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16 May 2011 18:00
Matrix Income & Growth 4 VCT plc
Annual Results for the year ended 31 January 2011
Strategy
Matrix Income & Growth 4 VCT plc ("MIG4", the "Company" or the "Fund") 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 Performance Summary Year Net Net Cumulative NAV total return Share Share price totalended assets asset dividends per share to price return per share31 value paid per shareholders 1(p) to shareholders
January (£m) per share (p) since launch (p) since launch (p)
share (p) 2011 25.3 112.9 18.7 131.6 103.5 122.2 2010 21.2 106.3 15.7 122.0 92.3 108.0 2009 21.0 104.6 13.7 118.3 92.0 105.7 2008 24.1 117.4 11.5 128.9 109.0 120.5 2007 9.8 116.3 10.7 127.0 91.0 101.7 2006 9.3 106.6 8.4 115.0 85.0 93.4
1 Source: London Stock Exchange
Matrix Private Equity Partners LLP ("MPEP") became sole manager to the Company on 1 August 2006.
Return before and after income tax relief
The table below shows the NAV total returns at 31 January 2011 for ashareholder that invested £10,000 in each fundraising undertaken by theCompany: Fundraising 1999/ 2006/ 2010 2011 2000 2007 (Top-up (Joint Offer) 3 Offer) 4 Issue price per share (p) 200 1 120.9 112.4 121.8 2 Number of shares held 5,000 8,271 8,896 8,210
Net asset value (NAV) at 31 January 5,643 9,336 10,041 9,267 2011 (£)
Dividends paid to shareholder since 935 662 267 -subscription (£)
NAV total return to shareholder since 6,578 9,998 10,308 9,267 subscription (£)
Profit/(loss) before income tax relief (3,422) (2) 308 (733) 6 (£) 5
Income tax relief 20% 7 30% 30% 30%
Cost net of income tax relief (£) 8,000 7,000 7,000 7,000
Profit/ (loss) after income tax relief (1,422) 2,998 3,308 2,267 (£) 8
1 Original investment at 100p per ordinary share of 5p each, converted on a 2 for 1 basis to ordinary shares of 1p each in October 2006.
2 Weighted average issue price of shares.3 Top-Up Offer to raise up to £2.18 million.
4 Joint Offer for Subscription with Matrix Income & Growth VCT plc and The Income & Growth VCT plc to raise up to £21 million in total. Covers shares issued up to 5 April 2011.
5 NAV total return minus initial investment cost (before income tax relief).
6 Current unrealised loss results from initial Offer costs of 5.5% paid on subscription.
7 Additional capital gains tax deferral relief of up to £4,000 available to qualifying shareholders.
8 NAV total return minus cost net of income tax relief.
The data for the initial fundraising above includes the period up to 1 August 2006, when the Company used three investment advisers. The three subsequent fundraisings have raised capital which has been solely managed by MPEP.
Dividend historyYear ended Dividends per share Cumulative dividends31 January paid in respect per share paid of each year and proposed since launch (p) (p) 2011 4.00 21.70 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 2004 0.50* 8.20 2003 0.50* 7.70 2002 1.00* 7.20 2001 3.10* 6.20 2000 3.10* 3.10
Dividends paid include distributions from both income and capital.
* re-stated following capital reorganisation in 2006.
Proposed dividend
A final proposed dividend of 3 pence per share will be recommended to Shareholders at the AGM of the Company to be held on 20 June 2011 to be paid on 24 June 2011 and has been included in the above figures.
CHAIRMAN'S STATEMENT
I am pleased to present to Shareholders the Annual Report of the Company for the year ended 31 January 2011.
It is perhaps worth standing back and reviewing the performance of this Fund to date. The Fund initially had three managers. The performance of two of these three managers proved unsatisfactory. As a result your Board made a change by appointing Matrix Private Equity Partners LLP ("MPEP") as the sole manager in 2006. Since then, and despite the very deep economic downturn which has recently affected the UK economy, this Fund has made significant progress, as evidenced by the following:
NAV total return and share price total return figures both showing positive returns.
Net assets are moving towards £30 million. This is a recovery from 2007, when, as a result of the two terminated fund managers' poor performance, net assets were under £10 million. This makes the fund fully economic in its operations.
The tax free dividend level has improved, with the dividends attributable to the 2010/11 financial year being 4p per share.
The current discount at which the fund is repurchasing shares has narrowed to around 10%.
Performance
At 31 January 2011, the Net Asset Value (NAV) per Share was 112.9 pence (2010: 106.3 pence). Adjusted for the dividends paid to shareholders during the year, this represents an increase of 9.0% over the twelve month period. The NAV Total Return per Share since launch increased in the year by 7.9% from 122.0 pence at 31 January 2010 to 131.6 pence at 31 January 2011.
As the Company invests mainly in unquoted securities and cash, comparing the Company's performance with the performance of selected indices for quoted securities over the same period has limited validity. However, in the absence of more meaningful benchmarks, increases of 19.3% and 42.2% in the FTSE SmallCap and the FTSE All-Share AIM Indices respectively (on a dividend re-invested basis) occurred over the same period.
These figures make your Company's performance appear somewhat pedestrian by comparison. However, the AIM performance derives partly from the oil & gas element of the AIM market; these sectors are not open to VCT funds to invest in on a qualifying basis. Secondly, the AIM and SmallCap indices have tended to show greater volatility than the Company's portfolio.
Despite tough economic conditions, many of the portfolio companies continue to develop well. The Board is satisfied with the performance of the portfolio compared to its generalist VCT peers (a benchmark the Board uses), and supports the selective investment approach of the Manager. A continuation of current performance trends, if achieved, should yield a steady stream of dividends to shareholders over the longer term.
In this context, it is relevant to note that total dividends paid and proposed for the year to 31 January 2011 amount to 4 pence per share, the first time such a level has been paid in respect of a single year.
Economic background
The last year has seen a recovery in investor confidence. However, the fundamental position of the UK economy is that it is still heavily damaged by the financial policies of the last administration and by the banking crisis. Proper repair of this damage will be an extremely painful process; current government policy is to review public spending, while at the same time allowing the effects of quantitative easing and maintaining an artificially low interest rate structure to soften this pain. At some point interest rates will have to rise, particularly as inflation is now increasing, and this process, whenever it takes place, will affect recovery prospects.
External factors which could affect UK markets include the very major earthquake offshore Japan, and the political disruptions in the Middle East.
From an investors' point of view there are two main consequences. Firstly, the returns on uninvested cash have been very low during the period. Secondly, relatively early stage companies are particularly sensitive to the economic environment, and only companies with robust business models will survive or expand.
The portfolio
The portfolio continues to be dominated by investments in management buy-out situations ("MBOs"), which has risen to 63.9% with 31.8% in acquisition companies, 1.3% invested in one AIM investment and the remaining 3.0% of the portfolio being invested in what were originally development capital and early stage investments. The portfolio is now invested in a wide range of market sectors with the largest of those being Support Services at 33.2%. General Retailers at 24.7% is the next largest investment sector.
The fund held back on new investments during the downturn, but with a return to more normal markets your Manager has been more active in recent months. From regular meetings with the Investment Manager, the Board was well aware that a number of investment opportunities were under active consideration throughout the year. In the event, £2.4 million was invested. In October 2010, the fund invested in Aust Recruitment Group to support the MBO of RDL Corporation and during the last quarter made a further three investments in Faversham House, Omega Diagnostics and ASL Technology. Further details can be found in the Investment Manager's Review.
Disposals of investments in the year totalled £985,434. Stortext was sold in February, realising proceeds of £487,564 together with loan notes in the acquirer, Box-IT, of £25,759. Other divestments during the year consisted of the disposal of Campden Media and partial loan stock repayments from Westway Services, ATG Media, and DiGiCo. It is encouraging to note that Westway Services and DiGiCo made their loan repayments ahead of schedule, indicative of good cash generation.
The portfolio itself rose in value by £2.1 million in the year. Significant components of this increase in value included Blaze Signs Holdings, as a result of a recovery, and ATG Media and Iglu.com Holdings, both of which have traded strongly. Iglu.com prepaid its entire loan stock after the period end and in addition Vectair repaid its loan stock. The value of Monsal Holdings had risen at the half-year, as a third party invested at a higher value. Unfortunately, after the year end your Board was told that completion issues with an existing contract, together with delays in obtaining new contracts, have caused this investment definitely to require further funds than previously anticipated. Shortly before these accounts were approved, it became apparent that any new funds raised would require more attractive terms, at the expense of the existing investment that has been made to date. Consequently, the Manager advised the Board that the fair value of the Company's existing investment should, for the time being, be reduced to nil. The Board has accepted this advice, but remains hopeful that value can be still be realised in the future. It has agreed to participate in this further funding. As you will see from the Manager's review, other companies in the portfolio continue to trade profitably and to expand.
As at the year end the portfolio included six acquisition companies actively searching for further investments. A number of opportunities are under active consideration.
For further information on the portfolio please refer to the Investment Manager's Review.
Offer for Subscription
Matrix Income & Growth 4 VCT plc currently has a linked offer for subscription together with Matrix Income & Growth VCT plc, and The Income & Growth VCT plc. This is aimed at raising up to £7m for the Company. As at 16 May 2011, £5.2m has been subscribed for the Company, and your Company has allotted 4,413,586 new ordinary shares so far.
Cash available for investment
Cash and liquidity fund balances as at 31 January 2011 together with funds in acquisition companies, amounted to £10.7m. These funds continue to be invested in a number of leading cash funds and deposits with major banks. Despite the frustration of very low returns, your Board has taken the view that it would not be prudent to increase counter party or timing exposures for a relatively small overall increase in the return rates. However, the Board continues to keep this policy under active review.
Revenue account
The revenue return for the Company has increased markedly during the year, from £32,781 to £119,808. Three main factors affected the overall increase in income to £636,426, from £489,753 for the year to 31 January 2010. Firstly, loan interest from investee companies has increased by £141,939 (43%) to £469,393. This is due to the benefit of further investments made near the end of 2009, notably Iglu.com Holidays and CB Imports. Additionally, two investee companies have resumed loan stock interest payments as they begin to return to more normal levels of profitability.
Secondly, the Company's dividend income from investee companies also rose by £ 77,646 (154%) to £127,836 during the year, compared to £50,190 for the year to 31 January 2010, predominantly due to dividends received from ATG Media and DiGiCo for the first time.
Finally, in contrast, interest on bank deposits and money-market funds continued to decline, falling to £36,653 compared to £96,414 and £698,799 for the years ended 31 January 2010 and 31 January 2009, respectively. Low yields and reducing cash levels, as funds are utilised in new investments, have been the main factors affecting returns on cash.
Against this net improvement in income, there were increases in costs totalling £127,724, principally due to increases in net assets.
Dividend
A final dividend of 2 pence per share in respect of the year ended 31 January 2010 was paid in June 2010, and your Company paid an interim dividend of 1 penny per share in November 2010 in respect of the year under review.
Cumulative dividends paid to date amount to 18.7 pence per share.
The Company's revenue return per Ordinary Share improved to 0.57 pence per share (2010: 0.16 pence per share). The Board will be recommending a final dividend of 3 pence per share, comprising 0.4 pence from income and 2.6 pence from capital in respect of the year under review, at the Annual General Meeting to be held on 20 June 2011. Subject to shareholder approval, this dividend will be paid on 24 June 2011 to shareholders on the register on 3 June 2011, which will bring total cumulative dividends paid to 21.7 pence per share.
Dividend Investment Scheme
Shareholders have the opportunity of reinvesting all or part of their dividends into new Ordinary Shares of the Company at the higher of an amount equivalent to (i) the mid-market share price (averaged over the last 5 business days) or (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. The final dividend proposed above and subject to shareholder approval will be eligible for the Scheme.
Shareholders that wish to participate in the Scheme should contact Capita Registrars, whose contact details can be found on the Company's website. Please note that Shareholders must be registered no later than 15 days prior to the dividend payment date to be eligible for the Scheme.
Share buy-backs
During the year ended 31 January 2011 the Company continued to implement its buy-back policy and bought back 610,555 Ordinary Shares, representing 3.1% of the shares in issue at 1 February 2010 at a total cost of £582,286. These shares were subsequently cancelled by the Company.
The shares above were bought back for an average price of 95.4 pence per share. The share price discount to NAV has narrowed from 13% at the start of the year to around 10% at the year end, in line with the Board's current policy.
Shareholder communication
May I remind you that the Company continues to have its own website which is available at www.mig4vct.co.uk.
The Investment Manager held a successful and well attended shareholder workshop in December 2010 and intends to hold a similar event in late 2011.
The Board
Under the provisions of the AIC code and the revised listing rules for VCTs which came into effect in September 2010, Colin Hook stood down as Chairman and as a director of the Company. Following this, I was appointed Chairman of the Company. On 1 August 2010, Andrew Robson joined the Board and became Chairman of the Audit Committee in my place. Andrew has strong relevant experience in the unquoted investment area and is also on the board of several leading investment companies.
I would like to thank Colin for his long and diligent chairing of your Company which has seen it move to a sole manager operation and become a leading VCT in the generalist sector.
Outlook
Whilst markets have returned to more normal trading conditions, the outlook for the UK economy is mixed. Government debt remains at relatively high levels and public expenditure needs to be far more disciplined.
However, many of the portfolio companies are trading profitably at the operating level. Having held back on investment during the downturn, the Company retains a significant cash position. The Manager is now seeing more investment opportunities at realistic purchase levels. Your Board hopes that investments recently made, and to be made over the next year, will contribute to enhancing the Company's performance which includes the objective of attractive dividend payments.
Christopher MooreChairman16 May 2011
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT
The Directors confirm to the best of their knowledge that:
(a) the financial statements, which have been 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; and
(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 Board Christopher MooreChairman16 May 2011 DIRECTOR'S REPORT Principal risks
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 Act 2006 ("the Companies Act"), 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. In addition, rules and regulations, or their interpretation, may change from time to time, which may limit the types of investments the Company can make and/or reduce the level of returns which would otherwise be achievable.
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. They may also be more susceptible to changes to political, exchange rate, taxation, economic and other regulatory changes and conditions.
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.
â— 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 full 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 on a six monthly basis. In mitigation and in 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 (save as may be permitted under VCT rules).
The VCT regulations in respect of funds raised after 6 April 2011 will change, such that 70% of such funds must be invested in equity.
Asset mix
The Company initially holds its funds in a portfolio of readily realisable interest bearing investments and deposits. The investment portfolio of qualifying investments is built up over a three year period with the aim of investing and maintaining at least 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 three 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's Articles permit borrowings of amounts up to 10 per cent. of the sum equal to the aggregate of the amount paid up on the allotted or issued share capital of the Company and the amount standing to the credit of the capital and revenue reserves of the Company (whether or not distributable) after adding thereto or deducting therefrom any balance standing to the credit or debit of the profit and loss account. However, 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.
INVESTMENT MANAGER'S REVIEW Overview
The first half of the year ended 31 January 2011 saw the continuation of the economic uncertainty that has affected new investment activity since 2008. However, the latter part of the year has shown signs of improvement in our investment marketplace. We are increasingly confident that the UK economic environment is beginning to generate conditions for greater numbers of attractively priced new investment opportunities. Portfolio companies are also more optimistic following an extended period of challenging trading conditions in most market sectors.
Our strategic response to the significant increase in deal flow is to focus on companies with strong and defensible market positions within their sectors, rather than targeting specific market sectors. However, we remain alert to the potential impact of cuts in public spending that are being implemented by the Coalition Government on the UK economy.
We have been appreciative of the Board's support through a period when we have thought it prudent to retain funds until economic conditions improved, rather than continue to invest during the downturn. Where we have chosen to invest, our strategy has also been to ensure that the companies were properly capitalised at the time of investment so that they were well positioned to contend with adverse market conditions. This, together with our focus on MBOs of established, profitable companies, has enabled us to build a resilient portfolio which has largely weathered the recession very well.
It is important to note that during the year, no further funding has been required by any of the investee companies to help them deal with trading downturns with the exception of Monsal (see below) where a commitment has been made after the year end. We have continued to work actively with the management teams of investee companies, encouraging them to take cost cutting measures and discussing their budgets, forecasts and cost structure with them to ensure that their businesses remain as resilient as possible. The majority of investee companies have managed their cashflow well and remain cash-generative.
New investment
The second half of the year was much busier in terms of investment activity, with four new investments completing during this period. The first, in October, was an investment of £1 million in Aust Recruitment Group Limited to support the MBO of RDL Recruitment Corporation, a European recruitment provider within the pharmaceutical, business intelligence and IT sectors based in London and Woking. The company, which employs 70 staff, was established in 1992. It sources staff for over 300 major companies, matching niche professionals with "hard to fill" contract assignments and staff positions.
The remaining investments all completed in December:
£346,488 was invested to support the MBO of Faversham House Group Limited. Based in Croydon, this is an established media company providing magazines, exhibitions and online resources in the environment and sustainability, visual communications and building services sectors.
The Company invested £199,998 into the AiM listed Omega Diagnostics Group plc. Based in Alva, Scotland this company provides high quality in vitro diagnostics products for use in hospitals, blood banks, clinics and laboratories in over 100 countries and specialises in the areas of food intolerance, autoimmune and infectious diseases. The share price has moved up since investment, giving an early uplift from cost of £41,666 at 31 January 2011.
Finally, the Company invested £848,066 in Apricot Trading Limited to support the MBO of Automated Systems Group plc, a Cambridge based printer and copier services business with a broad customer base of schools and SMEs. Apricot Trading has subsequently changed its name to ASL Technology Holdings Limited.
Our Operating Partner programme continues to pursue an active search for investment opportunities in their chosen sectors. Your Company's acquisition companies, Backbarrow, Bladon Castle Management, Fullfield, Rusland Management, Torvar and Vanir Consultants, are each headed by an experienced Chairman, well-known to us, who is working closely with us in seeking to identify and complete investments in sectors relevant to their industry knowledge and experience. These companies have not yet found sufficiently attractive investment opportunities at the right price. However, the Operating Partner programme has been successful for other Matrix-advised VCTs, leading the investments in RDL Recruitment and Automated Systems Group referred to above. We anticipate that the Operating Partner programme will lead to further new investments during 2011.
Realisations
We are pleased to report that a number of companies in the portfolio continue to be strongly cash generative. As a result of this the Company has received a total of £342,671 in loan stock repayments plus premiums during the year. Amongst these, DiGiCo Europe continues to make regular repayments, the latest amount being £69,565 received in June 2010 plus a premium of £5,180. Monsal repaid £70,475 in July; Westway made loan prepayments totalling £91,520 plus a premium of £41,596 in September and November; and ATG Media repaid £111,111 in October.
Since the year-end, Iglu.com and Vectair have both repaid their loan stock in full, realising £744,470 and £75,268 plus premiums of £131,737 and £15,054 respectively for the Company. It is particularly impressive that Iglu.com has generated sufficient cash in the short time since investment in December 2009 to make this repayment possible.
In January, the Company realised its entire investment in Campden Media for a cash consideration of £130,908, representing 85.8% of total investment cost of £152,620. This compares to a valuation at 31 October 2010 of £54,118. The total cash return from the investment (including interest paid) amounted to £159,061, or 104% of cost.
The Portfolio
The MPEP invested portfolio at 31 January 2011 comprised thirty investments (2010: twenty-eight) with a cost of £17.4 million (2010: £16.5 million) and valued at £18.8 million (2010: £15.2 million), representing 107.7% of cost (2010: 92.1%). Realisations during the year generated cash proceeds of £ 985,434.
The three investments made in 2009 in Westway, CB Imports and Iglu.com are all now valued above cost following out-performance of their business plans at the time of investment. Despite seeing a fall in licence income, VSI has gained from the relative weakness of sterling against the US dollar. This company paid a dividend to the VCT of £5,220 in April 2010. Vectair continues to expand its export business and is now making good progress in the US market. Focus Pharma continues to trade well, although it ended its financial year slightly behind a stretching budget. It expects to progress further with several new product launches due during 2011.
The construction and house building sectors remain weak and Youngman, PXP and Plastic Surgeon continue to trade well below pre-economic downturn levels. Each business has reduced its costs and managed its cash resources effectively. Youngman has almost fully repaid its acquisition bank debt since investment and is well positioned to benefit from any upturn in its markets. PXP has moved away from its dependence on private and public sector house builds towards commercial buildings including hotels, doctors' surgeries and convenience stores. Plastic Surgeon has diversified into commercial property and insurance markets.
As reported in the Chairman's Statement, the Manager has assessed that the pending round of additional funding that Monsal requires (which your Company intends to participate in), is likely to have priority over the existing investment. Accordingly, we have reassessed the assumptions made in the valuation and advised that the existing investment held at the year-end be valued at nil for the time being. We retain the view that the potential for this environmental business remains considerable, albeit that realisation of that potential has been deferred. Blaze Signs has recovered strongly over the year and enjoyed particularly strong autumn months. Racoon has continued to recover profitability during 2010.
Disappointingly, Legion Group requested a suspension of trading of its shares in July 2010 pending clarification of the company's financial position. Legion had a healthy order book but continued to suffer working capital constraints. On 6 August 2010, the board appointed administrators and the business was subsequently sold to OCS Group.
Higher Nature has been trading below its budget for the year and as a result its valuation has been written down during the year. We are working closely with the management team to return the business to its historic profitability.
The VCT's investment in BG Consulting Group was re-structured during the year. As a result, the VCT's new loan stock investment has a higher prior right to the assets of the business, which has increased the value of your Company's investment. Letraset's valuation has increased from nil to £19,540 during the year following increased demand for its ProMarker pens.
The investments originally made by Elderstreet continue to suffer the effects of the downturn but each management team is confident that signs of improved trading can be maintained. 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.
Our strategy remains to invest in strong, profitable companies and we consider that the prospect of further recovery and progress over the medium term is good. We believe that the portfolio, taken as a whole, is resilient and of high quality.
Outlook
Whilst we cannot be sure of the extent of UK economic recovery, we have been encouraged by changes in the year and we look forward to a productive new investment period. Although the coming months are likely to prove more testing as the public sector cuts begin to take effect, we consider that good quality companies of the calibre in which we seek to invest, capable of maintaining competitive advantage, have the potential to succeed in this environment. We are seeing the confidence of both vendors and sellers return. Having retained significant uninvested cash, which will be bolstered by the current fundraising, we consider the Company is very well placed to cover both any portfolio needs and funding for attractive new investment opportunities that may arise.
INVESTMENT PORTFOLIO SUMMARYas at 31 January 2011 Total % of % of Cost at Valuation at Additional Valuation at equity portfolio 31-Jan-11 31-Jan-10 investments 31-Jan-11 held by value £ £ £ £ Matrix Private Equity Partners Portfolio DiGiCo Europe Limited 495,652 1,697,193 - 1,900,210 6.52% 10.05% Manufacturer of audio mixing desks Iglu.com Holidays Limited 878,249 878,249 - 1,420,200 7.15% 7.51% Online ski and cruise travel agent ATG Media Holdings Limited 888,889 905,295 - 1,293,507 8.50% 6.84% Publisher and online auction platform operator CB Imports Group Limited 1,000,000 1,000,000 - 1,242,622 6.00% 6.57% Importer and distributor of artificial flowers, floral sundries and home d©cor products Focus Pharma Holdings Limited 772,451 885,606 - 1,060,749 3.10% 5.61% Licensor and distributer of generic pharmaceuticals Aust Recruitment Group Limited 1,000,000 - 1,000,000 1,000,000 9.05% 5.29% Recruitment consultants for the pharmaceutical, business intelligence and IT industries Backbarrow Limited 1,000,000 1,000,000 - 1,000,000 16.66% 5.29% Food manufacturing, distribution and brand management Bladon Castle Management Limited 1,000,000 1,000,000 - 1,000,000 16.66% 5.29% Brand management, consumer products and retail Fullfield Limited 1,000,000 1,000,000 - 1,000,000 16.66% 5.29% Food manufacturing, distribution and brand management Rusland Management Limited 1,000,000 1,000,000 - 1,000,000 24.50% 5.29% Brand management, consumer products and retail Torvar Limited 1,000,000 1,000,000 - 1,000,000 24.50% 5.29% Database management, mapping, data mapping and management services to legal and building industries Vanir Consultants Limited 1,000,000 1,000,000 - 1,000,000 16.67% 5.29% Database management, mapping, data mapping and management services to legal and building industries ASL Technology Holdings Limited 848,066 - 848,066 848,066 6.78% 4.49% Printer and photocopier services Westway Services Holdings (2010) Limited 236,096 526,041 - 646,071 3.15% 3.42% Installation, service and maintenance of air conditioning systems Blaze Signs Holdings Limited 610,016 110,681 - 560,223 5.72% 2.96% Manufacturer and installer of signs British International Holdings Limited 295,455 191,887 - 433,545 2.50% 2.29% Helicopter service operator Higher Nature Limited 500,127 682,568 - 429,671 10.34% 2.27% Mail order distributor of vitamins and natural medicines VSI Limited 111,928 382,667 - 369,579 4.21% 1.96% Provider of software for CAD and CAM vendors Youngman Group Limited 500,026 349,983 - 349,983 4.24% 1.85% Manufacturer of ladders and access towers Faversham House Holdings Limited 346,488 - 346,488 346,488 6.26% 1.83% Publlisher, exhibition organiser and operator of websites for the environmental, visual communications and building services sectors Omega Diagnostics Group plc 1 199,998 - 199,998 241,664 1.96% 1.28% In-vitro diagnostics for food intolerance, autoimmune diseases and infectious diseases Vectair Holdings Limited 100,000 170,535 - 181,406 2.14% 0.96% Designer and distributor of washroom products Racoon International Holdings Limited 406,805 59,138 - 174,507 5.70% 0.92% Supplier of hair extensions, hair care products and training The Plastic Surgeon Holdings Limited 458,837 114,709 - 114,709 6.88% 0.61% Snagging and finishing of domestic and commercial properties Duncary 8 Limited (trading as BG Consulting Limited) 126,995 33,725 - 104,769 5.10% 0.56% City-based provider of specialist technical training Box-it Data Management Limited 25,759 - 25,759 25,759 N/A 0.15% Document management and storage Letraset Limited 150,000 - - 19,540 5.00% 0.11% Manufacturer and distributor of graphic art products PXP Holdings Limited 679,549 - - - 4.98% 0.00% Designer, manufacturer and supplier of timber frames for buildings Monsal Holdings Limited 636,013 675,928 1,717 - 6.37% 0.00% Supplier of engineering services to the water and waste sectors Campden Media Limited - 34,024 - - N/A 0.00% Magazine publisher and conference organiser Legion Group plc (formerly Sectorguard plc) 150,102 64,323 - - 0.72% 0.00% Provider of manned guarding, patrolling and alarm response services Stortext FM Limited - 445,866 - N/A 0.00% Provider of document management software and services Total 17,417,501 15,208,418 2,422,028 18,763,268 99.27% Former Elderstreet Private Equity Portfolio Cashfac Limited 260,101 63,125 - 111,054 3.04% 0.59% Provider of virtual banking application software solutions to corporate customers Sparesfinder Limited 250,854 19,197 854 26,568 1.70% 0.14% Supplier of industrial spare parts online Sift Group Limited 130,116 1,226 - 1.03% 0.00% Developer of business-to-business internet communities Total 641,071 83,548 854 137,622 0.73% Investment Managers'
Total 18,058,572 15,291,966 2,422,882 18,900,890 100.00% 1 Quoted on AiM Income Statement
for the year ended 31 January 2011
Year ended 31 January 2011 Year ended 31 January 2010 Notes Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ Unrealised gains on investments - 2,119,702 2,119,702 - 700,336 700,336 Gains on investments realised - 16,077 16,077 - 268,469 268,469 Income 2 636,426 - 636,426 489,753 - 489,753 Recoverable VAT 3 (264) (794) (1,058) 1,051 3,155 4,206 Investment management fees 6 (120,335) (361,003) (481,338) (97,204) (291,610) (388,814) Other expenses (396,019) - (396,019) (360,819) - (360,819) Profit on ordinary activities before taxation 119,808 1,773,982 1,893,790 32,781 680,350 713,131 Taxation on ordinary activities - - - - - - Profit for the year 119,808 1,773,982 1,893,790 32,781 680,350 713,131 Basic and diluted earnings per ordinary share 5 0.57p 8.47p 9.04p 0.16p 3.40p 3.56p
All the items in the above statement derive from continuing operations of the Company
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 return as stated above and at historical cost.
Balance Sheetas at 31 January 2011 as at 31 January 2011 as at 31 January 2010 Notes £ £ £ £ £ £ Fixed assets Investments at fair value 18,900,890 15,291,966 Current assets Debtors and prepayments 1,948,065 139,702 Current investments 3,644,741 5,975,819 Cash at bank 1,061,164 70,404 6,653,970 6,185,925 Creditors: amounts falling due within one year (209,681) (255,349) Net current assets 6,444,289 5,930,576 Net assets 25,345,179 21,222,542 Capital and reserves Called up share capital 224,558 199,576 Share Premium account 3,413,664 - Capital redemption reserve 891,351 885,245 Revaluation reserve 992,420 (1,473,847) Special distributable reserve 15,256,001 16,540,857 Profit and loss account 4,567,185 5,070,711 Equity shareholders' funds 25,345,179 21,222,542 Basic and diluted net asset value per Ordinary Share 4 112.87p 106.34p
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 January 2011
Year ended Year ended 31 January 31 January 2011 2010 £ £ Opening shareholders' funds 21,222,542 21,035,698 Share capital subscribed 3,444,752 - Purchase of own shares (582,286) (124,256) Profit for the year 1,893,790 713,131 Dividends paid in year (633,619) (402,031) Closing shareholders' funds 25,345,179 21,222,542 Cash Flow Statement
for the year ended 31 January 2011
Year ended Year ended 31 January 2011 31 January 2010 Notes £ £ Interest income received 494,974 281,147 Dividend income 144,366 156,673 VAT received and interest thereon 3 10,199 100,239 Other income 2,544 14,901 Investment management fees paid (561,799) (224,334) Cash payments for other expenses (397,775) (334,604) Net cash outflow from operating activities (307,491) (5,978) Investing activities Sale of investments 923,983 1,784,500 Purchase of investments (2,397,128) (8,302,196) Net cash outflow from investing activities (1,473,145) (6,517,696) Dividends Equity dividends paid (633,619) (402,031) Cash outflow before liquid resource management and financing (2,414,255) (6,925,705) Management of liquid resources Decrease in monies held in current investments 2,331,078 7,137,292 Financing Issue of own shares 1,611,231 - Purchase of own shares (537,294) (156,439) Increase in cash for the year 990,760 55,148 Notes to the Acounts 1. Basis of accounting
The accounts have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice, 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ("the SORP") issued by the Association of Investment Trust Companies in January 2009.
2. Income 2011 2010 £ £ Income from bank deposits 2,561 354 Income from investments - from equities 127,836 50,190 - from overseas based OEICs 34,092 96,060 - from loan stock 469,393 327,454 - from VAT recoverable - 6,544 631,321 480,248 Other income 2,544 9,151 Total income 636,426 489,753 Total income comprises Dividends 161,928 146,250 Interest 471,954 334,352 Other income 2,544 9,151 636,426 489,753 Income from investments comprises Listed overseas securities 34,092 96,060 Unlisted UK securities 127,836 50,190 Loan stock interest 469,393 327,454 631,321 473,704
Loan stock interest above is stated after deducting an amount of £nil (2010: £2,601), 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 £214,248 (2010: £208,063). 3. Recoverable VAT Revenue Capital Total Revenue Capital Total 2011 2011 2011 2010 2010 2010 £ £ £ £ £ £ Recoverable VAT (264) (794) (1,058) 1,051 3,155 4,206
As at 31 January 2010, a total of £93,695 of VAT recoverable had been received. Of the excess of £8,236 over the £85,459 recognised in 2009's accounts, £4,206 had been further credited to the 2010 Income Statement, allocated 25% to revenue and 75% to capital return and was in the same proportion as that in which the irrecoverable VAT was originally charged. However, £4,030 was not recognised in 2010 as it was considered likely to be repayable to a previous investment manager or service provider, as it related to VAT charged during a period when an expense cap was applied to their fees. Following further cash received from other former managers of £10,199 in the year ended 31 January 2011, it has been finally determined that £15,287 of the total VAT recovered relates to past years where managers and the then administrator Matrix-Securities Limited bore excess expenses.
This amount of £15,287 payable to investment managers and the administrator is disclosed within other creditors in note 14. This sum exceeds the £10,199 of cash received this year, plus £4,030 of VAT received but not recognised in the year ended 31 January 2010, leaving a shortfall of £1,058, recognised as negative income above in this year's accounts.
The Board do not currently anticipate further VAT income in future years.
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 22,455,802 (2010: 19,957,572) Ordinary Shares, being the number of Ordinary Shares in issue on that date.
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 net asset value per share.
5. Basic and diluted earnings per share 2011 2010 £ £ Total earnings after taxation: 1,893,790 713,131 Basic and diluted earnings per share (note a) 9.04p 3.56p
Net revenue from ordinary activities after taxation 119,808 32,781
Basic and diluted revenue return per share (note b) 0.57p 0.16p
Net unrealised capital gains 2,119,702 700,336 Net realised capital gains 16,077 268,469 VAT recoverable (794) 3,155 Capital expenses (net of taxation) (361,003) (291,610) Total capital return 1,773,982 680,350
Basic and diluted capital return per share (note c) 8.47p 3.40p
Weighted average number of shares in issue in the year 20,946,842 20,032,743 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 profit 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 3 pence per Ordinary Share. The dividend will be recommended to members at the Annual General Meeting and, if approved, will be paid on 24 June 2011 to shareholders on the Register at 6.00 pm on 3 June 2011. This dividend will be eligible for the Dividend Investment Scheme.
8. Post balance sheet events
Following the year end, 2,824,210 shares have been issued in a series of allotments on 28th February, 22nd March, 1st April, 5th April and 10th May as part of the joint fundraising offer, raising £3.25 million for the Company.
On 8 February 2011, IGLU.com Holidays Limited prepaid all of their loan stock to the Company realising £882,408 proceeds including £131,737 premium and £ 6,201 outstanding interest.
On 31 March 2011, Vectair Holdings Limited repaid its entire loan stock to the Company, realising £91,417 proceeds, including a premium of £15,054 and outstanding interest of £1,095.
The Company has committed to invest a further £158,577 as a further follow-on investment in Monsal Holdings Limited.
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 2011 in terms of section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 January 2011 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 Private Equity Partners LLP, 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 11:00 am on Monday, 20 June 2011 at the offices of Matrix Group Limited, One Vine Street, London W1J 0AH.
Contact details for further enquiries:
Robert Brittain at Matrix Private Equity Partners LLP (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.
DISCLAIMER
Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.
MATRIX INCOME & GROWTH 4 VCT PLC