Interim Results
Quester VCT PLC
26 September 2001
Quester VCT plc
Interim statement for the six months ended 31 July 2001
Financial highlights
6 months to 6 Year to 31 Year to 31 Year to 31
Period ended 31 July months January January January
2001 to 2001 2000 1999
31
July
2000
Total (loss)/return per (50) 78 50 32 4
share (pence)
* from quoted venture (38) 60 39 34 (1)
capital investments
* from unquoted (10) 17 10 (2) 5
investments
* other (2) 1 1 - -
Net asset value plus
cumulative dividend per 146.1 227.8 200.8 150.0 117.8
share (pence)
Dividend per share (pence) 26.7
- 28.0 5.8 2.4
Cumulative dividend per
share (pence)* 41.5 40.2 41.5 13.5 7.7
Cumulative dividends (£'000) 12,327 11,906 12,327 3,666 1,482
Shareholders' funds (£'000) 33,979 57,997 49,766 42,213 34,181
Shareholders' funds plus
cumulative dividends (£'000) 46,306 69,903 62,093 45,879 35,663
Net asset value per share
(pence) 104.6 187.6 159.3 136.5 110.1
Mid-market price per share
(pence) 115 160 163 150 89
* The cumulative dividend includes tax credits paid to eligible shareholders
prior to the abolition of ACT in 1999
Chairman's statement
OVERVIEW
This year has seen a considerable change in investment sentiment generally and
towards the technology sector in particular. Against this background Quester
VCT has not been immune from a loss of value, and the share prices of its
listed technology-based venture capital investments have reacted broadly in
line with that sector.
PORTFOLIO PERFORMANCE
The Board is generally satisfied with the progress being made by the unquoted
venture capital investments. During the half year the Company invested a
further £2.6 million in its existing portfolio companies, taking the total of
unquoted venture capital investments at cost to some £23.8 million (carried in
the balance sheet at an overall valuation of £23.5 million). The individual
investment valuations at 31 July 2001 have been carefully reviewed, and
reductions have been made in a number of cases (the total of the reductions,
less certain upwards revaluations, amounting to £3.3 million). The reductions
have been applied in cases where the investee company has fallen behind plan
or where, although the company concerned has been making satisfactory
progress, a reduction in valuation is appropriate to reflect present
conditions in the private equity market.
Stock market valuations of technology companies during 1999 and 2000 reached
historically very high levels. In a number of cases, Quester VCT was able to
take advantage of opportunities to sell holdings of venture capital
investments for which a public quotation had been obtained. This was the case
on the London listing of Surfcontrol plc in January 2000, the flotation of
Orchestream Holdings plc in June 2000 and the acquisition of First Fibre
Limited by Adva AG Optical Networking in July 2000. In the latter two cases,
following the partial disposal, the remainder of the holding was subject to
restrictions on sale within a defined period.
Where a public quotation has been obtained for a venture capital investment,
its value has been included in the reported net asset value per share of
Quester VCT by reference to the quoted market value of the relevant holding at
the accounts date. Accordingly, during the period when technology stocks were
at their very high levels the reported net asset value of Quester VCT included
substantial unrealised gains.
The table below shows that the overall valuation of the Company's holdings of
quoted venture capital investments at 31 July 2001 totalled £4.1 million. This
compares with a valuation of the same holdings at 31 January 2001 of £15.6
million, which represents a reduction in the unrealised valuation surplus of
£11.5 million (of which £6.5 million relates to the holding in Orchestream
Holdings plc and £2.5million to Adva AG Optical Networking).
The portfolio of FT-SE 350 equities showed a net reduction in value of £0.4
million over the period.
Although the value of Quester VCT's investments has fallen during the period
it should be noted that at 31 July 2001 the net asset value per share of the
Company remained above the original subscription price of 100 pence,
notwithstanding that dividends totalling 41.5 pence have been distributed to
shareholders
INCOME STATEMENT AND DIVIDENDS
In the Chairman's statement in the last annual report, we explained that the
Company's ability to pay dividends in future will depend upon the realisation
of capital profits from the existing portfolio of investments. The year ended
31 January 2001 was particularly favourable in this respect. In the first half
of the current year, however, market conditions and other factors have been
such that no realisations have been made.
The profit and loss account for the six months ended 31 July 2001 shows a loss
before tax of £711,000. In the absence of capital gains achieved on the
realisation of investments, an operating loss is to be expected from a venture
capital portfolio that is substantially invested in early stage companies
which generally do not pay significant dividends. In these circumstances it is
therefore inappropriate for the Company to pay an interim dividend.
In current market conditions it is not possible to predict the timing of
realisation of capital profits. Unless capital profits are realised in the
second half of the current year, the Company will incur a loss. The amount and
timing of payment of future dividends is therefore uncertain.
LIMITED SHARE ISSUE FOR 2001-02 TAX YEAR
Shareholders will be aware that the Directors are authorised to allot up to
3,123,975 ordinary shares (being equal to 10% of the issued ordinary share
capital of the Company at the relevant time) for cash otherwise than pursuant
to the statutory pre-emption rights of shareholders. The resolutions
authorising these allotments were passed at the Annual General Meeting of the
Company held in May of this year.
A number of financial intermediaries have expressed interest in further
investment in the Company. The Directors consider that it would be in the
interests of the Company to utilise the authority granted at the AGM to offer
up to 3,000,000 ordinary shares to investors at a subscription price
approximately equal to the net asset value per share of the Company at the
time the offer is made. The proceeds of this offer will enhance the Company's
ability to take advantage of good investment opportunities within the existing
portfolio.
The Directors propose to make this offer to selected financial intermediaries
and other persons duly authorised under the Financial Services Act 1986 on
terms and conditions of application to be issued by the Company. In view of
the limited size of the offer, it will not be made direct to existing
shareholders. Any shareholder who has any questions relating to the offer
should contact his or her authorised financial adviser.
CONCLUSION
An investment in a venture capital trust should be considered as an investment
held for the medium term. The portfolio of Quester VCT provides a broad spread
of investments across a range of differing sectors. Changes in sentiment and
market conditions can combine to cause significant swings in investment
values, although history has shown that over time prices of stocks with good
intrinsic worth usually recover. When this happens there should be a revival
in Quester VCT's net asset value and the opportunity for the Company to
generate significant returns for its shareholders.
Tom Scruby
Chairman
26 September 2001
Investment manager's report
PERFORMANCE OF THE PORTFOLIO
The value of the portfolio over the last six months has been largely, but not
exclusively, impacted by the fluctuations in the prices of the six quoted
technology investments held forming part of the venture capital portfolio. The
value of the balance of the shares we hold in these companies, having taken
some substantial profits earlier, rose to a peak during summer 2000 and has
fallen substantially since then. The valuation of the unquoted portfolio, made
up of 27 investments, has fallen on account of some further provisioning.
However, despite this, the unquoted valuations have generally remained
relatively stable.
As at 31 January 2001, the venture capital portfolio was showing unrealised
gains of £14.2 million, but as at 31 July 2001 these gains had reduced to £0.4
million. Whilst this fall is disappointing, we were pleased to be able to
lock-in and distribute some significant gains of approximately £13.7 million
during 2000 following a series of profitable exits.
As mentioned above, the fall in value derives mainly from the quoted venture
capital investments which are valued in accordance with their market prices.
In total, the unrealised gains on current holdings in this portfolio have
fallen from £12.2 million to £0.7 million, a fall of £11.5 million. The
investment in Orchestream, which has fallen in value by £6.5 million, accounts
for the majority of this decline with its price falling from 282.5 pence on 31
January 2001 to stand at 66.5 pence as at 31 July 2001. It has fallen further
since that date. Likewise, the investments in Adva and Surfcontrol have also
suffered from the market volatility and have fallen in value by £2.5 million
and £1 million respectively.
As has been demonstrated by past performance, we have sold a proportion of
profitable quoted investments in order to generate significant distributable
profits for shareholders. When one of our investments achieves a listing, or
is purchased by a quoted company via a paper transaction, the existing
shareholders are usually subject to a 'lock-up' preventing the sale of shares.
Quester VCT was subject to such lock-ups following the flotation of
Orchestream and the purchase of First Fibre by Adva. When the lock-ups
expired, the selling opportunity that had been available in previous market
conditions had radically changed.
The unquoted portfolio has a book cost of £23.8 million. As at 31 July 2001,
this portfolio was showing an unrealised loss of £0.3 million. A degree of
provisioning which we believe to be prudent and appropriate has been made
against five investments and one investment, Shalibane plc, an AIM-traded
company, was written off. Six of the unquoted investments are valued at above
cost so that the value of the portfolio is stable at close to its aggregate
cost.
VENTURE CAPITAL INVESTMENTS MADE DURING THE PERIOD
During the six months, Quester VCT has made follow-on investments in eight
companies as detailed in the table below.
Company Industry sector Investment
£'000
Advanced Valve Technologies Limited Manufacturing 365
Anadigm Limited Electronics 638
Bowman Power Limited Manufacturing 53
Elateral Holdings Limited Software 250
HTC Healthcare Group plc Other services 275
Nomad Software Limited Software 113
Opsys Limited Electronics 500
Purple Technologies Limited Software 394
2,588
FURTHER VENTURE CAPITAL INVESTMENT
As previously reported, the only investments likely to be made during the
foreseeable future will be further investments in companies in the existing
widely spread portfolio.
The postponement of IPOs planned for 2001 or 2002 will inevitably result in
financing requirements for some companies, and other companies in the
portfolio have scheduled financing needs. Quester VCT has set aside
appropriate reserves to meet these requirements. 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.
FT-SE 350 EQUITY AND FIXED INTEREST PORTFOLIO
Quester VCT continues to hold a portfolio of FT-SE 350 equities and fixed
interest securities. The FT-SE 350 holdings, covering 21 investments, were
showing a small profit of £144,000 on an overall cost of £2.2 million as at
the half year and the fixed interest holdings with an overall cost of £3.0
million were at break-even. This portfolio, which is managed on behalf of
Quester VCT by Laing & Cruickshank Investment Management Limited, is retained
as a potential reserve for future venture capital investment, but is currently
used as security for the banking facility provided by Barclays Bank, which was
unutilised as at 31 July 2001.
CONCLUSION
This year has become an increasingly challenging period for the portfolio. Our
current focus is to support our investments to promote their continued growth
and development, including the provision of further rounds of finance if
necessary. We have backed some promising businesses with strong and
experienced management teams which gives us confidence. In the current
turbulent conditions it is difficult to predict when future realisations and
distributions might occur. We continue to believe that there is the potential
for significant future gains to be made.
Andrew Holmes
Managing Director
Quester Capital Management Limited
26 September 2001
Composition of the fund
AS AT 31 JULY 2001
Cost Valuation % of portfolio
£'000 £'000 by value
Quoted venture capital investments
Orchestream Holdings plc (3,472,455 ords) 985 2,309 7.0%
Crown Sports plc (3,531,150 ords) 475 892 2.7%
Surfcontrol plc (40,000 ADS) 274 444 1.4%
XKO Group plc (421,000 ords) 505 154 0.5%
Adva AG Optical Networking (65,374 ords) 682 132 0.4%
Sirius Group plc (80,298 ords) 144 99 0.3%
Sopheon plc (120,000 ords) 150 51 0.2%
Deep Sea Leisure plc (125,000 ords) 200 38 0.1%
3,415 4,119 12.6%
Ten largest unquoted venture capital
investments
Anadigm Limited 1,263 2,022 6.2%
Purple Technologies Limited 1,394 1,789 5.4%
CDC Solutions Limited 1,020 1,770 5.4%
Elateral Holdings Limited 1,756 1,756 5.3%
Artisan Software Tools Limited 1,236 1,236 3.8%
Power X Limited 900 1,143 3.5%
Opsys Limited 1,000 1,000 3.0%
Sift plc 875 972 3.0%
Acedes Gear Tools Limited 995 896 2.7%
Armagard Limited 1,450 875 2.7%
11,889 13,459 41.0%
Other unquoted venture capital investments 11,885 9,997 30.4%
Total venture capital investments 27,189 27,575 84.0%
Listed fixed interest investments 2,989 2,989 9.0%
Listed equity investments 2,163 2,307 7.0%
Total investments 32,341 32,871 100.0%
Unaudited financial statements
PROFIT AND LOSS ACCOUNT
6 months 6 months Year ended
ended ended
31 January
31 July 31 July 2001
2001 2000
£'000
£'000 £'000
Net (loss)/profit on realisation of
investments (137) 4,552 5,285
Income 306 724 1,141
Investment management fee (616) (523) (1,054)
Other expenses (264) (133) (283)
(Loss)/profit on ordinary activities
before taxation (711) 4,620 5,089
Tax on ordinary activities - (10) (22)
(Loss)/profit on ordinary activities after (711) 4,610 5,067
taxation
Dividends paid and declared - (8,240) (8,662)
Transfer from reserves (711) (3,630) (3,595)
Earnings per share (2.2)p 14.9p 16.4p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
6 months 6 months Year ended
ended ended
31 January
31 July 31 July 2001
2001 2000
£'000
£'000 £'000
(Loss)/profit for the period (711) 4,610 5,067
Unrealised (loss)/gain on revaluation of
investments (15,179) 19,414 10,509
Total recognised gains and losses relating
to the period (15,890) 24,024 15,576
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, securities and bank deposits.
Unaudited financial statements - continued
BALANCE SHEET
Note 31 July 31 July 31 January
2001 2000 2001
£'000 £'000 £'000
Fixed assets
Fixed asset investments 32,871 57,812 46,919
Current assets
Debtors 481 509 577
Cash at bank and in hand 1,094 5,164 3,088
1,575 5,673 3,665
Creditors: amounts falling due within one year
Other creditors (467) (340) (396)
Declared dividend - (5,148) (422)
(467) (5,488) (818)
Net current assets 1,108 185 2,847
Net assets 33,979 57,997 49,766
Capital and reserves
Called up equity share capital 1,624 1,546 1,562
Share premium account - 28,833 -
Special reserve 1 29,497 - 29,456
Revaluation reserve 1 2,278 27,556 16,369
Profit and loss account 1 580 62 2,379
Total equity shareholders' funds 33,979 57,997 49,766
Net asset value per share 104.6p 187.6p 159.3p
SUMMARISED CASHFLOW STATEMENTS
6 months 6 months Year
ended ended ended
31 July 31 July 31
2001 2000 January
2001
£'000 £'000 £'000
Net cash inflow from operating activities 387 402 114
Net capital expenditure and financial
investment (2,013) 6,416 9,481
Equity dividends paid (422) (3,092) (8,240)
Financing 54 344 639
(Decrease)/increase in cash for the period (1,994) 4,070 1,994
Reconciliation of net cash flow to movement
in net funds
(Decrease)/increase in cash for the period (1,994) 4,070 1,994
Net funds at the start of the period 3,088 1,094 1,094
Net funds at the end of the period 1,094 5,164 3,088
Notes to the unaudited financial statements
1. MOVEMENT IN RESERVES
Special Revaluation Profit
reserve reserve
and loss
account
£'000 £'000
£'000
At 1 February 2001 29,456 16,369 2,379
Shares issued 52 - -
Shares bought back (11) - -
Net decrease in value of investments
- (15,179) -
Transfer of net realised losses to - 1,088 (1,088)
profit and loss account
Retained loss for the period - - (711)
At 31 July 2001 29,497 2,278 580
2. The number of ordinary shares in issue as at 31 July 2001 was 32,471,971
(31 July 2000: 30,918,637). During the half year to 31 July 2001 1,201,629
ordinary shares were issued on the exercise of options held under the
performance incentive arrangements at a subscription price of 5p per
share.
3. The calculation of earnings per share for the period is based on the loss
after tax of £711,000 divided by the weighted average number of shares in
issue during the period being 31,619,286 ordinary shares of 5p each.
4. The financial information contained in this report has been prepared on the
basis of the accounting policies set out in the Annual Report.
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 being sent to shareholders on
26 September 2001. Further copies can be obtained from the Company's
registered office.
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