REG - Chrysalis Investment - Quarterly NAV Announcement and Trading Update

Chrysalis InvestmentsAnnouncement

30/01/2025 07:00

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RNS Number : 1910V  Chrysalis Investments Limited  30 January 2025

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South Africa.

 

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.

 

30 January 2025

 

 

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

 

Quarterly NAV Announcement and Trading Update

 

Net Asset Value

 

The Company announces that as at 31 December 2024 the unaudited net asset
value ("NAV") per ordinary share was 156.62 pence.

 

The NAV calculation is based on the Company's issued share capital as at 31
December 2024 of 567,167,153 ordinary shares of no par value.

 

December's NAV per share represents a 15.36 pence per share (11%) increase
since 30 September 2024. The increase in the fair value of the portfolio
accounted for approximately 11.38 pence per share, with foreign exchange
generating a favourable movement of approximately 1.39 pence per share. The
share buyback led to 2.76 pence per share of accretion; other income, fees and
expenses make up the balance.

 

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

 

"The Company's NAV rose considerably in the quarter, supported by both the
strong performances from listed peers and the buyback of approximately £27
million of shares, which was accretive to NAV per share to the tune of nearly
three pence.

 

Nearly all the Company's assets saw an increase in carrying value, albeit the
position in Klarna benefited from the modest secondary investment ($10
million) made in the quarter and the wefox position rose due to a decrease in
the assessed downside scenario, a reassessment of the flow of capital via the
waterfall and a follow-on primary capital injection of €20 million.

 

Our primary aims, as articulated in the recent full year results, are to
maximise the value of the portfolio companies and sustainably narrow the share
price discount to NAV.

 

In terms of managing the share price discount to NAV, the Company is currently
just over a third of the way through the programme to return up to £100
million of capital to shareholders, to which it remains committed.

 

In terms of maximising value, we are confident in the outlook for the
portfolio in 2025. We believe Starling is excellently positioned to continue
to build out a comprehensive banking experience for its customers; Smart
Pension has a great platform from which to continue to grow, likely assisted
by regulatory drivers from mooted changes to pensions schemes; and Klarna is
actively exploring an IPO, which would deliver further liquidity to the
Company. These three portfolio companies account for c. 61% of NAV."

 

Portfolio Activity

 

Chrysalis invested €20 million (c£16.6 million) into wefox in the period,
which is expected to be the last material funding commitment to the business
for the foreseeable future. The Investment Adviser is working towards a
solution, alongside management and other shareholders, that would provide
sufficient funding for the company to execute its growth plan, enhance the
valuation protection mechanisms of supportive wefox shareholders, and offer
potential upside through the successful delivery of its strategy.

 

The Company also invested $10 million (c£8.2 million) in a secondary offering
in Klarna at a price which the Investment Adviser believes will yield a strong
return for shareholders. Given Klarna has filed for an IPO, this investment is
expected to become a liquid asset in the near-term.

 

In December, initial cash proceeds (c£79.0 million) were received from the
sale of Featurespace to Visa.

 

As a result of this activity, the Company recorded a net inflow of cash from
the portfolio over the period of approximately £54.2 million. This inflow was
partly used to undertake the share buyback programme (c£27 million).

 

Strategic considerations

 

In October 2024, the Company gave notice that, following some faster than
anticipated realisations, the Investment Adviser was considering the merits of
new investments as part of the ongoing execution of the Capital Allocation
Policy ("CAP") - the CAP being a key element of the continuation vote
proposals that were supported by shareholders in March 2024. It was
anticipated that the process of refining the investment approach and building
out a pipeline of potential investments was likely to take several months, and
that the capital return programme would continue to narrow the share price
discount to NAV over this period.

 

Following discussions with a significant number of shareholders, the Board
wishes to clarify the following:

 

1)    No proceeds from realisations will be considered for allocation to
new investments until the Company has satisfied the second pillar of the CAP,
namely the return of £100 million to shareholders (as of 29 January, c£36
million had been returned)

2)    The Board will continue to monitor the CAP's effectiveness in
reducing the share price discount to NAV. While the discount has narrowed
since the buyback programme began, the Board is seeking a further, sustained
improvement before considering new investments

3)    Should further realisations occur, the Board remains committed to the
return of at least 25% of any net realised gains

 

Given these factors and the time required to build out an investment pipeline,
the Board believes that the Company is unlikely to consider using its
liquidity to make new investments before 2026 and, even then, only if the
discount to NAV has narrowed further and on a sustained basis. In the
meantime, the Investment Adviser is focused on maximising the value of the
portfolio and enhancing NAV to the benefit of all shareholders.

 

The Board and the Investment Adviser also acknowledge that some shareholders
advocate for an expansion of the Investment Adviser's resources, to better
manage the portfolio and the Company's investment strategy. As such, the Board
will explore ways in which to achieve this with the Investment Adviser and
will update shareholders as appropriate.

 

Portfolio Update

 

Starling

 

Starling's valuation rose over the period, reflecting higher valuation
multiples, typically derived from listed comparable companies, as well as the
construction of the peer group, which the valuer assessed to more accurately
reflect Starling's characteristics.

 

In the period, Starling launched an instant-access saver account ("Easy
Saver"), which initially is only available to certain existing customers of
the bank. Despite only being launched approximately two months ago, and
without widespread marketing, this product has taken significant deposits.

 

As mentioned in the last quarterly NAV report, the FCA fined Starling £29
million in relation to failings that occurred between December 2019 and
November 2023, in onboarding certain high-risk customers and its sanctions
screening processes. The fine was paid in full and final settlement from the
company's capital "headroom" to its capital requirements, which was £284
million as of March 2024.

 

With the FCA fine now resolved; a significantly strengthened management team;
the launch of Easy Saver in November 2024 - which is on track for £1 billion
in deposits imminently- and with other products being considered, the
Investment Adviser is confident in the outlook for Starling.

 

Smart Pension

 

The carrying value of Smart was unchanged in the period.

 

The business continues to perform well, with profitability now achieved on an
underlying EBITDA basis. This marks a significant turnaround from the material
losses recorded in the prior year, and is testament to the success of the
restructuring programme, which broadly completed in early 2024.

 

Of most relevance to Smart during the period was the announcement by the UK
government to consult on setting a minimum size for multi-employer pension
schemes - indicated to be £25 billion - by 2030. Currently, the Smart Pension
Master Trust has AuM of approximately £6.4 billion, implying it would need to
scale roughly fourfold to meet these mooted criteria. So saying, Smart has
been highly active in Master Trust consolidation, with ten acquisitions
undertaken since inception, assisted by the flexibility of its platform
architecture. While such regulatory change is not without risk, the Investment
Adviser believes it may prompt smaller Master Trusts to seek an exit and
accelerate consolidation in the sector.

 

Outside potential M&A, the Investment Adviser sees significant
opportunities for organic growth, including via Smart's Keystone platform.

 

Klarna

 

The value of Klarna rose in the period, driven by an increase in the assessed
valuation of the company - due to the strong performances of a number of its
listed peers - as well as the impact of the recent small, secondary investment
of £8.2 million, which was also revalued to the new assessed valuation level.

 

Klarna released its third quarter results in the period. The financial
highlight was the further improvement in profitability, with the third quarter
delivering adjusted operating income of approximately SEK880 million,
representing more than half of the year-to-date quantum of SEK1.6 billion.

 

As announced at the last NAV update, Klarna has unveiled a range of new
relationships with significant payment service providers, such as Apple Pay
and Google Pay, and this spate of new wins continued post period end, with the
announcement of a deeper relationship with Stripe in January. The new Stripe
deal will see Stripe-powered businesses able to easily offer Klarna as a
payment solution to their customers. This helped Klarna to double the number
of first-time merchants in 4Q 2024.

 

With a range of new, potentially significant, deals recently signed, the
Investment Adviser remains optimistic Klarna will be able to execute a
successful IPO in 2025.

 

Brandtech

 

Brandtech also saw a modest uptick in its carrying value.

 

The company continues to invest in its AI proposition, with David Jones (CEO)
recently predicting in a Sunday Times article that "big companies will be able
to cut their content creation costs by at least 50 per cent over the next
three years".

 

As part of this focus on AI, in the period Brandtech announced a partnership
with Adobe to integrate Pencil Pro (Brandtech's AI software platform) with
Adobe Firefly Services. The combined solution is expected to offer brands the
ability to create AI generated assets, underpinned by the security of Adobe
products.

 

wefox

 

With the exit of its insurance carrier and non-core assets, wefox is now
focused on expanding its insurance distribution and MGA businesses. This
streamlined, asset-light model enables efficient growth, while allowing wefox
to capture distribution margin and some of the underwriting margin through its
MGA strategy. As an MGA, wefox underwrites policies on behalf of insurers
without taking on underwriting risk itself, earning a share of the
underwriting margin through commission payments. By strengthening insurer
partnerships and scaling its platform, wefox believes it is positioned for
sustainable expansion and improved profitability.

 

Cash Update

 

As of 31 December, the Company had gross cash and equivalents of approximately
£141 million and a position in Wise of approximately £3 million, to give a
total liquidity position of approximately £144 million. The cash position
improved substantially over the quarter, due to the sale of Featurespace to
Visa in December 2024 and the drawdown of the Barclays loan.

 

Portfolio Composition

 

As of 31 December 2024, the portfolio composition was as follows:

 

                                  31-Dec
                                  Carrying Value

 Portfolio Company                (£ millions)    % of portfolio
 Starling                         278.9           29.1%

 Klarna                            143.6          15.0%

 Smart Pension                     123.4          12.9%

 Brandtech                         87.4           9.1%

 wefox                             65.8           6.9%

 InfoSum                           41.4           4.3%

 Deep Instinct                     41.1           4.3%

 Secret Escapes                    20.0           2.1%

 Featurespace                      10.5           1.1%

 Wise                              3.2            0.3%

 Graphcore                         1.0            0.1%

 Sorted                            0.3            0.0%
 Gross cash and cash equivalents  141.5           14.8%

 

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 cash equivalents plus deferred proceeds receivable
on sold investments) of approximately £958 million for 31 December 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

 Montfort Communications (Media):         +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
website, nor the content on any website accessible from hyperlinks on its
website for any other website, is incorporated into, or forms part of, this
announcement nor, unless previously published by means of a recognised
information service, should any such content be relied upon in reaching a
decision as to whether or not to acquire, continue to hold, or dispose of,
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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