REG - Chrysalis Invs Ltd - Annual Financial Report
26/01/2022 07:05
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RNS Number : 6422Z Chrysalis Investments Limited 26 January 2022
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Chrysalis Investments Limited
26 January 2022
Chrysalis Investments Limited (the "Company")
Annual Results
The Company today announces its results for the year ended 30 September 2021.
The Company's audited annual results are copied below. The results will be
available on the Company's website (http://www.merian.com/Chrysalis) in due
course.
Financial summary
30 September 2021 30 September 2020 % increase
NAV per share 251.96p 160.97p 57%
Share price 267p 145p 84%
Total net assets £1,379 million £542 million 154%
Highlights
- NAV per share of 251.96p, representing 57% growth year-on-year
and a CAGR of 38% since IPO
- Further diversification achieved: five new investments added in
the period, outperforming expectations, taking the portfolio to 15 holdings
(excluding Growth Street and Embark)
- Partial realisation of Wise at the point of Initial Public
Offering (£83m) and announcement of the sale of Embark to Lloyds Bank, where
completion is expected imminently
- £95m of capital recycled, driven by realisations, to fund new
investments (an increase from c.£20m in FY20)
- Cash position of £55m, pre expected Embark proceeds, and a strong
total liquidity position of over £160m, both as of close on 24 January 2022
Andrew Haining, Chair, commented:
"Chrysalis produced another strong NAV performance, driven by the successes of
several of our major holdings. The ambition set out early in the year to scale
the Company has been achieved, assisted by both material revaluations (many
supported by significant funding rounds), and our shareholders via capital
raises, for which I thank them. The Board is delighted with the performance of
the investment team, to which further resource was added post year end to
bolster the Finance and ESG functions. In the space of three years, the team
has built a unique platform by which ordinary investors can access the
opportunities available in the late-stage private market. With interest in
private investing growing, I believe Chrysalis is extremely well placed to
continue its development."
Nick Williamson and Richard Watts, co-portfolio managers, commented:
"Our investments performed strongly in aggregate over 2021, driven by market
leading business propositions that have continued to drive material revenue
growth. We estimate the aggregate Total Addressable Market our companies face
is over $1 trillion, of which they have less than 1% combined market share.
Typically, these markets are growing, and we expect our companies to increase
their market shares over time. So, as we look forward, we believe the
portfolio has significant revenue growth potential embedded within it, likely
to be at a speed that is materially faster than those typically available in
listed markets over the medium-term.
Despite recent market weakness in growth stocks, including technology names,
we believe Chrysalis is well positioned; we think a number of our major
holdings are attractively valued versus their listed peers, are growing very
quickly and, in many cases, are digital market leaders. In the current febrile
market environment, our focus remains on supporting our companies to continue
to build and grow. We firmly believe that we are still at the start of digital
disruption and our purpose of identifying and enabling the most innovative
technology enabled companies to disrupt huge addressable markets will provide
exceptional long-term returns to shareholders."
The Report and Accounts will be available on the Company's website at
http://chrysalisinvestments.co.uk
(https://protect-eu.mimecast.com/s/V1HICYEOyCD2g5LI0ztOf?domain=chrysalisinvestments.co.uk)
under Investor Relations, then Financial Reporting.
Issue of Equity
Further to the Company's announcement on 29 November 2021 in respect of the
issue of Ordinary Shares in the capital of the Company in order to settle 54
per cent. of the performance fee amount payable to the investment manager in
respect of the period to 30 September 2021, an application has been made for
up to 22,667,255 million New Ordinary Shares to be admitted to the premium
segment of the Official List of the FCA and to trading on the Main Market of
the London Stock Exchange. It is expected that admission in respect of the New
Ordinary Shares will become effective, and that dealings in the New Ordinary
Shares will commence, at 8.00 a.m. on 28 January 2022.
Total Voting Rights
Following the issue and admission, Chrysalis' issued share capital will
consist of 595,150,415 Ordinary Shares with voting rights in the Company. This
figure may be used by Shareholders in determining the denominator for the
calculation by which they will establish if they are required to notify their
interest in, or a change to their interest in, the Company under the FCA's
Disclosure Guidance and Transparency Rules.
-ENDS-
For further information, please contact:
Jupiter Asset Management: +44 (0) 20 3817 1325
Magnus Spence
Liberum: +44 (0) 20 3100 2000
Chris Clarke / Owen Matthews / Darren Vickers
Numis Securities Limited: +44 (0) 20 7260 1000
Nathan Brown / Matt Goss
Maitland Administration (Guernsey) Limited: +44 (0) 1481 749364
Elaine Smeja / Aimee Gontier
Media Enquiries:
Montfort Communications +44 (0) 20 3514 0897
Charlotte McMullen Chrysalis@montfort.london
LEI: 213800F9SQ753JQHSW24
A copy of this announcement will be available on the Company's website at
http://chrysalisinvestments.co.uk
(https://protect-eu.mimecast.com/s/V1HICYEOyCD2g5LI0ztOf?domain=chrysalisinvestments.co.uk)
. 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.
This announcement may include "forward-looking statements". All statements
other than statements of historical facts included in this announcement,
including, without limitation, those regarding the Company's financial
position, business strategy, plans and objectives of management for future
operations (including development plans and objectives relating to the
Company's products and services) are forward-looking statements.
Forward-looking statements are subject to risks and uncertainties and
accordingly the Company's actual future financial results and operational
performance may differ materially from the results and performance expressed
in, or implied by, the statements. These factors include but are not limited
to those described in the formal Prospectus. These forward-looking statements
speak only as at the date of this announcement. The Company expressly
disclaims any obligation or undertaking to update or revise any
forward-looking statements contained herein to reflect actual results or any
change in the assumptions, conditions or circumstances on which any such
statements are based unless required to do so by the Financial Services and
Markets Act 2000, the Listing Rules or Prospectus Rules of the Financial
Conduct Authority or other applicable laws, regulations or rules.
A different kind of capital
Chrysalis Investments Limited's ("Chrysalis") proposition to high growth
private companies remains distinct: one of long-term crossover capital.
Our attractiveness to companies is our ability to fund them up to and through
Initial Public Offering ("IPO"), helping them de-risk this process and align
with a natural buyer of listed equity.
Our attractiveness to investors is that our crossover proposition allows us
access to some of the most exciting private growth names, which are
unavailable to most investors.
Our proposition is based on our ability to offer material crossover funding.
As Chrysalis has grown, our ability to offer a meaningful crossover
proposition internally has increased, but is further underpinned by over £6.4
billion of capital managed by Jupiter Fund Management PLC and its subsidiaries
("Jupiter") focused on the UK small and mid-cap listed market. This pool of
funds makes Jupiter one of the biggest IPO investors in the UK.
The Company was set up to seek out attractive, typically unlisted companies.
We define some of the characteristics we are targeting as:
• The ability to deliver growth rates substantially higher than
the average UK plc;
• The ability to protect the duration of these growth rates via
competitive advantage, e.g. via scale or technology; and
• The ability to generate significant margins, and thus profits,
at scale.
This has led us towards a group of businesses we label "tech-enabled
disrupters".
We believe:
• Technology is at the heart of modern life, and thus at the heart
of most modern businesses;
• Technology offers society ways to operate more efficiently than
under older business models;
• Technology serves society best when the benefits of this
efficiency are shared with its users; and
• Technology is increasingly a catalyst for environmental change
and sustainable development.
Performance Highlights
251.96p - NAV growth of 57%
· Asset revaluations drove material Net Asset Value ("NAV") per
ordinary share growth over the year (prior year: 160.97p).
267p - Share price growth of 84%
· The Company's Share Price performed well year-on-year (prior
year: 145p), peaking at 277p at the beginning of September 2021 and ending the
year at a 6.0% premium to NAV (prior year: 9.9% discount).
£448.3m - Gain
· The Company achieved a significant pre-tax gain for the year,
driven by £568.4m net investment gains.
£380.2m - Substantial deployment
· Material capital investments were made in the year, as most of
the proceeds from funds raised during the year were utilised for new and
follow-on investments.
17 investments - Increased diversification
· Five investments were added during the year, further increasing
diversification in the portfolio.
£1,460.2m - Total portfolio value
· The total portfolio grew to over £1 billion during the year,
increasing by £853.9m (140.8%) through a combination of investment gains and
new investments, predominantly funded by capital raises.
Chairman's Statement
Chrysalis Investments Limited (the "Company" or "Chrysalis") saw strong NAV
per share growth over the year of 57% (from 160.97p to 251.96p), which builds
on the 42% growth in the prior year. This continued robust performance means
that NAV per share has risen by 156% from the date of the IPO, representing a
Compound Annual Growth Rate of approximately 38% per annum.
Over the year, a number of the Company's biggest investments undertook
material funding rounds supported by new investors, which provides strong
external validation of the valuation progression of these individual
investments, and thus the Company's NAV per share.
In particular, Klarna added approximately £294 million to the gross portfolio
value over the year, following its two successful funding rounds. The most
recent was in June 2021, valuing the business at $45.6 billion. Chrysalis
initially invested at a post new-money valuation of $5.5 billion in August
2019, demonstrating the Investment Adviser's origination capability and
ability to access funding rounds prior to widespread acceptance of the power
of the Klarna investment case.
Wise, which listed on the London Stock Exchange in the year, and Starling
Bank, which continued its rapid expansion, enabled by follow-on capital
committed by Chrysalis over 2020, both saw gross portfolio valuation gains of
over £100 million, again underpinned by the provision of capital from new
shareholders.
While our aim is to invest predominantly in private growth companies, our
investment philosophy is agnostic to whether a company is public or private:
we want to invest in the best companies we can find, and Chrysalis was
structured in a way that allows this freedom.
As an example of this approach, we continue to hold some of our Wise holding
after listing, where we believe the investment case still has not been fully
valued by the stock market, despite the shares showing a substantial gain on
our original investment. Similarly, we retained our THG holding, and increased
it at listing. THG's share price has fallen materially since IPO and was the
largest detractor to performance over the year and has continued to fall after
year end. However, the Investment Adviser remains committed to the business
strategy which the team at THG has followed over the duration of our
ownership, and which fundamentally remains unchanged.
Our structure enables us to take a long-term view to value creation; public
markets are often shorter term in outlook and sometimes growth businesses,
particularly those where growth has been prioritised over margin maximisation,
struggle to make the case for investment to those public shareholders, who are
more used to slower-growing, profit-maximising companies. We believe that all
our listed investments have significant upside from their current market
prices. However, if public markets continue to undervalue assets, Chrysalis
does have the flexibility to maintain its shareholding if companies choose a
return to the private marketplace to continue their growth development.
The Company raised £395 million of new capital in the year, as well as
realising approximately £83 million from a partial disposal of our holding in
Wise shortly after its IPO. The sale of Embark to Lloyds Bank Plc for a total
consideration of £395 million, is scheduled to complete in the coming weeks.
These realisations and fresh capital enabled a fast pace of new investment and
five new investments were added over the summer, at a rate that exceeded the
Investment Adviser's expectations. This investment activity has continued to
diversify the range of investee companies and should also aid in the creation
of a self-sustaining portfolio of investments in time.
Investment Adviser
The Investment Adviser has continued to deliver strong performance for the
Company and has striven to build Chrysalis into an increasingly compelling
partner for late-stage private growth companies.
The Investment Adviser has invested in resourcing, and I would like to welcome
Rebecca Whiting, who will act as a Director of Finance, and Andrew Mortimer,
who joins the wider UK small and midcap team at Jupiter as an ESG Investment
Director. With this further investment, I believe the platform that is now in
place opens up the possibility of extending Chrysalis' position in its target
marketplace.
As a result of the significantly increased NAV over the year, a performance
fee of £112.1m is due and payable under the terms of the investment
agreement.
Following the end of the financial year, the Board and the portfolio
management team reviewed payment arrangements for the performance fee to
ensure ongoing alignment between the Investment Adviser and the Company's
shareholders. The Board was pleased that the portfolio management team
requested that the deferred element of its performance fee be taken in new
Chrysalis shares to be issued by the Company, a stance that the Board believes
was extremely constructive.
These shares will be issued at the closing share price of 267p at 30 September
2021, an approximate 6% premium to NAV, which reflects the team's confidence
in the prospects for the portfolio. To ensure continued alignment with
stakeholders, the Board will review fee arrangements, including the
performance fee payment structure, in 2022 after consultation with relevant
parties. The Board will set out its thoughts to shareholders on this subject
later in 2022.
ESG
The latest financial year has demonstrated the growing prominence of
environmental, social and governance ("ESG") considerations for investors,
intermediaries and asset owners. The Board and the Investment Adviser have
established and are currently implementing an ESG policy which ensures that we
are aligning ourselves with best practice in this area. The ESG policy can be
found on: https://www.jupiteram.com/about-jupiter/esg-and-stewardship/
(https://www.jupiteram.com/about-jupiter/esg-and-stewardship/)
Following the year-end, in November 2021 the UK Government announced that the
UK will be the world's first Net Zero-aligned Financial Centre. This will
require asset managers and listed companies to publish transition plans
setting out how an organisation will adapt as the world transitions towards a
low carbon economy.
The Board believes that the type of tech-enabled, disruptive businesses in
which Chrysalis invests are well-positioned to navigate the transition to a
low carbon economy. They are also likely to be significant job creators, with
positive spill-over effects elsewhere in the economy. The Investment Adviser
integrates ESG analysis within the investment process and encourages all
portfolio companies to set out a net zero target consistent with less than 1.5
degrees Celsius in line with the Paris Agreement across their own operations
and value chain. Jupiter has also made its initial disclosures as part of the
Net Zero Asset Managers initiative, through which it has committed to
achieving net zero emissions by 2050 across its full range of investments and
operations, including the holdings within Chrysalis.
To grow successfully, companies and their founders must not only execute
strategically; they must also lay the foundations for future growth by
creating appropriate corporate governance structures. Though they are in
growth mode, they must also consider long-term themes relating to the
sustainability of their business model.
This includes a broad range of considerations, but fundamentally the purpose
of the business must remain focused on creating value for all of these
stakeholders and reduce negative impacts if it is to succeed over the long
term. The Investment Adviser continues to emphasise these points and encourage
founders and management teams considering listing to prepare themselves for
the additional scrutiny which comes with going public.
I am pleased to note that the Investment Adviser has also aligned its
strategy, purpose and principles with the UN Global Compact ("UNGC") such that
all investment decision-making and engagement is guided by the principles of
the UNGC. This means investee companies are expected to abide by the Compact's
Ten Principles, committing to meeting fundamental responsibilities in the
areas of human rights, labour, environment, and anti-corruption. These
commitments apply to the investment management of Chrysalis and are welcomed
by the Board.
Alternative Investment Fund Management Arrangements
The Board of the Company has determined that it has now reached a stage in its
evolution at which it would be more efficient to become a self-managed
investment company in 2022, with Jupiter Investment Management Limited
continuing to provide portfolio management services. This would entail the
Company assuming direct responsibility for the Alternative Investment Fund
Manager (AIFM) role, including the valuation and risk management aspects,
replacing Jupiter Unit Trust Managers Limited as the current AIFM. This
transition is expected to be implemented by 30 June 2022, subject to
regulatory approval. The Board is grateful to Jupiter Unit Trust Managers
Limited for its AIFM services to date and the transitional support going
forward.
Outlook
Last year's objective was to continue to grow the size of the Company, based
on the hypothesis that adding scale to Chrysalis' crossover proposition would
enhance access to deal flow and further boost origination capabilities. The
pace of new investments, to which the Company committed over £380 million,
would suggest this capital has achieved its aim.
Total investible assets grew by approximately £853 million, meaning nearly
54% of growth was driven by gains on the revaluation of investments. Since
inception to September 2021, gains on the revaluation of investments accounted
for roughly 35% of total asset growth, indicating less dependence on capital
raises in the year to scale the Company.
Despite the excellent revenue growth performance achieved by the portfolio in
aggregate, the Investment Adviser's Report details why it thinks prospects
continue to be positive, based on the substantial aggregate Total Addressable
Market ("TAM") the portfolio accesses, combined with low current revenue
penetration rates.
The Investment Adviser typically sees a strong correlation between its supply
of follow-on capital and the subsequent performance of the investee asset. The
ability and willingness of Chrysalis to back its assets is one of its
attractions to potential investee companies and demonstrates the Investment
Adviser's belief in the "Power of Primary Capital". Both Starling and wefox
are examples of this investment process and have seen considerable valuation
gains in the year from the accelerated growth that our follow-on capital
helped to fund.
Fundamentally, this is what Chrysalis was set up to do: identify excellent
businesses and then back them to succeed, regardless of whether they choose to
stay private or go public. This flexibility provides a highly differentiated
offering in Europe, and is a key underpin of the strength in the Company's
deal origination function, backed up by its increased scale.
The Company's share price rose 84% over the year to 267p, and, notwithstanding
the post year end correction in technology stocks, it is still showing a
substantial gain over the period from its opening level of 145p. While at the
time of writing growth stocks appear to be out-of-favour with investors,
experience shows how quickly market sentiment can swing. Fundamentally, the
aim of Chrysalis is to invest in companies which can generate significantly
faster growth rates in the medium-term than those typically available in
listed markets. This should ultimately provide the Company the ability to
outperform stock markets in share price terms.
Finally, I would like to thank the investment team at the Investment Adviser,
which the Board believes has developed an impressive origination function. The
majority of our deals have come from non-advised channels, and so are
typically outside of formal funding rounds. This has allowed the team access
to deals outside of competitive funding processes, at hopefully more
attractive prices and better terms.
Having established a strong brand and origination channel, and with what I
believe to be substantial embedded revenue growth within the portfolio, I
believe the outlook for your Company remains very exciting.
Andrew Haining
Chairman
25 January 2022
Portfolio Statement
As at 30 September 2021
Net invested/ recycled Total
(£'000)
Opening value Valuation change Closing Value
Cost Total (£'000) Total (£'000) Total (£'000) % of net assets
Total (£'000)
Company Location
Klarna Holding AB Sweden 64,381 93,453 - 293,546 386,999 28.1
Starling Bank Limited UK 88,248 69,641 35,000 106,126 210,767 15.3
Wise PLC UK 21,838 79,658 (82,677) 111,719 108,700 7.9
wefox Holding AG Germany 65,624 - 109,319 (662) 108,657 7.9
You & Mr Jones LLC USA 46,440 46,440 - 48,397 94,837 6.9
Smart Pension Limited UK 75,000 - 75,000 13,600 88,600 6.4
THG PLC UK 58,799 94,213 7,191 (14,721) 86,683 6.3
Graphcore Limited UK 57,589 67,394 7,194 (13,043) 61,545 4.5
Embark Group Limited UK 27,100 60,069 - (3,169) 56,900 4.1
Cognitive Logic Inc. USA 47,126 - 47,126 1,309 48,435 3.5
Deep Instinct Limited USA 47,289 - 47,289 1,141 48,430 3.5
Revolution Beauty Group PLC UK 44,879 - 44,879 (3,506) 41,373 3.0
Tactus Holdings Limited UK 40,130 - 40,130 (51) 40,079 2.9
Featurespace Limited UK 24,449 36,391 4,449 (6,111) 34,729 2.5
Secret Escapes Limited UK 21,509 11,064 5,842 7,521 24,427 1.8
Sorted Holdings Limited UK 15,000 11,690 5,000 1,015 17,705 1.3
Growth Street Holdings Limited UK 12,612 1,256 - 76 1,332 0.1
wefox Holding AG Loan Note Germany - 35,018 (60,250) 25,232 - 0.0
Total investments 758,013 606,287 285,492 568,419 1,460,198 106.0
Cash and cash equivalents 49,794 3.5
Other net current liabilities (131,058) (9.5)
Total net assets 1,378,934 100.0
Investment Adviser's Report
Overview
The year has seen considerable progress for the Company on a number of fronts.
NAV has continued to grow strongly; our investee companies have delivered
strong growth, in many cases culminating in funding rounds at valuations
substantially above the Company's carrying value; portfolio diversification
has continued; further realisations have been made; and the Company has grown
significantly in scale.
The late-stage private market has continued to grow materially. Within that,
crossover investing has become more prominent. Chrysalis established itself
relatively early in this market shift, which has enabled it to take advantage
of this trend.
We are extremely grateful to our investors who have supported the development
of Chrysalis, with the March 2021 raise of £300 million in particular
enabling significant further investment to be undertaken, supplemented by
proceeds "recycled" from realisations in the year.
NAV
NAV per share grew approximately 57% over the year, continuing the strong
progress since March 2020. As previously articulated, NAV growth in the
"Investment Phase" was restricted by significant levels of new investment
activity: new investments can take time to see their underlying financial
performance fully reflected in their valuations.
The Company entered the financial year with approximately £16 million of cash
and, over the course of the year, gross proceeds of £395 million were raised
via two funding rounds. Gross investments of £380 million were deployed, with
£255 million used to fund new investments and £125 million for follow-ons.
Cash proceeds from realisations of £95 million were received, of which £83
million related to selling part of the Company's position in Wise at point of
IPO, and the rest from a top-slicing of the Company's investment in THG in the
early part of the financial year.
Hitherto, realisations have been a relatively modest source of funds for
reinvestment which was expected, given the investment phase the Company
undertook in its initial years. Our expectation was that realisations would
increase in scale as the portfolio matured, and the progress over the year
demonstrates this.
Market
The late-stage private market saw ongoing investor confidence over the year.
This was mirrored by listed markets, such as the NASDAQ, which rose 29%; the
S&P 500, which rose 28%; and the FTSE All Share, which rose 24%. The
NASDAQ in particular saw its overall performance driven by a few of its
biggest companies (FANMAGs). In this regard we believe that Chrysalis'
performance, where the valuer is not typically using the FANMAGs, but smaller
and more relevant companies, as comparatives, demonstrates the attractiveness
of a number of our investee companies' end markets to investors and their
growth profiles.
The prior year saw a substantial outperformance by the tech-heavy NASDAQ,
versus the S&P 500, which we believe reflected investor confidence in the
likely performance of tech-based business models in the teeth of the COVID-19
crisis. Last year marked more of a "normalisation" as the rollout of vaccine
programmes gave confidence that more traditional business models would
recover. The fact that the NASDAQ performed in line with the wider US market
and consolidated its gains of the prior year suggests the COVID-19 driven
boost to tech businesses is seen to be permanent by the market, a hypothesis
we would agree with.
The late-stage private market saw approximately £38 billion of capital
invested in the first nine months of 2021, more than twice that seen over the
whole of 2020. We see this as clear evidence that other investors are now
latching onto the trend we identified some years ago: that of companies
staying private for longer. It also likely reflects the growing scale of a
number of these private companies, and thus their growing capital
requirements.
There has also been an increase in crossover activity. When we analyse the
number of deals that have occurred in the key late-stage European private
market in the first nine months of 2021, at least one major crossover investor
participated in 15% of deals, more than double the activity levels of two
years' ago.
This activity suggests investors are beginning to adapt their investing
behaviour to access innovative and disruptive companies that are choosing to
stay private for longer.
The year marked another period of significant progress in the portfolio. We
saw material funding rounds from a number of our investee companies; ongoing
strong revenue growth from the portfolio; five new investments adding to
overall diversification; and two realisation events.
The major drivers of gross asset performance, and thus NAV, came from some of
our major investments. While Klarna was a stand out performer, eight of our
eleven investments (excluding Growth Street - in liquidation) as of the
beginning of the year saw uplifts; the only asset marked down to a significant
degree was THG.
These revaluations were typically endorsed by funding rounds, often at
materially higher valuations than our carrying values.
Klarna saw two major funding rounds over the year. The first, in March 2021,
saw the company raise $1 billion at a post-new money valuation of $31 billion.
The second, in June 2021, saw the company raise $639 million at a post-new
money valuation of $45.6 billion. Our initial investment in 2019, at a $5.5
billion valuation, was used by Klarna to fund expansion into the US and UK
markets. Klarna's successful penetration of the US market, in particular, was
the key driver of valuation in these funding rounds.
Over the first nine months of 2021, Klarna reported 63% Gross Merchandise
Volume ("GMV") growth to $57.3 billion, with the US growing at more than 300%.
The US has low penetration of Buy Now Pay Later ("BNPL") and represents a huge
consumer spending market.
The fact that the US represents less than 10% of Klarna's total GMV suggests a
substantial opportunity for growth rates to remain strong in future years.
Wise also saw a strong valuation performance as it debuted on the London Stock
Exchange by way of a direct listing IPO. The Investment Adviser's initial
investment in Wise in late 2017, at a valuation of approximately £1.2
billion, predates the formation of Chrysalis, but Wise formed part of the
initial seed portfolio for the Company. The investment case for Wise was well
received by listed market investors and the shares opened at 800p -
approximating to a market capitalisation of £8 billion - and rose to 1087p by
year end.
Following the IPO of THG in September 2020, Wise represents the second public
market listing from the portfolio. We sold approximately half of the Company's
position in Wise around the IPO point, to control position size and enable
capital to be recycled into the new investment opportunities undertaken over
the summer of 2021.
Elsewhere, both Starling Bank and wefox continued their strong growth and
subsequently successfully raised capital at levels substantially above their
valuations on prior rounds.
THG was the only meaningful negative contributor to performance in the period,
with its share price falling from 598p as of September 2020 to 507p as of
September 2021. The share price fell further post year end, and this is
addressed more fully in the relevant company section.
Portfolio activity
The two capital raises undertaken in the period were mainly deployed into
growing the Company's number of holdings. At the time of our major raise in
March 2021, we articulated an ambition to add between one and three new
holdings per annum; in the event, over the summer of 2021, we added five. This
was significantly higher than expectations and reflects the growing strength
of our origination channel and ability to source deals.
We think of the origination channel as having three legs:
· Network: Opportunities generated by our activities and contacts
in both listed and private markets;
· Direct: Representing both inbound and outbound contact with
potential investee companies; and
· Adviser: Captures broker and other introducer channels.
Of our 17 investments made to date, 12 have come via the network or direct
channels. This is crucial, as this allows us to invest outside of a formal,
often adviser-led, round and is thus typically less competitive.
In the year to 30 September 2021, we assessed approximately 150 deals, a
number which has been growing steadily over time. These 150 deals put into
context the five new investments we have undertaken: we are highly selective
and our investment rate (~3%) is modest versus the opportunity set we see.
Following these new investments, the portfolio now comprises of 15 companies -
excluding Growth Street, which is in liquidation, and Embark, which has been
sold to Lloyds Banking Group plc, subject to completion.
This investment activity continued to diversify the company positions which
the Investment Adviser indicated will achieve a well-diversified, and
crucially, self-sustaining portfolio of investments.
We not only consider diversification by number of units, but also by "wave" -
the stage or maturity of a company. Our aim is to produce a portfolio that has
companies at different stages of development within it. Often relatively less
mature and likely smaller companies can have substantially faster growth
prospects, albeit with a probable increase in investment risk. We can moderate
that risk via careful stock selection, deal structuring and position sizing.
Wave 1, and those assets moving towards it, represent the largest and most
mature of our investee companies accounts for approximately 68% of the
invested portfolio.
This dynamic is also reflected in the market capitalisation groupings of
investee companies, with 73% of the portfolio invested in companies with
valuations of over £1 billion.
Market dynamics
We continue to believe revenue growth is the key to driving long-term NAV
growth for shareholders. While listed valuations are prone to volatility,
which can have an effect on the valuations of our unlisted positions,
ultimately the only two valuations that really count are those at entry and
exit. We believe our experience in listed markets gives us considerable
insight into pricing, but we accept this is not ultimately within our control.
Where we can make a difference is supporting our companies in their growth
aspirations. We call this "driving success" and it is fundamental to our
investment approach.
We aim to partner with companies for the long-term and assist them on their
respective journeys to become the best businesses that they can be. The
structure of Chrysalis suits this approach: the long-term nature of its
capital, compared with fixed life funds, is very attractive to potential
investee companies. It also gives us the ability to continue to fund growth
post initial investment, and we have been very active in this regard.
Over 2021, we committed approximately £125 million to drive success for our
companies. Major primary follow-on examples are Starling and wefox.
In the case of Starling, alongside the other major shareholder, we made a
significant investment in early 2020 in order to give the bank the capital to
support UK SMEs in the UK government's Bounce Back Loan Scheme, as well as the
Coronavirus Business Interruption Loan Scheme. This government underwritten
lending allowed Starling to rapidly expand its loan book in a low-risk way,
drove exceptional revenue growth - in the quarter to June 2021, revenue was up
285% year-on-year - and led the bank to profitability in October 2020. This
performance allowed Starling to raise over £300 million in early 2021 and is
testament to the power of primary capital.
For wefox, we continued to support the company over 2020 when many other
private market participants were reluctant to invest due to COVID-19 induced
uncertainty. This enabled management to continue to pursue an acquisition
agenda to supplement the high levels of organic growth being delivered.
We believe the successful demonstration of strong growth over the year was a
crucial consideration for those investors in the funding round in mid-2021,
which valued wefox at approximately $3 billion. The impact of this type of
support feeds through to the aggregate portfolio revenue growth rate, which
continues to be exceptional.
Looking over the last two years, the compounded revenue growth rate of the
portfolio is approximately three times that of the NASDAQ, nine times that of
the S&P 500, while the FTSE All-Share has seen revenues fall 11% over the
period.
We believe the portfolio still has a substantial runway for growth. An
assessment of the aggregate revenue opportunity of the portfolio reveals a
Total Addressable Market ("TAM") of over $1 trillion, with the largest six
positions in the portfolio accounting for approximately 80%.
The aggregate market share of our companies is less than 1% of their TAM,
implying substantial revenue opportunity remains.
If the market share of the portfolio doubles over the next three years this
implies a compound annual growth rate in revenues of approximately 26%. Given
Starling estimates it currently has a 7% market share in SME banking in the
UK, after only launching its SME proposition in 2018, this sort of performance
does not seem unrealistic. On top of this we also see reasons why the TAM
should grow:
· many of these markets are growing substantially already, such as
e-commerce; and
· many of our companies have offerings and technology that will
allow them to expand into adjacent verticals and open up new market
opportunities.
In combination, these factors give us comfort that the portfolio has many
years of substantial future revenue growth within it.
Outlook
We are optimistic about the opportunity for Chrysalis in the year ahead. This
stems from our belief in the strength of the portfolio we have constructed,
and in the structure of the platform we have developed.
While our focus remains on sourcing ideas from the private market, Chrysalis
was purposely set up to allow it the flexibility to adapt to companies' needs,
irrespective of whether they choose to raise capital in the public or private
markets: the source of a company's funds is of less importance to us than the
nature of its business model and end markets. Our long association with public
markets tells us that most public market investors have a much shorter-term
investment horizon than that needed for successful growth investing, where
maximisation of value creation can often take some years to achieve. A vehicle
like Chrysalis gives us the confidence to back our investee companies for
long-term success, and allows us to follow them on their journeys, regardless
of how they choose to finance themselves.
This leads us to the Chrysalis blueprint, which is to seek out tech-enabled,
disruptive businesses, operating in large-end markets with compelling unit
economics and proven business models.
As we look at how the late-stage private market is developing, it could be
argued that Chrysalis itself shares many of these characteristics. The
late-stage private market is growing very quickly; the crossover model is
proving disruptive, as evidenced by its growing market share; and Chrysalis
has proven itself capable of accessing many of the best-of-breed investee
companies, mainly via its proprietary origination channels.
Much of the work over the last three years since IPO has been spent on
developing the Chrysalis platform and scaling it. While this is a process of
continual refinement and evolution, much of the heavy lifting in this regard
has been achieved. In particular, our "platform" is well established and we
are continuing to invest in it.
Post year-end we welcomed two new colleagues on to the team. Rebecca Whiting
joins to assist us in a financial capacity to help oversee modelling,
liquidity management and reporting processes. Andrew Mortimer has joined the
Jupiter UK Small & Midcap Team as ESG Investment Director and will help
develop our ESG process to give more insight to investors regarding the work
we are already doing in this space.
Last year the portfolio saw a significant benefit from accelerated channel
shift due to COVID-19 pushing consumers towards digital channels and our
expectation was that much of this channel shift would prove to be permanent.
While there have been some disruptions and tough growth comparatives for
certain portfolio companies to navigate, particularly in e-commerce, to date
it appears our hypothesis was fundamentally correct: many of our companies are
still growing strongly on top of last year's exceptional growth.
Our focus last year was on increasing the scale of Chrysalis. A combination of
two fund raises and strong NAV growth has delivered a material increase in
gross investible assets, which rose by 140% from approximately £606 million
to approximately £1.5 billion. This has enabled Chrysalis to be much more
relevant to larger potential investee companies as well as those with likely
ongoing funding requirements. This growth meant we made our largest single
investment this year, a £75 million primary commitment to Smart Pension.
Having made a number of new investments over the year, our focus for the year
ahead is likely to be more balanced between new investment and follow-on. As
previously discussed, we see follow-on as key to accelerating the potential
growth of our investee companies, driving future NAV performance. While we
undertake secondary transactions, to gain access to an investment case - such
as our initial investment in Wise - or to increase a position size, providing
primary capital is at the heart of the Chrysalis model.
We believe primary capital can drive a flywheel effect in our investments,
allowing them to unlock opportunities and drive revenues. Having done
substantial work on diversifying the portfolio over 2021, our aim for 2022 is
to do our upmost to ensure the flywheel spins as fast as possible.
Company section
Klarna Holding AB
Online shopping has many points of friction, for both customers and retailers,
which Klarna's services are designed to smooth out. At a consumer level,
Klarna offers easy tracking of orders; an enhanced returns offering; and
merchant funded credit. The latter is of considerable interest as it spreads
the cost of credit over the retailer's entire customer base, rather than
credit card models, which rely on those least able to pay to generate revenues
for card providers, via typically high APRs.
For retailers, reduction in these points of friction result in better
conversion metrics, and thus revenues. Klarna has seen considerable progress
over the year, culminating in substantial increases in valuation. The building
blocks for this performance were laid in previous years, driven by the
investment rounds in 2019 and 2020, in which we participated, designed to fund
expansion in the US and UK.
The US is particularly interesting, given its size and low penetration of Buy
Now, Pay Later ("BNPL"). In 2020, the US was estimated to have 2% BNPL
penetration, double that of 2019, but still well below the UK at 5%, and other
markets. Given the size of the US market, there would appear to be significant
room for growth, which is what attracted us to the investment case in Klarna
initially.
Over the first nine months of 2021, Klarna saw material growth in the US with
GMV rising by over 300% in US dollar terms, leading to overall GMV growth for
Klarna of 63% in USD (approximately 48% in SEK). This is well above the circa
30% growth rate level Klarna was running at before entry into the US and UK
gathered pace.
Despite strong growth, the US still only accounts for less than 10% of
Klarna's total GMV, implying substantial future upside if penetration
continues to grow.
Credit card debt was aggressively paid down by US consumers over the pandemic.
It remains to be seen whether this is a pure function of lock-down, or whether
the ease and attractiveness of other forms of credit have also played a part.
Anecdotal evidence suggests the latter is a strong driver, with BNPL
resonating with customers on a number of levels.
We believe it is trends like these that have triggered significant interest in
the sector from investors and by industry. As a result, there has been
considerable corporate activity, namely:
· Block's (formerly Square) acquisition of Afterpay for $29
billion;
· Amazon's partnership with Affirm; and
· PayPal's acquisition of Paidy in Japan for $2.7 billion.
Klarna has also been active on the M&A front as it looks to build an
offering that benefits both retailers and consumers. Over the last year,
Klarna has completed over 10 deals, most recently including PriceRunner - to
bring reviews to its customers, Inspirock - an online trip planner, and APPRL
- a SaaS ("Software as a Service") platform linking creators and retailers to
develop content for shoppers.
Adding other services around its core financing product should increase the
attractiveness of Klarna to consumers and boost conversion for retailers, thus
making its app more valuable to both parties.
Post year end, Klarna announced a strategic partnership with Stripe, which
will allow retailers using Stripe to activate Klarna in their checkouts within
minutes. Initial results from Stripe retailers using Klarna indicate an
average 27% increase in sales, with some retailers experiencing up to 40% of
Klarna shoppers being new to their brand. It is estimated Stripe processed
approximately $350 billon of GMV in 2020 versus Klarna's GMV of $53 billion in
the same year.
On the ESG front, Klarna has committed to cut carbon emissions by 50% by 2030
and to operate at net zero by 2040. It will use 100% renewable energy by 2025.
Klarna has set an internal price on carbon - 100 USD for Scope 1, 2, and
travel emissions - and invests the funds from the internal carbon tax into
projects selected from a climate transformation portfolio and enables
consumers to do the same.
Date of Initial Investment: 5th August 2019
Total Investment: £64.4m
Carrying Value: £386.9m
Last Reported Financials: Y/E December 2020: SEK10.0bn Net Revenue (+40% YoY);
SEK1.4bn Loss after taxation
Starling Bank Limited
Banking has traditionally been dominated by the branch model, leaving it
out-of-sync with society's shift towards technology. Where technology has been
adopted by banks, typically it has been an expensive and frustrating process
to integrate into a model that was designed in an analogue world.
Starling was founded as a digital, mobile-first, scalable platform from the
start, meaning it is relatively easy to implement new products and services.
This was used to great effect during the pandemic and those effects continued
to be felt over the year.
Following on from a transformational 2020, which saw rapid growth fuelled by
the difficulties faced by branch-based competitors and the roll out of
government backed lending schemes, which Starling actively participated in,
2021 saw continued strong growth.
Notable events in the year were:
· October 2020 - the bank moved into profitability (profit before
tax);
· March 2021 - a £322 million funding round was undertaken at a
post new money valuation of over £1.4 billion, providing additional firepower
and broadening the investor base;
· July 2021 - Starling acquired buy-to-let specialist, Fleet
Mortgages, to provide in-house origination capability;
· July 2021 - Starling named "Best British Bank" for the fourth
year in a row at the British Bank Awards;
· September 2021 - Starling announced its intention to make its
tech stack available as a "Banking-as-a-Service" ("BaaS") offering in the EU.
We first invested in Starling in early 2019, when the bank was beginning to
see meaningful revenue traction. However, over the course of the last two
years it has been transformed and now generates well over £200m of revenue on
an annualised basis and has reported a phenomenal CAGR of over 500% over the
last three years. Deposits and lending have also grown significantly, with the
latter being a major driver of revenue growth.
More and more customers are flocking to Starling. As of early 2022, the bank
had over 2.7 million accounts open, of which 475,000 were for SMEs. Starling's
share of the UK market for small business banking is now over 7%, up from 3%
in 2020.
The trading statement released covering the quarter to June 2021 is also
illuminating in terms of what it reveals about the business model.
In that quarter, the bank reported profit before tax of £7.3 million,
corresponding to a return on equity ("RoE") of 16.7%, despite only operating a
loan-to-deposit ratio ("LDR") of approximately 35%. What does this imply for
the future?
LDR can be seen as a crude "efficiency" metric for a bank: how much of the
deposit book is supporting lending. Many banks operate at an LDR of roughly
100% but struggle to make significant returns on equity. The fact that
Starling can deliver meaningful profitability off lower LDR speaks to its
efficiency as a platform. This manifests in two key ways:
· Its market-beating cost of funds, currently around 4 basis
points; and
· Its very low "cost-to-serve", which is driven by its tech
platform and absence of an expensive branch network to maintain.
The question we work with management on is: "how much profit can this bank
earn running an LDR more in line with the market?"; our suspicion is probably
quite a lot.
In order to achieve this, Anne Boden (CEO) has publicly articulated a strategy
to continue to sustainably grow the core bank, while branching into other
related areas. In terms of the bank, she expects to continue to expand the
balance sheet, to utilise the 4 basis point, market-beating cost of funds, via
strategic forward flow agreements, organic lending across various asset
classes and a targeted M&A ("Mergers and acquisitions") strategy, to
supplement the recent Fleet deal.
In terms of adjacencies, the ramp-up of BaaS will allow Starling to move
outside the UK in an efficient way and allow brands access to a platform on
which they can build their own financial capability. In our view, this should
open up new revenue streams for Starling of a type that are recurring and
sticky and thus typically highly valued by investors. Progress is being made
in this regard, for example the recent tie-up with Standard Chartered to
launch Shoal - a green savings platform.
In terms of ESG, in November 2021 Starling committed to a one third reduction
target in its carbon emissions by 2030 and to offset carbon emissions from its
own operations and supply chain annually from 2021.
Date of Initial Investment: 12th February 2019
Total Investment: £88.2m
Carrying Value: £210.8m
Last Reported Financials: March 2021 (16 months): £119.5m Total income (+400%
versus prior period of 12 months); £9.2m Loss after taxation
Wise PLC
Transferring money around the globe has historically been an expensive
undertaking, with many financial institutions charging several percent of the
principal in fees at different stages of the money transfer. Wise was set up
to use technology to create a more efficient network to move money cross
border, and it shares those benefits with its customers, resulting in
market-leading rates.
The major event in the year for Wise was its successful listing via direct IPO
on the London Stock Exchange. Wise marks the second of our companies,
following THG in 2020, to IPO since Chrysalis' formation.
At the Investment Adviser's point of first investment in Wise, which predates
the establishment of Chrysalis by about a year, the company's valuation was
approximately £1.2 billion. The IPO clearing price implied a market
capitalisation of approximately £8 billion at 800p per share, which climbed
in the aftermarket to 1087p at year end.
The Wise proposition is heavily consumer oriented: trying to provide the
cheapest method to move money in the most convenient way. Much of the
company's investment focuses around opening up new currency pairs, driving
down the cost of transactions, and improving speed.
Over the first half of its financial year to September 2021, trading volumes
rose 44% year-on-year to £34.3 billion and instant transfers now account for
40% of volumes, up from 32% in the prior year. The prices customers pay, or
the "take rate", fell from 74bps to 65bps as Wise continued to offer customers
the best possible prices and share its efficiencies. This meant revenue growth
of 33% was achieved in the half, and prompted management to upgrade annual
revenue growth from "low to mid 20s on a percentage basis" to "mid-to-high 20s
on a percentage basis" over its fiscal year to March 2022.
In addition, efficiencies in the platform drove increased guidance to full
year gross margins, resulting in EBITDA upgrades.
Although there was some short-term nervousness by investors over the decline
in the take-rate, in our view this fundamentally misunderstands the Wise
proposition, where efficiencies can be partly invested in price to drive more
volume, while shareholders still benefit from improving profits. Looking
ahead, the fact that gross margins are rising is very positive for further
strong progress over the coming periods, and they could be enhanced further by
Wise's moves to offer new services to customers, such as its recent launch of
"Assets", which allows customers to hold cash in a stock market fund, instead
of on account.
Date of Initial Investment: 7th November 2018
Total Investment: £21.8m
Carrying Value: £ 108.7m
Last Reported Financials: Y/E March 2021: £421.0m Revenue (+ 39% YoY); £109m
adjusted EBITDA
wefox Holding AG
The insurance industry is ripe for disruption, with the vast majority of
insurance policies across Europe still sold via high street brokers. wefox has
developed a digital platform which enables insurance brokers to automate
administrative tasks, consult with customers and accelerate lead generation.
wefox benefits from increased scale as it negotiates better commission terms
with insurance provides, compared to smaller insurance brokers. The company
has also launched a fully digital insurance product - ONE - that integrates
with the wefox marketplace. wefox can analyse data sets and distribute ONE
insurance products to the most profitable customer cohorts which leads to
best-in-class Customer Acquisition Cost ("CAC") and loss ratios. This is a
highly disruptive and profitable business model to operate.
In June, wefox announced a record $650 million Series C funding round at a
post-money valuation of $3 billion. This funding round had strong
participation from both new and existing investors and represents the largest
financing round in the InsurTech sector worldwide. Following this funding
round, the company has penetrated new geographies such as Poland, Italy and
Spain and has expanded its product portfolio in existing markets.
In the coming years, wefox has indicated that it will continue to increase its
presence in Europe and move to both the US and Asian market.
These growth initiatives, coupled with selective M&A, are leading to rapid
growth. wefox has doubled its annual turnover every year since its inception
in 2015 and reported sales of $143 million for the 2020 financial year and an
initial profit for wefox Insurance (formerly ONE). Year to date, growth has
accelerated and Julian Tiecke (CEO) recently commented that revenues are
expected to reach $336 million in 2021, implying a rate of growth of +135%.
The executive team at wefox has been strengthened following the funding round
and the business is attracting some top industry talent. The company recently
appointed Peter Huber as CIO (previously CEO of Zurich International), David
Stachon as COO (previously CEO of Generali's direct insurer CosmosDirekt) and
Young Sohn as Chairman (previously President of Samsung Electronics and
Non-Executive Director at ARM).
Date of Initial Investment: 18th December 2019
Total Investment: £65.6m
Carrying Value: £108.7m
Last Reported Financials: Not publicly disclosed
You & Mr Jones LLC
Few categories are as ripe for technology-driven change as marketing and
communications. The future of marketing will rely on expert curation of
multiple service providers and the continued fragmentation of media, and the
broadening diversity of audiences will lead to an unprecedented level of
complexity for the brand owner. You & Mr Jones has designed the operating
model for the future where multiple service providers can be invoked at ease
through a core technology platform, creating a marketplace of expertise
through a single point of contact.
You & Mr Jones (which was renamed The Brandtech Group on 12 January 2022)
is the world's first Brandtech group and its mission is to help businesses do
their marketing better, faster and cheaper using technology. In just 6 years,
the company has grown into the global market leader in content in-housing and
is now delivering enterprise-level marketing technology solutions for some of
the world's biggest brands, including: Unilever, Google, Adidas, Microsoft,
LVMH, Danone, Uber and Reckitt Benckiser.
2020 was an exceptional year for You & Mr Jones, reporting +27% organic
net revenue growth for the year, and 2021 started with even greater momentum,
with organic net revenue growth of +34% through Q1. The company is
significantly outperforming the traditional legacy holding companies, which
all experienced a significant decline in revenues and is performing slightly
better than its closest peer, S4 Capital.
Future growth will be underpinned by M&A and organic growth initiatives.
The group recently launched You & Mr Jones Media which we view as a
particularly exciting development. The division will be led by former
Mindshare Global CEO Nick Emery and is looking to deploy a $300m war chest to
build a totally new media model for brands that puts them back in control of
their media, and empowering them through transparency, technology, and
in-housing.
You & Mr Jones acquired DP6 shortly after the year end which is Latin
America's leading marketing technology and data company. DP6 is based in
Brazil and delivers technology and data solutions for many of the region's
largest businesses as well as numerous global brands operating there,
including Carrefour, CNN, BASF, Nubank and Whirlpool. The company provides
technology and data expertise, from data measurement to media attribution,
martech integration, data science, AI-powered analytics and content
optimisation.
Finally, we note the company's continued ability to attract great talent. You
& Mr Jones hired Virginie Douin, Amazon's head of global agency
partnerships, to lead the expansion and acceleration of the group's ecommerce
offering, including enterprise-level partnerships. The company also announced
the appointment of Will Luttrell, founder and CTO of Integral Ad Science and,
more recently, founder and CEO of Amino as its Chief Technology Officer.
Date of Initial Investment: 30th September 2020
Total Investment: £46.4m
Carrying Value: £94.8m
Last Reported Financials: Not publicly disclosed
Smart Pension Limited
Governments around the world recognise a need for their citizens to save more
for retirement and a number have begun to mandate saving via employer schemes.
Smart is a global savings and investments platform provider, founded in 2014,
which has used technology to create an efficient offering to make it easier
for both employers and employees to save. Its mission is to transform
retirement, savings and financial well-being around the world.
Smart partners with governments and financial institutions (including
insurers, asset managers, banks and financial advisers) to deliver retirement
savings and income solutions that are digital, bespoke and cost efficient.
Smart's focus is on the workplace pension market, and it helps employers to
offer, typically government mandated, pensions schemes in an efficient manner
to their employees.
In the UK, it operates one of the biggest master trusts. Smart's technology
also helps employees effectively and easily manage their pension pot via an
app.
In addition to the UK, Smart is operating in the USA, Europe, Australia and
the Middle East with close to a million savers entrusting over £1.7 billion
in assets on the platform. Smart supports its clients with a 550 strong global
team and saw 160% growth in assets on its technology platform in 2020.
Over the course of the year, Smart saw very strong growth driven by growing
customer traction from both domestic and international markets.
Date of Initial Investment: 25th June 2021
Total Investment: £75.0m
Carrying Value: £88.6m
Last Reported Financials: Y/E June 2020: £7.9m Revenue (+161% YoY); £21.4m
Loss after taxation
THG plc
The bulk of THG revenue is associated with its beauty and nutrition divisions,
which sell own and third party brands around the world. However, we believe
much of the future growth story at THG centres around its ecommerce and
logistics platform - Ingenuity - which powers both THG's own operations, as
well as offering its service to external parties. For many companies, building
their own ecommerce offering can be a significant investment, with no
certainty of adequate returns. Ingenuity solves this problem, by offering a
one-stop shop for companies looking for a cost-effective solution to get
online or open new global markets.
Considerable activity has occurred at THG since its IPO in September 2020.
Over the course of the year, it has made several acquisitions mainly to bolt
onto its existing beauty operations, including:
· Perricone (September 2020), a US prestige skincare brand for $60
million, effectively a 1x continuing sales multiple;
· Dermstore.com (December 2020), the US number one online retailer
of prestige skincare and speciality beauty brands for $350m, implying a
forward 12 months' revenue multiple of c1.8x;
· Brighter Foods (April 2021), a developer and manufacturer of
snack bars, which was already working with THG's nutrition arm. Consideration
was £43 million with expected £20 million revenue and £6.5 million EBITDA
contributions in 2022;
· Bentley Laboratories (May 2021), a developer and manufacturer of
prestige skin and haircare products. The total consideration was $255 million
with an expected impact of $77 million of revenues and $15 million of EBITDA
in 2022; and
· Cult Beauty (August 2021), a UK based online beauty retailer to
broaden customer choice compared to THG's existing beauty sites. The total
consideration was £275 million and Cult Beauty is expected to add
approximately £140 million of sales and £10 million EBITDA in 2022.
M&A was one of the main drivers for THG's listing, and execution of this
part of its strategy has been rapid.
Elsewhere, Ingenuity - THG's ecommerce solutions platform - announced a
partnership with SoftBank, which saw the Japanese conglomerate inject
approximately $730 million into a fund raise of over $1 billion. In addition,
an option was granted to SoftBank to enable it to inject a further $1.6
billion into Ingenuity at an implied pre new-money valuation of $6.3 billion
for the division, which is due to be separated from the group.
Ingenuity - THG's proprietary ecommerce and logistics platform - provides
services to both THG's beauty and nutrition divisions, but has also begun to
offer them to third parties. The growth available in this market is
substantial, we believe, and the division is growing from a small base of
revenues. This has made it hard for the stock market to value accurately, and
we saw the SoftBank investment as endorsement of the growth potential and
valuation of Ingenuity.
However, into period end and post period, the share price suffered heavy
selling pressure reaching c121p in January 2022. While well documented, the
reasons appear to centre around:
· concerns over corporate governance;
· uncertainty surrounding the possible exercise of the SoftBank
option to buy 19.9% of Ingenuity and the implicit £4.5 billion valuation of
the division, as well as prospects for its future growth; and
· a modest, downgrade to EBITDA mainly FX driven.
In response, THG has:
· made several moves designed to improve corporate governance,
including: a commitment to rescind the founder's Golden Share, which
effectively prevents an unwanted takeover in the next two years, and splitting
the role of CEO and Chairman, with a process underway to identify an
independent candidate to fill the latter;
· appointed a SoftBank representative to its board; and
· upgraded expectations for Ingenuity growth.
As the representative of major shareholders, we engaged with the company to
understand and support its plans, particularly in respect of corporate
governance, and we are encouraged by the company's optimism surrounding
Ingenuity. As part of our normal process, we have revisited our investment
case and believe there has been no substantive change to the investment thesis
since IPO. Given the current valuation, we believe there is significant upside
potential in THG shares, and as a result, have topped up the Company's
position in THG following the year end.
Date of Initial Investment: 17th December 2018
Total Investment: £58.8m
Carrying Value: £86.7m
Last Reported Financials: Y/E December 2020: £1.6bn Revenue (+42%); £0.5bn
Loss after taxation
Graphcore Limited
The use of Artificial Intelligence ("AI") models in society continues to grow.
Currently the hardware used to accelerate the associated heavy computational
workloads is dominated by graphics processors from Nvidia ("GPUs"). These
chips have been repurposed from their intended original focus to run AI
models.
In 2018 Graphcore launched its first chip, the IPU ("Intelligent Processing
Unit"), which was designed from first principals to address the AI market's
likely future requirements. In July 2020, it revealed its second generation
IPU with an 8x step up in performance.
Following its raise of $222 million in December 2020, Graphcore has continued
to invest heavily in its technology, most visibly in its software development
kit, where it has released several updates, giving customers further
functionality and ease-of-use, and resulting in improved performance.
This culminated in its first submission to MLPerf for comparative benchmarking
tests. Results from this showed a significant advantage (between 1.3x-1.6x)
for Graphcore over incumbent Nvidia in terms of performance per dollar - which
is a critical consideration for many hyper-scaler buyers. Importantly, these
results were based on existing model architectures, which are typically
ubiquitous due to their suitability to run GPU based workloads. On next
generation architectures, the IPU's advantage improved to 3.8x.
Graphcore hopes to turn its technological developments into commercial sales
during 2022.
Date of Initial Investment: 17th December 2018
Total Investment: £57.6m
Carrying Value: £61.5m
Last Reported Financials: Y/E December 2020: $3.3m Revenue (-67% YoY); $127m
Loss after taxation
Embark Group Limited
Embark was formed in 2013 with a strategic vision to build a leading
independent digital retirement platform in the UK that combined the technology
strengths of the wrap platform (where users can access and manage their entire
portfolio of investments online), with the deep pension expertise of the
traditional SIPP ('Self-Invested Personal Pension") and SSAS ('Small
Self-Administered Scheme") players. The company completed its technology build
with FNZ and has since sold its proposition on STP/API quality, an unrivalled
service performance and highly disruptive pricing.
The business has grown significantly since we first invested in 2019, driven
by two material M&A transactions, and over the last twelve months
management has been focused on migrating acquired client assets onto the
Embark platform. In February, the company completed the successful migration
of over £7 billion of advised assets onto the platform from the client books
of Alliance Trust Savings ("ATS"), including those from trading service
provider Stocktrade, which it acquired in October 2019.
In July 2021, Embark announced its sales to Lloyds Banking Group (Lloyds),
subject to regulatory approval. Lloyds will acquire Embark Group Limited
("EGL") and its subsidiary brands for a consideration of £395m, but the sale
excludes the Rowanmoor SIPP and SSAS administration business, which is being
retained by existing shareholders.
This transaction demonstrates the value of our proposition. The funds we
committed to this business enabled the management team to complete value
accretive M&A and grow AuA from c£16 billion to over £40 billion.
This transformed Embark into one of the UK's fastest growing digital
retirement and savings businesses with huge strategic value.
Date of Initial Investment: 14(th) August 2019
Total Investment: £27.1m
Carrying Value: £56.9m
Last Reported Financials: Y/E December 2019: £34m Revenue (+5% YoY); £1m
Profit After Tax
Cognitive Logic Inc. ("InfoSum")
Regulatory changes and individuals' growing awareness of privacy issues means
that many of the ways companies have looked to enhance their understanding of
customers' online behaviour and preferences - so called "data enrichment" -
have become either unavailable, or unpalatable. Regulatory changes have
included GDPR in the UK and CCPA in the US. Apple's launch of App Tracking
Transparency in April 2021, which allowed users to stop apps tracking their
data for use in advertising, caused significant disruption in the market, with
Forbes reporting only 4% of US users permitting tracking. Google is also
considering a move to phase out third party cookies, although this has been
postponed to 2023.
This lack of data enrichment has already seen disruption in the advertising
revenues of many online platforms over 2021. Regulatory rule changes plus
commercial considerations also make it difficult for companies to share data
as they have commitments surrounding their customer information if they are
seen as data controllers, and do not wish other organisations to benefit from
access to their data.
InfoSum is the world's leading data collaboration platform empowering
companies to deliver better customer experiences while prioritizing customer
privacy. Using patented, privacy-first technology, InfoSum connects customer
records between and amongst companies, without moving or sharing data.
Since launching the platform in 2019, global customer-oriented companies
across financial services, CTV, retail, healthcare, gaming, and entertainment
trust InfoSum to seamlessly and compliantly deliver better customer
experiences.
InfoSum was founded in 2016 with a vision to connect the world's data without
ever sharing it. The company has multiple patents, protecting its invention of
the "non-movement of data". InfoSum is based in the US, UK and Germany, with
offices across Europe and North America.
Date of Initial Investment: 16th August 2021
Total Investment: £47.1m
Carrying Value: £48.4m
Last Reported Financials: Not publicly disclosed
Deep Instinct Limited
Cyber security is a growing issue. For corporate endpoints alone, IDC
estimates the market will be worth $9.7 billion in 2021, as companies look to
protect themselves from hacking with a growing emphasis on ransomware. The
current market can be broadly categorised into legacy providers, such as the
original anti-virus companies, and the next generation, which are typically
using machine learning solutions.
Deep Instinct is the first company applying end-to-end deep learning to
cybersecurity. Deep learning is inspired by the brain's ability to learn. Once
a brain learns to identify an object, its identification becomes second
nature. Similarly, as Deep Instinct's artificial deep neural network brain
learns to prevent any type of cyber threat, its prediction capabilities become
instinctive.
Its zero-time cybersecurity solution stands on top of the only deep learning
framework purpose-built for cybersecurity, allowing Deep Instinct to process
file-based threats faster than other endpoint solutions.
More specifically, its unmatched deep learning approach offers:
· Accuracy - Deep Instinct reduces false positives to 0.1% or less,
compared to an industry average of 26%.
(https://www.helpnetsecurity.com/2020/03/24/alert-fatigue/) A June 2021
survey revealed that 62% of SecOps professionals feel that threats in their
company could get missed due to the overwhelming volume of false positives,
while 86% believe the tools driven by data science (AI/Machine Learning/Deep
Learning) will make a significant impact in preventing unknown threats and
reducing false positives. In addition, as the model is trained to look and
detect like a human, it prevents >99% unknown threats, such as first-seen
malware, zero-days, ransomware, and APT (advanced persistent threat), as well
as known threats. To the best of the company's knowledge, no Deep Instinct
customer has suffered a successful ransomware attack since the start of the
pandemic.
· Speed - the low (<1% CPU) computational impact of the
technology makes it the most efficient and effective cybersecurity solution in
the market, with a sub 20 millisecond response time. Platform-agnostic, Deep
Instinct can be quickly deployed across an organisation to deliver
multi-layered protection with negligible latency.
· Model longevity - unlike many other providers that need to update
their platform monthly, Deep Instinct's "brain" requires only 1-2 updates per
year, and remains highly effective after many months, ensuring offline
scanning remains effective.
· Impact - a study
(https://www.deepinstinct.com/2021/01/05/total-economic-impact-study-shows-deep-instinct-endpoint-security-delivers-446-roi/)
by leading analyst, Forrester Consulting, showed an ROI ("Return on
investment") of 446% over a 3 year period, with payback to the business
visible in less than 3 months.
Deep Instinct prides itself on being able to predict and prevent threats,
rather than an EDR ("Endpoint Detection and Response") solution that is more
focused on response, which in many cases is too little too late. Deep Instinct
prevents malicious files from ever entering an enterprise, thus substantially
reducing the time and cost required to track, trace, and rectify any
infections.
The Company's confidence in its technology is reflected in its provision of
both the industry's first false positive warranty, and the industry's largest
ransomware warranty, backed by Munich Re Group.
The company continued to build out its go-to-market strategy over the year and
post year end signed a major partnership with Tanium that we believe could be
very significant. Tanium manages endpoints for nearly half of the Fortune 100,
and this relationship will see Deep Instinct integrated into its Threat
Response solution, thereby offering a new, major route to market.
Date of Initial Investment: 6th July 2021
Total Investment: £47.3m
Carrying Value: £48.4m
Last Reported Financials: Not publicly disclosed
Revolution Beauty Group PLC
Revolution Beauty is a UK based beauty company that operates a digital first
strategy but has multiple channels to market for its various brands, which
cover a number of different categories including makeup, skincare and hair
products.
The company differentiates itself with its speed to market: it looks to
identify beauty trends quickly and bring them to the market within 16 weeks,
making it significantly more agile and responsive than its global competitors,
which typically take 6 to 12 months.
In addition to this, Revolution Beauty prices its products extremely
competitively, and its offer is predicated on providing high-quality,
affordable cosmetic products for everyone.
Chrysalis met Revolution Beauty as part of a "pilot fishing" (a pre-IPO
exploratory meeting) exercise at the request of the CEO, Adam Minto, due to
the Company's ability to invest both privately and publicly. Having analysed
the investment case for Revolution Beauty and undertaken channel checks on the
brand, we believed that the brand has a significant runway for growth.
Revolution Beauty decided to IPO and was admitted to AIM with a market
capitalisation of £495 million. Chrysalis, along with other funds managed by
the Investment Adviser, entered into a cornerstone agreement with Revolution
Beauty as part of its IPO, and invested £45 million as part of this process.
While the Company's primary goal is to secure access to exciting companies
prior to their IPOs and capture the subsequent growth in private markets, one
of its other aims is to position itself favourably at the point of IPO.
Recent trading has been strong, and Revolution Beauty recently reported £78
million of revenues in the six months to 31 August 2021, representing a 35%
increase from the same period in 2020. In spite of this, the share price has
fallen since IPO, down approximately 8% to year end, and has suffered further
losses since, in line with many other e-commerce retailers.
US sales increased by 90% over the period and the US is on course to become
the group's biggest country by revenue globally in 2021. In Q1 2021,
Revolution Beauty launched in 1,800 Target stores through the US and its
Makeup Revolution brand is already a top performing brand in the Target makeup
category. A local site was also launched in the US in January 2021 and in
Australia/New Zealand in March 2021 and both sites are generating triple digit
percentage increases in sales.
More recently, the company announced the acquisition of Medichem Manufacturing
for a total consideration of £23 million. Medichem is a long-standing
supplier of haircare and skincare products to Revolution Beauty, manufacturing
all products from its UK facility. This represents Revolution Beauty's first
acquisition and provides the Group with its own, fully-owned and vertically
integrated manufacturing business. This should enable the group to enhance
margins, increase control of its supply chain and enhance productivity. This
is a value accretive deal and the company stated that it will be significantly
earnings enhancing for the financial year ending 28 February 2023.
Date of Initial Investment: 19th July 2021
Total Investment: £44.9m
Carrying Value: £41.4m
Last Reported Financials: Y/E February 2021: £157.6m Revenue (+15% YoY);
£18.0m Loss after taxation
Tactus Holdings Limited
The global gaming sector continues to grow rapidly, and this is fueling demand
for gaming devices and accessories. There are now more than 2.5 billion gamers
worldwide and the global gaming industry is forecast to grow at a rate of 9.2%
per annum through 2025 to $257 billion (Source: Mordor Intelligence). Tactus
is a beneficiary of this trend and is building a global technology group with
unrivalled expertise in the gaming sector. The company focusses on the supply
of own and third-party branded custom gaming PCs, component parts, and
accessories to consumers, enterprise, and the education sector.
The market which Tactus operates in is hugely fragmented and sector
consolidation formed a key part of our investment thesis. Year to date, Tactus
has completed the acquisition of PC gaming specialist CCL Computers, coding
and robotics firm pi-top and our investment enabled the company to more
recently complete the acquisition of B2B ("Business to Business") IT hardware
provider BIST Group, and the award winning PC gaming brand Chillblast. The
company is looking to continue to execute on its M&A pipeline which should
enable it to realise revenue and cost synergies, enjoy the benefits of scale
and have increased control of its supply chain.
We were extremely pleased to see Tactus' efforts recognised by its partners
and in April, Tactus was named the Microsoft Device Partner of the Year. This
represents a landmark accomplishment for the group, and demonstrates its
ability to produce and source innovative technology. The award was granted
following a 600 per cent rise in revenues for Geo, which makes premium-finish
Windows 10 laptops and GeoBook Minecraft Edition devices.
Date of Initial Investment: 18th August 2021
Total Investment: £40.1m
Carrying Value: £40.0m
Last Reported Financials: Y/E March 2021: £42m Revenue (+422% YoY); £2.3m
Profit after taxation
Featurespace Limited
Financial fraud continues to be a major, worldwide problem. The Federal Trade
Commission reported US consumers lost £3.3 billion to fraud in 2020, with
over a third being via imposter scams. In the UK, over £750 million was lost
to fraud over 1H21, up 30% on the prior year.
The real driver of this was authorised push payment ("APP") fraud, where a
customer is tricked into sending money to a fraudster, which saw a 71%
increase to £355 million. APP fraud has risen partly due to the increase in
"card not present" transactions, where the customer is physically not present
at point of transaction, which rose substantially during COVID-19 induced
lockdowns. Payment card scams actually fell 9% over first half of 2021.
Featurespace's technology uses machine learning to detect frauds more
accurately, resulting in a reduction of 75% in false positives, with the
majority of fraud attacks blocked as they occur, allowing real time decision
making.
So far this year, over 70 new companies have directly and indirectly selected
Featurespace's technology to deliver an enhanced level of fraud and risk
management. These include eftpos, the Australian debit card payment system; a
large Irish financial services company; a major Nigerian payments and switch
services provider; and multiple banks across the U.S. and Europe. This global
expansion was recognised in April when the company received the Queen's Award
for Enterprise: International Trade, which follows its Queen's Award for
Innovation in 2018.
Featurespace has also continued to drive innovation, introducing Automated
Deep Behavioral Networks for the card and payments industry to provide a
deeper layer of defence to protect consumers from scams, account takeover,
card and payments fraud, which cost an estimated $42 billion in 2020.
A breakthrough in deep learning technology, this invention required an
entirely new way to architect and engineer machine learning platforms based on
Recurrent Neural Networks.
Date of Initial Investment: 13th May 2020
Total Investment: £24.4m
Carrying Value: £34.7m
Last Reported Financials: Y/E December 2020: £21.0m Revenue (+19% YoY);
£11.8m Loss after taxation
Secret Escapes Limited
Every year hotels struggle to manage their capacity and are often left with
unoccupied rooms that impact yield. They are often unwilling to market these
rooms at discounted prices in case this affects their brand and ability to
price in the future.
Secret Escapes Limited ("Secret Escapes") is a members-only online travel
company. Its digital marketplace uses innovative technology to connect
travelers with discounts on luxury hotels and travel experiences. It helps
hotels minimise unsold inventory by allowing them to discreetly market to its
members who are seeking luxury travel at affordable prices. The firm operates
in many countries around the world and is the market-leading membership-based
travel company in Germany, UK, Czech Republic, Poland, Slovakia and the
Nordics.
The pandemic and a series of lockdowns over the last 18 months has created a
tough backdrop for online travel businesses, and we supported the company with
additional capital in 2020 to allow it to continue to invest in its offering
and have sufficient cash runway assuming booking patterns normalise over the
course of the next 12-18 months.
Secret Escapes made good progress on this front over the last twelve months
and successfully re-platformed Travelist onto the Travelbird technology stack
that it acquired in 2018, while continued progress is being made on its
consumer app and Always On Hotel Only offering. In the periods where COVID-19
travel restrictions have been eased we have seen a positive correlation with
bookings and revenues. This gives us increased confidence that Secret Escapes
can grow rapidly once we come out of the pandemic.
In addition, operational efficiencies have been realised through the financial
period, and we believe when revenues scale on this new cost base, it will
drive a more attractive margin profile.
Date of Initial Investment: 7th November 2018
Total Investment: £21.5m
Carrying Value: £24.4m
Last Reported Financials: Y/E December 19: £169m Revenue (+40% YoY); £12.7m
Loss after taxation
Sorted Holdings Limited
COVID-19 accelerated channel shift and highlighted the importance of investing
in a comprehensive online direct-to-consumer ("D2C") solution. Sorted has
developed a delivery management platform ("DMP") which enables retailers to
easily and effectively manage their delivery and returns proposition. This
enables retailers to increase conversion rates, reduce abandoned baskets and
boost customer satisfaction.
Enterprise retailers became increasingly focused on their delivery and returns
capability throughout the pandemic, and this has led to an acceleration in the
sales pipeline and customer acquisition. During the period, Sorted landed a
number of enterprise accounts, including JD Sports, Dunelm, boohoo.com,
M&S, ASDA, Hobbycraft, Music Magpie and Lovehoney. Encouragingly, many of
these retailers have also opted to use Sorted REACT, an automated tracking and
post-purchase communications solution.
More recently, the executive team was strengthened to lead the company into
the next stage of its growth. Carmen Carey, who has been a Non-Executive
Director on Sorted's board of directors for the past two years, took over as
CEO. Carmen joined Sorted from trading and risk management software solutions
provider Brady Technologies (where she held the position of CEO). Previously,
Carmen was CEO at Big Data Partnership, Apica and Control Circle and was COO
at Unbabel, MetaPack and MessageLabs. Other senior hires include Iain Greig as
Non-Executive Director and interim COO, Steve Langley as Vice President of
Product, and Axel Lagerborg as Vice President of Sales.
Post year-end, Sorted announced the acquisition of Clicksit. Clicksit is an
enterprise grade returns management solution that operates in both the US and
UK. This acquisition enables Sorted to extend its commercial model by
providing enterprise clients with an end-to-end service. It also enables the
company to penetrate the US and the SMB (small and midsize business) markets
which will materially enhance the serviceable addressable market.
Date of Initial Investment: 15th August 2019
Total Investment: £15.0m
Carrying Value: £17.7m
Last Reported Financials: September 2020 (16 months): £5.2m Revenue (+94%
versus prior period of 12 months); £6.9m Loss after taxation
Growth Street Holding Limited
Growth Street was set up to provide innovative and flexible revolving credit
lines to SMEs, supported by a peer-to-peer funding model. As detailed in last
year's Report & Accounts, due to two large loan losses in 2020, the major
shareholders decided to wind up the business. The company is currently going
through the final stages of liquidation, having paid out full recoveries to
investors that funded the Growth Street platform.
Date of Initial Investment: 22nd January 2019
Total Investment: £12.6m
Carrying Value: £1.3m
Last Reported Financials: Not publicly disclosed
Stewardship and Environmental, Social and Governance Policy
Overview
As Investment Adviser we integrate stewardship and analysis of material ESG
factors, including climate change, systematically across all of our investment
strategies. Further details on the approach can be found in Jupiter's
Stewardship Policy and Annual Stewardship Report, available on the Investment
Adviser's website.
As long-term investors, our fund managers create sustained and effective
relationships with the executive of its investee companies, and this enables
more meaningful and relevant engagement. The Chrysalis ESG policy, available
on the Company's website, outlines principles and commitments during the four
stages of investment: i) deal origination; ii) investment decision; iii)
ownership; and iv) exit.
Philosophy
The Company's investments will typically constitute a minority holding unlike
many private market participants that operate as control or majority
investors. Although in certain instances we may hold a board seat, our
investments will typically constitute a minority holding, and our ESG
framework reflects that.
There is no single type of business in which Chrysalis invests, however our
aim is to find companies which display a number of characteristics which we
call the "Chrysalis blueprint". Typically, they will be founder-led businesses
with huge addressable markets and structural tailwinds. Their core assets are
intellectual property and the people who create it. They use technology to
solve customer problems in novel ways, putting the customer at the centre.
Often, in disrupting incumbent business models they will unlock more value for
customers than they capture for themselves. Lastly, companies should also have
a clear roadmap to profitability, and the ability to achieve and sustain
exceptional rates of growth.
From an ESG perspective, we believe that such businesses are, almost by
definition, well-positioned to navigate the transition to a low carbon
economy.
They are also likely to be significant job creators, with positive spillover
effects elsewhere in the economy. To grow successfully, companies and their
founders must not only execute strategically; they must also lay the
foundations for future growth by creating appropriate corporate governance
structures.
Though they are in growth mode, they must also consider long-term themes
relating to the sustainability of their business model. This includes a broad
range of considerations, but fundamentally the purpose of the business must
remain focused on creating value for all of these stakeholders and reduce
negative impacts if it is to succeed over the long term.
ESG Integration
The integration of material environmental, social and governance factors is
applied throughout the investment process and is assessed in terms of both
risks and opportunities that drive long-term value. The process is described
in detail in the company's ESG Policy, which can be found on our website. The
fund manager conducts detailed due diligence on every potential investment
opportunity.
The analysis incorporates material ESG factors including the following where
applicable:
· Corporate Governance
· Strategy and performance
· Environment
o Sustainability
o Climate
· Trust and reputation
· Corporate reporting
· Human Capital
o Remuneration
o Culture and values
o Development, diversity and engagement
· Social Impact
o Human rights
o Supply chain
o Financial inclusion
Stewardship
Stewardship is an important responsibility and a core aspect of our investor
approach. We aim to partner with companies for the long-term and assist them
on their respective journeys to become the best businesses that they can be.
The structure of Chrysalis suits this approach: the long-term nature of its
capital, compared with fixed life funds, gives us the ability to continue to
fund growth post initial investment, and as such we remain actively engaged
and well-positioned to influence companies on ESG and other topics.
There is a continuous process of dialogue with the leadership teams of our
investee companies. We typically attend board meetings of investee companies
as observers to monitor strategic and governance matters.
We regularly provide our input where we believe we can advise companies on how
to meet their strategic objectives. This includes regular dialogue to
understand how ESG goals are being met and whether new challenges have arisen.
Our investment focus on late-stage growth companies is an important feature of
our proposition. It provides a level of comfort that the business models and
strategies employed by the investee companies are sound; it provides assurance
that the management teams are proven; and it gives confidence that the
businesses are financially robust.
It also makes it important that founders and management teams prepare
themselves to go public as there is a relentless focus on ESG matters in the
public markets. Companies face multiple demands in response to shifting
regulation, consumer preferences, stakeholder concerns and shareholder
expectations. It is important that private companies considering listing
prepare themselves for the additional scrutiny which comes with going public.
We recognise the importance of these issues, and we believe that our decades
of experience investing in public markets means we are well placed to act as a
sounding board for companies as they prepare for the scrutiny that comes with
going public. We hold regular dialogue with the Boards of portfolio companies
on these topics.
Sustainability
We expect all our investments to minimise their operational impacts and
conduct their business in a sustainable manner. We look for evidence that
appropriate policies and governance mechanisms are in place to enable
companies to achieve this. Where we identify a deficiency in a portfolio
company's ESG practices we will develop a roadmap and work with the company to
address any issues. Selected examples of leading practice by our portfolio
companies can be found in the relevant sections of the Investment Adviser's
Report.
A number of our portfolio companies provide solutions for pressing societal
problems, such as financial crime prevention, cyber crime, data security and
privacy. Others exhibit a positive impact by disrupting sectors in which
incumbents had captured high costs, such as consumer credit or cross-border
transactions, and passing these savings back to customers. Looking ahead, we
are seeing opportunities to invest in innovative companies which seek to
address other systemic challenges, such as climate change.
Given our investment process, it will not surprise investors that the Company
has no direct exposure to fossil fuel producers or other extractive
industries. Additionally, we will not invest in companies that manufacture
weapons or utilise forced or child labour.
Jupiter Investment Management Limited
Investment Adviser
25 January 2022
Investment Objective and Policy
Investment objective
The investment objective of the Company is to generate long term capital
growth through investing in a portfolio consisting primarily of equity or
equity-related investments in unquoted and listed companies.
Investment policy
Investments will be primarily in equity and equity-related instruments (which
shall include, without limitation, preference shares, convertible debt
instruments, equity-related and equity-linked notes and warrants) issued by
portfolio companies. The Company will also be permitted to invest in
partnerships, limited liability partnerships and other legal forms of entity
where the investment has equity like return characteristics.
For the purposes of this investment policy, unquoted companies shall include
companies with a technical listing on a stock exchange but where there is no
liquid trading market in the relevant securities on that market (for example,
companies with listings on The International Stock Exchange and the Cayman
Stock Exchange). Furthermore, the Company shall be permitted to invest in
unquoted subsidiaries of companies whose parent or group entities have listed
equity or debt securities.
The Company may invest in publicly traded companies (including participating
in the IPO of an existing unquoted company investment), subject to the
investment restrictions below. In particular, unquoted portfolio companies may
seek IPOs from time to time following an investment by the Company, in which
case the Company may continue to hold its investment without restriction.
The Company is not expected to take majority shareholder positions in
portfolio companies but shall not be restricted from doing so. Furthermore,
there may be circumstances where the ownership of a portfolio company exceeds
50% of voting and/or economic interests in that portfolio company
notwithstanding an initial investment in a minority position. While the
Company does not intend to focus its investments on a particular sector, there
is no limit on the Company's ability to make investments in portfolio
companies within the same sector if it chooses to do so.
The Company will seek to ensure that it has suitable investor protection
rights through its investment in portfolio companies where appropriate.
The Company may acquire investments directly or by way of holdings in special
purpose vehicles, intermediate holding vehicles or other funds or similar
structures.
Investment restrictions
The Company will invest and manage its assets with the objective of spreading
risk, as far as reasonably practicable. No single investment (including
related investments in group entities) will represent more than 20% of Gross
Assets, calculated as at the time of that investment. The market value of
individual investments may exceed 20% of gross assets following investment.
The Company's aggregate equity investments in publicly traded companies that
it has not previously held an investment in prior to that Company's IPO will
represent no more than 20% of the Gross Assets, calculated as at the time of
investment.
Subject in all cases to the Company's cash management policy, the Company's
aggregate investment in notes, bonds, debentures and other debt instruments
(which shall exclude for the avoidance of doubt convertible debt,
equity-related and equity-linked notes, warrants or equivalent instruments)
will represent no more than 20% of the Gross Assets, calculated as at the time
of investment.
The Company will not be required to dispose of any investment or rebalance its
portfolio as a result of a change in the respective value of any of its
investments.
Corporate Governance Statement
Chrysalis has a Premium Listing on the London Stock Exchange Main Market and
became a member of the Association of Investment Companies (AIC) on 21 January
2019. The Board has considered the Principles and Provisions of the 2019 AIC
Code of Corporate Governance (AIC Code), and a full scope review of the
Company's corporate governance processes and procedures has been conducted
with reference to the AIC Code by the Board and the Company Secretary. The
AIC Code addresses the relevant Principles and Provisions set out in the UK
Corporate Governance Code (the UK Code), as well as setting out additional
Provisions on issues that are of specific relevance to the Company.
The Board considers that reporting against the Principles and Provisions of
the AIC Code, which has been endorsed by the Financial Reporting Council and
the Guernsey Financial Services Commission, provides more relevant information
to shareholders. The Company has complied with the Principles and Provisions
of the AIC Code and in doing so has met its associated disclosure requirements
under paragraph 9.8.6 of the Listing Rules.
The AIC Code is available on the AIC website (www.theaic.co.uk). It includes
an explanation of how the AIC Code adapts the Principles and Provisions set
out in the UK Code to make them relevant for investment companies.
Key Governance Disclosures
Section 172(1) Statement
Through adopting the AIC Code, the Board acknowledges its duty to apply and
demonstrate compliance with section 172 of the UK Companies Act 2006 and to
act in a way that promotes the success of the Company for the benefit of its
Shareholders as a whole, having regard to (amongst other things):
a) consequences of any decision in the long-term;
b) the need to foster business relationships with suppliers, customers
and others;
c) impact on community and environment;
d) maintaining reputation; and
e) acting fairly as between members of the Company.
The Board considers its duties under S.172 to be integrated within the
Company's culture and values. The Company's culture is one of respect for the
opinions of stakeholders, with an aim of carrying out its operations in a fair
and sustainable manner that is both instrumental to the Company's long term
success and upholds the Company's ethical values. The Board encourages
diversity of thought and opinion in accordance with its Diversity Policy and
would like to encourage stakeholders to engage freely with the Board of
Directors on matters that are of concern to them. Stakeholders may contact the
Company via the Company's dedicated e-mail address chrysalis@maitlandgroup.com
or by post via the Company Secretary on any matters that they wish to discuss
with the Board of Directors.
The Company, as an externally managed investment company, has no employees and
is operationally quite simple. The Board do not believe the Company has any
material stakeholders other than those set out in the following table.
The Company is an externally managed investment company, has no employees, and
as such is operationally quite simple. The Board does not believe that the
Company has any material stakeholders other than those set out in the
following table.
Investors Service providers Community and environment
Issues that matter to them
Performance of the shares Reputation of the Company Compliance with Law and Regulation Impact of the Company and its activities on
third parties
Growth of the Company Compliance with Law and Regulation
Liquidity of the shares Remuneration
Corporate Governance
Engagement process
Annual General Meeting The main service providers engage with the Board in formal quarterly meetings, Adherence to principles of appropriate ESG policies exists at both Company and
giving them direct input to Board discussions. investment level. Principles of socially responsible investing form a key part
of the Company's investment strategy.
Frequent meetings with investors by brokers and the Investment Adviser and
subsequent reports to the Board Communication between Board and service providers also occurs informally on an
ongoing basis during the year.
Quarterly factsheets
Key Information Document
Rationale and example outcomes
The Board have engaged with shareholders in relation to the Company business The Company relies on service providers as it has no systems or employees of The Investment Adviser works to ensure that sustainability and ESG factors are
over the course of the year. its own. carefully considered and reflected in the Company's investment decisions.
The Board seeks to act fairly and transparently with all service providers, The Board of Directors travel as infrequently as possible and instead
and this includes such aspects as prompt payment of invoices. communicate, where they are able to, by video and conference call.
Going Concern Statement
The Going Concern Statement is made on page 51.
Viability Statement
The Viability Statement is made on page 51 & 52.
Fair, Balanced and Understandable Statement
The annual report and accounts taken as a whole are fair, balanced and
understandable and provide the information necessary for shareholders to
assess the Company's performance, business model and strategy. Further
information on how this conclusion was reached can be found within the Audit
Committee Report.
Continuing Appointment of the Investment Adviser
Further details relating to the continuing appointment of the Investment
Adviser and how this is in the interests of members as a whole can be found
within the Report of the Management Engagement Committee.
Assessment of Principal and Emerging Risks
The Board has undertaken a robust assessment of the Company's principal and
emerging risks, together with the procedures that are in place to identify
emerging risks. Further information on this assessment and an explanation on
how these risks are being mitigated and managed can be found on page 54.
Review of Risk Management and Internal Control
The Board confirms that it has reviewed the Company's system of risk
management and internal controls for the year ended 30 September 2021, and to
the date of the approval of this annual report and audited financial
statements. For further details of the key risks and uncertainties the
Directors believe the Company is exposed to together with the policies and
procedures in place to monitor and mitigate these risks, please refer to pages
78 and 86 and note 20 of the annual report and audited financial statements.
Chrysalis ESG
Chrysalis focuses its ESG policy on ensuring asset-appropriate practices and
disclosure throughout the fundraising, pre-investment, post-investment,
reporting, and realisation phases. We believe ESG represents another
opportunity to demonstrate our market leadership capabilities as well as our
effective risk mitigation skills.
Chrysalis puts ESG policy into practice in our own organisation as well in our
work with portfolio companies. Highlights of ESG progress at the Company
during 2021 include:
· Compliance with Hampton-Alexander Review recommendations on
diversity and inclusion on boards. The appointment of its second female
independent director, Margaret O'Connor, brought the gender balance on the
Chrysalis Board to 33% voluntary target for female representation on FTSE 350
boards.
· Initial board input of how Chrysalis can comply with The Parker
Review recommendation to support diverse talent pipeline development and for
FTSE 250 boards to appoint at least one director from an ethnic minority
background by 2024.
· Investment in a dedicated ESG specialist at Jupiter. Andrew
Mortimer's appointment enables Chrysalis to benefit from expert stewardship
guidance for the investment trust as well as consistent stewardship support
for portfolio companies.
· The Investment Adviser made important contributions to the Hill
Listing Review report which was published in March 2021.
· A review of cyber risk management policy and training protocols
to ensure the organisation remains vigilant in preventing threats using
relevant technology and human ingenuity.
· Workflow to reduce the potential for conflict of interest in our
NAV (net asset valuation) reporting. The Board initiated a process to acquire
further independent valuation advice on one of its most complex technology
assets with a view to ensuring appropriate NAV reporting and to update our
realisation expectations for this asset. During the coming year, we plan to
further strengthen the independence of the valuation process with the goal of
preserving shareholder confidence in our ability to manage volatile disruptive
technology investments.
Trust is one of the most important non-financial assets we seek to develop and
grow with the companies in which we're invested and with the companies that
invest with us. During the past year, the Board turned down a commercially
attractive deep technology investment because of governance concerns.
For those companies that make it through our rigorous due diligence process,
Chrysalis undertakes a long-term commitment to executive leadership as they
navigate uncertainty about demand for their technology solutions, extreme
pressure on their human resources, and potential vulnerability to emerging
competitors.
Objective Setting for ESG in our portfolio companies is influenced by four key
factors:
· The size of our position
· Board or investor requests
· Collaborative activity with management and/or shareholders
· Realisation planning
The growth capital asset class includes high-growth private companies and
recently listed public companies. During 2021, when the listing process in the
US, Europe, and the UK became increasingly focused on ESG compliance,
Chrysalis heightened its focus on monitoring potential sustainability and
governance risks that could become material factors in the realisation of
optimal commercial returns in those companies transitioning from private to
public market status.
The Board of Directors
The Board comprises six independent non-executive Directors, 33% of whom are
female, who meet on a at least quarterly basis, in addition to ad hoc meetings
convened in accordance with the needs of the business, to consider the
Company's affairs in a prescribed and structured manner. Further details
concerning the meetings attended during the year by the Board and its
Committees can be found on page 45. All Directors are considered independent
of the Investment Adviser for the purposes of the AIC Code and Listing Rule
15.2.12A.
The Board is responsible for the Company's long term sustainable success and
the generation of value for shareholders and in doing so manages the business
affairs of the Company in accordance with the Articles of Incorporation, the
investment policy and with due regard to the wider interests of stakeholders
as a whole. For further information on how the Board considers the interests
of stakeholders in its decision making please see the S.172(1) statement on
page 39. Additionally, the Board have overall responsibility for the Company's
activities including its investment activities and reviewing the performance
of the Company's portfolio. The Board are confident that the combination of
its members is appropriate and is such that no one individual or small group
of individuals dominates the Board's decision making.
The Directors, in the furtherance of their duties, may take independent
professional advice at the Company's expense, which is in accordance with
provision 19 of the AIC Code. The Directors also have access to the advice and
services of the Company Secretary through its appointed representatives who
are responsible to the Board for ensuring that the Board's procedures are
followed, and that applicable rules and regulations are complied with.
To enable the Board to function effectively and allow the Directors to
discharge their responsibilities, full and timely access is given to all
relevant information.
Comprehensive board papers are circulated to the Board in advance of meetings
by the Company Secretary, allowing time for full review and comment by the
attending parties. In the event that Directors are unable to attend a
particular meeting, they are invited to express their views on the matters
being discussed to the Chairman in advance of the meeting for these to be
raised accordingly on their behalf. Full and thorough minutes of all meetings
are kept by the Company Secretary.
The Directors are requested to confirm their continuing professional
development is up to date and any necessary training is identified during the
annual performance reviews carried out and recorded by the Remuneration &
Nomination Committee.
The current Board have served since the Company's inception in October 2018,
with the exception of Margaret O'Connor who was appointed on 6 September 2021
and have been carefully selected against a set of objective criteria. The
Board considers that the combination of its members bring a wealth of skills,
experience and knowledge to the Company as illustrated in their biographies
below:
Director Biographies
Andrew Haining (Chairman) (independent)
Andrew has had a 30-year career in banking and private equity with Bank of
America, CDC (now Bridgepoint) and Botts & Company. During his career,
Andrew has been responsible for over 20 private equity investments with
transactional values in excess of $1 billion.
Andrew holds several Guernsey and UK board positions.
Stephen Coe (senior independent)
Stephen serves as Chairman of the Audit Committee. He is currently a
Non-Executive Director of River and Mercantile UK Micro Cap Investment Company
Limited. Stephen has been involved with offshore investment funds and managers
since 1990, with significant exposure to property, debt, emerging markets and
private equity investments. Stephen qualified as a Chartered Accountant with
Price Waterhouse Bristol in 1990 and remained in audit practice, specialising
in financial services, until 1997. From 1997 to 2003 Stephen was a director of
the Bachmann Group of fiduciary companies and Managing Director of Bachmann
Fund Administration Limited, a specialist third party fund administration
company. From 2003 to 2006 Stephen was a director with Investec in Guernsey
and Managing Director of Investec Trust (Guernsey) Limited and Investec
Administration Services Limited. Stephen became self-employed in August 2006,
providing services to financial services clients.
Simon Holden (independent)
Simon, a Guernsey resident, brings board experience from both private equity
and portfolio company operations roles at Candover Investments and then Terra
Firma Capital Partners. Since 2015, Simon has been an independent director to
listed alternative investment companies, private equity funds and trading
company boards including pro-bono roles to the States of Guernsey overseeing
infrastructure critical to the Island including the airport, harbours and two
maritime fuel supply vessels.
Simon is a Chartered Director (CDir) accredited by the UK Institute of
Directors, graduated from the University of Cambridge with an MEng and MA in
Manufacturing Engineering and is an active member of UK and Guernsey fund
management interest groups.
Anne Ewing (independent)
Anne has over 35 years of financial services experience in banking, asset and
fund management, corporate treasury, life insurance and the fiduciary sector.
Anne has an MSc in Corporate Governance and has held senior roles in Citibank,
Rothschilds, Old Mutual International and KPMG and latterly has been
instrumental in the start-ups of a Guernsey fund manager and two fiduciary
licensees.
Anne has several non-executive Directorships and chairman roles in investment
companies and a banking and trust company group in the Channel Islands and in
London.
Tim Cruttenden (independent)
Tim is Chief Executive Officer of VenCap International plc, a UK-based asset
management firm focused on investing in venture capital funds. He joined
VenCap in 1994 and is responsible for leading the strategy and development of
the firm. Prior to joining VenCap, Tim was an economist and statistician at
the Association of British Insurers in London. He received his Bachelor of
Science degree (with honours) in Combined Science (Economics and Statistics)
from Coventry University and is an Associate of the CFA Society of the UK. Tim
is a non-executive director of Polar Capital Technology Trust.
Margaret O'Connor (independent)
Margaret was appointed an Independent Director of Chrysalis in September 2021.
She brings global experience of guiding boards through investments in
disruptive technologies, including AI, big data, AR, and blockchain to this
role.
Margaret has had a 30-year career building value in global technology
companies across the US, Asia, Africa, and Europe. She has been instrumental
in starting up two Mauritius domiciled, pan-African technology investment
funds. During 2020, she moved to London and was appointed to Chair the Launch
Africa Venture Fund 1 and Pay Today and to serve on the Investment Committee
of Five35 Ventures.
Prior to this, she was a Silicon Valley VC-funded MarketingTech entrepreneur
and a founding member of the MasterCard Asia Pacific management team in
Singapore and the MasterCard Global New Technology Communications group in New
York. She is a member of the Institute of Directors and a nominee for the
Private Equity Women Investor Network (PEWIN.org). She earned her BA from
Rutgers University and an Eagleton Institute of Politics fellowship. She
studied International Relations at Princeton University before moving to
Seoul, Korea in 1987.
Public Company Directorships
The following details are of all other public Company Directorships and
employment held by each Director and shared Directorships of any commercial
company held by two or more Directors:
Anne Ewing
None to be disclosed
Andrew Haining
None to be disclosed
Simon Holden
HICL Infrastructure Plc.
Hipgnosis Songs Fund Limited
JPMorgan Global Core Real Assets Limited
Trian Investors 1 Limited
Stephen Coe
River and Mercantile UK Micro Cap Investment Company Limited
Tim Cruttenden
Polar Capital Technology Trust plc
Margaret O' Connor
None to be disclosed
Director Attendance
During the year ended 30 September 2021, the Board and Committee meetings held
and attended by the Directors were as follows:
Quarterly Board Meeting Audit Committee Meeting
Remuneration & nomination Meetings Management
Engagement Ad-hoc Meetings
Meetings
Director Attended/Eligible Attended/Eligible Attended/Eligible Attended/Eligible Attended/Eligible
Anne Ewing 3/3 3/3 4/4 n/a 9/10
Andrew Haining 3/3 n/a n/a n/a 8/10
Simon Holden 3/3 3/3 n/a n/a 8/10
Stephen Coe 3/3 3/3 n/a n/a 10/10
Tim Cruttenden 3/3 n/a 4/4 n/a 6/10
Margaret O'Connor n/a n/a n/a n/a n/a
Division of Responsibilities
A schedule of matters reserved for the Board is maintained by the Company and
can be summarized as follows:
· Strategic Issues
· Financial Items such as approval of the annual and half-yearly
reports, any quarterly financial statements and any preliminary announcement
of the final results and the annual report and accounts including the
corporate governance statement
· Treasury Items
· Legal, Administration and Other Benefits
· Communications with Shareholders
· Board Appointments and Arrangements
· Miscellaneous such as to approve the appointments of professional
advisers for any Group company in addition to the Company's Auditors.
· Monetary Limits
The Directors have also delegated certain functions to other parties such as
the Alternative Investment Fund Manager ("AIFM"), the Investment Adviser, the
Administrator, the Company Secretary, the Depositary and the Registrar. In
particular, the Investment Adviser has been granted discretion over the
management of the investments comprising the Company's portfolio. The
Investment Adviser reports to the Board on a regular basis both outside of and
during quarterly board and Committee meetings, where the operating and
financial performance of the portfolio, together with valuations, are
discussed at length between the Board and the Investment Adviser. The
Directors have responsibility for exercising supervision of the AIFM and the
Investment Adviser.
Board Committees
The Company has established an Audit Committee, Remuneration & Nomination
Committee, and Management Engagement Committee (together the "Committees").
The Terms of Reference for each committee is available on the Company's
website.
The Board believes that its established Committees are adequately composed,
and that each member has the necessary skills and experience to discharge
their duties effectively. All new Committee members will be provided with an
induction on joining the relevant Committee and the actions carried out by
each Committee since the previous quarterly board meeting are reported at each
meeting to the Board of Directors by the respective Committee chair. Each
Committee meeting is attended by the Company Secretary and comprehensive
minutes are kept, as well as a schedule of the action points arising from each
meeting.
Stephen Coe is the Chairman of the Audit Committee with Anne Ewing and Simon
Holden as members. A full report regarding the Audit Committee's activities
during the year can be found in the Audit Committee Report on page 61.
In accordance with the AIC Code, a Remuneration & Nomination Committee has
been established. Anne Ewing has been appointed as Chairman, with Margaret
O'Connor and Tim Cruttenden as members. The appointment date for Margaret is 6
September 2021. The Remuneration & Nomination Committee meets at least
once a year in accordance with the terms of reference and reviews, inter alia,
the structure, size and composition of the Board. A full report regarding the
Remuneration & Nomination Committee's activities during the year can be
found on page 47.
Simon Holden has been appointed Chairman of the Management Engagement
Committee, with Margaret O'Connor and Tim Cruttenden as members. The
Management Engagement Committee will meet formally at least once a year for
the purpose, amongst other things, of reviewing the actions and judgments of
the AIFM, the Investment Adviser and the terms of the Investment Management
Agreement. A full report regarding the Management Engagement Committee's
activities during the year can be found on page 49.
Report of the Remuneration & Nomination Committee
Composition, Succession & Evaluation
On 27 November 2019 the Board adopted a policy on tenure which is aligned to
the AIC Code where no director will serve for more than nine years. The Board
confirms that no member has served for longer than nine years, due to the
Company being incorporated in October 2018. The Board has reviewed this policy
and agreed it remains appropriate.
During 2021 the Committee considered succession planning and undertook a
review of the attributes and skills of the then current board and made
recommendations to the Board. The Board came to the view that an additional
director should be appointed with an entrepreneurial background in tech or
tech enabled services and experience in private and public capital markets.
As a result the Board engaged an independent search firm, Nurole Limited, who
have a strong track record of being able to recommend a diverse and relevant
range of candidates. A good number of candidates were considered and all Board
members were involved at every stage of the recruitment process. As a result,
the Company appointed Margaret O'Connor on 6 September 2021 who was warmly
welcomed by her fellow directors.
On appointment Margaret undertook a comprehensive induction programme
including with the Company's advisers and third party service providers.
Margaret engaged immediately on the Board, accepting roles on both the
Management Engagement Committee and the Remuneration & Nomination
Committee. In addition, Margaret undertakes the informal role as the ESG
Champion of the Company.
2021 Review of Board Performance & Remuneration
The Remuneration & Nomination Committee undertook an internal review of
board performance and remuneration in the second half of 2021. This internal
review followed an external "triennial review" undertaken in 2020 by an
independent professional remuneration and performance consultant.
The output from the internal review has been considered by the Board and a
number of actions are in progress to address various matters including, for
example, training on diversity and enhancing the visibility of the benefits of
ESG and CSR to the Company's portfolio assets.
Remuneration levels were considered alongside the contributions of each of the
directors in terms of time and commitment. Despite the continued and increased
time commitments of the directors, the Remuneration & Nomination Committee
recommended only modest increases to basic remuneration for the year ended 30
September 2021. The Board accepted that any increase in remuneration should
reflect the market conditions and the current stage of the Company's
development. This contrasts with the prior year when additional discretionary
fees were paid to the directors during the integration of Jupiter as
Investment Adviser and fund raising activities.
Performance and board composition will remain under active review during 2022
alongside the future development and strategy of the Company.
The table below is shown to enable shareholders to assess the relative
importance of spend on remuneration and given the increased size of the Board.
The figures provide a comparison against management fees payable to the AIFM
relative to the Company's Net Asset Value.
Total Director Renumeration* £353,557
Investment Adviser Fees £5,153,194
Investment Adviser Performance Fees £112,076,983
NAV at year end £1,378,934,354
*£500,000 limit per Articles of Association
The Remuneration & Nomination Committee recommended and the Board resolved
that with effect from 1 October 2021 the annual remuneration for each Director
should be increased as per the table below.
Fees Proposed Director Fees **Total Fees paid
Y/E 2022 Y/E 2021 Y/E 2021 including Discretionary Fees
Chairman £75,000 £70,000 £120,500
Audit Committee Chair/SID £57,500 £55,000 £72,500
Management Engagement Committee Chair £52,500 £50,000 £82,500
Remuneration & Nomination Committee Chair £47,500 £45,000 £62,500
Director (1) £47,500 £45,000 £62,500
Director (2) £47,500 *£3,057 £3,057
* part year fee - appointed September 2021
** includes £10,000 p.a. for a new Prospectus/Fund Raise
Anne Ewing
Chairman of the Remuneration & Nomination Committee
Members: Tim Cruttenden, Margaret O'Connor
Report of the Management Engagement Committee
The Management Engagement Committee (hereafter referred to in this report as
the "Committee" or the "MEC") is chaired by Mr Simon Holden and at this time,
comprises a sub-committee of the Board including Miss Margaret O'Connor and Mr
Tim Cruttenden, whilst other Board members are invited to attend. Only
non-executive Directors who are independent of the Investment Advisor may
serve on the Committee, which meets at least once per year. The MEC's terms of
reference are available to view on the Company's website, with the Committee's
primary purpose being to review, annually, the compliance of the Investment
Adviser with the Company's investment policy and Portfolio Management
Agreement as well as to keep under review the performance of all other key
service providers involved in supporting the Company and its operations.
The MEC convened once during the year ended 30 September 2021.
Since the acquisition of Merian Global Investors Limited by Jupiter Fund
Management plc, the MEC's priority has been to ensure a smooth transition of
the Investment Advisory and Alternative Investment Fund Manager (AIFM)
functions as well as stronger investor engagement as a result of the Company's
new brand and communication materials.
I am pleased to report that this transition has been relatively smooth and the
performance of all service providers continues to meet the required standards
of the Company. An on-going dialogue is maintained with the AIFM in respect of
the valuation process. The Board has exercised its right (both in respect of
2020 and 2021 year-end valuations) to obtain independent valuations of
specific assets where the Board believes additional judgments are merited and
where the marginal valuation of the total portfolio determines the performance
fee earned.
It is worth noting the specific achievements of the Investment Adviser, as
detailed earlier in the Annual Report, in proving out the thesis of the
cross-over capital investment proposition. This has been marked with three
partial exits in the year into the public markets, well supported capital
raises allowing the Company to materially increase the size of its portfolio
to 17 holdings at the year end and to achieve 57% NAV growth, all of which
contributed to the crystallisation of the performance fee within the year.
In accordance with Listing Rule 15.6.2(2)R and following the review of the
Portfolio Management Agreement as previously outlined, the Board of the
Company has determined that it has now reached a stage in its evolution where
it should move to becoming a self-managed investment company in 2022, with
Jupiter Investment Management Limited continuing to provide investment
management services. This will entail the Company replacing Jupiter Unit Trust
Managers Limited as the current Alternative Investment Fund Manager (AIFM) and
assuming direct responsibility for the role an AIFM conducts including the
valuation and risk management aspects. This transition is expected to be
implemented by 30 June 2022, subject to regulatory approval. The Board is
grateful to Jupiter Unit Trust Managers Limited for its AIFM services to date
and the transitional support going forward.
Simon Holden
Chairman of the Management Engagement Committee
Directors' Report
The Directors present their Annual Report and the Audited Financial Statements
of the Company for the year ended 30 September 2021.
Principal Activities and Business Review
The investment objective of the Company is to generate long term capital
growth through investing in a portfolio consisting primarily of equity or
equity-related investments in unquoted companies.
The Directors do not envisage any change in these activities for the
foreseeable future. A description of the activities of the Company in the year
under review is given in the Chairman's Statement and the Investment Adviser's
Report.
Business and Tax Status
The Company has been registered with the GFSC as a closed-ended investment
company under RCIS Rule and Protection of Investors ("POI") Law and was
incorporated in Guernsey on 3 September 2018. The Company operates under The
Companies (Guernsey) Law, 2008 (the "Law").
The Company's shares have a premium listing and are admitted to trading on the
London Stock Exchange's Main Market for listed securities.
The Company's management and administration takes place in Guernsey and the
Company has been granted exemption from income tax within Guernsey by the
Administrator of Income Tax. It is the intention of the Directors to continue
to operate the Company so that each year this tax-exempt status is maintained.
In respect of the Criminal Finances Act 2017, which has introduced a new
corporate criminal offence of 'failing to take reasonable steps to prevent the
facilitation of tax evasion', the Board confirms that they are committed to
zero tolerance towards the criminal facilitation of tax evasion.
Alternative Investment Fund Managers Directive
The Company is an 'Alternative Investment Fund' ("AIF"), as defined by the
Alternative Investment Fund Managers Directive ("AIFMD"), and on 1 May 2021
the Company appointed Jupiter Unit Trust Managers Limited ("JUTM") as its new
Alternative Investment Fund Manager ("AIFM"), replacing Maitland Institutional
Services Limited whose appointment was terminated at the same time. JUTM
subsequently sub delegated portfolio management to Jupiter Investment
Management Limited ("JIML", formerly Merian Global Investors (UK) Limited or
"MGI"), which is a member of the same group. JIML continues to act as
Investment Adviser and the change does not impact the provision of services to
the Company by the existing management team at the Investment Adviser. The
management and performance fees previously payable to JIML are now payable to
JUTM. JUTM is also entitled to an AIFM fee.
The Company operates as an externally managed non-EEA domiciled AIF with a
non-EEA domiciled AIFM for the purposes of AIFMD.
The AIFMD, as transposed into the FCA Handbook in the UK, requires that
certain pre-investment information be made available to investors in AIFs
(such as the Company) and that certain regular and periodic disclosures are
made. This information and these disclosures may be found on pages 105 and 106
of this annual report and on the Company's website
http://chrysalisinvestments.co.uk (http://chrysalisinvestments.co.uk) .
Foreign Account Tax Compliance Act ("FATCA")
FATCA requires certain financial institutions outside the United States ("US")
to pass information about their US customers to the US tax authorities, the
Internal Revenue Service (the "IRS"). A 30% withholding tax is imposed on the
US source income and disposal of assets of any financial institution within
the scope of the legislation that fails to comply with this requirement.
The Board of the Company has taken all necessary steps to ensure that the
Company is FATCA compliant and confirms that the Company is registered and has
been issued a Global Intermediary Identification Number ("GIIN") by the IRS.
The Company will use its GIIN to identify that it is FATCA compliant to all
financial counterparties.
Common Reporting Standard
The Common Reporting Standard is a global standard for the automatic exchange
of financial account information developed by the Organisation for Economic
Co-operation and Development ("OECD"), which has been adopted in Guernsey and
which came into effect in January 2016.
The Company is subject to Guernsey regulations and guidance on the automatic
exchange of tax information and the Board will therefore take the necessary
actions to ensure that the Company is compliant in this regard.
Going Concern
In assessing the going concern basis of accounting, the Directors have
assessed the guidance issued by the Financial Reporting Council and considered
recent market volatility and the impact of COVID-19 on the Company's
investments. After making enquiries and bearing in mind the nature of the
Company's business and assets, the Directors consider that the Company has
adequate resources to continue in operational existence for at least twelve
months from the date of approval of the Annual Report and Audited Financial
Statements.
At year end, the Company has a current cash position of £49,794,000, net
current liabilities amounting to £81,264,000 and liquid listed investments
amounting to £236,756,000.
On 29 November, the Company announced that it had entered into an agreement
with the AIFM, Jupiter Unit Trust Managers Limited ("JUTM") to settle 54%
(£60,522,000) of the performance fee due in respect of the year to 30
September 2021 in ordinary shares issued by the Company. The remaining 46%
(£51,555,000) of the performance fee amount will be settled in cash. The
issue price of the shares will be 267p per share (being the closing share
price on 30 September 2021). The shares will be issued after approval of the
annual report with the cash settled shortly afterwards. The accounting for the
settlement of this transaction will be reflected within the Company's
financial statements for the year ending 30 September 2022.
On 13 December 2021, the Company announced that it has raised gross proceeds
of £60 million pursuant to the Placing and the PrimaryBid Offer (the
"Issue"). Accordingly, under the Issue an aggregate of 25,210,084 new Ordinary
Shares have been issued and allotted conditionally upon admission at a price
of 238 pence per Ordinary Share.
Having considered the circumstances above it is the Board's view that the
Company has sufficient liquidity to meet its obligations. For these reasons,
the Directors continue to adopt the going concern basis in preparing the
Annual Report and Audited Financial Statements.
Viability Statement
The Directors have assessed the prospects of the Company over the three-year
period to 30 September 2024. The Directors consider that three years is an
appropriate period to assess viability given the Company's style of
investment.
In determining the appropriate period of assessment, the Directors consider
that three years is a sufficient investment time horizon to be relevant to
shareholders and that choosing a longer time period can present difficulties
given the lack of longer-term economic visibility and the need for adaptation
that will inevitably create for its Portfolio Companies.
In their assessment of the viability of the Company, the Directors have
considered each of the Company's principal and emerging risks and
uncertainties detailed on page 54 (and in note 20) and, in particular, the
impact on the Company and its activities of COVID-19, and the impact of a
significant fall in equity markets on the value of the Company's investment
portfolio.
The continuation of the Company in its present form is dependent on a
portfolio management agreement remaining in place between the AIFM and the
Investment Adviser. The AIFM has delegated portfolio management services to
the Investment Adviser. The current portfolio management agreement is
terminable on six months' notice by either party. The Directors currently know
of no reason why either the AIFM or the Investment Adviser might serve notice
of the portfolio management agreement over the period of the viability
statement. The Company has now announced its intention to become self-managed
and will work with the AIFM to ensure a smooth transition and to keep the
existing Investment Adviser in place.
The Directors have carried out a robust assessment of the principal and
emerging risks facing the Company and based on the Company's processes for
monitoring operating costs, share price discount, the Investment Adviser's
compliance with the investment objective and policy, asset allocation, the
portfolio risk profile, counterparty exposure, liquidity risk and financial
controls, the Directors have concluded that there is a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the three year period to 30 September 2024.
Results and Dividends
The results attributable to shareholders for the year are shown in the
Statement of Comprehensive Income.
The Directors have not declared a dividend for the year (2020: £nil)
Directors
The Directors of the Company who served during the year and to date are set
out on pages 42 and 43.
Directors' Interests
The Directors held the following interests in the share capital of the Company
either directly or beneficially as at 30 September 2021, and as at the date of
signing these Audited Financial Statements:
Shares % Held
A Haining 64,000 0.0117
S Coe 50,909 0.0093
S Holden 72,500 0.0132
A Ewing 32,500 0.0059
T Cruttenden 14,968 0.0027
Margaret O'Connor - -
The Directors' fees are as disclosed below:
£
A Haining 110,500
S Coe 62,500
S Holden 72,500
A Ewing 52,500
T Cruttenden 52,500
Margaret O'Connor 3,057
Under their terms of appointment, the Directors total remuneration (including
one-off fees) are as disclosed below:
Each Director is paid a basic fee of £45,000 per annum by the Company. In
addition to this, the Chairman receives an extra £25,000 per annum, the
Management Engagement Committee Chairman receives an extra £5,000 per annum
and the Audit Committee Chairman receives an extra £10,000 per annum. Refer
to page 48 for more information regarding Directors' remuneration.
Risks and Uncertainties
There are several potential risks and uncertainties which could have a
material impact on the Company's performance and could cause actual results to
differ materially from expected and historical results.
The AIFM has overall responsibility for risk management and control within the
context of achieving the Company's objectives. The Board agrees the strategy
for the Company, approves the Company's risk appetite and the AIFM monitors
the risk profile of the Company. The AIFM also maintains a risk management
process to identify, monitor and control risk concentration.
The Board's responsibility for conducting a robust assessment of the principal
and emerging risks is embedded in the Company's risk map and stress testing,
which helps position the Company to ensure compliance with the Association of
Investment Companies Code of Corporate Governance (the "AIC Code").
The principal risks to which the Company will be exposed are given in note 20
to the Annual Report and Audited Financial Statements.
The main risks that the Company faces arising from its financial instruments
are:(i) market risk, including:price risk, being the risk that the value of
investments will fluctuate because of changes in more investee-company
specific performance as well as market pricing of comparable businesses;
- interest rate risk, being the risk that the future cash flows of a
financial instrument will fluctuate because of changes in interest rates; and
- foreign currency risk, being the risk that the value of financial
assets and liabilities will fluctuate because of movements in currency rates.
(ii) credit risk, being the risk that a counterparty to a financial instrument
will fail to discharge an obligation or commitment that it has entered into
with the Company.
(iii) liquidity risk, being the risk that the Company will not be able to
meet its liabilities when they fall due. This may arise should the Company not
be able to liquidate its investments.
(iv) company failure, being the risk that companies invested in may fail and
result in loss of capital invested.
To manage such risks the Company shall comply with the investment restrictions
and diversification limits provided for in the Prospectus.
The Company will invest and manage its assets with the objective of spreading
risk. Further to the investment restrictions discussed, the Company also seeks
to manage risk by:
· not incurring debt over 20% of its NAV, calculated at time of drawdown. The
Company will target repayment of such
debt within twelve months of drawdown; and
· entering from time to time into hedging or other derivative arrangements
for the purposes of efficient portfolio
management, managing where appropriate, any exposure through its
investments to currencies other than Sterling.
Ongoing Charges
The ongoing charges figure for the year was 0.77%. The ongoing charges
represent ongoing annual expenses of £8,561,445 divided by total average Net
Asset Value for the year of £1,127,604,307. The ongoing charges has also been
prepared in accordance with the recommended methodology provided by the
Association of Investment Companies where investment purchase costs of
£353,733 and performance fees of £112,076,983 have been excluded and
represents the percentage reduction in shareholder returns as a result of
recurring operational expenses.
Emerging Risks
Whilst vaccination programmes are being rolled out and, the outlook for the
economy is improving, COVID-19 remains an ongoing risk and remains a source of
uncertainty.
In considering this risk, the Board's thought process has been as follows:
The Directors have carried out a robust assessment of the Company's processes
for monitoring operating costs, share price discount, the Investment Adviser's
compliance with the investment objective and policy, asset allocation, the
portfolio risk profile, counterparty exposure, liquidity risk and financial
controls. At the year end, the Company had cash and cash equivalents of
£49,794,000 and net current liabilities of £81,264,000.
Among the aims of the Company, as set out at IPO, are to invest in companies
that have both the ability to deliver growth rates substantially higher than
the average UK plc and that can protect the duration of those rates via
competitive advantage, e.g. via scale or technology. This led the Investment
Adviser towards a group of businesses it labelled "tech-enabled disrupters".
Given the shutdown of many "traditional" areas of the economy, businesses and
consumers have had to rely much more heavily on technology and online
channels. These were sectors already growing faster than the wider economy but
have now been given added impetus. Not only can this lead to higher growth
rates in the short term, but it can also drive new user adoption at
significantly lower cost than previously experienced.
The Directors monitor the performance of our assets on a quarterly basis and
receive monthly data in some instances which enables them to track the
development of the Investment Adviser's investment theses.
The Board have considered the operations of the services providers as they
relate to the Company. With this in mind, the Board believe the Company is
well-positioned at this particular time from a thematic perspective and the
strategy of the Company therefore remains unchanged.
The Board will of course continue to assess the position as more information
about the impact of the virus becomes available.
ESG and Climate Change Risks and Considerations
The Board of Directors have carefully considered the impact of climate change
and ESG related risks on the Company's business strategy and the impact of the
Company's operations on the local community and environment. This analysis has
taken place at both the level of the Company and at the investment portfolio
level.
As an investment company with no employees, the Company itself has only a
minimal footprint on the local community and environment, but recognises that
everyone has a part to play in the reduction of adverse environmental impacts
and ensuring the company's operations have a positive impact on society and
the generation of long term sustainable value.
The Board of directors avoid travel where good governance allows. The Covid-19
pandemic has prevented the Board from carrying out scheduled due diligence
visits due to travel restrictions, however video conferencing has been used
for the majority of meetings which has reduced the need for travel.
The Board are also supported against disruption to the Company's activities
through (for example) adverse weather events, by the business continuity
policy of the Administrator which has been recently tested as a result of the
Covid-19 pandemic, with no issues to report.
Further information on how the Board and Jupiter manage the Company's ESG and
climate change related risks at the investment portfolio level can be found
within the Chairman's Statement on page 3 and the Investment Adviser's Report
on pages 35-37. This includes the integration of ESG analysis into the
investment process and the alignment of Jupiter's strategy, purpose and
principles to the UN Global Compact.
Investment Management and Administration
Investment Management Agreement and Fees
The Directors are responsible for managing the business affairs of the Company
in accordance with the Articles of Incorporation and the investment policy and
have overall responsibility for the Company's activities including its
investment activities and reviewing the performance of the Company's
portfolio.
The Directors have, however, appointed the AIFM to perform portfolio and risk
management functions.
The AIFM has delegated responsibility for day-to-day management of the
investments comprising the Company's portfolio to the Investment Adviser.
The AIFM is entitled to a management fee together with reimbursement of all
reasonable costs and expenses incurred by it in the performance of its duties.
The AIFM is also entitled to a performance fee in certain circumstances.
Details of the management fee and performance fee are set out in note 6. The
Investment Management Agreement may be terminated by either party on six
months' notice and may be immediately terminated by either party in certain
circumstances such as a material breach which is not remedied.
Administrator
Maitland Administration (Guernsey) Limited has been appointed as Administrator
to the Company pursuant to a master services agreement. The Administrator is
responsible for the maintenance of the books and financial accounts of the
Company and the calculation, in conjunction with the Investment Adviser, of
the Net Asset Value of the Company and the shares.
Depositary
The Depositary of the Company was Citibank Europe plc, UK Branch. On 9 October
2021 the depositary changed to Citibank UK Limited.
Corporate Governance Statement
The Corporate Governance Statement forms part of the Directors' Report.
Board Responsibilities
The Board comprises six non-executive Directors, who meet at least quarterly
to consider the affairs of the Company in a prescribed and structured manner.
All Directors are considered independent of the Investment Adviser for the
purposes of the AIC Code and Listing Rule 15.2.12A. Biographies of the
Directors for the year ended 30 September 2021 appear on pages 42 and 43 which
demonstrate the wide range of skills and experience they bring to the Board.
The Directors, in the furtherance of their duties, may take independent
professional advice at the Company's expense, which is in accordance with
principle 13 of the AIC Code.
The Directors also have access to the advice and services of the Company
Secretary through its appointed representatives who are responsible to the
Board for ensuring that the Board's procedures are followed, and that
applicable rules and regulations are complied with.
To enable the Board to function effectively and allow the Directors to
discharge their responsibilities, full and timely access is given to all
relevant information.
The Directors are requested to confirm their continuing professional
development is up to date and any necessary training is identified during the
annual performance reviews carried out and recorded by the Remuneration &
Nomination Committee.
At each annual general meeting of the Company, each director shall retire from
office and each director may offer themselves for election or re-election by
the shareholders.
Conflicts of Interest
None of the Directors nor any persons connected with them had a material
interest in any of the Company's transactions, arrangements or agreements at
the date of this report and none of the Directors has or had any interest in
any transaction which is or was unusual in its nature or conditions or
significant to the business of the Company, and which was affected by the
Company during the reporting year.
At the date of this Annual Report, there are no outstanding loans or
guarantees between the Company and any Director.
Committees
The Company has established: the Audit Committee, the Remuneration &
Nomination Committee, and the Management Engagement Committee (together the
"Committees"). Terms of Reference for each committee is available on request
from the Administrator.
The Audit Committee
Stephen Coe is the Chairman of the Audit Committee. A full report regarding
the Audit Committee can be found in the Audit Committee Report.
Remuneration & Nomination Committee
In accordance with the AIC Code, a Remuneration & Nomination Committee has
been established. Anne Ewing has been appointed as Chairman. The Remuneration
& Nomination Committee meets at least once a year in accordance with the
terms of reference and reviews, inter alia, the structure, size and
composition of the Board.
Details of the Directors' remuneration can be found in note 21 and page 48.
Management Engagement Committee
Simon Holden has been appointed Chairman of the Management Engagement
Committee. The Management Engagement Committee will meet formally at least
once a year for the purpose, amongst other things, of reviewing the actions
and judgments of the AIFM, the Investment Adviser and the terms of the
Investment Management Agreement. Details of the management and performance
fees can be found in note 6.
Substantial Shareholdings
On 14 January 2022, the latest practicable date for disclosure in this Annual
Report, the Company's only shareholder with a holding greater than 10% was
Jupiter UK Mid-Cap Fund (14.9%).
Shareholder Communication
The Company's main method of communication with Shareholders is through its
published Half Yearly and Annual Reports which aim to provide Shareholders
with a fair, balanced and understandable view of the Company's results and
objectives. This is supplemented by the publication of the Company's quarterly
net asset values on its ordinary shares on the London Stock Exchange.
In line with principle 16 of the AIC Code, the Investment Adviser communicates
with both the Chairman and shareholders and is available to communicate and
meet with major shareholders. The Company has also appointed Liberum Capital
Limited to liaise with all major shareholders together with the Investment
Adviser, all of whom report back to the Board at quarterly board meetings
ensuring that the Board is fully aware of shareholder sentiment, expectations
and analyst views. The Company's website, which is maintained by the
Investment Adviser, is regularly updated with news and announcements.
Information published online is accessible in many countries each with
differing legal requirements relating to the preparation and dissemination of
financial information. Users of the Company's website are responsible for
informing themselves of how the requirements in their own countries may differ
from those of Guernsey.
Relations with Shareholders
All holders of Ordinary Shares in the Company have the right to receive notice
of, attend and vote at the general meetings of the Company.
At each general meeting of the Company, the Board and the Investment Adviser
are available to discuss issues affecting the Company.
Shareholders are additionally able to contact the Board directly outside of
meetings via the Company's dedicated e-mail address
(chrysalis@maitlandgroup.com) or by post via the Company Secretary.
Alternatively, Shareholders are able to contact the Investment Adviser
directly (chrysalis@maitlandgroup.com) or the Senior Independent Director
(chrysalis@maitlandgroup.com) for issues they feel they may be unable to raise
directly with the Company itself.
The Company has adopted a zero-tolerance policy towards bribery and is
committed to carrying out business fairly, honestly and openly.
Voting and Stewardship code
The Investment Adviser is committed to the principles of the Financial
Reporting Council's UK Stewardship Code and this also constitutes the
disclosure of that commitment required under the rules of the FCA (Conduct of
Business Rule 2.2.3).
Signed on behalf of the Board by:
( )
Andrew Haining
Chairman
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and Audited
Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Audited Financial Statements for
each financial year. Under that law they are required to prepare the Audited
Financial Statements in accordance with International Financial Reporting
Standards as adopted by the EU and applicable law.
Under company law the Directors must not approve the Audited Financial
Statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of its profit or loss for that year.
In preparing these Audited Financial Statements, the Directors are required
to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable, relevant and
reliable;
· state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the Audited
Financial Statements;
· assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations or have no realistic
alternative but to do so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its Audited Financial Statements comply with the
Companies (Guernsey) Law, 2008. They are responsible for such internal control
as they determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Guernsey governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
Disclosure of information to auditors
The Directors who held office at the date of approval of this Directors'
Report confirm that, so far as they are aware, there is no relevant audit
information of which the Company's Auditor is unaware; and that each Director
has taken all the steps that they ought to have taken as a director to
make themselves aware of any relevant audit information and to establish that
the Company's Auditor is aware of that information.
Responsibility statement of the Directors in respect of the Annual Report
We confirm that to the best of our knowledge:
· the Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company; and
· the management report (comprising the Chairman's Statement, the
Investment Advisers' Report, and Directors' Report) includes a fair review of
the development and performance of the business and the position of the
Company, together with a description of the principal risks and uncertainties
that it faces.
We consider the Annual Report and Audited Financial Statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's position and performance,
business model and strategy.
Signed on behalf of the Board by:
Andrew Haining
Chairman
25 January 2022
Audit Committee Report
In accordance with the AIC Code, an Audit Committee has been established
consisting of Anne Ewing, Simon Holden, Margaret O'Connor and Stephen Coe, who
is the Chairman of the Audit Committee.
Membership and Role of the Committee
The Audit Committee meets at least twice a year and, when requested, provides
advice to the Board on whether the Annual Report and Audited Financial
Statements, taken as a whole, is fair, balanced and understandable and
provides information necessary for the shareholders to assess the Company's
performance, business model and strategy. The Audit Committee also reviews,
inter alia, the financial reporting process and the system of internal control
and management of financial risks, including understanding the current areas
of greatest financial risk and how these are managed by the Investment
Adviser, reviewing the Annual Report and Audited Financial Statements,
assessing the fairness of Audited Financial Statements and disclosures and
reviewing the external audit process. The Audit Committee is responsible for
overseeing the Company's relationship with the external auditor (the
"Auditor"), including making recommendations to the Board on the appointment
of the Auditor and their remuneration.
The Audit Committee considers the nature, scope and results of the Auditor's
work and reviews, and develops and implements a policy on the supply of any
non-audit services that are to be provided by the Auditor. The Audit Committee
annually reviews the independence and objectivity of the Auditor and considers
the appointment of an appropriate Auditor.
The continuation of the Auditor was considered and the Board subsequently
decided that the Auditor was sufficiently independent and was appropriately
appointed in order to carry out the audit of the Company for the year ended 30
September 2021. Appointment of the Auditor will be reviewed each year before
the AGM. The level of non-audit versus audit services is monitored. The table
below summarises the remuneration paid by the Company to KPMG ChanneI Islands
Limited ("KPMG") for audit and non-audit services during the year ended 30
September 2021.
30 September 30 September
2021 2020
Annual audit fee 120,000 69,000
Interim review 33,000 33,000
153,000 102,000
Internal Control
The Company itself has no internal systems to control. Internal control lies
within the services provided by JUTM, JIML and other service providers. These
controls are monitored by the Board reviewing and challenging reports from
these service providers and through segregation of duties between them. The
Audit Committee monitors the financial reporting process and tasks undertaken
in the production of the Annual Report and Audited Financial Statements.
The administration and company secretarial duties of the Company are performed
by Maitland Administration (Guernsey) Limited.
Registrar duties are performed by Computershare Investor Services (Guernsey)
Limited.
The custody of financial assets is undertaken by Citibank Europe plc, UK
Branch.
The Company does not have an internal audit department. All the Company's
management and administration functions are delegated to independent third
parties and it is therefore felt there is no need for the Company to have an
internal function. The Audit Committee have assessed the Company's internal
controls and found them to be satisfactory.
Fair Value Estimation
The valuation of the Company's investments is considered to be a significant
area of focus given that they represent the majority of the net assets of the
Company and in view of the significance of the estimates and judgments that
may be involved in the determination of their fair value. In discharging its
responsibilities, the Audit Committee has specifically considered the
valuation of investments as follows:
· Independent third-party valuation firms are engaged to provide
assistance, advice, assurance, and documentation in relation to the portfolio
valuations. Valuations are then submitted to the portfolio managers and the
Investment Adviser's Fair Value Pricing Committee for review. The Board
reviews these portfolio valuations on a regular basis throughout the year.
· The Audit Committee receives and reviews reports from the
Investment Adviser and the Auditor relating to the Company's Annual Report.
The Audit Committee focuses particularly on compliance with legal
requirements, accounting standards and the Listing Rules and ensures that an
effective system of internal financial and non-financial controls is
maintained. The ultimate responsibility for reviewing and approving the Annual
Report remains with the Board.
· Representatives of The Audit Committee meet with the Investment
Adviser at least quarterly and are involved with the review of the quarterly
valuations. It also seeks assurance that the pricing basis is appropriate and
in line with relevant accounting standards as adopted by the Company and that
the carrying values are correct.
· Reporting to the Board on the significant judgment made in the
preparation of the Company's Annual Report and Audited Financial Statements
and recommending valuations of the Company's investments to the Board.
· The Audit Committee will recommend the Board engages independent
valuers for specific assets where it considers it appropriate.
External Audit
The Audit Committee will hold an annual meeting to approve the Company's
Annual Report and Audited Financial Statements before its publication. At a
meeting held on 26 June 2021 the Audit Committee met with the Auditor to
discuss the audit plan and approach. During this meeting it was agreed with
the Auditor that the area of significant audit focus related to the valuation
of investments given that they represent the majority of net assets of the
Company and their valuation involves significant judgement. The scope of the
audit work in relation to this asset class was discussed. At the conclusion of
the audit, the Audit Committee met with the Auditor and discussed the scope of
their annual audit work and their audit findings.
The Audit Committee reviews the scope and results of the audit, its cost
effectiveness, and the independence and objectivity of the Auditor. The Audit
Committee has particular regard to any non-audit work that the Auditor may
undertake and the terms under which the Auditor may be appointed to perform
non-audit services. In order to safeguard the Auditor's independence and
objectivity, the Audit Committee ensures that any other advisory and/or
consulting services provided by the Auditor does not conflict with their
statutory audit responsibilities.
To fulfil its responsibilities regarding the independence of the Auditor, the
Audit Committee considered:
· a report from the Auditor describing their arrangements to
identify, report and manage any conflicts of interest; and
· the extent of the non-audit services provided by the Auditor.
To assess the effectiveness of the Auditor, the committee reviewed:
· the Auditor's fulfilment of the agreed audit plan and variations
from it;
· the audit findings report highlighting any major issues that
arose during the course of the audit; and
· the effectiveness and independence of the Auditor having
considered the degree of diligence and professional scepticism demonstrated by
them.
The Audit Committee is satisfied with KPMG's effectiveness and independence as
Auditor.
During the year the Audit Committee met three times with all members present
(refer to Director Attendance on page 45).
Reappointment of auditor
The Auditor, KPMG Channel Islands Limited, has expressed its willingness to
continue in office as Auditor. A resolution proposing their reappointment will
be submitted at the forthcoming general meeting to be held pursuant to section
199 of the Law.
Stephen Coe
Chairman of the Audit Committee
Our opinion is unmodified
We have audited the financial statements of Chrysalis Investments
Limited (the "Company"), which comprise the statement of financial position
as at 30 September 2021, the statements of comprehensive income, changes in
equity and cash flows for the year then ended, and notes, comprising
significant accounting policies and other explanatory information.
In our opinion, the accompanying financial statements:
· give a true and fair view of the financial position of the Company as at 30
September 2021, and of the Company's financial performance and cash
flows for the year then ended;
· are prepared in accordance with International Financial Reporting
Standards as adopted by the EU ("IFRS"); and
· comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are
independent of the Company in accordance with, UK ethical requirements
including the FRC Ethical Standard as required by the Crown Dependencies'
Audit Rules and Guidance. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion.
Key audit matters: our assessment of the risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were
of most significance in the audit of the financial statements and include the
most significant assessed risks of material misstatement (whether or not due
to fraud) identified by us, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our audit opinion
above, the key audit matter was as follows (unchanged from 2020):
Our response
Valuation of investments held at fair value through profit or loss Basis: Our audit procedures included but were not limited to:
£1,460,198,000 (2020: £606,287,000) The Company's investments are carried at fair value in accordance with IFRS. Internal Controls:
The investments comprise of equity and equity-related instruments in quoted
Refer to page 62 of the Audit Committee Report, notes 2(i), 3, 11 and 20 and unquoted companies and represent 106% (2020: 112%) of the Company's net We assessed the design and implementation of the control in place over the
assets as at 30 September 2021. valuation of investments.
The Company's unlisted investments, with a value of £1,223,442,000 (the Challenging managements' assumptions and inputs:
"Unlisted Investments"), are valued by using recognised valuation
methodologies and models, in accordance with the International Private Equity For the Unlisted Investments, with the support of our valuation specialist,
and Venture Capital Valuation Guidelines. we:
The Company utilises independent third party valuation firms (the "Valuation º assessed the objectivity, capabilities and competence of the Valuation
Agents") to assist and advise on their valuation process. Agents;
The Company's listed investments, with a value of £236,756,000 (the "Listed º assessed the scope of the Valuation Agents' review of the investments and
Investments"), are valued by the Company based on the quoted market bid price read the valuation reports and memoranda produced by them and the Investment
in an active market for that instrument. Advisor;
Risk: º assessed the appropriateness of the valuation approach and methodology
applied to each investment;
The valuation of the Company's investments is a significant area of our audit,
given that it represents a significant portion of the net assets of the º compared the assumptions used in the valuation models employed to
Company. observable market data (where possible);
The valuation risk of the Unlisted Investments incorporates both a risk of º corroborated significant investee company inputs used in the valuation
fraud and error given the significance of estimates and judgements that may be models, and recent investment transactions to supporting documentation; and
involved in the determination of their fair value.
º considered market transactions in close proximity to the year end and
assessed their appropriateness as being representative of fair value.
Our valuation specialist independently priced the Listed Investments to a
third party pricing source.
Assessing disclosures:
We also considered the Company's disclosures (see notes 3 and 20) in relation
to the use of estimates and judgements regarding the valuation of investments
and the Company's investment valuation policies adopted in note 2(i) and fair
value disclosures in note 20 for compliance with IFRS.
Our application of materiality and an overview of the scope of our audit
Materiality for the financial statements as a whole was set at £27,578,000,
determined with reference to a benchmark of net assets of £1,378,934,000,
of which it represents approximately 2.0% (2020: 2.0%).
In line with our audit methodology, our procedures on individual account
balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually
immaterial misstatements in individual account balances add up to a material
amount across the financial statements as a whole. Performance materiality for
the Company was set at 75% (2020: 75%) of materiality for the financial
statements as a whole, which equates to £20,683,000. We applied this
percentage in our determination of performance materiality because we did not
identify any factors indicating an elevated level of risk.
We reported to the Audit Committee any corrected or uncorrected identified
misstatements exceeding £1,378,000, in addition to other identified
misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified
above, which has informed our identification of significant risks of material
misstatement and the associated audit procedures performed in those areas as
detailed above.
Going concern
The directors have prepared the financial statements on the going concern
basis as they do not intend to liquidate the Company or to cease its
operations, and as they have concluded that the Company's financial position
means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over its ability
to continue as a going concern for at least a year from the date of approval
of the financial statements (the "going concern period").
In our evaluation of the directors' conclusions, we considered the inherent
risks to the Company's business model and analysed how those risks might
affect the Company's financial resources or ability to continue operations
over the going concern period. The risk that we considered most likely to
affect the Company's financial resources or ability to continue operations
over this period was the availability of capital to meet operating costs and
other financial commitments.
We considered whether this risk could plausibly affect the liquidity in the
going concern period by comparing severe, but plausible downside scenarios
that could arise from this risk against the level of available financial
resources indicated by the Company's financial forecasts.
We considered whether the going concern disclosure in note 2(b) to the
financial statements gives a full and accurate description of the directors'
assessment of going concern.
Our conclusions based on this work:
· we consider that the directors' use of the going concern basis of
accounting in the preparation of the financial statements is appropriate;
· we have not identified, and concur with the directors' assessment that
there is not, a material uncertainty related to events or conditions that,
individually or collectively, may cast significant doubt on the Company's
ability to continue as a going concern for the going concern period; and
· we have nothing material to add or draw attention to in relation to the
directors' statement in the notes to the financial statements on the use of
the going concern basis of accounting with no material uncertainties that may
cast significant doubt over the Company's use of that basis for the going
concern period, and that statement is materially consistent with the financial
statements and our audit knowledge.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not
a guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations - ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud ("fraud risks") we
assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment
procedures included:
· enquiring of management as to the Company's policies and procedures to
prevent and detect fraud as well as
enquiring whether management have knowledge of any actual, suspected or
alleged fraud;
· reading minutes of meetings of those charged with governance; and
· using analytical procedures to identify any unusual or unexpected
relationships.
As required by auditing standards, and taking into account possible incentives
or pressures to misstate performance and our overall knowledge of the control
environment, we perform procedures to address the risk of management override
of controls, in particular the risk that management may be in a position to
make inappropriate accounting entries, and the risk of bias in accounting
estimates such as valuation of unquoted investments. On this audit we do not
believe there is a fraud risk related to revenue recognition because the
Company's revenue streams are simple in nature with respect to accounting
policy choice, and are easily verifiable to external data sources or
agreements with little or no requirement for estimation from management. We
did not identify any additional fraud risks.
We performed procedures including:
· identifying journal entries and other adjustments to test based on risk
criteria and comparing any identified entries
to supporting documentation;
· incorporating an element of unpredictability in our audit procedures; and
· assessing significant accounting estimates for bias
Further detail in respect of the valuation of unquoted investments is set out
in the 'Key Audit Matters' section of in this report.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected
to have a material effect on the financial statements from our sector
experience and through discussion with management (as required by auditing
standards), and from inspection of the Company's regulatory and legal
correspondence, if any, and discussed with management the policies and
procedures regarding compliance with laws and regulations. As the Company is
regulated, our assessment of risks involved gaining an understanding of the
control environment including the entity's procedures for complying with
regulatory requirements.
The Company is subject to laws and regulations that directly affect the
financial statements including financial reporting legislation and taxation
legislation and we assessed the extent of compliance with these laws and
regulations as part of our procedures on the related financial statement
items.
The Company is subject to other laws and regulations where the consequences of
non-compliance could have a material effect on amounts or disclosures in the
financial statements, for instance through the imposition of fines or
litigation or impacts on the Company's ability to operate. We identified
financial services regulation as being the area most likely to have such an
effect, recognising the regulated nature of the Company's activities and its
legal form. Auditing standards limit the required audit procedures to identify
non-compliance with these laws and regulations to enquiry of management and
inspection of regulatory and legal correspondence, if any. Therefore if a
breach of operational regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk
that we may not have detected some material misstatements in the financial
statements, even though we have properly planned and performed our audit in
accordance with auditing standards. For example, the further removed
non-compliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely the inherently limited
procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection
of fraud, as this may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures
are designed to detect material misstatement. We are not responsible for
preventing non-compliance or fraud and cannot be expected to detect
non-compliance with all laws and regulations.
Other information
The directors are responsible for the other information. The other
information comprises the information included in the annual report but does
not include the financial statements and our auditor's report thereon. Our
opinion on the financial statements does not cover the other information and
we do not express an audit opinion or any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
Disclosures of emerging and principal risks and longer term viability
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' disclosures in respect of emerging and
principal risks and the viability statement, and the financial statements
and our audit knowledge. We have nothing material to add or draw attention to
in relation to:
· the directors' confirmation within the Viability Statement (pages 51 and
52) that they have 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 or liquidity;
· the emerging and principal risks disclosures describing these risks and
explaining how they are being managed
or mitigated;
· the directors' explanation in the Viability Statement (pages 51 and 52) as
to how they have assessed the prospects
of the Company, over what period they have done so and why they consider
that period to be appropriate, and
their statement as to whether they have a reasonable expectation that the
Company will be able to continue in
operation and meet its liabilities as they fall due over the period of
their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material
inconsistency between the directors' corporate governance disclosures and the
financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is
materially consistent with the financial statements and our audit knowledge:
· the directors' statement that they consider that the annual report and
financial statements taken as a whole is fair,
balanced and understandable, and provides the information necessary for
shareholders to assess the Company's
position and performance, business model and strategy;
· the section of the annual report describing the work of the Audit
Committee, including the significant issues that
the audit committee considered in relation to the financial statements,
and how these issues were addressed; and
· the section of the annual report that describes the review of the
effectiveness of the Company's risk management
and internal control systems.
We are required to review the part of Corporate Governance Statement relating
to the Company's compliance with the provisions of the UK Corporate Governance
Code specified by the Listing Rules for our review. We have nothing to report
in this respect.
We have nothing to report on other matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the
Companies (Guernsey) Law, 2008 requires us to report to you if, in our
opinion:
· the Company has not kept proper accounting records; or
· the financial statements are not in agreement with the accounting records;
or
· we have not received all the information and explanations, which to the
best of our knowledge and belief are
necessary for the purpose of our audit.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out on pages 59 and 60,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair view; such
internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due
to fraud or error; assessing the Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue our opinion in an auditor's report. Reasonable
assurance is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website
at www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) .
The purpose of this report and restrictions on its use by persons other than the Company's members as a body
This report is made solely to the Company's members, as a body, in accordance
with section 262 of the Companies (Guernsey) Law, 2008 and, in respect of any
further matters on which we have agreed to report, on terms we have agreed
with the Company. Our audit work has been undertaken so that we might state
to the Company's members those matters we are required to state to them in an
auditor's report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the
Company and the Company's members, as a body, for our audit work, for this
report, or for the opinions we have formed.
Barry Ryan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
25 January 2022
Statement of Comprehensive Income
For the year ended 30 September 2021
Year
ended
Year ended
30 September
2021 30 September
2020
Notes Revenue
Capital Total Revenue
Capital Total
£'000 £'000 £'000
£'000 £'000
£'000
Investments
Net gains on investments
held at fair value
through profit or
loss
11 -
568,419 568,419 -
197,426 197,426
Net gains/(losses) on currency
movements
-
268 268
- (985)
(985)
_____ ___
________ ________ ________
________ ________
Net investment gains
-
568,687 568,687 -
196,441 196,441
________
________ ________ ________
________ ________
Interest income
5 851
- 851
287 273
560
________ ________
________ ________ ________
________
Total income
851
- 851
287 273 560
________ ________ ________
________ ________ ________
Investment management 6
(5,153) (112,077) (117,230)
(2,084) (32,608)
(34,692)
and performance fees
Other
expenses
7 (3,762)
- (3,762) (1,897)
- (1,897)
________ ________ ________
________ ________ ________
(Losses)/gains before finance
costs and taxation
(8,064) 456,610 448,546
(3,694) 164,106
160,412
Finance costs
8
(238) - (238)
- -
-
________ ________ ________
________ ________ ________
(Losses)/gains before taxation
(8,302) 456,610 448,308
(3,694) 164,106 160,412
Withholding tax expense
-
- -
-
- -
________ ________ ________
________ ________ ________
Total (losses)/gains and
comprehensive income for the year
(8,302) 456,610 448,308
(3,694) 164,106 160,412
________ ________ ________
________ ________ ________
(Loss)/gain per
Ordinary Share (pence) 9
(1.75)
96.51 94.76
(1.10) 48.73 47.63
The total column of this statement represents the Statement of Comprehensive
Income of the Company prepared in accordance with International Financial
Reporting Standards as adopted by the European Union ("IFRS").
The supplementary revenue and capital return columns are prepared under
guidance published by the Association of Investment Companies ("AIC").
All items in the above statement derive from continuing operations.
The notes on pages 75 to 101 form an integral part of these Audited Financial
Statements
Statement of Financial Position
As at 30 September 2021
2021
2020
Notes £'000
£'000
Non-current assets
Investments held at fair value through profit or loss 11
1,460,198
606,287
___________
___________
Current assets
Cash and cash equivalents
12 49,794
15,559
Other
receivables 13
427 267
___________ ___________
50,221
15,826
___________
___________
Total
assets
1,510,419
622,113
___________ ___________
Current liabilities
Performance fee
payable
6 (112,077)
(32,710)
Management fee
payable 6
(3,333)
(631)
Unsettled
trades 14
-
(46,440)
Loan
payable 15
(15,000)
-
Other payables
16
(1,075)
(289)
___________
___________
Total
liabilities (131,485)
(80,070)
___________ ___________
Net
assets
1,378,934 542,043
___________
___________
Equity
Share
Capital 17
758,950 370,367
Capital
reserve
633,420 176,810
Revenue
reserve (13,436)
(5,134)
___________ ___________
Total equity
1,378,934
542,043
___________
___________
Net Asset Value per Ordinary Share
(pence) 18
251.96 160.97
Number of Ordinary Shares in
issue
17 547,273,076
336,742,424
Approved by the Board of Directors and authorised for issue on 25 January 2022
and signed on their behalf:
Stephen Coe
Director
The notes on pages 75 to 101 form an integral part of these Audited Financial
Statements
Statement of Changes in Equity
For the year ended 30 September 2021
Share Capital
Revenue
capital reserve
reserve Total
£'000 £'000
£'000 £'000
At 30 September
2019
370,366 12,704
(1,440) 381,630
Total gains/(losses) and comprehensive
income for the
year
- 164,106
(3,694) 160,412
Share issue
costs
1
- -
1
___________ ___________
___________ ___________
At 30 September 2020
370,367
176,810 (5,134)
542,043
Total gains/(losses) and comprehensive
income for the year
-
456,610 (8,302)
448,308
Share issue
395,000
- -
395,000
Share issue
costs
(6,417)
- -
(6,417)
___________
___________ ___________ ___________
At 30 September 2021
758,950
633,420 (13,436) 1,378,934
___________ ___________
___________ ___________
The notes on pages 75 to 101 form an integral part of these Audited Financial
Statements
Statement of Cash Flows
For the year ended 30 September 2021
2021
2020
Notes
£'000
£'000
Cash flows from operating activities
Interest paid
8
(238)
-
Other expense payments
19
(37,987)
(5,286)
Interest
income
5
851
560
Purchase of investments
(426,639)
(212,013)
Sale of investments
11
94,707 19,632
Net gains/(losses) on currency movements
268
(985)
___________ ________
Net cash outflow from operating activities
(369,038) (198,092)
___________ ___________
Cash flows from financing activities
Issue of ordinary
shares 17
395,000
-
Share issue
costs 17
(6,417)
-
Proceeds of loan
payable 15
15,000
-
___________ ___________
Net cash inflow from financing activities
403,583
-
___________ ___________
Net increase/(decrease) in cash and cash equivalents
34,545 (198,092)
Net (loss)/gains on cash currency movements
(310)
986
Cash and cash equivalents at beginning of year
15,559 212,665
___________ ___________
Cash and cash equivalents at end of
year 12
49,794 15,559
___________ ___________
Cash and cash equivalents comprise of the
following:
Cash at bank
49,794 15,559
___________ ___________
49,794
15,559
___________ ___________
The notes on pages 75 to 101 form an integral part of these Audited Financial
Statements
Notes to the Audited Financial Statements
For the year ended 30 September 2021
1. Reporting Entity
Chrysalis Investments Limited (the "Company") is a closed-ended investment
company, registered in Guernsey on 3 September 2018, with registered number
65432. The Company's registered office is 3rd Floor, 1 Le Truchot, St Peter
Port, Guernsey GY1 1WD.
The Company is a Registered Closed-ended Collective Investment Scheme
regulated by the Guernsey Financial Services Commission ("GFSC"), with
reference number 2404263, pursuant to the Protection of Investors (Bailiwick
of Guernsey) Law 1987, as amended and the Registered Closed-ended Investment
Scheme Rules 2015.
The Company's 547,273,076 shares in issue (per note 17) under ticker CHRY,
SEDOL BGJYPP4 and ISIN GG00BGJYPP46 have a premium listing and are admitted to
trading on the London Stock Exchange's Main Market for listed securities.
During the year, the Company had share issues of 64,189,189 and 146,341,463
for a net consideration of £93,346,659 and £295,236,429 respectively. The
shares were issued on 9 October 2020 and 30 March 2021. The Audited Financial
Statements of the Company are presented for the year ended 30 September 2021.
The Company invests in a diversified portfolio consisting primarily of equity
and equity-related securities issued by unquoted companies. The Company became
a FTSE 250 company on 23 March 2021.
The Company received investment advice from Jupiter Investment Management
Limited ("JIML") (formerly known as Merian Global Investors (UK) Limited or
"MGI") during the year ended 30 September 2021. The administration of the
Company is delegated to Maitland Administration (Guernsey) Limited ("MAGL")
(the "Administrator").
2. Significant accounting policies
(a) Basis of accounting
The Audited Financial Statements have been prepared in compliance with
International Financial Reporting Standards as adopted by the European Union
("IFRS"). The Audited Financial Statements give a true and fair view and
comply with the Companies (Guernsey) Law, 2008.
Where presentational guidance set out in the Statement of Recommended Practice
("SORP") for investment companies issued by the Association of Investment
Companies ("AIC") updated in February 2019 is consistent with the requirements
of IFRS, the Directors have sought to prepare the Audited Financial Statements
on a basis compliant with the recommendations of the SORP.
(b) Going concern
The Directors have adopted the going concern basis in preparing the annual
Audited Financial Statements.
In assessing the going concern basis of accounting, the Directors have
assessed the guidance issued by the Financial Reporting Council and considered
recent market volatility and the impact of COVID-19 on the Company's
investments. After making enquiries and bearing in mind the nature of the
Company's business and assets, the Directors consider that the Company has
adequate resources to continue in operational existence for at least twelve
months from the date of approval of the Annual Report and Audited Financial
Statements.
At year end, the Company has a current cash position of £49,794,000, net
current liabilities amounting to £81,264,000 and liquid listed investments
amounting to £236,756,000.
On 29 November, the Company announced that it had entered into an agreement
with the AIFM, Jupiter Unit Trust Managers Limited ("JUTM") to settle 54%
(£60,522,000) of the performance fee due in respect of the year to 30
September 2021 in ordinary shares issued by the Company. The remaining 46%
(£51,555,000) of the performance fee amount will be settled in cash. The
issue price of the shares will be 267p per share (being the closing share
price on 30 September 2021). The shares will be issued after approval of the
annual report with the cash settled shortly afterwards. The accounting for the
settlement of this transaction will be reflected within the Company's
financial statements for the year ending 30 September 2022.
On 13 December 2021, the Company announces that it has raised gross proceeds
of £60 million pursuant to the Placing and the PrimaryBid Offer (the
"Issue"). Accordingly, under the Issue an aggregate of 25,210,084 new Ordinary
Shares have been issued and allotted conditionally upon admission at a price
of 238 pence per Ordinary Share.
Therefore, the Company has sufficient liquidity to meet its obligations. For
these reasons, the Directors continue to adopt the going concern basis in
preparing the Annual Report and Audited Financial Statements.
(c) Functional and presentational currency
The Audited Financial Statements of the Company are presented in the currency
of the primary economic environment in which it operates (its functional
currency). For the purpose of the Audited Financial Statements, the results
and financial position of the Company are expressed in pound sterling ("£").
(d) Segmental reporting
The chief operating decision maker is the Board of Directors. The Directors
are of the opinion that the Company is engaged in a single segment of business
with the primary objective of investing in securities to generate capital
growth for shareholders. Consequently, no business segmental analysis is
provided.
The key measure of performance used by the Board is the Net Asset Value of the
Company (which is calculated under IFRS). Therefore, no reconciliation is
required between the measure of profit or loss used by the Board and that
contained in these Audited Financial Statements.
(e) Income
Interest income is accounted for on an accruals basis and recognised in profit
or loss in the Statement of Comprehensive Income. Interest income includes
interest earned on convertible loan notes, cash held at bank on call, on
deposit and cash held as cash equivalents including UK treasury bills.
(f) Expenses
Expenses are accounted for on an accruals basis. The Company's investment
management and administration fees, finance costs and all other expenses are
charged through the Statement of Comprehensive Income and are charged to
Revenue. Performance fee is charged to the capital column in the Statement of
Comprehensive Income.
(g) Dividends to shareholders
Dividends are recognised in the year in which they are paid.
(h) Taxation
The Company has been granted exemption from liability to income tax in
Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989
amended by the Director of Income Tax in Guernsey for the current year.
Exemption is applied and granted annually and subject to the payment of a fee,
currently £1,200 (2020: £1,200).
(i) Financial instruments
Classification
The Company's financial assets are classified in the following measurement
categories:
· those to be measured subsequently at fair value through profit or loss;
and
· those to be measured at amortised cost.
The classification depends on the entity's business model for managing the
financial assets and the contractual terms of the cash flows.
At initial recognition, the Company measures a financial asset at its fair
value, plus, in the case of a financial asset not at fair value through profit
or loss, transaction costs that are directly attributable to the acquisition
of the financial asset. Transaction costs of financial assets carried at fair
value through profit or loss are expensed in profit or loss.
Financial assets held at amortised cost
Assets that are held in order to collect contractual cash flows give rise to
cash flows that are solely payments of principal and interest are measured at
amortised cost. These assets are subsequently measured at amortised cost using
the effective interest method.
The Company has elected to apply the simplified approach permitted by IFRS 9
in respect of trade and other receivables. This approach requires expected
lifetime losses to be recognised from initial recognition of the receivables.
The Company's financial assets held at amortised cost include trade and other
receivables and cash and cash equivalents.
Financial assets at fair value through profit or loss
For investments actively traded in organised financial markets, fair value
will generally be determined by reference to Stock Exchange quoted market bid
prices at the close of business on the valuation date, without adjustment for
transaction costs necessary to realise the asset.
In respect of unquoted instruments, including associates, or where the market
for a financial instrument is not active, fair value is established by using
recognised valuation methodologies, in accordance with International Private
Equity and Venture Capital Valuation Guidelines ("IPEVC").
The Company has adopted a valuation policy for unquoted securities to provide
an objective, consistent and transparent basis for estimating the fair value
of unquoted equity securities in accordance with IFRS as well as IPEVC.
The unquoted securities valuation policy and the associated valuation
procedures are subject to review on a regular basis, and updated as
appropriate, in line with industry best practice. In addition, the Company
works with independent third-party valuation firms, to obtain assistance,
advice, assurance, and documentation in relation to the ongoing valuation
process.
The Company considers it impractical to perform an in-depth valuation analysis
for every unquoted investment on a daily basis (whether internally or with the
assistance of an independent third party).
Financial assets at fair value through profit or loss (continued)
Therefore, it is expected that an in-depth valuation of each investment will
be performed independently by an independent third-party valuation firm: (i)
on a quarterly basis; and (ii) where JUTM determines that a Triggering Event
has occurred.
A "Triggering Event" may include any of the following:
· a subsequent round of financing (whether pro rata or otherwise) by the
relevant investee company;
· a significant or material milestone achieved by the relevant investee
company;
· a secondary transaction involving the relevant investee company on
which sufficient information is available;
· a change in the makeup of the management of the relevant investee
company;
· a material change in the recent financial performance or expected
future financial performance of the relevant investee company;
· a material change in the market environment in which the relevant
investee company operates; or
· a significant movement in market indices or economic indicators.
Fair value is the amount for which an asset could be exchanged between
knowledgeable, willing parties in an arm's-length transaction.
The change in fair value is recognised in profit or loss and is presented
within the "net gains on investments held at fair value through profit or
loss" in the Statement of Comprehensive Income.
IFRS requires the Company to measure fair value using the following fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. IFRS establishes a fair value hierarchy that prioritises the
inputs to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements).
The three levels of fair value hierarchy under IFRS are as follows:
· Level 1 reflects financial instruments quoted in an active market.
· Level 2 reflects financial instruments whose fair value is evidenced by
comparison with other observable current market transactions in the same
instrument or based on a valuation technique whose variables include only data
from observable markets.
· Level 3 reflects financial instruments whose fair value is determined
in whole or in part using a valuation technique based on assumptions that are
not supported by prices from observable market transactions in the same
instrument and not based on available observable market data. For investments
that are recognised in the Audited Financial Statements on a recurring basis,
the Company determines whether transfers have occurred between levels in the
hierarchy by re-assessing the categorisation (based on the lowest significant
input) at the date of the event that caused the transfer.
Recognition and derecognition of financial assets
The Company recognises a financial asset at its fair value, plus, in the case
of a financial asset not at fair value through profit or loss, transaction
costs that are directly attributable to the acquisition of the financial
asset. Transaction costs of financial assets carried at fair value through
profit or loss are expensed in profit or loss.
A financial asset (in whole or in part) is derecognised either (i) when the
Company has transferred substantially all the risks and rewards of ownership;
or (ii) when it has neither transferred nor retained substantially all the
risks and rewards and when it no longer has control over the assets or a
portion of the asset; or (iii) when the contractual right to receive cash flow
has expired. The derecognised investments are measured at the weighted average
method. Any gain or loss on derecognition is recognised in the Net gains on
investments held at fair value through profit or loss in the Statement of
Comprehensive Income.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities. Equity instruments
issued by the Company are recognised at the proceeds received, net of direct
issue costs.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangement.
Financial liabilities, including borrowings, are initially measured at fair
value, net of transaction costs.
Financial liabilities are subsequently measured at amortised cost using the
effective interest method, with interest expense recognised on an effective
yield basis.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the
Company's obligations are discharged, cancelled or they expire.
(j) Cash and cash equivalents
Cash comprises cash and demand deposits. Cash equivalents, which may include
UK treasury bills, are short-term, highly liquid investments that are readily
convertible to known amounts of cash, are subject to insignificant risks of
changes in value, and are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes. Included in cash and
cash equivalents at the year end was cash at bank of £49,794,000. Refer to
note 12 for further details of the cash balance held at 30 September 2021.
(k) Other receivables
Other receivables do not carry interest and are short-term in nature and are
accordingly recognised at amortised cost.
(l) Foreign currency
Transactions and balances
At each Statement of Financial Position date, monetary assets and liabilities
that are denominated in foreign currencies are translated at the rates
prevailing at that date.
Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the year end.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated. Exchange differences are recognised in profit
or loss in the year in which they arise. Transactions denominated in foreign
currencies are translated into pound sterling (£) at the rate of exchange
ruling at the date of the transaction.
Foreign exchange gains and losses arising from translation are included in the
Statement of Comprehensive Income.
Where foreign currency items are held at fair value, the foreign currency
movements are presented as part of the fair value change.
(m) Capital reserve
Profits achieved by selling investments and changes in fair value arising upon
the revaluation of investments that remain in the portfolio are all charged to
profit or loss in the capital column of the Statement of Comprehensive Income
and allocated to the capital reserve. The capital reserve is also used to fund
dividend distributions.
(n) Revenue reserve
The balance of all items allocated to the revenue column of the Statement of
Comprehensive Income for the year is transferred to the Company's revenue
reserve.
3. Use of estimates and critical judgements
The preparation of Audited Financial Statements in accordance with IFRS
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the Audited Financial Statements and the reported
amounts of income and expenses during the year. Actual results could differ
from those estimates and assumptions.
The estimates and underlying assumptions are reviewed on an ongoing basis.
There were no significant accounting estimates or significant judgements in
the current year, except for the use of estimates in the valuation of the
unquoted investments detailed in note 20.
4. New and revised standards
The following accounting standards and their amendments were in issue at the
year end but will not be in effect until after this financial year end and
have not been early-adopted by the Company. The Directors have considered
their impact and have concluded that they will not have a significant impact
on the Audited Financial Statements.
· Amendments to IFRS 9, IAS 1 and IAS 37 - effective 1 January 2022
· Amendments to IAS 1, IAS 8 and IAS 12 - effective 1 January 2023
5. Interest income
Interest income totaling £380,000 was earned from the Sorted Holdings Limited
Convertible Loan which is held at fair value through profit or loss (FVTPL).
£471,000 was earned from the wefox Loan note which converted during the
current year. It was also held at fair value through profit or loss (FVTPL).
Interest is accounted for using the effective interest method.
6. Investment management fees
2021 2020
£'000
£'000
Investment management fee
5,153 2,084
Investment performance fee - charged to
capital
112,077 32,608
___________ ___________
Total investment management fees
117,230 34,692
___________ ___________
On 1 May 2021 the Company appointed Jupiter Unit Trust Managers Limited
("JUTM") as its new Alternative Investment Fund Manager ("AIFM"), replacing
Maitland Institutional Services Limited whose appointment was terminated at
the same time. JUTM subsequently sub delegated portfolio management to Jupiter
Investment Management Limited ("JIML", formerly Merian Global Investors (UK)
Limited or "MGI") which is a member of the same group.
JIML continues to act as Investment Adviser and the change does not impact the
provision of services to the Company by the existing management team at the
Investment Adviser. The management and performance fees previously payable to
JIML are now payable to JUTM.
Management fee
The monthly management fee is equal to 1/12 of 0.5% of the Net Asset Value
(the "management fee"). The management fee is calculated and paid monthly in
arrears.
If at any time the Company invests in or through any other investment fund or
special purpose vehicle and a management fee or advisory fee is charged to
such investment fund or special purpose vehicle by JUTM or any of its
Associates and is not waived, the value of such investment will be excluded
from the calculation of NAV for the purposes of determining the management
fee.
As at 30 September 2021, an amount of £3,333,000 (2020: £631,000 to JIML)
was outstanding and due to JUTM in respect of management fees.
Performance fee
JUTM will be entitled to receive a performance fee, the sum of which is equal
to 20% of the amount by which the Adjusted Net Asset Value at the end of a
Calculation Period exceeds the higher of: (i) the Performance Hurdle; and (ii)
the High Water Mark (the "performance fee"). The calculation period for the
current period will be the period commencing on 1 October 2020 and ending on
30 September 2021 (the "Calculation Period").
Performance fee (continued)
Adjusted Net Asset Value at the end of a Calculation Period shall be the
audited NAV in Sterling at the end of the relevant Calculation Period:
(i) plus an amount equal to any accrued or paid performance fee in respect
of that Calculation Period or any prior Calculation Period;
(ii) plus an amount equal to all dividend or other income distributions paid
to shareholders that have been declared and paid on or prior to the end of the
relevant Calculation Period;
(iii) minus the amount of any distribution declared in respect of the
Calculation Period but which has not already reduced the audited NAV;
(iv) minus the Net Capital Change where the Net Capital Change is positive or,
correspondingly, plus the Net Capital Change where such net Capital Change is
negative (which for this purpose includes the Net Capital Change in the
relevant Calculation Period and each preceding Calculation Period); and
(v) minus any increase in the NAV during the Calculation Period attributable
to investments attributable to C shares prior to the conversion of those C
shares.
"Performance Hurdle" means, in relation to the Calculation Period, ("A"
multiplied by "B") + C where:
"A" is 8% (expressed for the purposes of this calculation as 1.08) (calculated
as an annual rate and adjusted to the extent the Calculation Period is greater
or shorter than one year).
"B" is:
(i) in respect of the first Calculation Period, the Net Issue Proceeds; or
(ii) in respect of each subsequent Calculation Period, the sum of this
calculation as at the end of the immediately preceding Calculation Period:
plus (where sum is positive) or minus (where such sum is negative) the Net
Capital Change attributable to shares issues and repurchases in all preceding
Calculation Period (the amount in this paragraph (b) being the "Aggregate
NCC"), in each case, plus (where such sum is positive) or minus (where such
sum is negative) the sum of:
(x) in respect of each share issue undertaken in the relevant Calculation
Period being assessed, an amount equal to the Net Capital Change attributable
to that share issue multiplied by the sum of the number of days between
admission to trading of the relevant shares and the end of the relevant
Calculation Period divided by 365 (such amount being the "issue adjustment"),
minus
(y) in respect of each repurchase or redemption of shares undertaken in the
relevant Calculation Period being assessed, an amount equal to Net Capital
Charge attributable to that share purchase or redemption multiplied by the
number of days between the relevant disbursement of monies to fund such
repurchase or redemption and the end of the relevant Calculation Period
divided by 365 (such amount being the "reduction adjustment").
"C" is the sum of:
the issue adjustment for the Calculation Period;
the reduction adjustment for the Calculation Period; and
the Aggregate NCC multiplied by -1.
"Net Capital Change" equals I minus R where:
"I" is the aggregate of the net proceeds of any share issue over the relevant
year (other than the first issue of ordinary shares);
"R" is the aggregate of amounts disbursed by the Company in respect of the
share redemption or repurchases over the relevant period.
"High Water Mark" means the Adjusted Net Asset Value as at the end of the
Calculation Period in respect of which a performance fee was last earned or if
no performance fee has yet been earned, an amount equal to the Net Issue
Proceeds (as such term is defined in the prospectus); and
"Calculation period" means each twelve-month period ending on 30 September,
except that the first Calculation Period shall be the period commencing on
Admission and ending on 30 September 2019.
Under the terms of the Investment Management Agreement, any accrued and unpaid
performance fees will crystallise and become payable to JUTM upon certain
termination events.
The accrued performance fee shall only be payable by the Company to the extent
that the Payment Amount is greater than the sum of the performance fee (which
shall both be calculated as at the end of each Calculation Period) and, to the
extent that the Payment Amount is less than the sum of the performance fee for
that Calculation Period, an amount equal to the difference shall be carried
forward and included in the performance fee calculated as at the end of the
next Calculation Period (and such amount shall be paid before any
performance fee accrued at a later date).
"Payment amount" is the sum of:
(i) aggregate net realised profits on investments since the start of the
relevant Calculation Period; plus
(ii) an amount equal to each IPO investment unrealised gain where the
initial public offering of the relevant investment takes place during the
relevant Calculation Period; plus or minus (as applicable)
(iii) an amount equal to the listed investment value change attributable to
that calculation period; plus
(iv) the aggregate amount of all dividends or other income received from
investments of the Company in that Calculation Period (other than investments
made pursuant to the cash management policy of the Company as stated in the
Investment Policy).
No performance fee is payable out of the assets attributable to any C Shares
in issue from time to time.
As at 30 September 2021, the Company had exceeded the High Water Mark and
Performance Hurdle and an accrual of £112,077,000 (2020: £32,608,000) for
performance fees has been reflected within these Audited Financial Statements.
An amount of £112,077,000 (2020: £32,710,000) was outstanding and due to
JUTM in respect of performance fee due as at 30 September 2021.
On 29 November, the Company announced that it had entered into an agreement
with JUTM to settle 54% (£60,522,000) of the performance fee due in respect
of the year to 30 September 2021 in ordinary shares issued by the Company. The
remaining 46% (£51,555,000) of the performance fee amount will be settled in
cash. The issue price of the shares will be 267p per share (being the closing
share price on 30 September 2021). The shares will be issued after approval of
the annual report with the cash settled shortly afterwards. The accounting for
the settlement of this transaction will be reflected within the Company's
financial statements for the year ending 30 September 2022.
7. Other expenses
2021 2020
£'000 £'000
Administration
fee
237 125
AIFM fee
400 147
Auditor's remuneration for:
- audit fees (current
year) 120
74
- audit fees (prior
year)
42 -
- non-audit
fees
114 53
Depositary
fees
91 36
Directors'
expenses
- 1
Directors'
fees
404 208
Directors' liability
insurance
49 33
FCA fees
18 11
Legal fee and professional
fees:
- ongoing
operations 946
76
- valuation
fees
221 31
- due diligence
fees 165
40
-
purchases
354 869
Listing
fees
140 18
Loan agreement fee
160
-
Loan commitment fee
88
-
Printing fees
47 36
Registrars' fees
42 20
Secretarial fees
35 36
Sundry
89 83
___________ ___________
3,762 1,897
___________ ___________
8. Finance costs
2021 2020
£'000 £'000
Bank
interest
21 -
Loan
interest
217 -
___________ ___________
238 -
___________ ___________
9. (Losses)/gains per ordinary share
30 September 2021 30
September 2020
Net return Per share Net return
Per share
£'000 pence
£'000 pence
Revenue return
(8,302)
(1.75)
(3,694) (1.10)
Capital return
456,610 96.51
164,106
48.73
___________ ___________ ___________
___________
448,308
94.76
160,412 47.63
___________ ___________
___________ ___________
Weighted average number of Ordinary Shares
473,121,001
336,742,424
___________
___________
The return per share is calculated using the weighted
average number of ordinary shares.
10. Dividends
The Board has not declared a dividend (2020: £nil).
11. Investments held at fair value through profit or loss
2021 2020
£'000 £'000
Opening book cost
404,480 157,591
Opening investment holding unrealised
gains 201,807
12,449
___________ ___________
Opening valuation
606,287 170,040
Movements in the
year:
Purchases at cost
380,199 258,453
Sales - proceeds
(94,707) (19,632)
Net gains on investments held at fair value
through profit or loss
568,419 197,426
___________ ___________
Closing valuation
1,460,198 606,287
___________ ___________
2021
2020
£'000
£'000
Closing book cost
758,013 404,480
Closing investment holding unrealised gains
702,185 201,807
___________ ___________
Closing valuation
1,460,198 606,287
___________ ___________
2021
2020
£'000
£'000
Movement in unrealised gains during the
year
501,083 197,199
Movement in unrealised losses during the year
(705) (7,841)
Realised gain on sale of investments
68,041 8,068
___________ ___________
Net gains on investments held at fair value
through profit or loss
568,419 197,426
___________ ___________
12. Cash and cash equivalents
2021
2020
£'000
£'000
Cash and cash equivalents comprise of the following:
Cash at bank
49,794 15,559
___________ ___________
49,794
15,559
___________ ___________
13. Other receivables
2021 2020
£'000
£'000
Prepayments and accrued income
427 267
___________ ___________
427 267
___________ ___________
14. Unsettled trades
The prior year payable in respect of unsettled trades of £46,440,000
relates to the amount due for the purchase of You & Mr Jones on 30
September 2020. This amount was settled on 15 October 2020. No amounts
remained outstanding in relation to unsettled trades at 30 September 2021.
15. Loan payable
2021 2020
£'000 £'000
Barclays Bank PLC
15,000 -
___________ ___________
During the period the Company entered into a revolving loan facility with
Barclays Bank PLC. The facility has an interest rate of LIBOR +2.5%. An amount
of £15,000,000 was drawn on the facility at the year end. The Company
incurred agreement fees of £160,000 and a commitment fee of £88,000 during
the period in respect of the facility. The loan was subsequently repaid in
full on 15 October 2021 and was not available to be redrawn.
16. Other payables
2021 2020
£'000 £'000
Administration fees
142 37
AIFM fees
280 45
Audit fees
142 88
Loan interest
86 -
Pricing review fees
276
40
Custodian fees
30
22
Other creditors
119
57
___________ ___________
1,075
289
___________ ___________
17. Share capital
No
of
shares £'000
Ordinary Shares at no par
value
At 30 September 2019
336,742,424 370,366
Issue costs
-
1
___________ ___________
At 30 September
2020
336,742,424 370,367
Issue of shares
210,530,652 395,000
Issue costs
- (6,417)
___________ ___________
At 30 September 2021
547,273,076
758,950
___________ ___________
The holders of Ordinary Shares have the right to receive notice of and attend,
speak and vote in general meetings of the Company. They are also entitled to
participate in any dividends and other distributions of the Company.
18. Net asset value per ordinary share
The Net Asset Value per Ordinary Share and the Net Asset Value at the year end
calculated in accordance with the Articles of Incorporation were as follows:
30 September 2021
30 September 2020
NAV NAV
NAV NAV
per share attributable per share
attributable
pence £'000
pence £'000
Ordinary Shares: basic and
diluted
251.96 1,378,934
160.97 542,043
___________ ___________
___________ ___________
The Net Asset Value per Ordinary Share is based on 547,273,076 (2020:
336,742,424) Ordinary Shares, being the number of Ordinary Shares in issue at
the year end.
19. Other expenses payments
2021 2020
£'000 £'000
Total gains and comprehensive income for the year
448,308 160,412
Net gains on investments held at fair value
through profit or loss
(568,419) (197,426)
Interest income
(851) (560)
Finance costs
238
-
Net losses/(gains) on currency movements
42 (1)
Movement in working capital
Increase in other receivables
(160) (185)
Increase in payables (excluding unsettled trades and
loan payable)
82,855 32,474
___________ ___________
(37,987) (5,286)
___________ ___________
20. Financial instruments and capital disclosures
The Company's activities expose it to a variety of financial risks; market
risk (including other price risk, foreign currency risk and interest rate
risk), credit risk and liquidity risk.
Certain financial assets and financial liabilities of the Company are
carried in the Statement of Financial Position at their fair value. The fair
value is the amount at which the asset could be sold, or the liability
transferred in a current transaction between market participants, other than a
forced or liquidation sale. For investments actively traded in organised
financial markets, fair value is generally determined by reference to Stock
Exchange quoted market mid prices and Stock Exchange Electronic Trading
Services ("SETS") at last trade price at the year end date, without adjustment
for transaction costs necessary to realise the asset. Other financial
instruments not carried at fair value are typically short-term in nature and
reprice to the current market rates frequently. Accordingly, their carrying
amount is a reasonable approximation of fair value. This includes cash and
cash equivalents, other receivables and other payables.
The Company measures fair values using the following hierarchy that reflects
the significance of the inputs used in making the measurements. Categorisation
within the hierarchy has been determined on the basis of the lowest level
input that is significant to the fair value measurement of the relevant assets
as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
An active market is a market in which transactions for the asset or liability
occur with sufficient frequency and volume on an ongoing basis such that
quoted prices reflect prices at which an orderly transaction would take place
between market participants at the measurement date. Quoted prices provided by
external pricing services, brokers and vendors are included in Level 1, if
they reflect actual and regularly occurring market transactions on an
arm's-length basis.
Level 2 - Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices).
Level 2 inputs include the following:
· quoted prices for similar (i.e. not identical) assets in active markets;
· quoted prices for identical or similar assets or liabilities in markets
that are not active. Characteristics of an inactive market include a
significant decline in the volume and level of trading activity, the available
prices vary significantly over time or among market participants or the prices
are not current;
· inputs other than quoted prices that are observable for the asset (for
example, interest rates and yield curves observable at commonly quoted
intervals); and
· inputs that are derived principally from, or corroborated by, observable
market data by correlation or other means (market-corroborated inputs).
Level 3 - Inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement in its entirety. If a
fair value measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a Level 3
measurement. Assessing the significance of a particular input to the fair
value measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
At 30 September 2021
Level 1 Level 2
Level 3 Total
£'000 £'000
£'000 £'000
Quoted
equity
236,756
- -
236,756
Unquoted equity/Convertible
debt -
-
1,223,442 1,223,442
___________ __________ ___________ ___________
236,756 -
1,223,442 1,460,198
___________ __________ ___________ ___________
At 30 September 2020
Level 1 Level 2
Level 3 Total
£'000 £'000
£'000 £'000
Quoted
equity
94,213
- -
94,213
Unquoted equity/Convertible
debt -
-
512,074 512,074
___________ ________ ___________ ___________
94,213
- 512,074 606,287
___________ __________ ___________ ___________
The following table shows the valuation techniques used for Level 3 fair
values, as well as the significant unobservable inputs used for Level 3 items:
Unlisted Investments 2021
Fair Value as at 30 September 2021 (£000s) Valuation Technique Significant Unobservable Inputs Range Sensitivity % Sensitivity to changes in significant unobservable inputs
840,358 Market approach using comparable traded multiples 10% If revenue multiples changed by +/- 10%, the value of the companies in this
group would change by +/-£76,875,162
EV/2022E revenue multiples
EV/LTM revenue multiples
5.47 - 18.50x
EV/2021E revenue multiples
1,332 Wind Down N/A N/A N/A N/A
307,147 Recent transaction price N/A N/A N/A N/A
74,605 Indicative Offer N/A N/A N/A N/A
The following table shows the valuation techniques used for Level 3 fair
values, as well as the significant unobservable inputs used for Level 3 item:
Unlisted Investments 2020
Fair Value as at 30 September 2020 (£000s) Valuation Technique Significant Unobservable Inputs Range Sensitivity % Sensitivity to changes in significant unobservable inputs
115,474 Comparable Company performance Selection of comparable companies 15-30% 10% If input comparable company performance changed by +/- 10%, the fair value
would change by +/-£1,975,506
185,809 Market approach using comparable traded multiples EV/LTM revenue multiple 1.8-13.5x 10% If EV/LTM multiples changed by +/- 10%, the fair value would change by +/-
£9,548,694
EV/EBITDA Multiple
13.8-15.4x 10% If EV/EBITDA multiples changed by +/- 10%, the fair value would change by
+/-£5,069,250
69,640 Discounted Cash Flow Discount Factor 12% 1% If discount factor increased by 1%, the fair value would reduce by
£8,190,000, if the discount factor decreased by 1%, the fair value would
increase by £14,691,000
139,892 Recent transaction price N/A N/A N/A N/A
1,256 Wind Down N/A N/A N/A N/A
The Company has an established control framework with respect to the
measurement of fair values. The Unlisted Asset Valuation Committee ("UAVC") of
the AIFM is responsible for valuation.
The UAVC regularly reviews significant unobservable inputs and valuation
adjustments. If third party information, such as pricing services, is used to
measure fair vales, then the UAVC assesses the evidence obtained from the
third parties to support the conclusion that these valuations meet the
requirements of the standards, including to the level in the fair value
hierarchy in which the valuation should be classified.
The following table shows a reconciliation of the opening balance to the
closing balance for Level 1 and 3 fair values:
2021 2020
2021 2020
£'000 £'000
£'000 £'000
Level
1 Level 1 Level 3
Level 3
Opening
balance
94,213 -
512,074 170,040
Transferred to Level
1 161,161
64,306 (161,161)
(64,306)
Purchases
64,101
14,442
316,098 244,011
Sales
(94,707) -
- (19,632)
Total gains/(losses) included in net
gains on investments in the
statement of comprehensive
income
- on assets sold
68,041
- -
8,068
- on assets held at year
end (56,053)
15,465
556,431 173,893
___________
___________ ___________ ___________
236,756 94,213 1,223,442
512,074
___________ ___________ __________
___________
The change in unrealised gains or losses (net gain) for the period included in
the Statement of Comprehensive Income relating to those Level 3 assets held at
the reporting date amount to £474,928,000 (2020: £140,163,879).
The transfer of £108,657,367 relates to Wise PLC, which has moved from being
a Level 3 asset to a Level 1 asset as a result of its listing in July 2021.
The prior year movement of £64,306,000 relates to THG PLC, which has moved
from being a Level 3 asset to a Level 1 asset as a result of its listing in
September 2020.
Investments are moved between levels at the point of the trigger event.
The main risks that the Company faces arising from its financial instruments
are:
(i) market risk, including:
- other price risk, being the risk that the value of investments will
fluctuate as a result of changes in market prices;
- interest rate risk, being the risk that the future cash flows of a financial
instrument will fluctuate because of changes in interest rates;
- foreign currency risk, being the risk that the value of financial assets and
liabilities will fluctuate because of movements in currency rates;
(ii) credit risk, being the risk that a counterparty to a fincial instrument
will fail to discharge an obligation or commitment that it has entered into
with the Company; and
(iii) liquidity risk, being the risk that the Company will not be able to meet
its liabilities when they fall due. This may arise should the Company not be
able to liquidate its investments.
Other price risk
The management of price risk is part of the investment management process and
is characteristic of investing in equity securities. The investment portfolio
is managed with an awareness of the effects of adverse price movements through
detailed and continuing analysis with an objective of maximising overall
returns to shareholders. Although it is the Company's current policy not to
use derivatives, they may be used from time to time for the purpose of
efficient portfolio management and managing any exposure to assets denominated
in currencies other than pound sterling.
If the investment portfolio valuation rose or fell by 10% at 30 September
2021, the impact on the net asset value would have been £146,019,845 (2020:
£60,628,682). The calculations are based on the investment portfolio
valuation as at the Statement of Financial Position date and are not
necessarily representative of the year as a whole.
Interest rate risk
As at 30 September 2021 the financial assets and financial liabilities exposed
to interest rate risk are as shown below:
In one year
Greater than 2021
or less
one year Total
£'000 £'000
£'000
Cash and cash equivalents (daily interest rate)
49,794
- 49,794
Loan payable (LIBOR +2.5%)
(15,000)
- (15,000)
___________ ___________ ___________
Total
34,794
- 34,794
___________
___________ ___________
As at 30 September 2020 the financial assets and financial liabilities exposed
to interest rate risk are as shown below:
In one year
Greater than 2020
or less
one year Total
£'000
£'000 £'000
Cash and cash equivalents (daily interest
rate)
15,559
- 15,559
___________ ___________ ___________
Total
15,559
- 15,559
___________
___________ ___________
Liquidity and interest risk tables
The following tables detail the Company's remaining contractual maturity for
its financial assets and liabilities.
Over
Interest Year 1 Year 1
- 2 2 years Total
2021
rate % £'000
£'000
£'000 £'000
Assets
Convertible loan note 8% fixed
rate 5,205
- -
5,205
(notional)
Cash
Daily bank rate 49,794
- -
49,794
Other receivables
Interest free 427
- -
427
___________ ___________ ___________
___________
55,426
- -
55,426
___________ ___________
___________ ___________
Over
Interest Year 1 Year
1 - 2 2 years Total
2020
rate % £'000
£'000
£'000 £'000
Assets
Convertible loan note 2% fixed
rate 17,600
- -
17,600
(notional)
Cash
Daily bank rate 15,559
- -
15,559
Other receivables
Interest free 267
-
- 267
___________ ___________ ___________
___________
33,426
- -
33,426
___________ ___________
___________ ___________
Interest
Over
rate % Year 1
Year 1 - 2 2 years
Total
2021
Liabilities
Loan payable Libor
+2.5% 15,000
- -
15,000
Other current liabilities Interest
free 116,485
- -
116,485
___________ ___________ ___________
___________
131,485 -
- 131,485
___________ ___________ ___________
___________
Interest
Over
rate % Year 1
Year 1 - 2 2 years Total
2020
Liabilities
Current liabilities Interest
free 80,070
- -
80,070
___________ ___________ ___________
___________
80,070 -
-
80,070
___________ ___________
___________ ___________
Foreign currency risk
The Investment Adviser does not normally hedge against foreign currency
movements affecting the value of the investment portfolio but takes account of
this risk when making investment decisions. The Company invests in securities
denominated in foreign currencies which give rise to currency risks.
Foreign currency exposure:
2021
Investments
Cash Debtors Creditors
£'000 £'000
£'000 £'000
US
dollar
253,247 216
-
2
Euro
108,657
10
- -
Swedish
krona 386,999
-
- -
___________ ___________ ___________
___________
Total 748,903
226 -
2
___________ ___________
___________ ___________
2020
Investments
Cash Debtors
Creditors
£'000 £'000
£'000 £'000
US
dollar
193,493
47
- -
Euro
35,018
13,617
232 -
Swedish krona
93,453
- -
-
___________ ___________ ___________
___________
Total
321,964 13,664
232 -
___________ ___________
___________ ___________
During the year pound sterling strengthened by an average of 4.43% against all
of the currencies in the investment portfolio (weighted for exposure at 30
September 2021). If the value of pound sterling had strengthened against each
of the currencies in the portfolio by 10%, the impact on the Net Asset Value
would have been negative £68,082,169 (2020: negative £29,269,000). If the
value of pound sterling had weakened against each of the currencies in the
investment portfolio by 10%, the impact on the Net Asset Value would have been
positive £83,211,540 (2020: £35,774,000). The calculations are based on the
investment portfolio valuation and cash balances as at the year end and are
not necessarily representative of the year as a whole.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Company. JUTM has in place a monitoring procedure in respect of
counterparty risk which is reviewed on an ongoing basis.
The carrying amounts of financial assets best represent the maximum credit
risk exposure at the Statement of Financial Position date, and the main
exposure to credit risk is via the Company's Depositary who is responsible for
the safeguarding of the Company's cash balances.
At the reporting date, the Company's financial assets exposed to credit risk
amounted to the following:
2021
2020
£'000
£'000
Convertible loan note (fair value)
5,205
35,018
Cash and cash equivalents
49,794 15,559
Other receivables
427 232
___________ ___________
55,426 50,809
___________ ___________
All the assets of the Company which are traded on a recognised exchange are
held on its behalf by the UK Branch of the Citibank Europe plc, the Company's
Depositary. Bankruptcy or insolvency of the Depositary may cause the Company's
rights with respect to securities held by the Depositary to be delayed or
limited.
The credit risk on cash is controlled through the use of counterparties or
banks with high credit ratings, rated AA or higher, assigned by international
credit rating agencies. Bankruptcy or insolvency of such financial
institutions may cause the Company's ability to access cash placed on deposit
to be delayed, limited or lost.
Cash of £49,554,588, $290,491, CHF73 and €11,069 was held with Citibank
Europe plc at year end.
The credit rating of Citibank Europe plc, UK Branch was A-1 at the year end.
Liquidity risk
Liquidity risk is defined as the risk that the Company does not have
sufficient liquid resources to meet its obligations as they fall due. In
managing the Company's assets, the AIFM will seek to ensure that the Company
holds at all times a portfolio of assets (including cash) to enable the
Company to discharge its payment obligations as they fall due. The Company may
also maintain a short-term overdraft facility that it may utilise from time to
time to manage short-term liquidity.
The Company invests in a number of unquoted securities which are not readily
realisable. These investments make up 89% (2020: 80%) of the net assets as at
30 September 2021.
The Company's liquidity risk is overseen by JUTM in accordance with
established policies, procedures and governance structures in place. Cash flow
forecasting is monitored by JUTM to ensure that it has sufficient cash to meet
obligations as they fall due.
The maturity profile of the Company's current assets and liabilities is
presented in the following table.
Between
Between
Up to 3 and 12 1
and 5
3
months months
years Total
2021
£ £
£
£
Assets
Convertible loan note
(notional)
- 5,205
- 5,205
Cash
49,794 -
- 49,794
Other receivables
427
-
- 427
Liabilities
Current liabilities
(116,485)
- -
(116,485)
Loan payable
-
(15,000)
- (15,000)
___________
___________ ___________ __________
Total
(66,264) (9,795)
- (76,059)
___________ __________ __________
___________
Between
Between
Up to 3 and 12 1 and 5
3
months months years
Total
2020
£
£ £
£
Assets
Convertible loan note
(notional)
-
17,600 -
17,600
Cash
15,559
-
- 15,559
Other
receivables
267 -
- 267
Liabilities
Current liabilities
(80,070)
- -
(80,070)
___________
___________ ___________ __________
Total
(64,244) 17,600
- (46,644)
___________ ___________ ___________
___________
Capital management objectives, policies and procedures
The structure of the Company's capital is described in note 17 and details of
the Company's reserves are shown in the Statement of Changes in Equity on page
73.
The Company's capital management objectives are:
· to ensure that it is able to continue as a going concern; and
· to generate long-term capital growth through investing in a
portfolio consisting primarily of equity or equity related investments in
unquoted companies.
The Board, with the assistance of the AIFM and the Investment Adviser,
regularly monitors and reviews the broad structure of the Company's capital.
These reviews include:
· the level of gearing, set at limits in normal market conditions,
between 5% and 25% of net assets, which takes account of the Company's
position and the views of the Board, the AIFM and the Investment Adviser on
the market;
· the extent to which revenue reserves should be retained or
utilised; and
· ensuring the Company's ability to continue as a going concern.
21. Related parties
On 1 May 2021 the Company appointed Jupiter Unit Trust Managers Limited
("JUTM") as its new Alternative Investment Fund Manager ("AIFM"), replacing
Maitland Institutional Services Limited whose appointment was terminated at
the same time. JUTM subsequently sub delegated portfolio management to Jupiter
Investment Management Limited ("JIML", formerly Merian Global Investors (UK)
Limited or "MGI") which is a member of the same group.
JIML continues to act as Investment Adviser and the change does not impact the
provision of services to the Company by the existing management team at the
Investment Adviser. The management and performance fees previously payable to
JIML are now payable to JUTM. JUTM is also entitled to an AIFM fee.
2021 2020
£'000
£'000
Management fee charged by JUTM:
Total management fee
charged
2,840 -
Management fee outstanding
2,840 -
Performance fee charged by JUTM:
Total performance fee
charged
112,077 -
Performance fee outstanding
112,077 -
AIFM fee charged by JUTM:
Total AIFM fee
charged
147 -
AIFM fee
outstanding
147 -
Management fee charged by JIML (formerly MGI):
Total management fee
charged
2,313 2,084
Management fee outstanding
493 631
Performance fee charged by JIML (formerly MGI):
Total performance fee
charged
- 32,608
Performance fee outstanding
- 32,710
AIFM fee charged by Maitland Institutional Services Ltd
Total AIFM fee
charged
248 147
AIFM fee outstanding
129 45
2021 2020
£'000
£'000
Directors' fees
Total Directors' fees
charged
354 208
Directors' fees outstanding
-
-
As at 30 September 2021 the following Directors have holdings in the Company:
Number
of
% Ordinary Shares in
Director
Ordinary Shares
issue as at 30
September 2021
Andrew Haining
64,000
0.0117
Stephen Coe
50,909
0.0093
Simon Holden
72,500
0.0132
Anne Ewing
32,500
0.0059
Tim Cruttenden
14,968
0.0027
Margaret O'Connor
-
-
As at 30 September 2020 the following Directors have holdings in the Company:
Number
of
% Ordinary Shares in
Director
Ordinary Shares
issue as at 30
September 2020
Andrew Haining
45,000
0.0134
Stephen Coe
45,909
0.0136
Simon Holden
67,500
0.0200
Anne Ewing
7,500
0.0022
Tim Cruttenden
9,090
0.0027
Anne Ewing purchased 20,000 ordinary shares after the year end.
The following funds, which are also managed by Jupiter, hold an investment in
the Company.
Total
Shares Shares
Total Value
holdings at purchased
sold holdings
of holdings
30 September during
during 30 September 30
September
2020 the
period the period
2021 2021
£'000
Fund
name
Jupiter UK Smaller
5,520,882 2,637,000
(1,590,596) 6,567,286
17,535
Companies Focus Fund
Jupiter UK Specialist
8,112,820 -
(1,103,652) 7,009,168
18,714
Equity Fund
Jupiter UK Mid-Cap
51,451,305 26,141,070
- 77,592,375
207,172
Fund
Jupiter UK Smaller
14,601,552 3,219,000
- 17,820,552
47,581
Companies Fund
__________ __________
___________
___________ ___________
Total
79,686,559
31,997,070 (2,694,248)
108,989,381 291,002
___________ ___________
___________ ___________
___________
Total
Shares Shares
Total Value
holdings at purchased
sold
holdings of holdings
30 September during
during 30 September 30
September
2019 the
period the period
2020 2020
£'000
Fund
name
Jupiter UK Smaller
11,661,602
-
(6,140,720) 5,520,882
8,005 Companies Focus Fund
Jupiter UK Specialist
14,531,866
- (6,419,046)
8,112,820
11,764
Equity Fund
Jupiter UK Mid-Cap
51,451,305
-
- 51,451,305
74,604
Fund
Jupiter UK Smaller
14,601,552
-
- 14,601,552
21,172
Companies Fund
__________
__________ ___________
___________ ___________
Total
92,246,325
- (12,559,766)
79,686,559 115,545
___________ ___________
___________ ___________
___________
22. Post balance sheet events
On 21 October 2021, the Company completed a £96,548 follow-on investment in
Featurespace Limited.
During November 2021, the Company also increased its investment in Sorted
Holdings Limited by £12,500,250. At the point in time of this follow-on
investment, the loan note associated with this investment and the related
accrued interest outstanding was converted to share capital.
The Company has also completed a £14,924,897 follow-on investment in Smart
Pension Limited in December 2021.
The Company increased its holding in THG PLC in October and November 2021, by
£7,763,146 and £7,455,892 respectively into a falling share price, which was
c121p in January 2022.
On 13 December 2021 the Company received £744,042, which represents the first
tranche of liquidation proceeds in respect of Growth Street Holdings Limited.
On 29 November 2021, the Company announced that it had entered into an
agreement with JUTM to settle 54% (£60,522,000) of the performance fee due in
respect of the year to 30 September 2021 in ordinary shares issued by the
Company. The remaining 46% (£51,555,000) of the performance fee amount will
be settled in cash. The issue price of the shares will be 267p per share
(being the closing share price on 30 September 2021). The shares will be
issued after approval of the annual report with the cash settled shortly
afterwards. The accounting for the settlement of this transaction will be
reflected within the Company's financial statements for the year ending 30
September 2022.
On 13 December 2021 the Company announced that it had raised gross proceeds of
£60 million pursuant to a Placing and the PrimaryBid Offer. Subsequently, an
aggregate of 25,210,084 new Ordinary Shares have been issued and allotted at a
price of 238 pence per Ordinary Share.
On 13 December 2021 the Company announced that it had raised gross proceeds of
£60 million pursuant to a Placing and the PrimaryBid Offer. Subsequently, an
aggregate of 25,210,084 new Ordinary Shares have been issued and allotted at a
price of 238 pence per Ordinary Share.
There has not been any other matter or circumstance occurring subsequent to
the end of the financial year that has significantly affected, or may
significantly affect, the operations of the Company, the results of those
operations, or the state of affairs of the Company in the future financial
year.
Corporate Information
Directors
Andrew Haining, Chairman
Anne Ewing
Simon Holden
Stephen Coe (Senior Independent Director)
Tim Cruttenden
Margaret O'Connor
Appointed 6 September 2021
Registered office
3rd Floor
1 Le Truchot
St Peter Port
Guernsey, GY1 1WD
Alternative Investment Fund Manager
Maitland Institutional Services Ltd
Springfield Lodge
Colchester Road
Chelmsford
Essex, CM2 5PW
Notice served March 2021, inactive until end of notice period being 2
September 2021
Jupiter Unit Trust Managers Limited (JUTM)
The Zig Zag Building
70 Victoria Street
London, SE1E 6SQW
Appointed 1 May 2021
Investment Adviser
Jupiter Investment Management Limited (JIML)
The Zig Zag Building
70 Victoria Street
London, SW1E 6SQ
Appointed 15 February 2021
Financial Adviser and Corporate Broker
Liberum Capital Limited
Ropemaker Place Level 12
25 Ropemaker Street
London, EC2Y 9LY
Numis Securities Limited
The London Stock Exchanges Building
10 Paternoster Square
London, EC4M 7LT
Appointed 17 February 2021
Administrator and Company Secretary
Maitland Administration (Guernsey) Limited
3rd Floor
1 Le Truchot
St Peter Port
Guernsey, GY1 1WD
Registrar
Computershare Investor Services (Guernsey) Limited
1st Floor, Tudor House
Le Bordage
St Peter Port
Guernsey, GY1 1DB
Depositary
Citibank Europe plc,
Citigroup Centre
Canada Square
Canary Wharf
London, E14 5LB
On 9 October 2021 the depositary changed to Citibank UK Limited.
English Legal Adviser to the Company
Travers Smith LLP
10 Snow Hill
London, EC1A 2AL
Guernsey Legal Adviser to the Company
Ogier (Guernsey) LLP
Redwood House
St Julian's Avenue
St Peter Port, GY1 1AW
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey, GY1 1WR
Definitions
BENCHMARK PERFORMANCE
With reference to investment valuation, application of the performance of a
benchmark or pool of comparable companies to an unlisted company to determine
avaluation.
NAV PER SHARE
Net Asset Value expressed as an amount per share.
NAV PER SHARE GROWTH
With reference to fund performance, NAV at end of stated year/NAV at beginning
of stated year as a percentage.
IRR
Internal Rate of Return - with reference to investment performance, calculated
using excel XIRR formula.
TRADING MULTIPLE
With reference to investment valuation, enterprise value/annual revenue of
company.
DRAWDOWN
With reference to index performance, the maximum percentage loss in value over
agiven time period.
DISCOUNT/PREMIUM
The amount by which the market price per share of an investment company is
lower or higher than its net asset value per share. The discount or premium is
normally expressed as a percentage of the net asset value per share.
NET ASSET VALUE (NAV)
The Net Asset Value (NAV) is the amount by which total assets exceed total
liabilities, i.e. the difference between what the Company owns and what it
owes.
Alternative Investment Fund Managers Directive Disclosure (Unaudited)
Jupiter Unit Trust Managers Ltd ("JUTM") acts as AIFM of the Company,
providing risk management services to the Company. JUTM was appointed as AIFM
on 1 May 2021 replacing Maitland Institutional Services Limited, whose
appointment was terminated at the same time.
The AIFM is required by the Alternative Investment Fund Managers Directive
("AIFMD") and all applicable rules and regulations implementing the AIFM
Directive in the UK:
· to make the annual report available to investors and to ensure that
the annual report is prepared in accordance with applicable accounting
standards, the Company's articles of incorporation and the AIFM Rules and that
the annual report is audited in accordance with International Standards on
Auditing (UK);
· be responsible for the proper valuation of the Company's assets, the
calculation of the Company's net asset value and the publication of the
Company's net asset value; and
· to make available to the Company's shareholders, a description of all
fees, charges and expenses and the amounts thereof, which have been directly
or indirectly borne by them.
The AIFM is required to ensure that the Annual Report contains a report that
shall include a fair and balanced review of the activities and performance of
the Company, containing also a description of the principal risks and
investment or economic uncertainties that the Company might face.
Under the requirements of the Alternative Investment Fund Managers Directive,
JUTM (part of the Jupiter Group, which comprises Jupiter Fund Management PLC
and all of its subsidiaries ("Jupiter")) are required to comply with certain
disclosure and reporting obligations for funds that are considered to be
Alternative Investment Funds. This includes the Company.
Jupiter operates a Group-wide remuneration policy, which applies to all
employees across the Group. All employees are incentivised in a similar way
and are rewarded according to personal performance and Jupiter's success.
Details of the remuneration policy, including the applicable financial and
non-financial criteria, are set out in the detailed remuneration policy
disclosures available via the following link:
https://www.jupiteram.com/corporate/Governance/Risk-management
(https://www.jupiteram.com/corporate/Governance/Risk-management)
Remuneration decisions are governed by Jupiter's Remuneration Committee (the
"Committee"), which meets on a regular basis to consider remuneration matters
across the Group. In order to avoid conflicts of interest, the Committee
comprises independent non-executive directors, and no individual is involved
in any decisions regarding their own remuneration. Implementation of the
remuneration policy for the Group is subject to an annual independent review
by Jupiter's internal audit department. No material outcomes or irregularities
were identified as a result of the most recent independent review, which took
place in 2020.
JUTM's Board includes two independent non-executive directors who are
remunerated directly by JUTM. No other members of the Board receive
remuneration from JUTM and are instead remunerated directly by their employing
entity in the Jupiter Group. JUTM does not employ any other staff. In the
interests of transparency, Jupiter has apportioned the total employee
remuneration paid to all its 510 Jupiter staff (including Non-Executive
Directors) in respect of JUTM's AIFMD duties performed for the AIFs on a
"number of funds' funds" basis. It has estimated that the total amount of
employee remuneration paid in respect of duties for the Company is £1,012,364
of which £259,938 is fixed remuneration and £752,426 is variable
remuneration.
The aggregate total remuneration paid by JUTM to its staff that is
attributable to duties for the Company is £439,301 of which £133,533 is paid
to Senior Management and £305,768 is paid to other staff. It should be noted
that the aforementioned staff also provide services to other companies within
Jupiter and its clients. They are included because their professional
activities are considered to have a material impact on the risk profile of the
Company.
Leverage
In accordance with the AIFMD, the leverage employed by the Company as at 30
September 2021 was 0.97 as determined using the Gross method, and 1.00 as
determined using the Commitment method.
Average leverage on a gross exposure basis is calculated by taking the sum of
the notional values of the derivatives used by the Company, without netting,
and is expressed as a ratio of the Company's net asset value. Average leverage
on a commitment basis is calculated by netting the sum of the notional values
of the derivatives and expressing it as a ratio of the Company's net asset
value.
Disclosed in the table below is the level of leverage employed by the Company.
Maximum limit Gross Exposure Average leverage employed during the year to 30 September 2021 Maximum limit Commitment exposure Average leverage employed during the year to 30 September
2021
2.0 0.97 2.0 0.97
The AIFM confirms there are no other material changes listed in Articles 23
Disclosure Schedule, which are required to be disclosed under AIFMD Article
22.
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