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Matrix Income & Growth 2 VCT plc ("the Company")
Half-Yearly Report for the six months ended 31 October 2011
INVESTMENT OBJECTIVE
Matrix Income & Growth 2 VCT plc is a Venture Capital Trust ("VCT") managed byMatrix Private Equity Partners LLP ("MPEP") investing primarily in established,profitable, unquoted companies.
The Company's objective is to provide investors with a regular and growing stream of income, arising both from the income generated by the companies selected for the portfolio and from realising capital gains.
FINANCIAL HIGHLIGHTSAs at 31 October 2011
- Increase of 3.4% in net asset value (NAV) per Ordinary Share over the six
month period
- Increase of 3.1% in total Ordinary shareholder return (net asset value basis)
over the six month period
- Increase of 3.8% in total Ordinary shareholder return (share price basis)
over the six month period
Half-yearly results for the six months ended 31 October 2011
Ordinary Shares of 1 pence (formerly C Shares until 10 September 2010)
Net Net Cumulative NAV total Share Share price assets asset dividends return to price total value paid per shareholders (p)1 return to (£ per share (p) since launch shareholders million) Share per Share (p) (NAV) (p) (p)
Ordinary Share Fund (formerly C Share Fund until 10 September 2010)
As at 31 October 25.2 99.4 10.0 109.4 64.8 74.82011 As at 30 April 2011 24.9 96.2 10.0 106.2 62.0 72.0 As at 31 October 24.5 93.0 6.0 99.0 56.0 62.02010 As at 30 April 2010 15.2 87.5 5.0 92.5 57.5 62.5 As at 30 April 2009 14.5 86.0 4.0 90.0 74.5 78.5 At close of Offer 8.7 94.5 - - - -for subscription in 2005 Net Net Cumulative NAV total Share Share price assets asset dividends return to price total (£ value paid per shareholders (p)1 return to million) per share (p) since launch shareholders Share per Share (p) (NAV) (p) (p)
Former Ordinary Share Fund (raised in 2000/2001)
As at 31 October - 82.2 30.1 112.3 - -2011* As at 30 April 2011 - 79.5 30.1 109.6 - - As at 31 October - 76.9 26.8 103.7 - -2010 As at 30 April 2010 8.1 72.1 26.8 98.9 40.5 67.3 As at 30 April 2009 7.8 69.0 26.8 95.8 48.5 75.3 At close of Offer 12.4 94.0 - - - -for subscription in 2001
1 Source: London Stock Exchange
* The data at 31 October 2011 shows the return on an initial subscription priceof 100p at the date of inception of the former Ordinary Share Fund taken fromthe next table, divided by £10,000. The table below shows the NAV total return at 31 October 2011 for a shareholderthat invested £10,000 at £1 per share at the date of launch of a particularfundraising. BEFORE BENEFIT OF INITIAL INCOME TAX RELIEF Fund Number Net Dividends NAV total Profit of Asset paid return to / shares Value to shareholders (loss) held (NAV) shareholders since before post- at since subscription income merger 31 subscription tax October relief 2011 1 (£) (£) (£) (£)
Ordinary Share Fund
(formerly C Share Fund) 10,000 9,942 1,000 10,942 942 2005/2006
Ordinary Share Fund (formerly C Share Fund)
2008/2009 (10,823 shares 10,823 10,760 649 11,409 1,409 issued for £10,000 at
92.39p per share)
Former Ordinary Share Fund 8,2702 8,222 3,010 11,232 1,232 (raised 2000/2001)
1 NAV total return minus initial investment cost (before applicable income tax relief).
2 Number of shares held post-merger has been calculated by multiplying a notional 10,000 former ordinary shares for a £10,000 investment by the merger conversion ratio of 0.827.
AFTER BENEFIT OF INITIAL INCOME TAX RELIEF Fund Rate Cost Net Dividends NAV total Profit of net of Asset paid return to / Income income Value to shareholders (loss) tax tax (NAV) shareholders since after relief relief at 31 since subscription income October subscription tax % 2011 relief 2 (£) (£) (£) (£) (£) Ordinary Share Fund (formerly C Share 40% 6,000 9,942 1,000 10,942 4,942Fund) 2005/2006 Ordinary Share Fund (formerly C Share Fund) 2008/2009 (10,823 shares 30% 7,000 10,760 649 11,409 4,409issued for £10,000 at 92.39p per share) Former Ordinary
Share Fund (raised 20% 1 8,000 8,222 3,010 11,232 3,232 2000/2001)
1 Additional capital gains tax deferral relief of up to £4,000 available to qualifying shareholders.
2 NAV total return minus cost net of income tax relief. INVESTMENT 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 millionof gross assets at the time of investment to be classed as a VCT qualifyingholding. The additional £7.3 million funds raised by the Company after 6 April2006 are subject to a £7 million gross assets test for an investment to be
VCTqualifying. VCT regulationThe investment policy is designed to ensure that the VCT continues to qualifyand is approved as a VCT by HMRC. Amongst other conditions, the VCT may notinvest more than 15% of its investments in a single company and must achieve atleast 70% by value of its investments throughout the period in shares orsecurities in qualifying holdings, of which a minimum overall of 30% by valuemust be ordinary shares which carry no preferential rights. In addition,although the VCT can invest less than 30% of an investment in a specificcompany in ordinary shares it must have at least 10% by value of its totalinvestments 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 acrossdifferent industry sectors. To reduce the risk of high exposure to equities,each qualifying investment is structured using a significant proportion of loanstock (up to 70% of the total investment in each VCT qualifying company).Initial investments in VCT qualifying companies are generally made in amountsranging from £200,000 to £1 million at cost. Ongoing monitoring of eachinvestment is carried out by the Manager generally through taking a seat on theBoard of each VCT qualifying company.
Co-investment
The VCT aims to invest alongside three other Income and Growth VCTs advised by the Manager with a similar investment policy. This enables the VCT to participate in combined investments by the Investment Manager of up to £5 million.
Borrowing
The VCT has no borrowing and does not have any current plans for future borrowings.
ManagementThe Board has overall responsibility for the Company's affairs including thedetermination of its investment policy. Investment and divestment proposals areoriginated, negotiated and recommended by the Manager and are then subject toformal approval by the Directors. Matrix Private Equity Partners LLP providesInvestment Advisory, Company Secretarial and Accountancy services to the VCT. CHAIRMAN'S STATEMENT
I am pleased to enclose the Half-Yearly Report of Matrix Income & Growth 2 VCT plc (the "Company") for the period from 1 May 2011 to 31 October 2011.
Portfolio Overview
The first six months of the financial year have seen a progressivelydeteriorating outlook for the UK economy. The recent Autumn Statement announcedby the Chancellor of the Exchequer on 29 November envisages continued downwardpressure upon public sector expenditure for many years, which will in turnreduce consumer confidence and spending. In a wider context, as these six months progressed, concerns over the sustainability of the global economic recovery began to re-emerge. The continuing sovereign debt crisis in the Eurozone, exceptionally high levels of borrowing in the US and signs of a slowdown in emerging market economies have all contributed to a heightened sense of uncertainty. The problems caused by excessive levels of debt continue to affect the global economy. The consequences of the above were evident in weak, volatile equity markets towards the end of the half-year.
Against this background, it is pleasing to report that the Company's performance has been relatively stable, with a number of portfolio companies continuing to perform well.
The Company has invested £2.4 million in the period and a further £1.1 millionon 1 November, in three new investments and two follow-on investments. Asexplained in the Manager's review, the Company has experienced an upward trendin dealflow during this half-year under review, enabling the Company to investin a number of better priced, profitable and cash generative businesses seekinginvestment. In June 2011, a further amount was invested in the loan stock of ASL TechnologyHoldings Limited, to support that company's objective to be a larger player
inits sector.
In July 2011, the Company invested £1,160,548 in Fullfield Limited to fund the management buy-out of Motorclean Group Limited, part of which is non-qualifying. Motorclean, is a provider of vehicle cleaning and valet services to the car dealership market.
As part of a total potential commitment of £192,000, £76,897 was invested in three tranches of loan stock in Monsal Holdings Limited, to provide working
capital to enable Monsal to pursue larger contracts in the waste and water sectors.
In October, the Company completed an investment in EOTH Limited, trading as Equip Outdoor Technologies Limited. This company operates in the branded outdoor clothing sector.
Just after the period end, the Company made a further investment on 1 November2011, to support a management buyout (MBO) of EMaC Limited. EMaC is the UKmarket leader in enabling motor manufacturers and dealers to provide serviceplans to their customers. The Board is pleased to note that the sale of DiGiCo Europe Limited ("DiGiCo")has occurred after the period-end in October 2011, realising cash proceeds of £2,138,243. The Company made a substantial disposal of its investment in DiGiCoto ISIS Equity Partners. The Company has received total cash proceeds of £3,024,832 representing a 3 times cash return on this investment to date. Inaddition, the Company retains a 2.39% equity and new loan stock investment inDiGiCo worth £1,334,291. The sale proceeds in cash alone show a good return forthe Company, whilst enabling a valuable stake to be retained in the business.DiGiCo is a good example of how a properly financed business with strongmanagement and a quality product can develop a niche opportunity, and achievegood profits.
Further details of these portfolio movements are provided in the Manager's Review.
Performance
The Net Asset Value ("NAV") per Ordinary Share at 31 October 2011 was 99.42 pence. The NAV total return since launch was 109.4 pence per share (30 April 2011: 106.2 pence per share).
Shareholders should note that the performance data in my statement relates tothe one Ordinary Share class now in existence, which was formerly called the Cshare class. This single share class was created after a share class merger ofthe former Ordinary and C share class on 10th September 2010. To assist shareholders to monitor the performance of their original Ordinary orC Share investment in a particular fundraising on a consistent basis, we haveincluded separate performance data.
Return to Shareholders
The results for this period are set out on the following pages and show arevenue gain (after tax) of 1.08 pence per Ordinary Share (30 April 2011: gainof 0.46 pence). The total gain (after tax) was 2.56 pence per Ordinary Share(30 April 2011: gain of 12.49 pence). Revenue returns have benefited firstly from an increase in loan stock interestof £160,198 and secondly, an increase in dividend income of £81,283 (beingincreases of 85% and 114% respectively, compared to the comparable period lastyear). The rise in loan stock interest reflects the new loan stock investmentsmade over the last year, but also the resumption of current interest paymentsby several investee companies in the last year. The rise in dividend income wasmainly due to a doubled dividend from DiGiCo. This return has also benefitedfrom a reduction in other expenses of £51,756, caused by costs last year thatthis year are treated as part of the Investment Management fees. Last year'scosts also included merger costs of £58,797.
Liquidity
As a result of the investment activity referred to above, the Company retainscash liquidity of £4.2 million. The sum has since been increased by £2.1million due to the sale of DiGiCo this month. When the investments inacquisition companies are taken into account, the Company remains wellpositioned to make new investments and support deserving portfolio companies,if required. Share BuybacksDuring the six months ended 31 October 2011 the Company continued to implementits buy-back policy and bought back 498,309 Ordinary Shares, representing 1.93%of the shares in issue at the start of the year, at a total cost of £315,397.The shares above were bought back for an average price of 63.3 pence per share,at discounts to the net asset value at the date of each buyback ranging from33.13% to 36.56%. These shares were subsequently cancelled by the Company.
Dividends
The Board's objective is, subject to the availability of sufficient reserves and liquidity, to distribute regular and consistent dividends. The Board intends to review the level of dividends to be paid at the year-end.
Outlook
The majority of companies in the portfolio continue to trade profitably andseveral are also reporting results ahead of their budget and prior year.However, the economic environment will continue to be tough for small companiesand your Board and Investment Manager will continue to monitor the portfolio.There will also be a focus on ensuring that existing investee companies remainwell equipped to respond to the difficult times that lie ahead.
I would like to thank all our Shareholders for their continuing support.
Nigel MelvilleChairman20 December 2011
PRINCIPAL RISKS AND UNCERTAINTIES
In accordance with Disclosure and Transparency Rule (DTR) 4.2.7, the Boardconsiders that the principal risks and uncertainties facing the Company havenot materially changed from those identified in the Annual Report and Accountsfor the year ended 30 April 2011. The principal risks faced by the Company
are: economic risk;
loss of approval as a Venture Capital Trust;
investment and strategic risk;
regulatory risk;
financial and operating risk;
market risk;asset liquidity risk;market liquidity risk;credit/counterparty risk. A detailed explanation of the principal risks facing the Company can be foundin the 2011 Annual Report and Accounts on page 25. Copies are available from www.mig2vct.co.uk. Related Party Transactions
Details of related party transactions in accordance with DTR 4.2.8 can be found in Note 13 to the financial statements.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
the condensed set of financial statements, which have been prepared in accordance with the statement "Half-Yearly Reports" issued by the Accounting Standards Board, give a true and fair view of the assets, liabilities, financial position and loss of the Company as required by DTR 4.2.4;
the interim management report included within the Chairman's Statement, Investment Manager's Review and Investment Portfolio Summary includes a fair review of the information required by DTR 4.2.7 being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;
a description of the principal risks and uncertainties facing the Company for the remaining six months is set out above, in accordance with DTR 4.2.7; and
the considered financial statements include a description of the related partytransactions in the first six months of the current financial year that havematerially affected the financial position or performance of the Company duringthe period, and any material changes to the related party transactions sincethe last Annual Report, in accordance with DTR 4.2.8.
For and on behalf of the Board:
Nigel MelvilleChairman20 December 2011 INVESTMENT MANAGER'S REVIEW Overview The investment market for our target deals has improved, both in new investmentand for realisations. Dealflow has shown an upward trend, giving us access tomore attractively priced, profitable, well-positioned and cash generativebusinesses seeking investment. We believe that this is due to two importantconverging factors which have combined to make our level of investment overrecent months the highest for several years, without compromising our qualitycriteria. Firstly, the lower level of activity in the economy has led togreater realism amongst vendors regarding the value of their companies, leadingto more realistic pricing. Secondly, our ability to invest significant levelsof capital in a market lacking bank funding means that management buy-out("MBO") teams are increasingly turning to us as a source of finance. On the sell-side there continues to be interest in a number of our portfoliocompanies both from trade purchasers and larger private equity firms that havecash to invest and are seeking quality assets. After the year-end, theportfolio's largest investment was part realised in a valuable secondaryprivate equity transaction. Investment Activity Our new investment activity continues to focus on management buyouts. We seekto capitalise companies conservatively at the time of investment so that theyare well positioned to contend with an uncertain macro-economic environment. In June 2011, a further £360,265 was invested in the loan stock of ASL Technology Holdings Limited, making the total investment in ASL Technology Holdings £1,360,130, to finance its acquisition of Transcribe Copier Systems Limited, as part of its strategy to be a large player in this sector. In July 2011, the Company invested £1,160,549 in Fullfield Limited to fund the management buy-out of Motorclean Limited, £160,549 of which is non-qualifying. Mortorclean is a supplier of car valeting services to the retail motor sector. Three tranches of the new funding round totalling £76,897 in Monsal HoldingsLimited ("Monsal") have been drawn down to date during 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 advance the potential forrecovery of value in the original investment. Since approval of this facilityMonsal has materially advanced its negotiations on a number of new contracts.
In October, the Company completed a £817,184 investment in Equip Outdoor Technologies Limited, to support the acquisition of the international intellectual property and assets of Lowe Alpine Srl out of administration in Italy by Equip Outdoor Technologies Limited. Equip operates in the branded outdoor clothing sector.
Just after the period end, on 1 November 2011, the Company completed a £1,095,723 investment to support a management buyout (MBO) of EMaC Limited. EMaCis another outsourcing company to the UK motor industry, being the UK marketleader in enabling motor manufacturers and dealers to provide service plans
totheir customers.
In December 2011, the Company realised a substantial portion of investment inDiGiCo Europe Limited to ISIS Equity Partners. The Company received total cashproceeds of £3,024,832 in addition to continuing to retain a 2.39% equity andnew loan stock investment in DiGiCo worth £1,334,291. Overall, the VCT hasreceived a 3 times cash return on this investment to date. DiGiCo manufacturesand distributes sound mixing consoles which are in demand at major corporateand sporting events worldwide. Portfolio Highlights At 31 October 2011, the investment portfolio comprised 28 companies at a costof £19.6 million and current valuation of £21.0 million. On a like for likebasis the portfolio has increased by 3.2% compared with the valuationsprevailing at 30 April 2011. Over the same period the FTSE All-Share and FTSESmallCap indices have fallen by 7.8% and 12.4% respectively.
The portfolio's performance as a whole continues to be solid. Some investee companies, notably DiGiCo, Iglu.com Holidays and ATG Media, have increased sales and profits despite the challenges 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 continue to be valued atcost while ASL and RDL have been valued at small reductions from originalcost. Iglu.com Holidays continues to perform well and has held its value above costfollowing out-performance of its business plans at the time of investment. DiGiCo and ATG both experienced increased trading and profitability which hascontributed to their higher valuations. Blaze Signs continues to returnimproved results demonstrating a strong recovery from the recession. FocusPharma continues to trade satisfactorily but is experiencing a fall inprofitability, due to investment in new products. It launched two new productsduring 2011 and expects to progress further with several further productlaunches planned for 2012. Racoon continues to perform steadily. As a result of agreeing to sell a site upon which planning permission todevelop a supermarket has been received, the financial position of BIH hasmarkedly improved. However, the company has recently experienced poor trading,reducing profits and therefore our valuation. ASL's profitability sinceinvestment has been slightly below expectation, partly due to initialperformance at its new acquisition, which has caused a slight fall in valuationbelow cost. However its sales and profitability, excluding the new acquisition,have increased from last year. 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. In early December, a modest follow on investment in PXP was approved.Youngman has now fully repaid its bank debt since investment and is wellpositioned to benefit from any upturn in its construction markets. Outlook
The outlook for the UK economy is uncertain, but we have been encouraged bydevelopments in the last year in our sector. Although the coming months arelikely to prove more testing as the public sector cuts begin to take effect andthe economy struggles to stabilise its faltering growth, we consider that goodquality companies of the calibre in which we seek to invest, capable ofmaintaining competitive advantage, still have the potential to succeed in thisenvironment.
The difficult economic outlook and the volatility in quoted markets will inevitably continue to impact on the valuations of the companies in the portfolio. However, we believe that the portfolio overall is resilient and essentially of high value which will be released in the long-term. Our strategy of investing primarily in MBOs and structuring investments to include loan stock will continue to mitigate downside risk.
Having retained significant uninvested cash, the VCT is well placed to support certain portfolio companies should the need arise and to capitalise on attractive new investment opportunities. Alongside this, the Manager is conscious of the need to ensure that investee companies take appropriate actions to respond to the challenging environment ahead.
Matrix Private Equity Partners LLP
20 December 2011
INVESTMENT PORTFOLIO SUMMARY
As at 31 October 2011 Date of Total Book Valuation % of first cost net investment assets by value £ £ Qualifying investments AiMquoted investments Omega Diagnostics plc December 2010 214,998 241,873 1.0%
Sales promotion activities
Vphaseplc (formerly March 2001 254,586 1,609 0.0%Flightstore Group plc) Development of energy
saving devices for domestic
use ---- ---- ---- 469,584 243,482 1.0% Unquoted investments DiGiCoEurope Limited July 2007 495,651 3,472,534 13.7% Design and manufacture of audio mixing desks ATG Media Holdings Limited October 2008 767,907 1,526,391
6.1%
Publisher and online auction
platform operator Blaze Signs Holdings Limited April 2006 1,398,498 1,486,544
5.9%
Manufacturer and installer of
signs ASL Technology Holdings December 2010 1,360,130 1,278,574 5.1%Limited Printer and photocopier services FullfieldLimited July 2011 1,160,549 1,000,000 4.0%(Motorclean Holdings) Vehicle cleaning and valet services BackbarrowLimited April 2010 1,000,000 1,000,000 4.0%
Company seeking to invest
in food manufacturing, distribution and brand management RuslandManagement Limited April 2011 1,000,000 1,000,000
4.0%
Company seeking to acquire
businsesses in the brand management, consumer
products and retail sectors
SawreyLimited March 2011 1,000,000 1,000,000 4.0%
Company seeling to acquire businesses in the marketing services and media sectors
TorvarLimited April 2011 1,000,000 1,000,000 4.0%
Company seeking to acquire businesses in the database management, data mapping and management services to legal and building sectors VanirConsultants Limited October 2008 1,000,000 1,000,000
4.0%
The Company acquired EMaC Limited on 1 November 2011, a provider of service plans to the
motor trade British International June 2006 1,000,000 952,041 3.7%Holdings Limited
Supplier of helicopter services
Iglu.com Holidays Limited December 2010 152,326 930,978 3.7% Online ski and cruise travel agent RDL Corporation Limited (formerly Aust Recruitment October 2010 1,000,000 924,454 3.7%Group Limited) Recruitment consultants for the pharmaceutical, business
intelligence and IT industries
EOTH Limited (trading as Equip Outdoor Technologies October 2011 817,184 817,184 3.1%Limited) Branded outdoor equipment and clothing
Focus Pharma Holdings Limited October 2007 660,238 794,405 3.1%
Licensing and distribution of
generic pharmaceuticals Youngman Group Limited October 2005 1,000,052 589,122 2.3%
Manufacturer of ladders and
access towers MachineworksLimited April 2006 25,727 426,172 1.7%
Software for CAM and machine
tool vendors Faversham House December 2010 374,870 374,870 1.5%
Publisher, exhibition organiser and operator of websites for the
environmental, visual communications and building services sectors Racoon International December 2006 878,527 324,212 1.3%Holdings Limited
Supplier of hair extensions, hair
care products and training VectairHoldings Limited January 2006 60,293 171,979 0.7% A provider of air care and sanitary washroom products The Plastic Surgeon April 2008 392,264 98,067 0.4%Holdings Limited Snagging and finishing of domestic and commercial properties MonsalHoldings Limited December 2007 847,614 76,897 0.3%
Engineering services to water
and waste sectors LightworksLimited April 2006 25,727 49,400 0.2% Software for CAD vendors PXP Holdings Limited December 2006 1,163,436 - 0.0%(Pinewood Structures) Designer, manufacturer and
supplier of timber frames for
housing Legion Group plc (in August 2005 150,000 - 0.0%administration)
Provision of manned guarding, mobile patrolling, and alarm
response services ---- ---- ---- 18,730,993 20,293,824 80.5% ---- ---- ---- Total qualifying investments 19,200,577 20,537,306 81.5% Non-qualifying investments British International Holdings 160,000 320,000 1.3%Limited Fullfield Limited (Motorclean - 160,549 0.6%Holdings) Fuse 8 plc 250,000 750 0.0% ATG Media Holdings Limited 104 328 0.0% Legion Group plc 106 - 0.0% ---- ---- ---- Total non-qualifying 410,210 481,627 1.9%investments Money market funds 2 4,121,576 16.3% Debtors 215,722 0.9% Cash 112,861 0.4% Creditors (256,309) (1.0%) ---- ---- Net assets 25,212,783 100.0% ==== ==== 1 As at 31 October 2011 the Company held more than 70% of its total investments in qualifying holdings, and therefore complied with the VCT Investment test. For the purposes of the VCT Investment tests, the Company is permitted to disregard disposals of investments for six months from the date of disposal. 2 Disclosed within Current assets as Investments at fair value in the Balance Sheet. UNAUDITED INCOME STATEMENTFor the six months ended 31 October 2011 Six months ended 31 October 2011 (unaudited) Notes Revenue Capital Total £ £ £ Unrealised gains on investments held at fair value -
577,783 577,783
Realised gains/(losses) on investments held at fair -
- -value Income 3 520,516 - 520,516 Investment management expense 4 (75,443) (226,330) (301,773) Merger costs - - - Other expenses (136,664) - (136,664) ---- ---- ---- Profit/(loss) on ordinary activities before taxation 308,409 351,453 659,862 Tax on profit/(loss) on ordinary activities (31,355) 31,355 - ---- ---- ---- Profit/(loss) on ordinary activities after taxation 277,054 382,808 659,862 ==== ==== ====
Basic and diluted earnings per share
Ordinary shares 6 1.08p 1.48p 2.56p Year ended 30 April 2011 (audited) Notes Revenue Capital Total £ £ £ Unrealised gains on investments held at fair value -
2,911,008 2,911,008
Realised gains/(losses) on investments held at fair - 624,055 624,055value Income 3 637,008 - 637,008 Investment management expense 4 (139,450) (418,352) (557,802) Merger costs (52,928) - (52,928) Other expenses (311,288) - (311,288) ---- ---- ---- Profit/(loss) on ordinary activities before taxation 133,342 3,116,711 3,250,053 Tax on profit/(loss) on ordinary activities (12,181) 12,181 - ---- ---- ---- Profit/(loss) on ordinary activities after taxation 121,161 3,128,892 3,250,053 ==== ==== ====
Basic and diluted earnings per share Ordinary shares 6 0.46p 12.03p 12.49p Six months ended 31 October 2010 (unaudited) Notes Revenue Capital Total £ £ £ Unrealised gains on investments held at fair value -
1,819,526 1,819,526
Realised gains/(losses) on investments held at fair - ( 64,323) ( 64,323)value Income 3 295,154 - 295,154 Investment management expense 4 (63,892) (191,675) (255,567) Merger costs (58,797) - (58,797) Other expenses (188,410) - (188,410) ---- ---- ---- Profit/(loss) on ordinary activities before taxation (15,945) 1,563,528 1,547,583
Tax on profit/(loss) on ordinary activities -
- - ---- ---- ---- Profit/(loss) on ordinary activities after taxation (15,945) 1,563,528 1,547,583 ==== ==== ====
Basic and diluted earnings per share
Ordinary shares 6 (0.08)p 7.62p 7.54p
The total column of this statement is the profit and loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
There were no other recognised gains or losses in the period.
Other than revaluation movements arising on investments held at fair value through profit and loss there were no differences between the profit/(loss) as stated above and at historical cost.
The notes to the unaudited financial statements below form part of these Half-Yearly financial statements.
UNAUDITED BALANCE SHEETAs at 31 October 2011 31 October 2011 30 April 2011 31 October 2010 (unaudited) (audited) (unaudited) Notes £ £ £ Non-current assets Investments at fair value 9 21,018,933 18,026,151 14,032,202 Current Assets Debtors and prepayments 215,722 441,684 100,482 Investments at fair value 10 4,121,576 6,538,497 10,419,732 Cash at bank 112,861 76,291 119,290 ---- ---- ---- 4,450,159 7,056,472 10,639,504 Creditors: amounts falling due within one year (256,309) (218,655) (179,829) ---- ---- ---- Net current assets 4,193,850 6,837,817 10,459,675 ---- ---- ---- Net assets 25,212,783 24,863,968 24,491,877 ==== ==== ==== Capital and reserves 11 Called up share capital 253,595 258,578 263,392 Capital redemption reserve 53,052 48,069 43,255 Revaluation reserve 1,808,252 1,230,469 (437,102) Special distributable reserve 15,748,617 16,258,990 16,896,264 Profit and loss account 7,349,267 7,067,862 7,726,068 ---- ---- ---- 25,212,783 24,863,968 24,491,877 ==== ==== ==== Net asset value per share Ordinary Shares 7 99.42p 96.16p 92.99p
These accounts are unaudited and are not the Company's statutory accounts.
UNAUDITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the six months ended 31 October 2011
Six months Year ended Six months ended 31 30 April ended 31 October 2011 2011 October 2010 (unaudited) (audited) (unaudited) Notes £ £ £ Opening shareholders funds 24,863,968 23,290,949 23,290,949 Net share capital bought back (315,397) (457,264) (173,192) Profit for the year 659,862 3,250,053 1,547,583 Dividends refunded/(paid) in period 8 4,350 (1,219,770) (173,463) ---- ---- ---- Closing shareholders' funds 25,212,783 24,863,968 24,491,877 ==== ==== ==== UNAUDITED CASH FLOW STATEMENT
for the six months ended 31 October 2011
Six months ended Year ended 30 Six months ended 31 October 2011 April 2011 31 October 2010 (unaudited) (audited) (unaudited) £ £ £ Operating activities Investment income 488,734 614,371 264,365received Other income - 2,753 - Investment management (301,773) (557,802) (255,567)fees paid Merger costs paid by - (49,988) (28,338)the Company Other cash payments (193,360) (320,136) (200,416)for other expenses ---- ---- ---- Net cash outflow from operating (6,399) (310,802) (219,956)activities Investing activities Acquisition of (2,150,457) (5,951,715) (1,001,717)investments Disposal of investments - 2,631,829 256,185 ---- ---- ---- Net cash outflow (2,150,457) (3,319,886) (745,532)from investing activities Dividends Dividends refunded/(paid) 4,350 (1,219,770) (173,463) ---- ---- ---- Net cash outflow before liquid resource (2,152,506) (4,850,458) (1,138,951)management and financing Movement in money 2,416,921 5,213,916 1,332,681market and other deposits Financing Purchase of own shares (227,845) (375,591) (162,864) ---- ---- ---- Net cash outflow from (227,845) (375,591) (162,864)financing ---- ---- ---- Increase/(decrease) 36,570 (12,133) 30,866in cash ==== ==== ==== Reconciliation of net cash flow to movement in net funds £ £ £ Net funds at start of 76,291 88,424 88,424period Increase/(decrease) 36,570 (12,133) 30,866in cash for the period ---- ---- ---- Net funds at the end 112,861 76,291 119,290of the period ==== ==== ====
Reconciliation of profit on ordinary activities before taxation to net cash outflow from operating activities
Six months ended Year ended Six months ended 31 October 2011 30 April 2011 31 October 2010 (unaudited) (audited) (unaudited) £ £ £ Profit on ordinary activities 659,862 3,250,053 1,547,583before taxation Net unrealised gains on (577,783) (624,055) (1,819,526)investments
Net (gains)/losses on realisations - (2,911,008)
64,323on investments Increase in debtors (38,580) (20,412) (39,475)
(Decrease)/increase in creditors (49,898) (5,380)
27,139and accruals ---- ---- ---- Net cash outflow from operating (6,399) (310,802) (219,956)activities ==== ==== ====
The notes to the unaudited financial statements below form part of these Half-Yearly financial statements.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
Principal accounting policies
The following accounting policies have been applied consistently throughout theperiod. Full details of principal accounting policies will be disclosed in
theAnnual Report. a) Basis of accounting
The unaudited results cover the six months to 31 October 2011 and have beenprepared under UK Generally Accepted Accounting Practice (UK GAAP), consistentwith the accounting policies set out in the statutory accounts for the yearended 30 April 2011 and the 2009 Statement of Recommended Practice, 'FinancialStatements of Investment Trust Companies and Venture Capital Trusts' ("theSORP") issued by the Association of Investment Companies. The Half-yearly Report has not been audited, nor has it been reviewed by theauditors pursuant to the Auditing Practices Board (APB)'s guidance on Review ofInterim Financial Information. b) Presentation of the Income StatementIn order to better reflect the activities of a VCT and in accordance with theSORP, supplementary information which analyses the Income Statement betweenitems of a revenue and capital nature has been presented alongside the IncomeStatement. The revenue column of profit attributable to equity shareholders isthe measure the Directors believe appropriate in assessing the Company'scompliance with certain requirements set out in Section 274 Income Tax Act
2007. c) Investments Investments are accounted for on a trade datebasis All investments held by the Company are classified as "fair value throughprofit and loss" as the Company's business is to invest in financial assetswith a view to profiting from their total return in the form of capital growthand income. For investments actively traded in organised financial markets,recognition and fair value is determined by reference to Stock Exchange markettrading rules and quoted bid prices at the close of business on the balancesheet date. Unquoted investments are valued by the Directors at 'fair value through profitand loss'. Accordingly, in the absence of a market price, the Directors havevalued unquoted investments in accordance with International Private EquityVenture Capital Valuation (IPEVCV) guidelines as updated in September 2009,which have not materially changed the results reported last year. All investments are held at the price of a recent investment for an appropriateperiod where there is considered to have been no change in fair value. Wheresuch a basis is no longer considered appropriate, the following factors will beconsidered:
(i) Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used.
(ii) In the absence of i), and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:-
a) an earnings multiple basis. The shares may be valued by applying asuitable price-earnings ratio to that company's historic, current or forecastpost-tax earnings before interest and amortisation (the ratio used being basedon a comparable sector but the resulting value being adjusted to reflect pointsof difference identified by the Investment Manager compared to the sectorincluding, inter alia, a lack of marketability). or:- b) where a company's underperformance against plan indicates a diminutionin the value of the investment, provision against cost is made, as appropriate.Where the value of an investment has fallen permanently below cost, the loss istreated as a permanent impairment and as a realised loss, even though theinvestment is still held. The Board assesses the portfolio for such investmentsand, after agreement with the Investment Manager, will agree the values thatrepresent the extent to which an investment loss has become realised. This isbased upon an assessment of objective evidence of that investment's futureprospects, to determine whether there is potential for the investment torecover in value.
(iii) Premiums on loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable.
(iv) Where an earnings multiple or cost less impairment basis is not appropriate and overriding factors apply, discounted cash flow or net asset valuation bases may be applied.
d) Capital gains and lossesCapital gains and losses on investments, whether realised or unrealised, aredealt with in the profit and loss and revaluation reserves and movements in theperiod are shown in the Income Statement. The Company revoked its status as an investment company on 7 September 2005, sothat it can regard realised capital profits as part of the profits availablefor distribution. Income Six months ended Year ended Six months ended 31 October 2011 30 April 2011 31 October 2010 (unaudited) (audited) (unaudited) Income from investments £ £ £ Dividends 152,285 172,933 71,002 Money-market funds 20,296 24,148 36,726 Loan stock interest 347,597 437,080 187,399
Bank deposit and other interest 338 94
27 Other income - 2,753 - ---- ---- ---- Total Income 520,516 637,008 295,154 ==== ==== ==== Investment management expenseUnder the terms of a revised investment management agreement dated 10 September2010, MPEP provides investment advisory, administrative and company secretarialservices to the Company, for a fee of 2.0% per annum calculated on a quarterlybasis by reference to the net assets at the end of the preceding quarter, plusa fee of £104,432 per annum, the latter being subject to changes in the retailprices index each year. This agreement replaced the previous agreements withMPEP dated 10 May 2000 and 20 September 2005, both novated to MPEP on 20October 2006, and the accounting services agreement and the secretarialservices agreement with Matrix-Securities Limited both dated 20 September 2005,all of which were terminated on 10 September 2010. In accordance with thepolicy statement published under "Management and Administration" in theCompany's prospectus dated 10 May 2000, the Directors have charged 75% of theinvestment management expenses to the capital account. This is in line with theBoard's expectation of the long-term split of returns from the investmentportfolio of the Company. Taxation
There is no tax charge in the period as the Company has tax losses in the current year as tax deductible expenditure charged against the capital return exceeds the taxable revenue return.
Basic and diluted earnings per share
Six months ended 31 Year ended Six months October 30 April ended 31 2011 2011 October 2010 (unaudited) (audited) (unaudited) Ordinary Shares Ordinary Shares Ordinary Shares £ £ £
Total earnings after taxation: 659,862 3,250,053
1,547,583 Basic and diluted earnings 2.56p 12.49p 7.54pper share (note a) ---- ---- ---- Revenue profit/(loss) from 277,054 121,161 (15,945)
ordinary activities after taxation
Basic and diluted revenue 1.08p 0.46p (0.08)pearnings per share (note b) ---- ---- ---- Net unrealised capital gains 577,783 624,055 1,819,526on investments Net gains/(losses) on - 2,911,008 (64,323)realisations on investments Capital management fees (194,975) (406,171) (191,675)less taxation ---- ---- ---- Total capital profit on 382,808 3,128,892 1,563,528
ordinary activities after taxation
Basic and diluted capital 1.48p 12.03p 7.62pearnings per share (note c) ---- ---- ---- Weighted average number 25,764,981 26,015,053 20,529,194
of shares in issue in the year
==== ==== ==== Notes
Basic and diluted earnings per share is total earnings after taxation divided by the weighted average number of shares in issue.
Basic and diluted revenue earnings per share is revenue earnings after taxation divided by the weighted average number of shares in issue.
Basic and diluted capital earnings per share is total capital earnings divided by the weighted average number of shares in issue.
Net asset value per share As at 31 October 2011 As at 30 April 2011 As at 31 October 2010 (unaudited) (audited) (unaudited) £ £ £ Net assets 25,212,783 24,863,968 24,491,877 Number of shares in issue 25,359,455 25,857,764 26,339,245 ---- ---- ----
Net asset value per share (pence) 99.42 p 96.16
p 92.99 p ==== ==== ==== Dividends Six months Year Six months to 31 October 2011 to 30 April 2011 to 31 October 2010 (unaudited) (audited) (unaudited) £ £ £ Ordinary shares Dividends paid in period -
nil pence per share (30 April - 1,219,770
173,4632011: 5 pence; 31 October 2010: 1 pence) Dividends refunded* (4,350) ---- ---- ---- (4,350) 1,219,770 173,463 ==== ==== ====
* - This amount represents dividends that were paid on shares that were subsequently bought back by the Company. As a result, the dividends have been refunded to the Company.
Summary of non-current asset investments at fair value during the period
Traded on Unquoted Preference Qualifying Total AiM or Ordinary Shares loans OFEX shares £ £ £ £ £ Cost at 1 May 2011 719,584 5,571,314 42,017 10,862,873 17,195,788 Unrealised (losses)/gains (223,416) 2,543,304 (17,565) (1,071,854) 1,230,469at 1 May 2011 Permanent impairment (250,000) (150,106) - - (400,106)at 1 May 2011 ---- ---- ---- ---- ---- Value at 1 May 2011 246,168 7,964,512 24,452 9,791,019 18,026,151 Purchases at cost - 449,329 918 1,964,752 2,414,999 (Decrease)/increase (1,936) 574,592 - 5,127 577,783in unrealised gains Value at 1 May 2011 246,168 7,964,512 24,452 9,791,019 18,026,151 ---- ---- ---- ---- ---- Cost/valuation at 31 244,232 8,988,433 25,370 11,760,898 21,018,933October 2011 ==== ==== ==== ==== ==== Book cost at 31 October 2011 719,584 6,020,643 42,935 12,827,625 19,610,787 Unrealised (losses)/gains (475,352) 2,967,790 (17,565) (1,066,727) 1,408,146at 31 October 2011 ---- ---- ---- ---- ---- Valuation at 31 October 2011 244,232 8,988,433 25,370 11,760,898 21,018,933 ==== ==== ==== ==== ==== Unrealised (losses)/gains (473,416) 2,393,198 (17,565) (1,071,854) 830,363at 1 May 2011
Net movement in unrealised (depreciation)/appreciation (1,936) 574,592 - 5,127 577,783in the period ---- ---- ---- ---- ---- (Losses)/gains on investments (475,352) 2,967,790 (17,565) (1,066,727) 1,408,146at 31 October 2011 ==== ==== ==== ==== ==== Investment purchases shown in the Cash Flow Statement of £2,150,457 differs tothat shown above by £264,542. This is due to £360,265 held in escrow at 30April 2011 and invested into ASL Technology Holdings Limited during the periodand £95,723 held in escrow at 31 October 2011 awaiting investment into EMaCLimited.
Investments at fair value
These comprise investments in four OEIC money market funds (three Dublin basedand one London based), managed by Blackrock, Royal Bank of Scotland, Prime RateCapital Management and Scottish Widows Investment Partnership. £4,121,576 (30April 2011: £6,538,497; 31 October 2010: £10,418,805) of this sum is subject tosame day access, while £nil (30 April 2011: £nil; 31 October 2010: £927) issubject to two day access. The manager of Prime Rate Capital Managementliquidity fund is a member of Matrix Group Limited, as is MPEP. There are noarrangements in place to prevent duplicated management fees from these twodifferent parts of the Matrix Group in view of the small amount of fees paid.
Capital and reserves for the period ended 31 October 2011
Called up Capital Capital Special Profit and Total share redemption reserve distributable Loss capital reserve (unrealised) reserve Account £ £ £ £ £ £ At 1 May 2011 258,578 48,069 1,230,469 16,258,990 7,067,862 24,863,968 Shares bought (4,983) 4,983 - (315,397) - (315,397)back Transfer of realised capital losses from - - - (194,976) 194,976 -Cancelled Share Premium account (see note below) Dividends - - - - 4,350 4,350refunded Profit for the - - 577,783 - 82,079 659,862period ---- ---- ---- ---- ---- ---- At 31 October 253,595 53,052 1,808,252 15,748,617 7,349,267 25,212,7832011 ==== ==== ==== ==== ==== ====
The cost of shares bought back shown in the Cash Flow Statement of £227,845 differs to that disclosed above by £87,552. This due to an opening share buyback creditor of £81,673 settled during the period and an share buyback creditor of £169,225 as at 31 October 2011 settled following the period end.
The cancelled share premium account provides the Company with a special reserveout of which it can fund buy-backs of the Company's Shares as and when it isconsidered by the Board to be in the interests of the Shareholders, and toabsorb any existing and future realised losses. Under Resolution 9 of theAnnual General Meeting held on 8 September 2011, each class of Shareholdersauthorised the Company to purchase its own shares pursuant to section 693(4) ofthe Companies Act 2006. The authority is limited to a maximum of 14.99 per centof the issued Ordinary Share Capital of the Company, and will unless,previously revoked or renewed, expire on the conclusion of the Annual GeneralMeeting of the Company to be held in 2012. The maximum price that may be paid for Ordinary Shares will be an amount equalto 105 per cent of the average of the middle market quotation as taken from theLondon Stock Exchange daily official list for the five business daysimmediately preceding the day on which that Ordinary Share is purchased. Theminimum price that may be paid for Ordinary Shares is 1 penny per share. Theauthority provides that the Company may make a contract to purchase OrdinaryShares under the authority conferred by this resolution prior to the expiry ofsuch authority which will or may be executed wholly or partly after theexpiration of such authority and may make a purchase of Ordinary Sharespursuant to such contract. Related party transactionsKenneth Vere Nicoll is a shareholder in Matrix Group Limited, which ownsMatrix-Securities Limited, MPE Partners Limited and has an interest in PrimeRate Capital Management LLP and Matrix Corporate Capital LLP "MCC"). MPEPartners Limited has a 50% interest in Matrix Private Equity Partners LLP, theCompany's Investment Manager. Matrix-Securities Limited provided accountancyand company secretarial services to the Company up to 10 September 2010. MatrixPrivate Equity Partners LLP is the Company's Investment Manager in respect ofventure capital investments, administrator and Company Secretary and earnedfees of £301,773 (year ended 30 April 2011: £557,802; six months ended 31October 2010: £255,567), for the period. The Company has invested £2,515,802 ina liquidity fund managed by Prime Rate Capital Management LLP, and earnedincome of £11,539 (30 April 2011: £24,148, 31 October 2010: £12,756) from thisfund in the period. MCC are the Company's brokers and earned fees of £6,000 (30April 2011: £11,833; 31 October 2010: £5,875). Three (30 April 2011: seven, 31October 2010: three) share buybacks were undertaken by MCC on the Company'sinstruction totalling £315,397 (30 April 2011: £457,264, 31 October 2010: £173,192) with £169,225 outstanding at the period end (30 April 2011: £81,088,31 October 2010: £10,327). Post Balance Sheet Events
On 1 November 2011, £1,096,723 was invested in EMaC Limited.
On 9 December 2011, the Company's investment in DiGiCo Europe Limited was soldto ISIS LLP for net cash proceeds of £2,138,243. In addition, the Company alsoreceived £1,331,900 of loan stock, and retained a 2.39% equity holding. The financial information set out in this half-yearly financial report does notconstitute statutory accounts as defined in section 434 of the Companies Act2006. The information for the year ended 30 April 2011 has been extracted fromthe latest published audited financial statements, which have been filed withthe Registrar of Companies. The auditors have reported on these financialstatements and that report was unqualified and did not contain a statementunder section 498 (2) or (3) of the Companies Act 2006. Copies of this statement are being sent to all Shareholders. Further copies areavailable free of charge from the Company's registered office, One Vine Street,London, W1J 0AH or downloaded via the Company's website at www.mig2vct.co.uk. SHAREHOLDER INFORMATION Shareholders wishing to follow the Company's progress can visit the Company'swebsite at www.mig2vct.co.uk which contains publicly available information orlinks to information about our largest investments, the latest NAV and theshare price. The London Stock Exchange's website at www.londonstockexchange.com/en-gb/pricesnews provides up to the minute details of the share price andlatest NAV announcements, etc. A number of commentators such as Allenbridge at www.taxshelterreport.co.uk provide comparative performance figures for the VCTsector as a whole. The share price is also quoted in the Financial Times. The Company circulates a bi-annual newsletter to Shareholders, as well as theusual Annual and Half-Yearly Reports. The next edition will be distributed
inOctober 2011. Net asset value per share
The Company's NAV as at 30 April 2011 was 96.16 pence per Ordinary Share . The Company announces its unaudited NAV on a quarterly basis.
Dividends
The Board is not recommending the payment of an interim dividend in respect ofthe six months ended 31 October 2011 to Ordinary Shareholders. The Directorswill consider the payment of a dividend in respect of the year-ending 30 April2012 in due course. Shareholders who wish to have future dividends paid directly into their bankaccount rather than sent by cheque to their registered address can complete amandate for this purpose. Mandates can be obtained by contacting the Company'sRegistrars, Capita Registrars, at the address below.
Shareholder enquires:
For enquiries concerning the investment portfolio, please contact the Investment Manager, Matrix Private Equity Partners LLP, on 020 3206 7000 or by e-mail to info@matrixpep.co.uk.
For information on your holding, to notify the Company of a change of addressor to request a dividend mandate form (should you wish to have future dividendspaid directly into your bank account) please contact the Company's Registrars, Capita Registrars, on 0871 664 0300 (calls cost 10p per minute plus networkextras.If calling from overseas please ring +44 208 639 2157) or write to them at TheRegistry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU. Alternatively you cancontact them via their website at www.capitaregistrars.com. CORPORATE INFORMATION Directors Nigel Melville (Chairman) Sally Duckworth Adam Kingdon Kenneth Vere Nicoll Company's registered office and head office One Vine Street London W1J 0AH Company Registration Number 3946235 Website www.mig2vct.co.uk Company Secretary Investment Manager, Promoter and Auditors and Tax Matrix Private Equity Company Accountants Advisers Partners LLP Matrix Private Equity Partners LLP PKF (UK) LLP One Vine Street One Vine Street Farringdon Place London London 20 Farringdon Road W1J 0AH W1J 0AH London EC1M 3AP e-mail: e-mail: info@matrixpep.co.uk mig2@matrixgroup.co.uk Bankers Solicitors Stockbrokers Barclays Bank plc Martineau Matrix Corporate PO Box 544 No 1 Colmore Square Capital LLP 54 Lombard Street Birmingham One Vine Street London B4 6AA London W1J 0AH Also at 35 New Bridge Street London EC4V 6BW Registrar VCT Tax Adviser Capita Registrars PricewaterhouseCoopers LLP The Registry 1 Embankment Place 34 Beckham Road London Beckham WC2N 6RN Kent BR3 4TU END DISCLAIMER Neither the contents of the Company's website nor the contents of any websiteaccessible from hyperlinks on the Company's website (or any other website) isincorporated into, or forms part of, this announcement.
XLON