Foresight 4 VCT Plc Foresight 4 Vct Plc : Half-yearly Report

 
TIDMFTF 
 
 
   FORESIGHT 4 VCT PLC 
 
 
 
   Summary 
 
 
 
 
   -- Net asset value per Ordinary Share at 30 September 2015 was 76.6p (31 
      March 2015: 83.9p). 
 
   -- A 25.0p dividend per C Share was paid to C Shareholders on 6 August 2015. 
 
 
   -- On 10 August 2015 the O and C share funds were merged. On the basis of 
      the conversion ratio detailed in the Chairman's Statement, 19,101,896 new 
      Ordinary Shares were allotted. 
 
   -- An interim dividend for the year ended 31 March 2016 of 4.0p per Ordinary 
      Share will be paid on 18 December 2015. 
 
   -- The fund provided follow-on funding totalling GBP0.2 million to two 
      portfolio companies and GBP6.2 million to six new investments. 
 
   -- The fund realised GBP0.8 million from sales and loan redemptions from 
      three portfolio companies. 
 
 
 
 
 
 
   Chairman's Statement 
 
 
 
 
 
   Performance 
 
   During the six months to 30 September 2015, the net asset value per 
Ordinary Share decreased by 8.7% to 76.6p from 83.9p at 31 March 2015. 
 
 
 
   Overall, the Board is happy with the composition of the portfolio which 
includes the recent addition of six new investments for a total 
consideration of GBP6.2 million, and we believe that the portfolio is 
well placed to deliver growth, underpin future dividends and enhance 
shareholder returns. 
 
 
 
   Nevertheless, the private equity investments are not immune from the 
impact of external factors. In particular Aerospace Tooling has seen a 
reduction in orders as some of its customers have been severely impacted 
by events such as the significant drop in the price of oil. The 
reduction in the value of this investment was GBP3.2 million or 5.5p per 
share of the total reduction noted above. Additionally, the valuation of 
Datapath, the Company's largest investment, was reduced by some GBP0.8 
million or 1.4p per share as the rollout of new products took longer 
than expected, although we anticipate this to be a temporary reduction 
in value. Datapath's value represents some GBP9.4 million of the total 
portfolio of GBP40.3 million and the Board and investment manager have 
been actively considering options to reduce the Company's exposure to 
this investment. In this regard and following the period end, a dividend 
in excess of GBP2 million was received from Datapath. 
 
 
 
   The remaining portfolio comprises private equity investments in a range 
of sectors, the majority of which are profitable at EBITDA level and are 
expected to contribute to the Board's principal objectives of increasing 
the net asset value per share and at least maintaining the current level 
of dividends to shareholders. 
 
 
 
 
 
   Dividends 
 
   Prior to the merger, on 6 August 2015, a special dividend of 25.0p per C 
Share was paid, following good performance of the C Share portfolio 
which included the sale of Defaqto Group Limited on 30 March 2015 for 
GBP9.5 million, as announced on 31 March 2015. Holders of C Shares who 
received this dividend were also given the opportunity to reinvest their 
dividend proceeds into new Ordinary Shares by way of a top up offer. 
 
 
 
   An interim dividend of 4.0p per Ordinary Share for the year ended 31 
March 2016 will be paid on 18 December 2015 to the shareholders on the 
register on 3 December 2015. It continues to be the Company's policy to 
provide a flow of tax-free dividends, generated from income and from 
capital profits realised on the sale of investments. Distributions will, 
however, inevitably be dependent largely on successful realisations, 
refinancings and other forms of cash generation. 
 
 
 
   The recent success in generating cash from portfolio investments within 
the fund gives the Board confidence that it will be able at least to 
maintain the same level of dividend in future years and, if 
circumstances permit, increase future payments of dividends to 
Shareholders. 
 
 
 
 
 
   Merger, Top-up Share Issues and Share Buy-backs 
 
   On 10 August 2015 the O and C share funds were merged. On the basis of 
the net asset value of the Company's C Shares as at 31 March 2015 of 
85.8p per C Share (being the audited NAV per C Share of 110.8p as at 31 
March 2015, adjusted to take account of the 25.0p per C Share dividend 
paid on 6 August 2015) and the NAV of the Company's Ordinary Shares as 
at 31 March 2015 of 83.9p, the conversion ratio was 1.022646. On the 
basis of this conversion ratio, 19,101,896 new Ordinary Shares were 
allotted. 
 
 
 
   In accordance with the terms of the dividend reinvestment offer referred 
to above, on 11 August 2015, 423,717 Ordinary Shares were allotted at 
83.9p per share. 
 
 
 
   During the period under review 178,880 Ordinary Shares were repurchased 
for cancellation at a cost of GBP111,000. 
 
 
 
 
 
   Shareholder Communication 
 
   As part of its ongoing commitment to improving shareholder communication 
the Board intends initially to solicit shareholder views by means of a 
survey in 2016 and a shareholder event, also in 2016, that will be 
attended by several investee companies in addition to the Directors and 
Manager. 
 
 
 
 
 
   VCT Legislation 
 
   VCTs, as tax efficient investment vehicles, are periodically subject to 
new regulations which the Government and/or the European Commission 
consider appropriate for achieving the scheme's objectives and to comply 
with the rules relating to state aid used to promote risk finance 
investments. 
 
 
 
   Proposed new rules were announced in the Chancellor's Budget on 8 July 
and became law following Royal Assent of the Finance Bill in November 
2015. In summary, these have been confirmed as follows: 
 
 
 
 
   -- Introducing an 'age of company' restriction of seven years 
 
   -- Introducing a lifetime investment limit of GBP12 million 
 
   -- Restricting VCT investments in buyouts and buy-ins 
 
   -- All investments to be made with the intention to grow and develop a 
      business 
 
   -- Restrictions on a VCTs ability to make 'non-qualifying' investments 
 
 
 
 
   The Board will continue to review the changes in legislation and the 
impact it has on the Company's investment strategy and deal flow. 
 
 
 
 
 
   Outlook 
 
   The improvement in the general economy has had a noticeable effect in 
the performance of the private equity portfolio, although, as noted 
above, there will inevitably be instances when companies experience 
revenue volatility directly or indirectly caused by external factors, 
such as the fall of oil or energy prices. 
 
 
 
   Within the portfolio, a series of realisations, refinancings and loan 
repayments have generated significant cash balances, which underpin the 
Board's dividend commitment to Shareholders. These transactions have 
enabled several new investments to be made in the period, which we 
anticipate will further enhance Shareholder returns. All of these 
investments were made before the recent changes in VCT legislation 
referred to earlier in my report. 
 
 
 
 
 
   Philip Stephens 
 
   Chairman 
 
   27 November 2015 
 
 
 
 
 
   Investment Manager's Report 
 
 
 
   During the six month period to 30 September 2015, the net asset value 
per Ordinary Share decreased by 8.7% to 76.6p as at that date from 83.9p 
at 31 March 2015. Several investments continued to perform well, such as 
Ixaris, Blackstar Amplification, CoGen and TFC Europe, supporting an 
increase in their aggregate valuation of GBP1.6 million. TFC in 
particular effected a successful recapitalisation and share 
reorganisation, as part of which the Company was repaid all its 
outstanding loans, and with all accrued interest plus a redemption 
premium, receiving GBP710,000 and increasing its shareholding from 
17.87% to 22.23%. However, this was outweighed by the disappointing 
performance of Aerospace Tooling Corporation (ATL). Although ATL's sales 
and profitability were expected to be lower in the year to 30 June 2015 
following its exceptional performance and successful recapitalisation in 
the previous year (when the entire original GBP1.5 million cost of the 
investment was repaid), actual trading results were weaker than budgeted, 
reflecting poor sales in the final quarter of the financial year. In the 
light of this and continuing weak trading, ATL's valuation was reduced 
by GBP3.2 million, accounting for 5.5p of the reduction noted above. 
 
 
 
   The period was particularly active in terms of new investments, in part 
reflecting the implications of the regulatory changes referred to below. 
As described in detail below, six new investments totalling GBP6.2 
million were completed alongside other Foresight VCTs in well 
established, profitable, growing businesses. 
 
 
 
   Following the publication on 27 July 2015 of the Company's audited 
accounts for the year ended 31 March 2015, the merger of the Ordinary 
Share and C Share classes was completed on 10 August 2015. A special 
dividend of 25.0p per C Share was paid on 6 August 2015 reflecting the 
recent performance of the C Share portfolio and, in particular, the sale 
of Defaqto Group Limited on 30 March 2015 for GBP9.5 million. The merger 
was effected by converting the C Shares into new Ordinary Shares on a 
relative net asset value basis using the audited NAVs per Ordinary Share 
and C Share as at 31 March 2015, adjusted for any material movements 
from that date to conversion. Based on the audited net asset value as at 
31 March 2015 of 85.8p per C Share (being the audited NAV per C Share of 
110.8p as at 31 March 2015, adjusted to take account of the above 
mentioned 25.0p per C Share dividend) and the NAV per Ordinary Share as 
at 31 March 2015 of 83.9p, the conversion ratio was 1.022646. 
 
   growing businesses, as described below. 
 
 
 
 
 
   Changes to the VCT Rules - Finance Act 2015 
 
 
 
   In July 2015, the Government published the draft Finance Bill which, 
subject to EU State Aid approval, introduced certain changes to the 
Venture Capital Scheme to encourage VCTs to support smaller companies 
with development capital and finance such companies' organic growth. 

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