Interim Results

Matrix Income & Growth 2 VCT PLC 05 January 2006 MATRIX INCOME & GROWTH 2 VCT PLC PRELIMINARY RESULTS FOR THE SIX MONTHS ENDED 31 OCTOBER 2005 CHAIRMAN'S STATEMENT I have pleasure presenting the interim results of Matrix Income & Growth 2 VCT plc for the period from 1 May 2005 to 31 October 2005. This is my first report since Shareholders approved the change of name of the Company from Matrix Venture Fund VCT plc to reflect its change in investment remit from primarily technology companies to a generalist investment strategy. I am pleased to report several areas of good progress. Overview Overall the Ordinary Share Fund portfolio has performed well. Capital gains have been realised which has resulted in the Board proposing to pay to Ordinary Fund Shareholders a further dividend of 6 pence per share, making a total of 12 pence per share of interim capital dividends paid to date. The Net Asset Value (NAV) per Ordinary Share at 31 October 2005 was 87.30 pence. Although this represents a decrease of 4.43% when compared with 91.35 pence as at 31 October 2004, this comparison is distorted by the high dividends declared in this period. A fairer comparison is total return which has increased by 2.07% from 94.14 to 96.09 pence per share. The Company is already seeing the benefit of the increased flow of investment opportunities available to Matrix Private Equity Partners, the Investment Manager. Your Board was pleased to learn that your Investment Manager has gained recognition amongst its peers, winning the award for the Venture Capital Trust Manager of the Year at the recent Investor AllStars 2005 Awards ceremony. In September your Company launched a new C Share Fund of up to Â£20 million to follow the same investment strategy as the Ordinary Share Fund. The new Fund is being actively marketed and over 1 million new C Shares have already been allotted after the period end. I would like to welcome these new Shareholders to the Company. Your Board is hopeful that significant funds will be raised by the end of the tax-year that will increase the Company's asset base, improve share liquidity and reduce running costs as a percentage of the Company's assets. Portfolio performance It is pleasing to note two further full cash exits from the portfolio from transactions completed after the end of the period. We fully realised our investment in FootFall which was sold in December to Experian, a subsidiary of GUS plc. Â£2.3 million was returned in cash to the Ordinary Share Fund, representing just over 3x the original amount invested. We also sold our residual investment in AIM-quoted Clearspeed Technology plc for a net consideration of Â£300,509. The total return of Â£515,645 represented just over 2.5x the original amount invested. Details of the current portfolio of the Ordinary Share Fund are given in the Investment Manager's Report that follows. New investments In the period under review, the Ordinary Share Fund made two new investments. It invested Â£150,000 in SectorGuard plc, an AIM-quoted company providing a range of security and manned guarding services. Since investment this company has announced a small acquisition and issued an encouraging statement regarding current trading. In October the Ordinary Share Fund invested Â£1 million to support the MBO of Youngman Group Limited, a leading manufacturer of access equipment with annual revenues of Â£37 million. Initial progress has been encouraging. After the end of the period, the Ordinary Share Fund committed a further Â£1 million to support the MBO of Campden Publishing, a publisher of titles in the healthcare and wealth management sectors. Return to Shareholders The results for this period are set out on the following pages and show a revenue loss (after tax) attributable to Ordinary Fund Shareholders of 0.32 pence per Ordinary Share (31 October 2004: loss of 0.29 pence). The total profit (after tax) attributable to Ordinary Fund Shareholders was 1.26 pence per Ordinary Share (31 October 2004: loss of 2.75 pence). Dividend The Board is proposing to pay a second interim capital dividend to Ordinary Fund Shareholders of 6 pence per share in respect of the year ending 30 April 2006 on 8 February 2006 to shareholders on the Register on 13 January 2006. I would like to take this opportunity to thank all Shareholders for their continuing support of the Company. I intend to circulate a newsletter to Shareholders in February reporting on the quarter to 31 January 2006 and my next full statement will be in respect of the year to 30 April 2006. Lawrence Sullivan, who has been a Director of the Company since its inception, left the Board following the AGM on 7 September 2005. Lawrence has been a valuable source of advice and support and the Board has been particularly appreciative of his knowledge and experience of the technology sector. On behalf of my fellow Directors and myself, I would like to thank him for his contribution to the Company. Michael Cumming Chairman 4 January 2006 INVESTMENT MANAGER'S REPORT As at 31 October 2005, the Ordinary Share Fund ("the Fund") held 13 venture capital investments, summarised details of which are set out below. In the six months to 31 October 2005 the Fund completed two new investments. In August Â£150,000 was invested in SectorGuard plc, an AIM-quoted supplier of manned guarding, mobile patrolling, and alarm response services and in October Â£1,000,000 was invested in the MBO of Youngman Group Limited, a manufacturer of ladders and access towers. A further Â£1,000,000 was committed to support the MBO of Campden Publishing, a publisher of titles in the healthcare and wealth management sectors, in December. These investments reflect the change in investment strategy approved by Shareholders in September and the Company is now beginning to benefit from our strong position in the generalist private equity market. The portfolio has performed well overall in the last six months. The sale in May of the Fund's investment in sit-up Limited, which realised over three times its cost in cash at completion, has already been reported. As reported below, since the period end the Fund's investments in Clearspeed Technology plc and FootFall Limited have been realised in full. As described below we continue to pay close attention to the current portfolio, which comprises: - COMPANY BUSINESS COST VALUATION 30-Apr-2005 31-Oct-2005 Award International Holdings Sales promotion activities Â£250,000 Â£56,250 Â£0 plc (AIM quoted) Award provides its client base with promotional goods and services designed to increase brand awareness among consumers and to support their marketing campaigns. The Company floated on AIM in March 2004 but its share price performance since has been disappointing, reflecting poor trading over recent months. In December Administrators were appointed to the Group's trading subsidiaries. Callserve Voice over Internet Protocol Â£300,000 Â£150,000 Â£0 Communications Limited ("VoIP") Callserve provides prepaid internet telephony services from PCs to telephones, worldwide. Revenue growth has stalled during the current year and the company's cash position is weak. As such we believe it is prudent to make a full provision against this investment. Clarity Commerce Solutions Customer Relationship Â£510,552 Â£472,055 Â£486,468 plc Management software for hospitality/leisure venues (AIM quoted) Clarity, which is quoted on AIM, provides EPOS solutions to hospitality and leisure companies. Clarity has been highly acquisitive, acquiring other synergistic software companies. In its interim results to September 2005, Clarity reported operating profit up 24% over 2004 levels and a substantial contract with Sodexho. Clearspeed Technology plc Semi-conductor chips Â£124,954 Â£270,504 Â£275,706 (AIM quoted) Clearspeed is an innovative parallel-processing semi-conductor business which floated in AIM in July 2004. In its interims to June 2005, the company reported encouraging developments both in terms of the trends in the broader market for parallel processing and in its own achievements. In December the Fund realised its remaining investment for a net consideration of Â£300,509, bringing its total proceeds to Â£515,645 compared with cost of Â£201,600. Flightstore Group plc Inflight retail services Â£254,586 Â£24,711 Â£7,920 (AIM quoted) Flightstore set out to use the existing seat back entertainment system to create an airline branded, electronic and interactive magazine experience on long haul flights. The business was floated on AIM in December 2003. Following its failure to achieve its objectives at the time of the flotation the company has abandoned any new initiatives and is offering itself as being available for a reverse of a business seeking an AIM listing. FootFall Limited People counting services Â£750,000 Â£1,211,250 Â£2,316,848 FootFall provides business performance information derived from monitoring and analysing pedestrian traffic in shopping centres and retail outlets. It has significant operations in France, Spain, Portugal and Italy as well as being the UK market leader. In December FootFall was acquired by Experian, a subsidiary of GUS plc. The Fund received total proceeds of Â£2,316,848 in cash at completion, a return of 3.1 times cost. Gyro International Limited Brand communications agency Â£750,000 Â£750,000 Â£750,000 Gyro is an established brand communications agency providing business-to-business direct marketing services to technology and financial services companies. Although progress to date has been slower than anticipated, the company has expanded its geographical coverage and is well placed to deliver enhanced profitability during 2006. Magicalia Limited Community websites Â£400,000 Â£400,000 Â£424,175 Magicalia has a network of eleven community websites supporting enthusiast-based activities. It also has a growing online contract publishing business. The company continues to trade well and is on track to deliver in excess of 50% revenue growth for the year. There are a number of new site launches planned in the next 6 months. Miva Inc. Performance based internet Â£487,833 Â£681,882 Â£486,051 search engine (NASDAQ listed) Miva, formerly FindWhat.com, acquired Espotting Media in July 2004. Miva is a leading provider of performance-based marketing services. The share price has been fairly static over recent months with relatively low volumes of trade. A number of uncertainties that previously overshadowed the shares have now been resolved. Third quarter results recently released show net profit of $0.8 million. Monactive Limited Software asset management tools Â£642,857 Â£256,000 Â£110,571 & services Monactive provides a range of software asset management tools. Monactive has failed to achieve revenue growth at a level which would enable it to begin to generate real value for shareholders although cash remains well controlled. Opportunities to unlock shareholder value are being considered. Recite Limited Sales support software Â£1,000,000 Â£1,478,322 Â£1,199,925 Recite provides a managed service combining content, methodology, tools and technology that improve the effectiveness of large sales forces. The company has a strong track record of profitability and has a blue chip customer base and is investing heavily during the current year to accelerate revenue growth. SectorGuard plc Provision of manned guarding, Â£150,000 N/A Â£115,714 mobile patrolling, and alarm (AIM quoted) response services SectorGuard raised Â£3 million in August to provide it with the flexibility to fund its proposed acquisition strategy. Since then the company announced the acquisition of a retail security tagging specialist, Asset Protection (EAS) Ltd., for Â£1,765,000 in cash. Youngman Group Limited Manufacture of ladders and Â£1,000,000 N/A Â£1,000,000 access towers The MBO of Youngman, a market-leading manufacturer of access equipment to the DIY and industrial markets, was completed in October. Since then early trading indications have been encouraging. Further details of each company's activities are included in the Annual Report and Accounts for the Company published in July 2005 or can be viewed through the Matrix Private Equity Partners' website at www.matrixgroup.co.uk Matrix Private Equity Partners Limited Investment Manager UNAUDITED PROFIT AND LOSS ACCOUNT 6 months ended 31 October Year ended 30 April 2005 2005 (unaudited) (restated) Revenue Capital Total Revenue Capital Total Â£ Â£ Â£ Â£ Â£ Â£ Unrealised gains/(losses) on - 295,647 295,647 - 2,019,254 2,019,254 investments Realised gains/(losses) on - 5,838 5,838 - ( 2,046,104) ( 2,046,104) investments Income 139,982 - 139,982 187,898 - 187,898 Management fees (33,056) (99,169) (132,225) ( 61,546) ( 184,639) ( 246,185) Other expenses (147,459) - (147,459) ( 225,097) - ( 225,097) Profit/(Loss) on ordinary (40,533) 202,316 161,783 ( 98,745) ( 211,489) ( 310,234) activities before taxation Tax on ordinary activities - - - - - - Profit/(loss) on ordinary (40,533) 202,316 161,783 ( 98,745) ( 211,489) ( 310,234) activities after taxation Dividends paid - (769,254) (769,254) - - - Retained loss (40,533) (566,938) (607,471) ( 98,745) ( 211,489) ( 310,234) Dividend per Ordinary Share 0.00p 6.00p 6.00p 0.00p 0.00p 0.00p Basic earnings and return per (0.32)p 1.58p 1.26p (0.76)p (1.63)p (2.39)p Ordinary Share 6 months ended 31 0ctober 2004 (unaudited and restated) Revenue Capital Total Â£ Â£ Â£ Unrealised gains/(losses) on - ( 299,214) ( 299,214) investments Realised gains/(losses) on - 71,276 71,276 investments Income 108,819 - 108,819 Management fees ( 30,730) ( 92,191) ( 122,921) Other expenses ( 116,078) - ( 116,078) Profit/(Loss) on ordinary ( 37,989) ( 320,129) ( 358,118) activities before taxation Tax on ordinary activities - - - Profit/(loss) on ordinary ( 37,989) ( 320,129) ( 358,118) activities after taxation Dividends paid - - - Retained loss ( 37,989) ( 320,129) ( 358,118) Dividend per Ordinary Share 0.00p 0.00p 0.00p Basic earnings and return (0.29)p (2.46)p (2.75)p per Ordinary Share UNAUDITED BALANCE SHEET 31 October 30 April 31 October 2005 2005 2004 (unaudited) (restated) (unaudited and restated) Â£ Â£ Â£ Non-current assets Assets held at fair value through profit and loss 7,173,378 8,531,073 7,789,129 - investments Monies held pending investment 3,966,958 1,858,823 2,404,190 11,140,336 10,389,896 10,193,319 Current Assets Debtors and prepayments 133,793 61,491 449,917 Cash at bank 6,613 1,474,386 1,383,795 140,406 1,535,877 1,833,712 Creditors: amounts falling due within one year Other creditors 41,644 84,259 85,460 Accruals 164,065 61,302 122,214 (205,709) (145,561) (207,674) Net current assets/(liabilities) (65,303) 1,390,316 1,626,038 Net assets 11,075,033 11,780,212 11,819,357 Capital and reserves Called up share capital 126,861 128,209 129,387 Capital redemption reserve 4,945 3,597 2,419 Capital reserve 1,319,635 898,056 (1,420,412) Cancelled share premium account - distributable 8,313,114 12,009,435 12,096,464 reserve Profit and loss account 1,310,478 (1,259,085) 1,011,499 11,075,033 11,780,212 11,819,357 Net asset value per Ordinary Share 87.30 p 91.88 p 91.35 p These accounts are unaudited and are not the Company's statutory accounts. UNAUDITED CASH FLOW STATEMENT 6 months ended Year ended 6 months ended 31 October 2005 30 April 2005 31 October 2004 (unaudited) (unaudited) Â£ Â£ Â£ Operating activities Net investment interest - non-qualifying 119,813 259,095 176,823 Investment management fees paid (127,377) (274,534) (154,191) Other cash payments (144,029) (215,169) (147,920) Net cash outflow from operating activities (151,593) (230,608) (125,288) Investing activities Acquisition of investments (1,180,365) (952,574) (202,362) Disposal of investments 2,846,350 675,341 120,302 Net cash inflow/(outflow) from investing 1,665,985 (277,233) (82,060) activities Dividends Dividends paid (776,322) - - Net cash inflow/(outflow) before liquid resource 738,070 (507,841) (207,348) management Management of liquid resources Movement in money market and other deposits (2,108,135) 2,971 (542,396) Financing Purchase of own shares - (154,283) - Decrease in cash (1,370,065) (659,153) (749,744) NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1. These interim accounts have been prepared using new accounting standards which have been issued to begin the process of converging UK standards with International Financial Reporting Standards ('IFRS'). The effect on the Net Asset Value of these changes is quantified in the table in note 4. The first change, Financial Reporting Standard ('FRS') 21, is to recognise any dividend payable as a liability only after it has been declared and approved by Shareholders. The second, FRS 26, is to value the quoted investments in the investment portfolio at bid prices rather than at mid market prices. With effect from 1 May 2005, the Company has adopted the following Financial Reporting Standards: FRS 21 Events after the balance sheet date Dividends paid by the Company are accounted for in the period in which the dividend has been declared. Previously, the Company recognised dividends in the period in which the net revenue, to which those dividends related, was accounted for. FRS 25 Financial Instruments: Disclosure and Presentation and FRS 26 Financial Instruments: Measurement All investments held by the Company are classified as 'fair value through profit and loss'. For investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business on the balance sheet date. Previously all listed investments were valued using closing mid market prices at the balance sheet date. 2. Unquoted investments are stated at fair value, in accordance with the International Private Equity and Venture Capital Valuation (IPEVCV) Guidelines) published in 2005, (similar to the British Venture Capital Association Guidelines previously followed), as follows: (i) Investments which have been made in the last 12 months are valued at cost in absence of overriding factors; (ii) Investments in companies at an early stage of their development are also valued at cost in the absence of overriding factors; (iii) Where investments have gone beyond the stage in their development in (ii) above, the shares may be valued by applying a suitable price-earnings ratio to that company's historic/current or forecast post-tax earnings (the ratio used being based on a comparable listed company or sector but the resulting value being discounted to reflect lack of marketability); (iv) Where a value is indicated by a material arm's length transaction by a third party in the shares of a company, this value will be used; (v) For early stage investments where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. 3. The Company revoked its status as an investment company on 7 September 2005, so that it can regard realised capital profits as part of the profits available for distribution. 4. In accordance with the Company's prospectus dated 10 May 2000, the Directors have charged 75% of the investment management expenses to the capital reserve. 5. Basic revenue return per Ordinary Share is based on the net revenue on ordinary activities after taxation, and on 12,686,147 Ordinary Shares, being the weighted average number of Ordinary Shares in issue during the period (year ended 30 April 2005: 12,820,898 Ordinary Shares; (31 October 2004: 12,938,703 Ordinary Shares). 6. The cancelled share premium account attributable to the Ordinary Share Fund provides the Company with a special reserve out of which it can fund buy-backs of Ordinary Shares as and when it is considered by the Board to be in the interests of the Shareholders. At an Extraordinary General Meeting held on 26 March 2004, the Shareholders approved a resolution to authorise the Directors to apply to the Court to cancel the share premium account attributable to the C Share Fund following the close of the Offer for Subscription for the C Shares launched on 20 September 2005. The cancellation will create a similar special reserve for the Company to fund buy-backs of C Shares. Under Resolution 10 of the Annual General Meeting held on 7 September 2005, the Shareholders authorised the Company to purchase its own shares pursuant to section 166 of the Companies Act 1985. The authority is limited to a maximum of 14.99 per cent of the issued Ordinary Share Capital of the Company or, as the case maybe, 14.99% of the C Share capital immediately following the issue of C Shares pursuant to the close of the C Share Offer, and will unless previously revoked or renewed expire on the conclusion of the Annual General Meeting of the Company to be held in 2006. The maximum price that may be paid for Ordinary Shares and C Shares will be an amount equal to 105 per cent of the average of the middle market quotation as taken from the London Stock Exchange daily official list for the five business days immediately preceding the day on which that Ordinary Share or, as the case maybe, C Share, is purchased. The minimum price that may be paid for Ordinary Shares and C Shares is 1 penny per share. The authority provides that the Company may make a contract to purchase Ordinary Shares or, as the case maybe, C Shares under the authority conferred by this resolution prior to the expiry of such authority which will or may be executed wholly or partly after the expiration of such authority and may make a purchase of Ordinary Shares or C Shares pursuant to such contract. 7. The financial information set out in this report has not been audited and does not comprise full financial statements within the meaning of section 240 of the Companies Act 1985. The audited accounts for the Company for the year ended 30 April 2005, on which the auditors gave an unqualified report, have been delivered to the Registrar of Companies. 8. Copies of this statement 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. This information is provided by RNS The company news service from the London Stock Exchange ND IR ILFVDLLISIIR

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