Final Results
The Income & Growth VCT plc
Annual Financial Results of the Company for the year ended 30 September 2008
Investment Objective
The objective of The Income & Growth VCT plc ("I&G" 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.
Dividends paid -`O' Share Fund
Year ended Dividends paid in each Cumulative dividends paid
year since launch
(p) per share (p) per share
30 September 2008 4.00 16.45
30 September 2007 3.75 12.45
30 September 2006 3.25 8.70
30 September 2005 1.25 5.45
(restated)
30 September 2004 1.25 4.20
(restated)
Dividends paid include distributions from both income and capital.
Dividends proposed -`O' Share Fund
A final proposed dividend of 4 pence per share comprising 1 penny from income
and 3 pence from capital, which will be recommended to Shareholders at the AGM
on 6 February 2009 for payment on 16 February 2009.
Performance Summary -`O' Share Fund
Year ended Net assets Net asset NAV total Share price Share price
(£ million) value per return to (p)1 total
`O' Share shareholders return to
(p) since launch shareholders
per `O' since launch
Share (p) per `O'
Share (p)
30 September 2008 29.6 83.6 100.0 79.5 96.0
30 September 2007 36.8 100.5 2 115.0 87.5 100.0
30 September 2006 44.2 112.9 121.6 84.5 93.2
30 September 2005 49.2 122.5 128.0 87.5 93.0
(restated)
30 September 2004 33.5 81.3 85.5 62.5 66.7
(restated)
Performance Summary -`S' Share Fund
Year ended Net assets Net asset NAV total Share price Share price
(£ million) value per return to (p)1 total
`S' Share shareholders return to
(p) since launch shareholders
per `S' since launch
Share (p) per `S'
Share (p)
30 September 2008 11.2 94.6 94.6 100 100
At close of Offer for 11.2 94.5 94.5 100 100
Subscription
1 Source: London Stock Exchange
2 After deducting the dividend of 2p per share paid to `O' Fund Shareholders on
24 October 2007
The share price and net asset value (NAV) total return comprise the share price
and NAV respectively per share.
Chairman's Statement
I am pleased to present to Shareholders the annual results of the Company for
the year ended 30 September 2008. This is also the first set of results of the
Company since it became a single manager Venture Capital Trust (VCT).
Change to single manager
In my last Half-Yearly Report to you, I stated that the Board had extended the
Matrix Private Equity Partners (`MPEP') management role. Your Board, in
anticipation of these more difficult times, took the view that investment in
the more risky early stage technology sector should be curtailed and, as a
result, Foresight Group's (`Foresight') expertise in this area was no longer
required. The final elements of the handover of the Foresight portfolio have
now been completed.
I remain confident, that in these turbulent economic times, to concentrate the
portfolio in the hands of our better performing Investment Manager, MPEP, was a
good investment decision. MPEP remains one of the top VCT managers in the
marketplace. Please see my comments below on MPEP's recent award.
Performance
`O' Shares
At 30 September 2008, the Net Asset Value (NAV) per `O' Share was 83.56 pence
(2007: 100.52 pence). Adjusted for the 2 pence dividend paid to Shareholders in
the year, this represents a decrease of 14.9% over the twelve month period.
This compares with a decline of 33.9% in the FTSE SmallCap Index and a decline
of 43.5% in the FTSE AiM Index during the same period. The NAV total return per
`O' Share fell in the year by 13.0% from 114.97 pence at 30 September 2007 to
100.01 pence at 30 September 2008.
The performance of the portfolio in the year was mixed. The MPEP portfolio
achieved realised gains of £2.1 million but these were offset by provisions and
lower valuations giving rise to unrealised losses of £3.3 million, resulting in
net overall losses of £1.2 million. Realisations generated significant cash
proceeds of £7.1 million. The Foresight legacy portfolio suffered greater falls
in value with further provisions leading to unrealised net losses of £4.2
million.
UK sector price earnings multiples have, in the main, decreased significantly
over this twelve month period, and this does impact on our portfolio valuation
in both the quoted and unquoted sectors. The MPEP portfolio at the year end
represented 87% of total venture capital investments by current value, whilst
the Foresight legacy portfolio represented 13%. It continues to be a difficult
time for technology investments
Overall, the underlying performance of the portfolio continues to provide
encouragement. The total dividends proposed to be paid in respect of the year
under review will be 4 pence per `O' Share which compares with 4 pence per `O'
Share paid in respect of the financial year ended 30 September 2007.
`S' Shares
At 30 September 2008, the NAV and NAV total return per `S' Share had risen
marginally to 94.59 pence (at launch: 94.50 pence), a slight increase of 0.1%.
For more information on the performance of the portfolio, please refer to the
Investment and Portfolio Review below.
Economic background
All UK investment portfolios are being affected by the much harsher economic
conditions which now exist and are predicted to continue for some time. If the
problems in the global financial community are not resolved quickly and
confidence restored in our financial system, the recession is likely to be
severe. Today's problems can almost certainly be attributed to irresponsible
lending by many banks, by the Government's imprudent growth in public spending
and by its insatiable borrowing, both on and off balance sheet, over more than
a decade. I cover our views below on the outlook for the economy and the
Company's portfolios.
The portfolio
`O' Shares
Overall, the MPEP portfolio continues to perform well, particularly given the
current economic climate, with good trading performances being shown by some of
the investments; notably Amaldis (2008) Limited (Original Additions), Tottel
Publishing Limited, IDOX plc, VSI Limited, PastaKing Holdings Limited and
Vectair Holdings Limited. Within the MPEP portfolio new investments of £516,900
and £424,447 respectively were made into Focus Pharma Holdings Limited, a
seller of generic pharmaceutical products, in October 2007 and into Monsal
Holdings Limited, an environmental technology company, in December 2007. This
was followed in April 2008 by an investment of £307,071 into The Plastic
Surgeon Holdings Limited to support the MBO of Plastic Surgeon Fine Finishers,
a company specialising in the snagging and finishing of domestic and commercial
properties. In October, just after the year-end, an investment of £595,842 was
made into ATG Media Holdings Limited to support the MBO of Metropress Limited,
publishers of the Antiques Trade Gazette. At the end of November, a further
investment of £129,264 was made into PXP Holdings (Pinewood Structures).
In the first six months of this period, advantage was taken of market
conditions at that time to dispose profitably of the portfolio's investments in
Ministry of Cake (Holdings) Limited, BBI Holdings plc and to receive a further
payment from Secure Mail Services Limited which was sold in the previous year.
Shortly after that, further payments were received from a prepayment of loan
stock from VSI Limited and from a recapitalisation of HWA Limited (Holloway
White Allom).
Before the year-end, the 'O' Share portfolio also made three investments of £1
million each into three acquisition vehicles, namely, Apricot Trading Limited
(a company established to acquire businesses in the marketing services and
media sector), Aust Construction Investors Limited (a company established to
acquire businesses in the specialist construction, building support services,
building products and related services), and Calisamo Management Limited (a
company established to acquire businesses in healthcare, wellbeing products,
management or professional services).
In the former Foresight portfolio, the Company invested a further £387,764 into
Oxonica plc in December 2007. However, the Foresight portfolio, being an early
stage technology portfolio, has been affected by sharp falls in quoted prices
and much more difficult trading conditions.
`S' Shares
Since launch in February of this year, this Fund in April 2008 invested £99,011
into The Plastic Surgeon Holdings Limited, a company specialising in the
snagging and finishing of domestic and commercial properties, and just after
the year end, the Fund also made an investment of £404,158 into ATG Media
Holdings Limited to support the MBO of Metropress Limited, the publishers of
the Antiques Trade Gazette.
Cash available for investment
During this economic turmoil, both the Board and the Investment Manager have
worked to ensure that our cash available for investment for both the `O' and
`S' Share Funds remains 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 direct to individual banks, thereby reducing
our exposure to any one particular bank.
Revenue account
The Revenue return for the Company as a whole has increased from £240,595 to £
717,196 over the year, being an increase of £476,601.
£117,359 of this increase arises from the `S' Share Fund, primarily due to the
liquidity fund income earned from the funds raised under the `S' Share Offer.
The `O' Share Fund increased its return by £359,242. Income attributable to the
revenue return rose by £220,857, itself due to two principal factors. First,
dividend income rose by £157,289 as several MPEP investments generated
dividends in the year, notably Image Source Group Limited and Brookerpaks
Limited; secondly, liquidity fund interest rose by £42,539 from higher cash
balances resulting primarily from the realisations in the MPEP portfolio. Loan
stock income was broadly constant this year, although the level of provisions
against non-performing loan stocks has risen. The `O' Share Fund's income has
also increased exceptionally by £83,278, being 25% of anticipated VAT
recoverable, (the other 75% being recorded in the capital return). This
is explained more fully further on in my Statement below.
Management fees charged to revenue fell by £58,241 in the year as asset values
declined together with the absence of VAT on this fee. A portion of overhead
costs has been shared with the `S' Share Fund this year causing a reduction of
£60,909 in running costs attributable to the `O' Share Fund. Although the tax
charge attributable to the revenue return has risen by £64,043, this in itself
reflects the higher levels of taxable income of £423,285.
Dividends
`O' Shares
The Company's revenue return per `O' Share was 1.66 pence per share (2007: 0.62
pence per share). Your Board will be recommending a final dividend of 4 pence
per `O' Share comprising 1 penny from income and 3 pence from capital in
respect of the year under review at the Annual General Meeting to be held on 6
February 2009. The dividends will be paid on 16 February 2009 to `O' Fund
Shareholders on the Register on 16 January 2009.
`S' Shares
The Company's revenue return per `S' Share was 1.26 pence per share. The Fund
expects to commence dividend payments from income in the next financial year.
This will become possible after the cancellation of the share premium account
attributable to the `S' Share Fund.
Dividend investment scheme
`O' Fund Shareholders have and `S' Fund Shareholders will have the opportunity
to re-invest their dividends into new shares of the relevant class at the
latest published NAV per share as at the dividend payment date. Board members
have indicated that they will be doing so to the extent of their full
entitlement.
Valuation policy
In accordance with current accounting standards, quoted stocks are now valued
at bid prices, rather than mid-market prices. It is worth commenting that the
Company does hold a number of relatively early stage AiM-quoted stocks with
limited marketability. In such cases, the price at which a sizeable block of
shares could be traded, if at all, may vary significantly from the market price
used.
Share buy-backs
During the year ended 30 September 2008, the Company continued to implement
actively its buy-back policy and, accordingly the Company bought back 1,213,848
`O' Shares (representing 3.32% of the `O' Shares in issue at the beginning of
the period) at a total cost of £1,055,206 (net of expenses). These shares were
subsequently cancelled by the Company.
VAT
Shareholders may be aware of recent HMRC announcements that could permit VCTs
to recover VAT previously charged on fund mangement fees for at least the past
three years. These accounts have recognised VAT recoverable of £464,000, based
upon available information supplied by the Company's current and past
Investment Managers, of which £131,000 has been set off against the current
year's management expense. This figure contains a degree of estimation and it
is possible that additional amounts of such VAT will be recoverable in due
course. The Directors are unable at this stage to quantify such further
amounts. This amount has been disclosed as a separate item of income in the
Profit and Loss Account.
Appointment of corporate broker
On 13 October 2008, the London Stock Exchange announced that Landsbanki
Securities (UK) Limited (Landsbanki) would no longer be able to act as a market
maker. Landsbanki was therefore unable to quote prices or make a market in the
Company's shares. The Directors understand that this action by the London Stock
Exchange related to the Administration of Landsbanki's parent company,
Landsbanki Islands hf, and resultant regulatory actions arising therefrom. I
apologise for the inconvenience this may have caused to any shareholders.
The Board is pleased, therefore to have been able to announce the appointment
of Matrix Corporate Capital LLP (MCC) as corporate broker to the Company on 3
December 2008. The team at MCC includes the core Investment Funds team who
were formerly at Landsbanki.
Outlook
It is highly probable that the much tougher economic conditions now being
experienced could last for some time. Relatively small, early stage growth
businesses are inevitably tested in such an environment. However, many of our
portfolio companies, which are in later stages of development, are continuing
to trade positively. The Company has significant cash resources and this is
very important at a time when commercial banks have been announcing losses and
are pursuing more cautious lending policies. Furthermore, it places the Company
in an excellent position to take advantage of what are expected to be
increasingly attractive investment opportunities which should become available
in due course. We have already recently seen one example where economic
conditions enabled a renegotiation of the terms of investment. Therefore, while
short term valuations may be subject to continuing pressure your Board looks to
the mid-term future with more confidence.
Awards for MPEP and PastaKing
I am delighted to inform you that our Investment Manager, Matrix Private Equity
Partners, won the award for "VCT Manager of the Year" at the recent unquote"
British Private Equity Awards 2008. May I congratulate the team on their hard
work throughout the year.
We were also very proud to hear that one of our investee companies, PastaKing,
has been awarded `The Small to Medium Sized Business of the Year Award' at the
National Business Awards.
I&G website
May I remind you that the Company has its own website which is available at
www.incomeandgrowthvct.co.uk .
Responsibility Statement of the Directors in respect of the Annual Financial
Report
The Directors confirm that to the best of their knowledge:
a. The financial statements, which have been prepared in accordance with UK
Generally Accepted Accounting Practice (UK GAAP) and the Statement of
Recommended Practice, `Financial Statements of Investment Trust Companies'
issued by the Association of Investment Trust Companies in 2003 and revised
in 2005, give a true and fair view of the assets, liabilities, financial
position and loss of the Company; and
b. The management report, comprising the Chairman's Statement, Investment
Policy, Statement of Principal Risks, Management and Regulatory
Environment, Investment Portfolio Summary and the Investment and Portfolio
Review, 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 they face.
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 Alternative Investment Market 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
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 per cent of its
investments in a single company and must have at least 70 per cent by value of
its investments throughout the period in shares or securities comprised in VCT
qualifying holdings, of which a minimum overall of 30 per cent by value must be
ordinary shares which carry no preferential rights. In addition, although the
Company can invest less than 30 per cent of an investment in a specific company
in ordinary shares it must have at least 10 per cent 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 per cent 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 per cent 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 per cent 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 four 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.
Loss of approval as a Venture Capital Trust - the Company must comply with
section 274 of the Income Tax Act 2007 ("ITA") which allows it to be exempted
from capital gains tax on investment gains. Any breach of these rules may lead
to the Company losing its approval as a 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 - inappropriate strategy or consistently weak VCT
qualifying investment recommendations might lead to underperformance and poor
returns to shareholders.
Regulatory - the Company is required to comply with the Companies Acts 1985 and
2006 ("the Companies Acts"), the listing rules of the UK Listing Authority and
United Kingdom Accounting Standards. Breach of any of these might lead to
suspension of the Company's Stock Exchange listing, financial penalties or a
qualified audit report.
Financial and operating risk - inadequate controls that might lead to
misappropriation of assets. Inappropriate accounting policies might lead to
misreporting or beaches of regulations. Failure of the 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 - Investment in unquoted companies, by its nature, involves a
higher degree of risk than investment in companies traded on the London Stock
Exchange main market. In particular, smaller companies often have limited
product lines, markets or financial resources and may be dependent for their
management on a smaller number of key individuals.
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 paragraph on `Cash available for investment' in the Chairman's
Statement.
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 and Portfolio Review
Summary
The portfolio has experienced a mixed year, reflecting to a significant extent
the extreme market conditions which have prevailed over the period, starting
with the excellent environment for profitable realisations through to March
rapidly followed by the collapse in share prices as the UK headed into
recession.
At 30 September 2007 the investments in the MPEP portfolio were valued at £24.0
million. During the year, realised gains of £2.1 million were achieved, but the
increasing pressure on valuations in the second half of the financial year led
to the need for provisions and therefore unrealised losses of £3.3 million,
resulting in a net loss of £1.2 million. The realisations generated significant
cash proceeds of £7.1 million.
The Foresight Group (Foresight) legacy portfolio fared less well. At 30
September 2007 the investments in the Foresight portfolio were valued at £6.9
million. During the year, there were no realisations for cash, but there was a
need for provisions and therefore unrealised losses of £4.2 million. This
reflected a continuing difficult environment for technology investment.
The year-end valuations of portfolio companies have inevitably been affected by
the material reductions in the FTSE Sector PEs, by reference to which the
Company's investments are valued. Despite this, we remain confident in the
overall quality of the portfolio and in particular, given recent general
comment on the tightening of bank lending, do not consider that the portfolio
is exposed to unsustainable levels of third party debt.
MPEP `O' Share Fund investments
During the year, £4.2 million was deployed into new investments and since the
year-end, new investments of £724,106 were completed.
Generally we have been very cautious regarding new investments over the past
two years, believing that vendors' price expectations would prove unsustainable
over the medium term. Since the previously reported investments of £516,900 and
£424,447 to support the management buy-outs ("MBOs") of Focus Pharmaceuticals
and Monsal respectively in October and December 2007, one further MBO
transaction has been completed. This was an investment into Plastic Surgeon in
April; this company offers snagging and finishing services to domestic and
commercial properties and is based in Bovey Tracey, Devon. The `O' Share Fund
invested £307,071 for 4.6% of the equity.
As part of a new initiative to generate additional high-quality MBO
investments, the Fund has also invested alongside other MPEP advised funds in
three new companies headed by experienced Chairmen well known to MPEP. These
individuals are working closely with MPEP in seeking to identify and complete
investments in specific sectors relevant to their industry knowledge and
experience. Three investments of £1 million were completed in September;
Apricot Trading is focussed on the marketing services and media sectors, Aust
Construction Investors is seeking to invest in the construction related
services, and Calisamo Management is targeting the healthcare and wellbeing
products sectors. Importantly these acquisition vehicles are designed to
provide time to find and invest in their chosen target companies at
sufficiently attractive prices.
After the year-end, the `O' Share Fund invested £595,842 for loan stock and
5.3% of the equity of ATG Media. This company was formed to acquire the
publisher of the leading weekly newspaper serving the UK antiques trade, the
Antiques Trade Gazette, via a MBO. This London-based business also offers an
on-line auction capability. Also after the year-end, the `O' Share Fund made a
further investment of 129,264 into PXP Holdings.
Conditions prevailing in the earlier months of the year gave us the opportunity
to realise highly satisfactory returns from the disposals of BBI and Ministry
of Cake. These were reported in detail at the half-year and resulted in total
proceeds of £4.4 million (including further proceeds from the 2006 sale of
Secure Mail Services), compared with cost of £1.22 million and a 30 September
2007 valuation of £2.47 million. In the case of Secure Mail Services, a further
£80,000 was received in July and additional proceeds that are not recognised in
these accounts are expected over the next nine months.
The recapitalisation of HWA produced a cash return of £2.38 million and a
concentration of the Fund's investment from 17.0% to 21.1%. A smaller
recapitalisation of Amaldis has resulted in the Fund's 11.0% equity investment
being exchanged for a 9.2% shareholding and a loan stock with a value of £1.2
million.
Small distributions of £68,000 and £22,000 have also been received from the
liquidation of The Hunter Rubber Company, and in April a loan stock prepayment
of £143,000 was received from VSI, together with a 10% premium.
Whilst there is some evidence of declining performance in the portfolio,
particularly amongst those companies more directly exposed to the construction
and retail sectors, many portfolio companies are continuing to record growing
profits and generate strong cash flow.
Youngman has inevitably suffered from a significant reduction in demand from
its major trade customers serving the construction industry, and whilst PXP has
performed well this year, 2009 looks less promising. Plastic Surgeon has also
been hit by the downturn and we have decided to provide 50% of the cost of
investment to reflect this poor start. Blaze Signs Holding, having had a record
year in 2007-8, is now feeling the effects of its customers deferring work. The
provision against Monsal reflects a timing issue in winning new contracts
during the year although next year appears considerably more promising with a
number of contracts now secured. HWA continues with a strong order book and is
expected broadly to maintain current levels of profitability.
Media investments show a mixed picture, with an excellent performance from
Tottel Publishing looking to continue into 2009, based on a strong list of new
legal and taxation titles. Image Source has operated in a more turbulent
royalty-free image market but is succeeding in growing steadily its independent
distribution revenues and expects to increase profits in its current financial
year. Campden has found it challenging to grow its US wealth conference
business, particularly over the last few months.
Elsewhere, DiGiCo Europe has enjoyed a strong first year post-investment
following the successful launch of its new digital audio mixing desk. PastaKing
has posted profits of £2.7 million, an increase of 23%, despite increasing
pressure on ingredient prices, and Brookerpaks has again performed solidly.
Focus Pharma has also had a good first year since its MBO.
Vectair had an outstanding year, producing record profits and making inroads
into potentially significant markets in India and the US. VSI is strongly
cash-generative and is benefitting from the relative weakness of sterling as
well as seeing increased customer demand. British International's helicopter
service to the Scilly Isles from Penzance experienced possibly the worst summer
weather in two decades which decimated the day trip market, but has benefited
from the solidity of its long-term military contract revenue.
Amaldis is anticipating increased profitability in 2008 but much as ever will
depend on the Christmas season. Racoon has continued to struggle to develop its
salon business but hopes for its new retail range are high with a major
retailer having agreed to take its product during the last quarter of 2008.
BG Consulting will fall short of last year's performance in view of the major
upheavals of its investment banking clients. Letraset continues to struggle to
halt its gradual revenue decline, and SectorGuard's share price has moved
downwards in line with the market although it is hoped that its acquisition of
Manguard in early 2008 may prove transformational. The liquidation of FH
Ingredients continues. Finally and disappointingly, Inca Interiors went into
administration in June, having failed to stem its losses over the past two
years; no proceeds are expected to accrue to the Fund. The investment had been
fully provided against.
The other portfolio investments are two quoted companies, Tikit and IDOX. The
investment in IDOX has shown a small uplift in value over the year, and its
acquisitions, particularly Plantech, seem to be performing well and
strengthening its presence in the local authority market. Tikit has suffered a
31% drop in value over the year despite posting interim results recently which
showed a 19% increase in operating profits.
Foresight `O' Share Fund investments
Following the Board's announcement in March that MPEP was to assume
responsibility from Foresight for the eleven investments it managed on behalf
of your Company, MPEP and Foresight have been working together to ensure a
smooth handover. This has now been accomplished.
This portfolio, comprising a mixture of shareholdings in AiM-quoted companies
and predominantly early-stage technology-based private businesses, has again
had a difficult year. With the exception of ANT, whose share price has risen by
50% over the last year, these companies have all seen very large falls in their
share prices: 58% in the case of Oxonica, 74% in the case of Corero and 83% in
the case of Sarantel.
Over the same period the AiM All-Share Index has suffered a 44% drop and
smaller capitalisation businesses with limited liquidity are particularly
exposed. This is especially so when, as is the case with Oxonica and Sarantel,
cash-flow negative businesses need to raise additional capital. The `O' Fund
provided an additional £388k to Oxonica in December 2007 as part of a £4
million capital raising.
Aigis Blast Protection remains loss-making as do Biomer Technology and
Nexxtdrive, both of which are only now beginning to generate small levels of
revenue. Camwood moved into losses as a result of costs incurred to develop and
exploit a new product designed for customers migrating to Microsoft Vista,
which is taking longer than expected to happen. Alaric Systems continues to
find it difficult to grow sales, not helped by the long lead times inherent in
selling to financial institutions.
DCG Group (Datapoint) is seeking to develop its managed services revenue which
is expected to drive shareholder value, and Aquasium Technology is performing
more strongly this year due to improvement in its UK business.
`S' Share Fund
The Fund completed its first investment alongside the `O' Share Fund, in
Plastic Surgeon, as described above, investing £99,011 for 1.5% of the equity.
Since the year end it has also supported the MBO of ATG Media, investing £
404,158 for a 3.6% equity stake.
Whilst the `S' Share Fund has not invested alongside the `O' Share Fund in
Apricot Trading, Aust Construction Investors and Calisamo Management, it is
intended that it will do so as these companies identify and complete suitable
MBO transactions.
Investment outlook
We continue to see a steady influx of interesting MBO investment opportunities
but are particularly mindful of the worsening domestic economic environment and
will complete only those investments which in our view are highly resilient and
appropriately priced and funded to be able to weather the challenging economic
conditions over the coming period.
Investment Portfolio Summary - 'O' Share Fund
As at 30 September 2008
Cost at Valuation at Additional Valuation at % of % of
30-Sep-08 30-Sep-07 investments 30-Sep-08 equity portfolio
held3 by value
Matrix Private Equity Partners
portfolio
£ £ £ £
HWA Limited (Holloway 34,553 4,691,649 - 2,359,597 21.1% 10.22%
White Allom Limited)
Refurbishment,
restoration and
construction of notable
public buildings and
top-end residential
dwellings in and around
London
Image Source Group 305,000 2,850,171 - 2,241,678 44.0% 9.71%
Limited
Royalty free picture
library
Youngman Group Limited 1,000,052 2,930,234 - 1,615,929 8.5% 6.99%
Manufacturer of ladders
and access towers
Blaze Signs Holdings 1,338,500 1,704,694 - 1,392,644 12.5% 6.03%
Limited
Manufacturer and
installer of signs
Tottel Publishing 514,800 809,221 - 1,294,585 13.7% 5.61%
Limited
Publisher of specialist
legal and taxation
titles
Amaldis (2008) Limited 80,313 967,438 - 1,248,967 9.2% 5.41%
(Original Additions)
Manufacturer and
distributor of beauty
products
Apricot Trading Limited 1,000,000 - 1,000,000 1,000,000 24.5% 4.33%
Company seeking to
acquire businesses in
the marketing services
and media sector.
Aust Construction 1,000,000 - 1,000,000 1,000,000 16.3% 4.33%
Investors
Company seeking to
acquire businesses in
the construction sector.
Calisamo Management 1,000,000 - 1,000,000 1,000,000 16.3% 4.33%
Limited
Company seeking to
acquire businesses in
the healthcare sector.
Tikit Group plc1 500,000 1,304,346 - 899,999 3.0% 3.90%
Provider of consultancy,
services and software
solutions for law firms
PastaKing Holdings 292,405 611,778 - 856,250 4.5% 3.71%
Limited
Manufacturer and
supplier of fresh pasta
meals
I-Dox plc1 872,625 775,833 - 816,667 2.4% 3.54%
Provider of document
storage systems
DiGiCo Europe Limited 656,900 656,900 - 763,337 4.3% 3.31%
Designer and
manufacturer of audio
mixing desks
VSI Limited 245,596 730,901 - 675,439 10.0% 2.93%
Provider of software for
CAD and CAM vendors
Focus Pharma Holdings 516,900 - 516,900 516,900 2.1% 2.24%
Limited
Licensor and distributer
of generic
pharmaceuticals
Brookerpaks Limited 55,000 416,130 - 417,540 17.1% 1.81%
Importer and distributor
of garlic and
vacuum-packed vegetables
to supermarkets and the
wholesale trade
British International 500,000 538,535 - 375,112 5.0% 1.62%
Holdings Limited
Helicopter service
operator
Vectair Holdings Limited 215,914 300,579 - 341,830 4.6% 1.48%
Designer and distributor
of washroom products
PXP Holdings Limited 790,912 790,912 - 324,860 6.8% 1.41%
(Pinewood Structures)
Designer, manufacturer
and supplier of timber
frames for buildings
Monsal Holdings Limited 424,447 - 424,447 318,335 6.6% 1.39%
Supplier of engineering
services to water and
waste sectors
B G Consulting Group 1,153,976 332,212 - 256,530 33.2% 1.11%
Limited/Duncary 4
Limited
Technical training
business
The Plastic Surgeon 307,071 - 307,071 153,536 4.6% 0.66%
Holdings Limited
Supplier of snagging and
finishing services to
property sector.
Campden Media Limited 334,880 326,842 - 65,842 3.7% 0.29%
Magazine publisher and
conference organiser
SectorGuard plc 150,000 107,142 - 64,286 1.1% 0.28%
Provider of manned
guarding, mobile patrols
and alarm response
services
Racoon International 550,852 413,139 - 13,692 7.7% 0.06%
Holdings Limited
Supplier of hair
extensions, hair care
products and training
Inca Interiors Limited 350,000 50,000 - 0 14.8% 0.00%
Design, supply and
installation of quality
kitchens to house
developers
Letraset Limited 650,000 213,982 - 0 17.4% 0.00%
Manufacturer and
worldwide distributor of
graphic art products
BBI Holdings plc - 1,430,231 - - - 0.00%
Manufacturer of gold
conjugate for the
medical diagnostics
industry
Ministry of Cake - 1,039,709 - - 0.0% 0.00%
(Holdings) Limited
Manufacturer of desserts
and cakes for the food
service industry
Special Mail Services - - - - 12.6% 0.00%
Limited
(Company sold in 2006)
Other investments in the 1,719,785 0 - 0 - 0.00%
portfolio2
------------- ------------- ------------- ------------- ------------- -------------
MPEP Total 16,560,481 23,992,578 4,248,418 20,013,555 86.70%
Notes
1 Investment formerly managed by Nova Capital Management Limited up to 31
August 2007.
2 Other investments in the portfolio comprise The Hunter Rubber Company Limited
(in administration), Stortext-FM Limited/Stortext (DO) Limited and FH
Ingredients Limited, of which the principal operating subsidiary, FH
Realisations Limited, is in administration.
3 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.
Cost at Valuation at Additional Valuation at % of % of
30-Sep-08 30-Sep-07 investments 30-Sep-08 equity portfolio
held3 by value
Former Foresight Group
portfolio
£ £ £ £
Oxonica plc 2,524,527 1,944,060 387,764 1,113,991 10.6% 4.82%
Specialist in the
design, manipulation
and engineering of
properties of
materials at the
nano-scale
Camwood Limited 1,028,181 1,028,181 - 552,444 34.7% 2.39%
Provider of software
repackaging services
DCG Group Limited 312,074 376,283 - 321,013 6.3% 1.39%
(formerly DCG
Datapoint Group
Limited)
Design, supply and
integration of data
storage solutions
Aquasium Technology 700,000 567,310 - 311,306 16.7% 1.35%
Limited
Business engaged in
the design,
manufacturing and
marketing of bespoke
electron beam welding
and vacuum furnace
equipment
NexxtDrive Limited 1 812,014 738,264 - 203,004 8.4% 0.88%
Developer of
transmissions
technologies for
applications in the
automotive,
construction and
industrial sectors
ANT plc 462,816 131,319 - 196,979 2.7% 0.85%
Provider of embedded
browser/email
software for consumer
electronics and
Internet appliances
Biomer Technology 137,170 753,837 - 137,170 5.6% 0.59%
Limited 1
Developer of
biomaterials for
medical devices
Corero plc (formerly 600,000 279,955 - 73,672 6.5% 0.32%
Mondas plc)
Provider of
e-business
technologies
Sarantel plc 1,881,251 408,465 - 68,078 3.6% 0.29%
Developer and
manufacturer of
antennae for mobile
phones and other
wireless devices
Aigis Blast 272,120 249,990 - 68,030 4.2% 0.29%
Protection Limited
Specialist blast
containment materials
company
Alaric Systems 595,803 446,822 - 30,647 8.1% 0.13%
Limited
Software developer
and provider of
support services in
the credit/debit card
authorisation and
payments market
Other investments in - - - - - 0.00%
the portfolio 2
------------- ------------- ------------- ------------- -------------
Foresight Total 9,325,956 6,924,486 387,764 3,076,334 13.30%
------------- ------------- ------------- ------------- -------------
O' Share Fund Total 25,886,437 30,917,064 4,636,182 23,089,889 100.00%
------------- ------------- ------------- ------------- -------------
Notes
1 Investment formerly managed by Nova Capital Management Limited up to 31
August 2007.
2 Other investments in the portfolio comprises data relating to Broadreach
Networks Limited (dissolved in May 2008).
3 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 coompany exercises share options.
Investment Portfolio Summary - 'S' Share Fund
As at 30 September 2008
Cost at Valuation at Additional Valuation at % of % of
30-Sep-08 30-Sep-07 investments 30-Sep-08 equity portfolio
held1 by value
Matrix Private Equity Partners
portfolio
£ £ £ £
The Plastic 99,011 - 99,011 49,506 4.6% 100.00%
Surgeon Holdings
Limited
Supplier of
snagging and
finishing services
to property
sector.
------------- ------------- ------------- ------------- -------------
S' Share Fund 99,011 0 99,011 49,506 100 .00%
Total
------------- ------------- ------------- ------------- -------------
Company totals 25,985,448 30,917,064 4,735,193 23,139,395 100.00%
------------- ------------- ------------- ------------- -------------
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 coompany exercises share options.
Non-Statutory Analysis between the `O' Share and `S' Share Funds
1. Profit and Loss Accounts for the year ended 30 September 2008
`O' Share Fund `S'Share Fund
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Unrealised (losses)/ - (7,504,370) (7,504,370) - (49,505) (49,505)
gains on investments
held at fair value
Realised gains on - 2,053,510 2,053,510 - - -
investments held at
fair value
Income 1,201,981 - 1,201,981 252,743 - 252,743
Recoverable VAT 83,278 249,833 333,111 - - -
Investment management (166,985) (923,688) (1,090,673) (30,043) (90,122) (120,165)
fees
Other expenses (434,526) - (434,526) (82,479) - (82,479)
------------ ------------ ------------ ----------- ----------- ------------
Return on ordinary 683,748 (6,124,715) (5,440,967) 140,221 (139,627) 594
activities before
taxation
Tax on ordinary (83,911) 88,298 4,387 (22,862) 18,475 (4,387)
activities
------------ ------------ ------------ ----------- ----------- ------------
Return attributable 599,837 (6,036,417) (5,436,580) 117,359 (121,152) (3,793)
to equity
shareholders
======= ======= ======= ======= ======= =======
Return per share 1.66 p (16.72)p (15.06)p 1.26 p (1.30)p (0.04)p
Average number of 36,109,718 9,341,544
shares in issue
Total
Revenue Capital Total
£ £ £
Unrealised (losses)/ - (7,553,875) (7,553,875)
gains on investments
held at fair value
Realised gains on - 2,053,510 2,053,510
investments held at
fair value
Income 1,454,724 - 1,454,724
Recoverable VAT 83,278 249,833 333,111
Investment (197,028) (1,013,810) (1,210,838)
management fees
Other expenses (517,005) - (517,005)
------------ ------------ ------------
Return on ordinary 823,969 (6,264,342) (5,440,373)
activities before
taxation
Tax on ordinary (106,773) 106,773 -
activities
------------ ------------ ------------
Return attributable 717,196 (6,157,569) (5,440,373)
to equity
shareholders
======= ======= =======
2. Balance Sheets as at 30 September 2008
`O' Share Fund `S' Share Adjustments Total
Fund (see note below)
£ £ £ £ £
Fixed assets
Assets held 23,089,889 49,506 23,139,395
at fair value
through
profit and
loss -
investments
Current
assets
Debtors and 1,433,409 461,095 (50,727) 1,843,777
prepayments
Other assets 5,643,415 10,692,599 16,336,014
Cash at bank 24,071 41,619 65,690
-------------- ------------- ---------- -------------- --------------
7,100,895 11,195,313 (50,727) 18,245,481
Creditors: (566,564) (77,327) 50,727 (593,164)
amounts
falling due
within one
year
-------------- ------------- ---------- -------------- --------------
Net current 6,534,331 11,117,986 17,652,317
assets/
(liabilities)
======== ======== ====== ======== ========
Net assets 29,624,220 11,167,492 40,791,712
======== ======== ====== ======== ========
Capital
Called up 354,515 118,065 472,580
share capital
Share premium 213,062 11,053,220 11,266,282
reserve
Capital 65,472 - 65,472
redemption
reserve
Capital (1,203,256) (49,505) (1,252,761)
reserve -
unrealised
Special 18,169,799 - 18,169,799
reserve
Profit and 12,024,628 45,712 12,070,340
loss account
======== ======== ====== ======== ========
Equity 29,624,220 11,167,492 40,791,712
shareholders'
funds
======== ======== ====== ======== ========
Number of 35,451,438 11,806,467
shares in
issue:
Basic net 83.56p 94.59p
asset value
per 1p share:
Diluted net 82.39p 94.59p
asset value
per 1p share:
Note: The adjustment above nets off the inter-fund debtor and creditor
balances, so that the "Total of both Funds" balance sheet agrees to the
Statutory Balance Sheet below.
3. Reconciliation of Movements in Shareholders' Funds
`O' Share Fund `S' Share Fund Total
£ £ £
Opening shareholders' 36,778,493 - 36,778,493
funds
Net share capital (1,063,732) - (1,063,732)
bought back in the
year
Net share capital 77,226 11,171,285 11,248,511
subscribed for in the
year
Loss for the year (5,436,580) (3,793) (5,440,373)
Dividends paid / (731,187) - (731,187)
payable in year
============ ============ ============
Closing shareholders' 29,624,220 11,167,492 40,791,712
funds
============ ============ ============
Profit and Loss Account
for the year ended 30 September 2008
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Net unrealised losses - (7,553,875) (7,553,875) - (3,150,761) (3,150,761)
on investments
Net gains on - 2,053,510 2,053,510 - 85,906 85,906
realisation of
investments
Income 1,454,724 - 1,454,724 981,124 432,488 1,413,612
Recoverable VAT 83,278 249,833 333,111 - - -
Investment management (197,028) (1,013,810) (1,210,838) (225,226) (675,676) (900,902)
fees
Other expenses (517,005) - (517,005) (495,435) - (495,435)
------------ ------------- -------------- ----------- ------------- --------------
Profit/(loss) on 823,969 (6,264,342) (5,440,373) 260,463 (3,308,043) (3,047,580)
ordinary activities
before taxation
Tax on ordinary (106,773) 106,773 - (19,868) 19,868 -
activities
------------ ------------- -------------- ----------- ------------- --------------
Profit/(loss) on 717,196 (6,157,569) (5,440,373) 240,595 (3,288,175) (3,047,580)
ordinary activities
after taxation for the
financial year
------------ ------------- -------------- ----------- ------------- --------------
Basic and diluted 1.66p (16.72)p (15.06 )p 0.62p (8.47)p (7.85)p
earnings per share -
`O' Share Fund:
Basic and diluted 1.26p (1.30)p (0.04)p - - -
earnings per share -
`S' Share Fund:
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/or losses in the year.
The difference between the loss as reported above and the result that would
have been reported on the historic cost basis of accounting is solely due to
fair value adjustments. Accordingly, no reconciliation between the two bases
has been provided.
Balance Sheet
as at 30 September 2008
as at 30 September 2008 as at 30 September 2007
£ £ £ £ £ £
Fixed assets
Investments at fair value 23,139,395 30,917,064
Current assets
Debtors and prepayments 1,843,777 718,787
Current investments 16,336,014 6,581,497
Cash at bank 65,690 46,862
------------- -------------
18,245,481 7,347,146
Creditors: amounts
falling due within one
year
Other creditors 19,954 1,337,587
Accruals 573,210 148,130
------------- (593,164) ------------ (1,485,717)
------------- ------------- ------------- -------------
Net current assets 17,652,317 5,861,429
------------- -------------
Net assets 40,791,712 36,778,493
------------- -------------
Capital and reserves
Called up share capital 472,580 365,895
Share premium account 11,266,282 136,594
Capital redemption 65,472 53,334
reserve
Capital reserve - (1,252,761) 8,425,544
unrealised
Special reserve 18,169,799 21,508,270
Profit and loss account 12,070,340 6,288,856
------------- -------------
40,791,712 36,778,493
------------- -------------
Net asset value per share
`O' Shares - basic 83.56p 100.52p
`O' Shares - diluted 82.39p 100.52p
`S'Shares - basic and 94.59p -
diluted
Reconciliation of Movements in Shareholders' Funds
for the year ended 30 September 2008
2008 2007
£ £
Opening shareholders' funds 36,778,493 44,150,278
Net share capital bought (1,063,732) (2,202,103)
back in the year
Net share capital subscribed 11,248,511 76,309
for in the year
Loss for the year (5,440,373) (3,047,580)
Dividends paid/payable in (731,187) (2,198,411)
the year
----------------- -----------------
Closing shareholders' funds 40,791,712 36,778,493
----------------- -----------------
Cash Flow Statement
for the year ended 30 September 2008
Year ended Year ended
30 September 2008 30 September 2007
Operating activities £ £
Investment income received 1,435,092 1,758,835
Other income received - 11,754
Investment management fees (782,286) (1,026,861)
paid
Other cash payments (564,901) (492,457)
------------------ ------------------
Net cash inflow from 87,905 251,271
operating activities
Investing activities
Acquisition of investments (5,735,193) (3,544,272)
Disposal of investments 7,247,239 4,968,804
------------------ ------------------
1,512,046 1,424,532
Equity Dividends
Payment of equity dividends (1,385,722) (1,466,621)
------------------ ------------------
Cash inflow before 214,229 209,182
financing and liquid
resource management
Management of liquid
resources
Increase in monies held (9,754,517) (612,057)
pending investment
Financing
Issue of Ordinary shares 11,171,285 76,309
Purchase of own shares (1,612,169) (1,653,666)
------------------ ------------------
9,559,116 (1,577,357)
=========== ===========
Increase/(decrease) in cash 18,828 (1,980,232)
for the year
=========== ===========
Notes
1. Income
2008 2007
Income from investments £ £
- from equities 305,895 581,094
- from OEIC funds 659,358 375,523
- from loan stock 445,525 444,647
- from bank deposits 43,946 4,473
Total income 1,454,724 1,405,737
Total income comprises
Revenue dividends received 965,253 524,129
Capital dividends received - 432,488
Interest 489,471 449,120
Other income - 7,875
1,454,724 1,413,612
2. Investment Managers' 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
.
3. Return per `O' Share
The basic revenue return per `O' Share is based on the net revenue from
ordinary activities after taxation of £599,837 (2007: £240,595) and on
36,109,718 (2007: 38,802,180) `O' Shares, being the weighted average number of
`O' Shares in issue during the year.
The basic capital return per `O' Share is based on net realised capital loss of
£6,036,417 (2007: £3,288,175) and on 36,109,718 (2007: 38,802,180) `O' Shares,
being the weighted average number of `O' Shares in issue during the year.
4. Return per `S' Share
The basic revenue return per `S' Share is based on the net revenue from
ordinary activities after taxation of £117,359 and on 9,341,544 `S' Shares,
being the weighted average number of `S' Shares in issue during the year.
The basic capital return per `S' Share is based on net realised capital losses
of £121,152 and on 9,341,544 `S' Shares, being the weighted average number of
`S' Shares in issue during the year.
5. Net asset values
Net asset value per `O' Share is based on net assets at the end of the year and
on 35,451,438 `O' Shares of 1 penny (2007: 36,589,479), being the number of `O'
Shares in issue on that date.
Net asset value per `S' Share is based on net assets at the end of the year and
on 11,806,467 `S' Shares of 1 penny (2007: nil), being the number of `S' Shares
in issue on that date.
6. Dividends
The Company proposes to pay a final dividend of 4 pence per share, comprising 1
penny per share from income and 3 pence per share from capital, to `O' Fund
Shareholders.
The Company is not proposing any final dividend from income to `S' Fund
Shareholders, as there are no distributable reserves in this Fund.
The dividends will be recommended to members at the Annual General Meeting and,
if approved, will be paid on 16 February 2009 to shareholders on the Register
on 16 January 2009.
7. Financial information
The financial information set out in these statements does not constitute the
Company's statutory accounts for the year ended 30 September 2008 but is
derived from those accounts. Statutory accounts will be delivered to the
Registrar of Companies after the Annual General Meeting.
8. Annual Report
A Summary Annual Report will be circulated by post to all Shareholders shortly
and copies will be available thereafter to members of the public from the
Company's registered office. Shareholders who wish to receive a copy of the
full Annual Report may request a copy by writing to the Company Secretary,
Matrix-Securities Limited, One Vine Street, London W1J 0AH. Alternatively
copies may be downloaded via the Company's website at www.incomeandgrowthvct.co.uk.
9. The Annual General Meeting of the Company will be held at 11.00 am on 6
February 2008 at One Vine Street, London W1J 0AH.