Half-yearly Report
QUESTER VCT plc
HALF YEARLY FINANCIAL REPORT 2007
Financial highlights
Per ordinary share (pence) 31 28 31
August February August
2007 2007 2006
Capital values
Net asset value 34.2 41.6 41.8
Return and dividends
Dividend 2.8 3.9 3.9
Cumulative dividend (tax free) 49.5 46.7 46.7
(1)
Total return (2)
Quester VCT plc 83.7 88.3 88.5
Total return to former
shareholders of:
Quester VCT 2 plc (3) 68.9 73.5 73.7
Quester VCT 3 plc (3) 44.0 48.6 48.8
(1) cumulative dividends paid by Quester VCT plc.
(2) net asset value plus cumulative dividend per share.
(3) Quester VCT 2 plc and Quester VCT 3 plc were merged with Quester VCT plc in
June 2005.
The Directors have declared an interim dividend of 1.4p per share amounting to
£1,600,000 to be paid on 7 December 2007. This dividend, which is not reflected
in the table above, will increase cumulative dividends paid to 50.9p per share.
The above table excludes any tax benefits (20% income tax relief and capital
gains deferral) received on subscription for shares in the Company. Inclusive
of initial income tax relief, the total return as at 31 August 2007 to an
original shareholder in Quester VCT plc would be 103.7p, and to former
shareholders of Quester VCT 2 plc and Quester VCT 3 plc 88.9p and 64.0p per
share respectively.
Chairman's statement
Net assets
The movement in net assets is summarised in the table below:
£'000 Pence per share
Net asset value at 28 February 2007 48,328 41.6
Income 418 0.4
Operating expenses (771) (0.7)
Net realised gain on investments 459 0.4
Net unrealised loss on investments (5,395) (4.7)
Net assets before dividends and share buy-backs 43,039 37.0
Dividends paid net of amounts reinvested (3,186) (2.8)
Share buy-backs (723) -
Net asset value at 31 August 2007 39,130 34.2
Comments, dividend and outlook
The Quester management company was acquired by SPARK in May of this year and
the two teams have been integrated. SPARK is adopting a fresh approach to
Quester VCT, which has been endorsed by the Board. The accounting date is going
to be changed to 31 December 2007 to simplify the administration of all of the
Quester VCTs, which will report on the same date. In addition the name of the
Manager has been changed to SPARK Venture Management Limited and it is intended
to seek shareholders approval to a change of name of your Company to SPARK VCT
plc in 2008.
The combined management team has been conducting a detailed and fresh review of
the investments, which has focused on uncertainty that has arisen around poorly
performing companies in the portfolio. Several investments have seen a
transition to new managers within SPARK, while long standing and valuable
relationships with former Quester managers have been retained, especially where
they can contribute to an exit process. At this interim stage the review has
resulted in a write down of 8 unquoted investments by £3.8 million resulting in
a reduction in Net Asset Value of 3.3p per share. The quoted venture capital
portfolio that is marked-to-market fell in value by £1.4 million (1.2p per
share). The other major movement in Net Asset Value was the dividend of 2.8p
per share in respect of the year ended 28 February 2007 that was paid in lieu
of a final dividend on 21 March 2007. Substantial progress has been made, but
the review is continuing and the outcome, which may be positive or negative,
will not be known until the year end.
We are beginning to see the benefit of additional deal flow from SPARK, though
the pace of investment has slowed while the investment review is ongoing. SPARK
intends to invest a greater proportion of funds into revenue generating
companies to reduce the capital-intensive, early stage risk that has bedevilled
the portfolio in past years. As noted in the Investment Manager's Report, a few
companies may achieve an exit in the short term, however the rate of
realisation is unlikely to pick up until 2009. The longer term outlook for the
portfolio is reasonably solid, with good progress being made in our investments
in the life sciences sector.
As previously indicated, the Board is maintaining a high pay out for the moment
and has declared an Interim Dividend of 1.4p per share, payable on 7 December
2007. This will bring the total paid out since the merger in July 2005 to 9.35p
per share. While your Board expects to maintain this policy in respect of the
period to 31 December 2007, future dividends will naturally depend much more on
the rate of reinvestment of the liquid resources and the overall performance of
the portfolio.
Jock Birney
Chairman
26 October 2007
Responsibility statement
The Directors confirm to the best of their knowledge that:
• the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with the Accounting Standards
Board's Statement `Half- Yearly Financial Reports'; and
• the Chairman's statement includes a fair review of the information required
by Disclosure and Transparency Rule 4.2.7R of important events that have
occurred during the first six months of the financial year and their impact on
the condensed set of financial statements, and a description of the principal
risks and uncertainties for the remainder of the financial year; and
• the condensed set of financial statements (note 5) includes a fair review of
the information concerning related parties transactions as required by
Disclosure and Transparency Rule 4.2.8R.
The half yearly financial report was approved by the Board on 26 October 2007
and the above responsibility statement was signed on its behalf by the
Chairman.
Investment manager's report
The investment team responsible for the management of Quester VCT plc is now
being led by Andrew Carruthers, CEO of SPARK, along with Jay Patel, Executive
Director, and Tom Teichman, Chairman of SPARK, and ongoing members of the
Quester team.
The combined management team has been in place for more than half the period
under review and is conducting an assessment of the existing portfolio
investments, which we expect to complete by 31 December 2007. This review,
combined with market events, has resulted in several significant down
valuations, which are explained below.
On 24 October 2007, the name of the Manager was changed to SPARK Venture
Management Limited following the lead of its new parent which is now called
SPARK Ventures plc. Following completion of the current review of the
portfolio, we expect to be able to set out our position on new investment and
the resulting composition of the portfolio going forward. It is intended to
approach shareholders at the 2008 AGM to seek a name change of your Company to
SPARK VCT plc, which will finalise the process that began on 11 May 2007 when
NewMedia SPARK acquired Quester.
Venture capital portfolio: investment activity
Investment activity has been restrained in the first six months of the year:
one new venture capital investment of £108,000 was made (Symetrica, a company
set up to commercialise proprietary, high performance gamma-ray spectroscopy,
imaging hardware and software for use in nuclear, medical and process control
industries) and £1.2m was made in follow-on investments.
Venture capital portfolio: realisations
Realisations from the portfolio of quoted venture capital investments generated
£1.2 million in proceeds and a net gain of £281,000 over carrying values at 28
February 2007. These transactions included the sale of the entire holdings in
Cyclacel Pharmaceuticals, Revenue Assurance and Sopheon; and the tradable
shares in MediGene AG that had been held following its acquisition of Avidex in
September 2006.
Venture capital portfolio: valuation changes
The fresh assessment of the fair values and events over the last six months of
the investments in the individual portfolio companies being undertaken by the
new combined management team has resulted in a net reduction in valuations of
unquoted venture capital investments of £3.7 million:
• The valuations of two companies have been adjusted in line with the terms of
funding rounds: Teraview completed a round in March 2007 resulting in a down
valuation of £237,000 and in the case of Perpetuum, a new round has just been
completed with new investors giving an uplift in the valuation of £130,000. In
both cases we were encouraged by the commercial development of the companies
concerned.
• Artisan and Community Internet Europe are implementing corporate
restructuring programmes and in the light of current trading circumstances a
reassessment has resulted in down valuations totalling £893,000.
• In the case of Pelikon, the company is at a critical inflection point ahead
of a likely further funding round (subsequent to financing earlier in the
year). We have taken a cautious view and made a down valuation of £695,000
which values the investment at 25% of cost.
• Advanced Valve Technologies and HTC Healthcare have found it difficult to
achieve success with their planned strategies and the provision for impairment
against both investments has been increased to 100% (reduction in valuations £
1,170,000). We are continuing to work with these companies to achieve value
from an exit from these investments.
• In the case of Keronite an impairment provision of 50% of the cost of our
investment has been made to reflect the uncertainty arising from a downturn in
trading conditions and similarly, Arithmatica has experienced difficulties in
achieving its target cash flow and a provision of 75% of the cost of our
investment has been made (reduction in valuations £844,000).
Quoted venture capital investments, which represent 19% of the value of the
venture capital portfolio, have fallen in valuation by £1.4 million during the
period. The portfolio suffered in line with other thinly traded AIM stocks. The
share prices of Allergy Therapeutics and Vernalis suffered following adverse
interim decisions on their respective products by the US Food and Drug
Administration.
Listed equity portfolio
The valuation of the listed equity portfolio has fallen by £294,000 over the
half year partly offset by realised gains of £179,000.
Conclusion
The level of provisions and consequently the effect on the Net Asset Value has
been substantial since the new combined management team started its fresh
assessment of the portfolio. The pace of new investment activity has also been
restrained while we conclude that assessment, which will be complete by 31
December 2007. Nevertheless, SPARK initiated investment opportunities are now
being made available to the Company.
There are a number of companies in the portfolio where the opportunity may
exist for the achievement of a profitable exit in the relatively short term
(late 2007-2008). However, the majority of the unquoted investments are in
companies which are in the course of transition from the early stage, at which
Quester VCT first invested, into the secondary phase of stronger revenue growth
and progress towards profitability (or in the case of life science based
companies, achieving demonstrable progress in developing drug candidates).
Consequently, it is too soon to expect cash realisations from these investments
in the near future; indications are that the flow of cash realisation proceeds
from these investments, provided general market conditions are favourable,
looks likely to be concentrated in the years from 2009.
SPARK Venture Management Limited
Manager
26 October 2007
Fund summary as at 31 August 2007
Industry sector Original Valuation Equity % of
Cost (1) £'000 % held fund by
value
£'000
Quoted venture capital investments
Allergy Therapeutics Biotechnology 772 584 1.1% 1.5%
plc
Genosis plc Diagnostics & 1,355 347 8.0% 0.9%
devices
Imagesound plc (2) Industrial 2,848 1,896 11.8% 4.9%
products &
services
Landround plc Other services 178 133 6.3% 0.3%
MediGene AG Biotechnology 601 274 0.5% 0.7%
Phoqus Group plc Biotechnology 497 265 0.9% 0.7%
Vernalis plc Biotechnology 886 670 0.5% 1.7%
Total quoted venture capital 7,137 4,169 10.7%
investments
Unquoted venture capital investments
Advanced Valve Industrial 2,773 - 12.8% 0.0%
Technologies Limited products &
services
Antenova Limited Communications 1,134 1,019 4.7% 2.6%
Anthropics Communications 115 45 7.0% 0.1%
Technology Limited
Arithmatica Limited Semiconductors 494 124 12.5% 0.3%
Artisan Software Software 2,122 120 23.4% 0.3%
Tools Limited
Casella Group Industrial 902 110 17.8% 0.3%
Limited products &
services
Celldex Therapeutics Biotechnology 625 225 1.7% 0.6%
Inc
Cluster Seven Software 1,196 1,196 11.1% 3.1%
Limited
Community Internet Internet 1,015 317 20.0% 0.8%
Europe Limited
Elateral Holdings Software 2,126 1,009 24.4% 2.6%
Limited
Haemostatix Limited Biotechnology 247 247 5.9% 0.6%
HTC Healthcare Group Consumer goods & 2,448 - 36.7% 0.0%
plc services
International Diagnostics & 1,176 690 23.9% 1.8%
Diagnostics Group devices
plc
Keronite Limited Chemicals & 947 473 7.1% 1.2%
materials
Lectus Therapeutics Biotechnology 854 854 7.0% 2.2%
Limited
Level Four Software Software 725 725 5.1% 1.9%
Limited
Nanotecture Group Chemicals & 87 87 0.8% 0.2%
Limited materials
Nomad Payments Software 2,675 3,605 18.7% 9.2%
Limited
Opsys Management Electronics 1,562 - 13.6% 0.0%
Limited
Pelikon Limited Hardware 927 232 5.5% 0.6%
Perpetuum Limited Electronics 435 565 8.0% 1.4%
Secerno Limited Software 446 446 4.2% 1.1%
Sift Group Limited Internet 2,395 2,249 19.8% 5.7%
Symetrica Limited Chemicals & 108 108 2.2% 0.3%
materials
Teraview Limited Diagnostics & 1,056 711 5.4% 1.8%
devices
Uniservity Limited Software 1,000 1,000 16.5% 2.6%
Vivacta Limited Diagnostics & 915 915 12.9% 2.3%
devices
We7 Limited Software 249 249 9.6% 0.6%
Workshare Limited Software 695 695 1.9% 1.8%
Total unquoted venture capital 31,449 18,016 46.0%
investments
Total venture 38,586 22,185 56.7%
capital investments
Listed fixed 2,885 2,884 7.4%
interest investments
Listed equity 10,774 12,677 32.4%
investments
Total investments 52,245 37,746 96.5%
Cash and other net 1,384 1,384 3.5%
current assets
Net assets 53,629 39,130 100.0%
(1) The cost of investment shown above represents the post merger cost to
Quester VCT plc, which is the original cost to the Company immediately prior to
the merger with Quester VCT 2 plc and Quester VCT 3 plc together with the
merger value of those investments assumed from Quester VCT 2 and Quester VCT 3.
(2) Includes £1 million 5% fixed rate unsecured subordinated convertible loan
notes 2012.
Condensed financial statements
Profit and loss account
Note 6 months 6 months Year ended
ended 31 ended 31 28 February
August August 2007
2007 2006
£'000
£'000 £'000
Net (loss)/profit on (4,936) 1,673 1,712
investments at fair value
through profit or loss
Income 418 517 909
Investment management fee (442) (525) (1,183)
Other expenses (329) (309) (455)
(Loss)/profit on ordinary (5,289) 1,356 983
activities before taxation
Tax on ordinary activities - - -
(Loss)/profit on ordinary (5,289) 1,356 983
activities after taxation
Basic and diluted (loss)/profit 4 (4.6)p 1.1p 0.8p
per share
All items in the above statement are derived 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.
A statement of total recognised gains and losses has not been presented because
all gains and losses are included in the statement above.
Balance sheet
31 August 28 February 31 August
2007 2007 2006
£'000 £'000 £'000
Fixed assets
Investments 37,746 42,659 40,286
Current assets
Debtors 284 989 709
Cash at bank 1,319 5,014 10,400
1,603 6,003 11,109
Creditors: amounts (219) (334) (1,827)
falling due within one
year
Other creditors
Net current assets 1,384 5,669 9,282
Net assets 39,130 48,328 49,568
Capital and reserves
Called-up equity share 5,716 5,805 5,928
capital
Capital redemption 568 465 335
reserve
Share premium account 150 51 -
Special reserve 37,478 38,820 41,239
Fair value reserve (6,517) (1,102) (2,079)
Profit and loss 1,735 4,289 4,145
account
Total equity 39,130 48,328 49,568
shareholders' funds
Net asset value per 34.2p 41.6p 41.8p
share
Summarised cash flow statement
6 months Year 6 months
ended ended
ended
31 August 31 August
28 February 2006
2007 2007
£'000
£'000 £'000
Net cash inflow/(outflow) 243 (828) (317)
from operating activities
Net capital expenditure and (29) (3,861) (1,513)
financial investment
Dividends paid net of (3,186) (4,519) (2,915)
amounts reinvested under
the dividend reinvestment
scheme
Buy-back of ordinary shares (723) (1,471) (548)
Decrease in cash for the (3,695) (10,679) (5,293)
period
Reconciliation of net cash
flow to movement in net
funds
Decrease in cash for the (3,695) (10,679) (5,293)
period
Net funds at the start of 5,014 15,693 15,693
the period
Net funds at the end of the 1,319 5,014 10,400
period
Reconciliation of operating
(loss)/profit to net cash
flow from operations
(Loss)/profit on ordinary (5,289) 983 1,356
activities before taxation
Net loss/(profit) on 4,936 (1,712) (1,673)
investments at fair value
through profit or loss
Decrease/(increase) in 705 (137) 124
debtors
(Decrease)/increase in (115) 19 (129)
creditors
Amortisation of fixed 6 19 5
interest investments
Net cash inflow/(outflow) 243 (828) (317)
from operating activities
Reconciliation of movement in shareholders' funds
Share c Capital Share Special Fair Profit Total
apital redemption premium reserve value and loss
reserve account reserve account
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 March 5,805 465 51 38,820 (1,102) 4,289 48,328
2007
Shares 14 - 99 - - - 113
issued under
the Dividend
Reinvestment
Scheme
Shares (103) 103 - (723) - - (723)
bought back
Realisation - - - - (20) 20 -
of prior
years' net
unrealised
profits on
investments
Transfer - - - (619) - 619 -
from special
reserve to
profit and
loss account
Transfer of - - - - (5,395) 5,395 -
net
unrealised
loss on
revaluation
of
investments
to fair
value
reserve
Loss on - - - - - (5,289) (5,289)
ordinary
activities
after
taxation
Dividend - - - - - (3,299) (3,299)
paid
At 31 August 5,716 568 150 37,478 (6,517) 1,735 39,130
2007
Notes
1. The financial information contained in this report has been prepared on the
basis of the accounting policies set out in the Annual Report for the year
ended 28 February 2007.
2. A second interim dividend in respect of the prior year of 2.8p per share
totalling £3,299,000 was paid on 21 March 2007.
3. The number of ordinary shares in issue as at 31 August 2007 was 114,312,656
(31 August 2006: 118,559,937).
4. The calculation of earnings per share for the period is based on the loss
after tax of £5,289,000 (2006: profit of £1,356,000) divided by the weighted
average number of shares in issue during the period being 115,321,504 (2006:
119,086,216) ordinary shares of 5p each.
5. Quester Services Limited (a fellow subsidiary of the Manager) received
transaction fees and directors' fees from investee companies totalling £27,000
during the period to 11 May 2007. Andrew Holmes was a director of Quester
Services Limited until 11 May 2007.
6. The Finance Acts 2006 and 2007 set out new regulations relating to the
investment of new capital raised, which extend to dividend reinvestment
schemes. The regulations levy an undue administrative burden on the operation
of such schemes and the Board has resolved to discontinue the Scheme, which
will not operate in respect of the interim dividend.
7. The half yearly financial report has been neither audited nor reviewed by
the Company's auditors and does not constitute statutory accounts within the
meaning of Section 240 of the Companies Act 1985. The statutory accounts for
the period ended 28 February 2007 have been delivered to the Registrar of
Companies and received an audit report which was unqualified, did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying the report and did not contain any statements under
S237 (2) and (3) of the Companies Act 1985.
8. Interim management statements relating to the first and third quarters of
the financial year will be released via the Regulatory News Service on or
shortly before 20 July and 17 January each year.
9. Copies of the half yearly financial report are expected to be sent to
shareholders on 26 October 2007. Further copies can be obtained from the
Company's registered office.
A copy of the above document is to be 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
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