Chair's Statement

"With the existential challenges posed by heightened geopolitical tensions and climate change, the counter-cyclical nature of the space sector continues to result in its outperformance of the wider market. This trend is reflected in SSIT's portfolio, which continues to exhibit both a healthy growth trajectory and an ongoing ability to attract fresh investment from public and private capital markets alike.

The portfolio overall remains well capitalised, with multiple key holdings now indicating that they have sufficient cash reserves to operate through to cashflow breakeven. We are also encouraged that several of our more mature holdings are now either already, or are projected to become during 2024, EBITDA positive, including our largest holding, ICEYE."

Will Whitehorn  

Chair

I am pleased to present the third Interim Report of Seraphim Space Investment Trust PLC, covering the period from 1 July 2023 to 31 December 2023 (the "Period").

The macroeconomic climate in the second half of 2023 continued to be challenging, and I would like to thank all shareholders for their ongoing support.

Progress in the Period

During the Period, the Company invested £5.7m in three new portfolio companies and three existing portfolio companies, leading to a portfolio of 33 active SpaceTech companies valued at £198.0m at 31 December 2023. In addition, the Company had £26.8m of cash reserves at the Period end.

As outlined in my reports for previous periods, the Company has deliberately slowed the pace of deployment due to the difficult global macroeconomic environment in order to reserve cash to follow its rights in existing portfolio companies whilst continuing to actively seek to invest smaller amounts in new target companies. As explained in the Investment Manager's Report, overall, the portfolio continues to be well-capitalised. In addition, the Investment Manager's Report includes a detailed review of the performance of the portfolio companies.

NAV

Over the Period, the Company's net assets increased by 0.9%, from £222.4m to £224.3m at 31 December 2023, driven by an increase in the fair value of the portfolio, which was partially offset by running costs and buying back shares. The NAV per share increased by 1.8%, from 92.90p to 94.57p at the Period end, driven by the fair value increase and the impact of the share buy-backs.

The private companies in the portfolio continue to account for the majority of the portfolio (88.2% by number and 97.5% by fair value). The fair value of the private portfolio increased over the Period, reaching 121.5% vs. cost (121.4% excluding FX impact) at the Period end.

The listed element of the portfolio remained depressed (13.2% fair value vs. cost) as performance continued to suffer broadly in line with the overall SPAC market (three of the four listed companies listed as part of SPAC mergers in 2021).

There was minimal impact from foreign exchange variations (+£0.2m, +0.08p per share) in the Period.

Share Price

As at 31 December 2023, the Company's share price was 34.4p, an increase of 27.4% from 27.0p at 30 June 2023. However, the share price remained depressed, at a discount of 63.6% vs. the NAV per share at the Period end, due to the general global macroeconomic environment and the volatility experienced by growth and smaller technology stocks and alternative investment vehicles.

Given the discrepancy of performance between NAV and share price, the Board announced a share repurchase programme on 13 July 2023. During the Period, the Company bought back a total of 2,186,344 shares (0.9% of the shares in issue on 12 July 2023) at an aggregate cost of £1.0m, increasing the NAV per share by 0.44p.  The shares bought back are being held in treasury.

Capital Allocation Policy

As explained above, the Company continues to trade on a substantial discount to NAV, in common with other peers in the market. Each year, the Company seeks shareholder approval at the AGM to have the ability to repurchase shares. A buy-back of shares is usually in the interests of all shareholders as it helps to stabilise the share price, and, when trading at a substantial discount to NAV, it also increases NAV per share. Despite this positive impact, it also reduces the liquid resources of the Company as the capital used for buy-backs can no longer be used for investments.

The Board regularly considers multiple factors to determine the best use of the Company's capital, including the positive impact on NAV per share from buy-backs, the opportunity cost of using capital for buy-backs, potential returns from investments and the need to support portfolio companies through follow-on investment.

Earnings and Dividend

The Company made a revenue loss after tax of £1.9m for the Period, equal to (0.80)p per share.

The Company is focused on achieving capital growth over the long term. Given the nature of the Company's investments, we do not anticipate recommending to pay a dividend in the foreseeable future.

Responsible Investment

During the Period, the Investment Manager continued to use its proprietary due diligence tool in order to assess sustainability opportunities and ESG risks associated with each potential investment. In addition, the Investment Manager has started a process to measure its carbon emissions, with the aim of considering reduction targets and offsets on the back of this measurement.

Events After the Period End

In January 2024, D-Orbit secured €100m in the first close of its Series C funding round, cementing its global leadership position in space logistics and advancing its global expansion.

AST SpaceMobile, one of our listed holdings, closed over $200m in funding from AT&T, Google and Vodafone in January 2024.

The Company's share price has experienced some recovery post the Period end, closing at 51.7p on 11 March 2024, equivalent to a discount of 45.3% to the 31 December 2023 NAV per share.

Outlook

The overall prospects for both the SSIT portfolio and the space sector as a whole would appear to be robust. The secular tail winds relating to heightened geopolitical tensions and urgent challenges posed by climate change are expected to continue to drive demand for SpaceTech's unique capabilities.

We are cautiously optimistic about improving macroeconomic conditions and continued positive momentum within the SpaceTech investment market.

Indications of inflation being tamed and interest rates having peaked has resulted in some evidence of improved sentiment in both the private and public markets. We note that these developments may have contributed to the recovery in SSIT's share price post the period end, albeit the share price remains at a substantial discount to NAV.

We believe that 2024 could be a pivotal year for much of the portfolio. For those portfolio companies that are well capitalised, we anticipate strong growth prospects at the expense of their less well capitalised peers. For those that are less well capitalised and not performing as strongly, fundraising may continue to be a challenge, potentially leading to painful belt-tightening being required to extend cash runways through to the end of the year as they seek recovery.

Given limited cash reserves, we will continue to be judicious in selecting which companies to provide additional capital to, whilst also remaining open to well capitalised, compelling new investment opportunities. We continue to believe that SSIT's current cash reserves are sufficient to meet the near-term capital needs of the portfolio.

Will Whitehorn  

Chair

12 March 2024

Investment Manager's Report

"The Period was marked by continued strong performance for SSIT's portfolio, as well as the wider SpaceTech ecosystem too. SpaceTech investment activity continues to outperform the wider VC market, reflecting the strong fundamentals that are driving ever-growing traction for top-performing SpaceTech companies. Record numbers of SpaceTech VC investments have been closed during recent quarters, with the last six months having seen a notable recovery in levels of growth funding rounds - an encouraging sign for prospects in 2024.

These trends are reflected in SSIT's portfolio, which has continued the positive cadence of fundraising. Eight companies closed new funding rounds during the Period, once again with the majority of these rounds being led by new investors - a healthy indicator given generalist investors are spoilt for choice in terms of investment opportunities given the wider downturn in the VC market.

Gains in fair value during the Period relating to some of these funding rounds have been partially offset by reductions in fair value elsewhere in the portfolio due to a combination of technical setbacks (SatVu) and underperformance (Altitude Angels and Xona Space Systems).

Although mindful of the difficulties some companies may face in accessing additional capital, overall, we remain positive about the prospects for the portfolio in 2024. With companies representing 60% of the portfolio by fair value now having indicated that they are projecting to have sufficient cash to operate through to profitability, and with several key holdings targeting EBITDA profitability in 2024, we are satisfied that SSIT continues to have the cash reserves required to meet the near-term funding needs of the portfolio.

This has enabled us to deploy a modest amount of capital into a handful of new investments, capitalising on the current favourable investor conditions."

Mark Boggett

CEO, Seraphim Space Manager LLP

Overview

Overall, the first half of H1 FY23/24 saw a continuation of our strategy implemented in the previous fiscal year as a reaction to the changing global macroeconomic environment and the resulting effects on the alternative investing sector.

In line with this strategy, and against the backdrop of general uncertainty in the market, we continued to focus on cash preservation for SSIT and management of its existing investment portfolio, both in terms of protecting existing value and driving additional value.

We worked with the management teams of our portfolio companies to optimise cash runways, facilitated funding rounds to allow for further value creation and acted as a sounding board for strategic decisions. These activities have proven successful, in that eight of our existing portfolio companies closed financing rounds in H1 FY23/24, including three of our top 10 holdings. It was encouraging to see that most of these rounds were priced equity rounds led by large and reputable new investors. We are very pleased that 23 of our private holdings have cash runways of at least 12 months from 31 December 2023.

We continued to support our portfolio companies in select investment rounds while balancing the need for cash preservation at the SSIT level. At the same time, we continued looking for well-priced investment opportunities with attractive risk-return profiles for the Company. While the bar for new investments remains very high, we continue to monitor the market for opportunities and are in due diligence with a handful of companies.

Market overview

·      SpaceTech venture capital ("VC") investment in 2023 was flat year-on-year while general VC investment was down 35% over the same period.

·      SpaceTech VC investment showed signs of accelerating, with two continuous quarters of growth in H2 CY23, following declines between Q1 CY22 and Q2 CY23, compared to sevenquarters of decline in general VC investment.

·      SpaceTech VC investment continued to show increasing numbers of deals every quarter; Q4 CY23 had the highest number of deals ever as increasing numbers of investment-worthy startups continue to be founded.

·      SpaceTech is proving to be highly resilient in an uncertain economic environment driven by increasing interest in defence, global security and climate change mitigation.

Valuation policy

In respect of private company valuations, fair value is established by using recognised valuation methodologies, in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") Guidelines. The Company has a valuation policy for unquoted securities to provide an objective, consistent and transparent basis for estimating their fair value in accordance with IFRS as well as the IPEV Guidelines. The unquoted securities valuation policy and the associated valuation procedures are subject to review on a regular basis, and updated, as appropriate, in line with industry best practice.

In summary, the Company determines fair value in accordance with the IPEV Guidelines by focusing on updating the enterprise value (either through there being a new funding round or through a valuation calibration exercise or adjustment for milestones) and then applying the implied equity value (based on adjustments for new debt, etc) to the company's capital structure (i.e. preference stack). In the event of commercial (or technical) underperformance of a portfolio company, a write down can then also be applied, typically in increments of 25%, to reduce fair value.

All valuations are considered on a quarterly basis and calibrated against the price of the last funding round. In addition, the Company undertakes a recalibration, across an increased number of datapoints, for the material portfolio companies (i) whose last funding rounds took place more than 12 months earlier or (ii) which had experienced a significant milestone event or material under- or over-performance (each a "recalibration event"). This process entails assessing the enterprise value following the most recent round against a composite of four elements: observable market data (where possible), recent relevant private investment transactions, public market valuations of comparable companies and the company's internal metrics and performance. This exercise further strengthens the valuation process with the goal of preserving shareholder confidence in the NAV during volatile market conditions and will be conducted when a recalibration event occurs and every quarter thereafter until a new priced funding round is completed.

Top 10 holdings' enterprise value ("EV") recalibrations

Changes in EV relate to either new funding rounds or adjustments from quarterly valuation recalibration exercises. It is worth noting that as a result of the downside protections in place, where there were reductions in underlying EV, these have not necessarily translated directly into commensurate reductions in fair value. Therefore, while the underlying EV of the private companies within the top 10 holdings has increased by 1.8%, the aggregate fair value of the Company's investments in them has increased by 8.5% (both on a fair value weighted average basis), due to the companies experiencing reductions in EV suffering from less of a reduction in their fair value.

Portfolio cash runway

·      82% of the portfolio by fair value has a robust cash runway, with 60% fully funded based on latest projections from the companies' management teams and 22% funded for 12 months or more from 31 December 2023.

·      The management teams of seven companies (five of which are top 10 holdings) are projecting that the companies are fully funded.

·      Eight companies representing 17% of the fair value of the portfolio have less than 12 months of cash runway. These companies are reducing cash burn, increasing their focus on government business development and grants to increase revenues and reduce costs and extend runway. The companies are actively fundraising and, where appropriate, acquisition processes are under consideration.

·      We note that it is not atypical for venture capital backed companies to have less than 12 months cash runway. Most companies typically raise on c18-month cycles. To date, our portfolio companies that have required additional financing to extend their cash runways have been able to raise the necessary funding.

·      Excluding the fully funded companies, the remainder of the portfolio has a fair value weighted average cash runway of 12 months.

Portfolio fundraising activity

·      More than $185m in aggregate was raised by portfolio companies during the Period.

·      Of the eight existing portfolio companies that raised rounds, six had participation from or were led by external investors. Participation of external investors demonstrates the attractiveness of the portfolio companies to new investors.

·      Three companies raised flat or up rounds, which is a testament to the strong performance of these companies.

·      Three companies closed funding rounds at reduced valuations relative to their previous round. In two instances this was as a result of underperformance against previous expectations. In the other instance, the round was a sizeable one and represented only a modest reduction against the previous round which was raised at the height of the market in late 2021.

·      SSIT also invested in three new companies in H1 FY23/24. These investments increase SSIT's exposure to the Communications, Beyond Earth (next-gen SpaceTech) and Product sectors, which we see being key growth drivers for the SpaceTech sector with high return potential.

Investment Activity

In the six months ended 31 December 2023

Skylo is making standards-based 'Direct-to-Device' satellite connectivity a reality today, enabling 'always on everywhere' for both consumer mobile phones and enterprise IoT endpoints, two significant market opportunities that are projected to grow rapidly. Skylo stands out in the sector through a combination of having a product in market, traction with commercial customers and deep ties with the relevant ecosystem, including satellite operators, regulators, chipmakers and mobile network operators. In December 2023, the Company completed a $2m (£1.6m) investment into Skylo's $37m Series A investment round led by major investors, Intel Capital and Innovation Endeavors, with participation from a strong syndicate.

In July 2023, the Company completed a $3.5m (£2.8m) follow-on investment into ALL.SPACE's Series C round, alongside a number of existing and new investors. With this funding, ALL.SPACE plans to invest in the remaining development to get its first production model into market and grow its sales efforts.

Portfolio Performance

In the six months ended 31 December 2023

Holdings

¹ Includes new and follow-on investments, where relevant, made since 30 June 2023 of £5.7m in aggregate.

Private portfolio

·      The private portfolio, which comprises the main part of the Company's investments representing 97.5% of fair value and 86.1% of NAV, performed solidly, with its fair value closing the Period at 121.5% vs. cost (121.4% excluding FX gains).

·      In aggregate, the fair value of the private portfolio increased 5.7% over the Period.

·      The private holdings continue to develop their commercial products, with robust revenue and bookings growth driven by solid fundamentals in core focus areas such as global security and climate/sustainability.

·      A significant increase in the fair value of D-Orbit (fair value vs. cost: 275%), driven by a funding round which closed soon after the Period end, more than offset fair value reductions experienced by other private portfolio companies.

·      Fair value reductions in the private portfolio included SatVu (fair value vs. cost: 163%) due to the setback from its failed satellite, and Altitude Angel (fair value vs. cost: 97%) and Xona Space Systems (fair value vs. cost: 65%), both due to underperformance.

Listed portfolio

·      As explained in previous periods, public companies which listed via SPAC transactions suffered significant share price falls in 2022 and 2023.

·      During the Period, there was stabilisation in the fair value of the Company's listed holdings in aggregate, reaching £4.9m, up 1.3% from 30 June 2023.

·      The listed portfolio (11.8% of the portfolio by number of companies) represented just 2.2% of NAV and 2.5% of portfolio fair value at the end of the Period (fair value vs. cost: 13.2%).

·    Spire Global (NYSE: SPIR; fair value vs. cost: 18%) and AST SpaceMobile (NASDAQ: ASTS; fair value vs. cost: 49%) have both delivered well commercially over the last year, and both experienced fair value increases in the Period.

·      Arqit (NASDAQ: ARQQ; fair value vs. cost: 4%) continues to experience share price declines, with a further £1.3m reduction in fair value during the Period.

Quarterly valuation changes in the three months ended 31 December 2023

·      During the quarter ended 31 December 2023, the fair value fell by £3.5m, reducing fair value to 101.0% vs. cost (104.0% excluding FX losses).

·      £5.9m in FX losses in the quarter was partly offset by an underlying fair value increase of £2.4m.

·      Fair value increases during the quarter at D-Orbit, Xona Space Systems, AST SpaceMobile and Spire Global were largely offset by fair value decreases at SatVu and Altitude Angel. 

Performance of the Company

In the six months ended 31 December 2023

Portfolio Attribution

·      £2.5m in new investments and £3.3m of follow-ons in the Period.

·      Increase in unrealised fair value of £4.6m and unrealised FX gain of £0.2m during the Period.

·      £198.0m fair value of portfolio at the end of the Period.

·      250bps increase in closing portfolio fair value vs. portfolio cost, including FX movements.

NAV

·      NAV slightly increased over the Period to £224.3m (30 June 2023: £222.4m).

·      The portfolio fair value (including FX movements) increased by £4.8m over the Period.

·      2.2m shares were bought back during the Period at an aggregate cost of £1.0m.

·      The NAV per share increased from 92.90p to 94.57p over the Period.

·      £26.8m liquid resources (11.9% of NAV) at 31 December 2023 (30 June 2023: £35.3m).

The Company is targeting an annualised total return on the Company's portfolio of at least 20% over the long term. The Company has no formal benchmark index but has tracked its NAV per share and share price movements against the following the indices for reference.

·      MSCI World Aerospace and Defense Index (£) - a significant proportion of portfolio companies' revenues are derived from the broader aerospace and defence industry and/or have governments as significant customers.

·      MSCI World Climate Change Index (£) - a significant proportion of portfolio companies' revenues are derived from climate change products and services.

·      FTSE All-Share Index (£) - the Company is listed on the London Stock Exchange.

·      NASDAQ (£) - the Company invests in SpaceTech, a subset of the broader technology market, and two of its listed holdings are listed on NASDAQ.

·      Dow Jones Global Technology Index (£) - the Company invests globally in SpaceTech, a subset of the broader technology market.

·      S&P Kensho Space Index (£) - the Company invests globally in SpaceTech, a subset of the broader space sector.

·      Goldman Sachs Future Tech Leaders Equity ETF (£) - the Company invests globally in SpaceTech, a subset of the broader technology market.

As explained in the Share Price section, the Company's share price has been significantly more volatile than its NAV per share.

Mark Boggett

CEO

Seraphim Space Manager LLP      

Investment Manager

12 March 2024