Final Results QUESTER VCT 4 PLC ("the Company") Summary of results
for the year ended 31 October 2004 Per Ordinary Share 2004 2003
2002 (pence) Capital Values Net asset value 67.7 77.2 81.8 Share
price 62.0 82.5 82.5 Return and Dividends Dividend - - 1.2
Cumulative dividend 2.9 2.9 2.9 Total Return* 70.6 80.1 84.7
Interim dividend for 1.0 the year ending 31 October 2005 *Net asset
value plus cumulative dividend Shareholder information Annual
General Meeting 11.30 a.m. on 22 February 2005 Dividend for
2004/2005 1p Payment date 1 April 2005 Ex dividend date 2 March
2005 Record date 4 March 2005 CHAIRMAN'S STATEMENT Introduction
During the year, Quester's position in the market continued to
attract a strong flow of investment opportunities. The initial
investment phase of the Company is now essentially complete. The
overall funding environment for small companies is now better than
for some time. During the year it was encouraging that a number of
key companies in the portfolio were able to close follow on funding
rounds on satisfactory terms, or are planning to do so shortly.
Looking ahead to possible opportunities for successful sales of new
and developing businesses, it has been encouraging to see a higher
level of merger and acquisition (M&A) activity by larger
companies and stock market conditions more conducive to the
achievement of successful flotations, particularly for smaller
companies on the Alternative Investment Market (AIM). Investments
completed In the current economic environment, with an expectation
of relatively low overall growth and low inflation, it has been the
Board's view that a strategy of investing in high-growth sectors
within the economy offers the best opportunity for the achievement
of superior investment returns. Accordingly, the portfolio of
Quester VCT 4, now covering 35 companies including 29 unquoted
companies and six companies whose shares are traded on AIM or
NASDAQ, includes a strong weighting in the ICT and healthcare and
life sciences sectors. The portfolio is well diversified and
includes companies operating in a wide range of markets with high
growth potential. Other than in relation to its early investments
and AIM companies, Quester VCT 4 has generally coinvested alongside
Quester's fund for institutional investors, the Quester Venture
Partnership, and other Quester funds. These co-investment
arrangements are appropriate to the needs of ambitious high growth
companies, which may require significant amounts of capital to
develop technology based products or to grow their businesses
internationally. Progress of the portfolio Shareholders will
appreciate that venture capital is a long-term investment which, in
the first few years, may often show a drop in net asset value
before showing any significant uplift, reflecting initial costs and
management fees and the writing down in value of troubled or failed
investments which may occur in the first few years of the life of a
fund. At the end of this fourth year, the portfolio still contains
a relatively high proportion of early stage businesses. In a number
of the technology-based sectors in which Quester VCT 4 has
holdings, markets have not developed as rapidly as had been
anticipated. Some of the portfolio companies have suffered as a
result, with business performance falling behind plan. Provisions
totalling �5.1 million have been made in respect of 11 unquoted
investments. Other portfolio companies have achieved good progress
and show the potential to fulfil expectations. The Board is
confident that, across the portfolio as a whole, progress is
satisfactory at this stage in Quester VCT 4's development and that
there are prospects for substantial upside potential. Trade sales
and flotations It is encouraging to be able to report that
successful trade sales or flotations of four venture capital
investments were achieved during the year. These included two
realisations for cash, which have together produced realised gains
in the year ended 31 October 2004 of �1,443,000. The other two
transactions have resulted in the Company holding quoted stock in
the acquirer and/or an entitlement to future earn-out
consideration. At this stage the sale of CDC Solutions Limited has
been accounted for on a no profit/ no loss basis, while the sale of
On Demand Distribution Limited to Loudeye Corporation ("Loudeye")
has produced only a modest unrealised gain. Both transactions offer
significant potential for future uplift in valuation, through share
price performance (in the case of Loudeye) and under the earn-out
entitlements. Net assets, revenue and dividends During the year,
there was a 12.3% reduction in the net asset value per share of the
Company, from 77.2p at 31 October 2003 to 67.7p at 31 October 2004.
The movement in net assets is summarised as follows: �'000 Pence
per share Net asset value at 31 October 2003 40,739 77.2 Income 267
0.5 Investment management fee and other expenses (1,330) (2.5)
Realised net gains on disposal of investments 1,606 3.1 Write-off
of investments (1,052) (2.0) Net unrealised losses on revaluation
of investments (4,500) (8.6) Share buy-backs (serving to enhance
NAV by 0.04p per (490) - share) Net asset value at 31 October 2004
35,240 67.7 The statement of total return for the year ended 31
October 2004 shows a loss of �5,009,000, equivalent to 9.5p per
share. This comprises a loss of �577,000 on revenue account, with
the balance being attributable to capital account. Against this
background, the Directors are not recommending a final dividend for
the year ended 31 October 2004. However, it is intended that the
Company should shortly revoke its investment company status, to
enable a dividend to be paid in respect of the realised gains
achieved on venture capital investments during the year. This will
be paid as an interim dividend in respect of the year ending 31
October 2005 of 1.0p per share, payable on 1 April 2005. Change of
corporate broker and market makers In July 2004 the Company
appointed Noble & Company Limited as its corporate broker,
replacing Evolution Beeson Gregory Limited. Following this change,
Winterflood Securities Limited became market makers in the
Company's shares. Outlook The investments completed by the Company
are, in most cases, still at an early stage and will take time to
mature. The Board considers that the portfolio of investments that
has now been constructed, covering a diverse range of companies
operating in high-growth sectors, is capable of delivering
attractive returns to shareholders in the longer term. Robert
Wright Chairman 21 January 2005 INVESTMENT MANAGER'S REPORT
Progress with venture capital investment During the year ended 31
October 2004, 11 new investments were completed at an initial cost
of �4.1 million. The new investments included six in unquoted
companies: three in software, Argelcom Limited (�89,000), Celona
Technologies Limited (�321,000) and Digital Union (UK) Limited
(�536,000); one in communications, Amino Technologies plc (�
357,000); one in electronics, Mesophotonics Limited (�893,000); and
one in consumer services, HTC Healthcare Limited (�536,000). In
pursuit of the Company's strategy to invest in attractive companies
raising capital on AIM, a total of �1.3 million was invested in
five companies covering a range of different sectors: Allergy
Therapeutics plc, Offshore Hydrocarbon Mapping plc, Polaron plc,
Public Recruitment Group plc and Quadnetics Group plc. An
additional �2.9 million was invested in 16 of the existing
portfolio companies, either as further tranches of originally
agreed commitment or as follow-on investment. The follow-on
investments included additional commitments to Advanced Valve
Technologies Limited (�544,000), Cylacel Group plc (� 500,000),
Lorantis Holdings Limited (�650,000) and Teraview Limited
(�250,000). As previously reported, the portfolio that we have been
building for Quester VCT 4 is an early stage venture capital
portfolio, consisting largely of technology-related companies
serving markets with considerable potential over the long term. It
is emphasised, however, that most of the companies concerned are
still at a relatively early stage of development. For those
involved in technology-related opportunities, there may at this
stage still be only limited, if any, sales revenues and a reported
financial loss. This pattern of financial results should be
appreciated as typical of early-stage companies exploiting
technology-related opportunities and their business plan. Trade
sales and flotations We are pleased to be able to report that
successful trade sales or flotations of four venture capital
investments were achieved during the year, including two
realisations for cash and two transactions resulting in the Company
holding quoted stock in the acquirer and/or an entitlement to
future earnout consideration: � The biopharmaceutical company
Sterix Limited was sold in February 2004 to the European
pharmaceutical group Ipsen, Quester VCT 4's investment realising
cash proceeds of �1,062,000 and generating a gain of �495,000 on
cost of �567,000. � The holding in Amino Technologies plc, which
had been acquired for �357,000 in November 2003 as an unquoted
investment, was sold in tranches upon the admission of the
company's shares to trading on AIM in June 2004 and subsequently,
realising total proceeds of �1,305,000 and a gain of �948,000. �
The digital music service provider On Demand Distribution Limited
("OD2") was acquired by the NASDAQ-quoted company Loudeye
Corporation ("Loudeye") in June 2004, to create the largest
business-to-business digital media provider in the world with the
largest licensed digital music catalogue in the industry. For
Quester VCT 4, the initial consideration received in the form of
Loudeye shares - based on the last traded price of these shares on
NASDAQ, appropriately discounted - and the accounting value of the
deferred consideration receivable together amount as at 31 October
2004 to �694,000, producing an unrealised gain at this stage of
�126,000. The ultimate return to Quester VCT 4 will depend upon
movements in Loudeye's share price, foreign exchange movements and
the future performance of the business itself (under an earn-out
entitlement). � The software company CDC Solutions Limited ("CDC")
was sold in December 2003 to Information Holdings Inc., a US-based
information services group (since acquired by The Thomson
Corporation) which is the parent company of Liquent, Inc.
("Liquent"), hitherto CDC's major competitor. The CDC board and
Quester considered that CDC shareholders would ultimately benefit
from a merger of the two companies and their improved prospects for
growth as a combined business. Quester VCT 4's investment was sold
for cash and cash equivalents repaying a substantial part of the
original �1.0 million cost of this investment. Depending upon the
future performance of the combined business over the coming two
years, a good uplift on cost may ultimately be achieved, under an
earn-out entitlement. At 31 October 2004, this transaction has been
reflected in the accounts on a no profit/no loss basis. In
addition, in July 2004 the Company sold its holding in Offshore
Hydrocarbon Mapping plc, which had been acquired for �175,000 in
March 2004, realising a gain of �53,000. A well balanced portfolio
The portfolio so far established is balanced by sector and well
spread. A summary of the sectors covered by the portfolio at 31
October 2004 is provided in the table below: Industry sector
Existing venture Valuation Number of capital investments portfolio
at valuation % �'000 Healthcare & life sciences 33.8 6,368 9
Software 23.0 4,330 10 Industrial products & services 12.1
2,270 4 Communications 11.6 2,184 4 Internet 7.2 1,350 2
Electronics 6.0 1,125 3 Semiconductors 3.5 652 2 Consumer goods
& services 2.8 536 1 100.0 18,815 35 Reserves for follow-on
investment The young companies in which Quester VCT 4 has invested
will require further rounds of finance as they grow. It is
important that Quester VCT 4 holds reserves to cover this funding
process, provided the companies concerned continue to make
satisfactory progress. This is particularly important for a
portfolio of this type, and is one of the reasons why we consider
that a venture capital portfolio of about 35 investments is
appropriate for the Company. Under the VCT legislation, at least
70% of the Company's investments have to be represented by
qualifying holdings. In order to comply with this requirement and
maintain an appropriate level of reserves, �5.6 million was held in
non-interest bearing cash accounts at the year end (this balance is
expected to be significantly reduced by the end of the current
year). This results in a lower level of interest income but is
consistent with managing the venture capital portfolio
appropriately for current market conditions and long-term capital
growth. Valuation of the venture capital portfolio The venture
capital investments have been valued in line with the Company's
accounting policies, which are based on the valuation guidelines
issued by the British Venture Capital Association ("BVCA") in June
2003. Holdings in companies whose shares are traded on AIM are
valued on the basis of mid-market price on 31 October 2004. It was
disappointing that AIT Group plc, which had reported satisfactory
results for its financial year ended 31 March 2004, was obliged in
August 2004 to issue an announcement that expectations for the year
to 31 March 2005 would be lower than anticipated. The share price
fell following that announcement and stood at 33p as at 31 October
2004. For Quester VCT 4, the effect was a reduction of �1,066,000
over the year in carrying value of this investment (the valuation
at 31 October 2004 being �883,000 against cost of �1,130,000).
Other AIM investments showed a net appreciation in value of
�201,000. As regards the unquoted investments, in a number of the
technology-based sectors in which Quester VCT 4 has holdings,
markets have not developed as rapidly as had been anticipated. Some
of the companies in the Quester VCT 4 portfolio have suffered as a
result, with business performance falling behind plan. Provisions
have been made against cost of the investments concerned: these
total �5.1 million in respect of 11 unquoted investments, including
Advanced Valve Technologies Limited (�74,000), Anadigm Limited
(�1,055,000), Anthropics Technology Limited (�250,000), Arithmatica
Limited (�1,057,000), First Index Limited (�1,030,000),
Mesophotonics Limited (�223,000), Nexagent Limited (�311,000),
Nomad Software Limited (�450,000), Printable Field Emitters Limited
(�22,000) and Reqio Limited (�580,000). The investments in First
Index Group Limited and Printable Field Emitters Limited have now
been treated as write-offs. Teraview Limited closed a new funding
round at a higher price, resulting in a valuation uplift of
�108,000. The carrying value of the investment in Sift Group plc
has been reduced by �219,000 to reflect current valuation
conditions in the venture capital market. Overall, write-offs
resulting from business failures totalled �1.0 million, while the
net reduction in carrying value of the ongoing portfolio of
unquoted venture capital investments amounted to �4.1 million. As
at 31 October 2004, the Company held entitlements to additional
earn-out consideration following two of the trade sales (CDC and
OD2), which may in due course add to the overall portfolio
valuation. Listed equity and bond portfolios At 31 October 2004 the
Company retained bonds to a value of �876,000. In addition, at 31
October 2004 the Company held a portfolio of listed equities valued
at �6.1 million (showing an unrealised capital profit of �312,000).
Conclusion As at the date of this report, the initial investment
phase of the Company is essentially complete with a portfolio of 35
venture capital investments. The total number of venture capital
investments will be kept under review and further investments will
be made if appropriate. While a number of the companies in which
Quester VCT 4 has invested have not met their objectives during the
period, it is pleasing to see a significant evolution of the
portfolio with a number of trade sales and flotations having been
achieved which will lead in due course to full realisation of these
investments. Other portfolio companies continue to show the
potential to fulfil expectations. Overall, we are confident that
the portfolio has substantial upside potential. Quester Capital
Management Limited Manager 21 January 2005 FUND SUMMARY AS AT 31
OCTOBER 2004 Quoted venture Industry sector Original Valuation
Equity % % of fund capital Investments cost held by value �'000
�'000 AIT Group plc Software 1,130 883 5.8% 2.5% Allergy
Therapeutics Healthcare and life 500 510 1.1% 1.4% plc sciences
Loudeye Corp. Internet 568 694 0.8% 2.0% Polaron plc Industrial
products 250 308 1.2% 0.9% and services Public Recruitment
Industrial products 250 233 0.8% 0.6% Group plc and services
Quadnetics Group plc Electronics 143 167 0.5% 0.5% Total quoted
venture capital investments 2,841 2,795 7.9% Unquoted venture
capital Advanced Valve Industrial products 1,062 729 26.4% 2.1%
Technologies Limited and services Anadigm Limited Semiconductors
1,278 223 2.8% 0.6% Antenova Limited Communications 999 750 6.8%
2.1% Anthropics Technology Communications 1,070 70 7.0% 0.2%
Limited Argelcom Limited Software 89 89 6.2% 0.3% Arithmatica
Limited Semiconductors 1,486 429 13.7% 1.2% Avidex Limited
Healthcare & life 801 801 2.8% 2.3% sciences Azea Networks, Inc
Communications 1,332 1,332 6.8% 3.8% BlazePhotonics Communications
514 32 2.9% 0.1% Limited Celona Technologies Software 321 321 9.0%
0.9% Limited Celoxica Holdings Software 1,148 648 2.8% 1.9% Limited
Cyclacel Group plc Healthcare & life 1,000 1,000 1.4% 2.9%
sciences De Novo Healthcare & life 750 187 2.8% 0.5%
Pharmaceuticals sciences Limited Digital Union UK Software 536 536
13.4% 1.5% Limited Elateral Holdings Software 1,155 155 15.5% 0.5%
Limited Footfall Limited Industrial products 1,000 1,000 7.7% 2.8%
and services HTC Healthcare Group Consumer goods and 536 536 8.7%
1.5% plc services Lorantis Holdings Healthcare & life 1,400
1,025 2.5% 2.9% Limited sciences Mesophotonics Limited Electronics
893 670 6.0% 1.9% Nexagent Limited Software 467 117 1.2% 0.3% Nomad
Software Software 1,087 537 6.5% 1.5% Limited Opsys Limited
Electronics 1,038 288 2.9% 0.8% Oxford Immunotec Healthcare &
life 625 625 9.6% 1.8% Limited sciences Oxxon Therapeutics
Healthcare & life 987 987 3.5% 2.8% Holdings, Inc. sciences
Reqio Limited Software 624 44 12.2% 0.1% Sift Group Limited
Internet 875 656 4.5% 1.9% Teraview Limited Healthcare & life
625 733 4.9% 2.1% sciences Workshare Limited Software 1,000 1,000
6.6% 2.8% Xention Discovery Healthcare & life 500 500 5.8% 1.4%
Limited sciences Total unquoted venture capital 25,198 16,020 45.5%
investments Total venture capital 28,039 18,815 53.4% investments
Listed fixed interest 852 876 2.5% investments Listed equity
investments 5,811 6,123 17.4% Total investments 34,702 25,814 73.3%
Cash and other net assets 9,426 9,426 26.7% Net assets 44,128
35,240 100% STATEMENT OF TOTAL RETURN (incorporating the revenue
account) FOR THE YEAR ENDED 31 OCTOBER 2004 Notes 2004 2004 2004
2003 2003 2003 Revenue Capital Total Revenue Capital Total �'000
�'000 �'000 �'000 �'000 �'000 Loss on investments - (3,946) (3,946)
- (2,056) (2,056) Income 2 267 - 267 1,016 - 1,016 Investment
management 3 (486) (486) (972) (501) (501) (1,002) fee Other
expenses 4 (358) - (358) (436) - (436) Return on ordinary (577)
(4,432) (5,009) 79 (2,557) (2,478) activities before tax Tax on
ordinary 6 - - - 5 (1) 4 activities Return on ordinary (577)
(4,432) (5,009) 84 (2,558) (2,474) activities after tax Dividends
proposed - - - - - - Transfer (from)/ to (577) (4,432) (5,009) 84
(2,558) (2,474) reserves Return per share 7 (1.1)p (8.4)p (9.5)p
0.2p (4.8)p (4.6)p The revenue column of this statement is the
profit and loss account of the Company. All revenue and capital
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.
The accompanying notes are an integral part of this statement.
BALANCE SHEET AS AT 31 OCTOBER 2004 Note 2004 2003 �'000 �'000
Fixed assets Investments 25,814 26,687 Current assets Debtors 578
609 Cash at bank 9,185 13,809 9,763 14,418 Creditors (amounts
falling due within one year) (237) (266) Net current assets 9,526
14,152 Creditors (amounts falling due in over one (100) (100) year)
Net assets 35,240 40,739 Capital and reserves Called-up equity
share capital 520 528 Share premium 218 218 Special reserve 41,975
49,466 Capital reserve - realised 619 (3,993) - unrealised (7,637)
(5,602) Revenue reserve (455) 122 Equity shareholders' funds 35,240
40,739 Net asset value per share 15 67.7p 77.2p The financial
statements were approved by the directors on 21 January 2005 and
were signed on their behalf by: Robert Wright Chairman The
accompanying notes are an integral part of this statement. CASHFLOW
STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2004 Notes 2004 2003 �'000
�'000 Cash outflow from operating activities (1,030) 327
Corporation tax paid - (23) Financial investment Purchase of
venture capital investments (6,993) (6,496) Purchase of listed
equities and fixed interest (2,557) (25,083) investments
Sale/redemption of venture capital investments 3,715 108
Sale/redemption of listed equity and fixed 2,731 44,248 interest
investments Total financial investment (3,104) 12,777 Equity
dividends paid - (607) Financing Issue of shares in accordance with
the terms of - 82 the dividend reinvestment scheme Buy back of
shares (490) (67) Total financing (490) 15 (Decrease) / increase in
cash for the period (4,624) 12,489 Reconciliation of net cash flow
to movement in net funds (Decrease) / increase in cash for the
period (4,624) 12,489 Net funds at the start of the period 13,809
1,320 Net funds at the end of the period 9,185 13,809 The
accompanying notes are an integral part of this statement. NOTES TO
THE FINANCIAL STATEMENTS 2 Income 2004 2003 �'000 �'000 Dividend
income Listed equity shares 179 132 Interest receivable Fixed
interest securities 39 735 Loans to unquoted companies - 4 Bank
deposits 40 137 Sundry income 9 8 267 1,016 3 Investment management
fee Quester Capital Management Limited ("QCML") provides investment
management services to the Company under an agreement dated 30
October 2000. A charge of �972,000 (2003: �1,002,000) in respect of
the management fee payable to QCML was accrued during the year
together with irrecoverable VAT of �181,000 (2003: �185,000). The
fee, which is calculated monthly and is payable in advance, was
levied at a rate of 2.5% (2003: 2.5%) on the Company's net assets
during the financial year ended 31 October 2004. The manager's
appointment is for a fixed term which shall expire on the seventh
anniversary of the commencement of the fund and shall continue
until terminated by either party subject to a notice period. If
such notice is given on or after the seventh anniversary of the
commencement of the fund, the notice period shall be the longer of
(i) twelve months and (ii) the period from the date on which notice
is given to the tenth anniversary of the commencement of the fund.
Thereafter the notice period shall be twelve months. The management
fee payable to Newton Investment Management Limited, to the extent
that it is not covered by transaction fees payable by the Company,
will be met by QCML out of the above fee. QCML provides
administrative and secretarial services to the Company for which it
is entitled to a fee of �53,000 per annum (linked to the movement
in the RPI). This fee is included in other expenses (note 4). 4
Other expenses 2004 2003 �'000 �'000 Administrative and secretarial
services 53 51 Directors' remuneration (note 5) 39 39 Auditor's
remuneration - audit services 22 21 - non audit services 9 10
Insurance 11 7 Legal and professional expenses 21 27 UKLA, LSE and
registrars fees 19 21 Other expenses (7) 43 Irrecoverable VAT 191
217 358 436 5 Directors' remuneration 2004 2003 �'000 �'000 Fees
paid to directors 15 15 Amounts paid to third parties, excluding
VAT, in 24 24 consideration of the services of directors 39 39 6
Tax on ordinary activities 2004 2004 2003 2003 Revenue Capital
Revenue Capital �'000 �'000 �'000 �'000 Corporation tax payable
-prior - - 5 (1) year adjustment - - 5 (1) Reconciliation of profit
on ordinary activities to taxation 2004 2004 2003 2003 Revenue
Capital Revenue Capital �'000 �'000 �'000 �'000 (Loss)/ profit on
ordinary (577) (4,432) 79 (2,557) activities before tax Tax on
profit on ordinary (173) (1,330) 24 (767) activities at standard UK
corporation tax rate at 30% (2003:30%) Effects of: Loss on
investments - 1,184 - 617 Loss on operating activities 173 146 (24)
150 Prior year adjustment - - 5 (1) - - 5 (1) 7 Return per share
The revenue loss per share of 1.1p (2003: profit of 0.2p) is based
on the aggregate of the net loss from ordinary activities after tax
of �577,000 (2003: profit of �84,000) and on ordinary shares of
52,471,757 (2003: 52,791,612), being the weighted average number of
shares in issue during the year. The capital loss per share of 8.4p
(2003: 4.8p) is based on the net realised and unrealised capital
loss for the period after tax of �4,432,000 (2003: � 2,558,000) and
on ordinary shares of 52,471,757 (2003: 52,791,612), being the
weighted average number of shares in issue during the year. 15 Net
asset value per share The net asset value per share as at 31
October 2004 of 67.7p (2003: 77.2p) is based on net assets of
�35,240,000 (2003: �40,739,000) divided by the 52,047,965 (2003:
52,781,815) ordinary shares in issue at that date. The financial
information set out above does not constitute the Company's
statutory accounts for the year ended 31 October 2004. The
statutory accounts for the year ended 31 October 2004 will be
finalised on the basis of the financial information presented by
the directors in the preliminary announcement and will be delivered
to the Registrar of Companies following the Company's Annual
General Meeting. A copy of the above document has been submitted to
the UK Listing Authority, and will shortly be available for
inspection at the UK Listing Authority's Document Viewing Facility,
which is situated at: Financial Services Authority 25 The North
Colonnade Canary Wharf London E14 5HS Copies of the full financial
statements for the year ended 31 October 2004 are expected to be
posted to shareholders on 25 January 2004 and will be available to
the public at the registered office of the Company at 29 Queen
Anne's Gate, London, SW1H 9BU. END
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