17th Dec 2010 11:29
17 December 2010
The Income & Growth VCT plc
Annual Financial Results of the Company for the Year ended 30 September 2010
Investment Objective
The objective of The Income & Growth VCT plc ("I&G VCT" or "theCompany") is to provide investors with an attractive return, by maximising thestream of dividend distributions from the income and capital gains generatedby a diverse and carefully selected portfolio of investments.
The Company invests in companies at various stages of development. In some instances this may include investments in new and secondary issues of companies which may already be quoted on the Alternative Investment Market ("AiM") or PLUS.
Financial Highlights
The net assets of the `O' and 'S' Share Funds were merged to form one share class of Ordinary Shares on 29 March 2010. At that date, the net assets of the merged VCT were £35.7 million, which have increased to £36.6 million at 30 September 2010.
The highlights during the year have been:-
- Strong liquidity has been maintained in the context of continuing market volatility - Prior to the merger, dividends of 2p per `O' Share and 0.5p per `S' Share were paid
on 17 March 2010. The Board has declared an interim capital dividend of 2 pence per
share, and a final capital dividend of 2 pence per share will be recommended to
shareholders at the AGM. These payments will bring cumulative dividends paid to date
to 4.5 pence per share- Decrease of 7.4% in share price total return to Shareholders (formerly `S' Shares)- Increase of 6.8% in net asset value (NAV) total return to Shareholders (formerly `S' Shares)- Increase of 6.0% in NAV total return to former `O' Share Fund shareholders
Performance Summary
The net asset value per share of the single class of Ordinary Shares existing after the merger is 99.0 pence at 30 September 2010.
The merger was effected by converting therelevant `O' Fund Shares into `S' Fund Shares using a conversion ratio of0.758. All the issued and unissued `S' Fund Shares were subsequentlyredesignated as Ordinary Shares on a 1 for 1 basis. Further details explainingthe basis of the merger of the two share classes can be found in Note 8 to theaccounts below.To help Shareholders in each former share class understand the trend inperformance of their investment, comparative data for each former share classis shown below:- Net NAV per Cumulative NAV total Share Share price assets Share dividends return to price total return (£m) (p) paid per shareholders (p) 2 to share (p) since launch shareholders per Share (p) (p)Ordinary Share Fund (called the `S' Share Fund up until 29 March 2010)As at 30 September2010 1 36.6 99.0 0.5 99.5 87.0 87.5As at 30 September2009 11.0 93.2 0.0 93.2 94.5 94.5As at 30 September2008 11.2 94.6 0.0 94.6 100.0 100.0At close of Offerfor subscription 11.2 94.5 0.0 94.5 100.0 100.0 Net assets NAV per Cumulative NAV total
Share Share price (£m) Share (p) Dividends return to price (p) 2 total Paid per shareholders return to Share(p) since launch shareholders per Share (p) (p) Former `O' Share FundAs at 30 September 2010 1 - 75.0 22.5 97.5 - -As at 30 September 2009 24.9 71.5 20.5 92.0 54.8 75.2As at 30 September 2008 29.6 83.6 16.5 100.0 79.5 96.0
1 The data at 30 September 2010 shows the return on an initial subscription price of 100p at the date of inception of each Fund taken from the table below divided by £10,000.
2 Source: London Stock Exchange.
Return before and after tax relief
The tables below show the NAV total returns at 30September 2010 for a shareholder in each original class that invested £10,000at £1 a share at each Fund's inception. BEFORE BENEFIT OF INITIAL INCOME TAX RELIEFFund Original Number of NAV at Dividends paid NAV total Profit/ investment shares held to return to (loss) (10,000 post-merger 30 September 2010 shareholders shareholders before shares at since since income £1 each) (£) subscription subscription tax relief 1 (£) (£) (£) (£)Ordinary ShareFund 2007/08 2 10,000 10,000 9,900 50 9,950 (50)Former `O' ShareFund 2000/2001 10,000 7,578 7,502 2,245 9,747 (253)
1 NAV total return minus initial investment cost (before applicable income tax relief)
2 Formerly `S' Share Fund
AFTER BENEFIT OF INITIAL INCOME TAX RELIEFFund Original Number of Rate of Cost net of NAV
at 30 Dividends paid NAV total Profit/
investment shares held Income tax income tax
September 2010 to shareholders return to (loss)
(10,000 shares post-merger relief relief since shareholders after at £1 each) (£) subscription since income subscription tax (£) % (£) relief (£) 2 (£) (£)Ordinary ShareFund 2007/08 3 10,000 10,000 30% 7,000 9,900 50 9,950 2,950Former `O' ShareFund 2000/2001 10,000 7,578 20% 1 8,000 7,502 2,245 9,747 1,747
1 Additional capital gains tax deferral relief of up to £4,000 available to qualifying shareholders
2 NAV total return minus cost net of income tax relief
3 Formerly `S' Share Fund
Discount
The Board's current intention is to continue withits existing buy-back policy with the objective of maintaining the discount toNAV at which the shares trade at 10% or less. The current discount for theCompany's shares is 9.6%. The discount has therefore narrowed considerablyfrom 21.4% on 31 March 2010 following the merger.Dividend historyIn respect of year ended Dividends paid in each year since launch Payment date Former `O' Shares Former `S' Shares (p) per share (p) per share30 September 2001 18 February 2002 1.20 pence -30 September 2002 12 February 2003 1.75 pence -30 September 2003 11 February 2004 1.25 pence -30 September 2004 04 February 2005 1.25 pence -30 September 2005 14 February 2006 0.75 pence -30 September 2006 (interim) 14 February 2006 2.50 pence -30 September 2006 15 February 2007 0.75 pence -30 September 2007 (interim) 15 February 2007 3.00 pence -30 September 2007 (interim) 24 October 2007 2.00 pence -30 September 2007 15 February 2008 2.00 pence -30 September 2008 16 February 2009 4.00 pence -30 September 2009 17 March 2010 2.00 pence 0.5 pence ---------------- -------------Cumulative dividends paid prior to the merger 22.45
pence 0.5 pence
Dividends paid include distributions from both income and capital.
Dividends proposed
The Directors have declared an interim capital dividend of 2.00 pence per share for the year ended 30 September 2010 to be paid to Shareholders on the Register on 28 January 2011, on 22 February 2011.
A final capital dividend of 2 pence per share will be recommendedto Shareholders at the Annual General Meeting of the Company to be held on 16February 2011 to be paid to Shareholders on the Register on 4 March 2011, on28 March 2011.Chairman's Statement
I am pleased to present the annual financial results of the Company for the year ended 30 September 2010.
The last year has been dominated by the continuing problems in the global economy. Earlier in the year in the UK, the economic problems were overshadowed by the uncertainty surrounding the outcome of the General Election and, more recently, by the widely debated public sector spending cuts. There were signs earlier in 2010 that confidence may have been returning but more recently there has been renewed volatility and uncertainty, particularly as a result of the Irish and Greek debt problems.
Merger of the 'O' and 'S' Share classes
In my recent Half-Year Report, I reported that the Company had successfully achieved a simpler single share class structure earlier in the year. All the Resolutions which were proposed at the Extraordinary General Meeting of the Company held on 26 March 2010 and at the separate class meetings held on 29 March 2010 were duly passed.
The former 'O' and 'S' Share classes of the Company were merged following Shareholder approval. The ratio used for the conversion of former `O' Shares into new Ordinary Shares was 0.758. Former 'S' Shares were converted into Ordinary Shares on a 1 for 1 basis. Shareholders were issued with new share certificates on 5 April 2010.
Performance
As at 30 September 2010 the Company's NAV per Ordinary Share was 99.0 pence (30 September 2009: 93.2 pence). Adjusted for dividends paid to Shareholders during the year, this represents an increase of 6.8% (7.8% in respect of the former `O' Share Fund) over the twelve month period. This compares with an increase of 3.7% in the FTSE SmallCap Index and a rise of 21.0% in the FTSE AiM All-Share Index, both on a capital return basis.
This result is a combination of increased value in some of the portfolio companies, together with some recovery, highlighting the tendency for unquoted asset portfolios to lag the trends seen in the main quoted indices.
Cumulative dividends paid to date amount to 22.45 pence per former 'O' Share and 0.5 pence per former 'S' Share.
The portfolio
During the twelve months under review sector price earningsmultiples in those areas of the quoted market (by reference to which unquotedinvestments are frequently valued) in which the Company is invested, havevaried sharply. By way of example, whilst the Personal Goods sector has seen a104% increase over this period the Construction & Materials and Food Producerssectors have fallen sharply by 32% and 37% respectively.
Overall, the portfolio showed a net increase of £3.0 million over the year. The significant contributors to this increase were Amaldis, Digico, Iglu, Camwood, Westway, British International, Monsal and ATG Media.
The MPEP invested portfolio at 30 September 2010 comprised 31investments with a total cost of £19.9 million and valued at £22.9 millionrepresenting an uplift of 14.5% on cost at the year-end. Realisations duringthe year generated total gross disposal proceeds of some £1.3 million.Two new investments were completed in December 2009 both of whichhave been trading strongly since investment. The first investment was C BImports Group, an importer and distributor of artificial flowers, floralsundries and home d©cor products, trading under the name of Country Baskets.The Company invested £1 million into this company. The second new investmentwas into Iglu.com Holidays, the UK's largest specialist ski holiday and fastgrowing cruise holiday travel agent. The Company invested £1 million tosupport the MBO and recapitalisation of this Wimbledon based company. Iglu.comhas made a strong start and is trading currently ahead of plan.
Following the year-end, the VCT has made two new investments and made a commitment to invest in a third company.
In the first of these, the Company used its investment of £1million in the investment vehicle, Aust, to support the MBO of RDL RecruitmentCorporation a European recruitment provider within the pharmaceutical,business intelligence and IT sectors. The VCT's total investment in thiscompany, which has since changed its name to Aust Recruitment Group Limited,now stands at £1.4 million.
Secondly, the VCT invested £487,744 to support the MBO of Faversham House Group Limited, an established, family-owned media company providing magazines, exhibitions and online resources in the environment and sustainability, visual communications and building services sectors.
The VCT has also made a commitment to invest £280,000 into the AIM listed company Omega Diagnostics Group Plc, which provides high quality in-vitro diagnostics products for use in hospitals, blood banks, clinics and laboratories in over 100 countries and specialises in the areas of food intolerance, autoimmune disease and infectious disease.
It is a measure of the success of the Manager's efforts that theportfolio has required only £514,314 of additional funding despite thechallenges that investee companies have faced. In November 2009, the Companyparticipated in a follow-on investment into British International Holdings(BIH) investing £90,909 to provide additional working capital. BIH has enjoyedimproved trading during 2010 with particularly good revenue from oil and gassupport work in the Falklands Islands. The Company also made an additionalloan stock and equity investment totalling £421,688 into HWA Group in January2010. The investment was made as part of a re-financing and Rights Issue toprovide additional working capital. However, since investment, the companycontinues to contend with deteriorating conditions in its sector with littlesign of an upturn. A small additional investment of £1,717 was also made intoMonsal as part of a re-financing round by a new third party investor.In November 2009 the Company sold its investment in PastaKingHoldings for gross proceeds of £793,853. This realisation contributed to totalproceeds over the life of this investment of £955,042, representing a 3.27xreturn on the original investment cost of £292,405. The Company's investmentin Stortext FM was sold to Box-it Storage Group Limited in February 2010 for£2,562. This had carried a nil valuation prior to sale.A number of other investee companies have also been trading strongly and atotal of £372,724 has been returned to the Company during the year underreview in partial loan stock repayments. DiGiCo Europe returned a total of£188,502 in loan stock repayments plus a premium of £14,037; Westway repaid atotal of £137,064 of loan stock plus a premium of £34,575 during the year andMonsal repaid £47,158 in July as part of the closing of a second investmentround.
Since the year-end, Westway has repaid part of its loan stock realising £99,681 proceeds, of which £31,148 was premium and ATG Media has made a partial repayment of £111,111.
The ex Foresight portfolio continues in the main to find these economic trading conditions difficult and is currently showing a valuation deficit of some £5.8m as against cost. The exception to this is Camwood which is currently trading strongly and is valued at some £1.15m above cost.
Cash available for investment
During the economic turmoil, both the Board and the Manager have continued towork to ensure that our cash deposits continue to remain as secure aspossible. We have for some time been spreading our significant cash depositswith a number of the leading global cash funds rather than depositing directlyto individual banks, thereby reducing our exposure to any one particular bank.However, the current low level of interest rates on cash deposits means thatit will continue to be difficult for the Company to pay dividends out ofincome. The Board and Manager both strongly believe that at this time thesecurity and protection of the Company's capital is more important thanstriving for a small increase in deposit rates at the cost of much higherrisk.
Cash and liquidity fund balances as at 30 September 2010 amounted to £8,815,109. In addition, a further £7 million has been invested into a series of acquisition vehicles pending further investment. (This figure was reduced to £6 million after the year-end following the Company's investment in Aust Recruitment Group as outlined above).
Revenue Account
The Revenue account has become negative this year, falling from a return last year of £193,683 to a loss of £50,860 this year, for several exceptional reasons. However, for the future, there are some encouraging trends.
The Company suffered falls in income from liquid deposits of£218,465 due mainly to particularly low levels of interest rates. Otherexpenses increased by £77,592, due to two non-recurring factors: firstly, theyinclude the costs of merging the two funds although the completion of themerger is already starting to yield the benefits of greater simplicity andadministrative efficiencies. Secondly, trail commission expenses haveincreased by a one-off item, estimated at £36,000, by bringing forwardrecognition of the full year liability this year. The new management agreementhas also caused a re-allocation of some costs previously treated asadministrative to investment management expenses.
Dividends received have remained broadly constant at £200,605, when compared to last year's total of £199,022. Loan stock interest has increased by £42,266 to £442,132.
Finally, some further VAT income has been received, as previous managers completed their recovery of VAT from HM Revenue and Customs. No more income is now anticipated from this source.
Dividend
An interim capital dividend in respect of the year ended 30September 2010 of 2 pence per Ordinary Share was announced on 4 November 2010.The dividend will be paid, to Shareholders on the Register on 28 January 2011,on 22 February 2011.
A final capital dividend of 2 pence per Ordinary Share will be recommended to Shareholders at the Annual General Meeting of the Company to be held on 16 February 2011 for payment to Shareholders on the register on 4 March 2011 on 28 March 2011.
The Company's Dividend Investment Scheme will apply to both ofthese dividends and elections under the Scheme should be received by theScheme Administrator, Capita Registrars, by no later than Monday, 7 February2011 in the case of the interim dividend and Monday, 14 March 2011 in the caseof the final dividend.Share buy-backsDuring the year ended 30 September 2010, and prior to the merger of`O' and `S' Shares on 29 March 2010 ("the Merger"), the Company bought back369,937 (year to 30 September 2009: 754,444) `O' Shares (representing 1.1%(year to 30 September 2009: 2.1%) of the `O' Shares in issue at the beginningof the year) at a cost of £175,456 (year to 30 September 2009: £353,751). No`S' Shares were purchased during this period.
Following the Merger, the Company bought back 1,037,821 new Ordinary Shares (representing 2.7% of the new Ordinary Shares in issue on the date of the merger) at a cost of £790,660.
The Board regularly reviews its buyback policy and, given the lessvolatile outlook for the valuation of the portfolio, has undertaken to reducethe discount to NAV at which the Company's shares trade. At 16 December 2010,the mid-market price for the Company's Shares was 89.5 pence, representing adiscount of 9.6% to the NAV prevailing at 30 September 2010.
Fundraising
You will have seen recently that the Company is participating in a linked fundraising with Matrix Income & Growth VCT plc and Matrix Income & Growth 4 VCT plc which was launched on 12 November 2010. The funds raised will bolster the Company's strong cash position to capitalise on new investment opportunities and spread our fixed running costs over a larger asset base. Details of the Offer have already been posted to Shareholders.
The Board
As advised in the previous report, the new provisions of thelisting rules with regard to the independence of directors came into effectfor VCTs just before the year-end. As a result, Christopher Moore resigned asa Director of the Company and as Chairman of the Audit Committee at the end ofSeptember 2010. I would like to thank Christopher for his invaluable adviceand support throughout his period as a Director and for his leadership andguidance as Chairman of the Audit Committee.I am delighted to report that on 1 August 2010, Jonathan Cartwrightwas appointed to the Board and took over the role of Chairman of the AuditCommittee on 24 September 2010. Jonathan qualified as a Chartered Accountant.He has significant experience of the investment trust sector and of serving onthe boards of both public and private companies in executive and non-executiveroles. Jonathan joined Caledonia Investments plc in 1989, serving as FinanceDirector from 1991 to December 2009 and Group Financial Controller at Hansonplc from 1984 to 1989. He was a non-executive Director of Bristow Group Inc.from 1996 to 2009 and has been a non-executive director of Serica Energy plcfrom 2008 to date. Jonathan has served on the Self-Managed Investment TrustCommittee of the Association of Investment Companies (to December 2009).
Outlook
The Chairman of the US Federal Reserve recently delivered a bleakprognosis for the US economy, firming up the likelihood of a further round ofquantitative easing to battle economic slowdown and rising unemployment and tohead off the risk of a downward spiral in prices. Within the Eurozone, thecontinuing question marks related to the Irish, Greek and other sovereign debtproblems have merely added to the financial uncertainty.With the UK economy expected to slow over the winter, manyobservers still fear a double-dip recession. Economists are suggesting thatthe Bank of England will have to act to avoid such an event. The prospect ofanother round of gilt purchases has driven government debt yields sharplylower over the last month. What is certainly clear is that the stewardship ofthe nation's finances by the previous government means that putting the UKeconomy back on a sound basis will be a painful, and probably long, exerciseas evidenced by the Chancellor's recent announcement of public sector spendingcuts.Although this Fund invests in profitable companies, smallercompanies generally will be challenged by the anticipated testing economicenvironment over the coming winter. On the other hand, it is very encouragingto be able to report that the majority of companies in the portfolio continueto trade profitably and a number are reporting results ahead of budget.
The Company continues to retain a significant cash position, having correctly limited investment during the downturn. Moreover, the present Fundraising Offer, which I have referred to above, will strengthen this position further. The unquoted sector is beginning to see a return to more active levels, and the Board and Manager expect that a number of attractive investment opportunities will be identified in the near term.
In summary, your Board is encouraged greatly by the portfolio showing resilience and promise in spite of these difficult economic conditions.
I&G website
May I remind you that the Company has its own website which is available at www.incomeandgrowthvct.co.uk.
Once again, I would like to take this opportunity to thank Shareholders for their continued support.
Colin Hook
Chairman
Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Directors' Report,the Directors' Remuneration Report and the financial statements in accordancewith applicable law and regulations. They are also responsible for ensuringthat the Annual Report includes information required by the Listing Rules ofthe Financial Services Authority.Company law requires the Directors to prepare financial statementsfor each financial year. Under that law the Directors have elected to preparethe financial statements in accordance with United Kingdom Generally AcceptedAccounting Practice (United Kingdom Accounting Standards and applicable law).Under company law the Directors must not approve the financial statementsunless they are satisfied that they give a true and fair view of the state ofaffairs of the company and of the profit or loss of the Company for thatperiod. In preparing these financial statements the Directors are required to: - select suitable accounting policies and then apply them consistently; - make judgments and estimates that are reasonable and prudent; - state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; - prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accountingrecords that are sufficient to show and explain the Company's transactions anddisclose with reasonable accuracy at any time the financial position of theCompany and enable them to ensure that the financial statements comply withthe Companies Act 2006. They are also responsible for safeguarding the assetsof the Company and hence for taking reasonable steps for the prevention anddetection of fraud and other irregularities.The Directors are responsible for the maintenance and integrity ofthe corporate and financial information included on the Company's website.Legislation in the United Kingdom governing the preparation and disseminationof the financial statements and other information included in annual reportsmay differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial report
The Directors confirm to the best of their knowledge that:
(a) the financial statements, prepared in accordance with UK Generally Accepted Accounting Practice and the 2009 Statement of Recommended Practice, `Financial Statements of Investment Trust Companies and Venture Capital Trusts' (SORP), give a true and fair view of the assets, liabilities, financial position and the profit of the Company.
(b) the management report, included within the Chairman's Statement, Investment Portfolio Summary, Investment Manager's Review and Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.
For and on behalf of the Board:
Colin HookChairmanInvestment Policy
The Company's policy is to invest primarily in a diverse portfolio of UK unquoted companies. Investments are structured as part loan and part equity in order to receive regular income and to generate capital gains from trade sales and flotations of investee companies.
Investments are made selectively across a number of sectors, primarily in management buyout transactions (MBOs) i.e. to support incumbent management teams in acquiring the business they manage but do not yet own. Investments are primarily made in companies that are established and profitable.
The Company has a small legacy portfolio of investments in companies from its period prior to 30 September 2008, when it was a multi-manager VCT. This includes investments in early stage and technology companies and in companies quoted on the AiM or PLUS.
Uninvested funds are held in cash and lower risk money market funds.
UK companies
The companies in which investments are made must have no more than £15 million, in the case of funds raised under the original prospectus in 2000/01, and £7 million, in the case of funds raised after 6 April 2006, (including the former `S' Share Fund raised in 2007/08) of gross assets at the time of investment to be classed as a VCT qualifying holding.
VCT regulation
The investment policy is designed to ensure that the Companycontinues to qualify and is approved as a VCT by HM Revenue & Customs("HMRC"). Amongst other conditions, the Company may not invest more than 15%of its investments in a single company and must have at least 70% by value ofits investments throughout the period in shares or securities comprised in VCTqualifying holdings, of which a minimum overall of 30% by value must beordinary shares which carry no preferential rights. In addition, although theCompany can invest less than 30% of an investment in a specific company inordinary shares it must have at least 10% by value of its total investments ineach VCT qualifying company in ordinary shares which carry no preferentialrights.
Asset mix
The Company initially holds its funds in a portfolio of readilyrealisable interest-bearing investments and deposits. The investment portfolioof qualifying investments is built up over a three year period with the aim ofinvesting and maintaining at least 70% of net funds raised in qualifyinginvestments.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses across different industry sectors. To reduce the risk of high exposure to equities, each qualifying investment is structured using a significant proportion of loan stock (up to 70% of the total investment in each VCT qualifying company). Initial investments in VCT qualifying companies are generally made in amounts ranging from £200,000 to £1 million at cost. No holding in any one company will represent more than 10% of the value of the Company's investments at the time of investment. Ongoing monitoring of each investment is carried out by the Investment Manager, generally through taking a seat on the board of each VCT qualifying company.
Co-investment
The Company aims to invest in larger, more mature unquotedcompanies through investing alongside the three other VCTs advised by theInvestment Manager with a similar investment policy. This enables the Companyto participate in combined investments advised on by the Investment Manager ofup to £5 million.
Principal risks, management and regulatory environment
The Board believes that the principal risks faced by the Company are:
- Economic risk - events such as an economic recession and movement in interest rates could affect trading conditions for smaller companies and consequently the value of the Company's qualifying investments.
- Risk of loss of approval as a Venture Capital Trust - the Companymust comply with the provisions of section 274 of the Income Tax Act 2007("ITA") to continue to be exempted from capital gains tax on investment gainsand to ensure that its investors continue to qualify for VCT tax reliefs. Anybreach of these rules may lead to the Company losing its approval as a VentureCapital Trust (VCT), qualifying shareholders who have not held their sharesfor the designated holding period having to repay the income tax relief theyobtained and future dividends paid by the Company becoming subject to tax. TheCompany would also lose its exemption from corporation tax on capital gains.- Investment and strategic risk - inappropriate strategy orconsistently weak VCT qualifying investment recommendations might lead tounderperformance and poor returns to shareholders. Investment in unquotedsmall companies by its nature involves a higher degree of risk than investmentin companies traded on the London Stock Exchange main market. Smallercompanies often have limited product lines, markets or financial resources andmay be dependent for their management on a smaller number of key individuals.This may make them more risk-prone and volatile investments.
- Regulatory risk - the Company is required to comply with the Companies Act 2006 ("the Companies Act"), the listing rules of the UKLA and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
- Financial and operating risk - inadequate controls that might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or beaches of regulations. Failure of the Investment Manager's and Administrator's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.
- Market risk - movements in the valuations of the VCT's investments will, inter alia, be connected to movements in UK Stock Market indices.
- Asset liquidity risk - The Company's investments may be difficult to realise.
- Market liquidity risk - Shareholders may find it difficult to sell their shares at a price which is close to the net asset value.
- Counterparty risk - A counterparty may fail to discharge an obligation or commitment that it has entered into with the Company. For further information, please see the Chairman's Statement above under `Cash available for investment' and the discussion on `credit risk' in Note 20 to the accounts in the full Annual Report and Accounts to be published shortly.
The Board seeks to mitigate the internal risks by setting policyand by undertaking a key risk management review at each quarterly Boardmeeting. Performance is regularly reviewed and assurances in respect ofadequate internal controls and key risks are sought and received from theInvestment Manager and Administrator on a six monthly basis. In mitigation andthe management of these risks, the Board applies rigorously the principlesdetailed in the AIC Code of Corporate Governance. The Board also has a ShareBuy Back policy which seeks to mitigate the Market Liquidity risk. This policyis reviewed at each quarterly Board Meeting.
Investment Manager's Review
Overview
The challenging economic conditions have continued to persist in the UK. Thishas been a leading factor in making the year under review another slow periodfor VCT investment and realisations. Against this background, we havecontinued to remain cautious and selective when considering new deals and haveuntil recently been disappointed by the quality of the deals presented. It hasproved difficult in these circumstances to bring deals to fruition and we havefrequently judged vendors' price expectations as likely to be unsustainable inthe medium term. The market in the UK has had to contend with theuncertainties in the political environment, unstable, slow recovery fromrecession and a lack of clarity in the immediate aftermath of the election. Weare increasingly hopeful that this period of uncertainty is drawing to a closeand have begun to see some evidence that more attractively pricedopportunities and trade buyers willing to pay more realistic prices arebeginning to emerge.
New investment
Our new investment activity continues to focus on management buyouts. Our approach has been to capitalise companies conservatively at the time of investment so that they are well positioned to contend with an uncertain macro-economic environment.
We were pleased to complete two new investments in December 2009which have both been trading strongly since investment. The first of these wasC B Imports Group, an importer and distributor of artificial flowers, floralsundries and home d©cor products, trading under the name of Country Baskets.Using the `O' Share Fund's existing investment in the acquisition vehicleCalisamo Management, the Company invested £1 million into this profitablecompany with a turnover of circa £20 million. Founded in 1990, the companyoperates from a national distribution centre in Leeds, has recently opened newsites in Gateshead and Bristol and is planning to roll out further sitesacross the UK.
The second of these was into Iglu.com Holidays, the UK's largest specialist ski holiday and fast growing cruise holiday travel agent. The Company invested £1 million to support the MBO and recapitalisation of this Wimbledon based company employing more than 95 people. Repeat business and referrals from satisfied customers have meant that Iglu.com's cruise sales have doubled year on year and this growth looks set to continue. Since the investment was completed, Iglu.com has made a strong start and is trading ahead of plan and the year end valuation reflects this encouraging performance.
Following the year-end, the VCT has made two new investments and made a commitment to invest in a third company.
In the first of these, the Company used its investment of £1million in the acquisition vehicle, Aust to support the MBO of RDL RecruitmentCorporation a european recruitment provider within the pharmaceutical,business intelligence and IT sectors based in London and Woking. The companywhich employs 70 staff was established in 1992. It sources staff for over 300major companies, matching niche professionals with hard to fill contractassignments and staff positions. The VCT's total investment in this company,which changed its name to Aust Recruitment Group Limited following the MBO,now stands at £1.4 million.
Secondly, the VCT invested £487,744 in December to support the MBO of Faversham House Group Limited. Based in Croydon, this is an established, family owned media company providing magazines, exhibitions and online resources in the environment and sustainability, visual communications and building services sectors.
The VCT also made a commitment in November to invest £280,000 into the AIM listed company Omega Diagnostics Group Plc. Based in Alva, Scotland this company provides high quality in-vitro diagnostics products for use in hospitals, blood banks, clinics and laboratories in over 100 countries and specialises in the areas of food intolerance, autoimmune disease and infectious disease.
Our Operating Partner programme continues to pursue an activesearch for investment opportunities and just before the year-end the Companycompleted five new investments of £1 million each into Backbarrow, BladonCastle Management, Fullfield, Rusland Management and Torvar. These companies,together with Apricot Trading, are all actively seeking suitable investmentopportunities in a variety of sectors including food manufacturing, retailing,brand management, health and well-being, publishing, on-line businesses,software and database management and construction but so far have not foundsufficiently attractive investment opportunities at the right price.Each of the acquisition vehicles are headed by experienced Chairmenwell known to MPEP who are working closely with us in seeking to identify andcomplete investments in specific sectors relevant to their industry knowledgeand experience. We have established these companies to provide time for us toidentify and invest in suitable target companies at sufficiently attractiveprices.
Follow-on investment
We have worked particularly closely with portfolio companies overrecent months to encourage them to make the necessary changes to ensure thatthey were in the best possible position to withstand the recent period ofeconomic uncertainty. It is a measure of the success of this effort that theinvestment portfolio has required only £514,314 of additional funding despitethe challenges that investee companies have faced.In November 2009, the Company participated in a follow-oninvestment into British International Holdings (BIH) investing £90,909 toprovide additional working capital. BIH has enjoyed improved trading during2010 with particularly good revenue from oil and gas support work in theFalklands Islands. The company has also agreed terms with Sainsburys for thesale, subject to planning permission, of its Penzance heliport site which isexpected to generate capital for investment in new helicopter capacity.The VCT made an additional loan stock and equity investmenttotalling £421,688 into HWA Group in January 2010. The investment was made aspart of a re-financing and Rights Issue to provide additional working capitalto bridge the lower than expected revenues arising from delays in clientscommissioning projects. Conditions since then have unfortunately continued todeteriorate and there is little sign of any upturn in the company's tradingenvironment which has been reflected in the valuation.
Realisations
Realisations during the year generated cash proceeds of £1.3 million. The Company successfully realised its investment in PastaKing Holdings, the Newton Abbot-based supplier of fresh pasta meals, in November 2009 for initial capital proceeds of £793,853. This realisation contributed to total proceeds over the life of the investment of £955,042, representing a 3.27x return on the original investment cost of £292,405.
The Company's investment in Stortext FM was sold to Box-it Storage Group Limited in February 2010 for £2,562. This had carried a nil valuation prior to sale.
A number of companies in the portfolio are trading strongly and a total of£372,724 has been returned to the Company during the year under review inpartial loan stock repayments. DiGiCo Europe returned a total of £188,501 inloan stock repayments during the year plus a premium of £14,037. This companyhas continued to grow rapidly throughout 2010. Having made a very encouragingstart since investment, Westway has repaid a total of £137,065 of loan stockplus a premium of £34,375 during the year and a further £99,681 (of which£31,148 was premium) after the year-end. Monsal repaid £47,158 in July as partof the closing of a second investment round that brought in the specialistinvestor Waste Resources Fund (managed by FourWinds) who invested £4 millionas part of a total commitment of £14 million at a materially higher valuationof Monsal than had been applied by your Manager. This company continues toprogress a number of waste contracts, exploiting its acknowledged expertise inanaerobic digestion technology. We are hopeful that this significant newinvestment will result in higher future returns for the Company.
Since the year-end, ATG Media has made a partial repayment of £111,111. This company has benefited from increased interest in its online auction technology, and enhanced advertising revenues have led to an improvement in profits generated by the Antiques Trade Gazette.
Portfolio review
The MPEP invested portfolio at 30 September 2010 comprised 31investments with a cost of £19.9 million and valued at £22.9 millionrepresenting an uplift of 14.5% on cost. Additionally, there are threeinvestments in the portfolio, formerly managed by Nova, with a cost of £1.4million valued at £1.8 million. The new investments made since last year,Westway, CB Imports and Iglu.com, have all moved off cost as a result ofout-performing their investment plans. There has also been a strong operatingperformance at Amaldis which has led to an increase in valuation. The VCT'sinvestment in BG Consulting Group was re-structured during the year andresulted in an increase in the value of this investment and the VCT'sresulting new loan stock investment is valued in full. The FourWindsinvestment in Monsal also resulted in a significant uplift in the carryingvalue of this investment. Campden Media has made a strong start to 2010,following a better than expected year to December 2009. The valuations ofImage Source and HWA have shown substantial reductions, in both casesresulting from worsening trading conditions.Despite seeing a fall in licence income, VSI has gained from therelative weakness of sterling and is developing a number of strategicrelationships. This company paid a participating preference dividend to theVCT of £11,459 in April 2010. Vectair continues to expand its export marketsand is now making significant inroads into the US market. Focus Pharmacontinues to trade well, comfortably exceeding its budget for the year to 31December 2009 and continuing this trend in 2010.Tikit Group has been trading strongly and has seen a rise in itsshare price of 50% since the beginning of September. The VCT sold 23% of itsequity holding in this Company at a price of 196.5 pence per share compared tocost of 115 pence share on 1 November 2010 after the year-end.The construction and house building sectors remain weak andYoungman, PXP and Plastic Surgeon continue to trade well below pre-economicdownturn levels. Each business has reduced its costs and managed its cashresources effectively. Youngman has almost fully repaid its acquisition debtsince investment and is well positioned to benefit from an upturn in itsmarkets. PXP has moved away from its dependence on private and public sectorhouse builds towards commercial buildings including hotels, doctor's surgeriesand convenience stores. Plastic Surgeon has diversified into commercialproperty and insurance markets.Blaze Signs has continued to suffer from delays in customersplacing orders. It has, however, secured new contracts which should begin tocontribute during its current financial year. Racoon has shown a significantimprovement in profitability in its financial year to 31 March 2010.BG Consulting Group/Duncary 4 underwent a reconstruction of itsbusiness during the year under a new holding company called Duncary 8 althoughthe company continues to trade under the name of BG Consulting. The valuationnow reflects both the improved trading of BG Consulting, which is seeingincreased demand from its investment banking clients.
Unfortunately, Legion Group requested a suspension of trading of its shares in July 2010 pending clarification of the company's financial position. Legion had a healthy order book but continued to suffer working capital constraints. On 6 August 2010, the board appointed administrators and the business was subsequently sold to OCS Group.
The rise in valuations in the MPEP invested portfolio for the year is encouraging although the reduction in profitability of some portfolio companies has made some decreases inevitable. It is important to recognise that all of the falls in the year have been in unrealised valuations as opposed to realised investment losses.
Foresight investments
With effect from 1 October 2008, MPEP assumed responsibility fromForesight for the eleven investments it managed on behalf of the Company. Thissection of the portfolio which comprises largely technology and early-stagecompanies consists of 11 investments with a cost of £9.3 million and valued at£3.5 million representing 37.6% of cost.
Camwood is trading well and its strong operating performance has meant that we were able to uplift its year-end valuation. The company completed a de-merger of its AppDNA business after the year-end in November 2010. The VCT now holds two identical investments of £333,333 loan stock and a 31.5% equity stake in both Camwood Limited and AppDNA Limited.
DCG Group, having re-paid loans of £54,978 in the year, completed a re-financing after the year-end, as a result of which the VCT received full repayment of its outstanding loan of £173,802 plus a loan premium and overdue interest totaling £232,349.
The investment in Oxonica, costing £2,524,527, has no value at theyear-end, but we believe some value may be recovered. £2,374,527 of this costhas been treated as a realised loss in these accounts, as it is considered nownever likely to be recovered. As this loss had already been recognised inprevious years' accounts, this adjustment has no impact on the Company'sprofit for the year.
Investment outlook
Although the economic environment remains uncertain, we are becoming moreconfident that the threats to the financial health of our portfolio companieshave largely lessened. The more stable political and economic environmentshould allow smaller companies to plan for the future and we expect to seeincreasingly attractive opportunities coming forward. We continue to believethat the portfolio, taken as a whole, is resilient and of high quality and weexpect to unlock additional value over time.
Having retained significant uninvested cash, the VCT is well placed to support certain portfolio should the need arise and to capitalise on attractive new investment opportunities.
Details of the Company's fifteen largest investments by value(excluding the seven acquisition vehicles in the portfolio which have yet tocomplete an investment and each have a current cost and valuation of £1million) are set out below.Camwood Limited www.camwood.com Cost: £1,028,181Valuation: £2,182,692Basis of valuation: Earnings multipleEquity % held: 31.6% (fully diluted)Business: Provider of software packaging servicesLocation: LondonHistory: Development capitalIncome in year to I&G: £46,667
Audited financial information: Year ended Turnover Operating profit Net liabilities 31 March 2009 £4,756,000 £22,000
£281,000 Amaldis (2008) Limited (Original www.originaladditions.comAdditions) Cost: £80,313Valuation: £1,965,586Basis of valuation: Earnings multipleEquity % held: 9.2%Business: Manufacturer and distributor of beauty productsLocation: Hayes, MiddlesexHistory: Management buy-outIncome in year to I&G: £Nil
Audited financial information: Year ended Turnover Operating profit Net assets 3 April 2010 £24,164,000 £3,118,000
£1,086,000 Iglu.com Holidays Limited www.iglu.com Cost: £1,000,001Valuation: £1,616,116Basis of valuation: Earnings multipleEquity % held: 8.1%Business: On-line ski and cruise travel agencyLocation: LondonHistory: Management buy-outIncome in year to I&G: £53,322
Audited financial information: Year ended Turnover Operating profit Net assets 31 May 2010 * £56,617,000 £974,000
£5,151,000* Accounts are for the operatingsubsidiary Iglu.com Image Source Group Limited www.imagesource.com Cost: £305,000Valuation: £1,399,114Basis of valuation: Earnings multipleEquity % held: 39.6% (fully diluted)Business: Royalty-free picture libraryLocation: LondonHistory: Management buy-outIncome in year to I&G: £Nil
Audited financial information: Year ended Turnover Operating profit Net assets 31 December 2009 £7,174,000 £406,000
£2,601,000 ATG Media Holdings Limited www.antiquestradegazette.com Cost: £1,000,000Valuation: £1,377,208Basis of valuation: Earnings multipleEquity % held: 8.5%Business: Publisher and on-line auction platform operatorLocation: LondonHistory: Management buy-outIncome in year to I&G: £53,190
Audited financial information: Year ended Turnover Operating profit Net assets 30 September 2009 £6,118,000 £873,000
£2,010,000 DiGiCo Europe Limited www.digico.org Cost: £325,594Valuation: £1,201,553Basis of valuation: Earnings multipleEquity % held: 4.3%Business: Designer and manufacturer of digital audio mixing desksLocation: Chessington, SurreyHistory: Management buy-outIncome in year to I&G: £56,311
Audited financial information: Year ended Turnover Operating profit Net assets 31 December 2009 £12,922,000 £3,026,000
£5,660,000
CB Imports Group Limited (Country Baskets) www.countrybaskets.co.uk (formerly Calisamo Management Limited)
Cost: £1,000,000Valuation: £1,199,310Basis of valuation: Earnings multipleEquity % held: 6.0%Business: Importer and distributor of artificial flowers, floral sundries and home d©cor products.Location: East Ardsley, West YorkshireHistory: Management buy-outIncome in year to I&G: £58,013
Unaudited financial information: Year ended Turnover Operating profit Net assets 31 December 2009 £19,755,000 2,437,000
£8,358,000** Accounts are for the operatingsubsidiary CB Imports Limited IDOX plc www.idoxplc.comCost: £872,625Valuation: £939,167Basis of valuation: Bid price (AiM-quoted)Equity % held: 2.4%Business: Development and supply of knowledge management products and servicesLocation: LondonHistory: AiM flotationIncome in year to I&G: £17,967
Audited financial information: Year ended Turnover Operating profit Net assets Earnings per
share
31 October 2009 £32,164,000 £6,147,000 £28,173,000
1.0p
Westway Services Holdings (2010) Limited www.westwaycooling.co.uk(formerly MC440 Limited) Cost: £422,122Valuation: £884,557Basis of valuation Earnings multipleEquity % held 4.7%Business: Installation, service and maintainance of air conditioning systemsLocation: Greenford, MiddlesexHistory: Management buy-outIncome in year to I&G: £44,176
Audited financial information: Year ended Turnover Operating profit Net assets 28 February 2010* £17,369,000 £2,793,000
£4,401,000*Accounts are for the operating subsidiaryWestway Services Limited Tikit Group plc www.tikit.com Cost: £500,000Valuation: £839,129Basis of valuation: Bid price (AiM-quoted)Equity % held: 3.0%Business: Supplier of IT solutions and support services to the legal and accounting industriesLocation: LondonHistory: AiM flotationIncome in year to I&G: £26,522
Audited financial information: Year ended Turnover Operating profit Net assets Earnings per
share
31 December 2009 £25,196,000 £3,018,000 £15,183,000
12.6p
British International Holdings Limited www.islesofscillyhelicopter.comCost: £590,909Valuation: £796,381Basis of valuation: Earnings multipleEquity % held: 5.0%Business: Helicopter Service OperatorLocation: Sherborne, DorsetHistory: Management buy-outIncome in year to I&G: £9,086
Audited financial information: Year ended Turnover Operating profit Net assets 31 December 2009 £16,050,000 £976,000
£2,970,000 VSI Limited www.lightworkdesign.comCost: £245,596Valuation: £777,937Basis of valuation: Earnings multipleEquity % held: 9.2% (fully diluted)Business: Provider of software for CAD and CAM vendorsLocation: SheffieldHistory: Management buy-outIncome in year to I&G: £31,924
Audited financial information: Year ended Turnover Operating profit Net assets 31 December 2009 £4,399,000 £560,000
£976,000 Monsal Holdings Limited www.monsal.co.ukCost: £426,164Valuation: £768,505Basis of valuation: Independent third party investmentEquity % held: 4.3% (fully diluted)Business: Supplier of engineering services to the water and waste sectorsLocation: Mansfield, NottinghamshireHistory: Management buy-outIncome in year to I&G: £27,258
Audited financial information: Year ended Turnover Operating profit Net assets 30 September 2009 £6,743,000 £475,000
£1,864,000*
*Unaudited figure taken from the consolidated group accounts of Monsal Holdings Limited
Focus Pharma Holdings Limited www.focuspharmaceuticals.co.uk
www.focuspharmaceuticals.co.uk
Cost: £516,900Valuation: £707,569Basis of valuation: Earnings multipleEquity % held: 2.1%Business: Licensor and distributor of generic pharmaceuticalsLocation: Burton upon Trent, StaffordshireHistory: Management buy-outIncome in year to I&G: £42,825
Audited financial information: Year ended Turnover Operating profit Net assets 31 December 2009 £16,997,000 £902,000
£2,917,000 Youngman Group Limited www.youngmangroup.comwww.youngmangroup.com Cost: £1,000,052Valuation: £700,992Basis of valuation: Fair Value supported by review of loan stock security.Equity % held: 8.5%Business: Manufacturer of ladders and access towersLocation: Maldon, EssexHistory: Management buy-in/buy-out from SGB GroupIncome in year to I&G: £1,429
Audited financial information: Year ended Turnover Operating profit Net assets 30 June 2010 £26,752,000 £6,000
£3,681,000 The remaining 30 investments in the portfolio (including the seven acquisitionvehicles in the portfolio at 30 September 2010) had a current cost of £14.3million and were valued at 30 September 2010 at £3.8 million.
Further details of the investments in the portfolio may be found on MPEP's website: www.matrixpep.co.uk
Operating profit is stated before charging amortisation of goodwill where appropriate for all investee companies
Total Cost at Valuation at Additional
Valuation at % of % of
investments
equity portfolio
30-Sep-10 30-Sep-09 30-Sep-10 held 1 by value £ £ £ £Camwood Limited 2 1,028,181 1,013,233 - 2,182,692 31.6% 7.76%Provider of softwarerepackaging services Amaldis (2008) Limited(Original Additions) 80,313 1,586,734 - 1,965,586 9.2% 6.99%Manufacturer anddistributor of beautyproducts
Iglu.com Holidays Limited 1,000,001 - 1,000,001 1,616,116 8.1% 5.75 %Online ski and cruisetravel agencyImage Source Group Limited 305,000 2,259,232 - 1,399,114 44.0% 4.98%Royalty free picturelibraryATG Media Holdings Limited 1,000,000 1,000,000 1,377,208 8.5% 4.90%Publisher and onlineauction platform operator DiGiCo Europe Limited 325,594 1,131,870 - 1,201,553 4.3% 4.26%Designer and manufacturerof digital audio mixingdesks CB Imports Group Limited(Country Baskets) 1,000,000 1,000,000 - 1,199,310 6.0% 4.26%Importer and distributorof artificial flowers,floral sundries and homedecor products Apricot Trading Limited 1,000,000 1,000,000 - 1,000,000 24.5% 3.56%Company seeking to acquirebusinesses in themarketing services andmedia sector Aust Recruitment GroupLimited (formerly AustConstruction InvestorsLimited 1,000,000 1,000,000 - 1,000,000 16.3% 3.56%Recruitment providerwithin the pharmaceutical,business intelligence andIT sectors Backbarrow Limited 1,000,000 - 1,000,000 1,000,000 16.7% 3.56%Company seeking to acquirebusinesses in the foodmanufacturing,distribution and brandmanagement sectorsBladon Castle ManagementLimited 1,000,000 - 1,000,000 1,000,000 16.7% 3.56%Company seeking to acquirebusinesses in the brandmanagement, consumerproducts and retailsectorsFullfield Limited 1,000,000 - 1,000,000 1,000,000 16.7% 3.56%
Company seeking to acquirebusinesses in the foodmanufacturing,distribution and brandmanagement sectorsRusland Management Limited 1,000,000 - 1,000,000 1,000,000 24.5% 3.56%Company seeking to acquirebusinesses in the brandmanagement, consumerproducts and retailsectorsTorvar Limited 1,000,000 - 1,000,000 1,000,000 24.5% 3.56%
Company seeking to acquirebusinesses in the databasemanagement, mapping, datamapping and managementservices sectorsI-Dox plc 4 872,625 796,250 - 939,167 2.4% 3.34%Developer and supplier ofknowledge managementproductsWestway Services Holdings(2010) Limited (formerlyMC 440 Limited) 422,122 559,186 - 884,557 4.7% 3.15%Installation, service andmaintenance of airconditioning systemsTikit Group plc 4 500,000 595,651 - 839,129 3.0% 2.98%Supplier of IT solutionsand support services tothe legal and accountingindustriesBritish InternationalHoldings Limited 590,909 359,765 90,909 796,381 5.0% 2.83%Helicopter serviceoperatorVSI Limited 245,596 794,146 - 777,937 10.0% 2.77%Provider of software forCAD and CAM vendorsMonsal Holdings Limited 426,164 353,704 1,717 768,505 5.6% 2.73%Supplier of engineeringservices to the water andwaste sectorsFocus Pharma HoldingsLimited 516,900 525,858 -
707,569 2.1% 2.52% Licensor and distributorof generic pharmaceuticals Youngman Group Limited
1,000,052 700,992 - 700,992 8.5% 2.49%Manufacturer of laddersand access towersDuncary 8 Limited(formerly B G ConsultingGroup Limited/Duncary 4Limited) 634,923 115,027 - 683,746 25.5% 2.43%Technical trainingbusinessBrookerpaks Limited 55,000 324,447 - 498,095 18.2% 1.77%Importer and distributorof garlic andvacuum-packed vegetablesAquasium TechnologyLimited 2 700,000 564,739 - 396,581 16.7% 1.41 %Manufacturing andmarketing of bespokeelectron beam welding andvacuum furnace equipmentVectair Holdings Limited 215,914 375,136 - 366,575 4.6% 1.30%Designer and distributorof washroom productsRacoon InternationalHoldings Limited 550,852 79,496 - 243,664 7.7% 0.87%Supplier of hairextensions, hair careproducts and training Blaze Signs HoldingsLimited 1,338,500 132,589 - 242,090 12.5% 0.86%Manufacturer and installerof signsBiomer Technology Limited3 137,170 226,585 - 226,152 4.4% 0.80%Developer of biomaterialsfor medical devicesLetraset Limited 650,000 0 - 213,859 5.0% 0.76%Manufacturer and worldwidedistributor of graphic artproductsDCG Group Limited 2 257,096 262,861 - 181,771 11.3% 0.65%Design, supply andintegration of datastorage solutionsNexxtDrive Limited 3 812,014 203,004 - 162,500 7.1% 0.58%Developer and exploiter ofmechanical transmissiontechnologiesANT plc 2 462,816 275,770 - 160,866 2.7% 0.57%Provider of embeddedbrowser/email software forconsumer electronics andInternet appliancesCampden Media Limited 334,880 44,438 - 125,921 3.6% 0.45%Magazine publisher andconference organiserSarantel plc 2 1,881,251 153,175 - 102,117 2.3% 0.36%
Developer and manufacturerof antennae for mobilephones and other wirelessdevicesThe Plastic SurgeonHoldings Limited 406,082 101,521 - 101,521 6.1% 0.36%Supplier of snagging andfinishing services to theproperty sectorAlaric Systems Limited 2 595,803 30,647 - 30,647 6.9% 0.11%Software developer andprovider of supportservices for retail creditcard payment systemsCorero plc 2 600,000 34,381 - 24,558 0.3% 0.09%Provider of e-businesstechnologiesOxonica plc 2 2,524,527 0 - 0 10.6% 0.00%Leading internationalnanomaterials groupLegion Group plc 150,000 53,571 - 0 0.7% 0.00%Provider of mannedguarding, mobile patrolsand alarm responseservicesPastaKing Holdings Limited 0 778,913 - 0 0.0% 0.00%Manufacturer and supplierof fresh pasta mealsAigis Blast ProtectionLimited 2 272,120 0 - 0 0.5% 0.00%Specialist blastcontainment materialscompanyInca Interiors Limited (inadministration) 350,000 0 - 0 0.0% 0.00%Design, supply andinstallation of qualitykitchens to housedevelopersHWA Group Limited(Holloway White Allom) 456,241 1,457,407 421,688 0 24.5% 0.00%High value propertyrestoration andrefurbishmentPXP Holdings Limited(Pinewood Structures) 920,176 0 - 0 6.8% 0.00%Designer, manufacturer andsupplier of timber framesfor buildings --------------- ------------- -------------- ------------- -------- ------------Total 30,618,822 19,890,328 6,514,315 28,116,479 - 100.00%1 The percentage of equity held for these companies may be subject to furtherdilution of an additional 1% or more if, for example, management of theinvestee company exercises share options.
2 Investment formerly managed by Foresight Group up to 10 March 2009.
3 Investment formerly managed by Nova Capital Management Limited until 31 August 2007 and by Foresight Group until 10 March 2009.
4 Investment formerly managed by Nova Capital Management Limited until 31 August 2007
Income Statement
for the year ended 30 September 2010
30 September 2010 30 September 2009 Revenue Capital Total Revenue Capital Total £ £ £ £ £ £ Net unrealised gains/(losses) on investments - 2,986,059
2,986,059 - (3,547,286) (3,547,286)
Net gains on realisation of investments - 15,412
15,412 - 597,637 597,637Income 730,447 - 730,447 931,359 67,950 999,309Recoverable VAT 12,295 36,886 49,181 - - - Investment management fees (204,246) (612,738)
(816,984) (192,882) (578,645) (771,527)
Other expenses 513,840) - (513,840) (511,764) - (511,764) Merger costs (75,516) - (75,516) ---------------
--------------- -------------- --------------- (Loss)/profit on ordinary activities before taxation (50,860) 2,425,619 2,374,759 226,713 (3,460,344) (3,233,631)
Tax on (loss)/profit on ordinary activities - - - (33,030) 33,030 - ---------------
--------------- -------------- --------------- (Loss)/profit on ordinary activities after taxation for the financial year
(50,860) 2,425,619
2,374,759 193,683 (3,427,314) (3,233,631)
--------------- --------------- -------------- --------------- Basic and diluted earnings per Ordinary Share (formerly 'S' Share: (0.20)p 9.75p
9.55p 0.09p (1.50)p (1.41)p
Basic and diluted earnings per former 'O' Share: - -
- 0.52p (9.25)p (8.73)p
All the items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.
The total column is the Profit and Loss Account of the Company. There were no other recognised gains and losses in the year.
Other than the revaluation movements arising in investments held at fair value through Profit and Loss Account, there were no differences between the profit/(loss) as stated above and at historical cost.
Balance Sheetas at 30 September 2010 as at 30 September 2010 as at 30 September 2009 £ £ £ £ £ £Fixed assetsInvestments at fair value 28,116,479 19,890,328 Current assetsDebtors and prepayments 162,076 185,876Current investments 8,708,573 15,962,070Cash at bank 106,536 55,638 --------------- --------------- 8,977,185 16,203,584 Creditors: amounts fallingdue within one year (488,968) (210,815) --------------- --------------- --------------- ---------------Net current assets 8,488,217
15,992,769 --------------- ---------------Net assets 36,604,696 35,883,097 --------------- --------------- Capital and reservesCalled up share capital 369,709 466,309Share premium account 369,141 308,614Capital redemption reserve 170,811 73,017Capital reserve - unrealised 422,183 (5,279,832)Special reserve 23,105,248 27,952,006Profit and loss account 12,167,604 12,362,983 --------------- ---------------Equity Shareholders' funds 36,604,696
35,883,097 --------------- --------------- Basic and diluted net asset value per shareOrdinary Shares (formerly 'S' Shares) 99.01p 93.18pFormer 'O' Shares - 71.45p
Reconciliation of Movements in Shareholders' Funds for the year ended 30 September 2010
Year ended Year ended 30 September 2010 30 September 2009 £ £ Opening shareholders' funds 35,883,097 40,791,712 Net share capital bought back in the year (966,118)
(353,751)
Net share capital subscribed for in the year 61,721
96,826Profit/(loss) for the year 2,374,759 (3,233,631)Dividends paid in the year (748,763) (1,418,059) --------------------- ---------------------Closing shareholders' funds 36,604,696 35,883,097 --------------------- ---------------------Cash Flow Statementfor the year ended 30 September 2010 Year ended Year ended 30 September 2010 30 September 2009 Operating activities £ £ £ £Investment income received 687,327 1,081,127
VAT received and interest thereon 144,206
388,292
Other income 4,053
20,013
Investment management fees paid (595,053)
(1,200,016)
Other cash payments (508,610)
(477,847)
Merger costs paid by the company (75,516) - --------------- --------------- --------------- Net cash outflow from operating activities (343,593)
(188,431) Investing activitiesAcquisition of investments (6,514,315) (735,608)Disposal of investments 1,289,635 2,215,027 --------------- --------------- --------------- Net cash (outflow)/inflow from investing activities (5,224,680)
1,479,419 Equity DividendsPayment of equity dividends (748,763) (1,418,059) --------------- --------------- --------------- Net cash outflow before liquid resourcemanagement and financing (6,317,036) (127,071) Management of liquid resourcesDecrease in monies held pending investment 7,253,497
373,944 FinancingIssue of Ordinary Shares 61,721 96,826Purchase of own shares (947,284) (353,751) ---------------
--------------- ---------------
(885,563) (256,925) --------------- ---------------Increase/(decrease) in cash for the year 50,898 (10,052) --------------- ---------------Notes
1. Basis of accounting
The accounts have been prepared under UK Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice,
`Financial Statements of Investment Trust Companies and Venture Capital Trusts' ("the SORP") issued by the Association of Investment Companies in January 2009.
The results for the year to 30 September 2010 reflect the activities of what were previously the `O' Share Fund and the `S' Share Fund of the Company,
which were merged on 29 March 2010, for the whole period.
2 Income 2010 2009 £ £Income from investments- from equities 200,605 199,022- from OEIC funds 73,446 291,911- from loan stock 442,132 399,866- from bank deposits 664 21,480- from VAT recoverable 9,547 36,050 ---------------- ---------------- 726,394 948,329 Other income 4,053 50,980 ---------------- ----------------Total income 730,447 999,309 ---------------- ---------------- Total income comprisesRevenue dividends received 274,051 422,983Capital dividends received - 67,950Interest 452,343 457,396Other income 4,053 50,980 ---------------- ----------------Total Income 730,447 999,309 ---------------- ---------------- Income from investments comprisesListed overseas securities 73,446 291,911Unlisted UK securities 642,737 598,888 ---------------- ----------------Total Income 716,183 890,799 ---------------- ----------------Income from VAT recoverable relates to interestreceived on VAT recoverable recognised in the year ended 30 September 2010 asper note 3 below.
Loan stock interest above is stated after deducting an amount of £216 (2009: £nil), being a provision made against loan stock interest regarded as collectable in previous years.
Total loan stock interest due but not recognised in the year was £538,899 (2009: £512,386).
3 Recoverable VAT
Revenue Capital Total Revenue Capital Total 2010 2010 2010 2009 2009 2009 £ £ £ £ £ £
Recoverable VAT 12,295 36,886 49,181 - - -
As a result of the European Court of Justice ruling and subsequent HMRC briefing that management fees be exempt for VAT purposes,
at 30 September 2010, a total of £533,084 of VAT recoverable had been received. During the year to 30 September 2010, VAT amounts totalling £124,779 were received.
An additional £49,181 VAT was recognised in theIncome Statement, of which the amount of £34,370 remained due at the year-endand £48,260, remains due back to the Investment Manager as aresult of expense caps incurred in the years in question.
4 Net asset value per share
2010 2009 2009 Ordinary Shares 'O' Share Fund 'S' Share Fund Total (formerly 'S' Share Fund) £ £ £Net assets 36,604,696 24,881,881 11,001,216Number of shares in issue 36,970,891 34,824,397 11,806,467 Basic and diluted net assetvalue per share 99.01p 71.45p 93.18p
5 Basic and diluted earnings per share
2010 2009 2009 2009 Ordinary Shares 'O' Share Fund 'S' Share Fund Total Total (formerly 'S' Share Fund) £ £ £ £
Total earnings after taxation: 2,374,759 (3,067,355) (166,276) (3,233,631)Basic and diluted earnings per share (note a) 9.55p
(8.73)p ( 1.41)p
----------------- ----------------- -----------------Revenue (loss)/profit from ordinaryactivities after taxation (50,860) 182,551 11,132Basic and diluted revenue earningsper share (note b) ( 0.20)p 0.52p 0.09p -----------------
----------------- -----------------
Net unrealised capital gains on investments 2,986,059 (3,522,533) (24,753)Net realised capital gains on investments 15,412 597,637 -Income from capital dividends - 67,950 -Recoverable VAT 36,886 - -Capitalised management fees less taxation (612,738)
(392,960) (152,655)
----------------- ----------------- -----------------Total capital return 2,425,619 (3,249,906) (177,408)Basic and diluted capital earnings per share(note c) 9.75p
(9.25)p ( 1.50)p
-----------------
----------------- -----------------
Weighted average number of shares in issue inthe year 24,854,456 35,148,192 11,806,467Notes
a) Basic earnings per share is total earnings after taxation divided by the weighted average number of shares in issue.
b) Revenue earnings per share is the revenue profit after taxation divided by the weighted average number of shares in issue.
c) Capital earnings per share is the total capital loss after taxation divided by the weighted average number of shares in issue.
d) Diluted earnings per share in each case are the same as basic earnings per share as no investment manager's incentive fee is payable in respect of the current year..
6. Investment Manager's fees
In accordance with the policy statement published under "Management and Administration" in the Company's Prospectus dated 13 October 2000, the Directors have charged 75% of the investment management expenses to capital reserve except for the incentive fee payable, which is charged 100% to capital.
7. Dividends
The Company proposes to pay a final capital dividend of 2 penceper share to Shareholders. The dividend will be recommended to members at theAnnual General Meeting and, if approved, will be paid on 22 February 2011 toshareholders on the Register on 28 January 2011.
This is in addition to the previously announced interim capital dividend of two pence share to be paid in respect of the year ended 30 September 2010 on 28 March 2011 to shareholders on the Register on 4 March 2011.
8. Merger of share classes
On 29 March 2010, the ordinary shares of 1p each in the capital ofthe Company (" 'O' Shares") were merged with the S ordinary shares of 1p eachin the capital of the Company (" 'S' Shares"). A proportion of the 'O' Shareswere redesignated as 'S' Shares, calculated by reference to the relative netasset values of each Share class as at 31 December 2009, adjusted forsubsequent dividends paid to each class before the merger. The resultant38,008,712 `S' Shares in issue, being 11,813,141 already in issue plus26,195,571 created by the conversion, were then re-designated as OrdinaryShares in the capital of the Company. The residual balance of 8,371,657 'O'Shares not redesignated as 'S' Shares were instead redesignated as deferredshares and bought back by the Company for an aggregate amount of 1p, cancelledas issued and redesignated as Ordinary Shares.
The net asset values (NAV) of each Fund used for the purposes of conversion at the calculation date of 29 March 2010, and the resultant conversion ratios into Ordinary Shares were:
Conversion ratio applied to 'O' Shares to obtain new number of 'S' SharesCompany NAV per share'O' Share Fund 70.20 0.75784526'S' Share Fund 92.63 1.00000000
Share certificates reflecting the new shareholdings totalling 38,008,712 Ordinary Shares in the capital of the Company were sent to shareholders on 5 April 2010.
Total merger costs of £75,516 were incurred to merge the 'O' and 'S' Share Funds, principally being legal and professional fees, registrars' fees and printing costs.
9. Related party transactions
Christopher Moore, a director during the year, is a shareholder inOxonica plc ("Oxonica") in which the Company had invested £2,524,527 to theend of the year (total carrying value: £nil). He owns 0.21% of the equity ofOxonica.
£34,370 was owed to the Company by Matrix Income & Growth 4 VCT plc. The Company and Matrix Income & Growth 4 VCT plc share the same Investment Manager.
10. Post balance sheet events
On 11 October 2010, ATG Media Holdings Limited made a partial loan stock repayment of £111,111.
On 28 October 2010, the Company's acquisition vehicle Aust Construction Investors Limited changed its name to Aust Recruitment Group Limited, and invested £1 million, alongside £441,667 from the Company itself, towards the acquisition of RDL Corporation Limited.
On 1 November 2010, 100,000 shares of Tikit Group plc costing£115,000 were sold for proceeds of £195,913.On 17 November 2010, DCG GroupLimited repaid its outstanding loan of £173,802 in full plus a loan premiumand overdue interest totalling £232,349.
On 15 November 2010, the Company committed £280,000 to an equity investment in the AiM listed company Omega Diagnostics Group Plc.
On 24 November 2010, Camwood Limited completed a de-merger of its AppDNA business. The VCT now holds two identical investments of £333,333 loan stock and a 31.5% equity stake in both Camwood Limited and AppDNA Limited.
On 24 November 2010 Westway Services Holdings (2010) Limited repaid part of their loan stock realising £99,681 proceeds, of which £31,148 was premium.
On 8 December 2010, the Company invested £487,744 into Faversham House Group.
11. Financial information
The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 30 September 2010 but is derived from those accounts. Statutory accounts will be delivered to the Registrar of Companies after the Annual General Meeting.
12. Annual Report
A Summary Annual Report will be circulated by post to allShareholders shortly and copies will be available thereafter to members of thepublic from the Company's registered office. Shareholders who wish to receivea copy of the full Annual Report may request a copy by writing to the CompanySecretary, Matrix Private Equity Partners LLP, One Vine Street, London W1J0AH. Alternatively copies may be downloaded via the Company's website atwww.incomeandgrowthvct.co.uk
13. Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 am on Wednesday, 16 February 2011 at One Vine Street, London W1J 0AH.
THE INCOME & GROWTH VCT PLCRelated Shares:
Inc&gwth Vct