Interim Results

Quester VCT plc Interim statement for the six months ended 31 July 2002 Financial highlights Per ordinary share 6 months to 6 months to Year to 31 Year to 31 Year to 31 31 July 31 July January January January 2002 2001 2002 2001 2000 Capital values Net asset value 67.4p 104.6p 78.3p 159.3p 136.5p Share price 58.5p 115.0p 87.5p 163.0p 150.0p Return and dividends Dividend - - - 28.0p 5.8p Cumulative dividend 41.5p 41.5p 41.5p 41.5p 13.5p Total return* 108.9p 146.1p 119.8p 200.8p 150.0p * Net asset value plus cumulative dividend per share Highlights from the Chairman's statement and Investment Manager's report * The continuing stock market turbulence and general economic downturn combined to make this a difficult period for the Company's investment portfolio. * Despite the difficult conditions generally, the Company achieved some profitable realisations during the period, with the sale of two venture capital investments including HMV Media Group plc. * The Manager continues to work closely with many of the investee companies to build back value and improve the prospects for growth. * The portfolio holds a number of attractive investments with good potential and it is the intention that Quester VCT will continue to contribute to the funding of these investments. CHAIRMAN'S STATEMENT OVERVIEW The half-year to 31 July 2002 has seen a continuation of the difficult conditions on which we commented in the last Annual Report. Stock market sentiment generally has continued to be adverse with valuations in the technology sector, in which the Company holds a number of quoted investments, continuing to be hard hit. In addition, the business conditions faced by small companies, particularly in the technology-related sector, and the financing environment for such companies have continued to be very difficult. These factors have had an adverse effect on a number of the companies in the venture capital portfolio, requiring increases in the provisions held against a number of the unquoted investments. Nevertheless the Company has achieved the realisation of two significant unquoted investments during the period, resulting in a useful profit in each case. Earnings per share for the half-year, including the capital gains on the investments realised, amounted to 3.8 pence. After taking account of the valuation reductions and provisions, there has been a reduction in the net asset value per share from 78.3 pence at 31 January 2002 to 67.4 pence at 31 July 2002. Overall, the net asset value of the Company has been reduced from £27.6 million at 31 January 2002 to £23.6 million at 31 July 2002. PORTFOLIO PERFORMANCE Apart from the two realisations of unquoted investments, the performance of the venture capital portfolio generally has reflected the difficult stock market and business conditions. Stock market movements resulted in a decline of £0.9 million in the valuation of the quoted venture capital investments (equivalent to 2.6 pence per share in terms of the weighted average number of shares in issue during the year). The Company's portfolio of unquoted investments, which contains a relatively high proportion of early stage businesses operating in a number of technology areas, continued to suffer from the harsh economic environment. As a result, it has been necessary to make further provisions in respect of certain businesses that have fallen behind plan. Provisions made during the half year in respect of unquoted venture capital investments totalled £4.0 million (equivalent to 11.3 pence per share). On a more positive note, although there are no instances in which it has been prudent to make upwards revaluations of investments at this stage, a number of the portfolio companies have achieved developments in their businesses or in their financing arrangements that provide grounds for optimism for the future. A further £1.3 million has been committed during the half-year as additional investment in existing portfolio companies. INCOME STATEMENT AND DIVIDENDS The profit and loss account for the six months to 31 July 2002 shows a profit before tax of £1,323,000, no tax being payable. This includes net capital gains on realisation of investments of £1,672,000, less a deficiency of income against expenses of £349,000. The net capital gains principally relate to HMV Media Group plc, in which the Company's entire holding was sold upon HMV's flotation in May 2002, realising net proceeds of £2,291,000 and a profit of £1,451,000 against the previous carrying value. One other unquoted investment was sold, realising proceeds of £ 600,000 and a profit of £228,000 against the previous carrying value. In the Chairman's statement in the last annual report, we explained that, for the current year and in future, dividends would be dependent on the realisation of capital profits. It is encouraging that, despite the difficult conditions generally, it has been possible to achieve some progress in this respect in this first half of the year. However, at 31 July 2002 the accumulated balance on profit and loss account remains negative. Unless capital profits are realised in the second half of the current year - and currently it is not possible to anticipate any such realisations - the Company will incur a loss in the second half. In these circumstances it is inappropriate for the Company to pay an interim dividend. The amount and timing of future dividends is also uncertain. The cash proceeds of the realisations, while not distributable as dividend, strengthen the Company's ability to take advantage of opportunities for generation of future value by continuing to invest in the existing portfolio. CONCLUSION We remain cautious but positive about the outlook for the Company and its investments. Present indications are that difficult stock market and business conditions will continue for some time yet. The portfolio of the Company includes a range of investments that we believe have significant potential for the future. However, in the current environment, it seems likely that the realisation of value from many of the investments will require more time than might previously have been anticipated. As we have said before, an investment in a VCT should be considered as an investment held for the medium to long term. Tom Scruby Chairman 2 October 2002 INVESTMENT MANAGER'S REPORT OVERVIEW The continuing stock market turbulence and general economic downturn has combined to make this a difficult period for the Company's investment portfolios. There has been an approximate 14% fall in the Company's net asset value per share over the period, compared with a fall of some 19% in the FTSE All-Share index. PERFORMANCE OF THE VENTURE CAPITAL PORTFOLIO Generally the portfolio is feeling the pressure of the on-going economic downturn. Some companies are clearly making encouraging progress but others fall behind previous expectations. We have made, therefore, provisions of £4.0 million against a number of the unquoted investments, generally as a result of underperformance against plan. In some cases provisions have been made to reflect funding risks or the lower values of broadly comparative companies in the quoted sectors. The valuation of the quoted venture capital portfolio, which is determined by the stock market prices at the period end, has fallen by £0.9 million since the start of the Company's financial year. However, on the positive side, the Company was able to effect some good profitable realisations during the half year. Realised profits of £1.7 million were generated from the venture capital portfolio during the six months to 31 July 2002. These were derived from the sale of two unquoted investments, HMV Media Group plc and Pipeline Engineering and Supply Co. Limited. The exit from HMV was achieved following its IPO when we took the opportunity to sell our entire holding, generating an accounting profit of £1.45 million on cash proceeds of £2.3 million. The Pipeline exit resulted in a realised profit for the period of £228,000 on cash proceeds of £600,000. VENTURE CAPITAL INVESTMENTS MADE DURING THE PERIOD During the six months, Quester VCT has made follow-on investments in six companies as detailed in the table below:- Company Industry sector £'000 Advanced Valve Technologies Limited Industrial products & 222 services Bowman Power Limited Energy 500 Communication & Control Electronics Electronics 113 Limited HTC Healthcare Group plc Other services 200 Linguaphone Group plc Consumer products 90 Opsys Limited Electronics 165 1,290 FURTHER VENTURE CAPITAL INVESTMENT As previously reported, the only investments likely to be made in the near term will be further investments in companies in the existing portfolio, particularly given the current economic conditions. The portfolio holds a number of attractive investments with good potential and it is the intention that Quester VCT will continue to contribute to the funding of these investments. FTSE 350 EQUITY AND FIXED INTEREST PORTFOLIOS The FTSE 350 equity portfolio has suffered as a result of continuing stock market turbulence. Over the six months to 31 July 2002, the FTSE 350 index fell by just under 20%. The FTSE 350 equity portfolio managed on the Company's behalf by Laing & Cruickshank Investment Management Limited fell by approximately 16% (£0.3 million) during the same period. There have been further falls since the period end. There has been continued solid performance from the residual fixed interest portfolio. This has generated an effective yield of approximately 4% over the period and is currently valued marginally above cost. It is likely that some of this portfolio will be switched into venture capital investment over the coming 18 months. CONCLUSION This has been a difficult half year for the Company. We continue to work very closely with many of our investee companies to build back value and improve the prospects for growth. We are retaining a level of reserves for further funding where appropriate. The realisations achieved earlier in the year have provided a good fillip for the Company and have provided it with additional liquidity that will be targeted towards further venture capital investment. Quester Capital Management Limited 2 October 2002 COMPOSITION OF THE FUND Cost Valuation % of fund £'000 £'000 by value Venture capital investments that have achieved a listing Crown Sports plc (3,531,150 ords) 475 274 1.2% SurfControl plc (59,999 ords) 137 252 1.1% XKO Group plc (421,000 ords) 505 196 0.8% Sirius Group plc (80,298 ords) 144 110 0.5% Orchestream Holdings plc (3,472,455 985 95 0.4% ords) Adva AG Optical Networking (65,374 682 65 0.3% ords) Deep Sea Leisure plc (125,000 ords) 200 48 0.2% Sopheon plc (120,000 ords) 150 10 0.0% 3,278 1,050 4.5% Ten largest unquoted venture capital investments Anadigm Limited 1,263 2,022 8.6% CDC Solutions Limited 1,020 1,770 7.5% Bowman Power Limited 1,526 1,526 6.5% Casella Group Limited 750 750 3.2% HTC Healthcare Group plc 1,000 1,000 4.3% Sift Group Limited 875 972 4.1% Nomad Software Limited 1,112 953 4.0% Methuen Publishing Limited 781 781 3.3% Sibelius Software Limited 700 700 3.0% International Diagnostics Group plc 1,050 564 2.4% 10,077 11,038 46.9% Other unquoted venture capital 12,969 3,801 16.1% investments Total venture capital investments 26,324 15,889 67.5% Listed fixed interest investments 4,054 4,071 17.3% FTSE 350 equity investments 2,180 1,889 8.0% Total investments 32,558 21,849 92.8% Cash and other net current assets 1,702 1,702 7.2% Net assets 34,260 23,551 100.0% UNAUDITED FINANCIAL STATEMENTS Profit and loss account 6 months 6 months Year ended ended ended 31 January 2002 31 July 2002 31 July 2001 £'000 £'000 £'000 Net profit/(loss) on realisation of 1,672 (137) (2,383) investments Income 161 306 483 Investment management fee (343) (616) (723) Other expenses (167) (264) (453) Profit/(loss) on ordinary 1,323 (711) (3,076) activities before taxation Tax on ordinary activities - - - Profit/(loss) on ordinary 1,323 (711) (3,076) activities after taxation Dividends - - - Transfer to/(from) reserves 1,323 (711) (3,076) Earnings per share 3.8p (2.2)p (9.4)p Statement of total recognised gains and losses 6 months 6 months Year ended ended ended 31 January 2002 31 July 2002 31 July 2001 £'000 £'000 £'000 Profit/(loss) for the period 1,323 (711) (3,076) Net unrealised loss on revaluation (5,199) (15,179) (21,911) of investments Total recognised losses relating to (3,876) (15,890) (24,987) the period Total recognised losses per share (11.0)p (50.3)p (76.3)p 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. UNAUDITED FINANCIAL STATEMENTS - continued Balance sheet Note 31 July 31 July 31 January 2002 2001 2002 £'000 £'000 £'000 Fixed assets Investments 21,849 32,871 26,152 Current assets Debtors 676 481 831 Cash at bank 1,601 1,094 1,400 2,277 1,575 2,231 Creditors: amounts falling due (575) (467) (769) within one year Other creditors Net current assets 1,702 1,108 1,462 Net assets 23,551 33,979 27,614 Capital and reserves Called-up equity share capital 1,747 1,624 1,764 Share premium account 1 2,780 - 2,787 Special reserve 1 29,139 29,497 29,302 Revaluation reserve 1 (9,939) 2,278 (4,495) Profit and loss account 1 (176) 580 (1,744) Total equity shareholders' funds 23,551 33,979 27,614 Net asset value per share 67.4p 104.6p 78.3p Summarised Cash Flow Statements 6 months 6 months Year ended ended ended 31 January 31 July 31 July 2001 2002 2002 £'000 £'000 £'000 Net cash (outflow)/inflow from operating (388) 387 (770) activities Net capital expenditure and financial 776 (2,013) (3,331) investment Equity dividends paid - (422) (422) Financing (187) 54 2,835 Increase/(decrease) in cash for the 201 (1,994) (1,688) period Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash for the 201 (1,994) (1,688) period Net funds at the start of the period 1,400 3,088 3,088 Net funds at the end of the period 1,601 1,094 1,400 NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1. Movement in reserves Share premium Special Revaluation Profit account reserve reserve and loss £'000 £'000 £'000 account £'000 At 1 February 2002 2,787 29,302 (4,495) (1,744) Expenses of 2001 share (7) - - - issue Shares bought back - (163) - - Net unrealised loss on - - (5,199) - revaluation of investments Transfer of net realised - - (245) 245 profit to profit and loss account Retained profit for the - - - 1,323 period At 31 July 2002 2,780 29,139 (9,939) (176) 2. The financial information contained in this report has been prepared on the basis of the accounting policies set out in the Annual Report. 3. The number of ordinary shares in issue as at 31 July 2002 was 34,933,085(31 July 2001: 32,471,971). 4. The calculation of earnings per share for the period is based on the profit after tax of £1,323,000 divided by the weighted average number of shares in issue during the period being 35,141,696 ordinary shares of 5p each. 5. The unaudited financial statements set out above do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. 6. Copies of the unaudited interim results are expected to be sent to shareholders on 11 October 2002. Further copies can be obtained from the Company's registered office.

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