Annual Financial Report

Matrix Income & Growth 2 VCT plc ("the Company") Annual Financial Report announcement for the year ended 30 April 2009 Chairman's Statement I am pleased to present the ninth Annual Report of the Company for the year ended 30 April 2009. Your Company has not been immune to the impact of the deteriorating economic environment, continuing the trend I reported to you in the Half-Yearly Report. Overview of performance for the year ended 30 April 2009 Net asset values per share for both funds have fallen over the year. This is because a number of portfolio valuations have been adversely affected by deteriorating trading. However, in the case of several other investee companies, trading performance remains encouraging. Our Ordinary Shareholders have seen a decrease in underlying net asset value ("NAV") per share of 22.6%, plus a further 6.2% due to the 6 pence per share dividend that was paid in the year, giving rise to a total decline in NAV per share of 28.8%. The Ordinary Share NAV total return since launch declined by 18.6% in the year, from 117.70 pence per share to 95.82 pence per share. Our C shareholders have seen a smaller decrease in underlying NAV per share of 10.1%, plus a further 2.5% due to the 2.5 pence per share dividend paid in the year, giving rise to a total decline in NAV per share of 12.6%. The C Share NAV total return since launch declined by 10%, from 99.98 pence per share to 90.02 pence per share. Revenue and Capital returns for the year ended 30 April 2009 The results for the year ended 30 April 2009 are set out in the following pages. The total return (after tax) attributable to the Ordinary Shareholders for the year was a loss of £2,545,615 (2008: loss of £633,730) and the NAV per Ordinary Share at 30 April 2009 was 69.03 pence compared with 96.91 pence as at 30 April 2008. This fall is mainly explained by a fall in valuations of unrealised investments and by payment of a dividend of 6 pence per share, in respect of the year ended 30 April 2008, on 19 July 2008. The after tax revenue return before net capital gains was 1.29 pence per Ordinary Share for the year ended 30 April 2009 (2008: 1.82 pence). The total return (after tax) attributable to the C Shareholders for the year was a loss of £1,021,677 (2008: profit of £259,528) and the NAV per C Share at 30 April 2009 was 86.02 pence compared with 98.48 pence as at 30 April 2008. This fall is again explained by a fall in valuations of unrealised investments and by payment of a dividend of 2.5 pence per share, in respect of the year ended 30 April 2008, on 19 July 2008. The after tax revenue return before net capital gains was 1.27 pence per C Share for the year ended 30 April 2009 (2008: 2.65 pence). Portfolio Activity This year there has been relatively little new investment, reflecting a desire to be cautious and to retain liquidity in the expectation of better opportunities emerging at a further phase in this recession. Both funds made an investment in ATG Media Holdings Limited, an MBO transaction, totalling £863,895, of which the O Fund invested £508,736 and the C fund invested £355,159. The C Fund also invested £2 million in two companies that will seek opportunities in two specific sectors. These acquisition vehicles have been established to provide time to seek and complete investment transactions of the right quality on sufficiently favourable terms. Both funds made small follow-on investments in PXP Holdings Limited (O fund: £96,245; C fund: £67,191), while the C fund also made a small follow-on investment in Monsal Holdings Limited of £85,450. No realisations have occurred in the year, although DiGiCo Europe has made a partial repayment of its loan stock, realising £137,552 for the Ordinary Fund and £96,028 for the C Fund, just after the year-end. The Ordinary Share Fund held 16 investments at the year-end, which were valued at 64% of cost. The C Share Fund held investments in thirteen companies, showing valuations which were 85.8% of cost. Details of these investments are provided in the Investment Manager's Review below. Income returns Although both Funds have achieved positive revenue returns for the year, these returns have both fallen compared to the previous year. This is primarily for two reasons. Firstly, both funds' income was adversely affected by the sharp fall in interest rates in the second half of the year. As a consequence of this fall, total income from our cash at the Company level nearly halved from £451,399 last year to £238,023 this year. Secondly, loan stock interest also fell from £524,202 last year to £391,124 this year, because several investee companies were unable to pay their interest due on their loan stocks, and because some of the loan stocks have variable rate coupons that fell in the year. The annualised yield from loan stocks at valuation is now running at 5.5% (2008:9.2%) and 4.9% (2008: 9.0%) for the Ordinary and C Share Funds respectively. However, income was boosted by higher dividend receipts, notably from PastaKing Holdings Limited, which paid two exceptionally large dividends this year, resulting in an increase from £51,422 last year to £214,825 this year. As a result, total income from investee companies rose from £575,624 last year to £605,949 this year. Nonetheless, the overall effect of the factors outlined above was a fall in total income from £1,027,023 to £843,972. Achieving revenue returns in the new financial year will remain difficult. VAT recoverable Both Funds' returns have been increased by the anticipation of VAT recoverable of £112,000 in total, as a result of recent HMRC policy announcements. These now permit recovery of most of the VAT that has been borne upon Fund management fees in the past three years, at least. An amount in excess of this sum has been received since the year-end. Dividends The revenue account generated a net revenue return for the year of £147,005 for the Ordinary Share Fund (2008: (£214,894)) and £123,412 for the C Share Fund (2008: £242,682). Due to the reduction in anticipated revenue returns and the need to preserve the fund's cash position, your Directors will not be recommending a final income dividend for Ordinary Shareholders, but are recommending an income dividend for C Shareholders of 1 penny per share which will be paid on 18 September 2009 to Shareholders on the register on 28 August 2009. New capital raising The Offer closed on 30 April 2009, having raised just under £7.3 million for the C Share Fund, which the Board regards as a positive outcome in difficult conditions for fund-raising. We anticipate that there will be significant opportunities to invest over the medium term and intend the Company to participate alongside other MPEP-advised VCTs, at what may be an advantageous point in the economic cycle. Outlook In my Statement in the Half-Yearly Report to shareholders, I emphasised that the Board and the Investment Manager are paying close attention to current economic indicators. The depth and timescale of the economic and market downturn is as yet uncertain, but there is clearly a heightened risk to the smaller company sector in which your VCT invests. Your Board continues to believe that the Investment Manager's strategy of investing in MBOs is appropriate, and that, looking forward, good opportunities will present themselves for new investment. Conclusion I would like to express my thanks to all Shareholders for your continuing support of the Company. I hope to have the opportunity of meeting you at the Annual General Meeting on 10 September 2009. Nigel Melville Chairman 23 July 2009 The Directors confirm that to the best of their knowledge that: (a) the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP) and the 2003 Statement of Recommended Practice, `Financial Statements of Investment Trust Companies' (SORP), revised December 2005, give a true and fair view of the assets, liabilities, financial position and the loss of the Company. (b) the management report, comprising the Chairman's Statement, Investment Portfolio Summary, Investment Manager's Review and Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. For and on behalf of the Board: Nigel Melville Chairman 23 July 2009 Investment Policy The VCT's policy is to invest primarily in a diverse portfolio of UK established, profitable, unquoted companies in order to generate capital gains from trade sales and flotations. Investments are structured as part loan and part equity in order to receive regular income and to provide downside protection in the event of under-performance. Investments are made selectively across a number of sectors, primarily in management buyout transactions (MBOs) i.e. to support incumbent management teams in acquiring the business they manage but do not own. Investments are primarily made in companies that are established and profitable. Uninvested funds are held in cash and low risk money market funds. UK Companies The 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 achieve at least 70% by value of its investments throughout the period in shares or securities in qualifying holdings, of which a minimum overall of 30% by value must be ordinary shares which carry no preferential rights. In addition, although the VCT can invest less than 30% of an investment in a specific company in ordinary shares it must have at least 10% by value of its total investments in each qualifying company in ordinary shares which carry no preferential rights. Asset mix The Investment Manager aims to hold approximately 80% by value of the VCT's investments in qualifying holdings. The balance of the portfolio is held in readily realisable interest bearing investments and deposits. Risk diversification and maximum exposures Risk is spread by investing in a number of different businesses across different industry sectors. To reduce the risk of high exposure to equities, each qualifying investment is structured using a significant proportion of loan stock (up to 70% of the total investment in each VCT qualifying company). Initial investments in VCT qualifying companies are generally made in amounts ranging from £200,000 to £1 million at cost. No holding in any one company will represent more than 10% of the value of the VCT's investments, based on cost, at the time of investment. Ongoing monitoring of each investment is carried out by the Manager generally through taking a seat on the Board of each VCT qualifying company. Co-investment The VCT aims to invest alongside four other Income and Growth VCTs advised by the 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 borrowing and does not have any current plans for future borrowings. Management The Board has overall responsibility for the Company's affairs including the determination of its investment policy. Investment and divestment proposals are originated, negotiated and recommended by the Manager and are then subject to formal approval by the Directors. Matrix Securities provides Company Secretarial and Accountancy services to the VCT. Principal risks, management and regulatory environment The Board believes that the principal risks faced by the VCT are: - Economic risk - events such as an economic recession and movement in interest rates could affect trading conditions for smaller companies and consequently the value of the VCT's qualifying investments. - Loss of approval as a Venture Capital Trust - the VCT must comply with Section 274 of the Income Tax Act 2007 which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to the VCT losing its approval as a VCT, qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained and future dividends paid by the VCT becoming subject to tax. The VCT would also lose its exemption from corporation tax on capital gains. - Investment and strategic - inappropriate strategy or consistently weak VCT qualifying investment recommendations might lead to under performance and poor returns to shareholders. Investment in unquoted small companies by its nature involves a higher degree of risk than investment in companies traded on the London Stock Exchange main market. 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. This may make them more risk-prone and volatile investments. - Regulatory - the VCT is required to comply with the Companies Acts, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the VCT's Stock Exchange listing, financial penalties or a qualified audit report. - Financial and operating risk- inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or breaches of regulations. Failure of the 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 - movements in the valuations of the VCT's investments will, inter alia, be connected to movements in UK Stock Market indices. - Asset liquidity risk - The VCT's investments may be difficult to realise. - Market liquidity risk - Shareholders may find it difficult to sell their shares at a price which is close to the net asset value. - Credit/counterparty risk - A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company. The Board seeks to mitigate the internal risks by setting policy and by undertaking a key risk management review at each quarterly Board meeting. Performance is regularly reviewed and assurances in respect of adequate internal controls and key risks are sought and received from the Manager and Administrator on a six monthly basis. In the mitigation and management of these risks, the Board applies rigorously the principles detailed in the AIC Code of Corporate Governance. The Board also has a Share Buy Back policy to try to mitigate the Market Liquidity risk. This policy is reviewed at each quarterly Board Meeting. Investment Portfolio Summary As at 30 April 2009 Ordinary Share Fund Date of Total Book Valuation Additions Valuation Change in % of net first cost at 30 at 30 April at 30 April valuation assets investment April 2009 2008 2009 for year by value £ £ £ £ £ Qualifying Sector investments AIM quoted investments Legion Group plc August 2005 150,000 107,205 - 75,000 (32,205) 1.0% (formerly SectorGuard plc) Provision of manned guarding, mobile patrolling, and alarm response Support services Services Vphase plc March 2001 254,586 9,504 - 7,604 (1,900) 0.1% (formerly Flightstore Group plc) Development of energy saving Electronic devices for domestic use and electrical equipment ------ ------ ------ ------ ------ ------ 404,586 116,709 - 82,604 (34,105) 1.1% Unquoted investments British International June 2006 832,827 904,172 - 1,000,432 96,260 12.9% Holdings Limited Helicopter service operators Support services DiGiCo Europe Limited July 2007 588,886 588,886 - 827,897 239,011 10.6% Design and manufacture of Technology, audio mixing desks hardware and equipment PastaKing Holdings Limited June 2006 274,624 829,135 - 783,243 (45,892) 10.1% Manufacture and Food supply of fresh pasta producers Youngman Group Limited October 2005 1,000,052 1,670,564 - 689,583 (980,981) 8.9% Manufacturer of Support ladders and access towers services VSI Limited April 2006 231,020 656,004 - 651,150 (4,854) 8.4% Software for CAD Software and and CAM vendors Computer Services ATG Media Holdings Limited October 2008 508,736 508,736 508,736 - 6.5% Publisher and online auction Media platform operator Vectair Holdings Limited January 2006 243,784 374,418 - 325,108 (49,310) 4.2% Design and sale of Support washroom products services Blaze Signs Holdings Limited April 2006 791,608 1,136,072 - 297,000 (839,072) 3.8% Manufacturing and Support installation of signs services Campden Media Limited January 2006 975,000 490,131 - 214,044 (276,087) 2.8% Publishing and conferencing Media The Plastic Surgeon April 2008 230,986 230,986 - 57,747 (173,239) 0.7% Holdings Limited Snagging and finishing of Support domestic and commercial services properties PXP Holdings Limited December 685,131 481,971 96,245 32,851 (545,365) 0.4% (Pinewood Structures) 2006 Design, manufacture and Construction supply of timber frames for buildings Racoon International December 517,350 57,644 - - (57,644) 0.0% Holdings Limited 2006 Supplier of hair extensions, Personal hair goods care products and training Award International Holdings plc March 2004 250,000 - - - - 0.0% Promotional goods N/A and services agency Recite Limited August 2003 1,000,000 - - - - 0.0% Sales support software (in liquidation) ------ ------ ------ ------ ------ ------ 8,130,004 7,419,983 604,981 5,387,791 (2,637,173) 69.3% ------ ------ ------ ------ ------ ------ Total qualifying 8,534,590 7,536,692 604,981 5,470,395 (2,671,278) 70.4%1 investments Non-qualifying investments Money market funds 2 2,061,939 3,373,809 2,061,939 26.5% Cash 38,510 54,863 38,510 0.5% Legion Group plc 106 62 44 0.0% ------ ------ ------ ------ ------ ------ Total non-qualifying 2,100,555 3,428,734 2,100,493 27.0% investments Debtors 277,484 289,975 277,484 3.5% Creditors (76,145) (119,809) (76,145) (0.9%) ------ ------ ------ ------ ------ ------ Net assets 10,836,484 11,135,592 7,772,227 100.0% ====== ====== ====== ====== ====== ===== C Share Fund Date of first Total Book Valuation at Additions Valuation at Change in % of net investment cost at 30 30 April 2008 30 April 2009 valuation assets April 2009 for year by value £ £ £ £ £ Qualifying Sector investments Unquoted investments Barnfield Management July 2008 1,000,000 - 1,000,000 1,000,000 - 6.9% Investments Limited Company seeking to n/a acquire businesses in the food sector Vanir Consultants Limited October 2008 1,000,000 - 1,000,000 1,000,000 - 6.9% Company seeking to invest N/A in data management, data mapping and management services Monsal Holdings Limited December 2007 854,450 769,000 85,450 640,838 (213,612) 4.4% Engineering services Support to the water and services waste sectors Focus Pharma Holdings October 2007 660,238 660,238 - 599,780 (60,458) 4.1% Limited Licensing and distribution Pharmaceuticals of and generic pharmaceuticals Biotechnology DiGiCo Europe Limited July 2007 411,114 411,114 - 577,972 166,858 4.0% Design and Technology, manufacture of audio hardware and mixing desks equipment PastaKing Holdings Limited June 2006 191,720 578,836 - 546,798 (32,038) 3.8% Manufacure and Food producers supply of fresh pasta meals ATG Media Holdings Limited October 2008 355,159 - 355,159 355,159 - 2.4% Publisher and online Media auction platform operator Blaze Signs April 2006 606,890 666,686 - 223,000 (443,686) 1.5% Holdings Limited Manufacturing and Support installation of signs services VSI Limited April 2006 77,623 220,419 - 218,788 (1,631) 1.5% Software for CAD Software and and CAM vendors Computer Services British International June 2006 167,173 181,524 - 200,868 19,344 1.4% Holdings Limited Supplier of helicopter Support services services The Plastic Surgeon April 2008 161,278 161,278 - 40,320 (120,958) 0.3% Holdings Limited Snagging and finishing of Support domestic services and commercial properties PXP Holdings Limited December 2006 478,305 336,474 67,191 22,942 (380,723) 0.1% (Pinewood Structures) Design, manufacture and Construction supply of timber frames for buildings Racoon International December 2006 361,177 40,242 - - (40,242) 0.0% Holdings Limited Supplier of hair Personal goods extensions, hair care products and training ------ ------ ------ ------ ------ ------ 6,325,127 4,025,811 2,507,800 5,426,465 (1,107,146) 37.3% ------ ------ ------ ------ ------ ------ Total qualifying 6,325,127 4,025,811 2,507,800 5,426,465 (1,107,146) 37.3%1 investments Non-qualifying investments Money market funds 2 9,136,823 4,984,365 9,136,823 62.8% Cash 22,836 34,891 22,836 0.2% ------ ------ ------ ------ ------ ------ Total non-qualifying 9,159,659 5,019,256 9,159,659 63.0% investments Debtors 170,762 62,354 170,762 1.1% Creditors (209,969) (100,060) (209,969) (1.4%) ------ ------ ------ ------ ------ ------ Net assets 15,445,579 9,007,361 14,546,917 100.0% ====== ====== ====== ====== ====== ===== 1 As at 30 April 2009, the Company (comprising both share classes) held more than 70% of its total investments in qualifying holdings, and therefore complied with the VCT Investment test. For the purposes of the VCT Investment tests, the Company is permitted to disregard disposals of investments for 6 months from the date of disposal. 2 Disclosed within Non-current assets as Monies held pending Investment in the Balance Sheet. Investment Manager's Review Overview of Investment Activity Over the last year the environment for new investment has in our opinion continued to be generally unattractive; this view has been informed both by a lack of sufficiently attractive investment opportunities and the increasing evidence of recession affecting many smaller companies. We have held the view for some time that in the current market the price expectations of vendors would prove unsustainable; furthermore we have, over the past two years, avoided transactions which necessitated companies taking on high levels of bank borrowing, believing that economic conditions were deteriorating and that highly-leveraged investments would become vulnerable in the tougher economic conditions which now prevail. Against a worsening backdrop of reducing demand and increasing pressure on margins, your Manager remains cautious in its assessment of the forecasts produced by aspiring management teams and we therefore chose to complete just one new MBO investment for the funds during the year. In October the "O" and "C" share funds invested £508,736 and £355,159 respectively in ATG Media Holdings. This was the first target company and MBO transaction to be sourced and completed under our Operating Partner programme. Derringfield, the acquisition company in which the Company had invested in July, was renamed ATG Media Holdings and acquired the publisher of the leading weekly newspaper serving the UK antiques trade, the Antiques Trade Gazette, via a MBO. This London-based business also offers an on-line auction capability. The C share fund originally invested £1m into Derringfield and the completion of the ATG MBO resulted in a repayment to the C share fund of £645,236. The "O" and "C" share funds invested in loan stock and ordinary shares, holding 4.5% and 3.2% of the equity respectively. The "C" share fund made two investments, each of £1,000,000, into two acquisition vehicles, Barnfield Management Investments and Vanir Consultants, which are now seeking to acquire businesses in the food and food-related manufacturing industry and database management sector respectively. A small additional investment was made in November by both the "O" and "C" share funds which invested £96,245 and £67,191 respectively as part of a £1 million funding round to provide capital to support PXP in what is expected to remain a difficult housebuilding and construction market during 2009. In January, Monsal received further shareholder funding of £500,000, including £85,450 from the "C" share fund, to provide additional working capital. Despite the recent gains in quoted share prices we remain of the view that recovery from recession, insofar as it affects the performance of smaller companies, remains some way off and a priority will therefore be to continue to invest to support portfolio companies judiciously during this period. We believe that the overall quality of the portfolio remains high and that it contains a number of UK market-leading companies which will recover value as the economy itself recovers. Proportionate additional investment alongside highly-motivated management teams who are prepared to take hard decisions to ensure the long term financial health of their businesses will, in our view, be the effective response to the economic environment. To date the investment portfolio has required very little additional funding despite the worsening economic environment. We are also mindful that small acquisitions of distressed competitors may represent opportunities for some portfolio companies and continue to review these with investee company management teams. Inevitably, the valuations of a number of portfolio companies have suffered materially over the past year, due primarily to deterioration in their own trading. Appropriate provisions have been made against investments to reflect this. Certain sectors have been particularly affected, notably construction, food manufacturers and software and computer services. Ordinary Share Fund Portfolio Highlights The Ordinary share fund comprised investments in 16 companies at a cost of £8.53 million and a current valuation of £5.47 million; on a like-for-like basis the portfolio value shows a 35.4% fall compared with the valuation prevailing at 30 April 2008. This should be viewed against the backdrop of the fall in quoted markets; the FTSE All-Share and FTSE Small Cap indices both dropped by 29.9% over the same period. This portfolio's performance reflects relatively large downward revisions to the unrealised valuations of several companies in the portfolio, which we hope will be able to be reversed at some future point. Over the past months we have been working even more closely with management of a number of companies in the portfolio which have been most affected by the contraction in the construction and housebuilding industries. Significant redundancies and other cost savings have been implemented in recent months as businesses seek to reduce their breakeven levels. The need for further cost reductions is kept under continuous review. Youngman Group, PXP and Plastic Surgeon are exposed to the significant reduction in demand experienced by the construction and housebuilding sector and are yet to see any signs of recovery in their markets. Pressure on capital and maintenance expenditure has also materially affected Blaze Signs, although there is guarded optimism that its retail clients are now beginning to invest again in signage. All have seen further deterioration in trading and reductions in their valuations. Our media investments, Campden Media and ATG Media, are also operating in difficult markets as advertising budgets come under increasing pressure. PastaKing continues to make strong progress although the relative weakness of sterling has led to further pressure on the prices of certain ingredients. This has also affected Vectair, whose raw materials are sourced from both dollar- and euro-based suppliers. DiGiCo Europe has continued its record trading into 2009 and is currently well ahead of budget. During the year Racoon began to offer a retail hair extension product through a major national retailer and it is intended to expand the product range and reach in the high street during 2009 as part of its recovery strategy. SectorGuard has substantially re-organised its management and operations since its acquisition of Manguard in March 2008 and has made further significant acquisitions including the addition of Legion Group. SectorGuard changed its name to Legion Group plc on 29 June 2009. British International Holdings reported reduced profits due to a combination of poor operating conditions on the Penzance-Isles of Scilly route and scheduled maintenance costs. Finally, VSI continues to make steady progress after a year of record progress in 2008. C Share Fund Portfolio Highlights The "C" share fund now holds investments in 13 companies at a cost of £6.33 million and a current valuation of £5.43 million; on a like for like basis this represents a drop of 27.5% compared with the valuation prevailing at 30 April 2008, and compares with the 29.9% fall in the FTSE All-Share and FTSE Small Cap indices over the same period. As last year, most of the "C" share fund's investments are common to the "O" share fund; four investments are held solely by the "C" share fund. Of these, Barnfield Management Investments and Vanir Consultants have been actively seeking acquisitions in their chosen sectors. Focus Pharma enjoyed solid progress in 2008 and has begun the current year well. Monsal, after a slow start in 2008 after its MBO, has won a number of major contracts and is set for a much improved year. There is evidence that its acknowledged expertise in anaerobic digestion technology is now an increasing focus for UK waste companies. Non-statutory analysis between the Ordinary Share and C Share Funds Profit and Loss Accounts For the year ended 30 April 2009 Ordinary Share Fund C Share Fund Notes Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ Unrealised losses on investments held at fair value - (2,671,234) (2,671,234) - (1,107,146) (1,107,146) Realised losses on investments held at fair value - (29) (29) - - - Income 385,215 63,825 449,040 350,382 44,550 394,932 Recoverable VAT 12,550 37,650 50,200 10,068 30,204 40,272 Investment management fees (48,163) (144,489) (192,652) (44,876) (134,626) (179,502) Other expenses (183,089) - (183,089) (168,084) - (168,084) ------ ------ ------ ------ ------ ------ Profit/(loss) on ordinary activities before taxation 166,513 (2,714,277) (2,547,764) 147,490 (1,167,018) (1,019,528) Tax on ordinary activities (19,508) 21,657 2,149 (24,078) 21,929 (2,149) ------ ------ ------ ------ ------ ------ Profit/(loss) attributable to equity shareholders 147,005 (2,692,620) (2,545,615) 123,412 (1,145,089) (1,021,677) ====== ====== ====== ====== ====== ====== Earnings per share-basic and diluted 6 1.29 p (23.63)p (22.34)p 1.27 p (11.83)p (10.56)p Average number of shares in issue 11,394,390 9,677,798 Total Notes Revenue Capital Total £ £ £ Unrealised losses on investments held at fair value - (3,778,380) (3,778,380) Realised losses on investments held at fair value - (29) (29) Income 735,597 108,375 843,972 Recoverable VAT 22,618 67,854 90,472 Investment management fees (93,039) (279,115) (372,154) Other expenses (351,173) - (351,173) ------ ------ ------ Profit/(loss) on ordinary activities before taxation 314,003 (3,881,295) (3,567,292) Tax on ordinary activities (43,586) 43,586 - ------ ------ ------ Profit/(loss) attributable to equity shareholders 270,417 (3,837,709) (3,567,292) ====== ====== ====== Balance Sheets As at 30 April 2009 Ordinary Share Fund C Share Fund Notes £ £ £ £ Non-current assets Assets held at fair value through profit and loss - investments 5,470,439 5,426,465 Current assets Debtors and prepayments 277,484 170,762 Monies held pending investment 2,061,939 9,136,823 Cash at bank 38,510 22,836 ------ ------ 2,377,933 9,330,421 Creditors: amounts falling due within one year (76,145) (209,969) ------ ------ ------ ------ Net current assets/(liabilities) 2,301,788 9,120,452 ------ ------ Net assets 7,772,227 14,546,917 ====== ====== Capital Called up share capital 112,593 169,104 Capital redemption reserve 19,213 - Share premium account - 6,712,239 Capital reserve - unrealised (1,814,257) (898,662) Special distributable reserve 2,409,196 8,202,724 Profit and loss account 7,045,482 361,512 ------ ------ Equity shareholders' funds 7,772,227 14,546,917 ====== ====== Number of shares in issue: 7 11,259,333 16,910,386 Net asset value per share - basic and diluted 69.03p 86.02p Adjustments Total Notes (see note below) £ £ £ Non-current assets Assets held at fair value through profit and loss - investments 10,896,904 Current assets Debtors and prepayments (174,584) 273,662 Monies held pending investment 11,198,762 Cash at bank 61,346 ------ ------ (174,584) 11,533,770 Creditors: amounts falling due within one year 174,584 (111,530) ------ Net current assets/(liabilities) 11,422,240 ------ Net assets 22,319,144 ====== Capital Called up share capital 281,697 Capital redemption reserve 19,213 Share premium account 6,712,239 Capital reserve - unrealised (2,712,919) Special distributable reserve 10,611,920 Profit and loss account 7,406,994 ------ Equity shareholders' funds 22,319,144 ====== Note: The adjustment above nets off the inter-fund debtor and creditor balances, so that the "Total of both funds" balance sheet agrees to the Statutory Balance Sheet below. Reconciliation of Movement in Shareholders' Funds Ordinary C Share Share Fund Fund Total £ £ £ Opening shareholders' funds 11,135,530 9,007,361 20,142,891 Net Share capital (bought back)/issued in the year (net of expenses) (128,228) 6,789,883 6,661,655 (Loss)/profit for the year (2,545,615) (1,021,677) (3,567,292) Dividends paid in year 5 (689,460) (228,650) (918,110) ------ ------ ------ Closing shareholders' funds 7,772,227 14,546,917 22,319,144 ====== ====== ====== Profit and Loss Account For the year ended 30 April 2009 Year ended 30 April 2009 Year ended 30 April 2008 Notes Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ Unrealised losses on investments held at fair value - (3,778,380) (3,778,380) - (1,311,782) (1,311,782) Realised (losses)/gains on investments held at fair value - (29) (29) - 753,267 753,267 Income 2 735,597 108,375 843,972 1,027,023 - 1,027,023 Recoverable VAT 3 22,618 67,854 90,472 - - - Investment management fees (93,039) (279,115) (372,154) (125,110) (375,329) (500,439) Other expenses (351,173) - (351,173) (342,271) - (342,271) ------ ------ ------ ------ ------ ------ Profit/(loss) on ordinary activities before taxation 314,003 (3,881,295) (3,567,292) 559,642 (933,844) (374,202) Taxation on ordinary activities 4 (43,586) 43,586 - (102,066) 102,066 - ------ ------ ------ ------ ------ ------ Profit/(loss) on ordinary activities after taxation 270,417 (3,837,709) (3,567,292) 457,576 (831,778) (374,202) ====== ====== ====== ====== ====== ====== Basic and diluted earnings per share: Ordinary Shares 6 1.29p (23.63)p (22.34)p 1.82p (7.20)p (5.38)p C Shares 6 1.27p (11.83)p (10.56)p 2.65p 0.19p 2.84p All the items in the above statement derive from continuing operations. No operations were discontinued in the year. There were no other gains or losses in the year. The total column of this statement 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 loss as stated above and the historical cost result. The notes below form part of these financial statements. Balance Sheet As at 30 April 2009 Notes 30 April 2009 30 April 2008 (restated) £ £ Non-current assets Assets held at fair value through profit and loss - investments 10,896,904 11,562,503 Current assets Debtors and prepayments 273,662 277,926 Monies held pending investment 11,198,762 8,358,174 Cash at bank 61,346 89,754 ------ ------ 11,533,770 8,725,854 Creditors: amounts falling due within one year (111,530) (145,466) ------ ------ Net current assets 11,422,240 8,580,388 ------ ------ Net assets 22,319,144 20,142,891 ====== ====== Capital and reserves Called up share capital 281,697 206,370 Capital redemption reserve 19,213 16,896 Share premium account 6,712,239 - Revaluation reserve - unrealised ( 2,712,919) 1,065,461 Special distributable reserve 10,611,920 10,881,648 Profit and loss account 7,406,994 7,972,516 ------ ------ Equity shareholders' funds 22,319,144 20,142,891 ====== ====== Net asset value per share - basic and diluted Ordinary Shares 7 69.03p 96.91p C Shares 7 86.02p 98.48p The notes below form part of these financial statements. Cash Flow Statement For the year ended 30 April 2009 Year ended Year ended 30 April 2009 30 April 2008 Notes £ £ Interest income received 449,574 645,737 Dividend income 485,537 504,755 Investment management fees paid (373,826) (632,574) Cash payments for other expenses (377,434) (501,954) ------ ------ Net cash inflow from operating activities 183,851 15,964 Capital expenditure and financial investment Purchase of investments held at fair value (3,758,017) (3,821,514) Disposals of investments held at fair value 757,966 3,131,438 ------ ------ Net cash outflow from investing activities (3,000,051) (690,076) Dividends Equity dividends paid 5 (918,110) (859,659) ------ ------ Net cash outflow before financing (3,734,310) (1,533,771) and liquid resource management Financing Purchase of own shares (151,530) (634,801) Share capital raised (net of expenses) 6,698,020 - ------ ------ Net cash inflow/(outflow) from financing 6,546,490 (634,801) Management of liquid resources Movement in money market investments (2,840,588) 1,930,847 ------ ------ Net cash outflow as at 30 April 2009 (28,408) (237,725) ====== ====== Reconciliation of Movements in Shareholders' Funds For the year ended 30 April 2009 Year ended Year ended 30 April 2009 30 April 2008 Notes £ £ Opening shareholders' funds 20,142,891 21,797,419 Net share capital issued in the year (net of expenses) 6,789,883 - Share capital bought back (128,228) (420,667) Loss for the year (3,567,292) (374,202) Dividends paid in year 5 (918,110) (859,659) ------ ------ Closing shareholders' funds 22,319,144 20,142,891 ====== ====== Notes to the Accounts For the year ended 30 April 2009 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' issued by the Association of Investment Companies in January 2003, revised December 2005 ("the SORP"). 2) Income 2009 2008 £ £ Income from bank deposits 1,731 8,879 Income from investments - from equities 214,825 51,422 - from overseas based OEICs 191,677 442,520 - from UK based OEICs 44,615 - - from loan stock 391,124 524,202 ------- ------- 842,241 1,018,144 ------- ------- Total income 843,972 1,027,023 ====== ====== Total income comprises Dividends 451,117 493,942 Interest 392,855 533,081 ------- ------- 843,972 1,027,023 Income from investments comprises Listed overseas securities 191,677 442,520 Unlisted UK securities 259,440 51,422 Loan stock interest 391,124 524,202 ------- ------- 842,241 1,018,144 ====== ====== Loan stock interest above is stated after deducting an amount of £38,611 (2008: £12,588), 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 £303,168 (2008: £107,941). 3) Recoverable VAT Revenue Capital Total Revenue Capital Total 2009 2009 2009 2008 2008 2008 £ £ £ £ £ £ Recoverable VAT 22,618 67,854 90,472 - - - On the basis of information supplied by the Company's current and past Investment Managers, and discussions with the Company's professional advisors as a result of the European Court of Justice ruling and subsequent HMRC briefing that management fees be exempt for VAT purposes, the Directors have recognised a repayment of VAT of not less than £112,000, which has been received after the year-end. £21,528 of this amount relates to 2008 and has been set off against the total management fees for 2009 disclosed in the profit and loss account, leaving the net amount disclosed above. This amount has been recognised as a separate item in the Profit and Loss Account, allocated 25% to revenue and 75% to capital return and is the same proportion as that in which the irrecoverable VAT was originally charged. It is possible that additional amounts of VAT will be recoverable in due course but the Directors are unable at this stage to quantify the sums involved. 4) Taxation on ordinary activities There is no tax charge for the period, as the Company has incurred taxable losses in the period. 5) Dividends paid and payable 2009 2008 £ £ Amounts recognised as distributions to equity holders in the year: Ordinary share fund Interim income dividend for the year ended 30 April 2008 paid of 1.5p (2008: 1.5p) per share 172,365 - Interim capital dividend for the year ended 30 April 2008 paid of 4.5p (2008: 4.5p) per share 517,095 - Final paid of nil (2008: 6p) per share - 722,467 ------- ------- 689,460 722,467 C share fund Interim income dividend paid for the year ended 30 April 2008 of 2.5p (2008: 1.5p) per share 228,650 137,192 ------- ------- Total paid 918,110 859,659 The Company proposes to pay a final dividend of 1 penny per C Share from income. The dividend will be recommended to Shareholders at the Annual General Meeting and, if approved, will be paid on 18 September 2009 to C Shareholders on the Register on 28 August 2009. 6) Basic and diluted earnings and return per share 2009 2009 2009 2008 2008 2008 Ordinary Share C Share Fund Ordinary C Share Fund Fund Share Fund £ £ £ £ £ £ Total earnings after taxation: (2,545,615) (1,021,677) (3,567,292) (633,730) 259,528 (374,202) ------ ------ ------ ------ Basic and diluted earnings per share (22.34)p (10.56)p (5.38)p 2.84p (note a) Net revenue from ordinary activities 147,005 123,412 214,894 242,682 after taxation ------ ------ ------ ------ Basic and diluted revenue earnings 1.29p 1.27p 1.82p 2.65p per share (note b) Net realised capital (losses)/gains (29) - 688,893 64,374 Net unrealised capital (2,671,234) (1,107,146) (1,388,204) 76,422 (losses)/gains Dividends treated as capital 63,825 44,550 - - VAT recoverable 37,650 30,204 - - Capital expenses (net of taxation) (122,832) (112,697) (149,313) (123,950) ------ ------ ------ ------ Total capital return (2,692,620) (1,145,089) (848,624) 16,846 ------ ------ ------ ------ Basic and diluted capital earnings (23.63)p (11.83)p (7.20)p 0.19p per share (note c) Weighted average number of shares in 11,394,390 9,677,798 11,789,161 9,145,990 issue in the year Notes: a) Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue. b) Revenue earnings per share is the revenue return after taxation divided by the weighted average number of shares in issue. c) Capital earnings per share is the total capital loss after taxation divided by the weighted average number of shares in issue. d) There are no instruments that will increase the number of shares in issue in future. Accordingly, the above figures currently represent both basic and diluted returns. The Board consider that the likelihood of the issue of performance warrants by the Ordinary Share Fund, as referred to in note 4 of the Annual Report, is low. Accordingly, the potential impact of the issue of these warrants upon diluted earnings per share has been ignored for this purpose. 7) Basic and diluted net asset value per share Ordinary Share Fund Net asset value per Ordinary Share is based on net assets at the end of the year, and on 11,259,333 (2008: 11,491,008) Ordinary Shares, being the number of Ordinary Shares in issue on that date. C Share Fund Net asset value per C Share is based on net assets at the end of the year, and on 16,910,386 (2008: 9,145,990) C Shares, being the number of C Shares in issue on that date. 8) Reconciliation of loss on ordinary activities before taxation to net cash inflow from operating activities 2009 2008 £ £ Loss on ordinary activities before taxation (3,567,292) (374,202) Net losses on realisations of investments 29 1,311,782 Net unrealised losses/(gains) on investments 3,778,380 (753,267) (Increase)/decrease in debtors (114,664) 22,571 Increase/(decrease) in creditors and accruals 87,398 (175,924) Transaction costs charged to capital - (14,996) ------ ------ Net cash inflow from operating activities 183,851 15,964 9) Analysis of changes in net funds Cash Liquid resources Total £ £ £ At beginning of year 89,754 8,358,174 8,447,928 Cash flows (28,408) 2,840,588 2,812,180 ------ ------ ------ At 30 April 2009 61,346 11,198,762 11,260,108 10) Related party transactions Kenneth Vere Nicoll is a director and shareholder of Matrix Group Limited, which owns Matrix-Securities Limited, MPE Partners Limited and has a 51% interest in Prime Rate Capital Management LLP and Matrix Corporate Capital ("MCC"). MPE Partners Limited has a 50% interest in Matrix Private Equity Partners LLP, the Company's Investment Manager. He is also a director of Matrix-Securities Limited who provided accountancy and company secretarial services to the Company for which it received payment of £95,123 (2008: £93,493) including VAT during the year. Matrix Private Equity Partners LLP is the Company's Investment Manager in respect of venture capital investments and earned fees of £372,154 (2008: £500,439 including VAT), net of VAT originally charged. £6,500 (2008: £11,672) was due from Matrix Private Equity Partners LLP at the year-end. The Company has invested £1 million in a liquidity fund managed by Prime Rate Capital Management LLP, and earned income of £44,615 from this fund in the year. MCC were appointed as the Company's brokers on 10 December 2008. Fees of £1,394 were charged for the period. Two share buybacks were undertaken by MCC on the Company's instruction totalling £42,538. No amounts owed to MCC were due at the year end. 11) Post balance sheet events On 6 May 2009, Digico Europe Limited made a partial repayment of their loan stock. The Ordinary Share fund received proceeds of £137,552 and the C Share fund received proceeds of £96,028. Following the close of the C share Offer after the year end, the Company issued a further 573,702 new C Shares, at 92.39 pence per share, raising gross funds before expenses of £530,000. 12) Financial information These are not full accounts in terms of section 435 of the Companies Act 2006. The Annual Report for the year to 30 April 2009 will be sent to shareholders shortly and will then be available for inspection at One Vine Street, London W1J 0AH, the registered office of the Company. Copies of the Annual Report will be available in August at www.mig2vct.co.uk. Statutory accounts will be delivered to the Registrar of Companies after the Annual General Meeting. The auditors have reported on these accounts and their report was unqualified and did not contain a statement under section 498(2) of the Companies Act 2006. 13) Annual General Meeting The Annual General Meeting of the Company will be held at 12 noon on 10 September 2009 at One Vine Street, London W1J 0AH. Contact details for further enquiries: Robert Brittain of Matrix-Securities Limited (the Company Secretary) on 020 3206 7000 or by e-mail on mig2@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.

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