1st Apr 2008 18:24
Matrix Income & Growth 4 VCT plc
Preliminary results for the year ended 31 January 2008
Strategy
Matrix Income & Growth 4 VCT is a tax efficient company listed on the London Stock Exchange. It invests primarily in established and profitable unquoted companies.
Investment Objective
The VCT's objective is to provide investors with a regular income stream, by way of tax free dividends, and to generate capital growth through portfolio realisations, which can be distributed by way of additional tax free dividends.
Dividend Policy
The VCT intends to pay income dividends half-yearly. Subject to fulfilling certain regulatory requirements, the VCT also intends to pay capital dividends following portfolio realisations.
Performance Summary
* Increase of 19% in year in cumulative dividends (paid & proposed) * Increase of 11% in annual dividends (paid & proposed) over 2007 * Increase of 28.3% in shareholder total return (share price basis) in 18 month
period since MPEP took over sole management of the Fund
* Increase of 5.2% in shareholder total return (net asset value basis) in 18
month period since MPEP took over sole management of the Fund
Year ended Dividends paid and Cumulative dividends since proposed for each year launch per share 31 January (p) (p) 2008 *2.00 *12.70 2007 1.80 10.70 2006 0.50 8.90 2005 0.20 8.40 2004 0.50 8.20*A final proposed dividend of 1.25 pence per share, which will be recommendedto Shareholders at the AGM on 21 May 2008 to be paid on 11 June 2008, has beenincluded in these figures.Year Net Net asset NAV total return Share price Share price total ended assets value per to shareholders (p)1 (‚£ 000s) share (p) since launch per return to 31 share (p)1 January shareholders since launch per share (p) 2008 24,067 117.41 128.86 109.00 120.45 2007 9,772 116.34 125.24 91.00 101.70 2006 9,287 106.57 114.97 85.00 93.90 2005 10,108 110.29 118.49 85.00 93.40 2004 9,868 103.76 111.46 89.00 97.20
1 Source: London Stock Exchange
The share price and net asset value (NAV) total return comprise the share priceand NAV respectively per share together with the dividends paid, assuming suchdividends were re-invested on the dates on which the shares were quotedex-dividend.
Chairman's Statement
I am pleased to present to Shareholders the preliminary results of the Company for the year ended 31 January 2008.
In the light of the economic uncertainty and turmoil in financial marketsduring the last twelve months, this has not been an entirely easy period forinvestment companies. This is clearly evidenced by the stock market indicesdiscussed below, all of which fell significantly. In contrast, the outcome forthe year, when the Company's net assets per share have risen, albeitmarginally, is encouraging given the difficult economic climate.
Performance
Although it is only relatively early (eighteen months ago) since the Companyappointed MPEP as sole Investment Manager, a promising start to securingimproved performance has occurred. Income dividends paid and proposed for theyear are 11% higher than last year's payment (which itself was abnormally high,as all previously undistributed income earned up to 31 July 2006 was paid toshareholders who held shares before the new share offer). This year's dividendsincrease cumulative dividends paid and proposed by 19% since last year's total.Partly as a result of a more active management of the share price, share pricereturn to shareholders has increased by over 28% in these eighteen months.At 31 January 2008, the Company's Net Asset Value (NAV) per share had risen by0.92% to 117.41 pence (2007: 116.34 pence). Net assets, however, rose by 146.3%to ‚£24.07m almost entirely due to the successful fund raising last year. TheCompany, after the proposed final dividend of 1.25 pence per share, will havedistributed dividends of 12.7 pence per share since the Company's launch. Thetotal shareholder (NAV) return has risen by 5.2% since 1 August 2006, the dateon which MPEP was appointed sole Investment Manager to the Company.
Economic and stock market background
During the last twelve months stock markets around the world have beendominated by the difficulties in the US sub-prime mortgage market, in the UK bythe events surrounding the banking activities of Northern Rock, and morerecently by the substantial losses suffered by Sociĩtĩ Gĩnĩrale. At the time ofwriting this report, credit markets are suffering particular turmoil asinvestors unwind positions in structured products. This situation has beenexacerbated by news of Credit Suisse unveiling a $2.8bn write-down onasset-backed investments and by the near collapse of Bear Stearns in New York.As a result, credit spreads in both Europe and the US have widened to recordlevels. Whilst the worst of the turmoil may be over in the short term, therecan be no certainty that further problems will not emerge, thus adding to stockmarket concerns.
During the twelve-month period ended 31 January 2008 the FTSE All Share Index fell by 3.56%, the Small Cap Index by 19.52% and the AIM Index by 8.99%.
Inevitably the general climate has affected sentiment in the corporate sector.There are two aspects: divestments may become more difficult later in the year,while acquisition prices could become more attractive. Some satisfactory exitshave been achieved in 2007 and 2008, and the Manager remains confident thatthere are still opportunities to invest selectively at attractive prices.
The portfolio
When considered by stage of development, the portfolio continues to bedominated by investments in management buy-out situations ("MBOs"), which hasremained steady at 79.41% with 19.09% invested in development capital companiesand the remaining 1.50% of the portfolio being invested in early stageinvestments. Following the change in investment strategy at the beginning ofthe period, the portfolio is invested in a wide range of market sectors withthe largest of those being support services at 38.65%. Consumer services at14.57% is the next largest investment sector. This spread of investmentsreflects the current investment strategy of spreading risks whilst trying tomaintain a steady, if not increasing, dividend yield.Within the portfolio, there were net gains of some ‚£464,000 for the periodfollowing the disposal of three companies. These produced a total profitagainst original cost of some ‚£791,000. Maven Management Limited was sold forcash proceeds of ‚£429,000. This produced a further gain of ‚£118,000 this year,and an overall gain of ‚£254,000 on an investment which originally cost ‚£175,000. Ministry of Cake Holdings Limited was sold for ‚£797,000 giving afurther gain in the year of ‚£471,000 and an overall gain on the cost of theinvestment of ‚£468,000. BBI Holdings plc was sold just before the year endrealising a gain in the period of ‚£46,000 and an overall profit of ‚£69,000against an original cost of ‚£58,000.
During the year several new investments were made. These included ‚£773,000 invested in Focus Pharma Holdings Limited, a licensing and distributor of generic pharmaceuticals company, ‚£1 million in DiGiCo Europe Limited, a designer and manufacture of audio mixing desks, and ‚£634,000 into Monsal Holdings Limited, an engineering provider to the utilities sector. In addition, several minor secondary market purchases were made in BBI Holdings plc, Sectorguard plc, Higher Nature Limited and VSI Limited.
Within the previous Elderstreet portfolio, an additional investment of ‚£4,871 was made in Mobile & Wireless Group plc (now renamed Expansys plc).
Revenue account
The revenue return of the Income Statement has experienced a strong increasefrom ‚£30,369 last year to ‚£422,621 this financial year. Total income has nearlytrebled from last year, increasing by ‚£685,584. This is mainly due, first, tohigher income of ‚£629,387 from the liquidity funds into which the proceeds fromthe offer of new shares earlier this financial year were placed. Secondly, loanstock interest rose by ‚£76,241, as further qualifying investments made in thecurrent and previous years generated higher levels of such income.
The fund management fee rose from ‚£32,072 to ‚£132,146. This was due to the 146% rise in net assets, arising from the raising of the new funds.
Other expenses have also risen, by ‚£68,130 or 24%, again mainly due to the rise in net assets, which has caused trail commission and administration fees to rise.
The revenue return before taxation rose by ‚£517,380, as a result of the abovechanges. The tax charge attributable to this revenue return also rose by ‚£125,128. However, no taxation is payable by the Company overall as there aretaxation losses brought forward from previous years.
Dividend
The Company's revenue gain per Ordinary Share was 2.21 pence per share (2007:0.35 pence per share). Your Board paid an interim dividend of 0.75 pence on 8November 2007. As noted above, your Board will be recommending a final dividendof 1.25 pence per Ordinary Share in respect of the year under review at theAnnual General Meeting to be held on 21 May 2008. The dividend will be paid on11 June 2008 to shareholders on the Register on 16 May 2008. In addition, adividend of 1.8 pence per share for the year ended 31 January 2007 was ratifiedon 16 April 2007.Valuation PolicyAs quoted stocks are valued at bid prices, rather than mid-market prices, it isworth commenting that the Fund does hold a small number of relatively earlystage AIM listed stocks with limited marketability. In such cases, the price atwhich a sizeable block of shares could be traded, if at all, may varysignificantly from the market price used.
Corporate governance laws
Corporate governance laws will, on 1 October 2008, impose a new statutory obligation on directors relating to conflicts and potential conflicts of interest with the interests of the Company and will, with your consent, give your Directors new powers to manage such conflicts in a way which is most likely to promote the interests of the Company.
Share buy-backs
During the year ended 31 January 2008 the Company continued to implement itsbuy-back policy and bought back 906,331 Ordinary Shares of 1p, representing4.23% of the shares in issue at 1 February 2007 at a total cost of ‚£802,864(excluding expenses). These shares were subsequently cancelled by the Company.
MIG 4 Website
May I remind you that the Company has its own website which is available at
www.mig4vct.co.uk
UK Private Equity 2007 Awards
I am delighted to inform you that late last year MPEP made the short-list forthe third year running for the award for the Small Buyout House of the Year bythe UK Private Equity Journal.In summary, the Board continues to be pleased with the progress that theportfolio is making and we anticipate a number of profitable realisations overthe forthcoming twelve months. Once again I would like to take this opportunityto thank Shareholders for their continued support.
Investment Manager's Review
The VCT has continued to pursue its strategy of investing in established profitable unquoted companies. Typically these investee companies are cash-generative and therefore capable of producing dividend income as soon as the investment is made, as well as capital returns to Shareholders on their ultimate sale or flotation. MIG 4 VCT focuses principally on investments in management buy outs ("MBOs").
This year there has been further progress in building the qualifying investmentportfolio, with four material further investments having been made totalling ‚£2.86 million. In early July the Company invested ‚£1 million to support the MBOof DiGiCo, a global market leading manufacturer of digital sound mixingconsoles for the live performance, theatre, post-production and broadcastmarkets. This was followed in September by an additional investment of ‚£445kmillion in Blaze Signs Holdings, the manufacturer of signage for major multipleretailers. This followed the VCT's original investment of ‚£165k in April 2006and enabled Blaze to complete the acquisition of Active Sign Maintenance, acomplementary maintenance business located nearby. This has broadened Blaze'scapabilities and will offer considerable cross-selling opportunities andoperating synergies.
In October the Company invested ‚£772k to support the MBO of Focus Pharmaceuticals, which is based in Burton-upon-Trent and specialises in the licensing and distribution of generic pharmaceuticals. In early December we completed the MBO of Monsal, a Mansfield-headquartered company which is engaged in anaerobic technology and consultancy in the water treatment and waste disposal industries and in which the MIG VCT invested ‚£634k.
The year has also seen realisations of three successful investments. In April aFebruary 2000 investment, Maven Management, was sold to Munro Global Limited.The proceeds of ‚£429k may be supplemented by additional consideration of up to‚£114k if certain targets are achieved during the company's next two financialyears. This would bring total capital proceeds from the original ‚£550kinvestment to ‚£1.14 million. In early December, Ministry of Cake was sold toGreencore Group. The Company's ‚£329k investment, made in September 2005, wasrealised in cash for a total of ‚£797k, representing a ‚£289k uplift from themost recent previous valuation at 31 October 2007.Shortly before the year end BBI Holdings, the AiM-listed manufacturer anddistributor of point-of-care medical diagnostic products, was sold to InvernessMedical Innovations Inc., a US company quoted on the American Stock Exchange("AMEX"). Favourable exchange rate movements and the strengthening share priceof Inverness, which offered a share alternative to the cash offer of 185p perBBI share, enabled the Company to sell its shares in the market in January atjust over 205p per share. The proceeds of ‚£127k compared to the Company'sinvestment cost of ‚£58k and represent a ‚£30k increase over the valuation as at31 October 2007.
The MPEP portfolio, excluding the earlier stage technology investments, now comprises twenty two investments at a total cost of ‚£7.7 million and a valuation of ‚£8.8 million, 114% of cost. The performance of the investments remains generally good, with a number continuing to exhibit strong trading although there is growing evidence of a generally weakening UK economic background.
Foremost amongst these are VSI, Youngman, Vectair and PastaKing, which have allenjoyed strong trading. Youngman and PastaKing reported record profits duringthe year and Vectair more than doubled in profit over the comparable figures in2006. BG Consulting Group has also made excellent progress and Higher Naturehas produced solid, albeit somewhat lower earnings. Tottel Publishing hascontinued to grow its reputation as a specialist taxation and legal publisher.PXP and British International have both delivered performances broadly in linewith their investment plans. Whilst SectorGuard has made acquisitions, itscommercial progress has not yet been reflected in its share price. Moredisappointingly, the performance of both Campden Media and Racoon Internationalhas been less positive. Whilst both are profitable, they are trading at levelsof profitability much lower than anticipated at the time of investment andtheir valuations reflect this. The performances of Inca, Letraset and StortextFM have also continued to disappoint.It would be surprising if the value of the Company's unquoted investments wereimmune from the concerns surrounding the wider economic environment. However,we are confident that we have generally invested in well-established,profitable businesses alongside management teams who are highly motivated todeliver performance for shareholders over the coming years, and that theperformance of the portfolio performance will continue to reflect this.
Investment Portfolio Summary
As at 31 January 2008 Cost at Valuation Valuation % of at at 31-Jan portfolio 31-Jan-2008 31-Jan-2008 2007 by value
Matrix Private Equity Partners LLP
‚£ ‚£ ‚£ Youngman Group Limited 500,026 1,372,182 1,439,740 16.22%
Manufacturer of ladders and access
towers Higher Nature Limited 500,127 1,574,137 1,243,246 14.01%
Mail order distributor of vitamins
and natural medicines DiGiCo Europe Limited 1,000,000 - 1,000,000 11.27%
Designer and manufacturer of audio
mixing desks Blaze Signs Holdings Limited 610,016 164,510 776,914 8.75% Manufacturer and installer of signs Focus Pharma Holdings Limited 772,451 - 772,451 8.70% Licensor and distributer of generic pharmaceuticals Monsal Holdings Limited 634,296 - 634,296 7.15%
Supplier of engineering services
to water and waste sectors PXP Holdings Limited (Pinewood 584,088 584,088 485,818 5.47%Structures) Designer, manufacturer and
supplier of timber frames for
buildings Tottel Publishing Limited 235,200 375,664 382,173 4.31%
Publisher specialising in legal
and tax titles Stortext FM Limited 561,820 375,968 375,968 4.24%
Provider of document management
software and services Pastaking Holdings Limited 133,055 133,055 351,877 3.96%
Manufacturer and supplier of fresh
pasta meals VSI Limited 177,217 177,213 346,034 3.90%
Provider of software for CAD and
CAM vendors British International Holdings 250,000 250,000 251,075 2.83%Limited
Helicopter service operator Racoon International Limited 406,805 406,805 203,403
2.29%
Supplier of hair extensions, hair
care products and training Vectair Holdings Limited 100,000 100,818 140,749 1.59% Designer and distributor of washroom products Campden Media Limited 152,620 154,040 113,785 1.28%
Magazine publisher and conference
organiser BG Consulting Group Limited/ 230,796 52,383 101,162 1.14%Duncary 4 Limited
Provider of financial training
services SectorGuard plc 1 150,102 160,714 75,044 0.85%
Provider of manned guarding, patrolling and alarm response
services Inca Interiors Limited 350,000 50,000 50,000 0.55%
Designer, supplier and installer
of contract kitchens Letraset Limited 150,000 - - 0.00%
Manufacturer and distributor of
graphic art products F H Ingredients Limited (in 183,804 - - 0.00%administration)
Processor of frozen herbs to the
food processing industry Ministry of Cake (Holdings) - 325,635 - 0.00%Limited
Manufacturer of frozen cakes and desserts for the foodservice
industry Maven Management Limited - 482,206 - 0.00% Market research agency BBI Holdings plc - 81,034 - 0.00%
Manufacturer of gold conjugate for
medical diagnostics industry Total 7,682,423 6,820,452 8,743,735 98.52%
Former Elderstreet Private Equity
Portfolio Cashfac Limited 260,101 33,163 86,372 0.97% Provider of virtual banking application software
solutions to corporate customers Expansys plc (formerly Mobile and 31,000 65,773 46,923 0.52%Wireless Group Limited)
Retailer of handheld electrical
products Sparesfinder Limited 250,000 25,683 - 0.00%
Supplier of industrial spare parts
on-line Other investments in the portfolio 898,062 - - 0.00%2 Total 1,439,163 124,619 133,295 1.48% Investment Managers' Total 9,121,586 6,945,071 8,877,030 100.00% 1 Quoted on AIM
2 Other investments in the Elderstreet portfolio comprise those investments that have been valued at nil and from which the Directors only expect to receive small recoveries i.e. ComponentSource Holding Corporation, Sapphire International Limited, Computer Software Group plc, Sift Group Limited and
Shopcreator plc. 3 The % of equity held in BG Consulting Group Limited is 2.6% and in Duncary 4 Limited is 6.64%. Income Statement
for the year ended 31 January 2008
Year ended 31 January 2008 Year ended 31 January 2007 Revenue Capital Total Revenue Capital Total ‚£ ‚£ ‚£ ‚£ ‚£ ‚£ Unrealised (losses)/gains - (36,523) (36,523) - 601,177 601,177on investments held at fair value Realised gains on - 463,591 463,591 - 270,668 270,668investments held at fair value Income 1,039,725 - 1,039,725 354,141 - 354,141
Investment management fees (132,146) (396,439) (528,585) (32,072) (96,215) (128,287)
Other expenses (356,711) - (356,711) (288,581) - (288,581) ------------ ----------- ------------ ----------- ---------- ----------- Return on ordinary 550,868 30,629 581,497 33,488 775,630 809,118activities before taxation Taxation on ordinary (128,247) 128,247 - (3,119) 3,119 -activities ------------ ----------- ------------
----------- ----------- -----------
Return on ordinary 422,621 158,876 581,497 30,369 778,749 809,118activities after taxation ======= ======= ======= ======= ======= ======= Return per Ordinary Share 2.21p 0.83p 3.04p 0.35p 9.06p 9.41p(basic and diluted)
The revenue column of this statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the year. There were no other gains or losses in the year.
The revenue return as stated does not differ materially from that under the historical cost basis of accounting.
Balance Sheet as at 31 January 2008 as at 31 January 2008 as at 31 January 2007 ‚£ ‚£ ‚£ ‚£ ‚£ ‚£ Fixed assets Investments at fair 8,877,030 6,945,071value Current assets Debtors and 221,203 223,072 prepayments Investments at fair 15,124,308 694,526 value Cash at bank 23,865 2,040,442 ------------- ------------ 15,369,376 2,958,040 Creditors: amounts (179,089) (130,963) falling due within one year --------------- --------------- Net current assets 15,190,287 2,827,077 --------------- --------------- Net assets 24,067,317 9,772,148 ========= ========= Capital and reserves Called up share 204,992 83,994capital Capital redemption 879,829 870,765reserve Special reserve 30,141,575 16,248,945 Capital reserve - (8,169,767) (7,735,927)realised Capital reserve - 743,099 150,383unrealised Revenue reserve 267,589 153,988 --------------- --------------- Equity shareholders' 24,067,317 9,772,148funds ========= ========= Net asset value per 117.41p 116.34pOrdinary Share
Reconciliation of Movements in Shareholders' Funds
for the year ended 31 January 2008
Year ended 31 Year ended 31 January 2008 January 2007 ‚£ ‚£ Opening shareholders' funds 9,772,148 9,286,678 Share capital subscribed 14,869,624 - Share capital bought back (846,932) (280,076) Return for the year 581,497 809,118 Dividends paid in year (155,032) (43,572) Dividends ratified in year (153,988) - --------------- --------------- Closing shareholders' funds 24,067,317 9,772,148 ========= =========Cash Flow Statement
for the year ended 31 January 2008
Year ended 31 Year ended 31 January 2008 January 2007 (restated) ‚£ ‚£ Interest income received 265,744 257,875 Dividend income 722,262 90,573 Investment management fees paid (509,142)
(164,838)
Cash payments for other expenses (276,845) (439,056) --------------- --------------- Net cash inflow/(outflow) from 202,019 (255,446)operating activities Investing activities Sale of investments 1,225,594 1,716,004 Purchase of investments (2,857,505) (1,799,354) --------------- --------------- Net cash outflow from investing (1,631,911) (83,350)activities --------------- --------------- Cash outflow before financing and (1,429,892) (338,796)liquid resource management Dividends Equity dividends paid (155,032) (43,572) Financing Issue of own shares 14,869,624 (217,320) Purchase of own shares (871,495) - Payment to Ordinary Shareholders - (153,988) --------------- --------------- 13,998,129 (371,308)
Management of liquid resources (Increase)/decrease in monies held (14,429,782) 1,344,389in money market funds --------------- --------------- (Decrease)/increase in cash for the (2,016,577) 590,713year ========= =========
Reconciliation of return on ordinary activities before taxation to net cash inflow/(outflow) from operating activities
Year ended Year ended 31 January 2008 31 January 2007 ‚£ ‚£ Return on ordinary activities before 581,497 809,118taxation Unrealised loses/(gains) on 36,523 (601,177)
investments held at fair value Realised gains on investments held (463,591) (270,668)at fair value Increase in debtors (24,995) (1,615) Increase/(decrease) in creditors and 72,689 (188,020)accruals Transaction costs charged to capital (104)
(3,084)
Net cash inflow/(outflow) from 202,019
(255,446)
operating activities
Analysis of changes in net funds
Cash Liquid Total Funds ‚£ ‚£ ‚£ At 1 February 2007 2,040,442 694,526 2,734,968 Cash flows (2,016,577) 14,429,782 12,413,205 At 31 January 2008 23,865 15,124,308 15,148,173Notes
1. Net asset value per Ordinary Share
Net asset value per Ordinary Share is based on net assets at the end of theyear and on 20,499,199 Ordinary Shares of 1 pence (2007: 8,399,337), being thenumber of Ordinary Shares in issue on that date. There is no difference betweenbasic net asset value per Ordinary Share and diluted net asset value perOrdinary Share as there are no instruments that are potentially dilutive.
2. Return per Ordinary Share
The revenue return per Ordinary Share is based on the net revenue profit fromordinary activities after taxation of ‚£422,621 (2007: ‚£30,369) and on19,094,986 (2007: 8,594,860) Ordinary Shares, being the weighted average numberof Ordinary Shares in issue during the year.The capital return per Ordinary Share is based on a capital return of ‚£158,876(2007: ‚£778,749) which includes the net of tax portion of the InvestmentManager's fees charged to the capital reserve of ‚£396,439 (2007: ‚£96,215) andon 19,094,986 (2007: 8,594,860) Ordinary Shares, being the weighted averagenumber of Ordinary Shares in issue during the year.
3. Investment Manager's Fees
In accordance with the policy statement published under "Management, Expenses and Administration" in the Company's Prospectus dated 2 November 2006, the Directors have charged 75% of the investment management expenses to the realised capital reserve.
4. Financial Information
The financial information set out in these statements does not constitute theCompany's statutory accounts for the year ended 31 January 2008 but is derivedfrom those accounts. Statutory accounts for the year ended 31 January 2008 willbe delivered to Companies House following the Company's Annual General Meeting.The auditors have reported on those accounts: their report was unqualified anddid not contain a statement under Section 237 (2) or (3) of the Companies Act1985. The accounting policies set out in the most recently published set ofaccounts have been followed.
5. Annual Report
A Summary Annual Report will be circulated by post to all Shareholders shortlyand copies will be available thereafter to members of the public from theCompany's registered office. Shareholders who wish to receive a copy of thefull Annual Report may request a copy by writing to the Company Secretary,Matrix-Securities Limited, One Jermyn Street, London SW1Y 4UH. Alternativelycopies may be downloaded via the Company Secretary's web site atwww.matrixgroup.co.uk.
6. Annual General Meeting
The Annual General Meeting will be held at 12.00 noon on Wednesday 21 May 2008 at the offices of Matrix Group Limited, One Jermyn Street, London SW1Y 4UH.
Contact details for further enquiries:
Robert Brittain of Matrix-Securities Limited (the Company Secretary) on 020 7925 3300 or by e-mail on [email protected]
Mark Wignall or Mike Walker at Matrix Private Equity Partners LLP (the Investment Manager), on 020 7925 3300 or by e-mail on [email protected]
MATRIX INCOME & GROWTH 4 VCT PLCRelated Shares:
MIG4.L