16th Dec 2008 17:23
The Income & Growth VCT plc
Annual Financial Results of the Company for the year ended 30 September 2008
Investment Objective
The objective of The Income & Growth VCT plc ("I&G" or "the Company") is to provide investors with an attractive return, by maximising the stream of dividend distributions from the income and capital gains generated by 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.
Dividends paid -`O' Share Fund
Year ended Dividends paid in each Cumulative dividends paid year since launch (p) per share (p) per share 30 September 2008 4.00 16.45 30 September 2007 3.75 12.45 30 September 2006 3.25 8.70 30 September 2005 1.25 5.45(restated) 30 September 2004 1.25 4.20(restated)
Dividends paid include distributions from both income and capital.
Dividends proposed -`O' Share Fund
A final proposed dividend of 4 pence per share comprising 1 penny from incomeand 3 pence from capital, which will be recommended to Shareholders at the AGMon 6 February 2009 for payment on 16 February 2009.
Performance Summary -`O' Share Fund
Year ended Net assets Net asset NAV total Share price Share price (‚£ million) value per return to (p)1 total `O' Share shareholders return to (p) since launch shareholders per `O' since launch Share (p) per `O' Share (p) 30 September 2008 29.6 83.6 100.0 79.5 96.0 30 September 2007 36.8 100.5 2 115.0 87.5 100.0 30 September 2006 44.2 112.9 121.6 84.5 93.2 30 September 2005 49.2 122.5 128.0 87.5 93.0(restated) 30 September 2004 33.5 81.3 85.5 62.5 66.7(restated)
Performance Summary -`S' Share Fund
Year ended Net assets Net asset NAV total Share price Share price (‚£ million) value per return to (p)1 total `S' Share shareholders return to (p) since launch shareholders per `S' since launch Share (p) per `S' Share (p) 30 September 2008 11.2 94.6 94.6 100 100 At close of Offer for 11.2 94.5 94.5 100 100Subscription
1 Source: London Stock Exchange
2 After deducting the dividend of 2p per share paid to `O' Fund Shareholders on 24 October 2007
The share price and net asset value (NAV) total return comprise the share price and NAV respectively per share.
Chairman's Statement
I am pleased to present to Shareholders the annual results of the Company forthe year ended 30 September 2008. This is also the first set of results of theCompany since it became a single manager Venture Capital Trust (VCT).
Change to single manager
In my last Half-Yearly Report to you, I stated that the Board had extended theMatrix Private Equity Partners (`MPEP') management role. Your Board, inanticipation of these more difficult times, took the view that investment inthe more risky early stage technology sector should be curtailed and, as aresult, Foresight Group's (`Foresight') expertise in this area was no longerrequired. The final elements of the handover of the Foresight portfolio havenow been completed.I remain confident, that in these turbulent economic times, to concentrate theportfolio in the hands of our better performing Investment Manager, MPEP, was agood investment decision. MPEP remains one of the top VCT managers in themarketplace. Please see my comments below on MPEP's recent award.
Performance
`O' Shares
At 30 September 2008, the Net Asset Value (NAV) per `O' Share was 83.56 pence(2007: 100.52 pence). Adjusted for the 2 pence dividend paid to Shareholders inthe year, this represents a decrease of 14.9% over the twelve month period.This compares with a decline of 33.9% in the FTSE SmallCap Index and a declineof 43.5% in the FTSE AiM Index during the same period. The NAV total return per`O' Share fell in the year by 13.0% from 114.97 pence at 30 September 2007 to100.01 pence at 30 September 2008.The performance of the portfolio in the year was mixed. The MPEP portfolioachieved realised gains of ‚£2.1 million but these were offset by provisions andlower valuations giving rise to unrealised losses of ‚£3.3 million, resulting innet overall losses of ‚£1.2 million. Realisations generated significant cashproceeds of ‚£7.1 million. The Foresight legacy portfolio suffered greater fallsin value with further provisions leading to unrealised net losses of ‚£4.2million.UK sector price earnings multiples have, in the main, decreased significantlyover this twelve month period, and this does impact on our portfolio valuationin both the quoted and unquoted sectors. The MPEP portfolio at the year endrepresented 87% of total venture capital investments by current value, whilstthe Foresight legacy portfolio represented 13%. It continues to be a difficulttime for technology investmentsOverall, the underlying performance of the portfolio continues to provideencouragement. The total dividends proposed to be paid in respect of the yearunder review will be 4 pence per `O' Share which compares with 4 pence per `O'Share paid in respect of the financial year ended 30 September 2007.
`S' Shares
At 30 September 2008, the NAV and NAV total return per `S' Share had risen marginally to 94.59 pence (at launch: 94.50 pence), a slight increase of 0.1%.
For more information on the performance of the portfolio, please refer to the Investment and Portfolio Review below.
Economic background
All UK investment portfolios are being affected by the much harsher economicconditions which now exist and are predicted to continue for some time. If theproblems in the global financial community are not resolved quickly andconfidence restored in our financial system, the recession is likely to besevere. Today's problems can almost certainly be attributed to irresponsiblelending by many banks, by the Government's imprudent growth in public spendingand by its insatiable borrowing, both on and off balance sheet, over more thana decade. I cover our views below on the outlook for the economy and theCompany's portfolios.The portfolio`O' SharesOverall, the MPEP portfolio continues to perform well, particularly given thecurrent economic climate, with good trading performances being shown by some ofthe investments; notably Amaldis (2008) Limited (Original Additions), TottelPublishing Limited, IDOX plc, VSI Limited, PastaKing Holdings Limited andVectair Holdings Limited. Within the MPEP portfolio new investments of ‚£516,900and ‚£424,447 respectively were made into Focus Pharma Holdings Limited, aseller of generic pharmaceutical products, in October 2007 and into MonsalHoldings Limited, an environmental technology company, in December 2007. Thiswas followed in April 2008 by an investment of ‚£307,071 into The PlasticSurgeon Holdings Limited to support the MBO of Plastic Surgeon Fine Finishers,a company specialising in the snagging and finishing of domestic and commercialproperties. In October, just after the year-end, an investment of ‚£595,842 wasmade into ATG Media Holdings Limited to support the MBO of Metropress Limited,publishers of the Antiques Trade Gazette. At the end of November, a furtherinvestment of ‚£129,264 was made into PXP Holdings (Pinewood Structures).In the first six months of this period, advantage was taken of marketconditions at that time to dispose profitably of the portfolio's investments inMinistry of Cake (Holdings) Limited, BBI Holdings plc and to receive a furtherpayment from Secure Mail Services Limited which was sold in the previous year.Shortly after that, further payments were received from a prepayment of loanstock from VSI Limited and from a recapitalisation of HWA Limited (HollowayWhite Allom).Before the year-end, the 'O' Share portfolio also made three investments of ‚£1million each into three acquisition vehicles, namely, Apricot Trading Limited(a company established to acquire businesses in the marketing services andmedia sector), Aust Construction Investors Limited (a company established toacquire businesses in the specialist construction, building support services,building products and related services), and Calisamo Management Limited (acompany established to acquire businesses in healthcare, wellbeing products,management or professional services).In the former Foresight portfolio, the Company invested a further ‚£387,764 intoOxonica plc in December 2007. However, the Foresight portfolio, being an earlystage technology portfolio, has been affected by sharp falls in quoted pricesand much more difficult trading conditions.
`S' Shares
Since launch in February of this year, this Fund in April 2008 invested ‚£99,011into The Plastic Surgeon Holdings Limited, a company specialising in thesnagging and finishing of domestic and commercial properties, and just afterthe year end, the Fund also made an investment of ‚£404,158 into ATG MediaHoldings Limited to support the MBO of Metropress Limited, the publishers ofthe Antiques Trade Gazette.
Cash available for investment
During this economic turmoil, both the Board and the Investment Manager haveworked to ensure that our cash available for investment for both the `O' and`S' Share Funds remains as secure as possible. We have for some time beenspreading our significant cash deposits with a number of the leading globalcash funds rather than depositing direct to individual banks, thereby reducingour exposure to any one particular bank.
Revenue account
The Revenue return for the Company as a whole has increased from ‚£240,595 to ‚£ 717,196 over the year, being an increase of ‚£476,601.
‚£117,359 of this increase arises from the `S' Share Fund, primarily due to the liquidity fund income earned from the funds raised under the `S' Share Offer.
The `O' Share Fund increased its return by ‚£359,242. Income attributable to therevenue return rose by ‚£220,857, itself due to two principal factors. First,dividend income rose by ‚£157,289 as several MPEP investments generateddividends in the year, notably Image Source Group Limited and BrookerpaksLimited; secondly, liquidity fund interest rose by ‚£42,539 from higher cashbalances resulting primarily from the realisations in the MPEP portfolio. Loanstock income was broadly constant this year, although the level of provisionsagainst non-performing loan stocks has risen. The `O' Share Fund's income hasalso increased exceptionally by ‚£83,278, being 25% of anticipated VATrecoverable, (the other 75% being recorded in the capital return). Thisis explained more fully further on in my Statement below. Management fees charged to revenue fell by ‚£58,241 in the year as asset valuesdeclined together with the absence of VAT on this fee. A portion of overheadcosts has been shared with the `S' Share Fund this year causing a reduction of‚£60,909 in running costs attributable to the `O' Share Fund. Although the taxcharge attributable to the revenue return has risen by ‚£64,043, this in itselfreflects the higher levels of taxable income of ‚£423,285. Dividends`O' Shares
The Company's revenue return per `O' Share was 1.66 pence per share (2007: 0.62pence per share). Your Board will be recommending a final dividend of 4 penceper `O' Share comprising 1 penny from income and 3 pence from capital inrespect of the year under review at the Annual General Meeting to be held on 6February 2009. The dividends will be paid on 16 February 2009 to `O' FundShareholders on the Register on 16 January 2009.
`S' Shares
The Company's revenue return per `S' Share was 1.26 pence per share. The Fundexpects to commence dividend payments from income in the next financial year.This will become possible after the cancellation of the share premium accountattributable to the `S' Share Fund.
Dividend investment scheme
`O' Fund Shareholders have and `S' Fund Shareholders will have the opportunityto re-invest their dividends into new shares of the relevant class at thelatest published NAV per share as at the dividend payment date. Board membershave indicated that they will be doing so to the extent of their fullentitlement.
Valuation policy
In accordance with current accounting standards, quoted stocks are now valuedat bid prices, rather than mid-market prices. It is worth commenting that theCompany does hold a number of relatively early stage AiM-quoted stocks withlimited marketability. In such cases, the price at which a sizeable block ofshares could be traded, if at all, may vary significantly from the market priceused.Share buy-backs
During the year ended 30 September 2008, the Company continued to implementactively its buy-back policy and, accordingly the Company bought back 1,213,848`O' Shares (representing 3.32% of the `O' Shares in issue at the beginning ofthe period) at a total cost of ‚£1,055,206 (net of expenses). These shares weresubsequently cancelled by the Company.
VAT
Shareholders may be aware of recent HMRC announcements that could permit VCTsto recover VAT previously charged on fund mangement fees for at least the pastthree years. These accounts have recognised VAT recoverable of ‚£464,000, basedupon available information supplied by the Company's current and pastInvestment Managers, of which ‚£131,000 has been set off against the currentyear's management expense. This figure contains a degree of estimation and itis possible that additional amounts of such VAT will be recoverable in duecourse. The Directors are unable at this stage to quantify such furtheramounts. This amount has been disclosed as a separate item of income in theProfit and Loss Account.
Appointment of corporate broker
On 13 October 2008, the London Stock Exchange announced that LandsbankiSecurities (UK) Limited (Landsbanki) would no longer be able to act as a marketmaker. Landsbanki was therefore unable to quote prices or make a market in theCompany's shares. The Directors understand that this action by the London StockExchange related to the Administration of Landsbanki's parent company,Landsbanki Islands hf, and resultant regulatory actions arising therefrom.
I
apologise for the inconvenience this may have caused to any shareholders.
The Board is pleased, therefore to have been able to announce the appointmentof Matrix Corporate Capital LLP (MCC) as corporate broker to the Company on 3December 2008. The team at MCC includes the core Investment Funds team whowere formerly at Landsbanki.
Outlook
It is highly probable that the much tougher economic conditions now beingexperienced could last for some time. Relatively small, early stage growthbusinesses are inevitably tested in such an environment. However, many of ourportfolio companies, which are in later stages of development, are continuingto trade positively. The Company has significant cash resources and this isvery important at a time when commercial banks have been announcing losses andare pursuing more cautious lending policies. Furthermore, it places the Companyin an excellent position to take advantage of what are expected to beincreasingly attractive investment opportunities which should become availablein due course. We have already recently seen one example where economicconditions enabled a renegotiation of the terms of investment. Therefore, whileshort term valuations may be subject to continuing pressure your Board looks tothe mid-term future with more confidence.
Awards for MPEP and PastaKing
I am delighted to inform you that our Investment Manager, Matrix Private EquityPartners, won the award for "VCT Manager of the Year" at the recent unquote"British Private Equity Awards 2008. May I congratulate the team on their hardwork throughout the year.We were also very proud to hear that one of our investee companies, PastaKing,has been awarded `The Small to Medium Sized Business of the Year Award' at
theNational Business Awards.I&G website
May I remind you that the Company has its own website which is available at
www.incomeandgrowthvct.co.uk .
Responsibility Statement of the Directors in respect of the Annual Financial Report
The Directors confirm that to the best of their knowledge:
a. The financial statements, which have been prepared in accordance with UK
Generally Accepted Accounting Practice (UK GAAP) and the Statement of
Recommended Practice, `Financial Statements of Investment Trust Companies'
issued by the Association of Investment Trust Companies in 2003 and revised
in 2005, give a true and fair view of the assets, liabilities, financial
position and loss of the Company; and
b. The management report, comprising the Chairman's Statement, Investment
Policy, Statement of Principal Risks, Management and Regulatory
Environment, Investment Portfolio Summary and the Investment and Portfolio
Review, 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 they face.
Investment Policy
The Company's policy is to invest primarily in a diverse portfolio of UKunquoted companies. Investments are structured as part loan and part equity inorder to receive regular income and to generate capital gains from trade salesand 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 itsperiod prior to 30 September 2008, when it was a multi-manager VCT. Thisincludes investments in early stage and technology companies and in companiesquoted on the Alternative Investment Market 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 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 Company continues toqualify and is approved as a VCT by HM Revenue & Customs ("HMRC"). Amongstother conditions, the Company may not invest more than 15 per cent of itsinvestments in a single company and must have at least 70 per cent by value ofits investments throughout the period in shares or securities comprised in VCTqualifying holdings, of which a minimum overall of 30 per cent by value must beordinary shares which carry no preferential rights. In addition, although theCompany can invest less than 30 per cent of an investment in a specific companyin ordinary shares it must have at least 10 per cent by value of its totalinvestments in each VCT qualifying company in ordinary shares which carry nopreferential rights.Asset mix
The Company initially holds its funds in a portfolio of readily realisable interest bearing investments and deposits. The investment portfolio of qualifying investments is built up over a three year period with the aim of investing and maintaining at least 70 per cent of net funds raised in qualifying investments.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses acrossdifferent industry sectors. To reduce the risk of high exposure to equities,each qualifying investment is structured using a significant proportion of loanstock (up to 70 per cent of the total investment in each VCT qualifyingcompany). Initial investments in VCT qualifying companies are generally made inamounts ranging from ‚£200,000 to ‚£1 million at cost. No holding in any onecompany will represent more than 10 per cent of the value of the Company'sinvestments at the time of investment. Ongoing monitoring of each investment iscarried out by the Investment Manager, generally through taking a seat on theboard of each VCT qualifying company.
Co-investment
The Company aims to invest in larger, more mature unquoted companies throughinvesting alongside the four other VCTs advised by the Investment Manager witha similar investment policy. This enables the Company to participate incombined investments advised on by the Investment Manager of up 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 interestrates could affect trading conditions for smaller companies and consequentlythe value of the Company's qualifying investments.Loss of approval as a Venture Capital Trust - the Company must comply withsection 274 of the Income Tax Act 2007 ("ITA") which allows it to be exemptedfrom capital gains tax on investment gains. Any breach of these rules may leadto the Company losing its approval as a Venture Capital Trust (VCT), qualifyingshareholders who have not held their shares for the designated holding periodhaving to repay the income tax relief they obtained and future dividends paidby the Company becoming subject to tax. The Company would also lose itsexemption from corporation tax on capital gains.
Investment and strategic - inappropriate strategy or consistently weak VCT qualifying investment recommendations might lead to underperformance and poor returns to shareholders.
Regulatory - the Company is required to comply with the Companies Acts 1985 and2006 ("the Companies Acts"), the listing rules of the UK Listing Authority andUnited Kingdom Accounting Standards. Breach of any of these might lead tosuspension of the Company's Stock Exchange listing, financial penalties or aqualified 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 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 - Investment in unquoted companies, by its nature, involves ahigher degree of risk than investment in companies traded on the London StockExchange main market. In particular, smaller companies often have limitedproduct lines, markets or financial resources and may be dependent for theirmanagement on a smaller number of key individuals.
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 orcommitment that it has entered into with the Company. For further information,please see the paragraph on `Cash available for investment' in the Chairman'sStatement.The Board seeks to mitigate the internal risks by setting policy and byundertaking a key risk management review at each quarterly Board meeting.Performance is regularly reviewed and assurances in respect of adequateinternal controls and key risks are sought and received from the InvestmentManager and Administrator on a six monthly basis. In mitigation and themanagement of these risks, the Board applies rigorously the principles detailedin the AIC Code of Corporate Governance. The Board also has a Share Buy Backpolicy which seeks to mitigate the Market Liquidity risk. This policy isreviewed at each quarterly Board Meeting.
Investment and Portfolio Review
Summary
The portfolio has experienced a mixed year, reflecting to a significant extentthe extreme market conditions which have prevailed over the period, startingwith the excellent environment for profitable realisations through to Marchrapidly followed by the collapse in share prices as the UK headed intorecession.At 30 September 2007 the investments in the MPEP portfolio were valued at ‚£24.0million. During the year, realised gains of ‚£2.1 million were achieved, but theincreasing pressure on valuations in the second half of the financial year ledto the need for provisions and therefore unrealised losses of ‚£3.3 million,resulting in a net loss of ‚£1.2 million. The realisations generated significantcash proceeds of ‚£7.1 million.The Foresight Group (Foresight) legacy portfolio fared less well. At 30September 2007 the investments in the Foresight portfolio were valued at ‚£6.9million. During the year, there were no realisations for cash, but there was aneed for provisions and therefore unrealised losses of ‚£4.2 million. Thisreflected a continuing difficult environment for technology investment.The year-end valuations of portfolio companies have inevitably been affected bythe material reductions in the FTSE Sector PEs, by reference to which theCompany's investments are valued. Despite this, we remain confident in theoverall quality of the portfolio and in particular, given recent generalcomment on the tightening of bank lending, do not consider that the portfoliois exposed to unsustainable levels of third party debt.
MPEP `O' Share Fund investments
During the year, ‚£4.2 million was deployed into new investments and since the year-end, new investments of ‚£724,106 were completed.
Generally we have been very cautious regarding new investments over the pasttwo years, believing that vendors' price expectations would prove unsustainableover the medium term. Since the previously reported investments of ‚£516,900 and‚£424,447 to support the management buy-outs ("MBOs") of Focus Pharmaceuticalsand Monsal respectively in October and December 2007, one further MBOtransaction has been completed. This was an investment into Plastic Surgeon inApril; this company offers snagging and finishing services to domestic andcommercial properties and is based in Bovey Tracey, Devon. The `O' Share Fundinvested ‚£307,071 for 4.6% of the equity.As part of a new initiative to generate additional high-quality MBOinvestments, the Fund has also invested alongside other MPEP advised funds inthree new companies headed by experienced Chairmen well known to MPEP. Theseindividuals are working closely with MPEP in seeking to identify and completeinvestments in specific sectors relevant to their industry knowledge andexperience. Three investments of ‚£1 million were completed in September;Apricot Trading is focussed on the marketing services and media sectors, AustConstruction Investors is seeking to invest in the construction relatedservices, and Calisamo Management is targeting the healthcare and wellbeingproducts sectors. Importantly these acquisition vehicles are designed toprovide time to find and invest in their chosen target companies atsufficiently attractive prices.After the year-end, the `O' Share Fund invested ‚£595,842 for loan stock and5.3% of the equity of ATG Media. This company was formed to acquire thepublisher of the leading weekly newspaper serving the UK antiques trade, theAntiques Trade Gazette, via a MBO. This London-based business also offers anon-line auction capability. Also after the year-end, the `O' Share Fund made afurther investment of 129,264 into PXP Holdings.Conditions prevailing in the earlier months of the year gave us the opportunityto realise highly satisfactory returns from the disposals of BBI and Ministryof Cake. These were reported in detail at the half-year and resulted in totalproceeds of ‚£4.4 million (including further proceeds from the 2006 sale ofSecure Mail Services), compared with cost of ‚£1.22 million and a 30 September2007 valuation of ‚£2.47 million. In the case of Secure Mail Services, a further‚£80,000 was received in July and additional proceeds that are not recognised inthese accounts are expected over the next nine months.The recapitalisation of HWA produced a cash return of ‚£2.38 million and aconcentration of the Fund's investment from 17.0% to 21.1%. A smallerrecapitalisation of Amaldis has resulted in the Fund's 11.0% equity investmentbeing exchanged for a 9.2% shareholding and a loan stock with a value of ‚£1.2million.Small distributions of ‚£68,000 and ‚£22,000 have also been received from theliquidation of The Hunter Rubber Company, and in April a loan stock prepaymentof ‚£143,000 was received from VSI, together with a 10% premium.Whilst there is some evidence of declining performance in the portfolio,particularly amongst those companies more directly exposed to the constructionand retail sectors, many portfolio companies are continuing to record growingprofits and generate strong cash flow.Youngman has inevitably suffered from a significant reduction in demand fromits major trade customers serving the construction industry, and whilst PXP hasperformed well this year, 2009 looks less promising. Plastic Surgeon has alsobeen hit by the downturn and we have decided to provide 50% of the cost ofinvestment to reflect this poor start. Blaze Signs Holding, having had a recordyear in 2007-8, is now feeling the effects of its customers deferring work. Theprovision against Monsal reflects a timing issue in winning new contractsduring the year although next year appears considerably more promising with anumber of contracts now secured. HWA continues with a strong order book and isexpected broadly to maintain current levels of profitability.Media investments show a mixed picture, with an excellent performance fromTottel Publishing looking to continue into 2009, based on a strong list of newlegal and taxation titles. Image Source has operated in a more turbulentroyalty-free image market but is succeeding in growing steadily its independentdistribution revenues and expects to increase profits in its current financialyear. Campden has found it challenging to grow its US wealth conferencebusiness, particularly over the last few months.
Elsewhere, DiGiCo Europe has enjoyed a strong first year post-investment following the successful launch of its new digital audio mixing desk. PastaKing has posted profits of ‚£2.7 million, an increase of 23%, despite increasing pressure on ingredient prices, and Brookerpaks has again performed solidly. Focus Pharma has also had a good first year since its MBO.
Vectair had an outstanding year, producing record profits and making inroadsinto potentially significant markets in India and the US. VSI is stronglycash-generative and is benefitting from the relative weakness of sterling aswell as seeing increased customer demand. British International's helicopterservice to the Scilly Isles from Penzance experienced possibly the worst summerweather in two decades which decimated the day trip market, but has benefitedfrom the solidity of its long-term military contract revenue.Amaldis is anticipating increased profitability in 2008 but much as ever willdepend on the Christmas season. Racoon has continued to struggle to develop itssalon business but hopes for its new retail range are high with a majorretailer having agreed to take its product during the last quarter of 2008.BG Consulting will fall short of last year's performance in view of the majorupheavals of its investment banking clients. Letraset continues to struggle tohalt its gradual revenue decline, and SectorGuard's share price has moveddownwards in line with the market although it is hoped that its acquisition ofManguard in early 2008 may prove transformational. The liquidation of FHIngredients continues. Finally and disappointingly, Inca Interiors went intoadministration in June, having failed to stem its losses over the past twoyears; no proceeds are expected to accrue to the Fund. The investment had beenfully provided against.The other portfolio investments are two quoted companies, Tikit and IDOX. Theinvestment in IDOX has shown a small uplift in value over the year, and itsacquisitions, particularly Plantech, seem to be performing well andstrengthening its presence in the local authority market. Tikit has suffered a31% drop in value over the year despite posting interim results recently whichshowed a 19% increase in operating profits.
Foresight `O' Share Fund investments
Following the Board's announcement in March that MPEP was to assume responsibility from Foresight for the eleven investments it managed on behalf of your Company, MPEP and Foresight have been working together to ensure a smooth handover. This has now been accomplished.
This portfolio, comprising a mixture of shareholdings in AiM-quoted companiesand predominantly early-stage technology-based private businesses, has againhad a difficult year. With the exception of ANT, whose share price has risen by50% over the last year, these companies have all seen very large falls in theirshare prices: 58% in the case of Oxonica, 74% in the case of Corero and 83% inthe case of Sarantel.Over the same period the AiM All-Share Index has suffered a 44% drop andsmaller capitalisation businesses with limited liquidity are particularlyexposed. This is especially so when, as is the case with Oxonica and Sarantel,cash-flow negative businesses need to raise additional capital. The `O' Fundprovided an additional ‚£388k to Oxonica in December 2007 as part of a ‚£4million capital raising.Aigis Blast Protection remains loss-making as do Biomer Technology andNexxtdrive, both of which are only now beginning to generate small levels ofrevenue. Camwood moved into losses as a result of costs incurred to develop andexploit a new product designed for customers migrating to Microsoft Vista,which is taking longer than expected to happen. Alaric Systems continues tofind it difficult to grow sales, not helped by the long lead times inherent inselling to financial institutions.DCG Group (Datapoint) is seeking to develop its managed services revenue whichis expected to drive shareholder value, and Aquasium Technology is performingmore strongly this year due to improvement in its UK business.
`S' Share Fund
The Fund completed its first investment alongside the `O' Share Fund, in Plastic Surgeon, as described above, investing ‚£99,011 for 1.5% of the equity. Since the year end it has also supported the MBO of ATG Media, investing ‚£ 404,158 for a 3.6% equity stake.
Whilst the `S' Share Fund has not invested alongside the `O' Share Fund in Apricot Trading, Aust Construction Investors and Calisamo Management, it is intended that it will do so as these companies identify and complete suitable MBO transactions.
Investment outlookWe continue to see a steady influx of interesting MBO investment opportunitiesbut are particularly mindful of the worsening domestic economic environment andwill complete only those investments which in our view are highly resilient andappropriately priced and funded to be able to weather the challenging economicconditions over the coming period.
Investment Portfolio Summary - 'O' Share Fund
As at 30 September 2008
Cost at Valuation at Additional Valuation at % of % of 30-Sep-08 30-Sep-07 investments 30-Sep-08 equity portfolio held3 by valueMatrix Private Equity Partners portfolio ‚£ ‚£ ‚£ ‚£ HWA Limited (Holloway 34,553 4,691,649 - 2,359,597 21.1% 10.22%White Allom Limited) Refurbishment, restoration and construction of notable public buildings and top-end residential dwellings in and around London Image Source Group 305,000 2,850,171 - 2,241,678 44.0% 9.71%Limited Royalty free picture library Youngman Group Limited 1,000,052 2,930,234 - 1,615,929 8.5% 6.99% Manufacturer of ladders and access towers Blaze Signs Holdings 1,338,500 1,704,694 - 1,392,644 12.5% 6.03%Limited Manufacturer and installer of signs Tottel Publishing 514,800 809,221 - 1,294,585 13.7% 5.61%Limited Publisher of specialist legal and taxation titles Amaldis (2008) Limited 80,313 967,438 - 1,248,967 9.2% 5.41%(Original Additions) Manufacturer and distributor of beauty products Apricot Trading Limited 1,000,000 - 1,000,000 1,000,000 24.5% 4.33% Company seeking to acquire businesses in the marketing services and media sector. Aust Construction 1,000,000 - 1,000,000 1,000,000 16.3% 4.33%Investors Company seeking to acquire businesses in the construction sector. Calisamo Management 1,000,000 - 1,000,000 1,000,000 16.3% 4.33%Limited Company seeking to acquire businesses in the healthcare sector. Tikit Group plc1 500,000 1,304,346 - 899,999 3.0% 3.90% Provider of consultancy, services and software solutions for law firms PastaKing Holdings 292,405 611,778 - 856,250 4.5% 3.71%Limited Manufacturer and supplier of fresh pasta meals I-Dox plc1 872,625 775,833 - 816,667 2.4% 3.54% Provider of document storage systems DiGiCo Europe Limited 656,900 656,900 - 763,337 4.3% 3.31% Designer and manufacturer of audio mixing desks VSI Limited 245,596 730,901 - 675,439 10.0% 2.93% Provider of software for CAD and CAM vendors Focus Pharma Holdings 516,900 - 516,900 516,900 2.1% 2.24%Limited Licensor and distributer of generic pharmaceuticals Brookerpaks Limited 55,000 416,130 - 417,540 17.1% 1.81% Importer and distributor of garlic and vacuum-packed vegetables to supermarkets and the wholesale trade British International 500,000 538,535 - 375,112 5.0% 1.62%Holdings Limited Helicopter service operator Vectair Holdings Limited 215,914 300,579 - 341,830 4.6% 1.48% Designer and distributor of washroom products PXP Holdings Limited 790,912 790,912 - 324,860 6.8% 1.41%(Pinewood Structures) Designer, manufacturer and supplier of timber frames for buildings Monsal Holdings Limited 424,447 - 424,447 318,335 6.6% 1.39% Supplier of engineering services to water and waste sectors B G Consulting Group 1,153,976 332,212 - 256,530 33.2% 1.11%Limited/Duncary 4 Limited Technical training business The Plastic Surgeon 307,071 - 307,071 153,536 4.6% 0.66%Holdings Limited Supplier of snagging and finishing services to property sector. Campden Media Limited 334,880 326,842 - 65,842 3.7% 0.29% Magazine publisher and conference organiser SectorGuard plc 150,000 107,142 - 64,286 1.1% 0.28% Provider of manned guarding, mobile patrols and alarm response services Racoon International 550,852 413,139 - 13,692 7.7% 0.06%Holdings Limited Supplier of hair extensions, hair care products and training Inca Interiors Limited 350,000 50,000 - 0 14.8% 0.00% Design, supply and installation of quality kitchens to house developers Letraset Limited 650,000 213,982 - 0 17.4% 0.00% Manufacturer and worldwide distributor of graphic art products BBI Holdings plc - 1,430,231 - - - 0.00% Manufacturer of gold conjugate for the medical diagnostics industry Ministry of Cake - 1,039,709 - - 0.0% 0.00%(Holdings) Limited Manufacturer of desserts and cakes for the food service industry Special Mail Services - - - - 12.6% 0.00%Limited (Company sold in 2006) Other investments in the 1,719,785 0 - 0 - 0.00%portfolio2 ------------- ------------- -------------
------------- ------------- -------------
MPEP Total 16,560,481 23,992,578 4,248,418 20,013,555 86.70%Notes
1 Investment formerly managed by Nova Capital Management Limited up to 31 August 2007.
2 Other investments in the portfolio comprise The Hunter Rubber Company Limited (in administration), Stortext-FM Limited/Stortext (DO) Limited and FH Ingredients Limited, of which the principal operating subsidiary, FH Realisations Limited, is in administration.
3 The percentage of equity held for these companies may be subject to further dilution of an additional 1% or more if, for example, management of the investee company exercises share options.
Cost at Valuation at Additional Valuation at % of % of 30-Sep-08 30-Sep-07 investments 30-Sep-08 equity portfolio held3 by valueFormer Foresight Group portfolio ‚£ ‚£ ‚£ ‚£ Oxonica plc 2,524,527 1,944,060 387,764 1,113,991 10.6% 4.82% Specialist in the design, manipulation and engineering of properties of materials at the nano-scale Camwood Limited 1,028,181 1,028,181 - 552,444 34.7% 2.39% Provider of software repackaging services DCG Group Limited 312,074 376,283 - 321,013 6.3% 1.39%(formerly DCG Datapoint Group Limited) Design, supply and integration of data storage solutions Aquasium Technology 700,000 567,310 - 311,306 16.7% 1.35%Limited Business engaged in the design, manufacturing and marketing of bespoke electron beam welding and vacuum furnace equipment NexxtDrive Limited 1 812,014 738,264 - 203,004 8.4% 0.88% Developer of transmissions technologies for applications in the automotive, construction and industrial sectors ANT plc 462,816 131,319 - 196,979 2.7% 0.85% Provider of embedded browser/email software for consumer electronics and Internet appliances Biomer Technology 137,170 753,837 - 137,170 5.6% 0.59%Limited 1 Developer of biomaterials for medical devices Corero plc (formerly 600,000 279,955 - 73,672 6.5% 0.32%Mondas plc) Provider of e-business technologies Sarantel plc 1,881,251 408,465 - 68,078 3.6% 0.29% Developer and manufacturer of antennae for mobile phones and other wireless devices Aigis Blast 272,120 249,990 - 68,030 4.2% 0.29%Protection Limited Specialist blast containment materials company Alaric Systems 595,803 446,822 - 30,647 8.1% 0.13%Limited Software developer and provider of support services in the credit/debit card authorisation and payments market Other investments in - - - - - 0.00%the portfolio 2 ------------- ------------- ------------- ------------- ------------- Foresight Total 9,325,956 6,924,486 387,764 3,076,334 13.30% ------------- ------------- ------------- ------------- ------------- O' Share Fund Total 25,886,437 30,917,064 4,636,182 23,089,889 100.00% ------------- ------------- ------------- ------------- -------------Notes
1 Investment formerly managed by Nova Capital Management Limited up to 31 August 2007.
2 Other investments in the portfolio comprises data relating to Broadreach Networks Limited (dissolved in May 2008).
3 The percentage of equity held for these companies may be subject to further dilution of an additional 1% or more if, for example, management of the investee coompany exercises share options.
Investment Portfolio Summary - 'S' Share Fund
As at 30 September 2008
Cost at Valuation at Additional Valuation at % of % of 30-Sep-08 30-Sep-07 investments 30-Sep-08 equity portfolio held1 by value
Matrix Private Equity Partners
portfolio ‚£ ‚£ ‚£ ‚£ The Plastic 99,011 - 99,011 49,506 4.6% 100.00%Surgeon Holdings Limited Supplier of snagging and finishing services to property sector. ------------- ------------- ------------- ------------- ------------- S' Share Fund 99,011 0 99,011 49,506 100 .00%Total ------------- ------------- ------------- ------------- ------------- Company totals 25,985,448 30,917,064 4,735,193 23,139,395 100.00% ------------- ------------- ------------- ------------- -------------
1 The percentage of equity held for these companies may be subject to further dilution of an additional 1% or more if, for example, management of the investee coompany exercises share options.
Non-Statutory Analysis between the `O' Share and `S' Share Funds
1. Profit and Loss Accounts for the year ended 30 September 2008
`O' Share Fund `S'Share Fund Revenue Capital Total Revenue Capital Total ‚£ ‚£ ‚£ ‚£ ‚£ ‚£ Unrealised (losses)/ - (7,504,370) (7,504,370) - (49,505) (49,505)gains on investments held at fair value Realised gains on - 2,053,510 2,053,510 - - -investments held at fair value Income 1,201,981 - 1,201,981 252,743 - 252,743 Recoverable VAT 83,278 249,833 333,111 - - - Investment management (166,985) (923,688) (1,090,673) (30,043) (90,122) (120,165)fees Other expenses (434,526) - (434,526) (82,479) - (82,479) ------------ ------------ ------------ ----------- ----------- ------------ Return on ordinary 683,748 (6,124,715) (5,440,967) 140,221 (139,627) 594activities before taxation Tax on ordinary (83,911) 88,298 4,387 (22,862) 18,475 (4,387)activities ------------ ------------ ------------ ----------- ----------- ------------ Return attributable 599,837 (6,036,417) (5,436,580) 117,359 (121,152) (3,793)to equity shareholders ======= ======= ======= ======= ======= ======= Return per share 1.66 p (16.72)p (15.06)p 1.26 p (1.30)p (0.04)p Average number of 36,109,718 9,341,544shares in issue Total Revenue Capital Total ‚£ ‚£ ‚£ Unrealised (losses)/ - (7,553,875) (7,553,875) gains on investments held at fair value Realised gains on - 2,053,510 2,053,510 investments held at fair value Income 1,454,724 - 1,454,724 Recoverable VAT 83,278 249,833 333,111 Investment (197,028) (1,013,810) (1,210,838) management fees Other expenses (517,005) - (517,005) ------------ ------------ ------------ Return on ordinary 823,969 (6,264,342) (5,440,373) activities before taxation Tax on ordinary (106,773) 106,773 - activities ------------ ------------ ------------ Return attributable 717,196 (6,157,569) (5,440,373) to equity shareholders ======= ======= =======
2. Balance Sheets as at 30 September 2008
`O' Share Fund `S' Share Adjustments Total Fund (see note below) ‚£ ‚£ ‚£ ‚£ ‚£ Fixed assets Assets held 23,089,889 49,506 23,139,395at fair value through profit and loss - investments Current assets Debtors and 1,433,409 461,095 (50,727) 1,843,777 prepayments Other assets 5,643,415 10,692,599 16,336,014 Cash at bank 24,071 41,619 65,690 -------------- ------------- ---------- -------------- -------------- 7,100,895 11,195,313 (50,727) 18,245,481 Creditors: (566,564) (77,327) 50,727 (593,164) amounts falling due within one year -------------- ------------- ---------- --------------
-------------- Net current 6,534,331 11,117,986 17,652,317assets/ (liabilities) ======== ======== ====== ======== ======== Net assets 29,624,220 11,167,492 40,791,712 ======== ======== ====== ======== ======== Capital Called up 354,515 118,065 472,580share capital Share premium 213,062 11,053,220 11,266,282reserve Capital 65,472 - 65,472redemption reserve Capital (1,203,256) (49,505) (1,252,761)reserve - unrealised Special 18,169,799 - 18,169,799reserve Profit and 12,024,628 45,712 12,070,340loss account ======== ======== ====== ======== ======== Equity 29,624,220 11,167,492 40,791,712shareholders' funds ======== ======== ====== ======== ======== Number of 35,451,438 11,806,467 shares in issue: Basic net 83.56p 94.59p asset value per 1p share: Diluted net 82.39p 94.59p asset value per 1p share:
Note: The adjustment above nets off the inter-fund debtor and creditor balances, so that the "Total of both Funds" balance sheet agrees to the Statutory Balance Sheet below.
3. Reconciliation of Movements in Shareholders' Funds
`O' Share Fund `S' Share Fund Total ‚£ ‚£ ‚£ Opening shareholders' 36,778,493 - 36,778,493funds Net share capital (1,063,732) - (1,063,732)bought back in the year Net share capital 77,226 11,171,285 11,248,511subscribed for in the year Loss for the year (5,436,580) (3,793) (5,440,373) Dividends paid / (731,187) - (731,187)payable in year ============ ============ ============ Closing shareholders' 29,624,220 11,167,492 40,791,712funds ============ ============ ============Profit and Loss Account
for the year ended 30 September 2008
Revenue Capital Total Revenue Capital Total ‚£ ‚£ ‚£ ‚£ ‚£ ‚£ Net unrealised losses - (7,553,875) (7,553,875) - (3,150,761) (3,150,761)on investments Net gains on - 2,053,510 2,053,510 - 85,906 85,906realisation of investments Income 1,454,724 - 1,454,724 981,124 432,488 1,413,612 Recoverable VAT 83,278 249,833 333,111 - - - Investment management (197,028) (1,013,810) (1,210,838) (225,226) (675,676) (900,902)fees Other expenses (517,005) - (517,005) (495,435) - (495,435) ------------ ------------- --------------
----------- ------------- --------------
Profit/(loss) on 823,969 (6,264,342) (5,440,373) 260,463 (3,308,043) (3,047,580)ordinary activities before taxation Tax on ordinary (106,773) 106,773 - (19,868) 19,868 -activities ------------ ------------- --------------
----------- ------------- --------------
Profit/(loss) on 717,196 (6,157,569) (5,440,373) 240,595 (3,288,175) (3,047,580)ordinary activities after taxation for the financial year ------------ ------------- --------------
----------- ------------- --------------
Basic and diluted 1.66p (16.72)p (15.06 )p 0.62p (8.47)p (7.85)pearnings per share - `O' Share Fund: Basic and diluted 1.26p (1.30)p (0.04)p - - -earnings per share - `S' Share Fund:
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/or losses in the year.
The difference between the loss as reported above and the result that wouldhave been reported on the historic cost basis of accounting is solely due tofair value adjustments. Accordingly, no reconciliation between the two baseshas been provided.Balance Sheetas at 30 September 2008 as at 30 September 2008 as at 30 September 2007 ‚£ ‚£ ‚£ ‚£ ‚£ ‚£ Fixed assets Investments at fair value 23,139,395 30,917,064 Current assets Debtors and prepayments 1,843,777 718,787 Current investments 16,336,014 6,581,497 Cash at bank 65,690 46,862 ------------- ------------- 18,245,481 7,347,146 Creditors: amounts falling due within one year Other creditors 19,954 1,337,587 Accruals 573,210 148,130 ------------- (593,164) ------------ (1,485,717) ------------- ------------- ------------- ------------- Net current assets 17,652,317 5,861,429 ------------- ------------- Net assets 40,791,712 36,778,493 ------------- ------------- Capital and reserves Called up share capital 472,580 365,895 Share premium account 11,266,282 136,594 Capital redemption 65,472 53,334reserve Capital reserve - (1,252,761) 8,425,544unrealised Special reserve 18,169,799 21,508,270 Profit and loss account 12,070,340
6,288,856 ------------- ------------- 40,791,712 36,778,493 ------------- ------------- Net asset value per share `O' Shares - basic 83.56p 100.52p `O' Shares - diluted 82.39p 100.52p `S'Shares - basic and 94.59p -diluted
Reconciliation of Movements in Shareholders' Funds
for the year ended 30 September 2008
2008 2007 ‚£ ‚£ Opening shareholders' funds 36,778,493 44,150,278 Net share capital bought (1,063,732) (2,202,103)back in the year Net share capital subscribed 11,248,511 76,309for in the year Loss for the year (5,440,373) (3,047,580) Dividends paid/payable in (731,187) (2,198,411)the year ----------------- ----------------- Closing shareholders' funds 40,791,712 36,778,493 ----------------- ----------------- Cash Flow Statement
for the year ended 30 September 2008
Year ended Year ended 30 September 2008 30 September 2007 Operating activities ‚£ ‚£ Investment income received 1,435,092 1,758,835 Other income received - 11,754 Investment management fees (782,286) (1,026,861)paid Other cash payments (564,901) (492,457) ------------------ ------------------ Net cash inflow from 87,905 251,271operating activities Investing activities Acquisition of investments (5,735,193) (3,544,272) Disposal of investments 7,247,239 4,968,804 ------------------ ------------------ 1,512,046 1,424,532 Equity Dividends Payment of equity dividends (1,385,722) (1,466,621) ------------------ ------------------ Cash inflow before 214,229 209,182financing and liquid resource management Management of liquid resources Increase in monies held (9,754,517) (612,057)pending investment Financing Issue of Ordinary shares 11,171,285 76,309 Purchase of own shares (1,612,169) (1,653,666) ------------------ ------------------ 9,559,116 (1,577,357) =========== =========== Increase/(decrease) in cash 18,828 (1,980,232)for the year =========== =========== Notes 1. Income 2008 2007 Income from investments ‚£ ‚£ - from equities 305,895 581,094 - from OEIC funds 659,358 375,523 - from loan stock 445,525 444,647 - from bank deposits 43,946 4,473 Total income 1,454,724 1,405,737 Total income comprises Revenue dividends received 965,253 524,129 Capital dividends received - 432,488 Interest 489,471 449,120 Other income - 7,875 1,454,724 1,413,612
2. Investment Managers' 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 .
3. Return per `O' Share
The basic revenue return per `O' Share is based on the net revenue from ordinary activities after taxation of ‚£599,837 (2007: ‚£240,595) and on 36,109,718 (2007: 38,802,180) `O' Shares, being the weighted average number of `O' Shares in issue during the year.
The basic capital return per `O' Share is based on net realised capital loss of‚£6,036,417 (2007: ‚£3,288,175) and on 36,109,718 (2007: 38,802,180) `O' Shares,being the weighted average number of `O' Shares in issue during the year.
4. Return per `S' Share
The basic revenue return per `S' Share is based on the net revenue from ordinary activities after taxation of ‚£117,359 and on 9,341,544 `S' Shares, being the weighted average number of `S' Shares in issue during the year.
The basic capital return per `S' Share is based on net realised capital lossesof ‚£121,152 and on 9,341,544 `S' Shares, being the weighted average number of`S' Shares in issue during the year.
5. Net asset values
Net asset value per `O' Share is based on net assets at the end of the year andon 35,451,438 `O' Shares of 1 penny (2007: 36,589,479), being the number of `O'Shares in issue on that date.Net asset value per `S' Share is based on net assets at the end of the year andon 11,806,467 `S' Shares of 1 penny (2007: nil), being the number of `S' Sharesin issue on that date. 6. Dividends
The Company proposes to pay a final dividend of 4 pence per share, comprising 1 penny per share from income and 3 pence per share from capital, to `O' Fund Shareholders.
The Company is not proposing any final dividend from income to `S' Fund Shareholders, as there are no distributable reserves in this Fund.
The dividends will be recommended to members at the Annual General Meeting and,if approved, will be paid on 16 February 2009 to shareholders on the Registeron 16 January 2009. 7. Financial information
The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 30 September 2008 but is derived from those accounts. Statutory accounts will be delivered to the Registrar of Companies after the Annual General Meeting.
8. Annual Report
A Summary Annual Report will be circulated by post to all Shareholders shortly and copies will be available thereafter to members of the public from the Company's registered office. Shareholders who wish to receive a copy of the full Annual Report may request a copy by writing to the Company Secretary, Matrix-Securities Limited, One Vine Street, London W1J 0AH. Alternatively copies may be downloaded via the Company's website at www.incomeandgrowthvct.co.uk.
9. The Annual General Meeting of the Company will be held at 11.00 am on 6
February 2008 at One Vine Street, London W1J 0AH.
THE INCOME & GROWTH VCT PLCRelated Shares:
Inc&gwth Vct