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Foresight 4 AGM (2018)

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timbo003
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Foresight 4 AGM (2018)

#175654

Postby timbo003 » October 23rd, 2018, 12:25 am

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This year’s Foresight 4 VCT AGM was held on Thursday 11th October 2018 commencing 13:00, at the Foresight Offices, 23rd floor, The Shard, SE1 9SG.

There were around 40 attendees, which included about 25 ordinary shareholders, several representatives from the manager and the F4 Board of Directors comprising the Chairman Raymond Abbott (RA), Simon Jamieson (SJ) and Michael Gray (MG).The meeting began with the Manager’s presentation followed by Q&As and finally the formal AGM.

The Annual report for year ending March 2018 can be found here:
http://www.foresightgroup.eu/media/1112 ... r-2018.pdf

Notes from last year’s AGM can be found here:
viewtopic.php?f=25&t=7665

Managers Presentation

Russell Healy (RH) gave the presentation on behalf of the manager and began with a review of the VCT performance and investment activities for the financial year (y/e March 2018). There were five new investments and £10M worth of exits with the overall value of the portfolio slightly up (£1.5m).

Despite the VCT rule changes (November 2015), the Foresight VCTs are investing in the same sort of SMEs as they were before the changes came into effect (unlike some other VCTs). Foresight source most of their investment opportunities from the provinces, rather than from London and the SE, as they see London based SMEs relatively overvalued compared to elsewhere. Up until recently they have sourced all their investment leads through their nationwide network of company advisers, but they are now branching out into “direct origination” whereby Foresight managers approach SMEs directly. They consider that this direct approach generally leads to deals that are better value.

Another notable change, which is a direct consequence of the recent rule changes, is that Foresight are beginning to structure the deals so the VCTs can co-invest with non-VCT funds. Two such deals have recently been completed by Foresight VCT (Foresight 4 VCT did not participate due to lack of available funds at the time), with the VCT providing the qualifying cash and the non-VCT funds providing non-qualifying cash.
During the portfolio review, RH gave summaries for most of the top 10 investments, brief details were as follows:

Datapath: They are now back on track, last year’s sales were £25m with £7m EBITDA. This year’s sales are currently 20% up on the same time last year.

Ixaris: The company has recently experienced a downturn in their B2C business (VISA have changed their rules on certain transactions which includes gambling), but this has been offset by strong growth (70%) in the B2B division.
Protean: The company is performing as per plan with the switch to SaaS. The recurring component of their revenue is up 20% this year which should have a positive effect on the valuation (recurring income is valued at around 4X, whereas one off income is valued at around 1X).
Areospace Tooling: One big customer got into trouble, they have now diversified customer base and they are back on track.

Procam: One of their acquisitions is having a bad year.

For the new additions to the portfolio, there were name checks for Mologic (Point of care diagnostics), Codeplay (Software for software developers requiring multiple platforms), Naked Deli (Grab and go eating chain located in the NE), Accrosoft (Software for Schools to aid communication and development) and Luminet (Wireless broadband for business).

There were five realisations during the year and one realisation post year end (Thermotech).

The Foresight VCTs currently have eight SMEs in the investment pipeline, all of which are generating revenue, their business activities include: TMT (ticketing software), Healthcare (fertility) and Leisure.

HMRC approval times are still somewhat slow, the last one took about 10.5 weeks.

RH summarised by stating that although they were not satisfied with the overall performance of the portfolio last year, but it now looks very well positioned for significant growth in the future.

Q&As

Q: You mentioned that going forward you intended to co-invest with non-VCT funds which would enable the VCT to invest in businesses where the owners wanted an exit (or partial exit), would the non-VCT funds ever be connected to Foresight in any way and if so, how would you avoid conflicts of interest?
A: Yes, the co-investment could be with other Foresight funds, but they would invest under exactly the same terms with the same class of shares, preference shares and loan terms.

Q: Would the co-investment ever be with Foresight EIS funds? If so, if there was another Simulity, (where Foresight VCT invested £4m in 2016 and then sold out for a 3X multiple a few months later), then surely this could create a big conflict of interest regarding timing of the exit (EIS funds have to hold for three years, VCTs do not)?
A: Yes, the VCTs could invest with Foresight EIS funds, but we would never let the tail wag the dog. We would exit if the price were right, irrespective of tax considerations.

Q: Which new rule changes (announced in Nov 2017) are having an effect?
A: The switch to having to hold 80% of funds (from 70%) in qualifying investments (from April 2019) is going to have a significant effect.

Q: For Ixaris Systems, how are the two parts of the business valued and what value is assigned to each part?
A: The B2B part (Ixaris) is valued on a revenues multiple and the B2C part (Entropay) is valued on a trailing EBITDA multiple. On a sum of the parts basis, the company holds £10m cash and the relative valuations for each business is Ixaris 65%, Entropay 35%(approximately).

Q: Who are your main competitors when it comes to acquiring businesses?
A: We bump into a few other VCT managers on the investment circuit, including YFM and Downing.


Formal AGM

This was fairly uneventful compared to recent years with only a few questions asked.

I asked whether the VCT would be conducting any further tender offers and suggested that if there were more tender offers, the directors should structure the offer so shareholders with a very small number of shares could sell out completely as it was uneconomic for them to dispose of their shares in the market. This would benefit everyone, including those who did not participate in the tender, as it could have the effect of significantly reducing the overall number on the share register and hence reduce VCT running costs. The BOD responded by stating that there were no current plans for another tender and a decision to conduct another tender would be dependent on funds being available, however, they responded favourably to the suggestion regarding taking out small shareholders and reducing costs and stated that they would look into it.

There was a question regarding the alleged illegal dividend paid in December 2015 and whether the directors had heard anything from FRC on this subject. The response was that the directors did not consider the payment of the dividend illegal and they had heard nothing from FRC concerning the matter.

For the Proxy voting, all resolutions were passed by a majority in excess of 90% except for resolution 8 (share buybacks which had 87% in favour, 13% against). Approximately 7.5% of the total shares in issue voted in each case.
https://www.londonstockexchange.com/exc ... 26833.html

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UncleEbenezer
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Re: Foresight 4 AGM (2018)

#175658

Postby UncleEbenezer » October 23rd, 2018, 2:13 am

Thanks for the report: great writeup as ever!
timbo003 wrote:Q: Would the co-investment ever be with Foresight EIS funds? If so, if there was another Simulity, (where Foresight VCT invested £4m in 2016 and then sold out for a 3X multiple a few months later), then surely this could create a big conflict of interest regarding timing of the exit (EIS funds have to hold for three years, VCTs do not)?
A: Yes, the VCTs could invest with Foresight EIS funds, but we would never let the tail wag the dog. We would exit if the price were right, irrespective of tax considerations.

FWIW, Octopus have been doing that for some time with Titan and Eureka. I asked the same question of them, and got the same answer.

Since then, we also have some case studies from the crowdfunding world where sales have resulted in lost EIS relief. Different platforms have different policies, but it doesn't appear to be a showstopper.

Of course, EIS money wants to buy qualifying shares just as much as the VCTs do, so this doesn't address the question of co-investing with non-qualifying investors.


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