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MXC Capital makes significant progress in trading profitability and investments

MXC Capital Limited (LON: MXCP), the technology focused advisor and investor, announced today its audited final results for the year ended 31 August 2019.

Summary

  • Strong balance sheet, net assets of £71.3 million as at 31 August 2019 (31 August 2018: £63.9 million) including £21.5 million of cash with no borrowings (31 August 2018 comparative: £12.4 million);
  • Net asset value1 per share as at 31 August 2019 of 117 pence (31 August 2018: 95 pence per share) with the underlying portfolio and liquid assets2 valued at 102 pence per share (31 August 2018: 81 pence per share);
  • Trading EBITDA profit3 of £1.8 million (2018: loss of £1.2 million);
  • Profit after tax of £9.4 million (2018: loss of £7.6 million) reflecting recovery in value of the Group’s public company investments at 31 August 2019;
  • Notable milestones during the year include:
  • Exit from Tax Systems plc, generating total proceeds of £24.2 million, representing an overall return of 1.62x and a cash profit of £9.3 million plus fees
  • £15.7 million of further equity and loan capital investments made during the year, including:
  • £4.6 million invested into the partnerships with Liberty Global plc and GIF Technology and Innovation Cell;
  • £8.0 million loan capital advanced to IDE Group Holdings plc to replace the company’s debt provider; and
  • Completion of the sale of a 25% stake in MXC Capital (UK) Limited, the holding company of MXC’s transactional businesses, for £2.25 million to Ravenscroft Limited.

Post year end highlights

  • Completion of tender offer for total amount of £1.7 million, at a price of 116 per share;
  • £3.5 million debt refinance and £0.1 million further equity investment in Adept4 plc4; and
  • £4.9 million invested into Channel Islands Media Group Limited, a new joint venture with Bailiwick Investments Limited.

Peter Rigg, Chairman of MXC Capital, said:

“In the year to 31 August 2019, MXC made significant progress both in terms of trading profitability and with respect to its investments. After a couple of difficult years, I am delighted that the hard work of the MXC team is paying off and that we were able to reward shareholders for their loyalty by way of a return of capital. I continue to be grateful for the diligence, initiative and creativity of the MXC team during the year and, as ever, for the ongoing support of our shareholders. The Board looks to the future with confidence.”

1 total balance sheet net assets plus market value of shares held in the Employee Benefit Trust as at 31 August 2019

2 comprises cash balances, investments, outstanding loan capital and accrued interest and the market value of shares held in the Employee Benefit Trust as at 31 August 2019

3 earnings from trading activities before interest payable, tax, depreciation, amortisation, exceptional items, share-based payments and movements in fair value of investments and after interest income under the effective interest method as this is considered to be part of the trading activities of the Group

4 on 29 November 2019, Adept4 plc changed its name to CloudCoCo Group plc

Chairman’s Statement

I am pleased to report on what has been a positive year for MXC Capital Limited, one that has seen a return to profitability for the Group and the successful exit from one of our public company investments, enabling us to revive our policy of returning capital to shareholders, post year end.

Our two remaining public company investments, Adept4 plc1 (“AD4”) and IDE Group Holdings plc (“IDE”), continue on their journey to recovery following significant work from the MXC team and we continue to make good progress with our key private investments. In particular, our partnerships with Liberty Global plc (“Liberty”), and with Ravenscroft Limited (“Ravenscroft”) in relation to GIF Technology & Innovation Cell (the “GIF”) have each seen an increased level of activity during the year. As previously explained, these partnerships mean that in addition to the return on our own investment we can also be rewarded by a share of the profit on an overall transaction as well as a level of fee income from advisory and professional services, therefore providing an opportunity for enhanced returns to our shareholders. The combination of management fees from these partnerships and transaction and consultancy fees from other investments has enabled the Group to return to profit at Trading EBITDA2 level in the year under review.

Balance sheet

Our balance sheet remains healthy with net assets at 31 August 2019 of £71.3 million (2018: £63.9 million) including £21.5 million of cash with no borrowings (2018: cash with no borrowings of £12.4 million). The increase in our cash balance reflects the disposal of our investment in Tax Systems plc (“Tax Systems”) during the year, and gives us the flexibility to make further investments, as we have done post-period end. The major movement in the year was a £9.2 million net increase in the value of our investments. All of our public company investments increased in value during the year.

Investment portfolio

£15.7 million of further equity and loan capital investments were made during the year, including:

· £4.6 million invested into the partnerships with Liberty and the GIF;

· £8.0 million of loan capital advanced to IDE to replace the company’s debt provider; and

· £3.0 million of loans advanced to our private company portfolio and subsequently repaid in the year.

In March 2019, we exited from our investment in Tax Systems receiving proceeds of £24.2 million, a total profit since initial investment of £9.3 million plus fees.

Post-period end, we have continued to strengthen our investment portfolio, including:

· £3.5 million debt refinance and £0.1 million further equity investment in AD4; and

· £4.9 million invested into Channel Islands Media Group Limited, a new joint venture with Bailiwick Investments Limited.

We continue to work with the management of all of our investee companies in order to help develop their strategies and maximise value and we continue to be actively involved in the turnarounds currently in progress within IDE and AD4.

Corporate Finance and Advisory

Our transactional businesses have seen a healthy level of fee income this year as we continue to execute on our advisory and transactional mandates. The fees from these businesses flow to MXC Capital (UK) Limited (“MXCUK”). In September 2018, we completed the sale of 25% of this company to Ravenscroft for £2.25 million. The investment represents a deepening of MXC’s relationship with Ravenscroft, which we believe will help to grow and drive further value within MXCUK, as well as providing additional investment opportunities for our investment business.

The Board believes that the value of this division is not fully reflected in MXC’s NAV and hence, as we announced in September 2019, we are looking to separate it from the broader MXC Group. We hope to announce further plans regarding this demerger in the new year.

Board and management changes

On 4 March 2019, Simon Freer joined the Board as non-executive director, replacing Meriel Lenfestey who resigned on 14 February 2019. We are grateful for the contribution which Meriel made to the Board. Simon has extensive experience operating and investing in technology, media and telecoms companies and is currently Chief Commercial Officer of Liberty Global Content Investments.

Employee Benefit Trust

During the year we established an employee benefit trust (“EBT”). The purpose of the EBT is to buy MXC shares in the market to be held to satisfy existing and future share incentivisation awards, so reducing any future dilution for shareholders. The EBT has been funded by way of a loan from MXC and as at 31 August 2019 had purchased circa 12 per cent. of the issued share capital of the Company.

Tender offer

In September 2019, the Board announced that it had decided to reward shareholder loyalty by reviving its policy of returning capital to shareholders. The Board’s intention is to establish a progressive policy which will see capital being returned to shareholders by way of periodic tender offers. The mechanism of a tender offer gives shareholders the flexibility to either realise a return by allowing the Company to purchase a portion of their shares for cash, or to retain a potentially larger relative holding in the Company so that they might further benefit from any future capital growth. In October 2019, a tender offer was completed for an amount of £1.7 million. The price for the tender offer was 116 pence per share, representing the approximate net asset value of the Group at 31 August 2019, plus the market value of shares held in the EBT at that date.

Outlook

I am pleased that the benefits arising from all the hard work of the MXC team in overcoming the challenges of the previous couple of years are now being seen in all areas of our business.

I continue to be grateful for the hard work, initiative and creativity of the MXC team during the year and, as ever, for the ongoing support of our shareholders. The Board looks to the future with confidence.

Peter Rigg

Chairman

1 on 29 November 2019, Adept4 plc changed its name to CloudCoCo Group plc

2 earnings from trading activities before interest payable, tax, depreciation, amortisation, exceptional items, share-based payments and movements in fair value of investments and after interest income