REG-Foresight VCT PLC : Annual Financial Report <Origin Href="QuoteRef">FTV.L</Origin>
28/04/2016 07:08
FORESIGHT VCT PLC
Summary Financial Highlights
* Net asset value per Ordinary Share at 31 December 2015 was 87.5p after a
payment of a 6.0p dividend (31 December 2014: 99.4p).
* Net asset value per Planned Exit Share at 31 December 2015 was 36.8p after
payment of 22.5p in dividends (31 December 2014: 65.0p).
* Net asset value per Infrastructure Share at 31 December 2015 was 92.4p after
a payment of a 2.5p dividend (31 December 2014: 92.4p).
Ordinary Shares fund
* An interim dividend for the year ended 31 December 2014 of 6.0p per Ordinary
Share was paid on 13 March 2015.
* An interim dividend for the year ended 31 December 2015 of 7.0p per Ordinary
Share was paid on 1 April 2016.
* The fund realised £2.9 million from loan repayments from four portfolio
companies and £0.7 million in deferred consideration from three portfolio
companies.
* The fund provided follow-on funding totalling £1.9 million to six portfolio
companies and £14.3 million for seven new investments.
* A further £15.2 million was raised through the issue of shares and the
offer was closed on 8 June 2015.
* 28,590,057 consideration shares were issued to the Ordinary Shareholders of
Foresight 2 VCT plc following the merger on 18 December 2015.
Planned Exit Shares fund
* An interim dividend for the year ended 31 December 2014 of 15.0p per Planned
Exit Share was paid on 22 May 2015.
* An interim dividend for the year ended 31 December 2015 of 7.5p per Planned
Exit Share was paid on 25 September 2015.
* The fund realised £1.5 million from the sales of three portfolio companies.
* 5,535,509 consideration shares were issued to the Planned Exit Shareholders
of Foresight 2 VCT plc following the merger on 18 December 2015.
Infrastructure Shares fund
* An interim dividend for the year ended 31 December 2014 of 2.5p per
Infrastructure Share was paid on 22 May 2015.
* An interim dividend for the year ended 31 December 2015 of 2.5p per
Infrastructure Share was paid on 11 March 2016.
* The fund's management fee was reduced from 1.75% to 1.0% from 1 January
2015.
* 15,975,510 consideration shares were issued to the Infrastructure
Shareholders of Foresight 2 VCT plc following the merger on 18 December 2015.
Chairman's Statement
Merger
The merger with Foresight 2 VCT plc was completed on a relative net assets
basis on 18 December 2015. Each of the Ordinary Shares, Planned Exit Shares
and Infrastructure Shares merged with their respective counterparts in
Foresight 2 VCT plc creating a VCT with critical mass and assets in excess of
£100 million.
The number of shares issued, resulting from the merger, in each of the share
classes was as follows:
Share Class Net Asset Value Shares Issued
Ordinary 88.0p 28,590,057
Planned Exit 39.6p 5,535,509
Infrastructure 92.3p 15,975,510
Performance - Ordinary Shares Fund
i. Movement in Net Asset Value of the Ordinary Shares Fund
During the year, the net assets of the Ordinary Shares fund increased to
£75.8 million at 31 December 2015 from £44.2 million at 31 December 2014.
Of this net increase, amounting to £31.6 million, the principal contributing
factors were a total of £25.2 million through the issue of 28,590,057
Ordinary Shares to the shareholders in Foresight 2 VCT plc, a total of £15.2
million raised from the issue of new shares, (less issue costs of £0.6
million) and investment income of £1.1 million. These increases were offset
by payment of dividends totalling £3.0 million, management fees and other
expenses of £1.5 million, share buybacks of £1.4 million and a net decrease
of £3.4 million from the investment performance of the Ordinary Shares fund
portfolio.
The merger with Foresight 2 VCT plc alongside the success of recent
fund-raisings contributed to a year of considerable progress which has enabled
the Ordinary Shares fund to achieve a size that the Board believes will enable
it to more easily sustain the Board's dividend objective to Shareholders and
provides sufficient capacity for further new investments. Nevertheless the
investment performance of the Ordinary Shares fund portfolio during the year
was disappointing and the Board and Manager will be seeking an improvement in
performance in the year ending 31 December 2016.
Seven new investments were made by the merged Ordinary Shares fund during the
year for a total of £17.0 million and the Board and the Manager are
encouraged by the prospects for these, which were made before the VCT
legislation changes in November 2015.
ii. Movement in Net Asset Value per Share of the Ordinary Shares Fund
During the year, the net asset value of the Ordinary Shares fund decreased to
87.5p per share at 31 December 2015 from 99.4p per Share at 31 December 2014.
The performance of the investment portfolio was disappointing, and, after
adding back the dividend payment of 6.0p per Ordinary Share, represented a
total reduction of 5.9%.
The investments that contributed significantly (£250,000 or more) to this
result were as follows:
Company £
Blackstar Amplification Holdings Limited 1,533,407
Industrial Efficiency II Limited 636,881
Procam Television Holdings Limited 547,449
TFC Europe Limited (423,500)
Autologic Diagnostics Group Limited (467,236)
AlwaysON Group Limited (578,086)
Aerospace Tooling Holdings Limited (4,904,279)
Other movements 7,261
Total (3,648,103)
The valuation of the investment in Aerospace Tooling Holdings Limited was
reduced by £4,904,279 during the year due to a reduced level of orders from
its two largest customers.
iii. Cash & Deal Flow
During the year the Ordinary Shares fund made the following new private
equity and follow-on investments:
New Investments
Company Ordinary Shares Fund Foresight 2 VCT Ordinary Shares Fund Post Merger £
ABL Investments Limited 2,500,000 250,000 2,750,000
FFX Group Limited 2,026,426 650,000 2,676,426
Hospital Services Limited Itad Limited 2,670,000 650,000 3,320,000
Itad Limited 2,500,000 250,000 2,750,000
Protean Software Limited 2,254,000 246,000 2,500,000
Specac International Limited 1,345,000 - 1,345,000
The Business Advisory Limited 1,000,000 650,000 1,650,000
Total 14,295,426 2,696,000 16,991,426
Follow-on funding
Company £
Autologic Diagnostics Group Limited* 162,680*
Biofortuna Limited 128,002
Closed Loop Recycling Limited 7,193
Industrial Efficiency II Limited 1,237,500
Procam Television Holdings Limited 333,339
The Skills Group Limited 25,170
Total 1,893,884
*Representing capitalised and deferred interest.
The above excludes follow-on funding within Foresight 2 VCT plc pre-merger.
Disposal Proceeds, Deferred Consideration & Loan Repayments
Company £
Alaric Systems Limited 282,178
AppDNA Limited 392,574
Aquasium Technology Limited 166,667
Cole Henry PE 2 Limited 900,000
i-plas Group Limited 33,618
iCore Limited 50,000
Kingsclere PE 3 Limited 900,000
Whitchurch PE 1 Limited 900,000
The Skills Group Limited 1,000
Total 3,626,037
The above excludes realisations within Foresight 2 VCT plc pre-merger.
Cash Availability
The Ordinary Shares fund had cash and liquid resources of £17.0 million at
31 December 2015, which has increased to £32.0 million at the time of
writing. It is anticipated that these funds will be used to make several new
private equity investments arising from the Manager's deal flow pipeline of
new opportunities.
Additionally, a proportion of cash and liquidity will be reserved for
dividends to shareholders, paying annual running expenses and share buybacks.
iv. Investment Gains & Losses
During the year the Ordinary Shares fund realised losses amounting to £8.9
million, which had already been provided for in full, following the
liquidation of Aigis Blast Protection Limited and Withion Power Limited, as
well as the disposal of Closed Loop Recycling Limited and write off of DSM
GeoData Limited.
v . Running Costs
The annual management fee of the Ordinary Shares fund is 2.0%. During the
year the management fees totalled £1.1 million, of which £270,000 was
charged to the revenue account and £809,000 was charged to the capital
account. The average ongoing charges ratio of the Ordinary Shares fund for the
year to 31 December 2015, at 2.0%, compares favourably with its VCT peer
group. Following the merger the Manager agreed to reduce the annual expenses
cap to 2.4%, making it one of the lowest expenses caps of any VCT with total
assets over £20 million.
vi. Ordinary Share Dividends
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 on cash
being generated from portfolio investments and successful realisations, the
timing of which is not predictable.
In accordance with this policy an interim dividend of 7.0p was paid on 1
April 2016 based on an ex-dividend date of 15 March 2016 and a record date of
16 March 2016.
During the year ended 31 December 2015, an interim dividend of 6.0p was paid
on 13 March 2015 based on an ex-dividend date of 26 February 2015 and a record
date of 27 February 2015.
vii. Ordinary Shares Issues & Buybacks
A prospectus offer to raise £20 million was launched on 31 October 2014.
During the year under review, £15.2 million was raised through the issue of
15,080,040 Ordinary Shares, allotted at prices ranging from 93.4p to 100.1p
per share.
The Company allotted 106,287 Ordinary Shares under the Company's Dividend
Reinvestment Scheme at 99.4p per share.
During the year, 1,667,745 Ordinary Shares were repurchased for cancellation
at a cost of £1.4 million at an average discount to NAV of 10.2%. The Board
and the Manager consider share buybacks at a suitable discount to be a benefit
to shareholders as a whole and an appropriate way to manage the share price
discount to NAV at which the Ordinary Shares trade.
viii. Summary Post Year End Update
Following the year end, a total of £23 million has been raised under the
current offer for subscription launched on 18 January 2016. The General
Meeting to approve the offer for subscription took place on 15 March 2016 and
was unanimously passed by Shareholders at that meeting.
As noted in the prospectus (and the merger documentation between the Company
and Foresight 2 VCT plc) the Board are considering what, if any, performance
incentive arrangements with the Manager should be implemented relating to the
Ordinary Shares fund. If, following these deliberations, the Board believes a
performance incentive arrangement with the Manager is appropriate, it will
seek Shareholder approval for any such arrangements before they are
implemented. The Board expects to write to Shareholders definitively on any
proposals (or confirmation of lack thereof) during 2016.
In April 2016 the Company received its final tranche of deferred
consideration from iCore Limited, totalling £51,247.
Outlook - Ordinary Shares Fund
Although it has been a year of considerable progress for the Ordinary Shares
fund through the merger with Foresight 2 VCT plc, a successful fund raising
and exceeding our target dividend to Shareholders, this progress was tempered
by a disappointing performance from the investment portfolio. The Board and
the Manager will be focusing efforts in the coming year on improving
investment performance within the existing portfolio and through a combination
of the new investments recently made and those pipeline investments still to
be made.
Performance - Planned Exit Shares Fund
i. Movement in Net Asset Value of the Planned Exit Shares Fund
During the year, the net assets of the Planned Exit Shares fund increased to
£4,248,000 at 31 December 2015 from £3,943,000 at 31 December 2014.
Of this net increase, the Planned Exit Shares fund issued £2.2 million in
new shares as part of the merger with Foresight 2 VCT plc, paid out dividends
totalling £1.4 million, incurred management fees and expenses of £78,000 and
made share buybacks totalling £35,000 during the year. £290,000 in income
was written off from underperforming investments during the year, giving a net
loss of £150,000, and there was a decrease of £244,000 from the investment
performance of the Planned Exit Shares fund portfolio.
ii. Movement in Net Asset Value per share of the Planned Exit Shares Fund
During the year, the net asset value of the Planned Exit Shares fund
decreased to 36.8p per share at 31 December 2015 from 65.0p per Share at 31
December 2014, representing a fall of 8.8% after payments of 22.5p per Planned
Exit Share in dividends during the year.
iii. Cash & Deal Flow
There were no new investments made during the year.
During the year the Planned Exit Shares fund made the following follow-on
investments:
Follow-on funding
Company £
Closed Loop Recycling Limited 2,865
Total 2,865
Disposal Proceeds, Deferred Consideration & Loan Repayments
Company £
Channel Safety Systems Group Limited 515,758
Industrial Efficiency Limited 205,500
Leisure Efficiency Limited 793,000
Total 1,514,258
The above excludes realisations within Foresight 2 VCT plc pre-merger.
Cash Availability
The Planned Exit Shares fund had cash and liquid resources of £354,000 at 31
December 2015, which has increased to £369,000 at the time of writing. The
Planned Exit Shares fund is considered fully invested and its investments
generate a running yield, which is principally utilised for the payment of
expenses and dividends.
iv. Investment Gains & Losses
During the year, the Planned Exit Shares fund realised gains amounting to
£708,000 from the sales of Industrial Efficiency Limited (£50,000), Leisure
Efficiency Limited (£218,000) and Channel Safety Systems Limited (£440,000)
and realised losses amounting to £832,000, which had already been provided
for in full, following the liquidation of Withion Power Limited, as well as
the disposal of Closed Loop Recycling Limited. Further details of these sales
are contained in the Manager's Report.
v. Running Costs
The annual management fee of the Planned Exit Shares fund is 1.0%. During the
year, management fees totalled £41,000, of which £10,000 was charged to the
revenue account and £31,000 was charged to the capital account. The total
expense ratio of the Planned Exit Shares fund, for the year ended 31 December
2015 was 1.8%.
vi. Planned Exit Share Dividends
An interim dividend of 15.0p per Planned Exit Share was paid on 22 May 2015.
The shares were quoted ex-dividend on 7 May 2015 with a record date of 8 May
2015.
A second interim dividend for the year ended 31 December 2015 of 7.5p per
Planned Exit Share was paid on 25 September 2015. The shares were quoted
ex-dividend on 10 September 2015 with a record date of 11 September 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, however, will inevitably be dependent on cash
being generated from portfolio investments and successful realisations.
vii. Planned Exit Shares Issues & Buybacks
There were no Planned Exit Shares issued during the year, with the exception
of the consideration shares issued for the merger.
During the year under review 72,048 Planned Exit Shares were repurchased for
cancellation at a cost of £35,000 at an average discount to NAV of 0.7%. The
Board and the Manager consider share buybacks to be an effective way to manage
the share price discount to NAV at which the Planned Exit Shares trade.
viii Summary Post Year End Update
There were no material post year end items at the time of writing.
Outlook - Planned Exit Shares Fund
The original objective of the Planned Exit Shares fund was to return
investors 110p per share through a combination of dividends and share buybacks
by the sixth anniversary of the closure of the original offer, which will be
June 2016.
There are still three investments held within the Planned Exit Shares
portfolio and it is highly unlikely that they will all be sold before 30 June
2016 on terms that would maximize potential returns for Shareholders. Our
current expectation is that it could take a further 12 months beyond June 2016
to realise the maximum potential from the remaining portfolio investments.
Furthermore, the total return for shareholders if the fund realised the
remaining investments at current valuation would be 79.8p (comprising 43.0p in
dividends paid to date and 36.8p representing the remaining NAV at 31 December
2015). To deliver the target return of 110p per share, a significant increase
on the current valuations of the three remaining investments would need to be
achieved on their disposal. Although this remains a possibility, it seems very
unlikely the target 110p will be achieved by the fund.
Performance - Infrastructure Shares Fund
i. Movement in Net Asset Value of the Infrastructure Shares Fund
During the year, the net assets of the Infrastructure Shares fund increased
to £30.0 million at 31 December 2015 from £15.3 million at 31 December 2014.
The Infrastructure Shares fund issued £14.7 million in new shares as part of
the merger with Foresight 2 VCT plc and paid out dividends totalling £414,000
and management fees and other expenses of £301,000. Income for the year
totalled £639,000.
ii. Movement in Net Asset Value per share of the Infrastructure Shares Fund
During the year, the net asset value of the Infrastructure Shares fund
increased to 92.4p per share at 31 December 2015, after adjusting for the
payment of a 2.5p per Infrastructure Share dividend during the year, from
92.4p per Share at 31 December 2014.
iii. Cash & Deal Flow
There were no new or follow-on investments made during the year.
In April 2015, HMRC clearance was received to merge York Infrastructure 3
Limited and Zagreb Solar Limited (later renamed Drumglass Holdco Limited) and
utilise their combined cash resources to invest £1.6 million in the Drumglass
PFI project, which was value accretive to shareholders.
The Infrastructure Shares fund had cash and liquid resources of £465,000 at
31 December 2015, which had decreased to £74,000 at the time of writing.
iv. Investment Gains & Losses
There were no realised gains or losses during the year.
v. Running Costs
The annual management fee of the Infrastructure Shares fund, which was 1.75%
until 31 December 2014, was reduced to 1% from 1 January 2015. The Board
agreed with Foresight Group to make this change following the impact of the
delay in investing the original amounts raised in qualifying infrastructure
investments, which may impact the fund's future returns. During the year the
management fees totalled £157,000, of which £39,000 was charged to the
revenue account and £118,000 was charged to the capital account. The ongoing
charges ratio of the Infrastructure Shares fund for the year ended 31 December
2015 was 1.0%.
vi. Infrastructure Share Dividends
During the year ended 31 December 2015, an interim dividend of 2.5p per
Infrastructure Share was paid on 22 May 2015. The shares were quoted
ex-dividend on 7 May 2015 with a record date of 8 May 2015.
Following the year end an interim dividend of 2.5p was paid on 11 March 2016
based on an ex-dividend date of 25 February 2016 and a record date of 26
February 2016.
The Company's original objective was to provide an annual flow of tax-free
dividends of 5.0p per share, generated from income and from capital profits
realised on the sale of investments. Distributions, however, will inevitably
be dependent on cash being generated from portfolio investments and successful
realisations. The ability to continue generating sufficient cashflows to
satisfy an annual 5.0p per share dividend is uncertain in light of current
yields.
vii. Infrastructure Shares Issues & Buybacks
There were no Infrastructure Shares issued during the year, with the
exception of the consideration shares issued for the merger.
During the year under review 32,352 Infrastructure Shares were repurchased
for cancellation at a cost of £29,000 at an average discount to NAV of 0.6%.
The Board and the Manager consider share buybacks to be an effective way to
help manage the share price discount to NAV at which the Infrastructure Shares
trade.
viii. Summary Post Year End Update
There were no material post year end items at the time of writing.
Outlook - Infrastructure Shares Fund
Following the merger, Foresight VCT now has a controlling holding in each of
the five currently qualifying investments, which if left unaddressed would
lead to those investments becoming non-qualifying under VCT rules relating to
control. However, a one year grace period is allowed to remedy this situation.
To bring the VCT's holding down to 49.9% of each investment and satisfy this
control test, a part disposal of each of the five investments is required, as
set out in the table below. The aggregate disposal is expected to be
approximately £8.12m, representing some 27% of the total valuation of £30.3
million of the Foresight VCT Infrastructure Shares Class as at 18 December
2015.
The Manager will also give consideration to other current investment
opportunities and whether any sale proceeds should be reinvested or paid out
as dividends to shareholders. The total return may be lower if paid out as
dividend because investors would then forego the opportunity to earn
additional yield from any new investments made.
VCT Legislation
As previously discussed, changes to VCT regulations were finally confirmed on
18 November 2015. There were no material changes to those detailed in my
interim report. One of the principal purposes of the changes was to prevent
VCT investment being used to acquire existing shares or the principal trade or
assets of businesses.
The key aspects of the proposed new rules are as follows:
* Introducing an 'age of company' restriction of a maximum of seven years at
the time of first VCT investment;
* Introducing a lifetime state aided investment limit of £12 million; and
* Prohibiting VCT investment financing acquisitions (as mentioned above).
Annual General Meeting
The Company's Annual General Meeting will take place on 24 May 2016 at
1.00pm. I look forward to welcoming you to the Meeting, which will be held at
the offices of Foresight Group in London. Details can be found on page 78
.
Outlook
The merger with Foresight 2 VCT plc alongside the success of recent
fund-raisings contributed to a year of considerable progress which has enabled
the Ordinary Shares fund to achieve a size that the Board believes will enable
it to more easily sustain the Board's dividend objective to Shareholders and
provides sufficient capacity for further new investments. Nevertheless the
investment performance of the Ordinary Shares fund portfolio during the year
was disappointing and the Board and Manager will be seeking an improvement in
performance in the year ending 31 December 2016. The investment phase of the
Infrastructure Shares fund and the transition of part of the fund from
non-qualifying PFI investments into VCT qualifying Solar Infrastructure is now
complete.
The seven new investments made by the Ordinary Shares fund during the year
are performing in-line or ahead of original expectations and we expect these
to enhance shareholder returns over the medium term. Both the Board and the
Manager are optimistic that the portfolio will produce a steady income flow
for future dividends, as originally planned.
John Gregory
Chairman
Telephone: 01296 682751
Email: j.greg@btconnect.com
27 April 2016
Strategic Report
Introduction
This Strategic Report, on pages 8 to 14, 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 VCT plc Ordinary Shares Fund
Foresight VCT plc originally raised £10.9 million through an Ordinary Share
issue in the 1997/98 tax year. Following the merger with Foresight 2 VCT plc
in December 2015, this fund currently has investments and assets totalling
£76.5 million of which a significant portion is held in cash and is available
to make new investments. The number of Ordinary Shares in issue at 31 December
2015 was 86,593,790.
Foresight VCT plc Planned Exit Shares fund
In the 2009/10 tax year, £12 million was raised through a linked offer for
the Planned Exit Shares fund, the proceeds of which were divided equally
between Foresight VCT plc and Foresight 2 VCT plc. These Funds comprised
separate share classes within Foresight VCT plc and Foresight 2 VCT plc with
their own investments and income streams.
The number of Planned Exit shares in the Company in issue at 31 December 2015
was 11,527,087.
Foresight VCT plc Infrastructure Shares fund
In the 2011/2012 tax year, £33 million was raised through a linked offer for
the Infrastructure Shares fund, the proceeds of which were divided equally
between Foresight VCT plc and Foresight 2 VCT plc. These Funds comprised
separate share classes within Foresight VCT plc and Foresight 2 VCT plc with
their own investments and income streams.
The number of Infrastructure Shares in the Company in issue at 31 December
2015 was 32,510,224.
Summary of the Investment Policy
The Company will target investments in UK unquoted companies which it
believes will achieve the objective of producing attractive returns for
shareholders.
Investment Objectives
Ordinary Shares fund
The investment objective of the Ordinary Shares fund is to provide private
investors with attractive returns from a portfolio of investments in
fast-growing unquoted companies in the United Kingdom.
Planned Exit Shares fund
The investment objective of the Planned Exit Shares fund is to combine
greater security of capital than is normal within a VCT with the enhancement
of investor returns through the VCT tax benefits - income tax relief of 30% of
the amount invested, and tax-free distribution of income and capital gains.
The key objective of the Planned Exit Shares fund is to distribute 110p per
share through a combination of tax-free income, buy-backs and tender offers
before the sixth anniversary of the closing date of the original offer.
Infrastructure Shares fund
The investment objective of the Infrastructure Shares fund is to invest in
companies which own and operate essential assets and services which enjoy
long-term contracts with strong counterparties or through government
concessions. To ensure VCT qualification, the Manager will focus on companies
where the provision of services is the primary activity and which generate
long-term contractual revenues, thereby facilitating the payment of regular
and predictable dividends to investors.
Performance and Key Performance Indicators (KPIs)
The Board expects the Manager to deliver a performance which meets the
objectives of the three classes of shares. The KPIs covering these objectives
are net asset value performance and dividends, 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 on the following page. The
total expense ratio for the period was 1.7%. Share buy-backs, have been
completed at discounts ranging from 10.0% to 10.7% for Ordinary Shares, 0.6%
to 0.9% for Planned Exit Shares and 0.6% to 0.7% for Infrastructure Shares.
The level of these KPIs are comparable with the wider VCT marketplace.
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 above.
Clearly, in the Ordinary Share fund, investments in unquoted companies at an
early stage of their development may disappoint. Investing the funds raised in
companies with high growth characteristics, however, with the potential to
become strong performers within their respective fields creates an opportunity
for enhanced returns to shareholders.
31 December 2015
31 December
2014
Ordinary Planned Exit Infrastructure Ordinary Planned Exit Infrastructure
Shares Shares Shares Shares Shares Shares
Net asset value per share 87.5p 36.8p 92.4p 99.4p 65.0p 92.4p
Net asset value total return 215.5p 79.8p 99.9p 217.8p 85.5p 97.4p
Planned Planned
Ordinary Exit Infrastructure Ordinary Exit Infrastructure
Shares Shares Shares Shares Shares Shares
Share price 80.0p 41.0p 90.0p 86.5p 73.0p 89.0p
Share price total return 212.6p 84.0p 97.5p 212.8p 93.5p 94.0p
Planned Planned
Ordinary Exit Infrastructure Ordinary Exit Infrastructure
Shares Shares Shares Shares Shares Shares
Dividends paid* 182.1p 43.0p 7.5p 179.8p 20.5p 5.0p
Dividends paid in the year 6.0p 22.5p 2.5p 10.0p 7.5p 2.5p
Dividend yield % 7.5 54.9^ 2.8 11.6 10.8 2.8
* From inception to 31 December 2015 ^In realisation mode.
Ordinary Shares fund
Discount to NAV at 31 December 2015 8.6%
Average discount on buybacks 10.2%
Shares bought back during the year under review 1,667,745
Decrease in net asset value during year (after adding back 6.0p dividend) 5.9%
Ongoing charges ratio (based on assets at 31 December 2015) 2.0%
Planned Exit Shares fund
Premium to NAV at 31 December 2015 11.4%
Average discount on buybacks 0.7%
Shares bought back during the year under review 72,048
Decrease in net asset value during year (after adding back 22.5p dividend) 8.8%
Ongoing charges ratio (based on assets at 31 December 2015) 1.8%
Infrastructure Shares fund
Discount to NAV at 31 December 2015 2.6%
Average discount on buybacks 0.6%
Shares bought back during the year under review 32,352
Increase in net asset value during year (after adding back 2.5p dividend) 2.7%
Ongoing charges ratio (based on assets at 31 December 2015) 1.0%
Strategies for achieving objectives
Investment Policy
The Company will target UK unquoted companies which it believes will achieve
the objective of producing attractive returns for shareholders.
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 stocks, while AiM
investments are primarily held in ordinary shares. Pending investment in
unquoted and AiM listed securities, cash is primarily held in interest bearing
accounts as well as in a range of permitted liquidity investments.
UK companies
Investments are primarily made in companies which are substantially based in
the UK, although many will trade overseas. The companies in which investments
are made must satisfy a number of tests set out in Part 6 of the Income Tax
Act 2007 to be classed as VCT qualifying holdings.
Asset mix
The Company aims to be significantly invested in growth businesses, subject
always to the quality of investment opportunities and the timing of
realisations. Any uninvested funds are held in cash and a range of permitted
liquidity investments. It is intended that the significant majority (no less
than 70%) of any funds raised by the Company will ultimately 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 at different stages of development, using a mixture
of securities. The maximum amount invested in any one company including any
guarantees to banks or third parties providing loans or other investment to
such a company, is limited to 15% of the Company's investments by VCT value at
the time of investment.
Investment style
Investments are selected in the expectation that value will be enhanced by
the application of private equity disciplines, including an active management
style for unquoted companies through the placement of an investor director on
investee company boards.
Borrowing powers
The Company has a borrowing limit of an amount not exceeding an amount equal
to the adjusted capital and reserves (being the aggregate of the amount paid
up on the issued share capital of the Company and the amount standing to the
credit of its reserves). Whilst the Company does not currently borrow, its
policy allows it to do so.
Co-investment
The Company aims to invest in larger, more mature, unquoted and AiM companies
and, in order to achieve this, often invests alongside other Foresight funds.
Consequently, at the time of initial investment, the combined investment can
currently total up to a maximum of £5.0 million per annum for unquoted and
for AIM investments.
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 total investments
at the time of making any 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 70% by value 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 CI Limited as manager. Foresight Fund
Managers Limited also provides or procures the provision of company
secretarial, administration and custodian services to the Company. The Manager
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:
Ordinary Shares fund
· 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;
· The company's prospects of being sold or achieving a flotation within
three to five years.
Planned Exit Shares fund
· Security of income and capital;
· Asset backing;
· The company's ability to provide an attractive yield for the fund;
· The prospects of achieving an exit within five years;
· The strength of the management team.
Infrastructure Shares fund
· Long-term contracts with Governmental or strong counter-parties;
· Protection from competition;
· Inflation-linked revenues over 10-50 year contract durations.
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 currently comprises four male Directors. The Board is, however,
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 78 men
and 53 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 of the order of 5p per share across all share
classes, although a greater or lesser sum may be paid in any year. It is the
intention to maximise the Company's tax-free income for 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 16 on page 69.
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 these 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.
Viability Statement
In accordance with principle 21 of the AIC Code of Corporate Governance
published by the AIC in February 2015, the Directors have assessed the
prospects of the Company over the three year period to 31 December 2018. This
three year period is used by the Board during the strategic planning process
and is considered reasonable for a business of its nature and size.
In making this statement, the Board carried out an assessment of the
principal risks facing the Company, including those that might threaten its
business model, future performance, solvency, or liquidity.
The Board also considered the ability of the Company to raise finance and
deploy capital. This assessment took account of the availability and likely
effectiveness of the mitigating actions that could be taken to avoid or reduce
the impact of the underlying risks, including the Manager adapting their
investment process to take account of the more restrictive VCT investment
rules.
This review has considered the principal risks which were identified by the
Board. The Board concentrated its efforts on the major factors that affect the
economic, regulatory and political environment.
The Directors have also considered the Company's income and expenditure
projections and underlying assumptions for the next three years and found
these to be realistic and sensible.
Based on the Company's processes for monitoring cash flow, share price
discount, ongoing review of the investment objective and policy, asset
allocation, sector weightings and portfolio risk profile, the Board has
concluded that there is a reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they fall due over the
three years to 31 December 2018.
Performance-related incentives
As noted in the prospectus (and the merger documentation between the Company
and Foresight 2 VCT plc) the Board are considering what, if any, performance
incentive arrangements with the Manager should be implemented relating to the
Ordinary Shares fund. If, following these deliberations, the Board believes a
performance incentive arrangement with the Manager is appropriate, it will
seek Shareholder approval for any such arrangements before they are
implemented. The Board expects to write to Shareholders definitively on any
proposals (or confirmation of lack thereof) during 2016.
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 (formerly PLUS) are valued at
the bid price as at 31 December 2015. The portfolio valuations are prepared by
Foresight Group, reviewed and approved by the Board quarterly and subject to
annual review by the auditors.
VCT Tax Benefit for Shareholders
To obtain VCT tax reliefs on subscriptions up to £200,000 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 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 December
2014. The next complete review will be carried out for the year ended 31
December 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. The Board has appointed
Shakespeare Martineau LLP to monitor and provide continuing advice in respect
of the Company's compliance with applicable VCT legislation and regulation. As
at 31 December 2015 the Company had 78.1% (by VCT valuation) 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 currently in the best interests of
Ordinary Shareholders and the historical information reproduced in this report
is evidence of positive recent performance in this area.
Furthermore, the Board expects that the transition of the Infrastructure
Shares' fund from solely PFI investments to a mix of PFI, solar infrastructure
and other infrastructure investments will enhance returns to shareholders.
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,
make successful investments and manage its liquidity appropriately.
John Gregory
Director
27 April 2016
Manager's Report
In the year under review to 31 December 2015, besides making several new
investments and raising new funds, the Company experienced two important
changes in the latter part of the year. These were the merger on a relative
net asset basis with Foresight 2 VCT which completed on 18 December 2015,
creating one of the larger VCTs with net assets of some £112 million at that
date, and EU driven changes in the VCT Scheme rules which took effect on 18
November 2015 and will affect future investments. The Company's performance
during the year and the impact of these changes are discussed in detail below.
Performance during the year
Ordinary Shares Fund
The net asset value per Ordinary Share decreased by 5.9% to 87.5p per share
as at 31 December 2015 from 99.4p per Ordinary Share as at 31 December 2014
(after adding back the interim dividend of 6.0p per Ordinary Share paid on 13
March 2015). The Ordinary Shares fund benefitted during the year from good
performances by several portfolio companies but was negatively impacted in
particular by a large reduction in the valuation of one investment, Aerospace
Tooling Corporation, which was reduced by £4,904,279 during the year due to a
reduced level of orders from its two largest customers.
An interim dividend of 7.0p per Ordinary share was paid on 1 April 2016 to
shareholders on the Register on 18 March 2016. A further Ordinary Share Offer
to raise up to £30 million was announced on 18 January 2016, of which £23
million has been subscribed to date.
Having realised a significant number of investments over recent years and
raised £19 million from the issue of new Ordinary Shares through the Offer
which closed in June 2015, the principal focus in the year under review was
making new investments. Seven new investments were made during the year and
several of these are already making encouraging progress, particularly Itad
and Specac. Further details of these new investments can be found in the
Ordinary Shares Portfolio Review later in this report.
Planned Exit Shares Fund
The net asset value per Planned Exit Share decreased during the year to 31
December 2015 by 8.8% to 36.8p per share from 65.0p, after adjusting for the
15.0p per share dividend paid on 22 May 2015 and 7.5p per share dividend paid
on 25 September 2015. This reflected the successful sales of Industrial
Efficiency, Leisure Efficiency and Channel Safety Systems Group. This increase
was counterbalanced by the disappointingly weak performance of Trilogy
Communications, due to continuing delays in expected defence orders, and
slower than expected progress in the turnaround of Industrial Engineering
Plastics during the year. Further details can be found in the Planned Exit
Shares Portfolio Review later in this report.
Foresight Group is working to realise these investments and is monitoring the
performance and likely returns from the three remaining investments and the
planned capital repayment timetable.
Infrastructure Shares Fund
During the year, the net asset value per Infrastructure Share increased by
2.7% to 92.4p per share as at 31 December 2015, after adjusting for the 2.5p
interim dividend paid on 22 May 2015, from 92.4p as at 31 December 2014.
Holders of Foresight 2 VCT Infrastructure shares received a 2.5p interim
dividend on 22 May 2015 and a further 2.5p interim dividend on 4 December
2015.
Following the year end, a further interim dividend of 2.5p per Infrastructure
share was paid on 11 March 2016 to holders on the Register at 26 February
2016.
The portfolio, which comprises investments in four ground mounted solar
plants and in eight operating PFI projects in the health and education
sectors, performed in line with expectations during the year.
Further details of the fund performance can be found in the Infrastructure
Shares Portfolio Review later in this report.
Fund raising for the Ordinary Shares Fund
Foresight Group continues to see a number of high quality private equity
investment opportunities.
On 31 October 2014, the Board launched a full prospectus to raise up to £20
million by the issue of new Ordinary Shares. The issue was well received by
both new and existing investors, with £19 million raised by the closing date
of 8 June 2015 from the issue of 19.4 million new Ordinary Shares during the
offer period. Seven new investments totalling over £14 million were made by
the Ordinary Shares fund by September 2015.
To take advantage of other, current investment opportunities, on 18 January
2016, the Board launched a further full prospectus to raise up to £30 million
by the issue of new Ordinary Shares. The issue has been well received by both
new and existing investors, with £23 million raised from the issue of 25.7
million new Ordinary Shares to date and the offer remains open.
Foresight Group believes that, with the UK and US economies slowly
recovering, investing in growing, well managed private companies in this phase
of the economic cycle should, based on past experience, generate attractive
returns over the longer term. Based on its current deal flow, Foresight Group
believes that attractive deals are currently available.
Merger of Foresight VCT with Foresight 2 VCT
On 18 December 2015, the Company merged with Foresight 2 VCT to create one of
the larger VCTs, with net assets totalling some £112 million. The merger was
effected by way of a scheme of reconstruction of Foresight 2 VCT pursuant to
section 110 of the Insolvency Act 1986. Foresight 2 VCT was placed in members'
voluntary liquidation and all of its assets and liabilities transferred by its
appointed liquidator to the Company in consideration for the issue of new
shares in the Company to the shareholders of Foresight 2 VCT. Full details of
the merger were contained in a prospectus and in circulars to the shareholders
of the Companies, all dated 13 November 2015.
As both Companies have three equivalent share classes (Ordinary Shares,
Planned Exit Shares and Infrastructure Shares), each existing share class in
Foresight 2 VCT was merged into the corresponding share class in the Company
on a relative net asset basis on 18 December 2015. The net asset value per
Share as at that date is shown in the table below:
Net Asset Value per Share Foresight VCT Foresight 2 VCT
Ordinary 88.0p 55.0p
Planned Exit 39.6p 36.0p
Infrastructure 92.3p 89.0p
The assets and liabilities of Foresight 2 VCT were accordingly transferred to
the Company in consideration for the issue of new Shares on the basis shown in
the table below:
Foresight 2 VCT Share Class Foresight VCT Consideration Shares
For each Ordinary Share: 0.6244 Ordinary Share
For each Planned Exit Share: 0.9095 Planned Exit Share
For each Infrastructure Share: 0.9644 Infrastructure Share
The enlarged Investment Portfolio is reviewed below. Where the Company and
Foresight 2 VCT were both invested in a particular portfolio company at the
date of the merger, this is noted as such in the review. Investments formerly
held prior to the merger solely by Foresight 2 VCT are similarly noted in the
review.
Consequential Changes to certain Infrastructure Share Class investments
As noted earlier, a consequence of the merger of the Company and Foresight 2
VCT in December 2015 will mean that parts of five qualifying investments held
within the Infrastructure Shares Class of each VCT will need to be sold within
a year i.e. by no later than December 2016. The fifth anniversary of the close
of fundraising for the Infrastructure Shares Class is in July 2017, beyond
which date Foresight would in any event endeavour to provide an exit for those
investors wishing to do so.
The part disposals of the five qualifying holdings will be made to either a
third party investor or to another fund managed by Foresight Group at an
independently verified valuation. If sold to a fund managed by Foresight
Group, this would need to be to a non VCT or EIS fund as recent rule changes
prevent the acquisition of a trade or existing shares. In order to continue to
generate yield, any such part disposals would be expected to take place
towards the end of 2016.
Both Infrastructure Share classes held mirror shareholdings, being equally
invested in four VCT qualifying solar projects and eight secondary PFI
projects, one of which is VCT qualifying. Approximately 70.5% of the
Infrastructure investments are VCT qualifying holdings.
Following the merger, Foresight VCT now has a controlling holding in each of
the five currently qualifying investments, which if left unaddressed would
lead to those investments becoming non-qualifying under VCT rules relating to
control. However, a one year grace period is allowed to remedy this situation.
To bring the VCT's holding down to 49.9% of each investment and satisfy this
control test, a part disposal of each of the five investments is required, as
set out in the table below. The aggregate disposal is expected to be
approximately £8.12m, representing some 27% of the total valuation of £30.3
million of the Foresight VCT Infrastructure Shares Class as at 18 December
2015.
The Manager will also give consideration to other current investment
opportunities and whether any sale proceeds should be reinvested or paid out
as dividends to shareholders. The total return may be lower if paid out as
dividend because investors would then forego the opportunity to earn
additional yield from any new investments made. The recent VCT rule changes
explained below have reduced the universe of qualifying asset classes
available for investment.
Holdings as at 17 December 2015:
Investee Company Foresight VCT (£) Foresight VCT 2 (£) Combined Holding (£) Combined Ownership Required disposal (£)
FS Ford Farm Ltd 1,952,524 1,952,524 3,905,048 67% 981,827
FS Hayford Farm Ltd 2,049,018 2,049,018 4,098,036 65% 928,600
FS Pentre Ltd 2,306,061 2,306,061 4,612,122 100% 2,306,062
FS Tope Ltd 2,053,091 2,053,091 4,106,182 91% 1,859,981
Drumglass HoldCo Ltd 2,039,802 2,039,802 4,079,604 100% 2,039,803
TotalRecent news on Foresight VCT
See all newsREG-Total voting rights
AnnouncementREG-Director/PDMR Shareholding
AnnouncementREG-Total voting rights
AnnouncementREG-Intention to Fundraise
AnnouncementREG - Official List - Official List Notice
Announcement