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Chrysalis VCT plc: Final Results London Stock Exchange:CYS



(MENAFN - GlobeNewsWire - Nasdaq) itemprop="articleBody">Chrysalis VCT plc
Report & Accounts for the year ended 31 October 2018
LEI: 2138009FVDWULSIOX404
19 December 2018

FINANCIAL SUMMARY

31 Oct
2018
Pence 31 Oct
2017
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 £2.2million 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 £2.4 million in total; and to buy back 873,000 shares for a total sum of £550,000 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 £21.3 million from £23.9 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 £6.0 million in cash, fixed income securities and other listed investments at the year end.

The two fixed income investments fell in value by £65,000 to reflect their quoted values as at 31 October 2018. However, this reduction was more than offset by the cash interest of £94,000 received during the year.

Venture capital portfolio
At the year end, the Company held a portfolio of 18 venture capital investments, valued at £15.4 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 £2.2 million and resulted in an overall realised loss of £99,000.

£607,000 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 £732,000. 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 6th 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 £2 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 £538,000, 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 £732,000 (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 £138,000. However, there is a conditional deferred payment dependent on performance, which could produce a further £400,000 in May 2020.

Overall, valuation increases on the venture capital portfolio totalled £1.6 million. This total includes an uplift of £550,000 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 £337,000 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 £334,000.

Cambridge Mechatronics Limited, a high technology design and engineering company, was revalued upwards by £330,000 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 £705,000, 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:

Cost Valuation Valuation movement in year % of portfolio
by value £'000 £'000 £'000 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

Disposals

Cost Value at
01/11/17* Proceeds Total gain/
(loss) vs cost Realised
gain/(loss) £'000 £'000 £'000 £'000 £'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 £'000 £'000 £'000 £'000 £'000 £'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 diluted return per share 0.4p 0.7p 1.1p 0.6p 6.7p 7.3p 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

Called up
share capital Capital
redemption
reserve Share
premium Merger
reserve Special
reserve Capital reserve
- realised Capital reserve
- unrealised Revenue
reserve Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'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 £722,000 (2017: £465,000) 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 £1,475,000 (2017: £502,000) representing a permanent diminution in value, has been made between the Capital Reserve – unrealised and the Capital Reserve – realised. A transfer of £354,000 (2017: £200,000) 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 £828,000 (2017: £nil) 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 £'000 £'000 £'000 £'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 £'000 £'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: £'000 £'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 2018 2017 Pence
per share
£'000 Pence
per share
£'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: £118,000, 2017: £61,000) 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, £389,000 (2017: £408,000) was payable to Chrysalis VCT Management Limited in respect of these fees. At the balance sheet date £nil (2017: £104,000) 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 £54,000 (2017: £127,000) were due to Chrysalis VCT Management Limited. At the year-end, £nil (2017: £nil) 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 6th 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.

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Chrysalis VCT plc: Final Results London Stock Exchange:CYS

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