18 june 2008 quester vct plc annual general meeting
TRANSCRIPT
Quester VCT: Performance incentive scheme from merger in 2005
Objective to:
• Achieve exits from long-standing investments
• Resume dividend payments
• Manager incentivised to achieve realisations:
• Fee reduced from 2.5% to 2.0% of net asset value
• Over 4 years, fee of 2.0% (0.5% per annum) payable if cash dividends amount to at least 20% of net asset value at merger
Achievement:
• Realisation proceeds since merger total £23.6m
• Total of dividend payments since the merger (incl. 2.8p recommended final dividend) will amount to 12.2p per share or £14.3million
• Merger NAV was 43.4p per share
• Incentive scheme target is met: incentive fee payable to the manager £1.04 million
Proposed new performance incentive scheme
• New scheme will reward each year growth in NAV per share in excess of a hurdle return of 5% per annum, starting from base at the 31 December 2007
• Rewards under the scheme will be 20% of the growth in excess of the 5% hurdle
• ‘High-water’ mark will ensure that shareholders only reward incremental growth from year to year
• Escrow account will withhold payment of 1/3rd of the rewards for 24 months, to protect shareholders against subsequent decline in NAV per share
Agenda
• Tasks performed since appointment as the new manager
• Overview of the year for the fund
• Analysis of valuation movements
• Progress chart
• Company presentation – Isango!
Tasks performed since June 07
Re-shaping of the investment team:
• 4 Quester investment managers have departed after an orderly hand-over, with 2 remaining;
• 4 experienced SPARK investment managers allocated to the portfolio;
• 1 new investment manager brought across from the University funds managed by the group.
Re-allocation and re-evaluation of Portfolio Companies:
• Of the 39 companies in the portfolio, 27 have been reallocated to new managers;
• Whilst relationships with investee company CEO’s has been maintained, every investment has been re-evaluated with ‘fresh eyes’ and old assumptions challenged.
Tasks performed since June 07 (cont.)
Review Findings:
• Many good technologies
• Largely invested too early, with extended commercialization required
• Move into later stage pre-IPO or AIM stocks failed to improve returns
• Difficult decisions have been deferred too long leaving too many investments in the portfolio
We have been busy re-shaping the portfolio with exits, restructurings and new investments
• 6 companies have been closed or substantially written-off
• Other investments have either been sold (Nomad), restructured (HTC), are in the process of being sold (IDG) or de-listed (Imagesound)
• 3 new investments have been made (including Isango), after the year end.
Overview
A few key events have been achieved prior to the change in market sentiment:
• Nomad sale to Metavante Technologies
• Merger between AVANT Immunotherapeutics and Celldex Therapeutics Inc.
Private Equity and Venture markets have since become more risk adverse:
• Underperforming companies cannot raise money (Cluster Seven)
• Exit values are depressed (Antenova)
• Evidence of transactions being cancelled (Elateral)
Life Science investments looking broadly more positive:
• Quoted assets have staged a rally on the back of good news (AVANT, Medigene)
New investment is going into businesses with either revenue or lower capital requirements, or both.
Overview (cont.)
But:• Profitable exits will usually come last of all• Even the stronger companies are going to face challenges in the current climate• Across the industry, exits are taking longer
Analysis of Valuation Movements
Quester VCT plc
Total Venture Capital investments at December 2007 25,634
Less: new Cash Invested (3,764)
Current valuation of investments existing at beginning of financial year 22,985
Valuation of those investments as at February 2007 27,075
Movement (4,090)
Of which: Unquoted Venture Capital investments (1,573)
Quoted Venture Capital investments (2,517)
What has happened to Quoted Venture Capital Valuations since then?
to 31 March 08 (588)
since 31 March 08 (101)
£000’s %
add: valuation of disposals included in the opening balance 1,115
-15%
- 8%
- 40%
Analysis of Valuation Movements (cont.)
62% of the total fall in the valuation of the venture capital portfolio is derived from quoted investments where 3rd parties set the price
i.e. The manager’s judgement is not involved in the revaluation
The £1.6m fall in the value of the unquoted venture capital contains £5.6m of write-downs, partially offset by a £4m gain
• Of the gains, £3.7m are in the form of realized proceeds from the sale of Nomad
• £2.9m of the write-downs come from those investments involved in the hardware or materials sector, which are more capital intensive and suffer more competition from emerging markets
Progress update since June 2007
Exits / liquidity
Emerging success
Good progress
Still early stage
ConcernsFailures
Arithmatica
Artisan
Comm Internet
HTC Healthcare
Int’l Diagnostics
Haemostatix
Secerno
Teraview
Vivacta
We7
Antenova
Sift
Uniservity
Avidex (Medigene)
Advanced Valve
Anthropics
Keronite
Pelikon
Celldex
Cluster Seven
Lectus
Level Four
Advanced Valve
Anthropics
Keronite
Pelikon
Perpetuum
Nomad
Elateral
Nomad
Workshare Workshare
Celldex/AVANT
Perpetuum
Elateral
Oxford Immunotec Oxford ImmunotecCluster Seven
Lectus
Level Four
Vivacta
Medical diagnostics; point-of-care tests
• Good technical progress
• Thyroid function to be first product
• Market prototypes expected Sept 2008
• Discussions with potential licensees
• Funded to Q4 09
Biological drug treatments for cancer and auto-immune diseases
Solid progress in recent months:
• Good news from clinical trial of its pancreatic cancer treatment
• Market rumours of a bid from Pfizer
• Reflected in price rise to ~ €6 level
We have sold one third of our holding at this price
Upside remains, including positive news anticipated from the original Avidex technologies
Further price rise in recent days
(ex-Avidex)
Ion channel drug discovery and development
• Serious problems encountered with both lead programmes
• Licensing deal with pharma Partner delayed by partner’s internal reorganisation
• Bridge financing of up to £2.2m sought to finance company to trade sale in 18 months
• Declined to participate
Proposed plan has unrealistic targets
Poor management, ineffectual chairman
Not listening to corporate investors
• Decisive action taken to minimise losses
Developing artificial platelets to treat clotting defects
• Making good technical progress
• Closed internal round of £0.9m at modest uplift in price in April.
• New CEO Ben Nichols in post and bringing BDM skills to bear
• Chairman Robert Burns (ex-CEO of Celldex) appointed.
• Still early stage, but building out phase under way