Foresight VCT PLC : Annual Financial Report
FORESIGHT VCT PLC
Financial Highlights
Net asset value per Ordinary Share increased by 23.8% for the year ended 31 December 2011 to 123.9p compared to 100.1p (rebased) as at 31 December 2010.
Net asset value per Planned Exit Share as at 31 December 2011 was 92.4p compared to 95.5p as at 31 December 2010.
Interim dividend of 7.5p per Ordinary Share paid on 23 March 2012.
Realisation proceeds and loan repayments totalling £15,120,290 were received from eleven portfolio companies by the Ordinary Shares Fund.
Acquisition of the assets and liabilities of Keydata Income VCT 1 plc and Keydata Income VCT 2 plc.
The Ordinary Shares fund provided funding totalling £1,431,852 for nine portfolio companies.
Three investments were made by the Planned Exit Shares fund totalling £1,890,000.
One realisation was made from the Planned Exit Shares fund: Foresight Luxembourg Solar 2 for £1,000,000.
Chairman's Statement
Performance and Dividends
I am pleased to be able to report sound progress in the development of our investment portfolios.
At 31 December 2011, the Company has two classes of shares (Ordinary Shares and Planned Exit Shares) and each class of share has its own portfolio of investments, the performances of which are more fully described in the Investment Manager's Report. In particular there has been very strong performance in the Ordinary Shares portfolio, during the year ended 31 December 2011. The net asset value increased by 23.8%, principally as a result of the sale of AppDNA for thirty two times cost and representing a total consideration of £8.4 million (after taking account of the 5.0p dividend paid on 17 June 2011), to 123.9p per share. The majority of the increase was generated by valuation increases in Autologic Diagnostics, Trilogy Communications, AppDNA and Alaric Systems. Further information on these companies can be found in the Investment Manager's Report. The net asset value of the Planned Exit Share portfolio decreased by 0.1%, after adding back the 3.0p dividend paid on 17 June 2011.
Notwithstanding these positive signs, stock market sentiment as evidenced recently is fragile, significant macroeconomic uncertainties remain, and trading and credit conditions continue to be difficult in many sectors of the economy. Against this background Foresight Group continues to believe it important to adopt a cautious approach to managing the portfolio.
The Company's policy is whenever possible to maintain a steady flow of tax-free dividends, generated from income or from capital profits realised on the sale of investments. Notwithstanding our awareness of future uncertainty, encouraged by the flow of recent investment gains and income generated from loan stock, the Board paid a final dividend of 5.0p per new Ordinary Share for the year ended 31 December 2010 on 17 June 2011 and a final dividend of 3.0p per Planned Exit Share for the year ended 31 December 2010 on the same day.
An interim dividend of 7.5p per Ordinary Share was paid on 23 March 2012, for the year ended 31 December 2011 as a result of the spate of recent, successful realisations. In addition to underpinning dividends in the future, these realisations have provided the funds required for new investments to replace those that have been sold and to generate further value for shareholders.
Valuation Policy
Investments held by the Company have been valued in accordance with the International Private Equity and Venture Capital (IPEVC) valuation guidelines (August 2010) 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 PLUS (formerly OFEX) are valued at the bid price as at 31 December 2011. The portfolio valuations are prepared by Foresight Group and are subject to approval by the Board.
Acquisition of the assets and liabilities of KeydataIncome VCT 1 plc and Keydata Income VCT 2 plc('Keydata')
Following shareholder approval, the assets of Keydata (approximately £3.6 million) were acquired by the Company on 28 February 2011. A total of 6,463,504 Ordinary Shares (at a net asset value of 55.44p per Ordinary Share - prior to the Ordinary Share reconstruction) in Foresight VCT plc were issued as consideration to the shareholders of Keydata. Following the completion of the merger there were 54,004,889 Ordinary Shares in issue. Dependent upon the commercial success of its gasification project in Derby (now known as Withion Power Limited), for which the Keydata assets were acquired, additional consideration may be payable to Keydata shareholders up to a maximum amount of £2.8 million on or shortly after 30 September 2013.
Withion Power's project in Derby (3.0 MW of waste wood gasification) is progressing well. The construction of the plant is complete and in the final stage of commissioning. The first electricity output from the plant was generated in April 2012.
Ordinary Shares Reconstruction
Also with shareholder approval, on 1 March 2011 the Ordinary Shares underwent a reconstruction such that the underlying net asset value (NAV) of each Ordinary Share was rebased to 100.0p. The reconstruction resulted in Ordinary Shareholders' holdings being adjusted by a ratio of 0.554417986 per Ordinary Share held at the close of business on 1 March 2011 and in 29,941,281 new Ordinary Shares being issued. The reconstruction of the Ordinary Share capital of Foresight VCT plc does not in any way affect the overall value of Shareholders' holdings.
Enhanced Buyback
I am pleased to report that the Company's 2011 enhanced buyback scheme proved to be popular with shareholders with 6,034,893 Ordinary Shares being tendered for the enhanced buyback at 100.0p per share.
As a result of this transaction, 5,913,777 new Ordinary Shares were issued at 102.0p per share.
Following the success of the enhanced buyback in 2011 and shareholder feedback, the Company recently launched a similar scheme for 2012, which allowed qualifying shareholders to tender their shares in both the 2011/12 and 2012/13 tax years.
The 2012 enhanced buyback scheme proved to be popular with 2,755,165 Ordinary Shares being tendered at 117.49p per share and 2,675,000 Ordinary Shares being issued at 121.20p per share.
Other Share Issues and Share Buybacks
The Company announced alongside the enhanced buyback a small top-up offer of Ordinary Shares. The offer was open during March and April 2011 and 234,918 Ordinary Shares were issued at 100.0p per share.
On 20 June 2011 61,188 Ordinary Shares were allotted under the Company's Dividend Reinvestment Scheme at 95.85p per share.
All of these share issues were under the new VCT provisions which commenced on 6 April 2006, namely: 30% upfront income tax relief which can be retained by qualifying investors if the shares are held for the minimum five year holding period.
As part of the Company's active buyback programme, during the period, 2,175,904 Ordinary Shares were purchased for cancellation at a cost of £1,998,000, representing an average discount of approximately 15.4% to net asset value.
On 7 October 2011, the Company launched a joint offer with Foresight 2 VCT plc to raise £30 million through the issue of Infrastructure Shares, a new share class. Between 1 January 2012 and 18 April 2012, 15,281,010 Infrastructure Shares were allotted at 100.0p per share. The offer was extended from £30 million to £33 million to accommodate investor demand.
Directorate change
Following 14 years' service as a Director of Foresight VCT plc, Antony Diment retired from the Board on 26 May 2011.
I would like to thank Tony for all of his hard work and dedication to Shareholders' interests in his role as a Director and Chairman of the Audit Committee since the Company's launch in 1997.
New VCT Rules
The Budget introduced new VCT investment rules, originally intended to take effect from 6 April 2012, that could have limited the potential investment in underlying portfolio companies from state aid sources to £2 million in any 12 month rolling period. These rules, which could have been detrimental to the Company's investment program, have now been postponed until the Finance Bill receives Royal Assent, expected in July 2012, at which point it is hoped that approval will have been received from the EU for the 12 month rolling limit of investment from state aid sources to be increased to £5 million.
The Board and Foresight Group continue to take an active role, through its membership of the AIC, in providing information and assistance to help achieve the best possible outcome, with respect to the new rules, for the VCT industry as a whole.
Annual General Meeting
The Company's Annual General Meeting will take place on 23 May 2012. I look forward to welcoming you to the meeting, which will be held in London.
Outlook
Following two years of economic fragility we are witnessing potential acquirers slowly returning to the market and this has been reflected in the increase in portfolio activity in terms of realisations over the last 12 months. Additionally, Foresight Group is seeing its deal flow of new investment opportunities increasing. We remain cautious about the economic outlook, however, and the Manager will aim to invest only in opportunities which are considered sufficiently robust and attractive. The Board and Investment Manager believe the portfolio contains a number of attractive companies and that these should translate into realisations that will, over the medium term, be reflected in further positive net asset value performance and continued distributions to shareholders.
John Gregory
Chairman
Telephone: 01296 682751
Email: j.greg@btconnect.com
19 April 2012
Investment Manager's Report
As referred to in the Chairman's statement, the performance of the Ordinary Shares portfolio overall during 2011 has been very encouraging, notwithstanding a background of continuing market volatility and uncertain macro economic conditions. A number of investee companies continued to trade well and enjoyed good growth while others, unsurprisingly, have been affected to varying degrees by recession induced factors, such as lower levels of market demand, increased competition and longer sales cycles. We believe these mixed trading conditions will continue to prevail during 2012 and beyond, putting a premium on companies with robust business models and good management teams while necessitating careful cost control by others.
The year under review to 31 December 2011 was one of considerable activity in the Ordinary Shares portfolio, particularly for successful realisations which continued into the month of January 2012. Reflecting strong merger and acquisition ('M & A') activity and investor interest in the technology sector, five significant realisations contributed to total proceeds of £15.1 million which helped fund a 7.5p dividend paid on 23 March 2012 to Ordinary shareholders on the register as at 9 March 2012, following the payment on 17 June 2011 of a 5.0p final dividend for the previous year ended 31 December 2010. The most notable realisation was the sale in October 2011 of App-DNA Group, an application compatibility and application migration software company, to the large US software group, Citrix Systems Inc, for $92 million, generating a return of £7.5 million (plus up to a further £0.9 million held in escrow), some 32 times original cost. Although completed shortly after the year end, another notable realisation was achieved in January 2012 with the partial sale of the investment in Autologic Diagnostics in a £48 million secondary management buy out funded by ISIS Equity Partners. A number of other potential realisations are being considered in 2012.
During the year, new investments were made by the Planned Exit shares fund in Industrial Engineering Plastics Limited and Portchester Equity Limited and the investment in Foresight Luxembourg Solar 2 was realised, the fund now being fully invested. As planned, a dividend of 3.0p per share was paid on 17 June 2011.
Ordinary Shares Fund Portfolio Review
The performance of a number of portfolio companies continued to improve during the year, reflecting growing demand and strong sales pipelines, most notably Autologic Diagnostics, Trilogy Communications, App-DNA, Infrared Integrated Systems and Alaric Systems.
Autologic Diagnostics develops and sells sophisticated automotive diagnostic software and hardware to independent mechanics and garages to allow them to service and repair vehicles. In the year ended 31 December 2010, it generated an operating profit of £2.7 million on sales of £9.3 million. The company continued its strong growth in 2011 and is continuing to grow sales and profits in its current financial year, particularly in Europe and the USA. On 1 July 2011, a recapitalisation was completed which yielded proceeds of £439,999 for the Ordinary Shares fund against cost of £106,667, while maintaining an undiluted equity position. As part of the recapitalisation, £63,604 of loan interest was capitalised. As mentioned above, part of the investment in Autologic was sold in January 2012 in a £48 million secondary management buy-out funded by ISIS Equity Partners. The sale generated cash proceeds of £2.1 million, against original cost of £0.75 million and Foresight VCT has retained an ongoing investment of £1.486 million in a combination of equity and loan stock in the new company formed to effect the buy-out.
Despite early setbacks Closed Loop Recycling is now making solid operational, commercial and revenue progress with production rates at record levels and significantly improved plant reliability and consistency. An investment of £300,000 was made from the Ordinary Shares fund in the period to further upgrade its conveyor system. Product quality remains high and demand exceeds capacity for all the recycled material it produces. The company continues to be affected by raw material quality which restricts throughput and yield, but is making some progress in addressing this problem. A significant investment is planned at the Dagenham site to increase capacity to sort greater volumes of mixed plastic waste. In addition a further investment is planned to increase production capacity to meet the substantial demand for the cleaned and sorted output, which should be possible without adding significantly to its fixed overhead costs.
Trilogy Communications is making good progress in both the broadcast and defence sectors, particularly the latter where it announced a number of contract wins through partners such as Northrop Grumman, Lockheed Martin and Raytheon. Trilogy's products address aspects of particular current importance to the defence sector, namely communications, security and intelligence. For the year to February 2011, the company's audited accounts showed strong growth, with sales of £8.6 million and earnings before interest, tax, depreciation and amortisation of £1.2 million. The company continues to perform strongly and repaid loans to the Ordinary Shares fund of £124,695 in March 2011 including a redemption premium of £38,910. The outlook is positive, with record trading results achieved during 2011/12. Reflecting further growth, product development and an increasing order book, a £1.65 million growth funding round was completed in November 2011, of which the Planned Exit fund invested £465,000 and the Ordinary Shares fund invested £160,000 alongside £625,000 from Foresight 2 VCT Planned Exit fund and £400,000 from Trilogy's management team and other shareholders.
As mentioned previously, after a competitive sales process, AppDNA was sold to Citrix Systems Inc in October 2011 for $92 million. It continued to achieve strong growth during the year and subsidiaries were set up in France and Australia in addition to its existing US operation, and its market leading AppTitude software is being sold globally. The company recently won the award for "Best Desktop Transformation" at the Citrix Synergy event in San Francisco for the second year in a row. The company was also named by Everything Channel in their CRN Virtualization top 100 List.
Infrared Integrated Systems, a market leader in retail queue monitoring and people counting markets, has continued to grow strongly and profitably, having won a significant contract in the US to provide its queue monitoring solution across the estate of a major supermarket group. The company is trading at record levels, with a strong pipeline of large potential customers undergoing product trials and is cash generative. This strong performance has been a result of the significant investment in R&D which resulted in the development of its next generation infrared devices which include internet connectivity and dual optical and thermal sensors, and ongoing research into devices targeting the security and healthcare markets.
Alaric continues to perform well, enjoying strong demand Worldwide for its payment system software, principally credit card authorisation ("Authentic") and card fraud detection ("Fractals") software. Contracts have been won in the US, Mexico, Canada, Australia and New Zealand while a number of other promising contracts are in prospect, including in the Far East. Capacity to satisfy these orders is being met through continuing expansion of the office in Kuala Lumpur. Audited accounts for the year to 31 March 2011 showed significant growth in PBIT to £0.54 million on £5.54 million sales, well ahead of budget. Results to date for the current year to March 2012 shows further substantial growth in sales and profitability.
AtFutsal Group provides facilities for futsal, a fast growing indoor sport and the only type of indoor football recognised by the Football Association. Alongside the existing Swindon and Cardiff facilities, a third, much larger, flagship super arena was opened during the year in Birmingham at which point a further £170,988 was invested from the Ordinary Shares fund to finance this expansion. Sales have built up steadily in this new arena, which hosted a number of Football Association events over the summer. Good progress is being made in developing the educational activities with several hundred children now taking sports related courses within AtFutsal's arenas. Plans are in hand to open a further super arena in Northern England to create national coverage. Sales growth, however, is behind original expectations with UK consumer spending under pressure, and progress towards profitability has been impacted as a result.
Silvigen received further funding of £177,089 from the Ordinary Shares fund to finance additional capital expenditure for its waste wood processing facility to increase production as well as provide additional working capital as the company builds its sales pipeline in the animal bedding market. After a series of successful trials over the last six or so months, the first significant deliveries of the animal bedding product are expected to be made shortly.
Land Energy made good progress during 2011, achieving positive EBITDA at the Bridgend plant level. Demand continues to exceed supply for the plant's wood pellets and a further £125,867 was invested to finance capital expenditure to increase production and fund working capital. During the year, a disagreement arose about strategy with the management team who had ambitious plans to invest over £120 million raised from a hedge fund in building at least two large additional wood pellet/CHP plants and a pipeline of ESCo facilities supplying energy to farms, schools and hospitals under long term contracts. This would have resulted in unacceptable dilution and loss of influence for the Foresight funds and so led to a demerger of the business on 1 January 2012, with Foresight funds owning 100% of the profitable Bridgend plant and being entitled to receive £2 million of deferred consideration, expected to be received over approximately four years from profits generated by the management team's Newco. The name of the Company was changed to Abacus Wood with no restrictions on its activities. A new, highly experienced CEO has been recruited and will join shortly. The strategy for developing Abacus Wood comprises three elements; namely increase capacity at Bridgend, develop ESCos and complete the proposed merger with Silvigen. With sufficient space for expansion at Bridgend, plans have been developed to increase capacity. The long standing plan to merge Abacus Wood with Goole based Silvigen, which also operates in similar markets and of which the Foresight funds own 91%, is likely to be effected once the current EIS legislation is, as expected, changed to allow such mergers in 2012. Such a merger would provide the enlarged group with a strong geographical footprint in the UK with access to a substantial volume of sales and waste wood feedstock suppliers.
i-plas, which manufactures a range of building products from waste plastics, successfully increased its production capacity by investing in additional plastic moulding equipment in early 2011. Sales growth, however, was slower than forecast resulting in continuing but reducing trading losses, not helped by the present poor trading conditions in the various UK construction markets. A further funding round to provide additional working capital was completed in December 2011 of which the Ordinary Shares fund provided £50,000. Costs have been cut, price rises instituted and management reorganised with a view to reaching cash flow break even by early Summer 2012. Reflecting this continuing slow progress, a provision has been made against the cost of this investment.
With signs of increasing sales of Recruiter Account in late 2010, a further £12,985 was invested in SkillsMarket to fund the operational costs associated with its turnaround strategy. Sales slowed appreciably however and were well behind budget during early 2011. As substantial further investment was required, Skillsmarket's board decided to accelerate a sales process of the business. Despite considerable initial interest from a number of prospective purchasers, no offers were ultimately received and in consequence administrators were appointed on 18 May 2011.
As referred to in the Chairman's report, the assets of Keydata (approximately £3.6 million) were acquired by the Ordinary Shares fund in February 2011, the consideration for which was the issue of 6,463,504 Ordinary Shares in Foresight VCT plc (at a net asset value of 55.44p per Ordinary Share - prior to the Ordinary Share reconstruction) to the Keydata shareholders. These assets, which comprised inter alia diesel generators, wood gasifiers and cash, were then used to establish Clarke Power Services Limited, since renamed Withion Power Limited, which eventually plans to build a 3MW waste wood to energy plant in Derby. Dependent upon the commercial success of this renewable energy power station in Derby, additional consideration may be payable to Keydata shareholders up to a maximum amount of £2.8 million on or shortly after 30 September 2013. The first 0.5MW phase has been successfully built, tested and connected to the National Grid and has started generating its first commercial electricity, four months later than planned. Financing and construction of the second 1.0MW phase and final 1.5MW phase are expected to commence during 2012 and 2013 respectively.
Data Continuity Group Limited designs, sources, implements and maintains data storage solutions for companies and provides them as a managed service. Managed service contracts typically run for an initial term of three years and the company has a very high level of customer retention. The 2010 investment from Planned Exit Shares fund was used to re-finance existing loans and to provide additional working capital to finance the growth of its managed services. Both sales and EBITDA have continued to grow as a result of greater marketing efforts, with managed service revenues up by some 80% in 2011 compared to 2010.
Planned Exit Shares Fund Portfolio Review
The Planned Exit Shares fund backed a management buy-in of Channel Safety Systems with £565,000 in December 2010. Channel designs and distributes fire safety systems and emergency lighting, as well as providing associated services. From its base in the South East of England Channel Safety has been operating for 35 years. The company traded profitably through the recession and the management team are exploring several growth strategies, including new products such as energy efficient LED emergency lighting. Notwithstanding stagnant market conditions in the construction and electrical contracting sectors, the company achieved limited growth in sales and EBITDA in its financial year to 31 October 2011 which is expected to accelerate in the current year.
The Foresight VCT Planned Exit fund and the Foresight 2 VCT Planned Exit fund each advanced one year loans of £625,000 to Portchester Equity Limited to fund the short term working capital requirements of one of the subsidiaries of this family owned investment company which owns majority shareholdings in eight separate, well established trading companies.
The same funds each invested £800,000 in Industrial Engineering Plastics by way of loans and equity to finance a management buy-in of this long established, profitable distributor/fabricator of plastic materials to a wide range of customers in a variety of industrial sectors.
As mentioned above, Trilogy Communications completed a £1.65 million growth funding round in November 2011, of which the Planned Exit fund invested £465,000 and the Ordinary Shares fund invested £160,000 alongside £625,000 from Foresight 2 VCT Planned Exit fund and £400,000 from Trilogy's management team and other shareholders.
Investment Activity
Ordinary Shares Fund - Purchases
Nine follow-on investments were made from the Ordinary Shares fund totalling £1,431,852. These were smartFOCUS (£371,319), Closed Loop Recycling (£300,000), Silvigen (£177,089), AtFutsal (£170,988), Trilogy Communications (£160,000), Abacus Wood (formerly Land Energy) (£125,867), i-plas Group (£50,000) and SkillsMarket (£12,985) and as part of the recapitalisation of Autologic Diagnostics in July 2011, £63,604 of loan interest was capitalised.
Ordinary Shares Fund - Realisations
Realisations and loan repayments totalled £15,120,290 in the year. These were AppDNA (£7,484,277), smartFOCUS (£3,857,282), Actimax (£2,119,264), Ffastfill (£736,278), Autologic Diagnostics (£439,999), Camwood (£166,667), Clarity Commerce Solutions (£159,000), Trilogy Communications (£124,695), Rivington Street Holdings (£15,875), Sarantel Group (£15,000) and SkillsMarket (£1,953).
Details of the sale of AppDNA to Citrix Systems Inc and of the proceeds generated from the recapitalisation of Autologic Diagnostics are described earlier.
Foresight VCT's holding in AIM listed smartFOCUS was sold to Francisco Partners for proceeds of £3,857,282 against an original cost of £1,076,539 generating a return of 3.6 times original cost.
Actimax was sold to Synova Capital in April 2011 for total proceeds of £4.4 million. Foresight VCT's initial element of this was £1,953,215, a return of 3.6 times original cost of £546,668. A further payment of £166,049 was received in August 2011.
The opportunity was taken to realise the entire holding in AIM listed Ffastfill during the first six months of 2011 and the shares were sold at a price that represented a five year high for the business. This generated proceeds of £736,278. Similarly, the opportunity was taken to sell the entire holding of AIM listed Clarity Commerce Solutions and also 2,499,973 shares of the holding in AIM listed Sarantel, in both cases the companies failed to reach our expectations, generating £159,000 and £15,000 respectively.
Loan repayments were received from Camwood (£166,667), Trilogy Communications (£124,695), Rivington Street Holdings (£15,875) and SkillsMarket (£1,953) during the year.
Planned Exit Shares Fund - Purchases
As referred to previously, two new investments (Industrial Engineering Plastics and Portchester Equity) and one follow-on investment (Trilogy Communications) were made from the Planned Exit Shares fund totalling £1,890,000.
Planned Exit Shares Fund - Realisations
One realisation was made from the Planned Exit Shares fund during the period. Foresight Luxembourg Solar 2 was sold to Foresight Solar VCT plc for original cost of £1,000,000, reflecting an independent third-party valuation performed by KPMG Spain.
Outlook
The underlying trading of many of the portfolio companies during 2011 has been stronger than was expected at the beginning of the year, benefitting from positive export conditions created by a weaker currency and relatively stronger overseas markets. Other businesses operating solely in UK markets have found trading conditions to be relatively difficult, except where the companies have particular competitive advantages. A stronger M & A market has enabled a number of realisations to be successfully concluded, generating significant profits and cash for dividends and re-investment.
These mixed conditions are expected to continue during 2012 and beyond but we are reasonably optimistic about the current prospects and outlook for many portfolio companies, which continue to display strong order books and revenue and profit growth. The M & A market continues to be active which augurs well for further possible realisations during 2012. However, macro economic fundamentals remain challenging with considerable uncertainties and so we are planning for a prolonged period of sluggish growth. Foresight is now actively pursuing new investment opportunities but will adopt a cautious approach in the light of current trading conditions.
David Hughes
Chief Investment Officer
Foresight Group
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority require certain disclosures in relation to the annual financial report, as follows:
Principal risks, risk management and regulatoryenvironment
The Board believes that the principal risks faced by the Company are:
Economic risk - events such as an economic recession and movement in interest rates could affect smaller companies' performance and valuations.
Loss of approval as a Venture Capital Trust - the Company must comply with Section 274 of the Income Tax Act 2007 which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to: the Company losing its approval as a VCT; qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained; and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains.
Investment and strategic - inappropriate strategy, poor asset allocation or consistent weak stock selection might lead to under performance and poor returns to shareholders.
Regulatory - the Company is required to comply with the Companies Act 2006, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
Reputational - inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.
Operational - failure of the Manager's or Company Secretary's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.
Financial - inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or breaches of regulations. Additional financial risks, including interest rate, credit, market price and currency, are detailed in note 15 to the accounts.
Market risk - investment in AIM traded, PLUS traded and unquoted companies by its nature involves a higher degree of risk than investment in companies traded on the main market. In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock.
Liquidity risk - the Company's investments, both unquoted and quoted, may be difficult to realise. Furthermore, the fact that a share is traded on AIM or PLUS Markets does not guarantee its liquidity. The spread between the buying and selling price of such shares may be wide and thus the price used for valuation may not be achievable.
The Board seeks to mitigate the internal risks by setting policy, regular review of performance, enforcement of contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies the principles detailed in the UK Corporate Governance Code. Details of the Company's internal controls are contained in the Corporate Governance and Internal Control sections.
Statement of Directors' Responsibilities
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website (which is delegated to Foresight Group and incorporated into their website). Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.
On behalf of the Board
John Gregory
Chairman
19 April 2012
Unaudited Non-Statutory Analysis between the Ordinary Shares and Planned Exit Shares Funds
| Income Statements | ||||||||||
| for the year ended 31 December 2011 | ||||||||||
| Ordinary Shares | Planned Exit Shares | |||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Realised gains on investments | - | 11,312 | 11,312 | - | - | - | ||||
| Investment holding losses | - | (2,842) | (2,842) | - | (29) | (29) | ||||
| Realised gains on derivatives | - | - | - | - | 25 | 25 | ||||
| Unrealised losses on the value of derivatives | - | - | - | - | (25) | (25) | ||||
| Income | 485 | - | 485 | 227 | - | 227 | ||||
| Investment management fees | (152) | (456) | (608) | (14) | (43) | (57) | ||||
| Other expenses | (354) | - | (354) | (106) | - | (106) | ||||
| (Loss)/return on ordinary activities before taxation | (21) | 8,014 | 7,993 | 107 | (72) | 35 | ||||
| Taxation | 12 | - | 12 | (20) | 8 | (12) | ||||
| (Loss)/return on ordinary activities after taxation | (9) | 8,014 | 8,005 | 87 | (64) | 23 | ||||
| Return per share | (0.1)p | 25.0p | 24.9p | 1.4p | (1.0)p | 0.4p | ||||
| Balance Sheets | |||||||
| at 31 December 2011 | |||||||
| Ordinary Shares Fund | Planned Exit Shares Fund | ||||||
| £'000 | £'000 | ||||||
| Fixed Assets | |||||||
| Investments held at fair value through profit or loss | 22,851 | 4,607 | |||||
| Current assets | |||||||
| Debtors | 1,906 | 268 | |||||
| Derivative financial instruments | - | - | |||||
| Money market and other deposits | 10,484 | 857 | |||||
| Cash | 49 | 49 | |||||
| 12,439 | 1,174 | ||||||
| Creditors: Amounts falling due within one year | (673) | (68) | |||||
| Net current assets | 11,766 | 1,106 | |||||
| Net assets | 34,617 | 5,713 | |||||
| Capital and reserves | |||||||
| Called-up share capital | 279 | 62 | |||||
| Share premium account | - | - | |||||
| Capital redemption reserve | 352 | - | |||||
| Special distributable reserve | 30,932 | 5,682 | |||||
| Revenue reserve | (181) | 179 | |||||
| Capital reserve | 8,372 | (146) | |||||
| Revaluation reserve | (5,137) | (64) | |||||
| Equity shareholders' funds | 34,617 | 5,713 | |||||
| Number of shares in issue | 27,940,367 | 6,179,833 | |||||
| Net asset value per share | 123.9p | 92.4p |
At 31 December 2011 there was an inter-share debtor/creditor of £55,000 which has been eliminated on consolidation.
Reconciliations of Movements in Shareholders' Funds
for the year ended 31 December 2011
| Called-up share capital | Share premium account | Capital redemption reserve | Special distributable reserve | Revenue reserve | Capital reserve | Revaluation reserve | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Ordinary Shares Fund | ||||||||
| As at 1 January 2011 | 475 | 11,893 | 29 | 18,070 | (172) | (1,611) | (2,294) | 26,390 |
| Share reconstruction | (241) | - | 241 | - | - | - | - | - |
| Share issues in the year | 127 | 9,785 | - | - | - | - | - | 9,912 |
| Expenses in relation to share issues | - | (126) | - | (60) | - | - | - | (186) |
| Repurchase of shares* | (82) | - | 82 | (8,043) | - | - | - | (8,043) |
| Transfer from capital account | - | (131) | - | - | - | 131 | - | - |
| Cancellation of share premium | - | (21,421) | - | 21,421 | - | - | - | - |
| Net realised gain on disposal of investments | - | - | - | - | - | 11,313 | - | 11,313 |
| Net realised gain on derivatives | - | - | - | - | - | - | - | - |
| Investment holding losses | - | - | - | - | - | - | (2,843) | (2,843) |
| Dividends | - | - | - | - | - | (1,461) | - | (1,461) |
| Management fees charged to capital | - | - | - | (456) | - | - | - | (456) |
| Revenue loss for the year | - | - | - | - | (9) | - | - | (9) |
| As at 31 December 2011 | 279 | - | 352 | 30,932 | (181) | 8,372 | (5,137) | 34,617 |
| *Includes 6,034,893 shares tendered for the enhance buyback at 100.0p per share. | ||||||||
| Called-up share capital | Share premium account | Capital redemption reserve | Special distributable reserve | Revenue reserve | Capital reserve | Revaluation reserve | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Planned Exit Shares Fund | ||||||||
| As at 1 January 2011 | 62 | 5,784 | - | (32) | 92 | 6 | (10) | 5,902 |
| Expenses in relation to share issues | - | - | - | (27) | - | - | - | (27) |
| Cancellation of share premium | - | (5,784) | - | 5,784 | - | - | - | - |
| Net realised gain on derivatives | - | - | - | - | - | 25 | - | 25 |
| Investment holding losses | - | - | - | - | - | - | (29) | (29) |
| Unrealised losses on the value of derivatives | - | - | - | - | - | - | (25) | (25) |
| Dividends | - | - | - | - | - | (185) | - | (185) |
| Management fees charged to capital | - | - | - | (43) | - | - | - | (43) |
| Tax credited to capital | - | - | - | - | - | 8 | - | 8 |
| Revenue return for the year | - | - | - | - | 87 | - | - | 87 |
| As at 31 December 2011 | 62 | - | - | 5,682 | 179 | (146) | (64) | 5,713 |
Audited Income Statement
for the year ended 31 December 2011
| Year ended | Year ended | ||||||
| 31 December 2011 | 31 December 2010 | ||||||
| Audited | Audited | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Realised gains/(losses) on investments | - | 11,312 | 11,312 | - | (1,112) | (1,112) | |
| Investment holding (losses)/gains | - | (2,871) | (2,871) | - | 8,748 | 8,748 | |
| Realised gains on derivatives | - | 25 | 25 | - | - | - | |
| Unrealised (losses)/gains on the value of derivatives | - | (25) | (25) | - | 25 | 25 | |
| Income | 712 | - | 712 | 665 | - | 665 | |
| Investment management fees | (166) | (499) | (665) | (113) | (339) | (452) | |
| Other expenses | (460) | - | (460) | (355) | - | (355) | |
| Return on ordinary activities before taxation | 86 | 7,942 | 8,028 | 197 | 7,322 | 7,519 | |
| Taxation | (8) | 8 | - | - | - | - | |
| Return on ordinary activities after taxation | 78 | 7,950 | 8,028 | 197 | 7,322 | 7,519 | |
| Return per share: | |||||||
| Ordinary Share | (0.1)p | 25.0p | 24.9p | 0.4p | 27.7p | 28.1p | |
| Planned Exit Share | 1.4p | (1.0)p | 0.4p | 1.7p | (0.7)p | 1.0p | |
The total column of this statement is the profit and loss account of the Company and the revenue and capital columns represent supplementary information.
All revenue and capital items in the above Income Statement are derived from continuing operations. No operations were acquired or discontinued in the year.
The Company has no recognised gains or losses other than those shown above, therefore no separate statement of total recognised gains and losses has been presented.
Audited Reconciliation of Movements in Shareholders' Funds
| Called-up share capital | Share premium account | Capital redemption reserve | Special distributable reserve | Revenue reserve | Capital reserve | Revaluation reserve | Total | |
| Year ended 31 December 2010 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| As at 1 January 2010 | 481 | 11,931 | 23 | 18,603 | (277) | (504) | (11,077) | 19,180 |
| Share issues in the year | 62 | 6,118 | - | - | - | - | - | 6,180 |
| Expenses in relation to share issues | - | (372) | - | - | - | - | - | (372) |
| Repurchase of shares | (6) | - | 6 | (226) | - | - | - | (226) |
| Net realised loss on disposal of investments | - | - | - | - | - | (1,112) | - | (1,112) |
| Investment holding gains | - | - | - | - | - | - | 8,748 | 8,748 |
| Unrealised gain on the value of derivatives | - | - | - | - | - | - | 25 | 25 |
| Dividends reimbursed | - | - | - | - | - | 11 | - | 11 |
| Management fees charged to capital | - | - | - | (339) | - | - | - | (339) |
| Revenue return for the year | - | - | - | - | 197 | - | - | 197 |
| As at 31 December 2010 | 537 | 17,677 | 29 | 18,038 | (80) | (1,605) | (2,304) | 32,292 |
| Called-up share capital | Share premium account | Capital redemption reserve | Special distributable reserve | Revenue reserve | Capital reserve | Revaluation reserve | Total | |
| Year ended 31 December 2011 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| As at 1 January 2011 | 537 | 17,677 | 29 | 18,038 | (80) | (1,605) | (2,304) | 32,292 |
| Share reconstruction | (241) | - | 241 | - | - | - | - | - |
| Share issues in the year | 127 | 9,785 | - | - | - | - | - | 9,912 |
| Expenses in relation to share issues | - | (126) | - | (87) | - | - | - | (213) |
| Repurchase of shares | (82) | - | 82 | (8,043) | - | - | - | (8,043) |
| Transfer of capital account | - | (131) | - | - | - | 131 | - | - |
| Cancellation of share premium | - | (27,205) | - | 27,205 | - | - | - | - |
| Net realised gain on disposal of investments | - | - | - | - | - | 11,313 | - | 11,313 |
| Net realised gain on derivatives | - | - | - | - | - | 25 | - | 25 |
| Investment holding losses | - | - | - | - | - | - | (2,872) | (2,872) |
| Unrealised losses on the value of derivatives | - | - | - | - | - | - | (25) | (25) |
| Dividends | - | - | - | - | - | (1,646) | - | (1,646) |
| Management fees charged to capital | - | - | - | (499) | - | - | - | (499) |
| Tax credited to capital | - | - | - | - | - | 8 | - | 8 |
| Revenue return for the year | - | - | - | - | 78 | - | - | 78 |
| As at 31 December 2011 | 341 | - | 352 | 36,614 | (2) | 8,226 | (5,201) | 40,330 |
Audited Balance Sheet
at 31 December 2011
| Registered Number: 03421340 | |||||
| As at | As at | ||||
| 31 December 2011 | 31 December 2010 | ||||
| £'000 | £'000 | ||||
| Fixed assets | |||||
| Investments held at fair value through profit or loss | 27,458 | 28,304 | |||
| Current assets | |||||
| Debtors | 2,119 | 1,383 | |||
| Derivative financial instruments | - | 47 | |||
| Money market securities and other deposits | 11,341 | 1,998 | |||
| Cash | 98 | 670 | |||
| 13,558 | 4,098 | ||||
| Creditors | |||||
| Amounts falling due within one year | (686) | (110) | |||
| Net Assets | 40,330 | 32,292 | |||
| Capital and reserves | |||||
| Called-up share capital | 341 | 537 | |||
| Share premium account | - | 17,677 | |||
| Capital redemption reserve | 352 | 29 | |||
| Special distributable reserve | 36,614 | 18,038 | |||
| Revenue reserve | (2) | (80) | |||
| Capital reserve | 8,226 | (1,605) | |||
| Revaluation reserve | (5,201) | (2,304) | |||
| Equity shareholders' funds | 40,330 | 32,292 | |||
| Net asset value per share: | |||||
| Ordinary Shares | 123.9 p | 100.1 p* | |||
| Planned Exit Shares | 92.4 p | 95.5 p | |||
| * Rebased due to Ordinary Shares reconstruction 1 March 2011 using conversion ratio of 0.554417986. | |||||
Audited Cash Flow Statement
for the year ended 31 December 2011
| Year ended | Year ended | |
| 31 December 2011 | 31 December 2010 | |
| £'000 | £'000 | |
| Cash flow from operating activities | ||
| Investment income received | 400 | 374 |
| Deposit and similar interest received | 20 | 12 |
| Investment management fees paid | (713) | (480) |
| Secretarial fees paid | (138) | (118) |
| Other cash payments | (551) | (334) |
| Net cash outflow from operating activities and returns on investment | (982) | (546) |
| Taxation | - | - |
| Returns on investment and servicing of finance | ||
| Purchase of unquoted investments and investments quoted on AIM | (3,259) | (4,350) |
| Net proceeds on sale of investments | 16,120 | 775 |
| Net proceeds from deferred consideration | - | 20 |
| Net proceeds from derivative transactions | 49 | - |
| Net capital inflow/(outflow) from financial investment | 12,910 | (3,555) |
| Equity dividends (paid)/received | (1,646) | 11 |
| Management of liquid resources | ||
| Movement in money market funds | (9,343) | (1,428) |
| (9,343) | (1,428) | |
| Financing | ||
| Proceeds of fund-raising | 235 | 6,520 |
| Acquisition issue shares | 8 | - |
| Expenses of fund-raising | (180) | (339) |
| Dividends reinvested | 59 | - |
| Repurchase of own shares | (1,633) | (226) |
| (1,511) | 5,955 | |
| (Decrease)/increase in cash | (572) | 437 |
| Reconciliation of net cash flow to movement in net funds | ||
| (Decrease) / increase in cash for the year | (572) | 437 |
| Net cash at start of year | 670 | 233 |
| Net cash at end of year | 98 | 670 |
| Analysis of changes in net debt | |||||
| At 1 January 2011 | Cash flow | At 31 December 2011 | |||
| £'000 | £'000 | £'000 | |||
| Cash and cash equivalents | 670 | (572) | 98 | ||
Notes
1. The audited Annual Financial Report has been prepared on the basis of accounting policies set out in the statutory accounts of the Company for the year ended 31 December 2011. All investments held by the Company are classified as 'fair value through the profit and loss'. Unquoted investments have been valued in accordance with IPEVC guidelines. Quoted investments are stated at bid prices in accordance with the IPEVC guidelines and Generally Accepted Accounting Practice.
2. These are not statutory accounts in accordance with S436 of the Companies Act 2006. The full audited accounts for the year ended 31 December 2011, which were unqualified and did not contain and statements under S498(2) of Companies Act 2006 or S498(3) of Companies Act 2006, will be lodged with the Registrar of Companies. Statutory accounts for the year ended 31 December 2011 including an unqualified audit report and containing no statements under the Companies Act 2006 will be delivered to the Registrar of Companies in due course.
3. Copies of the Annual Report will be sent to shareholders and will be available for inspection at the Registered Office of the Company at ECA Court, 24-26 South Park, Sevenoaks, Kent TN13 1DU and can be accessed on the following website: www.foresightgroup.eu
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 that date.
| 31 December 2011 | 31 December 2010 | |||||
| Ordinary Shares Fund | Planned Exit Shares Fund | Ordinary Shares Fund | Planned Exit Shares Fund | |||
| Net assets | £34,617,000 | £5,713,000 | £26,390,000 | £5,902,000 | ||
| No. of shares at year end | 27,940,367 | 6,179,833 | 26,357,799* | 6,179,833 | ||
| Net asset value per share | 123.9p | 92.4p | 100.1p* | 95.5 | ||
*Rebased due to Ordinary Shares reconstruction on 1 March 2011 using conversion ratio of 0.554417986.
5. Return per share
| Year ended 31 December 2011 | Year ended 31 December 2010 | |||
| Ordinary Share | Planned Exit Share | Ordinary Share | Planned Exit Share | |
| £'000 | £'000 | £'000 | £'000 | |
| Total return after taxation | 8,005 | 23 | 7,463 | 56 |
| Basic return per share (note a) | 24.9p | 0.4p | 28.1p* | 1.0p |
| Revenue return from ordinary activities after taxation | (9) | 87 | 105 | 92 |
| Revenue return per share (note b) | (0.1)p | 1.4p | 0.4p* | 1.7p |
| Capital return from ordinary activities after taxation | 8,014 | (64) | 7,358 | (36) |
| Capital return per share (note c) | 25.0p | (1.0)p | 27.7p* | (0.7)p |
| Weighted average number of shares in issue in the year | 32,097,234 | 6,179,833 | 26,528,417* | 5,407,639 |
The weighted average number of shares has been adjusted to take account of the Ordinary Shares reconstruction on 1 March 2011.
The total return of the Ordinary Shares (£8,005,000) and Planned Exit Shares (£23,000) combine to form the return of £8,028,000 in the income statement.
Notes:
a) Total return per share is total return after taxation divided by the weighted average number of shares in issue during the year.
b) Revenue return per share is revenue return after taxation divided by the weighted average number of shares in issue during the year.
c) Capital return per share is capital return after taxation divided by the weighted average number of shares in issue during the year.
6. The Annual General Meeting will be held at 12.00pm on 23 May 2012 at the offices of SGH Martineau LLP, One America Square, Crosswall, London EC3N 2SG.
7. Income
| Year ended 31 December | Year ended 31 December | ||
| 2011 | 2010 | ||
| £'000 | £'000 | ||
| Loan stock interest | 599 | 652 | |
| Overseas based Open Ended Investment Companies ("OEICS") | 24 | 13 | |
| Dividends | 77 | - | |
| Bank deposits | 2 | - | |
| Other | 10 | - | |
| 712 | 665 | ||
8. Investments
| 2011 | 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| £'000 | £'000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Company | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Quoted investments | 1,033 | 4,503 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unquoted investments | 26,425 | 23,801 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 27,458 | 28,304 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9. Related party transactions
Foresight Group LLP and Foresight Fund Managers Limited are considered to be Related Parties of the Company. Details of arrangements with these parties are given in the Directors' Report and note 3 within the Annual Report and Accounts.
Foresight Group which acts as investment manager to the Company in respect of its venture capital investments earned fees of £665,540 during the year (2010: £451,882). Foresight Fund Managers Limited, Company Secretary, received fees including VAT of £120,000 (2010: £118,000) during the year.
At the balance sheet date, there was £161,146 (2010: £228) due to Foresight Group LLP and £nil (2010: £nil) due to Foresight Fund Managers Limited. No amounts have been written off in the year in respect of debts due to or from the related parties.
END
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Foresight VCT PLC via Thomson Reuters ONE
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