Last checked at 
30 Apr 2008 10:32
QUESTER VCT PLC
ANNOUNCEMENT OF FINAL RESULTS FOR THE TEN MONTHS ENDED 31 DECEMBER 2007
FINANCIAL HIGHLIGHTSPer ordinary share (pence) 31.12.2007 28.02.2007 28.02.2006 Net asset value 33.2 41.6 44.5 Dividends Dividends paid 4.2 3.9 1.3 Cumulative dividend 50.9 46.7 42.8 Total return Quester VCT plc 84.1 88.3 87.3 Return including tax benefits 104.1 108.3 107.3 Total return to former shareholders of: Quester VCT 2 plc 69.4 73.5 72.4 Return including tax benefits 89.4 93.5 92.4 Quester VCT 3 plc 44.3 48.6 47.6 Return including tax benefits 64.3 68.6 67.6 Dividend
The recommended dividend of 2.8p per share would bring the total cumulative dividends to Quester VCT plc shareholders to 53.7p per share. This dividend would trigger a performance incentive fee of ‚£1,040,000.
Payment date 15 October 2008
Ex-dividend date 17 September 2008
Associated record date 19 September 2008
CHAIRMAN'S STATEMENT
Change of name
Following the acquisition of the Quester management company by NewMedia SPARK plc (since renamed SPARK Ventures plc) in May 2007, the two teams have been successfully integrated. Several investments have seen a transition to new managers within SPARK, while long standing and valuable relationships with former Quester managers have been retained, particularly where they have been able to contribute to an exit process. The name of the Manager of Quester VCT plc has been changed to SPARK Venture Management Limited ("SPARK").
As advised in the half yearly financial report, the accounting date has been changed to 31 December, to simplify the administration of the three Quester VCTs under SPARK's management, which now all report on the same date. This report therefore covers the 10 month period from 28 February to 31 December 2007. Shareholders' approval is being sought at the Annual General Meeting to a change in the name of your Company to SPARK VCT plc.
Results for the 10 months ended 31 December 2007
The movement in net assets and net assets per share is summarised in the tablebelow: Unquoted Quoted Bonds, Total ‚£ Pence venture venture equities '000 per capital capital and net share investments investments current ‚£'000 ‚£'000 assets ‚£ '000 Net asset value at 28 20,744 6,331 21,253 48,328 41.6February 2007 Income and net gains on - 164 641 805 0.7disposal Operating expenses - - (1,208) (1,208) (1.1) Write-off of investments net (3,778) (1,139) - (4,917) (4.3)of recoveries Net gain/(loss) on 2,362 (1,376) (552) 434 0.4revaluation of investments Net assets before dividends 19,328 3,980 20,134 43,442 37.3and share buy-backs Dividend paid net of amounts - - (4,798) (4,798) (4.2)reinvested Share buy-backs - - (968) (968) 0.1 Net investment 3,030 (704) (2,326) - - Net asset value at 31 22,358 3,276 12,042 37,676 33.2December 2007
Net assets per share, before the payment of dividends and share buy-backs, fell by 4.3p in the 10 months ended 31 December 2007. Dividends paid in the 10 month period amounted to 4.2p per share.
The net asset value at 31 December 2007 is stated before accounting for the recommended final dividend of 2.8p per share, amounting to ‚£3.2 million (see below).
This year's performance
The combined SPARK team has carried out an in depth review of the unquoted portfolio, involving a number of meetings with each company to reassess their strategies, opportunities and potential for value. The team has classified the investee companies into those that are key to producing a good return for the whole portfolio; companies with potential for growth; and companies where the plan is simply for cash recovery of the existing valuation. This has resulted in a number of adjustments, though by no means for every company in the portfolio. The overall effect for the period is a write-off of ‚£3,778,000, offset by a net gain on revaluation of ‚£2,362,000
(including the profit of ‚£3,658,000 on the sale of Nomad, valued at its trade sale price at 31 December 2007).
Over the same period the quoted venture capital portfolio lost ‚£2,393,000, of which ‚£1,139,000 represents write- offs.
Bonds and equity investments performed well until the autumn, but were affected by the subsequent severe drop in equity values across the UK market which resulted in a net loss over the period of ‚£505,000.
As indicated in the half yearly financial report, the pace of new investment slowed during the SPARK team's review of the existing portfolio. The fund has, however, benefited from new deal flow of ‚£1.4 million, principally the closing of a ‚£1.0 million investment in a revenue generating software company Skinkers Limited, plus a further ‚£2.4 million committed as follow-on investment in existing portfolio companies.
Performance since merger
Over the period from the date of the merger, the total return has dropped by 1.7p per share or
3.9%. The net asset value per share has been reduced on a pro forma basis by 13.9p per share since the date of the merger and dividends amount to 12.2p per share.
Review of strategy and investment objectives
Following the integration of the SPARK and Quester teams (including the adoption and refinement of Quester's healthcare team and strategy), and the review of the portfolio discussed above, the Board reassessed your Company's strategy and investment objectives.
Your portfolio has been invested in early stage companies, with a significant bias towards technology. Your Board is satisfied that SPARK has longstanding skills, and a better record over recent years than Quester, in this area. The technology sub-sector of VCTs accounts for circa 9% of total VCT funds under management. The three VCTs managed by SPARK, including your Company, form the second largest group in this sub-sector.
Your Board believes that it should be possible to achieve low to mid-teen annualised returns from early stage investing, based on evidence going back beyond the technology boom era of 1999 to
2001, though the technology sector is likely to be more volatile than the average. A common feature of this type of investing is the high investment of money and time in early years which negatively impact the returns in the early life of these companies. Your Company, however, still has a good proportion of companies which are beyond this point. Successful technology early stage portfolios also typically require a few stellar successes to achieve satisfactory returns for the portfolio as a whole. SPARK has achieved a few since its inception some 9 years ago.
The Board decided that the broad objectives will remain as before, subject to important changes in emphasis mentioned below.
The principal changes in SPARK's investment approach from those of Quester are:
- A greater focus on revenue producing companies, which may also require less capital
- A shorter target holding period than Quester (under 5 years)
- SPARK's traditional expertise in media technology
- In healthcare, a focus away from capital intensive pharma opportunities
- SPARK's experience in achieving returns from struggling companies
- An overriding concentration on market opportunities that are appropriate for early stage companies, rather than backing novel technologies
- A general disinclination to invest in AIM companies, unless they match the core risk/return and pricing criteria in SPARK's area of expertise.
Board
Andrew Holmes, formerly managing director and chairman of the Quester management company, will retire from the Board at the AGM. I would like to record the Board's warmest appreciation of the contribution he has made to the affairs of the Company since its establishment in 1996.
Andrew Carruthers, CEO of SPARK, joined the Board in June 2007. In accordance with the Articles of Association, he will stand for election at the AGM.
Dividends, performance incentive and outlook
At the time of the merger of the Company with Quester VCT 2 plc and Quester VCT 3 plc in 2005, the Board set an objective to achieve exits from long-standing venture capital investments and the resumption of regular dividend payments. There had been no material dividend payments during the three year period 2002 to 2004. A two-tier performance incentive fee was put in place at the time of the merger to encourage the Manager to achieve significant realisations. These have since totalled ‚£23.6 million, including ‚£7.3 million from the sale of Nomad. After the payment of dividends (including the recommended dividend) there remains, on a pro forma basis, ‚£7.8 million in liquid resources available to the Company.
Accordingly, in line with the indication given in the half yearly financial report, the Board recommends a final dividend of 2.8p per share, amounting to ‚£ 3.2 million, for approval at the AGM. This dividend would be payable on 15 October 2008 at which date VAT will not be payable on the related performance incentive fee.
The recommended final dividend of 2.8p per share would bring the total of dividend payments since the date of the merger to 12.2p per share or ‚£14.3 million. This means that the terms of the performance incentive put in place at the time of the merger would be satisfied at the lower threshold, with an average annual dividend payout of 6.4% per annum (based on the merger NAV of 43.4p per share) having been achieved over the four years, against a target of 5.0% per annum. Accordingly, if shareholders approve the recommended final dividend, the performance incentive fee will become payable at the lower level at a cost to the Company of ‚£1,040,000.
The Board has taken the view, with SPARK, that at that point the existing performance incentive scheme will have fulfilled its purpose and accordingly it intends to bring that scheme to an end eight months before it would otherwise expire and establish a new performance incentive scheme. This will reward (accrued on an annual basis) the achievement of higher levels of cumulative total returns starting from 31 December 2007 based on net asset values plus cumulative dividends paid. Full details will be set out in a separate circular and shareholders' approval will be sought at an Extraordinary General Meeting to be held immediately following the AGM on 18 June 2008.
The process of reinvestment in new opportunities by the Manager is expected to continue during
2008. In addition, a run-rate of around ‚£2.1 million per annum has been reserved for follow-on investments. The Manager has informed the Board that it sees good deal flow in both technology and medical sciences in line with the investment policy described above. With the bulk of realisations from the existing portfolio arising in two years, the Board anticipates a further significant reduction in liquid resources in 2008 and 2009.
Looking ahead, the Board believes that SPARK's modified investment policy provides better prospects for growth in net asset values and total returns. However it also recognises the potential volatility in returns from an early stage technology portfolio.
In the half yearly financial report I highlighted that, while the policy of a high dividend payout would be maintained in respect of the period to 31 December 2007, future dividends would depend much more on the rate of reinvestment of the Company's liquid resources and the overall performance of the portfolio. Accordingly shareholders should expect dividends in future to be lower and based to a greater degree than before on net income and gains on disposal of investments.
Jock BirneyChairman30 April 2008
FUND SUMMARY AS AT 31 DECEMBER 2007
Industry Cost Valuation Equity % of sector ‚£'000 ‚£'000 % held fund by value 15 largest venture capital investments Nomad Payments Limited TMT 2,675 7,263 18.7 19.3 Sift Group Limited TMT 2,395 2,249 19.8 6.0 Imagesound plc AIM TMT 2,848 1,859 11.8 4.9 Vivacta Limited Healthcare 1,067 1,336 8.5 3.5 Cluster Seven Limited TMT 1,196 1,196 11.1 3.2 Elateral Holdings Limited TMT 1,009 1,009 24.3 2.7 Skinkers Limited TMT 1,000 1,000 5.6 2.7 Uniservity Limited TMT 1,000 1,000 16.5 2.7 Teraview Limited Healthcare 1,172 827 5.4 2.2 Perpetuum Limited TMT 686 780 7.0 2.1 Antenova Limited TMT 1,134 764 4.7 2.0 Level Four Software Limited TMT 725 725 5.1 1.9 Workshare Limited TMT 695 695 1.9 1.8 International Diagnostics Healthcare 690 690 23.9 1.8 Group plc We7 Limited TMT 674 674 10.0 1.8 18,966 22,067 58.6 Other venture capital investments Secerno Limited TMT 446 446 4.2 1.2 MediGene AG FRANKFURT Healthcare 601 356 0.3 0.9 Allergy Therapeutics plc Healthcare 772 327 1.1 0.9 AIM Community Internet Europe TMT 317 317 20.0 0.8 Limited Haemostatix Limited Healthcare 247 247 5.9 0.7 Oxonica plc AIM Healthcare 210 240 2.2 0.6 Lectus Therapeutics Limited Healthcare 854 214 7.0 0.6 HTC Healthcare Group plc Other 210 210 36.7 0.6 Phoqus Pharmaceuticals plc Healthcare 497 203 1.3 0.5 AIM Landround plc AIM TMT 178 133 6.3 0.3 Arithmatica Limited TMT 494 124 12.5 0.3 Artisan Software Tools TMT 120 120 23.4 0.3 Limited Casella Group Limited Other 110 110 17.8 0.3 Symetrica Limited TMT 108 108 2.4 0.3 Other investments: 968 412 1.1 valuations less than ‚£ 100,000 6,132 3,567 9.4 Total venture capital investments 25,098 25,634 68.0 Total quoted venture 5,263 3,276 8.7 capital investments Total unquoted venture 19,835 22,358 59.3 capitalinvestments 25,098 25,634 68.0 Listed fixed interest 4,841 4,860 12.9 investments Listed equity investments 5,411 5,800 15.4 Total investments 35,350 36,294 96.3 Cash and other net current 1,382 1,382 3.7 assets Net assets 36,732 37,676 100.0 BUSINESS REVIEWManagement changes
Following the acquisition of Quester Capital Management Limited by NewMedia SPARK plc (since renamed SPARK Ventures plc) on 11 May 2007, the investment team now responsible for the management of Quester VCT plc is led by Andrew Carruthers, CEO of SPARK, along with Jay Patel, Executive Director, and Tom Teichman, Chairman of SPARK, and ongoing members of the Quester team.
Portfolio update and overview
The combined SPARK team has conducted a detailed review of the portfolio, including reassessment of the business strategy, progress to date, opportunities and potential for value of each of the investee companies. The companies have been classified into those that are key
to producing a good return for the whole portfolio; companies with potential for growth; and companies where the plan is simply for cash recovery of the existing valuation.
In parallel with this review, the SPARK team has reviewed the fair values of the investments. This review, coupled with events affecting the investee companies and stock market and financing conditions generally, has resulted in the write-off of a number of investments and a net positive revaluation in respect of others (including Nomad Payments Limited at its subsequent trade sale price). Further details are given under `Valuations' below.
The Fund summary lists the venture capital investments held by the Company at
31 December 2007 with their cost and valuation at that date. The 15 largest venture capital investments (including Nomad Payments Limited which has since been sold) collectively account for 58.6% of the net assets at the balance sheet date.
Realisation of investments
We are pleased to report the achievement of a successful exit from Nomad Payments Limited:
the trade sale to Metavante Technologies, Inc. , a leading provider of banking and payments technologies for financial services firms and businesses worldwide, closed on 10 January
2008 realising ‚£7,263,000 (of which ‚£5,888,000 has been received in cash and ‚£ 1,375,000 is held in escrow for a period of 18 months or more), for a multiple of 2.0 times original cost.
From the date of the merger in 2005 to 31 December 2007, the realisation of venture capital investments produced ‚£16.3 million in realisation proceeds: the Nomad transaction has increased this to ‚£23.6 million.
M&A activity
The merger of Celldex Therapeutics, Inc. with the NASDAQ-listed AVANT Immunotherapeutics, Inc. was announced in October 2007 and closed in March 2008. While the terms on which the merger has taken place represent a significant reduction in valuation from that previously reported for the holding in Celldex, the transaction leaves Quester VCT with a holding in a publicly-traded company with a substantial pipeline of product candidates and technology platforms, on the basis of which the SPARK team is optimistic as to the prospects for recovery of value.
New investments
During the 10 month period to 31 December 2007 the pace of new investment slowed during the SPARK team's review of the existing portfolio. More recently, the fund has benefited from new deal flow sourced from SPARK and towards the end of the year ‚£1.0 million was committed to an investment in revenue generating software company Skinkers Limited.
Skinkers Limited is involved in information broadcast technology. Its enterprise software product enables organisations to deliver priority notifications and distribute content through a controlled, highly versatile and secure universal communication platform, with such clients as BBC, Cisco, Bloomberg, FT and CNN. In addition its `Livestation' product is a revolutionary live streaming internet broadcasting solution built on technology co-developed with Microsoft research and designed specifically to deliver uninterrupted live TV to large audiences at dramatically reduced costs.
The table below summarises the new investments completed during the 10 monthperiod to31 December 2007:Company Sector ‚£'000 Aim traded companies: Oxonica plc Healthcare 210 210 Unquoted companies: Academia Networks Ltd TMT 51 Skinkers Ltd TMT 1,000 Symetrica Ltd TMT 108 1,159 1,369
Oxonica Limited is an AIM-traded company focused on developing commercial solutions for international markets in the design of nanomaterials. Academia Networks Limited is an early stage social networking website catering for the academic and scientific research community. Symetrica Limited is an early stage company set to commercialise proprietary, high performance gamma ray spectroscopy, imaging hardware and software for use in the nuclear, medical and process control industries.
Since the year end, the Company has closed one further investment, with ‚£1.0 million being committed to Isango! Limited, an early stage company operating an online travel website offering users an authoritative source of travel experiences such as holiday tours, sightseeing, attractions and activities in more than 50 countries across the world.
Follow-on investments
The table below sets out the follow-on investments completed during the10-month period to31 December 2007:Company Sector ‚£'000 Participation in share placings by AIM traded companies: Genosis plc Healthcare 215 Phoqus Pharmaceuticals plc Healthcare 141 Vernalis plc Healthcare 9 365 Follow-on rounds in unquoted companies: Haemostatix Limited Healthcare 131 Pelikon Limited TMT 219 Perpetuum Limited TMT 252 Secerno Limited TMT 181 Teraview Limited Healthcare 117 Vivacta Limited Healthcare 152 We7 Limited TMT 426 1,478 Restructuring or bridge finance ahead of planned realisation: Arithmatica Limited TMT 78 Artisan Software Tools Limited TMT 23 HTC Healthcare Group plc Other 451 552 2,395
A number of the follow-on investments in the early part of the period produced disappointing results. Since the take-over of management responsibility, and with the benefit of the SPARK team's review of the portfolio, a stringent approach has been adopted, designed to ensure that the Company's follow-on investment resources are most effectively applied.
Particular setbacks relate to the AIM-traded Genosis plc, which has reported disappointing UK and US sales of its over-the-counter fertility test, Pelikon Limited and HTC Healthcare Group plc, where the business plan objectives of the respective follow-on rounds were not achieved. In the case of HTC Healthcare Group plc, additional bridge finance has been advanced in recent months based on a plan for the stabilisation of the business and designed to permit an early exit.
In other cases, the unquoted follow-on rounds relate to opportunities which, while still at early stage and with the associated risks, are considered to offer more positive prospects as venture capital investments for the longer term. We are pleased with the business progress achieved by the early stage healthcare company Haemostatix Limited and diagnostics business Vivacta Limited, with the latter company successfully closing a new financing round during the year at an uplift in the Company's original cost of investment. A substantial additional investment was made alongside syndicate partners in a ‚£ 3.0 million round in We7 Limited, an advertising funded music download service backed by a highly experienced management team.
We are pleased with our first investment in the `green tech' sector, energy harvesting company Perpetuum Limited, which has achieved good early progress and has successfully closed a new funding round during the period at an uplift on the Company's original cost of investment.
Looking ahead - new investment opportunities
The investment policy of the Company is unchanged in substance from that set out in the listing particulars dated 20 May 2005 issued in connection with the merger. However, in the description of the portfolio focus, to reflect the particular experience and reputation of the SPARK investment team, the term TMT (technology, media and telecoms) is used instead of ICT (information and communication technologies) and it is made clear that, looking ahead, initial investment in unquoted companies may be made in companies at early stage or development stage (rather than, as previously stated, generally in companies at early stage).
In selecting new investments to add to the portfolio, within the context of that policy, the SPARK
investment team intends to give greater emphasis to:
¢â‚¬¢ the identification of later-stage venture capital opportunities (i.e. in companies that are revenue- generating at date of first investment) and
¢â‚¬¢ investments for which the holding period (the period from date of first investment to ultimate realisation for cash) may be expected to be less than the 5+ years typically the case hitherto.
Having regard to the particular experience and reputation of the SPARK investment team, the programme of new investment may be expected to include, within the TMT sector, a greater emphasis on opportunities in the digital media and software applications sectors and a reduced exposure to `hardware' investments which tend to involve longer holding periods and are typically highly demanding in terms of capital requirements. In healthcare, for similar reasons, a reduced exposure to drug discovery and a greater emphasis on areas such as medical devices and diagnostics may be expected.
In the selection of new venture capital investments, the emphasis is expected to be on unquoted companies; where investment in an AIM-traded company is being considered, the investment decision will be made by reference to the underlying risk and return criteria in SPARK's area of expertise rather than against a plan for the building of a quoted venture capital portfolio.
Valuation changes Events during the period, and the results of the SPARK team's review, have necessitated significant changes in the valuations of the venture capital investments. In some cases the changes reflect the terms of recent transactions, or market prices in respect of the quoted investments, while in others the changes reflect the management team's own review of the companies' current stage of development and their prospects.
Unquoted venture capital investments
During the 10 months to 31 December 2007, in respect of unquoted investments, the review has resulted in write-offs totalling ‚£3,778,000 in respect of investments that have failed or are considered to have suffered an impairment in value, offset by a net positive revaluation of ‚£2,362,000 in respect of investments considered to have future potential.
The following valuation changes have been made in respect of investments considered to have future potential:
- Nomad Payments Limited increased to reflect the terms of the trade sale which was in the final stages of negotiation at 31 December 2007 (increase of ‚£ 3,658,000).
- Perpetuum Limited and Vivacta Limited increased to reflect the terms of the most recent financing rounds (increases of ‚£94,000 and ‚£269,000 respectively).
- Celldex Therapeutics, Inc. reduced to reflect the terms of the agreed merger with AVANT Immunotherapeutics, Inc. (reduction ‚£155,000).
- Antenova Limited, Arithmatica Limited, Lectus Therapeutics Limited and Teraview Limited reduced to reflect the management team's assessment of the companies' value at this stage in their development (total reduction ‚£ 1,504,000).
The write-offs are as follows:
- Efforts to find a trade buyer for Advanced Valve Technologies Limited within the timeframe dictated by the company's dwindling financial resources proved unsuccessful and the company has been placed into administration (write-off ‚£ 450,000).
- Keronite Limited and Pelikon Limited were unsuccessful in implementing the business plans which formed the basis of the Company's investment and the terms of further funding rounds in each case eliminated any value in the original holdings (write-off ‚£1,874,000).
- In respect of Artisan Software Tools Limited, Community Internet Europe Limited and HTC Healthcare Group plc, the valuations have been reduced as an impairment in value to reflect the management team's assessment of the companies' value at this stage in their development or estimated to be recoverable in a trade sale (write-off in the period ‚£1,613,000).
Quoted venture capital investments
The period ended 31 December 2007 has seen poor performance of the companies in Quester VCT's quoted venture capital portfolio. Market movements, and a number of individual setbacks, have resulted in an overall reduction in valuation of quoted venture capital investments of
‚£2,393,000, of which ‚£1,139,000 has been written off as representing an impairment in value. The most severe losses in value have been in the cases of healthcare companies Allergy Therapeutics plc (‚£681,000), Genosis plc (‚£ 341,000), Phoqus Pharmaceuticals plc (‚£231,000) and Vernalis plc (‚£798,000) and the TMT company Imagesound plc (‚£411,000).
The share prices of Allergy Therapeutics plc and Vernalis plc, which were reported on in the half year results, suffered following adverse decisions by the US Food and Drug Administration (FDA), while the share price of Genosis plc saw a sharp decline following the disappointing UK and US sales of its over-the-counter fertility test as referred to earlier.
Listed equity and bond portfolio
Approximately ‚£4.5 million was withdrawn from the equity and bond portfolio during the period to fund new and follow-on investments and the operations of the Company.
Outlook
The SPARK team's review of the portfolio has confirmed encouraging prospects for a number of the most significant venture capital investments.
It is emphasised, however, that the majority of these companies are still at early stage and remain vulnerable, in the case of certain of the healthcare companies, to the risk of adverse results in scientific development or clinical programmes and, in the case of the TMT companies, to the normal risks of early stage commercial development when there may be a critical dependence on key customer contracts, as well as ongoing funding risk.
On the assumption of successful progress of the key investments, and subject to favourable business and market conditions, it should be expected that the bulk of the profitable realisations of investments from within the existing portfolio will be concentrated in the period 2010 to 2011, although it is always possible that earlier opportunities may arise for the crystallisation of strategic value.
SPARK Venture Management Limited
Manager30 April 2008PROFIT AND LOSS ACCOUNT
FOR THE TEN MONTHS TO 31 DECEMBER 2007
Note Ten months Twelve months to 31.12.07 to 28.02.07 ‚£'000 ‚£'000 (Loss)/gain on investments at fair 1 (4,314) 1,712 value through profit or loss Income 2 636 909 Investment management fee 3 (776) (1,183) Other expenses 4 (432) (455) (Loss)/profit on ordinary activities (4,886) 983 before taxation Tax on (loss)/profit on ordinary 6 - - activities (Loss)/profit on ordinary activities (4,886) 983 after taxation Basic and fully diluted (loss)/ 8 (4.3)p 0.8p earnings per share
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.
There are no gains and losses for the period other than those passing through the profit and loss account of the Company.
BALANCE SHEETAS AT 31 DECEMBER 2007 31 December 200 28 February 7 2007 Note ‚£'000 ‚£'000 Fixed assets Investments at fair value through 36,294 42,659 profit or loss Current assets Debtors 177 989 Cash at bank 1,417 5,014 1,594 6,003 Creditors: amounts falling due within (212) (334) one year Net current assets 1,382 5,669 Net assets 37,676 48,328 Capital and reserves Called-up equity share capital 5,673 5,805 Share premium account 150 51 Capital redemption reserve 611 465 Special reserve 27,615 38,820 Revaluation reserve 945 (1,102) Profit and loss account 2,682 4,289 Total equity shareholders' funds 37,676 48,328 Net asset value per share 9 33.2p 41.6p CASHFLOW STATEMENT
FOR THE TEN MONTHS TO 31 DECEMBER 2007
Ten months Twelve months to 31.12.07 to 28.02.07 ‚£'000 ‚£'000 Cash inflow/(outflow) from operating 125 (828) activities Financial investment
Purchase of venture capital investments (3,764) (8,769)
Purchase of listed equities and fixed interest (7,514) (4,083) investments
Sale of venture capital investments 1,237 5,409
Sale/redemption of listed equity and fixed 11,926 3,572 interest investments
Amounts recovered from investments previously 159 10 written off Total net financial investment 2,044 (3,861) Equity dividends paid (4,911) (4,669) Financing Buy-back of ordinary shares (968) (1,471) Issue of shares under the terms of the 113 150 dividend reinvestment scheme Total financing (855) (1,321) Decrease in cash for the period (3,597) (10,679) Reconciliation of net cash flow to movement in net funds Decrease in cash for the period (3,597) (10,679) Net funds at the start of the period 5,014 15,693 Net funds at the end of the period 1,417 5,014
Net funds comprise cash at bank and on short term deposit.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE TEN MONTHS TO 31 DECEMBER 2007
Share Share Capital Special Revaluation Profit Total ‚£ capital premium redemption reserve reserve ‚£ and '000 ‚£'000 account ‚£'000 '000 loss ‚£'000 reserve account ‚£'000 ‚£'000 At 1 March 2007 5,805 51 465 38,820 (1,102) 4,289 48,328 Shares issued 14 99 - - - - 113under the dividend reinvestment scheme Shares purchased (146) - 146 (968) - - (968)for cancellation Realisation of - - - - 1,613 (1,613) -prior years' net losses on investments Transfer from - - - (10,237) - 10,237 -special reserve to profit and loss account Net gain on - - - - 434 (434) -revaluation of investments Loss on ordinary - - - - - (4,886) (4,886)activities after taxation Dividends - - - - - (4,911) (4,911) At 31 December 5,673 150 611 27,615 945 2,682 37,6762007
NOTES TO THE FINANCIAL STATEMENTS
1. (Loss)/profit on investments at fair value through profit or loss
The overall (loss)/profit on investments at fair value through profit or loss disclosed in the profit and loss account is analysed as follows:
Ten months to Twelve months 31.12.07 to 28.02.07 ‚£'000 ‚£'000 Net gain on disposal 169 1,155 Write-off of investments (5,076) (600) Recoveries made in respect of investments 159 10 previously written off Net gain on revaluation of investments 434 1,147 (4,314) 1,712 2. Income Ten months to Twelve 31.12.07 months to 28.02.07 ‚£'000 ‚£'000 Dividend income Unlisted companies - 67 Listed companies 387 368 Interest receivable Listed fixed interest securities 108 106 Loans to venture capital investee 42 60 companies Bank deposits 38 90 Other income 61 218 636 909 3. Investment management fee Ten months to Twelve months to 31.12.07 ‚£'000 28.02.07 ‚£'000 Investment management fee 653 1,011 Irrecoverable VAT 123 172 776 1,183
SPARK Venture Management Limited ("SVML"), formerly called Quester Capital Management Limited, provides investment management services to the Company under an amended and restated agreement dated 20 May 2005.
SVML is a wholly owned subsidiary of SPARK Ventures plc, a company of which AB Carruthers is an executive director and in which he is a beneficial shareholder. APG Holmes was an executive director of SVML until his retirement in April 2008.
SVML is entitled to receive a management fee, determined quarterly in arrears, at the annual rate of 2.0% on the value of the Company's net assets at the end of each quarter. This fee is capped to ensure that the Company's running costs do not exceed 3.25% of closing net asset value. Running costs in respect of the period are less than 3.25% of closing net asset value and accordingly there was no reduction in the management fee in respect of the cap (year ended 28 February 2007: nil).
Upon the Company having paid or declared by 31 December 2008 cash dividends (excluding 1.0p of the special interim dividend paid post the merger of Quester VCT plc, Quester VCT 2 plc and Quester VCT 3 plc in June 2005) of an aggregate amount equal to 20% or more of the Company's Formula Asset Value at the date of the merger (FAV), the Manager will become entitled to an additional performance incentive fee of 2% (‚£1,040,000) of the FAV. The performance fee will be increased by a further 1% should cash dividends paid or declared by the same date equal 40% or more of the FAV. At 31 December 2007, an aggregate amount equal to 19% of the FAV had been paid to shareholders as dividend counting against the target. This fee has not been accrued, because the recommended final dividend has not yet been approved by the shareholders and as such the fee is not a liability of the Company as at 31 December 2007.
SVML also provides administrative and secretarial services to the Company for which it was entitled to a fee of ‚£53,000 for the period (year ended 28 February 2007: ‚£61,000) adjusted annually in line with changes in the Retail Price Index.
The investment management agreement may be terminated by the Company or the Manager giving not less than twelve months notice. Such notice may be given at any time after the date of the agreement. There are no provisions for compensation payable in the event of termination of the agreement.
4. Other expenses 5. Ten months to 31.12.07 Twelve months to 28.02.07 ‚£'000 ‚£'000 Administration and secretarial services 53 61 Directors' remuneration (note 5) 47 57 Auditor's remuneration Fees payable to the Company's auditor for the 16 14 audit of the financial statements Fees payable to the Company's auditor and its 8 16 associates for other services relating to tax Legal and professional expenses 47 48 Insurance 27 35 UKLA, LSE and registrar's fees 20 26 Management fees payable to OLIM Limited 53 64 Transaction costs 8 7 Irrecoverable VAT 40 52 Other 113 75 432 455 5. Directors' remuneration 6. Ten months to 31.12.07 Twelve months to 28.02.07 ‚£'000 ‚£'000 Amounts paid to Directors or companies controlled 47 57 by them 47 57
6. Tax on ordinary activities
7. Twelve months to 31.12.07 Twelve months to 28.02.07 ‚£'000 ‚£'000 Corporation tax - - Reconciliation of profit on ordinary activities to taxation
(Loss)/profit on ordinary activities before (4,886) 983 taxation
Tax on (loss)/profit on ordinary activities at (1,466) 295 standard UK corporation tax rate of 30% (28
February 2007: 30%) Effects of: Non taxable items - UK dividends and net losses/ 1,178 (644) (gains) on investments Unutilised management expenses 288 349 - - 7. Dividends 8. Ten months to 31.12.07 Twelve months to 28.02.07 ‚£'000 ‚£'000 Second interim dividend, year ended 28 February 2007: 2.8p per share paid 21 March 2007 3,299 - Interim dividend, period ended 31 December 2007: 1.4p per share paid 7 December 2007 1,612 - Final dividend: 2.5p per share paid 3 July 2006 - 3,006 Interim dividend: 1.4p per share paid 22 December - 1,663 2006 4,911 4,669
The Directors recommend a final dividend of 2.8p per share, equivalent to ‚£3.2 million, in respect of the period ended 31 December 2007 which, upon approval by shareholders at the Annual General Meeting, will be payable on 15 October 2008 and consequently has not been recognised in the accounts.
8. Earnings per share
The loss per share of 4.3p (year ended 28 February 2007: earnings 0.8p) is based on the loss on ordinary activities after tax of ‚£4,886,000 (year ended 28 February 2007: earnings ‚£983,000) and on the weighted average number of ordinary shares in issue during the period of 114,784,742 (year ended 28 February 2007: 118,098,926).
There is no dilution effect in respect of the period ended 31 December 2007 (28 February 2007: nil).
9. Net asset value per share
The net asset value per share as at 31 December 2007 of 33.2p (28 February 2007: 41.6p) is based on net assets of ‚£37,676,000 (28 February 2007: ‚£ 48,328,000) divided by the 113,453,270 ordinary shares in issue at that date (28 February 2007: 116,108,239). There is no dilution effect as at 31 December 2007 (year ended 28 February 2007: nil).
10. Financial information
As advised in the half yearly financial report, the accounting date has been changed to 31 December, to simplify the administration of the three Quester VCTs under SPARK's management, which now all report on the same date. This statement therefore covers the 10 month period from 28 February to 31 December 2007. Shareholders' approval is being sought at the Annual General Meeting to a change in the name of your Company to SPARK VCT plc.
This preliminary statement was approved by the Board on 30 April 2008.The financial information set out above does not constitute the company's statutory accounts for the period ended 31 December 2007 or the year ended 28 February 2007, but is derived from and has been prepared on the same basis as those financial statements.
Statutory accounts for 28 February 2007, which were prepared under UK GAAP, have been delivered to the registrar of companies and those for 31 December 2007, prepared under UK GAAP, will be delivered in due course.
The auditors have reported on the 28 February 2007 and 31 December 2007 year end accounts and their reports were unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under section 237(2) or (3) of the Companies Act 1985.
The audited statutory accounts for the financial period ended 31 December 2007 will be available by the close of business on 30 April 2008 at www.sparkventures.com
A copy of the Company's statutory accounts 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 Authority25 The North ColonnadeCanary WharfLondonE14 5HS
Copies of the full financial statements for the period ended 31 December 2007 are expected to be posted to shareholders on 6 May 2008 and will be available to the public at the registered office of the Company at 133 Glasshouse Street, London, W1B 5DG.
vendor