Final Results
Matrix Income & Growth VCT plc
Preliminary results for the year ended 31 December 2007
29 February 2008
Investment Objective
Matrix Income & Growth VCT plc is a Venture Capital Trust ("VCT") listed on the
London Stock Exchange. Its investment portfolio, which invests primarily in
established and profitable unquoted companies, is managed by Matrix Private
Equity Partners LLP ("MPEP").
The Company's objective is to provide investors with a regular income stream,
by way of tax free dividends, and to generate capital growth which, following
portfolio realisations, can be distributed by way of additional tax free
dividends.
Financial Highlights
Ordinary Shares (listed on 8 October 2004)
Initial net asset value per share 94.5 pence
Initial net assets £20,933,124
31 December 2007 31 December 2006
Net assets £25,727,915 £22,244,902
Net asset value per share 116.9 p 100.6 p
Net cumulative dividends paid 4.2 p 1.8 p
Total return per share to Shareholders 121.1 p 102.4 p
since launch*
Share price (mid-market price) 100.5 p 88.5 p
Total expense ratio 3.4% 3.7%
* Net asset value per share plus cumulative dividends paid per share. This
compares with an original investment cost of 60 pence per share after allowing
for income tax relief of 40 pence per share.
A final income dividend of 1.4 pence per share together with a final capital
dividend of 6.4 pence per share, making a total final dividend of 7.8 pence per
share, will be recommended to Shareholders at the AGM on 16 May 2008 to be paid
on 21 May 2008, thereby increasing net cumulative dividends paid since launch
to 12.0 pence per share.
Chairman's Statement
I am pleased to present the annual results of Matrix Income & Growth VCT plc
for the year to 31 December 2007 and to report on a year of good progress and
strong performance.
Investment portfolio
Over the year the Company invested £6.3 million into seven companies across a
range of industrial and commercial sectors, bringing total investment to £14.1
million at cost. The portfolio is predominantly invested in management buy outs
("MBOs"), reflecting the Investment Manager's focus on this type of investment.
Your VCT also made its first disposal of a qualifying investment, Ministry of
Cake Holdings, realising net proceeds of £2.4 million, a gain of £1.4 million.
Shortly after the year-end, in January 2008, the disposal of the investment in
BBI Holdings realised proceeds of £842,847, an overall gain of £460,734 on cost
and equivalent to 2.2 pence per share.
We have now reached the end of the third year and the qualifying investment
portfolio is currently valued at 27.8% above cost, resulting in a net asset
value ("NAV") per share at 31 December 2007 of 116.9 pence (2006: 100.6 pence),
and a total return per share, including dividends paid but before payment of
the proposed final dividend of 7.8 pence per share, of 121.1 pence (2006: 102.4
pence), compared with the initial NAV per share, net of initial costs, of 94.5
pence. This represents a total return per share since inception of 28.1% (2006:
8.4%).
Income from the Company's loan stock investments was running at an aggregate
annualised rate of 8.0% at 31 December 2007. The annual running yield on the
qualifying investment portfolio as a whole was 4.0%, while the yield on all
assets was 4.6%. Now that the majority of the assets are invested in qualifying
holdings the overall level of investment income is expected to remain
relatively stable, subject to the general level of interest rates.
Dividends
The revenue account generated an increased net revenue return (after tax) for
the year of £567,323 (2006: £468,957) and your Directors will be recommending a
final income dividend of 1.4 pence per share, making a total of 2.4 pence for
the year compared with the total income dividend of 2.2 pence per share paid
last year.
In addition, the Board will be recommending the payment of a capital dividend
of 6.4 pence per share. This will be the first capital dividend paid by your
Company and is a result of the highly profitable exit from the investment in
Ministry of Cake.
These dividends will be recommended to Shareholders at the AGM on 16 May 2008
to be paid on 21 May 2008 to Shareholders on the Register on 25 April 2008.
Revocation of Investment Company Status
In order to enable realised capital profits to be distributed to Shareholders
the Board resolved that the Company should revoke its investment company status
with effect from 19 December 2007.
Investment in qualifying holdings
The Company has met the target set by HM Revenue & Customs of investing 70% of
total funds raised in qualifying unquoted and AIM quoted companies ("the 70%
test") by 31 December 2007. At 31 December 2007, the VCT was 75% invested in
qualifying companies (based upon the tax values, which differ from the
Investment Portfolio Summary below).
Communication with shareholders
We aim to communicate regularly with our Shareholders. The May AGM will provide
a useful platform for the Board to meet Shareholders and exchange views. Your
Board welcomes your attendance at General Meetings to give you the opportunity
to meet your Directors and representatives of the Investment Manager.
Electronic Versions of the Annual Report
At the Extraordinary General Meeting held on 30 October 2007, Shareholders
authorised the Company to send communications electronically to Shareholders,
and to make documents and information available to Shareholders on a website.
You have had the opportunity to decide whether to receive electronic versions
of the full version of the Annual Report, or to continue to receive a printed
version. The Board has decided not to produce the Summary Annual Report which
some of you may have received last year, on the grounds that electronic
reporting, and producing only one version of the Annual Report, should save
costs.
Share buy-backs
94,069 Ordinary Shares came onto the market during the year under review and
the Company bought these shares back at a price of 100.6 pence per share, which
represented a 10% discount to the then published NAV. These shares,
representing 0.43% of the issued share capital at the beginning of the year,
were subsequently cancelled by the Company. The Board regularly reviews its
share buy back policy.
Conflicts of Interest
As from 1 October 2008 corporate governance laws will impose a new statutory
obligation on your Directors relating to conflicts and potential conflicts of
interest with the interests of the Company. As a result, the Board will be
seeking Shareholders' approval to amend the Articles of the Company in order to
give your Directors new powers to manage such conflicts in the way which is
most likely to promote the interests of the Company.
Outlook
I write at a time of extreme volatility in global markets with significant
concerns for slower economic growth. We cannot assume that your Company's
fortunes will be unaffected by this wider context, but we consider the
investment portfolio to be in good health and well-placed. The portfolio has
been constructed at realistic valuations, in companies with resilience and the
potential for significant capital appreciation. The Investment Manager's Report
highlights the companies in the current portfolio that are performing strongly
and we believe this represents a solid platform on which to generate future
income and capital dividends.
Looking forward, we will continue to pursue a highly selective investment
programme even though this may mean relatively few new investments completed in
the near term. As 2008 progresses, however, the Investment Manager expects that
transactions involving privately owned companies will generally be at lower
valuations and that this should present the Company with more attractive buying
opportunities. An increasing proportion of the Investment Manager's time is now
being spent on preparing investee companies for potentially attractive exits.
The Board remains confident that the Company can continue to provide
Shareholders with an attractive long term combination of capital growth and
income.
Finally, I would like to express my thanks to all Shareholders for their
continuing support of the Company.
Keith Niven
Chairman
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. The VCT focuses principally on investments in MBOs
.
This year there has been further progress in building the qualifying investment
portfolio, with seven further investments having been made totalling £6.3
million. In early July the VCT invested £1.0 million to support the MBO of
DiGiCo Europe, 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 £1.0
million in Blaze Signs Holdings, the manufacturer of signage for major multiple
retailers. This followed the VCT's original investment of £574,000 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 VCT invested £657,000 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 aerobic and anaerobic technology and consultancy in water treatment and
waste disposal industries and in which the MIG VCT invested £616,000.
As part of an initiative to target further high quality opportunities in the
MBO market MIG VCT has formally invested in new companies alongside a small
number of investing Chairmen well known to Matrix Private Equity Partners. They
are working closely with Matrix to identify MBO transactions using their
specialist industry knowledge and experience. Three companies have been
established and funded and are actively working with the corporate finance
advisory community, seeking to acquire businesses in the construction and
support services, healthcare and wellbeing, and food manufacturing and
distribution sectors.
The investments made during the year are performing generally in line with
expectations.
It is particularly encouraging that the portfolio has seen its first two
successful realisations. In early December, Ministry of Cake was sold to
Greencore Group. The VCT's £1.0 million investment, made in September 2005, was
realised in cash for a total net capital proceeds of £2.4 million, representing
a £983,000 uplift from the valuation prevailing at 30 September 2007.
Shortly after the year end a second investment was sold at a significant
profit. BBI Holdings, the AIM-listed manufacturer and distributor of
point-of-care medical diagnostic products, became the subject of a recommended
offer by 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 VCT to sell its shares in the
market in early January at just over 205p per share. The proceeds of £842,000
compared to the Company's investment cost of £382,000 and represented a £87,000
increase over the valuation as at 31 December 2007.
Following the two realisations, the portfolio now comprises seventeen
investments at a total cost of £13.7 million and a valuation of £17.2 million,
125.5% of cost. The performance of the investments is generally pleasing, with
a number continuing to exhibit strong trading despite 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. PXP and British International have both delivered solid performances.
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.
It would be surprising if the value of the VCT'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
portfolio's strong early performance reflects this.
Investment Portfolio Summary
as at 31 December 2007
Date of initial Total Valuation % % of
investment book value equity
cost of net held by
assets funds
managed
by MPEP
£'000 £'000
Qualifying investments
AIM quoted investments
BBI Holdings plc May-06 382 756 2.9% 3.11%
Developer and manufacturer of
rapid test diagnostic products
SectorGuard plc Aug-05 150 97 0.4% 5.43%
Provider of manned guarding,
mobile patrolling,
and alarm response services
----- ----- -----
532 853 3.3%
Unquoted investments
Youngman Group Limited Oct-05 1,000 3,101 12.1% 29.70%
Manufacturer of ladders and
access towers
Blaze Signs Holdings Limited Apr-06 1,574 2,156 8.4% 53.60%
Manufacturer and installer of
signs
PastaKing Holdings Limited Jun-06 464 1,346 5.2% 27.50%
Supplier to the educational and
food service market
VSI Limited Apr-06 618 1,257 4.9% 47.40%
Developer and marketer of 3D
software
Aust Construction Investors Oct-07 1,000 1,000 3.9% 49.00%
Limited
Company seeking to acquire
businesses
in the construction sector
Barnfield Management Investments Oct-07 1,000 1,000 3.9% 49.00%
Limited
Company seeking to acquire
businesses in food sector
Calisamo Management Limited Dec-07 1,000 1,000 3.9% 49.00%
Company seeking to acquire
businesses in healthcare sector
DiGiCo Europe Limited Jul-07 1,000 1,000 3.9% 30.00%
Designer and manufacturer of
audio mixing desks
PXP Holdings Limited (Pinewood Dec-06 1,000 985 3.8% 37.33%
Structures)
Designer, manufacturer, supplier
and installer of timber-frames
for buildings
British International Holdings May-06 1,000 951 3.7% 34.93%
Limited
Supplier of helicopter services
Vectair Holdings Limited Jan-06 560 820 3.2% 24.00%
Designer and distributor of
washroom products
Campden Media Limited Jan-06 975 819 3.2% 28.44%
Magazine publisher and
conference organiser
Focus Pharma Holdings Limited Oct-07 657 657 2.6% 13.00%
Licensor and distributer of
generic pharmaceuticals
Monsal Holdings Limited Dec-07 616 616 2.4% 46.51%
Supplier of engineering services
to water and waste sectors
Racoon International Holdings Dec-06 874 437 1.7% 49.00%
Limited
Supplier of hair extensions,
hair care products
and training
FH Ingredients Limited Feb-05 213 - 0.0% 35.00%
Processor and distributor of
frozen herbs
to the food processing industry
----- ----- -----
13,551 17,145 66.8%
----- ----- -----
Total qualifying investments 14,083 17,998 70.1%
----- ----- -----
Non-qualifying investments
Global Treasury Funds plc
(Royal Bank of Scotland)** 2,168 2,168 8.4%
Fidelity Institutional Cash Fund 1,178 1,178 4.6%
plc**
Insight Liquidity Funds plc 1,166 1,166 4.5%
(HBOS)**
GS Funds plc (Goldman Sachs)** 1,062 1,062 4.1%
SWIP Global Liquidity Fund plc 1,016 1,016 3.9%
(Scottish Widows)**
Barclays Global Investors Cash 612 612 2.4%
Selection Funds plc**
Institutional Cash Series plc 546 546 2.1%
(BlackRock)**
----- ----- -----
Total non-qualifying investments 7,748 7,748 30.0%
----- ----- -----
Total investments 21,831 25,746 100.1%
Other assets 199 199 0.7%
Current liabilities (217) (217) (0.8)%
===== ===== =====
Net assets 21,813 25,728 100.0%
===== ===== =====
**Disclosed as Investments at fair value within Current assets in the Balance
Sheet.
Profit and Loss Account
for the year ended 31 December 2007
Year ended 31 December 2007 Year ended 31 December 2006
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Realised gains/ - 1,433,612 1,433,612 - (212,975) (212,975)
(losses) on
investments
Unrealised gains on - 2,386,239 2,386,239 - 1,731,906 1,731,906
investments
Income 1,231,117 - 1,231,117 1,071,415 - 1,071,415
Investment manager's (137,119) (411,357) (548,476) (123,960) (371,881) (495,841)
fees
Other expenses (337,887) - (337,887) (317,372) - (317,372)
----- ----- ----- ----- ----- -----
Profit on ordinary 756,111 3,408,494 4,164,605 630,083 1,147,050 1,777,133
activities before
taxation
Tax on ordinary (188,788) 132,958 (55,830) (161,126) 113,421 (47,705)
activities
----- ----- ----- ----- ----- -----
Profit attributable to 567,323 3,541,452 4,108,775 468,957 1,260,471 1,729,428
equity shareholders
----- ----- ----- ----- ----- -----
Basic and diluted 2.58p 16.07p 18.65p 2.12p 5.69p 7.81p
earnings per ordinary
share
Note of Historical Cost Profits and Losses
for the year ended 31 December 2007
31 December 31 December
2007 2006
£ £
Profits on ordinary activities before taxation 4,164,605 1,777,133
Less unrealised gains on investments (2,386,239) (1,731,906)
Less: realisation of revaluation (loss) of (9,385) -
previous years
----- -----
Historical cost profit on ordinary activities 1,768,981 45,227
before taxation
----- -----
===== =====
Historical cost profit/(loss) for the year after 1,182,664 (334,632)
taxation and dividends
===== =====
Balance Sheet
as at 31 December 2007
as at 31 December as at 31 December
2007 2006
£ £
Investments at fair value 17,998,075 10,329,528
Current assets
Debtors and prepayments 147,575 142,515
Current investments 7,747,608 11,906,321
Cash at bank 51,562 58,250
----- -----
7,946,745 12,107,086
Creditors: amounts falling due within (216,905) (191,712)
one year
----- -----
Net current assets 7,729,840 11,915,374
----- -----
Net assets 25,727,915 22,244,902
----- -----
Capital and reserves
Called up share capital 220,097 221,038
Capital redemption reserve 1,341 400
Revaluation reserve 4,127,530 1,731,906
Special distributable reserve 19,561,655 20,676,105
Profit and loss account 1,817,292 (384,547)
----- -----
Equity shareholders' funds 25,727,915 22,244,902
----- -----
Net asset value per OrdinaryShare 116.9p 100.6p
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 December 2007
Year ended Year ended
31 December 2007 31 December 2006
£ £
At 31 December 2006 22,244,902 20,728,204
- 155,005
----- -----
As at 1 January 2007 22,244,902 20,883,209
Purchase of own shares (95,275) (35,581)
Return for the year 4,108,775 1,729,428
Dividends paid in year (530,487) (332,154)
----- -----
Closing Shareholders' funds 25,727,915 22,244,902
----- -----
Cash Flow Statement
for the year ended 31 December 2007
Year ended Year ended
31 December 31 December
2007 2006
£ £ £ £
Operating activities
Investment income received 1,227,519 1,023,128
Investment management fees paid (548,476) (619,414)
Other cash payments (399,250) (312,203)
----- -----
Net cash inflow from operating 279,793 91,511
activities
Investing activities
Acquisitions of investments (6,272,923) (6,447,622)
Disposals of investments 2,499,491 -
----- -----
Net cash outflow from investing (3,773,432) (6,447,622)
activities
Taxation
Taxation paid (46,000) -
----- -----
Net cash outflow from taxation (46,000) -
Equity dividends
Payment of dividends (530,487) (332,154)
----- -----
Cash outflow before financing (4,070,126) (6,688,265)
and liquid resource management
Management of liquid resources
Decrease in current investments 4,158,713 6,763,006
Financing
Purchase of own shares (95,275) (35,581)
----- -----
(95,275) (35,581)
===== =====
(Decrease)/increase in cash for (6,688) 39,160
the year
===== =====
Reconciliation of profit before taxation to net cash inflow from operating
activities
Year ended Year ended
31 December 2007 31 December2006
£ £
Profit on ordinary activities 4,164,605 1,777,133
before taxation
Net (gains)/losses on (1,508,876) 212,893
realisations of investments
Net unrealised gains on (2,386,239) (1,731,906)
investments
Increase in debtors (5,060) (44,958)
Increase/(decrease) in 15,363 (121,651)
creditors and accruals
Net cash inflow from operating 279,793 91,511
activities
Analysis of changes in net funds
Cash Liquid Resources Total
£ £ £
At 1 January 2007 58,250 11,906,321 11,964,571
Cash flows (6,688) (4,158,713) (4,165,401)
At 31 December 2007 51,562 7,747,608 7,799,170
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 22,009,752 (2006: 22,103,821) Ordinary Shares, being the number of
Ordinary Shares in issue on that date.
2. Return per Ordinary Share
The revenue return per Ordinary Share is based on the net revenue profit from
ordinary activities after taxation of £567,323 (2006: £468,597) and on
22,031,665 (2006: 22,138,232) 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 £
3,541,452 (2006: £1,260,471) which includes the net of tax portion of the
Investment Manager's fees charged to the capital reserve of £278,399 (2006: £
258,460) and 22,031,665 (2006: 22,138,232) 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 9 July 2004, 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 December 2007 but is derived
from those accounts. Statutory accounts for the year ended 31 December 2007
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
An Annual Report will shortly be made available on our website:
www.migvct.co.uk and will be circulated by post to those Shareholders who have
requested to receive copies of the Report. Copies will be available thereafter
to members of the public from the Company's registered office.
6. Annual General Meeting
The Annual General Meeting will be held at 11.30 am on Friday, 16 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 mig@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
END
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