Annual Financial Report
17 December 2010
The Income & Growth VCT plc
Annual Financial Results of the Company for the Year ended 30 September 2010
Investment Objective
The objective of The Income & Growth VCT plc ("I&G VCT" or "the
Company") is to provide investors with an attractive return, by maximising the
stream of dividend distributions from the income and capital gains generated
by a diverse and carefully selected portfolio of investments.
The Company invests in companies at various stages of development.
In some instances this may include investments in new and secondary issues of
companies which may already be quoted on the Alternative Investment Market
("AiM") or PLUS.
Financial Highlights
The net assets of the `O' and 'S' Share Funds were merged to form
one share class of Ordinary Shares on 29 March 2010. At that date, the net
assets of the merged VCT were £35.7 million, which have increased to £36.6
million at 30 September 2010.
The highlights during the year have been:-
- Strong liquidity has been maintained in the context of continuing market volatility
- Prior to the merger, dividends of 2p per `O' Share and 0.5p per `S' Share were paid
on 17 March 2010. The Board has declared an interim capital dividend of 2 pence per
share, and a final capital dividend of 2 pence per share will be recommended to
shareholders at the AGM. These payments will bring cumulative dividends paid to date
to 4.5 pence per share
- Decrease of 7.4% in share price total return to Shareholders (formerly `S' Shares)
- Increase of 6.8% in net asset value (NAV) total return to Shareholders (formerly `S' Shares)
- Increase of 6.0% in NAV total return to former `O' Share Fund shareholders
Performance Summary
The net asset value per share of the single class of Ordinary Shares existing
after the merger is 99.0 pence at 30 September 2010.
The merger was effected by converting the
relevant `O' Fund Shares into `S' Fund Shares using a conversion ratio of
0.758. All the issued and unissued `S' Fund Shares were subsequently
redesignated as Ordinary Shares on a 1 for 1 basis. Further details explaining
the basis of the merger of the two share classes can be found in Note 8 to the
accounts below.
To help Shareholders in each former share class understand the trend in
performance of their investment, comparative data for each former share class
is shown below:-
Net NAV per Cumulative NAV total Share Share price
assets Share dividends return to price total return
(£m) (p) paid per shareholders (p) 2 to
share (p) since launch shareholders
per Share (p) (p)
Ordinary Share Fund (called the `S' Share Fund up until 29 March 2010)
As at 30 September
2010 1 36.6 99.0 0.5 99.5 87.0 87.5
As at 30 September
2009 11.0 93.2 0.0 93.2 94.5 94.5
As at 30 September
2008 11.2 94.6 0.0 94.6 100.0 100.0
At close of Offer
for subscription 11.2 94.5 0.0 94.5 100.0 100.0
Net assets NAV per Cumulative NAV total Share Share price
(£m) Share (p) Dividends return to price (p) 2 total
Paid per shareholders return to
Share(p) since launch shareholders
per Share (p) (p)
Former `O' Share Fund
As at 30 September 2010 1 - 75.0 22.5 97.5 - -
As at 30 September 2009 24.9 71.5 20.5 92.0 54.8 75.2
As at 30 September 2008 29.6 83.6 16.5 100.0 79.5 96.0
1 The data at 30 September 2010 shows the return on an initial
subscription price of 100p at the date of inception of each Fund taken from
the table below divided by £10,000.
2 Source: London Stock Exchange.
Return before and after tax relief
The tables below show the NAV total returns at 30
September 2010 for a shareholder in each original class that invested £10,000
at £1 a share at each Fund's inception.
BEFORE BENEFIT OF INITIAL INCOME TAX RELIEF
Fund Original Number of NAV at Dividends paid NAV total Profit/
investment shares held to return to (loss)
(10,000 post-merger 30 September 2010 shareholders shareholders before
shares at since since income
£1 each) (£) subscription subscription tax
relief 1
(£) (£) (£)
(£)
Ordinary Share
Fund 2007/08 2 10,000 10,000 9,900 50 9,950 (50)
Former `O' Share
Fund 2000/2001
10,000 7,578 7,502 2,245 9,747 (253)
1 NAV total return minus initial investment cost (before applicable
income tax relief)
2 Formerly `S' Share Fund
AFTER BENEFIT OF INITIAL INCOME TAX RELIEF
Fund Original Number of Rate of Cost net of NAV at 30 Dividends paid NAV total Profit/
investment shares held Income tax income tax September 2010 to shareholders return to (loss)
(10,000 shares post-merger relief relief since shareholders after
at £1 each) (£) subscription since income
subscription tax
(£) % (£) relief
(£) 2 (£)
(£)
Ordinary Share
Fund 2007/08 3 10,000 10,000 30% 7,000 9,900 50 9,950 2,950
Former `O' Share
Fund 2000/2001 10,000 7,578 20% 1 8,000 7,502 2,245 9,747 1,747
1 Additional capital gains tax deferral relief of up to £4,000
available to qualifying shareholders
2 NAV total return minus cost net of income tax relief
3 Formerly `S' Share Fund
Discount
The Board's current intention is to continue with
its existing buy-back policy with the objective of maintaining the discount to
NAV at which the shares trade at 10% or less. The current discount for the
Company's shares is 9.6%. The discount has therefore narrowed considerably
from 21.4% on 31 March 2010 following the merger.
Dividend history
In respect of year ended Dividends paid in each year since launch
Payment date Former `O' Shares Former `S' Shares
(p) per share (p) per share
30 September 2001 18 February 2002 1.20 pence -
30 September 2002 12 February 2003 1.75 pence -
30 September 2003 11 February 2004 1.25 pence -
30 September 2004 04 February 2005 1.25 pence -
30 September 2005 14 February 2006 0.75 pence -
30 September 2006 (interim) 14 February 2006 2.50 pence -
30 September 2006 15 February 2007 0.75 pence -
30 September 2007 (interim) 15 February 2007 3.00 pence -
30 September 2007 (interim) 24 October 2007 2.00 pence -
30 September 2007 15 February 2008 2.00 pence -
30 September 2008 16 February 2009 4.00 pence -
30 September 2009 17 March 2010 2.00 pence 0.5 pence
---------------- -------------
Cumulative dividends paid prior to the merger 22.45 pence 0.5 pence
Dividends paid include distributions from both income and capital.
Dividends proposed
The Directors have declared an interim capital dividend of 2.00
pence per share for the year ended 30 September 2010 to be paid to
Shareholders on the Register on 28 January 2011, on 22 February 2011.
A final capital dividend of 2 pence per share will be recommended
to Shareholders at the Annual General Meeting of the Company to be held on 16
February 2011 to be paid to Shareholders on the Register on 4 March 2011, on
28 March 2011.
Chairman's Statement
I am pleased to present the annual financial results of the Company
for the year ended 30 September 2010.
The last year has been dominated by the continuing problems in the
global economy. Earlier in the year in the UK, the economic problems were
overshadowed by the uncertainty surrounding the outcome of the General
Election and, more recently, by the widely debated public sector spending
cuts. There were signs earlier in 2010 that confidence may have been returning
but more recently there has been renewed volatility and uncertainty,
particularly as a result of the Irish and Greek debt problems.
Merger of the 'O' and 'S' Share classes
In my recent Half-Year Report, I reported that the Company had
successfully achieved a simpler single share class structure earlier in the
year. All the Resolutions which were proposed at the Extraordinary General
Meeting of the Company held on 26 March 2010 and at the separate class
meetings held on 29 March 2010 were duly passed.
The former 'O' and 'S' Share classes of the Company were merged
following Shareholder approval. The ratio used for the conversion of former
`O' Shares into new Ordinary Shares was 0.758. Former 'S' Shares were
converted into Ordinary Shares on a 1 for 1 basis. Shareholders were issued
with new share certificates on 5 April 2010.
Performance
As at 30 September 2010 the Company's NAV per Ordinary Share was
99.0 pence (30 September 2009: 93.2 pence). Adjusted for dividends paid to
Shareholders during the year, this represents an increase of 6.8% (7.8% in
respect of the former `O' Share Fund) over the twelve month period. This
compares with an increase of 3.7% in the FTSE SmallCap Index and a rise of
21.0% in the FTSE AiM All-Share Index, both on a capital return basis.
This result is a combination of increased value in some of the
portfolio companies, together with some recovery, highlighting the tendency
for unquoted asset portfolios to lag the trends seen in the main quoted
indices.
Cumulative dividends paid to date amount to 22.45 pence per former
'O' Share and 0.5 pence per former 'S' Share.
The portfolio
During the twelve months under review sector price earnings
multiples in those areas of the quoted market (by reference to which unquoted
investments are frequently valued) in which the Company is invested, have
varied sharply. By way of example, whilst the Personal Goods sector has seen a
104% increase over this period the Construction & Materials and Food Producers
sectors have fallen sharply by 32% and 37% respectively.
Overall, the portfolio showed a net increase of £3.0 million over
the year. The significant contributors to this increase were Amaldis, Digico,
Iglu, Camwood, Westway, British International, Monsal and ATG Media.
The MPEP invested portfolio at 30 September 2010 comprised 31
investments with a total cost of £19.9 million and valued at £22.9 million
representing an uplift of 14.5% on cost at the year-end. Realisations during
the year generated total gross disposal proceeds of some £1.3 million.
Two new investments were completed in December 2009 both of which
have been trading strongly since investment. The first investment was C B
Imports Group, an importer and distributor of artificial flowers, floral
sundries and home décor products, trading under the name of Country Baskets.
The Company invested £1 million into this company. The second new investment
was into Iglu.com Holidays, the UK's largest specialist ski holiday and fast
growing cruise holiday travel agent. The Company invested £1 million to
support the MBO and recapitalisation of this Wimbledon based company. Iglu.com
has made a strong start and is trading currently ahead of plan.
Following the year-end, the VCT has made two new investments and
made a commitment to invest in a third company.
In the first of these, the Company used its investment of £1
million in the investment vehicle, Aust, to support the MBO of RDL Recruitment
Corporation a European recruitment provider within the pharmaceutical,
business intelligence and IT sectors. The VCT's total investment in this
company, which has since changed its name to Aust Recruitment Group Limited,
now stands at £1.4 million.
Secondly, the VCT invested £487,744 to support the MBO of Faversham
House Group Limited, an established, family-owned media company providing
magazines, exhibitions and online resources in the environment and
sustainability, visual communications and building services sectors.
The VCT has also made a commitment to invest £280,000 into the AIM
listed company Omega Diagnostics Group Plc, which provides high quality
in-vitro diagnostics products for use in hospitals, blood banks, clinics and
laboratories in over 100 countries and specialises in the areas of food
intolerance, autoimmune disease and infectious disease.
It is a measure of the success of the Manager's efforts that the
portfolio has required only £514,314 of additional funding despite the
challenges that investee companies have faced. In November 2009, the Company
participated in a follow-on investment into British International Holdings
(BIH) investing £90,909 to provide additional working capital. BIH has enjoyed
improved trading during 2010 with particularly good revenue from oil and gas
support work in the Falklands Islands. The Company also made an additional
loan stock and equity investment totalling £421,688 into HWA Group in January
2010. The investment was made as part of a re-financing and Rights Issue to
provide additional working capital. However, since investment, the company
continues to contend with deteriorating conditions in its sector with little
sign of an upturn. A small additional investment of £1,717 was also made into
Monsal as part of a re-financing round by a new third party investor.
In November 2009 the Company sold its investment in PastaKing
Holdings for gross proceeds of £793,853. This realisation contributed to total
proceeds over the life of this investment of £955,042, representing a 3.27x
return on the original investment cost of £292,405. The Company's investment
in Stortext FM was sold to Box-it Storage Group Limited in February 2010 for
£2,562. This had carried a nil valuation prior to sale.
A number of other investee companies have also been trading strongly and a
total of £372,724 has been returned to the Company during the year under
review in partial loan stock repayments. DiGiCo Europe returned a total of
£188,502 in loan stock repayments plus a premium of £14,037; Westway repaid a
total of £137,064 of loan stock plus a premium of £34,575 during the year and
Monsal repaid £47,158 in July as part of the closing of a second investment
round.
Since the year-end, Westway has repaid part of its loan stock realising
£99,681 proceeds, of which £31,148 was premium and ATG Media has made a
partial repayment of £111,111.
The ex Foresight portfolio continues in the main to find these
economic trading conditions difficult and is currently showing a valuation
deficit of some £5.8m as against cost. The exception to this is Camwood which
is currently trading strongly and is valued at some £1.15m above cost.
Cash available for investment
During the economic turmoil, both the Board and the Manager have continued to
work to ensure that our cash deposits continue to remain as secure as
possible. We have for some time been spreading our significant cash deposits
with a number of the leading global cash funds rather than depositing directly
to individual banks, thereby reducing our exposure to any one particular bank.
However, the current low level of interest rates on cash deposits means that
it will continue to be difficult for the Company to pay dividends out of
income. The Board and Manager both strongly believe that at this time the
security and protection of the Company's capital is more important than
striving for a small increase in deposit rates at the cost of much higher
risk.
Cash and liquidity fund balances as at 30 September 2010 amounted
to £8,815,109. In addition, a further £7 million has been invested into a
series of acquisition vehicles pending further investment. (This figure was
reduced to £6 million after the year-end following the Company's investment in
Aust Recruitment Group as outlined above).
Revenue Account
The Revenue account has become negative this year, falling from a
return last year of £193,683 to a loss of £50,860 this year, for several
exceptional reasons. However, for the future, there are some encouraging
trends.
The Company suffered falls in income from liquid deposits of
£218,465 due mainly to particularly low levels of interest rates. Other
expenses increased by £77,592, due to two non-recurring factors: firstly, they
include the costs of merging the two funds although the completion of the
merger is already starting to yield the benefits of greater simplicity and
administrative efficiencies. Secondly, trail commission expenses have
increased by a one-off item, estimated at £36,000, by bringing forward
recognition of the full year liability this year. The new management agreement
has also caused a re-allocation of some costs previously treated as
administrative to investment management expenses.
Dividends received have remained broadly constant at £200,605, when
compared to last year's total of £199,022. Loan stock interest has increased
by £42,266 to £442,132.
Finally, some further VAT income has been received, as previous
managers completed their recovery of VAT from HM Revenue and Customs. No more
income is now anticipated from this source.
Dividend
An interim capital dividend in respect of the year ended 30
September 2010 of 2 pence per Ordinary Share was announced on 4 November 2010.
The dividend will be paid, to Shareholders on the Register on 28 January 2011,
on 22 February 2011.
A final capital dividend of 2 pence per Ordinary Share will be
recommended to Shareholders at the Annual General Meeting of the Company to be
held on 16 February 2011 for payment to Shareholders on the register on 4
March 2011 on 28 March 2011.
The Company's Dividend Investment Scheme will apply to both of
these dividends and elections under the Scheme should be received by the
Scheme Administrator, Capita Registrars, by no later than Monday, 7 February
2011 in the case of the interim dividend and Monday, 14 March 2011 in the case
of the final dividend.
Share buy-backs
During the year ended 30 September 2010, and prior to the merger of
`O' and `S' Shares on 29 March 2010 ("the Merger"), the Company bought back
369,937 (year to 30 September 2009: 754,444) `O' Shares (representing 1.1%
(year to 30 September 2009: 2.1%) of the `O' Shares in issue at the beginning
of the year) at a cost of £175,456 (year to 30 September 2009: £353,751). No
`S' Shares were purchased during this period.
Following the Merger, the Company bought back 1,037,821 new
Ordinary Shares (representing 2.7% of the new Ordinary Shares in issue on the
date of the merger) at a cost of £790,660.
The Board regularly reviews its buyback policy and, given the less
volatile outlook for the valuation of the portfolio, has undertaken to reduce
the discount to NAV at which the Company's shares trade. At 16 December 2010,
the mid-market price for the Company's Shares was 89.5 pence, representing a
discount of 9.6% to the NAV prevailing at 30 September 2010.
Fundraising
You will have seen recently that the Company is participating in a
linked fundraising with Matrix Income & Growth VCT plc and Matrix Income &
Growth 4 VCT plc which was launched on 12 November 2010. The funds raised will
bolster the Company's strong cash position to capitalise on new investment
opportunities and spread our fixed running costs over a larger asset base.
Details of the Offer have already been posted to Shareholders.
The Board
As advised in the previous report, the new provisions of the
listing rules with regard to the independence of directors came into effect
for VCTs just before the year-end. As a result, Christopher Moore resigned as
a Director of the Company and as Chairman of the Audit Committee at the end of
September 2010. I would like to thank Christopher for his invaluable advice
and support throughout his period as a Director and for his leadership and
guidance as Chairman of the Audit Committee.
I am delighted to report that on 1 August 2010, Jonathan Cartwright
was appointed to the Board and took over the role of Chairman of the Audit
Committee on 24 September 2010. Jonathan qualified as a Chartered Accountant.
He has significant experience of the investment trust sector and of serving on
the boards of both public and private companies in executive and non-executive
roles. Jonathan joined Caledonia Investments plc in 1989, serving as Finance
Director from 1991 to December 2009 and Group Financial Controller at Hanson
plc from 1984 to 1989. He was a non-executive Director of Bristow Group Inc.
from 1996 to 2009 and has been a non-executive director of Serica Energy plc
from 2008 to date. Jonathan has served on the Self-Managed Investment Trust
Committee of the Association of Investment Companies (to December 2009).
Outlook
The Chairman of the US Federal Reserve recently delivered a bleak
prognosis for the US economy, firming up the likelihood of a further round of
quantitative easing to battle economic slowdown and rising unemployment and to
head off the risk of a downward spiral in prices. Within the Eurozone, the
continuing question marks related to the Irish, Greek and other sovereign debt
problems have merely added to the financial uncertainty.
With the UK economy expected to slow over the winter, many
observers still fear a double-dip recession. Economists are suggesting that
the Bank of England will have to act to avoid such an event. The prospect of
another round of gilt purchases has driven government debt yields sharply
lower over the last month. What is certainly clear is that the stewardship of
the nation's finances by the previous government means that putting the UK
economy back on a sound basis will be a painful, and probably long, exercise
as evidenced by the Chancellor's recent announcement of public sector spending
cuts.
Although this Fund invests in profitable companies, smaller
companies generally will be challenged by the anticipated testing economic
environment over the coming winter. On the other hand, it is very encouraging
to be able to report that the majority of companies in the portfolio continue
to trade profitably and a number are reporting results ahead of budget.
The Company continues to retain a significant cash position, having
correctly limited investment during the downturn. Moreover, the present
Fundraising Offer, which I have referred to above, will strengthen this
position further. The unquoted sector is beginning to see a return to more
active levels, and the Board and Manager expect that a number of attractive
investment opportunities will be identified in the near term.
In summary, your Board is encouraged greatly by the portfolio
showing resilience and promise in spite of these difficult economic
conditions.
I&G website
May I remind you that the Company has its own website which is
available at www.incomeandgrowthvct.co.uk.
Once again, I would like to take this opportunity to thank
Shareholders for their continued support.
Colin Hook
Chairman
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Directors' Report,
the Directors' Remuneration Report and the financial statements in accordance
with applicable law and regulations. They are also responsible for ensuring
that the Annual Report includes information required by the Listing Rules of
the Financial Services Authority.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have elected to prepare
the financial statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and applicable law).
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the company and of the profit or loss of the Company for that
period. In preparing these financial statements the Directors are required to:
- select suitable accounting policies and then apply them
consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements;
- prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with
the Companies Act 2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of the financial statements and other information included in annual reports
may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial report
The Directors confirm to the best of their knowledge that:
(a) the financial statements, prepared in accordance with UK Generally
Accepted Accounting Practice and the 2009 Statement of Recommended Practice,
`Financial Statements of Investment Trust Companies and Venture Capital
Trusts' (SORP), give a true and fair view of the assets, liabilities,
financial position and the profit of the Company.
(b) the management report, included within the Chairman's Statement,
Investment Portfolio Summary, Investment Manager's Review and Directors'
Report includes a fair review of the development and performance of the
business and the position of the Company, together with a description of the
principal risks and uncertainties that it faces.
For and on behalf of the Board:
Colin Hook
Chairman
Investment Policy
The Company's policy is to invest primarily in a diverse portfolio
of UK unquoted companies. Investments are structured as part loan and part
equity in order to receive regular income and to generate capital gains from
trade sales and flotations of investee companies.
Investments are made selectively across a number of sectors,
primarily in management buyout transactions (MBOs) i.e. to support incumbent
management teams in acquiring the business they manage but do not yet own.
Investments are primarily made in companies that are established and
profitable.
The Company has a small legacy portfolio of investments in
companies from its period prior to 30 September 2008, when it was a
multi-manager VCT. This includes investments in early stage and technology
companies and in companies quoted on the AiM or PLUS.
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, in the case of funds raised under the original prospectus in
2000/01, and £7 million, in the case of funds raised after 6 April 2006,
(including the former `S' Share Fund raised in 2007/08) 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 Company
continues to qualify and is approved as a VCT by HM Revenue & Customs
("HMRC"). Amongst other conditions, the Company may not invest more than 15%
of its investments in a single company and must have at least 70% by value of
its investments throughout the period in shares or securities comprised in VCT
qualifying holdings, of which a minimum overall of 30% by value must be
ordinary shares which carry no preferential rights. In addition, although the
Company can invest less than 30% of an investment in a specific company in
ordinary shares it must have at least 10% by value of its total investments in
each VCT qualifying company in ordinary shares which carry no preferential
rights.
Asset mix
The Company initially holds its funds in a portfolio of readily
realisable interest-bearing investments and deposits. The investment portfolio
of qualifying investments is built up over a three year period with the aim of
investing and maintaining at least 70% of net funds raised in qualifying
investments.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses
across different industry sectors. To reduce the risk of high exposure to
equities, each qualifying investment is structured using a significant
proportion of loan stock (up to 70% of the total investment in each VCT
qualifying company). Initial investments in VCT qualifying companies are
generally made in amounts ranging from £200,000 to £1 million at cost. No
holding in any one company will represent more than 10% of the value of the
Company's investments at the time of investment. Ongoing monitoring of each
investment is carried out by the Investment Manager, generally through taking
a seat on the board of each VCT qualifying company.
Co-investment
The Company aims to invest in larger, more mature unquoted
companies through investing alongside the three other VCTs advised by the
Investment Manager with a similar investment policy. This enables the Company
to participate in combined investments advised on by the Investment Manager of
up to £5 million.
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.
- Risk of loss of approval as a Venture Capital Trust - the Company
must comply with the provisions of section 274 of the Income Tax Act 2007
("ITA") to continue to be exempted from capital gains tax on investment gains
and to ensure that its investors continue to qualify for VCT tax reliefs. Any
breach of these rules may lead to the Company losing its approval as a Venture
Capital Trust (VCT), qualifying shareholders who have not held their shares
for the designated holding period having to repay the income tax relief they
obtained and future dividends paid by the Company becoming subject to tax. The
Company would also lose its exemption from corporation tax on capital gains.
- Investment and strategic risk - inappropriate strategy or
consistently weak VCT qualifying investment recommendations might lead to
underperformance 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. 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.
- Regulatory risk - the Company is required to comply with the
Companies Act 2006 ("the Companies Act"), the listing rules of the UKLA 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 that might
lead to misappropriation of assets. Inappropriate accounting policies might
lead to misreporting or beaches of regulations. Failure of the Investment
Manager's and Administrator's accounting systems or disruption to its business
might lead to an inability to provide accurate reporting and monitoring.
- Market risk - movements in the valuations of the VCT's
investments will, inter alia, be connected to movements in UK Stock Market
indices.
- Asset liquidity risk - The Company's investments may be difficult
to realise.
- Market liquidity risk - Shareholders may find it difficult to
sell their shares at a price which is close to the net asset value.
- Counterparty risk - A counterparty may fail to discharge an
obligation or commitment that it has entered into with the Company. For
further information, please see the Chairman's Statement above under `Cash
available for investment' and the discussion on `credit risk' in Note 20 to
the accounts in the full Annual Report and Accounts to be published shortly.
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
Investment Manager and Administrator on a six monthly basis. In mitigation and
the management of these risks, the Board applies rigorously the principles
detailed in the AIC Code of Corporate Governance. The Board also has a Share
Buy Back policy which seeks to mitigate the Market Liquidity risk. This policy
is reviewed at each quarterly Board Meeting.
Investment Manager's Review
Overview
The challenging economic conditions have continued to persist in the UK. This
has been a leading factor in making the year under review another slow period
for VCT investment and realisations. Against this background, we have
continued to remain cautious and selective when considering new deals and have
until recently been disappointed by the quality of the deals presented. It has
proved difficult in these circumstances to bring deals to fruition and we have
frequently judged vendors' price expectations as likely to be unsustainable in
the medium term. The market in the UK has had to contend with the
uncertainties in the political environment, unstable, slow recovery from
recession and a lack of clarity in the immediate aftermath of the election. We
are increasingly hopeful that this period of uncertainty is drawing to a close
and have begun to see some evidence that more attractively priced
opportunities and trade buyers willing to pay more realistic prices are
beginning to emerge.
New investment
Our new investment activity continues to focus on management buyouts. Our
approach has been to capitalise companies conservatively at the time of
investment so that they are well positioned to contend with an uncertain
macro-economic environment.
We were pleased to complete two new investments in December 2009
which have both been trading strongly since investment. The first of these was
C B Imports Group, an importer and distributor of artificial flowers, floral
sundries and home décor products, trading under the name of Country Baskets.
Using the `O' Share Fund's existing investment in the acquisition vehicle
Calisamo Management, the Company invested £1 million into this profitable
company with a turnover of circa £20 million. Founded in 1990, the company
operates from a national distribution centre in Leeds, has recently opened new
sites in Gateshead and Bristol and is planning to roll out further sites
across the UK.
The second of these was into Iglu.com Holidays, the UK's largest
specialist ski holiday and fast growing cruise holiday travel agent. The
Company invested £1 million to support the MBO and recapitalisation of this
Wimbledon based company employing more than 95 people. Repeat business and
referrals from satisfied customers have meant that Iglu.com's cruise sales
have doubled year on year and this growth looks set to continue. Since the
investment was completed, Iglu.com has made a strong start and is trading
ahead of plan and the year end valuation reflects this encouraging
performance.
Following the year-end, the VCT has made two new investments and
made a commitment to invest in a third company.
In the first of these, the Company used its investment of £1
million in the acquisition vehicle, Aust to support the MBO of RDL Recruitment
Corporation a european recruitment provider within the pharmaceutical,
business intelligence and IT sectors based in London and Woking. The company
which employs 70 staff was established in 1992. It sources staff for over 300
major companies, matching niche professionals with hard to fill contract
assignments and staff positions. The VCT's total investment in this company,
which changed its name to Aust Recruitment Group Limited following the MBO,
now stands at £1.4 million.
Secondly, the VCT invested £487,744 in December to support the MBO
of Faversham House Group Limited. Based in Croydon, this is an established,
family owned media company providing magazines, exhibitions and online
resources in the environment and sustainability, visual communications and
building services sectors.
The VCT also made a commitment in November to invest £280,000 into
the AIM listed company Omega Diagnostics Group Plc. Based in Alva, Scotland
this company provides high quality in-vitro diagnostics products for use in
hospitals, blood banks, clinics and laboratories in over 100 countries and
specialises in the areas of food intolerance, autoimmune disease and
infectious disease.
Our Operating Partner programme continues to pursue an active
search for investment opportunities and just before the year-end the Company
completed five new investments of £1 million each into Backbarrow, Bladon
Castle Management, Fullfield, Rusland Management and Torvar. These companies,
together with Apricot Trading, are all actively seeking suitable investment
opportunities in a variety of sectors including food manufacturing, retailing,
brand management, health and well-being, publishing, on-line businesses,
software and database management and construction but so far have not found
sufficiently attractive investment opportunities at the right price.
Each of the acquisition vehicles are headed by experienced Chairmen
well known to MPEP who are working closely with us in seeking to identify and
complete investments in specific sectors relevant to their 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
prices.
Follow-on investment
We have worked particularly closely with portfolio companies over
recent months to encourage them to make the necessary changes to ensure that
they were in the best possible position to withstand the recent period of
economic uncertainty. It is a measure of the success of this effort that the
investment portfolio has required only £514,314 of additional funding despite
the challenges that investee companies have faced.
In November 2009, the Company participated in a follow-on
investment into British International Holdings (BIH) investing £90,909 to
provide additional working capital. BIH has enjoyed improved trading during
2010 with particularly good revenue from oil and gas support work in the
Falklands Islands. The company has also agreed terms with Sainsburys for the
sale, subject to planning permission, of its Penzance heliport site which is
expected to generate capital for investment in new helicopter capacity.
The VCT made an additional loan stock and equity investment
totalling £421,688 into HWA Group in January 2010. The investment was made as
part of a re-financing and Rights Issue to provide additional working capital
to bridge the lower than expected revenues arising from delays in clients
commissioning projects. Conditions since then have unfortunately continued to
deteriorate and there is little sign of any upturn in the company's trading
environment which has been reflected in the valuation.
Realisations
Realisations during the year generated cash proceeds of £1.3
million. The Company successfully realised its investment in PastaKing
Holdings, the Newton Abbot-based supplier of fresh pasta meals, in November
2009 for initial capital proceeds of £793,853. This realisation contributed to
total proceeds over the life of the investment of £955,042, representing a
3.27x return on the original investment cost of £292,405.
The Company's investment in Stortext FM was sold to Box-it Storage
Group Limited in February 2010 for £2,562. This had carried a nil valuation
prior to sale.
A number of companies in the portfolio are trading strongly and a total of
£372,724 has been returned to the Company during the year under review in
partial loan stock repayments. DiGiCo Europe returned a total of £188,501 in
loan stock repayments during the year plus a premium of £14,037. This company
has continued to grow rapidly throughout 2010. Having made a very encouraging
start since investment, Westway has repaid a total of £137,065 of loan stock
plus a premium of £34,375 during the year and a further £99,681 (of which
£31,148 was premium) after the year-end. Monsal repaid £47,158 in July as part
of the closing of a second investment round that brought in the specialist
investor Waste Resources Fund (managed by FourWinds) who invested £4 million
as part of a total commitment of £14 million at a materially higher valuation
of Monsal than had been applied by your Manager. This company continues to
progress a number of waste contracts, exploiting its acknowledged expertise in
anaerobic digestion technology. We are hopeful that this significant new
investment will result in higher future returns for the Company.
Since the year-end, ATG Media has made a partial repayment of £111,111. This
company has benefited from increased interest in its online auction
technology, and enhanced advertising revenues have led to an improvement in
profits generated by the Antiques Trade Gazette.
Portfolio review
The MPEP invested portfolio at 30 September 2010 comprised 31
investments with a cost of £19.9 million and valued at £22.9 million
representing an uplift of 14.5% on cost. Additionally, there are three
investments in the portfolio, formerly managed by Nova, with a cost of £1.4
million valued at £1.8 million. The new investments made since last year,
Westway, CB Imports and Iglu.com, have all moved off cost as a result of
out-performing their investment plans. There has also been a strong operating
performance at Amaldis which has led to an increase in valuation. The VCT's
investment in BG Consulting Group was re-structured during the year and
resulted in an increase in the value of this investment and the VCT's
resulting new loan stock investment is valued in full. The FourWinds
investment in Monsal also resulted in a significant uplift in the carrying
value of this investment. Campden Media has made a strong start to 2010,
following a better than expected year to December 2009. The valuations of
Image Source and HWA have shown substantial reductions, in both cases
resulting from worsening trading conditions.
Despite seeing a fall in licence income, VSI has gained from the
relative weakness of sterling and is developing a number of strategic
relationships. This company paid a participating preference dividend to the
VCT of £11,459 in April 2010. Vectair continues to expand its export markets
and is now making significant inroads into the US market. Focus Pharma
continues to trade well, comfortably exceeding its budget for the year to 31
December 2009 and continuing this trend in 2010.
Tikit Group has been trading strongly and has seen a rise in its
share price of 50% since the beginning of September. The VCT sold 23% of its
equity holding in this Company at a price of 196.5 pence per share compared to
cost of 115 pence share on 1 November 2010 after the year-end.
The construction and house building sectors remain weak and
Youngman, PXP and Plastic Surgeon continue to trade well below pre-economic
downturn levels. Each business has reduced its costs and managed its cash
resources effectively. Youngman has almost fully repaid its acquisition debt
since investment and is well positioned to benefit from an upturn in its
markets. PXP has moved away from its dependence on private and public sector
house builds towards commercial buildings including hotels, doctor's surgeries
and convenience stores. Plastic Surgeon has diversified into commercial
property and insurance markets.
Blaze Signs has continued to suffer from delays in customers
placing orders. It has, however, secured new contracts which should begin to
contribute during its current financial year. Racoon has shown a significant
improvement in profitability in its financial year to 31 March 2010.
BG Consulting Group/Duncary 4 underwent a reconstruction of its
business during the year under a new holding company called Duncary 8 although
the company continues to trade under the name of BG Consulting. The valuation
now reflects both the improved trading of BG Consulting, which is seeing
increased demand from its investment banking clients.
Unfortunately, Legion Group requested a suspension of trading of
its shares in July 2010 pending clarification of the company's financial
position. Legion had a healthy order book but continued to suffer working
capital constraints. On 6 August 2010, the board appointed administrators and
the business was subsequently sold to OCS Group.
The rise in valuations in the MPEP invested portfolio for the year is
encouraging although the reduction in profitability of some portfolio
companies has made some decreases inevitable. It is important to recognise
that all of the falls in the year have been in unrealised valuations as
opposed to realised investment losses.
Foresight investments
With effect from 1 October 2008, MPEP assumed responsibility from
Foresight for the eleven investments it managed on behalf of the Company. This
section of the portfolio which comprises largely technology and early-stage
companies consists of 11 investments with a cost of £9.3 million and valued at
£3.5 million representing 37.6% of cost.
Camwood is trading well and its strong operating performance has
meant that we were able to uplift its year-end valuation. The company
completed a de-merger of its AppDNA business after the year-end in November
2010. The VCT now holds two identical investments of £333,333 loan stock and a
31.5% equity stake in both Camwood Limited and AppDNA Limited.
DCG Group, having re-paid loans of £54,978 in the year, completed a
re-financing after the year-end, as a result of which the VCT received full
repayment of its outstanding loan of £173,802 plus a loan premium and overdue
interest totaling £232,349.
The investment in Oxonica, costing £2,524,527, has no value at the
year-end, but we believe some value may be recovered. £2,374,527 of this cost
has been treated as a realised loss in these accounts, as it is considered now
never likely to be recovered. As this loss had already been recognised in
previous years' accounts, this adjustment has no impact on the Company's
profit for the year.
Investment outlook
Although the economic environment remains uncertain, we are becoming more
confident that the threats to the financial health of our portfolio companies
have largely lessened. The more stable political and economic environment
should allow smaller companies to plan for the future and we expect to see
increasingly attractive opportunities coming forward. We continue to believe
that the portfolio, taken as a whole, is resilient and of high quality and we
expect to unlock additional value over time.
Having retained significant uninvested cash, the VCT is well placed to support
certain portfolio should the need arise and to capitalise on attractive new
investment opportunities.
Details of the Company's fifteen largest investments by value
(excluding the seven acquisition vehicles in the portfolio which have yet to
complete an investment and each have a current cost and valuation of £1
million) are set out below.
Camwood Limited www.camwood.com
Cost: £1,028,181
Valuation: £2,182,692
Basis of valuation: Earnings multiple
Equity % held: 31.6% (fully diluted)
Business: Provider of software packaging services
Location: London
History: Development capital
Income in year to I&G: £46,667
Audited financial information:
Year ended Turnover Operating profit Net liabilities
31 March 2009 £4,756,000 £22,000 £281,000
Amaldis (2008) Limited (Original www.originaladditions.com
Additions)
Cost: £80,313
Valuation: £1,965,586
Basis of valuation: Earnings multiple
Equity % held: 9.2%
Business: Manufacturer and distributor of beauty
products
Location: Hayes, Middlesex
History: Management buy-out
Income in year to I&G: £Nil
Audited financial information:
Year ended Turnover Operating profit Net assets
3 April 2010 £24,164,000 £3,118,000 £1,086,000
Iglu.com Holidays Limited www.iglu.com
Cost: £1,000,001
Valuation: £1,616,116
Basis of valuation: Earnings multiple
Equity % held: 8.1%
Business: On-line ski and cruise travel agency
Location: London
History: Management buy-out
Income in year to I&G: £53,322
Audited financial information:
Year ended Turnover Operating profit Net assets
31 May 2010 * £56,617,000 £974,000 £5,151,000
* Accounts are for the operating
subsidiary Iglu.com
Image Source Group Limited www.imagesource.com
Cost: £305,000
Valuation: £1,399,114
Basis of valuation: Earnings multiple
Equity % held: 39.6% (fully diluted)
Business: Royalty-free picture library
Location: London
History: Management buy-out
Income in year to I&G: £Nil
Audited financial information:
Year ended Turnover Operating profit Net assets
31 December 2009 £7,174,000 £406,000 £2,601,000
ATG Media Holdings Limited www.antiquestradegazette.com
Cost: £1,000,000
Valuation: £1,377,208
Basis of valuation: Earnings multiple
Equity % held: 8.5%
Business: Publisher and on-line auction platform
operator
Location: London
History: Management buy-out
Income in year to I&G: £53,190
Audited financial information:
Year ended Turnover Operating profit Net assets
30 September 2009 £6,118,000 £873,000 £2,010,000
DiGiCo Europe Limited www.digico.org
Cost: £325,594
Valuation: £1,201,553
Basis of valuation: Earnings multiple
Equity % held: 4.3%
Business: Designer and manufacturer of digital audio
mixing desks
Location: Chessington, Surrey
History: Management buy-out
Income in year to I&G: £56,311
Audited financial information:
Year ended Turnover Operating profit Net assets
31 December 2009 £12,922,000 £3,026,000 £5,660,000
CB Imports Group Limited (Country Baskets) www.countrybaskets.co.uk
(formerly Calisamo Management Limited)
Cost: £1,000,000
Valuation: £1,199,310
Basis of valuation: Earnings multiple
Equity % held: 6.0%
Business: Importer and distributor of artificial
flowers, floral sundries and home décor
products.
Location: East Ardsley, West Yorkshire
History: Management buy-out
Income in year to I&G: £58,013
Unaudited financial information:
Year ended Turnover Operating profit Net assets
31 December 2009 £19,755,000 2,437,000 £8,358,000
*
* Accounts are for the operating
subsidiary CB Imports Limited
IDOX plc www.idoxplc.com
Cost: £872,625
Valuation: £939,167
Basis of valuation: Bid price (AiM-quoted)
Equity % held: 2.4%
Business: Development and supply of knowledge
management products and services
Location: London
History: AiM flotation
Income in year to I&G: £17,967
Audited financial information:
Year ended Turnover Operating profit Net assets Earnings per
share
31 October 2009 £32,164,000 £6,147,000 £28,173,000 1.0p
Westway Services Holdings (2010) Limited www.westwaycooling.co.uk
(formerly MC440 Limited)
Cost: £422,122
Valuation: £884,557
Basis of valuation Earnings multiple
Equity % held 4.7%
Business: Installation, service and maintainance of
air conditioning systems
Location: Greenford, Middlesex
History: Management buy-out
Income in year to I&G: £44,176
Audited financial information:
Year ended Turnover Operating profit Net assets
28 February 2010* £17,369,000 £2,793,000 £4,401,000
*Accounts are for the operating subsidiary
Westway Services Limited
Tikit Group plc www.tikit.com
Cost: £500,000
Valuation: £839,129
Basis of valuation: Bid price (AiM-quoted)
Equity % held: 3.0%
Business: Supplier of IT solutions and support
services to the legal and accounting
industries
Location: London
History: AiM flotation
Income in year to I&G: £26,522
Audited financial information:
Year ended Turnover Operating profit Net assets Earnings per
share
31 December 2009 £25,196,000 £3,018,000 £15,183,000 12.6p
British International Holdings Limited www.islesofscillyhelicopter.com
Cost: £590,909
Valuation: £796,381
Basis of valuation: Earnings multiple
Equity % held: 5.0%
Business: Helicopter Service Operator
Location: Sherborne, Dorset
History: Management buy-out
Income in year to I&G: £9,086
Audited financial information:
Year ended Turnover Operating profit Net assets
31 December 2009 £16,050,000 £976,000 £2,970,000
VSI Limited www.lightworkdesign.com
Cost: £245,596
Valuation: £777,937
Basis of valuation: Earnings multiple
Equity % held: 9.2% (fully diluted)
Business: Provider of software for CAD and CAM
vendors
Location: Sheffield
History: Management buy-out
Income in year to I&G: £31,924
Audited financial information:
Year ended Turnover Operating profit Net assets
31 December 2009 £4,399,000 £560,000 £976,000
Monsal Holdings Limited www.monsal.co.uk
Cost: £426,164
Valuation: £768,505
Basis of valuation: Independent third party investment
Equity % held: 4.3% (fully diluted)
Business: Supplier of engineering services to the
water and waste sectors
Location: Mansfield, Nottinghamshire
History: Management buy-out
Income in year to I&G: £27,258
Audited financial information:
Year ended Turnover Operating profit Net assets
30 September 2009 £6,743,000 £475,000 £1,864,000*
*Unaudited figure taken from the consolidated group accounts of Monsal Holdings
Limited
Focus Pharma Holdings Limited www.focuspharmaceuticals.co.uk
www.focuspharmaceuticals.co.uk
Cost: £516,900
Valuation: £707,569
Basis of valuation: Earnings multiple
Equity % held: 2.1%
Business: Licensor and distributor of generic
pharmaceuticals
Location: Burton upon Trent, Staffordshire
History: Management buy-out
Income in year to I&G: £42,825
Audited financial information:
Year ended Turnover Operating profit Net assets
31 December 2009 £16,997,000 £902,000 £2,917,000
Youngman Group Limited www.youngmangroup.com
www.youngmangroup.com
Cost: £1,000,052
Valuation: £700,992
Basis of valuation: Fair Value supported by review of loan
stock security.
Equity % held: 8.5%
Business: Manufacturer of ladders and access towers
Location: Maldon, Essex
History: Management buy-in/buy-out from SGB Group
Income in year to I&G: £1,429
Audited financial information:
Year ended Turnover Operating profit Net assets
30 June 2010 £26,752,000 £6,000 £3,681,000
The remaining 30 investments in the portfolio (including the seven acquisition
vehicles in the portfolio at 30 September 2010) had a current cost of £14.3
million and were valued at 30 September 2010 at £3.8 million.
Further details of the investments in the portfolio may be found on MPEP's
website: www.matrixpep.co.uk
Operating profit is stated before charging amortisation of
goodwill where appropriate for all investee companies
Total Cost at Valuation at Additional Valuation at % of % of
investments equity portfolio
30-Sep-10 30-Sep-09 30-Sep-10 held 1 by value
£ £ £ £
Camwood Limited 2 1,028,181 1,013,233 - 2,182,692 31.6% 7.76%
Provider of software
repackaging services
Amaldis (2008) Limited
(Original Additions) 80,313 1,586,734 - 1,965,586 9.2% 6.99%
Manufacturer and
distributor of beauty
products
Iglu.com Holidays Limited 1,000,001 - 1,000,001 1,616,116 8.1% 5.75 %
Online ski and cruise
travel agency
Image Source Group Limited 305,000 2,259,232 - 1,399,114 44.0% 4.98%
Royalty free picture
library
ATG Media Holdings Limited 1,000,000 1,000,000 1,377,208 8.5% 4.90%
Publisher and online
auction platform operator
DiGiCo Europe Limited 325,594 1,131,870 - 1,201,553 4.3% 4.26%
Designer and manufacturer
of digital audio mixing
desks
CB Imports Group Limited
(Country Baskets) 1,000,000 1,000,000 - 1,199,310 6.0% 4.26%
Importer and distributor
of artificial flowers,
floral sundries and home
decor products
Apricot Trading Limited 1,000,000 1,000,000 - 1,000,000 24.5% 3.56%
Company seeking to acquire
businesses in the
marketing services and
media sector
Aust Recruitment Group
Limited (formerly Aust
Construction Investors
Limited 1,000,000 1,000,000 - 1,000,000 16.3% 3.56%
Recruitment provider
within the pharmaceutical,
business intelligence and
IT sectors
Backbarrow Limited 1,000,000 - 1,000,000 1,000,000 16.7% 3.56%
Company seeking to acquire
businesses in the food
manufacturing,
distribution and brand
management sectors
Bladon Castle Management
Limited 1,000,000 - 1,000,000 1,000,000 16.7% 3.56%
Company seeking to acquire
businesses in the brand
management, consumer
products and retail
sectors
Fullfield Limited 1,000,000 - 1,000,000 1,000,000 16.7% 3.56%
Company seeking to acquire
businesses in the food
manufacturing,
distribution and brand
management sectors
Rusland Management Limited 1,000,000 - 1,000,000 1,000,000 24.5% 3.56%
Company seeking to acquire
businesses in the brand
management, consumer
products and retail
sectors
Torvar Limited 1,000,000 - 1,000,000 1,000,000 24.5% 3.56%
Company seeking to acquire
businesses in the database
management, mapping, data
mapping and management
services sectors
I-Dox plc 4 872,625 796,250 - 939,167 2.4% 3.34%
Developer and supplier of
knowledge management
products
Westway Services Holdings
(2010) Limited (formerly
MC 440 Limited) 422,122 559,186 - 884,557 4.7% 3.15%
Installation, service and
maintenance of air
conditioning systems
Tikit Group plc 4 500,000 595,651 - 839,129 3.0% 2.98%
Supplier of IT solutions
and support services to
the legal and accounting
industries
British International
Holdings Limited 590,909 359,765 90,909 796,381 5.0% 2.83%
Helicopter service
operator
VSI Limited 245,596 794,146 - 777,937 10.0% 2.77%
Provider of software for
CAD and CAM vendors
Monsal Holdings Limited 426,164 353,704 1,717 768,505 5.6% 2.73%
Supplier of engineering
services to the water and
waste sectors
Focus Pharma Holdings
Limited 516,900 525,858 - 707,569 2.1% 2.52%
Licensor and distributorof generic pharmaceuticals
Youngman Group Limited 1,000,052 700,992 - 700,992 8.5% 2.49%
Manufacturer of ladders
and access towers
Duncary 8 Limited
(formerly B G Consulting
Group Limited/Duncary 4
Limited) 634,923 115,027 - 683,746 25.5% 2.43%
Technical training
business
Brookerpaks Limited 55,000 324,447 - 498,095 18.2% 1.77%
Importer and distributor
of garlic and
vacuum-packed vegetables
Aquasium Technology
Limited 2 700,000 564,739 - 396,581 16.7% 1.41 %
Manufacturing and
marketing of bespoke
electron beam welding and
vacuum furnace equipment
Vectair Holdings Limited 215,914 375,136 - 366,575 4.6% 1.30%
Designer and distributor
of washroom products
Racoon International
Holdings Limited 550,852 79,496 - 243,664 7.7% 0.87%
Supplier of hair
extensions, hair care
products and training
Blaze Signs Holdings
Limited 1,338,500 132,589 - 242,090 12.5% 0.86%
Manufacturer and installer
of signs
Biomer Technology Limited
3 137,170 226,585 - 226,152 4.4% 0.80%
Developer of biomaterials
for medical devices
Letraset Limited 650,000 0 - 213,859 5.0% 0.76%
Manufacturer and worldwide
distributor of graphic art
products
DCG Group Limited 2 257,096 262,861 - 181,771 11.3% 0.65%
Design, supply and
integration of data
storage solutions
NexxtDrive Limited 3 812,014 203,004 - 162,500 7.1% 0.58%
Developer and exploiter of
mechanical transmission
technologies
ANT plc 2 462,816 275,770 - 160,866 2.7% 0.57%
Provider of embedded
browser/email software for
consumer electronics and
Internet appliances
Campden Media Limited 334,880 44,438 - 125,921 3.6% 0.45%
Magazine publisher and
conference organiser
Sarantel plc 2 1,881,251 153,175 - 102,117 2.3% 0.36%
Developer and manufacturer
of antennae for mobile
phones and other wireless
devices
The Plastic Surgeon
Holdings Limited 406,082 101,521 - 101,521 6.1% 0.36%
Supplier of snagging and
finishing services to the
property sector
Alaric Systems Limited 2 595,803 30,647 - 30,647 6.9% 0.11%
Software developer and
provider of support
services for retail credit
card payment systems
Corero plc 2 600,000 34,381 - 24,558 0.3% 0.09%
Provider of e-business
technologies
Oxonica plc 2 2,524,527 0 - 0 10.6% 0.00%
Leading international
nanomaterials group
Legion Group plc 150,000 53,571 - 0 0.7% 0.00%
Provider of manned
guarding, mobile patrols
and alarm response
services
PastaKing Holdings Limited 0 778,913 - 0 0.0% 0.00%
Manufacturer and supplier
of fresh pasta meals
Aigis Blast Protection
Limited 2 272,120 0 - 0 0.5% 0.00%
Specialist blast
containment materials
company
Inca Interiors Limited (in
administration) 350,000 0 - 0 0.0% 0.00%
Design, supply and
installation of quality
kitchens to house
developers
HWA Group Limited
(Holloway White Allom) 456,241 1,457,407 421,688 0 24.5% 0.00%
High value property
restoration and
refurbishment
PXP Holdings Limited
(Pinewood Structures) 920,176 0 - 0 6.8% 0.00%
Designer, manufacturer and
supplier of timber frames
for buildings
--------------- ------------- -------------- ------------- -------- ------------
Total 30,618,822 19,890,328 6,514,315 28,116,479 - 100.00%
1 The percentage of equity held for these companies may be subject to further
dilution of an additional 1% or more if, for example, management of the
investee company exercises share options.
2 Investment formerly managed by Foresight Group up to 10 March 2009.
3 Investment formerly managed by Nova Capital Management Limited until 31
August 2007 and by Foresight Group until 10 March 2009.
4 Investment formerly managed by Nova Capital Management Limited until 31
August 2007
Income Statement
for the year ended 30 September 2010
30 September 2010 30 September 2009
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Net unrealised gains/(losses) on investments - 2,986,059 2,986,059 - (3,547,286) (3,547,286)
Net gains on realisation of investments - 15,412 15,412 - 597,637 597,637
Income 730,447 - 730,447 931,359 67,950 999,309
Recoverable VAT 12,295 36,886 49,181 - - -
Investment management fees (204,246) (612,738) (816,984) (192,882) (578,645) (771,527)
Other expenses 513,840) - (513,840) (511,764) - (511,764)
Merger costs (75,516) - (75,516)
--------------- --------------- -------------- ---------------
(Loss)/profit on ordinary activities before taxation (50,860) 2,425,619 2,374,759 226,713 (3,460,344) (3,233,631)
Tax on (loss)/profit on ordinary activities - - - (33,030) 33,030 -
--------------- --------------- -------------- ---------------
(Loss)/profit on ordinary activities after taxation
for the financial year (50,860) 2,425,619 2,374,759 193,683 (3,427,314) (3,233,631)
--------------- --------------- -------------- ---------------
Basic and diluted earnings per Ordinary Share
(formerly 'S' Share: (0.20)p 9.75p 9.55p 0.09p (1.50)p (1.41)p
Basic and diluted earnings per former 'O' Share: - - - 0.52p (9.25)p (8.73)p
All the items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the period.
The total column is the Profit and Loss Account of the Company.
There were no other recognised gains and losses in the year.
Other than the revaluation movements arising in investments held at
fair value through Profit and Loss Account, there were no differences between
the profit/(loss) as stated above and at historical cost.
Balance Sheet
as at 30 September 2010
as at 30 September 2010 as at 30 September 2009
£ £ £ £ £ £
Fixed assets
Investments at fair value 28,116,479 19,890,328
Current assets
Debtors and prepayments 162,076 185,876
Current investments 8,708,573 15,962,070
Cash at bank 106,536 55,638
--------------- ---------------
8,977,185 16,203,584
Creditors: amounts falling
due within one year (488,968) (210,815)
--------------- --------------- --------------- ---------------
Net current assets 8,488,217 15,992,769
--------------- ---------------
Net assets 36,604,696 35,883,097
--------------- ---------------
Capital and reserves
Called up share capital 369,709 466,309
Share premium account 369,141 308,614
Capital redemption reserve 170,811 73,017
Capital reserve - unrealised 422,183 (5,279,832)
Special reserve 23,105,248 27,952,006
Profit and loss account 12,167,604 12,362,983
--------------- ---------------
Equity Shareholders' funds 36,604,696 35,883,097
--------------- ---------------
Basic and diluted net asset value per share
Ordinary Shares (formerly 'S' Shares) 99.01p 93.18p
Former 'O' Shares - 71.45p
Reconciliation of Movements in Shareholders' Funds
for the year ended 30 September 2010
Year ended Year ended
30 September 2010 30 September 2009
£ £
Opening shareholders' funds 35,883,097 40,791,712
Net share capital bought back in the year (966,118) (353,751)
Net share capital subscribed for in the year 61,721 96,826
Profit/(loss) for the year 2,374,759 (3,233,631)
Dividends paid in the year (748,763) (1,418,059)
--------------------- ---------------------
Closing shareholders' funds 36,604,696 35,883,097
--------------------- ---------------------
Cash Flow Statement
for the year ended 30 September 2010
Year ended Year ended
30 September 2010 30 September 2009
Operating activities £ £ £ £
Investment income received 687,327 1,081,127
VAT received and interest thereon 144,206 388,292
Other income 4,053 20,013
Investment management fees paid (595,053) (1,200,016)
Other cash payments (508,610) (477,847)
Merger costs paid by the company (75,516) -
--------------- --------------- ---------------
Net cash outflow from operating activities (343,593) (188,431)
Investing activities
Acquisition of investments (6,514,315) (735,608)
Disposal of investments 1,289,635 2,215,027
--------------- --------------- ---------------
Net cash (outflow)/inflow from investing activities (5,224,680) 1,479,419
Equity Dividends
Payment of equity dividends (748,763) (1,418,059)
--------------- --------------- ---------------
Net cash outflow before liquid resource
management and financing (6,317,036) (127,071)
Management of liquid resources
Decrease in monies held pending investment 7,253,497 373,944
Financing
Issue of Ordinary Shares 61,721 96,826
Purchase of own shares (947,284) (353,751)
--------------- --------------- ---------------
(885,563) (256,925)
--------------- ---------------
Increase/(decrease) in cash for the year 50,898 (10,052)
--------------- ---------------
Notes
1. Basis of accounting
The accounts have been prepared under UK Generally Accepted
Accounting Practice (UK GAAP) and the Statement of Recommended Practice,
`Financial Statements of Investment Trust Companies and Venture
Capital Trusts' ("the SORP") issued by the Association of Investment Companies
in January 2009.
The results for the year to 30 September 2010 reflect the
activities of what were previously the `O' Share Fund and the `S' Share Fund
of the Company,
which were merged on 29 March 2010, for the whole period.
2 Income
2010 2009
£ £
Income from investments
- from equities 200,605 199,022
- from OEIC funds 73,446 291,911
- from loan stock 442,132 399,866
- from bank deposits 664 21,480
- from VAT recoverable 9,547 36,050
---------------- ----------------
726,394 948,329
Other income 4,053 50,980
---------------- ----------------
Total income 730,447 999,309
---------------- ----------------
Total income comprises
Revenue dividends received 274,051 422,983
Capital dividends received - 67,950
Interest 452,343 457,396
Other income 4,053 50,980
---------------- ----------------
Total Income 730,447 999,309
---------------- ----------------
Income from investments comprises
Listed overseas securities 73,446 291,911
Unlisted UK securities 642,737 598,888
---------------- ----------------
Total Income 716,183 890,799
---------------- ----------------
Income from VAT recoverable relates to interest
received on VAT recoverable recognised in the year ended 30 September 2010 as
per note 3 below.
Loan stock interest above is stated after deducting an amount of
£216 (2009: £nil), being a provision made against loan stock interest regarded
as collectable in previous years.
Total loan stock interest due but not recognised in the year was
£538,899 (2009: £512,386).
3 Recoverable VAT
Revenue Capital Total Revenue Capital Total
2010 2010 2010 2009 2009 2009
£ £ £ £ £ £
Recoverable VAT 12,295 36,886 49,181 - - -
As a result of the European Court of Justice
ruling and subsequent HMRC briefing that management fees be exempt for VAT
purposes,
at 30 September 2010, a total of £533,084 of VAT
recoverable had been received. During the year to 30 September 2010, VAT
amounts totalling £124,779 were received.
An additional £49,181 VAT was recognised in the
Income Statement, of which the amount of £34,370 remained due at the year-end
and £48,260,
remains due back to the Investment Manager as a
result of expense caps incurred in the years in question.
4 Net asset value per share
2010 2009 2009
Ordinary Shares 'O' Share Fund 'S' Share Fund
Total
(formerly 'S' Share Fund)
£ £ £
Net assets 36,604,696 24,881,881 11,001,216
Number of shares in issue 36,970,891 34,824,397 11,806,467
Basic and diluted net asset
value per share 99.01p 71.45p 93.18p
5 Basic and diluted earnings per share
2010 2009 2009 2009
Ordinary Shares 'O' Share Fund 'S' Share Fund Total
Total
(formerly 'S' Share
Fund)
£ £ £ £
Total earnings after taxation: 2,374,759 (3,067,355) (166,276) (3,233,631)
Basic and diluted earnings per share (note a) 9.55p (8.73)p ( 1.41)p
----------------- ----------------- -----------------
Revenue (loss)/profit from ordinary
activities after taxation (50,860) 182,551 11,132
Basic and diluted revenue earnings
per share (note b)
( 0.20)p 0.52p 0.09p
----------------- ----------------- -----------------
Net unrealised capital gains on investments 2,986,059 (3,522,533) (24,753)
Net realised capital gains on investments 15,412 597,637 -
Income from capital dividends - 67,950 -
Recoverable VAT 36,886 - -
Capitalised management fees less taxation (612,738) (392,960) (152,655)
----------------- ----------------- -----------------
Total capital return 2,425,619 (3,249,906) (177,408)
Basic and diluted capital earnings per share
(note c) 9.75p (9.25)p ( 1.50)p
----------------- ----------------- -----------------
Weighted average number of shares in issue in
the year 24,854,456 35,148,192 11,806,467
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 loss after taxation divided
by the weighted average number of shares in issue.
d) Diluted earnings per share in each case are the same as basic earnings per
share as no investment manager's incentive fee is payable in respect of the
current year..
6. Investment Manager's fees
In accordance with the policy statement published under "Management
and Administration" in the Company's Prospectus dated 13 October 2000, the
Directors have charged 75% of the investment management expenses to capital
reserve except for the incentive fee payable, which is charged 100% to
capital.
7. Dividends
The Company proposes to pay a final capital dividend of 2 pence
per share to Shareholders. The dividend will be recommended to members at the
Annual General Meeting and, if approved, will be paid on 22 February 2011 to
shareholders on the Register on 28 January 2011.
This is in addition to the previously announced interim capital
dividend of two pence share to be paid in respect of the year ended 30
September 2010 on 28 March 2011 to shareholders on the Register on 4 March
2011.
8. Merger of share classes
On 29 March 2010, the ordinary shares of 1p each in the capital of
the Company (" 'O' Shares") were merged with the S ordinary shares of 1p each
in the capital of the Company (" 'S' Shares"). A proportion of the 'O' Shares
were redesignated as 'S' Shares, calculated by reference to the relative net
asset values of each Share class as at 31 December 2009, adjusted for
subsequent dividends paid to each class before the merger. The resultant
38,008,712 `S' Shares in issue, being 11,813,141 already in issue plus
26,195,571 created by the conversion, were then re-designated as Ordinary
Shares in the capital of the Company. The residual balance of 8,371,657 'O'
Shares not redesignated as 'S' Shares were instead redesignated as deferred
shares and bought back by the Company for an aggregate amount of 1p, cancelled
as issued and redesignated as Ordinary Shares.
The net asset values (NAV) of each Fund used for the purposes of
conversion at the calculation date of 29 March 2010, and the resultant
conversion ratios into Ordinary Shares were:
Conversion ratio applied to 'O' Shares
to obtain new number of 'S' Shares
Company NAV per share
'O' Share Fund 70.20 0.75784526
'S' Share Fund 92.63 1.00000000
Share certificates reflecting the new shareholdings totalling
38,008,712 Ordinary Shares in the capital of the Company were sent to
shareholders on 5 April 2010.
Total merger costs of £75,516 were incurred to merge the 'O' and
'S' Share Funds, principally being legal and professional fees, registrars'
fees and printing costs.
9. Related party transactions
Christopher Moore, a director during the year, is a shareholder in
Oxonica plc ("Oxonica") in which the Company had invested £2,524,527 to the
end of the year (total carrying value: £nil). He owns 0.21% of the equity of
Oxonica.
£34,370 was owed to the Company by Matrix Income & Growth 4 VCT
plc. The Company and Matrix Income & Growth 4 VCT plc share the same
Investment Manager.
10. Post balance sheet events
On 11 October 2010, ATG Media Holdings Limited made a partial loan
stock repayment of £111,111.
On 28 October 2010, the Company's acquisition vehicle Aust
Construction Investors Limited changed its name to Aust Recruitment Group
Limited, and invested £1 million, alongside £441,667 from the Company itself,
towards the acquisition of RDL Corporation Limited.
On 1 November 2010, 100,000 shares of Tikit Group plc costing
£115,000 were sold for proceeds of £195,913.On 17 November 2010, DCG Group
Limited repaid its outstanding loan of £173,802 in full plus a loan premium
and overdue interest totalling £232,349.
On 15 November 2010, the Company committed £280,000 to an equity investment in
the AiM listed company Omega Diagnostics Group Plc.
On 24 November 2010, Camwood Limited completed a de-merger of its AppDNA
business. The VCT now holds two identical investments of £333,333 loan stock
and a 31.5% equity stake in both Camwood Limited and AppDNA Limited.
On 24 November 2010 Westway Services Holdings (2010) Limited repaid part of
their loan stock realising £99,681 proceeds, of which £31,148 was premium.
On 8 December 2010, the Company invested £487,744 into Faversham House Group.
11. Financial information
The financial information set out in these statements does not
constitute the Company's statutory accounts for the year ended 30 September
2010 but is derived from those accounts. Statutory accounts will be delivered
to the Registrar of Companies after the Annual General Meeting.
12. Annual Report
A Summary Annual Report will be circulated by post to all
Shareholders shortly and copies will be available thereafter to members of the
public from the Company's registered office. Shareholders who wish to receive
a copy of the full Annual Report may request a copy by writing to the Company
Secretary, Matrix Private Equity Partners LLP, One Vine Street, London W1J
0AH. Alternatively copies may be downloaded via the Company's website at
www.incomeandgrowthvct.co.uk
13. Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 am
on Wednesday, 16 February 2011 at One Vine Street, London W1J 0AH.
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