Foresight 3 VCT PLC Foresight 3 Vct Plc : Annual -4-


   During the year to 31 March 2014, several investments performed strongly, 
notably Aerospace Tooling Corporation, Datapath Group Holdings and TFC 
Europe, all of which achieved record sales and profits and together 
generated an increase in valuation of GBP3.7 million. The Bunker Secure 
Hosting, which provides ultra secure managed hosting services from two 
data centres, continued to generate record sales and profits at the 
EBITDA level. Other investments, such as Flowrite Refrigeration Holdings, 
Ixaris Systems and Procam Television Holdings also performed well. 
 
   The investment in Alaric Systems was sold to NCR Corporation in December 
2013, with GBP3.17 million being received at completion with a further 
GBP589,390 held in escrow (to be released in tranches over the next four 
years), generating a return of over 5 times original cost of investment. 
During the year, other realisations totalling over GBP1.1 million were 
achieved. 
 
   During the year, four follow on investments were made totalling 
GBP923,079: 2K Manufacturing (GBP500,000), Biofortuna (GBP99,066), 
Ixaris Systems (GBP219,852) and The Bunker Secure Hosting (GBP104,161). 
Ixaris Systems, which provides a range of pre-paid electronic payment 
services integrated with the VISA network, continued to invest in 
developing and marketing its Ixaris Payment System to financial 
institutions. In January 2014, the Company invested a further GBP219,852 
as part of a GBP2 million equity funding round to finance further 
investment in the Payment System. 
 
   New Investments 
 
   Two new investments totalling GBP750,000 were made in Aerospace Tooling 
Corporation and Procam Television Holdings. In June 2013, GBP500,000 was 
invested alongside other Foresight VCTs in a shareholder 
recapitalisation of Dundee based Aerospace Tooling Corporation. This 
company is a well established specialist engineering business providing 
repair, refurbishment and remanufacturing services to large 
international companies for components in high specification aerospace 
and turbine engines. A number of recent orders have underpinned growth 
and profitability for the current financial year. In April 2013, 
GBP250,000 was invested alongside other Foresight VCTs in a management 
buy-out of Battersea based Procam Television Holdings. Procam is a 
leading broadcast hire companies, supplying equipment and crews for 
location TV production. In September 2013, Procam acquired one of its 
competitors, Hammerhead, with facilities in London, Manchester, 
Edinburgh and Glasgow. This strategic acquisition will broaden the 
customer base and provide national coverage and also give synergistic 
and profitability benefits. 
 
   Evance Wind Turbines, which designed and manufactured small wind 
turbines, was adversely affected by the reductions in the applicable 
Feed-in-Tariff which started in October 2012. Despite substantial cost 
cuts and efforts to diversify the Company's activities, significant 
monthly losses continued to be incurred. As a consequence, 
administrators were appointed and a provision of GBP626,973 was made 
against the cost of this investment. In February 2013, Closed Loop 
Recycling raised loans totalling GBP12.8 million which enabled 
production capacity to be doubled to meet demand from customers under 
long term supply contracts. The new sorting and production equipment has 
been commissioned and increased production utilising this additional 
capacity commenced in November 2013. The ramp up to full production has, 
however, been slower than expected and forecast profitability reduced 
and a provision of GBP644,459 has been made against the cost of the 
investment. As explained below, 2K Manufacturing experienced 
difficulties in raising capital to expand its production facilities. 
Following the failure of protracted sale and merger discussions, an 
administrator was appointed in November 2013. A full provision of 
GBP2,002,057 has been made against the cost of this investment. Where 
provisions have been made against the value of underlying investments, 
we have also provided against the income due from such investments. 
 
   Outlook 
 
   Foresight Group believes that the improvement in business confidence is 
now being reflected in the trading of a number of companies across the 
portfolio and considers that the portfolio is now well positioned for 
further growth. 
 
   The Group is seeing a number of high quality private equity investment 
opportunities but the Company has finite cash resources at present with 
which to make such new investments. Foresight Group is endeavouring to 
realise existing investments, where appropriate, to generate cash for 
shareholder distributions and further funds for such new investments. 
 
   Portfolio Review 
 
   In June 2013, the Company invested GBP500,000 alongside other Foresight 
VCTs in a GBP3.5 million shareholder recapitalisation of Dundee based 
Aerospace Tooling Corporation, a well established specialist engineering 
company providing repair, refurbishment and remanufacturing services to 
large international companies for components in high-specification 
aerospace and turbine engines. The company was founded in 2007 by the 
former CEO, John Seaton, who, following the transaction, has assumed the 
role of Executive Chairman. John Green, formerly General Manager of the 
Dundee facility, became Operations Director, alongside a newly appointed 
Finance Director and Business Development Director. With a heavy focus 
on quality assurance, the company enjoys strong relationships with 
companies serving the aerospace, military, marine and industrial 
markets. A number of recent orders have underpinned growth, 
profitability and cash generation in the current financial year such 
that turnover is now expected to double and profits to increase 
significantly, supporting an increase in valuation of GBP420,000 during 
the year. 
 
   Alaric Systems, which develops and sells credit and debit card 
authorisation and card anti fraud software to major financial 
institutions and retailers worldwide, achieved an audited PBIT of GBP1.3 
million on sales of GBP9.8 million for the year to 31 March 2013. Having 
won several significant orders during 2013 and with a number of large 
contracts in prospect, an exit process was initiated which resulted in a 
sale of the company to NCR Corporation for GBP51.6 million in December 
2013. The Company received GBP3.17 million at completion with a further 
GBP589,390 held in escrow (to be released in tranches over the next four 
years), generating a return of over 5 times original cost of investment. 
GBP140,186 was received from Alaric Systems during the year, comprising 
loan repayments (GBP35,047) and redemption premia (GBP105,139). 
 
   AtFutsal Group runs government approved education programmes for 
students aged 16-18 years old in conjunction with a consortium made up 
of Football League clubs, colleges and academies and 
training/accreditation organisations. Funding for these programmes is 
sourced from the Education Funding Agency. Depending on the geographical 
location of the main partner football clubs, the three arenas that the 
company runs in Birmingham, Leeds and Swindon are used as part of the 
education programmes. AtFutsal is introducing a wider range of 
government approved BTech courses and has developed its own education 
software platform so that it can provide a range of educational 
services. AtFutsal Group has also developed a separate English Colleges 
education programme to provide additional futsal related courses for 
16-18 year olds at sixth form colleges. For the current student year 
which commenced in September 2013, the company registered some 1,200 
students on its futsal related courses, nearly double the number of 
students in the previous academic year. AtFutal Group is also improving 
its capacity utilisation across its three arenas with a variety of 
different sports being regularly played at each arena alongside futsal 
at both child and adult level. New activities and sports are planned 
across the arenas over the coming 3-6 months. This improved utilisation 
has enabled the arenas to reach cash breakeven. The company is now 
generating operating profits, with the strongly growing Education 
division generating the majority of the profit and cash flow within the 
Group. 
 
   Following the GBP48 million secondary buy-out by ISIS Private Equity in 
January 2012, investments in equity and loan stock were retained in 
Autologic Diagnostics Group. Autologic Diagnostics Group continues to 
generate strong profits and for the year to December 2013 achieved an 
EBITDA of GBP5.4 million on sales of GBP18.6 million (an EBITDA of 
GBP5.9 million on revenues of GBP17.2 million in 2012). The company 
traded well in the first quarter and as at 31 March 2014, had a healthy 
cash balance of GBP4.5 million. In recent months, Autologic Diagnostics 
Group has further strengthened its management team, including recruiting 
a new Sales Director, to focus on the UK and European markets. The 
American market continues to perform well. Management continues to 
develop a business model to generate recurring revenues through a new 
service-oriented product, with the aim of launching this in Q4 2014. 
During the year, interest of GBP101,555 deferred under the terms of the 
loan agreement with Autologic Diagnostics Group was capitalised. 
 
   Biofortuna, a molecular diagnostics business based in the Wirral, has 
developed unique expertise in the important area of enzyme stabilisation, 
effectively hi-tech freeze drying. Its first range of products, SSPGo, 
is a series of genetic compatibility tests for organ transplant 
recipients, although the breadth of application of the technology is 
extremely wide. Because of the company's stabilisation and freeze drying 
technology, its products can be transported easily (in the post if 
needed) and stored at room temperature for up to two years. A GBP1.3 
million round to finance capital expenditure and working capital was 
completed in August 2013, in which the Company invested GBP99,066. The
Foresight 3 Vct (LSE:FTD)
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