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17 Mar 2010 07:00
Matrix Income & Growth VCT plc
Annual Results Announcement for the year ended 31 December 2009
17 March 2010
Investment Objective
Matrix Income & Growth VCT plc ("the VCT" or "MIG VCT") is a Venture Capital Trust ("VCT") listed on the London Stock Exchange. Its investment portfolio, which invests primarily in established and profitable unquoted companies, is managed by Matrix Private Equity Partners LLP ("MPEP").
The Company's objective is to provide investors with a regular income stream, by way of tax free dividends, and to generate capital growth which, following portfolio realisations, can be distributed by way of additional tax free dividends.
Financial Highlights
Ordinary Shares (listed on 8 October 2004)
Initial net asset value per share 94.5 pence Initial net assets £20,933,124 31 December 2009 31 December 2008 Net assets £16,979,370 £17,998,562 Net asset value per share 83.3 p 86.5 p Net cumulative dividends paid 16.3 p 15.3 p Total return per share to Shareholders 99.6 p 101.8 psince launch 1 Share price (mid-market price) 57.0 p 74.5 p Total expense ratio 3.7% 3.8 %
1 Net asset value per share plus cumulative dividends paid per share. This compares with an original investment cost of 60 pence per share after allowing for income tax relief of 40 pence per share.
An interim dividend of 5.0 pence per share comprising 0.5 pence from income and 4.5 pence from capital was declared by the directors on 16 March 2010 to be paid on 21 April 2010, thereby increasing net cumulative dividends paid since launch to 21.3 pence per share (2008: 16.3 pence).
Chairman's Statement
I am pleased to present the annual results of Matrix Income & Growth VCT plc for the year to 31 December 2009.
Overview
The economic downturn has brought challenging conditions for smaller companies during 2009 and in spite of some small positive signs of recovery we expect these conditions to continue well into 2010. The smaller company sector in which your Company invests is still volatile and will continue to be affected by this difficult trading environment. The Manager, supported by the Board, has therefore adopted a cautious strategy in its approach to new investment, deciding not to invest in over-priced or over-leveraged companies which have all too frequently appeared on the market particularly in the first six months of last year.
Encouragingly, there have been indications in the second half of 2009 of improved deal flow and companies becoming available for sale at more realistic prices. This might in part be due to a general belief that the worst of the global banking industry crisis is now behind us which has restored confidence to some extent. Two of the Company's acquisition vehicles made investments totalling £1.7 million in December 2009 to support the management buy-outs of Country Baskets and Iglu.com respectively. In addition, as reported in the Half-Yearly Report, the Company made a new investment into Westway Cooling in June 2009. Meanwhile the disposal proceeds from the sale of PastaKing and repayment of loan stocks by DiGiCo Europe and Westway resulted in a £1.8 million repayment to the Company. In addition, £252,986 was returned to the Company from the acquisition vehicle Barnfield Management Investments as a result of the investment in Iglu.com. Therefore, the Company's total investment in qualifying companies remained broadly the same for the second year running.
Of particular note was the successful disposal of the Company's investment in PastaKing to NBGI Private Equity for net proceeds of £1,245,096. This realisation contributed to total proceeds of £1,515,651 to the Company over the life of the investment, representing a multiple of 3.27 of the Company's original investment of £464,047.
Although the Company's qualifying portfolio has seen five of the valuations reduced compared to last year in response to worsening trading conditions, the majority of investee companies remain cash-generative. Full details of these companies and the year's transactions are contained in the Investment Manager's Review which follows below.
Your Company continued to meet the level of investment required by the VCT regulations throughout the year under review to retain qualifying tax status for shareholders and our strategy has been to maintain the Company's high cash balances until sensibly priced investment opportunities of the right quality begin to emerge. In the Board's view, this is the correct strategy to build longer term value for Shareholders.
Merger with Matrix Income & Growth 3 VCT plc
The Board announced on 9 February 2010 that agreement in principle had been reached for the merger of the Company with Matrix Income & Growth 3 VCT plc ("MIG3 VCT"). Discussions between the two companies have now concluded and details of the proposals to be put to Shareholders will be circulated shortly. The intention is that the proposed merger will be completed pursuant to a section 110 scheme of reconstruction under the Insolvency Act 1986 by transferring the assets and liabilities of MIG3 VCT to the Company in consideration for new shares in the Company to be issued to MIG3 VCT shareholders on a relative net asset value basis. The proposals will, if effected, result in the creation of an enlarged company with net assets of over £34 million and which is expected to deliver cost savings and strategic benefits. An Extraordinary General Meeting ("EGM") will be held during May at which the Board will seek Shareholder approval to effect the proposals and full details of the EGM will be included in the Shareholder Circular.
Review of results
The net asset value ("NAV") per share at 31 December 2009 is 83.3 pence (2008: 86.5 pence), a fall over the year of 3.2 pence (3.7%). The total NAV return per share, including dividends paid to date, is now 99.6 pence (2008: 101.8 pence), a fall over the year of 2.2 pence (2.2%). This compares with the initial NAV per share, net of initial costs, of 94.5 pence representing a positive total return per share since inception of 5.4% (2008: 7.7%). Whilst it is disappointing to report any reduction in shareholder value, it is encouraging that the decline has been modest in the context of prevailing economic conditions.
Far less encouraging has been the significant drop in income received by the Company. Income from the Company's loan stock investments was running at an aggregate annualised rate of 5.1% at 31 December 2009 (2008: 5.8%). The annual running yield on the qualifying investment portfolio as a whole was 3.1% (2008: 3.6%), while the yield on all assets was 2.5% (2008: 3.4%). Revenue is still suffering from a general decline in interest rates and those assets linked to variable interest rates such as the Company's holdings in OEIC money-market funds are continuing to yield considerably lower levels of income. In addition, certain of the investee companies are not currently fully servicing the loans that the Company has made to them. Together, these factors have and may continue to reduce income dividends for the foreseeable future. For further details explaining the fall in income, please see Note 2 to the accounts below.
Dividends
Although the revenue account generated a much reduced net return (after tax) for the year of £8,797 (2008: £433,944), the successful realisation of the investment in PastaKing generated a net profit of £1,051,604. Largely as a result of this gain your Directors are pleased to declare a total dividend in respect of 2009 of 5.0 pence per share (2008: 4.3 pence) comprising an interim income dividend of 0.5 pence per share and an interim capital dividend of 4.5 pence per share. The Board do not propose to recommend a final dividend in respect of the year just ended.
The interim income and capital dividend will be paid on 21 April 2010 to Shareholders on the Register on 26 March 2010. Dividends paid since inception will increase to 21.3 pence per share.
Investment in qualifying holdings
The Company has continued to meet the target set by HM Revenue & Customs of investing 70% of total funds raised in qualifying unquoted and AiM quoted companies ("the 70% test"). At 31 December 2009, the Company was 73% invested in qualifying companies (based upon the tax values, which differ from the Investment Portfolio Summary below).
Share buy-backs
The Company bought back 425,411 Ordinary Shares during the year under review at an average price of 58.1 pence per share. These shares, representing 2.1% of the issued share capital at the beginning of the year, were subsequently cancelled by the Company. Purchases were made at discounts to the latest published NAVs per share ranging between 30% and 32% compared with with a range of 12% to 18% during 2008. This sharp increase in the discount at which the Company was prepared to buy-back shares reflected the uncertain economic, financial and market conditions prevailing at the time and very largely explains the decline in the Company's share price from 74.5 pence per share to 57.0 pence per share during the period under review. On a more positive note, these share purchases enhanced the Company's NAV by around 0.5 pence per share during the year to the benefit of continuing Shareholders
The Board regularly reviews its share buy back policy, considering a number of factors, including the Company's liquidity, and seeks to balance the interests of both continuing and departing shareholders.
The Board
Christopher Moore has been approached to assume a position which, under the provisions of the AIC Code and the revised Listing Rules shortly to come into effect for VCTs, will mean that he will be required to stand down as a Director of your Company. Christopher has made an outstanding contribution to the development of the Company since its launch in 2004 both as a member of the Board but particularly as Chairman of its Investment Committee. His knowledge of the private equity market and his forthright and perceptive views will be greatly missed. We thank him and wish him all the very best for the future.
Articles of Association
At the Annual General Meeting it is proposed to adopt new Articles of Association. The amendments to the existing articles reflect the changes in company law introduced by those elements of the Companies Act 2006 which came into force on 1 October 2009.
Communication with shareholders
We aim to communicate regularly with our Shareholders. In addition to the half-yearly and annual reports, an Investment Manager's Newsletter, approved by the Board, is circulated twice-yearly. The May AGM will provide a useful platform for the Board to meet Shareholders and exchange views. Your Board welcomes your attendance at General Meetings to give you the opportunity to meet your Directors and representatives of the Investment Manager.
Outlook
There are many conflicting opinions as to the state of the economy and prospects for recovery both worldwide and in the UK although official statistics are starting to indicate that we may be coming out of recession. We have seen some signs of improved deal flow in the latter half of 2009 but it is difficult to predict how permanent this trend will be and we do not believe that the real economy is yet out of the woods. The effects of the downturn will continue to impact the investments held by your Company over the coming year. In the foreseeable future, the Company's ability to pay income dividends may be adversely affected by the inability of certain investee companies to service the Company's loans to them and the lower interest rate environment. Capital dividends will continue to reflect the level of profitable exit opportunities available in the market.
Overall, we consider that, the Company has performed relatively well in these conditions and could have fared considerably less well if it was not for its diversified portfolio of investee companies and the strong cash position that we continue to maintain through this period of economic uncertainty. This will ensure that the Company is able support existing investments, if necessary, and take advantage of attractive new investment opportunities as they present themselves. The Board, therefore, remains confident that the Company will provide long term investors with an attractive combination of capital growth and income.
Finally, I would like to express my thanks to all Shareholders for their continuing support of the Company.
Keith Niven
Chairman
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 Practiceand 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 loss of the Company.
(b) the management report, comprising the Chairman's Statement, Investment
Portfolio Summary, Investment Manager's Review and Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.On behalf of the BoardKeith NivenChairman
Principal risks, management and regulatory environment
The Board believes that the principal risks faced by the VCT are:
* Economic risk - events such as an economic recession and movement in
interest rates could affect trading conditions for smaller companies and
consequently the value of the VCT's qualifying investments.
* Loss of approval as a Venture Capital Trust - the VCT must comply with
Section 274 of the Income Tax Act 2007 which allows it to be exempted from
capital gains tax on investment gains. Any breach of these rules may lead
to the VCT losing its approval as a 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 VCT
becoming subject to tax. The VCT would also lose its exemption from
corporation tax on capital gains.
* Investment and strategic risk - inappropriate strategy or consistently weak
VCT qualifying investment recommendations might lead to under performance
and poor returns to shareholders.
* Regulatory risk - the VCT is required to comply with the Companies Acts,
the rules of the UK Listing Authority and United Kingdom Accounting
Standards. Breach of any of these might lead to suspension of the VCT's
Stock Exchange listing, financial penalties or a qualified audit report.
* Financial and operating risk- inadequate controls might lead to
misappropriation of assets. Inappropriate accounting policies might lead to
misreporting or beaches 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 VCT'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.
* Credit/counterparty risk
A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company.
The Board seeks to mitigate the internal risks by setting policy and 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 the mitigation and 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 to try to mitigate the Market Liquidity risk. This policy is reviewed at each quarterly Board Meeting.
Investment Policy
The VCT'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 own. Investments are primarily made in companies that are established and profitable.
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.
* VCT regulation
The investment policy is designed to ensure that the VCT continues to qualify and is approved as a VCT by HMRC. Amongst other conditions, the VCT 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 period in shares or securities comprised in Qualifying Holdings, of which a minimum overall of 30% by value must be ordinary shares which carry no preferential rights. In addition, although the VCT 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 Qualifying Company in ordinary shares which carry no preferential rights.
* Asset Mix
The VCT holds funds awaiting investment in a portfolio of readily realisable interest-bearing investments and deposits. The investment portfolio of qualifying investments will be maintained at approximately 80% of net assets.
* Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses across different industry sectors. To reduce the risk of high exposure to equities, each qualifying investment is structured using a significant proportion of loan stock (up to 70% of the total investment in each VCT qualifying company.) Initial investments in VCT qualifying companies are generally made in amounts ranging from £200,000 to £1 million at cost. No holding in any one company will represent more than 10% of the value of the VCT's investments 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 VCT aims to invest in larger more mature unquoted companies through investing alongside four other Income and Growth VCTs advised by the Investment Manager with a similar investment policy. This enables the VCT to participate in combined investments by the Investment Manager of up to £5 million.
* Borrowing
The VCT has no 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 Directors. Matrix Securities provides Company Secretarial and Accountancy services to the VCT.
Investment Manager's Review
The continued economic deterioration in the UK and worldwide has made this a challenging year for the Company and specifically for new investment. In the first six months of the year, a large proportion of the new deals we looked at seemed unattractive and we have frequently taken the view that vendors' price expectations would prove unsustainable over the medium term.
Whilst there have been some encouraging signs that the rate of new deal activity was starting to increase towards the end of 2009 it is still too early to say whether this will be sustained. Some sellers have lowered their price expectations in order to stimulate interest from buyers but it is premature to see this as a clear trend. We therefore continue to be cautious and selective in our consideration of potential new deals. We think this caution has been a significant factor in maintaining value in the portfolio through a very volatile period.
The predominance in the investment portfolio of management buy-out investments reflects our strategy of seeking to capitalise companies properly at the time of investment so that they are well positioned to contend with adverse market conditions. Since commencing the investment programme five years ago, just one investee company representing 1% of the portfolio value at cost has ceased trading and the investment failed. Furthermore, it is notable that further funding has been provided by the VCT to only two investments, Monsal and British International, both of which have received very modest additional funding during the year totalling £250,251 and each of these companies appears to be financially sound and is showing profits at the operating level.
Given recent general comment on the tightening of bank lending, we do not consider that the portfolio is exposed to unsustainable levels of third party debt. We have generally not invested during this period of economic uncertainty since the end of 2007 in companies which have required high levels of bank borrowing, believing that the economy was still deteriorating and that this would make over-leveraged companies much too vulnerable in a tougher environment.
We have been working actively with the management teams of investee companies encouraging them to take cost cutting measures and looking with them at planning, forecasting and cost systems, where appropriate, to ensure that they are as resilient as possible in the current market. The majority of investee companies have managed their cashflow well and remain cash-generative.
The portfolio
As at 31 December 2009, the portfolio comprised eighteen (2008: eighteen) investments with a cost of £14.1 (2008: 14.7) million and valued at £11.8 (2008: 13.6) million representing 83.7% (2008: 92.5%) of cost. Three of these investments are currently held at cost, ten are valued at below cost and five above cost. Realisations during the year generated cash proceeds of £1.75 million.
As reported in the Half-Yearly Report, MIG VCT made a new investment in June 2009 of £317,583 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.
Two further new investments were made in December 2009. The first of these was an investment of £1 million, using the acquisition vehicle Calisamo Management (now re-named CB Imports Group), to support the management buy-out 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, the UK's largest online specialist ski holiday operator and fastest growing cruise holiday travel agent. MIG VCT invested £747,014 comprising loan stock of £633,224 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. The investment was made through the acquisition vehicle Barnfield Management Investments.
As evidence that high quality investments remain in demand, MIG VCT successfully sold its investment in PastaKing, to NBGI Private Equity in November 2009 for net proceeds of £1,245,096. This realisation contributed to total proceeds of £1,515,651 to the Company over the life of the investment, representing a 3.27x return on the Company's original investment of £464,047. PastaKing has benefited from healthy eating trends since investment in 2006 and at the time of the sale had grown to a staff of 71 and an annual turnover of £ 12 million.
Some of the companies in the portfolio continue to be strongly cash generative and amongst these Westway repaid £38,922 of loan stock considerably earlier than expected in October 2009; and DiGiCo Europe repaid a total of £434,782 in two instalments in May and December of 2009 plus a premium of £32,378.
The Company's acquisition vehicles that we have established in conjunction with our Operating Partners have been active during 2009, with Barnfield Management Investments and Calisamo Management making new investments into Iglu.com and Country Baskets respectively. Aust Construction Investors has commenced trading, providing management consultancy services whilst continuing to seek suitable investment opportunities.
The qualifying investment portfolio has not been immune to the wider deteriorating trading environment and fair values have fallen in those investments where the investee company's trading has been affected. A number of valuations have been reduced as a result of lower levels of profitability of portfolio companies. However, other investments have continued to trade well. We are hopeful that value will start to return to some of the investments in the portfolio during 2010 as trading conditions start to improve.
The Company's investments in PXP, Youngman Group and Plastic Surgeon each have exposure to the house building and construction markets and all have continued to suffer from the decline of this sector over the last two years. These companies have seen business volumes shrink significantly and reduced demand from major customers has impacted revenue. Youngman, having substantially de-geared since investment, is well positioned to benefit from an upturn in its markets. Plastic Surgeon has made strong progress in reducing its dependence on the new housing market and has diversified into the commercial property and insurance claim markets. It has also substantially reduced its direct and indirect cost base. PXP has responded similarly, moving away from its dependence on private sector house building towards public sector funded housing associations. It is still too early to assess when we are likely to see signs of recovery in these areas.
Blaze Signs, which has suffered the largest write-down in the portfolio, has also continued to experience a fall in activity arising from much reduced levels of new signage rollouts from its major customers. Again it has responded by reducing its cost base.
A number of companies in the portfolio are trading strongly and expanding their businesses. DiGiCo Europe has continued to roll out new products following the successful launch of its new digital audio mixing desk last year and this has led to sustained profit growth since investment. 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.
SectorGuard acquired Legion Group in March 2009 following the acquisition of Manguard in 2008 and subsequently changed its name to Legion Group plc.
Whilst the fall in valuations over the year is disappointing, the reduction in profitability of portfolio companies has made some decreases inevitable. It is important to recognise that all of the reduction in the year has been in unrealised valuations as opposed to any actual realisations below cost. The realised loss shown in the Income Statement in the accounts reflects the fall in the valuation of PastaKing from its valuation last year before its disposal, which as reported earlier was a successful investment overall. 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.
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. Having retained significant uninvested cash, 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 December 2009 Date of Total book Valuation % value of % of initial cost net assets equity investment held by funds managed by MPEP* £'000 £'000 Qualifying investments AIM quoted investments Legion Group plc (formerly Aug-05 150 75 0.4% 2.9%SectorGuard plc) Provider of manned guarding, mobile patrolling, and alarm response services ---------- ----------- ---------- Total AIM quoted investments 150 75 0.4% Unquoted investments DiGiCo Europe Limited Jul-07 565 1,582 9.3% 30.0% Manufacturer of digital sound mixing consoles VSI Limited Apr-06 390 1,305 7.7% 48.9% Provider of software for CAD and CAM vendors British International May-06 1,182 1,015 6.0% 34.9%Holdings Limited Helicopter service operator
Aust Construction Investors Oct-07 1,000 1,000 5.9% 49.0% Limited
Company seeking to acquire businesses in the construction sector
CB Imports Group Limited Dec-07 1,000 1,000 5.9% 24.0% (formerly Calisamo
Management Limited) Importer and distributor of artificial flowers and floral sundries. Vectair Holdings Limited Jan-06 560 964 5.7% 24.0% Designer and distributor of washroom products
ATG Media Holdings Limited Oct-08 860 788 4.6% 40.0%
Publisher and on-line platform operator Iglu.com Holidays Limited Oct-07 747 747 4.4% 35.0%(formerly Barnfield Management Investments Limited) On-line ski and cruise travel agent Focus Pharma Holdings Oct-07 657 725 4.3% 13.0%Limited Licensor and distributer of generic pharmaceuticals Youngman Group Limited Oct-05 1,000 701 4.1% 29.7% Manufacturer of ladders and access towers Monsal Holdings Limited Dec-07 684 665 3.9% 46.5% Supplier of engineering services to water and waste sectors MC440 Limited (Westway Jun-09 279 466 2.7% 13.0%Cooling) Designer and distributor of air conditioning units.
Blaze Signs Holdings Limited Apr-06 1,574 337 2.0% 52.5%
Manufacturer and installer of signs Campden Media Limited Jan-06 975 182 1.1% 28.0% Magazine publisher and conference organiser Racoon International Dec-06 874 130 0.8% 49.0%Holdings Limited Supplier of hair extensions, hair care products and training The Plastic Surgeon Holdings Apr-08 390 98 0.6% 30.0%Limited Supplier of snagging and finishing services to the domestic and commercial property markets PXP Holdings Limited Dec-06 1,164 - 0.0% 37.3%(Pinewood Structures) Designer, manufacturer and ---------- ----------- ---------- supplier of timber-frames for buildings Total unquoted investments 13,901 11,705 69.0% ---------- ------------ ---------- Total qualifying investments 14,051 11,780 69.4% ---------- ------------ ---------- Non-qualifying investments Global Treasury Funds plc 1,863 1,863 11.0% (Royal Bank of Scotland)** Fidelity Institutional Cash 1,251 1,251 7.4% Fund plc** SWIP Global Liquidity Fund 568 568 3.3% plc (Scottish Widows)** Institutional Cash Series 517 517 3.0% plc (BlackRock)** GS Funds plc (Goldman Sachs) 425 425 2.5% ** Insight Liquidity Funds plc 415 415 2.4% (HBOS)** Blackrock Sterling Liquidity 138 138 0.8% first institutional share class (formerly BGI)** -------- ------------ ---------- Total non-qualifying 5,177 5,177 30.4% investments -------- ------------ ---------- -------- ------------ ---------- Total investments 19,228 16,957 99.8% -------- ------------ ---------- Other assets 140 0.8% Current liabilities (118) (0.6)% ------------ ---------- Net assets 16,979 100.0% ------------ --------- * The other funds managed by MPEP include Matrix Income & Growth 2 VCT plc, Matrix Income & Growth 3 VCT plc, Matrix Income & Growth 4 VCT plc and The Income & Growth VCT plc.
** Disclosed as Investments at fair value within Current assets in the Balance Sheet.
Income Statement
for the year ended 31 December 2009
Year ended 31 December 2009 Year ended 31 December 2008 Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ Realised - (177,845) (177,845) - 86,979 86,979(losses)/gains on investments Unrealised - (161,173) (161,173) - (4,848,208) (4,848,208)losses on investments - Income 399,661 - 399,661 973,787 179,725 1,153,512 Recoverable VAT 1,939 5,818 7,757 35,893 107,680 143,573 Investment (79,923) (239,769) (319,692) (88,810) (266,428) (355,238)manager's fees Other expenses (312,239) - (312,239) (336,510) - (336,510) ------------ ------------ ------------ Profit/(loss) on 9,438 (572,969) (563,531) 584,360 (4,740,252) (4,155,892)ordinary activities before taxation Tax on ordinary (641) - (641) (150,416) 42,319 (108,097)activities ------------ ------------ ------------ Profit/(loss) 8,797 (572,969) (564,172) 433,944 (4,697,933) (4,263,989)for the year ------------ ------------ ------------ Basic and 0.04p (2.77)p (2.73)p 2.02p (21.91) p (19.89) pdiluted earnings per ordinary share All the items in the above statement derive from continuing operations. Therewere no other recognised ains or losses in the year. The total column is theprofit and loss account of the Company. Other than revaluation movementsarising on investments held at fair value through the profit and loss account,there were no differences between the return as stated above and at historicalcost.Balance Sheetas at 31 December 2009 31 December 2009 31 December 2008 £ £ Fixed assets Investments at fair value 11,779,583 13,556,878 Current assets Debtors and prepayments 94,327 372,816 Current investments 5,177,570 4,375,724 Cash at bank 46,253 71,812 ------------------------ ------------------------ 5,318,150 4,820,352 Creditors: amounts falling due (118,363) (378,668)within one year ------------------------ ------------------------ Net current assets 5,199,787 4,441,684 ------------------------ ------------------------ Net assets 16,979,370 17,998,562 ------------------------ ------------------------ Capital and reserves Called up share capital 203,735 207,989 Capital redemption reserve 17,703 13,449 Revaluation reserve (2,271,608) (1,117,216) Special distributable reserve 17,907,374 18,388,358 Profit and loss account 1,122,166 505,982 ------------------------ ------------------------ Equity shareholders' funds 16,979,370 17,998,562 ------------------------ ------------------------ Net asset value per ordinary 83.34p 86.54pshare
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 December 2009
Year ended 31 December Year ended31 December 200 2009 8 £ £ As at 1 January 2008 17,998,562 25,727,915 Purchase of own shares (247,033) (1,056,868) Loss for the year (564,172) (4,263,989) Dividends paid in year (207,987) (2,408,496) ------------------------ ------------------------ Closing shareholders' 16,979,370 17,998,562funds Cash Flow Statement
for the year ended 31 December 2009
Year ended Year ended 31 December 2009 31 December 2008 £ £ £ £ Operating activities Investment income received 398,184 1,226,543 VAT received and interest 223,249 - thereon Investment management fees (239,743) (498,733) paid Other cash payments (357,430) (345,255) -------------- -------------- -------------- -------------- Net cash inflow from 24,260 382,555operating activities Investing activities Acquisitions of investments (567,834) (1,554,680) Disposals of investments 1,996,610 1,234,678 -------------- -------------- -------------- -------------- Net cash inflow/(outflow)from 1,428,776 (320,002)investing activities Taxation Taxation paid (106,857) (63,695) Equity dividends Payment of dividends (207,987) (2,408,496) -------------- -------------- Cash inflow/(outflow)before 1,138,192 (2,409,638)liquid resource managementand financing Management of liquid resources (Decrease)/increase in (801,846) 3,371,884current investments Financing Purchase of own shares (361,905) (941,996) -------------- -------------- (Decrease)/increase in cash (25,559) 20,250for the year --------------Notes1. Basis of accountingThis announcement of the annual results of the Company for the year ended 31December 2009 has been prepared using accounting policies consistent with thoseadopted in the full audited annual accounts which have been prepared under UKGenerally Accepted Accounting Practice (UK GAAP) and the Statement ofRecommended Practice, `Financial Statements of Investment Trust Companies and Venture Capital Trusts' ("SORP") issued by the Association of InvestmentCompanies in January 2009.2. Income 2009 2008 £ £ Income from bank deposits 919 5,317 ------------------ ------------------ Income from investments - from equities 26,345 209,009 - from overseas based OEICs 37,254 331,739 - from loan stock 315,598 607,447 - from VAT recoverable 15,492 - ------------------ ------------------ 394,689 1,148,195 Other income 4,053 - ------------------ ------------------ Total income 399,661 1,153,512 ------------------ ------------------ Total income comprises Dividends 63,599 540,748 Interest 332,009 612,764 Other income 4,053 - 399,661 1,153,512 Income from investments comprises Listed overseas securities 37,254 331,739 Unlisted UK securities 26,345 209,009 Loan stock interest 315,598 607,447 ------------------ ------------------ 379,197 1,148,195 ------------------ ------------------
Loan stock interest above is stated after deducting an amount of £nil (2008: £ 14,320), 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 £451,904 (2008: £223,603). This increase was the main cause of the fall in loan stock interest from last year. Dividends from equities have fallen from last year's level, which contained several capital dividends that were not repeated this year. The fall in income from overseas based OEICs, being the money-market funds, reflected the fall in interest rates to exceptionally low levels.
3. Recoverable VAT Revenue Capital Total Revenue Capital Total 2009 2009 2009 2008 2008 2008 £ £ £ £ £ £ VAT recoverable 1,939 5,818 7,757 35,893 107,680 143,573
As at 31 December 2008 the Directors considered it reasonably certain that the Company would obtain a repayment of VAT of not less than £200,000. Last year's accounts recognised this amount as income of £143,573 above, and £56,427 deducted from last year's investment manager's fees. 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 £207,757 of VAT recoverable has been received. The excess of £7,757 over the £200,000 recognised in 2008's accounts has been 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.
The £207,757 of income recognised in both the 2008 and current year accounts, together with related interest of £15,492 shown in note 2 above, equals the sum of £223,249 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 20,373,514 (2008: 20,798,925) Ordinary Shares, being the number of Ordinary Shares in issue on that date.
5. Return per Ordinary Share 2009 2008 £ £ Total earnings after taxation: ( 564,172) ( 4,263,989) Basic and diluted earnings per share (note a) (2.73)p (19.89)p Revenue profit from ordinary activities after 8,797 433,944taxation Basic and diluted revenue earnings per share 0.04p 2.02p(note b) Net realised capital (losses)/gains on ( 177,845) 86,979investments
Net unrealised capital losses on investments ( 161,173) ( 4,848,208)
Recoverable VAT 5,818 107,680 Dividends received treated as capital - 179,725 Capital management fees less taxation ( 239,769) ( 224,109) ------------------ ------------------ Total capital earnings ( 572,969) ( 4,697,933) Basic and diluted capital earnings per share (2.77)p (21.91)p(note c)
Weighted average number of shares in issue in 20,648,175 21,443,415 the year
Notes
a) Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue.
b) Revenue earnings per share is the revenue profit after taxation divided by the weighted average number of shares in issue.
c) Capital earnings per share is the total capital loss after taxation divided by the weighted average number of shares in issue.
d) 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 earnings per share.
6. Investment Manager's Fees
In accordance with the policy statement published under "Management, Expenses and Administration" in the Company's Prospectus dated 9 July 2004, the Directors have charged 75% of the investment management expenses to the realised capital reserve.
7. Dividends paid and payable
The directors have declared an interim dividend in respect of the year ended 31 December 2009 of 5.0 pence per share comprising 4.5 pence from capital and 0.5 pence from income. The dividend will be paid on 21 April 2010 to shareholders on the Register on 26 March 2010.
8. Related party transactions
Bridget Gu©rin was until 22 December 2009 a director and remains a shareholder (2.0%) of Matrix Group Limited, which owns 100% of the equity of MPE Partners Limited. MPE Partners Limited has a 50% interest in Matrix Private Equity Partners LLP ("MPEP"), the Company's Investment Manager. £nil (2008: £12,481) was payable to the Investment Manager at the year-end, while £26,293 (2008: £ 99,550) is recoverable from the Investment Manager in respect of the expense cap for the year. Bridget Gu©rin was also until 22 December 2009 a director of Matrix-Securities Limited, a wholly-owned subsidiary of Matrix Group Limited, who provided Company Secretarial and Accountancy Services to the Company under agreements dated 9 July 2004. The agreements with MPEP and with Matrix-Securities Limited became effective from 5 October 2004. £21,861 was due to Matrix-Securities Limited at the end of the year (2008: £21,119).
Matrix Group Limited also holds a significant interest in Matrix Corporate Capital LLP ("MCC"). Four share buybacks were undertaken by MCC on the Company's instruction, costing £247,033. Fees of £9,161 were paid to MCC during the year.
9. Post balance sheet events
The Directors announced on 9 February 2009 that the Board had reached agreement in principle with the board of Matrix Income & Growth 3 VCT plc ("MIG3 VCT") to merge the two Companies, subject to approval by Shareholders. The intention is that the proposed merger will be completed pursuant to a section 110 scheme of reconstruction under the Insolvency Act 1986 by transferring the assets and liabilities of MIG3 VCT to the Company in consideration for new shares in the Company to be issued to MIG3 VCT shareholders on a relative net asset value basis. The Company estimates that it will share merger costs, estimated to total approximately £250,000, with MIG3 VCT.
The Directors are in the process of finalising formal proposals for the merger which should be circulated to Shareholders shortly.
10. Financial Information
The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 31 December 2009 in terms of section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 December 2009 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.
11.Annual Report
The Annual Report for the year ended 31 December 2009 will shortly be made available on the Company's website: www.migvct.co.uk. and Shareholders will be notified of this by email or post or sent a hard copy in the post in accordance with their instructions. Copies will be available thereafter to members of the public from the Company's registered office.
12.Annual General Meeting
The Annual General Meeting will be held at 11.00 am on Wednesday, 12 May 2009 at the offices of Matrix Group Limited, One Vine Street, London W1J 0AH.
Contact details for further enquiries:
Sarah Penfold of Matrix-Securities Limited (the Company Secretary) on 020 3206 7000 or by e-mail to mig@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 to info@matrixpep.co.uk.
MATRIX INCOME & GROWTH VCT PLC