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16 Aug 2011 13:31
Matrix Income & Growth VCT plc ("the Company")
Half-yearly results for the six months ended 30 June 2011
Investment Objective
Matrix Income & Growth VCT plc 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" or "the Manager").
The Company's objective is to provide investors with a regular income stream, by way of tax free dividends, and to generate capital growth through portfolio realisations, which can be distributed by way of additional tax free dividends.
Financial HighlightsDividends
A dividend of 5 pence per share (comprising 0.5 pence from income and 4.5 pence from capital) was paid during the period on 27 May 2011.
An interim income dividend of 0.5 pence (2010: nil pence) per sharewill be paid on 15 September 2011 to Shareholders on the Register on 26 August2011. Following this payment, cumulative dividends paid per share will be 26.8pence.Performance Summary
The net asset value (NAV) per share at 30 June 2011 was 90.8 pence
To help Shareholders who originally invested inthe Company and in Matrix Income & Growth 3 VCT plc ("MIG 3 VCT") understandthe recent past performance of their investment, comparative data for eachcompany is shown below. Total return comprises either the NAV per share ormid-market share price plus cumulative dividends paid per share:- Net assets NAV per Net Share price Total return per share to Share cumulative shareholders since launch dividends (mid-market paid per price)1 (NAV (Share price share basis) (£m) (p) (p) p) (p) (p)
Matrix Income & Growth VCT (Funds raised 2004/05)
As at 30 June 2011 39.5 90.8 26.3 82.5 117.1 108.8As at 31 December 38.5 96.7 21.3 84.0 118.0 105.32010As at 30 June 2010 35.2 86.3 21.3 63.0 107.6 84.3
Matrix Income & Growth VCT 3 VCT (Funds raised 2005/06)
As at 30 June 2011 - 96.8 14.9 - 111.7 102.8As at 31 December - 103.0 9.6 - 112.6 99.12010As at 30 June 2010 - 91.9 9.6 - 101.5 76.7
1 Source: London Stock Exchange.
Note - Merger with MIG 3 VCT
The Company merged with MIG 3 VCT on 20 May 2010.Following the Merger, MIG 3 VCT shareholders were issued with approximately1.0655 ordinary shares in the Company for each former MIG 3 VCT share. By wayof illustration, a shareholder who previously held 10,000 MIG 3 VCT shares nowholds 10,655 shares in the Company. The data for MIG 3 VCT above reflects thisrevised holding.Chairman's Statement
This Half-Yearly Report covers the six month period ended 30 June 2011.
Net asset value (NAV) and total return to shareholders
The net asset value per share as at 30 June 2011 was 90.8 pence,compared with an adjusted NAV of 91.7 pence per share at the beginning of theperiod after allowing for the final dividend of 5.0 pence paid to shareholderson 27 May 2011 in respect of the year ended 31 December 2010. This representsa fall of 1.0%. The NAV total return per share (being the closing net assetvalue plus total dividends paid to date) declined by 0.8% during the six monthperiod from 118.0 pence to 117.1 pence. This reduction in total return is dueto a slight fall in the value of the portfolio over the six month period.
To assist shareholders who originally invested in MIG 3 VCT to monitor the performance of their investment on a consistent basis, a table showing the returns to a former MIG 3 VCT shareholder, based on an original subscription of £1 for 1 share, has been included in the Financial Highlights above.
Investment portfolio
Although there is continued uncertainty around the UK economy, theoverall performance of the majority of the companies in the portfolio remainsrelatively strong. Several companies, such as DiGiCo, Iglu.com Holidays andATG Media, are continuing to generate record profits, whilst others, such asBlaze Signs and Youngman, which were affected by the recession, have seentheir profits recover.However, overall the portfolio has seen a small fall of £709,124(2.3%) in its value since the beginning of the year. The write-down in theCompany's investment in Monsal from £1,173,974 to nil was greater than theaggregate rise in value of the remaining companies in the portfolio. Monsal, awaste to energy company, has experienced some contract delays which have givenrise to additional costs and the Board has agreed to provide further funding.Following the period under review £117,226 of this further investmentcommitment was drawn down in July and August 2011. The terms of thiscommitment caused the year-end value of the existing investment in thiscompany to be reduced to nil. The Investment Manager's Review provides anexplanation of the background and rationale for both the reduction in value ofthe existing investment and for making this follow-on investment.The increase in deal activity in the smaller companies marketreported in the Annual Report has been sustained over this six month period.This increase has caused the Manager's deal flow of prospective opportunitiesto rise significantly over the past year. However, many of these opportunitieshave been over-priced in the Manager's view, and some have fallen awayfollowing due diligence. Others remain in the pipeline. On the sale side, theManager is seeing greater interest from larger private equity groups in anumber of investee companies.During the period a further investment was made into ASL, a printerand copier services business, to support the acquisition of the assets of asimilar company, Transcribe Copier Systems Limited, as part of ASL's objectiveto become a larger business in its sector. Following the end of the period inJuly 2011, one new investment was made, into Motorclean Group, the UK'sleading provider of vehicle cleaning and valet services to the car dealershipmarket.
Further details of these investments and the period's other transactions can be found in the Investment Manager's Review below.
Revenue account and dividend
It is encouraging to see the rise in income from the Company'sinvestment portfolio, although income from the money market fund holdings hascontinued to be low which is a direct consequence of the UK base rate beingheld at 0.5%. The revenue account has generated a net positive return (aftertax) for the period of £552,289 (2010: £117,082). A number of companies havepaid relatively large dividends and the levels of loan stock interest receivedhave been boosted by the combination of acquiring MIG 3 VCT's loan stockinvestments, making new loan stock investments and a resumption of servicingof loans by some of the investee companies.
Expenditure has reduced in the period as a result of savings achieved from the merger with MIG 3 VCT ("the Merger") (see below). The Company is now benefiting from lower running costs across a number of expense categories.
A dividend of 5 pence per share (comprising 0.5 pence from income and 4.5 pence from capital) was paid during the period on 27 May 2011.
It is the Board's intention to pay regular dividends and the Directors have declared an interim income dividend of 0.5 pence per share which will be paid on 15 September 2011 to Shareholders on the Register on 26 August 2011. This will bring cumulative dividends paid per share to 26.8 pence.
Matrix VCTs linked fundraising
The Company participated with Matrix Income & Growth 4 VCT plc andThe Income & Growth VCT plc in a Matrix VCT linked fundraising that closed on30 June 2011. A total of £16.2 million across the three VCTs was subscribedfor under the Offer of which £5.4 million was raised by the Company. These newfunds will mean that the Company's fixed running costs are spread over alarger asset base and will improve the Company's cash position so that it isbetter placed to make new investments when attractive opportunities arise. Theadditional funds will also support the Company's share buy-back policy thathelps to provide liquidity in the Company's shares in what is normally anextremely illiquid market.
It is intended to launch a similar offer later this year and details of the Offer will be posted to shareholders nearer the time.
Merger with Matrix Income & Growth 3 VCT plc
The Merger has started to produce the expected cost savings andsimpler administration. The Prospectus for the Merger envisaged costs savingsof 0.43% of the net assets of the enlarged company immediately following theMerger and that the costs of the Merger would be recovered within two years.In the year since the Merger £161k of costs previously incurred by bothseparate VCTs have now been saved, representing 0.46% of net assets at thedate of the Merger. The Company therefore anticipates that the full costs ofthe Merger will be recovered within two years.
Liquidity
The Company held £10.9 million in cash and money market fund balances as at 30June 2011. In addition, the £3 million invested in the Operating Partneracquisition vehicles was also held in liquid assets (reduced to £2 millionfollowing the use of Fullfield to support the MBO of Motorclean following theperiod-end). The Company is therefore well-positioned both to take advantageof favourable investment opportunities as they arise and, if required, to makeinvestments to support the existing portfolio.
Investment in qualifying holdings
The Company is required to meet the target set by HM Revenue &Customs ("HMRC") of investing 70% of the funds raised in qualifying, unquotedand AiM quoted companies, which it has achieved throughout the period. TheCompany was 78.9% invested in qualifying companies (based on VCT cost asdefined in tax legislation which differs from actual cost given in theInvestment Portfolio Summary below) at the period-end, with the balance of theportfolio invested in a selection of readily realisable, money market fundswith AAA credit ratings.
Share buy-backs
During the six months ended 30 June 2011, the Company bought back1,640,545 of its own shares, representing 4.1% of the issued share capital atthe beginning of the period, at an average price, excluding costs, of 84.9pence per share. These shares were purchased at an average discount of 10% toNAV per share, adjusted for the dividend paid on 27 May 2011.All of the shares bought back in the period were subsequentlycancelled by the Company. Continuing Shareholders, of course, benefit from thedifference between the NAV and the value at which the Shares are bought backand cancelled.
The discount to NAV at which the Company has bought-back shares has been maintained at around 10% throughout the six month period under review narrowing from about 30% during the comparative period last year.
Discount management policy
In light of the recent turbulence in financial markets the Boardhas reviewed its discount policy on share buy-backs. The Board remainscommitted to buying-in shares at a discount of around 10% to the latest,announced NAV, subject to protecting the interests of continuing Shareholders.Accordingly, if the Board, in consultation with the Manager, considers thatthere has been a material movement in the Company's NAV from the latest,announced figure, the Board will apply this discount to its best estimate ofthe current NAV.As ever, in circumstances where there are abnormally high levels ofselling pressure the Board may, at its discretion, increase the level of thediscount at which it is prepared to buy-back shares and/or limit the scale ofany such buy-backs in order to protect the interests of continuingShareholders.
Communicating with shareholders
The Company maintains a programme of regular communication with Shareholders through newsletters and a dedicated website www.migvct.co.uk, supplementing the Half-Yearly and Annual Reports. The Board welcomes the opportunity to meet Shareholders at the Company's General Meetings during which representatives of the Investment Manager are present to discuss the progress of the portfolio. The next AGM of the Company will be held in May 2012.
Following a successful Matrix VCT shareholderworkshop held last December the Manager will be holding a second workshop onWednesday, 14 December 2011 in central London. The workshop will include apresentation on the VCTs' investment activity and performance. Allshareholders will receive an invitation to this event nearer to the date.
Outlook
There has been a sharp correction in global equity markets since the end of June. This has been due, inter alia, to continued concerns over European sovereign debt and the deteriorating prospects for economic growth in many countries within the developed world. The UK is not immune from these fears. The outlook for the domestic economy remains highly uncertain. Government debt remains at relatively high levels and public expenditure is subject to tighter constraint. However, the Manager believes many of the portfolio companies can continue to trade profitably at the operating level and that the portfolio can continue to demonstrate its recent relative resilience.
Having held back on investment during the downturn, the Company retains a significant cash position, bolstered by the recent successful fund-raising. The Manager is seeing a greater number of attractive new investment opportunities and the Company should be well-placed to take advantage of these in order to enhance its performance.
Finally, I would like to thank all of our Shareholders for their continuing support.
Keith NivenChairmanResponsibility Statement
In accordance with Disclosure and Transparency Rule (DTR) 4.2.10 the Directors confirm that to the best of their knowledge:
(a) the condensed set of financial statements, which has been prepared in
accordance with the statement, "Half-Yearly Reports", issued by the Accounting
Standards Board, gives a true and fair view of the assets, liabilities,
financial position and (loss)/profit of the Company, as required by DTR 4.2.4; (b) the interim management report, included within the Chairman's Statement,
Investment Policy, Investment Portfolio Summary and the Investment Manager's
Review includes a fair review of the information required by DTR 4.2.7 being an
indication of the important events that have occurred during the first six
months of the financial year and their impact on the condensed set of financial
statements;
(c) a description of the principal risks and uncertainties facing the Company for
the remaining six months is set out below, in accordance with DTR 4.2.7; and (d) the financial statements include a description of the related party
transactions in the first six months of the current financial year that have
materially affected the financial position or performance of the Company during
the period, and any material changes to the related party transactions since
the last Annual Report, in accordance with DTR 4.2.8.
Principal risks and uncertainties
In accordance with DTR 4.2.7, the Board confirms that the principalrisks and uncertainties facing the Company have not materially changed sincethe publication of the Annual Report and Accounts for the year ended 31December 2010. The Board acknowledges that there is regulatory risk andcontinues to manage the Company's affairs in such a manner as to comply withsection 274 Income Tax Act 2007. The principal risks faced by the Company are:- economic risk;- investment and strategic risk;- regulatory risk (including loss of approval as a Venture Capital Trust);- financial and operating risk;- market risk;- asset liquidity risk;- market liquidity risk;- credit/counterparty risk.A more detailed explanation of these can be found in the Directors'Report on pages 17 - 18 and in Note 20 on pages 45 - 51 of the Annual Reportand Accounts for the year ended 31 December 2010 copies of which are availableon the Company's website, www.migvct.co.uk.
Related Party Transactions
Details of related party transactions in accordance with DTR 4.2.8 can be found in Note 12 to the Half-Yearly Report below.
Cautionary Statement
This report may contain forward looking statements with regards to the financial condition and results of the Company, which are made in the light of current economic and business circumstances. Nothing in this report should be construed as a profit forecast.
On behalf of the BoardKeith NivenChairmanInvestment Policy
The Company's policy is to invest primarily in a diversified portfolio of UK unquoted companies. Investments are usually structured as part loan and part equity in order to generate regular income and to generate capital gains from 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 Company after 6 April 2006 are subject tothe £7 million gross assets test for an investment to be VCT qualifying. Pre 6April 2006 any company 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 holdingVCT regulationThe investment policy is designed to ensure that the Companycontinues to qualify and is approved as a VCT by HMRC. Amongst otherconditions the Company may not invest more than 15% of its investments in asingle company and must have at least 70% by value of its investmentsthroughout the period in shares or securities comprised in VCT qualifyingholdings, of which a minimum overall of 30% by value must be in ordinaryshares which carry no preferential rights (save as may be permitted under VCTrules). In addition, although the Company can invest less than 30% of aninvestment in a specific company in ordinary shares it must have at least 10%by value of its total investments in each VCT qualifying company in ordinaryshares which carry no preferential rights (save as may be permitted under VCTrules).
The VCT regulations in respect of funds raised after 6 April 2011 will change, such that 70% of such funds must be invested in equity.
Asset mix
The Company 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 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 Board, generally made inamounts ranging from £200,000 to £1 million at cost. No holding in any onecompany will represent more than 10% of the value of the Company'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 Company aims to invest in larger, more mature unquotedcompanies through investing alongside three other VCTs advised by MPEP with asimilar investment policy. This enables the Company to participate in combinedinvestments by the Manager of up to £5 million.
Borrowing
The Company's articles permit borrowings of amounts up to 10% ofthe sum equal to the aggregate of the amount paid up on the allotted or issuedshare capital of the Company and the amount standing to the credit of thecapital and revenue reserves of the Company (whether or not distributable)after adding thereto or deducting therefrom any balance standing to the creditor debit of the profit and loss account. However, the Company has no currentplans 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 Manager and are then subject to formal approval by the Directors.
Investment Manager's Review
Overview
We have been encouraged by positive signs of improvement in ourmarketplace during the six month period to 30 June 2011. The number of qualitypotential new investments that we have seen has increased considerably andmore company boards are confident about making decisions to market theirbusinesses for sale or raise new capital for expansion. Over these six monthswe have continued our measured approach in assessing the opportunities thatare emerging. We remain aware that we are yet to see the full effect of the UKGovernment's cuts in public spending on the companies in which we invest andare therefore particularly mindful of the risks of deteriorating economicconditions on new investments. We have rejected a number of prospective dealseither on the grounds that they would not deliver forecast growth or becausethe required sale price was too high, but there are still a number ofopportunities that we are progressing and expect to complete in the secondhalf of the year.
Investment portfolio
Overall, the valuation of the portfolio has remained relativelysteady over the last six months. However, a number of companies includingBlaze Signs, ATG Media (which has paid a dividend) and Iglu.com Holidays havetraded particularly strongly and returned good results. This has contributedto an uplift in the valuations of Blaze Signs and ATG Media in the period.Iglu.com Holidays made a robust start since we invested in December 2009 andhas outperformed its business plan and remains valued at significantly abovecost. DiGiCo and CB Imports also continue to return encouraging results, theformer well in excess of budgeted expectations; DiGiCo has paid anothersubstantial dividend, while CB Imports has paid its first dividend to theCompany since investment. Focus Pharma continues to perform well and also paida dividend, although its full year results were slightly behind a stretchingbudget. It is planning to progress further with several new product launchesdue during 2011.Monsal has continued to experience completion delays on an existingcontract and in the commissioning of new contracts. These delays have led to arequirement for additional funding and following careful consideration, yourCompany approved a further loan stock investment of £293k as part of a £1.75million fundraising alongside other Matrix VCTs and other shareholders. Theterms of this new investment provide that it will rank ahead of the existingrounds of investment. As a result of this and our assessment of Monsal'scurrent enterprise value, we have reduced the valuation of the Company'sexisting rounds of investment at 31 December 2010 (comprising 66% loan stockand 34% equity) from cost of £1.2 million to nil. With this additionalfunding, Monsal now has the ability to pursue a number of major contracts inthe waste and water sectors. Assuming contract awards, the potential forrecovery of value in the original investment will become a more realisticprospect. £117,226 of this new funding round was drawn down after theperiod-end in July and August 2011 and this investment is held at cost.Following on from its original investment into ASL in December2010, the Company made a further investment totalling £622,466 in March 2011to support the acquisition of the assets of Transcribe Copier Systems Limited.ASL is a Cambridge-based printer and copier services business with a broadcustomer base of schools and small and medium sized enterprises. Thisacquisition is part of ASL's strategy to acquire similar businesses, therebyconsolidating a highly fragmented market and become of interest to largercompanies in this sector.
Overall, initial trading of the new investments completed in the second half of 2010, namely RDL Corporation, Faversham House, Omega Diagnostics (traded on AiM) and ASL Technology, is satisfactory.
After the period-end in July 2011, the Company completed an investment of £1,840,384 to support the MBO of Motorclean Group, the UK's leading provider of vehicle cleaning and valet services to the car dealership market.
The Company held £3 million in cash in three acquisition companieswithin the Operating Partner Programme at 30 June 2011. £1 million of thisamount has been deployed by Fullfield since the period end to support the newinvestment into Motorclean. The remaining two companies are actively seekingto acquire investments in the construction, food manufacturing and healthcareand wellbeing sectors but so far have not found sufficiently attractiveinvestment transactions at the right priceVSI completed the demerger of its two operating subsidiarycompanies in March 2011, creating two separate investee companies for theCompany, MachineWorks Software Limited (MachineWorks) and LightWorks SoftwareLimited. It also paid a dividend of £56,282. The original VSI loan of£444,501, which was transferred to MachineWorks on the demerger, was repaid inApril 2011, together with a premium of £111,222. The Company now has separateinvestments in each of these companies with a cost of £222,584 each. Theboards of these companies believe that the demerger will enhance the prospectsof both companies.The Company has continued to benefit from the profitability andstrong cash position of a number of investee companies and has received fullloan stock repayments in the six months covered by this report from Iglu.comHolidays, Vectair and, as reported above, MachineWorks. Iglu.com Holidaysprepaid its loan in February 2011 realising £1,418,443 (including a premium of£213,263) and Vectair repaid £506,074 (including a premium of £84,346) inMarch 2011. All of these repayments were reflected in the valuations of thesecompanies at 31 December 2011.
Blaze and Youngman have resumed current interest payments, although they still owe the Company unpaid interest from prior periods.
In January 2011, the Company realised its entire investment inCampden Media for a cash consideration of £836,294, representing 85.8% of thetotal investment cost of £975,000. Together with interest received over thelife the investment, the total cash return was £1,016,150, representing 104.2%of cost.Outlook
The prospects for increased investment activity over the coming months have improved now that the UK economy appears to have recovered from the worst of the recession. We are also well-positioned to offer an attractive combination of equity and debt to companies as the availability of external debt from the major banks is harder to access. The positive performance of some of our investee companies has enabled the value of our portfolio to be resilient overall. We expect to be able to release this value over time through realisations and we are seeing interest in a number of our investee companies from larger private equity firms.
However much uncertainty remains concerning the quality of the economic recovery and we remain vigilant about the potential impact on the portfolio and cautious when evaluating new opportunities.
Matrix Private Equity Partners LLP
Investment Portfolio Summaryas at 30 June 2010 Date of Total Valuation % value initial book of net investment cost 1 assets £'000 £'000QUALIFYING INVESTMENTS AiM quoted investmentsOmega Diagnostics
Dec-10 305 330 0.8% In-vitro diagnostics for food intolerance, autoimmune diseases and infectious diseases
-------- --------- --------- 305 330 0.8% -------- --------- ---------Unquoted investmentsDiGiCo Europe Limited Jul-07 1,985 3,483 8.8%Designer and manufacturer of audio mixing desksBritish International Holdings Limited May-06 1,708 2,574 6.5%Supplier of helicopter servicesCB Imports Group Limited (Country Baskets)
Dec-07 2,000 2,482 6.3% Importer and distributor of artificial flowers and floral sundries ATG Media Holdings Limited
Oct-08 1,486 2,163 5.5%Publisher and on-line auction platform operatorFocus Pharma Holdings Limited
Oct-07 1,370 2,003 5.1% Licensor and distributor of generic pharmaceuticals ASL Technology Holdings Limited
Mar-08 1,913 1,913 4.8%Supplier of printer and photocopier servicesBlaze Signs Holdings Limited Apr-06 1,700 1,766 4.5%Manufacturer and installer of signsRDL Corporation Limited
Oct-07 1,558 1,558 3.9% (formerly Aust Recruitment Group Limited) Recruitment consultants for the pharmaceutical, business intelligence and IT industries Iglu.com Holidays Limited
Oct-07 216 1,280 3.2%On-line ski and cruise travel agentBladon Castle Management Limited Dec-08 1,000 1,000 2.5%Company seeking to acquire businesses in the retailing, health orbrand management sectorsFullfield Limited Dec-08 1,000 1,000 2.5%Acquisition vehicle which acquired Motorclean Group after theperiod-endVanir Consultants Limited Oct-08 1,000 1,000 2.5%Company seeking to invest in data management, data mapping andmanagement servicesWestway Services Holdings (2010) Limited
Jun-09 603 992 2.5% Installation, maintenance and servicing of air-conditioning systems Machineworks Software Limited 2
Apr-06 223 965 2.4%Software for CAM and machine tool vendorsRacoon International Holdings Limited
Dec-06 1,213 742 1.9% Supplier of hair extensions, hair care products and training Youngman Group Limited
Oct-05 1,000 701 1.8%Manufacturer of ladders and access towersVectair Holdings Limited Jan-06 139 536 1.4%Designer and distributor of washroom productsFaversham House Holdings Limited
Dec-10 527 527 1.3% Publisher, exhibition organiser and operator of websites Plastic Surgeon Holdings Limited (The)
Apr-08 478 187 0.5%Supplier of snagging and finishing services to the domestic andcommercial property marketsLightworks Software Limited 2 Apr-06 223 119 0.3%Software for CAD vendorsMonsal Holdings Limited
Dec-07 1,182 - 0.0% Supplier of engineering services to the water and waste sectors PXP Holdings Limited (Pinewood Structures)
Dec-06 1,164 - 0.0%Designer, manufacturer, supplier and installer of timber-frames forbuildingsLegion Group plc - in administration
Aug-05 150 - 0.0% Provider of manned guarding, mobile patrolling, and alarm response services
-------- --------- --------- 23,838 26,991 68.20% -------- --------- ---------
Total qualifying investments
24,143 27,321 69.00%
-------- --------- ---------
NON QUALIFYING INVESTMENTSSWIP Global Liquidity Fund plc (Scottish Widows) 3 3,455 3,455 8.7%Fidelity Institutional Cash Fund plc3 1,474 1,474 3.7%Insight Liquidity Funds plc (HBOS) 3 1,271 1,271 3.2%Global Treasury Funds plc (Royal Bank of Scotland) 3 1,037 1,037 2.6%Institutional Cash Series plc (BlackRock) 3 849 849 2.1%GS Funds plc (Goldman Sachs) 3 429 429 1.1%Sterling Liquidity First Institutional plc(Blackrock) 3 333 333 0.9%British International Holdings Limited
318 318 0.9%
-------- --------- ---------Total non-qualifying investments
9,166 9,166 23.2%
-------- --------- ---------
Total investments
33,309 36,487 92.2%
-------- --------- ---------Other assets 3,326 3,326 8.5 %Current liabilities (319) (319) (0.7)% -------- --------- ---------Net assets
36,316 39,494 100.0 %
-------- --------- --------- 1 Book cost includes the fair value of the qualifying investments acquired from
Matrix Income & Growth 3 VCT plc on 20 May 2010, still held at 30 June 2011, of
£9,770,646.
2 On 31 March 2011, VSI Limited (VSI) undertook a demerger, such that the Company
now holds separate investments in Machineworks Software Limited (Machineworks)
and Lightworks Software Limited (Lightworks). On the demerger date, the cost of
the ordinary shares and the cost and valuation of the preference share
investments were split equally between Machineworks and Lightworks. However the
valuation of the ordinary share investments at the merger date were split 75:25
between Machineworks and Lightworks respectively. The former loan investment in
VSI of £462,826 was wholly transferred to Machineworks at the date of the
Merger. It was repaid in full on 4 April 2011.
3 Disclosed as Current Investments within Current Assets in the Balance Sheet.
Unaudited Income Statementfor the six months ended 30 June 2011 Six months ended Six months ended 30 June 2011 30 June 2010 (unaudited) (unaudited) Notes Revenue Capital Total Revenue Capital Total £ £ £ £ £ £Unrealised (losses)/gainson investments held at fairvalue 9 - (709,124) (709,124)
- 2,291,988 2,291,988
Realised gains/(losses) oninvestments held at fairvalue 9 - 2,953 2,953 - - - Income 3 864,903 - 864,903 437,524 - 437,524 Recoverable VAT - - - - - -
Investment management expense 4 (116,410) (349,229) (465,639) (54,589) (163,766) (218,355)
Other expenses (145,841) - (145,841) (177,021) - (177,021) Merger costs - - - (88,670) - (88,670) --------- --------- --------- --------- --------- ---------Profit/(loss) on ordinaryactivities before taxation 602,652 (1,055,400) (452,748) 117,244 2,128,222 2,245,466 Tax on profit/(loss) onordinary activities 5 (52,464) 52,464 - (162) - (162) --------- --------- --------- --------- --------- ---------Profit/(loss) attributableto equity shareholders 550,188 (1,002,936) (452,748)
117,082 2,128,222 2,245,304
--------- --------- ---------
--------- --------- ---------
Basic and dilutedearnings per share 6 1.30p (2.37)p (1.07)p 0.47p 8.47p 8.94p Year ended 31 December 2010 (audited) Notes Revenue Capital Total £ £ £ Unrealised (losses)/gainson investments held at fairvalue 9 - 6,527,412 6,527,412 Realised gains/(losses) oninvestments held at fairvalue 9 - (75,045) (75,045) Income 3 934,890 - 934,890 Recoverable VAT - - -
Investment management expense 4 (164,619) (493,859) (658,478)
Other expenses (338,661) - (338,661) Merger costs (69,089) - (69,089) --------- --------- ---------Profit/(loss) on ordinaryactivities before taxation 362,521 5,958,508 6,321,029 Tax on profit/(loss) onordinary activities 5 (49,224) 49,851 627 --------- --------- ---------Profit/(loss) attributableto equity shareholders 313,297 6,008,359 6,321,656 --------- --------- --------- Basic and dilutedearnings per share 6 0.95p 18.30p 19.25p
The total column of this statement is the Profit and Loss account of the Company.
All revenue and capital items in the above statement derive from continuing operations.
There were no other recognised gains or losses in the period.
Other than revaluation movements arising on investments held at fair value through profit and loss, there were no differences between the profit/(loss) as stated above and at historical cost.
Unaudited Balance Sheetas at 30 June 2011 30 June 2011 30 June 2010 31 December 2010 (unaudited) (unaudited) (audited) Notes £ £ £Non-current assetsInvestments at fair value 1c, 9 27,639,424 26,727,418 31,043,002 Current assetsDebtors and prepayments 9 1,237,639 322,022 231,222Current Investments 10 8,847,873 8,219,791 7,466,137Cash at bank 2,088,907 305,798 114,672 --------- --------- --------- 12,174,419 8,847,611 7,812,031 Creditors: amounts fallingdue within one year (319,446) (414,805) (404,126) --------- --------- ---------Net current assets 11,854,973 8,432,806 7,407,905 --------- --------- ---------Net assets 39,494,397 35,160,224 38,450,907 --------- --------- --------- Capital and reserves 11Called up share capital 434,762 407,673 397,795Capital redemption reserve 45,769 19,487 29,364Share premium account 21,881,504 16,852,849 16,852,849Revaluation reserve 3,329,024 15,201 4,290,333Special distributable reserve 14,587,571 17,639,263 16,423,246Profit and loss account (784,233) 225,751 457,320 --------- --------- ---------Equity shareholders' funds 39,494,397 35,160,224 38,450,907 --------- --------- ---------
Net asset value per Ordinary Share 8 90.84p 86.25p
96.66p
Unaudited Reconciliation of Movements in Shareholders' Funds
for the six months ended 30 June 2011
Six months ended Six months ended Year ended 30 June 2011 30 June 2010 31 December 2010 (unaudited) (unaudited) (audited) Notes £ £ £
Opening Shareholders' funds 38,450,907 16,979,370
16,979,370 Purchase of own shares (1,400,202) (104,345) (890,013) Shares issued arising fromLinked Offer for Subscription 5,082,027 -
-
Shares issued upon mergerwithMatrix Income & Growth 3 VCTplc - 17,111,546
17,111,545
Stamp duty on shares issued - (52,975)
(52,975)
(Loss)/profit for the periodbefore dividends (452,748) 2,245,304 6,321,656 Dividends paid in period 7 (2,185,587) (1,018,676) (1,018,676) --------- --------- ---------
Closing Shareholders' funds 39,494,397 35,160,224
38,450,907
Unaudited Summarised Cash Flow Statement
for the six months ended 30 June 2011
Six months ended Six months ended Year ended 30 June 2011 30 June 2010 31 December 2010 (unaudited) (unaudited) (audited) £ £ £Operating activitiesInvestment income received 772,342 242,837 827,488Other income 3,873 - -
Investment management fees paid (449,579) (173,535)
(587,816)Other cash payments (118,729) (244,374) (461,372)Payments of merger costsof the Company (2,400) (36,247) (78,636) --------- --------- ---------Net cash inflow/(outflow) fromoperating activities 205,507 (211,319) (300,336) Investing activitiesAcquisitions of investments (1,541,001) - (1,124,409)Disposals of investments 3,319,873 154,739 1,123,942 --------- --------- ---------Net cash inflow/(outflow) frominvesting activities 1,778,872 154,739 (467) DividendsEquity dividends paid (2,185,587) (1,018,676) (1,018,676) --------- --------- ---------Cash outflow before financingand liquid resource management (201,208) (1,075,256)
(1,319,479)
Management of liquid resourcesIncrease in current investments (1,381,736) (3,042,221)
(2,288,567)
Financing
Shares issued as part of Joint fundraising offer for subscription 5,082,027 -
-
Cash received on acquisition of netassets fromMatrix Income & Growth 3 VCT plc - 4,561,289
4,561,289
Stamp duty on shares issued toacquirenet assets ofMatrix Income & Growth 3 VCT plc - (52,975)
(52,975)
Payments to meet merger costs ofMatrix Income & Growth 3 VCT plc - (90,295)
(133,191) Share capital bought back (1,524,848) (40,997) (698,658) --------- --------- ---------
Net inflow from financing activities 3,557,179 4,377,022
3,676,465
--------- ---------
---------
Increase in cash for the period 1,974,235 259,545
68,419 --------- --------- ---------
Reconciliation of profit/(loss) on ordinary activities before taxation to net cash inflow/ (outflow) from operating activities
for the six months ended 30 June 2011
Six months ended Six months ended Year ended 30 June 2011 30 June 2010 31 December 2010 (unaudited) (unaudited) (audited) £ £ £(Loss)/profit on ordinary activitiesbefore taxation (452,748) 2,245,466 6,321,029Net unrealised losses/(gains)on investments 709,124 (2,291,988) 75,045Net gains on realisationsof investments (2,953) - (6,527,412)Increase in debtors (87,882) (131,776) (40,976)
Increase/(Decrease) in creditors 39,966 (33,021)
(128,022)
--------- ---------
---------
Net cash inflow/(outflow) fromoperating activities 205,507 (211,319) (300,336) --------- --------- ---------
The notes below form part of these half-yearly financial statements.
Notes to the Unaudited Financial Statements
1. Principal accounting policies
The following accounting policies have been applied consistently throughout the period. Full details of principal accounting policies will be disclosed in the Annual Report.
a) Basis of accounting
The unaudited results cover the six months to 30 June 2011 and have been prepared under UK Generally Accepted Accounting Practice (UK GAAP), consistent with the accounting policies set out in the statutory accounts for the year ended 31 December 2010 and the 2009 Statement of Recommended Practice, `Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('the SORP') issued by the Association of Investment Companies in January 2009.
The results for the period to 20 May 2010 reflected the activities of theCompany. On this date the assets and liabilities of Matrix Income & Growth 3VCT plc were acquired by the Company and therefore the results for theremaining period to 30 June 2010 and onwards reflected the activities of theenlarged entity.The Half-Yearly Report has not been audited, nor has it been reviewed by theauditors pursuant to the Auditing Practices Board (APB)'s guidance on Reviewof Interim Financial Information.
b) Presentation of the Income Statement
In order to better reflect the activities of a VCT and in accordance with theSORP, supplementary information which analyses the Income Statement betweenitems of a revenue and capital nature has been presented alongside the IncomeStatement. The revenue column of profit attributable to equity shareholders isthe measure the Directors believe appropriate in assessing the Company'scompliance with certain requirements set out in Section 274 Income Tax Act2007.
c) Investments
All investments held by the Company are classified as "fair value throughprofit and loss", in accordance with the International Private Equity andVenture Capital Valuation ("IPEVCV") guidelines, as updated in September 2009,which have not materially changed the results reported last year. Thisclassification is followed as the Company's business is to invest in financialassets with a view to profiting from their total return in the form of capitalgrowth and income.For investments actively traded in organised financial markets, fair value isgenerally determined by reference to Stock Exchange market quoted bid pricesat the close of business on the balance sheet date. Purchases and sales ofquoted investments are recognised on the trade date where a contract of saleexists whose terms require delivery within a time frame determined by therelevant market. Purchases and sales of unlisted investments are recognisedwhen the contract for acquisition or sale becomes unconditional.
Unquoted investments are stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEVCV guidelines:
All investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, the following factors will be considered:
(i) Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used.
(ii) In the absence of i), and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:-
a) an earnings multiple basis. The shares may be valued by applying a suitableprice-earnings ratio to that company's historic, current or forecast post-taxearnings before interest and amortisation (the ratio used being based on acomparable sector but the resulting value being adjusted to reflect points ofdifference identified by the Manager compared to the sector including, interalia, a lack of marketability).
or:-
b) where a company's underperformance against plan indicates a diminution inthe value of the investment, provision against cost is made, as appropriate.Where the value of an investment has fallen permanently below cost, the lossis treated as a permanent impairment and as a realised loss, even though theinvestment is still held. The Board assesses the portfolio for suchinvestments and, after agreement with the Manager, will agree the values thatrepresent the extent to which an investment has become realised. This is basedupon an assessment of objective evidence of that investment's futureprospects, to determine whether there is potential for the investment torecover in value.
(iii) Premiums on loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable.
(iv) Where an earnings multiple or cost less impairment basis is not appropriate and overriding factors apply, discounted cash flow or net asset valuation bases may be applied.
2. Capital gains and losses on investments, whether realised or unrealised, are dealt with in the profit and loss and revaluation reserves and movements in the period are shown in the Income Statement.
3. Income Six months ended Six months ended Year ended 30 June 2011 30 June 2010 31 December 2010 (unaudited) (unaudited) (audited) £ £ £ Dividends 352,826 161,067 194,226 Money-market funds 31,896 12,684 35,779 Loan stock interest 479,770 263,613 700,647 Bank deposits 411 160 367 Other Income - - 3,871 --------- --------- --------- Total Income 864,903 437,524 934,890 --------- --------- ---------
4. Investment management expense
In accordance with the policy statement published under "Management and Administration" in the Company's prospectus dated 9 July 2004, the Directors have charged 75% of the investment management expense to the capital reserve.
5. Taxation
Other than a small charge for deferred tax, there is no tax charge for the period as the Company has incurred taxable losses.
6. Basic and diluted earnings and return per share
The basic and diluted earnings, revenue return and capital return per shareshown below for each period are respectively based on numerators i)-iii), eachdivided by the weighted average number of shares in issue in the period - seeiv) below. Six months ended Six months ended Year ended 30 June 2011 30 June 2010 31 December 2010 (unaudited) (unaudited) (audited) £ £ £ i) Total earnings after taxation (452,748) 2,245,304 6,321,656 Basic and diluted
(loss)/profit per ordinary
share (pence) (1.07)p 8.94p
19.25p
ii) Net revenue from
ordinary activities after
taxation 550,188 117,082 313,297 Basic and diluted revenue per ordinary share (pence) 1.30p 0.47p 0.95p iii) Net unrealised (losses)/gains (709,124) 2,291,988 6,527,412 Net realised capital gains/(losses). 2,953 - (75,045)
Capital expenses (net of
taxation) (296,765) (163,766) (444,008) --------- --------- --------- Total capital return (1,002,936) 2,128,222 6,008,359
Capital (loss)/profit per
ordinary share (pence) (2.37)p 8.47p
18.30p
iv) Weighted average
number of shares in issue
in the period 42,451,988 25,118,886 32,833,601 7. Dividends paid Six months ended Six months ended Year ended 30 June 2011 30 June 2010 31 December 2010 (unaudited) (unaudited) (audited) £ £ £ Final income dividend paid for year ended 31 December 2010 of 0.5p per share 218,559 - - Final capital dividend paid for year ended 31 December 2010 of 4.5p per share 1,967,028 - - Interim income dividend for the year ended 31 December 2009 of 0.5p per share - 101,868 101,868 Interim capital dividend for the year ended 31 December 2009 of 4.5p per share - 916,808 916,808 --------- --------- --------- 2,185,587 1,018,676 1,018,676
8. Net asset value per ordinary share
As at As at As at 30 June 2011 30 June 2010 31 December 2010 (unaudited) (unaudited) (audited) £ £ £ Net assets 39,494,397 35,160,224 38,450,907 Number of shares in issue 43,476,236 40,767,266 39,779,546 Net asset value per share (pence) 90.84p 86.25p
96.66p
9. Summary of non-current investments at fair value during the period
Traded Unquoted Unquoted on equity preference Loan AiM shares shares stock Total £ £ £ £ £
Valuation at 1 January 2011 381,248 12,207,592 16,322 18,437,840
31,043,002 Purchases at cost - - - 622,466 622,466 Sales - proceeds - (61,684) - (3,258,189) (3,319,873) - realised gains - 2,953 - - 2,953 Reclassification at valuation - 4,447 (4,447) - - Unrealised (losses)/gains (50,833) (296,708) 19,759 (381,342) (709,124) --------- --------- --------- --------- --------- Valuation at 30 June 2011 330,415 11,856,600 31,634 15,420,775 27,639,424 --------- --------- --------- --------- --------- Book cost at 30 June 2011 305,000 8,107,641 48,356 15,999,508 24,460,505 Unrealised gains/(losses) at 30 June 2011 25,415 3,748,959 (16,722) (578,733) 3,178,919 --------- --------- --------- --------- --------- Valuation at 30 June 2011 330,415 11,856,600 31,634 15,420,775 27,639,424 --------- --------- --------- --------- --------- Losses on investments Realised (losses)/gains based on historical cost - (135,753) - 390,891 255,138 Less amounts recognised as
unrealised (losses)/gains in
previous years - (138,706) - 390,891 252,185 --------- --------- --------- --------- --------- Realised gains based on carrying value at 31 December 2010 - 2,953 - - 2,953 Net movement in unrealised
(losses)/gains in the period (50,833) (296,708) 19,759 (381,342)
(709,124) --------- --------- --------- --------- --------- (Losses)/gains on
investments at 30 June 2011 (50,833) (293,755) 19,759 (381,342)
(706,171) --------- --------- --------- --------- ---------
Reconciliation to Cash Flow Statement
Purchases at cost above of £622,466 differs from the Cash FlowStatement figure of £1,541,001 by £918,535. This difference is due to amountsheld at solicitors awaiting investment of £840,384 in relation to FullfieldLimited and £78,151 in relation to Monsal Holdings Limited at 30 June 2011.These sums are part of debtors of £1,237,639 shown on the Balance Sheet.
10. Current Investments at fair value
These comprise investments in seven Dublin based OEIC money market fundsmanaged by Royal Bank of Scotland, Blackrock Investment Management (2 funds),Goldman Sachs, Insight Investment Management, Scottish Widows InvestmentManagement and Fidelity Investment Management. All of these sums are subjectto same day access.11. Capital and reserves Called Capital Share Special Profit and up share redemption premium Revaluation distributable loss capital reserve reserve reserve reserve account Total £ £ £ £ £ £ £ At 1 January 2011 397,795 29,364 16,852,849 4,290,333 16,423,246 457,320 38,450,907
Shares issued under Linked
Offer for Subscription 53,372 - 5,028,655 - - - 5,082,027 Shares bought back (16,405) 16,405 - - (1,400,202) - (1,400,202) Written off to special reserve - - - - (435,473) 435,473 - Realisation of previously unrealised appreciation - - - (252,185) - 252,185 - Dividend - final for year ended 31 December 2010 - - - -
(1,967,028) (218,559) (2,185,587)
(Loss)/ profit for the period - - - (709,124)
- 256,376 (452,748) ---------- ---------- ---------- ----------
---------- ---------- ----------
At 30 June 2011 434,762 45,769 21,881,504 3,329,024
12,620,545 1,182,793 39,494,397
---------- ---------- ---------- ---------- ---------- ---------- ----------12. Related party transactionsBridget Gu©rin is a shareholder (0.9%) and, until 22 December 2009 was adirector of Matrix Group Limited, which owns 100% of the equity of MPEPartners Limited and Matrix Securities Limited. MPE Partners Limited has a 50%interest in Matrix Private Equity Partners LLP ('MPEP'), the Company'sManager. Following a re-organisation of the Matrix group of companies, MPEPnow provides investment management and administration services under the termsof an Investment Management Agreement dated 20 May 2010. The revised annualfee is 2% of net assets plus £120,000 per annum, the latter inclusive of VATand subject to increase in RPI.Matrix CC Limited, a subsidiary of Matrix Group Limited, has a 97% interest inMatrix Corporate Capital LLP ("MCC"), the Company's Corporate Broker. Five(2010: three) share buy-backs at an average discount of 10% to NAV per sharewere undertaken by MCC on the Company's instruction, costing £1,400,202 (2010:£104,345). Retainer Fees of £7,200 (2010: £8,813) were paid to MCC during theyear and £66,709 (2010: £63,232) was due to MCC at the period-end to settleshare buy-back transactions.
13. Post Balance Sheet Events
On 4 July and 9 August 2011, a further £117,226 of loan stock was acquired inMonsal Holdings Limited, as part of a further commitment to invest £293,065 inMonsal Holdings Limited.
On 8 July 2011, £840,384 was invested in Fullfield Limited. This amount, in addition to £1,000,000 already held in Fullfield Limited, was used to part fund the management buy-out of Motorclean Holdings Limited.
14. The information for the period ended 30 June 2011 does not comprise fullfinancial statements within the meaning of Section 435 of the Companies Act2006. The financial statements for the year ended 31 December 2010 have beenfiled with the Registrar of Companies. The auditors have reported on thesefinancial statements and that report was unqualified and did not contain astatement under section 498(2) of the Companies Act 2006.15. This Half-Yearly Report will shortly be made available on our website:www.migvct.co.uk and will be circulated by post to those shareholders who haverequested copies of the Report. Further copies are available free of chargefrom the Company's registered office, One Vine Street, London W1J 0AH or canbe downloaded via the website.
XLON