Half-yearly Report
Matrix Income & Growth VCT plc ("the Company")
Half-yearly results for the six months ended 30 June 2010
Investment Objective
Matrix Income & Growth VCT plc ("MIG VCT" or the "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 Matrix Private Equity Partners LLP ("MPEP" or "the Investment
Manager").
The Company's objective is to provide investors with a regular income stream,
by way of tax free dividends, and to generate capital growth through portfolio
realisations, which can be distributed by way of additional tax free dividends.
Merger with Matrix Income & Growth 3 VCT plc
The Company merged with Matrix Income & Growth 3 VCT plc (MIG 3 VCT) on 20 May
2010. As part of the merger process MIG 3 VCT was placed in members' voluntary
liquidation and its assets and liabilities were transferred to the Company.
20,572,129 new ordinary shares of 1 penny each in the capital of the Company
were issued on 20 May 2010 at an attributable issue price of 83.2 pence per
share to acquire net assets of £17,111,545 from MIG 3 VCT. Each MIG 3 VCT
shareholder received 1.065 shares in MIG VCT (rounded down to the nearest whole
number) for each MIG 3 VCT share that they held at the date of the merger.
Financial Highlights - Half-yearly results for the six months ended 30 June
2010
Dividends
Prior to the merger, dividends of 5 pence (MIG VCT) and 4 pence (MIG 3 VCT)
were paid to shareholders on 21 April 2010.
Performance Summary
Initial net asset value (NAV) 94.5 p
per share
Initial net assets on 8 October £20.9 million
2004
As at As at As at
30 June 2010 30 June 2009 31 December 2009
Net assets £m 35.2 16.7 17.0
Net asset value (NAV) per share 86.3 p 81.1p 83.3 p
Net cumulative dividends paid per 21.3 p 16.3p 16.3 p
share
Total return per share to 107.6 p 97.4p 99.6 p
shareholders since launch (NAV
basis) 1
Share price (mid-market price) 63.0 p 60.0p 57.0 p
Former MIG 3 VCT Shareholders - Illustration of performance
To help shareholders who originally invested in MIG 3 VCT understand the
performance of their investment since inception, the table below shows the NAV
return at 30 June 2010 on a single MIG 3 VCT share of £1.
Original Number of MIG NAV per share Net Total NAV
investment VCT shares held at 30 June 2010 cumulative return per share
post-merger dividends to shareholders
paid per since launch 1
(1 share at £1.00) share
100.0p 1.0655 91.9p 9.6p 101.5p
1 Net asset value per share plus cumulative dividends 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.
Chairman's Statement
This Half-yearly Report covers the six month period ended 30 June 2010.
Merger with Matrix Income & Growth 3 VCT plc
I am pleased to report that the Company successfully merged with Matrix Income
& Growth 3 VCT plc (MIG 3 VCT) on 20 May 2010. The merger created an enlarged
company with net assets of £35 million compared with £17 million before the
merger. It has resulted in material cost savings and simpler administration and
brought many benefits to shareholders:
â— a reduction in annual running costs for the enlarged company compared with
the total annual running costs of the separate companies, in particular through
a reduction in the aggregate directors' and advisers' fees;
â— the creation of a single VCT of a more efficient size with a greater capital
base over which to spread annual costs;
â— participation in a larger VCT with the longer term potential for a more
diversified portfolio thereby spreading risk across a broader range of
investments and creating an increased ability to support follow-on investments;
â— the potential for greater liquidity in the secondary market due to an
increased ability to maintain a buy-back programme; and
â— increased flexibility in continuing to meet the various requirements for
qualifying VCT status.
For further information on the financial details of the merger please see Note
13 to the Notes to the Accounts below.
Total return to shareholders and net asset value (NAV)
The net asset value per share as at 30 June 2010 was 86.3 pence, compared with
a NAV of 83.3 pence per share at the beginning of the period. This represents a
rise of 3.6%, and is after deducting a dividend of 5.0 pence paid to
shareholders. The NAV total return per share rose by 8.0% during the six month
period from 99.6 pence to 107.6 pence. This represents a very solid and
pleasing performance in a challenging investment environment.
To assist shareholders who originally invested in MIG 3 VCT to monitor the
performance of their investment on a consistent basis, we have included in the
Financial Highlights above a table showing the returns to a former MIG 3 VCT
shareholder based on an original subscription of £1 for 1 share.
Investment portfolio
The recent prolonged period of uncertainty and volatility in the economy and
stock markets has made negotiating financial transactions in smaller companies
extremely difficult. Despite much background work, no new investments or exits
were completed during the review period. The Board believes that the Investment
Manager has been right to adopt a cautious approach; rather waiting patiently
until better investment/divestment opportunities present themselves.
Following the end of the period a small follow-on investment of £1,717 was made
in Monsal Holdings. Although immaterial in size this investment was part of a
refinancing that introduced a new investor at a valuation significantly greater
than our original cost and previous valuation for this holding. These
negotiations were well-advanced before the period-end and this uplift has
therefore been recognised in our accounts as at 30 June 2010.
In spite of the continued economic uncertainty, the overall performance of the
majority of the companies in the portfolio has been relatively strong. The
well-diversified nature of the portfolio has also helped to limit the impact of
particular sector weaknesses on the value of the Company's investments.
For further information on the investment portfolio please see the Investment
Manager's Review below.
Revenue account and dividend
Disappointingly, income from the Company's investment portfolio and money
market fund holdings has continued to come under considerable pressure.
However, the revenue account has generated a net positive return (after tax)
for the period of £117,082 (2009: £26,214). This was largely due to a first
equity dividend from DiGiCo of £135,189, reflecting that company's strong
trading. In addition, the levels of loan stock interest received were boosted
by several loan stock investments made since the last half-yearly report.
Interest received from money market funds continues at an exceptionally low
level. Interest rates receivable on these funds have continued to average
around 0.5% this year compared to 5.6% before the economic downturn.
Although the period under review witnessed higher expenses, these were largely
due to the one-off costs of the merger. Going forward the underlying rate
should also now decline reflecting the savings generated by the merger.
Given the current position on the revenue account and the absence of any exits
during the period, the Board will not be declaring an interim dividend but will
review the situation once the full year results are available.
Liquidity
The Company held £8.5 million in cash and money market fund balances as at 30
June 2010. In addition, the £6 million invested in the Operating Partner
acquisition vehicles is also held in liquid assets. The Company is therefore
well-positioned both to make investments to support the existing portfolio and
to take advantage of favourable opportunities as they arise.
Investment in qualifying holdings
The Company is required to meet the target set by HM Revenue & Customs (HMRC)
of investing 70% of the funds raised in qualifying unquoted and AiM quoted
companies, which it has achieved throughout the period. The Company was 76.3%
invested in qualifying companies (based on VCT cost as defined in tax
legislation which differs from actual cost given in the Investment Portfolio
Summary below) at the period-end, with the balance of the portfolio invested in
a selection of readily realisable, money market funds with AAA credit ratings.
Share buy-backs
During the period from 1 January 2010 to the date of the merger, MIG VCT bought
back 33,525 of the Company's own shares, representing 0.2% of the issued share
capital at the beginning of the period, at an average price, excluding costs,
of 54.8 pence per share. These shares were purchased at an average discount of
30.0% to NAV per share, adjusted for the dividend paid on 21 April 2010.
Since the merger, the Company has bought back 144,852 of the Company's own
shares, representing 0.4% of the issued share capital at the date of the
merger, at an average price, excluding costs, of 59.0 pence per share. These
shares were purchased at an average discount of 33.4% to NAV per share.
All of the shares bought back in the period were subsequently cancelled by the
Company.
The Board continues to pursue an active share buy-back policy which it
regularly reviews. Over the last few months the selling pressure on the
Company's shares has greatly diminished. Given this and the less uncertain and
less volatile outlook for valuation bases, the Board has determined to seek to
reduce the discount to NAV at which the Company's shares trade in the stock
market towards the level prevailing before the onset of the financial crisis.
As at 9 August 2010, the Company's shares were trading at a mid market price of
73.5 pence representing a discount of 14.8% to the NAV per share at 30 June
2010 of 86.3 pence.
Communicating with shareholders
The Company maintains a programme of regular communication with Shareholders
through newsletters and a dedicated website www.migvct.co.uk, supplementing the
Half-Yearly and Annual Reports. The Board welcomes the opportunity to meet
Shareholders at the Company's General Meetings during which representatives of
the Investment Manager are present to discuss the progress of the portfolio.
The next AGM of the Company will be held in May 2011.
The Board and Investment Manager are arranging a workshop for Shareholders to
have the opportunity to hear about the Company's investment activity in greater
depth. This is planned to be in Central London in December 2010 and all
Shareholders will receive an invitation to attend once details are finalised.
BVCA awards
We are very pleased that two of the companies in the VCT's portfolio have
successfully won awards in their local regions to reach the national finals of
the British Venture Capital Association ("BVCA") Portfolio Company Management
Awards 2010. DiGiCo Europe won the International Impact category in London and
the South East and the PastaKing exit was a successful award winner in the
South West. The regional winners will go through to the national finals to be
held on 30 September 2010.
Outlook
The worst of the economic and financial crisis now appears to be behind us.
Economic activity has recovered from the depths of last year's recession.
Although economic growth may be much less robust going forward than we have
been used to in previous cycles, particularly as the coalition government
presses ahead with its plans to reduce public sector spending, the business
environment may now have entered a more stable period in terms of planning for
the future. The election of a new government in the UK and the recent emergency
budget have also helped to remove some of the previous uncertainties. This may
re-awaken the appetite for financial transactions at mutually acceptable
valuations in the UK small companies sector. Indeed, the Investment Manager is
seeing a greater number of good quality investment opportunities now than at
any time in the past two years.
As noted above, the Company has a strong cash position and will, therefore, be
a well-positioned buyer of attractive businesses at the right prices when
conditions improve. The Board continues to believe that the patience of the
Investment Manager and the patience of our Shareholders should be rewarded over
the medium term
Linked Matrix fundraising
The Company will be participating in a linked top-up with Matrix Income &
Growth 4 VCT plc and The Income & Growth VCT plc that is planned to launch
later this year. The funds raised should further increase market liquidity and
further spread fixed running costs over a larger asset base. Details of the
Offer will be posted to shareholders later in the year.
Finally, I would like to thank all of our Shareholders for their continuing
support.
Keith Niven
Chairman
Principal risks and uncertainties
In accordance with Disclosure and Transparency Rule (DTR) 4.2.7, the Board
confirms that the principal risks and uncertainties facing the Company have not
materially changed since the publication of the Annual Report and Accounts for
the year ended 31 December 2009. The Board acknowledges that there is
regulatory risk and continues to manage the Company's affairs in such a manner
as to comply with section 274 Income Tax Act 2007. The principal risks faced by
the Company are:
* economic risk;
* investment and strategic risk;
* regulatory risk (including VCT status);
* financial and operating risk;
* market risk;
* asset liquidity risk;
* market liquidity risk;
* credit/counterparty risk.
A more detailed explanation of these can be found in the Directors' Report on
pages 14 - 15 and in Note 20 on pages 43 - 49 of the Annual Report and Accounts
for the year ended 30 December 2009, copies of which are available on the VCT's
website, www.migvct.co.uk.
Related Party Transactions
Details of related party transactions in accordance with DTR 4.2.8 can be found
in Note 14 to the Accounts below.
Responsibility Statement
In accordance with DTR 4.2.10 the Directors confirm that to the best of their
knowledge:
a. the condensed set of financial statements, which has been prepared in
accordance with the statement, "Half-Yearly Reports", issued by the
Accounting Standards Board, gives a true and fair view of the assets,
liabilities, financial position and profit of the Company, as required by
DTR 4.2.4; and
b. the interim management report, included within the Chairman's Statement,
Investment Policy, Investment Portfolio Summary and the Investment
Manager's Review includes a fair review of the information required by DTR
4.2.7 being an indication of the important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements.
c. a description of the principal risks and uncertainties facing the Company
for the remaining six months is set out above, in accordance with DTR
4.2.7; and
d. the financial statements include a description of the related party
transactions in the first six months of the current financial year that
have materially affected the financial position or performance of the
Company during the period, and any material changes to the related party
transactions since the last Annual Report, in accordance with DTR 4.2.8.
Cautionary Statement
This report may contain forward looking statements with regard to the financial
condition and results of the Company, which are made in the light of current
economic and business circumstances. Nothing in this report should be construed
as a profit forecast.
On behalf of the Board
Keith Niven
Chairman
Investment Policy
The VCT's policy is to invest primarily in a diverse portfolio of UK unquoted
companies. Investments are structured as part loan and part equity in order to
receive regular income and to generate capital gains from trade sales and
flotations of investee companies.
Investments are made selectively across a number of sectors, primarily in
management buyout transactions ("MBOs") i.e. to support incumbent management
teams in acquiring the business they manage but do not own. Investments are
primarily made in companies that are established and profitable.
Uninvested funds are held in cash and lower risk money market funds.
* UK Companies
The companies in which investments are made must have no more than £15 million
of gross assets at the time of investment to be classed as a VCT qualifying
holding.
* VCT regulation
The investment policy is designed to ensure that the VCT continues to qualify
and is approved as a VCT by HMRC. Amongst other conditions, the VCT may not
invest more than 15% of its investments in a single company and must have at
least 70% by value of its investments throughout the period in shares or
securities comprising Qualifying Holdings, of which a minimum overall of 30% by
value must be ordinary shares which carry no preferential rights. In addition,
although the VCT can invest less than 30% of an investment in a specific
company in ordinary shares it must have at least 10% by value of its total
investments in each Qualifying Company in ordinary shares which carry no
preferential rights.
* Asset mix
The VCT holds funds awaiting investment in a portfolio of readily realisable
interest-bearing investments and deposits. The investment portfolio of
qualifying investments will be maintained at approximately 80% of net assets.
* Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses across
different industry sectors. To reduce the risk of high exposure to equities,
each qualifying investment is structured using a significant proportion of loan
stock (up to 70% of the total investment in each VCT qualifying company).
Initial investments in VCT qualifying companies are generally made in amounts
ranging from £200,000 to £1 million at cost. Normally, no holding in any one
company will represent more than 10% of the value of the VCT's investments at
the time of investment. Ongoing monitoring of each investment is carried out by
the Investment Manager generally through taking a seat on the Board of each VCT
qualifying company.
* Co-investment
The VCT aims to invest in larger more mature unquoted companies through
investing alongside three other Income and Growth VCTs advised by the
Investment Manager with a similar investment policy. This enables the VCT to
participate in combined investments by the Investment Manager of up to £5
million.
* Borrowing
The VCT has no current plans to undertake any borrowing.
* Management
The Board has overall responsibility for the Company's affairs including the
determination of its investment policy. Investment and divestment proposals are
originated, negotiated and recommended by the Investment Manager and are then
subject to formal approval by the Directors. Matrix Private Equity Partners
also provides Company Secretarial and Accountancy services to the VCT.
Investment Manager's Review
Overview
The six month period to 30 June 2010 has seen a continuation of challenging
conditions both for completing new investments and for achieving exits. Faced
until recently with the uncertainties of the political environment, unstable
slow recovery from recession and a lack of clarity in the immediate aftermath
of the election, companies have generally been reluctant to market their
businesses for sale or raise new capital for expansion.
We are hopeful, however, that now that the new coalition administration has
laid out its plans for reducing the budget deficit, this will provide business
owners with the clarity they need to plan for the future. This should generate
a greater number of more attractively priced opportunities for us to consider.
We recruited an additional investment manager in the period and sustained our
marketing and deal origination programme. Nevertheless, sufficiently attractive
deals have continued to be difficult to complete. We continue to believe that
our cautious approach to new investment has been an important factor in
maintaining value in the Company. This environment is a risky time for new
investment and we have been and will remain highly selective.
Investment portfolio
The uplift in the portfolio valuation has been assisted by the improved
performance of three companies (ATG Media, British International and Racoon)
and a recent third party investment at a fourth (Monsal). ATG Media is seeing
excellent market response to its online auction facility. As a result of this,
the company is forecasting higher than budgeted profits for the current year.
British International is returning to historic levels of profitability after a
disappointing year in 2009. It is supplying helicopter support to the drilling
rig stationed in Falklands Islands' waters. Racoon has also shown material
profit growth as a result of more focussed marketing expenditure. A highlight
shortly after the period-end was the closing of a refinancing of Monsal that
brought in a new investor, FourWinds Capital, offering to invest £4 million at
a valuation significantly greater than our original cost and previous
valuation. Such negotiations were well advanced before the half-year end, and
this uplift in valuation has been reflected in these accounts.
£6 million of the investment cost is held in cash in the five acquisition
companies in the Operating Partner Programme. These companies are actively
seeking to acquire investments in the construction, food manufacturing and
healthcare and wellbeing sectors but so far have not found sufficiently
attractive investment transactions at the right price.
DiGiCo continues to show strong profit growth driven by new product development
and has paid back £135,172 loan stock plus a premium of £10,066 during the
period. Focus is also seeing increased success and anticipates continued growth
in profitability this year.
The three new investments completed over the last twelve months, CB Imports,
Iglu and Westway have all made strong starts and are all performing ahead of
their investment plans. We invested in CB Imports and Iglu in December 2009 and
we continue to hold these valuations at cost at this early stage.
Due to technical covenant breaches with their borrowing facilities and despite
their current profitable trading, six companies are not currently servicing
their VCT loan stock as at 30 June 2010. On the grounds of prudence none of
this interest owed has been accounted for. In certain cases we expect servicing
to resume and, in others, value to be recovered only on realisation.
Whilst the building and construction sector continues to suffer from sluggish
demand, the portfolio companies which are directly exposed to this sector,
Plastic Surgeon, Youngman, Blaze and PXP, are all now performing steadily. We
continue to work with existing businesses in the portfolio to encourage them to
make the changes that are necessary to ensure that they are in the best
possible position to withstand this period of economic uncertainty. It is a
measure of the success of this effort that the investment portfolio has
required hardly any additional funding despite the extreme challenges of the
past two years.
With the exception of Monsal, which is forecasting a modest loss, we expect all
of the companies in the portfolio to deliver operating profits (ie prior to
goodwill amortisation and servicing debt) in their current financial year.
Outlook
The UK economic environment continues to hold uncertainty but there are no
current signs of further threats to the financial health of our portfolio
companies. Overall, we expect to continue to be able to unlock additional value
over time. Smaller companies and the entrepreneurs that run them now have a
stable political and economic regime in which to plan for the future and this
should increase our dealflow. We are hopeful that many more investment
opportunities will become available at more attractive prices over the coming
months. Having retained strong cash reserves, the VCT is very well-placed to
take advantage at this point in the cycle.
Matrix Private Equity Partners LLP
Investment Portfolio Summary
as at 30 June 2010
Date of Total book Valuation % value of
initial cost * net assets
investment
£'000 £'000
Qualifying investments
AiM quoted investments
Legion Group plc (formerly Aug-05 150 30 0.09%
SectorGuard plc)
Provider of manned guarding, mobile
patrolling, and alarm response
services
----------- ----------- -----------
150 30 0.09%
Unquoted investments
DiGiCo Europe Limited Jul-07 1,985 3,114 8.86%
Designer and manufacturer of audio
mixing desks
British International Holdings May-06 2,026 2,351 6.69%
Limited
Supplier of helicopter services
ATG Media Holdings Limited Oct-08 1,668 2,012 5.72%
Publisher and on-line auction
platform operator
Aust Construction Investors Limited Oct-07 2,000 2,000 5.69%
Company seeking to acquire businesses
in the construction sector
CB Imports Group Limited (formerly Dec-07 2,000 2,000 5.69%
Calisamo Management Limited) Importer
and distributor of artificial flowers
and floral sundries
VSI Limited Apr-06 907 1,670 4.75%
Developer and marketer of 3D software
Focus Pharma Holdings Limited Oct-07 1,370 1,514 4.31%
Licensor and distributor of generic
pharmaceuticals
Iglu.com Holidays Limited (formerly Oct-07 1,422 1,422 4.04%
Barnfield Management Limited) On-line
ski and cruise travel agent
Monsal Holdings Limited Dec-07 1,310 2,248 6.39%
Supplier of engineering services to
water and waste sectors
Westway Services Holdings (2010) Jun-09 783 1,007 2.86%
Limited (formerly MC440 Limited)
Installation, maintenance and
servicing of air- conditioning
systems
Apricot Trading Limited Mar-08 1,000 1,000 2.85%
Company seeking to acquire businesses
in the market services and media
sector.
Bladon Castle Management Limited Dec-08 1,000 1,000 2.85%
Company seeking to acquire businesses
in the retailing, health and brand
management sector
Fullfield Limited Dec-08 1,000 1,000 2.85%
Company seeking to acquire businesses
in the food sector
Vanir Consultants Limited Oct-08 1,000 1,000 2.85%
Company seeking to invest in data
management, data mapping and
management services
Vectair Holdings Limited Jan-06 560 940 2.67%
Designer and distributor of washroom
products
Racoon International Holdings Limited Dec-06 1,213 789 2.24%
Supplier of hair extensions, hair
care products and training
Youngman Group Limited Oct-05 1,000 701 1.99%
Manufacturer of ladders and access
towers
Campden Media Limited Jan-06 975 380 1.08%
Magazine publisher and conference
organiser
Blaze Signs Holdings Limited Apr-06 1,700 363 1.03%
Manufacturer and installer of signs
Plastic Surgeon Holdings Limited Apr-08 479 186 0.53%
(The)
Supplier of snagging and finishing
services to the domestic and
commercial property markets
PXP Holdings Limited (Pinewood Dec-06 1,164 - 0.00%
Structures)
Designer, manufacturer, supplier and
installer of timber-frames for
buildings
----------- ----------- -----------
26,562 26,697 75.94%
----------- ----------- -----------
Total qualifying investments 26,712 26,727 76.03%
----------- ----------- -----------
Non-qualifying investments
Fidelity Institutional Cash Fund plc* 2,162 2,162 6.15%
*
Global Treasury Funds plc (Royal Bank 1,341 1,341 3.81%
of Scotland)**
Insight Liquidity Funds plc (HBOS)** 1,263 1,263 3.59%
SWIP Global Liquidity Fund plc 1,146 1,146 3.26%
(Scottish Widows)**
Institutional Cash Series plc 1,038 1,038 2.95%
(BlackRock)**
Sterling Liquidity First 844 844 2.40%
Institutional plc(Blackrock)**
GS Funds plc (Goldman Sachs)** 426 426 1.21%
----------- ----------- -----------
Total non-qualifying investments 8,220 8,220 23.37%
----------- ----------- -----------
Total investments 34,932 34,947 99.40%
Other assets 628 628 1.78 %
Current liabilities (415) (415) (1.18)%
----------- ----------- -----------
Net assets 35,145 35,160 100.00%
* Book cost includes the fair value of the qualifying investments acquired from
MIG 3 VCT plc on 20 May 2010 of £12,756,000 where still held at 30 June 2010,.
** Disclosed as `Investments at fair value' within `Current assets' in the
Balance Sheet.
Unaudited Income Statement
for the six months ended 30 June 2010
Six months ended 30 June 2010 Six months ended 30 June 2009
(unaudited) (unaudited)
Notes Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Unrealised gains/ 10 - 2,291,988 2,291,988 - (906,568) (906,568)
(losses) on
investments held at
fair value
Realised gains/ 10 - - - - 16,189 16,189
(losses) on
investments held at
fair value
Income 3 437,524 - 437,524 223,535 - 223,535
Recoverable VAT - - - 1,939 5,818 7,757
Investment 4 (54,589) (163,766) (218,355) (37,150) (111,451) (148,601)
management expense
Other expenses 5 (177,021) - (177,021) (160,440) - (160,440)
Merger costs 5 (88,670) - (88,670) - - -
------------- ------------- ------------- ------------- ------------- -------------
Profit/(loss) on 117,244 2,128,222 2,245,466 27,884 (996,012) (968,128)
ordinary activities
before taxation
Tax on profit/(loss) 6 (162) - (162) (1,670) 2,691 1,021
on ordinary
activities
------------- ------------- ------------- ------------- ------------- -------------
Profit/(loss) 117,082 2,128,222 2,245,304 26,214 (993,321) (967,107)
attributable to
equity shareholders
------------- ------------- ------------- ------------- ------------- -------------
Basic and diluted 7 0.47p 8.47p 8.94p 0.13p (4.79)p (4.66)p
earnings per share
Year ended 31 December 2009
(audited)
Notes Revenue Capital Total
£ £ £
Unrealised - (161,173) (161,173)
gains/(losses)
on investments
held at fair
value
Realised gains - (177,845) (177,845) /(losses) on
investments
held at fair
value
Income 3 399,661 - 399,661
Recoverable 1,939 5,818 7,757
VAT
Investment 4 (79,923) (239,769) (319,692)
management
expense
Other expenses (312,239) - (312,239)
Merger costs - - -
------------- ------------- -------------
Profit/(loss) 9,438 (572,969) (563,531)
on ordinary
activities
before
taxation
Tax on profit/ 6 (641) - (641)
(loss) on
ordinary
activities
------------- ------------- -------------
Profit/(loss) 8,797 (572,969) (564,172)
attributable
to equity
shareholders
------------- ------------- -------------
Basic and 7 0.04p (2.77)p (2.73)p
diluted
earnings per
share
All revenue and capital items in the above statement derive from continuing
operations of the Company. This includes the assets, liabilities and activities
of Matrix Income & Growth 3 VCT plc after they were transferred to the Company
on 20 May 2010. No restatement has been made for comparable periods.
The total column of this statement is the Profit and Loss account of the
Company.
There were no other recognised gains or losses in the period.
Other than revaluation movements arising on investments held at fair value
through profit and loss, there were no differences between the profit/(loss) as
stated above and at historical cost.
The notes below form part of these half-yearly financial statements.
Unaudited Balance Sheet
as at 30 June 2010
As at As at As at
30 June 2010 * 30 June 2009 31 December 2009
(unaudited) (unaudited) (audited)
Notes £ £ £
Non-current assets
Investments at fair 1c, 26,727,418 12,818,934 11,779,583
value 10
Current assets
Debtors and 322,022 76,696 94,327
prepayments
Current Investments 11 8,219,791 3,980,136 5,177,570
Cash at bank 305,798 57,594 46,253
-------------------- -------------------- --------------------
8,847,611 4,114,426 5,318,150
Creditors: amounts (414,805) (216,509) (118,363)
falling due within one
year
-------------------- -------------------- --------------------
Net current assets 8,432,806 3,897,917 5,199,787
-------------------- -------------------- --------------------
Net assets 35,160,224 16,716,851 16,979,370
-------------------- -------------------- --------------------
Capital and reserves 12
Called up share 407,673 206,241 203,735
capital
Capital redemption 19,487 15,197 17,703
reserve
Share Premium account 16,852,849 - -
Revaluation reserve 15,201 (2,023,784) (2,271,608)
Special distributable 17,639,263 18,178,797 17,907,374
reserve
Profit and loss 225,751 340,400 1,122,166
account
-------------------- -------------------- --------------------
Equity shareholders' 35,160,224 16,716,851 16,979,370
funds
Net asset value per 9 86.25p 81.06p 83.34p
Ordinary Share
* Includes those assets and liabilities acquired from Matrix Income & Growth 3
VCT plc on 20 May 2010.
The notes below form part of these half-yearly financial statements.
Unaudited Reconciliation of Movements in Shareholders' Funds
for the six months ended 30 June 2010
Six months ended Six months ended Year ended
30 June 2010 30 June 2009 31 December 2009
(unaudited) (unaudited) (audited)
Notes £ £ £
Opening Shareholders' 16,979,370 17,998,562 17,998,562
funds
Purchase of own (104,345) (106,617) (247,033)
shares
Shares issued upon 17,111,546 - -
merger with Matrix
Income & Growth 3 VCT
plc
Stamp duty on shares (52,975) - -
issued
Profit/(loss) for the 2,245,304 (967,107) (564,172)
period before
dividends
Dividends paid in 8 (1,018,676) (207,987) (207,987)
period
-------------------- -------------------- --------------------
Closing Shareholders' 35,160,224 16,716,851 16,979,370
funds
The notes below form part of these half-yearly financial statements.
Unaudited Summarised Cash Flow Statement
for the six months ended 30 June 2010
Six months ended Six months ended Year ended
30 June 2010 30 June 2009 31 December 2009
(unaudited) (unaudited) (audited)
£ £ £
Operating activities
Investment income 242,837 247,798 398,184
received
VAT recovered - 207,757 223,249
Investment management (173,535) (101,242) (239,743)
fees paid
Other cash payments (244,374) (182,208) (357,430)
Payment of merger costs (36,247) - -
of the Company
-------------------- -------------------- --------------------
Net cash inflow/ (211,319) 172,105 24,260
(outflow) from operating
activities
Investing activities
Acquisitions of - (386,016) (567,834)
investments
Disposals of investments 154,739 233,581 1,996,610
-------------------- -------------------- --------------------
Net cash inflow/(outflow) 154,739 (152,435) 1,428,776
from investing activities
Dividends
Equity dividends paid (1,018,676) (207,987) (207,987)
Taxation
Taxation repaid/(paid) - - (106,857)
-------------------- -------------------- --------------------
Cash inflow/(outflow) (1,075,256) (188,317) 1,138,192
before financing and
liquid resource
management
Management of liquid
resources
(Increase)/decrease in (3,042,221) 395,588 (801,846)
current investments
Financing
Cash received on 4,561,289 - -
acquisition of net assets
from Matrix Income &
Growth 3 VCT plc
Stamp duty on shares (52,975) - -
issued to acquire net
assets of Matrix Income &
Growth 3 VCT PLC
Payments to meet merger (90,295) - -
costs of Matrix Income &
Growth 3 VCT plc
Share capital bought back (40,997) (221,489) (361,905)
-------------------- -------------------- --------------------
Net inflow/(outflow) from 4,377,022 (221,489) (361,905)
financing activities
-------------------- -------------------- --------------------
Increase/(decrease) in 259,545 (14,218) (25,559)
cash for the period
-------------------- -------------------- --------------------
Reconciliation of profit/(loss) on ordinary activities before taxation to net
cash (outflow)/ inflow from operating activities
for the six months ended 30 June 2010
Six months ended Six months ended Year ended
30 June 2010 30 June 2009 31 December 2009
(unaudited) (unaudited) (audited)
£ £ £
Profit/(loss) on ordinary 2,245,466 (968,128) (563,531)
activities before
taxation
Net unrealised (gains)/ (2,291,988) 906,568 177,845
losses on investments
Net (gains)/losses on - (16,189) 161,173
realisations of
investments
(Increase)/decrease in (131,776) 296,120 287,990
debtors
Decrease in creditors (33,021) (46,266) (39,217)
-------------------- -------------------- --------------------
Net cash (outflow)/inflow (211,319) 172,105 24,260
from operating activities
-------------------- -------------------- --------------------
Notes to the Unaudited Financial Statements
1. Principal accounting policies
The following accounting policies have been applied consistently throughout the
period. Full details of principal accounting policies will be disclosed in the
Annual Report.
a) Basis of accounting
The unaudited results cover the six months to 30 June 2010 and have been
prepared under UK Generally Accepted Accounting Practice (UK GAAP), consistent
with the accounting policies set out in the statutory accounts for the year
ended 31 December 2009 and the 2009 Statement of Recommended Practice,
`Financial Statements of Investment Trust Companies and Venture Capital Trusts'
('the SORP') issued by the Association of Investment Companies in January 2009.
The results for the period to 20 May 2010 reflect the activities of the
Company. On this date the assets and liabilities of Matrix Income & Growth 3
VCT plc were acquired by the Company and therefore the results for the
remaining period to 30 June 2010 reflect the activities of the enlarged entity.
Further details are contained in note 13 below.
The Half-Yearly Report has not been audited, nor has it been reviewed by the
auditors pursuant to the Auditing Practices Board (APB)'s guidance on Review of
Interim Financial Information.
b) Presentation of the Income Statement
In order to better reflect the activities of a VCT and in accordance with the
SORP, supplementary information which analyses the Income Statement between
items of a revenue and capital nature has been presented alongside the Income
Statement. The revenue column of profit attributable to equity shareholders is
the measure the Directors believe appropriate in assessing the Company's
compliance with certain requirements set out in Section 274 Income Tax Act
2007.
c) Investments
Investments are accounted for on a trade date basis.
All investments held by the Company are classified as "fair value through
profit and loss" 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 in organised financial markets,
recognition and fair value is determined by reference to Stock Exchange market
trading rules and quoted bid prices at the close of business on the balance
sheet date.
Unquoted investments are valued by the Directors at `fair value through profit
and loss'. Accordingly, in the absence of a market price, the Directors have
valued unquoted investments in accordance with International Private Equity
Venture Capital Valuation (IPEVCV) guidelines as updated in September 2009,
which have not materially changed the results reported last year.
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) 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 amortization (the ratio used being based
on a comparable sector but the resulting value being adjusted to reflect points
of difference identified by the Investment 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 Investment 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. Capital gains and losses on investments, whether realised or unrealised, are
dealt with in the profit and loss and revaluation reserves and movements in the
period are shown in the Income Statement.
3. Income
Six months ended Six months ended Year ended
30 June 2010 30 June 2009 31 December 2009
(unaudited) (unaudited) (audited)
£ £ £
Dividends 161,067 19,933 26,345
Money-market funds 12,684 26,171 37,254
Loan stock interest 263,613 161,602 315,598
Bank deposits 160 337 919
Interest on VAT - 15,492 15,492
recovered
Other Income - - 4,053
-------------------- -------------------- --------------------
Total Income 437,524 223,535 399,661
4. Investment management expense
In accordance with the policy statement published under "Management and
Administration" in the Company's prospectus dated 9 July 2004, the Directors
have charged 75% of the investment management expense to the capital reserve.
5. Merger costs
Based upon estimated total merger costs of £285,000 to merge the Company with
Matrix Income & Growth 3 VCT plc, the Company's share of these costs is £
141,975. This includes £52,975 of stamp duty, charged to the share premium
account, as shown in note 12. The balance of £88,670 is disclosed as merger
costs in the Income Statement. Final figures for the costs of the merger are
not yet available, but at this stage, the Board expects that the final costs
will be close to those currently estimated in total.
6. Taxation
Other than a small charge for deferred tax, there is no tax charge for the
period as the Company has incurred taxable losses.
7. Basic and diluted earnings and return per share
The basic and diluted earnings, revenue return and capital return per share
shown below for each period are respectively based on numerators i)-iii), each
divided by the weighted average number of shares in issue in the period - see
iv) below.
Six months ended Six months ended Year ended
30 June 2010 30 June 2009 31 December 2009
(unaudited) (unaudited) (audited)
£ £ £
i) Total earnings after 2,245,304 (967,107) (564,172)
taxation
Basic and diluted 8.94p (4.66)p (2.73)p
gain/(loss) per o
rdinary share (pence)
ii) Net revenue from 117,082 26,214 8,797
ordinary activities
after taxation
Basic and diluted 0.47p 0.13p 0.04p
revenue per ordinary
share (pence)
Net unrealised gains/ 2,291,988 (906,568) (161,173)
(losses)
Net realised capital - 16,189 (177,845)
gains/(losses).
Capital element of - 5,818 5,818
VAT recoverable
Dividends received - - -
treated as capital
Capital expenses (net (163,766) (108,760) (239,769)
of taxation)
-------------------- -------------------- --------------------
iii) Total capital return 2,128,222 (993,321) (572,969)
Capital gain/(loss) 8.47p (4.79)p (2.77)p
per ordinary share
(pence)
iv) Weighted average 25,118,886 20,743,911 20,648,175
number of shares in
issue in the period
8. Dividends paid
Six months ended Six months ended Year ended
30 June 2010 30 June 2009 31 December 2009
(unaudited) (unaudited) (audited)
£ £ £
Interim income dividend 101,868 - -
for the year ended 31
December 2009 of 0.5p per
share
Interim capital dividend 916,808 - -
for the year ended 31
December 2009 of 4.5p per
share
Final income dividend - 207,987 207,987
paid for year ended 31
December 2008 of 1.0p per
share
-------------------- -------------------- --------------------
1,018,676 207,987 207,987
9. Net asset value per ordinary share
As at As at As at
30 June 2010 30 June 2009 31 December 2009
(unaudited) (unaudited) (audited)
Net assets £35,160,224 £16,716,851 £16,979,370
Number of shares in issue 40,767,266 20,624,052 20,373,514
Net asset value per share 86.25p 81.06p 83.34p
(pence)
10. Summary of non-current investments at fair value during the period
Traded Unquoted Unquoted Loan Total
on AiM equity preference stock
shares shares
£ £ £ £ £
Valuation at 1 January 75,045 4,009,273 7,981 7,687,284 11,779,583
2010
Investments acquired as - 4,791,342 5,033 8,004,709 12,801,084
part of the acquisition
of the assets and
liabilities of Matrix
Income & Growth 3 VCT
plc at fair value (see
note).
Sales - proceeds - - - (145,237) (145,237)
Unrealised (losses)/ (45,028) 1,455,761 1,750 879,505 2,291,988
gains
-------------- -------------- -------------- -------------- --------------
Valuation at 30 June 30,017 10,256,376 14,764 16,426,261 26,727,418
2010
Book cost at 30 June 150,106 8,425,598 51,245 18,085,268 26,712,217
2010
Unrealised (losses)/ (120,089) 1,830,778 (36,481) (1,659,007) 15,201
gains at 30 June 2010
-------------- -------------- -------------- -------------- --------------
Valuation at 30 June 30,017 10,256,376 14,764 16,426,261 26,727,418
2010
Gains on investments
Realised gains based on - - - 5,179 5,179
historical cost
Less amounts recognised - - (5,179) (5,179)
as unrealised gains in
previous years
-------------- -------------- -------------- -------------- --------------
Realised gains based on - - - - -
carrying value at 31
December 2009
Net movement in (45,028) 1,455,761 1,750 879,505 2,291,988
unrealised (losses)/
gains in the period
-------------- -------------- -------------- -------------- --------------
(Losses)/gains on (45,028) 1,455,761 1,750 879,505 2,291,988
investments at 30 June
2010
Note: The original cost of these assets in the books of Matrix Income & Growth
3 VCT plc was £13,152,238, being £361,154 more than the transfer at fair value
shown above.
11. Current investments at fair value
These comprise investments in seven Dublin based OEIC money market funds
managed by Royal Bank of Scotland, Blackrock Investment Management (two funds),
Goldman Sachs, Insight Investment Management, Scottish Widows Investment
Management and Fidelity Investment Management. All of these sums are subject to
same day access.
12. Capital and reserves
Called up Capital Share Revaluation Special Profit and Total
share redemption Premium reserve distributable loss
capital reserve reserve reserve account
£ £ £ £ £ £ £
At 1 January 203,735 17,703 - (2,271,608) 17,907,374 1,122,166 16,979,370
2010
Shares bought (1,784) 1,784 - - (104,345) - (104,345)
back
Written off - - - - (163,766) 163,766 -
to special
reserve
Realisation - - - (5,179) - 5,179 -
of previously
unrealised
appreciation
Dividend - - - - - - (1,018,676) (1,018,676)
final for
year ended 31
December 2009
Shares issued 205,722 - 16,905,824 - - - 17,111,546
on 20 May
2010 to
acquire net
assets of
Matrix Income
& Growth 3
VCT plc
Stamp duty on - - (52,975) - - - (52,975)
shares issued
Profit for - - - 2,291,988 - (46,684) 2,245,304
the period
---------- ---------- ---------- ---------- ---------- ---------- ----------
At 30 June 407,673 19,487 16,852,849 15,201 17,639,263 225,751 35,160,224
2010
---------- ---------- ---------- ---------- ---------- ---------- ----------
13. Acquisition of assets and liabilities of Matrix Income & Growth 3 VCT plc
On 20 May 2010, the assets and liabilities of Matrix Income & Growth 3 VCT plc
were transferred to the Company in exchange for the issue of a further
20,572,129 Ordinary Shares in the Company, at a total value of £17,111,545.
Subsequently and on the same day, Matrix Income & Growth 3 VCT plc was placed
into members' voluntary liquidation pursuant to a scheme of reconstruction
under section 110 of the Insolvency Act 1986.
The net asset values (NAV) per share of each fund used for the purposes of
conversion at the calculation date of 19 May 2010, and the resultant conversion
ratios into Ordinary Shares were:
NAV per share Conversion ratio applied to
(pence) Matrix Income & Growth 3 VCT plc
ordinary shares to obtain new
number of Matrix Income & Growth
VCT plc
Ordinary Shares
Matrix Income & Growth VCT 83.18 1.0000000
plc
Matrix Income & Growth 3 88.63 1.0655542
VCT plc
Share certificates reflecting the new shareholdings totalling 20,572,129
Ordinary Shares in Matrix Income & Growth VCT plc were sent to shareholders on
26 May 2010.
14. Related party transactions
Bridget Guérin is a shareholder (2.0%) of Matrix Group Limited, which owns 100%
of the equity of MPE Partners Limited and Matrix Securities Limited. MPE
Partners Limited has a 50% interest in Matrix Private Equity Partners LLP
('MPEP'), the Company's Investment Manager. Following a re-organisation of the
Matrix group of companies, MPEP now provides administration as well as
investment management services under the terms of an Investment Management
Agreement dated 20 May 2010. The revised annual fee is 2% of net assets plus £
120,000 per annum, the latter inclusive of VAT and subject to increase in RPI.
Until that date, Matrix-Securities Limited provided Company Secretarial and
Accountancy Services to the Company under agreements dated 9 July 2004 for a
fee of £35,590 (30 June 2009: £44,351; 31 December 2009: £88,387) in the
period.
15. The information for the year ended 31 December 2009 does not comprise full
financial statements within the meaning of Section 435 of the Companies Act
2006. The financial statements for the year ended 31 December 2009 have been
filed with the Registrar of Companies. The auditors have reported on these
financial statements and that report was unqualified and did not contain a
statement under section 498(2) of the Companies Act 2006.
16. This Half-Yearly 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 copies of the Report. Further copies are available free of charge
from the Company's registered office, One Vine Street, London W1J 0AH or can be
downloaded via the website.
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