Chrysalis VCT PLC : Half-yearly report

Chrysalis VCT plc
HALF-YEARLY REPORT FOR THE SIX MONTHS ENDED 30 APRIL 2016

Recent performance summary

	30 April  2016	30 April  2015	31 October 2015
	pence	pence	pence
Net asset value per share	83.50	85.10	81.30
Cumulative dividends paid per share	63.70	56.50	60.45
Total return (net asset value per share plus cumulative dividends)	147.20	141.60	141.75

CHAIRMAN'S STATEMENT
Introduction
I am pleased to present my report for the six months ended 30 April 2016. The period has seen a steady performance from the investment portfolio and a relatively low level of investment activity, partly attributable to the uncertainty created by the new VCT rules.

Net asset value and results
At 30 April 2016, the net asset value per share ("NAV") stood at 83.5p, an increase of 5.45p (6.7%) since the previous year end of 31 October 2015 (after adding back the 3.25p dividend paid on 26 February 2016).

The Total Return to Shareholders who invested at the launch of the Company in 2000 (NAV plus cumulative dividends) is now 147.2p compared to the original cost (net of income tax relief) of 80.0p per share.

The return on activities after taxation for the Company for the period was £1.6 million, comprising a revenue return of £141,000 and a capital return of £1.5 million.

Dividends
The Board is proposing to pay an interim dividend at the same level as last year of 1.75p per share. In addition, as a result of the deferred consideration received, as highlighted below, we will also pay a further special dividend of 2.0p per share.  The total dividend of 3.75p will be paid on 29 July 2016 to Shareholders on the register at 1 July 2016.

Following the payment of the dividend on 29 July 2016, Shareholders who invested at launch will have received distributions totalling 67.45p per share.

Venture capital portfolio
The Company invested £605,000 in the period in one new and two  follow on investments. At the end of the period, the Company held a portfolio comprising 25 investments with a total value of £17.6 million.

The largest addition was a further investment of £500,000 in Coolabi plc, the children's and family entertainment brand management group. The company owns brands such as The Clangers and Bagpuss and the new funds will support the production of new TV series.

In March 2016 the Company invested £75,000 in a new venture, Fusion Catering Solutions Limited, a wedding and event caterer. The management team are known to the Company from an existing portfolio company, Life's Kitchen Limited.

Finally, an additional £30,000 was also invested in Cambridge Mechatronics as part of a rights issue undertaken by the company to fund its continuing growth.

In terms of realisations, a further £440,000 of deferred consideration was received in the period in respect of the sale of Wessex Advanced Switching Products Limited ("WASP"), which took place in 2015. £125,000 of deferred consideration was also received in respect of Autocue Group Limited which was also sold in 2015.

There were also five full or partial redemptions of loan stock from various investee companies totalling £983,000 and one liquidation receipt of £14,000. Total proceeds received in the period were £1.6 million giving rise to a gain of £579,000.

The Board has reviewed the valuations of all the unquoted portfolio and there have a number of relatively minor adjustments both up and down. The two most significant movements were both valuation increases. We have now been invested in Driver Require for over a year and so are no longer valuing it at cost and, due to its strong trading performance, there has been an upward valuation of £413,000. Cambridge Mechatronics raised a significant amount of money at a higher price than we originally paid and valuing our investment at that price resulted in an increase of £343,000.

Overall, there was a net unrealised gain of £1.1 million across the portfolio.

Fixed income securities
The Company continues to hold a portfolio of fixed income bonds, which was valued at £2.1  million at the period end. The unrealised losses on the portfolio over the period was £50,000.

Shares
The Board continues to monitor the market in the Company's shares and remains of the view that the Company's liquid resources are best reserved to  ensure that the Company is able to maintain a strong dividend stream. The Board believes that this make the shares attractive to potential buyers in the secondary market.

As a result of this strategy, the Company will not usually buy in its own shares for cancellation.

The Company retains Nplus1 Singer Capital Markets to act as its corporate broker. Nplus1 is usually aware of parties who are looking to trade and should be able to assist investors looking to buy or sell Chrysalis VCT shares.

VCT rules
As Shareholders will be aware from previous reports, there have been some major changes to the VCT rules over the last year. In May, HMRC published the long awaited guidance on the new rules, however the full impact of the changes is probably still unknown.

What is clear is that your Company is now not ordinarily able to support all existing portfolio companies with a further investment should they need it, despite the fact these businesses were within the VCT rules at the time of the original investment. This is understandably frustrating for the Board, the Manager and the relevant investee companies. We are however hopeful that we will be able to continue to provide support in one way or another to all portfolio companies to help further drive their growth and deliver rewards for our Shareholders.

Outlook
Your Board remains satisfied with the progress made by your Company. As with any investment activity of this nature, there will always be challenges, however I believe that your Company is as well placed as it can be to address issues that arise and we continue to hold a  portfolio that can deliver further good results to Shareholders in future.

I look forward to updating Shareholders in my Statement in the Annual Report to 31 October 2016.

Peter Harkness

Chairman

3 June 2016

SUMMARY OF INVESTMENT PORTFOLIO
as at 30 April 2016

	Cost	Valuation	Valuation  movement in the period	% of portfolio by value
	£'000	£'000	£'000
Top ten venture capital investments
Coolabi Group Limited	3,456	3,830	(154)	15.4%
Locale Enterprises Limited	2,513	2,663	286	10.7%
Internet Fusion Limited	800	1,485	167	6.0%
Precision Dental Laboratories Limited	1,110	1,482	192	5.9%
K10 (London) Limited	950	1,117	36	4.5%
Driver Require Limited	520	933	413	3.7%
MyTime Media Holdings Limited	351	926	32	3.7%
Electrobase RP Holdings Limited	1,001	900	(100)	3.6%
Cambridge Mechatronics Limited	366	843	343	3.4%
Zappar Limited	25	775	-	3.1%
	11,092	14,954	1,215	60.0%
Other venture capital investments	4,516	2,619	(80)	10.5%
Fixed income securities	2,210	2,137	(50)	8.6%
	17,818	19,710	1,085	79.1%
Cash at bank and in hand		5,214		20.9%
Total investments		24,924		100.0%

All venture capital investments are unquoted unless otherwise stated

SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 30 April 2016

Additions

	£'000
New investments
Fusion Catering Solutions Limited	75
Follow-on investments
Coolabi Group Limited	500
Cambridge Mechatronics Limited	30
	605

Disposals

	Cost	Value at 1 Nov 2015*	Disposal proceeds	Gain against cost	Total realised gain
	£'000	£'000	£'000	£'000	£'000
Venture capital investments
Loan stock redemptions
My Time Media Holdings Limited	400	400	400	-	-
Internet Fusion Limited	200	244	244	44
Precision Dental Laboratories Limited	200	200	200	-	-
Livvakt Limited	129	129	129	-	-
Locale Enterprises Limited	10	10	10	-	-
Dissolution, liquidation and retention
Autocue Group Limited			125	125	125
Newquay Helicopter Limited		-	14	14	14
Wessex Advanced Switching Products Limited	-	-	440	440	440
	939	983	1,562	623	579

*Adjusted for purchases in the period where applicable

UNAUDITED INCOME STATEMENT

for the six months ended 30 April 2016

	Six months ended 30 Apr 2016				Six months ended 30 Apr 2015				Year ended 31 Oct 2015
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£'000	£'000	£'000		£'000	£'000	£'000		£'000
Income	365	-	365		350	-	350		733
Net gains/(losses) on investments									1,971
- realised	-	579	579		-	431	431
- unrealised	-	1,085	1,085		-	1,512	1,512
	365	1,664	2,029		350	1,943	2,293		2,704
Investment management fees	(50)	(151)	(201)		(50)	(152)	(202)		(412)
Performance incentive fees	-	(46)	(46)		-	(24)	(24)		(35)
Other expenses	(139)	-	(139)		(132)	-	(132)		(263)
Return on ordinary activities before taxation	176	1,467	1,643		168	1,767	1,935		1,994
Taxation	(35)	35	-		(32)	32	-		-
Return attributable to equity shareholders	141	1,502	1,643		136	1,799	1,935		1,994
Return per share	0.5p	5.0p	5.5p		0.5p	6.0p	6.5p		6.7p

The total column within the Income Statement represents the profit and loss account of the Company. No operations were acquired or discontinued during the period.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement as noted above.

UNAUDITED BALANCE SHEET

as at 30 April 2016

		As at 30 Apr 2016		As at 30 Apr 2015		As at 31 Oct 2015
Note		£'000		£'000		£'000
Fixed assets
Investments		19,710		19,051		19,003
Current assets
Debtors		161		3,597		153
Cash at bank and in hand		5,214		3,053		5,223
		5,375		6,650		5,376
Creditors: amounts falling due within one year		(102)		(251)		(67)
Net current assets		5,273		6,399		5,309
Net assets		24,983		25,450		24,312
Capital and reserves
Called up share capital	9	299		299		299
Capital redemption reserve		89		89		89
Share premium		1,478		1,478		1,478
Merger reserve	10	1,357		1,357		1,357
Special reserve	10	2,383		3,252		1,926
Capital reserve - realised	10	14,367		15,243		15,022
Capital reserve - unrealised	10	4,391		3,189		3,439
Revenue reserve	10	619		543		702
Equity shareholders' funds	8	24,983		25,450		24,312
Net asset value per share	8	83.5p		85.1p		81.3p

 

STATEMENT OF CHANGE IN EQUITY

for the six months ended 30 April 2016

Share Capital				Capital Redemption reserve	Share premium	Merger reserve	Special reserve	Capital reserve -realised	Capital reserve -unrealised	Revenue reserve	Total
	£'000			£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 November 2015	299			89	1,478	1,357	1,926	15,022	3,439	702	24,312
Expenses capitalised		-		-	-	-	-	(197)	-	-	(197)
Tax on capital expenses		-		-	-	-	-	35	-	-	35
Gains on investments		-		-	-	-	-	579	1,085	-	1,664
Realisation of revaluations from previous years			-	-	-	-	-	44	(44)	-	-
Realisation of impaired valuations		-		-	-	-	-	89	(89)	-	-
Transfer between reserves		-		-	-	-	457	(457)	-	-	-
Retained net revenue for the period		-		-	-	-	-	-	-	141	141
Dividends paid		-		-	-	-	-	(748)	-	(224)	(972)
At 30 April 2016	299			89	1,478	1,357	2,383	14,367	4,391	619	24,983

 

UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 April 2016

		Six months  ended 30 Apr 2016		Six months ended 30 Apr 2015		Year ended 31 Oct 2015
Note		£'000		£'000		£'000
Cash inflow/(outflow) from operating activities and returns on investments	11	6		62		(146)
Capital expenditure
Purchase of investments		(605)		(1,907)		(2,483)
Proceeds on disposal of investments		1,562		932		5,083
Net cash inflow/(outflow) from capital expenditure		957		(975)		2,600
Equity dividends paid		(972)		(972)		(2,169)
Net cash (outflow)/inflow before financing		(9)		(1,885)		285
(Decrease)/increase in cash	12	(9)		(1,885)		285

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. General information
Chrysalis VCT plc ("The Company") is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales.

2. Accounting policies
Basis of accounting
The unaudited half-yearly results cover the six months to 30 April 2016 and have been prepared in accordance with the accounting policies set out in the annual accounts for the year ended 30 September 2015 and in accordance with the Financial Reporting Standard 102 ("FRS102") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" revised November 2014 ("SORP").

This is the first period in which the financial statements have been prepared under FRS102, however, it has not been necessary to restate comparatives as the treatment previously applied aligns with the requirements of FRS102. As a result, there are no reconciling differences between the previous financial reporting framework and the current financial reporting framework and the comparative figures represent the position under both current and previous financial reporting frameworks.

The Company implements new Financial Reporting Standards issued by the Financial Reporting Council when required.

Presentation of Income Statement
In order to better reflect the activities of a venture capital trust, and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.

Fixed asset investments
Investments are designated as "fair value through profit or loss" assets, upon acquisition, due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed, with a view to selling after a period of time, in accordance with the Company's documented investment policy.

Key sources of estimation uncertainty
Of the Company's assets measured at fair value, it is possible to determine their fair values within a reasonable range of estimates. The fair value of an investment upon acquisition is deemed to be cost. Thereafter, investments are measured at fair value in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEV") together with FRS102 sections 11 and 12.

Listed fixed income investments and investments quoted on AIM and the Main Market are measured using bid prices in accordance with the IPEV.

For unquoted instruments, fair value is established using the IPEV. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:

-Price of recent investment;
-Multiples;
-Net assets;
-Discounted cash flows or earnings (of underlying business);
-Discounted cash flows (from the investment); and
-Industry valuation benchmarks.

The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value.

Where an investee company has gone into receivership, liquidation, or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised. Permanent impairments in the value of investments are deemed to be realised losses and held within the Capital Reserve - Realised.

Gains and losses arising from changes in fair value are included in the Income Statement for the year as a capital item and transaction costs on acquisition or disposal of the investment expensed.

It is not the Company's policy to exercise significant influence over investee companies. Therefore the results of these companies are not incorporated into the Income Statement except to the extent of any income accrued. This is in accordance with the SORP and FRS102 sections 14 and 15 that do not require portfolio investments to be accounted for using the equity method of accounting.

Income
Dividend income from investments is recognised when the Shareholders' rights to receive payment have been established, normally the ex-dividend date.

Interest income is accrued on a timely basis, by reference to the principal outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection.

Expenses
All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows:

-Expenses which are incidental to the acquisition of an investment are deducted as a capital item.
-Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
-Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. The Company has adopted the policy of allocating investment manager's fees, 75% to capital and 25% to revenue as permitted by the SORP. The allocation is in line with the Board's expectation of long term returns from the Company's investments in the form of capital gains and income respectively.
-Performance incentive fees arising are treated as a capital item.

Taxation
The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting period.

Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments which arise.

Deferred taxation is not discounted and is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts.

Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.

Issue costs
Issue costs in relation to the shares issued are deducted from the share premium account.

3. The financial statements are presented in Sterling (£).

4. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.

5. The comparative figures were in respect of the six months ended 30 April 2015 and the year ended 31 October 2015 respectively.

6. Basic and diluted return per share

	Six months ended 30 Apr 2016		Six months ended 30 Apr 2015		Year ended 31 Oct 2015
Return per share based on:
Net revenue return for the period (£'000)	141		136		296
Capital return per share based on:
Net capital gain for the period (£'000)	1,502		1,799		1,698
Weighted average number of shares	29,917,025		29,917,025		29,917,025

7. Dividends paid

			Six months ended 30 Apr 2016				Year ended 31 Oct 2015
	Pence		Revenue	Capital	Total		Total
	per share		£'000	£'000	£'000		£'000
Paid in period
2015 Final	3.25p		224	748	972		-
2015 Interim	1.75p		-	-	-		524
2015 Special	2.25p		-	-	-		673
2014 Final	3.25p		-	-	-		972
			224	748	972		2,169

8. Basic and diluted net asset value per share

	Six months ended 30 Apr 2016		Six months ended 30 Apr 2015		Year ended 30 Oct 2015
Net asset value per share based on:
Net assets (£'000)	24,983		25,450		24,312
Number of shares in issue at the period end	29,917,025		29,917,025		29,917,025
Net asset value per share	83.5p		85.1p		81.3p

9. Called up share capital

		Shares in issue		£'000
Period ended 30 April 2016		29,917,025		299
Period ended 30 April 2015		29,917,025		299
Year ended 31 October 2015		29,917,025		299

10. Reserves
The special reserve is available to the Company to enable the purchase of its own shares in the market without affecting its ability to pay dividends, and also allows the Company to make transfers between reserves to offset realised capital losses arising on disposals and impairments.

Distributable reserves are calculated as follows:

		Six months  ended 30 Apr 2016		Six months ended 30 Apr 2015		Year ended 31 Oct 2015
		£'000		£'000		£'000
Special reserve		2,383		3,252		1,926
Capital reserve - realised		14,367		15,243		15,022
Revenue reserve		619		543		702
Merger reserve - distributable element		275		275		275
Unrealised losses - excluding unrealised unquoted gains	(306)			(850)		(283)
		17,338		18,463		17,642

11. Reconciliation of return on ordinary activities before taxation to net cash flow from operating activities

	Six months  ended 30 Apr 2016		Six months ended 30 Apr 2015		Year ended 31 Oct 2015
	£'000		£'000		£'000
Return on ordinary activities before taxation	1,643		1,935		1,994
Gains on investments	(1,664)		(1,943)		(1,971)
(Increase)/decrease in other debtors	(7)		88		33
Increase/(decrease) in other creditors	34		(18)		(202)
Net cash inflow/(outflow) from operating activities	6		62		(146)

12. Reconciliation of net cash flow to movement in net funds

	Net funds at 1 Nov 2015		Cash flows		Net funds at 30 Apr 2016
	£'000		£'000		£'000
Cash at bank and in hand	5,223		(9)		5,214

13. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required in the Company's half year results to report on principal risks and uncertainties facing the Company over the remainder of the financial year.

The Board has concluded that the key risks facing the Company over the remainder of the financial period are as follows:

i. investment risk associated with investing in small and immature businesses; and
ii. failure to maintain approval as a VCT.

In both cases, the Board is satisfied with the Company's approach to these risks. As a VCT, the Company is forced to have significant exposure to relatively immature businesses. This risk is mitigated to some extent by holding a well-diversified portfolio.

The Company's compliance with the VCT regulations is continually monitored by the Administration Manager, who regularly reports to the Board on the current position. The Company also retains Philip Hare and Associates LLP to provide regular reviews and advice in this area. The Board considers that this approach reduces the risk of a breach of the VCT regulations to a minimal level.

14. Going concern
The Company has sufficient financial resources at the period end, and holds a diversified portfolio of investments. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.

The Directors confirm that they are satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason, they believe that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements.

15. The Directors confirm that, to the best of their knowledge, the half yearly financial statements have been prepared in accordance with the "Statement: Half Yearly Financial Reports" issued by the UK Accounting Standards Board and the half yearly financial report includes a fair review of the information required by:

a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

16. The unaudited financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 October 2015 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Independent Auditor's Report on those financial statements was unqualified.

17. Copies of the unaudited half yearly report will be sent to Shareholders shortly. Further copies can be obtained from the Company's registered office and will be available for download from www.downing.co.uk.