternative Performance Measures Directors and General Information Page 2 3 6 10 11 26 27 33 34 35 36 37 59 63 65 1 Highlights • • • • • • • • Substantial return of capital with £37.5m paid during the year, bringing total returns of capital to more than £100 million. Adjusting for the 45p a share of dividends paid, Net Asset Value (“NAV”) per share decreased by 4.6% as at 30 June 2023 to 93.33p (145.03p at 30 June 2022 and 130.05p at 31 December 2022). Net asset value since the year end has increased over the three months to 30 September 2023 by 6.8%. Fund performance according to Trustnet over the last six months is first out of 26 peer group funds and over three years, third out of 25 peer group funds. Completed successful exit of Equals Group plc at a significant premium to 30 June 2022 valuation. Cash realisation during the year from acquisition of Hurricane Energy plc of £34.7 million, with a further £1.8 million banked in September 2023. Successful demonstrate its strategic value. De La Rue share price has doubled since 23 June 2022. intensive activism campaign at De La Rue plc, with De La Rue now able to Significant strengthening of board at Morphic Medical Inc. (formerly GI Dynamics Inc.) ahead of anticipated regulatory approval in current financial year. (1) All capitalised terms are defined in the Glossary of Capitalised Defined Terms on pages 59 to 62 unless separately defined. 2 CRYSTAL AMBER FUND LIMITED Chairman’s Statement I hereby present the sixteenth annual report of Crystal Amber Fund Limited (the “Company” or the “Fund”), for the year to 30 June 2023. During this period, by far the most significant impact on NAV was the return to shareholders by means of cash dividends in aggregate of £37.5 million, equivalent to 45p per share.This of course resulted in a commensurate 45p a share fall in NAV. To put this into context: despite a deteriorating macroeconomic backdrop with worsening liquidity and rising interest rates, the payout comprised more than one-third of NAV at the start of the year under review. This has brought total returns of capital, including share buy backs to more than £100 million to date. Reflecting the £37.5 million dividend payments, at the year end, NAV was £77.7 million, compared with an unaudited NAV of £108.2 million at 31 December 2022 and an audited NAV of £120.7 million at 30 June 2022. NAV per share was 93.33p at 30 June 2023 compared with 130.05p at 31 December 2022 and 145.03p at 30 June 2022. Underlying NAV, reflecting dividends paid, decreased by 4.6% over the year.This compares to the Numis Smaller Companies Index, which fell by 2.5% in the same period. The new investment policy, formally approved by shareholders in March 2022, focuses on monetising the portfolio in an orderly manner, achieving an appropriate balance between maximising value received and making timely returns of capital. I believe that during the year, the Company achieved considerable success in this objective. In summary, at the beginning of 2022, the Fund had net assets of £119.4 million. Since then, the Investment Manager has achieved realisations of £71.4 million. Having returned £45.8 million in dividends, net assets at 30 September 2023 amounted to £83.0 million. It would have been all too easy for the Investment Manager to have lost patience and accepted below market bids for relatively illiquid holdings in portfolio companies. It is all too common to see substantial stakes sold at discounts to carrying values, but across the portfolio, the Investment Manager has delivered premiums. Two examples of this are the fintech payments platform Equals Group (“Equals.”) and the oil and gas exploration and production company Hurricane Energy plc (“Hurricane Energy”). At the beginning of 2022, the Fund owned 36.9 million shares in Equals.This represented a greater than one-fifth ownership of Equals and had a carrying value of £28.4 million. Having reduced its holding in early 2022, the Fund exited its remaining holding during the year under review, realising £31.1million since the beginning of 2022. The Fund initially became a shareholder in 2016 and worked intensively with management. The Fund achieved a total profit on the holding of £22 million. Since the adoption of the new investing policy, the most time consuming and perhaps jointly, the most stressful holding for the Investment Manager was Hurricane Energy. Nevertheless, despite the significant operational risk of being a single oil well, single pump producer, a difficult executive team and the imposition of the energy profits levy, the Manager succeeded in not only significantly reducing the risk of the investment but achieved cash returns of a magnitude that perhaps could have only been dreamt of at the beginning of 2022. At the start of 2022, the Fund’s holding of just over 575 million shares, representing 28.9 per cent of Hurricane Energy’s issued share capital, had a carrying value of £23 million. In June 2023, following the acquisition of the entire issued share capital by Prax Exploration, the Fund received cash proceeds of £34.7 million. However, those proceeds are not the end of the Hurricane Energy journey. The offer included a deferred consideration element based on revenues from April 2023 until January 2026. Earlier this month, the Fund received additional proceeds of £1.8 million from these deferred consideration units. This equates to 2.1p a share to the Fund’s shareholders. Should the deferred consideration units achieve their maximum payout of £37.3 million, equivalent to 41.6p per Crystal Amber share, the total potential consideration due relating to the sale of the Fund’s shareholding in Hurricane Energy would be £72 million.This compares very favourably with, the January 2022 stock market valuation of £23 million. 3 Chairman’s Statement (continued) Hurricane Energy is an example of the Investment Manager’s determination to fight for Shareholders when necessary and the financial reward in doing so. Shareholders will recall the 2021 judgement from the High Court which prevented a 95% dilution for ordinary shareholders which the Hurricane Energy management had sought to push through.Whilst market participants had written off Hurricane Energy as little more than an embarrassment, the Investment Manager, with its long standing and deep technical knowledge, fought and succeeded in blocking the restructuring. Without the Company’s intervention, Shareholders would have been deprived of any meaningful exposure to this improvement in the Company’s fortunes. The Investment Manager also secured sales of unquoted holdings at more than their carrying values.The disposal of Board Intelligence generated £2 million and Leaf Clean Energy was sold at more than 13 times its carrying value, realising £1.6 million. Following the change of investment policy, some shareholders might prefer to focus solely on accelerated cash returns. However, the Board and the Investment Manager believes that this would be a short-sighted approach. The new investment policy afforded the Fund the ability to make opportunistic purchases in existing holdings and whilst intuitively, this might appear contrary to returning funds, given the overall objective of balancing cash returns with the maximisation of shareholder value, the Board and Investment Manager are confident that this is the optimal course. Specifically, in recent months, following a prolonged period of intense, stressful, and ultimately successful activism, the Fund purchased 15.3 million shares in De La Rue at a cost of £6.3 million.Whilst it remains the case that profits remain unrealised until banked, in a few months, this purchase has increased net assets by more than £3 million. It has resulted in the Fund raising its holding in De La Rue to close to 17 per cent of its issued share capital, up from less than 10 per cent at the beginning of June. Importantly, at a time when the currency market cycle is improving, the Fund remains of the view that the strategic value of De La Rue remains substantially more than its operational value and that it is now an attractive takeover target in an industry requiring consolidation. Long term shareholders will remember, the strategic importance of the Fund’s 18 per cent shareholding in Thorntons in 2015, ahead of Ferrero’s takeover. The other addition to the Fund’s holdings is equally consistent with the new investment policy and that is to support and enhance the value of its holding in GI Dynamics Inc. During the summer, GI Dynamics Inc. changed its name to Morphic Medical Inc. (“Morphic Medical”). Shareholders will be aware that the Fund has always sought to patiently acquire significant holdings in scalable businesses and following successful delivery on its activist strategy, to hold the shares until value can be maximised. This is evidenced by the disposals referred to above: the Fund commenced buying shares in Hurricane Energy in 2013 and in Equals in 2016. In 2014, the Fund made a toe-hold investment in Morphic Medical, when it was listed on the Australian Stock Exchange, following an IPO valuing the business at A$300 million. In 2020, Morphic Medical delisted and the Fund has since invested directly in Morphic Medical. By the end of 2021, the carrying value of the Fund’s holding was valued at £30 million.This represented around 17.5 per cent of the Fund’s net asset value. Following further investment of £8.3 million in Morphic Medical since the beginning of 2022 and combined with cash returns of 55p a share, Morphic Medical now accounts for 40 per cent of net asset value. The Fund has a fully diluted equity interest in Morphic Medical of 81.5 per cent in addition to interest bearing loan notes. The importance of the future success of Morphic Medical therefore cannot be underestimated. I am therefore pleased to report that following a request by the Fund, in anticipation of the re-instatement of the CE Mark, which will enable sales to re-commence, the board of Morphic Medical has recently been significantly strengthened by the appointment of an ex-Medtronic Executive and by the appointment of the former Chairman of Apollo Endosurgery, which, last year, was acquired by Boston Scientific for an enterprise value of $615 million. 4 CRYSTAL AMBER FUND LIMITED Chairman’s Statement (continued) The Company is mindful that the Company’s shares trade at a substantial discount to NAV.Whilst rising interest rates and poor liquidity in the investment trust sector have resulted in a general widening of discounts, the Board believes that the historically high level of the discount should be addressed at the forthcoming Annual General Meeting, where a new share buyback programme is to be proposed. In a little over seven quarters and against a backdrop of poor equity markets, rising interest rates and deteriorating liquidity, the Fund has realised more than £71 million and exited from several seemingly wholly illiquid positions at premiums to carrying value. While this difficult economic and geopolitical background continues to challenge the realisation process, the work to date is testament to the skill and perseverance of the Investment Manager. When we look back at the last three years, we see that the UK Smaller Companies investment companies has risen by 19 per cent. Over the same period, the Fund has delivered a return of 55 per cent (source: Trustnet) and there still remains substantial value within the portfolio. The Board is confident that the Investment Manager, with its intimate and long acquired knowledge of the portfolio, is ideally placed to continue to deliver impressive performance and realisations. Christopher Waldron Chairman 24 October 2023 5 Investment Manager’s Report Performance During the year, and reflecting the 45p per share dividend payments (representing £27.5 million in aggregate), the Company’s NAV per share fell from 145.03p to 93.3p. Underlying net asset value, also reflecting dividend payments, declined by 4.6%. Portfolio and Strategy At 30 June 2023, the Company held equity investments in six companies (2022: nine).The Company also held debt instruments in Morphic Medical Inc (formerly GI Dynamics Inc.) and Sigma Broking Limited. The Company’s strategy is to optimise realisations for a limited number of special situations where the Company believes value can be realised regardless of broad market direction. By its nature as an activist fund, the Company needs to hold sufficiently large stakes to facilitate engagement as a significant shareholder. Therefore, the Company is inevitably exposed to concentration risk particularly as continuing realisations will increase the weighting of the remaining holdings. As at 30 June 2023, the weighted average market capitalisation of the Company’s listed investee companies was £83 million (30 June 2022: £129 million). Hurricane Energy plc (“Hurricane”) The most significant monetisation during the year was that of Hurricane. After a lengthy formal sales process and more than a year later, following an initial expression of interest in May 2022 from another trade buyer, the acquisition by Prax Exploration completed in June 2023. The Fund received initial proceeds of £34.7 million from the acquisition. Against a backdrop at the time of a harsh regulatory and taxation environment, several potential purchasers concluded that despite the short-term “cash cow” attributes of this asset and substantial available tax losses, the potential rewards did not justify the risk. In addition to the formal sale process, the Fund had direct discussions with three other potential buyers. Ultimately, they also were unable to “pull the trigger.”The Investment Manager was not prepared for the Fund to continue to be at material risk of the uncertain outcomes of both the stability of the single well method of extraction, the pump and the oil price.The transaction with Prax was structured to deliver a very significant monetisation together with equally significant potential upside. The first tranche of this potential upside was received by the Fund at the beginning of this month: £1.8 million from the Deferred Consideration Units. Two years earlier, every other institutional investor had sold out of Hurricane Energy. However, with its detailed knowledge and history of this investment, the Fund was able to convince the High Court that management’s extremely dilutive proposal was plainly wrong.The Fund was able to effectively double its shareholding at a level that represented emotional distress rather than dispassionate analysis. For context, the Fund acquired some of its holding at 1p a share. Given that in June 2023, the Fund received over 6p a share in cash, the decision to average the cost of investment was clearly the right one. De La Rue plc (“De La Rue”) We have previously explained how De La Rue stands out as a case study of how poor leadership is the ultimate destroyer of shareholder returns. The company has a long and proud history, having been established in 1821 and has been printing banknotes since 1860. In 1982, the share price was 617.5p Forty-one years later, it traded at below 30p.Ten years ago, De La Rue paid an annual dividend of 42.3p a share. In 2019, the dividend was shelved. 6 Investment Manager’s Report (continued) CRYSTAL AMBER FUND LIMITED De La Rue plc (“De La Rue”) (continued) In July 2020, De La Rue completed a £100 million fundraise which was priced at 110p per share.The Fund was the largest investor in this raise and ended up owning around 18% of De La Rue’s issued share capital. Following a significant rise in the share price, the Fund reduced its exposure and reverted to being a 10% shareholder. As early as January 2022, the Fund publicly highlighted operational and strategic mistakes at De La Rue. Rather than engage constructively, management was completely dismissive. Last September, the Fund commented that it believed that De La Rue was in a critical position, with essential strategic decisions required. In July 2022, the Fund wrote to the Chairman and Chief Executive of De La Rue to request that Crystal Amber, as a 10% shareholder, be invited to nominate a director in a non-executive capacity. After more than two months of procrastination and attendance at several meetings, the proposal was rejected. The board of De La Rue then called a meeting of shareholders to vote on the Chairman’s future. In December 2022, the Chairman was re-elected. Following a profit warning in January 2023, the Fund requisitioned a meeting of shareholders in March 2023 to remove Chairman Kevin Loosemore. Following a further profit warning in April, his position became untenable and he resigned. In May 2023, Clive Whiley was appointed Chairman. By the end of the following month he was able to successfully negotiate a reduction in contributions to the pension plan, revise and relax banking covenants and secure the removal of the material uncertainty going concern audit qualification.Against this improved backdrop and with increasing evidence of a cyclical upturn in the currency market, the Fund substantially added to its holding. During the summer, the Fund increased its shareholding from less than 10% of De La Rue’s issued capital to close to 17%.The average cost of these purchases was 41.2p a share.The Fund remains of the view that the strategic value of De La Rue continues to be substantially more than its operational value and that it is now an attractive takeover target in an industry requiring consolidation. Allied Minds Plc (“Allied Minds”) The Company has been an investor in Allied Minds since November 2018, and currently owns more than 18% of its issued share capital. Engagement to date has secured a 70% reduction in the annual cost base. Allied Minds’ portfolio contains three significant holdings: Federated Wireless, BridgeComm and Orbital Sidekick. As liquidity in Allied Minds has diminished, it has been necessary for the Fund to seek board changes on two occasions, most recently in 2022, with the necessary departure of then Chairman Harry Rein. Last summer, Allied Minds announced that it considered that the costs of a premium listing on the Main Market of the London Stock Exchange were prohibitively high relative to Allied Minds’ size and maintaining a public listing was no longer in its best interests. Allied Minds delisted in November 2022 following shareholder approval. Since delisting, the Fund’s engagement with the two directors of Allied Minds, Sam Dobbyn and Bruce Failing has been frustrating and unproductive.The Fund has written to both Allied Minds and two of its largest shareholders expressing concerns regarding the lack of governance and oversight. Astonishingly, much of the board’s focus at Allied Minds has been on securing increased remuneration for its directors. The Fund has seen no evidence of realising or monetising investments. 7 Investment Manager’s Report (continued) Allied Minds Plc (“Allied Minds”) (continued) Without such evidence in the very near term, the Fund will take appropriate action to protect its interests. Whilst this holding currently accounts for less than 5% of net asset value, the Fund will take action to ensure that the interests of those charged with the responsibility of delivering value from Allied Minds for its owners are aligned with the interests of its owners.The Fund is surprised and disappointed that to date, other institutional shareholders have been prepared to condone this conduct, but the Fund will continue to engage with them. Morphic Medical Inc (“Morphic Medical”) formerly GI Dynamics Inc (“GI Dynamics”) GI Dynamics changed its name to Morphic Medical Inc in summer 2023. Morphic Medical is a privately held company, headquartered in Boston, MA, that develops an endoscopically delivered medical device indicated for patients with Type 2 Diabetes and Obesity.The device is called the Endobarrier.The Fund first took a toehold investment in 2014. Morphic Medical had listed on the Australian stock exchange in 2011, raising A$80m and commanded a market capitalisation of A$304m.The company’s sales and regulatory relationships were impacted by the negative developments in the US. Relations with the CE Mark notified body were further impacted by the change in regulatory framework in the EU.The latter created a much-increased workload for notified bodies that oversee CE Mark compliance. In 2017, the company received formal notification of CE Mark withdrawal, preventing the sale of EndoBarrier in Europe and select Middle Eastern countries. Since Covid 19, the regulatory environment for obtaining regulatory approval has seen lengthening cycles: a new EU directive (Medical Devices Regulation, MDR) has increased the standard of clinical evidence required. MedTech Europe has stated that 480,000 products require re-certification, with the majority of devices requiring an approval process of a duration of 13-24 months. Nevertheless, the company has made good progress towards recovery of its CE Mark certification.The company is on track for completion of all filings by December 2023, with approval expected in the first half of 2024. Thereafter, sales can re-commence, with Germany being the first market.With that in mind, the company has recruited a European Head of Sales and Marketing who started in September 2023. Last year, enrolment for the company’s US trial restarted. It successfully persuaded the FDA to ease some of the enrolment restrictions. Specifically, it has reduced the stringent Vitamin D requirements that was screening out many potential candidates for the trial. Morphic Medical has added new sites to its US trial and improved its design in a way that should facilitate patient enrolment.The US market opportunity is substantial and can be an extremely large and lucrative market for the company. Following further investment of £8.3 million in Morphic Medical since the beginning of 2022, combined with cash returns of 55p a share, Morphic Medical now accounts for 40% of NAV.The Fund has a fully diluted equity interest of 81.5% in addition to interest bearing loan notes.The importance of its future success therefore cannot be underestimated. In anticipation of the re-instatement of the CE Mark, which will enable sales to re-commence, the board of Morphic Medical has recently been significantly strengthened by the appointment of an ex-Medtronic Executive and by the appointment of the former Chairman of Apollo Endosurgery, which, last year, was acquired by Boston Scientific for an enterprise value of $615 million. 8 Investment Manager’s Report (continued) CRYSTAL AMBER FUND LIMITED Outlook Following significant cash returns, the Manager remains mindful of the concentration risk of the portfolio and the increasingly challenging macro-economic backdrop, as long-term interest rates breach 15-year highs. Nevertheless, the Fund’s holdings offer significant upside, and this is expected to convert into continuing to maximise returns of capital.The Manager is optimistic that the strong relative performance of the last three years can be repeated in the coming 12 months. Crystal Amber Asset Management (Guernsey) Limited 24 October 2023 9 Investment Policy The Company is an activist fund which aims to identify and invest in undervalued companies and, where necessary, engage with management to take steps to enhance their value. The Company’s strategy is to optimise realisations at a limited number of special situations where the Company believes value can be realised regardless of market direction. By its nature as an activist fund, the Company needs to hold sufficiently large stakes to facilitate engagement as a significant shareholder. Therefore, the Company is inevitably exposed to concentration risk particularly as continuing realisations will increase the weighting of the remaining holdings. 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 the realisation of investments, if this is considered to be in the best interests of its Shareholders. Investment strategy On 7 March 2022 a revised investment policy to reflect a realisation strategy was approved by Shareholders at an Extraordinary General Meeting. It was agreed that the Fund would not make any new investments and would only make further opportunistic investments in existing holdings where, in the view of the Board and Investment Manager, such investment was considered necessary to protect the interests of Shareholders and/or provide the Investment Manager with additional influence to maximise value and facilitate and accelerate an exit. Any such investment would require the prior approval of the Board and would only be permitted where it was not expected to compromise the timescale for realisations. From 7 March 2022 the Company adopted a strategy of maximising capital returned to Shareholders by way of timely disposals, including trade sales of the Company’s strategic holdings, where appropriate (with the potential exception of Morphic Medical Inc.) and returns of cash to Shareholders. Whilst it was initially intended to complete this process by 31 December 2023, Shareholders were aware that this was a target rather than a deadline. In seeking the realisation of predominantly all the Company’s investments (with the possible exception of Morphic Medical Inc), it was agreed that the Directors would aim to achieve a balance between maximising their net value and progressively returning cash to Shareholders. In so doing, the Board would take account of the continued costs of operating the Company.The Company’s admission to trading on AIM will be maintained for as long as the Directors believe it to be practicable and cost-effective within the requirements of the AIM Rules. The Company has ceased to make any new investments except where, in the opinion of the Investment Manager and with the approval of the Board, the investment is considered necessary by the Board to protect or enhance the value of any existing investments of the Company or to facilitate orderly disposals of assets held by the Company.Any cash received by the Company as part of the realisation process prior to its distribution to Shareholders will be held by the Company, on behalf of the Shareholders, as cash on deposit and/or as cash equivalents. As it is probable that the Company will not have realised all of its investments by 31 December 2023, it is intended that the Board will consult Shareholders and/or make arrangements to seek Shareholder approval on the future strategy of the Company, including steps that might be necessary to maximise the opportunity to realise value from the remaining assets of the Company. Dividend Policy Following any material realisations of the Company’s investments, the Directors intend to continue to return cash to Shareholders using tax-efficient means such as redeemable shares, dividends and/or tender offers. 10 CRYSTAL AMBER FUND LIMITED 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. The Company’s strategy is to optimise outcomes at a limited number of special situations where the Company believes value can be realised regardless of market direction. 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 on pages 3 to 5 and the Investment Manager’s Report on pages 6 to 9. Results and dividend The results for the year are set out in the Statement of Profit or Loss and Other Comprehensive Income on page 33. Historically, the Company has declared dividends twice yearly. Since the change of investment strategy, higher dividends have been paid in line with the Company’s aim to progressively return cash to Shareholders. Dividends have been funded by realisations of portfolio companies. On 7 July 2022, the Company declared a second interim dividend of £8,323,100 equating to 10p per Ordinary share, which was paid on 12 August 2022 to Shareholders on the register on 15 July 2022. On 11 November 2022, the Company declared an interim dividend of £8,323,100 equating to 10p per Ordinary share, which was paid on 23 December 2022 to Shareholders on the register on 25 November 2022. On 8 June 2023, the Company declared an interim dividend of £20.8 million equating to 25p per Ordinary share, which was paid on 7 July 2023 to Shareholders on the register on 16 June 2023. 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 the same extraordinary resolution was tabled at the 2021 AGM, requiring a 75% majority for continuation. Whilst the resolution that the Company continue as constituted received a majority of votes, it did not achieve the requisite 75% majority of votes cast and accordingly the resolution was not passed. As a result, the Company held an Extraordinary General Meeting on 7 March 2022 to put forward proposals for a change of investment policy and new investment management and incentive arrangements which were approved by Shareholders. 11 Report of the Directors (continued) Continuation vote (continued) In seeking the realisation of predominantly all the Company’s investments (with the possible exception of Morphic Medical Inc) the Directors continue to seek to achieve a balance between maximising their net value and progressively returning cash to Shareholders. In so doing, the Board is continuing to take account of the continued costs of operating the Company.The Company’s admission to trading on AIM will be maintained for as long as the Directors believe it to be practicable and cost-effective within the requirements of the AIM Rules. As it is probable that the Company will not have realised all of its investments by 31 December 2023, it is intended that the Board will consult Shareholders and/or make arrangements to seek Shareholder approval on the future strategy of the Company, including steps that might be necessary to maximise the opportunity to realise value from the remaining assets of the Company. 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 conflicts between Russia and Ukraine, and Israel and Gaza, and the current inflationary environment on the Company’s activities and do not consider that these will impact the Company’s ability to operate as a going concern. The Directors have also considered the result of the continuation vote which occurred at the 2021 AGM and results of the subsequent EGM which did not conclude that the Company should be wound up. Following the AGM, the Company was obliged to return to Shareholders with proposals to either reorganise, restructure, or wind up the Company. Following extensive Shareholder consultation, a new investment policy was put before Shareholders which prioritised the intention to maximise the return of capital representing a change of strategy. In March 2022, this change of investment policy was approved by Shareholders. The Board believes that it was in the interests of Shareholders as a whole for the Company to adopt a strategy of maximising capital returned to Shareholders by way of timely disposals, including trade sales of the Company’s mature listed strategic holdings, where appropriate. The Company has a track record of returning cash to Shareholders via share buybacks and dividends. Since 2013, when the requirement for the continuation vote to be proposed at the 2021 AGM was introduced, £114.2 million has been returned to Shareholders via such means. In 2014, the Company acquired an initial shareholding in Morphic Medical Inc.The Company believes that because of its intensive activism, it has been able to acquire majority ownership of a strategically valuable shareholding which comprises 81.5% of Morphic Medical’s diluted share capital. With board representation, the Company is actively involved in the management of Morphic Medical Inc. The Company looks forward to continuing to work with Morphic Medical Inc to achieve its operational milestones and to further develop the pathway to maximise shareholder value. Given the anticipated value accretive milestones, the Company believes it is appropriate that it gives Morphic Medical Inc the time it requires to maximise Shareholder returns. In due course, the Company will consult with investors about the longer-term plans for Morphic Medical Inc to realise value for the Company’s Shareholders.A trade sale is a potential crystallisation path. Alternatively, as the Company continues its disposal programme of its listed investment portfolio, it is possible that the Company’s listing may provide a suitable and cost-effective vehicle for Morphic Medical Inc to be listed, raise its profile and potentially, following the achievement of milestones, provide the Company’s Shareholders with direct exposure to its growth prospects, as well as liquidity. 12 CRYSTAL AMBER FUND LIMITED Report of the Directors (continued) Long term viability As further disclosed on page 18, 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 two-year period ending 30 June 2025. The Directors consider that this is an appropriate period to assess the viability of the Company given the new investment policy agreed with Shareholders in March 2022 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 on pages 13 to 15, 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 two- year period ending 30 June 2025, the fact that the Company currently has no borrowings and that most of its investments comprise realisable securities which can be expected to be sold to meet funding requirements if necessary. Based on the results of this analysis, including the Investment Manager Agreement, investment strategy and future strategic plans involving Morphic Medical Inc, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for the foreseeable future. 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. 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 Company’s strategy is to optimise outcomes at a limited number of special situations where the Company believes value can be realised regardless of broad market direction. By its nature as an activist fund, the Company needs to hold sufficiently large stakes to facilitate engagement as a significant shareholder. Therefore, the Company is inevitably exposed to concentration risk, particularly as continuing realisations will increase the weighting of the remaining holdings. 13 Report of the Directors (continued) Principal risks and uncertainties (continued) ‘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. Underlying investment performance risk 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, refinancing, 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. Shareholder concentration risk A total of 7 investors with holdings of 3% or more each of the shares of the Company hold a combined total of 73.47% of the voting rights. It is possible that 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. In spite of this possibility, the Company does not consider that such action is likely. The risk is mitigated by the Manager maintaining 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. 14 CRYSTAL AMBER FUND LIMITED Report of the Directors (continued) Principal risks and uncertainties (continued) 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. Alternative Performance Measures (“APMs”) We assess our performance using a variety of measures that are not specifically defined under IFRS and therefore termed APMs.The APMs that we use may not be directly comparable with those used by other companies.These APMs are detailed in full on pages 63 to 64. Ongoing charges For the year ended 30 June 2023 the ongoing charges ratio of the Company was 1.56% (2022: 1.97%).The ongoing charges ratio has been calculated using AIC recommended methodology and is made up as follows: Ongoing charges ratio Annualised ongoing expenses Weighted average NAV Ongoing charges ratio Year ended 30 June 2023 £ (1,631,899) 104,929,784 1.56% Year ended 30 June 2022 £ (2,469,478) 125,257,263 1.97% 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 page 26. Biographies of the Directors holding office as at 30 June 2023 and at the date of signing these Financial Statements are shown on page 26. Directors’ interests The interests of the Directors in the share capital of the Company at the year-end are disclosed in Note 16 on page 55. Directors’ remuneration The remuneration of the Directors during the year is disclosed in Note 16 on page 56. 15 Report of the Directors (continued) 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 on page 23. 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 During the year ended 30 June 2023, the Company paid dividends of £37,453,950 (2022: £10,431,425) from distributable reserves, as disclosed in Note 13. On 8 June 2023, the Company declared a dividend of £20.8 million equating to 25p per share, which was paid on 7 July 2023. Substantial interests As at 30 June 2023 the Company had been notified of the following voting rights of 3% or more of its total voting rights: Saba Capital Management Wirral BC 1607 Capital Partners Crystal Amber Asset Management (Guernsey) First Equity, stockbrokers Noble Grossart Investments Philip J Milton, stockbrokers CG Asset Management Charles Stanley Bank of America Merrill Lynch International collateral account Total Number of Ordinary Shares 21,337,538 12,938,214 9,635,668 6,899,031 4,050,000 4,035,000 3,192,160 3,035,000 2,813,082 2,549,559 70,485,252 Total Voting Rights 25.66% 15.56% 11.59% 8.30% 4.87% 4.85% 3.84% 3.65% 3.38% 3.07% 84.77% 16 CRYSTAL AMBER FUND LIMITED Report of the Directors (continued) 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 departures disclosed and explained in the financial statements; to any material 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. 17 Report of the Directors (continued) Corporate governance (continued) 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 Under the revised investment policy, the Company has adopted a strategy of maximising capital returned to Shareholders by way of timely disposals, including trade sales of the Company’s strategic holdings, where appropriate (with the potential exception of Morphic Medical Inc) and returns of cash to 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 constructive 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. 18 CRYSTAL AMBER FUND LIMITED Report of the Directors (continued) Corporate governance (continued) The Board (continued) As at the date of this report, the Board comprises three Non-Executive Directors (2022: 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 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 the Board retains accountability for all delegated delegated certain responsibilities responsibilities. to them, but 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 is appropriate given the current investment strategy. 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, 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. 19 Report of the Directors (continued) Corporate governance (continued) 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. 20 CRYSTAL AMBER FUND LIMITED Report of the Directors (continued) Corporate governance (continued) Board responsibilities (continued) 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 Chair 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 2023. 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 2023; review of the Interim Report and Unaudited Interim Condensed Financial Statements for the six months ended 30 June 2023; review of the audit plan and timetable for the preparation of the Annual Report and Audited Financial Statements for the year ended 30 June 2023; 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 2023 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 90% (30 June 2022: 100.1%) of the NAV.The Committee has satisfied itself that the sources used for pricing the Company’s investments are appropriate and reliable. 21 Report of the Directors (continued) Corporate governance (continued) Audit committee (continued) 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 is internal control maintained, which safeguards the Company’s assets. Formal terms of reference for the Committee are available on the Company’s website www.crystalamber.com. functions, provide sufficient assurance that a sound system of internal control 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. Fred Hervouet 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. 22 CRYSTAL AMBER FUND LIMITED Report of the Directors (continued) Corporate governance (continued) 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: Christopher Waldron Jane Le Maitre Fred Hervouet Board 4 of 4 4 of 4 4 of 4 Audit Committee 2 of 2 2 of 2 2 of 2 Remuneration and Management Engagement Committee 1 of 1 1 of 1 1 of 1 Tenure as at 30 June 2023 9 years 6 years, 2 months 5 years, 7 months 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. 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. 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 on page 16. 23 Report of the Directors (continued) Corporate governance (continued) 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 in its capacity 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 £40,000 by way of a fixed fee for the year ended 30 June 2023. 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. 24 CRYSTAL AMBER FUND LIMITED Report of the Directors (continued) Annual General Meeting The Annual General Meeting of the Company will be held at 10:00am on 22 November 2023 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 Chairman 24 October 2023 Jane Le Maitre Director 24 October 2023 25 Directors Christopher Waldron Guernsey Resident, (appointed 1 July 2014) Non-Executive Chairman (with effect from 23 November 2017) Christopher Waldron has over 35 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 since 2013 he has been 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 and a Chartered Tax Adviser. She trained in audit with Coopers & Lybrand in the UK before joining the tax and fiduciary division of KPMG (Channel Islands), becoming a Partner in 1995. She remained until 2000 before becoming a director in the fiduciary division at Kleinwort Benson moving to the Intertrust Group in Guernsey in 2005 during which she held a number of client and other Executive Board positions until September 2021. She is now an independent Director and Trustee of a number of private client structures and continues to hold executive positions in a number of unlisted property and investment holding entities. Fred Hervouet, Guernsey Resident, Non-Executive Director (appointed 6 December 2017) Fred Hervouet has over 25 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 and Boussard and Gavaudan Holdings Limited, where he is chairman for both funds. 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 Association of Investment Companies. In addition to their directorships of directorships of listed companies: the Company, the Directors currently hold the following Christopher Waldron None at present Jane Le Maitre None at present Fred Hervouet Chenavari Toro Income Fund Limited Boussard and Gavaudan Holdings Limited 26 CRYSTAL AMBER 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 2023, 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 2023, and of the Company’s financial performance and cash flows for the year then ended; are prepared in accordance with International Financial Reporting Standards; and comply with the Companies (Guernsey) Law, 2008. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Key audit matters: our assessment of the risks of material misstatement Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matters were as follows (unchanged from 2022): 27 Independent Auditor’s Report to the Members of Crystal Amber Fund Limited (continued) Key audit matters: our assessment of the risks of material misstatement (continued) The risk Our response Our audit procedures included: Internal Controls: We tested the design and implementation of the valuation of investments. the control over Challenging managements’ assumptions and inputs including use of a KPMG valuation specialist: For listed or quoted investments, with the support of our valuation specialist (iRadar), we independently priced these investments to third party pricing sources. For the unlisted investments, we: • assessed the appropriateness of the valuation methodology applied to each investment; compared the assumptions used in the valuation to observable market data (where possible) or supporting documentation; corroborated significant investee company inputs used in the valuation models to supporting documentation; assessed the effect of the investee performance entity’s upon the fair value; and where investments were valued by reference to a market transaction in close proximity to the year end, assessed their appropriateness as being representative of fair value. financial • • • • Assessing disclosures: We also considered the Company’s disclosures (see note 1) in relation to the use of estimates and judgments regarding investments and the the valuation of Company’s valuation policies adopted and fair value disclosures in notes 9 and 14 for compliance with IFRS. and equity Basis: The Company has invested 89.9% of its net assets as at 30 June 2023 investments into (£57,258,110) debt investments (£12,601,715) (together, the “investments”). The Company’s listed or quoted equities (£16,638,246) are valued based on market prices obtained from a pricing third-party provider. The unlisted investments, with a value of £53,221,579 are valued by using valuation recognised methodologies and models, in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Company’s they represent Risk: The valuation of the investments, the given that majority of the net assets of the Company, is considered to be a significant area of our audit. Unlisted investments (representing 68.52% of net assets) are subject to a risk of fraud and error given the subjectivity, high of estimation and complexity when deriving a fair value. uncertainty level (2022: Valuation of financial assets designated at fair value through profit or loss £69,859,825; £120,862,525) Refer to page 21 of the the Report of Directors, 1 note policies accounting and note 9 and 14 disclosures 28 CRYSTAL AMBER FUND LIMITED Independent Auditor’s Report to the Members of Crystal Amber Fund Limited (continued) Material uncertainty relating to going concern The risk Our response Going concern: The Company has regularly to submitted itself continuation votes which requires 75% of the votes to continue currently as constituted (‘the continuation vote’). At the 2021 AGM, the 75% threshold was not met. The the continuation vote resulted in a revision of the investment strategy of the Company. Refer to the Report of the Directors on page 12 and note 1 of the financial statements on pages 38 to 39. outcome of Our audit procedures included: We performed an assessment of the latest investment strategy of the Company and challenged the reasonability of the Directors’ judgment by holding discussions with them and the Investment their regarding Manager intentions, and future available options for maximising the return on Morphic Medical Inc. plans We considered whether the going concern disclosure in note 1 to the financial statements gives a full and accurate description of the Directors’ assessment of the going of basis the Company, preparation for including the identified risks and dependencies. concern strategy of Basis: the Following the outcome of the 2021 continuation vote at AGM and the ensuing revision to the investment the Company, the financial statements explain how the Directors have that formed a judgment is it appropriate to adopt the going concern basis of preparation for the Company. is based on the The judgment Directors’ the for intention Company to continue to actively manage for the foreseeable future its investment in Morphic Medical Inc (formerly GI Dynamics) in order to maximise shareholder returns. Risk: Given the significance of the outcome of the continuation vote and the ensuing change to the investment the strategy determination of the appropriate basis of preparation of the financial statements, is a judgment this significant area of our audit. to Our application of materiality and an overview of the scope of our audit Materiality for the financial statements as a whole was set at £1,590,000, determined with reference to a benchmark of net assets of £77,676,711, of which it represents approximately 2% (2022: 2%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole. Performance materiality for the Company was set at 75% (2022: 75%) of materiality for the financial statements as a whole, which equates to £1,192,500. We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an elevated level of risk. We reported to the Audit Committee any corrected or uncorrected identified misstatements exceeding £79,500, 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. 29 Independent Auditor’s Report to the Members of Crystal Amber Fund Limited (continued) Going concern The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company’s financial position means that this is realistic.They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements (the “going concern period”). In our evaluation of the directors’ conclusions, we considered the inherent risks to the Company’s business model and analysed how those risks might affect the Company’s financial resources or ability to continue operations over the going concern period.The risks that we considered most likely to affect the Company’s financial resources or ability to continue operations over this period were: • • Availability of capital to meet operating costs and other financial commitments; and The outcome of the continuation vote and changes to the investment strategy of the Company (an explanation of how we evaluated management’s assessment of going concern in relation to this is set out in the related key audit matter in section 2 of this report). Our conclusions based on this work: • • • we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate; we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Company’s ability to continue as a going concern for the going concern period; and we found the going concern disclosure in the notes to the financial statements to be acceptable. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgments that were reasonable at the time they were made, the above conclusions are not a guarantee that the Company will continue in operation. Fraud and breaches of laws and regulations – ability to detect Identifying and responding to risks of material misstatement due to fraud To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: • • • enquiring of management as to the Company’s policies and procedures to prevent and detect fraud as well as enquiring whether management have knowledge of any actual, suspected or alleged fraud; reading minutes of meetings of those charged with governance; and using analytical procedures to identify any unusual or unexpected relationships. As required by auditing standards, and taking into account possible incentives or pressures to misstate performance and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries, and the risk of bias in accounting estimates such as valuation of unquoted investments. On this audit we do not believe there is a fraud risk related to revenue recognition because the Company’s revenue streams are simple in nature with respect to accounting policy choice, and are easily verifiable to external data sources or agreements with little or no requirement for estimation from management.We did not identify any additional fraud risks. 30 Independent Auditor’s Report to the Members of Crystal Amber Fund Limited (continued) CRYSTAL AMBER FUND LIMITED Fraud and breaches of laws and regulations – ability to detect (continued) We performed procedures including: • identifying journal entries and other adjustments to test based on risk criteria and comparing any identified entries to supporting documentation; incorporating an element of unpredictability in our audit procedures; and assessing significant accounting estimates for bias. • • Further detail in respect of valuation of unquoted investments is set out in the key audit matter section of in this report. Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our sector experience and through discussion with management (as required by auditing standards), and from inspection of the Company’s regulatory and legal correspondence, if any, and discussed with management the policies and procedures regarding compliance with laws and regulations. As the Company is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements. The Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items. The Company is subject to other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or impacts on the Company’s ability to operate. We identified financial services regulation as being the area most likely to have such an effect, recognising the regulated nature of the Company’s activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of management and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. Context of the ability of the audit to detect fraud or breaches of law or regulation Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non- compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remains a higher risk of non-detection of fraud, as this may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non- compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations. Other information The directors are responsible for the other information.The other information comprises the information included in the annual report but does not include the financial statements and our auditor’s report thereon. 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. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.We have nothing to report in this regard. 31 Independent Auditor’s Report to the Members of Crystal Amber Fund Limited (continued) 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 set out on page 17, 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 www.frc.org.uk/auditorsresponsibilities. description our of responsibilities is provided on the FRC’s website at 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. Rachid Frihmat For and on behalf of KPMG Channel Islands Limited Chartered Accountants and Recognised Auditors Guernsey 24 October 2023 32 Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2023 CRYSTAL AMBER FUND LIMITED Income Dividend income from listed investments Interest received Notes Net (losses)/gains on financial assets at FVTPL Equities Net realised gains/(losses) Movement in unrealised (losses)/gains Debt instruments Movement in unrealised gains Total (loss)/income Expenses Transaction costs Exchange movements on revaluation of investments and working capital Management fees Directors’ remuneration Administration fees Custodian fees Audit fees Other expenses 9 9 9 4 15,17 16 17 17 Revenue £ – 33,644 33,644 2023 Capital £ Total £ Revenue £ – – – – 20,311 33,644 33,644 – 20,311 2022 Capital £ – – – Total £ 20,311 – 20,311 – – – – 10,736,035 10,736,035 (13,535,808) (13,535,808) 628,186 628,186 (2,171,587) (2,171,587) – – – – (2,934,478) (2,934,478) 9,241,539 9,241,539 428,347 428,347 6,735,408 6,735,408 33,644 (2,171,587) (2,137,943) 20,311 6,735,408 6,755,719 – 72,199 72,199 – 299,972 299,972 434,639 960,000 130,000 127,028 51,497 57,025 357,636 1,247,956 1,682,595 (847,496) (3,981,544) (4,829,040) – – – – – – 960,000 130,000 127,028 51,497 57,025 357,636 1,649,299 130,000 168,247 124,454 56,255 375,053 – – – – – – 1,649,299 130,000 168,247 124,454 56,255 375,053 2,117,825 1,320,155 3,437,980 1,655,812 (3,681,572) (2,025,760) (Loss)/Return for the year (2,084,181) (3,491,742) (5,575,923) (1,635,501) 10,416,980 8,781,479 Basic and diluted (loss)/earnings per share (pence) 5 (2.51) (4.19) (6.70) (1.95) 12.48 10.53 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 on pages 37 to 58 form an integral part of these Financial Statements. 33 Statement of Financial Position As at 30 June 2023 Notes 2023 £ 2022 £ Assets Cash and cash equivalents Trade and other receivables Financial assets designated at FVTPL Total assets Liabilities Trade and other payables Total liabilities Equity Capital and reserves attributable to the Company’s equity Shareholders Share capital Treasury shares Distributable reserve Retained earnings Total equity Total liabilities and equity NAV per share (pence) 7 8 9 10 11 12 12,254,948 71,338 69,859,825 82,186,111 47,370 70,728 120,862,525 120,980,623 4,509,400 4,509,400 274,039 274,039 997,498 (19,767,097) 40,586,958 55,859,352 77,676,711 82,186,111 997,498 (19,767,097) 78,040,908 61,435,275 120,706,584 120,980,623 6 93.33 145.03 The Financial Statements were approved by the Board of Directors and authorised for issue on 24 October 2023. Christopher Waldron Chairman 24 October 2023 Jane Le Maitre Director 24 October 2023 The Notes to the Financial Statements on pages 37 to 58 form an integral part of these Financial Statements. 34 CRYSTAL AMBER FUND LIMITED Statement of Changes in Equity For the year ended 30 June 2023 Notes Share capital £ Treasury Distributable reserve £ shares £ Capital £ Retained earnings Revenue £ Total £ Total equity £ 61,435,275 120,706,584 (37,453,950) – Opening balance at 1 July 2022 997,498 (19,767,097) 78,040,908 68,401,964 (6,966,689) Dividends paid in the year 13 Loss for the year – – – – (37,453,950) – – – (3,491,742) (2,084,181) (5,575,923) (5,575,923) Balance at 30 June 2023 997,498 (19,767,097) 40,586,958 64,910,222 (9,050,870) 55,859,352 77,676,711 For the year ended 30 June 2022 Notes Share capital £ Treasury Distributable reserve £ shares £ Capital £ Retained earnings Revenue £ Total £ Total equity £ 997,498 (19,191,639) 88,472,333 57,984,984 (5,331,188) 52,653,796 122,931,988 12 13 – – – – – (575,458) – (10,431,425) – – – – – – (575,458) (10,431,425) – 10,416,980 (1,635,501) 8,781,479 8,781,479 Opening balance at 1 July 2021 Purchase of Ordinary shares into Treasury Dividends paid in the year Profit for the year Balance at 30 June 2022 997,498 (19,767,097) 78,040,908 68,401,964 (6,966,689) 61,435,275 120,706,584 The Notes to the Financial Statements on pages 37 to 58 form an integral part of these Financial Statements. 35 Statement of Cash Flows For the year ended 30 June 2023 Note 2023 £ 2022 £ Cashflows from operating activities Dividend income received from listed investments Bank interest received Management fees paid Directors’ fees paid Other expenses paid Net cash outflow from operating activities Cashflows from investing activities Purchase of equity investments Sale of equity investments Purchase of debt instruments Debt repayment Purchase of money market investments Transaction charges on purchase and sale of investments Net cash inflow from investing activities Cashflows from financing activities Purchase of Ordinary shares into Treasury Dividends paid Net cash outflow from financing activities 16 9 9 9 9 10 13 Net increase/(decrease) in cash and cash equivalents during the year Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 7 – 33,644 (960,000) (130,000) (542,128) (1,598,484) (2,319,352) 55,399,271 (3,867,708) 2,120,000 (72,199) – 51,260,012 20,311 – (1,649,299) (130,000) (309,818) (2,068,806) (47,581,132) 61,399,209 (5,707,461) – – (299,972) 7,810,644 – (37,453,950) (710,614) (10,431,425) (37,453,950) (11,142,039) 12,207,578 47,370 12,254,948 (5,400,201) 5,447,571 47,370 The Notes to the Financial Statements on pages 37 to 58 form an integral part of these Financial Statements. 36 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 General information Crystal Amber Fund Limited (the “Company”) was incorporated and registered in Guernsey on 22 June 2007 and is governed in accordance with the provisions of the Companies Law.The registered office address is PO Box 286, Floor 2,Trafalgar Court, Les Banques, St Peter Port, Guernsey, GYI 4LY.The Company was established to provide Shareholders with an attractive total return, which was expected to comprise primarily capital growth with the potential for distributions of up to 5p per share per annum following consideration of the accumulated retained earnings as well as the unrealised gains and losses at that time. Following changes to the Company’s investment policy, the Company’s strategy is now to optimise outcomes at a limited number of special situations where the Company believes value can be realised regardless of market direction. Morphic Medical Inc is an unconsolidated subsidiary of the Company and was incorporated in Delaware. As at 30 June 2023 it had 5 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 on pages 59 to 62 unless separately defined. SIGNIFICANT ACCOUNTING POLICIES 1. 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 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”). Investment Entities To determine whether 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. 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 its investments on a fair value basis. 37 Notes to the Financial Statements For the year ended 30 June 2023 (continued) SIGNIFICANT ACCOUNTING POLICIES (continued) 1. Basis of preparation (continued) As the Company has met the definition of an investment entity under IFRS 10, it is exempt from preparing consolidated financial statements. The Company has taken the exemption permitted by IAS 28 “Investments in Associates and JointVentures” and IFRS 11 “Joint Arrangements” for entities similar to investment entities and measures its investments in associates at fair value. The Directors consider an associate to be an entity over which the Group has significant influence by means of owning between 20% and 50% of the entities’ shares. The Company’s associates are disclosed in Note 14. The Company meets the definition of an investment entity and complies with disclosure requirements in IFRS 10, IFRS 12 and IAS 27. Going concern As at 30 June 2023, the Company had net assets of £77.7 million (30 June 2022: £120.7 million) and cash balances of £12.25 million (30 June 2022: £0.05 million) which are sufficient to meet current obligations as they fall due. 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. The Directors have considered the potential impact of the conflicts between Russia and Ukraine, and Israel and Gaza which have both had a negative impact on the global economy.This poses significant challenges and uncertainty globally and continues to have potentially adverse consequences for investee companies as energy costs rise.The Directors do not consider that this will impact the Company’s ability to continue as a going concern. In relation to the Company’s investment portfolio, 29% of the Company’s investments are valued by reference to the market bid price as at the date of this report. As these are quoted prices in an active market, any volatility in the global economy is reflected within the value of the financial assets designated at fair value through profit or loss. As such, the Company has not included any fair value impairments in relation to its investments. The Directors have also considered the result of the continuation vote which occurred at the 2021 AGM and results of the subsequent EGM which did not conclude that the Company should be wound up. Following extensive Shareholder consultation, a new investment policy was put before Shareholders and approved at the EGM in March 2022 which prioritised the Company’s intention to maximise the return of capital to Shareholders, representing a change of strategy. The Board believed that it was in the interests of Shareholders as a whole for the Company to adopt a strategy of maximising capital return to Shareholders by way of timely disposals, including trade sales of the Company’s mature listed strategic holdings, where appropriate.The Company has a track record of returning cash to Shareholders via share buybacks and dividends: since 2013, when the requirement for the continuation vote to be proposed at the 2021 AGM was introduced, £114.2 million has been returned to Shareholders via such means. In line with the change in strategy, the Company has sold investments in Alquiber Quality S.A., Board Intelligence Limited and Equals Group Plc. Hurricane Energy Plc was acquired by Prax Exploration & Production Plc and realised a part disposal. 38 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) SIGNIFICANT ACCOUNTING POLICIES (continued) 1. Going concern (continued) As the Company will not have realised all of its investments by 31 December 2023, it is intended that the Board will consult Shareholders and/or make arrangements to seek Shareholder approval on the future strategy of the Company, including steps that might be necessary to maximise the opportunity to realise value from the remaining assets of the Company. In 2014, the Company acquired an initial shareholding in Morphic Medical Inc.The Company believes, it has been able to acquire majority ownership of a valuable shareholding, which comprises 81.5% of Morphic Medical Inc’s diluted share capital. With board representation, the Company is actively involved in the management of Morphic Medical Inc. The Company looks forward to continuing to work with Morphic Medical Inc to achieve its operational milestones and to further develop the pathway to maximise shareholder value. Given the anticipated value accretive milestones, the Company believes it is appropriate that it gives Morphic Medical Inc the time it requires to maximise shareholder returns. In due course, the Company will consult with investors about the longer-term plans for Morphic Medical Inc to realise value for the Company’s Shareholders. A trade sale is a potential crystallisation path. Alternatively, as the Company continues a disposal programme of its listed investment portfolio, it is possible that the Company’s listing may provide a suitable and cost-effective vehicle for Morphic Medical Inc to be listed, raise its profile and potentially, following the achievement of milestones, provide the Company’s Shareholders with direct exposure to its growth prospects, as well as liquidity. The Directors have made a robust assessment of the prospects of the Company over the two-year period ending 30 June 2025.The Directors consider that this is an appropriate period to assess the viability of the Company given the new investment policy agreed with Shareholders in March 2022 and the time horizon over which investment decisions are made. The Directors have also considered the Company’s income and expenditure projections over the two-year period ending 30 June 2025, the fact that the Company currently has no borrowings and that most of its investments comprise readily realisable securities which can be sold to meet funding requirements if necessary. Based on the results of this analysis, including the Investment Management Agreement, change in investment strategy and future strategic plans involving Morphic Medical Inc, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for the foreseeable future. The Directors have considered the contributing factors set out above and are confident that the Company has adequate resources to continue in operational existence for the foreseeable future, and do not consider there to be any threat to the going concern status of the Company.Accordingly, they continue to adopt the going concern basis of accounting in preparing these financial statements. 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 set out above.The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable in the circumstances. Actual results may differ from these estimates.The unquoted equity and debt securities have been valued based on unobservable inputs (see Note 14). 39 Notes to the Financial Statements For the year ended 30 June 2023 (continued) SIGNIFICANT ACCOUNTING POLICIES (continued) 1. 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, which 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 initially recognised at fair value unless they are trade receivables.The cost of the instrument may be indicative of the fair value. Subsequent to initial recognition financial instruments are measured as described below. Financial assets designated at FVTPL All the Company’s investments including equity, debt instruments and derivative financial instruments are held at FVTPL. Financial instruments are initially recognised at fair value.The cost of the instrument may be indicative of the 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 initially recognised at fair value. The cost of the instrument may be indicative of the FV. Subsequent to initial recognition, loan notes are valued at fair value. In the absence of an active market, the Company determines the fair value of its unquoted investments by taking into account the International Private Equity and Venture Capital (“IPEV”) guidelines. 40 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) SIGNIFICANT ACCOUNTING POLICIES (continued) 1. 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. Trade and other receivables The Company’s trade and other receivables are classified as financial assets at amortised cost. They are measured at amortised cost less impairment assessed using the general approach of the expected credit loss model based on experience of previous losses and expectations of future losses. Trade and other payables The Company’s trade and other payables are measured at amortised cost and include trade and other payables and other short term monetary liabilities which are initially recognised at fair value and subsequently measured at amortised cost using the effective interest rate method. Derecognition of financial instruments The Company derecognises 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 derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised), 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 derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.Any gain or loss on derecognition 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. Due to the credit rating of the financial institutions holding the Company’s cash and cash equivalents, no impairment has been recognised. 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. 41 Notes to the Financial Statements For the year ended 30 June 2023 (continued) SIGNIFICANT ACCOUNTING POLICIES (continued) 1. 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. Dividend income is 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 sold. 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. 42 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) NEW STANDARDS AND INTERPRETATIONS 2. New and amended standards and interpretations applied in these financial statements There were no new standards or interpretations effective for the first time for periods beginning on or after 1 July 2022 that had a significant effect on the Company’s financial statements. Furthermore, none of the amendments to standards that are effective from that date had a significant effect on the financial statements. New and amended standards and interpretations not applied in these financial statements (issued but not yet effective) Other accounting standards and interpretations have been published and will be mandatory for the Company’s accounting periods beginning on or after 1 January 2023 or later periods, but the impact of these standards is not expected to be material to the reported results and financial position of the Company. TAXATION 3. 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 (2022: £1,200). TRANSACTION COSTS 4. The transaction charges incurred in relation to the acquisition and disposal of investments during the year were as follows: Stamp Duty Commissions and custodian transaction charges: In respect of purchases In respect of sales BASIC AND DILUTED (LOSS)/EARNINGS PER SHARE 5. Earnings per share is based on the following data: 2023 £ 32,557 7,232 32,410 72,199 2022 £ 163,701 51,976 84,295 299,972 (Loss)/Return for the year Weighted average number of issued Ordinary shares Basic and diluted (loss)/earnings per share (pence) NAV PER SHARE 6. NAV per share is based on the following data: NAV per Statement of Financial Position Total number of issued Ordinary shares (excluding Treasury shares) at 30 June NAV per share (pence) 2023 £(5,575,923) 83,231,000 (6.70) 2022 £8,781,479 83,430,611 10.53 2023 £77,676,711 2022 £120,706,584 83,231,000 93.33 83,231,000 145.03 43 Notes to the Financial Statements For the year ended 30 June 2023 (continued) CASH AND CASH EQUIVALENTS 7. Cash and cash equivalents comprise cash held by the Company available on demand. Cash and cash equivalents were as follows: Cash on demand 8. TRADE AND OTHER RECEIVABLES Current assets: Other receivables Prepayments 2023 £ 12,254,948 12,254,948 2023 £ 56,557 14,781 71,338 2022 £ 47,370 47,370 2022 £ 56,958 13,770 70,728 There were no past due or impaired receivable balances outstanding at the year end (2022: £Nil). 9. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS Equity investments Debt instruments Financial assets designated at FVTPL Total financial assets designated at FVTPL Equity investments Cost brought forward Purchases Sales proceeds Net realised gain/(losses) Cost carried forward Unrealised (losses) brought forward Movement in unrealised losses/gains Unrealised losses carried forward Effect of exchange rate movements Fair value of equity investments Debt instruments Cost brought forward Purchases Repayment of Loans Cost carried forward Unrealised gains brought forward Movement in unrealised gains Unrealised gains carried forward Effect of exchange rate movements Fair value of debt instruments Total financial assets designated at FVTPL 44 2023 £ 57,258,110 12,601,715 69,859,825 69,859,825 132,232,346 16,692,050 (65,588,276) 10,736,035 94,072,155 (24,168,635) (13,535,808) (37,704,443) 890,398 2022 £ 110,202,065 10,660,460 120,862,525 120,862,525 153,218,932 43,347,101 (61,399,209) (2,934,478) 132,232,346 (33,410,174) 9,241,539 (24,168,635) 2,138,354 57,258,110 110,202,065 8,965,416 3,867,708 (2,120,000) 10,713,124 1,682,934 628,186 2,311,120 (422,529) 12,601,715 69,859,825 3,257,955 5,707,461 – 8,965,416 1,254,587 428,347 1,682,934 12,110 10,660,460 120,862,525 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) 9. FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS (continued) Total realised gains and losses and unrealised gains and losses on the Company’s equity, debt and derivative financial instruments are made up of the following gain and loss elements: Realised gains Realised losses Net realised gains/(losses) in financial assets designated at FVTPL Movement in unrealised gains Movement in unrealised losses Net movement in unrealised (losses)/gains in financial assets designated at FVTPL 2023 £ 14,284,779 (3,548,744) 10,736,035 (7,936,128) (4,971,494) 2022 £ 8,438,985 (11,373,463) (2,934,478) 6,270,840 3,399,046 (12,907,622) 9,669,886 On 8 June 2023, Hurricane Energy Plc was acquired by Prax Exploration & Production Plc resulting in the Company receiving £34,654,130 and 575,649,999 Deferred Consideration Units (DCU) in Prax Exploration & Production.The DCU’s confer an entitlement for DCU Holders to receive 17.5% of all future net revenues earned by Hurricane Energy from 1 March 2023 until 31 December 2026, including revenue from both the Lancaster oil field and from any acquisition made by Prax Exploration via Hurricane Energy, capped at a total of 6.48p per DCU. The DCU payments will be paid biannually in arrears, approximately 90 days after 30 June and 31 December. In the Statement of Cashflow the purchases and sales proceeds have been adjusted by the valuation of Prax Exploration & Production Plc of £10,189,005 to reflect that this was a non-cash transaction as part of the acquisition of Hurricane Energy Plc. 10. TRADE AND OTHER PAYABLES Current liabilities: Accruals Unsettled trade purchases 2023 £ 325,706 4,183,694 4,509,400 2022 £ 274,039 – 274,039 The carrying amount of trade payables approximates to their fair value. 45 Notes to the Financial Statements For the year ended 30 June 2023 (continued) SHARE CAPITAL AND RESERVES 11. 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 (See note 12), is as follows: 2023 2022 Opening balance Ordinary shares issued during the year Issued, called up and fully paid Ordinary shares of £0.01 each Number 99,749,762 – £ Number 997,498 99,749,762 – – £ 997,498 – 99,749,762 997,498 99,747,762 997,498 Capital risk management 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. In accordance with the Company’s Memorandum and Articles of Incorporation the retained earnings and distributable reserve shown in the Company’s Statement of Financial Position at the year end are distributable by way of dividend. 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 2023, the Company paid dividends of £37,453,950 (2022: £10,431,425) from distributable reserves, as disclosed in Note 13. On 8 June 2023, the Company declared an interim dividend of £20.8 million equating to 25p per Ordinary share, which was paid on 30 June 2023. 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 Opening balance Treasury shares purchased during the year Closing balance 2023 2022 £ Number £ 16,518,762 19,767,097 16,012,762 19,191,639 575,458 16,518,762 19,767,097 16,518,762 19,767,097 506,000 Number – – No Treasury shares were purchased during the year ended 30 June 2023 (2022: 506,000).Treasury shares purchased in 2022 had an average price of 113.73p per share and represented an average discount to NAV at the time of purchase of 42.1%. 46 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) 13. DIVIDENDS On 7 July 2022, the Company declared an interim dividend of £8,323,100 equating to 10p per Ordinary share, which was paid on 5 August 2022 to Shareholders on the register on 15 July 2022. On 11 November 2022, the Company declared an interim dividend of £8,323,100 equating to 10p per Ordinary share, which was paid on 23 December 2022 to Shareholders on the register on 25 November 2022. On 8 June 2023, the Company declared an interim dividend of £20,807,750 equating to 25p per Ordinary share, which was paid on 30 June 2023 to Shareholders on the register on 16 June 2023. 14. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS Financial risk management objectives The Investment Manager, Crystal Amber Asset Management (Guernsey) Limited and the Administrator, Ocorian Administration (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 risk.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 significant observable inputs on a regular basis and does not consider that any changes are required this year to the categories used in prior years. Credit risk Credit risk is the risk that the counterparty to a financial instrument will default on its contractual obligations with the Company, resulting in financial loss to the Company. At 30 June 2023 the major financial assets which were exposed to credit risk included financial assets designated at FVTPL and cash and cash equivalents. The carrying amounts of financial assets best represent the maximum credit risk exposure at 30 June 2023.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 accounting date and the S&P credit rating for each counterparty at that date. Butterfield Bank (Channel Islands) Limited Barclays Bank PLC – Isle of Man Branch Location Guernsey Isle of Man Cash Balance 2023 Rating £ BBB+ 12,001,525 253,423 A 12,254,948 Cash Balance 2022 £ 37,413 9,957 47,370 The credit ratings disclosed above are the credit ratings of the parent entities of each of the counterparties being The Bank of N.T. Butterfield & Son Limited and Barclays Bank Plc. 47 Notes to the Financial Statements For the year ended 30 June 2023 (continued) FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS (continued) 14. Credit risk (continued) The Company’s credit risk on financial assets designated at FVTPL arises on debt instruments. The Company’s credit risk on financial assets designated at FVTPL is considered acceptable as debt instruments make up only a small percentage of the financial assets. 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 2023, £69,259,635 (2022: £110,239,478) of the financial assets of the Company were held by the Custodian, Butterfield Bank (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. 70% (2022: 91%) 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 BBB+ (2022: BBB+). The remaining balance of financial assets of £12,926,476 (2022: £10,741,145) includes £253,423 (2022: £9,957) cash held by Barclays Bank Plc, £71,338 (2022: £70,728) trade receivables and £11,888,484 (2022: £7,987,857) loan notes issued by Morphic Medical Inc and £713,230 (2022: £2,672,603) loan notes issued by Sigma Broking Limited. 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 and contractual maturities for its financial assets and liabilities: 2023 Assets Non-interest bearing Variable interest rate instruments Fixed interest rate instruments Liabilities Non-interest bearing Weighted average interest rate Less than 1 year £ 1-5 years £ 5+ years £ Total £ – 57,582,871 0.29% 12,001,525 5.00% 12,601,715 – (4,509,400) 77,676,711 – – – – – – 57,582,872 – 12,001,525 – 12,601,715 (4,509,400) – – 77,676,712 48 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS (continued) 14. Liquidity risk (continued) 2022 Assets Non-interest bearing Variable interest rate instruments Fixed interest rate instruments Liabilities Non-interest bearing Weighted average interest rate Less than 1 year £ 1-5 years £ 5+ years £ Total £ 110,282,750 0.29% 37,413 5.00% 10,660,460 (274,039) 120,706,584 – – – – – – 110,282,750 – 37,413 – 10,660,460 – (274,039) – 120,706,584 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 and debt instruments at fair value through profit or loss.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 Company is exposed to fixed interest rate risk on the loans receivable as where an instrument is a fixed rate security, the value of the Financial Instruments is expected to be particularly affected by the current climate of rising interest rate. The Investment Manager monitors market interest rates and will place interest bearing assets at best available rates but will also take the counterparty’s credit rating and financial position into consideration. The cash at hand balances are the only assets with variable interest rates and the movement in variable interest rates is an immaterial amount, therefore, no sensitivity analysis for the movement is disclosed. 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. However, there is no guarantee that the value will not rise above 20% after any investment is made, particularly where it is believed that an investment is exceptionally attractive. 49 Notes to the Financial Statements For the year ended 30 June 2023 (continued) FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS (continued) 14. Price risk (continued) The following tables detail the Company’s equity investments as at 30 June 2023: Equity Investments Sector Morphic Medical Inc De La Rue PLC Prax Exploration & Production PLC (DCU 1) (formerly Hurricane Energy PLC) Sigma Broking Limited Allied Minds PLC Other Total Healthcare Commercial Services Oil and Gas Financial Services Private Equity Various 2022 Equity Investments Hurricane Energy PLC Morphic Medical Inc De La Rue PLC Equals Group PLC Allied Minds PLC Sigma Broking Limited Other Total Sector Oil and Gas Healthcare Commercial Services Financial Services Private Equity Financial Services Various Value £ Percentage of Gross Assets 19,165,077 14,261,875 10,189,005 6,794,101 4,471,681 2,376,371 57,258,110 23 17 12 8 5 3 70 Value £ Percentage of Gross Assets 40,583,325 23,057,072 14,944,854 13,875,400 7,938,679 5,664,818 4,137,917 110,202,065 34 19 12 11 7 5 3 91 The following tables detail the investments in which the Company holds more than 20% of the relevant entities. These have been recognised at fair value as the Company is regarded as an investment entity as set out in Note 1. 2023 Equity Investments Morphic Medical Inc 2022 Equity Investments Hurricane Energy PLC Morphic Medical Inc. Place of Business United States Place of Business United Kingdom United States Place of Incorporation United States Place of Incorporation United Kingdom United States Percentage Ownership Interest 81.5 Percentage Ownership Interest 28.9 81.5 50 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS (continued) 14. Price risk (continued) The Company has assessed the price risk of the listed equity and debt based on a potential 25% (2022: 25%) increase/decrease in market prices, which the Company believes represents the effect of a possible change in market prices and provides consistent analysis for Shareholders, as follows: At the year end and assuming all other variables are held constant: • • • If market prices of listed equity and debt had been 25% higher (2022: 25% higher), the Company’s return and net assets for the year ended 30 June 2023 would have increased by £4,159,562, net of any impact on performance fee accrual (2022: £20,058,562); If market prices of listed equity, debt and derivative financial instruments had been 25% lower (2022: 25% lower), the Company’s return and net assets for the year ended 30 June 2023 would have decreased by £4,159,562, net of any impact on performance fee accrual (2022: decreased by £20,058,562 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 financial instruments held in Euro and US Dollars (2022: Euro and US Dollars). The table below illustrates the Company’s exposure to foreign exchange risk at 30 June 2023; Financial assets designated at FVTPL: Listed equity investments denominated in Euro Unlisted equity investments denominated in US Dollars Debt instruments denominated in US Dollars Total assets 2023 £ 2022 £ – 19,165,077 11,888,485 31,053,562 96,261 23,057,072 7,987,857 31,141,190 If the Euro weakened/strengthened by 10% (2022: 10%) against Sterling with all other variables held constant, the fair value of equity investments would increase/decrease by £ Nil (2022: £9,626). If the US Dollar weakened/strengthened by 10% (2022: 10%) against Sterling with all other variables held constant, the fair value of debt instruments would increase/decrease by £1,188,849 (2022: £798,796) and the fair value of the unlisted equity investments would increase/decrease by £1,916,508 (2022: £2,305,707). 51 Notes to the Financial Statements For the year ended 30 June 2023 (continued) FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS (continued) 14. 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: Level 3: 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. 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 2023 and 30 June 2022: 2023 Financial assets designated at FVTPL and derivatives held for trading: Equities – listed equity investments Equities – unlisted equity investments Debt – loan notes Level 1 £ Level 2 £ Level 3 £ Total £ 14,261,875 – – 14,261,875 2,376,371 10,189,005 – 12,565,376 – 30,430,859 12,601,715 43,032,574 16,638,246 40,619,864 12,601,715 69,859,825 52 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS (continued) 14. Fair value measurements (continued) 2022 Financial assets designated at FVTPL and derivatives held for trading: Equities – listed equity investments Equities – unlisted equity investments Debt – loan notes Level 1 £ Level 2 £ Level 3 £ Total £ 77,438,519 – – 77,438,519 2,795,730 – – 2,795,730 – 29,967,816 10,660,460 40,628,276 80,234,249 29,967,816 10,660,460 120,862,525 The Level 1 equity investments were valued by reference to the closing bid prices in each investee company on the reporting date. The Level 2 equity investments relates to Sutton Harbour due to the low volume of trading activity in the market for this investment and has been valued by reference to the closing bid price in the investee company on the reporting date. Prax Exploration that has been recently listed on JP Jenkins and has been valued by reference to the closing bid price in the investee company on the reporting date. The Level 3 equity investment in Allied Minds (which delisted on 30 November 2022) was valued at the Net Asset Value per share on 31 December 2022 converted at an exchange rate of $1.2699 to £1 and reduced by a 25% liquidity discount. The Level 3 equity and debt investments in Morphic Medical Inc were valued by reference to the discounted cash flow value of the company with an additional discount for dilution risk. The total valuation was then allocated through a waterfall to the loan note, Series A shares and common stock owned by the Company. The Level 3 equity investment in Sigma Broking Limited was valued by reference to a third party funding of the company.The third party is an external investor buying into the investment for equity. For financial instruments not measured at FVTPL, the carrying amount is approximate to their fair value. Fair value hierarchy – Level 3 The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy: Opening balance at 1 July 2022/1 July 2021 Purchases Allied Minds transferred in from Level 1 Movement in unrealised (losses)/gains Sales Repayments of debt instruments Net realised (loss)/gain Effect of exchange rate movements Closing balance at 30 June 2023/2022 2023 £ 40,628,276 3,867,708 15,007,031 (10,315,139) (2,000,000) (2,120,000) (352,974) (1,682,328) 43,032,574 2022 £ 29,032,329 10,707,462 – (3,912,815) (1,660,933) – 1,633,412 4,828,821 40,628,276 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. 53 Notes to the Financial Statements For the year ended 30 June 2023 (continued) FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS (continued) 14. Fair value hierarchy – Level 3 (continued) The table below provides information on significant unobservable inputs used at 30 June 2023 in measuring equity financial instruments categorised as Level 3 in the fair value hierarchy. It also details the sensitivity to changes in significant unobservable inputs used to measure value in each case. Valuation Method Fair Value at 30 June 2023 Unobservable inputs Factor Sensitivity to changes in significant unobservable inputs Discounted cash flow 19,165,077 Discount rate Morphic Medical Inc (formerly GI Dynamics Inc) High growth rate over 9 year period Dilution discount 43% An increase (decrease) in the discount rate to 48% (38%) would reduce (increase) FV by £6.3m (£8.1m) . 48% A decrease (increase) in the near term growth rate to 38% (58%) would decrease (increase) FV by £4.1m 20% An increase (decrease) in the dilution discount to 30% (to 10%) would reduce (increase) FV by £3.6m. Third party funding 6,794,101 N/A N/A N/A Sigma Broking Limited Allied Minds NAV 4,471,681 Board Intelligence Limited Discount to comparable 1,245,926 company multiples Illiquidity discount Comparable Revenue multiple Discount to comparable multiple GI Dynamics Discounted cash flow Inc 23,057,072 Discount rate High growth rate over 9 year period Dilution discount EBITDA Multiple 5,664,818 Discount rate Sigma Broking Limited 54 25% An increase (decrease) in the liquidity discount to 35% (to 15%) would reduce (increase) FV by £0.6 million. 5.7x A 25% increase (decrease) in the revenue multiple would increase (decrease) FV by £0.7m (£0.7m) 52.7% A 25% decrease (increase) in the discount to the revenue multiple would increase (decrease) FV by £0.7m (£0.6m) 43% An increase (decrease) in the discount rate to 48% (38%) would reduce (increase) FV by £8.9m (£13m) 48% A decrease (increase) in the near term growth rate to 38% (58%) would decrease (increase) FV by £4.1m 20% An increase (decrease) in the dilution discount to 30% (to 10%) would reduce (increase) FV by £3.6 million 50% An increase (decrease) in the liquidity discount to 60% (to 40%) would reduce (increase) FV by £0.9 million CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) 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 (2022: 10,000) Ordinary shares in the Company, representing 0.01% (2022: 0.01%) of the voting share capital of the Company at the year end. During the year, the Company incurred management fees of £960,000 (2022: £1,649,299) none of which were outstanding at the year-end (2022: £Nil). No performance fees were incurred in the year (2022: £Nil) and none were outstanding at the year-end (30 June 2022: £Nil). As at 30 June 2023, the Investment Manager held 6,899,031 Ordinary shares (2022: 6,899,031) of the Company, representing 8.30% (2022: 8.29%) of the voting share capital. As at 30 June 2023, the Company’s investment in Morphic Medical Inc is an unconsolidated subsidiary due to the Company’s percentage holding in the voting share capital of Morphic Medical. There is no restriction on the ability of MMI to pay cash dividends or repay loans, but it is unlikely that MMI will make any distribution or loan repayments given its current strategy. During the year, the Company purchased convertible loan notes (not driven by any contractual obligation) for the purpose of supporting MMI in pursuing its strategy. Morphic Medical Inc was incorporated in Delaware, had five wholly owned subsidiaries as at 30 June 2023 and its principal place of business is Boston.The five subsidiaries were as follows: • • • • • Morphic Medical Securities Corporation, a Massachusetts-incorporated non-trading entity; GID Europe Holding B.V., a Netherlands-incorporated non-trading holding company; GID Europe B.V., a Netherlands-incorporated company that conducts certain European business operations; GID Germany GmbH, a German-incorporated company that conducts certain European business operations; and GI Dynamics Australia Pty Ltd, an Australian-incorporated company that conducts Australian business operations. 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: 2023 2022 Number of Ordinary shares 30,000 13,500 7,500 51,000 Total voting rights 0.03% 0.01% 0.01% 0.05% Number of Ordinary shares 30,000 13,500 7,500 51,000 Christopher Waldron(1) Jane Le Maitre(1) Fred Hervouet Total (1) Ordinary shares held indirectly Total voting rights 0.03% 0.01% 0.01% 0.05% 55 Notes to the Financial Statements For the year ended 30 June 2023 (continued) 16. DIRECTORS’ INTERESTS AND REMUNERATION (continued) During the year, the Directors earned the following remuneration in the form of Directors’ fees from the Company: Christopher Waldron(1) Jane Le Maitre(2) Fred Hervouet(3) Total 2023 £ 47,500 42,500 40,000 130,000 2022 £ 47,500 42,500 40,000 130,000 (1) Chairman of the Company with effect from 23 November 2017. (2) Chairman of Audit Committee with effect from 4 January 2018. (3) Chairman of Remuneration and Management Engagement Committee with effect from 22 November 2019. At 30 June 2023, Directors’ fees of £32,500 (2022: £32,500) were accrued within trade and other payables. 17. MATERIAL AGREEMENTS The Company was party to the following material agreements: Crystal Amber Asset Management (Guernsey) Limited Until 7 March 2022, the management agreement with the Investment Manager provided for 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, exceeded the Base Amount (the “Excess Amount”), the applicable fee rate on the Excess Amount would have been 1.5%. The Investment Manager was also entitled to a performance fee in certain circumstances. The fee was originally calculated by reference to the increase in NAV per Ordinary share over the course of each performance period. At an EGM on 7 March 2022, Shareholders agreed with the Company’s proposals to enter into a new incorporating revised management and performance fee Investment Management Agreement arrangements and to make changes to the termination provisions to reflect the future strategy of the Company. Accordingly, the management fee has been reduced to £106,666 per month from 1 April 2022 until 30 June 2022, £90,000 per month from 1 July 2022 to 31 December 2022, £70,000 per month from 1 January 2023 to 30 June 2023, £50,000 per month from 1 July 2023 to 30 September 2023 and then to £40,000 per month until 31 December 2023 when the management fee was due to cease in anticipation of the Company’s investments having been substantially realised. However, due to the requirement for the Fund to have active portfolio management going into 2024, the Board has agreed that the Fund will continue paying a monthly management fee to the Investment Manager on the basis of the fees paid in 2023. Accordingly, the Investment Management Agreement will be amended such that from 1 January 2024, a monthly management fee of £57,500 will be applied.This will be subject to revision by the Company on one month’s notice in the light of future realisations, but will in any event be formally reviewed by the Board at the time of the next interim report. 56 CRYSTAL AMBER FUND LIMITED Notes to the Financial Statements For the year ended 30 June 2023 (continued) 17. MATERIAL AGREEMENTS (continued) The Investment Manager is also entitled to a performance fee in certain circumstances. This fee was previously calculated by reference to the increase in NAV per Ordinary share over the course of each performance period. In accordance with the new Investment Management Agreement, the performance fee will be calculated by reference to the aggregate cash returned to Shareholders after 1 January 2022. The Investment Manager will receive 20% of the aggregate cash paid to Shareholders after 1 January 2022 (including the interim dividend of 10p per Ordinary Share declared on 22 December 2021) in excess of a threshold of £216,000,000. Depending on whether the Ordinary shares are trading at a discount or a premium to the Company’s NAV per share when the performance fee becomes payable, the performance fee will be either payable in cash (subject to the restrictions set out below) or satisfied by the sale of Ordinary shares out of Treasury or by the issue of new fully paid Ordinary shares (the number of which shall be calculated as set out below): • • If Ordinary shares are trading at a discount to the NAV per Ordinary share when the performance fee becomes payable, the performance fee shall be payable in cash.Within a period of one calendar month after receipt of such cash payment, the Investment Manager shall be required to purchase Ordinary shares in the market of a value equal to such cash payment. If Ordinary shares are trading at, or at a premium to, the NAV per Ordinary share when the performance fee becomes payable, the performance fee shall be satisfied by the sale of Ordinary shares out of Treasury or by the issue of new fully paid Ordinary shares.The number of Ordinary shares that shall become payable shall be a number equal to the performance fee payable divided by the closing mid-market price per Ordinary share on the date on which such performance fee became payable. As at 30 June 2023, the Investment Manager held 6,899,031 Ordinary shares (30 June 2022: 6,899,031) of the Company, representing 8.29% (30 June 2022: 8.29%) of the voting share capital. Performance fee for year ended 30 June 2023 At 30 June 2023, the Basic Performance Hurdle was £216,000,000 (as adjusted for all dividends paid during the performance period on their respective payment dates, compounded at the applicable annual rate) (2022: £216,000,000). The aggregate cash returned to Shareholders after 1 January 2022 was £45,791,950 (2022: £8,338,000). Accordingly, no performance fee was earned during the year ended 30 June 2023 (2022: £Nil). Ocorian Administration (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% (2022: 0.12%) of that part of the NAV of the Company up to £150 million and 0.1% (2022: 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 £127,028 (2022: £168,247). Butterfield Bank (Guernsey) Limited Under the custodian agreement, the Custodian receives a fee, calculated and payable quarterly in arrears at the annual rate of 0.05% (2022: 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 £51,497 (2022: £124,454). 57 Notes to the Financial Statements For the year ended 30 June 2023 (continued) 18. ULTIMATE CONTROLLING PARTY In the opinion of the Directors and on the basis of the shareholdings advised to them, the Company has no ultimate controlling party. 19. OTHER INFORMATION The Company reported that its unaudited NAV at 31 July 2023 was 92.63p per Ordinary share. The Company reported that its unaudited NAV at 31 August 2023 was 95.81p per Ordinary share. The Company reported that its unaudited NAV at 30 September 2023 was 99.75p per Ordinary share. 20. POST BALANCE SHEET EVENTS On August 9, 2023, Morphic Medical entered into a convertible note purchase agreement with the Company to fund Morphic Medical to a total of $4.5 million. Under this convertible note purchase agreement, the parties executed an unsecured convertible promissory note for proceeds of $2.25 million which accrues interest at 7.5% per annum. All principal and accrued unpaid interest on this note will be due in January 2025. $2.25 million was paid on August 22, 2023. On 24 October 2023, the Board agreed that the Fund will continue paying a monthly management fee to the Investment Manager on the basis of the fees paid in 2023.The Investment Management Agreement will be amended such that from 1 January 2024, a monthly management fee of £57,500 will be applied. This will be subject to revision by the Company on one month’s notice in the light of future realisations, but will in any event be formally reviewed by the Board at the time of the next interim report. There were no other events subsequent to the reporting date, 30 June 2023. 58 Glossary of Capitalised Defined Terms CRYSTAL AMBER FUND LIMITED “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; “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; “APMs” means Alternative Performance Measures. “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; “Board” or “Directors” or “Board of Directors” means the directors of the Company; “Brexit” means the departure of the UK from the European Union; “CBRS” means Citizens Broadband Radio Service; “CEO” means chief executive officer; “CE Mark” means a certification mark that indicates conformity with health, safety, and environmental protection standards; “CFD” means Contracts for Difference; “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; 59 Glossary of Capitalised Defined Terms (continued) “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; “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; “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; “FV” means Fair Value; “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. now known as Morphic Medical Inc; “Gross Asset Value” means the value of the assets of the Company, before deducting its liabilities, and is expressed in Pounds Sterling; “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; 60 Glossary of Capitalised Defined Terms (continued) CRYSTAL AMBER FUND LIMITED “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. Additionally, the Investment Management Agreement was further amended and restated on 14 February 2022. “IPEV Capital Valuation Guidelines” means the International Private Equity and Venture Capital Valuation Guidelines on the valuation of financial assets; “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; “MMI” means Morphic Medical Inc.; “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; “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; “Smaller Companies Index” means an index of small market capitalisation companies; “SME” means small and medium sized enterprises; “SORP” means Statement of Recommended Practice; “Stewardship Code” means the Stewardship Code of the Company adopted from 14 June 2016, as published on the Company’s website www.crystalamber.com; “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; 61 Glossary of Capitalised Defined Terms (continued) “Treasury shares” means Ordinary shares in the Company that have been repurchased by the Company and are held as Treasury shares; “UK” or “United Kingdom” means the United Kingdom of Great Britain and Northern Ireland; “UK Stewardship Code” means the UK Stewardship Code published by the FRC in July 2010 and revised in September 2012; “US” means the means the United States of America, its territories and possessions, any state of the United States and the District of Columbia; “US$” or “$” means United States dollars; “US Federal Reserve” means the Federal Reserve System, the central banking system of the US; and “£” or “Pounds Sterling” or “Sterling” means British pounds sterling and “pence” means British pence. 62 CRYSTAL AMBER FUND LIMITED Alternative Performance Measures ALTERNATIVE PERFORMANCE MEASURES (“APMS”) We assess our performance using a variety of measures that are not specifically defined under IFRS and therefore termed APMs.The APMs that we use may not be directly comparable with those used by other companies. ONGOING CHARGES Ongoing charges are calculated using the AIC Ongoing Charges methodology, which was last updated in April 2022 and is available on the AIC website (theaic.co.uk). They represent the Company’s investment management fee and all other operating expenses, excluding currency loss/profit, ad-hoc costs associated with portfolio transactions, ad-hoc research expenses and non-recurring legal and professional fees and are expressed as a percentage of the average Net Asset Value for the year. The Board continues to be conscious of expenses and works hard to maintain a sensible balance between good quality service and cost.The ongoing charges calculation is shown below: Average NAV for the year (a) Investment management fee Other company expenses Total recurring company expenses (b) Ongoing Charges Ratio (b/a) 2023 £ 104,929,784 960,000 671,899 1,631,899 1.56% 2022 £ 125,257,263 1,649,299 820,179 2,469,478 1.97% NET ASSET VALUE (“NAV”) The NAV is the net assets attributable to shareholders that is, total assets less total liabilities, expressed as an amount per individual share. NAV PER SHARE INCLUDING DIVIDENDS A measure showing how the NAV per share has performed in the year, taking into account both capital returns and dividends paid to shareholders. NAV total return is calculated by adjusting for dividends paid. It considers the changes in market value as well as other surges of income such as dividends expressed as a percentage. It shows a more accurate valuation of a stock’s return. The AIC shows NAV total return as a percentage change from the start of the year. It assumes that dividends paid to shareholders are reinvested at NAV at the time the shares are quoted ex-dividend. 63 Alternative Performance Measures (continued) NAV PER SHARE INCLUDING DIVIDENDS (continued) NAV per share including dividends Opening NAV per share (a) Add Dividends for the year (b) Opening NAV per share (c) Closing NAV per share (d) Movement in NAV per share in the year (e) = (d) – (c) NAV per share including Dividends (f) = (a) + (b) + (e) (Decrease)/Increase in NAV per share in the year (g) = (f) – (a) Percentage (decrease)/increase in NAV per share in the year (h) = (g)/(a) * 100 2023 Pence 145.03 45 145.03 93.33 (51.70) 138.33 (6.70) 2022 Pence 146.81 12.50 146.81 145.03 (1.78) 157.53 10.72 (4.6)% 7.3% Net Asset Value (“NAV”) per share including dividends paid decreased by 4.6% (2022: increase 7.3%). TOTAL RETURN Total return is calculated by taking the difference between the number of shares multiplied by NAV per share at both the start and end of the year.The increase or decrease percentage is calculated based on the opening value. Adjusting for dividends paid, the total loss in the Company’s NAV per share for the year was 35.68% (2022: return 8%). Total Return Number of shares (a) Opening NAV for the year (pence) (b) (c) = (a) + (b) Number of shares (d) Closing NAV per share (e) (f) = (d) + (e) Movement in the year (pence) (g) = (c) + (f) Percentage Total Return (h) = (g)/(c) * 100 2023 Pence 1093.70 145.03 1,586.19 1093.70 93.33 1020.75 (565.44) (35.65%) 2022 Pence 1000.00 146.81 1468.10 1093.70 145.03 1586.19 118.09 8% 64 CRYSTAL AMBER FUND LIMITED Directors and General Information Directors Christopher Waldron (Chairman) Fred Hervouet (Chairman of Remuneration and Management Engagement Committee) Jane Le Maitre (Chairman of Audit Committee) Investment Adviser Crystal Amber Advisers (UK) LLP 17c Curzon Street London W1J 5HU Administrator and Secretary Ocorian Administration (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: http://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 (Guernsey) Limited PO Box 25 Regency Court Glategny Esplanade St. Peter Port Guernsey GY1 3AP Registrar Link Asset Services 65 Gresham Street London EC2V 7NQ 65 For your Notes 66 Crystal Amber Fund Limited, PO Box 286, Floor 2,Trafalgar Court, Les Banques, St Peter Port, Guernsey GYI 4LY 

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