Interim Results
MATRIX INCOME & GROWTH 2 VCT PLC
Interim results for the six months ended 31 October 2006
Financial highlights
Ordinary Shares (listed on 11 July 2000)
Initial net asset value per Ordinary 94.00 pence
Share
Initial net assets £12,388,236
31 October 30 April 31 October
2006 2006 2005
Net assets £12,622,286 £10,938,976 £11,075,033
Net asset value per Ordinary Share 102.28 pence 87.05 pence 87.30 pence
Total dividends per Ordinary Share paid 14.79 pence 14.79 pence 8.79 pence
to date
Total return to shareholders since 117.07 pence 101.84 pence 96.09 pence
launch per share*
Earnings per Ordinary Share 14.87 pence 6.91 pence 1.26 pence
Total dividends per Ordinary Share for 0.00 pence 12.00 pence 6.00 pence
the period
C Shares (listed on 21 December 2005)
Initial net asset value per C Share 94.50 pence
Initial net assets £8,648,486
31 October 30 April
2006 2006
Net assets £8,681,654 £8,626,295
Net asset value per C Share 94.92 pence 94.32 pence
Total return to shareholders since 94.92 pence 94.32 pence
launch per share*
Earnings/(loss) per C Share 0.61 pence (0.56) pence
* Net asset value per share plus cumulative dividends per share. This compares
to an original investment cost of 80 pence per share for the Ordinary Share
Fund and 60 pence per share for the C Share Fund after allowing for income tax
relief of 20 pence and 40 pence per share respectively.
Chairman's Statement
I am pleased to announce the Interim Results of Matrix Income & Growth 2 VCT
plc (the "Company") for the period from 1 May 2006 to 31 October 2006.
Overview
Your Company is benefiting from a solid performance by Matrix Private Equity
Partners, the Investment Manager. Since April, the Ordinary and C Share Funds
have made investments together in three further companies, totalling £1.2
million and £400,000 respectively. The Board is encouraged by the satisfactory
early performance of these investments.
Your Board was also pleased to hear that your Investment Manager successfully
retained the award for Venture Capital Trust Manager of the Year at the
Investor AllStars 2006 Awards ceremony held in September 2006.
Ordinary Share Fund
I am satisfied to report another period of strong performance. The NAV per
Ordinary Share at 31 October 2006 was 102.28 pence, a 17% increase when
compared with 87.30 pence per share as at 31 October 2005, or 26% after
adjusting for the 6 pence capital dividend referred to in my Statement in
respect of the period ended 31 October 2005. When adjusted for all dividends
paid since the Company's formation, the Fund's total return has increased by
22% from 96.09 pence at 31 October 2005 to 117.07 pence per share at 31 October
2006.
With a full year having passed since the implementation of the change in
investment strategy, the Fund now more fully reflects the Investment Manager's
focus on management-buy-outs ("MBOs"), which now account for seven of the
Fund's sixteen investments. During August the decision was taken to complete
the exit from Miva Inc generating a positive return of £145,000 above original
cost of £612,000. Of the more recent investments, Youngman Group in particular,
has demonstrated strong performance which has been reflected in a material
uplift in its valuation. A number of other newer investments are also trading
encouragingly.
During the period, 225,000 Ordinary Shares were bought back for cancellation at
an average price of 74.50 pence per share.
C Share Fund
The NAV per C Share at 31 October 2006 stood at 94.92p, a 0.4% increase on the
NAV at the close of the Offer for Subscription in April 2006.
Since April the Fund has invested in five companies, all but one reflecting the
Investment Manager's MBO focus. Given the short time since investment all
remain held at cost with the exception of BBI Holdings, am AIM quoted
investment whose share price has increased by 38.50 pence (40.90%) since the
Fund invested in May.
Return to Shareholders
The results for this period are set out on the following pages and show a
revenue profit (after tax) attributable to Ordinary Fund Shareholders of 0.83
of a penny per Ordinary Share (31 October 2005: loss of 0.32 of a penny). The
total profit (after tax) attributable to Ordinary Fund Shareholders was 14.87
pence per Ordinary Share (31 October 2005: 1.26 pence).
The revenue profit (after tax) attributable to C Share Fund Shareholders was
0.91 of a penny. The total profit (after tax) attributable to C Share Fund
Shareholders was 0.61 of a penny.
Dividend
The Board is not recommending the payment of an interim dividend in respect of
the six months ended 31 October 2006 to either Ordinary Shareholders or C
Shareholders. The Directors will consider the payment of final dividends in
respect of the year ending 30 April 2007 when they review the full year
results.
The Board
This is my first report as Chairman of the Company, following the retirement of
Michael Cumming in September 2006. I would like to place on record my
appreciation for his contribution since the Company's formation and also that
of Fredrik Adams, who did not stand for re-election in September as a result of
his increased other commitments.
I am delighted to report the appointment of Adam Kingdon to the Board. Adam
joined us as a Non-Executive director on 29 September 2006 and brings with him
a wealth of UK and European commercial experience across a range of sectors
accumulated over more than 20 years. We look forward very much to working with
him.
The Board intends to make a further appointment in due course.
Nigel Melville
Chairman
Investment Manager's Review
The Company's focus remains on investing primarily in profitable, established
unquoted companies, by way of MBOs operating across a wide range of sectors.
Typically these investee companies will be cash-generative and therefore
capable of producing dividend income, as well as capital returns to
Shareholders on their ultimate sale or flotation.
The Ordinary Share Fund comprises investments in 16 companies and now better
reflects the Investment Manager's strategy. Nine new investments have been
completed in total since the change in investment strategy last year. Most
continue to be held at cost, in accordance with the International Private
Equity & Venture Capital Valuation ("IPEVCV") guidelines, but the Fund's two
AIM quoted investments, BBI Holdings and SectorGuard, are valued at market
prices in excess of cost. Further, the first MBO investment, Youngman Group,
has seen a significant uplift following very strong trading during the latter
part of 2005 which has continued during the current year.
During August the decision was taken to complete the exit from Miva Inc. The
proceeds from the disposal of £175,000 contributed to a total return of £
757,000 from this £612,000 investment made in 2003.
The C Share Fund now has five investments, all made alongside the Ordinary
Share Fund since April of this year. These all remain valued at cost, apart
from BBI Holdings whose market price has increased by 40.90% since investment.
Your Investment Manager is encouraged by the performance of its Ordinary and C
Share Fund investments and is committed to actively sourcing appropriate
investment opportunities to develop the portfolio further.
Investment Portfolio Summary
As at 31 October 2006
Ordinary Share Fund
Date of first Total book Valuation % of net
investment cost assets by
value
£ £ £ £
Qualifying investments
AIM quoted investments
Clarity Commerce Solutions July 2000 510,000 417,600 3.3%
plc
Customer relationship
management software
BBI Holdings plc May 2006 118,738 167,254 1.3%
Develpoment and manufacture
of rapid test diagnostic
products
SectorGuard plc August 2005 150,000 160,714 1.3%
Provision of manned guarding,
mobile patrolling and alarm
response services
Flightstore Group plc March 2001 254,586 1,584 0.0%
In-flight retail services
----- ----- -----
1,033,324 747,152 5.9%
------ ------ ------
Unquoted investments
Youngman Group Limited October 2005 1,000,000 2,526,964 20.0%
Manufacturer of ladders and
access towers
Gyro International Limited February 2005 750,000 1,283,646 10.2%
Brand Communications agency
Campden Media Limited January 2006 975,000 975,000 7.7%
Magazine publisher and
conference organiser
British International June 2006 832,827 832,827 6.6%
Holdings Limited
Supplier of helicopter
services
Recite Limited August 2003 1,000,000 750,000 5.9%
Sales support software
VSI Limited April 2006 365,764 365,764 2.9%
Developer and marketer of 3D
software
Blaze Signs Holdings Limited April 2006 339,545 339,545 2.7%
Signwriter
PastaKing Holdings Limited June 2006 274,624 274,624 2.2%
Supplier to the educational
and food service market
Vectair Holdings Limited January 2006 243,784 243,784 1.9%
A provider of air care and
sanitary washroom products
Callserve Communications October 2000 300,000 - 0.0%
Limited
Voice over Internet Protocol
Monactive Limited March 2001 642,857 - 0.0%
Software asset management
tools and services
Award International Holdings March 2004 250,000 - 0.0%
plc
Sales promotion activities
------ ----- -----
6,974,401 7,592,154 60.2%
----- ----- -----
Total qualifying investments 8,007,725 8,339,306 66.1%
----- ----- -----
Non-qualifying investments
Money market funds1 2,193,780 2,193,780 17.4%
AIM quoted investments 908 759 0.0%
------ ----- ------
Total non-qualifying 2,194,688 2,194,539 17.4%
investments
==== ==== ====
Total investments 10,202,413 10,533,845 83.4%
==== ==== ====
Other assets 2,306,872 18.3%
Current liabilities (218,431) (1.7%)
------ ------
Net assets 12,622,286 100.0%
==== ====
1 Disclosed within Current assets (Investments at fair value) in the
Balance Sheet
C Share Fund
Date of first Total book Valuation % of net
investment cost assets by
value
£ £ £ £
Qualifying investments
AIM quoted investments
BBI Holdings plc May 2006 82,893 116,763 1.3%
Develpoment and manufacture of
rapid test diagnostic products
------ ------ ------
82,893 116,763 1.3%
------ ------ ------
Unquoted investments
PastaKing Holdings Limited June 2006 191,720 191,720 2.2%
Supplier to the educational
and food service market
British International Holdings June 2006 167,173 167,173 1.9%
Limited
Supplier of helicopter
services
VSI Limited April 2006 122,897 122,897 1.4%
Developer and marketer of 3D
software
Blaze Signs Holdings Limited April 2006 58,953 58,953 0.7%
Signwriter
------ ------ ------
540,743 540,743 6.2%
------- ------ ------
Total qualifying investments 623,636 657,506 7.5%
==== ==== ====
Non-qualifying investments
Money market funds1 7,540,458 7,540,458 86.9%
AIM quoted investments - - 0.0%
----- ----- -----
Total non qualifying 7,540,458 7,540,458 86.9%
investments
==== ==== ====
Total investments 8,164,094 8,197,964 94.4%
==== ==== ====
Other assets 690,335 8.0%
Current liabilities (206,645) (2.4%)
------ ------
Net assets 8,681,654 100.0%
==== ====
1 Disclosed within Current assets (Investments at fair value) in the
Balance Sheet
Unaudited Profit and Loss account (by Fund)
Profit and Loss Account for the six months ended 31 October 2006
Ordinary Share Fund C Share Fund
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Unrealised gains on - 2,025,772 2,025,772 - 33,870 33,870
investments
Realised losses on - (204,938) (204,938) - - -
investments
Transaction costs - (610) (610) - - -
Income 240,763 - 240,763 213,608 - 213,608
Management fees (32,121) (96,364) (128,485) (25,404) (76,210) (101,614)
Other expenses (89,320) - (89,320) (82,785) - (82,785)
----- ---- ---- ---- ----- ----
Profit/(loss) on 119,322 1,723,860 1,843,182 105,419 (42,340) 63,079
ordinary activities
before taxation
Tax on ordinary (15,863) 23,583 7,720 (22,200) 14,480 (7,720)
activities
------ ----- ----- ----- ----- -----
Retained profit/ 103,459 1,747,443 1,850,902 83,219 (27,860) 55,359
(loss)
==== ==== ==== ==== ==== ====
Return per share 0.83p 14.04p 14.87 0.91p (0.30)p 0.61p
Average number of 12,445,223 9,145,990
shares in issue
Total of both Funds
Revenue Capital Total
£ £ £
Unrealised gains on - 2,059,642 2,059,642
investments
Realised losses on - (204,938) (204,938)
investments
Transaction costs - (610) (610)
Income 454,371 - 454,371
Management fees (57,525) (172,574) (230,099)
Other expenses (172,105) - (172,105)
----- ---- ----
Profit/(loss) on 224,741 1,681,520 1,906,261
ordinary activities
before taxation
Tax on ordinary (38,063) 38,063 -
activities
------ ----- -----
Retained profit/ 186,678 1,719,583 1,906,261
(loss)
==== ==== ====
Balance Sheet for each Fund as at 31 October 2006
Ordinary C Share Fund Adjustments Total of both
Share Fund (see note funds
below)
£ £ £ £
Non-current assets
Assets held at fair 8,340,065 657,506 8,997,571
value through profit and
loss investments
Monies held pending 2,193,780 7,540,458 9,734,238
investments
------ ------ ------
10,533,845 8,197,964 18,731,809
Current assets
Debtors and prepayments 750,074 427,136 (75,743) 1,101,467
Cash at bank 1,556,798 263,199 1,819,997
------ ------ ------ ------
2,306,872 690,335 (75,743) 2,921,464
Creditors: amounts (218,431) (206,645) 75,743 (349,333)
falling due within one
year
------ ------ ------ ------
Net current assets 2,088,441 483,690 2,572,131
------ ------ ------ ------
Net assets 12,622,286 8,681,654 - 21,303,940
==== ==== ==== ====
Capital and reserves
Called up share capital 123,411 91,460 214,871
Capital redemption 8,3985 - 8,395
reserve
Capital reserve 2,581,427 33,870 2,615,297
Cancelled share premium 5,991,306 8,471,015 14,462,321
account
Profit and loss account 3,917,747 85,309 4,003,056
------ ------ ------ ------
12,622,286 8,681,654 - 21,303,940
==== ==== ==== ====
Number of shares in 12,341,147 9,145,990
issue
Net asset value per 102.28p 94.92p
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 interim Balance
Sheet.
Unaudited Profit and Loss account
For the six months ended 31 October 2006
6 months ended 31 October 2006 Year ended 30 April 2006
(Unaudited) (audited)
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Unrealised - 2,059,642 2,059,642 - (1,458,362) (1,458,362)
gains/(losses)
on investments
Realised - (204,938) (204,938) - 2,588,791 2,588,791
(losses)/gains
on investments
Income 454,371 - 454,371 311,585 - 311,585
Management fees (57,525) (172,574) (230,099) (72,107) (216,322) (288,429)
Other expenses (172,105) - (172,105) (299,800) - (299,800)
----- ---- ---- ---- ----- ----
Profit/(loss) 224,741 1,681,520 1,906,261 (60,322) 914,107 853,785
on ordinary
activities
before taxation
Tax on ordinary (38,063) 38,063 - - - -
activities
------ ----- ----- ----- ----- -----
Profit/(loss) 186,678 1,719,583 1,906,261 (60,322) 914,107 853,785
on ordinary
activities
after taxation
==== ==== ==== ==== ==== ====
Dividend per 0.00p 0.00p 0.00p 0.00p 0.00p 0.00p
share
Basic earnings 0.83p 14.04p 14.87p (0.49)p 7.40p 6.91p
and return per
ordinary share
Basic earnings 0.91p (0.30)p 0.61p 0.05p (0.61)p (0.56)p
and return per
C share
6 months ended 31 October 2005
(Unaudited)
Revenue Capital Total
£ £ £
Unrealised gains/ - 295,647 295,647
(losses) on
investments
Realised (losses) - 5,838 5,838
/gains on
investments
Income 139,982 - -
Management fees (33,056) (99,169) (132,225)
Other expenses (147,459) - (147,459)
----- ---- ----
Profit/(loss) on (40,533) 202,316 161,783
ordinary
activities before
taxation
Tax on ordinary - - -
activities
------ ----- -----
Profit/(loss) on (40,533) 202,316 161,783
ordinary
activities after
taxation
==== ==== ====
Dividend per 0.00p 6.00p 6.00p
share
Basic earnings (0.32)p 1.58p 1.26p
and return per
ordinary share
Basic earnings - - -
and return per C
share
Unaudited Balance Sheet as at 31 October 2006
31 October 30 April 31 October
2006 2006 2005
(Unaudited) (audited) (Unaudited)
£ £ £
Non-current assets
Assets held at fair value through 8,997,571 5,643,559 7,173,378
profit and loss - investments
Monies held pending investments 9,734,238 9,751,436 3,966,958
------ ------ ------
18,731,809 15,394,995 11,140,336
Current assets
Debtors and prepayments 1,101,467 1,936,269 133,793
Cash at bank 1,819,997 2,462,495 6,613
------ ------ ------
2,921,464 4,398,764 140,406
Creditors: amounts falling due
within one year
Other creditors 147,371 64,520 41,644
Accruals 201,962 163,968 164,065
------ ------ ------
(349,333) (228,488) (205,709)
------ ------ ------
Net current assets/(liabilities) 2,572,131 4,170,276 (65,303)
------ ------ ------
Net assets 21,303,940 19,565,271 11,075,033
==== ==== ====
Capital and reserves
Called up share capital 214,871 217,121 126,861
Capital redemption reserve 8,3985 6,145 4,945
Share premium account - 8,557,026 -
Cancelled share premium account - 14,462,321 8,034,754 8,313,114
distributable reserve
Capital reserve 2,615,297 (1,041,174) 1,319,635
Profit and loss account 4,003,056 3,791,399 1,310,478
------ ------ ------
21,303,940 19,565,271 11,075,033
==== ==== ====
Net asset value per share
Ordinary share 102.28p 87.05p 87.30p
C share 94.92p 94.32p -
Unaudited Reconciliation of Movements in Shareholders' Funds
For the six months ended 31 October 2006
31 October 30 April 2006 31 October
2006 (audited) 2005
(Unaudited) (Unaudited)
£ £ £
Opening shareholders funds 19,565,271 11,780,212 11,808,068
Restated for application of new - - (27,856)
accounting policies
------ ------ ------
19,565,271 11,780,212 11,780,212
Net share capital (bought back)/ (167,592) 8,467,397 (97,708)
subscribed during the year
Profit for the year 1,906,261 853,785 161,783
Dividends paid in the year - (1,536,123) (769,254)
------ ------ ------
Closing shareholders' funds 21,303,940 19,565,271 11,075,033
===== ===== =====
Unaudited Cash Flow Statement
For the six months ended 31 October 2006
Six months Year ended Six months
ended 31 30 April ended 31
October 2006 2006 October 2006
(Unaudited) (audited) (Unaudited)
£ £ £
Operating activities
Net investment interest - 332,149 301,551 119,813
non-qualifying
Investment management fees paid (74,552) (249,360) (127,377)
Other cash payments (168,986) (279,394) (144,029)
------ ------ ------
Net cash (outflow)/inflow from 88,611 (227,203) (151,593)
operating activities
Investing activities
Acquisition of investments (2,597,061) (3,286,309) (1,180,365)
Disposal of investments 2,016,346 5,462,960 2,846,350
------ ------ -----
Net cash (outflow)/inflow from (580,715) 2,176,561 1,665,985
investing activities
==== ==== ====
Dividends
Dividends paid - (1,536,123) (776,322)
------ ------ ------
Net cash (outflow)/inflow (492,104) 413,325 738,070
before liquid resource
management
Management of liquid resources
Movement in money market and 17,198 (7,892,613) (2,108,135)
other deposits
Financing
Purchase of own shares (167,592) (181,089) (97,708)
Share capital raised - 8,648,486 -
------ ------ ------
Net cash (outflow)/inflow from (167,592) 8,467,397 (97,708)
financing
------ ------ ------
(Decrease)/increase in cash (642,498) 988,109 (1,467,773)
==== ==== ====
NOTES
1. The accounts have been prepared under the fair value rules of the Companies
Act 1985 and in accordance with applicable accounting standards in the
United Kingdom and with the Statement of Recommended Practice, `Financial
Statements of Investment Trust Companies', revised December 2005.
2. In accordance with the Company's Prospectus dated 10 May 2000, the
Directors have charged 75% of the investment management expenses to the
capital element of the Profit and Loss Account.
3. Investments are stated at fair value, in accordance with applicable
accounting standards and with reference to the International Private Equity
and Venture Capital Valuation (IPEVCV) guidelines published in 2005, which
are similar to the BVCA (British Venture Capital Association) guidelines
followed in previous years.
The fair value of quoted investments is the bid value of those investments at
the close of business on 31 October 2006.
Unquoted investments are stated at fair value by the Directors in accordance
with the following rules, which are consistent with the IPEVCV guidelines:
i. Recent investments which have been made in the last 12 months are at fair
value which, unless another methodology gives a better indication of fair
value, will be at cost.
ii. Investments in companies at an early stage of their development are also
valued at fair value which, unless another methodology gives a better
indication of fair value, will be at cost.
iii. Where investments have gone beyond the stage in their development in (ii)
above, the shares may be valued, in the absence of overriding factors, by
applying a suitable price-earnings ratio to that company's historic,
current or forecast earnings (the ratio used being based on a comparable
listed company or sector but the resulting value being discounted to
reflect lack of marketability). Where overriding factors apply, alternative
methods of valuation will be used. These will include the application of a
material arms length transaction by an independent third party, cost, cost
less provision for impairment, discounted cash flow, or a net asset basis;
iv. Where a value is indicated by a material arms-length transaction by a third
party in the shares of a company, this value will be used.
v. Where a company's underperformance against plan indicates a permanent
diminution in the value of the investment, provision against cost is made
and charged to the realised reserve.
Capital gains and losses on investments, whether realised or unrealised, are
dealt with in the capital reserve - realised and unrealised respectively, and
shown in the Income Statement.
Although the Company holds more than 20% of the equity of certain companies, it
is considered that the investments are held as part of an investment portfolio.
Accordingly and as permitted by FRS 9 `Associate and Joint Ventures', their
value to the Company lies in their marketable value as part of that portfolio.
It is not considered that any of our holdings represents investments in
associated companies.
4. The revenue return per Ordinary Share is based on the net revenue on
ordinary activities after taxation of £103,459 and is based on 12,445,223
Ordinary Shares, being the weighted average number of Ordinary Shares in
issue during this period. The capital return per Ordinary Share is based on
ordinary activities after taxation of £1,747,443 and is based on 12,445,223
Ordinary Shares, being the weighted average number of Ordinary Shares in
issue during the period.
The revenue return per C Share is based on the net revenue on ordinary
activities after taxation of £83,219 and is based on 9,145,990 C Shares, being
the weighted average number of C Shares in issue during this period. The
capital loss per Ordinary Share is based on ordinary activities after taxation
of (£27,860) and is based on 9,145,990 C Shares, being the weighted average
number of C Shares in issue during the period.
5. The net asset value per Ordinary share is based upon total net assets at 31
October 2006 of £12,622,286 (30 April 2006:£10,938,976; 31 October 2005: £
11,075,033) and on 12,341,147 Ordinary Shares (30 April 2006 12,566,147; 31
October 2005: 12,686,147) being the number of Ordinary Shares in issue at
that date.
The net asset value per C share is based upon total net assets at 31 October
2006 of £8,681,654 (30 April 2006:£8,626,295; 31 October 2005: nil) and on
9,145,990 C Shares (30 April 2006 9,145,990; 31 October 2005: nil) being the
number of C Shares in issue at that date.
6. Copies of the Interim Report for the six months ended 31 October 2006 are
being sent to all Shareholders. Further copies are available free of charge
from the Company's registered office, One Jermyn Street, London SW1Y 4UH or
can be downloaded via the Company Secretary's web site at
www.matrixgroup.co.uk
Contact details for further enquiries:
Sarah Penfold of Matrix-Securities Limited (the Company Secretary) on 020 7925
3300 or by e-mail on MIG2@matrixgroup.co.uk
Matrix Private Equity Partners LLP (the Investment Manager), on 020 7925 3300
or by e-mail on info@matrixpep.co.uk
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