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12 Apr 2010 16:10
Matrix Income & Growth 4 VCT plc
Annual Results for the year ended 31 January 2010
Strategy
Matrix Income & Growth 4 VCT plc ("MIG4") is a tax efficient company listed on the London Stock Exchange. It invests primarily in established and profitable unquoted companies.
Investment Objective
The VCT's objective is to provide investors with a regular income stream by way of tax free dividends and to generate capital growth through portfolio realisations which can be distributed by way of additional tax free dividends.
Dividend Policy
The VCT seeks to pay income dividends half-yearly. Subject to fulfilling certain regulatory requirements, the VCT also seeks to pay capital dividends at the year-end following portfolio realisations.
Financial Highlights
* Increase of 20.4% in year in cumulative dividends (paid and proposed) * Within this, dividends paid and proposed in respect of 2010 have increased compared to the previous year * Increase of 15.0% in shareholder total return (share price basis) in period since MPEP took over sole management of the Fund from 1 August 2006 * Decrease of 0.4% in total shareholder return (net asset value basis) in period since MPEP took over sole management of the Fund from 1 August 2006 Dividends paidYear ended 31 Dividends per CumulativeJanuary share paid and dividends proposed in respect per share paid of each year and proposed since launch (p) (p) 2010 3.00 * 17.70 * 2009 2.00 14.70 2008 2.00 12.70 2007 1.80 10.70 2006 0.50 8.90 2005 0.20 8.40
Dividends paid include distributions from both income and capital.
* Dividends proposed
A final proposed dividend of 2 pence per share will be recommended to Shareholders at the AGM of the Company to be held on 27 May 2010 to be paid on 9 June 2010 and has been included in the above figures.
Performance SummaryYear ended 31 Net Net NAV total Share Share priceJanuary assets asset return per price 1 total return value share to per share to per shareholders shareholders share since launch since launch (£ (p) (p) (p) (p) million) 2010 21.2 106.3 122.0 92.3 108.0 2009 21.0 104.6 118.3 92.0 105.7 2008 24.1 117.4 128.9 109.0 120.5 2007 9.8 116.3 125.2 91.0 101.7 2006 9.3 106.6 115.0 85.0 93.9
1 Source: London Stock Exchange
The share price and net asset value (NAV) total return comprise the share price and NAV respectively per share assuming the dividends paid were re-invested on the date on which the shares were quoted ex-dividend in respect of each dividend.
Figures for the years ended 31 January 2005, 2006 and 2007 have been restated to take account of the restructuring of the share capital that took place on 18 October 2006.
Chairman's Statement
I am pleased to present to Shareholders the Annual Report of the Company for the year ended 31 January 2010.
Performance
At 31 January 2010, the Net Asset Value (NAV) per Share was 106.34 pence (2009: 104.61 pence). Adjusted for the dividends paid to shareholders during the year, this represents a increase of 3.57% over the twelve month period. Whilst the Company invests in largely unquoted securities and cash, it is worth comparing the Company's performance with the performance of some indices for quoted securities over the same period, namely increases of 57.62% and 64.94% in the FTSE SmallCap CR Index and the FTSE AIM CR Index respectively. The NAV Total Return per Share increased in the year by 3.13% from 118.3 pence at 31 January 2009 to 122.0 pence at 31 January 2010.
These headline performance figures may, therefore, appear somewhat disappointing but, in general the underlying performance of the portfolio in the year has been resilient and offers encouragement. Some of our investee companies have performed well, notably Digico and Focus Pharma. However, we have made substantial provisions on four construction related companies which together have accounted for a reduction in value of nearly £1m. This has acted as a drag on valuation growth this year, although we have every expectation that all four businesses will recover in value as the recession recedes. The portfolio overall achieved realised gains of £268,469 which together with unrealised gains of £700,336, has resulted in net gains of nearly £1 million.
UK sector price earnings multiples have, in the main, increased over this twelve month period. These do, of course, impact on our portfolio valuation in both the quoted and unquoted sectors.
A final income dividend of 1 penny per Ordinary Share was paid on 10 June 2009 in respect of the year ended 31 January 2009. In addition, an interim capital dividend of 1 penny per Ordinary Share was paid on 7 November 2009 following the sale of Tottel Publishing (referred to below). Including the proposed 2 pence capital dividend, dividends in respect of the year ended 31 January 2010 will be 3 pence per share, an increase compared to the 2 pence per share paid in the year ended 31 January 2009.
Cumulative dividends paid to date have been 15.70 pence per Share.
Economic background
Investors have moved stock markets up a long way in the last twelve months but the economic outlook is still extremely tough, particularly in the manufacturing and retail sectors. The situation is exacerbated, with a run up to an election, by a lack of clarity on how and when, excessive UK government expenditure and debt will be curbed. The Budget did nothing to dispel these doubts. Persistent concerns over the problems of peripheral Eurozone countries, such as Greece, testify to this. But the problems do not lie alone with Europe as President Obama also struggles to get the US budget deficit under control whilst still trying to stimulate the US economy.
After several months of almost consistent gains in mid to late 2009 equity markets appear to have consolidated around current levels for the time being.
The portfolio
When considered by stage of development, the portfolio continues to be dominated by investments in management buy-out situations ("MBOs"), which has risen to 52.4% with 7.8% invested in development capital companies, 39.2% in acquisition companies and the remaining 0.6% of the portfolio being invested in early stage investments. The portfolio is now invested in a wide range of market sectors with the largest of those being general retailers at 25.4%. Support services at 23.9% is the next largest investment sector.
Within the portfolio, there has been considerable positive activity during the past year with an encouraging number of realisations and loan repayments. At the beginning of July 2009 the Company sold its investment (initial cost: £ 235,200) in Tottel Publishing Limited, the specialist publisher of legal and tax titles to Bloomsbury Group earning a threefold gain on its initial investment and returning total proceeds of £901,000 to the Company. The Company's original investment of £235,200 had already been reduced to £148,568 in March of this year when Tottel repaid 50% of the Company's loan stock.
PastaKing Holdings Limited, the Newton Abbott based award winning supplier of fresh pasta meals to the education sector and industry, was sold in November 2009 to NBGI Private Equity for net proceeds of £356,968. Total proceeds over the life of the investment were £435,000, representing a 2.27 fold gain on the Company's original investment of £133,055.
In December 2009, the Company sold its investment in eXpansys plc (cost: £ 31,000) for net proceeds of £16,423. In addition, in January 2010, the Company sold its holding in ComponentSource Holding Corporation realising proceeds of £ 8,029. The Company also received from Munro Global (the original investment was made into Maven Management) a final repayment in respect of the loan of £ 38,286. This investment has now been fully exited.
In May 2009, DiGiCo Europe Limited made a partial loan repayment of £217,392 at a premium of £16,189. A further repayment was made in December 2009 of £217,391 at a premium of £16,188.
A new investment of £373,376 was made in June 2009 into MC 440 Limited to support the MBO of Westway Cooling Limited. Based in Greenford, Middlesex, Westway specialises in installing, servicing and maintaining high quality air-conditioning systems and associated building services plant in the refurbishment and maintenance market. In October 2009 Westway made a partial repayment of its loan stock of £45,760.
A £1 million investment was made in December 2009 into CB Imports Group Limited to support the MBO of Country Baskets, an established importer and distributor of floral sundries. In the same month, an £878,249 investment was made into Iglu.com Holidays Limited, UK's largest specialist ski holiday travel agent and fastest growing cruise holiday travel agent.
In March 2009, Letraset Limited was restructured with the Royal Bank of Scotland providing an additional facility in return for an equity stake and dilution of the Company's holding. In September 2009, the Company invested £ 5,116 into Sift Limited as part of its Rights Issue. A further investment of £ 45,455 was made in November into British International Holdings Limited in the form of loan notes as part of a working capital injection by shareholders.
In January 2010, the Company invested in six acquisition companies as part of its operating partner programme:
* Bladon Castle Management Limited which searches for acquisition opportunities in the retail or health and wellbeing products sectors. The Company made a £1m investment alongside £1m from Matrix Income & Growth 3 VCT plc ("MIG 3 VCT"); * Fullfield Limited which seeks acquisition opportunities in the food manufacturing, distribution or brand management sectors. The Company made a £1m investment, alongside £1m from MIG 3 VCT; * Vanir Consultants Limited which is searching for acquisition opportunities in the data management, data mapping and management services or legal and building services sectors. The Company invested £1m in January 2010 following investments by Matrix Income & Growth 2 VCT plc and MIG 3 VCT of £1m; * Backbarrow Limited which searches for acquisition opportunities in the food manufacturing, distribution or brand management sectors. The Company has invested £1m; * Rusland Management Limited which is searching for acquisitions opportunities in the brand development, management and retailing sector. The Company has invested £1m; and * Torvar Limited which is seeking acquisition opportunities in the data management, data mapping and management services sectors. The Company has invested £1m.
In February 2010, the company sold its investment in Stortext FM Limited, realising cash proceeds of £488,000.
Top-up offer
The Top-up Offer launched in January 2010 closed on 3 April 2010 having raised £1.64 million. 1,483,901 Ordinary Shares have been allotted to current and new shareholders at a price of 112.4 pence per Ordinary Share.
Cash available for investment
Cash and liquidity fund balances as at 31 January 2010 amounted to some £6 million. During this economic turmoil, both the Board and the Manager have continued to work hard to ensure that our cash deposits remain as secure as possible. We have for some time been spreading our significant cash deposits with a number of the leading global cash funds rather than depositing direct to individual banks, thereby reducing our exposure to any one particular bank. However, the current low level of interest rates on cash deposits means it will continue to be difficult for the Company to pay dividends from income. Shareholders are being asked to approve a change in Investment Policy relating to the funds awaiting investment. This would allow the Company to consider a wider range of alternatives in the future should a suitable situation occur. However, the Board and Manager both strongly believe that at this time the security and protection of capital is more important than striving for a small increase in deposit rates at the cost of much higher risk. We will continue to keep this situation under review.
Revenue account
The Revenue return for the Company has decreased sharply from £478,663 to £ 32,781 over the year. Income has fallen for one main reason; the historically low level of interest rates arising in late 2008, and which have fallen further throughout this year, has meant that returns from bank deposits and money-market funds during the year have been poor. Interest from money-market funds has fallen by £600,134 compared to the year ended 31 January 2009. Such interest is likely to continue to remain low for the rest of the current year.
However, loan stock interest from investee companies has held up well compared to 2009. This was in spite of several investee companies, most notably Blaze, PXP and Youngman, breaching their bank covenants, so that that interest is no longer being recognised in respect of these investments. This has, however, been offset by additional loan stock interest being received from ATG Media, Westway Cooling, and now IGLU and CB Imports.
Dividends from the portfolio have fallen by £35,706 to £50,190. Last year, this source benefited from two unusually high dividends from PastaKing. Interest of £6,544 has been received on VAT recoverable in respect of past investment management fees.
Fund management fees charged to revenue have fallen by £3,099 during the year. Other expenses have increased by £9,951, where printing costs rose although trail commission declined.
Dividend
The Company's revenue return per Ordinary Share was 0.16 pence per share (2009: 2.35 pence per share). In view of this small return, your Board will not be recommending a final income dividend in respect of the year under review. The Board will, however, be recommending a final capital dividend of 2 pence per Ordinary Share in respect of the year under review at the Annual General Meeting to be held on 27 May 2010. This dividend will be paid, subject to Shareholder approval, on 9 June 2010 to Shareholders on the Register on 14 May 2010.
Dividend Investment Scheme
We are proposing to offer shareholders the opportunity to reinvest all or part of their dividends into new Ordinary Shares of the Company at the closing share price on higher of an amount equivalent to (i) the mid-market share price (averaged over the last 5 business days) and (ii) a 30% discount to the unaudited last published NAV per share. It provides a convenient, easy and cost effective way for Shareholders to build their shareholding in the Company. Full details, including the terms and conditions of the scheme, will be sent to shareholders shortly.
VAT
As noted in the Annual Report for the year ended 31 January 2009, the Company has been seeking to reclaim VAT that it had paid on past investment management fees. During the year a repayment of £89,665 plus interest was received. Further details can be found in Note 3 to the Accounts below. Further repayments are possible, although any further receipt is likely to have a negligible impact on the financial statements.
Share buy-backs
During the year ended 31 January 2010 the Company continued to implement its buy-back policy and bought back 150,228 Ordinary Shares, representing 0.75% of the shares in issue at 1 February 2009 at a total cost of £124,256. These shares were subsequently cancelled by the Company.
MIG 4 Website
May I remind you that the Company continues to have its own website which is available at www.mig4vct.co.uk.
Chairmanship
Under the provisions of the AIC Code and the revised Listing Rules for VCTs which will come into effect later this year, I will be required to stand down as Chairman and as a Director of your Company. I would like to take this opportunity to thank all Shareholders for their support and encouragement over many years. At the same time I would like to thank my fellow Board members, Matrix Private Equity Partners (our Manager) and our other advisers for their commitment, support and loyalty to me during my tenure as Chairman. I am more than happy to continue as a Shareholder in the Company.
Following my resignation later this year, I am pleased to announce that Christopher Moore, currently Chairman of the Audit Committee, will become Chairman. A brief biography of Christopher is contained in the Annual Report.
Outlook
The recent pre-Election Budget - the last before the impending general election - was, unsurprisingly, much in line with expectations. It suggested an unwillingness by the Government to address at this time the key economic issues. The focus of the Budget appeared to be on trying to shore up support from key potential Government voters rather than tackling the more important financial and economic problems facing the country at this time. The effects of a Budget are not always easy to work out, and this was no exception. This alone could fuel doubts within financial markets over the coming weeks.
In the UK, mixed economic data released recently means the outlook continues to remain somewhat cloudy and unsure - a point made by Bank of England governor, Mervyn King. "Even if growth rebounds, the level of activity is still very likely to remain weak for a considerable period. The economic environment is likely to continue to feel far from normal for some time" he said. Figures showed that business investment fell in the final quarter of last year despite a recovery in growth, although there was better news from the high street where retail sales showed a better than expected rise of 2.1% last month. There was, however, one piece of good news, namely that the Consumer Price Index fell from 3.5% to 3% last month. It probably means that interest rates are unlikely to be increased at the next MPC meeting.
The Company overall retains its significant cash position. The recent Top-up Offer has added to this. This position continues to place the Company in an excellent position to take advantage of what are expected to be increasingly attractive purchase opportunities which should become available as the economy climbs out of recession. Therefore, while short term valuations may be subject to continuing pressures, your Board still expects to see attractive investment opportunities and a recovery in performance and portfolio values over the longer term.
The current level of interest rates in the United Kingdom means that it will be difficult for the Company to pay a dividend from revenue in the forthcoming year. Moreover, it is too early to say whether it will be possible for the Company to pay further dividends from capital reserves.
Colin HookChairman
Responsibility Statement of the Directors in respect of the Annual Financial Report
The Directors confirm that to the best of their knowledge that:
(a) the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice and the 2009 Statement of Recommended Practice, `Financial Statements of Investment Trust Companies and Venture Capital Trusts' (SORP), give a true and fair view of the assets, liabilities, financial position and the profit 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.
The names and functions of the Directors are stated in the Annual Report.
On behalf of the BoardColin HookChairman12 April 2010
Principal Risks, Management and Regulatory Environment
The Board believes that the principal risks faced by the Company 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 Company's qualifying investments. * Loss of approval as a Venture Capital Trust - the Company must comply with section 274 of the Income Tax Act 2007 ("ITA") which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to the Company losing its approval as a Venture Capital Trust (VCT), qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains. * Investment and strategic - inappropriate strategy or consistently weak VCT qualifying investment recommendations might lead to underperformance and poor returns to shareholders. * Regulatory - the Company is required to comply with the Companies Acts 1985 and 2006 ("the Companies Acts"), the listing rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company'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 Investment 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 - Investment in unquoted companies, by its nature, involves a higher degree of risk than investment in companies traded on the London Stock Exchange main market. In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. * Asset liquidity risk - The Company's investments may be difficult to realise, especially in the current economic climate. * Market liquidity risk - Shareholders may find it difficult to sell their shares at a price which is close to the net asset value. * Counterparty risk - A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company.
For further information on the last four risks, please see Note 20 to the accounts in the Annual Report.
The Board seeks to mitigate the internal risks by setting policies and by undertaking a key risk management review at each quarterly Board meeting. Performance is regularly reviewed and assurances in respect of adequate internal controls and key risks are sought and received from the Investment Manager and Administrator on a six monthly basis. In mitigation and the management of these risks, the Board applies rigorously the principles detailed in the AIC Code of Corporate Governance. The Board also has a Share Buy Back policy which seeks to mitigate the Market Liquidity risk. This policy is reviewed at each quarterly Board Meeting.
Investment Policy
The Company's policy is to invest primarily in a diverse portfolio of UK unquoted companies. Investments are structured as part loan and part equity in order to receive regular income and to generate capital gains from trade sales and flotations of investee companies.
Investments are made selectively across a number of sectors, primarily in management buyout transactions (MBOs) i.e. to support incumbent management teams in acquiring the business they manage but do not yet own. Investments are primarily made in companies that are established and profitable.
The Company has a small legacy portfolio of investments in companies from its period prior to 1 August 2006, when it was a multi-manager VCT. This includes investments in early stage and technology companies.
Uninvested funds are held in cash and lower risk money market funds.
UK companies
The companies in which investments are made must have no more than £15 million of gross assets at the time of investment to be classed as a VCT qualifying holding. The £14.9 million of Funds raised by the Company after 6 April 2006 are subject to a £7 million gross assets test for an investment to be VCT qualifying.
VCT regulation
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. Amongst other conditions, the Company may not invest more than 15% of its investments in a single company and must have at least 70% by value of its investments throughout the year in shares or securities comprised in VCT qualifying holdings, of which a minimum overall of 30% by value must be ordinary shares which carry no preferential rights. In addition, although the Company can invest less than 30% of an investment in a specific company in ordinary shares it must have at least 10% by value of its total investments in each VCT qualifying company in ordinary shares which carry no preferential rights.
Asset mix
The Company initially holds its funds in a portfolio of readily realisable interest bearing investments and deposits. The investment portfolio of qualifying investments is built up over a three year period with the aim of investing and maintaining at least 80% of net funds raised in qualifying investments.
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 Company's investments at the time of investment. Ongoing monitoring of each investment is carried out by the Investment Manager, generally through taking a seat on the board of each VCT qualifying company.
Co-investment
The Company aims to invest in larger, more mature unquoted companies through investing alongside the four other VCTs advised by the Investment Manager with a similar investment policy. This enables the Company to participate in combined investments advised on by the Investment Manager of up to £5 million.
Borrowing
The Company has no current plans to undertake any borrowing.
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 Investment Manager and are then subject to formal approval by the Board of Directors. Matrix-Securities Limited provides Company Secretarial and Accountancy services to the Company.
Investment Manager's Review
Overview
The continued economic deterioration in the UK and worldwide has made this a challenging year for the Company. We have continued to remain cautious and selective when considering new deals. We have avoided transactions that require high levels of bank borrowing, believing that over-leveraged companies will be particularly vulnerable. In addition, we have viewed vendors' price expectations as likely to be unsustainable in the medium term.
The predominance in the investment portfolio of management buy-out (MBO) investments reflects our strategy of seeking to capitalise companies properly at the time of investment so that they are well positioned to contend with difficult times. Only two investments have received very modest additional funding of £51,000 during the year. We continue to believe that the portfolio, taken as a whole, is resilient and of high quality and, given recent general comment on the tightening of bank lending, do not consider that the portfolio is exposed to unsustainable levels of third party debt.
Our cautious approach has meant that only one new investment and one divestment were completed in the first six months of the year. The second half of the year saw more encouraging signs of deal activity returning, with your Company completing two new investments and three divestments. The increase in deal activity can, in part, be attributed to vendors becoming more realistic in their price expectations to stimulate interest from buyers. It is remains too soon to tell whether the increased level of activity will be sustained. Your Company maintains a strong cash position and is well positioned to take advantage of increased deal activity.
The Portfolio
The MPEP investment portfolio at 31 January 2010 comprises twenty-eight investments (2009: twenty-one) with a cost of £16.5 million (2009: £9.1 million) and valued at £15.2 million (2009: £7.8 million), representing 92.1% of cost (2009: 85.7%). Realisations during the year generated cash proceeds of £1.8 million.
As reported in the Half-Yearly Report, the first six months of the year saw one new investment made to support the MBO of Westway Cooling, a company specialising in the installation, servicing and maintenance of high quality air-conditioning systems and associated building plant. With a turnover of £9.6 million and a record order book, we believe that this company is well placed to grow.
The Company also successfully realised its investment in Tottel Publishing during the first half of the year, earning an overall return to the Company of 4.0x the original investment costs by returning £901,000 over the life of the investment. The Company's original investment cost of £235,200 had already been reduced in March 2009 to £148,568 when Tottel repaid 50% of the Company's loan stock investment.
The second half of the year saw an increase in activity. In December, the Company completed two new investments. The first of these was an investment of £1 million in CB Imports Group Limited to support the MBO of Country Baskets. The investment comprises loan stock of £825,000 and a 6% equity stake. Founded in 1990 and operating from a national distribution centre in Leeds, the company has a turnover of circa £20 million. It is a leading importer and distributor of artificial flowers, floral sundries, glassware, giftware, basket ware and Christmas decorations. The company is planning to roll out further outlets across the UK as part of a new growth phase funded by this investment.
The second new investment was into Iglu.com Holidays Limited, the UK's largest specialist ski and fastest growing cruise holiday travel agent. The Company invested £878,249 comprising loan stock of £744,470 and an equity stake of 7%. Based in Wimbledon, Iglu.com is a profitable and cash generative business with a strong management team that has a successful track record of building a profitable niche business.
A follow-on investment was made in November 2009 into British International, in the form of loan stock of £45,455, as part of a working capital injection by shareholders.
Your Company has also invested £1 million into each of six acquisition companies: Backbarrow, Bladon Castle Management, Fullfield, Rusland Management, Torvar and Vanir Consultants. Each company is part of our Operating Partner programme, having an experienced Operating Partner who has direct management experience and a wide range of contacts in their particular sector of expertise. We have established these companies to provide time for us to identify and invest in suitable target companies at sufficiently attractive prices. The Operating Partner programme has already been successful for other Matrix-advised VCTs, leading the investments in Country Baskets and Iglu.com, although MIG 4 VCT had not originally invested in these particular acquisition companies. Your Company's investments in Bladon Castle Management, Fullfield and Vanir join those of other Matrix-advised VCTs and each company is already considering a number of opportunities.
The demand for high quality investments led to your Company selling its investment in PastaKing Holdings, the manufacturer of fresh pasta meals, to NBGI Private Equity in November 2009 for net proceeds of £356,968. This realisation contributed to an overall return to the Company of 3.27x cost of the original investment by returning proceeds of some £435,000 to the Company over the life of the investment. The Company's original investment cost was £ 133,055.
Munro Global made a further and final payment of £38,286 to the Company, following its acquisition of Maven Management from the Company in 2007, after Maven again met a revenue target during the year.
Shortly after the year end, your Company sold its investment in Stortext FM Limited, realising cash proceeds of some £488,000 plus loan notes in the acquirer with a value of some £25,000. This compared to the valuation at 31 January 2010 of some £445,866.
Over the year, the value of the portfolio has increased overall, although this is mainly due to one strong performing investment, but a number of other investments have continued to trade well. However, the qualifying investment portfolio has not been immune to the wider deteriorating trading environment and provisions have been applied against those investments where the investee company's trading has been affected. A number of valuations have also had to be reduced in response to falls in the value of comparable quoted companies and/or falling earnings. We are hopeful that value will continue to return to some of these investments in the portfolio during 2010 if trading conditions start to improve.
Digico Europe is currently trading very strongly and has been the strongest performer in the portfolio. It has repaid a total of £467,160 of its loan stock in two instalments, in May and December, which included a premium of £32,377. Westway Cooling has already repaid £45,760 of its loan stock in October 2009 following the Company's investment in June 2009 and is performing ahead of initial expectations.
The performance of Monsal during the year has also improved materially and the outlook is further enhanced by the prospect of new capital contracts as water companies commit to new waste management projects and the company exploits its expertise in anaerobic digestion. ATG Media has performed in line with expectations over last year and the progress of its online auction platform looks particularly promising.
Higher Nature has successfully cut costs and is trading ahead of its budget and its previous financial year. Campden had a much better than expected year, finishing ahead of budget.
Those companies in the portfolio with either direct or indirect exposure to the construction and housebuilding sectors have continued to suffer from weakness in their markets. These include: Youngman, which has substantially de-geared since investment and is well positioned to benefit from an upturn in its markets; Plastic Surgeon, which has diversified into commercial property and insurance markets to reduce its dependence on new housing; and PXP, which has responded similarly, moving away from its dependence on private sector house building towards public sector funded housing associations.
Blaze continued to experience a fall in activity arising from much reduced levels of new signage rollouts from its major customers. It has responded by reducing its cost base and management is confident it will meet its forecasts for the year to March 2010. SectorGuard acquired Legion Group in March 2009 following the acquisition of Manguard in 2008 and subsequently changed its name to Legion Group plc.
BG Consulting Group/Duncary 4 is in the process of reconstructing its business which should strengthen the company's position in the marketplace and enhance the value of the VCT's investment. Earlier this year, Letraset underwent a capital reorganisation to address its recent decline in revenue and re-align itself for the future.
The rise in valuations for the year is encouraging although the reduction in profitability of some portfolio companies has made some decreases inevitable. It is important to recognise that all of the falls in the year have been in unrealised valuations as opposed to any actual realised investment losses. We aim to invest in strong, profitable companies and believe that the prospect of significant future recovery over the medium term is good as we continue to believe that the portfolio, taken as a whole, is resilient and of high quality.
The investments originally made by Elderstreet have also experienced some changes. Your Company participated in a small rights issue by Sift, to provide additional working capital, and after the year end has made a small purchase of shares in sparesFinder for £854.
Towards the end of the financial year the Company took the opportunity to realise its investments in eXpansys plc and ComponentSource for £16,423 and £ 8,029 respectively.
We remain hopeful that value will be realised from the remaining investments, although their impact on the Company as a whole is now very small.
Over the next year, the need for additional investment to support certain portfolio companies may emerge. We also anticipate much more attractive buying conditions emerging as the year progresses. We feel the Company is well placed to cover both the portfolio needs that may arise and the new investment opportunities presented.
Investment Portfolio Summaryas at 31 January 2010 Total Cost at Valuation Additional Valuation % of % of 31-Jan-10 at investments at equity portfolio 31-Jan-09 31-Jan-10 held by value £ £ £ £ Matrix Private Equity Partners Portfolio DiGiCo Europe 565,217 1,091,100 - 1,697,193 6.52% 11.10%Limited Manufacturer of audio mixing desks
Backbarrow Limited 1,000,000 - 1,000,000 1,000,000 49.00% 6.54%
Food manufacturing, distribution and brand management Bladon Castle 1,000,000 - 1,000,000 1,000,000 25.00% 6.54%Management Limited Brand management, consumer products and retail CB Imports Group 1,000,000 - 1,000,000 1,000,000 6.00% 6.54%Limited Importer and distributor of artificial flowers, floral sundries and home d©cor products
Fullfield Limited 1,000,000 - 1,000,000 1,000,000 25.00% 6.54%
Food manufacturing, distribution and brand management Rusland Management 1,000,000 - 1,000,000 1,000,000 49.00% 6.54%Limited Brand management, consumer products and retail
Torvar Limited 1,000,000 - 1,000,000 1,000,000 49.00% 6.54%
Database management, mapping, data mapping and management services to legal and building industries Vanir Consultants 1,000,000 - 1,000,000 1,000,000 16.67% 6.54%Limited Database management, mapping, data mapping and management services to legal and building industries ATG Media Holdings 1,000,000 1,000,000 - 905,295 8.89% 5.92%Limited Publisher and online auction platform operator Focus Pharma 772,451 758,440 - 885,606 3.14% 5.79%Holdings Limited Licensor and distributer of generic pharmaceuticals IGLU.com Holidays 878,249 - 878,249 878,249 7.15% 5.74%Limited Online ski and cruise travel agent Higher Nature 500,127 708,597 - 682,568 10.69% 4.46%Limited Mail order distributor of vitamins and natural medicines Monsal Holdings 704,771 528,578 - 675,928 9.83% 4.42%Limited Supplier of engineering services to the water and waste sectors MC 440 Limited 327,616 - 373,376 526,041 3.15% 3.44%(Westway Cooling) Installation, service and maintenance of air conditioning systems Stortext FM Limited 561,820 375,968 - 445,866 5.40% 2.92% Provider of document management software and services VSI Limited 111,928 305,699 - 382,667 4.42% 2.50% Provider of software for CAD and CAM vendors Youngman Group 500,026 476,523 - 349,983 4.24% 2.29%Limited Manufacturer of ladders and access towers British 295,455 247,338 45,455 191,887 2.50% 1.25%International Holdings Limited Helicopter service operator Vectair Holdings 100,000 141,884 - 170,535 2.14% 1.12%Limited Designer and distributor of washroom products The Plastic Surgeon 458,837 229,419 - 114,709 6.88% 0.75%Holdings Limted Snagging and finishing of domestic and commercial properties Blaze Signs Holdings 610,016 593,471 - 110,681 5.72% 0.72%Limited Manufacturer and installer of signs Legion Group plc 150,102 64,323 - 64,323 1.08% 0.42%(formerly Sectorguard plc) 1 Provider of manned guarding, patrolling and alarm response services Racoon International 406,805 - - 59,138 5.70% 0.39%Holdings Limited Supplier of hair extensions, hair care products and training Campden Media 152,620 18,319 - 34,024 1.75% 0.22%Limited Magazine publisher and conference organiser BG Consulting Group 230,796 53,064 - 33,725 See note 0.22%Limited/Duncary 4 2 Limited Provider of financial training services Letraset Limited 150,000 - - - 17.35% 0.00% Manufacturer and distributor of graphic art products Inca Interiors 350,000 - - - 9.75% 0.00%Limited (in liquidation) Designer, supplier and installer of contract kitchens PXP Holdings Limited 679,549 139,086 - - 4.98% 0.00% Designer, manufacturer and supplier of timber frames for buildings Maven Management - - - - N/A 0.00%Limited 3 (Munro Global Limited) Market research agency Pastaking Holdings - 409,344 - - 2.10% 0.00%Limited Manufacturer and supplier of fresh pasta meals Tottel Publishing - 616,173 - - 6.27% 0.00%Limited Publisher specialising in legal and tax titles ------ ------ ------ ------ ------ Total 16,506,385 7,757,326 8,297,080 15,208,418 99.45% Former Elderstreet Private Equity Portfolio Cashfac Limited 260,101 38,168 - 63,125 3.42% 0.41% Provider of virtual banking application software solutions to corporate customers Sparesfinder Limited 250,000 - - 19,197 2.19% 0.13% Supplier of industrial spare parts on-line Sift Group Limited 130,116 - 5,116 1,226 0.63% 0.01% Developer of business-to-business internet communities Expansys plc 1 - 9,971 - - 0.58% 0.00% Retailer of handheld electrical products ComponentSource - - - - 0.61% 0.00%Holding Corporation ------ ------ ------ ------ ------ Total 640,217 48,139 5,116 83,548 0.55% 100.00% ------ ------ ------ ------ ------ Investment Managers' 17,146,602 7,805,465 8,302,196 15,291,966 100.00%Total ====== ====== ====== ====== ====== 1 Quoted on AiM
2 The % of equity held in BG Consulting Group Limited is 2.6% and in Duncary 4 Limited is 6.64%.
3 Maven Management was sold in 2007. Part of the consideration was contingent upon revenue thresholds being achieved, which generated further sale proceeds.
Income Statement
for the year ended 31 January 2010
Year ended 31 January 2010 Year ended 31 January 2009 Notes Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ Unrealised gains/ - 700,336 700,336 - (2,574,520) (2,574,520)(losses) on investments Gains/(losses) on - 268,469 268,469 - (21,299) (21,299)investments realised Income 2 489,753 - 489,753 1,068,647 30,915 1,099,562 Recoverable VAT 3 1,051 3,155 4,206 13,500 40,500 54,000 Investment 6 (97,204) (291,610) (388,814) (100,303) (300,909) (401,212)management fees Other expenses (360,819) - (360,819) (350,868) - (350,868) ------ ------ ------ ------ ------ ------ Profit/(loss) on 32,781 680,350 713,131 630,976 (2,825,313) (2,194,337)ordinary activities before taxation Taxation on - - - (152,313) 152,313 -ordinary activities ------ ------ ------ ------ ------ ------ Profit/(loss) for 32,781 680,350 713,131 478,663 (2,673,000) (2,194,337)the year ====== ====== ====== ====== ====== ====== Basic and diluted 5 0.16p 3.40p 3.56p 2.35p (13.14)p (10.79)pearnings per ordinary share
All the items in the above statement derive from continuing operations.
There were no other recognised gains or losses in the year.
The total column 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 profit/(loss) as stated above and at historical cost.
Balance Sheetas at 31 January 2010 as at 31 January 2010 as at 31 January 2009 Notes £ £ £ £ £ £ Fixed assets Investments at 15,291,966 7,805,465fair value Current assets Debtors and 139,702 240,016 prepayments Current 5,975,819 13,113,111 investments Cash at bank 70,404 15,256 ------ ------ ------ ------ ------ ------ 6,185,925 13,368,383 Creditors: (255,349) (138,150) amounts falling due within one year ------ ------ ------ ------ Net current 5,930,576 13,230,233assets ------ ------ Net assets 21,222,542 21,035,698 ====== ====== Capital and reserves Called up share 199,576 201,078capital Capital 885,245 883,743redemption reserve All the items in (1,473,847) (1,537,950)the above statement derive from continuing operations. Special 16,540,857 16,968,144distributable reserve There were no 5,070,711 4,520,683other recognised gains or losses in the year. ------ ------ Equity 21,222,542 21,035,698shareholders' funds ====== ====== Basic and diluted 4 106.34p 104.61pnet asset value per Ordinary Share
Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the profit/(loss) as stated above and at historical cost.
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 January 2010
Year ended 31 Year ended 31 January 2010 January 2009 £ £ Opening shareholders' funds 21,035,698 24,067,317 Purchase of own shares (124,256) (379,254) Profit/(loss) for the year 713,131 (2,194,337) Dividends paid in year (402,031) (458,028) ------ ------ Closing shareholders' funds 21,222,542 21,035,698 ====== ======Cash Flow Statement
for the year ended 31 January 2010
Year ended Year ended 31 January 31 January 2010 2009 Notes £ £ Interest income received 281,147 304,782 Dividend income 156,673 814,332 VAT received and interest 3 100,239 5,098thereon Other income 14,901 - Investment management fees (224,334) (516,689)paid Cash payments for other (334,604) (386,878)expenses ------ ------ Net cash (outflow)/inflow from (5,978) 220,645operating activities Investing activities Sale of investments 1,784,500 227,615 Purchase of investments (8,302,196) (1,624,774) Net cash outflow from (6,517,696) (1,397,159)investing activities Equity dividends paid (402,031) (458,028) ------ ------ Cash outflow before liquid (6,925,705) (1,634,542)resource management and financing Management of liquid resources Decrease in monies held in 7,137,292 2,011,197current investments Financing Purchase of own shares (156,439) (385,264) ------ ------ Increase/(decrease) in cash 55,148 (8,609)for the year ====== ======Notes1. 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 and Venture Capital Trusts' ("the SORP") issued by the Association of Investment Trust Companies in January 2009.
2. Income 2010 2009 £ £ Income from bank deposits 354 2,605 Income from investments - from equities 50,190 85,896 - from overseas based OEICs 96,060 696,194 - from loan stock 327,454 309,769 - from VAT recoverable 6,544 - ------ ------ 480,248 1,091,859 Other income 9,151 5,098 ------ ------ Total income 489,753 1,099,562 ====== ====== Total income comprises Dividends 146,250 782,090 Interest 334,352 312,374 Other income 9,151 5,098 ------ ------ 489,753 1,099,562 Income from investments comprises Listed overseas securities 96,060 696,194 Unlisted UK securities 50,190 85,896 Loan stock interest 327,454 309,769 ------ ------ 473,704 1,091,859 ====== ======
Loan stock interest above is stated after deducting an amount of £2,601 (2009: £18,085), 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 £208,063 (2009: £142,726).
3. Recoverable VAT
Revenue Capital Total Revenue Capital Total 2010 2010 2010 2009 2009 2009 £ £ £ £ £ £ Recoverable 1,051 3,155 4,206 13,500 40,500 54,000VAT
As at 31 January 2009 the Directors considered it reasonably certain that the Company would obtain a repayment of VAT of not less than £85,459. Last year's accounts recognised this amount as income of £54,000 above, and £31,459 deducted from last year's investment manager's fees, in note 4 above. This estimate was based upon information supplied by the Company's Investment Manager, and discussions with the Company's professional advisors as a result of the European Court of Justice ruling and subsequent HMRC briefing that management fees be exempt for VAT purposes. During the year, a total of £93,695 of VAT recoverable has been received. Of the excess of £8,236 over the £85,459 recognised in 2009's accounts, £4,206 has been further credited to the Income Statement, allocated 25% to revenue and 75% to capital return and is in the same proportion as that in which the irrecoverable VAT was originally charged, but £4,030 has not been recognised as it may be repayable to a previous investment manager or service provider as it relates to VAT charged during a period when an expense cap was applied to their fees and is therefore held within other creditors per note 14.
The £93,695 of income recognised in both the 2009 and current year accounts, together with related interest of £6,544 shown in note 2 above, equals the sum of £100,239 shown in the cash flow statement as part of cash flow from operating activities.
4. Basic and diluted net asset value per share
Net asset value per Ordinary Share is based on net assets at the end of the year, and on 19,957,572 (2009: 20,107,800) Ordinary Shares, being the number of Ordinary Shares in issue on that date.
5. Basic and diluted earnings per share
2010 2009 £ £
Total earnings after taxation: 713,131 (2,194,337)
Basic and diluted earnings per 3.56p ( 10.79)pshare (note a) Net revenue from ordinary 32,781 478,663activities after taxation Basic and diluted revenue return 0.16p 2.35pper share (note b) Net unrealised capital gains/ 700,336 (2,574,520)(losses) Net realised capital gains/ 268,469 (21,299)(losses) Dividends treated as capital - 30,915 VAT recoverable 3,155 40,500 Capital expenses (net of (291,610) (148,596)taxation) Total capital return 680,350 (2,673,000)
Basic and diluted capital return 3.40p ( 13.14)p per share (note c)
Weighted average number of shares 20,032,743 20,338,366 in issue in the year
Notes:
a) Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue.
b) Revenue earnings per share is the revenue 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 issue in future. Accordingly, the above figures currently represent both basic and diluted returns.
6. Investment Manager's Fees
In accordance with the policy statement published under "Management, Expenses and Administration" in the Company's Prospectus dated 2 November 2006, the Directors have charged 75% of the investment management expenses to the realised capital reserve.
7. Dividends
The Company proposes to pay a final dividend of 2 pence per Ordinary Share from capital. The dividend will be recommended to members at the Annual General Meeting and, if approved, will be paid on 9 June 2010 to shareholders on the Register on 14 May 2010.
8. Post balance sheet events
Following the year end, 1,483,901 shares were issued on 31 March and 3 April 2010 as part of a top up offer raising £1.64 million for the Company.
9. Financial Information
The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 31 January 2010 in terms of section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 January 2010 will be delivered to Companies House following the Company's Annual General Meeting. The auditors have reported on those accounts: their report was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.
10. Annual Report
A Summary Annual Report will be circulated by post to all Shareholders shortly and copies will be available thereafter to members of the public from the Company's registered office. Shareholders who wish to receive a copy of the full Annual Report may request a copy by writing to the Company Secretary, Matrix-Securities Limited, One Vine Street, London W1J 0AH. Alternatively copies may be downloaded via the Company Secretary's web site at www.mig4vct.co.uk.
11. Annual General Meeting
The Annual General Meeting of the Company will be held at 12.00 noon on Thursday, 27 May 2010 at the offices of Matrix Group Limited, One Vine Street, London W1J 0AH.
Contact details for further enquiries: Robert Brittain or Ross Lacey at Matrix-Securities Limited (the Company Secretary) on 020 3206 7000 or by e-mail on mig4@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 4 VCT PLC