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Quester VCT PLC (KAY)

  Print      Mail a friend       Annual reports

Wednesday 16 November, 2005

Quester VCT PLC

Interim Results

Quester VCT plc
Interim statement for the six months ended 31 August 2005

Financial highlights

Per ordinary share                      6 months to  13 Months to   6 months to
                                          31 August   28 February  31 July 2004
                                               2005          2005              
Capital values                                                                 
Net asset value                               42.2p         44.1p         49.0p
Share price                                   38.0p         44.0p         44.0p
Return and dividends                                                           
Dividend                                          -             -             -
Cumulative dividend                           41.5p         41.5p         41.5p
Total return*                                 83.7p         85.6p         90.5p

*Net asset value plus cumulative dividend per share

A dividend of 1.25p per share was paid on 11 November 2005 increasing the
cumulative dividend to 42.75p.

The returns summarised above are applicable only to original subscribers for
shares in 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 103.7p per share as at 31 August 2005.

Fund Highlights

  * Merger successfully achieved; net assets of over £50 million.
  * Net asset value 42.2p per share, down by 1.2p per share since the merger.
  * Increase in range and diversity of the portfolio; 38 venture capital
  * Increasing pace of realizations.
  * Annual running costs reduced.
Chairman's Statement


This is the first interim statement to shareholders following the successful
merger of the Company with Quester VCT 2 plc and Quester VCT 3 plc which
completed on 29 June 2005. It is also my first statement since I succeeded Tom
Scruby as Chairman, following the merger. Tom, who has been a director of the
Company since it was founded in 1996, has agreed to remain as a non-executive
director for a period following the merger. It is intended that he will retire
from the board during 2006. While David Quysner resigned due to conflicts
arising from his appointment to review Government strategy in the early stage
venture capital sector, the Board has been strengthened by the appointment of
Christopher Wright who has extensive experience in early stage investing.


The principal benefits expected to arise from the merger are an increase in the
range and diversity of the portfolio, an improved spread of risk and
opportunity, a reduction in the proportionate level of running costs and a
potential smoother flow of dividends as disposals are made from a wider

As a result of the merger, there are now 38 venture capital investments in the
portfolio and the Company's net assets have increased to over £50 million.

Net assets

The merger terms were based on the relative net asset values of the three
companies. Quester VCT plc's formula asset value per share at the time of the
merger was 43.4p inclusive of provisioning for merger costs. As at 31 August
2005 its net asset value had fallen to 42.2p driven by write downs on
Imagesound plc and Anadigm Limited.


A special interim dividend of 1.25p per share was declared on 30 September 2005
and paid on 11 November 2005. This represented a dividend in excess of the
amount of 1p per share as stated in the Listing Particulars to acknowledge an
increase in the pace of realisations over the summer, so far at prices a little
above valuations used for the merger. This will reduce the net asset value by
1.25p per share.

The Board has reviewed the prospects over the next three years for realisations
from the portfolio, the requirements for investment in fresh venture capital
opportunities, including reserving for follow on investments and the Company's
ability to distribute surplus resources by way of dividend. The Board has
concluded that it should aim to pay small, but regular, dividends as far as it
is able, and, if and when significant realisations are made, to consider
increasing the dividend to reflect those circumstances.

Change of auditor

RSM Robson Rhodes LLP have replaced KPMG Audit Plc as auditor of the Company.


The Board is pleased that we are actively funding new investments once again.
The priorities in the short term, however, are the realisation programme, where
the pace and scale of transactions is increasing, and the payment of regular

Jock Birney
16 November 2005

Investment Manager's Report


The merger has resulted in a venture capital trust with net assets of £51.3
million as at 31 August 2005 and an enlarged portfolio of investments. The
venture capital portfolio now consists of 38 companies: 28 unquoted and 10
quoted venture capital investments. The merger has also freed up liquid
resources for further investment.

Our principal objectives over the next three to four years are to continue to
work with and support the existing portfolio, with a view to achieving exits,
and to continue to make new investments.

Sector spread

Following the merger, the portfolio benefits from a wider sector spread.

Sector                             Percentage of Valuation at 31      Number of
                                 venture capital     August 2005    investments
                                    portfolio at                               
                                       valuation           £'000               
Software                                    22.6           5,794             10
Healthcare & life sciences                  20.5           5,253              7
Industrial products & services              18.4           4,727              5
Internet                                    12.5           3,218              3
Consumer services                            5.3           1,364              1
Publishing                                   4.4           1,119              1
Communications                               4.0           1,015              2
Semiconductors                               3.6             938              2
Computer hardware                            2.8             708              2
Media                                        2.6             672              1
Consumer goods                               1.2             299              1
Electronics                                  1.0             268              1
Leisure                                      0.8             200              1
Chemicals/ materials                         0.3              87              1
                                           100.0          25,662             38

Performance of the venture capital portfolio

We are currently in a more favourable climate for early stage venture capital
investments and, with the exception of the investments in Anadigm Limited and
Imagesound plc, the portfolio has performed much as expected during the period.
It is a very active period for M&A activity in the portfolio and we see the
possibility of some cash exits within the next 12 months.

We are particularly encouraged by the progress made by Antenova Limited, a
leading developer of advanced antenna technology and innovative radio solutions
used in wireless communications. The company has signed two significant
contracts in the period. Following the completion of a £12 million funding
round in January 2005, the company is well positioned to meet the needs of the
global handset and laptop antenna market that is predicted to increase to over
$2 billion by 2008.

In October, Lorantis was acquired by Celldex Therapeutics Inc, a US based
biotechnology company focused on the discovery and commercialisation of
products for the treatment of cancer, infectious diseases and immune system
disorders. The merger of the two companies should improve the prospect of an
IPO. We continue to value this investment at Quester VCT's merger based cost.

Three valuation changes have impacted the carrying value of the unquoted
venture capital portfolio during the half year. The largest was the final
write-off of Anadigm Limited, which resulted in a loss of £729,000 during the
period based on merger cost. This investment had been substantially written
down from its original cost over the last two years. This was a serious
disappointment following the significant efforts made to develop and support
this business, which a widely spread investment syndicate saw as having
considerable potential. The company developed a product providing added
functionality, potential cost savings and flexibility in design for electronic
system companies building flexible analog circuits. Its failure arose from the
fact that it failed to achieve fast enough growth in its sales. In addition,
Reqio Limited entered into administration during the period and the final
remaining value of £22,000 has been written off. The investment in Anthropics
Limited has been down valued by £60,000, although we continue to work with the
company to achieve a recovery of value.

The quoted venture capital portfolio fell in value by a net £1.0 million
largely resulting from a fall in value of Imagesound plc following a profit
warning. The company's performance has been adversely affected by the recent
short term performance of its system sales activity. The AIM market continues
to react very harshly to unexpected negative news. Steps have been taken to
strengthen the company's executive management and the share price since then
has improved somewhat.

Venture capital investments made during the period

Following the merger and based on the increased combined liquidity and pace of
realisations, Quester VCT has entered a new investment phase. We can now
actively seek new venture capital opportunities on behalf of the Company,
following the investment policy shared with our institutional fund. Four new
investments have been made in the period at a total cost of £1.9 million. All
four are early stage investments, although Global Silicon, Level Four and
Pelikon are revenue generating, albeit at modest levels.

Company                                 Industry Sector                   £'000
Global Silicon Limited                  Semiconductors                      600
Level Four Software                     Software                            518
Nanotecture Limited                     Materials                            87
Pelikon Limited                         Hardware                            708

Global Silicon, a designer and manufacturer of integrated circuit solutions for
the high growth consumer audio market, raised £6 million in a series B funding
round and Jeremy Milne, a Quester director, joined the board. The company's
lead product, Xin, is currently sold in audio systems such as boom boxes, MP3
players and iPod's in the UK and Europe. This is a rapidly growing market,
fuelled by the widespread availability of digital music from download sites.
The new funds will enable Global Silicon to expand its product range and its
operations in Cambridge and China, with high volume production expected to
commence in 2006.

Level Four Software is an independent software company which supplies advanced
software products for the testing and development of 'Automated Teller
Machines' (ATM) services to major global banks and financial institutions. The
ATM industry is expected to experience an exciting period of change over the
next five years. Level Four Software is managed by an experienced management
team and is well placed to meet the changing demands with its innovative
technology. Henry Sallitt, a Quester director, has joined the board. The funds
raised by the company will enable it to accelerate its development activities
and support global expansion plans.

Nanotecture, a nanotechnology materials company, develops products in the
fields of power sources (supercapacitors), sensors and filtration with
applications in a broad range of markets with significant opportunities. The
supercapacitor market is estimated to be US$450 million in 2006. Development
contracts and collaboration agreements have been signed with a number of key
organizations. The funds raised, to be invested in tranches, will allow
Nanotecture to fund development and bring products to the market place.

Pelikon is an innovative manufacturer of thin, flexible electro luminescent
displays for consumer electronics, home appliances and industrial applications.
The company has made strong progress with the commercialisation of its display
technology and over one million flexible displays have already been distributed
worldwide. The investment, part of a £5 million funding round, will allow the
company to accelerate growth.

We have also supported the existing portfolio with four further follow-on
investments totalling £0.8 million, as follows:

Company                                 Industry Sector                   £'000
Advanced Valve Technologies Limited     Industrial products &               108
Avidex Limited                          Healthcare & life                    69
HTC Healthcare Group plc                Consumer services                   511
Teraview Limited                        Healthcare & life                   125

Realisations from the venture capital portfolio

As we emphasised at the time of the merger, a key area of focus for us is the
sale of the more mature investments in the portfolio. The progress made in this
regard, both during the period and subsequently, has been encouraging and in
line with our projections at the time of the merger. During the period three
realisations totalling £2.4 million were made, as follows:

Company                                                           Cash proceeds
Casella Group Limited                                                     1,121
Crown Sports plc                                                            176
Loudeye Corp.                                                             1,112

The majority of the holding in Loudeye Corp, a NASDAQ traded stock, whose paper
was received on the sale of On Demand Distribution Limited (an investment held
originally by Quester VCT 2 and Quester VCT 3) has now been sold. This
investment has now returned aggregate cash proceeds of £1.1 million post the
merger and £3.9 million in total, which, when taken together with the residual
holding, is equivalent to a return of 1.3 times original cost.

Cash proceeds of £1.1 million have been generated on the sale of Casella's
environmental consultancy division. This represents 65% of the merger based

Almost half the Crown Sports holding was sold during the period generating cash
proceeds of £176,000. The holding in Crown Sports was assumed in 2001 following
the part cash, part paper disposal of Dragons Health Clubs plc. The return on
the Dragons investment, inclusive of the Crown Sports proceeds and residual
holding, amounts to £2.6 million or 2.6 times original cost.

Listed equity and fixed interest portfolios

The listed equity portfolio was valued at £15.8 million as at 31 August 2005
and since the merger has generated an annualized return of 4.3%. The listed
fixed interest holdings were valued marginally above cost at the same date at £
2.3 million and currently yield 4.6% per annum.

The listed equity and fixed interest portfolios continue to be retained as a
reserve to support the potential capital requirements of the venture capital
investment portfolio. It is likely that the listed equity and fixed interest
portfolios will reduce over the next 12 months as profits are taken and
proceeds switched into venture capital investments.


The reduction in net asset value post merger, which was largely caused by two
valuation changes, is disappointing. However, progress has been made by other
companies in the portfolio and we have also made good progress towards
realising some of the more mature investments: these two factors are
encouraging and we currently expect to make further progress with realisations
during the second half of the year.

Quester Capital Management Limited
16 November 2005

Fund Summary

As at 31 August 2005

                                          Cost   Valuation  % equity  % of fund
                                         £'000       £'000      held   by value
Quoted venture capital investments                                                          
Allergy Therapeutics plc                   572         788      1.1%       1.5%
Crown Sports plc                           269         200      0.7%       0.4%
Imagesound plc                           1,848         672     12.1%       1.3%
Loudeye Corp.                              440         470      0.1%       0.9%
Sirius Financial Solutions plc             195         127      0.8%       0.2%
Sopheon plc                                177          51      0.2%       0.1%
Surfcontrol plc                            493         583      4.3%       1.2%
The Innovation Group plc                    15          11        -%         -%
Vernalis Group plc                         886         890      0.7%       1.7%
XKO Group plc                              884         800      1.7%       1.6%
Total quoted venture capital             5,779       4,592                 8.9%
Unquoted venture capital investments                                                       
Advanced Valve Technologies              2,600         457     11.1%       0.9%
Anadigm Limited                          2,064           -     11.0%         -%
Antenova Limited                         1,005       1,005      5.4%       2.0%
Anthropics Technology Limited               70          10      7.0%         -%
Arithmatica Limited                        338         338     12.5%       0.7%
Artisan Software Tools Limited           2,100       1,172     23.4%       2.3%
Avidex Limited                             602         602      1.4%       1.2%
Casella Group Limited                    1,389         598     17.8%       1.2%
Community Internet Europe Limited        1,015         634     17.4%       1.2%
Cyclacel Limited                           800         800      1.1%       1.6%
Dycem Limited                              187         373     37.5%       0.7%
Elateral Holdings Limited                2,128         245     24.4%       0.5%
Footfall Limited                         2,900       2,900     17.0%       5.6%
Global Silicon Limited                     600         600      7.6%       1.2%
HTC Healthcare Group plc                 1,907       1,364     36.7%       2.7%
International Diagnostics Group          1,178         689     23.9%       1.3%
International Resources Group               32         400      4.0%       0.8%
Level Four Software Limited                518         518      9.3%       1.0%
Linguaphone Limited                      1,074         299     12.8%       0.6%
Lorantis Holdings Limited                  625         625      1.6%       1.2%
Methuen Publishing Limited               1,119       1,119     43.7%       2.2%
Nanotecture Limited                         87          87      0.8%       0.2%
Nomad Software Limited                   1,818         887     18.7%       1.7%
Opsys Management Limited                 1,561         268        -%       0.5%
Pelikon Limited                            708         708      5.5%       1.4%
Sibelius Software Limited                1,400       1,400     12.0%       2.7%
Sift Group Limited                       2,259       2,114     14.5%       4.1%
Teraview Limited                           858         858      4.9%       1.6%
Total unquoted venture capital          32,942      21,070                41.1%
Total venture capital investments       38,721      25,662                50.0%
Listed fixed interest investments        2,304       2,311                 4.5%
Listed equity investments               15,484      15,833                30.9%
Total investments                       56,509      43,806                85.4%
Cash and other net current assets        7,508       7,508                14.6%
Net assets                              64,017      51,314               100.0%

The respective cost of investments shown above represents the post merger cost
to Quester VCT plc. This reflects the original cost of the Company's
investments held prior to the merger with Quester VCT 2 plc and Quester VCT 3
plc together with the merger value of those investments assumed from Quester
VCT 2 and Quester VCT 3 on the merger.

Unaudited Financial Statements

Profit and loss account

                                   6 months ended      13 Months 6 months ended
                                   31 August 2005       ended 28   31 July 2004
                                        Unaudited  February 2005      Unaudited
                                            £'000                         £'000
Net losses on investments at fair         (1,197)        (1,878)          (182)
Income                                        356            457            161
Investment management fee                   (273)          (331)          (199)
Other expenses                              (244)          (285)          (166)
Loss on ordinary activities before        (1,358)        (2,037)          (386)
Tax on ordinary activities                      -              -              -
Transfer from reserves                    (1,358)        (2,037)          (386)
Earnings per share                         (2.1)p         (6.0)p         (1.1)p

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.

The profit and loss accounts for the periods ended 28 February 2005 and 31 July
2004 have been restated to reflect the fact that the Company's investments are
now designated as at fair value through profit or loss (see note 3).

Balance Sheet

                               Note  31 August           28 February 31 July 2004
                                          2005          2005 Audited    Unaudited
                                        £'000                  £'000        £'000
Fixed assets                                                                   
Investments                             43,806                12,677       14,319
Current assets                                                                 
Debtors                                 2,041                    793        1,612
Cash at bank                            6,279                  1,518        1,046
                                        8,320                  2,311        2,658
Creditors (amounts falling due within one year)                                                    
Other creditors                         (812)                  (337)        (495)
Net current assets                      7,508                  1,974        2,163
Net assets                              51,314                14,651       16,482
Capital and reserves                                                           
Called-up equity share              2   6,085                  1,661        1,682
Capital redemption reserve          2   161                      112           91
Share premium account               2   37,318                 3,410        2,787
Special reserve                     2   7,540                  7,900       14,780
Fair value reserve                  2   (3,020)              (1,474)      (5,771)
Profit and loss account             2   3,230                  3,042        2,913
Total equity shareholders'              51,314                14,651       16,482
Net asset value per share               42.2p                  44.1p        49.0p

The balance sheets as at 28 February 2005 and 31 July 2004 have been restated
to reflect the creation of a capital redemption reserve on the repurchase and
cancellation of shares and the reclassification of the revaluation reserve as a
fair value reserve.

Summarised Cash Flow Statement

                                           6 months      13 months     
                                           ended 31          ended     6 months
                                        August 2005    28 February     ended 31
                                                              2005    July 2004          
                                          Unaudited        Audited    Unaudited                         
                                              £'000          £'000        £'000
Net cash inflow/(outflow) from                  461           (92)        (176)
operating activities                                                           
Net cash inflow from merger                   5,881              -            -
Net capital expenditure and financial       (1,221)            264        (494)
Financing                                     (360)          (370)            -
Increase in cash for the period               4,761          (198)        (670)
Reconciliation of net cash flow to                                             
movement in net funds                                                          
Increase in cash for the period               4,761          (198)        (670)
Net funds at the start of the period          1,518          1,716        1,716
Net funds at the end of the period            6,279          1,518        1,046

Notes to the Unaudited Financial Statements

 1. Merger of Quester VCT plc, Quester VCT 2 plc and Quester VCT 3 plc
On 29 June 2005 the High Court sanctioned the Scheme of Arrangement for the
merger of Quester VCT plc, Quester VCT 2 plc and Quester VCT 3 plc. Under the
terms of the Scheme of Arrangement the Formula Asset Values (`FAVs') per share
of Quester VCT, Quester VCT 2 and Quester VCT 3 were calculated, as at 24 June
2005, as 43.39p, 44.47p and 42.59p respectively, the related FAV ratios of
Quester VCT 2 and Quester VCT 3 were 1.0249 and 0.9816. The shareholders of
Quester VCT 2 and Quester VCT 3 on the register at the close of business on 24
June 2005 received 1,024 and 981 new shares respectively in Quester VCT plc for
every 1,000 shares held in Quester VCT 2 and Quester VCT 3 (and so in
proportion for any greater or lesser number of Quester VCT 2 and Quester VCT
3). Dealing in the new shares issued by Quester VCT commenced on 29 June 2005.
Following the merger Quester VCT plc had 122,684,664 shares in issue.

 2. Movement in reserves
                                Share    Capital    Share Special    Fair  Profit
                              capital redemption  premium reserve   value     and
                                         reserve  account         reserve    loss
                                £'000                       £'000         account
                                           £'000    £'000           £'000   £'000
At 1 March 2005                 1,661          -    3,410   8,012 (1,474)   3,042
Effect of creating a capital        -        112        -   (112)       -       -
redemption reserve                                                               
At 1 March 2005 (restated)      1,661        112    3,410   7,900 (1,474)   3,042
Shares issued                   4,473          -   34,106       -       -       -
Shares purchased for             (49)         49        -   (360)       -       -
Share issue costs                   -          -    (198)       -       -       -
Loss for the year                   -          -        -       -       - (1,358)
Transfer of net unrealised          -          -        -       - (1,576)   1,576
loss on revaluation of                                                           
Transfer of net realised            -          -        -       -      30    (30)
loss to Profit and Loss                                                          
At 31 August 2005               6,085        161   37,318   7,540 (3,020)   3,230

 3. This Interim Report has been prepared using new accounting standards, which
    have been issued to begin the process of converging UK standards with
    International Financial Reporting Standards (`IFRS'). The relevant
    standards are FRS 25 Financial Instruments: Disclosure and Presentation and
    FRS 26 Financial instruments: Measurement. These standards have been
    adopted by the Company with effect from 1 March 2005.
The Company's business is to invest in financial assets with a view to
profiting from their total return in the form of income and capital growth. The
financial assets are managed and their performance evaluated on a fair value
basis, in accordance with a documented investment strategy. Information about
the financial assets is provided internally on that basis to the Company's
board of directors and other key management personnel. Accordingly, upon
initial recognition, the investments are designated by the Company as at fair
value through profit or loss. The unrealised increase or decrease in fair value
designated investments is now recognised through the Profit and Loss account.

For investments actively traded in organised financial markets, fair value is
generally determined by reference to quoted market bid prices at the close of
business on the balance sheet date. Previously all listed investments were
valued with reference to closing mid market prices at the balance sheet date.
The effect of this change in accounting policy on the net asset value of the
Company as at 31 August 2005 has been to reduce it by £116,000. The comparative
figures have not been restated as the impact is immaterial.

In addition, transaction costs incurred on the purchase and sale of investments
are now charged through the Profit and Loss account in the period in which they
are incurred instead of being included within the cost of the investment or
deducted from the proceeds of a sale. This has no impact on the net asset value
of the Company but impacts the unrealised and realised gain or loss on
investments. The comparative figures have not been restated as the impact is

 4. The financial information contained in this report has been prepared on the
    basis of the accounting policies set out in the Annual Report, except as
    disclosed in note 3.
 5. The number of ordinary shares in issue as at 31 August 2005 was 121,711,519
    (31 July 2004: 33,646,953).
 6. The calculation of earnings per share for the period is based on the loss
    after tax of £1,358,000 divided by the weighted average number of shares 
    in issue during the period being 64,711,854 (2004: 33,981,517) ordinary 
    shares of 5p each.

 7. 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 2005 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.
 8. Copies of the interim financial statements for the six months ended 31
    August 2005 are expected to be posted to shareholders on 18 November 2005
    and will be available to the public at the registered office of the Company
    at 29 Queen Anne's Gate, London, SW1H 9BU.