QUV 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. END DATASOURCE: QUESTER VCT 5 PLC

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