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QUESTER VCT 5 (SVC3)

  Print      Mail a friend       Annual reports

Wednesday 16 March, 2005

QUESTER VCT 5

Final Results


QUESTER VCT 5 PLC ('the Company')

Summary of results for the year ended 31 December 2004

Per Ordinary Share         2004      2003         2002
(pence)                                               
                                            (69 weeks)
                                                      
Capital Values                                        
                                                      
Net asset value            91.6      92.7         92.8
                                                      
Share price                85.5      96.0         96.0
                                                      
Return and Dividends                                  
                                                      
Dividend                      -       1.0          0.5
                                                      
Cumulative dividend         1.5       1.5          0.5
                                                      
Total Return*              93.1      94.2         93.3
                                                      
*Net asset value plus cumulative dividend             

Shareholder information

Annual General Meeting 11.30 a.m. 19 April 2005

CHAIRMAN'S STATEMENT

INTRODUCTION

During the year ended 31 December 2004 steady progress has been made towards
the completion

of Quester VCT 5's initial investment phase. The year has seen favourable
conditions for investment in venture capital, and in technology-related
investments in particular. New investments completed during the year have
included opportunities resulting from Quester's association with the research
activities of several leading UK universities, as well as investments in more
established companies and companies raising capital on AIM.

INVESTMENTS COMPLETED

At 31 December 2004 the venture capital portfolio of Quester VCT 5 included 23
companies, including 18 unquoted companies and five companies whose shares are
traded on AIM.

In the current economic environment, the Board considers that a strategy of
investing in highgrowth sectors within the economy offers the best opportunity
for the achievement of superior investment returns. Accordingly, the portfolio
of Quester VCT 5 includes a strong weighting in the information and
communication technology ('ICT') and the healthcare and life sciences sectors.

Within these sectors, the portfolio is diversified and the companies that have
been selected operate in a range of different markets.

The unquoted investments of Quester VCT 5 have generally been made alongside
Quester's fund for institutional investors, the Quester Venture Partnership,
and other Quester funds. These coinvestment arrangements are appropriate to the
needs of ambitious high growth companies, which may require significant amounts
of capital to develop technology-based products or to grow their businesses
internationally.

PROGRESS OF THE PORTFOLIO

At the end of this third year, the portfolio still contains a relatively high
proportion of early stage businesses. Shareholders will appreciate that venture
capital is a long term investment which, in the first few years, may often show
a drop in net asset value before any significant uplift.

The Directors believe that Quester VCT 5's net asset value of 91.6p per share
at 31 December 2004 reflects a satisfactory performance at this stage in the
life of the Company. The net asset value reflects the successful realisation of
two AIM-traded investments as well as the write-off or writing down in value of
certain investments that have underperformed against plan. Among the unquoted
investments that are currently held at cost, a number of the companies have
shown encouraging underlying business progress, but it is too soon for this to
be reflected in their valuations.

Across the portfolio as a whole, the Board considers that progress is
satisfactory at this stage in Quester VCT 5's development and that there is
substantial upside potential in the longer term.

REALISATIONS

It is encouraging to report that successful realisations of two venture capital
investments were achieved during the year, together producing realised gains of
£433,000.

NET ASSETS, REVENUE AND DIVIDENDS

The net asset value per share of the Company was reduced by 1.2% over the year,
from 92.7p at 31 December 2003 to 91.6p at 31 December 2004. The movement is
summarised as follows:

                                                               £'000  Pence per
                                                                          share
                                                                               
Net asset value at 31 December 2003                           20,861       92.7
                                                                               
Income                                                           618        2.6
                                                                               
Investment management fee, other expenses and tax              (827)      (3.4)
                                                                               
Realised net gains on disposal of investments                    399        1.7
                                                                               
Write-off of investments                                       (250)      (1.1)
                                                                               
Net unrealised loss on revaluation of investments              (235)      (1.0)
                                                                               
Net proceeds from issue of shares                              1,393          -
                                                                               
Shares issued under the dividend re-investment scheme             34          -
                                                                               
Share buy-backs                                                 (89)        0.1
                                                                               
Net asset value at 31 December 2004                           21,904       91.6

The statement of total return for the year shows a loss of £295,000, equivalent
to 1.2p per share.

This comprises a loss of £362,000 on the capital account, partially offset by a
profit of £67,000 on revenue account (0.3p per share). Against this background,
the Directors do not recommend a final dividend.

CHANGE OF CORPORATE BROKER AND MARKET MAKERS

In July 2004 the Company changed its corporate broker to Noble & Company
Limited. Following this change, Winterflood Securities Limited became market
makers in the Company's shares.

FURTHER OFFERS FOR SUBSCRIPTION

As shareholders will already be aware, on 23 December 2004, the Company
launched further offers for subscription of up to 10,928,962 new ordinary
shares in the Company. As at 8 March 2005, the total number of ordinary shares
issued pursuant to these offers was 386,682. The 2004/05 and 2005/06 offers are
expected to remain open until 4 April 2005 and 30 June 2005, respectively.

OUTLOOK

Over the coming year further progress may be expected towards completion of
Quester VCT 5's initial investment phase, and further diversification of the
portfolio with the benefit of the additional capital being raised under the
current offers.

The higher level of merger and acquisition ('M&A') activity currently being
shown by larger companies and stock market conditions more conducive to the
achievement of successful flotations, particularly for smaller companies on
AIM, point to the opportunities that may be available in due course for
successful sales of businesses such as those in which Quester VCT 5 has
invested.

Bill Passmore

Chairman

16 March 2005

INVESTMENT MANAGER'S REPORT

PROGRESS WITH VENTURE CAPITAL INVESTMENT

During the year ended 31 December 2004, eight new investments were completed at
an initial cost of £1.6 million.

The new investments included three in unquoted companies: two in software,
Argelcom Limited (£36,000) and Celona Technologies Limited (£129,000); and one
in consumer services, HTC Healthcare Group plc (£214,000).

In pursuit of the Company's strategy to invest in attractive companies raising
capital on AIM, a total of £1.2 million was invested in five companies covering
a range of different sectors: Allergy Therapeutics plc (£500,000), Offshore
Hydrocarbon Mapping plc (£175,000), Polaron plc (£250,000), Public Recruitment
Group plc (£250,000) and Quadnetics Group plc (£57,000).

An additional £0.7 million was invested in eight of the existing portfolio
companies, either as further tranches of originally agreed commitment or as
follow-on investment. The follow-on investments included additional commitments
to Advanced Valve Technologies Limited (£154,000), Anadigm Limited (£150,000)
and Antenova Limited (£177,000).

As previously reported, the portfolio that we have been building for Quester
VCT 5 is an early stage venture capital portfolio, consisting largely of
technology-related companies serving markets with considerable potential over
the long term. The summary of the businesses of the ten largest investments
gives a flavour of the significant commercial opportunities that companies in
the portfolio are seeking to address.

It is emphasised, however, that most of the companies concerned are still at a
relatively early stage of development. For those involved in technology-related
opportunities, there may at this stage still be only limited, if any, sales
revenues and a reported financial loss. This pattern of financial results
should be appreciated as typical of early stage companies exploiting
technology-related opportunities and their business plans.

REALISATIONS

We are pleased to be able to report that successful realisations of two venture
capital investments were achieved during the year:

The holding in Amino Technologies plc, which had been acquired for £143,000 in
November 2003 as an unquoted investment, was sold in tranches following the
admission of the company's shares to trading on AIM in June 2004 and
subsequently, realising total proceeds of £522,000 and a gain of £379,000.

The holding in Offshore Hydrocarbon Mapping plc, which had been acquired for £
175,000 in March 2004 in a placing upon the admission of the company's shares
to trading on AIM, was sold in a series of market transactions up to July 2004,
realising a gain of £54,000.

A BALANCED PORTFOLIO

The portfolio so far established is balanced by sector and well spread. A
summary of the sectors covered by the portfolio at 31 December 2004 is provided
in the table below:

Industry sector                 Existing venture      Valuation       Number of
                                         capital                    investments
                                    portfolio at                               
                                       valuation                               
                                                                               
                                               %          £'000                
                                                                               
Healthcare & life sciences                  41.2          2,834               7
                                                                               
Software                                    16.6          1,141               5
                                                                               
Electronics & communications                15.5          1,068               3
                                                                               
Business services                            9.2            634               2
                                                                               
Industrial products                          8.8            605               3
                                                                               
Semiconductors                               5.6            383               2
                                                                               
Consumer services                            3.1            214               1
                                                                               
                                           100.0          6,879              23

RESERVES FOR FOLLOW-ON INVESTMENT

Many of the unquoted investments in Quester VCT 5's portfolio are early stage
companies in the ICT, healthcare and life sciences sectors, serving markets
with considerable growth potential over the long term. These young companies
generally will require further rounds of finance as they grow.

It is important that Quester VCT 5 should be in a position to contribute to
this funding process, provided the companies concerned continue to make
satisfactory progress. Accordingly, Quester VCT 5 holds reserves for further
investment in existing portfolio companies. Taking these reserves for possible
future follow-on investment into account, 53.4% of the fund (at cost) is now
allocated to the existing venture capital investments.

                                                               £'000  % of fund
                                                                               
                                                                      (at cost)
                                                                               
Current portfolio at cost                                      7,345      33.4%
                                                                               
Outstanding commitments: existing portfolio companies            138       0.6%
                                                                               
Amounts reserved for follow-on investment: existing            4,266      19.4%
portfolio companies                                                            
                                                                               
                                                              11,749      53.4%

Under the VCT legislation, at least 70% of the Company's investments have to be
represented by qualifying holdings. In order to comply with this requirement
and maintain an appropriate level of reserves, £8.1 million was held in
non-interest bearing cash accounts at the year end (this balance is expected to
reduce significantly over the current year as further qualifying investments
are made).

This results in a lower level of interest income but is consistent with
managing the venture capital portfolio appropriately for current market
conditions and long term capital growth.

VALUATION OF THE VENTURE CAPITAL PORTFOLIO

The venture capital investments have been valued in line with the Company's
accounting policies, which are based on the valuation guidelines issued by the
British Venture Capital Association ('BVCA') in June 2003.

Holdings in companies whose shares are traded on AIM are valued on the basis of
mid-market prices on 31 December 2004. It was disappointing that AIT Group plc,
which had reported satisfactory results for its financial year ended 31 March
2004, was obliged in August 2004 to issue an announcement that revenue and
profit expectations for the year to 31 March 2005 would be lower than
anticipated. The share price fell following that announcement and stood at 31p
as at 31 December 2004. For Quester VCT 5, the effect was a reduction of £
386,000 over the year in carrying value of this investment (the valuation at 31
December 2004 being £405,000 against cost of £565,000). Other AIM investments
showed a net appreciation in value of £126,000.

Where companies in the unquoted portfolio have fallen behind plan, provisions
have been made against the cost of the investments concerned. The provisions
total £553,000 in respect of five unquoted investments: Anadigm Limited (£
39,000), Arithmatica Limited (£103,000), Digital Union UK Limited (£72,000),
Mesophotonics Limited (£89,000) and Reqio Limited (£250,000). The investment in
Reqio Limited has been treated in accounting terms as a write-off, although
some return may yet be achieved from this investment.

LISTED EQUITY AND BOND PORTFOLIOS

At 31 December 2004 the Company held a portfolio of bonds to a value of £2.5
million and a portfolio of listed equities valued at £3.2 million (showing an
unrealised capital profit of £384,000).

CONCLUSION

As at the date of this report, the initial investment phase of the Company is
well progressed. The total number of venture capital investments is expected to
increase in due course from the current 23 to around 30, dependent on the level
of funds raised from the current offers for subscription.

Quester Capital Management Limited

Manager

16 March 2005

FUND SUMMARY AS AT 31 DECEMBER 2004

Quoted venture        Industry sector     Original Valuation Equity %  % of fund
capital                                                                         
                                                                                
Investments                                   Cost           held       by value
                                                                                
                                          £'000   £'000                        
                                                                                
AIT Group plc         Software            565      405       2.9%           1.8%
                                                                                
Allergy Therapeutics  Healthcare and life 500      627       1.1%           2.9%
plc                   sciences                                                  
                                                                                
Polaron plc           Industrial products 250      259       1.2%           1.2%
                                                                                
Public Recruitment    Business services   250      234       0.8%           1.1%
Group plc                                                                       
                                                                                
Quadnetics Group plc  Industrial products 57       63        0.2%           0.3%
                                                                                
Total quoted venture capital investments  1,622    1,588                    7.3%
                                                                                
Unquoted venture                                                                
capital investments                                                             
                                                                                
Advanced Valve        Industrial products 413      283       10.2%          1.3%
Technologies Limited                                                            
                                                                                
Anadigm Limited       Semiconductors      237      199       1.7%           0.9%
                                                                                
Antenova Limited      Electronics &       402      402       2.2%           1.8%
                      communications                                            
                                                                                
Argelcom Limited      Software            36       36        2.5%           0.2%
                                                                                
Arithmatica Limited   Semiconductors      287      184       2.5%           0.9%
                                                                                
Avidex Limited        Healthcare & life   440      440       1.5%           2.0%
                      sciences                                                  
                                                                                
Azea Networks, Inc    Electronics &       398      398       2.8%           1.8%
                      communications                                            
                                                                                
Celona Technologies   Software            129      129       3.6%           0.6%
Limited                                                                         
                                                                                
Cyclacel Group plc    Healthcare & life   500      500       0.6%           2.3%
                      sciences                                                  
                                                                                
Digital Union UK      Business software   243      171       5.3%           0.8%
Limited                                                                         
                                                                                
Footfall Limited      Business services   400      400       3.1%           1.8%
                                                                                
HTC Healthcare Group  Consumer services   214      214       3.5%           1.0%
plc                                                                             
                                                                                
Lorantis Holdings     Healthcare & life   400      400       0.9%           1.8%
Limited               sciences                                                  
                                                                                
Mesophotonics Limited Electronics &       357      268       2.4%           1.2%
                      communications                                            
                                                                                
Oxford Immunotec      Healthcare & life   250      250       3.8%           1.1%
Limited               sciences                                                  
                                                                                
Oxxon Therapeutics    Healthcare & life   367      367       1.3%           1.7%
Holdings, Inc.        sciences                                                  
                                                                                
Workshare Limited     Software            400      400       2.6%           1.8%
                                                                                
Xention Discovery     Healthcare & life   250      250       2.4%           1.1%
Limited               sciences                                                  
                                                                                
Total unquoted venture capital            5,723    5,291                   24.1%
investments                                                                     
                                                                                
Total venture capital                     7,345    6,879                   31.4%
investments                                                                     
                                                                                
Listed fixed interest                     2,512    2,517                   11.5%
investments                                                                     
                                                                                
Listed equity investments                 2,835    3,219                   14.7%
                                                                                
Total investments                         12,692   12,615                  57.6%
                                                                                
Cash and other net assets                 9,289    9,289                   42.4%
                                                                                
Net assets                                21,981   21,904                 100.0%

STATEMENT OF TOTAL RETURN (incorporating the revenue account)

FOR THE YEAR ENDED 31 DECEMBER 2004

                      Notes     2004     2004     2004     2003     2003    2003
                                                                                
                             Revenue  Capital    Total  Revenue  Capital   Total
                                                                                
                               £'000    £'000    £'000    £'000    £'000   £'000
                                                                                
(Loss)/profit on                   -     (86)     (86)        -       64      64
investments                                                                     
                                                                                
Income                  1        618        -      618      647        -     647
                                                                                
Investment management   2      (276)    (276)    (552)    (196)    (196)   (392)
fee                                                                             
                                                                                
Other expenses          3      (277)        -    (277)    (227)        -   (227)
                                                                                
Return on ordinary                65    (362)    (297)      224    (132)      92
activities before tax                                                           
                                                                                
Tax on ordinary                    2        -        2        -        -       -
activities                                                                      
                                                                                
Return on ordinary                67    (362)    (295)      224    (132)      92
activities after tax                                                            
                                                                                
Dividends proposed                 -        -        -    (221)        -   (221)
                                                                                
Transfer to/(from)                67    (362)    (295)        3    (132)   (129)
reserves                                                                        
                                                                                
Return per share        5       0.3p   (1.5)p   (1.2)p     1.0p   (0.6)p  (0.4)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 accompanying notes are an integral part of this statement.

BALANCE SHEET

AS AT 31 DECEMBER 2004

                                                            2004      2003     
                                                                               
                                                   Note     £'000     £'000    
                                                                               
Fixed assets                                                                   
                                                                               
Investments                                                 12,615    18,288   
                                                                               
Current assets                                                                 
                                                                               
Debtors                                                     56        627      
                                                                               
Cash at bank                                                9,373     2,354    
                                                                               
                                                            9,429     2,981    
                                                                               
Creditors (amounts falling due within one year)             (94)      (362)    
                                                                               
Net current assets                                          9,335     2,619    
                                                                               
Creditors (amounts falling due in over one                  (46)      (46)     
year)                                                                          
                                                                               
Net assets                                                  21,904    20,861   
                                                                               
Capital and reserves                                                           
                                                                               
Called-up equity share capital                              239       225      
                                                                               
Share premium                                               4,992     3,580    
                                                                               
Special reserve                                             16,544    17,390   
                                                                               
Capital reserve - realised                                  130       (527)    
                                                                               
- unrealised                                                (77)      184      
                                                                               
Revenue reserve                                             76        9        
                                                                               
Equity shareholders' funds                                  21,904    20,861   
                                                                               
Net asset value per share                            6      91.6p     92.7p    

The financial statements were approved by the directors on 16 March 2005 and
were signed on their behalf by:

Bill Passmore

Chairman

The accompanying notes are an integral part of this statement.

CASHFLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2004

                                                 2004         2003        
                                                                          
                                                 £'000        £'000       
                                                                          
Cash outflow from operating activities           557          92          
                                                                          
Corporation tax refund/(paid)                    2            (2)         
                                                                          
Financial investment                                                      
                                                                          
Purchase of venture capital investments          (2,348)      (3,920)     
                                                                          
Purchase of listed equities and fixed interest   (6,285)      (8,951)     
investments                                                               
                                                                          
Sale of venture capital investments              776          18          
                                                                          
Sale/redemption of listed equity and fixed       13,200       10,121      
interest investments                                                      
                                                                          
Total financial investment                       5,343        (2,732)     
                                                                          
Equity dividends paid                            (221)        (93)        
                                                                          
Financing                                                                 
                                                                          
Issue of ordinary shares pursuant to the offers  1,446        2,854       
for subscription made during the year                                     
                                                                          
Issue of shares in accordance with the terms of  34           13          
the dividend reinvestment scheme                                          
                                                                          
Share issue expenses                             (53)         (101)       
                                                                          
Buy back of ordinary shares                      (89)         (23)        
                                                                          
Total financing                                  1,338        2,743       
                                                                          
Increase in cash for the period                  7,019        8           
                                                                          
Reconciliation of net cash flow to movement                               
                                                                          
in net funds                                                              
                                                                          
Increase in cash for the period                  7,019        8           
                                                                          
Net funds at the start of the period             2,354        2,346       
                                                                          
Net funds at the end of the period               9,373        2,354       

The accompanying notes are an integral part of this statement.

NOTES TO THE FINANCIAL STATEMENTS

1 Income                                                  2004       2003      
                                                                               
                                                          £'000      £'000     
                                                                               
Dividend income                                                                
                                                                               
Listed equity shares                                      78         40        
                                                                               
Interest receivable                                                            
                                                                               
Listed fixed interest securities                          446        515       
                                                                               
Bank deposits                                             94         92        
                                                                               
                                                          618        647       

2 Investment management fee

Quester Capital Management Limited ('QCML') provides investment management
services to the Company under an agreement dated 3 December 2001, as amended by
a supplemental agreement dated 23 December 2004.

A charge of £552,000 (2003: £392,000) in respect of the management fee payable
to QCML was accrued during the year together with irrecoverable VAT of £71,000
(2003: £54,000). The fee, which is calculated monthly and is payable in
advance, was levied at a rate of 2.5% (2003: 2%) on the Company's net assets
during the financial year ended 31 December 2004. With effect from 1 January
2005, this fee is to be capped to ensure that the Company's running costs do
not exceed 3.5% of closing net asset value at the end of each financial period.

The manager's appointment is for a fixed term which shall expire on the seventh
anniversary of the commencement of the fund and shall continue until terminated
by either party subject to a notice period. If such notice is given on or after
the seventh anniversary of the commencement of the fund, the notice period
shall be the longer of (i) twelve months and (ii) the period from the date on
which notice is given to the tenth anniversary of the commencement of the fund.
Thereafter the notice period shall be twelve months.

The management fee payable to Newton Investment Management Limited, to the
extent that it is not covered by transaction fees payable by the Company, will
be met by QCML out of the above fee.

QCML provides administrative and secretarial services to the Company for which
it is entitled to a fee of £53,000 per annum (linked to the movement in the
RPI). This fee is included in other expenses (note 3).

3 Other expenses

                                                             2004         2003
                                                                              
                                                            £'000        £'000
                                                                              
Administration and secretarial services                        53           51
                                                                              
Directors' remuneration (note 4)                               39           39
                                                                              
Auditor's remuneration                                                        
                                                                              
Audit services                                                 18           19
                                                                              
Non audit services                                              8            7
                                                                              
Insurance                                                      12            8
                                                                              
Legal and professional                                         15           18
                                                                              
UKLA, LSE and registrar fees                                   14           10
                                                                              
Other                                                          19           10
                                                                              
Irrecoverable VAT                                              99           65
                                                                              
                                                              277          227

4 Directors' remuneration

                                                             2004          2003
                                                                               
                                                            £'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
period is detailed in the Directors' Remuneration Report.

5 Return per share

The revenue return per share of 0.3p (2003: 1.0p) is based on the aggregate of
the net return from ordinary activities after tax of £67,000 (2003: £224,000)
and on ordinary shares of 23,610,383 (2003: 21,644,753), being the weighted
average number of shares in issue during the year.

The capital loss per share of 1.5p (2003: 0.6p) is based on the net realised
and unrealised capital loss for the period after tax of £362,000 (2003: £
132,000) and on ordinary shares of 23,610,383 (2003: 21,644,753), being the
weighted average number of shares in issue during the year.

6 Net asset value per share

The net asset value per share as at 31 December 2004 of 91.6p (2003: 92.7p) is
based on net assets of £21,904,000 (2003: £20,861,000) divided by the
23,905,023 (2003: 22,498,6400 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 December 2004. The statutory accounts
for the year ended 31 December 2004 will be finalised on the basis of the
financial information presented by the directors in the preliminary
announcement and will be delivered to the Registrar of Companies following the
Company's Annual General Meeting.

A copy of the above document will 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

Copies of the full financial statements for the year ended 31 December 2004 are
expected to be posted to shareholders on 17 March 2005 and will be available to
the public at the registered office of the Company at 29 Queen Anne's Gate,
London, SW1H 9BU.