TIDMFTD
FORESIGHT 3 VCT PLC
2015 Highlights
-- Net asset value per Ordinary Share at 31 March 2015 was 66.8p (31 March
2014: 74.2p) after deducting the 2.0p per share dividend paid in March
2015.
-- An interim dividend for the year ended 31 March 2015 of 2.0p per Ordinary
Share was paid on 27 March 2015.
-- The fund provided follow-on funding totalling GBP1.6 million to seven
portfolio companies and GBP1 million to two new investments.
-- The fund realised GBP4.6 million from sales and loan redemptions from 12
portfolio companies.
Chairman's Statement
Directorate Changes
The Board announced on 3 October 2014 that I, Raymond Abbott, joined the
Board as a Director of the Company and on 1 January 2015 assumed the
role of Chairman, replacing Graham Ross Russell. I look forward to a
period of success following the change of strategy by the Board a few
years ago.
I was previously the Managing Director of Alliance Trust Equity Partners
and was a Director of Foresight 4 VCT plc and Enterprise VCT plc (which
was merged into Foresight 3 VCT plc in 2008). I am currently a
non-executive director of The Scottish Building Society, Galleria
Holdings Limited and Essex Services Group plc.
On behalf of the Board I would like to thank Graham for all of his hard
work in the past 18 years and wish him well in his retirement.
Performance
During the year to 31 March 2015, the net asset value per Ordinary Share
decreased by 7.3% to 66.8p from 74.2p at 31 March 2014, after deducting
the 2.0p per share dividend paid in March 2015.
The main reason for the disappointing fall in NAV resulted from the
Board's decision to write down the value of it's holding in Closed Loop
Recycling from GBP5.8 million to zero. This decision was taken following
continued trading difficulties and the failure of efforts to achieve a
sale of the business. The company entered administration on 30 April
2015. Following this write down the portfolio does not have material
exposure to environmental type investments with the remaining portfolio
now comprising private equity investments in a range of sectors. The
majority of these investments are profitable at EBITDA level and
increases in the valuation of these investments have partially offset
the final provision made against Closed Loop Recycling.
Many of the private equity investments performed well, particularly
Aerospace Tooling Corporation, Orthoview Holdings, Procam Television
Holdings, TFC Europe and O-Gen UK which together generated an increase
in net asset value of GBP3.58 million.
As explained in more detail in the Manager's Report, although the Closed
Loop failure is very disappointing given the time, effort and investment
that went into the business, the Board and Foresight Group, as
Investment Manager, are now focussed on achieving success from the
private equity portfolio which, as noted above, predominantly comprises
profitable companies. This strategy change, which took place several
years ago is now showing good progress as noted in more detail in the
Investment Manager's Report of these accounts.
Dividends
An interim dividend of 2.0p per Ordinary Share for the year ended 31
March 2015 was paid on 27 March 2015. The shares were quoted ex dividend
on 12 March 2015 and the record date for payment was 13 March 2015. It
continues to be the Company's policy to provide a flow of tax-free
dividends, generated from income and from capital profits realised on
the sale of investments. Distributions will, however, inevitably be
dependent largely on successful realisations, refinancings and other
forms of cash generation.
The recent success in generating cash from portfolio investments within
the fund gives the Board confidence that it will be able to at least
maintain the same level of dividend and grow future payments of
dividends to Shareholders.
Top-up Share Issues and Share Buy-backs
During the period under review 856,000 Ordinary Shares were repurchased
for cancellation at a cost of GBP490,000.
There were no shares issued during the year.
Alternative Investment Fund Management Registration
The Board has considered the impact on the Company of the EU directive
regulating Alternative Investment Fund Managers (AIFM) which applies to
most UK investment funds including the Company. To minimise the
regulatory and financial cost of compliance as a 'full scope UK AIFM',
with this legislation, the decision was made for the Company to register
as a 'small registered UK AIFM' directly with the Financial Conduct
Authority as permitted by the rules. The application process was
completed in June 2014 and approval confirmed in early August 2014. This
will not affect the current arrangements with the Manager which will
continue to report to the Board and manage the Company's investments on
a discretionary basis.
VCT Legislation
VCTs, as tax efficient investment vehicles, are periodically subject to
new rules which the Government and/or the European Commission consider
appropriate for achieving the scheme's objectives and to comply with the
rules relating to state aid to promote risk finance investments.
These proposed new rules were announced in the Chancellor's Budget on 8
July and, in summary, are as follows:
-- Introducing an 'age of company' restriction of 7 years
-- Introducing a lifetime investment limit of GBP12 million
-- Restricting VCT investments in buyouts
-- All investments to be made with intention to grow and develop a business
These rules are expected to become effective from Royal Assent of the
Finance Bill in 2015.
Annual General Meeting
Prior to the Annual General Meeting at 1.30pm on 3 September 2015,
Foresight Group, the investment Manager and two investee companies will
give presentations between 1.00pm and 1.30pm.
The Company's Annual General Meeting will take place after the
presentations at 1.30pm. I look forward to welcoming you to the Meeting,
which will be held at the offices of Shakespeare Martineau in London.
Details can be found on page 60 of the Annual Report and Accounts.
Outlook
Although there is still considerable uncertainty in continental Europe
as a result of stresses within the Euro area, the UK economy is in
reasonable health and many businesses are making steady progress. Many
of the familiar risks, both financial and political, remain and there
can be no grounds for complacency as all of our investments operate in
competitive environments.
The improvement in the economy has had a noticeable effect in the
performance of the private equity part of the portfolio. Within the
portfolio, a series of realisations, refinancings and loan repayments
has generated significant cash balances, which underpins the Board's
dividend commitment to Shareholders and also provides capacity for
several new investments to be made over the medium term, which we
anticipate will further enhance Shareholder returns. New investments may,
however, be impacted by the proposed changes in VCT legislation noted
earlier and as the impact of the changes to the company become clearer,
we will report on these to Shareholders.
Raymond Abbott
Chairman
30 July 2015
Strategic Report
Introduction
This Strategic Report, on pages 5 to 10 of the Annual Report and
Accounts, has been prepared in accordance with the requirements of
Section 414 of the Companies Act 2006 and best practice. Its purpose is
to inform the members of the Company and help them to assess how the
Directors have performed their duty to promote the success of the
Company, in accordance with Section 172 of the Companies Act 2006.
Foresight 3 VCT plc
Foresight Group was appointed manager of Advent VCT plc on 30 July 2004
and the fund was renamed Foresight 3 VCT plc.
Foresight Group was appointed manager of Noble VCT plc (formerly
Enterprise VCT plc) on 1 April 2008 and the Company temporarily reverted
to its former name of Enterprise VCT plc. On 10 September 2008 Foresight
3 VCT plc acquired the assets and liabilities of Enterprise VCT plc and
the Company was partially merged into Foresight 3 VCT plc as a separate
C Share class. On 24 July 2009 the Foresight 3 VCT plc Ordinary and C
Shares were merged together to create new Ordinary shares.
The number of Ordinary Shares in issue at 31 March 2015 was 50,370,401.
Investment Policy
The Manager (Foresight Group) will target UK unquoted companies which
depend to a significant extent on the application of scientific and
technological skills or knowledge as a major source of competitive
advantage. A proportion of realised gains will normally be retained for
re-investment and to meet future costs. Subject to this, the Company
will endeavour to maintain a flow of dividend payments.
Investment Objective
The investment objective of the Company is to provide private investors
with attractive returns from a portfolio of investments in fast-growing
unquoted companies in the United Kingdom.
It is the intention to maximise tax free income available to investors
from a combination of dividends and interest received on investments and
distribution of capital gains arising from trade sales or flotations.
Performance and key performance indicators (KPIs)
The Board expects the Manager to deliver a performance which meets the
objectives of the fund. The KPIs covering these objectives are net asset
value performance and dividends paid, which, when combined, give net
asset value total return. Additional key performance indicators reviewed
by the Board include the discount of the share price relative to the net
asset value and total expenses as a proportion of shareholders' funds.
A record of some of these indicators is contained below and on the
following page. The on-going charges ratio in the period was 2.8%. Share
buy-backs, (excluding enhanced buybacks), have been completed at
discounts ranging from 16.1% to 32.3%. The level of these KPIs are then
compared with the wider VCT marketplace, based on independent published
information, for reasonableness.
A review of the Company's performance during the financial period, the
position of the Company at the period end and the outlook for the coming
year is contained within the Manager's Report. The Board assesses the
performance of the Manager in meeting the Company's objective against
the primary KPIs highlighted.
Performance over 1, 3 and 5 years
31 March 2015 31 March 2014 31 March 2012 31 March 2010
Ordinary Ordinary Ordinary Ordinary
Shares Shares Shares Shares
Net asset value
per share 66.8p 74.2p 77.5p 95.1p
Cumulative
Dividends Paid per
Share since year
ended - 2.0p 4.0p 11.5p
Net asset value
total return at 31
March 2015 - 68.8p 70.8p 78.3p
plus cumulative
dividends paid
Performance (%)
NAV Total Return - (7.3%) (8.7%) (17.7%)
Ordinary Ordinary Ordinary Ordinary
Shares Shares Shares Shares
Share price 47.3p 62.5p 73.3p 84.5p
Share price total return at 31 March 2015 plus cumulative
dividends paid - 49.3p 51.3p 58.8p
Performance (%) Share Price Total Return - (21.2%) (30.1%) (30.4%)
Ordinary Shares
31 March 2015 31 March 2014
Share price discount to NAV stood at: 29.2% 15.7%
Shares bought back during the year under
review: 856,000 675,000
Decrease in net asset value during year: 10.0% 1.3%
Ongoing charges ratio: 2.8% 2.7%
Strategies for achieving objectives
Investment securities
The Company invests in a range of securities including, but not limited
to, ordinary and preference shares, loan stock, convertible securities,
and fixed-interest securities as well as cash. Unquoted investments are
usually structured as a combination of ordinary shares and loan stock,
while AIM investments are primarily held in ordinary shares. Pending
investment in unquoted and AIM listed securities, cash is primarily held
in interest bearing money market open ended investment companies
(OEICs).
UK companies
Investments are primarily made in companies which are based in the UK,
although many will trade overseas. The companies in which investments
are made must have no more than GBP15 million of gross assets at the
time of investment (or GBP7 million depending on when the funds being
invested were raised) to be classed as a VCT qualifying holding.
Asset mix
The Company aims to be invested significantly in growth businesses
subject always to the quality of investment opportunities and the timing
of realisations. Any uninvested funds are held in cash, interest bearing
securities and a range of non-qualifying investments. It is intended
that the significant majority of any funds raised by the Company will be
invested in VCT qualifying investments.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within
different industry sectors using a mixture of securities. The maximum
amount invested in any one company is generally limited to GBP1 million
in a fiscal year (or, if lower, 15% of the portfolio at the time of
investment) and generally no more than GBP2.5 million over time (at
cost) is invested in the same company (or, if lower, 15% of the
portfolio at the time of investment). The value of an individual
investment is expected to increase over time as a result of trading
progress and a continuous assessment is made of its suitability for
sale.
Investment style
Investments are selected in the expectation that the application of
private equity disciplines, including an active management style for
unquoted companies through the appointment of an Investor Director to
investee company boards, will enhance value.
Borrowing powers
The Company's Articles of Association permit gearing to give a degree of
investment flexibility. The Board's current policy is not to use
gearing.
Co-investment
The Company aims to invest in larger, more mature, unquoted and AIM
companies and, in order to achieve this, often invests alongside the
other Foresight funds. Consequently, at the time of initial investment,
the combined investment can currently total up to a maximum of GBP5.0
million per annum for unquoted and for AIM investees.
VCT regulation
The investment policy is designed to ensure that the Company continues
to qualify and is approved as a VCT by HM Revenue & Customs. Amongst
other conditions, the Company may not invest more than 15% of its
investments (by VCT value at the time of investment) in a single company
and must have at least 70% by value of its investments throughout the
period in shares or securities in qualifying holdings, of which 30% by
VCT value (70% for funds raised after 5 April 2011) in aggregate must be
in ordinary shares which carry no preferential rights (although only 10%
of any individual investment needs to be in the ordinary shares of that
company).
Management
The Board has engaged Foresight Group as discretionary investment
manager. Foresight Group also provides or procures the provision of
company secretarial, administration and custodian services to the
Company. Foresight Group prefers to take a lead role in the companies in
which it invests. Larger investments may be syndicated with other
investing institutions or strategic partners with similar investment
criteria. In considering a prospective investment in a company,
particular regard will be paid to:
-- Evidence of high-margin products or services capable of addressing
fast-growing markets;
-- The company's ability to sustain a competitive advantage;
-- The strength of the management team;
-- The existence of proprietary technology; and
-- The company's prospects of being sold or achieving a flotation within
three to five years.
A review of the investment portfolio and of market conditions during the
period is included within the Investment Manager's Report.
Environmental, Human Rights, Employee, Social and Community Issues
The Board recognises the requirement under Section 414 of the Act to
provide information about environmental matters (including the impact of
the Company's business on the environment), employee, human rights,
social and community issues; including information about any policies it
has in relation to these matters and effectiveness of these policies. As
the Company has no employees or policies in these matters this
requirement does not apply.
Gender diversity
The Board comprises three male Directors, however, the Board is
conscious of the need for diversity and will consider both male and
female candidates when appointing new Directors.
The Manager has an equal opportunities policy and currently employs 62
men and 39 women.
Dividend policy
A proportion of realised gains will normally be retained for
reinvestment and to meet future costs. Subject to this, the Company will
endeavour to maintain a flow of dividend payments. It is the intention
to maximise the Company's tax-free income available to investors from a
combination of dividends and interest received on investments and the
distribution of capital gains arising from trade sales or flotations.
Purchase of own shares
It is the Company's policy, subject to adequate cash availability, to
consider repurchasing shares when they become available in order to help
provide liquidity to the market in the Company's shares.
Principal risks, risk management and regulatory environment
The Board believes that the principal risks faced by the Company are:
-- Economic risk
-- Loss of approval as a Venture Capital Trust
-- Investment and strategic
-- Regulatory
-- Reputational
-- Operational
-- Financial
-- Market risk
-- Liquidity risk
Further detail on these principal risks is given in note 15 on page 51
of the Annual Report and Accounts.
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 framework of internal controls which is
designed to monitor the principal risks and uncertainties facing the
Company and to 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.
Performance-related incentives
Foresight Group is entitled to receive performance incentive fees
representing 15% of dividends paid to shareholders, providing certain
performance conditions are achieved.
The performance-related incentive fee is payable to Foresight Group if
the total return (comprising net asset value plus dividends paid)
exceeds 100 pence per Share, both before and immediately after the
performance-related incentive fee is paid. After each distribution is
made to shareholders, the total return required to be achieved to
trigger a performance-related incentive fee will be amended to take
account of the cumulative dividends (net of the performance incentive
fee payments made to Foresight Group) paid.
The performance incentive fee may be satisfied by either a cash payment
or the issue of Shares in the same class as the distribution being made
(or by a combination of both) at the Board's discretion. Any new Shares
to be issued to Foresight Group would be calculated by dividing the
amount to be satisfied by the issue of the Shares by the latest net
asset value per share.
No performance-related incentives were earned during the year (2014:
nil).
Valuation Policy
Investments held by the Company have been valued in accordance with the
International Private Equity and Venture Capital Valuation ("IPEVCV")
guidelines (December 2012) developed by the British Venture Capital
Association and other organisations. Through these guidelines,
investments are valued as defined at 'fair value'. Ordinarily, unquoted
investments will be valued at cost for a limited period following the
date of acquisition, being the most suitable approximation of fair value
unless there is an impairment or significant accretion in value during
the period. Quoted investments and investments traded on AIM and ISDX
Growth Market are valued at the bid price as at 31 March 2015. The
portfolio valuations are prepared by Foresight Group, reviewed and
approved by the Board quarterly and subject to review by the auditors
annually.
VCT Tax Benefit for Shareholders
To obtain VCT tax reliefs on subscriptions up to GBP200,000 per annum, a
VCT investor must be a 'qualifying' individual over the age of 18 with
UK taxable income. The tax reliefs for subscriptions since 6 April 2006
are:
-- Income tax relief of 30% on subscription for new shares, which is forfeit
by shareholders if the shares are not held for more than five years;
-- VCT dividends (including capital distributions of realised gains on
investments) are not subject to income tax in the hands of qualifying
holders;
-- Capital gains on disposal of VCT shares are tax-free, whenever the
disposal occurs.
Venture Capital Trust Status
Foresight 3 VCT plc has been granted approval as a Venture Capital Trust
(VCT) under S274-S280A of the Income Tax Act 2007 for the year ended 31
March 2014. The next complete review will be carried out for the year
ended 31 March 2015. It is intended that the business of the Company be
carried on so as to maintain its VCT status.
The Directors have managed, and continue to manage, the business in
order to comply with the legislation applicable to VCTs. In addition,
the Board has appointed Shakespeare Martineau LLP as taxation adviser to
the Company to provide further independent assurance of compliance with
venture capital tax legislation and to provide guidance on changes in
taxation legislation affecting Foresight 3 VCT plc. As at 31 March 2015
the Company had 75.0% of its funds in such VCT qualifying holdings.
Future Strategy
The Board and the Manager believe that the strategy of focusing on
traditional private equity investments is in the best interests of
Ordinary Shareholders and the historical information reproduced in this
report is evidence of positive recent performance in this area.
The Company's performance relative to its peer group and benchmarks will
depend on the Manager's ability to allocate the Company's assets
effectively, and manage its liquidity appropriately.
Raymond Abbott
Chairman
30 July 2015
Manager's Report
Several investments performed well during the year, including TFC Europe,
Orthoview Holdings, Procam Television Holdings, O-Gen UK and most
notably Aerospace Tooling Corporation, which received full payment of
its GBP450,000 loan and a GBP50,000 dividend being equal to the cost of
their equity investment within 15 months. These companies together
generated an increase in valuation of GBP3,587,398 in the year. In
October 2014, the investment in Orthoview Holdings was sold to
Materialise NV for up to GBP1,350,000, generating a return of three
times original cost of investment.
However, notwithstanding the above, the overall performance during the
year to 31 March 2015 was disappointing, the impact of the large
provision of GBP5,813,059 made against the investment in Closed Loop
Recycling, as explained below, more than counterbalancing the good
performance of the private equity investments. Net asset value per
Ordinary Share fell by 7.3% to 66.8p per share as at 31 March 2015 from
74.2p per share as at 31 March 2014, after deducting the 2.0p per share
dividend paid in March 2015.
Provisions totalling GBP6,275,550 were made against three investments
during the year, principally the above mentioned provision against the
investment in Closed Loop Recycling following the appointment of
administrators on 30 April 2015, thereby reducing the valuation to nil.
Despite operating at full capacity, the company's recent performance was
impacted by adverse movements in the price of waste plastic bottles as a
result of overseas demand for bottles and weaker prices for virgin resin,
reflecting the falling price of oil. The latter impacted the price
customers paid for the company's competing recycled HDPE and PET
pellets. The company focused its efforts on improving profitability
whilst actively pursuing various strategic options including raising
capital from third party sources and an outright sale. Notwithstanding
the above efforts, the company failed to raise new capital and was
placed into administration on 30 April 2015, with no prospect of any
recoveries.
In consequence, the portfolio now has effectively no material exposure
to environmental investments, the portfolio now comprising just
traditional private equity investments operating across a range of
different sectors. Foresight Group remains positive about the overall
prospects for the portfolio and is focused on achieving increases in net
asset value and realisations from the existing investments to facilitate
shareholder distributions and provide additional funding for new
investments. A review of the portfolio is set out below.
1. New investments
Company GBP
Industrial Efficiency II 451,740
Positive Response Communications 500,000
Total 951,740
2. Follow-on funding
Company GBP
AtFutsal Group 17,007
Biofortuna 178,898
Closed Loop Recycling 372,905
CoGen 41,527
Mplsystems (formerly The Message Pad) 90,000
Procam Television Holdings 173,608
Total 873,945
Capitalised interest was recognised in the year for Autologic Diagnostic
Group (GBP98,391) and Closed Loop Recycling (GBP631,160).
1. Exits ans Realisations
Following a period of particularly strong trading and cash generation,
Aerospace Tooling Corporation effected a recapitalisation and dividend
distribution in September 2014, returning the entire GBP3,500,000 cost
of the Foresight VCTs' investments made only 15 months previously.
Having received repayment of its GBP450,000 loan and a dividend of
GBP50,000 equal to the cost of its equity investment, Foresight 3 VCT
plc still retains its original 7.7% equity shareholding in the company.
In December 2014, ICA completed a recapitalisation enabling loans and
interest totalling GBP600,000 to be paid to the fund. On 31 March 2015,
The Bunker Secure Hosting repaid all its shareholder loans and
outstanding interest totalling GBP6,450,000, financed through a
GBP5,700,000 secured medium term bank loan plus GBP1,000,000 of its own
cash resources. In total, GBP5,130,000 was repaid to the Foresight VCTs,
comprising GBP3,030,000 of loan principal and GBP2,100,000 interest. The
Company received GBP1,667,704, comprising GBP1,258,710 of loan principal
and GBP408,994 of interest.
In April 2014, Orthoview Holdings (formerly Meridian Technique) repaid
GBP150,794 of loan stock. In October 2014, Orthoview Holdings was
successfully sold to NASDAQ quoted Materialise NV for GBP8,470,000 in
cash. Foresight 3 VCT received initial consideration of GBP1,120,000,
with a further GBP234,099 held in escrow to support warranties, to be
released in two tranches over two years. Combined with proceeds from the
capital reorganisation in May 2013, the investment generated a return of
three times original cost.
In May 2014, the investment in Xention Pharma, a drug development
company, was sold for GBP10,422. Loan repayments totalling GBP186,250
were received from the administrators of Evance Wind Turbines.
Cole Henry PE 2 Limited, an acquisition vehicle preparing to trade,
repaid a loan of GBP450,000 in the year, which was used to fund the
investment in Industrial Efficiency II. Kingsclere PE 3 Limited, an
acquisition vehicle preparing to trade, similarly repaid a loan of
GBP550,000 in the year, which was used to fund the investment in
Positive Response Communications.
4.Material provisions to a level below cost
Company GBP
Closed Loop Recycling 5,813,059
Evance Wind Turbines 38,750
Mplsystems (formerly The Message Pad) 423,741
Total 6,275,550
New and Follow on Investments
In July 2014, as a part of the initial GBP1,380,000 tranche of a phased
funding round totalling up to GBP4,400,000 by three Foresight managed
funds, a new investment of GBP326,740 was made by Foresight 3 VCT into
Industrial Efficiency II, alongside GBP990,760 from Foresight VCT. In
December 2014, the second GBP500,000 tranche was advanced, GBP125,000
from the Company and GBP375,000 from Foresight VCT. The company provides
energy efficiency fuel switching services, allowing customers to make
significant cost savings and reduce emissions.
In December 2014, the Company invested GBP500,000 alongside other
Foresight VCTs in a GBP2,000,000 round to finance a shareholder
recapitalisation of Positive Response Corporation. Established in 1997,
the company monitors the safety of people and property through its 24
hour monitoring centre in Dumfries, Scotland. The flagship product,
StaffSafe, provides increased staff safety and protection in customer
facing environments by supporting workers in dealing with harassment and
anti-social behaviour by enabling them to call for help utilising two
way audio communication and a CCTV feed linked to the monitoring centre.
Customers include several major restaurant and retail chains.
In April 2014, a follow on investment of GBP50,901 was made into
Biofortuna, an early stage molecular diagnostics business based in the
Wirral, being the second, final tranche of the funding round completed
in August 2013. To finance the development of new products, a
GBP1,550,000 round was concluded in January 2015, of which GBP890,000
was committed by the Foresight VCTs. The Company committed to invest
GBP214,335, of which GBP127,997 was invested as the first tranche. To
fund additional working capital requirements, further investments
totalling GBP372,905 were made into Closed Loop Recycling during the
year. A further investment of GBP173,608 was made into Procam Television
Holdings to support two acquisitions made during the year.
Outlook
Although there is still considerable uncertainty in continental Europe
as a result of macro-economic strains, the prospects for UK remain
positive with continuing low interest rates, reduced political
uncertainties following the recent General Election result and banks
more willing to lend to SMEs. In this environment, many businesses are
making steady progress.
The Manager continues to concentrate on improving the performance of the
portfolio which is now well positioned for further growth. With a
pipeline of high quality private equity investment opportunities and
funds available from recent realisations, Foresight is now actively
pursuing new investment opportunities while also continuing to endeavour
to realise capital from the portfolio, where appropriate, to generate
cash for shareholder distributions and further funds for new
investments.
Portfolio Review
In June 2013, the Company invested GBP500,000 alongside other Foresight
VCTs in a GBP3,500,000 investment in Dundee based Aerospace Tooling
Corporation (ATL), a well established specialist engineering company.
ATL provides repair, refurbishment and remanufacturing services to large
international companies for components in high-specification aerospace
and turbine engines. With a heavy focus on quality assurance, the
company enjoys strong relationships with companies serving the aerospace,
military, marine and industrial markets. In the year to 30 June 2014, a
number of significant orders underpinned growth, with turnover doubling
to GBP11,000,000 and EBITDA profits increasing significantly to
GBP4,330,000. Although sales and profitability are forecast to be lower
in the current financial year, this strong performance supported an
increase in valuation of GBP1,380,000 during the year. Reflecting
particularly strong cash generation, the company was able to effect a
recapitalisation and dividend distribution in September 2014, returning
the entire GBP3,500,000 cost of the Foresight VCTs' investments made
only 15 months previously. Having received full repayment of its
GBP450,000 loan and a dividend of GBP50,000 equal to the cost of its
equity investment, Foresight 3 VCT retains its original 7.7% equity
shareholding in the company effectively at nil cost.
AtFutsal Group runs government approved education programmes for
students aged 16-18 years old, principally as part of 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. The company's three arenas in
Birmingham, Leeds and Swindon are used as part of these education
programmes. AtFutsal Group has introduced a wider range of government
approved BTech courses and is using its own online education software
platform to provide a broader range of educational services. A separate
English Colleges education programme has been established to provide
additional futsal related courses for 16-18 year olds at sixth form
colleges, with an increasing number of courses being offered. Courses
for other age groups are also being developed. For the current student
year which commenced in September 2014, the company registered some
1,400 students on its futsal related courses, compared with 1,200 in the
previous academic year and some 100 for its new English Colleges
programme. AtFutsal 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.
For the year ended 31 December 2014, a small operating profit was
achieved on sales of GBP5,000,000, with the growing Education division
generating the majority of the profit and cash flow within the Group.
Trading in the current year has started well, a key focus for the
education team being to ensure that student enrolment for September 2015
is as strong as possible. As part of a GBP355,000 funding round to
support the continuing growth of the Educational division and a related
share reorganisation, the Foresight VCTs invested a further GBP300,000
(GBP100,000 in February 2015 and GBP200,000 in April 2015). The Company
invested GBP51,021 in total (GBP17,007 in February 2015 and GBP34,014 in
April 2015) and increased its equity shareholding from 7.5% to 10.6%.
Management is focussed on improving profitability by increasing the
number of students and range of education programmes and also the usage
of its online education platform.
Following the GBP48,000,000 secondary buy-out by Living Bridge (formerly
ISIS Private Equity) in January 2012, investments in equity and loan
stock valued at GBP2,230,000 were retained in Autologic Diagnostics
Group. The company generated reduced profits for the year to December
2013, achieving an EBITDA of GBP5,400,000 on sales of GBP18,800,000 (an
EBITDA of GBP5,900,000 on revenues of GBP17,200,000 in 2012). Similar
trading results were achieved during 2014, with relatively stronger
sales in the UK and Europe compared with the USA. As at 31 December
2014, the company had a healthy cash balance of GBP7,900,000. Trading in
the current year to date is in line with budget. Management continues to
develop a business model to generate recurring revenues and improve the
quality of the company's earnings through a new service-oriented product,
to be launched in May 2015. In the short term, this change in strategy
towards a pure recurring revenue model will result in certain
exceptional costs being incurred and depending on the level of new
customer sales is likely to impact EBITDA in 2015 and 2016 while helping
to drive longer term shareholder value. During the year, interest of
GBP97,047 deferred under the terms of the loan agreement with Autologic
Diagnostics Group was capitalised.
Biofortuna, an early stage 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 tests for genetic diseases and organ
transplant compatibility. 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
GBP1,300,000 round to finance capital expenditure and working capital
was completed in August 2013, in which the Company initially invested
GBP99,066 and then GBP50,901 as the second, final tranche in April 2014.
For the year to 31 March 2015, a substantially reduced operating loss of
GBP528,000 was incurred on higher sales of GBP1,050,000 (compared to an
operating loss of GBP1,050,000 on sales of GBP325,000 in the previous
year).
The Custom Services division, engaged in contract research, freeze-dried
product development for customers and contract manufacturing, continues
to mature with paid for feasibility studies and various contract
discussions. Several customers are now ordering or moving towards
production volumes while additional sales resource has been recruited.
Investment continues in improving and increasing production capacity.
The manufacturing facility has successfully obtained FDA registration.
The New Product Development division, which develops the company's
proprietary products, is progressing in a number of areas, including
assessing new markets and broadening the product range. To finance the
development of new products, a GBP1,550,000 round was concluded in
January 2015, of which GBP890,000 was committed by the Foresight VCTs.
The Company committed to invest GBP214,335, of which GBP127,997 was
invested as the first tranche.
During 2013/14, Closed Loop Recycling successfully doubled the capacity
of its Dagenham plant, which processed approaching 1,000 tonnes per week
of waste plastic bottles. During the year, as part of a GBP710,000
further funding round, the Company invested a further GBP340,000
alongside other Foresight VCTs. In October 2014, following protracted
negotiations, the shareholders entered into a confidential, conditional
sale and purchase agreement with a purchaser planning to seek a public
listing simultaneously with the conclusion of the acquisition, at a
price higher than the then carrying valuation. One of the purchase
conditions related to the financial performance of the company during
the listing process. However, the company's recent and short-term
projected performance were impacted by adverse movements in the price of
waste plastic bottles reflecting overseas demand for such bottles and
weaker prices for virgin resin, indirectly reflecting the falling price
of oil. The latter impacted the price customers paid for the company's
competing recycled HDPE and PET pellets. To mitigate the impact of these
price movements, price surcharges were negotiated with key customers.
The conditional sale and purchase agreement was formally terminated in
December 2014, following weaker than projected financial performance by
the company and thus reduced short-term profit projections.
During the first quarter of 2015, the macroeconomic position as it
related to the company worsened further with oil prices declining to
below $50 per barrel. This indirectly led to a substantial fall in the
price of virgin HDPE polymer and as such lower prices for the company's
recycled HDPE pellets. This markedly increased the pressure on the
company's margins and business model and worsened the P&L and cash
position. Waste bottle prices also fell but to a lesser extent than the
reduction in oil and virgin pellet prices which, combined with a time
lag, meant that the price surcharge increased from GBP200 per tonne in
December 2014 to over GBP300 per tonne in March 2015. This continuing
pricing pressure cast doubt on the continuing viability of the company's
business model.
The company focused its efforts on current trading and improving
profitability, whilst also actively pursuing various strategic options,
including raising capital from third party sources, an outright sale and
further supply chain support. Discussions and negotiations were held
with various parties in regard of raising new capital but these were
hindered by lack of sufficient support from various parties within the
entire customer supply chain.
Reflecting these conditions, other experienced and credible recyclers
experienced similar challenges to their long-standing business models.
A Government sponsored summit was held in March 2015 with the major
supermarkets and retailers, dairies and bottle manufacturers to discuss
this worsening market position and the risk that food-grade recycled
HDPE production in the UK could well cease in the near future. This
summit was a clear indication that the Government was taking very
seriously the potential market impact that such an event would have.
Unfortunately, however, the summit did not result in any firm commitment
or any further signs of industry support.
Reflecting the above, provisions totalling GBP5,813,059 were made
against the cost of the investment in the company, reducing the
valuation to nil. Notwithstanding the above efforts, the company failed
to raise new capital and was placed into administration on 30 April
2015, with no prospect of any recoveries.
Derby based Datapath Group is a world leading innovator in the field of
computer graphics and video-wall display technology utilised in a number
of international markets. The company is increasing its market share in
control rooms, betting and signage and is entering other new markets.
For the year to 31 March 2014, record operating profits of GBP7,360,000
were achieved on sales of GBP19,600,000 (for the year ended 31 March
2013, record operating profits of GBP5,100,000 were achieved on sales of
GBP14,100,000). Trading and cash generation in the year to 31 March 2015
was strong, with the company continuing to enjoy good demand from its
main OEM partners and distributors. The company has acquired its US
distributor and has established an office in Philadelphia to develop
more US sales and distributorships. In February 2015, the company
launched its range of leading new IP products at the ISE show, meeting a
warm response from OEMs and distributors. Management are working to
improve sales efforts and processes as well as project management and
product delivery times.
Following the appointment of administrators to Evance Wind Turbines in
April 2014 as a result of reductions in the Feed-in-Tariff for small
wind turbines which started in October 2012, loan repayments totalling
GBP186,250 were received during the year.
In May 2012, GBP200,000 was invested in Flowrite Refrigeration Holdings
alongside other Foresight VCTs to finance a GBP3,200,000 management
buyout of Kent based Flowrite Services Limited. Flowrite Refrigeration
Holdings provides refrigeration and air conditioning maintenance
services nationally, principally to leisure and commercial businesses
such as hotels, clubs, pubs and restaurants. In the year to 31 October
2014, the company traded well, achieving an operating profit of
GBP740,000 on sales of GBP10,800,000 after substantial investment in new
engineers and systems (cf. an operating profit of GBP1,060,000 on sales
of GBP10,000,000 in 2013). Trading in the current year is ahead of
budget. Management has increased sales efforts, particularly targeting
more installation work, and won a number of significant new contracts
and customers.
The company traded well during this year's seasonally busy summer months,
benefiting from increased numbers of engineers and also from the new
workflow IT system installed in May 2014 which has already resulted in
increased operational efficiency. Recent order wins and a growing
prospects list should support future growth in sales and profits.
In July 2014, as a part of the initial GBP1,380,000 tranche of a phased
funding round totalling up to GBP4,400,000 by three Foresight managed
funds, a new investment of GBP326,740 was made by the Company into
Industrial Efficiency II, alongside GBP990,760 from Foresight VCT. In
December 2014, the second GBP500,000 tranche was advanced, GBP125,000
from the Company and GBP375,000 from Foresight VCT. Industrial
Efficiency II provides energy efficiency fuel switching services,
allowing customers to make significant cost savings and reduce
emissions. A number of site installations have been completed and others
are in the course of construction for the first customer, a major
corporation, and further tranches may be drawn down over the next year.
As the installations are completed, the company charges the customer
based on the volume of fuel and electricity consumed at each site up to
a pre agreed level, which is expected to be reached after five years, at
which time the contract will terminate and payments reduce to a nominal
level.
ICA Group is a leading document management solutions provider in the
South East of England, reselling and maintaining Ricoh, Toshiba and
Kyocera office printing equipment to customers in the commercial and
public sectors. For the year to 31 January 2015, trading was strong and
ahead of budget, with an EBITDA of GBP645,000 being achieved on sales of
GBP3,700,000 (against an EBITDA of GBP561,000 on sales of GBP3,000,000
in the previous year). The company continues to trade well in the
current year. With stronger demand from SMEs and good cash generation,
ICA completed a recapitalisation and reorganisation in December 2014,
enabling loans and interest totalling GBP600,000 to be repaid. The
recapitalisation was financed through a GBP1,000,000 four year bank loan
facility and the company's cash resources. As part of the reorganisation,
Steven Hallisey, a seasoned executive with relevant sector experience,
was appointed as Executive Chairman in January 2015. The sales team has
since been strengthened through the recruitment of three new sales
people, resulting in an improved sales performance. The company is now
well positioned to capitalise on the improving market environment.
Ixaris Systems has developed and operates Entropay, a web based global
prepaid payment service using the VISA network, whose revenues and
profits have continued to grow. The company also offers its IxSol
product (formerly known as Opn) on a 'Platform as a Service' basis to
enable enterprises to develop their own customised global applications
for payments over various payment networks. IxSol is trading
satisfactorily with a number of deployments in progress and a good sales
pipeline. IxSol is being used by companies in the affiliate marketing
and travel sectors and sales efforts are now also focussing on the
international e-commerce and financial services sectors.
During 2013, the company invested in developing and marketing its Ixaris
Payment System, the platform that runs IxSol, to financial institutions.
The platform enables financial institutions to offer payment services to
their customers based on prepaid cards. The first deployment of the
Payment System is expected in mid 2015. A pipeline of sales
opportunities is being developed in three applications i.e. corporate
prepaid, consumer virtual prepaid and payment innovations. Ixaris was
awarded an EU grant of EUR2,500,000, of which EUR1,600,000 will be
received over three years, to help fund the existing platform technology
roadmap which highlights the innovative nature of the Payment System.
In the year to 31 December 2014, reflecting continuing investment in
software and systems, an EBITDA loss of GBP622,000 was incurred on
revenues of GBP9,500,000 (cf. an EBITDA loss of GBP617,000 on sales of
GBP9,500,000 in the previous year). Following a reduction in the cost
base in July 2014, the company is operating at cash flow break even and
had GBP3,100,000 of cash at 31 December 2014.
Mplsystems (formerly The Message Pad) develops and sells contact centre
and customer service software on a SaaS (Software as a Service) basis to
improve the efficiency of its customers' call centres and their
customers' experience. For the year to 31 May 2014, an operating loss of
GBP704,000 was incurred on sales of GBP1,820,000 as the company began
transitioning from a perpetual licence to a SaaS business model. In the
current year, the transition towards a SaaS business model is
progressing well with a number of new contracts and customers being won
and the company is now operating near break even on annual sales of
GBP2,400,000, appreciably ahead of budget. In January 2015, as part of a
GBP392,000 funding round, the Company invested GBP90,000 alongside other,
existing shareholders. Reflecting the price of the funding round, a
provision of GBP423,741 was made against the cost of the investment.
With a strong sales pipeline, the level of contracted recurring SaaS
revenues continues to grow, giving confidence that this provision should
be reduced over time.
In February 2014, the O-Gen Acme Trek facility in Stoke-on Trent was
granted planning permission for an enlarged 7MW waste wood to energy
plant. Management is currently working with the selected technology
provider and a major EPC contractor to develop the project to the next
stage, but this is taking longer than anticipated. Accordingly, it is
expected that the project will now need to qualify under the Contract
for Difference (CfD) subsidy regime rather than the ROC subsidy regime.
Both Foresight and CoGen (see O-Gen UK below) are working together to
establish how best to develop the project under this new regime. In view
of the delays described above, the company is actively seeking other
competitive bids for the project.
O-Gen UK continues to make good progress. Working together with
Carbonarius (its 50:50 joint venture with Plymouth based Una Group),
O-Gen UK has built on the success of its GBP4,000,000, 10MW Birmingham
BioPower project ("BBPL") to become the UK's leading independent
developer of Advanced Conversion Technology waste to energy projects. In
March 2015, O-Gen UK formalised this partnership with Una Group by
combining the two management teams and staff in a new company, CoGen
Limited, to further develop their substantial, combined pipeline of
projects. To accelerate growth and provide additional working capital, a
new investor subscribed GBP750,000 for equity in CoGen, alongside a loan
of GBP500,000 from Una Group. Funds managed by Foresight hold 24.59% of
CoGen's equity, including Foresight 3 VCT plc (8.59%), Foresight 2 VCT
plc (3.92%), Foresight 4 VCT plc (9.50%) and the Foresight UK
Sustainable EIS fund (2.58%). Reflecting the above progress, the CoGen
UK valuation has been increased by GBP1,352,115 to GBP1,736,138. O-Gen
remains the shareholder in BBPL.
This merger will help O-Gen UK demonstrate the sufficient scale, track
record and project pipeline to secure an appropriate exit in due course.
In March 2015, CoGen reached financial close on its most recent project,
a GBP53m, 10MWe waste wood to energy plant in Welland, Northamptonshire,
using the same technology and partners as in the BBPL project. This
latest project was funded with investment from Balfour Beatty plc,
Equitix and Noy (an Israeli investment fund), with CoGen earning
development fees on the transaction whilst retaining a 12.5%
shareholding in the project. Also in March, CoGen completed the
acquisition of the entire O-Gen Plymtrek site in Plymouth, originally
developed by Carbonarius with MITIE plc, on which a 4.5MW waste to
energy plant is planned to be built utilising much of the footprint of
the existing plant. The funding for this transaction was provided by
Aurium Capital Markets, with CoGen owning 50% of the acquisition vehicle
and Aurium owning 50% but with a prior ranking return on the latter's
invested capital. CoGen has also recently agreed terms to develop a 25MW
project in Merseyside using refuse derived fuel.
Orthoview Holdings (formerly Meridian Technique) provides pre-operative
planning software for orthopaedic surgery Worldwide. To facilitate
repayment of capital to shareholders, a share reorganisation was
completed in May 2013, enabling cash to be returned in tranches to
shareholders. In April 2014, the final GBP150,794 tranche of loan stock
was paid to the Company. In October 2014, Orthoview Holdings was
successfully sold for GBP8,470,000 in cash to NASDAQ quoted Materialise
NV, a leading provider of additive manufacturing software and of
sophisticated 3D printing solutions in the medical and industrial
markets. Foresight 3 VCT received initial consideration of GBP1,120,000,
with a further GBP234,099 held in escrow to support warranties, to be
released in two tranches over two years. Combined with proceeds from the
capital reorganisation, this investment generated a return of three
times original cost.
In December 2014, the Company invested GBP500,000 alongside other
Foresight VCTs in a GBP2,000,000 round to finance a shareholder
recapitalisation of Positive Response Corporation. Established in 1997,
the company monitors the safety of people and property through its 24
hour monitoring centre in Dumfries, Scotland. The flagship product,
StaffSafe, provides increased staff safety and protection in customer
facing environments by supporting workers, particularly 'lone workers',
in dealing with verbal abuse, harassment and anti-social behaviour by
enabling them to call for help utilising high quality two way audio
communication and a CCTV feed linked to the monitoring centre. Customers
include several major restaurant and retail chains. Revenues are
generated from both initial installation fees and monitoring and
maintenance fees. In the financial year ended 31 March 2015, an EBITDA
of GBP637,000 was achieved on sales of GBP2,040,000. Significant growth
is expected in the current financial year, reflecting a strong sales
pipeline including both existing and potential new customers. The
management team has been strengthened with the appointment of a new CEO
and Finance Director and additional sales resource is also being
recruited.
In April 2013, the Company invested GBP250,000 alongside other Foresight
VCTs in a GBP1,800,000 round to finance a management buy-out of Procam
Television Holdings. Procam is one of the UK's leading broadcast hire
companies, supplying equipment and crews for UK location TV production
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 and increased sales and marketing efforts.
In September 2013, Hammerhead, a competitor with facilities in London,
Manchester and Edinburgh and Glasgow, was acquired in order to broaden
the customer base, national coverage and realise various synergistic
benefits. For the eight month period to 31 December 2013, an EBITDA of
GBP300,000 was achieved on sales of GBP5,200,000. In the year to 31
December 2014, significant growth in sales and profits was achieved,
well ahead of the prior year, reflecting both strong organic growth and
the successful integration of the Hammerhead acquisition. Continuing
strong growth is expected in the current financial year which will
necessitate expansion into larger premises in due course.
In December 2014, Procam acquired True Lens Services, based in Leicester,
which specialises in the repair, refurbishment and supply of camera
lenses to the film and television industries in the UK and overseas. In
March 2015, in order to service the requirements of many of its existing
UK customers and enter the large US market, Procam acquired HotCam New
York, which provides camera, audio and lighting rental for TV production,
plus crew and related production services from its premises in
Manhattan. These acquisitions were supported by further investment of
GBP1,250,000 from the Foresight VCTs, of which the Company invested a
further GBP173,608. Integration of both acquisitions is making good
progress and initial trading is in line with plan. Other acquisition
opportunities are under consideration.
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 operating profits of GBP2,750,000 on sales of
GBP19,500,000 (cf. a record operating profit of GBP2,450,000 on sales of
GBP18,100,000 in 2013). Trading in the year to 31 March 2015 continued
to be strong, with record profits and sales again being achieved. The
budget for the current year shows continuing good growth. With effective
national coverage through five service centres in the UK, management is
focussed on increasing sales efforts and expansion in Germany, the
largest market in Europe. A new full service centre was opened in Bochum
near Dusseldorf in October 2013 and TFC is expanding its business with
existing customers. The seventh service centre, acquired in October 2014
in Singen, near Stuttgart, has already won a new substantial customer
with potential for further growth. This acquisition provides increased
opportunities to service existing Southern German customers and target
new customers with a wider product range. This strong physical presence
in Europe's largest manufacturing market is expected to assist TFC in
growing its sales and profits substantially. The order book remains
strong and the new project pipeline is healthy showing good prospects
for the coming months.
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 2014, an EBITDA of GBP2,220,000 was achieved on
sales of GBP9,300,000, identical to the previous year. Sales growth
slowed during the year but is now recovering. Recurring annual revenues
presently exceed GBP9,300,000. For the year to date, trading continues
in line with budget.
On 31 March 2015, The Bunker repaid all its shareholder loans and
outstanding interest totalling GBP6,450,000, financed through a
GBP5,700,000 secured medium term bank loan plus GBP1,000,000 of its own
cash resources. In total, GBP5,130,000 was repaid to the Foresight VCTs,
comprising GBP3,030,000 of loan principal and GBP2,100,000 interest. The
Company received GBP1,667,704, comprising GBP1,258,710 of loan principal
and GBP408,994 of interest.
To meet growing customer demand, a number of new Cloud based services
have been launched, including Secure Archive, Secure Hosted Desktop,
Backup and Disaster Recovery as a Service. A number of Channel partners
and customers have already been signed and a growing pipeline has been
developed through Channel partners for these Cloud 2.0 services. Secure
Archive is being marketed through Channel partners to major corporates
which generate and hold large amounts of data such as marketing agencies,
film/photo libraries and government bodies. The sales and marketing
strategy has been reassessed and sales team strengthened.
A power upgrade at the Newbury Data Centre was successfully completed in
March 2015. To increase capacity and resilience, the core network was
similarly upgraded and capacity to internet service providers
substantially increased during the year.
David Hughes
Foresight Group
Chief Investment Officer
30 July 2015
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
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 that 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
corporate and financial information included on the Company's website
(which is delegated to Foresight Group and incorporated into their
website). Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation in
other jurisdictions.
Statement of Directors' Responsibilities in respect of the Annual
Financial Report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company;
-- the Annual Report 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 the Company
faces; and
-- the report and accounts, taken as a whole, are fair, balanced, and
understandable and provide the necessary information for the shareholders
to assess the company's performance, business model and strategy.
On behalf of the Board
Raymond Abbott
Chairman
30 July 2015
Income Statement
for the year ended 31 March 2015
Year ended 31 March 2015 Year ended 31 March 2014
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Realised
(losses)/gains on
investments - (10,012) (10,012) - 1,898 1,898
Investment holding
gains/(losses) - 7,607 7,607 - (816) (816)
Income 864 - 864 787 - 787
Investment
management fees (216) (648) (864) (237) (710) (947)
Other expenses (420) - (420) (390) - (390)
Return/(loss) on
ordinary
activities before
taxation 228 (3,053) (2,825) 160 372 532
Taxation (35) 35 - - - -
Return/(loss) on
ordinary
activities after
taxation 193 (3,018) (2,825) 160 372 532
Return/(loss) per
Ordinary Share 0.4p (6.0)p (5.6)p 0.3p 0.7p 1.0p
The total column of this statement is the profit and loss account of the
Company and the revenue and capital columns represent supplementary
information.
All revenue and capital items in the above Income Statement are derived
from continuing operations. No operations were acquired or discontinued
in the year.
The Company has no recognised gains or losses other than those shown
above, therefore no separate statement of total recognised gains and
losses has been presented.
Reconciliation of Movements in Shareholders' Funds
Called-up Share Capital Profit and
share premium redemption loss
capital account reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31
March 2014
As at 1 April
2013 515 8,649 1,965 27,576 38,705
Share issues
in the year 4 331 - - 335
Expenses in
relation to
share
issues - (81) - - (81)
Repurchase of
shares (7) - 7 (429) (429)
Dividends - - - (1,031) (1,031)
Return for
the year - - - 532 532
As at 31
March 2014 512 8,899 1,972 26,648** 38,031
Called-up Share Capital Profit
share premium redemption and loss
capital account reserve account Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 31 March 2015
As at 1 April 2014 512 8,899 1,972 26,648 38,031
Expenses in relation to previous years share
issues* - (31) - - (31)
Repurchase of shares (8) - 8 (490) (490)
Dividends - - - (1,010) (1,010)
Transaction costs - - - (12) (12)
Loss for the year - - - (2,825) (2,825)
As at 31 March 2015 504 8,868 1,980 22,311** 33,663
* Trail commission payable to financial advisors in the year.
** Of this amount GBP16,815,000 (2014: GBP28,759,000) is realised and
distributable.
Balance Sheet
at 31 March 2015
Registered Number: 03121772
As at As at
31 March 2015 31 March 2014
GBP'000 GBP'000
Fixed assets
Investments held at fair value
through profit or loss 31,532 36,086
31,532 36,086
Current assets
Debtors 730 1,762
Money market securities and
other deposits - 277
Cash 1,507 87
2,237 2,126
Creditors
Amounts falling due within one
year (106) (181)
Net current assets 2,131 1,945
Net assets 33,663 38,031
Capital and reserves
Called-up share capital 504 512
Share premium account 8,868 8,899
Capital redemption reserve 1,980 1,972
Profit and loss account 22,311 26,648
Equity shareholders' funds 33,663 38,031
Net asset value per Ordinary 66.8p 74.2p
Share
Cash Flow Statement
for the year ended 31 March 2015
Year Year
ended ended
31 March 31 March
2015 2014
GBP'000 GBP'000
Cash flow from operating activities
Investment income received 942 357
Dividends received from investments 50 283
Deposit and similar interest received 1 2
Investment management fees paid (864) (922)
Secretarial fees paid (127) (126)
Other cash payments (262) (250)
Net cash outflow from operating activities and returns
on investment (260) (656)
Taxation - -
Investing activities
Purchase of unquoted investments and investments quoted
on AIM (1,825) (4,673)
Net proceeds on sale of unquoted investments 4,566 4,157
Net proceeds on sale of quoted investments 19 566
Net proceeds on deferred consideration 295 -
Net capital inflow from financial investment 3,055 50
Equity dividends paid (1,010) (1,031)
Management of liquid resources
Movement in money market funds 277 198
277 198
Financing
Proceeds of fund raising - 1,196
Expenses of previous year fund raising (57) (75)
Repurchase of own shares (585) (334)
(642) 787
Increase/(decrease) in cash 1,420 (652)
Reconciliation of net cash flow to movement in net
cash
Increase/(decrease) in cash for the year 1,420 (652)
Net cash at start of the year 87 739
Net cash at end of year 1,507 87
Notes
1. The audited Annual Financial Report has been prepared on the basis of
accounting policies set out in the statutory accounts of the Company for
the year ended 31 March 2015. All investments held by the Company are
classified as 'fair value through the profit and loss'. Unquoted
investments have been valued in accordance with IPEVC guidelines. Quoted
investments are stated at bid prices in accordance with the IPEVC
guidelines and Generally Accepted Accounting Practice.
2. These are not statutory accounts in accordance with S436 of the
Companies Act 2006. The full audited accounts for the year ended 31
March 2015, which were unmodified and did not contain any statements
under S498(2) of Companies Act 2006 or S498(3) of Companies Act 2006,
will be lodged with the Registrar of Companies. Statutory accounts for
the year ended 31 March 2015 including an unmodified audit report and
containing no statements under the Companies Act 2006 will be delivered
to the Registrar of Companies in due course.
3. Copies of the Annual Financial Report will be sent to shareholders
and will be available for inspection at the Registered Office of the
Company at The Shard, 32 London Bridge Street, London SE1 9SG and can be
accessed on the following website: www.foresightgroup.eu
4.
Net asset value per Ordinary Share
Net asset value per Ordinary Share is based on net assets at the year
end of GBP33,663,000 (2014: GBP38,031,000), and on 50,370,401 Ordinary
Shares (2014: 51,226,401 Ordinary Shares), being the number of Ordinary
Shares in issue at that date.
5. Return per Ordinary Share
Year ended
31 March Year ended
2015 31 March 2014
GBP'000 GBP'000
Total (loss)/return after taxation (2,825) 532
Basic (loss)/return per share (note a) (5.6)p 1.0p
Revenue return from ordinary activities after
taxation 193 160
Revenue return per share (note b) 0.4p 0.3p
Capital (loss)/return from ordinary activities after
taxation (3,018) 372
Capital (loss)/return per share (note c) (6.0)p 0.7p
Weighted average number of shares in issue in the
year 50,900,357 51,767,674
Notes:
a) Total (loss)/return per share is total return after taxation divided
by the weighted average number of shares in issue during the year.
b) Revenue return per share is revenue return after taxation divided by
the weighted average number of shares in issue during the year.
c) Capital (loss)/return per share is capital return after taxation
divided by the weighted average number of shares in issue during the
year.
6. Annual General Meeting
The Annual General Meeting will be held at 1.30pm on 3 September 2015 at
the offices of Shakespeare Martineau LLP, One America Square, Crosswall,
London, EC3N 2SG.
Prior to the Annual General Meeting, Foresight Group, the Investment
Manager and two investee companies will give presentations between
1.00pm and 1.30pm.
7. Income
Year ended Year ended
31 March 31 March
2015 2014
GBP'000 GBP'000
Loan stock interest 813 501
Dividend income 50 283
Bank deposits 1 2
Overseas based on Open Ended Investment Companies
("OEICs") - 1
864 787
8. Investments held at fair value through profit or loss
Quoted Unquoted Total
GBP'000 GBP'000 GBP'000
Book cost as at 1 April 2014 2,548 43,089 45,637
Investment holding losses (2,308) (7,243) (9,551)
Valuation at 1 April 2014 240 35,846 36,086
Movements in the year:
Purchases at cost ** - 2,554 2,554
Disposal proceeds (19) (4,566) (4,585)
Realised losses * (43) (10,087) (10,130)
Investment holding gains/(losses) 156 7,451 7,607
Valuation at 31 March 2015 334 31,198 31,532
Book cost at 31 March 2015 2,486 30,990 33,476
Investment holding (losses)/gains (2,152) 208 (1,944)
Valuation at 31 March 2015 334 31,198 31,532
*Included within realised gains/(losses) on investments in the Income
Statement is GBP118,000 of deferred consideration in relation to the
disposal of Orthoview Holdings in the year.
** Capitalised interest of GBP729,000 was recognized in the year.
9. Transactions with the manager
Foresight Group, acting as investment manager to the Company in respect
of its venture capital investments, earned fees of GBP864,000 during the
year (2014: GBP947,000). Fees excluding VAT of GBP127,000 (2014:
GBP126,000) were received during the year for company secretarial,
administrative and custodian services to the Company.
At the balance sheet date, there was GBP14,446 due to Foresight Group
(2014: GBP317 due from Foresight Group) and GBPnil due to Foresight Fund
Managers Limited (2014: GBPnil due to Foresight Fund Managers). No
amounts have been written off in the year in respect of debts due to or
from the related parties.
Foresight Group also received from investee companies arrangement fees
of GBP41,828 (2014: GBP25,472). VCF partners, an associate of Foresight
Group, received from investee companies, Directors' fees of GBP144,795
(2014: GBP175,287).
10. Related party transactions
No Director has an interest in any contract to which the Company is a
party.
END
This announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Foresight 3 VCT PLC via Globenewswire
HUG#1942608
http://www.foresightgroup.eu/
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