QUESTER VCT 5 PLC ("the Company")
Summary of results for the 69 weeks ended 31 December 2002
Per Ordinary Share
(pence)
Capital Values
Net asset value 92.8
Share price 96.0
Return and Dividends
Dividend 0.5
Total return 93.3
*Net asset value plus
cumulative dividend
Shareholder information
Annual General Meeting 2 p.m. on 6 May 2003
Final dividend for the period ending 31 December 2002 paid 2 June 2003
Ex-dividend date 30 April 2003
Associated record date 2 May 2003
Shares subscribed for under the 2 October 2002 offers are not entitled to the
declared dividend in respect of the period ended 31 December 2002.
CHAIRMAN'S STATEMENT
Introduction
This is the first Annual Report for Quester VCT 5 plc. The accounts cover the
approximate 16 month period from incorporation on 6 September 2001 to 31
December 2002. During the period, the Company raised �18.5 million for its
activities, net of the launch expenses, and has made a promising start to the
initial phase of its investment programme on the back of a good deal flow.
Objective
Quester VCT 5 was launched with the objective of providing shareholders with an
attractive financial return, based on the development and realisation of a
diversified portfolio principally made up of venture capital investments.
Qualifying investors are expected to benefit from the favourable tax treatment
arising from the Company's Venture Capital Trust status.
Investments
The recently depressed markets have offered a good opportunity for the Company
to build its venture capital portfolio at investment values which reflect the
much tougher current market conditions, potentially improving future returns to
shareholders.
During the period, the Company invested �2.1 million, representing 11% of the
net funds raised, in seven venture capital investments at an average cost of
just over �295,000.All of these investments were made alongside other Quester
funds.
At this early stage, all investments have broadly performed in line with
expectations. The six unquoted investments have been held at cost, whilst the
seventh, a company whose shares are traded on AIM, has been valued at its
midmarket price as at 31 December 2002. An unrealised loss of �208,000 has
arisen from this revaluation.
Funds awaiting investment in unquoted companies are held in cash, equities,
gilts and other fixed interest securities quoted on recognised stock exchanges.
At the year end, the listed equity portfolio was valued at �0.5 million and the
fixed interest portfolio at �13.5 million. Cash balances totalled �2.3 million,
of which �2.1 million has been set aside for further investment in the listed
equity portfolio. The funding for the Company's new and follow-on investment
requirements over the coming months will be met by selling investments from the
fixed interest portfolio.
Net Assets, Revenue and Dividends
The net asset value per share at 31 December 2002 was 92.8p.
Total revenue for the period was �507,000, which was primarily derived from
interest on fixed interest securities and cash deposits, as well as from
dividends on listed equities. A final dividend of 0.5p per share is proposed,
which represents tax-free income for eligible shareholders.
Shareholders should note that the future payment of dividends will depend both
on the level of income received from investments and, more significantly, on
realised capital gains, so that there may be no dividend in some years.
Cancellation of the share premium account
On 14 August 2002, the Company cancelled its share premium account and created
the special reserve. The special reserve gives the Company more flexibility to
fund the buy-back of its ordinary shares as and when it is considered by the
Board to be in the best interest of shareholders.
Further offers for subscription for shares
As shareholders will already be aware, on 2 October 2002, the Company launched
further offers for subscription for shares. The objective is to offer investors
a further opportunity to subscribe for the Company's ordinary shares at 100p
per share and thus to participate in the high quality investment opportunities
available through Quester's deal flow. As at 31 December 2002, applications for
1.1 million ordinary shares had been made under the further offers. As at 14
March 2003, the total number of ordinary shares issued pursuant to these offers
was approximately 2.2 million.The offers are expected to remain open until at
least 30 April 2003. Shares subscribed for under the current offers are not
entitled to the declared dividend of 0.5p per share in respect of the period
ended 31 December 2002.
Outlook
Quester VCT 5 is in the process of creating, via a steady rate of investment, a
diversified portfolio of venture capital investments. Most of these are at an
early stage and will take time to mature. We believe, that the existing
portfolio of companies operating in growth sectors is capable of delivering
attractive future investment returns.
WW Passmore
Chairman
19 March 2003
INVESTMENT MANAGER'S REPORT
Introduction
We have made a steady and promising start in building the Company's venture
capital portfolio and have assembled a largely technology-based range of
investments operating over a spread of different markets. All unquoted
investments remain valued at cost, as would be expected at this stage.
Progress of investment
During the period our position in the market attracted a good flow of venture
capital investment opportunities. We selected seven of these companies as
having attractive growth potential and invested �2.1 million at an average cost
of �295,000. At this early stage, this average size is low. It is likely to
increase as the notional reserves we refer to below are utilised.
As these young companies grow, it is likely that they will require further
rounds of finance. It is important that Quester VCT 5 is in a position to
contribute to this funding process, provided the companies concerned have made
satisfactory progress. Accordingly, we hold notional reserves for further
investment and, if these are taken into account, the total proportion of funds
allocated to the seven venture capital investments is around 21% of net assets.
The funds required to meet these commitments and reserves have been invested in
the fixed interest securities market.
Because of the difficult market conditions, we have moved our venture capital
investment programme forward steadily but cautiously, aiming to select
companies with the highest potential from the large number of prospects we
review. We have to be mindful, however, that the Company has to achieve a
specified level of investment by the end of its third financial period in order
to retain its venture capital trust approved status. Accordingly, the rate of
investment will be closely monitored. We would expect this portfolio to enlarge
to about 20 to 25 investments by mid-2004, at which point the Company will be
fully invested after taking reserves into account.
A well balanced portfolio
The objective is to develop a portfolio which is balanced and well spread. The
investments to date have been made in companies operating in a range of
markets, some of them emerging, which have the potential to deliver high
growth. Because of Quester's position in the market, the Company has been able
to participate effectively in larger funding rounds involving other Quester
funds or third party investors. This initial process is therefore well
underway.
The venture capital portfolio will be designed to achieve capital growth and
will represent a spread of industry sectors and investment stages. It will
primarily be comprised of unquoted investments with good growth prospects and
may include further investments in companies raising money on AIM. The exit
potential and timing of each investment will be carefully considered to ensure
a good balance for
the portfolio.
Further details of the Company's venture capital investments are given in the
Fund Summary below. A summary of the sectors currently covered by the portfolio
is provided in the table below:
Industry Sector Cost Number of Existing venture
investments capital portfolio at
�'000 cost (%)
Software 733 2 36
Energy 400 1 19
Industrial products & 400 1 19
services
Healthcare & life sciences 367 1 18
Communications 163 2 8
2,063 7 100
Valuation of the venture capital portfolio
The unquoted investments have been valued in line with the accounting policies
detailed on page 25 of the Annual Report, which are based around the guidelines
issued by the British Venture Capital Association. Six of the seven investments
have been stated at cost in the accounts, reflecting their recent inclusion in
the portfolio. The seventh investment, AIT Group plc, a company whose shares
are traded on AIM, is carried at its mid-market value on 31 December 2002,
giving rise to an unrealised loss of �208,000.
Listed equity and fixed interest portfolios
Approximately �2.8 million, representing 15% of net funds raised, has been set
aside for investment in equities quoted on recognised stock exchanges. Newton
Investment Management Limited, who manage the listed equity portfolio on behalf
of the Company, have made a cautious start to the construction of this
portfolio and have elected to keep the majority of this allocation of funds in
cash. As at 31 December 2002, a total of �0.7 million had been invested in
listed equities, representing approximately 24% of the funds allocated to this
portfolio. As at the period end, the listed equity portfolio was showing an
unrealised loss of �117,000.
Funds awaiting investment in venture capital opportunities are largely invested
in short dated bonds. At the end of the period, the fixed interest portfolio
amounted to �13.5 million, with maturity dates spread between June 2003 and
December 2005, and was showing an unrealised profit of �51,000.The majority of
this portfolio will be gradually sold over the next two years to fund the
programme of venture capital investment. As a result, the Company's level of
income is likely to reduce over this period as we replace interest yielding
investments with unquoted investments selected to provide capital appreciation.
Conclusion
The investment progress made over the initial period has been satisfactory and
a promising nucleus for the portfolio has been created. We are expecting to
achieve completion of the portfolio, in terms of number of investments, by
mid-2004. We are confident that it will have the potential to generate an
attractive return for shareholders, as Quester's ability to attract an
excellent quality of investment
opportunities in this area of the venture capital market is strong and well
recognised. We cannot yet report that the underlying performance and progress
of the seven investments made to date firmly justifies our optimism, as it will
take several years for the individual companies to demonstrate their potential
and achieve the anticipated growth on which capital gains will ultimately be
based.
Quester Capital Management Limited
19 March 2003
FUND SUMMARY AS AT 31 DECEMBER 2002
Venture capital investments Industry sector Cost Valuation % of
fund
�'000 �'000
by value
Bowman Power Limited Energy 400 400 2.2%
Footfall Limited Industrial products 400 400 2.2%
& services
Workshare Limited Software 400 400 2.2%
Avidex Limited Healthcare & life 367 367 2.0%
sciences
AIT Group plc Software 334 126 0.7%
Azea Networks Limited Communications 88 88 0.5%
Antenova Limited Communications 75 75 0.4%
Total venture capital 2,064 1,856 10.2%
investments
Listed fixed interest investments 13,452 13,503 74.0%
Listed equity investments 665 548 3.0%
Total investments 16,181 15,907 87.2%
Cash and other net current assets 2,340 2,340 12.8%
Net assets 18,521 18,247 100.0%
STATEMENT OF TOTAL RETURN (INCORPORATING THE REVENUE ACCOUNT)
FOR THE 69 WEEKS ENDED 31 DECEMBER 2002
Notes Revenue Capital Total
�'000 �'000 �'000
Loss on investments - (135) (135)
Income 1 507 - 507
Investment management 2 (95) (95) (190)
fee
Other expenses 3 (290) - (290)
Return on ordinary 122 (230) (108)
activities before tax
Tax on ordinary 4 (23) 19 (4)
activities
Return on ordinary 99 (211) (112)
activities after tax
Dividends proposed 5 (93) - (93)
Transfer to/(from) 6 (211) (205)
reserves
Return per share 6 0.7p (1.4)p (0.7)p
The accounts cover the 69 week period from the incorporation of the Company on
6 September 2001 to 31 December 2002.
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 2002
Note �'000
Fixed assets
Investments 15,907
Current assets
Debtors 348
Cash at bank 2,346
2,694
Creditors (amounts falling due within one year) (308)
Net current assets 2,386
Creditors (amounts falling due after more than one (46)
year)
Net assets 18,247
Capital and reserves
Called-up equity share capital 197
Share premium account 842
Special reserve 17,413
Capital reserve - realised 63
Capital reserve - unrealised (274)
Revenue reserve 6
Equity shareholders' funds 18,247
Net asset value per share 7 92.8p
Andrew Holmes
Director
The accompanying notes are an integral part of this statement.
CASHFLOW STATEMENT
FOR THE 69 WEEKS ENDED 31 DECEMBER 2002
2002
�'000
Cash inflow from operating activities 126
Financial investment
Purchase of listed equities and fixed interest (40,300)
securities
Purchase of venture capital investments (2,064)
Sale/redemption of investments 26,086
Total financial investment (16,278)
Financing
Issue of ordinary shares 19,696
Share issue expenses (1,207)
Issue of loan stock 46
Buy-back of ordinary shares (37)
Total financing 18,498
Increase in cash for the period 2,346
Reconciliation of net cash flow to movement
in net funds
Increase in cash for the period 2,346
Net funds at the start of the period -
Net funds at the end of the period 2,346
The accompanying notes are an integral part of this statement.
1 Income 2002
�'000
Dividend income
Listed equity shares 8
Interest receivable
Listed fixed interest securities 327
Bank deposits 172
507
2 Investment Management Fee
2002 2002 2002
Revenue Capital Total
�'000 �'000 �'000
Investment management fee 95 95 190
Irrecoverable VAT 15 - 15
110 95 205
Quester Capital Management Limited ("QCML") provides investment management
services to the Company under an agreement dated 3 December 2001.
QCML is a wholly owned subsidiary of Querist Limited, a company in which APG
Holmes and JA Spooner are beneficial shareholders. APG Holmes and JA Spooner
are executive directors of QCML.
A charge of �190,000 in respect of the management fee payable to QCML was paid
during the year. The fee, which is calculated quarterly and is payable in
advance, was levied at a rate of 1.5% (plus VAT, if any) of the net assets of
the Company during the first financial period. From 1 January 2002, the fee
increased to 2% of the net assets and for the third and subsequent financial
years, the fee will be levied at a rate of 2.5% of net assets.
The management fee payable by the Company 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 �50,000 per annum (linked to the movement in the
RPI), which is included in other expenses (note 3).
Pursuant to the arrangements described in the prospectus dated 4 December 2001,
an amount of �3,000 (excluding VAT) was paid to QCML representing the
difference between 5% of the gross proceeds of the original offers and the
actual launch costs of the Company. Under these arrangements, if the actual
launch costs had exceeded 5% of the gross proceeds of the original offers, the
excess would have been borne by QCML.
Costs associated with the subsequent offers detailed in the prospectus dated 2
October 2002 are borne in full by the Company. Costs of the current offers are
likely to exceed 5% of the gross proceeds of the 2 October 2002 offers.
3 Other expenses
2002
�'000
Administrative and secretarial services 51
Directors' remuneration 46
Auditor's remuneration - audit services 18
- non audit services 10
Legal and professional expenses 45
Other expenses 69
Irrecoverable VAT 51
290
Fees amounting to �30,000 paid to the auditors in relation to share issues have
been charged to the share premium account and are not included in the
disclosure above.
4 Tax on ordinary activities 2002 2002 2002
Revenue Capital Total
�'000 �'000 �'000
Corporation tax payable/ (credit) at 23 (19) 4
19.4%
5 Dividend proposed
A dividend of 0.5p per share is proposed and, if approved by shareholders at
the forthcoming Annual General Meeting, will be paid on 2 June 2003. Shares
subscribed for under the 2 October 2002 offers (totalling 1,135,524 shares at
31 December 2002) are not entitled to the declared dividend in respect of the
period ended 31 December 2002.
6 Return per share
The revenue return per share of 0.7p is based on the aggregate of the net
revenue from ordinary activities after tax of �99,000 and on 14,645,210
ordinary shares, being the weighted average number of shares in issue during
the period from the first allotment date under the Offers for subscription.
The negative capital return per share of 1.4p is based on the net realised and
unrealised capital losses for the period after tax of �211,000 and on
14,645,210 ordinary shares, being the weighted average number of shares in
issue during the period from the first allotment date under the Offers for
subscription.
7 Net asset value per share
The net asset value per share as at 31 December 2002 of 92.8p is based on net
assets
of �18,247,000 divided by the 19,655,218 ordinary shares in issue at that date.
Copies of the full financial statements for the 69 weeks ended 31 December 2002
are expected to be posted to shareholders on 20 March 2003 and will be
available to the public at the registered office of the Company at 29 Queen
Anne's Gate, London, SW1H 9BU.
END