Chrysalis VCT PLC : Final Results

Chrysalis VCT plc
Final results for the year ended 31 October 2014

FINANCIAL SUMMARY

	31 Oct 2014 pence	31 Oct 2013 pence
Net asset value per share ("NAV")	81.90	83.50
Cumulative dividends paid per share since launch *	53.20	40.70
Total Return	135.10	124.20
(Net asset value per share plus cumulative dividends)
Dividends in respect of financial year
Interim dividend per share (paid)	1.75	1.75
Special dividend per share (paid)	7.50	-
Final proposed dividend per share	3.25	3.25
	12.50	5.00
* Excludes final proposed dividend

CHAIRMAN'S STATEMENT

*Record year for dividends at 12.5p
*2014 return triple that of 2013
*13.1% increase in net asset value over last year
*Total return on 80p investment now at 135.1p

I am delighted to present the results for the year to 2014, which has been an exceptional one for the Company. The headline achievement is that we will have paid out a total of 12.5p per share during the year under review and despite this substantial pay-out, the Net Asset Value ("NAV") per share is virtually unchanged at the year end.

The star turn was our very successful exit of our investment in Wessex Advance Switching Products Limited ("WASP"), but there has been plenty of other solid portfolio management by our team.

Chrysalis had been invested in WASP since 1999 and, as we reported in our Half Year statement, the eventual proceeds of £8.9 million were over double WASP's carrying value and produced a very healthy profit of £8.85 million on the original cost as paid by Downing Classic VCT plc.

As a result of this exit, the Company paid a special dividend of 7.5p per share in July 2014, alongside the normal interim dividend of 1.75p. Combined with the proposed final dividend of 3.25p per share, the total dividends in respect of the year to 31 October 2014 total 12.5p. Following the payment of the final dividend, total dividends paid since launch will have topped 56p.

We have achieved another significant exit from a more recent investment - Autocue, which makes the ubiquitous prompting technology used by TV presenters. We invested in June 2010, and in October 2014, we sold with a profit of around £500,000. We are hopeful of further payments being released over time from an escrow account.

Portfolio
At the year end, the Company held a portfolio of 25 venture capital investments, valued at £13.8 million. As you will see from the Investment Management Report it has been a busy year for investment activity.

In summary, the investment team has undertaken:
*four new investments;
*two follow-on investments;
*one investment restructuring; and
*two unquoted investment exits

All this went alongside loan note redemptions and other investment activities.

I believe all shareholders will join with myself and my Board colleagues in expressing our thanks for a job well done to the key executives of our investment management company, Managing Director Chris Kay and Investment Director Robert Wilson. This is a year when their skill and efforts have been fully on display.

Chris Kay provides further commentary on our portfolio companies in his Investment Management report. We are delighted to have increased our interest in the children's entertainment group, Coolabi, which is bringing "The Clangers" back to BBC TV with 26 episodes narrated by Michael Palin being aired from June 2015.  Chris also reports on investments in precision engineers, Electrobase, the digital publisher, Green Star Media and in optical image stabilisation pioneers, Cambridge Mechatronics Ltd, which has an exciting technology to reduce blur in camera phone images.

Cash and fixed income securities
The Company held £7.1 million in cash and fixed income securities at the year-end; split as cash of £4.9 million and fixed income securities of £2.2 million.

The proposed final dividend will cost the company £1 million, which leaves a healthy £3.9 million of cash ready both to make new investments and to support existing investments where required.

Management of the Company
Shareholders will be aware that our investment management fees are low compared with the VCT industry in general, at 1.6% of net assets due essentially to the self-managed structure we created in 2005.

The Board keeps this position under review, but we still believe that being self-managed remains as being in the best interests for shareholders - as evidenced by this year's results.

Net asset value, results and dividend
Shareholders have enjoyed splendid returns this year, yet despite the Company paying out dividends totalling £3.7 million during the year, the Company's NAV per share at 31 October 2014 has remained fairly static at 81.9p. In comparison to the NAV at 2013 of 83.5p, and after adjusting for dividends paid during the year, the year end results show an increase of 10.9p or 13.1% over the year.

The return on activities after taxation for the year was £3.2 million (2013: £1.1 million), comprising a revenue return of £217,000 and a capital return of £3.0 million.

The Company paid an interim dividend of 1.75p per share on 31 July 2014, together with a special dividend of 7.5p per share. Subject to Shareholder approval at the forthcoming AGM, your Board is proposing to pay a final dividend of 3.25p per share on 6 March 2015 to Shareholders on the register at 6 February 2015.

Share buybacks
The Company maintains a policy of making ad hoc share buybacks when they are offered via its broker, Nplus1 Singer Capital Markets, with a decision on whether to buy, and at what price, being taken on a case-by-case basis. 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.

During the year no such transactions occurred as investor interest mopped up all available shares in the secondary market.

We recommend that Shareholders wishing to acquire more shares, or to sell, contact the company brokers, Nplus1 Singer Capital Markets, who are usually aware of other parties looking to buy or sell.

Directors
During the year, the Fund has again had the benefit of sound counsel and support from all Directors and I have greatly appreciated the contributions of my non-executive colleagues Julie Baddeley and Martin Knight.

Annual General Meeting
The forthcoming AGM will be held at Ergon House, Horseferry Road, London SW1P 2AL at 11:00am on 25 February 2015.

Conclusion
This has, indeed, been a splendid year for the Fund and our shareholders have been the beneficiaries. But it is at times like this that we should clearly understand that strong returns do not result from mere chance. The seeds of this year's harvest were planted and nurtured over several years.

Behind the scenes this work continues as the Chrysalis team follows the Board's steady and determined strategy of seeking sound investments and backing the skills and sector knowledge of their management teams.

WASP was a particularly profitable exit, but it was no flash in the pan.

My final thanks go to all shareholders for your continued support.

Peter Harkness
Chairman

INVESTMENT MANAGEMENT REPORT

It has been both a busy and highly successful year with over £11 million being realised from the investment portfolio and £5.5 million of proceeds being invested in qualifying holdings. Since at the start of the financial year the investment portfolio was only valued at £16.2 million, that represents quite a high turnover.

The pleasing outcome of all this activity was that overall return for shareholders for the year totalled £3.2 million or 10.9p per share which is the best return for eight years and means that total return per share has more than doubled from 65.4p to 135.1p since we took over the management role in April 2004 despite that period including a major financial recession.

The stand out deal was the sale of Wessex Advanced Switching Products ("WASP") where we received £8.9 million for our equity stake, a profit of £8.85 million over the total cost of just £50,000. We are also hopeful of receiving further payments from an escrow account over the next 3 years (subject to certain conditions being met). In addition over recent years we had been receiving six figure annual dividend payments from WASP making the overall return even higher and demonstrating the reward for a long term approach since the first investment in WASP was made in 1999.

The second major exit was from a much more recent investment. We first invested in Autocue in June 2010 subscribing £300,000 in equity for an 11% stake and the company was sold in October 2014 with Chrysalis receiving £810,000 which represents an IRR of 28.2%*. Again we are hopeful of further payments being released over time from an escrow account.

In both cases we followed the management's lead in deciding when to exit since we believe that those actually working in the investee companies are best qualified to determine when is the best time to exit.

We have already been able to re-invest a significant proportion of this realised cash and a further two investments are scheduled to complete before the end of 2014 with several more in the pipeline.

Our biggest new investment was the £2.0 million invested in Coolabi Group which specialises in children's entertainment, with its business now spanning TV production, brand management and licensing, books and video games. In particular it is bringing The Clangers back to The BBC with 26 episodes, narrated by Michael Palin, being aired from June 2015. We have largely provided mezzanine finance with 90% of our investment being in high yielding loan-stock showing that the banks still seem wary of anything but very secured lending.

Our second biggest new investment was in ERP NewCo Limited which manufactures precision components for the telecommunications, electronics, defence and specialist automotive industries. We invested £1 million alongside a similar amount from Chelverton Asset Management to facilitate a partial MBI and general shareholder reorganisation which will hopefully enable Electrobase to grow substantially. The early signs are certainly encouraging.

£650,000 was also invested as development capital in Green Star Media which is a specialist consumer digital publisher concentrating on sport coaching. The deal was structured to provide some element of downside protection with the bulk of the investment being in loan stock with a redemption premium. Chrysalis is still able to structure investments in this way because we have the significant advantage of operating under the old VCT rules which allow much more flexibility than the current rules which all newly raised money has to abide by.

The final new investment of the year was a £300,000 all equity investment in Cambridge Mechatronics ("CML"). We are very excited about the prospects for CML which designs and engineers components for cameras to go in mobile phones which is a huge market.

During the year we also supported the existing portfolio by providing further investments. In February we invested £250,000 to K10 (London) to help fund its expansion. K10's second sushi restaurant is now performing well and the company is about to announce the location of its third outlet.

In March we invested a net £300,000 in Locale Enterprises which helped it to acquire its "sister" company London Italian Restaurants Ltd in which Chrysalis also had an investment. The merger has streamlined the management of Locale's restaurants and whilst trading in Locale's neighbourhood restaurants has yet to recover to pre-recession levels, its flagship site near the Millennium Wheel at the heart of London continues to perform exceptionally well.
The exits both this year and last (when 25% of the unquoted portfolio was realised) has inevitably meant that the portfolio is less mature than it was and will probably result in fewer exits this year although we are currently in meaningful discussions about the sale of one portfolio company. The earlier stage of some of our investee companies is likely to mean that trading results will be more variable with corresponding movements in valuations, however generally we are happy with the overall health of the portfolio.

We are also seeing more new opportunities than for some time and are hopeful of making some good new investments during this financial year.

Chrysalis VCT Management Limited

REVIEW OF INVESTMENTS

Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 October 2014:

	Cost	Valuation	Valuation movement in year	% of portfolio by value
	£'000	£'000	£'000
Top ten venture capital investments
Locale Enterprises Limited	2,613	2,427	(649)	11.6%
Coolabi Group Limited	1,956	2,079	123	10.0%
MyTime Media Holdings Limited	750	1,761	163	8.4%
Precision Dental Laboratories Limited	1,510	1,677	(308)	8.1%
ERP Newco Limited	1,000	1,000	-	4.8%
Internet Fusion Limited	700	900	20	4.3%
Green Star Media Limited	650	650	-	3.1%
K10 (London) Limited	600	609	(52)	2.9%
VEEMEE Limited	500	500	(323)	2.4%
Triaster Ltd	306	402	(622)	1.9%
	10,585	12,005	(1,648)	57.5%
Other venture capital investments
Ensign Communication Holdings Limited	292	335	(103)	1.6%
Livvakt Limited	550	329	-	1.6%
Life's Kitchen Limited	245	321	76	1.6%
Cambridge Mechatronics Limited	300	300	-	1.4%
Newquay Helicopters (2013) Limited	169	169	(137)	0.8%
Zappar Limited	-	160	129	0.8%
Cashfac plc	-	74	(32)	0.4%
The Mission Marketing Group plc *	150	51	17	0.2%
Progility plc *	100	9	(1)	-
The Kellan Group plc *	320	4	-	-
Rhino Sport & Leisure Limited	304	-	(273)	-
Art VPS Limited	358	-	-	-
G-Crypt Limited	305	-	-	-
IX Group Limited	250	-	-	-
Planet Sport Holdings Limited	321	-	(58)	-
	3,664	1,752	(382)	8.4%
Fixed income securities
Intermediate Capital Group plc 7%	745	741	(5)	3.5%
Provident Financial 7%	741	723	(17)	3.5%
Lloyds Banking Group 7%	724	721	(3)	3.5%
	2,210	2,185	(25)	10.5%
	16,459	15,942	(2,055)	76.4%
Cash at bank and in hand		4,938		23.6%
Total investments		20,880		100%

All investments are unquoted unless otherwise stated.

Investment movements for the year ended 31 October 2014

Additions

	£'000
New venture capital investments
Coolabi Group Limited	1,956
ERP Newco Limited	1,000
Green Star Media Limited	650
Cambridge Mechatronics Limited	300
Follow-on venture capital  investments
Locale Enterprises Limited**	1,300
K10 (London) Limited	250
Planet Sports Holding Limited	58
	5,514
Fixed income securities
Intermediate Capital Group plc 7%	745
Lloyds Banking Group 7%	724
Provident Financial 7%	741
	2,210
Total investments	7,724

Disposals

	Cost	Value at 01/11/13*	Proceeds	Gain/ (loss) vs cost	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	500	811	1,011	511	200
Global 3 Digital Limited	-	-	1	1	1
Life's Kitchen Limited	10	10	10	-	-
Locale Enterprises Limited	25	25	25	-	-
London Italian Restaurants Limited**	1,000	437	1,000	-	563
Newquay Helicopters (2013) Limited	126	126	217	91	91
Precision Dental Laboratories Limited	200	200	200	-	-
Triaster Limited	110	110	110	-	-
Wessex Advanced Switching Products Ltd	704	4,115	8,919	8,215	4,804
Dissolution/liquidation and retention
Kids Safetynet Limited	637	-	-	(637)	-
Retentions	-	-	87	87	87
	3,393	5,898	11,650	8,257	5,752
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)
	424	432	429	5	(3)
Total	3,817	6,330	12,079	8,262	5,749

* Adjusted for purchases in the year where applicable
** The consideration for London Italian Restaurants Limited was partly settled by Shares in Locale Enterprises Limited

STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Directors' Report, the Strategic Report and the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Conduct Authority.

Company law requires the Directors to prepare financial statements for each financial year. Under that law, the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

* select suitable accounting policies and then apply them consistently;
* make judgments and accounting estimates that are reasonable and prudent;
* state whether applicable UK Accounting Standards have been followed, subject to any material departures   disclosed and explained in the financial statements; and
*prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's performance, business model and strategy.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.

By order of the Board

Grant Whitehouse
Secretary of Chrysalis VCT plc

INCOME STATEMENT
for the year ended 31 October 2014

	2014					2013
	Revenue	Capital	Total			Revenue	Capital	Total
	£'000	£'000	£'000			£'000	£'000	£'000
Income	651	-	651			966	-	966
Gains on investments	-	3,694	3,694			-	922	922
	651	3,694	4,345			966	922	1,888
Investment management fees	(109)	(328)	(437)			(103)	(308)	(411)
Performance incentive fees	-	(366)	(366)			-	(98)	(98)
Other expenses	(266)	(28)	(294)			(252)	(20)	(272)
Return on ordinary activities before tax	276	2,972	3,248			611	496	1,107
Tax on ordinary activities	(59)	59	-			(92)	92	-
Return attributable to equity shareholders	217	3,031	3,248			519	588	1,107
Basic and diluted return per share	0.7p	10.2p	10.9p			1.7p	2.0p	3.7p

All Revenue and Capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. The total column within the Income Statement represents the profit and loss account of the Company.

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

Other than revaluation movements arising on investments held at fair value through the profit or loss account, there were no differences between the return as stated above and historical cost.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 October 2014

	2014	2013
	£'000	£'000
Opening Shareholders' funds	24,979	25,168
Issue of shares	-	326
Issue of shares under Share Realisation and Reinvestment Programme	-	6,985
Share issue costs	-	(90)
Purchase of own shares under Share Realisation and Reinvestment Programme	-	(7,020)
Total recognised gains for the year	3,248	1,107
Dividends paid	(3,740)	(1,497)
Closing Shareholders' funds	24,487	24,979

BALANCE SHEET
at 31 October 2014

		2014	2013
	£'000	£'000	£'000	£'000
Fixed assets
Investments		15,942		16,603
Current assets
Debtors	3,876		2,031
Cash at bank and in hand	4,938		6,445
	8,814		8,476
Creditors: amounts falling due within one year	(269)		(100)
Net current assets		8,545		8,376
Net assets		24,487		24,979
Capital and reserves
Called up share capital		299		299
Capital redemption reserve		89		89
Share premium		1,478		1,478
Merger reserve		1,458		1,981
Special reserve		2,823		2,320
Capital reserve - realised		16,095		11,051
Capital reserve - unrealised		1,689		7,122
Revenue reserve		556		639
Total equity shareholders' funds		24,487		24,979
Net asset value per share		81.9p		83.5p

CASH FLOW STATEMENT
for the year ended 31 October 2014

	2014	2013
	£'000	£'000
Net cash (outflow)/inflow from operating activities	(300)	260
Taxation	-	-
Capital expenditure
Payments to acquire investments	(7,162)	(1,970)
Receipts from sale of investments	9,695	5,809
Net cash inflow from capital expenditure	2,533	3,839
Equity dividends paid	(3,740)	(1,497)
Net cash (outflow)/inflow before management  of liquid resources and financing	(1,507)	2,602
Management of liquid resources
Redemption of current investment	-	2,000
Net cash inflow from liquid resources	-	2,000
Financing
Proceeds from shares issued	-	326
Proceeds from shares issued under Share Realisation and Reinvestment Programme	-	6,985
Share issue costs	-	(90)
Purchase of own shares	-	(48)
Purchase of own shares under Share Realisation and Reinvestment Programme	-	(7,020)
Net cash inflow from financing	-	153
(Decrease)/increase in cash	(1,507)	4,755

NOTES TO THE ACCOUNTS
for the year ended 31 October 2014

1.Accounting policies

Basis of accounting
The Company has prepared its financial statements under UK Generally Accepted Accounting Practice and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" January 2009 ("SORP").

The financial statements are prepared under the historical cost convention except for certain financial instruments measured at fair value and on the basis that it is not required to prepare consolidated accounts. The Company's accounts therefore present information about it as an individual undertaking rather than as a group undertaking.

The Company implements new Financial Reporting Standards issued by the Accounting Standards Board 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. 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. 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 FRS26.

Fixed income investments and investments quoted on AIM are measured using bid prices in accordance with the IPEV.

For unquoted investments, 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 controlling 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 that does 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 management 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 from the disposal of investments are deducted 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 arises.

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.

2.Basic and diluted return per share

	2014	2013
Return per share based on:
Net revenue return for the financial year (£'000)	217	519
Capital return per share based on:
Net capital gain for the financial year (£'000)	3,031	588
Weighted average number of shares in issue	29,917,025	29,864,316

As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share. The return per share disclosed therefore represents both basic and diluted return per share.

3.Basic and diluted net asset value per Ordinary Share

	Shares in issue			2014 Net asset value		2013 Net asset value
	2014	2013		Pence per share	£'000		Pence per share	£'000
Ordinary Shares	29,917,025	29,917,025		81.9p	24,487		83.5p	24,979

As the Company has not issued any convertible securities or share options, there is no dilutive effect on net asset value per share. The net asset value per share disclosed therefore represents both basic and diluted return per share.

4.Principal risks

The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are:

*Investment risks;
*Credit risk; and
*Liquidity risk.

The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.

The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year-end are provided below:

Investment risks
As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these investment risks is a fundamental part of investment activities undertaken by Chrysalis VCT Management Limited and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.

The key investment risks to which the Company is exposed are:

*Investment price risk; and
*Interest rate risk.

The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review in order to ascertain the appropriate risk allocation.

Investment price risk
Market price risk arises from uncertainty about the future prices and valuations of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through market price movements in respect of quoted investments and also changes in the fair value of unquoted investments that it holds.

Interest rate risk
The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers and on liquidity funds at rates based on the underlying investments. Investments in loan stock and fixed interest investments attract interest predominantly at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.

Interest rate risk profile of financial assets and financial liabilities
There are three levels of interest which are attributable to the financial instruments as follows:

*"Fixed rate" assets represent investments with predetermined yield targets and comprise fixed interest and loan note investments.
*"Floating rate" assets predominantly bear interest at rates linked to Bank of England base rate and comprise cash at bank.
*"No interest rate" assets do not attract interest and comprise equity investments, loans and receivables (excluding cash at bank) and other financial liabilities.

The Company monitors the level of income received from fixed, floating and non interest rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.

Credit risk
Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, investments in liquidity funds, cash deposits and debtors.

The Manager manages credit risk in respect of loan stock with a similar approach as described under Investment risks above. In addition the credit risk is partially mitigated by registering floating charges over the assets of certain investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. The level of security is a key means of managing credit risk. Similarly, the management of credit risk associated interest, dividends and other receivables is covered within the investment management procedures.

Cash is mainly held at Royal Bank of Scotland plc with a balance also maintained at Bank of Scotland plc, both of which are A-rated financial institutions and ultimately part-owned by the UK Government. Consequently, the Directors consider that the risk profile associated with cash deposits is low.
There have been no changes in fair value during the year that can be directly attributable to changes in credit risk.

Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. The Company usually has a relatively low level of creditors (2014: £269,000, 2013: £100,000) and has no borrowings. The Company always holds sufficient levels of funds as cash and readily realisable investments in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company's exposure to liquidity risk is minimal.

The Company's liquidity risk is managed by Chrysalis VCT Management Limited in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.

5. Related party transactions
Chrysalis VCT Management Limited, a wholly owned subsidiary, provides investment management services to the Company for a fee of 1.65% of net assets per annum. During the year, £437,000 (2013: £411,000) was paid to Chrysalis VCT Management Limited in respect of these fees. No amounts were outstanding at the year end.

A performance incentive fee is payable to Chrysalis VCT Management Limited based on realisations from all investments excluding quoted loan notes, redemptions of loan notes in the normal course of business and other treasury functions. The performance incentive fee is the greater of 1% of the cash proceeds of any exit or 5% of the gain to the Company after all exit costs for investments made after 30 April 2004 reduced to 2.5% of investments made prior to 30 April 2004. During the year performance incentive fees of £366,000 (2013: £98,000) were due to Chrysalis VCT Management Limited. At the year end, £218,000 was outstanding and payable (2013: £46,000).

Peter Harkness holds a position of significant influence within MyTime Media Holdings Limited (formerly MyHobbyStore Holding Limited), an investment held by the Company, and therefore abstains from discussions surrounding the valuation or investment decisions regarding the company. Details of the investment, including cost, valuation and income received during the year are shown within the Annual Report

Martin Knight holds a position of significant influence within Cambridge Mechatronics Limited, an investment held by the Company, and therefore abstains from discussions surrounding the valuation or investment decisions regarding the company. Details of the investment, including cost and valuation are shown within the Annual Report

ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 October 2014, but has been extracted from the statutory financial statements for the year ended 31 October 2014, which were approved by the Board of Directors on 19 December 2014 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s498(2) and (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 October 2013 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.

A copy of the full annual report and financial statements for the year ended 31 October 2014 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Ergon House, Horseferry Road, London, SW1P 2AL and will be available for download from www.downing.co.uk.