Interim Results
Foresight Technology VCT PLC
28 September 2006
FORESIGHT TECHNOLOGY VCT PLC
PRELIMINARY ANNOUNCEMENT OF RESULTS
CHAIRMAN'S STATEMENT
During the first six months of 2006 markets in general have experienced
increased volatility as a result of a number of factors including interest rate
and inflation concerns and geopolitical uncertainties. The Company's quoted
technology stocks have suffered from this volatility with several companies
dropping in value during the interim period. Overall the net asset value of the
Ordinary Shares fund fell to 51.3p per Ordinary Share (31 December 2005: 58.7p)
and to 79.8p per 'C' Share (31 December 2005: 91.7p). Both of these falls are
largely attributable to a reduction in the value of a number of quoted stocks.
There has been considerable downward pressure on the prices of certain of the
AIM listed investments, in particular YooMedia, Sarantel, Oxonica and ANT.
YooMedia has been undertaking a restructuring programme aimed at rationalising
the business, strengthening the balance sheet and re-positioning the Company's
product offering. During this period of uncertainty the company's share price
has suffered but management expects the Company will achieve an operating profit
in 2006. Sarantel recently announced sales of £2.3m for the six months ended 31
March 2006 (2005: £1 million). Despite this improvement, the company reported
that revenues for the remainder of the year are likely to be substantially below
market expectations and its share price has fallen as a result. ANT has also
suffered a decline in share price as the commercial adoption of internet
protocol television (IPTV) has been slower than anticipated.
Nevertheless, a number of the portfolio companies have made encouraging progress
and entered into or improved profitability in the period. Following the
acquisition of Blue Curve in January 2006 Mondas' new joint offering of software
solutions to the financial services and education markets has proved popular
with customers. The company recently announced that it has generated a profit
for the six months ended 30 June 2006. The Company sees an increased level of
confidence from its financial sector clients across all business areas and this
is reflected in the higher level of new business wins and strengthening prospect
pipeline. SmartFOCUS recently announced a substantial increase in revenue in the
first half of 2006 compared to the same reporting period in 2005 and it has
traded profitably during the first six months of 2006. At the same time it has
continued to invest significantly in additional sales, marketing and
implementation resources. During the period, smartFOCUS acquired Email Reaction
Limited, an on-line marketing software vendor. This business has been
integrated into the group with the resulting combined offering being positively
received by clients. Alaric Systems and iCore experienced significant sales
increases as a result of contracts with large multinational companies, which
resulted in Alaric moving into profitability and a significant increase in
profits at iCore. Covion continues to win new orders for its facilities
management services and both sales and profits continue to grow.
During the period the Company made one follow-on investment of £250,000 in
TheSkillsMarket. The company's product offering has been further developed since
the original investment in 2005 and as a consequence the prospects for revenue
growth and profitability in the medium term have improved.
Results
The results for the period from 1 January 2006 to 30 June 2006 are set out
below. The net asset value per Ordinary Share as at 30 June 2006 was 51.3p (31
December 2005: 58.7p restated). The total return (after tax) attributable to
Ordinary Shareholders was a loss of 7.1p (31 December 2005: loss of 16.1p),
mainly due to the fall in the share price of YooMedia plc.
The net asset value per 'C' Share as at 30 June 2006 was 79.8p (31 December
2005: 91.7p restated) and the attributable return was a loss of 11.9p per 'C'
Share (31 December 2005: loss of 1.2p). Nearly all of the fall in the net asset
value per share of the 'C' Shares fund resulted from share price declines within
the AIM portfolio companies.
Dividend
The Company paid a final dividend of 0.50p per Ordinary Share ('C' Shares: nil)
for the year ended 31 December 2005 to Ordinary Shareholders on 26 May 2006 (31
December 2004: 'C' Shares 0.50p; Ordinary Shares: nil). The Company's dividend
policy is to distribute to shareholders income earned and capital gains realised
as soon as is practicable.
The Board is not recommending an interim dividend for the six months ended 30
June 2006.
Ordinary Shares fund
YooMedia, as a result of a number of acquisitions over the past two years, has
developed from a small business with revenues of less than £1 million to more
than £84 million for the year ended 31 December 2005. Following the
announcement of several disappointing trading statements its share price has
performed poorly falling from 7p as at 31 December 2005 to 2.5p as at 30 June
2006 resulting in a net decrease of approximately £900,000 in the value of the
Ordinary Shares fund since 31 December 2005 or 6.0p per Share.
During the period one follow-on investment was made in TheSkillsMarket
(£80,000).
'C' Shares fund
Oxonica, which engineers the properties of materials at the nano-scale level for
application in fuel additives, UV protection and other products, has continued
to make encouraging progress. Sales of Oxonica Energy's fuel borne
nanocatalyst, Envirox, continue to increase in line with expectations and
include a recent sale (after 30 June 2006) to an overseas national oil company
estimated to be worth $12.7m in the period to December 2006. In addition to
sales to Boots, Oxonica's UV absorbing product, Optisol, has been incorporated
into Tesco's Finest range of sunscreens and into products launched by Coreana, a
leading South Korean cosmetics company resulting in strong sales growth of
Optisol. Nanoplex Technologies Inc, acquired in February, has been successfully
integrated into the group and is already generating initial revenues from
co-development agreements with leading companies concerned with
anti-counterfeiting and brand protection markets. Despite these developments the
company's valuation fell from £9.4 million to ££7.1 million resulting in a fall
of £2.3 million in the Company's carrying value.
During January 2006, Mondas formally completed the acquisition of Blue Curve in
an all share deal. Following the acquisition the company has seen a marked
improvement in both revenues and profit growth from its enlarged product suite.
As a result Mondas' share price has improved by over 50% in the period
representing an uplift of £220,000 in the Company's carrying value.
Wire-e was subject to a management buyout during May 2006, with Foresight
Technology receiving £240,000 in cash and a small stake in the new business,
Rapide Communications. This resulted in a write down of £27,000 in the carrying
value.
During the period one follow-on investment was made in TheSkillsMarket
(£170,000).
Change of Auditor
During the period the Company changed its auditor from KPMG Audit plc to Ernst &
Young LLP and I would like to take this opportunity to thank KPMG for their
service over the last 8 years.
Valuation Policy
The investments held by the company have been valued in accordance with the
International Private Equity and Venture Capital Guidelines developed by the
British Venture Capital Association ('BVCA') and other organisations under which
investments are valued, as defined in the guidelines, at 'fair value'.
Ordinarily, unquoted investments will be valued at cost for the 12 months
following the date of acquisition unless there is an impairment in value during
the period. Quoted investments and investments traded on AIM and OFEX are
valued at the bid price as at 30 June 2006. The portfolio valuations are
prepared by Foresight Venture Partners and are subject to approval by the Board.
Dividend Investment Scheme and Share Buybacks
During the period, the Company issued 26,468 Ordinary Shares under the dividend
investment scheme raising approximately £14,000 in aggregate. These shares were
issued under the new VCT provisions that 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 5 year holding period.
As part of the Company's active buyback programme, 339,412 Ordinary Shares were
purchased for cancellation at an approximate cost of £163,000, and at an
approximate discount to NAV of 10%. Furthermore, 830,000 'C' Shares were
purchased for cancellation at an approximate cost of £ 701,000, also at an
approximate discount to NAV of 10%.
Ordinary Shares and 'C' Shares Fund Merger
The Board is currently considering, in accordance with the Company's articles of
association, proposals for the merger of the Ordinary and 'C' Shares funds and
details of these proposals will be forwarded to Shareholders in due course.
Outlook
As noted earlier although the market in which the Company operates continues to
be buoyant in terms of potential new investment opportunities, both the Ordinary
and 'C' Shares funds are currently considered to be fully invested. As a
result, while your manager continues to monitor new opportunities it is
currently limiting any further commitments to existing portfolio companies.
Despite volatile stock markets, merger and acquisition activity remains buoyant
and Foresight Venture Partners will actively investigate any sensible liquidity
opportunities which may arise or can be originated.
Peter Dicks
Chairman
Unaudited Non-Statutory Analysis between the Ordinary Shares and 'C' Shares
funds
Unaudited Income Statement for the six months ended 30 June 2006
Ordinary 'C' Shares
Shares fund fund
Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £
Unrealised gains and losses on
investments - (981,611) (981,611) - (3,938,371) (3,938,371)
Realised gains on investments - 8,903 8,903 - 203,316 203,316
Cost of investment transactions - - - - - -
Income 82,464 - 82,464 154,097 - 154,097
Investment Management Fees (27,156) (81,467) (108,623) (106,172) (318,517) (424,689)
Other Expenses (64,215) - (64,215) (233,510) - (233,510)
Loss before tax (8,907) (1,054,175) (1,063,082) (185,585) (4,053,572) (4,239,157)
Taxation - - - - - -
Profit for the year (8,907) (1,054,175) (1,063,082) (185,585) (4,053,572) (4,239,157)
Return per share (0.06)p (7.01)p (7.07)p (0.52)p (11.38)p (11.90)p
Unaudited Reconciliation of Movements in Shareholders' Funds
for the six months ended 30 June 2006
Income Other Total Income Other Total
Statement Reserves Reserves Statement Reserves Reserves
£ £ £ £ £ £
Opening shareholders' funds 1,229,859 7,640,753 8,870,612 480,815 32,444,256 32,925,071
Shares issued/(bought back) - (148,913) (148,913) - (700,949) (700,949)
Loss for the period (81,471) (981,611) (1,063,082) (300,786) (3,938,371) (4,239,157)
Gains/(losses) previously
unrealised transferred between
reserves 24,228 (24,228) - (1,392,899) 1,392,899 -
Losses written off to cancelled
share premium account 81,467 (81,467) - 2,158,012 (2,158,012) -
Dividends paid (75,521) - (75,521) - - -
Closing shareholders' funds 1,178,562 6,404,534 7,583,096 945,142 27,039,823 27,984,965
Unaudited Balance Sheet
as at 30 June 2006
Ordinary 'C' Shares fund
Shares fund
£ £ £ £
Non-current assets
Assets held at fair value
through profit and loss -
investments 5,862,109 26,339,340
Current assets
Debtors and prepayments 216,206 785,071
Current investments 1,597,365 1,276,078
Cash at bank (4,311) 11,930
1,809,260 2,073,079
Current Liabilities: amounts
falling due
within one year (88,273) (427,454)
Net current assets 1,720,987 1,645,625
Net assets 7,583,096 27,984,965
Capital
Called up share capital 147,913 350,761
Reserves
Share premium account 4,060,624 2,953,685
Cancelled share premium account 4,010,594 20,197,970
Revaluation reserve (1,814,597) 3,537,407
Revenue reserve 1,178,562 945,142
7,583,096 27,984,965
No of shares in issue 14,791,348 35,076,091
Net asset value per 1p share: 51.27p 79.78p
Unaudited Income Statement
For the six months ended 30 June 2006
Six months Six months Year to 31
to 30 June to 30 June December
2006 2005 2005
(unaudited) Restated
(unaudited) (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£ £ £ £ £ £ £ £ £
Unrealised gains - (4,919,982) (4,919,982) - (3,112,906) (3,112,906) - (2,358,802) (2,358,802)
and losses on
investments
Realised gains/ - 212,219 212,219 - 25,412 25,412 - 25,161 25,161
(losses) on
investments
Costs of - - - - (90) (90) - (25,491) (25,491)
investment
transactions
Income 236,561 - 236,561 526,536 - 526,536 931,592 - 931,592
Investment (133,328) (399,984) (533,312) (129,204) (387,613) (516,817)(263,824) (791,471) (1,055,295)
management fees
Other expenses (297,725) - (297,725) (212,098) - (212,098)(443,869) - (443,869)
Loss before (194,492) (5,107,747) (5,302,239) 185,234 (3,475,197) (3,289,963) 223,899 (3,150,603) (2,926,704)
taxation
Taxation - - - (21,972) 21,972 - (28,935) 28,935 -
(Loss)/Profit
for the period (194,492) (5,107,747) (5,302,239) 163,262 (3,453,225) (3,289,963) 194,964 (3,121,668) (2,926,704)
Earnings per share
Ordinary Shares (7.07)p (15.13)p (16.12)p
'C' Shares (11.90)p (2.48)p (1.15)p
Balance Sheet
as at 30 June 2006 30 June 2006 30 June 2005 31 December 2005
(unaudited) (unaudited) (audited)
£ £ £ £ £ £
Non-Current Assets
Assets held at fair 32,201,449 35,635,628 37,926,957
value through profit and
loss - Investments
Current Assets
Debtors and prepayments 898,876 841,395 1,227,718
Current investments 2,873,443 5,577,731 2,749,170
Cash at bank 7,619 42,511 161,923
3,779,938 6,461,637 4,138,811
Current Liabilities
Other creditors 250,194 23,219 133,549
Accruals 163,132 199,544 136,536
(413,326) (222,763) (270,085)
Net current assets 3,366,612 6,238,874 3,868,726
Net assets 35,568,061 41,874,502 41,795,683
Capital and reserves
Called up share capital 498,674 516,304 510,104
Share premium account 7,014,309 7,000,652 7,000,652
Distributable reserve 24,208,564 28,279,426 27,300,132
1,722,810 4,662,658 5,274,121
Capital reserve -
unrealised
Revenue reserve 2,123,704 1,415,462 1,710,674
Equity shareholders' 35,568,061 41,874,502 41,795,683
funds
Net asset value per
share of 1 pence each:
Ordinary Shares 51.27p 59.45p 58.73p
'C' Shares 79.78p 90.37p 91.70p
Unaudited Cashflow Statement for the six months ended 30 June 2006
Six months to Six months to Year to 31
30 June 2006 30 June 2005 December 2005
(unaudited) (unaudited) (audited)
£ £ £
Operating activities
Dividends received - - 71,610
Deposit and similar interest 223,042 423,140 655,076
Other cash receipts - - 7,360
Investment management fees paid (503,156) (562,801) (1,097,933)
Other cash payments (233,349) (170,478) (472,437)
Net cash outflow from operating activities (513,463) (310,139) (836,324)
Investing activities
Purchase of non-current investments (250,000) (5,085,575) (7,090,800)
Sale of non-current investments 1,562,743 25,412 198,163
Net cash intflow/(outflow) from investing activities 1,312,743 (5,060,163) (6,892,637)
Net cash inflow/(outflow) before financing and liquid 799,280 (5,370,302) (7,728,961)
resource management
Management of liquid resources
Increase in current investments (124,273) 6,629,280 9,457,841
(124,273) 6,629,280 9,457,841
Financing
Purchase of own shares (767,712) (1,095,561) (1,446,051)
Issue of shares - 10,791 10,791
Equity dividends paid (61,599) (185,241) (185,241)
(829,311) (1,270,011) (1,620,501)
Net (decrease)/increase in cash (154,304) (11,033) 108,379
Unaudited Reconciliation of Movements
in Shareholders' Funds
for the six months ended 30 June 2006
Cancelled
Called up Share share Retained
share premium premium Revaluation Revenue
capital account account reserve reserve Total
£ £ £ £ £ £
At 31 December 2005 510,104 7,000,652 27,300,132 5,274,121 1,710,674 41,795,683
Shares issued/(bought back) (11,430) 13,657 (852,089) - - (849,862)
Loss for the period - - - (4,919,982) (382,257) (5,302,239)
Losses previously unrealised
transferred between reserves - - - 1,368,671 (1,368,671) -
Losses written off to cancelled share
premium account - - (2,239,479) - 2,239,479 -
Dividends - final paid for year ended
31 December 2005 - - - - (75,521) (75,521)
At 30 June 2006 498,674 7,014,309 24,208,564 1,722,810 2,123,704 35,568,061
Notes to the Unaudited Financial Statements
1. Principal accounting policies
The following accounting policies have been applied consistently throughout
the period. Full details of accounting policies will be disclosed in the
Annual Report and Financial Statements for the year ended 31 December 2006.
a) Basis of Accounting
The accounts have been prepared under the historical cost convention,
modified to include the revaluation of investments, and in accordance with
applicable accounting standards and to the extent that it does not conflict
with the Companies Act 1985, the Statements of Recommended Practice,
'Financial Statements of Investment Trust Companies'. The revenue and
capital columns of the Income Statement are presented as supplementary
information.
b) Investments
Investments are stated at fair value, in accordance with the International
Private Equity and Venture Capital Valuation ('IPEVCV') guidelines
published in 2005, which are consistent with the British Venture Capital
Association guidelines previously followed.
Quoted investments are stated on a bid price basis in accordance with FRS
26.
Unquoted investments are stated at fair value by the Directors in
accordance with the following rules, which are consistent with IPEVCV
guidelines:
i Recent investments which have been made in the last 12 months are at
fair value, which unless another methodology gives a better indication
of fair value, will be at cost.
ii Investments in companies at an early stage of their development are
also valued at fair value, which unless another methodology
gives a better indication of fair value, will be at cost.
iii. Investments which have been held for more than 12 months and which have
gone beyond the stage of their development in 2 above are valued, in
the absence of overriding factors, using a suitable price-earnings
ratio discounted to reflect the lack of marketability. Where overriding
factors apply alternative methods of valuation will be used. These
will include the application of a material arms length transaction by
an independent third party, cost, cost less provision for impairment,
discounted cash flow, or a net asset basis.
Unrealised capital gains and losses on investments are dealt with in the
revaluation reserve and any movements are reflected through the income
statement. The only exception to this rule occurs when the Directors
believe that there has been a permanent diminution in the value of an
investment. In such circumstances, the associated write down in the value
of the investment is charged directly through the face of the income
statement.
2. All revenue and capital items in the Income Statement derive from
continuing operations. There were no other recognised gains or losses for
the period.
3. In accordance with the policy statement published under 'Management and
Administration' in the Company's prospectuses dated 1 October 1997 and 14
October 1999, the Directors have charged 75% of the investment management
expenses to the capital reserve.
4. Earnings for the six months should not be taken as a guide to the results
for the full year.
5. The Ordinary Shareholders or the 'C' Shareholders will be entitled to
receive any dividends paid out of the net income from the net assets
attributable to the Ordinary Shares, or the 'C' Shares respectively.
6. The Company revoked its status as an investment company in March 2000, so
that it can regard capital reserves as profits of the Company available for
distribution. The Company has not reapplied and does not intend to re-apply
for investment company status.
7. Income
Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December 2005
£ £ £
Dividends 4,024 71,610 71,610
Overseas based OEICS 73,626 221,487 316,324
Loan stock interest 150,825 227,317 528,658
Bank deposits 2,963 1,587 2,765
Other 5,123 4,535 12,235
Total Income 236,561 526,536 931,592
8. The Ordinary Shares current investments and the 'C' Shares current
investments represent the balance of the net proceeds from the issues of
Ordinary Shares and 'C' Shares. These funds are invested in 3 Dublin based
OEIC money market funds managed by Merrill Lynch Investment Managers,
Insight Investment Management and Royal Bank Scotland.
9. Earnings and return per share
The basic earnings, revenue return and capital return per share shown below
for each period are respectively based on numerators i)-iii), each divided
by the weighted average number of shares in issue in the period - see iv) below
Ordinary Shares fund Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December 2005
£ £ £
Total earnings after taxation (1,063,082) ( 2,378,484) ( 2,508,285)
i) Basic earnings per share (pence) (7.07)p (15.13)p (16.12)p
Net revenue from ordinary activities after taxation ( 8,907) 105,601 113,631
ii) Revenue return per share (pence) (0.06)p 0.67p 0.73p
Capital loss ( 1,054,175) ( 2,484,085) ( 2,621,916)
iii) Capital loss per share (pence) (7.01)p (15.80)p (16.85)p
iv) Weighted average number of shares in issue in
the period 15,724,816 15,560,442 15,037,434
C Shares fund
Six months ended Six months ended Year ended
30 June 2006 30 June 2005 31 December 2005
£ £ £
Total earnings after taxation (4,239,157) ( 911,479) ( 418,419)
i) Basic earnings per share (pence) (11.90)p (2.48)p (1.15)p
Net revenue from ordinary activities after taxation (185,585) 57,661 81,333
ii) Revenue return per share (pence) (0.52)p 0.16p 0.22p
Capital loss (4,053,572)) ( 969,140) ( 499,752)
iii) Capital loss per share (pence) (11.38)p (2.64)p (1.37)p
iv) Weighted average number of shares in issue in
the period 35,632,610 36,722,361 36,381,420
10. The net asset value per share for both the Ordinary Shares and the C Shares
has been calculated on the appropriate allocation of the Company's assets
and liabilities. Other than expenses specifically attributable to one fund
or the other, one quarter of costs incurred since 1 January 2006 has been
allocated to the Ordinary Shares fund.
11. Dividends
Six months Six months ended Year ended
ended
30 June 30 June 2005 31 December 2005
2006
£ £ £
Ordinary shares
Final dividend of 0.5p paid for the year ended 31
December 2005 75,521 - -
75,521 - -
'C' shares
Final dividend of 0.5p paid for the year ended 31 - 185,272 185,272
December 2004
- 185,272 185,272
Total dividends paid in period 75,521 185,272 185,272
12. Summary of investments during the
period
Unlisted
Company Listed Traded or traded Qualifying
investments on AIM on OFEX loans Total
£ £ £ £ £
Cost/valuation at 31 December 2005 878,850 15,532,730 15,116,749 6,398,628 37,926,957
Reclassifications - 546,678 366,650 (913,328) -
Purchases at cost - - 250,000 - 250,000
Disposals at cost/2005 valuations (33,750) (870,921) - (150,855) (1,055,526)
Change in unrealised gains/(losses) (137,720) (3,601,987) (948,353) (231,922) (4,919,982)
Cost/valuation at 30 June 2006 707,380 11,606,500 14,785,046 5,102,523 32,201,449
Book cost at 30 June 2006 238,406 10,377,774 15,514,274 6,848,185 32,978,639
Unrealised gains/(losses) at 30 June
2006 468,974 1,228,726 1,270,772 (1,245,662) 1,722,810
Permanent impairment - - (2,000,000) (500,000) (2,500,000)
707,380 11,606,500 14,785,046 5,102,523 32,201,449
Summary of investments during the
period
Ordinary Shares fund
Cost/valuation at 31 December 2005 878,850 1,798,612 3,311,809 808,198 6,797,469
Reclassifications - - - - -
Purchases at cost - - 80,001 - 80,001
Disposals at cost/2005 valuations (33,750) - (33,750)
- -
Change in unrealised gains/(losses) (137,720) (964,747) 120,856 - (981,611)
Cost/valuation at 30 June 2006 707,380 833,865 3,512,666 808,198 5,862,109
238,406 1,835,357 5,197,245 1,905,698 9,176,706
Book cost at 30 June 2006
Unrealised gains/(losses) at 30 June
2006 468,974 (1,001,492) (684,579) (597,500) (1,814,597)
Permanent impairment - - (1,000,000) (500,000) (1,500,000)
707,380 833,865 3,512,666 808,198 5,862,109
Summary of investments during the
period
'C' Shares fund
Cost/valuation at 31 December 2005 - 13,734,118 11,804,940 5,590,430 31,129,488
Reclassifications - 546,678 366,650 (913,328) -
Purchases at cost - - 169,999 - 169,999
Disposals at cost/2005 valuations - (870,921) - (150,855) (1,021,776)
Change in unrealised gains/(losses) - (2,637,240) (1,069,209) (231,922) (3,938,371)
Cost/valuation at 30 June 2006 - 10,772,635 11,272,380 4,294,325 26,339,340
- 8,542,417 10,317,029 4,942,487 23,801,933
Book cost at 30 June 2006
Unrealised gains/(losses) at 30 June
2006 - 2,230,218 1,955,351 (648,162) 3,537,407
Permanent impairment - - (1,000,000) - (1,000,000)
- 10,772,635 11,272,380 4,294,325 26,339,340
13. The financial information for the six months ended 30 June 2006 has not
been audited or previously published. The information for the year ended 31
December 2005 does not comprise full financial statements within the
meaning of Section 240 of the Companies Act 1985. The financial statements
for the year ended 31 December 2005 have been filed with the Registrar of
Companies. The auditors at that time, KPMG Audit plc, have reported on
these financial statements and that report was unqualified and did not
contain a statement under Section 237(2) of the Companies Act 1985.
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