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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
---|---|---|---|---|---|
Quester Vct 4 | LSE:QUT | London | Ordinary Share | GB0002098969 | ORD 1P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 18.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
---|---|---|---|---|---|
0 | 0 | N/A | 0 |
QUESTER VCT 4 PLC PRELIMINARY ANNOUNCEMENT OF RESULTS FOR THE 14 MONTHS ENDED 31 DECEMBER 2007 Financial highlights Per ordinary share (pence) 31.12.07 31.10.06 31.10.05 Net asset value 46.5 65.8 61.1 Dividends Dividend paid 1.0 1.0 1.0 Cumulative dividend 5.9 4.9 3.9 Total return* 52.4 70.7 65.0 *Net asset value plus cumulative dividend The Board recommends a final dividend of 1.0p per share, for approval at the AGM. This recommended dividend would bring the cumulative dividends to 6.9p per share. Payment date: 27 June 2008 Ex-dividend date: 28 May 2008 Associated record date: 30 May 2008 CHAIRMAN'S STATEMENT Overview In May 2007 we announced that the Quester management company had been acquired by NewMedia SPARK plc (since renamed SPARK Ventures plc). SPARK Ventures plc is a venture capital investment company traded on the Alternative Investment Market (AIM) of the London Stock Exchange. It specialises in digital media, software applications, technology and communications, complementing the established activities of the former Quester group in these areas and its strong healthcare business. The Board believes that the acquisition by SPARK Ventures plc will provide greater access to some of the UK's best early stage entrepreneurs as well as broadening the range of investment opportunities available to the Company. It believes that the newly combined management group has the potential to deliver enhanced long-term returns to investors in Quester VCT 4 plc. The Board was involved in meetings with a number of possible acquirers of the Quester management company and held further meetings with SPARK to discuss its plans for the future management of Quester VCT 4. The Board sees the acquisition by SPARK as a very positive development, and one that was much needed, particularly in view of the negative performance of the fund to date (a net asset value of 46.5p per share at 31 December 2007, cumulative dividends of no more than 5.9p per share having been paid since launch, and an IRR for investors of -9.1% per annum). The two management teams have now been successfully integrated. Several investments have seen a transition to new managers within SPARK, while longstanding and valuable relationships with former Quester managers have been retained, particularly where they have been able to contribute to an exit process. The name of the Manager of Quester VCT 4 plc has been changed to SPARK Venture Management Limited ("SPARK"). The accounting date of the Company has been changed to 31 December, to simplify the administration of the three Quester VCTs under SPARK's management, which now all report on the same date. This report therefore covers the 14 month period from 31 October 2006 to 31 December 2007. Shareholders' approval is being sought at the Annual General Meeting to a change in the name of the Company to SPARK VCT 2 plc. Since taking over management responsibility, the combined team has been very active in reviewing both the portfolio and the investment strategy. In particular, I would like to highlight the following actions taken by SPARK which have had the full support of the Board. The combined team has conducted a detailed review of the portfolio, including reassessment of the business strategy, progress to date, opportunities and potential for value of each of the investee companies. The companies have been classified into those that are key to producing a good return for the whole portfolio; companies with potential for growth; and companies where the plan is simply for cash recovery of the existing valuation. The review resulted in the write-off of a number of investments and a net reduction in valuation of others, contributing to a significant reduction in the net asset value per share at 31 December 2007. Since 31 December 2007, a successful exit from the investment in Nomad Payments Limited and a trade sale of Identum Limited have been achieved, generating proceeds totalling £3.8 million which is available for reinvestment. The SPARK team now plans to refocus Quester VCT 4's investment strategy mainly onto later stage companies which are already revenue generating and with the likelihood of shorter holding periods prior to realisation. The SPARK team's review of the existing portfolio has confirmed encouraging prospects for a number of the most significant venture capital investments. While the majority of these companies are still at early stage and subject to all the associated risks, a number of them are considered to offer the potential for significant capital growth. Unquoted Quoted Bond, Total Pence equities per venture venture and £'000 share capital capital net current investments investments assets £'000 £'000 £'000 Net asset value at 31 October 20,206 3,406 8,312 31,924 65.8 2006 Income and net gains on 90 185 468 743 1.6 disposal Operating expenses - - (1,262) (1,262) (2.7) Write-off of investments net (4,727) (334) - (5,061) (10.6) of recoveries Net (loss)/gain on revaluation (2,599) (1,229) 591 (3,237) (6.8) of investments Net assets before dividends 12,970 2,028 8,109 23,107 47.3 and share buy-backs Dividend paid net of amounts - - (455) (455) (1.0) reinvested Share buy-backs - - (907) (907) 0.2 Net investment 3,352 (28) (3,324) - - Net asset value at 31 December 16,322 2,000 3,423 21,745 46.5 2007 Net assets per share, before the payment of dividends and share buy-backs, fell by 18.5p in the 14 months to 31 December 2007. The dividend paid in the 14 month period was 1p per share. The net asset value at 31 December 2007 is stated before accounting for the recommended final dividend of 1p per share, amounting to £0.5 million. The total return to shareholders from the launch of the Company in November 2000 to 31 December 2007 was 52.4p per share before taking account of tax reliefs. The valuation review by the SPARK team has resulted in an overall reduction in valuation of the unquoted investments for the 14-month period of £7,326,000 (including £4,727,000 representing impairment in value of investments), net of a gain of £1,466,000 in respect of Nomad Payments Limited which has been valued at 31 December 2007 at its trade sale price. The 14 month period has seen, as expected, substantial follow-on investment in a number of key companies in the portfolio. A number of these companies have demonstrated successful business progress by closing new financing rounds at an uplift on the Company's original investment valuation. In other cases, the terms of new financing rounds or other transactions positive for the future of the business, such as a merger with a larger company, have been such as to necessitate a downward valuation adjustment at 31 December 2007 even though the Manager considers that there are prospects for the ultimate realisation of a substantial capital gain. Over the period the quoted venture capital portfolio lost £1,378,000, of which £334,000 represents impairment in value of investments. The portfolio of bonds and listed equity investments performed well, with an overall appreciation in value of £842,000. The trade sale of Nomad Payments Limited, which was in the final stages of negotiation at 31 December 2007 and closed in January 2008, generated proceeds of £3,020,000 (a multiple of 1.9 times cost). This investment dated from December 2001 and had been carried in the Company's accounts at cost throughout the subsequent period. The trade sale of Identum Limited, also closed in January 2008, brought in proceeds of a further £763,000. Review of investment strategy Following the integration of the SPARK and Quester teams, and the review of the portfolio discussed above, the Board reassessed the Company's investment strategy. The activities of Quester VCT 4 have been focused in the venture capital area. 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, before gains on the successful investments start to flow through. The portfolio of Quester VCT 4 has been invested in early stage companies, with a significant bias towards technology. The Board is satisfied that SPARK has longstanding skills, and a better record over recent years than Quester, in this area. The Board decided that the broad objectives will remain as before, subject to important changes in investment emphasis. Within the context of that policy, the principal changes in SPARK's investment approach from that of Quester will be as follows: - A greater focus on revenue producing companies, which may also require less capital - A shorter target holding period than Quester (under 5 years) - SPARK's traditional expertise in media technology - In healthcare, a reduced emphasis on drug discovery opportunities and a greater emphasis on areas such as medical devices and diagnostics - SPARK's experience in achieving returns from struggling companies - An overriding concentration on market opportunities that are appropriate for early stage companies, rather than backing novel technologies - A reduced emphasis on investment in AIM companies, unless they match the core risk/return and pricing criteria in SPARK's area of expertise. Board As announced on 10 March 2008, Andrew Holmes, formerly managing director and chairman of the Quester management company, announced his intention to retire from the Board at the forthcoming AGM. John Spooner, also a director of the Quester management company, resigned from the Board on that date. I would like to record the Board's warmest appreciation of the contribution that Andrew and John have made to the affairs of the Company since its establishment in 2000. Jay Patel, executive director of SPARK, was appointed to the Board on 10 March 2008. In accordance with the Articles of Association, he will stand for election at the AGM. Dividends The dividend policy of the Company is to seek to maximise the dividend payable from available distributable profits. Owing to the nature of a VCT, dividends payable can vary considerably from time to time depending on the level of income and capital gains. The successful exit from Nomad Payments Limited and the trade sale of Identum Limited, both of which closed in January 2008, have generated proceeds totalling £3.8 million and in the case of the Nomad transaction a significant capital gain. The Board recommends a final dividend of 1p per share, amounting to £467,000, for approval at the AGM. This dividend would be payable on 27 June 2008. Outlook The bulk of the value in the assets of the Company is now represented by a more concentrated venture capital portfolio including around 20 significant investments which have been assessed by the SPARK team as having positive prospects. It is emphasised that many of these investments are still at early stage and subject to all the associated risks. In a number of cases it may be appropriate for strategic reasons to seek an early realisation of the investment. More generally, however, on the assumption of successful progress of the key companies, and subject to favourable business and market conditions, it should be expected that the bulk of the profitable realisations of investments from within the existing portfolio will be concentrated in the period 2010 to 2011. The process of reinvestment in new opportunities by the Manager commenced with a £450,000 investment in Isango! Limited in March 2008 and is expected to continue during the remainder of the year. The Manager has informed the Board that it sees good deal flow in both technology and medical sciences in line with the investment policy described above. Looking ahead, the Board recognises the potential volatility in returns from an early stage technology portfolio. It believes that the modified approach adopted by SPARK to the implementation of investment policy will, in the longer term, provide better prospects for sustainable growth in net asset values and total returns. Robert Wright Chairman 30 April 2008 FUND SUMMARY AS AT 31 DECEMBER 2007 Industry sector Original Valuation Equity % of Cost (1) £'000 % held fund by value £'000 Fifteen largest venture capital investment Nomad Payments Limited TMT 1,554 3,020 11.6% 13.9% Workshare Limited TMT 1,910 2,591 7.3% 11.9% Celona Technologies TMT 2,059 1,307 8.6% 6.0% Limited Xtera Communications, TMT 2,687 1,275 8.3% 5.9% Inc. Oxford Immunotec Healthcare 1,780 1,194 6.3% 5.5% Limited Xention Limited Healthcare 1,050 1,125 5.1% 5.2% Teraview Limited Healthcare 1,064 827 5.4% 3.8% Antenova Limited TMT 1,384 779 4.7% 3.5% Identum Limited(2) TMT 763 763 6.7% 3.5% Uniservity Limited TMT 700 700 11.6% 3.2% Sift Group Limited TMT 917 698 6.2% 3.2% MediGene AG FRANKFURT Healthcare 1,142 676 0.6% 3.1% Elateral Holdings TMT 479 479 13.8% 2.2% Limited(2) Arithmatica Limited TMT 600 414 13.7% 1.9% Oxford BioMedica plc Healthcare 1,147 368 0.3% 1.7% AIM 19,236 16,216 74.5% Other venture capital investments Portrait Software plc TMT 1,130 340 2.7% 1.6% AIM Allergy Therapeutics Healthcare 700 327 1.1% 1.5% plc AIM Vivacta Limited Healthcare 228 286 1.8% 1.3% Cluster Seven Limited TMT 255 255 2.4% 1.2% Celldex Therapeutics, Healthcare 1,400 182 2.7% 0.8% Inc. Perpetuum Limited TMT 146 166 1.5% 0.8% Quadnetics Group plc TMT 143 116 0.3% 0.5% AIM Celoxica Holdings plc TMT 109 109 2.6% 0.5% (2) AIM Other investments: 652 325 1.5% valuations less than £ 100,000(2) 4,763 2,106 9.7% Total venture capital 23,999 18,322 84.2% investments Total quoted venture 4,628 2,000 9.2% capital investments Total unquoted venture 19,371 16,322 75.0% capital investments 23,999 18,322 84.2% Listed equity 2,236 3,212 14.8% investments and fixed interest securities Total investments 26,235 21,534 99.0% Cash and other net 211 211 1.0% assets Net assets 26,446 21,745 100.0% (1) Amounts shown as cost represent acquisition cost as reduced in certain cases(2) by amounts written off as representing an impairment in value (2) Cost reduced by amounts written off as representing an impairment in value BUSINESS REVIEW Management changes Following the acquisition of Quester Capital Management Limited by NewMedia SPARK plc (since renamed SPARK Ventures plc) on 11 May 2007, the investment team now responsible for the management of Quester VCT 4 plc is 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. Portfolio update and overview The combined SPARK team has conducted a detailed review of the portfolio, including reassessment of the business strategy, progress to date, opportunities and potential for value of each of the investee companies. The companies have been classified into those that are key to producing a good return for the whole portfolio; companies with potential for growth; and companies where the plan is simply for cash recovery of the existing valuation. In parallel with this review, the SPARK team has reviewed the fair values of the investments. This review, coupled with events affecting the investee companies and stock market and financing conditions generally, has resulted in the write-off of a number of investments and a net reduction in valuation of others. Further details are given under "Valuation changes" below. The bulk of the value in the assets of the Company is now represented by a more concentrated venture capital portfolio including around 20 significant investments which have been assessed by the SPARK team as having positive prospects. It is emphasised that many of these investments are still at early stage and subject to all the associated risks. The Fund summary lists the venture capital investments held by the Company at 31 December 2007 with their cost and valuation at that date. The 15 largest venture capital investments (including Nomad Payments Limited and Identum Limited which have since been sold) collectively account for 74.5% of the net assets at the balance sheet date. Portfolio developments Realisations We are pleased to report the achievement of a successful exit from Nomad Payments Limited: the trade sale to Metavante Technologies, Inc. (NYSE: MV), a leading provider of banking and payments technologies for financial services firms and businesses worldwide, closed on 10 January 2008 realising £3,020,000 (of which £2,449,000 has been received in cash and £571,000 is held in escrow for a period of 18 months or more), for a multiple of 1.9 times original cost. The trade sale of Identum Limited to Trend Micro, Inc., a global leader in antivirus and content security, which also closed in January 2008, has brought in proceeds of a further £763,000. M&A activity In March 2007 Oxxon Therapeutics was acquired by the AIM-traded healthcare company Oxford BioMedica plc in a share-for-share transaction representing the culmination of an exit strategy initiated in 2006. As a condition of the transaction, an additional £243,000 was invested in Oxxon Therapeutics: this subsequently became represented by tradable shares in the acquirer, which were immediately placed in the market. The balance of the resulting holding in Oxford BioMedica plc is currently retained in the portfolio. In relation to Azea Networks, Inc. and despite the company's success in March 2007 in securing a US$20 million Series D funding round led by TVM Capital, it was decided that certain strategic business development issues would most effectively be addressed through merger with a larger group. This was achieved in November 2007 with the acquisition of Azea by the US venture- backed company Xtera Communications, Inc. on a share-for-share basis, valuing Azea at US$34.6 million (a 14% discount on the post-money valuation at the venture capital round led by TVM Capital). This transaction provides Quester VCT 4 with an investment through which Azea's commercial opportunities are more likely to be successfully realised, as well as offering growth opportunities from a more diversified business base. The merger of Celldex Therapeutics, Inc. with the NASDAQ-listed AVANT Immunotherapeutics, Inc. was announced in October 2007 and closed in March 2008. While the terms on which the merger has taken place represent a significant reduction in valuation from that previously reported for the holding in Celldex, the transaction leaves Quester VCT 4 with a holding in a publicly-traded company with a substantial pipeline of product candidates and technology platforms, on the basis of which the SPARK team is optimistic as to the prospects for recovery of value. Follow-on financings The 14-month period to 31 December 2007 has seen, as expected, substantial follow-on investment in a number of key companies in the portfolio. The following highlights the most significant transactions: - Celona Technologies Limited: Celona is a developer of data transformation software for large enterprises, enabling them to migrate from the legacy software platforms which manage their operations to modern systems without affecting customer service. The company reached an important milestone in June 2007 with the closing of a £7.0 million Series B funding round with Caledonia Investments plc, enabling it to build out its sales and support activities and to fund further product development. - Oxford Immunotec Limited: This Oxford University spinout company is commercialising a new test for the diagnosis of tuberculosis. The closing of its Series C funding round in October 2007 raised US$40 million (including the conversion of bridge finance) and was one of the world's largest fund raisings for a diagnostics company in 2007. The round was led by two new international investors, Clarus Ventures in the US and German-based Wellington Partners. The funding will be used to support the next stage of the company's development, including building up its sales and marketing capabilities in the United States, securing approval by the US Food and Drug Administration (FDA) and launching T-SPOT®.TB in the US market, and significantly enhances its prospects. - Workshare Limited: Workshare is an information security company that delivers secure content compliance solutions ensuring safe information exchange without business disruption. In December 2006 the company closed a Series B funding round led by US venture capital firm Steelpoint Capital Partners and supported by Intel Capital alongside the Company and other Quester funds. The company has now achieved more than US$200 million in cumulative revenues, A current bookings run-rate of US$30 million annually and an installed base over 6,000 organisations. - Xention Limited: This drug discovery company is focused on ion channel targets: it has recently initiated Phase I clinical development of a treatment for atrial fibrillation. During 2007 the company achieved several key milestones and the SPARK team is encouraged by its commercial progress. The valuation of the new funding round of Workshare represented a significant uplift on the Company's original investment valuation. In the cases of Celona and Oxford Immunotec, the terms of the new financing rounds have been such as to necessitate a downward valuation adjustment at this stage even though the transactions were positive for the future of the business and the Manager considers that there are prospects for the ultimate realisation of a substantial capital gain. Other portfolio progress The business progress of the other unquoted companies included within the fifteen largest venture capital investments and held throughout the period, namely Antenova Limited, Elateral Holdings Limited, Sift Group Limited and Teraview Limited, has been generally satisfactory although in certain cases the valuations have been adjusted to reflect the SPARK team's assessment of fair value at 31 December 2007. Bridge finance has been provided to Arithmatica Limited against a plan for an early realisation of this investment. Among the Company's smaller venture capital investments, we are pleased with the business progress achieved by the specialist software company Cluster Seven Limited, early stage life sciences company Haemostatix Limited, and diagnostics business Vivacta Limited, with the latter company successfully closing a new financing round during the period at an uplift on the Company's original cost of investment. We are pleased with our first investment in the `green tech' sector, energy harvesting company Perpetuum Limited, which has achieved good early progress and has successfully closed a new financing round during the period at an uplift on the Company's original cost of investment. Write-offs We regret to report that Nexagent Limited to which follow-on funding was provided during the period has suffered an adverse development since 31 December 2007, being unable to secure a necessary tranche of further funding. A number of other investments have been written off as wholly or substantially irrecoverable, as detailed under "Valuation changes" below. Investment activity New investments During the 14-month period to 31 December 2007, the pace of new investment was constrained by cash resources. A single new investment was completed as set out in the table below: Company Sector £'000 Uniservity Limited TMT 700 7Uniservity Limited is a development stage company which is a leading provider of web-based learning platforms to the educational sector, enhancing communication and collaboration between schools, teachers, pupils and the community. Uniservity's learning platforms provide schools with a customised suite of tools to support innovative ways of teaching and learning, thereby extending the classroom to the Internet. Since the period end, following the recent realisations, the Company has closed its first investment sourced from SPARK, with £450,000 being committed to Isango! Limited, an early stage online travel website company offering users an authoritative source of travel experiences such as holiday tours, sightseeing, attractions and activities in more than 50 countries across the world. Follow-on investments The table below sets out the follow-on investments completed during the 14-month period to 31 December 2007. Company Sector £'000 Follow-on rounds: Antenova Limited TMT 129 Azea Networks, Inc. (since acquired by Xtera TMT 238 Communications, Inc.) Celona Technologies Limited TMT 411 Cluster Seven Limited TMT 97 Lectus Therapeutics Limited Healthcare 129 Nexagent Limited TMT 189 Oxford Immunotec Limited Healthcare 441 Teraview Limited Healthcare 117 Workshare Limited TMT 378 Xention Limited Healthcare 300 Other companies (8) 223 2,652 Bridge finance ahead of planned merger or realisation: Advanced Valve Technologies Limited(1) Other 14 Arithmatica Limited TMT 171 HTC Healthcare Group plc Other 107 Identum Limited TMT 357 Nomad Payments Limited TMT 152 Oxxon Therapeutics Holdings, Inc. (since acquired Healthcare 243 by Oxford BioMedica plc) 1,044 3,696 1. Loan subsequently repaid The most significant of the follow-on rounds, namely those relating to Azea Networks, Inc. (since acquired by Xtera Communications, Inc.), Celona Technologies Limited, Nexagent Limited, Oxford Immunotec Limited, Workshare Limited and Xention Limited have been covered under "Portfolio developments" above. As far as the provision of bridge finance is concerned, the subsequent realisation of the investments in Nomad Payments Limited and Identum Limited and the acquisition of Oxxon Therapeutics by the AIM-traded company Oxford BioMedica plc have been covered under "Portfolio developments". In the case of HTC Healthcare Group plc, the business plan objectives of follow-on finance provided were not achieved: additional bridge finance has been advanced in recent months based on a plan for the stabilisation of the business and designed to permit an early exit. Efforts towards a realisation of the investment in Arithmatica Limited also remain ongoing. Looking ahead - new investment opportunities The proceeds of the sale of Nomad Payments Limited and Identum Limited will be available for reinvestment in new venture capital opportunities to be selected from SPARK's deal flow. The investment policy of the Company is unchanged in substance from that set out in the prospectus dated 1 November 2000. In selecting new investments to add to the portfolio, within the context of that policy, the SPARK investment team intends to give greater emphasis to: - the identification of later-stage venture capital opportunities (i.e. in companies that are revenue-generating at date of first investment); and - investments for which the holding period (the period from date of first investment to ultimate realisation for cash) may be expected to be less than the 5+ years typically the case hitherto. Having regard to the particular experience and reputation of the SPARK investment team, the programme of new investment may be expected to include, within the TMT (technology, media and telecoms) sector, a greater emphasis on opportunities in the digital media and software applications sectors and a reduced exposure to `hardware' investments which tend to involve longer holding periods and are typically highly demanding in terms of capital requirements. In healthcare, for similar reasons, a reduced exposure to drug discovery and a greater emphasis on areas such as medical devices and diagnostics may be expected. In the selection of new venture capital investments, the emphasis is expected to be on unquoted companies; where investment in an AIM-traded company is being considered, the investment decision will be made by reference to the underlying risk and return criteria in SPARK's area of expertise rather than against a plan for the building of a quoted venture capital portfolio. Valuation changes Events during the period, and the results of the SPARK team's review, have necessitated significant changes in the valuations of the venture capital investments. In some cases the changes reflect the terms of recent transactions, or market prices in respect of the quoted investments, while in others the changes reflect the management team's own review of the companies' current stage of development and their prospects. Unquoted venture capital investments During the 14 months to 31 December 2007, in respect of unquoted investments, the review has resulted in a write-down of £7,326,000 (of which £4,727,000 has been written off as representing an impairment in value), net of gains totalling £2,125,000. The following changes have been made in respect of investments considered to have future potential: - Nomad Payments Limited increased to reflect the terms of the trade sale which was in the final stages of negotiation at 31 December 2007 (increase of £ 1,466,000). - Perpetuum Limited, Vivacta Limited and Workshare Limited increased to reflect the terms of the most recent financing rounds (increases of £20,000, £58,000 and £581,000 respectively) and Celona Technologies Limited and Oxford Immunotec Limited similarly reduced (reductions of £752,000 and £803,000 respectively). - Following the merger of Azea Networks, Inc. with Xtera Communications, Inc., the valuation has been reduced to reflect the last round price of the shares received in exchange (reduction £1,412,000); similarly the valuation of the holding in Celldex Therapeutics, Inc. has been reduced to reflect the terms of the agreed merger with AVANT Immunotherapeutics, Inc. (reduction £843,000). - Antenova Limited, Arithmatica Limited, Lectus Therapeutics Limited and Teraview Limited reduced to reflect the management team's assessment of the companies' value at this stage in their development (total reduction £914,000). The write-offs are as follows: - The valuation of the holding in Identum Limited has been reduced to reflect the terms of the trade sale completed since 31 December 2007 (write-off £ 753,000). In relation to Nexagent Limited, full provision has been made as an impairment in value to reflect the circumstances described under "Portfolio developments" above (write off in period £1,776,000). Efforts to find a trade buyer for Advanced Valve Technologies Limited within the timeframe dictated by the company's dwindling financial resources proved unsuccessful and the company has been placed into administration (write-off £1,032,000). - In respect of De Novo Pharmaceuticals Limited, HTC Healthcare Group plc, Mesophotonics Limited, Opsys Management Limited and Pelikon Limited the valuations have been reduced as an impairment in value to reflect the management team's assessment of the companies' value at this stage in their development or estimated to be recoverable in a trade sale (write-off in the period £1,490,000). - In respect of Elateral Holdings Limited an accounting adjustment has been made to reverse an earlier provision of £324,000 made as an impairment in value. Quoted venture capital investments The period ended 31 December 2007 has seen poor performance of the companies in Quester VCT 4's quoted venture capital portfolio. Market movements, and a number of individual setbacks, have resulted in an overall reduction in valuation of quoted venture capital investments of £1,378,000, of which £ 334,000 has been written off as representing an impairment in value. The most severe losses in value have been in the cases of healthcare companies Allergy Therapeutics plc (£584,000), Oxford BioMedica plc (£280,000) and Medigene AG (£ 257,000) and the accelerated computing company Celoxica Holdings plc (£ 298,000). Listed equity and bond portfolio Approximately £4.6 million was withdrawn from the equity and bond portfolio during the period to fund the investments and the operations of the Company. Outlook The SPARK team's review of the portfolio has confirmed encouraging prospects for a number of the most significant venture capital investments. It is emphasised, however, that the majority of these companies are still at an early stage and remain vulnerable, in the case of certain of the healthcare companies, to the risk of adverse results in scientific development or clinical programmes and, in the case of the TMT companies, to the normal risks of early stage commercial development when there may be a critical dependence on key customer contracts, as well as ongoing funding risk. On the assumption of successful progress of the key investments, and subject to favourable business and market conditions, it should be expected that the bulk of the profitable realisations of investments from within the existing portfolio will be concentrated in the period 2010 to 2011, although it is always possible that earlier opportunities may arise for the crystallisation of strategic value. SPARK Venture Management Limited Manager 30 April 2008 PROFIT AND LOSS ACCOUNT FOR THE FOURTEEN MONTHS ENDED 31 DECEMBER 2007 Note Fourteen Twelve months months to to 31.12.07 31.10.06 £'000 £'000 (Loss)/gain on investments at fair 1 (7,862) 3,456 value through profit or loss Income 2 307 412 Investment management fee 3 (924) (923) Other expenses 4 (332) (295) (Loss)/profit on operating activities (8,811) 2,650 Interest payable on loan notes (6) (5) (Loss)/profit on ordinary activities (8,817) 2,645 before tax Tax on (loss)/profit on ordinary 6 - - activities (Loss)/profit on ordinary activities (8,817) 2,645 after taxation Basic and fully diluted (loss)/ 8 (18.5)p 5.3p earnings per share All 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. There are no gains and losses for the period other than those passing through the profit and loss account of the Company. BALANCE SHEET AS AT 31 DECEMBER 2007 31 December 31 October 2007 2006 Note £'000 £'000 Fixed assets Investments at fair value through 21,534 30,624 profit or loss Current assets Debtors 14 148 Cash at bank 599 1,715 613 1,863 Creditors: amounts falling due within (302) (463) one year Net current assets 311 1,400 Creditors: amounts falling due in over (100) (100) one year Net assets 21,745 31,924 Capital and reserves Called-up equity share capital 467 485 Share premium account 339 309 Capital redemption reserve 67 47 Special reserve 23,157 33,730 Revaluation reserve (4,701) (4,781) Profit and loss account 2,416 2,134 Total equity shareholders' funds 21,745 31,924 Net asset value per share 9 46.5p 65.8p CASHFLOW STATEMENT FOR THE FOURTEEN MONTHS ENDED 31 DECEMBER 2007 2007 2006 £'000 £'000 Cash outflow from operating activities (982) (783) Financial investment Purchase of venture capital investments (4,396) (4,834) Purchase of listed equities and fixed interest (645) (1,476) investments Sale of venture capital investments 982 3,091 Sale/redemption of listed equity and fixed 5,287 1,410 interest investments Amounts recovered from investments previously - 42 written off Total net financial investment 1,228 (1,767) Equity dividends paid (487) (501) Financing Buy-back of ordinary shares (907) (899) Issue of shares under the terms of the 32 24 dividend reinvestment scheme Total financing (875) (875) Decrease in cash for the period (1,116) (3,926) Reconciliation of net cash flow to movement in net funds Decrease in cash for the period (1,116) (3,926) Net funds at the start of the period 1,715 5,641 Net funds at the end of the period 599 1,715 Net funds comprise cash at bank and on short term deposit. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE FOURTEEN MONTHS ENDED 31 DECEMBER 2007 Share Share Capital Special Revaluation Profit Total £ capital premium redemption reserve reserve £ and '000 £'000 account £'000 '000 loss £'000 reserve account £'000 £'000 At 1 November 2006 485 309 47 33,730 (4,781) 2,134 31,924 Shares issued 2 30 - - - - 32 under the dividend reinvestment scheme Shares purchased (20) - 20 (907) - - (907) for cancellation Realisation of - - - - 3,317 (3,317) - prior years' net losses on investments Transfer from - - - (9,666) - 9,666 - special reserve to profit and loss account Net loss on - - - - (3,237) 3,237 - revaluation of investments Loss on ordinary - - - - - (8,817) (8,817) activities after taxation Dividends paid - - - - - (487) (487) At 31 December 467 339 67 23,157 (4,701) 2,416 21,745 2007 NOTES TO THE FINANCIAL STATEMENTS 1. (Loss)/profit on investments at fair value through profit or loss Fourteen months Twelve to months to 31.10.06 31.12.07 £'000 £'000 Net gain on disposal 436 2,176 Write-off of investments (5,061) - Recoveries made in respect of investments - 42 previously written off Net (loss)/gain on revaluation of investments (3,237) 1,238 (7,862) 3,456 2. Income Fourteen months Twelve to 31.12.07 months to 31.10.06 £'000 £'000 Dividend income Unlisted companies 6 5 Listed companies - UK 99 168 Listed companies - foreign 40 63 Interest receivable Loans to venture capital investee 84 - companies Bank deposits 55 41 Other income 23 135 307 412 3. Investment management fee Fourteen months Twelve to 31.12.07 months to 31.10.06 £'000 £'000 Investment management fee 801 800 Irrecoverable VAT 123 123 924 923 SVML provides investment management services to the Company under an agreement dated 30 October 2000. SVML is a wholly owned subsidiary of SPARK Ventures plc, a company of which JR Patel is an executive director and a beneficial shareholder. APG Holmes and JA Spooner were executive directors of SVML until their retirement in April 2008. The management fee, which is calculated monthly and is payable quarterly in advance, is levied at a rate of 2.5% on the Company's net assets. 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. There are no provisions for compensation payable in the event of termination. SVML also provides administrative and secretarial services to the Company for which it was entitled to a fee of £67,000 for the period (year ended 31 October 2006: £56,000) adjusted annually in line with changes in the Retail Price Index. 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 SVML out of the fee above. 4. Other expenses 5. Fourteen months to 31.12.07 Twelve months to 31.10.06 £'000 £'000 Administration and secretarial services 67 56 Directors' remuneration (note 5) 57 37 Auditor's remuneration Fees payable to the Company's auditor for the 16 14 audit of the financial statements Fees payable to the Company's auditor and its 8 6 associates for other services relating to taxation Legal and professional expenses 32 40 Insurance 8 13 UKLA, LSE and registrar's fees 20 24 Transaction costs 29 14 Irrecoverable VAT 41 39 Other 54 52 332 295 5. Directors' remuneration Fourteen months to 31.12.07 Twelve months to 31.10.06 £'000 £'000 Amounts payable to Directors or companies 57 37 controlled by them 6. Tax on ordinary activities Fourteen months to 31.12.07 Twelve months to 31.10.06 £'000 £'000 Corporation tax - - Reconciliation of profit on ordinary activities to Fourteen months Twelve taxation to 31.12.07 months to 31.10.06 £'000 £'000 (Loss)/profit on ordinary activities before tax (8,817) 2,645 Tax on (loss)/profit on ordinary activities at (2,645) 794 standard UK corporation tax rate of 30% (31 October 2006: 30%) Effects of: Non taxable items - UK dividends and net losses/ 2,327 (1,089) (gains) on investments Unutilised management expenses 318 295 - - 7. Dividends paid Fourteen months to 31.12.07 Twelve months to 31.10.06 £'000 £'000 Final dividend: 1p per share paid on 12 March 2007 487 - Interim dividend: 1p per share paid 1 March 2006 - 501 487 501 The Board proposes a final dividend of 1.0p per share, equivalent to £467,155, in respect of the period ended 31 December 2007 which, upon approval by shareholders at the Annual General Meeting, will be payable on 27 June 2008 and consequently has not been recognised in the accounts. 8. Earnings per share The loss per share of 18.5p (year ended 31 October 2006: earnings 5.3p) is based on the loss on ordinary activities after tax of £8,817,000 (year ended 31 October 2006: earnings £2,645,000) and on the weighted average number of ordinary shares in issue during the period of 47,714,817 (year ended 31 October 2006: 49,861,329). 9. Net asset value per share The net asset value per share as at 31 December 2007 of 46.5p (31 October 2006: 65.8p) is based on net assets of £21,745,000 (31 October 2006: £31,924,000) profit to net cash outflow divided by the 46,715,525 ordinary shares in issue at that date (31 October 2006: 48,502,665). There is no dilution effect as at 31 December 2007 (year ended 31 October 2006: nil). 10. Financial information The accounting date of the Company has been changed to 31 December, to simplify the administration of the three Quester VCTs under SPARK's management, which now all report on the same date. This statement therefore covers the 14 month period from 31 October 2006 to 31 December 2007. Shareholders' approval is being sought at the Annual General Meeting to a change in the name of the Company to SPARK VCT 2 plc. This preliminary statement was approved by the Board on 30 April 2008. The financial information set out above does not constitute the company's statutory accounts for the period ended 31 December 2007 or the year ended 31 October 2006, but is derived from and has been prepared on the same basis as those financial statements. Statutory accounts for 2006, which were prepared under UK GAAP, have been delivered to the registrar of companies and those for 2007, prepared under UK GAAP, will be delivered in due course. The auditor has reported on the 2006 and 2007 accounts and their reports were unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under section 237(2) or (3) of the Companies Act 1985. A copy of the Company's statutory accounts 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 period ended 31 December 2007 are expected to be posted to shareholders on 6 May 2008 and will be available to the public at the registered office of the Company at 133 Glasshouse Street, London, W1B 5DG. END
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