Foresight 3 VCT PLC Foresight 3 Vct Plc : Annual -6-


to broadcasters, production companies and other businesses for over 20 
years. Headquartered in Battersea, London, with additional facilities in 
Manchester, Edinburgh and Glasgow, Procam is a preferred supplier to 
BSkyB and an approved supplier to the BBC and ITV. Over the last four 
years revenues have doubled, following the introduction of new camera 
formats. 
 
   In September 2013, Hammerhead, a competitor with facilities in London, 
Manchester and Edinburgh and Glasgow, was acquired in order to broaden 
the customer base and national coverage and realise various synergistic 
benefits. The Hammerhead acquisition is expected to improve profits 
substantially. 
 
   Preliminary results for the year to 31 December 2013 show an EBITDA of 
GBP2.0 million on sales of GBP6.4 million, well ahead of trading in 
2012. Procam plans to open a further facility and launch a mobile 
outdoor camera facility. Further significant growth in sales and profits 
is forecast in the current year. 
 
   TFC Europe, a leading distributor of technical fasteners in the UK and 
Germany, performed well during the year to 31 March 2014, again 
achieving record profits and sales (cf. a record operating profit of 
GBP2.45 million on sales of GBP18.1 million in 2013), supporting an 
increase in valuation of GBP820,741 during the year. In September 2013, 
a small Scottish distribution business was acquired, thereby improving 
national coverage. Management's current focus is to generate greater 
sales in Southern Germany. A new full service centre was opened in 
Bochum near Dusseldorf in October 2013 and existing customers are 
already discussing expanding their business with TFC. A strong physical 
presence will greatly assist TFC in growing its sales and profits in 
Europe's largest manufacturing market. 
 
   The Bunker Secure Hosting, which operates two ultra secure data centres, 
continues to generate substantial profits at the EBITDA level. For the 
year to 31 December 2013, a record EBITDA of GBP2.2 million was achieved 
on sales of GBP9.25 million (cf. in 2012, an EBITDA of GBP1.77 million 
on sales of GBP8.5 million). Sales growth slowed, however, reflecting 
increased competition. Recurring annual revenues currently exceed GBP9 
million. In the current year to date, trading continues ahead of budget, 
with a much reduced attrition rate. To meet growing customer demand, a 
number of new Cloud based services have recently been launched while the 
sales and marketing strategy has been reassessed and sales efforts 
strengthened. Investment continues in upgrading the existing 
infrastructure. In April 2013, a small number of shares were purchased 
from two minority shareholders for GBP104,161. 
 
   From its fully automated Luton factory, 2K Manufacturing produced high 
quality Ecosheet boards made from recycled waste plastic. Despite orders 
and a sales pipeline, limited production capacity constrained output and 
losses continued to be incurred. To meet working capital requirements, a 
further GBP500,000 was invested in loans during the year. Up to GBP10 
million had been sought for some time to increase production capacity 
but these efforts proved unsuccessful, as did protracted sale and merger 
discussions. On 18 November 2013, these discussions ended, resulting in 
an administrator then being appointed. A full provision of GBP2,002,057 
has accordingly been made against the cost of this investment. 
 
   On 31 October 2013, the investment of GBP233,250 6% Unsecured 
Convertible Redeemable Loan note in AiM listed Zoo Digital Group was 
sold for GBP177,813 plus interest of GBP5,847. 
 
   David Hughes 
 
   Foresight Group 
 
   Chief Investment Officer 
 
   24 July 2014 
 
   The Disclosure and Transparency Rules ("DTR") of the UK Listing 
Authority require certain disclosures in relation to the annual 
financial report, as follows: 
 
   Principal risks, risk management and regulatory environment 
 
   The Board believes that the principal risks faced by the Company are: 
 
 
   -- Economic risk - events such as an economic recession and movement in 
      interest rates could affect smaller companies' performance and 
      valuations. 
 
   -- Loss of approval as a Venture Capital Trust - the Company must comply 
      with Section 274 of the Income Tax Act 2007 which allows it to be 
      exempted from corporation tax on investment gains. Any breach of these 
      rules may lead to: the Company losing its approval as a VCT; qualifying 
      shareholders who have not held their shares for the designated holding 
      period having to repay the income tax relief they obtained; and future 
      dividends paid by the Company becoming subject to tax in the hands of 
      investors. The Company would also lose its exemption from corporation tax 
      on capital gains. 
 
   -- Investment and strategic - inappropriate strategy, poor asset allocation 
      or consistently weak stock selection leading to under performance and 
      poor returns to shareholders. 
 
   -- Regulatory - the Company is required to comply with the Companies Acts 
      2006, the rules of the UK Listing Authority and United Kingdom Accounting 
      Standards. Breach of any of these might lead to suspension of the 
      Company's Stock Exchange listing, financial penalties or a qualified 
      audit report. 
 
   -- Reputational - inadequate or failed controls might result in breaches of 
      regulations or loss of shareholder trust. 
 
   -- Operational - failure of the Manager's or Company Secretary's accounting 
      systems or disruption to its business leading to an inability to provide 
      accurate reporting and monitoring. 
 
   -- Financial - inadequate controls might lead to misappropriation or loss of 
      assets. Inappropriate accounting policies might lead to misreporting or 
      breaches of regulations. Additional financial risks, including interest 
      rate, credit, market price and currency, are detailed later in this note. 
 
 
   -- Market risk - investment in AiM traded, ISDX Growth Market traded and 
      unquoted companies by its nature involves a higher degree of risk than 
      investment in companies traded on the main market. In particular, smaller 
      companies often have limited product lines, markets or financial 
      resources and may be dependent for their management on a small number of 
      key individuals. In addition, the market for stock in smaller companies 
      is often less liquid than that for stock in larger companies, bringing 
      with it potential difficulties in acquiring, valuing and disposing of 
      such stock. 
 
   -- Liquidity risk - the Company's investments, both unquoted and quoted, may 
      be difficult to realise. Furthermore, the fact that a share is traded on 
      AiM or ISDX Growth Markets does not guarantee that it can be realised. 
      The spread between the buying and selling price of such shares may not 
      reflect the price that any realisation is actually made. 
 
 
   The Board regularly reviews the principal risks and uncertainties facing 
the Company which the Board and the Manager have identified and the 
Board sets out delegated controls designed to manage those risks and 
uncertainties. Key risks within investment strategy are managed by the 
Board through a defined investment policy, with guidelines and 
restrictions, and by the process of oversight at each Board meeting. 
Operational disruption, accounting and legal risks are also covered at 
least annually and regulatory compliance is reviewed at each Board 
meeting. The Directors have adopted a robust framework of internal 
controls which is designed to monitor the principal risks and 
uncertainties facing the Company and provide a monitoring system to 
enable the Directors to mitigate these risks as far as possible. Details 
of the Company's internal controls are contained in the Corporate 
Governance and Internal Control sections. 
 
   Statement of Directors' Responsibilities in respect of the Annual Report 
and Financial Statements 
 
   The Directors are responsible for preparing the Annual Report and the 
financial statements in accordance with applicable law and regulations. 
 
   Company law requires the Directors to prepare financial statements for 
each financial year. Under that law the Directors have elected to 
prepare the financial statements in accordance with UK Accounting 
Standards and applicable law (UK Generally Accepted Accounting 
Practice). 
 
   Under company law the Directors must not approve the financial 
statements unless they are satisfied they give a true and fair view of 
the state of affairs of the Company and of the profit or loss of the 
Company for that period. 
 
   In preparing these financial statements, the Directors are required to: 
 
 
   -- select suitable accounting policies and then apply them consistently; 
 
   -- make judgements and estimates that are reasonable and prudent; 
 
   -- state whether applicable UK Accounting Standards have been followed, 
      subject to any material departures disclosed and explained in the 
      financial statements; and 
 
   -- prepare the financial statements on the going concern basis unless it is 
      inappropriate to presume that the Company will continue in business. 
 
 
   The Directors are responsible for keeping adequate accounting records 
that are sufficient to show and explain the Company's transactions and 
disclose with reasonable accuracy at any time the financial position of 
the Company and enable them to ensure that its financial statements 
comply with the Companies Act 2006. They have general responsibility for 
taking such steps as are reasonably open to them to safeguard the assets 
of the Company and to prevent and detect fraud and other irregularities. 
 
   Under applicable law and regulations, the Directors are also responsible 
for preparing a Directors' Report, Directors' Remuneration Report and 
Corporate Governance Statement that comply with that law and those 
regulations. 
 
   The Directors are responsible for the maintenance and integrity of the
Foresight 3 Vct (LSE:FTD)
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