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Quester VCT PLC (KAY)

  Print      Mail a friend       Annual reports

Friday 26 October, 2007

Quester VCT PLC

Half-yearly Report



Financial highlights

Per ordinary share (pence)             31        28      31
                                   August  February  August
                                     2007      2007    2006
Capital values                                             
Net asset value                      34.2      41.6    41.8
Return and dividends                                       
Dividend                              2.8       3.9     3.9
Cumulative dividend (tax free)       49.5      46.7    46.7
Total return (2)                                           
Quester VCT plc                      83.7      88.3    88.5
Total return to former                                     
shareholders of:                                           
Quester VCT 2 plc (3)                68.9      73.5    73.7
Quester VCT 3 plc (3)                44.0      48.6    48.8

(1) cumulative dividends paid by Quester VCT plc.

(2) net asset value plus cumulative dividend per share.

(3) Quester VCT 2 plc and Quester VCT 3 plc were merged with Quester VCT plc in
June 2005.

The Directors have declared an interim dividend of 1.4p per share amounting to
£1,600,000 to be paid on 7 December 2007. This dividend, which is not reflected
in the table above, will increase cumulative dividends paid to 50.9p per share.

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 as at 31 August 2007 to an
original shareholder in Quester VCT plc would be 103.7p, and to former
shareholders of Quester VCT 2 plc and Quester VCT 3 plc 88.9p and 64.0p per
share respectively.

Chairman's statement

Net assets

The movement in net assets is summarised in the table below:

                                                          £'000 Pence per share
Net asset value at 28 February 2007                      48,328            41.6
Income                                                      418             0.4
Operating expenses                                        (771)           (0.7)
Net realised gain on investments                            459             0.4
Net unrealised loss on investments                      (5,395)           (4.7)
Net assets before dividends and share buy-backs          43,039            37.0
Dividends paid net of amounts reinvested                (3,186)           (2.8)
Share buy-backs                                           (723)               -
Net asset value at 31 August 2007                        39,130            34.2

Comments, dividend and outlook

The Quester management company was acquired by SPARK in May of this year and
the two teams have been integrated. SPARK is adopting a fresh approach to
Quester VCT, which has been endorsed by the Board. The accounting date is going
to be changed to 31 December 2007 to simplify the administration of all of the
Quester VCTs, which will report on the same date. In addition the name of the
Manager has been changed to SPARK Venture Management Limited and it is intended
to seek shareholders approval to a change of name of your Company to SPARK VCT
plc in 2008.

The combined management team has been conducting a detailed and fresh review of
the investments, which has focused on uncertainty that has arisen around poorly
performing companies in the portfolio. Several investments have seen a
transition to new managers within SPARK, while long standing and valuable
relationships with former Quester managers have been retained, especially where
they can contribute to an exit process. At this interim stage the review has
resulted in a write down of 8 unquoted investments by £3.8 million resulting in
a reduction in Net Asset Value of 3.3p per share. The quoted venture capital
portfolio that is marked-to-market fell in value by £1.4 million (1.2p per
share). The other major movement in Net Asset Value was the dividend of 2.8p
per share in respect of the year ended 28 February 2007 that was paid in lieu
of a final dividend on 21 March 2007. Substantial progress has been made, but
the review is continuing and the outcome, which may be positive or negative,
will not be known until the year end.

We are beginning to see the benefit of additional deal flow from SPARK, though
the pace of investment has slowed while the investment review is ongoing. SPARK
intends to invest a greater proportion of funds into revenue generating
companies to reduce the capital-intensive, early stage risk that has bedevilled
the portfolio in past years. As noted in the Investment Manager's Report, a few
companies may achieve an exit in the short term, however the rate of
realisation is unlikely to pick up until 2009. The longer term outlook for the
portfolio is reasonably solid, with good progress being made in our investments
in the life sciences sector.

As previously indicated, the Board is maintaining a high pay out for the moment
and has declared an Interim Dividend of 1.4p per share, payable on 7 December
2007. This will bring the total paid out since the merger in July 2005 to 9.35p
per share. While your Board expects to maintain this policy in respect of the
period to 31 December 2007, future dividends will naturally depend much more on
the rate of reinvestment of the liquid resources and the overall performance of
the portfolio.

Jock Birney


26 October 2007

Responsibility statement

The Directors confirm to the best of their knowledge that:

• the condensed set of financial statements contained within the half yearly
financial report has been prepared in accordance with the Accounting Standards
Board's Statement `Half- Yearly Financial Reports'; and

• the Chairman's statement includes a fair review of the information required
by Disclosure and Transparency Rule 4.2.7R of important events that have
occurred during the first six months of the financial year and their impact on
the condensed set of financial statements, and a description of the principal
risks and uncertainties for the remainder of the financial year; and

• the condensed set of financial statements (note 5) includes a fair review of
the information concerning related parties transactions as required by
Disclosure and Transparency Rule 4.2.8R.

The half yearly financial report was approved by the Board on 26 October 2007
and the above responsibility statement was signed on its behalf by the

Investment manager's report

The investment team responsible for the management of Quester VCT plc is now
being led by Andrew Carruthers, CEO of SPARK, along with Jay Patel, Executive
Director, and Tom Teichman, Chairman of SPARK, and ongoing members of the
Quester team.

The combined management team has been in place for more than half the period
under review and is conducting an assessment of the existing portfolio
investments, which we expect to complete by 31 December 2007. This review,
combined with market events, has resulted in several significant down
valuations, which are explained below.

On 24 October 2007, the name of the Manager was changed to SPARK Venture
Management Limited following the lead of its new parent which is now called
SPARK Ventures plc. Following completion of the current review of the
portfolio, we expect to be able to set out our position on new investment and
the resulting composition of the portfolio going forward. It is intended to
approach shareholders at the 2008 AGM to seek a name change of your Company to
SPARK VCT plc, which will finalise the process that began on 11 May 2007 when
NewMedia SPARK acquired Quester.

Venture capital portfolio: investment activity

Investment activity has been restrained in the first six months of the year:
one new venture capital investment of £108,000 was made (Symetrica, a company
set up to commercialise proprietary, high performance gamma-ray spectroscopy,
imaging hardware and software for use in nuclear, medical and process control
industries) and £1.2m was made in follow-on investments.

Venture capital portfolio: realisations

Realisations from the portfolio of quoted venture capital investments generated
£1.2 million in proceeds and a net gain of £281,000 over carrying values at 28
February 2007. These transactions included the sale of the entire holdings in
Cyclacel Pharmaceuticals, Revenue Assurance and Sopheon; and the tradable
shares in MediGene AG that had been held following its acquisition of Avidex in
September 2006.

Venture capital portfolio: valuation changes

The fresh assessment of the fair values and events over the last six months of
the investments in the individual portfolio companies being undertaken by the
new combined management team has resulted in a net reduction in valuations of
unquoted venture capital investments of £3.7 million:

• The valuations of two companies have been adjusted in line with the terms of
funding rounds: Teraview completed a round in March 2007 resulting in a down
valuation of £237,000 and in the case of Perpetuum, a new round has just been
completed with new investors giving an uplift in the valuation of £130,000. In
both cases we were encouraged by the commercial development of the companies

• Artisan and Community Internet Europe are implementing corporate
restructuring programmes and in the light of current trading circumstances a
reassessment has resulted in down valuations totalling £893,000.

• In the case of Pelikon, the company is at a critical inflection point ahead
of a likely further funding round (subsequent to financing earlier in the
year). We have taken a cautious view and made a down valuation of £695,000
which values the investment at 25% of cost.

• Advanced Valve Technologies and HTC Healthcare have found it difficult to
achieve success with their planned strategies and the provision for impairment
against both investments has been increased to 100% (reduction in valuations £
1,170,000). We are continuing to work with these companies to achieve value
from an exit from these investments.

• In the case of Keronite an impairment provision of 50% of the cost of our
investment has been made to reflect the uncertainty arising from a downturn in
trading conditions and similarly, Arithmatica has experienced difficulties in
achieving its target cash flow and a provision of 75% of the cost of our
investment has been made (reduction in valuations £844,000).

Quoted venture capital investments, which represent 19% of the value of the
venture capital portfolio, have fallen in valuation by £1.4 million during the
period. The portfolio suffered in line with other thinly traded AIM stocks. The
share prices of Allergy Therapeutics and Vernalis suffered following adverse
interim decisions on their respective products by the US Food and Drug

Listed equity portfolio

The valuation of the listed equity portfolio has fallen by £294,000 over the
half year partly offset by realised gains of £179,000.


The level of provisions and consequently the effect on the Net Asset Value has
been substantial since the new combined management team started its fresh
assessment of the portfolio. The pace of new investment activity has also been
restrained while we conclude that assessment, which will be complete by 31
December 2007. Nevertheless, SPARK initiated investment opportunities are now
being made available to the Company.

There are a number of companies in the portfolio where the opportunity may
exist for the achievement of a profitable exit in the relatively short term
(late 2007-2008). However, the majority of the unquoted investments are in
companies which are in the course of transition from the early stage, at which
Quester VCT first invested, into the secondary phase of stronger revenue growth
and progress towards profitability (or in the case of life science based
companies, achieving demonstrable progress in developing drug candidates).
Consequently, it is too soon to expect cash realisations from these investments
in the near future; indications are that the flow of cash realisation proceeds
from these investments, provided general market conditions are favourable,
looks likely to be concentrated in the years from 2009.

SPARK Venture Management Limited


26 October 2007

Fund summary as at 31 August 2007

                     Industry sector  Original Valuation Equity % of   
                                      Cost (1) £'000     % held fund by
Quoted venture capital investments                                     
Allergy Therapeutics Biotechnology    772      584       1.1%   1.5%   
Genosis plc          Diagnostics &    1,355    347       8.0%   0.9%   
Imagesound plc (2)   Industrial       2,848    1,896     11.8%  4.9%   
                     products &                                        
Landround plc        Other services   178      133       6.3%   0.3%   
MediGene AG          Biotechnology    601      274       0.5%   0.7%   
Phoqus Group plc     Biotechnology    497      265       0.9%   0.7%   
Vernalis plc         Biotechnology    886      670       0.5%   1.7%   
Total quoted venture capital          7,137    4,169            10.7%  
Unquoted venture capital investments                                   
Advanced Valve       Industrial       2,773    -         12.8%  0.0%   
Technologies Limited products &                                        
Antenova Limited     Communications   1,134    1,019     4.7%   2.6%   
Anthropics           Communications   115      45        7.0%   0.1%   
Technology Limited                                                     
Arithmatica Limited  Semiconductors   494      124       12.5%  0.3%   
Artisan Software     Software         2,122    120       23.4%  0.3%   
Tools Limited                                                          
Casella Group        Industrial       902      110       17.8%  0.3%   
Limited              products &                                        
Celldex Therapeutics Biotechnology    625      225       1.7%   0.6%   
Cluster Seven        Software         1,196    1,196     11.1%  3.1%   
Community Internet   Internet         1,015    317       20.0%  0.8%   
Europe Limited                                                         
Elateral Holdings    Software         2,126    1,009     24.4%  2.6%   
Haemostatix Limited  Biotechnology    247      247       5.9%   0.6%   
HTC Healthcare Group Consumer goods & 2,448    -         36.7%  0.0%   
plc                  services                                          
International        Diagnostics &    1,176    690       23.9%  1.8%   
Diagnostics Group    devices                                           
Keronite Limited     Chemicals &      947      473       7.1%   1.2%   
Lectus Therapeutics  Biotechnology    854      854       7.0%   2.2%   
Level Four Software  Software         725      725       5.1%   1.9%   
Nanotecture Group    Chemicals &      87       87        0.8%   0.2%   
Limited              materials                                         
Nomad Payments       Software         2,675    3,605     18.7%  9.2%   
Opsys Management     Electronics      1,562    -         13.6%  0.0%   
Pelikon Limited      Hardware         927      232       5.5%   0.6%   
Perpetuum Limited    Electronics      435      565       8.0%   1.4%   
Secerno Limited      Software         446      446       4.2%   1.1%   
Sift Group Limited   Internet         2,395    2,249     19.8%  5.7%   
Symetrica Limited    Chemicals &      108      108       2.2%   0.3%   
Teraview Limited     Diagnostics &    1,056    711       5.4%   1.8%   
Uniservity Limited   Software         1,000    1,000     16.5%  2.6%   
Vivacta Limited      Diagnostics &    915      915       12.9%  2.3%   
We7 Limited          Software         249      249       9.6%   0.6%   
Workshare Limited    Software         695      695       1.9%   1.8%   
Total unquoted venture capital        31,449   18,016           46.0%  
Total venture                         38,586   22,185           56.7%  
capital investments                                                    
Listed fixed                          2,885    2,884            7.4%   
interest investments                                                   
Listed equity                         10,774   12,677           32.4%  
Total investments                     52,245   37,746           96.5%  
Cash and other net                    1,384    1,384            3.5%   
current assets                                                         
Net assets                            53,629   39,130           100.0% 

(1) The cost of investment shown above represents the post merger cost to
Quester VCT plc, which is the original cost to the Company immediately 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.

(2) Includes £1 million 5% fixed rate unsecured subordinated convertible loan
notes 2012.

Condensed financial statements

Profit and loss account

                                   Note    6 months 6 months  Year ended
                                           ended 31 ended 31 28 February
                                             August   August        2007
                                               2007     2006            
                                              £'000    £'000            
Net (loss)/profit on                        (4,936)    1,673       1,712
investments at fair value                                               
through profit or loss                                                  
Income                                          418      517         909
Investment management fee                     (442)    (525)     (1,183)
Other expenses                                (329)    (309)       (455)
(Loss)/profit on ordinary                   (5,289)    1,356         983
activities before taxation                                              
Tax on ordinary activities                        -        -           -
(Loss)/profit on ordinary                   (5,289)    1,356         983
activities after taxation                                               
Basic and diluted (loss)/profit     4        (4.6)p     1.1p        0.8p
per share                                                               

All items in the above statement are derived from continuing operations.

The Company has only one class of business and derives its income from
investments made in shares and securities and from bank deposits.

A statement of total recognised gains and losses has not been presented because
all gains and losses are included in the statement above.

Balance sheet

                             31 August 28 February 31 August
                                  2007        2007      2006
                                 £'000       £'000     £'000
Fixed assets                                                
Investments                     37,746      42,659    40,286
Current assets                                              
Debtors                            284         989       709
Cash at bank                     1,319       5,014    10,400
                                 1,603       6,003    11,109
Creditors: amounts               (219)       (334)   (1,827)
falling due within one                                      
Other creditors                                             
Net current assets               1,384       5,669     9,282
Net assets                      39,130      48,328    49,568
Capital and reserves                                        
Called-up equity share           5,716       5,805     5,928
Capital redemption                 568         465       335
Share premium account              150          51         -
Special reserve                 37,478      38,820    41,239
Fair value reserve             (6,517)     (1,102)   (2,079)
Profit and loss                  1,735       4,289     4,145
Total equity                    39,130      48,328    49,568
shareholders' funds                                         
Net asset value per              34.2p       41.6p     41.8p

Summarised cash flow statement

                              6 months        Year  6 months
                                 ended                 ended
                             31 August             31 August
                                       28 February      2006
                                  2007        2007          
                                 £'000       £'000          
Net cash inflow/(outflow)          243       (828)     (317)    
from operating activities                                   
Net capital expenditure and       (29)     (3,861)   (1,513)  
financial investment                                        
Dividends paid net of          (3,186)     (4,519)   (2,915)  
amounts reinvested under                                    
the dividend reinvestment                                   
Buy-back of ordinary shares      (723)     (1,471)     (548)    
Decrease in cash for the       (3,695)    (10,679)   (5,293)  
Reconciliation of net cash                                  
flow to movement in net                                     
Decrease in cash for the       (3,695)    (10,679)   (5,293)  
Net funds at the start of        5,014      15,693    15,693   
the period                                                  
Net funds at the end of the      1,319       5,014    10,400   
Reconciliation of operating                                 
(loss)/profit to net cash                                   
flow from operations                                        
(Loss)/profit on ordinary      (5,289)         983     1,356

activities before taxation                                  
Net loss/(profit) on             4,936     (1,712)   (1,673)
investments at fair value                                   
through profit or loss                                      
Decrease/(increase) in             705       (137)       124
(Decrease)/increase in           (115)          19     (129)
Amortisation of fixed                6          19         5
interest investments                                        
Net cash inflow/(outflow)          243       (828)     (317)    
from operating activities                                   

Reconciliation of movement in shareholders' funds

               Share c    Capital    Share Special    Fair   Profit   Total
                apital redemption  premium reserve   value and loss        
                          reserve  account         reserve  account        
                 £'000      £'000    £'000   £'000   £'000    £'000   £'000
At 1 March   5,805     465        51       38,820  (1,102) 4,289    48,328 
Shares       14        -          99       -       -       -        113    
issued under                                                               
the Dividend                                                               
Shares       (103)     103        -        (723)   -       -        (723)  
bought back                                                                
Realisation  -         -          -        -       (20)    20       -      
of prior                                                                   
years' net                                                                 
profits on                                                                 
Transfer     -         -          -        (619)   -       619      -      
from special                                                               
reserve to                                                                 
profit and                                                                 
loss account                                                               
Transfer of  -         -          -        -       (5,395) 5,395    -      
loss on                                                                    
to fair                                                                    
Loss on      -         -          -        -       -       (5,289)  (5,289)
Dividend     -         -          -        -       -       (3,299)  (3,299)
At 31 August 5,716     568        150      37,478  (6,517) 1,735    39,130 


1. The financial information contained in this report has been prepared on the
basis of the accounting policies set out in the Annual Report for the year
ended 28 February 2007.

2. A second interim dividend in respect of the prior year of 2.8p per share
totalling £3,299,000 was paid on 21 March 2007.

3. The number of ordinary shares in issue as at 31 August 2007 was 114,312,656
(31 August 2006: 118,559,937).

4. The calculation of earnings per share for the period is based on the loss
after tax of £5,289,000 (2006: profit of £1,356,000) divided by the weighted
average number of shares in issue during the period being 115,321,504 (2006:
119,086,216) ordinary shares of 5p each.

5. Quester Services Limited (a fellow subsidiary of the Manager) received
transaction fees and directors' fees from investee companies totalling £27,000
during the period to 11 May 2007. Andrew Holmes was a director of Quester
Services Limited until 11 May 2007.

6. The Finance Acts 2006 and 2007 set out new regulations relating to the
investment of new capital raised, which extend to dividend reinvestment
schemes. The regulations levy an undue administrative burden on the operation
of such schemes and the Board has resolved to discontinue the Scheme, which
will not operate in respect of the interim dividend.

7. The half yearly financial report has been neither audited nor reviewed by
the Company's auditors and does not constitute statutory accounts within the
meaning of Section 240 of the Companies Act 1985. The statutory accounts for
the period ended 28 February 2007 have been delivered to the Registrar of
Companies and received an audit report which was unqualified, did not include a
reference to any matters to which the auditors drew attention by way of
emphasis without qualifying the report and did not contain any statements under
S237 (2) and (3) of the Companies Act 1985.

8. Interim management statements relating to the first and third quarters of
the financial year will be released via the Regulatory News Service on or
shortly before 20 July and 17 January each year.

9. Copies of the half yearly financial report are expected to be sent to
shareholders on 26 October 2007. Further copies can be obtained from the
Company's registered office.

A copy of the above document is to be submitted to the UK Listing Authority,
and will shortly be available for inspection at the UK Listing Authority's

Document Viewing Facility, which is situated at:

Financial Services Authority

25 The North Colonnade

Canary Wharf

London E14 5HS


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