Final Results - 31 January 2011
Matrix Income & Growth 4 VCT plc
Annual Results for the year ended 31 January 2011
Strategy
Matrix Income & Growth 4 VCT plc ("MIG4", the "Company" or the "Fund") is a tax
efficient company listed on the London Stock Exchange. It invests primarily in
established and profitable unquoted companies.
Investment Objective
The VCT's objective is to provide investors with a regular income stream by way
of tax free dividends and to generate capital growth through portfolio
realisations which can be distributed by way of additional tax free dividends.
Dividend Policy
The VCT seeks to pay income dividends half-yearly. Subject to fulfilling
certain regulatory requirements, the VCT also seeks to pay capital dividends at
the year-end following portfolio realisations.
FINANCIAL HIGHLIGHTS
Performance Summary
Year Net Net Cumulative NAV total return Share Share price total
ended assets asset dividends per share to price return per share
31 value paid per shareholders 1(p) to shareholders
January (£m) per share (p) since launch (p) since launch (p)
share
(p)
2011 25.3 112.9 18.7 131.6 103.5 122.2
2010 21.2 106.3 15.7 122.0 92.3 108.0
2009 21.0 104.6 13.7 118.3 92.0 105.7
2008 24.1 117.4 11.5 128.9 109.0 120.5
2007 9.8 116.3 10.7 127.0 91.0 101.7
2006 9.3 106.6 8.4 115.0 85.0 93.4
1 Source: London Stock Exchange
Matrix Private Equity Partners LLP ("MPEP") became sole manager to the Company
on 1 August 2006.
Return before and after income tax relief
The table below shows the NAV total returns at 31 January 2011 for a
shareholder that invested £10,000 in each fundraising undertaken by the
Company:
Fundraising 1999/ 2006/ 2010 2011
2000 2007
(Top-up (Joint
Offer) 3 Offer) 4
Issue price per share (p) 200 1 120.9 112.4 121.8
2
Number of shares held 5,000 8,271 8,896 8,210
Net asset value (NAV) at 31 January 5,643 9,336 10,041 9,267
2011 (£)
Dividends paid to shareholder since 935 662 267 -
subscription (£)
NAV total return to shareholder since 6,578 9,998 10,308 9,267
subscription (£)
Profit/(loss) before income tax relief (3,422) (2) 308 (733) 6
(£) 5
Income tax relief 20% 7 30% 30% 30%
Cost net of income tax relief (£) 8,000 7,000 7,000 7,000
Profit/ (loss) after income tax relief (1,422) 2,998 3,308 2,267
(£) 8
1 Original investment at 100p per ordinary share of 5p each, converted on a
2 for 1 basis to ordinary shares of 1p each in October 2006.
2 Weighted average issue price of shares.
3 Top-Up Offer to raise up to £2.18 million.
4 Joint Offer for Subscription with Matrix Income & Growth VCT plc and The
Income & Growth VCT plc to raise up to £21 million in total. Covers shares
issued up to 5 April 2011.
5 NAV total return minus initial investment cost (before income tax relief).
6 Current unrealised loss results from initial Offer costs of 5.5% paid on
subscription.
7 Additional capital gains tax deferral relief of up to £4,000 available to
qualifying shareholders.
8 NAV total return minus cost net of income tax relief.
The data for the initial fundraising above includes the period up to 1 August
2006, when the Company used three investment advisers. The three subsequent
fundraisings have raised capital which has been solely managed by MPEP.
Dividend history
Year ended Dividends per share Cumulative dividends
31 January paid in respect per share paid
of each year and proposed
since launch
(p) (p)
2011 4.00 21.70
2010 3.00 17.70
2009 2.00 14.70
2008 2.00 12.70
2007 1.80* 10.70
2006 0.50* 8.90
2005 0.20* 8.40
2004 0.50* 8.20
2003 0.50* 7.70
2002 1.00* 7.20
2001 3.10* 6.20
2000 3.10* 3.10
Dividends paid include distributions from both income and capital.
* re-stated following capital reorganisation in 2006.
Proposed dividend
A final proposed dividend of 3 pence per share will be recommended to
Shareholders at the AGM of the Company to be held on 20 June 2011 to be paid on
24 June 2011 and has been included in the above figures.
CHAIRMAN'S STATEMENT
I am pleased to present to Shareholders the Annual Report of the Company for
the year ended 31 January 2011.
It is perhaps worth standing back and reviewing the performance of this Fund to
date. The Fund initially had three managers. The performance of two of these
three managers proved unsatisfactory. As a result your Board made a change by
appointing Matrix Private Equity Partners LLP ("MPEP") as the sole manager in
2006. Since then, and despite the very deep economic downturn which has
recently affected the UK economy, this Fund has made significant progress, as
evidenced by the following:
NAV total return and share price total return figures both showing positive
returns.
Net assets are moving towards £30 million. This is a recovery from 2007, when,
as a result of the two terminated fund managers' poor performance, net assets
were under £10 million. This makes the fund fully economic in its operations.
The tax free dividend level has improved, with the dividends attributable to
the 2010/11 financial year being 4p per share.
The current discount at which the fund is repurchasing shares has narrowed to
around 10%.
Performance
At 31 January 2011, the Net Asset Value (NAV) per Share was 112.9 pence (2010:
106.3 pence). Adjusted for the dividends paid to shareholders during the year,
this represents an increase of 9.0% over the twelve month period. The NAV Total
Return per Share since launch increased in the year by 7.9% from 122.0 pence at
31 January 2010 to 131.6 pence at 31 January 2011.
As the Company invests mainly in unquoted securities and cash, comparing the
Company's performance with the performance of selected indices for quoted
securities over the same period has limited validity. However, in the absence
of more meaningful benchmarks, increases of 19.3% and 42.2% in the FTSE
SmallCap and the FTSE All-Share AIM Indices respectively (on a dividend
re-invested basis) occurred over the same period.
These figures make your Company's performance appear somewhat pedestrian by
comparison. However, the AIM performance derives partly from the oil & gas
element of the AIM market; these sectors are not open to VCT funds to invest in
on a qualifying basis. Secondly, the AIM and SmallCap indices have tended to
show greater volatility than the Company's portfolio.
Despite tough economic conditions, many of the portfolio companies continue to
develop well. The Board is satisfied with the performance of the portfolio
compared to its generalist VCT peers (a benchmark the Board uses), and supports
the selective investment approach of the Manager. A continuation of current
performance trends, if achieved, should yield a steady stream of dividends to
shareholders over the longer term.
In this context, it is relevant to note that total dividends paid and proposed
for the year to 31 January 2011 amount to 4 pence per share, the first time
such a level has been paid in respect of a single year.
Economic background
The last year has seen a recovery in investor confidence. However, the
fundamental position of the UK economy is that it is still heavily damaged by
the financial policies of the last administration and by the banking crisis.
Proper repair of this damage will be an extremely painful process; current
government policy is to review public spending, while at the same time allowing
the effects of quantitative easing and maintaining an artificially low interest
rate structure to soften this pain. At some point interest rates will have to
rise, particularly as inflation is now increasing, and this process, whenever
it takes place, will affect recovery prospects.
External factors which could affect UK markets include the very major
earthquake offshore Japan, and the political disruptions in the Middle East.
From an investors' point of view there are two main consequences. Firstly, the
returns on uninvested cash have been very low during the period. Secondly,
relatively early stage companies are particularly sensitive to the economic
environment, and only companies with robust business models will survive or
expand.
The portfolio
The portfolio continues to be dominated by investments in management buy-out
situations ("MBOs"), which has risen to 63.9% with 31.8% in acquisition
companies, 1.3% invested in one AIM investment and the remaining 3.0% of the
portfolio being invested in what were originally development capital and early
stage investments. The portfolio is now invested in a wide range of market
sectors with the largest of those being Support Services at 33.2%. General
Retailers at 24.7% is the next largest investment sector.
The fund held back on new investments during the downturn, but with a return to
more normal markets your Manager has been more active in recent months. From
regular meetings with the Investment Manager, the Board was well aware that a
number of investment opportunities were under active consideration throughout
the year. In the event, £2.4 million was invested. In October 2010, the fund
invested in Aust Recruitment Group to support the MBO of RDL Corporation and
during the last quarter made a further three investments in Faversham House,
Omega Diagnostics and ASL Technology. Further details can be found in the
Investment Manager's Review.
Disposals of investments in the year totalled £985,434. Stortext was sold in
February, realising proceeds of £487,564 together with loan notes in the
acquirer, Box-IT, of £25,759. Other divestments during the year consisted of
the disposal of Campden Media and partial loan stock repayments from Westway
Services, ATG Media, and DiGiCo. It is encouraging to note that Westway
Services and DiGiCo made their loan repayments ahead of schedule, indicative of
good cash generation.
The portfolio itself rose in value by £2.1 million in the year. Significant
components of this increase in value included Blaze Signs Holdings, as a result
of a recovery, and ATG Media and Iglu.com Holdings, both of which have traded
strongly. Iglu.com prepaid its entire loan stock after the period end and in
addition Vectair repaid its loan stock. The value of Monsal Holdings had risen
at the half-year, as a third party invested at a higher value. Unfortunately,
after the year end your Board was told that completion issues with an existing
contract, together with delays in obtaining new contracts, have caused this
investment definitely to require further funds than previously anticipated.
Shortly before these accounts were approved, it became apparent that any new
funds raised would require more attractive terms, at the expense of the
existing investment that has been made to date. Consequently, the Manager
advised the Board that the fair value of the Company's existing investment
should, for the time being, be reduced to nil. The Board has accepted this
advice, but remains hopeful that value can be still be realised in the future.
It has agreed to participate in this further funding. As you will see from the
Manager's review, other companies in the portfolio continue to trade
profitably and to expand.
As at the year end the portfolio included six acquisition companies actively
searching for further investments. A number of opportunities are under active
consideration.
For further information on the portfolio please refer to the Investment
Manager's Review.
Offer for Subscription
Matrix Income & Growth 4 VCT plc currently has a linked offer for subscription
together with Matrix Income & Growth VCT plc, and The Income & Growth VCT plc.
This is aimed at raising up to £7m for the Company. As at 16 May 2011, £5.2m
has been subscribed for the Company, and your Company has allotted 4,413,586
new ordinary shares so far.
Cash available for investment
Cash and liquidity fund balances as at 31 January 2011 together with funds in
acquisition companies, amounted to £10.7m. These funds continue to be invested
in a number of leading cash funds and deposits with major banks. Despite the
frustration of very low returns, your Board has taken the view that it would
not be prudent to increase counter party or timing exposures for a relatively
small overall increase in the return rates. However, the Board continues to
keep this policy under active review.
Revenue account
The revenue return for the Company has increased markedly during the year, from
£32,781 to £119,808. Three main factors affected the overall increase in income
to £636,426, from £489,753 for the year to 31 January 2010. Firstly, loan
interest from investee companies has increased by £141,939 (43%) to £469,393.
This is due to the benefit of further investments made near the end of 2009,
notably Iglu.com Holidays and CB Imports. Additionally, two investee companies
have resumed loan stock interest payments as they begin to return to more
normal levels of profitability.
Secondly, the Company's dividend income from investee companies also rose by £
77,646 (154%) to £127,836 during the year, compared to £50,190 for the year to
31 January 2010, predominantly due to dividends received from ATG Media and
DiGiCo for the first time.
Finally, in contrast, interest on bank deposits and money-market funds
continued to decline, falling to £36,653 compared to £96,414 and £698,799 for
the years ended 31 January 2010 and 31 January 2009, respectively. Low yields
and reducing cash levels, as funds are utilised in new investments, have been
the main factors affecting returns on cash.
Against this net improvement in income, there were increases in costs totalling
£127,724, principally due to increases in net assets.
Dividend
A final dividend of 2 pence per share in respect of the year ended 31 January
2010 was paid in June 2010, and your Company paid an interim dividend of 1
penny per share in November 2010 in respect of the year under review.
Cumulative dividends paid to date amount to 18.7 pence per share.
The Company's revenue return per Ordinary Share improved to 0.57 pence per
share (2010: 0.16 pence per share). The Board will be recommending a final
dividend of 3 pence per share, comprising 0.4 pence from income and 2.6 pence
from capital in respect of the year under review, at the Annual General Meeting
to be held on 20 June 2011. Subject to shareholder approval, this dividend will
be paid on 24 June 2011 to shareholders on the register on 3 June 2011, which
will bring total cumulative dividends paid to 21.7 pence per share.
Dividend Investment Scheme
Shareholders have the opportunity of reinvesting all or part of their dividends
into new Ordinary Shares of the Company at the higher of an amount equivalent
to (i) the mid-market share price (averaged over the last 5 business days) or
(ii) a 30% discount to the unaudited last published NAV per share. It provides
a convenient, easy and cost effective way for Shareholders to build their
shareholding in the Company. The final dividend proposed above and subject to
shareholder approval will be eligible for the Scheme.
Shareholders that wish to participate in the Scheme should contact Capita
Registrars, whose contact details can be found on the Company's website. Please
note that Shareholders must be registered no later than 15 days prior to the
dividend payment date to be eligible for the Scheme.
Share buy-backs
During the year ended 31 January 2011 the Company continued to implement its
buy-back policy and bought back 610,555 Ordinary Shares, representing 3.1% of
the shares in issue at 1 February 2010 at a total cost of £582,286. These
shares were subsequently cancelled by the Company.
The shares above were bought back for an average price of 95.4 pence per share.
The share price discount to NAV has narrowed from 13% at the start of the year
to around 10% at the year end, in line with the Board's current policy.
Shareholder communication
May I remind you that the Company continues to have its own website which is
available at www.mig4vct.co.uk.
The Investment Manager held a successful and well attended shareholder workshop
in December 2010 and intends to hold a similar event in late 2011.
The Board
Under the provisions of the AIC code and the revised listing rules for VCTs
which came into effect in September 2010, Colin Hook stood down as Chairman and
as a director of the Company. Following this, I was appointed Chairman of the
Company. On 1 August 2010, Andrew Robson joined the Board and became Chairman
of the Audit Committee in my place. Andrew has strong relevant experience in
the unquoted investment area and is also on the board of several leading
investment companies.
I would like to thank Colin for his long and diligent chairing of your Company
which has seen it move to a sole manager operation and become a leading VCT in
the generalist sector.
Outlook
Whilst markets have returned to more normal trading conditions, the outlook for
the UK economy is mixed. Government debt remains at relatively high levels and
public expenditure needs to be far more disciplined.
However, many of the portfolio companies are trading profitably at the
operating level. Having held back on investment during the downturn, the
Company retains a significant cash position. The Manager is now seeing more
investment opportunities at realistic purchase levels. Your Board hopes that
investments recently made, and to be made over the next year, will contribute
to enhancing the Company's performance which includes the objective of
attractive dividend payments.
Christopher Moore
Chairman
16 May 2011
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT
The Directors confirm to the best of their knowledge that:
(a) the financial statements, which have been prepared in accordance with UK
Generally Accepted Accounting Practice and the 2009 Statement of Recommended
Practice, 'Financial Statements of Investment Trust Companies and Venture
Capital Trusts' (SORP), give a true and fair view of the assets, liabilities,
financial position and the profit of the Company; and
(b) the management report, comprising the Chairman's Statement, Investment
Portfolio Summary, Investment Manager's Review and Directors' Report includes a
fair review of the development and performance of the business and the position
of the Company, together with a description of the principal risks and
uncertainties that it faces.
The names and functions of the Directors are stated in the Annual Report.
On behalf of the Board
Christopher Moore
Chairman
16 May 2011
DIRECTOR'S REPORT
Principal risks
The Board believes that the principal risks faced by the Company are:
Economic risk - events such as an economic recession and movement in interest
rates could affect trading conditions for smaller companies and consequently
the value of the Company's qualifying investments.
Loss of approval as a Venture Capital Trust - the Company must comply with
section 274 of the Income Tax Act 2007 ("ITA") which allows it to be exempted
from capital gains tax on investment gains. Any breach of these rules may lead
to the Company losing its approval as a Venture Capital Trust (VCT), qualifying
shareholders who have not held their shares for the designated holding period
having to repay the income tax relief they obtained and future dividends paid
by the Company becoming subject to tax. The Company would also lose its
exemption from corporation tax on capital gains.
Investment and strategic - inappropriate strategy or consistently weak VCT
qualifying investment recommendations might lead to underperformance and poor
returns to shareholders.
Regulatory - the Company is required to comply with the Companies Act 2006
("the Companies Act"), the listing rules of the UK Listing Authority and United
Kingdom Accounting Standards. Breach of any of these might lead to suspension
of the Company's Stock Exchange listing, financial penalties or a qualified
audit report. In addition, rules and regulations, or their interpretation, may
change from time to time, which may limit the types of investments the Company
can make and/or reduce the level of returns which would otherwise be
achievable.
Financial and operating risk - inadequate controls might lead to
misappropriation of assets. Inappropriate accounting policies might lead to
misreporting or breaches of regulations. Failure of the Investment Manager's
and Administrator's accounting systems or disruption to its business might lead
to an inability to provide accurate reporting and monitoring.
Market risk - Investment in unquoted companies, by its nature, involves a
higher degree of risk than investment in companies traded on the London Stock
Exchange main market. In particular, smaller companies often have limited
product lines, markets or financial resources and may be dependent for their
management on a smaller number of key individuals. They may also be more
susceptible to changes to political, exchange rate, taxation, economic and
other regulatory changes and conditions.
Asset liquidity risk - The Company's investments may be difficult to realise,
especially in the current economic climate.
Market liquidity risk - Shareholders may find it difficult to sell their shares
at a price which is close to the net asset value.
â— Counterparty risk - A counterparty may fail to discharge an obligation
or commitment that it has entered into with the Company.
For further information on the last four risks, please see Note 20 to the
accounts in the full Annual Report.
The Board seeks to mitigate the internal risks by setting policies and by
undertaking a key risk management review at each quarterly Board meeting.
Performance is regularly reviewed and assurances in respect of adequate
internal controls and key risks are sought and received from the Investment
Manager on a six monthly basis. In mitigation and in management of these risks,
the Board applies rigorously the principles detailed in the AIC Code of
Corporate Governance. The Board also has a Share Buy Back policy which seeks to
mitigate the Market Liquidity risk. This policy is reviewed at each quarterly
Board Meeting.
INVESTMENT POLICY
The Company's policy is to invest primarily in a diverse portfolio of UK
unquoted companies. Investments are structured as part loan and part equity in
order to receive regular income and to generate capital gains from trade sales
and flotations of investee companies.
Investments are made selectively across a number of sectors, primarily in
management buyout transactions (MBOs) i.e. to support incumbent management
teams in acquiring the business they manage but do not yet own. Investments are
primarily made in companies that are established and profitable.
The Company has a small legacy portfolio of investments in companies from its
period prior to 1 August 2006, when it was a multi-manager VCT. This includes
investments in early stage and technology companies.
Uninvested funds are held in cash and lower risk money market funds.
UK companies
The companies in which investments are made must have no more than £15 million
of gross assets at the time of investment to be classed as a VCT qualifying
holding. The £14.9 million of Funds raised by the Company after 6 April 2006
are subject to a £7 million gross assets test for an investment to be VCT
qualifying.
VCT regulation
The investment policy is designed to ensure that the Company continues to
qualify and is approved as a VCT by HMRC. Amongst other conditions, the Company
may not invest more than 15% of its investments in a single company and must
have at least 70% by value of its investments throughout the year in shares or
securities comprised in VCT qualifying holdings, of which a minimum overall of
30% by value must be ordinary shares which carry no preferential rights. In
addition, although the Company can invest less than 30% of an investment in a
specific company in ordinary shares it must have at least 10% by value of its
total investments in each VCT qualifying company in ordinary shares which carry
no preferential rights (save as may be permitted under VCT rules).
The VCT regulations in respect of funds raised after 6 April 2011 will change,
such that 70% of such funds must be invested in equity.
Asset mix
The Company initially holds its funds in a portfolio of readily realisable
interest bearing investments and deposits. The investment portfolio of
qualifying investments is built up over a three year period with the aim of
investing and maintaining at least 80% of net funds raised in qualifying
investments.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses across
different industry sectors. To reduce the risk of high exposure to equities,
each qualifying investment is structured using a significant proportion of loan
stock (up to 70% of the total investment in each VCT qualifying company).
Initial investments in VCT qualifying companies are generally made in amounts
ranging from £200,000 to £1 million at cost. No holding in any one company will
represent more than 10% of the value of the Company's investments at the time
of investment. Ongoing monitoring of each investment is carried out by the
Investment Manager, generally through taking a seat on the board of each VCT
qualifying company.
Co-investment
The Company aims to invest in larger, more mature unquoted companies through
investing alongside the three other VCTs advised by the Investment Manager with
a similar investment policy. This enables the Company to participate in
combined investments advised on by the Investment Manager of up to £5 million.
Borrowing
The Company's Articles permit borrowings of amounts up to 10 per cent. of the
sum equal to the aggregate of the amount paid up on the allotted or issued
share capital of the Company and the amount standing to the credit of the
capital and revenue reserves of the Company (whether or not distributable)
after adding thereto or deducting therefrom any balance standing to the credit
or debit of the profit and loss account. However, the Company has no current
plans to undertake any borrowing.
Management
The Board has overall responsibility for the Company's affairs including the
determination of its investment policy. Investment and divestment proposals are
originated, negotiated and recommended by the Investment Manager and are then
subject to formal approval by the Board of Directors.
INVESTMENT MANAGER'S REVIEW
Overview
The first half of the year ended 31 January 2011 saw the continuation of the
economic uncertainty that has affected new investment activity since 2008.
However, the latter part of the year has shown signs of improvement in our
investment marketplace. We are increasingly confident that the UK economic
environment is beginning to generate conditions for greater numbers of
attractively priced new investment opportunities. Portfolio companies are also
more optimistic following an extended period of challenging trading conditions
in most market sectors.
Our strategic response to the significant increase in deal flow is to focus on
companies with strong and defensible market positions within their sectors,
rather than targeting specific market sectors. However, we remain alert to the
potential impact of cuts in public spending that are being implemented by the
Coalition Government on the UK economy.
We have been appreciative of the Board's support through a period when we have
thought it prudent to retain funds until economic conditions improved, rather
than continue to invest during the downturn. Where we have chosen to invest,
our strategy has also been to ensure that the companies were properly
capitalised at the time of investment so that they were well positioned to
contend with adverse market conditions. This, together with our focus on MBOs
of established, profitable companies, has enabled us to build a resilient
portfolio which has largely weathered the recession very well.
It is important to note that during the year, no further funding has been
required by any of the investee companies to help them deal with trading
downturns with the exception of Monsal (see below) where a commitment has been
made after the year end. We have continued to work actively with the management
teams of investee companies, encouraging them to take cost cutting measures and
discussing their budgets, forecasts and cost structure with them to ensure that
their businesses remain as resilient as possible. The majority of investee
companies have managed their cashflow well and remain cash-generative.
New investment
The second half of the year was much busier in terms of investment activity,
with four new investments completing during this period. The first, in October,
was an investment of £1 million in Aust Recruitment Group Limited to support
the MBO of RDL Recruitment Corporation, a European recruitment provider within
the pharmaceutical, business intelligence and IT sectors based in London and
Woking. The company, which employs 70 staff, was established in 1992. It
sources staff for over 300 major companies, matching niche professionals with
"hard to fill" contract assignments and staff positions.
The remaining investments all completed in December:
£346,488 was invested to support the MBO of Faversham House Group Limited.
Based in Croydon, this is an established media company providing magazines,
exhibitions and online resources in the environment and sustainability, visual
communications and building services sectors.
The Company invested £199,998 into the AiM listed Omega Diagnostics Group plc.
Based in Alva, Scotland this company provides high quality in vitro diagnostics
products for use in hospitals, blood banks, clinics and laboratories in over
100 countries and specialises in the areas of food intolerance, autoimmune and
infectious diseases. The share price has moved up since investment, giving an
early uplift from cost of £41,666 at 31 January 2011.
Finally, the Company invested £848,066 in Apricot Trading Limited to support
the MBO of Automated Systems Group plc, a Cambridge based printer and copier
services business with a broad customer base of schools and SMEs. Apricot
Trading has subsequently changed its name to ASL Technology Holdings Limited.
Our Operating Partner programme continues to pursue an active search for
investment opportunities in their chosen sectors. Your Company's acquisition
companies, Backbarrow, Bladon Castle Management, Fullfield, Rusland Management,
Torvar and Vanir Consultants, are each headed by an experienced Chairman,
well-known to us, who is working closely with us in seeking to identify and
complete investments in sectors relevant to their industry knowledge and
experience. These companies have not yet found sufficiently attractive
investment opportunities at the right price. However, the Operating Partner
programme has been successful for other Matrix-advised VCTs, leading the
investments in RDL Recruitment and Automated Systems Group referred to above.
We anticipate that the Operating Partner programme will lead to further new
investments during 2011.
Realisations
We are pleased to report that a number of companies in the portfolio continue
to be strongly cash generative. As a result of this the Company has received a
total of £342,671 in loan stock repayments plus premiums during the year.
Amongst these, DiGiCo Europe continues to make regular repayments, the latest
amount being £69,565 received in June 2010 plus a premium of £5,180. Monsal
repaid £70,475 in July; Westway made loan prepayments totalling £91,520 plus a
premium of £41,596 in September and November; and ATG Media repaid £111,111 in
October.
Since the year-end, Iglu.com and Vectair have both repaid their loan stock in
full, realising £744,470 and £75,268 plus premiums of £131,737 and £15,054
respectively for the Company. It is particularly impressive that Iglu.com has
generated sufficient cash in the short time since investment in December 2009
to make this repayment possible.
In January, the Company realised its entire investment in Campden Media for a
cash consideration of £130,908, representing 85.8% of total investment cost of
£152,620. This compares to a valuation at 31 October 2010 of £54,118. The total
cash return from the investment (including interest paid) amounted to £159,061,
or 104% of cost.
The Portfolio
The MPEP invested portfolio at 31 January 2011 comprised thirty investments
(2010: twenty-eight) with a cost of £17.4 million (2010: £16.5 million) and
valued at £18.8 million (2010: £15.2 million), representing 107.7% of cost
(2010: 92.1%). Realisations during the year generated cash proceeds of £
985,434.
The three investments made in 2009 in Westway, CB Imports and Iglu.com are all
now valued above cost following out-performance of their business plans at the
time of investment. Despite seeing a fall in licence income, VSI has gained
from the relative weakness of sterling against the US dollar. This company paid
a dividend to the VCT of £5,220 in April 2010. Vectair continues to expand its
export business and is now making good progress in the US market. Focus Pharma
continues to trade well, although it ended its financial year slightly behind a
stretching budget. It expects to progress further with several new product
launches due during 2011.
The construction and house building sectors remain weak and Youngman, PXP and
Plastic Surgeon continue to trade well below pre-economic downturn levels. Each
business has reduced its costs and managed its cash resources effectively.
Youngman has almost fully repaid its acquisition bank debt since investment and
is well positioned to benefit from any upturn in its markets. PXP has moved
away from its dependence on private and public sector house builds towards
commercial buildings including hotels, doctors' surgeries and convenience
stores. Plastic Surgeon has diversified into commercial property and insurance
markets.
As reported in the Chairman's Statement, the Manager has assessed that the
pending round of additional funding that Monsal requires (which your Company
intends to participate in), is likely to have priority over the existing
investment. Accordingly, we have reassessed the assumptions made in the
valuation and advised that the existing investment held at the year-end be
valued at nil for the time being. We retain the view that the potential for
this environmental business remains considerable, albeit that realisation of
that potential has been deferred. Blaze Signs has recovered strongly over the
year and enjoyed particularly strong autumn months. Racoon has continued to
recover profitability during 2010.
Disappointingly, Legion Group requested a suspension of trading of its shares
in July 2010 pending clarification of the company's financial position. Legion
had a healthy order book but continued to suffer working capital constraints.
On 6 August 2010, the board appointed administrators and the business was
subsequently sold to OCS Group.
Higher Nature has been trading below its budget for the year and as a result
its valuation has been written down during the year. We are working closely
with the management team to return the business to its historic profitability.
The VCT's investment in BG Consulting Group was re-structured during the year.
As a result, the VCT's new loan stock investment has a higher prior right to
the assets of the business, which has increased the value of your Company's
investment. Letraset's valuation has increased from nil to £19,540 during the
year following increased demand for its ProMarker pens.
The investments originally made by Elderstreet continue to suffer the effects
of the downturn but each management team is confident that signs of improved
trading can be maintained. We remain hopeful that value will be realised from
the remaining investments, although their impact on the Company as a whole is
now very small.
Our strategy remains to invest in strong, profitable companies and we consider
that the prospect of further recovery and progress over the medium term is
good. We believe that the portfolio, taken as a whole, is resilient and of high
quality.
Outlook
Whilst we cannot be sure of the extent of UK economic recovery, we have been
encouraged by changes in the year and we look forward to a productive new
investment period. Although the coming months are likely to prove more testing
as the public sector cuts begin to take effect, we consider that good quality
companies of the calibre in which we seek to invest, capable of maintaining
competitive advantage, have the potential to succeed in this environment. We
are seeing the confidence of both vendors and sellers return. Having retained
significant uninvested cash, which will be bolstered by the current
fundraising, we consider the Company is very well placed to cover both any
portfolio needs and funding for attractive new investment opportunities that
may arise.
INVESTMENT PORTFOLIO SUMMARY
as at 31 January 2011
Total
% of % of
Cost at Valuation at Additional Valuation at equity portfolio
31-Jan-11 31-Jan-10 investments 31-Jan-11 held by value
£ £ £ £
Matrix Private
Equity Partners
Portfolio
DiGiCo Europe
Limited 495,652 1,697,193 - 1,900,210 6.52% 10.05%
Manufacturer of
audio mixing desks
Iglu.com Holidays
Limited 878,249 878,249 - 1,420,200 7.15% 7.51%
Online ski and
cruise travel agent
ATG Media Holdings
Limited 888,889 905,295 - 1,293,507 8.50% 6.84%
Publisher and online
auction platform
operator
CB Imports Group
Limited 1,000,000 1,000,000 - 1,242,622 6.00% 6.57%
Importer and
distributor of
artificial flowers,
floral sundries and
home décor products
Focus Pharma
Holdings Limited 772,451 885,606 - 1,060,749 3.10% 5.61%
Licensor and
distributer of
generic
pharmaceuticals
Aust Recruitment
Group Limited 1,000,000 - 1,000,000 1,000,000 9.05% 5.29%
Recruitment
consultants for the
pharmaceutical,
business
intelligence and IT
industries
Backbarrow Limited 1,000,000 1,000,000 - 1,000,000 16.66% 5.29%
Food manufacturing,
distribution and
brand management
Bladon Castle
Management Limited 1,000,000 1,000,000 - 1,000,000 16.66% 5.29%
Brand management,
consumer products
and retail
Fullfield Limited 1,000,000 1,000,000 - 1,000,000 16.66% 5.29%
Food manufacturing,
distribution and
brand management
Rusland Management
Limited 1,000,000 1,000,000 - 1,000,000 24.50% 5.29%
Brand management,
consumer products
and retail
Torvar Limited 1,000,000 1,000,000 - 1,000,000 24.50% 5.29%
Database management,
mapping, data
mapping and
management services
to legal and
building industries
Vanir Consultants
Limited 1,000,000 1,000,000 - 1,000,000 16.67% 5.29%
Database management,
mapping, data
mapping and
management services
to legal and
building industries
ASL Technology
Holdings Limited 848,066 - 848,066 848,066 6.78% 4.49%
Printer and
photocopier services
Westway Services
Holdings (2010)
Limited 236,096 526,041 - 646,071 3.15% 3.42%
Installation,
service and
maintenance of air
conditioning systems
Blaze Signs Holdings
Limited 610,016 110,681 - 560,223 5.72% 2.96%
Manufacturer and
installer of signs
British
International
Holdings Limited 295,455 191,887 - 433,545 2.50% 2.29%
Helicopter service
operator
Higher Nature
Limited 500,127 682,568 - 429,671 10.34% 2.27%
Mail order
distributor of
vitamins and natural
medicines
VSI Limited 111,928 382,667 - 369,579 4.21% 1.96%
Provider of software
for CAD and CAM
vendors
Youngman Group
Limited 500,026 349,983 - 349,983 4.24% 1.85%
Manufacturer of
ladders and access
towers
Faversham House
Holdings Limited 346,488 - 346,488 346,488 6.26% 1.83%
Publlisher,
exhibition organiser
and operator of
websites for the
environmental,
visual
communications and
building services
sectors
Omega Diagnostics
Group plc 1 199,998 - 199,998 241,664 1.96% 1.28%
In-vitro diagnostics
for food
intolerance,
autoimmune diseases
and infectious
diseases
Vectair Holdings
Limited 100,000 170,535 - 181,406 2.14% 0.96%
Designer and
distributor of
washroom products
Racoon International
Holdings Limited 406,805 59,138 - 174,507 5.70% 0.92%
Supplier of hair
extensions, hair
care products and
training
The Plastic Surgeon
Holdings Limited 458,837 114,709 - 114,709 6.88% 0.61%
Snagging and
finishing of
domestic and
commercial
properties
Duncary 8 Limited
(trading as BG
Consulting Limited) 126,995 33,725 - 104,769 5.10% 0.56%
City-based provider
of specialist
technical training
Box-it Data
Management Limited 25,759 - 25,759 25,759 N/A 0.15%
Document management
and storage
Letraset Limited 150,000 - - 19,540 5.00% 0.11%
Manufacturer and
distributor of
graphic art products
PXP Holdings Limited 679,549 - - - 4.98% 0.00%
Designer,
manufacturer and
supplier of timber
frames for buildings
Monsal Holdings
Limited 636,013 675,928 1,717 - 6.37% 0.00%
Supplier of
engineering services
to the water and
waste sectors
Campden Media
Limited - 34,024 - - N/A 0.00%
Magazine publisher
and conference
organiser
Legion Group plc
(formerly
Sectorguard plc) 150,102 64,323 - - 0.72% 0.00%
Provider of manned
guarding, patrolling
and alarm response
services
Stortext FM Limited - 445,866 - N/A 0.00%
Provider of document
management software
and services
Total 17,417,501 15,208,418 2,422,028 18,763,268 99.27%
Former Elderstreet
Private Equity
Portfolio
Cashfac Limited 260,101 63,125 - 111,054 3.04% 0.59%
Provider of virtual
banking application
software solutions
to corporate
customers
Sparesfinder Limited 250,854 19,197 854 26,568 1.70% 0.14%
Supplier of
industrial spare
parts online
Sift Group Limited 130,116 1,226 - 1.03% 0.00%
Developer of
business-to-business
internet communities
Total 641,071 83,548 854 137,622 0.73%
Investment Managers'
Total 18,058,572 15,291,966 2,422,882 18,900,890 100.00%
1 Quoted on AiM
Income Statement
for the year ended 31 January 2011
Year ended 31 January 2011 Year ended 31 January 2010
Notes Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Unrealised gains
on investments - 2,119,702 2,119,702 - 700,336 700,336
Gains on
investments
realised - 16,077 16,077 - 268,469 268,469
Income 2 636,426 - 636,426 489,753 - 489,753
Recoverable VAT 3 (264) (794) (1,058) 1,051 3,155 4,206
Investment
management fees 6 (120,335) (361,003) (481,338) (97,204) (291,610) (388,814)
Other expenses (396,019) - (396,019) (360,819) - (360,819)
Profit on
ordinary
activities before
taxation 119,808 1,773,982 1,893,790 32,781 680,350 713,131
Taxation on
ordinary
activities - - - - - -
Profit for the
year 119,808 1,773,982 1,893,790 32,781 680,350 713,131
Basic and diluted
earnings per
ordinary share 5 0.57p 8.47p 9.04p 0.16p 3.40p 3.56p
All the items in the above statement derive from continuing operations of the
Company
There were no other recognised gains or losses in the year.
The total column is the profit and loss account of the Company.
Other than revaluation movements arising on investments held at fair value
through the profit and loss account, there were no differences between the
return as stated above and at historical cost.
Balance Sheet
as at 31 January 2011
as at 31 January 2011 as at 31 January 2010
Notes £ £ £ £ £ £
Fixed assets
Investments
at fair value 18,900,890 15,291,966
Current
assets
Debtors and
prepayments 1,948,065 139,702
Current
investments 3,644,741 5,975,819
Cash at bank 1,061,164 70,404
6,653,970 6,185,925
Creditors:
amounts
falling due
within one
year (209,681) (255,349)
Net current
assets 6,444,289 5,930,576
Net assets 25,345,179 21,222,542
Capital and
reserves
Called up
share capital 224,558 199,576
Share Premium
account 3,413,664 -
Capital
redemption
reserve 891,351 885,245
Revaluation
reserve 992,420 (1,473,847)
Special
distributable
reserve 15,256,001 16,540,857
Profit and
loss account 4,567,185 5,070,711
Equity
shareholders'
funds 25,345,179 21,222,542
Basic and
diluted net
asset value
per Ordinary
Share 4 112.87p 106.34p
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 January 2011
Year ended Year ended
31 January 31 January
2011 2010
£ £
Opening shareholders' funds 21,222,542 21,035,698
Share capital subscribed 3,444,752 -
Purchase of own shares (582,286) (124,256)
Profit for the year 1,893,790 713,131
Dividends paid in year (633,619) (402,031)
Closing shareholders' funds 25,345,179 21,222,542
Cash Flow Statement
for the year ended 31 January 2011
Year ended Year ended
31 January 2011 31 January 2010
Notes £ £
Interest income received 494,974 281,147
Dividend income 144,366 156,673
VAT received and interest thereon 3 10,199 100,239
Other income 2,544 14,901
Investment management fees paid (561,799) (224,334)
Cash payments for other expenses (397,775) (334,604)
Net cash outflow from operating activities (307,491) (5,978)
Investing activities
Sale of investments 923,983 1,784,500
Purchase of investments (2,397,128) (8,302,196)
Net cash outflow from investing activities (1,473,145) (6,517,696)
Dividends
Equity dividends paid (633,619) (402,031)
Cash outflow before liquid resource
management and financing (2,414,255) (6,925,705)
Management of liquid resources
Decrease in monies held in current
investments 2,331,078 7,137,292
Financing
Issue of own shares 1,611,231 -
Purchase of own shares (537,294) (156,439)
Increase in cash for the year 990,760 55,148
Notes to the Acounts
1. Basis of accounting
The accounts have been prepared under UK Generally Accepted Accounting Practice
(UK GAAP) and the Statement of Recommended Practice, 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' ("the SORP") issued by
the Association of Investment Trust Companies in January 2009.
2. Income
2011 2010
£ £
Income from bank deposits 2,561 354
Income from investments
- from equities 127,836 50,190
- from overseas based OEICs 34,092 96,060
- from loan stock 469,393 327,454
- from VAT recoverable - 6,544
631,321 480,248
Other income 2,544 9,151
Total income 636,426 489,753
Total income comprises
Dividends 161,928 146,250
Interest 471,954 334,352
Other income 2,544 9,151
636,426 489,753
Income from investments comprises
Listed overseas securities 34,092 96,060
Unlisted UK securities 127,836 50,190
Loan stock interest 469,393 327,454
631,321 473,704
Loan stock interest above is stated after deducting an amount of £nil
(2010: £2,601), being a provision made against loan stock interest
regarded as collectable in previous years.
Total loan stock interest due but not recognised in the year was £214,248
(2010: £208,063).
3. Recoverable VAT
Revenue Capital Total Revenue Capital Total
2011 2011 2011 2010 2010 2010
£ £ £ £ £ £
Recoverable VAT (264) (794) (1,058) 1,051 3,155 4,206
As at 31 January 2010, a total of £93,695 of VAT recoverable had been received.
Of the excess of £8,236 over the £85,459 recognised in 2009's accounts, £4,206
had been further credited to the 2010 Income Statement, allocated 25% to
revenue and 75% to capital return and was in the same proportion as that in
which the irrecoverable VAT was originally charged. However, £4,030 was not
recognised in 2010 as it was considered likely to be repayable to a previous
investment manager or service provider, as it related to VAT charged during a
period when an expense cap was applied to their fees. Following further cash
received from other former managers of £10,199 in the year ended 31 January
2011, it has been finally determined that £15,287 of the total VAT recovered
relates to past years where managers and the then administrator
Matrix-Securities Limited bore excess expenses.
This amount of £15,287 payable to investment managers and the administrator is
disclosed within other creditors in note 14. This sum exceeds the £10,199 of
cash received this year, plus £4,030 of VAT received but not recognised in the
year ended 31 January 2010, leaving a shortfall of £1,058, recognised as
negative income above in this year's accounts.
The Board do not currently anticipate further VAT income in future years.
4. Basic and diluted net asset value per share
Net asset value per Ordinary Share is based on net assets at the end of the
year, and on 22,455,802 (2010: 19,957,572) Ordinary Shares, being the number of
Ordinary Shares in issue on that date.
There are no instruments that will increase the number of shares in issue in
future. Accordingly, the above figures currently represent both basic and
diluted net asset value per share.
5. Basic and diluted earnings per share
2011 2010
£ £
Total earnings after taxation: 1,893,790 713,131
Basic and diluted earnings per share (note a) 9.04p 3.56p
Net revenue from ordinary activities after taxation 119,808 32,781
Basic and diluted revenue return per share (note b) 0.57p 0.16p
Net unrealised capital gains 2,119,702 700,336
Net realised capital gains 16,077 268,469
VAT recoverable (794) 3,155
Capital expenses (net of taxation) (361,003) (291,610)
Total capital return 1,773,982 680,350
Basic and diluted capital return per share (note c) 8.47p 3.40p
Weighted average number of shares in issue in the
year 20,946,842 20,032,743
Notes:
a) Basic earnings per share is total earnings after taxation divided by
the weighted average number of shares in issue.
b) Revenue earnings per share is the revenue return after taxation
divided by the weighted average number of shares in issue.
c) Capital earnings per share is the total capital profit after taxation
divided by the weighted average number of shares in issue.
d) There are no instruments that will increase the number of shares in
issue in future. Accordingly, the above figures currently represent both basic
and diluted returns.
6. Investment Manager's Fees
In accordance with the policy statement published under "Management,
Expenses and Administration" in the Company's Prospectus dated 2 November 2006,
the Directors have charged 75% of the investment management expenses to the
realised capital reserve.
7. Dividends
The Company proposes to pay a final dividend of 3 pence per Ordinary
Share. The dividend will be recommended to members at the Annual General
Meeting and, if approved, will be paid on 24 June 2011 to shareholders on the
Register at 6.00 pm on 3 June 2011. This dividend will be eligible for the
Dividend Investment Scheme.
8. Post balance sheet events
Following the year end, 2,824,210 shares have been issued in a series of
allotments on 28th February, 22nd March, 1st April, 5th April and 10th May as
part of the joint fundraising offer, raising £3.25 million for the Company.
On 8 February 2011, IGLU.com Holidays Limited prepaid all of their loan stock
to the Company realising £882,408 proceeds including £131,737 premium and £
6,201 outstanding interest.
On 31 March 2011, Vectair Holdings Limited repaid its entire loan stock to the
Company, realising £91,417 proceeds, including a premium of £15,054 and
outstanding interest of £1,095.
The Company has committed to invest a further £158,577 as a further follow-on
investment in Monsal Holdings Limited.
9. Financial Information
The financial information set out in these statements does not
constitute the Company's statutory accounts for the year ended 31 January 2011
in terms of section 434 of the Companies Act 2006 but is derived from those
accounts. Statutory accounts for the year ended 31 January 2011 will be
delivered to Companies House following the Company's Annual General Meeting.
The auditors have reported on those accounts: their report was unqualified and
did not contain a statement under Section 498 of the Companies Act 2006.
10. Annual Report
A Summary Annual Report will be circulated by post to all Shareholders shortly
and copies will be available thereafter to members of the public from the
Company's registered office. Shareholders who wish to receive a copy of the
full Annual Report may request a copy by writing to the Company Secretary,
Matrix Private Equity Partners LLP, One Vine Street, London W1J 0AH.
Alternatively copies may be downloaded via the Company Secretary's web site at
www.mig4vct.co.uk.
11. Annual General Meeting
The Annual General Meeting of the Company will be held at 11:00 am on Monday,
20 June 2011 at the offices of Matrix Group Limited, One Vine Street, London
W1J 0AH.
Contact details for further enquiries:
Robert Brittain at Matrix Private Equity Partners LLP (the Company Secretary)
on 020 3206 7000 or by e-mail on mig4@matrixgroup.co.uk
Mark Wignall or Mike Walker at Matrix Private Equity Partners LLP (the
Investment Manager), on 020 3206 7000 or by e-mail on info@matrixpep.co.uk.
DISCLAIMER
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
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