The
information contained in this announcement is restricted and is not
for publication, release or distribution in the United States of
America, any member state of the European Economic Area (other than
to professional investors in Belgium, Denmark, the Republic of
Ireland, Luxembourg, the Netherlands, Norway and Sweden), Canada,
Australia, Japan or the Republic of South Africa.
The
information contained within this announcement is deemed by the
Company to constitute inside information as stipulated under the
Market Abuse Regulation (EU) No. 596/2014 which forms part of
domestic law in the United Kingdom pursuant to The European Union
Withdrawal Act 2018, as amended by The Market Abuse (Amendment) (EU
Exit) Regulations 2019.
2 May 2024
Chrysalis Investments Limited
("Chrysalis" or the "Company")
Quarterly NAV Announcement
and Trading Update
Net Asset
Value
The Company announces that as at 31
March 2024 the unaudited net asset value ("NAV") per ordinary share
was 147.46 pence.
The NAV calculation is based on the
Company's issued share capital as at 31
March 2024 of 595,150,414
ordinary shares of no par value.
March's NAV represents a 4.09 pence
per share (2.9%) increase since 31 December 2023.
Movement in the fair value of the
portfolio accounted for approximately 5.15 pence per share, with
foreign exchange generating an adverse movement of approximately
0.87 pence per share. Fees and expenses make up the
balance.
Portfolio
Commentary
Richard Watts and Nick
Williamson, Managing Partners of Chrysalis Investment Partners LLP
comment:
"The Company's NAV rose modestly over the period, driven by
the on-going positive performances of assets such as Starling,
Klarna and Smart, the latter having been written up by
approximately 24% (translating to 3.7p of NAV), as per the March
guidance relating to Chrysalis's follow-on
investment.
Klarna saw a rise in its assessed valuation multiple, which
was the main driver of its valuation uplift. Starling saw its
valuation rise due to less prominence placed on valuation metrics
that were calibrated back to the time of the Company's acquisition
of secondary stock in February 2023. wefox was marked down in the
period, as discussed below.
As
we look forward, we remain cautiously optimistic about a rebound in
market activity, which could lead to opportunities to realise
significant liquidity for the Company. In addition, the process
around the "likely disposal" announced in December 2023 continues,
and we hope to be able to update the market in the coming
months."
Market
Environment
Market action remains broadly
favourable, but not ebullient, particularly in the UK where risk
appetite, as measured by IPO activity, has been subdued. Over the
quarter, only two IPOs occurred on the LSE's
Main Market and AIM, raising just
over £6 million in total. This comes on the back of 2023, which saw
only 21 IPOs in these two markets, a level commensurate with 2009,
when the global economy was recovering from the GFC.
Action elsewhere has been more
positive: the US has seen 63 IPOs so far in 2024, up nearly 7% on
the same period in 2023 (Source: Stock
Analysis, data as of 1 May 2024),
and Europe ex UK has seen eleven IPOs in 1Q24,
versus approximately five in 1Q23 (Source: PwC, LSE and Chrysalis
Investment Partners LLP).
There are also signs of life in the
trade sale market, where consolidation is occurring, often at high
implied take-out multiples. Examples pertinent to the portfolio
include LiveRamp acquiring Habu (a data cleanroom company;
analogous to InfoSum) for $200 million - with estimated historic
revenues of c$9.4 million and expected FY25 revenues of $18
million, implying 11x-21x revenues - and a number in the cyber
security space, including Crowdstrike buying Bionic (a cyber
security company; analogous to Deep Instinct) for $350 million,
which had estimated revenues of $10 million.
This suggests that those assets
occupying a strategic niche and/or performing strongly in their
markets are proving attractive to competitors.
Portfolio
Activity
Over the quarter a modest, expected
investment of approximately £6 million was made into Smart Pension.
As with most of the portfolio, Smart continues to look for ways to
operate more efficiently, and this additional capital will help it
to continue to grow - potentially via M&A as well as
organically - and support the company to profitability. The Company
believes the latter state is achievable in relatively short order.
Elsewhere, the position in Wise was reduced, taking advantage of
the rising share price, yielding approximately £3
million.
Portfolio
Update
The portfolio in aggregate continues
to perform robustly:
Starling
Starling continues to generate
significant monthly profitability; over the quarter, there were two
important pieces of news flow.
The first concerns the appointment
of Raman Bhatia as a new permanent CEO.
Raman will take over from John
Mountain, who is interim CEO, following the decision of Anne Boden
to step back from the role in 2023. Prior to joining Starling,
Raman was CEO of OVO, a leading energy retailer in the UK, and
before that was Head of Digital Bank for HSBC's Retail Banking and
Wealth Management business in the UK and Europe.
The second centres around Engine by
Starling ("Engine"), the Platform-as-a-Service ("PaaS") offering
which enables Engine to deliver a cloud native, modular, API-based
banking platform to businesses that want to rapidly deploy a
banking solution. This technology is the same that powers Starling
Bank.
In the prior quarter, two contracts
were announced. The first was with Salt Bank in Romania, and the
second with AMP in Australia, which is expecting to spend A$60
million setting up a new digital bank.
In the quarter, Engine demonstrated
the power of the platform with the successful "go-live" of the Salt
Bank iteration, which managed to on-board 100,000 customers in two
weeks, making it one of the fastest growing banks in Southeastern
Europe.
The Company views Engine as
potentially significant in terms of Starling's long-term enterprise
value as it opens up a wider addressable market for Starling, in an
area - recurring software - that typically commands high valuation
multiples.
wefox
wefox continues on its road to
profitability; while it achieved a full month of profitability in
December 2023, the Company is aware that there are also seasonal
factors that make extrapolation to a full year inadvisable.
Revenues increased to $800 million in 2023 while the cost base fell
year-on-year.
The company is continuing to invest
in its technology platform, which uses AI, data analytics and
automation to streamline insurance workstreams, and caters to
insurance companies, brokers, partners and customers. The Company
views further monetisation of the platform as a key future value
driver and was encouraged by the announcement of the WindTre
partnership towards the end of last year.
The company intends to continue its
focus on profitability this year, which is likely to involve
further cost base optimisation and concentration on its
distribution proposition. The Company has previously highlighted
the appointment of Mark Hartigan as Executive Chairman and CEO;
Mark was previously CEO at LV= and Head of Operations for Europe,
Middle East and Africa at Zurich Insurance Group.
The valuation of wefox fell in the
period, reflecting a deterioration in the assessed multiple of the
listed peer group against which wefox is marked, a fading of the
calibrated premium to the last funding round reflecting passage of
time, and strategic repositioning within the business.
Klarna
Klarna released full year 2023
results during the quarter.
These showed revenue growth of 22%
over the year, outstripping GMV growth of 17%, due to a mix of
effects, such as higher relative growth from the US at higher
take-rates. Profit in 4Q23 was negative, due to a pick-up in
impairments - reflecting normal seasonal patterns - and operating
costs, but the Company understands this to be driving expected
growth into 2024.
Elsewhere, the company continues to
make multiple statements regarding its AI investments. In
particular, in February Klarna highlighted the deployment of its AI
powered assistant into the customer service function. Within a
month, this had undertaken 2.3 million conversations with
customers, representing two thirds of all interactions. The impact
saw resolution times for queries fall from eleven minutes on
average to less than two, a 25% drop in repeat enquiries, and it is
now doing the work of 700 full-time agents. Klarna quantified its
likely positive financial impact at $40 million in 2024.
Speculation concerning an IPO
continues to swirl, with the CEO giving a number of interviews in
the quarter saying that an IPO is likely to happen "quite soon" and
intimating it would occur in the US.
The Company has already considered
the ramification of such a move; at the Company's carrying value,
this could imply a liquidity injection of £100 million, equivalent
to approximately 20% of the Company's current market
capitalisation.
Smart Pension
Smart has continued to grow well; in
March 2024, Assets under Management ("AuM") hit £5 billion in the
UK Smart Pension Master Trust ("SPMT"), with regular contributions
now running at £1 billion per annum. With many schemes being
relatively young, the company forecasts faster growth over 2024 and
into 2025 from this division.
Keystone - the technology platform
underpinning SPMT as well as its international PaaS offering - has
an exciting pipeline of opportunities to pursue, in addition to its
existing contracts that range from operations in Hong Kong, the
Middle East and, nearer to home, in Ireland.
Like most of the portfolio
companies, Smart continues to balance its growth opportunities with
its cost base and cash runway. To that end, Chrysalis committed £6
million to a raise in March 2024, alongside Smart's other major
investors. The Company believes this extra capital will support
Smart's growth aspirations - including via M&A - and underpin
the company's drive towards profitability.
Brandtech
Brandtech has spent much of the last
nine months integrating the acquisition of Jellyfish, which it
acquired in June 2023. Jellyfish has significantly built up the
company's media division and has increased the scale of Brandtech,
taking group revenues to over $1 billion.
Another, more recent acquisition by
Brandtech - PencilAI - was named by Fast Company as one of the
"World's Most Innovative Companies"; it was the only GenAI company
to be mentioned. Pencil has now created over one million
advertisements and deployed over $1 billion in media spend since it
was founded in 2018. Engagement with its offering is showing strong
momentum, as large enterprise clients move towards
adoption.
While organic growth was softer than
prior years over the course of 2023, reflecting a challenging
market backdrop for the media sector, there are signs that the
outlook is improving. As a result, the Company believes it
reasonable to expect a better performance in 2024.
Featurespace
Fraud continues to be a major issue
in society. The Nilson Report predicts global fraud losses are
likely to be nearly $400 billion over the next ten years, with
approximately $165 billion being in the US. Scams, such as
Authorised Push Payments ("APP"), are also rising. In 2023, the
Financial Times reported a 193% increase in APP scams over the last
five years, with £239 million lost in 1H23 alone in the
UK.
Featurespace saw excellent growth
over 2023, as its software sold well against this market backdrop.
The company continues to invest in its technology, with products
such as TallierLTM - built using a GenAI model - showing
significant improvements in performance against its core
offerings.
This strong growth has been a factor
in Featurespace's upward revaluation.
Cash Update
As of 31 March, the Company had net
cash of approximately £16 million and a position in Wise of £11
million, to give a total liquidity position of approximately £27
million.
The majority of the portfolio
remains well funded. While there are expected to be additional,
modest funding requirements across the portfolio in the short to
medium term, it is considered that the Company has sufficient
available liquidity over that period to address these.
Looking ahead, the Company is
cautiously optimistic that expected realisations will improve this
liquidity position, in the near-term particularly via the "likely
disposal".
Portfolio
composition
As of 31 March 2024, the portfolio
composition was as follows:
|
31-Mar
|
Portfolio Company
|
Carrying
Value
(£
millions)
|
% of
portfolio
|
Starling
wefox
Smart Pension
Klarna
Brandtech
Featurespace
Deep Instinct
InfoSum
Graphcore
Secret Escapes
Wise
Sorted
Growth Street
|
207.0
126.5
105.2
100.0
96.9
72.2
45.4
36.1
35.1
26.2
11.1
0.3
0.1
|
23.6%
14.4%
12.0%
11.4%
11.0%
8.2%
5.2%
4.1%
4.0%
3.0%
1.3%
0.0%
0.0%
|
Gross cash
|
16.5
|
1.9%
|
Source: Chrysalis Investment
Partners LLP. Due to rounding, the figures may not add up to 100%.
The above percentages are based on an aggregate portfolio value
(including cash) of approximately £878 million for 31 March
2024.
Outlook and Update on Capital
Allocation Policy ("CAP")
With the Continuation Vote passed
and shareholders having shown their support for the CAP, the
Company is focused on maximising NAV and looking for opportunities
to boost liquidity, which would enable the CAP to take effect. In
this context, the Company is in discussions regarding a potential
debt facility to provide short-term, low-level gearing which, if
completed, could complement the Company's liquidity
profile.
The process around the "likely
disposal" continues; the Company is optimistic that positive news
flow will be forthcoming over the coming months. In addition, there
are other potential avenues for liquidity, but these need to be
finessed to ensure maximisation of value for investors. One of the
most obvious of these would be a Klarna IPO and, while the Company
has no direct control over this process, it believes the prevailing
sentiment in this regard is positive.
Factsheet
An updated Company factsheet will
shortly be available on the Company's website:
https://www.chrysalisinvestments.co.uk.
-ENDS-
For
further information, please contact
Media
Montfort Communications:
Charlotte McMullen / Imogen
Saunders
|
+44
(0) 7921 881 800
chrysalis@montfort.london
|
|
|
Chrysalis Investment Partners LLP:
James Simpson
|
+44
(0) 20 7871 5343
|
G10
Capital Limited (AIFM):
|
+44
(0) 20 7397 5450
|
Maria Baldwin
|
|
|
|
Liberum:
Chris Clarke / Darren Vickers / Owen
Matthews
|
+44
(0) 20 3100 2000
|
Deutsche Numis:
Nathan Brown / Matt Goss
|
+44
(0) 20 7260 1000
|
Apex Administration (Guernsey) Limited:
Chris Bougourd
|
+44
(0) 20 3530 3109
|
LEI: 213800F9SQ753JQHSW24
A copy of this announcement will be
available on the Company's website at https://www.chrysalisinvestments.co.uk
The information contained in this
announcement regarding the Company's investments has been provided
by the relevant underlying portfolio company and has not been
independently verified by the Company. The information contained
herein is unaudited.
This announcement is for information
purposes only and is not an offer to invest. All investments are
subject to risk. Past performance is no guarantee of future
returns. Prospective investors are advised to seek expert legal,
financial, tax and other professional advice before making any
investment decision. The value of investments may fluctuate.
Results achieved in the past are no guarantee of future results.
Neither the content of the Company's website, nor the content on
any website accessible from hyperlinks on its website for any other
website, is incorporated into, or forms part of, this announcement
nor, unless previously published by means of a recognised
information service, should any such content be relied upon in
reaching a decision as to whether or not to acquire, continue to
hold, or dispose of, securities in the Company.
The Company is an alternative
investment fund ("AIF") for the purposes of the AIFM Directive and
as such is required to have an investment manager who is duly
authorised to undertake the role of an alternative investment fund
manager ("AIFM"). The AIFM appointed is G10 Capital Limited (part
of the IQEQ Group).