Final Results
QUESTER VCT PLC
ANNUAL REPORT 2005
Summary of results for the 13 month period ended 28 February 2005
Per Ordinary Share 28 February 31 January 31 January
(pence)
2005 2004 2003
Capital Values
Net asset value 44.1 50.1 58.4
Share price 44.0 45.0 54.0
Return and
Dividends
Dividend - - -
Cumulative 41.5 41.5 41.5
dividend
Total Return* 85.6 91.6 99.9
*Net asset value plus cumulative dividend
Composition of the fund
Quoted venture capital investments 9.1%
Unquoted venture capital investments 43.0%
Listed fixed interest investments 18.4%
Listed equity investments 16.0%
Cash and other net assets 13.5%
DIVIDENDS
The directors do not propose the payment of a dividend in respect of the period
ended 28 February 2005.
CHAIRMAN'S STATEMENT
OVERVIEW
As shareholders will be aware, it was announced on 31 January 2005 that the
Board of Quester VCT plc had entered into merger discussions with the Boards of
Quester VCT 2 plc and Quester VCT 3 plc. In order to align itself with these
two companies, the Company's reporting date has been moved from 31 January to
28 February. This has resulted in a thirteen month accounting period, which is
covered in this Annual Report.
During this period, the Company's net asset value per share reduced by 6.0p per
share to 44.1p.
After taking account of share buy-backs of £370,000, the net asset value fell
from £17.1 million to
£14.7 million over the period. The movement in the net asset value attributable
to the ordinary
shareholders can be summarised as follows:
£'000 Pence per
share
Net asset value at 31 January 2004 17,058 50.1
Income 457 1.4
Operating costs including investment management fee (616) (1.8)
Net realised loss on investments (893) (2.7)
Net unrealised loss on investments, including amount held (985) (2.9)
in debtors
Share buy-backs* (370) -
Net asset value at 31 December 2004 14,651 44.1
* Share buy-backs have enhanced the net asset value per share by 0.02 pence per
share
RESULTS AND DIVIDENDS
The profit and loss account shows a net loss for the period of £1.1 million.
This is made up of
investment income of £457,000, less net losses on realisation of investments of
£893,000, less
operating costs including the management fee of £616,000.
The statement of recognised gains and losses, which includes net unrealised
losses on investments
of £0.9million as well as the loss of £1.1 million reported in the profit and
loss account, shows an
aggregate loss for the period of £2.0 million. Against this background, your
directors do not propose a dividend in respect of the period ended 28 February
2005.
INVESTMENT PORTFOLIO
As at 28 February 2005, the Company's venture capital portfolio comprised
sixteen unquoted and
six quoted investments. The portfolio is diversified and includes companies
operating in a broad
range of markets with growth potential, principally within technology related
sectors.
The venture capital portfolio was valued at £7.6 million as at 28 February
2005, compared with
£9.0 million at the beginning of the period. Changes during the period
comprised purchases of
£864,000, which included one new investment in Allergy Therapeutics plc (£
182,000), disposals
with a carrying value of £860,000 and net realised and unrealised losses
recognised during the
period of £1.4million.
In addition, an earnout entitlement, which was previously valued at £841,000
and is recorded in the balance sheet under debtors, has been provided for in
full at the period end.
Within the venture capital portfolio, the quoted investments gave rise to an
unrealised net gain of
£225,000 on revaluation, and whilst net unrealised losses of £1.6 million arose
from a revaluation of the unquoted investments, including the earnout
entitlement provision referred to above.
The listed equity portfolio, which is focused on shares within the FTSE 350
index, performed
positively during the period rising from £2.0 million at the start of the 13
month period to close at a value of £2.3 million at 28 February 2005.
Further details of investment performance are provided in the Investment
Manager's report
below.
MERGER DISCUSSIONS
As mentioned above, discussions have been held with the boards of Quester VCT 2
plc and Quester VCT 3 plc to see whether a merger of the three funds might be
in the best interests of shareholders. Following these discussions, your Board
believes that the merged entity will benefit shareholders through, amongst
other things, a portfolio with greater spread and proportionately reduced
running costs. Your directors will be writing to shareholders with a full
explanation of these benefits and details of the proposed merger.
CHANGE OF CORPORATE BROKER AND MARKET MAKERS
In July 2004 the Company appointed Noble & Company Limited as its corporate
broker, replacing
Evolution Beeson Gregory Limited. Following this change, Winterflood Securities
Limited became market makers in the Company's shares.
OUTLOOK
Your Board's wish is to achieve realisations from the portfolio and pay
dividends to shareholders.
As you will see from the merger documentation, the merged company, if you and
the shareholders
of the other two VCT's approve the transaction, intends to continue the process
of selling investments and distributing part of the proceeds to shareholders,
while reinvesting the balance in
new venture capital opportunities.
Tom Scruby
Chairman
12 May 2005
INVESTMENT MANAGER'S REPORT
INTRODUCTION
The fall in the Company's net asset value during the period was caused
principally by provisions
made against the value of the unquoted venture capital portfolio. The quoted
venture capital
portfolio and the FTSE quoted portfolio, held as a reserve against investments
in the venture capital portfolio, achieved gains of 21.5% and 19.3%
respectively (total return). The performance of the unquoted portfolio was,
therefore, a disappointment compared with the quoted market
performance, as there were only two small unquoted investment valuation
increases to set against
the provisions made of £2.9million.
PROGRESS OF THE VENTURE CAPITAL PORTFOLIO
During the thirteen months to 28 February 2005, one new and six follow-on
investments were
completed at a cost of £864,000.
A new investment was made in Allergy Therapeutics plc, an established £18
million turnover
company with a range of allergy vaccines currently in the market and a
programme for development of novel vaccines offering the potential for
achievement of significant market expansion. Quester VCT invested £182,000 at
the time of Allergy Therapeutics's capital raising on AIM. At 28 February 2005,
this investment was showing an unrealised gain of £67,000.
The follow-on investments included additional commitments to Advanced Valve
Technologies
Limited (£125,000), Anadigm Limited (£80,000), The Casella Group Limited (£
141,000),
Linguaphone Group plc (£64,000), Nomad Software Limited (£263,000) and Opsys
Management
Limited (£9,000).
REALISATIONS
During the period, two unquoted investments were sold, one realising a profit
and the other a loss
while further cash proceeds have been generated either from repayments of
capital made by
companies in which Quester VCT has invested in, or from small amounts recovered
where investments had previously been written-off.
As reported at the interim stage, Chelsea Stores Limited was sold during the
period for £391,000
producing 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 the cost of the two investments. As also previously reported, the
investment in Communication and Control Electronics Limited had been written
down to a value of £140,000. By the period end, £112,000 had been received in
cash from the process of administration, recovering some 20% of the original
cost, with the balance now fully written off. Further cash proceeds were
generated from other companies, including Bowman Power Systems Limited (£
51,000), Dycem Limited (£158,000), International Diagnostics Group plc (£
30,000) and Methuen Publishing Limited (£80,000).
VALUATION CHANGES APPLIED TO VENTURE CAPITAL INVESTMENTS
Holdings in the venture capital investments in companies whose shares are
either listed or traded
on AIM are valued on the basis of mid-market price on 28 February 2005, less a
discount, if
appropriate, to reflect any lock-up or orderly market arrangements. During the
period, these quoted investments showed a net appreciation in value of £
225,000. This was largely driven by gains in the investments in Crown Sports (£
146,000), Allergy Therapeutics (£67,000) and Surfcontrol (£50,000), offset by
an unrealised loss in XKO Group (£59,000).
The two unquoted companies to benefit from an uplift in their respective
valuations were Dycem
(an increase of £185,000), the manufacturer of specialist polymer flooring, and
International
Resources Group (£250,000), the executive search and selection firm. Both
companies have
enjoyed solid trading performance during 2004.
Provisions to reflect trading behind plan during the period have been made
against Advanced Valve Technologies Limited (£349,000), Anadigm Limited (£
224,000), The Casella Group Limited (£72,000), HTC Healthcare Group plc (£
543,000), Linguaphone Group plc (£356,000), Opsys Management Limited (£294,000)
and Nomad Software Limited (£181,000). Some of these
downwards revaluations are considered permanent and, as such, these elements
have been treated
as realised. In addition, the earnout entitlement held in connection with the
sale of CDC Solutions
Limited in 2003 has been valued at £nil, a reduction of £841,000. It is still
possible that some value will be derived from this entitlement based on 2005
and 2006 performance but, based on 2004 performance, it has been appropriate to
reduce its carrying value.
SECTOR ANALYSIS OF THE VENTURE CAPITAL PORTFOLIO
The portfolio is balanced by sector and is well spread. A summary of the
sectors covered by the
portfolio at 28 February 2005 is provided in the table below:
Industry sector Percentage of Valuation Number of
portfolio investments
at 28 February
at valuation 2005
% £'000
Software 30.9% 2,361 8
Industrial products & services 23.1% 1,766 4
Internet 11.2% 856 2
Publishing 8.8% 671 1
Healthcare & life sciences 8.7% 663 2
Consumer services 6.0% 457 1
Leisure 5.0% 384 1
Semiconductors 3.3% 252 1
Consumer goods 1.7% 128 1
Electronics 1.3% 98 1
100.0 7,636 22
RESERVES FOR FOLLOW-ON INVESTMENT
The overall reserves requirement to support the existing venture capital
portfolio has reduced
during the year. This has freed up liquid resources for investment in new
venture capital
opportunities: the new investment in Allergy Therapeutics reflects this change
of emphasis for
Quester VCT and the opportunity to make new investments. A further small
investment has been
made since the year end and there are others in the pipeline.
LISTED EQUITY AND FIXED INTEREST PORTFOLIOS
At the period end, the values of the listed equity and fixed interest (bond)
portfolios were
£2,348,000 and £2,693,000 respectively. As at this date, the listed equity
portfolio was comprised
of 25 investments and during the thirteen months to 28 February 2005 it
generated a total return of 19.3% being comprised of realised and unrealised
gains of £319,000 and a dividend yield of
£92,000.
OUTLOOK
The proposed merger with Quester VCT 2 and Quester VCT 3 is designed to produce
operating
efficiency, reduced costs and a fundamental change to the shape and spread of
the venture capital
portfolio. If market conditions for exits remain favourable, there is potential
for an enlarged portfolio to achieve exits across a wider spread of companies.
Our objective is to continue to focus on the exit process in order to deliver
cash for dividend payments and continued re-investment in new venture capital
opportunities.
Quester Capital Management Limited
Manager
12 May 2005
FUND SUMMARY AS AT 28 FEBRUARY 2004
Industry sector Original Valuation Equity % of
Cost £'000 % held fund by
value
£'000
Quoted venture capital investments
Allergy Therapeutics Healthcare & life 182 249 0.4% 1.7%
plc sciences
Crown Sports plc Leisure 475 384 1.4% 2.6%
Sirius Financial Software 144 71 0.5% 0.5%
Solutions plc
Sopheon plc Software 150 36 0.3% 0.2%
Surfcontrol plc Software 91 258 0.3% 1.8%
XKO Group plc Software 506 341 1.5% 2.3%
Total quoted venture capital investments 1,548 1,339 9.1%
Unquoted venture capital investments
Advanced Valve Industrial products 2,491 349 11.1% 2.4%
Technologies Limited & services
Anadigm Limited Semiconductors 1,588 252 5.1% 1.7%
Artisan Software Tools Software 1,377 450 9.3% 3.1%
Limited
Casella Group Limited, Industrial products 1,206 645 6.7% 4.4%
The & services
Community Internet Internet 508 127 3.5% 0.9%
Europe Limited
Dycem Limited Industrial products 187 372 37.5% 2.5%
& services
Elateral Holdings Software 1,942 61 7.2% 0.4%
Limited
HTC Healthcare Group Consumer services 1,000 457 18.4% 3.1%
plc
International Healthcare & life 900 414 14.3% 2.8%
Diagnostics Group plc sciences
International Resources Industrial products 32 400 4.0% 2.7%
Group Limited & services
Linguaphone Limited Consumer goods 904 128 5.7% 0.9%
Methuen Publishing Publishing 671 671 26.2% 4.6%
Limited
Nomad Software Limited Software 1,374 444 8.1% 3.0%
Opsys Management Electronics 1,392 98 -- 0.7%
Limited*
Sibelius Software Software 700 700 6.0% 4.8%
Limited
Sift Group Limited Internet 875 729 5.0% 5.0%
Total unquoted venture capital investments 17,147 6,297 43.0%
Total venture capital 18,695 7,636 52.1%
investments
Listed fixed interest 2,699 2,693 18.4%
investments
Listed equity investments 2,230 2,348 16.0%
Total investments 23,624 12,677 86.5%
Cash and other net 1,974 1,974 13.5%
current assets
Net assets 25,598 14,651 100.0%
*Formerly Opsys Limited
PROFIT AND LOSS ACCOUNT
FOR THE 13 MONTH PERIOD ENDED 28 FEBRUARY 2005
Notes 2005 2004
(13 months) (12 months)
£'000 £'000
Gain/(loss) on realisation of 1 (893) (1,169)
investments
Income 2 457 456
Investment management fee 3 (331) (387)
Other expenses 4 (285) (287)
Loss on ordinary activities (1,052) (1,387)
before taxation
Tax on ordinary activities 6 - -
Loss on ordinary activities (1,052) (1,387)
after taxation
Dividends paid and proposed - -
Transfer from reserves (1,052) (1,387)
Basic and diluted loss per share 7 (3.1)p (4.0)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
option (note 11) gives rise to no dilution to the loss per share
The accompanying notes are an integral part of this statement.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE 13 MONTH PERIOD ENDED 28 FEBRUARY 2005
Notes 2005 2004
(13 months) (12 months)
£'000 £'000
Loss on ordinary activities after (1,052) (1,387)
taxation
Unrealised loss on revaluation of (235) (1,550)
investments
Unrealised loss on revaluation of (750) -
debtors
Total losses recognised during the (2,037) (2,937)
period
Total recognised losses per share 7 (6.0)p (8.5)p
The accompanying notes are an integral part of this statement.
NOTE OF HISTORICAL COST PROFITS AND LOSSES
FOR THE 13 MONTH PERIOD ENDED 28 FEBRUARY 2005
Notes 2005 2004
(13 months) (12 months)
£'000 £'000
Reported loss on ordinary activities (1,052) (1,387)
before taxation
Realisation of prior year's net (5,155) (597)
unrealised gains/(losses) on
investments
Historical cost loss on ordinary (6,207) (1,984)
activities before taxation
Historical cost loss for the period (6,207) (1,984)
retained after taxation and
dividends
The accompanying notes are an integral part of this statement.
BALANCE SHEET
AS AT 28 FEBRUARY 2005
2005 2004
(13 months) (12 months)
Note £'000 £'000
Fixed assets
Investments 12,677 14,049
Current assets
Debtors 793 1,721
Cash at bank 1,518 1,716
2,311 3,437
Creditors (amounts falling due within (337) (428)
one year)
Net current assets 1,974 3,009
Net assets 14,651 17,058
Capital and reserves
Called-up equity share capital 1,661 1,704
Share premium account 3,410 2,787
Special reserve 8,012 15,129
Revaluation reserve (1,474) (5,644)
Profit and loss account 3,042 3,082
Equity shareholders' funds 14,651 17,058
Net asset value per share 8 44.1p 50.1p
The financial statements were approved by the directors on 12 May 2005 and were
signed on their behalf by:
Tom Sooke
Chairman
The accompanying notes are an integral part of this statement.
CASHFLOW STATEMENT
FOR THE 13 MONTH PERIOD ENDED 28 FEBRUARY 2005
2005 2004
(13 months) (12 months)
£'000 £'000
Cash outflow from operating activities (92) (936)
Financial investment
Purchase of venture capital investments (864) (1,935)
Purchase of listed equities and fixed interest (2,962) (3,993)
securities
Sale/redemption of venture capital investments 799 3,257
Recoveries made in respect of investments 51 -
previously written-off
Sale/redemption of listed equity and fixed 3,240 4,679
interest investments
Total financial investment 264 2,008
Financing
Buy back of shares (370) (300)
(Decrease)/increase in cash for the period (198) 772
Reconciliation of net cash flow to movement
in net funds
(Decrease)/increase in cash for the period (198) 772
Net funds at the start of the period 1,716 944
Net funds at the end of the period 1,518 1,716
The accompanying notes are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
1. Loss on realisation of investments
2005 2004
(13 months) (12 months)
£'000 £'000
Net (loss)/gain on disposal (14) 176
Write-off of investments (839) (1,526)
Write-back of investments previously written-off - 181
Write-down of debtors (note 9) (91) -
Recoveries made in respect of investments previously 51 -
written-off
(893) (1,169)
2. Income
3.
2005 2004
(13 months) (12 months)
£'000 £'000
Dividend income
Unlisted companies 37 37
Listed companies 92 89
Interest receivable
Fixed interest securities 125 136
Loans to unquoted companies 154 112
Bank deposits 39 31
Other income 10 51
457 456
3. Investment Management fee
2005 2004
(13 months) (12 months)
£'000 £'000
Investment management fee 331 387
Irrecoverable VAT 37 50
368 437
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.
The agreement is terminable by written notice of not less than 12 months.
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% (pro-rated to reflect the current 13 month
period) of the closing net asset value. The management fee for the period
amounted to £331,000 (2004: £387,000) net of the amount recoverable from QCML
in respect of the cap, details of which are provided in note 9.
QCML also provides administrative and secretarial services to the Company for
which it is entitled to a fee of £43,000 per annum. This is based on an amount,
which is adjusted in line with the RPI. An amount of £46,000 is shown in other
expenses (note 4), reflecting the 13 month accounting period.
4. Other expenses
2005 2004
(13 months) (12 months)
£'000 £'000
Administration and secretarial services 46 42
Directors' remuneration (note 4) 42 39
Auditor's remuneration
Audit services 18 20
Non audit services 8 9
Insurance 17 11
Legal and professional 29 19
UKLA, LSE and registrar fees 19 19
Irrecoverable VAT 82 76
Other 24 52
285 287
5. Directors remuneration
2005 2004
(13 months) (12 months)
£'000 £'000
Fees paid to directors 13 12
Amounts paid to third parties, excluding VAT, in 29 27
consideration of the services of directors
42 39
The total fees paid or payable in respect of individual directors for the
period is detailed in the Directors' Remuneration Report.
6. Tax on ordinary activities
2005 2004
(13 months) (12 months)
£'000 £'000
Corporation tax payable - -
Reconciliation of loss on ordinary activities to
corporation tax payable
Loss on ordinary activities before tax (1,052) (1,387)
Tax on profit on ordinary activities at standard UK (316) (416)
corporation tax rate of 30% (2004: 30%)
Effects of:
Non-taxable items 131 214
Unutilised expenses 185 202
Corporation tax payable - -
7. Loss per share
The loss per share of 3.1p (2004: 4.0p) is based on the loss on ordinary
activities after tax of £1,052,000 (2004: £1,387,000) and on the weighted
average number of ordinary shares in issue during the period of 33,699,680
(2004: 34,471,086). There is no dilution effect in respect of the period ended
28 February 2005 (year ended 31 January 2004: nil).
The total recognised loss per share of 6.0p (2004: 8.5p) is based on the total
recognised losses for the period of £2,037,000 (2004: £2,937,000) and on the
weighted average number of ordinary shares in issue during the period of
33,699,680 (2004: 34,471,086).
8. Net asset value
The calculation of net asset value per share as at 28 February 2005 of 44.1p
(2004: 50.1p) is based on net assets of £14,651,000 (2004: £17,058,000) divided
by the 33,227,610 ordinary shares in issue at that date (2004: 34,072,144).
There is no dilution effect in respect of either the period ended 28 February
2005 or the year ended 31 January 2004.
The financial information set out above does not constitute the Company's
statutory accounts for the period ended 28 February 2005. The statutory
accounts for the period ended 28 February 2005 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.
A copy of the above document will 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
Copies of the full financial statements for the period ended 28 February 2005
are expected to be posted to shareholders on 19 May 2005 and will be available
to the public at the registered office of the Company at 29 Queen Anne's Gate,
London, SW1H 9BU.
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