TIDMCHRY
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is not for publication, release or distribution in the United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 % Decrease
2022
NAV per share 130.02p 147.79p 12.0%
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Share price 58.70p 61.70p 4.9%
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Total net assets GBP774 million GBP880 million 12.0%
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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 cGBP25 million, including primary
investment into InfoSum (GBP1.4 million) and wefox (GBP3.6
million), and the purchase of secondary capital in Starling Bank
(GBP20 million)
- Further investment was made into Smart Pension following the period end (GBP12.5 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 cGBP43 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."
-S-
For further information, please
contact
Media +44 (0) 7976 098 139
Montfort Communications chrysalis@montfort.london
Charlotte McMullen / Toto Reissland
/ Lesley Kezhu Wang
Jupiter Asset Management:
James Simpson +44 (0) 20 3817 1696
Liberum:
Chris Clarke / Darren Vickers
/ Owen Matthews +44 (0) 20 3100 2000
Numis:
Nathan Brown / Matt Goss +44 (0) 20 7260 1000
Maitland Administration (Guernsey)
Limited:
Chris Bougourd +44 (0) 20 3530 3109
LEI: 213800F9SQ753JQHSW24
A copy of this announcement will be available on the Company's
website at 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
Company Location Opening
value
1 October Net invested Fair value Closing
Cost 2022 / returned movements Value
% of
net
(GBP'000) (GBP'000) (GBP'000) (GBP'000) (GBP'000) assets
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, GBP1.4 million was invested in InfoSum, to
assist it in continuing to scale;
-- In February 2023, GBP3.6 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 GBP20m secondary purchase of Starling Bank
was undertaken; the Investment Adviser remains optimistic over
Starling's prospects.
Post period end, a GBP12.5 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 GBP5.9 million of Wise was
sold at an average share price of 674p;
-- In the same month, a small recovery of approximately
GBP150,000 was made from Growth Street; and
-- In November 2022, approximately GBP5.2 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 GBP20 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 GBP16 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 GBP233 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 GBP415 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 GBP189 million year-on-year; approximately a 74%
reduction.
The chart above shows the contribution by company to the GBP189
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 GBP20
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 GBP43 million, and following the post period end
investment in Smart Pension, cash stands at approximately GBP33
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 EUR600 million
of revenue, and this momentum has carried through into 2023. When
Chrysalis first invested in the company, back in 2019, wefox
generated approximately EUR50 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 EUR400 million
Series D funding round it announced in July 2022, earlier this
year. The company raised EUR55 million of primary capital on the
same terms as that round, with Chrysalis contributing EUR4 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 (GBPm) 14.2 87.8 188.1 414.8 372%
------- -------- -------- -------- -------------
Implied costs (67.8) (101.5) (156.0) (220.2) 117%
------- -------- -------- -------- -------------
Profit before tax
(GBPm) (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 % chg
customers Nov-19 Mar-21 Mar-22 Mar-23 (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
GBP12.5 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 GBP4.7 billion, up over 123% from GBP2.1
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 GBP10 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 GBP67 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 GBP158 million in AuM.
Post period end, Smart announced the acquisition of US based
ProManage, which offers managed retirement solutions, taking AuM to
over GBP8 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 GBP26.7 million, Annual Recurring Revenue grew
by 33%, albeit with losses widening to GBP16.3 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 GBP60 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.
B oard 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 GBP43,305,000, a net current asset position of
GBP40,763,000 and liquid listed investments amounting to
GBP11,970,000.
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 % change in NAV per share
share
30 September 160.97 17.3% increase on 30 June 2020 NAV
2020
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 GBP105,766,000.
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 1 October 2021
to to
31 March 2023 31 March 2022
(unaudited) (unaudited)
Notes Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
Ordinary Share (pence) 7 (0.55) (17.22) (17.77) (0.87) (37.85) (38.72)
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
GBP'000 GBP'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 Revenue Capital
capital reserve reserve Total
2023 2023 2023 2023
GBP'000 GBP'000 GBP'000 GBP'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 Revenue Capital
capital reserve reserve Total
2022 2022 2022 2022
GBP'000 GBP'000 GBP'000 GBP'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 1 October
2022 to 2021 to
31 March 31 March
2023 2022
Notes GBP'000 GBP'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 GBP43,305,000, a net current asset position of
GBP40,753,000 and liquid listed investments amounting to
GBP11,970,000.
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 GBP1,200.
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 1 October
2022 2021
to 31 March to 31 March
2023 2022
GBP'000 GBP'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 GBPnil (30 September 2022: GBP3,128,000) to
JUTM and GBP1,984,000 (30 September 2022: GBP1,178,000) to
JIML.
Performance fee
In accordance with an agreement between the Company and JUTM
dated 29 November 2021 (the "Agreement"), the Company settled 54%
(GBP60,522,000) of the performance fee due to JUTM for the year
ended 30 September 2021 in ordinary shares issued by the Company.
The remaining 46% (GBP51,555,000) 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 GBP42,615,000. 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 GBP17,907,000, 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 GBPnil (30
September 2022: GBPnil) for performance fees has been reflected
within these Unaudited Condensed Interim Financial Statements.
6. Other expenses
1 October 1 October
2022 to 31 2021 to 31
March March
2023 2022
GBP'000 GBP'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
GBP'000 pence GBP'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: GBPnil) .
9. Investments held at fair value through profit or loss
31 March 30 September
2023 2022
GBP'000 GBP'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 1 October 1 October
2022 2021 2021
to 31
March to 30 September to 31 March
2023 2022 2022
GBP'000 GBP'000 GBP'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:
Principal place Ownership
Name of business Principal activity interest %
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 GBP'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 GBP'000 pence GBP'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
GBP'000 GBP'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 Level Level Total
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
Quoted equity 11,970 - - 11,970
Unquoted equity - - 721,093 721,093
11,970 - 721,093 733,063
========= ======== ======== ========
Level Level Level
At 30 September 2022 1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'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 Valuation Significant Range Sensitivity Sensitivity to
as at 31 Technique Unobservable % changes in significant
March 2023 Inputs unobservable inputs
(GBP000s)
------------------ ------------------ -------------- ----------- ----------------------------
EV/LTM Revenue
multiples
If multiples changed
EV/2022 Revenue by +/- 25%, the
multiples value of the companies
Market approach in this group would
using comparable EV/2023E Revenue change by + GBP96,515,019
508,562 trading multiples multiples 0.22x - 21.94x 25% / - GBP95,126,596
------------------ ------------------ -------------- ----------- ----------------------------
194,821 Recent Transaction N/A N/A N/A N/A
Price
------------------ ------------------ -------------- ----------- ----------------------------
If probability changed
by +/- 25%, the
value of the companies
in this group would
Scenario change by - GBP16,321,205
16,321 Analysis Probability 17-100% 25% / + GBP19,126,412
------------------ ------------------ -------------- ----------- ----------------------------
1,325 Expected N/A N/A N/A N/A
Proceeds
------------------ ------------------ -------------- ----------- ----------------------------
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 Valuation Significant Range Sensitivity Sensitivity to
as at 30 Technique Unobservable % changes in significant
September Inputs unobservable inputs
2022 (GBP000s)
------------------ ------------------- ---------------- ----------- ---------------------------
EV/2022E revenue
multiples
If multiples changed
EV/LTM revenue by +/- 25%, the
multiples value of the companies
Market approach in this group would
using comparable EV/2023E revenue change by + GBP42,745,628
447,933 traded multiples multiples 0.13 - 25.79x 25% / - GBP41,842,136
-----------
If multiples changed
by +/- 25%, the
value of the companies
Market approach in this group would
using price Price/2022E change by + GBP39,701,835
113,394 to book ratios Book multiple 0.35 - 4.41x 25% / - GBP34,903,560
-----------
177,016 Recent transaction N/A N/A N/A N/A
price
------------------ ------------------- ---------------- ----------- ---------------------------
If probability changed
by +/- 25%, the
value of the companies
in this group would
Scenario change by + GBP21,124,669
45,065 Analysis Probability 17-100% 25% / - GBP21,124,669
------------------ ------------------- ---------------- ----------- ---------------------------
If the underlying
asset values changed
by +/- 25%, the
value of the companies
in this group would
Underlying Asset change by + GBP3,816,379
18,429 Option Pricing Value N/A 25% / - GBP3,893,347
------------------ ------------------- ---------------- ----------- ---------------------------
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
GBP'000 GBP'000 GBP'000 GBP'000
Level Level Level Level
1 1 3 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 GBP105,692,000 (30 September 2022:
GBP427,998,000).
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 1 October 1 October
2022 2021 2021
31 March 30 September 31 March
2023 2022 2022
GBP'000 GBP'000 GBP'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 issue as at 31 March
Ordinary Shares 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 GBP20 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
GBP'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 Total holdings Value of
at Shares purchased Shares sold at holdings at
30 September during during 30 September 30 September
2021 the year the year 2022 2022
GBP'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
GBP315,750.
On 21 April 2023, the Company invested a further GBP12.5 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 GBP19,829,391.
During June 2023, the Company sold shares in Wise for a total
consideration of GBP3,108,559, 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
Guernsey, GY1 1WR
Definitions
BENCHMARK PERFORMANCE
With reference to investment valuation, application of the performance
of a benchmark or pool of comparable companies to an unlisted company
to determine a valuation.
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 a given time period.
DISCOUNT / PREMIUM
The amount by which the market price per share of an investment
company is lower or higher than its net asset value per share.
The discount or premium is normally expressed as a percentage of
the net asset value per share.
NET ASSET VALUE (NAV)
The Net Asset Value (NAV) is the amount by which total assets exceed
total liabilities, i.e., the difference between what the Company
owns and what it owes.
EBITDA
Earnings before interest, tax, depreciation and amortisation
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END
IR SEEEFMEDSEIM
(END) Dow Jones Newswires
June 27, 2023 02:00 ET (06:00 GMT)
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