TIDMCYS
Chrysalis VCT plc
Final Results for the year ended 31 October 2008
FINANCIAL HIGHLIGHTS
2008 2007
pence pence
Ordinary Shares
Net asset value (per share) 88.30 91.50
Cumulative distributions paid since launch (per share) 18.95 13.45
Total return (net asset value plus cumulative 107.25 104.95
distributions paid) (per share)
'D' Shares
Net asset value (per share) 81.80 106.10
Cumulative distributions paid since launch (per share) 3.25 1.25
Total return (net asset value plus cumulative 85.05 107.35
distributions paid) (per share)
'E' Shares
Net asset value (per share) 67.50 95.30
Cumulative distributions paid since launch (per share) 3.25 1.25
Total return (net asset value plus cumulative 70.75 96.55
distributions paid) (per share)
CHAIRMAN'S STATEMENT
I am pleased to present my first Annual Report since taking over as
Chairman of Chrysalis VCT plc. In view of the very difficult
financial circumstances in which the UK finds itself, it is a
particular pleasure to be able to report on a positive and successful
period for Chrysalis VCT in the year 31 October 2008.
Directorate change
Robert Drummond, the previous Chairman, stepped down as a Director of
the Company on 30 November 2008. Julie Baddeley and I would like to
thank Robert for his commitment to the Company since his appointment
in 2000, and for the work undertaken during the transformation of the
Company from Downing Classic VCT 3 plc to Chrysalis VCT plc.
Martin Knight was appointed to the Board on 20 October 2008. Martin
has a strong track record in the investment sector and brings
extensive relevant experience to the Board.
Net Asset Value
As shareholders are aware, Chrysalis has three classes of shares,
namely the Ordinary Shares, which account for 97% of the value of the
VCT, and two very much smaller share pools, the 'D' and 'E' Shares.
Given the state of the economy the Ordinary Share portfolio, which
has investments dating back to 1999 has had a reasonable year,
largely due to some successful exits from long-standing investments.
At 31 October 2008, the Net Asset Value ("NAV") per Ordinary Share
was 88.3p, an increase of 2.3p or 2.5% over the year (after adjusting
for the dividends totalling 5.5p per share paid during the year).
The 'D' and 'E' Share portfolios are much less mature having only
been invested since June 2006 and consequently, have suffered from
the severe change in the economy. At 31 October 2008, the NAV per 'D'
Share had fallen to 81.8p, a decrease of 22.3p or 26.6% over the year
(after adjusting for the dividend of 2p per share paid during the
year).
At 31 October 2008, the NAV per 'E' Share had fallen to 67.5p, a
decrease of 25.8p or 37.1% over the year (after adjusting for the
dividend of 2.0p per share paid during the year).
The Total Return (NAV plus cumulative dividends paid since launch) to
Ordinary Shareholders since the Company's launch (when it was known
as Downing Classic VCT 3 plc) now stands at 107.3p per Ordinary Share
compared to an original investment (net of income tax relief) of 80p
per Ordinary Share.
The Total Return at the year end per 'D' Share stood at 85.0p and per
'E' Share stood at 70.7p, which compares to the original cost of
investment for each of the 'D' and 'E' Shares (net of income tax
relief) of 60p per share
Venture capital investments
The Investment Management Team, led by Chris Kay, has had another
successful year, despite increasingly difficult conditions, achieving
three realisations and realising profits of GBP3.5 million compared to
the original purchase cost. I would like to take this opportunity in
congratulating them on this achievement.
The Company also invested GBP1.7 million during the year, across the
three share pools; GBP1.2 million into three new company's and GBP532,000
in follow-on investments.
Unfortunately, the Company suffered from a number of failures during
the year. Hat Pin plc, Ultralon Holdings Limited, Spice Inns Limited
and Zest Juice Limited were put into administration or liquidation,
resulting in an unrealised loss of GBP3.0 million across the share
pools. Although the larger losses were borne by the Ordinary Share
pool, due to the small size of the 'D' and 'E' Share pools, the
impact thereon was far greater as shown in the table below:
Unrealised Realised Net NAV
impact
GBP'000 GBP'000 GBP'000 Pence
Ordinary Share
(788) 719 (69) (0.2)
'D' Share (131) - (131) (24.4)
'E' Share (96) (70) (166) (27.6)
(1,015) 649 (366)
As expected in the current conditions, the AIM portfolio has been
affected by weak stock prices, falling in value by GBP1.2 million
(excluding Hat Pin discussed above) during the year from GBP2.2 million
to GBP780,000.
It is somewhat comforting that, at present, the majority of the
Company's remaining unquoted portfolio is performing satisfactorily
and, in two cases, Precision Dental Laboratories Limited and Wessex
Advance Switching Products Limited have justified uplifts in their
valuations by GBP997,000 and GBP1.4 million respectively.
Further commentary on the portfolio, together with a schedule of the
additions, disposals and details of the top performing investments
can be found within the Investment Manager's Report and Review of
Investments below.
Listed fixed income securities
The Ordinary Share pool continues to hold a portfolio of fixed income
securities and a further GBP6.4 million (GBP3.2 million of which was
re-invested from maturing securities) was invested during the year.
The portfolio comprises almost entirely of gilt-edged securities
which have provided a higher level of comfort than many alternatives
and some protection against falling returns, particularly during the
banking crisis which occurred in the autumn.
At 31 October 2008, this portfolio was valued at GBP8.2 million.
During the year this portfolio produced an unrealised gain of
GBP121,000 and a negligible realised gain.
Results and dividend
Due to GBP400,000 of received dividends principally from Precision
Dental Laboratories Limited and Wessex Advanced Switching Products
Limited, the Revenue account performed particularly well this year
enabling the total return to be in profit for the year. The total
return on ordinary activities for the year was as follows:
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Ordinary Share 908 (366) 542
'D' Share 16 (135) (119)
'E' Share 15 (170) (155)
939 (671) 268
During the year the Company paid an interim capital dividend of 2.0p
per Ordinary Share on 25 July 2008. A further 4.0p interim dividend,
comprising a 2.5p revenue and 1.5p capital dividend, was paid to
Ordinary Shareholders on 15 December 2008. No interim dividends were
paid in respect of the 'D' or 'E' Shares.
Following the payment of record dividends, totalling 6.0p to Ordinary
Shareholders in respect of the year under review, the Board has taken
the decision not to pay a final dividend for the year to 31 October
2008.
No final dividends will be paid in respect of the 'D' or 'E' Shares
for the year to 31 October 2008, however interim dividends for the
year ended 31 October 2009 will be paid as described below.
Planned conversion of 'D' Shares and 'E' Shares
The 'D' Share and 'E' Share pools are very small in comparison to the
Ordinary Share pool and create additional complications in the
investment management activities, particularly in the allocation of
new investments between the various pools.
When the 'D' and 'E' Shares were launched, the Company targeted a
return to 'D' Shareholders of 20p per share, and 'E' Shareholders 30p
per Share by 5 April 2010. To date 'D' and 'E' Shareholders have
each received dividends totalling 3.25p per share. The Board is
pleased to announce that the Company is in a position to meet these
targets earlier than originally envisaged. The Company will pay
dividends of 16.75p per 'D' Share and 26.75p per 'E' Share on 24
April 2009 to shareholders on the register at 13 March 2009.
Following the payment of these dividends, the Board is proposing to
convert both 'D' Shares and 'E' Shares into Ordinary Shares on 30
April 2009, such that the Company will have just one share class and
one pool of investments. It is proposed that the conversion will be
undertaken using relative audited net asset values per share of the
share classes as at 31 October 2008, adjusted for the dividend
payments noted above. Under the proposals, 'D' and 'E' Shares will
receive Ordinary Shares as follows:
For every 1,000 'D' Shares, 736 Ordinary Shares
For every 1,000 'E' Shares, 461 Ordinary Shares
In order to implement the conversions, the Company's Articles of
Association need to be amended. A resolution will be put to
Shareholders at the forthcoming AGM. In addition consent will be
required from each share class, so separate Share Class meetings for
each of the Ordinary Shares, 'D' Shares and 'E' Shares will also be
held.
Share buybacks
During the year the Company purchased 1,540,670 Ordinary Shares for
cancellation at an average price of 75.8p per share. 3,090 'D'
Shares were purchased for cancellation during the year at a price of
81.5p per share. No 'E' Shares were purchased during the year.
The Board has reviewed the Company's share buyback policy in light of
current market conditions and general trends within the VCT market.
The Board realises that there may be forced sellers of the Company's
shares and therefore feels it is important to continue to have a
policy of buying in its own shares. However, to protect the interests
of all shareholders, the Board believes that the discount at which
the Company purchases shares must be increased from the levels at
which these have been undertaken.
In future, the Board intends to undertake any buybacks of Ordinary
shares at a 25% discount to the latest published NAV.
In light of the 'D' Shares and 'E' Shares dividends that the Company
will pay on the in April and proposed conversion of the 'D' Shares
and 'E' Shares into Ordinary Shares, the Board does not expect to
undertake any buybacks on 'D' Shares or 'E' Shares. The Board will
regularly review the Company's share buyback policy and make changes
should circumstances change.
Resolution 6 will be put to Shareholders at the forthcoming AGM to
give the Company authority to repurchases its own shares in the
market.
Articles of Association
At the forthcoming AGM, the Board will seek Shareholder approval to
update the Company's Articles of Association. Resolution 7, which is
a special resolution, proposes the adoption of new Articles of
Association which incorporate a number of changes which are required
as a result of the implementation of the Companies Act 2006 as well
as the conversion of the 'D' and 'E' Shares.
Articles of Association re Directors remuneration
Under the Company's current Articles of Association, the aggregate
fees payable to the Directors for their normal services shall not
exceed a sum of GBP75,000 per annum. This sum has been fixed at this
level for some time and is currently fully utilised by the current
Board costs. The Board believes an increase in the spending cap is
overdue. At current levels we cannot provide for natural cost
inflation, nor are we able to consider any expansion of the Board to
provide additional non-executive skills which might be necessary to
enhance its decision making processes.
The current cap is clearly inappropriate and the Board is proposing
to amend the Articles of Association such that aggregate directors'
remuneration will not exceed GBP150,000 per annum. Shareholders should
note that there are no plans at the current time to fully utilise the
proposed revised level. This proposed amendment to the Articles of
Association is proposed for adoption by Resolution 8 at the
forthcoming AGM.
Annual General Meeting/ Separate Class Meetings
The next AGM of the Company will be held at Kings Scholars House, 230
Vauxhall Bridge Road, London SW1V 1AU at 3:00pm on 25 March 2009.
Three items of Special Business are being proposed at the meeting to
renew the authority to allow the Company to make market purchases of
the Company's shares, to update the Articles of Association, and to
uplift the upper limit on the total aggregate ordinary remuneration
for the Directors to GBP150,000 per annum from GBP75,000.
As mentioned above, separate class meetings are also required where
consent from each share class will be sought for the proposed
alterations to the Articles of Association. These meetings will be
held immediately following the AGM as follows:
Ordinary Shares 3:15pm
'D' Shares 3:20pm
'E' Shares 3:25pm
Outlook
The current business climate is unprecedented in recent times, both
in the severity of the swing into economic difficulties caused by the
credit crisis and in the lack of clarity as to what is likely to
happen in the coming year or two. All we can say with any certainty
is the forthcoming year will be challenging for our portfolio
companies.
The Company's more mature investments, which comprise a fair
proportion of the portfolio, should provide some stability but
experience shows that immature companies will have less resilience.
All investee companies will be closely monitored and supported as
appropriate.
In addition to a well managed portfolio, the key advantage this
Company possesses is GBP11.3 million of liquid funds available
(following the payment of the dividend in December 2008), which means
we are well placed to provide support to investee companies if
required, whilst still conserving sufficient resources in order to
take advantage of opportunities that will hopefully arise when
economic conditions start to improve.
Peter Harkness
Chairman
INVESTMENT MANAGER'S REPORT
There is no doubt that the economy is going through challenging times
and the VCT is not immune with unfortunately four of our investee
companies, Zest Juice Limited, Ultralon Holdings Limited, Hat Pin plc
and Spice Inns Limited going into administration during the year.
However that has been more than balanced by three significant exits
(ILG Digital Limited ("ILG"), Babel Media Limited ("Babel") and
Advance Media Information Limited ("AMI")) all at prices above their
previous valuations and generating GBP7.5 million of proceeds.
These realisations, coupled with a deliberate slowing down in the
rate of new investment as the warning signs of recession became ever
more apparent during the year, means that following the payment of
the dividend in December 2008, the VCT has GBP11.3 million of cash at
its disposal. This is despite returning GBP4.2 million of cash to
shareholders in the form of dividends and share buy-backs in the last
10 months of 2008.
We believe that this cash is a major strength for the VCT for two
distinct reasons.
Firstly we have calculated that the VCT could currently refinance ALL
the bank borrowings of all the companies that make up 90% of the
value of our invested portfolio. That is not to say that we would
wish to do so but it does give the VCT considerable options and means
that our portfolio is not under threat from the whims of the banks.
Secondly, assuming the economy does not move into a prolonged
recession, at some stage there will be great value investments to be
made by those who have ready cash to invest. Our research based on
the last two recessions has indicated that in the past the best time
to invest in the type of companies that VCTs are allowed to invest
in, was towards the end of the recession i.e. once there were
distinct signs of recovery in place. Therefore we will not be rushing
into many new investments but will be monitoring events closely and
hopefully getting our timing right.
Incidentally it is worth pointing out that as a long established VCT,
Chrysalis is allowed to invest in a wider range of companies than
those permitted for VCTs that have raised their money in the last two
years and therefore for certain investments there should be less
competition.
With regard to the health of our existing portfolio, clearly as
predominantly UK based businesses any severe downturn will affect
their trading performance and hence valuations. However our top nine
investee companies which account for over 80% of the invested
portfolio by value (another example of the famous 80:20 rule) are
starting from reasonable positions, in that they all reported profits
in their last set of accounts and all, except British International
Holdings Limited, are not significantly geared.
The one area of the portfolio where valuations have suffered badly is
our (fortunately small) AIM portfolio. Our seven current AIM
investments were worth GBP2.17 million at the start of the financial
year but had declined to GBP780,000 (down 64%) by the end of the year
despite virtually all reporting good sets of results. We believe that
these companies are currently undervalued and so would not wish to
sell even if there was suitable liquidity. However, on the other
hand, the VCT rules work to discourage buying cheap shares on the
market, firstly because any such purchases are not qualifying
investments and secondly because at current prices any purchase would
have an impact on the Inland Revenue qualification % which cannot be
allowed to fall below 70%.
In summary although the immediate outlook for the UK economy is grim,
the actions we have taken over the last 3 years particularly in
realising over GBP19 million of cash (equivalent to 70% of the current
value of the Ordinary Share Pool) and not getting involved in highly
leveraged investments should enable the VCT to benefit from the
opportunities that the inevitable recovery will produce.
A complete summary of realisations made by the Company during the
year is presented below. We would just like to provide some further
details on the three major exits, namely AMI, ILG and Babel.
As we have mentioned previously a common feature of most of our
successful exits is that the investee company has received a number
of investments from Chrysalis and these three are no exception with
the VCT investing four times in both Babel and AMI, and twice in ILG.
Clearly the decision as to whether to reinvest or not (since it is
very easy to lose money by continually supporting companies that
eventually fail) can only be properly made by maintaining close
relationships with the investee companies. Consequently a large
proportion of the investment manager's time is spent on the existing
portfolio.
All three exits were to trade buyers and at prices that look even
better now than they did at the time. It does seem that in any
business cycle there is only a short window when small private
companies are "in fashion" and therefore takeover targets,
consequently it is important to grab the opportunities to exit when
they occur. Unfortunately this window often seems to occur late in
any business cycle (and often marks the peak) therefore we are not
anticipating any significant exits this year.
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments, all of which are incorporated in England
and Wales, were held at 31 October 2008:
Valuation
movement % of
Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000 by value
ORDINARY SHARE POOL
Ten largest venture capital investments
(by value)
Precision Dental Laboratories 2,110 3,174 997 11.5%
Group Limited
Wessex Advanced Switching 704 2,867 1,436 10.4%
Products Limited
Centre Design Limited 1,350 1,482 277 5.4%
London Italian Restaurants 1,000 1,000 - 3.6%
Limited
Mentorion Limited 700 987 167 3.6%
Triaster Limited 758 889 (32) 3.2%
British International Holdings 700 797 97 2.9%
Limited
Ensign Communications Limited 500 704 19 2.6%
Mentorion 2 Limited 700 700 - 2.6%
Optima Data Intelligence 450 450 - 1.6%
Limited
8,972 13,050 2,961 47.4%
Other venture capital
investments
CPI Acquisition UK Limited 300 300 - 1.1%
Glisten plc * 149 294 (446) 1.1%
RFTRAQ Limited 325 270 (410) 1.0%
The Capital Pub Company plc * 505 237 (434) 0.9%
Planet Sport (Holdings) 250 225 - 0.8%
Limited
Gcrypt Limited 170 193 23 0.7%
Lifes Kitchen Ltd. 165 165 - 0.6%
BreakingViews Limited - 141 - 0.5%
Rhino Sport and Leisure 116 122 6 0.5%
Limited
Cashfac Limited - 83 83 0.3%
Global3Digital Limited 67 67 - 0.2%
The Mission Marketing Group 150 65 (110) 0.2%
plc *
The Kellan Group plc * 320 65 (81) 0.2%
YouGov plc * 20 59 (66) 0.2%
Best of the Best plc * 98 39 (50) 0.1%
Heath and Green Limited 30 30 - 0.1%
ILX Group plc * 100 21 (56) 0.1%
Art VPS Limited 358 - - -
Forward Media Limited 440 - (158) -
Hat Pin plc @ # 245 - (283) -
IX Group plc 250 - - -
Kids SafteyNet Limited 637 - - -
Patterning Technology Limited 286 - - -
#
Shopcreator Limited # 255 - - -
Spice Inns Limited # 850 - (789) -
Ultralon Holdings Limited # 978 - (978) -
7,064 2,376 (3,749) 8.6%
Listed fixed income securities
Treasury 4 �% 2011 Stock 1,883 1,938 56 7.0%
UK THM Treasury 2009 1,546 1,561 15 5.7%
Treasury 5 �% 2012 Stock 1,477 1,507 30 5.5%
Treasury 4% 2009 Stock 1,215 1,232 23 4.5%
Treasury 8% 2013 Stock 1,163 1,154 (9) 4.2%
Nucleus cash trust 763 768 6 2.8%
8,047 8,160 121 29.7%
Total 24,083 23,586 (667) 85.7%
Cash at bank and in hand 3,941 14.3%
Total investments 27,527 100.0%
Valuation
movement % of
Cost Valuation in year portfolio
GBP'000 GBP'000 GBP'000 by value
'D' SHARE POOL
Mentorion Limited 50 71 12 16.4%
British International Holdings 50 57 7 13.2%
Limited
Rhino Sport and Leisure Limited 50 52 2 12.1%
CPI Acquisition UK Limited 50 50 - 11.6%
Mentorion 2 Limited 50 50 - 11.6%
Hat Pin plc @ # 80 - (106) -
Spice Inns Limited # 50 - (46) -
380 280 (131) 64.9%
Cash at bank and in hand 151 35.1%
Total Investments 431 100.0%
'E' SHARE POOL
CPI Acquisition UK Limited 50 50 - 12.3%
Optima Data Intelligence 50 50 - 12.3%
Limited
Spice Inns Limited # 50 - (46) -
Ultralon Holdings Limited # 50 - (50) -
200 100 (96) 24.6%
Cash at bank and in hand 306 75.4%
Total Investments 406 100.0%
All investments are unquoted unless otherwise stated.
* Quoted on AIM @ Delisted from
AIM # In Administration
Investment movements for the year ended 31 October 2008
ADDITIONS
Ordinary 'D' 'E'
shares Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000
New investments
Heath and Green Limited 30 - - 30
Lifes Kitchen Limited 165 - - 165
London Italian Restaurants Limited 1,000 - - 1,000
1,195 - - 1,195
Follow on investments
Babel Media Limited 100 - - 100
GCrypt Limited 64 - - 64
Hat Pin plc 125 - - 125
Precision Dental Laboratories Limited 10 - - 10
Ultralon Holdings Limited 28 - - 28
Wessex Advanced Switching Products 5 - - 5
Limited
Zest Juice Limited 180 - 20 200
512 - 20 532
Listed fixed income securities
Nucleus cash trust 365 - - 365
Treasury 4 �% 2011 Stock 1,883 - - 1,883
Treasury 5 �% 2012 Stock 1,476 - - 1,476
Treasury 8% 2013 Stock 1,163 - - 1,163
UK THM Treasury 2009 1,546 - - 1,546
6,433 - - 6,433
Total investments 8,140 - 20 8,160
DISPOSALS
Cost MV at Proceeds Profit/ Realised
31/10/07* (loss) vs gain/
cost (loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Ordinary Share pool
Full disposals
Advance Media Information
Limited 615 934 1,175 560 241
Babel Media Limited 1,705 2,936 3,190 1,485 254
ILG Digital Limited 806 2,101 2,666 1,860 565
Tellings Golden Miller
plc 75 30 48 (27) 18
Partial disposals
BreakingViews Limited - 45 56 56 11
You Gov plc 24 150 106 82 (44)
Liquidation
Zest Juice Limited 630 630 - (630) (630)
Retention monies from
prior disposals - - 304 304 304
Listed fixed income
securities
Nucleus Cash Trust 2 2 2 - -
Treasury 4�% 2007 Stock 2,084 1,927 1,925 (159) (2)
Treasury 5% 2008 Stock 1,218 1,200 1,203 (15) 3
Total venture capital 7,159 9,955 10,675 3,516 720
investments
'E' Share pool
Zest Juice Limited 70 70 - (70) (70)
* Adjusted for purchases in the year
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and
regulations.
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). The financial statements are required
by law to 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 those financial statements, the Directors are required
to:
* select suitable accounting policies and then apply them
consistently;
* make judgements and 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;
* 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 proper accounting records
which 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 requirements of the
Companies Act 1985. 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. The
Directors are responsible for ensuring that the Report of the
Directors and other information included in the Annual Report is
prepared in accordance with company law in the United Kingdom. They
are also responsible for ensuring that the Annual Report includes
information required by the Listing Rules of the Financial Services
Authority.
INCOME STATEMENT
for the year ended 31 October 2008
Company position
Year ended 31 October 2008 Year ended 31 October
2007
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 1,602 - 1,602 1,294 - 1,294
(Losses)/gains on - (258) (258) - 2,992 2,992
investments
1,602 (258) 1,344 1,294 2,992 4,286
Investment (126) (377) (503) (125) (377) (502)
management fees
Performance - (175) (175) - (228) (228)
incentive fees
Other expenses (300) (20) (320) (308) - (308)
Return on ordinary
activities
before tax 1,176 (830) 346 861 2,387 3,248
Tax on ordinary (237) 159 (78) (255) 190 (65)
activities
Return attributable
to equity
Shareholders 939 (671) 268 606 2,577 3,183
Basic and diluted
return per
share:
Ordinary Share 2.8p (1.1p) 1.7p 1.7p 7.6p 9.3p
'D' Share 2.8p (25.3p) (22.5p) 2.1p 8.8p 10.9p
'E' Share 2.6p (28.4p) (25.8p) 2.5p (1.4p) 1.1p
Split as:
Ordinary shares
Year ended 31 October 2008 Year ended 31 October
2007
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 1,553 - 1,553 1,239 - 1,239
Gains on investments - 39 39 - 2,943 2,943
1,553 39 1,592 1,239 2,943 4,182
Investment (122) (365) (487) (121) (363) (484)
management fees
Performance - (175) (175) - (228) (228)
incentive fees
Other expenses (298) (20) (318) (296) - (296)
Return on ordinary
activities
before tax 1,133 (521) 612 822 2,352 3,174
Tax on ordinary (225) 155 (70) (242) 186 (56)
activities
Return attributable
to equity
shareholders 908 (366) 542 580 2,538 3,118
'D' shares
Year ended 31 October 2008 Year ended 31 October
2007
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 25 - 25 24 - 24
(Losses)/gains on - (131) (131) - 53 53
investments
25 (131) (106) 24 53 77
Investment (2) (6) (8) (2) (7) (9)
management fees
Other expenses (1) - (1) (6) - (6)
Return on ordinary
activities
before tax 22 (137) (115) 16 46 62
Tax on ordinary (6) 2 (4) (5) 2 (3)
activities
Return attributable
to equity
shareholders 16 (135) (119) 11 48 59
'E' shares
Year ended 31 October 2008 Year ended 31 October
2007
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 24 - 24 31 - 31
Losses on - (166) (166) - (4) (4)
investments
24 (166) (142) 31 (4) 27
Investment (2) (6) (8) (2) (7) (9)
management fees
Other expenses (1) - (1) (6) - (6)
Return on ordinary
activities
before tax 21 (172) (151) 23 (11) 12
Tax on ordinary (6) 2 (4) (8) 2 (6)
activities
Return attributable
to equity
shareholders 15 (170) (155) 15 (9) 6
The revenue and capital movements in the year for the Ordinary
Shares, 'D' Shares and 'E' Shares relate to continuing operations.
The total column within the Income Statement represents the profit
and loss account of the Company.
A Statement of Total Recognised Gains and Losses relating to each
class of share has not been prepared as all gains and losses are
recognised in the relevant Income Statements as shown on page 28 and
above.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the year ended 31 October 2008
Year ended Year ended
31 October 2008 31 October 2007
Ordinary 'D' 'E' Ordinary 'D' 'E'
Shares Shares Shares Total shares Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening
shareholders'
funds 29,898 569 573 31,040 29,033 517 574 30,124
Purchase of
own
shares (1,174) (3) - (1,177) (1,232) - - (1,232)
Total
recognised
gains for the
year 542 (119) (155) 268 3,118 59 6 3,183
Distributions (1,766) (11) (12) (1,789) (1,021) (7) (7) (1,035)
Closing
shareholders'
funds 27,500 436 406 28,342 29,898 569 573 31,040
BALANCE SHEET
at 31 October 2008
Year ended Year ended
31 October 2008 31 October 2007
Ordinary 'D' 'E' Ordinary 'D' 'E'
Shares Shares Shares Total Shares Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 23,586 280 100 23,966 26,068 410 246 26,724
Current assets
Debtors 253 10 5 268 278 5 5 288
Cash at bank
and 3,941 151 306 4,398 3,772 158 328 4,258
in hand
4,194 161 311 4,666 4,050 163 333 4,546
Creditors:
amounts
falling
due within
one
year (280) (5) (5) (290) (220) (4) (6) (230)
Net current
assets 3,914 156 306 4,376 3,830 159 327 4,316
Net assets 27,500 436 406 28,342 29,898 569 573 31,040
Capital and
reserves
Called up
share 312 5 6 323 327 5 6 338
capital
Capital
redemption
reserve 64 - - 64 49 - - 49
Share premium - 502 562 1,064 - 502 562 1,064
Merger reserve 8,694 - - 8,694 8,694 - - 8,694
Special 5,554 - - 5,554 7,318 - - 7,318
reserve
Capital
reserve - 12,262 15 (81) 12,196 9,858 19 (7) 9,870
realised
Capital
reserve - (496) (100) (100) (696) 2,966 31 (4) 2,993
unrealised
Revenue 1,110 14 19 1,143 686 12 16 714
reserve
Equity
shareholder's
funds 27,500 436 406 28,342 29,898 569 573 31,040
Net asset
value 88.3p 81.8p 67.5p 91.5p 106.1p 95.3p
per share
CASH FLOW STATEMENT
for year ended 31 October 2008
Year ended Year ended
31 October 2008 31 October 2007
Ordinary 'D' 'E' Ordinary 'D' 'E'
Shares Shares Shares Total Shares Shares Shares Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net cash
inflow
from operating
activities 584 10 15 609 145 9 10 164
Taxation (56) (3) (5) (64) (1) (1) (73)
(71)
Capital
expenditure
Purchase of
Investments (8,140) - (20) (8,160) (7,323) (278) (250) (7,851)
Sale of 8,821
investments 10,675 - - 10,675 74 - 8,895
Net cash
inflow/
(outflow) from
capital
expenditure 2,535 - (20) 2,515 1,498 (204) (250) 1,044
Equity
distributions
paid (1,769) (11) (12) (1,792) (1,021) (7) (7) (1,035)
Net cash
inflow/
(outflow)
before
financing 1,294 (4) (22) 1,268 551 (203) (248) 100
Financing
Share issue
costs - - - - (6) - - (6)
Shares
repurchased (1,125) (3) - (1,128) (1,254) - - (1,254)
(1,125) (3) - (1,128) (1,260) - - (1,260)
Increase/
(decrease)
in cash 169 (7) (22) 140 (709) (203) (248) (1,160)
NOTES
1. Basis of Accounting/Accounting policies
The Company has prepared the financial information 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") and has used the
historical cost convention except for the revaluation of certain
financial instruments.
In order to better reflect the activities of a Venture Capital Trust
and in accordance with guidance issued by the Association of
Investment Companies ("AIC"), supplementary information which
analyses the income statement between items of a revenue and capital
nature has been presented alongside the income statement. The net
revenue is the measure the Directors believe appropriate in assessing
the Company's compliance with certain requirements set out in Section
274 Income Tax Act 2007.
2. Return per ordinary share
Ordinary 'D' 'E'
Shares Shares Shares
Return per share based on:
Net revenue after taxation for the 908 16 15
financial year (GBP'000)
Weighted average number of shares in issue 32,053,843 533,987 601,376
Capital return per share based on:
Net capital loss for the financial year (366) (130) (170)
(GBP'000)
Weighted average number of shares in issue 32,053,843 533,987 601,376
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on return per ordinary share.
The return per share disclosed therefore represents both basic and
diluted return per share.
3. Net asset value per ordinary share
2008 2007
Shares in issue Net Asset Value Net Asset Value
2008 2007 Pence per GBP'000 Pence per GBP'000
share share
Ordinary
Shares 31,128,450 32,669,120 88.3p 27,500 91.5p 29,898
'D' Shares 532,982 536,072 81.8p 436 106.1p 569
'E' Shares 601,376 601,376 67.5p 406 95.3p 573
28,342 31,040
As the Company has not issued any convertible securities or share
options, there is no dilutive effect on net asset per ordinary
share. The net asset value per share disclosed therefore represents
both basic and diluted return per share.
4. Principal financial risks
As a VCT, the majority of the Company's assets are represented by
financial instruments which are held as part of the investment
portfolio. In order to ensure continued compliance with relevant VCT
regulation and to be in a position to deliver the long term capital
growth which is part of the Company's investment objective, the Board
is very much aware of the need to manage and mitigate the risks
associated with the financial instruments held within the investment
portfolio.
The management of these risks starts with the application of a clear
investment strategy which has been developed by the Board who are
experienced investment professionals. Furthermore, the Board has
appointed an experienced investment manager to whom they have
communicated the Company's investment objectives and whose
remuneration is linked to the achievement of those objectives. The
Investment Manager reports regularly to the Board on performance, and
to facilitate the direct Board involvement with key decisions, on
whether or not to invest, disinvest and the nature, terms and the
security of investments being made.
Further information about the VCT's investment policy is set out in
the Report of the Directors on page 16.
In addition to its investment portfolio, the VCT maintains a cash
position. The Directors consider that the risk profile associated
with cash deposits is low and thus the carrying value in the
financial statements is a close approximation of its fair value.
A review of the specific financial risks faced by the Company
follows.
Market risks
The key market risks to which the Company is exposed are interest
rate risk and market price 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.
Interest rate risk
The Company receives interest on cash deposits at a rate agreed with
its banker, while investments in loan stock and fixed interest
investments predominately attract interest at fixed rates. The
Company's future cash flows can be influenced by changes in interest
rates resulting in an increase or decrease in income from investments
linked to the base rate. A summary of the interest rate profile of
the Company's investments is shown in Note 17. As the Company must
comply with the VCT regulations, increases in interest rates could
lead to a potential breach of these regulations as the proportion of
the Company's income from sources other than shares and securities
could exceed the required level. The Company therefore monitors the
level of income received from fixed, floating and non interest
bearing assets to ensure that the regulations are not breached. The
Company has reviewed the financial impact that a 1.0% change in base
rate would have on the Company with income and the total return for
the year changing by GBP39,000, equivalent to a 4.2% impact on overall
income receivable by the Company. Such a change would have an
immaterial impact on Net Asset Value.
Market price risk
Market price risk arises from uncertainty about the future prices of
financial instruments held in accordance with the Company's
investment objectives. It represents the potential loss that the
Company might suffer through holding market positions in the face of
market movements. At 31 October 2008, the net unrealised loss on the
quoted portfolios (AIM-quoted and fixed income investments) was
GBP774,000 (2007: net gain GBP641,000).
The investments the Company holds are, in the main, thinly traded
(due to the underlying nature of the investments) and, as such, the
prices are more volatile than those of more widely traded, full list,
securities. In addition, the ability of the Company to realise the
investments at their carrying value may at times not be possible if
there are no willing purchasers. The ability of the Company to
purchase or sell investments is also constrained by the requirements
set down for VCTs.
The Board considers each investment purchase to ensure that an
acquisition will enable the Company to continue to have an
appropriate spread of market risk and that an appropriate risk reward
profile is maintained.
It is not the Company's policy to use derivative instruments to
mitigate market risk, as the Board believes that the effectiveness of
such instruments does not justify the cost or risk involved.
The Company's sensitivity to fluctuations in the share prices of its
quoted investments (AIM-quoted but excluding listed fixed interest
investments) is summarised below. A 50% fall in the share price in
each of the quoted investments held by the Company would have an
effect as follows:
Risk
exposure Impact on
(current Impact on NAV per
val'n) Net Assets share
GBP'000 GBP'000 Pence
50% fall in quoted stocks
Ordinary Share pool 780 (399) (1.2p)
'D' Share pool - - -
'E' Share pool - - -
A fall in shares prices generally would have a lesser impact on the
valuation of the unquoted portfolio due to the underlying nature of
the investment and securities held within each individual company. A
25% fall in the valuations of all of the unquoted investments held by
the Company would have an effect as follows:
Risk
exposure Impact on
(current Impact on NAV per
val'n) Net Assets share
GBP'000 GBP'000 Pence
25% fall in unquoted investment
valuations
Ordinary Share pool 14,646 (3,662) (11.8p)
'D' Share pool 280 (70) (13.1p)
'E' Share pool 100 (25) (4.2p)
The Company also has exposure to variations in the price of its
non-qualifying investments. As the investment is a government gilt,
such securities are subject to lower price fluctuations. A 2.5%
fall in the valuation of these assets held by the Company would have
the following impact:
Risk
exposure Impact on
(current Impact on NAV per
val'n) Net Assets share
GBP'000 GBP'000 Pence
2.5% fall in value of non-qualifying
investments
(government gilt)
Ordinary Share pool 8,160 (204) (0.7p)
'D' Share pool - - -
'E' Share pool - - -
In each case, the impact of such changes on the return for the year
would be that same as that on Net Assets and NAV per share.
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's financial assets that are exposed to
credit risk are summarised as follows:
2008 2007
GBP'000 GBP'000
Fair value through profit or loss assets
Investments in listed fixed income securities 8,160 4,735
Investments in loan stocks 7,584 10,793
Loans and receivables
Cash and cash equivalents 4,398 4,258
Interest and other receivables 206 271
20,348 20,057
Investments in loan stocks comprise a fundamental part of the
Company's venture capital investments and are managed within the main
investment management procedures.
Cash is mainly held by Bank of Scotland plc, which is an AA- rated
financial institution and, consequently the Directors consider that
the risk profile associated with cash deposits is low.
Interest, dividends and other receivables are predominantly covered
within the investment management procedures.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties
in meeting obligations associated with its financial liabilities. As
the Company only ever has a very low level of creditors and has no
borrowings, the Board believes that the Company's exposure to
liquidity risk is minimal.
5. Related party transactions
Chrysalis VCT Management Limited, a wholly owned subsidiary, is the
Company's Investment Manager and they receive a fee of 1.65% of net
assets per annum. During the period GBP503,000 (2007: GBP502,000) was
paid to Chrysalis VCT Management Limited in respect of these fees.
No amounts were outstanding at the year end.
An exit fee is payable quarterly to Chrysalis VCT Management Limited
(with effect from 1 May 2006) based on cash realisations from all
investments excluding quoted loan notes, redemptions of loan notes in
the normal course of business and other treasury functions. The exit
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�% of investments made prior to 30
April 2004. During the year exit fees of GBP175,000 (2007: GBP228,000)
were due to Chrysalis VCT Management Ltd. At the year end GBP1,000 was
outstanding (2007: GBP9,000).
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
2008, but has been extracted from the statutory financial statements
for the year ended 31 October 2008, which were approved by the Board
of Directors on 5 February 2009 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 s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 October 2007 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 S237(2) or (3) of the
Companies Act 1985.
A copy of the full annual report and financial statements for the
year ended 31 October 2008 will be printed and posted to shareholders
shortly. Copies will also be available to the public at the
registered office of the Company at Kings Scholars House, 230
Vauxhall Bridge Road, London SW1V 1AU and will be available for
download from www.downing.co.uk.
=--END OF MESSAGE---
This announcement was originally distributed by Hugin. The issuer is
solely responsible for the content of this announcement.
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