Chrysalis VCT plc
Reports & Accounts for the year ended 31 October 2015
FINANCIAL SUMMARY
| 31 Oct 2015 pence | 31 Oct 2014 pence | ||
| Net asset value per share ("NAV") | 81.30 | 81.90 | |
| Cumulative dividends paid per share since launch * | 60.45 | 53.20 | |
| Total Return | 141.75 | 135.10 | |
| (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) | 2.25 | 7.50 | |
| Final proposed dividend per share | 3.25 | 3.25 | |
| 7.25 | 12.50 | ||
| * Excludes final proposed dividend |
CHAIRMAN'S STATEMENT
*8.1% increase in net asset value over last year
*Total return on 80p investment now at 141.75p
I am pleased to present the annual results for Chrysalis VCT plc for the year ended 31 October 2015. It has been another strong year for your Company, with performance that has allowed tax-free dividends totalling 7.25p per share to be paid to Shareholders while maintaining the net asset value per share ("NAV") at a steady level.
The overall performance has been driven by generally improving valuations across the majority of the portfolio companies, along with the receipt of further deferred consideration from the disposal of Wessex Advance Switching Products Limited ("WASP") that took place in 2014.
Portfolio
At the year end, the Company held a portfolio of 27 venture capital investments, valued at £16.8 million. There was a fair level of new investment activity during the year with two new companies joining the portfolio and five follow-on investments also being completed at a total of cost of £2.5 million.
There were a number of loan stock redemptions which generated proceeds of £955,000, as well as the deferred consideration from WASP mentioned above which added a further £438,000 to the total.
As usual, the Board has reviewed the investment valuations at the year end and made a number of adjustments. 15 investments increased in value, five investments fell in value and seven were unchanged. The largest movers have been Coolabi Group, the IPR brand management company behind children's TV programme "The Clangers", Zappar (Holding) Limited, a mobile app business, and Internet Fusion Limited, the online retailer, which have increased by £404,000, £590,000 and £372,000 respectively. On the negative side, we have had to make a full provision of £500,000 against VEEMEE Limited, another mobile software business, which has failed to make satisfactory progress. Total unrealised movements for the year on the venture capital portfolio resulted in a net gain of £1.5 million, equivalent to approximately 5.0p per share.
The Investment Manger's Report gives a detailed overview of the portfolio activity during the year and of the main valuation movements.
Cash and fixed income securities
The Company held £7.4 million in cash and fixed income securities at the year-end; split between cash of £5.2 million and fixed income securities of £2.2 million.
Net asset value, results and dividends
The Company's NAV fell marginally from 81.9p to 81.3p over the year as a result of a slight excess of dividends paid over net earnings. Adding back the dividends of 7.25p paid, the total return for the year was equivalent to 8.1% based on the opening NAV.
The return on activities after taxation for the year was £2 million (2014: £3.2 million), comprising a revenue return of £296,000 and a capital return of £1.7 million.
The Company paid a final 2014 dividend of 3.25p per share on 6 March 2015. An interim 2015 dividend of 1.75p per share was combined with a special dividend of 2.25p per share making a total of 4.00p per share paid on 8 May 2015.
Subject to Shareholder approval at the forthcoming AGM, your Board is proposing to pay a final 2015 dividend of 3.25p per share on 26 February 2016 to Shareholders on the register at 28 January 2016.
Share buybacks
The Board regularly reviews the Company's share buyback policy and continues to maintain a strategy of considering ad hoc share buybacks when shares are offered via its broker, Nplus1 Singer Capital Markets.
The Directors remain of the view that, in general, the Company's resources are best utilised in paying tax free dividends to Shareholders, which benefits the full Shareholder base.
There were no share buybacks undertaken during the year.
We recommend that any Shareholders wishing to either acquire more shares, or to sell existing holdings, contact the Company's broker, Nplus1 Singer Capital Markets, who are often aware of other parties looking to buy or sell.
Management Structure and Board
Shareholders will be aware that Chrysalis VCT plc is unusual in that it is a self-managed Venture Capital Trust ("VCT"), whose day to day operations are run by our wholly-owned management subsidiary, Chrysalis Management VCT Limited, headed by Chris Kay.
The Board remains satisfied that this structure is appropriate for Chrysalis and that the management company, run by Chris Kay and his team, can continue to deliver the strong results that we have seen in recent years into the future. I would like to thank Chris Kay and his team for their continuing good management of the portfolio during the year.
Chrysalis is also somewhat unusual in having a Board of just three non-executives; comprising Julie Baddeley, Martin Knight and myself. We believe that this structure continues to operate effectively and economically and adds value for Shareholders. I would like to take this opportunity to thank Julie and Martin for their ongoing valuable contributions through what has been another successful year.
New VCT Rules
Shareholders may be aware of some significant changes to the VCT rules that have been introduced as a result of the Summer Budget. These changes have been introduced by the UK Government, but were inspired by the EU.
The rules introduce new restrictions on the type of investments which can be made by VCTs, specifically prohibiting VCT funds being from being used to finance management buy-outs or for the acquisition of existing businesses. The rules also impose a maximum lifetime amount a company can receive from VCTs, as well as imposing a maximum age for companies which receive VCT funding of seven years (or ten years in the case of "knowledge-intensive" companies).
It is frustrating to see these new inhibitions as the VCT sector, in my opinion and the opinion of many others, has been a significant driver of growth in the UK SME sector. I believe that the new regulations will inhibit investment activity, rather than encouraging it.
The new restrictions, which apply to non-qualifying holdings as well as VCT qualifying holdings, took effect for investments made on or after 18 November 2015. The potential penalty for breach of these regulations is withdrawal of VCT status.
It seems clear that the new rules will have a significant impact on many VCTs and your Board has reviewed the potential impact on Chrysalis VCT. We have concluded that, while it is clear that some types of investment that would otherwise have been considered cannot now be pursued, the fact that the Company already has in excess of 70% of its funds invested in VCT qualifying investments means that there is no immediate pressure.
The Board believes that Chrysalis has time to assess the exact manner in which the new rules will be applied by HMRC and time to generate suitable dealflow which falls within the new parameters. The new rules should not present a major worry for Shareholders, but further developments will naturally be closely monitored and I will keep Shareholders updated on the effects of this new legislation in future reports.
Annual General Meeting
The forthcoming AGM will be held at Ergon House, Horseferry Road, London SW1P 2AL at 2:30 pm on 24 February 2016.
One item of special business is proposed at the AGM in respect of the authority to buy back shares.
Outlook
The new VCT rules will, no doubt, present some challenges, but the Board believes that Chrysalis VCT is likely to be better placed than many VCTs in being able to adapt to these changes and in also having sufficient time to be able to do so.
The Board remains satisfied with the Company's investment portfolio and believes that it includes a number of investments which have the potential to deliver further successful outcomes for Shareholders in due course.
I believe that the Company is well positioned to continue to produce solid results for investors into the future, and I look forward to meeting some Shareholders at the AGM in February and reporting further developments in the Half Yearly Report which will be published in June 2016.
Peter Harkness
Chairman
INVESTMENT MANAGEMENT REPORT
This year has been another successful one for Chrysalis VCT plc with a total return of £2 million being achieved. This means that shareholders have benefitted from profits of over £24 million in the 11.5 years since we took over the management role.
Last year's return was dominated by exits. This year the majority of the return has come from increased valuations as most of the portfolio has seen improved trading. Since over the previous two years some £16 million had been realised from our investee companies, it was always likely that with a less mature portfolio there would be fewer exits this year.
We did however receive a further £440,000 from the previous year's sale of Wessex Advanced Switching Products ("WASP") as the first of the deferred payment conditions were met. This takes the overall gain from WASP to £9.3 million and we are hopeful of further deferred payments over the next two years.
During the year we also received nearly £1 million of loan repayments from seven different portfolio companies which helps to highlight their cash generating abilities. In particular we were pleased to get the final £235,000 payment out of our original £686,000 loan to Triaster Limited. Chrysalis had first provided a loan to this software developer in 2001 but for many years it struggled to generate cash and we provided support via further loans, interest deferral and loan repayment extensions. Over the last few years however trading has improved and Triaster Limited has been able to repay the loan in full including interest and we are hopeful of one day achieving a good profit on our equity stake. This once again demonstrates the advantage of taking a long-term view and also shows the fallacy of the new EU inspired VCT rules which assume that only companies under 7 years old require support.
Generally the portfolio has performed well this year hence the overall increase in valuations. There have inevitably been some disappointments though. As was mentioned in the half year statement one of our early stage businesses VEEMEE Limited has unfortunately gone into administration necessitating a full provision of £500,000, however its "sister" company, Zappar (Holding) Limited, has gone from strength to strength and a recent successful external fund raising valued Chrysalis' stake at £775,000, which represents an increase of £590,000 up on the year, from a nominal original cost.
There was also a reduction in valuation at MyTIME Media Limited ("MTM") of £299,000 following changes in the business, although it is still valued at over £500,000 above cost. Also during the year MTM demerged its e-commerce activities into a separate company called Hoop Limited. As part of the transaction Chrysalis provided £150,000 of working capital to Hoop. We are hopeful that the increased clarity and focus the separation has achieved will enable both sets of management to drive their businesses forward.
We remain pleased with the progress being made by our biggest individual investment, Coolabi Group Limited and during the year we made a further £1 million investment. The first series of its production of The Clangers having been aired on CBeebies has proved so popular that the BBC has already commissioned a second series and the show has recently won the BAFTA for children's animation. Another Coolabi production, "ScreamStreet" is also currently being shown on CBBC. As mentioned last year we are effectively mezzanine providers to Coolabi with a very high yielding loan stock so as more and more valuable content and intellectual property is produced by the company so our return becomes more secure.
Back in March 2001 Chrysalis invested £250,000 in an early stage market research company called IX Group Limited. For many years trading was not successful and we had a full provision against the investment. However the management incentive plan introduced in 2012 appears to have transformed the business and profits have steadily increased so that we are now able to release the provision and value our stake above cost at £329,000.
The valuation of our investment in Internet Fusion Limited ("IF") has also risen due to its increased profits. It appears that one of the criteria for success in e-commerce is to have a wide range of stock and therefore we have recently provided a further £400,000 to fund its expansion.
As well as the investments in Coolabi, Hoop and IF we have also provided £350,000 of additional funding to K10 (London) Limited which has helped it to establish a "Beer and Buns" bar offering utilising some spare space at one of its established restaurants and also enabling it to open its third sushi restaurant in The City of London which is already proving successful. We also participated in the latest funding round at Cambridge Mechatronics Limited where we are hopeful of a break-through deal being announced in the near future.
There was only one other addition to the portfolio during the year and that was funding the MBO of Driver Require Group Limited which is a specialist commercial vehicle driver recruitment agency. We invested £520,000 in a mixture of loan and equity and since the investment in January the business has been consistently ahead of budget. Therefore although the recruitment industry is highly competitive we are pleased with its initial trading.
That is likely however to be the last MBO that we will be able to finance. As I alluded to earlier, the government has, this autumn, dramatically changed the rules concerning what VCTs can or cannot invest in.
The Chairman covers the changes in his statement but a high proportion of our historic successful investments would not have been permissible under these new rules which seems to me to demonstrate that the rule setters have a fundamental lack of understanding about how long it takes early-stage companies to develop and how most companies grow.
Fortunately Chrysalis is fairly fully invested and over recent years has had a policy of returning profits via dividends. Therefore we are not under pressure to make new investments and so hopefully the new rules will not have as dramatic an impact on us as on some other VCTs. In addition there will, of course, be some good opportunities that do qualify and we will continue to look for them but the competition for these deals is likely to be more intense. Therefore I anticipate fewer new deals in the future.
In the meantime we will continue our work with the portfolio is in good shape.
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 2015:
| Cost | Valuation | Valuation movement in year | % of portfolio by value | |
| £'000 | £'000 | £'000 | ||
| Top ten venture capital investments | ||||
| Coolabi Group Limited | 2,956 | 3,484 | 404 | 14.4% |
| Locale Enterprises Limited | 2,523 | 2,387 | 51 | 9.9% |
| Internet Fusion Limited | 1,000 | 1,562 | 372 | 6.4% |
| Precision Dental Laboratories Group Limited | 1,310 | 1,490 | 13 | 6.2% |
| MyTime Media Holdings Limited | 751 | 1,294 | (299) | 5.3% |
| K10 (London) Limited | 950 | 1,081 | 123 | 4.5% |
| Electrobase RP (Holdings) Limited | 1,001 | 1,000 | (1) | 4.1% |
| Zappar (Holding) Limited | 25 | 775 | 590 | 3.2% |
| Green Star Media Limited | 650 | 652 | 2 | 2.7% |
| Driver Require Group Limited | 520 | 520 | - | 2.1% |
| 11,686 | 14,245 | 1,255 | 58.8% | |
| Other venture capital investments | ||||
| Cambridge Mechatronics Limited | 336 | 470 | 133 | 1.9% |
| Ensign Communication (Holdings) Limited | 292 | 434 | 99 | 1.8% |
| Life's Kitchen Limited | 200 | 386 | 111 | 1.6% |
| Livvakt Limited | 550 | 329 | - | 1.4% |
| IX Group Limited | 250 | 329 | 329 | 1.4% |
| Triaster Limited | 71 | 320 | 153 | 1.3% |
| Hoop Holdings Limited | 150 | 150 | - | 0.6% |
| Cashfac plc | - | 88 | 13 | 0.4% |
| The Mission Marketing Group plc * | 150 | 57 | 6 | 0.2% |
| The Kellan Group plc * | 320 | 6 | 2 | - |
| Progility plc * | 100 | 2 | (6) | - |
| VEEMEE Limited | 500 | - | (500) | - |
| Art VPS Limited | 358 | - | - | - |
| G-Crypt Limited | 305 | - | - | - |
| Newquay Helicopters (2013) Limited | 64 | - | (64) | - |
| Planet Sport (Holdings) Limited | 322 | - | - | - |
| Rhino Sport & Leisure Limited | 304 | - | - | - |
| 4,272 | 2,571 | 276 | 10.6% | |
| Fixed income securities | ||||
| Lloyds Banking Group 7% | 724 | 741 | (13) | 3.0% |
| Intermediate Capital Group plc 7% | 745 | 728 | 20 | 3.0% |
| Provident Financial 7% | 741 | 718 | (5) | 3.0% |
| 2,210 | 2,187 | 2 | 9.0% | |
| 18,168 | 19,003 | 1,533 | 78.4% | |
| Cash at bank and in hand | 5,223 | 21.6% | ||
| Total investments | 24,226 | 100.0% |
All investments are unquoted unless otherwise stated.
*Quoted on AIM
Investment movements for the year ended 31 October 2015
Additions
| £'000 | |
| New venture capital investments | |
| Driver Require Group Limited | 520 |
| Hoop Holdings Limited | 150 |
| 670 | |
| Follow-on venture capital investments | |
| Cambridge Mechatronics Limited | 36 |
| Coolabi Group Limited | 1,000 |
| Internet Fusion Limited | 400 |
| K10 (London) Limited | 350 |
| Zappar (Holding) Limited | 25 |
| Other sundry investments | 2 |
| 1,813 | |
| Total investments | 2,483 |
Disposals
| Cost | Value at 01/11/14* | Proceeds | Gain vs cost | Realised gain | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Venture capital investments | |||||
| Unquoted | |||||
| Internet Fusion Limited | 100 | 111 | 111 | 11 | - |
| Life's Kitchen Limited | 45 | 45 | 45 | - | - |
| Locale Enterprises Limited | 90 | 90 | 90 | - | - |
| MyTime Media Holdings Limited | - | 169 | 169 | 169 | - |
| Newquay Helicopters (2013) Limited | 105 | 105 | 105 | - | - |
| Precision Dental Laboratories Group Limited | 200 | 200 | 200 | - | - |
| Triaster Limited | 235 | 235 | 235 | - | - |
| Dissolution/liquidation and retention | |||||
| Retentions | |||||
| Wessex Advanced Switching Productions Ltd | - | - | 438 | 438 | 438 |
| Total | 775 | 955 | 1,393 | 618 | 438 |
*Adjusted for purchases in the year where applicable
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 position, 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 2015
| 2015 | | 2014 | ||||||||||||
| | Revenue | Capital | Total | Revenue | Capital | Total | ||||||||
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||||
| Income | 733 | - | 733 | 651 | - | 651 | ||||||||
| | ||||||||||||||
| Gains on investments | - | 1,971 | 1,971 | - | 3,694 | 3,694 | ||||||||
| 733 | 1,971 | 2,704 | 651 | 3,694 | 4,345 | |||||||||
| Investment management fees | (103) | (309) | (412) | (109) | (328) | (437) | ||||||||
| Performance incentive fees | - | (35) | (35) | - | (366) | (366) | ||||||||
| Other expenses | (261) | (2) | (263) | (266) | (28) | (294) | ||||||||
| Return on ordinary activities before tax | 369 | 1,625 | 1,994 | 276 | 2,972 | 3,248 | ||||||||
| Tax on ordinary activities | (73) | 73 | - | (59) | 59 | - | ||||||||
| Return attributable to equity shareholders | 296 | 1,698 | 1,994 | 217 | 3,031 | 3,248 | ||||||||
| Basic and diluted return per share | | 1.0p | 5.7p | 6.7p | 0.7p | 10.2p | 10.9p | |||||||
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 2015
| 2015 | 2014 | |||
| £'000 | £'000 | |||
| Opening Shareholders' funds | 24,487 | 24,979 | ||
| Total recognised gains for the year | 1,994 | 3,248 | ||
| Dividends paid | (2,169) | (3,740) | ||
| Closing Shareholders' funds | 24,312 | 24,487 |
BALANCE SHEET
at 31 October 2015
| 2015 | 2014 | |||
| £'000 | £'000 | £'000 | £'000 | |
| Fixed assets | ||||
| Investments | 19,003 | 15,942 | ||
| Current assets | ||||
| Debtors | 153 | 3,876 | ||
| Cash at bank and in hand | 5,223 | 4,938 | ||
| 5,376 | 8,814 | |||
| Creditors: amounts falling due within one year | (67) | (269) | ||
| Net current assets | 5,309 | 8,545 | ||
| Net assets | 24,312 | 24,487 | ||
| Capital and reserves | ||||
| Called up share capital | 299 | 299 | ||
| Capital redemption reserve | 89 | 89 | ||
| Share premium | 1,478 | 1,478 | ||
| Merger reserve | 1,357 | 1,458 | ||
| Special reserve | 1,926 | 2,823 | ||
| Capital reserve - realised | 15,022 | 16,095 | ||
| Capital reserve - unrealised | 3,439 | 1,689 | ||
| Revenue reserve | 702 | 556 | ||
| Total equity shareholders' funds | 24,312 | 24,487 | ||
| Net asset value per share | 81.3p | 81.9p | ||
CASH FLOW STATEMENT
for the year ended 31 October 2015
2015 | 2014 | |||
£'000 | £'000 | |||
| Net cash outflow from operating activities | (146) | (300) | ||
| Capital expenditure | ||||
| Payments to acquire investments | (2,483) | (7,162) | ||
| Receipts from sale of investments | 5,083 | 9,695 | ||
| Net cash inflow from capital expenditure | 2,600 | 2,533 | ||
| Equity dividends paid | (2,169) | (3,740) | ||
| Net cash inflow/(outflow) before management of liquid resources and financing | 285 | (1,507) | ||
| Increase/(decrease) in cash | 285 | (1,507) |
NOTES TO THE ACCOUNTS
for the year ended 31 October 2015
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 FRS9 and 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
| 2015 | 2014 | ||||
| Return per share based on: | |||||
| Net revenue return for the financial year (£'000) | 296 | 217 | |||
| Net capital gain for the financial year (£'000) | 1,698 | 3,031 | |||
| Total return for financial year (£'000) | 1,994 | 3,248 | |||
| Weighted average number of shares in issue | 29,917,025 | 29,917,025 |
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 | 2015 Net asset value | 2014 Net asset value | |||||||||
| 2015 | 2014 | Pence per share | £'000 | Pence per share | £'000 | ||||||
| Ordinary Shares | 29,917,025 | 29,917,025 | 81.3 | 24,312 | 81.9p | 24,487 | |||||
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 Investment 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 Investment 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 and floating 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 with 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 minus 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 (2015: £67,000, 2014: £269,000) 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, £412,000 (2014: £437,000) was paid to Chrysalis VCT Management Limited in respect of these fees. No amounts were outstanding at the year-end (2014: none).
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 £35,000 (2014: £366,000) were due to Chrysalis VCT Management Limited. At the year-end, £9,000 was outstanding and payable (2014: £218,000).
Peter Harkness holds a position of significant influence within MyTime Media Holdings Limited and Hoop Holdings Ltd, investments 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 2015, but has been extracted from the statutory financial statements for the year ended 31 October 2015, which were approved by the Board of Directors on 22 December 2015 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 2014 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 s498(2) and (3) of the Companies Act 2006.
A copy of the full annual report and financial statements for the year ended 31 October 2015 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 and www.chrysalisvct.co.uk.