Chrysalis VCT AGM Report

Last week (27/2/2018) I attended the Annual General Meeting of Chrysalis VCT Plc (CYS) in the City of London. Here’s a brief report on the event. There were about half a dozen ordinary shareholders present, the three directors and fund management representatives despite the difficult travel conditions.

Chrysalis is of course a venture capital trust but somewhat different to many VCTs. It has a good performance record in recent years but does not undertake share buy-backs. As a result the shares trade at a high discount to NAV (about 20% at the time of writing). With a dividend yield of about 8% (and no tax on VCT dividends), many of the current shareholders may have purchased their shares in the market although some of my holdings date back to the year 2000 when I claimed capital gains roll-over relief.

The company is relatively small in size for a VCT, and the new VCT rules which require such companies to focus on early stage investments are causing the board some concerns apparently. There is reference in the Annual Report to “a review of the options available to the Company” and there was considerable discussion on that topic at the AGM.

Should the company wind-up? Or simply become an ordinary investment company rather than a VCT? Or perhaps look for a merger with another VCT? As regards the latter possibility, this company seems to be getting into the same situation as Rensburg AIM VCT which eventually merged with Unicorn but rather late in the day and after a lot of encouragement from me to take action. I likewise encouraged the directors of this company to make decisions fairly soon on the future of the company.

One matter discussed at the AGM was the company’s large investment in Coolabi where they hold debt repayable in 2020. Having looked at the Annual Report of that company available from Companies House before the meeting, I have a pretty jaundiced view of the value of that business. Although Chrysalis increased the valuation of their loan in the accounts, they actually wrote down their equity stake to zero it transpired (holders of Edge VCT who have a big equity stake in Coolabi should note). However, fund manager Chris Kay did make some very positive comments about the value of the intellectual property in Coolabi.

Chris also commented on the difficulty of making new investments at present with small companies now valued very highly and lots of competition for the good ones. The new VCT rules are making it more difficult and it seems that there are still long delays on getting pre-approval (advance clearance) from HMRC (now 3 to 6 months).

Obviously what the company decides to do affects different shareholders in different ways, depending on their tax status, whether they claimed roll-over relief on investment, and their desire to convert their holdings into cash. The company may do a survey of shareholders but they are not sure they will get a good response.

Those present gave their views on the situation and there were some differences. I plan to write to the Chairman giving my views in more detail. For example, I will probably suggest a “shareholder committee” that might act as a consultative group.

If you are holding shares in Chrysalis, are interested in discussing the future of this company, or would like a copy of my letter to the Chairman, you can contact me via this web page (my company’s web site): http://www.roliscon.com/contact.html

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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