Interim Results
Foresight 4 VCT PLC
15 November 2005
Summary
• As part of plans to raise up to £25m of new share capital, £832,000
was raised from existing shareholders in March 2005 and the share capital was
restructured in May 2005 (three ordinary shares of 5p each being consolidated
into one new ordinary share of 1p each). An open offer for subscription to
raise up to £24m was announced on 2 September 2005.
• The Company invested £627,000 in follow-on funding rounds in three
portfolio companies, namely Advanced Visual Technology (£200,000 net of a
£50,000 loan repayment), Elam-T (£300,000) and EnSeal Systems (£127,000).
• Two new investments were made during the period; £200,000 in alwaysON
Group (VOiP telephony services) and £200,000 in Covion Holdings (facilities
management).
• During the period INCA Digital Printers was sold realising £2.3m in
cash for Foresight 4 VCT, generating a return of three times the original cost
of investment.
• During the period The Casella Group sold its principal operating
subsidiary, enabling Casella to redeem all its bank borrowings and a significant
part of its shareholder loans, including £746,000 to Foresight 4 VCT.
• Net asset value per share as at 31 August 2005 was 102.8p (compared
to the equivalent 102.0p as at 28 February 2005), adjusted for the share
consolidation in May 2005.
• The Company has a mature portfolio of investments which, depending on
their progress, could generate further successful exits and capital dividends.
• The Company continues to exceed the 70% requirement for investment in
qualifying holdings set by HM Revenue & Customs.
Chairman's Statement
Offers for Subscription, Share Consolidation and Change of Chairman
During the six months to 31 August 2005, your Company made significant progress.
In line with Foresight Venture Partners' previously announced plans to raise
further funds of up to £25 million for the Company via two offers, I am pleased
to report that £832,000 was raised in March 2005 through an initial offer for
subscription to existing shareholders.
On 23 June 2005, as previously announced, I replaced Roger Brooke as Chairman
who still remains as a director on the Board. I should like to take this
opportunity to thank Roger for all his commitment and effort to the Company
since inception.
On 2 September 2005, following the three for one share consolidation, the second
offer was formally announced, comprising a linked offer for subscription to the
investing public with Foresight 3 VCT plc, another of the five VCTs managed by
Foresight Venture Partners, whereby the two companies would raise up to £48m
between them. Under this linked offer, which is currently open and will remain
open till April 2006 (after which 40% income tax relief may be withdrawn),
subscriptions will be divided equally between each company, thereby enabling
each to raise up to £24m. With such new funds, your Company will be able to
start a new phase in its life by participating in Foresight Venture Partners'
strong deal flow and make new investments at a time in the economic cycle which
is considered attractive. I consider this offer to be particularly important as
it will increase the size of the Company, facilitate further investment and
share buy backs, enhance liquidity in the Company's shares and spread risk and
running costs over a larger asset base while also increasing the prospects for
dividends to recommence.
In line with customary practice within the venture capital industry, it is
proposed that Foresight Venture Partners be granted a performance related
incentive as part of the second offer. Because of Bernard Fairman's association
with Foresight Venture Partners, your Company's Manager, the grant of this
performance related incentive is subject to shareholder approval and a circular
and notice of extraordinary general meeting was recently sent to shareholders to
seek such approval. This incentive relates solely to the new monies raised
under this second offer and the terms are in line with current venture capital
industry practice. I should like to confirm that the prior performance related
incentive over the Company's present assets will remain unchanged and unaffected
by this new proposed carried interest incentive.
The prospects of a number of portfolio companies continue to improve, with
stronger order books and sales pipelines, most notably Footfall and EQOS.
Advanced Visual Technology's sales pipeline also continues to grow; its market
leading retail space planning software is now being used by 50 major retailers
Worldwide. Vectorcommand, through its US partner, continues to make good
progress in the USA with its leading emergency simulation and training software.
Other portfolio companies continue to experience more difficult trading
conditions but are actively taking steps to improve their sales efforts or
broaden their ranges of products or services in order to enhance sales growth.
Investment activity
During this six-month period, £627,000 was invested in follow-on funding rounds
in three portfolio companies, namely Advanced Visual Technology (£200,000 net of
a £50,000 loan repayment), Elam-T (£300,000) and EnSeal Systems (£127,000). In
August 2005, Elam-T underwent a capital reorganisation, following which
Foresight 4 VCT invested £300,000. The company raised the finance to continue
the commercialisation of its promising organic light emitting display (OLED)
materials, which are forecast to grow rapidly with applications in mobile
phones, car stereos and MP3 players.
Two new investments were made during the period; £200,000 in alwaysON Group, a
Reading based provider of VOiP telephony services to small and medium sized
companies and £200,000 in Covion Holdings, a fast growing facilities management
group providing a range of outsourced services to large companies.
In June 2005, INCA Digital Printers was acquired by Dai Nippon Screen Mfg. Co.
of Kyoto, Japan for £30m in cash, realising £2.3m in cash for Foresight 4 VCT
and generating a return of three times the original cost of investment of
£756,000. In May, The Casella Group sold its principal operating subsidiary,
Casella Consulting Limited, one of the UK's leading environmental consultancies,
for £28.8m to Bureau Veritas, a major international environmental consultancy.
This disposal enabled Casella to redeem all its bank borrowings and a
significant part of its shareholder loans, including £746,000 to Foresight 4
VCT. The successful sale in October 2004 of DNA Research Innovations to
Invitrogen Corporation of the USA realised £1.4m in cash at completion plus up
to a further £1.4m if seven technical milestones are achieved, which will if
received represent a return of nearly three times the original cost of
investment of £1m. In August 2005, £144,000 was received on completion of the
first milestone and work on the other six milestones is progressing
satisfactorily.
During the six-month period, upward revaluations were made to four investments
totalling £0.7m as a result of improved trading performance or exit prospects.
These included Footfall (£333,000) which continues to trade well and is on track
for a possible listing and also EQOS (£246,000) which continues to win
substantial orders from major retailers Worldwide for its highly regarded
e-collaboration software. Provisions of £0.9m were made against the previous
valuations of six investments. Despite gaining several major customers over
recent years, Reqio finally succumbed to continuing slow market uptake for its
highly regarded database cataloguing software and was placed into administration
on 31 August, resulting in a provision of £37,000.
Investment Objective
Following shareholder approval granted on 28 February 2005, the objective of
Foresight 4 VCT plc is now to provide private investors with attractive returns
from a portfolio of investments in fast growing unquoted largely
technology-based companies in the United Kingdom. It is the intention to
maximise the tax-free income available to investors from a combination of
dividends and interest received on investments and the distribution of capital
gains arising from trade sales or flotations.
Net asset value
The net asset value per share as at 31 August 2005 was 102.8p, compared to the
equivalent 102.0p as at 28 February 2005 (post the three for one share
consolidation).
Valuation policy
Unquoted investments have been valued in accordance with guidelines issued by
the British Venture Capital Association (BVCA). Following changes to Generally
Accepted Accounting Practice listed securities are now valued at the bid price
rather than the mid price as in previous periods with no discount applied.
Dividend
Over the last twelve months the Company has been successful in realising
substantial cash gains on the sale of DNA Research Innovations and INCA Digital
Printers and the Board is now in a position to recommence dividend payments. As
a result it is proposed that subject to the approval of shareholders and
sanction of the Court, the remaining share premium account be cancelled and a
dividend of 5.0p per share be paid during December 2005. Future dividend
payments are difficult to forecast but given the successful progress of the
portfolio it is the Board's intention to pay regular dividends.
Venture Capital Trust Status
Foresight 4 VCT has been granted approval as a Venture Capital Trust (VCT) under
section 842AA of the Income and Corporation Taxes Act 1988 and it is intended
that the business of the Company be carried on so as to maintain its VCT status.
Purchase of own shares
It continues to be the Company's policy to consider repurchasing shares when
they become available in order to provide liquidity for the Company's shares.
With sufficient cash resources following the realisations referred to above, the
Company repurchased the equivalent of 406,667 shares at a cost of £349,600
during this six-month period.
Outlook
The prospects of certain portfolio companies continue to improve, with stronger
order books and sales pipelines while others are actively taking steps to
improve their sales efforts or broaden their ranges of products or services in
order to enhance sales. This gives me confidence that the portfolio has the
potential to generate value over time provided that economic circumstances
continue to be stable and corporate investment continues at its present level.
Investor confidence continues to improve as evidenced by the recent performance
of the public markets. Approaches have been received from possible purchasers
for certain portfolio companies, a number of which are being pursued and which
could lead to exits in due course.
The Company's Manager, Foresight Venture Partners, is actively marketing the
linked offer with Foresight 3 VCT plc for subscription to the investing public
to raise up to £24m for your Company. As I indicated above, the success of this
offer is important to the future of your Company as it will then be able to
start a new phase in its life. I wish them every success in this fund raising
and look forward to reporting the results of their efforts in early 2006.
Peter Dicks
Chairman
15 November 2005
For further information please contact:
Gary Fraser, VCF Fund Managers Limited Tel: 01732 471800
Teather and Greenwood, Tel: 020 7426 9000
Profit and Loss Account
for the six months to 31 August 2005
6 Months to 6 Months to Year to
31 August 2005 31 August 2004 28 February 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Investment income and deposit interest 97 44 47
Investment management fees (124) (81) (273)
Other expenses (134) (157) (298)
Operating loss (161) (194) (524)
Profit/(loss) on realisation of investments 1,666 25 (1,645)
Profit/(loss) on ordinary activities before taxation 1,505 (169) (2,169)
Tax on ordinary activities - - -
Profit/(loss) on ordinary activities after taxation 1,505 (169) (2,169)
Dividends - - -
Balance transferred to/(from) reserves 1,505 (169) (2,169)
Earnings per share (restated for the share 12.1p (1.4)p (18.1)p
consolidation)
Statement of Total Recognised Gains and Losses
for the six months to 31 August 2005
6 Months to 6 Months to Year to
31 August 2005 31 August 2004 28 February 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Profit/(loss) for the period 1,505 (169) (2,169)
Unrealised losses on revaluation of investments (1,291) (4,828) (1,523)
Total recognised gains/(losses) relating to the period 214 (4,997) (3,692)
All items in the Profit and Loss account derive from continuing operations. No
operations were acquired or discontinued in the period.
The Company has only one class of business and derives its income from
investments made in shares, securities and bank deposits. Income from
investments is recognised on an accruals basis.
Balance Sheet
at 31 August 2005
As at As at As at
31 August 2005 31 August 2004 28 February 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Fixed assets
Investments
Quoted 108 133 125
Unquoted 9,672 11,788 11,354
9,780 11,921 11,479
Current assets
Debtors 996 376 1,073
Money market and other deposits 1,258 - -
Cash 1,494 271 308
3,748 647 1,381
Creditors:
Amounts falling due within one
year
Bank borrowings - (982) -
Other creditors (726) (694) (663)
Net current assets/ 3,022 (1,029) 718
(liabilities)
Net assets 12,802 10,892 12,197
Capital and reserves
Called-up share capital 125 1,793 1,793
Share premium account 24,199 23,581 23,581
Capital redemption reserve 1,813 9 9
Revaluation reserve (8,891) (10,893) (7,588)
Profit and loss account (4,444) (3,598) (5,598)
Equity shareholders' funds 12,802 10,892 12,197
Net asset value per ordinary 102.8p 91.1p 102.0p
share
(restated for 1 for 3 share consolidation)
Summarised Statement of Cashflows
for the six months to 31 August 2005
6 Months to 6 Months to Year to
31 August 2005 31 August 2004 28 February 2005
(unaudited) (unaudited) (audited)
£'000 £'000 £'000
Cashflow from operating activities
Investment income received 133 - 30
Deposit and similar interest received 12 1 2
Investment management fees paid (144) (36) (350)
Secretarial fees paid (30) (30) (60)
Other cash (payments)/receipts (72) (96) 59
Net cash outflow from
operating activities and returns on investment (101) (161) (319)
- - -
Taxation
Financial investment
Purchase of unquoted investments and investments (1,077) (311) (613)
quoted on AIM
Net proceeds on sale of unquoted investments 2,946 - 1,479
Net proceeds on deferred consideration 144 - -
Net proceeds on sale of quoted investments - - -
Net proceeds on liquidation of investments - 25 25
Repurchase of own shares (222) - -
Net capital inflow/(outflow) from financial 1,791 (286) 891
investment
Management of liquid resources
Loans drawn down/(repaid) - 368 (614)
Movement in money market and other deposits (1,258) - -
(1,258) 368 (614)
Financing
Proceeds of fund raisings 832 - -
Expenses of fund raisings (78) - -
754 - -
Increase/(decrease) in cash 1,186 (79) (42)
Reconciliation of net cashflow to movement
in net cash/(debt)
Increase/(decrease) in cash for the period 1,186 (79) (42)
Net cash/(debt) at start of period 308 (264) (264)
Loans (drawn down)/repaid - (368) 614
Net cash/(debt) at end of period 1,494 (711) 308
Reconciliation of operating loss to net
cashflow from operating activities
Operating loss (161) (194) (524)
Changes in working capital 60 33 205
Net cash outflow from operating activities (101) (161) (319)
Notes to the Interim Report
1. The unaudited interim results have been prepared on the basis of accounting
policies set out in the statutory accounts of the Company for the year ended 28
February 2005. Unquoted investments have been valued in accordance with BVCA
guidelines. Quoted investments are stated at bid prices in accordance with the
BVCA guidelines and Generally Accepted Accounting Practice.
2. These are not statutory accounts in accordance with section 240 of the
Companies Act 1985 and are neither audited nor reviewed. The full audited
accounts for the year ended 28 February 2005, which were unqualified, have been
lodged with the Registrar of Companies. No statutory accounts in respect of any
period after 28 February 2005 have been reported on by the Company's auditors or
delivered to the Registrar of Companies. The audited accounts to 28 February
2005 have been restated in this publication to reflect the changes in
presentation following the introduction of Financial Reporting Standard ('FRS')
25 and FRS 26.
3. Copies of the Interim Report, which has been reviewed by the Company's
auditors, will be mailed to shareholders and will be available for inspection at
the Registered Office of the Company at Swiss Life House, South Park, Sevenoaks,
Kent TN13 1DU.
4. The number of shares in issue at 31 August 2005 was 12,453,689 1p ordinary
shares (2004: 35,862,753 5p ordinary shares). The weighted average number of
shares in issue during the period was 12,435,810 1p ordinary shares (2004:
35,862,753 5p ordinary shares). During the period, following shareholder
approval, the Company undertook a restructuring of its share capital which
resulted in three of ordinary 5p shares being consolidated into one new ordinary
1p share. This effectively trebled the share price but, since shareholders then
held only one third of their original number of shares, did not affect the
overall value of their shareholdings.
5. Earnings for the first six months should not be taken as a guide to the
results for the full year.
6. Impact of the introduction of FRS 25 and 26
The financial information for the six months ended 31 August 2005 has been
prepared in accordance with FRS 25 and FRS 26. The introduction of these new
standards has had the following impacts:
Valuation:
The assets held at fair value through the profit and loss by the Company are
valued at bid price rather than mid-market price as in prior periods.
Six months to 31 Year to 28 February
August 2005 2005
(unaudited) (unaudited)
£'000 £'000
Valuation at bid price 108 113
Valuation at mid-market price 118 125
Difference (10) (12)
Transaction costs:
Transaction costs incurred when purchasing or selling assets have been
written-off to the profit and loss account in the period they occur since 1
March 2004.
7. Movement in reserves
Called- Share Capital Revaluation Profit and Total
up share premium redemption reserve loss account
capital account reserve
£'000 £'000 £'000 £'000 £'000 £'000
As at 28 February 2005 1,793 23,581 9 (7,588) (5,598) 12,197
Opening balance adjustments:
Quoted companies valued at bid price* - - - (12) - (12)
As at 1 March 2005 1,793 23,581 9 (7,600) (5,598) 12,185
Share issues in the period 136 696 - - 832
Expenses on share issues - (78) - - - (78)
Share re-organisation (1,777) 1,777 - - -
Shares repurchased in the period (27) - 27 - (351) (351)
Net decrease in the value of - - - (1,291) - (1,291)
investments
Profit for the period - - - - 1,505 1,505
As at 31 August 2005 125 24,199 1,813 (8,891) (4,444) 12,802
* Due to the introduction of FRS 25 and FRS 26 the quoted investment at 28
February 2005 was restated at bid price rather than the previously recorded
mid-market price. The difference between the bid price and the mid-market price
has led to a downwards revaluation of the quoted shares and this loss has been
taken to the revaluation reserve.
8. Summary of investments during the period
Quoted Unquoted Total
£'000 £'000 £'000
Book cost as at 28 February 2005 474 18,590 19,064
Unrealised depreciation (349) (7,236) (7,585)
Valuation at 28 February 2005 125 11,354 11,479
Opening balance adjustment (12) - (12)
Valuation at 1 March 2005 113 11,354 11,467
Movements in the period:
Purchases at cost - 1,077 1,077
Disposal proceeds - (2,946) (2,946)
realised gains - 1,522 1,522
Unrealised depreciation (5) (1,335) (1,340)
Valuation at 31 August 2005 108 9,672 9,780
Book cost at 31 August 2005 474 18,243 18,717
Unrealised depreciation (366) (8,571) (8,937)
Valuation at 31 August 2005 108 9,672 9,780
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