TIDMCHRY
RNS Number : 0456H
Chrysalis Investments Limited
21 November 2022
The information contained in this announcement is restricted and
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(other than to professional investors in Belgium, Denmark, the
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The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation (EU) No. 596/2014 which forms part of
domestic law in the United Kingdom pursuant to The European Union
Withdrawal Act 2018, as amended by The Market Abuse (Amendment) (EU
Exit) Regulations 2019.
21 November 2022
Chrysalis Investments Limited ("Chrysalis" or the "Company")
Quarterly NAV Announcement and Trading Update
Net Asset Value
The Company announces that as at 30 September 2022 the unaudited
net asset value ("NAV") per ordinary share was 147.79 pence.
The above NAV calculation is based on the Company's issued share
capital as at 30 September 2022 of 595,150,414 ordinary shares of
no par value.
September's NAV represents a 15.69 pence (9.6%) decrease since
30 June 2022 and a 41% decline over the Company's financial year to
30 September 2022.
Key highlights
Key drivers of the Q4 NAV performance were:
-- Following the successful completion of primary funding
rounds, and the more resilient performances of listed peers' share
prices , Deep Instinct and Featurespace were marked up
-- Starling, Graphcore and InfoSum were marked down following a
derating of their relevant listed peers
-- The Company's largest holdings continued to make excellent
progress and trade well against a challenging backdrop, during the
quarter to September. Revenue growth across the portfolio was
strong over the financial year and is projected to be 53% on a
weighted average one-year forward basis
-- NAV decline of 41% over the financial year to 30 September
2022, predominantly driven by the down-round undertaken by Klarna
versus a 27% decline in NASDAQ and a 62% decline in the GS
Non-Profitable Tech Index
-- Private assets contributed to a 71.86 pence decline in the
NAV per share over the financial period to 30 September 2022 with
listed assets contributing to a 31.90 pence decline. The NAV per
share captures a weighted average mark down of individual assets'
peak valuations of approximately 50% . Protection mechanisms extant
in certain assets have limited the impact of these mark downs on
the NAV per share
-- Five portfolio companies have raised a total of approximately
$1.5bn over the calendar year to date. Despite extremely difficult
funding markets, portfolio companies have continued to attract
significant investment, including from new holders. The Investment
Adviser believes this demonstrates the strength of the underlying
investment cases. Of these five rounds, only that of Klarna was
undertaken at a level below its prevailing carrying value, this
having been written down by approximately 35% before the
down-round. Chrysalis contributed $45m of primary capital to
Starling Bank, Klarna, Featurespace and Deep Instinct, representing
just 3% of total capital raised. The late-stage nature of the
majority of the portfolio, and thus typically diverse shareholder
lists, enables the Investment Adviser to be efficient in the
allocation of capital
-- Chrysalis has a robust balance sheet. As at 17 November, the
Company held approximately GBP67m in cash and also had a GBP 13m
position in Wise, resulting in total liquid assets of GBP 80m
-- The portfolio is well funded, with 35% of the portfolio now profitable; 32% funded through to profitability based on company budgets; and a further 14% with a cash runway of approximately two years. This represents a substantial improvement from our previous update. On this basis, the Investment Advisor believes the foreseeable, likely future funding requirement across the portfolio is approximately GBP20m
Investment Adviser Comments
Richard Watts and Nick Williamson (co-portfolio managers)
comment:
'We are very encouraged that in an extremely challenging market,
five of our largest holdings have raised $1.5 billion in aggregate
over the calendar year to date, with some welcoming new
high-quality investors onto their share registers. We believe this
demonstrates the ongoing strong performance of these assets and
their compelling investment cases. Furthermore, the robustness of
our valuation methodology is demonstrated by the fact that four of
the five funding rounds were completed above the prevailing
carrying value in Chrysalis.
The macroeconomic and geopolitical backdrop is uncertain, but we
remain confident that many of our assets will continue to disrupt
the huge markets in which they operate; our top six holdings have a
sub 1% market share of their aggregate total addressable markets.
In our experience, disruptive companies generally compound strong
rates of growth throughout the economic cycle, and we believe this
will be reflected in our NAV over time. Wise is a very good example
of this, with analysts currently forecasting that the company will
generate the same rapid rate of revenue growth through 2022 as when
Chrysalis first invested in it four years ago.
Many of our largest holdings have evolved into market leaders
since the point of investment, and we are confident in the outlook
for these companies. The investment team has had a particular focus
on working with portfolio assets over the course of 2022 to ensure
that they are appropriately balancing growth and profitability
considerations and are sufficiently capitalised to deliver on their
plans. This should translate into successful exits and strong
returns for our shareholders over the medium term.
Chrysalis has a portfolio approach to diversification to
mitigate stock specific risk, and this has been borne out by the
current macroeconomic backdrop, which has affected different assets
in different ways. For example, our consumer exposure has seen a
negative impact from inflationary pressures, which in turn have
triggered a rising interest rate environment, to the benefit of
some of our financial exposure.
Our original premise when Chrysalis was launched was that, while
not all investments would be outright winners, a diversified
portfolio would withstand market shocks and the most successful
investments would offer the potential for multiple returns on
invested capital, ensuring an attractive overall return for
investors. We believe this premise still has validity."
Overview
Recently, equity markets have seen material impacts from
political instability, macroeconomic uncertainty, rising interest
rates and the ongoing tensions between Russia and Ukraine. This has
led to a 27% decline in NASDAQ and a 62% decline in the GS
Non-Profitable Tech Index over the financial year to September
2022, with the baskets of comparable companies used by the
independent valuer to determine individual asset valuations falling
by a similar amount.
The devaluations of comparable peer groups have resulted in the
NAV over the financial year to 30 September 2022 declining by 41%,
as the Company's new valuation committee has factored these market
declines into its assessment of the fair value of the Company's
assets.
Since the inception of Chrysalis, its assets have completed 20
primary funding rounds alongside one successful trade sale and two
successful IPOs; these events help to inform fair value. Out of
these 20 valuation events, only two have been completed below the
valuation at which Chrysalis was carrying the asset; namely Secret
Escapes raising GBP55m in the middle of the COVID-19 pandemic, and
Klarna raising $800m of primary capital against a particularly
challenging backdrop in mid-2022.
While the down-round undertaken by Klarna could be viewed as
disappointing from a valuation perspective, the Investment Adviser
believes its ability to raise $800m - including from new investors
- at the peak of market fears over rising inflation and interest
rates, demonstrates the attractiveness of its business model.
Klarna has historically been profitable, and the Investment Adviser
believes the runway this cash has given it will enable the company
to push back towards break-even. The other four companies that
completed funding rounds did so at, or at a premium to, both their
last valuation rounds, and the valuations at which the Company was
carrying the asset.
In aggregate, $1.5bn has been raised by the Company's
investments during calendar 2022, to date. Given strong support
from other parties, the Investment Adviser has been able to
selectively deploy capital in an efficient manner, resulting in a
total of commitment to these rounds of c$ 45m , or approximately 3%
of the total raised, while still protecting the Company's
shareholders' interests.
In aggregate, private assets have contributed to a 71.86 pence
decline in the NAV per share over the financial year with listed
assets accounting for a 31.90 pence decline. Klarna alone accounted
for 57.66 pence, which implies an average write down of private
assets, ex-Klarna, of just 1%. This represents a relatively stable
performance versus the indices and relevant listed assets, but also
reflects the strong trading performance and growth of our assets,
as well as downside protection mechanisms that exist in certain
assets.
Portfolio activity during the quarter
Several transactions have completed over the quarter which the
Investment Adviser believes will enable the respective portfolio
assets to continue their strong growth, pursue attractive M&A
opportunities, and disrupt peers. The Company has supported many of
these funding rounds while maintaining a strong capital
position:
-- In July, wefox raised a $400m Series D at a valuation of
$4.5bn, a 50% increase from its valuation a year prior
-- Also in July, Klarna also raised a $800m round at a
post-money valuation of $6.7bn, to support its continued expansion
in the US, at a more than an 80% decrease in valuation versus its
last round. Chrysalis committed to its pro-rata entitlement of
approximately $ 8.7m into the Klarna round
-- In August, Featurespace completed a funding round which will
likely fund the business through to profitability. The round was
completed at a premium to the last round in May 2020, reflecting
strong ARR progression over the period. Chrysalis invested GBP5m in
the round
-- In September, the Company completed an investment of $17m in
Deep Instinct as part of its $62.5m primary round led by funds
managed by BlackRock and existing shareholders, Unbound and
Millennium. The latest investment will help accelerate the growth
of Deep Instinct as it further penetrates the market with its
disruptive threat-prevention cybersecurity technology
-- Shares in Revolution Beauty were suspended, pending
publication of its annual report & accounts, which is currently
subject to an independent investigation into concerns raised by the
group's auditors
-- During the period, the Company exited its investment in THG
plc entirely, and the proceeds from the sale were used to support
investment into other portfolio assets, such as Deep Instinct
-- In October, the Company received its third distribution from
the administrators of Growth Street Holdings Limited. The Company
has now received just over GBP1.3m to date as part of the
winding-up process, representing a better recovery than originally
anticipated.
Portfolio highlights over the financial year
Despite a tough economic backdrop and challenging trading
environments in certain sectors, many of the Company's portfolio
companies made strong progress over the last twelve months,
including:
-- wefox - which is on track to double revenues in 2022, to $600
million. The company has continued to grow internationally, and is
now present in Germany, Austria, Switzerland, Poland, Italy and
Spain. wefox has used the proceeds of its funding rounds over the
last two years to acquire two large and profitable insurance
brokers to enhance its distribution capabilities, namely Mansutti
in Italy and TAF in the Netherlands
-- Starling Bank - which reported its first full year of
profitability, with a pre-tax profit of GBP32.1m for the year ended
31 March 2022. Starling has continued to grow at pace and in June
2022 it reported an annualised revenue run-rate of over GBP330
million and an annualised PBT run-rate of GBP92.0m, driven by
year-on-year lending growth of 72% to GBP4bn. Starling continues to
build on the mortgage capability it gained through the acquisition
of Fleet Mortgages in July 2021, which has helped to grow the
mortgage book to more than GBP2bn as at June 2022. The growth in
lending has been funded by Starling's growing deposit base, which
increased by a further GBP600m in just three months to end June
2022. Starling's Return on Tangible Equity for June 2022 is already
best-in-class for a UK bank at 17.5%, compared to c.11% for the
large high street banks and c.16% for other specialist and mid-tier
lenders. This is despite Starling holding a significant capital
surplus above its regulatory minimum and operating at a much lower
loan-to-deposit ratio than traditional peers. Despite the positive
trading update from Starling, the external valuer utilises a range
of valuation techniques to determine fair value, and this resulted
in a downward adjustment to Starling's valuation at period end on a
comparable valuation basis
-- BrandTech - which announced it had generated more than $500m
of revenues in 2021 with organic growth in excess of 50%. The
company had approximately 3,000 employees when Chrysalis first
invested, and this figure has grown to approximately 5,000.
BrandTech accelerated its geographic expansion over the period with
the acquisition of leading LATAM data & technology company,
DP6, and leading E-Commerce technology platform, Acorn-i. BrandTech
also announced several world-class hires, including: Amazon Head of
Global Agency Partnerships, Virgine Douin, to lead E-Commerce;
Mindshare global CFO, Dawn Dickie, to join Nick Emery in running
BrandTech Media; former Facebook Chief Creative Officer Mark D'Arcy
as Chief Creative Officer
-- Smart Pension - which is now operating at scale and growing
rapidly. Smart had GBP2.2 billion of assets under management
("AuM") in 2021 and is expected to close 2022 with just over GBP6
billion of AuM. Smart forecasts it will achieve a 150% CAGR in
revenues this year, versus 2019, and now serves almost one million
members and 70,000 employers. Smart acquired US-based Stadion Money
Management in January, which offers personalised digital retirement
solutions to advisers, employers and members and more recently
acquired The Ensign Master Trust which has GBP158m in assets and
will be consolidated into the Smart Pension Master Trust. Smart has
now consolidated eight former master trusts including the Welplan
Master Trust, the Corpad Master Trust and Corporate Pensions
Trust
-- Deep Instinct - which participated in MITRE Engenuity's
ATT&CK Evaluations for the first time achieving a 100%
prevention score. The results validate the strength and robustness
of Deep Instinct's multi-layered, prevention-first approach and
unambiguously highlights the value of its platform. Deep Instinct
bolstered its management team through 2022 by appointing Carl
Froggett, former Head of Global Infrastructure Defence at Citi, as
CIO and Lane Bess, former Palo Alto CEO and Zscaler COO, as CEO
Cash and Liquidity Update
As of 17 November 2022, the Company held approximately GBP67m of
cash. In addition, the Company has further liquidity available,
most notably its holding in Wise plc (approximately GBP13m), giving
a total liquidity position of GBP80m. The aggregate gain on the
Company's listed assets post period end equates to just GBP2.5m,
representing 0.42 pence per share.
The Investment Adviser has worked extensively with its portfolio
companies to assist them in responding to the change in market
conditions, which has seen investors pivot from growth, towards
profits. Given the late-stage nature of many of the Company's
assets, approximately 35% of the portfolio is already profitable.
In addition, the Investment Adviser believes a further 32 % of the
portfolio is now funded to profitability, and 14% is funded for at
least two years.
This leaves approximately 19 % of the portfolio, which has less
than a two-year cash runway. Broadly, the Investment Adviser sees
three paths available to this group if further funding is
required:
-- The Company uses its own capital to provide funding;
-- Other investors provide capital; or
-- The Investment Adviser looks to monetise the Company's
position, most likely via a sale of the asset.
The Investment Adviser currently considers that the maximum
likely funding it would need to commit to support companies in this
group is GBP20m, well within the current cash and liquidity
positions.
The Investment Adviser, in combination with the Board, regularly
discusses the liquidity requirements of the Company. Consideration
is given to likely known future cash requirements, such as the
Company's running costs and potential follow-ons, as well as an
appropriate level of capital to hold in reserve, to protect the
Company from any currently unforeseen events.
The work undertaken by many portfolio companies over the last
six to nine months to significantly strengthen their balance sheets
and, through sensible actions, lengthen cash runways, means the
Investment Adviser does not envisage a need to draw on this reserve
capital. But given that a variety of macroeconomic and political
uncertainties still exist, it believes it is prudent to retain this
provision for the time being.
Therefore, despite the Company's robust balance sheet, and the
significant discount to NAV that Chrysalis's shares currently trade
on, the Board and Investment Adviser continue to believe it is
appropriate to balance the necessity to guard against unforeseen
eventualities, and protect the Company's medium to long term
prospects, with more proactive capital uses, such as new
investments or share buybacks. The Company's capital allocation
process is, however, dynamic and continually reassessed.
Portfolio Composition
As of 30 September 2022, and 17 November 2022, the portfolio
composition was as follows:
30-Sep 17-Nov
Portfolio Company GBPmillions % of portfolio GBPmillions % of portfolio
--------------- --------------- --------------- ---------------
wefox 155 18% 154 18%
--------------- --------------- --------------- ---------------
Starling 113 13% 113 13%
--------------- --------------- --------------- ---------------
The Brandtech Group 103 12% 97 11%
--------------- --------------- --------------- ---------------
Smart Pension 95 11% 95 11%
--------------- --------------- --------------- ---------------
Deep Instinct 82 9% 77 9%
--------------- --------------- --------------- ---------------
Klarna 56 6% 55 6%
--------------- --------------- --------------- ---------------
Featurespace 53 6% 53 6%
--------------- --------------- --------------- ---------------
Graphcore 45 5% 42 5%
--------------- --------------- --------------- ---------------
Tactus 37 4% 37 4%
--------------- --------------- --------------- ---------------
InfoSum 30 3% 30 3%
--------------- --------------- --------------- ---------------
Wise 20 2% 13 2%
--------------- --------------- --------------- ---------------
Sorted 18 2% 18 2%
--------------- --------------- --------------- ---------------
Secret Escapes 13 1% 13 2%
--------------- --------------- --------------- ---------------
Growth Street - 0% - 0%
--------------- --------------- --------------- ---------------
Revolution Beauty - 0% - 0%
--------------- --------------- --------------- ---------------
Gross cash 63 7% 67 8%
--------------- --------------- --------------- ---------------
Source: Jupiter Investment Management (UK) Limited. Holdings
size, as of 17 November 2022, are calculated using 30 September
valuations, adjusted for FX as of 17 November 2022 and capturing
transactions concluded post the NAV calculation period, and thus
using cash as of 17 November. For listed shares, the holding values
are based on closing share prices as of 17 November 2022, namely:
Wise at 595.2p. Due to its suspended listing, a fair valuation
process was adopted in the case of Revolution Beauty, which valued
the shares at nil. 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 GBP0.88 bn and GBP0.87 bn
for 30 September and 17 November respectively.
Outlook
The Company's largest holdings have made excellent progress over
the last twelve months and continue to trade well against a
challenging backdrop. This is reflected in the portfolio's strong
revenue growth (estimated at over 50% on a blended average,
one-year forward basis) and the well-funded nature of the majority
of the Company's holdings.
While it has been a challenging period, in the form of THG's
margin progression, and the unexpected audit issues at Revolution
Beauty, the Company enters the financial year to September 2023
with a portfolio that is well capitalised and that continues to
trade robustly, particularly among the larger holdings. Many of the
Company's assets are disrupting huge addressable markets and will
therefore be capable of compounding high rates of growth over the
medium term; this should eventually translate into strong NAV
progression and successful exits.
Although one of the possible exit routes - namely the IPO market
- is broadly shut at present, the Investment Adviser notes that as
the duration of low IPO market activity enters its fourth
consecutive quarter, the last two significant market downturns in
2001 and 2008 saw the IPO market "close" for five and seven
quarters respectively. Thus history suggests this period of hiatus
is nearer the end, than the beginning.
Although trade sale remains a viable exit route for certain
holdings, the reopening of the IPO market could materially alter
the liquidity profile of the Company, particularly given it is
holding a number of businesses that could conceivably IPO over the
coming years.
Extra liquidity afforded by an exit, could materially alter the
regular discussions regarding capital allocation, referred to
above.
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 +44 (0) 7542 846 844
Charlotte McMullen / Toto Reissland chrysalis@montfort.london
/ 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
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The value of investments may fluctuate. Results achieved in the
past are no guarantee of future results. Neither the content of the
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