The information contained in this
announcement is restricted and is not for publication, release or
distribution in the United States of America, any member state of
the European Economic Area (other than to professional investors in
Belgium, Denmark, the Republic of Ireland, Luxembourg, the
Netherlands, Norway and Sweden), Canada, Australia, Japan or the
Republic of South Africa.
The information contained within
this announcement is deemed by the Company to constitute inside
information as stipulated under the Market Abuse Regulation (EU)
No. 596/2014 which forms part of domestic law in the United Kingdom
pursuant to The European Union Withdrawal Act 2018, as amended by
The Market Abuse (Amendment) (EU Exit) Regulations 2019.
29 January 2024
Chrysalis Investments Limited
("Chrysalis" or the "Company")
Notice of AGM and Notice of
EGM
Annual General Meeting
The Company is pleased to confirm
that its fifth Annual General Meeting (the "2024 AGM") will be held
at 11:00 a.m. GMT on Thursday, 15 March 2024 at the Company's
registered office at 1 Royal Plaza, Royal Avenue, St Peter Port,
Guernsey GY1 2HL. The Notice of AGM and accompanying proxy-voting
form has been published today.
Continuation vote
Alongside the ordinary business of
the 2024 AGM, a resolution for the continuation of the Company is
included in the Notice. The Board unanimously recommends that
Shareholders vote in favour of the Continuation
Resolution.
Background
Under the Articles, at the first
annual general meeting of the Company following the fifth
anniversary of IPO (such anniversary being 6 November 2023), the
Directors must propose an ordinary resolution that the Company
continues its business as a closed-ended investment company. If the
Continuation Resolution is passed at the 2024 AGM, the Directors
will put a further Continuation Resolution to Shareholders at the
annual general meeting of the Company every three years thereafter,
as set out at the time of the Company's IPO.
The Board, Richard Watts and Nick
Williamson (the "Principals") and the Company's brokers have
engaged with a range of shareholders representing a substantial
majority of the Company's ordinary share register in respect of the
Continuation Resolution, with such engagement including
consideration of the Company's Capital Allocation Policy (the
"CAP") and revised management arrangements which were announced in
principle on 13 October and 27 November 2023, respectively, and
which are discussed further below. The Board has been encouraged by
the support from Shareholders during these discussions and believes
that there is broad consensus that the Company's continuation is in
Shareholders' interests.
Rationale for continuation
The Company was formed to take
advantage of the trend for growth companies to source expansion
capital from the private markets rather than the public markets.
That trend, five years later, has accelerated with fewer companies
coming to the public market and growth companies largely continuing
their high-growth development as private companies. Some of the
world's largest private growth companies have been in existence for
more than ten years, have accessed private capital repeatedly and
have avoided public capital markets until becoming very mature and
substantial businesses. Given its structure, the Company is ideally
placed to provide institutional and retail investors with access to
those types of growth companies in a form that matches with the
investee company's aspiration for growth and our capacity to be a
long-term holder and supporter.
It is, however, inevitable that
building successful companies over those time horizons involves
straddling periods of macroeconomic and political shocks, such as
several of the world's main economies have suffered in the last two
years. The Board and the Principals have spent much of their time
ensuring that the companies Chrysalis have invested in have a plan
fit for the constraints of the near-term economic environments
without losing sight of their long-term disruptive strategies which
made them attractive for investment originally and which, the Board
are confident, will deliver value for our shareholders.
The longer-term strategy remains
valid, namely to provide Shareholders with access to an attractive
portfolio of approximately 15 later stage companies capable of
above average growth. The shorter-term consideration is that the
market discount to the net asset value of the Company's Shares
makes purchasing our own Shares a potentially higher returning
investment than new portfolio investments.
Realisations to fund investment
(either in new investments or the Company's own Shares) have taken
longer and yielded less free cash flow than anticipated, due either
to an acceleration in the trend of companies staying private for
longer, or to cyclical issues, or a combination of both.
The proposed CAP (details below) is
therefore designed to recognise these shorter-term cyclical
considerations could be a factor. Consequently we are proposing to
shareholders that a three year extension to the life of the Company
be agreed at the forthcoming AGM. In that period, we aim to
demonstrate that the Company can return to its long-term purpose of
making investments on the basis that the share price in that period
will have returned more closely to our NAV from the exceptional
discount levels we currently have.
In summary, the Board believes that
the Company has demonstrated an ability to invest in a number of
fast growing businesses. There is no question that a long-term
funding structure for these types of investment is the right
structure. The Company expects to be able to demonstrate the
ability to realise such investments to Shareholders and the market
within a three-year extension period.
Capital Allocation Policy
One of the key components of
obtaining shareholder support for the proposed three-year extension
is to provide Shareholders with a framework for how capital will be
allocated during that period. The Principals have worked closely
with the Board to form an appropriate CAP, which the Board duly
consulted Shareholders on in October 2023.
In summary, a CAP for the Company
must consider four core potential uses of capital:
(i) to support
existing portfolio companies;
(ii) to fund working
capital (such as operating costs and fees);
(iii) to invest in
late-stage growth opportunities in accordance with the Company's
investment policy; and
(iv) to return available
capital to Shareholders through share buybacks (or equivalent
programmes) where it is economically attractive to do
so.
During the next three years, the
Board and the Principals have already committed to return the first
£100 million of realisations to Shareholders, likely in the form of
a share buyback programme and subject to the prevailing discount,
after satisfying the "buffer" of up to £50 million being held back
for working capital and follow on investments.
Both the Board and Principals
believe that it is essential to hold a certain level of capital
reserve to fund anticipated follow-on investments into existing
portfolio companies and attend to the estimated costs of running
the Company over a reasonable period; these requirements are seen
as more working capital in nature. Additionally, they believe it
prudent to hold capital on a more strategic basis, to guard against
currently unknown funding needs in the portfolio, which can
increase in times of economic stress and/ or periods of funding
market dislocation.
The absolute size of the appropriate
cash reserve is likely to change over time; an appropriate cash
reserve is currently believed to be up to £50 million, c.6.2% of
net assets, which compares with a current total liquidity position
of approximately £33 million as at 30 September 2023.
The capital return of £100 million
has been structured in such a way that the proceeds of any future
exit of one of the Company's larger later-stage assets could
potentially fund the working capital buffer and either a
significant part, or all, of the proposed capital return. In this
regard, and as of September 2023, the Company had three positions
valued at over £100 million: wefox, Starling and Brandtech, all of
which are later-stage assets. In addition, Klarna - in which the
Company's holding was valued at approximately £57 million as of
September 2023[1] - could make a meaningful
contribution to the proposed return. The proposed capital return
quantum of £100 million is also deemed sufficient to allow
significant enhancement to NAV per Share.
The further commitment relating to
the implementation of the CAP, should the Continuation Resolution
be approved, is to continue to return at least 25% of net realised
gains on the Company's investments, with such gains being measured
as net realised gains against historical cost price (and not NAV).
This element is envisaged to be actioned after the £100 million
capital return has been executed, and it addresses the longer-term
aspirations of the Company and Principals to balance capital
discipline with their desire to invest in new opportunities. The
Principals believe scale is important in both gaining access to the
best investments and supporting them as they develop. This proposed
further commitment allows the Company to gradually rebuild its NAV,
following any capital return, while still providing for returns of
capital to Shareholders, whether undertaken through buybacks or
otherwise.
The Board reserves its discretion on
the mechanism for the distributions described above, but currently
intends to return capital to Shareholders by exercising its AGM
authority to buy back shares in the market, equivalent to c.15% of
issued share capital and, if required, seek further authority from
Shareholders to continue share buybacks.
In proposing the CAP, the Board is
seeking to balance capital allocations between potential further
opportunities to enhance near-term Shareholder returns through
buying back shares and the opportunity to drive long-term returns
through continuing to provide capital in pursuit of the Company's
investment objective. Overarching all of the CAP considerations is
an acknowledgement that the Company's capital needs to be managed
in a dynamic way. As we consider the uses of the Company's
available capital going forward the Board and the Principals will,
when determining the appropriate implementation of the commitments
described above, take into account, inter alia, the:
(i) prevailing
discount to NAV per share at which the Company's shares are
trading;
(ii) likely timeline
of realisations;
(iii) likely uses of
capital to fund existing investee companies; and
(iv) strength of any new
investment opportunities.
Subject also to scale, the
importance of which is discussed above, abnormally wide Share price
discounts to NAV are likely to favour capital returns to
Shareholders over new investments.
Extraordinary General Meeting
The Company also confirms that,
further to its previous announcements, an extraordinary general
meeting ("EGM") will be held at the same date and venue at 11:30
a.m., (or, if later, as soon as possible thereafter as the AGM
shall have been concluded or adjourned) to consider the proposed
performance fee arrangements. The circular which includes the
notice of the EGM (the "EGM Circular" and together with the AGM
Circular the "Circulars") and a Form of Proxy relating to the EGM
are also being published today following approval by the
FCA.
The business of the EGM will be to
consider and, if thought fit, approve a related party transaction.
As previously announced, the Company has entered into new
arrangements relating to the management of the Company. In summary,
with effect from 1 April 2024:
- the
appointment of Jupiter Investment Management Limited ("JIML") as
portfolio manager and investment adviser to the Company will be
terminated; and
- pursuant to a new investment management and advisory agreement
which becomes effective 1 April 2024 (the "Investment Management
and Advisory Agreement"):
o the
Company has appointed Chrysalis Investment Partners LLP (the "New
Investment Adviser") to act as the Company's investment adviser;
and
o G10
Capital Limited - part of IQ-EQ group's UK Regulatory and AIFM
platform - has been appointed as the Company's alternative
investment fund manager (the "AIFM").
The EGM Circular sets out details of
the Company's new management arrangements and, specifically, seeks
shareholder approval for the implementation of the performance fee
terms and vesting conditions of the performance fee payable to the
New Investment Adviser (the "Performance Fee Terms") contained in
the Investment Management and Advisory Agreement (the "Related
Party Transaction"). The Company considers
that the implementation of the Performance Fee Terms constitutes a
related party transaction within the meaning of the Listing Rules
on the basis that the potential benefit of the Performance Fee
Terms to the Principals as related parties is not quantifiable. As
a result, the implementation of the proposed Performance Fee Terms
described in the EGM Circular requires the approval of the
Shareholders.
The Board strongly urges
shareholders to review the contents of the Circulars in their
entirety and consider the Board's recommendation to vote in favour
of the respective resolutions. For the reasons set out below, the
Board is unanimous in believing that the Related Party Transaction
is in the best interests of the Company and its Shareholders as a
whole:
1. as compared to the
performance fee arrangements previously in place, the Related Party
Transaction will result in a reduction in the overall performance
fee level that is potentially payable by the Company to the New
Investment Adviser in respect of any single financial year (or
other calculation period) of the Company (from 20% to
12.5%);
2. as compared to the
previous performance fee arrangements, the Related Party
Transaction will introduce a cap (of 2.75%) as to the level of
performance fees paid in any single financial year (or other
calculation period) of the Company;
3. the Related Party
Transaction will introduce a primarily share-based performance fee,
creating greater alignment between the New Investment Adviser's
management team and Shareholders;
4. 75 per cent. of any
performance fee in respect of a particular financial year of the
Company will be deferred and its payment subject to certain
conditions based on the long-term performance of the Company,
ensuring that the New Investment Adviser's management team is
incentivised to generate long-term value creation; and
5. the high water mark
will be retained at the same level as the equivalent provision in
the Company's prior arrangements, meaning that no performance fee
will become payable unless the previous high water mark (being
251.96 pence) is reached.
Smaller related party transaction
On the basis that the Principals
(being related parties of the Company within the meaning of the
Listing Rules, as described above) are principals of the New
Investment Adviser, the entry into of the Investment Management and
Advisory Agreement and, specifically, the obligation on the Company
to pay fees to the New Investment Adviser as detailed the Circular
(other than performance fees on the basis of the Performance Fee
Terms), constitutes a "smaller related party transaction" within
the meaning of Listing Rule 11.1.10R (the "Smaller Related
Party Transaction"). The Smaller Related Party Transaction does not
require shareholder approval as a related party transaction
pursuant to the Listing Rules. In accordance with Listing Rule
11.1.10R(2)(b), however the Company has received confirmation from
a sponsor that the terms of the Smaller Related Party Transaction
are fair and reasonable as far as shareholders of the Company are
concerned.
Copies of the Circulars will be
available on request from the Company at its registered office and
will shortly be available on the Company's website
at: http://chrysalisinvestments.co.uk.
The Circulars will also be submitted to the
National Storage Mechanism (NSM) where they will be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
In addition, the Circulars will be available to view at the
registered office of the Company, during normal business hours on
weekdays (Saturdays, Sundays and public holidays excepted) from the
date of this document until the conclusion of the respective
meetings.
Any capitalised terms not defined in
this announcement shall have the same meaning as those defined in
the respective circulars.
-ENDS-
For further information, please
contact
Media Enquiries:
Montfort Communications
Charlotte McMullen / Toto Reissland
/ Lesley Kezhu Wang
|
+44
(0) 20 3514 0897
Chrysalis@montfort.london
|
Jupiter Asset Management:
James Simpson
|
+44
(0) 20 3817 1696
|
Liberum Capital Limited:
Chris Clarke / Owen Matthews /
Darren Vickers
|
+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
EXPECTED
TIMETABLE OF EVENTS
Latest time and date for receipt of
Form of Proxy (and any accompanying power of attorney) for the 2024
AGM
|
11:00 a.m.
13 March 2024
|
Latest time and date for receipt of
Form of Proxy (and any accompanying power of attorney) for the
General Meeting
|
6:00 p.m.
on 13 March 2024
|
2024 AGM
|
11:00 a.m.
15 March 2024
|
General Meeting
|
11.30
a.m on 15 March 2024 or, if later, as soon as possible thereafter
as the 2024 AGM shall have been concluded or adjourned
|