Interim Results
Quester VCT plc
Interim statement for the six months ended 31 July 2004
Financial highlights
Per ordinary share (pence) 6 months to Year to 31 6 months to
31 July 2004 January 2004 31 July 2003
Capital values
Net asset value 49.0p 50.1p 59.3p
Share price 44.0p 45.0p 44.0p
Return and dividends
Dividend - - -
Cumulative dividend 41.5p 41.5p 41.5p
Total return* 90.5p 91.6p 100.8p
Total return* inclusive of the 110.5p 111.6p 120.8p
initial 20% income tax relief
*Net asset value plus cumulative dividend per share
Highlights from the Chairman's statement and Investment Manager's report
* The Company's net asset value per share has reduced by 1.1pence per share
to 49.0pence
* The Statement of Total Return shows an aggregate loss for the period of £
386,000
* The directors have decided that Quester VCT should commit a limited amount
of its surplus liquid assets for investment in new venture capital
opportunities. One such new investment was made in Allergy Therapeutics
plc, an AIM traded investment
* A gain of £109,000, being 39% over carrying value, was achieved following
the disposal of the remaining investment in Chelsea Stores
CHAIRMAN'S STATEMENT
OVERVIEW
During the six months to 31 July 2004, the Company's net asset value per share
has reduced by 1.1pence per share to 49.0pence, a fall of 2.2%. After taking
account of share buy-backs of £190,000, the net asset value of the Company fell
from £17.1million at 31 January 2004 to £16.5million over the same period. The
change in net asset value is summarised as follows:
£'000 Pence per
share
Net asset value at 1 February 2004 17,058 50.1
Net profit on realisation of 120 0.4
investments
Income 161 0.5
Expenses (365) (1.1)
Net unrealised loss on revaluation (302) (0.9)
of investments
Share buy-ins* (190) -
Net asset value at 31 July 2004 16,482 49.0
*Share buy-ins have served to enhance net asset value per share by 0.04p per
share
RESULTS AND DIVIDENDS
The profit and loss account shows a net loss for the period of £84,000. This is
comprised of investment income and net gains on realisation of investments of £
281,000 less expenses of £365,000.
The Statement of Total Return, which includes net unrealised losses on
investments of £302,000 as well as the loss reported in the Profit and Loss
account, shows an aggregate loss for the period of £386,000.
Against the background of the results now reported, your directors have
resolved not to pay an interim dividend.
INVESTMENT PORTFOLIO
Although the portfolio has demonstrated a reasonable degree of stability over
the period, some further provisioning amounting to £338,000 has been made
against three unquoted investments. This has been partially offset by net
unrealised gains of £33,000 accruing against the quoted venture capital
portfolio and unrealised gains of £3,000 from the listed equity and fixed
interest portfolios.
During the six months, a further £592,000 has been invested in five existing
investments as part of the planned follow-on investment programme. No new
investments were made. However, as demand for follow on investment has reduced
across the existing portfolio, the directors have decided that Quester VCT
should commit a limited amount of its surplus liquid assets for investment in
new venture capital opportunities. We believe that this is a positive move for
our shareholders, thereby adding a fresh dimension to the portfolio. One such
new investment was made in October in Allergy Therapeutics plc, an AIM traded
investment.
A more in depth analysis of portfolio performance is provided in the Investment
Manger's Report.
CONCLUSION
It remains disappointing that we have not yet been able to report an uplift in
net asset value on the back of gains from venture capital investments. However,
we still hold the view that the overall portfolio contains the potential to
deliver returns in the future. Given the nature and composition of the
Company's investments, such gains of any materiality can only be expected to
accrue over the medium term.
Tom Scruby
Chairman
15 October 2004
INVESTMENT MANAGER'S REPORT
OVERVIEW
Over the six months to 31 July 2004, the underlying progress made by the
venture capital portfolio was largely positive and the liquid reserves retained
for future venture capital investment maintained a steady rate of return.
Nonetheless a net capital loss of £196,000 (including realised and unrealised
items) arose from the Company's venture capital investments.
VENTURE CAPITAL INVESTMENTS MADE DURING THE PERIOD
Further investment from the Company's retained liquid reserves has been made in
the following portfolio companies to support the continued development of their
businesses.
Company Industry Sector £'000
Advanced Valve Industrial products and 271
Technologies Limited services
Anadigm Limited Semiconductors 80
Casella Group Limited Industrial products and 141
services
Nomad Software Limited Software 95
Other 5
592
Over the recent difficult years for small companies we have maintained a
cautious reserving policy, which has enabled Quester VCT to continue to support
promising investments. In some cases, in the short term, the terms of the
investment transactions have resulted in a need to reduce previous carrying
values in accordance with BVCA valuation guidelines. However, if the projects
continue to develop in line with their medium term potential, these provisions
may be reversed.
REALISED AND UNREALISED VALUATION CHANGES IN THE VENTURE CAPITAL PORTFOLIO
The realised and unrealised valuation changes impacting the venture capital
portfolio during the period were as follows:
Realised £'000
Chelsea Stores Limited 109
Unrealised - Quoted investments
Crown Sports plc 102
Sirius Financial Solutions plc 7
Sopheon Plc (3)
Surfcontrol plc 11
XKO Group plc (84)
33
Unrealised - unquoted investments
Advanced Valve Technologies Limited (16)
Communication & Control Electronics Limited (141)
Nomad Software Limited (181)
(338)
Net loss (196)
The disposal of the remaining investment in Chelsea Stores produced a gain of £
109,000, being 39% over carrying value. The cumulative gain over cost on this
investment, combined with the earlier realisation of the associated investment
in HMV Media Group, was £183,000, equivalent to a 5.8% gain over cost of the
two investments.
The provisions made against Advanced Valve Technologies and Nomad Software
result from the refinancing terms of new investment rounds, although in both
cases the companies have made some positive progress during the period.
However, the fact that further financing is required indicates slower progress
than planned towards achieving cash flow breakeven and the subsequent move
onwards into building a profitable business. The markets in which these two
companies operate offer clear potential for these goals to be achieved over the
medium term. The disappointing write down of the investment in Communication &
Control Electronics has been made to reflect the anticipated value, which will
be recovered from a process of administration and a sale of the business.
PERFORMANCE OF THE VENTURE CAPITAL PORTFOLIO
A majority of the other companies in the portfolio have performed well over the
last six months and in line with their budgets for the period, which is
encouraging. There are a few weak spots, however, and companies seeking to
introduce innovative technology to new markets continue to find the markets
tough: they are progressing, but more slowly than either we, or the management
teams concerned, would like.
The positive underlying progress being made by a majority of companies cannot
yet be reflected in any current improvement in the net asset value of Quester
VCT. However, provided that the core of the portfolio continues to move forward
in the way it has done over the last six months, we see some optimism about a
recovery of investment values as justified.
FTSE 350 EQUITY AND FIXED INTEREST PORTFOLIOS
The listed equity reserve has continued to provide a steady total return, which
cumulatively equates to an internal rate of return of 8.3% per annum since the
launch of Quester VCT. This reserve comprised 26 investments, valued at £
2.0million at the end of the period. Gains of £14,000 and a yield of
approximately 4.3% were achieved during the period. The listed fixed interest
holdings were valued at close to cost at £3.5million and generated a yield of
3.4% over the period.
The listed equity and fixed interest portfolios continue to be retained as a
reserve to support potential capital requirements from the venture capital
investment portfolio. The directors have decided that it is now appropriate for
the Company to make a limited number of new venture capital investments, as the
likely demands for further investment from the existing portfolio have reduced.
The first of these new investments has been made since the end of the period in
Allergy Therapeutics plc, an established company developing new 'allergy
vaccines' to treat a range of respiratory allergies. This investment was made
at the time of the company's listing on AIM.
CONCLUSION
In broad terms, the underlying performance of the majority of companies in the
portfolio has been positive. Those companies in the portfolio seeking to sell
innovative technology into the market continue to find the market tough and
tend to be performing behind plan but they have broadly continued to grow their
businesses and strengthen their market position. We believe that the management
teams we are working with are highly motivated to deliver growth in investment
values and we share their optimism that this can be achieved over the medium
term.
Quester Capital Management Limited
15 October 2004
FUND SUMMARY
As at 31 July 2004
Cost Valuation % equity % of fund
£'000 £'000 held by value
Quoted venture capital investments
Crown Sports plc 475 340 1.4% 2.1%
Sirius Financial Solutions plc 144 65 0.5% 0.4%
Sopheon plc 150 25 0.3% 0.2%
Surfcontrol plc 91 219 0.3% 1.3%
XKO Group plc 505 316 2.2% 1.9%
Total quoted venture capital 1,365 965 5.9%
investments
Unquoted venture capital
investments
Advanced Valve Technologies Limited 2,448 638 15.0% 3.9%
Anadigm Limited 1,588 476 4.1% 2.9%
Artisan Software Tools Limited 1,377 450 9.3% 2.7%
Casella Group Limited 1,206 716 6.7% 4.3%
Communication & Control Electronics 562 140 8.3% 0.8%
Limited
Community Internet Europe Limited 507 127 3.5% 0.8%
Dycem Limited 345 345 37.5% 2.1%
Elateral Holdings Limited 1,942 61 6.2% 0.4%
HTC Healthcare Group plc 1,000 1,000 16.5% 6.1%
International Diagnostics Group plc 930 444 14.4% 2.7%
International Resources Group 32 150 4.0% 0.9%
Limited
Linguaphone Group Limited 840 420 5.3% 2.5%
Methuen Publishing Limited 751 751 26.2% 4.6%
Nomad Software Limited 1,206 276 8.1% 1.7%
Opsys Limited 1,392 392 4.3% 2.4%
Sibelius Software Limited 700 700 6.0% 4.2%
Sift Group Limited 875 729 5.0% 4.4%
Total unquoted venture capital 17,701 7,815 47.4%
investments
Total venture capital investments 19,066 8,780 53.3%
Listed fixed interest investments 3,507 3,497 21.2%
Listed equity investments 2,205 2,042 12.4%
Total investments 24,778 14,319 86.9%
Cash and other net assets 2,163 2,163 13.1%
Net assets 26,941 16,482 100.0%
UNAUDITED FINANCIAL STATEMENTS
PROFIT AND LOSS ACCOUNT
6 months to Year to 31 6 months
31 July 2004 January 2004 to 31 July
2003
£'000 £'000 £'000
Net profit/(loss) on realisation of 120 (1,169) 62
investments
Income 161 456 231
Investment fee (199) (387) (243)
Other expenses (166) (287) (167)
Loss on ordinary activities before (84) (1,387) (117)
taxation
Tax on ordinary activities - - -
Transfer from reserves (84) (1,387) (117)
Earnings per share (0.2)p (4.0)p (0.3)p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
6 months to Year to 31 6 months to
31 July 2004 January 31 July 2003
2004
£'000 £'000 £'000
Loss for the period (84) (1,387) (117)
Net unrealised (loss)/gain on revaluation (302) (1,550) 380
of investments
Total recognised (losses)/gains relating (386) (2,937) 263
to the period
Total recognised (losses)/gains per share (1.1)p (8.5)p 0.8p
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.
BALANCE SHEET
Note 31 July 31 January 31 July
2004 2004 2003
£'000 £'000 £'000
Fixed assets
Investments 14,319 14,049 19,586
Current assets
Debtors 1,612 1,721 1,058
Cash at bank 1,046 1,716 87
2,658 3,437 1,145
Creditors (amounts falling
due within one year)
Other creditors (495) (428) (298)
Net current assets 2,163 3,009 847
Net assets 16,482 17,058 20,433
Capital and reserves
Called-up equity share 1,682 1,704 1,722
capital
Share premium account 1 2,787 2,787 2,787
Special reserve 1 14,871 15,129 17,448
Revaluation reserve 1 (5,771) (5,644) (3,631)
Profit and loss account 1 2,913 3,082 2,107
Total equity shareholders' 16,482 17,058 20,433
funds
Net asset value per share 49.0p 50.1p 59.3p
SUMMARISED CASH FLOW STATEMENT
6 months Year ended 6 months
ended 31 January ended
31 July 2004 2004 31 July 2003
£'000 £'000 £'000
Net cash outflow from operating (176) (936) (406)
activities
Net capital expenditure and financial (494) 2,008 (326)
investment
Financing - (300) (125)
(Decrease)/increase in cash for the (670) 772 (857)
period
Reconciliation of net cash flow to
movement in net funds
(Decrease)/increase in cash for the (670) 772 (857)
period
Net funds at the start of the period 1,716 944 944
Net funds at the end of the period 1,046 1,716 87
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. Movement in reserves
Share Special Revaluation Profit
premium reserve reserve and loss
account account
£'000 £'000 £'000 £'000
At 1 February 2004 2,787 15,129 (5,644) 3,082
Share bought back - (168) - -
Transfer from Special Reserve (90) - 90
Net unrealised loss on - - (302) -
revaluation of investments
Transfer of net realised loss - - 175 (175)
to profit and loss account
Retained loss for the period - - - (84)
At 31 July 2004 2,787 14,871 (5,771) 2,913
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 2004 was 33,646,953
(31 July 2003: 34,441,775).
4. The calculation of earnings per share for the period is based on the loss
after tax of £84,000 divided by the weighted average number of shares in
issue during the period being 33,981,517 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 20 October 2004. 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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