REG-Augmentum Fintech Plc: Augmentum Fintech plc Annual Report 2023
04/07/2023 07:15
4 July 2023
Augmentum Fintech plc
Annual Financial Report for the year ended 31 March 2023
Augmentum Fintech plc (LSE: AUGM) (the “Company” or “Augmentum”),
Europe’s leading publicly listed fintech fund, announces its audited Annual
Results for the year ended 31 March 2023.
Financial highlights
• NAV per share after performance fee increased by 2.4%
to 158.9p1 (31 March 2022: 155.2p).
• IRR of 18.5%2 on invested capital since inception (31
March 2022: 22.6%).
• Available cash at year end of £38.5 million, which
has increased to £50.0 million as at 30 June 2023 following the Company’s
accretive exit from Cushon.
Portfolio highlights
• Top 10 holdings, which represent 78% of portfolio
value, grew revenue at an average of 117% year-on-year and are cash generative
or have an average of 29 months cash runway3 and are funded to their next key
inflexion points.
• interactive investor’s acquisition by abrdn
completed in May 2022 and resulted in proceeds for the Company of £42.8
million, delivering an 11.1x multiple on invested capital and 84.8% IRR.
• Cushon’s majority shareholding acquisition by
NatWest Group completed post year end and returned £22.8 million to the
Company, delivering a return of 2.1x multiple on invested capital and an IRR
of 62%.
• There have now been 5 exits from the portfolio since
inception all at or above their last reported value, which have realised a
cumulative £79.5 million in proceeds – £53.5 million over their original
cost.
Investment activity
• £19.9 million invested in 2 new companies and 8
existing portfolio investments in line with a disciplined approach to capital
allocation (31 March 2022: £60.8 million invested in 7 new companies and 7
existing portfolio companies).
Portfolio updates
• Grover (15.5% of net assets after performance fee)
completed a US$330 million Series C equity and debt funding round in April
2022 and leased over 1 million devices globally.
• Tide (12.9%) grew its UK SME banking market share to
9% and acquired Funding Options.
• Zopa (10.8%) completed a £75 million funding round,
surpassed £8 billion in approved personal loans and £3.5 billion in savings.
• Volt (5.1%) completed a US$60 million Series B funding
round post year end led by IVP and won Worldpay and Shopify as clients.
• Anyfin (3.4%) completed a US$30 million Series C
funding round in January 2023.
Valuation movements
• NAV at year end was £294.1 million4 (31 March 2022:
£295.2 million), of which the value of the investment portfolio at year end
was £254.3 million (31 March 2022: £268.8 million).
• Key drivers of the change in the investment portfolio
valuation for the year were: investee company revenue growth +£84.8 million,
comparables’ contraction -£81.2 million, FX +£5.6 million, additions
£19.9 million, the exit from ii -£42.8 million.
• The increase in NAV per share after performance fee
was driven by return for the year net of performance fee movements +1.9p and
impact of share buybacks +1.8p.
Neil England, Chairman of Augmentum Fintech plc commented:
“Despite challenging markets, the bulk of your Company’s investments have
performed well and I am pleased to report that they made a positive
contribution to the Company’s NAV per share after performance fee, which
increased by 3.7p to 158.9p.
Your Company has now successfully exited five portfolio investments, all of
which have been at or above the last reported holding value. This should
provide investors with comfort that our valuations process is rigorous and
corroborates the discipline our Portfolio Manager has exercised when
evaluating new investments and their reporting on the portfolio.
We maintained our investment discipline over the last year and, with our
strong cash reserves (£38.5 million at 31 March 2023, £50.0 million at 30
June 2023) we are well placed both to take advantage of new opportunities and
to reinforce our appeal as a supportive investor.
Your Board believes that the Company will see a closing of the discount at
which its shares trade over time and, with the underlying growth of the
portfolio generally being very strong, expects that patient shareholders will
be well rewarded.”
Tim Levene, CEO of Augmentum Fintech Management Limited commented:
“Our 10 highest value holdings have seen revenue growth at an impressive
average of 117% year-on-year and raised over US$300 million in capital during
a challenging macroeconomic and fundraising environment. Despite an increased
focus from venture investors on companies displaying a clear path to
profitability and reducing cash burn, the growth in our portfolio through the
cycle reflects the quality of many of our companies and the unabated advance
of digital transformation in the financial services sector.
We are seeing a material increase in the number of compelling investment
opportunities at more pragmatic valuations and expect that to continue into
2024. Our fintech specialism and strong balance sheet position leave us well
positioned to take advantage of more favourable investment conditions.”
Notes
1 The Board considers the NAV per share after any performance fees payable to
be the most accurate way to reflect the underlying value of each share.
2 Annualised IRR on invested capital and realisations since inception using
valuations at the last reporting date. This measure does not include the
impact of net expenses and the performance fee provision.
3 Average months of cash runway based on current burn rate for non-cash
generative companies in Top 10, using latest available data as of June 2023,
excludes Cushon exited post year end.
4 NAV before performance fee.
Enquiries
Augmentum Fintech Tim Levene (Portfolio Manager) Georgie Hazell Kivell (Marketing and IR) +44 (0)20 3961 5420 georgie@augmentum.vc
Quill PR Nick Croysdill, Sarah Gibbons-Cook (Press and Media) +44 (0)20 7466 5050 press@augmentum.vc
Peel Hunt LLP Liz Yong, Luke Simpson, Huw Jeremy (Investment Banking) +44 (0)20 7418 8900
Singer Capital Markets Harry Gooden, Robert Peel, Alaina Wong (Investment Banking) +44 (0)20 7496 3000
Frostrow Capital LLP Paul Griggs (Company Secretary) +44 (0)20 3709 8733
About Augmentum Fintech
Augmentum invests in fast growing fintech businesses that are disrupting the
financial services sector. Augmentum is the UK’s only publicly listed
investment company focusing on the fintech sector in the UK and wider Europe,
having launched on the main market of the London Stock Exchange in 2018,
giving businesses access to patient capital and support, unrestricted by
conventional fund timelines and giving public markets investors access to a
largely privately held investment sector during its main period of growth.
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Augmentum Fintech plc
Annual Report and Financial Statements
for the year ended 31st March 2023
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CHAIRMAN’S STATEMENT
Performance Highlights
31 March 2023 31 March 2022
NAV per Share after performance fee 1 * 158.9p 155.2p
NAV per Share after performance fee Total Return* 2.4% 19.0%
Total Shareholder Return* (27.1%) (16.4%)
Discount to NAV per Share after performance fee* (39.0%) (14.3%)
Ongoing Charges Ratio* 1.9% 1.7%
* These are considered to be Alternative Performance Measures. Please see
the Glossary and Alternative Performance Measures on page 79.
To read about our KPIs see page 22.
I am pleased to present our fifth annual report since the launch of the
Company in March 2018. This report covers the year ended 31 March 2023.
Investment Policy
Your Company invests in early stage European fintech businesses which have
technologies that are disruptive to the traditional financial services sectors
and/or support the trend to digitalisation and market efficiency. A typical
investment will offer the prospect of high growth and the potential to scale.
Our objective is to provide long-term capital growth to shareholders by
offering them exposure to a diversified portfolio of private fintech companies
during what is often their period of rapid value accretion.
Performance
Shareholders will be fully aware of the significant market volatility
throughout the year under review. The war in Europe, inflation, rising
interest rates after a prolonged period of close to free money, highly priced
US technology stocks falling in value and the contagion from that have all
been factors. Fast growing companies that need cash to fuel that growth have
generally been out of favour.
Despite difficult markets, the bulk of your Company’s investments performed
very well and I am pleased to report that they made a positive contribution to
the Company’s net asset value (“NAV”) per share after performance
fee1*, which increased by 3.7p to 158.9p.
The operational performance of portfolio companies was generally strong, with
some stand out results, and the majority have cash runways that will fund
their businesses through to profitability. In normal markets these
performances would be expected to produce a strong NAV improvement, but
valuations were negatively affected in some cases by declines in public market
comparators.
The modest increase in the Company’s NAV per share after performance fee is
nonetheless encouraging in a market where many others have suffered
significant valuation write downs and illustrates that the diversified
portfolio of investments we hold is important when individual sectors become
stressed.
It is disappointing that the NAV growth we have enjoyed over the past five
years is not reflected in our share price. For a long period, your Company
enjoyed the highest premiums of any investment company listed in London. This
reflected the opportunity for a public market investor to gain exposure to
fast growing private fintech companies, which was otherwise not available to
them. That opportunity in a vast addressable market is undimmed, yet the price
at which the Company’s shares traded fell again across the period. The share
price touched a low of 86.8p during the year and ended the period at 97.0p,
representing a 27.1% reduction from the price at 31 March 2022. The share
price falling to a discount to NAV from the beginning of 2022 correlates with
market sentiment turning against growth stocks and private equity generally,
but is frustrating because it does not reflect the underlying performance or
the potential of the Company’s portfolio and seemingly gives little credit
to the rigour of our valuations process. The proceeds from our recent
portfolio disposals provide an illustration of the latter.
1* Note: The Board considers the NAV per share after any performance fees
provision to be the most accurate way to reflect the underlying value of each
share, whereas accounting standards require the Group’s consolidated NAV per
share to be presented before such fees are deducted as a consequence of our
Portfolio Manager being within our Group structure and the fees therefore
being eliminated on consolidation.
Portfolio
The most significant portfolio transaction in the year was the receipt of
proceeds of £42.8 million early in the period from the completion of
abrdn’s acquisition of interactive investor (“ii”), which was the
Company’s largest investment. The transaction delivered an 84.8% IRR and
11.1 times multiple on invested capital .
Post year end, another significant disposal was made when the Company sold its
holding in Cushon to NatWest Group. The £22.8 million proceeds of this sale,
which is fully reflected in the year end valuation, represents a multiple of
2.1 times invested capital and an IRR of 61.6%.
Your Company has now made five successful portfolio investment exits, all of
which have been at or above the last reported holding value. This should
provide investors with comfort that our valuations process is rigorous and
corroborates the discipline our Portfolio Manager has exercised when
evaluating new investments and their reporting on the portfolio.
Deployments in the year included new investments of £4.0 million in Israeli
payments monitoring and acceptance fintech Kipp and €3 million (£2.6
million) in Berlin-based cyber insurance platform Baobab. A further £13.1
million of follow-on funding was made to support existing portfolio companies.
These included Zopa (£4.0 million), Anyfin (£2.7 million), Previse (£2.0
million), Habito (£1.3 million), Wayhome (£0.9 million) and Cushon (£0.8
million).
Since the year end we have also participated in the Series B fundraising of
Volt, investing a further £5.3 million.
There is a full review of the portfolio and investment transactions in the
year in the Portfolio Manager’s Review beginning on page 15.
Portfolio Management
Our investment team continues to evaluate a wide range of opportunities,
reviewing financial and commercial metrics in order to identify those most
likely to be successful. We are active investors and work closely with the
companies we invest in, often taking either a board or an observer seat, and
working closely with management to guide strategy consistent with long-term
value creation. Our portfolio is already diversified across different fintech
sectors and maturity stages and we are keen to expand it further. We are
committed to responsible investing. We integrate Environmental, Social and
Governance (“ESG”) factors in our investment analysis, due diligence and
operating practices as we believe that these are key in mitigating risk and
creating sustainable, profitable investments.
Valuations
Your Board considers its governance role in the valuations process to be of
utmost importance. Shareholders in investment companies with a private
portfolio are understandably sceptical of valuations when they don’t see
them change as much or as rapidly as they do in many public companies. The
results we are reporting reflect an in-depth and challenging process,
supported by our advisers.
We have always maintained a consistent, rigorous and disciplined approach to
valuations. We did not write up the value of your Company’s investments to
the levels attributed to many fintech companies when the market was very
bullish. It follows that the level of any adjustments we have needed to make
this year is relatively small in comparison to some other funds, quite apart
from strong growth offsetting reductions in comparative multiples.
We have carefully reviewed both the status and the forecasts of all of the
portfolio companies, used appropriate and consistent methodologies to
determine the value of each investment and to sense check our conclusions. We
also benefit from some of our investments occupying a senior position in the
capital structures of the investee companies, protecting against downside
risk.
Discount Control
The Company’s shares traded at a discount to NAV for the whole of the year
under review and up to the date of this report, notwithstanding the underlying
value and strong prospects of the portfolio.
The Board has instigated a programme of highly accretive buybacks, seeking to
convey to the market our confidence in the value of the portfolio. Directors
and others associated with the Company have also purchased shares. We
continued with these accretive buybacks through the year under review, with
all the shares purchased by the Company being held in treasury to potentially
reissue when the share price returns to a premium.
5,806,934 shares were bought back into treasury during the year to 31 March
2023, at an average price of 102.9p per share, representing an average
discount to the prevailing NAV per share after performance fee of 34.1% and
adding 1.8p/1.1% to the NAV per share. A further 3,918,878 shares have been
bought back since March, up to 30 June 2023, at an average price of
98.6p per share.
We will seek to renew shareholders’ authorities to issue and buy back shares
at the forthcoming AGM.
Potential Returns of Capital
As set out on page 24 of this annual report, the Company may, at the
discretion of the Directors, return a proportion of the gains realised during
a year from the disposal of investments. Factors influencing this will include
the quantum of any sale proceeds, the opportunities offered by the investment
pipeline and the working capital requirements of the Company. I explained in
last year’s report that following the sale of ii we considered whether some
of the proceeds should be returned to shareholders or retained to facilitate
future investment opportunities. The Company has not reached the scale to
which we aspire and the current share price discount and unfavourable market
conditions are frustrating our ability to raise new capital for investment.
After consultation with major shareholders last year we decided to retain a
good proportion of these proceeds for reinvestment to support our capital
growth objective and utilise the balance to support an accretive share buyback
programme when the discount is high. The Board reconsidered this decision
during the year and decided to commit further to the buyback programme whilst
retaining funds to take advantage of new investment opportunities and to
provide follow-on support to existing investments, which are often available
on favourable terms.
Dividend
No dividend has been declared or recommended for the year. Your Company is
focused on providing capital growth and has a policy to only pay dividends to
the extent that it is necessary to maintain the Company’s investment trust
status.
Registrar
Shareholders should note that, as part of our regular review of service
providers, we have decided to change the Company's registrar from Link Group
to Computershare Investor Services PLC. This change will take place on
18 December 2023.
AGM
Our AGM will be held on Tuesday 19 September 2023 at 11.00 a.m. at the
Augmentum Fintech Management Limited office at 4 Chiswell Street EC1Y 4UP. The
Notice of AGM will be published shortly after the publication of this annual
report. Your Board strongly encourages shareholders to register their votes in
advance by voting online using the Registrar’s portal, www.signalshares.com
or, if they are not held directly, by instructing the nominee company through
which the shares are held. Registering votes online will not preclude
shareholders from attending the meeting.
One of our resolutions will be to seek shareholder authority to issue shares
by reference to the NAV per share after performance fee as we believe this to
be the best reflection of value, as explained in the note at the foot of page
2.
Further details of this and other resolutions will be found in the Notice of
AGM, which will be published and sent to shareholders shortly after the
publication of this annual report. Both documents will also be available to
view on or download from the Company’s website at www.augmentum.vc.
Your Directors consider all the resolutions that will be listed in the Notice
of AGM to be in the best interests of the Company and its shareholders and
recommend voting in favour of them, as your Directors intend to do in respect
of their own holdings.
Outlook
Inflation remains high, along with interest rates as the authorities strive to
bring it back to target levels. Early stage growth portfolios may currently be
out of favour, but Augmentum has proved its model, well-illustrated by our
realisations all producing returns in excess of their previous carrying value.
Our largest 5 investments, in particular, are performing well.
The underlying need to digitalise and transform last century’s
infrastructure remains, as nearly all financial services sectors continue to
be dominated by traditional operators whose operations cannot ignore the rapid
development of less costly, and in many cases more secure, business models. We
maintained our investment discipline over the last year and, with our strong
cash reserves (£38.5 million at 31 March 2023, £50.0 million at 30 June
2023), we are well placed both to take advantage of new opportunities and to
reinforce our appeal as a supportive investor.
Your Board believes that the Company will see a closing of the discount at
which its shares trade over time and, with the underlying growth of the
portfolio generally being very strong, expects that patient shareholders will
be well rewarded.
Neil England
Chairman
3 July 2023
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PORTFOLIO MANAGER’S REVIEW
Overview
I write to you after another 12 months of uncertainty following the
economy-wide adjustment to a higher interest rate environment. Having flown
the furthest under the market conditions of 2020-21, it is the listed
technology sector that has faced the most significant correction to valuations
in response to rising rates. Despite a bounce, in particular by the FAANG
stocks, listed tech stocks continue to trade well below their 10-year average.
The increased cost of capital has reordered priorities from growth to
profitability, and returned focus to core business lines and expense control.
The market has become more discerning of companies with strong fundamentals
and those without, and the significant rotation of capital into low-risk
assets means that valuation multiples for listed growth stocks, and fintechs
within this, remain compressed.
The stability of Augmentum’s NAV per share over the past twelve months
therefore belies the real story of continued progress and maturity in the
portfolio. Our 10 highest value holdings have seen revenue growth at an
impressive average of 117% year-on-year and raised over US$300 million in
equity capital despite a more challenging macroeconomic and fundraising
environment. Yet this strong performance has largely been offset by multiple
compression in comparable public markets. The growth in our portfolio through
the cycle reflects the quality of many of our companies and the unabated
advance of digital transformation in the financial services sector.
The digital-asset sector suffered from a series of high-profile collapses and
subsequent contagion during 2022. These events highlighted critical gaps in
regulation and naivety in the nascent market structure. The response from
regulators has been an acceleration in policy development and enforcement
action. Europe has positioned itself as a leader through the Markets in Crypto
Asset (MiCA) regulation that will apply from 2024 and brings welcome clarity
to digital asset firms who are committed to building compliant, legitimate
businesses. This clarity is lacking in the US market where enforcement action
against high profile firms has increased and we expect to see the biggest
players in the market move their domicile from the US to Europe, the Middle
East or Asia unless this changes in the coming year.
Recent advances in generative AI have instigated a wave of interest in the
technology and its future application in financial services. We believe that
generative AI will significantly increase the efficiency of generalisable
content-related tasks across industries such as coding and marketing. For more
complex financial services use cases, where accuracy and compliance are
imperative, it is still early from both a technology and regulatory
perspective. For now we remain in discovery mode but it is our job as thesis
driven investors to be ahead of the curve on the investment opportunities that
these innovative technologies create.
From our perspective, it has taken the full year of 2022 and the first half of
2023 for the valuation expectations of founding teams and investors to
reconverge. Our level of new investment activity, lower than previous periods,
has reflected this. We expect the second half of 2023 to be more active than
the first half as a result of a larger number of better quality fintechs
coming to the market for more capital. Following the reset to private market
valuations, this will be an exciting time to deploy early-stage capital.
We are a specialist investor in high potential businesses that are disrupting
one of the largest and most profitable sectors of the economy. Our fintech
specialism and strong balance sheet position leave us well positioned to take
advantage of normalised investment conditions. We remain committed to a
diversified, private-market strategy to deliver long-term returns.
Investment Activity
Investment activity during the year totalled £19.9 million. This is lower
than the Company’s annual average since IPO of £36.4 million but has been
appropriate during the period of adjustment that the investment environment
has moved through.
New investment activity followed from high conviction thesis development in
the areas of digital payments and cyber-insurance, and has been the product of
our pan-European strategy, with both new investments located outside the UK.
In my half-year report I introduced our investment in Kipp, an Israeli
innovator in online payment acceptance. In the period since, we have welcomed
German cyber-insurance provider Baobab to the portfolio. Both companies
characterise our early-stage strategy with teams who bring deep
domain-expertise, technology that drives differentiation and a competitive
advantage, and large, growing market opportunities.
These new investments, totalling £6.6 million, were secured off-market,
outside of competitive investment processes, on the basis of strong
relationships with the founding teams and their confidence in Augmentum as the
right investment partner. Our thesis driven approach is particularly important
when identifying early-stage opportunities ahead of our competition.
We continue to take advantage of our ability to support the strong performers
in the portfolio with further capital and completed eight follow-on
investments totalling £13.1 million.
With proceeds, now received, from our fifth portfolio exit, of Cushon to
NatWest Group, the Company ends the period with a strong balance sheet.
New Investments
Falling within our thesis of optimisation in the digital payment technology
stack, Augmentum invested £4.0 million in Kipp in May 2022. The acceptance of
card payments in ecommerce transactions remains a critical issue for merchants
and issuing banks, particularly in cross-border payment contexts. Kipp’s
platform enables these parties to engage in real time information sharing to
reduce rates of false-positive payment decline. Kipp is delivering significant
additional conversion of transactions that would otherwise be lost across
their initial cohort of international merchant customers.
Cyber-attacks represent a growing risk to businesses of all sizes and the
insurance market is undergoing a rapid expansion, with the value of premiums
expected to scale to US$22 billion by 20251. An integrated, data-driven
approach is critical to understanding risk at an individual business level and
to price policies accordingly. Incumbent insurers are not effectively set up
to carry out data collection and assessment at scale and herein lies the
opportunity for fintechs. In January 2023 Augmentum invested £2.6 million in
Baobab, who provide coverage to SMEs in Germany and Austria with capacity
provided by Zurich Insurance.
1 Munich Re, 2022
Portfolio
As I wrote to you in my half-year report, our team’s experience as operators
and active engagement through board positions has played a significant role in
helping our companies to navigate the change in market conditions. Throughout
2022 and 2023 cost control and sustainable growth have been core areas of
focus.
Follow-on funding is also another avenue of portfolio support and we completed
eight investments into the existing portfolio during the period. The funding
rounds we participated in either supported companies with runway to breakeven
or provided additional time ahead of their next funding round. For the
companies that will fundraise in the year ahead we expect conditions to be
more favourable, assuming they have used this period of market resettlement to
realign strategy and costs to current conditions.
Follow-on Investments and Other Top 10
Early in the period, in July 2022, we invested £2.0 million in Previse’s
£14.5 million Series B funding round led by Tencent. Previse provides
embedded lending and payment technology within B2B supply chains. They are the
technology provider behind Mastercard’s virtual card solution for businesses
available in more than 100 markets. During 2023 Previse has taken steps to
rationalise its product suite and there has been compression in the valuation
multiples of listed peers. The fair value of our holding has accordingly
reduced £1.9 million in the year.
In November 2022 we invested a further £2.7 million into Anyfin, the leading
consumer credit refinancing player in the Nordics and Germany. Augmentum’s
investment formed part of a €30 million Series C round which will take the
company to breakeven in 2024. The round was led by existing investors along
with a strategic investment from the venture investment arm of Citibank.
Anyfin has seen strong counter cyclical demand for its product but has
maintained discipline in underwriting approach given market conditions. The
revaluation of our holding, down £3.3 million, reflects compression in market
multiples in the listed lending vertical.
In January 2023 we invested £4 million into Zopa which, along with a £0.5
million uplift, takes the total value of our holding to £30.1 million. Zopa
continues to deliver exceptional performance as a fully licensed bank with
increasingly diversified lending activity and total deposits approaching £4
billion. The company is performing ahead of budget and on track to achieve
full year profitability in 2023. The ability to maintain low cost of capital
through deposits and to draw from a 17 year lending track record translate
into a distinct competitive advantage for Zopa that is particularly powerful
in the current economic environment.
We made four small investments of under £1.5 million each as part of funding
rounds for Farewill, Wayhome and Habito, and supported Cushon through their
acquisition process with a short-term investment that has since been returned
as part of exit proceeds.
At the beginning of the calendar year we received a dividend of £0.6 million
from BullionVault following strong trading performance and profitability,
driving a £2.1 million valuation increase. The company is a leading precious
metals investment marketplace and continues to trade well during periods of
volatility in mainstream markets.
Grover (valuation up £0.7 million in the year) has enjoyed a successful year
in its transition towards long-term profitable growth. Total subscription
value as at the reporting date was rapidly nearing €250 million representing
50% year-on-year growth in the top line despite a near 50% year-on-year
reduction in quarterly marketing spend. Average cost of customer acquisition
has fallen by 25% since Q1 2022 with net revenue retention above 100%.
Grover’s nascent B2B offering now represents fully 15% of overall
subscription revenue, with the international business growing at nearly 20%
month-on-month and growth outstripping the retail business in the domestic
market.
Our second largest holding, Tide, is well established as the leading digital
business banking platform for SMEs in the UK with half a million customers and
market share of 9%. In the last 12 months considerable progress has been made
on revenue diversification and geographical expansion with the official launch
of Tide India taking place in December 2022. Year-on-year revenue growth of
74% has more than offset valuation multiple compression to deliver an 18%
(£7.5 million) increase in our holding value. Tide completed their first
acquisition; absorbing SME credit marketplace Funding Options into the
business to broaden credit access for Tide customers. Tide is well positioned
to consider additional acquisitions in the current market environment in order
to further broaden product capabilities or geographical presence.
Fifty countries and counting now have an Open Banking initiative in place and
account-to-account (“A2A”) payments - where funds are moved in real-time
between transacting parties - is the fastest growing use case. Volt are
established as a leading provider of account-to-account payment connectivity.
Through a unique network aggregation model, Volt’s coverage is expanding in
line with the global roll-out of Open Banking initiatives, delivering the
consistency and quality of service demanded by the highest-volume ecommerce
merchants and facilitators in twenty-five countries and counting. In June 2023
Worldpay, the world’s largest merchant acquirer, and ecommerce software
giant Shopify selected Volt as their global A2A partner. The increase in the
value of our holding, of £8.6 million, has been supported by exceptional
revenue growth and post-period end Volt announced a Series B fundraising of
US$60 million led by US based IVP with Augmentum investing a further £5.3
million.
Monese continues to advance their B2B strategy while maintaining moderated
growth in their pan-European retail banking platform. In May 2023 the company
announced their coreless banking platform under the new brand XYB. The last
twelve months have been a period of adjustment for the company to the new
strategy and market environment and we take confidence from the quality of
customers that XYB has been able to secure, supported by a healthy pipeline.
In September 2022, the strategic venture arm of HSBC joined Investec Bank with
a £30 million investment driven by their interest in XYBs technology and
delivery capability. Despite this positive newsflow Monese's valuation fell
£1.5 million.
Onfido’s product is primarily used in customer on-boarding with volumes
therefore influenced by product demand. With a mix of financial services
verticals represented in the customer base, reduced on-boarding in areas such
as digital assets has been offset by continued expansion in verticals such as
digital banking. Onfido are another of our portfolio who have taken advantage
of value-pricing in the market to extend product capabilities through
acquisition, announcing the acquisition of Airside Mobile in May 2023 to
accelerate product development in the area of re-usable digital ID. The
reduction in the fair value of our holding, of £5.1 million, is reflective of
compression in the valuation multiples of listed peers despite a positive
year-on-year growth rate and being on a fully funded pathway to profitability.
Our investments in the digital asset sector make up 5.2% (2022: 8.6%) of the
portfolio. Our thesis has focused on backing companies that have a long-term
view and are intent on building an institutional grade proposition underpinned
by robust regulatory frameworks. Despite our continued conviction in this
approach, our investments so far have disappointed, and we are reporting
significant reductions in the fair value of our positions in Gemini, Tesseract
and Parafi, of £2.2 million, £6.3 million and £2.0 million, respectively.
In the last 12 months digital asset markets have been undermined by actors
operating without regard for regulation and the general reduction in the
demand for risk assets in the new macroeconomic environment. The growth
trajectories of our companies have been impacted by these events and each has
taken steps to adjust costs and strategy to current trading conditions.
Exits
The Company saw its second significant exit during the year, with interactive
investor, the direct-to-consumer fixed fee investment platform, acquired by
abrdn in May 2022 for £1.49 billion. This resulted in proceeds for the
Company of £42.8 million, delivering an IRR of 84.8% and multiple on capital
invested of 11.1 times. interactive investor was an early investment in the
Augmentum portfolio, quite antithetical to most venture capital radars at the
point of investment. Under strong leadership and disciplined focus the company
grew rapidly to over £55 billion of customer assets under administration,
becoming the second largest self-directed investment platform in the UK.
The acquisition of workplace pensions provider Cushon by NatWest Group was
announced during the period in February 2023 and, following regulatory
approval, completed post-period end on 1st June. Augmentum received proceeds
of £22.8 million from the sale, giving an IRR of 61.6% and multiple on
capital invested of 2.1 times. Realised value represents a c40% uplift on the
holding value we reported in the Company’s half year results. This marks the
fifth exit from the portfolio and is a further example of our measured
approach to valuation; each exit to date has been realised above or on-par
with the previously reported carrying value.
Performance
For the year to 31 March 2023 we are reporting gains on investments of £9.9
million (2022 £56.7 million). Since IPO this represents an IRR of 18.5% on
the capital that we have deployed.
We continue to take a consistent and disciplined approach to arrive at fair
values for the Company’s portfolio positions. The valuation methodology (or
methodologies) applied to each company is selected with consideration of
individual stage and circumstance. Our growing track record of exits shows
realisations above or on-par with the last reported holding value.
In recent reports we have spoken more actively to shareholders about the
downside protections that form an integral part of the structure of our
typical investments. The most common protections across the portfolio are
liquidation preferences and anti-dilution provisions with 21 out of 25
portfolio positions protected by at least one of these.
These structures differentiate our shareholdings from ordinary shares held in
public or private companies because they protect value in the eventuality that
a company’s headline valuation is reduced. Through the market volatility of
2022 these structures provided additional support to the holding value of some
of our positions, particularly those held in earlier stage companies.
Our diversified portfolio approach also remains important. This extends across
verticals, stages of maturity and geographies and reduces our overall exposure
to market impact on any one of these.
Outlook
In the dislocation that follows from periods of economic turbulence,
entrepreneurs are presented with new opportunities to establish
ground-breaking businesses. This principle can also apply to venture capital
firms that operate with a clear purpose and we have welcomed the general
retreat of ‘tourist capital’ and the so-called ‘mega-rounds’ that
played a distortionary role in private markets during the second half of 2020
and 2021.
Quality deal flow is visibly improving as companies funded internally through
the turbulence of 2022 are now returning to market. Amongst them are high
potential prospects in line with our mandate which are bolstering the
investment pipeline. Increasing levels of “dry powder” in the market
maintain competition for quality companies but our thesis driven approach and
unique proposition – fintech specialism, patient capital and operating
experience – continue to cut through.
Less compelling investment opportunities are also returning to market, and we
anticipate a further shakeout and consolidation of companies to come. Several
of our established portfolio companies have already found value-opportunities
to add product and personnel capabilities through acquisition. As fast-growing
market leaders in their respective fintech verticals they are well positioned
to consider further opportunities in the period ahead. Investors should see
this is another signal of maturity in the portfolio along with progression
towards profitability and exit.
The headroom for further disruption in financial services remains significant
and recent policy dialogue provides us many reasons for optimism around the
future of the technology sector in the UK and Europe. Strong cross-party
support was in evidence at the recent London Tech Week (June 2023) where both
the Prime Minister and Leader of the Opposition spoke in favour of further
investment and progressive regulation in the UK in order to capture the
economy-wide benefits of a generational opportunity in AI. Reforms such as the
removal of the fee cap on defined contribution pension funds and a potential
UK sovereign wealth fund will begin to address the historic under-investment
from UK institutions in the venture capital asset class. In the interests of
the UK building on its preeminent position in European fintech we hope and
expect that those with the power to implement these measures proceed to do so
in a full and timely fashion.
As we navigate an evolving investment and technology landscape where change is
not uniform across countries, it is ever more important to continue to develop
our brand across Europe. We are well positioned to identify and win
exceptional investment opportunities and build on our reputation as one of
Europe’s leading fintech venture investors.
Tim Levene CEO
Augmentum Fintech Management Ltd
3 July 2023
.
INVESTMENT OBJECTIVE AND POLICY
Investment objective
The Company’s investment objective is to generate capital growth over the
long term through investment in a focused portfolio of fast growing and/or
high potential private financial services technology (“fintech”)
businesses based predominantly in the UK and wider Europe.
Investment policy
In order to achieve its investment objective, the Company invests in early or
later stage investments in unquoted fintech businesses. The Company intends
to realise value through exiting these investments over time.
The Company seeks exposure to early stage businesses which are high growth,
with scalable opportunities, and have disruptive technologies in the banking,
insurance and wealth and asset management sectors as well as those that
provide services to underpin the financial sector and other cross-industry
propositions.
Investments are expected to be mainly in the form of equity and equity-related
instruments issued by portfolio companies, although investments may be made by
way of convertible debt instruments. The Company intends to invest in unquoted
companies and will ensure that the Company has suitable investor protection
rights where appropriate. The Company may also invest in partnerships, limited
liability partnerships and other legal forms of entity. The Company will not
invest in publicly traded companies. However, portfolio companies may seek
initial public offerings from time to time, in which case the Company may
continue to hold such investments without restriction.
The Company may acquire investments directly or by way of holdings in special
purpose vehicles or intermediate holding entities (such as the Partnership*).
The Management Team has historically taken a board or board observer position
at investee companies and, where in the best interests of the Company, will do
so in relation to future investee companies.
The Company’s portfolio is expected to be diversified across a number of
geographical areas predominantly within the UK and wider Europe, and the
Company will at all times invest and manage the portfolio in a manner
consistent with spreading investment risk.
The Management Team will actively manage the portfolio to maximise returns,
including helping to scale the team, refining and driving key performance
indicators, stimulating growth, and positively influencing future financing
and exits.
Investment restrictions
The Company will invest and manage its assets with the object of spreading
risk through the following investment restrictions:
• the value of no single investment (including related investments in group
entities or related parties) will represent more than 15 per cent. of Net
Asset Value;
• the aggregate value of seed stage investments will represent no more than
1 per cent. of Net Asset Value; and
• at least 80 per cent. of Net Asset Value will be invested in businesses
which are headquartered in or have their main centre of business in the UK or
wider Europe.
In addition, the Company will itself not invest more than 15 per cent. of its
gross assets in other investment companies or investment trusts which are
listed on the Official List of the FCA.
Each of the restrictions above will be calculated at the time of investment
and disregard the effect of the receipt of rights, bonuses, benefits in the
nature of capital or by reason of any other action affecting every holder of
that investment. The Company will not be required to dispose of any investment
or to rebalance the portfolio as a result of a change in the respective
valuations of its assets.
Hedging and derivatives
Save for investments made using equity-related instruments as described above,
the Company will not employ derivatives of any kind for investment purposes,
but derivatives may be used for currency hedging purposes.
Borrowing policy
The Company may, from time to time, use borrowings to manage its working
capital requirements but shall not borrow for investment purposes. Borrowings
will not exceed 10 per cent. of the Company’s Net Asset Value, calculated at
the time of borrowing.
Cash management
The Company may hold cash on deposit and may invest in cash equivalent
investments, which may include short-term investments in money market type
funds and tradeable debt securities.
There is no restriction on the amount of cash or cash equivalent investments
that the Company may hold or where it is held. The Board has agreed prudent
cash management guidelines with the AIFM and the Portfolio Manager to ensure
an appropriate risk/return profile is maintained. Cash and cash equivalents
are held with approved counterparties.
It is expected that the Company will hold between 5 and 15 per cent. of its
Gross Assets in cash or cash equivalent investments, for the purpose of making
follow-on investments in accordance with the Company’s investment policy and
to manage the working capital requirements of the Company.
Changes to the investment policy
No material change will be made to the investment policy without the approval
of Shareholders by ordinary resolution. Non-material changes to the investment
policy may be approved by the Board. In the event of a breach of the
investment policy set out above or the investment and gearing restrictions set
out therein, the Management Team shall inform the AIFM and the Board upon
becoming aware of the same and if the AIFM and/or the Board considers the
breach to be material, notification will be made to a Regulatory Information
Service.
* Please refer to the Glossary on page 79.
.
PORTFOLIO REVIEW
Fair value of Net Impact of foreign currency rate changes £’000 Investment Fair value of % of Net assets after performance fee
holding at investments/ return holding at
31 March (realisations £’000 31 March
2022 £’000 2023
£’000 £’000
Grover 42,415 – 1,833 (1,098) 43,150 15.5%
Tide 28,221 – – 7,471 35,692 12.9%
Zopa ^ 25,577 4,000 – 516 30,093 10.8%
Cushon 13,584 750 – 8,456 22,790 8.2%
Volt 5,608 – – 8,608 14,216 5.1%
Monese 13,225 – – (1,542) 11,683 4.2%
BullionVault ^ 10,023 (564) – 2,106 11,565 4.2%
Onfido 15,393 – 1,198 (6,349) 10,242 3.7%
AnyFin 9,870 2,709 57 (3,331) 9,305 3.4%
Intellis 4,003 – 232 4,177 8,412 3.0%
Top 10 Investments 167,919 6,895 3,320 19,014 197,148 71.0%
interactive investor ^ 42,797 (42,797) – – – 0.0%
Other Investments * 58,091 11,532 2,325 (14,801)** 57,147 20.6%
Total Investments 268,807 (24,370) 5,645 4,213 254,295 91.6%
Cash & cash equivalents 31,326 40,015 14.4%
Net other current liabilities (4,929) (186) -0.1%
Net Assets 295,204 294,124 105.9%
Performance Fee provision (15,265) (16,819) -5.9%
Net Assets after performance fee 279,939 277,305 100.0%
^ Held via Augmentum I LP
* There are fifteen other investments (31 March 2022: fourteen). See pages
13 and 14 for further details.
** The Other Investments investment loss is primarily from write-downs in the
valuations of Gemini and Tesseract, as detailed on page 17.
.
KEY INVESTMENTS
Grover
Berlin-based Grover (www.grover.com) is the leading consumer-tech subscription
platform, bringing the access economy to the consumer electronics market by
offering a simple, monthly subscription model for technology products. Private
and business customers have access to over 5,000 products including
smartphones, laptops, virtual reality technology, wearables and smart home
appliances. The Grover service allows users to keep, switch, buy, or return
products depending on their individual needs. Rentals are available in
Germany, Austria, the Netherlands, Spain and the US. Grover is at the
forefront of the circular economy, with products being returned, refurbished
and recirculated until the end of their usable life. Grover has circulated
over 1 million devices. With a total financing volume of around €1.4 billion
to date and over 400 employees, Grover is one of the fastest-growing scale-ups
in Europe.
In September 2019 Augmentum led a €11 million funding round with a €6
million convertible loan note (“CLN”) investment. This coincided with
Grover signing a new €30 million debt facility with Varengold Bank, one of
Germany’s major fintech banking partners. In March 2021 Grover completed a
€60 million Series B funding round, with Augmentum participating and
converting its CLN. The round was made up of €45 million from equity
investors and €15 million in venture debt financing. With its Series C
funding round in April 2022 Grover raised US$330 million in equity and debt
funding, bringing the company’s valuation to over US$1 billion.
Source: Grover 31 March 31 March
2023 2022
£’000 £’000
Cost: 7,927 7,927
Value: 43,150 42,415
Valuation Methodology^ Rev.Multiple CPORT
% ownership (fully diluted): 6.3% 6.4%
As an unquoted German company, Grover is not required to publicly file audited
accounts.
^ See note 13 on pages 62 and 63.
.
Tide
Tide’s (www.tide.co) mission is to help SMEs save time and money in the
running of their businesses. Customers can be set up with an account number
and sort code in less than 10 minutes, and the company is building a
comprehensive suite of digital banking services for businesses, including
automated accounting, instant access to credit, card control and quick, mobile
invoicing. Tide has almost 10% market share of small business accounts in the
UK.
In November 2022, Tide acquired Funding Options, a leading UK marketplace for
SMEs seeking business finance, subject to FCA approval. The merged credit
business will give Tide’s 500,000 customers access to a wider range of
credit options and creates one of the UK’s biggest digital marketplaces for
SME credit. In December 2022, Tide launched in India with two business banking
solutions – the Tide Business Account and its RuPay-powered Tide Expense
Card.
Augmentum led Tide’s £44.1 million first round of Series B funding in
September 2019, alongside Japanese investment firm The SBI Group. In July 2021
Tide completed an £80 million Series C funding round led by Apax Digital, in
which Augmentum invested an additional £2.2 million and into which the £2.5
million loan note converted.
Source: Tide 31 March 31 March
2023 2022
£’000 £’000
Cost: 13,200 13,200
Value: 35,692 28,221
Valuation Methodology^ Rev.Multiple Rev.Multiple
% ownership (fully diluted): 5.1% 5.4%
As per last filed audited accounts of the investee company for the year to 31
December 2021:
2021 2020
£’000 £’000
Turnover 33,541 14,442
Pre tax loss (32,719) (25,825)
Net assets 66,297 17,761
.
Zopa
Zopa (www.zopa.com) was founded in 2005 as the world’s first peer-to-peer
(“P2P”) lending company, aiming to give people access to simpler,
better-value loans and investments. Following a funding round in 2020 Zopa
launched Zopa Bank and was granted a full UK banking licence, which allowed it
to offer a wider product range. It is regulated by both the PRA and the FCA.
After 16 years of delivering positive returns for investors, Zopa closed the
P2P lending side of its business in 2021 to fully focus on Zopa Bank. Current
products include fixed term and smart savings, wedding and home improvement
loans, debt consolidation loans, a credit card and motor finance.
Zopa is a multiple awards winner. In 2021 Zopa was awarded Best Personal Loan
Provider and Best Credit Card Provider by the British Bank Awards, Best Online
Savings Provider by Moneynet Personal Finance, Best use of IT in Consumer
Finance in the FStech Awards and won the Personal Credit Cards Innovation
award in the Finder Lending Innovation Awards. In 2022 it won Best Short Term
Fixed Rate Bond Provider, Best Fixed Rate Bond Provider and Best New Savings
Provider in the Savings Champion Awards and was awarded Banking Brand of the
Year 2022 in the MoneyNet Awards.
Augmentum participated in a £20 million funding round led by Silverstripe in
March 2021, in October 2021 participated with a further £10 million
investment in a £220 million round led by SoftBank and in February 2023
invested a further £4 million as part of a £75 million funding round
alongside other existing investors.
Source: Zopa 31 March 31 March
2023 2022
£’000 £’000
Cost: 33,670 29,670
Value: 30,093 25,577
Valuation Methodology Rev.Multiple CPORT
% ownership (fully diluted): 3.4% 3.3%
As per last filed audited accounts of the investee company for the year to 31
December 2021:
2021 2020
£’000 £’000
Operating income 60,501 21,171
Pre tax loss (41,599) (41,479)
Net assets 270,512 134,074
.
Cushon
Cushon (www.cushon.co.uk) provides workplace pensions and payroll-linked ISAs
across the UK and is authorised by The Pensions Regulator to operate a master
trust pension scheme. In January 2021, Cushon became the first UK pension
provider to launch a fully carbon neutral ‘Net Zero Now’ pension product.
In April 2022 it finalised the acquisition of Creative Benefits, manager of
Creative Pension Trust, making it the fifth largest master trust pension
provider in the UK and doubling its assets under management.
NatWest Group, the FTSE 100 banking and financial services group, announced in
February 2023 that it had agreed to acquire a majority shareholding in Cushon.
The acquisition was completed on 1 June 2023.
Augmentum invested £5 million in Cushon in June 2021 and followed up with a
further £5 million in March 2022 and £750,000 in December 2022.
Source: Cushon 31 March 31 March
2023 2022
£’000 £’000
Cost: 10,750 10,000
Value 22,790 13,584
Valuation Methodology Sale Proceeds CPORT
% ownership (fully diluted): 13.9% 13.9%
As per last filed audited accounts of the investee company for the year to 31
March 2022:
2022 2021
£’000 £’000
Turnover 5,501 1,632
Pre tax loss (8,548) (3,742)
Net assets 7,394 5,407
.
Volt
Volt (www.volt.io) is a provider of account-to-account payments connectivity
for international merchants and payment service providers (PSPs). An
application of Open Banking, account-to-account payments – where funds are
moved directly from one bank account to another rather than via payment rails
– deliver benefits to both consumers and merchants. This helps merchants
shorten their cash cycle, increase conversion and lower their costs. In
October 2021 Volt announced their partnership with Worldline, the European
leader in payments and transactional services, giving over 600
enterprise-level merchants globally access to Volt’s open payments
infrastructure. It also announced its expansion into Brazil in November 2021
to integrate Brazil’s domestic instant payments network, Pix, and
established its physical presence in São Paolo.
Augmentum invested £0.5 million in Volt in December 2020 and a further £4
million in June 2021.
Source: Volt 31 March 31 March
2023 2022
£’000 £’000
Cost: 4,500 4,500
Value: 14,216 5,608
Valuation Methodology CPORT CPORT
% ownership (fully diluted): 8.3% 8.3%
Volt is not required to publicly file audited accounts.
.
Monese
With Monese (www.monese.com) you can open a UK or European current account in
minutes from your mobile, with a photo ID and a video selfie. Their core
customers are amongst the hundreds of millions of people who live some part of
their life in another country - whether it’s for travel, work, business,
study, family, or retirement.
With its mobile-only dual UK and Euro IBAN current account, its portability
across 31 countries, and both the app and its customer service available in 15
languages, Monese allows people and businesses to bank like a local across the
UK and Europe. Launched in 2015 Monese now has more than 2 million registered
users. 70% of incoming funds are from salary payments, indicating that
customers are using Monese as their primary account. In October 2020
Mastercard and Monese announced a multi-year strategic partnership, with
Monese becoming a principal Mastercard issuer. Monese’s new Banking as a
Service (“BaaS”) platform, which arrived following deals by Monese with
Mastercard and core banking provider Thought Machine, has been adopted by
Investec for its private client transactional banking service. In December
2021 the company expanded its credit and lending capabilities through the
acquisition of financial services provider Trezeo.
Augmentum is invested alongside Kinnevik, PayPal, International Airlines
Group, Investec and HSBC Ventures.
Source: Monese 31 March 31 March
2023 2022
£’000 £’000
Cost: 11,467 11,467
Value: 11,683 13,225
Valuation Methodology CPORT CPORT
% ownership (fully diluted)*: 6.0% 7.5%
* 2022: £0.9m of investment in a convertible loan note.
As per last filed audited accounts of the investee company for the year to 31
December 2021:
2021 2020
£’000 £’000
Turnover 17,573 16,285
Pre tax loss (17,529) (28,461)
Net liabilities (2,972) (15,410)
.
BullionVault
BullionVault (www.bullionvault.co.uk) is a physical gold and silver market for
private investors online. It enables people across 175 countries to buy and
sell professional-grade bullion at the very best prices online, with US$3.7
billion of assets under administration, over US$100 million worth of gold and
silver traded monthly, and over 100,000 clients.
Each user’s property is stored at an unbeaten low cost in secure, specialist
vaults in London, New York, Toronto, Singapore and Zurich. BullionVault’s
unique Daily Audit then proves the full allocation of client property every
day.
The company generates solid monthly profits from trading, commission and
interest. It is cash generative, dividend paying, and well-placed for any
downturns in the wider financial markets.
Source: BullionVault 31 March 31 March
2023 2022
£’000 £’000
Cost: 8,424 8,424
Value: 11,565 10,023
Valuation Methodology EBITDA Multiple EBITDA Multiple
% ownership (fully diluted): 11.1% 11.1%
Dividends paid: 564 520
As per last filed audited accounts of the investee company for the year to 31
October 2022:
2022 2021
£’000 £’000
Gross profit 13,071 12,086
Pre tax profit 8,364 7,741
Net assets 41,294 39,148
.
Onfido
Onfido (www.onfido.com) is building the new identity standard for the
internet. Its AI-based technology assesses whether a user’s
government-issued ID is genuine or fraudulent, and then compares it against
their facial biometrics. Using computer vision and a number of other AI
technologies, Onfido can verify against 4,500 different types of identity
documents across 195 countries, using techniques like “facial liveness’’
to see patterns invisible to the human eye.
Onfido was founded in 2012. It has offices in London, San Francisco, New York,
Lisbon, Paris, Amsterdam, New Delhi and Singapore and helps over 900
companies, including industry leaders such as Revolut, bung and Bitstamp.
These customers are choosing Onfido over others because of its ability to
scale, speed in on-boarding new customers (15 seconds for flash
verification), preventing fraud, and its advanced biometric technology.
Augmentum invested an additional £3.7 million in a convertible loan note in
December 2019 as part of a £4.7 million round. This converted into equity
when Onfido raised an additional £64.7 million in April 2020.
Source: Onfido 31 March 31 March
2023 2022
£’000 £’000
Cost: 7,750 7,750
Value: 10,242 15,393
Valuation Methodology Rev.Multiple Rev.Multiple
% ownership (fully diluted): 2.1% 2.3%
As per last filed audited accounts of the investee company for the 13 months
to 31 January 2022 (previous period 12 months to 31 December 2020):
2022 2020
£’000 £’000
Turnover 94,513 45,408
Pre tax loss (44,980) (34,712)
Net assets 39,221 68,508
.
Anyfin
Anyfin (www.anyfin.com) was founded in 2017 by former executives of Klarna,
Spotify and iZettle, and leverages technology to allow credit-worthy consumers
the opportunity to improve their financial wellbeing by consolidating and
refinancing existing credit agreements with improved interest rates, as well
as offering smart budgeting tools. Anyfin is currently available in Sweden,
Finland, Norway and Germany, with plans to expand across Europe as well as
strengthen its product suite in existing markets.
Augmentum invested £7.2 million in Anyfin in September 2021 as part of a $52
million funding round and a further £2.7 million in November 2022.
Source: Anyfin 31 March 31 March
2023 2022
£’000 £’000
Cost: 9,924 7,248
Value: 9,305 9,870
Valuation Methodology Rev. Multiple CPORT
% ownership (fully diluted): 3.2% 2.7%
As an unquoted Swedish company, Anyfin is not required to publicly file
audited accounts.
.
Intellis
Intellis, based in Switzerland, is an algorithmic powered quantitative hedge
fund operating in the FX space. Intellis’ proprietary approach takes a
conviction based assessment towards trading in the FX markets, a position
which is uncorrelated to traditional news driven trading firms. They operate
across a range of trading venues with a regulated Investment Trust fund
structure that enables seamless onboarding of new Liquidity Partners.
Augmentum exercised its option to invest a further €1 million in March 2020
and a further €1 million in March 2021.
Source: Intellis 31 March 31 March
2023 2022
£’000 £’000
Cost 2,696 2,696
Value 8,412 4,003
Valuation Methodology P/E Multiple CPORT
% ownership (fully diluted) 23.8% 23.8%
As an unquoted Swiss company, Intellis is not required to publicly file
audited accounts.
.
OTHER INVESTMENTS
Gemini
Gemini (www.gemini.com) enables individuals and institutions to safely and
securely buy, sell and store cryptocurrencies. Gemini was founded in 2014 by
Cameron and Tyler Winklevoss and has been built with a security and regulation
first approach. Gemini operates as a New York trust company regulated by the
New York State Department of Financial Services (NYSDFS) and was the first
cryptocurrency exchange and custodian to secure SOC 1 Type 2 and SOC 2 Type 2
certification. Gemini entered the UK market in 2020 with an FCA Electronic
Money Institution licence. Gemini announced acquisitions of portfolio
management services company BITRIA and trading platform Omniex in January
2022.
Augmentum participated in Gemini’s first ever funding round in November 2021
with an investment of £10.2 million.
.
Iwoca
Founded in 2011, iwoca (www.iwoca.co.uk) uses award-winning technology to
disrupt small business lending across Europe. They offer short-term loans of
up to £500,000 to SMEs across the UK and Germany. iwoca leverages online
integrations with high-street banks, payment processors and sector-specific
providers to look at thousands of data points for each business. These feed
into a risk engine that enables the company to make a fair assessment of any
business – from a retailer to a restaurant, a factory to a farm – and
approve a credit facility within hours. The company has offered more than £3
billion of finance to over 70,000 SMEs in total and successfully lent £370
million through the Coronavirus Business Interruption Loan Scheme to
businesses grappling with the fallout of the economic crisis caused by the
coronavirus. iwoca launched iwocaPay in June 2020, an innovative
business-to-business (B2B) ‘buy now pay later’ product to provide flexible
payment terms to buyers while giving peace of mind to sellers.
.
Farewill
In the next 10 years, £1 trillion of inheritance will pass between
generations in the UK. Farewill (www.farewill.com) is a digital, all-in-one
financial and legal services platform for dealing with death and after-death
services, including wills, probate and cremation. In 2022 Farewill won
National Will Writing Firm of the Year for the fourth year in a row and in
2021 was Probate Provider of the Year for the second consecutive year at the
British Wills and Probate Awards. Farewill also won Best Funeral Information
Provider and Low-cost Funeral Provider of the Year at the Good Funeral Awards
2021. The organisation has also been voted the UK’s best-rated death
experts on Trustpilot, scoring an average customer approval rating of 4.9/5
from over 13,000 reviews. It is now the largest will writer in the UK.
Since its launch in 2015 Farewill’s customers have pledged over £450
million in legacy gifts written into their wills.
Augmentum led Farewill’s £7.5 million Series A fundraise in January 2019,
with a £4 million investment, participated in its £20 million Series B, led
by Highland Europe in July 2020, with £2.6 million, and in its further £4.8
million fundraise in March 2023, with £0.8 million.
.
Wematch
Wematch (www.wematch.live) is a capital markets trading platform that helps
financial institutions transition liquidity to an orderly electronic service,
improving productivity and de-risking the process of voice broking. Their
solution helps traders find liquidity, negotiate, trade, optimise and manage
the lifecycle of their portfolios of assets and trade structures. Wematch is
focused on structured products such as securities financing, OTC equity
derivatives and OTC cleared interest rates derivatives.
Created in 2017, Wematch is headquartered in Tel Aviv and has offices in
London and Paris. In February 2023 it passed a milestone of $150 billion
notional in ongoing open trades on their platform and in March announced a
collaboration with MTS Markets, owned by Euronext, creating MTS Swaps by
Wematch.live, which aims to bridge the gap between legacy voice trading and
pure electronic trading in the interdealer IRS market.
Augmentum invested £3.7 million in September 2021.
.
Kipp
Kipp (www.letskipp.com) is an Israeli fintech that has developed an AI
platform that transforms the traditional payment model to increase credit card
transaction approvals, revenue, and customer satisfaction. Its core solution
relies heavily on data enrichment and risk management to help merchants and
banks split the cost of risk to incentivize issuing banks to approve more
transactions.
Augmentum invested £4 million in May 2022.
.
Wayhome
Wayhome (www.wayhome.co.uk) offers a unique part-own part-rent model of home
ownership, requiring as little as 5% deposit with customers paying a market
rent on the portion of the home that Wayhome owns, with the ability to
increase the equity in the property as their financial circumstances allow. It
launched to the public in September 2021, following closure of the initial
phase of a £500 million pension fund investment and has crossed the milestone
of completing the purchase of its first 100 homes.
Wayhome opens up owner-occupied residential property as an asset class for
pension funds, who earn inflation-linked rent on the portion not owned by the
occupier.
Augmentum invested £2.5 million in 2019, £1 million in 2021 and a further
£0.9 million in the Company's financial year to 31 March 2023.
.
Previse
Previse (www.previ.se) allows suppliers to be paid instantly. Previse’s
artificial intelligence (“AI”) analyses the data from the invoices that
sellers send to their large corporate customers. Predictive analytics identify
the few problematic invoices, enabling the rest to be paid instantly. Previse
charges the suppliers a small fee for the convenience, and shares the profit
with the corporate buyer and the funder. Previse precisely quantifies dilution
risk so that funders can underwrite pre-approval payables at scale. In January
2022 Mastercard unveiled that its next-generation virtual card solution for
instant B2B payments would use Previse’s machine learning capabilities. The
solution combines Previse’s machine learning, with Mastercard’s core
commercial solutions and global payment network, to transform how businesses
send and receive payments.
Augmentum invested £250,000 in a convertible loan note in August 2019. This
converted into equity as part of the company’s US$11 million funding round
in March 2020, alongside Reefknot Investments and Mastercard, as well as
existing investors Bessemer Venture Partners and Hambro Perks. Previse was
awarded a £2.5 million Banking Competition Remedies’ Capability and
Innovation Fund grant in August 2020 In May 2022 Previse closed the first
phase of its series B financing round, which was led by Tencent, with US$18
million raised, including £2 million from Augmentum.
.
FullCircl
FullCircl (www.fullcircl.com) was formed from the combination of Artesian and
Duedil. Artesian was founded with a goal to change the way B2B sellers
communicate with their customers. They built a powerful sales intelligence
service using the latest in Artificial Intelligence and Natural Language
Processing to automate many of the time consuming, repetitive tasks that cause
the most pain for commercial people.
Augmentum originally invested in DueDil, which merged with Artesian in July
2021. Combining DueDil’s Business Information Graph (B.I.G.)™ and Premium
APIs, and Artesian’s powerful web application and advanced rules engine
delivers an easy to deploy solution for banks, insurers and FinTechs to
engage, onboard and grow the right business customers.
.
Baobab
Berlin based Baobab (www.baobab.io) is a pioneer in the provision of European
cyber insurance for SMEs. With capacity provision from Zurich, Baobab uses a
novel approach to underwriting, pricing and risk mitigation, and works with
leading SME cyber security providers to prevent breaches for its insured
customers.
Augmentum invested £2.6 million in January 2023.
.
ParaFi
ParaFi Capital (www.parafi.com) is an investor in decentralised finance
protocols that address tangible use cases of the technology and demonstrate
signs of product-market fit. The ParaFi investment has drawn on their domain
expertise developed in both traditional finance and crypto to identify and
invest in leading protocols such as Compound (lending and interest accrual),
Aave (asset borrowing), Uniswap (automated liquidity provision), Synthetix
(synthetic asset trading) and MakerDAO (stablecoins). ParaFi also supports its
protocols as a liquidity provider and governance participant.
Augmentum invested £2.8 million in ParaFi in January 2021. Co-investors
include Bain Capital Ventures and Galaxy Digital.
.
Epsor
Epsor (www.epsor.fr) is a Paris based provider of employee and retirement
savings plans delivered through an open ecosystem, giving access to a broad
range of asset management products accessible through its intuitive digital
platform. Epsor serves more than 700 companies in France.
Augmentum invested £2.2 million in Epsor in June 2021.
.
WhiskyInvestDirect
Founded in 2015, WhiskyInvestDirect (www.whiskyinvestdirect.com) was a
subsidiary of BullionVault and is the online market for buying and selling
Scotch whisky as it matures in barrel. This is an asset class that has a long
track record of growth, yet has previously been opaque and inaccessible.
The business seeks to change the way some of the three billion litres of
maturing Scottish whisky is owned, stored and financed, giving self-directed
investors an opportunity to profit from whisky ownership, with the ability to
trade 24/7. At its October 2022 financial year end the company's clients held
12 million LPA (Litres of Pure Alcohol) of spirit.
Augmentum's holding derives from WhiskeyInvestDirect being spun out of
BullionVault in 2020.
.
Sfermion
Sfermion is an investment fund focused on the non-fungible token (NFT)
ecosystem. Their goal is to accelerate the emergence of the open metaverse by
investing in the founders, companies, and entities creating the infrastructure
and environments forming the foundations of our digital future.
Augmentum committed US$3 million in October 2021, to be drawn down in
tranches.
.
Tesseract
Tesseract (www.tesseractinvestment.com) is a forerunner in the dynamic digital
asset sector, providing digital lending solutions to market makers and other
institutional market participants via regulated custody and exchange
platforms. Tesseract was founded in 2017, is regulated by the Finnish
Financial Supervisory Authority (“FIN-FSA”), and was one of the first
companies in the EU to obtain a 5AMLD (Fifth Anti-Money Laundering Directive)
virtual asset service provider (“VASP”) licence. It is the only VASP with
an express authorisation from the FIN-FSA to deploy client assets into
decentralized finance or “DeFi”.
Taking no principal position, Tesseract provides an enabling crypto
infrastructure to connect digital asset lenders with digital asset borrowers.
This brings enhanced capital efficiency with commensurate cost reduction to
trading, in a space that is currently significantly under-leveraged relative
to traditional capital markets.
Augmentum led Tesseract’s Series A funding round in June 2021 with an
investment of £7.3 million.
.
Habito
Habito (www.habito.com) is transforming the United Kingdom’s £1.3 trillion
mortgage market by taking the stress, arduous paperwork, hidden costs and
confusing process out of financing a home.
Since launching in April 2016, Habito had brokered £7 billion of mortgages by
July 2021. Habito launched its own buy-to-let mortgages in July 2019 and in
March 2021 launched a 40-year fixed-rate mortgage ‘Habito One’, the UK’s
longest-ever fixed rate mortgage.
In August 2019, Augmentum led Habito’s £35 million Series C funding round
with a £5 million investment and added £1.3 million in the Company's
financial year ended 31 March 2023.
.
STRATEGIC REPORT
Business Review
The Strategic Report, set out on pages 18 to 30, provides a review of the
Company’s business, the performance during the year and its strategy going
forward. It also considers the principal risks and uncertainties facing the
Company.
It also includes information for shareholders to assess how the Directors have
performed their duty to promote the success of the Company. In this respect,
information on how the Directors have discharged their duties under Section
172 of the Companies Act 2006 can be found on pages 26 and 27.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the date of this report and such statements should be
treated with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such forward-looking
information.
Strategy and Strategic Review
Throughout the year under review, the Company continued to operate as an
approved investment trust, following its investment objective and policy,
seeking to generate capital growth over the long term through investment in a
focused portfolio of fast growing and/or high potential private financial
services technology (“fintech”) businesses based predominantly in the UK
and wider Europe.
The Company is an alternative investment fund (“AIF”) under the
Alternative Investment Fund Managers Regulations (“UK AIFMD”) and has
appointed Frostrow Capital LLP as its alternative investment fund manager
(“AIFM”).
During the year, the Board, Frostrow Capital LLP as AIFM, and the Portfolio
Manager undertook all strategic and administrative activities.
Principal Risks and Risk Management
The Board considers that the risks detailed below are the principal risks
currently facing the Company. These are the risks that could affect the
ability of the Company to deliver its strategy.
The Board is responsible for the ongoing identification, evaluation and
management of the principal risks faced by the Company and has established a
process for the regular review of these risks and their mitigation. This
process accords with the UK Corporate Governance Code and the FRC’s Guidance
on Risk Management, Internal Control and Related Financial and Business
Reporting.
The Board has carried out a robust assessment of the emerging and principal
risks facing the Company, including those that would threaten its business
model, future performance, solvency and liquidity. Further details of the risk
management processes that are in place can be found in the Corporate
Governance Statement.
The Board's policy on risk management has not materially changed during the
course of the reporting period and up to the date of this report.
The Company maintains a framework of the key risks, with the policies and
processes devised to monitor, manage and mitigate them where possible. This
risk map is reviewed regularly by the Audit Committee.
Further details of the financial risks are included in note 13 starting on
page 61.
The Company’s key risks fall broadly under the following categories:
Principal Risks and Uncertainties Mitigation
Macroeconomic Risks The performance of the Group’s investment portfolio is materially influenced by economic conditions. These may affect demand for services supplied by investee companies, foreign exchange rates, input costs, interest rates, debt and Within the constraints dictated by its objective, the Company’s portfolio is diversified across a range of sectors, has no leverage, a net cash balance and, as set out below, the Portfolio Manager structures investments to provide downside protection, where possible. The Board, AIFM and Portfolio Manager monitor the macroeconomic environment and this is discussed at each Board meeting, along with the potential impact. The Portfolio Manager also provides a detailed update on the investments at each meeting, including, inter alia , developments in relation to the macro environment and trends.
equity capital markets and the number of active trade and financial buyers. All of these factors could have an impact on the Group’s ability to realise a return from its investments and cannot be directly controlled by the Group. Particular current factors
include high inflation, recession fears and sanctions related to the situation in Ukraine.
Strategy Implementation Risks The Group is subject to the risk that its long-term strategy and its level of performance fail to meet the expectations of its shareholders. A robust and sustainable corporate governance structure has been implemented with the Board responsible for continuing to act in the best interests of shareholders. An experienced fintech Portfolio Manager has been retained in order to deliver the strategy.
Investment Risks The performance of the Group’s portfolio is influenced by a number of factors. These include, but are not limited to: (i) the quality of the initial investment decision; (ii) reliance on co-investment parties; (iii) the quality of the The Portfolio Manager has put in place a rigorous investment process which ensures disciplined investment selection and portfolio management. This includes detailed due diligence, regular portfolio reviews and in many cases active engagement with portfolio companies by way of board representation or observer status. Investing in young businesses that may be cash consuming for a number of years is inherently risky. In order to reduce the risks of permanent capital loss the Portfolio Manager will, where possible, structure investments to afford a degree of downside protection through mechanisms such as a liquidation preference and/or anti-dilution provisions. As noted above the Portfolio Manager provides a detailed update at each Board meeting, including, inter alia, investee company developments and funding requirements.
management team of each underlying portfolio company and the ability of that team to successfully implement its business strategy; (iv) the success of the Portfolio Manager in building an effective working relationship with each team in order to agree and
implement value-creation strategies; (v) changes in the market or competitive environment in which each portfolio company operates; (vi) the macroeconomic risks described above; and (vii) environmental, social and governance (“ESG”) factors. Any of these
factors could have an impact on the valuation of an investment and on the Group’s ability to realise the investment in a profitable and timely manner. The Company also invests in early-stage companies which, by their nature, may be smaller capitalisation
companies. Such companies may not have the financial strength, diversity and the resources of larger and more established companies, and may find it more difficult to operate, especially in periods of low economic growth.
Portfolio Diversification Risk The Group is subject to the risk that its portfolio may not be diversified, being heavily concentrated in the fintech sector and the portfolio value may be dominated by a single or limited number of companies. The Group attempts to mitigate this risk by making investments across a range of companies in a range of fintech company subsectors and in companies at different stages of their lifecycle in accordance with the Investment Objective and Investment Policy. There is also geographic diversification with 66.6% of the portfolio being based in the UK and 33.4% in continental Europe, Israel and the US. Given the nature of the Company’s Investment Objective this remains a significant risk.
Cash Risk Returns to the Company through holding cash and cash equivalents are currently low. The Company may hold significant cash balances, particularly when a fundraising has taken place, and this may have a drag on the Company’s performance. The To mitigate this risk the Board has agreed prudent cash management guidelines with the AIFM and Portfolio Manager. The Group maintains sufficient cash resources to manage its ongoing operational and investment commitments. Regular discussions are held to consider the future cash requirements of the Company and its investments to ensure that sufficient cash is maintained.
Company may require cash to fund potential follow-on investments in existing investee companies. If the Company does not hold sufficient cash to participate in subsequent funding rounds carried out by portfolio companies, this could result in the interest
the Company holds in such businesses being diluted. This may have a material adverse effect on the Company’s financial position and returns for shareholders.
Credit Risk As noted the Company may hold significant cash balances. There is a risk that the banks with which the cash is deposited fail and the Company could be adversely affected through either delay in accessing the cash deposits or the loss of the The Board has agreed prudent cash management guidelines with the AIFM to ensure an appropriate risk/return profile is maintained. Cash and cash equivalents are held with approved counterparties, who are required to have a high credit rating and financial strength. Compliance with these guidelines is monitored regularly and reported to the Board on a quarterly basis.
cash deposit. When evaluating counterparties there can be no assurance that the review will reveal or highlight all relevant facts and circumstances that may be necessary or helpful in evaluating the creditworthiness of the counterparty.
Valuation Risk The valuation of investments in accordance with IFRS 13 and International Private Equity and Venture Capital (IPEV) Valuation Guidelines requires considerable judgement and is explained in note 19.17. The Company’s investments are illiquid The Company has a rigorous valuation policy and process as set out in notes 19.4 and 19.17. This process is led by the Board and includes benchmarking valuations against actual prices received when a sale of shares is made, as well as taking account of liquidity issues and/or any restrictions over investments.
and a sale may require consent of other interested parties. Such investments may therefore be difficult to value and realise. Such realisations may involve significant time and cost and/or result in realisations at levels below the value of such
investments as estimated by the Company. Valuations are often based on comparator prices and market-based multiples, which can be affected by equity market sentiment and comparators’ situations that may not reflect the individual positions of companies
invested in.
Operational Risk The Board is reliant on the systems of the Group and Company’s service providers and as such disruption to, or a failure of, those systems could lead to a failure to comply with law and regulations leading to reputational damage and/or To manage these risks the Board: • receives a quarterly compliance report from the AIFM and the Portfolio Manager, which includes, inter alia, details of compliance with applicable laws and regulations; • reviews internal control reports, where available, key policies, including measures taken to combat cybersecurity issues, and also the disaster recovery procedures of its service providers; • maintains a risk matrix with details of risks to which the Group and Company are exposed, the controls relied on to manage those risks and the frequency of operation of the controls; and • receives updates on pending changes to the regulatory and legal environment and progress towards the Group and Company’s compliance with these.
financial loss to the Group and/or Company.
Key person risk There is a risk that the individuals responsible for managing the portfolio may leave their employment or may be prevented from undertaking their duties. The Board manages this risk by: • receiving reports from AFML at each Board meeting, such reports include any significant changes in the make-up of the team supporting the Company; • delegating to the Management Engagement & Remuneration Committee oversight of the remuneration of employees of AFML; • meeting the wider team, outside the designated lead managers, at the Portfolio Manager’s offices and by video conference, and encouraging the participation of the wider AFML team in investor updates; and • delegating to the Management Engagement & Remuneration Committee responsibility to perform an annual review of the service received from AFML, including, inter alia , the team supporting the lead managers and succession planning.
Emerging Risks
The Company has carried out a robust assessment of the Company’s emerging
and principal risks and the procedures in place to identify emerging risks are
described below. The International Risk Governance Council definition of an
‘emerging’ risk is one that is new, or is a familiar risk in a new or
unfamiliar context or under new context conditions (re-emerging). Failure to
identify emerging risks may cause mitigating actions to be reactive rather
than being proactive and, in the worst case, could cause the Company to become
unviable or otherwise fail or force the Company to change its structure,
objective or strategy.
The Audit Committee reviews the risk map at least half-yearly. Emerging risks
are discussed in detail as part of this process and also throughout the year
to try to ensure that emerging (as well as known) risks are identified and, so
far as practicable, mitigated.
The experience and knowledge of the Directors are useful in these discussions,
as are update papers and advice received from the Board’s key service
providers such as the Portfolio Manager, the AIFM and the Company’s Brokers.
In addition, the Company is a member of the AIC, which provides regular
technical updates as well as drawing members’ attention to forthcoming
industry and/or regulatory issues and advising on compliance obligations.
Ukraine
The Board continues to monitor events in Ukraine and related sanctions. The
Board remains confident that the situation should have no direct impact on the
Company and has not identified any Russian shareholders in the Company. The
portfolio companies have no Russian operations.
ESG
As mentioned above under Investment Risks, the Board recognises the risks
posed by environmental, social and governance (“ESG”) factors,
particularly with respect to the portfolio. Investment companies are currently
exempt from reporting under the Task Force on Climate-Related Financial
Disclosures (“TCFD”) and the Company has not voluntarily adopted the
requirements, but recognises the potential for reputational risk should the
Company not meet investor expectations in relation to ESG. This, together with
ESG factors that might affect portfolio companies, is considered to be an
emerging risk area for the Company. ESG risk assessment is embedded in the
Portfolio Manager's due diligence and decision-making process when investing
in new companies and monitored thereafter.
Performance and Prospects
Performance
The Board assesses the Company’s performance in meeting its objective
against the following Key Performance Indicators (“KPIs”). Due to the
unique nature and investment policy of the Company, with no direct listed
competitors or comparable indices, the Board considers that there is no
relevant external comparison against which to assess the KPIs and as such
performance against the KPIs is considered on an absolute basis. Information
on the Company’s performance is provided in the Chairman’s Statement and
the Portfolio Manager’s Review. The KPIs have not changed from the prior
year:
• The Net Asset Value (“NAV”) per share after performance fee total
return*
The Directors regard the Company’s NAV per share after performance fee total
return as being the critical measure of value delivered to shareholders over
the long term. The Board considers that the NAV per share after performance
fee better reflects the current value of each share than the consolidated NAV
per share figure, the calculation of which eliminates the performance fee.
This is an Alternative Performance Measure (“APM”) and its calculation is
explained in the Glossary on page 79 and in note 16 on page 64. Essentially,
it adds back distributions made in the period to the change in the NAV after
performance fee to arrive at a total return.
The Group’s NAV per share after performance fee total return for the year
was 2.4% (2022: 19.0%). This result is discussed in the Chairman's Statement
on page 2.
• The Total Shareholder Return (“TSR”)*
The Directors also regard the Company’s TSR as a key indicator of
performance. Like the NAV per share after performance fee total return
discussed above, this is an APM and its calculation is explained in the
Glossary on page 79. The TSR is similar in nature to the NAV per share after
performance fee total return, except that it adds back distributions made in
the period to the change in the share price, to reflect more closely the
return in the hands of shareholders. Share price performance is monitored
closely by the Board.
The Company's TSR for the year was (27.1%) (2022: (16.4%)) reflecting the
swing in market sentiment against listed growth and tech stocks from the
beginning of 2022 and the associated wide discount to NAV at which the
Company's shares have traded.
• Ongoing Charges Ratio (“OCR”)*
Ongoing charges represent the costs that shareholders can reasonably expect to
pay from one year to the next, under normal circumstances.
The Board is cognisant of costs and reviews the level of expenses at each
Board meeting. It works hard to maintain a sensible balance between strong
service and keeping costs down.
The terms of appointment of the Company’s AIFM and the Portfolio Manager are
set out on pages 23 and 24. In reviewing their continued appointment the Board
took into account the ongoing charges ratio of other investment companies with
specialist mandates.
The Group’s OCR for the year was 1.9% (2022: 1.7%).
Discount/Premium*
The Board monitors the price of the Company's shares in relation to their net
asset value after performance fee and the premium/discount at which the shares
trade. Shareholder approvals are sought each year to issue and buy back
shares, which can assist in reducing share price volatility. However, the
level of discount or premium is understood to be mostly a function of investor
sentiment and demand for the shares, over which the Board has little
influence. The Portfolio Manager, the management fee arrangements and the
Company’s cost base generally have not changed and the current discount
follows an extended period during which the shares traded at a premium to NAV.
The Board does not believe that Company specific factors have influenced the
discount. Rather, the share price falling to a discount to NAV at the
beginning of 2022 correlates with market sentiment turning against growth
stocks generally, with the Company's shares being affected notwithstanding the
portfolio’s potential. This situation continued unabated through the year
under review.
The Board has sought to communicate its faith in the underlying value of the
portfolio and simultaneously to take advantage of the discount by undertaking
a programme of accretive share buybacks, to the benefit of remaining
shareholders. It is thought that helping to create additional market liquidity
for sellers in this way also had an effect on stabilising the share price. All
shares purchased are held in treasury and will potentially be reissued when
the share price returns to a premium to NAV after performance fee. Shareholder
authorities to issue and buy back shares are being sought at the forthcoming
AGM.
* See Glossary on page 79
Prospects
The Company’s current position and prospects are described in the
Chairman’s Statement and Portfolio Manager’s Review sections of this
annual report.
Performance and Future developments
The Board’s primary focus is on the Portfolio Manager’s investment
approach and performance. The subject is thoroughly discussed at every Board
meeting.
In addition, the AIFM updates the Board on company communications, promotions
and investor feedback, as well as wider investment issues.
An outline of performance, investment activity and strategy, market background
during the year and the outlook is provided in the Chairman’s Statement on
pages 2 to 4 and the Portfolio Manager’s Review on pages 15 to 17.
Viability Statement
The Board has considered the Company’s financial position, including its
ability to liquidate portfolio assets and meet its expenses as they fall due,
and notes the following:
As part of its review the Board considered the impact of a significant and
prolonged decline in the Company’s performance and prospects. This included
a range of plausible downside scenarios such as reviewing the effects of
substantial falls in investment values and the impact on the Company’s
ongoing charges.
The expenses of the Company are predictable and modest in comparison with the
assets and there are no capital commitments currently foreseen which would
alter that position.
In considering the Company’s longer-term viability, as well as considering
the principal risks on pages 18 to 21 and the financial position of the
Company, the Board considered the following factors and assumptions:
• The Company is and will continue to be invested primarily in long-term
illiquid investments which are not publicly traded;
• The Board reviews the liquidity of the Company, regularly considers any
commitments it has and cash flow projections;
• The Board, AIFM and Portfolio Manager will continue to adopt a long-term
view when making investments and anticipated holding periods will be at least
five years;
• As detailed in the Directors’ Report, the Valuations Committee oversees
the valuation process;
• There will continue to be demand for investment trusts;
• Regulation will not increase to a level that makes running the Company
uneconomical; and
• The performance of the Company will continue to be satisfactory.
Whilst acknowledging that market and economic uncertainty remain heightened in
view of current inflation, concerns about a recession and the Ukraine
conflict, based on the results of its review, and taking into account the
long-term nature of the Company, the Board has a reasonable expectation that
the Company will be able to continue its operations and meet its expenses and
liabilities as they fall due for the foreseeable future, taken to mean at
least the next five years. The Board has chosen this period because, whilst it
has no information to suggest this judgement will need to change in the coming
five years, forecasting over longer periods is imprecise. The Board’s
long-term view of viability will, of course, be updated each year in the
annual report.
Going Concern
In light of the conclusions drawn in the foregoing Viability Statement and as
set out in note 19.1 to the financial statements on page 65, the Company has
adequate financial resources to continue in operational existence for at least
the next 12 months from the date of signing of this report.
Therefore, the Directors believe that it is appropriate to continue to adopt
the going concern basis in preparing the financial statements. In reviewing
the position as at the date of this report, the Board has considered the
guidance on this matter issued by the Financial Reporting Council.
Management Arrangements
Principal Service Providers
The Company is structured as an internally managed closed-ended investment
company. Augmentum Fintech Management Limited (“Portfolio Manager”) is the
wholly owned operating subsidiary of the Company that manages the investment
portfolio of the Company as a delegate of the AIFM.
The other principal service providers to the Company are Frostrow Capital LLP
(“Frostrow” or the “AIFM”) and IQ EQ Depositary Company (UK) Limited
(the “Depositary”). Details of their key responsibilities and their
contractual arrangements with the Company follow.
Alternative Investment Fund Manager (“AIFM”)
Frostrow, under the terms of its AIFM agreement with the Company, provides,
inter alia, the following services:
• oversight of the portfolio management function delegated to Augmentum
Fintech Management Limited;
• promotion of the Company’s shares;
• investment portfolio administration and valuation;
• risk management services;
• share price discount and premium monitoring;
• administrative and company secretarial services;
• advice and guidance in respect of corporate governance requirements;
• maintenance of the Company’s accounting records;
• review of the Company’s website;
• preparation and publication of annual and half year reports; and
• ensuring compliance with applicable legal and regulatory requirements.
AIFM Fees
Under the terms of the AIFM Agreement Frostrow is entitled to an annual fee
of:
• on NAV up to £150 million: 0.225% per annum;
• on that part of NAV in excess of £150 million and up to £500 million:
0.2% per annum; and
• on that part of NAV in excess of £500 million: 0.175% per annum,
calculated on the last working day of each month and payable monthly in
arrears.
The AIFM Agreement may be terminated by either party on giving notice of not
less than 12 months.
Portfolio Manager
Augmentum Fintech Management Limited, as delegate of the AIFM, is responsible
for the management of the Company’s portfolio of investments under an
agreement between it, the Company and Frostrow (the “Portfolio Management
Agreement”).
Under the terms of its Portfolio Management Agreement, Augmentum Fintech
Management Limited provides, inter alia, the following services:
• seeking out and evaluating investment opportunities;
• recommending the manner by which monies should be invested, disinvested,
retained or realised;
• advising on how rights conferred by the investments should be exercised;
• analysing the performance of investments made; and
• advising the Company in relation to trends, market movements and other
matters which may affect the investment objective and policy of the Company.
Portfolio Manager Fees
Portfolio Management Fee
Under the terms of the Portfolio Management Agreement Augmentum Fintech
Management Limited (the “Portfolio Manager”) receives an annual fee of
1.5% of the NAV per annum, falling to 1.0% of any NAV in excess of £250
million.
Performance Fee
The Portfolio Manager is entitled to a performance fee in respect of the
performance of any investments and follow-on investments. Each performance fee
operates in respect of investments made during a 24 month period and related
follow-on investments made for a further 36 month period, save that the first
performance fee would be in respect of investments acquired using 80% of the
net proceeds of the Company’s IPO in March 2018 (including the Initial
Portfolio), and related follow-on investments.
Subject to certain exceptions, the Portfolio Manager receives, in aggregate,
15% of the net realised cash profits from the investments and follow-on
investments made over the relevant period once the Company has received an
aggregate annualised 10% realised return on investments (the “hurdle”) and
follow-on investments made during the relevant period. The Portfolio
Manager’s return is subject to a ‘’catch-up’’ provision in its
favour. The performance fee is paid in cash as soon as practicable after the
end of each relevant period, save that at the discretion of the Board payments
of the performance fee may be made in circumstances where the relevant basket
of investments has been realised in part, subject to claw-back arrangements in
the event that payments have been made in excess of the Portfolio Manager’s
entitlement to any performance fees as calculated following the relevant
period.
Based on the investment valuations as at 31 March 2023 the hurdle has been
met, on an unrealised basis, and as such a performance fee has been provided
for as set out in notes 2 and 12. This will only be payable if the hurdle is
met on a realised basis.
The Portfolio Management Agreement may be terminated by either party giving
notice of not less than 12 months.
AIFM and Portfolio Manager Evaluation and Re-Appointment
The performance of Frostrow as AIFM and Augmentum Fintech Management Limited
as Portfolio Manager is regularly monitored by the Board with a formal
evaluation being undertaken each year. As part of this process the Board
monitors the services provided by the AIFM and the Portfolio Manager and
receives regular reports and views from them.
Following a review at a Management Engagement & Remuneration Committee meeting
in March 2023 the Board believes that the continuing appointment of the AIFM
and the Portfolio Manager, under the terms described within this Strategic
Report, is in the best interests of the Company’s shareholders. In coming to
this decision it took into consideration the following additional reasons:
• the quality and depth of experience of the management, company
secretarial, administrative and marketing team that the AIFM brought to the
management of the Company; and
• the quality and depth of experience allocated by the Portfolio Manager to
the management of the portfolio, together with the clarity and rigour of the
investment process.
Depositary
The Company has appointed IQ EQ Depositary (UK) Limited as its Depositary in
accordance with the UK AIFMD on the terms and subject to the conditions of an
agreement between the Company, Frostrow and the Depositary (the “Depositary
Agreement”).
The Depositary provides the following services, inter alia, under its
agreement with the Company:
• verification of non-custodial investments;
• cash monitoring;
• processing of transactions; and
• foreign exchange services.
The Depositary must take reasonable care to ensure that the Company is managed
in accordance with the Financial Conduct Authority’s Investment Funds
Sourcebook, the UK AIFMD and the Company’s Articles of Association.
Under the terms of the Depositary Agreement, the Depositary is entitled to
receive an annual fee of £25,000 plus certain event driven fees.
The notice period on the Depositary Agreement is not less than six months.
Registrar
The Board has decided to change the Company’s share registrar. The
Company’s current registrar is Link Group. With effect from 18 December 2023
the Company’s registrar will become Computershare Investor Services PLC.
Contact details for both registrars are set out on page 81.
Dividend Policy
The Company invests with the objective of achieving capital growth over the
long term and it is not expected that a revenue dividend will be paid in the
foreseeable future. The Board intends only to pay dividends out of revenue to
the extent required in order to maintain the Company’s investment trust
status.
Potential returns of capital
It is expected that the Company will realise investments from time to time.
The proceeds of these disposals may be re-invested, used for working capital
purposes or, at the discretion of the Board, returned to shareholders.
The Company has committed to return to Shareholders up to 50 per cent. of the
gains realised by the disposal of investments in each financial year, with
such returns of capital expected to be made on an annual basis. The Company
may also seek to make returns of capital to Shareholders where available cash
is not expected to be substantially deployed within the following 12-18
months. The options for effecting any return of capital to shareholders may
include the Company making tender offers to purchase Shares, paying special
dividends or any alternative method or a combination of methods. Certain
methods intended to effect a return of capital may be subject to, amongst
other things, shareholder approval. Shareholders should note that the return
of capital by the Company is at the discretion of the Directors and is subject
to, amongst other things, the working capital requirements of the Company. As
described in the Chairman’s Statement the Board has confirmed its decision
taken last year, following a consultation, that the Company will retain the
bulk of the proceeds of the investment realisations to date for reinvestment
to support its capital growth objective and utilise the balance to support
accretive share buybacks.
Company Promotion
The Company has retained the services of Peel Hunt LLP and Singer Capital
Markets Advisory LLP as joint corporate brokers, to work alongside one another
to encourage demand for the Company’s shares.
In addition to AIFM services, Frostrow also provides investor relations &
marketing services.
Engaging regularly with investors:
The Company’s brokers and Frostrow meet with institutional investors,
discretionary wealth managers and execution-only platform providers around the
UK and hold regular seminars and other investor events;
Making Company information more accessible:
Frostrow manages the investor database and produces all key corporate
documents, distributes factsheets, annual reports and updates from the
Portfolio Manager on portfolio and market developments; and
Monitoring market activity, acting as a link between the Company, shareholders
and other stakeholders:
The Company’s brokers and Frostrow maintain regular contact with sector
broker analysts and other research and data providers, and provide the Board
with up-to-date information on the latest shareholder and market developments.
Community, Social, Employee, Human Rights, Environmental Issues, Anti-bribery
and Anti-corruption
The Company is committed to carrying out business in an honest and fair manner
with a zero-tolerance approach to bribery, tax evasion and corruption. As
such, policies and procedures are in place to prevent bribery and corruption.
In carrying out its activities, the Company aims to conduct itself
responsibly, ethically and fairly, including in relation to social and human
rights issues.
As an investment trust with limited internal resource, the Company has little
impact on the environment. The Company believes that high ESG (Environmental,
Social and Governance) standards within both the Company and its portfolio
companies make good business sense and have the potential to protect and
enhance investment returns. Consequently, the Group’s investment process
ensures that ESG issues are taken into account and best practice is
encouraged.
Diversity
There are currently three male and two female Directors (being 40% female
representation) on the Board, and these Directors have three different
nationalities and diverse educational backgrounds. The Company aims to have a
balance of relevant skills, experience and background amongst the Directors on
the Board and believes that all Board appointments should be made on merit and
with due regard to the benefits of diversity. The Company's diversity policy
is set out on pages 40 and 41. The Board also encourages diversity within
AFML, where the team of 11 people represents four different nationalities and
is 45% female. The Board is also keen to promote the benefits of diversity in
the companies we invest in.
Engaging with our stakeholders
The following ‘Section 172’ disclosure describes how the Directors have
had regard to the views of the Company’s stakeholders in their
decision-making.
Who? Why? THE BENEFITS OF ENGAGEMENT WITH OUR STAKEHOLDERS How?
STAKEHOLDER GROUP HOW THE BOARD THE AIFM AND THE PORTFOLIO MANAGER HAS ENGAGED WITH OUR STAKEHOLDERS
Investors Clear communication of the Company’s strategy and the performance against its objective can help the share price trade at a narrower discount or a wider premium to its net asset value which benefits shareholders. New shares may be issued to meet demand without diluting the NAV per share of existing shareholders. Increasing the size of the Company can benefit liquidity as well as spread costs. Understanding investor preferences in relation to potential Board decisions, such as in relation to possible distributions. Frostrow as AIFM, the Portfolio Manager and the Company’s joint brokers on behalf of the Board complete a programme of investor relations throughout the year. In
addition, the Chairman endeavours to make himself available to meet with shareholders wishing to engage. Key mechanisms of engagement included: • The Annual General
Meeting; • The Company’s website which hosts reports, video interviews with the managers and regular market commentary; • Online newsletters; • One-on-one investor
meetings; • Investor meetings with the Portfolio Manager and AIFM; and • The Portfolio Manager hosts an annual Capital Markets Day event to inform investors about
portfolio constituents.
Portfolio Manager Engagement with our Portfolio Manager is necessary to evaluate performance against the stated strategy and to understand any risks or opportunities this may present to the Company. It also provides clarity on the Board’s expectations and helps ensure that portfolio management costs are closely monitored and remain competitive. The Board meets regularly with the Company’s Portfolio Manager throughout the year both formally at the quarterly Board meetings and more regularly on an informal basis.
The Board also receives quarterly performance and compliance reporting at each Board meeting. The Portfolio Manager’s attendance at each Board meeting provides the
opportunity for the Portfolio Manager and Board to further reinforce their mutual understanding of what is expected from all parties.
Service Providers The Company contracts with third parties for other services including: depositary, investment accounting & administration, company secretarial and share registration. It is necessary for the Company's success to ensure the third parties to whom we have outsourced services complete their roles diligently and correctly. The Company ensures all service providers are paid in accordance with their terms of business. The Board closely monitors the Company’s Ongoing Charges Ratio. The Board and Frostrow engage regularly with all service providers both in one-to-one meetings and via regular written reporting. This regular interaction provides an
environment where topics, issues and business development needs can be dealt with efficiently and collegiately.
Employees of AFML In order to attract and retain talent to ensure the Group has the resources to successfully implement its strategy and manage third-party relationships. AFML has an open plan office, facilitating ready interaction and engagement. Senior team members report to the Board at each meeting. Given the small number of employees,
engagement is at an individual level rather than as a group.
Portfolio companies Incorporating consideration of ESG factors into the investment process assists in understanding and mitigating risks of an investment and potentially identifying future opportunities. The Board encourages the Company’s Portfolio Manager to engage with companies and in doing so expects ESG issues to be a key consideration. The Portfolio Manager seeks to
take a board seat, or have board observer status, on all investments. See pages 28 to 30 for further detail on AFML’s ESG approach to investing.
What? WHAT WERE THE KEY TOPICS OF ENGAGEMENT? Outcomes and Actions WHAT ACTIONS WERE TAKEN, INCLUDING PRINCIPAL DECISIONS?
Key topics of engagement with investors Ongoing dialogue with shareholders concerning the strategy of the Company, performance and the portfolio. • The Portfolio Manager, Frostrow and the joint brokers meet regularly with shareholders and potential investors to discuss the Company’s strategy, performance and portfolio. These meetings take place with and without the Portfolio Manager. The Chairman
and Mr Haysey also engaged with certain of the Company's larger shareholders.This interaction informed the Board’s deliberations on various matters, including in relation to the distribution of investment realisation proceeds where it contributed to the
Board’s decision to restrict distributions to an accretive share buyback programme, with it being considered that shareholders were better served by realisation proceeds mainly being used for further investment.
Key topics of engagement with the Portfolio Manager On an ongoing basis the Board engages on portfolio composition, performance, outlook and business updates. Additional topics included: • The impact of market conditions upon their business and the portfolio. • The impact of the Ukraine conflict upon their business and the portfolio. • The integration of ESG into the Portfolio Manager’s investment processes. • Compensation arrangements within AFML. • The structure of management arrangements. • The prospects for the portfolio and the pipeline of potential investment opportunities were of particular interest to the Board. • Russian sanctions have no direct impact on the Company and extremely limited impact on portfolio companies. • The portfolio
manager reports regularly any ESG issues in the portfolio companies to the Board. Please see pages 28 to 30 for further details of AFML’s ESG policies. • As a result of discussions about the compensation arrangements within AFML the remuneration policy put
to shareholders at the last AGM no longer covers key personnel of AFML and the terms of reference of the Management Engagement & Remuneration Committee were also revised. • The structure of management arrangements is the subject of continuing dialogue.
Approach to Responsible Investing
Augmentum Fintech Management Limited (“AFML”) continues to be committed to
a responsible investment approach through the lifecycle of its investments,
from pre-screening to exit. AFML believes that the integration of
Environmental, Social and Governance (“ESG”) factors within the investment
analysis, diligence and operating practices is pivotal in mitigating risk and
creating sustainable, profitable investments.
Five-Stage Approach to Future-Proofing the Portfolio
ESG principles adapted from the UN PRI (Principles of Responsible Investment)
are integrated throughout business operations; in investment decisions, at the
screening stage through an exclusion list and due diligence, ongoing
monitoring and engaging with portfolio companies post-investment and when
making follow-on investment decisions, as well as within fund operations.
1. Screening
An Exclusion List is used to screen out companies incompatible with AFML’s
corporate values (sub-sectors and types of business). AFML also commits to
being satisfied that the investors they invest alongside are of good standing.
2. Due Diligence
An ESG Due Diligence (DD) survey is completed by teams from companies in the
later stages of the investment process. An ESG scorecard is completed for each
potential investment, in which potential ESG risks and opportunities are
identified, and discussed with the investment committee. Where necessary, an
action plan is agreed with the management team on areas for improvement and
commitments are incorporated into the Term Sheet.
3. Post-Investment Monitoring and Engagement
An annual survey is completed by portfolio companies and areas for improvement
are discussed with management teams, with commitments agreed and revisited as
appropriate.
4. Follow On Investments
ESG risks and opportunities are assessed when making follow-on investment
decisions, with an ESG scorecard completed and co-investors taken into
consideration. Follow on investments are only made into companies that
continue to meet AFML’s ESG criteria.
5. Internally at Augmentum
AFML has continued to identify priority areas in which to make suitable
ESG-related advancements across fund operations. Key progress areas include:
• Tracking the gender diversity of founders/CEOs of companies in our
dealflow;
• Continuing to embrace diversity and inclusion through inclusive hiring
and professional development practices and Female Founder Office Hours;
• Building on our programme of CSR initiatives through supporting Crisis
Venture Studio and The Lord Mayor's Appeal ‘We Can Be’ initiative.
ESG Focus Areas
AFML has identified eight key areas for consideration, across the three ESG
categories, which best align with its values and are most relevant for
companies operating in the fintech industry.
The key environmental consideration as identified by the AFML is the potential
impact of business operations on the global issue of climate change. Social
factors include the risks and opportunities associated with data security,
privacy and ethical use, consumer protection, diversity and financial
inclusion. Governance considerations include anti-bribery and corruption,
board structure and independence and compliance.
AFML is committed to:
• Incorporating ESG and sustainability considerations into its investment
analysis, diligence, and operating practices.
• Providing ESG training and support to the AFML employees involved in the
investment process, so that they may perform their work in accordance with
AFML’s policy.
• Actively engaging with portfolio companies to encourage improvement in
key ESG areas.
• Annual reporting on progress to stakeholders.
ESG in Action
Company Initiatives
Investing in Women Code (ESG Focus Area – Social: Diversity)
This year Augmentum became signatories of the Investing in Women Code. The
Investing in Women Code is a commitment to support the advancement of female
entrepreneurship in the United Kingdom by improving female entrepreneurs’
access to tools, resources and finance from the financial services sector.
As a signatory to the Investing in Women Code, the Company is committed to a
culture of inclusion and to advance access to capital for female
entrepreneurs. As a signatory, the Company will:
• Have a nominated member of the senior leadership team who is responsible
for supporting equality in all its interactions with entrepreneurs.
• Provide HM Treasury with a commonly agreed set of data concerning:
all-female-led businesses; mixed-gender-led businesses and all-male-led
businesses. The Company agrees that HM Treasury will collate this data and
publish it on an aggregated and anonymised basis in an annual report.
• Adopt internal practices which aim to improve the potential for female
entrepreneurs to successfully access the tools, resources, investment and
finance they need to build and grow their businesses, working with relevant
players in the ecosystem. The Company will review these actions annually and
make this commitment publicly available.
The Lord Mayor’s Appeal (Environmental: climate/carbon footprint and Social:
Diversity)
In September the Augmentum team took part in The Lord Mayor’s Appeal’s
‘City Giving Day’, entering a cycling challenge raising money for the
various charitable causes supported by The Lord Mayor’s Appeal.
The Company participated in The Lord Mayor’s Appeal’s ‘We Can Be’
initiative for the first time, hosting a group of school girls, introducing
them to a career in the City and the inner workings of an investment trust.
Female Founders in Fintech Office Hours (Social: Diversity)
Augmentum launched Female Fintech Founders monthly Office Hours along with
other fintech investors Outward and Portage, providing an opportunity for
early stage female fintech founders to speak with leading fintech investors
and discuss fundraising and business scaling more broadly. 25 founders were
selected and hosted across the first three sessions.
Portfolio Business Models
Anyfin: Consumer Financial Education (Social: Consumer protection)
A core element of Anyfin’s mission is to help get people out of debt and to
date the company has helped customers save millions of Euros in credit costs.
They are proactive with consumer financial education; earlier this year they
released the third edition of the Anyfin Report, a financial health study
conducted by YouGov. The report focused on the ways in which people are
planning to deal with their debts (and finances more broadly) in 2023. The
company hosts regular ‘Anyfin House’ sessions, open to the public, and
covering topics such as financial management, financial stress and the
economy.
Grover: Circular Economy Model (Environmental: Climate/carbon footprint)
Grover provides a sophisticated solution for the increasing number of
consumers who value access over ownership via their circular economy
tech-rental model. By replacing the highly wasteful linear product ownership
approach (take -> make -> dispose), Grover’s model extends the lifecycle of
a product by re-using, repairing and redistributing. A device rented from
Grover is circulated 2-6 times on average, and as of 2023 the company has
circulated over 1 million devices.
Wayhome: Gradual Home Ownership Model (Social: Financial inclusion)
Wayhome’s ‘Gradual Homeownership’ model aims to help aspiring homeowners
who are unable to obtain a traditional mortgage to buy a home get on the
housing ladder. With the average home now costing 9 times average income and
the average first time buyer only able to borrow 3.55 times income, millions
of hardworking families are locked out of homeownership. Wayhome customers own
the share of the home they paid for and rent the remainder, gradually buying
more and renting less over time.
Portfolio Initiatives
Onfido: The Trust Framework Certification (Social: Data security and consumer
protection)
In January 2023 Onfido announced it had achieved certification for high
confidence profile H1A under the UK Digital Identity and Attributes Trust
Framework (the trust framework). The certification serves use cases where a
higher confidence level in digital identity verification is required. The
trust framework is part of the UK government’s wider plan to make it easier
and more secure for people to prove their identity online. It provides a set
of rules for organisations to adhere to in order to provide secure and
trustworthy digital identity. The Home Office now recommends companies use
identity service providers (IDSPs) that meet the trust framework standards for
Right to Work, Right to Rent and Disclosure and Barring Service’s (DBS)
screening checks.
Tide: (Environmental: Climate/carbon footprint)
In March, Tide became the first fintech globally to remove 100% of its
emissions with durable carbon removals as of 2022 onwards. The business has
also committed to becoming fully NetZero by 2030 and to support its UK members
(more than 9% of UK SMEs), and growing network of Indian SMEs on their journey
to NetZero.
Tide made three climate-focused pledges which included committing to removing
100% of their emissions with durable carbon removal from 2022 onwards and
reducing 90% of their 2021 emissions per employee by 2030. These would make
Tide fully Net Zero by 2030. The organisation also committed to making Net
Zero simpler for their Members by developing the support on offer.
Post-period end Tide and Transcorp announced the launch of India’s-first
recycled PVC RuPay Card. Made from 99% recycled plastic, this is a first for
fintechs in India. Each rPVC card saves 7g of carbon and 3.18g plastic that
would normally be used in production.
Zopa: 2025 Fintech Pledge (Social: Consumer protection and financial
inclusion)
Led by Zopa, 33 fintechs and their industry partners are working together to
tackle the cost-of-living crisis. The 2025 Fintech Pledge aims to drive 10
million consumer actions that build up the financial resilience of UK
consumers by 2025. It will achieve this by connecting people to platforms
that make savings work harder, improve credit scores, consolidate debt, and
lower utility bills and household outgoing costs. To date, more than 2 million
actions have been reported from all members combined.
This Strategic Report was approved by the Board of Directors and signed on its
behalf by:
Neil England
Chairman
3 July 2023
.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT,
THE DIRECTORS’ REMUNERATION REPORT AND THE FINANCIAL STATEMENTS
The directors are responsible for preparing the annual report and financial
statements in accordance with United Kingdom applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the Group and
Company financial statements in accordance with UK-adopted international
accounting standards. Under Company law the directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the return or
loss for the Group and Company for that period.
In preparing these group financial statements, the directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable and prudent;
• State whether they have been prepared in accordance with UK-adopted
international accounting standards, subject to any material departures
disclosed and explained in the financial statements;
• Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
• Prepare a directors’ report, a strategic report and directors’
remuneration report which comply with the requirements of the Companies Act
2006.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group and Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the financial statements
comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Responsibility Statement
The Directors consider that this annual report and financial statements, taken
as a whole, is fair, balanced, and understandable and provides the information
necessary for shareholders to assess the Group and Company’s position and
performance, business model and strategy.
Each of the Directors, whose names and functions are listed under the ‘Board
of Directors’ on page 31 confirm that, to the best of their knowledge:
• The financial statements, prepared in accordance with applicable
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Group and Company;
• The annual report includes a fair review of the development and
performance of the business and the financial position of the Group and
Company, together with a description of the principal risks and uncertainties
that they face.
Neil England
Chairman
3 July 2023
.
CONSOLIDATED INCOME STATEMENT
Year ended 31 March 2023 Year ended 31 March 2022
Notes Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Gains on Investments 8 – 9,858 9,858 – 56,681 56,681
Interest Income 412 – 412 3 – 3
Expenses 2 (5,270) (107) (5,377) (3,801) 6,432 2,631
(Loss)/Return before Taxation (4,858) 9,751 4,893 (3,798) 63,113 59,315
Taxation 6 – – – – – –
(Loss)/Return for the year (4,858) 9,751 4,893 (3,798) 63,113 59,315
(Loss)/Return per Share (pence) 7 (2.7)p 5.4p 2.7p (2.2)p 37.1p 34.9p
The total column of this statement represents the Group’s Consolidated
Income Statement, prepared in accordance with IFRS as adopted by the UK.
The revenue and capital columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
The Group does not have any other comprehensive income and hence the total
return, as disclosed above, is the same as the Group’s total comprehensive
income.
All items in the above statement derive from continuing operations.
All returns are attributable to the equity holders of Augmentum Fintech plc,
the parent company.
The notes on pages 58 to 68 are integral to and form part of these Financial
Statements.
.
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY
Year ended 31 March 2023
Group Ordinary Share Special Other Revenue Total
share premium reserve capital reserve £’000
capital account £’000 reserve £’000
£’000 £’000 £’000
Opening Shareholders’ funds 1,810 105,383 91,191 107,989 (11,169) 295,204
Purchase of own shares into treasury – – (5,973) – – (5,973)
Return/(loss) for the year – – – 9,751 (4,858) 4,893
At 31 March 2023 1,810 105,383 85,218 117,740 (16,027) 294,124
Year ended 31 March 2022
Group Ordinary Share Special Other Revenue Total
share premium reserve capital reserve £’000
capital account £’000 reserve £’000
£’000 £’000 £’000
Opening Shareholders’ funds 1,405 52,151 92,101 44,876 (7,371) 183,162
Issue of shares following placing and offer for subscription 405 54,595 – – – 55,000
Costs of placing and offer for subscription – (1,363) – – – (1,363)
Purchase of own shares into treasury – – (910) – – (910)
Return/(loss) for the year – – – 63,113 (3,798) 59,315
At 31 March 2022 1,810 105,383 91,191 107,989 (11,169) 295,204
Year ended 31 March 2023
Company Ordinary Share Special Other Revenue Total
share premium reserve capital reserve £’000
capital account £’000 reserve £’000
£’000 £’000 £’000
Opening Shareholders’ funds 1,810 105,383 91,191 92,724 (12,556) 278,552
Purchase of own shares into treasury – – (5,973) – – (5,973)
Return/(loss) for the year – – – 8,195 (5,020) 3,175
At 31 March 2023 1,810 105,383 85,218 100,919 (17,576) 275,754
Year ended 31 March 2022
Company Ordinary Share Special Other Revenue Total
share premium reserve capital reserve £’000
capital account £’000 reserve £’000
£’000 £’000 £’000
Opening Shareholders’ funds 1,405 52,151 92,101 44,876 (7,774) 182,759
Issue of shares following placing and offer for subscription 405 54,595 – – – 55,000
Costs of placing and offer for subscription – (1,363) – – – (1,363)
Purchase of own shares into treasury – – (910) – – (910)
Return/(loss) for the year – – – 47,848 (4,782) 43,066
At 31 March 2022 1,810 105,383 91,191 92,724 (12,556) 278,552
The notes on pages 58 to 68 are integral to and form part of these Financial
Statements.
.
CONSOLIDATED BALANCE SHEET
as at 31 March 2023
Note 2023 2022
£’000 £’000
Non-Current Assets
Investments held at fair value 8 254,295 268,807
Property, plant & equipment 297 9
Current Assets
Right-of-use asset 5 588 750
Other receivables 10 555 391
Cash and cash equivalents 40,015 31,326
Total Assets 295,750 301,283
Current Liabilities
Other payables 11 (948) (5,296)
Lease liability 5 (678) (783)
Total Assets less Current Liabilities 294,124 295,204
Net Assets 294,124 295,204
Capital and Reserves
Called up share capital 15 1,810 1,810
Share premium 105,383 105,383
Special reserve 85,218 91,191
Retained earnings:
Capital reserves 117,740 107,989
Revenue reserve (16,027) (11,169)
Total Equity 294,124 295,204
Net Asset Value per share (pence) 16 168.5p 163.7p
Net Asset Value per share after performance fee (pence)* 16 158.9p 155.2p
The Financial Statements on pages 52 to 68 were approved by the Board of
Directors on 3 July 2023 and signed on its behalf by:
Neil England
Chairman
The notes on pages 58 to 68 are integral to and form part of these Financial
Statements.
Augmentum Fintech plc
Company Registration Number: 11118262
* Considered to be Alternative Performance Measure. Please see the Glossary
and Alternative Performance Measures on page 79.
.
COMPANY BALANCE SHEET
as at 31 March 2023
Note 2023 2022
£’000 £’000
Non-Current Assets
Investments held at fair value 8 254,295 268,807
Investment in subsidiary undertakings 9 500 500
Current Assets
Other receivables 10 118 39
Cash and cash equivalents 38,470 29,694
Total Assets 293,383 299,040
Current Liabilities
Other payables 11 (810) (5,223)
Provisions 12 (16,819) (15,265)
Total Assets less Current Liabilities 275,754 278,552
Net Assets 275,754 278,552
Capital and Reserves
Called up share capital 15 1,810 1,810
Share premium 105,383 105,383
Special reserve 85,218 91,191
Retained earnings:
Capital reserves 100,919 92,724
Revenue reserve (17,576) (12,556)
Total Equity 275,754 278,552
The Company’s return for the year was £3,852,000 (2022: £43,066,000). The
Directors have taken advantage of the exemption under s408 of the Companies
Act and not presented an income statement or a statement of comprehensive
income for the Company alone.
The Financial Statements on pages 52 to 68 were approved by the Board of
Directors on 3 July 2023 and signed on its behalf by:
Neil England
Chairman
The notes on pages 58 to 68 are integral to and form part of these Financial
Statements.
Augmentum Fintech plc
Company Registration Number: 11118262
.
CONSOLIDATED CASH FLOW STATEMENT
Year Year
ended ended
31 March 31 March
2023 2022
£’000 £’000
Operating activities
Sales of investments 44,226 11,263
Purchases of investments (24,855) (55,992)
Acquisition of property, plant and equipment (365) (9)
Interest income received 326 1
Expenses paid (5,058) (3,958)
Lease payments (153) (139)
Net cash inflow/(outflow) from operating activities 14,121 (48,834)
Issue of shares following placing and offer for subscription – 55,000
Costs of placing and offer for subscription – (1,363)
Purchase of own shares into treasury (5,432) (910)
Net cash generated from financing activities (5,432) 52,727
Net increase in cash and cash equivalents 8,689 3,893
Cash and cash equivalents at start of year 31,326 27,433
Cash and cash equivalents at end of year 40,015 31,326
The notes on pages 58 to 68 are integral to and form part of these Financial
Statements.
.
COMPANY CASH FLOW STATEMENT
Year Year
ended ended
31 March 31 March
2023 2022
£’000 £’000
Operating activities
Sales of investments 44,226 11,263
Purchases of investments (24,855) (55,992)
Interest income received 326 –
Expenses paid (5,489) (4,837)
Net cash outflow from operating activities 14,208 (49,566)
Issue of shares following placing and offer for subscription – 55,000
Costs of placing and offer for subscription – (1,363)
Purchase of own shares into treasury (5,432) (910)
Net cash generated from financing activities (5,432) 52,727
Net increase in cash and cash equivalents 8,776 3,161
Cash and cash equivalents at start of year 29,694 26,533
Cash and cash equivalents at end of year 38,470 29,694
The notes on pages 58 to 68 are integral to and form part of these Financial
Statements.
.
NOTES TO THE FINANCIAL STATEMENTS
1 Segmental Analysis
The Group operates a single business segment for reporting purposes and is
managed as a single investment company. Reporting is provided to the Board of
Directors on an aggregated basis. The investments are located in the UK,
continental Europe, Israel and the US.
2 Expenses
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fees 593 – 593 507 – 507
Administrative expenses 1,415 107 1,522 1,141 76 1,217
Directors’ fees* 169 – 169 126 – 126
Performance fee (see note 4)^ – – – – (6,508) (6,508)
Staff costs (see note 4) 2,944 – 2,944 1,877 – 1,877
Auditor’s remuneration 149 – 149 150 – 150
Total expenses 5,270 107 5,377 3,801 (6,432) (2,631)
£209,138 of interest and depreciation relating to a lease (2022: £153,000)
is included in administrative expenses. See note 5 for further details.
* Details of the amounts paid to Directors are included in the Directors
Remuneration Report on page 44.
^ See note 4 for further details of the performance fee arrangements.
Non-executive Directors of the Company are not eligible to participate in any
allocation of the performance fee.
Auditor’s Remuneration
2023 2022
Group Company Group Company
£’000 £’000 £’000 £’000
Audit of Group accounts pursuant to legislation 104 104 83 83
Audit of subsidiaries accounts pursuant to legislation 18 – 14 –
Audit related assurance services 27 20 18 15
Reporting accountant services – – 35 35
Total auditors’ remuneration 149 124 150 133
Non-audit services
It is the Group’s practice to employ BDO LLP on assignments additional to
their statutory audit duties only when their expertise and experience with the
Group are important. Details of the Group’s process for safeguarding and
supporting the independence and objectivity of the external auditor are given
in the Report of the Audit Committee beginning on page 48. In addition to the
above BDO LLP was also paid £50,000 in 2022 for reporting accountant
services, which is included within the costs of placing and offer for
subscription in the Statement of Changes in Equity.
3 Key Management Personnel Remuneration
The Directors of the Company are considered to be the Key Management Personnel
along with the directors of the Company’s subsidiary.
2023 2022
Salary Other Total Salary Other Total
/Fees benefits £’000 /Fees benefits £’000
£’000 £’000 £’000 £’000
Key management personnel remuneration 1,352 277 1,629 799 175 974
Performance fee allocation* – – – (4,296) – (4,296)
1,352 2770 1,629 (3,497) 175 (3,322)
Other benefits include pension and social security contributions relating to
the directors of the Company’s subsidiary.
* Allocation of the performance fee to the directors of the Company’s
subsidiary. See note 4 for further details of the performance fee
arrangements.
4 Staff Costs
The monthly average number of employees for the Group during the year was
eleven (2022: ten). All employees are within the investment and administration
function and employed by the Company's subsidiary.
2023 2022
£’000 £’000
Wages and salaries 2,437 1,551
Social security costs 347 211
Other pension costs 104 84
Other staff benefits 56 31
Staff costs 2,944 1,877
Performance fee (charged to capital)* – (6,508)
Total 2,944 (4,631)
* The performance fee arrangements were set up to provide a long-term
employee benefit plan to incentivise employees of AFML and align them with
shareholders through participation in the realised investment profits of the
Group. During the year to 31 March 2022 the existing plan for AFML staff was
terminated and the performance fee liability to AFML employees accrued as at
31 March 2021 of £6,508,000 was reversed. AFML continues to be entitled to a
performance fee as before, but any performance fee paid by the Company to AFML
will now be allocated to employees of AFML on a discretionary basis by the
Management Engagement & Remuneration Committee of the Company.
The performance fee is payable by the Company to AFML when the Company has
realised an aggregate annualised 10% return on investments (the ‘hurdle’)
in each basket of investments. Based on the investment valuations and the
hurdle level as at 31 March 2023 the hurdle has been met, on an unrealised
basis, and as such a performance fee of £16,517,000 (2022: £15,265,000) has
been provided for by the Company, equivalent to 9.1 pence per share. This
provision is reversed on consolidation and not included in the Group Statement
of Financial Position. The performance fee is only payable to AFML if the
hurdle is met on a realised basis and the actual amount payable will depend on
the amount and timing of investment realisations. See page 24 and note 19.9
for further details.
5 Leases
Leasing activities
The Group, through its subsidiary AFML, has leased an office in the UK from
which it operates for a fixed fee. When measuring lease liabilities for leases
that were classified as operating leases, the Group discounts lease payments
at a rate of 6.4% (2022: 5.9%).
Right-of-Use Asset
2023 2022
Group Group
Office Premises Office Premises
£’000 £’000
As at 1 April 750 145
Addition – 752
Depreciation (162) (147)
At 31 March 588 750
Lease Liability
2023 2022
Group Group
Office Premises Office Premises
£’000 £’000
As at 1 April 783 148
Addition – 769
Interest Expense 48 6
Lease Payments (153) (140)
At 31 March 678 783
Maturity Analysis
Group
At 31 March 2023 Up to 3 months 3 – 12 months Between Between
£’000 £’000 1 – 2 years 2 – 5 years
£’000 £’000
Lease payments 60 181 241 362
6 Taxation Expense
2023 2022
For the year ended 31 March Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Current tax:
UK corporate tax on profits for the year – – – – – –
The difference between the income tax expense shown above and the amount
calculated by applying the effective rate of UK corporation tax of 19% (2022:
19%) to the (loss)/return before tax is as follows:
2023 2022
For the year ended 31 March Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
(Loss)/return before taxation (4,858) 9,751 4,893 (3,798) 63,113 59,315
(Loss)/return before tax multiplied by the effective rate of UK corporation tax of 19% (2022: 19%) (923) 1,853 930 (722) 11,991 11,269
Effects of:
Non-taxable capital returns – (1,873) (1,873) – (10,770) (10,770)
Excess management expenses 923 20 943 722 (1,221) (499)
Total tax expense – – – – – –
No provision for deferred taxation has been made in the current year. The
Group has not provided for deferred tax on capital profits arising on the
revaluation of investments, as it is exempt from tax on these items because of
its status as an investment trust company.
The Company has not recognised a deferred tax asset on the excess management
expenses of £32,904,000 (2022: £26,524,000). It is not anticipated that
these excess expenses will be utilised in the foreseeable future.
7 (Loss)/Return per Share
The (loss)/return per share figures are based on the following figures:
2023 2022
£’000 £’000
Net revenue loss (4,858) (3,798)
Net capital return 9,751 63,113
Net total return 4,893 59,315
Weighted average number of ordinary shares in issue 178,651,736 169,923,583
Pence Pence
Revenue loss per share (2.7) (2.2)
Capital return per share 5.4 37.1
Total return per share 2.7 34.9
8 Investments Held at Fair Value
Non-current Investments Held at Fair Value
As at 31 March 2023 2022
Group and Group and
Company Company
£’000 £’000
Unlisted at fair value 254,295 268,807
Reconciliation of movements on investments held at fair value are as follows:
2023 2022
Group and Group and
Company Company
£’000 £’000
As at 1 April 268,807 164,127
Purchases at cost 19,854 59,262
Realisation proceeds (44,224) (11,263)
Gains on investments 9,858 56,681
As at 31 March 254,295 268,807
The Group and Company received £44,224,000 (2022: £11,263,000) from
investments sold in the year. The book cost of these investments when they
were purchased was £6,348,000 (2022: £8,227,000). These investments have
been revalued over time and until they were sold any unrealised gains/losses
were included in the fair value of the investments. In addition, Augmentum I
LP, the Company's unconsolidated subsidiary (See note 19.2), received proceeds
of £2,673,000 in 2022 from investments sold during the year, which had a book
cost of £3,173,000.
9 Subsidiary undertakings
The Company has an investment of £500,000 (2022: £500,000) in the issued
ordinary share capital of its wholly owned subsidiary undertaking, Augmentum
Fintech Management Limited (“AFML”), which is registered in England and
Wales, operates in the United Kingdom and is regulated by the Financial
Conduct Authority. AFML’s principal activity is the provision of portfolio
management services to the Company. AFML’s registered office is 4 Chiswell
Street, London EC1Y 4UP.
10 Other Receivables
As at 31 March 2023 2023 2022 2022
Group Company Group Company
£’000 £’000 £’000 £’000
Other receivables* 555 118 391 39
* Includes £73,000 due back from the portfolio managers at 31 March 2022 due
to an inadvertent overpayment that was repaid after the year end.
11 Other Payables
As at 31 March 2023 2023 2022 2022
Group Company Group Company
£’000 £’000 £’000 £’000
Purchases payable – – 5,000 5,000
Other payables 948 810 296 223
948 810 5,296 5,223
12 Provisions
As at 31 March 2023 2022
Company Company
£’000 £’000
Performance fee provision* 16,819 15,265
* See page 24 and notes 4 and 19.9 for further details.
13 Financial Instruments
(i) Management of Risk
As an investment trust, the Group’s investment objective is to seek capital
growth from a portfolio of securities. The holding of these financial
instruments to meet this objective results in certain risks.
The Group’s financial instruments comprise securities in unlisted companies,
partnership interests, trade receivables, trade payables, and cash and cash
equivalents.
The main risks arising from the Group’s financial instruments are
fluctuations in market price, and credit and liquidity risk. The policies for
managing each of these risks are summarised below. These policies have
remained constant throughout the year under review. The financial risks of the
Company are aligned to the Group’s financial risks.
Market Price Risk
Market price risk arises mainly from uncertainty about future prices of
financial instruments in the Group’s portfolio. It represents the potential
loss the Group might suffer through holding market positions in the face of
price movements, mitigated by stock diversification.
The Group is exposed to the risk of the change in value of its unlisted equity
and non-equity investments. For unlisted equity and non-equity investments the
market risk is principally deemed to be the assumptions used in the valuation
methodology as set out in the accounting policies.
Liquidity Risk
The Group’s assets comprise unlisted equity and non-equity investments.
Whilst unlisted equity is illiquid, short-term flexibility is achieved through
cash and cash equivalents.
Credit Risk
The Group’s exposure to credit risk principally arises from cash and cash
equivalents. Only highly rated banks or liquidity funds (with credit ratings
above A3, based on S&P’s ratings or the equivalent from another ratings
agency) are used for cash deposits and the level of cash is reviewed on a
regular basis. The components of cash and cash equivalents are shown in the
table below.
(ii) Financial Assets and Liabilities
Group Company Group Company
Fair value Fair value Fair value Fair value
2023 2023 2022 2022
£’000 £’000 £’000 £’000
Financial Assets
Unlisted equity shares 249,529 249,529 266,720 266,720
Unlisted convertible loan notes 4,766 4,766 2,087 2,087
Cash at bank 14,715 13,470 24,326 22,694
Cash Equivalents – Liquidity Funds 25,300 25,000 7,000 7,000
Other assets 1,143 118 1,141 39
Financial Liabilities
Other payables and lease liabilities (1,626) (810) (6,079) (5,223)
Cash and other receivables and payables are measured at amortised cost and the
rest of the financial assets in the table above are held at approximate to
fair value. The carrying values of the financial assets and liabilities
measured at amortised cost are equal to the fair value.
The unlisted financial assets held at fair value are valued in accordance with
the IPEV Guidelines as detailed within note 19.4.
(iii) Fair Value Hierarchy
Fair value is the amount for which an asset could be exchanged, or a liability
settled, between knowledgeable willing parties in an arm’s length
transaction.
The Group complies with IFRS 13 in respect of disclosures about the degree of
reliability of fair value measurements. This requires the Group to classify,
for disclosure purposes, fair value measurements using a fair value hierarchy
that reflects the significance of the inputs used in making the measurements.
The levels of fair value measurement bases are defined as follows:
Level 1: fair values measured using quoted prices (unadjusted) in active
markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs
significant to the measurement other than quoted prices included within Level
1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
Level 3: fair values measured using valuation techniques for which any
significant input to the valuation is not based on observable market data
(unobservable inputs).
All investments were classified as Level 3 investments as at, and throughout
the year to, 31 March 2023. Note 8 on page 61 presents the movements on
investments measured at fair value.
When using the price of a recent transaction in the valuations, the Company
looks to ‘re-calibrate’ this price at each valuation point by reviewing
progress within the investment, comparing against the initial investment
thesis, assessing if there are any significant events or milestones that would
indicate the value of the investment has changed and considering whether a
market-based methodology (ie. using multiples from comparable public
companies) or a discounted cashflow forecast would be more appropriate.
The main inputs into the calibration exercise, and for the valuation models
using multiples, are revenue, EBITDA and P/E multiples (based on the most
recent revenue, EBITDA or earnings achieved and equivalent corresponding
revenue, EBITDA or earnings multiples of comparable public companies), quality
of earnings assessments and comparability difference adjustments. Revenue
multiples are often used, rather than EBITDA or earnings, due to the nature of
the Group’s investments, being in fast-growing, small financial services
companies which are not normally expected to achieve profitability or scale
for a number of years. Where an investment has achieved scale and
profitability the Group would normally then expect to switch to using an
EBITDA or earnings multiple methodology.
In the calibration exercise and in determining the valuation for the Group’s
equity instruments, comparable trading multiples are used. In accordance with
the Group’s policy, appropriate comparable public companies based on
industry, size, developmental stage, revenue generation and strategy are
determined and a trading multiple for each comparable company identified is
then calculated. The multiple is calculated by dividing the enterprise value
of the comparable group by its revenue, EBITDA or earnings. The trading
multiple is then adjusted for considerations such as illiquidity,
marketability and other differences, advantages and disadvantages between the
Group’s portfolio company and the comparable public companies based on
company specific facts and circumstances.
The main input into the PWERM (‘Probability Weighed Expected Return
Methodology’) is the probability of conversion. This method is used for the
convertible loan notes held by the Company.
Total gains and losses on assets measured at Level 3 are recognised as part of
Gains on Investments in the Consolidated Income Statement, and no other
comprehensive income has been recognised on these assets.
The table below presents those investments in portfolio companies whose fair
values are recognised in whole or in part using valuation techniques based on
assumptions that are not supported by prices or other inputs from observable
current market transactions in the same instrument and the effect of changing
one or more of those assumptions behind the valuation techniques adopted based
on reasonable possible alternative assumptions.
Valuation Technique Fair Value Fair Value Unobservable Inputs Reasonably possible shift Change in
2023 2022 in input +/- valuation
£’000 £’000 +/(-) £’000
Multiple methodology 197,876 35,888 Multiple 10% 15,772/(15,780)
Premium/Discount to quoted multiples 30% (21,344)/21,941
CPORT* 21,568 180,359 Transaction price 10% 2,107/(2,107)
PWERM** 4,766 2,087 Probability of conversion 25% 247/(247)
NAV 7,295 7,677 Discount to NAV 10% (456)
Sales Price 22,790 42,796 N/a
* Calibrated price of recent transaction.
** Probability weighted expected return methodology.
14 Substantial holdings in Investments
The table below shows substantial holdings in investments where the Company
owns more than 3% of the fully diluted capital of the investee company and the
investment value is more than 5% of the Company’s non-current investments.
2023 2022
% ownership % of % ownership % of
(fully diluted) portfolio (fully diluted) portfolio
interactive investor* – – 3.6 15.9
Zopa* 3.4 11.8 3.3 9.5
Augmentum I LP ** 100 17.5 100.0 30.3
Tide 5.1 14.0 5.4 10.5
Grover 6.3 17.0 6.4 15.8
Cushon 13.9 9.0 13.9 5.1
Volt 8.3 5.6 8.3 2.1
* indirect ownership via Augmentum I LP.
** Augmentum I LP’s registered office is IFC 5, St Helier, Jersey JE1 1ST
and it is registered in Jersey.
15 Called up Share Capital
2023 2022
Ordinary Shares Ordinary Shares
No. £’000 No. £’000
Opening issued and fully paid ordinary shares of 1p each 180,325,786 1,810 140,423,291 1,405
Issue of shares – – 40,590,406 405
Ordinary shares purchased into treasury (5,806,934) – (687,911) –
Closing issued and fully paid ordinary shares of 1p each 174,518,852 1,810 180,325,786 1,810
No shares were issued during the year ended 31 March 2023. In the prior year
40,590,406 ordinary shares were issued on 8 July 2021. The nominal value of
the shares issued was £405,000 and the total gross cash consideration
received was £55,000,000. The costs of issue, which totalled £1,363,000, are
offset against the consideration received in the share premium account.
5,806,934 shares were bought back into treasury during the year at an average
price of 102.9p per share. In the year ended 31 March 2022 687,911 shares were
bought back into treasury at an average price of 131.1p per share.
At 31 March 2023 there were 6,494,845 shares held in treasury (2022: 687,911).
16 Net Asset Value per Share
The net asset value per share is based on the Group net assets attributable to
the equity shareholders of £294,124,000 (2022: £295,204,000) and 174,518,852
(2022: 180,325,786) shares in issue at the year end excluding shares held in
treasury.
The net asset value per share after performance fee* is based on the Group net
assets attributable to the equity shareholders of £294,124,000 (2022:
£295,204,000), less the performance fee provision made by the Company of
£16,819,000 (2022: £16,819,000), and 174,518,852 (2022: 180,325,786) shares
in issue at the year end excluding shares held in treasury.
* Alternative Performance Measure
17 Related Party Transactions
Balances and transactions between the Company and its subsidiaries are
eliminated on consolidation. Details of transactions between the Group and
Company and other related parties are disclosed below.
The following are considered to be related parties:
• Frostrow Capital LLP (under the Listing Rules only)
• The Directors of the Company and the Company’s subsidiary, Augmentum
Fintech Management Limited
• Augmentum Fintech Management Limited
Details of the relationship between the Company and Frostrow Capital LLP, the
Company’s AIFM, are disclosed on page 23. Details of fees paid to Frostrow
by the Company and Group can be found in note 2 on page 58.
Details of the remuneration of all Directors can be found on page 44. Details
of the Directors’ interests in the capital of the Company can be found on
page 45.
Augmentum Fintech Management Limited is appointed as the Company’s delegated
Portfolio Manager. The Portfolio Manager earns a portfolio management fee of
1.5% of NAV up to £250 million and 1.0% of NAV for any excess over £250
million and is entitled to a performance fee of 15% of net realised cash
profits once the Company has received an annual compounded 10% realised return
on its investments. Further details of this arrangement are set out on page 24
in the Strategic Report. During the year the Portfolio Manager received a
portfolio management fee of £4,026,000 (2022: £3,510,000), which has been
eliminated on consolidation and therefore does not appear in these accounts. A
performance fee provision of £16,217,000 (2022: £15,265,000) has been
accrued in the Company's accounts, which is eliminated on consolidation in the
Group accounts. No performance fee is payable or has been paid during the
year. There were no outstanding balances due to the Portfolio Manager at the
year end (2022: nil).
18 Capital Risk Management
Group Group
2023 2022
£’000 £’000
Equity
Equity share capital 1,810 1,810
Retained earnings and other reserves 292,314 293,394
Total capital and reserves 294,124 295,204
The Group’s objective in the management of capital risk is to safeguard its
liquidity in order to provide returns for shareholders and to maintain an
optimal capital structure. In doing so the Group may adjust the amount of
dividends paid to shareholders or issue new shares or debt.
The Group manages the levels of cash deposits held whilst maintaining
sufficient liquidity for investments and operating expenses.
There are no externally imposed restrictions on the Company’s capital.
19 Basis of Accounting and Significant Accounting Policies
19.1 Basis of preparation
The Group and Company Financial Statements for the year ended 31 March 2023
have been prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards.
The Financial Statements have been prepared on a going concern basis and under
the historical cost basis of accounting, modified to include the revaluation
of certain assets at fair value, as disclosed in note 19.4. The Board has
considered a detailed assessment of the Group and Company’s ability to meet
their liabilities as they fall due, including stress tests which modelled the
effects of a fall in portfolio valuations and liquidity constraints on the
Group and Company’s financial position and cash flows. The results of the
tests showed that the Group and Company would have sufficient cash to meet
their liabilities as they fall due. Based on the information available to the
Directors at the time of this report, including the results of the stress
tests, and the Group and Company’s cash balances, the Directors are
satisfied that the Group and Company have adequate financial resources to
continue in operation for at least the next 12 months from the date of signing
of these financial statements and that, accordingly, it is appropriate to
adopt the going concern basis in preparing these financial statements.
In order to reflect the activities of an investment trust company,
supplementary information which analyses the Consolidated Income Statement
between items of a revenue and capital nature has been presented alongside the
Consolidated Income Statement. In analysing total income between capital and
revenue returns, the Directors have followed the guidance contained in the
Statement of Recommended Practice for investment companies issued by the
Association of Investment Companies issued in July 2022 (the “SORP”).
The recommendations of the SORP which have been followed include:
• Realised and unrealised profits or losses arising on the revaluation or
disposal of investments classified as held at fair value through profit or
loss should be shown in the capital column of the Consolidated Income
Statement. Realised gains are taken to the realised reserves in equity and
unrealised gains are transferred to the unrealised reserves in equity.
• Other returns on any investment (whether in respect of dividends,
interest or otherwise) should be shown in the revenue column of the
Consolidated Income Statement. The total of the revenue column of the
Consolidated Income Statement is taken to the revenue reserve in equity.
• The Board should determine whether the indirect costs of generating
capital returns should be allocated to capital as well as the direct costs
incurred in generating capital profits. In this regard the Board has decided
to follow a non-allocation approach to indirect costs, which will therefore be
charged in full to the revenue column of the Consolidated Income Statement.
19.2 Basis of Consolidation
The Consolidated Financial Statements include the Company and certain
subsidiary undertakings.
IFRS 10 and IFRS 12 define an investment entity and include an exemption from
the consolidation requirements for investment entities.
The Company has been deemed to meet the definition of an investment entity per
IFRS 10 as the following conditions exist:
• The Company has multiple unrelated investors which are not related
parties, and holds multiple investments
• Ownership interests in the Company are exposed to variable returns from
changes in the fair value of the Company’s net assets
• The Company has obtained funds for the purpose of providing investors
with investment management services
• The Company’s business purpose is investing solely for returns from
capital appreciation and investment income
• The performance of investments is measured and evaluated on a fair value
basis.
The Company will not consolidate the portfolio companies or other investment
entities it controls. The principal subsidiary Augmentum Fintech Management
Limited as set out in note 9 is wholly owned. It provides investment related
services through the provision of investment management. As the primary
purpose of this subsidiary is to provide investment related services that
relate to the Company’s investment activities it is not held for investment
purposes. This subsidiary has been consolidated.
The Company also owns 100% of the interests in Augmentum I LP (the ‘LP’).
As this LP is itself an investment entity and is held as part of the
Company’s investment portfolio it has not been consolidated.
19.3 Application of New Standards
(i) New standards, interpretations and amendments effective from 1 April
2022
There were no new standards or interpretations effective for the first time
for periods beginning on or after 1 April 2022 that had a significant effect
on the Group’s financial statements.
(ii) New standards, interpretations and amendments not yet effective
There are a number of standards and interpretations which have been issued by
the International Accounting Standards Board (‘IASB’) that are effective
in future accounting periods. The Group does not expect any of the standards
issued by the IASB, but not yet effective, to have a material impact on the
Group or Company.
19.4 Investments
All investments are defined by IFRS as fair value through profit or loss
(described in the Financial Statements as Investments held at fair value) and
are subsequently measured at reporting dates at fair value. The fair value of
direct unquoted investments is calculated in accordance with the Principles of
Valuation of Investments below. Purchases and sales of unlisted investments
are recognised when the contract for acquisition or sale becomes
unconditional.
Increases or decreases in valuation are recognised as part of gains on
investments at fair value in the Consolidated Income Statement.
Principles of Valuation of Investments
(i) General
The Group estimates the fair value of each investment at the reporting date in
accordance with IFRS 13 and the International Private Equity and Venture
Capital Valuation (“IPEV”) Guidelines.
Fair value is the price for which an asset could be exchanged between
knowledgeable, willing parties in an arm’s length transaction. In estimating
fair value, the AIFM and Board apply valuation techniques which are
appropriate in light of the nature, facts and circumstances of the investment
and use reasonable current market data and inputs combined with judgement and
assumptions. Valuation techniques are applied consistently from one reporting
date to another except where a change in technique results in a better
estimate of fair value.
In general, the enterprise value of the investee company in question will be
determined using one of a range of valuation techniques. The enterprise value
is adjusted for factors such as surplus assets, excess liabilities or other
contingencies or relevant factors; the resulting amount is apportioned between
the investee company’s relevant financial instruments according to their
ranking and the effect of any instrument that may dilute economic
entitlements.
(ii) Unlisted Equity Investments
In respect of each unlisted investment one or more of the following valuation
techniques is used:
• A market approach, based on the price of the recent investment, market
multiples or industry valuation benchmarks.
• A probability-weighted expected returns methodology. Under the PWERM fair
value is based on consideration of values for the investment under different
scenarios. This will primarily be used where there is a convertible element to
the investment.
• A net assets based approach based on the value of the underlying assets
of the investment.
In assessing whether a methodology is appropriate techniques that use
observable market data are preferred.
Price of Recent Investment/Transaction
Where the investment being valued was itself made recently, or there has been
a third party transaction in the investment, the price of the transaction may
provide a good indication of fair value. Using the Price of Recent Investment
technique is not a default and at each reporting date the fair value of
investments is estimated to assess whether changes or events subsequent to the
relevant transaction would imply a material change in the investment’s fair
value.
Multiple
Under the multiple methodology an earnings or revenue multiple technique is
used. This involves the application of an appropriate and reasonable multiple
to the maintainable earnings or revenue of an investee company.
Multiples used are usually taken from current market-based multiples,
reflected in the market valuations of quoted comparable companies or the price
at which comparable companies have changed ownership. Differences between
these market-based multiples and the investee company being valued are
reflected by adjusting the multiple for points of difference which might
affect the risk and growth prospects which underpin the multiple. Such points
of difference might include the relative size and diversity of the entities,
rate of revenue/earnings growth, reliance on a small number of key employees,
diversity of product ranges, diversity and quality of customer base, level of
borrowing, and any other reason due to which the quality of revenue or
earnings may differ.
In respect of maintainable revenue/earnings, the most recent 12 month period,
adjusted if necessary to represent a reasonable estimate of the maintainable
amount, is used. Such adjustments might include exceptional or non-recurring
items, the impact of discontinued activities and acquisitions, or forecast
material changes.
PWERM (‘Probability-Weighted Expected Returns Methodology’)
Under the PWERM potential scenarios are identified. Under each scenario the
value of the investment is estimated and a probability for each scenario was
selected. The fair value is then calculated as the sum of the value under each
scenario multiplied by its probability.
Net Assets
For the net asset approach the fair value estimate is based on the
attributable proportion of the reported net asset value of the investment
derived from the fair value of underlying assets / investments. Valuation
reports provided by the manager or general partner of the investments are used
to calculate fair value where there is evidence that the valuation is derived
using fair value principles that are consistent with the Company’s
accounting policies and valuation methods. Such valuation reports may be
adjusted to take account of changes or events to the reporting date, or other
facts and circumstances which might impact the underlying value.
19.5 Cash and Cash Equivalents
Cash comprises cash at bank and short-term deposits with an original maturity
of less than 3 months and subject to minimal risk of changes in value.
19.6 Presentation and Functional Currency
The Group’s and Company’s presentation and functional currency is Pounds
Sterling (“Sterling”), since that is the currency of the primary economic
environment in which the Group operates.
19.7 Other income
Interest income received from cash equivalents is accounted for on an accruals
basis.
19.8 Expenses
Expenses are accounted for on an accruals basis, and are charged through the
revenue column of the Consolidated Income Statement except for transaction
costs and the carried interest fee as noted below.
Transaction costs are legal and professional fees incurred when undertaking
due diligence on investment transactions. Transaction costs, when incurred,
are recognised in the Income Statement. If a transaction successfully
completes, as a direct cost of an investment, the related transaction cost is
charged to the capital column of the Income Statement. If the transaction does
not complete the related cost is charged to the revenue column of the Income
Statement.
19.9 Performance Fee
As set out in prior annual reports the performance fee arrangements were set
up to provide a long-term employee benefit plan to incentivise employees of
AFML and align them with shareholders through participation in the realised
investment profits of the Group. During the year to 31 March 2022 the existing
plan for AFML staff was terminated and the performance fee liability to AFML
employees accrued as at 31 March 2021 of £6,805,000 was reversed. AFML
continues to be entitled to a performance fee as before, but any performance
fee paid by the Company to AFML will now be allocated to employees of AFML on
a discretionary basis by the Management Engagement & Remuneration Committee of
the Company. Non-executive Directors of the Company are not eligible to
participate in any allocation of the performance fee.
The Company provides for the performance fee in full. A performance fee is
provided for if its performance conditions would be achieved if the remaining
assets in that basket were realised at fair value, at the Statement of
Financial Position date. The performance fee is equal to the share of profits
in excess of the performance conditions in the basket. On consolidation the
performance fee is eliminated since it is payable to the Company’s
subsidiary, AFML.
Performance fees will be charged to the capital column of the Income Statement
and taken to the Capital Reserve.
19.10 Leases
All leases are accounted for by recognising a right-of-use asset and a lease
liability.
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the Group’s incremental borrowing rate.
Right-of-use assets are measured at the amount of the lease liability less
provisions for dilapidations, where applicable.
Subsequent to initial measurement, lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are amortised on a straight-line
basis over the remaining term of the lease.
19.11 Taxation
The tax effect of different items of income/gain and expense/loss is allocated
between capital and revenue on the same basis as the particular item to which
it relates.
19.12 Deferred Tax
Deferred taxation is provided on all timing differences other than those
differences regarded as permanent. Deferred tax assets are only recognised to
the extent that it is probable that taxable profits will be available from
which the reversal of timing differences can be utilised. Deferred tax is not
recognised if the temporary difference arises from the initial recognition of
assets and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred tax is provided at the tax rates that are expected to apply in the
year when the liability is settled or the asset is realised based on tax laws
and rates that have been enacted or substantively enacted at the Statement of
Financial Position date.
19.13 Receivables and Payables
Receivables and payables are typically settled in a short time frame and are
carried at amortised cost. As a result, the fair value of these balances is
considered to be materially equal to the carrying value, after taking into
account potential impairment losses.
19.14 Share Capital
Ordinary shares issued by the Group are recognised at the proceeds or fair
value received with the excess of the amount received over nominal value being
credited to the share premium account. Direct issue costs are deducted from
equity.
19.15 Share Premium and Special Reserve
The share premium account arose following the Company’s admission to listing
in 2018 and represented the difference between the proceeds raised and the par
value of the shares issued. Costs of the share issuance were offset against
the proceeds of the relevant share issue and also taken to the share premium
account.
Subsequent to admission and following the approval of the Court, the initial
share premium account was cancelled and the balance of the account was
transferred to the Special Reserve. The purpose of this was to enable the
Company to increase the distributable reserves available to facilitate the
payment of future dividends or with which to make share repurchases.
19.16 Revenue and Capital Reserves
Net capital return is added to the Capital Reserve in the Consolidated
Statement of Financial Position, while the net revenue return is added to the
Revenue Reserve. When positive, the revenue reserve is distributable by way of
dividend, as is any realised portion of the capital reserve. The realised
portion of the capital reserve is £40,519,000 (2022: £2,750,000)
representing realised capital profits less costs charged to capital.
19.17 Critical Accounting Judgements and Key Sources of Estimation
Uncertainty
Critical accounting judgements and key sources of estimation uncertainty used
in preparing the financial information are continually evaluated and are based
on historical experience and other factors, including expectations of future
events that are believed to be reasonable. The resulting judgements and
estimates will, by definition, seldom equal the related actual results.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty in the reporting year, that may have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are discussed below.
Fair value measurements and valuation processes
Unquoted assets are measured at fair value in accordance with IFRS 13 and the
IPEV Valuation Guidelines. Decisions are required in order to determine the
appropriate valuation methodology and subsequently in determining the inputs
into the valuation model used. These decisions include selecting appropriate
quoted company comparables, appropriate multiples to apply, adjustments to
comparable multiples and estimating future cash flows of investee companies.
In estimating the fair value of an asset, market-observable data is used, to
the extent it is available.
The Valuations Committee, which is chaired by a Director, determines the
appropriate valuation techniques and inputs for the model. The Audit Committee
considers the work of the Valuations Committee and the results of their
discussion with the AIFM, Portfolio Manager and the external auditor and works
closely with the AIFM and Portfolio Manager to review the appropriate
valuation techniques and inputs to the model. The Chairman of the Audit
Committee reports its findings to the Board of Directors of the Group every
six months to explain the cause of fluctuations in the fair value of the
investments.
Information about the valuation techniques and inputs used in determining the
fair value of various assets and liabilities are disclosed in note 19.4. As
set out in note 19.9 performance fee is calculated based on the valuation of
the investments and as such is considered a significant accounting estimate.
20 Post Balance Sheet Events
At the year end regulatory approval remained outstanding for a deal announced
in February 2023 in which the Company's holding in Cushon would be realised as
part of its acquisition by Natwest Group. This transaction completed in June
2023, with the Company receiving proceeds of £22.8 million. There are no
other significant events after the end of the reporting period requiring
disclosure.
21 Financial Commitment
The Company made commitments to invest up to $3,000,000 into the Snowcrash
Offshore Feeder LP. Of this commitment $750,000 (2022: $1,500,000) remains
outstanding.
.
2023 Accounts
The figures and financial information for 2023 are extracted from the annual
report and financial statements for the year ended 31 March 2023 and do not
constitute the statutory accounts for the year. The annual report and
financial statements include the Report of the Independent Auditor which is
unqualified and does not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006. The annual report and financial
statements have not yet been delivered to the Registrar of Companies.
2022 Accounts
The figures and financial information for 2022 are extracted from the
published annual report and financial statements for the year ended 31 March
2022 and do not constitute the statutory accounts for that year. The annual
report and financial statements have been delivered to the Registrar of
Companies and included the Report of the Independent Auditor which was
unqualified and did not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006.
Annual report and financial statements
Copies of the annual report and financial statements will be posted to
shareholders shortly and will be available on the Company’s website
(www.augmentum.vc) or in hard copy format from the Company Secretary.
The Company's annual report for the year ended 31 March 2023 will shortly be
available for inspection on the National Storage Mechanism (NSM) via
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Annual General Meeting will be held on Tuesday, 19 September 2023 at 11.00
a.m. The Notice of the Annual General Meeting will be posted to shareholders
with the annual report and will be available on the Company’s website and
NSM as per the above with respect to the annual report.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
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