Chrysalis Investments (CHRY) has released its annual results for the year ending 30 September 2023. This will also be the last set of annual results released by the CHRY team under its tenure at Jupiter, as the investment team has previously announced that it will launch its own independent investment firm this year.

• Over the year CHRY reported a negative NAV return of -8.9%, with an end September NAV of 134.65p per share. Its total NAV was £801m at its year end, compared to the £880m of the year prior. Its share price rose over the period however, ending on 62.2p per share, up 0.1% on the year.
• The board notes that in December 2023 there was a disposal announced, whose valuation may be accretive to the next quarterly NAV announcement (pending completion of the transaction).
• The largest contributor to its fall in NAV was foreign exchange differences and non-asset related costs, which accounted for c.40% of the loss. Declines in the valuations of its investments in Smart Pension, Graphcore, Deep Instinct and Sorted also contributed.
• CHRY’s three largest investments, wefox Holding, Starling Bank, and The Brandtech Group, all saw increases in their fair values over the period. CHRY’s portfolio saw an aggregate revenue growth of 48% over the period.
• Two realisations were made in the year, with its position in Revolution Beauty being fully divested, raising £5.2m. CHRY also sold shares in Wise, worth £10.3m.
• CHRY deployed capital across six existing investments, worth £26.2m, aiming to drive growth and improve profitability. CHRY also increased its holding in Starling Bank by £20.1m at an attractive valuation, reflecting the team’s optimism in the bank’s future. CHRY had £32.9m available in liquidity as of 30 September 2023.
• As part of the transition of CHRY’s management away form Jupiter and to an independent firm, the board has proposed a revised performance free agreement, which should be better aligned with shareholders.
• CHRY continues to pursue legal action against Revolution Beauty Group, based on misstatements and material omissions made by its management when CHRY originally invested in the company. Revolution Beauty has requested further time in formulating a response to CHRY’s letter of claim, missing the December deadline. CHRY is now considering next steps with its retained lawyers, Travers Smith.
• The board has outlined the changes to CHRY’s capital allocation policy. The board has already committed to return the first £100m of realisations to shareholders, likely in the form of a share buyback programme and subject to the prevailing discount, after satisfying the “buffer” of up to £50m being held back for working capital and follow-on investments. It has now agreed that, after the first £100m has been returned, CHRY will continue to return at least 25% of net realised gains.

CHRY’s investment advisors commented: “Last year the Investment Adviser was hopeful that wider market risk appetite would support realisations from the portfolio in 2023, including the reopening of the IPO market. This was partly predicated on the apparent emergence of some price stability in the market.

“While the IPO market has arguably shown signs of life – particularly in the US with the flotation of companies such as Arm – the more widespread confidence that is necessary to deliver a meaningful reopening has not been forthcoming. This situation is arguably more acute in the UK, which in 3Q 2023 only saw one Main Market flotation – CAB Payments – which promptly warned on profits and saw its share price fall over 80%.

“The Investment Adviser has continued to focus on helping the portfolio companies get in the best possible shape for an eventual exit; Klarna moving into profitability is a significant, positive step in the right direction. This work centres around both maximising potential exit valuation, as well as installation of systems and governance processes required for an exit.

“While speculation has swirled around Klarna’s IPO over the last few years, this is the first time the Investment Adviser has seen the company publicly state conditions are now “in place” for it to consider such a move. The ramifications for Chrysalis of an exit that at least underpins the asset’s valuation are hard to understate. Such a move could potentially deliver substantial liquidity into the Company and allow the new CAP to come into effect.

“A commitment to return up to £100 million of capital to shareholders – representing approximately 25% of the Company’s market capitalisation at the time of writing – should be viewed as a powerful indicator of the Board and Investment Adviser’s ambition to manage the prevailing share price discount.“