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

Chrysalis InvestmentsAnnouncement

29/07/2024 12:30

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RNS Number : 2364Y  Chrysalis Investments Limited  29 July 2024

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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 July 2024

 

 

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

 

Quarterly NAV Announcement and Trading Update

 

Net Asset Value

 

The Company announces that as at 30 June 2024 the unaudited net asset value
("NAV") per ordinary share was 145.25 pence.

 

The NAV calculation is based on the Company's issued share capital as at 30
June 2024 of 595,150,414 ordinary shares of no par value.

 

June's NAV represents a 2.21 pence per share (1.5%) decrease since 31 March
2024.

 

Movement in the fair value of the portfolio accounted for approximately 1.72
pence per share, with foreign exchange generating an adverse movement of
approximately 0.18 pence per share. Fees and expenses make up the balance.

 

Richard Watts and Nick Williamson, Managing Partners of Chrysalis Investment
Partners LLP comment:

 

"The Company's NAV saw a small decline over the period, with improvements in
the valuations of a number of positions offset by the material write down in
wefox. Following further recent investment into wefox, the Company's position
is now substantially underpinned by downside protection mechanisms,
significantly reducing the downside materiality to the Company's NAV from this
asset.

 

Liquidity has improved substantially post period end, with the announcement of
the sale of Graphcore to SoftBank Group Corp ("SoftBank"), and currently
stands at approximately £49 million, putting the Company in a strong capital
position having met the "cash reserve" element of the Capital Allocation
Policy.

 

Market interest in the later-stage, private assets space remains encouraging.
In May, Forge's Private Markets Update showed a big drop in the level of
investor intention to sell, which it notes "may be due to growing confidence
in their equity holdings".

 

We continue to advise on maximising the value of the Company's portfolio
holdings while exploring opportunities, at the appropriate price, to increase
liquidity, including the option of raising debt. The potential outcomes we are
advising on are at different stages of maturity and certainty and we look
forward to updating the market once we have more clarity. Considering the
improved liquidity backdrop the Board is now reviewing how to best implement
the second phase of the Capital Allocation Policy."

 

Portfolio Activity

 

Chrysalis invested €5.5 million into wefox in the period as part of a
funding solution it has been discussing with both the company and other
shareholders. A portion of the Wise position, amounting to £6.2 million, was
sold in the period thus more than funding this investment.

 

Post period end, a further €15 million was invested into wefox, which was
more than covered by the proceeds from selling the entire position in
Graphcore, which raised approximately £45 million, of which £44 million has
been received to date. The Investment Adviser does not envisage wefox
requiring further investment by the Company.

 

Portfolio Update

 

The portfolio in aggregate continues to perform robustly:

 

Starling

 

Starling's valuation rose in the period driven by multiple expansion of the
listed peer group and removal of the calibration discount to the last
secondary transaction (albeit an illiquidity discount is still applied). The
progress of Engine has also begun to drive valuation upside for Starling.

 

Following significant news flow in the prior quarter, namely the appointment
of Raman Bhatia as CEO and the success of Engine, this quarter saw less news
flow; however, the Investment Adviser believes the company continues to
perform in-line with its expectations.

 

wefox

 

The valuation of wefox fell materially in the period, reflecting both an
increase in weighting towards valuation multiples in the lower quartile of the
relevant group of listed peers, as well as the addition of a significant
discount at group level, to reflect recent funding uncertainty. The underlying
revenues that the above multiples were applied to were broadly consistent
versus the last quarter.

 

The Company has supported wefox with additional capital and the Investment
Adviser has been working closely with other stakeholders to create a viable
solution to wefox's funding requirements that it believes will allow the
business to continue its journey towards profitability.

 

Klarna

 

Klarna announced the sale of Klarna Checkout, which has a 40% market share in
Sweden and 20% across the Nordics, in June. Klarna has been building
functionality with multiple payment service providers ("PSPs") over recent
years, and the Investment Adviser believes this disposal could allow Klarna to
form closer relationships with global PSPs.

 

Elsewhere, Klarna Plus - Klarna's first subscription service for US customers
- reached 100,000 subscribers. Klarna Plus allows members to waive certain
service fees and get access to special deals and offers. Costing $7.99 per
month, this suggests Klarna Plus is generating approximately $10 million
annually, contributing towards Klarna's 1Q24 revenue growth in the US of 38%
year-on-year.

 

Klarna's drive towards AI continues. Approximately 87% of Klarna's employees
are now using AI, with the internal Kiki assistant dealing with 2,000
enquiries per day. Externally, AI has helped Klarna reduce its sales and
marketing expenses by $10 million on an annualised basis, contributing to
S&M expenses falling 11% in 1Q24.

 

Speculation concerning an IPO continues to swirl. The CEO has given a number
of interviews in the quarter indicating that an IPO is likely to happen "quite
soon" and intimating it would occur in the US.

 

The Company has already considered the ramification of such a move; at the
Company's carrying value, this could imply a liquidity injection of £100
million if a full exit is made, equivalent to approximately 21% of the
Company's current market capitalisation.

 

Smart Pension

 

In March 2024, Smart announced that Assets under Management ("AuM") hit £5
billion in the UK Smart Pension Master Trust ("SPMT"), with regular
contributions now running at £1 billion per annum. This growth has been
driven organically as well as through acquisitions, such as that of Evolve in
June 2023, which added £750 million in AuM.

 

In June 2024, STM - the owner of the Options Master Trust ("Options") -
announced it had signed an agreement with Smart to propose to Option's
trustees that they consider transferring its assets to Smart; the Investment
Adviser believes Options has AuM of over £500 million.

 

Earlier in the year, Jamie Fiveash - the CEO of SPMT - gave an interview in
which he stated that he anticipates reaching £10 billion of AuM within three
years, demonstrating significant growth prospects.

 

The valuation increase in the period reflects the progress that Smart is
making.

 

Brandtech

 

A key focus for Brandtech in recent quarters has been the integration of
Jellyfish, which completed in July 2023 and represented the largest
acquisition in the company's history. Significant progress has been made here
in recent months and management is beginning to prioritise driving customer
wins and organic growth across the Media division.

 

Momentum is building for PencilAI, the Group's generative AI marketing
solution, and this has led to a number of leading brands such as Unilever and
Bayer utilising the technology. We are excited about the level of engagement
we are seeing between Global brands and Brandtech with regards to the
application of generative AI and we are hopeful that this translates into
contract wins and revenue over the remainder of the year.

 

The valuation decrease of Brandtech reflects market multiple contraction
during the period.

 

Featurespace

 

Featurespace has continued to grow well against a backdrop of ongoing,
significant fraud in society.

 

Featurespace reports that three in ten UK adults have been a victim of
financial fraud and 55% of them have seen an increase in scam attempts in the
last 12 months. Data from the National Crime Agency shows fraud is now the
most common crime in the UK, accounting for 40% of all offences recorded in
England and Wales.

 

In the period Featurespace released its annual report and accounts for the
year to December 2023, which showed 47% revenue growth to £50.4 million, with
recurring revenues accounting for 79% of revenues, up from 70% in 2022. Due to
this strong topline growth, the loss for the year decreased from -£20.9
million in 2022, to -£8.1 million. Despite these losses, cash flow was strong
- cash rose to £28.7 million from £25.7 million - and the Group expects to
maintain a "strong financial position, without the need for additional equity
or debt capital".

 

Featurespace's valuation rose slightly in the period driven by market multiple
expansion.

 

Cash Update

 

As of 30 June, the Company had net cash of approximately £16 million and a
position in Wise of approximately £2 million, to give a total liquidity
position of approximately £18 million. As announced on 12 July 2024,
Graphcore was sold to SoftBank; the Company can confirm it has received
initial proceeds of £44 million, which has significantly bolstered its
current liquidity position.

 

The majority of the portfolio remains well funded. Having committed further
capital to wefox post period end, amounting to approximately €15 million,
the Investment Adviser does not expect this asset to require further material
funding. Elsewhere, there are expected to be additional, modest funding
requirements across the portfolio in the short to medium term - some of which
are to accelerate growth - but the Company is considered to have sufficient
available liquidity over that period to address these.

 

Portfolio Composition

 

As of 30 June 2024, the portfolio composition was as follows:

 

                       30-Jun
                       Carrying Value

 Portfolio Company     (£ millions)    % of portfolio
 Starling              258.9           29.9%

 Smart Pension          125.4          14.5%

 Klarna                 100.3          11.6%

 Brandtech              82.2           9.5%

 Featurespace           74.2           8.6%

 wefox                  60.5           7.0%

 Graphcore              45.4           5.2%

 Deep Instinct          45.2           5.2%

 Secret Escapes         26.2           3.0%

 InfoSum                28.3           3.3%

 Wise                   2.0            0.2%

 Sorted                 0.3            0.0%

 Growth Street          0.1            0.0%
 Gross cash            16.3            1.9%

 

Source: Chrysalis Investment Partners LLP. 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 £865 million for 30 June 2024.

 

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) 7921 881 800

 Charlotte McMullen / Imogen Saunders      chrysalis@montfort.london

 Chrysalis Investment Partners LLP:        +44 (0) 20 7871 5343

 James Simpson

 G10 Capital Limited (AIFM):               +44 (0) 20 7397 5450
 Maria Baldwin

 Panmure Liberum:                          +44 (0) 20 3100 2000

 Chris Clarke / 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

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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The Company is an alternative investment fund ("AIF") for the purposes of the
AIFM Directive and as such is required to have an investment manager who is
duly authorised to undertake the role of an alternative investment fund
manager ("AIFM"). The AIFM appointed is G10 Capital Limited (part of the IQEQ
Group).

 

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