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23 Dec 2011 12:36
The Income & Growth VCT plc 23 December 2011
Annual Financial Results of the Company for the Year ended 30 September 2011
Investment Objective
The objective of The Income & Growth VCT plc ("I&G" or "the Company") is to provide investors with an attractive return, by maximising the stream of dividend distributions from the income and capital gains generated by a diverse and carefully selected portfolio of investments.
The Company invests in companies at various stages of development. In some instances this may include investments in new and secondary issues of companies which may already be quoted on the Alternative Investment Market ("AiM") or PLUS.
Financial HighlightsThe net assets of the 'O' and 'S' Share Funds were merged to form one shareclass of Ordinary Shares on 29 March 2010. At that date, the net assets of themerged VCT were £35.7 million, which have increased to £49.2 million at 30September 2011.
The highlights during the year have been:-
- Increase of 25.9% in net asset value (NAV) total return to Shareholders
- Dividends totalling 4 pence per share were paid during the year and a special
capital dividend of 20 pence per share has been declared since the year-end
subsequent to the realisation of App-DNA. Further, a final dividend of 4
pence per share will be recommended to Shareholders at the AGM. These
payments will bring cumulative dividends paid to date to 28.5 pence per share
(43.7 pence per original share invested for shareholders who originally
invested in the former 'O' Share Fund) - Increase of 9.8% in share price total return to Shareholders - Strong liquidity has been maintained in the context of continuing market
volatility
Merger of the 'O' and 'S' share classes of the Company
The merger was effected by converting the relevant 'O' Shares into 'S' Shares using a conversion ratio of 0.7578. All the issued and unissued 'S' Shares were subsequently redesignated as Ordinary Shares on a 1 for 1 basis.
Performance Summary
The net asset value (NAV) per share at 30 September 2011 was 120.8 pence
To help Shareholders in each former share class understand the recent trend inperformance of their investment, comparative data for each former share classis shown below:- Net NAV Cumulative NAV total Share Share price assets per dividends return to price total (£m) Share paid per Shareholders (p) 2 return to (p) Share (p) since launch Shareholders per Share (p) (p)
Ordinary Shares ('S' Shares until 29 March 2010)
As at 30 September 49.2 120.8 4.5 125.3 91.6 96.12011 1 As at 30 September 36.6 99.0 0.5 99.5 87.0 87.52010 As at 30 September 11.0 93.2 0.0 93.2 94.5 94.52009 As at 30 September 11.2 94.6 0.0 94.6 100.0 100.02008 At close of Offer 11.2 94.5 0.0 94.5 100.0 100.0for subscription Net NAV Cumulative NAV total Share Share price assets per dividends return to price total (£m) Share paid per Shareholders (p) 2 return to (p) share (p) since launch Shareholders per Share (p) (p)
Former 'O' Shares (until 29 March 2010)
As at 30 September - 91.5 25.5 117.0 - -2011 1 As at 30 September - 75.0 22.5 97.5 - -2010 As at 30 September 24.9 71.5 20.5 92.0 54.8 75.32009 As at 30 September 29.6 83.6 16.5 100.1 79.5 96.02008 1 The data for all periods shows the return on an initial subscription price of 100p at the date of inception of each Fund. Data as at 30 September 2011 is supported by the table below divided by £10,000.
2 Source: London Stock Exchange.
Return before and after tax relief
The tables below show the NAV total returns at 30 September 2011 for ashareholder in each original class that invested £10,000 at £1 a share at eachFund's inception. Ordinary Shares Former 'O' Shares 2007/08 1 2000/2001
Original investment (10,000 shares at £1 each) (£) 10,000 10,000 Number of shares held post merger 10,000 7,578 Rate of income tax relief % 30% 20% 2
Cost net of income tax relief (£) 7,000 8,000 NAV at 30 September 2011 (£) 12,079 9,154 Dividends paid to Shareholders since subscription (£) 450 2,548
Total return (NAV basis) to Shareholders since subscription (£) 12,529
11,702 Profit before income tax relief 3 (£) 2,529 1,702 Profit after income tax relief 4 (£)
5,529 3,702 1 Formerly 'S' Shares
2 Additional capital gains tax deferral relief of up to £4,000 available to qualifying shareholders3 NAV total return minus initial investment cost (before applicable income tax relief) 4 NAV total return minus cost net of income tax relief
Discount
The Board's current intention is to continue with its existing buy-back policywith the objective of maintaining the discount to NAV at which the shares tradeat 10% or less. The discount for the Company's Ordinary Shares at 30 September2011 was 10.9% (2010: 9.6%) based on an NAV at 30 June 2011 of 102.8 pence. The share price has however risen considerably since the year-end to 109 pencesubsequent to the announcement of the realisation of App-DNA in anticipation ofthe increase in the net asset value shown in these accounts.
Dividends paid in each year since launch
Dividends paid include distributions from both income and capital
In respect of year ended Payment date Ordinary Shares Former 'O' Shares (former 'S'Shares) (dividends paid on original holding) (p) per share (p) per share 30 September 2001 18 February 2002 - 1.20 pence 30 September 2002 12 February 2003 - 1.75 pence 30 September 2003 11 February 2004 - 1.25 pence 30 September 2004 04 February 2005 - 1.25 pence 30 September 2005 14 February 2006 - 0.75 pence
30 September 2006 (interim) 14 February 2006 - 2.50
pence 30 September 2006 15 February 2007 - 0.75 pence
30 September 2007 (interim) 15 February 2007 - 3.00
pence
30 September 2007 (interim) 24 October 2007 - 2.00
pence 30 September 2007 15 February 2008 - 2.00 pence 30 September 2008 16 February 2009 - 4.00 pence 30 September 2009 17 March 2010 0.50 pence 2.00 pence 30 September 2010 22 February 2011 2.00 pence 1.52 pence 1 30 September 2010 28 March 2011 2.00 pence 1.52 pence 1 ---------- ---------- ---------- ----------Cumulative dividends paid 4.50 pence 25.49 pence1 The dividends paid after the Merger on the Ordinary Shares have also beenshown in the data for the former 'O' Shares. Such dividends have beenconverted at the merger ratio, so that a former 'O' Fund Shareholder can seethe total dividends received on their original holding
Dividends proposed
In addition to the special capital dividend of 20 pence per share declaredsince the year-end, a final dividend of 4 pence per share comprising 2 pencefrom income and 2 pence from capital will be recommended to Shareholders at theAnnual General Meeting of the Company to be held on 9 February 2012. Thedividend will be paid on 15 February 2012 to Shareholders on the Register on 20January 2012.Chairman's Statement
I am pleased to present to Shareholders the annual results of the Company for the year ended 30 September 2011.
The persisting uncertainty in the UK and global economies has continued to impact on the Company during the year under review. The signs in the first half of the year of a possible return to comparative stability failed to materialise and we are now experiencing a resurgence of the earlier volatility, particularly as a result of debt problems in several of the Eurozone countries.
However, since the year-end, in early November I am delighted that the Companywas able to announce that it had sold its investment in App-DNA to CitrixSystems Inc. App-DNA is a leading specialist in Application Migration andCompatibility Software including App-DNAâ„¢ and AppTitudeâ„¢ which it distributesto blue chip companies around the world. Citrix Systems has acquired all of theequity in App-DNA for a headline consideration of some US$92 million. Thisdelivered to the Company an initial consideration of £14.6 million and hasresulted, therefore, in a material uplift in the NAV per share of the Company,a substantial portion of which was included in the fair value of thisinvestment at 30 September 2011. In addition, approximately £1.8 million offurther deferred consideration could be receivable over the next four years.The total consideration equates to a return of approximately 32 times theoriginal investment. This outcome, of course, completely overshadows theperformance of the remainder of the portfolio and has resulted in a specialinterim dividend being paid to all Shareholders - please see more informationbelow. Shareholders should note that the Board anticipates that a performanceincentive fee of up to an estimated £2.8 million could be payable for thecurrent financial year ending 30 September 2012 in respect of thisrealisation.
Performance
As at 30 September 2011 the Company's NAV per Ordinary Share was 120.8 pence(30 September 2010: 99.0 pence). Adjusted for dividends paid to Shareholdersduring the year, this represents an increase of 26.0% over the twelve monthperiod. This compares with an increase of 6.6% in the FTSE SmallCap Index and arise of 10.5% in the FTSE AiM All-Share Index, both on a capital return basis.Cumulative dividends paid, declared and proposed to date amount to 43.7 penceper original share invested for shareholders who originally invested in theformer 'O' Share Fund (the 28 pence per share paid following the Merger hastherefore been adjusted using the merger ratio of 0.7578) and 28.5 pence perOrdinary Share for shareholders who originally invested in the former 'S' ShareFund.The portfolioThis has been a particularly active year for the portfolio as a whole. Overall,over the year the portfolio showed a net increase of £10.9 million inunrealised and £0.3 million in realised gains and it was valued at 125.5% ofcost at the year-end. The valuation of the portfolio at the year-end was £37.1million with the MPEP portfolio being valued at £23.9 million and theex-Foresight portfolio at £13.2 million.During the year a total of some £2.7 million was placed into new investments(excluding the £3 million already invested in each of the acquisition vehicles,Aust, Apricot and Fullfield). In October 2010 I&G made a further investmentinto the acquisition vehicle, Aust, of £441,667 to support the MBO of RDLRecruitment Corporation, a European recruitment provider within thepharmaceutical, business intelligence and IT sector. The VCT's investment inthis company now stands at £1.4 million. In December 2010, a new investment of£487,744 was made into Faversham House, a broadly based publishing business. Inthe same month £279,996 was invested into Omega Diagnostics, an AiM listedcompany specialising in in-vitro diagnostics for food intolerance, autoimmunediseases and infectious diseases.A further investment into the acquisition vehicle Apricot of £193,906 was madeto support the MBO of Automated Systems Group plc, a provider of printer andcopier services. This brought the VCT's investment in this company to £1.2million. The company has since changed its name to ASL Technology HoldingsLimited. A further investment was then made in March 2011 of £575,884 tosupport the acquisition of Transcribe Copier Systems Limited. In July 2011 afurther investment of £718,189 was put into the acquisition vehicle FullfieldLimited to support the MBO of Motorclean Group Limited, a provider of vehiclecleaning and valet services to the car dealership market. This brought I&G'sinvestment in this company to £1.7 million.It is a measure of the success of the Manager's efforts that the portfolio hasrequired only £42,560 of additional funding despite the challenges thatinvestee companies have faced. An additional loan stock investment of £42,446was made into Monsal in July and August 2011 as part of a facility of £1.75million to support the turnaround of Monsal.Following the year-end, a new investment of £1,383,314 was provided asmezzanine finance as part of a £7.8m transaction to support the acquisition ofthe international intellectual property and assets of Lowe Alpine Srl (fromadministration in Italy) by Equip Outdoor Technologies Limited, a companyspecialising in owning and distributing clothing brands focused on the outdoorsector. A further new investment of £1,878,124 (including £1 million fromVanir) has been made to support the MBO of EMaC Limited, the UK's leadingprovider of outsourced service plans to franchised dealers in the automotivesector.Finally, a further investment in the form of a loan of up to £1.5 million wascommitted in December 2011 into Image Source to help support the resolution ofa legal dispute with a former employee and shareholder in that company.
I am pleased to be able to advise you that there were numerous loan stock repayments, totalling some £2.5 million, during the year. A full breakdown of the payments received can be found in the Manager's Review below.
During the year there were four disposals which realised a total of £3.0million. In January 2011, Campden Media was fully realised for a cashconsideration of £287,239, compared to the year-end valuation at 30 September2010 of £125,921. Together with interest paid over the life of the investmentthe total cash return was marginally above cost. In February 2011, HWA wasdisposed of, resulting in a total cash return over the life of this investmentof £5,070,682, compared to the £1,422,320 originally invested. In July 2011,Amaldis was sold to LDC for net proceeds of £2,304,000, including accruedinterest of £426,714 and £537,948 of loan stock issued by the acquirer. Thisrealisation contributed to total proceeds of £4,170,000 to the Company over thelife of the investment, representing a 4.2 times return on the Company'soriginal investment of £1 million. Finally, the Company sold a total of 270,000shares in Tikit plc at prices ranging from £1.97 to £2.75, realising a nettotal of £625,485 and representing a 2 times return on the original investmentof £310,500. The VCT continues to retain a residual holding in this company.Following the year-end, as I have detailed above, the Company sold its interestin AppDNA to Citrix Systems resulting in a substantial return on investment andin a material uplift to I&G's NAVwhich is largely reflected in the balancesheet as at 30 September 2011.Also following the year-end in December 2011, the VCT made a partial disposalof its investment in DiGiCo to ISIS Equity Partners. The VCT received cashproceeds of £1,405,642 which, including previous repayments of £581,373,generates a return of 3 times cash return on this investment to date. Inaddition, the VCT continues to hold a residual loan stock and equity (1.57%)investment with an assumed valuation of £874,497.Finally, the portfolio has seen two of its investments demerge during the year.In November 2010 Camwood completed the demerger of its App-DNA business. Following the demerger, I&G had an investment in each of Camwood EnterprisesLimited and App-DNA Group Limited, the latter since sold as above. Thiscomprised a 31.5% equity stake and a secured loan of £333,334 in bothcompanies. Both companies are leading specialists in Application MigrationSoftwareTM. Then in March 2011, VSI also completed the demerger of its twooperating subsidiary companies creating two separate companies, namelyMachineWorks Software Limited and LightWorks Software Limited. Following therepayment of the VSI secured loan (which was transferred to MachineWorksSoftware on the demerger) in April 2011, I&G now has a 9.2% equity stake inboth companies.
A number of the investee companies have continued to trade strongly, in particular, DiGiCo, Iglu.com Holidays, ATG Media and Original Additions.
Cash available for investment
During the economic turmoil, both the Board and the Manager have continued towork to ensure that our cash deposits continue to remain as secure as possible.We have for some time been spreading our significant cash deposits with anumber of the leading global cash funds rather than depositing all liquiditydirectly with individual banks, thereby reducing our exposure to any oneparticular bank. However, the current low level of interest rates on cashdeposits means that it will continue to be difficult for the Company to paydividends out of interest income from cash held. The Board and Manager bothstrongly believe that at this time the security and protection of the Company'scapital is more important than striving for a small increase in deposit ratesat the cost of much higher risk.
Cash and liquidity fund balances as at 30 September 2011 amounted to £13.3 million.
Revenue Account
The revenue account has achieved a strong return this year, achieving a positive return of £864,072, compared to last year's loss of £50,860, an improvement of £914,932.
The strong increase in income over the year of £924,216 has been a significantfactor in this turnaround. The main cause of this increase was a rise in loanstock interest of £770,663, £426,714 of which was due to interest recognisedupon the disposal of Amaldis. The balance of the increase of £343,949 reflectsthe impact of a number of new investments made in the year, such as RDLCorporation, Faversham House, ASL Technology and Fullfield (Motorclean). Inaddition, Blaze Signs and Youngman re-commenced loan interest payments, withYoungman also reducing its interest arrears.
Dividend income also rose by £164,726, due to increased dividends from Brookerpaks, DiGiCo, ATG Media and VSI, as well as a maiden dividend from CB Imports.
Other expenses have fallen in the year to £375,837 (2010: £513,840). Lastyear's revenue account was depressed by £75,516 of costs relating to themerger, while the higher levels of loan stock income this year have increasedthe tax charge borne by the revenue account by £176,808. Due to the Company'sability to offset some capital costs against revenue profits, the Company hasno charge to tax.DividendsArising from the realisation of AppDNA, your Board declared a special interimcapital dividend of 20 pence per share, for the year ending 30 September 2012,and this will be paid on 27 January 2012 to Shareholders on the Register on 30December 2011.
A final dividend of 4 pence per new Ordinary Share, comprising 2 pence from income and 2 pence from capital, will be recommended to Shareholders at the Annual General Meeting of the Company to be held on 9 February 2012 for payment to shareholders on the register on 20 January 2012 on 15 February 2012.
Dividend Investment Scheme
The Company's Dividend Investment Scheme ("the Scheme") will apply to both ofthese dividends. The Scheme is a convenient, easy and cost effective way tobuild up your shareholding in the Company. Instead of receiving cash dividendsyou can elect to receive new shares in the Company. By opting to receive yourdividend in this manner, there are three benefits to you:
- The dividend is tax free to you;
- Shareholders are allotted new ordinary shares which will, subject
to your particular circumstances, attract VCT tax reliefs applicable for the
tax year in which the shares are allotted. The tax relief currently available
to investors in new VCT shares is 30% for the 2011/12 tax year for investments
up to £200,000 in any one tax year; and
- The Scheme also has one unique advantage. Under its terms, a
member is able to re-invest at an advantageous price, being the average market
price of the shares for the five business days prior to the dividend being
paid. This price is likely to be at a discount of 10% to the underlying net
asset value.
Elections under the Scheme should be received by the Scheme Administrator,Capita Registrars, by no later than 12 January 2012 in the case of the specialdividend and 31 January 2012 in the case of the final dividend to ensure thatyou receive these dividends as shares.Last year, 288 Shareholders, who between them held a total of 2,276,359Ordinary Shares representing 5.9% of the Company were issued 52,473 OrdinaryShares on 22 February 2011 in respect of the Interim Dividend of 2 pence pershare paid to Shareholders on 22 February 2011 at an issue price of 86.70 penceper share.In addition, 419 Shareholders, who between them held a total of 3,590,904Ordinary Shares representing 9.36% of the Company were issued 78,840 OrdinaryShares on 29 March 2011 in respect of the Final Dividend of 2.0 pence per sharepaid to Shareholders on 28 March 2011 at an issue price of 91.0 pence pershare.The issue price used for both dividends was equal to the average of the middlemarket price for the Shares taken from the London Stock Exchange Daily OfficialList for the five business days immediately preceding the payment date.
Share buy-backs
During the year ended 30 September 2011, the Company bought back 1,649,765Ordinary Shares (year to 30 September 2010: 1,407,758, of which 1,037,821 werebought-back following the Merger) representing 4.46% of the Shares in issue atthe beginning of the year at a total cost of £1,475,019 (year to 30 September2010: £966,118) net of expenses. These shares were subsequently cancelled bythe Company.The Board regularly reviews its buyback policy and, given the less volatileoutlook for the valuation of the portfolio, has significantly reduced thediscount to NAV at which the Company's shares trade over the last year. At 22December 2011, the mid-market price for the Company's shares was 109 pence,representing a premium of 6% to the last published NAV which was at 30 June2011 but a discount of 9.7% to the NAV shown by these results. The share pricehas appreciated since the year-end, after the initial announcement of the saleof App-DNA.Fundraising
A Joint Offer was launched on 12 November 2010 to raise £21 million in aggregate for the Company together with Matrix Income & Growth VCT plc and Matrix Income & Growth 4 VCT plc. The Offer closed on 30 June 2011 having raised £16.2 million across the three VCTs. This resulted in £5.4 million being raised for I&G.
The Company is intending to participate in a similar linked fundraising withthese VCTs in 2012. The funds raised will bolster the Company's strong cashposition to capitalise on new investment opportunities and spread our fixedrunning costs over a larger asset base.
Outlook
Uncertainty, interspersed with rushes of optimism, has characterised globalfinancial markets in recent months. With EU leaders having met recently tofinally come up with a realistic solution to the Eurozone crisis, the marketsratcheted up the pressure. If these financial measures prove to be successful,markets could yet be heralding the end of the 'double-bottom'.Unfortunately, inflation in the UK is much higher than forecast and proving tobe very stubborn despite the Bank of England's assertions that it will fallback sharply in the coming months. The inflation figures will have causedlittle surprise to householders who have had to cope with rising fuel and foodbills and also having seen the value of their savings and pensions shrink. Sothe immediate outlook for investors may not be one of recession but of quitehigh inflation against a back drop of historically low interest rates.Although this Fund seeks to invest in profitable companies, and is no longerinvesting in technology high risk start ups, companies which are in most casesat a relatively early stage in their growth will be challenged by the economicenvironment over the coming winter. On the other hand, it is highly encouragingto be able to report that the majority of companies within the portfoliocontinue to trade profitably.The Company continues to retain a significant cash position, having correctlylimited investment during the downturn. Moreover, the forthcoming FundraisingOffer, which I have referred to above, will strengthen this position further.The unquoted sector has seen a return to more active levels, and the Board andManager expect that a number of attractive investment opportunities willcontinue to be identified in the near term.
In summary, your Board is encouraged greatly by the portfolio which shows resilience and promise in spite of these difficult economic conditions and, of course, is delighted to be able to distribute much of the proceeds from the disposal of AppDNA.
I&G website
May I remind you that the Company has its own website which is available at
www.incomeandgrowthvct.co.uk.
Once again, I would like to take this opportunity to thank Shareholders for their continued support.
Colin HookChairmanInvestment PolicyThe Company's policy is to invest primarily in a diverse portfolio of UKunquoted companies. Investments are structured as part loan and part equity inorder to receive regular income and to generate capital gains from trade salesand flotations of investee companies.
Investments are made selectively across a number of sectors, primarily in management buyout transactions (MBOs) i.e. to support incumbent management teams in acquiring the business they manage but do not yet own. Investments are primarily made in companies that are established and profitable.
The Company has a small legacy portfolio of investments in companies from itsperiod prior to 30 September 2008, when it was a multi-manager VCT. Thisincludes investments in early stage and technology companies and in companiesquoted on the AiM or PLUS.
Uninvested funds are held in cash and lower risk money market funds.
UK companies
The companies in which investments are made must have no more than £15 million,in the case of funds raised under the original prospectus in 2000/01, and £7million, in the case of funds raised after 6 April 2006, (including the former'S' Share Fund raised in 2007/08) of gross assets at the time of investment tobe classed as a VCT qualifying holding.
VCT regulation
The investment policy is designed to ensure that the Company continues toqualify and is approved as a VCT by HM Revenue & Customs ("HMRC"). Amongstother conditions, the Company may not invest more than 15% of its investmentsin a single company and must have at least 70% by value of its investmentsthroughout the period in shares or securities comprised in VCT qualifyingholdings, of which a minimum overall of 30% by value must be ordinary shareswhich carry no preferential rights (save as may be permitted under VCT rules). In addition, although the Company can invest less than 30% of an investment ina specific company in ordinary shares it must have at least 10% by value of itstotal investments in each VCT qualifying company in ordinary shares which carryno preferential rights (save as may be permitted under VCT rules).
The VCT regulations in respect of funds raised after 6 April 2011 changed, such that 70% of such funds must be invested in equity.
Asset mix
The Company initially holds its funds in a portfolio of readily realisable interest-bearing investments and deposits. The investment portfolio of qualifying investments is built up over a three year period with the aim of investing and maintaining at least 70% of net funds raised in qualifying investments.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses acrossdifferent industry sectors. To reduce the risk of high exposure to equities,each qualifying investment is structured using a significant proportion of loanstock. Initial investments in VCT qualifying companies are generally made inamounts ranging from £200,000 to £1 million at cost. No holding in any onecompany will represent more than 10% of the value of the Company's investmentsat the time of investment. Ongoing monitoring of each investment is carried outby the Investment Manager, generally through taking a seat on the board of
eachVCT qualifying company.Co-investmentThe Company aims to invest in larger, more mature unquoted companies throughinvesting alongside the three other VCTs advised by the Investment Manager witha similar investment policy. This enables the Company to participate incombined investments advised on by the Investment Manager of up to £5 million.
Principal risks, management and regulatory environment (Extracted from the Directors' Report)
The Board believes that the principal risks faced by the Company are:
Economic risk - events such as an economic recession and movement in interestrates could affect trading conditions for smaller companies and consequentlythe value of the Company's qualifying investments.Risk of loss of approval as a Venture Capital Trust - the Company must complywith the provisions of section 274 of the Income Tax Act 2007 ("ITA") tocontinue to be exempted from capital gains tax on investment gains and toensure that its investors continue to qualify for VCT tax reliefs. Any breachof these rules may lead to the Company losing its approval as a Venture CapitalTrust (VCT), qualifying shareholders who have not held their shares for thedesignated holding period having to repay the income tax relief they obtainedand future dividends paid by the Company becoming subject to tax. The Companywould also lose its exemption from corporation tax on capital gains.Investment and strategic risk - inappropriate strategy or consistently weak VCTqualifying investment recommendations might lead to underperformance and poorreturns to shareholders. Investment in unquoted small companies by its natureinvolves a higher degree of risk than investment in companies traded on theLondon Stock Exchange main market. Smaller companies often have limitedproduct lines, markets or financial resources and may be dependent for theirmanagement on a smaller number of key individuals. This may make them morerisk-prone and volatile investments.Regulatory risk - the Company is required to comply with the Companies Act 2006("the Companies Act"), the listing rules of the UKLA and United KingdomAccounting Standards. Breach of any of these might lead to suspension of theCompany's Stock Exchange listing, financial penalties or a qualified auditreport.Financial and operating risk - inadequate controls that might lead tomisappropriation of assets. Inappropriate accounting policies might lead tomisreporting or beaches of regulations. Failure of the Investment Manager's andAdministrator's accounting systems or disruption to its business might lead toan inability to provide accurate reporting and monitoring.
Market risk - movements in the valuations of the VCT's investments will, inter alia, be connected to movements in UK Stock Market indices.
Asset liquidity risk - The Company's investments may be difficult to realise.
Market liquidity risk - Shareholders may find it difficult to sell their shares at a price which is close to the net asset value.
Counterparty risk - A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company. For further information, please see the paragraph headed 'Cash available for investment' in this Chairman's Statement.
The Board seeks to mitigate the internal risks by setting policy and byundertaking a key risk management review at each quarterly Board meeting.Performance is regularly reviewed and assurances in respect of adequateinternal controls and key risks are sought and received from the InvestmentManager and Administrator on a six monthly basis. In mitigation and themanagement of these risks, the Board applies rigorously the principles detailedin the AIC Code of Corporate Governance. The Board also has a Share Buy-Backpolicy which seeks to mitigate the Market Liquidity risk. This policy isreviewed at each quarterly Board Meeting. Investment Manager's ReviewOverviewWe continue to be encouraged by the positive signs of improvement that we haveseen in our investment market both in terms of making investments and inrealisations. There has been a clear upward trend in dealflow during thelatter half of the year under review and we have seen a higher number of betterpriced, profitable, well-positioned and cash generative businesses seekinginvestment. We believe that this is due to two important converging factorswhich have combined to make our level of investment over recent months thehighest for several years, without compromising the criteria that we use toassess the quality of potential investments. Firstly, the lower level ofactivity in the economy has led to greater realism amongst vendors regardingthe value of their companies, leading to more realistic pricing. Secondly,our ability to invest significant levels of capital in a market lacking bankfunding means that management buy-out ("MBO") teams are increasingly turning tous as a source of finance. In addition to the recent investments referred tobelow, there are a number of investment opportunities nearing completion thatwe are currently taking forward. Furthermore, we are finding that there is significant trade interest andenthusiasm from private equity investors in the type of businesses in which wehave invested. App-DNA was sold to Citrix Systems Inc. shortly after theyear-end in November 2011 for an initial consideration of £14.5 million (plus afurther approximately £1.8 million of deferred consideration which could bereceivable over the next four years). The total consideration equates to areturn of approximately 32 times the original investment making it the mostsuccessful realisation in the history of the Company.
We believe that the VCT's strategy of investing in MBO structured deals; supporting highly motivated management teams; focusing on acquiring established, profitable, positive cashflow businesses; and investing partly in income yielding loan stocks substantially increases the degree of downside protection to Shareholders' capital.
The volatility in the quoted markets which has continued after the year-end will inevitably have an effect on the valuations of those companies in our portfolio. The level of the FTSE All-Share index stood at 3,662 at 30 September 2011 when the investments were valued and since that date it has fallen to 2,768. It is worth bearing in mind that many of the portfolio companies are valued partly by reference to the performance of companies trading in similar sectors within the FTSE All-Share index. However, as part of each investment is in loan stocks, the negative effect of any downward movement is mitigated to some degree.
New investment
Five new investments have been completed during the year under review totalling£5.7 million, three of which used the VCT's existing investments totalling £3million in the acquisition vehicles Aust, Apricot Trading and Fullfield. In the first of these in October last year, the Company used its existinginvestment of £1 million in the acquisition vehicle Aust to support the MBO ofRDL Recruitment Corporation, a European recruitment provider within thepharmaceutical, business intelligence and IT sectors based in London andWoking. The VCT's total investment in this company following the MBO stands at£1.4 million.Three new investments were made during December 2010. The first of these wasto support the MBO of Faversham House Group Limited in which the VCT invested £487,744. Based in Croydon, this is an established media company providingmagazines, exhibitions and online resources in the environment andsustainability, visual communications and building services sectors.Again in December, the VCT invested £279,996 into the AiM-listed company OmegaDiagnostics Group Plc. Based in Alva, Scotland this company provides highquality in vitro diagnostics products for use in hospitals, blood banks,clinics and laboratories in over 100 countries and specialises in the areas offood intolerance, autoimmune disease and infectious disease. The share price ofOmega on AiM has risen since investment showing a 4% increase in value.Finally in December, the VCT used its existing acquisition vehicle, ApricotTrading, to support the MBO of Automated Systems Group plc, a Cambridge-basedprinter and copier services business with a broad customer base of schools andSMEs. The VCT's total investment in this company, which changed its name to ASLTechnology Holdings Limited, stood at £1.2 million following the MBO. The VCTmade a follow-on investment of £575,884 in March 2011 to help fund theacquisition of Transcribe Copier Systems Limited bringing the VCT's currentinvestment in this company to £1,769,790.The final investment completed during the year under review was made in July2011 when the VCT invested a further £718,189 into the acquisition vehicleFullfield to enable it to support the MBO of Motorclean Group Limited, aprovider of vehicle cleaning and valet services to the car dealership market,bringing the VCT's investment in this company to £1.7 million.
Two further new investments have been completed since the year-end in October and November to support the MBOs of Equip and EMaC.
In the first of these the VCT made an investment of £1,383,314 to provide mezzanine finance as part of a £7.8m transaction to support the acquisition of the international intellectual property and assets of Lowe Alpine Srl from administration in Italy by Equip Outdoor Technologies Limited, a company specialising in owning and distributing brands focused on the outdoor sector.
The second was a new investment of £1,878,124 to support the MBO of EMaC Limited the UK's leading provider of outsourced Service Plans to franchised dealers in the automotive sector.
Our Operating Partner programme continues to pursue an active search forinvestment opportunities. The four remaining acquisition vehicles in which theCompany invested in September 2010, Backbarrow, Bladon Castle Management, Rusland Management and Torvar are all seeking suitable investmentopportunities in a variety of sectors including healthcare and wellbeing, foodmanufacturing and distribution, consumer products and retailing, brandmanagement, database management, data mapping and management services. So farthey have not found sufficiently attractive investment opportunities at theright price. Since the year-end, Bladon Castle Management has repaid its loanstock, and has been sold to a new acquisition vehicle, Watchgate Limited whichhas the intention of continuing to see similar opportunities, building onBladon's work to date. Each of the acquisition vehicles is headed by anexperienced Chairman, well-known to us, who is working closely with us inseeking to identify and complete investments in specific sectors relevant totheir industry knowledge and experience. We have established these companiesto provide time for us to identify and invest in suitable target companies atsufficiently attractive prices.
Follow-on investment
We have worked with our investee companies during the downturn in the economyto support and encourage them to make the necessary changes to ensure that theywere in the best possible position to withstand the rigours of their situation. It is indicative of the success of these measures that Monsal is the onlyinvestment in the portfolio that has required further funding during the yearunder review. Earlier in the year, Monsal was experiencing completion delayson an existing contract and in the commissioning of new contracts. Thesedelays led to a requirement for additional funding and following carefulconsideration, your Company approved a further loan stock investment of up to £106,000 as part of a £1.75 million fundraising alongside other Matrix VCTs andother shareholders. Three tranches of this new funding round totalling £42,446have been drawn-down to date in separate tranches in July and August 2011 andthese investments are held at cost. The terms of this new investment providedthat it would rank ahead of the existing rounds of investment. With thisadditional funding, Monsal now has the ability to pursue a number of majorcontracts in the waste and water sector which will make the potential forrecovery of value in the original investment a more realistic prospect. Sinceapproval of this facility Monsal has materially advanced its negotiations on anumber of new contracts.Finally a further investment in the form of a loan of up to £1.5 million wascommitted in December 2011 into Image Source to help support the resolution ofa legal dispute with a former employee and shareholder in that company. Thiscompany has continued to suffer from deteriorating trading conditions in a
challenging market. It is now hoped that the company can improve its tradingprospects.RealisationsWe are pleased to report that a number of companies in the portfolio continueto be strongly cash generative and have repaid a total of £2.5 million(including any premiums paid) of their loan stock during the year to 30September 2011. The payments received were from ATG Media which made a partialrepayment of £111,111 in October 2010; DCG Group which repaid its outstandingloan in full remitting £204,772 to the Company in November 2010; Westway whichmade a further repayment of £99,681; Iglu.com Holidays which repaid its loanstock in full in February 2011, realising £997,675 for the Company; Vectairwhich repaid its loan in full in March 2011 remitting £195,017 to the Company;App-DNA Group which repaid its secured loan of £333,334 in full in March andJuly; Camwood Enterprises which repaid its loan of £333,334 in full in Marchand April; and MachineWorks which made a payment of £255,818 in full settlementof its loan in April 2011.In January 2011 the Company realised its entire investment in Campden Media fora cash consideration of £287,239, compared to the 2010 year-end valuation of £125,921. This represented 85.8% of the total investment cost of £334,880.
Together with interest paid over the life of the investment the total cash return was £349,013, representing 104.2% of cost.
In February 2011, the Company realised its residual investment in HWA for a small cash consideration. The total cash return over the life of this investment was £5,070,682, compared to amounts originally invested of £ 1,422,320, being 3.6 times cost.
Amaldis, the holding company for the Original Additions Group, a market leadingmanufacturer and distributor of beauty brands for the retail and professionalmarkets in the UK and worldwide, was sold to LDC, the mid-market private equityhouse that is a part of Lloyds Banking Group, in July 2011 for net proceeds of£2,304,042, including interest of £426,714 and £537,948 of loan stock inOriginal Additions Topco Limited issued by the acquirer. This realisationcontributed to total proceeds of £4,170,000 to the Company over the life of theinvestment, representing a 4.2 times return on the Company's originalinvestment of £1 million.The Company sold a total of 270,000 shares in Tikit Group plc during the yearto 30 September 2011 realising total net proceeds of £625,485 which representeda 2.0 times realised return on the VCT's original investment cost of £310,500. The VCT continues to retain a residual holding in this company, which had avalue of £458,094 at the year-end.Following the year-end in November 2011, the VCT realised in full itsinvestment in AppDNA by way of a trade sale to Citrix Systems Inc. The totalcash consideration from the sale of £14,542,468 and the total proceeds to theCompany over the life of the investment of £15,054,113, represented a 29 timesreturn on the Company's original investment of £514,090. This figure increasesto 32 times if approximately £1.8 million of anticipated deferred considerationis brought into the calculation.Also following the year-end in December 2011, the VCT made a partial disposalof its investment in DiGiCo to ISIS Equity Partners. The VCT received cashproceeds of £1,405,642 representing a 3 times cash return on this investment todate. In addition, the VCT continues to hold a residual loan stock and equity(1.57%) investment with an assumed valuation of £874,497.
Portfolio review
The MPEP invested portfolio at 30 September 2011 comprised 33 investments witha cost of £21.2 million and valued at £23.9 million representing an uplift of12.7% on cost. The portfolio's performance as a whole continues to be robust. Some investeecompanies, of which DiGiCo, Iglu.com Holidays, ATG Media and Original Additionshave been the most notable, have increased sales and profits despite thechallenges of the economic environment. The new investments made since last year, RDL Corporation, Faversham House,Omega Diagnostics Group plc, ASL Technology and Fullfield (Motorclean Group)are all progressing steadily. Fullfield and Faversham are held at cost and ASLand RDL have small write-downs. Iglu.com Holidays continues to perform strongly and is now valued above costfollowing out-performance of its business plans at the time of investment. DiGiCo, BIH and ATG all experienced increased trading and profitability whichhas contributed to their higher unrealised valuations. Focus Pharma continuesto trade well, although it ended its financial year slightly behind astretching budget. It launched two new products during 2011 and expects toprogress further with several further product launches planned for 2012.Other companies are still endeavouring to recover from the effects of thecontinuing downturn. Recovery in the construction and house building sectorsremains fragile and this continues to affect the performance of PXP and PlasticSurgeon although Youngman has now fully repaid its bank debt since investmentand is well positioned to benefit from any upturn in its markets. Blaze Signsis starting to return improved results demonstrating a strong recovery from therecession.
In March 2011, VSI completed a 50:50 demerger into Lightworks Software Limited and Machineworks Software Limited. As part of the agreement Machineworks assumed all of VSI's loan stock which it repaid in April. The remaining investment in Machineworks in particular is valued considerably above cost.
Former Foresight investments
With effect from 1 October 2008, MPEP assumed responsibility from Foresight forall the investments it managed on behalf of the Company. This section of theportfolio which comprises largely technology and early-stage companies consistsof 12 investments with a cost of £8.4 million and valued at £13.2 million as at30 September 2011 representing 157% of cost (inclusive of the valuation upliftfrom App-DNA totalling £10.9 million). Camwood completed the demerger of its AppDNA business in November 2010. As aresult of the demerger, the VCT had two identical investments in each ofCamwood Enterprises and App-DNA Group, comprising a 31.5% gross equity stake(28.4% fully diluted). (The original Camwood secured loan of £666,667 hassince been repaid by both businesses). Both companies are leading specialistsin Application Migration softwareTM. Camwood, trading as Camwood Consulting,provides IT consultancy services to blue chip customers and AppDNA sells itssoftware via third party consultancies. The demerger has established AppDNA asa profitable independent business. App-DNA was realised following the year-endas set out above.Investment outlookWhilst we remain uncertain about the extent of UK economic recovery, we havebeen encouraged by developments in the year and we look forward to a productivenew investment period. Although the coming months are likely to prove moretesting as the public sector cuts begin to take effect and the economystruggles to stabilise its faltering growth, we consider that good qualitycompanies of the calibre in which we seek to invest, capable of maintainingcompetitive advantage, have the potential to succeed in this environment.
Our caution during the past, challenging investment environment has meant that we now have the cash reserves to deploy on the attractive new investment opportunities that are emerging and support portfolio needs as they arise.
The volatility in the quoted market will inevitably continue to impact on theunrealised valuations of the companies in the portfolio. However, we believethat the portfolio overall is resilient and essentially of high value whichwill be released in the long-term when the markets return to more stableconditions. Our strategy of investing primarily in MBOs and structuringinvestments to include loan stock will continue to mitigate downside risk.Details of the Company's ten largest investments by value as at 30 September2011 (excluding the four acquisition vehicles in the portfolio which have yetto complete an investment and each have a current cost and valuation of £1
million) are set out below.App-DNA Group Limited www.app-dna.com Cost: £180,757 Valuation: £11,633,974 Basis of valuation: Discounted realisation proceeds Equity % held: 31.5% Business: Provider of software packaging services Location: London History: Development capital Income in year to I&G: £19,154
Audited financial information:
Year ended Turnover Operating profit Net assets 31 March 2011 £7,584,000 £635,000 £629,000 IDOX plc www.idoxplc.com Cost: £872,625 Valuation: £1,796,667 Basis of valuation: Bid price (AiM-quoted) Equity % held: 2.4% Business: Development and supply of knowledge management products Location: London History: AiM flotation Income in year to I&G: £48,183
Audited financial information:
Year ended Turnover Operating profit Net assets Earnings per share
31 October 2010 £31,268,000 £7,504,000 £31,012 1.07p
FullfieldLimited (Motorclean) www.motorclean.net
Cost: £1,718,189 Valuation: £1,718,189 Basis of valuation: Cost Equity % held: 11.7% Business: Vehicle cleaning and valet services Location: Laindon, Essex History: Management buy-out Income in year to I&G: £35,324 Audited financial information: First audited accounts since investment will be for the year ended 30 November 2011 ATG Media Holdings Limited www.antiquestradegazette.com Cost: £888,993 Valuation: £1,675,368 Basis of valuation: Earnings multiple Equity % held: 8.5% Business: Publisher and on-line auction platform operator Location: London History: Management buy-out Income in year to I&G: £92,298
Audited financial information:
Year ended Turnover Operating profit Net assets 30 September 2010 £7,215,000 £1,261,000 £2,506,000 ASL Technology Holdings Limited (formerly Apricot Trading Limited) www.asl-group.co.uk Cost: £1,769,790 Valuation: £1,674,630 Basis of valuation: Earnings multiple Equity % held: 9.6% (fully diluted) Business: Provider of printer and photocopier services Location: Cambridge History: Management buy-out Income in year to I&G: £91,216 Audited financial information: First audited accounts since investment will be for the year ended 30 September 2011 RDL Corporation Limited www.rdlcorp.com
(formerly Aust Recruitment Group Limited and Aust Construction Investors
Limited) Cost: £1,441,667 Valuation: £1,383,792 Basis of valuation: Earnings multiple Equity % held: 13.0% (fully diluted) Business: Recruitment consultants for the pharmaceutical, business intelligence and IT industries Location: Woking, Surrey History: Management buy-out Income in year to I&G: £110,148
Audited financial information:
Year ended Turnover Operating profit Net assets 31 December 2010* £19,999,000 £1,111,000 £2,130,000 * Accounts are for the operating subsidiary RDL Recruitment Limited (formerly RDL Corporation Limited) Blaze Signs Holdings Limited www.blaze-signs.com Cost: £1,338,500 Valuation: £1,354,238 Basis of valuation: Earning multiple Equity % held: 12.5% Business: Manufacturer and installer of signs Location: Broadstairs, Kent History: Management Buy Out Income in year to I&G: £97,291
Audited financial information:
Year ended Turnover Operating profit Year ended 31 March 2011 £20,127,000 £1,889,000 £2,937,000 DiGiCoEurope Limited www.digico.org Cost: £325,594 Valuation: £1,258,330 Basis of valuation: Earnings multiple Equity % held: 4.3% Business: Designer and manufacturer of digital audio mixing desks Location: Chessington, Surrey History: Management buy-out Income in year to I&G: £94,308
Audited financial information:
Year ended Turnover Operating profit Year ended 31 December 2010 £18,757,000 £5,501,000 £8,909,000 CB Imports Group Limited www.countrybaskets.co.uk Cost: £1,000,000 Valuation: £1,025,448 Basis of valuation: Earnings multiple Equity % held: 6.0% Business: Importer and distributor of artificial flowers, floral sundries and home d©cor products. Location: East Ardsley, West Yorkshire History: Management buy-out Income in year to I&G: £81,535
Unaudited financial information: Year ended Turnover Operating profit Year ended 31 December 2010 £21,197,000 £2,139,000 £4,259,000 Westway Services Holdings (2010) Limited www.westwaycooling.co.uk Cost: £353,589 Valuation: £928,577 Basis of valuation: Earnings multiple Equity % held: 4.7% Business: Installation, service and maintenance of air conditioning systems Location: Greenford, Middlesex History: Management buy-out Income in year to I&G: £34,995
Audited financial information:
Year ended Turnover Operating profit Year ended 28 February 2011 £27,521,000 £3,942,000 £3,769,000
Operating profit is stated before charging amortisation of goodwill where appropriate for all investee companies.
The remaining 35 investments in the portfolio (including the four acquisitionvehicles in the portfolio at 30 September 2011) had a current cost of £19.7million and were valued at 30 September 2011 at £12.7 million.Further details of the investments in the portfolio may be found on MPEP'swebsite: www.matrixpep.co.uk Investment Portfolio Summaryas at 30 September 2011 Total Total Additional Total % of % of cost at valuation at investments valuation at equity portfolio 30-Sep-11 30-Sep-10 30-Sep-11 held 1 by value £ £ £ £ App-DNA Group Limited 2 4 180,757 1,091,346 - 11,633,974 31.5% 31.31%
Provider of software repackaging
services I-Dox plc 3 872,625 939,167 - 1,796,667 2.4% 4.83%Developer and supplier of knowledge management products Fullfield Limited (trading as 1,718,189 1,000,000 718,189 1,718,189 11.7% 4.61%Motorclean)
Vehicle cleaning and valet services
ATG Media Holdings Limited 888,993 1,377,208 104 1,675,368 8.5% 4.51%Publisher and online auction platform operator ASL Technology Holdings 1,769,790 1,000,000 769,790 1,674,630 9.6% 4.51%Limited (formerly Apricot Trading Limited)
Printer and photocopier services RDL Corporation Limited 1,441,667 1,000,000 441,667 1,383,792 13.0% 3.72%(formerly Aust Recruitment Group Limited) Recruitment provider within the pharmaceutical, business intelligence and IT sectors Blaze Signs Holdings Limited 1,338,500 242,090 - 1,354,238 12.5% 3.64%Manufacturer and installer of signs
DiGiCo Europe Limited 325,594 1,201,553 - 1,258,330 4.3% 3.39%
Designer and manufacturer of
digital audio mixing desks CB Imports Group Limited 1,000,000 1,199,310 - 1,025,448 6.0% 2.76%(trading as Country Baskets) Importer and distributor of artificial flowers, floral sundries
and home decor products Backbarrow Limited 1,000,000 1,000,000 - 1,000,000 16.7% 2.70%Company seeking to acquire businesses in the food manufacturing, distribution and brand management sectors Bladon Castle Management Limited 1,000,000 1,000,000 -
1,000,000 16.7% 2.70% Company seeking to acquire businesses in the brand management, consumer products and retail sectors Rusland Management Limited 1,000,000 1,000,000 - 1,000,000 16.3% 2.70% Company seeking to acquire businesses in the brand management, consumer products and retail sectors Torvar Limited 1,000,000 1,000,000 - 1,000,000 16.3% 2.70% Company seeking to acquire businesses in the database management, mapping, data mapping and management services sectors Westway Services Holdings 353,589 884,557 - 928,577 4.7% 2.50%(2010) Limited Installation, service and
maintenance of air conditioning
systems Iglu.com Holidays Limited 152,326 1,616,116 - 888,657 8.1% 2.39%
Online ski and cruise travel agency Youngman Group Limited 1,000,052 700,992 -
682,203 8.5% 1.84%
Manufacturer of ladders and access towers
British International Holdings 590,909 796,381 - 646,718 5.0% 1.74%Limited Helicopter service operator
Focus Pharma Holdings Limited 516,900 707,569 -
628,706 2.1% 1.69%
Licensor and distributor of generic
pharmaceuticals Brookerpaks Limited 55,000 498,095 - 576,042 18.2% 1.55%
Importer and distributor of garlic
and vacuum-packed vegetables
Original Additions Topco Limited 8 25,696 - -
537,948 0.0% 1.45%
Sale of false nails, nail accessories, false eyelashes, depilatory products, hair lightening and perming products Duncary 8 Limited 634,923 683,746 - 535,699 25.5% 1.44%Technical training business Camwood Enterprises Limited 2 4 180,757 1,091,346 - 499,182 31.5% 1.34%Provider of software repackaging
services
Faversham House Holdings Limited 487,744 - 487,744 487,744 8.8% 1.31%Publisher, exhibition organiser and operator of websites for the environmental, visual communications
and building services
Aquasium Technology Limited 4 700,000 396,581 - 486,319 16.7% 1.31%Manufacturing and marketing of bespoke electron beam welding and vacuum furnace equipment
Tikit Group plc 3 189,500 839,129 - 458,094 1.1% 1.23%
Supplier of IT solutions and support services to legal and
accounting businesses
Machineworks Software Limited 5 20,471 583,453 - 407,310 9.2% 1.10%Provider of software for CAD and
CAM vendors Omega Diagnostics Group plc 279,996 - 279,996 291,663 2.7% 0.78%In-vitro diagnostics for food intolerance, autoimmune
diseases and infectious diseases
Image Source Group Limited 305,000 1,399,114 - 238,977 44.0% 0.64%Royalty free picture library Letraset Limited 650,010 213,859 10 234,385 5.3% 0.63%Manufacturer and worldwide
distributor of graphic art products
Alaric Systems Limited 4 595,802 30,647 - 167,114 6.9% 0.44%
Software developer and provider of support services for retail
credit card payment systems NexxtDrive Limited 6 812,014 162,500 - 162,500 6.2% 0.43%
Developer and exploiter of mechanical transmission technologies
Racoon International Holdings 550,852 243,664 - 157,755 7.7% 0.42%Limited Supplier of hair extensions, hair care products and training
ANT plc 4 462,816 160,866 - 144,451 2.7% 0.39%Provider of embedded browser/ email software for consumer
electronics and Internet appliances
Vectair Holdings Limited 53,400 366,575 - 139,125 4.6% 0.37%Designer and distributor of washroom products The Plastic Surgeon Holdings 406,082 101,521 - 101,521 6.1% 0.27%Limited
Supplier of snagging and finishing services to the property sector
Oxonica Limited (formerly 2,524,527 - - 69,624 10.6% 0.19%Oxonica plc) 4
International nanomaterials group Lightworks Software Limited 5 20,471 194,484 - 54,138 9.2% 0.15%Provider of software for CAD and
CAM vendors Monsal Holdings Limited 468,610 768,505 42,446 42,446 5.6% 0.11%
Supplier of engineering services to the water and waste sectors
Sarantel Group plc 4 1,881,252 102,117 - 39,485 0.8% 0.11%
Developer and manufacturer of antennae for mobile phones and
other wireless devices
Corero Network Security plc 4 600,000 24,558 - 35,363 0.2% 0.10%(Formerly Corero plc) Provider of e-business technologies PXP Holdings Limited (Pinewood 920,176 - -
- 6.8% -Structures) Designer, manufacturer and
supplier of timber frames for
buildings
Aigis Blast Protection Limited 4 272,120 - - - 0.4% -Specialist blast containment
materials company Legion Group plc (in 150,000 - - - 0.7% -administration)
Provider of manned guarding, mobile patrols and alarm response
services
Biomer Technology Limited 6 137,170 226,152 - - 4.4% -Developer of biomaterials for
medical devices DCG Group Limited 4 83,324 181,771 - - 10.7% -
Design, supply and integration
of data storage solutions Other investments in the - - - - - -portfolio 7 Disposed in year Amaldis (2008) Limited - 1,965,586 - - 0.0% -(Original Additions) 8
Manufacturer and distributor
of beauty products Campden Media Limited - 125,921 - - 0.0% - Magazine publisher and conference organiser
HWA Group Limited (Holloway - - - - 0.0% -White Allom) (in administration) High value property restoration
and refurbishment -------- -------- -------- -------- -------- Total 29,617,604 28,116,479 2,739,946 37,162,382 100.00% -------- -------- -------- -------- -------- Notes
1 The percentage of equity held for these companies may be subject to
further dilution of an additional 1% or more if, for example, management of
the investee company exercises share options.
2 On 28 March 2011, Camwood Limited was demerged resulting in a 50:50
split holding in App-DNA Group Limited and Camwood Enterprises
Limited
3 Investment formerly managed by Nova Capital Management Limited until
31 August 2007.
4 Investment formerly managed by Foresight Group up to various dates
ending on or before 10 March
2009.
5 On 31 March 2011, VSI Limited (VSI) undertook a demerger, such that
the Company now holds separate investments in Machineworks Software Limited
(Machineworks) and Lightworks Software Limited (Lightworks). On the demerger
date, the cost of the ordinary shares and the cost and valuation of the
preference share investments were split equally between Machineworks and
Lightworks. However the valuation of the ordinary share investments at the
merger date were split 75:25 between Machineworks and Lightworks respectively.
The former loan investment in VSI of £255,818 was wholly transferred to
Machineworks at the date of the Merger. It was repaid in full on 4 April 2011.
6 Investment formerly managed by Nova Capital Management Limited until
31 August 2007 and by Foresight Group until various dates ending on or before
10 March 2009.
7 'Other investments in the portfolio' comprises Stortext-FM Limited/
Stortext (DO) Limited which was sold during the year and a subsidiary of FH
Ingredients Limited which has been
dissolved.
8 As part of the consideration on the disposal of Amaldis (2008)
Limited, £537,948 of Original Additions Topco Limited loan stock was issued to
the Company.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors' Report, theDirectors' Remuneration Report and the financial statements in accordance withapplicable law and regulations. They are also responsible for ensuring that theAnnual Report includes information required by the Listing Rules of theFinancial Services Authority.Company law requires the Directors to prepare financial statements for eachfinancial year. Under that law the Directors have elected to prepare thefinancial statements in accordance with United Kingdom Generally AcceptedAccounting Practice (United Kingdom Accounting Standards and applicable law).Under company law the Directors must not approve the financial statementsunless they are satisfied that they give a true and fair view of the state ofaffairs of the company and of the profit or loss of the company for that year. In preparing these financial statements the Directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable and prudent;
state whether applicable 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 adequate accounting records that aresufficient to show and explain the Company's transactions and disclose withreasonable accuracy at any time the financial position of the Company andenable them to ensure that the financial statements comply with the CompaniesAct 2006. They are also responsible for safeguarding the assets of the Companyand hence for taking reasonable steps for the prevention and detection of fraudand other irregularities.The Directors are responsible for the maintenance and integrity of thecorporate and financial information included on the Company's website.Legislation in the United Kingdom governing the preparation and disseminationof the financial statements and other information included in annual reportsmay differ from legislation in other jurisdictions.
The Directors confirm to the best of their knowledge that:
(a) the financial statements, which have been prepared in accordance withUK Generally Accepted Accounting Practice and the 2009 Statement of RecommendedPractice, 'Financial Statements of Investment Trust Companies and VentureCapital Trusts' (SORP), give a true and fair view of the assets, liabilities,financial position and the profit of the Company.(b) the management report, included within the Chairman's Statement,Investment Portfolio Summary, Investment Manager's Review and Directors' Reportincludes a fair review of the development and performance of the business andthe position of the Company, together with a description of the principal risksand uncertainties that it faces.
For and on behalf of the Board:
Colin HookChairman Income Statement
for the year ended 30 September 2011
30 September 2011 30 September 2010 Revenue Capital Total Revenue Capital Total £ £ £ £ £ £
Net unrealised gains on investments - 10,870,219 10,870,219
- 2,986,059 2,986,059
Net gains on realisation of investments - 343,231 343,231
- 15,412 15,412 Income 1,654,663 - 1,654,663 730,447 - 730,447 Recoverable VAT - - - 12,295 36,886 49,181 Investment management fees (237,946) (713,837) (951,783) (204,246) (612,738) (816,984) Other expenses (375,837) - (375,837) (513,840) - (513,840) Litigation costs - (1,337,456) (1,337,456) - - - Merger costs - - - (75,516) - (75,516) -------- -------- -------- -------- -------- --------
Profit/(loss) on ordinary activities
before taxation 1,040,880 9,162,157 10,203,037 (50,860) 2,425,619 2,374,759
Tax on profit/(loss) on ordinary
activities (176,808) 176,808 - - - - -------- -------- -------- -------- -------- --------
Profit/(loss) on ordinary activities
after taxation for the financial year 864,072 9,338,965 10,203,037
(50,860) 2,425,619 2,374,759
-------- -------- --------
-------- -------- --------
Basic and diluted earnings per
Ordinary Share: 2.21p 23.83p 26.04p (0.20)p 9.75p 9.55p
All the items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. The total column is the Profit and Loss Account of the Company. There were no other recognised gains and losses in the year.
Other than the revaluation movements arising in investments held at fair valuethrough profit and loss, there were no differences between the profit/(loss) asstated above and at historical cost. Balance Sheetas at 30 September 2011 as at 30 September 2011 as at 30 September 2010 £ £ £ £ £ £ Fixed assets Investments at fair value 37,162,382 28,116,479 Current assets Debtors and prepayments 280,709 162,076 Current investments 11,682,461 8,708,573 Cash at bank 1,577,420 106,536 -------- -------- -------- -------- 13,540,590 8,977,185 Creditors: amounts falling due within one year (212,717) (488,968) -------- -------- -------- -------- Net current assets 13,327,873 8,488,217 Provision for liabilities and charges (1,337,456) - -------- -------- Net assets 49,152,799 36,604,696 -------- -------- Capital and reserves Called up share capital 406,920 369,709 Share premium account 5,669,141 369,141 Capital redemption reserve 187,309 170,811
Capital reserve - unrealised 12,350,858
422,183 Special reserve 17,139,273 23,105,248 Profit and loss account 13,399,298 12,167,604 ------------ -----------
Equity Shareholders' funds 49,152,799
36,604,696 ------------ ----------- Basic and diluted net asset value per share Ordinary Shares 120.79p 99.01p
Reconciliation of Movements in Shareholders'Funds For the year ended 30 September 2011
Year ended Year ended 30 September 2011 30 September 2010 £ £ Opening shareholders' funds 36,604,696 35,883,097
Net share capital bought back in the year (1,475,019) (966,118)
Net share capital subscribed for in the year 5,353,709 61,721 Profit for the year 10,203,037 2,374,759 Dividends paid in the year (1,533,624) (748,763) -------- -------- Closing shareholders' funds 49,152,799 36,604,696 -------- -------- Cash Flow Statementfor the year ended 30 September 2011 30 September 2011 30 September 2010 Operating activities £ £ £ £ Investment income received 1,571,454 687,327 VAT received and interest thereon 34,370 144,206 Other income 3,647 4,053 Investment management fees paid (1,160,893) (595,053) Other cash payments (480,615) (508,610) Merger costs paid by the company - (75,516) -------- -------- -------- --------
Net cash outflow from operating activities (32,037)
(343,593) Investing activities Acquisition of investments (2,739,946) (6,514,315) Disposal of investments 4,907,493 1,289,635 -------- -------- -------- --------
Net cash inflow/(outflow) from investing
activities 2,167,547 (5,224,680) Equity Dividends Payment of equity dividends (1,533,624) (748,763) -------- -------- -------- --------
Net cash inflow/(outflow) before liquid resource management and financing 601,886
(6,317,036)
Management of liquid resources (Increase)/decrease in monies held pending
investment (2,973,888) 7,253,497 Financing Issue of Ordinary Shares 5,353,709 61,721 Purchase of own shares (1,510,823) (947,284) -------- -------- -------- -------- 3,842,886 (885,563) -------- -------- -------- --------
Increase in cash for the year 1,470,884
50,898 -------- -------- -------- -------- NotesBasis of accounting
1. The accounts have been prepared under UK Generally Accepted
Accounting Practice (UK GAAP) and the Statement of Recommended Practice,
'Financial Statements of Investment Trust Companies and Venture Capital Trusts'
("the SORP") issued by the Association of Investment Companies in January 2009.
The results for the year to 30 September 2010 reflect the activities of what
were previously the 'O' Share Fund and the 'S' Share Fund of the Company up
until the funds were merged on 29 March 2010, after which they reflected the
activity of the merged funds.
2. Income 2011 2010 £ £ Income from investments - from equities 365,331 200,605 - from OEIC funds 56,580 73,446 - from loan stock 1,212,795 442,132 - from bank deposits 16,309 664 - from VAT recoverable - 9,547 -------- -------- 1,651,015 726,394 Other income 3,648 4,053 -------- -------- Total income 1,654,663 730,447 -------- -------- Total income comprises Revenue dividends received 421,911 274,051 Interest 1,229,104 452,343 Other income 3,648 4,053 -------- -------- Total Income 1,654,663 730,447 -------- --------
Income from investments comprises
Listed UK securities 61,539 16,863 Listed overseas securities 56,580 73,446 Unlisted UK securities 1,516,587 625,874 -------- -------- Total Income 1,634,706 716,183 -------- --------
Loan stock interest above is stated after deducting an amount of £nil (2010: £216)), being a provision made against loan stock interest regarded as collectable in previous years.
Total loan stock interest due but not recognised in the year was £428,557 (2010: £538,899).
3. Net asset value per share
2011 2010 £ £ Net assets 49,152,799 36,604,696 Number of shares in issue 40,692,048 36,970,891 Basic and diluted net asset value per share 120.79p 99.01p 4. Basic and diluted earnings per share 2011 2010 £ £
Total earnings after taxation: 10,203,037 2,374,759 Basic and diluted earnings per share (note a) 26.04p 9.55p
Revenue profit/(loss) from ordinary activities 864,072 (50,860) after taxation
Basic and diluted revenue earnings per 2.21p ( 0.20)pshare (note b) Net unrealised capital gains on investments 10,870,219 2,986,059 Net realised capital gains on investments 343,231 15,412
Litigation costs (1,337,456) - Recoverable VAT - 36,886
Capitalised management fees less taxation (537,029) (612,738) Total capital return 9,338,965 2,425,619 Basic and diluted capital earnings per 23.83p 9.75pshare (note c) Weighted average number of shares in 39,182,112 24,854,456
issue in the year Notes
a) Basic earnings per share is total earnings after taxation divided by the
weighted average number of shares in issue.
b) Revenue earnings per share is the revenue profit after taxation divided by the weighted average number of shares in issue.
c) Capital earnings per share is the total capital loss after taxation
divided by the weighted average number of shares in issue.
d) Diluted earnings per share in each case are the same as basic earnings
per share as no investment manager's incentive fee is payable in respect of the
current year.
5. Investment Manager's fees
In accordance with the policy statement published under "Management and
Administration" in the Company's Prospectus dated 13 October 2000, the
Directors have charged 75% of the investment management expenses to capital
reserve except for the incentive fee payable, which is charged 100% to capital.
6.Dividends
The Company proposes to pay a final dividend of 4 pence per share to
Shareholders comprising 2 pence from income and 2 pence from capital. The
dividend will be recommended to members at the Annual General Meeting and, if
approved, will be paid on 15 February 2011 to shareholders on the Register on
20 January 2011. The Company's Dividend Investment Scheme ("the Scheme") will
apply this dividend and elections under the Scheme should be received by the
Scheme Administrator, Capita Registrars, no later than 31 January 2012.
This is in addition to a special interim capital dividend in respect of the
year ending 30 September 2012 to be paid on 27 January 2012 to shareholders on
the Register on 30 December 2011 declared by the Directors on 15 December 2011.
The Company's Dividend Investment Scheme ("the Scheme") will apply to this
dividend and elections under the Scheme should be received by the Scheme
Administrator, Capita Registrars, no later than 12 January 2012.
7. Litigation costs 2011 2010 £ £ Provision at the year-end and charge in the year 1,337,456
-
Since the financial year end the Company, one of its investee companies Image
Source Group Limited "IMSG" and another shareholder in IMSG reached agreement
to settle an action brought by a former director and shareholder in IMSG. Under
an agreement between the Company and IMSG dated 6 December 2011, IMSG has met
the costs of the settlement including the Company's pro rata share of the legal
fees incurred in defending the action up to 30 September 2011 and all the legal
costs incurred since. To facilitate the settlement, the Company has lent
approximately £1.5million to IMSG on commercial terms and repayable in 5 years.
The plaintiff to the action will also be entitled to a small percentage share
of the net proceeds over and above £5 million attributable to the ordinary
shareholders from any sale of IMSG up to 31 December 2016, after all loans and
any outstanding interest costs and prior charges have been repaid. The loan has
been reflected in the financial records of the Company since the financial
year-end with a full provision against the carrying value.
As at the year-end, and therefore prior to the settlement described above, the
Company had a prima facie obligation to meet potential costs arising from the
action, as a co-respondent in the claim the cost of which has been clarified
after the year-end, as explained above. Accordingly, in these financial
statements for the year ended 30 September 2011, the Company has made a
provision of £1,337,456, being the £1.5 million total liability less costs not
yet incurred by the year-end. In the Directors' opinion, this reliably
quantifies the prima facie obligation that existed at the year-end.
8. Post balance sheet events
On 21 October 2011, £1,383,314 was invested into EOTH Limited (trading as Equip
Outdoor Clothing Limited). On 1 November 2011, £1,878,124 was invested in EMaC Limited.
On 10 November 2011, App-DNA Limited was sold realising net proceeds of £
14,542,468. As a result of this realisation, an incentive fee may be payable in
respect of the year ended 30 September 2012. The final figure will not be known
until after the calculation date of 30 September 2012, but the current
estimated payment is approximately £2.86 million.
On 29 November 2011, Bladon Castle Management Limited redeemed its loan stock,
realising proceeds of £999,000 for the Company. On 29 November 2011, the
Company exchanged its shares in Bladon Castle Management Limited for shares in
Watchgate Limited.
On 9 December 2011, the Company's investment in DiGiCo Europe Limited was sold
to ISIS LLP for net cash proceeds of £1,405,642. In addition, the Company
continues to hold a residual investment comprising a 1.57% equity holding and
£874,926 of loan stock .9. Financial information
The financial information set out in these statements does not
constitute the Company's statutory accounts for the year ended 30 September
2011 but is derived from those accounts. Statutory accounts will be delivered
to the Registrar of Companies after the Annual General Meeting.
10.Annual Report
A Summary Annual Report will be circulated by post to all
Shareholders shortly and copies will be available thereafter to members of the
public from the Company's registered office. Shareholders who wish to receive
a copy of the full Annual Report may request a copy by writing to the Company
Secretary, Matrix Private Equity Partners LLP, One Vine Street, London W1J
0AH. Alternatively copies may be downloaded via the Company's website at
www.incomeandgrowthvct.co.uk
11.Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 am on Thursday,
9 February 2012 at One Vine Street, London W1J 0AH.
XLON