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24 Jul 2009 15:19
Matrix Income & Growth 2 VCT plc ("the Company")
Annual Financial Report announcement for the year ended 30 April 2009
Chairman's Statement
I am pleased to present the ninth Annual Report of the Company for the year ended 30 April 2009. Your Company has not been immune to the impact of the deteriorating economic environment, continuing the trend I reported to you in the Half-Yearly Report.
Overview of performance for the year ended 30 April 2009
Net asset values per share for both funds have fallen over the year. This is because a number of portfolio valuations have been adversely affected by deteriorating trading. However, in the case of several other investee companies, trading performance remains encouraging.
Our Ordinary Shareholders have seen a decrease in underlying net asset value("NAV") per share of 22.6%, plus a further 6.2% due to the 6 pence per sharedividend that was paid in the year, giving rise to a total decline in NAV pershare of 28.8%. The Ordinary Share NAV total return since launch declined by18.6% in the year, from 117.70 pence per share to 95.82 pence per share.Our C shareholders have seen a smaller decrease in underlying NAV per share of10.1%, plus a further 2.5% due to the 2.5 pence per share dividend paid in theyear, giving rise to a total decline in NAV per share of 12.6%. The C ShareNAV total return since launch declined by 10%, from 99.98 pence per share to90.02 pence per share.
Revenue and Capital returns for the year ended 30 April 2009
The results for the year ended 30 April 2009 are set out in the followingpages. The total return (after tax) attributable to the Ordinary Shareholdersfor the year was a loss of 2,545,615 (2008: loss of 633,730) and the NAV perOrdinary Share at 30 April 2009 was 69.03 pence compared with 96.91 pence asat 30 April 2008. This fall is mainly explained by a fall in valuations ofunrealised investments and by payment of a dividend of 6 pence per share, inrespect of the year ended 30 April 2008, on 19 July 2008. The after taxrevenue return before net capital gains was 1.29 pence per Ordinary Share forthe year ended 30 April 2009 (2008: 1.82 pence).The total return (after tax) attributable to the C Shareholders for the yearwas a loss of 1,021,677 (2008: profit of 259,528) and the NAV per C Share at30 April 2009 was 86.02 pence compared with 98.48 pence as at 30 April 2008.This fall is again explained by a fall in valuations of unrealised investmentsand by payment of a dividend of 2.5 pence per share, in respect of the yearended 30 April 2008, on 19 July 2008. The after tax revenue return before netcapital gains was 1.27 pence per C Share for the year ended 30 April 2009(2008: 2.65 pence).
Portfolio Activity
This year there has been relatively little new investment,reflecting a desire to be cautious and to retain liquidity in the expectationof better opportunities emerging at a further phase in this recession. Bothfunds made an investment in ATG Media Holdings Limited, an MBO transaction,totalling 863,895, of which the O Fund invested 508,736 and the C fundinvested 355,159. The C Fund also invested 2 million in two companies thatwill seek opportunities in two specific sectors. These acquisition vehicleshave been established to provide time to seek and complete investmenttransactions of the right quality on sufficiently favourable terms. Both fundsmade small follow-on investments in PXP Holdings Limited (O fund: 96,245; Cfund: 67,191), while the C fund also made a small follow-on investment inMonsal Holdings Limited of 85,450.
No realisations have occurred in the year, although DiGiCo Europe has made a partial repayment of its loan stock, realising 137,552 for the Ordinary Fund and 96,028 for the C Fund, just after the year-end.
The Ordinary Share Fund held 16 investments at the year-end, which were valued at 64% of cost. The C Share Fund held investments in thirteen companies, showing valuations which were 85.8% of cost.
Details of these investments are provided in the Investment Manager's Review below.
Income returns
Although both Funds have achieved positive revenue returns for theyear, these returns have both fallen compared to the previous year. This isprimarily for two reasons. Firstly, both funds' income was adversely affectedby the sharp fall in interest rates in the second half of the year. As aconsequence of this fall, total income from our cash at the Company levelnearly halved from 451,399 last year to 238,023 this year. Secondly, loanstock interest also fell from 524,202 last year to 391,124 this year,because several investee companies were unable to pay their interest due ontheir loan stocks, and because some of the loan stocks have variable ratecoupons that fell in the year. The annualised yield from loan stocks atvaluation is now running at 5.5% (2008:9.2%) and 4.9% (2008: 9.0%) for theOrdinary and C Share Funds respectively.However, income was boosted by higher dividend receipts, notablyfrom PastaKing Holdings Limited, which paid two exceptionally large dividendsthis year, resulting in an increase from 51,422 last year to 214,825 thisyear. As a result, total income from investee companies rose from 575,624last year to 605,949 this year. Nonetheless, the overall effect of thefactors outlined above was a fall in total income from 1,027,023 to 843,972.Achieving revenue returns in the new financial year will remain difficult.
VAT recoverable
Both Funds' returns have been increased by the anticipation of VAT recoverable of 112,000 in total, as a result of recent HMRC policy announcements. These now permit recovery of most of the VAT that has been borne upon Fund management fees in the past three years, at least. An amount in excess of this sum has been received since the year-end.
Dividends
The revenue account generated a net revenue return for the year of 147,005 for the Ordinary Share Fund (2008: ( 214,894)) and 123,412 for the CShare Fund (2008: 242,682). Due to the reduction in anticipated revenuereturns and the need to preserve the fund's cash position, your Directors willnot be recommending a final income dividend for Ordinary Shareholders, but arerecommending an income dividend for C Shareholders of 1 penny per share whichwill be paid on 18 September 2009 to Shareholders on the register on 28 August2009.New capital raising
The Offer closed on 30 April 2009, having raised just under 7.3 million for the C Share Fund, which the Board regards as a positive outcome in difficult conditions for fund-raising. We anticipate that there will be significant opportunities to invest over the medium term and intend the Company to participate alongside other MPEP-advised VCTs, at what may be an advantageous point in the economic cycle.
Outlook
In my Statement in the Half-Yearly Report to shareholders, Iemphasised that the Board and the Investment Manager are paying closeattention to current economic indicators. The depth and timescale of theeconomic and market downturn is as yet uncertain, but there is clearly aheightened risk to the smaller company sector in which your VCT invests. YourBoard continues to believe that the Investment Manager's strategy of investingin MBOs is appropriate, and that, looking forward, good opportunities willpresent themselves for new investment.
Conclusion
I would like to express my thanks to all Shareholders for your continuing support of the Company. I hope to have the opportunity of meeting you at the Annual General Meeting on 10 September 2009.
Nigel MelvilleChairman23 July 2009
The Directors confirm that to the best of their knowledge that:
(a) the financial statements, prepared in accordance with UK GenerallyAccepted Accounting Practice (UK GAAP) and the 2003 Statement of RecommendedPractice, `Financial Statements of Investment Trust Companies' (SORP), revisedDecember 2005, give a true and fair view of the assets, liabilities, financialposition and the loss of the Company.
(b) the management report, comprising the Chairman's Statement, Investment Portfolio Summary, Investment Manager's Review and Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
For and on behalf of the Board:
Nigel MelvilleChairman23 July 2009Investment Policy
The VCT's policy is to invest primarily in a diverse portfolio of UK established, profitable, unquoted companies in order to generate capital gains from trade sales and flotations.
Investments are structured as part loan and part equity in order to receive regular income and to provide downside protection in the event of under-performance.
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 own. Investments are primarily made in companies that are established and profitable.
Uninvested funds are held in cash and low risk money market funds.
UK Companies
The companies in which investments are made must have no more than 15 million of gross assets at the time of investment to be classed as a VCT qualifying holding.
VCT regulationThe investment policy is designed to ensure that the VCT continuesto qualify and is approved as a VCT by HMRC. Amongst other conditions, the VCTmay not invest more than 15% of its investments in a single company and mustachieve at least 70% by value of its investments throughout the period inshares or securities in qualifying holdings, of which a minimum overall of 30%by value must be ordinary shares which carry no preferential rights. Inaddition, although the VCT can invest less than 30% of an investment in aspecific company in ordinary shares it must have at least 10% by value of itstotal investments in each qualifying company in ordinary shares which carry
nopreferential rights.Asset mix
The Investment Manager aims to hold approximately 80% by value of the VCT's investments in qualifying holdings. The balance of the portfolio is held in readily realisable interest bearing investments and deposits.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses across different industry sectors. To reduce the risk of high exposure to equities, each qualifying investment is structured using a significant proportion of loan stock (up to 70% of the total investment in each VCT qualifying company). Initial investments in VCT qualifying companies are generally made in amounts ranging from 200,000 to 1 million at cost. No holding in any one company will represent more than 10% of the value of the VCT's investments, based on cost, at the time of investment. Ongoing monitoring of each investment is carried out by the Manager generally through taking a seat on the Board of each VCT qualifying company.
Co-investment
The VCT aims to invest alongside four other Income and Growth VCTsadvised by the Manager with a similar investment policy. This enables the VCTto participate in combined investments by the Investment Manager of up to 5million.Borrowing
The VCT has no borrowing and does not have any current plans for future borrowings.
Management
The Board has overall responsibility for the Company's affairs including the determination of its investment policy. Investment and divestment proposals are originated, negotiated and recommended by the Manager and are then subject to formal approval by the Directors. Matrix Securities provides Company Secretarial and Accountancy services to the VCT.
Principal risks, management and regulatory environment
The Board believes that the principal risks faced by the VCT are:
- Economic risk - events such as an economic recession and movement in interest rates could affect trading conditions for smaller companies and consequently the value of the VCT's qualifying investments.
- Loss of approval as a Venture Capital Trust - the VCT must complywith Section 274 of the Income Tax Act 2007 which allows it to be exemptedfrom capital gains tax on investment gains. Any breach of these rules may leadto the VCT losing its approval as a VCT, qualifying shareholders who have notheld their shares for the designated holding period having to repay the incometax relief they obtained and future dividends paid by the VCT becoming subjectto tax. The VCT would also lose its exemption from corporation tax on capitalgains.- Investment and strategic - inappropriate strategy or consistentlyweak VCT qualifying investment recommendations might lead to under performanceand poor returns to shareholders. Investment in unquoted small companies byits nature involves a higher degree of risk than investment in companiestraded on the London Stock Exchange main market. Smaller companies often havelimited product lines, markets or financial resources and may be dependent fortheir management on a smaller number of key individuals. This may make themmore risk-prone and volatile investments.
- Regulatory - the VCT is required to comply with the Companies Acts, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the VCT's Stock Exchange listing, financial penalties or a qualified audit report.
- Financial and operating risk- inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or breaches of regulations. Failure of the Manager's and Administrator's accounting systems or disruption to its business might lead to an 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 VCT'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.
- Credit/counterparty risk - A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company.
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 Manager andAdministrator on a six monthly basis. In the mitigation and management ofthese risks, the Board applies rigorously the principles detailed in the AICCode of Corporate Governance. The Board also has a Share Buy Back policy totry to mitigate the Market Liquidity risk. This policy is reviewed at eachquarterly Board Meeting.Investment Portfolio SummaryAs at 30 April 2009Ordinary Share Fund Date of Total Book Valuation Additions Valuation Change in % of net first cost at 30 at 30 April at 30 April valuation assets investment April 2009 2008 2009 for year by value GBP GBP GBP GBP GBPQualifying Sectorinvestments AIM quotedinvestmentsLegion Group plc August 2005 150,000 107,205 - 75,000 (32,205) 1.0%(formerly SectorGuard plc)Provision of manned guarding,mobile patrolling,and alarm response Supportservices ServicesVphase plc March 2001 254,586 9,504 - 7,604 (1,900) 0.1%(formerly Flightstore Group plc)Development of energy saving Electronicdevices for domestic use and electrical equipment ------ ------ ------ ------ ------ ------ 404,586 116,709 - 82,604 (34,105) 1.1% Unquoted investmentsBritish International June 2006 832,827 904,172 - 1,000,432 96,260 12.9%Holdings LimitedHelicopter service operators Support servicesDiGiCo Europe Limited July 2007 588,886 588,886 - 827,897 239,011 10.6%Design and manufacture of Technology,audio mixing desks hardware and equipmentPastaKing Holdings Limited June 2006 274,624 829,135 - 783,243 (45,892) 10.1%Manufacture and Foodsupply of fresh pasta producersYoungman Group Limited October 2005 1,000,052 1,670,564 - 689,583 (980,981) 8.9%Manufacturer of Supportladders and access towers servicesVSI Limited April 2006 231,020 656,004 - 651,150 (4,854) 8.4%Software for CAD Software andand CAM vendors Computer ServicesATG Media Holdings Limited October 2008 508,736 508,736 508,736 - 6.5%Publisher and online auction Mediaplatform operatorVectair Holdings Limited January 2006 243,784 374,418 - 325,108 (49,310) 4.2%Design and sale of Supportwashroom products servicesBlaze Signs Holdings Limited April 2006 791,608 1,136,072 - 297,000 (839,072) 3.8%Manufacturing and Supportinstallation of signs servicesCampden Media Limited January 2006 975,000 490,131 - 214,044 (276,087) 2.8%Publishing and conferencing MediaThe Plastic Surgeon April 2008 230,986 230,986 - 57,747 (173,239) 0.7%Holdings LimitedSnagging and finishing of Supportdomestic and commercial servicespropertiesPXP Holdings Limited December 685,131 481,971 96,245 32,851 (545,365) 0.4%(Pinewood Structures) 2006Design, manufacture and Constructionsupply of timber frames forbuildingsRacoon International December 517,350 57,644 - - (57,644) 0.0%Holdings Limited 2006Supplier of hair extensions, Personalhair goodscare products and trainingAward International Holdings plc March 2004 250,000 -
- - - 0.0%Promotional goods N/Aand services agencyRecite Limited August 2003 1,000,000 - - - - 0.0%Sales support software (in liquidation) ------ ------ ------ ------ ------ ------ 8,130,004 7,419,983 604,981 5,387,791 (2,637,173) 69.3% ------ ------ ------ ------ ------ ------Total qualifying 8,534,590 7,536,692 604,981 5,470,395 (2,671,278) 70.4%1investments Non-qualifyinginvestmentsMoney market funds 2 2,061,939 3,373,809 2,061,939 26.5%Cash 38,510 54,863 38,510 0.5%Legion Group plc 106 62 44 0.0% ------ ------ ------ ------ ------ ------Total non-qualifying 2,100,555 3,428,734 2,100,493 27.0%investments Debtors 277,484 289,975 277,484 3.5%Creditors (76,145) (119,809) (76,145) (0.9%) ------ ------ ------ ------ ------ ------Net assets 10,836,484 11,135,592 7,772,227 100.0% ====== ====== ====== ====== ====== =====C Share Fund Date of first Total Book Valuation at Additions Valuation at Change in % of net investment cost at 30 30 April 2008 30 April 2009 valuation assets April 2009 for year by value GBP GBP GBP GBP GBPQualifying SectorinvestmentsUnquotedinvestmentsBarnfield Management July 2008 1,000,000 - 1,000,000 1,000,000 - 6.9%Investments LimitedCompany seeking to n/aacquire businesses inthe food sectorVanir Consultants Limited October 2008 1,000,000 - 1,000,000 1,000,000 - 6.9%Company seeking to invest N/Ain datamanagement, datamapping andmanagement servicesMonsal Holdings Limited December 2007 854,450 769,000
85,450 640,838 (213,612) 4.4%Engineering services Supportto the water and serviceswaste sectorsFocus Pharma Holdings October 2007 660,238 660,238 - 599,780 (60,458) 4.1%LimitedLicensing and distribution Pharmaceuticalsof andgeneric pharmaceuticals BiotechnologyDiGiCo Europe Limited July 2007 411,114 411,114 - 577,972 166,858 4.0%Design and Technology,manufacture of audio hardware andmixing desks equipment
PastaKing Holdings Limited June 2006 191,720 578,836 - 546,798 (32,038) 3.8%Manufacure and Food producerssupply of fresh pastamealsATG Media Holdings Limited October 2008 355,159 - 355,159 355,159 - 2.4%Publisher and online Mediaauction platform operatorBlaze Signs April 2006 606,890 666,686 - 223,000 (443,686) 1.5%Holdings LimitedManufacturing and Supportinstallation of signs servicesVSI Limited April 2006 77,623 220,419 - 218,788 (1,631) 1.5%Software for CAD Software andand CAM vendors Computer ServicesBritish International June 2006 167,173 181,524 - 200,868 19,344 1.4%Holdings LimitedSupplier of helicopter Supportservices servicesThe Plastic Surgeon April 2008 161,278 161,278 - 40,320 (120,958) 0.3%Holdings LimitedSnagging and finishing of Supportdomestic servicesand commercial propertiesPXP Holdings Limited December 2006 478,305 336,474 67,191 22,942 (380,723) 0.1%(Pinewood Structures)Design, manufacture and Constructionsupplyof timber frames forbuildingsRacoon International December 2006 361,177 40,242 - - (40,242) 0.0%Holdings LimitedSupplier of hair Personal goodsextensions, hair careproducts and training ------ ------ ------ ------ ------ ------ 6,325,127 4,025,811 2,507,800 5,426,465 (1,107,146) 37.3% ------ ------ ------ ------ ------ ------Total qualifying 6,325,127 4,025,811 2,507,800 5,426,465 (1,107,146) 37.3%1investments Non-qualifyinginvestmentsMoney market funds 2 9,136,823 4,984,365 9,136,823 62.8%Cash 22,836 34,891 22,836 0.2% ------ ------ ------ ------ ------ ------Total non-qualifying 9,159,659 5,019,256 9,159,659 63.0%investments Debtors 170,762 62,354 170,762 1.1%Creditors (209,969) (100,060) (209,969) (1.4%) ------ ------ ------ ------ ------ ------Net assets 15,445,579 9,007,361 14,546,917 100.0% ====== ====== ====== ====== ====== =====1 As at 30 April 2009, the Company (comprising both share classes) held morethan 70% of its total investments in qualifying holdings, and thereforecomplied with the VCT Investment test. For the purposes of the VCT Investmenttests, the Company is permitted to disregard disposals of investments for 6months from the date of disposal.
2 Disclosed within Non-current assets as Monies held pending Investment in the Balance Sheet.
Investment Manager's Review
Overview of Investment Activity
Over the last year the environment for new investment has in our opinioncontinued to be generally unattractive; this view has been informed both by alack of sufficiently attractive investment opportunities and the increasingevidence of recession affecting many smaller companies. We have held the viewfor some time that in the current market the price expectations of vendorswould prove unsustainable; furthermore we have, over the past two years,avoided transactions which necessitated companies taking on high levels ofbank borrowing, believing that economic conditions were deteriorating and thathighly-leveraged investments would become vulnerable in the tougher economicconditions which now prevail.
Against a worsening backdrop of reducing demand and increasing pressure on margins, your Manager remains cautious in its assessment of the forecasts produced by aspiring management teams and we therefore chose to complete just one new MBO investment for the funds during the year.
In October the "O" and "C" share funds invested 508,736 and 355,159respectively in ATG Media Holdings. This was the first target company and MBOtransaction to be sourced and completed under our Operating Partner programme.Derringfield, the acquisition company in which the Company had invested inJuly, was renamed ATG Media Holdings and acquired the publisher of the leadingweekly newspaper serving the UK antiques trade, the Antiques Trade Gazette,via a MBO. This London-based business also offers an on-line auctioncapability. The C share fund originally invested 1m into Derringfield and thecompletion of the ATG MBO resulted in a repayment to the C share fund of 645,236. The "O" and "C" share funds invested in loan stock and ordinaryshares, holding 4.5% and 3.2% of the equity respectively.
The "C" share fund made two investments, each of 1,000,000, into two acquisition vehicles, Barnfield Management Investments and Vanir Consultants, which are now seeking to acquire businesses in the food and food-related manufacturing industry and database management sector respectively.
A small additional investment was made in November by both the "O" and "C"share funds which invested 96,245 and 67,191 respectively as part of a 1million funding round to provide capital to support PXP in what is expected toremain a difficult housebuilding and construction market during 2009. InJanuary, Monsal received further shareholder funding of 500,000, including 85,450 from the "C" share fund, to provide additional working capital.Despite the recent gains in quoted share prices we remain of the view thatrecovery from recession, insofar as it affects the performance of smallercompanies, remains some way off and a priority will therefore be to continueto invest to support portfolio companies judiciously during this period. Webelieve that the overall quality of the portfolio remains high and that itcontains a number of UK market-leading companies which will recover value asthe economy itself recovers.
Proportionate additional investment alongside highly-motivated management teams who are prepared to take hard decisions to ensure the long term financial health of their businesses will, in our view, be the effective response to the economic environment. To date the investment portfolio has required very little additional funding despite the worsening economic environment. We are also mindful that small acquisitions of distressed competitors may represent opportunities for some portfolio companies and continue to review these with investee company management teams.
Inevitably, the valuations of a number of portfolio companies have sufferedmaterially over the past year, due primarily to deterioration in their owntrading. Appropriate provisions have been made against investments to reflectthis. Certain sectors have been particularly affected, notably construction,food manufacturers and software and computer services.
Ordinary Share Fund Portfolio Highlights
The Ordinary share fund comprised investments in 16 companies at acost of 8.53 million and a current valuation of 5.47 million; on alike-for-like basis the portfolio value shows a 35.4% fall compared with thevaluation prevailing at 30 April 2008. This should be viewed against thebackdrop of the fall in quoted markets; the FTSE All-Share and FTSE Small Capindices both dropped by 29.9% over the same period. This portfolio'sperformance reflects relatively large downward revisions to the unrealisedvaluations of several companies in the portfolio, which we hope will be ableto be reversed at some future point.
Over the past months we have been working even more closely with management of a number of companies in the portfolio which have been most affected by the contraction in the construction and housebuilding industries. Significant redundancies and other cost savings have been implemented in recent months as businesses seek to reduce their breakeven levels. The need for further cost reductions is kept under continuous review.
Youngman Group, PXP and Plastic Surgeon are exposed to the significant reduction in demand experienced by the construction and housebuilding sector and are yet to see any signs of recovery in their markets. Pressure on capital and maintenance expenditure has also materially affected Blaze Signs, although there is guarded optimism that its retail clients are now beginning to invest again in signage. All have seen further deterioration in trading and reductions in their valuations.
Our media investments, Campden Media and ATG Media, are also operating in difficult markets as advertising budgets come under increasing pressure. PastaKing continues to make strong progress although the relative weakness of sterling has led to further pressure on the prices of certain ingredients. This has also affected Vectair, whose raw materials are sourced from both dollar- and euro-based suppliers. DiGiCo Europe has continued its record trading into 2009 and is currently well ahead of budget.
During the year Racoon began to offer a retail hair extensionproduct through a major national retailer and it is intended to expand theproduct range and reach in the high street during 2009 as part of its recoverystrategy. SectorGuard has substantially re-organised its management andoperations since its acquisition of Manguard in March 2008 and has madefurther significant acquisitions including the addition of Legion Group.SectorGuard changed its name to Legion Group plc on 29 June 2009. BritishInternational Holdings reported reduced profits due to a combination of pooroperating conditions on the Penzance-Isles of Scilly route and scheduledmaintenance costs. Finally, VSI continues to make steady progress after a yearof record progress in 2008.
C Share Fund Portfolio Highlights
The "C" share fund now holds investments in 13 companies at a costof 6.33 million and a current valuation of 5.43 million; on a like for likebasis this represents a drop of 27.5% compared with the valuation prevailingat 30 April 2008, and compares with the 29.9% fall in the FTSE All-Share andFTSE Small Cap indices over the same period.As last year, most of the "C" share fund's investments are commonto the "O" share fund; four investments are held solely by the "C" share fund.Of these, Barnfield Management Investments and Vanir Consultants have beenactively seeking acquisitions in their chosen sectors. Focus Pharma enjoyedsolid progress in 2008 and has begun the current year well. Monsal, after aslow start in 2008 after its MBO, has won a number of major contracts and isset for a much improved year. There is evidence that its acknowledgedexpertise in anaerobic digestion technology is now an increasing focus for UKwaste companies.
Non-statutory analysis between the Ordinary Share and C Share Funds
Profit and Loss Accounts
For the year ended 30 April 2009
Ordinary Share Fund C Share Fund Notes Revenue Capital Total Revenue Capital Total GBP GBP GBP GBP GBP GBP Unrealised losses oninvestments held atfair value - (2,671,234) (2,671,234) - (1,107,146) (1,107,146)Realised losses oninvestments held atfair value - (29) (29) - - -Income 385,215 63,825 449,040 350,382 44,550 394,932Recoverable VAT 12,550 37,650 50,200 10,068 30,204 40,272Investmentmanagement fees (48,163) (144,489) (192,652) (44,876) (134,626) (179,502)Other expenses (183,089) - (183,089) (168,084) - (168,084) ------ ------ ------ ------ ------ ------Profit/(loss) onordinary activitiesbefore taxation 166,513 (2,714,277) (2,547,764) 147,490 (1,167,018) (1,019,528)Tax on ordinaryactivities (19,508) 21,657 2,149 (24,078) 21,929 (2,149) ------ ------ ------ ------ ------ ------Profit/(loss)attributable toequity shareholders 147,005 (2,692,620) (2,545,615) 123,412 (1,145,089) (1,021,677) ====== ====== ====== ====== ====== ======Earnings pershare-basic anddiluted 6 1.29 p (23.63)p (22.34)p 1.27 p (11.83)p (10.56)p Average number ofshares in issue 11,394,390 9,677,798 Total Notes Revenue Capital Total GBP GBP GBP Unrealised losses on investments held at fair value - (3,778,380) (3,778,380)Realised losses on investments held at fair value - (29) (29)Income 735,597 108,375 843,972Recoverable VAT 22,618 67,854 90,472Investment management fees (93,039) (279,115) (372,154)Other expenses (351,173) - (351,173) ------ ------ ------Profit/(loss) on ordinary activities before taxation 314,003 (3,881,295) (3,567,292)Tax on ordinary activities (43,586) 43,586 - ------ ------ ------Profit/(loss) attributable to equity shareholders 270,417 (3,837,709) (3,567,292) ====== ====== ======Balance SheetsAs at 30 April 2009 Ordinary Share Fund C Share Fund Notes GBP GBP GBP GBPNon-current assetsAssets held at fair valuethrough profit and loss -investments 5,470,439 5,426,465 Current assetsDebtors and prepayments 277,484 170,762Monies held pendinginvestment 2,061,939 9,136,823Cash at bank 38,510 22,836 ------ ------ 2,377,933 9,330,421 Creditors: amountsfalling due within oneyear (76,145) (209,969) ------ ------ ------ ------Net currentassets/(liabilities) 2,301,788 9,120,452 ------ ------Net assets 7,772,227 14,546,917 ====== ======CapitalCalled up share capital 112,593 169,104Capital redemption reserve 19,213 -Share premium account - 6,712,239Capital reserve - unrealised (1,814,257) (898,662)Special distributablereserve 2,409,196 8,202,724Profit and loss account 7,045,482 361,512 ------ ------Equity shareholders'funds 7,772,227 14,546,917 ====== ======Number of shares inissue: 7 11,259,333 16,910,386 Net asset value per share- basic and diluted 69.03p 86.02p Adjustments Total Notes (see note below) GBP GBP GBPNon-current assetsAssets held at fair valuethrough profit and loss -investments 10,896,904 Current assetsDebtors and prepayments (174,584) 273,662Monies held pendinginvestment 11,198,762Cash at bank 61,346 ------ ------ (174,584) 11,533,770 Creditors: amountsfalling due within oneyear 174,584 (111,530) ------
Net current assets/(liabilities)
11,422,240 ------Net assets 22,319,144 ======CapitalCalled up share capital 281,697Capital redemption reserve 19,213Share premium account 6,712,239Capital reserve - unrealised (2,712,919)Special distributable reserve 10,611,920Profit and loss account 7,406,994 ------Equity shareholders'funds 22,319,144 ======
Note: The adjustment above nets off the inter-fund debtor and creditor balances, so that the "Total of both funds" balance sheet agrees to the Statutory Balance Sheet below.
Reconciliation of Movement in Shareholders' Funds
Ordinary C Share Share Fund Fund Total GBP GBP GBP Opening shareholders'funds 11,135,530 9,007,361 20,142,891 Net Share capital (boughtback)/issued in the year(net of expenses) (128,228) 6,789,883
6,661,655
(Loss)/profit for the year (2,545,615) (1,021,677) (3,567,292)Dividends paid in year 5 (689,460) (228,650) (918,110) ------ ------ ------Closing shareholders' funds 7,772,227 14,546,917 22,319,144 ====== ====== ======Profit and Loss Account
For the year ended 30 April 2009
Year ended 30 April 2009 Year
ended 30 April 2008
Notes Revenue Capital Total Revenue Capital Total GBP GBP GBP GBP GBP GBPUnrealised losses oninvestments held atfair value - (3,778,380) (3,778,380) - (1,311,782) (1,311,782)Realised(losses)/gains oninvestments held atfair value - (29) (29) - 753,267 753,267Income 2 735,597 108,375 843,972 1,027,023 - 1,027,023Recoverable VAT 3 22,618 67,854 90,472 - - -Investmentmanagement fees (93,039) (279,115) (372,154) (125,110) (375,329) (500,439)Other expenses (351,173) - (351,173) (342,271) - (342,271) ------ ------ ------ ------ ------ ------Profit/(loss) onordinary activitiesbefore taxation 314,003 (3,881,295) (3,567,292) 559,642 (933,844) (374,202) Taxation on ordinaryactivities 4 (43,586) 43,586 - (102,066) 102,066 - ------ ------ ------ ------ ------ ------Profit/(loss) onordinary activitiesafter taxation 270,417 (3,837,709) (3,567,292) 457,576 (831,778) (374,202) ====== ====== ====== ====== ====== ======Basic and dilutedearnings per share:Ordinary Shares 6 1.29p (23.63)p (22.34)p 1.82p (7.20)p (5.38)pC Shares 6 1.27p (11.83)p (10.56)p 2.65p 0.19p 2.84p
All the items in the above statement derive from continuing operations. No operations were discontinued in the year.
There were no other gains or losses in the year.
The total column of this statement is the profit and loss account of the Company.
Other than revaluation movements arising on investments held at fair value through the Profit and Loss Account, there were no differences between the loss as stated above and the historical cost result.
The notes below form part of these financial statements.
Balance SheetAs at 30 April 2009 Notes 30 April 2009 30 April 2008 (restated) GBP GBPNon-current assetsAssets held at fair valuethrough profit and loss - investments 10,896,904 11,562,503 Current assetsDebtors and prepayments 273,662 277,926Monies held pending investment 11,198,762 8,358,174Cash at bank 61,346 89,754 ------ ------ 11,533,770 8,725,854 Creditors: amounts falling duewithin one year (111,530) (145,466) ------ ------Net current assets 11,422,240 8,580,388 ------ ------Net assets 22,319,144 20,142,891 ====== ======Capital and reservesCalled up share capital 281,697 206,370Capital redemption reserve 19,213 16,896Share premium account 6,712,239 -Revaluation reserve - unrealised ( 2,712,919) 1,065,461Special distributable reserve 10,611,920 10,881,648Profit and loss account 7,406,994 7,972,516 ------ ------Equity shareholders' funds 22,319,144 20,142,891 ====== ======Net asset value per share - basic anddilutedOrdinary Shares 7 69.03p 96.91pC Shares 7 86.02p 98.48p
The notes below form part of these financial statements.
Cash Flow Statement
For the year ended 30 April 2009
Year ended Year ended 30 April 2009 30 April 2008 Notes GBP GBP Interest income received 449,574 645,737Dividend income 485,537 504,755Investment management fees paid (373,826)
(632,574)
Cash payments for other expenses (377,434)
(501,954)
------
------
Net cash inflow from operatingactivities 183,851
15,964
Capital expenditure and financialinvestmentPurchase of investments held at fairvalue (3,758,017)
(3,821,514)
Disposals of investments held at fairvalue 757,966
3,131,438
------
------
Net cash outflow from investingactivities (3,000,051) (690,076) DividendsEquity dividends paid 5 (918,110) (859,659) ------ ------Net cash outflow before financing (3,734,310)
(1,533,771)
and liquid resource management
Financing
Purchase of own shares (151,530)
(634,801)
Share capital raised (net of expenses) 6,698,020 - ------
------
Net cash inflow/(outflow) from financing 6,546,490
(634,801)
Management of liquid resourcesMovement in money marketinvestments (2,840,588) 1,930,847 ------ ------Net cash outflow as at 30 April 2009 (28,408) (237,725) ====== ======
Reconciliation of Movements in Shareholders' Funds
For the year ended 30 April 2009
Year ended Year ended 30 April 2009 30 April 2008 Notes GBP GBPOpening shareholders' funds 20,142,891 21,797,419 Net share capital issued in the year(net of expenses) 6,789,883 -Share capital bought back (128,228) (420,667)Loss for the year (3,567,292) (374,202)Dividends paid in year 5 (918,110) (859,659) ------ ------Closing shareholders' funds 22,319,144 20,142,891 ====== ======Notes to the Accounts
For the year ended 30 April 2009
1) Basis of accounting
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' issued by the Association of Investment Companies in January 2003, revised December 2005 ("the SORP").
2) Income 2009 2008 GBP GBPIncome from bank deposits 1,731 8,879 Income from investments- from equities 214,825 51,422- from overseas based OEICs 191,677 442,520- from UK based OEICs 44,615 -- from loan stock 391,124 524,202 ------- ------- 842,241 1,018,144 ------- -------Total income 843,972 1,027,023 ====== ======Total income comprisesDividends 451,117 493,942Interest 392,855 533,081 ------- ------- 843,972 1,027,023Income from investments comprisesListed overseas securities 191,677 442,520Unlisted UK securities 259,440 51,422Loan stock interest 391,124 524,202 ------- ------- 842,241 1,018,144 ====== ======
Loan stock interest above is stated after deducting an amount of 38,611 (2008: 12,588), 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 303,168(2008: 107,941). 3) Recoverable VAT Revenue Capital Total Revenue Capital Total 2009 2009 2009 2008 2008 2008 GBP GBP GBP GBP GBP GBPRecoverable VAT 22,618 67,854 90,472 - - - On the basis of information supplied by theCompany's current and past Investment Managers, and discussions with theCompany's professional advisors as a result of the European Court of Justiceruling and subsequent HMRC briefing that management fees be exempt for VATpurposes, the Directors have recognised a repayment of VAT of not less than 112,000, which has been received after the year-end. 21,528 of this amountrelates to 2008 and has been set off against the total management fees for2009 disclosed in the profit and loss account, leaving the net amountdisclosed above. This amount has been recognised as a separate item in theProfit and Loss Account, allocated 25% to revenue and 75% to capital returnand is the same proportion as that in which the irrecoverable VAT wasoriginally charged. It is possible that additional amounts of VAT will berecoverable in due course but the Directors are unable at this stage toquantify the sums involved.
4) Taxation on ordinary activities
There is no tax charge for the period, as the Company has incurred taxable losses in the period.
5) Dividends paid and payable
2009
2008
GBP
GBP
Amounts recognised as distributions to equity holders in theyear:Ordinary share fundInterim income dividend for the year ended 30 April 2008 paidof 1.5p (2008: 1.5p) per share 172,365
-
Interim capital dividend for the year ended 30 April 2008 paid of 4.5p (2008: 4.5p) per share
517,095
-
Final paid of nil (2008: 6p) per share - 722,467 ------- ------- 689,460 722,467
C share fund Interim income dividend paid for the year ended 30 April 2008 of 2.5p (2008: 1.5p) per share
228,650 137,192 ------- -------Total paid 918,110 859,659
The Company proposes to pay a final dividend of 1 penny per C Share from income. The dividend will be recommended to Shareholders at the Annual General Meeting and, if approved, will be paid on 18 September 2009 to C Shareholders on the Register on 28 August 2009.
6) Basic and diluted earnings and return per share
2009 2009 2009 2008 2008 2008 Ordinary Share C Share Fund Ordinary C Share Fund Fund Share Fund GBP GBP GBP GBP GBP GBP
Total earnings after taxation: (2,545,615) (1,021,677) (3,567,292) (633,730) 259,528 (374,202)
------ ------ ------ ------Basic and diluted earnings per share (22.34)p (10.56)p (5.38)p 2.84p(note a)Net revenue from ordinary activities 147,005 123,412 214,894 242,682
after taxation
------ ------ ------ ------Basic and diluted revenue earnings 1.29p 1.27p 1.82p 2.65p
per share (note b)
Net realised capital (losses)/gains (29) - 688,893 64,374Net unrealised capital (2,671,234) (1,107,146) (1,388,204) 76,422(losses)/gainsDividends treated as capital 63,825 44,550 - -VAT recoverable 37,650 30,204 - -
Capital expenses (net of taxation) (122,832) (112,697)
(149,313) (123,950)
------ ------ ------ ------Total capital return (2,692,620) (1,145,089) (848,624) 16,846 ------ ------ ------ ------
Basic and diluted capital earnings (23.63)p (11.83)p (7.20)p 0.19p
per share (note c)
Weighted average number of shares in 11,394,390 9,677,798
11,789,161 9,145,990issue in the yearNotes:
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 return 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) There are no instruments that will increase the number of shares in issuein future. Accordingly, the above figures currently represent both basic anddiluted returns.
The Board consider that the likelihood of the issue of performance warrants by the Ordinary Share Fund, as referred to in note 4 of the Annual Report, is low. Accordingly, the potential impact of the issue of these warrants upon diluted earnings per share has been ignored for this purpose.
7) Basic and diluted net asset value per share
Ordinary Share Fund
Net asset value per Ordinary Share is based on net assets at the end of the year, and on 11,259,333 (2008: 11,491,008) Ordinary Shares, being the number of Ordinary Shares in issue on that date.
C Share Fund
Net asset value per C Share is based on net assets at the end of the year, and on 16,910,386 (2008: 9,145,990) C Shares, being the number of C Shares in issue on that date.
8) Reconciliation of loss on ordinary activities before taxation to
net cash inflow from operating activities 2009 2008 GBP GBP
Loss on ordinary activities before taxation (3,567,292) (374,202)Net losses on realisations of investments 29 1,311,782Net unrealised losses/(gains) on investments 3,778,380 (753,267)(Increase)/decrease in debtors (114,664) 22,571Increase/(decrease) in creditors and accruals 87,398 (175,924)Transaction costs charged to capital - (14,996) ------ ------Net cash inflow from operating activities 183,851 15,964
9) Analysis of changes in net funds
Cash Liquid resources Total GBP GBP GBPAt beginning of year 89,754 8,358,174 8,447,928Cash flows (28,408) 2,840,588 2,812,180 ------ ------ ------At 30 April 2009 61,346 11,198,762 11,260,108
10) Related party transactions
Kenneth Vere Nicoll is a director and shareholder of Matrix GroupLimited, which owns Matrix-Securities Limited, MPE Partners Limited and has a51% interest in Prime Rate Capital Management LLP and Matrix Corporate Capital("MCC").MPE Partners Limited has a 50% interest in Matrix Private EquityPartners LLP, the Company's Investment Manager. He is also a director ofMatrix-Securities Limited who provided accountancy and company secretarialservices to the Company for which it received payment of 95,123 (2008: 93,493) including VAT during the year. Matrix Private Equity Partners LLP isthe Company's Investment Manager in respect of venture capital investments andearned fees of 372,154 (2008: 500,439 including VAT), net of VAT originallycharged. 6,500 (2008: 11,672) was due from Matrix Private Equity PartnersLLP at the year-end. The Company has invested 1 million in a liquidity fundmanaged by Prime Rate Capital Management LLP, and earned income of 44,615from this fund in the year. MCC were appointed as the Company's brokers on 10December 2008. Fees of 1,394 were charged for the period. Two share buybackswere undertaken by MCC on the Company's instruction totalling 42,538. Noamounts owed to MCC were due at the year end.
11) Post balance sheet events
On 6 May 2009, Digico Europe Limited made a partial repayment of their loan stock. The Ordinary Share fund received proceeds of 137,552 and the C Share fund received proceeds of 96,028.
Following the close of the C share Offer after the year end, the Company issued a further 573,702 new C Shares, at 92.39 pence per share, raising gross funds before expenses of 530,000.
12) Financial information
These are not full accounts in terms of section 435 of the Companies Act 2006.The Annual Report for the year to 30 April 2009 will be sent to shareholdersshortly and will then be available for inspection at One Vine Street, LondonW1J 0AH, the registered office of the Company. Copies of the Annual Reportwill be available in August at www.mig2vct.co.uk. Statutory accounts will bedelivered to the Registrar of Companies after the Annual General Meeting. Theauditors have reported on these accounts and their report was unqualified anddid not contain a statement under section 498(2) of the Companies Act 2006.
13) Annual General Meeting
The Annual General Meeting of the Company will be held at 12 noon on 10 September 2009 at One Vine Street, London W1J 0AH.
Contact details for further enquiries: Robert Brittain of Matrix-Securities Limited (the Company Secretary) on 020 3206 7000 or by e-mail on mig2@matrixgroup.co.uk.
Mark Wignall or Mike Walker at Matrix Private Equity Partners LLP (the Investment Manager), on 020 3206 7000 or by e-mail on info@matrixpep.co.uk.
MATRIX INCOME & GROWTH 2 VCT PLC