Quester VCT 2 plc
Interim statement for the six months ended 31 August 2003
Financial highlights
Per ordinary share (pence) 6 months to 6 months to Year to
31 August 2003 31 August 2002 28 February 2003
Capital values
Net asset value 54.5 63.3 52.0
Share price 49.5 75.5 64.5
Return and dividends
Dividend - - -
Cumulative dividend 26.6 26.6 26.6
Total return* 81.1 89.9 78.6
*Net asset value plus cumulative dividend per share
Highlights from the Chairman's statement and Investment manager's report
* The most recent half-year has seen a stabilisation in the value of the
venture capital portfolio
against a background of improved stock market conditions.
* The Statement of Total Recognised Gains and Losses shows a net recognised
gain �1.1m
equivalent to 2.4 pence per share.
* The performance of the unquoted venture capital portfolio is giving some
modest grounds for
optimism.
Chairman's statement
OVERVIEW
The most recent half-year has seen a stabilisation in the value of the venture
capital portfolio
against a background of improved stock market conditions.These factors have
combined to
produce a 4.8% improvement in the net asset value per share of the Company from
52.0 pence at 28 February 2003 to 54.5 pence at 31 August 2003. As at this
date, the Company
had net assets of �24.2 million, which compares to �23.2 million as at 28
February 2003.
PORTFOLIO PERFORMANCE
The venture capital portfolio as a whole showed a gain of �608,000 made up of
unrealised
losses on the unquoted investments of �0.44 million, balanced by a 64% gain of
�1.05 million in the value of the quoted venture capital investments. Gains of
�750,000
(18%) have been achieved by the listed equity portfolio.
During the period, a further �481,000 was invested from our liquid reserves in
six existing
investments as part of our planned follow-on investment programme. As
previously stated,
the portfolio is fully invested and so no new investments are currently being
sought.
During the period, the opportunity was taken to sell the remaining investment
in Adva AG
Optical Networking, a residual holding resulting from an earlier trade sale.
Following the
period end, the Company sold one third of its holding in Surfcontrol on the
back of recent
strong gains in its share price.
Further details on portfolio performance and valuation are provided in the
Investment
Manager's report.
RESULTS AND DIVIDENDS
The profit and loss account for the six months to 31 August 2003 shows a loss
of �212,000
before taxation, equivalent to 0.5 pence per share. In these circumstances it
is inappropriate
for the Company to pay an interim dividend.
The Statement of Total Recognised Gains and Losses shows a net recognised gain
�1.1m
equivalent to 2.4 pence per share.This reflects the improvement in value of
both the quoted
venture capital investments and the portfolio of listed equities, less the
downward
adjustment of �0.44 million in respect of the unquoted venture capital
investments.
CONCLUSION
The Investment Manager's report indicates that the majority of our investee
companies have
weathered a period of tough general economic conditions and are now more
positive about
their prospects.The portfolio includes some investments which we believe have
significant
potential to outperform stockmarkets. Merger and acquisition activity is
beginning to
appear, and there may be opportunities to make the occasional realisation
during 2004.We
expect this to be the beginning of a recovery in the overall value of your
company.
Jock Birney
Chairman
22 October 2003
Investment manager's report
OVERVIEW
In contrast to the previous two years, when particularly difficult economic
conditions
prevailed, the six months to 31 August 2003 have seen improving stock market
conditions
and some modest signs of improvement in trading and financing conditions for
companies in
the portfolio.This has afforded greater stability for the unquoted portfolio
and resulted in
gains in the Company's quoted investments. During the period we have continued
to work
closely with the various management teams and provided further funding where
appropriate.
PERFORMANCE OF THE VENTURE CAPITAL PORTFOLIO
The performance of the unquoted venture capital portfolio is giving some modest
grounds
for optimism.A number of companies have made positive progress during the
period and an
increasing proportion of the portfolio's early stage investments have either
achieved cash
flow break even or have improved their prospects of doing so.This reduces their
reliance on
follow-on funding from Quester VCT 2 and the issues of future equity dilution.
However,
several companies still have limited sales revenues and, as such, are often
loss making.
As would be expected in a diverse portfolio across a spread of sectors, not all
companies
have been able to report positive progress mainly due to slower than expected
market
development. Accordingly, net provisioning of �0.44 million has been made
against six of the
Company's unquoted investments.
The quoted venture capital portfolio has performed strongly during the six
months to 31
August 2003 and, in aggregate, has registered net unrealised gains of �1.05
million,
equivalent to 64% over the period. Of this, �750,000 is attributable to one
holding,
SurfControl, whose share price has risen particularly strongly. In September we
took the
opportunity to sell one third of the holding, generating proceeds of
approximately �348,000
on a cost of �93,000. A holding of 80,000 shares is retained which was valued
at �620,000
as at 30 September 2003. Overall, the original investment in SurfControl of �
1.0m has
generated a net cash return of �6.6m and an IRR of 374%.
During the period, the opportunity was taken to sell the remaining investment
in Adva AG
Optical Networking, a residual holding resulting from an earlier trade sale of
First Fibre
Limited.This investment has now generated a net return for shareholders of �4.2
million,
achieving an internal rate of return of 145%.
VENTURE CAPITAL INVESTMENTS MADE DURING THE PERIOD
During the six months, Quester VCT 2 has made follow-on investments in six
companies as
detailed in the table below:
Company Industry sector �'000
Anadigm Limited Semiconductors 245
Communication & Control Electronics Limited Electronics 75
On Demand Distribution Limited Internet 72
Elateral Holdings Limited Software 61
Community Internet Europe Limited Internet 15
Opsys Limited Electronics 13
481
LISTED EQUITY AND FIXED INTEREST PORTFOLIOS
The listed equity portfolio has recovered a significant amount of value during
the half year in
line with equity markets generally and has recorded unrealised gains of �
750,000, equivalent
to 18%.This compares to an equivalent rise in the FTSE All Share index of 17%.
As at 31
August 2003, the portfolio was valued at �5.0 million with a cost of �5.6
million. As at 30
September 2003, its valuation remained unchanged.
There has been continued solid performance from the residual fixed interest
portfolio, which
has been producing an effective yield at an annual rate of approximately 3.7%.
As at
31 August 2003, it was valued at its amortised cost of �1.8 million. It is
probable that this
portfolio will be sold over the next 12 months with the proceeds being used to
invest in
existing venture capital investments.
CONCLUSION
We continue to work very closely with many of our portfolio companies to
rebuild value and
improve the prospects for growth.The Company retains a satisfactory level of
liquid assets to
contribute to the further funding of existing portfolio companies.
Although an immediate recovery in the Company's net asset value per share will
not be
achieved, the performance of a number of companies within the venture capital
portfolio
gives cause for optimism. Our diversified portfolio has seen a significant fall
in value over the
last few tough years, but, whilst still cautious, we are now looking ahead to a
recovery in
values with much more confidence.
Quester Capital Management Limited
22 October 2003
FUND SUMMARY
AS AT 31 AUGUST 2003
Cost Valuation % of fund
�'000 �'000 by value
Venture capital investments 1,020
CDC Solutions Limited 1,020 1,770 7.3%
On Demand Distribution Limited 1,582 1,582 6.6%
Anadigm Limited 1,508 1,508 6.2%
Footfall Limited 1,450 1,450 6.0%
Surfcontrol plc 280 1,173 4.9%
HTC Healthcare Limited 1,000 1,000 4.1%
Imagesound Limited 1,000 1,000 4.1%
Sift Group Limited 875 972 4.0%
Sibelius Software Limited 700 700 2.9%
Communications & Control 563 563 2.3%
Electronics Limited
9,978 11,718 48.4%
Other venture capital 20,015 4,699 19.4%
investments
Total venture capital 29,993 16,417 67.8%
investments
Listed fixed interest 1,847 1,847 7.6%
investments
Listed equity investments 5,558 5,020 20.7%
Total investments 37,398 23,284 96.1%
Cash and other net assets 930 930 3.9%
Net assets 38,328 24,214 100.0%
UNAUDITED FINANCIAL STATEMENTS
PROFIT AND LOSS ACCOUNT
6 months ended 6 months ended Year ended
31 August 2003 31 August 2003 28 February
2003
�'000 �'000 �'000
Net profit/loss on 70 (6) (3,882)
realisation of
investments
Income 221 261 474
Investment management (292) (428) (849)
fee
Other expenses (211) (270) (426)
Loss on ordinary (212) (443) (4,683)
activities before
taxation
Tax on ordinary - - -
activities
Loss on ordinary (212) (443) (4,683)
activities after
taxation
Dividends - - -
Transfer from reserves (212) (443) (4,683)
Loss per share (0.5)p (1.0)p (10.5)p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
6 months ended 6 months ended Year ended
31 August 2003 31 August 2003 28 February 2003
�'000 �'000 �'000
Losses for the period (212) (443) (4,683)
Net unrealised gain/ 1,298 (5,196) (5,976)
(loss) on revaluation
of investments
Total recognised gains 1,086 (5,639) (10,659)
and losses relating to
the period
All items in the above 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.
UNAUDITED FINANCIAL STATEMENTS
(continued)
BALANCE SHEET
Note 31 August 31 August 28 February
2003 2002 2003
�'000 �'000 �'000
Fixed assets
Investments 23,284 26,772 21,301
Current assets
Debtors 113 267 240
Cash at bank 946 1,361 1,827
1,059 1,628 2,067
Creditors: amounts falling due (129) (148) (177)
within one year
Net current assets 930 1,480 1,890
Net assets 24,214 28,252 23,191
Capital and reserves
Called up equity share capital 2,221 2,232 2,228
Share premium account 1 704 704 704
Special reserve 1 24,680 40,921 25,606
Revaluation reserve 1 (3,740) (12,069) (5,908)
Profit and loss account 1 349 (3,536) 561
Total equity shareholders' funds 24,214 28,252 23,191
Net asset value per share 54.5p 63.3p 52.0p
SUMMARISED CASH FLOW STATEMENT
6 months 6 months Year ended
ended ended
28 February
31 August 31 August 2002
2003 2002
�'000 �'000 �'000
Net cash outflow from operating (338) (344) (675)
activities
Net capital expenditure and financial (481) (696) 142
investment
Financing (62) (84) (125)
Decrease in cash for the period (881) (1,124) (658)
Reconciliation of net cashflow to
movement in net funds
Decrease in cash for the period (881) (1,124) (658)
Net funds at the start of the period 1,827 2,485 2,485
Net funds at the end of the period 946 1,361 1,827
Notes to the unaudited financial statements
1. MOVEMENT IN RESERVES
Share Special Revaluation Profit and
reserve loss
premium reserve � account
account '000 �'000
�'000
�'000
At 1 March 2003 704 25,606 (5,908) 561
Share buy-ins - (56) - -
Transfer of unrealised losses to - - 870 (870)
profit and loss account
Transfer from special reserve to - (870) - 870
profit and loss account
Net unrealised gain on - - 1,298 -
revaluation of investments
Retained loss for the period - - - (212)
At 31 August 2003 704 24,680 (3,740) 349
2. The financial information contained in this report has been prepared on the
basis of the
accounting policies set out in the Annual Report.
3. The number of ordinary shares in issue as at 31 August 2003 was 44,426,712
(31
August 2002: 44,639,527).
4. The calculation of earnings per share for the period is based on loss after
tax of
�212,000 divided by the weighted average number of shares in issue during the
period
being 44,525,477 ordinary shares of 5p each.
5. The unaudited financial statements set out above do not constitute
statutory accounts
within the meaning of Section 240 of the Companies Act 1985.
6. Copies of the unaudited interim results are expected to be sent to
shareholders on
22 October 2003. Further copies can be obtained from the Company's registered
office.
END