Foresight Solar Annual Report (with exit form attached)

[UncleEbenezer]

I'm happy to be corrected, but my reading was that the escalator applies only to the threshold moving from the 20% performance fee to the 30% performance fee.

The example they give in the text seems to confirm the reading that the only performance fee in future is the 30%. Given a sufficient hurdle (as they have), that's something I can live with. It only becomes really nasty if inflation comes back making that 5% hurdle a real-terms loss.

I guess my other complaint is that this should have been proposed at the outset, the analysis underlying my decision to submit a BIP to sell is now hopelessly wrong and I need to rework it before deciding whether to accept the tender.

Agreed. The terms for continuing to hold should've been clearer. At least it wasn't a blank canvas onto which to project all your fantasies, like a brexit vote.

Fortunately the only binding part of that is that those who didn't opt to sell will get scaled back. No penalties (as far as I can see) from changing your mind and deciding to hold on. The object of that exercise was presumably to size the tender offer.

[parallellines]

The example they give in the text seems to confirm the reading that the only performance fee in future is the 30%. Given a sufficient hurdle (as they have), that's something I can live with. It only becomes really nasty if inflation comes back making that 5% hurdle a real-terms loss.

ok, I see what you are saying now. If that is the intention, then yes, it's more acceptable. Thanks.

[rpannell]

I see 2 problems with the new proposed performance fee:

1/ The 5% increase in performance fee annually is a simple 5%, i.e. it is not compounding. Thus the hurdle increases by 6.5p per year regardless of whether the hurdle is 130p or 260p. This means that each year, the hurdle decreases in relative terms; it is only a 5% hurdle in year 1. I think that Foresight has been sneaky here and has tried to get this yearly decrease in hurdle under the radar.


2/ Even though the tender offer and the performance fee are totally different beasts, you cannot vote on the 30% tender offer and the new proposed performance fee separately. They are tied together as 1 vote. This is also sneaky. I think they are worried that they might lose the performance fee vote ( it pays Foresight £2.17M now rather than at some unspecified future date) but they feel comfortable that people will vote for the tender offer.

I would have liked to have voted yes for the tender offer, and I would probably have voted yes for the new performance fee if they were separate, but because Foresight has not been honest with the voting, I will have to vote against the combined proposal.

Votes like this do not do Foresight's reputation any good.

[hiriskpaul]

I need to think about this a little more, but at first sight the proposed performance incentive payment looks like it will be significantly better for shareholders than the original one. The actual bonus is path dependent, but lets say NAV + distributions amounted to £1 over the next 10 years, 10p per year. Under the old scheme, the managers would have been entitled to 30p of that, but under the new scheme they will only get 30% of 3.5p per year, a total of 10.5p. I had originally opted to exit, mainly due to the performance fee, but now I need to reconsider and may end up holding on.

Have I missed something vital over this proposed performance fee?

[rpannell]

The terms of the proposed performance incentive (PI) are both better and worse.

Under the old terms, a PI became payable once DISTRIBUTIONS exceeded 100p. Although the current NAV plus dividends currently exceed 100p, the only part that has been distributed is the dividends. For Foresight to access the PI, they have to kill the golden goose by closing down the VCT and distributing the proceeds - capital plus dividends. They are doing this for the 30% of people who want to sell, but currently Foresight is locked out of the PI for the remaining 70%.

They realise this so to keep the management charges coming into them, they have offered a revised PI that uses NAV plus dividends.This keeps the golden goose alive but still gives them access to the PI now.

Is it better for shareholders - yes, but shareholders are in a strong position.

[hiriskpaul]

I have given this some thought and decided to proceed with the tender. The main reason is that I had already bought Foresight Solar (FSFL) some months ago on anticipating an exit from the VCT and I don't want to continue to hold both. It was not an easy decision, but on balance I prefer the lower charges on FSFL to the tax free return of the VCT, so in this case I am not letting the tax tail wag the dog. Had enhanced buy backs still been an option then that would have swung it the other way.

I have a strong dislike of incentive schemes, especially so easily achievable ones such as the one being proposed here. Although the new incentive scheme is better than the old one, the Board really should have negotiated a better deal.

[Karellan]

I have a strong dislike of incentive schemes, especially so easily achievable ones such as the one being proposed here. Although the new incentive scheme is better than the old one, the Board really should have negotiated a better deal.

Me too. Its hard enough in investment life to make a living but when the people selling you the investment are clearly seeing you as the prey it becomes too much. The worst I remember was when F2 triggered an incentive payment and they had mangaged to turn £1 into 40P but still got a pat on the back.

[hiriskpaul]

Received my exit cash today - 100.19p per share as announced. Unless I have missed some of the dividends I make that an 89% return, including the 30% tax rebate and initial discount. A good result for a limited life VCT and by far my best return from Foresight.

[hiriskpaul]

Received my exit cash today - 100.19p per share as announced. Unless I have missed some of the dividends I make that an 89% return, including the 30% tax rebate and initial discount. A good result for a limited life VCT and by far my best return from Foresight.

I did miss a dividend - the one paid in April! That makes the total return about 94%.

[UncleEbenezer]

Received my exit cash today - 100.19p per share as announced. Unless I have missed some of the dividends I make that an 89% return, including the 30% tax rebate and initial discount. A good result for a limited life VCT and by far my best return from Foresight.

Thanks for the heads-up. Just checked my bank account, and payment has indeed arrived.

From my spreadsheet, the total return excluding tax breaks was a capital gain of 5.2% plus dividend income of 30.5%, for a respectable 36% total return. Adjust purchase price for the tax break and it becomes a very satisfying 94%. For icing on the cake, Clubfinance trail is not included in the above

On the spreadsheet, this is actually my second-best return from Foresight, F1 having done better still from purchase in 2008/9 to sale in 2014. But that was a joint offer across F1-F4, so of course the investment as a whole got dragged down to a sorry tale.