Half-yearly Report

Matrix Income & Growth VCT plc ("the Company") Half-yearly results for the six months ended 30 June 2010 Investment Objective Matrix Income & Growth VCT plc ("MIG VCT" or the "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" or "the Investment 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. Merger with Matrix Income & Growth 3 VCT plc The Company merged with Matrix Income & Growth 3 VCT plc (MIG 3 VCT) on 20 May 2010. As part of the merger process MIG 3 VCT was placed in members' voluntary liquidation and its assets and liabilities were transferred to the Company. 20,572,129 new ordinary shares of 1 penny each in the capital of the Company were issued on 20 May 2010 at an attributable issue price of 83.2 pence per share to acquire net assets of £17,111,545 from MIG 3 VCT. Each MIG 3 VCT shareholder received 1.065 shares in MIG VCT (rounded down to the nearest whole number) for each MIG 3 VCT share that they held at the date of the merger. Financial Highlights - Half-yearly results for the six months ended 30 June 2010 Dividends Prior to the merger, dividends of 5 pence (MIG VCT) and 4 pence (MIG 3 VCT) were paid to shareholders on 21 April 2010. Performance Summary Initial net asset value (NAV) 94.5 p per share Initial net assets on 8 October £20.9 million 2004 As at As at As at 30 June 2010 30 June 2009 31 December 2009 Net assets £m 35.2 16.7 17.0 Net asset value (NAV) per share 86.3 p 81.1p 83.3 p Net cumulative dividends paid per 21.3 p 16.3p 16.3 p share Total return per share to 107.6 p 97.4p 99.6 p shareholders since launch (NAV basis) 1 Share price (mid-market price) 63.0 p 60.0p 57.0 p Former MIG 3 VCT Shareholders - Illustration of performance To help shareholders who originally invested in MIG 3 VCT understand the performance of their investment since inception, the table below shows the NAV return at 30 June 2010 on a single MIG 3 VCT share of £1. Original Number of MIG NAV per share Net Total NAV investment VCT shares held at 30 June 2010 cumulative return per share post-merger dividends to shareholders paid per since launch 1 (1 share at £1.00) share 100.0p 1.0655 91.9p 9.6p 101.5p 1 Net asset value per share plus cumulative dividends per share. This compares with an original investment cost of 60 pence per share after allowing for income tax relief of 40 pence per share. Chairman's Statement This Half-yearly Report covers the six month period ended 30 June 2010. Merger with Matrix Income & Growth 3 VCT plc I am pleased to report that the Company successfully merged with Matrix Income & Growth 3 VCT plc (MIG 3 VCT) on 20 May 2010. The merger created an enlarged company with net assets of £35 million compared with £17 million before the merger. It has resulted in material cost savings and simpler administration and brought many benefits to shareholders: ● a reduction in annual running costs for the enlarged company compared with the total annual running costs of the separate companies, in particular through a reduction in the aggregate directors' and advisers' fees; ● the creation of a single VCT of a more efficient size with a greater capital base over which to spread annual costs; ● participation in a larger VCT with the longer term potential for a more diversified portfolio thereby spreading risk across a broader range of investments and creating an increased ability to support follow-on investments; ● the potential for greater liquidity in the secondary market due to an increased ability to maintain a buy-back programme; and ● increased flexibility in continuing to meet the various requirements for qualifying VCT status. For further information on the financial details of the merger please see Note 13 to the Notes to the Accounts below. Total return to shareholders and net asset value (NAV) The net asset value per share as at 30 June 2010 was 86.3 pence, compared with a NAV of 83.3 pence per share at the beginning of the period. This represents a rise of 3.6%, and is after deducting a dividend of 5.0 pence paid to shareholders. The NAV total return per share rose by 8.0% during the six month period from 99.6 pence to 107.6 pence. This represents a very solid and pleasing performance in a challenging investment environment. To assist shareholders who originally invested in MIG 3 VCT to monitor the performance of their investment on a consistent basis, we have included in the Financial Highlights above a table showing the returns to a former MIG 3 VCT shareholder based on an original subscription of £1 for 1 share. Investment portfolio The recent prolonged period of uncertainty and volatility in the economy and stock markets has made negotiating financial transactions in smaller companies extremely difficult. Despite much background work, no new investments or exits were completed during the review period. The Board believes that the Investment Manager has been right to adopt a cautious approach; rather waiting patiently until better investment/divestment opportunities present themselves. Following the end of the period a small follow-on investment of £1,717 was made in Monsal Holdings. Although immaterial in size this investment was part of a refinancing that introduced a new investor at a valuation significantly greater than our original cost and previous valuation for this holding. These negotiations were well-advanced before the period-end and this uplift has therefore been recognised in our accounts as at 30 June 2010. In spite of the continued economic uncertainty, the overall performance of the majority of the companies in the portfolio has been relatively strong. The well-diversified nature of the portfolio has also helped to limit the impact of particular sector weaknesses on the value of the Company's investments. For further information on the investment portfolio please see the Investment Manager's Review below. Revenue account and dividend Disappointingly, income from the Company's investment portfolio and money market fund holdings has continued to come under considerable pressure. However, the revenue account has generated a net positive return (after tax) for the period of £117,082 (2009: £26,214). This was largely due to a first equity dividend from DiGiCo of £135,189, reflecting that company's strong trading. In addition, the levels of loan stock interest received were boosted by several loan stock investments made since the last half-yearly report. Interest received from money market funds continues at an exceptionally low level. Interest rates receivable on these funds have continued to average around 0.5% this year compared to 5.6% before the economic downturn. Although the period under review witnessed higher expenses, these were largely due to the one-off costs of the merger. Going forward the underlying rate should also now decline reflecting the savings generated by the merger. Given the current position on the revenue account and the absence of any exits during the period, the Board will not be declaring an interim dividend but will review the situation once the full year results are available. Liquidity The Company held £8.5 million in cash and money market fund balances as at 30 June 2010. In addition, the £6 million invested in the Operating Partner acquisition vehicles is also held in liquid assets. The Company is therefore well-positioned both to make investments to support the existing portfolio and to take advantage of favourable opportunities as they arise. 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 unquoted and AiM quoted companies, which it has achieved throughout the period. The Company was 76.3% invested in qualifying companies (based on VCT cost as defined in tax legislation which differs from actual cost given in the Investment Portfolio Summary below) at the period-end, with the balance of the portfolio invested in a selection of readily realisable, money market funds with AAA credit ratings. Share buy-backs During the period from 1 January 2010 to the date of the merger, MIG VCT bought back 33,525 of the Company's own shares, representing 0.2% of the issued share capital at the beginning of the period, at an average price, excluding costs, of 54.8 pence per share. These shares were purchased at an average discount of 30.0% to NAV per share, adjusted for the dividend paid on 21 April 2010. Since the merger, the Company has bought back 144,852 of the Company's own shares, representing 0.4% of the issued share capital at the date of the merger, at an average price, excluding costs, of 59.0 pence per share. These shares were purchased at an average discount of 33.4% to NAV per share. All of the shares bought back in the period were subsequently cancelled by the Company. The Board continues to pursue an active share buy-back policy which it regularly reviews. Over the last few months the selling pressure on the Company's shares has greatly diminished. Given this and the less uncertain and less volatile outlook for valuation bases, the Board has determined to seek to reduce the discount to NAV at which the Company's shares trade in the stock market towards the level prevailing before the onset of the financial crisis. As at 9 August 2010, the Company's shares were trading at a mid market price of 73.5 pence representing a discount of 14.8% to the NAV per share at 30 June 2010 of 86.3 pence. 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 2011. The Board and Investment Manager are arranging a workshop for Shareholders to have the opportunity to hear about the Company's investment activity in greater depth. This is planned to be in Central London in December 2010 and all Shareholders will receive an invitation to attend once details are finalised. BVCA awards We are very pleased that two of the companies in the VCT's portfolio have successfully won awards in their local regions to reach the national finals of the British Venture Capital Association ("BVCA") Portfolio Company Management Awards 2010. DiGiCo Europe won the International Impact category in London and the South East and the PastaKing exit was a successful award winner in the South West. The regional winners will go through to the national finals to be held on 30 September 2010. Outlook The worst of the economic and financial crisis now appears to be behind us. Economic activity has recovered from the depths of last year's recession. Although economic growth may be much less robust going forward than we have been used to in previous cycles, particularly as the coalition government presses ahead with its plans to reduce public sector spending, the business environment may now have entered a more stable period in terms of planning for the future. The election of a new government in the UK and the recent emergency budget have also helped to remove some of the previous uncertainties. This may re-awaken the appetite for financial transactions at mutually acceptable valuations in the UK small companies sector. Indeed, the Investment Manager is seeing a greater number of good quality investment opportunities now than at any time in the past two years. As noted above, the Company has a strong cash position and will, therefore, be a well-positioned buyer of attractive businesses at the right prices when conditions improve. The Board continues to believe that the patience of the Investment Manager and the patience of our Shareholders should be rewarded over the medium term Linked Matrix fundraising The Company will be participating in a linked top-up with Matrix Income & Growth 4 VCT plc and The Income & Growth VCT plc that is planned to launch later this year. The funds raised should further increase market liquidity and further spread fixed running costs over a larger asset base. Details of the Offer will be posted to shareholders later in the year. Finally, I would like to thank all of our Shareholders for their continuing support. Keith Niven Chairman Principal risks and uncertainties In accordance with Disclosure and Transparency Rule (DTR) 4.2.7, the Board confirms that the principal risks and uncertainties facing the Company have not materially changed since the publication of the Annual Report and Accounts for the year ended 31 December 2009. The Board acknowledges that there is regulatory risk and continues to manage the Company's affairs in such a manner as to comply with section 274 Income Tax Act 2007. The principal risks faced by the Company are: * economic risk; * investment and strategic risk; * regulatory risk (including VCT status); * 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 14 - 15 and in Note 20 on pages 43 - 49 of the Annual Report and Accounts for the year ended 30 December 2009, copies of which are available on the VCT'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 14 to the Accounts below. Responsibility Statement In accordance with 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 profit of the Company, as required by DTR 4.2.4; and 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 above, 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. Cautionary Statement This report may contain forward looking statements with regard 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 Board Keith Niven Chairman Investment Policy The VCT's policy is to invest primarily in a diverse portfolio of UK unquoted companies. Investments are structured as part loan and part equity in order to receive regular income and to generate capital gains from trade sales and flotations of investee companies. Investments are made selectively across a number of sectors, primarily in management buyout transactions ("MBOs") i.e. to support incumbent management teams in acquiring the business they manage but do not own. Investments are primarily made in companies that are established and profitable. Uninvested funds are held in cash and lower risk money market funds. * UK Companies The companies in which investments are made must have no more than £15 million of gross assets at the time of investment to be classed as a VCT qualifying holding. * VCT regulation The investment policy is designed to ensure that the VCT continues to qualify and is approved as a VCT by HMRC. Amongst other conditions, the VCT may not invest more than 15% of its investments in a single company and must have at least 70% by value of its investments throughout the period in shares or securities comprising Qualifying Holdings, of which a minimum overall of 30% by value must be ordinary shares which carry no preferential rights. In addition, although the VCT can invest less than 30% of an investment in a specific company in ordinary shares it must have at least 10% by value of its total investments in each Qualifying Company in ordinary shares which carry no preferential rights. * Asset mix The VCT holds funds awaiting investment in a portfolio of readily realisable interest-bearing investments and deposits. The investment portfolio of qualifying investments will be maintained at approximately 80% of net assets. * Risk diversification and maximum exposures Risk is spread by investing in a number of different businesses across different industry sectors. To reduce the risk of high exposure to equities, each qualifying investment is structured using a significant proportion of loan stock (up to 70% of the total investment in each VCT qualifying company). Initial investments in VCT qualifying companies are generally made in amounts ranging from £200,000 to £1 million at cost. Normally, no holding in any one company will represent more than 10% of the value of the VCT's investments at the time of investment. Ongoing monitoring of each investment is carried out by the Investment Manager generally through taking a seat on the Board of each VCT qualifying company. * Co-investment The VCT aims to invest in larger more mature unquoted companies through investing alongside three other Income and Growth VCTs advised by the Investment Manager with a similar investment policy. This enables the VCT to participate in combined investments by the Investment Manager of up to £5 million. * Borrowing The VCT has no current plans to undertake any borrowing. * Management The Board has overall responsibility for the Company's affairs including the determination of its investment policy. Investment and divestment proposals are originated, negotiated and recommended by the Investment Manager and are then subject to formal approval by the Directors. Matrix Private Equity Partners also provides Company Secretarial and Accountancy services to the VCT. Investment Manager's Review Overview The six month period to 30 June 2010 has seen a continuation of challenging conditions both for completing new investments and for achieving exits. Faced until recently with the uncertainties of the political environment, unstable slow recovery from recession and a lack of clarity in the immediate aftermath of the election, companies have generally been reluctant to market their businesses for sale or raise new capital for expansion. We are hopeful, however, that now that the new coalition administration has laid out its plans for reducing the budget deficit, this will provide business owners with the clarity they need to plan for the future. This should generate a greater number of more attractively priced opportunities for us to consider. We recruited an additional investment manager in the period and sustained our marketing and deal origination programme. Nevertheless, sufficiently attractive deals have continued to be difficult to complete. We continue to believe that our cautious approach to new investment has been an important factor in maintaining value in the Company. This environment is a risky time for new investment and we have been and will remain highly selective. Investment portfolio The uplift in the portfolio valuation has been assisted by the improved performance of three companies (ATG Media, British International and Racoon) and a recent third party investment at a fourth (Monsal). ATG Media is seeing excellent market response to its online auction facility. As a result of this, the company is forecasting higher than budgeted profits for the current year. British International is returning to historic levels of profitability after a disappointing year in 2009. It is supplying helicopter support to the drilling rig stationed in Falklands Islands' waters. Racoon has also shown material profit growth as a result of more focussed marketing expenditure. A highlight shortly after the period-end was the closing of a refinancing of Monsal that brought in a new investor, FourWinds Capital, offering to invest £4 million at a valuation significantly greater than our original cost and previous valuation. Such negotiations were well advanced before the half-year end, and this uplift in valuation has been reflected in these accounts. £6 million of the investment cost is held in cash in the five acquisition companies in the Operating Partner Programme. These companies are actively seeking to acquire investments in the construction, food manufacturing and healthcare and wellbeing sectors but so far have not found sufficiently attractive investment transactions at the right price. DiGiCo continues to show strong profit growth driven by new product development and has paid back £135,172 loan stock plus a premium of £10,066 during the period. Focus is also seeing increased success and anticipates continued growth in profitability this year. The three new investments completed over the last twelve months, CB Imports, Iglu and Westway have all made strong starts and are all performing ahead of their investment plans. We invested in CB Imports and Iglu in December 2009 and we continue to hold these valuations at cost at this early stage. Due to technical covenant breaches with their borrowing facilities and despite their current profitable trading, six companies are not currently servicing their VCT loan stock as at 30 June 2010. On the grounds of prudence none of this interest owed has been accounted for. In certain cases we expect servicing to resume and, in others, value to be recovered only on realisation. Whilst the building and construction sector continues to suffer from sluggish demand, the portfolio companies which are directly exposed to this sector, Plastic Surgeon, Youngman, Blaze and PXP, are all now performing steadily. We continue to work with existing businesses in the portfolio to encourage them to make the changes that are necessary to ensure that they are in the best possible position to withstand this period of economic uncertainty. It is a measure of the success of this effort that the investment portfolio has required hardly any additional funding despite the extreme challenges of the past two years. With the exception of Monsal, which is forecasting a modest loss, we expect all of the companies in the portfolio to deliver operating profits (ie prior to goodwill amortisation and servicing debt) in their current financial year. Outlook The UK economic environment continues to hold uncertainty but there are no current signs of further threats to the financial health of our portfolio companies. Overall, we expect to continue to be able to unlock additional value over time. Smaller companies and the entrepreneurs that run them now have a stable political and economic regime in which to plan for the future and this should increase our dealflow. We are hopeful that many more investment opportunities will become available at more attractive prices over the coming months. Having retained strong cash reserves, the VCT is very well-placed to take advantage at this point in the cycle. Matrix Private Equity Partners LLP Investment Portfolio Summary as at 30 June 2010 Date of Total book Valuation % value of initial cost * net assets investment £'000 £'000 Qualifying investments AiM quoted investments Legion Group plc (formerly Aug-05 150 30 0.09% SectorGuard plc) Provider of manned guarding, mobile patrolling, and alarm response services ----------- ----------- ----------- 150 30 0.09% Unquoted investments DiGiCo Europe Limited Jul-07 1,985 3,114 8.86% Designer and manufacturer of audio mixing desks British International Holdings May-06 2,026 2,351 6.69% Limited Supplier of helicopter services ATG Media Holdings Limited Oct-08 1,668 2,012 5.72% Publisher and on-line auction platform operator Aust Construction Investors Limited Oct-07 2,000 2,000 5.69% Company seeking to acquire businesses in the construction sector CB Imports Group Limited (formerly Dec-07 2,000 2,000 5.69% Calisamo Management Limited) Importer and distributor of artificial flowers and floral sundries VSI Limited Apr-06 907 1,670 4.75% Developer and marketer of 3D software Focus Pharma Holdings Limited Oct-07 1,370 1,514 4.31% Licensor and distributor of generic pharmaceuticals Iglu.com Holidays Limited (formerly Oct-07 1,422 1,422 4.04% Barnfield Management Limited) On-line ski and cruise travel agent Monsal Holdings Limited Dec-07 1,310 2,248 6.39% Supplier of engineering services to water and waste sectors Westway Services Holdings (2010) Jun-09 783 1,007 2.86% Limited (formerly MC440 Limited) Installation, maintenance and servicing of air- conditioning systems Apricot Trading Limited Mar-08 1,000 1,000 2.85% Company seeking to acquire businesses in the market services and media sector. Bladon Castle Management Limited Dec-08 1,000 1,000 2.85% Company seeking to acquire businesses in the retailing, health and brand management sector Fullfield Limited Dec-08 1,000 1,000 2.85% Company seeking to acquire businesses in the food sector Vanir Consultants Limited Oct-08 1,000 1,000 2.85% Company seeking to invest in data management, data mapping and management services Vectair Holdings Limited Jan-06 560 940 2.67% Designer and distributor of washroom products Racoon International Holdings Limited Dec-06 1,213 789 2.24% Supplier of hair extensions, hair care products and training Youngman Group Limited Oct-05 1,000 701 1.99% Manufacturer of ladders and access towers Campden Media Limited Jan-06 975 380 1.08% Magazine publisher and conference organiser Blaze Signs Holdings Limited Apr-06 1,700 363 1.03% Manufacturer and installer of signs Plastic Surgeon Holdings Limited Apr-08 479 186 0.53% (The) Supplier of snagging and finishing services to the domestic and commercial property markets PXP Holdings Limited (Pinewood Dec-06 1,164 - 0.00% Structures) Designer, manufacturer, supplier and installer of timber-frames for buildings ----------- ----------- ----------- 26,562 26,697 75.94% ----------- ----------- ----------- Total qualifying investments 26,712 26,727 76.03% ----------- ----------- ----------- Non-qualifying investments Fidelity Institutional Cash Fund plc* 2,162 2,162 6.15% * Global Treasury Funds plc (Royal Bank 1,341 1,341 3.81% of Scotland)** Insight Liquidity Funds plc (HBOS)** 1,263 1,263 3.59% SWIP Global Liquidity Fund plc 1,146 1,146 3.26% (Scottish Widows)** Institutional Cash Series plc 1,038 1,038 2.95% (BlackRock)** Sterling Liquidity First 844 844 2.40% Institutional plc(Blackrock)** GS Funds plc (Goldman Sachs)** 426 426 1.21% ----------- ----------- ----------- Total non-qualifying investments 8,220 8,220 23.37% ----------- ----------- ----------- Total investments 34,932 34,947 99.40% Other assets 628 628 1.78 % Current liabilities (415) (415) (1.18)% ----------- ----------- ----------- Net assets 35,145 35,160 100.00% * Book cost includes the fair value of the qualifying investments acquired from MIG 3 VCT plc on 20 May 2010 of £12,756,000 where still held at 30 June 2010,. ** Disclosed as `Investments at fair value' within `Current assets' in the Balance Sheet. Unaudited Income Statement for the six months ended 30 June 2010 Six months ended 30 June 2010 Six months ended 30 June 2009 (unaudited) (unaudited) Notes Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ Unrealised gains/ 10 - 2,291,988 2,291,988 - (906,568) (906,568) (losses) on investments held at fair value Realised gains/ 10 - - - - 16,189 16,189 (losses) on investments held at fair value Income 3 437,524 - 437,524 223,535 - 223,535 Recoverable VAT - - - 1,939 5,818 7,757 Investment 4 (54,589) (163,766) (218,355) (37,150) (111,451) (148,601) management expense Other expenses 5 (177,021) - (177,021) (160,440) - (160,440) Merger costs 5 (88,670) - (88,670) - - - ------------- ------------- ------------- ------------- ------------- ------------- Profit/(loss) on 117,244 2,128,222 2,245,466 27,884 (996,012) (968,128) ordinary activities before taxation Tax on profit/(loss) 6 (162) - (162) (1,670) 2,691 1,021 on ordinary activities ------------- ------------- ------------- ------------- ------------- ------------- Profit/(loss) 117,082 2,128,222 2,245,304 26,214 (993,321) (967,107) attributable to equity shareholders ------------- ------------- ------------- ------------- ------------- ------------- Basic and diluted 7 0.47p 8.47p 8.94p 0.13p (4.79)p (4.66)p earnings per share Year ended 31 December 2009 (audited) Notes Revenue Capital Total £ £ £ Unrealised - (161,173) (161,173) gains/(losses) on investments held at fair value Realised gains - (177,845) (177,845) /(losses) on investments held at fair value Income 3 399,661 - 399,661 Recoverable 1,939 5,818 7,757 VAT Investment 4 (79,923) (239,769) (319,692) management expense Other expenses (312,239) - (312,239) Merger costs - - - ------------- ------------- ------------- Profit/(loss) 9,438 (572,969) (563,531) on ordinary activities before taxation Tax on profit/ 6 (641) - (641) (loss) on ordinary activities ------------- ------------- ------------- Profit/(loss) 8,797 (572,969) (564,172) attributable to equity shareholders ------------- ------------- ------------- Basic and 7 0.04p (2.77)p (2.73)p diluted earnings per share All revenue and capital items in the above statement derive from continuing operations of the Company. This includes the assets, liabilities and activities of Matrix Income & Growth 3 VCT plc after they were transferred to the Company on 20 May 2010. No restatement has been made for comparable periods. The total column of this statement is the Profit and Loss account of the Company. 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. The notes below form part of these half-yearly financial statements. Unaudited Balance Sheet as at 30 June 2010 As at As at As at 30 June 2010 * 30 June 2009 31 December 2009 (unaudited) (unaudited) (audited) Notes £ £ £ Non-current assets Investments at fair 1c, 26,727,418 12,818,934 11,779,583 value 10 Current assets Debtors and 322,022 76,696 94,327 prepayments Current Investments 11 8,219,791 3,980,136 5,177,570 Cash at bank 305,798 57,594 46,253 -------------------- -------------------- -------------------- 8,847,611 4,114,426 5,318,150 Creditors: amounts (414,805) (216,509) (118,363) falling due within one year -------------------- -------------------- -------------------- Net current assets 8,432,806 3,897,917 5,199,787 -------------------- -------------------- -------------------- Net assets 35,160,224 16,716,851 16,979,370 -------------------- -------------------- -------------------- Capital and reserves 12 Called up share 407,673 206,241 203,735 capital Capital redemption 19,487 15,197 17,703 reserve Share Premium account 16,852,849 - - Revaluation reserve 15,201 (2,023,784) (2,271,608) Special distributable 17,639,263 18,178,797 17,907,374 reserve Profit and loss 225,751 340,400 1,122,166 account -------------------- -------------------- -------------------- Equity shareholders' 35,160,224 16,716,851 16,979,370 funds Net asset value per 9 86.25p 81.06p 83.34p Ordinary Share * Includes those assets and liabilities acquired from Matrix Income & Growth 3 VCT plc on 20 May 2010. The notes below form part of these half-yearly financial statements. Unaudited Reconciliation of Movements in Shareholders' Funds for the six months ended 30 June 2010 Six months ended Six months ended Year ended 30 June 2010 30 June 2009 31 December 2009 (unaudited) (unaudited) (audited) Notes £ £ £ Opening Shareholders' 16,979,370 17,998,562 17,998,562 funds Purchase of own (104,345) (106,617) (247,033) shares Shares issued upon 17,111,546 - - merger with Matrix Income & Growth 3 VCT plc Stamp duty on shares (52,975) - - issued Profit/(loss) for the 2,245,304 (967,107) (564,172) period before dividends Dividends paid in 8 (1,018,676) (207,987) (207,987) period -------------------- -------------------- -------------------- Closing Shareholders' 35,160,224 16,716,851 16,979,370 funds The notes below form part of these half-yearly financial statements. Unaudited Summarised Cash Flow Statement for the six months ended 30 June 2010 Six months ended Six months ended Year ended 30 June 2010 30 June 2009 31 December 2009 (unaudited) (unaudited) (audited) £ £ £ Operating activities Investment income 242,837 247,798 398,184 received VAT recovered - 207,757 223,249 Investment management (173,535) (101,242) (239,743) fees paid Other cash payments (244,374) (182,208) (357,430) Payment of merger costs (36,247) - - of the Company -------------------- -------------------- -------------------- Net cash inflow/ (211,319) 172,105 24,260 (outflow) from operating activities Investing activities Acquisitions of - (386,016) (567,834) investments Disposals of investments 154,739 233,581 1,996,610 -------------------- -------------------- -------------------- Net cash inflow/(outflow) 154,739 (152,435) 1,428,776 from investing activities Dividends Equity dividends paid (1,018,676) (207,987) (207,987) Taxation Taxation repaid/(paid) - - (106,857) -------------------- -------------------- -------------------- Cash inflow/(outflow) (1,075,256) (188,317) 1,138,192 before financing and liquid resource management Management of liquid resources (Increase)/decrease in (3,042,221) 395,588 (801,846) current investments Financing Cash received on 4,561,289 - - acquisition of net assets from Matrix Income & Growth 3 VCT plc Stamp duty on shares (52,975) - - issued to acquire net assets of Matrix Income & Growth 3 VCT PLC Payments to meet merger (90,295) - - costs of Matrix Income & Growth 3 VCT plc Share capital bought back (40,997) (221,489) (361,905) -------------------- -------------------- -------------------- Net inflow/(outflow) from 4,377,022 (221,489) (361,905) financing activities -------------------- -------------------- -------------------- Increase/(decrease) in 259,545 (14,218) (25,559) cash for the period -------------------- -------------------- -------------------- Reconciliation of profit/(loss) on ordinary activities before taxation to net cash (outflow)/ inflow from operating activities for the six months ended 30 June 2010 Six months ended Six months ended Year ended 30 June 2010 30 June 2009 31 December 2009 (unaudited) (unaudited) (audited) £ £ £ Profit/(loss) on ordinary 2,245,466 (968,128) (563,531) activities before taxation Net unrealised (gains)/ (2,291,988) 906,568 177,845 losses on investments Net (gains)/losses on - (16,189) 161,173 realisations of investments (Increase)/decrease in (131,776) 296,120 287,990 debtors Decrease in creditors (33,021) (46,266) (39,217) -------------------- -------------------- -------------------- Net cash (outflow)/inflow (211,319) 172,105 24,260 from operating activities -------------------- -------------------- -------------------- 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 2010 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 2009 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 reflect the activities of the Company. On this date the assets and liabilities of Matrix Income & Growth 3 VCT plc were acquired by the Company and therefore the results for the remaining period to 30 June 2010 reflect the activities of the enlarged entity. Further details are contained in note 13 below. The Half-Yearly Report has not been audited, nor has it been reviewed by the auditors pursuant to the Auditing Practices Board (APB)'s guidance on Review of Interim Financial Information. b) Presentation of the Income Statement In order to better reflect the activities of a VCT and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The revenue column of profit attributable to equity shareholders is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Section 274 Income Tax Act 2007. c) Investments Investments are accounted for on a trade date basis. All investments held by the Company are classified as "fair value through profit and loss" as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income. For investments actively traded in organised financial markets, recognition and fair value is determined by reference to Stock Exchange market trading rules and quoted bid prices at the close of business on the balance sheet date. Unquoted investments are valued by the Directors at `fair value through profit and loss'. Accordingly, in the absence of a market price, the Directors have valued unquoted investments in accordance with International Private Equity Venture Capital Valuation (IPEVCV) guidelines as updated in September 2009, which have not materially changed the results reported last year. 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 suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortisation (the ratio used being based on a) an earnings multiple basis. The shares may be valued by applying a suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortization (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Investment Manager compared to the sector including, inter alia, a lack of marketability). or:- b) where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Investment Manager, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover 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 2010 30 June 2009 31 December 2009 (unaudited) (unaudited) (audited) £ £ £ Dividends 161,067 19,933 26,345 Money-market funds 12,684 26,171 37,254 Loan stock interest 263,613 161,602 315,598 Bank deposits 160 337 919 Interest on VAT - 15,492 15,492 recovered Other Income - - 4,053 -------------------- -------------------- -------------------- Total Income 437,524 223,535 399,661 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. Merger costs Based upon estimated total merger costs of £285,000 to merge the Company with Matrix Income & Growth 3 VCT plc, the Company's share of these costs is £ 141,975. This includes £52,975 of stamp duty, charged to the share premium account, as shown in note 12. The balance of £88,670 is disclosed as merger costs in the Income Statement. Final figures for the costs of the merger are not yet available, but at this stage, the Board expects that the final costs will be close to those currently estimated in total. 6. Taxation Other than a small charge for deferred tax, there is no tax charge for the period as the Company has incurred taxable losses. 7. Basic and diluted earnings and return per share The basic and diluted earnings, revenue return and capital return per share shown below for each period are respectively based on numerators i)-iii), each divided by the weighted average number of shares in issue in the period - see iv) below. Six months ended Six months ended Year ended 30 June 2010 30 June 2009 31 December 2009 (unaudited) (unaudited) (audited) £ £ £ i) Total earnings after 2,245,304 (967,107) (564,172) taxation Basic and diluted 8.94p (4.66)p (2.73)p gain/(loss) per o rdinary share (pence) ii) Net revenue from 117,082 26,214 8,797 ordinary activities after taxation Basic and diluted 0.47p 0.13p 0.04p revenue per ordinary share (pence) Net unrealised gains/ 2,291,988 (906,568) (161,173) (losses) Net realised capital - 16,189 (177,845) gains/(losses). Capital element of - 5,818 5,818 VAT recoverable Dividends received - - - treated as capital Capital expenses (net (163,766) (108,760) (239,769) of taxation) -------------------- -------------------- -------------------- iii) Total capital return 2,128,222 (993,321) (572,969) Capital gain/(loss) 8.47p (4.79)p (2.77)p per ordinary share (pence) iv) Weighted average 25,118,886 20,743,911 20,648,175 number of shares in issue in the period 8. Dividends paid Six months ended Six months ended Year ended 30 June 2010 30 June 2009 31 December 2009 (unaudited) (unaudited) (audited) £ £ £ Interim income dividend 101,868 - - for the year ended 31 December 2009 of 0.5p per share Interim capital dividend 916,808 - - for the year ended 31 December 2009 of 4.5p per share Final income dividend - 207,987 207,987 paid for year ended 31 December 2008 of 1.0p per share -------------------- -------------------- -------------------- 1,018,676 207,987 207,987 9. Net asset value per ordinary share As at As at As at 30 June 2010 30 June 2009 31 December 2009 (unaudited) (unaudited) (audited) Net assets £35,160,224 £16,716,851 £16,979,370 Number of shares in issue 40,767,266 20,624,052 20,373,514 Net asset value per share 86.25p 81.06p 83.34p (pence) 10. Summary of non-current investments at fair value during the period Traded Unquoted Unquoted Loan Total on AiM equity preference stock shares shares £ £ £ £ £ Valuation at 1 January 75,045 4,009,273 7,981 7,687,284 11,779,583 2010 Investments acquired as - 4,791,342 5,033 8,004,709 12,801,084 part of the acquisition of the assets and liabilities of Matrix Income & Growth 3 VCT plc at fair value (see note). Sales - proceeds - - - (145,237) (145,237) Unrealised (losses)/ (45,028) 1,455,761 1,750 879,505 2,291,988 gains -------------- -------------- -------------- -------------- -------------- Valuation at 30 June 30,017 10,256,376 14,764 16,426,261 26,727,418 2010 Book cost at 30 June 150,106 8,425,598 51,245 18,085,268 26,712,217 2010 Unrealised (losses)/ (120,089) 1,830,778 (36,481) (1,659,007) 15,201 gains at 30 June 2010 -------------- -------------- -------------- -------------- -------------- Valuation at 30 June 30,017 10,256,376 14,764 16,426,261 26,727,418 2010 Gains on investments Realised gains based on - - - 5,179 5,179 historical cost Less amounts recognised - - (5,179) (5,179) as unrealised gains in previous years -------------- -------------- -------------- -------------- -------------- Realised gains based on - - - - - carrying value at 31 December 2009 Net movement in (45,028) 1,455,761 1,750 879,505 2,291,988 unrealised (losses)/ gains in the period -------------- -------------- -------------- -------------- -------------- (Losses)/gains on (45,028) 1,455,761 1,750 879,505 2,291,988 investments at 30 June 2010 Note: The original cost of these assets in the books of Matrix Income & Growth 3 VCT plc was £13,152,238, being £361,154 more than the transfer at fair value shown above. 11. Current investments at fair value These comprise investments in seven Dublin based OEIC money market funds managed by Royal Bank of Scotland, Blackrock Investment Management (two funds), Goldman Sachs, Insight Investment Management, Scottish Widows Investment Management and Fidelity Investment Management. All of these sums are subject to same day access. 12. Capital and reserves Called up Capital Share Revaluation Special Profit and Total share redemption Premium reserve distributable loss capital reserve reserve reserve account £ £ £ £ £ £ £ At 1 January 203,735 17,703 - (2,271,608) 17,907,374 1,122,166 16,979,370 2010 Shares bought (1,784) 1,784 - - (104,345) - (104,345) back Written off - - - - (163,766) 163,766 - to special reserve Realisation - - - (5,179) - 5,179 - of previously unrealised appreciation Dividend - - - - - - (1,018,676) (1,018,676) final for year ended 31 December 2009 Shares issued 205,722 - 16,905,824 - - - 17,111,546 on 20 May 2010 to acquire net assets of Matrix Income & Growth 3 VCT plc Stamp duty on - - (52,975) - - - (52,975) shares issued Profit for - - - 2,291,988 - (46,684) 2,245,304 the period ---------- ---------- ---------- ---------- ---------- ---------- ---------- At 30 June 407,673 19,487 16,852,849 15,201 17,639,263 225,751 35,160,224 2010 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 13. Acquisition of assets and liabilities of Matrix Income & Growth 3 VCT plc On 20 May 2010, the assets and liabilities of Matrix Income & Growth 3 VCT plc were transferred to the Company in exchange for the issue of a further 20,572,129 Ordinary Shares in the Company, at a total value of £17,111,545. Subsequently and on the same day, Matrix Income & Growth 3 VCT plc was placed into members' voluntary liquidation pursuant to a scheme of reconstruction under section 110 of the Insolvency Act 1986. The net asset values (NAV) per share of each fund used for the purposes of conversion at the calculation date of 19 May 2010, and the resultant conversion ratios into Ordinary Shares were: NAV per share Conversion ratio applied to (pence) Matrix Income & Growth 3 VCT plc ordinary shares to obtain new number of Matrix Income & Growth VCT plc Ordinary Shares Matrix Income & Growth VCT 83.18 1.0000000 plc Matrix Income & Growth 3 88.63 1.0655542 VCT plc Share certificates reflecting the new shareholdings totalling 20,572,129 Ordinary Shares in Matrix Income & Growth VCT plc were sent to shareholders on 26 May 2010. 14. Related party transactions Bridget Guérin is a shareholder (2.0%) of Matrix Group Limited, which owns 100% of the equity of MPE Partners Limited and Matrix Securities Limited. MPE Partners Limited has a 50% interest in Matrix Private Equity Partners LLP ('MPEP'), the Company's Investment Manager. Following a re-organisation of the Matrix group of companies, MPEP now provides administration as well as investment management services under the terms of an Investment Management Agreement dated 20 May 2010. The revised annual fee is 2% of net assets plus £ 120,000 per annum, the latter inclusive of VAT and subject to increase in RPI. Until that date, Matrix-Securities Limited provided Company Secretarial and Accountancy Services to the Company under agreements dated 9 July 2004 for a fee of £35,590 (30 June 2009: £44,351; 31 December 2009: £88,387) in the period. 15. The information for the year ended 31 December 2009 does not comprise full financial statements within the meaning of Section 435 of the Companies Act 2006. The financial statements for the year ended 31 December 2009 have been filed with the Registrar of Companies. The auditors have reported on these financial statements and that report was unqualified and did not contain a statement under section 498(2) of the Companies Act 2006. 16. 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 have requested copies of the Report. Further copies are available free of charge from the Company's registered office, One Vine Street, London W1J 0AH or can be downloaded via the website.

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