REG - Chrysalis Invs Ltd - Annual Results
31/01/2023 07:00
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RNS Number : 3308O Chrysalis Investments Limited 31 January 2023
The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any
member state of the European Economic Area (other than to professional
investors in Belgium, Denmark, the Republic of Ireland, Luxembourg, the
Netherlands, Norway and Sweden), Canada, Australia, Japan or the Republic of
South Africa.
31 January 2023
Chrysalis Investments Limited ("Chrysalis" or the "Company")
Annual Results
The Company today announces its results for the year ended 30 September 2022.
The Company's audited annual results are copied below. The results will be
available on the Company's website in due course.
Financial summary
30 September 2022 30 September 2021 % change
NAV per share 147.79p 251.96p (41%)
Share price 62p 267p (76%)
Total net assets £880m £1,379 million (36%)
Performance Headlines
A NAV decline of 104.17p (to 147.79p) was largely driven by Klarna (57.66p)
and the listed portfolio (31.90p) with the remaining assets performing
strongly against a challenging backdrop
£108.0m of investments were realised over the period. Chrysalis fully
divested two assets, Embark Group and THG. Embark realised net proceeds of
£57m for a cash-on-cash return of 2.1x
£80.3m of capital was deployed during the period following a £60.0m capital
raise in December 2021 and realisations in the period
Available liquidity of £82.8m as at 30 September 2022 leaves the Company well
placed to support the existing portfolio in the drive towards profitability
The portfolio ended the year well-funded, with 67% of portfolio now either
profitable or expected to be funded to profitability and a further 14% with a
cash runway of approximately two years
Andrew Haining, Chair, commented:
"After what was a tough year in the markets in 2022, Chrysalis begins the new
financial year with confidence in its portfolio of high potential, market
leading businesses. We have a robust cash position that will enable us to
further support these companies; a reinforced valuation process overseen by a
group of highly experienced independent experts; and an agreement in
principle, subject, inter alia to shareholder approval, with Jupiter for the
ongoing management of the Company's assets which we believe is well aligned
with the interests of our shareholders."
Richard Watts and Nick Williamson, co-portfolio managers, commented:
"Despite the challenging market for growth companies in 2022, we saw some
exceptionally strong performances from within the portfolio, over two thirds
of which is now profitable or funded through to profitability. This gives us
confidence in the significant growth potential of these businesses and their
ability to generate or exceed the returns expected from our shareholders."
-ENDS-
For further information, please contact
Media
Montfort Communications
Charlotte McMullen / Toto Reissland / Lesley Kezhu Wang +44 (0) 7976 098139
chrysalis@montfort.london
Jupiter Asset Management: +44 (0) 20 3817 1696
James Simpson
Liberum: +44 (0) 20 3100 2000
Chris Clarke / Darren Vickers / Owen Matthews
Numis: +44 (0) 20 7260 1000
Nathan Brown / Matt Goss
Maitland Administration (Guernsey) Limited: +44 (0) 1481 749364
Elaine Smeja / Aimee Gontier
LEI: 213800F9SQ753JQHSW24
A copy of this announcement will be available on the Company's website at
https://www.chrysalisinvestments.co.uk
(https://www.chrysalisinvestments.co.uk)
The information contained in this announcement regarding the Company's
investments has been provided by the relevant underlying portfolio company and
has not been independently verified by the Company. The information contained
herein is unaudited.
This announcement is for information purposes only and is not an offer to
invest. All investments are subject to risk. Past performance is no guarantee
of future returns. Prospective investors are advised to seek expert legal,
financial, tax and other professional advice before making any investment
decision. The value of investments may fluctuate. Results achieved in the past
are no guarantee of future results.
Neither the content of the Company's website, nor the content on any website
accessible from hyperlinks on its website for any other website, is
incorporated into, or forms part of, this announcement nor, unless previously
published by means of a recognised information service, should any such
content be relied upon in reaching a decision as to whether or not to acquire,
continue to hold, or dispose of, securities in the Company.
Strategy
At Chrysalis we deliver value for our shareholders and partners by investing
in and supporting innovative businesses with the potential to transform their
sectors.
Backing Winning Ideas We seek high growth innovative businesses which are leading transformation
within their sectors.
Technology has the power to transform the world in which we live. We look to
invest in those businesses that have the ability to achieve meaningful change.
We identify opportunities for significant growth and help companies carve out Capturing Growth
clear pathways to profit.
Operating in huge addressable markets, the companies we choose to support
offer best-in-class scalable technologies, enabling them to drive and
capitalise on societal change.
Empowering Our Partners We actively engage in building long term relationships with our partner
businesses.
Collaborating with businesses, we provide them with the support, knowledge,
experience, and flexible capital necessary to empower the delivery of
transformational technology.
We create value by taking a high conviction approach. Delivering Value
Proven by our successful track record, we de-risk and enhance the competitive
edge of our partners, whilst offering shareholders the opportunity to access
and gain returns from these exciting private and public companies.
Performance Headlines
147.79p - NAV decline of 104.17p or 41%
· Falls in the valuations of Klarna (57.66p) and the listed
portfolio (31.90p) contributed to much of the decline. The share price closed
at 61.70p, a 58% discount to NAV.
£108.0m - Cash from realisations
· Fully divested two assets, Embark Group and THG, and realised a
portion of other listed assets. Embark realised net proceeds of £57million
for a cash-on-cash return of 2.1x.
£60.0m - New capital raised
· Raised in December 2021 with the objective of funding follow-on
investments.
£80.3m - Follow-on investment
· Deployed proceeds from realisations and capital raised to support
the existing portfolio in the drive towards profitability.
£82.8m - Available liquidity at 30 September 2022
· Ended the year well placed to continue to support the current
portfolio.
67% of portfolio profitable or expected to be funded to profitability
· The portfolio ended the year well-funded, with 35% of the
portfolio now profitable; 32% expected to be funded through to expected
profitability and a further 14% with a cash runway of approximately two years.
Chairman's Statement
Introduction
Chrysalis Investments Limited (the "Company" or "Chrysalis") saw a decline in
its NAV per share over the course of the year of 41% to 147.79 pence per
share, reflecting an abrupt turnaround in market sentiment when compared to
the preceding three years of growth. Despite this volte-face, our portfolio of
best in class, innovative businesses continue to generate significant revenue
growth, as a result of the transformations they are driving within their
sectors and the strong demand for their solutions. The vast majority of our
portfolio companies are either profitable, funded to profitability, or have a
two-year cash runway.
In addition to the reduction in NAV per share, the premium to NAV, we had
enjoyed for most of the three preceding years, has been replaced by a
substantial discount. This discount has begun to narrow in recent months but
still, as at 31 December 2022, the discount to the 31 September 2022 NAV stood
at 48%.
We recognise that the reversal in our share price, reflecting similar moves in
the wider market, will have been disappointing to our shareholders but what we
hope that these accounts convey is the market leading potential of the
businesses in our portfolio and their ability to generate considerable value.
We have already had some great successes, with the realisation of Embark at
over twice our original cost, and the partial realisation of Wise at
approximately three times our original cost. Some of our investments, as in
any private capital portfolio, have not met original expectations. THG and
Revolution Beauty fall into that category; our realised gains, however, remain
well ahead of our realised losses.
We believe the portfolio has considerable opportunity for further growth as
the investment team highlights in the Investment Adviser's Report.
As technology continues to advance, there will be new exciting opportunities
in which to invest when the time is right. Given the potential in the
portfolio and the change in markets, the investment team is for now focusing
on ensuring that its existing investments are positioned correctly. There have
been new lessons for both growth orientated companies and investment teams
over the last twelve months. As and when we start to add to the portfolio, we
will be drawing on those lessons, which will inform our due diligence and
investing process.
Nearer term, there will be opportunities to reinforce our positions in some of
our key investments on attractive terms. Ensuring we have the capacity to do
that is a key objective for the Board and the Investment Adviser, coupled with
taking steps to reduce the current discount to NAV.
Realisations, even partial, will underpin confidence in the value of our
portfolio. Our largest four or five holdings have the capacity to take
advantage of public capital markets, as and when they open again for IPOs.
Given their value and profile, there is also a limited private market for some
holdings. We need to balance the short-term benefit of a partial disposal
against the long-term cost of reducing potential returns from asset value
accretion in successful investments. Chrysalis was established as a permanent
capital vehicle to ensure it did not have to sell assets within prescribed
timeframes and we believe that shareholders will benefit over the medium term
from the lack of pressure to sell.
I will go on to expand on other initiatives within the Board's control, which
we believe should influence, and hopefully reduce, the discount to NAV at
which the shares currently trade.
Valuation and valuation process
Valuation is fundamental to our delivery of information to shareholders. Our
underlying investments are developing at pace and values of comparable
businesses are moving with markets. The net result is a very dynamic
environment for "point in time" valuations of investments on a quarterly
basis.
Chrysalis benefits from the skill set we have assembled on the new independent
Valuation Committee, which has become operational during this year.
Chrysalis has clearly reinforced and improved its valuation process by drawing
on the experience this committee has on valuing direct investing in private
growth capital, multiple PE and venture portfolios, listed fund management
covering both listed and unlisted investments, and fund of fund investing in
private capital.
The committee, led by Lord Rockley, seeks to shorten the delivery time for
quarterly valuations, as well as selectively testing individual investments
with additional third-party valuation work. Transparency on process and
efficiency in delivery will enable shareholders to derive greater confidence
in our valuations, particularly in challenging markets.
Environmental, Social and Corporate Governance
The Board and the Investment Adviser have made good progress on ESG, and I
would draw your attention to the dedicated section in our Report and Accounts.
Private capital markets (and private equity/venture managers) have lagged
their listed peers with their approach to ESG and the adoption of such
principles as part of the mainstream investing process. At Chrysalis, review
of ESG credentials forms part of our initial investment decisions and ongoing
review of businesses. Our approach is intrinsic to the investment decision
making process and we will be building on this going forward.
However, managing to a set of ESG principles is only valuable if one can learn
from mistakes and act on circumstances that clearly fall short of our
objectives.
In the instance of Revolution Beauty, notwithstanding the disposal of the
Company's holding post period end, we are considering the summary findings of
the independent investigation report (conducted by law firm Macfarlanes LLP
and forensic accountant Forensic Risk Alliance). This report examined the
Company's historic corporate governance amongst other factors that may have
contributed to the decline in its share price since IPO in July 2021 and the
ultimate suspension of its shares from being traded in the public market in
August 2022. The announcement made by Revolution Beauty clearly identified a
number of issues which we intend to pursue further. We have instructed our
lawyers and we intend to undertake the steps that are available to us in order
that we can begin to assess the full extent of these issues and their legal
implications. Whilst we are mindful of the potential costs of a drawn-out
legal process, we are also determined to ensure that where significant
governance shortcomings occur and may be responsible for shareholder losses,
individuals and corporate bodies are held to account.
Share Buybacks
The Board and the Investment Adviser have discussed the issue of share
buybacks regularly, given the discount to NAV at which the shares have been
trading recently.
In this regard, I would make the following observations:
· We gained approval originally from shareholders for share
buybacks primarily as a way of returning surplus capital from realisations of
underlying investments;
· The cash applied to a buyback programme would need to be measured
against the likely future investment needs of, and opportunities in, the
portfolio;
· We also believe that to "move the dial" any buyback programme
would need to be substantial and not token.
As the economic cycle plays out, and in particular as the likely shape of the
current downturn becomes clearer, the Company's investment needs should also
become clearer. At this stage in the cycle we believe there is still a degree
of uncertainty as to the final path interest rates will take and the depth and
ramifications on business models the current economic slowdown will cause.
While we are very confident in the value of the portfolio, we need to maintain
sufficient liquidity to ensure that we can continue to support and preserve
our investments.
While we specified recently a likely further follow-on commitment of
approximately £20 million, the Board and Investment Adviser are in agreement
that currently not all the necessary criteria to commence a share buyback for
discount control purposes exist.
We will continue to keep this option under review. While the passage of time
should reduce uncertainty on the economic cycle side, other factors, such as
the reopening of the IPO market, which could lead to increased portfolio
liquidity, could also materially alter our deliberations.
Management agreement
As highlighted in last year's accounts, the Board has been reviewing the
performance fee agreement with the Investment Adviser. The Company announced
on 30 November 2022 that it had reached an agreement in principle with Jupiter
in this regard. The terms of the new agreement, which will be put to
shareholders and on which a detailed circular will be distributed, can be
summarised as follows:
· The 20% performance fee is reduced to 12.5%;
· Settlement of the fee will be in shares and will be deferred over
a 3-to-5-year period;
· Share releases will be subject to share price gates and an annual
cap; and
· The High-Water mark of 253p NAV per share will remain in place
for the new fee agreement, with no performance fee accruing until that level
is exceeded.
In reaching this agreement, the Board has tried to balance a variety of
issues, namely:
· The need for a competitive remuneration structure to ensure the
highest quality of staff can be attracted and retained by the Investment
Adviser;
· As close a proxy for reward on realisation as possible in an
open-ended structure; and
· An overall reduction in both the absolute and the annual payment
under such a scheme.
Both Jupiter and the Board recognise the overriding need to make these changes
work for Chrysalis over the long term.
In summary, I believe the combination of these fee agreement proposals should
provide shareholders with greater clarity on the approach your Board is taking
in managing your Company, and hopefully result in greater support for the
Company and its future.
Finally, I would like to thank the management teams of our investee companies,
the investment team, and my colleagues on the Board for their efforts during
the 2022 financial year. It has been more challenging than we had perhaps
anticipated, but I firmly believe we have a portfolio of companies with
significant growth prospects which can generate the returns our shareholders
envisaged and expected from this exciting investment strategy.
Portfolio Statement
As at 30 September 2022
Net invested/ (returned)
(£'000)
Opening value Fair value movements Closing Value % of net assets
Cost (£'000) (£'000) (£'000)
(£'000)
Company Location
wefox Holding AG Germany 65,625 108,657 - 46,286 154,943 17.6
Starling Bank Limited UK 98,248 210,767 10,000 (107,373) 113,394 12.9
The Brandtech Group USA 46,440 94,837 - 8,553 103,390 11.8
Smart Pension Limited UK 90,000 88,600 15,000 (8,413) 95,187 10.8
Deep Instinct Limited USA 62,226 48,430 14,937 18,462 81,829 9.3
Klarna Holding AB Sweden 71,486 386,999 7,106 (337,970) 56,135 6.4
Featurespace Limited UK 29,546 34,729 5,097 13,313 53,139 6.0
Graphcore Limited UK 57,589 61,545 - (16,480) 45,065 5.1
Tactus Holdings Limited UK 40,130 40,079 - (3,284) 36,795 4.2
Cognitive Logic Inc. USA 47,126 48,435 - (18,136) 30,299 3.5
Wise PLC UK 6,716 108,700 (37,571) (50,812) 20,317 2.3
Sorted Holdings Limited UK 27,941 17,705 12,940 (12,216) 18,429 2.1
Secret Escapes Limited UK 21,509 24,427 - (11,195) 13,232 1.5
Growth Street Holdings Limited UK 11,372 1,332 (1,240) 117 209 0.0
Revolution Beauty Group PLC UK 41,778 41,373 (514) (40,859) - 0.0
THG PLC UK - 86,683 3,828 (90,511) - 0.0
Embark Group Limited UK - 56,900 (70,601) 13,701 - 0.0
Rowanmoor Group Ltd UK 13,363 - 13,363 (13,363) - 0.0
Total investments 731,095 1,460,198 (27,655) (610,180) 822,363 93.5
Cash and cash equivalents 58,712 6.7
Other net current liabilities (1,493) (0.2)
Total net assets 879,582 100.0
Investment Adviser's Report
Overview
Having benefited from the tailwinds generated by the growing interest in, and
scale of, late-stage private markets over the first three years of Chrysalis'
existence, the last twelve months have seen an abrupt change in sentiment
towards growth companies. This volte- face is attributable predominantly to
rising inflation rates, which have led to interest rates rising across the
world, with the former being exacerbated by the outbreak of war in Ukraine.
Rising interest rates have in turn provoked a marked shift in investor
sentiment from growth to profitability and have had a negative impact on many
companies' ability to access capital in the private market. The Investment
Adviser's investment process has always considered IPO as a likely exit route,
and thus has focused on those businesses with strong financial models and the
potential to earn substantial profits.
As of September 2022, companies accounting for approximately 35% of NAV were
profitable. The Investment Adviser has worked hard with other portfolio assets
to ensure they have sufficient cash, and, where necessary, has worked with
them to reduce cash burn, to elongate their cash runways.
As a result of this work, another 32% of NAV is accounted for by companies
that the Investment Adviser believes are funded to profitability, and another
14% have cash runways for at least two years of trading.
While some companies, such as THG (disposed of in the year) struggled with the
inflationary environment, others, such as Starling Bank and Wise, have seen a
benefit from rising interest rates. The majority have continued to execute on
their growth plans and expand, albeit some, such as Klarna, chose to moderate
their pace of growth given the expected squeeze on consumers' income.
While the Company's share price decreased over the year and market conditions
have weighed on sentiment, many of our companies have continued to develop
strongly. With much of the heavy lifting in terms of funding now completed,
this gives the Investment Adviser confidence in the ability of the portfolio
to continue to deliver substantially better growth rates than those available
in the listed sphere.
NAV
Valuations of comparable listed peers to the Company's portfolio assets are
used by the independent valuer to assess fair value, which is considered by
the Valuation Committee, before being ratified by the Board.
The global decrease in valuations of growth stocks, stemming from higher
interest rates, transmitted through the above mechanism to the Company's NAV
per ordinary share, leading to an approximate 41% decline in NAV over the
year.
During the course of the year, no new investments were made. Follow-on
investments of approximately £80.3 million were made, with the main
recipients being Smart Pension, Deep Instinct and THG, which each accounted
for approximately £15 million. More than offsetting this were realisations of
approximately £108 million. The main components here were the proceeds from
the sale of Embark Group to Lloyds Bank plc (approximately £57 million net),
and sales of listed holdings to raise liquidity, particularly Wise
(approximately £38 million).
This led to a net realisation across the year of approximately £28 million.
In December 2021, Chrysalis raised gross proceeds of £60 million, which
allowed the Company to continue to support its investee companies as they
dealt with the difficult market conditions described below.
Market
The market backdrop changed materially from the prior year as investors
grappled with the first major interest rate tightening cycle in over 30 years,
lifting rates from the negligible levels extant since the Great Financial
Crisis. This tightening was driven by rising inflation, attributable to many
sources, but likely reflecting the fallout on global supply capacity in
numerous sectors following COVID-19 related shutdowns, and further exacerbated
by the Russian initiated war in Ukraine.
Rising rates are deemed to have a greater impact on long-duration assets, such
as growth stocks, where more of their value (cash generation) resides in the
future, compared with more mature companies that are typically already
generating greater levels of cash. This impact is felt to a greater extent by
those companies which are currently not profitable, and so the long-term
"terminal" value of the business forms over 100% of the company's enterprise
value.
As a result, the impact on stock markets was varied, although most saw
declines. The NASDAQ 100 - with a greater proportion of growth companies -
fell approximately 25%, whereas the S&P 500 - with the typical constituent
being profitable - fell by a more modest 17%. In the UK, the FTSE All-Share
fell by approximately 7%, with its outperformance likely aided by high index
weightings to energy companies (which benefited from rising commodity prices)
and banks (which benefited from expectations of widening net interest
margins).
The Impact on the private late-stage market was significant, particularly as
many companies had been operating business models which focused on aggressive
expansion, often at the cost of profits.
While 1Q22 saw continued growth in the late-stage private market, the
Investment Adviser believes this reflects the completion of deals that were
likely agreed towards the end of 2021. During 2Q and 3Q 2022, the market
slowed markedly and fell approximately 30% year-on-year in each quarter. The
Investment Adviser believes it is likely that this contraction will continue
for at least two more quarters.
Despite this slowdown, 2022 will still be the second most prolific year of
late-stage private equity raising on record. The Investment Adviser believes
this growth reflects a growing understanding by other market participants of
the exciting growth opportunities available in this segment, and while the
near-term market outlook is weak, the market has fundamentally altered over
the last few years.
Despite near-term uncertainty, there is evidence of some green shoots
emerging. Numis, one of our brokers, has published the results of a survey of
30 top global growth investors. Interestingly, investors' expectations for
valuations appear to be beginning to stabilise.
Compared with 2Q22, 3Q22 has seen the average response improve from prices
likely to fall meaningfully, to the majority of investors expecting prices to
be roughly stable. If this comes to pass, the Investment Adviser believes this
will have important ramifications for the future performance of the Company.
Stable pricing is indicative of improved market conditions, which suggests
less downward pressure on listed peers, and thus on the Company's NAV.
The other big shift seen over the year is a change of investor mindset, from
growth - which the Investment Adviser has observed some market participants
chasing at all costs - towards profitability.
From 2Q22 to 3Q22, the proportion of investors believing this shift to
profitability will last for more than 18 months has risen from 32% to 58%,
despite another three months having passed.
The ability of technology to disrupt huge, established markets has meant many
companies have focused on how to drive their market shares from very low
levels. As an example, the Investment Adviser estimates the Total Addressable
Market ("TAM") of its six largest holdings is over $800 billion, but these
companies only command a 0.4% share at present.
As such, the wider investment universe has seen a significant focus on driving
growth, often at the expense of profitability, over preceding years.
Given the Investment Adviser has always considered IPO as the most likely exit
route for its unlisted holdings, it has assessed its investments through the
lens of a listed market investor, which is typically more sensitive to profits
and cashflow. As a result, the Investment Adviser looks for certain
characteristics at point of investment that suggest a company can achieve
material profits at scale, even if it is currently loss making, including,
where sensible, analysis of unit economics and cohorts.
As such, the Investment Adviser believes its companies are well equipped to
deal with this change in direction, and it has been working with them across
the year, where necessary, to ensure they are adequately capitalised and have
efficient cost bases.
As of September 2022, over 80% of the portfolio is either profitable, or
likely funded to profitability, or has a two year cash runway.
The funding options surrounding the remaining 19% of the portfolio include:
· A follow-on with funding from Chrysalis;
· A follow-on where Chrysalis does not participate; and
· A strategic exit/ merger.
The Investment Adviser assesses that it will not utilise the Company's capital
to follow-on in all of the cases in this segment, limiting the likely future
requirement of funding to approximately £20 million.
Portfolio
Most of our portfolio companies, particularly those which are relatively more
mature, made considerable progress over the year, albeit this was masked in
the NAV calculation by weakening listed market comparables.
This led to six of our companies successfully raising capital, despite the
difficult market backdrop, netting a total of approximately $1.5 billion.
Although Klarna undertook its funding round at a post-money valuation of $6.7
billion - well down on the peak it achieved in June 2021 of $45.6 billion -
the Investment Adviser believes the fact that it managed to raise $800 million
at the height of the growth sell off is testament to its strong investment
case. Subsequent to this raise, Klarna has confirmed that it expects to
achieve profitability in the second half of 2023, which the Investment Adviser
views as extremely positive news.
This is likely to be in part achieved via last year's announced cost savings,
where Klarna indicated expected job losses equating to 10% of its workforce,
but also due to its on-going strong credit performance. Although the market
had been worrying about the impact of rising rates on Klarna's business model
- both in terms of funding costs and the potential for customers to default -
Klarna actually saw impairment charges fall over 3Q22 to 0.7%, from 0.8%, with
a faster improvement in the US than the wider group, despite its growing at
92% over the nine months to September 2022.
wefox also managed to close a substantial round of $400 million at a similar
time to Klarna.
While the Investment Adviser believes securing funding for its continued
expansion was the right move for Klarna to deliver long-term value for
shareholders, the ramifications of the down round were felt on the Company's
NAV per share.
Over the year, Chrysalis' NAV per share fell from 251.96p to 147.79p, or
approximately 104p. Of this move, Klarna alone accounted for 58p - given the
scale of the decrease in its valuation and its starting position size in the
portfolio - more than all the other movements combined. Ex-Klarna, the listed
part of the portfolio (THG, Wise and REVB) contributed 32p of downside - of
which THG was the main contributor - with unlisted positions causing the
smallest impact at 14p.
In terms of the latter, some of the Company's positions contain downside
protection mechanisms, which help to minimise the decrease in certain share
classes, at the expense of others. Due to its share structure, this benefit is
not embedded in Klarna, hence the decrease in its valuation fed straight
through to the Company's shareholding.
Across the unlisted portfolio as a whole, the weighted average write down in
the investee companies' market capitalisations has been approximately 50% from
their respective peaks.
Portfolio activity
Given the changing market conditions, and the fact that the Company's share
price traded on a discount to its NAV per share for much of the year, there
was limited ability to raise significant quantities of new capital, bar the
£60 million raised in December 2021.
As a result, the Investment Adviser focused on raising liquidity where
available, notably from its listed holdings, as well as receiving
approximately £57 million net proceeds from the sale of Embark to Lloyds Bank
plc in January 2022.
The Investment Adviser spent considerable time over the year working with
investee companies to prepare them for tighter funding markets, by encouraging
operational efficiencies where able, as well as pre-emptive capital raises, to
put them in the best possible shape for the likely more restrictive capital
raising environment to come. As a result, the Company's capital was
exclusively targeted at follow-on investments; no investments into new
holdings were made over the year.
As a result of this activity, the position in THG was entirely disposed of in
the period. THG's share price suffered from inflation-induced downgrades to
profit expectations and Ingenuity performing less well than expected. The
Investment Adviser felt it more value enhancing to redeploy capital elsewhere.
Wise was also used as a source of capital. Although Wise has been a strong
performer for the Company, and the Investment Adviser believes it is still
only scratching the surface of its potential, given its current market share,
a balance needs to be made between running positions, and ensuring adequate
liquidity is available to support other holdings.
Given the progress achieved over the course of the year, the Investment
Adviser believes that much of this support work has now been completed.
The situation that unfolded at Revolution Beauty was extremely disappointing.
Over the course of August it became apparent that the group's auditors had
issues in relation to the company's audit, which culminated in the launch of
an independent investigation and the suspension of the company's shares. The
Investment Adviser, in consultation with the Board, is considering the initial
findings of the investigation, before deciding on the appropriate steps to
take.
Post period end, the Company was able to sell its entire holding of Revolution
Beauty in an off-market transaction. This netted proceeds of over £5 million,
compared with the carrying value of nil as of September 2022.
In terms of the rationale to hold listed positions in the portfolio, the
Investment Adviser still considers that there is an argument for doing so, in
order to capture expected gains post flotation, as well as managing liquidity.
While the experience of the last year is contradictory to the above, and the
Investment Adviser recognises the points of learning to be taken from this, it
is also of the view that each investment case is unique and needs to be judged
accordingly.
A recap on purpose
Chrysalis was set up to deliver value for shareholders by investing in
innovative businesses with proven business models and the potential to
transform their sectors. It was founded based on two key principles:
1) That companies were staying private for longer; and
2) That by moving into the private market, the Investment Adviser
believed it could tap into substantially faster rates of revenue growth,
compared with public markets.
Over the course of the year, the Investment Adviser believes the trends behind
Principle 1 remain fully in force, and that it has succeeded in delivering on
Principle 2.
Staying private for longer
One of the side effects of companies staying private for longer is that fewer
of them come to market via IPO. Following over 20 years of public market
investing, the Investment Adviser believes that IPOs are essential to
rejuvenate public markets, by offering investors new investment cases to
consider, as well as updating the listed investable universe with business
models that are more contemporary.
With this in mind, it is clear that the IPO market is still depressed relative
to its previous strength pre the Great Financial Crisis ("GFC") of 2008.
Even 2021, which was seen as a "good" year for IPOs relative to the recent
past, is still nearly 40% below the pre-GFC average.
Superior growth rates versus public markets
Many of the Company's holdings have seen material revenue growth since point
of investment, with several seeing exceptional growth. The standout performer
has been Starling, which in the year before Chrysalis' investment generated
£1 million in revenue, whereas as of June 2022 was capitalised approximately
£331 million.
As a result of revenue growth by its investee companies - partly funded by
capital invested by the Company - the aggregate revenue of the portfolio has
expanded by £2.5 billion since investment, representing three times the
initial level.
Portfolio dynamics
The Investment Adviser believes the portfolio continues to look good value,
when compared with its expected future growth. The NASDAQ is currently trading
back near its long-term average one-year forward EV/sales ratio of
approximately 4.6x, at approximately 5.4x.
Interestingly, many other growth oriented indices are also trading on around
5x EV/sales.
The Investment Adviser believes the similar multiples for the listed indices,
despite their differing growth profiles, reflects the differing levels of
profitability of their constituent members, to which market participants are
currently particularly sensitive.
Against this, the aggregate revenue performance of Chrysalis' portfolio is
expected to be over 50%, which the Investment Adviser believes more than
compensates for the modest premium the portfolio is trading on.
Given the discount to NAV that the shares in Chrysalis are currently trading
on, although the valuation at a portfolio level is a touch over 6x, the
implied valuation at a Company level is almost halved by this discount to
approximately 3x.
The majority of the portfolio is comprised of highly scalable platform
businesses that are leading transformation within their sectors. The
Investment Adviser believes these companies have the ability to generate
significant margins at scale, and it notes that typically, high margin, high
growth businesses attract high valuations from investors. In the Investment
Adviser's view, it is unusual to find the ability to access such investments
on levels commensurate with the discount adjusted figures generated above.
Outlook
With most of 2022 having been dominated by difficult market conditions, it is
easy to become pessimistic over the future: investor sentiment typically
reflects the recent past. In the Investment Adviser's opinion, it is important
to look forward and consider what might change.
Although one swallow might not make a summer, the indications from other
leading growth investors suggest pricing has begun to stabilise in the market.
Anecdotally, and post period end, the Investment Adviser has also seen bids
for certain of the Company's assets at levels above recent funding rounds,
which supports the above assertion. The Investment Adviser would expect market
sentiment to be sensitive to this second derivative.
So the backdrop to valuations may be slightly more optimistic than it has
been. Time will tell.
Despite this, the Investment Adviser believes many of the Company's holdings
are continuing to deliver excellent financial performance, and that the
majority of them are sufficiently well capitalised to weather further
difficult conditions, if these do indeed persist.
While the higher interest rate environment has been detrimental to certain
holdings, for a number of them, particularly Starling and Wise, it has
actually been a tailwind. A key focus of the Investment Adviser in previous
years has been to increase diversification within the portfolio, and the
effect of this is to reduce stock specific risk. This has also helped
ameliorate, at a portfolio level, the impact of those holdings where the
investment case did not play out as planned, particularly in regard to THG and
Revolution Beauty last year.
With generally strong balance sheets, the Investment Adviser believes the
portfolio holdings are well placed to continue to build on their impressive
growth trajectories. In the fullness of time, this should feed through into
valuations.
If market sentiment does improve, one area this is likely to be felt is in the
IPO market, which has consistently been seen by the Investment Adviser as an
important method of exit available to the Company. Currently, the IPO market
has endured four consecutive quarters of low issuance.
Ignoring the negative impact of COVID-19 on the market, previous significant
market downturns, post the dotcom bubble and during the Global Financial
Crisis led to five and seven quarters of low issuance respectively. Thus,
history suggests that the market is over halfway through this issuance
correction.
The reopening of the IPO market, possibly in 2023, might enable some of the
Company's relatively more mature assets to consider a flotation. Such a move
would substantially improve the Company's liquidity position.
Company Section
wefox Holding AG ("wefox")
wefox successfully closed a €400 million Series D funding round in July 2022
which valued it at €4.5 billion. This represented a material increase from
the €3.0 billion valuation the company achieved in June 2021 when it
completed a €300 million Series C funding round.
Private companies across a variety of sectors have struggled to raise large
amounts of capital from new investors against a challenging backdrop but wefox
has continued to deliver on this front; this has enabled the business to
continue expanding internationally and to grow rapidly.
wefox's growth trajectory has been remarkable, with the company more than
doubling its annual turnover every year since its inception in 2015. When
Chrysalis first invested in 2019, the company generated less than €50
million of revenue. Last year, it generated over €300 million in revenue,
and is targeting €600 million of revenue for 2022. This makes wefox the
leading 'Insurtech' asset globally by both revenue and valuation.
wefox has historically generated best-in-class rates of organic growth, but
the company also has a very focused M&A strategy that it is executing.
This is one of the reasons the business has continued to raise significant
amounts of capital. wefox acquired Mansutti, an Italian insurance broker, in
2021 and more recently TAF, a large Managing General Agent ("MGA") and a
market leader in the Netherlands.
wefox operates a very different business model to its peers, which gives a
clear roadmap to profitability, and this is the reason why Chrysalis initially
invested in the business.
The company focuses on digitising indirect distribution channels (advisers,
brokers and affinity partners) which in total represent 90% of its target
markets, by providing them with customer leads, Customer Relationship
Management ("CRM") functionality and workflow management software. This
results in improved broker productivity and a better customer experience.
wefox is then able to selectively target profitable customer cohorts with its
own digital insurance products, displaying much lower customer acquisition
costs and loss ratios than its digital peers.
wefox is now present in six territories: Germany, Poland, Italy, Switzerland,
Austria and Netherlands and its market share in all these markets is under 2%.
On this basis, the Investment Adviser believes that the runway for growth is
still substantial, and that the company can sustain high rates of organic
growth in the future, which are likely to be supplemented with further
acquisitions.
Starling Bank Limited ("Starling")
Starling has been one of the strongest assets in the portfolio, in terms of
its outperformance of the Investment Adviser's expectations at the point of
investment. When the Investment Adviser first engaged with Starling, the
company was sub-scale and loss making, but had developed the basis for a
potentially highly lucrative platform. Almost four years later, Starling has
grown into one of Europe's largest, fastest growing, and most profitable
digital banks.
Starling progression since the point of investment
Nov-18 Jun-22 Factor
Customers ('000s) 356 3,000 8x
Lending (£m) 9 4,033 464x
Deposits (£m) 202 9,628 48x
Revenue (£m) 1 331 292x
Profit before tax (£m) -27 92
Personal current account share 0.4% 2.5%
Business current account share 0.3% 8.4%
Source: Starling and Jupiter
As at June 2022, the bank had opened 3.0 million accounts, including
approximately 460,000 small and medium enterprise ("SME") accounts. The growth
in SME accounts is particularly impressive, given the business bank only
opened in 2018. Starling has managed to grow to approximately half the market
share of Barclays (by number of accounts), which was founded over 300 years
ago, in just over three years. There has been significant growth in other KPIs
too, with customer deposits increasing from £202 million in November 2018 to
almost £10 billion in June 2022, a forty-eight-fold increase.
The Investment Adviser always intended to build a diversified portfolio of
assets by sector, theme and geography that could be resilient throughout the
economic cycle. The current economic backdrop of rising interest rates
highlights this, with some assets being clear beneficiaries of this trend.
For Starling, the impact of rising interest rates is highly significant: the
implied £5.6 billion sitting in treasury, which last year would have earned
minimal yield, will begin to generate meaningful amounts of income, which
crucially, is not subject to impairment risk.
Starling: illustrative impact of rising yields on revenues
June-22
£ billion
Deposits 9.6
Loans 4.0
Implied treasury 5.6
Dec-21 Dec-22 Nov-23
Base rates 0.10% 3.50% 4.60%
Implied treasury revenue (£ million) 6 196 258
Source: Jupiter and Bloomberg
Looking at the June 2022 balance sheet and market derived base rate
expectations - the latter are predicted to rise to over 4.5% by December 2023,
compared to the 10bps experienced since the onset of COVID-19 - the Investment
Adviser believes there is the potential for Starling to generate over £250
million of revenue on an incremental basis, if it kept these balances with the
Bank of England.
In reality, the Investment Adviser believes it is likely that Starling will
look, at least partially, to deploy this excess funding into interest-bearing
loans. This may lead to a greater revenue accretion, demonstrating the growth
options available to Starling.
The Brandtech Group LLC ("Brandtech", formerly You & Mr Jones LLC)
You & Mr Jones was renamed The Brandtech Group LLC earlier this year and
aims to help businesses do their marketing better, faster and cheaper using
technology. Brandtech is now a global market leader in content in-housing and
is delivering enterprise-level marketing solutions for some of the world's
biggest brands, including Unilever, Google, Adidas, Microsoft, LVMH, Danone,
Uber and Reckitt Benckiser.
Brandtech has been a consistent performer since Chrysalis completed its first
investment in September 2020. The company generated +27% organic growth in
2020 and growth accelerated materially through 2021 to more than +50%, with
the company demonstrating continuing strong growth of approximately 37% in to
the first quarter of 2022. The Investment Adviser considers these rates of
growth to be compelling in an industry context, particularly given the most
recent figures are coming off the back of extremely strong prior years.
Brandtech generated more than $500 million in revenues in 2021 and the
Investment Adviser now considers the company to be a global platform. In 2019,
David Jones - CEO - described the business as "strongly profitable" and the
Investment Adviser believes EBITDA margins in this sector typically range from
15% to 25%.
Total growth has been boosted by selective M&A with Brandtech recently
acquiring DP6 - Latin America's leading marketing technology and data company
- and Acorn-I - an ecommerce Software as a Service ("SaaS") platform.
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, including
Carrefour, CNN, BASF, Nubank and Whirlpool. The company provides technology
and data expertise, from data measurement to media attribution, data science,
AI-powered analytics, and content optimisation. Acorn-i helps brands to market
on ecommerce platforms, particularly Amazon where it improves advertising
effectiveness and search engine optimisation.
Brandtech operates in a TAM of $640 billion, which implies a current market
share of just 0.1%. Digital media and content continue to disrupt the
traditional media conglomerates and analogue channels, and the probability of
someone building a very significant digitally focused player in the market is
high. While the clear market winner is yet to emerge, the Investment Adviser
believes that Brandtech has made a very good start on this journey.
Smart Pension Limited ("Smart")
Smart is now operating at scale and continues to grow rapidly. Smart had £2.2
billion of assets under management ("AuM") in 2021 which is expected to rise
to just over £6 billion of AuM by the end of 2022. Further, Smart forecasts
it will achieve a 150% CAGR in revenues this year, versus 2019, and the
company now serves over one million members and 90,000 employers who are
contributing over £50 million per month to their workplace pensions.
Smart operates in a $62 trillion global retirement market and there is an
abundance of tailwind that the company should continue to benefit from. There
is an on-going regulatory convergence on a global scale towards mandatory
direct contribution retirement savings, due to retirement savings gaps in most
advanced countries. Continued reform should lead to more opportunity for
Smart.
The United Kingdom introduced the Pension Act in 2008, but more recently the
Investment Adviser notes regulators forcing change in Hong Kong (Mandatory
Prov. Fund Schemes, 2019), UAE (End of Service Gratuity Reform, 2020),
Australia (Retirement Income Covenant, 2022) and in the US (SECURE Act 2.0,
2022).
Almost half of private sector workers in the US are not covered by workplace
retirement plans and consequently the retirement savings gap is expected to be
$400 trillion by 2050.
The Investment Adviser believes Smart has built the only cloud-based platform
that can serve the global retirement and savings market and is delighted that
the company is demonstrating its ability to internationalise.
In the first half of 2022, Smart acquired US-based Stadion Money Management,
which offers personalised digital retirement solutions to advisers, employers
and members. Smart has also announced a partnership with US-based Finhabits
and launched a new 401k offering. Outside the US, international expansion
includes a programme in Ireland to deliver a bespoke Platform as a Service
(PaaS) to New Ireland Assurance; an employee workplace savings scheme in Dubai
for 22,000 members in partnership with Zurich; and an agreement to tackle the
Australian market with Link Group.
Deep Instinct Limited ("Deep Instinct")
Deep Instinct takes a prevention-first approach to stopping ransomware and
other malware using the world's first and only purpose-built, deep learning
cybersecurity framework. Using this proprietary technology, Deep Instinct can
predict and prevent known, unknown, and zero-day threats in less than 20
milliseconds, 750x faster than the fastest ransomware can encrypt. Deep
Instinct has a better than 99% zero-day accuracy as well as a sub 0.1% false
positive rate.
The Investment Adviser knows of no other cyber security solution which
guarantees the same levels of efficacy as Deep Instinct and is pleased to see
the company announce the results of is first participation in MITRE
Engenuity's ATT&CK Evaluations. This round of evaluations emulated the
malicious activities of various threat groups, highlighting the results across
30 vendors. Deep Instinct provided visibility and detection to adverse
activities in all 15 attack steps tested, with its prevention and suspicious
activity detection engines achieving excellent detection coverage on
techniques related to execution, persistence, command and control, and impact
tactics, as well as additional visibility and insight into all other tactics
included in the test.
The Investment Adviser is also encouraged by the appointment of two very
credible senior figures to its executive leadership team. In July, Deep
Instinct announced the addition of Carl Froggett as Chief Information Officer;
formerly Head of Global Infrastructure Defense, CISO Cybersecurity Services at
Citi. In September, the company announced that Lane Bess, former Palo Alto
Networks CEO and Zscaler COO, was taking over as CEO. Lane Bess has 35 years
of experience in cybersecurity and technology, with a proven track record of
leading rapidly growing cybersecurity companies.
Deep Instinct closed a $62.5 million funding round in September. The round was
led by Blackrock, with Chrysalis participation. The Investment Adviser
believes this round will provide Deep Instinct with over two years of cash
runway and enable it to continue to grow rapidly. While the economic backdrop
is tough, Deep Instinct is confident that enterprises will not be looking to
reduce their cyber spend, given the record number of attacks witnessed in
recent years.
Klarna Holding AB ("Klarna")
In July 2022, Klarna announced the closing of a new $800 million funding round
at a $6.7 billion post-money valuation.
The round was well supported by existing investors, but also attracted new
investors including Mubadala Investment Company and Canada Pension Plan (CPP
Investments).
Much was made of Klarna raising capital at a significantly lower valuation to
its previous funding round, but the Investment Adviser would highlight that
the funding round occurred during possibly the worst set of circumstances to
afflict stock markets in recent years. Considering this, the Investment
Adviser views an $800 million funding round, with strong participation from
new investors, as a success, and believes it is the second biggest undertaken
in Europe in 2022.
Klarna stated that the proceeds of its recent round would be primarily used to
expand its market leading position in the US. The Investment Adviser also
believes that the round will fund the business through to profitability in
2023. The Investment Adviser highlights that Klarna is the only fintech in the
world that has been profitable for its first 14 years of existence and in 2017
Klarna recorded a 12% EBT margin.
As evidence of Klarna's potential, recent trading has remained strong and the
Investment Adviser was encouraged by the progress made through 3Q 2022. Year
to date revenues increased by +22% year-on-year to $1.4 billion and gross
merchandise volume ("GMV") also increased by +22% year-on-year to $60.2
billion. While this growth represents a slowdown from the levels seen in
recent years, the Investment Adviser notes the company's decision to focus on
tighter underwriting, which it believes will have had a modest impact on
achieved growth. Despite this, the US continues to be a standout performer
with GMV +92% year-on-year to $8.6 billion.
Considering this level of growth, there was a remarkable improvement in
profitability. Operating losses fell by $169 million quarter-on-quarter (42%),
and the company stated it expects to be run rate profitable in the second half
of 2023. While this is likely to be driven in part by the cost savings
announced earlier in 2022 - partly achieved through headcount reduction -
there has also been a decrease in impairments. Global credit losses declined
by 12% - improving from 0.8% of GMV to 0.7% - with substantial gains made in
the high-growth US market, which saw a 30% decrease in credit losses
year-on-year.
The Investment Adviser remains confident of the long-term potential of Klarna
and is extremely pleased with the progress the company has made since
Chrysalis first invested back in August 2019. Since this date, Klarna has
grown revenues from $753 million in 2019 to likely well over $2.0 billion in
2023. In achieving this, between 1H18 and 1H22 globally it has added 94
million users and 360,000 merchants, entered 35 new markets (with presence in
45 countries globally) and has acquired a number of companies to supplement
its offering.
Over the past three years, Klarna has grown into a truly global payments
business with a dominant market position in several territories. Innovative
products and services have been rolled out across new and growing verticals
such as travel, event ticketing, beauty, and high-frequency verticals such as
pharmacy and grocery. A global partnership with Stripe has also been announced
giving access to millions more SMBs (small-to-medium sized businesses).
Featurespace Limited ("Featurespace")
Featurespace continued to demonstrate strong growth over the financial period,
with considerable sales traction, driven by its award-winning product.
As evidence of the quality of its offering it:
· won the Next Generation Payments award in the 2021 FinTech
Rankings;
· was recognised as Best-in-Class among fraud and Anti Money
Laundering ("AML") machine learning platforms by Aite-Novarica Group in
December 2021;
· won "Best Technology Initiative" via Worldpay's Fraudsight
(powered by Featurespace) at the 2022 Cards & Payments Awards; and
· was a finalist in the 2021-22 Cambridge Independent Science and
Technology Awards for AI Company of the Year and Technology Company of the
Year.
The Investment Adviser has seen estimates that put the TAM opportunity for
Fraud Analytics at $6 billion in 2020, but given the rate of increase in the
market, it is not inconceivable that this might double by 2025, providing
significant runway for Featurespace to grow into.
In terms of market dynamics, alongside PYMTS, Featurespace published "The
State of Fraud and Financial Crime in the US" - a survey of 200 executives
working in Financial Institutions ("FIs") with assets of at least $5 billion -
in September 2022. This makes for sobering reading.
Over the previous year, 59 FIs saw an increase in overall fraud rates, with an
average loss of 1.29 bps per transaction. Fraud rates only fell for 19% of
respondents. Credit cards were particularly targeted, with 64% of FIs
reporting an increase in attacks.
These types of market changes play into Featurespace's product offering, which
utilises machine learning, and increasingly deep learning, to provide enhanced
protection against fraudsters - crucially, at lower false positive rates -
versus the typically rules-based systems traditionally in use.
This has enabled the company to continue its growth, such that it now has 65
direct customers and over 100,000 indirect. This means the company now
protects over half a billion customers globally, checking over 50 billion
transactions per annum, blocking 75% of fraud attacks as they occur, at
significantly reduced false positive rates.
Graphcore continues to roll out new technology. Following on from its strong
showing in the MLPerf industry measure of comparative benchmark testing, which
showed a significant advantage (between 1.3x-1.6x) for Graphcore over
incumbent Nvidia on a performance per dollar basis, the company has recently
released new hardware.
Earlier in the year, Graphcore's third-generation system, called Bow, was
launched. Bow is the first chip ever to feature wafer-on-wafer technology,
which allows a significant improvement in performance, at greater efficiency.
Bow contains 1,472 independent cores that can allow 9,000 separate programmes
to be run at the same time, for true parallel computing. Performance gains in
the industry are key, as model sizes have been rising aggressively. When
Chrysalis first invested in late 2018, models contained about 330 million
parameters. Fast forward to today, and models of up to one trillion parameters
are on the cards.
Bow pods deliver up to 40% more performance compared with the previous
generation of IPU pods. Bow also increases the performance advantage over
Nvidia's comparable machines, with a fivefold decrease in time to train and a
tenfold lower total cost of ownership.
Later in the period, the company announced a new PCIe card, the C600, in
response to demand from datacentre customers looking for an easy configuration
with existing architecture. In addition, software development has continued to
ensure support of the new hardware launched.
In response to the challenging funding market, and in-line with many other
unprofitable companies, Graphcore took the difficult decision to extend cash
runway, which unfortunately meant a reduction in workforce.
While both the hardware and software have come on significantly since our
initial investment, the company needs to demonstrate that it can successfully
commercialise its products. Graphcore ended 2021 with cash and liquidity of
$327 million, having reported a loss before tax of $185 million.
Tactus Holdings Limited ("Tactus")
The gaming industry is now the largest and fastest growing form of
entertainment globally, with the gaming PC market rapidly expanding as more
gamers, from casual players to e-sports professionals, immerse themselves in
their own virtual communities. As a leading provider of own and third-party
branded custom gaming PCs, component parts, equipment, and accessories, Tactus
is ideally positioned to benefit from these structural dynamics.
Tactus has completed a number of acquisitions since our initial investment,
including coding and robotics firm pi-top, B2B IT hardware provider BIST Group
and award winning PC gaming brand Chillblast. More recently, Tactus announced
the acquisition of online gaming and technology retailer Box.
Box is an online retailer of consumer technology and specialist devices, with
a customer base across the UK and Europe. Founded in 1996, the company had
grown to over £100 million of revenues in 2021. Box takes the group's
headcount to over 350 individuals and its purpose built 120,000 sq ft
logistics centre significantly expands the scale of Tactus' supply chain and
operations across the UK and beyond, while providing enhanced capacity to
accommodate future growth.
Progress has also been made internationalising the business, and a European
partnership was recently announced with NBB in Germany. NBB is one of the
largest German online retailers for consumer electronics and will distribute
Geo devices into the DACH market. While ecommerce businesses generally have
faced headwinds from retailers destocking and high levels of promotional
activity over the course of the year, Tactus has continued to scale through
strategic M&A.
Despite Google's decision to delay its self-imposed deadline to deprecate
third-party cookies in its Chrome browser, InfoSum is benefitting from many
structural tailwinds that are also driving the purchasing decisions of
prospective clients. The launch of App Tracking Transparency by Apple in April
2021 and regulatory changes, such as GDPR in the UK and CCPA in the US, are
making it increasingly difficult for brands and publishers alike to gather
information on consumers, and thus to target specific cohorts.
These tailwinds have led to the emergence and increased momentum of data clean
rooms - secure environments where personally identifiable information can be
anonymised and processed to gain insights into customer cohort behaviours, in
a privacy-compliant way. Disney publicly announced a data clean room solution
in October 2021 for advertisers, harnessing more than one thousand first-party
data segments to boost measurement and campaign insights, using InfoSum as a
partner. InfoSum also announced a partnership with The Trade Desk, in an
effort to scale its clean room network.
InfoSum continued to expand internationally and over the course of the year
the company announced that it has entered Germany, Italy, Australia and New
Zealand. The Investment Adviser recognised the scale of the opportunity
globally for InfoSum at the point of investment and is encouraged by the
company's progress in these jurisdictions.
Wise plc ("Wise")
Wise is a fantastic example of the Chrysalis blueprint. The Investment Adviser
identified this asset when it was generating under £70 million of revenues
and had only just demonstrated profitability. Wise had very strong unit
economics, however, and an attractive customer proposition that was clearly
disrupting a huge addressable market. This gave the Investment Adviser
confidence that the company could grow rapidly and sustain high rates of
growth over a prolonged period of time, while continuing to be profitable and
cash generative.
Over a five year period, Wise has increased its global active user base from
1.7 million to 7.4 million and has improved volume per active user from £5.6k
to £10.3k; this has driven an eightfold increase in revenues from £66
million to £560 million. Profitability, which has, and will continue to be, a
key focus of the Investment Adviser, has been excellent and the adjusted
EBTIDA margin has improved from 6% to 22%, with Wise recording £121 million
EBITDA in its most recent full-year results.
As at September 2022, Wise's share of the remittance market remains relatively
low globally, at approximately 4% in personal and less than 1% in business
transactions. It is interesting to note that its share of personal
transactions in the UK is approximately 20%, and this, combined with its
continued focus on innovation and investment in its proposition, means the
Investment Adviser believes there are strong reasons to support continued
progression.
As evidence of this, Wise is currently growing as strongly as it was five
years ago, which the Investment Adviser believes is unusual, given the
increase in the revenue base. The top end of consensus is currently projecting
Wise to generate £1.8 billion of revenue in FY26 and £425 million EBITDA,
which would imply a threefold increase in the size of the business over the
next four years, highlighting the power of compound growth over the
medium-to-long term and the value that this can create for investors.
Progression in Wise's KPIs since the Investment Adviser first engaged with the
company (FY17-22)
Mar-17 Mar-22 Factor Mar-26e Factor
Active users (m) 1.7 7.4 4.4x
Volume per active (£k) 5.6 10.3 1.8x
Revenue (£m) 66 560 8.4x 1,847 3.3x
EBITDA adj (£m) 4 121 32.8x 425 3.5x
Margin (%) 6% 22% 23%
Source: Wise and Jupiter (data as of November 2022)
Post period end, Wise released a strong set of interim results. Total income
for the first six months increased +63% year-on-year to £416 million,
reflecting strong growth in active customers and an increase in total volumes.
Adjusted EBITDA increased +52% year-on-year to £92 million which implies a
margin of 22%. Total income is now guided to increase by between +55% and +60%
for FY23 with an adjusted EBITDA margin at or above 20% over the medium term.
Sorted Holdings Limited ("Sorted")
There has been significant change at Sorted over the past twelve months, which
commenced in October 2021, when a decision was made to recruit a new CEO and
senior leadership team.
As a result, Carmen Carey, who had been a Non-Executive Director on Sorted's
Board of Directors for two years, was appointed as CEO. Carmen has a strong
SaaS background and was previously CEO at Brady Technologies, Big Data
Partnership and ControlCircle, and COO at Metapack (a major carrier platform
competitor to Sorted). Other key appointments included a CTO, an interim COO,
a Vice President of Product, and a Vice President of Sales.
As part of this overhaul, Sorted raised a Series C funding round of $40
million in December 2021, which enabled it to acquire Clicksit, an automated
returns company. This acquisition marks Sorted's continued expansion into the
US market and will also enable the group to target the Small and Mid-sized
Business ("SMB") market. Returns are a crucial step in the customer journey
and Clicksit will enable Sorted to provide a complete delivery experience
platform to both enterprise and SMB clients.
Following this acquisition, and increased investment in REACT, the company's
tracking engine, Sorted has transformed itself over the past twelve months
from a SaaS business operating with a single product in a single market, to a
SaaS platform with multiple products across multiple-territories.
Secret Escapes Limited ("Secret Escapes")
Secret Escapes has continued to develop its customer proposition over the past
twelve months with an increased focus on the "Always-on Hotel-Only" offering,
which has resonated well with customers. The company has also developed its
website and smartphone application further and these initiatives appear to be
driving key performance indicators and unit economics.
The trading environment for Secret Escapes has been tough over the past couple
of years, given the lingering effects of COVID-19, but more recently the
Investment Adviser has been encouraged by the sales performance of the company
versus 2019, and notes that some territories are now exhibiting strong rates
of growth.
Secret Escapes has taken proactive measures to embed operational efficiencies,
and this has proven effective at driving profitability with the business
profitable on a year-to-date basis.
The Investment Adviser does believe that there is now an opportunity to
accelerate customer acquisition and drive organic growth and profitability
over the next twelve months, and this is the current focus of the management
team.
Revolution Beauty Group plc ("Revolution Beauty" or "REVB")
Having updated the market positively on 26(th) May 2022, Revolution Beauty
released a disappointing trading update on 2(nd) August 2022 which downgraded
revenue and EBITDA guidance.
Following this trading update, Revolution Beauty then released another
statement which said that BDO, the company's auditor, had written to the Board
and identified 'a number of serious concerns that had arisen during the course
of its work on the FY22 audit. This included the Group's ability to provide
sufficient and accurate evidence in respect of a number of keys audit areas
and the validity of certain commercial arrangements entered into by the
Company'.
The board of Revolution Beauty has subsequently appointed Macfarlanes LLP and
Forensic Risk Alliance to undertake an independent investigation into the
matters raised by BDO and any other matters that may become relevant during
their review. The initial findings of this investigation were announced on 13
January 2023 and the Board and Investment Adviser are considering how best to
proceed.
Chrysalis disposed of its entire holding in Revolution Beauty Group post
period end in of off-market transaction for £5 million, which compares to the
period end carrying value of nil.
Growth Street Holdings Limited
The company is in the final stages of liquidation, following its wind up as a
result of poor underwriting controls in 2019.
Chrysalis had already received most of the expected liquidation proceeds, but
post period end, it was notified of a further expected distribution at a level
higher than the previous carrying value. As a result, the carrying value of
the stake was written up.
Embark Group Limited ("Embark") / Rowanmoor Group ("Rowanmoor")
During the period Embark was sold to Scottish Widows Group Limited, a
subsidiary of Lloyds Banking Group plc for £390 million. Chrysalis received
net cash proceeds of £57 million as part of the transaction which implies a
cash-on-cash return of 2.1x from the date of Chrysalis' initial investment in
July 2019.
Following the sale, Chrysalis maintains an interest in the Rowanmoor SIPP and
SSAS administration business. Due to ongoing issues in the business, the
investment was attributed a zero carrying value. At the end of August 2022,
the operating subsidiary of Rowanmoor was placed into liquidation, with Evelyn
Partners appointed as administrators.
Environmental, Social and Corporate Governance Report
Overview
The Investment Adviser is a specialist, high-conviction, active asset manager
committed to helping its clients achieve their long-term investment
objectives.
As active owners and long-term stewards of the assets in which it invests on
behalf of its shareholders, the Investment Adviser's investment teams are at
the core of its responsible investment approach. The investment team analyse
holdings on a range of material ESG issues to ensure the Company protects and
enhances the value of its investments to deliver returns in line with its
objectives. Where opportunities are identified to improve the ESG performance
or reduce the ESG risk of an investment, the Investment Adviser actively
engages and makes use of its shareholder vote with the objective of improving
stewardship outcomes.
The Investment Adviser's Responsible Investment Policy describes how it
approaches these issues as an active investor, setting out its sustainability,
governance, and oversight; its approach to ESG integration and materiality;
and core material ESG issues. The Investment Adviser's Sustainability Policy
identifies material sustainability issues relevant to Jupiter's corporate and
investment footprints. The Company's ESG Policy sets out how the investment
team fulfil their responsibilities on behalf of clients at each stage of the
investment process, in line with the Company's investment policy and asset
class specific considerations.
The Investment Adviser supports the Company's integration of environmental,
social and governance (ESG) responsibilities in the following ways:
· The presence of a dedicated ESG Investment Director within the
investment team
· The support provided by Jupiter's Stewardship and Data Science
Teams
· The oversight provided by the Adviser's Sustainability and
Responsible Investment Oversight Structures.
This report provides a review of the steps the Investment Adviser is taking to
evolve the Company's ESG strategy and the progress being made against the ESG
objectives. Also included are a number of case studies to bring to life good
practice by portfolio companies during the financial year, and stewardship
activity conducted by the investment team.
In addition, a range of portfolio metrics are presented throughout this Report
to provide transparency to investors, including those that have their own
climate reporting responsibilities aligned to the recommendations of the Task
Force on Climate related Financial Disclosures ("TCFD"). The Investment
Adviser intends to continue to develop its ESG-related disclosures in the next
financial year.
The role of ESG in our investment process
Chrysalis provides primary capital to predominantly unlisted businesses that
offer the technology to transform the way people live and work.
There is no single type of business in which Chrysalis invests, however the
Investment Adviser's aim is to find companies which display a number of
characteristics.
Typically, they will be high growth, innovative businesses which are leading
transformation within their sectors and operate in huge addressable markets
with structural tailwinds. Their core assets are intellectual property and the
people who create it. They use best in class scalable technologies to
capitalise on societal change and to solve customer problems in novel ways.
Lastly, companies should also have a clear roadmap to profitability, and the
ability to achieve and sustain exceptional rates of growth.
Chrysalis' investment policy informs its opportunity set, which in turn
influences the type of ESG risks the Company will and will not be exposed to.
Its investments are typically tech-enabled digital businesses whose direct
environmental impacts will be limited.
Although no new private investments were made during the period, the
Investment Adviser has continued to implement the ESG policy established by
the Board and enhance the systematic integration of ESG analysis across the
portfolio. As potential opportunities for new investments arise, the
investment team will conduct detailed due diligence on every potential
investment opportunity.
The current portfolio includes many companies which provide solutions to
urgent business problems with broader societal costs - such as fraud, cyber
risks, data privacy and affordable pension provision - or which disrupt highly
profitable financial services incumbents and share cost savings with
consumers. The demand to reduce these broader societal costs is a crucial
driver which underpins the long-term growth story of these investments.
The Investment Adviser expects all companies to minimise any direct and
indirect negative impact on the environment and broader society. For example,
the Company is invested in consumer-facing companies which are taking tangible
steps to enhance the sustainability profile of their operations, using
techniques such as ethical sourcing of raw materials, reduced freight
emissions and building circular economy principles into their manufacturing
capabilities. The Investment Adviser supports these strategies and believes
they will translate into a stronger brand proposition and a closer
relationship with customers over time, while mitigating a range of risks posed
by changing customer preferences and future regulatory costs.
The Investment Adviser believes that in order to grow successfully, companies
must not only execute strategically; they must also lay the foundations for
future growth by fostering a healthy corporate culture, a talented and diverse
workforce and creating appropriate corporate governance structures.
They must also seek to minimise any direct and indirect negative impact on the
environment and broader society. As investors with decades of experience in
investing in public markets, the Investment Adviser believes it is well-placed
to advise companies not only on their growth strategy, but on their ESG
development also as they prepare to IPO.
Data
One of the principle challenges of ESG integration in a private company
context is data availability. Unlike listed companies, many private companies
do not disclose ESG related data, either publicly or to third party data
providers. This reality can hinder the identification of material ESG risks
and potential issues which may require engagement.
The Investment Adviser has developed an internal development scorecard to
assess its portfolio companies' ESG performance.
This data is collected directly from private investee companies or from public
disclosures where available. The scorecard covers a broad range of
environmental, social and governance factors drawing on recognised public
sustainability frameworks and the stewardship experience of the Investment
Adviser.
The Investment Adviser uses the scorecard to assess each company's ESG
performance relative to its level of corporate development and maturity and
incorporates insights gained into our dialogue with company leadership teams
in order to assist their continued development.
The data also provides a baseline for the sustainability characteristics of
the portfolio. The Investment Adviser will continue to develop the internal
development scorecard, and will use the data to provide shareholders with
increased transparency on the sustainable characteristics of the portfolio.
The metrics will also be used to assess potential new investments as part of
any new investment due diligence process.
Stewardship
Stewardship is an important responsibility and a core aspect of the Company's
investment approach.
The Investment Adviser aims 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 permanence of
its capital, compared with fixed life funds, gives it the ability to continue
to fund growth post initial investment, and as such remain actively engaged
and well-positioned to influence companies on ESG and other topics.
The Company's stewardship approach and ability to influence companies is
determined by its investment policy. Unlike many private market participants
that operate as control or majority investors, the Company's investments will
typically constitute a minority holding, although it may hold a board seat or
be entitled to board observer status. Although the Company does not exercise
control, the Investment Adviser will seek to use its influence to encourage
companies to build sustainability principles into their strategy, operations
and corporate culture.
The investment team operates a continuous programme of engagement with the
leadership teams of the investee companies. The Investment Adviser's ability
to influence companies varies depending on the size of the Company's
shareholding and whether it has board observer status and access to management
information. Where the Company has a board seat or board observer status, the
Investment Adviser can attend Board meetings of investee companies and provide
input where it believes it can advise companies on how to meet their strategic
objectives. This includes regular dialogue on ESG related topics. Dialogue
with companies where the Investment Adviser does not have direct access to
management information will typically take place via regular meetings with
management.
Many material ESG issues are complex and interconnected, and outcomes take
time. The Investment Adviser is committed to long-term engagement goals;
however, to protect client interests it reserves the right to exit an
investment if it concludes that progress is insufficient or does not meet our
strategic objectives.
Case study: THG
The Investment Adviser engaged with the company's Senior Independent Director
in October 2021 after THG suffered heavy selling pressure following a capital
markets day. The declines reflected a number of factors, including investor
concerns about the group's governance arrangements.
The Investment Adviser highlighted the need for enhanced financial disclosures
at the divisional level and called for the search process for a new
independent Board Chair to begin immediately. The Investment Adviser expressed
its view that potential candidates should have a proven track record of
leading large, listed businesses.
The company subsequently announced several moves designed to improve corporate
governance and disclosed that the search process for a new Independent Chair
had begun. The Investment Adviser was pleased when the company appointed its
first independent Board Chair in March 2022 and continued to engage with THG,
both directly and also via a collective engagement with other shareholders,
coordinated by the Investor Forum.
While further positive governance changes have subsequently taken place,
including the appointment of new independent directors, the Company has since
exited its position in THG.
Corporate Governance
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. It is critical that
private companies considering listing prepare themselves for the additional
scrutiny which comes with going public. It is also vital that founders, who
may not have previously run listed businesses, are prepared to bring in
experienced independent non-executive directors who can help their companies
develop. Building capacity at board and executive level - reducing key man
risk and reliance on individual founders over time - is crucial to a company's
future development.
During the financial year, the portfolio companies have continued to
strengthen group governance. Four companies held in the portfolio during the
year (Starling, Wefox, THG, Wise) appointed independent board chairs. Several
other companies increased board independence during the period.
As active owners, the Investment Adviser assesses company governance on a
range of issues, recognising that good practice will differ depending on a
company's jurisdiction, size, and ownership structure. These issues may
include but are not limited to:
· Boards and executive leadership: the Investment Adviser builds
understanding of the quality of leadership teams and boards through assessment
of i) Board and committee composition and independence, ii) Board and
executive tenure and succession planning, iii) DE&I ("Diversity, Equity,
and Inclusion") oversight and actions at Board level and throughout an
enterprise, iv) oversight and management of corporate culture.
· Remuneration: management incentivisation structures should be
aligned with shareholder interests. The Investment Adviser seeks to understand
how remuneration structures encourage correct behaviours and do not create
perverse incentives, short-term actions, or rewards for failure.
· Protection of minority rights and related party transactions: the
Investment Adviser will escalate engagement where it believes that minority
rights have been compromised.
· Systemic risks: the environment in which companies operate
continues to change rapidly and consideration is given where businesses are
exposed to wider systemic risks, including through the assessment of global
standards, such as the UN Global Compact.
· Conduct, litigation and relations with policy makers and
regulators: poor relations with regulators can severely hamper corporate
success and result in value destruction for investors. The Investment Adviser
seeks to understand how management teams engage with regulators and Board
oversight of regulatory matters. It also looks to understand how a company
guards against malpractice.
· Corporate culture: Board engagement is also used to understand
how corporate culture is being led, developed, and monitored and to highlight
strengths and areas for development.
· Audit and control environment: the Investment Adviser considers
the quality and independence of auditors, and may escalate engagement with
Audit Committee chairs where it believes that audit standards are not in line
with its expectations.
Case study: wefox
In July, Chrysalis participated in wefox's successful $400 million Series D
funding round, which increased its post-money valuation to $4.5 billion.
Following its $650 million Series C funding round in June 2021, wefox has
continued to scale rapidly. wefox is now present in five territories across
Europe and has indicated that it will look to expand into both Asia and the US
in the medium term.
wefox has made notable additions to its board and management team in 2022.
The new Chairman, Young Sohn, was previously Global President and Chief
Strategy Officer at Samsung Electronics. In June, Hanna Jacobsson, former
Chief Risk Officer of Klarna, joined as Chair of the Risk Committee. Helen
Heslop, an experienced former finance director and non-executive director, was
recently appointed as Chair of the Audit Committee.
The management team around the founders has also been strengthened in 2021 by
the addition of a Chief Insurance Officer and Chief Operating Officer, both
with significant insurance, financial services and general management
experience. The Investment Adviser believes the addition of independent
directors with relevant experience has enhanced group governance, in line with
the group's IPO ambitions. The positive direction of travel on governance
supported the Investment Adviser's decision to participate in the Series D
funding round.
Human Capital
Good human capital management supports both value creation and business
resilience, and the Investment Adviser believes that investing in human
capital correlates with longer-term business success. Human capital management
can both upskill and educate a workforce, increase abilities, and retain and
motivate employees which has a direct impact both on an individual company and
on wider society.
DE&I enables companies to attract talent from a wider talent pool. It also
contributes to better decision-making, performance, innovation, and employee
satisfaction and retention.
The Investment Adviser recognises that approaches to human capital management,
including DE&I will differ, and as an active owner seeks to understand an
investee company's operating model and engage to advise on best practice and
potential improvements.
The leadership teams of portfolio companies recognise the importance of human
capital to the long-term success of their businesses. A particular focus of
recent dialogue has been the importance of embedding ESG principles and
creating an open and inclusive culture in order to attract and retain a highly
skilled and diverse workforce, in an environment where the competition for
talent is fierce.
The Investment Adviser is encouraged by this alignment with its own
perspective and will continue to report on its activities in this area in
future.
Case study: Starling
Led by founder Anne Boden, Starling Bank is a leader within its sector on
gender diversity, both organisationally and as a catalyst for a broader change
in retail banking.
As a group, Starling's gender representation and pay gap equity is market
leading. This is no accident. As a starting point, in 2017 Starling signed the
Women in Finance Charter. This is a voluntary commitment by HM Treasury and
signatory firms to make financial services a more gender balanced industry.
Starling launched a range of initiatives to promote DE&I throughout the
organisation. These have included publishing tips on how to write inclusively;
partnering with a specialist recruitment platform; launching manager training
programmes; and creating a 'Returners' programme, via which the company
provided paid placements to individuals who had been out of work for 18 months
due to caring responsibilities.
The cumulative impact of these initiatives has been significant. When Starling
signed up to the Charter in 2017, 27% of senior roles were held by women. In
2022, that figure increased to 42%, ahead of the group's original target and
closely aligned to the overall proportion of women in its workforce (44%).
Starling's latest gender pay gap figures (2021), show that the median gap
between men and women has decreased from 16% to 10%, while the mean has
narrowed from 21% to 16%. Its mean gender pay gap is substantially lower than
those of its competitors (see table).
Starling launched its #MakeMoneyEqual campaign in 2018, with the aim of
removing negative gender stereotypes from public conversation around money and
personal finances. Since then, the bank has conducted studies showing
significant discrepancies in the way that men and women are spoken to about
money and portrayed in banking advertising campaigns, factors which could
discourage women's engagement with financial affairs. It created a free image
library that better represented women and money, helping to ensure that women
are better represented in images used by media and advertisers. Since 2019,
the bank has commissioned a regular independent audit of its algorithms and
technological processes to make sure Starling is fair and free from gender or
race bias.
Starling NatWest Lloyds Virgin Money
2021 mean gender pay gap 16% 30% 30% 30%
Source: Company disclosure
Social impact
The current portfolio includes many companies which provide solutions to
urgent business problems with broader societal costs. For example, there are
two companies in the portfolio, Featurespace and Deep Instinct, which target
crime prevention. These positions represented approximately 14% of net assets
at period end.
In the UK, a total of £1.3 billion was stolen through fraud and scams in
2021, according to UK Finance, an 8% increase over the previous year. The
threat of fraud is growing, but efforts to combat it are having a material
impact. The banking and finance industry prevented a further £1.4 billion of
unauthorised fraud, equivalent to 65.3p in every £1 of attempted unauthorised
fraud being stopped without a loss occurring.
Featurespace's anti-fraud product offering, which has won multiple awards,
utilises machine learning, and increasingly deep learning, to provide enhanced
protection against fraudsters. The company now protects over half a billion
customers globally, checking over 50 billion transactions per annum, blocking
75% of fraud attacks as they occur, at significantly reduced false positive
rates. The Investment Adviser believes the efficacy of its products in
combatting the growing global threat posed by fraud creates a highly
attractive opportunity set for future growth.
Cybercrime arguably represents an even greater threat to businesses and
consumers than fraud. In the UK, 39% businesses identified a cyber-attack last
year, according to the UK Government's Cyber Security Breaches Survey, with
31% of businesses estimating they were attacked at least once a week.
Globally, 88% of midsize enterprise boards of directors identified
cybersecurity as a business risk for their organisations, according to
Gartner.
The Company's investment in groundbreaking cybersecurity solutions contributes
to business continuity and confidence in technology systems as described in
the Company Section of the Report, Deep Instinct's market leading approach to
stopping ransomware and other malware using proprietary deep learning
technology is being adopted by a growing list of clients. Deep learning
dramatically improves efficacy and enables near real-time performance, helping
companies navigate an environment where the speed, volume and sophistication
of attacks continues to escalate.
Social impact: financial inclusion
The portfolio contains a number of fintech businesses which have products that
display positive social externalities, such as broadening financial inclusion
or disrupting high-cost financial services incumbents, while often sharing
resulting cost savings and efficiencies with consumers.
Smart Pension's product addresses the need for affordable pension provision in
an environment where a rapidly increasing old-age dependency ratio, and a
widening retirement savings gap, mean that almost half of private sector
workers in the USA are not covered by workplace retirement plans. This
pressure, which compounds every year, is forecast to create an expected $400
trillion retirement savings gap by 2050. Smart's workplace saving technology,
Keystone, aims to transform retirement, savings and financial well-being
across all generations around the world. The Investment Adviser believes Smart
has built the only cloud-based platform that can serve the global retirement
and savings market and will play an enabling role in helping to close the
savings gap.
Wise is another Chrysalis holding that exists to solve a pressing global
challenge, in this case the high costs and opacity of foreign currency
transfer. Globally, sending remittances costs an average of 6.3% of the amount
sent, according to the World Bank.
Wise was founded in 2011 to make it cheaper and easier for people to transfer
money between countries, relative to traditional financial institutions. Wise
estimates that consumers pay around £180 billion in hidden fees every year.
It has continued to reduce costs for consumers, with the average price paid by
its customers reducing by 12% in its last financial year, saving customers an
estimated £1 billion.
In the Investment Adviser's view, Wise's circa 4% share of personal
international transfers indicates the growth potential of the business, as
well as producing powerful positive externalities by reducing costs for
consumers.
Climate
Limiting global temperature rises to 1.5 degrees above pre-industrial levels,
in line with the Paris Agreement, is an urgent challenge facing the global
economy. The Investment Adviser uses its influence as an investor through
stewardship and active ownership to encourage companies to identify, manage
and mitigate climate change risks or opportunities. While the Investment
Adviser believes that the Company's portfolio of tech-enabled, predominately
digital businesses is not exposed to material climate risks, its view is that
the scale of climate change will impact all sectors, industries, and asset
classes and so acknowledges the positive role that investors can play in
tackling it through investment decisions and capital allocation.
The Investment Adviser supports the Task Force on Climate Related Financial
Disclosures ("TCFD") and encourages companies to provide (as the Investment
Adviser does) accurate and timely disclosure in line with the four thematic
pillars of the TCFD framework The Investment Adviser first became a supporter
of the TCFD recommendations in June 2017. The Investment Adviser's TCFD Report
can be found within its Annual Report on its website. The investment team
considers climate risk through the analysis of a company's TCFD disclosure or
climate risk reporting, via direct engagement, or via an assessment of a
company's climate risk based on its sector.
Disclosed below is the weighted average carbon intensity of portfolio and
other related metrics. The companies representing 41% of NAV at year end have
calculated their operational (Scope 1 and 2) emissions. Where companies have
not yet calculated their own emissions, the Investment Adviser has used
estimated data based on the peer groups used in the Company's valuation
process. Few portfolio companies have calculated a complete baseline of Scope
3 emissions. Given the challenge of estimating Scope 3 emissions, this data is
not disclosed for portfolio holdings. The Investment Adviser will encourage
portfolio companies to measure Scope 3 emissions in future and incorporate
this metric in disclosures, once sufficient data is available.
Chrysalis Portfolio Carbon Metrics (Scope 1 and 2 emissions)
Portfolio
Carbon Emissions (tons CO2e/$M invested) 0.5
Total Carbon Emissions (tons CO2e) 450
Weighted Average Carbon Intensity (tons CO2e/$M Sales) 22.7
Source: Data collected during Chrysalis ESG Data Collection Exercise, based on
public disclosures by portfolio companies, or estimates. Latest year of
reported emissions.
Case study: Klarna
Klarna has introduced an internal carbon tax (set at $100 per metric ton) for
emissions under the group's control to incentivise an internal shift to
low-carbon products and services. Proceeds are invested into projects selected
from the Climate Transformation Fund, through which consumers can also donate
to projects.
Klarna has committed that by 2025 all of its locations will use 100% green
electricity. By 2030, the group will reduce its carbon-intensity-based
emissions by 50%, in line with the Paris Agreement. By 2040, the group will
operate at net-zero. In addition, Klarna has upgraded its in-app CO2e tracker,
to allow consumers better insights into the emissions of over 50 million
items, across all stages of their lifecycle.
Figures disclosed in this section have not been subject to assurance by the
Company or the Investment Adviser.
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 or the Cayman
Islands 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 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 58.
Viability Statement
The Viability Statement is made on page 58 and 59.
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 60 and
61.
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 2022, 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
84-85 and 93 and note 20 of the annual report and audited financial
statements.
The Board of Directors
The Board comprises six independent non-executive Directors, two of whom are
female, who meet on 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 46. 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 41. 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 and
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 brings 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 31-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 investment funds, trust and managers. 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 is a Charted Director (CDir) accredited by the Institute of Directors.
Previously an investment director at Terra Firma Capital Partners and Candover
Investment prior to that, Simon has been an active independent director to
listed investment company, private equity fund and trading company boards
since 2015. In addition, Simon acts as the pro-bono Business Adviser to
Guernsey Ports; a State of Guernsey enterprise that operates all the
Bailiwick's critical airports and harbour infrastructure.
Simon is a member of several industry interest groups in both financial
services and intellectual property and graduated from the University of
Cambridge with an MEng and MA (Cantab) in Manufacturing Engineering.
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, is a Chartered Fellow of the
Securities Institute 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 roles in investment companies and
a London based private wealth banking group and related subsidiaries in Jersey
and Guernsey.
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 has had a 30-year career commercialising technology in the US, Asia,
Europe, and Africa. She brings insights from having worked as a MarketingTech
operator, MasterCard senior executive, and investor to her current roles as an
independent director of a Guernsey investment trust and Chair of a Mauritius
Venture Capital Fund. She's a member of the Private Equity Women Investor
Network.
She earned her BA from Rutgers University and studied International Relations
at Princeton University before moving to Seoul, Korea to work for the Korean
Ministry of Finance.
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
None to be disclosed
Tim Cruttenden
Polar Capital Technology Trust plc
Margaret O' Connor
None to be disclosed
Valuation Committee
The Board are of the view that the valuation process needs to be as efficient
as possible while also providing for comprehensive and independent oversight.
Consequently, upon moving to a self-managed structure from 1 July 2022, the
Board established a new independent Valuation Committee comprising the
following members:
Lord Rockley (Committee Chairman)
Anthony Rockley was an audit partner at KPMG until 2015 with a sector focus on
private equity and venture capital. Over a 34 year career with KPMG, Anthony
was responsible for auditing private equity and venture capital companies and
structures. Amongst other sector specific work, Anthony was a member of
International Private Equity and Venture Capital Guidelines Board for 9 years.
The Board is delighted that Anthony has agreed to become chairman of the new
Valuation Committee.
Diane Seymour Williams
Diane Seymour Williams has a career spanning over 30 years in asset and wealth
management. She was a listed portfolio manager with Deutsche Morgan Grenfell,
ultimately running DMG's asset management business in Asia. After returning to
the UK, Diane subsequently held a number of board positions in the financial
services sector. Currently she sits, inter alia, on the boards of ABRDN
Private Equity Opportunities Trust plc, Mercia Asset Management Plc and SEI's
European business. Diane brings extensive fund management and portfolio
oversight experience. In addition to her public company roles Diane sits on
the investment committees of Newnham College, Cambridge and the Canal &
River Trust.
Jonathan Biggs
Jonathan Biggs worked at Accel, a leading global venture and growth capital
investor, for 20 years up until 2021. One of the first hires in Europe, he was
the COO of Accel's European business. During his time at Accel, he raised over
$2.5 billion in five early stage venture funds focused on Europe. Jon has
subsequently joined SVB Capital as a managing partner where he is a senior
leader in its funds management business. Jonathan's venture investing
experience in the Company's sector over many years will be extremely helpful
to the committee in its assessment of the portfolio.
The fourth member of the committee is Tim Cruttenden who has been a director
of the Company since its formation.
Director Attendance
During the year ended 30 September 2022, the Board and Committee meetings held
and attended by the Directors were as follows:
Quarterly Board Meeting Audit Committee Meeting
Remuneration and nomination Meetings Risk Committee Meetings Management
Engagement Ad-hoc Meetings
Meetings
Director Attended/Eligible Attended/ Attended/ Attended/ Attended/ Attended/
Eligible Eligible Eligible Eligible Eligible
Anne Ewing 4/4 3/3 2/2 2/2 n/a 15/16
Andrew Haining 4/4 n/a n/a n/a n/a 13/16
Simon Holden 2/4 2/3 n/a 2/2 2/2 13/16
Stephen Coe 4/4 3/3 n/a 2/2 n/a 12/16
Tim Cruttenden 4/4 2/3 2/2 2/2 2/2 11/16
Margaret O'Connor 4/4 2/3 1/2 2/2 1/2 13/16
Valuation Committee Meetings
Member Attended/ Eligible
Lord Rockley 3/3
Diane Seymour-Williams 3/3
Jonathan Biggs 3/3
Tim Cruttenden 3/3
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 Valuation Committee, 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 Valuation
Committee and the Investment Adviser.
Board Committees
The Company has established an Audit Committee, Remuneration and Nomination
Committee, Management Engagement Committee, Risk Committee and an Independent
Valuation 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 68.
In accordance with the AIC Code, a Remuneration and Nomination Committee has
been established. Anne Ewing has been appointed as Chairman, with Margaret
O'Connor and Tim Cruttenden as members. The Remuneration and 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 and Nomination Committee's activities
during the year can be found on page 48.
Margaret O'Connor has been appointed Chairman of the Management Engagement
Committee, with Simon Holden 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 Investment
Adviser and the terms of the Portfolio Management Agreement. A full report
regarding the Management Engagement Committee's activities during the year can
be found on page 52.
Simon Holden has been appointed Chairman of the Risk Committee, with Anne
Ewing, Margaret O'Connor, Stephen Coe and Tim Cruttenden as members. The Risk
Committee will meet formally, at a minimum once a year, though it has been
agreed, that the Risk Committee is convened quarterly, aligned with the
Company's financial reporting cycle and at such other times as the Chairman of
the Committee deems appropriate, for the purpose of, amongst other things, to
ensure that there is proper consideration and assessment risks and stresses
ensuring that the Investment Adviser develops appropriate strategies to
protect the Group's portfolio of investments. A full report regarding the Risk
Committee's activities during the year can be found on page 53.
Report of the Remuneration and Nomination Committee
Statement: Chair of Committee
I am pleased to present the Remuneration and Nomination Committee ("the
Committee") report for the year ended 30 September 2022. The composition of
the Remuneration and Nomination Committee meets with the requirements of the
AIC Code and, in line with good practice, membership is reviewed annually.
During the year, there have been no changes to the Directors' Remuneration
Policy or the Terms of Reference of the Remuneration and Nomination Committee.
No new Directors were appointed to the Board during the year.
In 2023, amongst other things, the Remuneration and Nomination Committee will
review its recruitment process to help the Company further achieve its
diversity and inclusion targets.
I am satisfied that the Remuneration and Nomination Committee is discharging
its responsibilities proficiently and recommend this report to the Board.
Anne Ewing, Chair of the Remuneration and Nomination Committee
Purpose and Aim of the Remuneration and Nomination Committee
The terms of reference of the Remuneration and Nomination Committee are set
out on the Company's website at
https://chrysalisinvestments.co.uk/investor-relations/
(https://chrysalisinvestments.co.uk/investor-relations/) . The primary
responsibility of the Remuneration and Nomination Committee is, in relation to
remuneration, to determine and agree with the Company's board of directors
(together the "Board" and individually a "Director") the framework or broad
policy for the remuneration of the Company's chairman and non-executive
Directors in accordance with the Company's articles of incorporation (the
"Articles") and applicable law and, in relation to nominations, to review the
structure, size and composition (including the skills, knowledge and
experience) required of the Board compared to its current position and make
recommendations to the Board with regard to any changes as necessary.
Membership and Meetings of the Remuneration and Nomination Committee
The Remuneration and Nomination Committee met formally once during the year,
on 28 September 2022. Each of the members of the Remuneration and Nomination
Committee, being those persons listed below, was in attendance at that
meeting.
The members of the Remuneration and Nomination Committee are as follows:
· Anne Ewing (Chairperson)
· Tim Cruttenden
· Margaret O'Connor
Composition, Succession and Evaluation of the Board
At the meeting held on 28 September 2022, the Remuneration and Nomination
Committee reviewed and reaffirmed the Company's policy whereby no Director
will serve for more than nine years (such policy being aligned to the AIC
Code). The Remuneration and Nomination Committee confirms that no Director has
served for longer than nine years, due to the Company being incorporated in
October 2018.
No new directors were appointed to the Board during the year.
On 28 September 2022, at a general board meeting, the Company reviewed and
refreshed its policy on Diversity and Inclusion as follows:
The board is committed to longer term succession planning in the context of
meeting the objective of the Parker Review will follow ahead of the 2024
deadline. This will require the Company to increase the ethnic diversity of
its board by having at least one director from an ethnic minority. The
Company's Board currently comprises two female directors which meets the
targets set by the Hampton-Alexander Review to increase the number of women in
senior leadership positions in all FTSE 350 companies to 30% by end 2022. The
Company will seek to meet the further recommendations of the review within the
2025 deadline.
Appointments to the board will be based on merit and on any skills gap
identified to ensure the board can continue to act effectively.
The Company follows a set of principles when looking to recruit a new
candidate. This will include the use of an external well regarded recruitment
agency who will be instructed to conduct a wide search for diverse candidates
and, where applicable potentially, encourage candidates who may have
appropriate transferable skills which, if appointed, would add to the
diversity of the board.
Where the Company is unable to meet any diversity or inclusion targets it will
look to fully explain its position to its shareholders and stakeholders.
In May 2022, the Committee considered succession planning and undertook a
review of the attributes and skills of the current board and made
recommendations to the Board. The Board came to the view that an additional
Director should be appointed; such person to have an accountancy background
and experience in private and public capital markets.
Consequently, the Company 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
the Board believed such candidates may have helped the Company further achieve
its diversity and inclusion targets. However, during this time it became
apparent that the Board would need to focus on becoming a self-managed
Alternative Investment Fund ("AIF") and, as a result, would not be able to
devote sufficient time to onboard a new Director. The Board agreed to defer
this recruitment to 2023 when a further review of succession planning will be
undertaken alongside a review of the strategic direction of the Company.
The Company will seek to meet the further recommendations of the Parker Review
within the 2024 deadline. However, the Company also notes the 2022 updated
report from the Parker Review recognises the constraints of the size of
typical Investment Trust Boards such as Chrysalis' which may reduce the
opportunity to make further diverse appointments.
As a result of becoming a self-managed AIF on 1 July 2022, the Board created
new committees to oversee Risk and Valuations: the Risk Committee and
Valuations Committee, respectively. It was decided, at that time, that
additional scrutiny on the valuations of the Chrysalis portfolio would be of
benefit to the Company and accordingly independent committee members were
appointed, joined by a Chrysalis Board member. The Risk Committee was created,
and the members appointed, and a risk reporting framework was agreed between
the Company and Jupiter Investment Management Limited as Investment Adviser.
The members of the Risk Committee and Valuations Committee, including each
chairperson, are now fulfilling additional roles and responsibilities which
take up a considerable amount of time over and above what was contemplated
when Jupiter Unit Trust Managers Limited was remunerated to fulfil the role of
AIFM.
Considerable cost savings have been made as result of becoming a self-managed
AIF which the Board anticipates to be welcomed by investors.
Committee Memberships
Audit Committee Risk Committee Valuations Committee Management Engagement Committee Remuneration and Nomination Committee
Chaired by: Chaired by: Chaired by: Chaired by: Chaired by:
S Coe S Holden Lord Rockley* M O'Connor A Ewing
A Ewing S Coe D Seymour- Willliams* T Cruttenden T Cruttenden
S Holden A Ewing J Biggs* S Holden M O'Connor
T Cruttenden T Cruttenden (Board Representative)
M O'Connor
*Independent
2022 Review of Board Performance
The Remuneration and Nomination Committee undertook an internal review of
board performance and remuneration in the second half of 2022. This is the
second internal review following an external "triennial review" undertaken in
2020 by an independent professional remuneration and performance consultant.
The output from the internal performance 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, ESG and general continuing
professional development for listed companies.
An external assurance review is planned for 2023 to assess the effectiveness
of the Company in executing its self-managed AIF responsibilities.
2022 Review of Remuneration
A comparison of the Company against its competitors was undertaken and a view
taken on current market conditions, noting the trajectory of inflation rates
and the time commitment and activities of the Board.
The Company's policy is that the fees payable to the Directors should reflect
the time spent by the Board on the Company's affairs and the responsibilities
borne by the Directors, and should be sufficient to retain high calibre
directors.
The policy is for the Chairman of the Board, the chairs of the Audit Committee
and Risk Committee and the Valuations Committee Board Representative to be
paid a higher fee than the other Directors in recognition of their more
onerous roles and more time spent. The Board may amend the level of
remuneration paid within the limits of the Articles (i.e., being a maximum of
£500,000 per annum).
The figures provide a comparison against management fees payable to the
Investment Adviser relative to the Company's Net Asset Value ("NAV").
Total Director Remuneration £345,000
Investment Adviser Fees £6,092,744
Investment Adviser Performance Fees -
NAV at year end £879,582,064
The Remuneration and Nomination Committee recommended, and the Board resolved,
that with effect from 1 July 2022 the annual remuneration for each Director
should be increased per the table below. The effective date ("w.e.f.")
reflects the date of the Company becoming a self-managed AIF and recognition
of the additional duties of the Directors. In addition, one-off payments were
made to Directors S Holden and T Cruttenden of £6,375 each to fairly
remunerate them for Committee preparation work undertaken leading up to the
Company becoming self-managed.
Director fees (per annum) Director fees (per annum)
w.e.f. 1 July 2022 w.e.f. 1 October 2021
£ £
Chairman - A Haining 77,500 75,000
Audit Committee Chair/SID - S Coe 60,000 57,500
Risk Committee Chair 56,250 52,500
- S Holden
Valuations Committee Board Representative - T Cruttenden 51,250 47,500
Directors - M O'Connor/ 50,000 47,500
A Ewing
It should be noted that the 1 July 2022 uplift for the Chairman was nominal
and did not fully recognise the increased amount of time expended by the
Chairman during the year. The Senior Independent Director (presently S Coe, as
shown) has been asked to lead a review of the Chairman's remuneration in Q1
2023 with an anticipated one-off fee to be recommended to the Board, becoming
effective from 1 January 2023.
_____________________
Anne Ewing
Chair of the Remuneration and Nomination Committee, Chrysalis Investments Ltd.
Report of the Management Engagement Committee
The Management Engagement Committee (hereafter referred to in this report as
the "MEC") is chaired by Ms Margaret O'Connor and at this time, comprises a
sub-committee of the Board including Mr Simon Holden and Mr Tim Cruttenden,
whilst other Board members are invited to attend. Only non-executive Directors
who are independent of the Investment Adviser may serve on the MEC, which
meets at least once per year. The MEC's terms of reference are available to
view on the Company's website, with the MEC'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 twice during the year ended 30 September 2022. I am pleased
to report that the performance of all service providers continues to meet the
required standards of the Company
The MEC's priorities during the past year have been three-fold:
1. ensure appropriate resourcing at and reporting from the Investment Adviser
2. to oversee the transition to a self-managed Alternative Investment Fund
Manager (AIFM) function
3. to further strengthen investor engagement
It is worth noting the specific challenges and achievements of the Investment
Adviser, as detailed earlier in the Annual Report. During the past year, JIML
has added a dedicated finance and ESG resource who have worked closely with
the Board and the Risk Committee to measure, manage, and mitigate risk. The
Board and the MEC have been consistent in their recommendation that additional
analyst resource is required to support the Company and its underlying assets.
The Investment Adviser's performance fee last year of £112.1 million, after
achieving 57% NAV growth, generated significant market, media, and shareholder
interest. The subsequent global technology market downturn and the Company's
share price decline amplified the need for board action.
The Board Chairman serves as the primary point of contact with the Investment
Adviser. In consultation with the Board, the MEC, and key external advisers,
Mr Haining led a review of the performance fee and a renegotiation of the
Portfolio Management agreement with Jupiter Investment Management Limited
("JIML"). An update on Performance Fee Arrangements was made to shareholders
on 30 November 2022. For more information, see page 4 of Chairman's Report.
In accordance with Listing Rule 15.6.2(2)R and following the review of the
Portfolio Management Agreement as previously outlined, the Board determined
that it had reached a stage in its evolution where it should move to becoming
a self-managed investment company, with the Investment Adviser continuing to
provide portfolio management services. The Company replaced Jupiter Unit Trust
Managers Limited as the Alternative Investment Fund Manager (AIFM) on 30 June
2022 and assumed direct responsibility for the role an AIFM conducts including
the valuation and risk management aspects. This Company received regulatory
approval for this change. The Board is grateful to Jupiter Unit Trust Managers
Limited for its AIFM services.
The MEC approved an amendment to the Terms of Reference (9.4.1) to reflect the
formation of the Risk Committee. That together with the formation of an
independent valuation committee were important developments in the transition
to a self-managed AIFM. The Board exercised its right to obtain independent
third-party valuations of specific assets where the Board or the Valuation
Committee believed additional judgments were merited.
To strengthen shareholder engagement, the Board approved investments in
additional market research, communications, and public relations resource. The
Company undertook a shareholder perceptions study and a communications audit
to provide qualitative and quantitative data about the Company's performance
relative to its peers.
The Board Chairman and several board members together with the Investment
Adviser and our strategic partners have invested significant time and
attention to ensuring the successful development and implementation of the
shareholder engagement program this year.
Since the year end two key deliverables include a Capital Markets Day and a
new iteration of the Company's website in November 2022. The Company will
continue to monitor how best to evolve its shareholder engagement program
during the year ahead.
Margaret O'Connor
Chairman of the Management Engagement Committee
Report of the Risk Committee
It is my pleasure to write to you in this inaugural Risk Report as Chair of
the Risk Committee of Chrysalis Investments Limited ("Chrysalis", or the
"Company").
The following pages set out the Risk Committee's report on its activities in
respect of the year ended 30 September 2022.
Overview
The Alternative Investment Fund Management Directive ("AIFMD") places specific
governance rules over both portfolio management and risk management within
closed-ended funds. At the time of the Company's IPO in October 2018, Maitland
Institutional Services Limited was appointed as the Alternative Investment
Fund Manager ("AIFM") of the Company. Under the Board's oversight, the AIFM
performed risk management for the Fund whilst portfolio management was, and
remains, outsourced under a discretionary mandate to the Investment Adviser,
Jupiter Investment Management Limited.
From early in the Company's life, whilst the Board of Directors of the Company
(the "Board") were satisfied that the AIFM discharged its responsibilities
under the directive, they believed that the AIFM's analysis and procedures
could be better tailored to identifying, analysing and reporting risks that
are more specific to the Company's investment mandate; growth capital.
In 2019, Merian Global Investors was acquired by Jupiter Fund Management
(together with its affiliates, as the case may be, "Jupiter"). This gave the
Board the opportunity to set out its requirements and tender for the AIFM
role. Amongst several possible AIFM solutions, Jupiter Unit Trust Managers
Limited, a Jupiter group company, had a well-established, independently
operated AIFM business and proposed a service framework, resource capability
and fee base which proved competitive. Jupiter Unit Trust Managers Limited was
awarded the AIFM mandate.
The Board noted several improvements as a result of the change in AIFM;
quarterly reporting provided more practical insight and assessment of the
effectiveness of risk management controls. The AIFM's primary risk reporting
responsibilities relate to regulatory and compliance risks, but the Company
achieved stronger links with portfolio management risks that are intrinsic to
investing in high growth, high potential, often loss-making disruptive
enterprises.
Supportive market sentiment towards growth-style investment mandates,
particularly growth capital, reversed markedly in late 2021 to early 2022. The
Board recognised this early. It was felt more appropriate to internalise
responsibility for managing the escalating risk environment in order to have
full and timely oversight over the Investment Adviser as the market rotated.
The Board considered the pros and cons of assuming this increased
responsibility. It concluded that Shareholders should benefit from
internalising the risk management function; principally from a direct line of
reporting from the Investment Adviser to the Risk Committee of the Board, as
well as net cost savings having terminated a third-party AIFM.
The Company released an announcement on 7 June 2022 that notified the
Shareholders of the intention for the Company to become a self-managed AIF and
provided the Board's reasoning behind the decision.
The Company has been a self-managed Alternative Investment Fund ("AIF") since
1 July 2022 and, notwithstanding certain contractual changes with third
parties and the introduction of a Risk and Valuation Committees to achieve
this, there is no change to either the investment mandate, the original
investment restrictions contained in the Prospectus, or the function and
discretion of the Investment Adviser.
Risk Assessment
The opportunities for challenger businesses disrupting and transforming cyber
security, digital banking, insurance, financial services and e-commerce remain
highly attractive. However, contracting economic activity, inflation
(stimulated from COVID-19 support measures and cemented by energy and food
impacts from Russia's invasion of Ukraine) and cyclical tightening in monetary
policy are each influencing the risk profile, target maturity, or timing of
achieving that full potential.
Closed-ended funds, particularly listed investment companies, remain ideal
vehicles in which to invest in and nurture growth capital investments. They
offer investors and investee companies the certainty of diversification,
defined capital limits and exposures and transparent reporting and disclosure.
Listed investment companies like Chrysalis, allow a wide cross section of
investors a means to access what is typically an institutional niche, whilst
offering listed secondary market liquidity.
Nonetheless, the Company recognises that investing in high potential, high
growth, private companies requires a healthy appetite for risk. The businesses
Chrysalis invests in are borne out of proprietary technologies, operate in and
are disrupting complex supply chains and in their early stages are
prioritising the long-term market opportunity over near-term bottom line.
The Board believe the Investment Adviser is suitably skilled to perform this
investment mandate having demonstrated these credentials prior to Chrysalis
being created and honing these skills since. Additional skill sets have been
added in the past 18 months and the Board are expecting to see headcount
increase marginally in 2023 to add specialist skill and free the fund managers
to engage more intensively with all portfolio companies.
Status of the Risk Committee
The Risk Committee was only constituted for the short period from 1 July 2022
to the financial year end on 30 September 2022 but convened three times in
that period.
The Risk Committee's immediate priorities have been:
· Constitution and publishing of its Terms of Reference (which are
available to Shareholders on the Company's website at
https://chrysalisinvestments.co.uk/investor-relations/
(https://chrysalisinvestments.co.uk/investor-relations/) , as adopted on 27
July 2022 and a summary of which is provided below).
· Developing its Risk Policy Framework, finalising this on 27 July
2022.
· Producing its risk register from scratch, organising identifiable
risks within one of twelve distinct risk classes. These have been populated
and scored to help the Risk Committee evaluate what it believes to be the
likelihood and impact of risks manifesting and the relative effectiveness of
mitigating controls.
Post year-end, a risk report workshop took place at Jupiter's offices on 11
November 2022 to plan the structure of the Investment Adviser's risk reporting
documentation. On 18 November 2022, the Risk Committee was briefed on this in
full by the Investment Adviser's Director of Finance.
Looking ahead to the February 2023 Q1 Board Meeting, the Risk Committee
expects to deliver to the Board its inaugural full risk report.
Notwithstanding this intervening period, there is clear understanding between
the Board and Investment Adviser about the priority risk exposures for the
Company and the Investment Adviser's accountability for alerting the Risk
Committee to material risk indicators on an 'as-arising' basis between now and
February.
Summary governance features of the Terms of Reference adopted:
· The Risk Committee currently comprises all members of the Board
other than the Chairman in order that he can report independently to the
Committee on matters germane to the Company's risk profile, such as
stakeholder relations.
· The Risk Committee will continue to convene quarterly until such
time as the reporting process has matured and the Committee is comfortable
that the pace at which the Company's risk profile is changing merits a typical
semi-annual review process.
Risk Classes
Each risk class is composed of a number of separately identified and scored
risks, but looking at this in composite, top-down, the priority risk classes
for the Company are considered to be:
1. Liquidity Management - risks to the funding runway and allocation
of resources that the Company has available to deploy to support and optimise
the value of its investments.
2. Financial/ Capital Market - risks related to shareholder
understanding, confidence and sentiment in the Company's growth capital
mandate and implications of shares trading at a discount to NAV.
3. Portfolio Performance - risks to tracking each portfolio company's
progress towards measurable milestones along the 'equity roadmap' and evidence
of the strategy and influence over profitable realisations.
4. Relative Performance - the Company's longer terms sustainability
will depend on risk adjusted returns outperforming adjacent asset classes.
5. Conflict and Compliance Management - verification of robust
governance in all stakeholder relationships between the Board, the Investment
Adviser, Jupiter-managed funds with shared holdings (e.g. Starling) and
Jupiter-managed funds with interests in the Company.
Looking at the individual risks in reverse order, the following risk class has
a lower overall risk assessment but a significant number of underlying risk
factors which the Committee assess could be high impact and so it is critical
to review and maintain the identified control environment:
6. Regulatory and political - risk monitoring over routine regulatory
compliance (e.g., FCA in the UK) and/or politically exposed sectors within
which certain portfolio companies must operate.
The remaining six risk classes each have specific key risk indicators but
lower overall combined risk scores at this time:
7. Portfolio Construction - ensuring that the portfolio remains
sufficiently diversified and that the Investment Adviser's span of control and
management of the Company's holdings remains effective.
8. The Environment, Social Impact and Good Governance ("ESG") - the
Company's policy is addressed in Environmental, Social and Corporate
Governance report of the Annual Report.
9. Investment Decisions - evidence that the Investment Adviser has
undertaken appropriate due diligence, risk assessments and origination
processes at the point of committing the Company to new investments.
10. Central Management - governance, depositary, foreign exchange and
treasury risk management controls; some under delegation to specialist third
party service providers.
11. Valuation - oversight of the risks to both the pricing of new
investments as well the independent valuation committee .
12. Horizon Risks - themes emerging that could have an outsize impact or
influence on the prospects of clusters of our target sectors and/or portfolio
companies.
Recommendation
I'm glad to report that the Investment Adviser has given its full co-operation
to the Risk Committee in its work to internalise responsibility for risk
management within the Board. Notwithstanding a challenging market backdrop for
the Company, I welcome their active contribution.
I am satisfied that the Risk Committee is discharging its new responsibilities
proficiently and recommend this report to the Board.
_____________________
Simon Holden
Chair of the Risk Committee, Chrysalis Investments Ltd.
Directors' Report
The Directors present their Annual Report and the Audited Financial Statements
of the Company for the year ended 30 September 2022.
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 a non-EEA-domiciled 'Alternative Investment Fund' ("AIF"), as
defined by the Alternative Investment Fund Managers Directive ("AIFMD").
Jupiter Unit Trust Managers Limited ("JUTM") was its Alternative Investment
Fund Manager ("AIFM") and had sub-delegated portfolio management to Jupiter
Investment Management Limited ("JIML"), which is a member of the same group.
With effect from 1 July 2022, the Company is a self-managed AIF. 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 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.
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
the Company's own financial position, recent market volatility, the on-going
impact of the Russian war on Ukraine, energy shortages, inflation and
increases in interest rates and other uncertainties impacting on the Company's
investments, their financial position and liquidity requirements.
At year end, the Company has liquidity including a current cash position of
£58,712,000, a net current asset position of £57,219,000 and liquid listed
investments amounting to £20,317,000.
The Company generates liquidity by raising capital and exiting investments. It
uses liquidity by making new and follow-on investments and paying company
expenses. The Directors ensure it has adequate liquidity by regularly
reviewing its financial position and forward looking liquidity requirements.
The Directors Going Concern assessment includes consideration of a range of
likely downside scenarios which measure the impact on the Company's liquidity
of differing assumptions for portfolio valuation, exits, new and follow-on
investment requirements, capital raising and company expenses.
After making enquiries, the Directors have a reasonable expectation that the
Company will continue in operational existence for at least twelve months from
the date of approval of the of the Annual Report and Audited Financial
Statements and continue to adopt the going concern basis in preparing them.
Viability Statement
The Directors have assessed the viability of the Company over the three-year
period to September 2025. The Directors consider that three years is an
appropriate period to assess viability given the Company's style of investment
and is a sufficient investment time horizon to be relevant to shareholders.
Choosing a longer time period can present difficulties, given the lack of
longer-term economic visibility and the need for adaptation that this will
inevitably create for the Company and its portfolio.
In their assessment of the viability of the Company, the Directors have
considered the Company's principal and emerging risks and uncertainties, which
are now organised into Risk Classes by the newly established Risk Committee
(page 55 and 56).
The Directors have reviewed financial projections which consider:
- Available liquidity (Risk Class 1: Liquidity Management)
- The ability of the Company to raise capital (Risk Class 2:
Financial/Capital Market)
- The performance (Risk Class 3: Portfolio Performance) and value
(Risk Class 11: Valuation) of the existing portfolio
- The ongoing expenses of the Company
The Directors' considered a severe downside scenario which models:
- A significant economic event, which results in a deterioration
of portfolio company performance and a recalibration of public and private
markets leading to a compound 25% per annum decrease in the aggregate
portfolio value over a three-year economic cycle.
- A sustained discount to NAV which results in the inability of
the company to raise new capital.
- Dislocation of public and private markets, including the
prolonged closure of the IPO market, resulting in the inability to make
portfolio exits.
- A sustained period of inflation of approximately 10% per annum.
Even in this severe downside scenario the company has sufficient liquidity
beyond September 2025 to meet its financial obligations.
The continuation of the Company in its present form is dependent on a
portfolio management agreement remaining in place between the Company and the
Investment Adviser. The current portfolio management agreement is terminable
on two months' notice by either party. In the event notice was served the
Board is confident that it could put in place alternative arrangements. The
Directors currently know of no reason why the Investment Adviser might serve
notice of the portfolio management agreement over the period of the viability
statement.
The Company has no fixed life but, pursuant to the Articles of Association, an
ordinary resolution for the continuation of the Company will be proposed at
the first annual general meeting of the Company following the fifth
anniversary of first admission and, if passed, at the annual general meeting
every three years thereafter. The fifth anniversary of first admission falls
in November 2023 and the continuation vote would therefore take place within
the viability period. In the best interests of the Company, the Directors
operate under the assumption that a resolution for continuation would be
passed. If a resolution for continuation is not passed, proposals would be put
forward to Shareholders for the reconstruction, reorganisation or winding-up
of the Company within six months.
At year end, the Company has liquidity including a current cash position of
£58,712,000, a net current asset position of £57,219,000 and liquid listed
investments amounting to £20,317,000. This available liquidity would sustain
the business for at least 9 years.
The Directors, having considered the above and having carried out a robust
assessment of the principal and emerging risks facing the Company, 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 September 2025.
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 (2021: £nil).
Directors
The Directors of the Company who served during the year and to date are set
out on pages 43 and 44.
Directors' Interests
The Directors held the following interests in the share capital of the Company
either directly or beneficially as at 30 September 2022, and as at the date of
signing these Audited Financial Statements:
Shares % Held
A
Haining
79,000 0.0133
S
Coe
60,909 0.0102
S
Holden
89,500 0.0150
A
Ewing
55,000 0.0092
T
Cruttenden
21,298 0.0036
Margaret
O'Connor
- -
S Cruttenden (son of T
Cruttenden)
11,170 0.0019
The Directors' fees are as disclosed below:
£
A
Haining
77,500
S
Coe
60,000
S
Holden
56,250
A
Ewing
50,000
T
Cruttenden
51,250
M
O'Connor
50,000
Under their terms of appointment, the Directors total remuneration (including
one-off fees) are as disclosed below:
Lord Rockley, Diane Seymour-Williams and Jonathan Biggs receive £40,000 each
per annum as members of the Valuation Committee. Lord Rockley, Diane
Seymour-Williams and Jonathan Biggs are not Directors of the Company.
The Directors' compensation is reviewed annually and effective 1 October 2022,
each Director is paid a basic fee of £52,500 (2021: £47,500) per annum by
the Company. In addition to this, the Chairman receives an extra £27,500
(2021: £27,500) per annum, the Risk Committee Chairman receives an extra
£10,000 per annum and the Audit Committee Chairman receives an extra £10,000
(2021: £10,000) per annum, Mr Cruttenden also receives an additional £15,000
per annum to reflect his position on the Valuation Committee. Refer to page 51
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 Risk Committee 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 Risk
Committee monitors the risk profile of the Company. The Risk Committee 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:
(ii) 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.
(iii) (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.
(iv) (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.
(v) (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 0.81%. The ongoing charges
represent ongoing annual expenses of £9,292,678 divided by total average Net
Asset Value for the year of £1,118,258,532. 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
£274,912 and performance fees of £nil have been excluded and represents the
percentage reduction in shareholder returns as a result of recurring
operational expenses.
Emerging Risks
On 24 February 2022, Russia launched a military invasion of Ukraine. In
response, sanctions have been imposed on key Russian institutions, businesses
and individuals by major world powers including the US, UK and the EU. Russia
is a major exporter of oil, gas, and coal while both Russia and Ukraine are
major exporters of grain.
The Company's portfolio has very limited direct exposure to the Russian and
Ukrainian markets and so the sanctions imposed, as a result of the Russian
invasion, are not expected to have a material impact. Certain portfolio
companies have withdrawn services from the Russian market, a move which the
Investment Adviser supports. Notwithstanding this, certain investee companies
are exposed to the wider economic headwinds (such as increases in energy costs
and interest rates) resulting from the invasion, but the Investment Adviser
remains confident about the resilience of the portfolio in aggregate to
continue to grow and has sufficient liquidity to support these companies to
deliver their business plans.
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
£58,712,000 and net current assets of £57,219,000.
The Board will of course continue to assess the position as the nature of the
conflict evolves.
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.
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 2-3 and the Environmental, Social and
Corporate Governance Report on pages 30-38. 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.
Portfolio Management and Administration
Portfolio 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 Investment Adviser to perform
portfolio management functions.
The Investment Adviser 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 Investment Adviser 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 Portfolio Management Agreement may
be terminated by either party on two months' notice and may be immediately
terminated by either party in certain circumstances such as a material breach
which is not remedied.
Details of the proposed changes can be found in the Chairman's Report on page
4.
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 is 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 2022 appear on pages 43 and 44 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 and
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 and
Nomination Committee, the Risk Committee, Valuation 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 and Nomination Committee
In accordance with the AIC Code, a Remuneration and Nomination Committee has
been established. Anne Ewing has been appointed as Chairman. The Remuneration
and 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 51.
Management Engagement Committee
Margaret O'Connor 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 Investment Adviser and the terms of the Portfolio
Management Agreement. Details of the management and performance fees can be
found in note 6.
Risk Committee
Simon Holden is the Chairman of the Risk Committee. A full report regarding
the Risk Committee can be found in the Risk Committee Report.
Valuation Committee
Lord Rockley is the Chairman of the Valuation Committee with Tim Cruttenden,
Diane Seymour-Williams and Jonathan Biggs as members.
Substantial Shareholdings
On 26 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 (13.4%).
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.
The Board hosted a Capital Markets Day for shareholders at 30 November 2022.
The presentation provided an overview of Chrysalis' strategy and outlook,
pointing to its robust balance sheet, the potential of its well-funded
portfolio, valuations relative to growth, the drive towards profitability, and
the possible opportunities that may arise as and when the market re-opens. In
addition, lessons learned from the less successful assets were also discussed,
as well as the risks around ensuring adequate funding in the portfolio,
particularly the trade-off between ability to follow-on and share buybacks.
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
30 January 2023
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 2022. 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 Channel Islands
Limited ("KPMG") for audit and non-audit services during the year ended 30
September 2022.
30 September 30 September
2022 2021
Annual audit
fee
135,000 120,000
Interim
review
40,000 33,000
___________ ___________
175,000 153,000
___________ ___________
Internal Control
Following the Company becoming self-managed AIF on 1 July 2022, the Company is
responsible for the process surrounding the valuation of its investment
portfolio. The Company has delegated these processes to its independent
Valuation Committee which reviews third party valuations of unlisted
investments. The Audit Committee liaises with the Valuation Committee
regularly and reviews minutes of Valuation Committee meetings. For all other
processes of the Company responsibility for internal control lies within the
services provided by 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 UK Limited.
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
Company's Valuation Committee for review. The Board reviews these portfolio
valuations on a regular basis throughout the year. On 1 July 2022, the company
become a self-managed Alternative Investment Fund, assuming direct
responsibility for risk management and investment valuation. A new Risk
Committee and an Independent Valuation Committee were subsequently appointed.
The Audit Committee's ultimate responsibility is to review the portfolio
valuations.
· 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.
· 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 and or Fair Value
Pricing Committee 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. During
the current year 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 advisery 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 46).
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 2022, 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 2022, 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 2021):
The risk Our response
Valuation of investments held at fair value through profit or loss Basis: Our audit procedures included but were not limited to:
The Company's investments are carried at fair value in accordance with IFRS.
The investments comprise of equity and equity-related instruments in quoted
£822,363,000 (2021: £1,460,198,000) and unquoted companies and represent 93% (2021: 106%) of the Company's net Internal Controls:
assets as at 30 September 2022.
We assessed the design and implementation of the control in place over the
valuation of investments.
Refer to page 69 of the Audit Committee Report, notes 2(i), 3, 11 and 20
Challenging managements' assumptions and inputs:
For the Unlisted Investments, with the support of our valuation specialist,
we:
· assessed the objectivity, capabilities and competence of the
The Company's unlisted investments, with a value of £802,046,000 (the Valuation Agents;
"Unlisted Investments"), are valued by using recognised valuation
methodologies and models, in accordance with the International Private Equity · assessed the scope of the Valuation Agents' review of the investments
and Venture Capital Valuation Guidelines. and read the valuation reports and memoranda produced by them and the
Investment Adviser;
· held discussions with the Investment Adviser and the Valuation Agent
The Company utilises independent third party valuation firms (the "Valuation and attended, in an observation capacity, a meeting of the Board of Directors
Agents") to assist and advise on their valuation process. of the Company, to understand the key judgments made and valuation approaches
applied;
· assessed the appropriateness of the valuation approach and
The Company's listed investment, with a value of £20,317,000 (the "Listed methodology applied to each investment;
Investment"), is valued by the Company based on the quoted market bid price in
an active market for that instrument. · compared the assumptions used in the valuation models employed to
observable market data (where possible);
· corroborated significant investee company inputs used in the
Risk: valuation models, and recent investment transactions to supporting
documentations; and
· considered market transactions in close proximity to the year end and
The valuation of the Company's investments is a significant area of our audit, assessed their appropriateness as being representative of fair value.
given that it represents a significant portion of the net assets of the
Company.
Our valuation specialist independently priced the Listed Investment to a third
party pricing source.
The valuation risk of the Unlisted Investments incorporates both a risk of
fraud and error given the significance of estimates and judgements that may be
involved in the determination of fair value.
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 £17,591,000,
determined with reference to a benchmark of net assets of £879,582,000, of
which it represents approximately 2.0% (2021: 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% (2021: 75%) of materiality for the financial
statements as a whole, which equates to £13,193,000. 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 £879,000, 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 risks 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 disclose 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 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 valuation of unquoted investments is set out in
the key audit matter section of 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 58 and 59) 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 58 and 59) 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.
We are also required to review the Viability Statement, set out on pages 58
and 59 under the Listing Rules. Based on the above procedures, we have
concluded that the above disclosures are materially consistent with the
financial statements and our audit knowledge.
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 66 and 67,
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. 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
30 January 2023
Statement of Comprehensive Income
For the year ended 30 September 2022
Year ended Year ended
30 September 2022 30 September 2021
Notes Revenue Capital Total Revenue Capital Total
£,000 £,000 £,000 £,000 £,000 £,000
Investments
Net (losses)/gains on investments 11 - (610,180) (610,180) 568,419 568,419
held at fair value through profit or loss
Net gains on currency - 215 215 268 268
movements
Net investment (losses)/gains - (609,965) (609,965) - 568,687 568,687
Interest income 5 71 - 71 851 - 851
Gain on settlement of 6 - 17,907 17,907 - - -
financial liability
Total income 71 17,907 17,978 851 - 851
Investment management and performance fees 6 (6,093) - (6,093) (5,153) (112,077) (117,230)
Other expenses 7 (3,199) - (3,199) (3,762) - (3,762)
(Losses)/gains before finance costs and taxation (9,221) (592,058) (601,279) (8,064) 456,610 448,546
Finance costs 8 (13) - (13) (238) - (238)
(Losses)/gains before taxation (9,234) (592,058) (601,292) (8,302) 456,610 448,308
Tax expense - - - - - -
Total (losses)/gains and (9,234) (592,058) (601,292) (8,302) 456,610 448,308
comprehensive income for the year
Loss)/gain per 9 (1.59) (101.65) (103.24) (1.75) 96.54 94.76
Ordinary Share (pence)
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 82 to 110 form an integral part of these Audited Financial
Statements.
Statement of Financial Position
As at 30 September 2022
2022 2021
Notes £,000 £,000
Non-current assets
Investments held at fair value through profit or loss 11 822,363 1,460,198
Current Assets
Cash and cash equivalents 12 58,712 49,794
Other receivables 13 69 427
Unsettled trades 14 3,791 -
62,572 50,221
Total 884,935 1,510,419
assets
Current liabilities
Performance fee payable 6 - (112,077)
Management fee payable 6 (4,306) (3,333)
Loan payable 15 - (15,000)
Other payables 16 (1,047) (1,075)
Total liabilities (5,353) (131,485)
Net assets 879,582 1,378,934
Equity
Share Capital 17 860,890 758,950
Capital reserve 41,362 633,420
Revenue reserve (22,670) (13,436)
Total Equity 879,582 1,378,934
Net Asset Value per Ordinary Share (pence) 18 147.79 251.96
Number of Ordinary Shares in issue 17 595,150,414 547,273,076
___________ ___________
Approved by the Board of Directors and authorised for issue on 30 January 2023
and signed on their behalf:
Stephen Coe
Director
The notes on pages 82 to 110 form an integral part of these Audited Financial
Statements.
Statement of Changes in Equity
For the year ended 30 September 2022
Share capital Capital reserve Revenue reserve Total
£'000 £'000 £'000 £'000
At 30 September 2020
Total gains/(losses) and comprehensive 370,367 176,810 (5,134) 542,043
income for the year
Share issue - 456,610 (8,302) 448,308
Share issue costs 395,000 - - 395,000
(6,417) - - (6,417)
At 30 September 2021 758,950 633,420 (13,436) 1,378,934
Total gains/(losses) and comprehensive - (592,058) (9,234) (601,292)
income for the year
Share issue 102,614 - - 102,614
Share issue costs (674) - - (674)
At 30 September 2022 860,890 41,362 (22,670) 879,582
The notes on pages 82 to 110 form an integral part of these Audited Financial
Statements.
Statement of Cash Flows
For the year ended 30 September 2022
2022 2021
Notes £'000 £'000
Cash flows from operating activities
Cash used in operating activities 19 (59,330) (37,987)
Interest paid 8 (13) (238)
Interest income 5 71 851
Purchase of investments 11 (93,663) (426,639)
Sale of investments 11, 14 117,527 94,707
Net gains on currency movements 215 268
Net cash outflow from operating activities (35,193) (369,038)
Cash flows from financing activities
Issue of ordinary shares 17 59,999 395,000
Share issue costs 17 (674) (6,417)
(Repayment)/Proceeds of loan payable 15 (15,000) 15,000
Net cash inflow from financing activities 44,325 403,583
Net increase in cash and cash equivalents 9,132 34,545
Cash and cash equivalents at beginning of year 49,794 15,559
Net loss on cash currency movements (214) (310)
Cash and cash equivalents at end of year 12 58,712 49,794
Cash and cash equivalents comprise of the following:
Cash at bank 58,712 49,794
58,712 49,794
The notes on pages 82 to 110 form an integral part of these Audited Financial
Statements.
Notes to the Audited Financial Statements
For the year ended 30 September 2022
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 2020, as amended and the Registered Closed-ended Investment
Scheme Rules 2021.
The Company's 595,150,414 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 25,210,084 and 22,667,254 for
a net consideration of £59,403,549 and £42,536,651 respectively. The shares
were issued on 15 December 2021 and 28 January 2022. The Audited Financial
Statements of the Company are presented for the year ended 30 September 2022.
The Company invests in a diversified portfolio consisting primarily of equity
and equity-related securities issued by unquoted companies.
The Company and its Alternative Investment Fund Manager ("AIFM") received
investment advice from Jupiter Investment Management Limited ("JIML") up to 30
June 2022. From 1 July 2022, the Company became a self-managed Alternative
Investment Fund ("AIF"), assuming direct responsibility for risk management
and investment valuation. A new Risk Committee and an Independent Valuation
Committee were subsequently appointed. Discretionary portfolio management
services are now procured directly from JIML. 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
In assessing the going concern basis of accounting, the Directors have
assessed the guidance issued by the Financial Reporting Council and considered
the Company's own financial position, recent market volatility, the on-going
impact of the Russian war on Ukraine, energy shortages, inflation and
increases in interest rates and other uncertainties impacting on the Company's
investments, their financial position and liquidity requirements.
At year end, the Company has liquidity including a current cash position of
£58,712,000, a net current asset position of £57,219,000 and liquid listed
investments amounting to £20,317,000.
The Company generates liquidity by raising capital and exiting investments. It
uses liquidity by making new and follow-on investments and paying company
expenses. The Directors ensure it has adequate liquidity by regularly
reviewing its financial position and forward looking liquidity requirements.
The Directors' going concern assessment includes consideration of a range of
likely downside scenarios which measure the impact on the Company's liquidity
of differing assumptions for portfolio valuation, exits, new and follow-on
investment requirements, capital raising and company expenses.
After making enquiries, the Directors have a reasonable expectation that the
Company will continue in operational existence for at least twelve months from
the date of approval of the of the Annual Report and Audited Financial
Statements and continue to adopt the going concern basis in preparing them.
(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 portfolio
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 (2021: £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). 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 JIML 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 price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
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 £58,712,000. Refer to
note 12 for further details of the cash balance held at 30 September 2022.
(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 date fair value is
measured. 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.
(o) Investment entities
In accordance with IFRS 10 an investment entity is an entity that:
· obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management services;
· commits to its investor(s) that its business purpose is to
invest funds solely for returns from capital application, investment income,
or both; and
· measures and evaluates the performance of substantially all
of its investments on a fair value basis.
The Directors are satisfied that the Company meets each of these criteria and
hence is an investment entity in accordance with IFRS 10.
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 standards have been released but are not yet effective and hence
have not been applied in preparing the Company's financial statements for the
year ended 30 September 2022. The Directors have considered their impact and
have concluded that they will not have a material impact on the Company's
financial statements.
· IAS 1 - Presentation of Financial Statements
Classification of Liabilities as Current or Non-current: The amendments aim to
promote consistency in applying the requirements by helping companies
determine whether, in the statement of financial position, debt and other
liabilities with an uncertain settlement date should be classified as current
(due or potentially due to be settled within one year) or non-current.
Effective date - 1 January 2024
· IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors
Definition of Accounting Estimates: The amendments replace the definition of
a change in accounting estimates with a definition of accounting estimates.
Under the new definition, accounting estimates are "monetary amounts in
financial statements that are subject to measurement uncertainty". Entities
develop accounting estimates if accounting policies require items in financial
statements to be measured in a way that involves measurement uncertainty. The
amendments clarify that a change in accounting estimate that results from new
information or new developments is not the correction of an error.
Effective date - 1 January 2023
· IAS 12 - Income Taxes
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction: The amendments clarify that the initial recognition exemption
does not apply to transactions in which equal amounts of deductible and
taxable temporary differences arise on initial recognition.
Effective date - 1 January 2023
· IAS 37 - Provisions, Contingent Liabilities and Assets
Onerous Contracts-Cost of Fulfilling a Contract: The amendments specify that
the 'cost of fulfilling' a contract comprises the 'costs that relate directly
to the contract'. Costs that relate directly to a contract can either be
incremental costs of fulfilling that contract (examples would be direct
labour, materials) or an allocation of other costs that relate directly to
fulfilling contracts (an example would be the allocation of the depreciation
charge for an item of property, plant and equipment used in fulfilling the
contract).
Effective date - 1 January 2022
· IFRS 9 - Financial Instruments
Annual Improvements to IFRS Standards 2018-2020: The amendment clarifies which
fees an entity includes when it applies the '10 per cent' test in paragraph
B3.3.6 of IFRS 9 in assessing whether to derecognise a financial liability. An
entity includes only fees paid or received between the entity (the borrower)
and the lender, including fees paid or received by either the entity or the
lender on the other's behalf.
Effective date - 1 January 2022
5. Interest income
Interest is accounted for using the effective interest method. Interest income
totaling £60,000 (2021: £380,000) was earned from the Sorted Holdings
Limited Convertible Loan which is held at fair value through profit or loss
(FVTPL). £11,000 (2021: £nil) was earned from Citibank accounts. During the
prior year, £471,000 was earned from the wefox Loan note which converted to
equity in that period. It was also held at fair value through profit or loss
(FVTPL).
6. Investment management fees
2022 2021
£'000 £'000
Investment management fee
Jupiter Unit Trust Managers Limited ("JUTM") 4,915 2,840
Jupiter Investment Management Limited ("JIML") 1,178 2,313
Investment performance fee - charged to capital - 112,077
Total investment management fees 6,093 117,230
Jupiter Unit Trust Managers Limited ("JUTM") was the Alternative Investment
Fund Manager ("AIFM") until 30 June 2022. JUTM had sub delegated portfolio
management to Jupiter Investment Management Limited ("JIML") which is a member
of the same group. From 1 July 2022 the Company became a self-managed AIF and
procures portfolio management services directly from JIML, under the Portfolio
Management Agreement entered into on the same date.
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 advisery fee is charged to
such investment fund or special purpose vehicle by JIML 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 2022, an amount of £3,128,000 (2021: £3,333,000) to JUTM
and £1,178,000 (2021: £nil) to JIML were outstanding and due in respect of
management fees.
Performance fee
In accordance with an agreement between the Company and JUTM dated 29 November
2021 (the "Agreement"), the Company settled 54% (£60,522,000) of the
performance fee due to JUTM for the year ended 30 September 2021 in ordinary
shares issued by the Company. The remaining 46% (£51,555,000) of the
performance fee amount was settled in cash.
The value of the 22,667,415 ordinary shares issued under the Agreement on 28
January 2022 was £42,615,000. The difference between the value of the
liability settled through the issuance of ordinary shares and the value of the
shares issued on 28 January 2022, being £17,907,000, is recognised within
gains on settlement of financial liability within the Statement of
Comprehensive Income.
For the year ended 30 September 2022, JIML was 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 2021 and ending on 30 September 2022 (the "Calculation
Period").
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 Portfolio Management Agreement, any accrued and unpaid
performance fees will crystallise and become payable to JIML 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 2022, the Company had not exceeded the High Water Mark and
Performance Hurdle and no accrual (2021: £112,077,000 due to JUTM) for
performance fees has been reflected within these Audited Financial Statements.
An amount of £nil (2021: £112,077,000 due to JUTM) was outstanding and due
to JIML in respect of performance fee payable as at 30 September 2022.
7. Other expenses
2022 2021
£'000 £'000
Administration fee 267 237
AIFM fee 433 400
Auditor's remuneration for:
- audit fees (current year) 135 120
- audit fees (under accrual in prior year) 4 42
- non-audit fees 40 114
Committee fees 79 -
Depositary fees 87 91
Directors' expenses 6 -
Directors' fees 345 404
Directors' liability insurance 68 49
FCA fees 31 18
Legal fee and professional fees:
- ongoing operations 826 946
- valuation fees 152 221
- due diligence fees 160 165
- purchases 275 354
Listing fees 53 140
Loan agreement fee - 160
Loan commitment fee 9 88
Printing fees 32 47
Registrars' fees 42 72
Secretarial fees 41 35
Sundry 114 89
3,199 3,762
8. Finance costs
2022 2021
£'000 £'000
Bank interest 1 21
Loan interest 12 217
13 238
9. (Losses)/gains per ordinary share
30 September 2022 30 September 2021
Net return Per share pence Net return Per share pence
£,000 £,000
Revenue return (9,234) (1.59) (8,302) (1.75)
Capital return (592,058) (101.65) 456,610 96.51
(601,292) (103.24) 448,308 94.76
Weighted average number of Ordinary Shares 582,448,943 473,121,001
The return per share is calculated using the weighted
average number of ordinary shares.
10. Dividends
The Board has not declared a dividend (2021: £nil).
11. Investments held at fair value through profit or loss
2022 2021
£'000 £'000
Opening book cost 758,013 404,480
Opening investment holding unrealised gains 702,185 201,807
Opening valuation 1,460,198 606,287
Movements in the year:
Purchases at cost 93,663 380,199
Sales - proceeds (121,318) (94,707)
Net (losses)/gains on investments held at fair value through profit or loss (610,180) 568,419
Closing valuation 822,363 1,460,198
2022 2021
£'000 £'000
Closing book cost 731,095 758,013
Closing investment holding unrealised gains 91,268 702,185
Closing valuation 822,363 1,460,198
2022 2021
£'000 £'000
Movement in unrealised gains during the year 130,434 501,083
Movement in unrealised losses during the year (741,351) (705)
Realised loss on sale of investments (55,742) -
Realised gain on sale of investments 56,479 68,041
Net (losses)/gains on investments held at fair value through profit or loss (610,180) 568,419
The Company holds all its investments at fair value through profit and loss.
Investments held by the Company on 30 September 2022 where the ownership
interest exceeded 20% were as follows:
Name Principal place Principal activity Ownership interest %
of business
Cognitive Logic Inc. United States Trading company 20-30%
Smart Pension Limited United Kingdom Trading company 20-30%
Sorted Holdings Limited United Kingdom Trading company 20-30%
Tactus Holdings Limited United Kingdom Trading company 20-30%
12. Cash and cash equivalents
2022 2021
£'000 £'000
Cash and cash equivalents comprise of the following:
Cash at bank 58,712 49,794
58,712 49,794
13. Other receivables
2022 2021
£'000 £'000
Prepayments and accrued income 69 427
69
427
14. Unsettled trades
On 30 September 2022, the Company sold 566,927 shares in Wise plc for a
consideration of £3,791,154. The transaction was settled on 4 October 2022.
15. Loan payable
2022 2021
£'000 £'000
Barclays Bank plc - 15,000
During the prior year the Company entered into a revolving loan facility with
Barclays Bank plc. The facility had an interest rate of LIBOR +2.5%. An amount
of £15,000,000 was drawn on the facility in the prior period. The Company
incurred agreement fees of £160,000 and a commitment fee of £88,000 during
the prior period in respect of the facility. The loan was subsequently repaid
in full on 15 October 2021 and the facility terminated.
16. Other payables
2022 2021
£'000 £'000
Administration fees 60 142
AIFM fees 287 280
Audit fees 135 142
Loan interest - 86
Pricing review fees 367 276
Custodian fees 18 30
Other creditors 280 119
1,047 1,075
17. Share capital
No of £'000
shares
Ordinary Shares at no par value
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
Issue of shares 47,877,338 102,614
Issue costs - (674)
595,150,414 860,890
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.
Included within the value of the issue of shares is £42,615,000 relating to
shares issued to JUTM in settlement of the performance fee payable at 30
September 2021 (see Note 6).
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 2022 30 September 2021
NAV NAV NAV NAV
per share attributable per share attributable
pence £,000 pence £,000
Ordinary Shares: basic and diluted 147.79 879,582 251.96 1,378,934
The Net Asset Value per Ordinary Share is based on 595,150,414 (2021:
547,273,076) Ordinary Shares, being the number of Ordinary Shares in issue at
the year end.
19. Cash used in operating activities
2022 2021
£'000 £'000
Total (losses)/gains for the year (601,292) 448,308
Net losses/(gains) on investments held at fair value through profit or loss
610,810 (568,419)
Gain on settlement of financial liability (17,907) -
Interest income (71) (851)
Finance costs 13 238
Net (gains)/losses on currency movements (1) 42
Movement in working capital
Decrease / (Increase) in other receivables 358 (160)
Decrease)/Increase in payables (excluding loan payable and settlement of (50,610) 82,855
performance fees through the issuance of shares - see note 6)
(59,330) (37,987)
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 2022 Level 1 Level 2 Level 3 Total
£,000 £,000 £,000 £,000
Quoted equity 20,317 - - 20,317
Unquoted equity - - 802,046 802,046
- 802,046 822,363
20,317
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
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 2022
Fair Value as at 30 September 2022 (£000s) Valuation Technique Significant Unobservable Inputs Range Sensitivity % Sensitivity to changes in significant unobservable inputs
447,933 Market approach using comparable traded multiples 25% If multiples changed by +/- 25%, the value of the companies in this group
would change by + £42,745,628 / - £41,842,136
EV/2022E revenue multiples
EV/LTM revenue multiples
0.13 - 25.79x
EV/2023E revenue multiples
113,394 Market approach using price to book ratios Price/2022E Book multiple 25% If multiples changed by +/- 25%, the value of the companies in this group
would change by + £39,701,835 / - £34,903,560
0.35 - 4.41x
177,016 Recent transaction price N/A N/A N/A N/A
45,065 Scenario Analysis Probability 17-100% 25% If probability changed by +/- 25%, the value of the companies in this group
would change by + £21,124,669 / - £21,124,669
18,429 Option Pricing Underlying Asset Value N/A 25% If the underlying asset values changed by +/- 25%, the value of the companies
in this group would change by + £3,816,379 / - £3,893,347
209 Wind Down 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 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 Company has an established control framework with respect to the
measurement of fair values. The Unlisted Asset Valuation Committee ("UAVC") of
the AIFM was responsible for valuation of the Company's investments until 30
June 2022. The Company has appointed a new independent Valuation Committee
upon its move to a self-managed structure from 1 July 2022. Under the new
structure, the Company's Investment Adviser continues to provide discretionary
portfolio management services, while the Company assumes direct responsibility
for the valuation process.
The Valuation Committee regularly reviews significant unobservable inputs and
valuation adjustments. Valuations are prepared by an independent third party
valuer and the Valuation Committee assesses the evidence prepared to support
the conclusion that these valuations meet the requirements of the standards,
including 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:
2022 2021 2022 2021
£'000 £'000 £'000 £'000
Level 1 Level 1 Level 3 Level 3
Opening balance 236,756 94,213 1,223,442 512,074
Transferred to/(from) Level 1 (4,961) 161,161 4,961 (161,161)
Purchases 15,219 64,101 78,444 316,098
Sales (49,478) (94,707) (71,840) -
Total gains/(losses) included in net gains on investments in the statement of
comprehensive income:
- on assets sold (42,763) 68,041 43,500 -
- on assets held at year end (134,456) (56,053) (476,461) 556,431
20,317 236,756 802,046 1,223,442
Revolution Beauty was moved to Level 3 from Level 1 due to being suspended on
the London Stock Exchange and no longer valued using a quoted share price. The
change in unrealised gains or losses (net loss) for the period included in the
Statement of Comprehensive Income relating to those Level 3 assets held at the
reporting date amount to £427,998,000 (2021: net gain of £474,928,000).
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 financial
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 portfolio 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 25% at 30 September 2022
(10% at 30 September 2021), the impact on the net asset value would have been
£205,590,626 (2021: £146,019,845). 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 2022 the financial assets and financial liabilities exposed
to interest rate risk are as shown below:
In one year Greater than 2022
or less one year Total
£,000 £,000 £,000
Cash and cash equivalents (daily interest rate) 58,712 - 58,712
58,712 - 58,712
Total
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
Liquidity and interest risk tables
The following tables detail the Company's remaining contractual maturity for
its financial assets and liabilities.
2022 Over
Interest Year 1 Year 1 - 2 2 years
rate % £,000 £,000 £,000 Total
Assets
Cash Daily bank rate 58,712 - - 58,712
Other receivables and unsettled trades Interest free 3,860 - - 3,860
62,572 - - 62,572
2021 Over
Interest Year 1 Year 1 - 2 2 years
rate % £,000 £,000 £,000 Total
Assets
Convertible loan note (notional) 8% fixed rate 5,205 - - 5,205
Cash Daily bank rate 49,794 - - 49,794
Other receivables Interest free 727 - - 727
55,426 - - 55,426
2022 Over
Interest Year 1 Year 1 - 2 2 years
rate % £,000 £,000 £,000 Total
Liabilities
Other current liabilities Interest free 5,353 - - 5,353
5,353 - - 5,353
2021 Over
Interest Year 1 Year 1 - 2 2 years
rate % £,000 £,000 £,000 Total
Liabilities
Loan payable Libor +2.5% 15,000 - - 15,000
Other current liabilities Interest free 116,485 - - 116,485
131,485 - - 131,485
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:
2022
Investments Cash Debtors Creditors
£,000 £,000 £,000 £,000
US dollar 260,583 58 - 2
Euro 154,943 10 - -
Swedish krona 56,135 290 - -
471,661 358 - 2
Total
2021
Investments Cash Debtors Creditors
£,000 £,000 £,000 £,000
US dollar 253,247 216 - 2
Euro 108,657 10 - -
Swedish krona 386,999 - - -
748,903 226 - 2
Total
During the year pound sterling weakened by an average of 4.75% against all of
the currencies in the investment portfolio (weighted for exposure at 30
September 2022). In a similar scenario, where the value of pound sterling had
strengthened against each of the currencies in the portfolio by 5% (2021:
10%), the impact on the Net Asset Value would have been negative £22,460,066
(2021: negative £68,082,169). If the value of pound sterling had weakened
against each of the currencies in the investment portfolio by 5% (2021: 10%),
the impact on the Net Asset Value would have been positive £24,824,284 (2021:
£83,211,540). 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. The Risk Committee 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:
2022 2021
£'000 £'000
Convertible loan note (fair value) 58,712 5,205
Cash and cash equivalents 69 49,794
Other receivables 3,791 427
Unsettled trades -
62,572 55,426
All the assets of the Company which are traded on a recognised exchange are
held on its behalf by Citibank UK Limited, 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 £58,354,558, $64,552, CHF72, SEK3,586,427 and €10,961 was held with
Citibank UK Limited at year end.
The credit rating of Citibank UK Limited 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 Company will seek to ensure that it 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 91% (2021: 89%) of the net assets as at
30 September 2022.
The Company's liquidity risk is maintained by the Risk Committee in accordance
with established policies, procedures and governance structures in place. Cash
flow forecasting is reviewed by the Risk Committee 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 3 and 12 months Between 1 and 5 years
Up to
3 months Total
£ £ £ £
2022
Assets
Cash 58,712 - - 58,712
Other receivables 69 - - 69
Unsettled trades 3,791 - - 3,791
Liabilities
Current liabilities (5,353) - - (5,353)
57,219 - - 57,219
Total
Between 3 and 12 months Between 1 and 5 years
Up to
3 months 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)
(66,264) (9,795) - (76,059)
Total
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
80.
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 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 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 Alternative Investment Fund Manager ("AIFM"), replacing
Maitland Institutional Services Limited whose appointment was terminated at
the same time. JUTM subsequently sub delegated portfolio management services
to Jupiter Investment Management Limited ("JIML") which is a member of the
same group.
On 30 June 2022 JUTM's appointment as AIFM was terminated, and on 1 July 2022
the Company became a self-managed AIF. JIML continues to provide portfolio
management services by virtue of a Portfolio Management Agreement entered into
the same date.
2022 2021
£'000 £'000
Management fee charged by JUTM:
Total management fee charged 4,915 2,840
Management fee outstanding 3,128 2,840
Management fee charged by JIML:
Total management fee charged 1,178 2,313
Management fee outstanding 1,178 493
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 433 147
AIFM fee outstanding 287 147
AIFM fee charged by Maitland Institutional Services Ltd:
Total AIFM fee charged - 248
AIFM fee outstanding - 129
Directors' fees:
Total Directors' fees charged 345 404
Directors' fees outstanding 18 -
As detailed in note 6, on 28 January 2022 JUTM received 22,667,415 shares in
satisfaction of the performance fee payable at 30 September 2021.
As at 30 September 2022 the following Directors have holdings in the Company:
Director Number of % Ordinary shares in issue
Ordinary shares as at 30 September 2022
Andrew Haining 79,000 0.0133
Stephen Coe 60,909 0.0102
Simon Holden 89,500 0.0150
Anne Ewing 55,000 0.0092
Tim Cruttenden 21,298 0.0036
Margaret O'Connor - -
S Cruttenden (son of Tim Cruttenden) 11,170 0.0019
As at 30 September 2021 the following Directors have holdings in the Company:
Director Number of % Ordinary shares in issue
Ordinary shares as at 30 September 2022
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 - -
The following funds, which are also managed by Jupiter, hold an investment in
the Company.
Total holdings at Shares purchased Shares sold Total holdings at Value of holdings at
30 September during during 30 September 30 September
2021 the year the year 2022 2022
£'000
Fund name
Jupiter UK Smaller Companies Focus Fund 6,567,286 - (2,177,175) 4,390,111 2,709
Jupiter UK Specialist Equity Fund 7,009,168 - (2,842,943) 4,166,225 2,571
Jupiter UK Mid-Cap Fund 77,592,375 7,600,007 (1,128,854) 84,063,528 51,867
Jupiter UK Smaller Companies Fund 17,820,552 - (1,861,995) 15,958,557 9,846
Jupiter Investment Fund - Jupiter Managed European Portfolio 742,325 3,633 (745,958) - -
Jupiter Investment Fund -Jupiter Merlin International Balanced 668,092 3,270 (671,362) - -
Jupiter Investment Fund - Jupiter Merlin International Equities 946,275 4,724 (950,999) - -
Jupiter Investment Fund - Jupiter Merlin Real Return Portfolio 1,559,644 7,268 (307,273) 1,259,639 777
Jupiter Fund of Investment Trusts 2,000,000 - - 2,000,000 1,234
Jupiter Merlin Real Return Portfolio 103,926 509 (104,435) - -
Jupiter Merlin Worldwide Portfolio 8,532,956 43,605 (8,576,561) - -
Jupiter UK Smaller Companies Equity Fund 1,750,000 500,000 - 2,250,000 1,388
Total 125,292,599 8,163,016 (19,367,555) 114,088,060 70,392
The following funds, which are also managed by Jupiter, hold an investment in
the Company.
Total holdings at Shares purchased Shares sold Total holdings at Value of holdings at
30 September during during 30 September 30 September
2020 the year the year 2021 2021
£'000
Fund name
Jupiter UK Smaller Companies Focus Fund 5,520,882 2,637,000 (1,590,596) 6,567,286 17,535
Jupiter UK Specialist Equity Fund 8,112,820 - (1,103,652) 7,009,168 18,714
Jupiter UK Mid-Cap Fund 51,451,305 26,141,070 - 77,592,375 207,172
Jupiter UK Smaller Companies Fund 14,601,552 3,219,000 - 17,820,552 47,581
Jupiter Investment Fund - Jupiter Managed European Portfolio - - - 742,325 1,982
Jupiter Investment Fund -Jupiter Merlin International Balanced - 668,092 - 668,092 1,784
Jupiter Investment Fund - Jupiter Merlin International Equities - 946,275 - 946,275 2,527
Jupiter Investment Fund - Jupiter Merlin Real Return Portfolio - 1,559,644 - 1,559,644 4,164
Jupiter Fund of Investment Trusts - 2,000,000 - 2,000,000 5,340
Jupiter Merlin Real Return Portfolio - 103,926 - 103,926 277
Jupiter Merlin Worldwide Portfolio - 8,532,956 - 8,532,956 22,783
Jupiter UK Smaller Companies Equity Fund - 1,750,000 - 1,750,000 4,673
Total 79,686,559 47,557,963 (2,694,248) 125,292,599 334,532
22. Post balance sheet events
During October 2022, the Company purchased two UK treasury bills maturing on
14 November 2022 and 21 November 2022 respectively for a consideration of
£28,944,225. The Company also purchased three UK treasury bills in December
2022 maturing on 16 January 2023, 23 January 2023 and 30 January 2023
respectively for a consideration of £54,800,418. The Company purchased three
further treasury bills in January 2022 maturing on 30 January 2023, 6 February
2023 and 20 February 2023 for a consideration of £21,368,497.
The Company completed a £1,499,999 follow-on investment in Cognitive Logic
Inc. (InfoSum) in October 2022.
During October 2022, the Company sold 874,411 shares in Wise plc for a net
consideration of £5,894,843 and a realised gain of £3,873,061.
During November 2022, the Company sold all of its stake in Revolution Beauty
Group plc for approximately £5 million via an off-market transaction. The
asset was held at nil value at 30 September 2022.
On 30 November 2022, an announcement was made about the intention to revise
current performance fee arrangements. Details of the proposed changes can be
found in the Chairman's Report on page 4. Further details will be provided to
shareholders through a circular where shareholder consent will be sought by
virtue of these changes being a related party transaction for the purposes of
the Listing Rules. If approved by shareholders, it is expected that the
revised arrangements will apply with effect from the start of the financial
year ended 30 September 2023.
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
Registered office
3rd Floor
1 Le Truchot
St Peter Port
Guernsey, GY1 1WD
Investment Adviser
Jupiter Investment Management Limited ("JIML")
The Zig Zag Building
70 Victoria Street
London, SE1E 6SQW
Alternative Investment Fund Manager ("AIFM")
Jupiter Unit Trust Managers Limited ("JUTM") (To 30 June 2022)
The Zig Zag Building
70 Victoria Street
London, SE1E 6SQW
On 1 July 2022 the Company moved to a self-managed structure
Financial Adviser and Corporate Broker
Liberum Capital Limited
Ropemaker Place Level 12
25 Ropemaker Street
London, EC2Y 9LY
Numis Securities Limited
45 Gresham Street
London, EC2V 7BF
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 UK Limited
Citigroup Centre
Canada Square
Canary Wharf
London, E14 5LB
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.
EBITDA
Earnings before interest, tax, depreciation and amortisation
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. END ACSNKKBQBBKBKDNRecent news on Chrysalis Investments
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