TIDMCYS
Chrysalis VCT plc
Report & Accounts for the year ended 31 October 2018
LEI: 2138009FVDWULSIOX404
19 December 2018
FINANCIAL SUMMARY
31 Oct 31 Oct
2018 2017
Pence Pence
Net asset value per share ("NAV") 73.40 80.00
Cumulative dividends paid per share since launch * 83.45 75.45
------
Total Return (Net asset value per share plus cumulative
dividends) 156.85 155.45
======
Dividends in respect of financial year
Interim dividend per share (paid 3 August 2018) 1.75 1.75
Special dividend per share (paid 3 August 2018) 3.00 3.00
Final proposed dividend per share 3.25 3.25
------
8.00 8.00
======
* Excludes final proposed dividend
CHAIRMAN'S STATEMENT
- Total Return of 1.8% for the year
- Total Return on original 80p investment now at 156.85p
- Total dividends of 8.0p paid in the year
Overview
It will be no surprise to Shareholders who have read my last two
Chairman's Statements to learn that in the last year we made no new
investments. The changes to the regulatory environment under which VCTs
operate and the economic and business climate facing UK smaller
companies has made the last year a challenging one for investors like
ourselves. Whilst our existing portfolio of investee companies has
performed, on the whole, satisfactorily, there are few signs of real
optimism.
So, with realisations totalling GBP2.2million during the year, your
Board has, instead of chasing new investment opportunities, used the
Company's cash resources to achieve two things: to maintain the regular
dividend payment of 5.0p per share, with an added special dividend of
3.0p per share at a cash cost of GBP2.4 million in total; and to buy
back 873,000 shares for a total sum of GBP550,000 at a discount to NAV
of around 15%.
As a result of the portfolio performance and this use of the company's
cash resources, net assets declined to GBP21.3 million from GBP23.9
million; and per share declined from 80.0p to 73.4p at 31 October 2018.
Total Return (NAV plus cumulative dividends) increased by 1.4p per Share
during the year and now stands at 156.85p per Share, for those
Shareholders that invested at the Company's launch in 2000, compared to
the cost (net of tax relief) of 80p.
Our current strategy is, broadly, to carry on returning funds to
Shareholders as realisations occur, although control over realisations
is rarely in the hands of the Manager. The Board recognises that as this
process continues, the portfolio will decrease both by monetary size and
number of investments such that the cost base, relative to net assets,
may eventually become inappropriate. The Board will address this matter
in a timely manner.
Given this, your Board will continue to consider carefully the various
options open to it. Your Board is aware of a number of different views
as to the optimal way forward. In this context, your Board will be
particularly mindful of the fundamental requirement not to breach the
VCT qualifying rules; it will also not take steps which will put at risk
the ability of the company to pay in the foreseeable future its regular
5.0p dividend each year, plus appropriate special dividends.
Dividend
Subject to Shareholder approval at the forthcoming AGM, in line with the
policy noted above, your Board is proposing to pay a final 2018 dividend
of 3.25p per Share on 29 March 2019, to Shareholders on the register as
at 8 March 2019.
Cash, fixed income and other listed investments
The Company held GBP6.0 million in cash, fixed income securities and
other listed investments at the year end.
The two fixed income investments fell in value by GBP65,000 to reflect
their quoted values as at 31 October 2018. However, this reduction was
more than offset by the cash interest of GBP94,000 received during the
year.
Venture capital portfolio
At the year end, the Company held a portfolio of 18 venture capital
investments, valued at GBP15.4 million.
As part of the year end processes, the Board has reviewed the valuations
of the unquoted investments held and made a number of adjustments
accordingly. Seven investments fell in value and six increased in value,
while the remaining five investment valuations remain materially
unchanged from the previous year end.
There were several disposals from the venture capital portfolio, which
generated proceeds of GBP2.2 million and resulted in an overall realised
loss of GBP99,000.
GBP607,000 of the total realisation proceeds came by way of deferred
consideration from Internet Fusion Limited, an e-commerce business from
which Chrysalis exited in 2017. As the full cost of the investment was
treated as disposed when the exit took place, the cash received
represents a pure profit for the Company.
Conversely, the sale of Precision Dental Laboratories Group Limited
(PDL) generated a loss against opening valuation of GBP732,000. Overall
the Board is satisfied with the outcome of the exit as, although the
proceeds were below the carrying value, the prospects for the business
appeared less positive and with the major shareholder pushing through a
sale the future was uncertain.
The Investment Manager's Report gives a detailed overview of the
portfolio activity during the year and of the main valuation movements.
Share buyback policy
During the year the Company introduced a policy of buying in Shares that
become available in the market at a discount of approximately 15% to the
latest published NAV, subject to market conditions and any liquidity or
regulatory restrictions. The Board feels that this level of discount
remains appropriate in view of the characteristics of the Company's
investment portfolio and is pleased to report that the level of buybacks
undertaken has been at a manageable level. The Board intends to keep the
policy under regular review and will make adjustments if it considers
they are required.
Any Shareholders wishing to either acquire more Shares, or to sell
existing holdings in the Company, are recommended to contact the
Company's broker, Nplus1 Singer Capital Markets.
Annual General Meeting
The forthcoming AGM will be held at 6(th) Floor, St. Magnus House, 3
Lower Thames Street, London EC3R 6HD at 11:30 a.m. on 14 February 2019.
Notice of the meeting is at the end of this document.
Martin Knight
Chairman
INVESTMENT MANAGER'S REPORT
This has been a slightly disappointing year for Chrysalis VCT with
shareholder Total Return increasing by just 1.4p per share, compared
with an average of 7.8p per annum over the previous 4 years. Profits
from investing in small private companies are rarely stable since the
sector moves in and out of favour but even with this year's result the
5-year average annual return is still over 6.5p per share, which is
nearly an 11% per annum tax free gain (based on a 60.0p Share price).
The uncertainties caused by the protracted Brexit process have not
helped our portfolio companies. In addition, our service-based companies
are suffering from a serious labour shortage which is inevitably leading
to rising wage costs. However, this year's relatively poor result is
largely down to two factors.
Firstly, as shareholders may recall, in December 2016 Zappar had a
successful fundraising round, raising over GBP2 million at over three
times the price of the previous round. This meant that Chrysalis was
obliged to increase its valuation to coincide with the latest round
price. Since then Zappar has continued to successfully develop with
sales and profits increasing. However, it has not achieved all its
original targets and some of the "froth" has gone from its sector.
Accordingly, we felt it was prudent to reduce its valuation by 25% (even
though it is a more profitable business than this time last year). This
has resulted in a valuation reduction of GBP538,000, which is equivalent
to 1.8p per Share.
Secondly, in July we exited from Precision Dental Laboratories which was
one of our oldest investments, having first invested in September 1999.
The decision to sell was prompted by the retirement of one of the key
members of the management team. Unfortunately, following his retirement
trading declined substantially, proving yet again how in small
businesses key people make all the difference. Consequently, the best
offer for the business produced a return for Chrysalis which was
GBP732,000 (2.5p per Share) below our valuation. However, we were only
a minority shareholder and our fellow shareholders were still keen to
sell at that price.
In previous years, in similar situations a VCT would have had many more
options, for instance backing an MBO or rolling over its investment.
However, under the new rules the options are much more limited and
accordingly we were obliged to sell.
Without those two factors Total Return would have been 4.3p per Share
higher at 5.7p.
There was one significant success during the year at least in percentage
terms if not in absolute terms. In June we exited from Inaspect, a small
early stage software business which we had only invested in 2 years
previously. While Chrysalis made a 92% gain on its equity investment,
because of the small size of the investment this only amounted to a gain
of GBP138,000. However, there is a conditional deferred payment
dependent on performance, which could produce a further GBP400,000 in
May 2020.
Overall, valuation increases on the venture capital portfolio totalled
GBP1.6 million. This total includes an uplift of GBP550,000 in respect
of Coolabi Group Limited, an international media group. The increase is
in line with value accruing on the preferred element of the investment.
The VCT's interest in Enthuse Holdings Limited (formerly MyTime Media
Holdings Limited), which publishes a range of niche hobby magazines, was
uplifted by GBP337,000 following good trading results.
Driver Required Group Limited, a specialist commercial vehicle driver
recruitment agency, has also performed well and has been increased in
value by GBP334,000.
Cambridge Mechatronics Limited, a high technology design and engineering
company, was revalued upwards by GBP330,000 to reflect the price of the
company's recent funding round.
Unrealised movements for the year on the venture capital portfolio
resulted in a net appreciation of GBP705,000, equivalent to
approximately 2.4p per Share.
As mentioned last year, the new VCT rules have significantly reduced the
pool of potential qualifying investee companies and forced VCTs to
invest at a much earlier stage in more high-risk situations. However, at
the same time the VCT industry has continued to raise substantial
amounts of new funds. The inevitable consequence of increased amounts of
cash chasing fewer opportunities has been an increase in their price. So
generally VCTs are paying higher prices for more risky investments which
makes profitable returns much more difficult.
We continue to review new investment opportunities, particularly those
involving entrepreneurs we have previously backed successfully, however
we are not willing to overpay and it will take a special set of
circumstances for us to complete a new investment. In addition, under
the new rules Chrysalis is precluded from re-investing in much of our
existing portfolio and the companies which would be able to take VCT
money have not needed any additional funds this year. Accordingly no
investments were made in the year.
Overall, most of our portfolio companies continue to trade
satisfactorily, with most being on or around budget, although a lot of
those budgets were not terribly ambitious. As ever, confidence is a key
component of a successful economy and it appears to be in short supply
at present, despite record numbers in work. Hopefully the country's mood
may turn more optimistic in the new year.
The Chrysalis portfolio will not be immune to any recession if it occurs
but equally since these are generally well run businesses, well set in
their sectors, should a pick up take place the portfolio is well
positioned to take advantage.
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 2018:
Valuation movement in
Cost Valuation year
% of portfolio
GBP'000 GBP'000 GBP'000 by value
Top ten venture
capital
investments
Coolabi Group
Limited 3,456 5,144 550 24.1%
Locale
Enterprises
Limited 2,513 2,419 (135) 11.3%
Zappar Limited 300 1,623 (538) 7.6%
Driver Require
Group Limited 520 1,295 334 6.1%
Cambridge
Mechatronics
Limited 366 1,175 330 5.5%
K10 (London)
Limited 950 1,111 (6) 5.2%
Enthuse Holdings
Limited
(formerly MyTime
Media Holdings) 56 1,045 337 4.9%
Green Star Media
Limited 650 651 (68) 3.1%
Life's Kitchen
Ltd 400 400 - 1.9%
IX Group Limited 250 350 11 1.6%
9,461 15,213 815 71.3%
------- --------- -------------- ----- ---------- ---
Other venture
capital
investments
Triaster Limited 71 117 (115) 0.6%
The Mission
Marketing Group
plc* 150 65 7 0.3%
The Kellan Group
plc* 320 1 (1) 0.0%
Progility plc* 100 - (1) 0.0%
Art VPS Limited 358 - - 0.0%
G-Crypt Limited 305 - - 0.0%
Livvakt Limited 220 - - 0.0%
Fusion Catering
Solutions
Limited 75 - - 0.0%
1,599 183 (110) 0.9%
Total venture
capital
investments 11,060 15,396 705 72.2%
Other listed
investments
Impact Healthcare
REIT plc** 750 757 (7) 3.5%
750 757 (7) 3.5%
Fixed income
securities
Lloyds Banking
Group 7% 746 688 (31) 3.2%
Intermediate
Capital Group
plc 7% 724 739 (34) 3.5%
1,470 1,427 (65) 6.7%
------- --------- -------------- ---- ---------- ---
Total investments 13,280 17,580 633 82.4%
Cash at bank and
in hand 3,763 17.6%
Total investments
and cash 21,343 100.0%
All investments are unquoted unless otherwise stated.
* Quoted on AIM
** Listed and traded on the Main Market of the London Stock
Exchange
REVIEW OF INVESTMENTS (continued)
Investment movements for the year ended 31 October 2018
Value at Total gain/ Realised
Disposals Cost 01/11/17* Proceeds (loss) vs cost gain/(loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Venture capital
investments
Enthuse Holdings Limited 20 256 120 100 (136)
Hoop Holdings Limited 150 135 150 - 15
Inaspect Technology
Limited 200 200 338 138 138
Precision Dental
Laboratories Group
Limited 1,110 1,731 999 (111) (732)
1,480 2,322 1,607 127 (715)
------- ---------- -------- --------- ------ ------- ----
Dissolution/liquidation
Internet Fusion Limited - - 607 607 607
Newquay Helicopter
Limited 64 - 9 (55) 9
Electrobase RP
(Holdings) Limited 1,001 - - (1,001) -
Eemeev Limited (formally
Veemee Limited) 500 - - (500) -
1,565 - 616 (949) 616
------- ---------- -------- --------- ----- ------- -----
Total 3,045 2,322 2,223 (822) (99)
*Adjusted for purchases in the year where applicable
There were no additions to the investment portfolio during the year.
Directors' responsibilities statement
The Directors are responsible for preparing the Report of the Directors,
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
INCOME STATEMENT
for the year ended 31 October 2018
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 486 - 486 576 - 576
Gains on
investments - 534 534 - 2,411 2,411
486 534 1,020 576 2,411 2,987
Investment
management
fees (97) (292) (389) (102) (306) (408)
Performance
incentive
fees - (54) (54) - (127) (127)
Other expenses (264) (3) (267) (268) (6) (274)
Return on
ordinary
activities
before tax 125 185 310 206 1,972 2,178
Tax on
ordinary
activities (4) 13 9 (33) 33 -
Return
attributable
to equity
Shareholders 121 198 319 173 2,005 2,178
Basic and 0.4p 0.7p 1.1p 0.6p 6.7p 7.3p
diluted
return per
share
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 Statement of Total Comprehensive Income of the Company prepared in
accordance with Financial Reporting Standards ("FRS 102"). There are no
other items of comprehensive income. The supplementary revenue and
capital return columns are prepared in accordance with the Statement of
Recommended Practice issued in November 2014 (updated in February 2018)
by the Association of Investment Companies ("AIC SORP").
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.
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 October 2018
Capital
Called up redemption Share Merger Special Capital reserve Capital reserve Revenue
share capital reserve premium reserve reserve - realised - unrealised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 November
2016 299 89 1,478 1,357 802 13,896 5,760 482 24,163
Total
comprehensive
income - - - - - 896 1,109 173 2,178
Transfer
between
reserves - - - - (200) 1,167 (967) - -
Transactions
with owners
Dividends paid - - - - - (2,244) - (150) (2,394)
At 31 October
2017 299 89 1,478 1,357 602 13,715 5,902 505 23,947
Total
comprehensive
income - - - - - (435) 633 121 319
Transfer
between
reserves - - - (828 ) 354 1,227 (753 ) - -
Transactions
with owners
Purchase of
own Shares (9) 9 - - (550) - - - (550 )
Dividends paid - - - - - (2,285) - (104) (2,389)
At 31 October
2018 290 98 1,478 529 406 12,222 5,782 522 21,327
*A transfer of GBP722,000 (2017: GBP465,000) representing previously
recognised unrealised gains, transferred on disposal of investments
during the year, has been made between the Capital Reserve -- unrealised
and the Capital Reserve -- realised. A transfer of GBP1,475,000 (2017:
GBP502,000) representing a permanent diminution in value, has been made
between the Capital Reserve -- unrealised and the Capital Reserve --
realised. A transfer of GBP354,000 (2017: GBP200,000) representing
realised losses on disposal of investments, plus capital expenses and
capital dividends in the year was made between the Capital Reserve --
realised and the Special reserve. A transfer of GBP828,000 (2017:
GBPnil) representing a disposal of an investment during the year has
been made between the Special reserve and the Merger reserve.
BALANCE SHEET
at 31 October 2018
2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 17,580 19,269
Current assets
Debtors 102 180
Cash at bank and in hand 3,763 4,559
3,865 4,739
Creditors: amounts falling due
within one year (118) (61)
Net current assets 3,747 4,678
Net assets 21,327 23,947
Capital and reserves
Called up share capital 290 299
Capital redemption reserve 98 89
Share premium 1,478 1,478
Merger reserve 529 1,357
Special reserve 406 602
Capital reserve -- realised 12,222 13,715
Capital reserve -- unrealised 5,782 5,902
Revenue reserve 522 505
Total equity Shareholders' funds 21,327 23,947
Net asset value per share 73.4p 80.0p
STATEMENT OF CASH FLOW
for the year ended 31 October 2018
2018 2017
GBP'000 GBP'000
Cash flow from operating activities
Profit on ordinary activities before taxation 319 2,178
Gains on investments (534) (2,411)
Decrease/(increase) in debtors 78 (92)
(Decrease)/increase in creditors (1) 8
Net cash outflow from operating activities (138) (317)
Cash flow from investing activities
Purchase of investments - (1,300)
Proceeds from disposal of investments 2,223 4,409
Net cash inflow from investing activities 2,223 3,109
------ -------
Cash flow for financing activities
Equity dividends paid (2,389) (2,394)
Purchase of own Shares (492) -
Net cash outflow from financing activities (2,881) (2,394)
(Decrease)/Increase in cash (796) 398
Net movement in cash
Beginning of the year 4,559 4,161
Net cash (outflow)/inflow (796) 398
End of year 3,763 4,559
Accounting policies
Basis of accounting
The Company has prepared its financial statements under FRS 102 'The
Financial Reporting Standard applicable in the UK and Republic of
Ireland' and in accordance with the Statement of Recommended Practice
"Financial Statements of Investment Trust Companies and Venture Capital
Trusts" issued by the Association of Investment Companies ("AIC") in
November 2014 and revised in February 2018 ("SORP") as well as the
Companies Act 2006.
The financial statements have been prepared on a going concern basis and
under historical cost convention, with the exception of investments
which are designated as "fair value through profit or loss".
The financial statements are presented in pounds sterling and rounded to
thousands. The company's functional and presentational currency is
pounds sterling.
Presentation of Income Statement
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. Investments held by the Company are treated as having
been disposed of when the risks and rewards of ownership no longer
accrue to the Company.
Judgements in applying accounting policies and key sources of estimation
uncertainty
Judgements
The following are the critical judgements, apart from those involving
estimations (which are dealt with below), that the Directors have made
in the process of applying the Company's accounting policies and that
have the most significant effect on the amounts recognised in the
financial statements:
- Investments are as "fair value through profit or loss";
- Fixed income investments and investments quoted on AIM are measured
using bid prices;
- The allocation of expenses and dividends payable between revenue and
capital; and
- Contingent/deferred consideration is only recognised when virtually
certain.
Estimations and the application of judgements
Of the Company's assets measured at fair value, it is possible to
determine their fair value within a reasonable range of estimates. The
fair value of an investment upon acquisition is deemed to be cost.
Thereafter, investments are measured at fair value in accordance with
FRS 102 sections 11 and 12 together with the International Private
Equity and Venture Capital Valuation Guidelines ("IPEV").
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.
Contingent or deferred consideration on the disposal of an investment is
only recognised to extent that receipt is virtually certain.
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.
Redemption premiums are reflected in the valuations of fixed asset
investments.
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 and FRS 102 sections
14 and 15 that do not require portfolio investments to be accounted for
using the equity method of accounting.
The carrying values of the Company's investments are disclosed in Note 9
and Note 15 of the Annual Report.
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. Where the recovery of
previously accrued income is doubtful, corresponding provisions are
considered and made.
Basic and diluted return per share
2018 2017
Return per share based on: GBP'000 GBP'000
Net revenue return for the financial year 121 173
Net capital gain for the financial year 198 2,005
Total return for the financial year 319 2,178
Weighted average number of Shares in issue 29,697,929 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 the basic and diluted return
per share.
Basic and diluted net asset value per Ordinary Share
Shares in issue 2018 Net asset value 2017 Net asset value
Pence Pence
2018 2017 per share GBP'000 per share GBP'000
Ordinary
Shares 29,044,025 29,917,025 73.4 21,327 80.0 23,947
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 the basic
and diluted return per share.
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:
- Market 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 overleaf.
Markets 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
Investment 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.
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 Company's financial assets that are exposed to credit risk are
summarised as follows:
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. 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 (2018: GBP118,000, 2017: GBP61,000) 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.
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, GBP389,000 (2017: GBP408,000) was
payable to Chrysalis VCT Management Limited in respect of these fees. At
the balance sheet date GBPnil (2017: GBP104,000) of prepaid fees were
included in debtors.
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 GBP54,000 (2017: GBP127,000) were due to
Chrysalis VCT Management Limited. At the year-end, GBPnil (2017: GBPnil)
was outstanding and payable.
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 on page 10 of 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 2018,
but has been extracted from the statutory financial statements for the
year ended 31 October 2018, which were approved by the Board of
Directors on 18 December 2018 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 2017 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 2018 will be printed and posted to shareholders
shortly. Copies will also be available to the public at the registered
office of the Company at 6(th) Floor, St. Magnus House, 3 Lower Thames
Street, London EC3R 6HD, and will be available for download from
www.downing.co.uk/cys and www.chrysalisvct.co.uk.
(END) Dow Jones Newswires
December 19, 2018 02:00 ET (07:00 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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