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23 Mar 2012 07:00
Matrix Income & Growth VCT plc
Annual Results Announcement for the year ended 31 December 2011
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 generated from income and capital returns.
Financial Highlights
Merger with Matrix Income & Growth 3 VCT plc ("MIG 3 VCT")
The Company acquired the net assets and liabilities of MIG 3 VCT on 20 May 2010. At that date, the net assets of the merged VCT were £34.1 million, which have increased to £40.7 million at 31 December 2011.
Following the Merger, MIG 3 VCT shareholders were issued with approximately
1.0655 MIG VCT ordinary shares for each former MIG 3 VCT share. By way of illustration, a shareholder who previously held 10,000 MIG 3 VCT shares now holds 10,655 shares in the Company.
Performance Summary
The net asset value (NAV) per share of the Company at 31 December 2011 was 95.6 pence
To help Shareholders understand the recent past performance of their investment comparative data is shown below. Total return (NAV basis) comprises NAV per
share plus cumulative dividends paid per share:-
MIG VCT fundraising Net NAV Net Total return Share Total assets per cumulative (NAV basis) price 2 expense Share dividends per ratio paid per share to share shareholders since launch (£m) (p) (p) (p) (p)
MIG VCT (2004/05) As at 31 December 2011 1 40.7 95.6 26.8 122.4 78.8 3.0%
As at 31 December 2010 1 38.5 96.7 21.3 118.0 84.0 3.3% 4
As at 31 December 2009 17.0 83.3 16.3 99.6 57.0 3.7% MIG 3 VCT (2005/06)As at 31 December 2011 1 - 101.9 15.4 117.3 - 3 -As at 31 December 2010 1 - 103.0 9.5 112.5 - 3 -As at 31 December 2009 17.5 90.0 5.5 95.5 63.0
3.6%
1 The data at 31 December 2011 shows the return on an initial subscription price at the date
of inception of each fundraising taken from the next table divided by £10,000. The
data at 31 December 2010 has been calculated on a similar basis.
2 Source: London Stock Exchange.
3 Former MIG 3 VCT shareholders now hold approx 1.0655 shares in MIG VCT for every one
MIG 3 VCT share previously held. Shareholders should refer to the share price
for MIG VCT in the lines above
4 The TER at 31 December 2010 includes running costs in respect of MIG 3 VCT for
the period up to 19 May 2010. Therefore, the reduced figure of 3.0% in 2011 shows the
beneficial impact of the Merger. Excluding these running costs as part of the calculation
would give an adjusted TER of 2.7%.
Return before and after income tax relief
The tables below show the total returns (NAV basis) at 31 December 2011 for MIG VCT Shareholders who invested £10,000 in each fundraising.
MIG VCT fundraising Linked MIG MIG 3 VCT VCT VCT Offer 1 2004/05 2005/06 2010/11Original investment £10,000 (£) 10,000 10,000 10,000Issue price (p) 100.0 100.0 100.4 2Number of shares held post merger/Linked VCT Offer 10,000 10,655 9,957Rate of income tax relief % 40% 40% 30%Cost net of income tax relief (£) 6,000 6,000 7,000NAV at 31 December 2011 (£) 9,559 10,185 9,518Dividends paid to shareholders since subscription (£) 2,680 1,541 548 3Total return (NAV basis) to shareholders since subscription (£) 12,239 11,726 10,066Profit before income tax relief (£) 2,239
1,726 66
Profit after income tax relief 4 (£) 6,239
5,726 3,066
1 This column shows the data for the MIG VCT shares only, received under the Linked
VCT Offer 2 Average issue price
3 All shareholders who invested in the Linked VCT Offer, except those who received
their shares in the last allotment on 6 July 2011, received the dividend of 5 pence per share paid
on 27 May 2011.
4 Total return (NAV basis) minus cost net of income tax relief.
Liquidity and discount management
The Company holds approximately £13.2 million in readily realisable assets that are available for further investments, dividends and share buybacks. The discount for the Company's shares at 31 December 2011 was 10.3% based on the NAV per share at 30 September 2011 of 87.87 pence, which was the latest published figure at that time.
Dividend history Dividends paid in each year since launchIn respect of year ended Payment date MIG VCT MIG 3 Linked VCT VCT 1 Offer 2 (p) per share (p) per (p) per share share
31 December 2011 (interim) 15 September 2011 0.50 0.53
0.5031 December 2010 27 May 2011 5.00 5.33 5.0031 December 2009 (interim) 21 April 2010 5.00 4.00 -31 December 2008 15 May 2009 1.00 0.80 -
31 December 2008 (interim) 11 September 2008 3.30 1.00 -31 December 2007 21 May 2008 7.80 1.50 -31 December 2007 (interim) 20 September 2007 1.00 1.00 -31 December 2006 18 May 2007 1.40 1.25 -31 December 2006 (interim) 14 September 2006 0.80 - -31 December 2005 16 May 2006 0.70 - -31 December 2005 (interim) 27 September 2005 0.30 -
- Cumulative dividends paid 26.80 15.41 5.50
1 The dividends paid since the Merger on 20 May 2010 to former MIG 3 VCT
shareholders have been adjusted by the Merger conversion ratio of 1.0655.
2 From MIG VCT shares only.
Dividends paid include distributions from both income and capital.
Dividends proposed
A final dividend of 6.25 pence per share, comprising 5.00 pencefrom capital and 1.25 pence from income, will be recommended to Shareholdersat the Annual General Meeting of the Company to be held on 10 May 2012 to bepaid on 22 May 2012 to Shareholders on the Register on 11 May 2012.
Chairman's Statement
I am pleased to present the annual results of Matrix Income & Growth VCT plc for the year to 31 December 2011.
Overview
The year under review was dominated by continuing uncertainty about and fragility in the UK economy. A number of factors contributed to this including the sovereign debt crisis in the Eurozone and continued downward pressure on public sector expenditure and a rise in inflation in the UK.
Against this backdrop, the quoted UK equity market as representedby the FTSE All-Share Index was very volatile and ended the year down 3.5% ona total return basis. Bearing in mind that many of the portfolio companies arevalued by reference to the performance of companies trading in similar sectorswithin the FTSE All-Share Index, it is encouraging to note that the Company'sNAV total return rose by 3.7%.
Performance
The total return (NAV basis) per share, including dividends paid to date, is now 122.4 pence (2010: 118.0 pence), an increase over the year of 3.7% (2010: 18.5%). This compares with the initial NAV per share, net of initial costs, of 94.5 pence representing a positive total return (NAV basis) per share since inception of 29.5% (2010: 24.9%).
Taking into account initial tax relief, investors have seen an overall gain oninvestment cost of 104.0% since the launch of the Company on a net investmentcost of 60 pence per share.
Former MIG 3 VCT Shareholders may refer to the tables included in the Financial Highlights above for information on the performance of their original investment including dividend payments.
New investment and portfolio review
The upturn in dealflow in the second half of 2010 continued into 2011. Three new investments were completed during the year under review to support the management buyouts ("MBOs") of Motorclean Group Limited, Equip Outdoor Technologies Limited and EMaC Limited. The Company's existing investments in the acquisition vehicles Fullfield and Vanir were used in respect of the Motorclean and EMaC investments.
Further investments were made into ASL to support the acquisitionof the assets of a similar company, Transcribe Copier Systems Limited and intoMonsal as part of a £1.75 million facility to support the turnaround of thatcompany.
Three loan stocks held by the Company totalling £2.5 million in value were fully repaid during the year (including any premiums due). Repayments were received from Iglu.com Holidays, Vectair and MachineWorks.
In January 2011, the VCT realised its entire investment in Campden Media for a cash consideration of £836,294, representing 85.8% of the total investment cost of £975,000. Taking into account interest received, the overall gain on this investment was a disappointing 4.2%.
In December 2011, the VCT made a partial disposal of its investmentin DiGiCo to ISIS Equity Partners. The VCT has received total cash proceeds of£5.9 million over the life of this investment representing a three times cashreturn to date. In addition, the VCT continues to hold a residual loan stockand small equity investment in this company, valued in total at £2.6 million.A number of the investee companies continued to trade well, notablyDiGiCo, ATG Media and Iglu.com Holidays. Other companies were stillendeavouring to recover from the effects of the 2008/09 recession. PlasticSurgeon returned a modest profit after a period of weak trading and Youngmanfully repaid its bank debt and so is well-positioned to benefit from anyupturn in its markets. Blaze Signs reported improved results demonstrating asound recovery during the year. PXP, however, continues to be valued at nilalthough a further small investment into this company has been approved.
Further details of these investments and the year's other transactions can be found in the Investment Manager's Review below.
Review of Results
The Company returned a profit for the year of £1,663,621 (2010:£6,321,656), comprised of a revenue profit of £963,571 (2010: £313,297) and acapital profit of £700,050 (2010: £6,008,359). Last year's capital profitreflected a large increase of £6,527,412 in the valuation of the portfolio,which was not repeated this year. However, net income more than trebled from£313,297 to £963,571, mainly due to a rise in gross income from £934,890 to£1,681,991.Although this increase in gross income was flattered to the extentof £141,427 by the first time inclusion of a full year's income attributableto Matrix Income & Growth 3 VCT plc, like-for-like income rose strongly due tohigher loan stock interest and dividends being received from investeecompanies. Interest from new loan stock investments outweighed the interestforegone on loan stock redemptions while several investee companies resumedservicing their current loan interest. These factors caused loan stockinterest to rise from £700,647 to £1,184,015. Dividends from investeecompanies more than doubled from £194,226 to £425,919. DiGiCo's dividendnearly doubled and there were also sizeable dividends from ATG Media andLightworks.
On the negative side, revenue from the Company's cash balances remained at low levels due to the extremely low interest rate environment. This also affected loan stocks where the interest is linked to variable interest rates. In addition some investee companies were still not servicing their loans.
Meanwhile expenses were lower in 2011 compared with 2010, principally as this year contained no merger costs which were £69,089 last year and because some costs previously treated as administration costs are now part of investment management fees, which are partly charged to the capital account.
Dividends
Your Directors are pleased to recommend a final dividend in respect of 2011 of a total of 6.25 pence (2010: 5.00 pence) per share comprising 5.00 pence (2010: 4.50 pence) per share from Capital and 1.25 pence (2010: 0.50 pence) per share from income.
Subject to Shareholder approval, this dividend will be paid on 22 May 2012 to Shareholders on the Register on 11 May 2012. This payment would bring cumulative dividends paid since inception to 33.05 pence per share (2010: 26.30 pence). Once approved, this would bring dividends for 2011 to 6.75 pence per share (2010: 5.00 pence) in total.
Investment in qualifying holdings
In order to comply with VCT tax legislation, the Company must meetthe target set by HMRC of investing 70% of total funds raised in qualifyingunquoted and AiM quoted companies ("the 70% test"). At 31 December 2011, theCompany was 72.7% invested in qualifying companies (based upon the tax values,which differ from the values given in the Investment Portfolio Summary below).This figure is, however, before taking account of the disposal of DiGiCo whichwill reduce the percentage below 70%. In accordance with HMRC rules, theCompany is allowed six months from the date of a realisation to meet the 70%test and the Board has taken steps to restore the position post year-end.
Share buybacks
During the year ended 31 December 2011, the Company bought back2,681,786 of its own shares (2010: 1,270,092 of which 33,525 were bought backby MIG VCT and 103,995 were bought back by MIG3 VCT prior to the Merger) at anaverage price of 82.45 pence per share and a total cost of £2,222,097including expenses (2010: £951,784). These shares, representing 6.7% of theissued share capital of the Company at the beginning of the year, weresubsequently cancelled by the Company.
Purchases were made at discounts to the latest published NAVs per share ranging between 10 - 14% (2010: 10-38%). The discount at which shares were bought back has significantly narrowed and stabilised since mid 2010. This reflects the Board's current policy which is to seek to maintain the discount at which the Company's shares trade at around 10%. Ongoing Shareholders, of course, benefit from the difference between the Net Asset Value and the price at which the shares are bought back and cancelled.
The Company's shares are listed on the London Stock Exchange and assuch they should be sold in the same way as any other quoted company through astockbroker. However, to ensure that they obtain the best price, Shareholderswishing to sell their shares are advised to contact the Company's stockbroker,Matrix Corporate Capital by telephoning 020 3206 7176/7 before agreeing aprice with their stockbroker. Shareholders are also advised to discuss theirindividual tax position with their financial adviser before deciding to selltheir shares.
Merger with Matrix Income & Growth 3 VCT plc
The Company has continued to benefit from the merger of the Companywith Matrix Income & Growth 3 VCT in May 2010 both in terms of cost savingsand more efficient administration. A total of £150,000 of costs previouslyincurred by both separate VCTs has been saved since the Merger, comparing the2009 financial year for both former VCTs with this year's costs. Thisrepresents 0.4% of net assets at the date of the Merger. Added to estimatedsavings for the second six months of 2010, we therefore continue to anticipatethat the full costs of the Merger will be recovered within two years.
Fundraising
The Company is participating in a linked fundraising with TheIncome & Growth VCT plc and Matrix Income & Growth 4 VCT plc which waslaunched on 20 January 2012 to raise up to £21 million across the three VCTs.The funds raised for the VCT of up to £7 million will further improve theCompany's liquidity, enable the VCT to continue to take advantage of theexpected favourable conditions for new investment, support the Company's sharebuyback policy and mean that its fixed running costs will be spread over alarger asset base. Details of the Offer have been posted to Shareholders. ThisOffer has been well received and a total of £1.7 million has been raised todate for the Company.
The Offer will remain open until 30 April 2012 (5 April 2012 in respect of the current tax year) although the Directors of the three VCTs reserve the right to extend the closing date at their discretion.
Change of ownership at Matrix Private Equity Partners
Since April 2004, the Company's Manager MPEP has been owned jointlyby its executive partners and Matrix Group Limited ("Matrix"). On 12 January2012, the executive partners reached agreement to acquire Matrix's interest inthe business and this will lead to the Manager becoming a wholly independentowner-managed firm. The acquisition is subject to approval from the FSA of thechange of control in MPEP and is expected to be completed on or around 30 June2012.
The Company's arrangements with MPEP, in particular its investment strategy and services, are not expected to change. The Directors look forward to continuing to work with MPEP to provide attractive long term returns on your VCT investment, whilst reserving the Company's rights under the investment management agreement.
Subject to the acquisition being completed, it is currently the intention that MPEP will leave its offices at One Vine Street and that both its name and the name of the VCT will be changed.
Communication with shareholders
We aim to communicate regularly with our Shareholders. In additionto the Half-Yearly and Annual Reports, Shareholders receive a twice-yearlyMatrix VCT Newsletter from the Manager, approved by the Board. The May AGMwill provide a useful platform for the Board to meet Shareholders and exchangeviews. Your Board welcomes your attendance at General Meetings to give you theopportunity to meet your Directors and representatives of the Manager.The Manager held a second successful investorworkshop in January 2012. The workshop provided a forum for about 100 MatrixVCT Shareholders to hear presentations from the Manager about its investmentactivity in greater depth and from a successful entrepreneur of one of theportfolio companies. It is intended that this will be an annual event, towhich all Shareholders will be invited.
Outlook
The outlook for the UK economy remains highly uncertain. The risein inflation in 2011 increased the pressure on consumers and the smallbusinesses that service them. Despite this difficult environment, the majorityof companies in the portfolio continue to trade profitably and several arereporting results ahead of their budget and prior year. However, the Managerexpects that there may be companies in our portfolio which may find thechallenges of the economic climate testing in the short term as the publicsector cuts begin to take effect and the economy struggles to achievepermanent positive growth.We expect the VCT to have sufficient liquidity after this year'sfundraising to ensure it is well-placed to take advantage of new investmentopportunities as well as supporting existing investee companies to respond tothe difficult times that may lie ahead. The Board believes that the portfoliois well-positioned to provide growth in value over the medium-term and thatthe VCT's strategy of investing primarily in MBOs and structuring investmentsto include loan stock will continue to mitigate downside risk.
Finally, I would like to express my thanks to all Shareholders for their continuing support of the Company.
Keith NivenChairmanInvestment PolicyThe VCT's policy is to invest primarily in a diversified portfolioof UK unquoted companies. Investments are usually structured as part loan andpart equity in order to generate regular income and to generate capital gainsfrom realisations.
Investments are made selectively across a number of sectors, primarily in management buyout transactions ("MBOs") i.e. to support incumbent management teams in acquiring the business they manage but do not own. Investments are primarily made in companies that are established and profitable.
Uninvested funds are held in cash and low risk money market funds.
UK companies
The funds raised by the VCT after 6 April 2006 are subject to the£7 million gross assets test for an investment to be VCT qualifying. Pre 6April 2006, the companies in which investments were made must have had no morethan £15 million of gross assets at the time of investment to be classed as aVCT qualifying holding.VCT regulationThe investment policy is designed to ensure that the VCT continuesto qualify and is approved as a VCT by HMRC. Amongst other conditions, the VCTmay not invest more than 15% of its investments in a single company and musthave at least 70% by value of its investments throughout the period in sharesor securities comprised in VCT qualifying holdings, of which a minimum overallof 30% by value must be in ordinary shares which carry no preferential rights(save as may be permitted under VCT rules). In addition, although the VCT caninvest less than 30% of an investment in a specific company in ordinary sharesit must have at least 10% by value of its total investments in each VCTqualifying company in ordinary shares which carry no preferential rights (saveas may be permitted under VCT rules).
The VCT regulations in respect of funds raised after 6 April 2011 changed, such that 70% of qualifying investments must be invested in equity.
Asset mix
MIG VCT holds its liquid funds in a portfolio of readily realisable interest-bearing investments and deposits. The investment portfolio of qualifying investments has been built up over time with the aim of investing and maintaining around 80% of net funds raised in qualifying investments.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businessesacross different industry sectors. To reduce the risk of high exposure toequities, each qualifying investment is structured to maximise the amountwhich may be invested in loan stock. Initial investments in VCT qualifyingcompanies are, subject to formal approval from the MIG VCT Board, generallymade in amounts ranging from £200,000 to £1 million at cost. No holding in anyone company will represent more than 10% of the value of the VCT's investmentsat the time of investment. Ongoing monitoring of each investment is carriedout by the Manager generally through taking a seat on the board of each VCTqualifying company.
Co-investment
The VCT aims to invest in larger more mature unquoted companies through investing alongside three other VCTs advised by MPEP with a similar investment policy. This enables the VCT to participate in combined investments by the Manager of up to £5 million.
Borrowing
The VCT has never borrowed and has no current plans to undertake any borrowing.
Management
The Board has overall responsibility for the VCT's affairs including the determination of its investment policy. Investment and divestment proposals are originated, negotiated and recommended by the Manager and are then subject to formal approval by the Directors.
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Impact of possible change to the VCT tax rules on the VCT's Investment Policy
Changes to the VCT tax legislation, which may be introduced witheffect from 6 April 2012 as part of the Finance Bill 2012, were published inthe Budget on 21 March 2012. The exact changes have not yet been finalised andwill be subject to state aid approval. If implemented, the current proposalscould impact on the Company's Investment Policy as follows:
(1) The size of companies in which investment can be made is proposed to be
increased £15 million immediately before and £16 million immediately after the investment.
(2) The number of permitted employees for an investee company is proposed to be
increased from 50 to 250.
(3) The amount of investment a VCT may make into a particular company within a
twelve month rolling period is proposed to be increased from £1 million to £5 million.
(4) If the proposals are adopted in their current form it may no longer be possible
for the Manager to carry out certain types of MBO transactions. If this turns out to be the
case, the Company still intends to use other types of MBO transactions and therefore does not
anticipate that this change will have a significant impact on the Company's Investment Policy.
It is currently proposed that this change, if implemented, will not apply to funds raised up to
5 April 2012
Principal risks, management and regulatory environment
The Board believes that the principal risks faced by the Company are:
Economic risk - events such as an economic recession and movement in interest rates could affect trading conditions for smaller companies and consequently the value of the Company's qualifying investments.
Loss of approval as a Venture Capital Trust - the Company mustcomply with section 274 of the Income Tax Act 2007 which allows it to beexempted from capital gains tax on investment gains. Any breach of these rulesmay lead to the Company losing its approval as a VCT, qualifying Shareholderswho have not held their shares for the designated holding period having torepay the income tax relief they obtained and future dividends paid by theCompany becoming subject to tax. The Company would also lose its exemptionfrom corporation tax on capital gains. If the proposals in the draft FinanceAct 2012 are adopted in their current form it may no longer be possible forthe Manager to carry out certain types of MBO transactions involving shareacquisitions. If this turns out to be the case, the Company still intends touse other types of MBO transactions and therefore does not anticipate thatthis change will have a significant impact on the Company's investment policy.
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 Company 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 Company's Stock Exchange listing, financial penalties or a qualified audit report.
Financial and operating risk - inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or beaches of regulations. Failure of the Manager'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 theLondon Stock Exchange main market. In particular, smaller companies often havelimited product lines, markets or financial resources and may be dependent fortheir management on a smaller number of key individuals.
Asset liquidity risk - The Company's investments may be difficult to realise especially in the current economic climate.
Market liquidity risk - Shareholders may find it difficult to sell their shares at a price which is close to the net asset value.
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 policyand by undertaking a key risk management review at each quarterly Boardmeeting. Performance is regularly reviewed and assurances in respect ofadequate internal controls and key risks are sought and received from theManager on a six monthly basis. In the mitigation and management of theserisks, the Board applies rigorously the principles detailed in the AIC Code ofCorporate Governance. The Board also has a share buy back policy to try tomitigate the Market Liquidity risk. This policy is reviewed at each quarterlyBoard Meeting.
Investment Manager's Review
Overview
We continue to be encouraged by the positive signs that we have seen in our investment market both in terms of making investments and in achieving realisations. There has been a clear upward trend in deal flow during the latter half of the year under review and we have seen a higher number of better priced, profitable, well-positioned and cash generative businesses seeking investment.
We believe that this is due to two important converging factorswhich have combined to make our level of investment in the latter half of 2011the highest for several years. Firstly, the continuing flat level of activityin the economy has led to greater realism amongst vendors regarding the valueof their companies, leading to more realistic pricing. Secondly, our abilityto invest significant levels of capital in a market lacking bank funding meansthat management buyout ("MBO") teams are increasingly turning to us as asource of deliverable, long-term finance.
Furthermore, we are finding that there is trade interest, as well as enthusiasm from private equity investors, in the type of businesses in which we have invested, creating some interesting exit opportunities.
We believe that the VCT's strategy of investing in modestly-gearedMBO opportunities, supporting highly motivated management teams, focusing onacquiring established, profitable, positive cashflow businesses and investingpartly in income yielding loan stocks substantially increases the degree ofdownside protection to Shareholders' capital.
New investment
Three new investments have been completed during the year under review totalling £4.9 million, two of which used the VCT's existing investments of £1 million each in the acquisition vehicles Fullfield and Vanir.
In the first of these in July 2011, the VCT invested a further£840,384 into the acquisition vehicle Fullfield to enable it to support theMBO of Motorclean Group Limited, a provider of vehicle cleaning and valetservices to the car dealership market, bringing the VCT's investment in thiscompany to £1.8 million.Secondly, the VCT made an investment of £1,298,031 to providemezzanine finance as part of a £7.8m transaction to support the acquisition ofthe international intellectual property and assets of Lowe Alpine Srl fromadministration in Italy by Equip Outdoor Technologies Limited, a companyspecialising in owning and distributing brands focused on the outdoor sector.The new company is called EOTH Limited.In the final new investment made during the year, the VCT investeda further £762,336 into the acquisition vehicle Vanir to support the MBO ofEMaC Limited, the UK's leading provider of outsourced service plans tofranchised dealers in the automotive sector, bringing the VCT's investment inthis company to £1.8 million.Our Operating Partner programme continues to pursue an activesearch for investment opportunities and two of the acquisition companiessuccessfully identified promising businesses during the year, as describedabove. However, in December 2011, Bladon Castle repaid its loan stock andceased its activity as it had been unable to execute a transaction within anacceptable period of time. Accordingly, at the year-end no acquisitionvehicles were left in this VCT. However, the research undertaken by BladonCastle will not be lost as we will continue to work with our operatingpartners in new vehicles in which this VCT has invested after the year-end.Each of these acquisition vehicles is headed by an experienced Chairman,well-known to us, who is working closely with us in seeking to identify andcomplete investments in specific sectors relevant to their industry knowledgeand experience. We have established these companies to provide time for us toidentify and invest in suitable target companies at sufficiently attractiveprices.
Follow-on investment
We have worked even more closely with our investee companies duringthe downturn in the economy to support and encourage them to make thenecessary changes to ensure that they were well-placed to withstand theeconomic contraction. It is indicative of the success of these measures thatMonsal is the only investment in the portfolio that has required furtherworking capital funding during the year under review. Earlier in the year,Monsal was experiencing completion delays on an existing contract and in thecommissioning of new contracts. These delays led to a requirement foradditional funding and, following careful consideration, your Company approveda further loan stock investment of up to £293,000 as part of a £1.75 millionfundraising alongside other Matrix VCTs and other shareholders. Three tranchesof this new funding round, totalling £117,226, have been drawn down to date inseparate tranches in July and August 2011; these investments are held at cost.The terms of this new investment round provided for it to rank ahead of theexisting investment. With this additional funding, Monsal now has the abilityto pursue a number of major contracts in the waste and water sector which willmake the potential for recovery of value in the original investment a morerealistic prospect. Encouragingly, since approval of this facility Monsal hasmaterially advanced its negotiations on a number of new contracts.
The VCT made a follow-on investment of £622,466 in March 2011 into ASL to help fund the acquisition of Transcribe Copier Systems Limited, bringing the VCT's current investment in this company to £1,912,946.
Realisations
We are pleased to report that a number of companies in theportfolio continue to be strongly cash generative, and some have fully repaidtheir loan stock during the year to 31 December 2011, returning a total of£2.5 million (including premiums where relevant) to the VCT. The paymentsreceived were: £1,418,444 from Iglu.com Holidays in February 2011; £506,074from Vectair in March 2011; and £556,108 from MachineWorks in April 2011.In January 2011, the VCT realised its entire investment in CampdenMedia for a cash consideration of £836,294, representing 85.8% of the totalinvestment cost of £975,000. Together with interest paid over the life of theinvestment, the total cash return to the VCT was £1,016,150, representing104.2% of cost.In December 2011 the VCT made a partial realisation of itsinvestment in DiGiCo through a sale to ISIS Equity Partners. This realisationincreased the total cash proceeds received by the Company over the life of theinvestment by £4.2 million to £5.9 million, representing a 3.1 times cashreturn on the Company's original investment of £1.9 million. In addition, theVCT retains a 4.6% equity stake, and new loan stock in DiGiCo valued at £2.6million at the date of completion of the transaction. The total return to datethus equates to approximately £8.5 million; a 4.5 times return on the VCT'soriginal cost. DiGiCo is a leading manufacturer and distributor of soundmixing consoles used at major corporate and sporting events worldwide. Itssustained strong profit growth since investment has been largely driven byproduct development and a series of successful launches. DiGiCo is a goodexample of how a properly financed business with strong management and amarket-leading product can develop a niche opportunity and grow significantvalue.
Portfolio review
The portfolio at 31 December 2011 comprised 25 (2010: 24) investments with a cost of £27.1 million and valued at £27.4 million.
The portfolio's performance as a whole continues to be robust. Someinvestee companies, of which DiGiCo, Iglu.com Holidays and ATG Media have beenthe most notable, have increased sales and profits despite the challenges ofthe economic environment.
Of the new investments made during the year, Fullfield (Motorclean) and Ingleby (EMaC) have made a strong start. Fullfield in particular is performing in line with its investment plan. EOTH (Rab and Lowe Alpine), however, has experienced a lower level of growth than expected since investment, reflecting the recent problems affecting the retail leisure goods sector.
Iglu.com Holidays continues to perform strongly and is now valuedsignificantly above cost following out-performance of its business plans atthe time of investment. DiGiCo and ATG Media experienced increased trading andprofitability which has contributed to their higher unrealised valuations.Focus Pharma continues to trade well, although it ended its financial yearslightly behind a stretching budget. It launched two new products during 2011and expects to progress further with several further product launches plannedfor 2012.Other companies are still endeavouring to recover fully from theeffects of the 2008-9 recession. Activity in the construction and housebuilding sectors remains well below historical levels and this continues toaffect the performance of PXP and Plastic Surgeon. PXP continues to be valuedat nil although a small additional investment into this company has beenapproved. Although Youngman has now fully repaid its bank debt, demand for itsproducts remains volatile and difficult to predict. Blaze Signs has made animpressive recovery from the depths of the recession but profitability remainswell-below peak levels. Westway has experienced less favourable trading butremains solidly profitable and with strong customer relationships. ASL has nowintegrated Transcribe and is looking at further acquisitions.Elsewhere the position is mixed but perhaps less positive than inthe prior year. RDL has had a disappointing first year with delays in placingcontract staff in its core pharmaceuticals market. Faversham is streamliningits operations and continues to make steady progress.
Of the VCT's investments more directly exposed to the consumer, CB Imports has continued to advance its position in a difficult floristry supplies market and has started its trading year strongly. Racoon is generating solid profitability.
British International has experienced a disappointing year afterrecord profitability in 2010 achieved on the back of high activity in oil andgas support work. The oil support work in the Falklands ended in May and hasnot been replaced by other contracts. In addition the long-term decline inpassenger numbers on the Penzance to Isles of Scilly passenger route hascontinued. Your investment is, however, well underpinned by the company'sassets.
In March 2011, VSI completed a demerger of its two constituent businesses and the VCT now holds equivalent investment in two companies, Lightworks Software Limited and Machineworks Software Limited. As part of the agreement Machineworks assumed all of VSI's loan stock which it repaid in April. The remaining investment in Machineworks in particular is valued considerably above cost.
Investment outlook
The outlook for the UK economy is uncertain, but we have beenencouraged by developments in the last year in our market sector. Although thecoming months are likely to prove more testing as the public sector cuts beginto take effect and the economy struggles to stabilise its faltering growth, weconsider that good quality companies, prudently financed and capable ofmaintaining competitive advantage, still have the potential to succeed in thisenvironment.
The difficult economic outlook and the volatility in the quoted markets will inevitably continue to have an impact on the unrealised valuations of the companies in the portfolio. However, we believe that the portfolio overall is resilient and essentially of high value which will be released in the long term. Our strategy of investing primarily in MBOs and structuring investments to include loan stock will continue to mitigate downside risk.
The funds raised in the current fundraising will enhance thesignificant levels of uninvested cash retained by the Company and ensure thatthe VCT is in a strong position to support portfolio companies should the needarise and to invest in attractive new opportunities. Alongside this, theManager is conscious of the need to ensure that investee companies takeappropriate actions to respond to the challenging environment ahead.
Details of the Company's ten largest investments by value as at 31 December 2011 are set out below.
ATG Media Holdings Limitedwww.antiquestradegazette.com Total Ordinary shares Preference shares Loan stockCost £1,486,000 £531,000 £2,000 £953,000Valuation £2,923,000 £1,876,000 £2,000 £1,045,000 Basis of valuation: Earnings multipleEquity % held and voting rights: 14.0%Business: Publisher and on-line auction platform operatorLocation: LondonHistory: Management buyout via acquisition vehicle
Income receivable, recognised for the year: £146,915
Audited financial information:Year ended Turnover Operating profit Net assets30 September 2010 £7,215,000 £1,261,000 £2,506,000 Newincco 1124 Limited (non-qualifying) (DiGiCo)www.digiconsoles.com Total Ordinary shares Preference shares Loan stockCost £2,593,000 £5,000 - £2,588,000Valuation £2,593,000 £5,000 - £2,588,000 Basis of valuation: Price of recent investmentEquity % held and voting rights: 4.6% (fully diluted)Business: Designer and manufacturer of digital sound mixing consolesLocation: Chessington, SurreyHistory: Management buyout
Income receivable, recognised for the year: £284,188
Audited financial information:Year ended Turnover Operating profit Net assets31 December 2010 £18,757,000 £5,501,000 £8,909,000 British International Holdings Limitedwww.islesofscillyhelicopter.com Total Ordinary shares Preference shares Loan stockCost £2,026,000 £225,000 £1,000 £1,800,000Valuation £2,261,000 £nil £nil £2,261,000 Basis of valuation: Earnings multipleEquity % held and voting rights: 17.5%Business: Helicopter service operatorLocation: Sherborne, DorsetHistory: Management buyout
Income receivable, recognised for the year: £47,805 Basis of valuation:
Earnings multiple Audited financial information:Year ended Turnover Operating profit Net assets31 December 2010 £19,350,000 £3,315,000 £4,017,000 CB Imports Group Limited (Country baskets)www.countrybaskets.co.uk Total Ordinary shares Preference shares Loan stockCost £2,000,000 £350,000 - £1,650,000Valuation £2,058,000 £58,000 - £2,000,000 Basis of valuation: Earnings multipleEquity % held and voting rights: 11.6% (fully diluted)Business: Importer and distributor of artificial flowers and floral sundriesLocation: East Ardsley, West YorkshireHistory: Management buyout via acquisition vehicleIncome receivable, recognised for the year: £163,069 Audited financial information:Year ended Turnover Operating profit Net assets31 December 2010 £21,197,000 £755,000 £4,259,000The financial information quoted above relates to the operating subsidiary, CB ImportsLimited. Blaze Signs Holdings Limitedwww.blaze-signs.com Total Ordinary Preference shares Loan stock sharesCost £1,700,000 £472,000 £20,000 £1,208,000Valuation £1,948,000 £178,000 £24,000 £1,746,000 Basis of valuation: Earnings multipleEquity % held and voting rights: 20.8%Business: Manufacturer and installer of signsLocation: Broadstairs, KentHistory: Management buyout
Income receivable, recognised for the year: £149,107
Audited financial information:Year ended Turnover Operating profit Net assets31 March 2011 £20,127,000 £1,889,000 £2,937,000 Fullfield Limited (Motorclean)www.motorclean.net Total Ordinary Preference shares Loan stock sharesCost £1,840,000 £583,000 - £1,257,000Valuation £1,840,000 £583,000 - £1,257,000 Basis of valuation: CostEquity % held and voting rights: 12.6%Business: Provider of vehicle cleaning and valet servicesLocation: Laindon, EssexHistory: Management buyout
Income receivable, recognised for the year: £79,727
Audited financial information: First audited accounts since investment will be for the year ended 30 November 2011Iglu.com Holidays Limitedwww.iglu.com Total Ordinary Preference shares Loan stock sharesCost £217,000 £214,000 £3,000 -Valuation £1,795,000 £1,792,000 £3,000 - Basis of valuation: Earnings multipleEquity % held and voting rights: 11.6%Business: On-line ski and cruise travel agentLocation: WimbledonHistory: Management buyout via acquisition vehicleIncome receivable, recognised for the year: £10,037
Audited financial information:
Year ended Turnover Operating profit Net assets31 May 2011 £72,924,000 £1,448,000 £1,213,000Ingleby (1879) Limitedwww.emac.co.uk Total Ordinary Preference shares Loan stock sharesCost £1,762,000 £529,000 £1,000 £1,232,000Valuation £1,762,000 £529,000 £1,000 £1,232,000 Basis of valuation: CostEquity % held and voting rights: 8.8% (fully diluted)Business: Provider of service plans for the motor tradeLocation: CreweHistory: Management buyout
Income receivable, recognised for the year: £24,753
Audited financial information: First audited accounts since investment
will be for the year ended 31 December
2011
ASL Technology Holdings Limitedwww.aslplc.co.uk Total Ordinary Preference shares Loan stock sharesCost £1,913,000 £452,000 - £1,461,000Valuation £1,742,000 £nil - £1,742,000 Basis of valuation: Earnings multipleEquity % held and voting rights: 10.3% (fully diluted)Business: Supplier of printer and photocopier servicesLocation: CambridgeHistory: Management buyout via acquisition vehicleIncome receivable, recognised for the year: £133,151 Audited financial information: First audited accounts since investment will be for the year ended 30 September 2011Focus Pharma Holdings Limitedwww.focuspharmaceuticals.co.uk Total Ordinary Preference shares Loan stock sharesCost £1,370,000 £385,000 £2,000 £983,000Valuation £1,543,000 £366,000 £2,000 £1,175,000 Basis of valuation: Earnings multipleEquity % held and voting rights: 5.1%Business: Licensor and distributor of generic pharmaceuticalsLocation: Burton upon Trent, StaffordshireHistory: Management buyout
Income receivable, recognised for the year: £103,599
Audited financial information:Year ended Turnover Operating profit Net assets31 December 2010 £24,429,000 £1,507,000
£3,342,000
Further details of the investments in the Company's portfolio may be found on the Manager's website: www.matrixpep.co.uk.
Note: Operating profit is stated before charging amortisation of goodwill where appropriate for all investee companies.Investment Portfolio Summaryas at 31 December 2011 Market sector Date of Total
Valuation % value % of equity
initial book of net held by investment cost assets funds advised by MPEP* £'000 £'000Qualifying investments AIM quoted investmentsOmega Diagnostics Group plc Health care Dec-10 305 261 0.6% 9.8%In-vitro diagnostics for food equipment andintolerance, autoimmune services
diseases and infectious diseases
------- --------- -------- --------- 305 261 0.6% 9.8% Unquoted investments ATG Media Holdings Limited Media Oct-08 1,486 2,923 7.2% 38.4%Publisher and on-line auctionplatform operatorCB Imports Group Limited General retailers Dec-07 2,000 2,058 5.1% 23.2%(Country Baskets)Importer and distributor ofartificial flowers and floral sundries.Blaze Signs Holdings Limited Support services Apr-06 1,700 1,948 4.8% 52.5%Manufacturer and installer ofsignsFullfield Limited Support services Jul-11 1,840 1,840 4.5% 41.0% (Motorclean) Provider of vehicle Cleaningand valet servicesIglu.com Holidays Limited General retailers Dec-09 217 1,795 4.4% 35.0%On-line ski and cruise travelagentIngleby (1879) Limited (EMaC) Support services Oct-08 1,762 1,762 4.3% 30.0%Provider of service plans forthe motor tradeASL Technology Holdings Support services Mar-08 1,913 1,742 4.3% 34.0%Limited Printer and photocopierservicesBritish International Support services Jun-06 1,683 1,625 4.0% 34.9%Holdings Limited Helicopter service operatorFocus Pharma Holdings Limited Pharmaceuticals Oct-07 1,370 1,543 3.8% 12.7%Licensor and distributer ofgeneric pharmaceuticalsRDL Corporation Limited Support services Oct-07 1,558 1,301 3.2% 45.2%Recruitment consultant forthe pharmaceutical, businessintelligence and ITindustriesEOTH Limited (Rab and Lowe General retailers Oct-11 1,000 1,000 2.5% 8.0%Alpine)Branded outdoor equipment andclothingWestway Services Holdings Support services Jun-09 603 825 2.0% 13.0%(2010) LimitedInstallation, service andmaintenance of airconditioning systems
Machineworks Software Limited Software and Apr-06 223 720 1.8% 45.0% Provider of software for CAM
computerand machine tool vendors services Youngman Group Limited Support services Oct-05 1,000 701 1.7% 29.7%Manufacturer of ladders andaccess towersFaversham House Holdings Media Dec-10 527 416 1.0% 31.4%LimitedPublisher, exhibitionorganiser and operator of websitesRacoon International Holdings Personal goods Dec-06 1,213 393 1.0% 49.0%LimitedSupplier of hair extensions,hair care products and trainingThe Plastic Surgeon Holdings Support services Apr-08 478 353 0.9% 30.0%LimitedSupplier of snagging andfinishing services to the domestic and commercial property marketsVectair Holdings Limited Support services Jan-06 139 333 0.8% 24.0%Designer and distributor ofwashroom products
Lightworks Software Limited Software and Apr-06 223 236 0.6% 45.0% Provider of software for CAD
computervendors servicesMonsal Holdings Limited Support services Dec-07 1,299 117 0.3% 27.7%Supplier of engineeringservices to the water and waste sectorsPXP Holdings Limited Construction Dec-06 1,164 - 0.0% 37.3%(Pinewood Structures) and buildingsupplier of timber-frames for materialsbuildingsLegion Group plc Support services Aug-05 150 - 0.0% 2.9%(in administration)Provider of manned guarding,mobile patrolling, and alarmresponse servicesWatchgate Limited Support services Nov-11 1 - 0.0% 100.0%Holding company -------- -------- -------- 23,549 23,631 58.2% -------- -------- -------- -------- -------- --------Total qualifying investments 23,854 23,892 58.8% -------- -------- -------- Non-qualifying investments Newincco 1124 Limited Technology, Jul-07 2,593 2,593 6.4% 11.0%(DiGiCo) hardware andDesigner and manufacturer of equipment digital sound mixing consolesBritish International Support Nov-09 343 636 1.6%Holdings Limited servicesEOTH Limited (Rab and Lowe Oct-11 298 298 0.7%Alpine) General retailers -------- -------- --------Total portfolio investments 27,088 27,419 67.5% -------- -------- -------- Current investmentsSWIP Global Liquidity Fund plc 2,466 2,466 6.1%(Scottish Widows)**Fidelity Institutional Cash Fund plc** 2,207
2,207 5.4%
GS Funds plc (Goldman Sachs) ** 1,931 1,931 4.7%Global Treasury Funds plc 1,898 1,898 4.7%(Royal Bank of Scotland)**Institutional Cash Series plc 1,496 1,496 3.7%(BlackRock)**Institutional Cash Series plc 852 852 2.1%(Blackrock, formerly BGI)**Insight Liquidity Funds plc 274 274 0.7%(HBOS)** -------- -------- --------Total investments 38,212 38,543 94.9% -------- -------- --------Cash at NatWest Bank plc 2,085 5.0%Other assets 329 0.8%Current liabilities (231) (0.7)% -------- -------- --------Net assets 40,726 100.00% -------- -------- --------
* The other funds advised by MPEP include Matrix Income & Growth 2 VCT plc, Matrix Income & Growth 4 VCT plc and The Income & Growth VCT plc.
** Disclosed as Current investments within Current assets in the Balance Sheet below.
Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Directors' Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules ofthe Financial Services Authority.Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law).Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements the Directors are required to:
- select suitable accounting policies and then apply them consistently; - make judgments and accounting estimates that are reasonable and prudent; - state whether applicable UK accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements; - prepare the financial statements on the going concern basis unless it is inappropriate to presume
that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply withthe Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.
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 Manager's
Review, Investment Portfolio Summary and Directors' Report includes a fair review of the
development and performance of the business and the position of the Company, together with
a description of the principal risks and uncertainties that it faces.
For and on behalf of the Board of Directors:
Keith NivenChairmanIncome Statementfor the year ended 31 December 2011 Year ended 31 December 2011 Year ended 31 December 2010 Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ Unrealised gains on investments - 688,724 688,724
- 6,527,412 6,527,412 Realised gains/(losses) on - 520,219 520,219 - (75,045) (75,045)investments Income 1,681,991 - 1,681,991 934,890 - 934,890 Investment management fees (230,025) (690,074) (920,099) (164,619) (493,859) (658,478) Other expenses (307,214) - (307,214) (338,661) - (338,661) Merger costs - - - (69,089) - (69,089) -------- -------- -------- -------- -------- --------
Profit on ordinary activities before 1,144,752 518,869 1,663,621 362,521 5,958,508 6,321,029taxationTax on profit on ordinary activities (181,181) 181,181 -
(49,224) 49,851 627 -------- -------- -------- -------- -------- --------Profit for the year 963,571 700,050 1,663,621 313,297 6,008,359 6,321,656
Basic and diluted earnings per 2.25p 1.64p 3.89p 0.95p 18.30p 19.25p
ordinary share
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 December 2011 31 December 2011 31 December 2010 £ £Fixed assetsInvestments at fair value 27,418,790 31,043,002 Current assetsDebtors and prepayments 329,659 231,222Current investments 11,123,681 7,466,137Cash at bank 2,085,082 114,672 --------- --------- 13,538,422 7,812,031 Creditors: amounts falling due within one year (231,037) (404,126) --------- ---------Net current assets 13,307,385 7,407,905 --------- ---------Net assets 40,726,175 38,450,907 --------- --------- Capital and reservesCalled up share capital 426,061 397,795Capital redemption reserve 56,182 29,364Share premium account 22,034,106 16,852,849Revaluation reserve 3,455,913 4,290,333Special distributable reserve 11,161,745 16,423,246Profit and loss account 3,592,168 457,320 --------- ---------Equity shareholders' funds 40,726,175
38,450,907
---------
---------
Basic and diluted net asset value per OrdinaryShare 95.59p 96.66p
Reconciliation of Movements in Shareholders' Funds for the year ended 31 December 2011
Year ended Year ended 31 December 2011 31 December 2010 £ £
Opening shareholders' funds 38,450,907
16,979,370
Net share capital subscribed for in the year 5,236,341
-
Net share capital bought back in the year (2,222,097)
(890,013)
Shares issued upon merger with Matrix Income& Growth 3 VCT plc -
17,111,545
Stamp duty on shares issued upon merger withMatrixIncome & Growth 3 VCT plc - (52,975)Profit for the year 1,663,621 6,321,656Dividends paid in year (2,402,597) (1,018,676) --------- ---------Closing shareholders' funds 40,726,175 38,450,907 --------- --------- Cash Flow Statement
for the year ended 31 December 2011
Year ended Year ended 31 December 2011 31 December 2010 £ £ £ £ Operating activitiesInvestment income received 1,577,644 827,488
VAT received and interest thereon 3,873 -Investment management fees paid (920,099) (587,816)Other cash payments (322,439) (461,372)Payment of merger costs of the Company (9,555) (78,636) -------- -------- --------
--------
Net cash inflow/(outflow) 329,424
(300,336)
from operating activities
Investing activities
Acquisitions of investments (3,645,194) (1,124,409)
Disposals of investments 8,478,349 1,123,942 -------- -------- -------- --------Net cash inflow/(outflow) 4,833,155 (467)from investing activities TaxationTaxation paid - - Equity dividendsPayment of dividends (2,402,597) (1,018,676) -------- -------- -------- --------
Cash inflow/(outflow) before liquid 2,759,982
(1,319,479)
resource management and financing
Management of liquid resourcesIncrease in current investments (3,657,544)
(2,288,567) FinancingShare capital raised 5,236,341 -
Cash received on acquisition of net - 4,561,289assets from Matrix Income & Growth 3 VCT plcStamp duty on shares issued to acquire - (52,975)net assets of Matrix Income & Growth 3 VCT plcPayments to meet merger cost of Matrix - (133,191)
Income & Growth 3 VCT plcShare capital bought back (2,368,369) (698,658) -------- -------- -------- -------- 2,867,972 3,676,465 -------- -------- -------- --------Increase in cash for the year 1,970,410 68,419 -------- -------- -------- --------Notes1. Basis of accountingThis announcement of the annual results of the Company for the yearended 31 December 2011 has been prepared using accounting policies consistentwith those adopted in the full audited annual accounts which have beenprepared under UK Generally Accepted Accounting Practice (UK GAAP) and theStatement of Recommended Practice, `Financial Statements of Investment TrustCompanies and Venture Capital Trusts' ("SORP") issued by the Association ofInvestment Companies in January 2009.2. Income 2011 2010 £ £Income from bank deposits 12,879 367 Income from investments- from equities 425,919 194,226- from overseas based OEICs 59,178 35,779- from loan stock 1,184,015 700,647 --------- --------- 1,669,112 930,652 --------- --------- Other income - 3,871 --------- ---------Total income 1,681,991 934,890 --------- --------- Total income comprisesDividends 485,097 230,005Interest 1,196,894 701,014Other income - 3,871 --------- --------- 1,681,991 934,890 --------- ---------
Income from investments comprises
Listed overseas securities 59,178 35,779Unlisted UK securities 425,919 194,226Loan stock interest 1,184,015 700,647 --------- --------- 1,669,112 930,652 --------- ---------
Total loan stock interest due but not recognised in the year was £514,475 (2010: £457,084).
3. Basic and diluted earnings per share
2011
2010
£
£
Total earnings after taxation: 1,663,621
6,321,656
Basic and diluted earnings per share (note a) 3.89p
19.25p
Revenue profit from ordinary activities after taxation 963,571 313,297 Basic and diluted revenue earnings per share (note b) 2.25p 0.95p
Net unrealised capital gains on investments 688,724
6,527,412
Net realised capital gains/(losses) on investments 520,219 ( 75,045) Capital management fees less taxation
( 508,893) ( 444,008) --------- ---------Total capital earnings 700,050 6,008,359
Basic and diluted capital earnings per share (note c) 1.64p 18.30p
Weighted average number of shares in issue in the year 42,820,660 32,833,601 Notes
a) Basic earnings per share is total profit 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 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
earnings per share.4. Dividends paid and payable The directors have recommended a final dividend in respect of theyear ended 31 December 2011 of 6.25 pence per share, comprising 5.0 pence fromcapital and 1.25 pence from income. If approved at the Annual General Meetingthe dividend will be paid on 22 May 2012 to shareholders on the Register on 11May 2012.
5. 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 42,606,052 (2010: 39,779,546) Ordinary Shares, being the number of Ordinary Shares in issue on that date.
6. Related party transactions
Onging related party transactions
Bridget Gu©rin is a shareholder (0.3%) of Matrix Group Limited, which owns 100% of the equity of MPE Partners Limited which has a 50% interest in Matrix Private Equity Partners LLP ('MPEP'), the Company's Investment Manager. Further information on the investment management agreement and the fees paid during the year is included in Note 3 of the published accounts.
Following a re-organisation of the Matrix group of companies, MPEPnow provides administration services under the terms of an investmentmanagement agreement dated 20 May 2010 as disclosed in Note 3 of the publishedaccounts. The revised annual fee is 2% of net assets plus £126,225 per annum,the latter inclusive of VAT and subject to increase in RPI. Matrix SecuritiesLimited previously provided Company Secretarial and Accountancy Services tothe Company under agreements dated 9 July 2004 for a fee of £nil (2010:£35,590) in the period. At the year-end £nil (2010: £7) was due to MatrixSecurities Limited.Matrix Group Limited also owns Matrix CC Limited, which has a 97%interest in Matrix Corporate Capital LLP ("MCC"), the Company's CorporateBroker. Eleven (2010: nine) share buybacks were undertaken by MCC on theCompany's instruction, costing £2,222,097 (2010: £890,013). Fees of £14,400(2010: £15,863) were paid to MCC during the year and there was £45,082 (2010:£190,399) due to MCC at the year-end in respect of a purchase by the Companyof 56,394 of its own shares on 21 December 2011.
Each of the Directors holds a small number of shares, representing less than 0.02% of the issued share capital in each case, in each of Matrix Income & Growth 4 VCT plc and The Income & Growth VCT plc which are both also managed by MPEP.
Post year-end related party transactions
On 12 January 2012, MPEP's executive partners, being the holders of the other 50% interest in MPEP, have agreed to purchase the 50% interest held by MPE Partners Limited, which transaction is due to complete on 30 June 2012.
As part of the arrangements for the Matrix VCTs Linked Offerlaunched on 20 January 2012 ("the Offer"), the Company has agreed to payMatrix Private Equity Partners, the Company's Manager the sum of 5.5% of thegross proceeds by way of a promoter's fee out of which MPEP will pay all ofthe expenses of the Offer (excluding trail commission to financialintermediaries which will continue to be paid by the Company), including theSponsor's fee below.
In addition, the Company has also appointed Matrix Corporate Capital as sponsor to the Offer at a fee based on 0.12% of funds raised. An additional charge will also be made across the three VCTs in the Offer of £1,500 per supplementary prospectus issued. The agreement includes a "cap" of £15,000 per company.
These last two transactions are both deemed to be related party transactions under the Listing Rules of the UK Listing Authority.
7. Post balance sheet events
On 27 January 2012, Fullfield Limited (Motorclean) made a part repayment of
the A loan stock realising proceeds of £122,692.
On 30 January 2012, Focus Pharma Holdings Limited made a part repayment of loan stock realising proceeds of £390,753.
On 8 March 2012, the Company bought back 425,000 of its own Ordinary Shares
at 79 pence per share, for cancellation.
On 8 March 2012, under the Linked Offer for Subscription launched on 20 January 2012, 1,763,460 ordinary shares were allotted at a price of 100.12 pence per share raising net funds of £1,689,584.
On 20 March 2012, the Company made separate investments of £1 million into
each of the acquisition vehicles, Almsworthy Trading Limited, Culbone Trading Limited, Madacombe Trading Limited and Sawrey Limited.
8. Financial Information
The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 31 December 2011 in terms of section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 December 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.
9. Annual Report
The Annual Report for the year ended 31 December 2011 will shortlybe made available on the Company's website: www.migvct.co.uk. and Shareholderswill be notified of this by email or post or sent a hard copy in the post inaccordance with their instructions. Copies will be available thereafter tomembers of the public from the Company's registered office.
10. Annual General Meeting
The Annual General Meeting will be held at 2.30 pm on Thursday, 10 May 2012
at the offices of Matrix Group Limited, One Vine Street, London W1J 0AH.
Contact details for further enquiries:
Robert Brittain of Matrix Private Equity Partners LLP (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.
XLON