Half-yearly report

 

 

Once again, it is very pleasing to report that Chrysalis VCT has continued to perform well throughout the period under review.  During the six months to 30 April 2007, a number of further profitable exits were achieved, while other portfolio companies made good progress and a significant number of new investments were made.

 

At 30 April 2007, the Net Asset Value per Ordinary Share ("NAV") had risen to 88.7p, an increase of 7.0p (8.6%) since the previous year end of 31 October 2006 (after adjusting for the 3p per Ordinary Share dividend paid in the period). 

 

Total Return to original Ordinary Shareholders (NAV plus cumulative dividends paid since launch) now stands at 102.15p per share, compared to an original net of income tax cost of 80p per share.

 

The NAV of the 'D' Shares has risen to  104.3p over the period, being an increase of 9.05p or 9.4% since 31 October 2006 (after adding back the 'D' share dividend of 1.25p paid in the period).

 

The NAV of the 'E' Shares stood at 95.0p at 30 April 2007, an increase of 0.85p or 0.9% since 31 October 2006 (after adding back the 'E' share dividend of 1.25p paid in the period).

 

During the period, the Company made six new investments and five follow on investments at a total cost of £3.7 million.  These investments were allocated as follows between the individual share pools:

 

 

At the period end, the 'D' Share pool held eight investments valued at £448,000 and the 'E' Share pool held two investments valued at £100,000.  As mentioned in earlier reports, although the 'E' share pool is no longer limiting the scope of its investments to the art and antiques sector, it is seeking to select potentially less risky investments than would be accepted by the 'D' share and Ordinary share pools.  As a result of this approach, the rate of investment for the 'E' share pool has been slower than the other pools.

 

During the period, the Company achieved a series of successful disposals within the Ordinary share pool, generating £6.7 million of proceeds and realising gains against the previous carrying values of £1.2 million and profit over cost of £4.4 million.  The most notable disposals were Ma Potters and ProTx Group, which produced profits against cost of £1.3 million and £1.8 million respectively.

 

At the period end, the Board has reviewed the valuations of the unquoted investments and made some adjustments to the carrying values.  Although there were a small number of reductions, a greater number of investments justified increases.  The most notable has been to the investment in ILG Digital Limited (formerly i-Level), a digital advertising agency held by the Ordinary share pool, where trading has been particularly strong, supporting an increase of £660,000 to £2.1 million.

 

Overall (including the AIM-quoted stocks) the Ordinary share portfolio gave rise to £1.2 million (3.6p per share) of unrealised gains and the 'D' Share portfolio, unrealised gains of £45,000 (8.4p per share).  Both of the 'E' Share portfolio's investments continue to be held at cost.

 

The return after taxation for the Company for the period amounted to a gain of £2,305,000 comprising a revenue return of £213,000 and a capital surplus of £2,092,000.

 

The Company continues to operate a share buyback policy in order to provide liquidity in the market for its shares.  Any Shareholders wishing to sell their holding should consult their financial adviser to ensure they understand the potential tax implications of such a disposal.  Shares cannot be sold directly to the Company but must be sold via the Stock Market through a stockbroker. 

 

During the period, the Company repurchased 834,725 Ordinary shares, at an average price of 73.8p per share for cancellation.

 

It is now three years since the current investment management team and Board took over the running of the Company.  Although the performance in the initial years under the original management was poor,  the current management team have been able to emphatically turn around the Company's fortunes and have now delivered strong increases in NAV over each of the last six half-yearly reporting periods.  Over that time, the NAV per Ordinary share has risen from 60.7p to 88.7p with a further 8p of dividends being paid. This is equivalent to a return on capital of 59.3% and is an excellent performance for which the Board congratulates the investment management team.

 

The investment exits achieved over the last year or so have not only returned significant levels of cash to your Company, but have also changed the profile of the Company's investment portfolio.  With a more immature portfolio than has been the case for some time, it is in unrealistic in the short term to expect the rate of increase in the Company's NAV and Total Return to continue at the levels seen in recent periods.  However, the Board remains confident that attractive returns will be made over the medium term.

 

Over the remainder of the year, the management team's focus will remain split between making new investments for the 'D' share, 'E' share and Ordinary pools, while also working with the more mature portfolio companies within the Ordinary share pool with a view to achieving further profitable exits.  The Board is confident that the management team will continue to be effective in these roles.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Accounting policies

 

The Company has prepared its financial statements under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" revised December 2005 ("SORP"). Except as stated in note 2, consistent accounting polices have been applied to both this year and the prior years' accounts.

 

The financial statements are prepared under the historical cost convention as modified by the revaluation of certain financial instruments

 

 

InvestmentsAll investments are designated as "fair value through profit or loss" assets and are initially measured at cost, equivalent to their fair value. Thereafter the investments are measured at subsequent reporting dates at fair value.

 

Listed fixed income investments and investments quoted on AIM are measured using bid prices with illiquidity discounts applied where deemed appropriate.

 

In respect of unquoted instruments, fair value is established by using International Private Equity and Venture Capital Valuation Guidelines. Where no reliable fair value can be estimated for such unquoted equity investments they are carried at cost, subject to any provision for impairment. Where an investee company has gone into receivership or liquidation the investment, although not physically disposed of, is treated as being 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 either significant or controlling influence over investee companies.  Therefore the results of these companies are not incorporated into the revenue account except to the extent of any income accrued.

 

Dividend income from investments is recognised when the shareholders' rights to receive payment has 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, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount, and only where there is reasonable certainty of collection.

 

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 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 managers fees, 75% to the capital reserve and 25% to the revenue account 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 from the capital account.

 

Issue costs have been deducted from the share premium account.

 

Deferred taxation 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 financial statements.

 

2. All revenue and capital items in the Income Statement derive from continuing operations.

 

3. The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.

 

4. The comparative figures were in respect of the period ended 30 April 2006 and the year ended 31 October 2006 respectively.

 

 

5. Net Asset Value per share calculations are based on the following:

 

6. Return per share calculations are based on the following:

 

 

8. Reserves

 

The above figures relate to the Company as a whole.  The Special Reserve, Capital Reserve - Realised and Revenue Reserve are all distributable reserves.

 

9. The unaudited financial statements set out herein do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985 and have not been delivered to the Registrar of Companies.  The figures for the year ended 31 October 2006 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the auditors' report on those financial statements was unqualified.

 

10. Copies of the unaudited interim results will be sent to shareholders shortly. Further copies can be obtained from the Company's Registered Office.