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Portfolio & Strategy At 30 June 2024, the Company held equity investments in five companies (2023: six).

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 a growing concentration risk, as continuing realisations have significantly increased the weighting of the remaining holdings.

During the year to 30 June 2024, the Fund disposed of its remaining holding of Prax Exploration Deferred Consideration Units (DCUs), following the acquisition of Hurricane Energy Plc by Prax Exploration. This brought total proceeds from the DCUs to £12.5 million, realising a profit of £2.3 million.

INVESTEE COMPANIES

01. Morphic Medical Inc ("MMI")

Morphic Medical Inc ("MMI")
The Fund first acquired a small equity interest in MMI in 2014. MMI is a US based company which initially listed on the Australian Stock Exchange in 2011, raising A$80 million and later commanded a market capitalisation of A$304 million. In 2017, Morphic received formal notification of CE Mark withdrawal for EndoBarrier (now known as RESET), its device to treat diabetes, preventing MMI making sales in Europe and select Middle Eastern countries. Thereafter, Crystal Amber commenced more significant activism. By December 2020, the Fund effected a change of management and supported a delisting of the shares from the Australian Stock Exchange. At that time, the Fund's investment represented 14p per share of the Fund's 129p per share of total net asset value. Since then, Crystal Amber has been and continues to be the sole provider of funding to MMI.

The Fund currently owns 95.3% of MMI's share capital via common shares and preferred shares and holds interest bearing convertible loan notes totalling US$23.4 million, with accrued interest currently standing at approximately US$2.13 million. The loan notes are repayable from 13 January 2025, unless converted to equity, and accrue interest at 5% and 7.5% per annum. The Fund's representative executive director on the board of MMI has an option to acquire approximately US$1.96 million of the Fund's shareholding in MMI as part of their incentive package. The Fund's representative previously led the Obesity and Metabolic Health Business at Medtronic Inc.

RESET is a thin, flexible implant that lines the proximal small intestine and mimics gastric bypass bariatric surgery as food bypasses the duodenum and the upper intestines. Unlike gastric bypass surgery, RESET is reversible, minimally invasive, and temporary. It does not permanently alter the patient's anatomy and uniquely targets the body's own blood glucose control mechanisms. This is achieved through a 20-minute endoscopic procedure. The patient will typically retain the device for nine months, after which the device is removed.

According to the World Obesity Federation, the impact of being overweight and obese on the UK economy will continue to grow and is projected to reach 2.4% of GDP or £125 billion by 2060. This is both a global problem and a global market, affecting around 1 billion of the world's population and expected to increase to 25% by 2035, or around 1.9 billion people, resulting in an estimated burden of $4 trillion in 2035 or 2.9% of global GDP (Source: IQVIA).

The Investment Manager believes that MMI's RESET device can deliver superior and durable results without changing the anatomy. A UK study by Dr Bob Ryder of the Sandwell and West Birmingham NHS Trust demonstrated an average 17.9 Kg reduction in weight and a 2% reduction in HBA1C (the amount of glucose in blood cells) at the end of treatment with RESET. Three years after treatment, 75% of patients maintained most of the improvement achieved.

The Investment Manager believes that these results compare favourably to the Wegovy and Ozempic drug treatments and importantly, without the side-effects experienced by this currently popular weight loss drug category.

In April 2024, based on the body of evidence submitted, the European Society for Gastrointestinal Endoscopy and the American Society for Gastrointestinal Endoscopy provisionally endorsed RESET therapy in conjunction with lifestyle modification, for treatment of metabolic disease.

MMI is now in the final stages of securing CE Mark certification, with an anticipated commercial launch in Germany and the UK once this is achieved. Sales in other European markets and the Middle East are planned for the first half of 2025.

Whilst product development and regulatory approval is ongoing, MMI currently has no revenue. In anticipation of receiving regulatory approval, MMI recruited Mike Gutteridge as Head of Commercial Operations, International in late 2023. Mike previously held a senior role at Apollo Endosurgery, which was acquired by Boston Scientific for around £500 million.

In order to ensure volume ramp ups can be achieved, MMI has secured Medical Murray Inc. as its contract manufacturer to complete testing, validation and build inventory in preparation for launch.

MMI continues to expand its innovation pipeline with new R&D projects and IP filings.

In June 2024, MMI received approval from the US Food and Drug Administration ("FDA") to MMI's application for amendments to certain requirements for its pivotal study, which is approved as a staged study. These protocol changes are expected to significantly accelerate access to the key US markets for the treatments of diabetes and obesity, subject to, inter alia, successful completion of the study and trials.

Given the market opportunity and the ability to tap into other existing infrastructure and sales distribution channels, MMI is in early-stage discussions with a number of large-scale medical devices companies. These discussions aim to achieve significant equity investment via a strategic stake, as well as sales and distribution agreements. There can be no certainty as to a successful outcome of these discussions.

Given the importance of MMI to the Fund, the Fund commissioned two independent third-party valuations of MMI. Further details on the third-party valuations are outlined in note 14. These concluded that, at 30 June 2024, it is reasonable to value MMI at US$98.8 million (approximately £77 million) on a risk-adjusted basis and on a cash free, debt free basis.

This valuation means that the Fund's equity interest in MMI at 30 June 2024, on an undiluted basis (i.e. excluding conversion of loan notes and associated interest and exercise of MMI employee share options) and after including net debt at 31 December 2023 (being the date of the most recently published balance sheet of MMI), was valued at approximately £60 million.

02. De La Rue plc

De La Rue plc ("De la Rue")
In May 2023, following the Fund's successful campaign to remove Kevin Loosemore, Clive Whiley was appointed to replace him as 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 improving backdrop and with increasing evidence of a cyclical upturn in the currency market, the Fund substantially added to its holding. During the summer of 2023, 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 and by 30 June 2024, De La Rue's share price had risen by over 130%. The Investment Manager remains of the view that the strategic value of De La Rue is substantially more than its operational value in an industry requiring consolidation.

In May 2024, De La Rue reported that the order book at its Currency division had increased to £241 million, up from £137 million at 31 March 2023. De La Rue also announced that it was in discussions with a number of parties who had made proposals in relation to or expressed interest in both its Currency and Authentication divisions. Last month, De La Rue reported that it had entered into a definitive agreement for the sale of its Authentication Division to Crane NXT for a cash consideration representing an enterprise value of £300 million. For the year to 31 March 2024, the Division reported an adjusted operating profit of £14.6 million. The sale price represents a multiple of more than 20 times operating profits and 2.9 times revenue.

The Investment Manager believes that after proceeds are received from the sale of the Authentication Division, all bank debt and pension liabilities can be settled, leaving De La Rue with net cash of £140 million. Its Currency Division has also attracted interest from trade buyers. The Investment Manager believes that De La Rue can and should sell this Division for at least £150 million.

The Fund's other remaining holdings of Allied Minds Plc, Sigma Broking Limited and Sutton Harbour Plc account for 10% of the Fund's total net asset value. The Investment Manager is in discussions with each of these companies with a view to maximising their monetisation.

HEDGING ACTIVITY
The Fund did not engage in hedging activity during the period.