Final Results

Mobeus Income & Growth VCT plc Annual Results Announcement for the year ended 31 December 2012 Investment Objective Mobeus Income & Growth VCT plc ("the VCT" or "MIG VCT") 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 Mobeus Equity Partners LLP ("Mobeus"). The Company's objective is to provide investors with a regular income stream by way of tax-free dividends generated from income and capital returns. Financial Highlights Results for the year ended 31 December 2012 - Net asset value (NAV) total return per Share for the year was 10.34%. - Shareholders received an interim dividend of 5.00 pence per Share in September 2012 and this, together with the proposed final dividend of 2.00 pence per Share, will bring total dividends paid in respect of the year to 7.00 pence per Share. - Strong liquidity has been enhanced by a successful fundraising in 2012 which resulted in new funds of £5.04 million for the Company. A further fundraising in 2013 is underway for which £4.90 million in total of applications have been received to date. - The Company realised its investment in Iglu.com Holidays in May for total cash proceeds of £3.59 million over the two and a half years of the investment, equivalent to an overall return of 2.53 times the original investment cost. Performance Summary The net asset value per share of the Company at 31 December 2012 was 94.22 pence The table below shows the recent past performance of the original funds raised in 2004/05. As at Net NAV per Share Net Cumulative total Dividends per assets Share price cumulative return per Share Share paid in dividends to Shareholders respect of (mid- paid per since launch 2 the year market Share ended price)1 (NAV (Share basis) price basis) (£m) (p) (p) (p) (p) (p) (p) 31 December 2012 43.29 94.22 80.50 38.05 132.27 ] 118.55 5.00* 31 December 2011 40.73 95.59 78.75 26.80 122.39 105.55 6.75 31 December 2010 38.45 96.66 84.00 21.30 117.96 105.30 5.00 1 Source: London Stock Exchange. 2 Total return per share comprises either the NAV per Share (NAV basis) or the mid-market price per Share (share price basis), plus cumulative dividends paid per Share. * Dividends proposed A final dividend of 2.00 pence per Share, comprising 0.50 pence from capital and 1.50 pence from income, will be recommended to Shareholders at the Annual General Meeting of the Company to be held on 8 May 2013. If approved, the dividend will be paid on 15 May 2013 to Shareholders on the Register on 19 April 2013 and will bring dividends paid in respect of the year ended 31 December 2012 to 7.00 pence per Share. Liquidity and discount The Company holds approximately £8.35 million in readily realisable assets that are available for further investments, dividends and share buybacks. The discount on the Company's shares at 31 December 2012 was 9.94% based on the NAV per share at 30 September 2012 of 89.38 pence, which was the latest published figure at that time. Chairman's Statement I am pleased to present the annual results of Mobeus Income & Growth VCT plc for the year ended 31 December 2012. Overview During a year in which growth in the UK economy has been flat and where there has been significant volatility in financial markets, the Company has enjoyed a solid performance. In the UK, as elsewhere in the world, the coalition government is struggling to find an effective solution to restart economic growth. The UK and other western economies continue to be buffeted by the persistent financial and economic uncertainties caused, in part, by the continuing unresolved debt problems in the US and several European countries. Despite this rather gloomy backdrop, the leading companies in our portfolio have continued to achieve strong growth in their niche markets. There is clear evidence that well-managed and sensibly financed companies can succeed and many of the companies in our portfolio are demonstrating their resilience in contending with a challenging business environment. Performance The Company's total return for the year (NAV basis) was 10.34% (2011: 4.58%) after allowing for the dividends of 11.25 pence per Share paid during the year. In comparison to this, the quoted UK equity market as represented by the FTSE All-Share Index continued to be volatile but ended the year up 12.30% (2011: down 3.46%) on a total return basis. The Company's performance against the FTSE All-Share Index is encouraging, bearing in mind that the VCT's underlying liquidity has averaged around one-third of net assets in the year. Many of the portfolio companies are primarily valued by reference to the valuations of companies trading in similar sectors within the relevant FTSE sector index. The cumulative total return (NAV basis) per Share at 31 December 2012, including cumulative dividends paid to date, was 132.27 pence (2011: 122.39 pence). This compares with the initial NAV per share, net of initial costs, of 94.50 pence representing a positive total return (NAV basis) per Share since inception of 39.97% (2011: 29.51%). Taking into account initial tax relief, investors have seen an overall gain on investment cost of 120.45% (2011: 103.98%) since the launch of the Company, based on a net investment cost of 60 pence per Share. Portfolio review New investment activity has been relatively quiet throughout the year. The Board and the Manager have remained relatively cautious and have been prepared to wait for the right opportunities to invest in. Uncertainties surrounding the finalisation of changes to VCT tax legislation introduced in the 2012 Finance Act also hindered the completion of new investments during the year. There are signs, however, of an upturn in the new investment market and deal flow has increased. The Manager has been considering a number of interesting opportunities and two of these have completed since the year-end. The Company made one new investment during the year, in July 2012 of £1.68 million (including £1 million from the acquisition vehicle Sawrey) into Tessella, an international provider of science-powered technology and consulting services. We are encouraged by the good start that this company has made since investment. Following the year-end in February 2013, the Company made a further investment into Fullfield (Motorclean) totalling £1.34 million (including £1 million from the acquisition vehicle, Almsworthy) to support the company's acquisition of Forward Valeting Services Limited, a company with a similar business model in the UK car valeting market. In March 2013, the VCT made a new investment of £1.86 million (including £1 million from the acquisition vehicle, Fosse) to support the MBO of Gro-group, the market leader for baby sleep time products in the UK and Australia. The VCT sold its investment in Iglu.com in May 2012 for an overall return of 2.53 times the original investment cost over the life of the investment. This was a pleasing result in just two and half years since the MBO in December 2009. During the period of our investment, Iglu grew its cruise holiday business to become one of the leading distributors of these holidays in the UK in addition to being the largest independent retailer of ski holidays. The overall valuation of the portfolio held at the year-end has been increased by £3.49 million over the year. Further details of these investments and the year's other transactions can be found in the Investment Manager's Review below. Review of results The Company returned a profit for the year of £4.33 million (2011: £1.66 million), comprised of a capital return of £3.24 million (2011: £0.70 million) and a revenue return of £1.10 million (2011: £0.96 million). The large positive capital return is due to a healthy uplift in portfolio valuations of £3.49 million. The revenue return has increased from £0.96 million to £1.10 million, a rise of £0.14 million, mainly due to a rise in income of £0.12 million from £1.68 million to £1.80 million. There has been a rise in loan interest income of £0.30 million to £1.48 million over the year. A number of new investments made in 2011 have now produced a full year's loan interest, as well as some of the investee companies making inroads into outstanding interest arrears. This rise is despite a number of repayments in the year and some interest provided for during the year. There was a significant drop in dividend income of £0.22 million, from £0.43 million to £0.21 million, largely as a result of the partial disposal of DiGiCo which paid the Company a dividend of £0.26 million in 2011. Removing the effect of this DiGiCo dividend, dividend income from other companies rose in the year as a result of a number of companies paying maiden dividends, namely RDL Corporation and Vectair, while ATG Media increased its payment. Revenue from the Company's bank balances and liquidity funds continued to be depressed as a result of the extremely low interest rate environment in the UK. In line with the rise in net assets, investment management fees charged to both revenue and capital have increased from £0.92 million to £0.97 million whilst other expenses have fallen from £0.31 million to £0.26 million. The fall in other expenses is mainly due to a large drop in IFA trail commission fees as a result of a number of eligible shareholdings reaching their cap on such commission due. This will result in a saving going forward, although trail commission on more recent fundraisings will continue. Dividends Your Directors are pleased to recommend a final dividend in respect of 2012 of 2.00 pence (2011: 6.25 pence) per Share comprising 0.50 pence (2011: 5.00 pence) per Share from capital and 1.50 pence (2011: 1.25 pence) per Share from income. Subject to Shareholder approval, this dividend will be paid on 15 May 2013 to Shareholders on the Register on 19 April 2013 . This will bring dividends paid in respect of the year ended 31 December 2012 to 7.00 pence (2011: 6.75 pence) per Share and cumulative dividends paid since inception to 40.05 pence (2011: 33.05 pence) per Share. The Company aims to provide Shareholders with a consistent and regular income stream and the Board has set a target of paying a dividend of at least 4.00 pence per share in respect of each financial year. This target has now been exceeded in each of the last five years. Investment in qualifying holdings In order to comply with VCT tax legislation, the Company must meet the target set by HMRC of investing 70% of total funds raised in qualifying unquoted and AiM quoted companies ("the 70% test"). At 31 December 2012, the Company was 77.38% invested in qualifying companies (based upon the tax values, which differ from the values given in the Investment Portfolio Summary below). Changes to VCT legislation The enactment of the Finance Act 2012 ended a period of uncertainty in finalising the changes to the tax legislation that will apply to VCTs in the future. The principal change that affects the Company is that the funds raised after 6 April 2012 can no longer be used by the Manager to carry out certain types of management buyout transactions ("MBOs"). However, the Company has a significant amount of funds raised prior to this date that it will continue to use to pursue its strategy of investing in MBOs of profitable and cash generative companies. Share buybacks During the year ended 31 December 2012, the Company bought back 1.94 million of its own Shares (2011: 2.68 million) at an average price of 81.90 pence per Share and a total cost of £1.59 million including expenses (2011: £2.22 million). These Shares, representing 4.55% (2011: 6.74%) of the issued Share capital of the Company at the beginning of the year, were subsequently cancelled by the Company. Purchases were made at discounts to the latest published NAVs per Sshare ranging between 10-12% (2011: 10-14%). The discount at which Shares were bought back has remained constant at these levels throughout 2011-12, having stabilised in mid-2010. This reflects the Board's current policy which is to seek to maintain the discount at which the Company's Shares trade at around 10% to the latest announced NAV per Share, which was the position at the year-end. Remaining Shareholders, of course, benefit from the difference between the Net Asset Value and the price at which the Shares are bought back and cancelled. Selling your shares The Company's Shares are listed on the London Stock Exchange and as such they can be sold in the same way as any other quoted company through a stockbroker. However, to ensure that you obtain the best price, if you wish to sell your Shares, you are strongly advised to contact the Company's stockbroker, Panmure Gordon, by telephoning 020 7886 2716/7 before agreeing a price with your stockbroker. Shareholders are also advised to discuss their individual tax position with their financial advisor before deciding to sell their Shares. Merger with Matrix Income & Growth 3 VCT plc The Company has continued to benefit from the merger of the Company with Matrix Income & Growth 3 VCT in May 2010, both in terms of cost savings and more efficient administration. As planned, the full costs of the merger were recovered within two years and savings continue. Fundraising The Company raised £5.04 million net of issue costs in the Mobeus (formerly Matrix) Linked VCT Offer launched on 20 January 2012, which closed on 30 June 2012. The Company launched a further linked fundraising with The Income & Growth VCT plc and Mobeus Income & Growth 4 VCT plc on 29 November 2012 to raise up to £21 million across the three VCTs and/or allot up to 10 million shares in each VCT. The funds raised for the VCT will further improve the Company's liquidity and spread its fixed running costs over a larger asset base. They will provide a fund of new money which may be used to pay ongoing expenses, including dividends and share buybacks, thus preserving money raised prior to 6 April 2012 to support the Company's strategy of investing in new MBO deals. Details of the Offer were posted to Shareholders in December 2012. . This Offer has been well received and a total of £4.90 million in total of applications has been subscribed to date for the Company. The Offer will remain open until 30 April 2013 (5 April 2013 in respect of the current tax year) although the Directors of the three VCTs reserve the right to extend the closing date at their discretion. It will close earlier if fully subscribed. Enhanced buyback facility (EBF) The VCT offered an Enhanced Buyback Facility (EBF) to Shareholders in January 2013 by way of a tender offer to purchase from Shareholders up to 50% of the issued capital of the VCT. An EBF is a loyalty scheme, whereby the VCT buys back some or all of a Shareholder's existing Shares at the prevailing NAV per Share. The resultant proceeds are applied to invest in new shares in the same VCT, at a slightly higher price to cover the costs of the Scheme. Shareholders receive new VCT shares which qualify for upfront income tax reliefs of up to 30% on the amount reinvested. The EBF may not be appropriate for all Shareholders particularly if they have not held their Shares for a sufficient period to qualify for the upfront tax reliefs. Shareholders approved this Scheme and the associated cancellation of the share premium account on 22 February 2013, which was subsequently approved by the Court on 13 March 2013. Change of Company name and change of ownership at the Manager The Manager completed its MBO from Matrix Group Limited (in administration) ("Matrix Group") and became a fully independent firm owned by its partners and renamed itself Mobeus Equity Partners LLP ("Mobeus") on 30 June 2012. Subsequent to this change, the Company changed its name to Mobeus Income & Growth VCT plc to be consistent with the Manager's change of name. The Company's investment strategy and its arrangements with Mobeus have continued as previously agreed. The team at Mobeus continues to be wholly dedicated to the management and administration of VCTs. Communication with Shareholders We aim to communicate regularly with our Shareholders. In addition to the Half-Yearly and Annual Reports, Shareholders receive a twice-yearly VCT Newsletter from the Manager, approved by the Board. 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 Manager. The Manager held another successful investor workshop in January 2013. The workshop provided a forum for about 140 Mobeus VCT Shareholders to hear presentations from the Manager about its investment activity in greater depth and from a successful entrepreneur from DiGiCo, one of the portfolio companies. It is intended that this will be an annual event, to which all Shareholders will be invited. The Manager has established a new website, which can be accessed by going to www.mobeusequity.co.uk. This is regularly updated with information on your investments including case studies of portfolio companies. The Company continues to have its own dedicated section of the website which Shareholders may prefer to access directly by going to www.migvct.co.uk. This includes performance tables and details of dividends paid as well as copies of past reports to Shareholders. Presentations and Q & As from the recent investor workshop can also be viewed here. Industry awards for the Manager The Manager received the award for VCT of the Year 2012 at Investor AllStars 2012. It was also named VCT House of the Year 2012 at the unquote" British Private Equity Awards 2012. The citations for these awards recognised the Manager's outstanding performance in achieving record realisations during the year and promoting a successful fundraising. The Board is delighted that the work of the Manager has been acknowledged in this way. Outlook The UK, in common with other world economies, is struggling to achieve equilibrium in the aftermath of the recent recession and it appears that sustained growth will be slow to materialise. In the current environment, your Board and Manager remain cautious when evaluating new opportunities. Nevertheless, the Manager has seen a number of promising investment opportunities at realistic purchase prices in recent months and two of these (Motorclean and Gro Group) have completed since the year-end. The Board believes that the VCT's strategy of investing primarily in MBOs and structuring investments to include loan stock will continue to mitigate downside risk. The VCT continues to maintain a significant cash position, a large portion of which was raised prior to 6 April 2012. This will be used to support the VCT's policy of investing in established, profitable companies through MBO deals that align the interests of the VCT with those of the management teams of the businesses that we support. The company's cash reserves and the cash-rich acquisition companies are available to help portfolio companies through what we believe may be an exacting period. This is particularly important at a time when the UK banks, despite government exhortations, continue to limit, or are even withdrawing, funds from the smaller company sector. The Board continues to believe that, despite the challenges ahead, the Company's lower risk investment strategy and its high levels of liquidity should deliver attractive returns to Shareholders over the medium to long term. Finally, I would like to express my thanks to all Shareholders for their continuing support of the Company. Keith Niven Chairman Responsibility statement In accordance with Disclosure and Transparency Rule (DTR) 4.2.10, the Directors confirm that to the best of their knowledge: (a) the financial statements, which have been prepared in accordance with UK Generally Accepted Accounting Practice and the 2009 Statement of Recommended Practice, `Financial Statements of Investment Trust Companies and Venture Capital Trusts' (SORP), give a true and fair view of the assets, liabilities, financial position and the profit of the Company; and (b) the management report, comprising the Chairman's Statement, Investment Manager's Review, Investment Portfolio Summary and Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. For and on behalf of the Board: Keith Niven Chairman Investment Policy The VCT's policy is to invest primarily in a diversified portfolio of UK unquoted companies. Investments are usually structured as part loan and part equity in order to generate regular income and to generate capital gains from realisations. Investments are made selectively across a number of sectors, primarily in management buyout transactions ("MBOs") i.e. to support incumbent management teams in acquiring the business they manage but do not own. Investments are primarily made in companies that are established and profitable. Uninvested funds are held in cash and low risk money market funds. VCT regulation The investment policy is designed to ensure that the VCT continues to qualify and is approved as a VCT by HMRC. Amongst other conditions, the VCT may not invest more than 15% of its investments in a single company or group of companies and must have at least 70% by value of its investments throughout the period in shares or securities comprised in VCT qualifying holdings, of which a minimum overall of 30% by value (70% for funds raised on or after 6 April 2011) must be in ordinary shares which carry no preferential rights (save as may be permitted under VCT rules). The VCT can invest less than 30% by value (70% for funds raised on or after 6 April 2011) of an investment in a specific company in ordinary shares. It must however have at least 10% by value of its total investments in each VCT qualifying company in ordinary shares which carry no preferential rights (save as may be permitted under VCT rules). UK companies The companies in which investments are made must have had no more than £15 million of gross assets at the time of investment and £16 million immediately following the investment to be classed as a VCT qualifying holding. Asset mix The VCT holds its liquid funds in a portfolio of readily realisable interest-bearing investments and deposits. The investment portfolio of qualifying investments has been built up over time with the aim of investing and maintaining around 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 to maximise the amount which may be invested in loan stock. Co-investment The VCT aims to invest in larger, more mature, unquoted companies through investing alongside three other VCTs advised by Mobeus with similar investment policies. This enables the VCT to participate in combined investments by the Manager of up to £5 million. Borrowing The VCT's articles permit borrowings of amounts up to 10% of the adjusted capital and reserves (as defined therein). The VCT has never borrowed and the Board 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 Manager and are then subject to formal approval by the Directors. 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 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 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. Funds raised after 5 April 2012 and used by an investee company for the acquisition of shares in another company are restricted from being qualifying for VCT purposes. This may reduce the number of investment opportunities for such funds Investment and strategic risk - inappropriate strategy or consistently weak VCT qualifying investment recommendations might lead to under performance and poor returns to Shareholders. Investment in unquoted small companies by its nature involves a higher degree of risk than investment in companies traded on the London Stock Exchange main market. Regulatory risk - the Company is required to comply with the Companies Act, the 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 Manager'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. This may make them more risk-prone and volatile investments. 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. Credit/counterparty risk - A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company. The Board seeks to mitigate the internal risks by setting policy and by undertaking a key risk management review at each quarterly Board meeting. Performance is regularly reviewed and assurances in respect of adequate internal controls and key risks are sought and received from the Manager on a six monthly basis. In the mitigation and management of these risks, the Board applies rigorously the principles detailed in the AIC Code of Corporate Governance. The Board also has a share buyback policy to try to mitigate the Market Liquidity risk. This policy is reviewed at each quarterly Board Meeting. Investment Manager's Review Overview This has been a relatively quiet year for the portfolio, during which the Company made one new major investment and one major disposal. The environment for new investment has made it harder to complete new investments, for two principal reasons. Firstly, 2012 saw a second dip into recession which revived uncertainty surrounding the extent and depth of the economic recovery. Secondly, a lack of clarity regarding changes to VCT regulations depressed a weak corporate finance market. Nonetheless, dealflow has improved in recent months, particularly in terms of the number of deals coming forward, although concluding transactions has continued to be difficult. We have been working on a number of promising new investments and are, therefore, hopeful that the pace of new investment will pick-up in 2013. Indeed, two such deals have completed recently. Uncertainty over the future persists, particularly amongst potential sellers of businesses, but our investment approach, combining debt and equity, continues to be compelling to companies seeking investment in a market where availability of bank finance remains patchy at best. This means that management buyout teams are increasingly turning to us as a reliable source of funding for their plans. Over the year, the Company's liquidity position (including the £6 million invested in acquisition vehicles at the year-end) has strengthened further, so it is well placed to invest. In response, we are broadening the scope of the deals which we target by identifying opportunities to invest more capital to support the expansion of successful businesses in the existing portfolio including, where appropriate, the deployment of loan funding to support portfolio companies' growth plans. We continue to believe that the Company's strategy of investing in well-structured MBO deals; supporting highly motivated management teams; focusing on acquiring established, profitable, positive cashflow businesses; and investing partly in income yielding loan stocks, substantially increases the degree of downside protection to Shareholders' capital. We have noted the recent change in VCT legislation preventing certain types of MBOs, but also note that this restriction does not apply to the substantial level of funds held by the Company from earlier fundraisings. We have continued to work actively with the management teams of investee companies, encouraging them to take cost-cutting measures and reviewing their budgets, forecasts and cost structures with them to ensure that their businesses remain as resilient as possible. A number of portfolio companies have made good progress and this is reflected in the valuations of these companies. The strategy above is executed by retaining and developing a portfolio of successful companies until each has reached the optimal point for a profitable realisation. In the meantime, the portfolio routinely benefits from returns of loan stock interest, dividends and loan repayments, during the life of an investment. New investment In July 2012, the Company made an investment totalling £1.68 million to support the MBO of Tessella, an international provider of science-powered technology and consulting services. The Company used its existing investment of £1 million in the acquisition vehicle Sawrey to finance the transaction, along with a further £0.68 million from the Company's cash reserves. Founded in 1980, the company delivers innovative and cost-effective solutions to complex real-world commercial and technical challenges such as developing smarter drug trials and minimising risk in oil and gas exploration. This company has made an encouraging start since investment. Following the year-end in March 2013, the VCT made a new investment of £1.86 million (including £1 million from the acquisition vehicle, Fosse) to support the MBO of Gro-group, the market leader for baby sleep time products in the UK and Australia. We are confident that our Operating Partner programme will continue to generate successful investments for the Company and accordingly £6 million was held in six acquisition vehicles at the year-end. These companies continue to pursue an active search for investment opportunities. Each of the acquisition vehicles is headed by an experienced Chairman, well known to us, who is working closely with us in seeking to identify and complete investments in specific sectors relevant to his industry knowledge and experience. We have established these companies to provide time for us to identify and invest in suitable target companies at sufficiently attractive valuations. Two of these companies, Almsworthy and Fosse, were used respectively following the year-end, to complete a further investment into Motorclean (see below) and a new investment into Gro-group as described above. Follow-on investment PXP was the only investee company to receive a follow-on investment during the year. £0.11 million was invested in June 2012 as part of a major restructuring of this company to enable PXP to continue to trade following a period of poor trading in a challenging market. Trading in recent months has started to show improvement. Following the year-end in February 2013, the Company made a further investment into Fullfield (Motorclean) totalling £1.34 million (including £1 million from the acquisition vehicle, Almsworthy) to support the company's acquisition of Forward Valeting Services Limited, a company with a similar business model in the UK car valeting market. Realisations Against an uncertain economic background, we are pleased to report that realisations during the year under review generated net cash of £4.13 million for the Company. In May 2012, the Company realised its entire investment in Iglu.com Holidays, the specialist online ski and cruise holiday travel agent, for a cash consideration of £2.07 million through a sale to Growth Capital Partners. This realisation contributed to total cash proceeds of £3.59 million to the Company over the two and a half year life of the investment, representing a 2.53 times return on the Company's original investment of £1.42 million. We have supported this established online ski agent through a period of rapid growth in its cruise holiday business since the MBO in December 2009. Iglu is now one of the leading distributors of cruise holidays in the UK and the largest independent retailer of ski holidays. The company's annual revenues now exceed £90 million. A total of £2.06 million (including any premiums paid) has also been received in loan stock repayments from portfolio companies during the year to 31 December 2012. Focus repaid £0.39 million in January 2012. Blaze Signs repaid a total of £1.40 million in four separate payments received between May and November 2012, plus interest arrears of £0.16 million. Fullfield and Tessella repaid a total of £0.27 million in two scheduled payments. Portfolio review The portfolio comprised thirty-one investments as at 31 December 2012 (2011: twenty-five) with a cost of £33.09 million (2011: £27.09 million) and valued at £34.86 million (2011: £27.42 million), representing 105.35% of cost (2011: 101.22%). The portfolio's performance as a whole has continued to be strong and we are pleased to report that its value has increased over the year. ATG Media and DiGiCo have again traded well despite the challenges of the economic environment. Blaze has made a steady recovery from the difficulties it experienced during the economic downturn and has benefitted this year from work for the Olympics, enabling it to repay a large part of its loans as noted above. CB Imports continues to trade well despite the general weakness of retail spending and has grown profits compared to last year. Focus is expected to exceed its budget and is performing well on product development and has a healthy pipeline of new products. Fullfield (Motorclean) has maintained its solid start and cash generation at this company has been strong, as evidenced by its early partial repayment of its loan stock. ASL has successfully integrated its acquisition of Transcribe, which is trading well, but the group's overall performance is behind its investment plan. Of the newer investments, EMaC has made encouraging progress over its first year since the MBO in October 2011 despite growing competition in its sector. This is reflected in an increase in valuation from cost. EOTH too, is making good progress in growing revenue and market share although its market remains beset by price discounting. British International has had a difficult year, with further falls in passenger journeys on its scheduled route to the Isles of Scilly leading to a material reduction in group profitability and the closure of the route at the end of October; this was compounded by the delays in completing the sale to Sainsbury's of its heliport in Penzance, which was dependent on full planning permission being granted. However, completion finally took place in October 2012 and the substantial receipt enabled the company to fully repay its bank borrowings, thereby improving the security of the Company's loan stock investment in British International. Your Company is engaged in divesting its investment in British International as part of the asset realisation process that British International has embarked upon. The persisting downturn in the construction and house building sectors continues to affect the performance of PXP and Plastic Surgeon, although management has worked well to reposition both of these businesses and make the necessary cuts in costs. The market environment for Youngman remains uncertain, although it has traded profitably and is well positioned to benefit from any upturn in its markets. Westway suffered from lower revenues last year but is now growing profits again and has strong customer relationships. RDL has continued to perform below expectations with activity in its IT recruitment business in particular, at lower than planned levels. It is taking measures to improve performance. Faversham has been streamlining its operations although progress is slower than anticipated. Overall, we are encouraged by the strong and resilient performance by most of our investee companies. Our strategy remains to retain investments until they have reached the optimum point for an exit in order to maximise value from each investment. Outlook The outlook for the UK economy remains uncertain, but the Company has ample liquidity to pursue its MBO strategy and we are hopeful that we are entering a healthy period of new investment over the coming year. As part of our plans to increase the rate of investment, we are currently pursuing several opportunities to provide further capital for expansion of successful existing investments. The uncertain outlook necessitates that we ensure investee companies take appropriate actions to respond to the challenging environment ahead. We are also maintaining a prudent approach to making new investments and ensuring that the portfolio remains well-capitalised. We are confident that good returns can continue to be earned for investors over the medium to longer term, if such disciplines are observed. Details of the Company's ten largest investments by value at 31 December 2012 (excluding the six acquisition vehicles in the portfolio at the year-end, which have yet to complete an investment and have a current cost and valuation of £1 million each) are set out below. These represent 48.90% by cost and 63.05% by value of the portfolio. Ten Largest Investments in the portfolio * ATG Media Holdings Limited DiGiCo Global Limited CB Imports Group Limited (non-qualifying) www.antiquestradegazette.com www.digico.org www.countrybaskets.co.uk Cost £1,486,214 £2,592,669 £2,000,000 Valuation £4,021,003 £3,301,112 £2,481,424 Basis of valuation Earnings multiple Earnings multiple Earnings multiple Equity % held 13.96% 4.65% (fully diluted) 11.58% Income receivable £163,456 £103,806 £152,709 in year Business Publisher and on-line Designer and manufacturer of Importer and distributor auction platform operator digital audio mixing desks of artificial flowers, floral sundries and home décor products. Location London Chessington, Surrey East Ardsley, West Yorkshire History Management buyout Secondary buyout Management buyout Audited financial information Year ended 30 September 2012 31 December 2011 31 December 2011 Turnover £10,990,000 £21,314,000 £23,130,000 Operating profit £2,704,000 £6,466,000 £969,000 Net assets £4,612,000 £7,932,000 £4,421,000 Year ended 30 September 2011 31 December 2010 31 December 2010 Turnover £8,927,000 £18,757,000 £21,197,000 Operating profit £1,831,000 £5,501,000 £2,139,000 Net assets £3,179,000 £8,909,000 £4,259,000 Ingleby (1879) Limited British International Holdings Fullfield Limited Limited www.emac.co.uk www.islesofscillyhelicopter.com www.motorclean.net Cost £1,762,336 £2,026,316 £1,595,000 Valuation £2,243,576 £2,026,316 £1,791,646 Basis of valuation Earnings multiple Fair value equivalent to cost Earnings multiple Equity % held 8.81% (fully diluted) 17.47% 12.58% Income receivable £147,770 £Nil £147,835 in year Business Provider of service plans Helicopter service operator Provider of vehicle for the motor trade cleaning and valet services Location Crewe Sherborne, Dorset Laindon, Essex History Management buyout Management buyout Management buyout Audited financial information Year ended 31 December 2011 1 31 December 2010 31 March 20121 Turnover £4,990,000 £19,350,,000 £23,818,000 Operating profit £867,000 £3,315,000 £1,752,000 Net assets £1,535,000 £4,017,000 £9,044 ,000 Year ended 31 December 2010 1 31 December 2009 31 March 20111 Turnover £4,042,000 £16,050,,000 £22,400,000 Operating profit £1,596,000 £976,000 £1,631,000 Net assets £2,712,000 £2,970,000 £2,344,000 1 The financial information 1 The financial quoted above relates to the information quoted above operating subsidiary, EMaC relates to the operating Limited subsidiary, Motorclean Limited Tessella Holdings Limited Focus Pharma Holdings Limited Blaze Signs Holdings Limited www.tessella.com www.focuspharmaceuticals.co.uk www.blaze-signs.com Cost £1,655,131 £1,042,972 £727,471 Valuation £1,655,131 £1,649,436 £1,477,887 Basis of valuation Cost Earnings multiple Earnings multiple Equity % held 7.20% 5.08% 20.78% Income receivable £55,257 £70,946 £289,639 in year Business Provider of science powered Licensing and distribution of Manufacturer and technology and consulting generic pharmaceuticals installer of signs services Location Abingdon, Oxfordshire Burton-on-Trent, Staffordshire Broadstairs, Kent History Management buyout Management buyout Management buyout Audited financial information Year ended 31 March 20121 31 December 2011 31 March 2012 Amended £18,533,000 £22,375,000 £20,878,000 Operating profit £278,000 £1,075,000 £1,761,000 Net assets £2,404 ,000 £3,485,000 £2,918,000 Year ended 31 March 20111 31 December 2010 31 March 2011 Turnover £16,941,000 £24,429,000 £20,127,000 Operating profit £346,000 £1,507,000 £1,889,000 Net assets £2,403,000 £3,342,000 £2,937,000 1 The financial information quoted above relates to the operating subsidiary, Tessella Limited (previously Tessella plc) EOTH Limited www.equipuk.com Cost £1,298,031 Valuation £1,330,039 Basis of valuation Earnings multiple Equity % held 2.33% Income receivable £124,262 in year Business Supplier of branded outdoor equipment and clothing including the Rab and Lowe Alpine brands Location Alfreton, Derbyshire History Acquisition capital Audited financial information Year ended 31 January 2012 Turnover £15,504,000 Operating profit £1,830,000 Net assets £6,173,000 Year ended 28 February 2011 1 Turnover £13,457,000 Operating profit £2,354,000 Net assets £4,706,000 1 The financial information quoted above relates to the operating subsidiary, Equip Outdoor Technologies Limited. The remaining twenty-one investments in the portfolio (including the six acquisition vehicles in the portfolio at 31 December 2012) had a current cost of £16.91 million and were valued at 31 December 2012 at £12.88 million. Further details of the investments in the portfolio may be found on the Mobeus website: www.mobeusequity.co.uk. 1. The voting rights held in each investee company is equal to the equity percentage held figures given above in all cases. 2. Operating profit is stated before charging amortisation of goodwill, where appropriate, for all investee companies. Investment Portfolio Summary as at 31 December 2012 Market sector Date of Total Valuation % value % of investment book of net equity cost assets held by funds advised by Mobeus 1 £'000 £'000 Qualifying investments AiM quoted investments Omega Diagnostics Group plc Health care Dec-10 305 407 0.9% 9.8% equipment and services In-vitro diagnostics for food intolerance, autoimmune diseases and infectious diseases ------- ------- ------- 305 407 0.9% Unquoted investments ATG Media Holdings Limited Media Oct-08 1,486 4,021 9.3% 38.4% Publisher and on-line auction platform operator CB Imports Group Limited General retailers Dec-09 2,000 2,481 5.7% 23.2% (Country Baskets) Importer and distributor of artificial flowers and floral sundries. Ingleby (1879) Limited (EMaC) Support services Nov-11 1,762 2,244 5.2% 30.0% Provider of service plans for the motor trade Fullfield Limited Support services Jul-11 1,595 1,792 4.1% 41.0% (Motorclean) Provider of vehicle cleaning and valet services British International Support services Jun-06 1,683 1,683 3.9% 34.9% Holdings Limited Helicopter service operator Tessella Holdings Limited Support services Jul-12 1,655 1,655 3.8% 24.0% Technology consultancy Focus Pharma Holdings Limited Pharmaceuticals Oct-07 1,043 1,649 3.8% 12.7% Licensor and distributer of generic pharmaceuticals Blaze Signs Holdings Limited Support services Apr-06 727 1,478 3.4% 52.5% Manufacturer and installer of signs Machineworks Software Limited Software and Apr-06 223 1,140 2.6% 45.0% computer services Provider of software for CAM and machine tool vendors RDL Corporation Limited Support services Oct-10 1,558 1,127 2.6% 45.2% Recruitment consultant for the pharmaceutical, business intelligence and IT industries EOTH Limited (RAB and Lowe General retailers Oct-11 1,000 1,006 2.3% 8.0% Alpine) Branded outdoor equipment and clothing Ackling Management Support services Apr-12 1,000 1,000 2.3% 50.0% Company preparing to trade in the food manufacturing, distribution and brand management sectors Almsworthy Trading Limited Support services Mar-12 1,000 1,000 2.3% 50.0% Company preparing to trade in the specialist construction, building support services, building products and related sectors Culbone Trading Limited Support services Mar-12 1,000 1,000 2.3% 50.0% Company preparing to trade in the outsourced sector Madacombe Trading Limited Support services Mar-12 1,000 1,000 2.3% 50.0% Company preparing to trade in the engineering sector Fosse Management Limited Support services Apr-12 1,000 1,000 2.3% 50.0% Company preparing to trade in the brand management, consumer products and retail sectors Peddars Management Limited Support services Apr-12 1,000 1,000 2.3% 50.0% Company preparing to trade in the database management and data mapping sectors and in management services to the legal and building industries Westway Services Holdings Support services Jun-09 603 841 1.9% 13.0% (2010) Limited Installation, service and maintenance for air conditioning systems ASL Technology Holdings Support services Dec-10 1,913 754 1.8% 34.0% Limited Printer and photocopier services Youngman Group Limited Support services Oct-05 1,000 701 1.6% 29.7% Manufacturer of ladders and access towers The Plastic Surgeon Holdings Support services Apr-08 478 537 1.3% 30.0% Limited Supplier of snagging and finishing services to the domestic and commercial property markets Vectair Holdings Limited Support services Jan-06 139 459 1.1% 24.0% Designer and distributor of washroom products Racoon International Holdings Personal goods Dec-06 1,213 389 0.9% 49.0% Limited Supplier of hair extensions, hair care products and training Lightworks Software Limited Software and Apr-06 223 174 0.4% computer services 45.0% Provider of software for CAD vendors Faversham House Holdings Media Dec-10 527 121 0.3% 31.4% Limited Publisher, exhibition organiser and operator of websites Monsal Holdings Limited Support services Dec-07 1,299 117 0.3% 27.7% Supplier of engineering services to water and waste sectors PXP Holdings Limited Construction and Dec-06 1,278 114 0.3% 32.9% (Pinewood Structures) building materials Designer, manufacturer and supplier of timber-frames for buildings Legion Group plc (in Support services Aug-05 150 - 0.0% N/A administration) Provider of manned guarding, mobile patrolling and alarm response services Watchgate Limited Support services Nov-11 1 - 0.0% 100.0% Holding company ------- ------- ------- 29,556 30,483 70.4% ------- ------- ------- Total qualifying investments 29,861 30,890 71.3% ------- ------- ------- Non-qualifying investments DiGiCo Global Limited 2 Technology, Dec-11 2,593 3,301 7.6% hardware and equipment 11.0% Designer and manufacturer of digital sound mixing consoles British International Support services Nov-09 343 343 0.8% - Holdings Limited EOTH Limited (Rab and Lowe General retailers Oct-11 298 324 0.8% - Alpine) ------- ------- ------- Total portfolio investments 33,095 34,858 80.5% ------- ------- ------- Current investments and cash at bank Cash at NatWest Bank plc 3 4,713 4,713 10.9% The Co-operative Bank plc 4 2,000 2,000 4.6% GS Funds plc (Goldman Sachs) 4 429 429 1.0% Global Treasury Funds plc (Royal Bank of Scotland) 4 387 387 0.9% Institutional Cash Series plc (BlackRock) 4 256 256 0.6% Insight Liquidity Funds plc (HBOS) 4 271 271 0.6% SWIP Global Liquidity Fund plc (Scottish Widows)4 176 176 0.4% Fidelity Institutional Cash Fund plc 4 114 114 0.3% ------- ------- ------- Total investments 41,441 43,204 99.8% ------- ------- ------- Other assets 215 0.5% Current liabilities (130) (0.3)% ------- ------- ------- Net assets 43,289 100.0% ------- ------- ------- 1 The other funds advised by Mobeus include Mobeus Income & Growth 2 VCT plc (formerly Matrix Income & Growth 2 VCT plc), Mobeus Income & Growth 4 VCT plc (formerly Matrix Income & Growth 4 VCT plc) and The Income & Growth VCT plc. 2 Original investment was in DiGiCo Europe Limited in July 2007. This was partially realised in December 2011 and therefore, this represents the cost and valuation of the continuing investment. 3 Disclosed as Cash at bank within Current assets in the Balance Sheet below. 4 Disclosed as Current Investments within Current assets in the Balance Sheet below. Income Statement for the year ended 31 December 2012 Year ended 31 December 2012 Year ended 31 December 2011 Notes Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ Unrealised gains on - 3,488,447 3,488,447 - 688,724 688,724 investments 7 Realised gains on - 286,530 286,530 - - - - 520,219 520,219 investments 7 Income 2 1,797,530 - 1,797,530 1,681,991 - 1,681,991 Investment management (243,545) (730,634) (974,179) (230,025) (690,074) (920,099) fees 3 Other expenses (263,893) - (263,893) (307,214) - - - (307,214) ------- ------- ------- ------- ------- ------- Profit on ordinary activities before taxation 1,290,092 3,044,343 4,334,435 1,144,752 518,869 1,663,621 Tax on profit on ordinary activities 4 (192,913) 192,913 - (181,181) 181,181 - ------- ------- ------- ------- ------- ------- Profit for the year 1,097,179 3,237,256 4,334,435 963,571 700,050 1,663,621 ------- ------- ------- ------- ------- ------- Basic and diluted earnings per ordinary share 6 2.42p 7.13p 9.55p 2.25p 1.64p 3.89p All the items in the above statement derive from continuing operations of the Company. No operations were acquired or discontinued in the year. The total column is the profit and loss account of the Company. There were no other recognised gains or losses in the year. Other than revaluation movements arising on investments held at fair value through the profit and loss account, there were no differences between the return as stated above and at historical cost. Balance Sheet as at 31 December 2012 31 December 2012 31 December 2011 Notes £ £ Fixed assets Investments at fair value 7 34,857,675 27,418,790 Current assets Debtors and prepayments 8 215,525 329,659 Current investments 9 3,632,668 11,123,681 Cash at bank 4,713,008 2,085,082 ------- ------- 8,561,201 13,538,422 Creditors: amounts falling due within one year (130,353) (231,037) ------- ------- Net current assets 8,430,848 13,307,385 ------- ------- Net assets 43,288,523 40,726,175 ------- ------- Capital and reserves Called up share capital 10 459,465 426,061 Capital redemption reserve 10 75,583 56,182 Share premium account 10 27,018,629 22,034,106 Revaluation reserve 10 4,886,524 3,455,913 Special distributable reserve 10 8,989,989 11,161,745 Profit and loss account 10 1,858,333 3,592,168 ------- ------- Equity shareholders' funds 10 43,288,523 40,726,175 ------- ------- Basic and diluted net asset value per Ordinary Share 11 94.22p 95.59p Reconciliation of Movements in Shareholders' Funds for the year ended 31 December 2012 Year ended Year ended 31 December 2012 31 December 2011 Notes £ £ Opening shareholders' funds 40,726,175 38,450,907 Net share capital subscribed for in the year 5,037,328 5,236,341 Net share capital bought back in the year (1,588,947) (2,222,097) Profit for the year 4,334,435 1,663,621 Dividends paid in year 5 (5,220,468) (2,402,597) ------- ------- Closing shareholders' funds 10 43,288,523 40,726,175 Cash Flow Statement for the year ended 31 December 2012 Year ended Year ended 31 December 2012 31 December 2011 Notes £ £ £ £ Operating activities Investment income received 1,880,902 1,577,644 Other income 11,759 3,873 Investment management fees paid (974,179) (920,099) Other cash payments (336,669) (322,439) Payment of merger costs of the Company - (9,555) ------- ------- ------- ------- Net cash inflow from operating activities 581,813 329,424 Investing activities Acquisitions of investments 7 (7,793,526) (3,645,194) Disposals of investments 7 4,129,618 8,478,349 ------- ------- ------- ------- Net cash (outflow)/inflow from investing activities (3,663,908) 4,833,155 Equity dividends Payment of dividends 5 (5,220,468) (2,402,597) ------- ------- ------- ------- Cash (outflow)/inflow before liquid resource management and financing (8,302,563) 2,759,982 Management of liquid resources Decrease/(increase) in current investments 7,491,013 (3,657,544) Financing Share capital raised 5,037,328 5,236,341 Share capital bought back (1,597,852) (2,368,369) ------- ------- ------- ------- 3,439,476 2,867,972 ------- ------- ------- ------- Increase in cash for the year 2,627,926 1,970,410 ------- ------- ------- ------- Notes 1 Accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below. a) 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' ("SORP") issued by the Association of Investment Companies in January 2009. The financial statements are prepared under the historical cost convention except for the measurement of certain financial instruments at fair value. b) Presentation of the Income Statement 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' ("SORP") issued by the Association of Investment Companies in January 2009. The financial statements are prepared under the historical cost convention except for the measurement of certain financial instruments at fair value. c) Investments All investments held by the Company are classified as "fair value through profit and loss" and measured in accordance with the International Private Equity and Venture Capital Valuation ("IPEVCV") guidelines, as updated in September 2009. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income. For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. Unquoted investments are stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEVCV guidelines: All investments are held at the price of a recent investment for an appropriate period where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, the following factors will be considered: (i) Where a value is indicated by a material arms-length transaction by an independent third party in the shares of a company, this value will be used. (ii) In the absence of i) and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:- a) an earnings multiple basis. The shares may be valued by applying a suitable price-earnings ratio to that company's historic, current or forecast post-tax earnings before interest and amortisation (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Manager compared to the sector including, inter alia, a lack of marketability). or:- b) where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after agreement with the Manager, will agree the values that represent the extent to which an investment loss has become realised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value. (iii) Premiums on loan stock investments are accrued at fair value when the Company receives the right to the premium and when considered recoverable. (iv) Where an earnings multiple or cost less impairment basis is not appropriate and overriding factors apply, discounted cash flow or net asset valuation bases may be applied. 2. Income 2012 2011 £ £ Income from bank deposits 64,180 12,879 Income from investments - from equities 206,304 425,919 - from overseas based OEICs 32,373 59,178 - from loan stock 1,482,914 1,184,015 ------- ------- 1,721,591 1,669,112 Other income 11,759 - ------- ------- Total income 1,797,530 1,681,991 ------- ------- Total income comprises Dividends 238,677 485,097 Interest 1,547,094 1,196,894 Other income 11,759 - ------- ------- 1,797,530 1,681,991 ------- ------- Income from investments comprises Listed overseas securities 32,373 59,178 Unlisted UK securities 206,304 425,919 Loan stock interest 1,482,914 1,184,015 ------- ------- 1,721,591 1,669,112 ------- ------- Total loan stock interest due but not recognised in the year was £523,534 (2011: £514,475). 3 Investment manager's fees Revenue Capital Total Revenue Capital Total 2012 2012 2012 2011 2011 2011 £ £ £ £ £ £ Mobeus Equity Partners LLP 243,545 730,634 974,179 230,025 690,074 920,099 Under the terms of a revised investment management agreement dated 20 May 2010, Mobeus Equity Partners LLP ("Mobeus") (formerly Matrix Private Equity Partners LLP ("MPEP")) provides investment advisory, administrative and company secretarial services to the Company, for a fee of 2% per annum of closing net assets, paid in advance, calculated on a quarterly basis by reference to the net assets at the end of the preceding quarter, plus a fixed fee of £126,225 per annum up to 30 June 2012 (and £130,089 per annum thereafter), the latter inclusive of VAT and subject to annual increases in RPI. The investment management fee includes provision for a cap on expenses excluding irrecoverable VAT and exceptional items set at 3.6% of closing net assets at the year-end. In accordance with the investment management agreement, any excess expenses are borne by the Manager. The excess expenses during the year amounted to £nil (2011: £nil). Under an incentive agreement dated 9 July 2004, the Manager was entitled to receive an annual performance-related incentive fee of 20% of the excess above an agreed hurdle rate in the annual dividends paid to Shareholders. The hurdle rate was 6 pence per share for the Company's first three annual reporting periods and increased annually thereafter in line with the Retail Price Index. The performance fee was only payable if the mean net asset value per share over the period relating to payment had remained at or above 100 pence and any cumulative shortfalls below the annual hurdle rate have been recovered. Under a deed of variation to the Performance Incentive Agreement, dated 20 May 2010, the Company and MPEP agreed to amend the agreement to provide weighted average hurdles linked to the performance of the Company and Matrix Income & Growth 3 VCT plc up to the date of the Merger and so that it applied across the enlarged Company after that date. As a result, the hurdle rate of dividends to be paid in a year before an incentive could become payable was set at 6.13 pence per share, at the date of the Merger, which became 6.77 pence by 31 December 2012. The cumulative shortfall of dividends paid below the annual hurdle rate at the date of the Merger was 13.67 pence, which had become 14.04 pence at the year-end. The base net asset value of 100p that must be maintained for an incentive fee to be payable has been amended to 97.71 pence per share, (previously 97.33 pence following further rebasing from 96.91 pence after last year's allotment of further shares) to allow for the impact of further shares being allotted during the year at an average price of 100.8 pence per share. No performance incentive fee is payable to date. Under the terms of the Linked Offer for Subscription launched on 20 January 2012 jointly with Mobeus Income & Growth 4 VCT plc and The Income & Growth VCT plc, Mobeus Equity Partners LLP were entitled to 5.5% of gross investment subscriptions, which amounted to £703,097 across all three VCTs involved in the Offer. Under the terms of a similar Linked Offer for Subscription launched on 29 November 2012, Mobeus are entitled to fees of 5.5% of gross investment subscriptions up to 30 December 2012 and 3.25% of gross investment subscriptions after 30 December 2012. As at the date of this document, these amounted to £587,752 across all three VCTs involved in the Offer. 4 Tax on profit/(loss) on ordinary activities 2012 2012 2012 2011 2011 2011 Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ a) Analysis of tax charge: UK Corporation tax on profits/(losses) for the year 192,913 (192,913) - 181,181 (181,181) - ------- ------- ------- ------- ------- ------- Total current tax charge/(credit) 192,913 (192,913) - 181,181 (181,181) - ------- ------- ------- ------- ------- ------- Corporation tax is based on a rate of 20% (2011: 20.25%) b) Profit on ordinary activities before tax 1,290,092 3,044,343 4,334,435 1,144,752 518,869 1,663,621 Profit on ordinary activities multiplied by small company rate of corporation tax in the UK of 20% (2011: 20.25%) 258,018 608,869 866,887 231,812 105,072 336,884 Effect of: UK dividends (41,261) - (41,261) (86,249) - (86,249) Unrealised gains not allowable - (697,689) (697,689) - (139,467) (139,467) Realised gains not taxable - (57,306) (57,306) - (105,344) (105,344) Losses brought forward (70,631) - (70,631) (5,824) (5,824) Marginal rate 46,787 (46,787) - 41,442 (41,442) - ------- ------- ------- ------- ------- ------- Actual current tax charge 192,913 (192,913) - 181,181 (181,181) - ------- ------- ------- ------- ------- ------- Tax relief relating to investment management fees is allocated between revenue and capital where such relief can be utilised. Investment Trust companies are exempt from tax on capital gains if they meet the HMRC criteria set out in section 274 of the ITA. Deferred taxation No provision for deferred taxation has been made on potential capital gains due to the Company's current status as a VCT under section 274 of the ITA and the Directors' intention to maintain that status. There is an unrecognised deferred tax asset of £31,225 (2011: £99,621) in respect of unrelieved surplus management expenses. 5 Dividends paid and payable 2012 2011 £ £ Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 December 2011 of 1.25p (income) (2010: 0.5p); 5p (capital) (2010: 4.5p) per Ordinary Share 2,894,707 2,184,361 Interim dividend for the year ended 31 December 2012 of 0.5p (income) and 4.5p (capital) (2011: 0.5p (income) per Ordinary Share) 2,325,761 218,236 ------- ------- 5,220,468 2,402,597 ------- ------- Proposed distributions to equity holders at the year-end: Final dividend for the year ended 31 December 2012 of 1.5p (income) (2011: 1.25p); 0.5p (capital) (2011: 5p) per Ordinary share 960,660 2,746,532 Any proposed final dividend is subject to approval by Shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. Set out below are the total income dividends payable in respect of the financial year, which is the basis on which the requirements of Section 259 of the Income Tax Act 2007 are considered. 2012 2011 £ £ Revenue available for distribution by way of dividends for the year 1,097,179 963,571 Interim income dividend of 0.5p (2011: 0.5p) paid during the year 232,576 218,236 Final income dividend proposed for the year ended 31 December 2012 of 1.5p (2011: 1.25p) per Ordinary Share 720,495 549,306 ------- ------- 953,071 767,542 6 Basic and diluted earnings per share 2012 2011 £ £ Total earnings after taxation: 4,334,435 1,663,621 Basic and diluted earnings per share (note a) 9.55p 3.89p Revenue profit from ordinary activities after taxation 1,097,179 963,571 Basic and diluted revenue earnings per share (note b) 2.42p 2.25p Net unrealised capital gains on investments 3,488,447 688,724 Net realised capital gains on investments 286,530 520,219 Capital management fees less taxation ( 537,721) ( 508,893) ------- ------- Total capital earnings 3,237,256 700,050 Basic and diluted capital earnings per share (note c) 7.13p 1.64p Weighted average number of shares in issue in the year 45,383,141 42,820,660 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 profit after taxation divided by the weighted average number of shares in issue. c) Capital earnings per share is the total capital profit after taxation divided by the weighted average number of shares in issue. d) There are no instruments that will increase the number of shares in issue in future. Accordingly, the above figures currently represent both basic and diluted earnings per share. 7 Investments at fair value Movements in investments during the year are summarised as follows: Traded on AiM Unquoted Unquoted Loan stock Total ordinary preference shares shares £ £ £ £ £ Cost at 31 December 2011 305,000 6,389,408 50,438 20,342,450 27,087,296 Net unrealised (losses)/gains at 31 December 2011 (44,481) 1,213,331 (13,548) (287,411) 867,891 Permanent impairment in value of investments - (438,104) (1,829) (96,464) (536,397) ------- ------- ------- ------- ------- Valuation at 31 December 2011 260,519 7,164,635 35,061 19,958,575 27,418,790 Purchases at cost - 2,914,286 - 4,879,240 7,793,526 Sale proceeds - (2,110,798) (3,306) (2,060,602) (4,174,706) Realised gains - 319,301 - 12,317 331,618 Reclassification at value - (119,327) - 119,327 - Net unrealised gains/(losses) for the year 146,145 3,870,286 1,000 (528,984) 3,488,447 ------- ------- ------- ------- ------- Closing valuation at 31 December 2012 406,664 12,038,383 32,755 22,379,873 34,857,675 Cost at 31 December 2012 305,000 9,846,540 45,303 22,898,727 33,095,570 Net unrealised gains/(losses) at 31 December 2012 101,664 2,629,947 (10,719) (422,390) 2,298,502 Permanent impairment in value of investments - (438,104) (1,829) (96,464) (536,397) ------- ------- ------- ------- ------- Valuation at 31 December 2012 406,664 12,038,383 32,755 22,379,873 34,857,675 Within net unrealised gains of £3,488,447 for the year, the significant gains were £918,090 in Blaze Signs Holdings Limited, £1,097,940 in ATG Media Holdings Limited, £708,443 in DiGiCo Global Limited, £481,240 in EMaC Limited, £420,487 in Machineworks Software Limited, £497,168 in Focus Pharma Holdings Limited, £423,074 in CB Imports Group Limited; the significant losses were as follows: £987,553 in ASL Technology Holdings Limited, £294,800 in Faversham House Holdings Limited and £235,033 in British International Holdings Limited. Reconciliation of investment transactions to cash and income statement movements The cash flow from investment proceeds shown above of £4,174,706 differs from the sale proceeds shown in the cash flow statement of £4,129,618, due to transaction costs of £45,088. These transaction costs also account for the difference in realised gains between £331,618 shown above and £286,530 disclosed in the Income Statement. 8 Debtors 2012 2011 £ £ Amounts due within one year: Accrued income 200,660 311,809 Prepayments 14,865 17,726 Other debtors - 124 ------- ------- 215,525 329,659 ------- ------- 9 Current investments 2012 2011 £ £ Monies held pending investment 3,632,668 11,123,681 This comprises cash invested in six Dublin based OEIC money market funds, subject to immediate access and £2,000,000 in a bank deposit, repayable within one year. These sums are regarded as monies pending investment and are treated as liquid resources 10 Movement in share capital and reserves Called up Capital Share Premium Revaluation Special Profit and Total Share redemption reserve reserve distributable loss account capital reserve reserve (note b) (note b) £ £ £ £ £ £ £ At 1 January 2012 426,061 56,182 22,034,106 3,455,913 11,161,745 3,592,168 40,726,175 Shares issued 52,805 - 4,984,523 - - - 5,037,328 Share bought back (19,401) 19,401 - - (1,588,947) - (1,588,947) Write off to special reserve (note a) - - - - (582,809) 582,809 - Realisation of previously unrealised gains - - - (2,057,836) - 2,057,836 - Dividends paid - - - - - (5,220,468) (5,220,468) Profit for the year - - - 3,488,447 - 845,988 4,334,435 ------- ------- ------- ------- ------- ------- ------- As at 31 December 2012 459,465 75,583 27,018,629 4,886,524 8,989,989 1,858,333 43,288,523 ------- ------- ------- ------- ------- ------- ------- Note a: The cancellation of the share premium account (as approved at the Extraordinary General Meeting held on 30 June 2004 and by the order of the Court dated 24 August 2006) has provided the Company with a special distributable reserve. The purpose of the reserve is to fund market purchases of the Company's own shares and to write off existing and future capital losses, now that the Company has revoked its investment company status and is obliged to take into account capital losses in determining distributable reserves. The transfer of £582,809 to the profit and loss account from the special distributable reserve is the total of realised capital losses incurred by the Company during the year. Note b: These reserves total £10,848,322 (2011: £14,753,913) and are regarded as distributable reserves for the purpose of assessing the Company's ability to pay dividends to Shareholders. 11 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 45,946,513 (2011: 42,606,052) Ordinary Shares, being the number of Ordinary Shares in issue on that date. 12 Post balance sheet events On 14 January 2013, 2,086,509 new ordinary shares were allotted at a price of 94.6 pence per share under the Linked Offer for Subscription launched on 29 November 2012 raising net funds of £1,869,866. On 18 February 2012, the Company made a further investment into Fullfield Limited (trading as Motorclean) to enable it to acquire rival Company, Forward Valeting Services Limited. The Company used its existing investment of £1 million in the acquisition vehicle, Almsworthy Trading Limited to fund the transaction, along with a further £336,154 from the Company's cash reserves. On 13 March 2013, the Court granted authority to the Company to cancel the balance of its share premium account. On 14 March 2013, the Company invested £1,857,764 (including £1,000,000 from Fosse Management Limited, one of the VCT's acquisition companies) to support the MBO of Gro-group, the market leader for baby sleep time products in the UK and Australia. 14 Financial Information The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 31 December 2012 in terms of section 434 of the Companies Act 2006 but is derived from those accounts. Statutory accounts for the year ended 31 December 2012 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. 15 Annual Report The Annual Report for the year ended 31 December 2012 will shortly be made available on the Company's website: www.migvct.co.uk. and Shareholders will be notified of this by email or post or sent a hard copy in the post in accordance with their instructions. Copies will be available thereafter to members of the public from the Company's registered office. 16 Annual General Meeting The Annual General Meeting will be held at 10.30 am on Wednesday, 8 May 2013 at the offices of Mobeus Equity Partners LLP, 30 Haymarket, London SW1Y 4EX. Contact details for further enquiries: Robert Brittain of Mobeus Equity Partners LLP (the Company Secretary) on 020 7024 7600 or by e-mail to mig@mobeusequity.co.uk. Mark Wignall or Mike Walker at Mobeus Equity Partners LLP (the Investment Manager) on 020 7024 7600 or by e-mail to info@mobeusequity.co.uk.

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