Interim Results

QUESTER VCT PLC Interim statement for the six months ended 31 August 2006 INTERIM DIVIDEND Dividend per share: 1.4p Payable on: 22 December 2006 Ex-dividend date: 22 November 2006 Record date: 24 November 2006 FINANCIAL HIGHLIGHTS Per ordinary share (pence) 31 August 28 February 31 August 2006 2006 2005 Capital values Net asset value 41.8 44.5 42.2 Share price 35.5 37.0 38.0 Return and dividends Dividend* 3.9 1.25 - Cumulative dividend (tax free) 46.6 42.7 41.4 Total return* * 88.4 87.2 83.6 *A final dividend of 2.5p per share was paid on 3 July 2006 in respect of the year ended 28 February 2006. An interim dividend for the current year of 1.4p is payable on 22 December 2006. **Net asset value plus cumulative dividend per share The returns summarised above are applicable only to original shareholders of Quester VCT plc. They do not represent the historic returns to subsequent subscribers, including those who have assumed a shareholding in the Company 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 capital gains deferral) received on subscription for shares in the Company. Inclusive of initial income tax relief, the total return to an original investor would be equivalent to 108.4p per share as at 31 August 2006. INTERIM REPORT OVERVIEW This period continued to be very active. Further sales have been achieved, generating cash and gains to support a continuing dividend flow to shareholders. Ten investments were made in new and follow-on investments. There been a steady increase in the total return to shareholders since the merger in June 2005: Per ordinary share (pence) 31 August 28 February 2006 2006 Net asset value 41.81 44.50 Cumulative post merger dividends 5.15 1.25 46.96 45.75 Less merger FAV (43.39) (43.39) Total return post merger 3.57 2.36 Total return as a percentage of merger FAV 8.2% 5.4% NET ASSETS AND DIVIDENDS £'000 Pence per share Net asset value at 1 March 2006 53,335 44.5 Income 517 0.4 Operating expenses (834) (0.7) Net realised gain on investments 897 0.8 Net unrealised gain on investments 776 0.6 Net assets before dividends and 54,691 45.6 buy-backs Dividends paid and proposed, net of (4,575) (3.9) amounts reinvested Share buy-backs (548) 0.1 Net asset value at 31 August 2006 49,568 41.8 Following further good realisations, the directors have resolved to pay an interim dividend for the year of 1.4p per share, payable on 22 December 2006. A final dividend of 2.5p per share in respect of the prior year was paid on 3 July 2006. VENTURE CAPITAL PORTFOLIO: REALISATIONS There were three sales from the venture capital portfolio during the period generating proceeds of approximately £4.2million against a combined carrying value at the time of the merger of £3million. The sale of Methuen Publishing and Sibelius Software realised gains of £700,000 and £450,000 respectively over merger FAV. The £488,000 realised this year from the investment in Casella Group was in line with FAV; the receipt of further deferred proceeds is anticipated. Since the merger in June 2005, £14.6million cash has been realised from the portfolio. We are not expecting this rate of sales from the portfolio to continue in the second half of the current year. New investments Company Industry sector £'000 Keronite plc Industrial products and 947 services Ovum plc Other services 375 Secerno Limited Software 265 1,587 The investment in Keronite was made as part of a £10.2million pre-IPO funding round. Keronite has developed a metal-coating process that hardens the surface of aluminium and magnesium producing outstanding resistance to corrosion and wear. This offers a cost effective alternative to conventional coating methods meeting a growing demand from manufacturers. The company has partners operating its process across Western Europe, the US and Asia and it has formed global alliances with companies throughout the light metal supply chain. The business is generating revenues, albeit at modest levels. Ovum is a leading provider of research, market analysis and advisory services in the global ICT sector, with an international blue chip client base. The investment was part of a £6.1million AIM listing in March, which enabled Ovum to progress its strategy of international growth through new product development and acquisition. Following the period end, Ovum's board has recommended a cash offer from Datamonitor plc valuing the company at £ 41.8million or 300p per share, equivalent to a 58% uplift over the cost of Quester VCT's investment made seven months earlier. The investment in Secerno was made as part of a £2million funding round. Secerno has developed a unique database and assurance platform, Secerno.SQL, which enables organisations to detect and prevent fraud, provide regulatory compliance and assure the integrity and privacy of online data. The platform addresses the increased threat to security faced by organisations, as highlighted by a number of recent high profile cases, protecting database systems without complicated user intervention. This was also an active period for follow-on investment; £1.7million was invested in seven existing companies: Follow on investments Company Industry sector £'000 Advanced Valve Technologies Limited Industrial products & services 21 Allergy Therapeutics plc Biotechnology 200 Haemostatix Limited Biotechnology 42 Nomad Software Limited Software 476 Sift Group Limited Internet 135 Teraview Limited Diagnostics & devices 197 Vivacta Limited* Diagnostics & devices 675 1,746 *formerly PanOpSys Limited Allergy Therapeutics is a listed specialist pharmaceutical company with a profitable core business and a unique development pipeline with the potential to transform allergy treatment. There remains a large unmet medical need for allergy vaccines. Substantial year on year growth is being supported by an extensive global R&D programme to develop disease-modifying allergy vaccines. The company has made good progress internationally and the Pollinex Quattro vaccine platform is entering the final stages of development. Nomad provides a comprehensive processing service for debit card and prepaid card based transactions. This service can be provided in-house or out-sourced through Nomad Processing Services. The company has developed a significant initial customer base for this service, principally relating to prepaid credit cards. The further investment will help accelerate the growth of this business. Vivacta, formerly PanOpSys, is an in vitro diagnostic company with novel technology designed to enable rapid, reliable and highly sensitive tests to be performed at the point-of-care. This form of testing allows tests to take place in a doctor's surgery or at the bedside, removing the need for samples to be despatched to laboratories for analysis. This is a fast growing market sector and the company's core technology is applicable to a wide variety of tests, although initially applied to blood testing. The company raised £3million in February, through a funding round led by Quester and is at an interesting stage in the optimisation and commercialisation of its patented piezofilm technology. VENTURE CAPITAL PORTFOLIO: VALUATION CHANGES During the period, there was a £0.6million net increase in the value of the portfolio. The unquoted portfolio increased in value by £1.8million, the only changes relating to Teraview and Nomad. Teraview continues to make positive progress but the valuation of the investment has been reduced by £108,000 to £947,000 following the lower pricing of its latest funding round. The valuation of the investment in Nomad has been increased by £1.9million back up to original cost, reflecting the progress made by its card payments processing business. The quoted venture capital portfolio reduced in value by £1.2million during the period. The most significant valuation movements were seen in the holdings of Genosis and Imagesound. The £880,000 fall in value of the investment in Genosis, the producer of a combined male and female home fertility test, arose on the announcement of much slower than anticipated market penetration. The value of the investment in Imagesound recovered by £485,000. Subsequent to the half year, Quester VCT has invested a further £1million in Imagesound, which sources and distributes profiled music, targeted messaging and audio-visual content to retail and leisure outlets. Concerns about smaller companies generally led to a weak AIM market during the period, and this affected the valuation of a number of our quoted venture capital investments. By the end of October, however, there had been some recovery in the share prices of a number of these companies. LISTED EQUITY PORTFOLIO The listed equity portfolio has performed well over the half year despite the market correction seen in the summer. It achieved a total return of £628,000 during the period, equivalent to an IRR of 15.9% per annum. The Company holds a bond portfolio valued at £4.6million, generating an effective yield of 4.8% per annum. DIVIDEND REINVESTMENT SCHEME We would like to draw attention to the Dividend Reinvestment Scheme, which shareholders are eligible to join at any time. Please contact Quester should you wish to participate in this scheme. CONCLUSION While the overall return to shareholders continues to increase, the pace of realisations has begun to reduce. More time is being spent on reinvestment and evaluating new opportunities. The Manager is building a portfolio with a balance of later as well as early stage investments. Overall performance shows a mixture of successes and disappointments, with good groundwork being laid for longer term performance. The level of cash resources and overall progress in the portfolio allow the payment of incremental dividends. The toughening of the Revenue's VCT rules, with effect from 6 April 2007, may result in an acceleration of the final dividend in respect of the year ending 28 February 2007. Jock Birney Chairman 15 November 2006 FUND SUMMARY As at 31 August 2006 Industry sector Merger Valuation % % of valuation equity fund * £'000 held by £'000 value Quoted venture capital investments Allergy Therapeutics Biotechnology 799 841 1.1% 1.7% plc Cyclacel Biotechnology 800 207 1.1% 0.4% Pharmaceuticals, Inc. Genosis plc Diagnostics & devices 1,140 233 6.5% 0.5% Imagesound plc Software 1,848 1,027 11.8% 2.1% Ovum plc Other services 375 324 1.6% 0.6% Sopheon plc Software 56 43 0.2% 0.1% Surfcontrol plc Software 551 486 0.4% 1.0% Vernalis Group plc Biotechnology 900 886 0.5% 1.8% XKO Group plc Software 527 501 1.4% 1.0% Total quoted venture 6,996 4,548 9.2% capital investments Unquoted venture capital investments Advanced Valve Industrial products & 631 631 12.8% 1.3% Technologies Limited services Antenova Limited Semiconductors 1,005 1,005 5.4% 2.0% Anthropics Technology Communications 95 25 7.0% 0.1% Limited Arithmatica Limited Semiconductors 338 338 12.5% 0.7% Artisan Software Tools Software 1,172 1,172 23.4% 2.4% Limited Avidex Limited Biotechnology 602 276 1.4% 0.6% Casella Group Limited Industrial products & 110 110 15.8% 0.2% services Cluster Seven Limited Software 743 743 9.3% 1.5% Community Internet Internet 634 634 17.4% 1.3% Europe Limited Elateral Holdings Software 245 245 24.4% 0.5% Limited Global Silicon Limited Semiconductors 600 600 7.6% 1.2% Haemostatix Limited Biotechnology 95 95 5.9% 0.2% HTC Healthcare Group Consumer services 1,664 1,664 36.7% 3.4% plc International Diagnostics & devices 690 690 23.9% 1.4% Diagnostics Group plc Keronite plc Industrial products & 947 947 7.1% 1.9% services Lectus Therapeutics Biotechnology 248 248 7.0% 0.5% Limited Level Four Software Software 518 518 5.1% 1.0% Limited Lorantis Holdings Biotechnology 625 625 1.9% 1.3% Limited Nanotecture Limited Industrial products & 87 87 0.8% 0.2% services Nomad Software Limited Software 1,363 3,224 18.7% 6.5% Opsys Management Electronics 268 268 - 0.4% Limited Pelikon Limited Electronics 708 708 5.5% 1.4% Perpetuum Limited Electronics 435 435 8.0% 0.9% Secerno Limited Software 265 265 4.2% 0.5% Sift Group Limited Internet 2,249 2,249 19.8% 4.5% Teraview Limited Diagnostics & devices 1,056 947 5.4% 1.9% Vivacta Limited** Diagnostics & devices 915 915 12.9% 1.8% Total unquoted venture 18,308 19,664 39.6% capital investments Total venture capital 25,304 24,212 48.8% investments Listed fixed interest 4,556 9.3% investments Listed equity 11,518 23.2% investments Total investments 40,286 81.3% Cash and other net 9,282 18.7% assets Net assets 49,568 100.0% *Fair value at the date of the merger on 29 June 2005, as adjusted for any subsequent purchases and sales **formerly PanOpSys Limited UNAUDITED FINANCIAL STATEMENTS PROFIT AND LOSS ACCOUNT Note 6 months 6 months Year ended ended 31 ended 31 28 February August 2006 August 2005 2006 Unaudited Unaudited Unaudited £ £'000 £'000 £'000 Net profits/(losses) on fair value 1,673 (1,197) 3,056 through profit or loss on investments Income 517 356 1,070 Investment management fee (525) (273) (778) Other expenses (309) (244) (486) Profit/(loss) on operating 1,356 (1,358) 2,862 activities before taxation Tax on ordinary activities - - - Profit/(loss) on ordinary 1,356 (1,358) 2,862 activities after taxation Basic and diluted earnings/(loss) 4 1.1p (2.1) 3.3p per share All items in the above statement are derived 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. A statement of total recognised gains and losses has not been presented because all gains and losses are included in the statement above. BALANCE SHEET 31 August 28 February 31 August 2006 2006 2005 Unaudited Unaudited Unaudited £'000 £'000 £'000 Fixed assets Investments 40,286 37,105 43,806 Current assets Debtors 971 1,095 2,041 Cash at bank 10,400 15,693 6,279 11,371 16,788 8,320 Creditors (amounts falling due within one year) Other creditors (2,089) (558) (812) Net current assets 9,282 16,230 7,508 Net assets 49,568 53,335 51,314 Capital and reserves Called-up equity share capital 5,928 5,992 6,085 Capital redemption reserve 335 260 161 Share premium account - 37,359 37,318 Special reserve 41,239 4,348 7,540 Fair value reserve (2,079) (2,477) (3,020) Profit and loss account 4,145 7,853 3,230 Total equity shareholders' funds 49,568 53,335 51,314 Net asset value per share 41.8p 44.5p 42.2p SUMMARISED CASH FLOW STATEMENT 6 months ended Year ended 6 months ended 31 August 28 February 31 August 2006 2006 2005 £'000 £'000 £'000 Net cash (outflow)/inflow from (317) 96 461 operating activities Net cash inflow from merger - 5,921 5,881 Net capital expenditure and (1,513) 10,715 (1,221) financial investment Dividends paid, net of amounts (2,915) (1,480) - reinvested under the dividend reinvestment scheme Buy-back of ordinary shares (548) (1,077) (360) (Decrease)/increase in cash for the (5,293) 14,175 4,761 period Reconciliation of net cash flow to movement in net funds (Decrease)/increase in cash for the (5,293) 14,175 4,761 period Net funds at the start of the period 15,693 1,518 1,518 Net funds at the end of the period 10,400 15,693 6,279 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS Share Capital Share Special Fair Profit capital redemption premium reserve value and loss reserve account reserve account £'000 £'000 £'000 £'000 £'000 £'000 At 1 March 2006 5,992 260 37,359 4,348 (2,477) 7,853 Shares issued under the 11 - 80 - - - terms of the dividend reinvestment scheme Cancellation of share - - (37,439) 37,439 - - premium account Shares bought back (75) 75 - (548) - - Transfer of unrealised - - - - 776 (776) gain on revaluation of investments Transfer of net realised - - - - (378) 378 gain to profit and loss account Dividends paid and - - - - - (4,666) proposed (note 2) Profit on ordinary - - - - - 1,356 activities after taxation At 31 August 2006 5,928 335 - 41,239 (2,079) 4,145 The share premium account was cancelled on 12 July 2006 and its credit balance was transferred to the special reserve. The special reserve can fund buy-backs of ordinary shares as and when it is considered by the Board to be in the best interests of shareholders. It will also enable dividends to be paid out of capital gains achieved on investment realisations earlier than would otherwise have been possible. NOTES 1. The financial information contained in this report has been prepared on the basis of the accounting policies set out in the Annual Report for the year ended 28 February 2006. 2. A final dividend in respect of the prior year totalling £3,006,000 was paid on 3 July 2006. An interim dividend of £1,660,000 is payable on 22 December 2006. 3. The number of ordinary shares in issue as at 31 August 2006 was 118,559,937 (31 August 2005: 121,711,519). 4. The calculation of earnings per share for the period is based on the profit after tax of £1,356,000 (2005: loss of £1,358,000) divided by the weighted average number of shares in issue during the period being 119,086,216 (2005: 64,711,854) 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. The statutory accounts for the period ended 28 February 2006 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. 6. Copies of the unaudited interim results are expected to be sent to shareholders on 15 November 2006. Further copies can be obtained from the Company's registered office. A copy of the above document is to be 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

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