REG - Chrysalis Invs Ltd - Quarterly NAV Announcement and Trading Update

Chrysalis InvestmentsAnnouncement

30/10/2023 07:15

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RNS Number : 6194R  Chrysalis Investments Limited  30 October 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The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any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.

 

30 October 2023

 

 

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

 

Quarterly NAV Announcement and Trading Update

 

Net Asset Value

 

The Company announces that as at 30 September 2023 the unaudited net asset
value ("NAV") per ordinary share was 134.65 pence.

 

The NAV calculation is based on the Company's issued share capital as at 30
September 2023 of 595,150,414 ordinary shares of no par value.

 

September's NAV represents a 2.21 pence per share (1.6%) decrease since 30
June 2023.

 

Movement in the fair value of the portfolio accounted for approximately 3.99
pence per share, with foreign exchange generating a favourable movement of
approximately 2.01 pence per share. Fees and expenses make up the balance.

 

Investment Adviser Comments

 

Richard Watts and Nick Williamson (co-portfolio managers) comment:

 

"The NAV was broadly flat over the period, largely mirroring the performance
of key equity markets. Notwithstanding this, the IPO market continued to show
signs of life, with ARM listing in the US towards the back end of the quarter.
We also note that Instacart and Klaviyo listed over the period and while their
post-IPO performances have been mixed, we believe that this represents a step
in the right direction. Private equity markets have also seen signs of
recovery as the interest rate and macro-economic picture becomes clearer. Deal
volumes are increasing from a low point in Q1 2023, and the tech sector
remains key for PE.

 

We consider both public and private exit routes as viable options. The
portfolio contains a number of later-stage assets, either profitable or funded
to profitability, that we believe will make very attractive targets in due
course, with some considered "IPO ready". With this in mind, Klarna's comments
in the period that the 'requirements have been met' to consider an IPO were
encouraging to us.

 

Our key assets are continuing to perform well from both an operational and
financial perspective; this gives us confidence in the potential of the
portfolio to drive NAV progression.''

 

Portfolio Activity

 

Investment activity during the quarter was limited.

 

In July the Company invested a further £6.5 million in Secret Escapes as part
of a wider £31.7 million fundraise, supporting the refinancing of existing
debt facilities. This capital will enable the company to accelerate marketing
spend with a view to driving customer acquisition and ultimately growth. The
company is already profitable, but it is hoped that the additional capital
raised will result in a faster rate of growth and an even more profitable
business in the near to medium term.

 

Portfolio Update

 

The portfolio in aggregate continues to make solid progress against its
financial and operating targets; this is particularly true across the core
portfolio which consists of our later-stage assets:

 

wefox

 

wefox continues to grow strongly and has demonstrated a clear roadmap to
profitability. The Investment Adviser believes that wefox will be profitable
towards the end of 2023, a target the company set itself at the beginning of
the period and is well positioned to post its first full year of profitability
in 2024.

 

In the previous quarter, wefox announced that it had launched its global
affinity business, which will connect insurance companies with partners that
can distribute their insurance products. In recent weeks, wefox has announced
that WINDTRE, Italy's leading telecommunications business, has signed a
10-year deal to launch the sale of home and travel insurance products
in-store.

 

On 1 October, wefox appointed Jonathan Wismer as its new Group Chief Financial
Officer. Jonathan brings more than 25 years of experience in the insurance
industry, having held senior finance roles at Zurich, AIG and Resolution Life.
The appointment represents the company's continued strengthening of its
C-suite as it steps up its plans for profitable growth and global expansion.

 

On 24 October, wefox also appointed Mark Hartigan as Chairman. Mark was
previously Chief Executive at LV and Head of Operations for Europe, Middle
East and Africa at Zurich Insurance Group. He was Chief Executive Officer for
Zurich Global Life in the Asia Pacific and Middle East region and led its
regional business in Europe.

 

Starling

 

Starling continues to benefit from an increase in yields on cash and debt
securities, as a result of increases in the Bank of England's Base Rate, and
this continues to drive interest income and profitability. Starling generates
a post-tax return on equity of over 40%, making it, the Investment Adviser
believes, one of the most profitable digital banks globally. Engine, the tech
platform that powers Starling, offers the potential to license Starling's
award-winning technology to financial organisations around the world.

 

Starling announced that from 1 October, it will share the benefit of increased
interest rates with its customers, by paying 3.25% AER interest on accounts
balances of up to £5,000. Starling also offers a One Year Fixed Saver paying
5.53% interest on deposits between £2,000 and £1,000,000 that are held for a
year. These represent extremely competitive rates of interest versus
high-street banks.

 

The Investment Adviser views these moves as consistent with Starling's brand
values, as well as likely providing an incremental boost to deposit growth.
Sharing the benefits of technology and scale with customers is a key enabler
of growth, as has been seen in other portfolio companies.

 

Brandtech

 

Brandtech has made two acquisitions in the year: Jellyfish and Pencil AI.
Although the acquisition of Pencil AI is smaller than Jellyfish, the
Investment Adviser is excited about its potential. Pencil AI was founded in
2018 and is currently the leading AI creative and distribution SaaS platform.
The company utilises Open AI's GPT family of large language models (LLMs) to
generate content that is 10x lower in cost to produce but with a 2x uplift in
performance.

 

During the quarter, Brandtech launched Pencil Pro, an enterprise-level
generative AI product, specifically created to meet the needs of global
brands. This proposition could be significantly disruptive, and it is
encouraging that Unilever and Bayer have decided to be launch partners.

 

Smart Pension

 

Following the announcement of its $95 million Series E funding round in the
previous quarter, led by Aquiline Capital Partners, Smart has continued to
execute its M&A strategy.

 

During the quarter, Smart acquired Evolve Pensions, a leading provider of
workplace pension services through its master trust, the Crystal Trust. Evolve
has over 128,000 members and £750 million in assets. The acquisition of
Evolve Pensions represents one of the largest master trust acquisitions of the
year and makes the Smart Pension Master Trust (SPMT) the country's third
biggest master trust operator. SPMT now has 1.1m members and £4bn under
management while the group has a total of over £11bn under management.

 

Klarna

 

Klarna released its first half results during the quarter which demonstrate
sustained revenue growth and a return to profitability through the second
quarter of the year.

 

Gross Merchandise Volume (GMV) increased by +14% year-on-year (to SEK239
billion) while revenues grew by +17% year-on-year (to SEK5.5 billion). The
Investment Adviser is encouraged by revenues continuing to grow ahead of GMV
as it demonstrates Klarna's ability to monetise its existing customer base.
Fundamental to the improved operating performance was the increase in gross
profit for the period, which rose 83% year-on-year to SEK2.7 billion, driven
by a 49% reduction in credit losses as a percentage of GMV.

 

In the second quarter, Klarna generated an adjusted operating profit of SEK10
million which represents a material improvement in profitability year-on-year
and the first full quarter of profitability since the Company's investment. To
give a sense of how much progress Klarna has made, in the second quarter of
2022, Klarna's adjusted operating loss was in excess of USD280 million, which
implies the company has moved from an annualised operating loss of over USD1
billion, into an annualised profit in the space of 12 months.

 

Deep Instinct

 

Deep Instinct continues to innovate and in recent weeks has launched 'Deep
Instinct Prevention for Storage' (DPS). This new product applies a
prevention-first approach to storage protection, wherever data is stored -
Network Attached Storage (NAS), hybrid, or public cloud environments - and
seamlessly integrates into existing environments to deliver unparalleled
efficacy and accuracy along with enterprise-grade scalability.

 

This is an exciting development in the industry given that the amount of data
being stored in public and hybrid cloud environments continues to grow
exponentially and a single infected file can put an enterprise at risk. As
part of the Deep Instinct Prevention Platform, DPS fills gaps in data
protection by applying a unique deep learning framework dedicated to
cybersecurity. Whenever a file is added or changed in a storage environment,
it is scanned immediately, and malicious files are either quarantined or
deleted to prevent execution.

 

Featurespace

 

Featurespace is a world leader in enterprise grade technology preventing fraud
and financial crime. This is evidenced by a number of recent awards and
product releases.

 

As highlighted earlier in the year, Featurespace has developed a bespoke fraud
transaction monitoring framework for NatWest that led to a +135% improvement
in Natwest's financial scam detection rate and a 75% reduction in false
positives. During the quarter, NatWest and Featurespace won 'Best Innovation
by a Financial Institution' at the Datos Insights 2023 Fraud and AML Impact
Awards for that specific initiative.

 

More recently, the company has launched TallierLTM, the world's first Large
Transaction Model (LTM). TallierLTM, a foundation AI technology for the
payment and financial services industry, is a large-scale, self-supervised,
pre-trained model designed to power the next generation of AI applications.
The model has shown improvements of up to 71% in fraud value detection when
compared to industry standard models.

 

Cash Update

 

As of 30 September, the Company had net cash of approximately £23 million,
subsequent to the follow-on investment in Secret Escapes, and a position in
Wise of £10 million, to give a total liquidity position of approximately £33
million.

 

The majority of follow-on investments have now been completed and most of the
portfolio is now either profitable or funded through to profitability. While
there may be additional funding requirements across the portfolio in the short
to medium term, the Investment Adviser considers the Company has sufficient
available liquidity to address these.

 

Portfolio composition

 

As of 30 September 2023, the portfolio composition was as follows:

 

                       30-Sep
                       Carrying Value

 Portfolio Company     (£ millions)    % of portfolio
 wefox                 188.6           23.5%
 Starling              141.7           17.6%
 Brandtech             103.9           12.9%
 Smart Pension         79.7            9.9%
 Klarna                56.9            7.1%
 Deep Instinct         51.5            6.4%
 Featurespace          49.6            6.2%
 Tactus                29.0            3.6%
 InfoSum               27.2            3.4%
 Secret Escapes        25.0            3.1%
 Graphcore             16.5            2.1%
 Wise                  10.3            1.3%
 Sorted                0.3             0.0%
 Gross cash            22.6            2.8%

 

Source: Jupiter Investment Management Limited. Due to rounding, the figures
may not add up to 100%. The above percentages are based on an aggregate
portfolio value (including cash) of approximately £803 million for 30
September 2023.

 

Outlook

 

The Investment Adviser remains optimistic about the prospects for the Company.
As noted in the last NAV update, IPO and private markets have shown some signs
of life, which is an indication that investor risk appetite is recovering to
some degree.

 

The Investment Adviser remains focused on helping the portfolio companies get
to a position where they can "exit" and considers a number of assets ''IPO
ready''. It is intended that any future realisations flow through the proposed
Capital Allocation Policy that was outlined to shareholders on 13 October
2023. The Investment Adviser believes this policy would be an essential
mechanism to help unwind the current share price discount to NAV.

Factsheet

 

An updated Company factsheet will shortly be available on the Company's
website:  https://www.chrysalisinvestments.co.uk
(https://www.chrysalisinvestments.co.uk)

 

-ENDS-

 

 For further information, please contact:

 Media

 Montfort Communications:                        +44 (0) 7976 098 139

 Charlotte McMullen / Toto Reissland /           chrysalis@montfort.london

 Lesley Kezhu Wang

 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
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announcement nor, unless previously published by means of a recognised
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decision as to whether or not to acquire, continue to hold, or dispose of,
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