Quester VCT 4 plc
Interim statement for the six months ended 30 April 2004
Financial highlights
Per ordinary share (pence) 6 months to Year to 6 months to
30 April 2004 31 October 2003 30 April 2003
Capital values
Net asset value 72.4 77.2 75.0
Share price 82.5 82.5 82.5
Return and dividends
Dividend - - -
Cumulative dividend 2.9 2.9 2.9
Total return* 75.3 80.1 77.9
*Net asset value plus cumulative dividend per share
Highlights from the Chairman's statement and Investment manager's report
* During the half-year further progress has been made towards completion of
the initial investment programme. The opportunity has been taken to broaden
the spread of investment stages represented within the portfolio by
investing in a number of companies raising capital on AIM.
* Successful trade sales or IPOs of four venture capital investments have
been achieved (either during the half-year or subsequently), with the sale
of CDC Solutions Limited and Sterix Limited, the flotation of Amino
Technologies plc on AIM and the well-publicised acquisition of On Demand
Distribution Limited ("OD2") by the NASDAQ-quoted company Loudeye
Corporation.
* Changes in certain unquoted investment valuations resulted in a decline in
the net asset value of 4.8p per share over the half-year to 72.4p at 30
April 2004.
* Since 30 April 2004, however, realised and unrealised gains on the
transactions involving Amino Technologies plc and the acquisition of OD2 by
Loudeye Corporation are equivalent - on the basis of the relevant share
prices as at 9 July 2004 - to 2.0p per share.
* The terms of the trade sales of CDC Solutions Limited and OD2 offer scope
for further
upside in the future, depending on entitlements under earn-out arrangements
and, in the
case of OD2, on the share price performance of the acquirer.
Chairman's statement
INTRODUCTION
During the six months ended 30 April 2004 further progress has been made
towards completion
of the initial phase of the Company's investment programme. The opportunity has
also been taken to broaden the spread of investment stages represented within
the portfolio by investing in
a number of companies raising capital on the Alternative Investment Market
(AIM).
We are pleased to be able to report that successful trade sales or IPOs of four
venture capital investments have been achieved, either during the half year or
subsequently.
INVESTMENT PROGRESS AND PORTFOLIO PERFORMANCE
Eight new investments were completed during the period at an initial cost of �
3.1 million. These
included four investments in unquoted companies, Mesophotonics Limited, Amino
Technologies
plc, Digital Union Limited and HTC Healthcare Limited (all referred to in the
last Annual Report as having been completed since the year-end) and a total of
�818,000 invested in four AIM companies. Since the period end, the shares of
AminoTechnologies plc have been admitted to trading on AIM.
The percentage of the Company's assets at 30 April 2004 represented by unquoted
venture capital investments is 46.2% (with further amounts reserved for
follow-on investment) alongside
8.0% in companies whose shares are now traded on AIM.
Successful trade sales or IPOs of four venture capital investments have been
achieved, either during
the half-year or subsequently, with the sale of CDC Solutions Limited and
Sterix Limited, the flotation of Amino Technologies plc ("Amino") on AIM and
the well-publicised acquisition of On
Demand Distribution Limited ("OD2") by the NASDAQ-quoted company Loudeye
Corporation.
A realised gain has been recognised in the half-year to 30 April 2004 in
respect of the sale of
Sterix Limited, while the sale of CDC Solutions Limited has been accounted for
at this stage on a
no profit/no loss basis.The transactions involving Amino and OD2 have resulted
in realised and
unrealised gains for Quester VCT 4 since the end of the half-year.
In the cases of CDC Solutions Limited and OD2, the terms of the above-mentioned
transactions
offer scope for further upside in the future, depending on entitlements under
earn-out arrangements and, in the case of OD2, on the share price performance
of the acquirer Loudeye Corporation.
During the half year a number of key companies in Quester VCT 4's portfolio
have been successful in raising new funding rounds. In certain cases, however,
current conditions in the investment market have meant that the new round has
been priced at a lower level than previously, thus resulting in a downward
valuation movement. Provisions have also been made in a number of cases where
business performance has fallen behind plan. The net effect of valuation
changes has been a reduction in the carrying value of the ongoing portfolio of
venture capital investments of �2.7 million.
NET ASSETS, REVENUE AND DIVIDENDS
In revenue account terms, the statement of total return for the six months
ended 30 April 2004
shows a deficiency of income over management fees and other expenses charged to
revenue of
�336,000 (0.6p per share).
The reduction in the level of interest income in the half-year results from the
switch of assets out
of bonds into cash in order to comply with theVCT rules.
Valuation changes in respect of unquoted venture capital investments, other
capital account items
(including the realised gain on the sale of Sterix Limited) and expenses
charged to capital,
amounted to a net loss of �2,216,000.
The overall result amounted to a decline in the net asset value of 4.8p per
share over the half-year
to 72.4p at 30 April 2004.The directors are not declaring an interim dividend.
OUTLOOK
It should be appreciated that the unquoted investments held by the Company are,
in most cases,
still at an early stage and will take time to mature.
It has been encouraging to see the re-emergence of M&A activity in the unquoted
company
sector and the revival of new issue activity on AIM. At the date of this
report, the strong early-stage
weighting of the portfolio is beginning to be balanced by a number of
investments in AIM
companies, deferred consideration receivable from quoted acquirers and a
holding of NASDAQ quoted stock.
Realised and unrealised gains on transactions achieved since 30 April 2004 are
equivalent - on the basis of the relevant share prices as at 9 July 2004 - to
2.0p per share.The terms of certain of the trade sale transactions offer scope
for further upside in the future, depending on entitlements under earn-out
arrangements and, in one case, also on the share price performance of the
acquirer.
The Board considers that the ongoing portfolio of unquoted and AIM investments
will provide good opportunities for future capital growth.
Robert Wright
Chairman
13 July 2004
Investment manager's report
OVERVIEW
Quester's position in the venture capital market has continued to attract a
strong flow of
investment opportunities.
With the revival of new issue activity in the Alternative Investment Market
(AIM), the
opportunity has also been taken to broaden the spread of investment stages
represented
within the portfolio by investing in a number of companies raising capital on
that market.
Investments completed during the half year and the transactions detailed below
brought the
total of Quester VCT 4's venture capital investments at 30 April 2004 to �26.6
million at
cost in 35 portfolio companies, including 29 unquoted companies and 6 companies
whose
shares are now traded on AIM. This represents a diversified portfolio of
companies operating
in a wide range of markets with high growth potential.
An encouraging development in recent months has been the re-emergence of M&A
activity
in the unquoted company sector, reflected in the case of Quester VCT 4 by the
trade sales
and IPOs of four investments as detailed below.
PROGRESS WITH VENTURE CAPITAL INVESTMENT
During the six months ended 30 April 2004, eight new investments were completed
at an
initial cost of �3.1 million.These included the four investments in unquoted
companies referred to in the last Annual Report as having been completed since
the year end: two in the electronics sector, Mesophotonics Limited (�893,000)
and Amino Technologies plc (�357,000); one in software, Digital Union Limited
(�536,000); and one in consumer services, HTC Healthcare Limited (�536,000).
Since the half-year end, the shares of Amino Technologies plc have been
admitted to trading on AIM and part of the holding has been sold, realising a
gain of �228,000.
In pursuit of the Company's strategy to invest in attractive companies raising
capital on AIM,
a total of �818,000 has been invested in four companies covering a range of
different sectors: Offshore Hydrocarbon Mapping plc, Polaron plc, Public
Recruitment Group plc and Quadnetics plc.
During the half year �1.8 million was invested in 10 of the existing portfolio
companies,
either as further tranches of originally agreed commitment or as follow-on
investment.The
follow-on investments completed during this period included additional
commitments to
Cyclacel Limited (�500,000), Lorantis Holdings Limited (�650,000) and Teraview
Limited (�125,000).
REALISATION OF VENTURE CAPITAL INVESTMENTS
We are pleased to be able to report that successful trade sales or IPOs of four
venture capital
investments have been achieved, during the half-year to 30 April 2004 and
subsequently:
a) the software company CDC Solutions Limited ("CDC") was sold in December 2003
to Information Holdings Inc., a US-based information services group quoted on
the New
York Stock Exchange and which is the parent company of Liquent, Inc., 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 deferred guaranteed cash equivalents to repay
a substantial part of the original �1.0 million cost. Depending upon the future
performance of the combined business over the coming three years, a good uplift
on cost may ultimately be achieved. At 30 April 2004, this transaction has been
reflected in the accounts on a no profit/no loss basis.
b) the biopharmaceutical company Sterix Limited was sold in February 2004 to
the
European pharmaceutical group Ipsen, Quester VCT 4's investment realising
immediate
cash proceeds of �954,000 and generating a gain of �388,000 on cost of �566,000
(with
further deferred proceeds of �100,000 being contingently receivable).
c) since the end of the half-year, in connection with the admission of the
shares of Amino Technologies plc to trading on AIM, Quester VCT 4 has sold 36%
of its holding, realising proceeds of �357,000 and retaining a holding with a
value - based on the share price on AIM as at 9 July 2004 - of �796,000.This
investment has accordingly produced realised and unrealised gains at this stage
of �795,000 (equivalent to 1.5p per share).
d) most recently, On Demand Distribution Limited ("OD2"), which has
successfully developed as the largest digital music service provider in Europe,
has been acquired by the NASDAQ-quoted company Loudeye Corporation
("Loudeye").The combination of the two businesses creates 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
price on NASDAQ as at 9 July 2004 - and the accounting value of the deferred
consideration receivable together amount to �842,000, producing realised and
unrealized gains at this stage of �274,000 (equivalent to 0.5p per share).
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).
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 30 April 2004 is provided in
the table below:
Sector Percentage of venture Valuation at Number of
capital portfolio at 30 April 2004 investments
valuation %
� `000
Software 28.5 5,869 8
Healthcare & life 26.7 5,499 8
sciences
Communications 11.9 2,439 5
Industrial products & 9.6 1,983 6
services
Semiconductors 8.3 1,716 2
Electronics 6.5 1,343 3
Internet 5.9 1,210 2
Consumer goods & services 2.6 536 1
100.0 20,595 35
The Company holds substantial reserves - in the form of listed equities,
short-dated bonds and cash - for follow-on investment in the existing
portfolio, provided the companies concerned continue to make satisfactory
progress.
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.
It was encouraging that Anadigm Limited ("Anadigm") closed a $15 million
funding round to which Quester VCT 4 has contributed �278,000 (including a
final tranche of �133,000 invested after 30 April 2004). Anadigm provides
breakthrough technology to the electronics market, its devices enabling
electronic system developers to gain significant improvements in design times,
control and flexibility in the production of analogue circuits. The market for
such products is expected to be in excess of $500 million, with Anadigm having
the potential to dominate the market with its technology. Current conditions in
the private equity market and the stage of development reached by the company
caused the recent round to be priced at a lower level than previous rounds,
necessitating a downward adjustment of �914,000 in the carrying value of this
investment. Despite this, we believe that Anadigm offers strong prospects of
achieving an ultimately attractive return on the investment cost.
Teraview Limited closed a �6 million funding round at a price representing an
uplift to the price at which Quester VCT 4 originally invested, resulting in a
valuation uplift of �108,000.The company, which is focused on imaging and
diagnostic technology, is now implementing its business plan and initial
customer contacts are encouraging.
The performance of First Index Group Limited, which has been pursuing a
strategy to become a leading business-to-business marketplace for industrial
custom-manufactured parts and assemblies, has proved disappointing. Full
provision has now been made against cost of this investment.
Provisions totalling a further �833,000 have been made against four other
unquoted investments, where business performance has fallen behind plan or a
valuation change has been necessary to reflect current conditions in the market
for venture capital finance.
The net effect of valuation changes during the half-year has been a reduction
in the carrying value of the ongoing portfolio of venture capital investments
of �2.7 million.
LISTED EQUITY AND BOND PORTFOLIOS
For the first three years of the Company, funds awaiting investment in venture
capital opportunities were largely invested in short dated bonds. Immediately
prior to 31 October 2003, the bulk of this portfolio was switched into cash in
order to comply with the VCT rules. At the half year the Company retained bonds
to a value of �1.5 million, as well as a portfolio of listed equities of �5.6
million.
CONCLUSION
As at the date of this report, the initial investment phase of the Company is
largely 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 IPOs 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
13 July 2004
FUND SUMMARY
AS AT 30 APRIL 2004
Cost Valuation % of fund
�'000 �'000 by value
Ten largest venture capital
investments
AIT Group plc (investment 1,130 1,870 4.9%
traded on AIM)
Arithmatica Limited 1,486 1,486 3.9%
Azea Networks Inc. 1,332 1,332 3.5%
Lorantis Holdings Limited 1,400 1,025 2.7%
Workshare Limited 1,000 1,000 2.6%
Footfall Limited 1,000 1,000 2.6%
Cyclacel Limited 1,000 1,000 2.6%
Oxxon Therapeutics Limited 987 987 2.6%
Nomad Software Limited 1,077 977 2.6%
Mesophotonics Limited 893 893 2.4%
11,305 11,570 30.4%
Other venture capital
investments
Unquoted investments 14,242 7,855 20.7%
AIM investments* 1,090 1,170 3.1%
Total venture capital 26,637 20,595 54.2%
investments
Listed fixed interest 1,466 1,498 3.9%
investments
Listed equity investments 5,495 5,571 14.7%
Total investments 33,598 27,664 72.8%
Cash and other net assets 10,318 10,318 27.2%
Net assets 43,916 37,982 100%
* including Amino Technologies plc, the shares of which have been admittted to
trading on AIM since 30 April 2004.
UNAUDITED FINANCIAL STATEMENTS
STATEMENT OF TOTAL RETURN
Incorporating the revenue account of the Company
Note 6 months ended 30 April 6 months ended 30 April Year
2004 2003 ended 31
October
2003
Revenue Capital Total Revenue Capital Total Total
�'000 �'000 �'000 �'000 �'000 �'000 �'000
Losses on - (1,962) (1,962) - (3,450) (3,450) (2,056)
investments
Income 145 - 145 563 - 563 1,016
Investment (254) (254) (508) (251) (251) (502) (1,002)
management fee
Other expenses (227) - (227) (209) - (209) (436)
(Loss)/return on (336) (2,216) (2,552) 103 (3,701) (3,598) (2,478)
ordinary
activities before
taxation
Tax on ordinary - - - - - - 4
activities
(Loss)/return on (336) (2,216) (2,552) 103 (3,701) (3,598) (2,474)
ordinary
activities after
taxation
Proposed dividend - - - - - - -
Transfer (from)/to (336) (2,216) (2,552) 103 (3,701) (3,598) (2,474)
reserves
(Loss)/earnngs per 3 (0.6)p (4.2)p (4.8)p 0.2p (7.0)p (6.8)p (4.6)p
share
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.
UNAUDITED FINANCIAL STATEMENTS
(continued)
BALANCE SHEET
Note 30 April 31 October 30 April
2004 2003 2003
�'000 �'000 �'000
Fixed assets
Investments 27,664 26,687 39,913
Current assets
Debtors 720 609 735
Cash at bank 9,954 13,809 1,332
10,674 14,418 2,067
Creditors (amounts falling due (256) (266) (2,238)
within one year)
Net current assets / (liabilities) 10,418 14,152 (171)
Creditors (amounts falling due (100) (100) (97)
after more than one year)
Net assets 37,982 40,739 39,645
Capital and reserves
Called-up equity share capital 525 528 528
Share premium account 1 218 218 218
Special reserve 1 44,099 49,466 49,496
Capital reserve - realised 1 (713) (3,993) (2,312)
- unrealised 1 (5,933) (5,602) (8,426)
Revenue reserve 1 (214) 122 141
Total equity shareholders' funds 37,982 40,739 39,645
Net asset value per share 72.4p 77.2p 75.0p
SUMMARISED CASH FLOW STATEMENT
6 months Year ended 6 months
ended ended
31 October
30 April 2003 30 April
2004 2003
�'000 �'000 �'000
Net cash (outflow)/inflow from (695) 327 (108)
operating activities
Corporation tax paid - (23) -
Net capital expenditure and financial (2,956) 12,777 682
investment
Dividends paid - (607) (607)
Financing (204) 15 45
(Decrease)/increase in cash for the (3,855) 12,489 12
period
Reconciliation of net cashflow to
movement in net funds
(Decrease)/increase in cash for the (3,855) 12,489 12
period
Net funds at the start of the period 13,809 1,320 1,320
Net funds at the end of the period 9,954 13,809 1,332
Notes to the unaudited financial statements
1. MOVEMENT IN RESERVES
Share Special Capital Capital Revenue
premium reserve reserve reserve reserve
account �'000 realised unrealised
�'000 �'000
�'000 �'000
At 1 November 2003 218 49,466 (3,993) (5,602) 122
Share buy back and - (201) - - -
cancellation
Net gain on realisation of - - 499 - -
investments
Write off of investments - - (22) - -
Net unrealised depreciation
- venture capital investments - - - (2,668) -
- listed investments - - - 228 -
Transfer from unrealised - - (2,109) 2,109 -
reserve
Transfer from special reserve - (5,166) 5,166 - -
Investment management fee - - (254) - -
charged to capital
Net loss for the period - - - - (336)
At 30 April 2004 218 44,099 (713) (5,933) (214)
A transfer has been made from the special reserve, created following the
reduction of share premium account, representing the total of realised losses
on investments incurred
to 30 April 2004.
2. The financial information contained in this report has been prepared on the
basis of the accounting policies set out in the 2003 Annual Report.
3. The calculation of the revenue loss and capital loss per share for the
period is based respectively on the net revenue loss after tax of �336,000
and the net capital loss after tax of �2,216,000 divided by the weighted
average number of shares in issue during the period of 52,654,371. The net
asset value per share as at 30 April 2004 is based on the net assets of �
37,982,000 divided by the 52,483,965 ordinary shares in issue at that date.
4. The unaudited financial statements set out above do not constitute
statutory accounts within the meaning of Section 240 of the Companies Act
1985.
5. Copies of the unaudited interim results are expected to be sent to
shareholders on 16 July 2004. Further copies can be obtained from the
Company's registered office.
END
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