Chrysalis VCT plc
HALF-YEARLY REPORT FOR THE SIX MONTHS ENDED 30 APRIL 2014
Recent performance summary
| 30 April 2014 | 31 October 2013 | 30 April 2013 | |
| pence | pence | pence | |
| Net asset value per share | 93.8 | 83.5 | 82.5 |
| Cumulative dividends paid per share | 44.0 | 40.7 | 39.0 |
| Total return (net asset value per share plus cumulative dividends) | 137.8 | 124.2 | 121.5 |
CHAIRMAN'S STATEMENT
Introduction
Your Fund has had a very successful six months, with the focus on realisations. As a consequence I am delighted to announce significant dividend news.
Normally in this interim statement shareholders expect to hear of an interim dividend and I am pleased to confirm that we will match the 1.75p paid last year. This payment will be made on 31 July 2014 to Shareholders on the register at 4 July 2014.
More significantly, the Directors are delighted to announce a one-off special dividend payment of 7.5p per share resulting from the sale of our stake in Wessex Advanced Switching Products (WASP).
Chrysalis had been invested in WASP since 1999 and the eventual proceeds of £8.9 million were over double WASP's carrying value and a very healthy profit of £8.85 million on the original cost of just £50,000 (as paid by Downing Classic VCT plc one of the VCTs which merged to create the Chrysalis VCT).
The one-off 7.5p per share dividend payment will be made on the same date as the regular interim dividend meaning shareholders will receive a total of 9.25p per share in July.
We had long considered WASP a well-run and valuable component of the Chrysalis portfolio and it illustrates the ideal relationship between our Fund and a management team. I would like to put on record my thanks to WASP management for their stewardship and enterprise over the years and also make special mention of Robert Wilson, the member of our investment team chiefly responsible for the WASP relationship and for our role in the exit process.
Net asset value, results and dividends
At 30 April 2014, the net asset value per share ("NAV") stood at 93.8p, an increase of 13.6p (16.3%) since the previous year end of 31 October 2013 (after adjusting for the 3.25p dividend paid on 30 April 2014).
The total return to Shareholders who invested at the launch of the Company in 2000 (NAV plus cumulative dividends) is now 137.8p compared to the original cost (net of income tax relief) of 80p per share.
The return on activities after taxation for the Company for the period was £4.1 million, comprising a revenue return of £113,000 and a capital return of £4.0 million.
Following the payment of the interim and special dividend on 31 July 2014, Shareholders who invested at launch will have received distributions totalling 53.25p per share.
Venture capital portfolio
In addition to the successful realisation our investment team has also been securing new investments and £3.6 million had been invested by the end of the half year with a further £650,000 being invested in May.
Perhaps the most note-worthy of the recent investments is a £1.96 million investment in Coolabi Group Limited, an international media group and rights owner specialising in the creation, development and brand management of intellectual property rights. This is the company behind bringing back The Clangers to BBC television and it controls several other well-known character brands.
Locale Enterprises Limited ("Locale") and London Italian Restaurants Limited underwent a re-organisation during the year which has resulted in an enlarged investment in Locale. The combination of the transactions involved has resulted in an overall fall in value in the new Locale group by £255,000.
Following the Board's review of the remaining investments, there were a number of other valuation movements which resulted in a net decrease in value of £268,000.
Fixed income securities
The Company invested £2.2 million in fixed income bonds during the period with the portfolio being valued slightly above cost at the period end. Unrealised gains arising in the period were £8,000, with a small loss being recognised upon the redemption of one gilt.
Shares
In the past, share purchases by third parties in the market were negligible but, as the attractions of our dividend policy and the strength of the portfolio has become more widely known, more and more shares are being taken up by secondary investors. We welcome these new shareholders.
I would remind shareholders wishing to acquire more shares, or to sell, that we recommend they contact the company brokers, Nplus1 Singer Capital Markets, who are usually aware of other parties looking to buy or sell.
Due to the lack of liquidity and the "close period" rules which apply to Chrysalis as a listed company the Fund does not usually buy back shares, although we keep this policy under constant review. The Directors feel that, in general, our resources are better applied to the dividend payments from which all Shareholders benefit directly, than to share buy-backs.
Outlook
Our experience is that the economy and, in particular, the SME sector, in which we operate, continues its slow but steady improvement. We believe there will be good investment opportunities for your Fund and our investment team, led by Chris Kay with his usual diligence and skill, is in active pursuit of some opportunities which appear to have potential. I thank them for their continued diligence and effort.
I am grateful also to my two director colleagues, Julie Baddeley and Martin Knight, for their valuable counsel and contributions to Board issues.
Having successfully survived the last few years and delivered strong dividends and sound portfolio growth, we are certainly not smug, but recent events definitely put a smile on all our faces - a smile which I hope will be reflected on the faces of all our shareholders when they receive their forthcoming dividend cheques.
Peter Harkness
Chairman
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 April 2014
| Cost | Valuation | Valuation movement in the period | % of portfolio by value | |
| £'000 | £'000 | £'000 | ||
| Top ten venture capital investments | ||||
| Locale Enterprises Limited | 2,638 | 2,283 | (818) | 9.3% |
| Precision Dental Laboratories Limited | 1,710 | 2,185 | - | 8.9% |
| Coolabi Group Limited | 1,956 | 2,006 | 50 | 8.2% |
| MyTime Media Holdings Limited | 750 | 1,705 | 107 | 7.0% |
| Triaster Limited | 319 | 1,068 | 31 | 4.4% |
| Internet Fusion Limited | 700 | 870 | (10) | 3.5% |
| Autocue Group Limited | 300 | 747 | 136 | 3.0% |
| K10 (London) Limited | 600 | 604 | (56) | 2.5% |
| VEEMEE Limited | 500 | 500 | (324) | 2.0% |
| Ensign Communication Holdings Limited | 292 | 408 | (30) | 1.7% |
| 9,765 | 12,376 | (914) | 50.5% | |
| Other venture capital investments | 3,072 | 1,223 | (172) | 4.9% |
| Fixed income securities | 2,210 | 2,218 | 8 | 9.0% |
| 15,047 | 15,817 | (1,078) | 64.4% | |
| Cash at bank and in hand | 8,708 | 35.6% | ||
| Total investments | 24,525 | 100.0% |
All venture capital investments are unquoted unless otherwise stated
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 30 April 2014
Additions
| £'000 | |
| New investments | |
| Coolabi Group Limited | 1,956 |
| Follow-on investments | |
| K10 (London) Limited | 250 |
| Locale Enterprises Limited ** | 1,300 |
| Planet Sports Holding Limited | 58 |
| 3,564 | |
| Fixed income securities | |
| Intermediate Capital Group plc 7% | 745 |
| Lloyds Banking Group 7% | 724 |
| Provident Financial 7% | 741 |
| 2,210 | |
| Total additions | 5,774 |
Disposals
| Cost | Value at 1 Nov 2013 * | Disposal proceeds | Gain/(loss) against cost | Total realised gain/(loss) | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Venture capital investments | |||||
| Quoted | |||||
| Best of the Best plc | 81 | 64 | 70 | (11) | 6 |
| Unquoted | |||||
| Autocue Group Limited | 200 | 200 | 200 | - | - |
| Life's Kitchen Limited | 10 | 10 | 10 | - | - |
| London Italian Restaurants Limited ** | 1,000 | 437 | 1,000 | - | 563 |
| Newquay Helicopters (2013) Limited | 126 | 126 | 217 | 91 | 91 |
| Triaster Limited | 98 | 98 | 98 | - | - |
| Wessex Advanced Switching Products Ltd | 704 | 4,115 | 8,919 | 8,215 | 4,804 |
| Dissolution, liquidation and retention | |||||
| Kids Safetynet Limited | 637 | - | - | (637) | - |
| Retentions | - | - | 63 | 63 | 63 |
| Fixed income securities | |||||
| S&W Investment Funds Cash Fund | 9 | 9 | 9 | - | - |
| United Kingdom 2.25% Gilt 07/03/2014 | 415 | 423 | 420 | 5 | (3) |
| 3,280 | 5,482 | 11,006 | 7,726 | 5,524 |
* Adjusted for purchases in the period where applicable
** The consideration for London Italian Restaurants Limited was partly settled by shares in Locale Enterprises Limited
UNAUDITED INCOME STATEMENT
for the six months ended 30 April 2014
| Six months ended 30 Apr 2014 | Six months ended 30 Apr 2013 | Year ended 31 Oct 2013 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 320 | - | 320 | 586 | - | 586 | 966 | ||
| Net gains/(losses) on investments | |||||||||
| - realised | - | 5,524 | 5,524 | - | 2 | 2 | 191 | ||
| - unrealised | - | (1,078) | (1,078) | - | 36 | 36 | 731 | ||
| 320 | 4,446 | 4,766 | 586 | 38 | 624 | 1,888 | |||
| Investment management fees | (52) | (154) | (206) | (52) | (155) | (207) | (411) | ||
| Performance incentive fees | - | (340) | (340) | - | (2) | (2) | (98) | ||
| Other expenses | (127) | (28) | (155) | (118) | (20) | (138) | (272) | ||
| Return/(loss) on ordinary activities before taxation | 141 | 3,924 | 4,065 | 416 | (139) | 277 | 1,107 | ||
| Taxation | (28) | 28 | - | (36) | 31 | (5) | - | ||
| Return/(loss) attributable to equity shareholders | 113 | 3,952 | 4,065 | 380 | (108) | 272 | 1,107 | ||
| Return per share | 0.4p | 13.2p | 13.6p | 1.3p | (0.4p) | 0.9p | 3.7p | ||
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 2014
| As at 30 Apr 2014 | As at 30 Apr 2013 | As at 31 Oct 2013 | ||||
| Note | £'000 | £'000 | £'000 | |||
| Fixed assets | ||||||
| Investments | 15,817 | 20,250 | 16,603 | |||
| Current assets | ||||||
| Debtors | 3,943 | 371 | 2,031 | |||
| Cash at bank and in hand | 8,708 | 4,147 | 6,445 | |||
| 12,651 | 4,518 | 8,476 | ||||
| Creditors: amounts falling due within one year | (396) | (84) | (100) | |||
| Net current assets | 12,255 | 4,434 | 8,376 | |||
| Net assets | 28,072 | 24,684 | 24,979 | |||
| Capital and reserves | ||||||
| Called up share capital | 7 | 299 | 299 | 299 | ||
| Capital redemption reserve | 8 | 89 | 89 | 89 | ||
| Share premium | 8 | 1,478 | 1,478 | 1,478 | ||
| Merger reserve | 8 | 1,464 | 2,031 | 1,981 | ||
| Special reserve | 8 | 3,397 | 3,384 | 2,320 | ||
| Capital reserve - realised | 8 | 18,186 | 9,395 | 11,051 | ||
| Capital reserve - unrealised | 8 | 2,631 | 7,134 | 7,122 | ||
| Revenue reserve | 8 | 528 | 874 | 639 | ||
| Equity shareholders' funds | 6 | 28,072 | 24,684 | 24,979 | ||
| Net asset value per share | 6 | 93.8p | 82.5p | 83.5p | ||
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 April 2014
| As at 30 Apr 2014 | As at 30 Apr 2013 | As at 31 Oct 2013 | ||||
| Note | £'000 | £'000 | £'000 | |||
| Opening Shareholders' funds | 24,979 | 25,168 | 25,168 | |||
| Issue of shares | - | 326 | 326 | |||
| Issue of shares under Share Realisation and Reinvestment Programme | - | 6,968 | 6,985 | |||
| Share issue costs | - | (74) | (90) | |||
| Purchase of own shares under Share Realisation and Reinvestment Programme | - | (7,003) | (7,020) | |||
| Total recognised gains in the period | 4,065 | 272 | 1,107 | |||
| Dividends paid | 5 | (972) | (973) | (1,497) | ||
| Closing Shareholders' funds | 6 | 28,072 | 24,684 | 24,979 | ||
UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 April 2014
| Six months ended 30 Apr 2014 | Six months ended 30 Apr 2013 | Year ended 31 Oct 2013 | ||||
| Note | £'000 | £'000 | £'000 | |||
| Cash (outflow)/inflow from operating activities and returns on investments | 9 | (46) | 57 | 260 | ||
| | ||||||
Capital expenditure | ||||||
Purchase of investments | (5,212) | (264) | (1,970) | |||
Proceeds on disposal of investments | 8,493 | 1,439 | 5,809 | |||
Net cash inflow from capital expenditure | 3,281 | 1,175 | 3,839 | |||
| | ||||||
Management of liquid resources | ||||||
Redemption of current investment | - | 2,000 | 2,000 | |||
Net cash inflow from liquid resources | - | 2,000 | 2,000 | |||
| | ||||||
Equity dividends paid | (972) | (973) | (1,497) | |||
| Net cash inflow before financing | 2,263 | 2,259 | 4,602 | |||
| | ||||||
Financing | ||||||
| Proceeds from share issue | - | 326 | 326 | |||
| Proceeds from shares issued under Share Realisation and Reinvestment Programme | - | 6,968 | 6,985 | |||
| Share issue costs | - | (45) | (90) | |||
| Purchase of own shares | - | (48) | (48) | |||
| Purchase of own shares under Share Realisation and Reinvestment Programme | - | (7,003) | (7,020) | |||
| Net cash inflow from financing | - | 198 | 153 | |||
| Increase in cash | 10 | 2,263 | 2,457 | 4,755 | ||
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. The unaudited half yearly financial results cover the six months to 30 April 2014 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 October 2013 which were prepared under UK Generally Accepted Accounting Practice and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" revised January 2009.
2. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.
3. The comparative figures were in respect of the six months ended 30 April 2013 and the year ended 31 October 2013 respectively.
4. Basic and diluted return per share
| Six months ended 30 Apr 2014 | Six months ended 30 Apr 2013 | Year ended 31 Oct 2013 | |
| Return per share based on: | |||
| Net revenue return for the period (£'000) | 113 | 380 | 519 |
| Capital return per share based on: | |||
| Net capital gain/(loss) for the period (£'000) | 3,952 | (108) | 588 |
| Weighted average number of shares | 29,917,025 | 29,810,501 | 29,864,316 |
5. Dividends paid
| Six months ended 30 Apr 2014 | Year ended 31 Oct 2013 | ||||
| Pence | Revenue | Capital | Total | Total | |
| per share | £'000 | £'000 | £'000 | £'000 | |
| Paid in period | |||||
| 2013 Final | 3.25 | 224 | 748 | 972 | - |
| 2013 Interim | 1.75 | - | - | - | 524 |
| 2012 Final | 3.25 | - | - | - | 973 |
| 224 | 748 | 972 | 1,497 | ||
6. Basic and diluted net asset value per share
| Six months ended 30 Apr 2014 | Six months ended 30 Apr 2013 | Year ended 31 Oct 2013 | |
| Net asset value per share based on: | |||
| Net assets (£'000) | 28,072 | 24,684 | 24,979 |
| Number of shares in issue at the period end | 29,917,025 | 29,917,625 | 29,917,025 |
| Net asset value per share | 93.8p | 82.5p | 83.5p |
7. Called up share capital
| Shares in issue | £'000 | |
| Period ended 30 April 2014 | 29,917,025 | 299 |
| Period ended 30 April 2013 | 29,917,625 | 299 |
| Year ended 31 October 2013 | 29,917,025 | 299 |
8. Reserves
| Capital redemption reserve | Share premium | Merger reserve | Special reserve | Capital reserve -realised | Capital reserve -unrealised | Revenue reserve | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 November 2013 | 89 | 1,478 | 1,981 | 2,320 | 11,051 | 7,122 | 639 |
| Expenses capitalised | - | - | - | - | (522) | - | - |
| Tax on capital expenses | - | - | - | - | 28 | - | - |
| Gains on investments | - | - | - | - | 5,524 | (1,078) | - |
| Realisation of revaluations from previous years | - | - | - | - | 3,413 | (3,413) | - |
| Realisation of assets acquired through historic merger | - | - | (517) | - | 517 | - | - |
| Transfer between reserves | - | - | - | 1,077 | (1,077) | - | - |
| Retained net revenue for the period | - | - | - | - | - | - | 113 |
| Dividends paid | - | - | - | - | (748) | - | (224) |
| At 30 April 2014 | 89 | 1,478 | 1,464 | 3,397 | 18,186 | 2,631 | 528 |
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 2014 | Six months ended 30 Apr 2013 | Year ended 31 Oct 2013 | |
| £'000 | £'000 | £'000 | |
| Special reserve | 3,397 | 3,384 | 2,320 |
| Capital reserve - realised | 18,186 | 9,395 | 11,051 |
| Revenue reserve | 528 | 874 | 639 |
| Merger reserve - distributable element | 275 | 275 | 275 |
| Unrealised losses - excluding unrealised unquoted gains | (478) | (1,151) | (88) |
| 21,908 | 12,777 | 14,197 |
9. Reconciliation of return on ordinary activities before taxation to net cash flow from operating activities
| Six months ended 30 Apr 2014 | Six months ended 30 Apr 2013 | Year ended 31 Oct 2013 | |
| £'000 | £'000 | £'000 | |
| Return on ordinary activities before taxation | 4,065 | 277 | 1,107 |
| Gains on investments | (4,446) | (38) | (922) |
| Decrease/(increase) in other debtors | 40 | (181) | 27 |
| Increase/(decrease) in other creditors | 295 | (1) | 48 |
| Net cash (outflow)/inflow from operating activities | (46) | 57 | 260 |
10. Reconciliation of net cash flow to movement in net funds
| Net funds at 1 Nov 2013 | Cash flows | Net funds at 30 Apr 2014 | |
| £'000 | £'000 | £'000 | |
| Cash at bank and in hand | 6,445 | 2,263 | 8,708 |
11. 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:
- investment risk associated with investing in small and immature businesses; and
- 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 PricewaterhouseCoopers 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.
12. 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.
13. 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:
- 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
- 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.
14. 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 2013 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.
15. 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.