Chrysalis VCT plc
HALF-YEARLY REPORT FOR THE SIX MONTHS ENDED 30 APRIL 2015
Recent performance summary
| 30 April 2015 | 31 October 2014 | 30 April 2014 | |||
| pence | pence | pence | |||
| Net asset value per share | 85.1 | 81.9 | 93.8 | ||
| Cumulative dividends paid per share | 56.5 | 53.2 | 44.0 | ||
| Total return (net asset value per share plus cumulative dividends) | 141.6 | 135.1 | 137.8 |
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report that the six months ended 30 April 2015 has been another successful period for your Company. Although we have not seen any further major disposals, the Company has been an active investor and has seen some solid progress from its existing portfolio.
Net asset value and results
At 30 April 2015, the net asset value per share ("NAV") stood at 85.1p, an increase of 6.5p (7.9%) since the previous year end of 31 October 2014 (after adjusting for the 3.25p dividend paid on 6 March 2015).
The Total Return to Shareholders who invested at the launch of the Company in 2000 (NAV plus cumulative dividends) is now 141.6p 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 £1.9 million, comprising a revenue return of £136,000 and a capital return of £1.8 million.
Following the payment of the interim and special dividend on 8 May 2015, Shareholders who invested at launch will have received distributions totalling 60.45p per share.
Dividends
As Shareholders will be aware from the communication from the Company in March, further deferred consideration from the Wessex Advanced Switching Products Limited ("WASP") disposal was received allowing the payment of a special dividend of 2.25p per share. This was combined with the usual interim dividend of 1.75p making a total of 4p per share paid on 8 May 2015. Shareholders should note that, in future, we expect that the interim dividend will revert to its usual payment date of July.
Venture capital portfolio
The Company invested £1.9m in the period in one new and four follow on investments. At the end of the period the Company held a portfolio comprising 25 investments with a total value of £16.8 million.
The Company invested £520,000 in Driver Require Limited in January 2015. The investment was a management buyout of specialist commercial vehicle driver recruitment agency with a strong customer base. Progress has been good since the investment was made.
A further £1.0 million was invested in Coolabi plc, the children's and family entertainment brand management group, which owns such brands as The Clangers and Bagpuss. The further funds were raised in the period in order to fund TV production and create a mobile game. Shareholders may have seen the recent heavy promotion for the new Clangers series on BBC, with Michael Palin as narrator.
An additional £310,000 was also invested in K10 (London) Limited to develop their "Beer and Buns" bar offering upstairs at their existing restaurant premises in the City of London. Initial indications are that the venture is proving successful.
As for disposals, as mentioned above, a further £440,000 of deferred consideration was received in the period in respect of the sale of WASP, which took place in 2014. There were also three full or partial repayments of loan stock from three investee companies totalling £311,000. With some minor other adjustments, total proceeds received in the period were £742,000.
In reviewing the existing portfolio at the period end, the Board has agreed number of valuation adjustments. Overall there have been 11 valuation changes of over six figures.
Firstly our largest holding, Coolabi Group, where 90% of our investment is in a loan instrument. This has an accruing IRR based return. The accrual is reflected in the £300,000 net valuation increase.
We invested in Electrobase RP (Holdings) Limited in July 2014 and, as per our valuation policy, it was initially held at cost. An earnings valuation has now been applied which has resulted in a valuation increase of £591,000.
A number of movements have been made as a result of changed trading. Positively in the case of Internet Fusion, K10 (London), Ensign Communication and IX Group and negatively with Precision Dental Laboratories and Triaster.
Unfortunately one of our early stage businesses, VEEMEE has gone into administration and so a full provision has been made.
There is however better news at two of our other early stage investments, namely Cambridge Mechatronics and Zappar, where recent funding rounds have been at significantly higher prices leading to a valuation increase
Total net unrealised gains for the period were £1.5 million.
Fixed income securities
The Company continues to hold a portfolio of fixed income bonds, which was valued at £2.2 million at the period end. The unrealised gain on the portfolio over the period was £21,000.
Shares
The Board continues to monitor and review options for managing the market in the Company's shares. The Board believes that the Company's liquid resources are best applied to maintaining a strong dividend stream for all Shareholders, which in turn makes the shares more attractive to potential buyers in the market. As a result, the Company does 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 will be happy to assist investors looking to buy or sell Chrysalis shares.
Primarily due to the attractive dividends, there has been progress in reducing the discount to NAV at which the shares trade. At the time of writing, the discount is now less than 20% and we hope that this can continue to reduce further as market confidence develops.
Outlook
Following our major disposal last year, the Company has a reasonable level of funds available for new investment and continues to consider new opportunities that arise providing they are of a sufficient quality to justify our funding.
It is pleasing to see progress being made by our existing portfolio companies, particularly some of our newer investments. Our management team will continue to work closely with each of these companies in order to provide the best chance of more profitable realisations for Shareholders in the future. I thank Chris Kay and his team for their ongoing work to this end.
As ever, I am also grateful to my two colleagues on the Board, Julie Baddeley and Martin Knight, for their support, counsel and contributions to Board issues.
I look forward to updating Shareholders in my Statement in the Annual Report to 31 October 2015.
Peter Harkness
Chairman
25 June 2015
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 April 2015
| Cost | Valuation | Valuation movement in the period | % of portfolio by value | |
| £'000 | £'000 | £'000 | ||
| Top ten venture capital investments | ||||
| Coolabi Group Limited | 2,956 | 3,380 | 300 | 15.3% |
| Locale Enterprises Limited | 2,583 | 2,367 | (30) | 10.7% |
| MyTime Media Holdings Limited | 750 | 1,756 | (5) | 7.9% |
| ERP Newco Limited | 1,001 | 1,592 | 591 | 7.2% |
| Precision Dental Laboratories Limited | 1,510 | 1,545 | (132) | 7.0% |
| Internet Fusion Limited | 700 | 1,177 | 277 | 5.3% |
| K10 (London) Limited | 950 | 1,120 | 162 | 5.1% |
| Green Star Media Limited | 650 | 650 | - | 2.9% |
| Zappar Limited | - | 628 | 468 | 2.9% |
| Driver Require Limited | 520 | 520 | - | 2.4% |
| 11,620 | 14,735 | 1,631 | 66.7% | |
| Other venture capital investments | 4,226 | 2,110 | (140) | 9.5% |
| Fixed income securities | 2,210 | 2,206 | 21 | 10.0% |
| 18,056 | 19,051 | 1,512 | 86.2% | |
| Cash at bank and in hand | 3,053 | 13.8% | ||
| Total investments | 22,104 | 100.0% |
All venture capital investments are unquoted unless otherwise stated
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 30 April 2015
Additions
| £'000 | |
| New investments | |
| Driver Require Limited | 520 |
| Follow-on investments | |
| Cambridge Mechatronics Limited | 36 |
| Coolabi Group Limited | 1,000 |
| Electrobase RP (Holdings) Limited (formerly ERP Newco Limited) | 1 |
| K10 (London) Limited | 350 |
| 1,907 |
Disposals
| Cost | Value at 1 Nov 2014* | Disposal proceeds | Gain against cost | Total realised gain | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Venture capital investments | |||||
| Unquoted | |||||
| Life's Kitchen Limited | 45 | 45 | 45 | - | - |
| Locale Enterprises Limited | 30 | 30 | 30 | - | - |
| Triaster Limited | 236 | 236 | 236 | - | - |
| Dissolution, liquidation and retention | |||||
| Retentions | - | - | 431 | 431 | 431 |
| 311 | 311 | 742 | 431 | 431 | |
* Adjusted for purchases in the period where applicable
UNAUDITED INCOME STATEMENT
for the six months ended 30 April 2015
| Six months ended 30 Apr 2015 | Six months ended 30 Apr 2014 | Year ended 31 Oct 2014 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 350 | - | 350 | 320 | - | 320 | 651 | ||
| Net gains/(losses) on investments | |||||||||
| - realised | - | 431 | 431 | - | 5,524 | 5,524 | 5,749 | ||
| - unrealised | - | 1,512 | 1,512 | - | (1,078) | (1,078) | (2,055) | ||
| 350 | 1,943 | 2,293 | 320 | 4,446 | 4,766 | 3,694 | |||
| Investment management fees | (50) | (152) | (202) | (52) | (154) | (206) | (437) | ||
| Performance incentive fees | - | (24) | (24) | - | (340) | (340) | (366) | ||
| Other expenses | (132) | - | (132) | (127) | (28) | (155) | (294) | ||
| Return on ordinary activities before taxation | 168 | 1,767 | 1,935 | 141 | 3,924 | 4,065 | 3,248 | ||
| Taxation | (32) | 32 | - | (28) | 28 | - | - | ||
| Return attributable to equity shareholders | 136 | 1,799 | 1,935 | 113 | 3,952 | 4,065 | 3,248 | ||
| Return per share | 0.5p | 6.0p | 6.5p | 0.4p | 13.2p | 13.6p | 10.9p | ||
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 2015
| | As at 30 Apr 2015 | As at 30 Apr 2014 | As at 31 Oct 2014 | |||
| Note | £'000 | £'000 | £'000 | |||
| Fixed assets | ||||||
| Investments | 19,051 | 15,817 | 15,942 | |||
| Current assets | ||||||
| Debtors | 3,597 | 3,943 | 3,876 | |||
| Cash at bank and in hand | 3,053 | 8,708 | 4,938 | |||
| 6,650 | 12,651 | 8,814 | ||||
| Creditors: amounts falling due within one year | (251) | (396) | (269) | |||
| Net current assets | 6,399 | 12,255 | 8,545 | |||
| Net assets | 25,450 | 28,072 | 24,487 | |||
| 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 | 1,357 | 1,464 | 1,458 | ||
| Special reserve | 8 | 3,252 | 3,397 | 2,823 | ||
| Capital reserve - realised | 8 | 15,243 | 18,186 | 16,095 | ||
| Capital reserve - unrealised | 8 | 3,189 | 2,631 | 1,689 | ||
| Revenue reserve | 8 | 543 | 528 | 556 | ||
| Equity shareholders' funds | 6 | 25,450 | 28,072 | 24,487 | ||
| Net asset value per share | 6 | 85.1p | 93.8p | 81.9p | ||
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 30 April 2015
| | As at 30 Apr 2015 | As at 30 Apr 2014 | As at 31 Oct 2014 | |||
| Note | £'000 | £'000 | £'000 | |||
| Opening Shareholders' funds | 24,487 | 24,979 | 24,979 | |||
| Total recognised gains in the period | 1,935 | 4,065 | 3,248 | |||
| Dividends paid | 5 | (972) | (972) | (3,740) | ||
| Closing Shareholders' funds | 25,450 | 28,072 | 24,487 | |||
UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 April 2015
| | Six Months ended 30 Apr 2015 | Six months ended 30 Apr 2014 | Year ended 31 Oct 2014 | |||||||||
| Note | £'000 | £'000 | £'000 | |||||||||
| Cash inflow/(outflow) from operating activities and returns on investments | 9 | 62 | (46) | (300) | ||||||||
| | ||||||||||||
Capital expenditure | ||||||||||||
Purchase of investments | (1,907) | (5,212) | (7,162) | |||||||||
Proceeds on disposal of investments | 932 | 8,493 | 9,695 | |||||||||
Net cash outflow/(inflow) from capital expenditure | (975) | 3,281 | 2,533 | |||||||||
| | ||||||||||||
Equity dividends paid | (972) | (972) | (3,740) | |||||||||
| Net cash (outflow)/inflow before financing | (1,885) | 2,263 | (1,507) | |||||||||
| | ||||||||||||
Financing | ||||||||||||
| Net cash inflow from financing | - | - | - | |||||||||
| (Decrease)/increase in cash | 10 | (1,885) | 2,263 | (1,507) | ||||||||
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1.The unaudited half yearly financial results cover the six months to 30 April 2015 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 October 2014 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 2014 and the year ended 31 October 2014 respectively.
4.Basic and diluted return per share
| Six months ended 30 Apr 2015 | Six months ended 30 Apr 2014 | Year Ended 31 Oct 2014 | |||
| Return per share based on: | |||||
| Net revenue return for the period (£'000) | 137 | 113 | 217 | ||
| Capital return per share based on: | |||||
| Net capital gain for the period (£'000) | 1,798 | 3,952 | 3,031 | ||
| Weighted average number of shares | 29,917,025 | 29,917,025 | 29,917,025 |
5.Dividends paid
| Six months ended 30 Apr 2015 | Year ended 31 Oct 2014 | ||||||
| Pence per share | Revenue | Capital | Total | Total | |||
| £'000 | £'000 | £'000 | £'000 | ||||
| Paid in period | |||||||
| 2014 Final | 3.25 | 149 | 823 | 972 | - | ||
| 2014 Interim | 1.75 | - | - | - | 524 | ||
| 2014 Special | 7.50 | - | - | - | 2,244 | ||
| 2013 Final | 3.25 | - | - | - | 972 | ||
| 149 | 823 | 972 | 3,740 | ||||
6.Basic and diluted net asset value per share
| Six months ended 30 Apr 2015 | Six months ended 30 Apr 2014 | Year ended 31 Oct 2014 | |||
| Net asset value per share based on: | |||||
| Net assets (£'000) | 25,450 | 28,072 | 24,487 | ||
| Number of shares in issue at the period end | 29,917,025 | 29,917,025 | 29,917,025 | ||
| Net asset value per share | 85.1p | 93.8p | 81.9p |
7.Called up share capital
| Shares in issue | £'000 | |||
| Period ended 30 April 2015 | 29,917,025 | 299 | ||
| Period ended 30 April 2014 | 29,917,025 | 299 | ||
| Year ended 31 October 2014 | 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 2014 | 89 | 1,478 | 1,458 | 2,823 | 16,095 | 1,689 | 556 |
| Expenses capitalised | - | - | - | (176) | - | - | |
| Tax on capital expenses | - | - | - | - | 32 | - | - |
| Gains on investments | - | - | - | - | 431 | 1,512 | - |
| Realisation of revaluations from previous years | - | - | - | - | 12 | (12) | - |
| Realisation of assets acquired through historic merger | - | - | (101) | - | 101 | - | - |
| Transfer between reserves | - | - | - | 429 | (429) | - | - |
| Retained net revenue for the period | - | - | - | - | - | - | 136 |
| Dividends paid | - | - | - | - | (823) | - | (149) |
| At 30 April 2015 | 89 | 1,478 | 1,357 | 3,252 | 15,243 | 3,189 | 543 |
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 2015 | Six months ended 30 Apr 2014 | Year ended 31 Oct 2014 | |||
| £'000 | £'000 | £'000 | ||||
| Special reserve | 3,252 | 3,397 | 2,823 | |||
| Capital reserve - realised | 15,243 | 18,186 | 16,095 | |||
| Revenue reserve | 543 | 528 | 556 | |||
| Merger reserve - distributable element | 275 | 275 | 275 | |||
| Unrealised losses - excluding unrealised unquoted gains | (850) | (478) | (269) | |||
| 18,463 | 21,908 | 19,480 | ||||
9.Reconciliation of return on ordinary activities before taxation to net cash flow from operating activities
| | Six months ended 30 Apr 2015 | Six months ended 30 Apr 2014 | Year ended 31 Oct 2014 | ||
| £'000 | £'000 | £'000 | |||
| Return on ordinary activities before taxation | 1,935 | 4,065 | 3,248 | ||
| Gains on investments | (1,943) | (4,446) | (3,694) | ||
| Decrease/(increase) in other debtors | 88 | 40 | (23) | ||
| (Decrease)/increase in other creditors | (18) | 295 | 169 | ||
| Net cash (outflow)/inflow from operating activities | 62 | (46) | (300) |
10.Reconciliation of net cash flow to movement in net funds
| | Net funds at 1 Nov 2014 | Cash flows | Net funds at 30 Apr 2015 | ||
| £'000 | £'000 | £'000 | |||
| Cash at bank and in hand | 4,938 | (1,885) | 3,053 |
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:
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.
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 2014 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.