Annual Report • Jun 30, 2012
Annual Report
Open in ViewerOpens in native device viewer
30 JUNE 2012
Foresight Solar VCT plc aims to combine greater security of capital than is normal within a VCT with the enhancement of investor returns created by the VCT tax benefits — income tax relief of 30% of the amount invested, and tax-free distribution of income and capital gains. The key objective of Foresight Solar VCT plc is to distribute 130.0p per Ordinary Share through a combination of tax-free income, buy-backs and tender offers before the fifth anniversary of the closing date of the original offer.
For further information go to www.foresightgroup.eu
To obtain VCT tax reliefs on subscriptions up to £200,000 per annum, a VCT investor must be a 'qualifying' individual over the age of 18 with UK taxable income. The tax reliefs for subscriptions are:
Foresight Solar VCT plc ('the Company') has satisfied the conditions for Venture Capital Trust status under sections 274–280A of the Income Tax Act 2007 for the period ended 30 June 2011 and the Directors intend to conduct the business of the Company so as to continue to comply with that section. The next complete review will be carried out for the year ended 30 June 2012.
| Financial Highlights | 1 |
|---|---|
| Meet the Board | 2 |
| Chairman's Statement | 3 |
| Investment Manager's Report | 4 |
| Investment Summary | 5 |
| Directors' Report | 8 |
| Directors' Remuneration Report | 16 |
| Statement of Directors' Responsibilities | 18 |
| Independent Auditor's Report | 19 |
| Income Statement | 20 |
| Reconciliation of Movements in Shareholders' Funds | 21 |
| Balance Sheet | 22 |
| Cash Flow Statement | 23 |
| Notes to the Accounts | 24 |
| Shareholder Information | 38 |
| Notice of Annual General Meeting | 39 |
| Corporate Information |
| Year ended 30 June 2012 |
Period from 18 June 2010 to 30 June 2011 |
|
|---|---|---|
| Net asset value per Ordinary Share | 98.8p | 93.6p |
| Revenue return/(loss) per Ordinary Share | 0.1p | (1.1)p |
| Total return/(loss) per Ordinary Share | 5.2p | (1.8)p |
| Share price per Ordinary Share | 93.0p | 95.0p |
"The differing career backgrounds and experience of the Directors is designed to bring a complementary balance of skills, knowledge and wisdom to the management of the Company's affairs."
David Hurst-Brown Chairman
was appointed as Chairman of the Board with effect from 6 August 2012, following the death of Lord Maples. Having graduated as a Production Engineer he worked for over 25 years in the investment banking industry. Prior to his retirement from UBS in 2002 he had worked for 15 years as an executive in the corporate finance division of UBS Warburg. David is currently a director of Hargreave Hale AIM VCT 2 plc, Imagination Technologies Group plc, Ffastfill plc and Anite plc.
has more than 20 years experience in the electricity industry and is currently non-executive chairman of Renewable Energy Generation Ltd and a non-executive director of Jersey Electricity plc. As chief executive for 17 years of this LSE-listed utility, he was involved in several major power generation, transmission and distribution infrastructure projects. Mike was also non-executive chairman of AIM-listed KSK Emerging India Energy Fund which raised almost £100 million to invest in India's power and energy sector. He is a director of the general partner of Foresight Group's first solar power fund, Foresight European Solar Fund GP Limited. Mike is a Fellow of the Royal Academy of Engineering and is a Fellow of The Institution of Engineering and Technology. Mike is considered non-independent by virtue of the fact that he is a Director of another Foresight Group managed fund.
is a divisional director for City-based Lloyd's brokering firm Tasker & Partners, responsible for developing the firm's retail insurance activities. Tim has been a director of insurance broking companies since 1973, was for many years the Senior Examiner in Liability Insurance to the Chartered Insurance Institute, and as a practising expert witness has given evidence in approximately 85 disputes. Tim has specialised in the venture capital sector since 1974, acting as insurance broker to a number of fund managers and other financial institutions, including Foresight Group. Tim is considered an independent Director under the Listing Rules by virtue of the fact that he is not a professional adviser to Foresight Group and does not handle Foresight Group business.
"As a result of a sunnier than expected spring, and despite the recent wet weather, the plants are performing in line or better than original expectations."
David Hurst-Brown Chairman
The Board of Foresight Solar VCT plc was saddened by the sudden and unexpected death of its previous Chairman, Lord Maples of Stratford upon Avon, who had steered the VCT so ably through its recent fundraising and investment program. The Board, the Directors of Foresight Group CI Limited ('Foresight Group') and his many colleagues and friends within the Group continue to extend their thoughts and deepest sympathy to his family.
I am pleased to be able to report that the construction of the Company's portfolio of solar investments was completed during the year under review and the fund is now fully invested. As a result of a sunnier than expected spring, and despite the recent wet weather, the plants are performing in line or better than original expectations. All of the investments made are more fully described in the Investment Manager's Report, although the initial performance of our investments has resulted in a 5.6% increase in net asset value to 98.8p at 30 June 2012 from 93.6p a year earlier.
In addition, the offer for subscription to raise up to £40 million by issues of Ordinary Shares pursuant to the prospectus originally published by Foresight Solar VCT plc on 31 August 2010 ('the Offer') proved attractive to investors with some £37.8 million having been raised by the time the offer closed in November 2011.
The Board plans to pay dividends of 5.0p per Ordinary Share each year throughout the life of Foresight Solar VCT plc after the first year, payable bi-annually via dividends of 2.5p per Ordinary Share in April and October each year. The level of dividends is not, however, guaranteed. In line with original expectations, the first interim dividend of 2.5p per Ordinary Share will be paid on 31 October 2012. It will have a record date of 19 October 2012 and an ex dividend date of 17 October 2012.
During the year, the Board allotted 5,408,320 Ordinary Shares at 100.0p per share and repurchased 104,510 Ordinary Shares for cancellation at a cost of £98,000. A total of 38,366,252 Ordinary Shares were in issue at 30 June 2012.
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. The portfolio valuations are prepared by Foresight Group, reviewed and approved by the Board quarterly and subject to audit annually.
The Company's Annual General Meeting will take place on 18 December 2012. I look forward to welcoming you to the Meeting, which will be held in Sevenoaks, details of which can be found on page 39 of the Annual Report and Accounts.
The Board and Foresight Group, the Investment Manager, are satisfied with the current portfolio and the quality of the returns expected from those projects, which gives us confidence in achieving the original objectives of the Company.
Although wider economic conditions are still fragile the Board and the Investment Manager believe that those projects made to date will provide attractive returns to shareholders over the longer term.
David Hurst-Brown Chairman 31 October 2012
During the financial year, the VCT offer closed having raised £37.8 million. The initial investment phase was also completed by our target date of 5 April 2012 which facilitates the cash generation required to meet the VCT's annual 5.0p per Ordinary Share dividend targets. The majority of the underlying investments are UK ground based solar plants.
The UK photovoltaic ('PV') solar market has now grown to more than 1.3 gigawatts representing 10% of the UK's total renewable energy output. Most of the installed capacity post the 1 August 2011 Feed-in Tariff (FiT) deadline for larger scale projects has been in the domestic rooftop market. As a result, current opportunities to invest in larger scale projects, the preferred domain of the VCT, are limited. The larger scale UK solar market is now focusing on the Renewable Obligation Credit (ROC) subsidy mechanism which is set at an attractive level for Solar PV (two ROCs per kw/h produced), for plants connected before 1 April 2013. We therefore expect quarter 1 in 2013 to be an active period for new installations which may present further investment opportunities for the VCT. Funding for further investment opportunities could be delivered by refinancing the existing investments within the VCT.
Investments were completed during the period in qualifying companies which commenced trading in operational ground-based PV plants in Kent, Wiltshire and Somerset representing some £27.5 million. Foresight Group's Solar EIS Fund has also invested in similar plants. The PV plants were all connected to the electricity grid before 1 August 2011 either in their entirety or under the extension scheme allowed by Ofgem and therefore all of the VCT's UK solar investments benefit from the highest level of FiT that has been available for larger scale PV plants in the UK.
The VCT has also indirectly invested a further £3.5 million in an Italian co-investment vehicle, ForVEI, together with French infrastructure investor, CDC, and other Italian and Middle East institutions and family offices. ForVEI has invested in seven operating Italian ground based solar PV plants and continues to have capital available to make further investments. The larger scale of the ForVEI portfolio should help attract interest from eventual acquirers of the VCT's solar assets which could enhance potential proceeds on a sale. A small investment has also been made in an operating Spanish solar PV plant.
The portfolio is currently performing above expectations. We are alert to opportunities that can optimise energy production at the solar plants and lead to cost efficiencies. We are currently reviewing opportunities to consolidate operating and maintenance activities, optimise equipment, power purchase agreements where relevant and generate administrative efficiencies.
The VCT has invested in a portfolio of qualifying companies trading in operating solar PV plants that should deliver the cash flow for the target dividend payments to shareholders. The cash flow should be predictable given the nature of PV projects and the indexed 25 year feed-in tariff in place. Where possible, we will consider a re-financing of a proportion of the investments made to date if suitable opportunities arise which would enhance returns to shareholders.
Head of Infrastructure 31 October 2012
| 30 June 2012 | 30 June 2011 | ||||
|---|---|---|---|---|---|
| Amount | Amount | ||||
| Invested | Valuation | Invested | Valuation | ||
| Investment | £ | £ | Valuation Methodology | £ | £ |
| Kent Solar Plant | |||||
| Ariel Solar 08 Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| Blyth Solar Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| Enceladus Solar 02 Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| Miranda Solar 09 Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| Oberon Solar 05 Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| Rugby Solar Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| Saturn Solar 04 Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| Tethys Solar 01 Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| Titania Solar 06 Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| Umbriel Solar 07 Limited | 1,000,000 | 1,079,200 | Discounted cashflow | — | — |
| 10,000,000 | 10,792,000 | ||||
| Malmesbury Solar Plant | |||||
| Bude Solar Limited | 1,000,000 | 1,119,700 | Discounted cashflow | — | — |
| Bute Solar Limited | 500,000 | 545,900 | Discounted cashflow | — | — |
| Hull Solar Limited | 1,000,000 | 1,119,700 | Discounted cashflow | — | — |
| Kesh Solar Limited | 1,000,000 | 1,119,700 | Discounted cashflow | — | — |
| Liss Solar Limited | 1,000,000 | 1,119,700 | Discounted cashflow | — | — |
| Looe Solar Limited | 1,000,000 | 1,119,700 | Discounted cashflow | — | — |
| Rhyl Solar Limited | 1,000,000 | 1,119,700 | Discounted cashflow | — | — |
| Sark Solar Limited | 1,000,000 | 1,119,700 | Discounted cashflow | — | — |
| 7,500,000 | 8,383,800 | ||||
| Puriton Solar Plant | |||||
| Deal Solar Limited | 1,000,000 | 1,025,400 | Discounted cashflow | — | — |
| Diss Solar Limited | 1,000,000 | 1,025,400 | Discounted cashflow | — | — |
| Neried Solar 12 Limited | 1,000,000 | Discounted cashflow | — | — | |
| 1,025,400 | |||||
| Proteus Solar 14 Limited | 1,000,000 | 1,025,400 | Discounted cashflow | — | — |
| Puck Solar 10 Limited | 1,000,000 | 1,025,400 | Discounted cashflow | — | — |
| Triton Solar 13 Limited | 1,000,000 | 1,025,400 | Discounted cashflow | — | — |
| Uranus Solar 11 Limited | 1,000,000 | 1,025,400 | Discounted cashflow | — | — |
| Bridgwater Solar Plant | 7,000,000 | 7,177,800 | |||
| Bury Solar Limited | 1,000,000 | 1,064,300 | Discounted cashflow | — | — |
| Charon Solar 16 Limited | 1,000,000 | 1,064,300 | Discounted cashflow | — | — |
| Neptune Solar 15 Limited | 1,000,000 | 1,064,300 | Discounted cashflow | — | — |
| 3,000,000 | 3,192,900 | ||||
| Total UK | 27,500,000 | 29,546,500 | |||
| Italian Solar Plant | |||||
| Foresight VCT (Lux) 1 S.â r.l | 4,385,759 | 4,847,964 | * Discounted cashflow | 908,664 | 929,883 |
| Foresight VCT (Lux) 2 S.â r.l | 10,854 | 10,854 | Cost | 10,854 | 10,854 |
| 4,396,613 | 4,858,818 | 919,518 | 940,737 | ||
| Spanish Solar Plant | |||||
| Foresight Luxembourg Solar 2 S.â r.l | 2,318,966 | 2,105,510 | * Cost | 2,318,966 | 2,353,192 |
| 2,318,966 | 2,105,510 | 2,318,966 | 2,353,192 | ||
| 34,215,579 | 36,510,828 | 3,238,484 | 3,293,929 |
Foresight VCT (Lux) 1 S.â r.l. and Foresight VCT (Lux) 2 S.â r.l. are the holding vehicles for ForVEI Srl.
* Some of the differences between the original costs and valuations relate to currency movements. However, the Company has entered into currency options to offset the currency losses, so the Company does not suffer currency gains or losses on the investment cost. The currency options are not reflected in cost but in current assets on the face of the Balance Sheet. When the investments are sold the Company can exercise its option and receive back UK Sterling at the same Euro exchange rate they were purchased at. In the meantime the value of the option (derivative) varies in value depending on movements in the Euro and UK Sterling exchange rate and this unrealised change in value is credited or charged to the profit and loss account as a gain or loss on the value of derivatives.
Details of projects by value are shown on pages 6 and 7.
Kent Solar is a 4.9MW operational PV plant in Aylesford, Kent. The plant was commissioned and connected to the national grid before the 1 August 2011 FiT deadline and therefore attracts the highest FiT rate that has been available in the UK for projects of this size. Production to date is above expectation.
| First investment | August 2011 | |
|---|---|---|
| Voting rights | 49% | No accounts prepared |
| Income received and receivable in the year £83,425 | since the investment | |
| Equity at cost | £3,000,000 | was made |
| Loan stock at cost | £7,000,000 |
Malmesbury Solar is a 5.0MW operational PV plant in Wiltshire. The plant was commissioned and connected to the national grid before the 1 August 2011 FiT deadline and therefore attracts the highest FiT rate that has been available in the UK for projects of this size. Production to date is above expectation.
| First investment | December 2011 | |
|---|---|---|
| Voting rights | 49% | No accounts prepared |
| Income received and receivable in the year £62,569 | since the investment | |
| Equity at cost | £2,250,000 | was made |
| Loan stock at cost | £5,250,000 |
Puriton Solar is a 4.0MW operational PV plant in Puriton, Somerset. The plant was partially commissioned and connected to the national grid before the 1 August 2011 FiT deadline and therefore attracts the highest FiT rate that has been available in the UK for projects of this size. Production to date is above expectation.
| First investment | February 2012 | |
|---|---|---|
| Voting rights | 48% | No accounts prepared |
| Income received and receivable in the year £58,397 | since the investment | |
| Equity at cost | £2,100,000 | was made |
| Loan stock at cost | £4,900,000 |
Bridgwater Solar is a 1.9MW operational plant in Bridgwater, Somerset. The plant was partially commissioned and connected to the national grid before the 1 August 2011 FiT deadline and therefore attracts the highest FiT rate that has been available in the UK for projects of this size. Final commissioning took place in October 2011. Production to date is above expectation.
| First investment | February 2012 | |
|---|---|---|
| Voting rights | 43% | No accounts prepared |
| Income received and receivable in the year £25,027 | since the investment | |
| Equity at cost | £900,000 | was made |
| Loan stock at cost | £2,100,000 |
These plants are a joint venture with VEI Capital, an investment fund owned by five Italian institutions including Generali and Intesa. A further Italian investment fund called Quercus joined the joint venture during the period. Five further investments have been made in operating Italian PV plants during the year.
| First investment | June 2011 | ||
|---|---|---|---|
| % Equity/voting rights | 20% | No accounts prepared | |
| Income received and receivable in the year | £214,512 | since the investment | |
| Equity at cost | including Foresight VCT (Lux) 1 | £63,131 | was made |
| } Loan stock at cost |
and Foresight VCT (Lux) 2 | £4,333,482 |
Foresight Luxembourg Solar 2 S.â r.l. is the holding vehicle for an operating Spanish solar photovoltaic plant. Foresight funds, together with the Italian family office GWM, are co-owners of the plant which has been operating since September 2008 and producing electricity that is supplied to the electricity grid. It benefits from an attractive feed-in tariff which is no longer available to new projects and is performing reliably but short term cash flows have been impacted by a retrospective cap on production enforced by the Spanish government for the period 2011–2013. Foresight arranged a project finance facility alongside the equity to finance the acquisition of the plant.
| First investment | June 2011 | |
|---|---|---|
| % Equity/voting rights | 14% | No accounts prepared |
| Income received and receivable in the year — | since the investment | |
| Equity at cost | £2,318,966 | was made |
| Loan stock at cost | — |
Foresight Group also manages or advises Foresight VCT plc, Foresight 2 VCT plc, Foresight 3 VCT plc, Foresight 4 VCT plc, Albany Ventures Fund III Limited, Foresight Environmental Fund LP, Foresight European Solar Fund LP, Foresight Solar EIS, Foresight Sustainable UK Investment Fund ('Foresight Sustainable') and UK Waste Resources and Energy Investments LP. There are no common investments between these funds and Foresight Solar VCT plc.
The Directors present their report together with the audited financial statements of the Company for the year ended 30 June 2012.
Foresight Solar VCT plc invests and will continue to invest mainly in unquoted companies that generate electricity from solar power systems and benefit from long-term government-related price guarantees.
The Company is not an investment company within the meaning of Section 833 of the Companies Act 2006. It has satisfied the requirements as a Venture Capital Trust under sections 274–280A of the Income Tax Act 2007 for the period ended 30 June 2011. The Company has complied with the regulations governing Venture Capital Trusts and their investments and the Directors have managed and intend to continue to manage the Company's affairs in such a manner as to comply with these regulations. The next complete review will be carried out for the year ended 30 June 2012.
The purpose of this review is to provide shareholders with a snapshot summary setting out the business objectives of the Company, the Board's strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators (KPIs) used to measure performance.
Foresight Solar VCT plc is a company listed on The London Stock Exchange.
Foresight Solar VCT plc aims to combine greater security of capital than is normal within a VCT with the enhancement of investor returns created by the VCT tax benefits — income tax relief of 30% of the amount invested, and tax-free distribution of income and capital gains. The key objective of Foresight Solar VCT plc is to distribute 130.0p per Ordinary Share issued under the Offer to shareholders in the prospectus dated 31 August 2010 and remaining in issue at the date of calculation, through a combination of tax-free income, buy-backs and tender offers before the fifth anniversary of the closing date of the Offer.
Foresight Solar VCT plc will invest mainly in unquoted companies that generate electricity from solar power systems and benefit from longterm government-related price guarantees.
A proportion of realised gains will normally be retained for reinvestment and to meet future costs. Subject to this, the Company will endeavour to maintain a regular dividend payment of the order of 5.0p per Ordinary Share per year after the first year in aggregate, although a greater or lesser sum may be paid in any year.
The Company invests in a range of securities including, but not limited
to, ordinary and preference shares, loan stock, convertible securities, and other interest bearing instruments as well as cash. Unquoted investments are usually structured as a combination of ordinary shares, preference shares and loan stocks. The Company may invest in money-market instruments, short dated bonds, unit trusts, OEICs, structured products and other assets, where Foresight believes that the risk/return profile is consistent with the overall investment objectives of Foresight Solar VCT plc.
Investments are primarily made in companies which are substantially based in the UK. The companies in which investments are made must have no more than £15 million of gross assets at the time of investment for funds raised after 6 April 2012 (or £7 million if the funds being invested were raised after 5 April 2006 but before 6 April 2012) to be classed as a VCT qualifying holding.
Since 6 April 2012 a VCT may not make investments pursuant to what are termed 'disqualifying arrangements' where a main purpose of the investment may be to secure that the investment will be a qualifying holding or that person(s) may secure tax relief in respect of the investment and additionally, a party to the arrangements will benefit from the majority of the amount raised by the investee company or it is reasonable to expect that the component activities of the investee company's business would have been carried on by a third party in any event even if the investment were not made. Additionally, provided an investee company is not in a partnership or joint venture in which case the old investment restriction of £1 million remains, a VCT may now invest up to £5 million in an investee company in any rolling period of 12 months, but no longer can an investee company deploy funds raised after 6 April 2012 on the acquisition of the shares of other companies. These new rules do not currently concern Foresight Solar VCT plc which achieved its investment targets before 5 April 2012.
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue & Customs. Amongst other conditions, the Company may not invest more than 15% of its investments in a single company and must have at least 70% by value of its investments throughout the period in shares or securities comprised in Qualifying Holdings, of which 30% by value in aggregate across the portfolio must be ordinary shares which carry no preferential rights (although only 10% per investment needs to be in the ordinary shares of the Qualifying company).
The Company invests in unquoted companies that seek to generate solar electricity and benefit from long-term government-backed price guarantees. Investments may be made in companies seeking to generate renewable energy from other sources provided that these benefit from similar long-term government-backed price guarantees. No investments of this nature have been made to date. The Board have ensured that at least 70% of net funds raised under the Offer have been invested in companies whose primary business is the generation of
solar electricity. Any uninvested funds are held in cash, interest bearing securities or other investments.
Risk is spread by investing in a number of different companies and by targeting a variety of separate locations for the solar power assets. The maximum amount invested by the Company in any one company is limited to 15% of the portfolio at the time of investment. The value of an investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale. Solar projects can in aggregate exceed this limit but suitable structures are put in place so that individual corporate investments do not.
The Company's Articles permit borrowing, to give a degree of investment flexibility. The Board's current policy is not to use borrowing. In any event, under the Company's Articles no money may be borrowed without the sanction of an ordinary resolution if the principal amount outstanding of all borrowings by the Company and its subsidiary undertakings (if any), then exceeds, or would as a result of such borrowing exceed, a principal amount equal to the aggregate of the share capital and consolidated reserves of the Company and each of its subsidiary undertakings as shown in the audited consolidated balance sheet. The underlying portfolio companies in which Foresight Solar VCT plc invests may utilise bank borrowing to finance asset purchases but such borrowing would be non-recourse to Foresight Solar VCT plc.
The Board has engaged Foresight Group as discretionary investment manager. Foresight Group also provides or procures the provision of administrative and custodian services to the Company.
Foresight Fund Managers Limited is the secretary of the Company.
Foresight Group prefers to take a lead role in the companies in which it invests. Larger investments may be syndicated with other investing institutions or strategic partners with similar investment criteria.
A review of the investment portfolio and of market conditions during the period is included within the Investment Manager's Report.
The Board believes that the principal risks faced by the Company are:
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.
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.
The Company believes that solar power generation supported by FiTs is attractive for investors in a time of economic uncertainty and government spending austerity. Demand for solar electricity in the UK is not dependent on a general economic recovery and is expected to grow at rates well above GDP growth. In the UK, FiTs are paid by utilities (the licensed electricity supply companies) and not by the government. The UK government has committed to source 15% of all of the UK's energy needs from renewable sources by 2020 and this commitment implies a need for investment of an estimated £100 billion, part of which is expected to be directed to solar power. Italy, Spain and other EU countries have similar commitments.
The Board expects the Manager to deliver a performance which meets the objectives of providing investors with attractive returns from a portfolio of investments in Solar projects and maintaining a steady flow of tax free dividends for shareholders. The key performance indicators in meeting these objectives are net asset value performance and dividends paid, which when combined give net asset value total return. Additional performance indicators reviewed by the Board include the discount of the share price relative to net asset value and total expenses as a ratio of shareholders funds.
A record of some of these indicators is contained on page 3 entitled '2012 Highlights'. Additional comments are provided in the Chairman's Statement discussing the performance of the Company over the current year. The total expense ratio in the period was 2.3%, which compares favourably with the wider VCT industry. Share buy-backs have been completed at close to net asset value in accordance with the original prospectus.
The Board's policy is to buy back Shares in the market at a price close to their net asset value, less transaction costs payable to market makers and stockbrokers. Combined, these KPIs compare favourably with the wider VCT marketplace based on independently published information.
A review of the Company's performance during the financial period, the position of the Company at the period end and the outlook for the coming year is contained within the Investment Manager's Report.
The Board assesses the performance of the Manager in meeting the Company's objective against the primary KPIs highlighted.
Foresight Solar VCT plc is a Venture Capital Trust and has three Non-Executive Directors but no employees and contracts its investment activities to its investment manager, Foresight Group. These investments have clear environmental benefits such as clean generation of electricity and carbon emissions reduction.
| Period from | ||
|---|---|---|
| Year ended | 18 June 2010 | |
| 30 June | to 30 June | |
| 2012 | 2011 | |
| £'000 | £'000 | |
| Return/(loss) on ordinary activities | ||
| after taxation | 1,932 | (333) |
| Dividend paid | — | — |
| 1,932 | (333) | |
No dividends were paid in the year to 30 June 2012 (2011: nil).
During the year, 5,408,320 Ordinary Shares were allotted at 100.0p per share, made up from £5,363,500 of gross funds raised and £44,820 of re-invested commission.
There were 104,510 Ordinary Shares repurchased in the period for a total cost of £98,000.
The Company entered CREST, a paperless settlement system, on 1 November 2010. CREST is a voluntary system and those Shareholders who wish to retain their certificates may do so.
The Directors who held office during the year and their interests in the issued Ordinary Shares of 1.0p each of the Company were as follows:
| 30 June 2012 |
30 June 2011 |
|
|---|---|---|
| Ordinary Shares |
Ordinary Shares |
|
| Lord Maples Estate | 10,200 | 10,200 |
| Mike Liston Tim Dowlen |
— 21,000 |
— 21,000 |
David Hurst-Brown who joined the Board after the year end, holds 52,500 Ordinary Shares of 1.0p each of the Company. There have been no other changes in the Directors' share interests.
In accordance with the Articles of Association and the requirements of the UK Corporate Governance Code, Mr Hurst-Brown, Mr Liston and Mr Dowlen retire through rotation and, being eligible, offer themselves for reappointment. Biographical notes on the Directors are given on page 2.
The Board believes that Mr Hurst-Brown's, Mr Liston's and Mr Dowlen's balance of skills, experience and knowledge continue to complement each other and add value to the Company and recommends to Shareholders their reappointment to the Board.
None of the Directors has a contract of service with the Company.
Foresight Group is the Investment Manager of the Company and provides management and other administrative services.
Foresight Fund Managers Limited is the Secretary of the Company. The principal terms of the investment management and secretarial services agreement are set out in Note 3 of the accounts.
Since the end of the year, the Management Engagement and Remuneration Committee has reviewed the appropriateness of the Manager's appointment. In carrying out its review, the Management Engagement and Remuneration Committee considered the investment performance of the Company and the ability of the Investment Manager to produce satisfactory investment performance. It also considered the length of the notice period of the investment management contract and fees payable to the Manager, together with the standard of other services provided which include administration services. The Directors are of the opinion that the continuing appointment of the Investment Manager on the terms agreed is in the interests of Shareholders as a whole.
No Director has an interest in any contract to which the Company is a party. Foresight Group earned management fees of £520,000 (2011: £179,000) investee company arrangement fees of £716,000 (2011: £0) and administration fees excluding VAT of £104,000 (2011: £40,000) during the year. Foresight Group is also a party to the performancerelated incentive agreement described in Note 13 to the financial statements. No carried interest payment was made in the year.
RW Blears LLP advise Foresight Solar VCT plc on compliance with legislative requirements relating to VCTs. RW Blears LLP review investment activity as appropriate and carry out regular reviews of Foresight Solar VCT plc's investment portfolio. RW Blears LLP work closely with Foresight Group, but report directly to the Board.
So far as the Directors are aware, there were no individual shareholdings representing 3% or more of the Company's issued share capital at the date of this report.
Details of all financial instruments used by the Company during the year are given in Note 15 to the financial statements.
The Company does not subscribe to a particular creditor payment policy. Suppliers are paid by the due date and investment purchases are settled in accordance with the stated terms. At the year end trade creditors represented an average credit period of 60 days (2011: 2 days).
A formal notice convening the Annual General Meeting to be held on 18 December 2012 can be found on pages 39 and 40. Resolutions 1 to 7 will be proposed as ordinary resolutions meaning that for each resolution to be passed more than half of the votes cast at the meeting must be in favour of the resolution. Resolutions 8 and 9 will be proposed as special resolutions meaning that for each resolution to be passed at least 75% of the votes cast at the meeting must be in favour of the resolution.
Resolution 7 will authorise the Directors to allot relevant securities generally, in accordance with Section 551 of the Companies Act 2006, up to a nominal amount of £200,000 (representing 52.1% of the current issued share capital of the Company at the date of signing) for the purposes listed under the authority requested under Resolution 8. This includes authority to issue shares pursuant performance incentive fee arrangements with Foresight Group and top-up offers for subscription to raise new funds for the Company if the Board believes this to be in the best interests of the Company. Any offer is intended to be at an offer price linked to NAV. The authority and power conferred by Resolution 7 will expire on the fifth anniversary of the passing of the resolution.
Resolution 8 will sanction, in a limited manner, the disapplication of pre-emption rights in respect of the allotment of equity securities (i) with an aggregate nominal value of up to £100,000 pursuant to offer(s) for subscription, (ii) with an aggregate nominal value of up to 10% of the issued share capital of the Company pursuant to performance incentive arrangements with Foresight Group and (iii) with an aggregate nominal value of up to 10% of the issued share capital of the Company for general purposes, in each case where the proceeds of such issue may in whole or part be used to purchase the Company's shares. This authority will expire at the conclusion of the Annual General Meeting to be held in 2013.
It is proposed by Resolution 9 that the Company be empowered to make market purchases (within the meaning of Section 693(4) of the Companies Act 2006) of its own shares. Under this authority the Directors may purchase up to 5,751,101 Shares, representing approximately 14.99% of the issued share capital. When buying shares, the Company cannot pay a price per share which is more than 105% of the average of the middle market quotation for shares, taken from the London Stock Exchange daily official list for the five business days immediately preceding the day on which shares are purchased or, if greater, the amount stipulated by Article 5(1) of the Buyback and Stabilisation Regulation 2003. This authority shall expire at the conclusion of the Annual General Meeting to be held in 2013.
Whilst, generally, the Company does not expect shareholders will want to sell their shares within five years of acquiring them because this may lead to a loss of tax relief, the Directors anticipate that from time to time a shareholder may need to sell shares within this period. Front end VCT income tax relief is only obtainable by an investor who makes an investment in the new shares issued by the Company. This means that an investor may be willing to pay more for new shares issued by the Company than he would pay to buy shares from an existing shareholder. Therefore, in the interest of shareholders who may need to sell shares from time to time, the Company proposes to renew the authority to buy-in shares for the benefit of new as well as existing shareholders. This authority, when coupled with the ability to issue new shares for the purposes of financing a purchase of shares in the market, enables the Company to purchase shares from a shareholder and effectively to sell on those shares through the Company to a new investor with the potential benefit of full VCT tax relief. In making purchases the Company will deal only with member firms of the London Stock Exchange at a discount to the then prevailing net asset value per Ordinary Share of the Company's shares to ensure that existing shareholders are not disadvantaged.
The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
The following disclosures are made in accordance with Section 992 of the Companies Act 2006.
The Company has issued share capital of 38,366,252 Ordinary Shares as at 30 June 2012.
Details of the voting rights in the Company's shares at the date of this report are given in Note 5 in the Notice of Annual General Meeting on page 40.
At the date of this report no notifiable interests had been declared in the Company's voting rights.
In accordance with Section 485 of the Companies Act 2006, a resolution to re-appoint Ernst & Young LLP as the Company's auditor will be put to the forthcoming Annual General Meeting.
The Directors of Foresight Solar VCT plc confirm that the Company has taken the appropriate steps to enable it to comply with the Principles set out in Section 1 of the UK Corporate Governance Code issued by the Financial Reporting Council in June 2010, as appropriate for a Venture Capital Trust.
As a Venture Capital Trust, most of the Company's day-to-day responsibilities are delegated to third parties and the Directors are all nonexecutive. Thus not all the procedures of the UK Corporate Governance Code are directly applicable to the Company. Unless noted as an exception below, the requirements of the UK Corporate Governance Code were complied with throughout the year ended 30 June 2012.
The Company at present has a Board comprising the Chairman and two other Non-Executive Directors. The Chairman and Tim Dowlen are considered to be independent. Mike Liston is considered nonindependent by virtue of the fact that he is a Director of another Foresight Group managed fund.
As a result of the sad and sudden passing of Lord Maples of Stratford upon Avon on 9 June 2012, the Company only had two directors for a period of 57 days until the appointment of David Hurst-Brown as Chairman of the Board on 6 August 2012. For the duration of this period, the Company was technically in breach of provision B.1.2 of the Corporate Governance Code which requires that a smaller company, namely one which is below the FTSE 350, has at least two independent non-executive directors. Of the two directors of the Company during this period, Mike Liston would not be deemed to be independent due to his position as a director of another Foresight Group managed fund. Mr Hurst-Brown, however, together with Tim Dowlen, would in the view of the Board be deemed to be independent as neither has any relationships or circumstances which are likely to or could affect their judgement as directors of the Company. As such, the Company has complied with provision B.1.2 since the appointment of Mr Hurst-Brown. The Board are not aware of any other breaches of the Corporate Governance Code.
An announcement was made to the UKLA in respect of Lord Maples' death on 14 June 2012 and the subsequent appointment of Mr Hurst-Brown was announced on 6 August 2012.
The Board is responsible to shareholders for the proper management of the Company and meets at least quarterly and more often on an ad hoc basis as required. It has formally adopted a schedule of matters that are required to be brought to it for decision, thus ensuring that it maintains full and effective control over appropriate strategic, financial, operational and compliance issues. A management agreement between the Company and its Manager sets out the matters over which the Manager has authority, including monitoring and managing the existing investment portfolio and the limits above which Board approval must be sought. All other matters are reserved for the approval of the Board of Directors. The Manager, in the absence of explicit instruction from the Board, is empowered to exercise discretion in the use of the Company's voting rights.
Individual Directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. In view of its non-executive nature and the requirements of the Articles of Association that all Directors retire by rotation at the Annual General Meeting, the Board considers that it is not appropriate for the Directors to be appointed for a specific term as recommended by provision B.23 of the UK Corporate Governance Code. Non-independent Directors and Directors who have been on the Board for more than nine years are required to retire annually.
Full details of duties and obligations are provided at the time of appointment and are supplemented by further details as requirements change, although there is no formal induction programme for Directors as recommended by provision B.4.1.
The Board has appointed a Company Secretary who also attends all Board meetings. A representative of the Company Secretary attends all formal Committee Meetings although the Directors may meet without the Manager being present. Informal meetings with management are also held between Committee Meetings as required. The Company Secretary ensures full information is provided to the Board in advance of each Committee Meeting.
| Board | Audit | |
|---|---|---|
| Mike Liston | 4/4 | 1/1 |
| Tim Dowlen | 4/4 | 1/1 |
| David Hurst-Brown | ||
| (appointed 6 August 2012) | N/A | N/A |
No nomination, remuneration or risk committees took place during the year.
In the light of the responsibilities retained by the Board and its committees and of the responsibilities delegated to Foresight Group and RW Blears LLP, the Company has not appointed a chief executive officer, deputy Chairman or a senior independent non-executive Director as recommended by provision A.4.1 of the UK Corporate Governance Code. The provisions of the UK Corporate Governance Code which relate to the division of responsibilities between a chairman and a chief executive officer are, accordingly, not applicable to the Company.
The Directors have the benefit of indemnities under the articles of association of the Company against any liabilities they may incur in relation to the Company, to the extent permitted by law.
An insurance policy is maintained by the Company which indemnifies the Directors of the Company against certain liabilities arising in the conduct of their duties. There is no cover against fraudulent or dishonest actions.
The Board has adopted formal terms of reference for three standing committees which make recommendations to the Board in specific areas. These are available to view by writing to the Company Secretary at the registered office.
The Audit Committee comprises Mike Liston (Chairman), David Hurst-Brown and Tim Dowlen, all of whom are considered to have sufficient recent and relevant financial experience to discharge the role, and meets to, amongst other things;
The Board retains Ernst & Young LLP as the Company's auditor.
In relation to taxation services, Cornel Partners Limited have been engaged by the Board. The Audit Committee is of the opinion that Cornel Partners Limited are best placed to provide these taxation services.
The Nomination Committee comprises David Hurst-Brown (Chairman), Mike Liston and Tim Dowlen and intends to meet at least annually to consider the composition and balance of skills, knowledge and experience of the Board and would make nominations to the Board in the event of a vacancy. New Directors are required to resign at the Annual General Meeting following appointment and then every three years by rotation.
The Management Engagement and Remuneration Committee (which has responsibility for reviewing the remuneration of the Directors) comprises David Hurst-Brown (Chairman), Mike Liston and Tim Dowlen and intends to meet at least annually to consider the levels of remuneration of the Directors, specifically reflecting the time commitment and responsibilities of the role. The Committee also undertakes external comparisons and reviews to ensure that the levels of remuneration paid are broadly in line with industry standards. The Management Engagement and Remuneration Committee also reviews the appointment and remuneration of the Manager.
The Board undertakes a formal annual evaluation of its own performance and that of its committees. There is no formal annual evaluation of individual Directors as recommended by provision B.6 of the UK Corporate Governance Code. Initially, the evaluation takes the form of a questionnaire for the Board as a whole (and its committees as a whole). The Chairman then discusses the results with the Board (and its committees) and following completion of this stage of the evaluation, the Chairman will take appropriate action to address any issues arising from the process.
The Company communicates with shareholders and solicits their views where it is appropriate to do so. Individual shareholders are made welcome at the Annual General Meeting where they have the opportunity to ask questions of the Directors, including the Chairman, as well as the Chairman of the Audit, Management Engagement and Remuneration and Nomination Committees. The Board may from time to time also seek feedback through shareholder questionnaires, workshops and an open invitation for shareholders to meet the investment manager. The Company is not aware of any institutional shareholders in the capital of the Company.
The Directors of Foresight Solar VCT plc have overall responsibility for the Company's system of internal control and for reviewing its effectiveness.
The internal controls system is designed to manage rather than eliminate the risks of failure to achieve the Company's business objectives. The system is designed to meet the particular needs of the Company and the risks to which it is exposed and by its nature can provide reasonable but not absolute assurance against misstatement or loss.
The Board has delegated much of the financial administration of the Company to Foresight Group who are the appointed Accountant. They have an established system of internal control, including internal financial controls, to ensure that proper accounting records are maintained and that financial information for use within the business and for reporting to shareholders is accurate and reliable and that the Company's assets are safeguarded. A representative of Foresight
Fund Managers Limited, the Company Secretary, attends all Board meetings.
RW Blears LLP provide legal advice and assistance in relation to the maintenance of VCT tax status, the operation of the agreements entered into with Foresight Group and the application of the Venture Capital Trust legislation to any company in which the Company is proposing to invest.
Foresight Group was appointed by the Board to provide administration services with responsibilities relating to the nonfinancial systems of internal control. All Directors have access to the advice and services of the managers, who are responsible to the Board for ensuring that Board procedures and applicable rules and regulations are complied with.
Pursuant to the terms of their appointment, Foresight Group advise the Company on venture capital investments. Foresight Group, in their capacity as administration providers, have physical custody of documents of title relating to equity investments.
Following publication of Internal Control: Guidance for Directors on the Combined Code (the Turnbull guidance), the Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company, that has been in place for the year under review and up to the date of approval of the annual report and financial statements, and that this process is regularly reviewed by the Board and accords with the guidance. The process is based principally on the Manager's existing risk-based approach to internal control whereby a matrix is created that identifies the key functions carried out by the Manager and other service providers, the individual activities undertaken within those functions, the risks associated with each activity and the controls employed to minimise those risks. A residual risk rating is then applied. The Board is provided with reports highlighting all material changes to the risk ratings and confirming the action which has been, or is being, taken. This process covers consideration of the key business, operational, compliance and financial risks facing the Company and includes consideration of the risks associated with the Company's arrangements with Foresight Group and RW Blears LLP.
The Audit Committee has carried out a review of the effectiveness of the system of internal control, together with a review of the operational and compliance controls and risk management, as it operated during the period and reported its conclusions to the Board which was satisfied with the outcome of the review. The Board has concluded that, given the appointment of Foresight Group as Company accountants and the role of the Audit Committee, it is not necessary to establish an internal audit function at the current time but this policy will be kept under review.
Such review procedures have been in place throughout the full financial year and up to the date of approval of the accounts, and the Board is satisfied with their effectiveness. These procedures are designed to manage, rather than eliminate, risk and, by their nature, can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Board monitors the investment performance of the Company in comparison to its objective at each Board meeting. The Board also reviews the Company's activities since the last Board meeting to ensure that the Investment Manager adheres to the agreed investment policy and approved investment guidelines and, if necessary, approves changes to such policy and guidelines.
The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business review on page 8. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Chairman's statement, business review and the financial statements. In addition, the financial statements include the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Company has considerable financial resources together with investments and income generated therefrom across a variety of industries and sectors. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.
Cash flow projections have been reviewed and show that the Company has sufficient liquid funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buy-back programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing covenants.
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.
By order of the Board
Foresight Fund Managers Limited Company Secretary 31 October 2012
The Board has prepared this report, in accordance with the requirements of Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008. An ordinary resolution for the approval of this report will be put to the members at the forthcoming Annual General Meeting.
The law requires the Company's auditor, Ernst & Young LLP, to audit certain of the disclosures provided. Where disclosures have been audited, they are indicated as such. The auditors' opinion is included in the 'Independent Auditor's Report'.
The Management Engagement and Remuneration Committee comprises all three Directors: David Hurst-Brown (Chairman), Mike Liston and Tim Dowlen.
The Management Engagement and Remuneration Committee has responsibility for reviewing the remuneration of the Directors, specifically reflecting the time commitment and responsibilities of the role, and meets at least annually. The Management Engagement and Remuneration Committee also undertakes external comparisons and reviews to ensure that the levels of remuneration paid are broadly in line with industry standards and members have access to independent advice where they consider it appropriate. During the period neither the Board nor the Management Engagement and Remuneration Committee have been provided with advice or services by any person in respect of its consideration of the Directors' remuneration.
The remuneration policy set by the Board is described below. Individual remuneration packages are determined by the Remuneration Committee within the framework of this policy.
No Director is involved in deciding their own remuneration.
The Board's policy is that the remuneration of non-executive Directors should reflect time spent and the responsibilities borne by the Directors on the Company's affairs and should be sufficient to enable candidates of high calibre to be recruited. The levels of Directors' fees paid by the Company for the period ended 30 June 2012 were agreed during the period.
It is considered appropriate that no aspect of Directors' remuneration should be performance related in light of the Directors' non-executive status, and Directors are not eligible for bonuses or other benefits.
The Company's policy is to pay the Directors monthly in arrears, to the Directors personally or to a third party as requested by any Director.
It is the intention of the Board that the above remuneration policy will continue to apply in the forthcoming financial year and subsequent years.
None of the Directors has a service contract but, under letters of appointment dated 31 August 2010, may resign at any time by notice in writing to the Board. There are no set minimum notice periods but all Directors are subject to retirement by rotation. No compensation is payable to Directors on leaving office. As the Directors are not appointed for a fixed length of time there is no unexpired term to their appointment. However, the Directors will retire by rotation as follows:
| M Liston, T Dowlen, D Hurst-Brown | AGM 2012 |
|---|---|
| M Liston | AGM 2013 |
| M Liston, T Dowlen | AGM 2014 |
The emoluments in respect of qualifying services and compensation of each person who served as a Director during the year were as shown on page 17. No Director has waived or agreed to waive any emoluments from the Company in the current period.
No other remuneration was paid or payable by the Company during the period nor were any expenses claimed or paid to them other than for expenses incurred wholly, necessarily and exclusively in furtherance of their duties as Directors of the Company.
Director liability insurance is held by the Company in respect of the Directors.
The graph on the following page charts the total shareholder return to 30 June 2012, on the hypothetical value of £100 invested by an Ordinary Shareholder. The return is compared to the total shareholder return on a notional investment of £100 in the WilderHill New Energy Global Innovation Index, which is considered by the Board an appropriate index against which to measure the Company's performance.
Only the information below has been audited. See the Independent Auditor's Report on page 19.
| Directors' fees (£) for the year ended 30 June 2012 |
Directors' fees (£) for the period from 18 June 2010 to 30 June 2011 |
|
|---|---|---|
| Mike Liston Tim Dowlen |
20,000 20,000 |
13,750 14,756 |
| Total | 40,000 | 28,506 |
There were also £25,000 of fees earned by Lord Maples within the year (2011: £19,938).
The Directors are not eligible for pension benefits, share options or long-term incentive schemes.
An ordinary resolution for the approval of this Directors' Remuneration Report will be put to shareholders at the forthcoming Annual General Meeting.
This Directors' Remuneration Report was approved by the Board on 31 October 2012 and is signed on its behalf by David Hurst-Brown (Chairman).
On behalf of the Board
Chairman 31 October 2012
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 the Directors 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:
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 its 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 comply 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:
On behalf of the Board
Chairman 31 October 2012
We have audited the financial statements of Foresight Solar VCT plc for the year ended 30 June 2012 which comprise the Income Statement, the Reconciliation of Movements in Shareholders' Funds, the Balance Sheet, the Cash Flow Statement and the related Notes 1 to 18. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Statement of Directors' Responsibilities set out on page 18, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and nonfinancial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion the financial statements:
In our opinion:
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
for and on behalf of
Ernst & Young LLP Statutory Auditor London 31 October 2012
for the year ended 30 June 2012
| Year ended 30 June 2012 | Period from 18 June 2010 to 30 June 2011 | ||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Investment holding gains | — | 2,240 | 2,240 | — | 56 | 56 | |
| Income | 2 | 488 | — | 488 | 11 | — | 11 |
| Investment management fees | 3 | (130) | (390) | (520) | (45) | (134) | (179) |
| Gains/(losses) on the value of | |||||||
| derivatives | — | 63 | 63 | — | (47) | (47) | |
| Other expenses | 4 | (339) | — | (339) | (174) | — | (174) |
| Return/(loss) on ordinary | |||||||
| activities before taxation | 19 | 1,913 | 1,932 | (208) | (125) | (333) | |
| Taxation | 5 | — | — | — | — | — | — |
| Return/(loss) on ordinary | |||||||
| activities after taxation | 19 | 1,913 | 1,932 | (208) | (125) | (333) | |
| Return/(loss) per Ordinary Share | 7 | 0.1p | 5.1p | 5.2p | (1.1)p | (0.7)p | (1.8)p |
The total column of this statement is the profit and loss account of the Company and the revenue and capital columns represent supplementary information.
All revenue and capital items in the above Income Statement are derived from continuing operations. No operations were acquired or discontinued in the 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.
The notes on pages 24 to 37 form part of these financial statements.
| Period from 18 June 2010 to 30 June 2011 | Called-up share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Profit and loss account £'000 |
Total £'000 |
|---|---|---|---|---|---|
| As at 18 June 2010 | — | — | — | — | — |
| Share issues in the period | 331 | 32,731 | — | — | 33,062 |
| Expenses in relation to share issues | — | (1,785) | — | — | (1,785) |
| Loss for the period | — | — | — | (333) | (333) |
| As at 30 June 2011 | 331 | 30,946 | — | (333) | 30,944 |
| Year ended 30 June 2012 | Called-up share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Profit and loss account £'000 |
Total £'000 |
|---|---|---|---|---|---|
| As at 1 July 2011 | 331 | 30,946 | — | (333) | 30,944 |
| Share issues in the year | 54 | 5,354 | — | — | 5,408 |
| Expenses in relation to share issues | — | 338 | — | (633) | (295) |
| Repurchase of shares | (1) | — | 1 | (98) | (98) |
| Cancellation of share premium* | — | (36,638) | — | 36,638 | — |
| Return for the year | — | — | — | 1,932 | 1,932 |
| As at 30 June 2012 | 384 | — | 1 | 37,506 | 37,891 |
* The share premium of the Company was cancelled by order of the High Court of Justice, Chancery Division, on 8 February 2012 and registered at Companies House on 21 February 2012. This has enabled the Company to increase its distributable reserve to which, amongst other things, losses can be written off, providing the Company greater flexibility when considering dividend payments to shareholders and from which share buybacks can be financed.
The notes on pages 24 to 37 form part of these financial statements.
at 30 June 2012 Registered Number: 07289280
| As at 30 June |
As at 30 June |
||
|---|---|---|---|
| 2012 | 2011 | ||
| Audited | Audited | ||
| Notes | £'000 | £'000 | |
| Fixed assets | |||
| Investments held at fair value through profit or loss | 8 | 36,511 | 3,294 |
| Current assets | |||
| Debtors | 9 | 1,240 | 6,514 |
| Money market securities and other deposits | 336 | 18,000 | |
| Cash | 58 | 3,556 | |
| 1,634 | 28,070 | ||
| Creditors | |||
| Amounts falling due within one year | 10 | (254) | (420) |
| Net current assets | 1,380 | 27,650 | |
| Net assets | 37,891 | 30,944 | |
| Capital and reserves | |||
| Called-up share capital | 11 | 384 | 331 |
| Share premium account | — | 30,946 | |
| Capital redemption reserve | 1 | — | |
| Profit and loss account | 37,506 | (333) | |
| Equity shareholders' funds | 37,891 | 30,944 | |
| Net asset value per Ordinary Share | 12 | 98.8p | 93.6p |
The accounts on pages 20 to 37 were approved by the Board of Directors and authorised for issue on 31 October 2012 and were signed on its behalf by:
Chairman 31 October 2012
The notes on pages 24 to 37 form part of these financial statements.
for the year ended 30 June 2012
| Year ended 30 June 2012 £'000 |
Period from 18 June 2010 to 30 June 2011 £'000 |
|
|---|---|---|
| Cash flow from operating activities | ||
| Investment income received | 36 | — |
| Deposit and similar interest received | 7 | 11 |
| Investment management fees paid | (495) | (71) |
| Secretarial fees paid | (106) | (30) |
| Other cash payments | (232) | (85) |
| Net cash outflow from operating activities and returns on investment | (790) | (175) |
| Returns on investment and servicing of finance | ||
| Purchase of investments | (32,190) | (3,134) |
| Net proceeds on sale of investments | 7,108 | — |
| Purchase of financial assets | (361) | (322) |
| Held in Escrow account pending investment | — | (6,000) |
| Net capital outflow from financial investment | (25,443) | (9,456) |
| Equity dividends paid | — | — |
| Financing | ||
| Proceeds of fund raising | 5,577 | 32,279 |
| Reinvested commission Expenses of fund-raising |
— (408) |
557 (1,649) |
| Repurchase of own shares | (98) | — |
| 5,071 | 31,187 | |
| (Decrease)/increase in cash | (21,162) | 21,556 |
| Reconciliation of net cash flow to movement in net funds | ||
| (Decrease)/increase in cash for the year | (21,162) | 21,556 |
| Net cash at start of year | 21,556 | — |
| Net cash at end of year | 394 | 21,556 |
| Analysis of changes in net cash | ||
| At | At | |
| 1 July | Cash | 30 June |
| 2011 | flow | 2012 |
| £'000 | £'000 | £'000 |
| Cash and cash equivalents 21,556 |
(21,162) | 394 |
for the year ended 30 June 2012
A summary of the principal accounting policies, all of which have been applied consistently throughout the period, are set out below:
The financial statements have been prepared under the Companies Act 2006, and in accordance with the United Kingdom Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts issued in January 2009 (SORP).
In accordance with the SORP, the Company presents its Income Statement in a three column format to give shareholders additional detail of the performance of the Company split between items of a revenue and capital nature.
All investments held by the Company are classified as "fair value through profit or loss". The Directors fair value investments in accordance with the International Private Equity and Venture Capital Valuation ("IPEVCV") guidelines, as updated in August 2010. This classification is followed as the Company's business is to invest in financial assets with a view to profiting from their total return in the form of capital growth and income.
For investments actively traded on organised financial markets, fair value is generally determined by reference to Stock Exchange market quoted bid prices at the close of business on the balance sheet date. Purchases and sales of quoted investments are recognised on the trade date where a contract of sale exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional.
Unquoted investments are stated at fair value by the Directors in accordance with the following rules, which are consistent with the IPEVCV guidelines:
All investments are held at cost where there is considered to have been no change in fair value. Where such a basis is no longer considered appropriate, the following factors will be considered:
or
Dividends receivable on quoted equity shares are brought into account on the ex-dividend date. Dividends receivable on unquoted equity shares are brought into account when the Company's rights to receive payment are established and there is no reasonable doubt that payment will be received. Other income such as loan or deposit interest is included on an accruals basis using the effective interest basis. Redemption premiums are recognised on an effective interest rate basis where there is reasonable certainty that the redemption premium will be paid. Where uncertainty exists they will be recognised on realisation of investment.
All expenses (inclusive of VAT) are accounted for on an accruals basis. Expenses are charged through the revenue column of the Income Statement, with the exception that 75% of the fees payable to Foresight Group for management fees are allocated against the capital column of the Income Statement. The basis of the allocation of management fees is expected to reflect the revenue and capital split of long-term returns in the portfolio.
Performance incentive payments will relate predominantly to the capital performance of the portfolio and will therefore be charged 100% to capital. The liability is recognised when the related distribution to shareholders is made.
During the period the Company held non-current asset investments, shares in OEICs ('Open Ended Investment Companies'), money-market funds, cash balances and derivatives. The Company holds financial assets that comprise investments in unlisted companies, qualifying loans, and shares in companies on the Alternative Investment Market. The carrying value for all financial assets and liabilities is fair value.
Any tax relief obtained in respect of management fees allocated to capital is reflected in the capital column of the Income Statement and a corresponding amount is charged against the revenue column. The tax relief is the amount by which corporation tax payable is reduced as a result of these capital expenses.
Provision is made for corporation tax at the current rates on the excess of taxable income over allowable expenses. In accordance with FRS 19 'Deferred Tax', a provision is made on all material timing differences arising from the different treatment of items for accounting and tax purposes.
Investments are recognised at the trade date, being the date that the risks and rewards of ownership are transferred to the Company. Upon initial recognition, investments are held at the fair value of the consideration payable. Transaction costs in respect of acquisitions made are recognised directly in the Income Statement. Investments are derecognised when the risks and rewards of ownership are deemed to have transferred to a third party. Upon realisation, the gain or loss on disposal is recognised in the Income Statement.
Cash, for the purpose of the cash flow statement, comprises cash in hand and deposits repayable on demand. Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are readily convertible into known amounts of cash at their carrying values. Liquid resources comprise money market funds.
Where the Company has used forward/foreign exchange contracts to hedge against its foreign exchange exposure, the Company calculates the fair value gain or loss on the contract at the end and this amount is charged to the Capital column of the Income Statement. The underlying investment is restated at the closing exchange rate and any movement is charged to unrealised reserves.
for the year ended 30 June 2012
| Period from | ||
|---|---|---|
| 18 June | ||
| Year ended | 2010 | |
| 30 June | to 30 June | |
| 2012 | 2011 | |
| £'000 | £'000 | |
| Bank interest | 7 | 11 |
| Overseas based Open Ended Investment Companies ("OEICs") | 37 | — |
| Loan stock interest | 444 | — |
| 488 | 11 |
| Period from | ||
|---|---|---|
| 18 June | ||
| Year ended | 2010 | |
| 30 June | to 30 June | |
| 2012 | 2011 | |
| £'000 | £'000 | |
| Investment management fees charged to the revenue account | 130 | 45 |
| Investment management fees charged to the capital account | 390 | 134 |
| 520 | 179 |
Foresight Group provide investment management services to the Company under an agreement dated 31 August 2010 and receive management fees, paid quarterly in advance, of 1.5% of net assets per annum. If the annual expenses of the Company exceed 3.6% of the Company's total assets less current liabilities, the Company is entitled to reduce the fees paid to the Manager by the amount of the excess.
This agreement may be terminated by either party giving to the other not less than twelve months' notice, at any time after the third anniversary.
Foresight Group also provides administration services to the Company and received annual fees, paid quarterly in advance, for the services provided of £104,000. The annual secretarial and accounting fee (which is payable together with any applicable VAT) is 0.3% of the net funds raised by the offer (subject to a minimum index-linked fee of £60,000).
Foresight Group are responsible for external costs such as legal and accounting fees incurred on transactions that do not proceed to completion ('abort expenses'). In line with industry practice, Foresight Group retain the right to charge arrangement and syndication fees and Directors' or monitoring fees ('deal fees') to companies in which the Company invests. From this, Foresight Group received from investee companies arrangement fees of £716,000 in the year.
Details of the performance-related incentive are given in Note 13.
| Period from | ||
|---|---|---|
| 18 June | ||
| Year ended | 2010 | |
| 30 June | to 30 June | |
| 2012 | 2011 | |
| £'000 | £'000 | |
| Administration services including VAT | 104 | 48 |
| Directors' remuneration including employer's National Insurance contributions | 69 | 48 |
| Auditors' remuneration excluding VAT: | ||
| — audit services | 25 | 24 |
| — non audit services | 3 | 6 |
| Other expenses | 138 | 48 |
| 339 | 174 |
The Company has no employees other than the Directors.
| Period from | ||||||
|---|---|---|---|---|---|---|
| 18 June | ||||||
| Year ended | 2010 | |||||
| 30 June | to 30 June | |||||
| 2012 | 2011 | |||||
| Revenue | Captial | Total | Revenue | Captial | Total | |
| a) Analysis of charge in the year: | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Corporation tax | — | — | — | — | — | — |
| Total tax for the period | — | — | — | — | — | — |
| Deferred tax | — | — | — | — | — | — |
| Total tax | — | — | — | — | — | — |
The tax assessed for the period is lower than the standard rate of corporation tax in the UK (25.5%). The differences are explained below:
| Period from | ||
|---|---|---|
| 18 June | ||
| Year ended | 2010 | |
| 30 June | to 30 June | |
| 2012 | 2011 | |
| £'000 | £'000 | |
| Net return/(loss) before taxation | 1,932 | (333) |
| Corporation tax at 25.5% (2011: 28%) | 493 | (93) |
| Effect of: | ||
| Unutilised management expenses | 95 | 93 |
| Capital items not taxable | 588 | — |
| Current tax charge for the year | — | — |
c) There is an unrecognised deferred tax asset of approximately £172,000 (2011: £93,000). The deferred tax asset relates to the current and prior year unutilised expenses. It is considered too uncertain that there will be taxable profits in the future against which the deferred tax assets can be offset and, therefore, in accordance with FRS 19, the asset has not been recognised.
for the year ended 30 June 2012
| Period from | ||
|---|---|---|
| 18 June | ||
| Year ended | 2010 | |
| 30 June | to 30 June | |
| 2012 | 2011 | |
| £'000 | £'000 | |
| Ordinary Shares | — | — |
The board is recommending a final dividend per Ordinary Share of 0.0p (2011: 0.0p) per share for the year ended 30 June 2012. In line with original expectations, an interim dividend of 2.5p per Ordinary Share for the year ended 30 June 2013 will be paid on 31 October 2012. It will have a record date of 19 October 2012 and an ex dividend date of 17 October 2012.
Set out below are the total dividends payable in respect of the financial year, which is the basis on which the requirements of section 274 of The Income Tax Act 2007 are considered.
| Period from | ||
|---|---|---|
| 18 June | ||
| Year ended | 2010 | |
| 30 June | to 30 June | |
| 2012 | 2011 | |
| £'000 | £'000 | |
| Income available for distribution by way of dividends for the year | 19 | — |
| Revenue dividend for the year ended 30 June 2012 | — | — |
| Period from | ||
|---|---|---|
| 18 June | ||
| Year ended | 2010 | |
| 30 June | to 30 June | |
| 2012 | 2011 | |
| £'000 | £'000 | |
| Total return/(loss) after taxation | 1,932 | (333) |
| Total return/(loss) per share (note a) | 5.2p | (1.8)p |
| Revenue return/(loss) from ordinary activities after taxation | 19 | (208) |
| Revenue return/(loss) per share (note b) | 0.1p | (1.1)p |
| Capital return/(loss) from ordinary activities after taxation | 1,913 | (125) |
| Capital return/(loss) per share (note c) | 5.1p | (0.7)p |
| Weighted average number of shares in issue during the year | 37,361,746 | 18,971,720 |
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.
| Valuation at 30 June 2012 | 36,511 | 36,511 |
|---|---|---|
| Investment holding gains | 2,296 | 2,296 |
| Book cost at 30 June 2012 | 34,215 | 34,215 |
| Valuation at 30 June 2012 | 36,511 | 36,511 |
| Investment holding gains | 2,240 | 2,240 |
| Disposal proceeds | (7,108) | (7,108) |
| Purchases at cost | 38,085 | 38,085 |
| Movements in the year: | ||
| Valuation at 1 July 2011 | 3,294 | 3,294 — |
| Investment holding gains | 56 | 56 |
| Book cost as at 1 July 2011 | 3,238 | 3,238 |
| Unquoted £'000 |
Total £'000 |
|
| 36,511 | 3,294 | |
| Unquoted investments | 36,511 | 3,294 |
| 2012 £'000 |
2011 £'000 |
| 2012 £'000 |
2011 £'000 |
|
|---|---|---|
| Prepayments | 12 | 11 |
| Other debtors | 529 | 228 |
| Monies held in Escrow Account, pending investment | — | 6,000 |
| Financial assets (see financial instruments) | 699 | 275 |
| 1,240 | 6,514 |
for the year ended 30 June 2012
| As at | As at | |
|---|---|---|
| 30 June | 30 June | |
| 2012 | 2011 | |
| £'000 | £'000 | |
| Trade creditors | 183 | 143 |
| Accruals | 54 | 173 |
| Purchases awaiting settlement | — | 104 |
| Other creditors | 17 | — |
| 254 | 420 |
| 2012 £'000 |
2011 £'000 |
|
|---|---|---|
| Allotted, called up and fully paid: | ||
| 38,366,252 Ordinary Shares of 1p each (2011: 33,062,442) | 384 | 331 |
| Ordinary Shares No. |
||
| At 1 July 2011 Allotment of shares Purchase of own shares |
33,062,442 5,408,320 (104,510) |
|
| At 30 June 2012 | 38,366,252 |
During the year, 5,408,320 Ordinary Shares were allotted at 100.0p per share, representing £5,363,500 of gross funds raised and £44,820 of reinvested commission at 30 June 2012. There were also 104,510 shares repurchased in the period for a total cost of £98,000.
Net asset value per Ordinary Share is based on net assets at the year end of £37,891,000 (2011: £30,944,000) and on 38,366,252 Ordinary Shares (2011: 33,062,442 Ordinary Shares), being the number of Ordinary Shares in issue at that date.
After distributions of 100.0p per Ordinary Share issued under the Offer and remaining in issue at the date of calculation have been paid to shareholders by the Company, Foresight Group will become entitled to a performance incentive which will be calculated at the rate of 20% of distributions in excess of 100.0p until total distributions reach 130.0p per share (issued under the Offer and remaining in issue at the date of calculation) and 30% above that level. No payment of the performance incentive will be made to Foresight Group until distributions exceed 100.0p (per Ordinary Share issued under the Offer and remaining in issue at the date of calculation). The performance incentive may be satisfied in cash or by the issue of new Shares to Foresight Group, at the discretion of Foresight Group.
The Company had no capital commitments or contingent liabilities at 30 June 2012 (2011: £nil).
The Company's financial instruments comprise:
The Company held the following categories of financial instruments, all of which are included in the Balance Sheet at fair value, at 30 June 2012:
| 2012 | 2011 | |
|---|---|---|
| (Fair value) | (Fair value) | |
| £'000 | £'000 | |
| Assets at fair value through profit and loss | ||
| Investment portfolio | 36,511 | 3,294 |
| Current investments (money market funds) | 336 | — |
| Cash at bank | 58 | 21,556 |
| 36,905 | 24,850 | |
| Receivables | ||
| Financial asset | 699 | 275 |
| Prepayments and other debtors | 541 | 239 |
| Monies held in Escrow Account, pending investment | — | 6,000 |
| 1,240 | 6,514 | |
| Liabilities | ||
| Creditors | (254) | (420) |
| 37,891 | 30,944 |
for the year ended 30 June 2012
Loans to investee companies are classified as fair value through profit or loss and are included in the investment portfolio.
The investment portfolio will principally consist of unquoted investments and qualifying loan stock valued at fair value. Current asset investments are money market funds, discussed under credit risk management below.
The investment portfolio will have a high concentration of risk towards unquoted UK-based companies (as well as a smaller exposure to unquoted Solar investments in Spain and Italy), the majority expected to be in sterling denominated equity and loan stock holdings.
An analysis of the maturity of the assets of the Company where this is relevant, is provided on the next page. These are assets subject to interest rate risk. There are no liabilities of significance to these accounts that mature beyond one month from the balance sheet date.
The main risks arising from the Company's financial instruments are principally interest rate risk, credit risk and market price risk. The Board regularly reviews and agrees policies for managing each of these risks.
Detailed below is a summary of the financial risks to which the Company is exposed, and the policies agreed by the Board for management of these risks.
The fair value of the Company's fixed rate securities and the net revenue generated from the Company's floating rate securities may be affected by interest rate movements. Investments are often in early stage businesses, which are relatively high risk investments sensitive to interest rate fluctuations. Due to the short time to maturity of some of the Company's fixed rate investments, it may not be possible to reinvest in assets which provide the same rates as those currently held. When making investments of an equity and debt nature, consideration is given during the structuring process to the potential implications of interest rate risk and the resulting investment is structured accordingly. The maximum exposure to interest rate risk was £23,977,000 at 30 June 2012 (30 June 2011: £21,556,000).
| Total fixed portfolio | Weighted average interest rate |
Weighted average time for which rate is fixed |
||||
|---|---|---|---|---|---|---|
| 30 June 2012 £'000 |
30 June 2011 £'000 |
30 June 2012 % |
30 June 2011 % |
30 June 2012 Days |
30 June 2011 Days |
|
| Short term fixed interest securities — exposed to cash flow interest rate risk Loan stock |
336 | 18,000 | 0.5% | 0.6% | — | — |
| — exposed to fixed interest rate risk Loan stock |
23,583 | — | 5.3% | 6.5% | 1,663 | 27 |
| — exposed to variable interest rate risk Cash |
— 58 |
— 3,556 |
0.0% — |
0.0% — |
— | — |
| Total exposed to interest rate risk Loan stock — not exposed to interest rate risk |
23,977 — |
21,556 904 |
— | — | — | — |
| Total | 23,977 | 22,460 |
| Total Portfolio | ||
|---|---|---|
| Maturity analysis: | 30 June 2012 £'000 |
30 June 2011 £'000 |
| — in one year or less | 394 | 21,556 |
| — in more than one year but no more than two years | — | — |
| — in more than two years but no more than three years | — | — |
| — in more than three years but no more than four years | 883 | — |
| — in more than four years but no more than five years | 22,700 | 904 |
| Total | 23,977 | 22,460 |
During the period the Company also held cash balances. The benchmark rate, which determines the interest payments received on cash and loan balances held, is the bank base rate which was 0.5% at 30 June 2012 (0.5% at 30 June 2011).
Credit risk is the risk of failure by counterparties to deliver securities which the Company has paid for, or the failure by counterparties to pay for securities which the Company has delivered. The Company has exposure to credit risk in respect of the loan stock investments it has made into investee companies, most of which have no security attached to them, and where they do, such security ranks beneath any bank debt that an investee company may owe. The Board manages credit risk in respect of the current asset investments and cash by ensuring a spread of such investments in separate money market funds such that none exceed 15% of the Company's total investment assets. These money market funds are all triple A rated funds, and so credit risk is considered to be low. The Company currently invests its cash holdings with Barclays, HSBC, RBS, BONY and Insight Investments. The Manager receives full year accounts from portfolio companies, and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment-specific credit risk. The maximum exposure to credit risk at 30 June 2012 was £25,217,000 (30 June 2011: £22,974,000) based on cash, money market funds and other receivables (amounts due on investments, dividends and interest). The majority of the Company's assets are held in its own name in certificated form and therefore custodian default risk is negligible.
An analysis of the Company's assets exposed to credit risk is provided in the table below:
| Credit Risk | 2012 £'000 |
2011 £'000 |
|---|---|---|
| Loan stocks | 23,583 | 904 |
| Current asset investments (money market funds) | 336 | 18,000 |
| Financial Asset | 699 | 275 |
| Prepayments and other debtors | 541 | 239 |
| Cash at bank | 58 | 3,556 |
| Total | 25,217 | 22,974 |
Market price risk arises from uncertainty about the future prices of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through holding market positions in the face of market movements. The Board manages market price risk through the application of venture capital techniques and investment structuring delegated to its Manager, Foresight Group.
The investments in equity and fixed interest stocks of unquoted companies are rarely traded and as such the prices are more volatile than those of more widely traded securities. In addition, the ability of the Company to realise the investments at their carrying value may at times not be possible if there are no willing purchasers. The ability of the Company to purchase or sell investments is also constrained by the requirements set down for Venture Capital Trusts. The potential maximum exposure to market price risk, being the value of the investment portfolio as at 30 June 2012 is £36,510,828 (2011: £3,293,929).
for the year ended 30 June 2012
The Company entered into four currency option transactions in the year to 30 June 2012 for the Foresight VCT (Lux1) S.â r.l investment. The strike rates obtained ranged between £1:1.1400 euros and £1:1.19650 euros. The options ensure that when the investment is sold (in euros) that the conversion rate, back to sterling, is fixed, and therefore that the Company does not suffer any loss (or gain) from currency movements until the original cost of the investment is recovered. The cost of taking out the currency option is covered by the returns on the investments.
The investments in equity and fixed interest stocks of unquoted companies that the Company holds are not traded and they are not readily realisable. The ability of the Company to realise the investments at their carrying value may at times not be possible if there are no willing purchasers. The Company's ability to sell investments may also be constrained by the requirements set down for VCTs. The maturity profile of the Company's loan stock investments disclosed within the consideration of credit risk above indicates that these assets are also not readily realisable until dates up to one year from the year-end.
To counter these risks to the Company's liquidity, the Investment Manager maintains sufficient cash and money market funds to meet running costs and other commitments. The Company invests its surplus funds in high quality money market funds which are all accessible on an immediate basis.
The Board believes that the Company's assets are mainly exposed to equity price risk, as the Company holds most of its assets in the form of sterling denominated equity investments in small companies. All of these assets are unquoted. All of the investments made by the Investment Manager in unquoted companies, irrespective of the instruments the Company actually holds (whether shares or loan stock), carry a full equity risk, even though some of the loan stocks may be secured on assets (as they will be behind any prior ranking bank debt in the investee company).
The Board considers that even the loan stocks are 'quasi-equity' in nature, as the value of the loan stocks is determined by reference to the enterprise value of the investee company. Such value is considered to be sensitive to changes in quoted share prices, in so far as such changes eventually affect the enterprise value of unquoted companies. The table below shows the impact on profit and net assets if there were to be a 15% movement in overall share prices, which might in part be caused by changes in interest rate levels, but it is not considered practical to evaluate separately the impact of changes in interest rates upon the value of the Company's portfolios of investments in small, unquoted companies.
The sensitivity analysis below assumes that each of these sub categories of investments (shares and loan stocks) held by the Company produces an overall movement of 15%, and that the actual portfolio of investments held by the Company is perfectly correlated to this overall movement in share prices. However, shareholders should note that this level of correlation would not be the case in reality. Movements may occur to both quoted and unquoted companies and can be as a result of changes to the market or alternatively as a result of assumptions made when valuing the portfolio or a combination of the two.
| 2012 Return and net assets |
2011 Return and net assets |
|
|---|---|---|
| If overall share prices fell by 15%, with all other variables held constant – decrease (£'000) | (5,477) | (494) |
| Decrease in earnings, and net asset value, per Ordinary Share (in pence) | (14.28)p | (1.5)p |
| 2012 Return and net assets |
2011 Return and net assets |
|
| If overall share prices increase by 15%, with all other variables held constant – increase (£'000) | 5,477 | 494 |
| Increase in earnings, and net asset value, per Ordinary share (in pence) | 14.28p | 1.5p |
The impact of a change of 15% has been selected as this is considered reasonable given the current level of volatility observed both on a historical market basis and market expectations for future movement. The range in equity prices is considered reasonable given the historic market changes that have been observed.
Although the Company holds investments in loan stocks that pay interest, the Board does not believe that the value of these instruments is interest rate sensitive. This is because the Board does not consider that the impact of interest rate changes materially affects the value of the portfolio in isolation, other than the consequent impact that interest rate changes have upon movements in share prices, discussed under equity price risk above. The table below shows the sensitivity of income earned to changes in interest rates.
| 2012 Return and net assets |
2011 Return and net assets |
|
|---|---|---|
| If interest rates were 1% lower, with all other variables held constant – decrease (£'000) | — | — |
| Decrease in earnings, and net asset value, per Ordinary Share (in pence) | — | — |
| 2012 Return and net assets |
2011 Return and net assets |
|
| If interest rates were 1% higher, with all other variables held constant – increase (£'000) | — | — |
| Increase in earnings, and net asset value, per Ordinary Share (in pence) | — | — |
The impact of a change of 1% has been selected as this is considered reasonable, given the current level of the Bank of England base rates and market expectations for future movement.
In accordance with amendments to FRS 29, the following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:
| Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
|---|---|---|---|---|
| Unquoted investments | — | — | 36,511 | 36,511 |
| Current asset investments (money market funds) | 336 | — | — | 336 |
| Derivative financial instruments | — | 699 | — | 699 |
| Financial assets | 336 | 699 | 36,511 | 37,546 |
for the year ended 30 June 2012
The Company primarily invests in private equity via unquoted equity and loan securities. The Group's investment portfolio is recognised in the Balance Sheet at fair value, in accordance with IPEVC Valuation Guidelines.
| Level 3 £'000 |
|
|---|---|
| Valuation at 1 July 2011 | 3,294 |
| Purchases at cost | 38,085 |
| Disposal proceeds | (7,108) |
| Investment holding gains | 2,240 |
| Valuation carried forward at 30 June 2012 | 36,511 |
During the period there were no transfers between levels 1, 2 or 3.
Based on recent economic volatility, the Board and Investment Manager feel that for indicative purposes, a movement of 15% in the unquoted investments within level 3 is appropriate to show how reasonably possible alternative assumptions change the fair value of the investments.
If unquoted investments moved by 15%, this would create an increase or decrease in investments of £5.5 million.
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can continue to provide returns for shareholders and to provide an adequate return to shareholders by allocating its capital to assets commensurate with the level of risk.
Since the Company is a VCT, at least 70% of the capital of the Company (as measured under the tax legislation) must be, invested in the relatively high risk asset class of small UK companies within three years of that capital being subscribed. The Company accordingly has limited scope to manage its capital structure in the light of changes in economic conditions and the risk characteristics of the underlying assets. Subject to this overall constraint upon changing the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets if so required to maintain a level of liquidity to remain a going concern.
Although, as the Investment Policy implies, the Board would consider levels of gearing, there are no current plans to do so. It regards the net assets of the Company as the Company's capital, as the level of liabilities are small and the management of them is not directly related to managing the return to shareholders. There has been no change in this approach from the previous year.
The Company had no committed borrowing facilities, liabilities or guarantees at 30 June 2012 or 30 June 2011.
The fair value of the Company's financial assets and liabilities at 30 June 2012 and 30 June 2011 are not different from their carrying values.
Following the sudden death of Lord John Maples, the Company's previous Chairman, David Hurst-Brown was appointed as Chairman, with effect from 6 August 2012.
Foresight Group is considered to be a related party of the Company. Details of arrangements with these parties are given in the Directors' Report and Notes 3 and 13.
Foresight Group, which acts as investment manager to the Company in respect of its venture capital investments earned fees of £520,000 in the year.
Foresight Group also provides administration services to the Company, and received fees of £104,000 plus VAT during the year. The annual administration and accounting fee (which is payable together with any applicable VAT) is 0.3% of the net funds raised by the offer (subject to a minimum index-linked fee of £60,000).
At the balance sheet date there was £159,000 due to Foresight Group.
Foresight Group are responsible for external costs such as legal and accounting fees, incurred on transactions that do not proceed to completion ('abort expenses'). In line with industry practice, Foresight Group retain the right to charge arrangement and syndication fees and Directors' or monitoring fees ('deal fees') to companies in which the Company invests. From this, Foresight Group received from investee companies arrangement fees of £716,000 in the year.
Foresight Group is also a party to the performance incentive agreement described in Note 13.
Foresight Fund Managers are the Secretary of the Company and received £nil during the year for their services.
Dividends are ordinarily paid to shareholders in April and October. Shareholders who wish to have dividends paid directly into their bank account rather than by cheque to their registered address can complete a Mandate Form for this purpose. Mandates can be obtained by telephoning the Company's registrar, Computershare Investor Services PLC (see over for details).
The Company's Ordinary Shares are listed on the London Stock Exchange. The mid-price of the Company's Ordinary Shares is given daily in the Financial Times in the Investment Companies section of the London Share Service. Share price information can also be obtained from many financial websites.
Investors are able to manage their shareholding online using Computershare's secure website — www.investorcentre.co.uk — to undertake the following:
Shareholders just require their Shareholder Reference Number (SRN) to access any of these features. The SRN can be found on communications previously received from Computershare.
The Company's Ordinary Shares can be bought and sold in the same way as any other quoted company on the London Stock Exchange via a stockbroker. The primary market maker for Foresight Solar VCT plc is Matrix Corporate Capital.
Investment in VCTs should be seen as a long-term investment and shareholders selling their shares within five years of original purchase may lose any tax reliefs claimed. Investors who are in any doubt about selling their shares should consult their independent financial adviser.
Please call Foresight Group (see details below) if you or your adviser have any questions about this process.
| December 2012 | Annual General Meeting |
|---|---|
| February 2013 | Announcement of interim results for six months to 31 December 2012 |
| October 2013 | Announcement of annual results for the year ended 30 June 2013 |
| October 2013 | Posting of the Annual Report for the year ended 30 June 2013 |
As part of our investor communications policy, shareholders can arrange a mutually convenient time to come and meet the Company's investment management team at Foresight Group. If you are interested, please call Foresight Group (see details below).
Please contact Foresight Group, for any queries regarding Foresight Solar VCT plc:
| Telephone: | 01732 471800 |
|---|---|
| Fax: | 01732 471810 |
| e-mail: | [email protected] |
| website: | www.foresightgroup.eu |
Foresight Solar VCT plc is managed by Foresight Group CI Limited which is licensed by the Guernsey Financial Services Commission. Past performance is not necessarily a guide to future performance. Stock markets and currency movements may cause the value of investments and the income from them to fall as well as rise and investors may not get back the amount they originally invested. Where investments are made in unquoted securities and smaller companies, their potential volatility may increase the risk to the value of, and the income from, the investment.
Notice is hereby given that the Annual General Meeting of Foresight Solar VCT plc ("the Company") will be held on 18 December 2012 at 1 pm at the offices of Foresight Group, ECA Court, 24-26 South Park, Sevenoaks, Kent, TN13 1DU for the purpose of considering and, if thought fit, passing the following resolutions, of which resolutions 1 to 7 will be proposed as ordinary resolutions and resolutions 8 and 9 will be proposed as special resolutions.
By order of the Board
Company Secretary 31 October 2012
ECA Court 24–26 South Park Sevenoaks Kent TN13 1DU
Telephone number: 01732 471800
You may not use any electronic address provided either:
This Annual Report is printed by an FSC® (Forest Stewardship Council), certified printer using vegetable based inks.
This report has been printed on Cocoon Recycled Offset rather than a non recycled paper. As a result we have reduced the environmental impact by 380 kg of landfill, 71 kg of CO2 of greenhouse gasses, 710 km travel in the average European car, 7,440 litres of water, 701 kWh of energy and 617 kg of wood.
Source: Carbon footprint data evaluated by FactorX in accordance with the Bilan Carbone methodology. Calculations are based on a comparison between the recycled paper used versus a virgin fibre paper according to the latest European BREF data (virgin fibre paper) available. Results are obtained according to technical information and subject to modification.
David Hurst-Brown (Chairman — appointed 6 August 2012) Mike Liston Tim Dowlen
Foresight Group CI Limited PO Box 166 La Plaiderie House La Plaiderie St Peter Port Guernsey GY1 4HE
Foresight Fund Managers Limited ECA Court 24–26 South Park Sevenoaks Kent TN13 1DU
Foresight Group ECA Court 24–26 South Park Sevenoaks Kent TN13 1DU
Ernst & Young LLP 1 More London Place London SE1 2AF
Cornel Partners Limited Cornel House 115 Alexandra Park Road London N10 2DP
RW Blears LLP 125 Old Board Street London EC2N 1AR
Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ
Registered Number 07289280
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.