4 July 2023
Augmentum
Fintech plc
Annual
Financial Report for the year ended 31 March
2023
Augmentum
Fintech plc (LSE: AUGM) (the “Company” or “Augmentum”), Europe’s
leading publicly listed fintech fund, announces its audited Annual
Results for the year ended 31 March
2023.
Financial highlights
•
NAV per
share after performance fee increased by 2.4% to
158.9p1 (31
March 2022: 155.2p).
•
IRR of
18.5%2
on invested
capital since inception (31 March
2022: 22.6%).
•
Available
cash at year end of £38.5 million, which has increased to £50.0
million as at 30 June 2023 following
the Company’s accretive exit from Cushon.
Portfolio highlights
•
Top 10
holdings, which represent 78% of portfolio value, grew revenue at
an average of 117% year-on-year and are cash generative or have an
average of 29 months cash runway3
and are
funded to their next key inflexion points.
•
interactive
investor’s acquisition by abrdn completed in May 2022 and resulted in proceeds for the Company
of £42.8 million, delivering an 11.1x multiple on invested capital
and 84.8% IRR.
•
Cushon’s
majority shareholding acquisition by NatWest Group completed post
year end and returned £22.8 million to the Company, delivering a
return of 2.1x multiple on invested capital and an IRR of
62%.
•
There have
now been 5 exits from the portfolio since inception all at or above
their last reported value, which have realised a cumulative £79.5
million in proceeds – £53.5 million over their original
cost.
Investment
activity
•
£19.9
million invested in 2 new companies and 8 existing portfolio
investments in line with a disciplined approach to capital
allocation (31 March 2022: £60.8
million invested in 7 new companies
and 7 existing portfolio companies).
Portfolio
updates
•
Grover
(15.5% of net assets after performance fee) completed a
US$330 million Series C equity and
debt funding round in April 2022 and
leased over 1 million devices globally.
•
Tide
(12.9%) grew its UK SME banking market share to 9% and acquired
Funding Options.
•
Zopa
(10.8%) completed a £75 million funding round, surpassed £8 billion
in approved personal loans and £3.5 billion in savings.
•
Volt (5.1%)
completed a US$60 million Series B
funding round post year end led by IVP and won Worldpay and Shopify
as clients.
•
Anyfin
(3.4%) completed a US$30 million
Series C funding round in January
2023.
Valuation
movements
•
NAV at year
end was £294.1 million4
(31
March 2022: £295.2 million), of which the value of the
investment portfolio at year end was £254.3 million (31 March 2022: £268.8 million).
•
Key drivers
of the change in the investment portfolio valuation for the year
were: investee company revenue growth +£84.8 million, comparables’
contraction -£81.2 million, FX +£5.6 million, additions £19.9
million, the exit from ii -£42.8 million.
•
The
increase in NAV per share after performance fee was driven by
return for the year net of performance fee movements +1.9p and
impact of share buybacks +1.8p.
Neil England, Chairman of Augmentum Fintech plc
commented:
“Despite
challenging markets, the bulk of your Company’s investments have
performed well and I am pleased to report that they made a positive
contribution to the Company’s NAV per share after performance fee,
which increased by 3.7p to 158.9p.
Your
Company has now successfully exited five portfolio investments, all
of which have been at or above the last reported holding value.
This should provide investors with comfort that our valuations
process is rigorous and corroborates the discipline our Portfolio
Manager has exercised when evaluating new investments and their
reporting on the portfolio.
We
maintained our investment discipline over the last year and, with
our strong cash reserves (£38.5 million at 31 March 2023, £50.0 million at 30 June 2023) we are well placed both to take
advantage of new opportunities and to reinforce our appeal as a
supportive investor.
Your Board
believes that the Company will see a closing of the discount at
which its shares trade over time and, with the underlying growth of
the portfolio generally being very strong, expects that patient
shareholders will be well rewarded.”
Tim Levene, CEO of Augmentum Fintech Management Limited
commented:
“Our 10
highest value holdings have seen revenue growth at an impressive
average of 117% year-on-year and raised over US$300 million in capital during a challenging
macroeconomic and fundraising environment. Despite an increased
focus from venture investors on companies displaying a clear path
to profitability and reducing cash burn, the growth in our
portfolio through the cycle reflects the quality of many of our
companies and the unabated advance of digital transformation in the
financial services sector.
We are
seeing a material increase in the number of compelling investment
opportunities at more pragmatic valuations and expect that to
continue into 2024. Our fintech specialism and strong balance sheet
position leave us well positioned to take advantage of more
favourable investment conditions.”
Notes
1 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.
2
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.
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
June 2023, excludes Cushon exited
post year end.
4 NAV
before performance fee.
Enquiries
Augmentum
Fintech
Tim Levene
(Portfolio Manager)
Georgie
Hazell Kivell (Marketing and IR)
|
+44 (0)20
3961 5420
georgie@augmentum.vc
|
Quill
PR
Nick
Croysdill, Sarah Gibbons-Cook
(Press and
Media)
|
+44 (0)20
7466 5050
press@augmentum.vc
|
Peel
Hunt LLP
Liz Yong,
Luke Simpson, Huw Jeremy
(Investment
Banking)
|
+44 (0)20
7418 8900
|
Singer
Capital Markets
Harry
Gooden, Robert Peel, Alaina Wong
(Investment
Banking)
|
+44 (0)20
7496 3000
|
Frostrow
Capital LLP
Paul Griggs
(Company Secretary)
|
+44 (0)20
3709 8733
|
About Augmentum Fintech
Augmentum
invests in fast growing fintech businesses that are disrupting the
financial services sector. Augmentum is the UK’s only publicly
listed investment company focusing on the fintech sector in the UK
and wider Europe, having launched
on the main market of the London Stock Exchange in 2018, giving
businesses access to patient capital and support, unrestricted by
conventional fund timelines and giving public markets investors
access to a largely privately held investment sector during its
main period of growth.
-----
.
Augmentum
Fintech plc
Annual Report and Financial Statements
for the year ended 31st March
2023
.
CHAIRMAN’S
STATEMENT
Performance
Highlights
|
31
March 2023
|
31
March 2022
|
NAV per
Share after performance fee1*
|
158.9p
|
155.2p
|
NAV per
Share after performance fee Total Return*
|
2.4%
|
19.0%
|
Total
Shareholder Return*
|
(27.1%)
|
(16.4%)
|
Discount to
NAV per Share after performance fee*
|
(39.0%)
|
(14.3%)
|
Ongoing
Charges Ratio*
|
1.9%
|
1.7%
|
*
These are
considered to be Alternative Performance Measures. Please see the
Glossary and Alternative Performance Measures on page
79.
To read
about our KPIs see page 22.
I am
pleased to present our fifth annual report since the launch of the
Company in March 2018. This report
covers the year ended 31 March
2023.
Investment
Policy
Your
Company invests in early stage European fintech businesses which
have technologies that are disruptive to the traditional financial
services sectors and/or support the trend to digitalisation and
market efficiency. A typical investment will offer the prospect of
high growth and the potential to scale.
Our
objective is to provide long-term capital growth to shareholders by
offering them exposure to a diversified portfolio of private
fintech companies during what is often their period of rapid value
accretion.
Performance
Shareholders
will be fully aware of the significant market volatility throughout
the year under review. The war in Europe, inflation, rising interest rates after
a prolonged period of close to free money, highly priced US
technology stocks falling in value and the contagion from that have
all been factors. Fast growing companies that need cash to fuel
that growth have generally been out of favour.
Despite
difficult markets, the bulk of your Company’s investments performed
very well and I am pleased to report that they made a positive
contribution to the Company’s
net asset value (“NAV”) per share after performance
fee1*,
which increased by 3.7p to 158.9p.
The
operational performance of portfolio companies was generally
strong, with some stand out results, and the majority have cash
runways that will fund their businesses through to profitability.
In normal markets these performances would be expected to produce a
strong NAV improvement, but valuations were negatively affected in
some cases by declines in public market comparators.
The modest
increase in the Company’s NAV per share after performance fee is
nonetheless encouraging in a market where many others have suffered
significant valuation write downs and illustrates that the
diversified portfolio of investments we hold is important when
individual sectors become stressed.
It is
disappointing that the NAV growth we have enjoyed over the past
five years is not reflected in our share price. For a long period,
your Company enjoyed the highest premiums of any investment company
listed in London. This reflected
the opportunity for a public market investor to gain exposure to
fast growing private fintech companies, which was otherwise not
available to them. That opportunity in a vast addressable market is
undimmed, yet the price at which the Company’s shares traded fell
again across the period. The share price touched a low of 86.8p
during the year and ended the period at 97.0p, representing a 27.1%
reduction from the price at 31 March
2022. The share price falling to a discount to NAV from the
beginning of 2022 correlates with market sentiment turning against
growth stocks and private equity generally, but is frustrating
because it does not reflect the underlying performance or the
potential of the Company’s portfolio and seemingly gives little
credit to the rigour of our valuations process. The proceeds from
our recent portfolio disposals provide an illustration of the
latter.
1* Note:
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.
Portfolio
The most
significant portfolio transaction in the year was the receipt of
proceeds of £42.8 million early in the period from the completion
of abrdn’s acquisition of interactive
investor (“ii”),
which was the Company’s largest investment. The transaction
delivered an 84.8% IRR and 11.1 times multiple on invested
capital .
Post year
end, another significant disposal was made when the Company sold
its holding in Cushon
to NatWest
Group. The £22.8 million proceeds of this sale, which is fully
reflected in the year end valuation, represents a multiple of 2.1
times invested capital and an IRR of 61.6%.
Your
Company has now made five successful portfolio investment exits,
all of which have been at or above the last reported holding value.
This should provide investors with comfort that our valuations
process is rigorous and corroborates the discipline our Portfolio
Manager has exercised when evaluating new investments and their
reporting on the portfolio.
Deployments
in the year included new investments of £4.0 million in Israeli
payments monitoring and acceptance fintech
Kipp and €3
million (£2.6 million) in Berlin-based cyber insurance platform
Baobab.
A further £13.1 million of follow-on funding was made to support
existing portfolio companies. These included Zopa
(£4.0
million), Anyfin
(£2.7
million), Previse
(£2.0
million), Habito
(£1.3
million), Wayhome
(£0.9
million) and Cushon
(£0.8
million).
Since the
year end we have also participated in the Series B fundraising
of Volt,
investing a further £5.3 million.
There is a
full review of the portfolio and investment transactions in 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 work 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
investment analysis, due diligence and operating practices as we
believe that these are key in mitigating risk and creating
sustainable, profitable investments.
Valuations
Your Board
considers its governance role in the valuations process to be of
utmost importance. Shareholders in investment companies with a
private portfolio are understandably sceptical of valuations when
they don’t see them change as much or as rapidly as they do in many
public companies. The results we are reporting reflect an in-depth
and challenging process, supported by our advisers.
We have
always maintained a consistent, rigorous and disciplined approach
to valuations. We did not write up the value of your Company’s
investments to the levels attributed to many fintech companies when
the market was very bullish. It follows that the level of any
adjustments we have needed to make this year is relatively small in
comparison to some other funds, quite apart from strong growth
offsetting reductions in comparative multiples.
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 to sense check our
conclusions. We also benefit from some of our investments occupying
a senior position in the capital structures of the investee
companies, protecting 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 instigated a programme of highly accretive buybacks, seeking to
convey to the market our confidence in the value of the portfolio.
Directors and others associated with the Company have also
purchased shares. We continued with these accretive buybacks
through the year under review, with all the shares purchased by the
Company being held in treasury to potentially reissue when the
share price returns to a premium.
5,806,934
shares were bought back into treasury during the year to
31 March 2023, at an average price of
102.9p per share, representing an average discount to the
prevailing NAV per share after performance fee of 34.1% and adding
1.8p/1.1% to the NAV per share. A further 3,918,878 shares have
been bought back since March, up to 30 June
2023, at an average price of 98.6p per share.
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 24 of this annual report, the Company may, at the
discretion of the Directors, return a proportion of the gains
realised during a year from the disposal of investments. Factors
influencing this will include the quantum of any sale proceeds, the
opportunities offered by the investment pipeline and the working
capital requirements of the Company. I explained
in last year’s report that following the sale of ii we considered
whether some of the proceeds should be returned to shareholders or
retained to facilitate future investment opportunities. The Company
has not reached the scale to which we aspire and the current share
price discount and unfavourable market conditions are frustrating
our ability to raise new capital for investment. After consultation
with major shareholders last year we decided to retain a good
proportion of these proceeds for reinvestment to support our
capital growth objective and utilise the balance to support an
accretive share buyback programme when the discount is high. The
Board reconsidered this decision during the year and decided to
commit further to the buyback programme whilst retaining funds to
take advantage of new investment opportunities and to provide
follow-on support to existing investments, which are often
available on favourable terms.
Dividend
No dividend
has been declared or recommended for the year. Your Company is
focused on providing capital growth and has a policy to only pay
dividends to the extent that it is necessary to maintain the
Company’s investment trust status.
Registrar
Shareholders
should note that, as part of our regular review of service
providers, we have decided to change the Company's registrar from
Link Group to Computershare Investor Services PLC. This change will
take place on 18 December
2023.
AGM
Our AGM
will be held on Tuesday 19 September
2023 at 11.00 a.m. at the
Augmentum Fintech Management Limited office at 4 Chiswell Street
EC1Y 4UP. The Notice of AGM will be published shortly after the
publication of this annual report. Your Board strongly encourages
shareholders to register their votes in advance by voting online
using the Registrar’s portal, www.signalshares.com or, if they are
not held directly, by instructing the nominee company through which
the shares are held. Registering votes online will not preclude
shareholders from attending the meeting.
One of our
resolutions will be to seek shareholder authority to issue shares
by reference to the NAV per share after performance fee as we
believe this to be the best reflection of value, as explained in
the note at the foot of page 2.
Further
details of this and other resolutions will be found in the Notice
of AGM, which will be published and sent to shareholders shortly
after the publication of this annual report. Both documents will
also be available to view on or download from the Company’s website
at www.augmentum.vc.
Your
Directors consider all the resolutions that will be listed in the
Notice of AGM to be 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
Inflation
remains high, along with interest rates as the authorities strive
to bring it back to target levels. Early stage growth portfolios
may currently be out of favour, but Augmentum has proved its model,
well-illustrated by our realisations all producing returns in
excess of their previous carrying value. Our largest 5 investments,
in particular, are performing well.
The
underlying need to digitalise and transform last century’s
infrastructure remains, as nearly all financial services sectors
continue to be dominated by traditional operators whose operations
cannot ignore the rapid development of less costly, and in many
cases more secure, business models. We maintained our investment
discipline over the last year and, with our strong cash reserves
(£38.5 million at 31 March 2023,
£50.0 million at 30 June 2023), we
are well placed both to take advantage of new opportunities and to
reinforce our appeal as a supportive investor.
Your Board
believes that the Company will see a closing of the discount at
which its shares trade over time and, with the underlying growth of
the portfolio generally being very strong, expects that patient
shareholders will be well rewarded.
Neil England
Chairman
3 July 2023
.
PORTFOLIO
MANAGER’S REVIEW
Overview
I write to
you after another 12 months of uncertainty following the
economy-wide adjustment to a higher interest rate environment.
Having flown the furthest under the market conditions of 2020-21,
it is the listed technology sector that has faced the most
significant correction to valuations in response to rising rates.
Despite a bounce, in particular by the FAANG stocks, listed tech
stocks continue to trade well below their 10-year average. The
increased cost of capital has reordered priorities from growth to
profitability, and returned focus to core business lines and
expense control. The market has become more discerning of companies
with strong fundamentals and those without, and the significant
rotation of capital into low-risk assets means that valuation
multiples for listed growth stocks, and fintechs within this,
remain compressed.
The
stability of Augmentum’s NAV per share over the past twelve months
therefore belies the real story of continued progress and maturity
in the portfolio. Our 10 highest value holdings have seen revenue
growth at an impressive average of 117% year-on-year and raised
over US$300 million in equity capital
despite a more challenging macroeconomic and fundraising
environment. Yet this strong performance has largely been offset by
multiple compression in comparable public markets. The growth in
our portfolio through the cycle reflects the quality of many of our
companies and the unabated advance of digital transformation in the
financial services sector.
The
digital-asset sector suffered from a series of high-profile
collapses and subsequent contagion during 2022. These events
highlighted critical gaps in regulation and naivety in the nascent
market structure. The response from regulators has been an
acceleration in policy development and enforcement action.
Europe has positioned itself as a
leader through the Markets in Crypto Asset (MiCA) regulation that
will apply from 2024 and brings welcome clarity to digital asset
firms who are committed to building compliant, legitimate
businesses. This clarity is lacking in the US market where
enforcement action against high profile firms has increased and we
expect to see the biggest players in the market move their domicile
from the US to Europe, the
Middle East or Asia unless this changes in the coming
year.
Recent
advances in generative AI have instigated a wave of interest in the
technology and its future application in financial services. We
believe that generative AI will significantly increase the
efficiency of generalisable content-related tasks across industries
such as coding and marketing. For more complex financial services
use cases, where accuracy and compliance are imperative, it is
still early from both a technology and regulatory perspective. For
now we remain in discovery mode but it is our job as thesis driven
investors to be ahead of the curve on the investment opportunities
that these innovative technologies create.
From our
perspective, it has taken the full year of 2022 and the first half
of 2023 for the valuation expectations of founding teams and
investors to reconverge. Our level of new investment activity,
lower than previous periods, has reflected this. We expect the
second half of 2023 to be more active than the first half as a
result of a larger number of better quality fintechs coming to the
market for more capital. Following the reset to private market
valuations, this will be an exciting time to deploy early-stage
capital.
We are a
specialist investor in high potential businesses that are
disrupting one of the largest and most profitable sectors of the
economy. Our fintech specialism and strong balance sheet position
leave us well positioned to take advantage of normalised investment
conditions. We remain committed to a diversified, private-market
strategy to deliver long-term returns.
Investment
Activity
Investment
activity during the year totalled £19.9 million. This is lower than
the Company’s annual average since IPO of £36.4 million but has
been appropriate during the period of adjustment that the
investment environment has moved through.
New
investment activity followed from high conviction thesis
development in the areas of digital payments and cyber-insurance,
and has been the product of our pan-European strategy, with both
new investments located outside the UK.
In my
half-year report I introduced our investment in
Kipp, an
Israeli innovator in online payment acceptance. In the period
since, we have welcomed German cyber-insurance provider
Baobab
to the
portfolio. Both companies characterise our early-stage strategy
with teams who bring deep domain-expertise, technology that drives
differentiation and a competitive advantage, and large, growing
market opportunities.
These new
investments, totalling £6.6 million, were secured off-market,
outside of competitive investment processes, on the
basis of strong relationships with the founding teams and their
confidence in Augmentum as the right investment partner. Our thesis
driven approach is particularly important when identifying
early-stage opportunities ahead of our competition.
We continue
to take advantage of our ability to support the strong performers
in the portfolio with further capital and completed eight follow-on
investments totalling £13.1 million.
With
proceeds, now received, from our fifth portfolio exit, of
Cushon
to NatWest
Group, the Company ends the period with a strong balance
sheet.
New
Investments
Falling
within our thesis of optimisation in the digital payment technology
stack, Augmentum invested £4.0 million in
Kipp in
May 2022. The acceptance of card
payments in ecommerce transactions remains a critical issue for
merchants and issuing banks, particularly in cross-border payment
contexts.
Kipp’s platform
enables these parties to engage in real time information sharing to
reduce rates of false-positive payment decline.
Kipp is
delivering significant additional conversion of transactions that
would otherwise be lost across their initial cohort of
international merchant customers.
Cyber-attacks
represent a growing risk to businesses of all sizes and the
insurance market is undergoing a rapid expansion, with the value of
premiums expected to scale to US$22
billion by 20251.
An integrated, data-driven approach is critical to understanding
risk at an individual business level and to price policies
accordingly. Incumbent insurers are not effectively set up to carry
out data collection and assessment at scale and herein lies the
opportunity for fintechs. In January
2023 Augmentum invested £2.6 million in Baobab,
who provide coverage to SMEs in Germany and Austria with capacity provided by Zurich
Insurance.
1
Munich Re,
2022
Portfolio
As I wrote
to you in my half-year report, our team’s experience as operators
and active engagement through board positions has played a
significant role in helping our companies to navigate the change in
market conditions. Throughout 2022 and 2023 cost control and
sustainable growth have been core areas of focus.
Follow-on
funding is also another avenue of portfolio support and we
completed eight investments into the existing portfolio during the
period. The funding rounds we participated in either supported
companies with runway to breakeven or provided additional time
ahead of their next funding round. For the companies that will
fundraise in the year ahead we expect conditions to be more
favourable, assuming they have used this period of market
resettlement to realign strategy and costs to current
conditions.
Follow-on
Investments and Other Top 10
Early in
the period, in July 2022, we invested
£2.0 million in Previse’s
£14.5 million Series B funding round led by Tencent. Previse
provides
embedded lending and payment technology within B2B supply chains.
They are the technology provider behind Mastercard’s virtual card
solution for businesses available in more than 100 markets. During
2023 Previse
has taken
steps to rationalise its product suite and there has been
compression in the valuation multiples of listed peers. The fair
value of our holding has accordingly reduced £1.9 million in the
year.
In
November 2022 we invested a further
£2.7 million into Anyfin,
the leading consumer credit refinancing player in the Nordics and
Germany. Augmentum’s investment
formed part of a €30 million Series C round which will take the
company to breakeven in 2024. The round was led by existing
investors along with a strategic investment from the venture
investment arm of Citibank. Anyfin
has seen
strong counter cyclical demand for its product but has maintained
discipline in underwriting approach given market conditions. The
revaluation of our holding, down £3.3 million, reflects compression
in market multiples in the listed lending vertical.
In
January 2023 we invested £4 million
into Zopa
which,
along with a £0.5 million uplift, takes the total value of our
holding to £30.1 million. Zopa
continues
to deliver exceptional performance as a fully licensed bank with
increasingly diversified lending activity and total deposits
approaching £4 billion. The company is performing ahead of budget
and on track to achieve full year profitability in 2023. The
ability to maintain low cost of capital through deposits and to
draw from a 17 year lending track record translate into a distinct
competitive advantage for Zopa
that is
particularly powerful in the current economic
environment.
We made
four small investments of under £1.5 million each as part of
funding rounds for Farewill,
Wayhome
and
Habito,
and supported Cushon
through
their acquisition process with a short-term investment that has
since been returned as part of exit proceeds.
At the
beginning of the calendar year we received a dividend of £0.6
million from BullionVault
following
strong trading performance and profitability, driving a £2.1
million valuation increase. The company is a leading precious
metals investment marketplace and continues to trade well during
periods of volatility in mainstream markets.
Grover
(valuation
up £0.7 million in the year) has enjoyed a successful year in its
transition towards long-term profitable
growth. Total subscription value as at the reporting date was
rapidly nearing €250 million representing 50% year-on-year growth
in the top line despite a near 50% year-on-year reduction in
quarterly marketing spend. Average cost of customer acquisition has
fallen by 25% since Q1 2022 with net revenue retention above
100%. Grover’s
nascent B2B offering now represents fully 15% of overall
subscription revenue, with the international business growing at
nearly 20% month-on-month and growth outstripping the retail
business in the domestic market.
Our second
largest holding, Tide,
is well established as the leading digital business banking
platform for SMEs in the UK with half a million customers and
market share of 9%. In the last 12 months considerable progress has
been made on revenue diversification and geographical expansion
with the official launch of Tide India taking place in December 2022. Year-on-year revenue growth of 74%
has more than offset valuation multiple compression to deliver an
18% (£7.5 million) increase in our holding value.
Tide
completed
their first acquisition; absorbing SME credit marketplace Funding
Options into the business to broaden credit access for
Tide
customers.
Tide
is well
positioned to consider additional acquisitions in the current
market environment in order to further broaden product capabilities
or geographical presence.
Fifty
countries and counting now have an Open Banking initiative in place
and account-to-account (“A2A”) payments - where funds are moved in
real-time between transacting parties - is the fastest growing use
case. Volt
are
established as a leading provider of account-to-account payment
connectivity. Through a unique network aggregation model,
Volt’s
coverage is expanding in line with the global roll-out of Open
Banking initiatives, delivering the consistency and quality of
service demanded by the highest-volume ecommerce merchants and
facilitators in twenty-five countries and counting. In June 2023 Worldpay, the world’s largest merchant
acquirer, and ecommerce software giant Shopify selected Volt as
their global A2A partner. The increase in the value of our holding,
of £8.6 million, has been supported by exceptional revenue growth
and post-period end Volt announced a Series B fundraising of
US$60 million led by US based IVP
with Augmentum investing a further £5.3 million.
Monese
continues
to advance their B2B strategy while maintaining moderated
growth in their pan-European retail banking platform. In
May 2023 the company announced their
coreless banking platform under the new brand XYB. The last twelve
months have been a period of adjustment for the company to the new
strategy and market environment and we take confidence from the
quality of customers that XYB has been able to secure, supported by
a healthy pipeline. In September
2022, the strategic venture arm of HSBC joined Investec Bank
with a £30 million investment driven by their interest in XYBs
technology and delivery capability. Despite this positive
newsflow Monese's
valuation fell £1.5 million.
Onfido’s
product is primarily used in customer on-boarding with
volumes
therefore influenced by product demand. With a mix of financial
services verticals represented in the customer base, reduced
on-boarding in areas such as digital assets has been offset by
continued expansion in verticals such as digital banking.
Onfido
are another
of our portfolio who have taken advantage of value-pricing in the
market to extend product capabilities through acquisition,
announcing the acquisition of Airside Mobile in May 2023 to accelerate product development in the
area of re-usable digital ID. The reduction in the fair value of
our holding, of £5.1 million, is reflective of compression in the
valuation multiples of listed peers despite a positive
year-on-year growth rate and being on a fully funded pathway to
profitability.
Our
investments in the digital asset sector make up 5.2% (2022: 8.6%)
of the portfolio. Our thesis has focused on backing companies that
have a long-term view and are intent on building an institutional
grade proposition underpinned by robust regulatory frameworks.
Despite our continued conviction in this approach, our investments
so far have disappointed, and we are reporting significant
reductions in the fair value of our positions in
Gemini,
Tesseract
and
Parafi,
of £2.2 million, £6.3 million and £2.0 million, respectively. In
the last 12 months digital asset markets have been undermined by
actors operating without regard for regulation and the general
reduction in the demand for risk assets in the new macroeconomic
environment. The growth trajectories of our companies have been
impacted by these events and each has taken steps to adjust costs
and strategy to current trading conditions.
Exits
The Company
saw its second significant exit during the year, with
interactive
investor, the
direct-to-consumer fixed fee investment platform, acquired by abrdn
in May 2022 for £1.49 billion. This
resulted in proceeds for the Company of £42.8 million, delivering
an IRR of 84.8% and multiple on capital invested of 11.1
times. interactive
investor was an
early investment in the Augmentum portfolio, quite antithetical to
most venture capital radars at the point of investment. Under
strong leadership and disciplined focus the company grew rapidly to
over £55 billion of customer assets under administration, becoming
the second largest self-directed investment platform in the
UK.
The
acquisition of workplace pensions provider Cushon
by NatWest
Group was announced during the period in February 2023 and, following regulatory approval,
completed post-period end on 1st June. Augmentum received proceeds
of £22.8 million
from the sale, giving an IRR of 61.6% and multiple on capital
invested of 2.1 times. Realised value represents a c40% uplift on
the holding value we reported in the Company’s half year results.
This marks the fifth exit from the portfolio and is a further
example of our measured approach to valuation; each exit to date
has been realised above or on-par with the previously reported
carrying value.
Performance
For the
year to 31 March 2023 we are
reporting gains on investments of £9.9 million (2022 £56.7
million). Since IPO this represents an IRR of 18.5% on the capital
that we have deployed.
We continue
to take a consistent and disciplined approach to arrive at fair
values for the Company’s portfolio positions. The valuation
methodology (or methodologies) applied to each company is selected
with consideration of individual stage and circumstance. Our
growing track record of exits shows realisations above or on-par
with the last reported holding value.
In recent
reports we have spoken more actively to shareholders about the
downside protections that form an integral part of the structure of
our typical investments. The most common protections across the
portfolio are liquidation preferences and anti-dilution provisions
with 21 out of 25 portfolio positions protected by at least one of
these.
These
structures differentiate our shareholdings from ordinary shares
held in public or private companies because they protect value in
the eventuality that a company’s headline valuation is reduced.
Through the market volatility of 2022 these structures provided
additional support to the holding value of some of our positions,
particularly those held in earlier stage companies.
Our
diversified portfolio approach also remains important. This extends
across verticals, stages of maturity and geographies and reduces
our overall exposure to market impact on any one of
these.
Outlook
In the
dislocation that follows from periods of economic turbulence,
entrepreneurs are presented with new opportunities to establish
ground-breaking businesses. This principle can also apply to
venture capital firms that operate with a clear purpose and we have
welcomed the general retreat of ‘tourist capital’ and the so-called
‘mega-rounds’ that played a distortionary role in private markets
during the second half of 2020 and 2021.
Quality
deal flow is visibly improving as companies funded internally
through the turbulence of 2022 are now returning to market. Amongst
them are high potential prospects in line with our mandate which
are bolstering the investment pipeline. Increasing levels of “dry
powder” in the market maintain competition for quality companies
but our thesis driven approach and unique proposition – fintech
specialism, patient capital and operating experience – continue to
cut through.
Less
compelling investment opportunities are also returning to market,
and we anticipate a further shakeout and consolidation of companies
to come. Several of our established portfolio companies have
already found value-opportunities to add product and personnel
capabilities through acquisition. As fast-growing market leaders in
their respective fintech verticals they are well positioned to
consider further opportunities in the period ahead. Investors
should see this is another signal of maturity in the portfolio
along with progression towards profitability and exit.
The
headroom for further disruption in financial services remains
significant and recent policy dialogue provides us many reasons for
optimism around the future of the technology sector in the UK and
Europe. Strong cross-party support
was in evidence at the recent London Tech Week (June 2023) where both the Prime Minister and
Leader of the Opposition spoke in favour of further investment and
progressive regulation in the UK in order to capture the
economy-wide benefits of a generational opportunity in AI. Reforms
such as the removal of the fee cap on defined contribution pension
funds and a potential UK sovereign wealth fund will begin to
address the historic under-investment from UK institutions in the
venture capital asset class. In the interests of the UK building on
its preeminent position in European fintech we hope and expect that
those with the power to implement these measures proceed to do so
in a full and timely fashion.
As we
navigate an evolving investment and technology landscape where
change is not uniform across countries, it is ever more important
to continue to develop our brand across Europe. We are well positioned to identify and
win exceptional investment opportunities and build on our
reputation as one of Europe’s leading fintech venture
investors.
Tim
Levene CEO
Augmentum
Fintech Management Ltd
3 July 2023
.
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 UK and wider
Europe.
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
UK and
wider Europe, and the Company will
at all times invest and manage the portfolio in a manner consistent
with spreading investment risk.
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 UK or wider Europe.
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 FCA.
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 Regulatory Information
Service.
* Please
refer to the Glossary on page 79.
.
PORTFOLIO
REVIEW
|
Fair
value of
holding
at
31
March
2022
£’000
|
Net
investments/
(realisations
£’000
|
Impact
of foreign currency rate changes £’000
|
Investment
return
£’000
|
Fair
value of
holding
at
31
March
2023
£’000
|
%
of Net assets after performance fee
|
Grover
|
42,415
|
–
|
1,833
|
(1,098)
|
43,150
|
15.5%
|
Tide
|
28,221
|
–
|
–
|
7,471
|
35,692
|
12.9%
|
Zopa
^
|
25,577
|
4,000
|
–
|
516
|
30,093
|
10.8%
|
Cushon
|
13,584
|
750
|
–
|
8,456
|
22,790
|
8.2%
|
Volt
|
5,608
|
–
|
–
|
8,608
|
14,216
|
5.1%
|
Monese
|
13,225
|
–
|
–
|
(1,542)
|
11,683
|
4.2%
|
BullionVault
^
|
10,023
|
(564)
|
–
|
2,106
|
11,565
|
4.2%
|
Onfido
|
15,393
|
–
|
1,198
|
(6,349)
|
10,242
|
3.7%
|
AnyFin
|
9,870
|
2,709
|
57
|
(3,331)
|
9,305
|
3.4%
|
Intellis
|
4,003
|
–
|
232
|
4,177
|
8,412
|
3.0%
|
Top
10 Investments
|
167,919
|
6,895
|
3,320
|
19,014
|
197,148
|
71.0%
|
interactive
investor ^
|
42,797
|
(42,797)
|
–
|
–
|
–
|
0.0%
|
Other
Investments *
|
58,091
|
11,532
|
2,325
|
(14,801)**
|
57,147
|
20.6%
|
Total
Investments
|
268,807
|
(24,370)
|
5,645
|
4,213
|
254,295
|
91.6%
|
Cash &
cash equivalents
|
31,326
|
|
|
|
40,015
|
14.4%
|
Net other
current liabilities
|
(4,929)
|
|
|
|
(186)
|
-0.1%
|
Net
Assets
|
295,204
|
|
|
|
294,124
|
105.9%
|
Performance
Fee provision
|
(15,265)
|
|
|
|
(16,819)
|
-5.9%
|
Net
Assets after performance fee
|
279,939
|
|
|
|
277,305
|
100.0%
|
^
Held via
Augmentum I LP
*
There are
fifteen other investments (31 March
2022: fourteen). See pages 13 and 14 for further
details.
** The
Other Investments investment loss is primarily from write-downs in
the valuations of Gemini and Tesseract, as detailed on page
17.
.
KEY
INVESTMENTS
Grover
Berlin-based Grover (www.grover.com) is the leading
consumer-tech subscription platform, bringing the access economy to
the consumer electronics market by offering a simple, monthly
subscription model for technology products. Private and business
customers have access to over 5,000 products including smartphones,
laptops, virtual reality technology, wearables and smart home
appliances. The Grover service allows users to keep, switch, buy,
or return products depending on their individual needs. Rentals are
available in Germany, Austria, the
Netherlands, Spain and the
US. Grover is at the forefront of the circular economy, with
products being returned, refurbished and recirculated until the end
of their usable life. Grover has circulated over 1 million devices.
With a total financing volume of around €1.4 billion to date and
over 400 employees, Grover is one of the fastest-growing scale-ups
in Europe.
In
September 2019 Augmentum led a €11
million funding round with a €6 million convertible loan note
(“CLN”) investment. This coincided with Grover signing a new €30
million debt facility with Varengold Bank, one of Germany’s major
fintech banking partners. In March
2021 Grover completed a €60 million Series B funding round,
with Augmentum participating and converting its CLN. The round was
made up of €45 million from equity investors and €15 million in
venture debt financing. With its Series C funding round in
April 2022 Grover raised US$330 million in equity and debt funding,
bringing the company’s valuation to over US$1 billion.
Source:
Grover
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost:
|
7,927
|
7,927
|
Value:
|
43,150
|
42,415
|
Valuation
Methodology^
|
Rev.Multiple
|
CPORT
|
% ownership
(fully diluted):
|
6.3%
|
6.4%
|
As an
unquoted German company, Grover is not required to publicly file
audited accounts.
^
See note 13
on pages 62 and 63.
.
Tide
Tide’s
(www.tide.co) mission is to help 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 and quick, mobile invoicing. Tide
has almost 10% market share of small business accounts in the
UK.
In
November 2022, Tide acquired Funding
Options, a leading UK marketplace for SMEs seeking business
finance, subject to FCA approval. The merged credit business will
give Tide’s 500,000 customers access to a wider range of credit
options and creates one of the UK’s biggest digital marketplaces
for SME credit. In December 2022,
Tide launched in India with two
business banking solutions – the Tide Business Account and its
RuPay-powered Tide Expense Card.
Augmentum
led Tide’s £44.1 million first round of Series B funding in
September 2019, alongside Japanese
investment firm The SBI Group. In July
2021 Tide completed an £80 million Series C funding round
led by Apax Digital, in which Augmentum invested an additional £2.2
million and into which the £2.5 million loan note
converted.
Source:
Tide
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost:
|
13,200
|
13,200
|
Value:
|
35,692
|
28,221
|
Valuation
Methodology^
|
Rev.Multiple
|
Rev.Multiple
|
% ownership
(fully diluted):
|
5.1%
|
5.4%
|
As per last
filed audited accounts of the investee company for the year to
31 December 2021:
|
2021
£’000
|
2020
£’000
|
Turnover
|
33,541
|
14,442
|
Pre tax
loss
|
(32,719)
|
(25,825)
|
Net
assets
|
66,297
|
17,761
|
.
Zopa
Zopa
(www.zopa.com) was founded in 2005 as the world’s first
peer-to-peer (“P2P”) lending company, aiming to give people access
to simpler, better-value loans and investments. Following a funding
round in 2020 Zopa launched Zopa Bank and was granted a full UK
banking licence, which allowed it to offer a wider product range.
It is regulated by both the PRA and the FCA.
After 16
years of delivering positive returns for investors, Zopa closed the
P2P lending side of its business in 2021 to fully focus on Zopa
Bank. Current products include fixed term and smart savings,
wedding and home improvement loans, debt consolidation loans, a
credit card and motor finance.
Zopa is a
multiple awards winner. In 2021 Zopa was awarded Best Personal Loan
Provider and Best Credit Card Provider by the British Bank Awards,
Best Online Savings Provider by Moneynet Personal Finance, Best use
of IT in Consumer Finance in the FStech Awards and won the Personal
Credit Cards Innovation award in the Finder Lending Innovation
Awards. In 2022 it won Best Short Term Fixed Rate Bond Provider,
Best Fixed Rate Bond Provider and Best New Savings Provider in the
Savings Champion Awards and was awarded Banking Brand of the Year
2022 in the MoneyNet Awards.
Augmentum
participated in a £20 million funding round led by Silverstripe in
March 2021, in October 2021 participated with a further £10
million investment in a £220 million round led by SoftBank and in
February 2023 invested a further
£4 million
as part of a £75 million funding round alongside other existing
investors.
Source:
Zopa
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost:
|
33,670
|
29,670
|
Value:
|
30,093
|
25,577
|
Valuation
Methodology
|
Rev.Multiple
|
CPORT
|
% ownership
(fully diluted):
|
3.4%
|
3.3%
|
As per last
filed audited accounts of the investee company for the year to
31 December 2021:
|
2021
£’000
|
2020
£’000
|
Operating
income
|
60,501
|
21,171
|
Pre tax
loss
|
(41,599)
|
(41,479)
|
Net
assets
|
270,512
|
134,074
|
.
Cushon
Cushon
(www.cushon.co.uk) provides workplace pensions and payroll-linked
ISAs across the UK and is authorised by The Pensions Regulator to
operate a master trust pension scheme. In January 2021, Cushon became the first UK pension
provider to launch a fully carbon neutral ‘Net Zero Now’ pension
product. In April 2022 it finalised
the acquisition of Creative Benefits, manager of Creative Pension
Trust, making it the fifth largest master trust pension provider in
the UK and doubling its assets under management.
NatWest
Group, the FTSE 100 banking and financial services group, announced
in February 2023 that it had agreed
to acquire a majority shareholding in Cushon. The acquisition was
completed on 1 June 2023.
Augmentum
invested £5 million in Cushon in June
2021 and followed up with a further £5 million in
March 2022 and £750,000 in
December 2022.
Source:
Cushon
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost:
|
10,750
|
10,000
|
Value
|
22,790
|
13,584
|
Valuation
Methodology
|
Sale
Proceeds
|
CPORT
|
% ownership
(fully diluted):
|
13.9%
|
13.9%
|
As per last
filed audited accounts of the investee company for the year to
31 March 2022:
|
2022
£’000
|
2021
£’000
|
Turnover
|
5,501
|
1,632
|
Pre tax
loss
|
(8,548)
|
(3,742)
|
Net
assets
|
7,394
|
5,407
|
.
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 – deliver
benefits to both consumers and merchants. This helps merchants
shorten their cash cycle, increase conversion and lower their
costs. In October 2021 Volt announced
their partnership with Worldline, the European leader in payments
and transactional services, giving over 600 enterprise-level
merchants globally access to Volt’s open payments infrastructure.
It also announced its expansion into Brazil in November
2021 to integrate Brazil’s domestic instant payments
network, Pix, and established its physical presence in São
Paolo.
Augmentum
invested £0.5 million in Volt in December
2020 and a further £4 million in June
2021.
Source:
Volt
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost:
|
4,500
|
4,500
|
Value:
|
14,216
|
5,608
|
Valuation
Methodology
|
CPORT
|
CPORT
|
% ownership
(fully diluted):
|
8.3%
|
8.3%
|
Volt is not
required to publicly file audited accounts.
.
Monese
With Monese
(www.monese.com) you can open a UK or European current account in
minutes from your mobile, with a photo ID and a video selfie. Their
core customers are amongst the hundreds of millions of people who
live some part of their life in another country - whether it’s for
travel, work, business, study, family, or retirement.
With its
mobile-only dual UK and Euro IBAN current account, its portability
across 31 countries, and both the app and its customer service
available in 15 languages, Monese allows people and businesses to
bank like a local across the UK and Europe. Launched in 2015 Monese now has more
than 2 million registered users. 70% of incoming funds are from
salary payments, indicating that customers are using Monese as
their primary account. In October
2020 Mastercard and Monese announced a multi-year strategic
partnership, with Monese becoming a principal Mastercard issuer.
Monese’s new Banking as a Service (“BaaS”) platform, which arrived
following deals by Monese with Mastercard and core banking provider
Thought Machine, has been adopted by Investec for its private
client transactional banking service. In December 2021 the company expanded its credit and
lending capabilities through the acquisition of financial services
provider Trezeo.
Augmentum
is invested alongside Kinnevik, PayPal, International Airlines
Group, Investec and HSBC Ventures.
Source:
Monese
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost:
|
11,467
|
11,467
|
Value:
|
11,683
|
13,225
|
Valuation
Methodology
|
CPORT
|
CPORT
|
% ownership
(fully diluted)*:
|
6.0%
|
7.5%
|
* 2022:
£0.9m of investment in a convertible loan note.
As per last
filed audited accounts of the investee company for the year to
31 December 2021:
|
2021
£’000
|
2020
£’000
|
Turnover
|
17,573
|
16,285
|
Pre tax
loss
|
(17,529)
|
(28,461)
|
Net
liabilities
|
(2,972)
|
(15,410)
|
.
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 the very best prices
online, with US$3.7 billion of assets
under administration, over US$100
million worth of gold and silver traded monthly, and over
100,000 clients.
Each user’s
property is stored at an unbeaten low cost in secure, specialist
vaults in London, New York, Toronto, Singapore and Zurich. BullionVault’s unique Daily Audit then
proves the full allocation of client property every day.
The company
generates solid monthly profits from trading, commission and
interest. It is cash generative, dividend paying, and well-placed
for any downturns in the wider financial markets.
Source:
BullionVault
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost:
|
8,424
|
8,424
|
Value:
|
11,565
|
10,023
|
Valuation
Methodology
|
EBITDA
Multiple
|
EBITDA
Multiple
|
% ownership
(fully diluted):
|
11.1%
|
11.1%
|
Dividends
paid:
|
564
|
520
|
As per last
filed audited accounts of the investee company for the year to
31 October 2022:
|
2022
£’000
|
2021
£’000
|
Gross
profit
|
13,071
|
12,086
|
Pre tax
profit
|
8,364
|
7,741
|
Net
assets
|
41,294
|
39,148
|
.
Onfido
Onfido
(www.onfido.com) is building the new identity standard for the
internet. Its AI-based technology assesses whether a user’s
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, Onfido can verify against 4,500 different
types of identity documents across 195 countries, using techniques
like “facial liveness’’ to see patterns invisible to the human
eye.
Onfido was
founded in 2012. It has offices in London, San
Francisco, New York,
Lisbon, Paris, Amsterdam, New
Delhi and Singapore and
helps over 900 companies, including industry leaders such as
Revolut, bung and Bitstamp. These customers are choosing Onfido
over others because of its ability to scale, speed in on-boarding
new customers (15 seconds
for flash verification), preventing fraud, and its advanced
biometric technology.
Augmentum
invested an additional £3.7 million in a convertible loan note in
December 2019 as part of a £4.7
million round. This converted into equity when Onfido raised an
additional £64.7 million in April
2020.
Source:
Onfido
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost:
|
7,750
|
7,750
|
Value:
|
10,242
|
15,393
|
Valuation
Methodology
|
Rev.Multiple
|
Rev.Multiple
|
% ownership
(fully diluted):
|
2.1%
|
2.3%
|
As per last
filed audited accounts of the investee company for the 13 months to
31 January 2022 (previous period
12 months
to 31 December 2020):
|
2022
£’000
|
2020
£’000
|
Turnover
|
94,513
|
45,408
|
Pre tax
loss
|
(44,980)
|
(34,712)
|
Net
assets
|
39,221
|
68,508
|
.
Anyfin
Anyfin
(www.anyfin.com) was founded in 2017 by former executives of
Klarna, Spotify and iZettle, and leverages technology to allow
credit-worthy consumers the opportunity to improve their financial
wellbeing by consolidating and refinancing existing credit
agreements with improved interest rates, as well as offering smart
budgeting tools. Anyfin is currently available in Sweden, Finland, Norway and Germany, with plans to expand across
Europe as well as strengthen its
product suite in existing markets.
Augmentum
invested £7.2 million in Anyfin in September
2021 as part of a $52 million
funding round and a further £2.7 million
in November 2022.
Source:
Anyfin
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost:
|
9,924
|
7,248
|
Value:
|
9,305
|
9,870
|
Valuation
Methodology
|
Rev.
Multiple
|
CPORT
|
% ownership
(fully diluted):
|
3.2%
|
2.7%
|
As an
unquoted Swedish company, Anyfin is not required to publicly file
audited accounts.
.
Intellis
Intellis,
based in Switzerland, is an
algorithmic powered quantitative hedge fund operating in the FX
space. Intellis’ proprietary approach takes a conviction based
assessment towards trading in the FX markets, a position which is
uncorrelated to traditional news driven trading firms. They operate
across a range of trading venues with a regulated Investment Trust
fund structure that enables seamless onboarding of new Liquidity
Partners.
Augmentum
exercised its option to invest a further €1 million in March 2020 and a further €1 million in
March 2021.
Source:
Intellis
|
31
March
2023
£’000
|
31
March
2022
£’000
|
Cost
|
2,696
|
2,696
|
Value
|
8,412
|
4,003
|
Valuation
Methodology
|
P/E
Multiple
|
CPORT
|
% ownership
(fully diluted)
|
23.8%
|
23.8%
|
As an
unquoted Swiss company, Intellis is not required to publicly file
audited accounts.
.
OTHER
INVESTMENTS
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 Tyler
Winklevoss and has been built with a security and regulation
first approach. Gemini operates as a New
York trust company regulated by the New York State Department of Financial
Services (NYSDFS) and was the first cryptocurrency exchange and
custodian to secure SOC 1 Type 2 and SOC 2 Type 2 certification.
Gemini entered the UK market in 2020 with an FCA Electronic Money
Institution licence. Gemini announced acquisitions of portfolio
management services company BITRIA and trading platform Omniex in
January 2022.
Augmentum
participated in Gemini’s first ever funding round in November 2021 with an investment of £10.2
million.
.
Iwoca
Founded in
2011, iwoca (www.iwoca.co.uk) uses award-winning technology to
disrupt small business lending across Europe. They offer short-term loans of up to
£500,000 to SMEs across the UK and Germany. iwoca leverages online integrations
with high-street banks, payment processors and sector-specific
providers to look at thousands of data points for each business.
These feed into a risk engine that enables the company to make a
fair assessment of any business – from a retailer to a restaurant,
a factory to a farm – and approve a credit facility within hours.
The company has offered more than £3 billion of finance to over
70,000 SMEs in total and successfully lent £370 million through the
Coronavirus Business Interruption Loan Scheme to businesses
grappling with the fallout of the economic crisis caused by the
coronavirus. iwoca launched iwocaPay in June
2020, an innovative business-to-business (B2B) ‘buy now pay
later’ product to provide flexible payment terms to buyers while
giving peace of mind to sellers.
.
Farewill
In the next
10 years, £1 trillion of inheritance will pass between generations
in the UK. Farewill (www.farewill.com) is a digital, all-in-one
financial and legal services platform for dealing with death and
after-death services, including wills, probate and cremation. In
2022 Farewill won National Will Writing Firm of the Year for the
fourth year in a row and in 2021 was Probate Provider of the Year
for the second consecutive year at the British Wills and Probate
Awards. Farewill also won Best Funeral Information Provider and
Low-cost Funeral Provider of the Year at the Good Funeral Awards
2021. The organisation
has also been voted the UK’s best-rated death experts on
Trustpilot, scoring an average customer approval rating of 4.9/5
from over 13,000 reviews. It is now the largest will writer in the
UK.
Since its
launch in 2015 Farewill’s customers have pledged over £450 million
in legacy gifts written into their wills.
Augmentum
led Farewill’s £7.5 million Series A fundraise in January 2019, with a £4 million investment,
participated in its £20 million Series B, led by Highland Europe in
July 2020, with £2.6 million, and in
its further £4.8 million fundraise in March
2023, with £0.8 million.
.
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 Tel
Aviv and has offices in London and Paris. In February
2023 it passed a milestone of $150
billion notional in ongoing open trades on their platform
and in March announced a collaboration with MTS Markets, owned by
Euronext, creating MTS Swaps by Wematch.live, which aims to bridge
the gap between legacy voice trading and pure electronic trading in
the interdealer IRS market.
Augmentum
invested £3.7 million in September
2021.
.
Kipp
Kipp (www.letskipp.com) is an Israeli fintech that has
developed an AI platform that transforms the traditional payment
model to increase credit card transaction approvals, revenue, and
customer satisfaction. Its core solution relies heavily
on data
enrichment and risk management to help merchants and banks split
the cost of risk to incentivize issuing banks to approve
more transactions.
Augmentum
invested £4 million in May
2022.
.
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 September 2021, following
closure of the initial phase of a £500 million pension fund
investment and has crossed the milestone of completing the purchase
of its first 100 homes.
Wayhome
opens up owner-occupied residential property as an asset class for
pension funds, who earn inflation-linked rent on the portion not
owned by the occupier.
Augmentum
invested £2.5 million in 2019, £1 million in 2021 and a further
£0.9 million in the Company's financial year to 31 March 2023.
.
Previse
Previse
(www.previ.se) 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 January 2022
Mastercard unveiled that its next-generation virtual card solution
for instant B2B payments would use Previse’s machine learning
capabilities. The solution combines Previse’s machine learning,
with Mastercard’s core commercial solutions and global payment
network, to transform how businesses send and receive
payments.
Augmentum
invested £250,000 in a convertible loan note in August 2019. This converted into equity as part
of the company’s US$11 million
funding round in March 2020,
alongside Reefknot Investments and Mastercard, as well as existing
investors Bessemer Venture Partners and Hambro Perks. Previse was
awarded a £2.5 million Banking Competition Remedies’ Capability and
Innovation Fund grant in August 2020
In May 2022 Previse closed the first
phase of its series B financing round, which was led by
Tencent, with US$18 million raised, including £2 million from
Augmentum.
.
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.
Augmentum
originally invested in DueDil, which merged with Artesian in
July 2021. Combining DueDil’s
Business Information Graph (B.I.G.)™ and Premium APIs, and
Artesian’s powerful web application and advanced rules engine
delivers an easy to deploy solution for banks, insurers and
FinTechs to engage, onboard and grow the right business
customers.
.
Baobab
Berlin based Baobab (www.baobab.io) is a pioneer in the
provision of European cyber insurance for SMEs. With capacity
provision from Zurich, Baobab uses
a novel approach to underwriting, pricing and risk mitigation, and
works with leading SME cyber security providers to prevent breaches
for its insured customers.
Augmentum
invested £2.6 million in January
2023.
.
ParaFi
ParaFi
Capital (www.parafi.com) is an investor in decentralised finance
protocols that address tangible use cases of the technology and
demonstrate signs of product-market fit. The ParaFi investment has
drawn on their domain expertise developed in both traditional
finance and crypto to identify and invest in leading protocols such
as Compound (lending and interest accrual), Aave (asset borrowing),
Uniswap (automated liquidity provision), Synthetix (synthetic asset
trading) and MakerDAO (stablecoins). ParaFi also supports its
protocols as a liquidity provider and governance
participant.
Augmentum
invested £2.8 million in ParaFi in January
2021. Co-investors include Bain Capital Ventures and Galaxy
Digital.
.
Epsor
Epsor
(www.epsor.fr) is a Paris based
provider of employee and retirement savings plans delivered through
an open ecosystem, giving access to a broad range of asset
management products accessible through its intuitive digital
platform. Epsor serves more than 700 companies in France.
Augmentum
invested £2.2 million in Epsor in June
2021.
.
WhiskyInvestDirect
Founded in
2015, WhiskyInvestDirect (www.whiskyinvestdirect.com) was a
subsidiary of BullionVault and is the online market for buying and
selling Scotch whisky as it matures in barrel. This is an asset
class that has a long track record of growth, yet has previously
been opaque and inaccessible.
The
business seeks to change the way some of the three billion litres
of 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 October 2022 financial year end the company's
clients held 12 million LPA (Litres of Pure Alcohol) of
spirit.
Augmentum's
holding derives from WhiskeyInvestDirect being spun out of
BullionVault in 2020.
.
Sfermion
Sfermion 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.
Augmentum
committed US$3 million in
October 2021, to be drawn down in
tranches.
.
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 Finnish Financial Supervisory Authority
(“FIN-FSA”), and was one of the first companies in the EU to obtain
a 5AMLD (Fifth Anti-Money Laundering Directive) virtual asset
service provider (“VASP”) licence. It is the only VASP with an
express authorisation from the FIN-FSA to deploy client assets into
decentralized finance or “DeFi”.
Taking no
principal position, 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 under-leveraged relative to traditional
capital markets.
Augmentum
led Tesseract’s Series A funding round in June 2021 with an investment of £7.3
million.
.
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 April 2016, Habito had
brokered £7 billion of mortgages by July
2021. Habito launched its own buy-to-let
mortgages in July 2019 and in
March 2021 launched a 40-year
fixed-rate mortgage ‘Habito One’, the UK’s longest-ever fixed rate
mortgage.
In
August 2019, Augmentum led Habito’s
£35 million Series C funding round with a £5 million investment and
added £1.3 million
in the Company's financial year ended 31
March 2023.
.
STRATEGIC
REPORT
Business
Review
The
Strategic Report, set out on pages 18 to 30, provides a review of
the Company’s business, the performance during the year and its
strategy going forward. It also considers the principal risks and
uncertainties facing the Company.
It also
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 26 and 27.
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
Throughout
the year under review, the Company continued to operate as an
approved investment trust, following its investment objective and
policy, seeking 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 UK and wider Europe.
The Company
is an alternative investment fund (“AIF”) under the Alternative
Investment Fund Managers Regulations (“UK AIFMD”)
and has appointed Frostrow Capital LLP as its alternative
investment fund manager (“AIFM”).
During the
year, the Board, Frostrow Capital LLP as AIFM, and the Portfolio
Manager undertook all strategic and administrative
activities.
Principal
Risks and Risk Management
The Board
considers that the risks detailed below are the principal risks
currently facing the Company. These are the risks that could affect
the ability of the Company to deliver its strategy.
The Board
is responsible for the ongoing identification, evaluation and
management of the principal 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 UK Corporate
Governance Code and the FRC’s Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting.
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's
policy on risk management has not materially changed during the
course of the reporting period and up to the date of this
report.
The Company
maintains a framework of the 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
Company’s key risks fall broadly under the following
categories:
Principal
Risks and Uncertainties
|
Mitigation
|
Macroeconomic
Risks
The
performance of the Group’s investment portfolio is materially
influenced by economic conditions. These may affect demand for
services supplied by investee companies, foreign exchange rates,
input costs, interest rates, debt and equity capital markets and
the number of active trade and financial buyers.
All of
these factors could have an impact on the Group’s ability to
realise a return from its investments and cannot be directly
controlled by the Group. Particular current factors include high
inflation, recession fears and sanctions related to the situation
in Ukraine.
|
Within the
constraints dictated by its objective, the Company’s portfolio is
diversified across a range of sectors, has no leverage, a net cash
balance and, as set out below, the Portfolio Manager structures
investments to provide downside protection, where
possible.
The Board,
AIFM and Portfolio Manager monitor the macroeconomic environment
and this is discussed at each Board meeting, along with the
potential impact. The Portfolio Manager also provides a detailed
update on the investments at each meeting, including,
inter
alia,
developments in relation to the macro environment and
trends.
|
Strategy
Implementation Risks
The Group
is subject to the risk that its long-term strategy and its level of
performance fail to meet the expectations of its
shareholders.
|
A robust
and sustainable corporate governance structure has been implemented
with the Board responsible for continuing to act in the best
interests of shareholders.
An
experienced fintech Portfolio Manager has been retained in order to
deliver the strategy.
|
Investment
Risks
The
performance of the Group’s portfolio is influenced by a number of
factors. These include, but are not limited to:
(i) the
quality of the initial investment decision;
(ii) reliance
on co-investment parties;
(iii) the
quality of the management team of each underlying portfolio company
and the ability of that team to successfully implement its business
strategy;
(iv) the
success of the Portfolio Manager in building an effective working
relationship with each team in order to agree and implement
value-creation strategies;
(v) changes
in the market or competitive environment in which each portfolio
company operates;
(vi) the
macroeconomic risks described above; and
(vii) 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 Company
also 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 ensures disciplined investment selection and portfolio
management. This includes detailed due diligence, regular portfolio
reviews and in many cases active engagement with portfolio
companies by way of board representation or observer
status.
Investing
in young businesses that may be cash consuming for a number of
years is inherently risky. In order to reduce the risks of
permanent capital loss the Portfolio Manager will, where possible,
structure investments to afford a degree of downside protection
through mechanisms such as a liquidation preference and/or
anti-dilution provisions.
As noted
above the Portfolio Manager provides a detailed update at each
Board meeting, including, inter alia, investee company developments
and funding requirements.
|
Portfolio
Diversification Risk
The Group
is subject to the risk that its portfolio may not be diversified,
being heavily concentrated in the fintech sector and the portfolio
value may be dominated by a single or limited number of
companies.
|
The Group
attempts to mitigate this risk by making investments across a range
of companies in a range of fintech company subsectors and in
companies at different stages of their lifecycle in accordance with
the Investment Objective and Investment Policy. There is also
geographic diversification with 66.6% of the portfolio being based
in the UK and 33.4% in continental Europe, 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 currently
low. The Company may hold significant cash balances, particularly
when a fundraising has taken place, and this may have a drag on the
Company’s performance.
The Company
may require cash to fund potential follow-on investments in
existing investee companies. If the Company does not hold
sufficient cash to participate in subsequent funding rounds carried
out by portfolio companies, this could result in the 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.
|
To mitigate
this risk the Board has agreed prudent cash management guidelines
with the AIFM and Portfolio Manager.
The Group
maintains sufficient cash resources to manage its ongoing
operational and investment commitments. Regular discussions are
held to consider the future cash requirements of the Company and
its investments to ensure that sufficient cash is
maintained.
|
Credit
Risk
As noted
the Company may hold significant cash balances. There is a risk
that the banks with which the cash is deposited fail and the
Company could be adversely affected through either delay in
accessing the cash deposits or the loss of the cash deposit. When
evaluating counterparties there can be no assurance that the review
will reveal or highlight all relevant facts and circumstances that
may be necessary or helpful in evaluating the creditworthiness of
the counterparty.
|
The Board
has agreed prudent cash management guidelines with the AIFM to
ensure an appropriate risk/return profile is maintained. Cash and
cash equivalents are held with approved counterparties, who are
required to have a high credit rating and financial strength.
Compliance with these guidelines is monitored regularly and
reported to the Board on a quarterly basis.
|
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
19.17.
The
Company’s investments are illiquid and a sale may require consent
of other interested parties. Such investments may therefore be
difficult to value and realise. Such realisations may involve
significant time and cost and/or result in realisations at levels
below the value of such investments as 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 Company
has a rigorous valuation policy and process as set out in notes
19.4 and 19.17. This process is led by the Board and includes
benchmarking valuations against actual prices received when a sale
of shares is made, as well as taking account of liquidity issues
and/or any restrictions over investments.
|
Operational
Risk
The Board
is reliant on the systems of the Group and Company’s service
providers and as such disruption to, or a failure of, those systems
could lead to a failure to comply with law and regulations leading
to reputational damage and/or financial loss to the Group and/or
Company.
|
To manage
these risks the Board:
• receives
a quarterly compliance report from the AIFM and the Portfolio
Manager, which includes, inter alia, details of compliance with
applicable laws and regulations;
• reviews
internal control reports, where available, key policies, including
measures taken to combat cybersecurity issues, and also the
disaster recovery procedures of its service providers;
• maintains
a risk matrix with details of risks to which the Group and 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.
|
Key
person risk
There is a
risk that the individuals responsible for managing the portfolio
may leave their employment or may be prevented from undertaking
their duties.
|
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 Management Engagement & Remuneration Committee oversight
of the remuneration of employees of AFML;
• meeting
the wider team, outside the designated lead managers, at the
Portfolio Manager’s offices and by video conference, and
encouraging the participation of the wider AFML team in investor
updates; and
• delegating
to the Management Engagement & 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.
|
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 International Risk Governance
Council definition of an ‘emerging’ risk is one that is new, or is
a familiar risk in a new or unfamiliar context or under new context
conditions (re-emerging).
Failure to identify emerging risks may cause mitigating actions to
be reactive rather than being proactive and, in the worst case,
could cause the Company to become unviable or otherwise fail or
force the Company to change its structure, objective or
strategy.
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.
Ukraine
The Board
continues to monitor events in Ukraine and related sanctions. The Board
remains confident that the situation should have no direct impact
on the Company and has not identified any Russian shareholders in
the Company. The portfolio companies have no Russian
operations.
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 Task Force
on Climate-Related Financial Disclosures (“TCFD”) and the Company
has not voluntarily adopted the requirements, but recognises the
potential for reputational risk should the Company not meet
investor expectations in relation to ESG. This, together with ESG
factors that might affect portfolio companies, is considered to be
an emerging risk area for the Company. ESG risk assessment is
embedded in the Portfolio Manager's due diligence and
decision-making process when investing in new companies and
monitored thereafter.
Performance
and Prospects
Performance
The Board
assesses the Company’s performance in meeting its objective against
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 Company’s NAV per share after performance fee
total return as being the critical measure of value delivered to
shareholders 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 79 and in note 16 on page 64.
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
2.4% (2022: 19.0%). 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 (27.1%) (2022: (16.4%)) reflecting
the swing in market sentiment against listed growth and tech stocks
from the beginning of 2022 and the associated wide discount to NAV
at which the Company's shares have traded.
• 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
is cognisant of costs and reviews the level of expenses at each
Board meeting. It works hard 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 23 and 24. 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 1.9% (2022: 1.7%).
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 Portfolio
Manager, the management fee arrangements and the Company’s cost
base generally have not changed and the current discount follows an
extended period during which the shares traded at a premium to NAV.
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. This situation continued unabated through the year under
review.
The Board
has sought to communicate its faith in the underlying value of the
portfolio and simultaneously to take advantage of the discount by
undertaking a programme of accretive share buybacks, to the benefit
of remaining shareholders. It is thought that helping to create
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.
* See
Glossary on page 79
Prospects
The
Company’s current position and prospects are described in the
Chairman’s Statement and Portfolio Manager’s Review sections of
this annual report.
Performance
and Future developments
The Board’s
primary focus is on the Portfolio Manager’s investment approach and
performance. The subject is thoroughly discussed at every Board
meeting.
In
addition, the AIFM updates the Board on company communications,
promotions and investor feedback, as well as wider investment
issues.
An outline
of performance, investment activity and strategy, market background
during the year and the outlook is provided in the Chairman’s
Statement on pages 2 to 4 and the Portfolio Manager’s Review on
pages 15 to 17.
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 a range of plausible downside scenarios such as reviewing
the effects of substantial falls in investment values and the
impact on the Company’s ongoing charges.
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 18 to 21 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 current inflation, concerns about a recession
and the Ukraine conflict, based on
the results of its review, and taking into account the long-term
nature of the Company, the Board has a reasonable expectation that
the Company will be able to continue its operations and meet its
expenses and liabilities as they fall due for the foreseeable
future, taken to mean at least the next five years. The Board has
chosen this period because, whilst it has no information to suggest
this judgement will need to change in the coming five years,
forecasting over longer periods is imprecise. The Board’s long-term
view of viability will, of course, be updated each year in the
annual report.
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 65, 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 Financial
Reporting Council.
Management
Arrangements
Principal
Service Providers
The Company
is structured as an internally managed closed-ended investment
company. Augmentum Fintech Management Limited (“Portfolio Manager”)
is the wholly owned operating subsidiary of the Company that
manages the investment portfolio of the Company as a delegate of
the AIFM.
The other
principal service providers to the Company are Frostrow Capital LLP
(“Frostrow” or the “AIFM”) and IQ EQ Depositary Company (UK)
Limited (the “Depositary”). Details of their key responsibilities
and their contractual arrangements with the Company
follow.
Alternative
Investment Fund Manager (“AIFM”)
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 Augmentum Fintech
Management Limited;
• 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
Augmentum
Fintech Management Limited, as delegate of the AIFM, is responsible
for the management of the Company’s portfolio of investments under
an agreement between it, the Company and Frostrow (the “Portfolio
Management Agreement”).
Under the
terms of its Portfolio Management Agreement, Augmentum Fintech
Management Limited provides, inter
alia, the
following services:
• 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 Portfolio Management Agreement Augmentum Fintech
Management Limited (the “Portfolio Manager”) receives an annual fee
of 1.5% of the NAV per annum, falling to 1.0% of any NAV in excess
of £250 million.
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 March 2018 (including the Initial Portfolio), and
related follow-on investments.
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 31 March
2023 the hurdle has been met, on an unrealised basis, and as
such a performance fee has been provided for as set out in notes 2
and 12. This will only be payable if the hurdle is met on a
realised basis.
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 AIFM and Augmentum Fintech Management
Limited as Portfolio Manager is regularly monitored by the Board
with a formal evaluation being undertaken each year. As part of
this process the Board monitors the services provided by the AIFM
and the Portfolio Manager and receives regular reports and views
from them.
Following a
review at a Management Engagement & Remuneration Committee
meeting in March 2023 the Board
believes that the continuing appointment of the AIFM and the
Portfolio Manager, under the terms described within this Strategic
Report, is in the best interests of the Company’s shareholders. In
coming to this decision it took into consideration the following
additional reasons:
• 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 IQ EQ Depositary (UK) Limited as its Depositary in
accordance with the UK AIFMD on the terms and subject to the
conditions of an agreement between the Company, Frostrow and the
Depositary (the “Depositary Agreement”).
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 UK AIFMD and the Company’s
Articles of Association.
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 Board
has decided to change the Company’s share registrar. The Company’s
current registrar is Link Group. With effect from 18 December 2023 the Company’s registrar will
become Computershare Investor Services PLC. Contact details for
both registrars are set out on page 81.
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. As
described in the Chairman’s Statement the Board has confirmed its
decision taken last year, following a consultation, that the
Company will 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 Peel Hunt LLP and Singer Capital
Markets Advisory LLP as joint corporate brokers, to work alongside
one another to encourage demand for the Company’s
shares.
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 UK and hold regular seminars and other investor
events;
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 40 and 41. The Board also encourages diversity within
AFML, where the team of 11 people represents four different
nationalities and is 45% 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.
Who?
STAKEHOLDER
GROUP
|
Why?
THE
BENEFITS OF ENGAGEMENT WITH OUR STAKEHOLDERS
|
How?
HOW
THE BOARD THE AIFM AND THE PORTFOLIO MANAGER HAS ENGAGED WITH OUR
STAKEHOLDERS
|
Investors
|
Clear
communication of the Company’s strategy and the performance against
its objective can help the share price trade at a narrower discount
or a wider premium to its net asset value which benefits
shareholders.
New shares
may be issued to meet demand without diluting the NAV per share of
existing shareholders. Increasing the size of the Company can
benefit liquidity as well as spread costs.
Understanding
investor preferences in relation to potential Board decisions, such
as in relation to possible distributions.
|
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. In addition, the Chairman endeavours to make
himself available to meet with shareholders wishing to
engage.
Key
mechanisms of engagement included:
• The
Annual General Meeting;
• The
Company’s website which hosts reports, video interviews with the
managers and regular market commentary;
• Online
newsletters;
• One-on-one
investor meetings;
• 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.
|
Portfolio
Manager
|
Engagement
with our Portfolio Manager is necessary to evaluate performance
against the stated strategy and to understand any risks or
opportunities this may present to the Company. It also provides
clarity on the Board’s expectations and helps ensure that portfolio
management costs are closely monitored and remain
competitive.
|
The Board
meets regularly with the Company’s Portfolio Manager throughout the
year both formally at the quarterly Board meetings and more
regularly on an informal basis. The Board also receives quarterly
performance and compliance reporting at each Board
meeting.
The
Portfolio Manager’s attendance at each Board meeting provides the
opportunity for the Portfolio Manager and Board to further
reinforce their mutual understanding of what is expected from all
parties.
|
Service
Providers
|
The Company
contracts with third parties for other services including:
depositary, investment accounting & administration, company
secretarial and share registration. It is necessary for the
Company's success to ensure the third parties to whom we have
outsourced services complete their roles diligently and
correctly.
The Company
ensures all service providers are paid in accordance with their
terms of business.
The Board
closely monitors the Company’s Ongoing Charges Ratio.
|
The Board
and Frostrow engage regularly with all service providers both in
one-to-one meetings and via regular written reporting. This regular
interaction provides an environment where topics, issues and
business development needs can be dealt with efficiently and
collegiately.
|
Employees
of AFML
|
In order to
attract and retain talent to ensure the Group has the resources to
successfully implement its strategy and manage third-party
relationships.
|
AFML has an
open plan office, facilitating ready interaction and engagement.
Senior team members report to the Board at each meeting.
Given the
small number of employees, engagement is at an individual level
rather than as a group.
|
Portfolio
companies
|
Incorporating
consideration of ESG factors into the investment process assists in
understanding and mitigating risks of an investment and potentially
identifying future opportunities.
|
The Board
encourages the Company’s Portfolio Manager to engage with companies
and in doing so expects ESG issues to be a key consideration. The
Portfolio Manager seeks to take a board seat, or have board
observer status, on all investments. See pages 28 to 30 for further
detail on AFML’s ESG approach to investing.
|
What?
WHAT
WERE THE KEY TOPICS OF ENGAGEMENT?
|
Outcomes
and Actions
WHAT
ACTIONS WERE TAKEN, INCLUDING PRINCIPAL
DECISIONS?
|
Key
topics of engagement with investors Ongoing
dialogue with shareholders concerning the strategy of the Company,
performance and the portfolio.
|
• The
Portfolio Manager, Frostrow and the joint brokers meet regularly
with shareholders and potential investors to discuss the Company’s
strategy, performance and portfolio. These meetings take place with
and without the Portfolio Manager. The Chairman and Mr Haysey also
engaged with certain of the Company's larger shareholders.This
interaction informed the Board’s deliberations on various matters,
including in relation to the distribution of investment realisation
proceeds where it contributed to the Board’s decision to restrict
distributions to an accretive share buyback programme, with it
being considered that shareholders were better served by
realisation proceeds mainly being used for further
investment.
|
Key
topics of engagement with the Portfolio Manager
On an
ongoing basis the Board engages on portfolio composition,
performance, outlook and business updates.
Additional
topics included:
• The
impact of market conditions upon their business and the
portfolio.
• The
impact of the Ukraine conflict upon their business and the
portfolio.
• The
integration of ESG into the Portfolio Manager’s investment
processes.
• Compensation
arrangements within AFML.
• The
structure of management arrangements.
|
• The
prospects for the portfolio and the pipeline of potential
investment opportunities were of particular interest to the
Board.
• Russian
sanctions have no direct impact on the Company and extremely
limited impact on portfolio companies.
• The
portfolio manager reports regularly any ESG issues in the portfolio
companies to the Board. Please see pages 28 to 30 for further
details of AFML’s ESG policies.
• As
a result of discussions about the compensation arrangements within
AFML the remuneration policy put to shareholders at the last AGM no
longer covers key personnel of AFML and the terms of reference of
the Management Engagement & Remuneration Committee were also
revised.
• The
structure of management arrangements is the subject of continuing
dialogue.
|
Approach
to Responsible Investing
Augmentum
Fintech Management Limited (“AFML”) continues to be committed to a
responsible investment approach through the lifecycle of its
investments, from pre-screening to exit. AFML believes that the
integration of Environmental, Social and Governance (“ESG”) factors
within the investment analysis, diligence and operating practices
is pivotal in mitigating risk and creating sustainable, profitable
investments.
Five-Stage
Approach to Future-Proofing the Portfolio
ESG
principles adapted from the UN PRI (Principles of Responsible
Investment) are integrated throughout business operations; in
investment decisions, at the screening stage through an exclusion
list and due diligence, ongoing monitoring and engaging with
portfolio companies post-investment and when making follow-on
investment decisions, as well as within fund operations.
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 Augmentum
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 Crisis
Venture Studio and The Lord Mayor's Appeal ‘We Can Be’
initiative.
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)
This year
Augmentum became signatories of the Investing in Women Code. The
Investing in Women Code is a commitment to support the advancement
of female entrepreneurship in the United
Kingdom by improving female entrepreneurs’ access to tools,
resources and finance from the financial services
sector.
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
HM Treasury with a commonly agreed set of data concerning:
all-female-led businesses; mixed-gender-led businesses and
all-male-led businesses. The Company agrees that HM Treasury will
collate this data and publish it on an aggregated and anonymised
basis in an annual report.
• 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 Augmentum team took part in The Lord Mayor’s Appeal’s
‘City Giving Day’, entering a cycling challenge raising money for
the various charitable causes supported by The Lord Mayor’s
Appeal.
The Company
participated in The Lord Mayor’s Appeal’s ‘We Can Be’ initiative
for the first time, hosting a group of school girls, introducing
them to a career in the City and the inner workings of an
investment trust.
Female
Founders in Fintech Office Hours (Social:
Diversity)
Augmentum
launched Female Fintech Founders monthly Office Hours along with
other fintech investors Outward and Portage, providing an
opportunity for early stage female fintech founders to speak with
leading fintech investors and discuss fundraising and business
scaling more broadly. 25 founders were selected and hosted across
the first three sessions.
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
Onfido:
The Trust Framework Certification (Social:
Data security and consumer
protection)
In
January 2023 Onfido announced it had
achieved certification for high confidence profile H1A under the UK
Digital Identity and Attributes Trust Framework (the trust
framework). The certification serves use cases where a higher
confidence level in digital identity verification is required. The
trust framework is part of the UK government’s wider plan to make
it easier and more secure for people to prove their identity
online. It provides a set of rules for organisations to adhere to
in order to provide secure and trustworthy digital identity. The
Home Office now recommends companies use identity service providers
(IDSPs) that meet the trust framework standards for Right to Work,
Right to Rent and Disclosure and Barring Service’s (DBS) screening
checks.
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 NetZero by 2030 and
to support its UK members (more than 9% of UK SMEs), and growing
network of Indian SMEs on their journey to NetZero.
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 India. Each
rPVC card saves 7g of carbon and 3.18g plastic that would normally
be used in production.
Zopa:
2025 Fintech Pledge (Social:
Consumer protection and financial
inclusion)
Led by
Zopa, 33 fintechs and their industry partners are working together
to tackle the cost-of-living crisis. The 2025 Fintech Pledge aims
to drive 10 million consumer actions that build up the financial
resilience of UK consumers by 2025. It will
achieve this by connecting people to platforms that make savings
work harder, improve credit scores, consolidate debt, and lower
utility bills and household outgoing costs. To date, more than 2
million actions have been reported from all members
combined.
This
Strategic Report was approved by the Board of Directors and signed
on its behalf by:
Neil England
Chairman
3 July 2023
.
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 United Kingdom applicable law and
regulations.
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
UK-adopted international accounting standards. Under Company law
the directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the return or loss for the
Group and Company for that period.
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 UK-adopted
international accounting standards, subject to any material
departures disclosed and explained in the financial
statements;
• 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 31 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.
Neil England
Chairman
3 July 2023
.
CONSOLIDATED
INCOME STATEMENT
|
|
Year
ended 31 March 2023
|
Year
ended 31 March 2022
|
|
Notes
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Gains on
Investments
|
8
|
–
|
9,858
|
9,858
|
–
|
56,681
|
56,681
|
Interest
Income
|
|
412
|
–
|
412
|
3
|
–
|
3
|
Expenses
|
2
|
(5,270)
|
(107)
|
(5,377)
|
(3,801)
|
6,432
|
2,631
|
(Loss)/Return
before Taxation
|
|
(4,858)
|
9,751
|
4,893
|
(3,798)
|
63,113
|
59,315
|
Taxation
|
6
|
–
|
–
|
–
|
–
|
–
|
–
|
(Loss)/Return
for the year
|
|
(4,858)
|
9,751
|
4,893
|
(3,798)
|
63,113
|
59,315
|
(Loss)/Return
per Share (pence)
|
7
|
(2.7)p
|
5.4p
|
2.7p
|
(2.2)p
|
37.1p
|
34.9p
|
The total
column of this statement represents the Group’s Consolidated Income
Statement, prepared in accordance with IFRS as adopted by the
UK.
The revenue
and capital columns are supplementary to this and are prepared
under guidance published by the Association of Investment
Companies.
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 Augmentum Fintech plc,
the parent company.
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 2023
|
Group
|
Ordinary
share
capital
£’000
|
Share
premium
account
£’000
|
Special
reserve
£’000
|
Other
capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
£’000
|
Opening
Shareholders’ funds
|
1,810
|
105,383
|
91,191
|
107,989
|
(11,169)
|
295,204
|
Purchase of
own shares into treasury
|
–
|
–
|
(5,973)
|
–
|
–
|
(5,973)
|
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 2022
|
Group
|
Ordinary
share
capital
£’000
|
Share
premium
account
£’000
|
Special
reserve
£’000
|
Other
capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
£’000
|
Opening
Shareholders’ funds
|
1,405
|
52,151
|
92,101
|
44,876
|
(7,371)
|
183,162
|
Issue of
shares following placing and offer for subscription
|
405
|
54,595
|
–
|
–
|
–
|
55,000
|
Costs of
placing and offer for subscription
|
–
|
(1,363)
|
–
|
–
|
–
|
(1,363)
|
Purchase of
own shares into treasury
|
–
|
–
|
(910)
|
–
|
–
|
(910)
|
Return/(loss)
for the year
|
–
|
–
|
–
|
63,113
|
(3,798)
|
59,315
|
At
31 March 2022
|
1,810
|
105,383
|
91,191
|
107,989
|
(11,169)
|
295,204
|
|
|
|
|
|
|
|
|
Year
ended 31 March 2023
|
Company
|
Ordinary
share
capital
£’000
|
Share
premium
account
£’000
|
Special
reserve
£’000
|
Other
capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
£’000
|
Opening
Shareholders’ funds
|
1,810
|
105,383
|
91,191
|
92,724
|
(12,556)
|
278,552
|
Purchase of
own shares into treasury
|
–
|
–
|
(5,973)
|
–
|
–
|
(5,973)
|
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
|
|
|
|
|
|
|
|
|
Year
ended 31 March 2022
|
Company
|
Ordinary
share
capital
£’000
|
Share
premium
account
£’000
|
Special
reserve
£’000
|
Other
capital
reserve
£’000
|
Revenue
reserve
£’000
|
Total
£’000
|
Opening
Shareholders’ funds
|
1,405
|
52,151
|
92,101
|
44,876
|
(7,774)
|
182,759
|
Issue of
shares following placing and offer for subscription
|
405
|
54,595
|
–
|
–
|
–
|
55,000
|
Costs of
placing and offer for subscription
|
–
|
(1,363)
|
–
|
–
|
–
|
(1,363)
|
Purchase of
own shares into treasury
|
–
|
–
|
(910)
|
–
|
–
|
(910)
|
Return/(loss)
for the year
|
–
|
–
|
–
|
47,848
|
(4,782)
|
43,066
|
At
31 March 2022
|
1,810
|
105,383
|
91,191
|
92,724
|
(12,556)
|
278,552
|
The notes
on pages 58 to 68 are integral to and form part of these Financial
Statements.
.
CONSOLIDATED
BALANCE SHEET
as
at 31 March 2023
|
Note
|
2023
£’000
|
2022
£’000
|
Non-Current
Assets
|
|
|
|
Investments
held at fair value
|
8
|
254,295
|
268,807
|
Property,
plant & equipment
|
|
297
|
9
|
Current
Assets
|
|
|
|
Right-of-use
asset
|
5
|
588
|
750
|
Other
receivables
|
10
|
555
|
391
|
Cash and
cash equivalents
|
|
40,015
|
31,326
|
Total
Assets
|
|
295,750
|
301,283
|
Current
Liabilities
|
|
|
|
Other
payables
|
11
|
(948)
|
(5,296)
|
Lease
liability
|
5
|
(678)
|
(783)
|
Total
Assets less Current Liabilities
|
|
294,124
|
295,204
|
Net
Assets
|
|
294,124
|
295,204
|
Capital
and Reserves
|
|
|
|
Called up
share capital
|
15
|
1,810
|
1,810
|
Share
premium
|
|
105,383
|
105,383
|
Special
reserve
|
|
85,218
|
91,191
|
Retained
earnings:
|
|
|
|
Capital
reserves
|
|
117,740
|
107,989
|
Revenue
reserve
|
|
(16,027)
|
(11,169)
|
Total
Equity
|
|
294,124
|
295,204
|
Net
Asset Value per share (pence)
|
16
|
168.5p
|
163.7p
|
Net
Asset Value per share after performance fee
(pence)*
|
16
|
158.9p
|
155.2p
|
The
Financial Statements on pages 52 to 68 were approved by the Board
of Directors on 3 July 2023 and
signed on its behalf by:
Neil England
Chairman
The notes
on pages 58 to 68 are integral to and form part of these Financial
Statements.
Augmentum
Fintech plc
Company
Registration Number: 11118262
* Considered
to be Alternative Performance Measure. Please see the Glossary and
Alternative Performance Measures on page 79.
.
COMPANY
BALANCE SHEET
as
at 31 March 2023
|
Note
|
2023
£’000
|
2022
£’000
|
Non-Current
Assets
|
|
|
|
Investments
held at fair value
|
8
|
254,295
|
268,807
|
Investment
in subsidiary undertakings
|
9
|
500
|
500
|
Current
Assets
|
|
|
|
Other
receivables
|
10
|
118
|
39
|
Cash and
cash equivalents
|
|
38,470
|
29,694
|
Total
Assets
|
|
293,383
|
299,040
|
Current
Liabilities
|
|
|
|
Other
payables
|
11
|
(810)
|
(5,223)
|
Provisions
|
12
|
(16,819)
|
(15,265)
|
Total
Assets less Current Liabilities
|
|
275,754
|
278,552
|
Net
Assets
|
|
275,754
|
278,552
|
Capital
and Reserves
|
|
|
|
Called up
share capital
|
15
|
1,810
|
1,810
|
Share
premium
|
|
105,383
|
105,383
|
Special
reserve
|
|
85,218
|
91,191
|
Retained
earnings:
|
|
|
|
Capital
reserves
|
|
100,919
|
92,724
|
Revenue
reserve
|
|
(17,576)
|
(12,556)
|
Total
Equity
|
|
275,754
|
278,552
|
The
Company’s return for the year was £3,852,000 (2022: £43,066,000).
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 3 July 2023 and
signed on its behalf by:
Neil England
Chairman
The notes
on pages 58 to 68 are integral to and form part of these Financial
Statements.
Augmentum
Fintech plc
Company
Registration Number: 11118262
.
CONSOLIDATED
CASH FLOW STATEMENT
|
Year
ended
31
March
2023
£’000
|
Year
ended
31
March
2022
£’000
|
Operating
activities
|
|
|
Sales of
investments
|
44,226
|
11,263
|
Purchases
of investments
|
(24,855)
|
(55,992)
|
Acquisition
of property, plant and equipment
|
(365)
|
(9)
|
Interest
income received
|
326
|
1
|
Expenses
paid
|
(5,058)
|
(3,958)
|
Lease
payments
|
(153)
|
(139)
|
Net
cash inflow/(outflow) from operating activities
|
14,121
|
(48,834)
|
Issue of
shares following placing and offer for subscription
|
–
|
55,000
|
Costs of
placing and offer for subscription
|
–
|
(1,363)
|
Purchase of
own shares into treasury
|
(5,432)
|
(910)
|
Net
cash generated from financing activities
|
(5,432)
|
52,727
|
Net
increase in cash and cash equivalents
|
8,689
|
3,893
|
Cash
and cash equivalents at start of year
|
31,326
|
27,433
|
Cash
and cash equivalents at end of year
|
40,015
|
31,326
|
The notes
on pages 58 to 68 are integral to and form part of these Financial
Statements.
.
COMPANY
CASH FLOW STATEMENT
|
Year
ended
31
March
2023
£’000
|
Year
ended
31
March
2022
£’000
|
Operating
activities
|
|
|
Sales of
investments
|
44,226
|
11,263
|
Purchases
of investments
|
(24,855)
|
(55,992)
|
Interest
income received
|
326
|
–
|
Expenses
paid
|
(5,489)
|
(4,837)
|
Net
cash outflow from operating activities
|
14,208
|
(49,566)
|
Issue of
shares following placing and offer for subscription
|
–
|
55,000
|
Costs of
placing and offer for subscription
|
–
|
(1,363)
|
Purchase of
own shares into treasury
|
(5,432)
|
(910)
|
Net
cash generated from financing activities
|
(5,432)
|
52,727
|
Net
increase in cash and cash equivalents
|
8,776
|
3,161
|
Cash
and cash equivalents at start of year
|
29,694
|
26,533
|
Cash
and cash equivalents at end of year
|
38,470
|
29,694
|
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 UK, continental Europe, Israel and the US.
2 Expenses
|
|
2023
|
|
|
2022
|
|
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
AIFM fees
|
593
|
–
|
593
|
507
|
–
|
507
|
Administrative
expenses
|
1,415
|
107
|
1,522
|
1,141
|
76
|
1,217
|
Directors’
fees*
|
169
|
–
|
169
|
126
|
–
|
126
|
Performance
fee (see note 4)^
|
–
|
–
|
–
|
–
|
(6,508)
|
(6,508)
|
Staff costs
(see note 4)
|
2,944
|
–
|
2,944
|
1,877
|
–
|
1,877
|
Auditor’s
remuneration
|
149
|
–
|
149
|
150
|
–
|
150
|
Total
expenses
|
5,270
|
107
|
5,377
|
3,801
|
(6,432)
|
(2,631)
|
£209,138 of
interest and depreciation relating to a lease (2022: £153,000) 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 44.
^
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
|
2023
|
2022
|
|
Group
£’000
|
Company
£’000
|
Group
£’000
|
Company
£’000
|
Audit of
Group accounts pursuant to legislation
|
104
|
104
|
83
|
83
|
Audit of
subsidiaries accounts pursuant to legislation
|
18
|
–
|
14
|
–
|
Audit
related assurance services
|
27
|
20
|
18
|
15
|
Reporting
accountant services
|
–
|
–
|
35
|
35
|
Total
auditors’ remuneration
|
149
|
124
|
150
|
133
|
Non-audit
services
It is the
Group’s practice to employ BDO LLP on assignments additional to
their statutory audit duties only when their expertise and
experience with the Group are important. Details of the Group’s
process for safeguarding and supporting the independence and
objectivity of the external auditor are given in the Report of the
Audit Committee beginning on page 48. In addition to the above BDO
LLP was also paid £50,000 in 2022 for reporting accountant
services, which is included within the costs of placing and offer
for subscription in the Statement of Changes in Equity.
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.
|
2023
|
2022
|
|
Salary
/Fees
£’000
|
Other
benefits
£’000
|
Total
£’000
|
Salary
/Fees
£’000
|
Other
benefits
£’000
|
Total
£’000
|
Key
management personnel remuneration
|
1,352
|
277
|
1,629
|
799
|
175
|
974
|
Performance
fee allocation*
|
–
|
–
|
–
|
(4,296)
|
–
|
(4,296)
|
|
1,352
|
2770
|
1,629
|
(3,497)
|
175
|
(3,322)
|
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 (2022: ten). All employees are within the investment and
administration function and employed by the Company's
subsidiary.
|
2023
£’000
|
2022
£’000
|
Wages and
salaries
|
2,437
|
1,551
|
Social
security costs
|
347
|
211
|
Other
pension costs
|
104
|
84
|
Other staff
benefits
|
56
|
31
|
Staff
costs
|
2,944
|
1,877
|
Performance
fee (charged to capital)*
|
–
|
(6,508)
|
Total
|
2,944
|
(4,631)
|
* 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. During the year to 31 March 2022 the existing plan for AFML staff
was terminated and the performance fee liability to AFML employees
accrued as at 31 March 2021 of
£6,508,000 was reversed. AFML continues to be entitled to a
performance fee as before, but any performance fee paid by the
Company to AFML will now be allocated to employees of AFML on a
discretionary basis by the Management Engagement & Remuneration
Committee of the Company.
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 31
March 2023 the hurdle has been met, on an unrealised basis,
and as such a performance fee of £16,517,000 (2022: £15,265,000)
has been provided for by the Company, equivalent to 9.1 pence per share. This provision is reversed
on consolidation and not included in the Group Statement of
Financial Position. The performance fee is only payable to AFML if
the hurdle is met on a realised basis and the actual amount payable
will depend on the amount and timing of investment realisations.
See page 24 and note 19.9 for further details.
5 Leases
Leasing
activities
The Group,
through its subsidiary AFML, has leased an office in the UK from
which it operates for a fixed fee. When measuring lease liabilities
for leases that were classified as operating leases, the Group
discounts lease payments at a rate of 6.4% (2022: 5.9%).
Right-of-Use
Asset
|
2023
Group
Office
Premises
£’000
|
2022
Group
Office
Premises
£’000
|
As at 1
April
|
750
|
145
|
Addition
|
–
|
752
|
Depreciation
|
(162)
|
(147)
|
At
31 March
|
588
|
750
|
Lease
Liability
|
2023
Group
Office
Premises
£’000
|
2022
Group
Office
Premises
£’000
|
As at 1
April
|
783
|
148
|
Addition
|
–
|
769
|
Interest
Expense
|
48
|
6
|
Lease
Payments
|
(153)
|
(140)
|
At
31 March
|
678
|
783
|
Maturity
Analysis
|
Group
|
At
31 March 2023
|
Up
to 3 months
£’000
|
3 –
12 months
£’000
|
Between
1 –
2 years
£’000
|
Between
2 –
5 years
£’000
|
Lease
payments
|
60
|
181
|
241
|
362
|
6 Taxation
Expense
|
2023
|
2022
|
For
the year ended 31 March
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’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 UK corporation
tax of 19% (2022: 19%) to the (loss)/return before tax is as
follows:
|
2023
|
2022
|
For
the year ended 31 March
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
Revenue
£’000
|
Capital
£’000
|
Total
£’000
|
(Loss)/return
before taxation
|
(4,858)
|
9,751
|
4,893
|
(3,798)
|
63,113
|
59,315
|
(Loss)/return
before tax multiplied by the effective rate of UK corporation tax
of 19% (2022: 19%)
|
(923)
|
1,853
|
930
|
(722)
|
11,991
|
11,269
|
Effects
of:
|
|
|
|
|
|
|
Non-taxable
capital returns
|
–
|
(1,873)
|
(1,873)
|
–
|
(10,770)
|
(10,770)
|
Excess
management expenses
|
923
|
20
|
943
|
722
|
(1,221)
|
(499)
|
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 £32,904,000 (2022: £26,524,000). 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:
|
2023
£’000
|
2022
£’000
|
Net revenue
loss
|
(4,858)
|
(3,798)
|
Net capital
return
|
9,751
|
63,113
|
Net
total return
|
4,893
|
59,315
|
Weighted
average number of ordinary shares in issue
|
178,651,736
|
169,923,583
|
|
|
|
|
Pence
|
Pence
|
Revenue
loss per share
|
(2.7)
|
(2.2)
|
Capital
return per share
|
5.4
|
37.1
|
Total
return per share
|
2.7
|
34.9
|
8 Investments
Held at Fair Value
Non-current
Investments Held at Fair Value
As
at 31 March
|
2023
Group
and
Company
£’000
|
2022
Group
and
Company
£’000
|
Unlisted at
fair value
|
254,295
|
268,807
|
Reconciliation
of movements on investments held at fair value are as
follows:
|
2023
Group
and
Company
£’000
|
2022
Group
and
Company
£’000
|
As at 1
April
|
268,807
|
164,127
|
Purchases
at cost
|
19,854
|
59,262
|
Realisation
proceeds
|
(44,224)
|
(11,263)
|
Gains on
investments
|
9,858
|
56,681
|
As
at 31 March
|
254,295
|
268,807
|
The Group
and Company received £44,224,000 (2022: £11,263,000) from
investments sold in the year. The book cost of these investments
when they were purchased was £6,348,000 (2022: £8,227,000). These
investments have been revalued over time and until they were sold
any unrealised gains/losses were included in the fair value of the
investments. In addition, Augmentum I LP, the Company's
unconsolidated subsidiary (See note 19.2), received proceeds of
£2,673,000 in 2022 from investments sold during the year, which had
a book cost of £3,173,000.
9 Subsidiary
undertakings
The Company
has an investment of £500,000 (2022: £500,000) in the issued
ordinary share capital of its wholly owned subsidiary undertaking,
Augmentum Fintech Management Limited (“AFML”), which is registered
in England and Wales, operates in the United Kingdom and is regulated by the
Financial Conduct Authority. AFML’s principal activity is the
provision of portfolio management services to the Company. AFML’s
registered office is 4 Chiswell Street, London EC1Y 4UP.
10
Other
Receivables
As
at 31 March
|
2023
Group
£’000
|
2023
Company
£’000
|
2022
Group
£’000
|
2022
Company
£’000
|
Other
receivables*
|
555
|
118
|
391
|
39
|
* Includes
£73,000 due back from the portfolio managers at 31 March 2022 due to an inadvertent overpayment
that was repaid after the year end.
11 Other
Payables
As
at 31 March
|
2023
Group
£’000
|
2023
Company
£’000
|
2022
Group
£’000
|
2022
Company
£’000
|
Purchases
payable
|
–
|
–
|
5,000
|
5,000
|
Other
payables
|
948
|
810
|
296
|
223
|
|
948
|
810
|
5,296
|
5,223
|
12 Provisions
As
at 31 March
|
2023
Company
£’000
|
2022
Company
£’000
|
Performance
fee provision*
|
16,819
|
15,265
|
* See
page 24 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
Fair
value
2023
£’000
|
Company
Fair
value
2023
£’000
|
Group
Fair
value
2022
£’000
|
Company
Fair
value
2022
£’000
|
Financial
Assets
|
|
|
|
|
Unlisted
equity shares
|
249,529
|
249,529
|
266,720
|
266,720
|
Unlisted
convertible loan notes
|
4,766
|
4,766
|
2,087
|
2,087
|
Cash at
bank
|
14,715
|
13,470
|
24,326
|
22,694
|
Cash
Equivalents – Liquidity Funds
|
25,300
|
25,000
|
7,000
|
7,000
|
Other
assets
|
1,143
|
118
|
1,141
|
39
|
Financial
Liabilities
|
|
|
|
|
Other
payables and lease liabilities
|
(1,626)
|
(810)
|
(6,079)
|
(5,223)
|
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, 31 March
2023. Note 8 on page 61 presents the movements on
investments measured at fair value.
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 and P/E multiples (based on
the most recent revenue, EBITDA or earnings achieved and equivalent
corresponding revenue, EBITDA 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.
In the
calibration exercise and in determining the valuation for the
Group’s equity instruments, comparable trading multiples are used.
In accordance with the Group’s policy, appropriate comparable
public companies based on industry, size, developmental stage,
revenue generation and strategy are determined and a trading
multiple for each comparable company identified is then calculated.
The multiple is calculated by dividing the enterprise value of the
comparable group by its revenue, EBITDA or earnings. The trading
multiple is then adjusted for considerations such as illiquidity,
marketability and other differences, advantages and disadvantages
between the Group’s portfolio company and the comparable public
companies based on company specific facts and
circumstances.
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.
Total gains
and losses on assets measured at Level 3 are recognised as part of
Gains on Investments in the Consolidated Income Statement, and no
other comprehensive income has been recognised on these
assets.
The table
below presents those investments in portfolio companies whose fair
values are recognised in whole or in part using valuation
techniques based on assumptions that are not supported by prices or
other inputs from observable current market transactions in the
same instrument and the effect of changing one or more of those
assumptions behind the valuation techniques adopted based on
reasonable possible alternative assumptions.
Valuation
Technique
|
Fair
Value
2023
£’000
|
Fair
Value
2022
£’000
|
Unobservable
Inputs
|
Reasonably
possible shift
in
input +/-
|
Change
in
valuation
+/(-)
£’000
|
Multiple
methodology
|
197,876
|
35,888
|
Multiple
|
10%
|
15,772/(15,780)
|
|
|
|
Premium/Discount
to quoted multiples
|
30%
|
(21,344)/21,941
|
CPORT*
|
21,568
|
180,359
|
Transaction
price
|
10%
|
2,107/(2,107)
|
PWERM**
|
4,766
|
2,087
|
Probability
of conversion
|
25%
|
247/(247)
|
NAV
|
7,295
|
7,677
|
Discount to
NAV
|
10%
|
(456)
|
Sales
Price
|
22,790
|
42,796
|
N/a
|
|
|
*
Calibrated
price of recent transaction.
**
Probability
weighted expected return methodology.
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.
|
2023
|
2022
|
|
%
ownership
(fully
diluted)
|
%
of
portfolio
|
%
ownership
(fully
diluted)
|
%
of
portfolio
|
interactive
investor*
|
–
|
–
|
3.6
|
15.9
|
Zopa*
|
3.4
|
11.8
|
3.3
|
9.5
|
Augmentum
I LP **
|
100
|
17.5
|
100.0
|
30.3
|
Tide
|
5.1
|
14.0
|
5.4
|
10.5
|
Grover
|
6.3
|
17.0
|
6.4
|
15.8
|
Cushon
|
13.9
|
9.0
|
13.9
|
5.1
|
Volt
|
8.3
|
5.6
|
8.3
|
2.1
|
*
indirect
ownership via Augmentum I LP.
**
Augmentum I
LP’s registered office is IFC 5, St Helier, Jersey JE1 1ST and it
is registered in Jersey.
15 Called
up Share Capital
|
2023
Ordinary
Shares
|
2022
Ordinary
Shares
|
|
No.
|
£’000
|
No.
|
£’000
|
Opening
issued and fully paid ordinary shares of 1p each
|
180,325,786
|
1,810
|
140,423,291
|
1,405
|
Issue of
shares
|
–
|
–
|
40,590,406
|
405
|
Ordinary
shares purchased into treasury
|
(5,806,934)
|
–
|
(687,911)
|
–
|
Closing
issued and fully paid ordinary shares of 1p
each
|
174,518,852
|
1,810
|
180,325,786
|
1,810
|
No shares
were issued during the year ended 31 March
2023. In the prior year 40,590,406 ordinary shares were
issued on 8 July 2021. The nominal
value of the shares issued was £405,000 and the total gross cash
consideration received was £55,000,000. The costs of issue, which
totalled £1,363,000, are offset against the consideration received
in the share premium account.
5,806,934
shares were bought back into treasury during the year at an average
price of 102.9p per share. In the year ended 31 March 2022 687,911 shares were bought back
into treasury at an average price of 131.1p per share.
At
31 March 2023 there were 6,494,845
shares held in treasury (2022: 687,911).
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 £294,124,000 (2022: £295,204,000) and
174,518,852 (2022: 180,325,786) 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 £294,124,000
(2022: £295,204,000), less the performance fee provision made by
the Company of £16,819,000 (2022: £16,819,000), and 174,518,852
(2022: 180,325,786) 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:
• Frostrow
Capital LLP (under the Listing Rules only)
• The
Directors of the Company and the Company’s subsidiary, Augmentum
Fintech Management Limited
• Augmentum
Fintech Management Limited
Details of
the relationship between the Company and Frostrow Capital LLP, the
Company’s AIFM, are disclosed on page 23. Details of fees paid to
Frostrow by the Company and Group can be found in note 2 on page
58.
Details of
the remuneration of all Directors can be found on page 44. Details
of the Directors’ interests in the capital of the Company can be
found on page 45.
Augmentum
Fintech Management Limited is appointed as the Company’s delegated
Portfolio Manager. The Portfolio Manager earns a portfolio
management fee of 1.5% of NAV up to £250 million and 1.0% of NAV
for any excess over £250 million and is entitled to a performance
fee of 15% of net realised cash profits once the Company has
received an annual compounded 10% realised return on its
investments. Further details of this arrangement are set out on
page 24 in the Strategic Report. During the year the Portfolio
Manager received a portfolio management fee of £4,026,000 (2022:
£3,510,000), which has been eliminated on consolidation and
therefore does not appear in these accounts. A performance fee
provision of £16,217,000 (2022: £15,265,000) has been accrued in
the Company's accounts, which is eliminated on consolidation in the
Group accounts. No performance fee is payable or has been paid
during the year. There were no outstanding balances due to the
Portfolio Manager at the year end (2022: nil).
18
Capital
Risk Management
|
Group
2023
£’000
|
Group
2022
£’000
|
Equity
|
|
|
Equity
share capital
|
1,810
|
1,810
|
Retained
earnings and other reserves
|
292,314
|
293,394
|
Total
capital and reserves
|
294,124
|
295,204
|
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 31 March 2023 have been prepared in accordance
with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
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
Association of Investment Companies issued in July 2022 (the “SORP”).
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 or loss 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 Augmentum Fintech
Management Limited as set out in note 9 is wholly owned. It
provides investment related services through the provision of
investment management. As the primary purpose of this subsidiary is
to provide investment related services that relate to the Company’s
investment activities it is not held for investment purposes. This
subsidiary has been consolidated.
The Company
also owns 100% of the interests in Augmentum I LP (the ‘LP’). As
this LP is itself an investment entity and is held as part of the
Company’s investment portfolio it has not been
consolidated.
19.3 Application
of New Standards
(i)
New
standards, interpretations and amendments effective from
1 April 2022
There were
no new standards or interpretations effective for the first time
for periods beginning on or after 1 April
2022 that had a significant effect on the Group’s financial
statements.
(ii)
New
standards, interpretations and amendments not yet
effective
There are a
number of standards and interpretations which have been issued by
the International Accounting Standards Board (‘IASB’) that are
effective in future accounting periods. The Group does not expect
any of the standards issued by the IASB, but not yet effective, to
have a material impact on the Group or Company.
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 Recent Investment/Transaction
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 Recent Investment technique is not a default and at each
reporting date the fair value of investments is estimated to assess
whether changes or events subsequent to the relevant transaction
would imply a material change in the investment’s fair
value.
Multiple
Under the
multiple methodology an earnings or revenue multiple technique is
used. This involves the application of an appropriate and
reasonable multiple to the maintainable earnings or revenue of an
investee company.
Multiples
used are usually taken from current market-based multiples,
reflected in the market valuations of quoted comparable companies
or the price at which comparable companies have changed ownership.
Differences between these market-based multiples and the investee
company being valued are reflected by adjusting the multiple for
points of difference which might affect the risk and growth
prospects which underpin the multiple. Such points of difference
might include the relative size and diversity of the entities, rate
of revenue/earnings growth, reliance on a small number of key
employees, diversity of product ranges, diversity and quality of
customer base, level of borrowing, and any other reason due to
which the quality of revenue or earnings may differ.
In respect
of maintainable revenue/earnings, the most recent 12 month period,
adjusted if necessary to represent a reasonable estimate of the
maintainable amount, is used. Such adjustments might include
exceptional or non-recurring items, the impact of discontinued
activities and acquisitions, or forecast material
changes.
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 was 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 carried interest 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.
During the year to 31 March 2022 the
existing plan for AFML staff was terminated and the performance fee
liability to AFML employees accrued as at 31
March 2021 of £6,805,000 was reversed. AFML continues to be
entitled to a performance fee as before, but any performance fee
paid by the Company to AFML will now be allocated to employees of
AFML on a discretionary basis by the Management Engagement &
Remuneration Committee of the Company. Non-executive Directors of
the Company are not eligible to participate in any allocation of
the performance fee.
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 will be charged to the capital column of the Income Statement
and taken to the Capital Reserve.
19.10 Leases
All leases
are accounted for by recognising a right-of-use asset and a lease
liability.
Lease
liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount
rate determined by reference to the Group’s incremental borrowing
rate. Right-of-use assets are measured at the amount of the lease
liability less provisions for dilapidations, where
applicable.
Subsequent
to initial measurement, lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and
are reduced for lease payments made. Right-of-use assets are
amortised on a straight-line basis over the remaining term of the
lease.
19.11 Taxation
The tax
effect of different items of income/gain and expense/loss is
allocated between capital and revenue on the same basis as the
particular item to which it relates.
19.12 Deferred
Tax
Deferred
taxation is provided on all timing differences other than those
differences regarded as permanent. Deferred tax assets are only
recognised to the extent that it is probable that taxable profits
will be available from which the reversal of timing differences can
be utilised. Deferred tax is not recognised if the temporary
difference arises from the initial recognition of assets and
liabilities in a transaction that affects neither the taxable
profit nor the accounting profit.
Deferred
tax is provided at the tax rates that are expected to apply in the
year when the liability is settled or the asset is realised based
on tax laws and rates that have been enacted or substantively
enacted at the Statement of Financial Position date.
19.13 Receivables
and Payables
Receivables
and payables are typically settled in a short time frame and are
carried at amortised cost. As a result, the fair value of these
balances is considered to be materially equal to the carrying
value, after taking into account potential impairment
losses.
19.14 Share
Capital
Ordinary
shares issued by the Group are recognised at the proceeds or fair
value received with the excess of the amount received over nominal
value being credited to the share premium account. Direct issue
costs are deducted from equity.
19.15 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.
19.16 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
£40,519,000 (2022: £2,750,000) representing realised capital
profits less costs charged to capital.
19.17 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 Chairman 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 note
19.4. As set out in note 19.9 performance fee is calculated based
on the valuation of the investments and as such is considered a
significant accounting estimate.
20
Post
Balance Sheet Events
At the year
end regulatory approval remained outstanding for a deal announced
in February 2023 in which the
Company's holding in Cushon would be realised as part of its
acquisition by Natwest Group. This transaction completed in
June 2023, with the Company receiving
proceeds of £22.8 million. There are no other significant events
after the end of the reporting period requiring
disclosure.
21
Financial Commitment
The Company
made commitments to invest up to $3,000,000 into the Snowcrash Offshore Feeder LP.
Of this commitment $750,000 (2022:
$1,500,000) remains
outstanding.
.
2023
Accounts
The figures
and financial information for 2023 are extracted from the annual
report and financial statements for the year ended 31 March 2023 and do not constitute the statutory
accounts for the year. The annual report and financial statements
include the Report of the Independent Auditor which is unqualified
and does not contain a statement under either section 498(2) or
section 498(3) of the Companies Act 2006. The annual report and
financial statements have not yet been delivered to the Registrar
of Companies.
2022
Accounts
The figures
and financial information for 2022 are extracted from the published
annual report and financial statements for the year ended
31 March 2022 and do not constitute
the statutory accounts for that year. The annual report and
financial statements have been delivered to the Registrar of
Companies and included the Report of the Independent Auditor which
was unqualified and did not contain a statement under either
section 498(2) or section 498(3) of the Companies Act
2006.
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 31 March 2023 will
shortly be available for inspection on the National Storage
Mechanism (NSM) via
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Annual
General Meeting will be held on Tuesday, 19
September 2023 at 11.00 a.m.
The Notice of the Annual General Meeting will be posted to
shareholders with the annual report and will be available on the
Company’s website and NSM as per the above with respect to the
annual report.
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.