REG - Chrysalis Invs Ltd - Notice of AGM and Notice of EGM

Chrysalis InvestmentsAnnouncement

29/01/2024 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240129:nRSc1324Ba&default-theme=true

RNS Number : 1324B  Chrysalis Investments Limited  29 January 2024

The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any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.

 

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

 

29 January 2024

 

 

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

Notice of AGM and Notice of EGM

 

Annual General Meeting

The Company is pleased to confirm that its fifth Annual General Meeting (the
"2024 AGM") will be held at 11:00 a.m. GMT on Thursday, 15 March 2024 at the
Company's registered office at 1 Royal Plaza, Royal Avenue, St Peter Port,
Guernsey GY1 2HL. The Notice of AGM and accompanying proxy-voting form has
been published today.

Continuation vote

Alongside the ordinary business of the 2024 AGM, a resolution for the
continuation of the Company is included in the Notice. The Board unanimously
recommends that Shareholders vote in favour of the Continuation Resolution.

Background

Under the Articles, at the first annual general meeting of the Company
following the fifth anniversary of IPO (such anniversary being 6 November
2023), the Directors must propose an ordinary resolution that the Company
continues its business as a closed-ended investment company. If the
Continuation Resolution is passed at the 2024 AGM, the Directors will put a
further Continuation Resolution to Shareholders at the annual general meeting
of the Company every three years thereafter, as set out at the time of the
Company's IPO.

The Board, Richard Watts and Nick Williamson (the "Principals") and the
Company's brokers have engaged with a range of shareholders representing a
substantial majority of the Company's ordinary share register in respect of
the Continuation Resolution, with such engagement including consideration of
the Company's Capital Allocation Policy (the "CAP") and revised management
arrangements which were announced in principle on 13 October and 27 November
2023, respectively, and which are discussed further below. The Board has been
encouraged by the support from Shareholders during these discussions and
believes that there is broad consensus that the Company's continuation is in
Shareholders' interests.

Rationale for continuation

The Company was formed to take advantage of the trend for growth companies to
source expansion capital from the private markets rather than the public
markets. That trend, five years later, has accelerated with fewer companies
coming to the public market and growth companies largely continuing their
high-growth development as private companies. Some of the world's largest
private growth companies have been in existence for more than ten years, have
accessed private capital repeatedly and have avoided public capital markets
until becoming very mature and substantial businesses. Given its structure,
the Company is ideally placed to provide institutional and retail investors
with access to those types of growth companies in a form that matches with the
investee company's aspiration for growth and our capacity to be a long-term
holder and supporter.

It is, however, inevitable that building successful companies over those time
horizons involves straddling periods of macroeconomic and political shocks,
such as several of the world's main economies have suffered in the last two
years. The Board and the Principals have spent much of their time ensuring
that the companies Chrysalis have invested in have a plan fit for the
constraints of the near-term economic environments without losing sight of
their long-term disruptive strategies which made them attractive for
investment originally and which, the Board are confident, will deliver value
for our shareholders.

The longer-term strategy remains valid, namely to provide Shareholders with
access to an attractive portfolio of approximately 15 later stage companies
capable of above average growth. The shorter-term consideration is that the
market discount to the net asset value of the Company's Shares makes
purchasing our own Shares a potentially higher returning investment than new
portfolio investments.

Realisations to fund investment (either in new investments or the Company's
own Shares) have taken longer and yielded less free cash flow than
anticipated, due either to an acceleration in the trend of companies staying
private for longer, or to cyclical issues, or a combination of both.

The proposed CAP (details below) is therefore designed to recognise these
shorter-term cyclical considerations could be a factor. Consequently we are
proposing to shareholders that a three year extension to the life of the
Company be agreed at the forthcoming AGM. In that period, we aim to
demonstrate that the Company can return to its long-term purpose of making
investments on the basis that the share price in that period will have
returned more closely to our NAV from the exceptional discount levels we
currently have.

In summary, the Board believes that the Company has demonstrated an ability to
invest in a number of fast growing businesses. There is no question that a
long-term funding structure for these types of investment is the right
structure. The Company expects to be able to demonstrate the ability to
realise such investments to Shareholders and the market within a three-year
extension period.

Capital Allocation Policy

One of the key components of obtaining shareholder support for the proposed
three-year extension is to provide Shareholders with a framework for how
capital will be allocated during that period. The Principals have worked
closely with the Board to form an appropriate CAP, which the Board duly
consulted Shareholders on in October 2023.

In summary, a CAP for the Company must consider four core potential uses of
capital:

(i)         to support existing portfolio companies;

(ii)        to fund working capital (such as operating costs and fees);

(iii)       to invest in late-stage growth opportunities in accordance
with the Company's investment policy; and

(iv)       to return available capital to Shareholders through share
buybacks (or equivalent programmes) where it is economically attractive to do
so.

During the next three years, the Board and the Principals have already
committed to return the first £100 million of realisations to Shareholders,
likely in the form of a share buyback programme and subject to the prevailing
discount, after satisfying the "buffer" of up to £50 million being held back
for working capital and follow on investments.

Both the Board and Principals believe that it is essential to hold a certain
level of capital reserve to fund anticipated follow-on investments into
existing portfolio companies and attend to the estimated costs of running the
Company over a reasonable period; these requirements are seen as more working
capital in nature. Additionally, they believe it prudent to hold capital on a
more strategic basis, to guard against currently unknown funding needs in the
portfolio, which can increase in times of economic stress and/ or periods of
funding market dislocation.

The absolute size of the appropriate cash reserve is likely to change over
time; an appropriate cash reserve is currently believed to be up to £50
million, c.6.2% of net assets, which compares with a current total liquidity
position of approximately £33 million as at 30 September 2023.

The capital return of £100 million has been structured in such a way that the
proceeds of any future exit of one of the Company's larger later-stage assets
could potentially fund the working capital buffer and either a significant
part, or all, of the proposed capital return. In this regard, and as of
September 2023, the Company had three positions valued at over £100 million:
wefox, Starling and Brandtech, all of which are later-stage assets. In
addition, Klarna - in which the Company's holding was valued at approximately
£57 million as of September 2023 1  (#_ftn1) - could make a meaningful
contribution to the proposed return. The proposed capital return quantum of
£100 million is also deemed sufficient to allow significant enhancement to
NAV per Share.

The further commitment relating to the implementation of the CAP, should the
Continuation Resolution be approved, is to continue to return at least 25% of
net realised gains on the Company's investments, with such gains being
measured as net realised gains against historical cost price (and not NAV).
This element is envisaged to be actioned after the £100 million capital
return has been executed, and it addresses the longer-term aspirations of the
Company and Principals to balance capital discipline with their desire to
invest in new opportunities. The Principals believe scale is important in both
gaining access to the best investments and supporting them as they develop.
This proposed further commitment allows the Company to gradually rebuild its
NAV, following any capital return, while still providing for returns of
capital to Shareholders, whether undertaken through buybacks or otherwise.

The Board reserves its discretion on the mechanism for the distributions
described above, but currently intends to return capital to Shareholders by
exercising its AGM authority to buy back shares in the market, equivalent to
c.15% of issued share capital and, if required, seek further authority from
Shareholders to continue share buybacks.

In proposing the CAP, the Board is seeking to balance capital allocations
between potential further opportunities to enhance near-term Shareholder
returns through buying back shares and the opportunity to drive long-term
returns through continuing to provide capital in pursuit of the Company's
investment objective. Overarching all of the CAP considerations is an
acknowledgement that the Company's capital needs to be managed in a dynamic
way. As we consider the uses of the Company's available capital going forward
the Board and the Principals will, when determining the appropriate
implementation of the commitments described above, take into account, inter
alia, the:

(i)         prevailing discount to NAV per share at which the
Company's shares are trading;

(ii)        likely timeline of realisations;

(iii)       likely uses of capital to fund existing investee companies;
and

(iv)       strength of any new investment opportunities.

Subject also to scale, the importance of which is discussed above, abnormally
wide Share price discounts to NAV are likely to favour capital returns to
Shareholders over new investments.

Extraordinary General Meeting

The Company also confirms that, further to its previous announcements, an
extraordinary general meeting ("EGM") will be held at the same date and venue
at 11:30 a.m., (or, if later, as soon as possible thereafter as the AGM shall
have been concluded or adjourned) to consider the proposed performance fee
arrangements. The circular which includes the notice of the EGM (the "EGM
Circular" and together with the AGM Circular the "Circulars") and a Form of
Proxy relating to the EGM are also being published today following approval by
the FCA.

The business of the EGM will be to consider and, if thought fit, approve a
related party transaction. As previously announced, the Company has entered
into new arrangements relating to the management of the Company. In summary,
with effect from 1 April 2024:

-      the appointment of Jupiter Investment Management Limited ("JIML")
as portfolio manager and investment adviser to the Company will be terminated;
and

-      pursuant to a new investment management and advisory agreement
which becomes effective 1 April 2024 (the "Investment Management and Advisory
Agreement"):

o  the Company has appointed Chrysalis Investment Partners LLP (the "New
Investment Adviser") to act as the Company's investment adviser; and

o  G10 Capital Limited - part of IQ-EQ group's UK Regulatory and AIFM
platform - has been appointed as the Company's alternative investment fund
manager (the "AIFM").

The EGM Circular sets out details of the Company's new management arrangements
and, specifically, seeks shareholder approval for the implementation of the
performance fee terms and vesting conditions of the performance fee payable to
the New Investment Adviser (the "Performance Fee Terms") contained in the
Investment Management and Advisory Agreement (the "Related Party
Transaction"). The Company considers that the implementation of the
Performance Fee Terms constitutes a related party transaction within the
meaning of the Listing Rules on the basis that the potential benefit of the
Performance Fee Terms to the Principals as related parties is not
quantifiable. As a result, the implementation of the proposed Performance Fee
Terms described in the EGM Circular requires the approval of the Shareholders.

The Board strongly urges shareholders to review the contents of the Circulars
in their entirety and consider the Board's recommendation to vote in favour of
the respective resolutions. For the reasons set out below, the Board is
unanimous in believing that the Related Party Transaction is in the best
interests of the Company and its Shareholders as a whole:

1.   as compared to the performance fee arrangements previously in place,
the Related Party Transaction will result in a reduction in the overall
performance fee level that is potentially payable by the Company to the New
Investment Adviser in respect of any single financial year (or other
calculation period) of the Company (from 20% to 12.5%);

2.   as compared to the previous performance fee arrangements, the Related
Party Transaction will introduce a cap (of 2.75%) as to the level of
performance fees paid in any single financial year (or other calculation
period) of the Company;

3.   the Related Party Transaction will introduce a primarily share-based
performance fee, creating greater alignment between the New Investment
Adviser's management team and Shareholders;

4.   75 per cent. of any performance fee in respect of a particular
financial year of the Company will be deferred and its payment subject to
certain conditions based on the long-term performance of the Company, ensuring
that the New Investment Adviser's management team is incentivised to generate
long-term value creation; and

5.   the high water mark will be retained at the same level as the
equivalent provision in the Company's prior arrangements, meaning that no
performance fee will become payable unless the previous high water mark (being
251.96 pence) is reached.

 

Smaller related party transaction

On the basis that the Principals (being related parties of the Company within
the meaning of the Listing Rules, as described above) are principals of the
New Investment Adviser, the entry into of the Investment Management and
Advisory Agreement and, specifically, the obligation on the Company to pay
fees to the New Investment Adviser as detailed the Circular (other than
performance fees on the basis of the Performance Fee Terms), constitutes a
"smaller related party transaction" within the meaning of Listing Rule
11.1.10R (the "Smaller Related Party Transaction"). The Smaller Related Party
Transaction does not require shareholder approval as a related party
transaction pursuant to the Listing Rules. In accordance with Listing Rule
11.1.10R(2)(b), however the Company has received confirmation from a sponsor
that the terms of the Smaller Related Party Transaction are fair and
reasonable as far as shareholders of the Company are concerned.

Copies of the Circulars will be available on request from the Company at its
registered office and will shortly be available on the Company's website
at: http://chrysalisinvestments.co.uk (http://chrysalisinvestments.co.uk/) .
The Circulars will also be submitted to the National Storage Mechanism (NSM)
where they will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . In addition, the
Circulars will be available to view at the registered office of the Company,
during normal business hours on weekdays (Saturdays, Sundays and public
holidays excepted) from the date of this document until the conclusion of the
respective meetings.

 

Any capitalised terms not defined in this announcement shall have the same
meaning as those defined in the respective circulars.

-ENDS-

 

For further information, please contact

 Media Enquiries:

 Montfort Communications                                   +44 (0) 20 3514 0897

 Charlotte McMullen / Toto Reissland / Lesley Kezhu Wang   Chrysalis@montfort.london

 Jupiter Asset Management:                                 +44 (0) 20 3817 1696

 James Simpson

 Liberum Capital Limited:                                  +44 (0) 20 3100 2000

 Chris Clarke / Owen Matthews / Darren Vickers

 Deutsche Numis:                                           +44 (0) 20 7260 1000

 Nathan Brown / Matt Goss

 Apex Administration (Guernsey) Limited :                  +44 (0) 20 3530 3109

 Chris Bougourd

LEI: 213800F9SQ753JQHSW24

 

 

 

EXPECTED TIMETABLE OF EVENTS

 Latest time and date for receipt of Form of Proxy (and any accompanying power  11:00 a.m. 13 March 2024
 of attorney) for the 2024 AGM
 Latest time and date for receipt of Form of Proxy (and any accompanying power  6:00 p.m. on 13 March 2024
 of attorney) for the General Meeting
 2024 AGM                                                                       11:00 a.m. 15 March 2024
 General Meeting                                                                          11.30 a.m on 15 March 2024 or, if later, as soon as
                                                                                possible thereafter as the 2024 AGM shall have been concluded or adjourned

 

 1  (#_ftnref1) The holding was valued at approximately £93 million as at 31
December 2023

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  NOAEAPFPADNLEFA