QUESTER VCT 4 PLC ("the Company")
Summary of results for the year ended 31 October 2002
Per Ordinary Share 2002 2001
(pence)
(60 weeks)
Capital Values
Net asset value 81.8 92.0
Share price 82.5 80.0
Return and Dividends
Dividend 1.15 1.75
Cumulative dividend 2.90 1.75
Total Return* 84.70 93.75
*Net asset value plus
cumulative dividend
Shareholder information
Annual General Meeting 11.30 a.m. on 25 February 2003
Final dividend for year ended 31 October 2002 1.15p
Payment date 1 April 2003
Ex-dividend date 26 February 2003
Record date 28 February 2003
CHAIRMAN'S STATEMENT
Introduction
In the year ended 31 October 2002, Quester VCT 4's second year, the Company has
continued to make steady progress in the initial phase of its investment
programme.
Present conditions in the financial markets have continued to offer the
opportunity for the Company to build its venture capital portfolio at, by
recent historical standards, relatively low initial investment prices. At the
same time, however, the business conditions faced by small companies,
particularly in technology-related sectors, have been very difficult.
Investments
During the year, the Company made new venture capital investments totaling �6.4
million in nine companies at an average cost of �714,000. All of these
investments were made alongside other Quester funds. In addition, a further �
2.0 million was invested in seven of the existing portfolio companies, either
as further tranches of originally agreed commitment or as follow-on investment.
These transactions brought the total amount invested at 31 October 2002 to �
20.2 million in 25 unquoted companies and one company whose shares are traded
on AIM.
At the end of this second year of the Company's initial investment phase, the
portfolio contains a relatively high proportion of early-stage businesses, some
of which have been suffering in the current harsh economic and financing
environment. As a result, it has been necessary to make provisions in respect
of certain investments where the business has fallen behind plan or, in some
cases, to reflect current conditions in the private equity market. On a more
positive note, although there are no instances in which it has been prudent to
make upwards revaluations at this stage, a number of the portfolio companies
have achieved developments in their businesses that provide grounds for
optimism for the future.
At the year-end, the listed equity portfolio was valued at �3.8 million and the
bond portfolio (which included some �2.7 million of the longer-term allocation
to the listed equity portfolio) at �22.1 million. Net cash and other current
assets were �1.1 million. Ongoing investment in venture capital over the coming
months will be funded by reduction of the bond portfolio.
Net Assets, Revenue and Dividends
Net revenue attributable to shareholders for the period was �610,000, which was
derived from dividends on listed equities, interest on bonds and bank deposit
interest. In accordance with the Company's maximum distribution policy, a final
dividend of 1.15 pence per share is proposed. This will represent tax-free
income for eligible shareholders.
The provisions in respect of unquoted investments, together with valuation
changes in the quoted equity and bond portfolios and expenses charged to
capital, amounted to a loss of 10.2 pence per share, resulting in a reduction
in the net asset value per share from 92.0 pence at 31 October 2001 to 81.8
pence at 31 October 2002.
Shareholders should note that the future payment of dividends will depend both
on the level of income received from investments and, more significantly, on
realized capital gains, so that there may be no dividend in some years. In
particular, the expected decline in the level of bond interest (as the bond
portfolio is gradually reduced) and the fact that it is too early to expect any
realised capital gains make it unlikely that a dividend will be payable for the
year ending 31 October 2003.
Outlook
During the coming months the Company will continue with a steady rate of
investment with a view to completing the process of creating a diversified
portfolio of venture capital investments.
It should be appreciated that the investments completed by the Company to date
are, in most cases, at an early stage and will take time to mature. It is
disappointing that a number of the companies have suffered from the current
adverse conditions and that, as a result, it has been necessary to make
provisions against certain investments and to report a decline in the net asset
value per share.
Nevertheless the Board considers that the portfolio of investments completed to
date, 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
14 January 2003
INVESTMENT MANAGER'S REPORT
Introduction
In this second year of the Company, because of the difficult market conditions,
we have taken a cautious approach to new investment. We started the year with �
12.8 million invested in 18 venture capital investments and ended the year with
�20.2 million invested in 26 venture capital investments, giving a diversified
portfolio of companies operating in a wide range of markets with high growth
potential.
Progress with venture capital investment
During the year, Quester's position in the market continued to attract a strong
flow of investment opportunities. We selected nine of these companies as having
attractive growth potential and invested �6.4 million on behalf of Quester VCT
4.
In addition, �2.0 million was invested in seven of the existing portfolio
companies, either as further tranches of originally agreed commitment or as
follow-on investment.
This further investment brought Quester VCT 4's venture capital investments at
31 October 2002 to �20.2 million in 26 companies at an average cost of �
778,000, with outstanding legal commitments to existing portfolio companies
totalling a further �562,000.
The portfolio that we are building for Quester VCT 4 is an early stage venture
capital portfolio, consisting largely of technology-related companies serving
markets with considerable growth potential over the long term. The summary of
the businesses of the ten largest investments shown on pages 11 to 15 of the
Annual Report gives a flavour of the significant commercial opportunities that
companies in the portfolio are seeking to address. They have great potential
but, in general, the companies remain at an early stage of development.
These young companies will require further rounds of finance as they grow. It
is important that Quester VCT 4 is in a position to contribute to this funding
process, provided the companies concerned continue to make satisfactory
progress. Accordingly, we hold notional reserves for further investment in
existing portfolio companies. If the notional reserves scheduled for investment
in the next 12 months are taken into account, then total funds allocated to the
26 venture capital investments (at cost) represent approximately 54% of net
assets at 31 October 2002.
The funds required to meet these commitments and reserves have been invested in
the bond market for the short to medium term. We would expect the venture
capital portfolio to enlarge to about 30 to 35 investments by 31 October 2003.
The nine new investments made during the year are as follows:
Company Industry Sector �'000
AIT Group plc* Software 667
Avidex Limited Healthcare & life sciences 733
Azea Networks Limited Communications 295
Bowman Power Limited Energy 1,000
Footfall Limited Industrial products & 1,000
services
Nexagent Limited Communications 229
Nomad Software Limited Software 1,000
On Demand Distribution Limited Internet 500
Workshare Limited Software 1,000
6,424
*refinancing prior to admission of company to trading on AIM
The further investments made during the year in existing portfolio companies
(net of a �14,000 loan repayment) are detailed in the table below:
Company Industry Sector �'000
Antenova Limited Communications 249
Automatic Parallel Designs Semiconductors 153
Limited
Blaze Photonics Limited Communications 235
Celoxica Holdings PLC Software 500
First Index Group Limited Industrial products & 303
services
Opsys Limited Electronics 208
Printable Field Emitters Electronics 333
Limited
1,981
The venture capital portfolio
The portfolio so far established is balanced by sector and well spread. A
summary of the sectors currently covered by the portfolio is as follows:
Industry Sector Existing venture capital Cost Number of
portfolio at cost (%) investments
�'000
Software 33.0 6,667 7
Healthcare & life sciences 16.6 3,358 6
Industrial products & 11.3 2,291 2
services
Semiconductors 9.9 2,003 2
Electronics 9.2 1,859 2
Communications 8.2 1,662 4
Internet 6.8 1,375 2
Energy 5.0 1,000 1
100.0 20,215 26
Valuation of the venture capital portfolio
The unquoted investments have been valued in line with the accounting policies
detailed on page 26 of the Annual Report, which are based on the guidelines
issued by the British Venture Capital Association.
Over the last year, the business conditions faced by small companies,
particularly in technology-related sectors, have been very difficult, and some
of the companies in which QuesterVCT 4 has invested have suffered as a result.
Provisions have been made in respect of certain investments where the business
has fallen behind plan or, in some cases, to reflect current conditions in the
private equity market.
Overall, provisions totalling �3.5 million have been made during the year
against the cost of 13 of the unquoted investments. One investment, in a
company whose shares are traded on AIM, is carried at mid-market value which
represented a valuation reduction of �175,000 against cost at 31 October
2002.The impact of these provisions and valuation reduction is to create an
unrealised loss of �4.1 million on the venture capital portfolio as at the year
end.
Listed equity and bond portfolios
Approximately �7.6 million, representing 15% of net funds raised, has been set
aside for investment in listed equities, managed by Newton Investment
Management Limited. As at 31 October 2002, a total of �4.8 million at cost had
been invested in listed equities, representing some 64% of the funds allocated
to this portfolio, with the balance being retained in cash or bonds. As at the
year end, the listed equities were showing an unrealised loss of �1.1 million.
Funds awaiting investment in venture capital opportunities are largely invested
in short dated bonds. At 31 October 2002 the bond portfolio amounted to �21.9
million at cost and was showing an unrealised valuation surplus of �231,000.A
significant proportion of the bond portfolio will be switched into venture
capital investments during the current year. As a result, the income of the
company is likely to reduce over the current year, as we replace income
producing investments with venture capital investments selected to provide
capital appreciation.
Conclusion
We are now well advanced with the initial investment phase, with investments in
26 companies completed towards the likely total of 30 to 35 companies. We are
building an early-stage venture capital portfolio consisting largely of
technology related companies serving markets with considerable growth potential
over the long term. Despite very tough current conditions for the majority of
young companies and the uncertainty of current valuation measures, the
portfolio has attractive upside potential.
Quester Capital Management Limited
14 January 2003
FUND SUMMARY AS AT 31 OCTOBER 2002
Ten largest venture Industry sector Cost Valuation % of fund
capital investments
�'000 �'000 by value
Automatic Parallel Designs Semiconductors 1,003 1,003 2.3%
Limited
Anadigm Limited Semiconductors 1,000 1,000 2.3%
Bowman Power Limited Energy 1,000 1,000 2.3%
CDC Solutions Limited Software 1,000 1,000 2.3%
Footfall Limited Industrial products & 1,000 1,000 2.3%
services
Workshare Limited Software 1,000 1,000 2.3%
First Index Group Limited Industrial products & 1,291 969 2.2%
services
Nomad Software Limited Software 1,000 950 2.2%
Sift Group Limited Internet 875 875 2.0%
Lorantis Holdings Limited Healthcare & life 750 750 1.9%
sciences
9,919 9,547 22.1%
Other venture capital 10,296 6,605 15.3%
investments
Total venture capital 20,215 16,152 37.4%
investments
Listed fixed interest investments 21,890 22,121 51.2%
Listed equity shares 4,846 3,781 8.8%
Total investments 46,951 42,054 97.4%
Cash and other net current assets 1,144 1,144 2.6%
Net assets 48,095 43,198 100.0%
STATEMENT OF TOTAL RETURN (INCORPORATING THE REVENUE ACCOUNT)
FOR THE YEAR ENDED 31 OCTOBER 2002
Notes 2002 2002 2002 2001 2001 2001
Revenue Capital Total Revenue Capital Total
�'000
�'000 �'000 �'000 �'000 �'000
Loss on investments 8 - (5,008) (5,008) - (1,385) (1,385)
Income 1 1,479 - 1,479 2,016 - 2,016
Investment 2 (481) (481) (962) (351) (351) (702)
management fee
Other expenses 3 (296) - (296) (304) - (304)
Return on ordinary 702 (5,489) (4,787) 1,361 (1,736) (375)
activities before
tax
Tax on ordinary 5 (92) 86 (6) (401) 101 (300)
activities
Return on ordinary 610 (5,403) (4,793) 960 (1,635) (675)
activities after
tax
Dividends proposed 6 (607) - (607) (925) - (925)
Transfer to/(from) 3 (5,403) (5,400) 35 (1,635) (1,600)
reserves
Return per share 7 1.2p (10.2)p (9.0)p 2.0p (3.4)p (1.4)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 prior year comparatives cover the 60 week period ended 31 October 2001.
The accompanying notes are an integral part of this statement.
BALANCE SHEET
AS AT 31 OCTOBER 2002
Notes 2002 2001
�'000 �'000
Fixed assets
Investments 8 42,054 45,138
Current assets
Debtors 10 3,099 1,118
Cash at bank 1,320 3,947
4,419 5,065
Creditors (amounts falling due within one 11 (3,178) (1,475)
year)
Net current assets 1,241 3,590
Creditors (amounts falling due in over one 12 (97) (97)
year)
Net assets 43,198 48,631
Capital and reserves
Called-up equity share capital 13 528 529
Special reserve 14 49,532 49,702
Share premium 14 137 -
Capital reserve - realised 14 (2,140) (1,243)
Capital reserve - unrealised 14 (4,897) (392)
Revenue reserve 14 38 35
Equity shareholders' funds 43,198 48,631
Net asset value per share 15 81.8p 92.0p
The financial statements on pages 23 to 38 of the Annual Report were approved
by the directors on 14 January 2003 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 2002
2002 2001
�'000 �'000
Reconciliation of operating profit to net cash
inflow from operating activities
Return on ordinary activities before taxation 702 1,361
Decrease/(increase) in debtors 307 (1,083)
(Decrease)/increase in creditors (34) 250
Income tax suffered at source 34 (35)
Management fees charged to capital reserve (481) (351)
Amortisation of bonds 398 273
Cash inflow from operating activities 926 415
Corporation tax paid (281) -
Financial investment
Purchase of listed equities and bonds (46,217) (46,739)
Purchase of venture capital investments (8,419) (12,810)
Sale/redemption of investments 52,322 12,753
(1,669) (46,381)
Equity dividends paid (925) -
Financing
Issue of shares under the dividend reinvestment scheme 139 -
Issue of ordinary shares - 53,001
Share issue expenses - (2,650)
Issue of loan stock - 97
Buy-back of shares (172) (120)
(Decrease)/increase in cash for the period (2,627) 3,947
Reconciliation of net cash flow to movement
in net funds
(Decrease)/increase in cash for the period (2,627) 3,947
Net funds at the start of the period 3,947 -
Net funds at the start of the period 1,320 3,947
The accompanying notes are an integral part of this statement.
1 Income 2002 2001
�'000 �'000
Dividend income
Listed equity shares 101 47
Interest receivable
Listed fixed interest securities 1,276 1,405
Loans to unquoted companies 5 -
Bank deposits 96 564
Sundry income 1 -
1,479 2,016
2 Investment Management Fee
2002 2002 2001 2001
Revenue Capital Revenue Capital
�'000 �'000 �'000 �'000
Investment management 481 481 351 351
fee
Quester Capital Management Limited ("QCML") provides investment management
services to the Company under an agreement dated 30 October 2000.
QCML is a wholly owned subsidiary of Querist Limited, a company in which APG
Holmes and JA Spooner are beneficial shareholders. APG Holmes and JA Spooner
are executive directors of QCML.
A charge of �962,000 (2001: �702,000) in respect of the management fee payable
to QCML was accrued during the year. Of this, �84,000 remained unpaid as at 31
October 2002.The fee, which is calculated monthly and is payable in advance,
was levied at a rate of 2% of the net assets during the financial year ended 31
October 2002.This rate increases to 2.5% with effect from 1 November 2002.
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 �51,000 per annum (linked to the movement in the
RPI), which is included in other expenses (note 3).
3 Other expenses
2002 2001
�'000 �'000
Administrative and secretarial services 51 49
Directors' remuneration (note 4) 39 39
Auditor's remuneration - audit services 19 15
- non audit services 5 10
Legal and professional expenses 22 50
Other expenses 42 65
Irrecoverable VAT 118 76
296 304
4 Directors' remuneration 2002 2001
�'000 �'000
Fees paid to directors 12 15
Amounts paid to third parties, excluding VAT, in
consideration for the
services of directors 27 24
39 39
The total fees paid or payable in respect of individual directors for the
period were as follows:
2002 2001
�'000 �'000
RA Wright (Chairman) 15 15
R Barrow 12 12
APG Holmes - -
APM Lamb 12 12
JA Spooner - -
None of the directors received any other remuneration or benefit during the
period except as disclosed in these accounts. APG Holmes and JA Spooner have
waived their entitlement to directors' fees.
5 Tax on ordinary activities 2002 2002 2001 2001
Revenue Capital Revenue Capital
�'000 �'000 �'000 �'000
Corporation tax payable
- current year 120 (93) 401 (101)
- prior year adjustment 28 7 - -
92 (86) 401 (101)
6 Dividends paid and proposed 2002 2001
�'000 �'000
Final dividend of 1.15p per share (2001:1.75p) 607 925
* Return per share
The revenue return per share of 1.2p (2001: 2.0p) is based on the aggregate of
the net return from ordinary activities after tax of �610,000 (2001: �960,000)
and on ordinary shares of 52,905,315 (2001: 48,242,431), being the weighted
average number of shares in issue during the year.
The capital loss per share of 10.2p (2001: 3.4p) is based on the net realised
and unrealised capital loss for the period after tax of �5,403,000 (2001: �
1,635,000) and on ordinary shares of 52,905,315 (2001: 48,242,431), being the
weighted average number of shares in issue during the year.
* Net asset value per share
The net asset value per share as at 31 October 2002 of 81.8p (2001: 92.0p) is
based on net assets of �43,198,000 (2001: �48,631,000) divided by the
52,780,452 (2001: 52,870,868) 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 2002. The statutory accounts
for the year ended 31 October 2002 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.
Copies of the full financial statements for the year ended 31 October 2002 are
expected to be posted to shareholders on 16 January 2002 and will be available
to the public at the registered office of the Company at 29 Queen Anne's Gate,
London, SW1H 9BU.
11
END
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