REG - Chrysalis Invs Ltd - Interim Results
27/06/2023 07:15
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RNS Number : 9695D Chrysalis Investments Limited 27 June 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The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any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.
27 June 2023
Chrysalis Investments Limited ("Chrysalis" or the "Company")
Interim Results
Financial Summary
31 March 2023 30 September 2022 % Decrease
NAV per share 130.02p 147.79p 12.0%
Share price 58.70p 61.70p 4.9%
Total net assets £774 million £880 million 12.0%
Headlines
- NAV per share of 130.02p, representing a 12.0% decrease over the
first half of the financial year, driven by lower values of the tech-enabled
companies used as comparables to the portfolio, although the NAV did see an
increase in the second quarter of the period
- Follow on investment of c£25 million, including primary investment
into InfoSum (£1.4 million) and wefox (£3.6 million), and the purchase of
secondary capital in Starling Bank (£20 million)
- Further investment was made into Smart Pension following the period
end (£12.5 million)
- The first six months of the financial year saw a continuation of the
difficult market conditions that have been prevalent since early 2022, driven
by rising inflation and interest rate expectations
- The Investment Adviser has continued to work with the portfolio
management teams to shift the focus from pure growth to more of a balance
between profitability and growth, in line with investor demand
- Following the investment into Smart Pension, 84% (by NAV) of the
portfolio is now either profitable or funded to anticipated profitability, up
from 67% at 30 September 2022
- The Company remains in a strong liquidity position with total
liquidity of c£43 million as of 23 June 2023
Andrew Haining, Chair, commented:
"The NAV decrease in the period reflects movements in both peer group stock
market valuations and the tough capital market conditions we continue to see.
That said, I am encouraged by the strong and steady improvement seen in the
underlying companies' performance, with these downward pressures being
partially offset by strong revenue growth and significant progress in
profitability, or the pathway to profitability.
It has been a challenging period, but we remain confident in the huge
potential of our portfolio companies and in the value that Chrysalis can
create for its shareholders."
Nick Williamson and Richard Watts, co-portfolio managers, commented:
"Revenue growth across the portfolio remains strong at 46%, despite the
ongoing market challenges brought about by continued high inflation levels,
rising interest rates and a still depressed IPO market. The robust levels of
growth generated by the portfolio companies is all the more impressive given
the switch in focus towards profit generation from predominantly sales growth.
We are also pleased to report that 84% of the portfolio is now profitable or
funded to anticipated profitability. This positive news reflects the
incremental investments Chrysalis has made into the portfolio and the hard
work of the portfolio company management teams.
The portfolio is stronger because of these efforts and is well positioned not
only to weather any further challenges, but also to take advantage of the
opportunities that will arise when market activity begins to normalise again.
Chrysalis in turn remains well placed, with a substantially derisked portfolio
and a strong liquidity position."
-ENDS-
For further information, please contact
Media
Montfort Communications +44 (0) 7976 098 139
Charlotte McMullen / Toto Reissland / Lesley Kezhu Wang 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) 20 3530 3109
Chris Bougourd
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.
Chairman's Statement
The six-month period from September 2022 to March 2023 has seen a further
reduction in values in our portfolio of investments, but I am encouraged by
the strong and steady improvement in the underlying companies' performance.
Chrysalis' Net Asset Value ("NAV") for the period declined from 147.79p per
share to 130.02p per share. This decrease reflects movements in both peer
group stock market valuations and the tougher capital market conditions for
both "follow on" and "secondary market" private capital. These downward
pressures have been partially outweighed by strong revenue growth and
significant progress in profitability, or pathway to profitability, being
achieved across our portfolio. It is encouraging to note that the pace of
downward change in valuations has slowed, with the NAV showing an upward
movement for the second quarter of this interim period.
The Investment Adviser's report will go through each of our portfolio
companies in more detail. I would like to focus on the significant investment
issues that your Board has been considering during the period.
Portfolio Investment
We invested in our portfolio of companies in the knowledge that as "growth
stories" these companies were likely to need further capital in order to reach
their operating goals. We remain confident that, in aggregate, these companies
are on track to achieve the levels of growth, scale and profitability required
to unlock alternative sources of expansion capital provided by the public
capital markets, while generating potential liquidity for early investors such
as Chrysalis.
The Investment Adviser has set out clearly in its report what drives our
desire to reinvest in our portfolio companies in its analysis of the
individual investments. From a portfolio perspective, the Investment Adviser
has worked closely with the Board to achieve the right balance of investment,
both across the portfolio, and within each individual investment, to maximise
the potential increase in NAV per share for shareholders. The Investment
Adviser has sought, and will continue to seek, to allocate the Company's
available capital to those companies that stand the best chance of making a
significant contribution to NAV in the future.
As a supportive and constructive investor in private companies, we have had to
balance the desire to support our portfolio management teams with the
prevailing capital market conditions, which have seen the cost of private
capital increase significantly over the last twelve months. This latter point
has manifested itself across the market, and in certain cases in our
portfolio, in follow on rounds in which capital has been raised at a sizeable
discount, or conditions have been applied which protect investors downside, or
simply when shareholders who need to sell have had to accept discounts to
obtain their desired level of liquidity.
Our Valuation Committee has taken these circumstances into account in arriving
at its valuation adjustments. This has led, appropriately, to downward
valuations in some of our strongly performing investments that were involved
in either a primary or a secondary transaction. Some companies, Klarna Holding
AB ("Klarna") for example, took very early action, both on its operating model
and its capital valuation, to fundraise through to profitability. Others, such
as Starling Bank Limited ("Starling"), did not need to raise capital but were
marked down due to some shareholders needing to sell their positions in a
buyers' market. In both instances, Chrysalis was determined to reinvest,
believing that the price of the round was at a significant discount to the
likely long-term valuation achievable by those companies.
Over the coming quarters, we may well see a number of these investments moving
from a "price of last round" valuation to a "peer group" valuation, with a
resulting positive impact on the NAV. Over the period covered by these interim
accounts, and post period end, it is especially pleasing to see continuing
positive activity, particularly in our larger holdings.
Smart Pension Limited's ("Smart") recently announced fundraising, led by a new
investor bringing more growth capital to the company, is extremely
encouraging. We have supported Smart from an early stage and look forward to
working with the team on building the business and achieving its goal of a
public listing.
The Brandtech Group LLC ("Brandtech") has also continued to grow and build its
leading presence in the digital marketing sector. Its latest acquisition of
Jellyfish is strategically important for the operating business, and the
transaction terms, which remain confidential, helped to underpin our valuation
of the business.
Smart and Brandtech account for approximately 23.4% of the Company's
portfolio.
I would like to focus on two investments where there was significant activity
during the quarter and where the Board has worked particularly closely with
the Investment Adviser.
Revolution Beauty Group PLC ("Revolution Beauty")
I highlighted in our 2022 year-end accounts that we were considering our
position regarding Revolution Beauty, following audit concerns that were
raised in late 2022, and the subsequent share suspension. Since then, we have
been consulting with our retained lawyers to establish whether there is a case
to be answered by either the company, or any individuals. Chrysalis wishes to
enable businesses to develop into public companies successfully - if that is
their goal - so we take the obligations and undertakings of those who bring
companies to the public market very seriously. In some instances, the poor
performance of any recently listed company can occur because of poor
management and a lack of understanding of how to operate in the public domain.
In the instance of Revolution Beauty, we believe other factors were at play.
We are currently considering all our options and will be notifying
shareholders of any decision at the appropriate time. Whilst corporate legal
action on our own, or in conjunction with litigation funding partners, may not
recover all our losses, we would like to reassure our shareholders that any
decision to engage in legal action will be based entirely on what is deemed to
be in their best financial interest. We note that Revolution Beauty is now
alleging the co-founder and former chief executive breached fiduciary and
other duties and is looking "to recover material sums relating to the
exceptional costs incurred as a result of the matters alleged".
Starling
Starling is an important part of our portfolio. During the period, the
disposal by Jupiter of its holding in Starling, which was managed by Citi,
completed. This process took some time to arrange and so straddled a period of
considerable uncertainty in both private capital markets, and the banking
sector. Nevertheless, the performance of Starling throughout this period
remained strong and profitability continued to improve. Chrysalis was
determined to take advantage of the opportunity to re-invest in a bank with a
strong profit trajectory, an efficient technology platform and limited credit
exposure, in a period of rising interest rates, by acquiring, in conjunction
with other shareholders, the holdings being sold by Jupiter.
As can be seen from the recent publication of Starling's results, the purchase
was made at an undemanding multiple of historic profits. We remain very
excited by Starling and its potential in our portfolio. Starling accounts for
16.9% of the Company's portfolio.
On the release of Starling's results, Anne Boden (CEO and founder) decided to
step aside. I would like to take this opportunity to thank Anne for her
fundamental role in this growth story, having driven the development of
Starling with real entrepreneurial zeal. Starling is now a household name in a
sector previously dominated by established banks with large market shares and
entrenched customer bases. We look forward to working closely with the ongoing
management team and with Anne, as a fellow shareholder, in the next stage of
Starling's development.
Performance Fee Proposal
As previously outlined to shareholders we expect to send a circular to
shareholders shortly in order to seek approval to the proposed changes in the
performance fee arrangements with Jupiter.
Valuation Committee and Process
I would like to thank Lord Rockley and his colleagues on the Valuation
Committee for their work. This has been a particularly challenging period for
valuations, and I am delighted with the change we made to the process last
year. The market knowledge the committee has of both public and private
markets, and the impact this has had on the valuation process and outcomes,
has been significant.
Valuation is key to the information flow for investors and the Board will
continue to work with Lord Rockley and his colleagues to refine this system.
Amongst other options, we have been asked to consider providing monthly
valuations to replace our current quarterly approach. We have considered this
very carefully but, for practical reasons, we have decided to continue to
provide quarterly valuations for the time being. We are working towards
improving the visibility around our valuation methodology so investors can see
the drivers of individual company valuations more clearly, while taking into
account the non-disclosure agreements that typically govern our use of our
portfolio companies' data.
Discount Management and Share Buybacks
The Board continues to be concerned that the discount to NAV our shares trade
at is not a fair reflection of what our portfolio of investments is worth. To
give investors greater visibility into the valuation process and comfort
around the Company's activities more generally, the following actions have
been undertaken by the Board and the Investment Adviser:
1) Upon moving to a self-managed structure in July 2022 we introduced a
new valuation process and committee. Its substance and the increasing
transparency of its work over time will, I hope, build confidence in
shareholders' minds and enable the shares to trade at or above the NAV,
reflective of the future growth prospects of our underlying investments.
2) We have decided to apply our capital to reinvesting in the portfolio
at the current time. Notwithstanding the discount at which the shares
currently trade, we believe that this action will secure the financial runways
of our portfolio companies and that our investment in their future growth will
lead to greater shareholder value in the long term.
3) We recognise that with the emerging maturity of some of our
investments, it is important for the Board and the Company to consider whether
it is appropriate to establish rules for future share buybacks and/or returns
of capital. Whilst there is no stated requirement to return capital, we have
indicated that some surplus capital could be used in share buybacks, as and
when realisations occur. The Board believes we need to be more explicit on
this and will be canvassing larger shareholders for their views. The Board
also believes that such a policy, clearly stated, could assist in reducing the
discount to NAV at which the Company's shares currently trade. These
consultations will take place during the summer with the intention of bringing
a proposal to shareholders in the fourth calendar quarter as part of the
Continuation Vote process (see below).
Continuation Vote
When Chrysalis was established, the Board was obligated to put a proposal
before shareholders at its AGM for the basis on which the company should
operate beyond the fifth anniversary of its IPO, which is November 2023. The
AGM to consider this, inter alia, will be no later than April 2024.
It is the Board's intention that a circular be sent to shareholders in the
first quarter of 2024 with a proposal for the ongoing management of the
Company beyond April 2024. In summary, shareholders will have an option at
that AGM to determine if the Company should continue investing proceeds from
realisations, and if so, how much and over what period of time, or whether
shareholders would prefer to see a return of all investment proceeds (and
therefore no reinvestment) over a managed exit programme.
There are several variables which need to be considered to reach the right
outcome for the Company, its shareholders and stakeholders. Therefore, in
addition to canvassing our larger shareholders for their views on the
realisation/distribution policy referred to above, we will also take the
opportunity to elicit broader views on the way forward for Chrysalis beyond
next year's AGM.
The Board and its advisers are working closely with the Investment Adviser,
and we look forward to setting out our proposals to shareholders later in the
year.
Finally, it remains for me to thank the Investment Adviser and the management
teams and staff of our underlying investee companies, for their continued hard
work and dedication during this period. It has been a challenging period, but
we remain confident in the huge potential of our portfolio companies and in
the value that Chrysalis can create for its shareholders. We hope to begin to
see the benefit of that hard work in the coming months.
Andrew Haining
Chairman
26 June 2023
Portfolio Statement
As at 31 March 2023 Cost Opening value Fair value movements Closing Value % of net assets
(£'000) 1 October 2022 (£'000) (£'000)
(£'000) Net invested / returned
(£'000)
Company Location
Wefox Holding AG Germany 69,187 154,943 3,562 8,045 166,550 21.5
Starling Bank Limited UK 118,248 113,394 20,000 (9,410) 123,984 16.0
The Brandtech Group LLC USA 46,440 103,390 - (8,388) 95,002 12.3
Smart Pension Limited UK 90,000 95,187 - (18,598) 76,589 9.9
Deep Instinct Limited USA 62,225 81,829 - (10,991) 70,838 9.2
Klarna Holding AB Sweden 71,486 56,135 - (4,177) 51,958 6.8
Featurespace Limited UK 29,546 53,139 - (10,979) 42,160 5.4
Tactus Holdings Limited UK 40,130 36,795 - (1,961) 34,834 4.5
Cognitive Logic Inc. ("InfoSum") USA 48,454 30,299 1,327 (3,450) 28,176 3.6
Graphcore Limited UK 57,589 45,065 - (28,744) 16,321 2.1
Secret Escapes Limited UK 21,509 13,232 - 61 13,293 1.7
Wise PLC UK 4,807 20,317 (5,894) (2,453) 11,970 1.5
Sorted Holdings Limited UK 27,941 18,429 - (17,104) 1,325 0.2
Revolution Beauty Group PLC UK - - (5,220) 5,220 - 0.0
Growth Street Holdings Limited UK 11,223 209 (149) 3 63 0.0
Rowanmoor Group Limited UK 13,363 - - - - 0.0
Total investments 712,148 822,363 13,626 (102,926) 733,063 94.7
Cash and cash equivalents 43,305 5.6
Other net current liabilities (2,552) (0.3)
Total net assets 773,816 100.0
Investment Adviser's Report
Market Context
The first six months of the financial year saw a continuation of the difficult
market conditions that have been prevalent since early 2022, driven by rising
inflation and interest rate expectations. This has led to generally lower
valuations for the tech-enabled companies which are used as comparables to
generate data to assist in valuing the Chrysalis portfolio holdings, when
compared with the prior year. While some listed tech stocks have seen their
share prices rally over the course of 2023 to date, the impact of this broad
dynamic has maintained pressure on valuation multiples, a key driver of the
Company's NAV.
Evidence of weak investor sentiment over the period can be demonstrated by the
paucity of IPO activity.
The change in market pre and post the Great Financial Crisis ("GFC") can be
clearly seen and is one of the key reasons why Chrysalis was established: to
enable investors to access companies that were no longer coming to market.
Over the ten years pre-GFC, approximately 54 companies per quarter were
undertaking an IPO. In the eleven years post GFC, this had more than halved to
approximately 20.
However, over the last five quarters to March 2023, only nine companies came
to market on average, marking a significant slowdown, from arguably an already
heavily depressed level.
Despite the market backdrop, revenue growth across the portfolio has remained
strong at around 46%, measured as reported growth over the year to March 2023.
This high level of growth is all the more noteworthy given the switch in focus
by the majority of the portfolio from driving sales growth, towards balancing
growth with profit generation and, in certain cases, on the back of a
normalisation in sales patterns following COVID-19 and/or a potential
throttling of growth in light of expected economic conditions.
This shift in focus has continued to lead to an improvement in the overall
risk profile of the portfolio, with 84% (by NAV) now profitable or funded to
anticipated profitability. This is explored in more detail below.
Activity
Given the focus of the Company's capital on supporting the current portfolio,
no new investments have been made since the purchase of a position in Tactus,
in August 2021.
Over the period, the following investments were made in existing portfolio
companies:
· In October 2022, £1.4 million was invested in InfoSum, to assist
it in continuing to scale;
· In February 2023, £3.6 million was invested in wefox, as part of
a wider round to continue to fund the company as it drives towards
profitability;
· In March 2023, a £20m secondary purchase of Starling Bank was
undertaken; the Investment Adviser remains optimistic over Starling's
prospects.
Post period end, a £12.5 million investment was made in Smart Pension as part
of a wider Series E round. This capital should provide runway for the company
to get to profitability, as well as backing for future M&A.
Some realisations were also completed, notably:
· In October 2022, approximately £5.9 million of Wise was sold at
an average share price of 674p;
· In the same month, a small recovery of approximately £150,000
was made from Growth Street; and
· In November 2022, approximately £5.2 million was realised from
an off-market transaction in Revolution Beauty, which effected a total exit
for the Company.
At the Capital Markets Day in November 2022, the Investment Adviser
highlighted a likely further funding requirement in the portfolio of
approximately £20 million. Since that time, investments in Smart Pension
(which was the expected major component of this capital) and wefox have been
made, accounting for approximately £16 million in aggregate.
As a result of these investments, at the time of writing, 84% of the Company's
portfolio was either profitable, or funded to anticipated profitability.
Shift of focus towards profitability
The Investment Adviser has been working closely with the portfolio management
teams to adapt to the change in market conditions that gathered a head of
steam in early 2022, and still persist today; that of a shift in investor
focus from pure growth to more of a balance between profitability and growth.
One of the key factors considered at the point of any initial investment is
the likely profitability that can be expected at maturity. Depending on the
company in question, topics such as unit economics and cohort analysis are
considered, as well as observable anecdotal evidence from other familiar
investments.
While the predominant focus within the portfolio has been on growth, striking
the right balance between growth and profitability typically has been a
constant consideration at portfolio company board level. In the Investment
Adviser's view, Chrysalis' position in March 2022 was better than many in the
industry, in that about 42% of the portfolio was profitable. However, of the
companies that comprised the remaining 58% that were not profitable, none were
funded to hit profitability on their available cash resources at that time.
By March 2023, this position had substantially improved. Approximately 38% of
the portfolio was profitable (this drawdown is explained by the Company's exit
from THG and Revolution Beauty), but crucially, a further 36% was funded to
anticipated profitability. This situation improved further with the funding
round in Smart Pension that completed post period end, taking the 'funded to
anticipated profitability' percentage up to 46%.
This now means that approximately 84% of the portfolio is funded to
anticipated profitability or is currently profitable. Not only does this
reduce the risk that Chrysalis will need to commit more capital to these
businesses, but the Investment Adviser believes it will also make these
businesses more attractive to external shareholders if they do need to raise
again, for example to complete M&A.
The Investment Adviser believes that this push towards profitability is
occurring across the market and that investors will be more likely to back
companies targeting profitability. This raises the prospect of corporate
insolvencies for those companies unable to make meaningful moves towards
profit and a potentially fertile environment for those investors still with
capital to deploy.
As discussed at the Company's Capital Markets Day in November 2022, of the
remaining 16% of the portfolio that is not funded to anticipated
profitability, the Investment Adviser sees three possible outcomes it might
pursue:
1. Chrysalis provides further capital, and/ or;
2. Other investors provide capital, or;
3. Chrysalis looks to exit its position
In determining the correct course of action for this group of companies, and
while wishing to support as much of the portfolio as possible, the Investment
Adviser recognises its responsibility to prioritise capital to those
investments with the best potential return profile for shareholders. The
reality of options two and three above is that these may result in outcomes
that yield returns lower than current carrying values.
Case study - Klarna
Klarna's positive response to the shift in the market since the beginning of
2022 is exemplary and demonstrates how the strength of its business model has
allowed it to continue to thrive.
In response to changing market conditions, in late May 2022 Klarna announced
that it would enact tighter control over its cost base and reduce its
workforce by approximately 10%. Shortly afterwards, in July 2022, Klarna
managed to raise $800 million in the teeth of the worst growth selloff since
the GFC.
Despite this being a considerable down round - occurring at a $6.7 billion
post-money valuation, versus $45.6 billion a year earlier - it was seen as a
significant vote of confidence by investors in Klarna's investment case.
Chrysalis committed $8.7 million to this round, which was its pro rata
entitlement.
In the quarter to June 2022, which would have been too early to see any
material impact from reduced costs, Klarna reported an adjusted operating
result (analogous to adjusted PBT) of approximately -SEK2.9 billion (circa
£233 million).
Despite market fears that worsening economic conditions would see Klarna's
credit loss ratios move sharply higher, and rising bond yields would have a
damaging impact on Klarna's profit and loss account, the Investment Adviser
remained optimistic, particularly regarding credit losses, as Klarna's average
loan duration of 40 days means the book can be repriced very rapidly.
In the event, these market worries proved unfounded.
By 1Q23, Klarna's adjusted operating loss had fallen to under -SEK0.5 billion,
or by over 80%, with credit losses having fallen from a peak of 80 basis
points ("bps") in 2Q22 to 37bps by 1Q23.
Despite this significant improvement in operating performance, Gross
Merchandise Volume ("GMV") growth remained broadly stable at 22% over 2022,
and was 13% in 1Q23.
Growth
Revenue growth across the portfolio remained very strong. Over the twelve
months to March 2023, the portfolio grew revenues on a blended average basis
by approximately 46%, compared with slightly over 80% in the two prior years.
This slower growth rate when compared to the two prior years is partly a
function of many of Chrysalis' businesses becoming substantially larger over
this period and the natural slowdown in growth rates off a much larger revenue
base. For example, Starling has seen revenues more than quadruple to £415
million from the year to March 2021 to March 2023.
There has also been an impact from the refocusing by the majority of the
portfolio away from outright growth, towards a more balanced approach between
growth and profitability.
The drive towards profitability has had a major positive effect on the
portfolio.
Aggregating the profits/losses by portfolio company in the quarter to the end
of March 2023 (in order to give a sense of what "run rate" profitability is
currently), versus that of the quarter to March 2022, shows a material
improvement. While this exercise may not yield a fundamental financial metric,
the Investment Adviser believes it gives a good indication of progress made as
portfolio companies drive towards profitability.
The data reflects the unweighted aggregate profit/loss in the portfolio, so is
naturally skewed to those companies that have larger profits or losses, such
as Starling and Klarna respectively, regardless of their position sizes in the
portfolio. The chart clearly shows that losses in the portfolio have reduced
by approximately £189 million year-on-year; approximately a 74% reduction.
The chart above shows the contribution by company to the £189 million
improvement in the loss position in the portfolio since 31 March 2022, with
Klarna being the main driver, due to its large losses in the prior year and
the aggressive action it took over 2022. Of the twelve companies assessed
(excluding Wise, due to lack of quarterly profit data), ten of them have shown
an improvement in profits or narrowing of losses over the year. This
demonstrates the widespread focus on driving towards profitability in the
portfolio.
Another point worth noting is that if Klarna hits its stated target of
profitability in the second half of 2023, then the portfolio would be in a
position of net profitability, ceteris paribus.
Outlook
While the intensity of investor concerns over rising interest rates and growth
valuations appears to have diminished to a degree since the end of 2022,
"animal spirits" still appear to be absent from global markets, with the US
yield curve remaining inverted and the short end moving higher over the last
few months. Whilst the impact on the Chrysalis portfolio was negligible, the
collapse of Silicon Valley Bank and wider concerns across the banking sector,
have also had an impact on sentiment.
The hiatus in stock issuance, and in particular IPOs, is marked. In the UK,
only 27 IPOs occurred over the year to March 2023.
While an IPO is only one option for Chrysalis to realise its investments, it
is likely to be an important one, and a well-functioning IPO market would be
beneficial for Chrysalis.
Given the first quarter of 2023 was also weak, and the second quarter has not
started well, the market is currently in the sixth quarter of anaemic issuance
in the UK. By comparison, the GFC, a much more severe crisis, saw low issuance
last for seven quarters. It is always difficult to "call the bottom", but the
duration of this slowdown suggests we are nearer the end, rather than the
beginning, of the normalisation process.
For over a year now, the focus has been on strengthening the portfolio, as
well as strengthening Chrysalis to adapt to the new environment. In November
2022, the Company set out a likely primary follow-on requirement in the
portfolio of approximately £20 million. With the conclusion of the Smart
Pension funding round, which was the major component, as well as the much
smaller investment into wefox, much of this capital allocation has now been
utilised.
These investments have strengthened the portfolio, particularly in the larger
names. As of period end, the Company had cash of approximately £43 million,
and following the post period end investment in Smart Pension, cash stands at
approximately £33 million. In combination with the listed position in Wise,
the Investment Adviser believes this represents a strong liquidity position.
Company section
wefox Holding AG ("wefox")
wefox grew strongly through 2022, reaching nearly €600 million of revenue,
and this momentum has carried through into 2023. When Chrysalis first invested
in the company, back in 2019, wefox generated approximately €50 million of
revenue and through organic growth and selective M&A, it has grown into
one of the largest insurtech companies globally.
Over the past twelve months, management teams across the entire portfolio have
been encouraged to focus on demonstrating strong unit and customer acquisition
economics, appropriately managing the cost base and driving profitability. The
wefox management team has done a good job so far on executing this strategy
and the Investment Adviser believes that the business is on track to generate
run-rate profitability towards the end of 2023.
In order to ensure that the business is funded to anticipated profitability,
wefox completed a second-close to the €400 million Series D funding round it
announced in July 2022, earlier this year. The company raised €55 million of
primary capital on the same terms as that round, with Chrysalis contributing
€4 million to the raise.
wefox has continued to scale internationally, and the proceeds of the Series D
funding round were used to acquire TAF, a market-leading life insurance
company in the Netherlands. This takes the total number of countries the group
operates in to seven: Germany, Austria, Spain, Italy, Switzerland, Poland and
the Netherlands. By acquiring established insurance companies globally, wefox
has been able to build a significant international scale and is driving them
towards profitability more quickly than an organic route was likely to
deliver. The Investment Adviser has been pleased with the progress made on
integrating and digitising recent acquisitions.
In recent weeks, wefox announced that it has launched its global affinity
business which will enable it to connect insurance companies with partners who
can distribute insurance products, thus increasing its network and the routes
to market for its own insurance products. This announcement is viewed as a
precursor to wefox scaling its software revenues by providing the
technological infrastructure necessary for market incumbents to launch and
distribute digital insurance products.
The short-term target for wefox remains getting to profitability - expected in
2H23 on a run rate basis.
At that point, the company will have a choice to make, in conjunction with
investors: either keep growing at current rates and build profitability
further, or accelerate growth with investment, accepting lower profits/running
at breakeven.
The Investment Adviser is optimistic that substantial value would be generated
by either route.
Starling Bank Limited ("Starling")
Progress has continued to be impressive at Starling.
Its financial results to March 2023 were released in May, which showed very
strong growth in both sales and profits, as shown below.
Starling Bank - Financial Performance (Year to indicated date)
Nov-19 Mar-21 Mar-22 Mar-23 % chg
(Mar21 -23)
Total income (£m) 14.2 87.8 188.1 414.8 372%
Implied costs (67.8) (101.5) (156.0) (220.2) 117%
Profit before tax (£m) (53.6) (13.7) 32.1 194.6
Return on Tangible Equity 18.3% 29.0%
Source: Starling and Jupiter
The growth in profits has been driven by strong revenue growth and a scalable
cost base, which has grown significantly less quickly than the top line over
the last two years.
Revenue growth in 2023 was predominantly derived from both new lending, which
has risen over 100% since Mar-21, assisted by the introduction of 'Buy To Let'
mortgage origination via the acquisition of Fleet Mortgages, and via increases
in yields on cash ("Loans to banks") and on debt securities, as a result of
increases in the Bank of England's Base Rate and its impact on wider market
yields.
Starling - Simplified Balance Sheet (at Nov-19, Mar-21, Mar-22 and Mar-23)
Lending to customers Nov-19 Mar-21 Mar-22 Mar-23 % chg
(Mar21-23)
Mortgages - - 1,216 3,437
SME lending - 2,187 2,006 1,404
Retail 59 77 51 33
Total Lending 59 2,264 3,272 4,874 115%
Loans to banks 765 3,196 6,105 6,110 91%
Debt securities 332 1,516 2,330 2,480
Other 46 73 198 249
Total assets 1,202 7,048 11,905 13,713 95%
Deposits (1,007) (5,828) (9,027) (10,552) 81%
Other liabilities (125) (1,080) (2,448) (2,464)
Total liabilities (1,132) (6,908) (11,475) (13,016) 88%
Total equity 70 140 430 697 394%
Source: Starling and Jupiter
Despite the strong growth in lending over the period illustrated, the
loan-to-deposit ratio only rose by approximately ten percentage points to
circa 46%, due to the strong growth in deposits. Over the course of 2021,
these excess deposits received minimal yield from the Bank of England with
commensurately lower yields for debt securities. But as yields have risen
since late 2021, the return on these funds has begun to rise.
The chart above shows the evolution of UK base rates with Starling's last
three fiscal years overlaid. Given the starting point of base rates for
Starling's fiscal 2024 is higher than the average received over fiscal 2023,
it is reasonable to assume that, ceteris paribus, Starling's income will
continue to benefit from putting excess deposits to work at market rates.
Starling also continues to expand and, in March 2023, announced plans to add
up to 1,000 new jobs in a new office in Manchester, on top of the 2,500 people
it already employs.
In January, it won a trio of awards, including placing very well on the
Current Account Switching Service ("CASS") leader board for net switches. Over
the quarter from 1 July 2022 to 30 September 2022, Starling grew by 9,070 net
switches, behind only the behemoths of Santander and HSBC, despite being the
only one of the three not to offer incentives to switch.
The Brandtech Group LLC ("Brandtech")
Brandtech has been profitable since the point of investment and has seen an
improving margin profile in recent years, as the company has scaled. Growth
has also remained strong and has typically been best-in-class year-on-year,
averaging 30% revenue growth per annum over the last four years, demonstrating
the company's ability to deliver for enterprise clients globally and maximise
the revenue potential of existing accounts.
Completing strategic M&A that would broaden geographic reach and the range
of products and services provided to enterprise clients formed a key part of
the initial investment thesis. Some progress on this front was made last year
with the acquisition of DP6 - Latin America's leading marketing technology and
data company - and Acorn-I - an ecommerce platform. While these acquisitions
made sense strategically, they were much smaller than the acquisition of
Oliver, for example.
In June, Brandtech announced the acquisition of Jellyfish, a performance and
digital marketing agency. Jellyfish was founded in 2005 by Rob Pierre and now
has more than 2,000 employees across 38 offices around the world. It joins
Brandtech after its most profitable year yet. Jellyfish is a global partner in
digital and performance marketing to some of the world's leading brands such
as Google, Netflix, and Uber. It is one of the most globally certified
companies across today's platforms, including Google Marketing Platform,
Google Cloud, Salesforce, Snap, Amazon, Facebook and other major social
platforms.
This is viewed as a very exciting development by the Investment Adviser as it
represents Brandtech's ninth and largest ever acquisition; importantly, this
acquisition provides Brandtech with scale in Media, which is the largest part
of the addressable market and also the most profitable segment to operate in.
The acquisition of Jellyfish creates the number one digital-only marketing
group in the world with over $1bn in revenue, over 7,000 employees, working
for eight out of ten of the world's largest advertisers, and 49 of the top
100.
In April 2021, Brandtech hired former Mindshare Global chief executive Nick
Emery to run Brandtech Media. Nick Emery was a founding member of Mindshare
when WPP set it up in 1997 and Mindshare grew into one of the biggest media
agency networks in the world, with approximately $18 billion in annual
billings. Nick will be responsible for integrating and scaling Jellyfish and
the Brandtech Media division going forward.
Brandtech is one of Chrysalis' later-stage assets and, given the company's
scale and profitability, the Investment Adviser believes it will make an
excellent IPO candidate in due course. The public market should make it easier
for Brandtech to execute its acquisition strategy, as seen with several media
conglomerates historically, and the Investment Adviser is excited about the
prospects for the group.
Smart Pension Limited ("Smart")
The key news for Smart occurred post period end, with the announcement of its
$95 million Series E funding round, led by Aquiline Capital Partners.
Chrysalis also participated - committing £12.5 million to the round -
alongside other existing investors, such as Fidelity International Strategic
Ventures, DWS, Natixis Investment Managers and Barclays.
This new, substantial quantum of capital was raised at a time of on-going
stress in the private funding market, which the Investment Adviser believes is
testament to the strength and attractiveness of Smart's business model and
will enable the business to continue to grow its offering. This is expected to
occur both via organic means - such as the PCCW contract in the Far East - and
via inorganic means, similar to the acquisition of Stadion in the US last
year.
Over the course of 2022, Smart Pension grew its assets under management
("AuM") to over £4.7 billion, up over 123% from £2.1 billion a year earlier.
In doing so, it added over 5,000 employers and 105,000 employees. Strong
growth is expected to continue into 2023, partly driven by M&A, with the
company forecasting AuM in excess of £10 billion by the end of 1H23. This
should enable Smart to continue to build on the impressive 65% revenue growth
it experienced in 2022, which took total sales to £67 million.
Smart's business is split between the Smart Master Trust - which operates in
the UK - and its international operations. Both sides of the company are
powered by Keystone, Smart's technology platform. In the UK, Smart passed one
million members in the period, partly helped by the acquisition of the Ensign
Master Trust, with £158 million in AuM.
Post period end, Smart announced the acquisition of US based ProManage, which
offers managed retirement solutions, taking AuM to over £8 billion and
putting the business well on track to achieve its AuM target for the year.
Bolt-on deals such as these can be highly lucrative, given the efficiency of
Keystone, and have been a key driver of the UK Master Trust achieving
profitability.
The global retirement savings market is one of the largest markets in the
world. With cutting edge technology to tackle the inefficiencies inherent in
managing many small value pension pots, the Investment Adviser believes Smart
is well positioned to continue to grow.
Deep Instinct Limited ("Deep Instinct")
The Investment Adviser remains optimistic about the prospects for Deep
Instinct and is pleased with the financial and operational progress that has
been made in recent months.
The company announced the appointment of Lane Bess as CEO in September 2022
and he has been working hard to bolster sales productivity and establish key
partnerships. Momentum in these areas has already been seen, with Deep
Instinct announcing a new partnership with eSentire, a leader in Managed
Detection and Response ("MDR") cybersecurity services. This partnership will
protect eSentire customers from unknown and zero-day attacks with an efficacy
and speed not delivered by any other MDR provider.
In addition to this partnership, Deep Instinct also announced that eSentire
Board Member Amit Mital will join its board of directors. Most recently, Amit
served as a special assistant to the President and senior director of the
National Security Council in The White House. Amit has over 30 years of
industry experience and spent most of that time as a corporate vice president
at Microsoft, leading the conceptualisation and execution of disruptive
technologies and products. This represents another great appointment for the
company and demonstrates how important this partnership could be.
Deep Instinct is the first company to develop a purpose-built, AI-based deep
learning framework for cybersecurity and the Investment Adviser's belief that
the company is at the forefront of innovation in the sector continues to be
validated. In March, Deep Instinct announced its inclusion in the 2022 Gartner
Magic Quadrant or Endpoint Protection Platforms ("EPP"). Of the 18 vendors in
the 2022 report, Deep Instinct is the only new vendor to be added for its
ability to execute and the completeness of vision.
The Company completed a follow-on investment in Deep Instinct in September
2022, to extend the cash runway of the business, and the Investment Adviser
was encouraged by the fact that PayPal Ventures announced an investment into
the company as part of a second-close. This funding will help further
accelerate Deep Instinct's growth and was completed on the same terms as
Chrysalis' investment.
Klarna Holding AB ("Klarna")
In the March 2022 Interim Report, the Investment Adviser highlighted the
likely ramifications of Klarna achieving profitability on the back of its cost
cutting programme. At the time, there was still significant scepticism in the
market that Klarna's business model would survive rising interest rates and
likely higher impairment.
Scroll forward to today, and Klarna appears to be in rude health.
As of its 1Q23 results, Klarna's adjusted operating losses had fallen
materially, improving by over 80% since the nadir in 2Q22. This has been a
function of both improving credit losses - driven by Klarna's responsible
decision to limit credit growth last year in the light of deteriorating
economic conditions - and lower operating costs - driven by Klarna's cost
cutting programme that was largely enacted over 2Q22.
At its full year results, Klarna stated it was "…making concrete progress
towards profitability…" and achievement of
this goal would be a key moment, despite this being a business which ran
profitably for most of its early existence. This drive towards profit was
restated in its 1Q23 press release.
The US continues to be a key engine of growth, growing 71% in GMV terms over
2022, despite improving credit loss ratios by 37%, as customer cohorts
matured. As of last year, Klarna had 34 million US consumers and over 150
million globally.
Klarna is more than just a Buy Now Pay Later ("BNPL") lender, which it
estimated accounts for less than 50% of GMV. Payments are also a key, via
products such as "Pay Now", which allows users to benefit from Klarna's ease
of use, but pay immediately. In addition, marketing services have been a
source of strong growth, and includes products such as sponsored content as
well as serving retailers with over 600 million leads over 2022.
As a result of customer take up, Klarna's marketing services revenue grew 131%
over 2022 to SEK1.6 billion and
accounted for over 8% of total revenues. This rapid pace of development
continued into 1Q23.
The Investment Adviser believes that diversification of revenue streams will
be attractive to investors, lowering the reliance on a single source of
income.
Featurespace Limited ("Featurespace")
Featurespace continues to lead the market in fraud detection and has seen
strong growth as a result, the former evidenced by Featurespace's announcement
in April 2023 that its technology had managed to improve NatWest's financial
scam detection rate by 135%. False positives also fell by 75% in the same
test, which has a material impact in terms of reducing workloads on staff
having to check erroneously blocked transactions.
Featurespace won a number of awards over the period, including being named one
of the winners in the PETs (Privacy-Enhancing Technologies) Challenge.
Featurespace combined different PETs to allow AI models to make better fraud
predictions, without exposing sensitive data.
The company's results for 2021 showed revenue growth of approximately 27% to
£26.7 million, Annual Recurring Revenue grew by 33%, albeit with losses
widening to £16.3 million, due to on-going investment. Results for 2022 are
due post the summer and are expected to show continued growth.
Over the course of the last twelve months, Featurespace has added 9 new direct
customers, taking the total to 55, and has continued to see very strong
customer traction and contact wins, with 2022 delivering a record TCV of over
£60 million.
In April 2023, Featurespace announced the appointment of John Shipsey as CFO.
John was previously CFO at Smiths Group from 2017-2022 and prior to that was
CFO of Dyson. The Investment Adviser views this as very positive news and
indicative of the attractiveness of Featurespace to someone who has been in
several high-profile roles at substantially larger companies in the past.
Featurespace's market-leading technology, and the seemingly never-ending
growth in financial crime across the globe, means the Investment Adviser
believes the company is very well positioned to continue to grow its business
and its offering.
Tactus Holdings Limited ("Tactus")
Tactus has completed a number of acquisitions since Chrysalis' initial
investment, including coding and robotics firm pi-top, B2B IT reseller BIST
Group, PC gaming brand Chillblast and more recently Box, an online retailer of
consumer technology and specialist devices. The focus over the last twelve
months has been on integrating these assets and the management team has
successfully migrated its warehousing and fulfilment capabilities to a single
site in Tamworth, rebranded CCL and Chillblast and begun to re-platform its
ecommerce sites. This should enable Tactus to drive operational efficiencies
and realise further synergies from its M&A.
The trading environment over the last twelve months has been challenging.
Microsoft recently announced that Xbox hardware sales declined by 30% for the
three months ended 31 March 2023, while Apple reported a 40% decline in Mac
sales over the same period. These recent trends have made it more difficult
for Tactus to drive higher rates of organic growth, but it has been able to
take market share in recent months and has continued to outperform many of its
competitors. Longer term, it is believed that the global gaming industry will
continue to grow strongly, and the company will ultimately be a beneficiary of
this trend. Despite a challenging backdrop, Tactus has managed to continue
trading profitably.
The business is in much better shape than when Chrysalis first invested back
in 2021 and should be well placed to take advantage as industry conditions
improve.
Cognitive Logic Inc. ("InfoSum")
Despite Alphabet announcing last year that it was delaying Google Chrome's
third-party cookie deprecation to 2024, which was initially expected by 2022,
it is clear that InfoSum is operating in a huge addressable market that will
increasingly benefit from regulatory tailwinds; this was a key part of the
initial investment thesis.
The deprecation of third-party cookies will make it increasingly difficult for
brands to gather first-party data, increasing the need for direct data
collaboration with their advertising partners to salvage addressability.
However, privacy regulations are particularly penal and brands are nervous
about sharing data with outside partners, given the financial implications and
the potential impact on consumer trust and brand reputation. Data clean rooms
are the key to solving the issues around harnessing first-party data, but they
are typically difficult to set up and operate. This is the fundamental issue
that InfoSum is trying to solve for.
In recent months, the Interactive Advertising Bureau (IAB) Tech Lab released
the first draft of proposed standards for data clean rooms along with a
guidance document. This is positive for InfoSum as, in the absence of
established standards, it's been difficult for marketing organisations to
understand what constitutes a data clean room and the differentiating factors
between vendors.
In recent months, InfoSum announced the launch of Platform Sigma, which solves
many of the issues facing the industry. Platform Sigma will enable customers
to analyse first-party data without sharing or moving data and allows for
faster and more seamless use cases, including deep consumer insights,
cross-channel activation and measurement, with end-to-end protection and
security. The Investment Adviser believes that the upgrades to the technology
platform will drive sales conversion and platform adoption of InfoSum's
market-leading technology solution.
Graphcore Limited ("Graphcore")
Over the period, Graphcore has continued to develop both its software and
hardware offerings.
In terms of the former, Poplar SDK 3.1 was released in December 2022, which
added a range of functionality including support for certain libraries. In
terms of the latter, a C600 PCIe card was launched, based on the MK2 IPU. The
PCIe form factor was a response to customer demand for datacentre
configurations.
In terms of new customer wins, the US Department of Energy's Argonne National
Laboratory - which is attempting to integrate high performance computing with
AI accelerators to develop next generation ML workloads - installed a Bow IPU
system in October 2022. In May 2023, it opened its IPU resources to
researchers around the world for free.
Post period end, Nvidia - the major supplier of AI accelerators in the market
- announced a significant beat to analysts' estimates for 1Q23 EPS, but more
importantly, a massive increase in sales guidance for 2Q23 ($11 billion vs
expectations of $7.2 billion). The commentary suggested that this marks the
start of a multi-year upgrading of datacentre processors, to deal with
AI-driven workload demand.
Graphcore is one of only a handful of companies with a chip designed for deep
learning/ AI type work. The Investment Adviser identified the likely explosion
in AI interest five years ago, and despite the ongoing encouraging performance
of the technology, it is frustrating that widespread commercial traction has
proved elusive for Graphcore.
The Investment Adviser believes that the set of conditions that now exist in
the market must surely mark a very positive backdrop for the company to pursue
its development plans.
Secret Escapes Limited ("Secret Escapes")
Following a tough few years, with trading disrupted by COVID-19 and travel
restrictions, the backdrop and market environment appear to be improving for
Secret Escapes. The company's financial performance year to date versus 2019
(pre-COVID) has been encouraging and the outlook for the remainder of 2023
looks positive.
Secret Escapes proactively reduced its cost base through the COVID-19 period
and this is now translating into a more attractive margin profile versus 2019.
With trading patterns beginning to normalise, Secret Escapes can begin to
accelerate customer acquisition to drive its rate of organic growth and unit
economics, thus creating a faster growing, more profitable business in the
near to medium term.
Wise plc ("Wise")
As a listed asset, there is considerable financial information available on
Wise and it has continued to see strong growth over its year to March 2023, as
evidenced by the chart below.
Over the course of its fiscal year to March 2023, total income grew
approximately 73% and adjusted EBITDA grew approximately 92%. Wise's
consistent medium-term guidance since IPO has been for adjusted EBITDA margins
to be "at or above 20%", as the company continues to drive down prices for
customers and invest in the offering.
Despite this, margins are expected to have gently trended upwards over FY23,
as the pace of revenue growth has meant that it has not been possible to
invest surplus contribution sufficiently rapidly.
Part of the reason for the strong operating performance of Wise has been its
exposure to UK base rates. Like Starling, Wise has deposits on its platform
that it can lodge with the Bank of England and other central banks, which have
achieved negligible yields for several years. Following the global shift
upwards in yields, these excess deposits are now earning a return.
Wise has begun to offer products to customers, such as Wise Interest, which
may see the effective retained yield normalise. But customer behaviour towards
low balances is such that not all of these offers will be taken up. As a
result, the trend in higher base rates has fed into company income forecasts,
as shown in the chart above, which illustrates the development of these
forecasts against base rate changes.
Looking forward, Wise is well positioned to continue to take market share from
other financial institutions, especially in money transfer, and the shape of
current yield curves augurs well for continuing returns on customer balances.
Sorted Holdings Limited ("Sorted")
Sorted continued to grow over the period, winning new customers, but, given
its stage of development and the current difficult funding markets, the
Company's carrying valuation has been written down.
The Investment Adviser continues to work closely with management to determine
the best approach to maximising shareholder value.
Environmental, Social and Governance Report
Chrysalis predominantly provides primary capital to unlisted businesses that
offer the technology to transform the way we live and work. While no new
investments were made during the period, the Company continued to implement
the ESG policy established by the Board and enhance the systematic integration
of ESG analysis across the portfolio.
The portfolio
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.
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.
Chrysalis also has investments in other consumer-facing companies which are
taking tangible steps to enhance the sustainability profile of their
operations.
Strengthening governance
The Investment Adviser firmly believes that in order to grow successfully,
companies and their founders 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.
During the period Chrysalis' portfolio companies continued to strengthen their
corporate governance, building capacity at management and board level. For
example, and as mentioned in the company update section of this report, in
April 2023, Featurespace announced the appointment of John Shipsey as CFO.
John was previously CFO at Smiths Group from 2017-2022 and prior to that was
CFO of Dyson. This is viewed as very positive and indicative of the
attractiveness of Featurespace to someone who has been in several high-profile
roles and substantially larger companies in the past.
In September 2022 Deep Instinct announced the appointment of Lane Bess, former
CEO of Palo Alto Networks, as CEO. Deep Instinct also announced that eSentire
Board Member Amit Mital will join its board of directors. Amit has over 30
years of industry experience and spent most of that time as a corporate vice
president at Microsoft. wefox continued to build capacity across the executive
management team, recruiting Nicholas Walker as Chief HR Officer. Walker is a
seasoned HR professional with more than 25 years' global experience that spans
technology, fintech and payment industries, and most recently was at Paysafe.
Delivering sustainable outcomes
The Investment Adviser expects all companies to minimise any direct and
indirect negative impact on the environment and broader society. During the
period portfolio companies continued to develop their own sustainability
initiatives.
Smart Pension is the first UK pension provider to offer customers a range of
lifestyle strategies that are all fully sustainable, including the Smart
Pension default fund. In January 2023, the company announced the launch of
three new fully sustainable lifestyle strategies with different growth fund
options. All three growth funds fully invest in funds that positively
contribute to the planet and society, including investing in areas such as
renewable energy projects, clean water and healthcare. The Smart Pension
Master Trust was also approved as a signatory to the UK Stewardship Code in
March 2023.
In February 2023, Smart Pension announced that it has halved the emissions of
its default growth fund. This is over two years ahead of the 50% reduction
target it announced in June 2022 and represents considerable progress towards
the company's pledge to make its default growth fund net zero by 2040. This is
also well ahead of the goals of the Paris Agreement, which called for
emissions to be reduced by 45% by 2030 and to reach net zero by 2050.
Starling's latest gender pay gap figures (2022), show that the median gender
pay gap has decreased from 10.34% to 9.24%, while the mean has narrowed from
16.05% to 12.34%. Both its mean and median gender pay gaps remain
substantially lower than those of competitors. The continued improvement
reflects the range of diversity, equity and inclusion initiatives Starling has
enacted since becoming a signatory to the Women in Finance Charter in 2017.
Post-period end, Klarna provided an update on the progress of its Give One
initiative, launched in April 2021, which pledges 1% of all future funding
rounds to support change-makers on the frontlines of environmental challenges.
Klarna has contributed $11 million to the initiative since launch in April
2021, funds which have enabled the planting of 3.4 million trees worldwide.
Give One supports 56 environmental initiatives which include over 70
organisations throughout North America, South America, Africa, Europe, and
Asia.
Our stewardship approach
Stewardship is an important responsibility and a core aspect of the Company's
investor approach. There is a continuous process of dialogue with the
leadership teams of the investee companies. Where the Investment Adviser has a
board seat or board observer status, the Investment Team attend board meetings
and provide input where it can advise companies on how to meet their strategic
objectives. This includes regular dialogue on ESG related topics, and the
Investment Adviser seeks to influence companies where it believes the
management of material ESG factors can be improved.
The Investment Adviser has developed an internal dashboard of metrics to
assess the ESG performance of portfolio companies. This data is collected
directly from private investee companies or sourced from the sustainability
disclosures of listed holdings. The Investment Adviser uses the resulting
metrics to assess each company's ESG performance relative to its level of
corporate development and maturity and incorporates insights gained into
dialogue with company leadership teams, in order to assist their continued
development. Chrysalis will continue to report using the metrics in the 2023
Annual Report.
Where the Investment Adviser identifies potential material ESG risks or areas
of group governance which require further development, it will communicate
these conclusions to management and seek to work collaboratively with them to
improve this aspect of the company. This may take the form of longer-term
objectives, such as IPO readiness, or short term remedial actions. Areas
identified in action plans undertaken during the period relate to areas such
as cyber security, financial controls and carbon emissions reporting. Company
action plans and any material ESG incidents are reported to the Risk Committee
and monitored over time to assess progress.
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.
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.
For the purposes of this investment policy, unquoted companies shall include
companies with a technical listing on a stock exchange but where there is no
liquid trading market in the relevant securities on that market (for example,
companies with listings on The International Stock Exchange and the Cayman
Stock Exchange). Further, 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 is not expected to take majority shareholder positions in
portfolio companies but shall not be restricted from doing so. Further, 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 fund 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 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.
Board Members
The Board comprises six independent non-executive Directors (of whom one third
are female) and meets at least quarterly, 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. All Directors are
considered independent of the Investment Adviser for the purposes of the
Association of Investment Companies Code of Corporate Governance (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. 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 Administrator.
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. Stephen has been involved
with offshore investment funds and managers since 1990, with significant
exposure to property, debt, emerging markets and private equity investments.
Stephen qualified as a Chartered Accountant with Price Waterhouse Bristol in
1990 and remained in audit practice, specialising in financial services, until
1997. From 1997 to 2003 Stephen was a director of the Bachmann Group of
fiduciary companies and Managing Director of Bachmann Fund Administration
Limited, a specialist third party fund administration company. From 2003 to
2006 Stephen was a director with Investec in Guernsey and Managing Director of
Investec Trust (Guernsey) Limited and Investec Administration Services
Limited. Stephen became self-employed in August 2006, providing services to
financial services clients.
Simon Holden (independent)
Simon, a Guernsey resident, brings board experience from both private equity
investing and portfolio company operations roles at Terra Firma Capital
Partners and then Candover Investments. Since 2015, Simon has been an
independent director to listed alternative investment companies, private
equity funds and trading company boards including pro-bono roles to the States
of Guernsey overseeing infrastructure critical to the Island, including the
airport, harbours and two maritime fuel supply vessels.
Simon is a Chartered Director (CDir) accredited by the UK Institute of
Directors, graduated from the University of Cambridge with an MEng and MA in
Manufacturing Engineering and is an active member of UK and Guernsey fund
management interest groups.
Anne Ewing (independent)
Anne has over 35 years of financial services experience in banking, asset and
fund management, corporate treasury, life insurance and the fiduciary sector.
She 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 directorship roles in investment companies and
a private wealth banking and trust company group in the Channel Islands and in
London.
Tim Cruttenden (independent)
Tim is Chief Executive Officer of VenCap International plc, a UK-based asset
management firm focused on investing in venture capital funds. He joined
VenCap in 1994 and is responsible for leading the strategy and development of
the firm. Prior to joining VenCap, Tim was an economist and statistician at
the Association of British Insurers in London. He received his Bachelor of
Science degree (with honours) in Combined Science (Economics and Statistics)
from Coventry University and is an Associate of the CFA Society of the UK. Tim
is a non-executive director of Polar Capital Technology Trust.
Margaret O'Connor (independent)
Margaret has had a 30-year career building value in technology companies and
overseeing regulatory risk mitigation strategies across the US, Asia, Africa,
and Europe as an operator, corporate executive, and investor. She currently
Chairs the Launch Africa Venture Fund, the Investment Committee of Five35
Ventures and the Management Engagement Committee of Chrysalis Investments
Limited. Margaret is an active member of the Private Equity Women Investor
Network (PEWIN.org).
Prior to this, Margaret was a Silicon Valley VC-funded Marketing Tech
entrepreneur and a founding member of the MasterCard Asia Pacific management
team in Singapore and the MasterCard Global New Technology Communications
group in New York. Margaret earned her BA from Rutgers University and studied
International Relations at Princeton University before moving to Seoul, Korea
in 1987 to work for the Korean Ministry of Finance.
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, the Board established an independent Valuation Committee which
comprises of 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 the
International Private Equity and Venture Capital Guidelines Board for 9 years.
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.
Interim Management Report
For the 6 month period ended 31 March 2023
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, which helps position
the Company to ensure compliance with the Association of Investment Companies
Code of Corporate Governance (the "AIC Code").
The main risks that the Company faces arising from its financial instruments
are:
(i) market risk, including:
- Price risk, being the risk that the value of investments will
fluctuate because of changes in 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; and
- foreign currency risk, being the risk that the value of financial
assets and liabilities will fluctuate because of movements in currency rates.
(ii) credit risk, being the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that it has
entered with the Company.
(iii) liquidity risk, being the risk that the Company will not be able
to meet its liabilities when they fall due. This may arise should the Company
not be able to liquidate its investments.
(iv) company failure, being the risk that companies invested in may
fail and result in loss of capital invested.
To manage such risks the Company shall comply with the investment restrictions
and diversification limits provided for in the Prospectus.
The Company will invest and manage its assets with the objective of spreading
risk. Further to the investment restrictions discussed, the Company also seeks
to manage risk by:
· not incurring debt over 20% of its NAV, calculated at
time of drawdown. The Company will target repayment of such debt within twelve
months of drawdown; and
· entering from time to time into hedging or other
derivative arrangements for the purposes of efficient portfolio management,
managing where appropriate, any exposure through its investments to currencies
other than Sterling.
Going Concern
The Directors have adopted the going concern basis in preparing the Unaudited
Condensed Interim Financial Statements.
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 period end, the Company has liquidity including a current cash position of
£43,305,000, a net current asset position of £40,763,000 and liquid listed
investments amounting to £11,970,000.
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 sources and uses of
liquidity.
In accordance with the Company's Articles of Incorporation the Board are
committed to propose an ordinary resolution that the Company continues its
business as a closed-ended investment company at the first annual general
meeting of the Company following the fifth anniversary of IPO (being 6
November 2023). The annual general meeting will be no later than April 2024.
As detailed in the Chairman's Statement, it is the Board's intention that a
circular will be sent to shareholders in the first quarter of 2024 with a
proposal for the ongoing management of the Company beyond April 2024. It is
anticipated that shareholders will have an option at that AGM to determine if
the Company should continue investing proceeds from realisations, and if so,
how much and over what period of time, or whether shareholders would prefer to
see a return of all investment proceeds (and therefore no reinvestment) over a
managed exit programme.
As the continuation vote falls within 12 months of signing the Interim Report
and Unaudited Condensed Interim Financial Statements the Board have considered
the likely outcome of the vote, however it cannot be predicted with certainty.
Consequently, a material uncertainty exists which may cast doubt over the
Company's ability to continue as a going concern. Despite this, the Board
consider that the Company has sufficient resources to continue operating for
at least the next 12 months following the signing of the Interim Report and
Unaudited Condensed Interim Financial Statements, and so the going concern
basis of accounting has been adopted. It should be noted that as investments
are included in these statements at fair value, the Board is of the view that
there would be little or no change to the Net Asset Value of the Company if
the going concern assumption was not adopted.
Important events and financial performance
Highlights from financial year to date are as follows:
Ordinary Shares
31 March 2023
Highlights
Net Asset Value per share 130.02p
Share Price 58.70p
% of capital deployed 95%
The table below provides bi-annual performance information:
Date NAV per share % change in NAV per share
30 September 2020 160.97 17.3% increase on 30 June 2020 NAV
31 March 2021 206.15 28.1%
30 September 2021 251.96 22.2%
31 March 2022 211.76 (16.0)%
30 September 2022 147.79 (30.2)%
31 March 2023 130.02 (12.0)%
The net loss for the six month period ended 31 March 2023 amounted to
£105,766,000.
Further details of the Company's performance for the period are included in
the Investment Adviser's Report on pages 6 to 21, which includes a review of
investment activity.
Discount
As at 31 May 2023, the share price was trading at a discount to the last
published NAV per share at that point of 31 March 2023.
Related party transactions
Details of related party transactions are given in note 14 to the Unaudited
Condensed Interim Financial Statements.
Statement of Directors' Responsibilities
The Directors confirm that to the best of their knowledge:
· the condensed set of financial statements has been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and
· the interim management report (which includes the Chairman's
Statement, Interim Management Report and the Investment Adviser's Report)
includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements, and a description of the principal or emerging risks and
uncertainties for the remaining six months of the financial year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the financial year and that have materially affected the financial position or
the performance of the entity during that period and any changes in the
related party transactions described in the last annual report that could do
so.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website, and for
the preparation and dissemination of the condensed set of financial
statements. Legislation in Guernsey governing the preparation and
dissemination of the condensed set financial statements may differ from
legislation in other jurisdictions.
Stephen Coe
Director
26 June 2023
Independent Review Report to Chrysalis Investments Limited
Conclusion
We have been engaged by Chrysalis Investments Limited (the "Company") to
review the condensed set of financial statements in the half-yearly financial
report for the six months ended 31 March 2023 of the Company, which comprises
the unaudited condensed statement of financial position, the unaudited
condensed statement of comprehensive income, the unaudited condensed statement
of changes in equity, the unaudited condensed statement of cash flows and the
related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 March 2023 is not prepared, in
all material respects, in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Material uncertainty relating to going concern
We draw attention to note 2(b) to the condensed set of financial statements
which indicates that, in line with the Company's Articles of Incorporation, at
the forthcoming Annual General Meeting of the Company to be held in 2024 a
continuation vote will be put to the shareholders of the Company. If the
Continuation vote is not passed, the Directors are required to put forward
proposals for the reconstruction, reorganisation or winding up of the Company
to the Shareholders for their approval. These events and conditions, along
with the other matters explained in note 2(b), constitute a material
uncertainty that may cast significant doubt on the Company's ability to
continue as a going concern after the continuation vote. Our conclusion is not
modified in this respect.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued by the Financial
Reporting Council for use in the UK. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. We read the other information contained in the half-yearly
financial report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed set of
financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
The directors have prepared the condensed set of financial statements on the
going concern basis. As stated above, they have concluded that a material
uncertainty related to going concern exists.
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Scope of review section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However future events or conditions may cause the Company to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Company will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
interim financial report in accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the Company are
prepared in accordance with International Financial Reporting Standards. The
directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 Interim Financial Reporting as adopted by the EU.
In preparing the half-yearly financial report, the directors are responsible
for 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.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the scope of review paragraph of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement letter to assist the Company in meeting the requirements of the DTR
of the UK FCA. Our review has been undertaken so that we might state to the
Company those matters we are required to state to it in this 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 for our review work,
for this report, or for the conclusions we have reached.
Barry Ryan
for and on behalf of KPMG Channel Islands Limited
Chartered Accountants, Guernsey
26 June 2023
Unaudited Condensed Statement of Comprehensive Income
For the 6 month period ended 31 March 2023
Period from Period from
1 October 2022 to 1 October 2021 to
31 March 2023 31 March 2022
(unaudited) (unaudited)
Notes Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investments
Net losses on investments held at fair value through profit or loss 9 - (102,926) (102,926) - (233,515) (233,515)
(Losses) / gains on currency movements - (22) (22) - 5 5
Net investment losses - (102,948) (102,948) - (233,510) (233,510)
Interest income 154 457 611 60 - 60
Gain on settlement of financial liability 5 - - - - 17,907 17,907
Total income 154 457 611 60 17,907 17,967
Investment management fees 5 (1,995) - (1,995) (3,304) - (3,304)
Performance fees 5 - - - - - -
Other expenses 6 (1,434) - (1,434) (1,726) - (1,726)
Losses before finance costs and taxation (3,275) (102,491) (105,766) (4,970) (215,603) (220,573)
Finance costs - - - (12) - (12)
Losses before taxation (3,275) (102,491) (105,766) (4,982) (215,603) (220,585)
Tax expense - - - - - -
Total losses and comprehensive loss for the period (3,275) (102,491) (105,766) (4,982) (215,603) (220,585)
Losses per 7 (0.55) (17.22) (17.77) (0.87) (37.85) (38.72)
Ordinary Share (pence)
The total column of this statement represents the Unaudited Condensed
Statement of Comprehensive Income of the Company prepared under IAS 34.
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 38 to 55 form an integral part of these Unaudited Condensed
Interim Financial Statements.
Unaudited Condensed Statement of Financial Position
As at 31 March 2023
31 March 30 September
2023 2022
£'000 £'000
Notes (unaudited) (audited)
Non-current assets
Investments held at fair value through profit or loss 9 733,063 822,363
Current assets
Cash and cash equivalents 43,305 58,712
Other receivables 120 69
Unsettled trades - 3,791
43,425 62,572
Total assets 776,488 884,935
Current liabilities
Management fee payable 5 (1,984) (4,306)
Other payables (688) (1,047)
Total liabilities (2,672) (5,353)
Net assets 773,816 879,582
Equity
Share Capital 10 860,890 860,890
Capital reserve (61,129) 41,362
Revenue reserve (25,945) (22,670)
Total equity 773,816 879,582
Net Asset Value per Ordinary Share (pence) 11 130.02 147.79
Number of Ordinary Shares in issue 10 595,150,414 595,150,414
Approved by the Board of Directors and authorised for issue on 26 June 2023
and signed on their behalf:
Stephen Coe
Director
The notes on pages 38 to 55 form an integral part of these Unaudited Condensed
Interim Financial Statements.
Unaudited Condensed Statement of Changes in Equity
For the 6 month period ended 31 March 2023
Share capital Revenue reserve Capital reserve Total
2023 2023 2023 2023
£'000 £'000 £'000 £'000
For the period 1 October 2022
to 31 March 2023 (unaudited)
At 1 October 2022 860,890 (22,670) 41,362 879,582
Total losses and comprehensive loss for the period - (3,275) (102,491) (105,766)
At 31 March 2023 860,890 (25,945) (61,129) 773,816
Share capital Revenue reserve Capital reserve Total
2022 2022 2022 2022
£'000 £'000 £'000 £'000
For the period 1 October 2021
to 31 March 2022 (unaudited)
At 1 October 2021 758,950 (13,436) 633,420 1,378,934
Share issue 102,614 - - 102,614
Share issue costs (674) - - (674)
Total losses and comprehensive loss for the period - (4,982) (215,603) (220,585)
At 31 March 2022 860,890 (18,418) 417,817 1,260,289
The notes on pages 38 to 55 form an integral part of these Unaudited Condensed
Interim Financial Statements.
Unaudited Condensed Statement of Cash Flows
For the 6 month period ended 31 March 2023
Period from Period from
1 October 2022 to 1 October 2021 to
31 March 31 March
2023 2022
Notes £'000 £'000
(unaudited) (unaudited)
Cash flows from operating activities
Interest paid - (12)
Other cash flows from operating activities 12 (6,161) (54,520)
Interest income 611 60
Purchase of investments 9 (24,889) (42,817)
Sale of investments 9 15,054 75,668
Net cash outflow from operating activities (15,385) (21,621)
Cash flows from financing activities
Issue of Ordinary Shares 10 - 59,999
Share issue costs 10 - (674)
Repayment of loan payable - (15,000)
Net cash inflow from financing activities - 44,325
Net increase in cash and cash equivalents (15,385) 22,704
Cash and cash equivalents at beginning of period 58,712 49,794
Net gains on cash currency movements (22) 5
Cash and cash equivalents at end of period 43,305 72,503
Cash and cash equivalents comprise of the following:
Cash at bank 43,305 72,503
43,305 72,503
The notes on pages 38 to 55 form an integral part of these Unaudited Condensed
Interim Financial Statements.
Notes to the Unaudited Condensed Interim Financial Statements
For the 6 month period ended 31 March 2023
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 1 Royal Plaza, Royal Avenue, St
Peter Port, Guernsey, GY1 2HL.
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 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. The Unaudited
Condensed Interim Financial Statements of the Company are presented for the 6
month period ended 31 March 2023. The Company invests in a diversified
portfolio consisting primarily of equity and equity-related securities issued
by unquoted companies.
The Company received discretionary portfolio management services directly from
Jupiter Investment Management Limited ("JIML") during the 6 month period ended
31 March 2023. The administration of the Company is delegated to Maitland
Administration (Guernsey) Limited ("MAGL") (the "Administrator").
2. Significant accounting policies
(a) Basis of accounting
The Unaudited Condensed Interim Financial Statements have been prepared on a
going concern basis in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU, and applicable Guernsey law. These Unaudited Condensed
Interim Financial Statements do not comprise statutory Financial Statements
within the meaning of the Companies (Guernsey) Law, 2008, they do not include
all of the information required for full annual financial statements and
should be read in conjunction with the financial statements of the Company as
at 30 September 2022, which were prepared in accordance with International
Financial Reporting Standards as adopted by the EU ("IFRS"). The accounting
policies adopted in these Unaudited Condensed Interim Financial Statements are
consistent with those of the previous financial period and the corresponding
interim reporting period, except for the adoption of new and amended standards
as set out below.
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 July 2022 is consistent with the requirements of
IFRS, the Directors have sought to prepare the Unaudited Condensed Interim
Financial Statements on a basis compliant with the recommendations of the
SORP.
(b) Going concern
The Directors have adopted the going concern basis in preparing the Unaudited
Condensed Interim Financial Statements.
In assessing the going concern basis of accounting, the Directors have
reviewed the guidance issued by the Financial Reporting Council and considered
the Company's own financial position, market volatility, inflation, increases
in interest rates, recent bank failures and other uncertainties impacting on
the Company's investments, their financial position and liquidity
requirements.
At period end, the Company has liquidity including a current cash position of
£43,305,000, a net current asset position of £40,753,000 and liquid listed
investments amounting to £11,970,000.
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 sources and uses of
liquidity.
In accordance with the Company's Articles of Incorporation the Board are
committed to propose an ordinary resolution that the Company continues its
business as a closed-ended investment company at the first annual general
meeting of the Company following the fifth anniversary of IPO (being 6
November 2023). The annual general meeting will be no later than April 2024.
As detailed in the Chairman's Statement, it is the Board's intention that a
circular will be sent to shareholders in the first quarter of 2024 with a
proposal for the ongoing management of the Company beyond April 2024. It is
anticipated that shareholders will have an option at that AGM to determine if
the Company should continue investing proceeds from realisations, and if so,
how much and over what period of time, or whether shareholders would prefer to
see a return of all investment proceeds (and therefore no reinvestment) over a
managed exit programme.
As the continuation vote falls within 12 months of signing the Interim Report
and Unaudited Condensed Interim Financial Statements the Board have considered
the likely outcome of the vote, however it cannot be predicted with certainty.
Consequently, a material uncertainty exists which may cast doubt over the
Company's ability to continue as a going concern. Despite this, the Board
consider that the Company has sufficient resources to continue operating for
at least the next 12 months following the signing of the Interim Report and
Unaudited Condensed Interim Financial Statements, and so the going concern
basis of accounting has been adopted. It should be noted that as investments
are included in these statements at fair value, the Board is of the view that
there would be little or no change to the Net Asset Value of the Company if
the going concern assumption was not adopted.
(c) 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 Unaudited Condensed Interim Financial Statements.
(d) 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 period.
Exemption is applied and granted annually and subject to the payment of a fee,
currently £1,200.
3. Use of estimates and critical judgements
The preparation of Unaudited Condensed Interim 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 Unaudited Condensed
Interim Financial Statements and the reported amounts of income and expenses
during the period. 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 period, except for the use of estimates in the valuation of the
unquoted investments detailed in note 13.
4. New and revised standards
The following accounting standards and their amendments were in issue at the
period end but will not be in effect until after this financial period end.
The Directors have considered their impact and have concluded that they will
not have a significant impact on the Unaudited Condensed Interim Financial
Statements.
Amendments to following standards
· 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
5. Investment management fees
1 October 2022 1 October 2021
to 31 March to 31 March
2023 2022
£'000 £'000
Investment management fee 1,995 3,304
Total investment management fees 1,995 3,304
The Company procures portfolio management services directly from JIML, under
the Portfolio Management Agreement dated 1 July 2022. Until 30 June 2022,
portfolio management services were sub delegated to JIML by Jupiter Unit Trust
Managers Limited ("JUTM"), a member of the same group.
Management fee
The monthly management fee is equal to 1/12 of 0.5% of the Net Asset Value
(the "Management Fee"). The management fee is calculated and paid monthly in
arrears.
If at any time the Company invests in or through any other investment fund or
special purpose vehicle and a management fee or advisory fee is charged to
such investment fund or special purpose vehicle by 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 31 March 2023, amounts outstanding in respect of management fees were
£nil (30 September 2022: £3,128,000) to JUTM and £1,984,000 (30 September
2022: £1,178,000) to JIML.
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, was recognised within
gains on settlement of financial liability within the Statement of
Comprehensive Income in the period ended 31 March 2022.
For the year ended 31 September 2023, a performance fee may be payable, 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 2022 and ending on 30 September 2023 (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); and
"R" is the aggregate of amounts disbursed by the Company in respect of the
share redemptions 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 JUTM upon certain
termination events.
The accrued performance fee shall only be payable by the Company to the extent
that the Payment Amount is greater than the sum of the performance fee (which
shall both be calculated as at the end of each Calculation Period) and, to the
extent that the Payment Amount is less than the sum of the performance fee for
that Calculation Period, an amount equal to the difference shall be carried
forward and included in the performance fee calculated as at the end of the
next Calculation Period (and such amount shall be paid before any performance
fee accrued at a later date).
"Payment amount" is the sum of:
(i) aggregate net realised profits on investments since the start of the
relevant Calculation Period; plus
(ii) an amount equal to each IPO investment unrealised gain where the
initial public offering of the relevant investment takes place during the
relevant Calculation Period; plus or minus (as applicable)
(iii) an amount equal to the listed investment value change attributable to
that calculation period; plus
(iv) the aggregate amount of all dividends or other income received from
investments of the Company in that Calculation Period (other than investments
made pursuant to the cash management policy of the Company as stated in the
Investment Policy).
No performance fee is payable out of the assets attributable to any C Shares
in issue from time to time.
As at 31 March 2023, the Company had not exceeded the High Water Mark and
Performance Hurdle therefore an accrual of £nil (30 September 2022: £nil)
for performance fees has been reflected within these Unaudited Condensed
Interim Financial Statements.
6. Other expenses
1 October 2022 to 31 March 1 October 2021 to 31 March
2023 2022
£'000 £'000
Directors' fees 234 164
Directors' expenses 14 3
Administration fee 105 141
AIFM fee - 298
Auditor's remuneration for:
- audit fees 73 64
- non-audit fees 21 23
Committee fees 78 -
Secretarial fees 23 19
Printing fees 15 11
Registrars' fees 17 21
Listing fees 20 22
FCA fees 20 10
Legal fee and professional fees:
- ongoing operations 575 610
- purchases 100 204
Depositary fees 30 50
Directors' liability insurance 34 33
Sundry 75 53
1,434 1,726
7. Losses per Ordinary Share
31 March 2023 31 March 2022
Net return Per share Net return Per share
£'000 pence £'000 pence
Revenue return (3,275) (0.55) (4,982) (0.87)
Capital return (102,491) (17.22) (215,603) (37.85)
At 31 March (105,766) (17.77) (220,585) (38.72)
Weighted average number of Ordinary Shares 595,150,414 569,677,684
The return per share is calculated using the weighted
average number of ordinary shares.
8. Dividends
The Board has not declared an interim dividend (6 months
ended 31 March 2022: £nil) .
9. Investments held at fair value through profit or loss
31 March 30 September
2023 2022
£'000 £'000
Opening book cost 731,095 758,013
Opening investment holding unrealised gains 91,268 702,185
Opening valuation 822,363 1,460,198
Movements in the period / year
Purchases at cost 24,889 93,663
Sales - proceeds (11,263) (121,318)
Net losses on investments held at fair value
through profit or loss (102,926) (610,180)
Closing valuation 733,063 822,363
Closing book cost 712,148 731,095
Closing investment holding unrealised gains 20,915 91,268
Closing valuation 733,063 822,363
1 October 2022 1 October 2021 1 October 2021
to 31 March to 30 September to 31 March
2023 2022 2022
£'000 £'000 £'000
Movement in unrealised gains during the period / year 50,062 130,434 105,232
Movement in unrealised losses during the period / year (120,415) (741,351) (393,327)
Realised loss on sale of investments (36,558) (55,742) -
Realised gain on sale of investments 3,985 56,479 54,580
Net losses on investments held at fair value through profit or loss (102,926) (610,180) (233,515)
The Company holds all its investments at fair value through profit or loss.
Investments held by the Company on 31 March 2023 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%
Sorted Holdings Limited United Kingdom Trading company 20-30%
Tactus Holdings Limited United Kingdom Trading company 20-30%
10. Share capital
No of
shares £'000
Ordinary Shares at no par value
Opening balance as at 1 October 2021 547,273,076 758,950
Issue of shares 47,877,338 102,614
Issue costs - (674)
At 30 September 2022 595,150,414 860,890
Opening balance as at 1 October 2022 595,150,414 860,890
At 31 March 2023 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.
11. Net Asset Value per Ordinary Share
The Net Asset Value per Ordinary Share and the Net Asset Value at the period
end calculated in accordance with the Articles of Incorporation were as
follows:
31 March 2023 30 September 2022
NAV NAV NAV NAV
per share attributable per share attributable
pence £'000 pence £'000
Ordinary Shares: basic and diluted 130.02 773,816 147.79 879,582
The Net Asset Value per Ordinary Share is based on 595,150,414 (2022:
595,150,414) Ordinary Shares, being the number of Ordinary Shares in issue at
the period end.
12. Other cash flows from operating activities
31 March 31 March
2023 2022
£'000 £'000
Total losses for the period (105,766) (220,585)
Net losses on investments held at fair value
through profit or loss 102,926 233,515
Gain on settlement of financial liability - (17,907)
Interest income (611) (60)
Finance costs - 12
Net losses / (gains) on currency movements 22 (5)
Movement in working capital
(Increase) / decrease in other receivables (51) 292
Decrease in payables (2,681) (49,782)
Other cash flows from operating activities (6,161) (54,520)
13. 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.
The Unaudited Condensed Interim Financial Statements do not include all
financial risk management information and disclosures required in the annual
financial statements; they should be read in conjunction with the Company's
Audited Financial Statements as at 30 September 2022.
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 31 March 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Quoted equity 11,970 - - 11,970
Unquoted equity - - 721,093 721,093
11,970 - 721,093 733,063
At 30 September 2022 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Quoted equity 20,317 - - 20,317
Unquoted equity / Convertible debt - - 802,046 802,046
20,317 - 802,046 822,363
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 2023
Fair Value as at 31 March 2023 (£000s) Valuation Technique Significant Unobservable Inputs Range Sensitivity % Sensitivity to changes in significant unobservable inputs
508,562 Market approach using comparable trading multiples EV/LTM Revenue multiples 0.22x - 21.94x 25%
EV/2022 Revenue multiples If multiples changed by +/- 25%, the value of the companies in this group
would change by + £96,515,019 / - £95,126,596
EV/2023E Revenue multiples
194,821 Recent Transaction Price N/A N/A N/A N/A
16,321 Scenario Analysis Probability 17-100% 25% If probability changed by +/- 25%, the value of the companies in this group
would change by - £16,321,205 / + £19,126,412
1,325 Expected Proceeds N/A N/A N/A N/A
63 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 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 Company has an established control framework with respect to the
measurement of fair values. The Company's Investment Adviser provides
discretionary portfolio management services, while the Company assumes direct
responsibility for the valuation process.
The Company's 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:
March September March September
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Level 1 Level 1 Level 3 Level 3
Opening balance 20,317 236,756 802,046 1,223,442
Transferred to Level 1 - (4,961) - 4,961
Purchases at cost - 15,219 24,889 78,444
Sales at cost (5,894) (49,478) (5,369) (71,840)
Total gains / (losses) included in net gains on investments in the Statement
of Comprehensive Income
- on assets sold 3,985 (42,763) (36,558) 43,500
- on assets held at period/year end (6,438) (134,456) (63,915) (476,461)
11,970 20,317 721,093 802,046
The change in unrealised gains or losses (net gain) for the period included in
the Unaudited Condensed Statement of Comprehensive Income relating to those
Level 3 assets held at the reporting date amounted to £105,692,000 (30
September 2022: £427,998,000).
Investments are transferred between levels at the point of the trigger event.
There were no transfers between the levels of the fair value hierarchy during
the period ended 31 March 2023.
There have been no significant changes in the management of risk or in any
risk management policies since the last Statement of Financial Position date.
14. Related parties and other significant transactions
JIML provides portfolio management services to the Company.
1 October 2022 1 October 2021 1 October 2021
31 March 30 September 31 March
2023 2022 2022
£'000 £'000 £'000
Management fee charged by JUTM:
Total management fee charged - 4,915 3,304
Management fee outstanding - 3,128 5,085
AIFM fee charged by JUTM:
Total AIFM fee charged - 433 298
AIFM fee outstanding - 287 506
Management fee charged by JIML:
Total management fee charged 1,995 1,178 -
Management fee outstanding 1,984 1,178 -
Directors' fees
Total Directors' fees charged 234 345 164
Directors' fees outstanding - 18 -
As at 31 March 2023 the following Directors had holdings in the Company:
Number of % Ordinary Shares
Director Ordinary Shares issue as at 31 March 2023
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) 11,530 0.0019
As at 30 September 2022 the following Directors had holdings in the Company:
Number of % Ordinary Shares
Director Ordinary Shares issue 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
On 8 March 2023, the Company purchased shares in Starling Bank Limited for a
total value of £20 million. The shares were purchased from funds managed by
Jupiter.
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 31 March 31 March
2022 the year the year 2023 2023
£'000
Fund name
Jupiter UK Smaller Companies Focus Fund 4,390,111 - (612,578) 3,777,533 2,217
Jupiter UK Specialist Equity Fund 4,166,225 - (687,747) 3,478,478 2,042
Jupiter UK Mid-Cap Fund 84,063,528 - (6,946,776) 77,116,752 45,268
Jupiter UK Smaller Companies Fund 15,958,557 - (265,476) 15,693,081 9,212
Jupiter Merlin Real Return Portfolio 1,259,639 - (1,259,639) - -
Jupiter Fund of Investment Trusts 2,000,000 - - 2,000,000 1,174
Jupiter UK Smaller Companies Equity Fund 2,250,000 - - 2,250,000 1,321
Total 114,088,060 - (9,772,216) 104,315,844 61,234
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
15. Post balance sheet events
On 20 April 2023, the Company entered into a convertible loan agreement with
Sorted Holdings Limited for a consideration of £315,750.
On 21 April 2023, the Company invested a further £12.5 million into Smart
Pension as a part of the Series E funding round led by Aquiline Capital
Partners.
During May 2023, the Company purchased three UK treasury bills maturing on 26
June 2023, 24 July 2023, and 14 August 2023 respectively for a consideration
of £19,829,391.
During June 2023, the Company sold shares in Wise for a total consideration of
£3,108,559, averaging 620 p per share.
There has not been any other matter or circumstance occurring subsequent to
the end of the interim financial period 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 future financial period.
Corporate Information
Directors
Andrew Haining, Chairman
Anne Ewing
Simon Holden
Stephen Coe (Senior Independent Director)
Tim Cruttenden
Margaret O'Connor
Registered office
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey, GY1 2HL
Investment Adviser
Jupiter Investment Management Limited ("JIML")
The Zig Zag Building
70 Victoria Street
London, SW1E 6SQ
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, an Apex group company
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey, GY1 2HL
Registrar
Computershare Investor Services (Guernsey) Limited
1st Floor, Tudor House
Le Bordage
St Peter Port
Guernsey, GY1 DB
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 1WA
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
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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
EBITDA
Earnings before interest, tax, depreciation and amortisation
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