FTD Foresight 3

 
TIDMFTD 
 
 
   FORESIGHT 3 VCT PLC 
 
 
 
   Summary 
 
 
 
 
   -- Net asset value per Ordinary Share for the six month period ended 30 
      September 2015 decreased by 6.3%, represented by a net asset value of 
      62.6p compared to a net asset value of 66.8p at 31 March 2015. 
 
   -- Funding totalling GBP2,497,000 was provided to six companies. There was 
      also GBP134,000 of interest capitalised under the terms of loan 
      agreements in one company. 
 
   -- Realisation proceeds and loan repayments totalling GBP1,641,000 were 
      received from three portfolio companies and two SPVs. 
 
 
 
 
 
 
 
 
 
 
 
                                                        Six months  Year ended 
                                                             ended 
                                                                30    31 March 
                                                         September        2015 
                                                              2015 
Net asset value per Ordinary Share                           62.6p       66.8p 
Net asset value per Ordinary Share (including all           121.4p      125.6p 
 dividends paid) 
Share price per Ordinary Share                               49.8p       47.3p 
Share price total return per Ordinary Share (including      108.6p      106.1p 
 all dividends paid) 
 
 
 
 
   Chairman's Statement 
 
 
 
   Summary Financial Highlights 
 
 
 
 
   -- Net asset value per Ordinary Share at 30 September 2015 was 62.6p (31 
      March 2015: 66.8p). 
 
   -- The fund provided follow-on funding totalling GBP0.36 million to three 
      portfolio companies and GBP2.3 million to four new investments. 
 
   -- The fund realised GBP1.641 million from sales and loan redemptions from 
      three portfolio companies and two SPVs. 
 
 
 
 
   Performance 
 
   During the six months to 30 September 2015, the net asset value per 
Ordinary Share decreased by 6.3% to 62.6p from 66.8p at 31 March 2015. 
 
 
 
   Overall, the Board is happy with the composition of the portfolio 
including the recent addition of four new investments for a total 
consideration of GBP2.3 million. We believe the portfolio is well placed 
to deliver growth, underpin future dividends and enhance shareholder 
returns. 
 
 
 
   Nonetheless, the private equity investments are not immune from the 
impact of external factors, in particular Aerospace Tooling which has 
seen a reduction or delay in orders as some of its customers have been 
severely impacted by the significant drop in the price of oil. The value 
of this investment was reduced by GBP1.1 million or 2.1p per share.  As 
an investment the company has returned cost from previous refinancings 
ahead of the downturn in fortunes, a strategy we have also implemented 
across other investments in the portfolio. 
 
 
 
   Additionally, the valuation of Datapath, the Company's largest 
investment, was reduced by GBP0.8 million or 1.6p per share as the 
rollout of its new products took longer than expected, although we 
anticipate this to be temporary reduction in value. Datapath's value 
represents some GBP9.4 million of the total portfolio of GBP30.8 
million. The Board and investment manager are actively considering 
options to reduce the Company's exposure to the investment. 
 
 
 
   Finally, due to recent trading difficulties the valuation of The Skills 
Group has been written down to nil, accounting for GBP0.4 million or 
0.8p per share of the decrease in the net asset value. 
 
 
 
   The remaining portfolio comprises several 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 maintaining or increasing 
the current level of dividends to shareholders. 
 
 
 
   A detailed review of the portfolio is included in the Investment 
Manager's report commencing on page 4. 
 
 
 
   Dividends 
 
   It is 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 to at least 
maintain this level of dividend and depending on the portfolio 
performance increase future payments of dividends to Shareholders. 
 
 
 
   Top-up Share Issues and Share Buy-backs 
 
   During the period under review 200,000 Ordinary Shares were repurchased 
for cancellation at a cost of GBP98,000. These were purchased at a 22% 
discount to the net asset value. 
 
 
 
   There were no shares issued during the period. 
 
 
 
 
 
   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 
2015 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 has generated significant cash balances, which underpins the 
Board's dividend commitment to Shareholders. These realisations 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 above. 
 
 
 
   Raymond Abbott 
 
   Chairman 
 
   26 November 2015 
 
 
 
   Investment Manager's Report 
 
 
 
   During the six month period to 30 September 2015, the net asset value 
per Ordinary Share decreased by 6.3% to 62.6p as at that date from 66.8p 
at 31 March 2015. Several investments continued to perform well, such as 
Ixaris, CoGen and TFC Europe, supporting an increase in their aggregate 
valuation of GBP757,000. TFC, in particular, effected a successful 
recapitalisation and share reorganisation, as part of which the Company 
was repaid all its outstanding loans and all accrued interest plus a 
redemption premium, receiving GBP568,165 and increasing its shareholding 
from 14.29% to 17.78%. 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 GBP500,000 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 GBP1.1 million during the period accounting for 2.1p of the reduction 
noted above. 
 
 
 
   The period was active in terms of new investments, with four new 
investments totalling GBP2.275 million being completed (alongside other 
Foresight VCTs) in well established, profitable, 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. 
Following receipt of EU State Aid approval, these regulatory changes 
took effect from 18 November 2015, the date of Royal Assent to the 
Finance Act 2015. Two of these changes in particular are expected to 
impact the future management of VCTs, first the restriction on the age 
of a company that is eligible for investment by a VCT (generally no more 
than seven years from the date of the company's first commercial sales.) 
Second, restrictions on VCT funds being used in acquiring an interest in 
another company or existing business. The latter restrictions are likely 
to impact replacement capital transactions, such as shareholder 
recapitalisations and management buy-outs and buy-ins, and will 
encourage more development capital transactions. Legal advice has been 
sought to understand the full implications of these changes. 
 
 
 
   Foresight VCTs already invest in all these types of transactions so the 
proposed changes are not expected to have as great a consequential 
impact as may be experienced by other VCTs. With a long track record of 
successfully investing in development capital opportunities, Foresight's 
marketing efforts have already been refocussed towards finding suitable 
later stage development capital funding opportunities, with the aim of 
accelerating the growth of established, profitable companies. A number 
of such opportunities are currently under active consideration. 
 
 
 
   1. New investments 
 
 
 
 
 
 
Company                            GBP 

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