Foresight VCT AGM (2018)

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This year’s Foresight VCT AGM was held on Tuesday 22nd May commencing at 14:00, at the Foresight Offices, 23rd floor, The Shard, SE1 9SG.
There were around 25 attendees, which included about 16 ordinary shareholders, the BOD and representatives from the manager.

Links to the Annual Report for year ending Dec 2017 and my notes from last year’s AGM are shown below:
http://www.foresightgroup.eu/media/8430 ... s-2017.pdf
http://sharesoc.ning.com/forum/topics/t ... nt%3A43428

The Chairman (John Gregory) kicked of the meeting by announcing the running order for the meeting, which began with a presentation from the manager followed by Q&As and then the formal business of the AGM. Unusually for a Foresight AGM, the agenda did not include any presentations from investee companies.

Manager’s presentation

Russell Healy gave the main presentation with Richard Thompson doing a very brief summary on the planed exit infrastructure class of shares, which were wound up and cancelled during the year. The main points of interest were as follows:

Foresight look at around 1,200 investment opportunities/year from all around the country, they source these opportunities from their network of small business advisors and accountants and through staging regional events.

In February 2018 Foresight were appointed as one of the fund managers to run the newly formed Midlands Engine investment fund and they are now responsible for investing around £35m of the fund
http://www.foresightgroup.eu/media/8819 ... 2302-1.pdf

The fund will be focused on early stage companies and it should provide a new source of later stage investment opportunities for the two Foresight VCTs.

The VCT portfolio now comprises 29 companies. Within the current portfolio 9 out of the top 10 investments by value are growing
During the year the VCF made 2 follow on investments (Ollie Quinn and Biofortuna) and 6 investments in new companies, brief details of the new investee companies as follows:
 Mowgli: Trendy Indian Restaurants (5 sites)
 Nano Interactive: Software to provide more relevant advertising based on browsing history
 200 Degrees Coffee: Artisan coffee shops
 Powerlinks: Web based advertising solution (it sounded like click bait advertising to me)
 Luminet: Fixed high speed wireless internet based around London
 Mologic: Develops proprietary diagnostics and provides outsourced contract research

There were 4 exits throughout the year and 2 exits post year end (exit multiples were between 2X and 4.6X).
Regarding the current investment pipeline, Foresight currently have 6 deals where they have now reached exclusivity (3 in TMT, 2 in healthcare and 1 in Leisure).

Q&As

Q: Why has Foresight been winning awards (note: this question was referring to a slide in the manager’s presentation)? Your past performance has been well below average compared to other VCTs. The only achievement to deserve any congratulations, is your record for extracting more money from investors.
A: The awards are mainly focused on recent investment activity rather than older investments, they do not all concern the Foresight VCTs, some of them were awarded to the investee companies.

Q: I am still underwater with my C shares, purchased around 18 years ago (even taking into account dividends), when will I get my money back?
A: With any investments timing can be critical. With the benefit of hindsight, it is easy to see that investing in the early noughties was not a good time to invest in small tech firms, although this was not apparent at the time.

Q: I am a relatively new shareholder, so I am quite happy with performance so far, but why are you not more transparent in your literature about historical returns?
A: Comments noted, we will look into that.

Q: On page 5 of the AR, you state the total return has risen by 5.4%. Is this correct?
A: The total return for last year was up 6.5%.
The 5.4% refers to the total return increase over a 7 year period from Jan 1st 2011 to Jan 1st 2018.

Q: I was pleasantly surprised to learn that you have just invested in Luminet, as that has given me (a long standing Luminet shareholder) an opportunity for a partial exit. Given the age of the company and nature of the deal, how did you manage to structure it as VCT/EIS qualifying?
A: It was a bit tricky to structure the deal, the fact that EIS investments had been made in the previous seven years helped given the age of the company and part of the investment utilised non VCT funds to purchase the assets.

Q: The value of Ixaris in the portfolio has shot up this year which is very welcome especially given that it is also in the portfolio of a number of other VCTs (including Foresight 4 VCT), so could you tell me the current valuation for the company (not just the Foresight VCT stake)?
A: The whole company is now valued at around £74m.

Q: The last update for Foresight 4 VCT does not take this latest sharp upward valuation for Ixaris into account, They have had an open offer for new shares which spans the old Ixaris valuation and the new higher Ixaris valuation and yet they have issued shares based on a NAV which doesn’t take into account the revaluation of Ixaris (the last issue being on May 18th). Does this mean that existing Foresight 4 VCT shareholders are being short changed?
A: That is an interesting question and you are right to highlight it here, but it is one the Foresight 4 VCT Board of Directors must answer.

Formal Business

There were no questions on any of the resolutions except for resolution 8, which concerned the reappointment of KPMG as auditor where there were a number of questions relating to their suitability in light of their poor record in auditing the Foresight 4 VCT accounts over the last few years. This poor performance resulted in one shareholder writing to the FRC last September with a formal complaint against KPMG. FRC subsequently referred the matter to the FCA in February 2018 and both FRC and FCA are now believed to be considering the case. Copies of the original complaint along with supporting documentation can be found on the ShareSoc website at the following links:
https://www.sharesoc.org/wp-content/upl ... Letter.pdf
https://www.sharesoc.org/wp-content/upl ... Sheet1.pdf

The Q&As for Resolution 8 are summarised below:

Q: Is there a representative of KPMG at this meeting?
A: No

Q: Has the manager heard anything from FRC or FCA concerning this matter?
A: No (note: it was not a straight forward no, it came with a qualification that I didn’t quite catch)

Q: Has the BOD had any correspondence from FRC or FCA on this issue?
A: No, we were not aware of any issues with Foresight 4 VCT

Q: Has Peter Dicks had any correspondence from FRC or FCA on this matter (note: In addition to being a Foresight VCT director, Peter Dicks was also a Foresight 4 VCT Director until September 28th 2017)
A: No (PD claimed this was the first time he had heard about it)

When it came to the voting, all resolutions were passed with a large majority on a show of hands, although for resolution 8, around six or seven of the shareholders present voted against the re-election of KPMG. The number of shareholders opposing the motion was insufficient for a poll, although had there been a poll, the resolution would almost certainly have been approved anyway on the proxies, with only 2.23% of the proxy votes opposing KPMG’s re-election.

Four of the five directors were seeking re-election and all four were re-elected with under 2% of the proxies opposing their re-election. Peter Dicks, the long standing non-independent director was stepping down after the AGM this year, although had he been seeking re-election, he would probably have had considerably more votes opposing his re-election than the other directors (as seen in previous years).
The number of proxy votes cast represented just under 10% of the total shares in issue, see RNS for further details:
https://www.investegate.co.uk/foresight ... 3615H4755/

After the meeting I chatted to a number of directors about the auditor issue and we agreed that I should provide them with the relevant correspondence (now done) and they would carefully consider the matter based on the facts available.

I spoke to the manager before and after the meeting on a couple of topics: I enquired about Foresight’s reaction to the Treasury’s latest consultation arising from last year’s PCR “Financing growth in innovative firms” which ran for 9 weeks and closed on 11th May:
https://assets.publishing.service.gov.u ... ms_web.PDF

Foresight seemed unconcerned and they considered that the possible changes discussed would not affect them; therefore they did not make a submission in response to the consultation.

I was also asked about the plans for the Shareholder Seminars this year, given that last year there were more shareholders wishing to attend than places available. I was told that Foresight plan to run four shareholder seminars this year (instead of two) and they may also run one seminar outside of London on a trial basis.