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information contained in this announcement is restricted and is not
for publication, release or distribution in the United States of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,
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The
information contained within this announcement is deemed by the
Company to constitute inside information as stipulated under the
Market Abuse Regulation (EU) No. 596/2014 which forms part of
domestic law in the United Kingdom pursuant to The European Union
Withdrawal Act 2018, as amended by The Market Abuse (Amendment) (EU
Exit) Regulations 2019.
29 January 2024
Chrysalis Investments Limited
("Chrysalis" or the "Company")
Quarterly NAV Announcement
and Trading Update
Net Asset
Value
The Company announces that as at 31
December 2023 the unaudited net asset value ("NAV") per ordinary
share was 143.37 pence.
The NAV calculation is based on the
Company's issued share capital as at 31
December 2023 of 595,150,414
ordinary shares of no par value.
December's NAV represents an 8.72
pence per share (6.5%) increase since 30 September 2023.
Movement in the fair value of the
portfolio accounted for approximately 9.89 pence per share, with
foreign exchange generating an adverse movement of approximately
1.02 pence per share. Fees and expenses make up the
balance.
Investment Adviser
Comments
Richard Watts and Nick Williamson (co-portfolio managers)
comment:
"The Company's NAV rose over the period, primarily a
result of revaluations for two of our key assets, Klarna and
Starling Bank. The revaluations were driven by ongoing strong
financial performances as well as increases in the valuation
of several respective peers being used as comparatives.
In the case of Klarna, some of its peers, including Affirm Holdings
Inc and Adyen have seen very significant share price increases
since September 2023 (Affirm +131% over this period, Adyen +65%)
following positive trading updates, against a backdrop of increased
appetite for tech stocks as bond yields
fell.
At
the last quarter end, we talked about the IPO market showing signs
of life. Recent downward movements in bond yields have assisted
both indices - such as the NASDAQ - and stocks, such as ARM
Holdings Inc, to move higher over the period; ARM is now well
above its mid-September 2023 IPO price of USD51.
This market action is indicative of risk appetite returning, and
potentially leading to the reopening of realisation channels
for the Company, including IPO markets.
Recent comments from Klarna concerning a potential IPO
continue to be positive and a realisation from the portfolio could
prove very significant for the Company's
liquidity, and lead to the initiation of
the capital allocation policy that will form part of
the continuation proposal that shareholders are recommended by the
Board to support at the upcoming AGM. Momentum in our key
investments continues to be strong, and we believe this is likely
to be a key determinant of share price progression from
here."
Portfolio
Activity
There was no investment activity in
the quarter, with most investments well-funded. In December, the
Company announced a likely disposal, which is subject to certain
conditions. No further update can be provided at this
time.
Portfolio
Update
The portfolio in aggregate continues
to perform well, particularly in terms of the later-stage
assets:
wefox
wefox continues to grow well,
crossing the €1.5 billion milestone in terms of Gross Platform
Value (insurance premium volume transacted), and achieving its
first full month of profits in December 2023 as it continued its
drive towards profitability. While activity has some seasonality,
the Investment Adviser expects further progress on profitability
over 2024.
As previously announced, the company
boosted its governance in the quarter with the appointments of
Jonathan Wismer as its new Group Chief Financial Officer and Mark
Hartigan as Chairman. Both have considerable industry experience.
In addition, in November Paul Onnen, who has 30 years of industry
experience including with Amazon, Google and Expedia, was appointed
as CTO.
Starling
Starling announced that from 1
October, it will share the benefit of increased interest rates with
its customers, by paying 3.25% AER interest on account balances of
up to £5,000. The impact of this initiative has been to generate
significantly more deposit inflows than in previous
months.
Engine by Starling ("Engine") - the
Software-as-a-Service subsidiary of Starling - announced two deals
in the quarter. Salt Bank will become Engine's first customer. This
is a new bank being set up in Romania looking to prove as
disruptive as Starling in the UK, with an expected go-live date
early in 2024. The second is with AMP, a £1.4 billion Australian
listed financial services firm with over one million customers and
employing approximately 3,000 people. Engine will build a new
digital bank for AMP to go live in early 2025, with AMP expecting
to commit AUD60 million of investment.
These successes for Engine show that
Starling has other ways to monetise its technology, in addition to
using it to run its highly profitable UK bank. In that regard, and
given ongoing supportive bank rates, Starling has continued to
generate strong operating profits over the quarter.
Brandtech
Despite a well-publicised slowdown
in advertising markets, Brandtech continued to grow and has spent
the latter part of 2023 consolidating its recent acquisitions of
Jellyfish and Pencil AI.
In line with many of our companies,
Brandtech looked to reduce its cost base over the year, to ensure
it is in the best possible position to grow efficiently and
profitably in 2024. The outlook for this year is more optimistic,
with a strong sales pipeline and significant interest in its
products, particularly its Gen-AI offering.
Klarna
Klarna released its results for the
nine months to the end of September during the quarter. These
results showed an acceleration in revenue growth and further
improvements in profitability, building on its shift back into
profitability in the second quarter.
Revenue growth was +30% in 3Q23
year-on-year, increasing from +17% and +13% year-on-year in 2Q23
and 1Q23 respectively. The Investment Adviser believes this partly
reflects the overlap of two quarters when growth was impacted by
the cost cutting exercise that occurred around 2Q23, but also due
to on-going work by Klarna to improve the shopping
experience.
Credit performance was also very
strong, with credit losses falling 46% in 3Q23 year-on-year to
0.33% of Gross Merchandise Volume, a figure which the Investment
Adviser believes is the lowest Klarna has reported since
2018.
The result of this growth, and
impairments falling, was that profitability improved again in the
quarter, with Klarna reporting SEK500 million of adjusted operating
profit, up from roughly break-even in 2Q23 and compared with losses
of SEK1.6 billion in 3Q22. This implies that Klarna's quarterly
operating performance has improved by approximately SEK2.1 billion
year-on-year, or roughly USD200 million, or approximately USD800
million on an annualised basis.
In January 2024, Klarna's CEO -
Sebastian Siemiatkowski - gave an interview with BNN Bloomberg in
which he described a Klarna IPO as "…very likely to happen quite
soon". This builds on other comments made by him in recent months
suggesting that Klarna is gearing up for a flotation. This latest
interview also suggested that Klarna is leaning towards a US
listing.
If Klarna did choose to IPO this
year, then the Investment Adviser believes that this would
substantially alter the liquidity profile of Chrysalis.
Smart Pension
Smart announced a new SME pension
solution with Mercer in the quarter, called Mercer Smart
Pension.
This project looks to combine
Smart's market-leading technology platform - Keystone - with
Mercer's significant market reach, investment capabilities and
retirement services. to provide SMEs with the same level of service
and market access as bigger companies. Given Mercer's position in
the market, the Investment Adviser believes this could generate
significant assets-under-management ("AUM") flows in the coming
years.
Featurespace
Featurespace released research in
December 2023 that showed the market backdrop for fraud prevention
continues to be strongly supportive in relation to financial crime
trends. Of the financial institutions surveyed, 70% reported that
overall fraud rates had increased over the year, marking an eleven
percentage point increase over 2022. Compounding these higher fraud
rates were an increase in false positives - where a valid
transaction is blocked - which rose 20 percentage points to 63%:
Featurespace attributes this to imposition of blanket controls on
customer bases. Increased false positives lead to lower revenues
for financial institutions, but also higher costs, as customers
often query why a transaction has been rejected.
The Investment Adviser believes
Featurespace remains at the forefront of the fight against fraud.
The previously announced launch of TallierLTM, the world's first Large Transaction Model (LTM) -
a foundation AI technology for the payment and financial services
industry - is helping to preserve its competitive advantage and
potentially open up new applications.
Cash Update
As of 31 December, the Company had
net cash of approximately £20 million and a position in Wise of £13
million, to give a total liquidity position of approximately £33
million.
The majority of the portfolio
remains well funded. While there may be additional funding
requirements across the portfolio in the short to medium term, the
Investment Adviser considers that the Company will have sufficient
available liquidity over that period to address these.
Portfolio
composition
As of 31 December 2023, the
portfolio composition was as follows:
|
31-Dec
|
Portfolio Company
|
Carrying
Value
(£
millions)
|
% of
portfolio
|
wefox
|
188.8
|
22.1%
|
Starling
|
172.7
|
20.2%
|
Brandtech
|
93.6
|
11.0%
|
Klarna
|
93.2
|
10.9%
|
Smart Pension
|
77.1
|
9.0%
|
Featurespace
|
59.4
|
7.0%
|
Deep Instinct
|
41.5
|
4.9%
|
Graphcore
|
34.8
|
4.1%
|
InfoSum
|
25.6
|
3.0%
|
Secret Escapes
|
25.1
|
2.9%
|
Wise
|
13.1
|
1.5%
|
Tactus
|
8.0
|
0.9%
|
Sorted
|
0.3
|
0.0%
|
Gross cash
|
20.7
|
2.4%
|
Source: Jupiter Investment
Management Limited. Due to rounding, the figures may not add up to
100%. The above percentages are based on an aggregate portfolio
value (including cash) of approximately £854 million for 31
December 2023.
Outlook
The Investment Adviser has
previously expressed optimism that risk appetite will return to
markets, a key precursor to the reopening of exit channels for
investee companies, including via IPO. Although there has been some
volatility in yield expectations into 2024, fundamentally this view
is unchanged.
Further comments from Klarna over
its potential IPO suggest that the Investment Adviser is not alone
in its view that markets are now more amenable to new issuance than
over the previous couple of years. The capital allocation policy
that has been disseminated as part of the documentation for the AGM
in connection with the continuation proposals could provide a
significant return of capital to shareholders in the event of a
material realisation. At the current level of discount, at which
the Company's shares trade at versus NAV per share, any repurchase
of shares by the Company could generate significant accretion in
NAV per share.
The Investment Adviser remains
focussed on assisting other companies in the portfolio in getting
to a point where a realisation event is a realistic
possibility.
Factsheet
An updated Company factsheet will
shortly be available on the Company's website:
https://www.chrysalisinvestments.co.uk.
-ENDS-
For
further information, please contact:
Media
Montfort Communications:
Charlotte McMullen / Toto Reissland
/
Lesley Kezhu Wang
|
+44
(0) 7976 098 139
chrysalis@montfort.london
|
Jupiter Asset Management:
James Simpson
|
+44
(0) 20 3817 1696
|
Liberum:
Chris Clarke / Darren Vickers / Owen
Matthews
|
+44
(0) 20 3100 2000
|
Deutsche Numis:
Nathan Brown / Matt Goss
|
+44
(0) 20 7260 1000
|
Apex 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.