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Quester VCT PLC (KAY)

  Print      Mail a friend       Annual reports

Thursday 01 May, 2003

Quester VCT PLC

Final Results


QUESTER VCT PLC ('the Company')

Summary of results for the year ended 31 January 2003

Per Ordinary Share       2003      2002      2001      2000      1999      1998
(pence)                                                                        
                                                                               
Capital Values                                                                 
                                                                               
Net asset value          58.4      78.3     159.3     136.5     110.1     107.6
                                                                               
Share price              54.0      87.5     163.0     150.0      89.0     102.0
                                                                               
Return and                                                                     
Dividends                                                                      
                                                                               
Dividend                    -         -      28.0       5.8       2.4       2.8
                                                                               
Cumulative dividend      41.5      41.5      41.5      13.5       7.7       5.3
                                                                               
Total Return*            99.9     119.8     200.8     150.0     117.8     112.9
                                                                               
*Net asset value                                                               
plus cumulative                                                                
dividend                                                                       

Shareholder information

Annual General Meeting 11.00 a.m. on 18 June 2003

CHAIRMAN'S STATEMENT

Introduction

The year ended 31 January 2003 saw a continuation of the difficult conditions
on which we commented in the last Annual Report. Stock market sentiment
generally continued to be adverse with valuations in the technology-related
sector, in which the Company holds a number of investments, continuing to be
hard hit. At the same time, the business conditions faced by small companies,
particularly in the technology-related sector, and the financing environment
for such companies remained very difficult.

During the year the Company achieved the realisation of two significant
unquoted investments, resulting in a useful gain in each case. However, the
difficult business and financing conditions referred to above had an adverse
effect on a number of companies in the venture capital portfolio, requiring
increases in the provisions held against a number of the unquoted investments.

Overall, total recognised losses for the year amounted to £7.0 million or 20.1
pence per share, resulting in a reduction in the net asset value per share to
58.4 pence at 31 January 2003. After taking account of share buy-backs, the net
asset value of the Company has been reduced from £27.6 million at 31 January
2002 to £20.3 million at 31 January 2003.

Whilst the fall in the net asset value at this stage is very disappointing, the
total return attributable to original investors in the Company (i.e. the net
asset value per share at 31 January 2003 taken together with the dividends of
41.5 pence already paid) remains at almost exactly the original subscription
price of 100 pence. The current portfolio, however, includes investments that
we believe have significant potential for the future.

In accordance with the Articles of Association, a proposal for the continuation
of the Company is to be put to shareholders at the Annual General Meeting.

Venture Capital Portfolio Performance

Apart from the two realisations of unquoted investments, the performance of the
venture capital portfolio generally has reflected difficult stock market and
business conditions.

Stock market movements resulted in a decline of £741,000 in the valuation of
the quoted venture capital investments. The residual holding of quoted stock in
Orchestream Holdings plc, which had produced a substantial gain for the Company
at the time of the IPO in June 2000, was disposed of under a takeover offer.

The Company's portfolio of unquoted investments, which contains a relatively
high proportion of early stage businesses operating in a number of technology
areas, continued to suffer from the harsh economic environment. As a result, it
has been necessary to make further provisions in respect of certain businesses
that have fallen behind plan. Provisions made during the year in respect of
unquoted venture capital investments included £3.9 million treated as permanent
diminutions in value (and accounted for as realised losses) and a further £3.0
million treated as unrealized losses.

In present business and market conditions, the valuation of unquoted
investments involves a difficult exercise of judgment.The Board considers that,
after careful review, the valuations adopted at 31 January 2003 give a fair
reflection of the overall value of the unquoted portfolio in accordance with
the Guidelines issued by the British Venture Capital Association (BVCA).

A further £2.2 million was committed during the year as additional investment
in existing portfolio companies.

A more detailed review of the performance of the venture capital portfolio is
provided in the investment manager's report.

Income Statement and Dividends

The profit and loss account for the year ended 31 January 2003 shows a loss
before tax of £2.7 million, no tax being payable.This includes net capital
gains on realisation of investments of £1.5 million, less provisions
representing permanent diminutions in value of £3.9 million referred to above
and a deficiency of income against expenses of £345,000. Net losses per share
amounted to 7.8 pence.

The Statement of Total Recognised Gains and Losses shows net unrealized losses
totalling £4.3 million (12.3 pence per share), relating to the decline in value
of the quoted venture capital investments and the portfolio of FTSE 350
equities and the provisions made against a number of the unquoted venture
capital investments.

The total return attributable to shareholders for the year amounted to a net
loss of £7.0 million or 20.1 pence per share.

In these circumstances, the directors do not recommend the payment of a
dividend. The retention of the cash proceeds of the realisations, in current
market conditions, strengthens the Company's ability to take advantage of
opportunities for generation of future value by continuing to invest in the
existing portfolio.

A transfer has been made from the special reserve created on 3 November 2000
following the reduction of share premium account, representing the total of
realized losses on investments incurred since that date (i.e. in the year ended
31 January 2002 as well as the year ended 31 January 2003). The amount of the
transfer is £11.5 million. Following this transfer, the profit and loss account
shows a net credit balance at 31 January 2003 of £2.9 million.

Balance Sheet

At 31 January 2003 the total of venture capital investments, at valuations in
accordance with BVCA Guidelines, amounted to £13.4 million including £796,000
in quoted venture capital investments (3.9% of net assets) and £12.6 million in
unquoted investments (62.3% of net assets).

Many of the companies in which Quester VCT has invested will require further
rounds of finance as they grow. It is important that Quester VCT should be in a
position to contribute to this funding process, provided the companies
concerned continue to make satisfactory progress. For this purpose the Company
holds reserves for follow-on investment in existing portfolio companies. These
reserves

are represented in terms of assets by the portfolio of FTSE 350 equities and
fixed-interest securities.

At 31 January 2003 the overall value of the portfolio of FTSE 350 equities and
fixed interest securities amounted to £5.4 million comprising £3.8 million in
fixed-interest securities (18.8% of net assets) and £1.6 million in equities
(8.0% of net assets). These reserves for follow-on investment are considered
currently to be at a satisfactory level in relation to the likely requirements.

Outlook

We remain cautious but positive about the outlook for the Company and its
investments. The portfolio includes investments that we believe have
significant potential for the future. However, present indications are that
difficult stock market and business conditions will continue for some time yet.
In the current environment, therefore, it seems likely that the realisation of
value from many of the investments will require more time than might previously
have been anticipated.

For the year ending 31 January 2004 and in future, given a continuation of the
Company (see below), it will be the intention of the Board to continue with the
policy of maximum dividend distribution - i.e., subject to legal requirements
and the need to retain cash to meet ongoing financial requirements, to seek
each year to maximise the dividend payable from available distributable profits
including capital gains achieved on investment realisations. The transfer that
has been made from the special reserve, as referred to above, will enable
dividends to be paid out of capital gains achieved on future investment
realisations at an earlier date than would otherwise be possible, although the
effect may be to some extent to reduce the capital base of the Company. In
current market conditions, however, it is not possible to predict either the
timing or level of the realisation of capital profits, and accordingly the
amount and timing of future dividends remains uncertain.

Continuation of the Company/Annual General Meeting

It was stated in the prospectus of the Company dated 22 February 1996 and
similarly in the prospectus dated 16 January 1997 that in order to avoid
crystallizing investors' capital gains tax liability, in the case of investors
obtaining re-investment relief (now called 'deferral relief '), the directors
considered it desirable that shareholders should have an opportunity to review
the future of Quester VCT at appropriate intervals.

Accordingly, the Articles of Association of the Company require the directors
to put a proposal for the continuation of Quester VCT to shareholders at the
Company's seventh Annual General Meeting and thereafter at five yearly
intervals. The Notice of the Annual General Meeting of the Company to be held
on 18 June 2003 includes a resolution to this effect.

In deciding to put forward this proposal in line with the Articles of
Association, the directors have given the most careful consideration to the
advantages and disadvantages of (a) a continuation of the Company and (b) the
alternative of a voluntary winding up of the Company. Full details are set out
in the Background to the Resolution for the Continuation of the Company section
of the Annual Report.

It is the Board's view that the interests of shareholders would be best served
by a continuation of the Company, enabling the potential of the portfolio to be
developed over an appropriate timescale and with an ongoing contribution from
members of the Quester team in the key strategic planning decisions faced by
the investee company managements. The Board accordingly recommends that
shareholders vote in favour of the resolution.

Andrew Holmes and John Spooner, by reason of their interests in the Company's
investment manager, Quester Capital Management Limited, did not participate in
the vote of the Board on this matter.

The directors believe that the proposal relating to the continuation of the
Company is in the best interest of shareholders generally. Accordingly, the
Board recommends shareholders to vote in favour of the resolution on this
matter to be proposed at the Annual General Meeting as all the directors intend
to do in respect of their aggregate beneficial holdings of 867,157 ordinary
shares representing approximately 2.5% of the issued share capital of the
Company.

Tom Scruby

Chairman

30 April 2003

INVESTMENT MANAGER'S REPORT

Introduction

The year ended 31 January 2003 was another challenging one for the Company.

Generally, the portfolio has continued to feel the pressure of the ongoing
economic downturn. Some of the investments of Quester VCT are clearly making
encouraging progress, while others have continued to fall behind previous
expectations.

While these conditions have produced a disappointing result in the accounts for
the year ended 31 January 2003, with a further decline in the net asset value,
it is clear that the portfolio holds a number of attractive investments with
good potential for future capital growth.

Progress of the venture capital portfolio

During the year we have supported a number of companies in the investment
portfolio with further rounds of finance and also made a significant
contribution to their key strategic business planning decisions.

A total of £2.2 million has been provided in additional financial support to 10
of the unquoted portfolio companies. Of this total, £1.3 million has been
provided to companies included in the ten largest unquoted venture capital
investments, including Advanced Valve Technologies Limited, Bowman Power
Limited and HTC Healthcare Group plc. Others receiving further investment
included The Casella Group Limited and Chelsea Stores Limited.

Over the past year, the business conditions faced by small companies,
particularly in technology-related sectors, have been very difficult, and some
of the companies in which Quester VCT has invested have suffered as a result.
The portfolio suffered two business failures during the year, Acedes Gear Tools
Limited and Purple Technologies Limited (substantial provisions had already
been made against the cost of these investments in the accounts at 31 January
2002). Provisions have been made in respect of a number of other investments
where the business has fallen behind plan or to reduce valuations in order to
reflect current conditions in the private equity market. Overall, amounts
written off during the year (including in respect of the two business failures)
and other provisions against cost of the unquoted venture capital investments
totalled £6.9 million, of which write-offs and provisions representing
permanent diminutions in value totalled £3.9 million, while provisions
representing unrealised losses totalled a further £3.0 million.

On the positive side, the Company was able to effect some good profitable
realisations during the year. Realised profits of £1.7 million were generated
from the sale of two unquoted investments, HMV Media Group plc and Pipeline
Engineering and Supply Co. Limited.The exit from HMV was achieved following its
IPO when we took the opportunity to sell our entire holding, generating an
accounting profit of £1.45 million on cash proceeds of £2.3 million.The
Pipeline exit resulted in a

realised profit for the period of £228,000 on cash proceeds of £600,000.

A take-over offer was accepted in respect of the residual holding in
Orchestream Holdings plc, realising proceeds of £208,000 and a loss of £148,000
against the carrying value at 31 January 2002 (Orchestream had already
delivered a significant gain for the Company at the time of its IPO in 2000,
the overall result on this investment, including the final tranche now sold,
being a net gain of £575,000 on an original cost of £1,250,000). A take-over
offer was also accepted in respect of Deep

Sea Leisure plc and part of the remaining holding in Surfcontrol plc was sold
in the market, these transactions together realising proceeds of £410,000
against a similar carrying value at 31 January 2002.

Movements in share prices over the year resulted in an unrealised loss of £
741,000 on the remaining quoted venture capital investments.

Venture capital investments made during the year

Follow-on investments were made during the year as shown below:

Company                                   Industry Sector                 £'000
                                                                               
Advanced Valve Technologies Limited       Industrial products &             496
                                          services                             
                                                                               
Bowman Power Limited                      Energy                            500
                                                                               
The Casella Group Limited                 Industrial products &             225
                                          services                             
                                                                               
Chelsea Stores Limited                    Consumer goods                    201
                                                                               
Communication & Control Electronics       Electronics                       113
Limited                                                                        
                                                                               
HTC Healthcare Group plc                  Consumer services                 200
                                                                               
Other investments (4)                                                       488
                                                                               
                                                                          2,223

Sector analysis of the venture capital portfolio

The portfolio of Quester VCT is balanced by sector and well spread. A summary
of the sectors covered by the portfolio is as follows:

Industry Sector               Percentage of     Valuation at          Number of
                               portfolio at                         investments
                                  valuation  31 January 2003                   
                                                                               
                                          %            £'000                   
                                                                               
Software                               28.1            3,771                  9
                                                                               
Consumer goods & services,             19.8            2,666                  5
leisure and publishing                                                         
                                                                               
Energy                                 11.4            1,526                  1
                                                                               
Industrial products &                  11.1            1,488                  4
services                                                                       
                                                                               
Semiconductors                          9.4            1,263                  1
                                                                               
Internet                                9.1            1,222                  2
                                                                               
Electronics & communications            6.9              932                  3
                                                                               
Healthcare                              4.2              563                  1
                                                                               
                                      100.0           13,431                 26

Valuation of the venture capital portfolio

The unquoted investments have been valued in line with the accounting policies
detailed in the Annual Report, which are based on the Guidelines issued by the
British Venture Capital Association.

Setting reasonable valuations on venture capital investments - especially in
current market conditions - presents difficult issues of judgment. As noted
above, provisions have been made in respect of a number of investments where
the business concerned has fallen behind plan or to reduce valuations in order
to reflect current conditions in the private equity market (i.e. where, in the
case of the company concerned, the need for a new funding round is approaching
and the previous round valuation at which the investment has been held looks
high in current conditions).

Among the 'ten largest unquoted venture capital investments', two are carried
at valuations above cost, namely CDC Solutions Limited and Sift Group Limited
(the valuations in each case being based on the last round price), while six
are carried at cost and two, namely International Diagnostics Group plc and
Advanced Valve Technologies Limited, at cost less a provision (in each case
reflecting the fact that the business concerned had fallen behind plan).

In relation to valuation reductions to reflect current conditions in the
private equity market, a case in point is Anadigm Limited, an early stage
company that has been making good progress in its business and which we
consider to have good prospects for the future: the valuation, which at 31
January 2002 reflected the last round price, has nevertheless been reduced to
cost.

Outlook for the venture capital portfolio

Quester's investment team regularly conducts reviews of the portfolio to
identify those investee companies considered most likely to provide attractive
opportunities for capital growth, to review the potential requirements of such
companies for further rounds of finance and to determine what actions members
of the team can take in helping the managements of these companies develop the
full potential of their businesses.

The most recent review has been of particular importance in view of the
requirement of the Articles of Association that a proposal for the continuation
of Quester VCT be put to shareholders at the forthcoming Annual General
Meeting. The conclusion of this review has been to confirm that, while the
business conditions faced by small companies over the last two years have been
very difficult, and some of the companies in which Quester VCT has invested
have suffered as a result, the portfolio holds a number of attractive
investments with good potential for future capital growth.

The summary of the businesses of the ten largest investments shown in the
Annual Report gives a flavour of the significant commercial opportunities that
these companies are seeking to address.

It is emphasized, however, that a number of the companies concerned are still
at a relatively early stage of development. Some of those involved in
technology-related opportunities, for example, while showing satisfactory
underlying development in their businesses, may still have only limited sales
revenues and may still be lossmaking. The relevant table contained in the
Annual Report - setting out information as to turnover, profit or loss before
tax, retained profit or loss and net assets - illustrates this point. That
information is derived from the latest available audited accounts of the
companies concerned, and in some cases relates to financial periods expiring 12
months or more prior to the date of this report. In more recent trading, as
explained in the summary of the businesses, several of the companies, including
CDC Solutions Limited, Sift Group Limited and Sibelius Software Limited, have
moved into profitability and/or positive cash flow.

Reserves for follow-on investment

As noted earlier, many of the companies in which Quester VCT has invested will
require further rounds of finance as they grow. It is important that Quester
VCT should be in a position to contribute to this funding process, provided the
companies concerned continue to make satisfactory progress. For this purpose
the Company holds reserves for further investment in these existing portfolio
companies. These reserves are represented in terms of assets by the portfolio
of FTSE 350 equities and fixed-interest securities referred to below, and are
considered currently to be at a satisfactory level in relation to the likely
requirements.

In current market conditions, the only investments likely to be made in the
current year will be follow-on investments to support the continuing
development of companies in the existing portfolio.

FTSE 350 Equity and Fixed Interest Portfolio

The portfolio of FTSE 350 equities and fixed interest securities is retained as
a reserve for potential future venture capital investment. It is managed on
behalf of the Company by Laing & Cruickshank Investment Management Limited.

The FTSE 350 holdings, covering 20 investments, stood at a valuation of some £
1.6 million against an overall cost of £2.2 million as at the year end,
reflecting an unrealised loss over the year of some £561,000 as a result of
share price movements. The fixed interest holdings with an amortized cost of £
3.8 million were at break-even.

Conclusion

Last year was another difficult period for the Company. We suffered some
disappointments and regret that shareholders, after seeing significant cash
returns from the Company in the years up until 2001, have seen this year a
further fall in the net asset value per share.

Nevertheless, the performance and prospects of a number of companies in the
portfolio give cause for optimism as to the potential for realisation of
substantial capital growth in individual cases and a strong measure of
recovery, over a period of time, in the overall value of the Company's assets.

Quester Capital Management Limited

30 April 2003

FUND SUMMARY AS AT 31 JANUARY 2003

Ten largest venture capital  Industry sector       Cost    Valuation       % of
investments                                                                fund
                                                   £'000   £'000               
                                                                       by value
                                                                               
CDC Solutions Limited        Software              1,020   1,770           8.7%
                                                                               
Bowman Power Limited         Energy                1,526   1,526           7.5%
                                                                               
Anadigm Limited              Semiconductors        1,263   1,263           6.2%
                                                                               
HTC Healthcare Group plc     Consumer services     1,000   1,000           4.9%
                                                                               
Sift Group Limited           Internet              875     972             4.8%
                                                                               
Methuen Publishing Limited   Publishing            751     751             3.7%
                                                                               
Sibelius Software Limited    Software              700     700             3.4%
                                                                               
International Diagnostics    Healthcare            1,050   564             2.8%
Group plc                                                                      
                                                                               
Advanced Valve Technologies  Industrial products & 2,030   508             2.5%
Limited                      services                                          
                                                                               
Communication & Control      Electronics           488     488             2.5%
Electronics Limited                                                            
                                                                               
                                                   10,703  9,542          47.0%
                                                                               
Other venture capital                              11,755  3,889          19.2%
investments                                                                    
                                                                               
Total venture capital investments                  22,458  13,431         66.2%
                                                                               
Listed fixed interest                              3,809   3,816          18.8%
securities                                                                     
                                                                               
Listed FTSE 350 equities                           2,180   1,619           8.0%
                                                                               
Total investments                                  28,447  18,866         93.0%
                                                                               
Cash and other net current assets                  1,429   1,429           7.0%
                                                                               
Net assets                                         29,876  20,295        100.0%

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31 JANUARY 2003

                         Notes  2003       2002      
                                                     
                                £'000      £'000     
                                                     
Loss on realisation of          (2,373)    (2,383)   
investments                                          
                                                     
Income                     1    412        483       
                                                     
Investment management      2    (494)      (723)     
fee                                                  
                                                     
Other expenses             3    (263)      (453)     
                                                     
Loss on ordinary                (2,718)    (3,076)   
activities before                                    
taxation                                             
                                                     
Tax on ordinary                 -          -         
activities                                           
                                                     
Loss on ordinary                (2,718)    (3,076)   
activities after                                     
taxation                                             
                                                     
Dividends paid and              -          -         
proposed                                             
                                                     
Transfer from reserves          (2,718)    (3,076)   
                                                     
Basic loss per share       5    (7.8)p     (9.4)p    
                                                     
Diluted loss per share     5    (7.8)p     (9.4)p    

All 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.

In accordance with Financial Reporting Standard (FRS) 14, the outstanding
options (note 9) give rise to no dilution to the return per share.

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

FOR THE YEAR ENDED 31 JANUARY 2003

                                         Notes             2003            2002
                                                                               
                                                          £'000           £'000
                                                                               
Loss on ordinary activities after                       (2,718)         (3,076)
taxation                                                                       
                                                                               
Unrealised loss on revaluation of                       (4,308)        (21,911)
investments                                                                    
                                                                               
Total gains and losses recognised                       (7,026)        (24,987)
during the period                                                              
                                                                               
Total recognised losses per share          5            (20.1)p         (76.3)p

NOTE OF HISTORICAL COST PROFITS AND LOSSES

FOR THE YEAR ENDED 31 JANUARY 2003

                                                           2003           2002
                                                                              
                                                          £'000          £'000
                                                                              
Loss on ordinary activities before                      (2,718)        (3,076)
taxation                                                                      
                                                                              
Realisation of prior years' unrealised                  (4,112)        (1,047)
losses on investments                                                         
                                                                              
Historical cost loss on ordinary                        (6,830)        (4,123)
activities before taxation                                                    
                                                                              
Historical cost loss for the year                       (6,830)        (4,123)
retained after taxation and dividends                                         

BALANCE SHEET

AS AT 31 JANUARY 2003

                                                      Note   £'000    £'000   
                                                                              
Fixed assets                                                                  
                                                                              
Investments                                                  18,866   26,152  
                                                                              
Current assets                                                                
                                                                              
Debtors                                                      847      831     
                                                                              
Cash at bank                                                 944      1,400   
                                                                              
                                                             1,791    2,231   
                                                                              
Creditors (amounts falling due within one year)              (362)    (769)   
                                                                              
Net current assets                                           1,429    1,462   
                                                                              
Net assets                                                   20,295   27,614  
                                                                              
Capital and reserves                                                          
                                                                              
Called-up equity share capital                               1,736    1,764   
                                                                              
Share premium account                                        2,787    2,787   
                                                                              
Special reserve                                              17,559   29,302  
                                                                              
Revaluation reserve                                          (4,691)  (4,495) 
                                                                              
Profit and loss account                                      2,904    (1,744) 
                                                                              
Total equity shareholders' funds                             20,295   27,614  
                                                                              
Net asset value per share                               6    58.4p    78.3p   
                                                                              
Diluted net asset value per share                       6    58.4p    78.3p   

Tom Scruby

Chairman

CASHFLOW STATEMENT

FOR THE YEAR ENDED 31 JANUARY 2003

                                                            2003      2002     
                                                                               
                                                            £'000     £'000    
                                                                               
Cash outflow from operating activities                      (670)     (770)    
                                                                               
Financial investment                                                           
                                                                               
Purchase of venture capital investments                     (2,223)   (4,790)  
                                                                               
Purchase of FTSE 350 equities and fixed interest            (3,490)   (5,352)  
securities                                                                     
                                                                               
Sale/redemption of venture capital investments              3,758     412      
                                                                               
Sale/redemption of FTSE 350 equities and fixed              2,462     6,399    
interest securities                                                            
                                                                               
Total financial investment                                  507       (3,331)  
                                                                               
Equity dividends paid                                       -         (422)    
                                                                               
Financing                                                                      
                                                                               
Issue of ordinary shares under the terms of the             -         54       
dividend reinvestment scheme                                                   
                                                                               
Issue of shares under the terms of the                      -         60       
subscription share option agreement                                            
                                                                               
Issue of shares (net of issue expenses)                     -         2,885    
                                                                               
Buy-in of shares                                            (286)     (164)    
                                                                               
Prior year costs associated with the buy-in of              (7)       -        
shares                                                                         
                                                                               
Total financing                                             (293)     2,835    
                                                                               
Decrease in cash for the year                               (456)     (1,688)  
                                                                               
Reconciliation of net cash flow to movement                                    
                                                                               
in net funds                                                                   
                                                                               
Decrease in cash for the year                               (456)     (1,688)  
                                                                               
Net funds at the start of the year                          1,400     3,088    
                                                                               
Net funds at the end of the year                            944       1,400    

NOTES TO THE FINANCIAL STATEMENTS

1 Income                                                  2003       2002      
                                                                               
                                                          £'000      £'000     
                                                                               
Dividend income                                                                
                                                                               
Unlisted companies                                        34         96        
                                                                               
FTSE 350 listed companies                                 77         77        
                                                                               
Interest receivable                                                            
                                                                               
Listed fixed interest securities                          156        177       
                                                                               
Bank deposits                                             48         83        
                                                                               
Loans to unquoted companies                               96         46        
                                                                               
Other income                                              1          4         
                                                                               
                                                          412        483       

2 Investment Management Fee

                                         2003        2002
                                                         
                                        £'000       £'000
                                                         
Investment management fee                 494         723

Quester Capital Management Limited ('QCML') provides investment management
services to the Company under an agreement dated 22 February 1996 as amended by
a supplemental agreement dated 16 January 1997, a second supplemental agreement
dated 30 June 1998 and a third supplemental agreement dated 8 September 1998.

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.

QCML receives a management fee, payable quarterly in arrears, at the annual
rate of 2.5% on the value of the audited net assets of the Company as at the
end of the previous accounting period. This charge is capped to ensure that the
Company's Running Costs do not exceed 3.25% of the closing net asset value. The
net management fee for the year amounted to £494,000 (2002: £723,000); at 31
January 2003 an amount was recoverable from QCML in respect of the cap.

QCML also provides administrative and secretarial services to the Company for
which it is entitled to a fee of £40,000 per annum (subject to future
adjustment in line with the RPI), which is included in other expenses (note 3).

  * Other expenses                                      2003        2002       
                                                                               
                                                        £'000       £'000      
                                                                               
Administrative and secretarial services                 40          40         
                                                                               
Directors' remuneration (note 4)                        39          39         
                                                                               
Auditor's remuneration - audit services                 19          17         
                                                                               
- non audit services                                    7           10         
                                                                               
Legal and professional expenses                         46          42         
                                                                               
Irrecoverable VAT                                       67          246        
                                                                               
Other expenses                                          45          59         
                                                                               
                                                        263         453        

  * Directors' remuneration
   
                                                        2003        2002       
                                                                               
                                                        £'000       £'000      
                                                                               
Fees paid to directors                                  12          12         
                                                                               
Amounts paid to third parties, excluding VAT, in        27          27         
consideration of the services of directors                                     
                                                                               
                                                        39          39         

The total fees paid or payable in respect of individual directors for the year
is detailed in the directors' remuneration report in the Annual Report.

5 Earnings per share

The loss per share of 7.8p (2002: loss per share of 9.4p) is based on the loss
on ordinary activities after tax of £2,718,000 (2002: loss of £3,076,000) and
on ordinary shares of 35,007,514 (2002: 32,739,524), being the weighted average
number of shares in issue during the year. There is no dilution effect in
respect of the years ended 31 January 2002 and 31 January 2003.

The total recognised losses per share of 20.1p (2002: 76.3p) is based on the
total recognised losses for the year of £7,026,000 (2002: net losses of £
24,987,000) and on 35,007,514 ordinary shares (2002: 32,739,524), being the
weighted average number of shares in issue during the year.

6 Net asset value per share

The calculation of net asset value per share as at 31 January 2003 is based on
net assets of £20,295,000 (2002: £27,614,000) divided by the 34,725,817
ordinary shares in issue at that date (2002: 35,278,821). There is no dilution
effect in respect of the years ended 31 January 2002 and 31 January 2003.

The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 January 2003. The statutory accounts
for the year ended 31 January 2003 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 January 2003 are
expected to be posted to shareholders on 6 May 2003 and will be available to
the public at the registered office of the Company at 29 Queen Anne's Gate,
London, SW1H 9BU.


  ND