Augmentum Fintech plc - Augmentum Fintech plc Annual Report 2024
Annual Financial Report for the year ended
Financial highlights
-- NAV before performance fee increased by 3.1% to £303.3 million1 (31March 2023 : £294.1 million1) of which the value of the investment portfolio was £265.1 million (31 March 2023 : £254.3 million). -- NAV per share after performance fee increased by 5.4% to 167.4p2 (31March 2023 : 158.9p). The increase in NAV per share after performance fee was driven by net investment return for the year +6.8p and impact of share buybacks +1.7p. -- Cash reserves of £38.5 million as at31 March 2024 and £44.8 million as at31 May 2024 (31 March 2023 : £40.0 million).
Portfolio highlights
-- The valuation of the top three positions (Tide,Zopa Bank and Grover) plus a strong cash position, was just below Augmentum’s £170 million market capitalisation at year end. These three companies have grown revenues by an average of over 1,300% since initial investment and are either profitable or expected to reach profitability without further funding. -- Top 10 holdings, which represent 81% of portfolio value (31 March 2023 : 78%) grew revenue at an average of 65% year-on-year (31 March 2023 : 117%) and are cash generative (five positions) or have an average of 203 months cash runway. -- Cushon’s majority shareholding acquisition by NatWest Group completed during the period, and returned £22.8 million to the Company, delivering a return of 2.1x multiple on invested capital and an IRR of 62%. -- Post year end: exit fromOnfido through the acquisition by Entrust, delivering a return of 1.3x on invested capital and an IRR of 5.8%. -- There have now been six exits from the portfolio since inception all at or above their last reported value, which have realised a cumulative £89.6 million in proceeds – £55.9 million over their original cost (c2.7x invested capital). -- IRR of 16%4 on invested capital since inception (31 March 2023 : 18.5%).
Investment activity
-- Continued to maintain valuation and investment discipline across the portfolio and new investment opportunities. Over the year, £15.8 million was invested across one new company (Artificial Labs , a leadingLondon -based Insurtech) and six existing portfolio companies (31 March 2023 : £19.9 million invested in two new companies and eight existing portfolio companies). -- Post year end: Investment of £2.6 million in a new portfolio company LoopFX.
Portfolio updates
-- Tide (18.0% of NAV) grew itsUK SME banking market share to 10% and is now structurally profitable at a group level. InOctober 2023 Augmentum invested a further £4.2 million through a combination of primary and secondary transactions. International expansion continues withGermany , following the successful launch inIndia . --Zopa Bank (13.8% of NAV) raised £75 million in Tier 2 capital inOctober 2023 to support continued growth. It now has more than 1 million customers and reached full-year profitability for the first time in 2023. -- Volt (9.0% of NAV) completed a Series B funding round of$60m led by US investor IVP, withAugmentum investing a further £5.3 million. InJune 2023 , Worldpay and Shopify selected Volt as their global A2A partner.
“The Company’s
NAV per share after performance fee at
“The
“We maintained our investment discipline over the last year and, with our strong cash reserves (£44.8 million as at
“Several portfolio companies have posted meaningful profits this year and have attracted substantial growth capital of over £150 million during the period. The operational
performance of the vast majority of the companies in the portfolio has continued to be strong, with an average revenue growth of 65% across the top 10 holdings in the last 12 months. There have been some standout results, in some cases ahead of expectations, and the majority of our companies
have over two years of cash runway.”
"Fintech’s market share of global financial services revenue remains below 5% but is set to more than double during the next decade as fintech companies both
disrupt incumbent firms and become their partners for delivering digital transformation and harnessing the potential of new technologies. Hundreds of valuable companies will be built in
“This year, we have crossed several important milestones; six years since IPO, six exits delivered to the Company and the first portfolio position rising above a fair value of £50 million.”
Notes
1. NAV before performance fee.
2. The Board considers the NAV per share after any performance fees payable to be the most accurate way to reflect the underlying value of each share.
3.
Average months of cash runway based on current burn rate for non-cash generative companies in Top 10, using latest available data as of
4. Annualised IRR on invested capital and realisations since inception using valuations at the last reporting date. This measure does not include the impact of net expenses and the performance fee provision.
Enquiries
Augmentum Fintech +44 (0)20 3961 5420Tim Levene (Portfolio Manager) martha@augmentum.vcMartha Horrox (Marketing and IR) Quill PR +44 (0)20 7466 5050Nick Croysdill ,Sarah Gibbons-Cook augmentum@quillpr.com (Press and Media)Peel Hunt LLP Liz Yong ,Huw Jeremy +44 (0)20 7418 8900 (Investment Banking)Singer Capital Markets Robert Peel ,James Fischer +44 (0)20 7496 3000 (Investment Banking)Frostrow Capital LLP +44 (0)20 3709 8733Paul Griggs (Company Secretary)
About
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Annual Report and Financial Statements
for the year ended
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CHAIRMAN’S STATEMENT
Performance Highlights
31 March 2024 31 March 2023 NAV per Share after performance fee1* 167.4p 158.9p NAV per Share after performance fee Total Return* 5.4% 2.4% 100.5p 97.0p Total Shareholder Return* 3.6% (27.1%) Discount to NAV per Share after performance fee* (40.0%) (39.0%) Ongoing Charges Ratio* 2.0% 1.9%
* These are considered to be Alternative Performance Measures. Please see the Glossary and Alternative Performance Measures on page 78.
1 The Board considers the NAV per share after any performance fees provision to be the most accurate way to reflect the underlying value of each share, whereas accounting standards require the Group’s consolidated NAV per share to be presented before such fees are deducted as a consequence of our Portfolio Manager being within our Group structure and the fees therefore being eliminated on consolidation.
To read about our KPIs see page 23.
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I am pleased to present our sixth annual report since the launch of the Company in
Investment Policy
Performance
Your Company’s NAV per share after performance fee at
However, the price at which the shares traded continued to fail to represent the NAV throughout the period, ending at 100.5p per share, up 3.5p from the price at
The
Portfolio
In the first half of the year, the Company benefitted from its fifth portfolio realisation since IPO. We received proceeds of £22.8 million from the completion of NatWest Group’s acquisition of
Cushon
, appreciably ahead of its prior valuation and representing a 2.1x multiple on invested capital, and an IRR of 62%. Shortly after the year end, in April, we had our sixth exit. One of the leading global providers of online identity verification, Entrust, acquired
Deployments in the year included one new investment, £4.0 million in
There is a full review of the portfolio and investment transactions during the year in the Portfolio Manager’s Review beginning on page 15.
Portfolio Management
Our investment team continues to evaluate a wide range of opportunities, reviewing financial and commercial metrics in order to identify those most likely to be successful. We are active investors and our Portfolio Manager works closely with the companies we invest in, often taking either a board or an observer seat, and working closely with management to guide strategy consistent with long-term value creation. Our portfolio is already diversified across different fintech sectors and maturity stages and we are keen to expand it further. We are committed to responsible investing. We integrate Environmental, Social and Governance (“ESG”) factors in our analysis, due diligence and operating practices as we believe that these are key in mitigating risk and creating good investments.
Valuations
Your Board considers its governance role in the valuations process to be of utmost importance. We operate with a Valuations Committee in addition to an Audit Committee, both playing a key role in assessing portfolio valuation. Your Board understands that shareholders are often sceptical of private equity valuations as they cannot be readily verified in the way that public equities can. We have always maintained a consistent, rigorous and disciplined approach to valuations and the results we are reporting reflect an in-depth process, supported by our advisers. We maintained our multiples in the bull market for fintech when listed fintech multiples became elevated and so we have not needed to make subsequent corrections, unlike some others. The six disposals made to date provide some retrospective validation of this process.
We have carefully reviewed both the status and the forecasts of all of the portfolio companies, used appropriate and consistent methodologies to determine the value of each investment and sense checked our conclusions. We also benefit from the majority of our investments occupying a senior position in the capital structures of the investee companies, offering an element of protection against downside risk.
Discount Control
The Company’s shares traded at a discount to NAV for the whole of the year under review and up to the date of this report, notwithstanding the underlying value and strong prospects of the portfolio.
The Board has continued its programme of highly accretive buybacks, albeit more modestly in the second half, seeking to convey to the market our confidence in the value of the portfolio, while also balancing this with the need for capital to be available for new and follow-on investments. All the shares repurchased by the Company are being held in treasury to potentially reissue when the share price returns to a premium.
4,687,567 shares were bought back into treasury during the year to
We will seek to renew shareholders’ authorities to issue and buy back shares at the forthcoming AGM.
Potential Returns of Capital
As set out on page 25 of this annual report, the Company may, at the discretion of the Directors, return up to 50% of the gains realised during a year from the disposal of investments. Factors influencing decisions in this regard include the quantum of sale proceeds, the opportunities offered by the investment pipeline and the working capital requirements of the Company. To date the Board has applied a proportion of such gains to share buybacks, as this has been highly accretive to the Company’s NAV per share. This notwithstanding, the Directors intend to consult with shareholders to determine whether other means of cash distribution would be preferred.
Dividend
No dividend has been declared or recommended for the year.
Board
There have been no changes to the Board during the year but the three Directors at IPO in 2018 are all scheduled to retire from the Board at the same time, so it seems logical to stage these departures and commence Board refreshment now. After six years in the Chair, I have decided to retire first and will not be offering myself for re-election at the forthcoming AGM. We have an excellent mix of skills and experience on the Board already but intend to supplement our team with a new Director. We have engaged an independent search firm for this purpose.
It has been my pleasure to chair
AGM
Our AGM will be held on Thursday
Details of all of the resolutions can be found in the Notice of AGM, which is published separately from this annual report and will be sent to shareholders when the annual report is published. Both documents will also be available to view on or download from the Company’s website at www.augmentum.vc.
Your Directors consider that all the resolutions listed are in the best interests of the Company and its shareholders and recommend voting in favour of them, as your Directors intend to do in respect of their own holdings.
Outlook
Interest rates remain stubbornly high for now, but
The underlying need to digitalise and transform financial services remains. The opportunity is undiminished as the traditional operators continue to dominate, despite inroads made by some stellar fintech businesses with less costly, and in many cases more secure, business models. Penetration is still only c.5% across the industry although adoption of consumer focused fintech by younger demographics is markedly higher.
We maintained our investment discipline over the last year and, with our strong cash reserves (£44.8 million at
Your Board believes that the Company will see a closing of the discount at which its shares trade in due course and, with the underlying growth of the portfolio generally being very strong, expects that our patient shareholders will be well rewarded in time.
Chairman
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PORTFOLIO MANAGER’S REVIEW
Overview
When I wrote to you in November it was against the backdrop of a welcome change in sentiment. Equity markets had responded positively to central bank decisions to hold interest rates steady, ending the tightening cycle of 2022 and 2023. Since November, the anticipation of future rate cuts has further boosted confidence, with global equity indices reaching record highs in early 2024.
Whilst we are as optimistic as we were in November, we temper this with a dose of realism; rates remain elevated and whilst the first-rate cuts are now trickling through, they will likely remain high well into 2025. The market continues to set a high bar for growth stocks, seeking capital efficiency and profitability, as well as strong growth. While the listed fintech sector is yet to enjoy as broad a recovery as other areas of the market, robust investor demand has emerged for top quality companies delivering disruptive and differentiated propositions.
A flight to quality is also present in private markets, where investment activity has normalised to the medium-term trend. This environment benefits the Company as a preferred investor for quality fintechs. Several portfolio companies have posted meaningful profits this year and have attracted growth capital of over £150 million during the period.
The operational performance of the vast majority of the companies in the portfolio has continued to be robust, with average revenue growth of 65% across the top 10 in the last 12 months. There have been some standout results, in some cases ahead of expectations, and the majority have over 2 years of cash runway, if they are not already profitable.
Longer term, the increasing dominance of US capital markets is a challenge that
Fintech’s market share of global financial services revenue remains below 5% but is set to more than double during the next decade as fintech companies both disrupt incumbent firms and become their partners for harnessing the potential of new technologies
1
. Hundreds of valuable companies will be built in
Companies in the fintech sector are addressing significant opportunities; in 2023, over 50% of fintechs in the F-Prime index of emerging, publicly traded, financial technology companies, posted revenues above
Whilst IPOs have been almost entirely absent from the market in 2024, we hope to see their return in 2025. With IPOs absent, M&A activity, driven mainly by incumbent firms acquiring digital capabilities, has meanwhile continued at pace. The resilience and depth of the exit market for fintechs is one of its key strengths from an investment perspective. Fintech exits in Q1 2024 totalled 247 transactions and
In our view, the European early stage fintech ecosystem has reached an exciting point of maturity. Exit activity has supported multiple cycles of capital and talent recycling, including the 10 repeat founders in the Company’s portfolio. This includes the Company’s 6th realisation through M&A with the sale of
The flywheel of talent, funding and regulation is supporting quality companies through growth stages. As we move towards a period of greater market stability, we find ourselves operating from a position of strength. Our diversified portfolio is resilient and performing well. The Company’s cash position has been strengthened by recent exits, and we are addressing one of the most compelling sector-wide growth opportunities available to investors today.
In financial services, leveraging artificial intelligence (“AI”) is a top priority due to significant breakthroughs in generative AI over the past 24 months. Our engagement with AI spans three key areas; portfolio companies, such as
Our strategy remains consistent; investment discipline rooted in experience and fintech sector specialism, applied to proprietary pan-European deal flow with a distinct, value-add approach that resonates with exceptional founders. The Company remains a unique offer to public market investors, not just in terms of its structure but also in terms of the quality and diversification of the fintech exposure it offers.
Portfolio Overview
As I write the Company’s portfolio stands at 25 fintech companies, the same level as at
The portfolio’s top 10 companies employ over 4,500 people and generate over £1 billion in annual revenues, with year-on-year growth continuing at an average of 65%. Five of this group are profitable and the remaining five have an average cash runway of over 20 months.
As reflected in these recent transactions and true to our commitment six years ago at IPO, the portfolio has diversified across the breadth of verticals that make up the broader fintech opportunity, as well as by stages of maturity and European markets. The resilience and strong performance of the portfolio through more challenging macroeconomic times, and our growing record of realisations, continue to deepen our confidence in this approach.
At the end of March, the sum of our top three positions,
Tide,
These top three holdings are growing revenue at an average of 70% year-on-year, with all three continuing to challenge their respective market incumbents in industries ripe for disruption, a key investment thesis across many of the portfolio companies.
Tide
, our largest holding, becomes the first portfolio position to surpass £50 million in fair value having further solidified their position as the market leader for SME banking in the
We continue to support portfolio companies from their early stages through both capital and strategic support. Our typical first investment is made at the Series A stage and benefits from protective structures and board representation, which we currently hold at 17 of the 25 portfolio companies, including all of those that are early stage (pre-series B). In addition to close monitoring of progress and strategic input, ongoing engagement enables us to identify and action compelling follow-on investment opportunities as companies mature.
We have demonstrated consistency in valuation approach against the backdrop of volatility in public and private markets over the last two years. All the Company’s material exits have now been delivered at or above the last reported fair value of the holding. Its permanent capital model enables us to reinvest exit proceeds into the next generation of high-potential European fintech firms.
Following the exit of
Investment Activity
In my recent reports, I have described our decision to slow deployment into new opportunities in response to market conditions. The distortionary impact of heightened valuations since late 2020 continued to play out during the period and our extremely disciplined approach to valuation remained a key reason for rejecting investment prospects at the investment committee stage. Our total investment of £16 million across both new and follow-on investments compares to £19.9 million in the prior year. We maintain that reduced deployment has been the correct course in a market absent of the right investments at the right price.
When we see the right opportunity, our ability to deploy capital remains intact. In
Within the existing portfolio, we invested a further £5.3 million into
Volt
as part of a
We made a £4.2 million additional investment in
Tide
in an oversubscribed primary and secondary transaction in
In the reporting period, we also took up the Company’s shareholder rights to invest a total of £1.8 million in small additional rounds at Grover , Wayhome and Habito .
Other Top 10
During the last three years we have frequently talked about the resilience of the portfolio. This resilience is rooted in the strong fundamentals of the companies that we back and the ability of their management teams to weather challenges of all descriptions and return their companies to growth trajectories. The path to scale is never a straight line which is why a long-term view and ongoing support are essential when investing in private markets.
A patient approach is sometimes required to unlock long-term value. This has been demonstrated by the portfolio’s second largest holding,
Grover is focused on profitability, with their flexible subscription model now operating at significant scale with run-rate revenue now in excess of €250 million. The company achieved positive EBIT for the first three months of 2024 and plans to be cash-flow positive within the next 12 months. The last year has presented challenges for Grover but progress is underway to ensure performance is not stifled and the company can return to the growth it has long enjoyed. We have been prudent in its valuation to reflect the challenges the company has recently faced, and thus reduced the valuation by £8.6 million to £35.9 million.
At the beginning of this calendar year, we received a dividend of £0.8 million from BullionVault following a strong year of trading and record profits. BullionVault ’s performance has been supported by a combination of investor demand for gold and other precious metals as an inflationary hedge, and net interest income earned on fiat balances held by users on the exchange. This has driven an uplift in the fair value of the portfolio’s holding of £2.4 million. BullionVault is a mature position in the portfolio and serves a hedging function during times of heightened market uncertainty.
Gemini represents another story of resilience and recovery as the company returns to the portfolio’s Top 10. As a regulated multi-asset exchange and custodian serving both institutional and retail investors, Gemini has been a beneficiary of the positive price action in digital asset markets that has followed from increased regulatory clarity in the US and the approval of crypto ETF products. In addition, acting on behalf of Gemini users, the company has secured a full recovery of assets loaned by users to a crypto-lending company called Genesis. The uplift in the holding’s fair value of £2.6 million is reflective of Gemini ’s improved trajectory but remains prudent and supported by the downside protective structures held on this position.
We believe that the Company’s current exposure to the digital assets vertical, at 6.5% of net assets, is set at an appropriate level based on the maturity of the market. While we do not anticipate making further investments in this vertical in the near term, we continue to track institutional themes involving blockchain technologies that hold significant potential in the mid to long term. These include the tokenisation of real-world assets and trade settlement infrastructure.
One of the more unique propositions in the portfolio, Intellis , has continued to flourish in the last 12 months with an evolving strategy resulting in accelerated growth. The company deploys advanced proprietary AI trading strategies in foreign exchange markets and has the potential to scale significantly, both in current focus markets and potentially other asset classes. Intellis ’s lean cost base has led to a sustained period of profitability. The £1.7 million uplift in the holding reflects their encouraging progress.
The acquisition of
Anyfin’s
core product offering of credit refinancing combined with additional budgeting and savings tools has continued to support financial wellbeing for consumers across the Nordic region and
iwoca
provides another example of exceptional resilience in the portfolio, returning to performance and profitability following the end of Covid funding support schemes and the retreat of high-street lenders from small business funding.
iwoca
has demonstrated strong revenue growth with annualised revenue up 77% year-on-year and consistent profitability, with positive EBIT building month-on-month since
Exits
In the half-year report I commented on the completion of a fifth portfolio exit in June, with the sale of
Cushon
to NatWest Group.
With
Performance
For the year to
The consistent approach to valuations that we have shown through the cycle is supported by a growing track record of realisations. We hope that this will continue to support investor confidence in the fair values we report for the portfolio’s positions. Each position is valued using the most appropriate methodology with most positions using public market comparables either as a primary valuation technique or as a secondary cross-check.
Along with another strong year of growth across the portfolio, valuation recovery in public markets has led to an increase in the public market multiples used in our valuation approach. However, we remained prudent, with our average forward sales multiple remaining at 4.8x, consistent with the previous reporting period. Wider governance is a key element of the process with each valuation audited and signed off by the
As we have detailed in previous reports, we continue to structure our typical venture investments with downside protections such as liquidation preference and anti-dilution provisions. 21 out of the 25 portfolio positions carry these protections. Unlike ordinary share structures typically seen in the public markets, these structures protect the value of the Company’s position in the event of a reduction in the equity value of an investee company from the price paid.
Outlook
Each set of annual results provides an opportune moment to first reflect and then to chart the course ahead. We have crossed several important milestones; six years since IPO, six exits delivered to the Company and the first portfolio position rising above a fair value of £50 million. With this growing track record, we are optimistic about the future, operating with greater clarity and cohesion in a market primed for exceptional investments.
Cross-party political support for fintech in the
In many respects the
Healthy competition among nations to support fintech startups drives progress in the European fintech ecosystem. Amongst the key benefits of this are value and job creation, and financial inclusion for previously underserved groups such as SMEs. Across
We see excellent prospects in our pipeline and expect our deployment rate to return to our long-term average. Pre-seed and seed stage activity has been resilient, creating a strong pipeline of companies. Our proprietary origination engine, ADA, (named after the mathematician and computing pioneer,
In the past year, our team has adjusted focus from portfolio management to deal sourcing and deployment, assessing numerous companies and actively engaging across
Our investment strategy remains consistent, while the macroeconomic and policy environments become more favourable. We will continue to invest in exceptional teams at the early stages and support them to scale their companies and ultimately secure meaningful exits.
CEO
1 BCG, 2023
2 https://fprimecapital.com/blog/the-2024-state-of-fintech-report
3
4 Innovate Finance
5 McKinsey
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INVESTMENT OBJECTIVE AND POLICY
Investment objective
The Company’s investment objective is to generate capital growth over the long term through investment in a focused portfolio of fast growing and/or high potential private financial services technology (“fintech”) businesses based predominantly in the
Investment policy
In order to achieve its investment objective, the Company invests in early or later stage investments in unquoted fintech businesses. The Company intends to realise value through exiting these investments over time.
The Company seeks exposure to early stage businesses which are high growth, with scalable opportunities, and have disruptive technologies in the banking, insurance and wealth and asset management sectors as well as those that provide services to underpin the financial sector and other cross-industry propositions.
Investments are expected to be mainly in the form of equity and equity-related instruments issued by portfolio companies, although investments may be made by way of convertible debt instruments. The Company intends to invest in unquoted companies and will ensure that the Company has suitable investor protection rights where appropriate. The Company may also invest in partnerships, limited liability partnerships and other legal forms of entity. The Company will not invest in publicly traded companies. However, portfolio companies may seek initial public offerings from time to time, in which case the Company may continue to hold such investments without restriction.
The Company may acquire investments directly or by way of holdings in special purpose vehicles or intermediate holding entities (such as the Partnership*).
The Management Team has historically taken a board or board observer position at investee companies and, where in the best interests of the Company, will do so in relation to future investee companies.
The Company’s portfolio is expected to be diversified across a number of geographical areas predominantly within the
The Management Team will actively manage the portfolio to maximise returns, including helping to scale the team, refining and driving key performance indicators, stimulating growth, and positively influencing future financing and exits.
Investment restrictions
The Company will invest and manage its assets with the object of spreading risk through the following investment restrictions:
• the value of no single investment (including related investments in group entities or related parties) will represent more than 15 per cent. of Net Asset Value;
• the aggregate value of seed stage investments will represent no more than 1 per cent. of Net Asset Value; and
•
at least 80 per cent. of Net Asset Value will be invested in businesses which are headquartered in or have their main centre of business in the
In addition, the Company will itself not invest more than 15 per cent. of its gross assets in other investment companies or investment trusts which are listed on the Official List of the
Each of the restrictions above will be calculated at the time of investment and disregard the effect of the receipt of rights, bonuses, benefits in the nature of capital or by reason of any other action affecting every holder of that investment. The Company will not be required to dispose of any investment or to rebalance the portfolio as a result of a change in the respective valuations of its assets.
Hedging and derivatives
Save for investments made using equity-related instruments as described above, the Company will not employ derivatives of any kind for investment purposes, but derivatives may be used for currency hedging purposes.
Borrowing policy
The Company may, from time to time, use borrowings to manage its working capital requirements but shall not borrow for investment purposes. Borrowings will not exceed 10 per cent. of the Company’s Net Asset Value, calculated at the time of borrowing.
Cash management
The Company may hold cash on deposit and may invest in cash equivalent investments, which may include short-term investments in money market type funds and tradeable debt securities.
There is no restriction on the amount of cash or cash equivalent investments that the Company may hold or where it is held. The Board has agreed prudent cash management guidelines with the AIFM and the Portfolio Manager to ensure an appropriate risk/return profile is maintained. Cash and cash equivalents are held with approved counterparties.
It is expected that the Company will hold between 5 and 15 per cent. of its Gross Assets in cash or cash equivalent investments, for the purpose of making follow-on investments in accordance with the Company’s investment policy and to manage the working capital requirements of the Company.
Changes to the investment policy
No material change will be made to the investment policy without the approval of Shareholders by ordinary resolution. Non-material changes to the investment policy may be approved by the Board. In the event of a breach of the investment policy set out above or the investment and gearing restrictions set out therein, the Management Team shall inform the AIFM and the Board upon becoming aware of the same and if the AIFM and/or the Board considers the breach to be material, notification will be made to a
* Please refer to the Glossary on page 78.
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PORTFOLIO REVIEW
Fair Fair value of Net Impact of value of % of Net holding investments/ foreign Investment holding assets at (realisations currency return at after 31 March £’000 rate £’000 31 March performance 2023 changes£’000 2024 fee £’000 £’000 Tide 35,692 4,176 – 11,425 51,293 18.0% Zopa Bank^ 30,093 – – 9,198 39,291 13.8% Grover 43,150 1,368 (1,103) (7,522) 35,893 12.6% Volt 14,216 5,300 – 5,942 25,458 9.0% BullionVault^ 11,564 (799) – 2,354 13,119 4.6% Gemini 8,306 – (308) 2,926 10,924 3.9% Onfido 10,242 – (51) (43) 10,148 3.6% Intellis 8,412 – (79) 1,741 10,074 3.5% AnyFin 9,304 – (817) 928 9,415 3.3% Iwoca 7,882 – – 44 7,926 2.8% Top 10 178,861 10,045 (2,358) 26,993 213,541 75.1% Investments Other 52,644 5,931 (564) (6,469) 51,542 18.1% Investments* Cushon 22,790 (22,790) – – – 0.0% Total 254,295 (6,814) (2,922) 20,524 265,083 93.2% Investments Cash & cash 40,015 38,505 13.5% equivalents Net other current (186) (271) -0.1% liabilities Net Assets 294,124 303,317 106.7% Performance (16,819) (18,980) -6.7% Fee accrual Net Assets after 277,305 284,337 100.0% performance fee
^
Held via
*
There are fourteen other investments (
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KEY INVESTMENTS
Tide
Tide’s (www.tide.co) mission is to help small and mid-sized businesses (“SMEs”) save time and money in the running of their businesses. Customers can be set up with an account number and sort code in less than 10 minutes, and the company is building a comprehensive suite of digital banking services for businesses, including automated accounting, instant access to credit, card control, instant card freezing and quick, mobile invoicing. Tide acquired Funding Options in 2022, giving Tide’s customers access to a wider range of credit options and creating one of the UK’s biggest digital marketplaces for SME credit. Tide continues to expand its product offering and launched Tide Accounting and Tide Acquiring in 2023, and recently joined the Current Account Switch Service. Tide is also expanding geographically. Tide launched in
Source: Tide 31 March 31 March 2024 2023 £’000 £’000 Cost: 17,376 13,200 Value: 51,293 35,692 Valuation Methodology^ Rev.Multiple Rev.Multiple
As per last filed audited accounts of the investee company for the year to
2022 2021 £’000 £’000 Turnover 59,176 33,541 Pre tax loss (40,781) (32,719) Net assets 34,990 66,297
^ See note 13(iii) on pages 62 to 64.
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Zopa
Having been founded in 2005 as the world’s first peer-to peer (“P2P”) lending company, Zopa (www.zopa.com) launched
Current products include fixed term and smart savings, wedding and home improvement loans, debt consolidation loans, a credit card and motor finance.
Source: Zopa 31 March 31 March 2024 2023 £’000 £’000 Cost: 33,670 33,670 Value: 39,291 30,093 Valuation Methodology^ Rev.Multiple Rev.Multiple
As per last filed audited accounts of the investee company for the year to
2023 2022 £’000 £’000 Operating income 223,544 153,737 Pre tax profit/loss 10,828 (23,783) Net assets 413,174 299,674
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Grover
In
Source: Grover 31 March 31 March 2024 2023 £’000 £’000 Cost: 9,295 7,927 Value: 35,893 43,150 Valuation Methodology Rev.Multiple Rev.Multiple
As an unquoted German company, Grover is not required to publicly file audited accounts.
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Volt
Volt (www.volt.io) is a provider of account-to-account payments connectivity for international merchants and payment service providers (PSPs). An application of Open Banking, account-to-account payments – where funds are moved directly from one bank account to another rather than via payment rails – delivering benefits to both consumers and merchants. This helps merchants shorten their cash cycle, increase conversion and lower their costs. Volt offers coverage in 25 markets and counting, including
Source: Volt 31 March 31 March 2024 2023 £’000 £’000 Cost: 9,800 4,500 Value: 25,459 14,216 Valuation Methodology Rev.Multiple CPORT
Volt is not required to publicly file audited accounts.
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BullionVault
BullionVault (www.bullionvault.co.uk) is a physical gold and silver market for private investors online. It enables people across 175 countries to buy and sell professional-grade bullion at competitive prices online, with
Each user’s property is stored in secure, specialist vaults in
The company generates monthly profits from trading, commission and interest. It is cash generative, dividend paying, and well-placed for any cracks in the wider financial markets.
Source: BullionVault 31 March 31 March 2024 2023 £’000 £’000 Cost: 8,424 8,424 Value: 13,119 11,565 Valuation Methodology EBITDA Multiple EBITDA Multiple Dividends paid: 799 564
As per last filed audited accounts of the investee company for the year to
2023 2022 £’000 £’000 Gross profit 13,311 13,071 Pre tax profit 13,023 8,364 Net assets 46,323 41,294
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Gemini
Gemini (www.gemini.com) enables individuals and institutions to safely and securely buy, sell and store cryptocurrencies. Gemini was founded in 2014 by Cameron and
Gemini announced acquisitions of portfolio management services company BITRIA and trading platform Omniex in
Source: Gemini 31 March 31 March 2024 2023 £’000 £’000 Cost: 10,150 10,150 Value: 10,924 8,306 Valuation Methodology Rev.Multiple Rev.Multiple
Gemini is not required to publicly file audited accounts.
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government-issued ID is genuine or fraudulent, and then compares it against their facial biometrics. Using computer vision and a number of other AI technologies,
Source: Onfido 31 March 31 March 2024 2023 £’000 £’000 Cost: 7,750 7,750 Value: 10,148 10,242 Valuation Methodology Transaction Price Rev.Multiple
As per last filed audited accounts of the investee company for the 13 months to
2023 2022 £’000 £’000 Turnover 102,099 94,513 Pre tax loss (70,190) (45,159) Net (liability)/assets (9,372) 40,165
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Intellis
Intellis, based in
onboarding of new
Following an initial investment of €1 million In 2019,
Source: Intellis 31 March 31 March 2024 2023 £’000 £’000 Cost 2,696 2,696 Value 10,074 8,412 Valuation Methodology P/E Multiple P/E Multiple
As an unquoted Swiss company, Intellis is not required to publicly file audited accounts.
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Anyfin
Anyfin (www.anyfin.com) was founded in 2017 by former executives of
Source: Anyfin 31 March 31 March 2024 2023 £’000 £’000 Cost: 9,924 9,924 Value: 9,416 9,305 Valuation Methodology Rev. Multiple Rev. Multiple
As an unquoted Swedish company, Anyfin is not required to publicly file audited accounts.
.
Founded in 2011, iwoca (www.iwoca.co.uk) uses award-winning technology to disrupt small business lending across
31 March 31 March Source: Monese 2024 2023 £’000 £’000 Cost: 7,852 7,852 Value: 7,926 7,882 Valuation Methodology Rev. Multiple Rev. Multiple
As per last filed audited accounts of the investee company for the year to
2022 2021 £’000 £’000 Turnover 78,260 68,468 Pre tax loss (10,980) (4,119) Net assets 32,956 40,579
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OTHER INVESTMENTS
Monese
Monese (www.monese.com) offers consumers the ability to open a
.
Farewill
In the next 10 years, £1 trillion of inheritance will pass between generations in the
Since its launch in 2015 Farewill’s customers have pledged over £970 million to charities through their wills.
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Wematch
Wematch (www.wematch.live) is a capital markets trading platform that helps financial institutions transition liquidity to an orderly electronic service, improving productivity and de-risking the process of voice broking. Their solution helps traders find liquidity, negotiate, trade, optimise and manage the lifecycle of their portfolios of assets and trade structures. Wematch is focused on structured products such as securities financing, OTC equity derivatives and OTC cleared interest rates derivatives.
Created in 2017, Wematch is headquartered in
.
Parafi
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Wayhome
Wayhome (www.wayhome.co.uk) offers a unique part-own part-rent model of home ownership, requiring as little as 5% deposit with customers paying a market rent on the portion of the home that Wayhome owns, with the ability to increase the equity in the property as their financial circumstances allow. It launched to the public in
Wayhome opens up owner-occupied residential property as an asset class for pension funds, who will earn inflation-linked rent on the portion not owned by the occupier.
.
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Artificial
Artificial (www.artificial.io) is an established underwriting technology provider for the London Insurance Market. This
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FullCircl
FullCircl (www.fullcircl.com) was formed from the combination of Artesian and Duedil. Artesian was founded with a goal to change the way B2B sellers communicate with their customers. They built a powerful sales intelligence service using the latest in Artificial Intelligence and Natural Language Processing to automate many of the time consuming, repetitive tasks that cause the most pain for commercial people.
In
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Sfermion
Sfermion (www.sfermion.io) is an investment fund focused on the non-fungible token (NFT) ecosystem. Their goal is to accelerate the emergence of the open metaverse by investing in the founders, companies, and entities creating the infrastructure and environments forming the foundations of our digital future.
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Baobab
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Epsor
Epsor (www.epsor.fr) is a
.
Founded in 2015,
The business seeks to change the way maturing Scottish whisky is owned, stored and financed, giving self-directed investors an opportunity to profit from whisky ownership, with the ability to trade 24/7. At its
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Tesseract
Tesseract (www.tesseractinvestment.com) is a forerunner in the dynamic digital asset sector, providing digital lending solutions to market makers and other institutional market participants via regulated custody and exchange platforms. Tesseract was founded in 2017, is regulated by the
Tesseract provides an enabling crypto infrastructure to connect digital asset lenders with digital asset borrowers. This brings enhanced capital efficiency with commensurate cost reduction to trading, in a space that is currently significantly underleveraged relative to traditional capital markets.
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Previse
Previse (www.previse.co) allows suppliers to be paid instantly. Previse’s artificial intelligence (“AI”) analyses the data from the invoices that sellers send to their large corporate customers. Predictive analytics identify the few problematic invoices, enabling the rest to be paid instantly. Previse charges the suppliers a small fee for the convenience, and shares the profit with the corporate buyer and the funder. Previse precisely quantifies dilution risk so that funders can underwrite pre-approval payables at scale. In
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Habito
Habito (www.habito.com) is transforming the United Kingdom’s £1.3 trillion mortgage market by taking the stress, arduous paperwork, hidden costs and confusing process out of financing a home.
Since launching in
In
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STRATEGIC REPORT
Business Review
The Strategic Report, set out on pages 19 to 31, provides a review of the Company’s business, performance during the year and its strategy going forward. It also considers the principal risks and uncertainties facing the Company and includes information for shareholders to assess how the Directors have performed their duty to promote the success of the Company. In this respect, information on how the Directors have discharged their duties under Section 172 of the Companies Act 2006 can be found on pages 27 and 28.
The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the date of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
Strategy and Strategic Review
In accordance with its investment objective and policy, the Company continued throughout the year under review to pursue the generation of capital growth over the long term through investment in a focused portfolio of fast growing and/or high potential private financial services technology (“fintech”) businesses based predominantly in the
The Company is an approved investment trust company and an alternative investment fund (“AIF”) under the Alternative Investment Fund Managers Regulations (“UK AIFMD”). It has appointed
Principal Risks and Risk Management
The Board is responsible for the ongoing identification, evaluation and management of the risks faced by the Company and has established a process for the regular review of these risks and their mitigation. This process accords with the
The Company maintains a framework of identified key risks, with the policies and processes devised to monitor, manage and mitigate them where possible. This risk map is reviewed regularly by the Audit Committee.
Further details of the financial risks are included in note 13 starting on page 61.
The Board has carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency and liquidity. Further details of the risk management processes that are in place can be found in the Corporate Governance Statement.
The Board considers that the risks set out below are the principal risks currently facing the Company.
Principal Risks and Uncertainties Mitigation Investment Risks The Company invests in early-stage companies which, by their nature, may be smaller capitalisation companies. Such companies may not have the financial strength, diversity and the resources of larger and more established companies, and may find it more difficult to operate, especially in periods of low economic growth. The Portfolio Manager has put in place a rigorous investment process which The performance of the Group’s ensures disciplined investment selection portfolio is influenced by a number of and portfolio management. This includes factors. These include, but are not detailed due diligence, regular limited to: portfolio reviews and in many cases active engagement with portfolio (i) the quality of the initial companies by way of board representation investment decision; or observer status. (ii) reliance on co-investment parties; Investing in young businesses that may be cash consuming for a number of years (iii) the quality of the management is inherently risky. In order to reduce team of each underlying portfolio the risks of permanent capital loss the company and the ability of that team to Portfolio Manager will, where possible, successfully implement its business structure investments to afford a degree strategy; of downside protection through mechanisms such as a liquidation (iv) the success of the Portfolio preference and/or antidilution Manager in building an effective provisions. working relationship with each team in order to agree and implement The Portfolio Manager provides a value-creation strategies; detailed update at each Board meeting, including, inter alia, investee company (v) changes in the market or developments and funding requirements. competitive environment in which each portfolio company operates; and (vi) environmental, social and governance (“ESG”) factors. Any of these factors could have an impact on the valuation of an investment and on the Group’s ability to realise the investment in a profitable and timely manner. The Group attempts to mitigate this risk by making investments across a range of Portfolio Diversification Risk companies in a range of fintech company subsectors and in companies at different The Group is subject to the risk that stages of their lifecycle in accordance its portfolio may not be adequately with the Investment Objective and diversified, being heavily concentrated Investment Policy. There is also in the fintech sector and the portfolio geographic diversification with 63% of value may be dominated by a single or the portfolio being based in theUK and limited number of companies. 37% in continentalEurope ,Israel and the US. Given the nature of the Company’s Investment Objective this remains a significant risk. Cash Risk Returns to the Company through holding cash and cash equivalents are relatively low. The Company may hold significant cash balances, particularly To mitigate this risk the Board has when a fundraising has taken place, and agreed prudent cash management this may have a drag on the Company’s guidelines with the AIFM and Portfolio performance. Manager. The Company may require cash to fund The Group maintains sufficient cash potential follow-on investments in resources to manage its ongoing existing investee companies. If the operational and investment commitments. Company does not hold sufficient cash Regular discussions are held to consider to participate in subsequent funding the future cash requirements of the rounds carried out by portfolio Company and its investments to ensure companies, this could result in the that sufficient cash is maintained. interest the Company holds in such businesses being diluted. This may have a material adverse effect on the Company’s financial position and returns for shareholders. Macroeconomic Risks Within the constraints dictated by its The performance of the Group’s objective, the Company’s portfolio is investment portfolio is materially diversified across a range of sectors, influenced by economic conditions. has no leverage, a net cash balance and These may affect demand for services the Portfolio Manager seeks to structure supplied by investee companies, foreign investments to provide downside exchange rates, input costs, interest protection where possible. rates, debt and equity capital markets and the number of active trade and The Board, AIFM and Portfolio Manager financial buyers. monitor the macroeconomic environment and this is discussed at each Board All of these factors could have an meeting, along with the potential impact on the Group’s ability to impact. The Portfolio Manager also realise a return from its investments provides a detailed update on the and cannot be directly controlled by investments at each meeting, including, the Group. Particular current factors inter alia, developments in relation to include inflation, recession fears and the macro environment and trends. the conflicts inUkraine and theMiddle East . A robust and sustainable corporate Strategy Implementation Risks governance structure has been implemented with the Board responsible The Group is subject to the risk that for continuing to act in the best its long-term strategy and its level of interests of shareholders. performance fail to meet the expectations of its shareholders. An experienced fintech Portfolio Manager has been retained in order to deliver A persistent discount could reflect a the strategy. lack of demand for the Company's shares and prevents fund raising through share The Company and the Portfolio Manager issues. endeavour to keep the market informed of portfolio developments. Valuation Risk The valuation of investments in accordance with IFRS 13 and International Private Equity and Venture Capital (IPEV) Valuation Guidelines requires considerable judgement and is explained in note 19.12. The Company has a rigorous valuation The Company’s investments are illiquid policy and process as set out in notes and a sale may require the consent of 19.4 and 19.12. This process is led by other interested parties. Such the Board and includes benchmarking investments may therefore be difficult valuations against actual prices to value and realise. Such realisations received when a sale of shares is made, may involve significant time and cost as well as taking account of liquidity and/or result in realisations at levels issues and/or any restrictions over below the value of such investments as investments. estimated by the Company. Valuations are often based on comparator prices and market-based multiples, which can be affected by equity market sentiment and comparators’ situations that may not reflect the individual positions of companies invested in. The Board manages this risk by: • receiving reports from AFML at each Board meeting, such reports include any significant changes in the make-up of the team supporting the Company; • delegating to the ManagementEngagement & Remuneration Committee Key person risk oversight of the remuneration of employees of AFML; There is a risk that the individuals responsible for managing the portfolio • meeting the wider team, outside the may leave their employment or may be designated lead managers, at the prevented from undertaking their Portfolio Manager’s offices and by video duties. conference, and encouraging the participation of the wider AFML team in investor updates; and • delegating to the ManagementEngagement & Remuneration Committee responsibility to perform an annual review of the service received from AFML, including, inter alia, the team supporting the lead managers and succession planning. Credit Risk As noted the Company may hold The Board has agreed prudent cash significant cash balances. There is a management guidelines with the AIFM to risk that the banks with which the cash ensure an appropriate risk/return is deposited fail and the Company could profile is maintained. Cash and cash be adversely affected through either equivalents are held with approved delay in accessing the cash deposits or counterparties, who are required to have the loss of the cash deposit. When a high credit rating and financial evaluating counterparties there can be strength. Compliance with these no assurance that the review will guidelines is monitored regularly and reveal or highlight all relevant facts reported to the Board on a quarterly and circumstances that may be necessary basis. or helpful in evaluating the creditworthiness of the counterparty. To manage these risks the Board: • receives compliance reports from the AIFM and the Portfolio Manager, which include, inter alia, details of compliance with applicable laws and regulations; Operational Risk • reviews internal control reports, The Board is reliant on the systems of where available, key policies, including the Group and Company’s service measures taken to combat cybersecurity providers and as such disruption to, or issues, and also the disaster recovery a failure of, those systems could lead procedures of its service providers; to a failure to comply with law and regulations leading to reputational • maintains a risk matrix with details damage and/or financial loss to the of risks to which the Group and Company Group and/or Company. are exposed, the controls relied on to manage those risks and the frequency of operation of the controls; and • receives updates on pending changes to the regulatory and legal environment and progress towards the Group and Company’s compliance with these.
Emerging Risks
The Company has carried out a robust assessment of the Company’s emerging and principal risks and the procedures in place to identify emerging risks are described below.
The Audit Committee reviews the risk map at least half-yearly. Emerging risks are discussed in detail as part of this process and also throughout the year to try to ensure that emerging (as well as known) risks are identified and, so far as practicable, mitigated.
The experience and knowledge of the Directors are useful in these discussions, as are update papers and advice received from the Board’s key service providers such as the Portfolio Manager, the AIFM and the Company’s Brokers. In addition, the Company is a member of the AIC, which provides regular technical updates as well as drawing members’ attention to forthcoming industry and/or regulatory issues and advising on compliance obligations.
The Board does not expect the conflicts in
ESG
As mentioned above under Investment Risks, the Board recognises the risks posed by environmental, social and governance (“ESG”) factors, particularly with respect to the portfolio. Investment companies are currently exempt from reporting under the
Performance and Prospects
Performance
The Board assesses the Company’s performance relative to its investment objective using the following Key Performance Indicators (“KPIs”). Due to the unique nature and investment policy of the Company, with no direct listed competitors or comparable indices, the Board considers that there is no relevant external comparison against which to assess the KPIs and as such performance against the KPIs is considered on an absolute basis. Information on the Company’s performance is provided in the Chairman’s Statement and the Portfolio Manager’s Review. The KPIs have not changed from the prior year:
• The Net Asset Value (“NAV”) per share after performance fee total return*
The Directors regard the NAV per share after performance fee total return as being the critical measure of value delivered by the Company over the long term. The Board considers that the NAV per share after performance fee better reflects the current value of each share than the consolidated NAV per share figure, the calculation of which eliminates the performance fee.
This is an Alternative Performance Measure (“APM”) and its calculation is explained in the Glossary on page 78 and in note 16 on page 65. Essentially, it adds back distributions made in the period to the change in the NAV after performance fee to arrive at a total return.
The Group’s NAV per share after performance fee total return for the year was 5.4% (2023: 2.4%). This result is discussed in the Chairman's Statement on page 2.
• The Total Shareholder Return (“TSR”)*
The Directors also regard the Company’s TSR as a key indicator of performance. Like the NAV per share after performance fee total return discussed above, this is an APM and its calculation is explained in the Glossary on page 79. The TSR is similar in nature to the NAV per share after performance fee total return, except that it adds back distributions made in the period to the change in the share price, to reflect more closely the return in the hands of shareholders. Share price performance is monitored closely by the Board.
The Company's TSR for the year was +3.6% (2023: negative 27.1%). Whilst this is broadly consistent with the NAV per share total return for the year, the share price remains under pressure following the swing in market sentiment in 2022.
• Ongoing Charges Ratio (“OCR”)*
Ongoing charges represent the costs that shareholders can reasonably expect to pay from one year to the next, under normal circumstances.
The Board reviews the costs incurred in operating the Company at each Board meeting and seeks to maintain a sensible balance between strong service and keeping costs down.
The terms of appointment of the Company’s AIFM and the Portfolio Manager are set out on pages 24 and 25. In reviewing their continued appointment the Board took into account the ongoing charges ratio of other investment companies with specialist mandates.
The Group’s OCR for the year was 2.0% (2023: 1.9%).
*See Glossary on page 78
Discount/Premium*
The Board monitors the price of the Company's shares in relation to their net asset value after performance fee and the premium/discount at which the shares trade. Shareholder approvals are sought each year to issue and buy back shares, which can assist in reducing share price volatility. However, the level of discount or premium is understood to be mostly a function of investor sentiment and demand for the shares, over which the Board has little influence. The Company has the same Portfolio Manager, management fee arrangements and cost base that it had in 2021 when the shares traded at a premium to NAV and the Board does not believe that Company specific factors have influenced the discount. Rather, the share price falling to a discount to NAV at the beginning of 2022 correlates with market sentiment turning against growth stocks generally, with the Company's shares being affected notwithstanding the portfolio’s potential. The year under review saw little improvement.
The Board has sought to communicate its faith in the underlying value of the portfolio and simultaneously to take advantage of the discount by continuing to undertake a limited programme of accretive share buybacks, to the benefit of remaining shareholders, whilst balancing the need to retain cash for new and follow-on investments. It is thought that helping to create some additional market liquidity for sellers in this way also had an effect on stabilising the share price. All shares purchased are held in treasury and will potentially be reissued when the share price returns to a premium to NAV after performance fee. Shareholder authorities to issue and buy back shares are being sought at the forthcoming AGM.
Performance, Prospects and Future developments
The Company’s current position and prospects are described in the Chairman’s Statement and Portfolio Manager’s Review sections of this annual report.
The Board’s primary focus is on the Portfolio Manager’s investment approach and performance, which are thoroughly discussed at every Board meeting. In addition, the AIFM, the Portfolio Manager and the Company’s Brokers update the Board on company communications, promotion, investor feedback and market background.
Outlines of performance, investment activity and strategy, market background during the year and outlook are provided in the Chairman’s Statement on pages 2 to 4 and the Portfolio Manager’s Review on pages 15 to 18.
Viability Statement
The Board has considered the Company’s financial position, including its ability to liquidate portfolio assets and meet its expenses as they fall due, and notes the following:
As part of its review the Board considered the impact of a significant and prolonged decline in the Company’s performance and prospects. This included modelling the impact of a 50% fall in the value of the investment portfolio, the impact of this on the Company’s ongoing charges and reviewing the ability of the Company to meet its liabilities as they fall due and support investee companies with future funding requirements in such a scenario.
The expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments currently foreseen which would alter that position.
In considering the Company's longer-term viability, as well as considering the principal risks on pages 19 to 22 and the financial position of the Company, the Board considered the following factors and assumptions:
• The Company is and will continue to be invested primarily in long-term illiquid investments which are not publicly traded;
• The Board reviews the liquidity of the Company, regularly considers any commitments it has and cash flow projections;
• The Board, AIFM and Portfolio Manager will continue to adopt a long-term view when making investments and anticipated holding periods will be at least five years;
• As detailed in the Directors’ Report, the Valuations Committee oversees the valuation process;
• There will continue to be demand for investment trusts;
• Regulation will not increase to a level that makes running the Company uneconomical; and
• The performance of the Company will continue to be satisfactory.
Whilst acknowledging that market and economic uncertainty remain heightened in view of inflation, concerns about a recession and the
Going Concern
In light of the conclusions drawn in the foregoing Viability Statement and as set out in note 19.1 to the financial statements on page 66, the Company has adequate financial resources to continue in operational existence for at least the next 12 months from the date of signing of this report.
Therefore, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. In reviewing the position as at the date of this report, the Board has considered the guidance on this matter issued by the
Management Arrangements
Principal Service Providers
The Company is structured as an internally managed closed-ended investment company.
The other principal service providers to the Company are
Frostrow, under the terms of its AIFM agreement with the Company, provides, inter alia , the following services:
•
oversight of the portfolio management function delegated to
• promotion of the Company’s shares;
• investment portfolio administration and valuation;
• risk management services;
• share price discount and premium monitoring;
• administrative and company secretarial services;
• advice and guidance in respect of corporate governance requirements;
• maintenance of the Company’s accounting records;
• review of the Company’s website;
• preparation and publication of annual and half year reports; and
• ensuring compliance with applicable legal and regulatory requirements.
AIFM Fees
Under the terms of the AIFM Agreement Frostrow is entitled to an annual fee of:
• on NAV up to £150 million: 0.225% per annum;
• on that part of NAV in excess of £150 million and up to £500 million: 0.2% per annum; and
• on that part of NAV in excess of £500 million: 0.175% per annum,
calculated on the last working day of each month and payable monthly in arrears.
The AIFM Agreement may be terminated by either party on giving notice of not less than 12 months.
Portfolio Manager
Under the terms of its Portfolio Management Agreement,
• seeking out and evaluating investment opportunities;
• recommending the manner by which monies should be invested, disinvested, retained or realised;
• advising on how rights conferred by the investments should be exercised;
• analysing the performance of investments made; and
• advising the Company in relation to trends, market movements and other matters which may affect the investment objective and policy of the Company.
Portfolio Manager Fees
Portfolio Management Fee
Under the terms of the
Performance Fee
The Portfolio Manager is entitled to a performance fee in respect of the performance of any investments and follow-on investments. Each performance fee operates in respect of investments made during a 24 month period and related follow
-
on investments made for a further 36 month period, save that the first performance fee would be in respect of investments acquired using 80% of the net proceeds of the Company’s IPO in
Subject to certain exceptions, the Portfolio Manager receives, in aggregate, 15% of the net realised cash profits from the investments and follow-on investments made over the relevant period once the Company has received an aggregate annualised 10% realised return on investments (the “hurdle”) and follow-on investments made during the relevant period. The Portfolio Manager’s return is subject to a ‘’catch-up’’ provision in its favour. The performance fee is paid in cash as soon as practicable after the end of each relevant period, save that at the discretion of the Board payments of the performance fee may be made in circumstances where the relevant basket of investments has been realised in part, subject to claw-back arrangements in the event that payments have been made in excess of the Portfolio Manager’s entitlement to any performance fees as calculated following the relevant period.
Based on the investment valuations as at
The Portfolio Management Agreement may be terminated by either party giving notice of not less than 12 months.
AIFM and Portfolio Manager Evaluation and Re-Appointment
The performance of Frostrow as
Following a review at a
• the quality and depth of experience of the management, company secretarial, administrative and marketing team that the AIFM brought to the management of the Company; and
• the quality and depth of experience allocated by the Portfolio Manager to the management of the portfolio, together with the clarity and rigour of the investment process.
Depositary
The Company has appointed
The Depositary provides the following services, inter alia , under its agreement with the Company:
• verification of non-custodial investments;
• cash monitoring;
• processing of transactions; and
• foreign exchange services.
The Depositary must take reasonable care to ensure that the Company is managed in accordance with the Financial Conduct Authority’s Investment Funds Sourcebook, the
Under the terms of the Depositary Agreement, the Depositary is entitled to receive an annual fee of £25,000 plus certain event driven fees.
The notice period on the Depositary Agreement is not less than six months.
Registrar
The Company’s registrar is
Dividend Policy
The Company invests with the objective of achieving capital growth over the long term and it is not expected that a revenue dividend will be paid in the foreseeable future. The Board intends only to pay dividends out of revenue to the extent required in order to maintain the Company’s investment trust status.
Potential returns of capital
It is expected that the Company will realise investments from time to time. The proceeds of these disposals may be re - invested, used for working capital purposes or, at the discretion of the Board, returned to shareholders.
The Company has committed to return to Shareholders up to 50 per cent. of the gains realised by the disposal of investments in each financial year, with such returns of capital expected to be made on an annual basis. The Company may also seek to make returns of capital to Shareholders where available cash is not expected to be substantially deployed within the following 12-18 months. The options for effecting any return of capital to shareholders may include the Company making tender offers to purchase Shares, paying special dividends or any alternative method or a combination of methods. Certain methods intended to effect a return of capital may be subject to, amongst other things, shareholder approval. Shareholders should note that the return of capital by the Company is at the discretion of the Directors and is subject to, amongst other things, the working capital requirements of the Company. The Board has affirmed, that the Company will continue to retain the bulk of the proceeds of the investment realisations to date for reinvestment to support its capital growth objective and utilise the balance to support accretive share buybacks.
Company Promotion
The Company has retained the services of
Further, in addition to AIFM services, Frostrow also provides investor relations & marketing services.
Engaging regularly with investors:
The Company’s brokers and Frostrow meet with institutional investors, discretionary wealth managers and execution-only platform providers around the
Making Company information more accessible:
Frostrow manages the investor database and produces all key corporate documents, distributes factsheets, annual reports and updates from the Portfolio Manager on portfolio and market developments; and
Monitoring market activity, acting as a link between the Company, shareholders and other stakeholders:
The Company’s brokers and Frostrow maintain regular contact with sector broker analysts and other research and data providers, and provide the Board with up-to-date information on the latest shareholder and market developments.
Community, Social, Employee, Human Rights, Environmental Issues, Anti-bribery and Anti-corruption
The Company is committed to carrying out business in an honest and fair manner with a zero-tolerance approach to bribery, tax evasion and corruption. As such, policies and procedures are in place to prevent bribery and corruption. In carrying out its activities, the Company aims to conduct itself responsibly, ethically and fairly, including in relation to social and human rights issues.
As an investment trust with limited internal resource, the Company has little impact on the environment. The Company believes that high ESG (Environmental, Social and Governance) standards within both the Company and its portfolio companies make good business sense and have the potential to protect and enhance investment returns. Consequently, the Group’s investment process ensures that ESG issues are taken into account and best practice is encouraged.
Diversity
There are currently three male and two female Directors (being 40% female representation) on the Board, and these Directors have three different nationalities and diverse educational backgrounds. The Company aims to have a balance of relevant skills, experience and background amongst the Directors on the Board and believes that all Board appointments should be made on merit and with due regard to the benefits of diversity. The Company's diversity policy is set out on pages 41 and 42. The Board also encourages diversity within AFML, where the team of 12 people represents four different nationalities and is 42% female. The Board is also keen to promote the benefits of diversity in the companies we invest in.
Engaging with our stakeholders
The following ‘Section 172’ disclosure describes how the Directors have had regard to the views of the Company’s stakeholders in their decision-making.
Why? How? Who? HOW THE BOARD THE AIFM AND THE STAKEHOLDER GROUP THE BENEFITS OF ENGAGEMENT PORTFOLIO MANAGER HAS ENGAGED WITH OUR STAKEHOLDERS WITH OUR STAKEHOLDERS Frostrow as AIFM, the Portfolio Manager and the Company’s joint brokers on behalf of the Board complete a programme of investor relations throughout the year. Clear communication of the In addition, the Chairman Company’s strategy and the endeavours to make himself performance against its available to meet with objective can help the share shareholders wishing to price trade at a narrower engage. discount or a wider premium to its net asset value which Key mechanisms of engagement benefits shareholders. included: New shares may be issued to • The Annual General Meeting; meet demand without diluting Investors the NAV per share of existing • The Company’s website which shareholders. Increasing the hosts reports, video size of the Company can interviews with the managers benefit liquidity as well as and regular market commentary; spread costs. • Online newsletters; Understanding investor preferences in relation to • One-on-one investor potential Board decisions, meetings; such as in relation to possible distributions. • Investor meetings with the Portfolio Manager and AIFM; and • The Portfolio Manager hosts an annual Capital Markets Day event to inform investors about portfolio constituents. The Board meets regularly with the Company’s Portfolio Manager throughout the year Engagement with our Portfolio both formally at the quarterly Manager is necessary to Board meetings and more evaluate performance against regularly on an informal the stated strategy and to basis. The Board also receives understand any risks or quarterly performance and opportunities this may compliance reporting at each Portfolio Manager present to the Company. It Board meeting. also provides clarity on the Board’s expectations and The Portfolio Manager’s helps ensure that portfolio attendance at each Board management costs are closely meeting provides the monitored and remain opportunity for the Portfolio competitive. Manager and Board to further reinforce their mutual understanding of what is expected from all parties. The Company contracts with third parties for other services including: depositary, investment accounting & administration, company secretarial and share The Board and Frostrow engage registration. It is necessary regularly with all service for the Company's success to providers both in one-to-one ensure the third parties to meetings and via regular whom we have outsourced written reporting. This Service Providers services complete their roles regular interaction provides diligently and correctly. an environment where topics, issues and business The Company ensures all development needs can be dealt service providers are paid in with efficiently and accordance with their terms collegiately. of business. The Board closely monitors the Company’s Ongoing Charges Ratio. AFML has an open plan office, facilitating ready interaction In order to attract and and engagement. Senior team retain talent to ensure the members report to the Board at Employees of AFML Group has the resources to each meeting. successfully implement its strategy and manage Given the small number of third-party relationships. employees, engagement is at an individual level rather than as a group. The Board encourages the Company’s Portfolio Manager to Incorporating consideration engage with companies and in of ESG factors into the doing so expects ESG issues to investment process assists in be a key consideration. The Portfolio companies understanding and mitigating Portfolio Manager seeks to risks of an investment and take a board seat, or have potentially identifying board observer status, on all future opportunities. investments. See pages 29 to 31 for further detail on AFML’s ESG approach to investing.
What? Outcomes and Actions WHAT WERE THE KEY TOPICS OF ENGAGEMENT? WHAT ACTIONS WERE TAKEN, INCLUDING PRINCIPAL DECISIONS? • The Portfolio Manager, Frostrow and Key topics of engagement with the joint brokers meet regularly with investorsOngoing dialogue with shareholders and potential investors to shareholders concerning the strategy of discuss the Company’s strategy, the Company, performance and the performance and portfolio. These portfolio. meetings take place with and without the Portfolio Manager. • The prospects for the portfolio and the pipeline of potential investment opportunities are of particular interest Key topics of engagement with the to the Board and discussions during the Portfolio Manager year resulted in the Board being provided with additional reports to aid On an ongoing basis the Board engages visibility. on portfolio composition, performance, outlook and business updates. • TheUkraine andMiddle East conflicts were discussed and it was concluded that Additional topics included: they have no direct impact on the Company. Two portfolio companies are • The impact of market conditions upon based inIsrael and have been able to their business and the portfolio. continue operations. • The impact of theUkraine and Middle • The portfolio manager reports East conflicts upon their business and regularly any ESG issues in the the portfolio. portfolio companies to the Board. Please see pages 29 to 31 for further details • Compensation arrangements within of AFML’s ESG policies. AFML. • The structure of management • The structure of management arrangements has been an area of focus arrangements. during the year and discussions about this are ongoing. • The discount at which the Company’s shares have been trading and thoughts • Discussions informed Board decisions on possible mitigations. in relation to continuation of the current share buyback programme and balancing this with available investment capital.
Approach to Responsible Investing
Five-Stage Approach to Future-Proofing the Portfolio
ESG principles adapted from the
1. Screening
An Exclusion List is used to screen out companies incompatible with AFML’s corporate values (sub-sectors and types of business). AFML also commits to being satisfied that the investors they invest alongside are of good standing.
2. Due Diligence
An ESG Due Diligence (DD) survey is completed by teams from companies in the later stages of the investment process. An ESG scorecard is completed for each potential investment, in which potential ESG risks and opportunities are identified, and discussed with the investment committee. Where necessary, an action plan is agreed with the management team on areas for improvement and commitments are incorporated into the Term Sheet.
3. Post-Investment Monitoring and Engagement
An annual survey is completed by portfolio companies and areas for improvement are discussed with management teams, with commitments agreed and revisited as appropriate.
4. Follow On Investments
ESG risks and opportunities are assessed when making follow-on investment decisions, with an ESG scorecard completed and co-investors taken into consideration. Follow on investments are only made into companies that continue to meet AFML’s ESG criteria.
5.
Internally at
AFML has continued to identify priority areas in which to make suitable ESG-related advancements across fund operations. Key progress areas include:
• Tracking the gender diversity of founders/CEOs of companies in our dealflow;
• Continuing to embrace diversity and inclusion through inclusive hiring and professional development practices and Female Founder Office Hours;
•
Building on our programme of CSR initiatives through supporting
ESG Focus Areas
AFML has identified eight key areas for consideration, across the three ESG categories, which best align with its values and are most relevant for companies operating in the fintech industry.
The key environmental consideration as identified by the AFML is the potential impact of business operations on the global issue of climate change. Social factors include the risks and opportunities associated with data security, privacy and ethical use, consumer protection, diversity and financial inclusion. Governance considerations include anti-bribery and corruption, board structure and independence and compliance.
AFML is committed to:
• Incorporating ESG and sustainability considerations into its investment analysis, diligence, and operating practices.
• Providing ESG training and support to the AFML employees involved in the investment process, so that they may perform their work in accordance with AFML’s policy.
• Actively engaging with portfolio companies to encourage improvement in key ESG areas.
• Annual reporting on progress to stakeholders.
ESG in Action
Company Initiatives
Investing in Women Code (ESG Focus Area – Social: Diversity)
As a signatory to the Investing in Women Code, the Company is committed to a culture of inclusion and to advance access to capital for female entrepreneurs. As a signatory, the Company will:
• Have a nominated member of the senior leadership team who is responsible for supporting equality in all its interactions with entrepreneurs.
•
Provide
• Adopt internal practices which aim to improve the potential for female entrepreneurs to successfully access the tools, resources, investment and finance they need to build and grow their businesses, working with relevant players in the ecosystem. The Company will review these actions annually and make this commitment publicly available.
The Lord Mayor’s Appeal (Environmental: climate/carbon footprint and Social: Diversity)
In September the
The
Female Founders in Fintech Office Hours (Social: Diversity)
Portfolio Business Models
Anyfin: Consumer Financial Education (Social: Consumer protection)
A core element of Anyfin’s mission is to help get people out of debt and to date the company has helped customers save millions of Euros in credit costs. They are proactive with consumer financial education; earlier this year they released the third edition of the Anyfin Report, a financial health study conducted by YouGov. The report focused on the ways in which people are planning to deal with their debts (and finances more broadly) in 2023. The company hosts regular ‘Anyfin House’ sessions, open to the public, and covering topics such as financial management, financial stress and the economy.
Grover: Circular Economy Model (Environmental: Climate/carbon footprint)
Grover provides a sophisticated solution for the increasing number of consumers who value access over ownership via their circular economy tech-rental model. By replacing the highly wasteful linear product ownership approach (take -> make -> dispose), Grover’s model extends the lifecycle of a product by re-using, repairing and redistributing. A device rented from Grover is circulated 2-6 times on average, and as of 2023 the company has circulated over 1 million devices.
Wayhome: Gradual Home Ownership Model (Social: Financial inclusion)
Wayhome’s ‘Gradual Homeownership’ model aims to help aspiring homeowners who are unable to obtain a traditional mortgage to buy a home get on the housing ladder. With the average home now costing 9 times average income and the average first time buyer only able to borrow 3.55 times income, millions of hardworking families are locked out of homeownership. Wayhome customers own the share of the home they paid for and rent the remainder, gradually buying more and renting less over time.
Portfolio Initiatives
Farewill: Charity Pledge (Social)
Farewill partners with charities to enable them to offer free will writing services through their website. In
Tide: (Environmental: Climate/carbon footprint)
In March, Tide became the first fintech globally to remove 100% of its emissions with durable carbon removals as of 2022 onwards. The business has also committed to becoming fully
Tide made three climate-focused pledges which included committing to removing 100% of their emissions with durable carbon removal from 2022 onwards and reducing 90% of their 2021 emissions per employee by 2030. These would make Tide fully Net Zero by 2030. The organisation also committed to making Net Zero simpler for their Members by developing the support on offer.
Post-period end Tide and Transcorp announced the launch of India’s-first recycled PVC RuPay Card. Made from 99% recycled plastic, this is a first for fintechs in
Led by
This Strategic Report was approved by the Board of Directors and signed on its behalf by:
Chairman
.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT, THE DIRECTORS’ REMUNERATION REPORT AND THE FINANCIAL STATEMENTS
The directors are responsible for preparing the annual report and financial statements in accordance with
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the Group and Company financial statements in accordance with
In preparing these group financial statements, the directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and accounting estimates that are reasonable and prudent;
•
State whether they have been prepared in accordance with
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
• Prepare a directors’ report, a strategic report and directors’ remuneration report which comply with the requirements of the Companies Act 2006.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Responsibility Statement
The Directors consider that this annual report and financial statements, taken as a whole, is fair, balanced, and understandable and provides the information necessary for shareholders to assess the Group and Company’s position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed under the ‘Board of Directors’ on page 32 confirm that, to the best of their knowledge:
• The financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company;
• The annual report includes a fair review of the development and performance of the business and the financial position of the Group and Company, together with a description of the principal risks and uncertainties that they face.
Chairman
.
CONSOLIDATED INCOME STATEMENT
Year ended 31 March Year ended 31 March 2024 2023 Revenue Capital Total Revenue Capital Total Notes £’000 £’000 £’000 £’000 £’000 £’000 Gains on Investments 8 – 17,602 17,602 – 9,858 9,858 Interest Income 1,681 – 1,681 412 – 412 Expenses 2 (5,432) (49) (5,481) (5,270) (107) (5,377) (Loss)/Return before (3,751) 17,553 13,802 (4,858) 9,751 4,893 Taxation Taxation 6 – – – – – – (Loss)/Return for the year (3,751) 17,553 13,802 (4,858) 9,751 4,893 (Loss)/Return per Share 7 (2.2)p 10.3p 8.1p (2.7)p 5.4p 2.7p (pence)
The total column of this statement represents the Group’s Consolidated Income Statement, prepared in accordance with IFRS as adopted by the
The revenue and capital columns are supplementary to this and are prepared under guidance published by the
The Group does not have any other comprehensive income and hence the total return, as disclosed above, is the same as the Group’s total comprehensive income.
All items in the above statement derive from continuing operations.
All returns are attributable to the equity holders of
The notes on pages 58 to 68 are integral to and form part of these Financial Statements.
.
CONSOLIDATED AND COMPANY STATEMENTS OF CHANGES IN EQUITY
Year ended 31 March 2024 Ordinary Share Other Group share premium Special capital Revenue capital account reserve reserve reserve Total £’000 £’000 £’000 £’000 £’000 £’000 Opening Shareholders’ funds 1,810 105,383 85,218 117,740 (16,027) 294,124 Purchase of own shares into – – (4,609) – – (4,609) treasury Return/(loss) for the year – – – 17,553 (3,751) 13,802 At 31 March 2024 1,810 105,383 80,609 135,293 (19,778) 303,317
Year ended 31 March 2023 Ordinary Share Other Group share premium Special capital Revenue capital account reserve reserve reserve Total £’000 £’000 £’000 £’000 £’000 £’000 Opening Shareholders’ funds 1,810 105,383 91,191 107,989 (11,169) 295,204 Purchase of own shares into – – (5,973) – – (5,973) treasury Return/(loss) for the year – – – 9,751 (4,858) 4,893 At 31 March 2023 1,810 105,383 85,218 117,740 (16,027) 294,124 Year ended 31 March 2024 Ordinary Share Other Company share premium Special capital Revenue capital account reserve reserve reserve Total £’000 £’000 £’000 £’000 £’000 £’000 Opening Shareholders’ funds 1,810 105,383 85,218 100,919 (17,576) 275,754 Purchase of own shares into – – (4,609) – – (4,609) treasury Return/(loss) for the year – – – 15,392 (3,805) 11,587 At 31 March 2024 1,810 105,383 80,609 116,311 (21,381) 282,732 Year ended 31 March 2023 Ordinary Share Other Company share premium Special capital Revenue capital account reserve reserve reserve Total £’000 £’000 £’000 £’000 £’000 £’000 Opening Shareholders’ funds 1,810 105,383 91,191 92,724 (12,556) 278,552 Purchase of own shares into – – (5,973) – – (5,973) treasury Return/(loss) for the year – – – 8,195 (5,020) 3,175 At 31 March 2023 1,810 105,383 85,218 100,919 (17,576) 275,754
The notes on pages 58 to 68 are integral to and form part of these Financial Statements.
.
CONSOLIDATED BALANCE SHEET
as at
2024 2023 Note £’000 £’000 Non-Current Assets Investments held at fair value 8 265,083 254,295 Property, plant & equipment 219 297 Current Assets Right-of-use asset 5 438 588 Other receivables 10 245 555 Cash and cash equivalents 38,505 40,015 Total Assets 304,490 295,750 Current Liabilities Other payables 11 (699) (948) Lease liability 5 (474) (678) Total Assets less Current Liabilities 303,317 294,124 Net Assets 303,317 294,124 Capital and Reserves Called up share capital 15 1,810 1,810 Share premium 105,383 105,383 Special reserve 80,609 85,218 Retained earnings: Capital reserves 135,293 117,740 Revenue reserve (19,778) (16,027) Total Equity 303,317 294,124 Net Asset Value per share (pence) 16 178.6p 168.5p Net Asset Value per share after performance fee (pence)* 16 167.4p 158.9p
The Financial Statements on pages 52 to 68 were approved by the Board of Directors on
Chairman
The notes on pages 58 to 68 are integral to and form part of these Financial Statements.
Company Registration Number: 11118262
* Considered to be Alternative Performance Measure. Please see the Glossary and Alternative Performance Measures on page 78.
.
COMPANY BALANCE SHEET
as at
2024 2023 Note £’000 £’000 Non-Current Assets Investments held at fair value 8 265,083 254,295 Investment in subsidiary undertakings 9 750 500 Current Assets Other receivables 10 196 118 Cash and cash equivalents 36,052 38,470 Total Assets 302,081 293,383 Current Liabilities Other payables 11 (369) (810) Provisions 12 (18,980) (16,819) Total Assets less Current Liabilities 282,732 275,754 Net Assets 282,732 275,754 Capital and Reserves Called up share capital 15 1,810 1,810 Share premium 105,383 105,383 Special reserve 80,609 85,218 Retained earnings: Capital reserves 116,311 100,919 Revenue reserve (21,381) (17,576) Total Equity 282,732 275,754
The Company’s return for the year was £11,587,000 (2023: £3,175,000). The Directors have taken advantage of the exemption under s408 of the Companies Act and not presented an income statement or a statement of comprehensive income for the Company alone.
The Financial Statements on pages 52 to 68 were approved by the Board of Directors on
Chairman
The notes on pages 58 to 68 are integral to and form part of these Financial Statements.
Company Registration Number: 11118262
.
CONSOLIDATED CASH FLOW STATEMENT
Year Year ended ended 31 March 31 March 2024 2023 £’000 £’000 Operating activities Sales of investments 22,790 44,226 Purchases of investments (15,976) (24,855) Acquisition of property, plant and equipment (8) (365) Interest income received 1,608 326 Expenses paid (4,552) (5,058) Lease payments (221) (153) Net cash inflow from operating activities 3,641 14,121 Purchase of own shares into treasury (5,151) (5,432) Net cash used by financing activities (5,151) (5,432) Net (decrease)/increase in cash and cash equivalents (1,510) 8,689 Cash and cash equivalents at start of year 40,015 31,326 Cash and cash equivalents at end of year 38,505 40,015
The notes on pages 58 to 68 are integral to and form part of these Financial Statements.
.
COMPANY CASH FLOW STATEMENT
Year Year ended ended 31 March 31 March 2024 2023 £’000 £’000 Operating activities Sales of investments 22,790 44,226 Purchases of investments (16,226) (24,855) Interest income received 1,563 326 Expenses paid (5,494) (5,489) Net cash inflow from operating activities 2,733 14,208 Purchase of own shares into treasury (5,151) (5,432) Net cash used by financing activities (5,151) (5,432) Net (decrease)/increase in cash and cash equivalents (2,418) 8,776 Cash and cash equivalents at start of year 38,470 29,694 Cash and cash equivalents at end of year 36,052 38,470
The notes on pages 58 to 68 are integral to and form part of these Financial Statements.
.
NOTES TO THE FINANCIAL STATEMENTS
1 Segmental Analysis
The Group operates a single business segment for reporting purposes and is managed as a single investment company. Reporting is provided to the Board of Directors on an aggregated basis. The investments are located in the
2 Expenses
2024 2023 Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 AIFM fees 582 – 582 593 – 593 Administrative expenses 1,706 49 1,755 1,415 107 1,522 Directors’ fees* 186 – 186 169 – 169 Performance fee (see note 4)^ – – – – – – Staff costs (see note 4) 2,793 – 2,793 2,944 – 2,944 Auditor’s remuneration 165 – 165 149 – 149 Total expenses 5,432 49 5,481 5,270 107 5,377
£169,000 of interest and depreciation relating to a lease (2023: £209,000) is included in administrative expenses. See note 5 for further details.
* Details of the amounts paid to Directors are included in the Directors Remuneration Report on page 4 5 .
^ See note 4 for further details of the performance fee arrangements. Non-executive Directors of the Company are not eligible to participate in any allocation of the performance fee.
Auditor’s Remuneration
2024 2023 Group Company Group Company £’000 £’000 £’000 £’000 Audit of Group accounts pursuant to legislation 110 110 104 104 Audit of subsidiaries accounts pursuant to 19 – 18 – legislation Audit related assurance services 26 26 20 20 Non-audit related assurance services 10 – 7 – Total auditors’ remuneration 165 136 149 124
Non-audit services
It is the Group’s practice to employ
3 Key Management Personnel Remuneration
The Directors of the Company are considered to be the Key Management Personnel along with the directors of the Company’s subsidiary.
2024 2023 Salary Other Total Salary Other Total /Fees benefits £’000 /Fees benefits £’000 £’000 £’000 £’000 £’000 Key management personnel 1,158 125 1,283 1,352 277 1,629 remuneration Performance fee allocation* – – – – – – 1,158 125 1,283 1,352 2770 1,629
Other benefits include pension and social security contributions relating to the directors of the Company’s subsidiary.
* Allocation of the performance fee to the directors of the Company’s subsidiary. See note 4 for further details of the performance fee arrangements.
4 Staff Costs
The monthly average number of employees for the Group during the year was eleven (2023: eleven). All employees are within the investment and administration function and employed by the Company's subsidiary.
2024 2023 £’000 £’000 Wages and salaries 2,264 2,437 Social security costs 318 347 Other pension costs 119 104 Other staff benefits 92 56 Staff costs 2,793 2,944 Performance fee (charged to capital)* – – Total 2,793 2,944
*
The performance fee arrangements were set up to provide a long-term employee benefit plan to incentivise employees of AFML and align them with shareholders through participation in the realised investment profits of the Group. Any performance fee paid by the Company to AFML is allocated to employees of AFML on a discretionary basis and overseen by the
The performance fee is payable by the Company to AFML when the Company has realised an aggregate annualised 10% return on investments (the ‘hurdle’) in each basket of investments. Based on the investment valuations and the hurdle level as at
5 Leases
Leasing activities
The Group, through its subsidiary AFML, has leased an office in the
Right-of-Use Asset
2024 2023 Group Group Office Premises Office Premises £’000 £’000 As at 1 April 588 750 Depreciation (150) (162) At 31 March 438 588
Lease Liability
2024 2023 Group Group Office Premises Office Premises £’000 £’000 As at 1 April 678 783 Rent free period reduction (21) – Interest Expense 38 48 Lease Payments (221) (153) At 31 March 474 678
Maturity Analysis
Group Between Between At31 March 2024 Up to 3 months 3 – 12 months 1 – 2 years 2 – 5 years £’000 £’000 £’000 £’000 Lease payments 60 121 181 181
6 Taxation Expense
2024 2023 For the year ended 31 March Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 Current tax: UK corporate tax on profits for the – – – – – – year
The difference between the income tax expense shown above and the amount calculated by applying the effective rate of
2024 2023 For the year ended 31 March Revenue Capital Total Revenue Capital Total £’000 £’000 £’000 £’000 £’000 £’000 (Loss)/return before taxation (3,751) 17,553 13,802 (4,858) 9,751 4,893 (Loss)/return before tax multiplied by the effective rate (938) 4,388 3,450 (923) 1,853 930 ofUK corporation tax of 25% (2023: 19%) Effects of: Non-taxable capital returns – (4,400) (4,400) – (1,873) (1,873) Unutilised management expenses 938 12 950 923 20 943 Total tax expense – – – – – –
No provision for deferred taxation has been made in the current year. The Group has not provided for deferred tax on capital profits arising on the revaluation of investments, as it is exempt from tax on these items because of its status as an investment trust company.
The Company has not recognised a deferred tax asset on the excess management expenses of £36,704,000 (2023: £32,904,000). It is not anticipated that these excess expenses will be utilised in the foreseeable future.
7 (Loss)/Return per Share
The (loss)/return per share figures are based on the following figures:
2024 2023 £’000 £’000 Net revenue loss (3,751) (4,858) Net capital return 17,553 9,751 Net total return 13,802 4,893 Weighted average number of ordinary shares in issue 170,877,294 178,651,736 Pence Pence Revenue loss per share (2.2) (2.7) Capital return per share 10.3 5.4 Total return per share 8.1 2.7
8 Investments Held at Fair Value
Non-current Investments Held at Fair Value
2024 2023 As at 31 March Group and Group and Company Company £’000 £’000 Unlisted at fair value 265,083 254,295
Reconciliation of movements on investments held at fair value are as follows:
2024 2023 Group and Group and Company Company £’000 £’000 As at 1 April 254,295 268,807 Purchases at cost 15,976 19,854 Realisation proceeds (22,790) (44,224) Gains on investments 17,602 9,858 As at 31 March 265,083 254,295
9 Subsidiary undertakings
The Company has an investment of £750,000 (2023: £500,000) in the issued ordinary share capital of its wholly owned subsidiary undertaking,
10 Other Receivables
2024 2024 2023 2023 As at 31 March Group Company Group Company £’000 £’000 £’000 £’000 Other receivables 245 196 555 118
11 Other Payables
2024 2024 2023 2023 As at 31March Group Company Group Company £’000 £’000 £’000 £’000 Other payables 699 369 948 810 699 369 948 810
12 Provisions
2024 2023 As at 31 MarchCompany Company £’000 £’000 Performance fee provision* 18,980 16,819
* See page 25 and notes 4 and 19.9 for further details.
13 Financial Instruments
(i) Management of Risk
As an investment trust, the Group’s investment objective is to seek capital growth from a portfolio of securities. The holding of these financial instruments to meet this objective results in certain risks.
The Group’s financial instruments comprise securities in unlisted companies, partnership interests, trade receivables, trade payables, and cash and cash equivalents.
The main risks arising from the Group’s financial instruments are fluctuations in market price, and credit and liquidity risk. The policies for managing each of these risks are summarised below. These policies have remained constant throughout the year under review. The financial risks of the Company are aligned to the Group’s financial risks.
Market Price Risk
Market price risk arises mainly from uncertainty about future prices of financial instruments in the Group’s portfolio. It represents the potential loss the Group might suffer through holding market positions in the face of price movements, mitigated by stock diversification.
The Group is exposed to the risk of the change in value of its unlisted equity and non-equity investments. For unlisted equity and non-equity investments the market risk is principally deemed to be the assumptions used in the valuation methodology as set out in the accounting policies.
Liquidity Risk
The Group’s assets comprise unlisted equity and non-equity investments. Whilst unlisted equity is illiquid, short-term flexibility is achieved through cash and cash equivalents.
Credit Risk
The Group’s exposure to credit risk principally arises from cash and cash equivalents. Only highly rated banks or liquidity funds (with credit ratings above A3, based on S&P’s ratings or the equivalent from another ratings agency) are used for cash deposits and the level of cash is reviewed on a regular basis. The components of cash and cash equivalents are shown in the table below.
(ii) Financial Assets and Liabilities
Group Company Group Company Fair value Fair value Fair value Fair value 2024 2024 2023 2023 £’000 £’000 £’000 £’000 Financial Assets Unlisted equity shares 259,015 259,015 249,529 249,529 Unlisted convertible loan notes 6,068 6,068 4,766 4,766 Cash at bank 2,460 1,052 14,715 13,470 Cash Equivalents – Liquidity Funds 36,045 35,000 25,300 25,000 Other assets 683 196 1,143 118 Financial Liabilities Other payables and lease liabilities (1,173) (369) (1,626) (810)
Cash and other receivables and payables are measured at amortised cost and the rest of the financial assets in the table above are held at approximate to fair value. The carrying values of the financial assets and liabilities measured at amortised cost are equal to the fair value.
The unlisted financial assets held at fair value are valued in accordance with the IPEV Guidelines as detailed within note 19.4.
(iii) Fair Value Hierarchy
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm’s length transaction.
The Group complies with IFRS 13 in respect of disclosures about the degree of reliability of fair value measurements. This requires the Group to classify, for disclosure purposes, fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
The levels of fair value measurement bases are defined as follows:
Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: fair values measured using valuation techniques for which any significant input to the valuation is not based on observable market data (unobservable inputs).
All investments were classified as Level 3 investments as at, and throughout the year to,
When using the price of a recent transaction in the valuations, the Company looks to ‘re-calibrate’ this price at each valuation point by reviewing progress within the investment, comparing against the initial investment thesis, assessing if there are any significant events or milestones that would indicate the value of the investment has changed and considering whether a market-based methodology (ie. using multiples from comparable public companies) or a discounted cashflow forecast would be more appropriate.
The main inputs into the calibration exercise, and for the valuation models using multiples, are revenue, EBITDA, AuM, and P/E multiples (based on the most recent revenue, EBITDA, AuM, or earnings achieved and equivalent corresponding revenue, EBITDA, AuM, or earnings multiples of comparable public companies), quality of earnings assessments and comparability difference adjustments. Revenue multiples are often used, rather than EBITDA or earnings, due to the nature of the Group’s investments, being in fast-growing, small financial services companies which are not normally expected to achieve profitability or scale for a number of years. Where an investment has achieved scale and profitability the Group would normally then expect to switch to using an EBITDA or earnings multiple methodology.
The main input into the PWERM (‘Probability Weighed Expected Return Methodology’) is the probability of conversion. This method is used for the convertible loan notes held by the Company.
The fair valuation of private company investments is influenced by the estimates, assumptions and judgements made in the fair valuation process (see Note 19.12 on page 68). A sensitivity analysis is provided below which recognises that the valuation methodologies employed involve subjectivity in their significant unobservable inputs and illustrates the sensitivity of the valuations to these inputs. The inputs have been flexed with the exception of the Sales Price valuation approach as it does not involve significant subjectivity. The table also provides the range of values for the key unobservable inputs.
___________________________________________________________________________________________ |Asat31March2024 | |___________________________________________________________________________________________| | | | | | |Weighted| |Change in| | |Fairvalueof|Key |Other |Applied |average | |Valuation| |Valuation |investments|unobservable|Unobservable|Multiple |multiple|Sensitivity|+/- | |approach |£’000 |inputs |inputs |Range |applied#|+/- |£’000 | | | | | | | |% | | |___________|___________|____________|____________|__________|________|___________|_________| | | |Revenue |a, b, c, g |2.3x – |6.0x |10% |17,564 / | | | |Multiple‡ | |28.0x | | |(17,554) | | | |____________|____________|__________|________|___________|_________| | | |Earnings |a, b, c, g |6.3x-18.6x|11.0x |10% |3,146 / | |Market | |Multiple | | | | |(2,423) | |approach | |____________|____________|__________|________|___________|_________| |using | |AUM Multiple|a, b, c, g |0.1x |0.1x |10% |264 / - | |comparable |217,054 |____________|____________|__________|________|___________|_________| |traded | |Illiquidity |d, g |0% - 50% |32.3% |30% |12,558 / | |multiples | |discount | | | | |(10,920) | | | |____________|____________|__________|________|___________|_________| | | |Transaction | | | | | | | | |implied |e, g |0% - 630% |109.3% |30% |17,063 / | | | |premiums and| | | | |(18,023) | | | |discounts | | | | | | |___________|___________|____________|____________|__________|________|___________|_________| |Net Asset |8,264 |Discount to |a |n/a |n/a |10% |(826) | |Value** | |NAV | | | | | | |___________|___________|____________|____________|__________|________|___________|_________| | | |Probability | | | | | | |PWERM* |6,068 |of |a |n/a |n/a |25% |248/(248)| | | |conversion | | | | | | |___________|___________|____________|____________|__________|________|___________|_________| |Expected | |Execution | | | | | | |transaction|7,135 | |a, f |n/a |n/a |10% |713 / | |price | |risk | | | | |(713) | | | |discount | | | | | | |___________|___________|____________|____________|__________|________|___________|_________| |CPORT^ |16,414 |Transaction |a, e, g |n/a |n/a |10% |1,641 / | | | |Price | | | | |(1,641) | |___________|___________|____________|____________|__________|________|___________|_________| |Sales Price|10,148 |n/a |n/a |n/a |n/a |n/a |n/a | |___________|___________|____________|____________|__________|________|___________|_________|
# Weighted average is calculated by reference to the fair value of holdings as at the respective year-end. This therefore gives a clearer indication of the typical multiple or adjustment being applied across the portfolio.
**LP (‘Limited Partnership’) investments are held at net asset values provided by the relevant LP fund administrators. These are adjusted by benchmark movements as appropriate.
^ Whilst a recent or expected transaction price may be the most appropriate basis for a valuation, it will be corroborated by other techniques which factor in the unobservable inputs noted below.
___________________________________________________________________________________________ |Asat31March2023 | |___________________________________________________________________________________________| | | | | | |Weighted| |Change in| | |Fairvalueof|Key |Other |Applied |average | |Valuation| |Valuation |investments|unobservable|Unobservable|Multiple |multiple|Sensitivity|+/- | |approach |£’000 |inputs |inputs |Range |applied#|+/- |£’000 | | | | | | | |% | | |___________|___________|____________|____________|__________|________|___________|_________| | | |Revenue |a, b, c, g |2.7x – |4.8x |10% |17,563 / | | | |Multiple‡ | |11.1x | | |(17,563) | | | |____________|____________|__________|________|___________|_________| | | |Earnings |a, b, c, g |8.3x-11.8x|10.9x |10% |3,146 / | |Market | |Multiple | | | | |(2,423) | |approach | |____________|____________|__________|________|___________|_________| |using | |AUM Multiple|a, b, c, g |0.1x |0.1x |10% |264 / - | |comparable |197,876 |____________|____________|__________|________|___________|_________| |traded | |Illiquidity |d, g |0% - 44% |19.3% |30% |4,117 / | |multiples | |discount | | | | |(4,044) | | | |____________|____________|__________|________|___________|_________| | | |Transaction | | | | | | | | |implied |e, g |0% - 310% |105.0% |30% |17,824 / | | | |premiums and| | | | |(17,300))| | | |discounts | | | | | | |___________|___________|____________|____________|__________|________|___________|_________| |Net Asset |5,805 |Discount to |a |n/a |n/a |10% |(581) | |Value** | |NAV | | | | | | |___________|___________|____________|____________|__________|________|___________|_________| | | |Probability | | | | | | |PWERM* |4,766 |of |a |n/a |n/a |25% |248/(248)| | | |conversion | | | | | | |___________|___________|____________|____________|__________|________|___________|_________| |Expected | |Execution | | | | | | |transaction|14,216 | |a, f |n/a |n/a |10% |142 / | |price | |risk | | | | |(142) | | | |discount | | | | | | |___________|___________|____________|____________|__________|________|___________|_________| |CPORT^ |8,842 |Transaction |a, e, g |n/a |n/a |10% |884 / | | | |Price | | | | |(884) | |___________|___________|____________|____________|__________|________|___________|_________| |Sales Price|22,790 |n/a |n/a |n/a |n/a |n/a |n/a | |___________|___________|____________|____________|__________|________|___________|_________|
The variable inputs applicable to each broad category of valuation basis will vary dependent on the particular circumstances of each private company valuation. An explanation of each of the key variable inputs is provided below. The assumptions and decisions process in relation to the inputs is described in note 19.12 on page 68.
(a) Application of valuation basis
Each investment is assessed independently, and the valuation basis applied will vary depending on the circumstances of each investment. When an investment is pre-revenue, the focus of the valuation will be on assessing the recent transaction and the achievement of key milestones since investment. Adjustments may also be made depending on the performance of comparable benchmarks and companies. For those investments where a trading multiples approach can be taken, the methodology will factor in revenue, earnings or assets under management as appropriate for the investment.
(b) Selection of comparable companies
The selection of comparable companies is assessed individually for each investment and the relevance of the comparable companies is continually evaluated at each valuation date. Key criteria used in selecting appropriate comparable companies are the industry sector in which they operate, the geography of the company’s operations, the respective revenue and earnings growth rates, operating margins, company size and development stage . Typically, between 4 and 10 comparable companies will be selected for each investment, but this can vary depending on how many relevant comparable companies are identified. The resultant revenue or earnings multiples or share price movements derived will vary depending on the companies selected and the industries they operate in. Given the nature of the investments the Company makes there are not always directly comparable listed companies, in such cases comparables will be selected whose businesses bear similarity to the relevant investment, in such cases the need for an additional discount / premium to the comparables will be assessed at each valuation date.
(c) Estimated sustainable revenue or earnings
The selection of sustainable revenue or earnings will depend on whether the company is sustainably profitable or not, and where it is not then revenues will be used in the valuation. The valuation approach will typically assess companies based on the last twelve months of revenue or earnings, as they are the most recent available and therefore viewed as the most reliable. Where a business has volatile earnings on a year-on-year basis, revenue or earnings may be assessed over a longer period. Where a company has reliably forecasted earnings previously or there is a change in circumstance at the business which will impact earnings going forward, then forward estimated revenue or earnings may be used instead.
(d) Application of illiquidity discount
An illiquidity discount may be applied either through the calibration of a valuation against the most recent transaction, or by application of a specific discount. The discount applied where a calibration (see (e) below) is not appropriate is dependent on factors specific to each investment, such as quality of earnings or revenues and potential exit scenarios.
(e) Transaction implied premium and discount
Where there is an implied company valuation available as a result of an external arm's length transaction, the ongoing valuation will be calibrated to this by deriving a company valuation with reference to the average multiple from a set of comparable companies and comparing this to a transaction implied valuation. This can result in an implied premium or discount compared to comparable companies at the point of transaction. This discount or premium will be considered in future valuations and may be reduced due to factors such as the time since the transaction and company performance. Where a calibrated approach is not appropriate, a discount for illiquidity may be applied as noted in (d) above.
(f) Execution risk
An execution risk discount is applied to all investments where an arm’s-length transaction is due to take place but hasn’t closed prior to the reporting period end. The discount applied is dependent on the progress of the negotiations and outstanding matters that may impact on the expected price. When valuing in line with an expected transaction the arm’s-length nature of the deal will be assessed, and term sheets will have been received.
(g) Liquidity preference
The company’s investments are typically venture investments with downside protections such as liquidation preference and anti-dilution provisions. Unlike ordinary share structures typically seen in the public or private markets, these structures protect the value of the Company’s position in the event of a reduction in the enterprise value of an investee company from the price paid. Where a valuation indicates the enterprise value of an investment has fallen the enterprise value will be fed into the investee companies’ ‘waterfall’ (which ranks shares by seniority/preference in the event of a liquidation event) to calculate the value of the Company’s position.
14 Substantial holdings in Investments
The table below shows substantial holdings in investments where the Company owns more than 3% of the fully diluted capital of the investee company and the investment value is more than 5% of the Company’s non-current investments.
2024 2023 % ownership % of % ownership % of (fully diluted) portfolio (fully diluted) portfolio f Zopa Bank* 3.5 14.8 3.4 11.8 Augmentum I LP** 100 20.7 100 17.5 Tide 5.6 19.3 5.1 14.0 Grover 6.3 13.5 6.3 17.0 Cushon – – 13.9 9.0 Volt 8.3 9.6 8.3 5.6
*
indirect ownership via
**
Augmentum I LP’s registered office is IFC 5,
15 Called up Share Capital
2024 2023 Ordinary Shares Ordinary Shares No. £’000 No. £’000 Opening issued and fully paid ordinary 174,518,852 1,810 180,325,786 1,810 shares of 1p each Ordinary shares purchased into treasury (4,687,567) – (5,806,934) – Closing issued and fully paid ordinary 169,831,285 1,810 174,518,852 1,810 shares of 1p each
No shares were issued during the years ended
4,687,567 shares were bought back into treasury during the year at an average price, including ancillary costs, of 98.3p per share. In the year ended
At
16 Net Asset Value per Share
The net asset value per share is based on the Group net assets attributable to the equity shareholders of £303,317,000 (2023: £294,124,000) and 169,831,285 (2023: 174,518,852) shares in issue at the year end excluding shares held in treasury.
The net asset value per share after performance fee* is based on the Group net assets attributable to the equity shareholders of £303,317,000 (2023: £294,124,000), less the performance fee provision made by the Company of £18,980,000 (2023: £16,819,000), and 169,831,285 (2023: 174,518,852) shares in issue at the year end excluding shares held in treasury.
* Alternative Performance Measure
17 Related Party Transactions
Balances and transactions between the Company and its subsidiaries are eliminated on consolidation. Details of transactions between the Group and Company and other related parties are disclosed below.
The following are considered to be related parties:
•
•
The Directors of the Company and the Company’s subsidiary,
•
Details of the relationship between the Company and
Details of the remuneration of all Directors can be found on page 45. Details of the Directors’ interests in the capital of the Company can be found on page 46.
18 Capital Risk Management
Group Group 2024 2023 £’000 £’000 Equity Equity share capital 1,810 1,810 Retained earnings and other reserves 301,507 292,314 Total capital and reserves 303,317 294,124
The Group’s objective in the management of capital risk is to safeguard its liquidity in order to provide returns for shareholders and to maintain an optimal capital structure. In doing so the Group may adjust the amount of dividends paid to shareholders or issue new shares or debt.
The Group manages the levels of cash deposits held whilst maintaining sufficient liquidity for investments and operating expenses.
There are no externally imposed restrictions on the Company’s capital.
19 Basis of Accounting and Significant Accounting Policies
19.1 Basis of preparation
The Group and Company Financial Statements for the year ended
The Financial Statements have been prepared on a going concern basis and under the historical cost basis of accounting, modified to include the revaluation of certain assets at fair value, as disclosed in note 19.4. The Board has considered a detailed assessment of the Group and Company’s ability to meet their liabilities as they fall due, including stress tests which modelled the effects of a fall in portfolio valuations and liquidity constraints on the Group and Company’s financial position and cash flows. The results of the tests showed that the Group and Company would have sufficient cash to meet their liabilities as they fall due. Based on the information available to the Directors at the time of this report, including the results of the stress tests, and the Group and Company’s cash balances, the Directors are satisfied that the Group and Company have adequate financial resources to continue in operation for at least the next 12 months from the date of signing of these financial statements and that, accordingly, it is appropriate to adopt the going concern basis in preparing these financial statements.
In order to reflect the activities of an investment trust company, supplementary information which analyses the Consolidated Income Statement between items of a revenue and capital nature has been presented alongside the Consolidated Income Statement. In analysing total income between capital and revenue returns, the Directors have followed the guidance contained in the Statement of Recommended Practice for investment companies issued by the
The recommendations of the SORP which have been followed include:
• Realised and unrealised profits or losses arising on the revaluation or disposal of investments classified as held at fair value through profit orloss should be shown in the capital column of the Consolidated Income Statement. Realised gains are taken to the realised reserves in equity and unrealised gains are transferred to the unrealised reserves in equity.
• Other returns on any investment (whether in respect of dividends, interest or otherwise) should be shown in the revenue column of the Consolidated Income Statement. The total of the revenue column of the Consolidated Income Statement is taken to the revenue reserve in equity.
• The Board should determine whether the indirect costs of generating capital returns should be allocated to capital as well as the direct costs incurred in generating capital profits. In this regard the Board has decided to follow a non-allocation approach to indirect costs, which will therefore be charged in full to the revenue column of the Consolidated Income Statement.
19.2 Basis of Consolidation
The Consolidated Financial Statements include the Company and certain subsidiary undertakings.
IFRS 10 and IFRS 12 define an investment entity and include an exemption from the consolidation requirements for investment entities.
The Company has been deemed to meet the definition of an investment entity per IFRS 10 as the following conditions exist:
• The Company has multiple unrelated investors which are not related parties, and holds multiple investments
• Ownership interests in the Company are exposed to variable returns from changes in the fair value of the Company’s net assets
• The Company has obtained funds for the purpose of providing investors with investment management services
• The Company’s business purpose is investing solely for returns from capital appreciation and investment income
• The performance of investments is measured and evaluated on a fair value basis.
The Company will not consolidate the portfolio companies or other investment entities it controls. The principal subsidiary
The Company also owns 100% of the interests in
19.3 Application of New Standards
(i)
New standards, interpretations and amendments effective from
There were no new standards or interpretations effective for the first time for periods beginning on or after
(ii) New standards, interpretations and amendments not yet effective
There are a number of standards and interpretations which have been issued by the
19.4 Investments
All investments are defined by IFRS as fair value through profit or loss (described in the Financial Statements as Investments held at fair value) and are subsequently measured at reporting dates at fair value. The fair value of direct unquoted investments is calculated in accordance with the Principles of Valuation of Investments below. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional.
Increases or decreases in valuation are recognised as part of gains on investments at fair value in the Consolidated Income Statement.
Principles of Valuation of Investments
(i) General
The Group estimates the fair value of each investment at the reporting date in accordance with IFRS 13 and the International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines.
Fair value is the price for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction. In estimating fair value, the AIFM and Board apply valuation techniques which are appropriate in light of the nature, facts and circumstances of the investment and use reasonable current market data and inputs combined with judgement and assumptions. Valuation techniques are applied consistently from one reporting date to another except where a change in technique results in a better estimate of fair value.
In general, the enterprise value of the investee company in question will be determined using one of a range of valuation techniques. The enterprise value is adjusted for factors such as surplus assets, excess liabilities or other contingencies or relevant factors; the resulting amount is apportioned between the investee company’s relevant financial instruments according to their ranking and the effect of any instrument that may dilute economic entitlements.
(ii) Unlisted Equity Investments
In respect of each unlisted investment one or more of the following valuation techniques is used:
• A market approach, based on the price of the recent investment, market multiples or industry valuation benchmarks.
• A probability-weighted expected returns methodology. Under the PWERM fair value is based on consideration of values for the investment under different scenarios. This will primarily be used where there is a convertible element to the investment.
• A net assets based approach based on the value of the underlying assets of the investment.
In assessing whether a methodology is appropriate techniques that use observable market data are preferred.
Price of
Where the investment being valued was itself made recently, or there has been a third party transaction in the investment, the price of the transaction may provide a good indication of fair value. Using the Price of
Multiple
Under the multiple methodology a revenue, EBITDA, AuM or earnings multiple technique is used. This involves the application of an appropriate and reasonable multiple to the maintainable earnings or revenue of an investee company.
Further details on the multiple based methodology are provided in note 13 (iii).
PWERM (‘Probability-Weighted Expected Returns Methodology’)
Under the PWERM potential scenarios are identified. Under each scenario the value of the investment is estimated and a probability for each scenario is selected. The fair value is then calculated as the sum of the value under each scenario multiplied by its probability.
Net Assets
For the net asset approach the fair value estimate is based on the attributable proportion of the reported net asset value of the investment derived from the fair value of underlying assets / investments. Valuation reports provided by the manager or general partner of the investments are used to calculate fair value where there is evidence that the valuation is derived using fair value principles that are consistent with the Company’s accounting policies and valuation methods. Such valuation reports may be adjusted to take account of changes or events to the reporting date, or other facts and circumstances which might impact the underlying value.
19.5 Cash and Cash Equivalents
Cash comprises cash at bank and short-term deposits with an original maturity of less than 3 months and subject to minimal risk of changes in value.
19.6 Presentation and Functional Currency
The Group’s and Company’s presentation and functional currency is Pounds Sterling (“Sterling”), since that is the currency of the primary economic environment in which the Group operates.
19.7 Other income
Interest income received from cash equivalents is accounted for on an accruals basis.
19.8 Expenses
Expenses are accounted for on an accruals basis, and are charged through the revenue column of the Consolidated Income Statement except for transaction costs and the performance fee as noted below.
Transaction costs are legal and professional fees incurred when undertaking due diligence on investment transactions. Transaction costs, when incurred, are recognised in the Income Statement. If a transaction successfully completes, as a direct cost of an investment, the related transaction cost is charged to the capital column of the Income Statement. If the transaction does not complete the related cost is charged to the revenue column of the Income Statement.
19.9 Performance Fee
As set out in prior annual reports the performance fee arrangements were set up to provide a long-term employee benefit plan to incentivise employees of AFML and align them with shareholders through participation in the realised investment profits of the Group. AFML is entitled to a performance fee, and any performance fee paid by the Company to AFML is allocated to employees of AFML on a discretionary basis by the
The Company provides for the performance fee in full. A performance fee is provided for if its performance conditions would be achieved if the remaining assets in that basket were realised at fair value, at the Statement of Financial Position date. The performance fee is equal to the share of profits in excess of the performance conditions in the basket. On consolidation the performance fee is eliminated since it is payable to the Company’s subsidiary, AFML.
Performance fees are charged to the capital column of the Income Statement and taken to the Capital Reserve.
19.10 Share Premium and Special Reserve
The share premium account arose following the Company’s admission to listing in 2018 and represented the difference between the proceeds raised and the par value of the shares issued. Costs of the share issuance were offset against the proceeds of the relevant share issue and also taken to the share premium account.
Subsequent to admission and following the approval of the Court, the initial share premium account was cancelled and the balance of the account was transferred to the Special Reserve. The purpose of this was to enable the Company to increase the distributable reserves available to facilitate the payment of future dividends or with which to make share repurchases.
19.11 Revenue and Capital Reserves
Net capital return is added to the Capital Reserve in the Consolidated Statement of Financial Position, while the net revenue return is added to the Revenue Reserve. When positive, the revenue reserve is distributable by way of dividend, as is any realised portion of the capital reserve. The realised portion of the capital reserve is £52,491,000 (2023: £40,519,000) representing realised capital profits less costs charged to capital.
19.12 Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical accounting judgements and key sources of estimation uncertainty used in preparing the financial information are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting judgements and estimates will, by definition, seldom equal the related actual results.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty in the reporting year, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Fair value measurements and valuation processes
Unquoted assets are measured at fair value in accordance with IFRS 13 and the IPEV Valuation Guidelines. Decisions are required in order to determine the appropriate valuation methodology and subsequently in determining the inputs into the valuation model used. These decisions include selecting appropriate quoted company comparables, appropriate multiples to apply, adjustments to comparable multiples and estimating future cash flows of investee companies. In estimating the fair value of an asset, market-observable data is used, to the extent it is available.
The Valuations Committee, which is chaired by a Director, determines the appropriate valuation techniques and inputs for the model. The Audit Committee considers the work of the Valuations Committee and the results of their discussion with the AIFM, Portfolio Manager and the external auditor and works closely with the AIFM and Portfolio Manager to review the appropriate valuation techniques and inputs to the model. The Chair of the Audit Committee reports its findings to the Board of Directors of the Group every six months to explain the cause of fluctuations in the fair value of the investments.
Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in notes 19.4 and 13(iii).
As set out in note 19.9 a performance fee is calculated which is based on the valuation of the investments and as such is considered a significant accounting estimate.
20 Post Balance Sheet Events
No post balance sheet events have occurred since
21 Financial Commitment
The Company made commitments to invest up to
.
2024 Accounts
The figures and financial information for 2024 are extracted from the annual report and financial statements for the year ended
2023 Accounts
The figures and financial information for 2023 are extracted from the published annual report and financial statements for the year ended
Annual report and financial statements
Copies of the annual report and financial statements will be posted to shareholders shortly and will be available on the Company’s website ( www.augmentum.vc ) or in hard copy format from the Company Secretary.
The Company's annual
report for the year ended
The Annual General Meeting will be held on Thursday,
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.