Chrysalis VCT plc
Half-Yearly Report for the six months ended 30 April 2018
Recent performance summary
| 30 April 2018 | 30 April 2017 | 31 October 2017 | |
| Pence | Pence | pence | |
| Net asset value per share | 78.00 | 84.30 | 80.00 |
| Cumulative dividends paid per share | 78.70 | 70.70 | 75.45 |
| Total return | 156.70 | 155.00 | 155.45 |
CHAIRMAN'S STATEMENT
Introduction
I am pleased to present my statement for the six months ended 30 April 2018. The portfolio has continued to perform satisfactorily over the period.
Net asset value and results
At 30 April 2018, the net asset value per share ("NAV") stood at 78.0p, an increase of 1.25p (1.6%) since the previous year end of 31 October 2017, after adding back the 3.25p dividend paid on 2 March 2018.
The Total Return to Shareholders who invested at the launch of the Company in 2000 (NAV plus cumulative dividends) is now 156.7p 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 £346,000, comprising a revenue return of £49,000 and a capital return of £297,000.
Market developments and future strategy
As announced in my statement in last year's annual report the Board has conducted a further review of market developments and has considered carefully the options that may be available to the Company.
The recent and prospective changes in Venture Capital Trust regulations substantially prohibit the style of structured investment that the Investment Manager has historically deployed so successfully. At the same time, the universe of eligible companies has been significantly reduced and the pool of funds seeking to invest in qualifying companies has expanded, not least due to changes in taxation in areas such as pension contributions and inheritance tax. In the view of the Board, this leaves the Investment Manager significantly less well placed to source and execute transactions that are likely to yield good returns to Shareholders. The Investment Manager also has limited ability to make follow on investments in existing portfolio companies, due to a combination of the new rule changes and the increasing concentration within the portfolio. For these reasons, the Board expects further investment activity to remain rather more muted.
The Board is however confident that the existing portfolio is likely to deliver attractive realisations over time. Mindful of regulatory requirements, in particular current and prospective restrictions on the amount of capital than can be held outside qualifying investments, it is proposed that further distributions of capital to Shareholders will be made to assist in continuing to comply with the regulations. The Board has therefore decided that, in addition to its established policy of distributing regular interim and final dividends totalling 5p per share per annum, it will pay additional special dividends as and when realisations provide liquidity.
The Board also believes it is now appropriate to adopt a more active approach to share buybacks and in future intends to conduct buybacks, subject to market conditions and any liquidity or regulatory restrictions, at a target discount of 15% to the latest published NAV. The 15% discount level has been carefully considered by the Board and selected to take account of the particular characteristics of the Company's investment portfolio.
Any Shareholders wishing to buy or sell shares in the Company may wish to consider contacting the Company's broker, Nplus1 Singer Capital Markets, who will be able to provide details of share availability and likely timings in respect of buybacks. There were no share buybacks in the period under review.
The Board recognises that over time the consequences of the above decisions will probably be to reduce the size of the Company to the point where its cost base relative to its net assets becomes inappropriate. The Board will address this issue in a timely manner.
Venture capital portfolio
Portfolio activity
During the six months to 30 April 2018, a restructuring resulted in a partial exit from MyTime Media Holdings Limited. This produced a realised loss of £137,000, but this has been offset by an unrealised uplift £140,000 on the remaining holding. The related investment in Hoop Holdings Limited was also exited in full at a small gain in the period.
During the period, Internet Fusion Limited, an e-commerce business from which the Company exited in 2017, generated deferred consideration of £608,000. As the full cost of the investment was treated as disposed when the exit took place in 2017, the cash generated represents a pure profit for the Company. This investment has yielded an excellent outcome for Shareholders.
No new or follow-on investments were made during the period.
Since the period end, I am pleased to announce that a further investment, Inaspect, has been sold at a price that represents a significant gain against cost and was approximately equal to carrying value at 30 April 2018.
Valuations
The Board has reviewed the valuations of the unquoted portfolio and a number of adjustments have been made accordingly. As a whole, the fair value movements in respect of unquoted investments amounted to a net uplift of £23,000.
The most significant fair value adjustment was a £362,000 reduction in respect of Precision Dental Laboratories, in order to bring the valuation in line with likely market value.
Cambridge Mechatronics Limited, a high technology design and engineering company, was uplifted by £330,000 during the period. The investment was revalued to reflect the price of the company's latest funding round.
Coolabi Group Limited, a media group and rights owner, and now the Company's largest investment by value, was uplifted by £275,000 in line with value which accrues on the preferred element of this investment.
Locale Enterprises Limited, an Italian restaurant operator, has suffered a decline in turnover and the valuation has been reduced by £218,000 accordingly.
Non-qualifying portfolio
The Company continues to hold a portfolio of two fixed income bonds, valued at £1.5 million at the period end. The unrealised capital loss on the portfolio during the period was £32,000, however the Company also received interest of £45,000.
The investment in Impact Healthcare REIT plc, an investment trust which holds a portfolio of care homes, was uplifted by £4,000 in line with the quoted bid price at the period end.
Dividends
In line with the policy discussed above, the Company will pay a standard interim dividend of 1.75p per share. In view of the disposals that have taken place in the period, the Company will also pay a special dividend of 3p per share, bring the total to 4.75p per share. The total dividend will be paid on 3 August 2018 to Shareholders on the register at 6 July 2018.
Following the payment of the dividend, Shareholders who invested at launch will have received distributions totalling 83.45p per share.
I look forward to updating Shareholders on developments in my statement in the Annual Report, which I expect to be published in December or January.
Martin Knight
Chairman
SUMMARY OF INVESTMENT PORTFOLIO
as at 30 April 2018
| Cost | Valuation | Valuation movement in the period | % of portfolio by value | |
| £'000 | £'000 | £'000 | ||
| Top ten venture capital investments | ||||
| Coolabi Group Limited | 3,456 | 4,869 | 275 | 20.9% |
| Locale Enterprises Limited | 2,513 | 2,336 | (218) | 10.0% |
| Zappar Limited | 300 | 2,161 | - | 9.3% |
| Precision Dental Laboratories Limited | 1,110 | 1,367 | (364) | 5.8% |
| Cambridge Mechatronics Limited | 366 | 1,172 | 329 | 5.1% |
| K10 (London) Limited | 950 | 1,110 | (7) | 4.8% |
| Driver Require Limited | 520 | 902 | (59) | 3.9% |
| MyTime Media Holdings Limited | 56 | 848 | 140 | 3.6% |
| Green Star Media Limited | 650 | 667 | (52) | 2.8% |
| IX Group Limited | 250 | 340 | 1 | 1.4% |
| 10,171 | 15,772 | 45 | 67.6% | |
| Other venture capital investments | 3,764 | 867 | (26) | 3.7% |
| Fixed income securities | ||||
| Lloyds Banking Group 7% perp | 724 | 760 | (19) | 3.3% |
| Intermediate Capital Group plc 7% 21/12/18 | 746 | 700 | (14) | 3.0% |
| 1,470 | 1,460 | (33) | 6.3% | |
| Other investments | ||||
| Impact Healthcare REIT Plc* | 750 | 769 | 4 | 3.3% |
| 750 | 769 | 4 | 3.3% | |
| 16,155 | 18,868 | (10) | 80.9% | |
| Cash at bank and in hand | 4,449 | 19.1% | ||
| Total investments | 23,317 | 100.0% |
All venture capital investments are unquoted unless otherwise stated.
*Listed and traded on the Main Market of the London Stock Exchange.
SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 30 April 2018
Disposals
| Cost | Value at 1 Nov 2017 | Disposal proceeds | Gain/(loss) against cost | Total realised gain | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Venture capital investments | |||||
| Disposals | |||||
| Hoop Holdings Limited | 150 | 135 | 150 | - | 15 |
| MyTime Media Holdings Limited | 20 | 257 | 120 | 100 | (137) |
| Earn-out | |||||
| Internet Fusion Limited | - | - | 608 | 608 | 608 |
| 170 | 392 | 878 | 708 | 486 |
UNAUDITED INCOME STATEMENT
for the six months ended 30 April 2018
| Six months ended 30 Apr 2018 | Six months ended 30 Apr 2017 | Year ended 31 Oct 2017 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| Income | 235 | - | 235 | 302 | - | 302 | 576 | ||
| Net gains on investments | |||||||||
| - realised | - | 486 | 486 | - | 1,110 | 1,110 | 1,301 | ||
| - unrealised | - | (10) | (10) | - | 1,072 | 1,072 | 1,110 | ||
| 235 | 476 | 711 | 302 | 2,182 | 2,484 | 2,987 | |||
| Investment management fees | (49) | (148) | (197) | (50) | (150) | (200) | (408) | ||
| Performance incentive fees | - | (37) | (37) | - | (106) | (106) | (127) | ||
| Other expenses | (130) | (1) | (131) | (136) | - | (136) | (274) | ||
| Return on ordinary activities before taxation | 56 | 290 | 346 | 116 | 1,926 | 2,042 | 2,178 | ||
| Tax on total comprehensive income and ordinary activities | (7) | 7 | - | (20) | 20 | - | - | ||
| Return attributable to equity shareholders | 49 | 297 | 346 | 96 | 1,946 | 2,042 | 2,178 | ||
| Return per share | 0.2p | 1.0p | 1.2p | 0.3p | 6.5p | 6.8p | 7.3p | ||
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 2018
| | 30 Apr 2018 | 30 Apr 2017 | 31 Oct 2017 | |||
| £'000 | £'000 | £'000 | ||||
| Fixed assets | ||||||
| Investments | 18,868 | 19,978 | 19,269 | |||
| Current assets | ||||||
| Debtors | 88 | 66 | 180 | |||
| Cash at bank and in hand | 4,449 | 5,327 | 4,559 | |||
| 4,537 | 5,393 | 4,739 | ||||
| Creditors: amounts falling due within one year | (84) | (138) | (61) | |||
| Net current assets | 4,453 | 5,255 | 4,678 | |||
| Net assets | 23,321 | 25,233 | 23,947 | |||
| Capital and reserves | ||||||
| Called up share capital | 299 | 299 | 299 | |||
| Capital redemption reserve | 89 | 89 | 89 | |||
| Share premium | 1,478 | 1,478 | 1,478 | |||
| Merger reserve | 1,357 | 1,357 | 1,357 | |||
| Special reserve | 562 | 924 | 602 | |||
| Capital reserve - realised | 13,443 | 14,800 | 13,715 | |||
| Capital reserve - unrealised | 5,569 | 5,708 | 5,902 | |||
| Revenue reserve | 524 | 578 | 505 | |||
| Equity shareholders' funds | 23,321 | 25,233 | 23,947 | |||
| Net asset value per share | 78.0p | 84.3p | 80.0p | |||
STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 April 2018
| 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 2017 | 299 | 89 | 1,478 | 1,357 | 602 | 13,715 | 5,902 | 505 | 23,947 | |
| Total comprehensive income | - | - | - | - | - | 307 | (10) | 49 | 346 | |
| Realisation of impaired valuations | - | - | - | - | - | 101 | (101) | - | - | |
| Transfers between reserves | - | - | - | - | (40) | 262 | (222) | - | - | |
| Transactions with owners | ||||||||||
| Dividends paid | - | - | - | - | - | (942) | - | (30) | (972) | |
| At 30 April 2018 | 299 | 89 | 1,478 | 1,357 | 562 | 13,443 | 5,569 | 524 | 23,321 | |
UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 April 2018
| | Six months ended 30 Apr 2018 | Six months ended 30 Apr 2017 | Year ended 31 Oct 2017 | |||
| £'000 | £'000 | £'000 | ||||
Cash flows from operating activities | ||||||
Return on ordinary activities before taxation | 346 | 2,042 | 2,178 | |||
Gains on investments | (476) | (2,182) | (2,411) | |||
Decrease/(increase) in other debtors | 92 | 22 | (92) | |||
Increase/(decrease) in other creditors | 22 | 84 | 8 | |||
Net cash outflow from operating activities | (16) | (34) | (317) | |||
| | ||||||
Cash flows from investing activities | ||||||
Proceeds from disposal of investments | 878 | 3,222 | 4,409 | |||
Purchase of investments | - | (1,050) | (1,300) | |||
Net cash inflow from investing activities | 878 | 2,172 | 3,109 | |||
| | ||||||
Net cash inflow before financing activities | 862 | 2,138 | 2,792 | |||
| | ||||||
Cash flows from financing activities | ||||||
Equity dividends paid | (972) | (972) | (2,394) | |||
Net cash outflow from financing activities | (972) | (972) | (2,394) | |||
| (Decrease)/increase in cash | (110) | 1,166 | 398 | |||
Net movement in cash | ||||||
| Beginning of the year | 4,559 | 4,161 | 4,161 | |||
| Net cash (outflow)/inflow | (110) | 1,166 | 398 | |||
| End of the year | 4,449 | 5,327 | 4,559 | |||
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 2018 and have been prepared in accordance with the accounting policies set out in the annual accounts for the year ended 31 October 2017 and in accordance with the Financial Reporting Standard 102 ("FRS 102") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" revised November 2014 ("SORP").
3.The comparative figures were in respect of the six months ended 30 April 2017 and the year ended 31 October 2017 respectively.
4. Basic and diluted return per share
| Six months ended 30 Apr 2018 | Six months ended 30 Apr 2017 | Year ended 31 Oct 2017 | |||
| Return per share based on: | |||||
| Net revenue return for the period (£'000) | 49 | 96 | 173 | ||
| Capital return per share based on: | |||||
| Net capital gain for the period (£'000) | 297 | 1,946 | 2,005 | ||
| Weighted average number of shares | 29,917,025 | 29,917,025 | 29,917,025 |
5. Basic and diluted net asset value per share
| Six months ended 30 Apr 2018 | Six months ended 30 Apr 2017 | Year ended 31 Oct 2017 | |||
| Net asset value per share based on: | |||||
| Net assets (£'000) | 23,321 | 25,233 | 23,947 | ||
| Number of shares in issue at the period end | 29,917,025 | 29,917,025 | 29,917,025 | ||
| Net asset value per share | 78.0p | 84.3p | 80.0p |
6. Called up share capital
| Shares in issue | £'000 | |||
| Period ended 30 April 2018 | 29,917,025 | 299 | ||
| Period ended 30 April 2017 | 29,917,025 | 299 | ||
| Year ended 31 October 2017 | 29,917,025 | 299 |
7. 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 2018 | Six months ended 30 Apr 2017 | Year ended 31 Oct 2017 | |||
| £'000 | £'000 | £'000 | ||||
| Special reserve | 562 | 924 | 602 | |||
| Capital reserve - realised | 13,443 | 14,800 | 13,715 | |||
| Revenue reserve | 524 | 578 | 505 | |||
| Merger reserve - distributable element | 276 | 276 | 276 | |||
| Unrealised losses - excluding unrealised unquoted gains | (338) | (161) | (119) | |||
| 14,467 | 16,417 | 14,979 | ||||
8. 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;
- 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.
9. 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.
10. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with FRS 104 Interim Financial Reporting and the Half-Yearly 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.
11. 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 2017 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.
12. 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.chrysalisvct.co.uk.