Kings Arms Yard Regulatory News (KAY)

16 Nov 2005 10:00

Quester VCT plcInterim statement for the six months ended 31 August 2005Financial highlightsPer ordinary share 6 months to 13 Months to 6 months to 31 August 28 February 31 July 2004 2005 2005 Capital values Net asset value 42.2p 44.1p 49.0p Share price 38.0p 44.0p 44.0p Return and dividends Dividend - - - Cumulative dividend 41.5p 41.5p 41.5p Total return* 83.7p 85.6p 90.5p*Net asset value plus cumulative dividend per shareA dividend of 1.25p per share was paid on 11 November 2005 increasing thecumulative dividend to 42.75p.The returns summarised above are applicable only to original subscribers forshares in Quester VCT plc. They do not represent the historic returns tosubsequent subscribers, including those who have assumed a shareholding in theCompany following the merger with Quester VCT 2 plc and Quester VCT 3 plc.The above table excludes any tax benefits (20% income tax relief and capitalgains deferral) received on subscription for shares in the Company. Inclusiveof initial income tax relief, the total return to an original investor would beequivalent to 103.7p per share as at 31 August 2005.Fund Highlights * Merger successfully achieved; net assets of over ‚£50 million. * Net asset value 42.2p per share, down by 1.2p per share since the merger. * Increase in range and diversity of the portfolio; 38 venture capital investments. * Increasing pace of realizations. * Annual running costs reduced. Chairman's StatementIntroductionThis is the first interim statement to shareholders following the successfulmerger of the Company with Quester VCT 2 plc and Quester VCT 3 plc whichcompleted on 29 June 2005. It is also my first statement since I succeeded TomScruby as Chairman, following the merger. Tom, who has been a director of theCompany since it was founded in 1996, has agreed to remain as a non-executivedirector for a period following the merger. It is intended that he will retirefrom the board during 2006. While David Quysner resigned due to conflictsarising from his appointment to review Government strategy in the early stageventure capital sector, the Board has been strengthened by the appointment ofChristopher Wright who has extensive experience in early stage investing.MergerThe principal benefits expected to arise from the merger are an increase in therange and diversity of the portfolio, an improved spread of risk andopportunity, a reduction in the proportionate level of running costs and apotential smoother flow of dividends as disposals are made from a widerportfolio.As a result of the merger, there are now 38 venture capital investments in theportfolio and the Company's net assets have increased to over ‚£50 million.Net assetsThe merger terms were based on the relative net asset values of the threecompanies. Quester VCT plc's formula asset value per share at the time of themerger was 43.4p inclusive of provisioning for merger costs. As at 31 August2005 its net asset value had fallen to 42.2p driven by write downs onImagesound plc and Anadigm Limited.DividendsA special interim dividend of 1.25p per share was declared on 30 September 2005and paid on 11 November 2005. This represented a dividend in excess of theamount of 1p per share as stated in the Listing Particulars to acknowledge anincrease in the pace of realisations over the summer, so far at prices a littleabove valuations used for the merger. This will reduce the net asset value by1.25p per share.The Board has reviewed the prospects over the next three years for realisationsfrom the portfolio, the requirements for investment in fresh venture capitalopportunities, including reserving for follow on investments and the Company'sability to distribute surplus resources by way of dividend. The Board hasconcluded that it should aim to pay small, but regular, dividends as far as itis able, and, if and when significant realisations are made, to considerincreasing the dividend to reflect those circumstances.Change of auditorRSM Robson Rhodes LLP have replaced KPMG Audit Plc as auditor of the Company.ConclusionThe Board is pleased that we are actively funding new investments once again.The priorities in the short term, however, are the realisation programme, wherethe pace and scale of transactions is increasing, and the payment of regulardividends.Jock BirneyChairman16 November 2005Investment Manager's ReportOverviewThe merger has resulted in a venture capital trust with net assets of ‚£51.3million as at 31 August 2005 and an enlarged portfolio of investments. Theventure capital portfolio now consists of 38 companies: 28 unquoted and 10quoted venture capital investments. The merger has also freed up liquidresources for further investment.Our principal objectives over the next three to four years are to continue towork with and support the existing portfolio, with a view to achieving exits,and to continue to make new investments.Sector spreadFollowing the merger, the portfolio benefits from a wider sector spread.Sector Percentage of Valuation at 31 Number of venture capital August 2005 investments portfolio at valuation ‚£'000 % Software 22.6 5,794 10 Healthcare & life sciences 20.5 5,253 7 Industrial products & services 18.4 4,727 5 Internet 12.5 3,218 3 Consumer services 5.3 1,364 1 Publishing 4.4 1,119 1 Communications 4.0 1,015 2 Semiconductors 3.6 938 2 Computer hardware 2.8 708 2 Media 2.6 672 1 Consumer goods 1.2 299 1 Electronics 1.0 268 1 Leisure 0.8 200 1 Chemicals/ materials 0.3 87 1 100.0 25,662 38Performance of the venture capital portfolioWe are currently in a more favourable climate for early stage venture capitalinvestments and, with the exception of the investments in Anadigm Limited andImagesound plc, the portfolio has performed much as expected during the period.It is a very active period for M&A activity in the portfolio and we see thepossibility of some cash exits within the next 12 months.We are particularly encouraged by the progress made by Antenova Limited, aleading developer of advanced antenna technology and innovative radio solutionsused in wireless communications. The company has signed two significantcontracts in the period. Following the completion of a ‚£12 million fundinground in January 2005, the company is well positioned to meet the needs of theglobal handset and laptop antenna market that is predicted to increase to over$2 billion by 2008.In October, Lorantis was acquired by Celldex Therapeutics Inc, a US basedbiotechnology company focused on the discovery and commercialisation ofproducts for the treatment of cancer, infectious diseases and immune systemdisorders. The merger of the two companies should improve the prospect of anIPO. We continue to value this investment at Quester VCT's merger based cost.Three valuation changes have impacted the carrying value of the unquotedventure capital portfolio during the half year. The largest was the finalwrite-off of Anadigm Limited, which resulted in a loss of ‚£729,000 during theperiod based on merger cost. This investment had been substantially writtendown from its original cost over the last two years. This was a seriousdisappointment following the significant efforts made to develop and supportthis business, which a widely spread investment syndicate saw as havingconsiderable potential. The company developed a product providing addedfunctionality, potential cost savings and flexibility in design for electronicsystem companies building flexible analog circuits. Its failure arose from thefact that it failed to achieve fast enough growth in its sales. In addition,Reqio Limited entered into administration during the period and the finalremaining value of ‚£22,000 has been written off. The investment in AnthropicsLimited has been down valued by ‚£60,000, although we continue to work with thecompany to achieve a recovery of value.The quoted venture capital portfolio fell in value by a net ‚£1.0 millionlargely resulting from a fall in value of Imagesound plc following a profitwarning. The company's performance has been adversely affected by the recentshort term performance of its system sales activity. The AIM market continuesto react very harshly to unexpected negative news. Steps have been taken tostrengthen the company's executive management and the share price since thenhas improved somewhat.Venture capital investments made during the periodFollowing the merger and based on the increased combined liquidity and pace ofrealisations, Quester VCT has entered a new investment phase. We can nowactively seek new venture capital opportunities on behalf of the Company,following the investment policy shared with our institutional fund. Four newinvestments have been made in the period at a total cost of ‚£1.9 million. Allfour are early stage investments, although Global Silicon, Level Four andPelikon are revenue generating, albeit at modest levels.Company Industry Sector ‚£'000 Global Silicon Limited Semiconductors 600 Level Four Software Software 518 Nanotecture Limited Materials 87 Pelikon Limited Hardware 708 1,913Global Silicon, a designer and manufacturer of integrated circuit solutions forthe high growth consumer audio market, raised ‚£6 million in a series B fundinground and Jeremy Milne, a Quester director, joined the board. The company'slead product, Xin, is currently sold in audio systems such as boom boxes, MP3players and iPod's in the UK and Europe. This is a rapidly growing market,fuelled by the widespread availability of digital music from download sites.The new funds will enable Global Silicon to expand its product range and itsoperations in Cambridge and China, with high volume production expected tocommence in 2006.Level Four Software is an independent software company which supplies advancedsoftware products for the testing and development of "Automated TellerMachines" (ATM) services to major global banks and financial institutions. TheATM industry is expected to experience an exciting period of change over thenext five years. Level Four Software is managed by an experienced managementteam and is well placed to meet the changing demands with its innovativetechnology. Henry Sallitt, a Quester director, has joined the board. The fundsraised by the company will enable it to accelerate its development activitiesand support global expansion plans.Nanotecture, a nanotechnology materials company, develops products in thefields of power sources (supercapacitors), sensors and filtration withapplications in a broad range of markets with significant opportunities. Thesupercapacitor market is estimated to be US$450 million in 2006. Developmentcontracts and collaboration agreements have been signed with a number of keyorganizations. The funds raised, to be invested in tranches, will allowNanotecture to fund development and bring products to the market place.Pelikon is an innovative manufacturer of thin, flexible electro luminescentdisplays for consumer electronics, home appliances and industrial applications.The company has made strong progress with the commercialisation of its displaytechnology and over one million flexible displays have already been distributedworldwide. The investment, part of a ‚£5 million funding round, will allow thecompany to accelerate growth.We have also supported the existing portfolio with four further follow-oninvestments totalling ‚£0.8 million, as follows:Company Industry Sector ‚£'000 Advanced Valve Technologies Limited Industrial products & 108 services Avidex Limited Healthcare & life 69 sciences HTC Healthcare Group plc Consumer services 511 Teraview Limited Healthcare & life 125 sciences 813Realisations from the venture capital portfolioAs we emphasised at the time of the merger, a key area of focus for us is thesale of the more mature investments in the portfolio. The progress made in thisregard, both during the period and subsequently, has been encouraging and inline with our projections at the time of the merger. During the period threerealisations totalling ‚£2.4 million were made, as follows:Company Cash proceeds ‚£'000 Casella Group Limited 1,121 Crown Sports plc 176 Loudeye Corp. 1,112 2,409The majority of the holding in Loudeye Corp, a NASDAQ traded stock, whose paperwas received on the sale of On Demand Distribution Limited (an investment heldoriginally by Quester VCT 2 and Quester VCT 3) has now been sold. Thisinvestment has now returned aggregate cash proceeds of ‚£1.1 million post themerger and ‚£3.9 million in total, which, when taken together with the residualholding, is equivalent to a return of 1.3 times original cost.Cash proceeds of ‚£1.1 million have been generated on the sale of Casella'senvironmental consultancy division. This represents 65% of the merger basedcost.Almost half the Crown Sports holding was sold during the period generating cashproceeds of ‚£176,000. The holding in Crown Sports was assumed in 2001 followingthe part cash, part paper disposal of Dragons Health Clubs plc. The return onthe Dragons investment, inclusive of the Crown Sports proceeds and residualholding, amounts to ‚£2.6 million or 2.6 times original cost.Listed equity and fixed interest portfoliosThe listed equity portfolio was valued at ‚£15.8 million as at 31 August 2005and since the merger has generated an annualized return of 4.3%. The listedfixed interest holdings were valued marginally above cost at the same date at ‚£2.3 million and currently yield 4.6% per annum.The listed equity and fixed interest portfolios continue to be retained as areserve to support the potential capital requirements of the venture capitalinvestment portfolio. It is likely that the listed equity and fixed interestportfolios will reduce over the next 12 months as profits are taken andproceeds switched into venture capital investments.ConclusionThe reduction in net asset value post merger, which was largely caused by twovaluation changes, is disappointing. However, progress has been made by othercompanies in the portfolio and we have also made good progress towardsrealising some of the more mature investments: these two factors areencouraging and we currently expect to make further progress with realisationsduring the second half of the year.Quester Capital Management LimitedManager16 November 2005Fund SummaryAs at 31 August 2005 Cost Valuation % equity % of fund ‚£'000 ‚£'000 held by value Quoted venture capital investments Allergy Therapeutics plc 572 788 1.1% 1.5% Crown Sports plc 269 200 0.7% 0.4% Imagesound plc 1,848 672 12.1% 1.3% Loudeye Corp. 440 470 0.1% 0.9% Sirius Financial Solutions plc 195 127 0.8% 0.2% Sopheon plc 177 51 0.2% 0.1% Surfcontrol plc 493 583 4.3% 1.2% The Innovation Group plc 15 11 -% -% Vernalis Group plc 886 890 0.7% 1.7% XKO Group plc 884 800 1.7% 1.6% Total quoted venture capital 5,779 4,592 8.9%investments Unquoted venture capital investments Advanced Valve Technologies 2,600 457 11.1% 0.9%Limited Anadigm Limited 2,064 - 11.0% -% Antenova Limited 1,005 1,005 5.4% 2.0% Anthropics Technology Limited 70 10 7.0% -% Arithmatica Limited 338 338 12.5% 0.7% Artisan Software Tools Limited 2,100 1,172 23.4% 2.3% Avidex Limited 602 602 1.4% 1.2% Casella Group Limited 1,389 598 17.8% 1.2% Community Internet Europe Limited 1,015 634 17.4% 1.2% Cyclacel Limited 800 800 1.1% 1.6% Dycem Limited 187 373 37.5% 0.7% Elateral Holdings Limited 2,128 245 24.4% 0.5% Footfall Limited 2,900 2,900 17.0% 5.6% Global Silicon Limited 600 600 7.6% 1.2% HTC Healthcare Group plc 1,907 1,364 36.7% 2.7% International Diagnostics Group 1,178 689 23.9% 1.3%plc International Resources Group 32 400 4.0% 0.8%Limited Level Four Software Limited 518 518 9.3% 1.0% Linguaphone Limited 1,074 299 12.8% 0.6% Lorantis Holdings Limited 625 625 1.6% 1.2% Methuen Publishing Limited 1,119 1,119 43.7% 2.2% Nanotecture Limited 87 87 0.8% 0.2% Nomad Software Limited 1,818 887 18.7% 1.7% Opsys Management Limited 1,561 268 -% 0.5% Pelikon Limited 708 708 5.5% 1.4% Sibelius Software Limited 1,400 1,400 12.0% 2.7% Sift Group Limited 2,259 2,114 14.5% 4.1% Teraview Limited 858 858 4.9% 1.6% Total unquoted venture capital 32,942 21,070 41.1%investments Total venture capital investments 38,721 25,662 50.0% Listed fixed interest investments 2,304 2,311 4.5% Listed equity investments 15,484 15,833 30.9% Total investments 56,509 43,806 85.4% Cash and other net current assets 7,508 7,508 14.6% Net assets 64,017 51,314 100.0%The respective cost of investments shown above represents the post merger costto Quester VCT plc. This reflects the original cost of the Company'sinvestments held prior to the merger with Quester VCT 2 plc and Quester VCT 3plc together with the merger value of those investments assumed from QuesterVCT 2 and Quester VCT 3 on the merger.Unaudited Financial StatementsProfit and loss account 6 months ended 13 Months 6 months ended 31 August 2005 ended 28 31 July 2004 Unaudited February 2005 Unaudited Audited ‚£'000 ‚£'000 ‚£'000 Net losses on investments at fair (1,197) (1,878) (182)value Income 356 457 161 Investment management fee (273) (331) (199) Other expenses (244) (285) (166) Loss on ordinary activities before (1,358) (2,037) (386)taxation Tax on ordinary activities - - - Transfer from reserves (1,358) (2,037) (386) Earnings per share (2.1)p (6.0)p (1.1)pAll items in the above statement are derived from continuing operations. TheCompany has only one class of business and derives its income from investmentsmade in shares and securities and from bank deposits.The profit and loss accounts for the periods ended 28 February 2005 and 31 July2004 have been restated to reflect the fact that the Company's investments arenow designated as at fair value through profit or loss (see note 3).Balance Sheet Note 31 August 28 February 31 July 2004 2005 2005 Audited Unaudited Unaudited ‚£'000 ‚£'000 ‚£'000 Fixed assets Investments 43,806 12,677 14,319 Current assets Debtors 2,041 793 1,612 Cash at bank 6,279 1,518 1,046 8,320 2,311 2,658 Creditors (amounts falling due within one year) Other creditors (812) (337) (495) Net current assets 7,508 1,974 2,163 Net assets 51,314 14,651 16,482 Capital and reserves Called-up equity share 2 6,085 1,661 1,682capital Capital redemption reserve 2 161 112 91 Share premium account 2 37,318 3,410 2,787 Special reserve 2 7,540 7,900 14,780 Fair value reserve 2 (3,020) (1,474) (5,771) Profit and loss account 2 3,230 3,042 2,913 Total equity shareholders' 51,314 14,651 16,482funds Net asset value per share 42.2p 44.1p 49.0pThe balance sheets as at 28 February 2005 and 31 July 2004 have been restatedto reflect the creation of a capital redemption reserve on the repurchase andcancellation of shares and the reclassification of the revaluation reserve as afair value reserve.Summarised Cash Flow Statement 6 months 13 months ended 31 ended 6 months August 2005 28 February ended 31 2005 July 2004 Unaudited Audited Unaudited ‚£'000 ‚£'000 ‚£'000 Net cash inflow/(outflow) from 461 (92) (176)operating activities Net cash inflow from merger 5,881 - - Net capital expenditure and financial (1,221) 264 (494)investment Financing (360) (370) - Increase in cash for the period 4,761 (198) (670) Reconciliation of net cash flow to movement in net funds Increase in cash for the period 4,761 (198) (670) Net funds at the start of the period 1,518 1,716 1,716 Net funds at the end of the period 6,279 1,518 1,046Notes to the Unaudited Financial Statements 1. Merger of Quester VCT plc, Quester VCT 2 plc and Quester VCT 3 plc On 29 June 2005 the High Court sanctioned the Scheme of Arrangement for themerger of Quester VCT plc, Quester VCT 2 plc and Quester VCT 3 plc. Under theterms of the Scheme of Arrangement the Formula Asset Values (`FAVs') per shareof Quester VCT, Quester VCT 2 and Quester VCT 3 were calculated, as at 24 June2005, as 43.39p, 44.47p and 42.59p respectively, the related FAV ratios ofQuester VCT 2 and Quester VCT 3 were 1.0249 and 0.9816. The shareholders ofQuester VCT 2 and Quester VCT 3 on the register at the close of business on 24June 2005 received 1,024 and 981 new shares respectively in Quester VCT plc forevery 1,000 shares held in Quester VCT 2 and Quester VCT 3 (and so inproportion for any greater or lesser number of Quester VCT 2 and Quester VCT3). Dealing in the new shares issued by Quester VCT commenced on 29 June 2005.Following the merger Quester VCT plc had 122,684,664 shares in issue. 2. Movement in reserves Share Capital Share Special Fair Profit capital redemption premium reserve value and reserve account reserve loss ‚£'000 ‚£'000 account ‚£'000 ‚£'000 ‚£'000 ‚£'000 At 1 March 2005 1,661 - 3,410 8,012 (1,474) 3,042 Effect of creating a capital - 112 - (112) - -redemption reserve At 1 March 2005 (restated) 1,661 112 3,410 7,900 (1,474) 3,042 Shares issued 4,473 - 34,106 - - - Shares purchased for (49) 49 - (360) - -cancellation Share issue costs - - (198) - - - Loss for the year - - - - - (1,358) Transfer of net unrealised - - - - (1,576) 1,576loss on revaluation of investments Transfer of net realised - - - - 30 (30)loss to Profit and Loss account At 31 August 2005 6,085 161 37,318 7,540 (3,020) 3,230 3. This Interim Report has been prepared using new accounting standards, which have been issued to begin the process of converging UK standards with International Financial Reporting Standards (`IFRS'). The relevant standards are FRS 25 Financial Instruments: Disclosure and Presentation and FRS 26 Financial instruments: Measurement. These standards have been adopted by the Company with effect from 1 March 2005. The Company's business is to invest in financial assets with a view toprofiting from their total return in the form of income and capital growth. Thefinancial assets are managed and their performance evaluated on a fair valuebasis, in accordance with a documented investment strategy. Information aboutthe financial assets is provided internally on that basis to the Company'sboard of directors and other key management personnel. Accordingly, uponinitial recognition, the investments are designated by the Company as at fairvalue through profit or loss. The unrealised increase or decrease in fair valuedesignated investments is now recognised through the Profit and Loss account.For investments actively traded in organised financial markets, fair value isgenerally determined by reference to quoted market bid prices at the close ofbusiness on the balance sheet date. Previously all listed investments werevalued with reference to closing mid market prices at the balance sheet date.The effect of this change in accounting policy on the net asset value of theCompany as at 31 August 2005 has been to reduce it by ‚£116,000. The comparativefigures have not been restated as the impact is immaterial.In addition, transaction costs incurred on the purchase and sale of investmentsare now charged through the Profit and Loss account in the period in which theyare incurred instead of being included within the cost of the investment ordeducted from the proceeds of a sale. This has no impact on the net asset valueof the Company but impacts the unrealised and realised gain or loss oninvestments. The comparative figures have not been restated as the impact isimmaterial. 4. The financial information contained in this report has been prepared on the basis of the accounting policies set out in the Annual Report, except as disclosed in note 3. 5. The number of ordinary shares in issue as at 31 August 2005 was 121,711,519 (31 July 2004: 33,646,953). 6. The calculation of earnings per share for the period is based on the loss after tax of ‚£1,358,000 divided by the weighted average number of shares in issue during the period being 64,711,854 (2004: 33,981,517) ordinary shares of 5p each. 7. The unaudited financial statements set out above do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The statutory accounts for the period ended 28 February 2005 have been delivered to the Registrar of Companies and received an audit report which was unqualified and did not contain any statements under s.237(2) and (3) of the Companies Act 1985. 8. Copies of the interim financial statements for the six months ended 31 August 2005 are expected to be posted to shareholders on 18 November 2005 and will be available to the public at the registered office of the Company at 29 Queen Anne's Gate, London, SW1H 9BU. ENDQUESTER VCT PLC