REG - Chrysalis Investment - Quarterly NAV Announcement and Trading Update

Chrysalis InvestmentsAnnouncement

28/10/2024 07:00

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RNS Number : 7690J  Chrysalis Investments Limited  28 October 2024

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The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 which forms part of domestic law in the United Kingdom
pursuant to The European Union Withdrawal Act 2018, as amended by The Market
Abuse (Amendment) (EU Exit) Regulations 2019.

 

28 October 2024

 

 

Chrysalis Investments Limited ("Chrysalis" or the "Company")

 

Quarterly NAV Announcement and Trading Update

 

Net Asset Value

 

The Company announces that as at 30 September 2024 the unaudited net asset
value ("NAV") per ordinary share was 141.26 pence.

 

The NAV calculation is based on the Company's issued share capital as at 30
September 2024 of 594,892,952 ordinary shares of no-par value.

 

September's NAV per share represents a 3.99 pence per share (2.7%) decrease
since 30 June 2024. The decrease in the fair value of the portfolio accounted
for approximately 1.59 pence per share, with foreign exchange generating an
adverse movement of approximately 1.95 pence per share. Fees and expenses make
up the balance.

 

Over the course of the Company's financial year to September 2024, NAV has
risen by 6.61 pence per share, a 4.9% increase. This has been driven by
movement in the fair value of the portfolio of approximately 13.44 pence per
share, offset by an adverse foreign exchange movement of 5.59 pence per share,
with fees and expenses making up the balance.

 

Richard Watts and Nick Williamson, Managing Partners of Chrysalis Investment
Partners LLP comment:

 

"Despite the modest decline in the Company's NAV over the period, which was
compounded by adverse foreign exchange movements, we were very encouraged by
the substantial improvement to the Company's liquidity, which currently stands
at approximately £109 million following the receipt of initial proceeds from
the sale of Graphcore to SoftBank Group Corp ("SoftBank") and the draw down of
a £70 million loan facility from Barclays Bank PLC ("Barclays"). At quarter
end, a share buy-back commenced, in line with the Capital Allocation Policy
("CAP"), and as of 25 October, the Company had repurchased approximately 9.2
million shares at an aggregate cost of £8.5 million.

 

In terms of cash flow, we are optimistic that further liquidity will flow into
the Company in the coming quarters. Initially, we would expect capital to be
received from the sale of Featurespace to Visa, assuming the deal meets its
required closing conditions. We are also expectant of a Klarna IPO in due
course; the next potential window for this would appear to be 1H25. This would
further boost the Company's liquidity and, if market rumours around IPO
valuation prove to be correct, lead to further NAV per share accretion.
Aggregating the initial proceeds expected from Featurespace (c£79 million)
and the current carrying value of Klarna (c£121 million) generates a total of
c£200 million of potential liquidity, equivalent to approximately 38% of the
Company's market capitalisation (as of 24 October 2024) and is additive to the
current liquidity position.

 

Given the possibility of significant liquidity that may be forthcoming for the
Company, which should more than cover the second phase of the CAP - namely the
return of up to £100 million to shareholders - the Investment Adviser has
been discussing with the Board the merits of initiating a programme of new
investment to tap into the exciting investment opportunities we are seeing in
the current market. We believe a refreshing of the portfolio, which is likely
to target late-stage private companies with long-term growth potential, is
consistent with the ability of the Company to grow its NAV in the long-term."

 

Portfolio Activity

 

Chrysalis invested €15 million into wefox in the period as a continuation of
the funding solution it had been discussing with both the company, and other
shareholders; however, this was more than offset by the inflow of the $57.4
million initial proceeds from the sale of Graphcore, resulting in the
Company's cash position improving by approximately £32 million overall.

 

At the end of the period, the Company announced that Visa had signed a
definitive agreement to acquire Featurespace. Cash proceeds of approximately
£89 million are expected, of which initial consideration is likely to be
approximately £79 million. This deal awaits clearance of certain closing
conditions, including any applicable regulatory approvals, which means that no
cash proceeds have yet been received.

 

Portfolio Update

 

Starling

 

Starling's valuation was broadly static over the period.

 

Following the appointment of Raman Bhatia as CEO, the company has been
considering its medium-term strategy, a process into which the Investment
Adviser has been feeding its views.

 

Post period end, the FCA fined Starling £29 million in relation to failings
that occurred between December 2019 and November 2023, under the previous
management, in onboarding certain high-risk customers and sanctions screening
processes. The fine is paid in full and final settlement. Both a detailed
re-screening of transactions, and an in-depth back book review of customer
accounts in respect of the contraventions detailed in the Notice, has now been
undertaken and extensive additional safeguards have been introduced to ensure
the Bank complies with regulatory requirements. As at March 2024, the bank had
"capital headroom" of £284 million.

 

Given the extensive growth opportunities that the company has access to, the
Investment Adviser remains optimistic of the company's future growth path and
ability to create value.

 

Smart Pension

 

The carrying value of Smart was broadly unchanged in the period.

 

At an operating level, the business continues to perform well, showing strong
revenue growth over the prior year and very significantly improved
profitability, further to the major restructuring undertaken earlier in the
year.

 

Following the acquisition of assets from the Options Master Trust, Smart
expects Assets under Management ("AuM") to total £6 billion, up from £5
billion it achieved earlier in the year post the acquisition of Evolve
Pensions.

 

The Investment Adviser continues to see significant organic growth
opportunities for Smart, which it believes can be supplemented by targeted
M&A.

 

Klarna

 

The value of Klarna rose in the period, driven by increases in the valuations
of listed peers.

 

Klarna released its first half results in the period. These demonstrated
ongoing growth, with GMV rising 16%, revenue rising 27% and gross profit
rising 22%. In addition, further progress was made in terms of profitability,
with adjusted operating income of approximately $64 million, versus a loss of
-$43 million in the prior half year.

 

Towards the end of the period and post period end, the company made a number
of announcements that the Investment Adviser believes could have commercial
importance in the coming years. These include:

·    The ability of customers using Apple Pay online and in app to access
Klarna's payment offerings in the US and UK, which the Investment Adviser
believes is likely to have the most commercial potency in the coming years;

·    A deal with Elliott Advisors (UK) to sell nearly all Klarna's
short-term, interest free receivables in the UK over a number of years. This
deal is designed as part of a range of measures to optimise capital efficiency
and could lead to over £30 billion of additional funding for Klarna over the
life of the transaction;

·    A tie-up with Adyen to offer Klarna payment options at point-of-sale
terminals in stores across Europe, North America and Australia;

·    An integration with Xero, to help SMEs accept payments from customers
wanting a BNPL solution; and

·    The launch of "Apple from Klarna", a storefront from which customers
can purchase Apple products using Klarna's payment options.

 

Separately, Klarna announced that its network of merchants had reached
600,000, having added over 100,000 over the last year.

 

In the Investment Adviser's view, the increased cadence of news flow ties in
neatly with speculation surrounding Klarna's possible IPO; the next potential
window for this appears to be the first half of 2025.

 

Featurespace

 

The valuation of Featurespace had been written up in prior quarters,
reflecting the likely completion of the acquisition of the company by Visa,
which was announced in the period. The valuation of Featurespace was further
written up in the quarter to reflect the successful signing of this deal,
albeit with a modest discount to reflect the fact the deal has not yet
completed.

 

Following a year of significant growth in 2023, during which time Featurespace
grew revenues approximately 47%, the company has continued to see robust
growth over the year to date.

 

Brandtech

 

Brandtech has spent previous quarters focused on the integration of Jellyfish,
which completed in July 2023 and represented the largest acquisition in the
company's history. As part of its integration, a significant amount of work
has been done to streamline the cost base, build the sales pipeline and
reaccelerate organic growth, actions which have yielded an improvement in
operating performance over the last few months.

 

Despite a tough backdrop, the rest of the group has continued to generate
positive organic growth year to date and, in more recent months, momentum has
improved. Pencil, Brandtech's generative AI marketing platform, was acquired
in June 2023 and within weeks it was used to target global brands with the
release of Pencil Pro, an AI-driven ad generation engine.

 

With the industry appearing to recover some poise after a difficult few
quarters of trading, and with Brandtech having successfully bedded down
Jellyfish, the Investment Adviser is optimistic that the outlook for growth
and profitability is improving.

 

wefox

 

The Company's recent investments into wefox over the last two quarters took
the form of convertible loan agreements ("CLAs"). The carrying value of wefox
was reduced in the period, as these CLAs are currently being valued as debt,
thus not attributing any potential valuation uplift that could result from
their conversion into equity.

 

During the period, a new CEO - Joachim Mueller, who previously held a number
of CEO roles at divisions within Allianz - was appointed and is assessing the
merits of various strategic directions for the company. The Investment Adviser
had not been expecting wefox to require further capital, following the
investment made during the quarter; however, the outcome of the CEO's analysis
will determine whether this assumption is still valid.

 

In terms of trading, the company is tracking in line with its reforecast plan
for the year.

 

Cash Update

 

As of 30 September, the Company had net cash of approximately £45 million and
a position in Wise of approximately £2 million, to give a total liquidity
position of approximately £47 million. The cash position improved
substantially over the quarter, due to the sale of Graphcore to SoftBank in
July 2024.

 

Post period end, the Company entered into a £70 million loan facility with
Barclays, which was drawn down in full in October, and has resulted in a
further improvement of the liquidity position. Also post period end, a £40
million share buy-back programme was launched; as of 25 October, approximately
£8.5 million had been spent buying approximately 9.2 million shares into
Treasury.

 

 

 

Portfolio Composition

 

As of 30 September 2024, the portfolio composition was as follows:

 

                       30-Sep
                       Carrying Value

 Portfolio Company     (£ millions)    % of portfolio
 Starling              254.4           30.2%

 Smart Pension          123.4          14.7%

 Klarna                 120.6          14.3%

 Featurespace           81.4           9.7%

 Brandtech              80.2           9.5%

 Deep Instinct          41.8           5.0%

 wefox                  36.2           4.3%

 InfoSum                29.9           3.6%

 Secret Escapes         25.3           3.0%

 Wise                   2.0            0.2%

 Graphcore              0.9            0.1%

 Sorted                 0.3            0.0%
 Gross cash            44.6            5.3%

 

Source: Chrysalis Investments Limited. Due to rounding, the figures may not
add up to 100%. The above percentages are based on an aggregate portfolio
value (including cash and amounts held as debtors) of approximately £797
million for 30 September 2024.

 

Factsheet

 

An updated Company factsheet will shortly be available on the Company's
website:  https://www.chrysalisinvestments.co.uk
(https://www.chrysalisinvestments.co.uk) .

 

 

-ENDS-

 

 For further information, please contact

 Media

 Montfort Communications:                  +44 (0) 7921 881 800

 Charlotte McMullen / Imogen Saunders      chrysalis@montfort.london

 Chrysalis Investment Partners LLP:        +44 (0) 20 7871 5343

 James Simpson

 G10 Capital Limited (AIFM):               +44 (0) 20 7397 5450
 Maria Baldwin

 Panmure Liberum:                          +44 (0) 20 3100 2000

 Chris Clarke / Darren Vickers

 Deutsche Numis:                           +44 (0) 20 7260 1000

 Nathan Brown / Matt Goss

 IQEQ Fund Services (Guernsey) Limited:    +44 (0) 1481 231852

 Aimee Gontier/Elaine Smeja

 

LEI: 213800F9SQ753JQHSW24

A copy of this announcement will be available on the Company's website at
https://www.chrysalisinvestments.co.uk
(https://www.chrysalisinvestments.co.uk)

The information contained in this announcement regarding the Company's
investments has been provided by the relevant underlying portfolio company and
has not been independently verified by the Company. The information contained
herein is unaudited.

This announcement is for information purposes only and is not an offer to
invest. All investments are subject to risk. Past performance is no guarantee
of future returns. Prospective investors are advised to seek expert legal,
financial, tax and other professional advice before making any investment
decision. The value of investments may fluctuate. Results achieved in the past
are no guarantee of future results. Neither the content of the Company's
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website for any other website, is incorporated into, or forms part of, this
announcement nor, unless previously published by means of a recognised
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securities in the Company.

The Company is an alternative investment fund ("AIF") for the purposes of the
AIFM Directive and as such is required to have an investment manager who is
duly authorised to undertake the role of an alternative investment fund
manager ("AIFM"). G10 Capital Limited is the AIFM to the Company. Chrysalis
Investment Partners LLP is the investment adviser to G10 Capital Limited.
Chrysalis Investment Partners LLP is an appointed representative of G10
Capital Limited which is authorised and regulated by the Financial Conduct
Authority.

 

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