Kings Arms Yard Regulatory News (KAY)

13 May 2005 11:00

QUESTER VCT PLC ANNUAL REPORT 2005 Summary of results for the 13 month period ended 28 February 2005Per 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 41.5dividend 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% DIVIDENDSThe directors do not propose the payment of a dividend in respect of the periodended 28 February 2005.CHAIRMAN'S STATEMENTOVERVIEWAs shareholders will be aware, it was announced on 31 January 2005 that theBoard of Quester VCT plc had entered into merger discussions with the Boards ofQuester VCT 2 plc and Quester VCT 3 plc. In order to align itself with thesetwo companies, the Company's reporting date has been moved from 31 January to28 February. This has resulted in a thirteen month accounting period, which iscovered in this Annual Report.During this period, the Company's net asset value per share reduced by 6.0p pershare to 44.1p.After taking account of share buy-backs of ‚£370,000, the net asset value fellfrom ‚£17.1 million to‚£14.7 million over the period. The movement in the net asset value attributableto the ordinaryshareholders 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 pershareRESULTS AND DIVIDENDSThe profit and loss account shows a net loss for the period of ‚£1.1 million.This is made up ofinvestment income of ‚£457,000, less net losses on realisation of investments of‚£893,000, lessoperating costs including the management fee of ‚£616,000.The statement of recognised gains and losses, which includes net unrealisedlosses on investmentsof ‚£0.9million as well as the loss of ‚£1.1 million reported in the profit andloss account, shows anaggregate loss for the period of ‚£2.0 million. Against this background, yourdirectors do not propose a dividend in respect of the period ended 28 February2005.INVESTMENT PORTFOLIOAs at 28 February 2005, the Company's venture capital portfolio comprisedsixteen unquoted andsix quoted investments. The portfolio is diversified and includes companiesoperating in a broadrange of markets with growth potential, principally within technology relatedsectors.The venture capital portfolio was valued at ‚£7.6 million as at 28 February2005, compared with‚£9.0 million at the beginning of the period. Changes during the periodcomprised purchases of‚£864,000, which included one new investment in Allergy Therapeutics plc (‚£182,000), disposalswith a carrying value of ‚£860,000 and net realised and unrealised lossesrecognised during theperiod of ‚£1.4million.In addition, an earnout entitlement, which was previously valued at ‚£841,000and is recorded in the balance sheet under debtors, has been provided for infull at the period end.Within the venture capital portfolio, the quoted investments gave rise to anunrealised net gain of‚£225,000 on revaluation, and whilst net unrealised losses of ‚£1.6 million arosefrom a revaluation of the unquoted investments, including the earnoutentitlement provision referred to above.The listed equity portfolio, which is focused on shares within the FTSE 350index, performedpositively during the period rising from ‚£2.0 million at the start of the 13month period to close at a value of ‚£2.3 million at 28 February 2005.Further details of investment performance are provided in the InvestmentManager's reportbelow.MERGER DISCUSSIONSAs mentioned above, discussions have been held with the boards of Quester VCT 2plc and Quester VCT 3 plc to see whether a merger of the three funds might bein the best interests of shareholders. Following these discussions, your Boardbelieves that the merged entity will benefit shareholders through, amongstother things, a portfolio with greater spread and proportionately reducedrunning costs. Your directors will be writing to shareholders with a fullexplanation of these benefits and details of the proposed merger.CHANGE OF CORPORATE BROKER AND MARKET MAKERSIn July 2004 the Company appointed Noble & Company Limited as its corporatebroker, replacingEvolution Beeson Gregory Limited. Following this change, Winterflood SecuritiesLimited became market makers in the Company's shares.OUTLOOKYour Board's wish is to achieve realisations from the portfolio and paydividends to shareholders.As you will see from the merger documentation, the merged company, if you andthe shareholdersof the other two VCT's approve the transaction, intends to continue the processof selling investments and distributing part of the proceeds to shareholders,while reinvesting the balance innew venture capital opportunities.Tom ScrubyChairman12 May 2005INVESTMENT MANAGER'S REPORTINTRODUCTIONThe fall in the Company's net asset value during the period was causedprincipally by provisionsmade against the value of the unquoted venture capital portfolio. The quotedventure capitalportfolio and the FTSE quoted portfolio, held as a reserve against investmentsin 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 marketperformance, as there were only two small unquoted investment valuationincreases to set againstthe provisions made of ‚£2.9million.PROGRESS OF THE VENTURE CAPITAL PORTFOLIODuring the thirteen months to 28 February 2005, one new and six follow-oninvestments werecompleted at a cost of ‚£864,000.A new investment was made in Allergy Therapeutics plc, an established ‚£18million turnovercompany with a range of allergy vaccines currently in the market and aprogramme for development of novel vaccines offering the potential forachievement of significant market expansion. Quester VCT invested ‚£182,000 atthe 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 ValveTechnologiesLimited (‚£125,000), Anadigm Limited (‚£80,000), The Casella Group Limited (‚£141,000),Linguaphone Group plc (‚£64,000), Nomad Software Limited (‚£263,000) and OpsysManagementLimited (‚£9,000).REALISATIONSDuring the period, two unquoted investments were sold, one realising a profitand the other a losswhile further cash proceeds have been generated either from repayments ofcapital made bycompanies in which Quester VCT has invested in, or from small amounts recoveredwhere investments had previously been written-off.As reported at the interim stage, Chelsea Stores Limited was sold during theperiod for ‚£391,000producing a gain of ‚£109,000, being 39% over carrying value. The cumulativegain over cost on this investment, combined with the earlier realisation of theassociated 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, theinvestment in Communication and Control Electronics Limited had been writtendown to a value of ‚£140,000. By the period end, ‚£112,000 had been received incash from the process of administration, recovering some 20% of the originalcost, with the balance now fully written off. Further cash proceeds weregenerated 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 INVESTMENTSHoldings in the venture capital investments in companies whose shares areeither listed or tradedon AIM are valued on the basis of mid-market price on 28 February 2005, less adiscount, ifappropriate, to reflect any lock-up or orderly market arrangements. During theperiod, 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 byan unrealised loss in XKO Group (‚£59,000).The two unquoted companies to benefit from an uplift in their respectivevaluations were Dycem(an increase of ‚£185,000), the manufacturer of specialist polymer flooring, andInternationalResources Group (‚£250,000), the executive search and selection firm. Bothcompanies haveenjoyed solid trading performance during 2004.Provisions to reflect trading behind plan during the period have been madeagainst 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 thesedownwards revaluations are considered permanent and, as such, these elementshave been treatedas realised. In addition, the earnout entitlement held in connection with thesale of CDC SolutionsLimited in 2003 has been valued at ‚£nil, a reduction of ‚£841,000. It is stillpossible that some value will be derived from this entitlement based on 2005and 2006 performance but, based on 2004 performance, it has been appropriate toreduce its carrying value.SECTOR ANALYSIS OF THE VENTURE CAPITAL PORTFOLIOThe portfolio is balanced by sector and is well spread. A summary of thesectors covered by theportfolio 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 22RESERVES FOR FOLLOW-ON INVESTMENTThe overall reserves requirement to support the existing venture capitalportfolio has reducedduring the year. This has freed up liquid resources for investment in newventure capitalopportunities: the new investment in Allergy Therapeutics reflects this changeof emphasis forQuester VCT and the opportunity to make new investments. A further smallinvestment has beenmade since the year end and there are others in the pipeline.LISTED EQUITY AND FIXED INTEREST PORTFOLIOSAt 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 equityportfolio was comprisedof 25 investments and during the thirteen months to 28 February 2005 itgenerated a total return of 19.3% being comprised of realised and unrealisedgains of ‚£319,000 and a dividend yield of‚£92,000.OUTLOOKThe proposed merger with Quester VCT 2 and Quester VCT 3 is designed to produceoperatingefficiency, reduced costs and a fundamental change to the shape and spread ofthe venture capitalportfolio. If market conditions for exits remain favourable, there is potentialfor 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 delivercash for dividend payments and continued re-investment in new venture capitalopportunities.Quester Capital Management LimitedManager12 May 2005FUND 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 LimitedPROFIT AND LOSS ACCOUNTFOR 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)pAll items in the above statement derive from continuing operations.The Company has only one class of business and derives its income frominvestments made in shares and securities and from bank deposits.In accordance with Financial Reporting Standard (FRS) 14, the outstandingoption (note 11) gives rise to no dilution to the loss per shareThe accompanying notes are an integral part of this statement.STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFOR 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)pThe accompanying notes are an integral part of this statement.NOTE OF HISTORICAL COST PROFITS AND LOSSESFOR 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 SHEETAS 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 50.1pThe financial statements were approved by the directors on 12 May 2005 and weresigned on their behalf by:Tom SookeChairmanThe accompanying notes are an integral part of this statement.CASHFLOW STATEMENTFOR 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 4,679interest 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 1,716The 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 437Quester Capital Management Limited ("QCML") provides investment managementservices to the Company under an agreement dated 22 February 1996 as amended bya supplemental agreement dated 16 January 1997, a second supplemental agreementdated 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 APGHolmes and JA Spooner are beneficial shareholders. APG Holmes and JA Spoonerare executive directors of QCML.QCML receives a management fee, payable quarterly in arrears, at the rate of2.5% on the value of the audited net assets of the Company as at the end of theprevious accounting period. This charge is capped to ensure that the Company'sRunning Costs do not exceed 3.25% (pro-rated to reflect the current 13 monthperiod) of the closing net asset value. The management fee for the periodamounted to ‚£331,000 (2004: ‚£387,000) net of the amount recoverable from QCMLin respect of the cap, details of which are provided in note 9.QCML also provides administrative and secretarial services to the Company forwhich 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 otherexpenses (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 27consideration of the services of directors 42 39The total fees paid or payable in respect of individual directors for theperiod 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 ordinaryactivities after tax of ‚£1,052,000 (2004: ‚£1,387,000) and on the weightedaverage 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 ended28 February 2005 (year ended 31 January 2004: nil).The total recognised loss per share of 6.0p (2004: 8.5p) is based on the totalrecognised losses for the period of ‚£2,037,000 (2004: ‚£2,937,000) and on theweighted average number of ordinary shares in issue during the period of33,699,680 (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) dividedby 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 February2005 or the year ended 31 January 2004.The financial information set out above does not constitute the Company'sstatutory accounts for the period ended 28 February 2005. The statutoryaccounts for the period ended 28 February 2005 will be finalised on the basisof the financial information presented by the directors in the preliminaryannouncement and will be delivered to the Registrar of Companies following theCompany's Annual General Meeting.A copy of the above document will be submitted to the UK Listing Authority, andwill shortly be available for inspection at the UK Listing Authority's DocumentViewing Facility, which is situated at:Financial Services Authority25 The North ColonnadeCanary WharfLondonE14 5HSCopies of the full financial statements for the period ended 28 February 2005are expected to be posted to shareholders on 19 May 2005 and will be availableto the public at the registered office of the Company at 29 Queen Anne's Gate,London, SW1H 9BU.ENDQUESTER VCT PLC