Foresight 4 VCT PLC : Half-yearly report
FORESIGHT 4 VCT PLC
Financial Highlights
Ordinary Share Fund
Net asset value per Ordinary Share at 30 September 2012 decreased by 1.9% to 95.1p compared to 96.9p as at 31 March 2012.
The fund made one new and nine follow-on investments totalling £914,938.
Proceeds of £2,168,905 were received from two investments.
C Share Fund
Net asset value per C Share at 30 September 2012 decreased by 1.5% to 93.0p compared to 94.4p at 31 March 2012.
The fund made three new and one follow-on investment totalling £4,995,645.
Proceeds of £1,050,970 were received from two investments.
Chairman's Statement
Performance and Dividends
The period under review continued to be one of considerable market volatility and extreme concern about the state of government finances in many parts of Europe. In the UK, economic activity was patchy, leading to a double-dip recession and bank lending to SMEs was severely constrained.
These factors affected portfolio companies in a variety of ways. Some companies that needed to maintain or increase their borrowing to pursue development projects or to expand their activities had difficulty in doing so; others, with more established businesses, were able to find growth opportunities, particularly via exports.
Against this background, I can report that the net asset value of the Ordinary Share portfolio as at 30 September 2012 decreased by 1.9% to 95.1p (31 March 2012: 96.9p). The net asset value of the C Share portfolio at 30 September 2012 decreased 1.5% to 93.0p (31 March 2012: 94.4p).
This performance reflects the continued robust performance of the private equity portfolio but also a more stable performance in the environmental portfolio, where those companies with real future potential have been identified and continue to be supported by the Foresight VCTs and those that were struggling to make progress, as detailed in the annual report and accounts, have received no further support and have either been placed into administration or sold for nominal consideration.
The non-environmental portfolio benefited from the strong performances of several investments, in particular Autologic Diagnostics Group, Adeptra, Datapath Group, Ixaris Systems and TFC Europe, several of which have seen increases in valuation or improved trading during the last six months. Overall, we expect these companies to drive net asset value (NAV) performance and generate liquidity through realisations in the coming months as well as see the environmental portfolio start to recover value.
Other companies are making progress but at the same time have encountered delays in project implementation and in building their businesses in a very difficult environment. AIM-listed Zoo Digital Group suffered a sharp decline in its share price following disappointing results, but more recently has confirmed that it is trading profitably and is optimistic about the outlook for the remainder of its financial year to 31 March 2013.
A total of £1,546,648 was received from the realisation of Adeptra in September 2012, £621,410 from the sale of the investment in Infrared Integrated Systems, as well as £847 of proceeds received from Autologic Diagnostics Group.
Foresight remains positive about the prospects for this portfolio and the recent positive trend in net asset value is expected to continue over the medium to longer-term.
A summary of how the differing elements of the portfolio impacted the movement in NAV for both the Ordinary and C Share funds in the period is detailed in the Investment Managers Report.
Over the last two or so years, weak economic conditions and lack of availability of bank and equity finance have adversely affected the performances of and hindered the planned expansion of the environmental investments. As these poor macro economic conditions are expected to continue for some time, the Board and Investment Manager previously agreed that, within the existing investment policy, greater emphasis should, for the foreseeable future, be placed on private equity investments where Foresight Group are seeing an increase in deal flow, and less emphasis on environmental infrastructure investments and this continues to be the case.
Depending on the patterns of disposals, the Board expects to declare a dividend in the first quarter of 2013 of not less than 3.0p per Ordinary Share.
Share issues and Buy-backs
The Company launched a top-up offer on 3 March 2012 alongside its enhanced buyback offer to Shareholders. During the period from 1 April 2012 until 30 September 2012, 634,876 Ordinary Shares were allotted at prices ranging from 99.9p to 105.2p per share raising £0.6 million of funds. 193,264 C Shares were allotted at prices ranging from 97.4p to 100.3p per share raising £0.2 million of funds.
It continues to be the Board's policy to consider repurchasing shares when they become available in order to provide a degree of liquidity for the sellers of the Company's shares. During the period, the Company repurchased 305,916 Ordinary Shares for cancellation at a cost of £266,150.
Enhanced Buyback
I am pleased to report that the take up by shareholders of the enhanced buyback offer to shareholders was significant with shareholders representing 5,587,587 Ordinary Shares and 4,847,443 C Shares taking up the offer during April 2012. The Board will consider offering further enhanced buybacks to shareholders in the future providing that legislation continues to allow the practice and it remains popular with the Company's shareholders.
Valuation Policy
Investments held by the Company have been valued in accordance with the International Private Equity and Venture Capital (IPEVC) valuation guidelines (August 2010) developed by the British Venture Capital Association and other organisations. Through these guidelines, investments are valued at 'fair value' as defined. 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 30 September 2012. The portfolio valuations are prepared by Foresight Group, reviewed and approved by the Board quarterly and subject to review by the auditors annually.
Outlook
Although the Board remain cautious about the economic outlook in general and Foresight Group is being extremely selective in its approach to proposals received, Foresight Group believes that the current pipeline of private equity investment opportunities is one of the better it has seen both in terms of vendor pricing, the quality of the business propositions and management teams. The Board is launching a top-up offer in the Company's shares to enable it to participate in new investments.
Over the medium term we are optimistic that further realisations at attractive prices will be achieved from within the existing portfolio and so increase net asset value and facilitate shareholder distributions as well as provide additional funding for new investments.
Philip Stephens
Chairman
30 November 2012
Investment Manager's Report
Following the mergers in February 2012, the Company now comprises two separate funds, each with their own portfolios and share classes, namely the Ordinary Shares fund and the C Shares fund. Each fund is reported on separately below.
The performances of both the Ordinary Shares fund and C Shares fund portfolios during the period have been impacted by both positive and negative factors, resulting in a 1.9% decrease overall in the net asset value of the Ordinary Shares fund and a 1.5% fall in the net asset value of the C Shares fund.
A number of companies in the Ordinary Shares fund portfolio, including Autologic Diagnostics, Datapath, Evance, The Bunker and TFC, continued to perform well during the period (e.g. Datapath achieving record monthly profits) whereas, as explained below, it was necessary to make provisions against the investments in other portfolio companies, principally O-Gen Acme Trek, i-plas Group, Global Immersion and Trilogy. In the C Shares fund portfolio, the turnaround of The Fin Machine made further progress and three new investments were made. The investments in Adeptra and Infrared Integrated Systems were successfully sold during the period generating up to £2.74 million in total.
Notwithstanding the continuing anaemic and challenging UK economic environment, the majority of companies in the portfolio continued to trade satisfactorily, those exporting generally outperforming those serving largely domestic markets. These mixed trading conditions will continue for the foreseeable future and there is still a significant risk of further macro economic weakness, particularly in Europe where demand remains generally poor. We continue to actively manage each portfolio investment to ensure each business is well led and carefully controlled in terms of costs and its business model is as robust and flexible as possible. Against this background, we are only looking at new opportunities which are considered sufficiently robust and attractive, particularly in terms of valuation. Both funds invested during the period in a management buyout of Flowrite Services Limited, a well established Maidstone based company offering refrigeration and air conditioning maintenance and services to leisure and commercial businesses nationally and the company is already trading well ahead of budget.
Although some of the environmental investments in the Ordinary Shares fund traded well during the period, such as Closed Loop Recycling and Evance Wind Turbines, others were adversely affected by the current economic headwinds. Closed Loop Recycling is generating revenues of some £1.4 million per month and cannot meet customer demand for its recycled PET and HDPE. Plans are well advanced to double the capacity of the Dagenham plant, which, once commissioned, is forecast to result in substantial profits being generated. The funding for this planned expansion is now in legal stages. Evance is enjoying good sales of its market leading small wind turbines, having recently achieved monthly sales of £1 million and delivered its 1,500th machine.
As a result of delays at O-Gen Acme Trek in progressing alternative plans to either retrofit the Stoke plant or redevelop the site as an 8MW power plant (nearly three times the output of the present plant), it was felt necessary to make a further provision against the cost of this investment. Reflecting much slower than expected growth in sales and continuing losses at Silvigen, the decision was reluctantly made not to provide further funding, resulting in the company going into administration in September. With long, extended customer decision making and lengthy sales cycles, Crumb Rubber experienced similar trading conditions and losses and so the investment was sold for nominal consideration to the management team in November. As a consequence of a marked fall in demand during the Summer from customers in the construction industries for its recycled plastic products and consequent margin pressure, a similar decision was made to no longer support i-plas Group, resulting in an administrator being appointed in October. As previously noted in the Annual Report, reflecting various technical plant issues and much higher than expected disposal costs, Vertal went into administration on 21 June 2012. Further provisions were accordingly made against these investments totalling £1,459,725, comprising O-Gen Acme Trek (£992,429), i-plas Group (£238,968), Silvigen (£200,691), Crumb Rubber (£14,452) and Vertal (£13,190). Where provisions have been made against the value of underlying investments, we have also provided against the income due from such investments and this is reflected in the negative income amount in the Income Statement of the Company.
Ordinary Shares Fund Portfolio Review
During the six month period to 30 September 2012, the Ordinary Shares fund made one new investment in Flowrite Refrigeration Holdings Limited (£200,000) and provided follow-on funding totalling £714,938 to nine portfolio companies: AtFutsal (£196,346), Abacus Wood (£150,000), Ixaris (£131,633), AlwaysOn (£100,100), i-plas Group (£66,666), Crumb Rubber (£35,000), Amberfin (£13,669), Vertal (£13,190) and Silvigen (£8,334).
The performance highlights during the period were as follows:
Abacus Wood made good progress during 2011. Demand continues to exceed supply for the plant's wood pellets and a further £150,000 was invested during the period to fund working capital. The company had small EBITDA losses at the Bridgend plant level which has continued during 2012. A new, highly experienced CEO joined in April who has introduced various operational improvements and formulated a strategy to develop the business with Foresight Group. This strategy, which will require finance of some £8 million, comprises three elements, namely: doubling production capacity at Bridgend; developing a number of Energy Service Companies (to provide electricity and heat to customers under long term contracts); and acquire 50% of an ESCO installation and service company with a burgeoning sales pipeline. Discussions are progressing well with a number of potential funders.
Following the recruitment of additional senior executives, AlwaysOn's trading has continued to improve, with break even at the operating profit level being achieved on sales of £2.7million for the year to 30 June 2012. The sales pipeline continues to build and a major five year contract extension has recently been won from an existing customer for the provision of data VPNs and VOIP services which underpins prospects for the current year. To finance the company's working capital requirements, £100,100 was invested by Foresight 4 as part of a tranched £750k funding round.
Amberfin, based in Basingstoke, is an internet content repurposing business (converting video for transmission over the internet), which has invested heavily in opening offices overseas and has developed a diverse global customer base. As the final part of a £3 million institutional equity and loan round in November 2010, the Company advanced £13,669 during the period as the last tranche of a loan facility to finance the company's continuing strong growth.
AtFutsal Group provides facilities for futsal, a fast growing type of indoor football with 30 million participants worldwide and the only type of indoor football recognised by the Football Association. Sales have built up steadily in the new, large flagship super arena in Birmingham which is now operating near break even. A further £196,346 was invested in April to finance the opening of a further super arena in Leeds in August, thereby creating national coverage. Sales in Leeds in the initial two months were promising. The small loss making Cardiff arena was closed at minimal cost in June as a result of a change in educational funding in Wales with effect from September. Good progress is being made in developing the increasingly important educational services with nearly 800 students now taking a variety of sports related courses within AtFutsal's arenas and a number of partnerships have been entered into with educational establishments, football clubs and training organisations. Sales growth remains behind expectations with UK consumer spending under pressure, and progress towards profitability has been delayed as a result and a provision of £184,587 was made against the carrying value. The benefits of economies of scale from extended national coverage are anticipated to enhance the growth of the important educational activities.
Autologic Diagnostics Group develops and sells sophisticated automotive diagnostic software and hardware to independent mechanics and garages to allow them to service and repair vehicles. In the year ended 31 December 2011, an operating profit of £5.2 million was achieved on sales of £12.2 million. Autologic is continuing to grow sales and profits further in its current financial year, particularly in the USA. As referred to in the Annual Report, part of the investment in Autologic was sold in January 2012 in a £48 million secondary management buyout funded by ISIS Private Equity. The sale generated cash proceeds of £2.79 million, against original cost of £0.6 million and the Company has retained an ongoing investment of £1.98 million in a combination of equity and loan stock in the new buy-out company. In addition to this, a disposal in Autologic Diagnostics Group also took place in the period, in which a small number of shares were bought by a new operating partner as part of an executive incentive share scheme generating £847 of proceeds.
Closed Loop Recycling continued to make solid operational, commercial and revenue progress during the period with production rates at record levels and significantly improved plant reliability, generating revenues of some £1.4 million per month. The company cannot meet customer demand for its recycled PET and HDPE. Product quality remains high but the company continues to be affected by raw material quality which restricts throughput and yield, but is making progress in addressing this problem. Plans are well advanced to double the capacity of the Dagenham plant by increasing the plastic sorting facilities and production lines, which, once commissioned, are forecast to result in substantial profits being generated. The £17 million funding for this planned expansion, all from third party funders, is now in legal stages.
During the period, £35,000 was invested in Crumb Rubber to meet its urgent working capital requirements. However, reflecting extended customer decision making, lengthy sales cycles and much slower than expected growth in sales, the company continued to incur losses and the decision was reluctantly made not to provide further funding. The investment was sold for nominal consideration to the other shareholders in November.
Datapath Group is a world leading innovator in the field of computer graphics and video wall display technology. For the year ended 31 March 2012, an operating profit of £4.5 million was achieved on sales of £12.1 million (£3.1 million operating profit on sales of £10.3 million in 2011). The company is continuing its strong growth in the current year to 31 March 2013 with record sales being achieved in October 2012, supporting an increase in valuation of £1.0 million during the period.
Evance Wind Turbines, which manufactures 5kW tree sized wind turbines, enjoyed strong sales growth, driven primarily by the introduction of the UK Feed in Tariff regime. For the year to 31 March 2012, the company achieved its first operating profit on sales of £7.25 million, over three times the level of sales in the previous year and both sales and profits have grown substantially to date in the current year. However, the reduction in the Tariff from 1 October 2012, combined with a noticeable tightening and lengthening of the planning permission process nationally, may affect growth in sales thereafter.
Global Immersion, which designs, builds and maintains visualisation systems for immersive theatres and planetariums Worldwide, won several major orders in 2010 which led to a record order book and an operating profit of £0.5 million being achieved on sales of £8.0 million in the year to 30 June 2011. Reflecting prevailing difficult economic conditions, market demand has since fallen markedly with lengthening sales cycles, strong margin pressure and few orders being won, resulting in substantial trading losses being incurred. In consequence, administrators are expected to be appointed shortly and so a full provision of £418,438 has been made against the value of this investment.
Following a cost cutting programme, a management reorganisation and price rises for its recycled plastic products in late 2011, i-plas Group's trading improved in Spring 2012, break even EBITDA effectively being achieved in April 2012. To fund working capital, the Company invested a further £66,666 in May and June. However, during the Summer, the company then experienced a marked fall in demand from its customers in the construction industries and also significant margin pressure, resulting in growing losses. With little prospect of a sustained recovery in its markets, the decision was reluctantly made not to provide further funding, and an administrator was appointed in October, necessitating a provision of £238,968 being made against the investment.
£131,633 was invested in April in Ixaris Systems as part of a £1.35 million fund raising to finance the continuing development of its Opn platform. iXaris, which develops and operates Entropay, a prepaid payment service using the VISA network, has also continued to develop Opn, its platform that enables enterprises to develop custom applications for payments. This platform is being used by companies in the affiliate marketing and travel sectors. In the year to 31 December 2011, an operating loss of some £0.2 million was achieved on sales of £9.1 million. In the current year, trading has been behind budget resulting in higher than budgeted losses being incurred resulting in a cost cutting programme being implemented.
In December 2011, the decision was made to hibernate O-Gen Acme Trek's plant in Stoke until the second generation Plymouth and Derby plants fully validated the technology and then find a partner to retro fit the facility based on experience gained from these plants. Alternative plans to redevelop the site as an 8MW power plant (nearly three times the output of the present plant) at a cost of some £26 million are also being progressed with an identified preferred technology provider and EPC contractor. A further provision of £992,424 was made against the cost of the investment, reflecting delays in progressing these plans.
A further £8,334 was invested during the period in Silvigen to fund urgently needed working capital. Reflecting much slower than expected growth in sales and continuing losses, the decision was reluctantly made not to provide further funding, resulting in the company going into administration in September. A full provision of £200,691 was made against the cost of this investment.
TFC Europe, a leading distributor of technical fasteners in the UK and Germany, continued to enjoy strong growth during the period, having reported an operating profit of £1.6 million on sales of £16.6 million for the year ended 31 March 2012 (£1.3 million on sales of £13.5 million for the year ended 31 March 2011).
The Bunker Secure Hosting, which operates two ultra secure data centres, continues to win new orders, grow its annual revenues and generate substantial profits. For the year to 31 December 2011, an EBITDA of £1.76 million was achieved on sales of £7.4 million, at which date recurring annual revenues were running at £8.4 million. Growth has continued in the current year and further space has been fitted out in both data centres to meet growing customer demand while investment continues in upgrading infrastructure, funded by retained profits and additional bank facilities.
Although Trilogy Communications achieved strong trading results in the year to 29 February 2012, following a number of contract wins in the defence sector with partners such as Northrop Grumman and Raytheon, trading in the current year has been adversely affected by the deferral of certain expected defence contracts, particularly from the US, resulting in trading losses and consequent cost reductions. A return to growth is expected once large orders materialise from current equipment programmes which have recommenced recently and are expected to continue in 2013.
A total of £13,190 was invested in Vertal during the period to fund working capital requirements. As previously noted in the Annual Report, reflecting various technical plant issues and much higher than expected disposal costs, Vertal went into administration on 21 June 2012.
New Investments
In May, the Ordinary Shares fund invested £200,000 in Flowrite Refrigeration Holdings alongside the C Shares fund and other Foresight VCTs to finance the £3.2 million management buyout of Flowrite Services Limited, a long established Maidstone based company which provides refrigeration and air conditioning maintenance and related services nationally, principally to leisure and commercial businesses, such as hotels, clubs, pubs and restaurants. The management team has accelerated sales efforts, already winning a number of significant new customers and contracts, and a number of possible acquisitions are being considered to broaden the national coverage. Trading since May has been well ahead of budget.
Ordinary Share Fund Realisations
As referred to in the Annual Report, Infrared Integrated Systems was acquired in June 2012 by a major US corporation, generating up to £900,000 for Foresight 4, of which £621,410 was paid on completion and the balance is to be paid over two years subject to future performance. This compares to an original cost of £250,005.
In September, Adeptra was acquired by one of its longstanding US partners, the NYSE listed business analytics group, FICO, for £72 million. Foresight 4 received a total of £1.84 million for its investment, comprising an initial £1.55 million while a further £290k is held in escrow for fifteen months. This compared with a valuation of £1,354,235 and original cost of £1,304,718.
A disposal in Autologic also took place in which a small number of shares were bought by a new operating partner as part of an executive incentive share scheme, generating £847 of proceeds.
Outlook for the Ordinary Shares Fund
During the period under review, underlying trading at most of the portfolio companies was stronger than might have been expected, benefitting, to varying degrees, from export led demand. Conversely, although some of the environmental investments made progress, others experienced real difficulties in generating sales growth, principally reflecting the weak UK economy, such as Silvigen, i-plas Group and Crumb Rubber.
Such economic conditions are expected to continue for the foreseeable future resulting at best in a period of low growth. Barring another economic crisis and notwithstanding anecdotal evidence of slowing demand in Europe, we remain reasonably optimistic about current prospects for the portfolio overall. Across the portfolio, we continue to ensure that management are focused on cash conservation and cost control.
Foresight Group is pursuing potential portfolio realisations to generate value and also new investment opportunities but with appropriate caution.
C Shares Fund Portfolio Review
On 6 February 2012, Acuity Growth VCT and Acuity VCT 3 (which had substantially common portfolios) were merged into a new separate C Shares fund within the Company with an opening NAV of 100.0p per share. The C Shares fund will be managed separately to the existing Ordinary Shares fund for approximately three years, at which point it is anticipated that the C Shares fund will be merged with the Ordinary Shares fund on a relative net asset value basis using the audited net asset values of each fund as at 31 March 2015.
The NAV decreased 1.5% to 93.0p as at 30 September 2012 reflecting valuation decreases in The Fin Machine (£416,137), Defaqto (£194,929) and Connect2 Media (£117,712).
During the period under review, one follow-on investment was made of £1.5 million into The Fin Machine in July and three new investments were made totalling £3.49 million, namely Flowrite Refrigeration Holdings Limited (£492,500), Blackstar Amplifications Holdings Limited (£1 million) and a further acquisition vehicle preparing to trade, Leisure Efficiency III Limited (£2 million).
Further details on each of the companies in the investment portfolio are set out below.
Connect2 Holdings, based in Manchester and trading as Connect2 Media, develops and publishes digital media entertainment on a range of devices including mobile phones, portable games consoles, Blackberrys, PCs and interactive TVs.
Against a difficult economic backdrop, the company's business model is being repositioned away from the declining feature phone market. Most of the company's revenues have been from sales of 'Premium' gaming content i.e. 'pay-per-download' on feature phones. However, the rapid growth of smartphones and the advent of 'Freemium' games (i.e. free to play with paid for upgrades) have significantly reduced the market size.
For the year ended 31 December 2011, an EBITDA loss of £158,000 was incurred on sales of £3.58 million. Reflecting the structural market decline, sales have continued to fall and, despite cost reductions, a similar rate of loss has continued in the current financial year. In May 2012, a new CEO was appointed whose experience includes founding and ultimately exiting two US software companies and migrating from a B2C to a B2B business model.
The company is now moving its business model away from a 'hit' driven model to one that leverages the company's assets and skills base while generating recurring revenues. It is now in the early stages of developing a cloud based game development and publishing technology platform to provide small and medium sized game developers with software tools that support their development, distribution and discovery requirements. The cloud based tools will be provided as a highly scalable Platform as a Service (PaaS) with developers paying monthly subscriptions for access to infrastructure and services, thereby generating recurring revenues. This will require further funding of £1 million, of which the C Shares fund's proposed pro-rata share would be £650,000.
For the year to 31 March 2011, Defaqto incurred a small EBITDA loss on sales of £8.5 million, reflecting continuing heavy investment in new product development. The new Matrix product for financial product providers was released in Summer 2011 and provides a platform for upgrades to the other products, which should come to market more rapidly. Having traded largely on budget for most of the year to 31 March 2012, Defaqto experienced increasingly difficult trading in the final quarter, resulting in an EBITDA loss of £805,000 being incurred on sales of £7.8 million. In the current year, reduced losses are being incurred. A new CEO has been appointed, who is already improving operational efficiency by focussing on tangible and financial metrics. Engage v4 was launched in September and is hoped to reverse the long trend of declining revenues from financial intermediaries.
The Fin Machine ('Fin') designs, manufactures and distributes special purpose capital equipment that is used to manufacture heat exchangers for the automotive and air conditioning markets. Fin's global customer base includes a broad range of blue chip OEMs, automotive industry majors and Asian air conditioning companies. Fin has manufacturing facilities in Seaham, Co. Durham and in Tianjin, China, as well as an assembly/service centre in Indiana, USA.
A new CFO and General Manager for China have been appointed to strengthen the management team. In the year to 31 December 2011, the company incurred an EBITDA loss of £2.4 million on revenues of £16.4 million, but continued to enjoy strong order intake. To meet this large order book and fund working capital, Foresight 5 and Acuity VCT 3 advanced loans totalling £500,000 in October 2011, alongside £500,000 of additional facilities from Clydesdale, the company's bank. The new management team developed a comprehensive plan to restructure the business, improve profitability and working capital dynamics during 2012. A complex capital reorganisation was successfully concluded in late 2011.
For the quarter to 31 March 2012, the company broke even at the EBITDA level on sales of £7.6 million, delivering 18 machines, many of which were delayed from Q4 2011 under a number of contracts. The delayed machines incurred significant additional costs, reducing overall gross margins. Improving gross margins and manufacturing efficiency are key to the turnaround succeeding. In February 2012, the C Share fund advanced further loans totalling £1.6 million to meet working capital requirements and reduce a significant creditor balance. In March 2012, the CEO was removed, with the long serving, experienced Sales Director taking the role of UK General Manager. To finance a cost reduction programme which reduced the UK workforce by 25%, the C Shares fund advanced further loans totalling £1.5 million in July while Clydesdale extended their bank facilities into 2013.
Five senior managers have been recruited immediately below board level and a new CEO is being recruited. In September, the Company achieved its first material monthly EBITDA profit and is projecting significant EBITDA profits for the final quarter to 31 December 2012 if orders are delivered on time. With a large current order book, break even EBITDA is projected on sales of some £28 million for the year to 31 December 2012. New orders on more favourable cash payment terms have been negotiated with customers, giving good visibility on sales in 2013. Foresight and the management team continue to work hard on the turnaround, which is making reasonable progress but is not without risk particularly with regards to working capital swings.
Guildford based Hallmarq Veterinary Imaging is the only manufacturer of MRI systems for the standing equine market, with over 50 MRI scanners in use at equine practices throughout the World. For the year ended 31 August 2011, the company achieved an EBITDA of £664,000 on sales of £2.69 million, slightly ahead of budget. Trading in the financial year to 31 August 2012 was particularly strong, an EBITDA of £1.18 million being achieved on sales of £3.3 million, well ahead of budget. In the current year, further strong growth is expected but continuing investment in the PetVet project (an MRI scanner for the companion animal market (i.e. cats and dogs)) is expected to hold back EBITDA growth. The first PetVet sales are forecast from March 2013.
On 31 August 2012, the Company repaid £745,784 from existing cash reserves to the C Shares fund following the expiry of a five year loan note, comprising a loan of £300,000, together with a redemption premium (£300,000) and interest (£145,784).
Biofortuna, a molecular diagnostics business based in the Wirral, has developed unique expertise in the important area of enzyme stabilisation, effectively hi-tech freeze drying. Its first range of products, SSPGo, is a series of genetic compatibility tests for organ transplant recipients, although the breadth of application of the technology is extremely broad. Because of the company's stabilisation and freeze-drying technology, its products can be transported easily (in the post if needed) and stored at room temperature for up to two years. The company is making progress in a number of areas, including a planned expansion into adjacent premises, improving manufacturing and internal processes and with FDA trials for its SSPGo product range, needed to make sales in the USA, hopefully starting in 2013. The SSPGo product range continues to see repeat orders from Abbott. The freeze-dried kit manufacturing service shows promise, with contract discussions with a number of parties.
New Investments by the C Shares Fund
During the period under review, three new investments were made in Flowrite Refrigeration Holdings, Blackstar Amplifications Holdings and Leisure Efficiency III.
In May, the C Shares fund invested £492,500 in Flowrite Refrigeration Holdings alongside the Ordinary Shares fund and other Foresight VCTs to finance the £3.2 million management buyout of Flowrite Services Limited, a long established Maidstone based company which provides refrigeration and air conditioning maintenance and related services nationally, principally to leisure and commercial businesses, such as hotels, clubs, pubs and restaurants. The management team has accelerated sales efforts, already winning a number of significant new customers and contracts, and a number of possible acquisitions are being considered to broaden the national coverage. Trading since May has been well ahead of budget.
In July, the C Shares fund invested £1 million in Blackstar Amplification Holdings alongside £2.5 million from Foresight VCT to finance a management buy-out of and provide growth capital to Blackstar Amplification Limited, founded in 2004 by four senior members of the new product development team at Marshall Amplification to design and manufacture a range of innovative guitar amplifiers. Following commercial launch in 2007, sales grew rapidly, reflecting new product launches and entry into new markets, and a global brand was soon established. As a result of supply chain issues in 2011/12, UK and international demand could not be met fully and so terms were agreed with new suppliers to facilitate dual sourcing. Based in Northampton, the company is forecasting strong sales growth driven by new product launches (such as the ID: Series, a new entry level digital amplifier) and increased penetration in key markets, most notably the US. Trading since July has comfortably exceeded budget.
Leisure Efficiency III (£2 million) is an acquisition vehicle preparing to trade.
C Share Fund Realisations
In August, Hallmarq Veterinary Imaging repaid a loan of £300,000, together with a redemption premium of £300,000 and interest of £145,784.
Deferred consideration proceeds of £450,970 were also received from Factory Media.
Outlook for the C Shares Fund
The C Shares portfolio comprises two elements, namely six new investments made since February and four legacy investments with a positive value, each of which is considered to have the potential to create value for shareholders in excess of its present carrying value. Of the legacy investments, Hallmarq continues to trade well and is expected to generate further shareholder value over time. Following the appointment of a new CEO at Connect2 Media, the company's strategy and business model is being changed to a recurring revenue model. Defaqto's trading is expected to improve over the medium term following the recent cost reductions and appointment of a new CEO, thereby enabling an exit strategy to be pursued at the appropriate time. The potential main key value driver for the C Shares fund continues to be achieving a turnaround of The Fin Machine, followed by a successful trade sale. While risks remain and there is still much to do before the turnaround is complete, the company is making reasonable progress. Although still very early days, developments and trading at Biofortuna, Flowrite and Blackstar give some grounds for cautious optimism.
In each case, Foresight is actively working to create and realise shareholder value.
With cash balances and acquisition vehicles of over £5.8 million, Foresight are actively seeking suitable investment opportunities for the C Shares fund in order to generate income and capital appreciation, and broaden the portfolio while diversifying risk. The fund will typically invest alongside other Foresight funds in suitable companies, as was the case with Biofortuna, Blackstar and Flowrite.
David Hughes
Foresight Group
Chief Investment Officer
30 November 2012
Unaudited Half-Yearly Results and Responsibility Statements
Principal Risks and Uncertainties
The principal risks faced by the Company can be divided into various areas as follows:
· Performance;
· Regulatory;
· Operational; and
· Financial.
The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Accounts for the year ended 31 March 2012 ('the Annual Report'). A detailed explanation can be found on page 23 of the Annual Report which is available on www.foresightgroup.eu or by writing to Foresight Group at ECA Court, 24-26 South Park, Sevenoaks, Kent, TN13 1DU.
In the view of the Board, there have been no changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.
Directors' Responsibility Statement:
The Disclosure and Transparency Rules ('DTR') of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Report and financial statements.
The Directors confirm to the best of their knowledge that:
(a) the summarised set of financial statements has been prepared in accordance with the pronouncement on interim reporting issued by the Accounting Standards Board;
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);
(c) the summarised set of financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as required by DTR 4.2.4R; and
(d) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).
Going Concern
The Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Business Review in the 31 March 2012 Annual Report. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Chairman's Statement, Business Review and Notes to the Accounts of the 31 March 2012 Annual Report. In addition, the annual report includes the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.
The Company has considerable financial resources together with investments and income generated therefrom across a variety of industries and sectors. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors have reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
The half-yearly Financial Report has not been audited or reviewed by the auditors.
On behalf of the Board
Philip Stephens
Chairman
30 November 2012
Unaudited Non-Statutory Analysis between the Ordinary Shares and C Shares Funds
| Income Statements | ||||||||||
| for the six months ended 30 September 2012 | ||||||||||
| Ordinary Shares Fund | C Shares Fund | |||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Realised (losses)/gains on investments | - | (135) | (135) | - | 751 | 751 | ||||
| Investment holding gains/(losses) | - | 379 | 379 | - | (1,056) | (1,056) | ||||
| (Interest expense)/income | (202) | - | (202) | 146 | - | 146 | ||||
| Investment management fees | (113) | (339) | (452) | (33) | (100) | (133) | ||||
| Other expenses | (258) | - | (258) | (120) | - | (120) | ||||
| Loss on ordinary activities before taxation | (573) | (95) | (668) | (7) | (405) | (412) | ||||
| Taxation | - | - | - | - | - | - | ||||
| Loss on ordinary activities after taxation | (573) | (95) | (668) | (7) | (405) | (412) | ||||
| Return per share | (1.5)p | (0.3)p | (1.8)p | 0.0p | (2.2)p | (2.2)p | ||||
| Balance Sheets | |||||||
| at 30 September 2012 | |||||||
| Ordinary Shares Fund | C Shares Fund | ||||||
| £'000 | £'000 | ||||||
| Fixed Assets | |||||||
| Investments held at fair value through profit or loss | 30,054 | 15,517 | |||||
| Current assets | |||||||
| Debtors | 2,662 | 646 | |||||
| Money market securities and other deposits | 533 | - | |||||
| Cash | 3,240 | 2,150 | |||||
| 6,435 | 2,796 | ||||||
| Creditors: Amounts falling due within one year | (424) | (882) | |||||
| Net current assets | 6,011 | 1,914 | |||||
| Net assets | 36,065 | 17,431 | |||||
| Capital and reserves | |||||||
| Called-up share capital | 379 | 187 | |||||
| Share premium account | 7,535 | 23,387 | |||||
| Capital redemption reserve | 1,910 | 48 | |||||
| Profit and loss account | 26,241 | (6,191) | |||||
| Equity shareholders' funds | 36,065 | 17,431 | |||||
| Number of shares in issue | 37,920,729 | 18,744,740 | |||||
| Net asset value per share | 95.1p | 93.0p |
At 30 September 2012 there was an inter-share debtor/creditor of £481,000 which has been eliminated on aggregation.
Reconciliations of Movements in Shareholders' Funds
for the six months ended 30 September 2012
| Called-up share capital | Share premium account | Capital redemption reserve | Profit and loss account | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Ordinary Shares Fund | |||||
| Book cost as at 1 April 2012 | 378 | 1,417 | 1,851 | 32,921 | 36,567 |
| Share issues in the period | 60 | 6,306 | - | - | 6,366 |
| Expenses in relation to share issues | - | (188) | - | - | (188) |
| Repurchase of shares | (59) | - | 59 | (6,012) | (6,012) |
| Loss for the period | - | - | - | (668) | (668) |
| As at 30 September 2012 | 379 | 7,535 | 1,910 | 26,241 | 36,065 |
| Called-up share capital | Share premium account | Capital redemption reserve | Profit and loss account | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| C Shares Fund | |||||
| As at 1 April 2012 | 187 | 18,532 | - | (1,064) | 17,655 |
| Share issues in the period | 48 | 4,864 | - | - | 4,912 |
| Expenses in relation to share issues | - | (9) | - | - | (9) |
| Repurchase of shares | (48) | - | 48 | (4,715) | (4,715) |
| Loss for the year | - | - | - | (412) | (412) |
| As at 30 September 2012 | 187 | 23,387 | 48 | (6,191) | 17,431 |
Unaudited Income Statement
for the six months ended 30 September 2012
| Six months ended | Six months ended | Year ended | ||||||||||
| 30 September 2012 (unaudited) | 30 September 2011 (unaudited) | 31 March 2012 (audited) | ||||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | Revenue | Capital | Total | ||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||
| Realised gains/(losses) on investments | - | 616 | 616 | - | 712 | 712 | - | (8,888) | (8,888) | |||
| Investment holding (losses)/gains | - | (677) | (677) | - | (1,130) | (1,130) | - | 5,617 | 5,617 | |||
| (Interest expense)/income | (56) | - | (56) | 177 | - | 177 | 222 | - | 222 | |||
| Investment management fees | (146) | (439) | (585) | (100) | (300) | (400) | (211) | (917) | (1,128) | |||
| Other expenses | (378) | - | (378) | (175) | - | (175) | (436) | - | (436) | |||
| Loss on ordinary activities before taxation | (580) | (500) | (1,080) | (98) | (718) | (816) | (425) | (4,188) | (4,613) | |||
| Taxation | - | - | - | - | - | - | - | - | - | |||
| Loss on ordinary activities after taxation | (580) | (500) | (1,080) | (98) | (718) | (816) | (425) | (4,188) | (4,613) | |||
| Return per share: | ||||||||||||
| Ordinary Share | (1.5)p | (0.3)p | (1.8)p | (0.3)p | (1.9)p | (2.2)p | (1.0)p | (8.7)p | (9.7)p | |||
| C Share | 0.0p | (2.2)p | (2.2)p | N/A | N/A | N/A | (0.3)p | (5.4)p | (5.7)p | |||
The total column of this statement is the profit and loss account of the Company and the revenue and capital columns represent supplementary information.
All revenue and capital items in the above Income Statement are derived from continuing operations. No operations were acquired or discontinued in the year.
The Company has no recognised gains or losses other than those shown above, therefore no separate statement of total recognised gains and losses has been presented.
Unaudited Balance Sheet
at 30 September 2012
Registered Number: 03506579
| As at | As at | As at | |
| 30 September 2012 | 31 September 2011 | 31 March 2012 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Fixed Assets | |||
| Investments held at fair value through profit or loss | 45,571 | 33,077 | 43,083 |
| Current assets | |||
| Debtors | 2,827 | 2,720 | 3,525 |
| Money market securities and other deposits | 533 | 3,379 | 1,539 |
| Cash | 5,390 | 1,642 | 7,774 |
| 8,750 | 7,741 | 12,838 | |
| Creditors | |||
| Amounts falling due within one year | (825) | (812) | (1,699) |
| Net current assets | 7,925 | 6,929 | 11,139 |
| Net Assets | 53,496 | 40,006 | 54,222 |
| Capital and reserves | |||
| Called-up share capital | 566 | 365 | 565 |
| Share premium | 30,922 | 26,260 | 19,949 |
| Capital redemption reserve | 1,958 | 1,849 | 1,851 |
| Profit and loss account | 20,050 | 11,532 | 31,857 |
| Equity shareholders' funds | 53,496 | 40,006 | 54,222 |
| Net asset value per share: | |||
| Ordinary Share | 95.1p | 109.6p | 96.9p |
| C Shares | 93.0p | N/A | 94.4p |
Unaudited Reconciliation of Movements in Shareholders' Funds
for the six months ended 30 September 2012
| Company | Called-up share capital | Share premium account | Capital redemption reserve | Profit and loss account | Total |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Book cost as at 1 April 2012 | 565 | 19,949 | 1,851 | 31,857 | 54,222 |
| Share issues in the period | 108 | 11,170 | - | - | 11,278 |
| Expenses in relation to share issues | - | (197) | - | - | (197) |
| Repurchase of shares | (107) | - | 107 | (10,727) | (10,727) |
| Loss for the period | - | - | - | (1,080) | (1,080) |
| As at 30 September 2012 | 566 | 30,922 | 1,958 | 20,050 | 53,496 |
Unaudited Cash Flow Statement
for the six months ended 30 September 2012
| Six months ended | Six months ended | Year ended | |
| 30 September 2012 | 30 September 2011 | 31 March 2012 | |
| (unaudited) | (unaudited) | (audited) | |
| £'000 | £'000 | £'000 | |
| Cash flow from operating activities | |||
| Investment income received | 211 | 163 | 245 |
| Deposit and similar interest received | 4 | 2 | 23 |
| Investment management fees paid | (825) | (359) | (1,217) |
| Secretarial fees paid | (115) | - | (82) |
| Other cash payments | (281) | (100) | (394) |
| Net cash outflow from operating activities and returns on investment | (1,006) | (294) | (1,425) |
| Taxation | - | - | - |
| Returns on investment and servicing of finance | |||
| Purchase of unquoted investments and investments quoted on AIM | (6,211) | (1,888) | (9,158) |
| Net proceeds on sale of investments | 3,220 | 681 | 4,589 |
| Net proceeds from deferred consideration | - | 31 | 592 |
| Net capital outflow from financial investment | (2,991) | (1,176) | (3,977) |
| Equity dividends paid | - | - | (1,901) |
| Management of liquid resources | |||
| Movement in money market funds | 1,006 | (11) | (1,829) |
| 1,006 | (11) | (1,829) | |
| Financing | |||
| Proceeds of fund raising | 836 | 283 | 179 |
| Acquisition issue shares | - | - | 10,956 |
| Expenses of fund raising | (178) | (127) | (155) |
| Net movement from share issues and share buybacks | (51) | (434) | (1,133) |
| 607 | (278) | 9,847 | |
| Decrease in cash | (2,384) | (1,759) | (4,373) |
Notes to the half-yearly Financial Report
1. The unaudited half-yearly results have been prepared on the basis of accounting policies set out in the statutory accounts of the Company for the year ended 31 March 2012. Unquoted investments have been valued in accordance with IPEVC guidelines. Quoted investments are stated at bid prices in accordance with IPEVC guidelines and Generally Accepted Accounting Practice.
2. These are not statutory accounts in accordance with S436 of the Companies Act 2006 and the financial information for the six months ended 30 September 2012 and 30 September 2011 has been neither audited nor reviewed. Statutory accounts in respect of the year ended 31 March 2012 have been audited and reported on by the Company's auditors and delivered to the Registrar of Companies and included the report of the auditors which was unqualified and did not contain a statement under S498(2) or S498(3) of Companies Act 2006. No statutory accounts in respect of any period after 31 March 2012 have been reported on by the Company's auditors or delivered to the Registrar of Companies.
3. Copies of the half-yearly Financial Report have been sent to shareholders and are available for inspection at the Registered Office of the Company ECA Court, 24-26 South Park, Sevenoaks, Kent TN13 1DU.
Copies of the half-yearly Financial Report are also available electronically at www.foresightgroup.eu
4. Net asset value per share
The nest asset value per share is based on net assets at the end of the period and the number of Shares in issue at that date.
| Ordinary Shares Fund | C Shares Fund | |||
| Net Assets | Number of Shares | Net Assets | Number of Shares | |
| £'000 | in Issue | £'000 | in Issue | |
| 30 September 2012 | 36,065 | 37,920,729 | 17,431 | 18,744,740 |
| 30 September 2011 | 40,006 | 36,512,963 | N/A | N/A |
| 31 March 2012 | 36,567 | 37,756,345 | 17,655 | 18,693,098 |
5. Return per share
The weighted average number of shares for the Ordinary Shares and C Shares funds used to calculate the respective returns are shown in the table below:
| Ordinary Shares Fund | C Shares Fund | |
| (Shares) | (Shares) | |
| Six months ended 30 September 2012 | 38,071,837 | 18,716,704 |
| Six months ended 30 September 2011 | 36,690,332 | N/A |
| Year ended 31 March 2012 | 36,604,335 | 18,693,098 |
6. (Interest expense) / income
| Six months ended | Six months ended | Year ended | |
| 30 September 2012 (unaudited) | 30 September 2011 (unaudited) | 31 March 2012 (audited) | |
| £'000 | £'000 | £'000 | |
| Loan stock interest | *(60) | 164 | 199 |
| Overseas based Open Ended Investment Companies ("OEICs") | 4 | 2 | 21 |
| Bank deposits | - | 11 | 2 |
| (56) | 177 | 222 |
*Where provisions have been made against the value of investments, we have also provided against income due from such investments and this is reflected in the negative loan stock interest amount above.
7. Investments held at fair value through profit and loss
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8. Related parties
Foresight Group, as Investment Manager of the Company, is considered to be a related party by virtue of its management contract with the Company. During the period, services of a total value of £585,000 (30 September 2011: £400,000; 31 March 2012: £1,128,000) were purchased by the Company from Foresight Group. At 30 September 2012, the amount due from Foresight Group was £110,999.
Foresight Fund Managers Limited, as Secretary of the Company and as a subsidiary of Foresight Group, is also considered to be a related party of the Company. During the period, services of a total value of £80,000 excluding VAT (30 September 2012: £57,000; 31 March 2012: £116,731) were purchased by the Company from Foresight Fund Managers Limited. At 30 September 2012, the amount due to Foresight Fund Managers Limited was £85,999.
No Director has, or during the period had, a contract of service with the Company. No Director was party to, or had an interest in, any contract or arrangement (with the exception of Director' fees) with the Company at any time during the period under review or as at the date of this report.
END
The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and other applicable laws; and
(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.
Source: Foresight 4 VCT PLC via Thomson Reuters ONE
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