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25 Apr 2023 17:06
Final ResultsFORESIGHT VCT PLCLEI: 213800GNTY699WHACF4625 April 2023
Final results31 December 2022
Foresight VCT plc, managed by Foresight Group LLP, today announces the final results for the year ended 31 December 2022.These results were approved by the Board of Directors on 25 April 2023.
The Annual Report will shortly be available in full at www.foresightgroup.eu. All other statutory information can also be found there.
Highlights
Total net assets £191.7 million.A final dividend of 4.5p per share was paid on 24 June 2022, costing £10.0 million.A special interim dividend of 4.0p per share was paid on 21 October 2022, costing £8.8 million.Net Asset Value per share decreased by 2.9% from 90.1p at 31 December 2021 to 87.5p at 31 December 2022. After adding back the payments of a 4.5p dividend made on 24 June 2022 and a 4.0p dividend made on 21 October 2022, NAV Total Return per share was 96.0p, bringing the total return in the year to 6.5%.Four new investments costing £6.8 million and three follow-on investments costing £3.3 million were made during the year.The value of the investment portfolio rose by £2.8 million in the year to 31 December 2022. This was driven by an increase of £14.6 million (2021: £42.0 million) in the valuation of investments, plus £10.1 million of new investments offset by sales of investments totalling £21.9 million.The offer for subscription launched in January 2023 was closed on 13 April 2023 and raised a total of £23.1 million after expenses.The Board is recommending a final dividend for the year ended 31 December 2022 of 4.4p per share, to be paid on 30 June 2023.Chair’s statement
I am pleased to present the Company’s audited Annual Report and Accounts for the year ended 31 December 2022 and to report a Net Asset Value Total Return of 6.5% for the year and a dividend yield of 11.1% including a special dividend.
Margaret Littlejohns, Chair of Foresight VCT plc
Overview of 2022The Net Asset Value (“NAV”) Total Return per share of 6.5% for 2022 represents a good investment performance by the Company in the context of a particularly challenging macroeconomic environment throughout the year.
While the impact of COVID-19 had receded by the start of the year, the Russian invasion of Ukraine in February created an economic and geopolitical upheaval across the globe. Financial and trade sanctions imposed on Russia in response to the conflict increased the cost of energy and food and resulted in worldwide inflationary pressures and further disruption of supply chains, already under strain from the pandemic. The portfolio has some limited direct exposure to Russia and Ukraine, including a small proportion of customers, staff and contractors in both countries, but this remains manageable and supply chains to date have not been significantly disrupted. Rising inflation and interest rates, however, affected consumer and business confidence and, particularly in the UK, reduced growth prospects during 2022. Against this backdrop, the Manager worked closely with management teams of investee companies to prepare and plan for a weakening economy.
The Company’s portfolio in aggregate has remained resilient amid this economic and political turmoil during the year. Many of the portfolio companies successfully adapted to the new economic landscape, with some performing extremely well and demonstrating the strength of their management teams. A minority struggled as a result of a fall in consumer demand and inflationary pressures, especially surging energy prices. However, these businesses are now beginning to show signs of recovery.
At the end of 2022, 26 companies still held in the portfolio recorded a combined increase in unrealised value of £19.8 million, offset by 16 companies still held in the portfolio recording an aggregate fall in unrealised value of £14.0 million.
Three investments were sold in full generating net gains in valuation of £8.8 million. Of particular note was the successful sale of Codeplay Software in May 2022, which generated a multiple of over 15 times the original cost of £0.7 million paid by the Company in 2018.
StrategyThe Board and the Manager continue to pursue a strategy for the Company which includes the following four key objectives:
Growth in Net Asset Value Total Return above a 5% target while continuing to grow the Company’s assetsPayment of annual ordinary dividends of at least 5% of the NAV per share per annum (based on the latest announced NAV per share) while endeavouring, at a minimum, to maintain the NAV per share on a year‑on‑year basisThe implementation of a significant number of new and follow-on qualifying investments every year, exceeding deployment requirements to maintain VCT statusMaintaining a programme of regular share buybacks at a discount of no less than 7.5% (2021: 10%) to the prevailing NAV per shareThe Board and the Manager believe that these key objectives remain appropriate and the Company’s performance in relation to each of them over the past year is reviewed in more detail below.
Net Asset Value and dividendsThe NAV of the Company grew over the financial year from £185.1 million to £191.7 million at 31 December 2022, which is in line with the Board’s objective of growing the Company’s assets.
At the end of 2022, 89% of the Company’s assets were already invested and the Board believed it would be in the Company’s best interest to raise further funds to provide liquidity for its activities in 2023 and beyond. On 20 January 2023, the Company launched an offer for subscription to raise up to £20 million, with an over‑allotment facility to raise up to a further £10 million, through the issue of new shares. The offer was closed on 13 April 2023 having raised gross proceeds of £24.1 million, £23.1 million after expenses, as detailed in the post-balance sheet events note 20 of the Annual Report and Accounts.
During the year, the previous offer was closed to applications on 7 April 2022 and raised gross funds of £24.1 million. We would like to thank those existing shareholders who have supported these offers and welcome all new shareholders to the Company.
The Company paid two dividends during the year: a dividend of 4.5p per share paid on 24 June 2022 which represented 5% of the NAV per share as at 31 December 2021 and a special dividend of 4.0p per share paid on 21 October 2022, following the successful realisations of TFC Europe and Codeplay Software. Our objective of maintaining NAV per share was met after paying the first dividend, but the distribution of the special dividend reduced the NAV per share to 87.5p at 31 December 2022, a reduction of 2.6p from 90.1p at 31 December 2021. After adding back both dividends, the NAV Total Return per share for the year was 96.0p, representing a total return of 6.5%.
The total return per share from an investment in the Company’s shares made five years ago is 41.3%, which is above the minimum target return set by the Board of 5% per annum. Exceeding this target is at the centre of the Company’s current and future portfolio management objectives.
The Board is recommending a final dividend for the year ended 31 December 2022 of 4.4p per share, to be paid on 30 June 2023 based on an ex-dividend date of 15 June 2023, with a record date of 16 June 2023. At the year end, distributable reserves totalled £64,303,000 (2021: £81,536,000).
The Company continues to achieve its target dividend yield of 5% of NAV, which was set in 2019 in light of the change in portfolio towards earlier-stage, higher-risk companies, as required by the VCT rules. The Board and the Manager hope that this level may be exceeded in future by payment of additional “special” dividends as and when particularly successful portfolio disposals are achieved.
Investment performance and portfolio activityA detailed analysis of the investment portfolio performance over the year is given in the Manager’s Review.
In brief, during the year under review, the Manager completed four new investments, in a range of sectors, and three follow-on investments costing £6.8 million and £3.3 million respectively. The Company also disposed of three investments, generating proceeds of £19.9 million with a further £0.9 million of deferred consideration included within debtors at the year end, representing a combined return multiple of 5.3x. Three loan principal repayments were also received in the year totalling £2.0 million.
The Board and the Manager are confident that a more significant number of new and follow-on investments can be achieved in 2023 as the economy continues to recover and more opportunities emerge.
After the year end, the Company made four new investments totalling £4.9 million in Sprintroom Limited (£1.0 million), Firefish Software Limited (£1.5 million), Five Wealth Limited (£0.7 million) and Red Flag Alert Limited (£1.7 million). The Company also completed four follow‑on investments with an aggregate cost of £2.8 million in IMMJ Systems Limited (£0.6 million), NorthWest EHealth Limited (£1.5 million), Ten Health & Fitness Limited (£0.6 million) and Additive Manufacturing Technologies Ltd (£0.1 million). Furthermore, the Company realised its holdings in Mowgli Street Food Limited, Innovation Consulting Group Limited and Datapath Group Limited. The three exits combined generated proceeds of £15.4 million at completion with a further £2.8 million of deferred consideration due over the next 24 months. Including cash returned to the date of this report, the exits have delivered an impressive aggregate return multiple of 5.8 times the original investment. Further details of these investments and realisations can be found in the Manager's Report.
The Company and Foresight Enterprise VCT plc have the same Manager and share similar investment policies. The Board closely monitors the extent and nature of the pipeline of investment opportunities and is reassured by the Manager’s confidence in being able to deploy funds without compromising quality and to satisfy the investment needs of both companies.
Responsible investingThe analysis of environmental, social and governance (“ESG”) issues is embedded in the Manager’s investment process and these factors are considered key in determining the quality of a business and its long-term success. Central to the Manager’s responsible investment approach are five ESG principles that are applied to evaluate investee companies, acquired since May 2018, throughout the lifecycle of their investment, from their initial review and acquisition to their final sale. Every year, these portfolio companies are assessed and progress is measured against these principles. More detailed information about the process can be found on pages 44 to 46 of the Manager’s Review of the Annual Report and Accounts.
BuybacksDuring the year the Company repurchased 11,429,802 shares for cancellation at an average discount of 10.0%, achieving its former objective of maintaining regular share buybacks at a discount of 10.0%. As noted above and in the January 2023 Prospectus, the Board now has a current objective of maintaining a programme of regular share buybacks at a discount of no less than 7.5% to the prevailing NAV per share. The Board and the Manager consider that the ability to offer to buy back shares at no less than 7.5% is fair to both continuing and selling shareholders, and continues to help underpin the discount to NAV at which the shares trade.
Share buybacks are timed to avoid the Company’s closed periods. Buybacks will generally take place, subject to demand, during the following times of the year:
April, after the Annual Report has been publishedJune, prior to the Half-Yearly reporting date of 30 JuneSeptember, after the Half-Yearly Report has been publishedDecember, prior to the end of the financial yearManagement charges, co-investment and performance incentiveThe annual management fee is an amount equal to 2.0% of net assets, excluding cash balances above £20 million, which are charged at a reduced rate of 1.0%. This has resulted in ongoing charges for the period ended 31 December 2022 of 2.2%, which is at the lower end of the range when compared to competitor VCTs.
Since March 2017, co-investments made by the Manager and individual members of the Manager’s private equity team have totalled £1.1 million alongside the Company’s investments of £81.0 million. The co-investment scheme requires that the individual members of the team invest in all of the Company’s investments from that date onwards and prohibits selective “cherry picking” of co‑investments. If any individual team member opts out of co-investment, they cannot invest in anything during that year. The Board believes that the co-investment scheme aligns the interests of the Manager's team with those of shareholders and has contributed to the gradual improvement in the Company’s investment performance.
In addition to the co-investment scheme, a performance incentive scheme has been in place since 2017. The performance incentive scheme only applies after an investment has been sold and the scheme incorporates three different hurdles, all of which need to be achieved at different stages before any performance fee can be paid: an Investment Growth Hurdle for the individual investment at exit and also two NAV Total Return Hurdles, the first upon the exit of the investment and the second three years later. The NAV Total Return Hurdle increases each year, so the second NAV Total Return Hurdle will be higher than the first. Despite continued improvement in the Company’s net asset performance and in its NAV Total Return per share, increases in RPI inflation have resulted in the initial NAV Total Return Hurdle under the arrangement not being met at the date of relevant realisations in the year or as at 31 December 2022.
As at 31 December 2022, the individual Investment Growth Hurdles have been met for three realised and 14 unrealised investments out of the 35 new early‑stage investments made since the introduction of the performance incentive arrangements and a contingent liability of £7.2 million in respect of this is disclosed in note 15 of the Annual Report and Accounts. At the date of this report, the Company has not paid fees in relation to the scheme.
The Board has been pleased to note good performance in recent years and several strong exits, including the exceptional exits of Codeplay for 15.4 times and TFC for 12.6 times the respective initial investment. However, despite strong performance the current performance incentive arrangement has not crystalised into performance related payments. The current performance incentive arrangements were introduced during a period of low interest rates and inflation in the UK. In light of recent economic conditions, in particular rises in inflation, the hurdles under the current arrangements have become extremely difficult to achieve even where there is exceptional investment performance. In addition, the arrangements are complex and require onerous assessment and monitoring with any payment being made long after the relevant investment exit. The Board has, therefore, been considering revised arrangements which better incentivise the Manager’s performance and are simpler to implement and understand, whilst continuing to align with the interests of shareholders.
The new arrangements will supersede the current scheme and any potential outstanding liabilities relating to it will end. Going forward, it is proposed that the Manager be able to earn an annual performance incentive fee as summarised below.
A performance incentive fee would be payable in respect of each financial year commencing on or after 1 January 2023 where the Company achieves an average annual NAV Total Return per share, over a rolling five year period, in excess of an average annual hurdle of 5%. In respect of the relevant financial year, the average annual NAV Total Return per share is the total movement in Net Asset Value per share plus dividends from the start of the four preceding years to the end of that financial year (i.e. a rolling five year period) divided by five. The average annual hurdle is an average return of 5% per annum (simple, not compounded) over that same rolling five year period from the opening Net Asset Value per share at the beginning of that rolling five year period. If the hurdle is met, the Manager would be entitled to an amount equal to 20% of the excess over the hurdle subject to a cap of 1% of the closing Net Asset Value for the relevant financial year (and no fee will be due in excess of this cap). Where there is a negative return in the relevant financial year no fee shall be payable even if the hurdle is exceeded. However, the potential fee will be carried forward and will become due at the end of the next financial year if the performance hurdle described above for that next financial year is achieved and the negative return in the preceding financial year is recovered in that next financial year. Any such catch up fees shall be paid alongside any fee payable for the next financial year subject to the 1% cap applying to both fees in aggregate. Any such catch up fees cannot be rolled further forward to subsequent financial years. The new arrangements will be subject to continual review by the Board to ensure continued alignment with the interests of shareholders.
These proposals, which have not yet been entered into, will constitute a related party transaction under the Listing Rules of the Financial Conduct Authority and will, before they can be implemented, require a ‘fair and reasonable’ opinion from a sponsor and also the approval of shareholders. A circular to shareholders setting out further details and convening a general meeting to seek such approval will be sent to shareholders in due course.
More information on the current performance incentive arrangements (including an explanation of terms used above) can be found in note 13 of the Annual Report and Accounts.
Board compositionThe Board continues to review its own performance and undertakes succession planning to maintain an appropriate level of independence, experience, diversity and skills in order to be in a position to discharge its responsibilities. 2023 has seen some planned changes to the composition of the Board.
The Board was delighted to appoint David Ford and Dan Sandhu as Non-Executive Directors in January 2023. Details of David and Dan’s experience and expertise can be found in their biographies on page 53 of the Annual Report and Accounts.
After over 16 years as a Non-Executive Director, including nearly 12 years as Chair of the Audit Committee, Gordon Humphries will not stand for re-election at the AGM on 15 June 2023. On behalf of the Company, I would like to thank Gordon for his significant contribution and dedication to the Company, which has benefited enormously from his wise counsel during his many years of service. We will miss Gordon and we wish him the very best for the future.
Gordon will be succeeded as Chair of the Audit Committee by Patty Dimond, who has already served on the Board for two years. Patty qualified with Deloitte Haskins & Sells as a Chartered Accountant and has experience as a current chair of the audit committee of Hilton Food Group plc and a former chair of the audit committee of LXi REIT plc, both FTSE 350 companies.
The Nomination Committee will continue its plans to refresh the Board over the coming year and aims to achieve a sensible balance between continuity and reinvigoration in compliance with the AIC Code. It is expected that the Board will revert to four Directors in 2024.
Shareholder communicationWe were delighted to meet once again with some shareholders in person at the AGM on 31 May 2022, having long been unable to do so as a result of the travel restrictions due to COVID-19. Arrangements were also made to enable shareholders to attend online. However, very few took advantage of this facility and the Board has decided, in view of the considerable cost of providing it, not to repeat this in 2023. Additionally, the Manager once again reintroduced in-person investor forum events in the year which have proven popular with our shareholders in the past.
Annual General MeetingThe Company’s Annual General Meeting will take place on 15 June 2023 at 2.00pm and we look forward to meeting as many of you as possible in person. Please refer to the formal notice on page 99 of the Annual Report and Accounts for further details in relation to the format of this year’s meeting. We would encourage you to submit your votes by proxy ahead of the deadline of 2.00pm on 13 June 2023 and to forward any questions by email to InvestorRelations@foresightgroup.eu in advance of the meeting.
Sunset clauseThe "Sunset Clause" for EIS and VCT reliefs has to be reviewed by the government by 6 April 2025. The clause provides that income tax relief will no longer be given to subscriptions made on or after 6 April 2025, unless the legislation is amended to make the scheme permanent, or the “sunset clause” is extended. The government has the power to extend or remove the sunset clause through secondary legislation, which would allow the VCT & EIS schemes to operate in their current form beyond the current expiry date of the scheme. The then Chancellor Kwasi Kwarteng announced during his mini-budget of 23 September 2022 that venture capital schemes will be safeguarded beyond 2025 but no further details were given as to how this will be implemented. To date, the now Chancellor Jeremy Hunt has yet to clarify. However, through correspondence with the Treasury Select Committee, the Chancellor has stated that it is the government's firm intention to extend the VCT and EIS schemes beyond the sunset on 6 April 2025 and that further details will be provided in due course. The Treasury Select Committee also notes that the UK should be able to extend the scheme without European Commission approval, clarified by the recently announced Northern Ireland Protocol, the Windsor Framework.
OutlookGrowth in the UK is likely to be sluggish in 2023 and the prospects for many other countries are also uncertain. The economic impact of the war in Ukraine is likely to persist; ongoing inflationary pressures, tighter monetary policies and supply chain issues may continue to hinder economic recovery. Furthermore, the collapse of Silicon Valley Bank in March 2023 increased turmoil in financial markets. We are conscious that such conditions could prove challenging for our investee companies which are unquoted, small, early-growth businesses and by their nature entail higher levels of risk and lower liquidity than larger listed companies.
However, the Manager understands well the management and business requirements of each of the companies within the investment portfolio and is working closely with them to help them adapt to, and grow within, this changing environment. The Company’s current portfolio of investments is well diversified by number, business sector, size and stage of development and overall has already demonstrated its relative resilience in the face of economic and geopolitical difficulties.
The fundraising referred to earlier will provide additional resources to make new acquisitions and enable the Company to continue to take advantage of the increasing numbers of investment opportunities that are now emerging out of the recent disruption. Although there will be considerable economic headwinds in the year ahead, we believe the diversified portfolio is well positioned to generate long-term value for shareholders.
Margaret Littlejohns Chair
25 April 2023
Manager’s review
The Board has appointed Foresight Group LLP (“the Manager”) to provide investment management and administration services.
Portfolio summary As at 31 December 2022, the Company’s portfolio comprised 50 investments with a total cost of £103.8 million and a valuation of £169.8 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 28 to 32 of the Annual Report and Accounts.
In the year, the value of the investment portfolio rose by £2.8 million as a result of an increase of £14.6 million in the valuation of investments, plus £10.1 million of new investments offset by sales of investments totalling £21.9 million. Overall, the portfolio has performed well despite uncertainty in the markets following the impact of COVID-19 and subsequent geopolitical uncertainty and price inflation.
In line with the Board’s strategic objectives, the Manager remains focused on growing the Company through further development of Net Asset Value Total Return whilst paying an annual dividend to shareholders of at least 5% of the latest announced NAV per share. In the year, Net Asset Value Total Return was 6.5%, net assets increased 3.6% to £191.7 million and dividends of 9.4% of the NAV per share as at 31 December 2021 were paid, meaning that the Company has successfully met these objectives.
New investments 2022 was a mixed year in the markets, with the technology sector in particular performing strongly early in 2022 but then seeing a significant softening. Many investee management teams have successfully steered their businesses through the uncertainty of 2022, whilst developing clearer medium and longer-term growth plans.
The Manager has invested further in its origination capabilities and identified a large number of potentially attractive investment opportunities during the year.
Over the course of 2022, four new investments were completed, investing a total of £6.8 million. New investments were across compliance technology, health services, advanced materials and insure-tech. Behind these, there continues to be a strong pipeline of opportunities that the Manager expects to convert during the next 12 months. Follow-on investments totalling £3.3 million were also made in three existing investee companies.
Homelink Healthcare LimitedIn March 2022, the Company invested £1.1 million in Homelink Healthcare, a specialist provider of hospital‑at‑home and virtual ward services. The business employs highly qualified and experienced nurses and rehabilitation teams to provide services to patients in their own homes through contracts with the NHS. These services deliver a range of clinical interventions, including wound care, intravenous therapies, physiotherapy and rehabilitation. The nurses are paid in-line with NHS remuneration and the clinical services offered alleviate pressure on the NHS by freeing up vital bed space, saving time and reducing costs.
So-Sure LimitedIn May 2022, the Company invested £1.6 million in So‑Sure, a digital tech platform that operates across the entire insurance supply chain, automating much of the process from distribution and policy administration to fraud detection and claim management. The investment will be used to scale up the business by investing into marketing, technology and to improve platform automation.
Strategic Software Applications LtdIn August 2022, the Company invested £1.7 million in Strategic Software Applications, which trades under the name Ruleguard, a London-based SaaS technology provider supporting financial institutions in meeting their regulatory compliance obligations. The platform enables customers to navigate the ever‑growing challenges of increasing regulatory compliance requirements with efficiency, reduced risk and lower audit compliance costs. The investment will help the company to develop additional platform capabilities while scaling up sales and marketing functions to capitalise on a large and growing market opportunity.
Copptech UK LimitedIn August 2022, the Company made a £2.4 million investment in Copptech, a developer of environmentally friendly antimicrobial technologies that kill bacteria, fungi and viruses. Applications for the technology are wide ranging and include diminishing the transmission of viruses in medical facilities, extending the shelf life of perishable goods, reducing discolouration and odour in clothing and providing mould, fungi and termite‑resistant properties to building materials. The business has proven itself to be highly scalable across Latin America and is already seeing meaningful traction in the large North American and European markets, where it is expanding its sales teams and operations. The investment will enable Copptech to scale the business and operate globally.
Follow-on investmentsThe Manager had expected that more portfolio companies would need additional capital to support them through continued difficult trading conditions resulting from macroeconomic challenges and political uncertainty affecting energy and supply prices. However, the portfolio has remained relatively resilient.
The Manager has arranged follow-on investments in three companies during 2022, totalling £3.3 million. Further details of each of these are provided below.
The additional equity injections in the year were mainly used to support each company’s further growth plans, such as launching new products or to expand into new markets. In view of the difficult economic outlook, the Manager remains vigilant about the health of the rest of the portfolio and the need for follow-on funding over the coming months.
Rovco LtdIn March 2022, Rovco, a leading provider of autonomous and cloud-managed robotics for subsea surveys in offshore wind and oil field decommissioning, received a £0.5 million follow-on investment from the Company as part of a larger round with various new institutional investors. The investment will be used to further develop Rovco’s technical capabilities and alleviate pressure on working capital requirements.
Hexarad Group LimitedIn August 2022, a £0.7 million follow-on investment was made in Hexarad, an early-stage, high-growth healthcare technology company, providing teleradiology services to NHS Trusts and UK private healthcare customers. The investment will be used to accelerate the company’s growth plans in response to significant market demand.
Spektrix LimitedIn November 2022, a follow-on investment of £2.0 million was made in Spektrix, alongside a US institutional investor. Spektrix is an enterprise software company providing ticketing, CRM, marketing and fundraising software to companies in the performing arts sector. The investment will be used to support growth plans for the business.
RealisationsThe M&A climate was robust, particularly in the first half of 2022 and the Manager was pleased to report some particularly strong realisations, as well as a disposal of a challenged portfolio business. The Manager continues to engage with a range of potential acquirers of several portfolio companies, with demand for these high-growth businesses demonstrated by both private equity and trade buyers.
Online Poundshop LimitedIn February 2022, the Company sold its holding in Online Poundshop to Poundland, one of the UK’s largest single price retailers. Unfortunately, Online Poundshop’s business model had proven challenging for some time and despite revenue growth and a near break-even position it was unsustainable in the existing ownership structure. A dual track fundraising and trade exit process was launched and whilst there were several expressions of interest from UK retailers, ultimately Poundland were the most deliverable and committed to continuing to increase employment in the West Midlands. The transaction generated £nil proceeds on the Company's £2.6 million investment.
TFC Europe LimitedIn June 2022, the Company sold its holding in TFC, a market-leading manufacturing operations services provider, to AFC, an Ohio-based distributor of fasteners backed by Bertram Capital, a California‑based mid‑market private equity house. This resulted in proceeds of £10.3 million, representing a particularly strong return of 12.6x the original investment made by Foresight 2 VCT plc, which merged with the Company in December 2015.
With offices in the UK and Germany, TFC is predominantly a supplier of technical fasteners across Europe. Since the original investment, the Manager had taken a proactive approach to supporting TFC, helping to extend its network in the UK and Germany. TFC rapidly expanded its vendor managed inventory service, grew its customer base, and became a market-leading service provider to SMEs and international global brands operating across a range of industries. The Manager supported three acquisitions as well as considerable investment in new and existing facilities, opening new sites in England, Northern Ireland and Czechia.
Codeplay Software LimitedIn June 2022, the Company completed the sale of Codeplay, one of the UK’s leading providers of solutions for the semiconductor industry, to a leading US chip manufacturer.
Since the Manager's investment in 2018, Codeplay continued to develop a suite of high-performance software assets and is positioned at the centre of an increasingly important ecosystem that improves the performance of chips, used in high-performance and low-power environments, from supercomputers to self-driving cars. It has also developed new routes to market, selling its solutions to chip companies and downstream users, such as manufacturers of diagnostic healthcare equipment.
This transaction generated proceeds of £9.6 million, representing an exceptional return of 15.4x and an IRR of nearly 100%.
Realisations in the year ended 31 December 2022
| Accounting | Valuation at | ||||
| cost at date | Realised | 31 December | |||
| of disposal | Proceeds | gain/(loss) | 2021 | ||
| Company | Detail | (£) | (£) | (£) | (£) |
| TFC Europe Limited | Full disposal | 3,614,612 | 10,271,922 | 6,657,310 | 6,887,033 |
| Codeplay Software Limited1 | Full disposal | 689,656 | 9,582,978 | 8,893,322 | 4,099,278 |
| Spektrix Limited | Loan repayment | 1,442,000 | 1,442,000 | — | 1,442,000 |
| Specac International Limited | Loan repayment | 500,000 | 500,000 | — | 500,000 |
| Positive Response Communications Limited | Loan repayment | 125,000 | 125,000 | — | 125,000 |
| Online Poundshop Limited | Full disposal | 2,610,000 | — | (2,610,000) | — |
| Total disposals | 8,981,268 | 21,921,900 | 12,940,632 | 13,053,311 |
PipelineAt 31 December 2022, the Company had cash reserves of £19.5 million, which will be used to fund new and follow‑on investments, buybacks and running expenses. The Manager is seeing its pipeline of potential investments grow and has a number of opportunities under exclusivity or in due diligence, which continue to progress.
The volatility caused by political uncertainty, rising energy costs and broader price inflation resulted in a challenging period for many companies, with staff retention and exaggerated wage expectations causing concern for many. This does, however, create opportunities, and the Manager is well placed to consider these as they arise, whilst supporting existing portfolio companies with follow-on investments as needed.
In the medium term and long term, the Manager expects that current unpredictability will present attractive investment opportunities. It is able to access these opportunities through its wide and proprietary network of contacts around the country, and considers the Company’s strategy to be well-suited to market volatility, due to its balanced mix of companies across sectors and stages, experienced investment team and network of high‑quality chairs.
Post year end activitySprintroom LimitedIn January 2023, £1.0 million of growth capital was invested in Sprintroom, which trades as Sprint Electric. The business designs and manufactures drives for controlling electric motors in light and heavy industrial applications, as well as recovering and reusing otherwise lost energy. The investment will be used to further develop and commercialise novel alternating current variable speed drive technology.
IMMJ Systems LimitedIn February 2023, £0.6 million was invested in IMMJ, a clinical electronic document management solution supplier to the NHS. The investment will be used to grow the leadership team and bolster the business’ abilities to support the digitisation of records, providing easy and efficient access to patient records for clinical care across the NHS.
Firefish Software LimitedIn March 2023, the Company invested £1.5 million in Firefish Software Limited, a Glasgow based customer relationship management and marketing software platform targeting the recruitment sector. The funding will be used to further develop the platform in order to attract a larger enterprise level customer base and expand its outbound sales team.
NorthWest EHealth LimitedIn March 2023, the Company invested £1.5 million in NorthWest EHealth, which provides software and services to the clinical trials market, allowing pharmaceutical companies and contract research organisations to conduct feasibility studies, recruit patients and run trials. The investment will be used to support the delivery of a 100% growth in real world trial delivery in FY23, while completing building the company's Connexon platform; to be compatible with all UK healthcare data sources by year end.
Ten Health & Fitness LimitedIn March 2023, Ten Health, a multi-site operator in the boutique health, wellbeing and fitness market, received an additional investment of £0.6 million. The funding will enable the company to complete its new flagship Kings Cross site and support the company’s transition to profitability from Q1 2023.
Five Wealth LimitedIn March 2023, the Company invested £0.7 million in Five Wealth, an established boutique financial planning business operating across the North West of England, headquartered in Manchester. This growth capital investment will be used to support increased marketing and advertising to drive top line growth and greater regulatory and compliance costs which are forecast to increase commensurately with AUM.
Red Flag Alert LimitedIn March 2023, the Company invested £1.7 million in Reg Flag Alert, a Manchester based proprietary SaaS intelligence platform with modular capabilities spanning compliance, prospecting, risk management and financial health assessments. The growth capital will be used to expand the sales team and alongside an increased marketing budget is expected to accelerate new client acquisition.
Additive Manufacturing Technologies Ltd ("AMT")In April 2023, the Company invested £0.1 million in AMT, which manufactures systems that automate the post‑processing of 3D printed parts. The investment will be used to cover short-term working capital requirements, as the business continues to grow sales and pushes towards sustainable profitability.
Mowgli Street Food Group LimitedIn January 2023, the Company announced the successful exit of casual Indian food chain Mowgli to TriSpan, a global private equity firm with extensive restaurant expertise. The Manager invested in 2017, when the business had three restaurant sites. It has since grown to 15 sites nationally. The Manager introduced Dame Karen Jones as chair, Matt Peck as finance director and helped recruit Lucy Worth as operations director and together with this team built a market-leading hospitality brand. The business also shared the Manager’s commitment to sustainability, creating more than 500 jobs and ranking 16th best UK company to work for in 2022 owing to its focus on employee welfare, local charity support and sustainable sourcing.
The exit resulted in proceeds of £5.2 million, of which £1.6 million will be received over 12 months post the completion of the exit, representing a return of 3.5x cost.
Innovation Consulting Group Limited ("GovGrant")In March 2023, the Company announced the impressive exit of GovGrant to Source Advisors, a US corporate buyer backed by BV Investment Partners. GovGrant is one of the UK’s leading providers of R&D tax relief, patent box relief and other innovation services. The transaction generated proceeds of £6.8 million at completion. When added to £0.5 million of cash returned to date, this implies a total cash-on-cash return of 4.4 times the capital of £1.65 million invested in October 2015, equivalent to an IRR of 24%.
Since the original investment in 2015, the Manager had helped GovGrant through a period of material growth during which it supported the R&D activities of a growing number of customers. GovGrant’s high levels of service and innovative products, such as the growing patent box offering, have contributed to driving innovation in the UK economy. The Manager had taken a proactive approach to supporting the exceptional senior management team, all of whom were introduced to the business during the investment period.
Datapath Group LimitedIn March 2023, the Company announced the notable exit of Datapath, a global leader in the provision of visual solutions. The transaction generated proceeds of £5.1 million at completion with an additional £1.2 million payable over the next 24 months. When added to £5.4 million of cash returned to date, this implies a total cash-on-cash return of 11.7 times the original investment, equivalent to an IRR of 38% since the initial investment in 2007.
Since the original investment, the Manager had supported Datapath through a period of material growth with revenues growing from approximately £7 million to £25 million. Datapath has developed a market leading hardware and software product suite for the delivery of multi-screen displays and video walls which are sold globally to a diverse customer base across a range of sectors.
Key portfolio developments Material changes in valuation, defined as increasing or decreasing by £1.0 million or more since 31 December 2021, are detailed below. Updates on these companies are included below, or in the Top Ten Investments section on pages 28 to 32 of the Annual Report and Accounts.
Key valuation changes in the year
| Company | Valuation methodology | Net movement (£) |
| Hospital Services Group Limited | Discounted earnings multiple | 3,336,610 |
| Callen-Lenz Associates Limited | Discounted revenue multiple | 2,826,319 |
| Spektrix Limited | Price of last funding round | 2,390,122 |
| Nano Interactive Group Limited | Discounted offer received | 1,674,441 |
| Fourth Wall Creative Limited | Discounted revenue multiple | 1,265,741 |
| Vio Healthtech Limited | Nil value | (1,000,644) |
| Innovation Consulting Group Limited | Discounted offer received | (1,652,336) |
| Datapath Group Limited | Discounted offer received | (1,836,068) |
| Biotherapy Services Limited | Nil value | (2,346,371) |
| Ollie Quinn Limited | Discounted revenue multiple | (2,994,488) |
Ollie Quinn Limited Ollie Quinn is a branded retailer of prescription glasses, sunglasses and non-prescription polarised sunglasses based in the UK and Canada.
31 December 2022 update Trading in the Canadian stores is robust, however the weaker economic environment in the UK and particularly soft consumer confidence has contributed to under‑performance in the UK stores in the latter part of 2022.
Vio Healthtech LimitedVio Healthtech is a specialist women’s health company, which has developed a range of medical devices that predict ovulation to support women trying to conceive. It is also developing digital healthcare solutions (digital therapeutics) to support broader health issues around the menopause and polycystic ovary syndrome.
31 December 2022 update The company has struggled to regain positive sales traction post-pandemic and has had to significantly reduce spend on marketing activities. Management continues to seek alternative investment to support the ongoing transition to a digital therapeutics model, including further new product development.
Biotherapy Services Limited Biotherapy Services is an early-stage biopharma company that has developed a platform treatment for use in wound healing, initially for the treatment of diabetic foot ulcers but with additional use in cardiac issues and lung treatments. The company had been progressing a clinical trial.
31 December 2022 update Recruitment into the RAPID gel trial has now been stopped as a result of continued slow progress. The trial will be formally closed to allow the publication of positive interim data. The company is still attempting to raise funds; however, despite several positive meetings, no heads of terms have been received and there is a substantial risk that no additional funding can be secured. If no funding is received, the company will pursue a sale.
Outlook2022 has been a year of volatility for most asset classes, as rising inflation, increased energy costs and higher interest rates impacted business performance, particularly in the second half of the year. In global equity markets, the MSCI World Index fell by 10% over the 12 months, while the tech-heavy NASDAQ fell by more than 30%.
In the UK, business and consumer confidence was dented by political uncertainty and broader price inflation. Russia’s invasion of Ukraine had a particularly acute effect on the UK economy as the price of electricity rose sharply due to the country’s reliance on natural gas for power generation. In many markets, businesses began to invest in growth after an uncertain COVID-19 period at the same time that global supply chain issues resulted in long lead times for products, weighing on sales and increasing working capital requirements. Many businesses in the Company’s portfolio faced challenges with both staff retention and hiring, as the number of vacancies and wage inflation drove staff churn. This required careful attention from management teams and the Manager's board members, but often presented an opportunity to focus on efficiency by retaining the best talent.
Despite this backdrop, the Company’s portfolio performed strongly in the year, achieving a 6.5% NAV Total Return for its shareholders, with exceptional exits from the likes of TFC and Codeplay contributing in the Company's dividend of 8.5p per share for the year, representing an attractive 11.1% dividend yield. The Company’s strategy is well-suited to market volatility, given its diverse sector allocation and the mix of later and earlier‑stage growth companies in the portfolio, many of which are profitable and so typically more resilient in a downturn.
Looking forward to 2023, the UK market is likely to remain unpredictable. While some forecasters are expecting interest rates to peak in the summer, the labour market remains stubbornly tight and inflation persistent, meaning that rates may remain elevated for a longer period. While a recession has been avoided to date, balancing rate increases with current low growth and productivity rates is a difficult task for politicians and rate-setters. The range of outcomes for SMEs is likely to be wide, and so a balanced approach to portfolio construction is prudent, alongside providing hands-on support for management teams as they navigate this environment.
This is not a reason to be pessimistic. The UK remains a dynamic economy, attracting some of the best global talent in technology, life sciences, engineering and financial services among many others, while its cities remain a destination for workers and tourists alike. The Manager believes that the UK has great potential in the medium and long term with many competitive advantages over its neighbours and more distant trading partners, and this temporary pullback is already presenting unique investment opportunities, which we are able to access through our wide and proprietary network of contacts around the country. A weaker sterling also attracts overseas acquirers to the UK, such as the US trade buyers for Codeplay, TFC and other exits.
The Manager is pleased with the overall performance of the portfolio over the past 12 months, especially in these challenging times, and looks forward to a further improvement as labour markets loosen, inflation reduces and interest rates peak and reverse. While the market remains uncertain, the Manager expects to see a sustained high level of activity from UK companies seeking growth capital and expects VCTs to remain an attractive source of capital for entrepreneurs. This is driven by good relative performance of the Company, supported by its diverse portfolio and high‑touch approach to supporting management teams and SMEs in achieving their full potential.
James Livingstonon behalf of Foresight Group LLPCo-Head of Private Equity
25 April 2023
Income statementfor the year ended 31 December 2022
| Year ended 31 December 2022 | Year ended 31 December 2021 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Realised gains on investments | — | 13,207 | 13,207 | — | 13,070 | 13,070 |
| Investment holding gains | — | 2,138 | 2,138 | — | 30,424 | 30,424 |
| Income | 1,536 | — | 1,536 | 858 | — | 858 |
| Investment management fees | (949) | (2,550) | (3,499) | (772) | (2,612) | (3,384) |
| Other expenses | (680) | — | (680) | (587) | — | (587) |
| (Loss)/return on ordinary activities before taxation | (93) | 12,795 | 12,702 | (501) | 40,882 | 40,381 |
| Taxation | — | — | — | — | — | — |
| (Loss)/return on ordinary activities after taxation | (93) | 12,795 | 12,702 | (501) | 40,882 | 40,381 |
| (Loss)/return per share | (0.1)p | 5.9p | 5.8p | (0.2)p | 19.9p | 19.7p |
The total columns of this statement are 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 comprehensive income has been presented.
The Company has only one class of business and one reportable segment, the results of which are set out in the Income Statement and Balance Sheet.
There are no potentially dilutive capital instruments in issue and, therefore, no diluted earnings per share figures are relevant. The basic and diluted earnings per share are, therefore, identical.
The notes on pages 82 to 98 of the Annual Report and Accounts form part of these financial statements.
Reconciliation of movements in shareholders' funds
| Year ended 31 December 2022 | Called-up share capital £’000 | Share premium account £’000 | Capital redemption reserve £’000 | Distributable reserve1 £’000 | Capital reserve1 £’000 | Revaluation reserve £’000 | Total £’000 |
| As at 1 January 2022 | 2,056 | 34,954 | 1,081 | 75,591 | 5,945 | 65,521 | 185,148 |
| Share issues in the year2 | 250 | 22,084 | — | — | — | — | 22,334 |
| Expenses in relation to share issues3 | — | (658) | — | — | — | — | (658) |
| Repurchase of shares | (114) | — | 114 | (8,980) | — | — | (8,980) |
| Realised gains on disposal of investments | — | — | — | — | 13,207 | — | 13,207 |
| Investment holding gains | — | — | — | — | — | 2,138 | 2,138 |
| Dividends paid | — | — | — | (18,817) | — | — | (18,817) |
| Management fees charged to capital | — | — | — | — | (2,550) | — | (2,550) |
| Revenue loss for the year | — | — | — | (93) | — | — | (93) |
| As at 31 December 2022 | 2,192 | 56,380 | 1,195 | 47,701 | 16,602 | 67,659 | 191,729 |
| Year ended 31 December 2021 | Called-up share capital £’000 | Sharepremium account £’000 | Capital redemption reserve £’000 | Distributable reserve1 £’000 | Capital reserve1 £’000 | Revaluation reserve£’000 | Total £’000 |
| As at 1 January 2021 | 2,060 | 67,634 | 994 | 50,546 | (4,513) | 35,097 | 151,818 |
| Share issues in the year2 | 83 | 6,714 | — | — | — | — | 6,797 |
| Expenses in relation to share issues3 | — | (198) | — | — | — | — | (198) |
| Repurchase of shares | (87) | — | 87 | (6,142) | — | — | (6,142) |
| Cancellation of share premium | — | (39,196) | — | 39,196 | — | — | — |
| Realised gains on disposal of investments | — | — | — | — | 13,070 | — | 13,070 |
| Investment holding gains | — | — | — | — | — | 30,424 | 30,424 |
| Dividends paid | — | — | — | (7,508) | — | — | (7,508) |
| Management fees charged to capital | — | — | — | — | (2,612) | — | (2,612) |
| Revenue loss for the year | — | — | — | (501) | — | — | (501) |
| As at 31 December 2021 | 2,056 | 34,954 | 1,081 | 75,591 | 5,945 | 65,521 | 185,148 |
The notes on pages 82 to 98 of the Annual Report and Accounts form part of these financial statements.
Balance sheet At 31 December 2022
Registered number: 03421340
| As at | As at | |
| 31 December | 31 December | |
| 2022 | 2021 | |
| £’000 | £’000 | |
| Fixed assets | ||
| Investments held at fair value through profit or loss | 169,775 | 167,006 |
| Current assets | ||
| Debtors | 3,037 | 1,669 |
| Cash and cash equivalents | 19,525 | 17,521 |
| 22,562 | 19,190 | |
| Creditors | ||
| Amounts falling due within one year | (608) | (751) |
| Net current assets | 21,954 | 18,439 |
| Amounts falling due greater than one year | — | (297) |
| Net assets | 191,729 | 185,148 |
| Capital and reserves | ||
| Called-up share capital | 2,192 | 2,056 |
| Share premium account | 56,380 | 34,954 |
| Capital redemption reserve | 1,195 | 1,081 |
| Distributable reserve | 47,701 | 75,591 |
| Capital reserve | 16,602 | 5,945 |
| Revaluation reserve | 67,659 | 65,521 |
| Equity shareholders’ funds | 191,729 | 185,148 |
| Net Asset Value per share | 87.5p | 90.1p |
The financial statements were approved by the Board of Directors and authorised for issue on 25 April 2023 and were signed on its behalf by:
Margaret LittlejohnsChair
The notes on pages 82 to 98 of the Annual Report and Accounts form part of these financial statements.
Cash flow statementFor the year ended 31 December 2022
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2022 | 2021 | |
| £’000 | £’000 | |
| Cash flow from operating activities | ||
| Loan interest received from investments | 1,249 | 582 |
| Dividends received from investments | 132 | 384 |
| Deposit and similar interest received | 220 | 1 |
| Investment management fees paid | (3,789) | (3,095) |
| Secretarial fees paid | (130) | (122) |
| Other cash payments | (457) | (462) |
| Net cash outflow from operating activities | (2,775) | (2,712) |
| Cash flow from investing activities | ||
| Purchase of investments | (11,051) | (15,111) |
| Proceeds on sale of investments | 21,922 | 22,810 |
| Proceeds on deferred consideration | 266 | — |
| Net cash inflow from investing activities | 11,137 | 7,699 |
| Cash flow from financing activities | ||
| Proceeds of fundraising | 18,531 | 5,407 |
| Expenses of fundraising | (473) | (164) |
| Repurchase of own shares | (9,234) | (5,496) |
| Equity dividends paid | (15,182) | (6,152) |
| Net cash outflow from financing activities | (6,358) | (6,405) |
| Net inflow/(outflow) of cash in the year | 2,004 | (1,418) |
| Reconciliation of net cash flow to movement in net funds | ||
| Increase/(decrease) in cash and cash equivalents for the year | 2,004 | (1,418) |
| Net cash and cash equivalents at start of year | 17,521 | 18,939 |
| Net cash and cash equivalents at end of year | 19,525 | 17,521 |
Analysis of changes in net debt
| At | At | ||
| 1 January | 31 December | ||
| 2022 | Cash flow | 2022 | |
| £’000 | £’000 | £’000 | |
| Cash and cash equivalents | 17,521 | 2,004 | 19,525 |
The notes on pages 82 to 98 of the Annual Report and Accounts form part of these financial statements.
Notes
These are not statutory accounts in accordance with S436 of the Companies Act 2006. The full audited accounts for the year ended 31 December 2022, which were unqualified and did not contain statements under S498(2) of the Companies Act 2006 or S498(3) of the Companies Act 2006, will be lodged with the Registrar of Companies. Statutory accounts for the year ended 31 December 2022 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. 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 31 December 2022. All investments held by the Company are classified as ‘fair value through the profit and loss’. Unquoted investments have been valued in accordance with IPEV guidelines. Quoted investments are stated at bid prices in accordance with the IPEV guidelines and Generally Accepted Accounting Practice. Copies of the Annual Report will be sent to shareholders and can be accessed on the following website: www.foresightvct.com. Net Asset Value per shareThe Net Asset Value per share is based on net assets at the end of the year and on the number of shares in issue at that date.
| 31 December | 31 December | |
| 2022 | 2021 | |
| Net assets | £191,729,000 | £185,148,000 |
| No. of shares at year end | 219,151,944 | 205,591,087 |
| Net Asset Value per share | 87.5p | 90.1p |
| Year ended | Year ended | |
| 31 December | 31 December | |
| 2022 | 2021 | |
| £’000 | £’000 | |
| Total return after taxation | 12,702 | 40,381 |
| Total return per share (note a) | 5.8p | 19.7p |
| Revenue loss from ordinary activities after taxation | (93) | (501) |
| Revenue loss per share (note b) | (0.1)p | (0.2)p |
| Capital return from ordinary activities after taxation | 12,795 | 40,882 |
| Capital return per share (note c) | 5.9p | 19.9p |
| Weighted average number of shares in issue in the year (note d) | 218,519,391 | 204,937,084 |
Notes:
Total return per share is total return after taxation divided by the weighted average number of shares in issue during the year.Revenue loss per share is revenue loss after taxation divided by the weighted average number of shares in issue during the year.Capital return per share is capital return after taxation divided by the weighted average number of shares in issue during the year.The weighted average number of shares is calculated by taking the number of shares issued and bought back during the year, multiplying each by the percentage of the year for which that share number applies and then totalling with the number of shares in issue at the beginning of the year. Annual General MeetingThe Annual General Meeting of the Company will be held at the offices of Foresight Group LLP, The Shard, 32 London Bridge Street, SE1 9SG on 15 June 2023 at 2.00pm. Details will be published on both the Company’s and the Manager’s website at www.foresightvct.com.
Income| Year ended | Year ended | |
| 31 December | 31 December | |
| 2022 | 2021 | |
| £’000 | £’000 | |
| Loan stock interest | 1,184 | 473 |
| Dividends receivable | 132 | 384 |
| Deposit and similar interest received | 220 | 1 |
| 1,536 | 858 |
| 2022 £’000 | 2021 £’000 | |
| Unquoted investments | 169,775 | 167,006 |
| £’000 | ||
| Book cost as at 1 January 2022 | 102,687 | |
| Investment holding gains | 64,319 | |
| Valuation at 1 January 2022 | 167,006 | |
| Movements in the year: | ||
| Purchases at cost | 10,060 | |
| Disposal proceeds1 | (21,922) | |
| Realised gains2 | 12,941 | |
| Investment holding gains3 | 1,690 | |
| Valuation at 31 December 2022 | 169,775 | |
| Book cost at 31 December 2022 | 103,766 | |
| Investment holding gains | 66,009 | |
| Valuation at 31 December 2022 | 169,775 |
No Director has an interest in any contract to which the Company is a party other than their appointment and remuneration as Directors.
Transactions with the ManagerForesight Group LLP was appointed as Manager on 27 January 2020 and earned fees of £3,499,000 during the year (2021: £3,087,000).
Foresight Group LLP is the Company Secretary (appointed in November 2017) and received accounting and company secretarial services fees of £130,000 (2021: £122,000) during the year. At 31 December 2022, the amount due to Foresight Group LLP was £nil (2021: £nil).
No amounts have been written off in the year in respect of debts due to or from the Manager.
END
For further information please contact:Gary Fraser, Foresight Group: 020 3667 8181