Final Results
QUESTER VCT PLC ('the Company')
Summary of results for the year ended 31 January 2004
Per Ordinary Share 2004 2003 2002
(pence)
Capital Values
Net asset value 50.1 58.4 78.3
Share price 45.0 54.0 87.5
Return and Dividends
Dividend - - -
Cumulative dividend 41.5 41.5 41.5
Total Return* 91.6 99.9 119.8
*Net asset value
plus cumulative
dividend
Shareholder information
Annual General Meeting 11.00 a.m. on 8 June 2004
CHAIRMAN'S STATEMENT
Introduction
After the difficult conditions encountered in the two previous years, it is
encouraging to be able to report a level of progress in the Company's
investment portfolio against a background of greater stability in business
conditions generally, more favourable conditions for the availability of
private equity finance and an improved stock market.
While the accounts for the year show a reduction in the net asset value per
share of the Company, the Board considers that, generally, the performance of
companies in the portfolio during the year ended 31 January 2004 has been
somewhat more encouraging.
Venture capital portfolio performance
The performance of the venture capital portfolio generally has reflected more
stable business conditions, the more favourable conditions for the availability
of private equity finance and the improved stock market conditions.
Among the unquoted investments held at 31 January 2004, a number of the
companies remain relatively early stage businesses, operating in a number of
distinct technology areas. After suffering from the harsh economic environment
prevailing over the previous two years or so, in the year ended 31 January 2004
such companies have in general started to make better progress.
It is pleasing to be able to report the sale of the investment in CDC Solutions
Limited ('CDC'), a software company, to Information Holdings Inc., a US-based
information services group listed on the New York Stock Exchange. This
transaction has been accounted for in the year ended 31 January 2004 on a no
profit/no loss basis, but in addition to securing, at completion, a return to
the Company in cash and cash equivalents of substantially all of the original
cost of the investment, the transaction offers the prospect of a multiple of
cost ultimately being achieved depending on the future performance of the
combined business within the enlarged group.
Despite a generally more favourable business background, we have to report the
failure of one of the Company's investments, resulting in the write-off of some
£1.5 million. This disappointing result, and downward adjustments in the
carrying value of certain other unquoted venture capital investments, have
contributed to a decline in the reported net asset value per share of the
Company.
It has been encouraging that one of the key companies in the portfolio, Anadigm
Limited ('Anadigm'), has been successful in raising a new funding round, from a
syndicate that has attracted a leading venture capital firm as a new investor,
as well as including further participation from the Company and other Quester
funds. Current conditions in the market for private equity finance, however,
and the stage of development reached by the company meant that the new round
was priced at a lower level than previously. Although, as a result, this was
one of the investments
where a downward valuation adjustment was required, the Board is satisfied that
there are strong prospects for Quester VCT achieving an ultimate realisation of
its investment in Anadigm at a multiple of its total original cost.
The Board considers that, after careful consideration, the valuations adopted
at 31 January 2004 give a fair reflection of the overall value of the unquoted
portfolio in accordance with the Guidelines issued by the BritishVenture
Capital Association ('BVCA').
A more detailed review of the performance of the venture capital portfolio is
provided in the investment manager's report.
Income statement and dividends
The profit and loss account for the year ended 31 January 2004 shows a loss
before tax of £1.4 million (4.0 pence per share), with no tax being payable.
The loss comprises net gains from the realisation of investments of £0.3
million, a write-off of investments of £1.5 million and a deficiency of net
income against expenses of £0.2 million.
The Statement of Total Recognised Gains and Losses shows net unrealised losses
of £1.5 million (4.5 pence per share). This includes downward adjustments in
the carrying value of unquoted venture capital investments totaling £2.2
million, net of unrealised gains on the quoted venture capital investments and
FTSE 350 equities of £0.7 million.
The total return attributable to shareholders for the year amounted to a net
loss of £2.9 million or 8.5 pence per share. In these circumstances, the
directors do not recommend the payment of a dividend.
A transfer of £2.2 million has been made from the special reserve created on 3
November 2000, following the reduction of the share premium account,
representing the total of realised losses on investments incurred during the
year. Subject to the approval of resolution 7 in the Notice of Annual General
Meeting, this transfer will enable dividends to be paid out of capital gains
achieved from future investment realisations at an earlier date than would
otherwise be possible. Following this transfer, the profit and loss account
shows a net credit balance at 31 January 2004 of £3.1 million.
Balance sheet
At 31 January 2004 the total of venture capital investments, at valuations in
accordance with the BVCA Guidelines, amounted to £9.0 million including £
932,000 in quoted venture capital investments (5.5% of net assets) and £8.1
million in unquoted investments (47.2% of net assets).
Many of the companies in which Quester VCT has invested will require further
rounds of finance as they seek to develop to a point when they become cash
generative. It is important that, wherever appropriate, Quester VCT should be
in a position to contribute to this funding process. For this purpose the
Company has identified and earmarked funds for follow-on investment in our
existing portfolio companies. These funds are represented in terms of our
assets by the portfolio of
FTSE 350 equities and fixed-interest securities, and are considered to be at a
satisfactory level in relation to the likely requirements: at 31 January 2004
their overall value amounted to £5.1 million comprising £3.0 million in
fixed-interest securities (17.7% of net assets) and £2.0 million in equities
(12.0% of net assets).
Outlook
We remain positive about the outlook for the Company and its investments. The
current portfolio includes a number of investments that we believe have
significant potential for the future.
It is the intention of the Board to continue, wherever possible, with the
policy of maximum dividend distribution arising from realised profits, balanced
against the need to retain cash to meet ongoing financial commitments and to
make new investments. At the present time, however, it is not possible to
predict either the timing or level of the realisation of capital profits, and
accordingly the amount and timing of future dividends remains uncertain.
Tom Scruby
Chairman
6 May 2004
INVESTMENT MANAGER'S REPORT
Overview
After the difficult conditions in the venture capital market in the two
previous years, it has been encouraging in the year ended 31 January 2004 to
see greater stability in the venture capital portfolio as a whole and improved
stock market conditions.
Another positive development has been the re-emergence of M&A activity in the
unquoted company sector. As a result of a transaction entered into towards the
year end, the Company is well placed to gain future benefits from the
realisation of its investment in CDC Solutions Limited, although at 31 January
2004 this transaction has been accounted for on a no profit/no loss basis.
The accounts for the year ended 31 January 2004 show a decline in the reported
net asset value per share of the Company. However, in the light of improved
business conditions for many of our portfolio companies, the success of new
funding rounds and, in relation to a number of the portfolio companies, the
prospects for M&A activity, we are optimistic as to the prospects for the
venture capital portfolio as a whole.
Progress with venture capital investment
During the year we have supported a number of companies in the investment
portfolio with further rounds of finance, a total of £879,000 being provided as
follow-on finance to eight of the unquoted portfolio companies. Members of the
Quester team have continued to be actively involved with the companies in the
portfolio and in many cases have made significant contributions to their key
strategic business planning decisions.
The portfolio suffered one business failure during the year, the investment of
£1,526,000 in Bowman Power Limited being written off as at 31 January 2004.The
disappointing result follows a company performance, during 2003, which was a
long way below the investment plan. This led the company to be unable to raise
further finance from its broadly-based syndicate of investors: a small recovery
is anticipated from the administration process.
In the case of the new financing round of Anadigm Limited ('Anadigm'), in which
the Company and other Quester funds participated, current conditions in the
private equity market and the stage of development reached by the investee
company resulted in the new round being priced at a lower level than
previously.A downward adjustment of £1,111,000 has been made to the previous
carrying value of this investment.
Anadigm provides breakthrough technology to the electronics market, its devices
enabling electronic system developers to gain significant improvements in
design times, control and flexibility in the production of analog circuits. The
market for the company's products is expected to be in excess of $500 million,
and Anadigm has the potential to dominate this market with technology which is
heavily protected by intellectual property patents. Despite the valuation
adjustment necessitated at
31 January 2004, we believe that Anadigm offers Quester VCT strong prospects of
achieving an ultimate realisation at a multiple of the total original cost of
this investment.
Provisions have been made in respect of a number of other investments where the
business has fallen behind plan or to reduce valuations in order to reflect
current conditions in the private equity market.The total of provisions made
during the year against cost of the unquoted venture capital investments,
inclusive of the adjustment in respect of Anadigm, amounted to £2,215,000
(representing unrealised losses), while a provision of £181,000 taken in the
previous year as a permanent diminution in value has now been written back.
The remaining portfolio of quoted venture capital investments - including a
modest remaining holding in SurfControl plc and holdings in XKO Group plc and
Crown Sports plc - produced an unrealised appreciation over the year of £
285,000.
Realisation of venture capital investments
Towards the year end, the Company's investment in CDC Solutions Limited, a
software company specialising in regulatory publishing solutions for the life
sciences industry, was sold to a subsidiary of the US-based information
services group Information Holdings Inc. ('IHI'). The terms of the acquisition
have resulted in the Company receiving, at completion, substantially all of its
£1,020,000 cost of investment back in cash and cash equivalents. Depending on
future performance, a multiple of cost, and a substantial uplift on the
previous carrying value of £1,770,000, may ultimately
be achieved.
At 31 January 2004, this transaction has been accounted for on a no profit/no
loss basis. Additional proceeds receivable, if any, will be recognised in
future accounting periods once the amounts become certain.
The opportunity was taken during the year to sell the remaining holding in ADVA
A.G. Optical Networking and part of the remaining holding in SurfControl plc,
these transactions together realising proceeds of £298,000 and a profit of £
149,000 as against the carrying value at the previous year end.
Venture capital investments made during the year
Follow-on investments were made during the year as shown below (amounts shown
net of repayments of earlier bridging finance):
Company Industry Sector £'000
Advanced Valve Technologies Limited Industrial products & 362
services
Anadigm Limited Semiconductors 245
The Casella Group Limited Industrial products & 90
services
Communication & Control Electronics Electronics 75
Limited
Elateral Holdings Limited Software 61
Other (3) 46
879
Sector analysis of the venture capital portfolio
The portfolio of Quester VCT is balanced by sector and well spread. A summary
of the sectors covered by the portfolio is as follows:
Industry Sector Existing venture Cost Number of
capital portfolio at investments
cost £'000
%
Consumer goods & services, 29.9 2,691 5
leisure & publishing
Software 25.2 2,267 8
Industrial products & 18.6 1,669 4
services
Internet 9.5 856 2
Electronics & 7.4 668 2
communications
Healthcare 5.0 444 1
Semiconductors 4.4 396 1
100.0 8,991 23
Valuation of the venture capital portfolio
The unquoted investments have been valued in line with the accounting policies
which are based on the BVCA Guidelines.
Setting reasonable valuations on venture capital investments presents difficult
issues of judgment. As noted above, provisions have been made in respect of a
number of investments to reflect the terms on which a recent private equity
transaction has been concluded or where the business concerned has fallen
behind plan.
Outlook for the venture capital portfolio
In addition to the active involvement of members of Quester's investment team
in the key strategic business planning decisions of individual investee
companies, the team as a whole regularly conducts reviews of the portfolio to
identify those companies most likely to provide attractive opportunities for
capital growth, to review their potential requirements for further rounds of
finance and to determine what actions members of the team can take in helping
their managements develop the full potential of their businesses. The Quester
team believes that, despite the difficulties suffered in the last two or three
years by a number of the companies in which Quester VCT has invested, the
portfolio at 31 January 2004 holds a number of attractive investments with good
potential for future capital growth.
It is emphasized, however, that a number of the companies concerned are still
at a relatively early stage of development. Some of those involved in
technology-related opportunities, for example, while showing satisfactory
underlying development in their businesses, may still have only limited sales
revenues and may still be loss-making.
Reserves for follow-on investment
Many of the companies in which Quester VCT has invested will require further
rounds of finance as they grow. It is important that Quester VCT should be in a
position to contribute to this funding process, provided the companies
concerned continue to make satisfactory progress. For this purpose the Company
holds reserves for further investment in these existing portfolio companies.
These reserves are represented in terms of assets by the portfolio of FTSE 350
equities and fixed-interest securities referred to below, and are considered
currently to be at a satisfactory level in relation to
the likely requirements.
FTSE 350 equity and fixed interest portfolio
The portfolio of FTSE 350 equities and fixed interest securities is retained as
a reserve for potential future venture capital investment. It is managed on
behalf of the Company by UBS Laing & Cruickshank Limited.
The FTSE 350 holdings, covering 22 investments, stood at a valuation of some £
2.0 million against an overall cost of £2.2 million as at the year end, while
the fixed interest holdings with an amortized cost of £3.0 million were around
break-even. This portfolio showed an unrealised gain over the year of £380,000,
reflecting share price movements among the FTSE 350 equity holdings.
Conclusion
While business conditions vary in the different sectors in which the Company
holds investments, the performance and prospects of a number of companies in
the portfolio give cause for optimism. The current level of activity in
relation to certain of the companies, and the opportunities now beginning to
open up, suggest favourable prospects for the future.
We continue to work very closely with many of our portfolio companies to
rebuild value and improve the prospects for growth. The Company retains a
satisfactory level of cash reserves to contribute to the further funding of
existing portfolio companies.
Quester Capital Management Limited
6 May 2004
FUND SUMMARY AS AT 31 JANUARY 2004
Ten largest venture capital Industry sector Cost Valuation % of
investments by value fund
£'000 £'000
by value
HTC Healthcare Group Consumer services 1,000 1,000 5.9%
Methuen Publishing Limited Publishing 751 751 4.4%
Sift Group Limited Internet 875 729 4.3%
Sibelius Software Limited Software 700 700 4.1%
Advanced Valve Technologies Industrial products 2,392 598 3.5%
Limited & services
The Casella Group Limited Industrial products 1,065 576 3.4%
& services
Artisan Software Tools Limited Software 1,377 450 2.6%
International diagnostics Group Healthcare 930 444 2.6%
plc
Linguaphone Group plc Consumer goods 840 420 2.5%
XKO Group plc Software 505 400 2.3%
10,435 6,068 35.6%
Other venture capital 9,508 2,923 17.1%
investments
Total venture capital investments 19,943 8,991 52.7%
Listed fixed interest 3,040 3,020 17.7%
investments
Listed FTSE 350 equity 2,170 2,038 12.0%
shares
Total investments 25,153 14,049 82.4%
Cash and other net current assets 3,009 17.6%
Net assets 17,058 100.0%
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 JANUARY 2004
Notes 2004 2003
£'000 £'000
Loss on realisation of (1,169) (2,373)
investments
Income 1 456 412
Investment management 2 (387) (494)
fee
Other expenses 3 (287) (263)
Loss on ordinary (1,387) (2,718)
activities before
taxation
Tax on ordinary - -
activities
Loss on ordinary (1,387) (2,718)
activities after
taxation
Dividends paid and - -
proposed
Transfer from reserves (1,387) (2,718)
Basic loss per share 5 (4.0)p (7.8)p
Diluted loss per share 5 (4.0)p (7.8)p
All items in the above statement derive from continuing operations.
The Company has only one class of business and derives its income from
investments made in shares and securities and from bank deposits.
In accordance with Financial Reporting Standard (FRS) 14, the outstanding
options give rise to no dilution to the return per share.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 JANUARY 2004
Notes 2004 2003
£'000 £'000
Loss on ordinary activities after (1,387) (2,718)
taxation
Unrealised loss on revaluation of (1,550) (4,308)
investments
Total gains and losses recognised (2,937) (7,026)
during the period
Total recognised losses per share 5 (8.5)p (20.1)p
NOTE OF HISTORICAL COST PROFITS AND LOSSES
FOR THE YEAR ENDED 31 JANUARY 2004
2004 2003
£'000 £'000
Loss on ordinary activities before (1,387) (2,718)
taxation
Realisation of prior years' unrealised (597) (4,112)
losses on investments
Historical cost loss on ordinary (1,984) (6,830)
activities before taxation
Historical cost loss for the year (1,984) (6,830)
retained after taxation and dividends
BALANCE SHEET AS AT 31 JANUARY 2004
2004 2003
£'000 £'000
Fixed assets
Investments 14,049 18,866
Current assets
Debtors 1,721 847
Cash at bank 1,716 944
3,437 1,791
Creditors (amounts falling due within one year) (428) (362)
Net current assets 3,009 1,429
Net assets 17,058 20,295
Capital and reserves
Called-up equity share capital 1,704 1,736
Share premium account 2,787 2,787
Special reserve 15,129 17,559
Revaluation reserve (5,644) (4,691)
Profit and loss account 3,082 2,904
Total equity shareholders' funds 17,058 20,295
Net asset value per share 50.1p 58.4p
Diluted net asset value per share 50.1p 58.4p
The financial statements were approved by the directors on 6 May 2004 and are
signed on their behalf by:
Tom Scruby
Chairman
CASHFLOW STATEMENT
FOR THE YEAR ENDED 31 JANUARY 2004
2004 2003
£'000 £'000
Net cash outflow from operating activities (936) (670)
Financial investment
Purchase of venture capital investments (1,935) (2,223)
Purchase of FTSE 350 equities and fixed interest (3,993) (3,490)
securities
Sale/redemption of venture capital investments 3,257 3,758
Sale/redemption of FTSE 350 equity and fixed 4,679 2,462
interest securities
Total financial investment 2,008 507
Financing
Buy-in of shares (300) (286)
Prior year costs associated with the buy-in of - (7)
shares
Total financing (300) (293)
Increase / (decrease) in cash for the year 772 (456)
Reconciliation of net cash flow to movement in net
funds
Increase / (decrease) in cash for the year 772 (456)
Net funds at the start of the year 944 1,400
Net funds at the end of the year 1,716 944
NOTES TO THE FINANCIAL STATEMENTS
1 Income 2004 2003
£'000 £'000
Dividend income
Unlisted companies 37 34
Listed companies 89 77
Interest receivable
Fixed interest securities 136 156
Loans to unquoted companies 112 96
Bank deposits 31 48
Other income 51 1
456 412
2 Investment Management Fee 2004 2003
£'000 £'000
Investment management fee 387 494
Irrecoverable VAT 50 27
437 521
Quester Capital Management Limited ('QCML') provides investment management
services to the Company under an agreement dated 22 February 1996 as amended by
a supplemental agreement dated 16 January 1997, a second supplemental agreement
dated 30 June 1998 and a third supplemental agreement dated 8 September 1998.
QCML is a wholly owned subsidiary of Querist Limited, a company in which APG
Holmes and JA Spooner are beneficial shareholders. APG Holmes and JA Spooner
are executive directors of QCML.
QCML receives a management fee, payable quarterly in arrears, at the rate of
2.5% on the value of the audited net assets of the Company as at the end of the
previous accounting period. This charge is capped to ensure that the Company's
Running Costs do not exceed 3.25% of the closing net asset value. The
management fee for the year amounted to £387,000 (2003: £494,000) net of the
amount recoverable from QCML in respect of the cap.
QCML also provides administrative and secretarial services to the Company for
which it is entitled to a fee of £42,000 per annum (based on an amount which is
adjusted in line with the RPI), which is included in other expenses (note 3).
* Other expenses 2004 2003
£'000 £'000
Administrative and secretarial services 42 40
Directors' remuneration (note 4) 39 39
Auditor's remuneration - audit services 20 19
- non audit services 9 7
Legal and professional expenses 19 20
Irrecoverable VAT 76 67
Other expenses 82 71
287 263
* Directors' remuneration
2004 2003
£'000 £'000
Fees paid to directors 12 12
Amounts paid to third parties, excluding VAT, in 27 27
consideration of the services of directors
39 39
* Loss per share
The loss per share of 4.0p (2003: loss per share of 7.8p) is based on the loss
on ordinary activities after tax of £1,387,000 (2003: loss of £2,718,000) and
on the weighted average number of ordinary shares in issue during the year of
34,471,086 (2003: 35,007,514).There is no dilution effect in respect of the
years ended 31 January 2004 and 31 January 2003.
The total recognised losses per share of 8.5p (2003: 20.1p) is based on the
total recognised loss for the year of £2,937,000 (2003: net loss of £7,026,000)
and on the weighted average number of ordinary shares in issue during the year
of 34,471,086 (2003: 35,007,514).
6 Net asset value per share
The calculation of net asset value per share as at 31 January 2004 is based on
net assets of £17,058,000 (2003: £20,295,000) divided by the 34,072,144
ordinary shares in issue at that date (2003: 34,725,817). There is no dilution
effect in respect of the years ended 31 January 2003 and 31 January 2004.
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 January 2004. The statutory accounts
for the year ended 31 January 2004 will be finalised on the basis of the
financial information presented by the directors in the preliminary
announcement and will be delivered to the Registrar of Companies following the
Company's Annual General Meeting.
Copies of the full financial statements for the year ended 31 January 2004 are
expected to be posted to shareholders on 7 May 2004 and will be available to
the public at the registered office of the Company at 29 Queen Anne's Gate,
London, SW1H 9BU.
A copy of the above document has been submitted to the UK Listing Authority,
and will shortly be available for inspection at the UK Listing Authority's
Document Viewing Facility, which is situated at:
Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS
END
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