Chrysalis VCT Plc Chrysalis Vct Plc: Final Results

 
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)

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