CHRY Chrysalis Investments Limited

The information contained in this announcement is restricted and is not for publication, release or distribution in the United States of America, any member state of the European Economic Area (other than to professional investors in Belgium,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.

 

10 January 2025

 

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

 

Annual Results

 

 

The Company today announces its results for the year ended 30 September 2024. The Company's audited annual results are copied below. The results will be available on the Company's website in due course.

 

Financial summary

 

	30 September 2024	30 September 2023	% change
NAV per share	141.26p	134.65p	+ 4.9%
Share price	93.30p	62.20p	+ 50.0%
Total net assets	£840m	£801m	+ 4.9%

 

Performance Headlines

 

The NAV at 30 September 2024 was 141.26 pence per share, an increase of 4.9%. Some of the largest holdings within the portfolio performed well over the period, which was reflected in the increased carrying value of Starling, Klarna and Smart Pension. The performance of these assets was largely offset by a write down in wefox and the impact of foreign exchange. The share price closed at 93.30p, a 34% discount to NAV per share, compared with a 54% discount as of September 2024.

 

With the Company's shares still trading at a material discount to NAV per share, the Investment Adviser has continued to focus on supporting existing investments. Over the year, approximately £23 million was invested, with circa £6 million invested into Smart Pension and circa £17 million into wefox. Realisations totaled approximately £54 million over the period with circa £45 million coming from the sale of Graphcore to SoftBank Group Corp via trade sale and circa £9 million realised from Wise. These transactions led to a net capital inflow into Chrysalis of almost £31 million and £47 million of liquidity was available at the period end.

 

There has been a continued focus on driving the portfolio towards profitability over the period and this is reflected in a 45% improvement in the weighted average PBT of the portfolio, which improved from c£91m to £132m over the last twelve months. The portfolio continues to grow strongly and the weighted average rate of sales growth over the last twelve months was 22%.

 

At period end, Chrysalis signed a loan agreement with Barclays Bank plc; post period end, the full £70 million available under the facility was drawn down. In addition, and also post period end, the deal to sell Featurespace to Visa completed, which yielded initial proceeds of approximately £79 million.

 

The Company has used this liquidity position to fund follow-on investments in certain investee companies as well as return capital to shareholders, both as set out in the documentation sent to shareholders as part of the Continuation Vote, which was approved in March 2024. As of 7 January 2025, approximately £31 million had been used to buy back the Company's shares.

 

As a result of the activity highlighted above, the Company currently has a strong liquidity position of approximately £151 million, which it intends to use to continue its capital return programme of up to £100 million, as previously articulated.

 

Andrew Haining, Chair, commented:

 

"The year to 2024 has seen significant change for your Company, both in the way that it is run, and also in market sentiment surrounding its portfolio holdings.

 

In April 2024, the existing investment advisory team left Jupiter Asset Management in an agreed transition, to their own investment advisory business; I am delighted to say that this process has been seamless.

 

Of probably greater consequence has been the return of some positivity in the stock market for "growth assets" and thus an improving outlook for similar investments in private markets. Evidence of this can be seen from the recent realisations from the portfolio, and we hope will continue to be underpinned by a successful IPO of Klarna this year.

 

These realisations, along with the loan facility from Barclays, have enabled us to return capital to shareholders, as we committed to do at the time of the Company's continuation vote in March 2024. We view the initial impact of this buyback programme as positive, with the shares rising by approximately 24% from when the share buyback programme was announced to the end December 2024.

 

The Board continues to work with the Investment Adviser to consider how to best generate value for shareholders. We see two main levers to deliver this. First, is to minimise the discount at which the shares trade to NAV on a sustainable basis, and second, maximise the valuations of the portfolio companies, and thus the Company's NAV. I look forward to discussing this topic with shareholders this year.

 

Richard Watts and Nick Williamson (Managing Partners of the Investment Adviser), commented:

 

"Our focus has remained on supporting the Company's investments to maximise their potential. Significant examples of this have been in helping Smart to streamline its operations, which we believe has placed the company on a robust path to profitability, and also participating in the restructuring of wefox.

 

The exits achieved over the year have enabled an excellent start to be made on the capital return process discussed with investors around the start of 2024. As we look ahead, we are optimistic Klarna will successfully IPO in the current financial year, which would further add to the Company's liquidity position. Further out, we believe we have strong contenders for future IPOs."

 

- ENDS-

 

For further information, please contact   Media Montfort Communications: Charlotte McMullen / Imogen Saunders	+44 (0) 7921 881 800 chrysalis@montfort.london
Chrysalis Investment Partners LLP: James Simpson	+44 (0) 20 7871 5343
G10 Capital Limited (AIFM): Maria Baldwin	+44 (0) 20 7397 5450
Panmure Liberum: Chris Clarke / Darren Vickers	+44 (0) 20 3100 2000
Deutsche Numis: Nathan Brown / Matt Goss	+44 (0) 20 7260 1000
IQEQ Fund Services (Guernsey) Limited: Aimee Gontier/Elaine Smeja	+44 (0) 1481 231852

 

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.

 

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.

 

The Company is an alternative investment fund ("AIF") for the purposes of the AIFM Directive and as such is required to have an investment manager who is duly authorised to undertake the role of an alternative investment fund manager ("AIFM"). G10 Capital Limited is the AIFM to the Company. Chrysalis Investment Partners LLP is the investment adviser to G10 Capital Limited. Chrysalis Investment Partners LLP is an appointed representative of G10 Capital Limited which is authorised and regulated by the Financial Conduct Authority.

 

 

Strategy

 

At Chrysalis we aim to deliver value for our shareholders and partners by investing in and supporting innovative businesses with the potential to transform their sectors.

 

Backing Winning Ideas

We seek high growth innovative businesses which are leading transformation within their sectors.   Technology has the power to transform the world in which we live. We look to invest in those businesses that have the ability to achieve meaningful change.

 

We identify opportunities for significant growth and help companies carve out clear pathways to profit.   Operating in huge addressable markets, the companies we choose to support offer best-in-class scalable technologies, enabling them to drive and capitalise on societal change.

Capturing Growth

 

Empowering Our Partners

We actively engage in building long-term relationships with our partner businesses.   Collaborating with businesses, we provide them with the support, knowledge, experience, and flexible capital necessary to empower the delivery of transformational technology.

 

We create value by taking a high conviction approach.   We de-risk and enhance the competitive edge of our partners, whilst offering shareholders the opportunity to access and gain returns from these exciting private and public companies.

Delivering Value

 

Performance Headlines

 

141.26p

-    NAV per share increase of 6.61p or 5%

The increase in the fair value of the portfolio was 13.29p, offset by an adverse movement in foreign exchange of 5.59p. Increases in the value of Starling Bank, Klarna, Smart Pension and Featurespace were partially offset by a material decline in the value of wefox and the write-off of Tactus.

 

93.30p

-    Share price increase of 31.10p or 50%

The share price closed at a 34% discount to NAV, narrowing from 46% in the prior year.

 

£54 million

-    Proceeds from realisations

The Company realised positions in Graphcore (£45 million) and Wise (£9 million) and post period end received £79 million from the sale of Featurespace.

 

£23 million

-    Capital deployed

Capital was deployed in ongoing support of two existing portfolio companies, wefox (£17 million) and Smart Pension (£6 million).

 

£47 million

-    Available liquidity at 30 September 2024

The portfolio remains well funded, with the majority either profitable or funded to profitability. The Company ended the year with an improved level of liquidity available to support both the existing portfolio, and the commencement of the share buyback, which forms part of the Company's Capital Allocation Policy.

 

£132 million

-    Portfolio profitability

Portfolio profitability improved by 45% in the period and revenue growth remained robust. All portfolio companies saw profits rise or losses narrow.

 

Chairman's Statement

 

The year, which saw a welcome return to growth in NAV per share - up 5% over the year to 141.26 pence, driven by Starling Bank and Klarna revaluations which offset the write downs on wefox and Tactus - was one of significant change for Chrysalis Investments Limited ("Chrysalis" or "the Company"). Not only has it seen the market for exits reopen, which I will cover in more detail below, but it has also witnessed a shift in the way the Company has been managed.

 

Following lengthy discussions, the Board, Investment Adviser and Jupiter agreed to move the advisory team out of the employment of Jupiter and into a separate structure. The Board has overseen this process, and I am pleased to report this transition has passed off seamlessly. I believe this new structure provides a better foundation for the management of your Company in the future.

 

The majority of the portfolio continues to perform strongly. As detailed in the Investment Adviser's report, aggregate revenue growth remained robust, at approximately 22% over the year; however, the reversal in value at Wefox is frustrating. The Investment Adviser has been working hard to refocus the business under new management with a revised business plan which is covered in more detail in the Investment Adviser report. Despite this situation, I am pleased to say that the year has been notable for the return of liquidity to the Company, which I had highlighted as a possibility in my statement last year.

 

The first liquidity event came in the form of an exit from Graphcore, which generated initial cash proceeds of approximately £45 million. This allowed a valuable recycling of capital, used to fund the initial tranche of the share buyback and was, I believe, the best possible result for shareholders in the circumstances, generating a significant uplift to the carrying value and recouping the bulk of the cost of the original investment.

 

The sale of Featurespace to Visa, which closed post period end, has generated strong returns for shareholders and is likely to yield a 3.0x money-on-money multiple once full proceeds have been received (initial proceeds of approximately £79 million were received post period end). The completion of this transaction unlocks the ability of the Company to meet the second pillar of its Capital Allocation Policy ("CAP"), endorsed by shareholders, namely the return of up to £100 million of capital.

 

I am optimistic that further liquidity will be generated in 2025 with the expected IPO of Klarna, which has been long mooted, where the company recently announcing it had filed its F-1 with the SEC as a prelude to a listing. The Investment Adviser believes the first half of 2025 offers an obvious window for its IPO, and notes that news flow regarding product announcements has been building in recent months.

 

Capital Allocation

 

The Capital Allocation Policy ("CAP") is the cornerstone of the Company's three-year extension strategy, balancing shareholder returns with long-term growth, and the Board was delighted that shareholders so comprehensively supported all the proposals put to them at the Company's AGM in March 2024. During this extension period, we anticipated the Company would dispose of investments in an orderly way, to fund both buybacks and, potentially in time, new investments. Within the first year of the extension, the Company has generated substantial liquidity, demonstrating significant progress towards its commitments, thus placing itself in a good position from which to refine its approach to reinvestment and long-term value creation.

 

As a recap, four core potential uses of capital were set out in the CAP:

i.      to support existing portfolio companies

ii.    to fund the Company's working capital (for operating costs and fees)

iii.   to invest in late-stage growth opportunities in accordance with the Company's investment policy

iv.   to return available capital to shareholders through share buybacks (or equivalent programmes) where it is economically attractive to do so.

 

Further, the uses of capital in the future would consider:

i.      the prevailing discount to NAV per share at which the Company's shares are trading

ii.    the likely timeline of realisations

iii.   the likely uses of capital to fund existing investee companies

iv.   the strength of any new investment opportunities

 

We remain committed to enacting the second pillar of the CAP - the return of up to £100 million of capital, as well as supporting the existing portfolio - to ensure the best possible returns for our shareholders. We also expect to return at least 25% of net realised gains on further asset sales, thus ensuring further capital returns to shareholders are possible.

 

Shortly before the end of the year the Company agreed a two-year, £70 million debt facility with Barclays Bank plc, the full £70 million being drawn down shortly after period end. The facility was designed to cover the "buffer" element of the CAP, to support existing portfolio companies and fund working capital.

 

We were then able to commence the buyback programme at the end of September 2024; the Board, its advisers, and the Investment Adviser continue to monitor its progress. As of the end of December, the Company had bought back approximately 28 million shares at a cost of £26.5 million, representing 66% of the initial buyback size of £40 million, and 27% of the maximum second pillar of the CAP, namely the return of up to £100 million.

 

Hitherto, we have chosen to return capital to shareholders via share buybacks, which we believe maximise the NAV per share accretion available to shareholders, but the appropriate mechanism of capital return will be kept under review. While only just over one quarter of the total capital return available under the full programme has been enacted, our initial assessment of its "success" is positive. From a share price of 87 pence prior to the announcement of the commencement of the share buyback, the shares closed the calendar year at 108 pence. In comparison, the FTSE250 was broadly unchanged, meaning our shares outperformed their market segment by approximately 25% over the three months to December 2024.

 

Way Forward

 

I am grateful for the time and input provided by several of our shareholders since we gave our trading update in October, and I am sorry I have not been able to discuss our views with more, but those that I have spoken to account for approximately 40% of the shareholder base.

 

Most shareholders with whom I have spoken recognise that private growth capital investing still has a place in institutional and private portfolios and that there are very few vehicles through which to access that market. We agree that there remains a need for late-stage venture capital provision in Europe and firmly believe that the platform that Chrysalis has established since IPO provides just such a vehicle, with a collection of growth capital assets that we expect will, over time, grow in value and generate capital returns for our shareholders.

 

However, as acknowledged by shareholders, the need to achieve and maintain "scale" for such a vehicle is paramount to its future success. The CAP therefore looked to balance the demand to return capital to shareholders, where it is economically attractive to do so - which, by its nature, will reduce scale - with the recycling of some of that capital to cement the long-term viability of the product. If capital is simply returned, then portfolio concentration increases, and firepower and scale decrease. If this continued, it would effectively imply a winding-down of the vehicle. Not only is this contrary to the continuation vote of March 2024, but, as recognised by many shareholders, it is likely to limit the Company's ability to realise assets at fair value and is, consequently, a far from optimal outcome. To minimise these risks, such a process is likely to take considerable time, and cost, to execute.

 

We believe there are further ramifications of a de facto wind-down, with decreased scale and increased concentration in the portfolio potentially resulting in an increase in the perception of "risk" around the Company. This could lead to the discount the shares trade at versus NAV beginning to widen again, thus undoing the impact of the capital return undertaken to date.

 

With the prospect of liquidity improving in 2025 and the Company's prevailing discount to NAV having materially tightened, the Board and Investment Adviser continue to evaluate how to ensure that the Company can maximise the value delivered to shareholders. Our overarching aims are twofold: first, to minimise the discount to NAV the shares trade at and second, to maximise NAV growth potential in the portfolio. Further announcements will be made in the first half of 2025, and I look forward to discussing this topic directly with as many shareholders as possible.

 

I would like to thank all those who have contributed to the Company's development over the year - the management teams and employees of all our investee companies, the team at the Investment Adviser, our legal and financial advisers and all of my colleagues on the Board. It has been a very busy and productive year.

 

It only remains for me to thank our shareholders for their engagement and support over the year. I believe there are grounds for optimism for the fiscal year ahead, with the prospects of further liquidity, and thus capital returns, that hopefully will make 2025 another year of development.

 

Portfolio Statement

 

As at 30 September 2024	Principal place of business	Cost  (£'000)	Opening value  (£'000)	Net invested/ (returned) (£'000)	Fair value movements  (£'000)	Closing value  (£'000)	% of net assets
Company
Starling Bank Limited	UK	118,349	141,696	-	112,745	254,441	30.3
Smart Pension Limited	UK	108,570	79,683	6,070	37,681	123,434	14.7
Klarna Group PLC	UK	71,486	56,913	-	63,649	120,562	14.3
Featurespace Limited	UK	29,546	49,588	-	31,803	81,391	9.7
The Brandtech Group LLC	USA	46,440	103,881	-	(23,651)	80,230	9.5
Deep Instinct Limited	Israel	62,226	51,514	-	(9,705)	41,809	5.0
wefox Holding AG	Switzerland	86,538	188,633	17,351	(169,767)	36,217	4.3
Cognitive Logic Inc.	USA	48,453	27,231	-	2,697	29,928	3.6
Secret Escapes Holding Limited	UK	28,009	25,030	-	298	25,328	3.0
Wise PLC	UK	655	10,284	(9,025)	756	2,015	0.2
Sorted Holdings Limited	UK	316	316	-	-	316	0.1
Graphcore Limited	UK	-	16,506	(44,866)	28,360	-	0.0
Growth Street Holdings Limited	UK	-	63	(67)	4	-	0.0
Rowanmoor Group Limited	UK	13,363	-	-	-	-	0.0
Tactus Holdings Limited	UK	42,129	29,038	-	(29,038)	-	0.0
Total investments		656,080	780,376	(30,537)	45,832	795,671	94.7
Cash and cash equivalents						44,612	5.3
Other net current assets						48	0.0
Total net assets						840,331	100.0

 

Investment Adviser's Report

 

Market Context

 

As discussed at the Interim results, the Investment Adviser ("Chrysalis Investment Partners LLP" or "CIP LLP") continues to believe that the market backdrop for growth assets is improving.

Despite some volatility, the NASDAQ 100 rose approximately 35.2% over the year to 30 September 2024, with the FTSE All Share following suit, rising by 10.8%. US ten-year yields trended down from a recent peak of nearly 5% in October 2023 to approximately 3.8% by year end, which likely supported valuations to some extent, despite concerns in certain quarters over the health of the US economy.

Post period end, yields have risen again, likely due to a combination of certain economic indicators proving more optimistic than feared and then further fuelled by the expectation, and then reality, of the ramifications of a Trump presidency. Despite the negative connotations of rising yield for growth stocks, the NASDAQ has performed well post period end, helped by the expectation of benign conditions for certain sectors, including fintech, that the new political backdrop will bring.

This environment has led to a more favourable backdrop for risk assets, as seen by the continued improvement in IPO markets over the period. While the Investment Adviser has consistently pointed out that IPO is only one possible exit route for the Company's investments, it is of the view that it does provide a good indicator of investor risk appetite.

While the five-year picture of IPO activity in both Europe and the Americas (which is predominantly the US), remains muted, volumes have picked up materially recently.

Evidence of this improvement in market dynamics has been seen in the portfolio over the year, namely both the sale of Graphcore to SoftBank Group Corp ("SoftBank") and Featurespace to Visa, the latter of which completed in December 2024. While both of these deals were trade sales, it demonstrates that there is activity occurring in parts of the market that the Company has invested in.

Klarna has also indicated that it is looking to IPO and announced it had made a draft filing to the SEC in November 2024 in relation to a public offering.

While no precise timetable has been publicly released, the Investment Adviser believes that the first half of 2025 could be realistic. An exit of Klarna - a position valued at £121 million as of September 2024 - would not only provide the Company with significant further liquidity, but could result in an uplift to the current valuation. This would be consistent with other investments which have exited above their carrying value.

 

It is likely that pressure for exits is growing. As of July 2024, Forge Private Markets estimated that the total IPO pipeline value for technology stocks stood at approximately $102 billion, which equates to roughly three years of the volume of the annualised 1H24 issuance in the US.

 

Activity

 

With the Company's shares still trading at a material discount to NAV per share, the Investment Adviser has continued to focus on follow-ons to support existing investments, rather than looking to source new ideas.

Over the year, approximately £23 million was invested, of which:

·      circa £6 million was injected into Smart Pension in two tranches to support the company's growth ambitions and enable it to drive towards profitability. The terms of this transaction led to a write up of the Company's carrying value of this asset; and,

·      circa £17 million was invested in wefox to enable the company to continue to pursue profitability and to allow it to consider its strategic direction.

On the other side of the coin, approximately £54 million was realised, of which:

·      circa £45 million came from the sale of Graphcore to SoftBank via trade sale. While the original investment thesis on Graphcore did not play out as envisaged - despite the strong growth experienced in the AI market - the Company's positioning in the capital structure enabled it to recover 74% of its initial investment in US dollar terms; and,

·      circa £9 million was realised from the holding in Wise, which has been used to fund other corporate activities

 

The upshot of these transactions has been a net capital inflow into Chrysalis of almost £31 million. This has rebuilt the Company's liquidity position substantially, to the extent that once the "cash buffer" element of the CAP was advanced by the debt facility from Barclays Bank PLC ("Barclays"), net realised proceeds were used to commence the buyback of the Company's shares, starting on 30 September 2024.

During the period, the Company entered into a debt facility agreement with Barclays, with the following characteristics:

 

·      A two-year tenor, which the Investment Adviser believes should provide sufficient time for further realisations to occur in the portfolio, while falling within the three-year continuation period;

·      A committed facility of £70 million;

·      An uncommitted accordion of £15 million;

·      A margin over SONIA that the Investment Adviser believes is market standard; and

·      The ability to repay after one year with no cost

 

As of period end, the Company had a liquidity position of approximately £46.6 million (representing a position in Wise of £2 million and cash of £44.6 million). Post period end, the Company called down the full £70 million committed facility, which has substantially increased liquidity. In addition, the sale of Featurespace to Visa post-period end has yielded a further £79 million of capital initially, eventually rising to £89 million once proceeds deferred in escrow are received. If both of these events had occurred at year end, the Company would have had a liquidity position of approximately £195 million (net of facility fees), representing 35% of the Company's market capitalisation as of September 2024.

Outlook

At the interim stage, the Investment Adviser described an emphasis on two areas, which remain its key focus. These are:

i.      Maximising investee company potential to boost valuations; and

ii.    Closing the discount to NAV at which the Company's shares trade

 

 

Maximising investee company potential to boost valuations

The process of driving towards profitability has been a constant trend of the last few years in the market and this has been replicated in the portfolio.

 

Over the course of the year, material progress has been made at an individual investee company level, which has driven increased profitability at a portfolio level. This has meant that portfolio profitability, as measured by cumulative weighted average profits/losses, has improved by approximately 45%. Revenue growth remained robust at 22%.

 

Across the active portfolio, all companies either saw profits rise, or losses narrow, which the Investment Adviser believes demonstrates the dedication of the portfolio company management teams to drive towards profitability.

Examples of this include Featurespace and Smart Pension ("Smart").

At Featurespace, the company continued to invest in its offering as well as developing new products, such as TallierLTM, which the company believes is the first application of a large AI model to the fraud market. As a result of this investment, growth over calendar year 2023 was 47% year-on-year, up from 28% in 2022. Due to strong operational gearing, losses fell from £20.9 million in 2022 to £8.1 million in 2023.

As previously mentioned, the Company invested approximately £6 million into Smart in early 2024, in a Series E extension round, to enable it to continue to pursue its growth agenda, including providing firepower for M&A; the main Series E round having taken place in early 2023. In July 2024 Smart signed a deal with STM Group PLC to take on members of the Options Workplace Pension Trust through a bulk transfer to the Smart Pension Master Trust; in the Investment Adviser's experience, these types of replatforming deals can generate high unit economics for the acquirer.

 

As part of the extension round, Smart made the difficult decision to rationalise its cost base, including headcount, which was reduced by 150 to 427 as of June 2024. The Investment Adviser has witnessed this decision being played out across the technology sector in recent years, as unprofitable firms aim to narrow losses.

Published accounts show underlying EBITDA for Smart as significantly negative in calendar year 2023 - in fact losses widened - but this does not include the full benefit of the above mentioned cost savings. As a result, the Investment Adviser believes that the financial performance of Smart will be much improved in 2024, and this is reflected in the aggregated numbers depicted in the portfolio profitability chart.

 

Closing the discount to NAV

 

There are levers the Investment Adviser believes it can pull in order to begin to swing the balance of opinion on the Company's shares. These include:

i.      Generating liquidity; and

ii.    Enacting the Capital Allocation Policy

 

All other things being equal, converting unlisted asset positions into cash should be seen by investors as a reduction in risk, and should imply a high "cash adjusted" discount, as demonstrated in the table below.

Deducting the cash from the market value ("MV") gives the amount of market cap attributable to just the portfolio. In the below example, shifting £20 from portfolio value to cash - i.e. leaving NAV unchanged - increases the implied discount of the portfolio from 45% to 56%.

Impact of cash on implied discount (£)

	Low cash	High cash
Portfolio	100	80
Cash	0	20
NAV	100	100
MV	55	55
MV cash adjusted	55	35
MV/NAV	-45%	-45%
MV cash adjusted/NAV	-45%	-56%

Source: Chrysalis Investment Partners LLP

Across the portfolio, the Investment Adviser is discussing exit plans with investee companies, including timing and potential method of exit. While sentiment has an important impact on whether or not an exit is possible, early preparation allows a wider range of timing options.

Looking at Featurespace again, the work done in upskilling members of the senior management team were undoubtedly crucial in putting the company in a place where an exit could be effected. As an example, the Investment Adviser would call out the appointment of John Shipsey as CFO as critical in instilling improvements in the finance function, which led to a significantly better cash flow performance. This type of enhancement ultimately places businesses in a better state to either float or sell themselves privately.

In terms of the CAP, the Investment Adviser worked closely with the Board to generate a policy that it believes will have the maximum impact on the discount. Following the achievement of the £50 million "cash buffer" element, the next two phases were designed to:

i.      Return a significant quantum of capital immediately, aiming to take advantage of the current discount (this was expressed in the CAP as a return of up to £100 million to shareholders; at the time of proposal, this represented approximately 40% of the Company's market capitalisation); and

ii.    Offer a way for part of future realisations to continue to address the discount, if it proves difficult to close (at the time of proposal, this was expressed as at least 25% of net realised gains on future disposals)

Both liquidity and the CAP are interlinked, as delivery of the former should allow the latter to be able to take effect.

To this end, the Investment Adviser has worked on a number of processes over the period, of which it can comment on three, namely:

i.      The sale of Graphcore to SoftBank;

ii.    Setting up a debt facility with Barclays; and

iii.   The sale of Featurespace to Visa

 

The sale of Graphcore to SoftBank on 12 July 2024 significantly rebuilt the Company's liquidity position, with the injection of approximately £43.8 million of initial proceeds. This took total liquidity at the time to approximately £50 million, net of further expected investment into wefox, which subsequently occurred.

The signing of the Barclays debt facility allowed the Buffer element of the CAP to be covered, thus freeing up the Graphcore proceeds for distribution. As a result of this, a share buyback programme of up to £40 million was commenced on 30 September 2024.

It is hoped that the facility will also serve as a "bridge" in certain circumstances. Often there is a time delay between signing a realisation and receipt of funds. For Graphcore, the Company first announced a "likely disposal" on 5 December 2023, but the process took until mid-July 2024 before initial proceeds were received. The debt facility could be used to accelerate the ability of the Company to return capital to shareholders in these situations, with due consideration taken regarding the risk mitigation over the completion of any transaction.

Finally, the agreement with Visa to acquire Featurespace, which was announced before year end, completed on 19 December 2024. Receipt of approximately £79 million of initial proceeds now means there is sufficient capital to continue the buyback up to £100 million.

Conclusion

The year has provided good news in terms of realisations. While the Graphcore investment thesis did not play out as originally planned, the intellectual property ("IP") that the company had generated, combined with the Company's positioning in the capital structure, meant that a meaningful recovery was made against cost.

The Investment Adviser believes the sale of Featurespace further underlines the reopening of the markets for disposals.

With both listed and private markets appearing to have regained a degree of momentum, the Investment Adviser believes the outlook for future realisations remains promising. Most eagerly awaited is probably Klarna, where its recent announcement suggests an IPO could occur in the first half of 2025. Elsewhere, the Investment Adviser continues to work with portfolio companies to seek the best outcome for them, and by inference, the Company's shareholders.

Starling Bank Limited ("Starling")

The key developments over the year for Starling were:

 

i.      The appointment of Raman Bhatia as CEO;

ii.    The initial contracts signed by Engine; and

iii.   Post period-end, a fine for failings in its financial crime systems and controls

 

Raman took over from John Mountain, the interim CEO, in the summer of 2024. Prior to joining Starling, Raman was CEO of OVO, a leading energy retailer in the UK, and before that was the Head of Digital Bank for HSBC's Retail Banking and Wealth Management business in the UK and Europe.

 

The Investment Adviser believes having a permanent CEO for Starling is important to allow proper consideration of a medium to long-term strategy for the bank. This is especially critical following the £29 million fine recently imposed by the FCA. The fine was paid in full and final settlement of concerns over its AML and sanctions framework, during a period spanning December 2019 to November 2023. Since these issues have been raised by the regulator, a significant strengthening in the management team has occurred, including the appointment of Cyrille Salle de Chou as Chief Risk Officer, who joined from HSBC.

Engine by Starling ("Engine") is a Platform as a Service ("PaaS") offering which delivers a cloud native, modular, API based banking platform. Effectively, this is the software that runs Starling Bank, but which has been evolved for rapid deployment by other entities. Engine offers third party access to Starling's highly efficient software.

At the backend of 2023, Engine got off to a flying start, announcing two contracts in quick succession. The first was with Salt Bank in Romania, which was to power a new retail customer offering. This project went live in April 2024 and saw 100,000 customers onboarded in just two weeks. The second was with AMP, a listed Australian financial services firm, which intends to launch an offering targeting SMEs; it is expected to go-live in 1Q 2025. AMP expects to invest approximately A$60 million over its fiscal 2024 and 2025.

Overall, the bank has continued to perform well. While Starling has put in place significant structural hedges, with a shift down in the yield curve over the course of the last 12 months, the Investment Adviser continues to work with the company to consider new products and offerings to drive top line growth.

Smart Pension Limited ("Smart")

Smart saw continued progress over calendar 2023 - the last period with publicly available data - but this was masked somewhat by the mix of revenue. Over its fiscal year, Smart saw headline revenue fall, but this was due to a significant amount of implementation work undertaken in the prior period. Recurring revenue, which includes "pension service revenue" (mainly from the Smart Pension Master Trust) and "Keystone service revenue", rose 51% in the year from £29 million to £44 million.

The December 2023 exit run rate - effectively the annualised revenue in December 2023 - shows further embedded growth into 2024 at over £55 million.

On the profit front, the company remained significantly loss making in the year ended December 2023, with losses after tax of approximately £74 million. However, in the first quarter of 2024, the company undertook a substantial restructuring, which included a rationalisation of the workforce with headcount reduced by 150 to 427, as of June 2024.

The Investment Adviser believes this cost action will significantly reduce the company's loss profile and put it on the road to profitability in 2025.

Smart has continued to expand both organically, as well as by acquisition. In June 2024, Smart announced that it had taken on the assets of the Options Master Trust ("Options"), which it believed had the potential to add up to £545 million of AuM and would boost total AuM to £6 billion. This acquisition comes on the heels of the July 2023 purchase of Evolve, which added £750 million in AuM, and Ensign in October 2022, which added £158 million.

Prospects for further growth led Jamie Fiveash - the CEO of the Smart Pension Master Trust ("SPMT") - to give an interview in March 2024 in which he stated that Smart anticipates reaching £10 billion of AuM within three years.

The Keystone division, which is the software platform that is sold to third parties as well as powering SPMT, completed a complex migration onto its platform of an existing €2 billion book of pension assets and customers, from a legacy technology solution within a leading insurer in the Irish market. The solution is expected to deliver a significant reduction in ongoing cost to serve and a market leading customer experience.

The company believes the addressable market for Keystone is substantial and it is hopeful of adoption, given its superior unit economics, ability to transform existing business models and the ease at which it can be deployed. In the near term, the focus will be on opportunities in the UK and Middle East.

Klarna Group PLC ("Klarna")

Klarna has demonstrated solid growth over the first six months of 2024, which has, importantly, also driven a progression in profits.

The Investment Adviser estimates that Klarna, based on its new metric of "Adjusted Operating Income", lost approximately $500 million in the first half of 2022, but became profitable in 1H24. This turnaround was partly driven by uninterrupted growth in revenues, but also a result of a significant cost reduction programme. The latter was originally forecast to remove approximately 10% of heads from the business, but it is clear from recent data that this trajectory has continued. This ties in with the significant focus Klarna has placed on generative AI ("GenAI"), and its ability to replace more mundane roles with technology.

In terms of announcements, Klarna has continued to sign new collaborations with other platforms. Recent news includes:

 

i.      Klarna being made an official Apple reseller, allowing customers to buy Apple products using Klarna's payment options;

ii.    A deal with Xero, to allow SMEs to accept payments from customers wanting a Buy Now Pay Later ("BNPL") solution;

iii.   The launch of Klarna's payment options on Adyen's physical payment terminals across Europe, North America and Australia;

iv.    Probably most importantly, Klarna went live as an option on Apple Pay online and in apps in the UK and US, and has stated it will soon be available as an option on Google Pay.

 

In addition, there have been other corporate developments, including:

 

i.      The establishment of a UK holding company;

ii.    The sale of Klarna Checkout, purportedly for $520 million, which served mainly the Nordic markets;

iii.   The establishment of a forward flow arrangement with the US hedge fund, Elliott, which could see $30 billion of loans transferred over the coming years.

 

The Investment Adviser sees all these developments as either being beneficial to growth, or driving capital efficiency, but in aggregate all supportive of an equity story leading up to IPO.

 

Post period end, Klarna announced that it had submitted a draft Registration Statement to the Securities and Exchange Commission in the US, regarding a possible IPO of its shares. Such an event is likely to be transformational for the Company, adding significant liquidity to its already strong capital position.

 

Featurespace Limited ("Featurespace")

Featurespace has continued to experience good growth over the year, building on the 47% revenue growth it showed over its year to December 2023.

Over the last four years, Featurespace's revenue growth has accelerated, implying significant increases in the absolute quantum of new business won in those years; the Investment Adviser believes this shows the potency of the company's offering.

Over the last five years, Featurespace has operated at a loss, but losses narrowed substantially in 2023, and it is expected that the company will continue its journey towards profitability over the course of 2024.

The company continued to win awards for its products over the year, including the "Best Innovation by a Financial Institution" award at the 2023 Fraud and AML Impact Awards for the deployment of the ARIC Risk Hub, alongside NatWest. The implementation led to 57% and 135% increases in the value of fraud and scams detected respectively. The company has also been shortlisted in five categories for The Card and Payments Awards 2025. In addition, Featurespace launched TallierLTM, which it believed was the first adoption of GenAI in the fraud space, which it claimed could improve fraud detection rates by 71%.

The key news in the period was Visa signing a definitive agreement to acquire Featurepsace on 26 September 2024. Visa is a world leader in digital payments and the Investment Adviser considers it a natural home for Featurespace.

The sale completed post period end and the Company received approximately £79 million in late December. A further £11 million is expected if the amount held in escrow is paid in full. At point of announcement of the deal, if the gross proceeds were applied for valuation purposes, this represented a 20% premium (equating to an uplift in NAV per share of circa 2.5 pence) to the Company's previous carrying value of Featurespace (£74.2 million) as of 30 June 2024.

Chrysalis first invested in Featurespace in May 2020, with a capital injection of £20 million; it increased its position with secondary share purchases over 2021 (aggregating to approximately £4.5 million) and a follow-on capital injection of £5 million was provided in July 2022, summing to a total investment of £29.5 million. As such, the gross proceeds represent a money multiple return of 3.0 times and an IRR of c32% (assuming gross proceeds were received at time of announcement).

The Investment Adviser views Featurespace as an exemplar of the type of investment it is looking for: having the ability to operate in significant end markets and providing scalable, efficient technology that can bring benefit to its clients.

The Brandtech Group LLC ("Brandtech")

Brandtech acquired Jellyfish, a leading global digital media and marketing group, in June 2023 and the key focus for management since that time has been successfully integrating the acquisition into the Group. Jellyfish represented the ninth and largest acquisition made since inception, so the transaction naturally presented some level of risk.

Since that time, a significant amount of work has been done to streamline the cost base, build the sales pipeline and reaccelerate organic growth and the Investment Adviser is particularly pleased with the progress that has been made over recent months. The acquisition of Jellyfish has allowed Brandtech to accelerate in all areas, given the agency's skills in data, creation and especially media. Jellyfish also enables the group to accelerate its AI strategy due to the relationships the company has established with the major platforms, and due to its team's ability to train on new technologies at scale. This allows these innovations to be deployed faster than competitors, who do not have the same resources in-house.

Despite a tough backdrop, the rest of the group has continued to generate positive organic growth year to date and in more recent months has seen improved momentum. The Investment Adviser is particularly excited about the potential of Pencil, Brandtech's GenAI marketing platform.

Within weeks of acquiring the company, Pencil was used to target global brands with the release of Pencil Pro, an AI-driven ad generation engine with predictive models of those advertisements' success. Pencil Pro, which debuted with Unilever and Bayer as launch partners, has already shown to produce an average 48% drop in an advertisement's cost per action (where advertisers pay only when a specific action is completed by a user) and a 78% boost in return on ad spend, compared to a brand's baseline. Pencil was also named by Fast Company as one of the world's Most Innovative Companies in the advertising and marketing category, the only GenAI marketing company to be recognized.

Finally of note, Matthieu Bucaille joined the company as Global CFO in March 2024. Matthieu was previously the ex-CEO of Lazard International and held several senior roles there including Global CFO of publicly listed Lazard Ltd. from 2011 to 2017. This is an encouraging appointment and should stand Brandtech in good stead ahead of a future IPO.

Deep Instinct Limited ("Deep Instinct")

Deep Instinct, the prevention-first cybersecurity company with a purpose-built, AI-based deep learning framework, announced the launch of Deep Instinct Prevention for Applications (DPA) v3.0 in January. The new solution is an agentless, on-demand, anti-malware solution that is device and system agnostic, seamlessly connecting to an organisation's existing infrastructure to quickly scan files and provide a malicious-vs-benign verdict before a file is allowed into an application or storage repository.

File transfers are often not scanned, or are scanned with inadequate solutions that cannot scale to meet the volume and velocity of cyber threats brought on by adversarial AI. Additionally, these technologies have not evolved to stop unknown malware and are largely reliant on signature-based and machine-learning models that require constant human intervention. Powered by deep learning, the company believes that DPA v3.0 is the only solution on the market that can truly mitigate risks posed by file transfer, while requiring only one to two updates per year.

In May, the company also announced the launch of the Deep Instinct Artificial Neural Network Assistant (DIANNA), one of the industry's first AI-based cybersecurity companions that provides explainability into unknown threats. Powered by a large language model (LLM), DIANNA serves as a virtual AI team of malware analysts and incident response specialists, providing deep analysis into all attacks, including never-before-seen threats, revealing the techniques employed and the behaviours of files.

In the period, Deep Instinct also won the CRN 2024 Tech Innovator Award for its Prevention for Storage (DPS) solution. DPS provides data storage threat prevention across network attached storage (NAS) and cloud storage environments, demonstrating its innovative approach to data security. Continued innovation should ultimately widen the company's addressable market and lead to a growing sales pipeline, with sales conversion ultimately driving ARR progression and the strategic value of the asset.

wefox Holding AG ("wefox")

There has been significant change at wefox over the past twelve months. In March, wefox appointed Mark Hartigan as its Executive Chairman and CEO, with Julian Teicke transitioning into the role of Non-executive President. A permanent CEO was later identified, with Joachim Muller appointed in September 2024.

Joachim Muller is a highly experienced leader in the retail and commercial insurance industry, with expertise in business transformation and digitalization in multinational markets. He was previously CEO of Allianz Global Corporate & Specialty SE, and CEO of Allianz Commercial, where he was responsible for bringing together Allianz's Commercial insurance businesses under one global umbrella.

The focus of the management team during the period has been to streamline the company's operations, disposing of non-core assets and enhancing its core strengths. This period of restructuring has included a reduction in the cost base, optimisation of processes and investment in keys areas, to build a more resilient and efficient organisation. Going forward, wefox will only focus on markets where it has profitable operations of critical size or is on track to achieving this within the next 12 months.

In this context, the company is likely to look to further build out its market positions in the Netherlands, Austria and Switzerland, and will withdraw from the German market.

The new strategy also means that the insurance carrier, wefox Insurance AG, will no longer be part of the group's core business. The sale of the insurance carrier was completed post period end.

A €25 million funding round was completed in June 2024 to support the ongoing restructuring plan and further capital was raised through the sale of certain assets of the business. In July, wefox Germany Holding GmbH reached an agreement with Ecclesia Group on the sale of Assona GmbH. In addition, the company reached an agreement with IWV Versicherungsservice AG to transfer its insurance brokerage activities in the German market through the sale of a subsidiary. These two transactions largely complete the exit of wefox from the German market.

As a result of the restructuring activities outlined above, the valuation of wefox was written down materially over the period, reflecting a more cautious assessment of the company's valuation, insertion of a variety of downside scenarios in the blended valuation put through the share capital waterfall, and the treatment of certain CLA instruments as debt.

The Company has invested €20 million in wefox since period end.

It is also noted that Richard Watts was appointed to the company board in June.

Cognitive Logic Inc ("InfoSum")

In January 2020, Google formally announced its intention to deprecate third-party cookies in Chrome, stating that it aimed to complete the phase-out within two years. After a series of delays to this timeline, Google announced in July 2024 that it was abandoning its longstanding plans to deprecate third-party cookies in Chrome. While this is disappointing news, the initiative has highlighted the need for publishers and advertisers to invest in privacy compliant technologies and accelerated the trajectory towards enhanced privacy and user consent.

InfoSum has designed a platform that enables secure and privacy-first data collaboration. The platform uses patented technology to connect customer records between companies without exposing or transferring the data; this ensures that organisations can collaborate and analyse first-party data in a completely secure and compliant environment, and without a reliance on third-party cookies. In recent months, the company achieved the Amazon Web Services (AWS) Advertising and Marketing Technology Competency in the category of Privacy-Enhanced Data Collaboration. This designation reinforces InfoSum's position as an industry contender in data collaboration.

In the period, InfoSum announced a number of strategic partnerships that extends its data collaboration network. In March, the company announced a solution with Experian that enables automotive brands to securely access insights about vehicle owners, extend match rates and improve targeting. In August, a partnership with Netflix, the world's biggest streaming platform, was announced that will enable advertisers to securely match their first-party data against Netflix's audience to create powerful advertising experiences, without having to share or centralise data. A further partnership was announced that month with WPP's global data and technology company, Choreograph, to streamline and futureproof campaign planning and audience profiling capabilities for GroupM clients.

In a planned management transition, Lauren Wetzel was announced as InfoSum's new Chief Executive Officer in July. Lauren Wetzel was previously the Group's Chief Commercial Officer and replaces Brian Lesser, who has led InfoSum as Chairman and CEO since 2020. Two further hires have been made. Aline Zenses was appointed as Managing Director of the DACH region. Aline has nearly 20 years in the marketing and adtech industry and was previously MD for Northern Europe at SilverBullet, a leading consultancy that helps clients derive value from their first-party data. Adele Burke has also been appointed as Sales Director to help the group expand in Australia and New Zealand.

Secret Escapes Holding Limited ("Secret Escapes")

 

Secret Escapes released its results for the year ended 31 December 2023 during the period. The group delivered a strong financial and operational performance over the course of the year with gross bookings increasing +19% year-on-year to £523.8 million and revenues growing +14% to £104.1 million. Growth in early 2023 was driven by increased demand post-COVID. Across the year, 2023 saw robust consumer demand, despite ongoing cost-of-living pressures, as consumers continued to prioritise experiences, albeit with a greater emphasis on value.

Actions were taken towards the end of 2022 to streamline the cost base and operate more efficiently, and this led to improved profitability through 2023. Underlying EBITDA grew to £11.4 million in 2023 (2022: £4.0 million) while operating profit increased to £1.6 million (2022: £14.8 million loss). It is also exploring further initiatives to enhance its operational efficiency, including additional consolidation of its central support teams.

Secret Escapes has had an encouraging start to 2024 and continues to grow profitability. It continues to execute its strategy to consolidate and grow market share in Europe, while driving operational efficiency goals. Supported by a strengthened balance sheet and differentiated customer offering, the long-term outlook for the business remains positive.

Wise PLC ("Wise")

In the half year to 30 September 2024 (1H 2025), Wise moved £68.4 billion around the world for 11.4 million customers, a 19% increase on the same period in the prior year (1H 2024). The company also reported revenue of £807.8 million for the half (up 23% from 1H 2024) and net income of £217.3 million (up 55% from 1H 2024), beating expectations.

In its results announcement, Wise also confirmed the launch of its sixth live direct connection to a domestic payment system, with the Philippines. Wise has also received regulatory approvals to integrate directly with the domestic payment systems in Brazil and Japan, taking the number of direct connections to eight once these two territories are launched. Enhancing its infrastructure is making Wise increasingly efficient: 63% of transfers are now completed instantly and reducing unit costs allowed the company to lower prices, with the average cross border take rate at 62bps, 5bps lower than a year ago.

The Company maintains a modest position in Wise.

Tactus Holding Limited ("Tactus")

In the Investment Adviser's last update in the Annual Report and Accounts for 2023, it was highlighted that Tactus had faced significant structural headwinds, as hardware sales had declined materially across the industry. Trading post period end did not improve, and the Investment Adviser made the decision not to invest further capital in Tactus. The company was placed into administration in May 2024 and the investment in Tactus was subsequently written off.

Environmental, Social and Corporate Governance Report

 

The role of ESG in the investment process

The Board and the Investment Adviser recognise their responsibility to investors to provide clear and transparent information in respect of the Company's approach to ESG.

 

ESG Objective

 

The Company does not have a specific sustainability objective and, for the purposes of the Sustainable Finance Disclosure Regulation ("SFDR"), has declared itself an Article 6 firm. The Company does not intend to adopt a label under the Sustainable Disclosure Requirements ("SDR").

 

ESG Strategy

 

The Investment Adviser does not seek out investments that have a sustainability focus. However, as part of its investment process, it recognises the necessity to assess the ESG risks and practices of an investment as a contributing factor to its overall success. The Investment Adviser contributes to positive ESG outcomes through active stewardship.

 

The following ESG factors are considered as part of the investment process:

 

-     Governance practices

-     Human Capital management

-     Social matters

-     Greenhouse gas emissions, carbon reduction and net zero targets

 

In this report, the Investment Adviser, provides an update on the progress of ESG practices within the portfolio over the last twelve months. All data provided is on a like-for-like basis and looks at companies in the current, active portfolio (ten portfolio companies), allowing for a direct assessment of progress over the period. As such, data for the prior period may differ to that previously reported, as exited or inactive portfolio companies have been removed.

 

The case studies that the Investment Adviser has selected are designed to demonstrate good ESG practices in those companies and are not necessarily indicative of practices across the portfolio.

 

Stewardship

 

Stewardship is a core aspect of the Investment Adviser's approach. There is regular dialogue between the Investment Adviser and the leadership teams of portfolio companies. Where the Investment Adviser has a board seat or board observer status, members of the Investment Team attend board meetings and provide input where they believe they can help companies achieve their strategic objectives. This includes regular dialogue on ESG related topics, and the Investment Adviser seeks to influence companies where they believe the management of material ESG factors can be improved.

 

One of the principal challenges of ESG integration in a private company context is data availability. Unlike listed companies, many private companies do not disclose ESG related data, either publicly or to third party data providers. This reality can hinder the identification of material ESG risks and potential issues which may require engagement.

 

On behalf of the Company, the Investment Adviser developed an internal dashboard of metrics to assess the ESG performance of portfolio companies to address these challenges. This data is collected directly from portfolio companies or from publicly available information. 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 its dialogue with company leadership teams, to assist with their continued development.

 

Where potential material ESG risks, or areas of group governance which require development, are identified, the Investment Adviser communicates these conclusions to management and seeks to work collaboratively with them to make improvements. Company action plans and any material ESG incidents are reported to the Risk Committee and monitored over time to assess progress.

 

Corporate Governance

 

·      50% (2023: 50%) of portfolio companies have an independent chairperson

·      80% (2023: 80%) of portfolio companies have at least one independent director

·      50% (2023: 20%) of portfolio companies are ISO 27001 certified

To grow successfully, companies and their founders must not only execute strategically, but they must also lay the foundations for future growth by creating appropriate corporate governance structures. It is critical that private companies considering listing prepare themselves for the additional scrutiny which comes with going public. It is also vital that founders, who may not have previously run listed businesses, are prepared to bring in experienced independent non-executive directors who can help their companies develop. Building capacity at board and executive level - reducing key man risk and reliance on individual founders over time - is crucial to a company's future development.

 

The Investment Adviser assesses company governance on a range of issues, recognising that good practice will differ depending on a company's jurisdiction, size and ownership structure. Following the changes to investment management arrangements during the period, the Investment Adviser has now also been able to appoint representatives to the board of several portfolio companies. We consider this to be an important step in the effective oversight of these investments.

 

Metrics

 

A total of 8 portfolio companies have at least one independent director on their board, consistent with the prior period on a like-for-like basis. During the period, two portfolio companies appointed new independent chairs, Gordon Wilson at Smart and Mark Hartigan at wefox.

 

There is an increasing focus on cyber security governance and the approach portfolio companies are taking to ensure they have a comprehensive framework in place to prevent the interruption of activities due to cyber threats or attacks. Five portfolio companies now have an ISO 27001 certification, which is an international standard for information security management. This compares to just two portfolio companies in the prior period.

 

Case Study

 

Following the two successful terms of Ruston Smith as Independent Non-Executive Director and Chair of Smart, the Investment Adviser, following consultation with other major investors, recognised the need to identify a new Chairperson who could help steer Smart through its next phase of growth.

 

In June 2024, Smart announced the appointment of Gordon Wilson as the company's new Chair of the Board, succeeding Ruston Smith. Gordon brings a wealth of experience and a proven track record in the technology and pensions sectors, further strengthening Smart's leadership team as the company continues its global expansion.

 

Gordon's distinguished career spans three decades, during which he has held key leadership positions and driven significant growth in various organisations, including both technology and pensions businesses. Gordon was the CEO of Advanced for over eight years and recently stepped down to start his non-executive career.

 

Gordon is also a member of the board of TechUK, and chairs three other tech businesses: Zenitech, Imagesound and The Polaris Group. During his executive career, he notably led the management team at Aquila Heywood, a leading pension software provider, achieving substantial growth.

 

Human Capital

 

·      20% (2023: 20%) of portfolio companies have female CEOs

·      30% (2023: 30%) average proportion of women in senior leadership roles

Good human capital management supports both value creation and business resilience, and the Investment Adviser believes that investing in human capital correlates with longer-term business success. Human capital management can both upskill and educate a workforce, increase abilities, and retain and motivate employees.

 

The Investment Adviser recognises that approaches to human capital management, including DE&I will differ from company to company, and seeks to understand a portfolio company's operating model and engage to advise on best practice and potential improvements.

 

Metrics

 

While Anne Boden was replaced by Raman Bhatia as the CEO of Starling Bank, the period closed with 2 female CEOs across the portfolio. Lauren Wetzel was appointed as the CEO of InfoSum in July 2024, taking over from Brian Lesser in a planned management transition.

 

The average proportion of women in senior leadership roles in the portfolio also remained stable over the period.

 

Case Study

 

During the period, Smart Pension joined the Diversity Project, a cross-company initiative, which champions shared learning and promotion of best practice in order to achieve a truly diverse, equitable and inclusive UK investment and savings industry.

 

In signing up to the initiative, Smart Pension joins other notable industry members such as Fidelity International, Franklin Templeton, AXA Investment Managers, Legal & General Investment Management, Mercer, Natixis Investment Managers and Octopus Investments.

 

With its membership, Smart Pension commits to striving for progress in diversity, equity and inclusion (DE&I) and to take action to drive wider change in the industry. The Diversity Project's aims include reductions in gender pay gap levels, a 90% ethnicity disclosure rate amongst participating businesses, and support of graduate and school leaver recruitment programmes focused on socioeconomic diversity.

 

The membership signifies a commitment to supporting and promoting diversity, equity and inclusion at Smart Pension, through peer discussions, shared learning and events, all working towards a more inclusive culture within the investments and savings industry. This covers many areas including socio-economic background, disability, age, gender, sexuality, neurodiversity, mental health, race and ethnicity.

 

Social Impact

 

The current portfolio includes companies which provide solutions to urgent business problems and in some instances, the development and application of technology is accelerating the ability of those companies to enact change, which in turn provides an opportunity to have a positive impact on society.

 

Case Study

 

The Brandtech Group recently announced that it is launching several initiatives to promote and regulate the ethical use of GenAI. Among these, is the introduction of a blueprint for creating ethical generating AI policies and the unveiling of Bias Breaker, a proprietary technology aimed at combating bias in AI foundation models.

 

Brandtech's own research revealed significant biases in existing AI models. When prompted for an image of a CEO, several major models generated 98% to 100% pictures of males, a stark contrast to reality, with the McKinsey's Women in the Workplace study showing that 28% of C-Suite roles and 10.4% of Fortune 500 chief executive positions were held by women. Bias Breaker addresses this issue by adding a probability-based layer of inclusivity to prompts, covering aspects such as age, race, gender identity and religion.

 

Environmental Impact

 

·      60% (2023: 30%) of portfolio companies have calculated their Scope 1 and 2 emissions

·      40% (2023: 30%) of portfolio companies have made a net zero commitment

·      40% (2023: 30%) of portfolio companies have set at least one short or medium-term carbon reduction target

·      0% (2023: 0%) portfolio exposure to companies engaged in extraction or production of fossil fuels

 

Limiting global temperature rises to 1.5 degrees above pre-industrial levels, in line with the Paris Agreement, is an urgent challenge facing the global economy. The Investment Adviser uses its influence to encourage companies to identify, manage and mitigate climate change risks or opportunities.

 

The Investment Adviser believes that the Company's portfolio of tech-enabled, predominately digital businesses is not exposed to material climate risks and has limited direct environmental impacts, mainly due to the comparatively low levels of their carbon emissions. However, its view is that the scale of climate change will impact all sectors, industries, and asset classes and so acknowledges the positive role that it can play in tackling it through investment decisions and capital allocation.

 

Metrics

 

Progress was made by some companies in the portfolio over the course of the year, with three additional portfolio companies now calculating and disclosing their Scope 1 and 2 emissions, namely Klarna, Featurespace and Secret Escapes.

 

Klarna has also now made a net zero commitment and set at least one short or medium-term carbon reduction target, with an increase in the number of portfolio companies doing so from 30% to 40%.

Case Study

 

During the period, Klarna announced its sustainability achievements for the past year. In 2023, it saw a significant uptick in the use of its features that provide consumers with information about the sustainability efforts of merchants and promote conscious shopping, contributing to 4.75 million purchases from more conscious brands. A standout achievement from their report was the 150% year-over-year increase in the usage of Klarna's CO2e Emissions Tracker, highlighting a shift towards more conscious consumer behaviour. In addition, the company saw a 25% reduction in its greenhouse gas (GHG) emissions and had, to date of the report, committed $24.5 million to planet health initiatives. These environmental and social contributions underscore the company's continued commitment to addressing environmental sustainability, focusing on reducing its carbon footprint and promoting conscious consumption among its vast network of 150 million consumers and 550,000 retail partners worldwide.

 

Klarna's 2023 sustainability highlights include:

 

·      Driving 4.75 million conscious purchases through tech innovation: In 2023, Klarna introduced a number of advancements to its products and services that furthered its mission of empowering its 150 million consumers with information to make more conscious purchasing decisions. Klarna's CO2e Emissions Tracker, which was updated to include expanded insights for over 170 million products, drew in 460,000 monthly users-a 150% jump from the previous year. Additionally, new features including sustainability search filters in Klarna's intelligent search & compare feature, a resell feature in the Klarna app, conscious brands ratings displaying brands' sustainability achievements, as well as an online sustainability hub, contributed to Klarna customers making 4.75 million purchases from brands recognized for their sustainability efforts .

 

·      Enabling thousands of consumers to contribute to planet health: In 2023, Klarna introduced a donations feature for US shoppers as part of its commitment to planet health with a focus on climate, people, and biodiversity. This feature allows shoppers to add a $1 donation to their purchases using the interest-free Pay in 4 service at participating retailers, with donations supporting the WRLD Foundation's work towards achieving UN Sustainable Development goals. In just 7 months since its June 2023 launch, the initiative has received a powerful response with over 193,000 consumers contributing to date, raising over USD $200K total.

 

·      Achieving 25% GHG reduction: Klarna has made significant progress in cutting its greenhouse gas (GHG) emissions, achieving a 25% reduction in its overall absolute carbon footprint in 2023 compared to the previous year, with a 66% decrease in scope 1 and 2 emissions and a 39% reduction in carbon intensity. These figures represent significant strides towards Klarna's 2030 goal of halving carbon intensity from a 2019 baseline.

 

·      Committing $24.5M to planet health initiatives: Since its pledge in April 2021, Klarna has dedicated 1% from each of its funding rounds to planet health initiatives via its Give One initiative. This commitment resulted in a total contribution of USD $24.5 million by the end of 2023, supporting over 50 organizations worldwide in regions including North America, South America, Africa, Europe, and Asia. Notable achievements from this support included the planting of 3.4 million trees to restore and reforest important ecosystems and 900,000 hectares (approx. 2.2 million acres) of habitat across the globe seeing positive impact through organizations backed by Klarna.

 

In recognition of its efforts, Klarna was named the Most Sustainable Bank in Sweden 2023 by the Sustainable Brand Index and received several other accolades throughout the year including being awarded the Most Disruptive Global Climate Action Initiative in the CSR Excellence Awards, and receiving a finalist position in the Reuters Responsible Business Awards within the Net Zero Transition Award category.

 

ESG Roadmap

 

Following the changes to the Company's investment management arrangements in the period, the Company and Investment Adviser have been engaging with advisors to assess the current ESG strategy. Those advisers have reviewed the ESG Policies in place as well as the relevance of the data and ESG metrics collected and used to make assessments on portfolio companies, to drive ESG outcomes and to report to its investors. This process has identified opportunities for the Company to close gaps in its approach to ESG, particularly considering increased regulatory scrutiny of ESG reporting.

 

ESG Data

 

There is recognition that more can be done to improve the transparency and depth of data that the Company collects. As a result, the Company is aiming to implement the ESG Data Convergence Initiative ("EDCI") framework, to supplement the current metrics collected from the portfolio.

 

The EDCI framework is a collaborative effort aimed at standardising the collection and reporting of ESG data within the private equity industry. The initiative seeks to create a unified approach to ESG metrics, making it easier to benchmark and compare ESG performance across different portfolio companies and investment vehicles.

 

Key Features of the EDCI Framework:

 

Standardised Metrics: The EDCI framework includes a core set of ESG metrics such as greenhouse gas emissions, net zero commitments, renewable energy usage, board and C-suite diversity, work-related accidents, net new hires, and employee engagement. Some of which the Company is already collecting today.

 

Benchmarking: By using these standardised metrics, the Company can compare its portfolio companies' ESG performance against industry benchmarks, providing valuable insights and driving improvements.

 

Transparency: The initiative promotes greater transparency in ESG reporting, enabling more consistent and comparable data for investors.

 

Collaboration: The EDCI is supported by a wide range of stakeholders, including over 450 investors, representing approximately $38 trillion in assets under management.

 

In summary, the initiative helps streamline ESG reporting processes and enhances the quality and comparability of ESG data in the private equity sector. The EDCI framework has been established by some of the largest private market investors and managers for collecting information from their private portfolio companies.

 

The Investment Adviser will integrate the EDCI metrics into the investment process, the Company's risk management framework and reporting over the course of 2025. A further update will be provided on progress here in the Interim Report and Financial Statement to 31 March 2025.

 

ESG Regulation

 

The Company is exposed to ESG regulation in the form of:

 

1.     The Sustainable Finance Disclosure Regulation ("SFDR")

 

The SFDR exists to increase transparency on how financial market participants integrate sustainability risks and opportunities into their investment decisions and processes.

 

2.     The Sustainable Disclosure Requirements ("SDR")

 

The SDR is designed to provide clear and comparable information about the sustainability characteristics of financial products, helping consumers make clear and informed decisions and to reduce the risk of greenwashing.

 

The Company has considered the requirements of both the SFDR and SDR regulation, including the anti-greenwashing rules applicable from 31 May 2024, and has made changes to its practices and the disclosures in this document to ensure compliance with that regulation.

 

3.     The Task Force on Climate-related Financial Disclosures ("TCFD")

 

The TCFD is a global initiative established to develop voluntary climate-related financial disclosures that companies and financial institutions can use to provide clear, comprehensive and high-quality information on the impacts of climate change.

 

The Company falls under the TCFD regulation by virtue of having a UK-based AIFM, which has AUM of greater than £5 billion on a 3 year rolling average. Given the new investment management arrangements have only been in place since 1 April 2024 the Company will provide an update regarding compliance with TCFD in the Interim Report and Financial Statement to 31 March 2025.

 

4.     The Modern Slavery Act 2015

 

Several of the Company's portfolio companies are required to make a Modern Slavery Prevention Statement ("MSS"). The statement is voluntary for those who are not. The Investment Adviser plans on engaging with portfolio companies who have not yet made an MSS.

 

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.

 

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 or the Cayman Islands Stock Exchange). Furthermore, 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 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.

 

The Company is not expected to take majority shareholder positions in portfolio companies but shall not be restricted from doing so. Furthermore, 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 funds 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 as 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 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.

 

Corporate Governance Statement

 

Chrysalis has a listing on the Closed Ended Investment Fund segment of the London Stock Exchange Main Market and is a member of the Association of Investment Companies (AIC). The Board has considered the Principles and Provisions of the 2019 AIC Code of Corporate Governance (AIC Code), and a full scope review of the Company's corporate governance processes and procedures has been conducted with reference to the AIC Code by the Board and the Company Secretary. The AIC Code addresses the relevant Principles and Provisions set out in the UK Corporate Governance Code (the UK Code), as well as setting out additional Provisions on issues that are of specific relevance to the Company.

 

The Board considers that reporting against the Principles and Provisions of the AIC Code, which has been endorsed by the Financial Reporting Council and the Guernsey Financial Services Commission, provides more relevant information to shareholders. The Company has complied with the Principles and Provisions of the AIC Code and in doing so has met its associated disclosure requirements under paragraph 9.8.6 of the Listing Rules.

 

The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies.

 

Key Governance Disclosures

 

Section 172(1) Statement

 

Through adopting the AIC Code, the Board acknowledges its duty to apply and demonstrate compliance with section 172 of the UK Companies Act 2006 and to act in a way that promotes the success of the Company for the benefit of its Shareholders as a whole, having regard to (amongst other things):

 

a)    consequences of any decision in the long-term;

b)    the need to foster business relationships with suppliers, customers and others;

c)    impact on community and environment;

d)    maintaining reputation; and

e)    acting fairly as between members of the Company.

 

The Board considers its duties under S.172 to be integrated within the Company's culture and values. The Company's culture is one of respect for the opinions of stakeholders, with an aim of carrying out its operations in a fair and sustainable manner that is both instrumental to the Company's long term success and upholds the Company's ethical values. The Board encourages diversity of thought and opinion in accordance with its Diversity Policy and would like to encourage stakeholders to engage freely with the Board of Directors on matters that are of concern to them.

 

Stakeholders may contact the Company via the Company's dedicated e-mail address (ChrysalisGSYTeam@iqeq.com), the Company's LinkedIn page (https://www.linkedin.com/company/chrysalis-investments-investment-trust/) or by post via the Company Secretary on any matters that they wish to discuss with the Board of Directors.

 

The Company is an externally administered investment company, has no employees, and as such is operationally quite simple. The Board does not believe that the Company has any material stakeholders other than those set out in the following table.

 

Investors	Service providers	Community and environment
Issues that matter to them
Performance of the shares   Growth of the Company   Liquidity of the shares   Corporate Governance	Reputation of the Company   Compliance with Law and Regulation   Remuneration	Compliance with Law and Regulation   Impact of the Company and its activities on third parties
Engagement process
Annual General Meeting   Frequent meetings with investors by brokers and the Investment Adviser and subsequent reports to the Board   Quarterly factsheets   Key Information Document	The main service providers engage with the Board in formal quarterly meetings, giving them direct input to Board discussions.   Communication between Board and service providers also occurs informally on an ongoing basis during the year.	Adherence to principles of appropriate ESG policies exists at both Company and investment level.   Principles of socially responsible investing form a key part of the Company's investment strategy.
Rationale and example outcomes
The Board have engaged with investors in relation to the Company business over the course of the year.	The Company relies on service providers as it has no systems or employees of its own.   The Board seeks to act fairly and transparently with all service providers, and this includes such aspects as prompt payment of invoices.	The Investment Adviser works to ensure that sustainability and ESG factors are carefully considered and reflected in the Company's investment decisions.    The Board of Directors travel as infrequently as possible and instead communicate, where they are able to, by video and conference call.

 

Going Concern Statement

 

The Going Concern Statement is made on page 49.

 

Viability Statement

 

The Viability Statement is made on page 49 and 50.

 

Fair, Balanced and Understandable Statement

 

The annual report and accounts taken as a whole are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. Further information on how this conclusion was reached can be found within the Audit Committee Report.

 

Appointment of the New Investment Adviser

 

Further details relating to the appointment of the New Investment Adviser and how this is in the interests of members as a whole can be found within the Report of the Management Engagement Committee.

 

Appointment of the New Administrator and Company Secretary

 

On 1 August 2024, IQ-EQ Fund Services (Guernsey) Limited ("IQ-EQ") was appointed as Administrator and Company Secretary. The Administrator is responsible for the maintenance of the books and financial accounts of the Company and the calculation, in conjunction with the Investment Adviser, of the Net Asset Value of the Company and the shares.

 

Assessment of Principal and Emerging Risks

 

The Board has undertaken a robust assessment of the Company's principal and emerging risks, together with the procedures that are in place to identify emerging risks. Further information on this assessment and an explanation on how these risks are being mitigated and managed can be found on page 53.

 

Review of Risk Management and Internal Control

 

The Board confirms that it has reviewed the Company's system of risk management and internal controls for the year ended 30 September 2024, and to the date of the approval of this annual report and audited financial statements. For further details of the key risks and uncertainties the Directors believe the Company is exposed to together with the policies and procedures in place to monitor and mitigate these risks, please refer to pages 88 to 98 and note 18 of the annual report and audited financial statements.

 

The Board of Directors

 

The Board comprises six independent non-executive Directors, two of whom are female, who meet 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. Further details concerning the meetings attended during the year by the Board and its Committees can be found on page 36. All Directors are considered independent of the Investment Adviser for the purposes of 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. For further information on how the Board considers the interests of stakeholders in its decision making please see the S.172(1) statement on page 30. 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 Company Secretary.

 

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 30-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. He is currently a Non-Executive Director of a number of private companies. 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 in 1990.

 

Simon Holden (independent)

 

Simon is a Chartered Director ("CDir") accredited by the Institute of Directors. Previously an investment director with portfolio company responsibilities at Terra Firma Capital Partners and Candover Investment prior to that, since 2015 Simon has been an active independent director to complex listed alternative investment company, private equity fund and private operating company boards. In addition, Simon is the pro-bono Business Adviser to Guernsey Ports; a States of Guernsey enterprise responsible for the safe, secure and available airports and harbours critical infrastructure.

 

Simon received an MEng and MA graduate in Manufacturing Engineering from the University of Cambridge, he is an active member of UK and Guernsey fund management interest groups including a director member of the Association of Investment Companies ("AIC").

 

Anne Ewing (independent)

 

Anne has over 40 years of financial services experience in banking, asset and fund management, corporate treasury, life insurance and the fiduciary sector. Anne has an MSc in Corporate Governance, an ACCA Diploma in Accounting & Finance, 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 directorships roles in investment companies and a London based private wealth banking group and related subsidiaries in Jersey and Guernsey.

 

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. Tim is also a NED of Polar Capital Technology Trust, where he is Senior Independent Director.  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.

 

Margaret O'Connor (independent)

 

Margaret brings 30 years of international experience commercialising technology and evolving the governance structure and growth strategy of companies from the early- stage to realizations. Her plural career includes serving on the board of a Guernsey investment trust and as Chairman of a Mauritius Venture Capital fund. Her past roles as a US AdTech operator, that led EU and Asia market expansions before a successful trade sale, and as a MasterCard International executive, inform her board mindset and skill set. She is active in the Institute of Directors and the Private Equity Women Investor Network.

 

She earned her BA from Rutgers University and studied International Relations at Princeton University before moving to Seoul, Korea to work for the Korean Ministry of Finance.

 

Public Company Directorships

 

The following details are of all other public Company Directorships and employment held by each Director and shared Directorships of any commercial company held by two or more Directors:

 

Anne Ewing

 

None to be disclosed

 

Andrew Haining

 

None to be disclosed

 

Simon Holden

 

HICL Infrastructure PLC

JPMorgan Global Core Real Assets Limited

 

Stephen Coe

 

None to be disclosed

 

Tim Cruttenden

 

Polar Capital Technology Trust PLC

 

Margaret O' Connor

 

None to be disclosed

 

Valuation Committee

 

The Board is 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 uses an independent Valuation Committee which comprises of the following members:

 

Lord Anthony 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 ("DMG"), and became CIO and CEO of the 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 Patria Private Equity 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 Top Tier Capital Partners as a Partner where he leads the European funds business. Prior to that he was a Managing Partner at SVB Capital.

The fourth member of the committee is Tim Cruttenden who has been a director of the Company since its formation.

 

Director Attendance

 

During the year ended 30 September 2024, the Board and Committee meetings held and attended by the Directors were as follows:

	Quarterly Board Meeting	Audit Committee Meeting	Remuneration and nomination Meetings	Risk Committee Meetings	Management Engagement Meetings	Ad-hoc Meetings
Director	Attended/Eligible	Attended/ Eligible	Attended/ Eligible	Attended/ Eligible	Attended/ Eligible	Attended/ Eligible
Anne Ewing	3/3	3/3	1/2	0/1	n/a	4/4
Andrew Haining	3/3	n/a	n/a	n/a	n/a	4/4
Simon Holden	3/3	3/3	n/a	1/1	1/1	4/4
Stephen Coe	3/3	3/3	n/a	1/1	n/a	4/4
Tim Cruttenden	2/3	3/3	2/2	1/1	1/1	4/4
Margaret O'Connor	3/3	3/3	2/2	1/1	1/1	4/4

 

 

 

	Valuation Committee Meetings
Member	Attended/ Eligible
Lord Rockley	14/14
Diane Seymour-Williams	14/14
Jonathan Biggs	13/14
Tim Cruttenden	12/14

 

Division of Responsibilities

 

A schedule of matters reserved for the Board is maintained by the Company and can be summarised as follows:

·      Strategic Issues

·      Financial Items such as approval of the half-yearly reports, any quarterly announcements, any preliminary announcement of the final results and the annual report and accounts including the corporate governance statement

·      Treasury Items

·      Legal and Administration

·      Communications with Shareholders

·      Board Appointments and Arrangements

·      Miscellaneous such as to approve the appointments of professional advisers for any Group company in addition to the Company's Auditors

·      Monetary Limits

The Directors have also delegated certain functions to other parties such as the Valuation Committee, the Alternative Investment Fund Manager ("AIFM"), the Investment Adviser, the Administrator, the Company Secretary, the Depositary and the Registrar.

 

The Investment Adviser reports to the Board on a regular basis both outside of and during quarterly board and Committee meetings, where the operating and financial performance of the portfolio, together with valuations, are discussed at length between the Board and the Investment Adviser. The Directors have responsibility for exercising supervision of the Valuation Committee and the Investment Adviser.

 

Board Committees

 

The Company has an Audit Committee, Remuneration and Nomination Committee, Management Engagement Committee, Risk Committee and an Independent Valuation Committee (together the "Committees"). The Terms of Reference for each committee is available on the Company's website.

 

The Board believes that its established Committees are adequately composed, and that each member has the necessary skills and experience to discharge their duties effectively. All new Committee members will be provided with an induction on joining the relevant Committee. The actions carried out by each Committee since the previous quarterly board meeting are reported at each meeting to the Board of Directors by the respective Committee chair. Each Committee meeting is attended by the Company Secretary and comprehensive minutes are kept, as well as a schedule of the action points arising from each meeting.

 

Stephen Coe is the Chairman of the Audit Committee with Anne Ewing and Simon Holden as members, with Margaret O'Connor as an observer. A full report regarding the Audit Committee's activities during the year can be found in the Audit Committee Report on page 59.

 

Anne Ewing is Chairman of the Remuneration and Nomination Committee, with Margaret O'Connor and Tim Cruttenden as members. The Remuneration and Nomination Committee meets at least once a year in accordance with the terms of reference and reviews, inter alia, the structure, size and composition of the Board. A full report regarding the Remuneration and Nomination Committee's activities during the year can be found on page 39.

 

Margaret O'Connor is Chairman of the Management Engagement Committee, with Simon Holden, Stephen Coe and Tim Cruttenden as members. The Management Engagement Committee will meet formally at least once a year for the purpose, amongst other things, of reviewing the actions and judgments of the Investment Adviser and the AIFM, and the terms of the AIFM and Investment Advisory Agreement. A full report regarding the Management Engagement Committee's activities during the year can be found on page 43.

 

Simon Holden is Chairman of the Risk Committee, with Anne Ewing, Margaret O'Connor, Stephen Coe and Tim Cruttenden as members. The Risk Committee will meet formally, at a minimum once a year, though it has been agreed, that the Risk Committee is convened twice a year, aligned with the Company's financial reporting cycle and at such other times as the Chairman of the Committee deems appropriate, for the purpose of, amongst other things, to ensure that there is proper consideration and assessment risks and stresses ensuring that the Investment Adviser develops appropriate strategies to protect the Group's portfolio of investments. A full report regarding the Risk Committee's activities during the year can be found on page 45.

 

Report of the Remuneration and Nomination Committee

 

Statement: Chairman of Committee

 

I am pleased to present the Remuneration and Nomination Committee report for the year ended 30 September 2024. The composition of the Remuneration and Nomination Committee meets with the requirements of the AIC Code and, in line with good practice, membership is reviewed annually.

 

During the year, there have been no changes to the Directors' Remuneration Policy or the Terms of Reference of the Remuneration and Nomination Committee. No new Directors were appointed to the Board during the year.

 

In 2025 the Remuneration & Nomination Committee will revive its recruitment process to help the Company further achieve its targets.

 

I am satisfied that the Remuneration and Nomination Committee is discharging its responsibilities proficiently and recommend this report to the Board.

 

Anne Ewing, Chair of the Remuneration and Nomination Committee

 

Purpose and Aim of the Remuneration and Nomination Committee

 

The terms of reference of the Remuneration and Nomination Committee are set out on the Company's website at https://chrysalisinvestments.co.uk/investor-relations/.  The primary responsibility of the Remuneration and Nomination Committee is, in relation to remuneration, to determine and agree with the Company's Board of directors (together the "Board" and individually a "Director") the framework or broad policy for the remuneration of the Company's chairman and non-executive Directors in accordance with the Company's articles of incorporation (the "Articles") and applicable law and, in relation to nominations, to review the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board with regard to any changes as necessary.

 

Membership and Meetings of the Remuneration and Nomination Committee

 

The Remuneration and Nomination Committee met formally twice during the reporting period.

 

The members of the Remuneration and Nomination Committee are as follows:

 

·      Anne Ewing (Chairperson)

·      Tim Cruttenden

·      Margaret O'Connor

 

Composition, Succession and Evaluation of the Board

 

At its meetings, the Remuneration and Nomination Committee reviewed and reaffirmed the Company's policy whereby no Director will serve for more than nine years (such policy being aligned to the AIC Code). The Remuneration and Nomination Committee confirms that no Director has served for longer than nine years, due to the Company being incorporated in October 2018.

 

No new directors were appointed to the Board during the financial year as the Board focused on, amongst other things, the Continuation Vote which was successfully passed at the Company's 2024 Annual General Meeting.

 

The Board continues to work towards meeting the targets set by the Hampton-Alexander Review on gender balance and the Parker Review into ethnic diversity in FTSE leadership.

 

The Company provides information as set out in the table below, on the progress made on board diversity targets:

 

·      At least 40% of the Board is female

·      At least one senior position on the Board is held by a woman

·      At least one individual on the Board is from a minority ethnic background

 

Gender Identity/Ethnic background	Number of Board members	% of the Board	Number of Senior Positions Held
Female	2	33%	2
Male	4	67%	3
White British or other White group	6	100%	5
Black/African/Caribbean/Black British/Asian/Other	0	0	0

 

The data detailed above has been obtained from and confirmed by each Board Director.

 

The Board notes that as an externally managed investment company, with a Board comprised entirely of non executive directors, the senior positions of the Board include the roles of the Chair, SID and Chair of any permanent committee of the Board. 

 

The Company has yet to achieve the appointment of a candidate from a minority ethnic background.  In its recruitment processes the Board seeks to ensure that it is presented with a diverse set of candidates from which it appoints the candidate best suited to the role.  A  major factor in the Board's current succession planning process is to maintain and demonstrate management and control of the Company in the jurisdiction of its incorporation in relation to the size of the Board.  This can significantly impact the size of the candidate pool from which the company can recruit.

 

The updated report from the Parker Review in 2022 also recognised such constraints where the size of typical Investment Trusts such as Chrysalis can reduce the opportunity to make further diverse appointments.

 

During 2024, and after the successful Continuation Vote, the Committee refreshed its succession planning and undertook a review of the attributes and skills of the current board and made recommendations to the Board.  Accordingly, and post financial year end, a search for a new director was made using external consultants.  The Board wishes to ensure the best possible fit for the Company and will, therefore, continue its deliberations on Board composition in 2025.

 

During any future search, due regard will be given to equal opportunity, diversity and inclusion for this appointment.  

 

Committee Memberships

 

Audit Committee	Risk Committee	Valuations Committee	Management Engagement Committee	Remuneration and Nomination Committee
Chaired by: S Coe   A Ewing S Holden	Chaired by: S Holden   S Coe A Ewing T Cruttenden M O'Connor	Chaired by: Lord Rockley*   D Seymour- Willliams* J Biggs* T Cruttenden (Board Representative)   *Independent	Chaired by: M O'Connor   S Coe T Cruttenden S Holden	Chaired by: A Ewing   T Cruttenden M O'Connor

 

Review of Board Performance

 

The board has established a three year cycle for the evaluation of its own performance which is initiated by the Committee and led by the Chair.  The Chair's performance is evaluated by the Senior Independent Director.  An external review was conducted in October 2023 by Board Alpha, followed by an internal review post financial year end 2023. 

 

The output from the 2023 review was positively received by the Board and a number of actions are in progress to address various matters, together with focused externally led training, such as Cyber Risk and Listing Rule changes and continuing obligations.  The results of the internal 2024 review have yet to be assessed at the time of this report.

 

The next externally led board effectiveness review will be carried out in relation to the financial year ending September 2026.

 

Review of Remuneration

 

The Company's policy is that the fees payable to the Directors should reflect the time spent by the Board on the Company's affairs and the responsibilities borne by the Directors, and should be sufficient to retain high calibre directors.

 

The policy is for the Chairman of the Board, the chairs of the Audit Committee and Risk Committee to be paid a higher fee than the other Directors in recognition of their more onerous roles and more time spent.  The Board may only amend the level of remuneration paid within the limits of the Articles (i.e. £500,000 per annum maximum).

 

The table below is provided to enable Shareholders to assess the relative importance of spend on Director remuneration and the size of the Board. The figures below provide a comparison against advisory fees payable to the Investment Adviser and Director Remuneration relative to the Company's Net Asset Value ("NAV").

 

Total Director Remuneration (Note 19)	£397,500
Investment Adviser Fees (Note 19)	£2,368,766
NAV at year end	-£840,331,149

 

A comparison of the Company's Director remuneration against its competitors was undertaken by the Committee and a view taken on current market conditions, noting the trajectory of inflation rates and the time commitment and activities of the Board.

 

The Remuneration and Nomination Committee recommended, and the Board resolved, that there should be no increase in remuneration for male directors for the financial year commencing 1 October 2024.  However modest increases for the two female directors were agreed.  These increases serve to equalise directors' remuneration levels and to fairly reflect the work undertaken by each director on their respective committees.

 

	Director base fees p.a. FY/E 2024 £	Director base fees proposed FY/E 2025 £
Chairman - A Haining	85,000	85,000
Audit Committee Chairman/SID - S Coe	67,500	67,500
Risk Committee Chairman - S Holden	67,500	67,500
Valuation Committee Board Representative - T Cruttenden	62,500	62,500
Directors - M O'Connor/A Ewing	57,500	62,500

 

 

 

Anne Ewing

Chairman of the Remuneration and Nomination Committee, Chrysalis Investments Limited

 

Report of the Management Engagement Committee

 

I am pleased to present the Management Engagement Committee ("MEC") report for the year ended 30 September 2024. The composition of the MEC meets with the requirements of the AIC Code and, in line with good practice, membership is reviewed annually.

 

During the year, the Terms of Reference of the Committee were updated to enable an annual review of board appointments to the committee and to remove committee term limits.

 

I am satisfied that the Committee is discharging its responsibilities proficiently and recommend this report to the Board.

 

Margaret O'Connor, Chair of the MEC

 

Purpose and Aim of the Management Engagement Committee

 

The terms of reference of the MEC are set out on the Company's website. The primary responsibility of the MEC is to review, annually, the compliance of the AIFM and Investment Adviser with the Company's investment policy and AIFM and Investment Advisory Agreement, as well as to keep under review the performance of all other key service providers involved in supporting the Company and its operations, to agree with the Company's Board of Directors the framework for annual evaluations of these professional services, and to make recommendations to the Board with regards to any changes as necessary.

 

Membership and Meetings of the Management Engagement Committee

 

The MEC met formally on September 20, 2024.

 

The members of the MEC are as follows:

 

·      Margaret O'Connor (Chairperson)

·      Tim Cruttenden

·      Simon Holden

·      Steve Coe

 

Priorities This Past Year

 

1.     To ensure appropriate resourcing at and reporting from the Investment Adviser.

2.     To ensure an orderly transition to the new investment management arrangements.

3.     To ensure appropriate investor engagement.

 

Review of Service Providers

 

·      The MEC was pleased to receive comprehensive feedback from all service providers during its annual review.

 

·      The MEC commended the Investment Adviser on moving quickly and thoughtfully to establish itself in the new investment management structure, whilst acknowledging the opportunity to evolve operational effectiveness as it becomes better established, with a focus on forward looking investment strategy.

 

·      As part of a wider cybersecurity review, the MEC interrogated the cybersecurity policies and practices of select third-party service providers. Recommendations for strengthening cybersecurity infrastructure were noted and the MEC will monitor progress against addressing those recommendations during 2025. One key recommendation was the development of a co-ordinated cybersecurity response plan, to ensure a clear strategy for all service providers, and the Board, in the event of a cyber security event impacting the Company.

 

·      Finally, the MEC recommended to the Board that they request assurance from IQ-EQ Fund Services (Guernsey) Limited ("IQ-EQ") regarding the Company's compliance with the Financial Conduct Authority 2024 listing rules.

 

Margaret O'Connor

Chair of the Management Engagement Committee, Chrysalis Investments Limited

Report of the Risk Committee

 

I am pleased to present the Report of the Risk Committee (the "Committee") of the Company for the year ended 30 September 2024.

 

Overview

 

The terms of reference of the Risk Committee are set out on the Company's website at https://chrysalisinvestments.co.uk/investor-relations/.

 

The role of the Risk Committee is to ensure that the Board receives due consideration and assessment of the opportunities, risks and stress scenarios within which the Company operates and to ensure that the recommended actions of the Investment Adviser protect its portfolio of investments.

 

Specifically, the Risk Committee:

 

·      Recommends an overall risk appetite to the Board, monitors the principal risks to which the Company is exposed and evaluates the strength of the mitigating controls;

·      Reviews the policies and process for identifying and assessing business risks and the management of those risks by the Company;

·      Monitors key risk exposures ensuring that the Investment Adviser is exercising appropriate control to reduce the likelihood of risk crystallisation resulting in financial loss, reputational damage or regulatory concern;

·      Reviews, challenge, approve and monitor stress and scenario tests;

·      Monitors investments so that they are aligned within the agreed risk appetite;

·      Reviews major initiatives such as related party acquisitions or initiatives in new geographies or sectors and be assured that appropriate due diligence has been carried out and that any associated movement in risk profile remains within risk appetite; and

·      Provides oversight and advice to the Board in relation to current and emerging risk exposures of the Company.

 

The members of the Risk Committee are as follows:

 

·      Simon Holden (Chairman)

·      Stephen Coe

·      Tim Cruttenden

·      Anne Ewing

·      Margaret O'Connor

·      Andrew Haining (Company Chairman) - invited as an Observer

 

Status of the Risk Committee

 

I mentioned in last year's Risk Committee Report that the Company became a self-managed Alternative Investment Fund ("AIF") from 1 July 2022. The Board's original decision to insource our risk management was to instigate a more tailored risk management function than was available under third-party AIFM management. The goal was to deliver more insightful risk disclosure appropriate to holding minority positions in higher risk, higher growth potential, illiquid private company holdings; consistent with the risk profile and investment policy of the Company.

 

The Risk Committee established, from first principles, a much improved risk management oversight and control function. More than two years on, I am pleased to reflect on this step change and conclude that it has proved to be a successful decision. Risk management now follows a robust and repeatable process with a framework that guides the recommendations of the Investment Adviser under the Board's oversight.

 

Effective 1 April 2024, the Company shifted back to a managed risk structure with G10 Capital Limited ("G10") appointed as Alternative Investment Fund Manager ("AIFM"). G10 was selected as part of a review and tender process for a suite of corporate services, following the migration of portfolio management and investment advisory services from Jupiter Investment Management Limited to G10 and Chrysalis Investment Partners LLP ("CIP LLP"). With time and effort invested in improving risk frameworks since 2022, I'm pleased to say this has been a smooth transition during the year.

 

As of September 2024, the Risk Committee convenes semi-annually (within its Terms of Reference), reflecting the scrutiny deemed necessary to changes in the Company's risk factors. In the other quarters, the Board receives a more streamlined risk report from the AIFM that includes operational risk reporting from the Investment Adviser. Beyond this, the Chair of the Risk Committee is the primary point of alert for material risk indicators as Reportable Risk Events on an 'as-arising' basis.

 

Risk Classes

 

The Committee reviews the risk profile of the Company under a series of pre-defined risk classes. Eash risk class is composed of separately identified and scored risks and mitigating controls.

 

Risk classes are then prioritised in order of their highest overall residual risk ratings and this process is refreshed (at least) annually:

 

1.     Relative Performance - the Company's longer terms sustainability will depend on risk-adjusted returns outperforming adjacent asset classes.

2.     Portfolio Performance - risks to tracking each portfolio company's progress towards measurable milestones along the 'equity roadmap' and evidence of the strategy and influence over profitable realisations. Movements in the fair values of our holdings have led to an overall increase in the concentration risk within the portfolio during the year.

3.     Financial/ Capital Markets - risks related to shareholder understanding, confidence in the Company's growth capital mandate and implications of shares trading at a discount to NAV.

4.     Conflict and Compliance Management - verification of robust governance in all stakeholder relationships including but not limited to the fiduciary responsibilities the Investment Adviser assumes where it exercises the Company's right to board representation within our portfolio companies.

5.     Liquidity Management - risks to the funding runway and allocation of resources that the Company has available to deploy to support and optimise the value of its investments.

6.     Portfolio Construction - ensuring that the portfolio remains sufficiently diversified and that the Investment Adviser's span of control and management of the Company's holdings remains effective. Movements in the fair value of the Company's investments have led to an overall increase in the concentration risk within the portfolio during the year.

 

Risk class assessed to be well controlled but with the potential for high impact if crystallised:

 

7.     Regulatory and political - risk monitoring over routine regulatory compliance (e.g., FCA in the UK) and/or politically exposed sectors within which certain portfolio companies must operate.

 

Risk classes currently judged to have a lower overall residual risk rating:

 

8.     The Environment, Social Impact and Good Governance ("ESG") - the Company's policy is addressed in Environmental, Social and Corporate Governance report of the Annual Report.

9.     Investment Decisions - evidence that the Investment Adviser has undertaken appropriate due diligence, risk assessments and origination processes at the point of committing the Company to new investments; cognisant of the announced capital allocation policy.

10.  Central Management - governance, depositary, foreign exchange and treasury risk management controls; some under delegation to specialist third party service providers.

11.  Valuation - the Independent Valuation Committee's role in provide insightful and consistent oversight of the quarterly portfolio valuation process.

 

Finally, as a standing item, the Risk Committee considers:

 

12.  Horizon Risks - themes emerging that could have an outsize impact or influence on the prospects of clusters of our target sectors and/or portfolio companies.

 

In September 2024, the Committee Chair conducted the annual refresh of the risk register with the Investment Adviser before presenting the findings to the Risk Committee in October 2024. Each existing and new risk was considered individually, combining in the prioritised risk classes above.

 

In relative terms, it was pleasing to see a year of improvement with consistent and clear risk reporting by the Investment Adviser throughout a year of significant change, including the Continuation Vote, migration of the Investment Advisory relationship, migration of corporate administration to IQ-EQ, liquidity events from realisations, follow-on investments against a challenging backdrop for growth equity, several operational risk matters that required careful consideration, and finally, the introduction and execution of the capital allocation policy which made use of borrowed funds against a Barclays debt facility, drawn down after the end of the period.

 

In absolute terms, the risk profile of the Company improved with increased visibility over both valuations and liquidity with realisation events in the year and further positive developments in several of the Company's largest holdings. Notwithstanding this, a persistent discount in the Company's shares is undermining the value of the long-term shareholder proposition and to manage this, the Board introduced a package of measures, set within a near term capital allocation policy.

 

As a special measure in 2024, the Risk Committee commissioned a 3-part study with a specialist cyber security consultancy to scrutinise the quality and preparedness of cyber risk frameworks and governance of both the Company and its three key suppliers; CIP LLP, IQ-EQ and G10. The Board noted compliance with leading standards, adopted its Cyber Security Strategy and now has several initiatives underway as part of ongoing monitoring and management of cyber risk.

 

Recommendation

 

Growth equity as an asset class accepts a higher appetite for risk to find investment opportunities in companies that have the potential for outsize returns. Whilst there have been some notable failures in our portfolio, this year has crystalised profitable returns and the portfolio, whilst smaller, contains several high conviction holdings. 2025 holds great promise for this portfolio and my report highlights the approach we take to ensuring the risks accepted continue to be overseen and managed. I am satisfied that the Risk Committee is discharging its responsibilities proficiently and so recommend this report to the Board.

 

Simon Holden

Chairman of the Risk Committee, Chrysalis Investments Limited

 

Directors' Report

 

The Directors present their Annual Report and the Audited Financial Statements of the Company for the year ended 30 September 2024.

 

Principal Activities and Business Review

 

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 companies.

 

The Directors do not envisage any change in these activities for the foreseeable future. A description of the activities of the Company in the year under review is given in the Chairman's Statement and the Investment Adviser's Report.

 

Business and Tax Status

 

The Company has been registered with the GFSC as a closed-ended investment company under RCIS Rule and Protection of Investors ("POI") Law and was incorporated in Guernsey on 3 September 2018. The Company operates under The Companies (Guernsey) Law, 2008 (the "Law").

 

The Company's shares have a listing and are admitted to trading on the Closed Ended Investment Fund segment of the London Stock Exchange's Main Market for listed securities.

 

The Company's management and administration takes place in Guernsey and the Company has been granted exemption from income tax within Guernsey by the Administrator of Income Tax. It is the intention of the Directors to continue to operate the Company so that each year this tax-exempt status is maintained.

 

In respect of the Criminal Finances Act 2017, which has introduced a new corporate criminal offence of 'failing to take reasonable steps to prevent the facilitation of tax evasion', the Board confirms that they are committed to zero tolerance towards the criminal facilitation of tax evasion.

 

Alternative Investment Fund Managers Directive

 

The Company is a non-EEA-domiciled 'Alternative Investment Fund' ("AIF"), as defined by the Alternative Investment Fund Managers Directive ("AIFMD"). From 1 October2023 to 31 March 2024, the Company was a self-managed AIF and procured portfolio management services from Jupiter Investment Management Limited ("JIML"), under a Portfolio Management Agreement dated 1 July 2022. On 29 January 2024, the Company entered into an AIFM and Advisory Agreement with G1O and CIP LLP respectively. Under this agreement, with effect from 1 April 2024, G10 was appointed as the AIFM to the Company. CIP LLP became Investment Adviser to G10. CIP LLP is an appointed representative of G10 which is authorised and regulated by the Financial Conduct Authority.

 

The AIFMD, as transposed into the FCA Handbook in the UK, requires that certain pre-investment information be made available to investors in AIFs (such as the Company) and that certain regular and periodic disclosures are made.

 

Foreign Account Tax Compliance Act ("FATCA")

 

FATCA requires certain financial institutions outside the United States ("US") to pass information about their US customers to the US tax authorities, the Internal Revenue Service (the "IRS"). A 30% withholding tax is imposed on the US source income and disposal of assets of any financial institution within the scope of the legislation that fails to comply with this requirement.

 

The Board of the Company has taken all necessary steps to ensure that the Company is FATCA compliant and confirms that the Company is registered and has been issued a Global Intermediary Identification Number ("GIIN") by the IRS. The Company will use its GIIN to identify that it is FATCA compliant to all financial counterparties.

 

Common Reporting Standard

 

The Common Reporting Standard is a global standard for the automatic exchange of financial account information developed by the Organisation for Economic Co-operation and Development ("OECD"), which has been adopted in Guernsey and which came into effect in January 2016.

 

The Company is subject to Guernsey regulations and guidance on the automatic exchange of tax information and the Board will therefore take the necessary actions to ensure that the Company is compliant in this regard.

 

Going Concern

 

The Directors have adopted the going concern basis in preparing the Audited 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, the status of global financial markets, various geopolitical events and conflicts, the current macroeconomic climate and other uncertainties impacting on the Company's investments, their financial position and liquidity requirements.

 

At year end, the Company has liquidity including a current cash position of £44,612,000 (2023: £22,626,000), a net current asset position of £44,660,000 (2023: £20,973,000) and liquid listed investments amounting to £2,015,000 (2023: £10,284,000).

 

The Company generates liquidity by raising capital and from exiting investments. It uses liquidity by making new and follow-on investments, paying company expenses and making returns to Shareholders. The Directors ensure it has adequate liquidity by regularly reviewing its financial position and forward-looking liquidity requirements. The Directors' going concern assessment includes consideration of a range of likely downside scenarios which measure the impact on the Company's liquidity of differing assumptions for portfolio valuation, exits, new and follow-on investment requirements, capital raising and company expenses.

 

In accordance with the Company's Articles of Incorporation, at the first annual general meeting of the Company following the fifth anniversary of IPO (such anniversary being 6 November 2023), the Directors proposed an ordinary resolution that the Company continues its business as a closed-ended investment company. At the Company's Annual General Meeting, on 15 March 2024, Shareholders were invited to vote on the continuation of the Company. The Board recommended that Shareholders vote in favour of continuation and such resolution was duly passed. The Directors will now put a further Continuation Resolution to Shareholders at the Annual General Meeting of the Company every three years thereafter.

 

On 24 September 2024, the Company agreed a £70,000,000 debt facility with Barclays Bank PLC which was fully drawn on 1 October 2024. Interest accrues at a market-rate margin plus the daily SONIA rate. The facility matures on 30 September 2026. The purpose of the facility is to cover the Company's working capital requirements and potential follow-on investments. As at the date of this report, the facility continues to be fully drawn.

 

Taking all matters into account, the Directors have a reasonable expectation that the Company will continue in operational existence for at least twelve months from the date of approval of the of the Annual Report and Audited Financial Statements, and continue to adopt the going concern basis in preparing them.

 

Viability Statement

 

The Directors have assessed the viability of the Company over the three-year period to September 2027. The Directors consider that three years is an appropriate period to assess viability given the Company's style of investment and is a sufficient investment time horizon to be relevant to shareholders.

 

Choosing a longer time period can present difficulties, given the lack of longer-term economic visibility and the need for adaptation that this will inevitably create for the Company and its portfolio.

 

In their assessment of the viability of the Company, the Directors have considered the Company's principal and emerging risks and uncertainties, organised into Risk Classes by the Risk Committee (page 47).

 

The Directors have reviewed financial projections which consider:

-      Available liquidity (Risk Class 1: Liquidity Management)

-      The ability of the Company to raise capital (Risk Class 2: Financial/Capital Market)

-      The performance (Risk Class 3: Portfolio Performance) and value of the existing portfolio (Risk Class 11: Valuation)

-      The ongoing expenses of the Company

 

The Directors' considered a severe downside scenario which models:

 

-       A significant economic event, which results in a deterioration of portfolio company performance and a recalibration of public and private markets leading to a compound 25% per annum decrease in the aggregate portfolio value over a three-year economic cycle.

-       The Company honours the committed capital return under the CAP and does not raise further capital

-       Dislocation of public and private markets, including the prolonged closure of the IPO market, resulting in the inability to make portfolio exits.

-       A sustained period of inflation of approximately 10% per annum.

The Directors, having considered the above and having carried out a robust assessment of the principal and emerging risks facing the Company, have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three-year period to September 2027.

 

Results and Dividends

 

The results attributable to shareholders for the year are shown in the Statement of Comprehensive Income.

 

The Directors have not declared a dividend for the year (2023: £nil).

 

Directors

 

The Directors of the Company who served during the year and to date are set out on pages 33 to 38

 

Directors' Interests

 

The Directors held the following interests in the share capital of the Company either directly or beneficially as at 30 September 2024, and as at the date of signing these Audited Financial Statements:

		Number of		% Ordinary Shares in
		Ordinary Shares		issue as at 30 September 2024
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

As at 30 September 2023 the following Directors had holdings in the Company:

 

		Number of		% Ordinary Shares in
		Ordinary Shares		issue as at 30 September 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)		11,170		0.0019

 

 

 

Under their terms of appointment, the Directors' total remuneration (including one-off fees) are as disclosed below:

 

The Directors' compensation is reviewed annually and effective 1 October 2024, each Director is paid a basic fee of £62,500 (2023: £57,500) per annum by the Company. In addition to this, the Chairman will receive an extra £22,500 (2023: £27,500) per annum.

 

Lord Rockley, Diane Seymour-Williams and Jonathan Biggs receive £40,000 each per annum as members of the Valuation Committee. Lord Rockley, Diane Seymour-Williams and Jonathan Biggs are not Directors of the Company.  Effective 1 October 2024, each Valuation Committee member is paid £42,000 per annum.

 

At year end, the Company has liquidity including a current cash position of £44,612,000, a net current asset position of £44,660,000 and liquid listed investments amounting to £2,015,000. This available liquidity would sustain the business over the course of the viability period.

 

A one-off fee was awarded to the Chairman of £nil (2023: £35,000). The Risk Committee Chairman will receive an extra £5,000 (2023: £10,000) per annum and the Audit Committee Chairman will receive an extra £5,000 (2023: £10,000) per annum. Refer to pages 41 and 42 for more information regarding Directors' remuneration.

 

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 and stress testing, which helps position the Company to ensure compliance with the Association of Investment Companies Code of Corporate Governance (the "AIC Code").

 

The principal risks to which the Company will be exposed are given in note 18 to the Annual Report and Audited Financial Statements.

 

The main risks that the Company faces arising from its financial instruments are: