21 Aug 2020 07:00
Half-year ReportChrysalis VCT plcLEI: 2138009FVDWULSIOX40421 August 2020
Half-Yearly Report for the six months ended 30 April 2020
Recent performance summary
| 30 April 2020 | 30 April 2019 | 31 October2019 | |
| Pence | Pence | Pence | |
| Net asset value per share | 57.00 | 70.80 | 67.00 |
| Cumulative dividends paid per share | 93.95 | 86.70 | 90.70 |
| Total Return (net asset value per Share plus cumulative dividends) | 150.95 | 157.50 | 157.70 |
CHAIRMAN’S STATEMENT
IntroductionLike businesses everywhere, the Board and Manager have had to react to the impact of the coronavirus pandemic in order to seek to protect shareholder value as much as possible. In addition, as Shareholders will know from my previous Chairman’s Statements, the Board has been seeking to identify the optimal plan for the future for the Company.
Net asset value and results At 30 April 2020, the net asset value per share (“NAV”) stood at 57.0p, a decrease of 6.75p (10.1%) since the previous year end of 31 October 2019, after adding back the 3.25p dividend paid on 21 February 2020.
The Total Return (NAV plus cumulative dividends) to Shareholders who invested at the launch of the Company in 2000 is now 150.95p, compared to the original cost (net of income tax relief) of 80.0p per Share.
The loss on activities after taxation for the period was £1.9 million, comprising a revenue profit of nil and a capital loss of £1.9 million.
Venture capital portfolio ValuationsIn reviewing the investment valuations at 30 April 2020, the Board has given full consideration to impact that the coronavirus pandemic is likely to have on the portfolio companies. Overall the adjustments resulted in a decrease in value of £1.8 million.
The main negative movements have been to the three restaurant and catering businesses. Locale Enterprises Limited, the operator of a chain of Italian restaurants in London, was reduced in value by £791,000. The business generates a significant proportion of its income from tourists and so, even when both its restaurants are open again, the business is likely to continue to face significant challenges.
Life’s Kitchen Limited, a provider of event management and catering services in the City of London, has been reduced in value by £200,000. None of its sites are currently operational.
K10 (London) Limited, the operator of a chain of Japanese restaurants also in the City of London, has been fully provided against from a previous valuation of £1,144,000. The company’s sites remain closed and the future for the business is uncertain.
Despite these negative developments, there was some positive news in the case of Enthuse Holdings Limited. The company made a successful acquisition last year, which has been the basis for an uplift in valuation of £711,000.
Portfolio activityDuring the period £100,000 of loan stock in Green Star Media Limited was redeemed at par and Fusion Catering Solutions Limited was dissolved.
There were no other disposals from or additions to the venture capital portfolio during the period.
Cash and listed investmentsThe Company held £2.2 million in cash and other listed investments as at 30 April 2020.
Future Strategy For some time, two things have been clear: the Company’s investment manager has been and remains unenthusiastic about the investment opportunities available to it under the current VCT rules; and, as previous realisation proceeds have been paid out to Shareholders in special dividends on top of the regular 5p annual dividends, the size of the company has reduced to a level that is becoming increasingly difficult to justify as an independent publicly quoted entity.
A number of options were explored by the Board. In the end, the Board has concluded that it is in the best interests of Shareholders generally to undertake an orderly wind up of the Company using the VCT winding up regulations. These relax the usual restrictions on VCT investing; this relaxation which may assist in recovering value from the investments. The Board will now draw up proposals and make a recommendation to Shareholders to that effect. The process involves putting the Company into members’ voluntary liquidation with cash proceeds from realisations being distributed to Shareholders as they occur. In this way, as distributions are made, each Shareholder will be able to decide where and how to invest the proceeds to suit their own interests, whether in the VCT universe or outside it. The Board anticipates that the winding up process will take some time to complete to ensure that optimal value is extracted for Shareholders.
The Board are now working on formal proposals for Shareholders to consider and approve, if they see fit. A Shareholder Circular will be prepared setting out the full details of the proposals which will be sent to all Shareholders in due course and a vote taken at a General Meeting.
The main resolution will require 75% of those voting to vote in favour of the proposals. If Shareholders approve this step, then a liquidator will be appointed and the business will cease to be a listed entity on the London Stock Exchange. All proceeds of future realisations will be distributed in a timely and practical manner to Shareholders.
Share buybacksIn view of the above, the Board has reviewed the operation of the Company’s buyback policy, which has necessarily been in abeyance so far this financial year.
Following this announcement, the Board has agreed to operate an arrangement whereby the Company will buy back shares that become available in the market at a discount of approximately 25% to the latest published NAV (equivalent to 42.7p per share based on the NAV of 57.0p announced today) . The Board will closely monitor demand and may adjust or suspend the policy if they see fit. In any event, share buybacks will be suspended when the Company publishes full proposals to go into members’ voluntary liquidation.
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.
DividendThe Board intends to continue to pay the usual level of interim dividend. A dividend of 1.75p per share will be paid on 30 September 2020 to Shareholders on the register at 11 September 2020.
OutlookThe coronavirus pandemic has presented significant challenges to several of the portfolio companies and will continue to do so for some time. The investment manager is providing support to these businesses to the extent it can, seeking to preserve value for Shareholders.
Some of the Company’s larger investments have been less exposed to the direct impact of the pandemic and have reasonable prospects of delivering successful outcomes in an orderly realisation of the portfolio.
I look forward to presenting full proposals to Shareholders, along with the details of the Board’s recommendation, in the coming months.
Martin Knight
Chairman
SUMMARY OF INVESTMENT PORTFOLIOas at 30 April 2020
| Cost | Valuation | Valuation movementin the period | % ofportfolioby value | |
| £’000 | £’000 | £’000 | ||
| Top ten venture capital investments | ||||
| Coolabi Group Limited | 3,456 | 5,144 | - | 31.6% |
| Enthuse Holdings Limited | 56 | 2,625 | 711 | 16.1% |
| Zappar Limited | 300 | 1,627 | - | 10.0% |
| Cambridge Mechatronics Limited | 366 | 1,172 | - | 7.2% |
| Driver Require Limited | 520 | 927 | (278) | 5.7% |
| Locale Enterprises Limited | 2,513 | 920 | (791) | 5.7% |
| Green Star Media Limited | 550 | 697 | 67 | 4.3% |
| IX Group Limited | 250 | 524 | (1) | 3.2% |
| Life’s Kitchen Limited | 500 | 200 | (200) | 1.2% |
| Triaster limited | 71 | 155 | - | 01.0% |
| 8,582 | 13,991 | (492) | 86.0% | |
| Other venture capital investments | 2,403 | 70 | (1,171) | 0.5% |
| Other investments | ||||
| Impact Healthcare REIT Plc* | 750 | 695 | (108) | 4.3% |
| 11,735 | 14,756 | (1,771) | 90.8% | |
| Cash at bank and in hand | 1,500 | 9.2% | ||
| Total investments | 16,256 | 100.0% |
All venture capital investments are unquoted unless otherwise stated.*Listed and traded on the Main Market of the London Stock Exchange.
SUMMARY OF INVESTMENT MOVEMENTSfor the six months ended 30 April 2020
Disposals
| Cost | Value at 1 Nov 2019 | Disposalproceeds | Gain/(loss)againstcost | Totalrealised gains | |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| Venture capital investments | |||||
| Green Star Media Limited | 100 | 100 | 100 | - | - |
| Dissolution/liquidation | |||||
| Fusion Catering Solutions Limited | 75 | - | - | (75) | - |
| 175 | 100 | 100 | (75) | - |
UNAUDITED INCOME STATEMENT
for the six months ended 30 April 2020
| Six months ended30 Apr 2020 | Six months ended30 Apr 2019 | Yearended31 Oct2019 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Total | |||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Income | 167 | - | 167 | 248 | - | 248 | 446 | ||
| Net gains/(losses) on investments | |||||||||
| - realised | - | - | - | - | 1 | 1 | (13) | ||
| - unrealised | - | (1,771) | (1,771) | - | 231 | 231 | 375 | ||
| 167 | (1,771) | (1,604) | 248 | 232 | 480 | 808 | |||
| Investment management fees | (39) | (118) | (157) | (44) | (132) | (176) | (345) | ||
| Performance incentive fees | - | - | - | - | - | - | - | ||
| Other expenses | (135) | (23) | (158) | (138) | - | (138) | (280) | ||
| Return on ordinary activities before taxation | (7) | (1,911) | (1,918) | 66 | 100 | 166 | 183 | ||
| Tax on total comprehensiveincome and ordinary activities | 7 | (7) | - | (2) | 2 | - | - | ||
| Return attributable to equity shareholders | - | (1,918) | (1,918) | 64 | 102 | 166 | 183 | ||
| Return per Share | - | (6.7p) | (6.7p) | 0.2p | 0.4p | 0.6p | 0.6p | ||
The total column within the Income Statement represents the profit and loss account of the Company. No operations were acquired or discontinued during the period.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement as noted above.
UNAUDITED BALANCE SHEET
as at 30 April 2020
| 30 Apr 2020 | 30 Apr 2019 | 31 Oct 2019 | |||
| £’000 | £’000 | £’000 | |||
| Fixed assets | |||||
| Investments | 14,756 | 17,123 | 16,627 | ||
| Current assets | |||||
| Debtors | 34 | 129 | 46 | ||
| Cash at bank and in hand | 1,500 | 3,253 | 2,477 | ||
| 1,544 | 3,382 | 2,523 | |||
| Creditors: amounts falling due within one year | (54) | (65) | (69) | ||
| Net current assets | 1,481 | 3,317 | 2,454 | ||
| Net assets | 16,237 | 20,440 | 19,081 | ||
| Capital and reserves | |||||
| Called up share capital | 284 | 288 | 284 | ||
| Capital redemption reserve | 104 | 100 | 104 | ||
| Share premium | 1,478 | 1,478 | 1,478 | ||
| Merger reserve | 529 | 529 | 529 | ||
| Special reserve | - | 127 | - | ||
| Capital reserve - realised | 9,107 | 11,283 | 10,113 | ||
| Capital reserve - unrealised | 4,186 | 6,049 | 6,024 | ||
| Revenue reserve | 549 | 586 | 549 | ||
| Equity shareholders’ funds | 16,237 | 20,440 | 19,081 | ||
| Net asset value per share | 57.0p | 70.8p | 67.0p |
STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 April 2020
| ShareCapital | CapitalRedemptionreserve | Sharepremium | Mergerreserve | Specialreserve | Capital reserve -realised | Capital reserve -unrealised | Revenuereserve | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| At 1 November 2018 | 290 | 98 | 1,478 | 529 | 406 | 12,222 | 5,782 | 522 | 21,327 |
| Total comprehensive income | - | - | - | - | - | (277) | 375 | 85 | 183 |
| Transfers between reserves | - | - | - | - | (70) | 203 | (133) | - | - |
| Transactions with owners | |||||||||
| Purchase of own shares | (6) | 6 | - | - | (336) | - | - | - | (336) |
| Dividends paid | - | - | - | - | - | (2,035) | - | (58) | (2,093) |
| At 31 October 2019 | 284 | 104 | 1,478 | 529 | - | 10,113 | 6,024 | 549 | 19,081 |
| Total comprehensive income | - | - | - | - | - | (147) | (1,771) | - | (1,918) |
| Transfers between reserves | - | - | - | - | - | 67 | (67) | - | - |
| Transactions with owners | - | - | - | ||||||
| Purchase of own shares | - | - | - | - | - | - | - | - | |
| Dividends paid | - | - | - | - | - | (926) | - | - | (926) |
| At 30 April 2020 | 284 | 104 | 1,478 | 529 | - | 9,107 | 4,186 | 549 | 16,237 |
UNAUDITED CASH FLOW STATEMENTfor the six months ended 30 April 2020
| Six months ended30 Apr 2020 | Six monthsended30 Apr 2019 | Year ended 31 Oct 2019 | |
| £’000 | £’000 | £’000 | |
| Cash flows from operating activities | |||
| Return on ordinary activities before taxation | (1,918) | 166 | 183 |
| Losses/(gains) on investments | 1,771 | (232) | (362) |
| (Increase)/decrease in other debtors | 11 | (27) | 55 |
| (Decrease)/increase in other creditors | (15) | (53) | 9 |
| Net cash outflow from operating activities | (151) | (146) | (115) |
| Cash flows from investing activities | |||
| Proceeds from disposal of investments | 100 | 689 | 1,415 |
| Purchase of investments | - | - | (100) |
| Net cash inflow from investing activities | 100 | 689 | 1,315 |
| Net cash inflow before financing activities | (52) | 543 | 1,200 |
| Cash flows from financing activities | |||
| Equity dividends paid | (926) | (940) | (2,092) |
| Purchase of own shares | - | (113) | (394) |
| Net cash outflow from financing activities | (926) | (1,053) | (2,486) |
| Decrease in cash | (977) | (510) | (1,286) |
| Net movement in cash | |||
| Beginning of the period | 2,477 | 3,763 | 3,763 |
| Net cash outflow | (977) | (510) | (1,286) |
| End of the period | 1,500 | 3,253 | 2,477 |
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS1.General informationChrysalis VCT plc (“the Company”) is a Venture Capital Trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales.
2.Accounting policiesBasis of accountingThe unaudited half-yearly results cover the six months to 30 April 2020 and have been prepared in accordance with the accounting policies set out in the annual accounts for the year ended 31 October 2019 and in accordance with the Financial Reporting Standard 102 (“FRS 102”) and in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies” revised November 2014 (“SORP”).
3.The comparative figures were in respect of the six months ended 30 April 2019 and the year ended 31 October 2019 respectively.
4.Basic and diluted return per Share
| Six months ended30 Apr 2020 | Six monthsended30 Apr 2019 | Yearended31 Oct 2019 | |
| Return per Share based on: | |||
| Net revenue return for the period (£’000) | - | 64 | 85 |
| Capital return per Share based on: | |||
| Net capital gain for the period (£’000) | (1,918) | 102 | 98 |
| Weighted average number of Shares | 28,472,025 | 28,970,909 | 28,824,085 |
5.Basic and diluted net asset value per share
| 30 Apr 2020 | 30 Apr 2019 | 31 Oct 2019 | |
| Net asset value per share based on: | |||
| Net assets (£’000) | 16,237 | 20,440 | 19,081 |
| Number of shares in issue at the period end | 28,472,025 | 28,860,025 | 28,472,025 |
| Net asset value per share | 57.0p | 70.8p | 67.0p |
6.Called up share capital
| Shares in issue | £’000 | ||
| Period ended 30 April 2020 | 28,472,025 | 284 | |
| Period ended 30 April 2019 | 28,860,025 | 288 | |
| Year ended 31 October 2019 | 28,472,025 | 284 |
7.Reserves The special reserve is available to the Company to enable the purchase of its own shares in the market without affecting its ability to pay dividends, and also allows the Company to make transfers between reserves to offset realised capital losses arising on disposals and impairments.
Distributable reserves are calculated as follows:
| Six months ended30 Apr 2020 | Six monthsended30 Apr 2019 | Yearended 31 Oct 2019 | |
| £’000 | £’000 | £’000 | |
| Special reserve | - | 127 | - |
| Capital reserve - realised | 9,107 | 11,283 | 10,113 |
| Revenue reserve | 549 | 586 | 549 |
| Merger reserve – distributable element | 275 | 276 | 275 |
| Unrealised losses – excluding unrealised unquoted gains | (2,907) | (688) | (838) |
| 7,024 | 11,584 | 10,099 |
8.Risks and uncertaintiesUnder the Disclosure and Transparency Directive, the Board is required in the Company’s half year results to report on principal risks and uncertainties facing the Company over the remainder of the financial year.
The Board has concluded that the key risks facing the Company over the remainder of the financial period are as follows:
-investment risk associated with investing in small and immature businesses; and-failure to maintain approval as a VCT.
In both cases, the Board is satisfied with the Company’s approach to these risks.
As a VCT, the Company is forced to have significant exposure to relatively immature businesses. This risk is mitigated to some extent by holding a diversified portfolio. The impact of the coronavirus pandemic has been significant on some portfolio companies and, in many cases, the VCT regulations restrict the Company from making further investment into these business so the Manager seeks to provide whatever other support they can to these businesses, including encouraging them to take advantage of government support that may be available.
The Company’s compliance with the VCT regulations is continually monitored by the Administration Manager, who regularly reports to the Board on the current position. The Company also retains Philip Hare and Associates LLP to provide regular reviews and advice in this area. The Board considers that this approach reduces the risk of a breach of the VCT regulations to a minimal level.
9.Going concernThe Company has sufficient financial resources at the period end, and holds a reasonably diversified portfolio of investments. As a consequence, the Directors believe that the Company is reasonably well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors confirm that they are satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason, they believe that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements.
10.The Directors confirm that, to the best of their knowledge, the half yearly financial statements have been prepared in accordance with FRS 104 Interim Financial Reporting and the Half-Yearly Report includes a fair review of the information required by:
-DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and
-DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.
11.The unaudited financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 October 2019 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Independent Auditor’s Report on those financial statements was unqualified.
12.Copies of the unaudited half yearly report will be sent to Shareholders shortly. Further copies can be obtained from the Company’s registered office and will be available for download from www.chrysalisvct.co.uk.