FORESIGHT 3 VCT PLC
Summary
- Net asset value per Ordinary Share for the six month period ended 30 September 2016 increased by 6.2%, represented by a net asset value of 63.3p compared to a net asset value of 59.6p at 31 March 2016.
- Funding totalling £95,000 was provided to one company.
- Realisation proceeds and loan repayments totalling £427,000 were received from two portfolio companies.
| Six months ended | Year ended | |
| 30 September 2016 | 31 March 2016 | |
| Net asset value per Ordinary Share | 63.3p | 59.6p |
| Net asset value per Ordinary Share (including all dividends paid) | 125.1p | 121.4p |
| Share price per Ordinary Share | 42.0p | 39.3p |
| Share price total return per Ordinary Share (including all dividends paid) | 103.8p | 101.4p |
Chairman's Statement
Summary Financial Highlights
- Net asset value per Ordinary Share at 30 September 2016 was 63.3p (31 March 2016: 59.6p).
- The fund provided follow-on funding totalling £95,000 to one portfolio company.
- The fund realised £427,000 from sales and loan redemptions from two portfolio companies.
Performance
During the six months to 30 September 2016, the net asset value per Ordinary Share increased by 6.2% to 63.3p from 59.6p at 31 March 2016.
The six months under review saw little activity with respect to new or follow-on investments, as the VCT Boards and Investment Managers considered the new VCT regulations published in November 2015 and focussed on the portfolio. Following the delayed publication of HMRC's VCT Guidance Manual in May 2016 describing how the new regulations should be interpreted, the VCT industry has recently started to see an increase in the completion of new and follow-on deals. Foresight 3 VCT plc, however, is unlikely, in the short term to invest in any new deals until it raises significant liquidity from either portfolio realisations or an issues of new shares.
Overall, the Board is pleased with the performance of the fund as shown by the increase in net asset value during the six months under review and believes that the existing portfolio (including the five new investments added in 2015) is well placed to deliver growth, underpin future dividends and enhance shareholder returns. These new investments had combined revenues of approximately £30.3m and EBITDA of £6.5m at the time of acquisition and have continued to grow since. The Company benefitted from good performances by several portfolio companies, principally Datapath, ICA, MplSystems, Protean, Specac, TFC and The Bunker, supporting an increase in their aggregate valuation of over £2.0 million. Reflecting weaker than expected trading, the valuations of Autologic and Positive Response were reduced by £251,000 in aggregate.
More detailed information on the investment portfolio is included within the Investment Manager's Report on page 5.
Dividends
It is the Company's aim to provide a flow of tax-free dividends, generated from income received and 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 gives the Board confidence that it will be able to at least maintain the level of dividend and, depending on portfolio performance, increase future payments to Shareholders when prudent to do so.
Top-up Share Issues and Share Buy-backs
During the period under review there were no share buybacks or share issues.
Potential Merger with Foresight 4 VCT plc
In the annual report and accounts I mentioned that the Board had been considering whether a merger and the benefits therefrom would be in shareholders' longer term interests. As an update, the Board announced on 20 October 2016 that it had been in discussions with Foresight 4 VCT plc ('Foresight 4') regarding a potential merger and the principal details of a potential merger, should it proceed and be approved by Shareholders, are set out below:
- A combined VCT immediately post-merger with assets of approximately £70 million;
- A portfolio of over 25 companies, many of which are making good progress and are profitable and which have delivered the recent improvements in NAV in the Company;
- Based on the costs of the merger being in the region of £450,000, an estimated payback period of approximately 12 months;
- A reduction in the aggregate number of Board directors;
- A reduction in the annual expenses cap from 3.5% to an estimated 2.95% of net assets;
- A reduction in the annual management fee from 2.25% to 2.0% of net assets;
- An enlarged entity better positioned to raise further funds and continue with the current investment strategy; and
- The ability to consider realisations from an enlarged entity to create liquidity events for Shareholders and support dividend payments.
A merger will create an enlarged VCT with enough critical mass which should generate sufficient income and realisations to meet an attractive dividend target, as well as maintaining a regular program of share buybacks aimed at maintaining a discount to NAV in the region of 10%.
It should be noted that a tri-partite merger between Foresight VCT plc, Foresight 4 and the Company would not be possible without the divestment of significant holdings including many of the new investments which, together, being over 50%, would otherwise be non-qualifying under the VCT rules.
Following a merger, the Board anticipates it will implement the following three initiatives:
Tender Offer post-Merger
The Board recognises that the discount to NAV at which the Company's shares trade has been too wide for a prolonged period of time. In that regard, the Board anticipates that the enlarged VCT will undertake a tender offer as soon as possible after a merger.
Buyback Commitment post-Merger
In addition to the proposed tender offer referred to above, over time the Board also expects to be in a position following a merger to implement a series of share buybacks to help the enlarged VCT to achieve its target of a discount to NAV in the region of 10%.
Dividend post-Merger
In addition to the tender offer and share buyback objective noted above, the Board also expects that the enlarged VCT would be in a position to pay a post-merger dividend.
With respect to a potential merger with Foresight 4, the Board wishes to seek Shareholders' views before incurring any merger costs and has enclosed with these interim accounts details of a simple online advisory vote open to all Shareholders.
Following the result of the advisory vote the Board will inform shareholders of the preferred option.
Shareholder Survey Results
Throughout the calendar year, indirectly through investor forums and directly through a survey, we solicited Shareholder views. We have used these results to help inform the key points we believe are important in the merger considerations. The results of the survey are presented on page 21.
Brexit
There are two principal areas where the implementation of Brexit could impact the VCT:
- Investee Companies - there has been much debate on the possible impact on trade between Europe and the UK following the Brexit vote and how this will impact UK corporates. It is much too early to say how large or small the impact may ultimately be, we do not believe that the impact will be material in the short to medium term; and
- Regulation - many parts of the current VCT legislation has been derived from EU State Aid Directives. We do not believe, however, that following Brexit changing VCT legislation will be a priority for the UK Government and, as a result, we do not expect any changes to the existing legislation in the short to medium term.
Outlook
The recent result in the Presidential election in the US combined with the Brexit vote in the UK and the potential for this to have a knock-on effect in the political environment in other European countries will cause uncertainty in markets in which our portfolio companies operate but it will take time to gauge the full effect that this may have for the Company.
Currently the UK economy is in reasonable health and we hope that if the improvement in the economy over the last few years continues, it should be reflected in an improving performance of the private equity part of the portfolio. Within the portfolio, there is an ongoing focus on performance and realisations, refinancings, dividends and loan repayments which underpin the Board's dividend commitment to Shareholders. This cash has enabled several new investments to be made over the last 12 months or so, and these are delivering robust performance and enhancing Shareholder returns.
Raymond Abbott
Chairman
30 November 2016
Investment Manager's Report
During the six months to 30 September 2016, the net asset value per Ordinary Share increased by 6.2% to 63.3p per share as at 30 September 2016 from 59.6p per Ordinary Share as at 31 March 2016. The Company benefitted from good performances by several portfolio companies, principally Datapath, ICA, Mplsystems, Protean, Specac, TFC and The Bunker, supporting an increase in their aggregate valuation of over £2.2 million. Reflecting weaker than expected trading, the valuations of Autologic and Positive Response were reduced by £251,000 in aggregate.
Outlook
The referendum on the United Kingdom leaving the European Union is not expected to have any immediate material effect to the overall portfolio. Any prolonged weakness in Sterling is likely to benefit those portfolio holdings companies with a high proportion of exports. Foresight Group continues to see a number of high quality private equity investment opportunities. Foresight Group believes that, with the UK and US economies slowly recovering, investing in growing, well managed private companies 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 and a number are currently in exclusivity.
Portfolio Review
1. New Investments
No new investments were made during the period to 30 September 2016.
2. Follow-on funding
| Company | £ |
| Biofortuna Limited | 95,000 |
| Total | 95,000 |
In July 2016, the second, final tranche of £95,000 into Biofortuna Limited was drawn down as part of a £1.6 million funding round alongside other Foresight VCTs and other co-investors, to finance continuing new product development.
3. Realisations & Material Provisions to a level below cost in the period
| Company | £ |
| Integrated Environmental Solutions Limited | 425,000 |
| Zoo Digital Group plc | 1,711 |
| Total | 426,711 |
On 7 July 2016 the Company sold its investment in Integrated Environmental Solutions Limited realising £425,000.
During the period the Company sold a small number of shares in AiM listed Zoo Digital, realising £1,711.
No material provisions below cost were made during the period.
Portfolio Company Highlights
In September 2015, as part of a £4.2 million round alongside other Foresight VCTs, the Company invested £475,000 in ABL Investments Limited ("ABL") to support further growth. ABL, based in Wellingborough, Northants and with a manufacturing subsidiary in Serbia, manufactures and distributes office power supplies and distributes monitor arms, cable tidies and CPU holders to office equipment manufacturers and distributors across the UK. Founded in 2003, ABL has grown strongly over the last five years, achieving an EBITDA of £1.9 million on sales of £5.5 million in its financial year to 31 August 2015, reflecting a strong focus on customer service, speed of delivery and value for money. Trading in the current year is in line with budget. Good progress has been made in shaping the new team following the appointment of a new Chairman and Finance Director in September 2015.
Production facilities have largely been brought in house, enabling the Serbian operations to expand its production offering. The company has relaunched its website to include a greater level of functionality and product detail which will be supported by a new marketing campaign to existing and potential customers.
In June 2013, the Company invested £500,000 alongside other Foresight VCTs in a £3.5 million investment in Dundee-based Aerospace Tooling Holdings ("ATL"). 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 well established relationships with companies serving the aerospace, military, marine and industrial markets. In the year to 30 June 2014, a number of large orders underpinned exceptional growth, with turnover doubling and EBITDA profits increasing significantly to a record £4.3 million.
Reflecting particularly strong cash generation, the company effected a recapitalisation and dividend distribution in September 2014, returning the entire £3.5 million cost of the Foresight VCTs' investments made only 15 months previously. Having received full repayment of its loan of £450,000 and dividends of £50,000 equal to the cost of its equity investment, the Company retained its original 7.7% equity shareholding in the company, effectively at nil cost.
Although sales and profitability were expected to be lower in the year to 30 June 2015, the actual trading results were weaker than budgeted, an EBITDA of £2.5 million being achieved on sales of £8.1 million, reflecting weak trading in the final quarter of the year due to a premature reduction of work under a major defence contract. This was subsequently followed by a significant reduction in work for an important customer in the Oil and Gas industries, as a consequence of the falling oil price. With poor order visibility, costs were reduced, management changes made and sales efforts increased substantially.
In the financial year ended 30 June 2016, the company recorded significantly lower sales and incurred EBITDA losses. In the last quarter, sales were in line with the revised budget for the year and EBITDA losses were slightly reduced reflecting an improvement in trading.
The company has since made good progress in the three months to September 2016, generating a modest EBITDA profit. The recently appointed CEO is having a positive impact on ATL with a key focus on sales growth with the team also making progress in diversifying the customer base.
Following the £48.0 million secondary buy-out of Autologic Diagnostics Group, an automotive diagnostics software company, by Living Bridge (formerly ISIS Private Equity) in January 2012, the Company retained investments in equity and loan stock valued at £1.98 million. For the year to 31 December 2014, an EBITDA of £5.4 million was achieved on sales of £19.7 million, with relatively stronger sales in the UK and Europe compared with the USA. In May 2015, a new business model was launched to generate recurring revenues and improve the quality of the company's earnings from a new product, Assist Plus, and associated Assist Plus service. This change in strategy towards a pure recurring revenue model has resulted in certain exceptional costs being incurred and this impacted EBITDA during 2015, reducing to £4.0 million on revenues of £18.5 million for the year to 31 December 2015.
Following the appointment of a new Chairman, the Company continues to make good progress. A long term licence agreement with a major motor manufacturer has been won while the Autologic Assist App has also been launched.
Reflecting increased competition in the US market along with a slower than expected transition to the new business model, trading in the current year to date is behind budget, although cash balances currently total over £6.2 million.
Biofortuna, established in 2008, is a molecular diagnostics business based in the North West, which has developed unique expertise in the manufacture of freeze dried, stabilised DNA tests. Biofortuna develops and sells both its own proprietary tests and contract develops and manufactures on behalf of customers. A £1.3 million round to finance capital expenditure and working capital was completed in August 2013, in which the Company invested £99,066 in the first tranche and a further £50,901 in the second, final tranche in April 2014. For the year to March 2015, a substantially reduced operating loss of £528,000 was incurred on higher sales of £1.1 million (2014: an operating loss of £1.1 million incurred on sales of £325,000). Trading in the year to 31 March 2016 was well ahead of budget and the previous year, with an improved, reduced EBITDA loss. The profitable Contract Manufacturing division helped offset investment in the proprietary products being developed by the Molecular Diagnostics division.
To finance the development of new products, a £1.6 million round was completed in January 2015, of which £890,000 was committed by the Foresight VCTs. The Ordinary Shares fund invested £128,002 as the first tranche. The second, final tranche of £95,000 was drawn down in July 2016. In the six months to September 2016, the company is performed ahead of the previous year. Owing to the need for more regulatory testing, the launch of the new blood typing product range is now expected in Q3 2017.
Building on the success of its £48.0 million, 10MW Birmingham Bio Power Limited project ("BBPL") with Carbonarius (a 50:50 joint venture with Plymouth-based Una Group), O-Gen UK has become the UK's leading independent developer of Advanced Conversion Technology waste to energy projects. In March 2015, O-Gen UK and Una Group combined their two teams into a new company, CoGen Limited, to further develop their substantial, combined pipeline of projects. In order to accelerate growth and provide additional working capital, a new investor subscribed £750,000 for equity in CoGen, alongside a loan of £500,000 from Una Group. Funds managed by Foresight hold 22.13% of CoGen's equity, including Foresight 3 VCT (7.73%).
In March 2015, CoGen reached financial close on a £53.0 million, 10MWe waste wood to energy plant in Welland, Northamptonshire, using the same technology and partners as BBPL. 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 while 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 and MITIE plc, on which an £8.0 million 4.5MW waste to energy plant is planned 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 50% but with a prior ranking return on the latter's invested capital. In October 2015, CoGen reached financial close on a £98.0 million, 21.5MW project in Ince Park, Merseyside to be fuelled with circa 160,000 tonnes per annum of recycled wood fibre. All of the funding was provided by the Bioenergy Infrastructure Group ("BIG", of which Foresight Group is a co-sponsor) through a combination of shareholder loan and shares which receive a preferential return.
Cogen is developing its pipeline of projects and funding relationships, with active support from Foresight and BIG. The market has become less certain with the Government's changes in renewables policy, in particular uncertainty relating to future CfD auctions. Cogen was unfortunately not able to close its final, potential £120.0 million Renewable Obligation Certificates ("ROC") project as time expired under the ROC deadline. Cogen's primary deal pipeline comprises four projects in Northern England and it plans to bid in the CfD auction due in April 2017, with the aim of closing projects successful in that auction during 2017. BIG is expected to jointly fund this process, requiring a total of £5.0 million of investment.
| Project Name | Project size (£m) | Year of financial close | Cogen Shareholding |
| Birmingham Bio Power Limited | 48 | 2013 | 20.0% |
| Plymouth | 20 | 2015 | 50.0% |
| Welland | 53 | 2015 | 12.5% |
| Ince Park | 97 | 2015 | 20.0% |
Cogen has recently signed a teaming agreement with Lockheed Martin to develop energy from waste projects in the UK using a new advanced gasification technology. Lockheed Martin and Cogen have identified their first potential site for this technology in Cardiff which would convert municipal solid waste and commercial and industrial waste into electricity.
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 shops and signage and entering other new markets such as medical. For the year to 31 March 2015, an operating profit of £6.8 million was achieved on sales of £19.3 million, with the North American division trading ahead of budget (2014: record operating profits of £7.4 million on sales of £18.7 million). In November 2015, Datapath paid dividends of £6.3 million, comprising £2.1 million to the Company and the same amount to each of Foresight 2 VCT and Foresight 4 VCT. This was met principally from the company's own cash resources and short term loans which have since repaid from internally generated cash flow.
Product development continues, with further new products or product variants expected to be launched during 2017. The new sales manager has strengthened the sales team with account managers in the US. For the year to 30 September 2016, operating profit and revenues are ahead of budget and the previous year. This has been supported by the new products which have helped secure two major international projects.
In May 2012, the Company invested £200,000 in Flowrite Refrigeration Holdings alongside other Foresight VCTs to finance the £3.2 million management buy-out of Kent-based Flowrite Services Limited. Flowrite Refrigeration Holdings provides refrigeration and air conditioning maintenance and related 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 £740,000 on sales of £10.8 million after substantial investment in new engineers and systems (2013: operating profit of £1.1 million on sales of £10.0 million).
In July 2015, the company completed another recapitalisation, returning £156,000 of accrued interest to the Foresight VCTs, including £23,000 to the Company, taking total cash returned on this investment to 85% of cost. For the 14 months to 31 December 2015, the company achieved a disappointing operating profit of £404,000 on sales of £12.8 million, reflecting difficulties arising from installing a new workflow IT system with the aim of improving operational efficiency and optimising profitability. To drive the business forward, steps were taken in August 2015 to broaden the management team through the appointment of a new Chairman and a new Finance Director. In order to improve profitability, the new management team have focused on reducing costs, delivering operational improvements, stabilising and improving relationships with the customer base and increasing sales efforts. Trading in the current year has been weaker than expected but the new management team are making good progress in improving sales and profitability.
ICA Group is a leading document management solutions provider in the South East of England, reselling and maintaining 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 £645,000 being achieved on sales of £3.7 million (2014: EBITDA of £561,000 on sales of £3.0 million). Trading in the year to 31 January 2016 was in line with expectations and reflected continuing investment in developing the sales team. With stronger demand from SMEs and good cash generation, ICA completed a recapitalisation and reorganisation in December 2014, enabling loans and interest totalling £600,000 to be repaid. The recapitalisation was financed through a combination of £1.0 million bank loan facility and the company's cash resources. A new Chairman, Bryan Taylor, has recently been appointed who, with his strong sales and marketing background, will help develop sales and the sales team.
Trading in the current year to date is ahead of budget. Recruitment continues in the sales team, with a new business development person appointed while several of the sales team are performing well. The company has recently won an order for 60 machines at a large secondary school.
In July 2014, as part of the first £1.4 million tranche of a phased funding round totalling up to £4.4 million by three Foresight managed funds, a new investment of £326,740 was made by the Company in Industrial Efficiency II, alongside £990,760 from Foresight VCT. In December 2014, the second £500,000 tranche was advanced, £125,000 from the Company and £375,000 from Foresight VCT. Industrial Efficiency II provides energy efficiency fuel switching services, enabling customers to make significant cost savings and reduce emissions. Once each installation is 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. During the current year, the company continues to be significantly profitable. The investment in Industrial Efficiency II is expected to be sold for £844,000 to another Foresight managed fund in December 2016, based on an independent third party valuation. The sale generated an IRR of 22% and a return of 1.4 times original cost.
In September 2015, as part of a £4.0 million round alongside other Foresight VCTs, the Company invested £250,000 in Itad Limited, a long established consulting firm which monitors and evaluates the impact of international development and aid programmes, largely in developing countries. Customers include the UK Government's Department for International Development, other European governments, philanthropic foundations, charities and international NGOs. For the year to 31 January 2016, Itad achieved an EBITDA of £1.9 million on revenues of £12.0 million with significant future growth forecast. A number of significant contracts have been won recently and, as most contracts are long term, this provides good revenue visibility for the current and future years.
Ixaris Systems has developed and operates Entropay, a web-based global prepaid payment service using the VISA network. Ixaris also offers its IxSol product on a 'Platform as a Service' basis to enable enterprises to develop their own customised global applications for payments over various payment networks. 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 customers based on prepaid cards. This division continues to make good progress, Ixaris being awarded an EU grant of €2.5 million, of which €1.6 million will be received over three years, to help fund the existing platform technology roadmap, highlighting the innovative nature of the Payment System.
During the year to 31 December 2015, the company operated at around EBITDA and cash flow break even while continuing to invest further in Ixsol and Ixaris Payment System. For the full year to 31 December 2015, reflecting strong trading and continuing investment in software and systems, an EBITDA loss of £501,000 was incurred on sales of £10.8 million, ahead of budget (2014: EBITDA loss of £622,000 on sales of £9.5 million). In the current year, while investment continues in developing the two platforms, EntroPay continues to perform well with a strong sales pipeline in prospect.
Mplsystems Limited (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 customer experience. For the year to 31 May 2015, the company incurred a small operating loss on sales of £2.4 million, appreciably ahead of the budgeted loss (2014: operating loss of £777,000 on sales of £1.8 million). For the year to 31 May 2016, Mplsystems achieved an EBITDA of £142,000 on revenues of £2.9 million. With revenues ahead of budget and previous year, management's transition towards a SaaS business model continues to progress well in the current year to date, with a number of new contracts and customers being won. The focus remains on sales, principally expanding initial ticket sizes for larger customers to justify a relatively high cost of customer acquisition.
In December 2014, the Company invested £500,000 alongside other Foresight VCTs in a £2.0 million round to finance a shareholder recapitalisation of Positive Response Communications. Established in 1997, the company monitors the safety of people and property through its 24 hour monitoring centre in Dumfries, Scotland. Customers include several major restaurant and retail chains. For the year ended 31 March 2015, an EBITDA of £637,000 was achieved on sales of £2.0 million. In the financial year to 31 March 2016, sales grew modestly to £2.1m, generating a reduced EBITDA of £209,000, reflecting investment in improving efficiency and systems and recruitment of more sales staff. Trading in the current year continues to be weaker than expected and, as a consequence, costs have been reduced and management changes implemented.
In April 2013, the Company invested £650,000 alongside other Foresight VCTs in a £1.8 million 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. Revenues and profits have grown strongly, following the introduction of new camera formats, acquisitions in both the UK and USA and increased sales and marketing efforts.
In December 2014, Procam acquired True Lens Services, based in Leicester, which specialises in the repair, refurbishment and supply of camera lenses with further support from the Foresight VCTs. 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. This acquisition was supported by a further investment of £750,000 from the Foresight VCTs, of which the Ordinary Shares fund invested £375,006.
For the year to 31 December 2014, the company achieved an EBITDA of £2.3 million on revenues of £8.1 million, ahead of the prior year, reflecting organic growth and the integration of the Hammerhead acquisition. Trading in the year to 31 December 2015 was also strong, an EBITDA of £3.3 million being achieved on sales of £11.5 million, reflecting both organic growth, driven principally by the strong performance of the London office, and impact of the acquisitions during the year. In February 2016, ProCam acquired the trading assets of the film division of Take 2 Films which provides digital and film camera equipment for Film and TV. This was funded by bank debt and asset finance facilities. In the current year the company continues to perform well, with further growth in sales and profitability and two senior projects executives recently joining from a competitor.
In July 2015, as part of a £4.0 million round alongside other Foresight VCTs, the Company invested £500,000 in Coventry-based Protean Software. Protean develops and sells business management and field service management software, together with related support and maintenance services, to organisations involved in the supply, installation and maintenance of equipment, across a number of sectors including facilities management, HVAC and elevator installation. Protean's software suite offers both desktop and mobile variants used on engineers' Android devices.
A new CEO and an experienced Chairman were appointed at completion and a new Financial Controller recruited subsequently. For the year to 31 March 2015, an EBITDA of £900,000 was achieved on sales of £3.0 million. Trading in the year to 31 March 2016 was ahead of the previous year while profits were at a similar level, reflecting increased investment and overheads while cash remained strong. In the current year, Protean continues to trade ahead of budget with cash continuing to strengthen, currently totaling over £1 million. Further development of Protean Lite, a new SaaS product, continues with the first release planned for Q1 2017.
In April 2015, Foresight funds invested £2.6 million in shares and loan notes in Specac International ("Specac") to finance a management buy-out of Specac Limited from Smiths Group plc. The Company invested £650,000, alongside £1.3 million from Foresight VCT and £650,000 from Foresight 4 VCT, together acquiring a majority equity shareholding with the management team holding the remaining equity. Specac, based in Orpington, Kent, is a long established, leading scientific instrumentation accessories business, manufacturing high specification sample analysis and sample preparation equipment used across a broad range of applications in testing, research and quality control laboratories and other end markets Worldwide. The company's products are primarily focused on supporting IR Spectroscopy, an important analytical technique widely used in research and commercial/ industrial laboratories.
For the year to 31 July 2015, the company achieved an EBITDA of £906,000 on sales of £6.9 million. Trading in the year to 31 March 2016 exceeded expectations with profit growth ahead of forecast, reflecting greater focus on sales and costs, an EBITDA of £1.28 million being achieved on sales of £8.1 million. The company has accelerated new product development and successfully launched new products. A non-executive Chairman was also appointed with a strong sales and marketing background in the scientific instrumentation market who will complement the existing management team and assist them to further develop the business. Trading in the current year has continued to perform ahead of budget.
TFC Europe, a leading distributor of technical fasteners in the UK and Germany, performed satisfactorily during the year to 31 March 2015, achieving an operating profit of £2.8 million on sales of £20.3 million (2014: operating profit of £2.8 million on sales of £19.5 million). However, trading in the year to 31 March 2016 was weaker than expected due to a general downturn in the UK manufacturing sector and particularly the Oil and Gas industry, with an EBITDA of £2 million being achieved on sales of £19.3 million.
In July 2015, the company effected a successful recapitalisation and share reorganisation, as a result of which £2.4 million was received by the Foresight VCTs, repaying all their outstanding loans, together with accrued interest and a redemption premium. The overall Foresight shareholding increased from 53.6% to 66.7%. A number of senior management changes and promotions were made to facilitate the planned retirement of the current Chairman, to enable the CEO to drive strategic growth projects, particularly in Germany and focus on new customer targets within Aerospace. In April 2015, two senior managers were promoted to the Sales Director and Commercial Director roles. A Group Operations Manager has been appointed to drive cost efficiencies and introduce best operational practice across the Group. A new, experienced Chairman joined the Board in January 2016 with the aim of improving TFC's sales strategy and industry focus. TFC has continued to trade well in the current financial year, achieving above budget revenues and EBITDA and ahead of the corresponding period in the previous year.
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 2015, an EBITDA of £2.2 million was achieved on sales of £9.6 million (2014: EBITDA of £2.2 million on sales of £9.3 million). Recurring annual revenues presently exceed £9.3 million while cash balances remain healthy. On 31 March 2015, The Bunker repaid all its shareholder loans and outstanding interest totalling £6.5 million, financed through a £5.7 million secured medium term bank loan plus £1.0 million from its own cash resources. In total, £5.1 million was repaid to the Foresight VCTs, comprising £3.0 million of loan principal and £2.1 million of interest. The Company received £1.7 million, comprising £1.3 million of loan principal and £408,994 of interest and retains a 10.3% shareholding. The company has now commenced a trial with a large distributor which serves many value added resellers. A new, experienced Sales Manager has been recruited to lead channel sales. In the current year to date, the company is trading in line with budget. Focus continues on improving the sales strategy and completion of new existing and new customer signups alongside assessing new service offerings.
In September 2015, as part of a £3.3 million round alongside other Foresight VCTs, the Company invested £650,000 in The Business Advisory Limited. This company provides a range of advice and support services to UK-based small businesses seeking to gain access to Government tax incentives, largely on a contingent success fee basis. With a large number of small customers signed up under medium term contracts, the company enjoys a high level of recurring income and good visibility on future revenues.
For the year to 30 September 2015, the company achieved a NPBT of £1.4 million on sales of £4.2 million, well ahead of the prior year. The company continues to trade strongly and has increased its staff reflecting accelerated sales growth. Management has been strengthened by the appointment of a new interim COO and a new experienced, non-executive Chairman.
Russell Healey
Head of Private Equity
Foresight Group
30 November 2016
Unaudited Half-Yearly Results and Responsibility Statements
Principal Risks and uncertainties
The principal risks faced by the Company can be divided into various areas as follows:
- Performance;
- Regulatory;
- Operational; and
- Financial.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Accounts for the year ended 31 March 2016. A detailed explanation can be found on page 52 of the Annual Report and Accounts which is available at www.foresightgroup.eu or by writing to Foresight Group at The Shard, 32 London Bridge Street, London, SE1 9SG.
In the view of the Board, there have been no changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.
Directors' responsibility statement
The Disclosure and Transparency Rules ('DTR') of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Unaudited Half-Yearly Financial Report for the six month period ended 30 September 2016.
The Directors confirm to the best of their knowledge that:
(a) the summarised set of financial statements has been prepared in accordance with the pronouncement on interim reporting issued by the Accounting Standards Board in accordance with FRS104;
(b) the Unaudited Half-Yearly Financial Report for the six month period ended 30 September 2016 includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months of the year and a description of principal risks and uncertainties that the Company faces for the remaining six months of the year);
(c) the summarised set of financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as required by DTR 4.2.4R; and
(d) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
Going concern
The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report of the 31 March 2015 Annual Report and Accounts. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Chairman's Statement, Business Review and Notes to the Accounts of the 31 March 2016 Annual Report and Accounts. In addition, the Annual Report and Accounts includes the Company's objectives, policies and processes for managing its capital; its financial risk management
objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Company has considerable financial resources together with investments and income generated therefrom across a variety of industries and sectors. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors have reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
The Half-Yearly Financial Report for the six month period ended 30 September 2015 has not been audited or reviewed by the auditors.
On behalf of the Board
Raymond Abbott
Chairman
30 November 2016
Unaudited Income Statement
for the six month period ended 30 September 2016
| Six months ended | Six months ended | Year ended | |||||||
| 30 September 2016 | 30 September 2015 | 31 March 2016 | |||||||
| (unaudited) | (unaudited) | (audited) | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Realised gains/(losses) on investments | - | 95 | 95 | - | (6,623) | (6,623) | - | (10,922) | (10,922) |
| Investment holding gains | - | 2,116 | 2,116 | - | 5,004 | 5,004 | - | 7,466 | 7,466 |
| Income | 197 | - | 197 | 26 | - | 26 | 2,360 | - | 2,360 |
| Investment management fees | (86) | (257) | (343) | (97) | (291) | (388) | (186) | (559) | (745) |
| Other expenses | (185) | - | (185) | (158) | - | (158) | (360) | - | (360) |
| (Loss)/return on ordinary activities before taxation | (74) | 1,954 | 1,880 | (229) | (1,910) | (2,139) | 1,814 | (4,015) | (2,201) |
| Taxation | - | - | - | - | - | - | - | - | - |
| (Loss)/return on ordinary activities after taxation | (74) | 1,954 | 1,880 | (229) | (1,910) | (2,139) | 1,814 | (4,015) | (2,201) |
| (Loss)/return per Ordinary Share | (0.1)p | 3.9p | 3.8p | (0.4)p | (3.8)p | (4.2)p | 3.6p | (8.0)p | (4.4)p |
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 period.
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.
Unaudited Balance Sheet
at 30 September 2016
| Registered Number: 03121772 | |||
| As at | As at | As at | |
| 30 September 2016 | 30 September 2015 | 31 March 2016 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Fixed assets | |||
| Investments held at fair value through profit or loss | 30,219 | 30,816 | 28,340 |
| 30,219 | 30,816 | 28,340 | |
| Current assets | |||
| Debtors | 1,370 | 543 | 941 |
| Cash | 28 | 210 | 620 |
| 1,398 | 753 | 1,561 | |
| Creditors | |||
| Amounts falling due within one year | (49) | (152) | (206) |
| Net current assets | 1,349 | 601 | 1,355 |
| Net assets | 31,568 | 31,417 | 29,695 |
| Capital and reserves | |||
| Called-up share capital | 498 | 502 | 498 |
| Share premium account | 8,816 | 8,849 | 8,832 |
| Capital redemption reserve | 1,986 | 1,982 | 1,986 |
| Profit and loss account | 20,268 | 20,084 | 18,379 |
| Equity shareholders' funds | 31,568 | 31,417 | 29,695 |
| Net asset value per Ordinary Share | 63.3p | 62.6p | 59.6p |
Unaudited Reconciliation of Movements in Shareholders' Funds
for the six month period ended 30 September 2016
| Called-up share capital | Share premium account | Capital redemption reserve | Profit and loss account | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| As at 1 April 2016 | 498 | 8,832 | 1,986 | 18,379 | 29,695 |
| Expenses in relation to prior share issues | - | (16) | - | - | (16) |
| Transaction costs | - | - | - | 9 | 9 |
| Return for the period | - | - | - | 1,880 | 1,880 |
| As at 30 September 2016 | 498 | 8,816 | 1,986 | 20,268 | 31,568 |
Unaudited Cash Flow Statement
for the six month period ended 30 September 2016
| Six months ended | Six months ended | Year ended | |
| 30 September 2016 | 30 September 2015 | 31 March 2016 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Cash flow from operating activities | |||
| Investment income received | 87 | 187 | 306 |
| Dividends received from investment | 2 | - | 2,112 |
| Deposit and similar interest received | - | - | 1 |
| Investment management fees paid | (345) | (390) | (745) |
| Secretarial fees paid | (64) | (64) | (127) |
| Other cash payments | (153) | (135) | (238) |
| Net cash (outflow)/inflow from operating activities and returns on investment | (473) | (402) | 1,309 |
| Taxation | - | - | - |
| Returns on investment and servicing of finance | |||
| Purchase of unquoted investments | (95) | (2,497) | (2,747) |
| Net proceeds on sale of unquoted investments | 97 | 1,540 | 1,890 |
| Net proceeds on sale of quoted investments | 2 | 8 | 8 |
| New proceeds on deferred consideration | 7 | 73 | 314 |
| Net capital inflow/(outflow) from financial investment | 11 | (876) | (535) |
| Equity dividends paid | - | - | (1,504) |
| Financing | |||
| Expenses of previous years fund raising | (16) | (19) | (36) |
| Repurchase of own shares | (114) | - | (121) |
| (130) | (19) | (157) | |
| Decrease in cash | (592) | (1,297) | (887) |
| Reconciliation of net cash flow to movement in net cash | |||
| Decreaseincrease in cash for the period | (592) | (1,297) | (887) |
| Net cash at start of the period | 620 | 1,507 | 1,507 |
| Net cash at end of period | 28 | 210 | 620 |
Notes to the Unaudited Half-Yearly Financial Report
for the six month period ended 30 September 2016
- The Unaudited Half-Yearly results have been prepared on the basis of accounting policies set out in the statutory accounts of the Company for the year ended 31 March 2016. Unquoted investments have been valued in accordance with International Private Equity and Venture Capital Valuation ("IPEVCV") guidelines. Quoted investments are stated at bid prices in accordance with IPEVC guidelines and UK Generally Accepted Accounting Practice.
- These are not statutory accounts in accordance with S436 of the Companies Act 2006 and the Unaudited Half-Yearly Financial Reports for the six months ended 30 September 2016 and 30 September 2015 have been neither audited nor reviewed. Statutory accounts in respect of the year ended 31 March 2016 have been audited and reported on by the Company's auditors and delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under S498(2) or S498(3) of the Companies Act 2006. No statutory accounts in respect of any period after 31 March 2016 have been reported on by the Company's auditors or delivered to the Registrar of Companies.
- Copies of the Unaudited Half-Yearly Financial Report for the six month period ended 30 September 2016 have been sent to shareholders and are available for inspection at the Registered Office of the Company at The Shard, 32 London Bridge Street, London SE1 9SG.
Copies of the Unaudited Half-Yearly Financial Report for the sixth month period ended 30 September 2016 are also available electronically at www.foresightgroup.eu.
- Net asset value per Ordinary Share
The net asset value per share is based on net assets at the end of the period and on the number of Ordinary Shares in issue at that date.
| Net Assets | Number of Ordinary Shares | |
| £'000 | in issue | |
| 30 September 2016 | 31,568 | 49,836,524 |
| 30 September 2015 | 31,417 | 50,170,401 |
| 31 March 2016 | 29,695 | 49,836,524 |
- Return/(loss) per Ordinary Share
| Six months ended | Six months ended | Year ended | |||||
| 30 September 2016 | 30 September 2015 | 31 March 2016 | |||||
| £'000 | £'000 | £'000 | |||||
| Total return/(loss) after taxation | 1,880 | (2,139) | (2,201) | ||||
| Basic return/(loss) per Ordinary Share (note a) | 3.8p | (4.2)p | (4.4)p | ||||
| Revenue (loss)/return from ordinary activities after taxation | (74) | (229) | 1,814 | ||||
| Revenue (loss)/return per Ordinary Share (note b) | (0.1)p | (0.4)p | 3.6p | ||||
| Capital return/(loss) from ordinary activities after taxation | 1,954 | (1,910) | (4,015) | ||||
| Capital loss per Ordinary Share (note c) | 3.9p | (3.8)p | (8.0)p | ||||
| Weighted average number of Ordinary Shares in issue in the period | 49,836,524 | 50,369,308 | 50,254,735 | ||||
| Notes: | |||||||
| a) Total return/(loss) per Ordinary Share is total return after taxation divided by the weighted average number of Ordinary Shares in issue during the period. | |||||||
| b) Revenue (loss)/return per Ordinary Share is revenue return after taxation divided by the weighted average number of Ordinary Shares in issue during the period. | |||||||
| c) Capital return/(loss) per Ordinary Share is capital return after taxation divided by the weighted average number of Ordinary Shares in issue during the period. | |||||||
- Income
| Six months ended | Six months ended | Year ended | |
| 30 September 2016 | 30 September 2015 | 31 March 2016 | |
| £'000 | £'000 | £'000 | |
| Loan stock interest | 195 | 26 | 247 |
| Dividend income | 2 | - | 2,112 |
| Bank deposits | - | - | 1 |
| 197 | 26 | 2,360 |
- Investments held at fair value through profit or loss
| Quoted | Unquoted | Total | |
| £'000 | £'000 | £'000 | |
| Book cost as at 1 April 2016 | 2,460 | 20,824 | 23,284 |
| Investment holding (losses)/gains | (2,141) | 7,197 | 5,056 |
| Valuation at 1 April 2016 | 319 | 28,021 | 28,340 |
| Movements in the period: | |||
| Purchases at cost | - | 95 | 95 |
| Disposal proceeds | (2) | (425) | (427) |
| Realised (losses)/gains | (5) | 100 | 95 |
| Investment holding (losses)/gains | (47) | 2,163 | 2,116 |
| Valuation at 30 September 2016 | 265 | 29,954 | 30,219 |
| Book cost at 30 September 2016 | 2,453 | 20,594 | 23,047 |
| Investment holding losses | (2,188) | 9,360 | 7,172 |
| Valuation at 30 September 2016 | 265 | 29,954 | 30,219 |
- Related party transactions
On 26 October 2016 a director, Raymond Abbott, purchased 20,325 Ordinary Shares on the secondary market at 48.9p per share. No other related party transactions occurred during the period.
- Transactions with the manager
Foresight Group, acting as investment manager to the Company in respect of its venture capital investments, earned fees of £343,000 during the period (30 September 2015: £388,000; 31 March 2016: £745,000). Fees excluding VAT of £64,000 (30 September 2015: £64,000; 31 March 2016: £127,000) were received during the period for company secretarial, administrative and custodian services to the Company.
At the balance sheet date, there was £nil due to or from Foresight Group (30 September 2015: £nil; 31 March 2016: £1,839 due from Foresight Group ) and £nil due to or from Foresight Fund Managers Limited (30 September 2015: £nil; 31 March 2016: £nil). There were no related party transactions in the period and no amounts have been written off in the period in respect of debts due to or from related parties.
END