Annual Financial Report
Matrix Income & Growth 4 VCT plc
Annual Results for the year ended 31 January 2010
Strategy
Matrix Income & Growth 4 VCT plc ("MIG4") 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
* Increase of 20.4% in year in cumulative dividends (paid and proposed)
* Within this, dividends paid and proposed in respect of 2010 have
increased compared to the previous year
* Increase of 15.0% in shareholder total return (share price basis) in
period since MPEP took over sole management of the Fund from 1 August
2006
* Decrease of 0.4% in total shareholder return (net asset value basis) in
period since MPEP took over sole management of the Fund from 1 August
2006
Dividends paid
Year ended 31 Dividends per Cumulative
January share paid and dividends
proposed in respect per share paid
of each year and proposed
since launch
(p) (p)
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
Dividends paid include distributions from both income and capital.
* Dividends proposed
A final proposed dividend of 2 pence per share will be recommended to
Shareholders at the AGM of the Company to be held on 27 May 2010 to be paid on
9 June 2010 and has been included in the above figures.
Performance Summary
Year ended 31 Net Net NAV total Share Share price
January assets asset return per price 1 total return
value share to per share to
per shareholders shareholders
share since launch since launch
(£ (p) (p) (p) (p)
million)
2010 21.2 106.3 122.0 92.3 108.0
2009 21.0 104.6 118.3 92.0 105.7
2008 24.1 117.4 128.9 109.0 120.5
2007 9.8 116.3 125.2 91.0 101.7
2006 9.3 106.6 115.0 85.0 93.9
1 Source: London Stock Exchange
The share price and net asset value (NAV) total return comprise the share price
and NAV respectively per share assuming the dividends paid were re-invested on
the date on which the shares were quoted ex-dividend in respect of each
dividend.
Figures for the years ended 31 January 2005, 2006 and 2007 have been restated
to take account of the restructuring of the share capital that took place on 18
October 2006.
Chairman's Statement
I am pleased to present to Shareholders the Annual Report of the Company for
the year ended 31 January 2010.
Performance
At 31 January 2010, the Net Asset Value (NAV) per Share was 106.34 pence (2009:
104.61 pence). Adjusted for the dividends paid to shareholders during the year,
this represents a increase of 3.57% over the twelve month period. Whilst the
Company invests in largely unquoted securities and cash, it is worth comparing
the Company's performance with the performance of some indices for quoted
securities over the same period, namely increases of 57.62% and 64.94% in the
FTSE SmallCap CR Index and the FTSE AIM CR Index respectively. The NAV Total
Return per Share increased in the year by 3.13% from 118.3 pence at 31 January
2009 to 122.0 pence at 31 January 2010.
These headline performance figures may, therefore, appear somewhat
disappointing but, in general the underlying performance of the portfolio in
the year has been resilient and offers encouragement. Some of our investee
companies have performed well, notably Digico and Focus Pharma. However, we
have made substantial provisions on four construction related companies which
together have accounted for a reduction in value of nearly £1m. This has acted
as a drag on valuation growth this year, although we have every expectation
that all four businesses will recover in value as the recession recedes. The
portfolio overall achieved realised gains of £268,469 which together with
unrealised gains of £700,336, has resulted in net gains of nearly £1 million.
UK sector price earnings multiples have, in the main, increased over this
twelve month period. These do, of course, impact on our portfolio valuation in
both the quoted and unquoted sectors.
A final income dividend of 1 penny per Ordinary Share was paid on 10 June 2009
in respect of the year ended 31 January 2009. In addition, an interim capital
dividend of 1 penny per Ordinary Share was paid on 7 November 2009 following
the sale of Tottel Publishing (referred to below). Including the proposed 2
pence capital dividend, dividends in respect of the year ended 31 January 2010
will be 3 pence per share, an increase compared to the 2 pence per share paid
in the year ended 31 January 2009.
Cumulative dividends paid to date have been 15.70 pence per Share.
Economic background
Investors have moved stock markets up a long way in the last twelve months but
the economic outlook is still extremely tough, particularly in the
manufacturing and retail sectors. The situation is exacerbated, with a run up
to an election, by a lack of clarity on how and when, excessive UK government
expenditure and debt will be curbed. The Budget did nothing to dispel these
doubts. Persistent concerns over the problems of peripheral Eurozone countries,
such as Greece, testify to this. But the problems do not lie alone with Europe
as President Obama also struggles to get the US budget deficit under control
whilst still trying to stimulate the US economy.
After several months of almost consistent gains in mid to late 2009 equity
markets appear to have consolidated around current levels for the time being.
The portfolio
When considered by stage of development, the portfolio continues to be
dominated by investments in management buy-out situations ("MBOs"), which has
risen to 52.4% with 7.8% invested in development capital companies, 39.2% in
acquisition companies and the remaining 0.6% of the portfolio being invested in
early stage investments. The portfolio is now invested in a wide range of
market sectors with the largest of those being general retailers at 25.4%.
Support services at 23.9% is the next largest investment sector.
Within the portfolio, there has been considerable positive activity during the
past year with an encouraging number of realisations and loan repayments. At
the beginning of July 2009 the Company sold its investment (initial cost: £
235,200) in Tottel Publishing Limited, the specialist publisher of legal and
tax titles to Bloomsbury Group earning a threefold gain on its initial
investment and returning total proceeds of £901,000 to the Company. The
Company's original investment of £235,200 had already been reduced to £148,568
in March of this year when Tottel repaid 50% of the Company's loan stock.
PastaKing Holdings Limited, the Newton Abbott based award winning supplier of
fresh pasta meals to the education sector and industry, was sold in November
2009 to NBGI Private Equity for net proceeds of £356,968. Total proceeds over
the life of the investment were £435,000, representing a 2.27 fold gain on the
Company's original investment of £133,055.
In December 2009, the Company sold its investment in eXpansys plc (cost: £
31,000) for net proceeds of £16,423. In addition, in January 2010, the Company
sold its holding in ComponentSource Holding Corporation realising proceeds of £
8,029. The Company also received from Munro Global (the original investment was
made into Maven Management) a final repayment in respect of the loan of £
38,286. This investment has now been fully exited.
In May 2009, DiGiCo Europe Limited made a partial loan repayment of £217,392 at
a premium of £16,189. A further repayment was made in December 2009 of £217,391
at a premium of £16,188.
A new investment of £373,376 was made in June 2009 into MC 440 Limited to
support the MBO of Westway Cooling Limited. Based in Greenford, Middlesex,
Westway specialises in installing, servicing and maintaining high quality
air-conditioning systems and associated building services plant in the
refurbishment and maintenance market. In October 2009 Westway made a partial
repayment of its loan stock of £45,760.
A £1 million investment was made in December 2009 into CB Imports Group Limited
to support the MBO of Country Baskets, an established importer and distributor
of floral sundries. In the same month, an £878,249 investment was made into
Iglu.com Holidays Limited, UK's largest specialist ski holiday travel agent and
fastest growing cruise holiday travel agent.
In March 2009, Letraset Limited was restructured with the Royal Bank of
Scotland providing an additional facility in return for an equity stake and
dilution of the Company's holding. In September 2009, the Company invested £
5,116 into Sift Limited as part of its Rights Issue. A further investment of £
45,455 was made in November into British International Holdings Limited in the
form of loan notes as part of a working capital injection by shareholders.
In January 2010, the Company invested in six acquisition companies as part of
its operating partner programme:
* Bladon Castle Management Limited which searches for acquisition
opportunities in the retail or health and wellbeing products sectors. The
Company made a £1m investment alongside £1m from Matrix Income & Growth 3
VCT plc ("MIG 3 VCT");
* Fullfield Limited which seeks acquisition opportunities in the food
manufacturing, distribution or brand management sectors. The Company made a
£1m investment, alongside £1m from MIG 3 VCT;
* Vanir Consultants Limited which is searching for acquisition opportunities
in the data management, data mapping and management services or legal and
building services sectors. The Company invested £1m in January 2010
following investments by Matrix Income & Growth 2 VCT plc and MIG 3 VCT of
£1m;
* Backbarrow Limited which searches for acquisition opportunities in the food
manufacturing, distribution or brand management sectors. The Company has
invested £1m;
* Rusland Management Limited which is searching for acquisitions
opportunities in the brand development, management and retailing sector.
The Company has invested £1m; and
* Torvar Limited which is seeking acquisition opportunities in the data
management, data mapping and management services sectors. The Company has
invested £1m.
In February 2010, the company sold its investment in Stortext FM Limited,
realising cash proceeds of £488,000.
Top-up offer
The Top-up Offer launched in January 2010 closed on 3 April 2010 having raised
£1.64 million. 1,483,901 Ordinary Shares have been allotted to current and new
shareholders at a price of 112.4 pence per Ordinary Share.
Cash available for investment
Cash and liquidity fund balances as at 31 January 2010 amounted to some £6
million. During this economic turmoil, both the Board and the Manager have
continued to work hard to ensure that our cash deposits remain as secure as
possible. We have for some time been spreading our significant cash deposits
with a number of the leading global cash funds rather than depositing direct to
individual banks, thereby reducing our exposure to any one particular bank.
However, the current low level of interest rates on cash deposits means it will
continue to be difficult for the Company to pay dividends from income.
Shareholders are being asked to approve a change in Investment Policy relating
to the funds awaiting investment. This would allow the Company to consider a
wider range of alternatives in the future should a suitable situation occur.
However, the Board and Manager both strongly believe that at this time the
security and protection of capital is more important than striving for a small
increase in deposit rates at the cost of much higher risk. We will continue to
keep this situation under review.
Revenue account
The Revenue return for the Company has decreased sharply from £478,663 to £
32,781 over the year. Income has fallen for one main reason; the historically
low level of interest rates arising in late 2008, and which have fallen further
throughout this year, has meant that returns from bank deposits and
money-market funds during the year have been poor. Interest from money-market
funds has fallen by £600,134 compared to the year ended 31 January 2009. Such
interest is likely to continue to remain low for the rest of the current year.
However, loan stock interest from investee companies has held up well compared
to 2009. This was in spite of several investee companies, most notably Blaze,
PXP and Youngman, breaching their bank covenants, so that that interest is no
longer being recognised in respect of these investments. This has, however,
been offset by additional loan stock interest being received from ATG Media,
Westway Cooling, and now IGLU and CB Imports.
Dividends from the portfolio have fallen by £35,706 to £50,190. Last year, this
source benefited from two unusually high dividends from PastaKing. Interest of
£6,544 has been received on VAT recoverable in respect of past investment
management fees.
Fund management fees charged to revenue have fallen by £3,099 during the year.
Other expenses have increased by £9,951, where printing costs rose although
trail commission declined.
Dividend
The Company's revenue return per Ordinary Share was 0.16 pence per share (2009:
2.35 pence per share). In view of this small return, your Board will not be
recommending a final income dividend in respect of the year under review. The
Board will, however, be recommending a final capital dividend of 2 pence per
Ordinary Share in respect of the year under review at the Annual General
Meeting to be held on 27 May 2010. This dividend will be paid, subject to
Shareholder approval, on 9 June 2010 to Shareholders on the Register on 14 May
2010.
Dividend Investment Scheme
We are proposing to offer shareholders the opportunity to reinvest all or part
of their dividends into new Ordinary Shares of the Company at the closing share
price on higher of an amount equivalent to (i) the mid-market share price
(averaged over the last 5 business days) and (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. Full
details, including the terms and conditions of the scheme, will be sent to
shareholders shortly.
VAT
As noted in the Annual Report for the year ended 31 January 2009, the Company
has been seeking to reclaim VAT that it had paid on past investment management
fees. During the year a repayment of £89,665 plus interest was received.
Further details can be found in Note 3 to the Accounts below. Further
repayments are possible, although any further receipt is likely to have a
negligible impact on the financial statements.
Share buy-backs
During the year ended 31 January 2010 the Company continued to implement its
buy-back policy and bought back 150,228 Ordinary Shares, representing 0.75% of
the shares in issue at 1 February 2009 at a total cost of £124,256. These
shares were subsequently cancelled by the Company.
MIG 4 Website
May I remind you that the Company continues to have its own website which is
available at www.mig4vct.co.uk.
Chairmanship
Under the provisions of the AIC Code and the revised Listing Rules for VCTs
which will come into effect later this year, I will be required to stand down
as Chairman and as a Director of your Company. I would like to take this
opportunity to thank all Shareholders for their support and encouragement over
many years. At the same time I would like to thank my fellow Board members,
Matrix Private Equity Partners (our Manager) and our other advisers for their
commitment, support and loyalty to me during my tenure as Chairman. I am more
than happy to continue as a Shareholder in the Company.
Following my resignation later this year, I am pleased to announce that
Christopher Moore, currently Chairman of the Audit Committee, will become
Chairman. A brief biography of Christopher is contained in the Annual Report.
Outlook
The recent pre-Election Budget - the last before the impending general
election - was, unsurprisingly, much in line with expectations. It
suggested an unwillingness by the Government to address at this time the
key economic issues. The focus of the Budget appeared to be on trying to
shore up support from key potential Government voters rather than tackling
the more important financial and economic problems facing the country at
this time. The effects of a Budget are not always easy to work out, and
this was no exception. This alone could fuel doubts within financial
markets over the coming weeks.
In the UK, mixed economic data released recently means the outlook
continues to remain somewhat cloudy and unsure - a point made by Bank of
England governor, Mervyn King. "Even if growth rebounds, the level of
activity is still very likely to remain weak for a considerable period. The
economic environment is likely to continue to feel far from normal for some
time" he said. Figures showed that business investment fell in the final
quarter of last year despite a recovery in growth, although there was
better news from the high street where retail sales showed a better than
expected rise of 2.1% last month. There was, however, one piece of good
news, namely that the Consumer Price Index fell from 3.5% to 3% last month.
It probably means that interest rates are unlikely to be increased at the
next MPC meeting.
The Company overall retains its significant cash position. The recent
Top-up Offer has added to this. This position continues to place the
Company in an excellent position to take advantage of what are expected to
be increasingly attractive purchase opportunities which should become
available as the economy climbs out of recession. Therefore, while short
term valuations may be subject to continuing pressures, your Board still
expects to see attractive investment opportunities and a recovery in
performance and portfolio values over the longer term.
The current level of interest rates in the United Kingdom means that it
will be difficult for the Company to pay a dividend from revenue in the
forthcoming year. Moreover, it is too early to say whether it will be
possible for the Company to pay further dividends from capital reserves.
Colin Hook
Chairman
Responsibility Statement of the Directors in respect of the Annual Financial
Report
The Directors confirm that to the best of their knowledge that:
(a) the financial statements, 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.
(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
Colin Hook
Chairman
12 April 2010
Principal Risks, Management and Regulatory Environment
The Board believes that the principal risks faced by the Company are:
* Economic risk - events such as an economic recession and movement in
interest rates could affect trading conditions for smaller companies and
consequently the value of the Company's qualifying investments.
* Loss of approval as a Venture Capital Trust - the Company 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 Acts 1985
and 2006 ("the Companies Acts"), 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.
* 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.
* 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.
* 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 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 and Administrator on a six monthly basis. In mitigation and the
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.
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 four 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 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. Matrix-Securities Limited
provides Company Secretarial and Accountancy services to the Company.
Investment Manager's Review
Overview
The continued economic deterioration in the UK and worldwide has made this a
challenging year for the Company. We have continued to remain cautious and
selective when considering new deals. We have avoided transactions that require
high levels of bank borrowing, believing that over-leveraged companies will be
particularly vulnerable. In addition, we have viewed vendors' price
expectations as likely to be unsustainable in the medium term.
The predominance in the investment portfolio of management buy-out (MBO)
investments reflects our strategy of seeking to capitalise companies properly
at the time of investment so that they are well positioned to contend with
difficult times. Only two investments have received very modest additional
funding of £51,000 during the year. We continue to believe that the portfolio,
taken as a whole, is resilient and of high quality and, given recent general
comment on the tightening of bank lending, do not consider that the portfolio
is exposed to unsustainable levels of third party debt.
Our cautious approach has meant that only one new investment and one divestment
were completed in the first six months of the year. The second half of the year
saw more encouraging signs of deal activity returning, with your Company
completing two new investments and three divestments. The increase in deal
activity can, in part, be attributed to vendors becoming more realistic in
their price expectations to stimulate interest from buyers. It is remains too
soon to tell whether the increased level of activity will be sustained. Your
Company maintains a strong cash position and is well positioned to take
advantage of increased deal activity.
The Portfolio
The MPEP investment portfolio at 31 January 2010 comprises twenty-eight
investments (2009: twenty-one) with a cost of £16.5 million (2009: £9.1
million) and valued at £15.2 million (2009: £7.8 million), representing 92.1%
of cost (2009: 85.7%). Realisations during the year generated cash proceeds of
£1.8 million.
As reported in the Half-Yearly Report, the first six months of the year saw one
new investment made to support the MBO of Westway Cooling, a company
specialising in the installation, servicing and maintenance of high quality
air-conditioning systems and associated building plant. With a turnover of £9.6
million and a record order book, we believe that this company is well placed to
grow.
The Company also successfully realised its investment in Tottel Publishing
during the first half of the year, earning an overall return to the Company of
4.0x the original investment costs by returning £901,000 over the life of the
investment. The Company's original investment cost of £235,200 had already been
reduced in March 2009 to £148,568 when Tottel repaid 50% of the Company's loan
stock investment.
The second half of the year saw an increase in activity. In December, the
Company completed two new investments. The first of these was an investment of
£1 million in CB Imports Group Limited to support the MBO of Country Baskets.
The investment comprises loan stock of £825,000 and a 6% equity stake. Founded
in 1990 and operating from a national distribution centre in Leeds, the company
has a turnover of circa £20 million. It is a leading importer and distributor
of artificial flowers, floral sundries, glassware, giftware, basket ware and
Christmas decorations. The company is planning to roll out further outlets
across the UK as part of a new growth phase funded by this investment.
The second new investment was into Iglu.com Holidays Limited, the UK's largest
specialist ski and fastest growing cruise holiday travel agent. The Company
invested £878,249 comprising loan stock of £744,470 and an equity stake of 7%.
Based in Wimbledon, Iglu.com is a profitable and cash generative business with
a strong management team that has a successful track record of building a
profitable niche business.
A follow-on investment was made in November 2009 into British International, in
the form of loan stock of £45,455, as part of a working capital injection by
shareholders.
Your Company has also invested £1 million into each of six acquisition
companies: Backbarrow, Bladon Castle Management, Fullfield, Rusland Management,
Torvar and Vanir Consultants. Each company is part of our Operating Partner
programme, having an experienced Operating Partner who has direct management
experience and a wide range of contacts in their particular sector of
expertise. We have established these companies to provide time for us to
identify and invest in suitable target companies at sufficiently attractive
prices. The Operating Partner programme has already been successful for other
Matrix-advised VCTs, leading the investments in Country Baskets and Iglu.com,
although MIG 4 VCT had not originally invested in these particular acquisition
companies. Your Company's investments in Bladon Castle Management, Fullfield
and Vanir join those of other Matrix-advised VCTs and each company is already
considering a number of opportunities.
The demand for high quality investments led to your Company selling its
investment in PastaKing Holdings, the manufacturer of fresh pasta meals, to
NBGI Private Equity in November 2009 for net proceeds of £356,968. This
realisation contributed to an overall return to the Company of 3.27x cost of
the original investment by returning proceeds of some £435,000 to the Company
over the life of the investment. The Company's original investment cost was £
133,055.
Munro Global made a further and final payment of £38,286 to the Company,
following its acquisition of Maven Management from the Company in 2007, after
Maven again met a revenue target during the year.
Shortly after the year end, your Company sold its investment in Stortext FM
Limited, realising cash proceeds of some £488,000 plus loan notes in the
acquirer with a value of some £25,000. This compared to the valuation at 31
January 2010 of some £445,866.
Over the year, the value of the portfolio has increased overall, although this
is mainly due to one strong performing investment, but a number of other
investments have continued to trade well. However, the qualifying investment
portfolio has not been immune to the wider deteriorating trading environment
and provisions have been applied against those investments where the investee
company's trading has been affected. A number of valuations have also had to be
reduced in response to falls in the value of comparable quoted companies and/or
falling earnings. We are hopeful that value will continue to return to some of
these investments in the portfolio during 2010 if trading conditions start to
improve.
Digico Europe is currently trading very strongly and has been the strongest
performer in the portfolio. It has repaid a total of £467,160 of its loan stock
in two instalments, in May and December, which included a premium of £32,377.
Westway Cooling has already repaid £45,760 of its loan stock in October 2009
following the Company's investment in June 2009 and is performing ahead of
initial expectations.
The performance of Monsal during the year has also improved materially and the
outlook is further enhanced by the prospect of new capital contracts as water
companies commit to new waste management projects and the company exploits its
expertise in anaerobic digestion. ATG Media has performed in line with
expectations over last year and the progress of its online auction platform
looks particularly promising.
Higher Nature has successfully cut costs and is trading ahead of its budget and
its previous financial year. Campden had a much better than expected year,
finishing ahead of budget.
Those companies in the portfolio with either direct or indirect exposure to the
construction and housebuilding sectors have continued to suffer from weakness
in their markets. These include: Youngman, which has substantially de-geared
since investment and is well positioned to benefit from an upturn in its
markets; Plastic Surgeon, which has diversified into commercial property and
insurance markets to reduce its dependence on new housing; and PXP, which has
responded similarly, moving away from its dependence on private sector house
building towards public sector funded housing associations.
Blaze continued to experience a fall in activity arising from much reduced
levels of new signage rollouts from its major customers. It has responded by
reducing its cost base and management is confident it will meet its forecasts
for the year to March 2010. SectorGuard acquired Legion Group in March 2009
following the acquisition of Manguard in 2008 and subsequently changed its name
to Legion Group plc.
BG Consulting Group/Duncary 4 is in the process of reconstructing its business
which should strengthen the company's position in the marketplace and enhance
the value of the VCT's investment. Earlier this year, Letraset underwent a
capital reorganisation to address its recent decline in revenue and re-align
itself for the future.
The rise in valuations for the year is encouraging although the reduction in
profitability of some portfolio companies has made some decreases inevitable.
It is important to recognise that all of the falls in the year have been in
unrealised valuations as opposed to any actual realised investment losses. We
aim to invest in strong, profitable companies and believe that the prospect of
significant future recovery over the medium term is good as we continue to
believe that the portfolio, taken as a whole, is resilient and of high quality.
The investments originally made by Elderstreet have also experienced some
changes. Your Company participated in a small rights issue by Sift, to provide
additional working capital, and after the year end has made a small purchase of
shares in sparesFinder for £854.
Towards the end of the financial year the Company took the opportunity to
realise its investments in eXpansys plc and ComponentSource for £16,423 and £
8,029 respectively.
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.
Over the next year, the need for additional investment to support certain
portfolio companies may emerge. We also anticipate much more attractive buying
conditions emerging as the year progresses. We feel the Company is well placed
to cover both the portfolio needs that may arise and the new investment
opportunities presented.
Investment Portfolio Summary
as at 31 January 2010
Total
Cost at Valuation Additional Valuation % of % of
31-Jan-10 at investments at equity portfolio
31-Jan-09 31-Jan-10 held by value
£ £ £ £
Matrix Private
Equity Partners
Portfolio
DiGiCo Europe 565,217 1,091,100 - 1,697,193 6.52% 11.10%
Limited
Manufacturer of
audio mixing desks
Backbarrow Limited 1,000,000 - 1,000,000 1,000,000 49.00% 6.54%
Food manufacturing,
distribution and
brand management
Bladon Castle 1,000,000 - 1,000,000 1,000,000 25.00% 6.54%
Management Limited
Brand management,
consumer products
and retail
CB Imports Group 1,000,000 - 1,000,000 1,000,000 6.00% 6.54%
Limited
Importer and
distributor of
artificial flowers,
floral sundries and
home décor products
Fullfield Limited 1,000,000 - 1,000,000 1,000,000 25.00% 6.54%
Food manufacturing,
distribution and
brand management
Rusland Management 1,000,000 - 1,000,000 1,000,000 49.00% 6.54%
Limited
Brand management,
consumer products
and retail
Torvar Limited 1,000,000 - 1,000,000 1,000,000 49.00% 6.54%
Database management,
mapping, data
mapping and
management services
to legal and
building industries
Vanir Consultants 1,000,000 - 1,000,000 1,000,000 16.67% 6.54%
Limited
Database management,
mapping, data
mapping and
management services
to legal and
building industries
ATG Media Holdings 1,000,000 1,000,000 - 905,295 8.89% 5.92%
Limited
Publisher and online
auction platform
operator
Focus Pharma 772,451 758,440 - 885,606 3.14% 5.79%
Holdings Limited
Licensor and
distributer of
generic
pharmaceuticals
IGLU.com Holidays 878,249 - 878,249 878,249 7.15% 5.74%
Limited
Online ski and
cruise travel agent
Higher Nature 500,127 708,597 - 682,568 10.69% 4.46%
Limited
Mail order
distributor of
vitamins and natural
medicines
Monsal Holdings 704,771 528,578 - 675,928 9.83% 4.42%
Limited
Supplier of
engineering services
to the water and
waste sectors
MC 440 Limited 327,616 - 373,376 526,041 3.15% 3.44%
(Westway Cooling)
Installation,
service and
maintenance of air
conditioning systems
Stortext FM Limited 561,820 375,968 - 445,866 5.40% 2.92%
Provider of document
management software
and services
VSI Limited 111,928 305,699 - 382,667 4.42% 2.50%
Provider of software
for CAD and CAM
vendors
Youngman Group 500,026 476,523 - 349,983 4.24% 2.29%
Limited
Manufacturer of
ladders and access
towers
British 295,455 247,338 45,455 191,887 2.50% 1.25%
International
Holdings Limited
Helicopter service
operator
Vectair Holdings 100,000 141,884 - 170,535 2.14% 1.12%
Limited
Designer and
distributor of
washroom products
The Plastic Surgeon 458,837 229,419 - 114,709 6.88% 0.75%
Holdings Limted
Snagging and
finishing of
domestic and
commercial
properties
Blaze Signs Holdings 610,016 593,471 - 110,681 5.72% 0.72%
Limited
Manufacturer and
installer of signs
Legion Group plc 150,102 64,323 - 64,323 1.08% 0.42%
(formerly
Sectorguard plc) 1
Provider of manned
guarding, patrolling
and alarm response
services
Racoon International 406,805 - - 59,138 5.70% 0.39%
Holdings Limited
Supplier of hair
extensions, hair
care products and
training
Campden Media 152,620 18,319 - 34,024 1.75% 0.22%
Limited
Magazine publisher
and conference
organiser
BG Consulting Group 230,796 53,064 - 33,725 See note 0.22%
Limited/Duncary 4 2
Limited
Provider of
financial training
services
Letraset Limited 150,000 - - - 17.35% 0.00%
Manufacturer and
distributor of
graphic art products
Inca Interiors 350,000 - - - 9.75% 0.00%
Limited (in
liquidation)
Designer, supplier
and installer of
contract kitchens
PXP Holdings Limited 679,549 139,086 - - 4.98% 0.00%
Designer,
manufacturer and
supplier of timber
frames for buildings
Maven Management - - - - N/A 0.00%
Limited 3 (Munro
Global Limited)
Market research
agency
Pastaking Holdings - 409,344 - - 2.10% 0.00%
Limited
Manufacturer and
supplier of fresh
pasta meals
Tottel Publishing - 616,173 - - 6.27% 0.00%
Limited
Publisher
specialising in
legal and tax titles
------ ------ ------ ------ ------
Total 16,506,385 7,757,326 8,297,080 15,208,418 99.45%
Former Elderstreet
Private Equity
Portfolio
Cashfac Limited 260,101 38,168 - 63,125 3.42% 0.41%
Provider of virtual
banking application
software solutions
to corporate
customers
Sparesfinder Limited 250,000 - - 19,197 2.19% 0.13%
Supplier of
industrial spare
parts on-line
Sift Group Limited 130,116 - 5,116 1,226 0.63% 0.01%
Developer of
business-to-business
internet communities
Expansys plc 1 - 9,971 - - 0.58% 0.00%
Retailer of handheld
electrical products
ComponentSource - - - - 0.61% 0.00%
Holding Corporation
------ ------ ------ ------ ------
Total 640,217 48,139 5,116 83,548 0.55%
100.00%
------ ------ ------ ------ ------
Investment Managers' 17,146,602 7,805,465 8,302,196 15,291,966 100.00%
Total
====== ====== ====== ====== ======
1 Quoted on AiM
2 The % of equity held in BG Consulting Group Limited is 2.6% and in Duncary 4
Limited is 6.64%.
3 Maven Management was sold in 2007. Part of the consideration was contingent
upon revenue thresholds being achieved, which generated further sale proceeds.
Income Statement
for the year ended 31 January 2010
Year ended 31 January 2010 Year ended 31 January 2009
Notes Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Unrealised gains/ - 700,336 700,336 - (2,574,520) (2,574,520)
(losses) on
investments
Gains/(losses) on - 268,469 268,469 - (21,299) (21,299)
investments
realised
Income 2 489,753 - 489,753 1,068,647 30,915 1,099,562
Recoverable VAT 3 1,051 3,155 4,206 13,500 40,500 54,000
Investment 6 (97,204) (291,610) (388,814) (100,303) (300,909) (401,212)
management fees
Other expenses (360,819) - (360,819) (350,868) - (350,868)
------ ------ ------ ------ ------ ------
Profit/(loss) on 32,781 680,350 713,131 630,976 (2,825,313) (2,194,337)
ordinary
activities before
taxation
Taxation on - - - (152,313) 152,313 -
ordinary
activities
------ ------ ------ ------ ------ ------
Profit/(loss) for 32,781 680,350 713,131 478,663 (2,673,000) (2,194,337)
the year
====== ====== ====== ====== ====== ======
Basic and diluted 5 0.16p 3.40p 3.56p 2.35p (13.14)p (10.79)p
earnings per
ordinary share
All the items in the above statement derive from continuing operations.
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
profit/(loss) as stated above and at historical cost.
Balance Sheet
as at 31 January 2010
as at 31 January 2010 as at 31 January 2009
Notes £ £ £ £ £ £
Fixed assets
Investments at 15,291,966 7,805,465
fair value
Current assets
Debtors and 139,702 240,016
prepayments
Current 5,975,819 13,113,111
investments
Cash at bank 70,404 15,256
------ ------ ------ ------ ------ ------
6,185,925 13,368,383
Creditors: (255,349) (138,150)
amounts falling
due within one
year
------ ------ ------ ------
Net current 5,930,576 13,230,233
assets
------ ------
Net assets 21,222,542 21,035,698
====== ======
Capital and
reserves
Called up share 199,576 201,078
capital
Capital 885,245 883,743
redemption
reserve
All the items in (1,473,847) (1,537,950)
the above
statement derive
from continuing
operations.
Special 16,540,857 16,968,144
distributable
reserve
There were no 5,070,711 4,520,683
other recognised
gains or losses
in the year.
------ ------
Equity 21,222,542 21,035,698
shareholders'
funds
====== ======
Basic and diluted 4 106.34p 104.61p
net asset value
per Ordinary
Share
Other than revaluation movements arising on investments held at fair value
through the profit and loss account, there were no differences between the
profit/(loss) as stated above and at historical cost.
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 January 2010
Year ended 31 Year ended 31
January 2010 January 2009
£ £
Opening shareholders' funds 21,035,698 24,067,317
Purchase of own shares (124,256) (379,254)
Profit/(loss) for the year 713,131 (2,194,337)
Dividends paid in year (402,031) (458,028)
------ ------
Closing shareholders' funds 21,222,542 21,035,698
====== ======
Cash Flow Statement
for the year ended 31 January 2010
Year ended Year ended
31 January 31 January
2010 2009
Notes £ £
Interest income received 281,147 304,782
Dividend income 156,673 814,332
VAT received and interest 3 100,239 5,098
thereon
Other income 14,901 -
Investment management fees (224,334) (516,689)
paid
Cash payments for other (334,604) (386,878)
expenses
------ ------
Net cash (outflow)/inflow from (5,978) 220,645
operating activities
Investing activities
Sale of investments 1,784,500 227,615
Purchase of investments (8,302,196) (1,624,774)
Net cash outflow from (6,517,696) (1,397,159)
investing activities
Equity dividends paid (402,031) (458,028)
------ ------
Cash outflow before liquid (6,925,705) (1,634,542)
resource management and
financing
Management of liquid resources
Decrease in monies held in 7,137,292 2,011,197
current investments
Financing
Purchase of own shares (156,439) (385,264)
------ ------
Increase/(decrease) in cash 55,148 (8,609)
for the year
====== ======
Notes
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
2010 2009
£ £
Income from bank deposits 354 2,605
Income from investments
- from equities 50,190 85,896
- from overseas based OEICs 96,060 696,194
- from loan stock 327,454 309,769
- from VAT recoverable 6,544 -
------ ------
480,248 1,091,859
Other income 9,151 5,098
------ ------
Total income 489,753 1,099,562
====== ======
Total income comprises
Dividends 146,250 782,090
Interest 334,352 312,374
Other income 9,151 5,098
------ ------
489,753 1,099,562
Income from investments comprises
Listed overseas securities 96,060 696,194
Unlisted UK securities 50,190 85,896
Loan stock interest 327,454 309,769
------ ------
473,704 1,091,859
====== ======
Loan stock interest above is stated after deducting an amount of £2,601 (2009:
£18,085), 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 £208,063
(2009: £142,726).
3. Recoverable VAT
Revenue Capital Total Revenue Capital Total
2010 2010 2010 2009 2009 2009
£ £ £ £ £ £
Recoverable 1,051 3,155 4,206 13,500 40,500 54,000
VAT
As at 31 January 2009 the Directors considered it reasonably certain that the
Company would obtain a repayment of VAT of not less than £85,459. Last year's
accounts recognised this amount as income of £54,000 above, and £31,459
deducted from last year's investment manager's fees, in note 4 above. This
estimate was based upon information supplied by the Company's Investment
Manager, 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. During the year, a total of £93,695
of VAT recoverable has been received. Of the excess of £8,236 over the £85,459
recognised in 2009's accounts, £4,206 has been further credited to the Income
Statement, allocated 25% to revenue and 75% to capital return and is in the
same proportion as that in which the irrecoverable VAT was originally charged,
but £4,030 has not been recognised as it may be repayable to a previous
investment manager or service provider as it relates to VAT charged during a
period when an expense cap was applied to their fees and is therefore held
within other creditors per note 14.
The £93,695 of income recognised in both the 2009 and current year accounts,
together with related interest of £6,544 shown in note 2 above, equals the sum
of £100,239 shown in the cash flow statement as part of cash flow from
operating activities.
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 19,957,572 (2009: 20,107,800) Ordinary Shares, being the number of
Ordinary Shares in issue on that date.
5. Basic and diluted earnings per share
2010 2009
£ £
Total earnings after taxation: 713,131 (2,194,337)
Basic and diluted earnings per 3.56p ( 10.79)p
share (note a)
Net revenue from ordinary 32,781 478,663
activities after taxation
Basic and diluted revenue return 0.16p 2.35p
per share (note b)
Net unrealised capital gains/ 700,336 (2,574,520)
(losses)
Net realised capital gains/ 268,469 (21,299)
(losses)
Dividends treated as capital - 30,915
VAT recoverable 3,155 40,500
Capital expenses (net of (291,610) (148,596)
taxation)
Total capital return 680,350 (2,673,000)
Basic and diluted capital return 3.40p ( 13.14)p
per share (note c)
Weighted average number of shares 20,032,743 20,338,366
in 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.
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 2 pence per Ordinary Share from
capital. The dividend will be recommended to members at the Annual General
Meeting and, if approved, will be paid on 9 June 2010 to shareholders on the
Register on 14 May 2010.
8. Post balance sheet events
Following the year end, 1,483,901 shares were issued on 31 March and 3 April
2010 as part of a top up offer raising £1.64 million for the Company.
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 2010 in terms of
section 434 of the Companies Act 2006 but is derived from those accounts.
Statutory accounts for the year ended 31 January 2010 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-Securities Limited, 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 12.00 noon on
Thursday, 27 May 2010 at the offices of Matrix Group Limited, One Vine Street,
London W1J 0AH.
Contact details for further enquiries:
Robert Brittain or Ross Lacey at Matrix-Securities Limited (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.
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