Ordinary Shares Fund
As at 31 December 2017 the portfolio of the Ordinary Shares Fund comprised 36 investments with a total cost of £65.6 million and a valuation of £78.0 million. The portfolio is diversified by sector, transaction type and maturity profile. Details of the ten largest investments by valuation, including an update on their performance, are provided on pages 16 to 20.
The main reason for the difference between the cost and value of investments in the TMT sector is Autologic, with a cost of £3.8 million. In July 2017, the sale of Autologic’s operating subsidiaries was agreed with Opus Group AB of Sweden. Although healthy returns were achieved in the early years of this investment, since a part disposal in 2012 the performance has been disappointing. Following repayment of some loans during 2017 Autologic is now valued at nil and will be dissolved in due course.
The value of investments in the Industrials & Manufacturing sector is much greater than cost largely due to Aquasium, which is valued at £4.0 million against a cost of £0.3 million and Specac, valued at £3.8 million against a cost of £1.3 million.
New Investments and Follow on Funding
It has been an active year for the Ordinary Shares fund, having completed new investments in eight companies and two follow-on commitments, totalling £17.9 million. During the second half of the year, the fund added three new portfolio companies: 200 Degrees, an artisan coffee chain and roasting business; Nano Interactive, a leading advertising technology business and Powerlinks Media, a real-time trading platform for advertisements. These new investments are in addition to those reported at the half year: Poundshop.com; Ollie Quinn; Fresh Relevance; Cinelabs and Mowgli Street Food. A summary on each is provided on the next page.
As follow-on investments, in July 2017 a further tranche of £224,723 was invested in molecular diagnostics business Biofortuna as part of a
£900,000 funding round alongside Foresight 4 VCT plc and co-investors to further develop its blood typing products. In October 2017, the Fund committed £34,159 of additional growth capital to Idio as part of a £543,000 equity raise from existing investors.
Foresight Group continues to work hard to develop and deliver attractive investment opportunities for the Company. Foresight Group’s private equity team has strong connections within the community of businesses, advisors and professional service firms, which have been further bolstered through the recent recruitment of Matthew Evans-Young, previously at Synova Capital and KPMG, as an Origination Manager. Matthew will lead on the establishment of a dedicated direct origination practice within Foresight Group’s private equity team. By proactively contacting target companies, this initiative aims to deliver exclusive access to new deals. Foresight Group’s dedicated direct origination resource is already having a positive impact on the level and consistency of the teams’ origination efforts with an increase in off market opportunities being seen. Whilst this is a long-term investment and off market opportunities generally take longer to convert, it is encouraging to see this strategy begin to produce results.
Foresight Group is firmly established as a key player in the investment range of £1 million to £5 million and is acknowledged for its appetite to transact and support ambitious SME management teams. The team typically analyses around 100 new investment opportunities each month, of which only a handful will be deemed of sufficient quality to require full evaluation for a potential investment.
As at 31 December 2017, the Ordinary Shares Fund had £61.9 million in cash and money market funds. This will be utilised for new and follow-on investments, as well as buybacks and ongoing running expenses.
During the year to 31 December 2017, the Fund generated total proceeds of £18.2 million, principally through the sale of Simulity Labs, Blackstar Amplification and The Bunker Secure Hosting, which realised £16.9 million compared to a cost of £8.0 million.
Loan repayments contributed a total of £547,748 from Autologic Diagnostics Group and the final loan repayment of £166,667 made by Aquasium Technology. The Fund continues to hold an equity position in Aquasium, which manufactures, services and refurbishes electron beam welding equipment and vacuum furnaces. Proceeds were also received from the sale of the Fund’s remaining shares in AIM-listed ZOO Digital, which supplies software and services for authored content and subtitling to media businesses and post-production firms. Deferred consideration was also received from the sales of O-Gen Acme Trek and Trilogy in 2016, and Alaric Systems in 2013.
During the year, the Ordinary Shares fund realised losses amounting to £2.3 million, which had already been provided for in full, following the liquidation of Abacuswood and The Skills Group, and the disposal of AlwaysOn Group.
Key Portfolio Developments
The Ordinary Shares Fund has benefitted from strong performance of the underlying portfolio with a total net valuation change of £12.0 million, driven primarily by the agreed sale of Simulity Labs at a value £7.7 million above cost, as detailed above. The valuation of the Company’s largest investment, Datapath, fell by £1.6 million but remains significantly above book cost. The reduction is due to ongoing investment in the business.
While there remains a significant amount of uncertainty as to how the UK will be affected by its exit from the European Union, Foresight Group continues to see a strong pipeline of interesting investment opportunities and expressions of interest from potential acquirers of portfolio companies.
In the Autumn Budget 2017 the Government announced a plan to unlock over £20 billion of patient capital investment in innovative companies with the opportunity for growth. The Government’s response to the Patient Capital Review recognises the positive role that VCTs play in providing long term patient capital. The proposed adjustments to the VCT scheme rules fall within the Fund’s existing investment strategy.
Foresight Group will continue to monitor and adapt to market and regulatory changes to ensure the Company and its portfolio is well-placed to deliver returns to its investors.
Planned Exit Shares Fund
Following the sale of the two final holdings, alwaysOn in January 2017 and Industrial Engineering Plastics in July 2017, the Fund realised all of its portfolio investments. The Board completed the transfer of the Trilogy Entitlements, the outstanding entitlement to consideration held in escrow in respect of the
sale of holdings in Trilogy Communications Holdings Limited, to the Ordinary Shares fund in exchange for £265,712 on 6 December 2017. Deferred consideration of £57,329 was also received in relation to the sale of Trilogy in 2016. This resulted in the assets of the Planned Exit Shares fund being fully realised. The Board paid a dividend of 7.71p per Planned Exit Share to shareholders on the register as at 22 December 2017. Ignoring tax reliefs, this dividend payment brought the total return on a Planned Exit Share to 82.71p.
Following approval of the requisite resolutions at the general meetings and separate class meetings of the Company held on 23 January 2018 and 24 January 2018 respectively, the Board of the Company completed the removal of the Planned Exit Shares.
alwaysON provides data backup services, connectivity and Microsoft’s Skype for Business collaboration software to SMEs and larger enterprises. Given the company’s cash constraints, a decision was made to seek an exit rather than fund further losses. Despite challenging trading conditions the sale was completed in January 2017, generating proceeds of £2.0 million against an investment cost of £1.8 million.
Industrial Engineering Plastics
Industrial Engineering Plastics (“IEP”) is a plastics distributor and fabricator, supplying a wide range of industries with ventilation and pipe fittings, plastic welding rods, hygienic wall cladding, plastic tanks and sheets. In light of some of the structural challenges within IEP’s markets, the Manager pursued multiple conversations with potential trade acquirers. As a result, two acquisition offers were received early in 2017 before an offer with one of IEP’s competitors was agreed at a price marginally below the most recent valuation, and a loss against the original investment of £1.6 million.
Infrastructure Shares Fund
Due to changes in VCT regulations, the Fund could no longer pursue its investment strategy of investing in infrastructure assets, including secondary Private Finance Initiatives (“PFI”) assets and solar infrastructure. As such, the Board notified shareholders of its intention to dispose of the entire Infrastructure shares portfolio on 18 July 2017, shortly after the fifth anniversary of the Fund’s closing.
Accordingly, a third party valuation was undertaken and we conducted a marketing process for the 11 assets held in the Infrastructure Shares Fund. After offering the assets on the open market, the sale of all investments was achieved, realising £28.1 million against a cost of £22.1 million and a valuation at 30 June 2017 of £24.8 million. Five of the non-solar infrastructure investment assets were sold to funds managed by Equitix Investment Management Limited. The three solar investment assets and the remaining three non-solar infrastructure investment assets were sold to other Foresight funds, on the basis of the independent valuation.
On 15 December 2017, following the realisation of all the remaining investments, the Board declared a final dividend of 93.05p per Infrastructure Share. This was paid on the 29 December 2017, bringing the total return per Infrastructure Share to 115.05p, after which no value remained in the Infrastructure Shares.
Following approval of the requisite resolutions at the general meetings and separate class meetings of the Company held on 23 January 2018 and 24 January 2018 respectively, the Board of the Company completed the removal of the Infrastructure Shares.
Head of Private Equity
10 April 2018
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