QUT Quester Vct 4

Final Results QUESTER VCT 4 PLC ("the Company") Summary of results for the year ended 31 October 2004 Per Ordinary Share 2004 2003 2002 (pence) Capital Values Net asset value 67.7 77.2 81.8 Share price 62.0 82.5 82.5 Return and Dividends Dividend - - 1.2 Cumulative dividend 2.9 2.9 2.9 Total Return* 70.6 80.1 84.7 Interim dividend for 1.0 the year ending 31 October 2005 *Net asset value plus cumulative dividend Shareholder information Annual General Meeting 11.30 a.m. on 22 February 2005 Dividend for 2004/2005 1p Payment date 1 April 2005 Ex dividend date 2 March 2005 Record date 4 March 2005 CHAIRMAN'S STATEMENT Introduction During the year, Quester's position in the market continued to attract a strong flow of investment opportunities. The initial investment phase of the Company is now essentially complete. The overall funding environment for small companies is now better than for some time. During the year it was encouraging that a number of key companies in the portfolio were able to close follow on funding rounds on satisfactory terms, or are planning to do so shortly. Looking ahead to possible opportunities for successful sales of new and developing businesses, it has been encouraging to see a higher level of merger and acquisition (M&A) activity by larger companies and stock market conditions more conducive to the achievement of successful flotations, particularly for smaller companies on the Alternative Investment Market (AIM). Investments completed In the current economic environment, with an expectation of relatively low overall growth and low inflation, it has been the Board's view that a strategy of investing in high-growth sectors within the economy offers the best opportunity for the achievement of superior investment returns. Accordingly, the portfolio of Quester VCT 4, now covering 35 companies including 29 unquoted companies and six companies whose shares are traded on AIM or NASDAQ, includes a strong weighting in the ICT and healthcare and life sciences sectors. The portfolio is well diversified and includes companies operating in a wide range of markets with high growth potential. Other than in relation to its early investments and AIM companies, Quester VCT 4 has generally coinvested alongside Quester's fund for institutional investors, the Quester Venture Partnership, and other Quester funds. These co-investment 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 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 showing any significant uplift, reflecting initial costs and management fees and the writing down in value of troubled or failed investments which may occur in the first few years of the life of a fund. At the end of this fourth year, the portfolio still contains a relatively high proportion of early stage businesses. In a number of the technology-based sectors in which Quester VCT 4 has holdings, markets have not developed as rapidly as had been anticipated. Some of the portfolio companies have suffered as a result, with business performance falling behind plan. Provisions totalling �5.1 million have been made in respect of 11 unquoted investments. Other portfolio companies have achieved good progress and show the potential to fulfil expectations. The Board is confident that, across the portfolio as a whole, progress is satisfactory at this stage in Quester VCT 4's development and that there are prospects for substantial upside potential. Trade sales and flotations It is encouraging to be able to report that successful trade sales or flotations of four venture capital investments were achieved during the year. These included two realisations for cash, which have together produced realised gains in the year ended 31 October 2004 of �1,443,000. The other two transactions have resulted in the Company holding quoted stock in the acquirer and/or an entitlement to future earn-out consideration. At this stage the sale of CDC Solutions Limited has been accounted for on a no profit/ no loss basis, while the sale of On Demand Distribution Limited to Loudeye Corporation ("Loudeye") has produced only a modest unrealised gain. Both transactions offer significant potential for future uplift in valuation, through share price performance (in the case of Loudeye) and under the earn-out entitlements. Net assets, revenue and dividends During the year, there was a 12.3% reduction in the net asset value per share of the Company, from 77.2p at 31 October 2003 to 67.7p at 31 October 2004. The movement in net assets is summarised as follows: �'000 Pence per share Net asset value at 31 October 2003 40,739 77.2 Income 267 0.5 Investment management fee and other expenses (1,330) (2.5) Realised net gains on disposal of investments 1,606 3.1 Write-off of investments (1,052) (2.0) Net unrealised losses on revaluation of investments (4,500) (8.6) Share buy-backs (serving to enhance NAV by 0.04p per (490) - share) Net asset value at 31 October 2004 35,240 67.7 The statement of total return for the year ended 31 October 2004 shows a loss of �5,009,000, equivalent to 9.5p per share. This comprises a loss of �577,000 on revenue account, with the balance being attributable to capital account. Against this background, the Directors are not recommending a final dividend for the year ended 31 October 2004. However, it is intended that the Company should shortly revoke its investment company status, to enable a dividend to be paid in respect of the realised gains achieved on venture capital investments during the year. This will be paid as an interim dividend in respect of the year ending 31 October 2005 of 1.0p per share, payable on 1 April 2005. Change of corporate broker and market makers In July 2004 the Company appointed Noble & Company Limited as its corporate broker, replacing Evolution Beeson Gregory Limited. Following this change, Winterflood Securities Limited became market makers in the Company's shares. Outlook The investments completed by the Company are, in most cases, still at an early stage and will take time to mature. The Board considers that the portfolio of investments that has now been constructed, covering a diverse range of companies operating in high-growth sectors, is capable of delivering attractive returns to shareholders in the longer term. Robert Wright Chairman 21 January 2005 INVESTMENT MANAGER'S REPORT Progress with venture capital investment During the year ended 31 October 2004, 11 new investments were completed at an initial cost of �4.1 million. The new investments included six in unquoted companies: three in software, Argelcom Limited (�89,000), Celona Technologies Limited (�321,000) and Digital Union (UK) Limited (�536,000); one in communications, Amino Technologies plc (� 357,000); one in electronics, Mesophotonics Limited (�893,000); and one in consumer services, HTC Healthcare Limited (�536,000). In pursuit of the Company's strategy to invest in attractive companies raising capital on AIM, a total of �1.3 million was invested in five companies covering a range of different sectors: Allergy Therapeutics plc, Offshore Hydrocarbon Mapping plc, Polaron plc, Public Recruitment Group plc and Quadnetics Group plc. An additional �2.9 million was invested in 16 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 (�544,000), Cylacel Group plc (� 500,000), Lorantis Holdings Limited (�650,000) and Teraview Limited (�250,000). As previously reported, the portfolio that we have been building for Quester VCT 4 is an early stage venture capital portfolio, consisting largely of technology-related companies serving markets with considerable potential over the long term. 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 plan. Trade sales and flotations We are pleased to be able to report that successful trade sales or flotations of four venture capital investments were achieved during the year, including two realisations for cash and two transactions resulting in the Company holding quoted stock in the acquirer and/or an entitlement to future earnout consideration: � The biopharmaceutical company Sterix Limited was sold in February 2004 to the European pharmaceutical group Ipsen, Quester VCT 4's investment realising cash proceeds of �1,062,000 and generating a gain of �495,000 on cost of �567,000. � The holding in Amino Technologies plc, which had been acquired for �357,000 in November 2003 as an unquoted investment, was sold in tranches upon the admission of the company's shares to trading on AIM in June 2004 and subsequently, realising total proceeds of �1,305,000 and a gain of �948,000. � The digital music service provider On Demand Distribution Limited ("OD2") was acquired by the NASDAQ-quoted company Loudeye Corporation ("Loudeye") in June 2004, to create the largest business-to-business digital media provider in the world with the largest licensed digital music catalogue in the industry. For Quester VCT 4, the initial consideration received in the form of Loudeye shares - based on the last traded price of these shares on NASDAQ, appropriately discounted - and the accounting value of the deferred consideration receivable together amount as at 31 October 2004 to �694,000, producing an unrealised gain at this stage of �126,000. The ultimate return to Quester VCT 4 will depend upon movements in Loudeye's share price, foreign exchange movements and the future performance of the business itself (under an earn-out entitlement). � The software company CDC Solutions Limited ("CDC") was sold in December 2003 to Information Holdings Inc., a US-based information services group (since acquired by The Thomson Corporation) which is the parent company of Liquent, Inc. ("Liquent"), hitherto CDC's major competitor. The CDC board and Quester considered that CDC shareholders would ultimately benefit from a merger of the two companies and their improved prospects for growth as a combined business. Quester VCT 4's investment was sold for cash and cash equivalents repaying a substantial part of the original �1.0 million cost of this investment. Depending upon the future performance of the combined business over the coming two years, a good uplift on cost may ultimately be achieved, under an earn-out entitlement. At 31 October 2004, this transaction has been reflected in the accounts on a no profit/no loss basis. In addition, in July 2004 the Company sold its holding in Offshore Hydrocarbon Mapping plc, which had been acquired for �175,000 in March 2004, realising a gain of �53,000. A well 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 October 2004 is provided in the table below: Industry sector Existing venture Valuation Number of capital investments portfolio at valuation % �'000 Healthcare & life sciences 33.8 6,368 9 Software 23.0 4,330 10 Industrial products & services 12.1 2,270 4 Communications 11.6 2,184 4 Internet 7.2 1,350 2 Electronics 6.0 1,125 3 Semiconductors 3.5 652 2 Consumer goods & services 2.8 536 1 100.0 18,815 35 Reserves for follow-on investment The young companies in which Quester VCT 4 has invested will require further rounds of finance as they grow. It is important that Quester VCT 4 holds reserves to cover this funding process, provided the companies concerned continue to make satisfactory progress. This is particularly important for a portfolio of this type, and is one of the reasons why we consider that a venture capital portfolio of about 35 investments is appropriate for the Company. 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, �5.6 million was held in non-interest bearing cash accounts at the year end (this balance is expected to be significantly reduced by the end of the current year). 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 price on 31 October 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 expectations for the year to 31 March 2005 would be lower than anticipated. The share price fell following that announcement and stood at 33p as at 31 October 2004. For Quester VCT 4, the effect was a reduction of �1,066,000 over the year in carrying value of this investment (the valuation at 31 October 2004 being �883,000 against cost of �1,130,000). Other AIM investments showed a net appreciation in value of �201,000. As regards the unquoted investments, in a number of the technology-based sectors in which Quester VCT 4 has holdings, markets have not developed as rapidly as had been anticipated. Some of the companies in the Quester VCT 4 portfolio have suffered as a result, with business performance falling behind plan. Provisions have been made against cost of the investments concerned: these total �5.1 million in respect of 11 unquoted investments, including Advanced Valve Technologies Limited (�74,000), Anadigm Limited (�1,055,000), Anthropics Technology Limited (�250,000), Arithmatica Limited (�1,057,000), First Index Limited (�1,030,000), Mesophotonics Limited (�223,000), Nexagent Limited (�311,000), Nomad Software Limited (�450,000), Printable Field Emitters Limited (�22,000) and Reqio Limited (�580,000). The investments in First Index Group Limited and Printable Field Emitters Limited have now been treated as write-offs. Teraview Limited closed a new funding round at a higher price, resulting in a valuation uplift of �108,000. The carrying value of the investment in Sift Group plc has been reduced by �219,000 to reflect current valuation conditions in the venture capital market. Overall, write-offs resulting from business failures totalled �1.0 million, while the net reduction in carrying value of the ongoing portfolio of unquoted venture capital investments amounted to �4.1 million. As at 31 October 2004, the Company held entitlements to additional earn-out consideration following two of the trade sales (CDC and OD2), which may in due course add to the overall portfolio valuation. Listed equity and bond portfolios At 31 October 2004 the Company retained bonds to a value of �876,000. In addition, at 31 October 2004 the Company held a portfolio of listed equities valued at �6.1 million (showing an unrealised capital profit of �312,000). Conclusion As at the date of this report, the initial investment phase of the Company is essentially complete with a portfolio of 35 venture capital investments. The total number of venture capital investments will be kept under review and further investments will be made if appropriate. While a number of the companies in which Quester VCT 4 has invested have not met their objectives during the period, it is pleasing to see a significant evolution of the portfolio with a number of trade sales and flotations having been achieved which will lead in due course to full realisation of these investments. Other portfolio companies continue to show the potential to fulfil expectations. Overall, we are confident that the portfolio has substantial upside potential. Quester Capital Management Limited Manager 21 January 2005 FUND SUMMARY AS AT 31 OCTOBER 2004 Quoted venture Industry sector Original Valuation Equity % % of fund capital Investments cost held by value �'000 �'000 AIT Group plc Software 1,130 883 5.8% 2.5% Allergy Therapeutics Healthcare and life 500 510 1.1% 1.4% plc sciences Loudeye Corp. Internet 568 694 0.8% 2.0% Polaron plc Industrial products 250 308 1.2% 0.9% and services Public Recruitment Industrial products 250 233 0.8% 0.6% Group plc and services Quadnetics Group plc Electronics 143 167 0.5% 0.5% Total quoted venture capital investments 2,841 2,795 7.9% Unquoted venture capital Advanced Valve Industrial products 1,062 729 26.4% 2.1% Technologies Limited and services Anadigm Limited Semiconductors 1,278 223 2.8% 0.6% Antenova Limited Communications 999 750 6.8% 2.1% Anthropics Technology Communications 1,070 70 7.0% 0.2% Limited Argelcom Limited Software 89 89 6.2% 0.3% Arithmatica Limited Semiconductors 1,486 429 13.7% 1.2% Avidex Limited Healthcare & life 801 801 2.8% 2.3% sciences Azea Networks, Inc Communications 1,332 1,332 6.8% 3.8% BlazePhotonics Communications 514 32 2.9% 0.1% Limited Celona Technologies Software 321 321 9.0% 0.9% Limited Celoxica Holdings Software 1,148 648 2.8% 1.9% Limited Cyclacel Group plc Healthcare & life 1,000 1,000 1.4% 2.9% sciences De Novo Healthcare & life 750 187 2.8% 0.5% Pharmaceuticals sciences Limited Digital Union UK Software 536 536 13.4% 1.5% Limited Elateral Holdings Software 1,155 155 15.5% 0.5% Limited Footfall Limited Industrial products 1,000 1,000 7.7% 2.8% and services HTC Healthcare Group Consumer goods and 536 536 8.7% 1.5% plc services Lorantis Holdings Healthcare & life 1,400 1,025 2.5% 2.9% Limited sciences Mesophotonics Limited Electronics 893 670 6.0% 1.9% Nexagent Limited Software 467 117 1.2% 0.3% Nomad Software Software 1,087 537 6.5% 1.5% Limited Opsys Limited Electronics 1,038 288 2.9% 0.8% Oxford Immunotec Healthcare & life 625 625 9.6% 1.8% Limited sciences Oxxon Therapeutics Healthcare & life 987 987 3.5% 2.8% Holdings, Inc. sciences Reqio Limited Software 624 44 12.2% 0.1% Sift Group Limited Internet 875 656 4.5% 1.9% Teraview Limited Healthcare & life 625 733 4.9% 2.1% sciences Workshare Limited Software 1,000 1,000 6.6% 2.8% Xention Discovery Healthcare & life 500 500 5.8% 1.4% Limited sciences Total unquoted venture capital 25,198 16,020 45.5% investments Total venture capital 28,039 18,815 53.4% investments Listed fixed interest 852 876 2.5% investments Listed equity investments 5,811 6,123 17.4% Total investments 34,702 25,814 73.3% Cash and other net assets 9,426 9,426 26.7% Net assets 44,128 35,240 100% STATEMENT OF TOTAL RETURN (incorporating the revenue account) FOR THE YEAR ENDED 31 OCTOBER 2004 Notes 2004 2004 2004 2003 2003 2003 Revenue Capital Total Revenue Capital Total �'000 �'000 �'000 �'000 �'000 �'000 Loss on investments - (3,946) (3,946) - (2,056) (2,056) Income 2 267 - 267 1,016 - 1,016 Investment management 3 (486) (486) (972) (501) (501) (1,002) fee Other expenses 4 (358) - (358) (436) - (436) Return on ordinary (577) (4,432) (5,009) 79 (2,557) (2,478) activities before tax Tax on ordinary 6 - - - 5 (1) 4 activities Return on ordinary (577) (4,432) (5,009) 84 (2,558) (2,474) activities after tax Dividends proposed - - - - - - Transfer (from)/ to (577) (4,432) (5,009) 84 (2,558) (2,474) reserves Return per share 7 (1.1)p (8.4)p (9.5)p 0.2p (4.8)p (4.6)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 OCTOBER 2004 Note 2004 2003 �'000 �'000 Fixed assets Investments 25,814 26,687 Current assets Debtors 578 609 Cash at bank 9,185 13,809 9,763 14,418 Creditors (amounts falling due within one year) (237) (266) Net current assets 9,526 14,152 Creditors (amounts falling due in over one (100) (100) year) Net assets 35,240 40,739 Capital and reserves Called-up equity share capital 520 528 Share premium 218 218 Special reserve 41,975 49,466 Capital reserve - realised 619 (3,993) - unrealised (7,637) (5,602) Revenue reserve (455) 122 Equity shareholders' funds 35,240 40,739 Net asset value per share 15 67.7p 77.2p The financial statements were approved by the directors on 21 January 2005 and were signed on their behalf by: Robert Wright Chairman The accompanying notes are an integral part of this statement. CASHFLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2004 Notes 2004 2003 �'000 �'000 Cash outflow from operating activities (1,030) 327 Corporation tax paid - (23) Financial investment Purchase of venture capital investments (6,993) (6,496) Purchase of listed equities and fixed interest (2,557) (25,083) investments Sale/redemption of venture capital investments 3,715 108 Sale/redemption of listed equity and fixed 2,731 44,248 interest investments Total financial investment (3,104) 12,777 Equity dividends paid - (607) Financing Issue of shares in accordance with the terms of - 82 the dividend reinvestment scheme Buy back of shares (490) (67) Total financing (490) 15 (Decrease) / increase in cash for the period (4,624) 12,489 Reconciliation of net cash flow to movement in net funds (Decrease) / increase in cash for the period (4,624) 12,489 Net funds at the start of the period 13,809 1,320 Net funds at the end of the period 9,185 13,809 The accompanying notes are an integral part of this statement. NOTES TO THE FINANCIAL STATEMENTS 2 Income 2004 2003 �'000 �'000 Dividend income Listed equity shares 179 132 Interest receivable Fixed interest securities 39 735 Loans to unquoted companies - 4 Bank deposits 40 137 Sundry income 9 8 267 1,016 3 Investment management fee Quester Capital Management Limited ("QCML") provides investment management services to the Company under an agreement dated 30 October 2000. A charge of �972,000 (2003: �1,002,000) in respect of the management fee payable to QCML was accrued during the year together with irrecoverable VAT of �181,000 (2003: �185,000). The fee, which is calculated monthly and is payable in advance, was levied at a rate of 2.5% (2003: 2.5%) on the Company's net assets during the financial year ended 31 October 2004. 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 4). 4 Other expenses 2004 2003 �'000 �'000 Administrative and secretarial services 53 51 Directors' remuneration (note 5) 39 39 Auditor's remuneration - audit services 22 21 - non audit services 9 10 Insurance 11 7 Legal and professional expenses 21 27 UKLA, LSE and registrars fees 19 21 Other expenses (7) 43 Irrecoverable VAT 191 217 358 436 5 Directors' remuneration 2004 2003 �'000 �'000 Fees paid to directors 15 15 Amounts paid to third parties, excluding VAT, in 24 24 consideration of the services of directors 39 39 6 Tax on ordinary activities 2004 2004 2003 2003 Revenue Capital Revenue Capital �'000 �'000 �'000 �'000 Corporation tax payable -prior - - 5 (1) year adjustment - - 5 (1) Reconciliation of profit on ordinary activities to taxation 2004 2004 2003 2003 Revenue Capital Revenue Capital �'000 �'000 �'000 �'000 (Loss)/ profit on ordinary (577) (4,432) 79 (2,557) activities before tax Tax on profit on ordinary (173) (1,330) 24 (767) activities at standard UK corporation tax rate at 30% (2003:30%) Effects of: Loss on investments - 1,184 - 617 Loss on operating activities 173 146 (24) 150 Prior year adjustment - - 5 (1) - - 5 (1) 7 Return per share The revenue loss per share of 1.1p (2003: profit of 0.2p) is based on the aggregate of the net loss from ordinary activities after tax of �577,000 (2003: profit of �84,000) and on ordinary shares of 52,471,757 (2003: 52,791,612), being the weighted average number of shares in issue during the year. The capital loss per share of 8.4p (2003: 4.8p) is based on the net realised and unrealised capital loss for the period after tax of �4,432,000 (2003: � 2,558,000) and on ordinary shares of 52,471,757 (2003: 52,791,612), being the weighted average number of shares in issue during the year. 15 Net asset value per share The net asset value per share as at 31 October 2004 of 67.7p (2003: 77.2p) is based on net assets of �35,240,000 (2003: �40,739,000) divided by the 52,047,965 (2003: 52,781,815) 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 October 2004. The statutory accounts for the year ended 31 October 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 has been 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 October 2004 are expected to be posted to shareholders on 25 January 2004 and will be available to the public at the registered office of the Company at 29 Queen Anne's Gate, London, SW1H 9BU. END

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