TIDMCHRY
RNS Number : 7260Q
Chrysalis Investments Limited
30 June 2022
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is not for publication, release or distribution in the United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.
30 June 2022
Chrysalis Investments Limited ("Chrysalis" or the "Company")
Interim Results
Financial Summary
31 March 2022 30 September 2021 % Decrease
NAV per share 211.76p 251.96p 16.0%
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Share price 177.00p 267.00p 33.7%
----------------- ------------------ -----------
Total net assets GBP1.260 billion GBP1.379 billion 8.6%
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Highlights
- NAV per share of 211.76p, representing a 16.0% decrease over
the first half of the financial year, driven by weakening
valuations of listed peers in the tech space
- Net realisations of cGBP33 million were generated in the
period, following the sale of Embark Group, net of follow-ons made
in Smart Pension, THG and Sorted
- Private markets have switched focus from growth to
profitability; the Investment Adviser expects investors to become
more selective over the business models they wish to back
- Approximately 40% of the portfolio is already profitable,
including the major unit in Starling Bank; comments by Klarna,
which accounts for c19% of the portfolio, in its 1Q22 report
potentially indicates it is also driving towards break-even
- The Investment Adviser has been working with the unprofitable
companies within the portfolio on refining funding plans and on how
to elongate cash runways. The average cash runway for this group is
approximately 14 months
- The Company has sufficient cash - cGBP55 million as of 27 June
2022 - to extend these runways substantially, assuming it invests
according to its pro rata ownership alongside other investors
- Supporting the existing portfolio will be the Company's
primary objective in this challenging environment; capital
allocation remains under constant review
- As has been previously announced, from 1st July, the Company
will be a self-managed AIFM. The nature of the portfolio advisory
services provided by Jupiter will remain unchanged, as will the
investment team
Andrew Haining, Chair, commented:
"The investment landscape has changed materially over the last
six months with central banks responding to elevated levels of
inflation by tightening monetary policy. Rising yields have
impacted the valuations of long duration assets, with the derating
of growth stocks being particularly marked. The appetite or ability
to provide capital has reduced and, consequently, those investors
who are providers of capital are demanding very attractive terms.
Therefore, Chrysalis has positioned itself with enough capital to
ensure it can support its portfolio appropriately."
Nick Williamson and Richard Watts, co-portfolio managers,
commented:
"Profitability, not growth at any cost, is now the focus as
companies look to extend funding runways. Chrysalis' portfolio
companies have not been immune to this environment, although for
our profitable companies, or those with very strong balance sheets,
the difficult funding market is of less or no concern.
In spite of the difficult backdrop, the portfolio continues to
demonstrate its ability to deliver robust growth and operationally
is performing well in aggregate. With approximately 40% of the
portfolio already profitable, our focus has been working with the
60% that has yet to break even, where we have supported a number of
companies to balance opex budgets with growth aspirations. This has
extended cash runways, which currently average approximately 14
months for this group.
The current cash position allows us to extend the cash runways
of our unprofitable companies by at least a year, should current
conditions persist. The listed portion of the portfolio will
provide potential further liquidity on top of this if needed.
Material falls in listed valuations typically create headwinds
for our near-term NAV progression, but in our experience, shakeouts
of this type also provide opportunities for the best companies to
exploit in the medium term.
While we recognise the current discount to NAV Chrysalis trades
on, our current stance is that we should reserve sufficient capital
to support the existing portfolio while this market dislocation
remains. If and when market conditions allow, or Chrysalis
generates capital, share buybacks or new investments might be
considered."
-S-
For further information, please
contact
Media +44 (0) 7542 846 844
Montfort Communications chrysalis@montfort.london
Charlotte McMullen / Georgia
Colkin / Lesley Kezhu Wang
Jupiter Asset Management:
James Simpson +44 (0) 20 3817 1696
Liberum:
Chris Clarke / Darren Vickers
/ Owen Matthews +44 (0) 20 3100 2000
Numis:
Nathan Brown / Matt Goss +44 (0) 20 7260 1000
Maitland Administration (Guernsey)
Limited:
Elaine Smeja / Aimee Gontier +44 (0) 1481 749364
LEI: 213800F9SQ753JQHSW24
A copy of this announcement will be available on the Company's
website at https://www.chrysalisinvestments.co.uk
The information contained in this announcement regarding the
Company's investments has been provided by the relevant underlying
portfolio company and has not been independently verified by the
Company. The information contained herein is unaudited.
This announcement is for information purposes only and is not an
offer to invest. All investments are subject to risk. Past
performance is no guarantee of future returns. Prospective
investors are advised to seek expert legal, financial, tax and
other professional advice before making any investment decision.
The value of investments may fluctuate. Results achieved in the
past are no guarantee of future results. Neither the content of the
Company's website, nor the content on any website accessible from
hyperlinks on its website for any other website, is incorporated
into, or forms part of, this announcement nor, unless previously
published by means of a recognised information service, should any
such content be relied upon in reaching a decision as to whether or
not to acquire, continue to hold, or dispose of, securities in the
Company.
Chairman's Statement
The six-month period from September 2021 to March 2022 and
through June 2022 has seen a reversal of much of the value growth
seen in our sector over the last couple of years. This downward
movement in asset prices has been driven by a number of macro
forces in the world economy - increased geopolitical risk with the
war in eastern Europe, supply dislocations caused by COVID globally
and Brexit for the UK, reduced availability of skilled labour in
most markets - all coupled with an unwinding of almost universal
central bank expansionary policies. The net result has been to see
inflation return as a concern, central bank interest rates rising
and economies struggling to generate satisfactory growth rates.
Against this backdrop, I am pleased to say that our portfolio
companies continue to generate above average growth rates in their
sectors. Our NAV, which is, for the majority of our investments,
valued using comparable metrics with public company peers, declined
in the period from 251.96p per share to 211.76p per share;
subsequent to the period end, the derating in the key comparables
continues - this is explored in more detail in the Investment
Adviser's report.
Whilst "growth" has seemingly fallen out of favour in stock
market terms, we believe growth in our underlying companies is the
key to driving Chrysalis shareholder value and hopefully our share
price over time. So our focus, and that of the Investment Adviser,
is how to ensure our companies are positioned correctly to continue
to grow in challenging markets and also take advantage of
opportunities that such conditions typically bring.
Given the nature of our portfolio of unlisted investments, the
Company's NAV necessarily provides a snapshot at an historic point
in time and reflects the best estimate of portfolio and Company
value by your Board and its advisers at that time. Given the
profile of a number of our investments, press reports on potential
funding rounds post the quarter end do emerge. For example, two of
our larger investments are rumoured to be raising capital - Klarna
at a discount and Wefox at a premium to our holding values. To the
extent these funding rounds are verified before our next quarterly
valuation, these will be reflected in the next valuation, but it is
not our intention to comment on unverified events.
Given the current market dislocation, the Company has focused
its attention on its existing portfolio as opposed to seeking out
new investments. We firmly believe that investment in our portfolio
during the next 12 to 18 months will ensure that our companies are
best placed to benefit from the cyclical recovery as and when it
comes.
When we consider the outlook for the portfolio, we have in mind
both the relative strengths of our portfolio assets' business
cases, but also their growth and profit potential. Looking across
our investments, we believe we have a number of companies with
market-leading propositions, typically with substantial runways for
growth and high near-term growth potential.
So, despite the recent market uncertainty, on a medium-term
view, we believe the portfolio should be able to drive robust value
creation for our shareholders. The Investment Adviser goes into
much greater detail on both the macro and micro factors affecting
our individual investments in its review. We remain confident that
we have a portfolio of outstanding potential across a number of
tech-enabled sectors. If we can continue to support these
businesses with both strategic guidance, and further capital where
needed, we believe we will be able to build valuable growth into
the portfolio over the medium term.
There are a number of corporate initiatives which your Board has
been pursuing through the first half of this year which we believe
will also assist in generating shareholder value.
Environmental, Social and Corporate Governance Report
("ESG")
I set out in the last set of interims, and in more detail in our
year-end report, the ESG approach the Board wanted to see adopted
both by our companies, and by the Investment Adviser. I would like
to thank Jupiter for its ongoing work in this area.
We firmly believe that in order to grow successfully, companies
and their founders must not only execute strategically; they must
also lay the foundations for future growth by fostering a healthy
corporate culture, a talented and diverse workforce, and creating
appropriate corporate governance structures.
Not only should Chrysalis' investee companies show how they have
minimised their direct and indirect negative impact on the
environment and broader society, they should also be expected to
each demonstrate how they positively contribute solutions to these
global issues.
We have set out in our Environmental, Social and Governance
Report more detail as to how this is both implemented and how it
impacts our investee companies. We were pleased that Jupiter has
allocated a dedicated ESG executive to the portfolio to assist the
investment team and our investee companies.
Self-Management
As has been previously announced, from 1st July, the Company
will be a self-managed AIF. The nature of the portfolio advisory
services provided by Jupiter will remain unchanged, as will the
investment team. The two key reasons for adopting this approach are
efficiency and independence.
The Company will be making savings on the fees it was paying for
the provision of AIFM services by going in-house; the Board will be
using risk and management consultants to assist it to perform the
necessary oversight, but their costs should show a saving over the
current arrangement.
Perhaps more importantly, this self-management approach has
enabled the Board to assemble an independent Valuation Committee,
as previously announced. The three new members of that committee,
Lord Rockley, Diane Seymour Williams and Jonathan Biggs bring
significant and relevant experience to the valuation process. I
would like to take this opportunity of thanking the Jupiter
Unlisted Asset Valuation Committee for their work over the last two
years.
We believe the new approach will enable us to continue to
improve the valuation process. Credibility and confidence in our
valuation process is fundamental to what I believe shareholders
need and expect.
Performance Fee Structure
In last year's annual report, the Board said that it would be
reviewing the management fee arrangements with Jupiter. To assist
these deliberations, it asked Rothschilds to conduct a perception
study of our top 20 investors; I am grateful to those shareholders
for contributing to this work.
The Board has been able to derive useful ideas from that study
and I have had discussions directly with a number of those
shareholders subsequently.
The study confirmed that these shareholders shared the Board's
view of the shortcomings of the existing performance fee structure
and wished to see amendments made. The Board has provided Jupiter
with a framework for how a new arrangement could work, which would
align the payment of any performance fee due to Jupiter with
shareholders more appropriately over the medium term. The Board is
working with Jupiter over the next quarter to finalise this and
aims to provide shareholders with more details prior to the
Company's year end, with the intention that the new arrangement
would operate from the beginning of the next financial year.
Buy Back Policy
The Board has the authority to buy back shares and originally
this was designed to enable distribution of excess capital after
asset liquidations (absent further investment opportunities).
At the current time, both the Board's and Investment Adviser's
firm belief is that the best use of our available capital is to
support the development of our portfolio of assets. This is
elaborated on in our Investment Advisory report.
Our share price has moved in a very similar way to our peer
group and now stands at a significant discount to NAV. Given this
disconnect, buying back shares at a discount is accretive, and
potentially attractive for those shareholders who choose to stay on
the register. However, we believe that greater asset value growth
will occur by the Company being in a position to manage these next
12 to 18 months appropriately. We have to assume that capital
markets stay closed for the foreseeable future and therefore any
available liquid capital should be held for reinvestment, not buy
backs. Moreover, we are seeing the private capital market
fundraising processes quite naturally reflecting the scarcity of
cash with increasingly punitive terms for those investors who
choose not to support their growth companies. Consequently, for
both positive and defensive reasons, we believe deploying capital
in our underlying companies will offer the best value accretion for
all shareholders over time.
Given the exceptionally dynamic nature of current markets,
considerations around our capital allocation decisions are under
regular review.
Finally, I'd like to extend the Board's thanks to our
shareholders for their support. While the current conditions are
proving tricky for growth valuations, I share the Investment
Adviser's confidence in the ability of the portfolio to drive value
over the medium term.
Andrew Haining
Chairman
29 June 2022
Portfolio Statement
As at 31 March 2022 Net invested
/ returned
(GBP'000)
Company Location Opening Fair value Closing
Cost value movements Value % of
(GBP'000) (GBP'000) (GBP'000) (GBP'000) net assets
Starling Bank Limited UK 88,248 210,767 - 48,505 259,272 20.6
Klarna Holding AB Sweden 64,381 386,999 - (145,943) 241,056 19.1
wefox Holding AG Germany 65,624 108,657 - 33,074 141,731 11.2
Smart Pension Limited UK 90,000 88,600 15,000 9,240 112,840 9.0
The Brandtech Group
LLC (formerly You
& Mr Jones LLC) USA 46,440 94,837 - 8,926 103,763 8.2
Graphcore Limited UK 57,589 61,545 - (1,638) 59,907 4.8
Featurespace Limited UK 24,546 34,729 97 5,485 40,311 3.2
Tactus Holdings Limited UK 40,130 40,079 - (346) 39,733 3.2
Wise PLC UK 15,287 108,700 (17,630) (56,420) 34,650 2.7
Cognitive Logic Inc.
("InfoSum") USA 47,126 48,435 - (16,134) 32,301 2.6
Deep Instinct Limited USA 47,289 48,430 - (17,253) 31,177 2.5
Revolution Beauty
Group PLC UK 44,879 41,373 - (10,519) 30,854 2.4
Sorted Holdings Limited UK 27,941 17,705 12,940 (1,455) 29,190 2.3
THG PLC UK 74,018 86,683 15,220 (80,857) 21,046 1.7
Secret Escapes Limited UK 21,509 24,427 - (8,518) 15,908 1.2
Growth Street Holdings
Limited UK 11,372 1,332 (1,240) - 93 0.0
Rowanmoor Group Limited UK 13,363 - 13,363 (13,363) - 0.0
Embark Group Limited UK - 56,900 (70,601) 13,701 - 0.0
Total investments 779,742 1,460,198 (32,851) (233,515) 1,193,832 94.7
Cash and cash equivalents 72,503 5.8
Other net current
liabilities (6,046) (0.5)
----------- ------------
Total net assets 1,260,289 100.0
=========== ============
Investment Adviser's Report
Overview
The first six months of the financial year saw continued robust
revenue growth from our portfolio assets in aggregate. However, the
backdrop of weakening share prices for a number of listed market
peers used by the valuer to assess fair value of our unlisted
holdings, meant that Net Asset Value (NAV) per share fell 16%.
The median revenue growth of the portfolio companies has been
relatively consistent since 2020, at around 40%. However, the
blended revenue growth for the portfolio, weighted by position
size, has been materially better than this, reflecting the fact
that many of our larger holdings are growing more quickly.
As of March 2022, the year-on-year blended revenue growth over
the first half of the Company's year was over 80%, similar to the
level of a year earlier. The 2021 performance was assisted by an
extremely strong performance from Starling Bank, as lending began
to drive revenue growth, which has now annualised out. This has
been partly offset by a first-time contribution from Smart Pension,
which has seen a period of exceptional growth. Our expectation is
that this growth rate could be viewed as "super-normal" and may
attenuate somewhat in the coming periods, but nevertheless, still
represents a very strong performance.
Against a backdrop of increased geopolitical and macroeconomic
stresses, the private market continued to see significant levels of
activity over the period, as shown below.
Given prevailing market conditions, and despite the strong start
to 2022, we expect investors to:
-- become more selective in committing capital over the coming
months, which has already led to a slowdown in funding activity
post period end;
-- put pressure on deal pricing, particularly for assets with
weaker economics; and
-- look to increase the use of investor protections via capital
structuring.
With this in mind, our current focus is on managing liquidity
within the portfolio, to ensure we can support the growth of our
existing units, and react appropriately to any further volatility
in the markets. We explore the market dynamics and our funding
situation in more detail below, but suffice to say we believe we
have sufficient capital to support those of our holdings that are
currently unprofitable for a considerable period, giving
substantial leeway for the current turmoil in investment markets to
abate.
Activity
Activity over the six months was at a more measured pace than
that seen over most of the preceding periods. No new investments
were made, with the focus on follow-on investments - as articulated
in the rationale for our December 2021 fund raise - where we
invested approximately GBP43 million. The largest part of this was
the acquisition of further shares in Smart Pension (approximately
GBP15 million), following very strong progress since our initial
investment, with a similar amount invested in THG - the bulk of
which was undertaken at a price of 195p. In addition, approximately
GBP12.5 million was invested in Sorted, as part of a $40 million
fund raise, to enable the acquisition of Clicksit, which operates
in the US automated returns market. We believe this investment will
meaningfully boost Sorted's addressable market and product
offering.
Against these investments, approximately GBP76 million was
realised, the majority (approximately GBP57 million) coming from
the sale of Embark Group to Lloyds Bank PLC. In addition,
approximately GBP18 million was raised via disposals of Wise -
partly to increase liquidity in light of the war in Ukraine - at an
average sale price of 588p. There were also two separate
realisations from the liquidation process being undertaken at
Growth Street, which netted slightly over GBP1 million, at a
valuation in line with the position's carrying value.
Thus, the Company's investment activities over the period
generated a net capital increase of approximately GBP33 million.
This position was supplemented by the GBP60 million fund raise
undertaken in December, primarily to provide funds to drive
existing portfolios companies via follow-on investments. This takes
the total funds raised by the Company to date to GBP830
million.
Markets and market developments
Equity markets struggled to make significant progress over the
six months to 31 March 2022, driven by concerns over rising yields
as a result of growing inflationary pressures, further exacerbated
later in the period by the war in Ukraine. While many major indices
reported gains, for example the FTSE All Share was up 3.2% and the
tech-heavy NASDAQ recorded a marginal 1% increase, this masked
considerable intra-period volatility, as well as certain rotations
occurring between sectors and themes in the market. One of the most
high-profile of these themes was the weakness of certain technology
names, particularly those that are currently unprofitable.
The Goldman Sachs Non-Profitable Tech Index, which comprises
approximately 60 US technology stocks that have yet to achieve
profitability, fell by approximately 35% over the period.
Logically, the long duration nature of unprofitable companies means
that as yields, and thus discount rates, rise they are more exposed
to valuation pressure than those companies with near-term cash
flows.
Looking at this index as of 31 March 2022 and freezing the index
weights, it is apparent that forecasts for revenue growth for 2022
have actually risen over the six-month period, meaning that
valuation has been the driver of this index performance. We
estimate this performance has led to a contraction in the 2022
EV/sales metric, based on the 31 March 2022 index weights, from
approximately 8 times to less than 6 times.
Post period end, market weakness became more pronounced, with
the NASDAQ falling approximately 24% from the end of March to the
time of writing, and the Goldman Sachs Non-Profitable Tech Index
falling approximately 38%. This means that these two indices are
down approximately 32% and 71% respectively from their peaks and
down 23% and 60% respectively from their 30 September 2021
levels.
What does this mean for Chrysalis?
In answering this question, we would differentiate between the
likely short term and long term impacts.
In the short term, the impact of weaker stock markets is likely
to feed through into valuations for our portfolio assets, given the
requirement for the valuer to determine "fair value" at the
respective valuation dates. This is an effect we have already seen
to some degree, with the Company's NAV as of 31 March 2022 16%
lower than the peak in September 2021, which roughly coincided with
the recent peaks in the NASDAQ and Goldman Sachs Non-Profitable
Tech indices. While we do have protection mechanisms - typically in
the form of capital structuring instruments, which should help to
offset valuation declines - certeris paribas, further falls in
equity markets are likely to have an impact on the Company's
NAV.
Accepting both that we have no way to influence the path of
markets, and that the current environment is definitively worse
than it was even six months ago, our focus is on the long term,
where we can have an impact on the outcome for shareholders.
With much more difficult funding markets now upon us, our long
term focus is on helping our portfolio companies to weather the
storm, and allow them to emerge in the best possible shape.
Experience has taught us that, although current market conditions
are grim, they will pass in time. So, given that there are likely
to be casualties in the market, those companies that can
successfully navigate the current conditions are also likely to
find plenty of opportunities to continue to grow and disrupt.
With that in mind, our focus has been on:
-- ensuring our companies are prepared for tighter funding
conditions; and
-- ensuring Chrysalis has the required capital to assist our
companies across a potentially prolonged period.
The discussions and considerations we have had vary by company,
but, at a high level, the key differentiator is whether a
particular company is profitable, and thus more likely to be
self-sustaining, or not. As of March 2022, approximately 59% of the
portfolio is unprofitable. This includes names such as Klarna,
where the underlying unit economics at maturity are highly
profitable and where it has demonstrated profitability at a group
level historically.
Klarna's decision to expand aggressively in new markets, notably
the US, has driven significant sales growth, but has moved the
company back into losses, as expected. This implies 41% of the
portfolio, however, is profitable. This includes the listed names
as well as our major unit in Starling, which first achieved
profitability in late 2020. Anecdotally, we believe investors are
becoming more discerning about profitability, which is corroborated
by the relative outperformance of many profitable technology names
versus unprofitable ones.
As a result, our main focus has been on the unprofitable
companies in the portfolio, where we have been having discussions
with them over recent months regarding the state of the market, and
what this is likely to mean in terms of availability of capital.
Typically, this results in a discussion about cash "burn" rates and
the resulting cash runways - or how long the current cash position
will last - with a view to looking at ways in which to elongate the
runway, with as little impact on growth as possible. To a large
degree, the tightness that has been in evident in hiring markets,
particularly for software engineers, has meant that companies have
secured staff in advance of their deployment in projects, meaning
that there are efficiencies available. While these are difficult
conversations for founders - who have been used to a growth-focused
environment - to have, this is occurring on an industry wide basis,
and for good reason.
We have also been working on how to best place Chrysalis to
respond to these changing conditions, which primarily centres
around our ability to provide capital. This ranges through a
variety of scenarios, from continuing to help fund growth -
potentially exploiting opportunities that this selloff will
generate - to ensuring we can protect our shareholdings and avoid
dilution in more extreme scenarios, where funding is required to
extend cash runway.
Considering this unprofitable element of the portfolio, the
average cash runway is 14 months. Given the uncertainty over how
long the current environment will persist, we believe it is prudent
to budget conservatively. To do that, we consider each of our
unprofitable companies' cash burn, and what is the likely cash
requirement for one year's extra funding. We can then calculate the
capital commitment that would be needed to maintain the Company's
shareholding, i.e. investing pro rata to its current percentage
ownership, in the event of a funding round. This is particularly
relevant if the funding round is struck at a lower valuation than
previously - a "down round" - as, while the lower valuation is
likely to have a negative impact on our short-term NAV, our ability
to participate will help prevent dilution of the Company's
stake.
On this basis, we believe our current available cash position,
invested pro rata alongside other existing investors, is sufficient
to elongate the runway of all of the companies within the
unprofitable basket for at least one year should they look to raise
capital, and our total liquidity (including our listed assets)
would give at least two years of extra runway, implying over three
years of total runway for these companies, when combined with their
current cash positions.
In our minds, this should provide ample runway for our companies
to transit this moment of particular stress.
Looking more generally, our expectation is that private market
investors will become increasingly discerning in terms of what they
choose to fund and will focus on best-in-class operators. While we
are not complacent about the current conditions, in this regard we
feel well positioned, with many of our portfolio assets,
particularly our larger holdings, such as Klarna, Starling and
wefox, leading their respective market segments.
Outlook
As at 31 March 2022, the Company had approximately GBP72.5
million of cash available for investment, with another GBP86.6
million held in listed assets, giving total potential liquidity of
approximately GBP159.1 million. At the time of writing, the war in
Ukraine is still ongoing, heightening geopolitical and
macroeconomic uncertainty.
In addition, investors are grappling with the likely speed of
tightening monetary policy by central banks, particularly the US
Federal Reserve, to control inflation. As of 30 September 2021, the
market was implying a relatively flat Fed Funds curve, rising from
approximately 10 basis points ("bps") to 75 bps two years out; by
31 March 2022 expectations had risen sharply, to approximately 280
bps two years out. Post period end, they have risen further, to
approximately 340 bps as of late June.
These changes in the yield environment have shifted the primary
driver of valuations away from a company's ability to grow and more
on to its ability to generate cash flow. While long term, we still
believe growth will be one of the key determinants of a business'
terminal valuation, we accept that we must adjust to the current
market conditions, and so too do our companies.
As discussed in the previous section, we believe we have the
capital required to see our portfolio companies through a prolonged
period of stress, and this is our primary consideration. While we
recognise the current share price discount to NAV is significant,
and thus there is a valid question over the possibility of
buybacks, the impact of undertaking the latter on the former must
be considered.
At the current time, we believe undertaking a buyback of a
sufficient quantum to be meaningful, over a sufficient time period
to prove effective, and with sufficient reserve "dry powder" to be
credible, would put at risk our ability to fund our companies,
which could prove highly damaging to the Company's long term
prospects.
In a similar way that many of our portfolio companies are
adjusting to the "new normal", so we have also needed to pivot. The
realities of the current capital position, while being adequate to
protect the hard work since IPO of building out a portfolio of
exciting assets, is that it is not of a sufficient scale to allow
us to either expand the portfolio with new investments or look to
retire a significant quantum of shares.
So saying, our capital allocation process is dynamic and
involves continual reassessment of the best use of our capital
base. This means that buybacks could well become appropriate in
future.
The Company section below gives commentary around how each of
the individual assets has performed. While the market backdrop has
been difficult, we are pleased to report that the portfolio in
aggregate continues to perform very well operationally.
Company section
Starling Bank Limited ("Starling")
Progress at Starling continues to be rapid.
At the start of 2022, the bank had opened over 2.7 million
accounts, including 475,000 small and medium enterprise ("SME")
accounts. The growth in SME accounts is particularly impressive,
given the business bank was only opened in 2018, and has managed to
grow to approximately half the market share of Barclays (by number
of accounts), which was founded over 125 years ago, in a bit over
three years.
Growth in other metrics has also been impressive. As of early
2022, the deposit base was GBP8.4 billion, having grown 75% over
the year, and lending had expanded by over 60% to GBP3.1
billion.
Starling has consistently said it has been profitable since
October 2020 - a rarity among global neobanks - despite operating
at a lowly 37% loan to deposit ratio ("LDR"). The rapid shift in
yield expectations, driven by inflation in the global economy, has
profound implications for banks that have been operating in a low
yield environment for many years.
For Starling, the ramifications are highly significant: the
implied GBP5.3 billion sitting in treasury, and earning minimal
yield over the course of 2021, will begin to generate meaningful
amounts of income, which crucially, is risk-free.
Starling: illustrative impact of rising yields on revenues
GBPbn Jan-22
Deposits 8.4
Loans 3.1
Implied treasury 5.3
LDR 37%
Dec-21 Apr-22 Mar-23
Base rates 0.10% 0.75% 2.50%
Implied treasury revenue (GBPm) 5 40 133
Source: Jupiter and Bloomberg
Looking at market derived base rate expectations, which are
predicted to rise to over 3% by March 2023, compared to the 10bps
experienced since the onset of COVID-19, there is the potential for
Starling to generate over GBP160 million of revenue on an
incremental basis, if it chose to maintain its treasury balances -
in other words, do nothing.
In practice, there should be opportunities to increase lending.
To this end, last year saw the acquisition of Fleet Mortgages
Limited - a Buy-to-Let mortgage originator - to supplement organic
lending undertaken via COVID-19, government backed schemes.
In April 2022, Starling closed a GBP130.5 million funding round.
This means the bank is not only profitable, but also extremely well
funded, and this will provide the capital to explore organic
origination opportunities, in addition to possible forward flow
agreements, and the potential to target the acquisition of select
lending businesses.
Starling is also looking to further develop its Software as a
Service ("SaaS") offering and in the period launched "engine by
Starling". This enables any bank to set up and run a digital bank
efficiently and quickly. An example of this was Standard
Chartered's use of Starling's technology to launch its new green
savings product, Shoal. In our view, this opens up an exciting new
avenue for generating shareholder returns, by investing in the
types of recurring revenues streams that investors typically value
highly.
Klarna Holding AB ("Klarna")
Klarna continued to exhibit strong growth over 2021, driven by
the success of the US market. The compound annual growth rate
("CAGR") in Gross Merchant Value ("GMV") was 27% between 2017 to
2019, reflecting the period before the US expansion strategy was
implemented. Post the focus on the US, which Chrysalis helped to
fund over two capital raises in 2019 and 2020, group growth has
accelerated to a CAGR of over 50% between 2019 and 2021.
Over the year, US GMV rose more than threefold, we believe
substantially outperforming US credit card originations. For
example, Mastercard US payments volumes (excluding cash) grew at
29% over 2021 - rebounding from a contraction caused by COVID-19 in
2020. This implies that Klarna's US growth was at least seven times
as fast as Mastercard's, and likely quicker.
This was achieved while tightly controlling credit losses. While
the rate of impairment (as a percentage of GMV) rose in 2021 to
67bps (equivalent to approximately USD500m) from 56bps in 2019,
much of this increase came from volume growth in new markets,
including the US. Expansion in the US was anticipated to attract
higher loss rates, so this was not unexpected (credit losses as a
percentage of GMV in the US have begun to moderate and are down 60%
as a percentage of GMV since 2019, despite a fivefold increase in
the number of customers). Adjusting for this new market effect, and
improved underwriting on mature markets, losses (based on 2019
volumes) would have fallen to 36bps.
In May 2022, Klarna detailed its 1Q22 results, which saw GMV
growth of a more modest 19% - reflecting the fact it was lapping a
very strong comparative from 1Q21, and likely some throttling of
credit. Given the change in market sentiment, Klarna said it will
be making some job cuts and will balance its focus on profitability
versus growth more evenly, which we believe is a sensible response
to the current market environment.
We believe these comments will mark a turning point in Klarna's
financial performance, and could see the company move towards
profitability during 2023. Looking back at 2021, a significant
investment in opex, as well as an increase in impairments, drove
the company further into loss. Of these, the increase in non-staff
opex was the biggest driver, being the largest element of the cost
base and seeing the largest increase year-on-year: over 2021,
non-staff opex almost doubled to over $1.3 billion.
Our assumptions regarding Klarna's ability to move into profit
are:
-- revenues grow at a compound rate of 25% over 2022 and 2023 -
a conservative level versus recent history, but roughly in line
with 1Q22;
-- the cost cutting measures that Klarna is looking to enact
this year limit non-staff opex to roughly the same level in 2023 as
in 2021;
-- 10% staff opex cuts are achieved; and
-- impairments trend back towards their historical levels.
The impact of these changes would mean Klarna could be at a
point of breakeven in 2023, as illustrated below.
If Klarna is able to achieve breakeven in 2023, and it should be
remembered that it has been profitable for most of its existence,
prior to tackling the US, in our view this would substantially
transform the perception of the company in the eyes of the
market.
wefox Holding AG ("wefox")
Following a record $650 million Series C funding round in June
2021, wefox has continued to scale rapidly. The company has more
than doubled its annual turnover every year since its inception in
2015 and reported revenues of over $300 million in 2021. wefox has
successfully expanded across channels, as well as across
geographies, and is now present in five territories across Europe.
The company has indicated that it will increase its presence in
Europe in 2022 and look to expand into both Asia and the US in the
medium term.
Over the past few months, listed InsureTech assets such as
Lemonade, Hippo and Root Inc. have materially derated. The extent
of that derating has been exacerbated by the fact that each of
these companies is heavily loss-making, with an apparently long
path to profitability. The direct insurance model - where companies
sell straight to consumers - that they operate currently is
hampered by unit economics that are compromised by high loss ratios
and customer acquisition costs; the combined ratio makes it
virtually impossible to generate a profit and a huge amount of
capital is therefore required to reach scale.
wefox operates a very different business model to these peers,
and it is the reason why we initially invested in the business and
why the company is on track to reach profitability. wefox focuses
on digitising indirect distribution channels (advisers, brokers and
affinity partners) which in total represent 90% of its target
markets. Lower customer acquisition costs through indirect
acquisition and lower loss ratios through targeted selection is
allowing the company to scale quickly internationally, at superior
unit economics.
As a result, wefox is gaining market share in its core markets,
which, along with its offering's ease of use, is allowing it to
grow rapidly.
Smart Pension Limited ("Smart")
2021 was an exceptional year for Smart with a number of notable
achievements, including the continued rollout of technology
partnerships with financial institutions in the US, Ireland and
Dubai; securing a cornerstone technology transformation contract in
Hong Kong; and growing revenue by +300% year-on-year.
Originally set up to provide a digital solution to pension
auto-enrolment in the UK, Smart realised its technology platform
was applicable internationally, especially as many countries face
similar savings problems as the UK: an aging population that has
not saved enough. This has pushed other countries to consider
auto-enrolment schemes of their own.
Over the course of 2022, Smart completed the strategic
acquisition of the US managed account provider, Stadion Money
Management, further bolstering its product capabilities in the
world's largest defined contribution market. Smart will also be
launching organically with a small plan focused 401k offering later
in the first half of 2022, targeting the five million US workers
who currently lack access to a workplace saving plan.
As of March 2022, nearly two million savers have entrusted over
GBP4 billion in assets to the Smart Platform (+150% growth
year-on-year), and the company anticipates seeing a significant
acceleration in the near term, through continued growth of the
captive Smart Master Trust and the licensing of technology to
leading insurers, banks and asset managers in the UK and core
international territories (USA, Australia and the Middle East).
To date, outside of the US, Smart's international expansion
includes a programme in Ireland to deliver a bespoke Platform as a
Service (PaaS) offering to New Ireland Assurance; an employee
workplace savings scheme in Dubai for 22,000 members in partnership
with Zurich; and an agreement to tackle the Australian market with
Link Group.
As a result of numerous avenues for growth, Smart expects to end
2022 with approximately $10 billion (GBP8 billion) of AUM on its
platform.
The Brandtech Group LLC (formerly You & Mr Jones LLC)
You & Mr Jones was renamed The Brandtech Group LLC
("Brandtech") earlier this year and aims to help businesses do
their marketing better, faster and cheaper using technology. The
Brandtech is now a global market leader in content in-housing and
is delivering enterprise-level marketing solutions for some of the
world's biggest brands, including Unilever, Google, Adidas,
Microsoft, LVMH, Danone, Uber and Reckitt Benckiser.
The company generated 27% and more than 50% organic net revenue
growth in 2020 and 2021 respectively, and recently reported
on-going strong growth into 1Q22; we consider these rates of growth
to be market leading.
Total growth has been boosted by selective M&A and Brandtech
recently acquired DP6, which is Latin America's leading marketing
technology and data company, and Acorn-i, an ecommerce SaaS
platform.
DP6 is based in Brazil and delivers technology and data
solutions for many of the region's largest businesses as well as
numerous global brands, including Carrefour, CNN, BASF, Nubank and
Whirlpool. The company provides technology and data expertise, from
data measurement to media attribution, data science, AI-powered
analytics, and content optimisation.
Acorn-i helps brands to market on ecommerce platforms,
particularly Amazon where it helps companies to improve advertising
effectiveness and search engine optimisation.
Brandtech generated more than $500 million in revenues in 2021
and we now consider the company to be a global platform. In 2019,
David Jones described the business as "strongly profitable" and we
believe EBITDA margins in this sector typically range from 15% to
25%. Brandtech is well positioned to serve enterprise clients at
scale, and this is critical given the emergence of digitisation and
other technologies and trends such as AI, Blockchain and the
Metaverse.
Graphcore Limited ("Graphcore")
Technical progress at Graphcore continues to be impressive.
Following on from its strong showing in the MLPerf industry measure
of comparative benchmark testing, which showed a significant
advantage (between 1.3x-1.6x) for Graphcore over incumbent Nvidia
on a performance-per-dollar basis, the company has recently
released new hardware.
The third-generation system, called Bow, is the first chip ever
to feature wafer-on-wafer technology, which allows a significant
improvement in performance, at greater efficiency. Bow contains
1,472 independent cores that can allow 9,000 separate programmes to
be run at the same time, for true parallel computing.
Performance gains in the industry are key, as model sizes have
been rising aggressively. When we first invested in late 2018,
models contained about 330 million parameters. Fast forward to
today, and models of up to one trillion parameters are on the
cards. Bow also increases the performance advantage over Nvidia's
comparable machines, with a fivefold decrease in time to train and
a tenfold lower total cost of ownership.
The company has greater ambitions in the pipeline. Graphcore is
working on an Ultra Intelligence Machine alongside several
technology third parties, that will be able to handle up to 500
trillion parameters.
While both the hardware and software have come on significantly
since our initial investment, the company now needs to demonstrate
that it can successfully commercialise its products widely across
the market.
Featurespace Limited ("Featurespace")
Featurespace continued to demonstrate strong growth over the
first half, with considerable sales traction, driven by its
award-winning product.
As evidence of the quality of its offering it:
-- won the Next Generation Payments award in the 2021 FinTech Rankings;
-- was recognised as Best-in-Class among fraud and AML (Anti
Money Laundering) machine learning platforms by Aite-Novarica
Group;
-- won "Best Technology Initiative" via Worldpay's Fraudsight
(powered by Featurespace) at the 2022 Cards & Payments Awards;
and
-- was a finalist in the 2021-22 Cambridge Independent Science
and Technology Awards for AI Company of the Year and Technology
Company of the Year.
This enabled the company to win over 70 new customers, both
directly and indirectly, over the course of last year, including
Marqeta and eftpos - Australia's debit card system, which handled
over 2 billion card transactions in 2020. NASDAQ listed Marqeta -
which provides a cloud-based card issuing platform to customers
that include Klarna - partnered with Featurespace to deliver
real-time decisioning for card transactions to help manage payment
fraud and allow customers to monitor and modify rules as threats
develop.
The global market for fraud detection and prevention is expected
to grow at a CAGR of over 20% from 2022 to 2029, supporting our
expectation of on-going strong growth from Featurespace,
particularly given the quality of its offering.
Tactus Holdings Limited ("Tactus")
The gaming industry is now the largest and fastest growing form
of entertainment globally, with the gaming PC market rapidly
expanding as more gamers, from casual players to e-sports
professionals, immerse themselves in their own virtual communities.
As a leading provider of own and third-party branded custom gaming
PCs, component parts, equipment, and accessories, Tactus is ideally
positioned to benefit from these structural dynamics.
Tactus is looking to strengthen its position in the gaming and
technology sector and has completed a number of acquisitions over
the last twelve months including PC gaming specialist CCL, coding
and robotics firm pi-top, B2B IT hardware provider BIST Group and
award winning PC gaming brand Chillblast. More recently, Tactus
announced the acquisition of online gaming and technology retailer
Box.
Box is an online retailer of consumer technology and specialist
devices, with a customer base across the UK and Europe. Founded in
1996, the company had grown to over GBP100 million of revenues in
2021.Box takes the group's headcount to over 350 individuals and
its purpose built 120,000 sq ft logistics centre significantly
expands the scale of Tactus' supply chain and operations across the
UK and beyond, while providing enhanced capacity to accommodate
future growth.
As a result of organic growth and this significant acquisition
activity, Tactus has experienced very strong revenue growth over
the course of the last year.
Wise PLC ("Wise")
Since successfully listing on the London Stock Exchange in July
2021, Wise has continued to trade well. The company reported strong
financials during the period and has consistently exceeded market
guidance.
Wise released its 3Q trading update (for the quarter to December
2021) on 19 January which demonstrated strong financial and
operational progress since the Initial Public Offering ("IPO").
Over 4 million customers transacted on Wise over the period with
the number of active personal customers increasing +26%
year-on-year to 4.1 million while the number of active business
customers increased +39% year-on-year to 250,000. Volume grew +38%
year-on-year to GBP20.6 billion (driven by customer growth and
volume per customer growth) and revenues grew +34% year-on-year and
+13% quarter-on-quarter to GBP149.8 million (broadly in line volume
growth). Sequential volume added was GBP2.6 billion, which was more
than double some consensus estimates (approximately GBP1.2
billion), representing the highest level of sequential volume ever
added quarter-on-quarter. Following the trading update, Wise
increased its full year revenue guidance to +30% (from mid-to-high
20s at H1) which we view as highly encouraging.
Wise has a relentless focus on customer service and user
experience, and we have been pleased to see that the company has
continued to invest in these areas. The time it takes to complete a
transfer continues to improve with 40% of all transfers delivered
instantly. At the same time, Wise continues to make transfers more
convenient, and customers can now send money to India using their
smartphones, without needing to know their recipients bank details.
The launch of "Assets" in the UK gives customers a potential return
on their Wise cash balance by holding it in a different asset
classes.
Wise's business proposition is also improving. Business
customers can now attach notes to card transactions, delegate
tasks, approve payments and assign spending limits to accountants
and team members. Business customers can also get verified quicker
with 98% of verification tasks resolved within 24 hours.
Cognitive Logic Inc. ("InfoSum")
Despite Google's decision to delay its self-imposed deadline to
deprecate third-party cookies in its Chrome browser, InfoSum is
benefitting from many structural tailwinds that are also driving
the purchasing decisions of prospective clients. The launch of App
Tracking Transparency by Apple in April 2021 and regulatory changes
such as GDPR in the UK and CCPA in the US are making it
increasingly difficult for brands and publishers alike to gather
information on consumers, and thus to target specific cohorts.
These tailwinds have led to the emergence and increased momentum
of data clean rooms - secure environments where Personally
Identifiable Information can be anonymised and processed to gain
insights into customer cohort behaviours, in a privacy-compliant
way - in recent months. Disney publicly announced a data clean room
solution in October 2021 for advertisers, harnessing more than one
thousand first-party data segments to boost measurement and
campaign insights, using InfoSum as a partner. InfoSum also
announced a partnership with The Trade Desk in an effort to scale
its clean room network.
InfoSum continues to expand internationally and, in the first
half of the year, the company announced that it has entered
Germany, Italy, Australia and New Zealand. We recognised the scale
of the opportunity globally for InfoSum at the point of investment
and are encouraged by the company's progress in these
jurisdictions.
Deep Instinct Limited ("Deep Instinct")
Deep Instinct's review of the cyber security market over 2021
makes for sobering reading. While the rate of growth in one of the
highest profile threats, ransomware, has slowed since its peak over
COVID-19, it still recorded an approximate 16% increase over the
year in incidences. However, there was a 125% increase in all
threat types combined, confirming that the post COVID-19 level of
cyber-attack activity is significantly elevated compared with those
in existence pre the pandemic.
A number of the attacks are now focusing on short-duration,
high-impact events. Notable was the breach at Colonial Pipelines,
which caused a halt to operations for several days, triggering
major disruption across the US and an increase in gas prices.
Events like this demonstrate the importance of cybersecurity to
combat an increased prevalence of attack.
In terms of the efficacy of its offering, Deep Instinct took
part in the MITRE Engenuity ATT&CK Evaluations for the first
time. MITRE Engenuity is a tech foundation set up for the public
good, and Deep Instinct was pleased to announce a 100% prevention
score against simulated attacks in the vein of two well know
malicious threat groups.
With strong market growth and a product boasting greater than
99% zero-day accuracy, we believe Deep Instinct is excellently
positioned to grow strongly in the coming years. In terms of
commercial development, the partnership with Tanium, announced in
late 2021, could be highly significant. Tanium is trusted by nearly
half of the Fortune 100 to give visibility and control over their
endpoints and offers another route for Deep Instinct to
go-to-market.
Revolution Beauty Group PLC ("Revolution Beauty")
Revolution Beauty's share price has been reasonably resilient
over the period, considering market conditions, (albeit post period
end it suffered more significant declines) and we are highly
encouraged by the trading performance of the business, particularly
versus many other retailers.
The company released a trading update for its year to the end of
February 2022, which was broadly in line with market expectations.
Revenues were GBP194 million over the year, which compared to
analysts' consensus of approximately GBP198 million, and
represented a growth rate of 42% year-on-year.
We consider this to be positive progress given the tough
backdrop and a volatile trading environment. Adjusted EBITDA of
GBP22 million implies a growth rate of 73% year-on-year and a
margin of 11.3%; the margin for FY21 was 8.6%.
The strength of Revolution Beauty's financial results
demonstrates the resilience of the omnichannel model. For example,
UK store sales grew +85% year-on-year as high street footfall
recovered post-pandemic and Makeup Revolution was launched in Boots
stores. Similarly, Rest-of-World ("ROW") stores were +79%
year-on-year with ROW now representing 35% of the global business.
Retail stores currently represent 79% of the sales mix.
The USA is now Revolution's biggest single market at 20% of
sales and delivered sales growth of +27% for the full year. This
growth was achieved against a strong FY21 comparator, where Makeup
Revolution was rolled out across Target stores for the first
time.
At a share price of 82p, Revolution Beauty currently trades on
1.0x FY23 revenue and 8.0x EBITDA. We view these multiples as
particularly undemanding and are still seeing private beauty
businesses that generate strong rates of organic growth transact at
4-7x revenues.
Our original thesis on Revolution Beauty therefore remains
unchanged: we still think management is capable of doubling
revenues over a 3-5-year period and we believe that there is
rerating potential in the medium term; this should contribute to a
strong IRR for Chrysalis.
Sorted Holdings Limited ("Sorted")
As Sorted looks to enter its next stage of growth, a decision
was made to recruit a new CEO and senior leadership team. In
October 2021, Sorted announced Carmen Carey, who has been a
Non-Executive Director on Sorted's board of directors for the past
two years, as its new CEO. Carmen has a strong SaaS background and
was previously CEO at Brady Technologies, Big Data Partnership and
ControlCircle and COO at Metapack (a major carrier platform
competitor to Sorted).
Other key appointments made include an interim COO, the Vice
President of Product, and Vice President of Sales. The company also
appointed Colin Tenwick as its new chairman, who currently serves
as non-executive chairman of ecommerce platform Wowcher.
The company closed a Series C funding round of $40 million in
December 2021, which enabled it to acquire Clicksit, an automated
returns company. This acquisition marks Sorted's continued
expansion into the US market and will also enable the group to
target the Small and Mid-sized Business ("SMB") market. Returns are
a crucial step in the customer journey and Clicksit will enable
Sorted to provide a complete delivery experience platform to both
enterprise and SMB clients.
We note that Sorted saw a +137.5% increase in UK shipment volume
in 2021 year-on-year through its returns platform, which highlights
both the continued growth in ecommerce and Sorted's ability to win
market share.
THG PLC ("THG")
THG's share price performance has been disappointing over the
period, driven by both negative sentiment towards the company and
due to wider ecommerce sector issues.
Elevated shipping, freight and labour costs hit margins through
H2 2021, but the company has continued to report double-digit
organic growth - despite very strong sales growth in the comparable
period in 2020 - and good progress has been made scaling Ingenuity,
the company's proprietary technology platform.
For the financial year ending 31 December 2021, Group revenues
increased +35% year-on-year to GBP2.2 billion. On a two-year basis,
THG has grown revenues +95%; effectively doubling the size of the
business. Revenues have been driven organically and through
selective M&A. Acquisitions such as Dermstore, Cult Beauty and
Bentley Laboratories, which are the three largest acquisitions
since IPO, enhance the THG Beauty offering; provide additional
scale to its US operations; and increase control of the supply
chain through vertical integration.
Adjusted EBITDA rose to GBP161 million over the same period,
which implies a margin of 7.4%. This compares against an adjusted
EBITDA margin of 9.3% in FY20, and reflects the substantial cost
headwinds the company faced in the second half of 2021. This is a
trend we have witnessed across the sector and broader economy, with
commodity inflation, foreign exchange movements, increased cost of
labour, and freight and duty having an impact on profitability. We
believe that these headwinds will ease through H2 2022 and that THG
is still capable of generating an adjusted EBITDA margin of 9-10%
in the medium term, consistent with the expectations set out by the
company at the point of IPO.
THG's monetisation of its Ingenuity platform has been a central
part of our investment thesis, and considerable progress has been
made from a standing start a few years ago. Ingenuity Commerce
revenues increased +135% year- on-year through FY21 to GBP45.4
million, with FY22 revenue guidance increased from GBP90 million to
approximately GBP110 million in the Q3 2021 trading update. A
record number of customers were signed in H2 2021 and the Ingenuity
operational infrastructure and technology platform is now powering
an expansive list of global brands across a range of sectors, and
the number of third-party websites on the platform more than
doubled during over 2021.
Ingenuity ecommerce revenue development 2018-2022E
Secret Escapes Limited ("Secret Escapes")
Secret Escapes has continued to develop its customer proposition
over the past twelve months with an increased focus on the
"Always-on Hotel-Only" offering, which has resonated well with
customers. The company has also developed its website and
smartphone application further and these initiatives appear to be
driving key performance indicators and unit economics.
However, the trading environment for the business has been
extremely challenging since the onset of the COVID-19 Pandemic in
early 2020 since when booking patterns and consumer behaviour have
remained volatile and difficult to predict. Secret Escapes has
taken proactive measures to embed operational efficiencies, and
this has proven effective at driving profitability when bookings
have improved. Frustratingly, a series of travel restrictions and
the war in Ukraine have perpetuated the "stop-start" environment
since the start of the pandemic, masking the benefits of this
improved operating model.
Secret Escapes has got a very strong customer proposition and
has more recently proven its ability to generate robust profit
margins from a much lower revenue base. This has given us increased
confidence in the outlook of the business. As demand-side shocks
ease, we believe the business has a strong chance of realising its
potential.
Growth Street Holdings Limited
The company is currently going through the final stages of
liquidation. Chrysalis has already received most of the expected
proceeds from the liquidation of the business and this is reflected
in the carrying value of the asset.
Embark Group Limited / Rowanmoor Group ("Embark")
During the period Embark was sold to Scottish Widows Group
Limited, a subsidiary of Lloyds Banking Group plc for
GBP390 million. Chrysalis received net cash proceeds of GBP57
million as part of the transaction which implies a cash-on- cash
return of 2.1x from the date of our initial investment in July
2019. This deal represents a great outcome for our shareholders and
a key milestone for Chrysalis, given that it is the company's first
full realisation.
When Chrysalis first invested in Embark, the platform was
approaching scale and had approximately GBP16 billion of Assets
under Administration ("AuA"). Through selective M&A, Embark was
able to scale AuA to over GBP35 billion which drove revenues and
profitability and resulted in the asset becoming strategically
valuable to a number of incumbent self-invested personal pension
administrators. This highlights the importance of being able to
provide follow-on capital and the extent to which we can maximise
value and drive returns across our portfolio.
Chrysalis maintains an interest in the Rowanmoor SIPP and SSAS
administration business. Due to ongoing issues in the business the
investment has a zero carrying value.
Environmental, Social and Corporate Governance Report
The role of ESG in our investment process
Chrysalis provides primary capital to innovative and disruptive
businesses. Although no new investments were made during the
period, we have continued to implement the ESG policy established
by the Board and Investment Adviser to enhance the systematic
integration of ESG analysis across the portfolio.
The investment team continues to engage with portfolio company
leadership teams and provide input on how to meet their strategic
objectives, as well as discussing broader governance and
sustainability topics. We have also developed a dashboard of
metrics we use to track our companies' ESG performance and
development.
We firmly believe that in order to grow successfully, companies
and their founders must not only execute their strategies; they
must also lay the foundations for future growth by fostering a
healthy corporate culture, a talented and diverse workforce and
creating appropriate corporate governance structures. They must
also seek to minimise any direct and indirect negative impact on
the environment and broader society.
As investors with decades of experience in investing in public
markets, we believe we are well-placed to advise companies not only
on their growth strategy, but also on their ESG development as they
prepare to be acquired by a strategic buyer, or IPO.
The portfolio
From an ESG perspective, the type of businesses we invest in are
likely to be significant job creators, with positive spill over
effects elsewhere in the economy. We estimate that Chrysalis
companies have collectively increased their headcount by over
13,600 employees since the initial date of our investment,
illustrating the powerful second order effects of the primary
capital we deploy. We are pleased that many of the jobs created are
in the UK.
The current portfolio includes many companies which provide
solutions to urgent business problems with broader societal costs -
such as fraud, cyber risks, data privacy and affordable pension
provision - or which disrupt highly profitable financial services
incumbents and share cost savings with consumers. The demand to
reduce these broader societal costs are a crucial driver which
underpins the long-term growth story of these investments.
We also have investments in other consumer-facing companies
which are taking tangible steps to enhance the sustainability
profile of their operations, using techniques such as ethical
sourcing of raw materials, reduced freight emissions and building
circular economy principles into their manufacturing capabilities.
We support these strategies and believe they will translate into a
stronger brand proposition and a closer relationship with customers
over time, while mitigating a range of risks posed by changing
customer preferences and future regulatory costs.
Tracking performance
Number of Percentage
Metric portfolio companies of AUM
Scope 1 & 2 Greenhouse Gas Emissions ("GHG")
calculated 8/15 63%
--------------------- -----------
Net zero commitment made 5/15 53%
--------------------- -----------
Independent board chair 6/15 48%
--------------------- -----------
Female CEO 3/15 26%
--------------------- -----------
Average proportion of women in senior leadership 24% N/A
roles (CEO and direct reports)
--------------------- -----------
We have developed an internal dashboard of metrics we use to
assess our portfolio companies' ESG performance. This data is
collected directly from our private investee companies or sourced
from the sustainability disclosures of our listed holdings. It
covers a broad range of environmental, social and governance
factors drawing on recognised public sustainability frameworks and
the stewardship experience of the investment adviser.
We use the metrics to assess each company's ESG performance
relative to its level of corporate development and maturity. We
incorporate insights gained into our dialogue with company
leadership teams in order to assist their continued development.
The data also provides us with a baseline for the sustainability
characteristics of the portfolio, and a set of criteria with which
to assess potential new investments. We will continue to develop
the metrics and will use the data to provide our clients with
increased transparency on the sustainable characteristics of their
portfolio. For example, the majority of our portfolio companies
have calculated their operational (Scope 1 and 2) GHG emissions. We
encourage all remaining portfolio companies to measure and reduce
their emissions and we intend to disclose the weighted average
carbon intensity of our portfolio once the underlying data is
available.
Our stewardship approach
Stewardship is an important responsibility and a core aspect of
our investor approach. We aim to partner with companies for the
long-term and assist them on their respective journeys to become
the best businesses that they can be. The structure of Chrysalis
suits this approach: the permanence of its capital, compared with
fixed life funds, gives us the ability to continue to fund growth
post initial investment, and as such we remain actively engaged and
well-positioned to influence companies on ESG and other topics.
There is a continuous process of dialogue with the leadership
teams of our investee companies. Our ability to influence companies
varies depending on the size of our shareholding and whether we
have board observer status and access to management information.
Where we have a board seat or board observer status, we attend
board meetings of investee companies and provide our input where we
believe we can advise companies on how to meet their strategic
objectives. This includes regular dialogue on ESG related topics.
Our dialogue with companies where we do not have direct access to
management information will typically take place via regular
meetings with management.
The leadership teams of our portfolio companies recognise the
importance of ESG to the long-term success of their businesses. A
particular focus of our recent dialogue has been the importance of
embedding ESG principles and creating an open and inclusive culture
in order to attract and retain a highly skilled and diverse
workforce, in an environment where the competition for talent is
fierce.
We are encouraged by this alignment with our own perspective and
will continue to report on our activities in this area in
future.
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 and the Cayman Stock
Exchange). Further, the Company shall be permitted to invest in
unquoted subsidiaries of companies whose parent or group entities
have listed equity or debt securities.
The Company 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. Further, there may be circumstances where the ownership
of a portfolio company exceeds 50% of voting and/or economic
interests in that portfolio company notwithstanding an initial
investment in a minority position. While the Company does not
intend to focus its investments on a particular sector, there is no
limit on the Company's ability to make investments in portfolio
companies within the same sector if it chooses to do so.
The Company will seek to ensure that it has suitable investor
protection rights through its investment in portfolio companies
where appropriate.
The Company may acquire investments directly or by way of
holdings in special purpose vehicles, intermediate holding vehicles
or other fund or similar structures.
Investment restrictions
The Company will invest and manage its assets with the objective
of spreading risk, as far as reasonably practicable. No single
investment (including related investments in group entities) will
represent more than 20% of Gross Assets, calculated 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 as at the time of investment.
Subject in all cases to the Company's cash management policy,
the Company's aggregate investment in notes, bonds, debentures and
other debt instruments (which shall exclude for the avoidance of
doubt convertible debt, equity-related and equity-linked notes,
warrants or equivalent instruments) will represent no more than 20%
of the Gross Assets, calculated as at the time of investment.
The Company will not be required to dispose of any investment or
rebalance its portfolio as a result of a change in the respective
value of any of its investments.
B oard Members
The Board comprises six independent non-executive Directors (of
whom one third are female) and meets at least quarterly, in
addition to ad hoc meetings convened in accordance with the needs
of the business, to consider the Company's affairs in a prescribed
and structured manner. All Directors are considered independent of
the Investment Adviser for the purposes of the Association of
Investment Companies Code of Corporate Governance (the "AIC Code")
and Listing Rule 15.2.12A.
The Board is responsible for the Company's long term sustainable
success and the generation of value for shareholders and in doing
so manages the business affairs of the Company in accordance with
the Articles of Incorporation, the investment policy and with due
regard to the wider interests of stakeholders as a whole.
Additionally, the Board have overall responsibility for the
Company's activities including its investment activities and
reviewing the performance of the Company's portfolio. The Board are
confident that the combination of its members is appropriate and is
such that no one individual or small group of individuals dominates
the Board's decision making.
The Directors, in the furtherance of their duties, may take
independent professional advice at the Company's expense, which is
in accordance with provision 19 of the AIC Code. The Directors also
have access to the advice and services of the Company Secretary
through its appointed representatives who are responsible to the
Board for ensuring that the Board's procedures are followed, and
that applicable rules and regulations are complied with.
To enable the Board to function effectively and allow the
Directors to discharge their responsibilities, full and timely
access is given to all relevant information.
Comprehensive board papers are circulated to the Board in
advance of meetings by the Company Secretary, allowing time for
full review and comment by the attending parties. In the event that
Directors are unable to attend a particular meeting, they are
invited to express their views on the matters being discussed to
the Chairman in advance of the meeting for these to be raised
accordingly on their behalf. Full and thorough minutes of all
meetings are kept by the 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 bring a wealth of skills, experience and
knowledge to the Company as illustrated in their biographies
below:
Director Biographies
Andrew Haining (Chairman) (independent)
Andrew has had a 31-year career in banking and private equity
with Bank of America, CDC (now Bridgepoint) and Botts &
Company. During his career, Andrew has been responsible for over 20
private equity investments with transactional values in excess of
$1 billion.
Andrew holds several Guernsey and UK board positions.
Stephen Coe (senior independent)
Stephen serves as Chairman of the Audit Committee. He is
currently a Non-Executive Director of River and Mercantile UK Micro
Cap Investment Company Limited. Stephen has been involved with
offshore investment funds and managers since 1990, with significant
exposure to property, debt, emerging markets and private equity
investments. Stephen qualified as a Chartered Accountant with Price
Waterhouse Bristol in 1990 and remained in audit practice,
specialising in financial services, until 1997. From 1997 to 2003
Stephen was a director of the Bachmann Group of fiduciary companies
and Managing Director of Bachmann Fund Administration Limited, a
specialist third party fund administration company. From 2003 to
2006 Stephen was a director with Investec in Guernsey and Managing
Director of Investec Trust (Guernsey) Limited and Investec
Administration Services Limited. Stephen became self-employed in
August 2006, providing services to financial services clients.
Simon Holden (independent)
Simon, a Guernsey resident, brings board experience from both
private equity investing and portfolio company operations roles at
Candover Investments and then Terra Firma Capital Partners. Since
2015, Simon has been an independent director to listed alternative
investment companies, private equity funds and trading company
boards including pro-bono roles to the States of Guernsey
overseeing infrastructure critical to the Island including the
airport, harbours and two maritime fuel supply vessels.
Simon is a Chartered Director (CDir) accredited by the UK
Institute of Directors, graduated from the University of Cambridge
with an MEng and MA in Manufacturing Engineering and is an active
member of UK and Guernsey fund management interest groups.
Anne Ewing (independent)
Anne has over 35 years of financial services experience in
banking, asset and fund management, corporate treasury, life
insurance and the fiduciary sector. She has an MSc in Corporate
Governance, is a Chartered Fellow of the Securities Institute and
has held senior roles in Citibank, Rothschilds, Old Mutual
International and KPMG and latterly has been instrumental in the
start-ups of a Guernsey fund manager and two fiduciary
licensees.
Anne has several non-executive directorships roles in investment
companies and a private wealth banking and trust company group in
the Channel Islands and in London.
Tim Cruttenden (independent)
Tim is Chief Executive Officer of VenCap International plc, a
UK-based asset management firm focused on investing in venture
capital funds. He joined VenCap in 1994 and is responsible for
leading the strategy and development of the firm. Prior to joining
VenCap, Tim was an economist and statistician at the Association of
British Insurers in London. He received his Bachelor of Science
degree (with honours) in Combined Science (Economics and
Statistics) from Coventry University and is an Associate of the CFA
Society of the UK. Tim is a non-executive director of Polar Capital
Technology Trust.
Margaret O'Connor (independent)
Margaret has had a 30-year career building value in technology
companies across the US, Asia, Africa, and Europe as an operator,
corporate executive, and investor. She currently Chairs the Launch
Africa Venture Fund, the Investment Committee of Five35 Ventures
and a Fintech. She's an active member of the Private Equity Women
Investor Network (PEWIN.org) and gender lens investment
networks.
Prior to this, she was a Silicon Valley VC-funded MarketingTech
entrepreneur and a founding member of the MasterCard Asia Pacific
management team in Singapore and the MasterCard Global New
Technology Communications group in New York. She earned her BA from
Rutgers University and studied International Relations at Princeton
University before moving to Seoul, Korea in 1987 to work for the
Korean Ministry of Finance.
Interim Management Report
For the 6 month period ended 31 March 2022
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 Alternative Investment Fund Manager ("AIFM") 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 AIFM monitors the risk profile of the Company. The AIFM also
maintains a risk management process to identify, monitor and
control risk concentration.
The Board's responsibility for conducting a robust assessment of
the principal and emerging risks is embedded in the Company's risk
map, which helps position the Company to ensure compliance with the
Association of Investment Companies Code of Corporate Governance
(the "AIC Code").
The main risks that the Company faces arising from its financial
instruments are:
(i) market risk, including:
- Price risk, being the risk that the value of investments will
fluctuate because of changes in market prices;
- interest rate risk, being the risk that the future cash flows
of a financial instrument will fluctuate because of changes in
interest rates; and
- foreign currency risk, being the risk that the value of
financial assets and liabilities will fluctuate because of
movements in currency rates.
(ii) credit risk, being the risk that a counterparty to a
financial instrument will fail to discharge an obligation or
commitment that it has entered with the Company.
(iii) liquidity risk, being the risk that the Company will not
be able to meet its liabilities when they fall due. This may arise
should the Company not be able to liquidate its investments.
(iv) company failure, being the risk that companies invested in
may fail and result in loss of capital invested.
To manage such risks the Company shall comply with the
investment restrictions and diversification limits provided for in
the Prospectus.
The Company will invest and manage its assets with the objective
of spreading risk. Further to the investment restrictions
discussed, the Company also seeks to manage risk by:
-- not incurring debt over 20% of its NAV, calculated at time of
drawdown. The Company will target repayment of such debt within
twelve months of drawdown; and
-- entering from time to time into hedging or other derivative
arrangements for the purposes of efficient portfolio management,
managing where appropriate, any exposure through its investments to
currencies other than Sterling.
Emerging risks
On 24 February 2022, Russia launched a military invasion of
Ukraine. In response, sanctions have been imposed on key Russian
institutions, businesses and individuals by major world powers
including the US, UK and the EU. Russia is a major exporter of oil,
gas, and coal while both Russia and Ukraine are major exporters of
grain.
The Company's portfolio has very limited exposure to the Russian
and Ukrainian markets and so the sanctions imposed, as a result of
the Russian invasion, are not expected to have a material impact.
Certain portfolio companies have withdrawn services from the
Russian market, a move which the Investment Adviser supports.
Notwithstanding this, certain investee companies are exposed to the
wider economic headwinds resulting from the invasion, but the
Investment Adviser remains confident about the resilience of the
portfolio in aggregate to continue to grow and has sufficient
liquidity to support these companies to deliver their business
plans.
In response to this emerging risk, the Directors have carried
out a robust assessment of the Company's processes for monitoring
operating costs, share price discount, the Investment Adviser's
compliance with the investment objective and policy, asset
allocation, the portfolio risk profile, counterparty exposure,
liquidity risk and financial controls. At 31 March 2022, the
Company had cash and cash equivalents of GBP72,503,000 and net
current assets of GBP66,457,000. Therefore, the Company is able to
settle its liabilities and continue its business with no
interruptions.
The Board will of course continue to assess the position as the
nature of the conflict evolves.
The Directors continue to monitor the evolution of the Covid-19
pandemic and consider the potential impact of new variants as they
emerge. Having weathered the worst of the pandemic the Board still
believes the portfolio is well positioned from a thematic
perspective and the strategy of the Company remains unchanged.
Going Concern
In assessing the going concern basis of accounting, the
Directors have assessed the guidance issued by the Financial
Reporting Council and considered recent market volatility, the
potential impact of COVID-19 virus, uncertainties surrounding
Russia's invasion of Ukraine and sanctions that have been imposed
on key Russian institutions, businesses and individuals by major
world powers including the US, UK and the EU, on the Company's
investments.
After making enquiries and bearing in mind the nature of the
Company's business and assets, the Directors consider that the
Company has adequate resources to continue in operational existence
for at least twelve months from the date of approval of the
Unaudited Condensed Interim Financial Statements. For this reason,
they continue to adopt the going concern basis in preparing the
Unaudited Condensed Interim Financial Statements.
At 31 March 2022, the Company had cash and cash equivalents of
GBP72,503,000 and net current assets of GBP66,457,000. Therefore,
the Company has sufficient liquidity to meet its obligations. For
this reason, the Directors continue to adopt the going concern
basis in preparing the Interim Report and Unaudited Condensed
Interim Financial Statements.
Important events and financial performance
Highlights from financial year to date are as follows:
Ordinary Shares
31 March 2022
Highlights
Net Asset Value per share 211.76p
Share Price 177.00p
% of capital deployed 95%
The table below provides bi-annual performance information:
Date NAV % change in
per share price
30.09.20 160.97 17.3% increase on 30 June 2020 NAV
31.03.21 206.15 28.1%
30.09.21 251.96 22.2%
31.03.22 211.76 (16.0)%
The net loss for the six month period ended 31 March 2022
amounted to GBP220,585,000.
Further details of the Company's performance for the period are
included in the Investment Adviser's Report on pages 5 to 21, which
includes a review of investment activity and adherence to
investment restrictions.
Discount
As at 31 March 2022, the share price was trading at a discount
to the last published NAV per share at that point of 30 September
2021.
Related party transactions
Details of related party transactions are given in note 15 to
the Unaudited Condensed Interim Financial Statements.
Statement of Directors' Responsibilities
The Directors confirm that to the best of their knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU; and
-- the interim management report (which includes the Chairman's
Statement, Interim Management Report and the Investment Adviser's
Report) includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of financial statements, and a description of
the principal or emerging risks and uncertainties for the remaining
six months of the financial year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the financial year and that have materially
affected the financial position or the performance of the entity
during that period and any changes in the related party
transactions described in the last annual report that could do
so.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website, and for the preparation and dissemination of the
condensed set of financial statements. Legislation in Guernsey
governing the preparation and dissemination of the condensed set
financial statements may differ from legislation in other
jurisdictions.
Stephen Coe
Director
29 June 2022
Independent Review Report to Chrysalis Investments Limited
Conclusion
We have been engaged by Chrysalis Investments Limited (the
"Company") to review the condensed set of financial statements in
the half-yearly financial report for the six months ended 31 March
2022 of the Company which comprises the unaudited condensed
statement of comprehensive income, the unaudited condensed
statement of financial position, the unaudited condensed statement
of changes in equity, the unaudited condensed statement of cash
flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
March 2022 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules (the "DTR") of the
UK's Financial Conduct Authority (the "UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement letter to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Barry Ryan
for and on behalf of KPMG Channel Islands Limited
Chartered Accountants, Guernsey
29 June 2022
Unaudited Condensed Statement of Comprehensive Income
For the 6 month period ended 31 March 2022
Period from Period from
1 October 2021 1 October 2020
to to
31 March 2022 31 March 2021
(unaudited) (unaudited)
Notes Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investments
Net (losses) / gains
on investments held
at fair value through
profit or loss 10 - (233,515) (233,515) - 249,691 249,691
Gains on currency
movements - 5 5 - 216 216
-------- ---------- ---------- -------- --------- ---------
Net investment (losses)
/ gains - (233,510) (233,510) - 249,907 249,907
======== ========== ========== ======== ========= =========
Interest income 60 - 60 508 - 508
Gain on settlement
of financial liability 5 - 17,907 17,907 - - -
-------- ---------- ---------- -------- --------- ---------
Total income 60 17,907 17,967 508 - 508
======== ========== ========== ======== ========= =========
Investment management
and
performance fees 5 (3,304) - (3,304) (1,820) (49,339) (51,159)
Other expenses 6 (1,726) - (1,726) (1,856) - (1,856)
-------- ---------- ---------- -------- --------- ---------
(Losses) / gains
before finance costs
and taxation (4,970) (215,603) (220,573) (3,168) 200,568 197,400
Finance costs (12) - (12) (45) - (45)
-------- ---------- ---------- -------- --------- ---------
(Losses) / gains
before taxation (4,982) (215,603) (220,585) (3,213) 200,568 197,355
Tax expense - - - - - -
Total (losses) /
gains and comprehensive
income for the period (4,982) (215,603) (220,585) (3,213) 200,568 197,355
======== ========== ========== ======== ========= =========
(Losses) / gains
per
Ordinary Share (pence) 7 (0.87) (37.85) (38.72) (0.81) 50.32 49.51
The total column of this statement represents the Unaudited
Condensed Statement of Comprehensive Income of the Company prepared
under IAS 34.
The supplementary revenue and capital return columns are
prepared under guidance published by the Association of Investment
Companies ("AIC").
All items in the above statement derive from continuing
operations.
The notes on pages 35 to 57 form an integral part of these
Unaudited Condensed Interim Financial Statement.
Unaudited Condensed Statement of Financial Position
As at 31 March 2022
31 March 30 September
2022 2021
GBP'000 GBP'000
Notes (unaudited) (audited)
Non-current assets
Investments held at fair value through
profit or loss 10 1,193,832 1,460,198
Current assets
Cash and cash equivalents 72,503 49,794
Other receivables 135 427
------------ -------------
72,638 50,221
Total assets 1,266,470 1,510,419
------------ -------------
Current liabilities
Performance fee payable 5 - (112,077)
Management fee payable 5 (5,085) (3,333)
Other payables (1,096) (1,075)
Loan payable 9 - (15,000)
Total liabilities (6,181) (131,485)
Net assets 1,260,289 1,378,934
============ =============
Equity
Share Capital 11 860,890 758,950
Capital reserve 417,817 633,420
Revenue reserve (18,418) (13,436)
Total equity 1,260,289 1,378,934
============ =============
Net Asset Value per Ordinary Share
(pence) 12 211.76 251.96
Number of Ordinary Shares in issue 11 595,150,414 547,273,076
Approved by the Board of Directors and authorised for issue on
29 June 2022 and signed on their behalf:
Stephen Coe
Director
The notes on pages 35 to 57 form an integral part of these
Unaudited Condensed Interim Financial Statements.
Unaudited Condensed Statement of Changes in Equity
For the 6 month period ended 31 March 2022
Share Revenue Capital
capital reserve reserve Total
2022 2022 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000
For the period 1 October
2021
to 31 March 2022 (unaudited)
At 1 October 2021 758,950 (13,436) 633,420 1,378,934
Share issue 102,614 - - 102,614
Share issue costs (674) - - (674)
Total losses and comprehensive
loss for the period - (4,982) (215,603) (220,585)
At 31 March 2022 860,890 (18,418) 417,817 1,260,289
========= ========= ========== ==========
Share Revenue Capital
capital reserve reserve Total
2021 2021 2021 2021
GBP'000 GBP'000 GBP'000 GBP'000
For the period 1 October
2020
to 31 March 2021 (unaudited)
At 1 October 2020 370,367 (5,134) 176,810 542,043
Share issue 395,000 - - 395,000
Share issue costs (6,188) - - (6,188)
Total gains / (losses)
and comprehensive
income for the period - (3,213) 200,568 197,355
At 31 March 2021 759,179 (8,347) 377,378 1,128,210
========= ========= ========== ==========
The notes on pages 35 to 57 form an integral part of these
Unaudited Condensed Interim Financial Statements.
Unaudited Condensed Statement of Cash Flows
For the 6 month period ended 31 March 2022
Period from Period from
1 October 1 October
2021 to 2020 to
31 March 31 March
2022 2021
Notes GBP'000 GBP'000
(unaudited) (unaudited)
Cash flows from operating activities
Interest paid (12) (45)
Other expense payments 13 (54,520) (82,054)
Interest income 60 508
Purchase of investments 10 (42,817) (45,058)
Sale of investments 10 75,668 12,028
Net cash outflow from operating
activities (21,621) (114,621)
------------ ------------
Cash flows from financing activities
Issue of Ordinary Shares 11 59,999 395,000
Share issue costs 11 (674) (6,188)
(Repayment) / Proceeds of loan payable (15,000) 15,000
Net cash inflow from financing activities 44,325 403,812
------------ ------------
Net increase in cash and cash equivalents 22,704 289,191
Cash and cash equivalents at beginning
of period 49,794 15,559
Net gains on cash currency movements 5 216
Cash and cash equivalents at end
of period 72,503 304,966
============ ============
Cash and cash equivalents comprise
of the following:
Cash at bank 72,503 304,966
72,503 304,966
============ ============
The notes on pages 35 to 57 form an integral part of these
Unaudited Condensed Interim Financial Statements.
Notes to the Unaudited Condensed Interim Financial
Statements
For the 6 month period ended 31 March 2022
1. Reporting Entity
Chrysalis Investments Limited (the "Company") is a closed-ended
investment company, registered in Guernsey on 3 September 2018,
with registered number 65432. The Company's registered office is
3rd Floor, 1 Le Truchot, St Peter Port, Guernsey GY1 1WD.
The Company is a Registered Closed-ended Collective Investment
Scheme regulated by the Guernsey Financial Services Commission
("GFSC"), with reference number 2404263, pursuant to the Protection
of Investors (Bailiwick of Guernsey) Law 2020, as amended and the
Registered Closed-ended Investment Scheme Rules 2015.
The Company's 595,150,414 shares in issue (of which 47,877,338
shares were issued during the period raising gross cash proceeds of
GBP59,999,000) under ticker CHRY, SEDOL BGJYPP4 and ISIN
GG00BGJYPP46 have a premium listing and are admitted to trading on
the London Stock Exchange's Main Market for listed securities. The
Unaudited Condensed Interim Financial Statements of the Company are
presented for the 6 month period ended 31 March 2022. The Company
invests in a diversified portfolio consisting primarily of equity
and equity-related securities issued by unquoted companies. The
Company became a FTSE 250 company on 23 March 2021.
The Company and its Alternative Investment Fund Manager received
investment advice from Jupiter Investment Management Limited
("JIML") during the 6 month period ended 31 March 2022. The
administration of the Company is delegated to Maitland
Administration (Guernsey) Limited ("MAGL") (the
"Administrator").
2. Significant accounting policies
(a) Basis of accounting
The Unaudited Condensed Interim Financial Statements have been
prepared on a going concern basis in accordance with IAS 34 Interim
Financial Reporting as adopted by the EU, and applicable Guernsey
law. These Unaudited Condensed Interim Financial Statements do not
comprise statutory Financial Statements within the meaning of the
Companies (Guernsey) Law, 2008, they do not include all of the
information required for full annual financial statements and
should be read in conjunction with the financial statements of the
Company as at 30 September 2021, which were prepared in accordance
with International Financial Reporting Standards as adopted by the
EU ("IFRS"). The accounting policies adopted in these Unaudited
Condensed Interim Financial Statements are consistent with those of
the previous financial period and the corresponding interim
reporting period, except for the adoption of new and amended
standards as set out below.
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for investment companies issued by
the Association of Investment Companies ("AIC") updated in April
2021 is consistent with the requirements of IFRS, the Directors
have sought to prepare the Unaudited Condensed Interim Financial
Statements on a basis compliant with the recommendations of the
SORP.
(b) Going concern
The Directors have adopted the going concern basis in preparing
the Unaudited Condensed Interim Financial Statements.
In assessing the going concern basis of accounting, the
Directors have assessed the guidance issued by the Financial
Reporting Council and considered recent market volatility, the
potential impact of COVID-19 virus, uncertainties surrounding
Russia's invasion of Ukraine and sanctions that have been imposed
on key Russian institutions, businesses and individuals by major
world powers including the US, UK and the EU on the Company's
investments. After making enquiries and bearing in mind the nature
of the Company's business and assets, the Directors consider that
the Company has adequate resources to continue in operational
existence for at least twelve months from the date of approval of
the Unaudited Condensed Interim Financial Statements. For this
reason, they continue to adopt the going concern basis in preparing
the Unaudited Condensed Interim Financial Statements.
At period end, the Company has a current cash position of
GBP72,503,000 and net current assets of GBP66,457,000. Therefore,
the Company has sufficient liquidity to meet its obligations. For
this reason, the Directors continue to adopt the going concern
basis in preparing the Interim Report and Unaudited Condensed
Interim Financial Statements.
(c) Segmental reporting
The chief operating decision maker is the Board of Directors.
The Directors are of the opinion that the Company is engaged in a
single segment of business with the primary objective of investing
in securities to generate capital growth for shareholders.
Consequently, no business segmental analysis is provided.
The key measure of performance used by the Board is the Net
Asset Value of the Company (which is calculated under IFRS).
Therefore, no reconciliation is required between the measure of
profit or loss used by the Board and that contained in these
Unaudited Condensed Interim Financial Statements.
(d) Taxation
The Company has been granted exemption from liability to income
tax in Guernsey under the Income Tax (Exempt Bodies) (Guernsey)
Ordinance, 1989 amended by the Director of Income Tax in Guernsey
for the current period. Exemption is applied and granted annually
and subject to the payment of a fee, currently GBP1,200.
3. Use of estimates and critical judgements
The preparation of Unaudited Condensed Interim Financial
Statements in accordance with IFRS requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the Unaudited Condensed Interim
Financial Statements and the reported amounts of income and
expenses during the period. Actual results could differ from those
estimates and assumptions.
The estimates and underlying assumptions are reviewed on an
ongoing basis. There were no significant accounting estimates or
significant judgements in the current period, except for the use of
estimates in the valuation of the unquoted investments detailed in
note 14.
4. New and revised standards
The following accounting standards and their amendments were in
issue at the period end but will not be in effect until after this
financial period end. The Directors have considered their impact
and have concluded that they will not have a significant impact on
the Unaudited Condensed Interim Financial Statements.
Amendments to following standards
-- IAS 1 - Presentation of Financial Statements
Classification of Liabilities as Current or Non-current:
Narrow-scope amendments to IAS 1 to clarify how to classify debt
and other liabilities as current or non-current.
Effective date - 1 January 2023
-- IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors
Definition of Accounting Estimates: The amendments clarify how
companies should distinguish changes in accounting policies from
changes in accounting estimates, by replacing the definition of a
change in accounting estimates with a new definition of accounting
estimates.
Effective date - 1 January 2023
-- IAS 12 - Income Taxes
Deferred Tax related to Assets and Liabilities arising from a
Single Transaction: The amendment clarifies how a company accounts
for income tax, including deferred tax, which represents tax
payable or recoverable in the future.
Effective date - 1 January 2023
-- IAS 37 - Provisions, Contingent Liabilities and Assets
Onerous Contracts-Cost of Fulfilling a Contract: The amendments
specify which costs should be included in an entity's assessment
whether a contract will be loss-making.
Effective date - 1 January 2022
-- IFRS 9 - Financial Instruments
Annual Improvements to IFRS Standards 2018-2020: The amendment
clarifies which fees an entity includes when it applies the '10 per
cent' test in assessing whether to derecognise a financial
liability.
Effective date - 1 January 2022
5. Investment management fees
1 October 1 October
2021 2020
to 31 March to 31 March
2022 2021
GBP'000 GBP'000
Investment management fee 3,304 1,820
Investment Adviser's performance fee -
charged to capital - 49,339
Total investment management fees 3,304 51,159
============ ============
Jupiter Unit Trust Managers Limited ("JUTM") is the Alternative
Investment Fund Manager ("AIFM"). JUTM has sub delegated portfolio
management to Jupiter Investment Management Limited ("JIML") which
is a member of the same group. From 1 July 2022 the Company will
become a self-managed AIF and will procure portfolio management
services directly from JIML.
Management fee
The monthly management fee is equal to 1/12 of 0.5% of the Net
Asset Value (the "Management Fee"). The management fee is
calculated and paid monthly in arrears.
If at any time the Company invests in or through any other
investment fund or special purpose vehicle and a management fee or
advisory fee is charged to such investment fund or special purpose
vehicle by JUTM or any of its Associates and is not waived, the
value of such investment will be excluded from the calculation of
NAV for the purposes of determining the management fee.
As at 31 March 2022, an amount of GBP5,085,000 (30 September
2021: GBP3,333,000) was outstanding and due to JUTM in respect of
management fees.
Performance fee
In accordance with an agreement between the Company and JUTM
dated 29 November 2021 (the "Agreement"), the Company settled 54%
(GBP60,522,000) of the performance fee due to JUTM for the year
ended 30 September 2021 in ordinary shares issued by the Company.
The remaining 46% (GBP51,555,000) of the performance fee amount was
settled in cash.
The value of the 22,667,415 ordinary shares issued under the
Agreement on 28 January 2022 was GBP42,615,000. The difference
between the value of the liability settled through the issuance of
ordinary shares and the value of the shares issued on 28 January
2022, being GBP17,907,000, is recognised within gains on settlement
of financial liability within the Unaudited Condensed Statement of
Comprehensive Income in the period ended 31 March 2022.
For the year ended 31 September 2022, a performance fee may be
payable, the sum of which is equal to 20% of the amount by which
the Adjusted Net Asset Value at the end of a Calculation Period
exceeds the higher of: (i) the Performance Hurdle; and (ii) the
High Water Mark (the "Performance Fee"). The calculation period for
the current period will be the period commencing on 1 October 2021
and ending on 30 September 2022 (the "Calculation Period").
Adjusted Net Asset Value at the end of a Calculation Period
shall be the audited NAV in Sterling at the end of the relevant
Calculation Period:
(i) plus an amount equal to any accrued or paid performance fee
in respect of that Calculation Period or any prior Calculation
Period;
(ii) plus an amount equal to all dividend or other income
distributions paid to shareholders that have been declared and paid
on or prior to the end of the relevant Calculation Period;
(iii) minus the amount of any distribution declared in respect
of the Calculation Period but which has not already reduced the
audited NAV;
(iv) minus the Net Capital Change where the Net Capital Change
is positive or, correspondingly, plus the Net Capital Change where
such net Capital Change is negative (which for this purpose
includes the Net Capital Change in the relevant Calculation Period
and each preceding Calculation Period); and
(v) minus any increase in the NAV during the Calculation Period
attributable to investments attributable to C shares prior to the
conversion of those C shares.
"Performance Hurdle" means, in relation to the Calculation
Period, (A multiplied by B) + C where:
"A" is 8% (expressed for the purposes of this calculation as
1.08) (calculated as an annual rate and adjusted to the extent the
Calculation Period is greater or shorter than one year).
"B" is:
(i) in respect of the first Calculation Period, the Net Issue Proceeds; or
(ii) in respect of each subsequent Calculation Period, the sum
of this calculation as at the end of the immediately preceding
Calculation Period: plus (where sum is positive) or minus (where
such sum is negative) the Net Capital Change attributable to shares
issues and repurchases in all preceding Calculation Period (the
amount in this paragraph (b) being the "Aggregate NCC"), in each
case, plus (where such sum is positive) or minus (where such sum is
negative) the sum of:
(x) in respect of each share issue undertaken in the relevant
Calculation Period being assessed, an amount equal to the Net
Capital Change attributable to that share issue multiplied by the
sum of the number of days between admission to trading of the
relevant shares and the end of the relevant Calculation Period
divided by 365 (such amount being the "issue adjustment");
minus
(y) in respect of each repurchase or redemption of shares
undertaken in the relevant Calculation Period being assessed, an
amount equal to Net Capital Charge attributable to that share
purchase or redemption multiplied by the number of days between the
relevant disbursement of monies to fund such repurchase or
redemption and the end of the relevant Calculation Period divided
by 365 (such amount being the "reduction adjustment").
"C" is the sum of:
the issue adjustment for the Calculation Period;
the reduction adjustment for the Calculation Period; and
the Aggregate NCC multiplied by -1.
"Net Capital Change" equals I minus R where:
"I" is the aggregate of the net proceeds of any share issue over
the relevant year (other than the first issue of ordinary shares);
and
"R" is the aggregate of amounts disbursed by the Company in
respect of the share redemptions or repurchases over the relevant
period.
"High Water Mark" means the Adjusted Net Asset Value as at the
end of the Calculation Period in respect of which a performance fee
was last earned or if no performance fee has yet been earned, an
amount equal to the Net Issue Proceeds (as such term is defined in
the prospectus); and
"Calculation Period" means each twelve-month period ending on 30
September, except that the first Calculation Period shall be the
period commencing on Admission and ending on 30 September 2019.
Under the terms of the portfolio management agreement, any
accrued and unpaid performance fees will crystallise and become
payable to JUTM upon certain termination events.
The accrued performance fee shall only be payable by the Company
to the extent that the Payment Amount is greater than the sum of
the performance fee (which shall both be calculated as at the end
of each Calculation Period) and, to the extent that the Payment
Amount is less than the sum of the performance fee for that
Calculation Period, an amount equal to the difference shall be
carried forward and included in the performance fee calculated as
at the end of the next Calculation Period (and such amount shall be
paid before any performance fee accrued at a later date).
"Payment amount" is the sum of:
(i) aggregate net realised profits on investments since the
start of the relevant Calculation Period; plus
(ii) an amount equal to each IPO investment unrealised gain
where the initial public offering of the relevant investment takes
place during the relevant Calculation Period; plus or minus (as
applicable)
(iii) an amount equal to the listed investment value change
attributable to that calculation period; plus
(iv) the aggregate amount of all dividends or other income
received from investments of the Company in that Calculation Period
(other than investments made pursuant to the cash management policy
of the Company as stated in the Investment Policy).
No performance fee is payable out of the assets attributable to
any C Shares in issue from time to time.
As at 31 March 2022, the Company had not exceeded the High Water
Mark and Performance Hurdle therefore an accrual of GBPnil (30
September 2021: GBP112,077,000) for performance fees has been
reflected within these Unaudited Condensed Interim Financial
Statements.
6. Other expenses
1 October 1 October
2021 to 31 2020 to 31
March March
2022 2021
GBP'000 GBP'000
Directors' fees 164 218
Directors' expenses 3 -
Administration fee 141 95
Arrangement fees - 160
AIFM fee 298 96
Auditor's remuneration for:
- audit fees 64 68
- non-audit fees 23 107
Secretarial fees 19 18
Printing fees 11 34
Registrars' fees 21 21
Listing fees 22 127
FCA fees 10 8
Legal fee and professional fees:
- ongoing operations 610 742
- purchases 204 53
Depositary fees 50 32
Directors' liability insurance 33 24
Sundry 53 53
1,726 1,856
============ ============
7. (Losses) / gains per Ordinary Share
31 March 2022 31 March 2021
Net return Per share Net return Per share
GBP'000 pence GBP'000 pence
Revenue return (4,982) (0.87) (3,213) (0.81)
Capital return (215,603) (37.85) 200,568 50.32
At 31 March (220,585) (38.72) 197,355 49.51
=========== ============ =========== ============
Weighted average number
of Ordinary Shares 569,677,684 398,561,496
============ ============
The return per share is calculated using the weighted average
number of ordinary shares.
8. Dividends
The Board has not declared an interim dividend (6 months ended
31 March 2021: GBPnil).
9. Loan payable
31 March 30 September
2022 2021
GBP'000 GBP'000
Barclays Bank PLC - 15,000
========= =============
During the prior financial year, the Company entered into a
revolving loan facility with Barclays Bank PLC. The facility had an
interest rate of LIBOR +2.5%. The outstanding loan, of
GBP15,000,000, was repaid in full on 15 October 2021 and the
facility has subsequently been terminated.
10. Investments held at fair value through profit or loss
31 March 30 September
2022 2021
GBP'000 GBP'000
Opening book cost 758,013 404,480
Opening investment holding unrealised
gains 702,185 201,807
Opening valuation 1,460,198 606,287
Movements in the period / year
Purchases at cost 56,620 380,199
Sales - proceeds (89,471) (94,707)
Net (losses) / gains on investments held
at fair value
through profit or loss (233,515) 568,419
Closing valuation 1,193,832 1,460,198
================ =============
Closing book cost 779,742 758,013
Closing investment holding unrealised
gains 414,090 702,185
Closing valuation 1,193,832 1,460,198
================ =============
1 October 1 October 1 October
2021 2020 2020
to 31
March to 30 September to 31 March
2022 2021 2021
GBP'000 GBP'000 GBP'000
Movement in unrealised gains
during the period / year 105,232 501,083 237,652
Movement in unrealised (losses)
/ gains during the period
/ year (393,327) (705) 4,521
Realised gain on sale of
investments 54,580 68,041 7,518
Net (losses) / gains on
investments held at fair
value through profit or loss (233,515) 568,419 249,691
========== ================ =============
Included within purchases and sales above is an amount of
GBP13,363k which was contributed into Rowanmoor. The contribution
was deducted from the gross proceeds of the Embark sale.
11. Share capital
No of
shares GBP'000
Ordinary Shares at no par value
Opening balance as at 1 October 2020 336,742,424 370,367
Issue of shares 210,530,652 395,000
Issue costs - (6,417)
At 30 September 2021 547,273,076 758,950
============ ========
Opening balance as at 1 October 2021 547,273,076 758,950
Issue of shares 47,877,338 102,614
Issue costs - (674)
At 31 March 2022 595,150,414 860,890
============ ========
The holders of Ordinary Shares have the right to receive notice
of and attend, speak and vote in general meetings of the Company.
They are also entitled to participate in any dividends and other
distributions of the Company.
Included within the value of the issue of shares is
GBP42,615,000 relating to the settlement of the performance fee
payable at 30 September 2021 (see Note 5).
12. Net Asset Value per Ordinary Share
The Net Asset Value per Ordinary Share and the Net Asset Value
at the period end calculated in accordance with the Articles of
Incorporation were as follows:
31 March 2022 30 September 2021
NAV NAV NAV NAV
per share attributable per share attributable
pence GBP'000 pence GBP'000
Ordinary Shares: basic
and diluted 211.76 1,260,289 251.96 1,378,934
The Net Asset Value per Ordinary Share is based on 595,150,414
(2021: 547,273,076) Ordinary Shares, being the number of Ordinary
Shares in issue at the period end.
13. Other expenses payments
31 March 30 September
2022 2021
GBP'000 GBP'000
Total (losses) / gains and comprehensive
income
for the period / year (220,585) 448,308
Net losses / (gains) on investments held
at fair value
through profit or loss 233,515 (568,419)
Other income (17,907) -
Interest income (60) (851)
Finance costs 12 238
Forex (gains) / losses (5) 42
Movement in working capital
Decrease / (increase) in other receivables 292 (160)
(Decrease) / increase in payables (49,782) 82,855
(54,520
At 31 March 2022 ) (37,987)
========== =============
14. Financial instruments and capital disclosures
The Company's activities expose it to a variety of financial
risks; market risk (including other price risk, foreign currency
risk and interest rate risk), credit risk and liquidity risk.
The Unaudited Condensed Interim Financial Statements do not
include all financial risk management information and disclosures
required in the annual financial statements; they should be read in
conjunction with the Company's Audited Financial Statements as at
30 September 2021.
The Company measures fair values using the following hierarchy
that reflects the significance of the inputs used in making the
measurements. Categorisation within the hierarchy has been
determined on the basis of the lowest level input that is
significant to the fair value measurement of the relevant assets as
follows:
Level 1 - Quoted prices (unadjusted) in active markets for
identical assets or liabilities.
An active market is a market in which transactions for the asset
or liability occur with sufficient frequency and volume on an
ongoing basis such that quoted prices reflect prices at which an
orderly transaction would take place between market participants at
the measurement date. Quoted prices provided by external pricing
services, brokers and vendors are included in Level 1, if they
reflect actual and regularly occurring market transactions on an
arm's-length basis.
Level 2 - Inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from
prices).
Level 2 inputs include the following:
-- quoted prices for similar (i.e., not identical) assets in
active markets;
-- quoted prices for identical or similar assets or liabilities
in markets that are not active. Characteristics of an inactive
market include a significant decline in the volume and level of
trading activity, the available prices vary significantly over time
or among market participants or the prices are not current;
-- inputs other than quoted prices that are observable for the
asset (for example, interest rates and yield curves observable at
commonly quoted intervals); and
-- inputs that are derived principally from, or corroborated by,
observable market data by correlation or other means
(market-corroborated inputs).
Level 3 - Inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
At 31 March 2022 Level Level Level Total
1 2 3
GBP'000 GBP'000 GBP'000 GBP'000
Quoted equity 86,550 - - 86,550
Unquoted equity - - 1,107,282 1,107,282
86,550 - 1,107,282 1,193,832
========= ======== ========== ==========
Level Level Level
At 30 September 2021 1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Quoted equity 236,756 - - 236,756
Unquoted equity / Convertible
debt - - 1,223,442 1,223,442
236,756 - 1,223,442 1,460,198
========= ======== ========== ==========
The following table shows the valuation techniques used for
Level 3 fair values, as well as the significant unobservable inputs
used for Level 3 items:
Unlisted Investments 2022
Fair Value Valuation Significant Range Sensitivity Sensitivity to changes
as at 31 Technique Unobservable % in significant unobservable
March 2022 Inputs inputs
(GBP000s)
------------------ ------------------- ---------- ----------- ---------------------------------
Selection
of comparable If input comparable company
companies performance changed by +/-
Comparable 10%, the value of the companies
Company Price/2022E 2.68x in this group would change
259,272 performance revenue multiples - 26.90x 10% by +/- 25,927,185
------------------ ------------------- ---------- ----------- ---------------------------------
EV/LTM EBITDA
multiples
and LTM If revenue/EBITDA multiples
changed by +/- 10%, the
Market approach 2022E, 2023E value of the companies in
using comparable EV/revenue 0.18x this group would change
788,010 traded multiples multiples - 43.15x 10% by + 68,029,599 / - 67,564,213
------------------ ------------------- ---------- ----------- ---------------------------------
59,907 Scenario N/A N/A N/A N/A
Analysis
------------------ ------------------- ---------- ----------- ---------------------------------
93 Wind Down N/A N/A N/A N/A
------------------ ------------------- ---------- ----------- ---------------------------------
The following table shows the valuation techniques used for
Level 3 fair values, as well as the significant unobservable inputs
used for Level 3 items:
Unlisted Investments 2021
Fair Value as at 30 Valuation Significant Range Sensitivity % Sensitivity to
September 2021 Technique Unobservable Inputs changes in
(GBP000s) significant
unobservable
inputs
------------------- -------------------- ---------------- -------------- -------------------
840,358 Market approach 10% If revenue
using comparable EV/2022E revenue multiples changed
traded multiples multiples by +/- 10%, the
5.47 - 18.50x value of the
EV/LTM revenue companies in this
multiples group would change
by
EV/2021E revenue +/-GBP76,875,162
multiples
------------------- -------------------- ---------------- -------------- -------------------
1,332 Wind Down N/A N/A N/A N/A
------------------- -------------------- ---------------- -------------- -------------------
307,147 Recent transaction N/A N/A N/A N/A
price
------------------- -------------------- ---------------- -------------- -------------------
74,605 Indicative Offer N/A N/A N/A N/A
------------------- -------------------- ---------------- -------------- -------------------
The Company has an established control framework with respect to
the measurement of fair values. The Unlisted Asset Valuation
Committee ("UAVC") of the AIFM is responsible for valuation of the
Company's investments.
The UAVC regularly reviews significant unobservable inputs and
valuation adjustments. If third party information, such as pricing
services, is used to measure fair vales, then the UAVC assesses the
evidence obtained from the third parties to support the conclusion
that these valuations meet the requirements of the standards,
including to the level in the fair value hierarchy in which the
valuation should be classified.
The following table shows a reconciliation of the opening
balance to the closing balance for Level 1 and 3 fair values:
March September March September
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Level Level Level Level
1 1 3 3
Opening balance 236,756 94,213 1,223,442 512,074
Transferred to Level 1 - 161,161 - (161,161)
Purchases at cost 15,219 64,101 46,401 316,098
Sales at cost (17,630) (94,707) (76,841) -
Total gains / (losses)
included in net gains on
investments in the Statement
of Comprehensive Income
- on assets sold 11,079 68,041 43,501 -
- on assets held at period/year
end (158,874) (56,053) (129,221) 556,431
86,550 236,756 1,107,282 1,223,442
========== ========== ========== ==========
The change in unrealised gains or losses (net gain) for the
period included in the Unaudited Condensed Statement of
Comprehensive Income relating to those Level 3 assets held at the
reporting date amount to GBP142,921,927 (30 September 2021:
GBP474,928,000).
The transfer of GBP161,161,000 during the year ended 30
September 2021 relates to Wise PLC, which has moved from being a
Level 3 asset to a Level 1 asset as a result of its listing in July
2021.
Investments are transferred between levels at the point of the
trigger event.
There have been no significant changes in the management of risk
or in any risk management policies since the last Statement of
Financial Position date.
15. Related parties
On 1 May 2021 the Company appointed Jupiter Unit Trust Managers
Limited ("JUTM") as its new AIFM, replacing Maitland Institutional
Services Limited whose appointment was terminated at the same time.
JUTM subsequently sub delegated portfolio management to Jupiter
Investment Management Limited which is a member of the same
group.
JIML continues to act as Investment Adviser and the change does
not impact the provision of services to the Company by the existing
management team at the Investment Adviser. The management and
performance fees previously payable to JIML are now payable to
JUTM. JUTM is also entitled to an AIFM fee.
1 October 1 October 1 October
2021 2020 2020
31 March 30 September 31 March
2022 2021 2021
GBP'000 GBP'000 GBP'000
Management fee charged
by JUTM:
Total management fee charged 3,304 2,840 -
Management fee outstanding 5,085 2,840 -
Performance fee charged
by JUTM:
Total performance fee charged - 112,077 -
Performance fee outstanding - 112,077 -
AIFM fee charged by JUTM:
Total AIFM fee charged 298 147 -
AIFM fee outstanding 506 147 -
Management fee charged
by JIML:
Total management fee charged - 2,313 1,820
Management fee outstanding - 493 1,820
Performance fee charged
by JIML:
Total performance fee charged - - 49,339
Performance fee outstanding - - 49,339
AIFM fee charged by Maitland
Institutional Services
Ltd
Total AIFM fee charged - 248 96
AIFM fee outstanding - 129 44
Directors' fees
Total Directors ' fees
charged 164 354 218
Directors' fees outstanding - - -
As detailed in note 5, on 28 January 2022 JUTM received
22,667,415 shares in satisfaction of the performance fee payable at
30 September 2021.
As at 31 March 2022 the following Directors had holdings in the
Company:
Number of % Ordinary Shares
Director issue as at 31
Ordinary Shares March 2022
Andrew Haining 79,000 0.0133
Stephen Coe 50,909 0.0086
Simon Holden 72,500 0.0123
Anne Ewing 40,000 0.0067
Tim Cruttenden 21,298 0.0036
Margaret O'Connor - -
On 20 October 2021, Samuel Cruttenden (son of Tim Cruttenden)
purchased 3,795 shares in the Company at 236.97p per share.
As at 30 September 2021 the following Directors had holdings in
the Company:
Number of % Ordinary Shares
Director Ordinary Shares issue as at
30 September 2021
Andrew Haining 64,000 0.0117
Stephen Coe 50,909 0.0093
Simon Holden 72,500 0.0132
Anne Ewing 32,500 0.0059
Tim Cruttenden 14,968 0.0027
Margaret O'Connor - -
The following funds, which are also managed by Jupiter, hold an
investment in the Company.
Total holdings Total holdings Value of
at Shares purchased Shares sold at holdings at
30 September during during 31 March 31 March
2021 the period the period 2022 2022
GBP'000
----------------- ---------------- --------------------- --------------------- ----------------- ----------------
Related party
----------------------------------- --------------------- --------------------- ----------------- ----------------
Jupiter UK
Smaller
Companies Focus
Fund 6,567,286 - (1,062,191) 5,505,095 9,744
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter UK
Specialist
Equity Fund 7,009,168 - (1,233,180) 5,775,988 10,223
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter UK
Mid-Cap Fund 77,592,375 7,600,007 - 85,192,382 150,791
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter UK
Smaller
Companies Fund 17,820,552 - (1,750,000) 16,070,552 28,445
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter
Investment Fund
- Jupiter
Managed
European
Portfolio 742,325 3,633 - 745,958 1,320
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter
Investment Fund
-Jupiter Merlin
International
Balanced 668,092 3,270 - 671,362 1,188
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter
Investment Fund
- Jupiter
Merlin
International
Equities 946,275 4,724 - 950,999 1,683
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter
Investment Fund
- Jupiter
Merlin Real
Return
Portfolio 1,559,644 7,268 - 1,566,912 2,773
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter Fund of
Investment
Trusts 2,000,000 - - 2,000,000 3,540
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter Merlin
Real Return
Portfolio 103,926 509 - 104,435 185
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter Merlin
Worldwide
Portfolio 8,532,956 43,605 - 8,576,561 15,181
---------------- --------------------- --------------------- ----------------- ----------------
Jupiter UK
Smaller
Companies
Equity Fund 1,750,000 500,000 - 2,250,000 3,983
---------------- --------------------- --------------------- ----------------- ----------------
Total 125,292,599 8,163,016 (4,045,371) 129,410,244 229,056
================ ===================== ===================== ================= ================
Total Shares Total Value
holdings as at purchased Shares sold holdings at holdings at
30 September during the during the 30 September 30 September
2020 period period 2021 2021
GBP'000
-------------------- ---------------------- --------------- ------------------------- ------------- -------------
Related party
-------------------------------------------- --------------- ------------------------- ------------- -------------
Jupiter UK Smaller
Companies Focus
Fund 5,520,882 2,637,000 (1,590,596) 6,567,286 17,535
---------------------- --------------- ------------------------- ------------- -------------
Jupiter UK
Specialist Equity
Fund 8,112,820 - (1,103,652) 7,009,168 18,714
---------------------- --------------- ------------------------- ------------- -------------
Jupiter UK Mid-Cap
Fund 51,451,305 26,141,070 - 77,592,375 207,172
---------------------- --------------- ------------------------- ------------- -------------
Jupiter UK Smaller
Companies Fund 14,601,552 3,219,000 - 17,820,552 47,581
---------------------- --------------- ------------------------- ------------- -------------
Jupiter Investment
Fund - Jupiter
Managed European
Portfolio - 742,325 - 742,325 1,982
---------------------- --------------- ------------------------- ------------- -------------
Jupiter Investment
Fund -Jupiter
Merlin
International
Balanced - 668,092 - 668,092 1,784
---------------------- --------------- ------------------------- ------------- -------------
Jupiter Investment
Fund -Jupiter
Merlin
International
Equities - 946,275 - 946,275 2,527
---------------------- --------------- ------------------------- ------------- -------------
Jupiter Investment
Fund -Jupiter
Merlin Real Return
Portfolio - 1,559,644 - 1,559,644 4,164
---------------------- --------------- ------------------------- ------------- -------------
Jupiter Fund of
Investment Trusts - 2,000,000 - 2,000,000 5,340
---------------------- --------------- ------------------------- ------------- -------------
Jupiter Merlin Real
Return Portfolio - 103,926 - 103,926 277
---------------------- --------------- ------------------------- ------------- -------------
Jupiter Merlin
Worldwide
Portfolio - 8,532,956 - 8,532,956
---------------------- --------------- ------------------------- -------------
Jupiter UK Smaller
Companies Equity
Fund - 1,750,000 - 1,750,000
---------------------- --------------- ------------------------- -------------
Total 79,686,559 48,300,288 (2,694,248) 125,292,599
====================== =============== ========================= =============
16. Post balance sheet events
On 19 April 2022, the Company invested a further GBP10 million
into Starling Bank as a part of Starling's Series D funding
round.
On 12 May 2022, Simon Holden (Independent Director of the Board)
purchased 17,000 shares in the Company at 119.7p per share.
On 27 May 2022, Anne Ewing (Independent Director of the Board)
purchased 15,000 shares in the Company at 129.4p per share.
On 7 June 2022, the Board announced the appointment of a new
independent valuation committee in preparation for its previously
announced move to a self-managed structure from 1 July 2022. The
Company will assume direct responsibility for the valuation
process. The existing arrangement, under which it is the
responsibility of the external AIFM to provide the Board with
valuations for unlisted holdings, will cease as of 30 June
2022.
There has not been any other matter or circumstance occurring
subsequent to the end of the interim financial period that has
significantly affected, or may significantly affect, the operations
of the Company, the results of those operations, or the state of
affairs of the Company in future financial period.
Corporate Information
Directors
Andrew Haining, Chairman
Anne Ewing
Simon Holden
Stephen Coe (Senior Independent Director)
Tim Cruttenden
Margaret O'Connor
Registered office
3rd Floor
1 Le Truchot
St Peter Port
Guernsey, GY1 1WD
Alternative Investment Fund Manager
Jupiter Unit Trust Managers Limited ("JUTM")
The Zig Zag Building
70 Victoria Street
London, SW1E 6SQ
Investment Adviser
Jupiter Investment Management Limited ("JIML")
The Zig Zag Building
70 Victoria Street
London, SW1E 6SQ
Financial Adviser and Corporate Broker
Liberum Capital Limited
Ropemaker Place Level 12
25 Ropemaker Street
London, EC2Y 9LY
Numis Securities Limited
45 Gresham Street
London, EC2V 7BF
Administrator and Company Secretary
Maitland Administration (Guernsey) Limited
3rd Floor
1 Le Truchot
St Peter Port
Guernsey, GY1 1WD
Registrar
Computershare Investor Services (Guernsey) Limited
1st Floor, Tudor House
Le Bordage
St Peter Port
Guernsey, GY1 DB
Depositary
Citibank UK Limited
Citigroup Centre
Canada Square
Canary Wharf
London, E14 5LB
On 9 October 2021 the depositary changed to Citibank UK Limited
from Citibank Europe plc
English Legal Adviser to the Company
Travers Smith LLP
10 Snow Hill
London, EC1A 2AL
Guernsey Legal Adviser to the Company
Ogier (Guernsey) LLP
Redwood House
St Julian's Avenue
St Peter Port, GY1 1WA
Independent Auditor
KPMG Channel Islands Limited
Glategny Court
Glategny Esplanade
St Peter Port
Guernsey, GY1 1WR
Definitions
BENCHMARK PERFORMANCE
With reference to investment valuation, application of the performance
of a benchmark or pool of comparable companies to an unlisted company
to determine a valuation.
NAV PER SHARE
Net Asset Value expressed as an amount per share.
NAV PER SHARE GROWTH
With reference to fund performance, NAV at end of stated year /
NAV at beginning of stated year as a percentage.
IRR
Internal Rate of Return - with reference to investment performance,
calculated using excel XIRR formula.
TRADING MULTIPLE
With reference to investment valuation, enterprise value / annual
revenue of company.
DRAWDOWN
With reference to index performance, the maximum percentage loss
in value over a given time period.
DISCOUNT / PREMIUM
The amount by which the market price per share of an investment
company is lower or higher than its net asset value per share.
The discount or premium is normally expressed as a percentage of
the net asset value per share.
NET ASSET VALUE (NAV)
The Net Asset Value (NAV) is the amount by which total assets exceed
total liabilities, i.e., the difference between what the Company
owns and what it owes.
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END
IR SEMESUEESEFM
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