Final Results

Matrix Venture Fund VCT PLC 12 July 2002 MATRIX VENTURE FUND VCT PLC FINAL RESULTS CHAIRMAN'S STATEMENT It is a pleasure to present the second annual report and financial statements of Matrix Venture Fund VCT plc. You will remember that the public offer launched on 10 May 2000 at 100p per share raised Â£12,388,237 (net). Results for the year ended 30 April 2002 The results for the year ended 30 April 2002 are set out in the following pages. The total loss (after tax) attributable to the Ordinary Shareholders before the recommended dividend was Â£2,240,929 (2001: Â£574,572) and the net asset value per Ordinary Share at 30 April 2002 was 70.34p compared with 88.69p for the period ended 30 April 2001. Dividend The Board recommends a dividend of 1.35p per Ordinary Share for the year ended 30 April 2002 (2001: 0.93p) to Ordinary Shareholders on the register at the close of business on 26 July 2002. Subject to shareholder approval at the Annual General Meeting on 6 September 2002 these payments should be received on 16 September 2002. The after tax revenue return before net capital losses was 1.35p per Ordinary Share for the year to 30 April 2002 (2001: 1.07p). Overview In the difficult economic environment which has prevailed over the past financial year, steady progress has been made towards the objective of having the Company's funds fully invested by April 2003 (whilst retaining an adequate cash reserve to provide follow-on funding). The second financial year of activity has seen a continued high volume of proposals being received and evaluated by the Company's Venture Capital Fund Advisers, Matrix Private Equity Limited. The global investment climate has, however, been challenging over the course of the past year and lack of confidence in the quoted markets has led to very low levels of corporate activity. This has had a knock-on effect on the unquoted market where many investment propositions have failed to receive funding. One consequence of this, however, is that valuations are now at a level which reflects a more realistic balance between risk and reward. This should make for a more stable environment when market confidence finally returns. As at 30 April 2002, Â£6.2m had been committed to 11 companies. One new investment was completed in this financial year, and follow-on funding has been provided to three portfolio companies. Together, all these investments represent an aggregate investment of 50 per cent of the net funds raised under the public offer. As at 30 April 2002, the capital reserves show a capital base of Â£9,271,657, struck after a cumulative capital loss of Â£3,116,979. Details of the full Venture Capital Portfolio as at 30 April 2002 are given in the Adviser's and Manager's Reports. The investment in FootFall (see below), together with several additional investments anticipated to be completed during the next few months, lead the Company's fund advisers and the Board to conclude that the Company is on target to achieve its Venture Capital Trust qualification investment target of having at least 70% by value of its funds invested in qualifying shares and securities by 30 April 2003. The investments held by the Company have been valued in accordance with the British Venture Capital Association guidelines under which unquoted investments are not normally revalued above cost for at least 12 months after the date of acquisition. We will, in any event, always follow a consistent and prudent valuation policy. The investments that are quoted on AIM and the fixed interest securities are carried at market value. Events since the year end Since the beginning of the current financial year, in June 2002, the Company has completed an investment of Â£750,000 (as part of a syndicate investing Â£2.65m) in FootFall Ltd, which is a leading provider of sophisticated people-counting solutions and related information services. It has a strong position in its market, providing data to shopping centres both in the UK and in France and is now poised to penetrate the broader retail market and continue its geographic expansion. The FootFall Index has become well publicised as a statistical measure of foot traffic in retail centres. Board Darryl Mattocks resigned as a Director on 1 July 2002. David Brougham will not be seeking re-election at the Annual General Meeting on 6 September 2002. I would like to take this opportunity to thank Darryl and David for their valuable contribution as members of the Board. Conclusion There is no doubt that economic conditions have deteriorated markedly since the Fund was launched. The continuing recession in the telecommunications sector and the slowing pace of growth in other technology sectors have created very difficult trading conditions for most companies, especially those at an early stage of development. Nevertheless, the Board is encouraged that the majority of the current portfolio are well funded and achieving their budgets. The time period for realising investments has normally been between 3 and 5 years. During the recent technology driven stock market boom, this time period has shortened. In current depressed markets it should be expected that companies will take longer to mature to a stage suitable for exit. The Board will, however, continue to look for opportunities to realise a profit ahead of expectations if this is in the shareholders' interests. I would like to take this opportunity to thank all shareholders for their continuing support of the Company and very much hope to have the pleasure of welcoming you to the Annual General Meeting on 6 September 2002. Michael Cumming Chairman 12 July 2002 ADVISER'S AND MANAGER'S REPORTS The Venture Capital Fund Adviser's Report Portfolio Overview Matrix Private Equity Limited advises the Company in respect of investments made within the Venture Capital Fund. During the year ended 30 April 2002, the team received and evaluated over 680 investment proposals, from which Matrix Venture Fund VCT plc made one investment (in Espotting) at a cost of Â£500,000. The problems of the telecommunications, media and technology sectors have been well documented. The slow down in spending has affected all companies and those at an early stage of development are particularly vulnerable. In common with many other investors we have spent a great deal of time helping the existing investments and have recommended further investments of Â£150,000 into ImageCom, Â£250,000 into Sit-up.com and Â£100,000 into e-go systems over the past year. Unfortunately, despite strenuous efforts by all parties, i-Desk was unable to survive the loss of a major call-centre contract, combined with the dramatic slowdown of customer spending on its managed services, and went into receivership in April 2002. Despite considerable support from its investors, ImageCom was unable to trade through its problems as outlined below and the business is now being run with the support of its bankers until it is sold. e-go systems has, in common with most businesses in the telecommunications industry, faced a severe, and for e-go systems an ultimately insuperable, challenge in selling its sophisticated unified communications services. The main division failed to achieve significant sales and has run out of cash. It was put into liquidation on 3 July 2002. Despite these setbacks, we continue to believe that the spread of investments the Company has made thus far, together with the continuing strong flow of deals from good quality sources, will provide a sound portfolio over the long term. The current investment portfolio of the Company as at 30 April 2002 is detailed below. Callserve Communications Limited The company provides internet telephony services or Voice over Internet Protocol ("VolP") from PCs to telephones, worldwide. Using software which is pre-installed, downloaded from the company's website, or available from retailers, a telephone caller can use the internet to route a telephone call at a much reduced cost. Matrix invested as part of a syndicate arranged by Peel Hunt, raising Â£8.25m to finance the roll-out of the service and facilitate partnering arrangements with software and hardware providers. During the last few months, the company has reached cash break-even. Results from the latest audited accounts for the year ended 31 March 2001: loss before tax Â£5,807,786; net assets Â£4,521,338. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio October 2000 Â£300,000 At cost 0.78% 3.1% Clarity Commerce Solutions plc The company provides EPOS (electronic point of sale) solutions, Customer Relationship Management ("CRM") products and services to the UK hospitality and leisure markets. It floated on AIM in July 2000, raising Â£2.5m primarily to increase its marketing activities and acquire two small complementary businesses. The flotation was sponsored by Williams de Broe Plc. The company raised Â£2.6m (via a rights issue) and made a small acquisition in October 2001. The business has grown substantially in the last year and is now trading profitably before amortisation of goodwill. Results from the latest preliminary audited accounts for the year ended 31 March 2002: loss before tax Â£221,000; net assets Â£7,367,000. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio July 2000 Â£250,000 Â£158,000 1.44% 1.69% The investment is valued at the mid-market price on 30 April 2002 of 79p per share. e-go systems plc The group provides Unified Messaging ("UM") services to global enterprises. UM consolidates messages delivered to voicemail, mobile phone, e-mail and fax into one mailbox. Telemesser (a subsidiary based in Israel) provides UM support services. Matrix invested as part of a Â£7.2m fund-raising in September 2000. The group raised a further Â£5m in October 2001, of which Matrix invested an additional Â£100,000. Although the trial service was available in May 2001, certain technical problems delayed the launch of the full service until January 2002. At this stage the company sought further funding to enable major customers to be signed but, due to the severe recession in the telecommunications industry this was not forthcoming. Results from the latest audited accounts for the year ended 31 March 2000: loss before tax Â£1,151,998; net assets Â£3,329,413. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio September 2000/ Â£650,000 Nil 3.0% Nil October 2001 Espotting Media Limited Espotting is the UK's leader in performance-based advertising through search engines, allowing advertisers to bid against each other for key words in order to achieve prominence in search engine results. The service went live in October 2000 and has been extremely successful to date in signing affiliate deals, increasing search volumes and revenues. Espotting raised funds in December 2001 to finance working capital and an expansion of the business into Continental Europe, of which Matrix invested Â£500,000. Results from the latest audited accounts for the year ended 31 March 2001: loss before tax Â£1,915,995; net liabilities Â£1,915,994. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio December 2001 Â£500,000 At cost Nil* 5.35 * The investment is made in Variable Rate Redeemable Secured Loan Notes which, if converted into equity, would represent 2.62% of the voting rights. Flightstore Inflight Retailing Limited Flightstore creates electronic airline branded shopping malls containing branded retailers with international delivery capabilities. The proprietary software developed by Flightstore uses existing seatback hardware to deliver a quasi-internet shopping experience on long haul flights. It raised Â£3.25m from a syndicate of private investors and small institutions in March 2001. The service is now installed on Lauda Air and Swiss Air comprising 19 aircraft. Cathay Pacific will install the service on 24 aircraft in July 2002. There are presently 14 retailers trialling the market. Results from the latest audited accounts for the year ended 31 December 2001: loss before tax Â£880,836; net assets Â£1,677,921. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio March 2001 Â£750,000 At cost 11.1% 8.02% i-Desk plc i-Desk provided internet services to telecommunications companies and Internet Service Providers. The Fund invested as part of a Â£10.3m fund-raising. In the last year the primary customer base suffered a severe downturn and many went out of business. Despite reducing the size of the company on several occasions the business failed to achieve sufficient turnover to cover its fixed costs. With little prospect of the business being stabilised attempts were made to sell it. Unfortunately, these efforts failed and an Administrative Receiver was appointed in April 2002. There will be no distribution to shareholders. Results from the latest audited accounts for the year ended 31 December 2000: loss before tax Â£7,534,017; net assets Â£8,882,659. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio November 2000 Â£750,000 Nil 2.17% Nil Imagecom Limited The company's core expertise is in providing the technology to enable high quality live video images to be transmitted over telephone networks by compressing and decompressing the images at either end. This technology has historically been product based but the company is developing it for incorporation in a microchip, thereby dramatically broadening the range of applications. The company has raised several rounds of funding from Thompson Clive and the Fund originally invested Â£750,000 in December 2000 alongside a similar sum from Thompson Clive. As was reported in the Interim Accounts, additional funds of Â£750,000 were raised in October 2001, with the Fund investing Â£150,000. Due to a serious liquidity crisis arising from another party failing to complete its investment, together with the failure to complete a development contract, the company is now trading with the support of its creditors. Therefore, we have provided in full for the cost of investment pending a resolution of the problems. Results from the latest audited accounts for the 9 months ended 31 January 2002: loss before tax Â£1,468,000; net liabilities Â£175,000. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio December 2000/October Â£900,000 Nil 21.22% Nil 2001 Magicalia Limited Magicalia has established a network of six community websites focused on enthusiast-based participation sports such as cycling, golf, fishing and outdoor activities. The websites have over 70,000 registered users, forming an important and unique link between manufacturers, retailers and consumers. The company raised Â£1m from a syndicate of investors in March 2001. Results from the latest audited accounts for the year ended 31 December 2000: loss before tax Â£713,555; net assets Â£205,657. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio March 2001 Â£400,000 At cost 12.73% 4.28% Monactive Limited (formerly Xpert Client Systems) Monactive Limited are a leading provider of software asset management tools, having developed products based on innovative technology including automatic recognition, and a client-based, rather than server-based approach (i.e. using resident agents on PCs) to monitor software usage. The company raised Â£1.75m from a syndicate of investors in March 2001. Results from the latest audited accounts for the year ended 31 July 2001: loss before tax Â£647,735; net assets Â£17,637. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio March 2001 Â£50,000 At cost 11.93 5.35% Sit-up.com Limited The company provides interactive broadcasting material and aims to create a suite of programming concepts for digital TV and the internet. The first service is Bid-up.TV, the UK's first interactive TV-based auction site. Bid-up.TV auctions create an opportunity for manufacturers and distributors to sell a wide range of products across Sky, Telewest and NTL platforms. The company also owns Screenshop, an infomercial channel broadcast on Sky. The Fund initially invested Â£500,000 as part of a Â£2.2m syndicate arranged by Peel Hunt. A further Â£150,000 was provided when the business raised over Â£5m of expansion capital in February 2001 and Â£250,000 was committed as part of a Â£1.65m loan syndicate in March 2002 of which Â£200,000 had been drawn down by 30 April 2002 and the balance subsequently. Results from the latest audited accounts for the year ended 31 December 2001: loss before tax Â£7,475,490; net assets Â£11,487,713. Date of investment Amount invested Valuation % Equity/Voting % of Rights Portfolio October 2000/ February 2001/ March 2002 Â£850,000 Â£885,000 1.74% 9.46% The Directors of Matrix Private Equity Limited responsible for advising on the Venture Capital Investments are: Mark Burgess Managing Director (Age 43). Mark is a chartered accountant and an experienced venture capitalist. He joined Cinven, one of the leading European venture capital companies in 1986, became an investment director in 1989 and finance director in 1995. As an investment director he managed a portfolio of Â£130 million, over half of which was in high technology and/or computer related businesses. He left in 1996 to take a career break whilst retaining his position on the Board of Allied Carpets plc. He has been a non-executive director of Quester Limited and Prelude Technology Investments Limited which specialise in investing in early stage companies. He joined Matrix in April 2000. Helen Sinclair Director (Age 36). Helen is also an experienced venture capitalist. She has an MBA from INSEAD Business School and was at 3i plc for seven years where she gained wide ranging experience of investing in and managing a portfolio of companies. In 1995, and again in 1996, companies in which she was the lead venture capital investor won the BVCA Small Start Up of the Year Award. She joined Matrix in May 2000. Matrix Private Equity Limited Venture Capital Fund Adviser 12 July 2002 Fixed Interest Fund Manager's Report The net proceeds from the Company's share issue awaiting investment in venture capital are managed by Cazenove Fund Management Limited and have been invested to yield interest. As the Company has been investing in venture capital, the amount of funds in the fixed interest portfolio has reduced. As at 30 April 2002, the portfolio was 51.8% invested across short dated gilts, 34.6% across short dated corporate bonds and the remaining 13.6% is held in the Cazenove Iceberg cash deposit scheme. Cazenove Fund Management Limited Fixed Interest Fund Manager 12 July 2002 Statement of Total Return Year ended 30 April 2002 Year ended 30 April 2002 Notes Revenue Capital Total Â£ Â£ Â£ Gains and losses on investments - (2,278,674) (2,278,674) Income 469,379 - 469,379 Investment management fees (60,094) (180,282) (240,376) Other expenses (186,596) - (186,596) ------------ ----------- ------------ Return on ordinary activities before taxation 222,689 (2,458,956) (2,236,267) Tax on ordinary activities (44,352) 39,690 (4,662) ---------- --------- --------- Return attributable to equity shareholders 178,337 (2,419,266) (2,240,929) Dividends in respect of equity shares 2 (177,938) - (177,938) ------------ ------------ ------------ Transfer to/(from) reserves 399 (2,419,266) (2,418,867) Return to shareholders per Ordinary Share 1 1.35p (18.35)p (17.00)p Period ended 30 April 2001 Notes Revenue Capital Total Â£ Â£ Â£ Gains and losses on investments - (552,075) (552,075) Income 470,587 - 470,587 Investment management fees (60,682) (182,047) (242,729) Other expenses (250,355) - (250,355) ----------- ------------ ------------ Return on ordinary activities before taxation 159,550 (734,122) (574,572) Tax on ordinary activities (36,410) 36,410 - ----------- ----------- ----------- Return attributable to equity shareholders 123,410 (697,712) (574,572) Dividends in respect of equity shares 2 (123,410) - (123,140) ----------- ----------- ----------- Transfer from reserves - (697,712) (697,712) Return to shareholders per Ordinary Share 1 1.07p (6.10)p (5.03)p Balance Sheet As at 30 April 2002 Year Period ended ended 30 April 30 April Notes 2002 2001 Â£ Â£ Fixed Assets Venture Capital Investments 3,493,099 4,677,596 Fixed interest securities 5,047,590 - Monies held pending investment 810,979 7,195,517 ------------ ------------- 9,351,668 11,873,113 ------------ ------------ Current Assets Debtors and prepayments 155,639 84,315 Cash at bank 14,679 75,998 ----------- ----------- 170,318 160,313 ----------- ----------- Creditors: amounts falling due within one year (250,329) (342,902) ----------- ----------- Net current liabilities (80,011) (182,589) ----------- ------------- Net assets 9,271,657 11,690,524 ----------- ------------- Capital and reserves Called up share capital 131,806 131,806 Share premium account 12,256,431 12,256,431 Capital reserve - realised (383,852) (175,213) Capital reserve - unrealised (2,733,127) (522,500) Revenue reserves 399 - ------------ ------------- 9,271,657 11,690,524 ------------ ------------- Net asset value per Ordinary Share 3 70.34p 88.69p Cash Flow Statement Year ended 30 April 2002 Year Period ended ended 30 April 30 April 2002 2001 Â£ Â£ Net cash (outflow)/infow from operating activities (180,950) 104,050 Taxation UK corporation tax paid - - ----------- ----------- Net cash (outflow)/inflow (180,950) 104,050 ----------- ----------- Capital expenditure and financial investment Purchase of investments - fixed income securities (12,394,340) (6,529,575) Purchase of investments - equities (950,000) (5,199,997) ------------- ------------- (13,344,340) 11,729,572) Disposals of fixed income securities 7,202,573 6,500,000 ------------- -------------- Net cash outflow from investing activities (6,141,767) (5,229,572) Dividends Equity dividends paid (123,410) - ----------- ----------- Net cash outflow before financing and liquid resource management (6,445,857) (5,125,522) Management of liquid resources Movement in money market and other deposits 6,384,538 (7,195,517) Financing Issue of ordinary shares - 13,152,248 Expense of share issue - (755,311) ----------- ----------- Net cash inflow from financing - 12,397,037 ----------- ----------- Net cash (outflow)/inflow as at 30 April 2002 (61,319) 75,998 ----------- ----------- The Company holds gilts and bonds primarily as investments and not as liquid resources. Accordingly, movements in the holdings of these investments are shown within investing activities in the Cash Flow Statement rather than within management of liquid resources. Notes 1. Return per share The revenue return per Ordinary Share is based on the net revenue from ordinary activities after taxation of Â£178,337 (2001: Â£123,140) and on 13,180,612 (2001: 11,405,565) Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the year. The capital return per Ordinary Share is based on net realised capital losses of Â£208,639 (2001: Â£175,212), net unrealised capital losses of Â£2,210,627 (2001: Â£522,500) and 13,180,612 (2001: 11,405,565) Ordinary Shares. 2. Dividend The Directors recommend a final dividend of 1.35p (2001: 0.93p) per Ordinary Share to Ordinary Shareholders on the register at the close of business on 26 July 2002. Subject to shareholders approval at the Annual General Meting on 6 September the payment should be received on 16 September 2002. 3. Net asset value per share Net asset value per Ordinary Share is based on net assets at the year end, and on 13,180,612 Ordinary Shares (2001: 13,180,612), being the number of Ordinary Shares in issue on that date. 4. The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 30 April 2002 and period ended 30 April 2001 but is derived from those accounts. Statutory accounts for the period ended 30 April 2001 have been delivered to the Registrar of Companies and those for year ended 30 April 2002 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts: their reports were unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985. 5. The 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 at St Philips House, St Philips Place, Birmingham B3 2PP. 6. The Annual General Meeting will be held at 2.30pm 6 September 2002 at the offices of Matrix-Securities Limited, Gossard House, 7-8 Savile Row, London W1S 3PE. This information is provided by RNS The company news service from the London Stock Exchange

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