Annual Report • Dec 31, 2016
Annual Report
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Foresight VCT plc Company number: 03421340
1
| Summary Financial Highlights 1 | |
|---|---|
| Dividend History 2 | |
| Chairman's Statement 3 | |
| Manager's Report 6 | |
| Investment Summary 11 | |
| Strategic Report 20 | |
| Board of Directors 27 | |
| Directors' Report 28 | |
| Corporate Governance 32 | |
| Audit Committee Report 35 | |
| Directors' Remuneration Report 36 | |
| Statement of Directors' Responsibilities 40 | |
| Unaudited Non-Statutory Analysis of the Share Classes 41 | |
| Independent Auditor's Report 43 | |
| Income Statement 45 | |
| Reconciliation of Movements in Shareholders' Funds 46 | |
| Balance Sheet 47 | |
| Cash Flow Statement 48 | |
| Notes to the Accounts 49 | |
| Shareholder Information 68 | |
| Notice of Annual General Meeting 70 | |
| Notice of Separate Meeting of Ordinary Shareholders 74 | |
| Notice of Separate Meeting of Planned Exit Shareholders 76 | |
| Notice of Separate Meeting of Infrastructure Shareholders 78 |
Including post year end payments
| Dividend per | ||
|---|---|---|
| Ordinary Shares: | Dividend per share | share (rebased)† |
| 3 April 2017 | 5.0p | 1.9p |
| 1 April 2016 | 7.0p | 2.7p |
| 13 March 2015 | 6.0p | 2.3p |
| 14 March 2014 | 10.0p | 3.8p |
| 14 June 2013 | 5.0p | 1.9p |
| 23 March 2012 | 7.5p | 2.9p |
| 17 June 2011 | 5.0p | 1.9p |
| 29 May 2009 | 1.0p | 0.7p |
| 7 March 2008 | 5.0p | 3.4p |
| 26 May 2006 | 0.5p | 0.5p |
| 5 July 2004 | 52.0p | 52.0p |
| 22 September 2003 | 8.0p | 8.0p |
| 30 June 2003 | 0.5p | 0.5p |
| 8 May 2000 | 100.0p | 100.0p |
| 6 August 1999 | 1.0p | 1.0p |
| 29 January 1999 | 3.2p | 3.2p |
| Total | 186.7p | |
| NAV per Ordinary Share based on 100.0p invested at launch † | 30.0p | |
| Total return per Ordinary Share (incorporating April 2017 dividend) | 216.7p | |
| Planned Exit Shares: | ||
| 13 April 2017 | 18.0p | |
| 14 October 2016 | 14.0p | |
| 25 September 2015 | 7.5p | |
| 22 May 2015 | 15.0p | |
| 12 December 2014 | 7.5p | |
| 25 October 2013 | 5.0p | |
| 31 August 2012 | 5.0p | |
| 17 June 2011 | 3.0p | |
| Total | 75.0p | |
| NAV per Planned Exit Share | 7.9p | |
| Total return per Planned Exit Share (incorporating April 2017 dividend) | 82.9p | |
| Infrastructure Shares: | ||
| 23 September 2016 | 12.0p | |
| 11 March 2016 | 2.5p | |
| 22 May 2015 | 2.5p | |
| 30 September 2014 | 2.5p | |
| 20 December 2013 | 2.5p | |
| Total | 22.0p | |
| NAV per Infrastructure Share | 81.7p | |
| Total return per Infrastructure Share | 103.7p |
† Rebased due to Ordinary Shares reconstruction on 1 March 2011 using conversion ratio of 0.554417986; and rebased in January 2007 due to merger of Ordinary and C Share portfolios at a ratio of 0.688075647795 new Ordinary Shares for every 1 Ordinary Share held.
Dividend per C In addition to the details above, original holders of "C" Shares which became Ordinary Shares in January 2007 have received total dividends as set out below. "C" Shares were converted into Ordinary Shares on a 1:1 basis in January 2007 before being converted into new Ordinary Shares in March 2011 on the basis of 0.554417986 new Ordinary Shares for each existing Ordinary Share held.
| C Shares (converted into Ordinary Shares in January 2007): | share (rebased)† | |
|---|---|---|
| 3 April 2017 | 2.8p | |
| 1 April 2016 | 3.9p | |
| 13 March 2015 | 3.3p | |
| 14 March 2014 | 5.5p | |
| 14 June 2013 | 2.8p | |
| 23 March 2012 | 4.15p | |
| 17 June 2011 | 2.8p | |
| 29 May 2009 | 1.0p | |
| 7 March 2008 | 5.0p | |
| 26 January 2007 | 2.0p | |
| 27 May 2005 | 0.5p | |
| 1 August 2004 | 0.5p | |
| 22 September 2003 | 0.75p | |
| 30 June 2003 | 0.75p | |
| 24 March 2003 | 0.75p | |
| 7 June 2002 | 1.0p | |
| 11 March 2002 | 2.5p | |
| 26 July 2001 | 2.0p | |
| Total | 42.0p | |
| NAV per C Share rebased* | 43.6p | |
| Total return per C Share (incorporating April 2017 dividend) | 85.6p |
*Based on an original 100.0p per Share invested at launch
The following statement is divided into three sections, each dealing with the performance of specific share funds within the Company.
During the period under review, the net assets of the Ordinary Shares fund increased to £107.0 million at 31 December 2016 from £75.8 million at 31 December 2015 following a successful new fund raise. The net asset value per share at 31 December 2016 was 83.6p, which, after taking into account the 7.0p per share dividend paid in April last year, is an increase of 3.5% on the 87.5p per share at 31 December 2015.
The Directors believe that the Ordinary Shares fund is beginning to demonstrate the benefits of actions taken over the past five years to significantly expand the size of the fund and refocus its investments on developing businesses. At the year end the fund held 28 investments in UK based businesses across a wide spread of sectors and had over £39 million of cash available for further investment.
The Directors believe that it is in the best interests of Ordinary Shareholders for the Company to continue to pursue its existing strategy which includes the following four key objectives:
The Directors believe that central to the Company being able to achieve its objectives in the future is the ability of Foresight Group, the Company's manager (the "Manager"), to source and complete attractive new qualifying investment opportunities. This task has not been made easier by the changes to VCT legislation which (amongst other requirements) place greater emphasis on growth or development capital investment into younger companies.
The Company is fortunate, however, in that it has pursued a policy of seeking growth capital investments for several years with the Manager having established a successful track record in this area. Foresight Group was recently awarded 'VCT House of the Year 2016' at the Unquote awards in recognition of investments made and the achievements of team members and the Manager as a whole throughout 2016.
In addition to its established reputation in the area of growth and development capital investment, the Manager has been developing a number of UK regional funds supporting early stage businesses. The first two funds which are based in Nottingham and Manchester are already proving a useful source of attractive new investment leads for the Company. The Company completed two new investments amounting to £4.8 million last October and has concluded three further transactions totalling £6.8 million in 2017. Taking into account the current pipeline of new investment opportunities, it is the Manager's expectation that it will be able to increase the level of new investments over the coming year and beyond.
By the time it closed last December, the Company's 2016 share offer raised approximately £37 million. In line with its strategy for the expansion of the overall size of the fund, the Board and the Manager are looking to build on that success and raise further funds to support the Company's investment programme. A prospectus offer to raise £20 million was launched on 2 February 2017 and was rapidly oversubscribed. The Board utilised the over-allotment facility for a further £20 million and capacity was reached, with the offer closing to further applications on 20 March 2017.
At the year end, the Ordinary Shares fund had cash and liquid resources of £39.4 million with the 2017 share offer adding significantly to this sum. The Directors believe that it is right to hold substantial funds available for future investment but in order to mitigate the full cost impact of this, the Manager recently agreed to lower the annual management charge to 1% in respect of any cash above £20 million held within the fund. This reduced rate will be reviewed by the Board on an annual basis.
The annual management fee of the Ordinary Shares fund is 2.0% of net assets including cash balances up to £20 million. The average ongoing charges of the Ordinary Shares fund for the period to 31 December 2016, at 2.1% of net assets, compares favourably with its VCT peer group and is subject to a cap at 2.4% of net assets, which is amongst the lowest for any generalist VCT with total assets in excess of £20 million.
The Board remains committed to keeping the Company's operating costs as low as possible and the funds raised under the Offer will serve to increase the Company's net assets overall while allowing the Company's fixed administrative costs to be spread across a wider asset base, thus reducing costs per share.
As stated at the time of the merger with Foresight 2 VCT, the Directors consider that a performance incentive scheme should help to incentivise the Manager to deliver above average value for Shareholders. In addition, the Directors believe it to be advantageous to align the interests of the Manager with those of Shareholders. New arrangements were approved by Shareholders on 8 March 2017 and have been entered into whereby individual members of the Manager's private equity team and the Manager will invest alongside the Ordinary Shares fund, and may become entitled to performance incentive payments, subject to the achievement of 'per investment' and 'fund as a whole' performance hurdles.
Details of these arrangements can be found on page 60.
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The Board is pleased that the Company has been able to maintain its annual dividend payments at or above its target of 5.0p per Ordinary Share for the past six years and expects to maintain this in the future. The Company's dividend policy is, and will remain wherever practical, to maintain a steady flow of tax-free dividends, generated from income or capital profits realised on the sale of investments.
In accordance with this policy an interim dividend of 5.0p was paid on 3 April 2017 based on an ex-dividend date of 16 March 2017 and a record date of 17 March 2017.
The Board and the Manager consider that the ability to offer to buyback shares at a discount in the region of 10% is a benefit to Shareholders as a whole and an appropriate way to help manage the share price discount to NAV at which the Ordinary Shares trade.
The Directors are optimistic that investments currently within the Company's Ordinary Shares fund have the potential to show further growth over the coming year and that new investment opportunities being sourced by the Manager will add to this potential. The fund is well positioned to provide Shareholders with regular dividends and sustained capital value in the future.
During the period under review, the net assets of the Planned Exit Shares fund decreased to £2,949,000 at 31 December 2016 from £4,248,000 at 31 December 2015. The net asset value per share at 31 December 2016 was 25.9p which, after taking into account the 14.0p per share dividend paid on 14 October 2016 is an increase of 8.4% on the 36.8p per share at 31 December 2015. Total return since launch, however, remains significantly behind expectations.
The Board was particularly pleased with the realisation of Trilogy Communications, which was sold in August 2016, as it represented a significant turnaround in Trilogy's fortunes and demonstrates the benefit of active asset management for private equity style investments. Details of the sale can be found in the Manager's Report.
At the year end, the Planned Exit Shares fund had cash and liquid resources of £135,000.
The annual management fee of the Planned Exit Shares fund is 1.0% of net assets. The average ongoing charges ratio of the Planned Exit Shares fund for the period ended 31 December 2016 was 1.9% of net assets.
It continues to be the Company's policy to provide a flow of dividends which will be tax-free to qualifying shareholders, generated from income and from capital profits realised on the sale of investments. Distributions, however, will inevitably be dependent on cash being generated from portfolio investments and successful realisations.
In accordance with this policy an interim dividend of 18.0p per Planned Exit Share was paid on 13 April 2017 based on an ex-dividend date of 30 March 2017 and a record date of 31 March 2017.
The Board and the Manager consider share buybacks to be an effective way to manage the share price discount to NAV at which the Planned Exit Shares trade.
The original objective of the Planned Exit Shares fund was to return investors 110p per share through a combination of dividends and share buybacks by the sixth anniversary of the closure of the original offer, which was June 2016.
Following the sale of AlwaysOn in January 2017, there is now one final investment held within the Planned Exit Shares portfolio and it continues to be the Board's policy to manage this investment in order to maximise the return for Shareholders.
The total return for Shareholders if the fund realised the remaining investment at current valuation would be 82.9p (comprising 57.0p in dividends paid to date and 25.9p representing the remaining NAV at 31 December 2016). To deliver the target return of 110p per share, a significant increase on the current valuation of the remaining investment would need to be achieved on disposal. The Directors consider that it is highly unlikely that the present total return will improve materially.
During the period under review, the net assets of the Infrastructure Shares fund decreased to £26.6 million at 31 December 2016 from £30.0 million at 31 December 2015. The net asset value per share at 31 December 2016 was 81.7p which, after taking into account the 2.5p per share dividend paid on 11 March 2016 and the 12.0p per share dividend paid on 23 September 2016, represented an increase of 4.1% over the year on the 92.4p per share at 31 December 2015.
Following the merger with Foresight 2 VCT plc in December 2015, the Company had a controlling holding in four of the five currently qualifying Infrastructure Shares fund investments. Left unaddressed these holdings would have become non-qualifying under VCT rules relating to control. A one year grace period was allowed to remedy this situation. Partial or complete disposals of these four investments to reduce ownership of each of holding to below 50% were completed
during the year. Details of these disposals can be found in the Manager's Report.
At the year end the Infrastructure Shares fund had cash and liquid resources of £2.8 million as a result of the partial disposals made in December 2016.
The annual management fee of the Infrastructure Shares fund is 1% of net assets. The ongoing charges ratio of the fund for the period ended 31 December 2016 was 1.7% of net assets.
The Company's original objective was to provide an annual flow of dividends of 5.0p per share, tax-free to qualifying shareholders, generated from income and from capital profits realised on the sale of investments. Distributions are inevitably dependent on cash being generated from portfolio investments and successful realisations. Whilst the underlying capital value of each investment remains largely unaltered, they are not able to generate sufficient cashflows to satisfy an annual 5.0p per share dividend at current yields.
The Board and the Manager consider share buybacks to be an effective way to help manage the share price discount to NAV at which the Infrastructure Shares trade.
The Board is conscious of the intention stated in the original Infrastructure Shares fund prospectus to offer Shareholders the opportunity to exit their investment after the end of the initial five year holding period and is writing to Infrastructure Shareholders regarding this intent.
There are two principal areas where the implementation of Brexit could impact the Company:
The Company's Annual General Meeting will take place on 23 May 2017 at 10.00am. I look forward to welcoming you to the Meeting, which will be held at the offices of Foresight Group in London. Details can be found on page 70.
The Ordinary Shares fund is now of a size that the Directors believe should more easily achieve the objectives of regular dividend payments and continuing new investment. The Directors believe sound future investment is fundamental to underpin long term performance. We are encouraged by the performance of the portfolio over the last year and pleased with the progress made by several recent investments. In addition, the pipeline of potential investments contains a number of interesting opportunities.
The Board is looking to realise and distribute the final investment in the Planned Exit Shares fund as soon as practical and has already embarked upon an exit strategy for the Infrastructure Shares fund portfolio.
Chairman Telephone: 01296 682751 Email: [email protected] 24 April 2017
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On 18 January 2016, the Board launched a full prospectus to raise up to £30 million by the issue of new Ordinary Shares. The issue was well received by both new and existing investors, and the offer was increased, raising a total of £37 million by the closing date of 23 December 2016.
While the VCT market adjusted to the changes in regulation announced in 2015, as noted in previous reports, investment activity was relatively quiet in the first half of the year. Foresight Group, however, has continued to see a flow of investment opportunities from small high quality companies and subsequently, in late 2016 and early 2017, we have seen a particularly strong pick-up in the pipeline. With the UK and US economies continuing their recovery, we believe that investing in growing, well managed private companies should, based on past experience, generate attractive returns over the longer term.
To address the large number of high quality private equity investment opportunities, we have continued to expand our private equity team, which is now based in London, Manchester and Nottingham. The team now totals 17 investment professionals with combined industry experience of more than 220 years. Foresight Group has invested in more than 20 small companies since 2012 with more than 20 follow-on investments made to fund further growth.
All members of the team spend significant time connecting with SME networks around the country, targeting advisers and marketing directly to businesses to identify high quality opportunities across a diverse range of market segments. Foresight Group's focus remains on identifying strong management teams with growing businesses across a range of sectors. The enlarged team enables efficient deal execution while maintaining and developing the flow of new opportunities via both intermediary referrals and direct targeting.
To take advantage of current investment opportunities, on 2 February 2017, the Board launched a further full prospectus to raise up to £20 million with a facility to increase by a further £20 million. The offer was closed to further applications on 20 March 2017, raising the full £40 million.
| Company | £ |
|---|---|
| Idio Limited | 782,500 |
| Simulity Labs Limited | 4,000,000 |
| Total | 4,782,500 |
In October 2016, the Company invested £782,500 in content intelligence platform Idio, a high growth, recurring revenue-led, enterprise Software as a Service ("SaaS") business.
Also in October 2016 the Company completed a £4 million growth capital investment in Simulity Labs, a specialist technology business based in Bangor, North Wales, powering the future of connected devices and the Internet of Things (IOT) through its embedded communications software for SIM, eSIM and next generation connected products.
The Ordinary Shares fund continues to focus on new opportunities, although uncertainty following the changes to VCT rules and HMRC delays on providing advance assurances resulted in a delay in the completion of new deals. Following the year end, however, a further three new investments totalling £6.8 million were completed in Poundshop.com, the UK's largest online pound shop, Ollie Quinn Limited, a designer and retailer of subscription glasses and sunglasses and Fresh Relevance, an ecommerce platform for online retailers. We are currently in exclusivity and in due diligence on one new investment for the Ordinary Shares fund, with offers on funding under negotiation for several other investments.
The final £94,503 tranche of an investment round to finance the development of Biofortuna's new molecular diagnostics products was drawn down in July 2016.
Realisations totalling £673,176 were completed during the year.
These included the Company's interest in O-Gen Acme Trek, which was sold in March 2016 to Blackmead Infrastructure Limited, a subsidiary of Foresight's Inheritance Tax Solution, at book value for an initial cash consideration of £45,442 and a deferred consideration element due when certain conditions are met. The majority of this deferred consideration was received in January 2017.
In August 2016, the Company successfully completed the sale of Trilogy Communications Limited to California based Clear-Com LLC. The Ordinary Shares fund received £575,667 in cash following completion (as compared with a carrying value of £337,264 at 31 March 2016), with further deferred consideration payable subject to warranty claims and tax claims.
During the year, 56,538 ordinary shares in AIM listed ZOO Digital were sold, realising £5,036.
A short term loan of £45,000 was repaid to the fund by Specac International.
Loan repayments of £2,030 were received from the administrators of The Skills Group Limited, formerly AtFutsal Group Limited.
The final tranche of deferred consideration was received from iCore Limited, totalling £51,247.
| Company | £ |
|---|---|
| Autologic Diagnostics Group Limited | (3,268,957) |
| alwaysON Group Limited | (547,620) |
| Hospital Services Group Limited | (402,747) |
| Positive Response Communications Limited | (328,662) |
| TFC Europe Limited | (230,337) |
| ICA Group Limited | (186,648) |
| ABL Investments Limited | (57,889) |
| Total | (5,022,860) |
| Company | £ |
|---|---|
| Datapath Group Limited | 3,614,255 |
| Specac International Limited | 2,047,328 |
| Protean Software Limited | 1,585,450 |
| Procam Television Holdings Limited | 1,167,624 |
| Itad Limited | 757,914 |
| The Business Advisory Limited | 582,014 |
| FFX Group Limited | 381,220 |
| Total | 10,135,805 |
Further investee company details are provided in the Portfolio Highlights section.
In line with the fund's objective at this time, no new or follow-on investments were made during the year.
In August 2016 the Company successfully completed the sale of Trilogy Communications Limited to California based Clear-Com LLC. The Planned Exit Shares fund received £1,374,912 in cash following completion (compared with a carrying value of £799,029 at 31 March 2016), with further deferred consideration payable subject to warranty claims and tax claims. This result represents a remarkable turnaround in Trilogy's fortunes and demonstrates the benefit of active asset management by the Foresight Group investment management team.
The final tranche of deferred consideration was received from Channel Safety Systems Limited, totalling £13,367.
Following the year end the Company sold its investment in alwaysOn Group Limited, realising a further £2,032,608 for the Planned Exit Shares fund.
| Company | £ |
|---|---|
| Industrial Engineering Plastics Limited | 831,658 |
| Total | 831,658 |
Slower than expected progress in the turnaround of Industrial Engineering Plastics has led to a further reduction in the holding value of the investment. This is the final investment held in the fund and we continue to work on securing a realisation which will maximise value for investors.
As a consequence of the merger of the Company and Foresight 2 VCT in December 2015, at the beginning of 2016 the Infrastructure Shares Fund held controlling positions in four of its five qualifying investments. To avoid these investments becoming non-qualifying under VCT regulations, complete and partial disposals were successfully concluded within the twelve month grace period.
On 1 July 2016, the fund successfully completed the sale of FS Pentre Limited, the holding company of the Pentre solar farm project, for £4.0 million, which represented a premium of £0.4 million above book value. Pentre was sold to a Foresight Group managed investment vehicle for this attractive premium reflecting an independent third party valuation.
In December 2016, partial disposals of the three remaining qualifying holdings were made to a fund managed by Foresight Group at an independently verified valuation. This reduced the fund's shareholding to below the qualification threshold in the Drumglass High School PFI project in Northern Ireland, and two ground mounted solar projects, FS Tope and FS Hayford Farm.
| Fully Diluted | ||
|---|---|---|
| Investee Company | Proceeds | Ownership |
| (£) | 31 December 2016 | |
| Drumglass HoldCo Limited | 1,361,685 | 49.99% |
| FS Hayford Farm Limited | 388,948 | 49.99% |
| FS Pentre Limited | 3,996,337 | — |
| FS Tope Limited | 1,491,673 | 49.99% |
| Total | 7,238,643 |
Following the fifth anniversary of the last allotment of shares in the fund in July 2017 it is proposed to offer Shareholders the opportunity to realise their holdings.
The Board and Manager have given consideration to current investment opportunities and whether any sale proceeds should be reinvested. It was concluded that any sales proceeds should (subject to VCT implications for both the Company and Shareholders) be distributed to Shareholders. The rationale being that the asset type which can be held within the fund is of a nature suited to longer term investment. The Board and Manager believe that Shareholders individually are in the best position to decide on what form of future investment is most suited to their needs.
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ABL Investments Limited ("ABL"), based in Wellingborough, Northants and with a manufacturing subsidiary in Serbia, manufactures and distributes office power supplies and distributes monitor arms, cable tidies and CPU holders to office equipment manufacturers and distributors across the UK. The company has continued to achieve strong growth and good profitability. Production facilities have largely been brought in house, enabling the Serbian operation to expand its production offering. ABL continues to improve its sales reach by expanding its dealer network and its range of products. The reduced valuation reflects the updated valuation methodology, which is now based on a multiple of the company's earnings. Held in the Ordinary Shares fund.
Aerospace Tooling Corporation ("ATL") provides repair, refurbishment and remanufacturing services for components in high-specification aerospace and turbine engines, serving the aerospace, military, marine and industrial markets. In September 2014 the company effected a recapitalisation and dividend distribution which returned the entire initial £1.5 million cost of this investment to the Ordinary Shares fund while retaining the original equity shareholding. Subsequently, ATL faced reduced orders from its two largest customers in 2015 and incurred significant EBITDA losses for its financial year to June 2016. This poor trading was reflected in the reduction in value during the year. In January 2016, a new experienced CEO was appointed, who has made solid progress, returning the company to positive EBITDA during the second half of calendar 2016. Held in the Ordinary Shares fund.
alwaysOn Group provides data backup services, connectivity and Microsoft's Skype for Business collaboration software to SMEs and larger enterprises. For the financial year to 30 June 2016, a small EBITDA loss was incurred on reduced sales of £5.5 million. Given the company's cash constraints, a decision was made to seek an exit rather than fund further losses. Despite challenging trading conditions the sale was completed in January 2017, with proceeds of £2.033 million going to the Planned Exit Fund. Held in the Ordinary Shares and Planned Exit Shares funds.
Aquasium Technology designs, manufactures and markets bespoke electron beam welding and vacuum furnace equipment and related services. The company has continued to perform well in its core markets, and there is good visibility over the pipeline for the current financial year. The company has continued the development of its
disruptive reduced pressure vacuum electron beam welding technology, Ebflow. The sales cycle for this disruptive technology is protracted in nature, requiring further investment in marketing and business development activities. The investment in Aquasium has to date returned £3.8 million, representing a multiple of over 2.0x cost. Held in the Ordinary Shares fund.
Autologic Diagnostics Group produces software-based automotive diagnostic tools. In May 2015, a new business model was launched to generate recurring revenues and improve the quality of the company's earnings from a new product, Assist Plus, and associated Assist Plus service. This change in strategy towards a pure recurring revenue model resulted in certain exceptional costs being incurred, impacting EBITDA during 2015 and 2016. It is likely that profits will remain depressed until revenues from the new software focused model can be delivered, which is anticipated to occur later this year. Accordingly, the valuation of the company has been reduced significantly. Held in the Ordinary Shares fund.
Biofortuna is a molecular diagnostics business based in the North West which develops and sells its own proprietary freeze dried DNA tests as well as developing and manufacturing products on behalf of customers. A funding round was completed in August 2013, in which the Ordinary Shares fund invested £99,066 and a further £50,929 invested in April 2014. To finance the development of new products, a £1.6 million round was concluded in January 2015, of which £890,000 was committed by the Foresight VCTs. The Ordinary Shares fund invested £128,002 in the first tranche. The final tranche for this round, totaling £94,503, was drawn down in July 2016. For the year to 31 March 2016, trading was ahead of budget, with the profitable Contract Manufacturing division helping offset investment in the proprietary products being developed by the Molecular Diagnostics division. To finance continuing growth and product development, a further funding round is expected during 2017. Held in the Ordinary Shares fund.
Blackstar Amplification Holdings is the number two guitar amplifier brand by units sold in the UK and USA. The company currently has a presence in over 35 countries and its products are stocked in over 2,500 stores globally. During the year, the company has been strengthening its international distributor network, and continued to invest heavily into new product development, which, while impacting short term profitability, should result in improved trading performance towards the end of this fiscal year. The company's valuation has been reduced to reflect this short term impact. Held in the Ordinary Shares fund.
O-Gen UK is a leading developer of Advanced Conversion Technology waste to energy projects. In March 2015, O-Gen UK and Una Group combined their two teams into a new company, CoGen Limited to develop their pipeline of projects. In April 2016, the company bought 42.5% of the sub-debt and 21.25% of the equity in an existing plant in Avonmouth, redeveloping the site using technology provided by Nexterra, a medium size technology provider in which the company holds 50% of the shares, while retaining the 2 ROC accreditation. The
Birmingham Bio Power plant, a 9MW waste wood gasification plant in which the company holds shares, reached take over in July 2016 and is now in the optimisation and testing period. Construction is substantially complete on the £53 million Welland project and cold commissioning is taking place. The building and civils works are also essentially complete at the £98 million Ince Park project enabling installation work to begin. CoGen is actively working on its pipeline of other projects and funding relationships, with active support from Foresight Group and the Bioenergy Infrastructure Group ("BIG") of which Foresight is a sponsor. Held in the Ordinary Shares fund.
Derby-based Datapath Group is a world leading innovator in the field of computer graphics and video-wall display technology utilised in a number of international markets. In November 2015, prior to the merger with Foresight 2 VCT, Datapath paid dividends of £6.3 million, split equally between Foresight 2 VCT, Foresight 3 VCT and Foresight 4 VCT, such that each fund has now received back 3x the original investment. The company is performing well across all product ranges, geographies and end markets, driven by the recently implemented product range refresh, and strengthening of the sales function following the recruitment of a new head of sales. Held in the Ordinary Shares fund.
FFX Group Limited is a Folkestone-based multi-channel distributor of power tools, hand tools, fixings and other building products. Since launching its e-commerce channel in 2011, FFX has grown rapidly supplying a wide range of tools to builders and tradesmen nationally. The company continues to benefit from the successful relocation to a larger warehouse in early 2016. Following the post-Brexit fall in sterling FFX anticipates passing price increases onto customers in line with the market. FFX's own brand range of fixings was launched in early 2017 and the team is optimistic about its potential. Held in the Ordinary Shares fund.
Flowrite Refrigeration Holdings provides refrigeration and air conditioning maintenance and related services nationally, principally to leisure and commercial businesses such as hotels, clubs, pubs and restaurants. In July 2015, the company completed another recapitalisation taking total cash returned on this investment to 85% of cost. Following the appointment of a new senior team, the company has reduced costs and is delivering operational improvements. Held in the Ordinary Shares fund.
Hospital Services Limited ("HSL"), based in Belfast and Dublin, distributes, installs and maintains high quality healthcare equipment as well as supplying related consumables. HSL has delivered organic growth through service revenues and accessory sales as well as capital sales. In July 2016, the company acquired Eurosurgical, a specialist in surgical equipment, instruments and devices. Held in the Ordinary Shares fund.
ICA Group is a document management solutions provider in the South East of England, reselling and maintaining office printing equipment to customers in the commercial and public sectors. Trading in the year to
31 January 2016 was in line with expectations and reflected continuing investment in developing the sales team. A new chairman, well-known to Foresight Group and with a strong sales and marketing background, joined the board in November 2016. Held in the Ordinary Shares fund.
Industrial Efficiency II provides energy efficiency fuel switching services, enabling customers to make significant cost savings and reduce emissions and the company receives a percentage of these savings. Following the successful completion of all sites, energy savings are broadly in-line with expectations at the time of investment, and the company is now generating revenues in line with forecasts. Held in the Ordinary Shares fund.
Industrial Engineering Plastics ("IEP") is a long established plastics distributor and fabricator supplying a wide range of industries nationally, principally supplying ventilation and pipe fittings, plastic welding rods, hygienic wall cladding, plastic tanks and sheets. Following increased competition in its plastics distribution and industrial fabrication markets, performance deteriorated during 2014 and a new Chairman and experienced turnaround CEO were appointed. Performance subsequently improved due to an increased focus on higher margin fabrication work. IEP continues to operate in a market where distribution sales remain under pressure due to significant competition, limited differentiation and low margin products. Reflecting this, the valuation has been reduced by £831,658, while Foresight Group continues to work with management to explore options for the business. Following the sale of alwaysOn in January 2017, the company is the final investment held in the Planned Exit Shares fund. Held in the Planned Exit Shares fund.
Itad Limited is a long established consulting firm which monitors and evaluates the impact of international development and aid programmes, largely in developing countries. Customers include the UK Government's Department for International Development, other European governments, philanthropic foundations, charities and international NGOs. The company continues to make strong progress, is trading ahead of budget, and has good visibility over future revenues due to the long term nature of some projects. The company has benefited from exchange rate changes following the Brexit vote and the team has carefully managed overhead increases. Held in the Ordinary Shares fund.
Ixaris Systems has developed EntroPay, a web-based global prepaid payment service using the VISA network. Ixaris also offers its Systems product to enable enterprises to develop their own customised global payment applications. The company has seen strong progress in both business areas, with the Systems division growing rapidly in the year and the Entropay business continuing to generate high levels of EBITDA. Held in the Ordinary Shares fund.
Positive Response Communications monitors the safety of people and property through its 24 hour monitoring centre. Customers include several major restaurant and retail chains. Following disappointing
1
performance, a new CEO with a background in the security industry was appointed in January 2017, alongside a new FD. A review of the cost base of the business has been undertaken, with actions taken to bring the company back to positive EBITDA. Held in the Ordinary Shares fund.
Procam Television Holdings, headquartered in London with operations in Manchester and Scotland, is one of the UK's leading broadcast hire companies, supplying equipment and crews to broadcasters and production companies including BskyB, the BBC and ITV. Procam has acquired True Lens Services (2014), HotCam New York (2015) and the trading assets of the film division of Take 2 Films (2016). Revenues and profits have grown strongly following the introduction of new camera formats, acquisitions in both the UK and USA and increased sales and marketing efforts. The London headquarters have been successfully moved to a larger facility to support the ongoing growth of the business. Held in the Ordinary Shares fund.
Protean Software develops and sells business management and field service management software, together with related support and maintenance services across sectors including elevator installation, facilities management and heating, ventilation and air conditioning ("HVAC"). Protean continues to trade well, and will be launching its SaaS product during 2017. As the business sells more licences on a subscription basis, revenues, cash and operating profit will decrease in the near term but this should materially benefit medium-long term performance and shareholder value. Held in the Ordinary Shares fund.
In November 2016, the Company completed a £4 million growth capital investment in Simulity Labs, a specialist technology business, powering the future of connected devices and the Internet of Things (IOT) through its embedded communications software for SIM, eSIM and next generation connected products. The company has seen rapid growth, with revenues increasing eight fold in the past four years. The Company's investment will support Simulity's expansion into new markets which are complementary to its existing mobile network operator customers. Held in the Ordinary Shares fund.
Specac International, based in Kent, is a long established, leading scientific instrumentation accessories business, manufacturing sample analysis and preparation equipment used in testing, research and quality control laboratories. The company's products are primarily focused on supporting IR Spectroscopy, an important analytical technique widely used in research and commercial/ industrial laboratories. Trading in the year to 31 March 2016 exceeded expectations with profit growth ahead of forecast, reflecting the increased focus on sales and costs, with this positive momentum continuing in the current year. Held in the Ordinary Shares fund.
Trading at TFC Europe, a leading distributor of technical fasteners in the UK and Germany, suffered in the year to 31 March 2016 due to a general downturn in the UK manufacturing sector, most particularly the oil and gas industry. In the current financial year, however, the company is trading ahead of budget and prior year. A new, experienced Chairman joined in January 2016 and key initiatives have included strengthening the sales team, development of new product ranges and supplier price renegotiations. Improvements to a number of the company's facilities are planned for Q1 2017 including larger, better located premises and the opening of a new branch in the South East to service existing customers and target new clients. Held in the Ordinary Shares fund.
The Bunker Secure Hosting, which operates two ultra-secure data centres, continues to deliver solid performance and the pipeline remains healthy for both new and existing clients. The Bunker commenced its core network upgrade project in the period which involved a major capex programme to be able to support customers with more resilient control systems within the data centres. The projects are now largely complete with minimal issues encountered. Held in the Ordinary Shares fund.
The Business Advisory Limited provides advice and support services to UK-based small businesses seeking to gain access to Government incentives, such as R&D tax credits. The company enjoys a high level of recurring income and good visibility on future revenues. The company has made good progress in improving its internal processes and the indicators are positive for the current year. Held in the Ordinary Shares fund.
Thermotech Solutions is a facilities management provider that designs, installs and services air conditioning and fire sprinkler systems for retail, commercial and residential properties. Since investment, good progress has been made in diversifying and rebalancing the spread of revenues, with greater emphasis placed on service and maintenance. In July 2016, Thermotech acquired Oakwood, a well-respected local competitor which continues to perform well. The combined group benefits from greater scale, a national footprint and a reduction in customer concentration. Held in the Ordinary Shares fund.
Head of Private Equity Foresight Group 24 April 2017
Ordinary Shares Fund
| 31 December 2016 | 31 December 2015 | |||||
|---|---|---|---|---|---|---|
| Investment | Amount invested £ |
Valuation £ |
Valuation Methodology | Amount invested £ |
Valuation £ |
|
| Datapath Group Limited | 7,563,365 11,103,999 * | Discounted earnings multiple | 7,563,365 | 7,489,744 | ||
| Protean Software Limited | 2,500,000 | 4,085,450 * | Discounted revenue multiple | 2,500,000 | 2,500,000 | |
| Simulity Labs Limited | 4,000,000 | 4,000,000 * | Cost | - | - | |
| Procam Television Holdings Limited | 1,664,893 | 3,951,246 * | Discounted earnings multiple | 1,664,893 | 2,783,622 | |
| Blackstar Amplification Holdings Limited | 2,500,000 | 3,822,050 * | Discounted earnings multiple | 2,500,000 | 4,645,787 | |
| Itad Limited | 2,750,000 | 3,507,914 * | Discounted earnings multiple | 2,750,000 | 2,750,000 | |
| Industrial Efficiency II Limited | 2,603,260 | 3,349,029 * | Discounted cash flow | 2,603,260 | 3,240,141 | |
| Specac International Limited | 1,300,000 | 3,347,328 * | Discounted earnings multiple | 1,345,000 | 1,345,000 | |
| FFX Group Limited | 2,676,426 | 3,057,646 * | Discounted earnings multiple | 2,676,426 | 2,676,426 | |
| TFC Europe Limited | 3,614,612 | 2,960,775 * | Discounted earnings multiple | 3,614,612 | 3,191,112 | |
| Hospital Services Group Limited | 3,320,000 | 2,917,253 | Discounted earnings multiple | 3,320,000 | 3,320,000 | |
| ABL Investments Limited | 2,750,000 | 2,692,111 | Discounted earnings multiple | 2,750,000 | 2,750,000 | |
| Ixaris Systems Limited | 2,266,036 | 2,340,308 | Discounted revenue multiple | 2,266,036 | 2,282,403 | |
| The Business Advisory Limited | 1,650,000 | 2,232,014 | Discounted earnings multiple | 1,650,000 | 1,650,000 | |
| Aquasium Technology Limited | 500,000 | 2,230,602 | Discounted earnings multiple | 500,000 | 2,231,457 | |
| The Bunker Secure Hosting Limited | 1,537,348 | 1,656,835 | Discounted earnings multiple | 1,537,348 | 1,547,255 | |
| CoGen Limited | 1,603,491 | 1,638,117 | Discounted cash flow | 1,603,491 | 1,622,653 | |
| Mitgjorn Limited | 100 | 1,200,100 | Net assets | 100 | 100 | |
| Autologic Diagnostics Group Limited | 4,330,020 | 1,000,000 | Discounted earnings multiple | 4,330,020 | 4,268,957 | |
| Positive Response Communications Limited | 1,000,000 | 904,370 | Discounted revenue multiple | 1,000,000 | 1,233,032 | |
| ICA Group Limited | 885,232 | 880,894 | Discounted earnings multiple | 885,232 | 1,067,542 | |
| Idio Limited | 782,500 | 782,500 | Cost | - | - | |
| Biofortuna Limited | 685,032 | 685,032 | Price of last funding round | 590,529 | 590,529 | |
| Flowrite Refrigeration Limited | 209,801 | 471,038 | Discounted revenue multiple | 209,801 | 319,278 | |
| Aerospace Tooling Holdings Limited | 150,000 | 421,603 | Discounted earnings multiple | 150,000 | 986,800 | |
| Thermotech Solutions Limited | 300,000 | 312,373 | Discounted earnings multiple | 1,500,000 | 2,034,925 | |
| Sindicatum Carbon Capital Limited | 246,075 | 246,075 | Price of last funding round | 246,075 | 246,075 | |
| Cole Henry PE 2 Limited - SPV | 100,000 | 100,000 | Cost | 100,000 | 100,000 | |
| Kingsclere PE 3 Limited - SPV | 100,000 | 100,000 | Cost | 100,000 | 100,000 | |
| Whitchurch PE 1 Limited - SPV | 100,000 | 100,000 | Cost | 100,000 | 100,000 | |
| ZOO Digital Group plc | 40,307 | 53,742 | Bid price | 44,123 | 47,392 | |
| The Skills Group Limited | 391,301 | — | Nil value | 393,331 | — | |
| Abacuswood Limited | 478,684 | — | Nil value | 627,784 | — | |
| alwaysON Group Limited | 1,473,271 | — | Nil value | 1,473,271 | 547,620 | |
| Oxonica plc | 2,804,473 | — | Nil value | 2,804,473 | — | |
| Trilogy Communications Limited | — | — | Sold | 1,330,964 | 162,496 | |
| O-Gen Acme Trek Limited | — | — | Sold | 345,262 | 281,253 | |
| i-plas Group Limited | — | — | Dissolved | 299,716 | — | |
| 58,876,227 66,150,404 | 57,375,112 | 58,111,599 |
* Top ten investments by value shown on pages 13 to 14.
** The Ordinary Shares Fund also has five investments totalling £500 in seeded companies.
1
Planned Exit Shares Fund
| 31 December 2016 | 31 December 2015 | |||||
|---|---|---|---|---|---|---|
| Investment | Amount invested £ |
Valuation £ |
Valuation Methodology | Amount invested £ |
Valuation £ |
|
| alwaysON Group Limited | 1,839,970 | 2,032,608 | * | Disposal proceeds | 1,839,970 | 2,091,749 |
| Industrial Engineering Plastics Limited | 1,556,416 | 508,150 | * | Discounted earnings multiple | 1,556,416 | 1,339,808 |
| Trilogy Communications Limited | — | — | Sold | 914,720 | 390,212 | |
| i-plas Group Limited | — | — | Dissolved | 524,030 | — | |
| 3,396,386 | 2,540,758 | 4,835,136 | 3,821,769 |
* All investments with a value are shown on page 15.
| 31 December 2016 | 31 December 2015 | |||||
|---|---|---|---|---|---|---|
| Investment | Amount invested £ |
Valuation £ |
Valuation Methodology | Amount invested £ |
Valuation £ |
|
| Criterion Healthcare Holdings Limited | 4,005,616 | 4,878,473 | * | Discounted cash flow | 4,005,616 | 4,836,401 |
| FS Hayford Farm Limited | 3,660,070 | 3,994,205 | * | Discounted cash flow | 4,049,018 | 4,113,376 |
| FS Ford Farm Limited | 3,952,524 | 3,691,083 | * | Discounted cash flow | 3,952,524 | 3,520,236 |
| Drumglass HoldCo Limited | 2,526,475 | 3,025,435 | * | Discounted cash flow | 3,888,160 | 4,383,579 |
| FS Tope Limited | 2,561,418 | 2,793,924 | * | Discounted cash flow | 4,053,091 | 4,056,070 |
| Stirling Gateway HC Limited | 2,069,978 | 2,244,070 | * | Discounted cash flow | 2,069,978 | 2,145,478 |
| Wharfedale SPV (Holdings) Limited | 1,314,923 | 1,395,225 | * | Discounted cash flow | 1,314,923 | 1,446,214 |
| Lochgilphead HoldCo Limited | 493,186 | 637,969 | * | Discounted cash flow | 493,186 | 494,827 |
| Staffordshire HoldCo Limited | 1,041,077 | 454,860 | * | Discounted cash flow | 1,041,077 | 586,817 |
| Sandwell HoldCo Limited | 282,646 | 216,332 | * | Discounted cash flow | 282,646 | 294,381 |
| Stobhill HoldCo Limited | 231,987 | 193,738 | Discounted cash flow | 231,987 | 309,583 | |
| FS Pentre Limited | — | — | Sold | 4,556,061 | 4,115,819 | |
| 22,139,900 23,525,314 | 29,938,267 | 30,302,781 |
* Top ten investments by value are shown on pages 16 to 17.
Ordinary Shares Fund
Top ten investments by value at 31 December 2016 are detailed below:
is a UK manufacturer of PC-based multi-screen computer graphics cards and video capture hardware, specialising in video wall and data wall technology. Established in 1982, it has provided solutions for wide-ranging and varied applications including control rooms, financial dealing rooms, CCTV, distance learning, digital signage and business presentations. Datapath was acquired following the merger with Foresight 2 VCT plc in December 2015.
| 31 March 2016 | ||
|---|---|---|
| December 2015 | Year ended | £'000 |
| 12.9% | Sales | 21,215 |
| — | Profit before Tax | 4,995 |
| £7,563,365 | Retained Profit | 4,480 |
| — | Net Assets | 16,350 |
is a software business based in Coventry that develops and sells field service management software for organisations involved in the supply, installation, maintenance and hire of equipment, across sectors such as facilities management, HVAC maintenance and elevator installation.
| 31 March 2016 | ||
|---|---|---|
| July 2015 | Year ended: | £'000 |
| 39.7% | Sales | 2,253 |
| £90,247 | Loss before Tax | (88) |
| £1,750,000 | Retained Loss | (99) |
| £750,000 | Net Assets | 3,837 |
is a technology business focused on embedded communications software and related server based applications. They provide operating system software for SIM chips and the next generation of SIM chips, embedded SIM chips ('eUICC' or 'eSIM'), allowing chips to securely connect to mobile networks and for smart technology products to communicate with one another.
| October 2016 | Year ended: | 31 May 2016 £'000 |
|---|---|---|
| 23.3% | Sales | 9,261 |
| — | Loss before Tax | (239) |
| £2,800,000 | Retained Loss | (283) |
| £1,200,000 | Net Assets | 14 |
is one of the UK's leading broadcast hire companies, supplying equipment and crew for location TV production. Clients include major broadcasters and production companies, including the BBC, ITV, Two Four, Objective, Monkey Kingdom and Endemol. Foresight Group backed an MBO of the business in 2013.
| 31 December 2015 | |||
|---|---|---|---|
| First investment | June 2013 | £'000 | |
| % Equity/Voting Rights | 26.3% | Sales | 11,454 |
| Income received and receivable in the year | — | Profit before Tax | 85 |
| Equity at cost | £292,393 | Retained Profit | 141 |
| Loan stock at cost | £1,372,500 | Net Assets | 366 |
designs and manufactures innovative guitar amplifiers and associated products for the UK and international music instrument market. Based in Northampton, Blackstar has established a global brand on a catalogue of 50+ products, each of which has received industry acclaim.
| 30 April 2016 | |||
|---|---|---|---|
| First investment | July 2012 | Year ended: | £'000 |
| % Equity/Voting Rights | 28.7% | Sales | 8,211 |
| Income received and receivable in the year | £225,616 | Loss before Tax | (605) |
| Equity at cost | £250,000 | Retained Loss | (605) |
| Loan stock at cost | £2,250,000 | Net Assets | 546 |
Ordinary Shares Fund
1
is a long established specialist consulting firm focused on monitoring and evaluating the impact of international development money and aid on behalf of governments and charities in the UK and overseas. The company was established in 1984 and is headquartered in Hove. More than half of the employees are well-travelled consultants. The company advises on the impact of aid programs throughout the world, largely in developing countries.
| 31 January 2016 | |
|---|---|
| Year ended: | £'000 |
| Sales | 12,035 |
| Profit before Tax | 1,753 |
| Retained Profit | 1,426 |
| Net Assets | 857 |
provides energy efficiency solutions to CEMEX UK. The company has installed gas pipeline and electrical connections at a number CEMEX UK sites. The investment was completed in July 2014. Revenues are generated through the financial value of the energy savings made by the equipment.
| 30 June 2016 | |||
|---|---|---|---|
| First investment | July 2014 | £'000 | |
| % Equity/Voting Rights | 18.8% | Sales | 1,187 |
| Income received and receivable in the year | — | Profit before Tax | 42 |
| Equity at cost | £141,000 | Retained Profit | 42 |
| Loan stock at cost | £2,462,260 | Net Liabilities | (165) |
is a scientific instrumentation accessories business based in Orpington, Kent acquired out of Smiths Group plc in April 2015. They supply a range of infrared sampling tools to OEMs and end users such as Thermo Fisher, GSK and large research universities to enable the testing of liquids, solids and gases. The company sells accessories across the world with circa 80% being sold outside the UK.
| 31 March 2016 | |||
|---|---|---|---|
| First investment | April 2015 | Year ended: | £'000 |
| % Equity/Voting Rights | 37.5% | Sales | 7,897 |
| Income received and receivable in the year | £119,404 | Profit before Tax | 549 |
| Equity at cost | £130,000 | Retained Profit | 483 |
| Loan stock at cost | £1,170,000 | Net Assets | 936 |
is a multi-channel supplier of high quality hand tools, power tools and accessories, fixings, fasteners and general building products. Headquartered in Folkestone, FFX supplies contractors, building firms and the DIY sector. Initially founded as a traditional 'bricks and mortar' supplier at its Folkestone site, FFX launched its ecommerce channel in 2009 and has since grown rapidly.
| 31 March 2015 | |||
|---|---|---|---|
| First investment | September 2015 | Year ended: | £'000 |
| % Equity/Voting Rights | 25.3% | Sales | 26,952 |
| Income received and receivable in the year | £186,480 | Profit before Tax | 814 |
| Equity at cost | £981,153 | Retained Profit | 591 |
| Loan stock at cost | £1,695,273 | Net Assets | 2,025 |
is one of Europe's leading technical based suppliers of fixing and fastening products. From seven sites in the UK and Germany, it supplies injection moulded technical fasteners and ring and spring products to customers across a wide range of industries, including aerospace, automotive, hydraulics and petrochemicals and works with some of the leading manufacturers of technical products such as Smalley® Steel Ring Company. TFC was acquired following the merger with Foresight 2 VCT plc in December 2015.
31 March 2016
| First investment | December 2015 | Year ended: | £'000 |
|---|---|---|---|
| % Equity/Voting Rights | 26.7% | Sales | 19,269 |
| Income received and receivable in the year | — | Profit before Tax | 729 |
| Equity at cost | £3,614,612 | Retained Profit | 433 |
| Loan stock at cost | — | Net Assets | 2,848 |
Planned Exit Shares Fund
All investments with a value at 31 December 2016 are detailed below:
Following the merger of alwaysON and DCG, the combined business now provides two services to corporate clients: it designs, sources, implements and maintains data storage solutions (increasingly as a managed service) and provides data VPNs, VOIP and collaboration software services. The investment was sold in January 2017.
| 30 June 2016 | |||
|---|---|---|---|
| First investment | November 2010 | Year ended: | £'000 |
| % Equity/Voting Rights | 6.4% | Sales | 5,451 |
| Income received and receivable in the year | £67,685 | Loss before Tax | (893) |
| Equity at cost | £489,970 | Retained Loss | (718) |
| Loan stock at cost | £1,350,000 | Net Liabilities | (754) |
is a Liphook and Birmingham-based company, established for over 25 years, which fabricates plastic materials such as plastic ducting and venting systems for large/complex buildings such as hospitals and universities as well as distributes plastics to UK industry, supplying ventilation and pipe fittings, plastic welding rods, hygienic wall cladding, plastic sheets and tanks. Across the product range, the majority of customers are either plastic fabricators, duct installers or chemical plants. Industrial Engineering Plastics ("IEP") primarily sources material from Germany, the UK and China.
| 31 May 2016 | |||
|---|---|---|---|
| First investment | December 2011 | Year ended | £'000 |
| % Equity/Voting Rights | 44.6% | Sales | 3,559 |
| Income received and receivable in the year | — | Loss before Tax | (86) |
| Equity at cost | £75,000 | Retained Loss | (35) |
| Loan stock at cost | £1,481,416 | Net Assets | 2,202 |
Infrastructure Shares Fund
Top ten investments by value at 31 December 2016 are detailed below:
In March 2013 Foresight VCT Infrastructure and Foresight 2 VCT Infrastructure invested a combined £3.42 million in Criterion Healthcare Holdings Limited which operates "Bishop Auckland", a secondary PFI investment in an acute hospital project near Darlington with 16.5 years of the concession remaining.
| 30 April 2016 | |||
|---|---|---|---|
| First investment | March 2013 | Year ended: | £'000 |
| % Equity/Voting Rights | 20.0% | Income | 7,180 |
| Income received and receivable in the year | £230,893 | Profit before Tax | 2,162 |
| Equity at cost | £3,555,616 | Retained Profit | 1,852 |
| Loan stock at cost | £450,000 | Net Assets | 2,543 |
In July 2014, Foresight VCT Infrastructure and Foresight 2 VCT Infrastructure invested a combined £4m in FS Hayford Farm Limited which had a binding sale and purchase agreement already in place to acquire the 9.8MW ground mounted photovoltaic solar project, subject to certain conditions precedent which were satisfied in December 2014. The project earns revenues through a combination of Renewable Obligation Certificates at a rate of 1.4 ROCs / MWh and power sales and has an expected 25 year investment life.
| 30 September 2015 | |||
|---|---|---|---|
| First investment | July 2014 | Year ended: | £'000 |
| % Equity/Voting Rights | 50.0% | Income | 154 |
| Income received and receivable in the year | £107,879 | Loss before Tax | (112) |
| Equity at cost | £2,572,670 | Retained Loss | (112) |
| Loan stock at cost | £1,087,400 | Net Liabilities | (559) |
In July 2014, Foresight VCT Infrastructure and Foresight 2 VCT Infrastructure invested a combined £4m in Rovinj Solar Limited which had an agreement in place to acquire a minority interest in the operating 5.4MW Ford Farm ground mounted photovoltaic project in Cornwall. The project earns revenues through a combination of Renewable Obligation Certificates at a rate of 1.6 ROCs / MWh and power sales and has an expected 25 year investment life.
| 30 September 2015 | |||
|---|---|---|---|
| First investment | July 2014 | Year ended: | £'000 |
| % Equity/Voting Rights | 50.0% | Income | 573 |
| Income received and receivable in the year | £108,296 | Loss before Tax | (1,021) |
| Equity at cost | £2,752,524 | Retained Loss | (1,021) |
| Loan stock at cost | £1,200,000 | Net Liabilities | (925) |
In July 2014, Foresight VCT Infrastructure and Foresight 2 VCT Infrastructure invested a combined £1.6m in Zagreb Solar Limited. This company merged with York Infrastructure 3 Limited in April 2015 and the company's funds were used to repay senior third party debt in the Drumglass PFI project.
| 31 March 2016 | |||
|---|---|---|---|
| First investment | July 2014 | Year ended: | £'000 |
| % Equity/Voting Rights | 50.0% | Income | 671 |
| Income received and receivable in the year | £347,324 | Profit before Tax | 196 |
| Equity at cost | £1,685,298 | Retained Profit | 157 |
| Loan stock at cost | £841,177 | Net Assets | 214 |
In July 2014, Foresight VCT Infrastructure and Foresight 2 VCT Infrastructure invested a combined £4m in Krk Solar Limited which in October 2014 acquired the operating 3.3MW ground mounted photovoltaic solar project near Totnes in Devon. The project earns revenues through a combination of Renewable Obligation Certificates at a rate of 1.4 ROCs / MWh and power sales and has an expected 25 year investment life.
| 30 September 2015 | |||
|---|---|---|---|
| First investment | July 2014 | Year ended: | £'000 |
| % Equity/Voting Rights | 50.0% | Income | 339 |
| Income received and receivable in the year | £106,701 | Loss before Tax | (256) |
| Equity at cost | £1,792,556 | Retained Loss | (256) |
| Loan stock at cost | £768,862 | Net Liabilities | (256) |
Infrastructure Shares Fund
Foresight VCT Infrastructure and Foresight 2 VCT Infrastructure completed an investment in Stirling Gateway HC Limited in December 2012. The Project includes the design, redevelopment, construction, financing and operation of five secondary schools and a new Raploch Community Campus. It incorporates two primary schools, a special needs school, a nursery, community facilities, sports facilities and associated services. It has been operating for just over five years and has 23 years left on the original 30 year contract.
| 31 March 2016 | |||
|---|---|---|---|
| First investment | December 2012 | Year ended: | £'000 |
| % Equity/Voting Rights | 12.5% | Income | 4,057 |
| Income received and receivable in the year | £134,474 | Profit before Tax | 1,339 |
| Equity at cost | £1,242,806 | Retained Profit | 1,067 |
| Loan stock at cost | £827,172 | Net Liabilities | (29,477) |
In March 2013 Foresight VCT Infrastructure and Foresight 2 VCT Infrastructure invested a combined £1.36 million in Wharfedale SPV Holdings Limited which operates Wharfedale Hospital, a secondary PFI investment in a hospital project near Leeds with 16.5 years of the concession remaining.
| 31 December 2015 | |||
|---|---|---|---|
| First investment | March 2013 | Year ended: | £'000 |
| % Equity/Voting Rights | 25.0% | Income | 1,136 |
| Income received and receivable in the year | £87,954 | Profit before Tax | 604 |
| Equity at cost | £929,059 | Retained Profit | 596 |
| Loan stock at cost | £385,864 | Net Liabilities | (885) |
Lochgilphead HoldCo Limited is an investment holding company that holds a 45% stake in the Lochgilphead PFI project in Argyle and Bute that was acquired by the VCT in March 2013. In July 2014, a restructuring of the investment was undertaken to reduce the VCT's holding in this non-qualifying asset by transferring the majority of the economic interest to the Foresight ITS fund. Averon Park invested £3.05m in Lochgilphead HoldCo by way of loans which was used to fund repayment of the VCT loans, enact a capital reduction of the VCTs' equity and pay transaction costs.
| 31 December 2015 | ||
|---|---|---|
| July 2014 | Year ended: | £'000 |
| 100.0% | Income | 1,015 |
| — | Profit before Tax | 487 |
| £493,186 | Retained Profit | 495 |
| — | Net Liabilities | (2,715) |
In January 2013 Foresight VCT Infrastructure and Foresight 2 VCT Infrastructure invested in Staffordshire Schools through Durham Infrastructure 5 Limited. Staffordshire Schools is a secondary PFI investment in a school project in the West Midlands with 12 years of the concession remaining.
| 31 March 2016 | |||
|---|---|---|---|
| First investment | January 2013 | Year ended: | £'000 |
| % Equity/Voting Rights | 100.0% | Income | 1,002 |
| Income received and receivable in the year | £215,000 | Profit before Tax | 293 |
| Equity at cost | £597,509 | Retained Profit | 256 |
| Loan stock at cost | £443,568 | Net Liabilities | (585) |
In January 2013 Foresight VCT Infrastructure and Foresight 2 VCT Infrastructure invested in Sandwell Schools through the Norwich Infrastructure 4 Limited SPV. The SPV changed its name to Sandwell HoldCo Limited in 2015. Sandwell schools is a secondary PFI investment in a four school project in the West Midlands with 12 years remaining in the concession.
| 31 March 2016 | ||
|---|---|---|
| January 2013 | Year ended: | £'000 |
| 100.0% | Income | 1,536 |
| £22,832 | Profit before Tax | 288 |
| £156,106 | Retained Profit | 228 |
| £126,540 | Net Liabilities | (848) |
at 31 December 2016
Foresight Group also manages or advises Foresight 3 VCT plc, Foresight 4 VCT plc, Foresight Solar & Infrastructure VCT plc, Foresight Nottingham Fund LP, Foresight Environmental Fund LP, Foresight Solar Fund Limited, Foresight European Solar Fund LP, Foresight Solar EIS, Foresight Solar EIS2, Foresight Solar EIS3, Foresight Solar EIS4, Foresight Solar EIS5, Foresight Inheritance Tax Solutions, UK Waste Resources and Energy Investments LP, Foresight Sustainable UK Investment Fund, Foresight AD EIS, Recycling and Waste LP, The Waste Asset LP, Foresight Energy Infrastructure EIS and Foresight Regional Investment LP. Investments have been made by the funds that Foresight Group advises and manages, as follows:
| Foresight VCT | Foresight | Foresight | Total Equity | |||
|---|---|---|---|---|---|---|
| O, PE, Infra | Inheritance | Nottingham | Managed by | |||
| Investee | Share £ |
Foresight 3 £ |
Foresight 4 £ |
Tax Solutions £ |
Fund £ |
Foresight Group % |
| ABL Investments Limited | 2,750,000 | 475,000 | 1,000,000 | — | — | 40.0% |
| Aerospace Tooling Holdings Limited | 150,000 | 50,000 | 150,000 | — | — | 53.7% |
| AlwaysON Group Limited | 3,313,241 | — | 680,240 | — | — | 70.2% |
| Autologic Diagnostics Group Limited | 4,330,020 | 2,488,966 | 2,488,785 | — | — | 20.3% |
| Biofortuna Limited | 685,032 | 684,994 | 1,370,053 | — | — | 41.1% |
| Blackstar Amplification Holdings Limited | 2,500,000 | — | 1,000,000 | — | — | 40.2% |
| CoGen Limited | 1,603,491 | 351,539 | 390,928 | — | — | 19.8% |
| Cole Henry PE 2 Limited | 100,000 | 200,000 | — | — | — | 49.9% |
| Datapath Group Limited | 7,563,365 | 73,250 | 73,250 | — | — | 38.8% |
| Drumglass HoldCo Limited | 2,526,475 | — | — | 2,276,685 | — | 100.0% |
| FFX Group Limited | 2,676,426 | — | 1,372,002 | — | — | 38.2% |
| Flowrite Refrigeration Limited | 209,801 | 85,199 | 295,000 | — | — | 49.8% |
| FS Ford Farm Limited | 3,952,524 | — | — | 4,380,000 | — | 100.0% |
| FS Hayford Farm Limited | 3,660,070 | — | — | 2,588,948 | — | 100.0% |
| FS Tope Limited | 2,561,418 | — | — | 1,876,673 | — | 100.0% |
| Hospital Services Group Limited | 3,320,000 | — | 1,200,000 | — | — | 61.5% |
| ICA Group Limited | 885,232 | 670,884 | — | — | — | 51.9% |
| Idio Limited | 782,500 | — | — | — | 782,500 | 13.8% |
| Industrial Efficiency II Limited | 2,603,260 | — | — | 1,131,498 | — | 100.0% |
| Itad Limited | 2,750,000 | 250,000 | 1,000,000 | — | — | 35.0% |
| Ixaris Systems Limited | 2,266,036 | 866,385 | 1,181,432 | — | — | 18.2% |
| Kingsclere PE 3 Limited | 100,000 | 100,000 | — | — | — | 49.9% |
| Lochgilphead HoldCo Limited | 493,186 | — | — | 3,050,000 | — | 100.0% |
| Positive Response Communications Limited | 1,000,000 | 500,000 | 500,000 | — | — | 60.8% |
| Procam Television Holdings Limited | 1,664,893 | 423,608 | 1,101,385 | — | — | 52.7% |
| Protean Software Limited | 2,500,000 | 500,000 | 1,000,000 | — | — | 63.5% |
| Sandwell HoldCo Limited | 282,646 | — | — | 1,910,696 | — | 100.0% |
| Sindicatum Carbon Capital Limited | 246,075 | 174,993 | 200,063 | — | — | 1.0% |
| Specac International Limited | 1,300,000 | 650,000 | 650,000 | — | — | 75.0% |
| Staffordshire HoldCo Limited | 1,041,077 | — | — | 1,130,834 | — | 100.0% |
| Stobhill HoldCo Limited | 231,987 | — | — | 3,050,000 | — | 100.0% |
| TFC Europe Limited | 3,614,612 | 125,096 | 156,370 | — | — | 66.7% |
| The Bunker Secure Hosting Limited | 1,537,348 | 475,300 | 584,987 | — | — | 31.6% |
| The Business Advisory Limited | 1,650,000 | 650,000 | 1,000,000 | — | — | 27.5% |
| Thermotech Solutions Limited | 300,000 | — | 200,000 | — | — | 25.5% |
| Whitchurch PE 1 Limited | 100,000 | 378,000 | — | — | — | 49.9% |
| ZOO Digital Group plc | 40,307 | 1,006,348 | 755,605 | — | — | 14.8% |
Companies in liquidation and valued at £nil have been excluded from the table above.
Where Foresight Group controls over 50% of an investment by virtue of its discretionary management of one or more VCTs, decisions either have to be taken by the individual Boards of the VCTs or voting is limited to 50%.
The tables below give details of realisations during the year:
| Cost of | Valuation at | |||
|---|---|---|---|---|
| investment | Sales | Realised | 31 December | |
| disposed of | proceeds | gain/(loss) | 2015 | |
| Ordinary Shares Fund | £ | £ | £ | £ |
| Abacuswood Limited | 149,100 | 1 | (149,099)^ | — |
| i-plas Group Limited | 299,716 | — | (299,716)^ | — |
| O-Gen Acme Trek Limited | 345,262 | 45,442* | (299,820) | 281,253 |
| Specac International Limited | 45,000 | 45,000 | — | 45,000 |
| The Skills Group Limited | 2,030 | 2,030 | — | — |
| Thermotech Solutions Limited | 1,200,000 | — | (1,200,000) | 1,200,000 |
| Trilogy Communications Limited | 1,330,964 | 575,667** | (755,297) | 162,496 |
| ZOO Digital Group plc | 3,816 | 5,036 | 1,220 | 4,099 |
| 3,375,888 | 673,176 | (2,702,712) | 1,692,848 |
*Plus deferred consideration of £218,121 still due.
**Plus deferred consideration of £104,237 still due.
^This loss refers to the transfer on disposal between unrealised and realised reserves and has no impact on NAV.
| Planned Exit Shares Fund | Cost of investment disposed of £ |
Sales proceeds £ |
Realised gain/(loss) £ |
Valuation at 31 December 2015 £ |
|---|---|---|---|---|
| i-plas Group Limited | 524,030 | — | (524,030)^ | — |
| Trilogy Communications Limited | 914,720 | 1,374,912* | 460,192 | 390,212 |
| 1,438,750 | 1,374,912 | (63,838) | 390,212 |
*Plus deferred consideration of £248,956 still due.
^This loss refers to the transfer on disposal between unrealised and realised reserves and has no impact on NAV.
| Cost of | Valuation at | ||||
|---|---|---|---|---|---|
| investment | Sales | Realised | 31 December | ||
| disposed of | proceeds | loss | 2015 | ||
| Infrastructure Shares Fund | £ | £ | £ | £ | |
| Drumglass HoldCo Limited | 1,361,685 | 1,361,685 | — | 1,361,685 | |
| FS Hayford Farm Limited | 388,948 | 388,948 | — | 388,948 | |
| FS Pentre Limited | 4,556,061 | 3,996,337 | (559,724) | 4,115,819 | |
| FS Tope Limited | 1,491,673 | 1,491,673 | — | 1,491,673 | |
| 7,798,367 | 7,238,643 | (559,724) | 7,358,125 |
1
This Strategic Report, on pages 20 to 26, has been prepared in accordance with the requirements of Section 414 of the Companies Act 2006 and best practice. Its purpose is to inform the members of the Company and help them to assess how the Directors have performed their duty to promote the success of the Company, in accordance with Section 172 of the Companies Act 2006.
Foresight VCT plc originally raised £10.9 million through an Ordinary Share issue in the 1997/98 tax year. At 31 December 2016, this fund had investments and assets totalling £107.2 million, of which a significant portion was held in cash and was available to make new investments. The number of Ordinary Shares in issue at 31 December 2016 was 127,985,288.
In the 2009/10 tax year, £12 million was raised through a linked offer for the Planned Exit Shares fund, the proceeds of which were divided equally between Foresight VCT plc and Foresight 2 VCT plc. These Funds comprised separate share classes within Foresight VCT plc and Foresight 2 VCT plc with their own investments and income streams, and were combined following the merger in December 2015.
The number of Planned Exit shares in the Company in issue at 31 December 2016 was 11,404,314.
In the 2011/2012 tax year, £33 million was raised through a linked offer for the Infrastructure Shares fund, the proceeds of which were divided equally between Foresight VCT plc and Foresight 2 VCT plc. These Funds comprised separate share classes within Foresight VCT plc and Foresight 2 VCT plc with their own investments and income streams, and were combined following the merger in December 2015.
The number of Infrastructure Shares in the Company in issue at 31 December 2016 was 32,495,246.
The Company will target investments in UK unquoted companies which it believes will achieve the objective of producing attractive returns for Shareholders.
The investment objective of the Ordinary Shares fund is to provide private investors with attractive returns from a portfolio of investments in fast-growing unquoted companies in the United Kingdom.
The investment objective of the Planned Exit Shares fund is to combine greater security of capital than is normal within a VCT with the enhancement of investor returns through 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 the Planned Exit Shares fund is to distribute 110p per share through a combination of tax-free income, buy-backs and tender offers before the sixth anniversary of the closing date of the original offer.
The investment objective of the Infrastructure Shares fund is to invest in companies which own and operate essential assets and services which enjoy long-term contracts with strong counterparties or through government concessions. To ensure VCT qualification, the Manager will focus on companies where the provision of services is the primary activity and which generate long-term contractual revenues, thereby facilitating the payment of regular and predictable dividends to investors.
The Board expects the Manager to deliver a performance which meets the objectives of the three classes of shares. The KPIs covering these objectives are growth in net asset value per share and dividend payments, which, when combined, give net asset value total return. An additional key performance indicator reviewed by the Board includes the total expenses as a proportion of shareholders' funds.
A record of some of these indicators is contained on the following page. The ongoing charges ratio for the period for the Company as a whole was 2.0% of net assets. Share buy-backs have been completed at discounts ranging from 10.1% to 11.5% for Ordinary Shares, 7.7% to 9.1% for Planned Exit Shares and 0.7% for Infrastructure Shares.
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 Manager's Report. The Board assesses the performance of the Manager in meeting the Company's objective against the primary KPIs highlighted above.
Clearly, in the Ordinary Share fund, investments in unquoted companies at an early stage of their development may disappoint. Investing the funds raised in companies with high growth characteristics, however, with the potential to become strong performers within their respective fields creates an opportunity for enhanced returns to Shareholders.
| 31 December 2016 | 31 December 2015 | |||||
|---|---|---|---|---|---|---|
| Ordinary Shares |
Planned Exit Shares |
Infrastructure Shares |
Ordinary Shares |
Planned Exit Shares |
Infrastructure Shares |
|
| Net asset value per share | 83.6p | 25.9p | 81.7p | 87.5p | 36.8p | 92.4p |
| Net asset value total return | 216.7p | 82.9p | 103.7p | 215.5p | 79.8p | 99.9p |
| Ordinary Shares |
Planned Exit Shares |
Infrastructure Shares |
Ordinary Shares |
Planned Exit Shares |
Infrastructure Shares |
|
| Share price | 75.7p | 26.0p | 75.0p | 80.0p | 41.0p | 90.0p |
| Share price total return | 213.7p | 83.0p | 97.0p | 212.6p | 84.0p | 97.5p |
| Ordinary Shares |
Planned Exit Shares |
Infrastructure Shares |
Ordinary Shares |
Planned Exit Shares |
Infrastructure Shares |
|
| Dividends paid* | 184.8p | 57.0p | 22.0p | 182.1p | 43.0p | 7.5p |
| Dividends paid in the year | 7.0p | 14.0p | 14.5p | 6.0p | 22.5p | 2.5p |
| Dividend yield % | 9.2 | 53.8^ | 19.3 | 7.5 | 54.9^ | 2.8 |
* From inception to 31 December 2016
^ In realisation mode.
| Ordinary Shares fund | |
|---|---|
| Share price discount to NAV at 31 December 2016 | 9.4% |
| Average discount on buybacks | 10.4% |
| Shares bought back during the year under review | 1,322,684 |
| Increase in net asset value during year (after adding back 7.0p dividend) | 3.5% |
| Ongoing charges ratio (based on net assets at 31 December 2016) | 2.1% |
| Planned Exit Shares fund | |
| Share price premium to NAV at 31 December 2016 | 0.4% |
| Average discount on buybacks | 8.5% |
| Shares bought back during the year under review | 122,773 |
| Increase in net asset value during year (after adding back 14.0p dividend) | 8.4% |
| Ongoing charges ratio (based on net assets at 31 December 2016) | 1.9% |
| Infrastructure Shares fund | |
| Share price discount to NAV at 31 December 2016 | 8.2% |
| Average discount on buybacks | 0.7% |
| Shares bought back during the year under review | 14,978 |
| Increase in net asset value during year (after adding back 14.5p dividend) | 4.1% |
| Ongoing charges ratio (based on net assets at 31 December 2016) | 1.7% |
1
* Technology, Media and Telecommunications
** Special Purpose Vehicle
** Special Purpose Vehicle
Healthcare 4,005,032 3,602,285
Healthcare 4,005,032 3,602,285
The Company will target UK unquoted companies which it believes will achieve the objective of producing attractive returns for Shareholders.
1
The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stock, convertible securities, fixed-interest securities and cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks, while AiM investments are primarily held in ordinary shares. Pending investment in unquoted and AiM listed securities, cash is primarily held in interest bearing accounts as well as in a range of permitted liquidity investments.
Investments are primarily made in companies which are substantially based in the UK, although many will trade overseas. The companies in which investments are made must satisfy a number of tests set out in Part 6 of the Income Tax Act 2007 to be classed as VCT qualifying holdings.
The Company aims to be significantly invested in growth businesses, subject always to the quality of investment opportunities and the timing of realisations. Any uninvested funds are held in cash and a range of permitted liquidity investments. It is intended that the significant majority (no less than 70%) of any funds raised by the Company will ultimately be invested in VCT qualifying investments.
Risk is spread by investing in a number of different businesses within different industry sectors at different stages of development, using a mixture of securities. The maximum amount invested in any one company including any guarantees to banks or third parties providing loans or other investment to such a company, is limited to 15% of the Company's investments by VCT value at the time of investment.
Investments are selected in the expectation that value will be enhanced by the application of private equity disciplines, including an active management style for unquoted companies through the placement of an investor director on investee company boards.
The Company has a borrowing limit of an amount not exceeding an amount equal to the adjusted capital and reserves (being the aggregate of the amount paid up on the issued share capital of the Company and the amount standing to the credit of its reserves). Whilst the Company does not currently borrow, its policy allows it to do so.
The Company invests alongside other funds managed or advised by the Manager and Foresight Group. Where more than one fund is able to participate in an investment opportunity, allocations will generally be made in proportion to the net cash raised for each such fund, other than where a fund has a pre-existing investment where the incumbent fund will have priority. Implementation of this policy will be subject to the availability of monies to make the investment and other portfolio considerations, such as the portfolio diversity and the need to maintain VCT status.
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 total investments at the time of making any investment in a single company and must have at least 70% by value of its investments throughout the period in shares or securities in qualifying holdings, of which 70% by value in aggregate must be in ordinary shares which carry no preferential rights (although only 10% of any individual investment needs to be in the ordinary shares of that Company).
The Board has engaged Foresight Group CI Limited as manager. Foresight Fund Managers Limited also provides or procures the provision of company secretarial, administration and custodian services to the Company. The Manager 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. In considering a prospective investment in a company, particular regard will be paid to:
The Board recognises the requirement under Section 414 of the Act to provide information about environmental matters (including the impact of the Company's business on the environment), employee, human
rights, social and community issues; including information about any policies it has in relation to these matters and effectiveness of these policies. As the Company has no employees or policies in these matters this requirement does not apply.
The Board currently comprises four male Directors. The Board is, however, conscious of the need for diversity and will consider both male and female candidates when appointing new Directors.
The Manager has an equal opportunities policy and currently employs 86 men and 59 women.
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 flow of dividend payments of the order of 5p per share across all share classes, although a greater or lesser sum may be paid in any year. It is the intention to maximise the Company's tax-free income for investors from a combination of dividends and interest received on investments and the distribution of capital gains arising from trade sales or flotations.
It is the Company's policy, subject to adequate cash availability, to consider repurchasing shares when they become available in order to help provide liquidity to the market in the Company's shares.
The Board carries out regular reviews of the risk environment in which the Company operates. The principal risks and uncertainties identified by the Board which might affect the Company's business model and future performance, and the steps taken with a view to their mitigation, are as follows:
Economic risk: events such as economic recession or general fluctuation in stock markets and interest rates may affect the valuation of investee companies and their ability to access adequate financial resources, as well as affecting the Company's own share price and discount to net asset value. Mitigation: The Company invests in a diversified portfolio of investments spanning various industry sectors and maintains sufficient cash reserves to be able to provide additional funding to investee companies where appropriate and to repurchase its own shares.
VCT qualifying status risk: the Company is required at all times to observe the conditions laid down in the Income Tax Act 2007 for the maintenance of approved VCT status. The loss of such approval could lead to the Company losing its exemption from corporation tax on capital gains, to investors being liable to pay income tax on dividends received from the Company and, in certain circumstances, to investors being required to repay the initial income tax relief on their investment. Mitigation: Legal advice is taken for each deal to ensure all investments are qualifying. Advance assurance, where appropriate, is sought from HMRC ahead of completion. The Manager keeps the
Company's VCT qualifying status under continual review, seeking to take appropriate action to maintain it where required, and its reports are reviewed by the Board on a quarterly basis. The Board has also retained Shakespeare Martineau LLP to undertake an independent VCT status monitoring role.
Investment and liquidity risk: many of the Company's investments are in small and medium-sized unquoted companies which are VCT qualifying holdings, and which by their nature entail a higher level of risk and lower liquidity than investments in larger quoted companies. Mitigation: the Manager aims to limit the risk attaching to the portfolio as a whole by careful selection, close monitoring and timely realisation of investments, by carrying out rigorous due diligence procedures and maintaining a spread of holdings in terms of industry sector. The Board reviews the investment portfolio with the Manager on a regular basis.
Legislative and regulatory risk: in order to maintain its approval as a VCT, the Company is required to comply with current VCT legislation in the UK, which reflects the European Commission's State aid rules. Changes to the UK legislation or the State aid rules in the future could have an adverse effect on the Company's ability to achieve satisfactory investment returns whilst retaining its VCT approval. Mitigation: The Board and the Manager monitor political developments and where appropriate seek to make representations either directly or through relevant trade bodies.
Internal control risk: the Company's assets could be at risk in the absence of an appropriate internal control regime. This could lead to theft, fraud, and/or an inability to provide accurate reporting and monitoring. Mitigation: the Board carries out regular reviews of the system of internal controls, both financial and non-financial, operated by the Company and the Manager. These include controls designed to ensure that the Company's assets are safeguarded and that proper accounting records are maintained.
Financial risk: inappropriate accounting policies might lead to misreporting or breaches of regulations. Mitigation: the Manager is continually reviewing accounting policies and regulations, and its reports are reviewed by the Board on a quarterly basis and at least annually by the auditor.
Market risk: All investments are impacted by market risk. Investments quoted on the London Stock Exchange or AIM will potentially be subject to more immediate market fluctuations and volatility upwards and downwards. External factors such as terrorist activity can negatively impact stock markets worldwide. In times of adverse sentiment there can be very little, if any, market demand for shares in smaller companies quoted on AIM. Mitigation: The Board keeps the portfolio under regular review.
Credit risk: the Company holds a number of financial instruments and cash deposits and is dependent on the counterparties discharging their commitment. Mitigation: the directors and Manager review the creditworthiness of the counterparties to these instruments and cash deposits and seek to ensure there is no undue concentration of credit risk with any one party.
1
In accordance with principle 21 of the AIC Code of Corporate Governance published by the AIC in February 2015, the Directors have assessed the prospects of the Company over the three year period to 31 December 2019. This three year period is used by the Board during the strategic planning process and is considered reasonable for a business of its nature and size.
In making this statement, the Board carried out an assessment of the principal risks facing the Company, including those that might threaten its business model, future performance, solvency, or liquidity.
The Board also considered the ability of the Company to raise finance and deploy capital. This assessment took account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact of the underlying risks, including the Manager adapting its investment process to take account of the more restrictive VCT investment rules.
This review has considered the principal risks which were identified by the Board. The Board concentrated its efforts on the major factors that affect the economic, regulatory and political environment.
The Directors have also considered the Company's income and expenditure projections and underlying assumptions for the next three years and found these to be realistic and sensible.
Based on the Company's processes for monitoring cash flow, share price discount, ongoing review of the investment objective and policy, asset allocation, sector weightings and portfolio risk profile, the Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three years to 31 December 2019.
Shareholders approved a co-investment scheme and performance incentive arrangements at a General Meeting held on 8 March 2017, effective from 31 March 2017. Details can be found in note 15. There were no such arrangements in place during 2016.
Investments held by the Company have been valued in accordance with the International Private Equity and Venture Capital Valuation ("IPEVCV") guidelines (December 2015) developed by the British Venture Capital Association and other organisations. Through these guidelines, investments are valued as defined at 'fair value'. Ordinarily, unquoted investments will be valued at cost for a limited period following the date of acquisition, being the most suitable approximation of fair value unless there is an impairment or significant accretion in value during the period. Quoted investments and investments traded on AiM and ISDX Growth Market (formerly PLUS) are valued at the bid price as at 31 December 2016. The portfolio valuations are prepared by Foresight Group, reviewed and approved by the Board quarterly and subject to annual review by the auditors.
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 since 6 April 2006 are:
• Income tax relief of 30% on subscription for new shares, which is forfeit by Shareholders if the shares are not held for more than five years;
• VCT dividends (including capital distributions of realised gains on investments) are not subject to income tax in the hands of qualifying holders;
• Capital gains on disposal of VCT shares are tax-free, whenever the disposal occurs.
Foresight VCT plc has been granted approval as a Venture Capital Trust (VCT) under S274—S280A of the Income Tax Act 2007 for the year ended 31 December 2015. The next complete review will be carried out for the year ended 31 December 2016. It is intended that the business of the Company be carried on so as to maintain its VCT status.
The Directors and the Manager have managed, and continue to manage, the business in order to comply with the legislation applicable to VCTs. The Board has appointed Shakespeare Martineau LLP to monitor and provide continuing advice in respect of the Company's compliance with applicable VCT legislation and regulation. As at 31 December 2016 the Company had 75.4% (by VCT valuation) of its funds in such VCT qualifying holdings.
The Board and the Manager believe that the strategy of focusing on growth private equity investments is currently in the best interests of Ordinary Shareholders and the historical information reproduced in this report is evidence of positive recent performance in this area. It is intended that the Planned Exit and Infrastructure Shares funds will be closed and funds returned to Shareholders in the medium term.
The Company's performance relative to its peer group and benchmarks will depend on the Manager's ability to allocate the Company's assets effectively, make successful investments and manage its liquidity appropriately.
Director 24 April 2017
John is a chartered accountant with a broad experience of banking, corporate finance and fund management; he was an executive director of Noble Fund Managers Limited until 2004. Currently, he is senior independent non-executive director of Sphere Medical Holding plc, an AIM listed medical devices company, non-executive Chairman of Social Impact VCT plc and a non-executive director or Chairman of a number of private companies. His earlier career was in the City of London and included posts as an executive director of Singer & Friedlander Holdings Limited and, before that, managing director of Henry Ansbacher & Co Limited.
Peter was a founder director of Abingworth plc, a successful venture capital company in 1973. He is currently a director of a number of quoted and unquoted companies, including Mears plc and ICG Enterprise Trust plc. In addition, he has been a director of Foresight VCT plc since its launch in 1997 and is a director of Foresight 3 VCT plc, Foresight 4 VCT plc and Foresight Solar Fund Limited. He is also chairman of Unicorn AIM VCT plc and director of a number of other companies.
Gordon is a director of Maven Income and Growth VCT 5 plc, a former director of R&H Fund Services Limited and a former member of the Institute of Chartered Accountants of Scotland Audit and Assurance Committee for the period 2005 to 2015. He has over 30 years' experience in financial services, particularly investment trusts, and was until recently an investment director and the head of investment companies at Standard Life Investments. Gordon has an MA (Hons) in Economics and Accounting from the University of Edinburgh and he joined Ivory & Sime in 1988 after qualifying as a chartered accountant with Deloitte Haskins & Sells (now PwC).
Jocelin is a qualified solicitor and since 1986 has run Durrington Corporation which provides finance and advice for small businesses. Before this he was a Director of private bank Rea Brothers for 13 years. He has personally invested in over 40 development stage companies over the last 35 years and is currently Chairman or Non-Executive Director of a number of them in the UK and the USA. He is also a Director of Unicorn AiM VCT plc and a Governor of St Paul's Way Trust School in London.
The Directors present their report and the audited accounts of the Company for the year ended 31 December 2016.
1
The principal activity of the Company during the period was the making of investments in unquoted or AiM-listed companies in the United Kingdom. The Company is 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. Confirmation of the Company's compliance as a Venture Capital Trust has been received up to 31 December 2015 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 total return attributable to Shareholders for the year amounted to £5,202,000 (2015: loss of £3,798,000). The Board paid an interim dividend of 7.0p per Ordinary Share on 1 April 2016. An interim dividend of 14.0p per Planned Exit Share was paid on 14 October 2016. Interim dividends of 2.5p per Infrastructure Share and 12.0p per Infrastructure Share were paid on 11 March 2016 and 23 September 2016 respectively.
During the year ended 31 December 2016 the Company's principal indicator of performance, net asset value total return since launch on 17 November 1997 (including dividends paid since launch), increased 0.5% from 215.5p per Ordinary Share at 31 December 2015 to 216.7p per Ordinary Share at 31 December 2016.
The net asset value total return (including dividends paid since launch on 3 March 2010) per Planned Exit Share has increased 3.9% to 82.9p per share at 31 December 2016 from 79.8p per share at 31 December 2015.
The net asset value total return (including dividends paid since launch on 20 February 2012) per Infrastructure Share has increased 3.8% to 103.7p per share at 31 December 2016 from 99.9p per share at 31 December 2015.
The Company allotted 948,272 Ordinary Shares under the Company's Dividend Reinvestment Scheme at 81.0p per share.
Under an offer for subscription dated 18 January 2016, 41,765,910 Ordinary Shares were issued during the year, based on net asset values ranging from 80.5p to 88.0p per share.
At 31 December 2016 the Company had 127,985,288 Ordinary Shares, 11,404,314 Planned Exit Shares and 32,495,246 Infrastructure Shares in issue. There are no restrictions on the transfer of any class of share.
During the year, the Company repurchased 1,322,684 Ordinary Shares, 122,773 Planned Exit shares and 14,978 Infrastructure shares for cancellation at costs of £939,000, £39,000 and £13,000 respectively. No shares bought back by the Company are held in treasury. Share buy-backs have been completed at discounts ranging from 10.1% to 11.5% for Ordinary Shares, 7.7% to 9.1% for Planned Exit Shares and 0.7% for Infrastructure Shares.
The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emissions sources under the Companies Act 2006 (Strategic Report and Directors' Reports) regulations 2013.
A summary of the principal risks faced by the Company is set out in the Strategic Report on page 25.
Foresight Group CI Limited is the Manager of the Company and provides investment management and other administrative services.
Annually, the Management Engagement & Remuneration Committee reviews the appropriateness of the Manager's appointment. In carrying out its review, the Management Engagement & Remuneration Committee considers the investment performance of the Company and the ability of the Manager to produce satisfactory investment performance. It also considers 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 Company Secretarial services. It is the Directors' opinion that the continuing appointment of the Manager on the terms agreed is in the interests of Shareholders as a whole. The last review was undertaken on 16 March 2017. Foresight Fund Managers Limited is the Secretary of the Company. The principal terms of the management agreement is set out in note 3 to the accounts. Following the merger with Foresight 2 VCT plc the Manager agreed to reduce the annual expenses cap to 2.4%, making it one of the lowest expenses caps of any VCT with total assets over £20 million.
No Director has an interest in any contract to which the Company is a party. Foresight Group acts as manager to the Company in respect of its investments and earned fees of £2,135,000 (2015: £1,277,000) during the year. Foresight Fund Managers Limited received £110,000 excluding VAT (2015: £100,000 excluding VAT) during the year in respect of secretarial, administrative and custodian services to the Company. Foresight Group also received from investee companies arrangement fees of £147,000 (2015: £500,000).
VCF Partners, an associate of Foresight Group, received from investee companies, Directors' fees of £346,000 (2015: £168,000).
| £ | |
|---|---|
| Management fee | 2,135,000 |
| Directors fees | 346,000 |
| Arrangement fees | 147,000 |
| Secretarial fee | 110,000 |
| 2,738,000 |
At the time of writing, Foresight Group staff held a total of 2,055,899 shares in the Company.
The Company has retained Shakespeare Martineau LLP (London and Birmingham based solicitors) as legal advisers on, inter alia, compliance with legislative requirements. The Directors monitor the Company's VCT status at meetings of the Board and the Manager monitors the status on a continuing basis.
Details of all financial instruments used by the Company during the year are given in note 16 to the accounts.
The Directors have the benefit of indemnities under the articles of association of the Company against, to the extent only as permitted by law, liabilities they may incur acting in their capacity as Directors of the Company.
An insurance policy is maintained by the Company which indemnifies the Directors of the Company against certain liabilities that may rise in the conduct of their duties. There is no cover against fraudulent or dishonest actions.
The Company does not subscribe to a particular code but follows a policy whereby 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 4 days (2015: 34 days).
The AIFMD came into force on 22 July 2013 and sets out the rules for the authorisation and on-going regulation of managers (AIFMs) that manage alternative investment funds (AIFs) in the EU. The Company qualified as an AIFM and so was required to comply, although additional cost and administration requirements are not expected to be material. The Company's application was completed in June 2014 and approval was confirmed in August 2014. This has not affected the current arrangements with the Manager, who continues to report to the Board and manage the Company's investments on a discretionary basis.
Pursuant to s418(2) of the Companies Act 2006, each of the Directors confirms that (a) so far as they are aware, there is no relevant audit information of which the Company's auditors are unaware; and (b) they have taken all steps they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of such information.
The following disclosures are made in accordance with Section 992 of the Companies Act 2006.
The Company's issued share capital as at 24 April 2017 was 176,051,960 Ordinary Shares, 11,404,314 Planned Exit Shares and 32,495,246 Infrastructure Shares.
The Ordinary Shares represent 80.0% of the total share capital, the Planned Exit Shares represent 5.2% of the total share capital and the Infrastructure Shares represent 14.8% of the total share capital. Further information on the share capital of the Company is detailed in note 13 of the notes to the financial statements.
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 73.
At the date of this report no notifiable interests had been declared in the Company's voting rights.
Pursuant to s487(2) of the Companies Act 2006, the Directors have decided to propose the re-appointment of KPMG LLP as auditor and a resolution concerning this will be proposed at the Annual General Meeting.
In accordance with Schedule 7 of the Large and Medium Size Companies and Groups (Accounts and Reports) Regulations 2008, as amended, the Directors disclose the following information:
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The Directors have declared any conflicts or potential conflicts of interest to the Board which has the authority to approve such conflicts. The Company Secretary maintains the Register of Directors' Conflicts of Interest which is reviewed quarterly by the Board and when changes are notified. The Directors advise the Company Secretary and Board as soon as they become aware of any conflicts of interest. Directors who have conflicts of interest do not take part in discussions concerning their own conflicts.
The Board has been informed that the Manager has arrangements in place in accordance with the UK Corporate Governance Code's recommendations by which staff of the Manager or Secretary of the Company may, in confidence, raise concerns within their respective organisations about possible improprieties in matters of financial reporting or other matters. On the basis of that information, adequate arrangements are in place for the proportionate and independent investigation of such matters and, where necessary, for appropriate follow-up action to be taken within their respective organisations.
The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 20 to 26. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are referred to in the Chairman's Statement, Strategic Report and Notes to the Accounts. 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 sufficient 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 able to manage its business risks.
Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of share buy backs and dividends. The Company has no external loan finance in place and therefore is not exposed to any gearing covenants, although its underlying investments may have external loan finance.
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.
A formal notice convening the Annual General Meeting on 23 May 2017 can be found on pages 70 to 73. Resolutions 1 to 9 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 10 and 11 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. Resolutions 9 to 11 supplement and renew share issue and buyback authorities for the Ordinary Shares, Planned Exit Shares and Infrastructure Shares.
Resolution 9 will authorise the Directors to allot relevant securities generally, in accordance with Section 551 of the Companies Act 2006, up to an aggregate nominal amount of (i) £105,000 in respect of Ordinary Shares (representing 10.0% of the current issued Ordinary Share capital of the Company), (ii) £12,000 in respect of Planned Exit Shares (representing 10.0% of the current Planned Exit Share capital of the Company) and (iii) £33,000 in respect of Infrastructure Shares (representing 10.0% of the issued Infrastructure Share capital of the Company), which in aggregate represents 10.0% of the issued share capital of the Company. This authority will be used for the purposes listed under the authority requested under Resolution 10. This includes authority to issue shares pursuant to the dividend investment scheme, performance incentive fee arrangements with the Manager and Foresight Group LLP (as applicable) 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. This will expire (unless renewed, varied or revoked by the Company in a general meeting) on the fifth anniversary of the passing of the resolution and is in addition to the authority granted pursuant to Resolution 1 passed at the general meeting of the Company on 8 March 2017, but in substitution for all other existing authorities.
Resolution 10 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 amount of up to £200,000 in respect of Ordinary Shares and/or up to £100,000 in respect of each of the Planned Exit Shares and/or Infrastructure Shares, in each case pursuant to offer(s) for subscription, (ii) with an aggregate nominal value of up to 10% of the issued Ordinary Share capital pursuant to dividend investment schemes at a subscription price per Ordinary Share which may be less than the net asset value per Ordinary Share, as may be prescribed by the scheme terms, (iii) with an aggregate nominal value of up to £100,000 in each class of share in the Company pursuant to performance incentive arrangements with the Manager and Foresight Group LLP (as applicable) and (iv) with an aggregate nominal value of up to 10% of the issued share capital of each class of share in the Company for general purposes, in each case where the proceeds of such issue may be used in whole or part to purchase the Company's shares. This authority will
expire (unless renewed, varied or revoked by the Company in a general meeting) at the conclusion of the Annual General Meeting to be held in 2018, or, if earlier on the date falling 15 months after the passing of the resolution, save that the Company shall be entitled to make offers or agreements before the expiry of such authority which would or might require equity securities to be allotted after such expiry and Directors shall be entitled to allot equity securities pursuant to any such offers or agreements as if the authority conferred hereby had not expired. This authority is in addition to the authority granted pursuant to Resolution 2 passed at the general meeting of the Company held on 8 March 2017, but in substitution for all other existing authorities.
It is proposed by Resolution 11 that the Company be authorised to make market purchases of the Company's own shares. Under this authority the Directors may purchase up to 26,390,189 Ordinary Shares, 1,709,507 Planned Exit Shares and 4,871,037 Infrastructure Shares (representing approximately 14.99% of each share class at the date of this Annual Report) or, if lower, such number of Ordinary Shares, Planned Exit Shares or Infrastructure Shares (as relevant, and in each case rounded down to the nearest whole share) as shall equal 14.99% of each share class at the date the resolution is passed. 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 an Ordinary Share, Planned Exit Share, or Infrastructure Share (as relevant) taken from the London Stock Exchange daily official list on the five business days immediately before the day on which shares are purchased or, if greater, the amount stipulated by Buyback and Stabilisation Regulation 2003. This authority will expire (unless renewed, varied or revoked by the Company in a general meeting) at the conclusion of the Annual General Meeting to be held in 2018, or, if earlier on the date falling 15 months after the passing of the resolution, save that the Company may purchase its Ordinary Shares, Planned Exit Shares or Infrastructure Shares (as relevant) after this date in pursuance of a contract or contracts made prior to the expiration of this authority. This authority is in substitution for all other existing authorities.
Whilst, generally, the Company does not expect that Shareholders will want to sell their shares within five years of subscribing for them because this would lead to a loss of tax relief, the Directors anticipate that from time to time Shareholders may need to sell shares within this period. Up front VCT income tax relief is only obtainable by an investor who makes an investment in new shares issued by the Company. This means that investors may be willing to pay more for new shares issued by the Company than they would pay to buy existing shares in the market. 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 as it enables the Board, when possible to facilitate a degree of liquidity in the Company's Shares. In making purchases the Company will deal only with member firms of the London Stock Exchange and at a discount to the then prevailing net asset value per share of the Company's shares to ensure that existing Shareholders interests are protected.
Formal notices convening separate meetings of Ordinary Shareholders, Planned Exit Shareholders and Infrastructure Shareholders also to be held on 23 May 2017, can be found on pages 74 to 79. The resolutions proposed at these meetings, if passed, will approve the passing of Resolutions 9 and 11 to be proposed at the Annual General Meeting and will sanction any modification of the rights attaching to Ordinary Shares, Planned Exit Shares and Infrastructure Shares resulting therefrom.
The resolutions to be proposed at the separate meetings 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.
By order of the Board
Foresight Fund Managers Limited Secretary 24 April 2017
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The Directors of Foresight 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 on Corporate Governance ('UK Corporate Governance Code') issued by the Financial Reporting Council in September 2014, as appropriate for a Venture Capital Trust.
As a Venture Capital Trust, the Company's day-to-day responsibilities are delegated to third parties and the Directors are all Non-Executive. 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 31 December 2016. The Annual General Meeting was convened on at least 24 days' notice but not 20 business days' notice as recommended in the UK Corporate Governance Code.
The Board has also considered the principles and recommendations of the AIC Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.
The Company has a Board of four Non-Executive Directors, all of whom (other than Peter Dicks who is considered non-independent under the listing rules by virtue of being a director of three other Foresight funds which are all managed by Foresight Group) are considered to be independent. The Board has not appointed a Senior Independent Director.
The Board is responsible to Shareholders for the proper management of the Company and meets at least quarterly and 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.
All shareholdings are voted, where practicable, in accordance with the Manager's own corporate governance policy, which is to seek to maximise shareholder value by constructive use of votes at company meetings and by endeavouring to use its influence as an investor with a principled approach to corporate governance.
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 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.2.3 of the UK Corporate Governance Code. However, the Board has agreed that each Director will retire and, if appropriate, may seek re-election 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 the Directors as recommended by provision B.4.1.
The Board has access to the officers of the Company Secretary who also attend Board Meetings. Representatives of the Manager attend all formal Board Meetings although the Directors may meet without the Manager being present. Informal meetings with the Manager are also held between Board Meetings as required. The Company Secretary provides full information on the Company's assets, liabilities and other relevant information to the Board in advance of each Board Meeting. Attendance by Directors at Board and Committee meetings is detailed in the table below.
| Board | Audit Nomination Remuneration | |||
|---|---|---|---|---|
| John Gregory | 4/4 | 2/2 | 1/1 | 1/1 |
| Peter Dicks | 4/4 | 2/2 | 1/1 | 1/1 |
| Gordon Humphries | 4/4 | 2/2 | 1/1 | 1/1 |
| Jocelin Harris | 4/4 | 2/2 | 1/1 | 1/1 |
In addition to the above, 9 further meetings were held in relation to the publication of corporate documents and in relation to investments.
In the light of the responsibilities retained by the Board and its committees and of the responsibilities delegated to Foresight Group, Foresight Fund Managers Limited and Shakespeare Martineau 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 Board has adopted formal terms of reference, which are available to view by writing to the Company Secretary at the registered office, for three standing committees which make recommendations to the Board in specific areas.
The Audit Committee comprises Gordon Humphries (Chairman), Peter Dicks, John Gregory and Jocelin Harris, all of whom are considered to have sufficient recent and relevant financial experience to discharge the role, and meets at least twice a year, amongst other things, to consider the following:
The Directors have decided to re-appoint KPMG LLP as auditor and a resolution concerning this will be proposed at the Annual General Meeting. Cornel Partners Limited have been engaged by the Board to provide taxation services.
The Nomination Committee comprises Gordon Humphries (Chairman), Peter Dicks, John Gregory and Jocelin Harris, and meets at least annually to consider the composition and balance of skills, knowledge and experience of the Board and to 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 seek reelection annually thereafter.
The Board believes that, as a whole, it has an appropriate balance of skills, experience and knowledge. The Board also believes that diversity of experience and approach, including gender diversity, amongst Board members is important and it is the Company's policy to give careful consideration to issues of Board balance and diversity when making new appointments. The Nomination Committee makes recommendations to the Board on the Company's ongoing succession plan and also considers the resolutions for the annual re-election of directors.
The Management Engagement & Remuneration Committee (which has responsibility for reviewing the remuneration of the Directors) comprises Gordon Humphries (Chairman), Peter Dicks, John Gregory and Jocelin Harris and meets at least annually to consider the levels of remuneration of the Directors, specifically reflecting the time commitment and responsibilities of the role. The Management Engagement & Remuneration 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 & Remuneration Committee also reviews the appointment and terms of engagement of the Manager.
Copies of the terms of reference of each of the Company's committees can be obtained from the Manager upon request.
The Board undertakes a formal annual evaluation of its own performance and that of its committees, as recommended by provision B.6 of the UK Corporate Governance Code. Initially, the evaluation takes the form of a questionnaire for the Board (and its committees). 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 considers it is appropriate to do so. Individual Shareholders are welcomed to 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, Remuneration and Nomination Committees. The Board may from time to time seek feedback through shareholder questionnaires and an open invitation for Shareholders to meet the Manager. The Company is not aware of any institutions owning shares in the Company.
The Directors of Foresight 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's appointment of Foresight Group as accountant and administrator has delegated the financial administration to Foresight Group. It has an established system of financial 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.
Shakespeare Martineau LLP provides 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 Fund Managers Limited was appointed by the Board as Company Secretary in 2004 with responsibilities relating to the administration of the non-financial systems of internal control. All Directors have access to the advice and services of the Company Secretary, which is responsible to the Board for ensuring that Board procedures and applicable rules and regulations are complied with.
Pursuant to the terms of its appointment, Foresight Group invests the Company's assets and in its capacity as administrator has physical custody of documents of title relating to equity investments.
Following publication of Internal Control: Guidance for Directors on the UK Corporate Governance Code (the Turnbull guidance), the Board confirms that there is a continuous 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
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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 test 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 that 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, Foresight Fund Managers Limited and Shakespeare Martineau LLP.
The Audit Committee has carried out a robust 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 year and reported its conclusions to the Board which was satisfied with the outcome of the 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 Manager adheres to the agreed investment policy and approved investment guidelines and, if necessary, approves changes to such policy and guidelines.
The Board has reviewed the need for an internal audit function. It has decided that the systems and procedures employed by the Manager, the Audit Committee and other third party advisers provide sufficient assurance that a sound system of internal control, which safeguards Shareholders' investment and the Company's assets, is maintained. In addition, the Company's financial statements are audited by external auditors.
The Board has concluded that, given the appointment of Foresight Group as Company accountant 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.
Full details of duties and obligations are provided at the time of appointment and are supplemented by further details as requirements charge, although there is no formal induction programme for the Directors as recommended by provision B.4.1. Directors are also provided on a regular basis with key information on the Company's policies, regulatory and statutory requirements and internal controls. Changes affecting Directors' responsibilities are advised to the Board as they arise. Directors also participate in industry seminars.
The Manager has endorsed the UK Stewardship Code published by the FRC. This sets out the responsibilities of institutional investors in relation to the companies in which they invest and a copy of this can be found on the Manager's website at www.foresightgroup.eu.
The Company is committed to carrying out business fairly, honestly and openly. The Manager has established policies and procedures to prevent bribery within its organisation.
John Gregory Director 24 April 2017
The Audit Committee has identified and considered the following key areas of risk in relation to the business activities and financial statements of the Company:
These issues were discussed with the Manager and the auditor at the conclusion of the audit of the financial statements, as explained below:
The Directors have met quarterly to assess the appropriateness of the estimates and judgements made by the Manager in the investment valuations. As a Venture Capital Trust the Company's investments are predominantly in unlisted securities, which can be difficult to value and requires the application of skill, knowledge and judgement by the Board and Audit Committee. During the valuation process the Board and Audit Committee and the Manager follow the valuation methodologies for unlisted investments as set out in the International Private Equity and Venture Capital Valuation guidelines and appropriate industry valuation benchmarks. These valuation policies are set out in Note 1 of the accounts. These were then further reviewed and challenged by the Audit Committee. The Manager confirmed to the Audit Committee that the investment valuations had been calculated consistently with prior periods and in accordance with published industry guidelines, taking account of the latest available information about investee companies and current market data. Furthermore, the Board and the Manager held discussions regarding the investment valuations with the auditor.
For all investments made, both share certificates and loan stock documentation are held in the Company's own name and regular reconciliations are carried out to ensure that valid documents of title are held.
Maintaining Venture Capital Trust status and adhering to the tax rules of section 274 of ITA 2007 is critical to both the Company and its Shareholders for them to retain their VCT tax benefits.
The Manager confirmed to the Audit Committee that the conditions for maintaining the Company's status as an approved Venture Capital Trust had been met throughout the year. The Manager seeks HMRC approval, where appropriate, in advance for qualifying investments and reviews the Company's qualifying status in advance of realisations being made and throughout the year. The Audit Committee is in regular contact with the Manager and any potential issues with Venture Capital Trust Status would be discussed at or between formal meetings. In addition, an external third party review of Venture Capital Trust Status is conducted by Shakespeare Martineau LLP on a quarterly basis and this is reported to both the Board and Audit Committee and the Manager.
The Manager and auditor confirmed to the Audit Committee that they were not aware of any material misstatements. Having reviewed the reports received from the Manager and auditor, the Audit Committee is satisfied that the key areas of risk and judgement have been addressed appropriately in the financial statements and that the significant assumptions used in determining the value of assets and liabilities have been properly appraised and are sufficiently robust. The Audit Committee considers that KPMG LLP has carried out its duties as auditor in a diligent and professional manner. During the year, the Audit Committee assessed the effectiveness of the current external audit process by assessing and discussing specific audit documentation presented to it in accordance with guidance issued by the Auditing Practices Board. The audit director is rotated every five years ensuring that objectivity and independence is not impaired. The current audit director assumed responsibility for the audit in 2014. KPMG LLP was appointed as auditor in October 2010, with their first audit for the year ended 31 December 2010. No tender for the audit of the Company has been undertaken since this date. As part of its review of the continuing appointment of the auditors, the Audit Committee considers the need to put the audit out to tender, its fees and independence from the Manager along with any matters raised during each audit.
The Audit Committee considered the performance of the auditor during the year and agreed that KPMG LLP continued to provide a high level of service and maintained a good knowledge of the Venture Capital Trust market, making sure audit quality continued to be maintained.
Gordon Humphries Audit Committee Chairman 24 April 2017
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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 to approve this report will be put to the members at the forthcoming Annual General Meeting.
The law requires the Company's auditor, KPMG LLP, to audit certain of the disclosures provided. Where disclosures have been audited, they are indicated as such. The auditor's opinion is included in the 'Independent Auditor's Report.'
The Board which is profiled on page 27 consists solely of non-executive directors and considers at least annually the level of the Board's fees.
The Management Engagement & Remuneration Committee comprises four Directors: Gordon Humphries (Chairman), Peter Dicks, John Gregory and Jocelin Harris.
The Management Engagement & 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 & 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 year neither the Board nor the Management Engagement & Remuneration Committee has been provided with external advice or services by any person, but has received industry comparison information from the Manager in respect 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.
The Directors are not involved in deciding their own individual remuneration.
The Board's policy is that the remuneration of Non-Executive Directors should reflect time spent and the responsibilities borne by the Directors for 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 year ended 31 December 2016 were agreed during the year.
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 if requested by any Director although no such request has been made).
None of the Directors has a service contract but, under letters of appointment dated 29 September 1997 for Peter Dicks (and Board resolutions dated 9 March 2007 for Gordon Humphries, 30 July 2010 for John Gregory and 10 May 2016 for Jocelin Harris) may resign at any time. There are no set minimum notice periods and no compensation is payable to Directors leaving office. As the Directors are not appointed for a fixed length of time there is no unexpired term to their appointment but all Directors retire every year and may seek re-election.
It is the intention of the Board that the above remuneration policy will, subject to Shareholder approval, come into effect immediately following the Annual General Meeting of the Company on 23 May 2017 and will continue for the financial year ending 31 December 2017 and subsequent years.
Shareholders' views in respect of Directors' remuneration are communicated at the Company's Annual General Meeting and are taken into account in formulating the Directors' remuneration policy. At the last Annual General Meeting 92.3% of Shareholders voted for the resolution approving the Directors' Remuneration Report, showing significant Shareholder support.
All Directors are subject to re-election each year as detailed above and are seeking re-election as follows:
| P Dicks, J Gregory, J Harris, G Humphries | AGM 2017 |
|---|---|
| P Dicks, J Gregory, J Harris, G Humphries | AGM 2018 |
| P Dicks, J Gregory, J Harris, G Humphries | AGM 2019 |
The graph on the following page charts the total shareholder return to 31 December 2016, on the hypothetical value of £100, invested by an Ordinary Shareholder since 1 January 2008, a Planned Exit Shareholder since 3 March 2010 or an Infrastructure Shareholder since February 2012. The return is compared to the total shareholder return on a notional investment of £100 in the FTSE AiM All-Share Index, which is considered an appropriate broad index against which to measure the Company's performance given that the profiles of many AiM companies being similar to those held by the Company.
The emoluments in respect of qualifying services of each person who served as a Director during the year and those forecast for the year ahead are shown on page 38. No Director has waived or agreed to waive any emoluments from the Company in either the current or previous year.
No other remuneration was paid or payable by the Company during the current or previous year nor were any expenses claimed by or paid to them other than for expenses incurred wholly, necessarily and exclusively in furtherance of their duties as Directors of the Company.
The Company's Articles of Association do not set an annual limit on the level of Directors' fees but fees must be considered within the wider Remuneration Policy noted above.
Directors' liability insurance is held by the Company in respect of the Directors.
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The Directors who held office during the year and their interests in the issued Ordinary Shares, Planned Exit Shares and Infrastructure Shares of 1p each of the Company were as follows:
| 31 December | 31 December | 31 December | 31 December | 31 December | 31 December | |
|---|---|---|---|---|---|---|
| 2016 | 2016 | 2016 | 2015 | 2015 | 2015 | |
| Ordinary | Planned Exit | Infrastructure | Ordinary | Planned Exit | Infrastructure | |
| Shares | Shares | Shares | Shares | Shares | Shares | |
| John Gregory (Chairman) | 24,756 | — | — | 11,424 | — | — |
| Peter Dicks | 115,145 | — | — | 103,782 | — | — |
| Gordon Humphries | 12,633 | — | — | 9,224 | — | — |
| Jocelin Harris | 50,000 | — | 10,362 | 18,000 | — | 10,362 |
All the Directors' share interests shown above were held beneficially.
Post year end, John Gregory subscribed 12,064 Ordinary Shares and Gordon Humphries subscribed 3,619 Ordinary Shares based on an issue price of 83.3p. Additionally, John Gregory received 2,351 Ordinary Shares and Jocelin Harris received 3,192 Ordinary Shares through the dividend reinvestment scheme.
In accordance with the Articles of Association and the requirements of the UK Corporate Governance Code and the Board's policy, Mr Gregory, Mr Dicks, Mr Humphries and Mr Harris retire annually and, being eligible, offer themselves for re-election. Biographical notes on the Directors are given on page 27. The Board believes that Mr Gregory's, Mr Dicks', Mr Humphries' and Mr Harris' skills, experience and knowledge continue to complement each other and add value to the Company and recommends their re-election to the Board. None of the Directors has a contract of service with the Company.
The information below has been audited, with the exception of those fees forecasted for the year to 31 December 2017. See the Independent Auditors' Report on page 43.
| Unaudited Anticipated | Audited Directors' | Audited Directors' | ||
|---|---|---|---|---|
| Directors' fees year ending | fees year ended | fees year ended | ||
| 31 December 2017 | 31 December 2016 | 31 December 2015 | ||
| (£) | (£) | (£) | ||
| John Gregory (Chairman) | 30,000 | 29,125 | 28,250 | |
| Peter Dicks | 22,500 | 21,750 | 21,000 | |
| Gordon Humphries | 25,000 | 24,000 | 23,000 | |
| Jocelin Harris | 22,500 | 21,750 | 727 | |
| Total | 100,000 | 96,625 | 72,977 |
The Directors are not eligible for pension benefits, share options or long-term incentive schemes.
| Shares & Percentage of votes cast | Shares & Percentage of votes cast | Number of votes withheld |
|---|---|---|
| For | Against | |
| 92.3% | 7.7% | |
| 12,269,035 votes | 1,018,854 votes | 582,023 |
In accordance with new Companies Act 2006 legislation the table below sets out the relative importance of spend on pay when compared to distributions to Shareholders in the form of dividends and share buybacks.
| Year ended | Year ended | |
|---|---|---|
| 31 December 2016 | 31 December 2015 | |
| Dividends | £13,686,000 | £4,797,000 |
| Share buybacks | £991,000 | £1,418,000 |
| Total Shareholder distributions | £14,677,000 | £6,215,000 |
| Directors fees | £96,625 | £72,977 |
| Directors fees % of Shareholder distributions | 0.7% | 1.2% |
An ordinary resolution for the approval of this Directors' Remuneration Report will be put to Shareholders at the forthcoming Annual General Meeting. In addition to this, Resolution 3, which is seeking Shareholder approval for the Directors' Remuneration Policy, will, if approved, take effect from the AGM and will be valid for a period of three years unless renewed, varied or revoked by the Company at a general meeting.
This Directors' Remuneration Report was approved by the Board on 24 April 2017 and is signed on its behalf by Gordon Humphries (Director).
On behalf of the Board
Gordon Humphries Director 24 April 2017
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice) including FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the directors must not approve the financial statements unless they are satisfied 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 the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing the Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (which is delegated to Foresight Group and incorporated into their website). Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
We consider the annual report and accounts, taken as a whole, are fair, balanced, and understandable and provide the necessary information for Shareholders to assess the Company's position and performance, business model and strategy.
On behalf of the Board
John Gregory Chairman 24 April 2017
for the year ended 31 December 2016
| Ordinary Shares Fund | Planned Exit Shares Fund | Infrastructure Shares Fund | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Realised losses on investments | — | (2,651) | (2,651) | — | (51) | (51) | — | (560) | (560) |
| Investment holding gains | — | 6,851 | 6,851 | — | 408 | 408 | — | 1,020 | 1,020 |
| Income | 1,412 | — | 1,412 | 68 | — | 68 | 1,436 | — | 1,436 |
| Investment management fees | (451) | (1,351) | (1,802) | (9) | (27) | (36) | (74) | (223) | (297) |
| Other expenses | (436) | — | (436) | (19) | — | (19) | (141) | — | (141) |
| Return on ordinary activities before taxation | 525 | 2,849 | 3,374 | 40 | 330 | 370 | 1,221 | 237 | 1,458 |
| Taxation | (102) | 170 | 68 | (8) | 5 | (3) | (110) | 45 | (65) |
| Return on ordinary activities after taxation | 423 | 3,019 | 3,442 | 32 | 335 | 367 | 1,111 | 282 | 1,393 |
| Return per share | 0.4p | 2.8p | 3.2p | 0.3p | 2.9p | 3.2p | 3.4p | 0.9p | 4.3p |
| at 31 December 2016 | Ordinary | Planned | Infrastructure |
|---|---|---|---|
| Shares | Exit Shares | Shares | |
| Fund | Fund | Fund | |
| £'000 | £'000 | £'000 | |
| Fixed assets | |||
| Investments held at fair value through profit or loss | 66,151 | 2,541 | 23,525 |
| Current assets | |||
| Debtors | 1,733 | 283 | 229 |
| Money market securities and other deposits | 30,901 | 75 | — |
| Cash | 8,454 | 60 | 2,847 |
| 41,088 | 418 | 3,076 | |
| Creditors | |||
| Amounts falling due within one year | (193) | (10) | (41) |
| Net current assets | 40,895 | 408 | 3,035 |
| Net assets | 107,046 | 2,949 | 26,560 |
| Capital and reserves | |||
| Called-up share capital | 1,280 | 114 | 324 |
| Share premium account | 96,071 | 2,095 | 14,375 |
| Capital redemption reserve | 431 | 3 | 1 |
| Distributable reserve | 5,247 | 1,705 | 11,591 |
| Capital reserve | (3,770) | (362) | (1,116) |
| Revaluation reserve | 7,787 | (606) | 1,385 |
| Equity Shareholders' funds | 107,046 | 2,949 | 26,560 |
| Number of shares in issue | 127,985,288 | 11,404,314 | 32,495,246 |
| Net asset value per share | 83.6p | 25.9p | 81.7p |
At 31 December 2016 there was an inter-share debtor/creditor of £52,000 which has been eliminated on aggregation.
for the year ended 31 December 2016
1
| Ordinary Shares Fund | Called-up share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Distributable reserve £'000 |
Capital reserve £'000 |
Revaluation reserve £'000 |
Total £'000 |
|---|---|---|---|---|---|---|---|
| As at 1 January 2016 | 866 | 60,383 | 418 | 13,133 | 62 | 936 | 75,798 |
| Share issues in the year | 427 | 37,312 | — | — | — | — | 37,739 |
| Expenses in relation to share issues* | — | (1,624) | — | — | — | — | (1,624) |
| Repurchase of shares | (13) | — | 13 | (939) | — | — | (939) |
| Realised losses on disposal of investments | — | — | — | — | (2,651) | — | (2,651) |
| Investment holding gains | — | — | — | — | — | 6,851 | 6,851 |
| Dividends | — | — | — | (7,370) | — | — | (7,370) |
| Management fees charged to capital | — | — | — | — | (1,351) | — | (1,351) |
| Tax credited to capital | — | — | — | — | 170 | — | 170 |
| Revenue return for the year | — | — | — | 423 | — | — | 423 |
| As at 31 December 2016 | 1,280 | 96,071 | 431 | 5,247 | (3,770) | 7,787 | 107,046 |
*Expenses in relation to share issues include adviser fees (£820,000) and promoters fees (£755,000) for the 2016 fund raise and trail commission in relation to prior year fund raises (£49,000).
| Planned Exit Shares Fund | Called-up share capital £'000 |
Share premium account £'000 |
Capital redemption reserve £'000 |
Distributable reserve £'000 |
Capital reserve £'000 |
Revaluation reserve £'000 |
Total £'000 |
|---|---|---|---|---|---|---|---|
| As at 1 January 2016 | 115 | 2,118 | 2 | 3,316 | (289) | (1,014) | 4,248 |
| Trail commission in relation to prior year share issues |
— | (23) | — | — | — | — | (23) |
| Repurchase of shares | (1) | — | 1 | (39) | — | — | (39) |
| Realised losses on disposal of investments | — | — | — | — | (51) | — | (51) |
| Investment holding gains | — | — | — | — | — | 408 | 408 |
| Dividends | — | — | — | (1,604) | — | — | (1,604) |
| Management fees charged to capital | — | — | — | — | (27) | — | (27) |
| Tax credited to capital | — | — | — | — | 5 | — | 5 |
| Revenue return for the year | — | — | — | 32 | — | — | 32 |
| As at 31 December 2016 | 114 | 2,095 | 3 | 1,705 | (362) | (606) | 2,949 |
| Called-up | Share | Capital | |||||
|---|---|---|---|---|---|---|---|
| share | premium | redemption | Distributable | Capital | Revaluation | ||
| capital | account | reserve | reserve | reserve | reserve | Total | |
| Infrastructure Shares Fund | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| As at 1 January 2016 | 324 | 14,515 | 1 | 15,205 | (378) | 365 | 30,032 |
| Trail commission in relation to prior year share | |||||||
| issues | — | (140) | — | — | — | — | (140) |
| Repurchase of shares | — | — | — | (13) | — | — | (13) |
| Realised losses on disposal of investments | — | — | — | — | (560) | — | (560) |
| Investment holding gains | — | — | — | — | — | 1,020 | 1,020 |
| Dividends | — | — | — | (4,712) | — | — | (4,712) |
| Management fees charged to capital | — | — | — | — | (223) | — | (223) |
| Tax credited to capital | — | — | — | — | 45 | — | 45 |
| Revenue return for the year | — | — | — | 1,111 | — | — | 1,111 |
| As at 31 December 2016 | 324 | 14,375 | 1 | 11,591 | (1,116) | 1,385 | 26,560 |
1 Our opinion on the financial statements is unmodified We have audited the financial statements of Foresight VCT plc for the year ended 31 December 2016 set out on pages 45 to 67. In our opinion the financial statements:
In arriving at our audit opinion above on the financial statements the risk of material misstatement that had the greatest effect on our audit was as follows (unchanged from 2016):
Refer to page 35 (Audit Committee Report), pages 49 and 52 (accounting policy) and pages 57 to 58 and 61 to 66 (financial statements).
The risk: 67% of the Company's total assets (by value) is held in investments where no quoted market price is available. Unquoted investments are measured at fair value, which is established in accordance with the International Private Equity and Venture Capital Valuation Guidelines by using measurements of value such as price of recent orderly transactions, earnings multiples, discounted cash flow measurements, and net assets. There is a significant risk over the valuation of these investments and this is one of the key judgemental areas that our audit focused on.
Our response: Our procedures included:
Challenging the Investment Manager on key judgements affecting investee company valuations in the context of observed industry best practice and the provisions of the International Private Equity and Venture Capital Valuation Guidelines. In particular, challenging the appropriateness of the valuation basis selected as well as underlying assumptions, such as the choice of benchmark for earnings multiples and, where discounted cash flows were used to value any holding, the key assumptions used to produce the cash flow projections and the discount factor applied to those cash flow projections.
Comparing key underlying financial data inputs to external sources, investee company audited accounts and management information, as applicable.
The materiality for the financial statements as a whole was set at £1.37m (2015: £1.11m). This was determined using a benchmark of Total Assets (of which it represents 1% (2015: 1%)).
We report to the Audit Committee any corrected and uncorrected identified misstatements exceeding £69,000 (2015: £56,000) in addition to other audit misstatements that warrant reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified above and was performed at the offices of the Manager, Foresight Group, The Shard, 32 London Bridge Street, London SE1 9SG.
In our opinion:
1
Based solely on the work required to be undertaken in the course of the audit of the financial statements and from reading the Strategic Report, the Directors' Report and the Corporate Governance Statement:
nothing material to add or draw attention to in relation to:
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the annual report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
Under the Listing Rules we are required to review:
We have nothing to report in respect of the above responsibilities.
As explained more fully in the Directors' Responsibilities Statement set out on page 40, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org. uk/auditscopeukprivate. This report is made solely to the Company's members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
for the year ended 31 December 2016
| Year ended | Year ended | |||||||
|---|---|---|---|---|---|---|---|---|
| 31 December 2016 | 31 December 2015 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Realised losses on investments | — | (3,262) | (3,262) | — | (8,649) | (8,649) | ||
| Investment holding gains | — | 8,279 | 8,279 | — | 5,183 | 5,183 | ||
| Income | 2 | 2,916 | — | 2,916 | 1,561 | — | 1,561 | |
| Investment management fees | 3 | (534) | (1,601) | (2,135) | (319) | (958) | (1,277) | |
| Other expenses | 4 | (596) | — | (596) | (616) | — | (616) | |
| Return/(loss) on ordinary | 1,786 | 3,416 | 5,202 | 626 | (4,424) | (3,798) | ||
| activities before taxation | ||||||||
| Taxation | 6 | (220) | 220 | — | (52) | 52 | — | |
| Return/(loss) on ordinary | 1,566 | 3,636 | 5,202 | 574 | (4,372) | (3,798) | ||
| activities after taxation | ||||||||
| Return/(loss) per share: | ||||||||
| Ordinary Share | 8 | 0.4p | 2.8p | 3.2p | 0.7p | (7.4)p | (6.7)p | |
| Planned Exit Share | 8 | 0.3p | 2.9p | 3.2p | (3.1)p | (4.4)p | (7.5)p | |
| Infrastructure Share | 8 | 3.4p | 0.9p | 4.3p | 2.2p | 0.7p | 2.9p | |
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 49 to 67 form part of these financial statements.
1
| Called-up | Share | Capital | |||||
|---|---|---|---|---|---|---|---|
| share | premium | redemption | Distributable | Capital | Revaluation | ||
| capital | account | reserve | reserve | reserve | reserve | Total | |
| Year ended 31 December 2016 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| As at 1 January 2016 | 1,305 | 77,016 | 421 | 31,654 | (605) | 287 | 110,078 |
| Share issues in the year | 427 | 37,312 | — | — | — | — | 37,739 |
| Expenses in relation to share issues | — | (1,787) | — | — | — | — | (1,787) |
| Repurchase of shares | (14) | — | 14 | (991) | — | — | (991) |
| Realised losses on disposal of investments | — | — | — | — | (3,262) | — | (3,262) |
| Investment holding gains | — | — | — | — | — | 8,279 | 8,279 |
| Dividends | — | — | — | (13,686) | — | — | (13,686) |
| Management fees charged to capital | — | — | — | — | (1,601) | — | (1,601) |
| Tax credited to capital | — | — | — | — | 220 | — | 220 |
| Revenue return for the year | — | — | — | 1,566 | — | — | 1,566 |
| As at 31 December 2016 | 1,718 | 112,541 | 435 | 18,543 | (5,248) | 8,566 | 136,555 |
| Called-up | Share | Capital | |||||
|---|---|---|---|---|---|---|---|
| share | premium | redemption | Distributable | Capital | Revaluation | ||
| capital | account | reserve | reserve | reserve | reserve | Total | |
| Year ended 31 December 2015 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| As at 1 January 2015 | 671 | 21,032 | 403 | 37,295 | 8,950 | (4,896) | 63,455 |
| Share issues in the year | 652 | 56,674 | — | — | — | — | 57,326 |
| Expenses in relation to share issues | — | (690) | — | — | — | — | (690) |
| Repurchase of shares | (18) | — | 18 | (1,418) | — | — | (1,418) |
| Net realised losses on disposal of investments | — | — | — | — | (8,649) | — | (8,649) |
| Investment holding gains | — | — | — | — | — | 5,183 | 5,183 |
| Dividends | — | — | — | (4,797) | — | — | (4,797) |
| Management fees charged to capital | — | — | — | — | (958) | — | (958) |
| Tax credited to capital | — | — | — | — | 52 | — | 52 |
| Revenue return for the year | — | — | — | 574 | — | — | 574 |
| As at 31 December 2015 | 1,305 | 77,016 | 421 | 31,654 | (605) | 287 | 110,078 |
The notes on pages 49 to 67 form part of these financial statements.
at 31 December 2016 Registered Number: 03421340
| As at | As at | ||
|---|---|---|---|
| 31 December | 31 December | ||
| 2016 | 2015 | ||
| Notes | £'000 | £'000 | |
| Fixed assets | |||
| Investments held at fair value through profit or loss | 10 | 92,217 | 92,237 |
| Current assets | |||
| Debtors | 11 | 2,193 | 1,416 |
| Money market securities and other deposits | 30,976 | 14,888 | |
| Cash | 11,361 | 2,881 | |
| 44,530 | 19,185 | ||
| Creditors | |||
| Amounts falling due within one year | 12 | (192) | (1,344) |
| Net current assets | 44,338 | 17,841 | |
| Net assets | 136,555 | 110,078 | |
| Capital and reserves | |||
| Called-up share capital | 13 | 1,718 | 1,305 |
| Share premium account | 112,541 | 77,016 | |
| Capital redemption reserve | 435 | 421 | |
| Distributable reserve | 18,543 | 31,654 | |
| Capital reserve | (5,248) | (605) | |
| Revaluation reserve | 8,566 | 287 | |
| Equity Shareholders' funds | 136,555 | 110,078 | |
| Net asset value per share: | |||
| Ordinary Share | 14 | 83.6p | 87.5p |
| Planned Exit Share | 14 | 25.9p | 36.8p |
| Infrastructure Share | 14 | 81.7p | 92.4p |
The financial statements on pages 45 to 67 were approved by the Board of Directors and authorised for issue on 24 April 2017 and were signed on its behalf by:
John Gregory Director
The notes on pages 49 to 67 form part of these financial statements.
for the year ended 31 December 2016
| Year | Year | |
|---|---|---|
| ended | ended | |
| 31 December | 31 December | |
| 2016 | 2015 | |
| £'000 | £'000 | |
| Cash flow from operating activities | ||
| Investment income received | 2,768 | 1,762 |
| Deposit and similar interest received | 98 | 71 |
| Investment management fees paid | (2,118) | (1,277) |
| Secretarial fees paid | (110) | (100) |
| Other cash payments | (848) | (340) |
| Net cash (outflow)/inflow from operating activities | (210) | 116 |
| Returns on investing activities | ||
| Purchase of unquoted investments | (4,877) | (16,028) |
| Net proceeds on sale of investments | 9,287 | 4,415 |
| Net proceeds on deferred consideration | 64 | 725 |
| (Return)/receipt of cash held on behalf of investee companies | (548) | 213 |
| Net cash inflow/(outflow) from investing activities | 3,926 | (10,675) |
| Financing | ||
| Proceeds of fund raising | 36,028 | 18,936 |
| Expenses of fund raising | (886) | (517) |
| Repurchase of own shares | (1,329) | (1,068) |
| Equity dividends paid | (12,961) | (4,690) |
| Movement in money market funds | (16,088) | (7,732) |
| Cash acquired on merger with Foresight 2 VCT plc | — | 1,159 |
| Net cash inflow from financing activities | 4,764 | 6,088 |
| Net inflow/(outflow) of cash in the year | 8,480 | (4,471) |
| Reconciliation of net cash flow to movement in net funds | ||
| Increase/(decrease) in cash and cash equivalents for the year | 8,480 | (4,471) |
| Net cash and cash equivalents at start of year | 2,881 | 7,352 |
| Net cash and cash equivalents at end of year | 11,361 | 2,881 |
| At 1 | At 31 | |
|---|---|---|
| January | December | |
| 2016 | Cash flow | 2016 |
| £'000 | £'000 | £'000 |
| 2,881 | 8,480 | 11,361 |
The notes on pages 49 to 67 form part of these financial statements.
for the year ended 31 December 2016
A summary of the principal accounting policies, all of which have been applied consistently throughout the year, are set out below:
The financial statements have been prepared under the Companies Act 2006, and in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP) and the Statement of Recommended Practice (SORP): Financial Statements of Investment Trust Companies and Venture Capital Trusts issued in November 2014.
These financial statements have been prepared in accordance with FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland.
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 or capital nature.
All investments held by the Company are classified as "fair value through profit and loss". The Directors value investments in accordance with the International Private Equity and Venture Capital Valuation ("IPEVCV") guidelines, as updated in December 2015. 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 for an appropriate period 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:
(i) Where a value is indicated by a material arm's length transaction by an independent third party in the shares of a company, this value will be used.
(ii) In the absence of (i), and depending upon both the subsequent trading performance and investment structure of an investee company, the valuation basis will usually move to either:
a) an earnings multiple basis. The shares may be valued by applying a suitable price-earnings ratio to that company's historic, current or forecast pre-tax earnings before interest and amortisation (the ratio used being based on a comparable sector but the resulting value being adjusted to reflect points of difference identified by the Manager compared to the sector including, inter alia, a lack of marketability);
or
b) where a company's underperformance against plan indicates a diminution in the value of the investment, provision against cost is made, as appropriate. Where the value of an investment has fallen permanently below cost, the loss is treated as a permanent impairment and as a realised loss, even though the investment is still held. The Board assesses the portfolio for such investments and, after discussion with the Manager, will agree the values that reflect the extent to which a realised loss should be recognised. This is based upon an assessment of objective evidence of that investment's future prospects, to determine whether there is potential for the investment to recover in value.
(iii) Premiums on loan stock investments are accrued at fair value when the Company has the right to receive the premium and expects to do so.
(iv) Where an earnings multiple or cost less impairment basis is not appropriate and overriding factors apply, discounted cash flow, a net asset valuation, or industry specific valuation benchmarks may be applied. An example of an industry specific valuation benchmark would be the application of a multiple to that company's historic, current or forecast turnover (the multiple being based on data from comparable companies in the sector but with the resulting value being adjusted to reflect points of difference identified by the Manager including, inter alia, a lack of marketability).
for the year ended 31 December 2016
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. Redemption premiums are recognised on an effective interest rate basis where there is reasonable certainty that the redemption premiums 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.
During the course of the year the Company held non-current asset investments, shares in OEICs ('Open Ended Investment Companies'), money-market funds and cash balances. The Company holds financial assets that comprise investments in unlisted companies, qualifying loans, and shares in companies on the Alternative Investment Market.
Trade and other debtors are recognised initially at transaction price less attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses. If the arrangement constitutes a financing transaction, for example if payment is deferred beyond normal business terms, then it is measured at the present value of future payments discounted at a market rate of instrument for a similar debt instrument.
Trade and other creditors are recognised initially at transaction price plus attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. If the arrangement constitutes a financing transaction, for example if payment is deferred beyond normal business terms, then it is measured at the present value of future payments discounted at a market rate of instrument for a similar debt instrument.
Investments in preference and ordinary shares are measured initially at transaction price less attributable transaction costs. Subsequent to initial recognition investments that can be measured reliably are measure at fair value with changes recognised in profit or loss. Other investments are measured at cost less impairment in profit or loss.
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose only of the cash flow statement.
Financial instruments not considered to be Basic financial instruments (Other financial instruments)
Other financial instruments not meeting the definition of Basic Financial Instruments are recognised initially at fair value. Subsequent to initial recognition other financial instruments are measured at fair value with changes recognised in profit or loss except investments in equity instruments that are not publicly traded and whose fair value cannot otherwise be measured reliably shall be measured at cost less impairment.
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 102, paragraph 29.6, a provision is made on all material timing differences arising from the different treatment of items for accounting and tax purposes.
The capital reserve is shown in aggregate and is made up of two elements:
The following are accounted for in this reserve:
Increases and decreases in the valuation of investments held at the year-end are accounted for in this reserve, except to the extent that the diminution is deemed permanent.
In accordance with stating all investments at fair value through profit and loss, all such movements through both revaluation and realised capital reserves are shown within the Income Statement for the year.
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 purposes 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.
Business combinations are accounted for using the purchase method as at the acquisition date, which is the date on which control of the acquiree is transferred to the Company.
At the acquisition date, the Company recognises goodwill as the difference between the cost of the business combination and the Company's interest in the net amount of the identifiable assets, liabilities and provisions for contingent liabilities (at their fair values).
The cost of the business combination is the aggregate of the fair value of assets given, liabilities incurred or assumed, and equity instruments issued by the Company, in exchange for control of the acquiree.
Directly attributable transaction costs have been recognised in the Income Statement.
for the year ended 31 December 2016
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision only affects that year, or in the year of the revision and future years if the revision affects both current and future years. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
The fair value of the investments is determined by using valuation techniques. The Directors base the fair value of the investments based on information received from the Manager. The Manager's assessment of fair value of investments is determined in accordance with the International Private Equity and Venture Capital ("IPEVC") Valuation Guidelines, as described more fully in accounting policy 1(b) and note 16.
| Year ended | Year ended | |
|---|---|---|
| 31 December | 31 December | |
| 2016 | 2015 | |
| £'000 | £'000 | |
| Loan stock interest | 2,133 | 1,435 |
| Dividends | 685 | 55 |
| Overseas based Open Ended Investment Companies ("OEICs") | 98 | 71 |
| 2,916 | 1,561 |
The Directors are of the opinion that the Company is engaged in a single segment of business and therefore no segmental reporting is provided.
| Year ended | Year ended | |
|---|---|---|
| 31 December | 31 December | |
| 2016 | 2015 | |
| £'000 | £'000 | |
| Investment management fees charged to the revenue account | 534 | 319 |
| Investment management fees charged to the capital account | 1,601 | 958 |
| 2,135 | 1,277 |
The Manager advises the Company on investments in qualifying companies under an agreement dated 11 October 1999. The agreement was for an initial period of five years and thereafter until their appointment is terminated by not less than one year's notice in writing to expire at any time after the initial period.
Foresight Group has received an annual management fee of 2% of the net assets of the Ordinary Shares fund (adjusted to reflect quoted investments at mid-market prices), 1% of the net assets of the Planned Exit Shares fund and 1% of the net assets of the Infrastructure Shares fund in the year ended 31 December 2016. The annual management fees are calculated and payable quarterly in advance. Following the launch of the current offer on 8 March 2017 the Manager agreed to lower its annual management fee for the Ordinary Shares fund to 1% in respect of any cash above £20 million held within the fund. This reduced rate will be reviewed by the Board on an annual basis.
Foresight Group is responsible for external costs such as legal and accounting fees, incurred on transactions that do not proceed to completion ("abort expenses"). In line with common practice, Foresight Group retains the right to charge arrangement and syndication fees and Directors' or monitoring fees ("deal fees") to portfolio companies in which the Company invests.
Foresight Fund Managers Limited is the Company Secretary and received annual fees for the services provided of £110,000 (2015: £100,000), excluding VAT.
| Year ended | Year ended | |
|---|---|---|
| 31 December | 31 December | |
| 2016 | 2015 | |
| £'000 | £'000 | |
| Accounting and secretarial services excluding VAT | 110 | 100 |
| Directors' remuneration including employer's National Insurance contributions | 103 | 78 |
| Auditor's remuneration excluding VAT | ||
| — audit services | 34 | 32 |
| — taxation services | — | 6 |
| Taxation services | 2 | — |
| Merger costs | 39 | 225 |
| Other | 308 | 175 |
| 596 | 616 |
| Year ended | Year ended | |
|---|---|---|
| 31 December | 31 December | |
| 2016 | 2015 | |
| £'000 | £'000 | |
| John Gregory | 29 | 28 |
| Peter Dicks | 22 | 21 |
| Gordon Humphries | 24 | 23 |
| Jocelin Harris | 22 | 1 |
| 97 | 73 | |
| Employers' NIC on above as appropriate | 6 | 5 |
| 103 | 78 |
No pension scheme contributions or retirement benefit contributions were paid. There are no share option contracts held by the Directors.
Further details of Directors' interests are given on page 38.
for the year ended 31 December 2016
1
Analysis of charge in the year:
| Year ended 31 December 2016 |
Year ended 31 December 2015 |
|||||
|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Current tax Corporation tax |
220 | (220) | — | 52 | (52) | — |
| Total current tax | 220 | (220) | — | 52 | (52) | — |
| Deferred tax | — | — | — | — | — | — |
| Total tax | 220 | (220) | — | 52 | (52) | — |
| Year ended | Year ended | |
|---|---|---|
| 31 December | 31 December | |
| 2016 | 2015 | |
| £'000 | £'000 | |
| Total return/(loss) on ordinary activities before taxation | 5,202 | (3,798) |
| Corporation tax at 20.00% (2015: 20.25%) | 1,040 | (769) |
| Capital realised losses not relievable | 652 | 1,751 |
| Capital unrealised gains not taxable | (1,655) | (1,050) |
| Movement in unutilised expenses | 100 | 79 |
| Dividends not taxable | (137) | (11) |
| Total tax charge for the year | — | — |
The UK corporation tax rate reduced from 21% to 20% on 1 April 2015. This resulted in a weighted average rate of 20.25% for the year ended 31 December 2015. Further reductions to the UK Corporation tax rate were substantively enacted in Finance (No 2) Bill 2015, reducing the main rate to 19% from 1 April 2017. On 16 March 2016 the Chancellor announced further reductions to the UK Corporation tax rate from April 2020 to 17%.
No asset or liability has been recognised for deferred tax in relation to capital gains or losses on revaluing investments. The Company is exempt from such tax as a result of qualifying as a Venture Capital Trust.
No deferred tax asset has been recognised in the year for surplus management expenses. At present it is not envisaged that any tax will be recovered on these in the foreseeable future.
A deferred tax asset is recognised only to the extent that there will be taxable profits in the future against which the asset can be offset. It is considered too uncertain that this will occur and, therefore, no deferred tax asset has been recognised. There is an unrecognised deferred tax asset of approximately £795,000 (2015: £709,000).
| Year ended | Year ended | |
|---|---|---|
| 31 December | 31 December | |
| 2016 | 2015 | |
| £'000 | £'000 | |
| Ordinary Shares | ||
| Dividends — paid in the year | 7,370 | 3,022 |
| Planned Exit Shares | ||
| Dividends — paid in the year | 1,604 | 1,361 |
| Infrastructure Shares | ||
| Dividends — paid in the year | 4,712 | 414 |
The Board is not recommending a final dividend for the Ordinary Shares fund for the year ended 31 December 2016 (2015: £nil). An interim dividend of 5.0p per Ordinary Share for the year ended 31 December 2016 was paid on 3 April 2017 (2015: 7.0p).
The Board is not recommending a final dividend for the Planned Exit Shares fund for the year ended 31 December 2016 (2015: £nil).
The Board is not recommending a final dividend for the Infrastructure Shares fund for the year ended 31 December 2016 (2015: £nil).
As at 31 December 2016, reserves available for dividend distribution total £13,295,000 (2015: £31,049,000) comprising the revenue, capital and distributable reserves, less the net unrealised loss on those investments whose prices are quoted in an active market and deemed readily realisable.
In accordance with S.259 of the Income Tax Act 2007, a Venture Capital Trust may not retain more than 15% of its qualifying income in any one accounting period. The payment of the dividends noted above satisfies this requirement.
| Year ended 31 December 2016 | Year ended 31 December 2015 | |||||
|---|---|---|---|---|---|---|
| Ordinary | Planned | Infrastructure | Ordinary | Planned | Infrastructure | |
| Share | Exit Share | Share | Share | Exit Share | Share | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Total return after taxation | 3,442 | 367 | 1,393 | (3,823) | (472) | 497 |
| Total return per share (note a) | 3.2p | 3.2p | 4.3p | (6.7)p | (7.5)p | 2.9p |
| Revenue return from ordinary activities after taxation | 423 | 32 | 1,111 | 391 | (197) | 380 |
| Revenue return per share (note b) | 0.4p | 0.3p | 3.4p | 0.7p | (3.1)p | 2.2p |
| Capital return from ordinary shares after taxation | 3,019 | 335 | 282 | (4,214) | (275) | 117 |
| Capital return per share (note c) | 2.8p | 2.9p | 0.9p | (7.4)p | (4.4)p | 0.7p |
| Weighted average number of shares in issue in the year | 109,561,757 11,488,663 | 32,502,653 56,855,338 | 6,256,492 | 17,169,610 |
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.
for the year ended 31 December 2016
On 18 December 2015, the Company acquired all of the assets and liabilities of Foresight 2 VCT plc for the issue of consideration shares on a relative net asset basis.
The acquisition in 2015 had the following effect on the Company's assets and liabilities:
| Book values in Foresight 2 VCT plc £'000 |
Fair value adjustments £'000 |
Recognised values on acquisition £'000 |
|
|---|---|---|---|
| Acquiree's net assets at the acquisition date: | |||
| Investments | 40,808 | — | 40,808 |
| Trade and other debtors | 597 | — | 597 |
| Money market securities | 2 | — | 2 |
| Cash | 1,159 | — | 1,159 |
| Trade and other creditors | (459) | — | (459) |
| Net identifiable assets and liabilities | 42,107 | — | 42,107 |
| Consideration paid: | |
|---|---|
| Consideration shares issued | 42,107 |
| Total consideration | 42,107 |
| Goodwill on acquisition | — |
Included in the Income Statement for the year ended 31 December 2015 is £20,000 in income from the portfolio companies acquired from Foresight 2 VCT plc, less £145,000 in income written off against underperforming investments at the year end. The loss attributable to Foresight 2 VCT plc for the period since the acquisition to 31 December 2015 totalled £143,000.
There were no acquisitions in the year ended 31 December 2016.
| 2016 | 2015 | |
|---|---|---|
| Company | £'000 | £'000 |
| Quoted investments | 54 | 47 |
| Unquoted investments | 92,163 | 92,190 |
| 92,217 | 92,237 |
| Quoted | Unquoted | Total | |
|---|---|---|---|
| Company | £'000 | £'000 | £'000 |
| Book cost as at 1 January 2016 | 44 | 92,105 | 92,149 |
| Investment holding gains | 3 | 85 | 88 |
| Valuation at 1 January 2016 | 47 | 92,190 | 92,237 |
| Movements in the year: | |||
| Purchases at cost | — | 4,877 | 4,877 |
| Disposal proceeds | (5) | (9,282) | (9,287) |
| Realised gains/(losses)* | 1 | (3,327) | (3,326) |
| Investment holding gains** | 11 | 7,705 | 7,716 |
| Valuation at 31 December 2016 | 54 | 92,163 | 92,217 |
| Book cost at 31 December 2016 | 40 | 84,373 | 84,413 |
| Investment holding gains | 14 | 7,790 | 7,804 |
| Valuation at 31 December 2016 | 54 | 92,163 | 92,217 |
| Quoted | Unquoted | Total | |
|---|---|---|---|
| Ordinary Shares Fund | £'000 | £'000 | £'000 |
| Book cost as at 1 January 2016 | 44 | 57,331 | 57,375 |
| Investment holding gains | 3 | 734 | 737 |
| Valuation at 1 January 2016 | 47 | 58,065 | 58,112 |
| Movements in the year: | |||
| Purchases at cost | — | 4,877 | 4,877 |
| Disposal proceeds | (5) | (668) | (673) |
| Realised gains/(losses)* | 1 | (2,703) | (2,702) |
| Investment holding gains** | 11 | 6,526 | 6,537 |
| Valuation at 31 December 2016 | 54 | 66,097 | 66,151 |
| Book cost at 31 December 2016 | 40 | 58,837 | 58,877 |
| Investment holding gains | 14 | 7,260 | 7,274 |
| Valuation at 31 December 2016 | 54 | 66,097 | 66,151 |
*Deferred consideration of £51,000 was received by the Ordinary Shares fund in the year and is included within realised losses in the income statement. This was offset by a decrease in the deferred consideration debtor of £50,000.
** Deferred consideration of £364,000 was recognised in the year and is included in investment holding gains in the income statement.
for the year ended 31 December 2016
1
| 10 Investments (continued) | Quoted | Unquoted | Total |
|---|---|---|---|
| Planned Exit Shares Fund | £'000 | £'000 | £'000 |
| Book cost as at 1 January 2016 | — | 4,836 | 4,836 |
| Investment holding losses | — | (1,014) | (1,014) |
| Valuation at 1 January 2016 | — | 3,822 | 3,822 |
| Movements in the year: | |||
| Disposal proceeds | — | (1,376) | (1,376) |
| Realised losses* | — | (64) | (64) |
| Investment holding gains** | — | 159 | 159 |
| Valuation at 31 December 2016 | — | 2,541 | 2,541 |
| Book cost at 31 December 2016 | — | 3,396 | 3,396 |
| Investment holding losses | — | (855) | (855) |
| Valuation at 31 December 2016 | — | 2,541 | 2,541 |
* Deferred consideration of £13,000 was received by the Planned Exit Shares fund in the year and is included within realised losses in the income statement.
** A deferred consideration debtor of £249,000 was recognised in the year and is included in investment holding gains in the income statement.
| Quoted | Unquoted | Total | |
|---|---|---|---|
| Infrastructure Shares Fund | £'000 | £'000 | £'000 |
| Book cost as at 1 January 2016 | — | 29,938 | 29,938 |
| Investment holding gains | — | 365 | 365 |
| Valuation at 1 January 2016 | — | 30,303 | 30,303 |
| Movements in the year: | |||
| Disposal proceeds | — | (7,238) | (7,238) |
| Realised losses | — | (560) | (560) |
| Investment holding gains | — | 1,020 | 1,020 |
| Valuation at 31 December 2016 | — | 23,525 | 23,525 |
| Book cost at 31 December 2016 | — | 22,140 | 22,140 |
| Investment holding gains | — | 1,385 | 1,385 |
| Valuation at 31 December 2016 | — | 23,525 | 23,525 |
As permitted by FRS 102, paragraph 14.4, investments are held as part of an investment portfolio, and their value to the Company is through their marketable value as part of a portfolio of investments, rather than as a medium through which the Company carries out its business. Therefore, the investments are not considered to be associated undertakings.
Where the Company's interest in an investment is greater than 50% of the investee company's total equity, specific clauses are included in the investee company's articles of association to prevent the Company from exercising control. Therefore, these investments are not considered to be subsidiary undertakings.
| 2016 | 2015 | |
|---|---|---|
| £'000 | £'000 | |
| Accrued interest | 1,185 | 1,134 |
| Deferred consideration | 823 | 261 |
| Prepayments | 19 | 21 |
| Allotment debtor* | 166 | — |
| 2,193 | 1,416 |
* Balance owed from the Company's receiving agent for the allotment dated 23 December 2016. This was received in January 2017.
| 2016 | 2015 | |
|---|---|---|
| £'000 | £'000 | |
| Accruals and other creditors | 192 | 1,344 |
| 192 | 1,344 |
| 2016 | 2015 | |
|---|---|---|
| £'000 | £'000 | |
| Allotted, called-up and fully paid: | ||
| 127,985,288 Ordinary Shares of 1p each (2015: 86,593,790) | 1,280 | 866 |
| 11,404,314 Planned Exit Shares of 1p each (2015: 11,527,087) | 114 | 115 |
| 32,495,246 Infrastructure Shares of 1p each (2015: 32,510,224) | 324 | 324 |
Under an offer for subscription dated 18 January 2016, 41,765,910 Ordinary Shares were issued during the year, based on net values ranging from 80.5p to 88.0p per share.
On 4 April 2016 the Company allotted 948,272 Ordinary Shares under the Company's Dividend Reinvestment Scheme at 81.0p per share.
All of these share issues were under the new VCT provisions that commenced on 6 April 2006, namely: 30% upfront income tax relief which can be retained by qualifying investors if the shares are held for the minimum five year holding period.
As part of the Company's buyback programme, during the period, 1,322,684 Ordinary Shares were purchased for cancellation at a cost of £939,000, 122,773 Planned Exit Shares for cancellation at a cost of £39,000, and 14,978 Infrastructure Shares for cancellation at a cost of £13,000.
| Ordinary Planned Exit Shares Shares |
Infrastructure | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| No. | No. | No. | ||||||||
| At 1 January 2016 | 86,593,790 | 11,527,087 | 32,510,224 | |||||||
| Share issues | 41,765,910 | — | — | |||||||
| Dividend reinvestment | 948,272 | — | — | |||||||
| Share buybacks | (1,322,684) | (122,773) | (14,978) | |||||||
| At 31 December 2016 | 127,985,288 | 11,404,314 | 32,495,246 |
for the year ended 31 December 2016
The net asset value per share is based on net assets at the end of the period and on the number of shares in issue at that date.
| 31 December 2016 | 31 December 2015 | |||||
|---|---|---|---|---|---|---|
| Ordinary Planned Infrastructure |
Ordinary | Planned | Infrastructure | |||
| Shares | Exit Shares | Shares | Shares | Exit Shares | Shares | |
| Fund | Fund | Fund | Fund | Fund | Fund | |
| Net assets | £107,046,000 | £2,949,000 | £26,560,000 | £75,798,000 | £4,248,000 | £30,032,000 |
| No. of shares at year end | 127,985,288 | 11,404,314 | 32,495,246 | 86,593,790 | 11,527,087 | 32,510,224 |
| Net asset value per share | 83.6p | 25.9p | 81.7p | 87.5p | 36.8p | 92.4p |
A new co-investment scheme and performance incentive fee arrangement in respect of the Ordinary Shares fund was approved by shareholders at a general meeting held on 8 March 2017 and entered into by the Company on 31 March 2017. The terms of the coinvestment scheme and performance incentive fee arrangement are summarised below.
In order to align the interests of the Manager and the individual members of Foresight Group's private equity team ("management team") with those of the Ordinary Shareholders, the Manager and the management team will co-invest, alongside the Ordinary Shares fund, for shares and loans in each new investee company at the same time and at the same price paid by the Company.
In respect of investments made from the Ordinary Shares fund in new investee companies (including follow-ons) on or after 31 March 2017, the Manager and the management team will subscribe, in aggregate, for shares and loans equal to 1.5% of the total value being invested by the Company. This 1.5% allocation will be split as to 75% to the management team and 25% to the Manager itself. The co-investment will be in the lowest priority of securities that the Company is investing in, subject to not representing more than 5% of the amount the Company is investing in each security class.
The Directors believe that these arrangements will align the interests of the management team with the Company through their personal investment in each new company in which the Ordinary Shares fund invests.
In order to incentivise the Manager to generate enhanced returns for Shareholders, the Manager will potentially be entitled to a performance incentive payment in respect of investments made from the Ordinary Shares fund in new investee companies (including follow-ons) on or after 31 March 2017.
The Manager will be entitled to a performance incentive fee in respect of cash proceeds received by the Company in respect of a realisation of an investment subject to (i) an Investment Growth Hurdle and (ii) a Total NAV Return Hurdle.
The 'Investment Growth Hurdle' requires that the cash return received in respect of all investments in the relevant investee company is greater than the cost of those investments increased annually by 4% plus RPI (on a compound basis).
The 'Total NAV Return Hurdle' requires that the NAV total return (NAV plus dividends) of the Ordinary Shares fund across the three year period following the exit of the relevant investment must be at least 100p per Ordinary Share. This is measured (a) at the point of exit, (b) as an average across the three year period and (c) at the end of the three year period, and further taking into account any performance incentive fees to which the Manager may have become entitled (including the relevant fee payment) but which have not as yet been paid.
Should both of the above hurdles be met, the Manager will receive a fee equal to 20% of the amount by which the cash proceeds received by the Company exceed the Investment Growth Hurdle.
The fee will only be paid after three years following the exit once the Total NAV Return Hurdle can be measured. In addition, the Total NAV Return Hurdle will be increased over time by amounts equal to any performance incentive fee payments made to the Manager.
No performance fees have been paid or were accrued as due during the year.
The Company's financial instruments comprise:
The Company held the following categories of financial instruments at 31 December 2016:
| Company | ||
|---|---|---|
| 2016 | 2015 | |
| (Fair value) | (Fair value) | |
| £'000 | £'000 | |
| Investment portfolio | 92,217 | 92,237 |
| Current asset investments (money market funds) | 30,976 | 14,888 |
| Cash at bank | 11,361 | 2,881 |
| 134,554 | 110,006 |
Loans to investee companies are treated as fair value through profit and loss and are included in the investment portfolio.
The investment portfolio consists of unquoted investments and loan stock valued at fair value. Current asset investments are money market funds, discussed under credit risk management below.
The investment portfolio has a high concentration of risk towards small UK-based companies, the majority being unquoted sterling denominated equity and loan stock holdings (67.5% of net assets).
An analysis of the maturity of the assets of the Company above, 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 and they are summarised below.
Detailed below is a summary of the financial risks to which the Company is exposed.
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 £59,896,000 at 31 December 2016 (31 December 2015: £50,666,000).
for the year ended 31 December 2016
1
| Weighted average | Weighted average time | |||||
|---|---|---|---|---|---|---|
| Total portfolio | interest rate | for which rate is fixed | ||||
| 31 December | 31 December | 31 December | 31 December | 31 December | 31 December | |
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| Company Portfolio | £'000 | £'000 | % | % | Days | Days |
| Short-term securities | ||||||
| — exposed to fixed | ||||||
| interest rate risk | 30,976 | 14,888 | 0.3 | 0.4 | — | — |
| Loan stock | ||||||
| — exposed to fixed | ||||||
| interest rate risk | 28,421 | 35,117 | 10.5 | 10.8 | 812 | 994 |
| Loan stock | ||||||
| —exposed to variable | ||||||
| interest rate risk | 499 | 661 | 10.0 | 8.6 | — | — |
| Total exposed to interest | 59,896 | 50,666 | ||||
| rate risk | ||||||
| Cash | 11,361 | 2,881 | 0.3 | 0.5 | — | — |
| Total | 71,257 | 53,547 |
| Total portfolio | ||
|---|---|---|
| 31 December | 31 December | |
| 2016 | 2015 | |
| Maturity analysis: | £'000 | £'000 |
| — in one year or less | 53,434 | 25,738 |
| — in more than one year but no more than two years | 836 | 5,949 |
| — in more than two years but no more than three years | 4,125 | 4,193 |
| — in more than three years but no more than four years | 11,662 | 6,005 |
| — in more than four years but no more than five years | 1,200 | 11,662 |
| Total | 71,257 | 53,547 |
The benchmark rate, which determines the interest payments received on cash and loan balances held, is the bank base rate which was 0.25% at 31 December 2016 (0.5% at 31 December 2015).
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 or investment grade funds, and so credit risk is considered to be low. The Manager receives management 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 31 December 2016 was £73,450,000 (31 December 2015: £54,963,000) 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:
| Company | ||
|---|---|---|
| 2016 | 2015 | |
| £'000 | £'000 | |
| Loan stocks | 28,920 | 35,778 |
| Current asset investments (money market funds) | 30,976 | 14,888 |
| Cash at bank | 11,361 | 2,881 |
| Other debtors | 2,193 | 1,416 |
| Total | 73,450 | 54,963 |
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 disciplines 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. Investments are valued in accordance with IPEVC valuation guidelines, cost and various fair valuation methodologies and thus are susceptible to changes in the inputs and assumptions in the valuation models. The potential maximum exposure to market price risk, being the value of the investment portfolio as at 31 December 2016 is £92,217,000 (31 December 2015: £92,237,000).
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 will 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 five years from the year-end.
To counter these risks to the Company's liquidity, the Manager maintains sufficient cash and money market funds to meet running costs and other commitments. The Company invests its surplus funds in 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 investments in small companies.
All of the investments made by the Manager in unquoted companies, irrespective of the instruments the Company actually holds (whether shares or loan stock), carry a full equity risk in practice, even though some of the loan stocks may be secured on assets (and 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 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% (2015: 15%) movement in valuation, 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.
for the year ended 31 December 2016
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 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.
| 2016 | 2015 | |
|---|---|---|
| Return and | Return and | |
| net assets | net assets | |
| If overall price fell by 15% (2015: 15%), with all other variables held constant — decrease (£'000) | (13,833) | (13,836) |
| Decrease in net asset value (in pence) | (8.05)p | (10.59)p |
| 2016 | 2015 | |
|---|---|---|
| Return and | Return and | |
| net assets | net assets | |
| If overall price increased by 15% (2015: 15%), with all other variables held constant — increase (£'000) | 13,833 | 13,836 |
| Increase in net asset value (in pence) | 8.05p | 10.59p |
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 basis and market expectations for future movement. The range in equity prices is considered reasonable given the historic changes that have been observed.
For each class of fair valued instruments, if changing one or more of the inputs or reasonably possible alternative assumptions would change the fair value significantly, FRS 102 requires an entity to state the fact and disclose the effect of those charges.
Due to the large portfolio of investments held, and the varying methods of valuation used, Foresight has not disclosed the effect of changes on individual inputs and assumptions as it is not considered that changing individual inputs would have a significant impact on the portfolio valuation.
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.
| 2016 | 2015 | |
|---|---|---|
| Return and | Return and | |
| net assets | net assets | |
| If variable interest rates were 1% lower, with all other variables held constant — decrease (£'000) | (5) | (7) |
| Decrease in earnings, and net asset value, per Share (in pence) | (0.00)p | (0.01)p |
| If variable interest rates were 1% higher, with all other variables held constant — increase (£'000) | 5 | 7 |
| Increase in earnings, and net asset value, per Share (in pence) | 0.00p | 0.01p |
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.
The Infrastructure Shares fund investments are valued by the Manager with reference to the discounted value of future cash flows. The Directors consider the valuation methodology used, including the key assumptions and discount rate applied, to be fair. The Board reviews, at least quarterly, the valuation inputs and, where possible, uses observable market data to ensure valuations reflect the fair value of the investments.
A broad range of assumptions are used in the valuation models. These assumptions are based on long-term forecasts and are not affected by short term fluctuations in inputs, be it economic or technical.
The significant assumptions used in the fair value measurement, together with a quantitative sensitivity analysis as at 31 December 2016, are set out below. Please note, this sensitivity analysis only refers to the impact of changes in key inputs and assumptions on the valuation of the Solar and PFI investments held in the Infrastructure Shares fund, which constitute 25% of the Company's portfolio.
The discounted cash flow valuations of the solar assets form 45% of the Infrastructure Shares fund portfolio.
The key inputs and assumptions to the discounted cash flow models are discount rate, energy yield, power price, inflation and the operating costs of running the plants and a change in any of these could have a material impact on the valuation.
The range of discount rates used is 6.5% - 7.5%. The Directors do not expect to see a significant short term change in the discount rates applied within the solar infrastructure sector. Therefore a variance of +/- 0.50% is considered reasonable given the current risk profile of the Infrastructure Shares fund.
| -0.50% | -0.25% | Base | +0.25% | +0.50% | |
|---|---|---|---|---|---|
| Directors DCF Valuation (£m)* | 10.9 | 10.7 | 10.5 | 10.3 | 10.1 |
* Not including cash held in holding company investments
The valuation of investments may also be impacted by changes in other inputs to the discounted cash flow models, but these have not been discussed further as they would not have a significant impact on the valuation. The assumption sensitivities are illustrative. The actual change in these assumptions could be more or less than the amount shown.
The discounted cash flow valuations of the PFI assets form 55% of the Infrastructure Shares fund portfolio. The PFI assets include schools and hospitals.
The key inputs and assumptions to the discounted cash flow models are discount rate, inflation and the operating costs and a change in any of these could have a material impact on the valuation.
The discount rate used is 7.75%. The Directors do not expect to see a significant change in the discount rates applied within the infrastructure sector. Therefore a variance of +/- 0.50% is considered reasonable given the current risk profile of the Infrastructure Shares fund.
| -0.50% | -0.25% | Base | +0.25% | +0.50% | |
|---|---|---|---|---|---|
| Directors DCF Valuation (£m)* | 14.0 | 13.5 | 13.0 | 12.6 | 12.2 |
* Not including cash held in holding company investments
The valuation of investments may also be impacted by changes in other inputs to the discounted cash flow models, but these have not been discussed further as they would not have a significant impact on the valuation. The assumption sensitivities are illustrative. The actual change in these assumptions could be more or less than the amount shown.
for the year ended 31 December 2016
In accordance with amendments to FRS 102 paragraph 11.27, the following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:
| Level 1 | Level 2 | Level 3 | Total | |
|---|---|---|---|---|
| As at 31 December 2016 | £'000 | £'000 | £'000 | £'000 |
| Quoted investments | 54 | — | — | 54 |
| Unquoted investments | — | — | 92,163 | 92,163 |
| Current asset investments (money market funds) | 30,976 | — | — | 30,976 |
| Financial assets | 31,030 | — | 92,163 | 123,193 |
| Level 1 | Level 2 | Level 3 | Total | |
| As at 31 December 2015 | £'000 | £'000 | £'000 | £'000 |
| Quoted investments | 47 | — | — | 47 |
| Unquoted investments | — | 92,190 | 92,190 | |
| — | ||||
| Current asset investments (money market funds) | 14,888 | — | — | 14,888 |
The Company primarily invests in private equity via unquoted equity and loan securities. The Company's investment portfolio is recognised in the balance sheet at fair value, in accordance with IPEVC Valuation Guidelines.
The gains/(losses) on Level 3 investments are included within investment holding gains and realised losses on investments in the Income Statement.
| Company | |
|---|---|
| Level 3 | |
| £'000 | |
| Valuation brought forward at 1 January 2016 | 92,190 |
| Purchases | 4,877 |
| Disposal proceeds | (9,282) |
| Realised losses | (3,327) |
| Investment holding gains | 7,705 |
| Valuation carried forward at 31 December 2016 | 92,163 |
During the year there were no transfers between levels 1, 2 or 3.
Based on recent economic volatility, the Board and 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 £13.8 million.
At 31 December 2016 the Company had a contingent asset of £28,000 (2015: £120,000) relating to deferred consideration on the sale of an investment, receipt of which is considered probable but not virtually certain.
There were no contingent liabilities as at 31 December 2016 (2015: £nil).
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can provide an adequate return to Shareholders by allocating its capital to assets commensurately with the level of risk.
In accordance with VCT requirements the Company must invest at least 70% of its capital (as measured under the tax legislation), and must thereafter maintain that percentage level investment, 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 on 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 borrowing, 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 is 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.
Foresight VCT plc announced a £20 million prospectus offer on 2 February 2017 which was subsequently increased by a further £20 million. The Company made the following issues of Ordinary Shares of 1p each post year-end:
| Date | Ordinary Shares | NAV to calculate issue price |
|---|---|---|
| 13 March 2017 | 18,132,489 | 83.3p |
| 17 March 2017 | 24,433,588 | 83.3p |
| 31 March 2017 | 2,131,874 | 78.3p |
| 7 April 2017 | 1,490,150 | 78.3p |
| 46,188,101 |
The offer was closed to new applications on 20 March 2017 and ended on 7 April 2017.
A total of 1,878,571 Ordinary Shares were issued under the Dividend Reinvestment Scheme.
| Date | Ordinary Shares | NAV to calculate issue price |
|---|---|---|
| 5 April 2017 | 1,878,571 | 78.3p |
| 1,878,571 |
No Director has an interest in any contract to which the Company is a party.
Foresight Group CI Limited, which acts as manager to the Company in respect of all its investments, earned fees of £2,135,000 during the year (2015: £1,277,000). Foresight Fund Managers Limited, Company Secretary, received fees excluding VAT of £110,000 (2015: £100,000) during the year.
At the balance sheet date, there was £17,000 (2015: £nil) due to Foresight Group CI Limited and £nil (2015: £nil) due to Foresight Fund Managers Limited. No amounts have been written off in the year in respect of debts due to or from the related parties.
Shareholder Information continued
1
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 back cover for details). Investment Account The Company's shares are available in the J.P. Morgan Investment Account, which facilitates both regular monthly investments and as well as their platform charges structure.
The Company's Ordinary Shares, Planned Exit Shares and Infrastructure Shares are listed on the London Stock Exchange. Share price information can also be obtained from many other financial websites. Shareholders who would like information on the Investment Account should call J.P. Morgan Asset Management free on 0800 20 40 20 or visit its website at am.jpmorgan.co.uk/investor Professional advisers are usually able to access the products of all the companies in the market and can help you find an investment that
Investors are able to manage their shareholding online using Computershare's secure website — www.investorcentre.co.uk — to undertake the following: The Company's shares are eligible investments within a J.P. Morgan ISA. For the 2016/17 tax year, from 6th April 2016 and ending 5th April unbiased.co.uk
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. Third party providers include; AJ Bell Interactive Investor
The Company's Ordinary Shares, Planned Exit Shares and Infrastructure 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 VCT plc is Panmure Gordon & Co. Barclays Stockbrokers Bestinvest James Hay Selftrade
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 an independent financial adviser. Charles Stanley Direct FundsNetwork Hargreaves Lansdown TD Direct The Share Centre
Please call Foresight Group (see details overleaf) if you or your adviser have any questions about this process.
Fraudsters use persuasive and high-pressure tactics to lure investors into scams. They may offer to sell shares that turn out to be worthless or non-existent, or to buy shares at an inflated price in return for an upfront payment. While high profits are promised, if you buy or sell shares in this way you will probably lose your money.
Use the firm's contact details listed on the Register if you want to call it back. 5
If you are approached by fraudsters please tell the FCA using the share fraud reporting form at www.fca.org.uk/scams, where you can find out more about investment scams.
You can also call the FCA Consumer Helpline on 0800 111 6768.
If you have already paid money to share fraudsters you should contact Action Fraud on 0300 123 2040.
5,000 people contact the Financial Conduct Authority about share fraud each year, with victims losing an average of £20,000
| August 2017 | Announcement of Interim Results for the six months ending 30 June 2017 |
|---|---|
| April 2018 | Announcement of annual results for the year ending 31 December 2017 |
| April 2018 | Posting of the Annual Report for the year ending 31 December 2017 |
| May 2018 | Annual General Meeting |
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 VCT plc:
Telephone: 020 3667 8159 Fax: 020 3031 1383 e-mail: [email protected] website: www.foresightgroup.eu
Foresight 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 the 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.
| Order of Events | |
|---|---|
| 10.00am | Portfolio company presentations |
| 10.30am | Manager presentation |
| Immediately following the Manager presentation | Formal business of the Annual General Meeting |
Notice is hereby given that the Annual General Meeting of Foresight VCT plc ("the Company") will be held on 23 May 2017 at 10.00am at the offices of Foresight Group LLP, The Shard, 32 London Bridge Street, London, SE1 9SG for the purpose of considering and, if thought fit, passing the following resolutions, of which resolutions 1 to 9 will be proposed as ordinary resolutions and resolutions 10 and 11 will be proposed as special resolutions.
| Resolution 1 | To receive the Report and Accounts for the year ended 31 December 2016. |
|---|---|
| Resolution 2 | To approve the Directors' Remuneration Report. |
| Resolution 3 | To approve the Directors' Remuneration Policy. |
| Resolution 4 | To re-elect Peter Dicks as a director. |
| Resolution 5 | To re-elect John Gregory as a director. |
| Resolution 6 | To re-elect Gordon Humphries as a director. |
| Resolution 7 | To re-elect Jocelin Harris as a director. |
| Resolution 8 | To re-appoint KPMG LLP as auditors and to authorise the directors to fix the auditor's remuneration. |
| Resolution 9 | That, in addition to the authority granted pursuant to Resolution 1 passed at the general meeting of the Company on 8 March 2017, but in substitution for all other existing authorities, the directors be and they are generally and unconditionally authorised in accordance with section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert any security into, shares in the Company ("Rights"): |
| (i) in respect of the ordinary shares of 1p each in the capital of the Company ("Ordinary Shares"), up to an aggregate nominal amount of £105,000; |
|
| (ii) in respect of the planned exit shares of 1p each in the capital of the Company ("Planned Exit Shares"), up to an aggregate nominal amount of £12,000; and |
|
| (iii) in respect of the infrastructure shares of 1p each in the capital of the Company ("Infrastructure Shares"), up to an aggregate nominal amount of £33,000, |
|
| in each case provided that this authority shall expire (unless renewed, varied or revoked by the Company in a general meeting) on the fifth anniversary of the date of passing of this resolution, save that the Company shall be entitled to make offers or agreements before the expiry of such authority which would or might require shares to be allotted or Rights to be granted after such expiry and the directors shall be entitled to allot shares and grant Rights pursuant to any such offers or agreements as if this authority had not expired. |
|
| Resolution 10 | That, in addition to the authority granted pursuant to Resolution 2 passed at the general meeting of the Company held on 8 March 2017, but in substitution for all other existing authorities, the directors be and they are empowered pursuant to section 570 and section 573 of the Companies Act 2006 to allot equity securities (within the meaning of section 560 of that Act) for cash either pursuant to the authority conferred by Resolution 9 above or by way of a sale of treasury shares as if section 561(1) of that Act did not apply to any such allotment, provided that this power shall be limited to: |
| (a) the allotment of equity securities with an aggregate nominal amount of up to but not exceeding £200,000 by way of an issue of Ordinary Shares and/or £100,000 by way of an issue of Planned Exit Shares and/or £100,000 by way of an |
issue of Infrastructure Shares, in each case pursuant to offer(s) for subscription;
in each case where the proceeds may be used in whole or part to purchase shares in the capital of the Company, and shall expire (unless renewed, varied or revoked by the Company in a general meeting) on the conclusion of the annual general meeting of the Company to be held in the year 2018, or, if earlier, on the date falling 15 months after the passing of this resolution save that the Company shall be entitled to make offers or agreements before the expiry of such authority which would or might require equity securities to be allotted after such expiry and the directors shall be entitled to allot equity securities pursuant to any such offers or agreements as if the authority conferred hereby had not expired.
(vii) the maximum price which may be paid for an Infrastructure Share is the higher of (1) an amount equal to 105% of the average of the middle market quotation for an Infrastructure Share taken from the London Stock Exchange daily official list for the five business days immediately preceding the day on which the Infrastructure Shares are purchased, and (2) the amount stipulated by Article 5(1) of the BuyBack and Stabilisation Regulation 2003;
(viii) the authority conferred by this resolution shall expire (unless renewed, varied or revoked by the Company in a general meeting) on the conclusion of the annual general meeting of the Company to be held in the year 2018 or, if earlier, on the date falling 15 months after the passing of this resolution;
24 April 2017
By order of the Board The Shard 32 London Bridge Street London SE1 9SG
Foresight Fund Managers Limited Company Secretary
Notice is hereby given that a separate meeting of the holders of ordinary shares of 1p each in the capital of Foresight VCT plc ("the Company") will be held on 23 May 2017 at 10.10am (or as soon thereafter as the annual general meeting of the Company convened for 10.00am on that day has been concluded or adjourned) at the offices of Foresight Group LLP, The Shard, 32 London Bridge Street, London, SE1 9SG for the purpose of considering and, if thought fit, passing the following resolution which will be proposed as a special resolution.
The holders of the ordinary shares of 1p each in the capital of the Company ("Ordinary Shares") hereby sanction, approve and consent to:
a) the passing and carrying into effect of resolutions 9 and 11 (as ordinary and special resolutions of the Company, as applicable) set out in the notice of annual general meeting of the Company convened for 10.00am on 23 May 2017 (a copy of which is produced to the meeting and signed by the Chairman for the purposes of identification) to the extent that such ordinary and special resolutions relate to Ordinary Shares; and
b) any effect on, variation, abrogation, dealing with and/or deemed variation or abrogation of the rights and privileges attached to the Ordinary Shares which will, or may, result from the passing and carrying into effect of the said resolutions and notwithstanding that the passing and carrying into effect of such resolutions may affect the rights and privileges attached to such Ordinary Shares.
By order of the Board The Shard
32 London Bridge Street London SE1 9SG
Company Secretary
24 April 2017
Notice is hereby given that a separate meeting of the holders of planned exit shares of 1p each in the capital of Foresight VCT plc ("the Company") will be held on 23 May 2017 at 10.15am (or as soon thereafter as the separate meeting of the holders of ordinary shares of 1p each in the capital of the Company convened for 10.10am on that day has been concluded or adjourned) at the offices of Foresight Group LLP, The Shard, 32 London Bridge Street, London, SE1 9SG for the purpose of considering and, if thought fit, passing the following resolution which will be proposed as a special resolution.
The holders of the planned exit shares of 1p each in the capital of the Company ("Planned Exit Shares") hereby sanction, approve and consent to:
a) the passing and carrying into effect of resolutions 9 and 11 (as ordinary and special resolutions of the Company, as applicable) set out in the notice of annual general meeting of the Company convened for 10.00am on 23 May 2017 (a copy of which is produced to the meeting and signed by the Chairman for the purposes of identification) to the extent that such ordinary and special resolutions relate to Planned Exit Shares; and
b) any effect on, variation, abrogation, dealing with and/or deemed variation or abrogation of the rights and privileges attached to the Planned Exit Shares which will, or may, result from the passing and carrying into effect of the said resolutions and notwithstanding that the passing and carrying into effect of such resolutions may affect the rights and privileges attached to such Planned Exit Shares.
By order of the Board The Shard
1
32 London Bridge Street London SE1 9SG
Company Secretary 24 April 2017
Notice is hereby given that a separate meeting of the holders of Infrastructure shares of 1p each in the capital of Foresight VCT plc ("the Company") will be held on 23 May 2017 at 10.20am (or as soon thereafter as the separate meeting of the holders of Planned Exit shares of 1p each in the capital of the Company convened for 10.15am on that day has been concluded or adjourned) at the offices of Foresight Group LLP, The Shard, 32 London Bridge Street, London, SE1 9SG for the purpose of considering and, if thought fit, passing the following resolution which will be proposed as a special resolution.
The holders of the Infrastructure shares of 1p each in the capital of the Company ("Infrastructure Shares") hereby sanction, approve and consent to:
a) the passing and carrying into effect of resolutions 9 and 11 (as ordinary and special resolutions of the Company, as applicable, set out in the notice of annual general meeting of the Company convened for 10.00am on 23 May 2017 (a copy of which is produced to the meeting and signed by the Chairman for the purposes of identification) to the extent that such ordinary and special resolutions relate to Infrastructure Shares; and
b) any effect on, variation, abrogation, dealing with and/or deemed variation or abrogation of the rights and privileges attached to the Infrastructure Shares which will, or may, result from the passing and carrying into effect of the said resolutions and notwithstanding that the passing and carrying into effect of such resolutions may affect the rights and privileges attached to such Infrastructure Shares.
By order of the Board The Shard
1
32 London Bridge Street London SE1 9SG
Company Secretary 24 April 2017
John Gregory (Chairman) Peter Dicks Jocelin Harris Gordon Humphries
Foresight Fund Managers Limited The Shard 32 London Bridge Street London SE1 9SG
Foresight Group CI Limited PO Box 156 Dorey Court St Peter Port Guernsey GY1 4EU
KPMG LLP 15 Canada Square London E14 5GL
Shakespeare Martineau LLP No. 1 Colmore Square Birmingham B4 6AA
Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ
Panmure Gordon & Co One New Change London EC4M 9AF
Lloyds Bank Plc 25 Gresham Street London EC2V 7HN
03421340
Registrar's Shareholder Helpline — Computershare (0370 703 6388)
General and Portfolio Queries
— Foresight Group (0203 667 8159)
Foresight VCT plc The Shard 32 London Bridge Street London SE1 9SG
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