Freesteel Blog » Financial nonsense at Vero Part 2

Financial nonsense at Vero Part 2

Thursday, October 1st, 2009 at 9:35 am Written by:

This is a follow-on from Financial nonsense at Vero.

The line Noble Enterprise VCT has dropped out of the table. Searching for this name on google returns a Foresight VCT webpage, which says:

In the late 1990’s, during the Technology “Bubble”,[sic] Foresight significantly outperformed the wider technology market and generated returns that made it the leading VCT Manager. It has continued to prove itself more recently by having been awarded three existing VCT mandates from other managers. It is testament to Foresight’s standing within the industry that in 2004 it was offered the mandate to take over the management of two Advent VCT funds, subsequently rebranded Foresight 3 and Foresight 4 VCT and the Noble/Enterprise VCT, subsequently rebranded Foresight 3 ‘C’.

So it appears that some paper is being shuffled around.

But what the heck are these VCT’s anyway?

According to this 2004 BBC article, VCT investments receive an almost matching tax-payer subsidy:

In order to encourage investment in these companies, VCTs were designed with generous tax breaks.

Investors receive an upfront 40% tax relief.

In other words if you put £10,000 in, this could only cost you £6,000 by the time you have had your tax rebate.

And the tax free boost doesn’t stop there.

Any capital gain or dividend paid from the VCT is also completely free of tax.

A 2005 article published by everyinvestor decrying the reduction of this tax break to 30%, explains the money-making potentials:

How a loser can still be profitable … [S]ince a £1 share actually costs you 60p, the managers can make a lot of mistakes before they lose 40% of your money. In other words, you only need a very modest rate of return on the investments to come out with a healthy return thanks to the tax break. Say the £1 share is still only worth £1 after five years. Since it cost you 60p, you have actually made an annual return of 10%, which is of course net of tax. Even if the shares were worth under £1 you could still be making a reasonable profit on your real net investment.

The same article adds at the bottom:

Foresight 3 VCT: Foresight are specialist technology investors, so if you want big-bang-bucks, this is the one for you.

Of course, the staff and wheeler-dealers for these funds are even easier to shuffle around than their goddamn names. Since these guys appear to me to be the only physical and mental embodiments of these irresponsible money allocating devices, you’d think that all those investment tip-off advisers would be tracking them, wouldn’t you? You’d see write-ups, like:

I’ve heard that Mr Gow, who was the brains behind the growth in Brain Baby BS VCT plc trust since 2006 has just been poached by Dingbat Ltd to run their Colossus International Capital 3 ‘C’ fund on a permanent 4 year contract. So I’m moving my money out of BBBSVCT, though not into Dingbat because I’ve heard they have promised such a high bonus to Gow that they can never make enough money to cover it. They’re only expecting that by signing his name, it’ll attract a lot of other investors.

But you don’t ever see anything like that, do you?

6-monthly report from Vero

Meanwhile, the 6 monthly report from Vero has been published. It’s very boring:

I am pleased to announce a strong result for Vero Software for the six months to 30 June

Group revenue for the first half of the year remained unchanged compared to 2008 despite the worst industrial environment the company has seen since its inception. Contributions to the £6.6m in revenues came from a variety of manufacturing sectors and were assisted by a very strong release of the principal product. Software maintenance revenues not only held up well in the face of company cut backs but also grew to £3.5m (2008: £2.9m) during the period.

Selling costs related to software sales and support fell to £3m from £3.4m as a result of cost cutting. Development costs remained slightly above last year at £1m (2008:£0.9m) as did general and administration costs which have increased to £1.48m (2008:£1.35m). These cost increases are largely the result of the significant fall in Sterling which also enhanced revenues to counter the increased costs. In local currency terms our cost base has been reduced significantly.

For a buyer of this software, this is saying that less than 16% of your money is being spent on improving and maintaining the software you are getting in return.

I don’t understand all the other non-interesting numbers. But the report ends with the statement:

At the balance sheet date Vero Software Plc had outstanding loans from Fortis Bank of £846,000 (December 2008 : £1,359,000). As a result of a breach of a loan covenant relating to debt service cover, advance repayments of £250,000 have been made in the period and the interest charged on the loans increased to 7% over LIBOR. The Group has a revised facility letter and a “letter of comfort” from Fortis Bank stating that it does not intend to withdraw the facilities available to the Group. Alternative sources of finance are being actively pursued.

How “comfortable” is that!

There are share price trades totaling approximately 20,000 shares at 17p yesterday. If I am interpreting the Director’s awards table correctly, Youhill, with his 2004 award of 500,000 shares at 14p, would — if he could sell these shares to some victim out there without depressing the market back to the level it was last week — could make a whole 500000 * (0.17-0.14) = £15,000 from this offer. But he’d have to race against Babbs and Gyllenhammar’s outright ownership of 13 million shares between them who have no such cut-off effect. Ain’t this business game grand!

Don’t worry. No one reads this blog anyway. It’s just a place for idle speculation of a know-nothing into the complete disaster that is our current financial system.


  • 1. Dan Falck replies at 2nd October 2009, 11:19 pm :

    Hi Julian,
    I read your blog and appreciate it. This whole business is pretty depressing isn’t it? I’m on the consuming end of the mess (not this particular software) and you are right about not taking comfort in 16% going back into improving the product.
    On a happier note…I like your machining specific topics and I like the stories about your travels 🙂


  • 2. Freesteel&hellip replies at 4th November 2009, 7:54 pm :

    […] their competitor’s, (d) one of the know-nothing speculative investors in the company who have glossy brochures and tax breaks, or (e) an imaginary […]

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