Foresight 4 VCT plc - Half-year report

FORESIGHT 4 VCT PLC

Financial Highlights

• Diversified portfolio of 33 companies.

• Net asset value per share decreased by 3.7% in the period from 67.8p at 31 March 2019 to 65.3p. Including the payment of a 4.0p dividend made on 16 August 2019, NAV per share at 30 September 2019 was 69.3p, representing a positive total return 2.2%.

• The Company completed two new investments, totalling £3.6 million.

• A total of £51 million was raised under the offer for subscription dated 14 June 2018, which closed on 7 June 2019.

• The portfolio has seen an uplift in valuation of £4.3 million in the last six months.

Chairman's Statement

I am pleased to present the Unaudited Half-Yearly Financial Report for Foresight 4 VCT plc for the period ended 30 September 2019.

DIVIDENDS

In line with the Board’s objective on dividend payments, an interim dividend of 4.0p per share was declared on 18 July 2019 based on an ex-dividend date of 25 July 2019 and a record date of 26 July 2019. The dividend was paid on 16 August 2019. The cost of this dividend was £7.8 million, including shares allotted under the dividend reinvestment scheme.

The Board’s objective is to maintain a sustainable level of dividend payments from an increased NAV on an annual basis. The investment rule changes will result in new investments taking longer to mature on average and may impact NAV growth in the future. The intention of the Board is to maintain dividends at a level of 5% of NAV plus special dividends in the event of material realisations.

TOP-UP SHARE ISSUES AND SHARE BUY-BACKS

Share buybacks took place on 11 July 2019 (650,000 shares at 61.0p), 24 July 2019 (500,000 shares at 61.0p) and 30 September 2019 (736,153 shares at 57.75p), all of which have enabled the enlarged VCT to achieve its target discount to NAV. In line with the Prospectus dated 14 June 2018 the Board has changed the buy back policy to buy back shares at a 7.5% discount to NAV, with a future aim of achieving a 5% discount to NAV.  

The dividend reinvestment scheme saw 1,192,686 shares being allotted on 16 August 2019.

FUNDRAISING

The offer for subscription dated 14 June 2018, which sought to raise up to £50 million (with a £30m over-allotment facility), closed on 7 June 2019 having raised £51.1 million.

Funds raised under this offer have allowed the Company to take advantage of attractive investment opportunities and to increase portfolio diversification in line with the ongoing strategy of the Company.

PERFORMANCE AND PORTFOLIO ACTIVITY

During the period, the net asset value per share decreased by 3.7% from 67.8p at 31 March 2019 to 65.3p. Including the payment of a 4.0p dividend made on 16 August 2019, NAV per share at 30 September 2019 was 69.3p, representing a positive total return of 2.2%.

At the end of the period the Company held 33 investments in UK based businesses across a wide range of sectors. The performance of the portfolio has been steady during the period, with an increase of £4.3 million in value. Positive progress made by companies including Ixaris Group Holdings Limited has been offset by lower valuations for companies like Biofortuna Limited, as detailed in the Investment Manager’s Review and the Top Ten Investment sections of this report.

Two new investments were completed during the period under review amounting to £3.6 million. Namely, Fourth Wall Creative Limited (a technology-led sports merchandising business) and Ten Health & Fitness Limited (a group of boutique fitness studious offering physiotherapy, massage therapy and fitness classes).

The Investment Manager, Foresight Group, continues to see a strong pipeline of potential investments sourced through its regional networks and well-developed relationships with advisors and the SME community. Following both the successful fundraises launched in May 2017 and June 2018, the Company is in a position to fully exploit these attractive investment opportunities.

SHAREHOLDER COMMUNICATION

As part of its ongoing commitment to high quality investor relations, the Board encourages you to attend one of the popular Investor Forums hosted by the Investment Manager, Foresight Group. In addition to the annual event in London, the Manager has started to hold a series of regional Investor Forums around the country. Details of regional events will be sent to shareholders resident in the locality as and when they are organised.

As communicated in the Annual Report, the Board offered shareholders the opportunity to elect the method by which they receive shareholder communications. I am pleased to announce that 99% of communications to investors will now be provided electronically. The Board believe that in addition to further promoting sustainability, a key objective of the fund, this shift will result in some overall cost savings.

AUDITOR

The Board regularly reviews the Company’s ongoing costs and launched a tender for it’s audit contract following the signing of the 2019 Annual Report and Accounts. The previous auditor, KPMG LLP, was invited to tender alongside several other firms. Following this competitive tender process, I am pleased to confirm that Deloitte LLP has been appointed as company auditor for the year ending 31 March 2020. The Board would like to thank KPMG for their service over the last eight years. As announced earlier today, KPMG’s section 519 statement will be enclosed with this report.

OUTLOOK

The persisting uncertainty over Brexit and worrying indicators for various areas of world trade are unhelpful for business in general. Foresight 4 VCT invests primarily in developing companies which by their nature benefit from general economic growth, and the current environment places additional demands upon them and their management teams. Foresight Group’s private equity team is well aware of the management and business needs of each of the companies within the investment portfolio and is working closely with them to ensure that they are able to make progress during these testing times. The Board and the Manager are optimistic that the existing portfolio has potential to grow further during the current year and beyond and that the present pipeline of potential investments includes some attractive opportunities.

Raymond Abbott

Chairman

29 November 2019

Manager's Review

Portfolio Summary

As at 30 September 2019 the Company’s portfolio comprised 33 investments with a total cost of £49.8 million and a valuation of £82.5 million. The portfolio is diversified by sector, transaction type and maturity profile. Details of the ten largest investments by valuation, including an update on their performance, are provided on pages 10 to 14.

Foresight is pleased to report an uplift in the existing portfolio’s value of £4.3 million in the period, although NAV was reduced by payment of a £7.8 million dividend and performance was therefore behind target. Progress has been slower in regards new investments with two completed in the six-month period, deploying £3.6 million. Post-period end a £1.5 million investment has been made into one company and a healthy pipeline of other opportunities are in due diligence. Foresight continue to support the Board in management of the Company’s resources to ensure sufficient liquidity for new and follow-on investments, dividends and regular buybacks, with the Company repurchasing 1.9 million shares at an average discount of 10.1% in the period under review. As the portfolio mix evolves in line with the new VCT rules we believe the Board’s new target dividend of 5% of NAV per annum, enhanced by the opportunity for special dividends following successful portfolio exits, more appropriately reflects likely returns from the underlying portfolio.

NEW INVESTMENTS AND FOLLOW-ON FUNDING

The Company invested a total of £3.6 million during the six months to 30 September 2019. This was spread across two companies; Fourth Wall Creative, a technology-led sports merchandising business, and Ten Health & Fitness, a boutique group of health and fitness studios. Post-period end a £1.5 million investment was made into Biotheraphy Services, a pharmaceutical biotech company.

FOURTH WALL CREATIVE

In April 2019 the Company invested £2.0 million in Fourth Wall Creative, a technology-led sports merchandising business. Founded in 2010, the core business is the design and distribution of membership welcome packs on behalf of football clubs and a technology platform that manages logistics and communications. The Company mainly serves premier league teams with clients including Liverpool and Tottenham Hotspur. The investment will fund growth through the development of new services, expanding the customer base and exploring other sports opportunities.

TEN HEALTH & FITNESS

In June 2019 the Company invested £1.6 million in Ten Health & Fitness, a group of boutique fitness studios offering a range of services including physiotherapy, massage therapy and fitness classes. Founded in 2007, Ten Health was developed to bridge the gap in the market between traditional healthcare and mainstream fitness. The investment will be used to further develop Ten Health’s non-fitness services and to support a roll-out of new studios.

BIOTHERAPY SERVICES

Post-period end, in November 2019, the Company invested £1.5 million in Biotheraphy Services, a pharmaceutical biotech company specialising in wound treatment regenerative medicine, with a focus on chronic diabetic foot ulcers and complex wounds. The investment will support the completion of medical trials and facilitate product development.

FOLLOW-ON INVESTMENTS

There have been no follow-on investments during the six months to 30 September 2019.

EXITS AND REALISATIONS

Other than Evance Wind Turbines Limited and Autologic Diagnostics Group Limited being dissolved in the period, there have been no exits during the six months to 30 September 2019. Foresight Group continues to engage with a range of potential acquirers of several portfolio companies, with demand for these high growth businesses demonstrated by both private equity and trade buyers.

PIPELINE

Foresight Group continues to see a strong pipeline of potential investments and has a number of opportunities under exclusivity or in due diligence. The investment team currently consists of 26 experienced private equity professionals operating from seven offices in the UK. We review nearly 1,500 business plans of potential investee companies per year, with an increasing number of prospects originated directly by the investment team. This approach allows us to seek off-market opportunities which are often better value as there is less competition in the process. Foresight Group are on track to review a record number of businesses in 2019 thanks to our expanding regional footprint, having opened the Edinburgh office this quarter. The Company focuses on SMEs in all sectors across the UK, seeking funding of £1-5 million.

At 30 September 2019, the Company had cash in hand of £29.9 million, which will be used to fund new and follow-on investments, buybacks and running expenses. The Company remains well positioned to continue pursuing the potential investment opportunities in the pipeline.

KEY PORTFOLIO DEVELOPMENTS

Overall, the value of investments held rose to £82.5 million, driven by £3.6 million of deployment and an increase in the value of existing investments by £4.3 million. Material changes in valuation, defined as increasing or decreasing by £0.5 million or more since 31 March 2019, are detailed below. Updates on these companies are included below, or in the Top Ten Investments section of the half yearly report.

KEY VALUATION CHANGES IN THE PERIOD

Company	Valuation (£)	Valuation Change (£)
Ixaris Group Holdings Limited	13,818,721	3,261,738
Aerospace Tooling Holdings Limited	3,297,692	878,114
FFX Group Limited	3,948,863	580,509
Clubspark Limited	1,383,465	523,464
Biofortuna Limited	293,652	(1,596,425)

CLUBSPARK

ClubSpark, a sports club management and reporting platform, has increased revenues by over 150% compared with this time last year. The pipeline of new clients continues to be encouraging, with several large deals with international cricket associations entering the next stage of the process.

BIOFORTUNA

Biofortuna, a molecular diagnostics business which develops and manufactures DNA tests, has had a weak period of trading. A new sales team is aiming to improve the company’s fortunes.

OUTLOOK

Yet again the Brexit deadline has been extended, and there remains ongoing uncertainty around the UK’s withdrawal from the EU. It is likely that economic growth will stay subdued, or even slip into negative territory, as companies delay investment to build up a cash cushion in anticipation of challenging economic conditions ahead. Contractions have now been recorded in four of the past five months in the private sector, marking the worst spell since 2009 during the global financial crisis. There is a likely period of volatility ahead, nonetheless Foresight Group remains positive about the prospects of the existing diversified portfolio and continues to see encouraging levels of activity from smaller UK companies seeking growth capital, as well as from potential acquirers of portfolio companies.

Your investment management team remains focused on targeting companies in markets with sound fundamentals, with attractive growth attributes and strong management teams. Foresight Group has undertaken an in-depth review of the impact of Brexit on the investment portfolio, with the aim of pre-empting potential challenges that could arise as a result where possible. Given the diverse nature of businesses in the portfolio, with a combination of UK-centric and EU importers and exporters, Foresight Group remains confident the Company is well positioned to endure potential volatility. Nevertheless, the investment team are diligently planning for all eventual outcomes. We will continue to monitor investments closely and adapt to market changes to ensure the Company’s portfolio is well-placed to deliver returns to its investors.

Russell Healey
Head of Private Equity
Foresight Group
29 November 2019

Unaudited Half-Yearly Results and Responsibilities Statements

Principal Risks and Uncertainties

The principal risks faced by the Company are 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 2019. A detailed explanation can be found on page 25 of the Annual Report and Accounts which is available on Foresight 4 VCT’s website: www.foresight4vct.com 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 Half-Yearly Financial Report and financial statements.

The Directors confirm to the best of their knowledge that:

1. the summarised set of financial statements has been prepared in accordance with FRS 104;
2. the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);
3. the summarised set of financial statements gives 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
4. 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 Annual Report. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Chairman’s Statement, Strategic Report and Notes to the Accounts of the 31 March 2019 Annual Report. In addition, the Annual Report includes the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; 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.

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 has not been audited nor reviewed by the auditors.

On behalf of the Board

Raymond Abbott

Chairman

29 November 2019

Unaudited Income Statement
for the six months ended 30 September 2019

	Six months ended 30 September 2019 (Unaudited)			Six months ended 30 September 2018 (Unaudited)			Year ended 31 March 2019 (Audited)
	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
Investment holding gains	-	7,900	7,900	-	887	887	-	5,292	5,292
Realised (losses)/ gains on investments	-	(3,623)	(3,623)	-	1,201	1,201	-	(514)	(514)
Income	420	-	420	340	-	340	744	-	744
Investment management fees	(330)	(991)	(1,321)	(223)	(669)	(892)	(498)	(1,494)	(1,992)
Other expenses	(315)	-	(315)	(348)	-	(348)	(568)	-	(568)
(Loss) /return on ordinary activities before taxation	(225)	3,286	3,061	(231)	1,419	1,188	(322)	3,284	2,962
Taxation	-	-	-	-	-	-	-	-	-
(Loss) /return on ordinary activities after taxation	(225)	3,286	3,061	(231)	1,419	1,188	(322)	3,284	2,962
(Loss) /return per share:	(0.1)p	1.7p	1.6p	(0.2)p	1.0p	0.8p	(0.2)p	2.2p	2.0p

The total column of this statement is the profit and loss account of the Company and the revenue and capital columns represent supplementary information.

All revenue and capital items in the above Income Statement are derived from continuing operations. No operations were acquired or discontinued in the 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 2019       

Registered Number: 03506579

	As at 30 September 2019 £’000	As at 30 September 2018 £’000	As at 31 March 2019 £’000
Fixed assets
Investments held at fair value through profit or loss	82,488	68,552	74,615
Current assets
Debtors	15,874	13,205	10,331
Cash and cash equivalents	29,893	20,655	33,185
	45,767	33,860	43,516
Creditors
Amounts falling due within one year	(497)	(770)	(506)
Net current assets	45,270	33,090	43,010
Net assets	127,758	101,642	117,625
Capital and reserves
Called-up share capital	1,957	1,438	1,736
Share premium account	79,466	42,856	63,676
Capital redemption reserve	494	459	475
Special distributable reserve	60,911	77,110	70,094
Capital reserve	(47,720)	(40,566)	(43,106)
Revaluation reserve	32,650	20,345	24,750
Equity shareholders’ funds	127,758	101,642	117,625
Net asset value per share:	65.3p	70.7p	67.8p

Unaudited Reconciliation of Movements in Shareholders' Funds
for the six months ended 30 September 2019

	Called-up share capital £’000	Share premium account £’000	Capital redemption reserve* £’000	Special Distributable reserve* £’000	Capital reserve £’000	Revaluation reserve £’000	Total £’000
As at 1 April 2019	1,736	63,676	475	70,094	(43,106)	24,750	117,625
Share issues in the period	240	16,480	-	-	-	-	16,720
Expenses in relation to share issues	-	(690)	-	-	-	-	(690)
Repurchase of shares	(19)	-	19	(1,130)	-	-	(1,130)
Realised losses on disposal of investments	-	-	-	-	(3,623)	-	(3,623)
Investment holding gains	-	-	-	-	-	7,900	7,900
Dividend paid	-	-	-	(7,828)	-	-	(7,828)
Management fees charged to capital	-	-	-	-	(991)	-	(991)
Revenue loss for the period	-	-	-	(225)	-	-	(225)
As at 30 September 2019	1,957	79,466	494	60,911	(47,720)	32,650	127,758

*Reserve is available for distribution, total distributable reserves at 30 September 2019 are £13,191,000 (31 March 2019: £26,988,000).

Unaudited Cash Flow Statement
for the six months ended 30 September 2019

	Six months ended 30 September 2019 £’000	Six months ended 30 September 2018 £’000	Year ended 31 March 2019 £’000
Cash flow from operating activities
Investment income received	196	276	549
Dividends received from investments	28	7	35
Deposit and similar interest received	111	54	149
Investment management fees paid	(1,267)	(1,016)	(2,104)
Secretarial fees paid	(85)	(83)	(166)
Other cash payments	(248)	(322)	(450)
Net cash outflow from operating activities	(1,265)	(1,084)	(1,987)
Cash flow from investing activities
Purchase of investments	(3,600)	(3,947)	(8,281)
Net proceeds on sale of investments	-	1,267	2,082
Net proceeds on deferred consideration	31	134	513
Net cash outflow from investing activities	(3,569)	(2,546)	(5,686)
Cash flow from financing activities
Proceeds of fund raising	10,021	19,960	43,562
Expenses of fund raising	(314)	(587)	(972)
Repurchase of own shares	(1,098)	(5,739)	(6,480)
Expenses in relation to tender offer	-	(38)	-
Equity dividends paid	(7,067)	34*	(5,907)
Net cash inflow from financing activities	1,542	13,630	30,203
Net (decrease)/ increase in cash in the period	(3,292)	10,000	22,530

*Dividend unclaimed after twelve years, returned to the Company.

Analysis of changes in net debt

	At 1 April 2019 £’000	Cash Flow £’000	At 30 September 2019 £’000
Cash and cash equivalents	33,185	(3,292)	29,893

Notes to the Unaudited Half-Yearly Results

1. The Unaudited Half-Yearly Financial Report has been prepared on the basis of the accounting policies set out in the statutory accounts of the Company for the year ended 31 March 2019. Unquoted investments have been valued in accordance with IPEV Valuation Guidelines.
2. These are not statutory accounts in accordance with S436 of the Companies Act 2006 and the financial information for the six months ended 30 September 2019 and 30 September 2018 has been neither audited nor formally reviewed. Statutory accounts in respect of the year ended 31 March 2019 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 2019 have been reported on by the Company’s auditors or delivered to the Registrar of Companies.
3. Copies of the Unaudited Half-Yearly Financial Report will be sent to Shareholders and will be available for inspection at the Registered Office of the Company at The Shard, 32 London Bridge Street, London, SE1 9SG.
4. Net asset value per share

The net asset value per share is based on net assets at the end of the period and on the number of shares in issue at the date.

	Net assets	Shares in Issue
30 September 2019	£127,758,000	195,726,224
30 September 2018	£101,642,000	143,783,031
31 March 2019	£117,625,000	173,570,806

5. Return per share

The weighted average number of shares used to calculate the respective returns are shown in the table below.

	Shares
Six months ended 30 September 2019	195,728,848
Six months ended 30 September 2018	135,704,832
Year ended 31 March 2019	147,007,155

Earnings for the period should not be taken as a guide to the results for the full year.

6)      Income

	Six months ended 30 September 2019 £’000	Six months ended 30 September 2018 £’000	Year ended 31 March 2019 £’000
Loan stock interest	281	278	560
Dividends	28	7	35
Deposit and similar interest received	111	55	149
	420	340	744

7)        Investments held at fair value through profit or loss

	£’000
Book cost as at 1 April 2019	49,892
Investment holding gains	24,723
Valuation at 1 April 2019	74,615
Movements in the period:
Purchases	3,600
Disposal proceeds	-
Realised losses*	(3,654)
Investment holding gains**	7,927
Valuation at 30 September 2019	82,488
Book cost at 30 September 2019	49,838
Investment holding gains	32,650
Valuation at 30 September 2019	82,488

*Realised losses on investments in the income statement include deferred consideration of £31,000 received from the sale of Thermotech Solutions Limited.

 **Investment holding gains in the income statement have been reduced by the offset in the deferred consideration debtor of £27,000, relating to Thermotech Solutions Limited.

8)        Related party transactions
No Director has an interest in any contract to which the Company is a party other than their appointment and payment as directors.

9)     Transactions with the Manager

Foresight Group CI Limited acts as manager to the Company. During the period, services of a total cost of £1,321,000 (30 September 2018: £892,000; 31 March 2019: £1,992,000) were purchased by the Company from Foresight Group CI Limited. At 30 September 2019, the amount due to Foresight Group CI Limited was £nil (30 September 2018: £470,000; 31 March 2019: £nil).

During the period, administration services of a total cost of £85,000 (30 September 2018: £83,000; 31 March 2019: £166,000) were delivered to the Company by Foresight Group LLP, Company Secretary. At 30 September 2019, the amount due to Foresight Group LLP was £nil (30 September 2018: £41,000; 31 March 2019: £nil).

10) Post-Balance sheet events 
On 1 October 2019 £15.6 million was received into the bank, being the remaining balance from the June 2018 fund raise.

The Company made one new investment of £1.5 million into Biotherapy Services Limited in November 2019.

END