Foresight Solar VCT PLC : Annual Financial Report

FORESIGHT SOLAR VCT PLC

Summary Financial Highlights

· Net asset value per Ordinary Share at 30 June 2014 was 101.9p after payments of 6.0p in dividends (30 June 2013: 115.7p).
· Net asset value per C Share at 30 June 2014 was 98.0p (30 June 2013: 99.4p).
· Total net asset value return (including dividends paid since launch) at 30 June 2014 is 112.9p for the Ordinary Shares fund and 98.0p for the C Shares fund.

Ordinary Shares Fund
· Two interim dividends of 3.0p per Ordinary Share each were paid on 25 October 2013 and 4 April 2014 based on ex-dividend dates of 9 October 2013 and 19 March 2014, and record dates of 11 October 2013 and 21 March 2014 respectively.
· An interim dividend of 3.0p per Ordinary Share will be paid on 14 November 2014 based on an ex-dividend date of 30 October 2014 and a record date of 31 October 2014.

C Shares Fund
· The C Shares fund closed in February 2014 having issued 12,511,089 C Shares in total.
· An interim dividend of 2.5p per C Share will be paid on 14 November 2014 based on an ex-dividend date of 30 October 2014 and a record date of 31 October 2014.

Dividend History

Ordinary Shares	Dividend per share
14 November 2014	3.0p
4 April 2014	3.0p
25 October 2013	3.0p
12 April 2013	2.5p
31 October 2012	2.5p

C Shares	Dividend per share
14 November 2014	2.5p

Chairman's Statement

Strategic Report
This is the first time my annual Statement has been produced under the recently introduced UK 'narrative reporting' framework. This includes a requirement to provide a separate Strategic Report with certain prescribed content in accordance with regulations made under the provisions of the Companies Act 2006. This now brings together various governance disclosures and related matters and you will find it immediately following this statement. Some of the information previously contained in my statement will therefore be found elsewhere in the Report and Accounts.

Performance - Ordinary Shares Fund
Excluding the 6.0p dividend per Ordinary Share paid during the year, the underlying net asset value decreased by a further 7.8p per Ordinary
Share.

Of this total approximately 60% resulted from the effects of legislation in Spain and Italy which imposed retrospective cuts or taxes on electricity prices or feed-in-tariffs in those countries. Foresight Group, on the basis of specialist legal advice, has issued formal notices to the governments of Spain and Italy for breaching the protections available under the Energy Charter Treaty and international law, and causing Foresight's investments to suffer significant loss. This may in due course lead to international arbitration proceedings similar to those already brought by other international solar investors.

The valuation of the UK portfolio fell by approximately £1 million (2.7p per Ordinary Share) as the proceeds of the bond refinancing completed last year have not yet been invested. However, I am pleased to report that several assets, that will be acquired with the bond proceeds, have now been identified and the completion of their purchase will be announced in due course.

The overall performance of the Ordinary Shares fund remains robust and the total return as at 30 June 2014 was 112.9p per Ordinary Share. Following the acquisition of the new investments noted above, the Board and the Manager expect returns to be enhanced restoring progress towards the fund's original target return of 130.0p per Ordinary Share.

I am pleased to be able to announce an interim dividend of 3.0p per Ordinary Share from the profits of the portfolio, further details of which are contained on the following page.

i. Movement in Net Asset Value of the Ordinary Shares Fund

During the year, the net asset value of the Ordinary Shares fund decreased to 101.9p per share (£39.1 million) at 30 June 2014 from 115.7p per share (£44.4 million) at 30 June 2013. The main reason behind the fall in net assets was the aggregate performance of the investment portfolio decreasing by 7.5p, two dividend payments totalling 6.0p and income less expenses of 0.3p. This is summarised further in the table below:

	£'000	P
NAV at 30 June 2013	44,372	115.7
Dividends paid	(2,302)	(6.0)
UK investments valuation decrease	(1,053)	(2.7)
Italian investments valuation decrease	(1,352)	(3.5)
Spanish investments valuation decrease	(516)	(1.3)
Other	(94)	(0.3)
NAV at 30 June 2014	39,055	101.9

ii. Cash & Deal Flow
During the year the Ordinary Shares fund made no new investments.

Cash Availability
The Ordinary Shares fund had cash and liquid resources of £0.2 million at 30 June 2014, although substantial liquid resources are held within
the investment companies following last year's bond refinancing. The Company receives regular interest and loan stock payments and dividends from these underlying investments enabling it to continue to fund its attractive dividend policy as well as meeting expenses in the ordinary course of business as they fall due.

iii. Investment Gains & Losses
There were no realised gains or losses during the year for the Ordinary Shares fund.

During the year the Ordinary Shares fund incurred unrealised losses of £2.9 million. Further information regarding the breakdown of this amount is contained in the Manager's Report.

iv. Running Costs
The annual management fee of the Ordinary Shares fund is 1.5%. During the year the management fees totalled £648,000, of which £162,000 was charged to the revenue account and £486,000 was charged to the capital account. At 2.4% the total expense ratio of the Ordinary Shares fund for the year to 30 June 2014 compares very favourably with its VCT peer group.

v. Ordinary Share Dividends
The Board originally planned to pay dividends of 5.0p per Ordinary Share each year throughout the life of Foresight Solar VCT plc after the first year, payable bi-annually via dividends of 2.5p per Ordinary Share in April and October each year. The level of dividends is not, however, guaranteed.

Ahead of original expectations, two interim dividends of 3.0p per Ordinary Share were paid to shareholders on 25 October 2013 and 4 April 2014 making 6.0p per Ordinary Share in total.

The Board is pleased to announce that the next interim dividend, of 3.0p per Ordinary Share will be paid on 14 November 2014. The dividend has an ex-dividend date of 30 October 2014 and a record date of 31 October 2014. This forms the first part of the annual target dividend for 2014/15.

vi. Ordinary Share Issues & Buybacks
There were no Ordinary share issues during the year.

During the year under review 34,296 Ordinary Shares were repurchased for cancellation at a cost of £37,000 at an average discount to NAV of 3.4%. The Board and Manager consider share buybacks to be an effective way to manage the share price discount to NAV at which Ordinary Shares trade.

vii. Summary Post Year End Update
Following the year end there have been no material matters, with operational and financial performance continuing to meet expectations.
The focus of the Manager has been on negotiating new investment opportunities. Due to the decreasing value of the Company's foreign investments the VCT realised its currency options after the year end making a profit of £0.7 million.

Outlook - Ordinary Shares Fund
The proceeds of the Bond refinancing last year have been allocated to new projects currently in execution, benefiting from the ROC regime in the United Kingdom. These new investments will enable the Company to enhance shareholder returns over the next two years, before shareholders will be asked whether they wish to elect to hold onto, or sell, their Ordinary Shares.

Performance - C Shares Fund
The net asset value per C Share decreased to 98.0p per C Share at 30 June 2014 from 99.4p per C Share at 30 June 2013, principally due to expenses incurred during the year. £10 million has been invested into acquisition vehicles preparing to trade. The Manager has indicated to the Board that it has identified several UK based assets that it hopes to complete over the next few months.

i. Movement in Net Asset Value of the C Shares Fund
During the year, the net assets of the C Shares fund increased to £12.3 million at 30 June 2014 from £5.7 million at 30 June 2013, as a result of the Offer for Subscription originally launched in February 2013.

Over the year, the net asset value of the C Shares fund decreased to 98.0p per share at 30 June 2014 from 99.4p per share at 30 June 2013. This is summarised further in the table below:

	£'000	P
NAV at 30 June 2013	5,697	99.4
Funds raised net of issue expenses	6,731	0.0
Net loss for the year	(171)	(1.4)
NAV at 30 June 2014	12,257	98.0

ii. Cash & Deal Flow
During the year £10 million was invested into acquisition vehicles preparing to trade. A further update on these investments will be given in the Interim Report to 31 December 2014.

iii. Investment Gains & Losses
There were no realised gains or losses during the year.

iv. Running Costs
The annual management fee of the C Shares fund is 1.75%. During the year the management fees totalled £155,000, of which £39,000 was charged to the revenue account and £116,000 was charged to the capital account. The total expense ratio of the C Shares fund, for the year ended 30 June 2014 was 2.1%, which compares very favourably with its VCT peer group.

v. C Share Dividends
The Board originally planned to pay dividends of 5.0p per C Share each year throughout the life of Foresight Solar VCT plc after the first year, payable bi-annually via dividends of 2.5p per C Share in April and October each year. The level of dividends is not, however, guaranteed.

The Board is pleased to announce that the first interim dividend, of 2.5p per C Share will be paid on 14 November 2014. The dividend has an ex-dividend date of 30 October 2014 and a record date of 31 October 2014. This forms the first part of the annual target dividend for 2014/15.

vi. C Shares Issue & Buybacks
The prospectus for the C Shares fund-raising launched in February 2013 was extended in February 2014 and closed in April 2014. During the year 6,779,396 C Shares were issued based on an issue price of 100.0p per C Share. At 30 June 2014 there were 12,511,089 C Shares in issue.

There were no C Share buybacks during the year under review.

vii. Summary Post Year End Update
Following the year end, a total of £1.8 million was invested, by way of secured loans, to solar plants under construction. These loans attract an annual interest rate of 8.5%. These loans carry with them an option to invest in the completed projects.

Outlook - C Shares Fund
The proceeds of the C Share offer have been fully allocated to new projects currently in execution, benefiting from the ROC regime in the United Kingdom and further details on these investments and their underlying performance will be provided when they have completed.

VCT legislation
The European Commission is currently undertaking a review of the state aid regulations including the risk capital guidelines under which VCTs are approved at the European level. The aim of the review is to set out a clear framework to allow member states to grant aid without the need for the European Commission to be involved.

Alternative Investment Fund Management Registration
The Board has considered the impact on the Company of an EU directive regulating Alternative Investment Fund Managers (AIFM) which applies to most UK investment funds including the Company. To minimise the regulatory and financial cost of compliance, as a 'full scope UK AIFM', with this legislation the
Board has decided that the Company will register directly with the Financial Conduct Authority as permitted by the rules as a 'small registered UK AIFM'. The application process has been completed. This will not affect the current arrangements with Foresight Group who will continue to report to the Board and manage the Company's investments.

Annual General Meeting
The Company's Annual General Meeting will take place on 18 December 2014 at 2pm. 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 52.

Outlook
The market for Photovoltaic Solar plants in the UK has grown exponentially over the last three years, which has both advantages and disadvantages for the Company. On the one hand, as demand has increased the value of the UK assets held by the fund increases but on the other hand, as competition for these assets increases, it has taken longer to invest wisely the Company's available cash resources. The Manager has, however, indicated that it expects the remaining cash resources of the Company in both the Ordinary & C Share funds to be invested over the next few months and for the fund's full potential to be achieved and I look forward to reporting further progress in this regard in due course.

David Hurst-Brown
Chairman
23 October 2014

Strategic Report

Introduction
This Strategic Report, on pages 5 to 9, 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 Solar VCT plc Ordinary Shares Fund
Foresight Solar VCT plc originally raised £37.8 million through an Ordinary Share issue in 2010/2011 and 2011/2012. This fund currently has investments and assets totalling £39.1 million. The number of Ordinary Shares in issue at 30 June 2014 was 38,331,956.

Foresight Solar VCT plc C Shares Fund
In 2012/2013 and 2013/2014, £13.1 million was raised for the C Shares fund. The number of C shares in issue at 30 June 2014 was 12,511,089.

Summary of the Investment Policy
Foresight Solar VCT plc will invest mainly in unquoted companies that generate electricity from solar power systems and benefit from long-term government-related price guarantees.

Investment Objectives

Ordinary Shares Fund
The key objective of the Ordinary Shares fund is to distribute 130.0p per share, through a combination of tax-free income, buy-backs and tender offers before the sixth anniversary of the closing date of the offer.

C Shares Fund
The key objective of the C Shares fund is to distribute 120.0p per share, through a combination of tax-free income, buy-backs and tender offers before the sixth anniversary of the closing date of the offer.

Performance and Key Performance Indicators (KPIs)
The Board expects the Manager to deliver a performance which meets the objectives of the two classes of shares. The KPIs covering these objectives are net asset value performance and dividends paid, which, when combined, give net asset value total return. Additional key performance indicators reviewed by the Board include the discount of the share price relative to the net asset value and total expenses as a proportion of shareholders' funds.

A record of some of these indicators is contained below and on the following page. The total expense ratio in the period was 2.3% and the average discount at which shares were repurchased in the market was 3.4%. The level of these KPIs compare favourably with the wider VCT marketplace based on independently published information.

A review of the Company's performance during the financial 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.

	30 June 2014		30 June 2013
	Ordinary Shares	C Shares	Ordinary Shares	C Shares
Net asset value per share	101.9p	98.0p	115.7p	99.4p
Net asset value total return	112.9p	98.0p	120.7p	99.4p
	Ordinary Shares	C Shares	Ordinary Shares	C Shares
Share price	107.5p	100.0p	99.0p	100.0p
Share price total return	118.5p	100.0p	104.0p	100.0p
	Ordinary Shares	C Shares	Ordinary Shares	C Shares
Dividends paid*	11.0p	0.0p	5.0p	0.0p
Dividends paid in the year	6.0p	0.0p	5.0p	0.0p
Dividend yield %	5.6	-	5.1	-

* from inception to 30 June 2014

Ordinary Shares Fund
Share price premium to NAV at 30 June 2014	5.5%
Average discount on buybacks	3.4%
Shares bought back during the year under review	34,296
Decrease in net asset value during year (after adding back 6.0p dividend)	6.7%
Total expense ratio	2.4%

C Shares Fund
Share price premium to NAV at 30 June 2014	2.0%
Average discount on buybacks	N/A
Shares bought back during the year under review	N/A
Decrease in net asset value during year (after adding back 6.0p dividend)	1.4%
Total expense ratio	2.1%

Strategies for achieving objectives

Investment Policy
Foresight Solar VCT plc will invest mainly in unquoted companies that generate electricity from solar power systems and benefit from long-term government-related price guarantees.

Investment securities
The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stock, convertible securities, and fixed-interest securities as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stock. Non Qualifying Investments may include holdings in money market instruments, short-dated bonds, unit trusts, OEICs, structured products, guarantees to banks or third parties providing loans or other investment to investee companies and other assets where Foresight Group believes that the risk/return portfolio is consistent with the overall investment objectives of the portfolio.

UK companies
Investments are primarily made in companies which are substantially based in the UK. The companies in which investments are made must have no more than £15 million of gross assets at the time of investment for funds raised after 6 April 2012 (or £7 million if the funds being invested were raised after 5 April 2006 but before 6 April 2012) to be classed as a VCT qualifying holding.

Asset mix
The Company invests in unquoted companies that seek to generate solar electricity and benefit from long-term government-backed price guarantees. Investments may be made in companies seeking to generate renewable energy from other sources provided that these benefit from similar long-term government-backed price guarantees. No investments of this nature have been made to date. The Board has ensured that at least 70% of net funds raised under the Offer have been invested in companies whose primary business is the generation of solar electricity. Any uninvested funds are held in cash, interest bearing securities or other investments.

Risk diversification and maximum exposures
Risk is spread by investing in a number of different companies and by targeting a variety of separate locations for the solar power assets. The maximum amount invested by the Company in any one company is limited to 15% of the portfolio at the time of investment. The value of an investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale. Solar projects can in aggregate exceed this limit but suitable structures are put in place so that individual corporate investments do not. Although risk is spread across different companies, concentration risk is fairly high, given that a significant portion are all UK Solar projects.

Borrowing powers
The Company's Articles permit borrowing, to give a degree of investment flexibility. The Board's current policy is not to use borrowing. In any event, under the Company's Articles no money may be borrowed without the sanction of an ordinary resolution if the principal amount outstanding of all borrowings by the Company and its subsidiary undertakings (if any), then exceeds, or would as a result of such borrowing exceed, a principal amount equal to the aggregate of the share capital and consolidated reserves of the Company and each of its subsidiary undertakings as shown in the audited consolidated balance sheet. The underlying portfolio companies in which Foresight Solar VCT plc invests may utilise bank borrowing or other debt arrangements to finance asset purchases but such borrowing would be non-recourse to Foresight Solar VCT plc.

VCT regulation
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 in a single company more than 15% of its gross assets at the time of making any investment and must have at least 70% by value of its investments throughout the period in shares or securities in qualifying holdings, of which 30% 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).

Management
The Board has engaged Foresight Group as discretionary investment manager. Foresight Fund Managers Limited also provides or procures the provision of company secretarial, administration and custodian services to the Company.

Foresight Fund Managers Limited is the secretary of the Company.

Foresight Group prefers to take a lead role in the companies in which it invests. Larger investments may be syndicated with other investing institutions, or strategic partners with similar investment criteria.

A review of the investment portfolio and of market conditions during the year is included within the Manager's Report.

Environmental, Human Rights, Employee, Social and Community Issues
The Company's investments have been made in clean energy and environmental infrastructure projects which have clear environmental benefits.

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.

Gender diversity
The Board currently comprises three 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 53 men and 25 women.

Dividend policy
The Board plans to pay dividends of 5.0p per share each year throughout the life of Foresight Solar VCT plc after the first year, payable bi-annually via dividends of 2.5p per share in April and October each year. The level of dividends is not however, guaranteed.

Purchase of own shares
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.

Principal risks, risk management and regulatory environment
The Board believes that the principal risks faced by the Company are:

· Economic - events such as an economic recession and movement in interest rates could affect performance and valuations.
· Loss of approval as a Venture Capital Trust - the Company must comply with Section 274 of the Income Tax Act 2007 which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to: the Company losing its approval as a VCT; qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained; and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains.
· Investment and strategic - inappropriate strategy, poor asset allocation or consistent weak stock selection might lead to under performance and poor returns to shareholders. Changes in the rates of Feed-in Tariffs (FiTs) or Renewable Obligation Certificates (ROCs) could impact the underlying returns of the Company's investments.
· Regulatory - the Company is required to comply with the Companies Act 2006, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
· Natural disasters - severe weather/natural disaster could lead to reduction in performance and value of the assets.
· Reputational - inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.
· Operational - failure of the Manager's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.
· Fraud - inadequate controls might lead to misappropriation of assets.
· Theft - inadequate security and control could lead to the theft of assets.
· Financial - inappropriate accounting policies might lead to misreporting or breaches of regulations. Additional financial risks, including interest rate, credit, market price and currency, are detailed in note 15 of the financial statements.
· Market risk - investment in unquoted companies by its nature involves a higher degree of risk than investment in companies traded on the main market. In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock.
· Liquidity - the Company's investments, being unquoted, may be difficult to realise.
· Currency risk - short-term currency risk, such as that associated with the investments in Spain and Italy, is mitigated by taking out options that convert the capital investment proceeds back into sterling at the same rate as the original sterling investment was converted into Euros when making the original investment. This ensures no currency loss on the investment up to original cost. The cost of the option is covered by the returns on the investment.

The Board seeks to mitigate the internal risks by setting policy, regular review of performance, enforcement of contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies the principles detailed in the UK Corporate Governance Code. Details of the Company's internal controls are contained in the Corporate Governance and Internal Control sections.

Performance-related incentives
Ordinary Shares fund
After distributions of 100.0p per Ordinary Share issued under the Offer and remaining in issue at the date of calculation have been paid to Ordinary shareholders of the Company, Foresight Group will become entitled to a performance incentive which will be calculated at the rate of 20% of distributions in excess of 100.0p until total distributions reach 130.0p per share and 30% above that level.

C Shares fund
After distributions of 100.0p per C Share issued under the Offer and remaining in issue at the date of calculation have been paid to C shareholders by the Company, Foresight will become entitled to a performance incentive which will be calculated at the rate of 20% of distributions in excess of 100.0p per C Share until total distributions reach 120.0p, and 30% above that level.

Valuation Policy
Investments held by the Company have been valued in accordance with the International Private Equity and Venture Capital Valuation ("IPEVCV") guidelines (December 2012) developed by the British Venture Capital Association and other organisations. Through these guidelines, investments are valued as defined at 'fair value'. Ordinarily, unquoted investments will be valued at cost for a limited period following the date of acquisition, being the most suitable approximation of fair value unless there is an impairment or significant accretion in value during the period. The portfolio valuations are prepared by
Foresight Group, reviewed and approved by the Board quarterly and subject to review by the auditors annually.

A broad range of assumptions are used in our 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. Under the normal course of events, we would expect asset valuations to reduce each period due to the finite nature of the cash flows.

VCT Tax Benefit for Shareholders
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.

Venture Capital Trust Status
Foresight Solar 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 30 June 2012. Approval for the year ended 30 June 2013 is expected to be received before the end of December 2014. The next complete review will be carried out for the year ended 30 June 2014. It is intended that the business of the Company be carried on so as to maintain its VCT status.

The Directors have managed, and continue to manage, the business in order to comply with the legislation applicable to VCTs. The Board has appointed RW Blears LLP to monitor and provide continuing advice in respect of the Company's compliance with applicable VCT legislation and regulation. As at 30 June 2014 the Company had 78.9% of its funds in such VCT qualifying holdings.

Future Strategy
The Company will continue to invest in photovoltaic solar unquoted companies which it believes will achieve the objective of producing attractive returns for its shareholders.

David Hurst-Brown
Director
23 October 2014

Manager's Report

UK Assets
During the year the Department of Energy & Climate Change finalised plans in connection with the transition from the Renewables Obligation (RO) subsidy mechanism for solar projects to Contracts for Difference (CfD). From 1 April 2015 large scale solar farms over 5MW in size will fall under the CfD scheme. This subsidy evolution has led to solar farm developers focusing resources on assets that are generally larger in size before the deadline which in many cases result in projects that are too big to meet the investment profile of the Company. This focus has already started to shift towards smaller and more appropriate sized assets for the Company as the March deadline approaches. These subsidy changes will have no impact on the VCTs existing asset portfolio. Additionally, the changes to VCT rules regarding Solar will have no impact on funds already raised by the VCT.

Despite the dynamics above, assets have been identified that are of an appropriate size to conclude the re-investment of the bond proceeds in the Ordinary Shares fund and the investment of the C Shares fund. This investment programme should be completed during Q4 2014 and Q1 2015.

The bond proceeds continue to be held in the companies representing the original investments made into four solar power plants in Kent, Somerset and Wiltshire pending re-investment into new solar assets. The four plants are the principal assets of the Ordinary Shares fund and are all trading successfully benefitting from index linked Feed-in Tariffs (FiTs) over 25 years. Because of the favourable differential between the yield on new ROC based plants and the cost of the bond, investors in Foresight Solar VCT's Ordinary Shares fund are expected to benefit from higher dividends and greater capital appreciation as a result of this refinancing, increasing the target return above 130.0p per share by 2016. £10 million of the proceeds of the C Shares fund issue have been invested in new VCT qualifying companies pending onward investment predominantly into new solar power plants.

During the year the UK assets performed slightly above expectations with strong technical performance making the most of the good levels of solar irradiation seen across the year. Production across the whole portfolio was 3.3% above expectations.

European Assets
Although the Foresight Solar VCT Ordinary Shares fund is predominantly comprised of UK solar assets, the Company also has exposure to several assets in both Italy and Spain accounting in aggregate for c.11% of the portfolio value.

Italian assets continue to outperform technically against base case by around 6%, however income is below forecasts by 3% due to the market price of electricity.

During the period the Italian solar sector was characterised by increasing political risk and the expectation that it would need to adapt to less favourable economic incentives due to a greater focus on reducing the cost of renewable energy to consumers. Previously attractive incentives together with rapid deployment of solar, in the context of a severe economic downturn, have created an unexpected burden on domestic consumers who are indirectly funding the subsidy. As a result, the Italian Government retroactively cut subsidies in the form of the Feed-in-Tariff. This became law in August 2014.

Foresight Group is evaluating the effects of this legislation on returns but believes a reduction of c. 3% on Italian asset IRRs (from c. 11%) and a yield decrease of 5% (from 10% previously) will be seen. Foresight Group will continue to work towards minimising the impact of the regulatory changes by looking at opportunities to re-structure project level debt.

The Spanish assets owned by the Company have also been negatively impacted by changes in legislation, which have effectively placed a cap on the returns that Spanish solar assets can generate. This cap has been set at 7.4% (calculated as 300 basis points over the average of the 10 year Spanish Government Bond yield). The Ordinary Shares fund's exposure to the Company's only Spanish asset is 3.0% of the portfolio value. The C Shares fund has no exposure to Spanish assets. The financial impact of these regulatory changes is currently being analysed and a provision of 50% is in place against the cost of the
Spanish asset held by Foresight Solar VCT plc.

Increasing Capital Value and Dividends
The overall asset scale generated from re-investing the bond proceeds and the C Shares fund proceeds is expected to enhance investor returns for both share classes, particularly in optimising ultimate sale proceeds. Once fully operational, the new solar ROC plants are expected to deliver a net 5.0p annual dividend to investors. Combined with the annual residual equity distributions from the four existing UK solar assets, this is resulting in progressive dividends for Ordinary Shares fund investors.

Each 100.0p invested in new solar ROC plants is expected to generate a total return of 120.0p. By adding this to the estimated residual net present value of the four UK solar assets, the bond refinancing and reinvestment strategy is expected to improve total returns for Ordinary Share investors. The Ordinary Shares fund benefitted from the more generous FiT subsidy mechanism available at the time of investment hence the original target of 130.0p.

Outlook
As highlighted on the previous page, the ROC regime is due to end for UK solar assets over 5MWs in size in March 2015 and will be replaced by a CfD mechanism. We have started, and will continue, to work with developers to facilitate their participation in the CfD auction process to lock-in subsidies and to put the Company in the best position to secure assets under both the ROC and CfD regime going forward. At the same time, we have confidence that the secondary market in ROC (and Feed-in-Tariff) assets will remain strong. We also expect portfolios of up to 5MW ROC assets to deliver significant pipeline volume going forward. This supports the Company's strategy of aggregating a solar portfolio of scale which can be optimised through refinancing and/or a sale.

Jamie Richards
Head of Infrastructure
Foresight Group
23 October 2014

The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority require certain disclosures in relation to the annual financial report, as follows:

Principal risks, risk management and regulatory environment

The Board believes that the principal risks faced by the Company are:

• Economic - events such as an economic recession and movement in interest rates could affect performance and valuations.
   
• Loss of approval as a Venture Capital Trust - the Company must comply with Section 274 of the Income Tax Act 2007 which allows it to be exempted from capital gains tax on investment gains. Any breach of these rules may lead to: the Company losing its approval as a VCT; qualifying shareholders who have not held their shares for the designated holding period having to repay the income tax relief they obtained; and future dividends paid by the Company becoming subject to tax. The Company would also lose its exemption from corporation tax on capital gains.
   
• Investment and strategic - inappropriate strategy, poor asset allocation or consistent weak stock selection might lead to under performance and poor returns to shareholders. Changes in the rates of Feed-in Tariffs (FiTs) could impact the underlying returns of the Company's investments.
   
• Regulatory - the Company is required to comply with the Companies Act 2006, the rules of the UK Listing Authority and United Kingdom Accounting Standards. Breach of any of these might lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report.
   
• Natural disasters - severe weather/natural disaster could lead to reduction in performance and value of the assets.
   
• Reputational - inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.
   
• Operational - failure of the Manager's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.
   
• Fraud - inadequate controls might lead to misappropriation of assets.
   
• Theft - inadequate security and control could lead to the theft of assets.
   
• Financial - inappropriate accounting policies might lead to misreporting or breaches of regulations. Additional financial risks, including interest rate, credit, market price and currency, are detailed in note 15 to the Annual Report and Accounts.
   
• Market risk - investment in AIM traded, PLUS traded and unquoted companies by its nature involves a higher degree of risk than investment in companies traded on the main market. In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock.
   
• Liquidity - the Company's investments, being unquoted, may be difficult to realise.
   
• Currency risk - short-term currency risk, such as that associated with the investments in Spain and Italy, is mitigated by taking out options that convert the capital investment proceeds back into sterling at the same rate as the original sterling investment was converted into Euros when making the original investment. This ensures no currency loss on the investment up to original cost. The cost of the option is covered by the returns on the investment.

             
The Board seeks to mitigate the internal risks by setting policy, regular review of performance, enforcement of contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies the principles detailed in the UK Corporate Governance Code. Details of the Company's internal controls are contained in the Corporate Governance and Internal Control sections of the Annual Report and Accounts.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (which is delegated to Foresight Group and incorporated into their website). Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- the Directors' Report and Strategic Report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces.

On behalf of the Board
David Hurst-Brown
Chairman
23 October 2014

Unaudited Non-Statutory Analysis of the Share Classes

Income Statements
for the year ended 30 June 2014
			Ordinary Shares Fund			C Shares Fund
			Revenue	Capital	Total	Revenue		Capital		Total
			£'000	£'000	£'000	£'000		£'000		£'000
Investment holding losses			-	(2,921)	(2,921)	-		-		-
Income			960	-	960	81		-		81
Investment management fees			(162)	(486)	(648)	(39)		(116)		(155)
Gains on the value of derivatives			-	114	114	-		-		-
Other expenses			(303)	-	(303)	(99)		-		(99)
Return/(loss) on ordinary activities before taxation			495	(3,293)	(2,798)	(57)		(116)		(173)
Taxation			(111)	109	(2)	-		2		2
Return/(loss) on ordinary activities after taxation			384	(3,184)	(2,800)	(57)		(114)		(171)
Return/(loss) per share			1.0p	(8.3)p	(7.3)p	(0.6)p		(1.3)p		(1.9)p

Balance Sheets
at 30 June 2014
				Ordinary Shares Fund		C Shares Fund
				£'000		£'000
Fixed assets
Investments held at fair value through profit or loss				38,443		10,000
Current assets
Debtors				677		316
Money market securities and other deposits				8		-
Cash				241		2,067
				926		2,383
Creditors
Amounts falling due within one year				(314)		(126)
Net current assets				612		2,257
Net assets				39,055		12,257
Capital and reserves
Called-up share capital				383		125
Share premium account				-		12,336
Capital redemption reserve				2		-
Profit and loss account				38,670		(204)
Equity shareholders' funds				39,055		12,257
Number of shares in issue				38,331,956		12,511,089
Net asset value per share				101.9p		98.0p

At 30 June 2014 there was an inter-share debtor/creditor of £233,000 which has been eliminated on aggregation.

Unaudited Non-Statutory Analysis of the Share Classes
Reconciliations of Movements in Shareholders' Funds
for the year ended 30 June 2014

Ordinary Shares Fund	Called-up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Profit and loss account £'000	Total £'000
As at 1 July 2013	384	-	1	43,987	44,372
Expenses in relation to share issues	-	-	-	(178)	(178)
Repurchase of shares	(1)	-	1	(37)	(37)
Dividends	-	-	-	(2,302)	(2,302)
Loss for the year	-	-	-	(2,800)	(2,800)
As at 30 June 2014	383	-	2	38,670	39,055
C Shares Fund	Called-up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Profit and loss account £'000	Total £'000
As at 1 July 2013	57	5,673	-	(33)	5,697
Share issues in the year	68	7,042	-	-	7,110
Expenses in relation to share issues	-	(379)	-	-	(379)
Loss for the year	-	-	-	(171)	(171)
As at 30 June 2014	125	12,336	-	(204)	12,257

Audited Income Statement
for the year ended 30 June 2014

	Year ended 30 June 2014			Year ended 30 June 2013
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment holding (losses)/gains	-	(2,921)	(2,921)	-	7,432	7,432
Realised losses on investments	-	-	-	-	(28)	(28)
Income	1,041	-	1,041	2,461	-	2,461
Investment management fees	(201)	(602)	(803)	(158)	(475)	(633)
Gains/(losses) on the value of derivatives	-	114	114	-	(305)	(305)
Other expenses	(402)	-	(402)	(329)	-	(329)
Return/(loss) on ordinary activities before taxation	438	(3,409)	(2,971)	1,974	6,624	8,598
Taxation	(111)	111	-	(160)	160	-
Return/(loss) on ordinary activities after taxation	327	(3,298)	(2,971)	1,814	6,784	8,598
Return/(loss) per share:
Ordinary Share	1.0p	(8.3)p	(7.3)p	4.8p	17.7p	22.5p
C Share	(0.6)p	(1.3)p	(1.9)p	(0.4)p	(0.3)p	(0.7)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.

Audited Reconciliation of Movements in Shareholders' Funds

 

Year ended 30 June 2013	Called-up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Profit and loss account £'000	Total £'000
As at 1 July 2012	384	-	1	37,506	37,891
Share issues in the year	57	5,943	-	-	6,000
Expenses in relation to share issues	-	(270)	-	(232)	(502)
Dividends	-	-	-	(1,918)	(1,918)
Return for the year	-	-	-	8,598	8,598
As at 30 June 2013	441	5,673	1	43,954	50,069
Year ended 30 June 2014	Called-up share capital£'000	Share premium account£'000	Capital redemption reserve£'000	Profit and loss account£'000	Total£'000
As at 1 July 2013	441	5,673	1	43,954	50,069
Share issues in the year	68	7,042	-	-	7,110
Expenses in relation to share issues	-	(379)	-	(178)	(557)
Repurchase of shares	(1)	-	1	(37)	(37)
Dividends	-	-	-	(2,302)	(2,302)
Loss for the year	-	-	-	(2,971)	(2,971)
As at 30 June 2014	508	12,336	2	38,466	51,312

 

Audited Balance Sheet
at 30 June 2014

Registered Number: 07289280

	As at 30 June 2014 £'000	As at 30 June 2013 £'000
Fixed assets
Investments held at fair value through profit or loss	48,443	43,838
Current assets
Debtors	760	614
Money market securities and other deposits	8	8
Cash	2,308	5,895
	3,076	6,517
Creditors
Amounts falling due within one year	(207)	(286)
Net current assets	2,869	6,231
Net assets	51,312	50,069
Capital and reserves
Called-up share capital	508	441
Share premium account	12,336	5,673
Capital redemption reserve	2	1
Profit and loss account	38,466	43,954
Equity shareholders' funds	51,312	50,069
Net asset value per share
Ordinary Share	101.9p	115.7p
C Share	98.0p	99.4p

Audited Cash Flow Statement
for the year ended 30 June 2014

	Year ended 30 June 2014 £'000	Year ended 30 June 2013 £'000
Cash flow from operating activities
Investment income received	903	2,753
Deposit and similar interest received	5	-
Investment management fees paid	(867)	(702)
Secretarial fees paid	(182)	(134)
Other cash payments	(172)	(202)
Net cash (outflow)/inflow from operating activities and returns on investment	(313)	1,715
Returns on investment and servicing of finance
Purchase of investments	(10,000)	(333)
Net proceeds on sale of investments	2,474	410
Net capital (outflow)/inflow from financial investment	(7,526)	77
Equity dividends paid	(2,302)	(1,918)
Financing
Proceeds of fund raising*	7,069	6,050
Expenses of fund raising	(515)	(415)
	6,554	5,635
(Decrease)/increase in cash	(3,587)	5,509
Reconciliation of net cash flow to movement in net funds
(Decrease)/increase in cash and cash equivalents for the year	(3,587)	5,509
Net cash and cash equivalents at start of year	5,903	394
Net cash and cash equivalents at end of year	2,316	5,903

Analysis of changes in net cash
	At 1 July 2013 £'000	Cash flow £'000	At 30 June 2014 £'000
Cash and cash equivalents	5,903	(3,587)	2,316

* £7.1 million was raised during the year in relation to new share issues. Funds of £41,000 were returned during the year to a prospective investor from the previous year who decided to cancel their application.

Notes to the accounts

1.     The audited Annual Financial Report has been prepared on the basis of accounting policies set out in the statutory accounts of the Company for the year ended 30 June 2014.  All investments held by the Company are classified as 'fair value through the profit and loss'. Unquoted investments have been valued in accordance with IPEVC guidelines. Quoted investments are stated at bid prices in accordance with the IPEVC guidelines and Generally Accepted Accounting Practice.

2.    These are not statutory accounts in accordance with S436 of the Companies Act 2006. The full audited accounts for the year ended 30 June 2014, which were unqualified and did not contain any statements under S498(2) or S498(3) of Companies Act 2006, will be lodged with the Registrar of Companies. Statutory accounts for the year ended 30 June 2014 including an unqualified audit report and containing no statements under the Companies Act 2006 will be delivered to the Registrar of Companies in due course. 

 

3.    Copies of the Annual Report will be sent to shareholders and will be available for inspection at the Registered Office of the Company at The Shard, 32 London Bridge Street, London, SE1 9SG and can be accessed on the following website: www.foresightgroup.eu

 

4.    Net asset value per share

 

Net asset value per Ordinary Share is based on net assets at the year end of £39,055,000 (2013: £44,372,000) and on 38,331,956 Ordinary Shares (2013: 38,366,252), being the number of Ordinary Shares in issue at that date.

 

Net asset value per C Share is based on net assets at the year end of £12,257,000 (2013: £5,697,000) and on 12,511,089 C Shares (2013: 5,731,693), being the number of C Shares in issue at that date.

 

5.    Return per share

	Year ended 30 June 2014		Year ended 30 June 2013
	Ordinary Shares £'000	C Shares £'000	Ordinary Shares £'000	C Shares £'000
Total (loss)/return after taxation	(2,800)	(171)	8,631	(33)
Total (loss)/return per share (note a)	(7.3)p	(1.9)p	22.5p	(0.7)p
Revenue return/(loss) from ordinary activities after taxation	384	(57)	1,833	(19)
Revenue return/(loss) per share (note b)	1.0p	(0.6)p	4.8p	(0.4)p
Capital (loss)/return from ordinary activities after taxation	(3,184)	(114)	6,798	(14)
Capital (loss)/return per share (note c)	(8.3)p	(1.3)p	17.7p	(0.3)p
Weighted average number of shares in issue during the year	38,365,782	9,064,723	38,366,252	5,079,631

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.

 

6.    The Annual General Meeting will be held at 2.00pm on 18 December 2014 at the offices of Foresight Group LLP, The Shard, 32 London Bridge Street, London, SE1 9SG.

7.    Income

	Year ended 30 June 2014 £'000	Year ended 30 June 2013 £'000
Bank interest	5	-
Loan stock interest	1,036	1,368
Dividends receivable	-	1,093
	1,041	2,461

8.    Investments held at fair value through profit or loss

	2014 £'000	2013 £'000
Unquoted investments	48,443	43,838
	48,443	43,838
Company		Unquoted & Total £'000
Book cost as at 1 July 2013		34,110
Opening investment holding gains		9,728
Valuation at 1 July 2013		43,838
Movements in the year:
Purchases at cost		10,000
Disposal proceeds		(2,474)
Investment holding losses		(2,921)
Valuation at 30 June 2014		48,443
Book cost at 30 June 2014		41,636
Closing investment holding gains		6,807
Valuation at 30 June 2014		48,443
Ordinary Shares Fund		Unquoted & Total £'000
Book cost as at 1 July 2013		34,110
Opening investment holding gains		9,728
Valuation at 1 July 2013		43,838
Movements in the year:
Disposal proceeds		(2,474)
Investment holding losses		(2,921)
Valuation at 30 June 2014		38,443
Book cost at 30 June 2014		31,636
Closing investment holding gains		6,807
Valuation at 30 June 2014		38,443
C Shares Fund		Unquoted & Total £'000
Book cost as at 1 July 2013		-
Opening investment holding gains		-
Valuation at 1 July 2013		-
Movements in the year:
Purchases at cost		10,000
Valuation at 30 June 2014		10,000
Book cost at 30 June 2014		10,000
Closing investment holding gains		-
Valuation at 30 June 2014		10,000

9.    Transactions with the manager

Details of arrangements with Foresight Group LLP, Foresight Fund Managers Limited and Foresight Group CI Limited are given in the Directors' Report and Notes 3 and 13.

Foresight Group, which acts as investment manager to the Company in respect of its venture capital investments earned fees of £803,000 in the year (2013: £633,000).

Foresight Fund Managers Limited provides administration services to the Company, and received fees of £167,000 during the year (2013: £122,000). The annual administration and accounting fee (which is payable together with any applicable VAT) is 0.3% of the net funds raised by the offer (subject to a minimum index-linked fee of £60,000 for each of the Ordinary and C Share funds).

At the balance sheet date there was £26,000 due to Foresight Group (2013: £96,000).

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 industry practice, Foresight Group retain the right to charge arrangement and syndication fees and Directors' or monitoring fees ('deal fees') to companies in which the Company invests. From this, Foresight Group received from investee companies arrangement fees of £300,000 in the year (2013: £nil).

END

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Foresight Solar VCT PLC via Globenewswire

HUG#1865242