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Investing in Fintech.
Augmentum Fintech plc
Annual Report
For the year ended 31st March 2023
Annual Report
For the year ended 31st March 2023
About Augmentum Fintech plc
1ANNUAL REPORT AND FINANCIAL STATEMENTS 2023
Strategic Report and Business Review
2 Chairman’s Statement
5 Investment Objective and Policy
6 Portfolio Review
7 Key Investments
13 Other Investments
15 Portfolio Manager’s Review
18 Strategic Report
22 Viability Statement
Corporate Governance
31 Board of Directors
32 Management Team
33 Directors’ Report
37 Corporate Governance Report
43 Directors’ Remuneration Report
46 Directors’ Remuneration Policy
48 Report of the Audit Committee
51 Statement of Directors’ Responsibilities
Financial Statements
52 Consolidated Income Statement
53 Consolidated and Company Statements of
Changes in Equity
54 Consolidated Balance Sheet
55 Company Balance Sheet
56 Consolidated Cash Flow Statement
57 Company Cash Flow Statement
58 Notes to the Financial Statements
69 Independent Auditor’s Report to the Members of
Augmentum Fintech plc
Further Information
78 Information for Shareholders
79 Glossary and Alternative Performance Measures
81 Contact Details
Contents
Chairman’s Statement
2 AUGMENTUM FINTECH PLC
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 fee
1
*, 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.
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
* These are considered to be Alternative Performance Measures. Please see the Glossary and Alternative
Performance Measures on page79.
To read about our KPIs see page 22.
Performance Highlights
31 March 31 March
2023 2022
NAV per Share after performance fee
1
* 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%
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 deduct
ed as a
consequence of our Portfolio Manager being within our Group structure and the fees therefore being eliminated on consolidation.
Chairman’s Statement continued
(£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. Theseincluded 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
31March 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.
3ANNUAL REPORT AND FINANCIAL STATEMENTS 2023
STRATEGIC AND BUSINESS REVIEW
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
31March 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
4 AUGMENTUM FINTECH PLC
Chairman’s Statement continued
5ANNUAL REPORT AND FINANCIAL STATEMENTS 2023
STRATEGIC AND BUSINESS REVIEW
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 objectiv
e
, 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 w
a
y 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
r
estriction.
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
investeecompanies.
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 in
v
estment restrictions:
l 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;
l the aggregate value of seed stage investments will represent no
more than 1 per cent. of Net Asset Value; and
l 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 15percent. of its
gross assets in other investment companies or
in
vestment 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
-r
elated instruments as
described above, the Compan
y 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 15percent. 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.
Investment Objective and Policy