Final Results
Matrix Income & Growth 4 VCT plc
Preliminary results for the year ended 31 January 2008
Strategy
Matrix Income & Growth 4 VCT 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 intends to pay income dividends half-yearly. Subject to fulfilling
certain regulatory requirements, the VCT also intends to pay capital dividends
following portfolio realisations.
Performance Summary
* Increase of 19% in year in cumulative dividends (paid & proposed)
* Increase of 11% in annual dividends (paid & proposed) over 2007
* Increase of 28.3% in shareholder total return (share price basis) in 18
month
period since MPEP took over sole management of the Fund
* Increase of 5.2% in shareholder total return (net asset value basis) in 18
month period since MPEP took over sole management of the Fund
Year ended Dividends paid and Cumulative dividends since
proposed for each year launch per share
31 January
(p) (p)
2008 *2.00 *12.70
2007 1.80 10.70
2006 0.50 8.90
2005 0.20 8.40
2004 0.50 8.20
*A final proposed dividend of 1.25 pence per share, which will be recommended
to Shareholders at the AGM on 21 May 2008 to be paid on 11 June 2008, has been
included in these figures.
Year Net Net asset NAV total return Share price Share price total
ended assets value per to shareholders (p)1
(£ 000s) share (p) since launch per return to
31 share (p)1
January shareholders since
launch per share
(p)
2008 24,067 117.41 128.86 109.00 120.45
2007 9,772 116.34 125.24 91.00 101.70
2006 9,287 106.57 114.97 85.00 93.90
2005 10,108 110.29 118.49 85.00 93.40
2004 9,868 103.76 111.46 89.00 97.20
1 Source: London Stock Exchange
The share price and net asset value (NAV) total return comprise the share price
and NAV respectively per share together with the dividends paid, assuming such
dividends were re-invested on the dates on which the shares were quoted
ex-dividend.
Chairman's Statement
I am pleased to present to Shareholders the preliminary results of the Company
for the year ended 31 January 2008.
In the light of the economic uncertainty and turmoil in financial markets
during the last twelve months, this has not been an entirely easy period for
investment companies. This is clearly evidenced by the stock market indices
discussed below, all of which fell significantly. In contrast, the outcome for
the year, when the Company's net assets per share have risen, albeit
marginally, is encouraging given the difficult economic climate.
Performance
Although it is only relatively early (eighteen months ago) since the Company
appointed MPEP as sole Investment Manager, a promising start to securing
improved performance has occurred. Income dividends paid and proposed for the
year are 11% higher than last year's payment (which itself was abnormally high,
as all previously undistributed income earned up to 31 July 2006 was paid to
shareholders who held shares before the new share offer). This year's dividends
increase cumulative dividends paid and proposed by 19% since last year's total.
Partly as a result of a more active management of the share price, share price
return to shareholders has increased by over 28% in these eighteen months.
At 31 January 2008, the Company's Net Asset Value (NAV) per share had risen by
0.92% to 117.41 pence (2007: 116.34 pence). Net assets, however, rose by 146.3%
to £24.07m almost entirely due to the successful fund raising last year. The
Company, after the proposed final dividend of 1.25 pence per share, will have
distributed dividends of 12.7 pence per share since the Company's launch. The
total shareholder (NAV) return has risen by 5.2% since 1 August 2006, the date
on which MPEP was appointed sole Investment Manager to the Company.
Economic and stock market background
During the last twelve months stock markets around the world have been
dominated by the difficulties in the US sub-prime mortgage market, in the UK by
the events surrounding the banking activities of Northern Rock, and more
recently by the substantial losses suffered by Société Générale. At the time of
writing this report, credit markets are suffering particular turmoil as
investors unwind positions in structured products. This situation has been
exacerbated by news of Credit Suisse unveiling a $2.8bn write-down on
asset-backed investments and by the near collapse of Bear Stearns in New York.
As a result, credit spreads in both Europe and the US have widened to record
levels. Whilst the worst of the turmoil may be over in the short term, there
can be no certainty that further problems will not emerge, thus adding to stock
market concerns.
During the twelve-month period ended 31 January 2008 the FTSE All Share Index
fell by 3.56%, the Small Cap Index by 19.52% and the AIM Index by 8.99%.
Inevitably the general climate has affected sentiment in the corporate sector.
There are two aspects: divestments may become more difficult later in the year,
while acquisition prices could become more attractive. Some satisfactory exits
have been achieved in 2007 and 2008, and the Manager remains confident that
there are still opportunities to invest selectively at attractive prices.
The portfolio
When considered by stage of development, the portfolio continues to be
dominated by investments in management buy-out situations ("MBOs"), which has
remained steady at 79.41% with 19.09% invested in development capital companies
and the remaining 1.50% of the portfolio being invested in early stage
investments. Following the change in investment strategy at the beginning of
the period, the portfolio is invested in a wide range of market sectors with
the largest of those being support services at 38.65%. Consumer services at
14.57% is the next largest investment sector. This spread of investments
reflects the current investment strategy of spreading risks whilst trying to
maintain a steady, if not increasing, dividend yield.
Within the portfolio, there were net gains of some £464,000 for the period
following the disposal of three companies. These produced a total profit
against original cost of some £791,000. Maven Management Limited was sold for
cash proceeds of £429,000. This produced a further gain of £118,000 this year,
and an overall gain of £254,000 on an investment which originally cost £
175,000. Ministry of Cake Holdings Limited was sold for £797,000 giving a
further gain in the year of £471,000 and an overall gain on the cost of the
investment of £468,000. BBI Holdings plc was sold just before the year end
realising a gain in the period of £46,000 and an overall profit of £69,000
against an original cost of £58,000.
During the year several new investments were made. These included £773,000
invested in Focus Pharma Holdings Limited, a licensing and distributor of
generic pharmaceuticals company, £1 million in DiGiCo Europe Limited, a
designer and manufacture of audio mixing desks, and £634,000 into Monsal
Holdings Limited, an engineering provider to the utilities sector. In addition,
several minor secondary market purchases were made in BBI Holdings plc,
Sectorguard plc, Higher Nature Limited and VSI Limited.
Within the previous Elderstreet portfolio, an additional investment of £4,871
was made in Mobile & Wireless Group plc (now renamed Expansys plc).
Revenue account
The revenue return of the Income Statement has experienced a strong increase
from £30,369 last year to £422,621 this financial year. Total income has nearly
trebled from last year, increasing by £685,584. This is mainly due, first, to
higher income of £629,387 from the liquidity funds into which the proceeds from
the offer of new shares earlier this financial year were placed. Secondly, loan
stock interest rose by £76,241, as further qualifying investments made in the
current and previous years generated higher levels of such income.
The fund management fee rose from £32,072 to £132,146. This was due to the 146%
rise in net assets, arising from the raising of the new funds.
Other expenses have also risen, by £68,130 or 24%, again mainly due to the rise
in net assets, which has caused trail commission and administration fees to
rise.
The revenue return before taxation rose by £517,380, as a result of the above
changes. The tax charge attributable to this revenue return also rose by £
125,128. However, no taxation is payable by the Company overall as there are
taxation losses brought forward from previous years.
Dividend
The Company's revenue gain per Ordinary Share was 2.21 pence per share (2007:
0.35 pence per share). Your Board paid an interim dividend of 0.75 pence on 8
November 2007. As noted above, your Board will be recommending a final dividend
of 1.25 pence per Ordinary Share in respect of the year under review at the
Annual General Meeting to be held on 21 May 2008. The dividend will be paid on
11 June 2008 to shareholders on the Register on 16 May 2008. In addition, a
dividend of 1.8 pence per share for the year ended 31 January 2007 was ratified
on 16 April 2007.
Valuation Policy
As quoted stocks are valued at bid prices, rather than mid-market prices, it is
worth commenting that the Fund does hold a small number of relatively early
stage AIM listed stocks with limited marketability. In such cases, the price at
which a sizeable block of shares could be traded, if at all, may vary
significantly from the market price used.
Corporate governance laws
Corporate governance laws will, on 1 October 2008, impose a new statutory
obligation on directors relating to conflicts and potential conflicts of
interest with the interests of the Company and will, with your consent, give
your Directors new powers to manage such conflicts in a way which is most
likely to promote the interests of the Company.
Share buy-backs
During the year ended 31 January 2008 the Company continued to implement its
buy-back policy and bought back 906,331 Ordinary Shares of 1p, representing
4.23% of the shares in issue at 1 February 2007 at a total cost of £802,864
(excluding expenses). These shares were subsequently cancelled by the Company.
MIG 4 Website
May I remind you that the Company has its own website which is available at
www.mig4vct.co.uk
UK Private Equity 2007 Awards
I am delighted to inform you that late last year MPEP made the short-list for
the third year running for the award for the Small Buyout House of the Year by
the UK Private Equity Journal.
In summary, the Board continues to be pleased with the progress that the
portfolio is making and we anticipate a number of profitable realisations over
the forthcoming twelve months. Once again I would like to take this opportunity
to thank Shareholders for their continued support.
Investment Manager's Review
The VCT has continued to pursue its strategy of investing in established
profitable unquoted companies. Typically these investee companies are
cash-generative and therefore capable of producing dividend income as soon as
the investment is made, as well as capital returns to Shareholders on their
ultimate sale or flotation. MIG 4 VCT focuses principally on investments in
management buy outs ("MBOs").
This year there has been further progress in building the qualifying investment
portfolio, with four material further investments having been made totalling £
2.86 million. In early July the Company invested £1 million to support the MBO
of DiGiCo, a global market leading manufacturer of digital sound mixing
consoles for the live performance, theatre, post-production and broadcast
markets. This was followed in September by an additional investment of £445k
million in Blaze Signs Holdings, the manufacturer of signage for major multiple
retailers. This followed the VCT's original investment of £165k in April 2006
and enabled Blaze to complete the acquisition of Active Sign Maintenance, a
complementary maintenance business located nearby. This has broadened Blaze's
capabilities and will offer considerable cross-selling opportunities and
operating synergies.
In October the Company invested £772k to support the MBO of Focus
Pharmaceuticals, which is based in Burton-upon-Trent and specialises in the
licensing and distribution of generic pharmaceuticals. In early December we
completed the MBO of Monsal, a Mansfield-headquartered company which is engaged
in anaerobic technology and consultancy in the water treatment and waste
disposal industries and in which the MIG VCT invested £634k.
The year has also seen realisations of three successful investments. In April a
February 2000 investment, Maven Management, was sold to Munro Global Limited.
The proceeds of £429k may be supplemented by additional consideration of up to
£114k if certain targets are achieved during the company's next two financial
years. This would bring total capital proceeds from the original £550k
investment to £1.14 million. In early December, Ministry of Cake was sold to
Greencore Group. The Company's £329k investment, made in September 2005, was
realised in cash for a total of £797k, representing a £289k uplift from the
most recent previous valuation at 31 October 2007.
Shortly before the year end BBI Holdings, the AiM-listed manufacturer and
distributor of point-of-care medical diagnostic products, was sold to Inverness
Medical Innovations Inc., a US company quoted on the American Stock Exchange
("AMEX"). Favourable exchange rate movements and the strengthening share price
of Inverness, which offered a share alternative to the cash offer of 185p per
BBI share, enabled the Company to sell its shares in the market in January at
just over 205p per share. The proceeds of £127k compared to the Company's
investment cost of £58k and represent a £30k increase over the valuation as at
31 October 2007.
The MPEP portfolio, excluding the earlier stage technology investments, now
comprises twenty two investments at a total cost of £7.7 million and a
valuation of £8.8 million, 114% of cost. The performance of the investments
remains generally good, with a number continuing to exhibit strong trading
although there is growing evidence of a generally weakening UK economic
background.
Foremost amongst these are VSI, Youngman, Vectair and PastaKing, which have all
enjoyed strong trading. Youngman and PastaKing reported record profits during
the year and Vectair more than doubled in profit over the comparable figures in
2006. BG Consulting Group has also made excellent progress and Higher Nature
has produced solid, albeit somewhat lower earnings. Tottel Publishing has
continued to grow its reputation as a specialist taxation and legal publisher.
PXP and British International have both delivered performances broadly in line
with their investment plans. Whilst SectorGuard has made acquisitions, its
commercial progress has not yet been reflected in its share price. More
disappointingly, the performance of both Campden Media and Racoon International
has been less positive. Whilst both are profitable, they are trading at levels
of profitability much lower than anticipated at the time of investment and
their valuations reflect this. The performances of Inca, Letraset and Stortext
FM have also continued to disappoint.
It would be surprising if the value of the Company's unquoted investments were
immune from the concerns surrounding the wider economic environment. However,
we are confident that we have generally invested in well-established,
profitable businesses alongside management teams who are highly motivated to
deliver performance for shareholders over the coming years, and that the
performance of the portfolio performance will continue to reflect this.
Investment Portfolio Summary
As at 31 January 2008
Cost at Valuation Valuation % of
at at 31-Jan portfolio
31-Jan-2008 31-Jan-2008 2007 by value
Matrix Private Equity Partners LLP
£ £ £
Youngman Group Limited 500,026 1,372,182 1,439,740 16.22%
Manufacturer of ladders and access
towers
Higher Nature Limited 500,127 1,574,137 1,243,246 14.01%
Mail order distributor of vitamins
and natural medicines
DiGiCo Europe Limited 1,000,000 - 1,000,000 11.27%
Designer and manufacturer of audio
mixing desks
Blaze Signs Holdings Limited 610,016 164,510 776,914 8.75%
Manufacturer and installer of
signs
Focus Pharma Holdings Limited 772,451 - 772,451 8.70%
Licensor and distributer of
generic pharmaceuticals
Monsal Holdings Limited 634,296 - 634,296 7.15%
Supplier of engineering services
to water and waste sectors
PXP Holdings Limited (Pinewood 584,088 584,088 485,818 5.47%
Structures)
Designer, manufacturer and
supplier of timber frames for
buildings
Tottel Publishing Limited 235,200 375,664 382,173 4.31%
Publisher specialising in legal
and tax titles
Stortext FM Limited 561,820 375,968 375,968 4.24%
Provider of document management
software and services
Pastaking Holdings Limited 133,055 133,055 351,877 3.96%
Manufacturer and supplier of fresh
pasta meals
VSI Limited 177,217 177,213 346,034 3.90%
Provider of software for CAD and
CAM vendors
British International Holdings 250,000 250,000 251,075 2.83%
Limited
Helicopter service operator
Racoon International Limited 406,805 406,805 203,403 2.29%
Supplier of hair extensions, hair
care products and training
Vectair Holdings Limited 100,000 100,818 140,749 1.59%
Designer and distributor of
washroom products
Campden Media Limited 152,620 154,040 113,785 1.28%
Magazine publisher and conference
organiser
BG Consulting Group Limited/ 230,796 52,383 101,162 1.14%
Duncary 4 Limited
Provider of financial training
services
SectorGuard plc 1 150,102 160,714 75,044 0.85%
Provider of manned guarding,
patrolling and alarm response
services
Inca Interiors Limited 350,000 50,000 50,000 0.55%
Designer, supplier and installer
of contract kitchens
Letraset Limited 150,000 - - 0.00%
Manufacturer and distributor of
graphic art products
F H Ingredients Limited (in 183,804 - - 0.00%
administration)
Processor of frozen herbs to the
food processing industry
Ministry of Cake (Holdings) - 325,635 - 0.00%
Limited
Manufacturer of frozen cakes and
desserts for the foodservice
industry
Maven Management Limited - 482,206 - 0.00%
Market research agency
BBI Holdings plc - 81,034 - 0.00%
Manufacturer of gold conjugate for
medical diagnostics industry
Total 7,682,423 6,820,452 8,743,735 98.52%
Former Elderstreet Private Equity
Portfolio
Cashfac Limited 260,101 33,163 86,372 0.97%
Provider of virtual banking
application software
solutions to corporate customers
Expansys plc (formerly Mobile and 31,000 65,773 46,923 0.52%
Wireless Group Limited)
Retailer of handheld electrical
products
Sparesfinder Limited 250,000 25,683 - 0.00%
Supplier of industrial spare parts
on-line
Other investments in the portfolio 898,062 - - 0.00%
2
Total 1,439,163 124,619 133,295 1.48%
Investment Managers' Total 9,121,586 6,945,071 8,877,030 100.00%
1 Quoted on AIM
2 Other investments in the Elderstreet portfolio comprise those investments
that have been valued at nil and from which the Directors only expect to
receive small recoveries i.e. ComponentSource Holding Corporation, Sapphire
International Limited, Computer Software Group plc, Sift Group Limited and
Shopcreator plc.
3 The % of equity held in BG Consulting Group Limited is 2.6% and in Duncary 4
Limited is 6.64%.
Income Statement
for the year ended 31 January 2008
Year ended 31 January 2008 Year ended 31 January 2007
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Unrealised (losses)/gains - (36,523) (36,523) - 601,177 601,177
on investments held at fair
value
Realised gains on - 463,591 463,591 - 270,668 270,668
investments held at fair
value
Income 1,039,725 - 1,039,725 354,141 - 354,141
Investment management fees (132,146) (396,439) (528,585) (32,072) (96,215) (128,287)
Other expenses (356,711) - (356,711) (288,581) - (288,581)
------------ ----------- ------------ ----------- ---------- -----------
Return on ordinary 550,868 30,629 581,497 33,488 775,630 809,118
activities before taxation
Taxation on ordinary (128,247) 128,247 - (3,119) 3,119 -
activities
------------ ----------- ------------ ----------- ----------- -----------
Return on ordinary 422,621 158,876 581,497 30,369 778,749 809,118
activities after taxation
======= ======= ======= ======= ======= =======
Return per Ordinary Share 2.21p 0.83p 3.04p 0.35p 9.06p 9.41p
(basic and diluted)
The revenue column of this statement is the profit and loss account of the
Company. All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued in the year.
There were no other gains or losses in the year.
The revenue return as stated does not differ materially from that under the
historical cost basis of accounting.
Balance Sheet
as at 31 January 2008
as at 31 January 2008 as at 31 January 2007
£ £ £ £ £ £
Fixed assets
Investments at fair 8,877,030 6,945,071
value
Current assets
Debtors and 221,203 223,072
prepayments
Investments at fair 15,124,308 694,526
value
Cash at bank 23,865 2,040,442
------------- ------------
15,369,376 2,958,040
Creditors: amounts (179,089) (130,963)
falling due within one
year
--------------- ---------------
Net current assets 15,190,287 2,827,077
--------------- ---------------
Net assets 24,067,317 9,772,148
========= =========
Capital and reserves
Called up share 204,992 83,994
capital
Capital redemption 879,829 870,765
reserve
Special reserve 30,141,575 16,248,945
Capital reserve - (8,169,767) (7,735,927)
realised
Capital reserve - 743,099 150,383
unrealised
Revenue reserve 267,589 153,988
--------------- ---------------
Equity shareholders' 24,067,317 9,772,148
funds
========= =========
Net asset value per 117.41p 116.34p
Ordinary Share
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 January 2008
Year ended 31 Year ended 31
January 2008 January 2007
£ £
Opening shareholders' funds 9,772,148 9,286,678
Share capital subscribed 14,869,624 -
Share capital bought back (846,932) (280,076)
Return for the year 581,497 809,118
Dividends paid in year (155,032) (43,572)
Dividends ratified in year (153,988) -
--------------- ---------------
Closing shareholders' funds 24,067,317 9,772,148
========= =========
Cash Flow Statement
for the year ended 31 January 2008
Year ended 31 Year ended 31
January 2008 January 2007
(restated)
£ £
Interest income received 265,744 257,875
Dividend income 722,262 90,573
Investment management fees paid (509,142) (164,838)
Cash payments for other expenses (276,845) (439,056)
--------------- ---------------
Net cash inflow/(outflow) from 202,019 (255,446)
operating activities
Investing activities
Sale of investments 1,225,594 1,716,004
Purchase of investments (2,857,505) (1,799,354)
--------------- ---------------
Net cash outflow from investing (1,631,911) (83,350)
activities
--------------- ---------------
Cash outflow before financing and (1,429,892) (338,796)
liquid resource management
Dividends
Equity dividends paid (155,032) (43,572)
Financing
Issue of own shares 14,869,624 (217,320)
Purchase of own shares (871,495) -
Payment to Ordinary Shareholders - (153,988)
--------------- ---------------
13,998,129 (371,308)
Management of liquid resources
(Increase)/decrease in monies held (14,429,782) 1,344,389
in money market funds
--------------- ---------------
(Decrease)/increase in cash for the (2,016,577) 590,713
year
========= =========
Reconciliation of return on ordinary activities before taxation to net cash
inflow/(outflow) from operating activities
Year ended Year ended
31 January 2008 31 January 2007
£ £
Return on ordinary activities before 581,497 809,118
taxation
Unrealised loses/(gains) on 36,523 (601,177)
investments held at fair value
Realised gains on investments held (463,591) (270,668)
at fair value
Increase in debtors (24,995) (1,615)
Increase/(decrease) in creditors and 72,689 (188,020)
accruals
Transaction costs charged to capital (104) (3,084)
Net cash inflow/(outflow) from 202,019 (255,446)
operating activities
Analysis of changes in net funds
Cash Liquid Total
Funds
£ £ £
At 1 February 2007 2,040,442 694,526 2,734,968
Cash flows (2,016,577) 14,429,782 12,413,205
At 31 January 2008 23,865 15,124,308 15,148,173
Notes
1. Net asset value per Ordinary Share
Net asset value per Ordinary Share is based on net assets at the end of the
year and on 20,499,199 Ordinary Shares of 1 pence (2007: 8,399,337), being the
number of Ordinary Shares in issue on that date. There is no difference between
basic net asset value per Ordinary Share and diluted net asset value per
Ordinary Share as there are no instruments that are potentially dilutive.
2. Return per Ordinary Share
The revenue return per Ordinary Share is based on the net revenue profit from
ordinary activities after taxation of £422,621 (2007: £30,369) and on
19,094,986 (2007: 8,594,860) Ordinary Shares, being the weighted average number
of Ordinary Shares in issue during the year.
The capital return per Ordinary Share is based on a capital return of £158,876
(2007: £778,749) which includes the net of tax portion of the Investment
Manager's fees charged to the capital reserve of £396,439 (2007: £96,215) and
on 19,094,986 (2007: 8,594,860) Ordinary Shares, being the weighted average
number of Ordinary Shares in issue during the year.
3. 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.
4. Financial Information
The financial information set out in these statements does not constitute the
Company's statutory accounts for the year ended 31 January 2008 but is derived
from those accounts. Statutory accounts for the year ended 31 January 2008 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 237 (2) or (3) of the Companies Act
1985. The accounting policies set out in the most recently published set of
accounts have been followed.
5. 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 Jermyn Street, London SW1Y 4UH. Alternatively
copies may be downloaded via the Company Secretary's web site at
www.matrixgroup.co.uk.
6. Annual General Meeting
The Annual General Meeting will be held at 12.00 noon on Wednesday 21 May 2008
at the offices of Matrix Group Limited, One Jermyn Street, London SW1Y 4UH.
Contact details for further enquiries:
Robert Brittain of Matrix-Securities Limited (the Company Secretary) on 020
7925 3300 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 7925 3300 or by e-mail on info@matrixpep.co.uk
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