Chrysalis VCT PLC : Half-yearly report

CHRYSALIS VCT PLC
HALF-YEARLY REPORT FOR THE SIX MONTHS ENDED 30 APRIL 2013

RECENT PERFORMANCE SUMMARY

CHAIRMAN'S STATEMENT

Introduction
Your Fund has had a busy and successful six months and, as a result I am delighted to announce that we are able to pay an interim dividend of 1.75p per share, matching the payment we made last year.

We were pleased with the response from Shareholders to the share reinvestment programme which produced acceptances covering more than a quarter of our total shares in issue.  A modest amount of additional capital was raised at the same time.

At the annual general meeting, I referred to an expected in-flow of funds from exits which we had hoped would materialise in the last financial year but which had been delayed by extended negotiations. Happily that exit, of the majority of our debt interest in British International Helicopters, has now been repaid.

We have also exited our investment in Knowledge Pool, at a good uplift.

Both of these transactions took place after the half-year date and will be fully reported in the annual accounts.

Share Realisation and Reinvestment Programme ("SRRP")
In January 2013, the Company launched a Share Realisation and Reinvestment Programme offer providing Shareholders the option to sell their shares back to the Company via a tender offer and reinvest the proceeds in new shares. The programme allowed the Company to provide Shareholders with an incentive for remaining invested in the Company for a further five years by offering further income tax relief on their new investment.

With many of the Company's Shareholders having originally invested many years ago, the opportunity for further income tax relief was well received, with approximately 26% of shares participating. 8,246,579 shares were purchased for cancellation at a price of 84.5p per share and 7,998,908 new shares were allotted in respect of the tender proceeds at a price of approximately 87.1p per share.

Fundraising activities
The Company launched a top-up offer in conjunction with the SRRP. I am pleased to report that £326,000 was raised under the offer, with 374,275 shares being issued at 87.1p per share.

Net asset value, results and dividends
At 30 April 2013, the net asset value per share ("NAV") stood at 82.5p, an increase of 1.2p (1.5%) since the previous year end of 31 October 2012 (after adjusting for the 3.25p dividend paid on 29 April 2013).

The total return to Shareholders who invested at the launch of the Company in 2000 (NAV plus cumulative dividends) is now 121.5p 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 £272,000, comprising a revenue return of £380,000 and a capital loss of £108,000.

The Company will pay an interim dividend of 1.75p per share on 31 July 2013 to Shareholders on the register at 5 July 2013 in respect of the year to 31 October 2013. This will bring the total distributions paid to Shareholders since inception to 40.7p per share.

Venture capital investments
Over the past six months, the overall performance of the portfolio has been satisfactory, with the portfolio rising in value by £36,000.

During the period, the Company undertook two follow-on investments in British International Holdings Limited and Rhino Sport and Leisure Limited, totalling £264,000.  Life's Kitchen and Triaster have each repaid a proportion of the loan stock held and, since the period end, further repayments have been received from both companies.

As I mentioned, we exited from Knowledge Pool following a trade sale to Capita.  Compared to a number of the investments within the portfolio, Knowledge Pool has been held for a relatively short amount of time and we are pleased to report a profit of just under £800,000 on the sale.

British International Holdings repaid loan notes totalling £1 million at the end of May following the sale of its helicopter contracts.  We expect the remaining equity and loan note to be sold in due course.

The Manager is now seeking opportunities to invest these additional funds.

Fixed income securities
During the period, the Company has reduced its exposure in UK gilts, such that at the period end the portfolio was valued at £436,000. Unrealised losses arising in the period were £4,000, with a small gain being recognised upon the sale of one gilt.

Due to the unattractive yield from bank deposits, we are looking to hold part of the Company's cash in a small portfolio of corporate bonds.

Share buybacks
The Fund maintains a policy of making ad hoc share purchases; however, during the six month period, all share buybacks occurred via the SRRP facility previously discussed.

If shares are offered to the Fund via its broker, Nplus1 Singer Capital Markets, a decision on whether to buy, and at what price, is taken on a case-by-case basis.

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.

Due to the "close period" rules, which apply to Chrysalis as a listed investment trust, there are limited occasions on which the Fund can enter the market and buy shares. 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. We will continue to consider ad hoc purchases when shares are offered, but we are pleased that the market is also providing liquidity for those who wish to sell.

Outlook
Shareholders will be aware from the last Annual Report that we have maintained a tight control of the portfolio and been cautious in our investment policy.

This has clearly been the right tactic and while we continue to be circumspect, a degree of optimism is returning to some business sectors and decent companies, which have held off making an investment in their business during the last few years, are starting to look for development capital.

I am grateful, as ever, for the support and commitment of my colleagues on the Board and in the investment team and would particularly like to thank our company secretariat and advisers for such an excellent job on the SRRP scheme.

Peter Harkness

Chairman

SUMMARY OF INVESTMENT PORTFOLIO
as at 30 April 2013

All venture capital investments are unquoted unless otherwise stated.

SUMMARY OF INVESTMENT MOVEMENTS
for the six months ended 30 April 2013

Additions

Disposals

* Adjusted for purchases in the period where applicable

UNAUDITED INCOME STATEMENT

for the six months ended 30 April 2013

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 SUMMARISED BALANCE SHEET

as at 30 April 2013

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

for the six months ended 30 April 2013

UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 April 2013

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

1. The unaudited half yearly financial results cover the six months to 30 April 2013 and have been prepared in accordance with the accounting policies set out in the statutory accounts for the year ended 31 October 2012 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 2012 and the year ended 31 October 2012 respectively.

4. Basic and diluted return per share

5. Dividends paid

6. Basic and diluted net asset value per share

7. Called up share capital

Between 4 April 2013 and 11 April 2013, the following transactions took place under the Share Realisation and Reinvestment Programme:

• 8,246,579 shares were purchased for cancellation at a price of 84.5p per share; and 

• 7,998,908 shares were allotted in respect of the shares tendered for cancellation at a price of approximately 87.1p per share. 

Between 4 April 2013 and 11 April 2013, 374,275 shares were allotted at a price of 87.1 per share as a result of new subscriptions under an Open Offer.  Issue costs in respect of the offer amounted to £74,000.

8. 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:

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

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

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:

1. investment risk associated with investing in small and immature businesses; and 

2. 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.

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:

1. investment risk associated with investing in small and immature businesses; and 

2. 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:

1. 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  

2. 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 2012 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.