QUEST FOR GROWTH NV Quest for Growth 2002-2003 2 CONTENTS 5 Profile,Aim, Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Key facts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Investment Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Investment Manager’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Sector developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Portfolio composition: By country . . . . . . . . . . . . . . . . . . . . . . . . . .26 By sector . . . . . . . . . . . . . . . . . . . . . . . . . . .26 By stock market . . . . . . . . . . . . . . . . . . . . .26 Holdings at June 30th, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 Company profiles: Unquoted companies . . . . . . . . . . . . . . . . .28 Venture capital funds . . . . . . . . . . . . . . . . . .29 Quoted companies . . . . . . . . . . . . . . . . . . .30 Financial data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Profit and loss account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Profit distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 Off balance sheet positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 Post balance sheet events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 Notes to the financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Valuation rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Report of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Report of the Independent Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Report of the Statutory Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Financial calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50 Key information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 Statement by the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Quest for Growth 2002-2003 Quest for Growth 2002-2003 4 STATEMENT BY STATEMENT BY THE CHAIRMAN THE CHAIRMAN Dear shareholder, For the year as a whole the result remains negative, which is disappointing. Nevertheless in the final quarter of the year Quest for Growth was able for the first time in six quarters to show a profit and in relative terms the overall performance for the year compares well with that of similar investment funds and relevant indices. The so called IPO window remained firmly shut during the year. With no technology based companies emerging as imminent stock market candidates, the Board of Directors relaxed the investment criteria for the privately held companies in the portfolio from 18 months before a liquidity event to 36 months.This has had a positive impact on the number of potential investments and has already resulted in a new unquoted investment after the end of the accounting year. The ongoing malaise in the technology markets and the lack of new stock market introductions has led to major problems for the specialist stock markets that sprung up in Europe in the late nineties. Nouveau Marché, Neuer Markt and Nasdaq Europe (formally Easdaq) are all in the process of a formal close down. The best companies on these markets have migrated to the main exchanges, but going forward Europe faces again a challenge to develop a liquid market for its growth companies. In the middle of the year Quest for Growth received the award for the best investor communication from the Flemish Federation of Investment Clubs and Investors (the VFB) and from Morningstar/Cash Magazine for best communications outside the Bel-20. For the team at Quest Management these rewards were a great encouragement to continue the policy of voluntary quarterly reports, comprehensive website information and regular investors clubs, even in times of decline. On your behalf I would like to thank the team at Quest Management for their ongoing commitment to their task. A special thanks goes to Mr Philip Fearnhead who will step down from his role as Chief Executive of Quest Management at the time of the General Meeting of shareholders of Quest for Growth. Under Philip’s’ stewardship Quest for Growth was able to pay a record dividend in 2000 and to consistently rank among the best technology investment funds in the world in relative performance.We are pleased that he will continue to provide Quest Management with his insights in the macro-economic developments and their possible impact on the world stock markets. The cumulative losses of Quest for Growth over the past three years resulted in a situation were the management fee which is payable to Quest Management was no longer in line with market practices, equally the way the incentive for performance was structured would not allow Quest for Growth to make result related payments for many years to come. Quest for Growth has renegotiated its contract with Quest Management such that subject to regulatory and shareholders approval a substantial reduction in the management fee will result and a performance related reward can be paid in case dividends are paid to the shareholders. I am convinced that these changes will realign the interest of shareholders and management and that markets permitting we should be able to return to positive absolute results. Dr. Jos B. Peeters Chairman Quest for Growth 2002-2003 With this fifth annual report we are leaving the third year of harsh market conditions behind us. Last year I concluded by noting that history tells us that such significant downturns in the stock market as the one we were experiencing don’t reverse quickly. Sadly the first half of the year gave no comfort and only in the last months of the accounting year did we start to see a revival of the stock markets. It is too early to tell whether or not this revival is based on a lasting improvements in the fundamentals of the companies or whether it will be a short lived excursion. 5 PROFILE, AIM, POLICY PROFILE, AIM, POLICY Quest for Growth 2002-2003 6 Quest for Growth focuses on European technology-based Tax Benefits growth companies in sectors such as biotechnology, medical, The Privak benefits from important tax advantages. These benefits health care, information technology, software, electronics, new only apply as long as the investment rules are adhered to and: materials and special situations in other growth sectors. Funds under management amount to € 47 million, on June 30th 2003. - All investments are made in companies, subject to a normal tax regime; Quest for Growth has been listed on Euronext Brussels since September 23rd, 1998. - Over 80% of the realised benefits of the fiscal year are paid out as dividend. (Quest for Growth states in its bylaws that at least 90% of the realised benefits will be paid out.) The Privak, created by Royal Decree of April 18th, 1997, is an investment vehicle, specially tailored to provide a suitable Dividends: The part of the dividend resulting from capital framework for investments in private equity and in growth gains will be exempt from withholding tax. companies. The remaining part of the dividend will be subject to a withholding tax of 15%. The Privak is a closed-end fund under the regulation of the Individuals: withholding taxes are considered as Belgian Banking Commission and subject to specific investment final taxes; and dividend pay out rules: Investment rules - A minimum of 50% of the portfolio must be invested in equity; - A minimum of 70% of the portfolio (qualified investments) must be invested in: ● Unquoted companies; ● Companies quoted on a growth market1 or ● Venture Funds with an investment policy similar to the Companies: 95% of the gross dividend income resulting from capital gains can be deducted from taxable profit (Dividend Received Deduction), withholding taxes can be credited against corporate taxes. Capital gains: Individuals: exempt from taxation; Companies: subject to normal corporate taxes. Privak. However, investments in quoted companies on a growth market can never exceed 50% of the qualified investments. INVESTMENT POLICY Quest for Growth invests in growth companies with the objective of converting capital gains into tax-free income - The company is not allowed to invest over 20% of the through the Privak structure. The largest part of the portfolio in one company, nor invest over € 6,2 million in portfolio is invested in companies listed on growth markets one year, in one company. (NASDAQ Europe, EuroNM, NASDAQ, AIM) and other regulated markets. Under Privak rules this part may not exceed 65% of the assets from June 2003. The balance will be invested in unquoted companies intending to seek an introduction to a stock exchange within 36 months. Investments in start-ups or early stage companies are allowed, but will be exceptional. Up to 15% of the assets can be invested in venture or 1 Defined by the Belgian Banking Commission as NASDAQ Europe, NASDAQ, Nieuwe Markt (Belgium), Le Nouveau Marché (France), Neuer Markt (Germany), Nuovo Mercato (Italy), NMAX-New Market (The Netherlands) and Alternative Investment Market (U.K.). private equity funds having an investment policy compatible with that of Quest for Growth. CORPORATE GOVERNANCE CORPORATE GOVERNANCE 7 The Board also created an audit committee. The audit corporate law, by the Privak legislation in particular and by a set of committee is composed of four directors – amongst them, two rules, laid out in the Ethical Code that applies to the directors of independent directors – who have no operational or functional the Privak, of Quest Management NV and its personnel, the responsibilities in the company. The primary function of the depositary bank and the investment advisers. Quest Management audit committee is to assist the Board of Directors in fulfilling its NV is the investment manager for Quest for Growth NV. oversight responsibilities by reviewing: The board of Quest for Growth includes 11 directors, of which - accounting and financial reporting processes; 4 are nominated by the owners of the A-shares and 4 are nominated by the holders of the B-shares. The quality and integrity of the company’s auditing, - The financial reports and other financial information provided by the Company to the shareholders, government bodies and the public; The board of directors of Quest for Growth has appointed two independent directors to monitor the daily management - The company’s systems of internal controls regarding of the company by its managing director, Quest Management finance, accounting, legal compliance and ethics that NV. They verify, in particular, any situations where one of the management and Board have established. following persons has a direct or indirect interest in a transaction by the company: information and personnel with information pertinent to the - The depository bank or the management company, or - Persons with whom the company, the management company or the depositary bank are linked or - The audit committee has unlimited and direct access to all Board members, directors, persons who are responsible for proper performance of its duties and can dispose of all resources necessary to perform its tasks. The company is expected to maintain free and open communication with the auditors and management of the corporation. the daily management of the Privak, the management The daily management of the company has to abide to the company or the depository bank. general principle in the Privak legislation that the company has to be managed in the sole interest of the shareholders (Art. 24, The annual report must justify these transactions, especially with Royal Decree 18th April 1997). regard to the benefit the Privak could draw from the transactions and compliance with its investment policy. In addition, the company has to act according to Articles 523, 524 and 529 of the Belgian Company Code. These articles The auditor, in his general responsibility for the control of the contain a set of special rules, which apply in the case where a accounts, also has the duty to report specifically about such company represented by a board member has a commercial situations in the annual report. interest in a decision to be taken by the Board. BOARD OF DIRECTORS Dr. Jos B. Peeters, Chairman Quest Management NV, Managing Director, represented by Philip Fearnhead BVBA, Managing Director, Quest Management NV Bergendal & CO SPRL, Vice Chairman, represented by Comte Diego du Monceau de Bergendal, Tacan BVBA,Vice Chairman, represented by Mr. Johan Tack Philippe Haspeslagh BVBA, represented by Prof. Philippe Haspeslagh Joedheco NV, represented by Mr. Leo Claeys Mr. Patrick Millecam Mr. René Avonts Gengest BVBA, Independent Director, represented by Mr. Rudi Mariën Prof. Koen Debackere, Independent Director Mr. John Boeckmann Quest for Growth 2002-2003 Quest for Growth is governed by a set of rules imposed by THE OF DIRECTO THEBOARD BOARD OF DIRECTORS Bergendal & Co SPRL Quest for Growth 2002-2003 8 Vice Chairman Dr. Jos B. Peeters Chairman represented by Tacan BVBA Comte Diego du Monceau de Bergendal Vice Chairman represented by Mr. Johan Tack Jos B. Peeters is the founder and Diego du Monceau de Bergendal Johan Tack obtained a degree in managing partner of Capricorn brings with him a wealth of senior Economic Sciences and a Special Venture Partners NV. For seven management experience. After a License in Management at the years he was managing director of successful career in corporate finance University of Ghent. Since 1976 he BeneVent Management, a Belgian with Merrill Lynch and Swiss Bank has been active within various based venture capital operation International Corporation, he joined commercial associated with the Kredietbank- GIB Group where he rose to become functions with Generale Bank (now Almanij Group. Managing Director and subsequently Fortis Bank). As a member of the worked for Chief Executive Officer. Executive Committee of Fortis Previously the he international technology based consulting group Bank, he and was managerial responsible for PA Technology and for the Bell Today he is Vice Chairman of Marketing and Finance and Control Telephone Manufacturing Company, Continental Bakeries (Netherlands), (1994-1997), Asset Management now part of Alcatel. Chairman (1997-2000) the Dr. Peeters has Belgian nationality Committee of and holds a Ph.D. in Physics from the Independent Director University of Leuven. Belgium, He has also been Chairman of the Applications) of the Executive E-Capital, of an and Credit Department (1998-2000). ING (Ion Beam Mr. Tack also created in 1981 the of WE Vlaamse Investeringsvennootschap, European Venture Capital Association International, as well as being on actually Fortis Private Equity, where (EVCA) and of the working group, the boards of several non-profit he was Managing Director until which organisations. 1983 and Board Member until 1994. founded the European of IBA and Association of Securities Dealers Today, (EASD). He was a co-founder of Director on several boards such as EASDAQ and is currently a Director Samsonite Corp. and City Hotels. of NASDAQ Europe. He is he is also an Independent advising companies as a consultant. different ORS Quest Management NV Managing Director Philippe Haspeslagh BVBA repr. by Philip Director Joedheco NV Fearnhead BVBA repr. by Director Managing Director Prof. Philippe Haspeslagh represented by Mr. Leo Claeys Quest Management, the investment Philippe Haspeslagh is a Professor at Mr. Claeys is shareholder of the manager for Quest for Growth, carries INSEAD, the international business Roularta Media Group since 1972. He out school in built up the internal structure of the due recommends diligence investigations, investment with campuses and Fontainebleau and Singapore, where media group and is Vice-Chairman of divestment decisions, and monitors and he holds the Paul Desmarais Chair in the Board of Directors. produces valuations of the portfolio. Partnership and Active Ownership. He Philip Fearnhead BVBA, represented is also a Professor at the Vlerick Mr. Claeys is also active in the by Mr. Philip Fearnhead, is Managing Leuven Gent Management School. Boards of Directors of SDE software solutions,Accentis,Vincent Director of Quest Management NV. Mr. Fearnhead holds a B.Sc. degree in He previously taught as a Visiting Sheppard company and various Physics from Imperial College in Faculty member at the Harvard family partnerships. He is President London, and a M.Sc. degree from the Business School and the Stanford of the Cennini Investment Holding. University of Wales. He spent nearly Business School, and was a Chief of ten years in sales and marketing posts Cabinet for the Belgian Minister of with IBM before joining Kleinwort Agriculture and Small and Medium Benson (now Dresdner Kleinwort Enterprises. His research is in the Benson) as their computer industry areas of Mergers and Acquisitions, analyst and has worked as a consultant Corporate Strategy, Managing for to Value and Corporate Governance. international IT and Telecommunications vendors. In 1993 Philippe he Academic joined London insurer NPI Haspeslagh Director Board's is the of the (National Provident Institution) where Conference he was responsible for international Council on Corporate Strategy, as investments in both quoted and well as the Director of the ABN- unquoted companies, with a particular AMRO focus on technology investments. Managing for Value at INSEAD. He Research European Initiative in is the Chairman of Brains in Motion NV, Dujardin Foods NV, and Quest Management NV. He is a Board Venture Member of Partners Capricorn NV and Kinepolis. He is also a nonexecutive partner in Procuritas, a Scandinavian buy-out firm. Quest for Growth 2002-2003 Quest Management NV 9 Quest for Growth 2002-2003 10 Mr. Patrick Millecam Director Patrick Millecam has a degree in Economic Sciences from the University of Ghent (RUG) and a degree in informatics from the University of Brussels (VUB). In the beginning of 1993 P. Millecam joined Corluy as a financial analyst. As a portfolio manager he won a lot of recognitions and awards for Bank Corluy: the Tijd Award for the highest return in 1 year in the pension funds category in 1996 and 1997, the Tijd Award for highest return in 1 year for the Belgian stocks category in 1997, the Tijd Award for the highest return in 3 years in the pension funds category in 1997 and 1998 and the Sicav de Cristal for the highest return in 1 year for the Belgian stocks category in 1998. P. Millecam is currently responsible for the investments in Flemish stocks (VLAM21), Belgian stocks (Top Global Belgian Shares) and the pension fund (Top Global Pension) of the Bank Corluy. Mr. René Avonts Director Graduated in applied economics (Ingénieur Commercial) from the University of Leuven in 1970 and started his career in the IT-division of Paribas Belgique. He joined the International Division in 1972 and became head of that Department in 1985. He was elected member of the Executive Committee and Director in 1995 with responsibility over Capital Markets and Corporate Banking. In 1998, he became member of the Executive Committee of Artesia Bank and Bacob, in charge of Financial Markets and Investment Banking as well as chairman of Artesia Securities, the groups equity broker, which was renamed Dexia Securities after the acquisition of Artesia by Dexia in 2001. He Left the bank in March 2002 at the time of the legal merger between Dexia and Artesia. He was subsequently appointed Director and CFO of Elex nv: the reference shareholder of e.g. Melexis, Xfabs and EPIQ. He also joined Unit International, an investor in energy projects in Turkey and the Middle East, as Company Director and Chief Financial Officer. Gengest BVBA Independent Director repr. by Mr. Rudi Mariën Rudi M. Mariën, born in 1945, is co-founder of INNOGENETICS; he has been Chairman of the Board of Directors and major shareholder since the foundation of the company. Mr. Mariën is also the founder, shareholder and Representative Director of several medical laboratories. He is the President of BARC NV, an accredited international leading central clinical laboratory, specialised in pharmaceutical studies and in performing analyses within the framework of occupational medicine. He has a degree in pharmaceutical sciences at the State University of Ghent and a specialisation in clinical biology. 11 Independent director Koenraad Debackere holds M.Sc. and Ph.D. degrees in Electrical Engineering and Management. He studied at the University of Ghent and MIT, Cambridge, U.S. He is a full professor in Technology and Innovation Management at the University of Leuven. He has been a visiting professor at Nijmegen Business School and is a faculty member at the Vlerick Leuven Ghent Management School. He has been a guest lecturer at various European business schools (Manchester, Kiel, Tilburg, Insead). He is the head of the research division INCENTIM at the University of Leuven. This division has developed extensive experience in doing fundamental and applied research in the area of technology and innovation management. Koenraad Debackere has received several international awards and nominations for his research activities in the area of technology and innovation management. He obtained Best Research Paper Awards from the American Academy of Management and the Decisions Sciences Institute. He has authored over 70 articles and book chapters in this field. He has been involved in projects for the European Commission, the Belgian and Dutch government and multinationals. Koenraad Debackere is the Managing Director of K.U.Leuven Research & Development and Chairman of Gemma Frisius-Fonds K.U.Leuven nv, the Venture Fund of the University. In November 1999 he was nominated Chairman of Leuven.Inc (Leuven Innovation Networking Circle). Mr. John Boeckmann Director After training as a stockbroker, John Boeckmann joined M&G in 1967 as an Investment Manager for UK assets. Between 1971 and 1978 he was a director of two listed public companies, specialising in asset realignment, which were both successfully sold. Until he left M&G in 1997, he managed a wide range of M&G funds such as equities, bonds, for retail and charity accounts, UK mutual funds, pension funds and special accounts including US accounts. From 1985 he successfully developed M&G Continental European exposure for specialist, pension and mutual fund activities. In 1997 he joined Compagnie Monégasque de Banque as a director responsible for Compagnie Monégasque de Gestion. He remains a consultant to banks in Portugal and Switzerland. Quest for Growth 2002-2003 Prof. Koenraad Debackere Quest for Growth 2002-2003 12 KEY KEYFACTS FACTS 13 1/7/200130/6/2002 1/7/200030/6/2001 € € € € € (14,198,939) (49,311,136) (19,523,576) 56,426,078 3,126,851 (2.62) (9.10) (3.60) 20.83 1.15 Ordinary dividend: 0 0 0 37,363,457 3,106,746 Dividend to A and B shares: 0 0 0 7,053,266 0 Profit / loss carried forward: (71,004,191) (56,805,252) (7,494,116) 12,029,460 20,105 Ordinary Dividend per share (before withholding taxes): 0 0 0 13.80 1.15 Ordinary Dividend per share (after withholding taxes): 0 0 0 13.60 1.09 Net profit / loss: Net profit / loss per share: 1/7/1999- 23/9/199830/6/2000 30/06/1999 June 30th, June 30th, June 30th, June 30th, June 30th, 2003 2002 2001 2000 1999 N.A.V.: 46,223,375 60,422,315 109,733,451 123,575,750 70,256,418 N.A.V. / share: 8.53 11.16 20.26 45.63 25.94 Stock Price / share: 5.30 6.90 15.65 34.89 19.00 Warrant Price: 0.41 5,416,000 5,416,000 2,708,000 2,708,000 Number of Shares: 5,416,000 Number of Warrants: 5,416,000 VOLUME (000) STOCK PRICE 120 43 38 100 33 80 VOLUME EURO 28 23 18 60 40 13 20 8 3 99 99 99 00 01 00 00 /00 7/ 9/ 1/ 1/ 4/ 03/ 7/ 9 /0 /0 /1 /0 /0 / /0 5/0 01 03 08 12 03 15 24 2 0 01 01 01 02 02 02 01 01 02 02 02 03 03 1/ 4/ 04/ 2/ 04/ 06/ 08/ 10/ 12/ 02/ 04/ 8/ 0/ /0 /1 / / /0 /0 / / /0 / / / / 30 03 03 07 09 12 16 18 20 22 24 26 30 02 02 02 99 99 99 02 02 03 03 02 01 00 00 00 01 01 01 00 01 00 01 00 7/ 09/ 11/ 01/ 03/ 05/ 07/ 09/ 11/ 01/ 04/ 06/ 08/ 10/ 12/ 02/ 04/ 06/ 08/ 10/ 12/ 02/ 04/ /0 / / / / / / / / / / / / / / / / / / / / / / 18 01 03 08 16 20 22 24 26 30 12 12 18 11 15 24 05 07 09 25 03 28 30 Quest for Growth 2002-2003 1/7/200230/6/2003 INVESTMENT REPORTREPORT INVESTMENT Quest for Growth 2002-2003 14 Investment Manager’s Report 1 In last year’s report we said that the near term outlook for 5 Data from the OECD’s Leading Indicators suggests that an equities was difficult, and it certainly was. Between 30th June 2002 and October the CSFB Technology Index (CSET), which reflects the performance of 50 of Europe’s largest technology firms, fell over 50% and the Bloomberg 50 index of small European technology stocks (BENMAX50) fell 30%. This was followed by a strong rally and then a further sharp decline in the first quarter of 2003. economic improvement can be expected in the US during the 2 Despite several failed rallies in equity markets, bonds have showed that business conditions in Germany have remained dire enjoyed one of their best ever periods, doubling in value during the past 2 1/2 years, as investors sought certainty of returns. for the past year and are not yet showing significant signs of next 6 months, while Europe may also be seeing early signs of improving prospects. Within Europe, Germany remains the laggard, with its economy more dependent than most on manufacturing industries. 6 The IFO Institute survey of business conditions in June 2003 improvement.We are, however, encouraged that both the German and French governments have recognized the need for reform In March 2003, following the "successful" outcome to the Iraq war, equities started a new rally, which has continued through to the time of writing. This rally, initially described as a post-war relief rally, is being supported by the extraordinarily low returns now available on long term bonds, as well as high expectations for an earnings recovery. Unless one believes that price deflation is likely in the near to medium term, which we do not, government bonds have to be considered to be quite expensive. of their labour and pensions systems as this should eventually 3 Nonetheless, the aggressive monetary and fiscal loosening by 7 Although many manufactured goods are subject to strong the US Federal Reserve has driven equity valuations back to high levels based on earnings multiples, particularly in the technology sector where a P/E ratio of around 28 for the Information Technology section of the S&P 500 Index is a 50% premium to the market average, despite falling expectations for the long term rate of earnings growth (still around 14%). pricing pressure, the service sector is finding more pricing power 4 Significant profits growth is possible in the coming year, particularly among US companies which have been aggressively shedding labour to reduce costs. The result of this lower cost base is that company earnings can grow substantially on a modest improvement in revenues. It remains to be seen, however, whether the profits recovery can match investors’ expectations. free resources for the corporate and personal sector. Two main issues face the equity market in the coming year. The first is the achievement of revenue growth (which is still only a forecast). The second is that the economy recovers too quickly and bond yields rise rapidly, since that would reduce the attractiveness of equities compared to bonds. as it is harder for low cost foreign companies to compete in this area. Although many economists cite the challenge of low cost production from Asia, particularly China, it is also important to note the growing contribution from demographic changes that are occurring in Europe and the US. Aging populations consume less goods but require more services. Because of this demographic change, we do not expect to see demand driven inflation of manufactured goods in Europe or the US. This is in contrast to Asia and the Middle East, where the proportion of young people entering the workforce greatly outweighs the number of retirees, Japan being a notable exception. 15 120 Quest for Growth 2002-2003 1 Performance of Technology Indices rebased to 1/7/02 CSET BENMAX50 NASDAQ Composite 110 100 90 80 70 60 9 Semiconductor sales have recovered significantly 01/06/2003 01/05/2003 01/04/2003 01/03/2003 01/02/2003 01/01/2003 01/12/2002 01/11/2002 01/01/2002 and electronic products have also remained flat for the 01/09/2002 40 sales have been stagnant. Similarly, US sales of computer 01/08/2002 50 in Asia during the past 2 years, while European and US 01/07/2002 8 past 2 years. This highlights the difficulties faced by 2 technology companies. There is considerable momentum in equity markets as we end the financial year. However, with valuations stretched, 7 Governement Bond Yields 7 6 6 5 5 4 4 3 3 there is considerable risk in the market until earnings are economic downturn, the 50% P/E premium of technology 3 03/05/2003 03/03/2003 03/01/2003 03/11/2002 03/09/2002 03/07/2002 03/05/2002 03/03/2002 03/01/2002 03/11/2001 03/09/2001 03/07/2001 2 03/05/2001 03/03/2001 03/01/2001 03/05/2000 03/03/2000 very few new companies listing on the stock markets 03/01/2000 1 The market uncertainty of the past year has resulted in and private equity valuations have continued to decline. 10 Year US Treasury Fed Funds Target ECB Refinance Rate UK Base Rat 2 stocks to the broader market seems hard to justify. 03/11/2000 valuations always look expensive near the end of an 03/09/2000 While 03/07/2000 demonstrated to be recovering significantly. S&P 500 information technology valuation & growth 1 an improvement in the coming year as confidence 60 55 50 45 40 35 30 25 20 15 10 2,5 returns to both public and private equity markets. 2,0 Nonetheless, we are cautious that any recovery may be 1,5 1,5 slower than markets currently anticipate due to high 1,0 1,0 levels of consumer, corporate and governement debt. 0,5 0,5 This has hurt our portfolio valuation as we have seen considerable reductions in value in the private equity portfolio. However, it also leads to the emergence of new investment opportunities at more attractive valuations than during the past 3 years. We hope to see P/E* Earnings Growth** Jun P/E Relative to S&P 500 Jun 60 55 50 45 40 35 30 25 20 15 10 2,5 2,0 There also remain significant problems of both debt and trade imbalances for many governments, which could still cause difficulties in the year ahead. * Price divided by 12-month forward consensus expected operating earnings per share using mid-month data. ** 5-year forward consensus expected earnings growth. Percent annual rate. Source:Thomson Financial/Prudential Securities 4 US Jobless Claims 4000 600 550 3500 16 500 000's Quest for Growth 2002-2003 400 2500 000's 450 3000 350 300 2000 5 02/03/2003 02/03/2002 02/03/2001 02/03/2000 02/03/1999 02/03/1998 02/03/1997 02/03/1996 250 02/03/1995 02/03/1994 02/03/1993 02/03/1992 02/03/1991 02/03/1990 1500 Continuing Claims Initial Claims 200 Euro area, Japan and USA 12 8 4 0 -4 Japan USA Eura area -8 -12 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 OECD Trend Restored Composite Leading Economic Indicator, 4th July 2003 6 Assessment of Current Business Situation vs. Business Expectations Trade and Industry 1) 1998 to 2003 30 Boom Upswing 20 Jan. 2000 10 Jan. 1998 0 Jan. 2001 June 2003 Jan 1999 -10 Jan 2002 -20 Downswing Recession -30 0-35 -30 -25 -20 -15 -10 -5 0 5 Current business situation 1) Manufacturing industry, construction, wholesale and retail trade. Balances, seasonally adjusted data. Source: ifo Business Survey, West Germany. 10 15 20 25 30 7 4,0% Annual Consumer Price Inflation in the Euro area Goods Services 3,5% 17 3,0% 2,0% 1,5% 1,0% 0,5% 0,0% Jan 96 8 Jul 96 Jan 97 Jul 97 Jan 98 Jul 98 Jan 99 Jul 99 Jan 00 Jul 00 Jan 01 Jul 01 Jan 02 Jul 02 Jan 03 US Computers & Electronics Products monthly sales & inventories 40 Shipments 35 30 25 20 15 Jan Jan 93 92 Jan 94 Jan 95 Jan 96 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 9 Monthly Semiconductor Sales -3 months moving average ($m) 20000000 7000000 18000000 America Europa Japan Asia Pasific Worldwide (RHS) 6000000 5000000 16000000 14000000 12000000 4000000 10000000 3000000 8000000 6000000 2000000 4000000 1000000 0 2000000 Jan 90 Jan 91 Jan 92 Jan 93 Jan 94 Jan 95 Jan 96 Jan 97 Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 0 Quest for Growth 2002-2003 2,5% Quest for Growth 2002-2003 18 Sector developments Overview Private equity – investments in unquoted companies and venture funds early-stage venture opportunities. Nowadays, traditional �late stage’ players such as Quest for Growth have been joined by venture capital funds that were previously focused on earlier Current status of the European Private Equity Market stage investment opportunities.This is leading to an �over-supply’ 1 The past year has seen total European investment in private of funding chasing the few credible mature investment equity hold steady, while there was a further decline in the opportunities. For many investors, finding more stable output of new funds raised, particularly in the technology opportunities with perceived lower downside risk outweighs the sector. According to the European Venture Capital Association, € 27.5 billion was raised in 2002 and € 27.6 billion was invested, compared to the peak of € 34.9 billion investments in 2000. European private equity investments in technology continued to fall in 2002 despite the fact that total private equity investments had their second best year ever. The technology sector suffered a drop in investment of almost 30% previously much more valued upside criteria. Companies attracting investor interest today require robust business models with strong near-term profit potential. In many technology sectors, development is slower than expected forcing the venture capital industry to take a longer-term perspective. compared with the previous year, and 50% from its peak in 2000 (Source: PCW Money for Growth Survey). Fundraising Financing, internal rounds, down-rounds for technology investment decreased to € 4.2 billion in 2002, 4 An increased proportion of companies is receiving follow-on compared to € 9.6 billion in 2001. In 2001 technology financing from their existing investors, reflecting sustained represented 25% of all European private equity funds raised support to promising portfolio companies. As much as 62.3% of while in 2002 it represented only 15%. venture-backed companies received follow-on financing in 2002. Venture capitalists are tending to focus more on their existing High competition in late stage venture capital area 2 3 In general, we see a repositioning of funds and investment focus away from early stage towards later stage companies. The bulk of private equity money has been going into late-stage companies, spin-offs and public companies (�public-to-private’) which these days are often valued as low as a new start-up, but have a longer track-record and are closer to reaching success. portfolio than on new opportunities. Where possible, a higher proportion of the funds is reserved for continuing support of the most promising portfolio companies.When financing rounds are done entirely by existing investors (�internal rounds’), severe down-rounds can be avoided. In a down round, existing investors are diluted and a lower valuation is placed on the invested The proportion of technology private equity investment going company by new investors. Early stage companies in sectors such into buy-outs almost doubled from 2001 to 2002. Venture as telecom may only be able to attract new financing at 10% of capitalists are more wary of chasing �the next big thing’ than a their peak valuations. Early investors then face the choice few years ago. During the bull market of the late 1990s to 2000, between being diluted and putting in more money to remain a much of the capital in the venture capital industry flowed into significant shareholder. 1 Funds raised and investments made in Europe in 2002 (Source: EVCA) 60 Funds Raised investments 50 in million € 40 30 20 19 10 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Funds raised and Investments made in Europe in 2002 (Source: EVCA) 2 10 8 Median Pre-money Valuation of European Venture Backed Companies (Source: Venture One/E&Y) 7.7 7.9 7.5 in million € 6.4 6.3 6.0 5.7 6 6.0 5.3 4.6 4 3.5 3.8 Virtually no IPOs Over the past year, the exit market has remained 2 continued and led to a high proportion of write-offs Q4-02 Q2-02 Q4-00 Q2-01 cleaning up of portfolios across the industry Q4-00 0 particularly for exits in the form of IPOs. The Q2-00 troubled for the private equity market in general, 3 (30% of all exits in 2002). 862 1000 Not a single IPO with a value of more than € 30 million took place in the technology sector in the first half of Seed Start-up Expansion 800 707 2003 in Europe.This compares with only one technology 611 IPO > € 30 million in the first six months of 2002, and five 600 534 449 in the same period in 2001 (Source: CSFB). In the United 431 369 400 States, the previous IPO factory known as Silicon Valley 341 328 316 has been switched off. Of the mere 70 IPOs in 2002, only 200 19 were public offerings of venture-capital-backed 37 companies while during the boom of the Nasdaq, venture- 0 backed IPOs were almost a daily occurrence. Currently 38 Q2 2002 33 Q3 2002 22 Q4 2002 Q1 2003 Number of investments done by stage very few IPOs are underway or effective and it is unclear when the window will reopen. Too many investors and Q1 2002 49 (Source: EVCA/ PWC/ Thomson Financial Venture Economics) 4 companies alike got burned in the shakeout. With investors so cautious, only very high quality Start-up 9.5% Expansion 24.8% Replacement Capital 3.4% companies can hope for successful IPOs. Nowadays companies going public will be mostly long- established businesses, sometimes units of already public companies and not just business plans hatched in a garage a year ago. The average age of companies going public from 1980 to 2002 was 7 years, in 2002 it was 14 (Source: Forbes Global). And today even well Seed 1.1% Buyout 61.2% established companies such as Google have chosen to bide their time. Stage distribution by percentage of amount invested in 2002 (Source: EVCA) Quest for Growth 2002-2003 0 5 6 Monthly deal-flow of Quest for Growth (Source: Quest Management) 35 Technology earnings growth forecasts 70% 70% 40% 2002E 30 2003E 60% 60% 50% 50% 20 40% 40% 15 30% 30% 10 20% 20% 5 10% 10% 0 0% 0% 25 2004E 35% 30% 05/27/03 04/27/03 03/27/03 20% 02/27/03 05/01/03 02/01/03 11/01/02 06/01/02 25% 05/01/02 02/01/02 11/01/02 07/01/02 03/01/02 11/01/01 07/01/01 03/01/01 jun/03 mei/03 apr/03 mrt/03 feb/03 jan/03 dec/02 nov/02 okt/02 sep/03 aug/02 Actual jul/02 Quest for Growth 2002-2003 20 Public reaction to the wave of scandals in the governance to Quest portfolio public companies might result in additional obstacles to The value of private equity and venture capital portfolios has companies seeking to go public such as higher risk of claims of decreased as a consequence of lower company valuations and improper disclosures; a shrinking pool of analysts to cover the very difficult exit markets, which also imply longer holding stock once the company is public; increased costs of maintaining periods. Also Quest for Growth’s portfolio of private companies a public registration and the not-so-distant threat of criminal and venture funds has suffered with companies going through penalties in the event financial results are misstated. When we down-rounds, major restructurings and even failures. look at investment banking, we see that the infrastructure to support IPO’s has been decimated. For the foreseeable future, Investments in quoted companies trade-sales, mergers and acquisitions are the most realistic option for companies seeking liquidity and investors seeking exits from their investments. 6 The earnings forecasts for technology companies in 2003 and 2004 are expected to grow by more than 30% as shown in the graphs. This seems doable with an economic turn as the Another route to exit can be the recapitalisation of a portfolio recent cost cutting resulted in more operational leverage. This company. This mechanism involves the re-leveraging of the means that the gross and operating margins of technology company, so that cash can be returned to the shareholders by companies increased. But at this stage we haven’t seen many way of dividend and/or return of capital. However, this is only an signs of an IT spend uptick. exit option in the case of investments in mature businesses with low levels of operational risk. It is rarely an exit option in the While the hyper growth rates of the TMT sector in the late 1990’s case of technology investments. may be a thing of the past, we believe that there are enough attractively valued stocks with strong fundamentals to invest in. Quest for Growth deal- flow 5 The number of deals in the market has decreased Semiconductors considerably.We need to see a resurgence of activity across the 7 After two years of semiconductor revenue declines, -32% and - technology sector before deal-flow has real momentum again. 2% in respectively 2001 and 2002, business is expected to show Quest for Growth’s deal-flow consists for approximately one growth again in 2003. Important is to analyse where this growth will third of companies in the Life Sciences/ Biotech sector.There still come from. Firstly, it is key to look at the average selling prices (ASP) is a shortage of pre-IPO files, the area of investment that is of chips.The structural overcapacity in the 90’s due to the emergence targeted by Quest for Growth. Our fund is looking for of the foundries model and the free access to capital in the notorious technology companies that already have revenues and that are bubble, resulted in declining ASP’s. In the graph you see that ASP’s are on a clear path to profitability. On the Life Sciences/ biotech side, finally going up again. Secondly, the volume or the number of units we prefer companies that have started Phase II clinical trials. produced are likely to bottom out in the summer at the time when Quest for Growth’s targeted horizon to exit is 3 years. prices are going up. Historically, the performance of the 7 Global semiconductor revenue forecast 200 2003E: $142 billlion 2-6% growth 150 100 50 0 1997 137 8 10 31 22 65 1988 8% 126 8 8 31 19 58 1999 19% 149 9 12 37 22 70 2000 37% 204 12 20 55 29 88 2001E 32% 139 12 13 29 24 61 2002E -2% 137 14 16 25 24 60 2003E 4% 142 15 15 24 26 63 2004E 13% 161 18 17 25 28 72 8 Fig 3. Semiconductor Average Selling Price Growth (YoY & MoM) Three-Month Rolling Average 8% 30% 25% 6% 20% 4% 10% 2% semiconductor stocks has correlated well with the revenue 5% growth of the semiconductors. Growth should mainly 0% Jul-87 Jul-87 Jul-88 Jul-88 Jul-89 Jul-89 Jul-90 Jul-90 Jul-91 Jul-91 Jul-92 Jul-92 Jul-93 Jul-93 Jul-94 Jul-94 Jul-95 Jul-95 Jul-96 Jul-96 Jul-97 Jul-97 Jul-98 Jul-98 Jul-99 Jul-99 Jul-00 Jul-00 Jul-01 Jul-01 Jul-02 Jul-02 Jul-03 15% -2% -5% come from increased semiconductor content and 0% -10% -4% consumer spending (consumer electronics, PC’s and -15% 3M rolling average ($ ASP) mobiles). -20% YoY growth rate (LHS) MoM growth rate (RHS) Mo -6% -8% -25% Semiconductor equipment 8 9 10 The units growth and the low capital spending 9 by semiconductor companies in the last 2 years led to a pick up in semiconductor equipment spending in 2003. 40% Mainly DRAM producers (memory chips) and Japanese 30% Fig 2. Semiconductor Unit Growth (YoY & MoM) Three-Month Rolling Average 12% 10% 8% semi manufacturers are ordering new equipment. It is 20% end equipment. Primarily the back end (inspection, packaging of chips) business is improving, driven by unit 6% 10% 4% 0% 2% growth. If the number of units increase, more packaging -10% and inspection equipment will be ordered. -20% The front end (actual production of the chips on the -30% wafer by lithography tools) is still very difficult and is -40% Jul-87 Jul-87 Jul-88 Jul-88 Jul-89 Jul-89 Jul-90 Jul-90 Jul-91 Jul-91 Jul-92 Jul-92 Jul-93 Jul-93 Jul-94 Jul-94 Jul-95 Jul-95 Jul-96 Jul-96 Jul-97 Jul-97 Jul-98 Jul-98 Jul-99 Jul-99 Jul-00 Jul-00 Jul-01 Jul-01 Jul-02 Jul-02 Jul-03 important to differentiate between front end and back 0% -2% -4% 3M rolling average (units) -6% YoY growth rate (LHS) MoM growth rate (RHS) -8% not expected to pick up until next year. The front end business is impacted by the capacity utilisation of chip manufactures. This utilisation is now slightly picking up 10 Global semiconductor equipment forecast but the manufactures are still hesitant to buy new and 100% 60 additional equipment. 50 2003E: $20.1 billlion 3% growth 80% 60% ($ billions) 40 40% 20% 30 0% 20 -20% 10 0 Equip Rews SPE Growth -40% 1997 $27,5 5% 1998 $21,8 -21% 1999 $25,5 17% 2000 $47,7 87% 2001E $28,0 -41% 2002E $19,5 -30% 2003E $20,1 3% 2004E $24,2 20% -60% 21 Quest for Growth 2002-2003 Growth % Total Auto Other Comm Consumer Data Proc Quest for Growth 2002-2003 22 Communication equipment and telecom downside, the uncertainty is now more balanced between the 11 12 13 Within the telecom sector, the fixed line businesses possible upside from the US and the downside in Europe.We can remain under pressure in most markets on the back of see some improvement in the US but Europe continues to be a continued substitution by mobile, increased competition, difficult area for software sales.The question is whether Europe will uncertain government regulation and pricing risks (bundled see a further slow down during 2003. The ECB recently cut its substitutes). However, all telecom operators focused in the last GDP forecast to 0.7% and 1.6% for 2003 and 2004 respectively. year or two on cash generation in order to be able to meet the high debt obligations. This resulted in restructurings and capital spending cuts. The capex spending on telecom equipment fell 31% in 2002 and is expected to fall further in 2003 (-7%). It can take several years to work off the overcapacity of the bandwith which was built up in the late ’90. Capex as a percentage of revenue of the operators fell back from 20% in 2000 to 12-14% of revenues. This level is probably not sustainable over a long Most software companies were able to implement cost cutting measures to avoid serious operating degradation during the last downturn. We doubt whether earnings growth driven by the margin improvement is sufficient to continue to support this outperformance without revenue growth. We would focus on software names with a proven business model, strong product cycle and a large installed base. term as it will damage the quality of the service and could go A trend in software is the further move to Linux. Surveys back up to the long term historical rate around 16%. The low indicate that nearly 45% of global companies have migrated demand from telco operators and the overcapacity of the select applications to Linux, with only 3% expressing telecom equipment suppliers leads to price erosion. dissatisfaction.Although that this will not accelerate until there’s sufficient enterprise level support. Hardware A clear trend in the hardware area is the move to more modular IT Services systems in servers and storage which results in lower average 15 We remain cautious for IT services stocks, especially in selling prices.This will put pressure on hardware revenue growth Europe for several reasons. for server and storage companies. CIO’s and IT managers are Several surveys and IT companies indicate that the pricing is still increasingly moving their applications to lower cost modular highly competitive and discounts aren’t disappearing. End architectures and realizing significant cost savings. demand is still weak, especially in consulting, as CIO’s still expect Software 14 A close correlation between GDP growth and IT software spend has historically caused software stocks to lead technology stocks into a recovery. to spend less on external IT services. IT Services companies face more competition from offshore IT services companies (India, China and Eastern Europe). Clients outsource mainly IT application developments to these There remains a big uncertainty regarding the IT spending countries in order to lower the cost. This trend will further environment. But, whereas in 2002 the risk was clearly on the increase as security issues are resolved. 11 Global Telecom Capex Forecast 2003E: $156 billlion -7% decline 300 250 200 150 100 50 0 2000 2001E 2002E 2003E -5% -31% -7% 0% 167,2 156,1 156,7 Growth % 2004E Total 252,4 240,6 Row 18,3 20,6 90 7,4 8,2 Asa (ind Japan) 67,4 67,3 60,2 56,6 54,0 Europe N. Amerika 53,3 49,1 41,3 43,6 42,2 113,3 103,7 56,7 48,5 52,3 23 Source: UBS estimates Global communication equipment 200000 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 2003E: $103 billlion -7% decline 1998 4% 130,168 40,043 90,426 6 Growth % Total Wireless Equp. Wireline Equip. 13 1999 12% 145,536 43,937 101,699 2000 27% 184,834 53,949 130,885 2001 -18% 151,960 53,128 98,833 2002E -27% 110,177 43,092 67,085 2003E -7% 102,594 39,697 62,897 2003E 10% 440 21 164 28 85 34 109 2004E 10% 484 23 183 34 89 39 117 2005E 10% 533 26 199 41 93 45 128 Global mobile handset forecast 2003E: 440m units 10% growth 500 400 300 200 100 0 2000 50% 408 18 132 32 69 17 140 0 Growth % Total Row Asis Pac. Latin Amer. North Amer. Eastern Eur. Western Eur. 14 2001 4% 390 21 134 30 82 24 99 2002E 3% 400 19 147 27 81 17 98 Relationship of US GDP growth versus Equipment/software spend 1989-2003 5% 15% 4% 10% 3% 5% 2% -1% Mar 03 Mar-03 Sep-01 Mar-00 Sep-98 Sep-95 Mar-94 Sep-92 Mar-91 S 89 Sep-89 0% Mar-97 GDP Equ Equip/Software 1% Source: Bloomberg, Citigroup 15 Global IT Spending forecast 3000000 2500000 2003E: $2,3 trillion 6% growth 2000000 1500000 1000000 500000 0 Growth % Total Row Latin Amer. APAC Japan AI Europe US/Canada 2000 2,234,920 73,117 137,428 241,400 249,801 633,488 899,685 5 2001 -1% 2,219,400 71,500 130,900 246,000 242,500 645,000 883,500 2002E 0% 2,214,900 77,800 127,700 249,400 237,200 548,200 874,500 2003E 6% 2,344,100 84,700 135,800 269,900 246,700 684,200 922,800 2004E 7% 2,497,600 91,800 147,800 293,400 258,800 720,600 985,200 2005E 6% 2,657,500 99,700 161,900 317,700 270,500 762,700 1,045,000 Quest for Growth 2002-2003 12 Quest for Growth 2002-2003 24 Biotech available for investment to be split across national boundaries. 16 In both the Public and private sectors the past year has been Each country will have local funds to invest in local companies. a tough time for the life sciences sector. Investment has been This allows a degree of protection to companies who may have slow and down upon the boom years of 1999-2000. However weaker business plans or management but are listed on stronger 2003 seems to be slowly showing signs of recovery with venture markets.The rise and fall of regional technology markets such as capital investment set to rise over 2002, the possibility of the Easdaq (Nasdaq Europe), Neuer Markt has left companies that IPO window slowly opening and total cash invested substantially used to be big fish in small ponds and able to attract market increased. specific investment struggling to compete in full markets. A continual suggestion to ease these problems is for the creation The world stock markets have been going through the largest of one European wide technology market to rival the US bear market since biotechnology developed as a unique sector. Nasdaq, currently this remains a pipedream and management Therefore a lot of the downward price pressures are not should be creating business plans to work with in the current inherent to the industry. Add to that concerns about the world markets. Switching to the US Nasdaq, although superficially economy, possible military conflicts etc. Then it is natural for attractive has yet to be shown to work with the large US investors to retreat to what may be regarded as more secure biotechnology funds still keeping a primarily US investment sectors to place their dwindling cash. Many non-specialist portfolio, and therefore most European companies usually investors see the biotechnology sector as a high-risk, high- significantly underperforming their US peers. reward investment, and as such no place to be when the markets are in decline. However the current status of the European biotechnology markets has a real and direct bearing on the willingness of investors to invest. 17 The current low levels of trading in the majority of biotechnology stocks will deter all but the most specialist or long term funds.An important question is why is the liquidity so During the bubble market of 1999-2000 a great many companies were able to take advantage of the desire of investment funds to participate in what was seen as an exciting time in the biotechnology sector. Private companies achieved fund raisings at (with hindsight) grossly inflated valuations for their particular stage of development or to raise substantial cash via a very high priced low? In principle, in bear markets investors will shy away from offering on public markets (LSE, Neuer Markt, Easdaq/ Nasdaq cash burning companies that are not in a near cash neutral/ Europe). This has created several knock on problems with the profitable situation, this covers the majority of European current market and helped to create the current IPO blockage. biotechnology stocks. 19 Many companies are now trading below their cash value. This 18 Additionally Europe still has a very parochial market means that some companies have an apparent negative technology structure for technology companies. The presence of several value, while this may be justified in some cases it is clearly national markets for technology stocks leads to the total sum unwarranted in others. 16 Investment in the life scienes industry 1999-2003 25000 1999 2000 2001 2002 2003 Y TD 2003e 20000 15000 10000 25 5000 Quest for Growth 2002-2003 0 17 Profitable European Biotechnology Companies Country Acambis Celltech Galen PowderJect Shire SkyePharma Qiagen Serono UK UK UK UK UK UK Germany Switzerland The consequences of the previous inflated market is that there are many companies in the small to mid cap range that may have the cash to drive their business, but not to take the business to profitability. These companies are 18 Region now sitting below their IPO price often with an overhang USA Europe of VC funds as shareholders. Investors will know that NASDAQ, NYSE London: FTSE,AIM Benelux: Euronext, National Bourse Germany: Dax, previously Neuer Markt Italy: Milan; France: Paris, Neuvo Marche Other national Exchanges, ie Swiss, Swedish these shareholders will be looking for an exit and this further depresses the valuation and liquidity. Further these quoted companies are now trading at values lower than the last financing rounds of several of the leading private companies who can not go to the public markets at their current valuations. Until there is a major rise in quoted 19 biotechnology valuations these companies will remain private and burning cash.The crunch is already being felt, private companies that are delivering performance and controlling costs will still have to return to the private markets to raise cash at discounts to their last rounds. This should not be seen as a sign of failure but of European Biotechnology Companies with cash > Market cap Country British Biotech Oxford GlycoSciences Crucell GPC Biotech UK UK Netherlands Germany management and shareholder realism. Discounted cash raising may place the company in the pole position for an IPO when the window reopens, as well as attracting new 20 4952 5000 Sales (€m) later stage investors, such as crossover funds and investment banks. 20 Finally what the life sciences sector has to deliver to Profit (€m) 4000 3620 3000 2829 ensure a sustained market recover is the transformation from an industry with high potential to an industry 2325 2000 capable of generating sustained profits. However, as figure 20 illustrates, in 2003 the industry is likely to start 1964 1940 1747 1660 1015 1000 to show the profit levels that will attract investors back into the sector thus restoring confidence, liquidity and opening the IPO window again. 551 0 17 129 1999 2000 151 2001 276 2002 2003 2004 2005 PORTFOLIO PORTFOLIO Quest for Growth 2002-2003 26 Portfolio composition at June 30th, 2003 Belgium 4% US 27% Denmark 1% Finland 3% France 11% United Kingdom 14% Germany 12% Switzerland 5% Sweden 2% Spain 4% Netherlands 11% Norway 3% Portugal 3% Distribution of the invested part of the portfolio by country Cash + Other Net Assets 32% Commitments 3% Electr. & Hardware 6% IT Services 4% Pharma & Biotech 13% Nasdaq Tracker 11% Telecom & Equipment 12% Semiconduct. & Equipment 14% Software 5% Distribution of the portfolio by sector Nasdaq 18% Nasdaq Europe 3% Swiss Stock Exchange 5% Oslo 2% Helsinki 3% Stockholm 2% Quoted - Unquoted 12% Unquoted 4% Venture Funds 9% Madrid 4% London 12% Euronext Paris 4% Euronext Amsterdam 7% Euro NM Germany 12% Convertible Loan Notes 3% Distribution of the invested part of the portfolio by stock market Holdings at June 30th, 2003 COMPANY Quoted companies ARTWORK SYSTEMS BUSINESS OBJECTS PSI VMETRO SECTOR / MARKET NUMBER OF SHARES CHANGE SINCE 30/06/02 CURRENCY SHARE PRICE VALUATION IN € IN % OF NET ASSET VALUE € $ € NOK 2.5000 21.8600 4.2500 19.5000 242,500 573,904 403,750 470,248 0.52% 1.24% 0.87% 1.02% NASDAQ-100 TRUST Nasdaq Unquoted companies ANGIOSONICS ENDPOINTS INC. EQUATOR GALILEO MAMUT ASA NASDAQ Europe OMRIX OXAGEN Ltd. PAGOO PHYTERA Pharma & Biotech Semiconduct. & Equipment Electr. & Hardware Pharma & Biotech Software Software Pharma & Biotech Pharma & Biotech IT Services Pharma & Biotech 3,125,000 307,692 1,025,642 82,464 800,000 922 85,417 357,145 303,559 330,033 Convertible loan notes ENDPOINTS Convertible OMRIX Convertible PHYTERA Convertible Semiconduct. & Equipment Pharma & Biotech Pharma & Biotech Face Value 150,000 2,350,000 250,000 $ $ $ 0 0 0 0.00% 0.00% 0.00% Warrants OMRIX Warrant Pharma & Biotech 80,078 $ 0 0.00% Options OMRIX Options Pharma & Biotech 16,667 $ 0 0.00% 2.34% Venture Funds KIWI I VENTURA SERVICOS NETFUND EUROPE SCHRODER VENTURES LSF II VENTECH CAPITAL 2 Telecom & Equipment Software Pharma & Biotech IT Services Last valuation at (2) 31/03/2003 31/12/2002 31/03/2003 31/03/2003 770,217 176,138 1,273,550 636,350 1.67% 0.38% 2.76% 1.38% 6.19% Total invested 30,181,974 65.30% 15,217,000 32.92% 824,401 1.78% 46,223,375 100.00% DANIONICS (1) LOGITECH MEDION SINGULUS INDRA SISTEMAS ACAMBIS CRUCELL (1) SKYEPHARMA TANOX (1) ARC INTERNATIONAL (1) ASM International ASM Lithography INFINEON JENOPTIK MICRONAS SOITEC SOITEC Convertible 97,000 30,000 95,000 200,000 10,000 -10,000 131,111 15,000 23,000 75,000 7,500 23,000 30,000 DKK CHF € € 14.0000 50.8000 37.8600 15.0800 247,050 490,221 870,780 1,131,000 0.53% 1.06% 1.88% 2.45% 140,000 140,000 € 8.8500 1,239,000 2.68% 60,000 562,500 1,000,000 120,000 60,000 £ € £ $ 3.6500 2.5000 0.6950 16.0100 315,926 1,406,250 1,002,597 1,681,281 0.68% 3.04% 2.17% 3.64% £ € € € € CHF € € 0.2225 13.1000 8.2700 8.4200 11.2000 27.3000 5.2000 19.6000 285,308 1,198,650 827,000 842,000 448,806 965,968 1,219,691 784,000 0.62% 2.59% 1.79% 1.82% 0.97% 2.09% 2.64% 1.70% £ SEK € $ £ 0.6250 8.6000 14.3400 2.7500 1.1850 1,127,020 743,880 788,700 747,989 1,210,912 2.44% 1.61% 1.71% 1.62% 2.62% $ 29.9500 4,979,872 10.77% 56.77% $ $ $ $ NOK € $ £ $ $ 0 0 0.1112 0.5843 6.0000 0 0 0.7000 0 0 0 0 99,834 42,168 578,767 0 0 360,646 0 0 0.00% 0.00% 0.22% 0.09% 1.25% 0.00% 0.00% 0.78% 0.00% 0.00% 888,880 91,500 100,000 100,000 40,072 55,000 234,556 40,000 1,000,000 67,750 100,000 45,000 40,072 55,000 234,556 1,250,000 800,000 55,000 310,810 708,358 250,000 800,000 55,000 190,000 190,000 Invested Capital 168,765 700,000 1,900,001 900,000 8,358 82,464 148,812 -745,761 -45,566 200,000 200,000 € € $ € Cash Other net assets (3) TOTAL (1)ARC, Crucell, Danionics and Tanox are quoted companies, but are considered as unquoted companies for the privak investment restrictions according to article 47 of the Royal Decree of 1997. (2)Valuation based on the last report of the directors of the Venture Fund. (3)Other net assets include formation expenses, unsettled trades, amounts receivable, amounts payable, deferred charges and accrued income, accrued charges and deferred income. A list of all transactions during the year is available on request from the company’s offices. 27 Quest for Growth 2002-2003 COLT TELECOM ERICSSON NOKIA OPTION VODAFONE Software Nasdaq Europe Nasdaq Euro NM Germany Oslo Electr. & Hardware Copenhagen Switzerland Euro NM Germany Euro NM Germany IT Services Madrid Pharma & Biotech London Euronext Amsterdam London Nasdaq Semiconduct. & Equipment London Euronext Amsterdam Euronext Amsterdam Euro NM Germany Euro NM Germany Switzerland Euronext Paris Euronext Paris Telecom & Equipment London Stockholm Helsinki Nasdaq Europe London Company profiles Company profiles Quest for Growth 2002-2003 28 Unquoted companies ANGIOSONICS INC. is a medical device company developing the use of ultrasound as a means of treating a range of conditions. Currently the company is undergoing a major restructuring. ENDPOINTS, INC. is a U.S. based fabless semiconductor company focused on the design, development and marketing of semiconductors for imaging products. EndPoints’ chips are used in mass-market products such as digital video and still cameras that capture and display digital images and communicate them across the Internet and other networks. Because of the persisting weak economy, EndPoints has difficulty reaching suitable sales levels and generating enough cash.The company is currently undergoing a major restructuring. EQUATOR TECHNOLOGIES INC., founded in 1996, is a U.S. based privately held fabless semiconductor company. Equator Technologies provides high performance, programmable, power efficient System-on-a-chip (SoC) processors designed for video streaming and image processing applications across a wide range of consumer and enterprise end markets. In March 2003, Equator has secured another $ 11 million in financing, which should carry the company through to profitability in 2004 and help fund the continued development of the next generation of Equator’s BSP silicon family, enabling the company to take advantage of expanding opportunities in the digital media and security spaces. GALILEO PHARMACEUTICALS, INC. is a California based biotechnology company focused on developing drugs that target redox signaling pathways. GalileoPharma has built a comprehensive drug discovery platform based upon three primary proprietary assets -a cellular system that faithfully models cellular energy metabolism, a vast library of unexploited oxidoreductase-targeting compounds, and a powerful characterization approach involving advanced charge transfer chemistry. In April 2003, the company has closed a $31 million financing through a preferred stock offering. MAMUT ASA is a provider of CRM and Internet solutions to small and medium sized businesses. The company, which was founded in 1995, is today represented in different countries in Europe and has 130 employees working at its headquarters in Oslo, Norway. Mamut is well positioned in an increasingly consolidating and price-conscious market. It uses a consumer marketing approach with a direct sales model and an aggressive pricing strategy. More than 75,000 customers currently use Mamut software. NASDAQ EUROPE, which is a subsidiary of The Nasdaq Stock Market, Inc was designed as a pan-European stock exchange. On June 26th, 2003, the shareholders of Nasdaq Europe voted to discontinue operations of the market. An orderly wind down will be conducted pursuant to a transition plan to be agreed with the Belgian Banking and Finance Commission. Completion is expected no later than January 5, 2004. Nasdaq Europe remains a 50% shareholder of Nasdaq Deutschland. OMRIX BIOPHARMACEUTICALS INC., headquartered in Brussels, is a marketing stage biotechnology company that develops and markets a unique surgical sealant, as well as a suite of immunology and hemophilia products.The company currently sells its products in Israel, Latin America and most European countries. Expansion into other markets is ongoing. In March 2003, Omrix received approval from the U.S. FDA to sell Omrix first all-human derived fibrin sealant available in the U.S. for use in liver surgery.The American Red Cross will market and distribute the product in the U.S. under agreement with Omrix. 29 genetic analysis on collections of family samples so as to understand the mechanisms and causes of common diseases. Their products are information and patents relating to new drug targets or diagnostic markers, which will enable better treatment of these diseases. Oxagen currently has collaborative agreements with a range of pharmaceutical companies including Astra Zeneca and Pfizer. PAGOO INC. is a U.S. based developer of Internet voice technologies, currently offering two Internet services direct to the consumer - Internet Call Waiting and Virtual Calling Cards.When you are connected to the Internet, Pagoo picks up and records callers' voice messages just like an answering machine. As soon as a message is recorded, you are notified immediately and can listen to it on your computer, without getting off-line. In view of the difficult market conditions, Pagoo is currently going through a significant restructuring exercise. PHYTERA is a plant based genomics company active in the discovery and development of novel pharmaceutical and agricultural products from nature using combinatorial biology. Phytera has assembled a diverse collection of plant species in culture and has industrialised their growth and manipulation in the laboratory. Phytera has sold its main technology platform assets to Galileo Pharmaceuticals from which Quest for Growth has received equity and which is now is acting as a holding company for the residual assets. Venture capital funds KIWI VENTURA SERVIÇOS S.A. is a EUR 110 million investment fund advised by Pino Venture Partners of Milan. Kiwi has made equity investments in early stage companies providing products and services in telecommunications, new media and information technology in Europe, with a major focus on Italy. The most significant of its investments to date has been Tiscali, an Italian ISP, which was subsequently floated on the Milan Stock Exchange in October 1999. The Kiwi I fund is currently fully invested, and its management is focusing on the operations of portfolio companies and implementing exit strategies. Currently, Kiwi still has a portfolio of investments in 11 independent, active companies (i.e. excluding inactive or written off companies and excluding exits), reduced from the peak of 52 initiatives. MITISKA NETFUND EUROPE is a European early-stage venture capital fund that exclusively invests in European internet related companies.The fund was founded in April 1999 by Mitiska, its committed capital amounts to EUR 71.5 million. Given the state of the internet related sector, the fund had to take substantial write-offs for many of its investments. The management currently focuses on implementing exit strategies for its existing portfolio companies and doesn’t consider new investments. SCHRODER VENTURES INTERNATIONAL LIFE SCIENCES FUND II (ILSF II) makes equity or near equity investments in life sciences companies principally in the USA and Europe. "Life Sciences" is defined to include biotechnology, pharmaceuticals, clinical diagnostics, medical devices and instruments, medical electronics, healthcare products and services, agricultural biotechnology and environmental applications. The fund is in its fourth year of activity and has made 36 investments to date. As of 31 December 2002, the fund portfolio consists of four publicly traded companies and 28 private companies. Quest for Growth 2002-2003 OXAGEN is a genomics company with a broad technology base, performing large-scale Quest for Growth 2002-2003 30 VENTECH CAPITAL 2 is a EUR 112 million French venture fund based in Paris, active since July 2000.Ventech II is an early stage investor, investing in technology and life sciences companies, either in the process of being formed or recently started up.Ventech invests in the information technology sector, with a particular emphasis on new-generation networks, software applications, online activities, the Internet and mobile telephony, and in services, commerce and the media. In the life sciences sector, they have a particular focus on applied genomics.Ventech Capital 2 is 37% invested in monetary terms.The fund has 14 portfolio companies in ICT and 3 portfolio companies in Life Sciences as of March 31, 2003. Quoted companies ACAMBIS is a biotechnology company discovering, developing and manufacturing novel vaccines to prevent and treat infectious diseases. It is based in Cambridge, UK and Cambridge, Massachusetts, USA. Recognised internationally as the leading producer of smallpox vaccines,Acambis provides governments around the world with the full portfolio of related smallpox vaccine products required to protect their citizens against the threat of smallpox virus being used as a bioterrorist weapon. Acambis is establishing a travel vaccines franchise, including vaccines against yellow fever, Japanese encephalitis, dengue fever and typhoid. It also has the most advanced vaccine in development targeting the West Nile virus, which has spread to over 40 US States in the last three years. ASM INTERNATIONAL (ASMI) is a leading supplier of equipment for both the front end wafer fab and back end assembly segments of the semiconductor market. The company is the only major semiconductor capital equipment manufacturer to participate in both markets.We believe the company’s broad product and service offerings position it well to participate in future growth of both markets while reducing its exposure to volatility in either market. ASMI’s back end business is managed through its 55%-owned subsidiary, ASM Pacific Technology (ASMPT) Limited, with principal operations in Hong Kong, Singapore and China. ASMPT is a Cayman Islands limited liability company that is based in Hong Kong and listed on the Hong Kong Stock Exchange. ASML is a world leader in the manufacturing of advanced technology systems for the semiconductor industry. The company offers an integrated portfolio for manufacturing complex integrated circuits (also called ICs or chips). ASML designs, develops, integrates, markets and services advanced systems used by customers – the major global semiconductor manufacturers – to create chips that power a wide array of electronic, communications and information technology products. Its technology is supported by process solutions, enabling customers to gain and sustain a competitive edge in the marketplace. ASML’s corporate headquarters is in Veldhoven, the Netherlands. Manufacturing sites and research and development facilities are located in Connecticut, California and the Netherlands. Technology development centers and training facilities are located in Japan, Korea, the Netherlands,Taiwan and the United States. Additionally, ASML provides optimal service to its customers via over 50 sales and service organizations in 16 countries. 31 of intellectual property capable of being customised and embedded into Systems-on-Chip designs. One distinctive feature of its processors (sold under the brand name Tangent) is that they are �soft cores’, thus customers can choose to implement only parts of the processor to save on costs or extend functionality in particular ways to tune performance for specific tasks. Arc’s recourses span many areas within the embedded systems world – not just processor intellectual property, but development tools (such as compiler) support and interface software development. The embedded processor marketplace cleaves into CISC (complex instruction set processors e.g. Intel processors) and RISC (reduced instruction set processors e.g. ARM Holdings processors). The appropriate choice of processor depends on the target application, although engineers may develop irrational loyalty towards specific designs. ARTWORK SYSTEMS develops software for the preparation of professional color printing or pre-press.Artwork Systems' software runs on personal computers but equals or even betters the quality and productivity of specialised and much more expensive integrated computer systems.The strategy is to extend its current leading position in the packaging and labeling market, which is a fast growing niche market, and to become the market leader in the global software pre-press market. Therefore, Artwork Systems released new products such as Nexus, which is an open and modular software solution, and they acquired Enfocus. Enfocus designs tools to extend the basic features of PDF. The software, integrated in the Acrobat applications, enables customers to adapt the content of a PDF-file. BUSINESS OBJECTS is a leading player in business intelligence (BI) and recognised leader in the 'query and reporting' segment. A high ROI, low unit price and the massadoption of BI within organisations has sustained market growth.The accretive acquisition of Crystal Decisions - market leader in enterprise reporting products - was proposed in July 2003. Expected to close in Q4 03, this will add scale and open cross-selling opportunities. Integration risks are heightened by the fact that Business Objects is beginning a major upgrade cycle, with Enterprise 6.0. Competitors include Cognos, Hyperion and Informatica. COLT TELECOM is one of the new competitive telecommunications companies operating in Europe. Founded in 1992, COLT operates an integrated IP based panEuropean network linking the financial and business centers of Europe, providing the full range of telecommunications services to high value corporate and carrier customers. Colt is a competitive telecommunications provider operating in 27 cities. The company has metro fibre networks in all 27 cities and is constructing a pan-European long-haul fibre network. In addition, COLT has 13 web-hosting facilities. COLT offers voice, data, hosting and Internet services to enterprises and other carriers. Quest for Growth 2002-2003 ARC INTERNATIONAL develops and supplies microprocessors, shipped in the form Quest for Growth 2002-2003 32 CRUCELL discovers and develops biopharmaceuticals that use the human immune system to combat cancer, infectious diseases and other conditions. Crucell leverages its patented technologies, MAbstractTM, AdVacTM, and PER.C6TM, for discovery, development and production of antibodies and vaccines. Crucell offers its technologies to the pharmaceutical and biotechnology industry and also uses them to create its own product pipeline. Partners include Merck & Co. for the HIV vaccine, the National Institutes of Health (NIH) for the Ebola vaccine and Centocor, a Johnson & Johnson company, for the CD46 antibody for treatment of various types of cancer. In addition, Crucell has over 20 licensees for its PER.C6TM technology. These include Novartis, GSK, Aventis and Schering AG. With headquarters in Leiden,The Netherlands, the company currently employs 200 people. DANIONICS, which is headquartered in Odense, Denmark, commenced its present activities in January 1994 with the aim of developing a new generation of batteries and super capacitors for commercial application in the portable electronics industries. The Company aims specifically at the battery markets for notebook computers, mobile telephones and handheld devices (such as PDAs and palmtop computers), all market segments experiencing significant growth and demanding advanced battery technologies. The batteries are based on the lithium-ion polymer technology, where the Company has developed its own proprietary technology in the field of lithium-ion polymer taking the lithium-ion technology to the next level.The Company has also acquired an extensive and unique manufacturing know-how. ERICSSON is the largest supplier of mobile systems in the world.The world’s 10 largest mobile operators are among Ericsson’s customers and some 40% of all mobile calls are made through Ericsson systems. Ericsson provides total solutions covering everything from systems and applications to services and core technology for mobile handsets.With Sony Ericsson we also are a top supplier of complete mobile multi-media products. Ericsson has been active worldwide since 1876 and the company has today around 61.000 employees in more than 140 countries.The headquarters is located in Stockholm, Sweden Listed in March 1999, after the Spanish government sold its 66% stake, INDRA is among Spain’s leading IT services providers with an estimated market share of c15%.Within the IT business, Indra specialises mainly in system integration. Most recently, the company has started an incipient Internet business. Other activities provided by the company include the manufacturing of simulation and automatic testing systems and the design, development and manufacturing of electronic defence systems. INFINEON is the world’s third-largest DRAM vendor and top-10 semiconductor manufacturer. Infineon has four operating divisions which focus on Memory Semiconductors, Wireline Communications, Wireless Communications (including Smartcards and Security Chip Cards), and Automotive and Industrial. Its largest customers are Siemens (15% of sales) and Nokia (<10%). 33 through comprehensive restructuring action, as well as several acquisitions and disposals. Today, Jenoptik is focused on two major business areas: Clean Systems – which comprises facility engineering and management – and Photonics, which is a high-tech electro optic and mechanical systems business. Clean Systems remains the most important division of the group but contributes a disproportionately low share to group profitability only because of its engineering character and inflated sales level (sub-contracting). LOGITECH sells desktop peripherals to both the OEM (10-20%) and retail (80-90%) channel segments. It product portfolio spans pointing devices, video/still web cameras, gaming devices, keyboards, and the audio and mobile accessory markets. Logitech has successfully innovated with cordless technology and built a brand image facilitating premium pricing. In addition, management has successfully executed its expansion programme over the last two years with regard to production, logistics and distribution. Overall, Logitech remains a best-in-breed player within the PC desktop peripherals segment. MEDION is a recognized leader in multimedia computing and consumer electronics in Europe. The Company supports retailers and manufacturers in selective sales campaigns involving products from the fields of PC/multimedia, entertainment/household electronics and communications technology. In terms of product groups, Medion focuses on three areas: PC/multimedia (PCs, notebooks, scanners, printers, modems, software, plug'n'play offers), entertainment/household electronics (electric appliances for personal care, home equipment, TVs, DVD-players, VCRs, HiFi, MDplayers, cameras and video cameras) and communications technology (telephones, answering machines, fax machines, decoders, SAT-systems). The assortment of these product groups is continuously extended and adapted to meet the latest technical and design developments. In this context the most favorable pricequality relation possible for each product plays a key role. In its product design Medion pursues a "best value" concept in order to keep up with the consumer trends to buy highquality, yet inexpensive articles in order to satisfy buyers who make purchase decisions based on price and those interested in innovations and high quality. MICRONAS SEMICONDUCTOR HOLDING AG is a semiconductor company with headquarters in Zurich and worldwide operations. At its locations in Germany (Freiburg and Munich) and Austria (Villach), the company develops microchips – integrated circuits (ICs) and sensors.With its in-house marketing, sales, and application support network, Micronas is present where the markets are – in Germany (Freiburg, Munich, and Nuremberg), China, Japan, Korea, Malaysia, Singapore, South Europe,Taiwan, United Kingdom, and in the US. Micronas ICs are mainly used for the consumer electronics (TV, video, and radio equipment), multimedia, and automotive electronics industries. The company has established a strong market position in promising, high-growth semiconductor applications for these sectors. The products are specifically tailored to industry and customer needs. Quest for Growth 2002-2003 After German reunification, JENOPTIK developed from state-owned VEB Carl Zeiss Jena Quest for Growth 2002-2003 34 NOKIA, based in Finland, is a leading manufacturer of mobile communication technologies. The company holds the number one position in terms of share of global mobile handsets shipped, and has a strong position in the GSM, GPRS, EDGE and WCDMA infrastructure markets. Nokia is also a leading developer of enabling mobile technologies, such as location-based services and Bluetooth, one of the major shortdistance wireless communication standards. OPTION, founded in 1986, operates in the fast growing mobile data communications business. Option is specialised in designing and developing miniaturised mobile voice and data communications solutions for users of portable computers, PDA’s (Personal Digital Assistants) and hand-held organisers. Option has R&D centers in Leuven (Belgium) and Cambridge (UK), a software centre in Adelsried (Germany) and a manufacturing facility in Cork (Ireland). Option has designed, developed and produced a tri-band GSM/GPRS adaptor module for the Compaq iPAQ PDA to provide users with wireless voice and date connectivity. Option’s main product is the Globetrotter card, which is delivered to 20 mobile operators. PSI develops complete software solutions in the area known as Resource Management. In the newly deregulated energy sector, PSI is market leader in the development of software for energy management systems. Their systems control and monitor the generation, transportation, and distribution of energy - in the forms of electricity, oil & gas. As market leader in Germany, PSI provides logistics solutions for the metal, chemical and printing industries. Its services range from production control to storage and transportation systems and in the optimisation of business processes. For the small to mid-sized discrete manufacturing companies, PSI has developed the ERP software PSIPENTA, which distinguishes itself by possessing groundbreaking technology and object oriented architecture. This enables the user to quickly adopt the product and to implement the processes of change without causing major disruptions to their workflow. SKYEPHARMA’S technologies are designed to improve the safety and efficacy of existing drugs.Applying its controlled release technologies to pharmaceutical products in the areas of oncology, neurology, dermatology, pain management and asthma, SkyePharma enhances the release profile of a client’s drug. Moreover, reducing the frequency of administration of a drug through delivery technology can often mean lower side effects and greater patient compliance, both of which can lead to the patient getting better – faster. By developing its inhalation, oral, injectable, topical and enhanced solubility (nanoparticulate) drug delivery platforms, SkyePharma has assembled a broad platform on which to target multiple therapeutic areas and global markets. SINGULUS develops, manufactures and sells installations used in the production of optical storage media. The company is one of the leading providers of high quality and cost-effective systems for making Compact Disc (CD) and Digital Versatile Disc (DVD) formats. Singulus offers completely integrated production lines and metallising installations, which represent a key area for CD and DVD production. Apart from these products which are very established on the market, the company has recently successfully completed development work on its new production line SUNLINE for re-writable discs (CD-RW and DVD-RW as well as DVD RAM formats). 35 derivative of SOI (Silicon-On-Insulator) technologies. Smart-Cut improves on traditional silicon's intrinsic properties. It increases speed by 20-100% and reduces energy consumption by 25-75%. Soitec has an 80% share of the SOI market. In their search for sufficiently powerful and economical substances to satisfy the demands of new applications such as 3G mobile handsets, PDAs and portable computers, some industry majors, including Philips, IBM and Honeywell, have already included SOI in their business plans. Confirming the positive market trend. Soitec's technology has been warmly received by the majors in the industry, such as IBM and STMicroelectronics, and the French company is building a customer base made up of several first-tier names. TANOX is focused on the discovery and development of therapeutic products in the area of immunology (asthma/allergy, autoimmune diseases), infectious diseases and oncology.The company’s lead candidate is Xolair, an anti-IgE antibody for the treatment of moderate to severe allergic asthma and allergic rhinitis. In the middle of 2001 Tanox’s partners, Genentech and Novartis announced that the FDA requested additional preclinical and clinical data analyses, as well as pharmacokinetic information. In November 2001, Genentech and Novartis announced plans to submit an amendment to the Biologics License Application (BLA) for Xolair to the FDA in the fourth quarter of 2002. Given a fourth-quarter filing, we could expect FDA approval of Xolair as early as the fourth quarter of 2003. VMETRO provides board-level products for high-performance embedded real-time systems, with products based on open architectures.Two distinct product categories are offered. (i) With the MIDAS (Modular Intelligent Data Acquisition Systems) family of products Vmetro offers unique sensor I/O interfaces and Disk Array recording solutions for radar/sonar/imaging/intelligence systems. (ii) Vmetro’s Bus Analysers offer unique test and debugging capabilities for system integration and manufacturing.Vmetro’s main customers are system integrators and OEMs in leading companies in the aerospace and telecommunications industries as well as manufacturers of medical diagnostics and seismic equipment. VODAFONE, through the acquisitions of AirTouch in 1999 and Mannesmann in 2000, has transformed itself into a global telecoms player.With a 45% stake in Verizon Wireless, controlling stakes or 100% control in the UK, Germany, Italy, Spain and the Netherlands (to name but a few), as well as a recently increased stake in J-Phone in Japan (an effective 60%),Vodafone is by far the leading global cellular operator. Quest for Growth 2002-2003 SOITEC, based in Bernin, near Grenoble (France), owns a process called Smart-Cut, a FINANCIAL DATA DATA FINANCIAL Quest for Growth 2002-2003 36 1. Balance sheet ASSETS 2003 JUNE 30TH € 2002 JUNE 30TH € 30,736,693 42,596,048 554,719 573,324 30,181,974 42,022,724 Fixed Assets Formation expenses Financial assets 2003 2002 TH JUNE 30 JUNE 30TH € € LIABILITIES Capital and Reserves 46,223,375 60,422,315 Issued capital 117,227,567 117,227,567 (71,004,191) (56,805,252) 66,388 266,523 66,388 238,849 0 0 5,596 27,275 0 0 60,792 211,574 Profit / Loss carried forward Current Assets 15,553,070 Amounts receivable within one year Term Deposits 18,092,790 1,830 38,921 15,217,000 17,459,065 240,650 179,511 Cash at Bank and in hand Amounts payable Amounts payable within 1 year Financial debts Trade debts Taxes Other amounts payable Deferred charges and accrued income TOTAL ASSETS 93,590 415,293 46,289,763 60,688,838 Accrued charges and deferred income TOTAL LIABILITIES 0 27,674 46,289,763 60,688,838 2. Profit and loss account 2003 JUNE 30TH € 2002 JUNE 30TH € 2001 JUNE 30TH € 2000 JUNE 30TH € (10,878,677) (45,340,117) (18,206,833) 60,462,882 Operating income and charges Gross operating income Depreciation and other amounts written off Other operating charges Operating profit / Loss Financial income Financial charges Profit / Loss on ordinary activities before taxes Income taxes Profit / Loss for the period (199,593) (182,201) (118,110) (4,407) (2,623,904) (2,680,930) (2,572,382) (1,605,142) (13,702,174) (48,203,248) (20,897,325) 58,853,333 1,191,970 694,714 2,629,872 1,217,971 (1,688,735) (1,802,602) (1,256,123) (3,645,226) (14,198,939) (49,311,136) (19,523,576) 56,426,078 0 0 0 0 (14,198,939) (49,311,136) (19,523,576) 56,426,078 37 2003 JUNE 30TH € 2002 JUNE 30TH € 2001 JUNE 30TH € 2000 JUNE 30TH € 1999 JUNE 30TH € (14,198,939) (49,311,136) (19,523,576) 56,426,078 3,126,851 Profit brought forward from previous periods (56,805,252) (7,494,116) 12,029,460 20,105 3,126,851 Profit / Loss for the period Profit available for distribution 56,446,183 Total dividend payments 44,416,723 3,106,746 12,029,460 20,105 Profit / Loss to be carried forward (71,004,191) (56,805,252) (7,494,116) 4. Off balance sheet positions COMMITMENT CURRENCY COMMITMENT IN € 99,999 $ 87,511 270,483 € € 1,100,000 Schroder Ventures International Life Sciences Fund II NetFund Europe Ventech Capital 2 1,100,000 270,483 5. Post balance sheet events 5.1. On July 18th, Quest for Growth invested GBP 250,000 in Futura Medical plc, a developer of medical and consumer products for the sexual health market. The company listed on London’s Alternative Investment Market (AIM) on 22 July. 5.2. The company’s net asset value is below 50% of its subscribed capital. In accordance with article 633 of the Belgian Company Code, the board of directors will convene an extraordinary general meeting of shareholders. Quest for Growth 2002-2003 3. Profit distribution Quest for Growth 2002-2003 38 6. Notes to the financial statements 1. The conversion of foreign currencies to the Euro has been done at the following rates in the balance sheet: € 1.00 = $ 1.1427 £ 0.6932 NOK 8.2935 DKK 7.4299 8. In august 2002, Quest for Growth received $347,152 cash from the partial liquidation of Pagoo. At first the new shares of the remaining company were valued at its cash level. Pagoo currently is still not making profit. It is expected that either the company will be sold at a low valuation or will be liquidated in the coming six months. Quest for Growth does not expect to receive any material proceeds. 9. Phytera has sold its main platform to Galileo Laboratories last year. In this transaction Quest for Growth was granted 57,865 shares of Galileo. Quest for Growth believes the remaining assets of Phytera have no material value anymore therefore the valuation remains at zero. CHF 1.5544 SEK 9.2488 2. In December 2002 and May 2003 Quest for Growth received dividends from Kiwi I Ventura Serviços Fund for the total amount of € 71,602.93. For the remaining portfolio (investments in 11 independent active companies) Quest for Growth follows the valuation as determined by Pino Ventures, directors of the fund, dated 31st March 2003. 3. The valuation of Schroder International Life Sciences Fund II was reduced by 11.7 % based on the company’s financial statements of 31st March 2003. A further $ 200,000 was drawn down from existing commitments during the fiscal year. 4. The valuation of Netfund Europe was reduced by 38.5% based on the company’s annual report of 31st December 2002. NetFund Europe is continued for the phasing out of its portfolio. 10. Galileo Laboratories has closed a $ 30 mio fund raising in which Quest for Growth has taken part for its pro rata amount of $ 24,599 in order to avoid heavy dilution. 11. The investment in Mamut has experienced no change in valuation. Differences are due to exchange rate fluctuations of the NOK. The company is slowly growing. 12. Endpoints is basically insolvent, but tries to restructure its debt. Quest for Growth doesn’t expect to get anything out of a likely liquidation and therefore its valuation in Endpoints was further reduced to zero. 13. Nasdaq Europe has started the wind down of its Nasdaq Europe platform. The same is expected for Nasdaq Deutschland in which Nasdaq Europe holds 50%. Quest for Growth does not see any hope for recovery for Nasdaq Europe. The company is valued at zero. 6. The investment in Angiosonics was reduced to zero value in the previous fiscal year because the company has ceased trading and the shares are not considered to have material value. 14. The investment in Omrix was valued at zero last year because the company had difficulties to meet its business plan, was running out of cash and had failed in an effort to raise additional funds. Meanwhile, in October 2002 Omrix closed a bridge financing. In March 2003 the company received an FDA approval for their plasma fractionation and manufacturing plant in Israel. If Omrix can keep its current momentum Quest for Growth will consider a potential increase in valuation. 7. Equator has closed a financing round of $ 11mio in March 2003 at a substantially lower valuation. Quest for Growth did not participate, therefore its stake was diluted heavily to €99,834. 15. The valuation of Oxagen Ltd did not change during the last year. Differences are due to the exchange rate fluctuations of the £.The company is still operating according to its original business plan. 5. The valuation of Ventech Capital 2 was reduced by 23.4% based on the company’s annual report of 31st March 2003. Another €200,000 was drawn down from existing commitments during the fiscal year. 39 17. Quest Management NV is paid a management fee of 2% (pro rata temporis) on the subscribed capital. For the accounting year ended June 30th 2003, € 2,344,551 was paid. 18. Dexia Bank acts as depositary bank for Quest for Growth. The cost structure is as follows: ASSET COMMISSION CLEARING FEE PER TRANSACTION Quoted shares: 0.07 % per annum € 37.1840 Unquoted shares: 0.01 % per annum Not applicable Deposits and liquidity: 0.01 % per annum Not applicable 22. Statement of the fixed assets (investment portfolio) in €: ACQUISITION COST At the end of the preceding period 69,349,894 Movements during the period o Acquisition, including fixed assets o Sales and disposals 54,374,172 (74,653,695) o Transfers from one heading to another At the end of the period 49,070,371 REVALUATION SURPLUSES At the end of the preceding period 2,545,728 Movements during the period o Recorded o Reversals (728,350) o Transfers from one heading to another At the end of the period 1,817,378 DEPRECIATION AND AMOUNTS WRITTEN DOWN The above-mentioned commission is due quarterly at the end of each quarter. Clearing fees are due at settlement date. No other fees are due for the activity as depositary bank. At the end of the preceding period 29,872,897 Movements during the period o Recorded The commission paid to Dexia Bank amounted to € 35,301 for this financial year. 19. No Remuneration was paid to other companies that have a professional relationship with the statutory auditor. o Written down after sales and disposals (9,167,123) At the end of the period 20,705,775 FINANCIAL ASSETS AT THE END OF THE PERIOD 30,181,974 20. Deferred charges and accrued income: Transfer agents: €0 Deferred charges: € 20,331 Accrued income: € 73,259 21.Accrued charges and deferred income: Transfer agents: €0 Accrued charges: €0 23. Shareholders who have notified an interest of 5% or more in the company: Dexia Bank Belgium NV Pachecolaan 44, 1000 Brussels, Belgium 431,911 shares, representing 7.97% Quest for Growth 2002-2003 16. For certain transactions Quest for Growth has worked through the intermediary of Dexia Bank, a strategic partner of the company. As mentioned in the report of the independent board members, these transactions were concluded at market value. Quest for Growth 2002-2003 40 7. Valuation rules closing price is not a fair reflection of the market and another Investments are valued in accordance with the Royal Decrees of October 8, 1976 and March 8, 1994.These are treated as collective investments with variable participation rights, in accordance with the Royal Decree of April 18, 1997 covering investments in non-quoted partnerships and growth companies. Under these Decrees investments in financial instruments, which are not quoted on a regulated market are initially valued at cost. the reasons for the values it selects. 1. Investments in financial instruments of early stage companies that are not quoted on a regulated market. value is justified, this value will be used.The Board will set out c) Investments in other currencies are converted into Euro at the Euro foreign exchange reference rates, procured daily by the Central European Bank. d) Equity Option Agreements are valued according to the rules set for by the Belgian Commission For Accountancy Principles: ● Option premiums are immediately taken into the result of the current period; Not applicable. ● The option risk is covered by a provision that reflects the value of the option (the option premium) at the 2. Investments in financial instruments of mature companies which are not quoted on a regulated market: a) The investments are valued at cost. end of the reporting period; ● The option commitments of the options are reflected off-balance; ● The additional costs to option agreements are imme diately deducted from the result of the current period; b) The investment is revalued if there are sufficient objective indications at hand, like (but not limited to) ● A significant third party transaction at a new value; ● Net assets that have clearly changed; ● Profit trends indicating a change in value. c) The value shall be reduced when (but not limited to): ● Significantly less favorable results than foreseen indicate a permanent decrease in value; ● There is a need for additional financing to avoid settlement, judicial agreement or failing; ● A significant third party transaction at a new value has been concluded. ● When executed, the premium of an option agreement is registered as a part of the purchase or selling price of the underlying stocks. e) In accordance with article 7 §2 of the Royal Decree of March 18, 1994, stocks and other financial instruments are booked at cost.Additional costs are immediately deducted from the result. Disposals of stocks and other financial instruments are booked at their selling price. Additional costs are also immediately deducted from the result. f) Provisions are made for financial instruments that are subject to lock-up provisions. 3. For financial instruments, which are quoted on a regulated market: a) Instruments traded on a regulated and liquid market: the published closing price. b) If these instruments are not traded on a regulated or liquid market, and in the opinion of the Board of Directors, the 4. Formation costs are capitalised and written off over 5 years. 5. The costs of financial instruments are determined by the weighted average prices of acquisition. REPORT OF THE BOARD REPORT OF THE BOARD OFOFDIRECTORS DIRECTORS 41 In accordance with the Law and the bylaws of the Company we are pleased to report to you on the activities of Quest for Growth NV and to present, for your approval, the annual accounts for the year ending June 30th, 2003. Activities Quest for Growth NV was created as a privak in June 1998 with the objective of providing individual and institutional investors access to a range of investment opportunities relating to European technology based growth companies. The Company invests in quoted growth companies, participates in private placements of potentially listed companies and is a limited partner in certain venture funds.The daily management of Quest for Growth NV is entrusted to Quest Management NV, a company specialising in managing portfolios of emerging technology growth companies. The Privak structure provides you, the shareholders of Quest for Growth NV. with a fully tax transparent treatment of your investment and assures the highest quality standards in terms of transparency and corporate governance. The Board of Directors has delegated authority for investments in quoted companies to Quest Management NV. Unquoted investments are made following proposals from Quest Management NV, which are approved by an Investment Committee comprising five members of the Board of Quest for Growth NV. Quest Management NV provides monthly reports to the Board of Directors on all its activities and investment performance. Quarterly and annual reports are available to shareholders on request and also on the company’s web site www.questforgrowth.com Quoted companies are judged on their long-term growth potential, the quality of the management and the sustainability of their competitive position. Holdings in these companies are increased or reduced on the basis of the judgement of the stock market valuation by Quest Management NV. In choosing stocks for investment, care is taken to ensure that the portfolio remains diversified both by industry and by geography. Investments in unquoted companies are based on similar criteria to public companies with the additional condition that they should have a reasonable chance of obtaining a public market listing within 3 years from the date of Quest for Growth’s investment (changed from 18 months in January 2003). In practice, some companies may reach the public markets sooner than this and others will inevitably require longer than expected. Details of investments can be found in the Portfolio section of the annual report. Annual Accounts For the accounting year ending on 30th June 2003 the company had a net loss of € 14,198,939 (2002: a loss of € 49,311,136) or € 2.62 per share (2002: a loss of € 9.10 per share).The gross operating income included realised net loss of € 40,023,223 and unrealised net gain of € 29,144,547. On 30th June 2003 total assets were € 46,289,763 (2002: € 60,688,838) and the Net Asset Value per share stood at € 8.53 (2002: € 11.16). The Quest for Growth share price at June 30th was €5.30 and the 2005 warrant price was € 0.41 In accordance with article 96, 6° of the company code, the Board of Directors expresses its intention to continue business, notwithstanding the losses submitted over the last two accounting years. These losses are the result of a consistent application of our valuation rules that require a conservative approach of the valuation of our investments in unquoted companies and a valuation of our investments in quoted companies at closing market value. The financial statements were made on a going concern basis. We would also like to draw your attention to the special report of the Board of Directors that was submitted to the Extraordinary General Meeting in accordance to the article 633 of the company code. At the end of the financial year, due to the company’s decision only to make prudent investments in unquoted companies, the company was not in compliance with privak rules on asset allocation. The Directors have no knowledge of other facts, after the end of the accounting year that might have a significant influence on the development of the company. In view of the objectives of the company, there are no activities planned or undertaken in the area of research and development of an industrial nature Appropriation of the result The Board of Directors proposes to the Annual Meeting of Shareholders to carry forward the net loss of €71,004,191 to the next accounting year. In view of this negative result, the board is not able to propose a dividend for this accounting year. Discharge We request you, by separate votes, to give discharge to the Directors and the Auditor for the execution of their mandates over the past year. Leuven, July 22nd, 2003 The Board of Directors of Quest for Growth NV Quest for Growth 2002-2003 Ladies, Gentlemen, REPORT OF THE REPORT OF THE INDEPENDENT DIRECTORS INDEPENDENT DIRECTORS Quest for Growth 2002-2003 42 REPORT OF THE INDEPENDENT DIRECTORS CONCERNING THE RESULTS OF THE FINANCIAL YEAR ENDED ON JUNE 30th, 2003 To the shareholders, In accordance with the legal provisions – in particular article 25, §1 of the Royal Decree of April 18th, 1997 on the Privaks – and the statutory provisions, in particular article 23, second paragraph, we report to you on the execution of the supervision assignment that has been entrusted to us. The above-mentioned provisions anticipate that the undersigned supervise the daily management of Quest For Growth. Our supervision refers, in particular, to the transactions that are performed by the company, whereby one of the persons, mentioned in article 25, §1 of the above-mentioned Royal Decree directly or indirectly acts as counter party or obtains any proprietary legal benefits from the transaction. Our supervision had access to all investment proposals that were approved by the Board of Directors during the past financial year.We have confirmed that persons involved in Quest For Growth as counter parties or benefiting from any proprietary legal benefits have not taken part in the negotiations, nor have they taken part in the voting. Furthermore we have verified the calculation of the remuneration of the depository bank over the accounting year. For the transactions in quoted shares, we have checked all transactions of a number of randomly selected Exchange days. Our inspection has not revealed any transactions that were not in conformity with the market. In our opinion there are no remarks to be formulated on the way in which the daily management of the company has been performed.We have ascertained that the company and all persons involved have always acted in a correct manner in situations where possible conflicting interests could occur, in accordance to the legal and statutory provisions and the Ethical Code that these people have imposed on themselves.The transactions and decisions were taken and executed for the benefit of the company and in conformity with its investment policy. Leuven, July 18th, 2003 Prof. Koen Debackere Gengest BVBA Independent Director Independent Director Represented by Mr. Rudi Mariën REPORT OF THE REPORT OF THE STATUTORY AUDITOR STATUTORY AUDITOR 43 In our opinion, taking into account the prevailing legal and STATUTORY AUDITOR’S REPORT ORIGINALLY regulatory requirements, the financial statements present PREPARED IN DUTCH fairly the Company’s net worth and financial position as of June 30, 2003 and the results of its operations for the year Report of the Statutory Auditor (Commissaire/ Com- then ended and the disclosures made in the notes to the missaris) on the statutory accounts submitted to the Annual financial statements are adequate. General Meeting of QUEST FOR GROWTH NV PRIVAK Statutory accounts for the year ended 30 June 2003 In accordance with legal and statutory requirements, we are reporting to you on the completion of the mandate which you have entrusted to us. Notwithstanding the significant losses incurred during the year ended June 30, 2003, which have had a negative impact on the Company's financial position, the statutory accounts have been prepared assuming that the Company will continue as a going concern. Without having the intention to change the abovementioned statement, we draw your attention to the annual report, in which the Board of Directors, according to Belgian We have audited the financial statements as of and for the year ended June 30, 2003 with a balance sheet total of Company Law, justifies the application of the valuation rules in the assumption of the continuity of the company. EUR 46.289.763,24 and a loss for the year of EUR 14.198.939,29. These financial statements have been prepared Additional assertions under the responsibility of the Board of Directors of the Company. In addition we have carried out the specific additional As required by generally accepted auditing standards the audit procedures required by Company law. following additional assertions are provided. These assertions do not alter our audit opinion on the financial statements. Unqualified audit opinion on the financial statements, with explicatif paragraph ● The directors’ report contains the information required by law and is consistent with the financial statements. The directors’ report also contains a clarification concerning the We conducted our audit in accordance with the standards non-compliance of the rules of the current PRIVAK legislation of the "Institut des Réviseurs d'Entreprises-Instituut der Bedrijfsrevisoren". Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material ● complies with the legal and statutory provisions. ● we have to report to you. ● financial statements have been prepared in accordance with Company’s administrative and accounting organisation as well as have provided us with all explanations and information, which Without prejudice to certain formal aspects of minor importance, the accounting records are maintained and the In accordance with these standards we have considered the its internal control procedures. The Company's management There are no transactions undertaken or decisions taken in violation of the Company’s statutes or Company Law which misstatement, taking into account the legal and regulatory requirements applicable to financial statements in Belgium. The appropriation of results proposed to the general meeting the applicable Belgian legal and regulatory requirements. ● Article 633 of the Company Law is still applicable. The rules described in the Belgian Company Law have been followed. we required for our audit. We examined, on a test basis, evidence supporting the amounts in the financial statements. Leuven, 22 July 2003 We assessed the accounting policies used and significant Klynveld Peat Marwick Goerdeler accounting estimates made by the Company, as well as the Bedrijfsrevisoren - Réviseurs d'Entreprises overall presentation of the financial statements. We believe that Statutory Auditor our audit provides a reasonable basis for our opinion. represented by Erik Clinck Quest for Growth 2002-2003 FREE TRANSLATION OF UNQUALIFIED GLOSSARY GLOSSARY Quest for Growth 2002-2003 44 Bevak: A Belgian collective investment scheme, which is established in the form of a closed-end investment company. Bylaws: are the operating rules of a corporation.They are adopted by the company's Board of Directors and govern such things as the election of directors, the size of the Board of Directors, and the election and function of each of the company's officers. Bylaws can normally be amended by the company's directors and are more easily changed than the company's charter, which can only be amended with shareholder approval. Depository bank: Due diligence: holds all the assets of the privak ● Is responsible for the payment of the purchased financial instruments ● Handles the delivery of sold financial instruments and the reception of the purchased securities ● Will take care of the dividend and interest payments on portfolio assets is the independent investigation of a company, its management team, and its prospects for success by an investor before funding is approved. It is usually intensive and thorough. It customarily includes verifications of statements made in the business plan, and studies of the company's product and market, material, contracts, facilities, real property owned, subsidiaries, lawsuits, insurance, patents and other intellectual property rights, licenses and permits, and tax status. Growth companies: are defined by the Royal Decree of 18th April 1997 as companies, listed on an official exchange, a regulated or another organized, recognized market provided that this exchange or market is designated to young and growth companies.The Banking and Finance Commission publishes a list of qualifying markets. At 30th June 2001 this included NASDAQ Europe, Euro.NM, NASDAQ and AIM. Growth stocks: stocks issued by companies that are expected to grow fast and create a healthy return on investment for their investors. IPO: or "Initial Public Offering" is the registered public offering of securities of an issuer to the public for the first time. ISD: or "Investment Services Directive"; European Directive of 10 May 1993 liberating the investment services in the securities field.This directive introduces the European passport for investment firms. Joint venture: refers to business projects undertaken co-operatively by two or more parties where each contributes different skills and resources and shares in the result of the endeavour.They usually include active participation by all joint ventures. They can be structured as contractual arrangements or can appear as specialized partnerships. They can even appear as corporations with special contractual arrangements among the shareholders. Net income: net income is defined in the Royal Decree of 18 April 1997 as the net profit of the year, excluding depreciation of holdings, reduction of depreciation and unrealised capital gains. At least 80% of the net income of the privak must be paid out as a dividend. Privak: a listed private equity bevak, governed by the Royal decree of 18 April 1997, and designed for investments in growth companies and in securities, which are not listed. 45 the Royal decree of 18 April 1997 on collective investment schemes for investments in unquoted companies and growth companies. Private placement: The offer and sale of securities not involving a 'public offering'.The definition of 'public offering' varies from country to country. Typically, a private placement implies that the stock will be placed with only a limited number of mainly institutional investors. Qualifying financial instruments: financial instruments which are defined as such by the Privak-decree ● Shares and assimilated financial instruments; ● Bonds and other debt instruments; ● Other negotiable securities by which the above mentioned financial instruments can be pur chased or obtained in exchange; ● Call or put options on the above mentioned financial instruments, on condition that the underlying asset is a qualifying holding; ● Qualifying holdings: Units in collective investments schemes. According to the Privak-decree qualifying holdings are ● Qualifying financial instruments, issued by unquoted companies; ● Qualifying financial instruments, issued by growth companies; ● Shares or units, issued by other collective investment schemes or holding companies with an investment policy which is in essence compatible to that of the privak itself. RDT’s: "Revenues Définitivement Taxés". Shareholders, normally subject to Belgian Corporation tax, are not taxed on dividends for 95% of the amount of the dividend if: ● They are holding at least 5% of the company which pays the dividend or ● If the acquisition value of the holding represents at least 50 million BEF; ● The company that pays out the dividend has committed in its Articles of Association to pay out at least 90% of distribuable profits. Unquoted companies: companies whose shares are not listed or traded on an official stock exchange, a regulated market nor on another organised, recognised market. Venture capital: is money invested in a company at high risk to the investor, usually in situations in which the company is unable to secure needed funds from traditional lending sources, such as a commercial loan from a bank. Venture capital can be invested through the purchase of stock (equity), by making a loan (debt), or through the combination of the two. Venture capital investors require a very high rate of return and thus only invest in companies with good prospects for rapid growth. Quest for Growth 2002-2003 Privak-decree: Quest for Growth 2002-2003 46 GENERAL INFORMATION GENERAL INFORMATION 47 Quest for Growth 2002-2003 General information about the Company Hans BERQUIN at Brussels on the The thirtieth of June, nineteen hundred and amended by deed passed before Notary ninety-eight, of Eric SPRUYT on the seventeenth of which was published in the Annexes to September two thousand and published the Belgian Gazette on the following in the Annexes to the Belgian Gazette on nineteenth of September under the the tenth of January two thousand and Name, Legal form and registered office number 980919-328. one under the number 20010110-533. were The Articles of Association were last The company is a public limited company amended by deed passed before Notary amended by deed passed before Notary trading under the name of "Quest for Eric SPRUYT at Brussels on the twenty- Luc HERTECANT, at Overijse, on the Growth". It is incorporated as an second of July, nineteen hundred and nineteenth of September two thousand investment company with a fixed capital ninety-eight, of and two and published in the Annexes to for investment in listed and unlisted which was published in the Annexes to the Belgian Gazette on the twenty-ninth companies, hereinafter called "the Privak" the Belgian Gazette on the following of October two thousand and one under (private nineteenth of September under the the number 0132476. collective company). The The venture company’s capital registered the Articles announcement of the Association announcement Articles of Association were number 980919-327. office is situated at B-3000 Leuven, Lei 19, A deed amending the Articles of Association The company is established for an box 3. The company is registered in including a decision to increase the capital indeterminate period of time and shall Belgium under Leuven trade registry was drawn up before Notary Eric SPRUYT start trading on the date of its formation. number 99 856. at Brussels on the twenty-fifth of August, nineteen hundred and ninety-eight, the Financial year and audit Formation, changes to the articles of association, duration announcement of which was published in The Company’s financial year begins on the the Annexes to the Belgian Gazette on the first of July and ends on the thirtieth of June. The company was incorporated in the following twenty-fifth of November under The annual accounts are audited by Klynveld form of a public limited company (NV/SA) the number 981125-302. Peat Marwick Goerdeler Bedrijfsrevisoren by deed passed before Notary Hans The Articles of Association were last Burg. CV, represented by Mr Erik Clinck, BERQUIN at Brussels on the ninth of amended by deed passed before Notary Bourgetlaan 40, B-1130 Brussels June, nineteen hundred and ninety-eight, Hans BERQUIN at Brussels on the the twenty-second of September, nineteen announcement of which was hundred Gazette of the following 24 June under announcement of which was published in The company’s Articles of Association are the number 980624-595. the Annexes to the Belgian Gazette on available the following eleventh of November Commercial Court at Leuven. The annual under the number 981111-003. accounts of the Company are filed with the The Articles of Association were amended by deed passed before Notary and ninety-eight, the Consultation of company documents published in the Annexes to the Belgian from the Registry of the Quest for Growth 2002-2003 48 National Bank of Belgium.These documents, as well as the annual and semi-annual reports and all published information intended for shareholders can also be obtained at the company’s registered office. The company�s quarterly, semi-annual and annual report is sent every year to all registered shareholders and other persons who so desire. Company objectives The objects of the Privak are the collective investment of funds collected from the public pursuant to the Royal Decree of the eighteenth of April nineteen hundred and ninety-seven in short term investment certificates. From the second year of operations onwards such liquid funds shall in principle be limited to ten percent (10%) of the assets unless a special decision by the Board of Directors temporarily authorises a higher percentage. Day-to-day management is carried out by Quest Management NV, acting as the Managing Director. General meeting The General Meeting shall be held on the third Thursday in September at 11am. Where that date falls on a public holiday, the meeting shall take place the next working day. On 22 July 1998, the share capital was increased by 140,000,000 BEF up to 708,000,000 BEF through the issue of 140,000 ordinary shares On 22 September 1998, the share capital was increased by 2,000,000,000 BEF up to 2,708,000,000 BEF through a public offer to subscribe for 2,000,000 new ordinary shares. On 17 November 2000, the share capital was increased by 50,098,000 EUR to 117,227,566.51 EUR through a public offer to subscribe for 2,708,000 new ordinary shares. listed and unlisted growth companies and The subscribed capital of the Company funds with a similar objective to the is Privak. It shall be governed in its investment policy by the aforesaid Royal Decree and by the provisions in these Articles of Association and the prospectus published with regard to the issue of shares to the public. The Privak shall focus its investment policy on investment in growth industries in various sectors of the economy including but not limited to the sectors of medicine and health, biotechnology, information technology, software and electronics and new materials. Furthermore the company may incidentally keep liquid funds in the form of savings accounts, investments at notice or General information about the Company’s capital Issued capital of the Company The Company was incorporated on 9 June 1998 with share capital of 201,000,000 BEF through the issue of 200,000 ordinary shares, 750 A shares and 250 B shares. On 30 June 1998, the share capital was increased by 367,000,000 BEF up to 568,000,000 BEF through the issue of 367,000 ordinary shares. 117,227,566.51 represented by EUR and 5,415,000 it is ordinary shares, 750 A shares and 250 B shares without nominal value. All ordinary shares have the same rights and privileges, represent the same fractional value of the capital of the Company and are fully paid-up. All these ordinary shares have the same voting rights, dividend entitlements and rights to the liquidation surplus. The holders of Class A and Class B shares shall receive a preference dividend. That preference dividend shall be paid out of the part of the net profit that exceeds the amount necessary to pay to all the 49 Quest for Growth 2002-2003 shareholders a dividend equal to ten percent (10%) nominal calculated on the basis of the invested capital including any issue premiums at the end of the financial year to which the dividend relates. Of that surplus amount twenty percent (20%) shall be paid out to holders of Class A and Class B shares as preference dividends. The remaining eighty percent (80%) shall be distributed equally among all shareholders. If the aforesaid ten percent (10%) is not achieved in any one year, the shortfall must be recuperated before the preference dividend can be paid out. The calculation shall be made on a nominal basis.If the capital is increased during the year, the new capital contributed shall be included in the calculation pro rata temporis. The General Meeting can increase or The result of the exercise of the warrants reduce the subscribed capital. In the event as well as the number of non-exercised of an increase in capital by issuing shares warrants that will be sold through the in return for a contribution in cash, it is scrips, will be published in the press on not possible to deviate from the priority October 27th 2005. right of the existing shareholders. The purchasers of the scrips can Warrants subscribe for new shares by exercising 5,416,000 the scrips during the Fourth Exercise warrants were issued. Each warrant gives Period that will be closed on November its holder the right to subscribe to one 4th 2005 and this at the Exercise Price new ordinary share in the Company, on and in the proportion of 1 ordinary exercise of the warrant during one of the share for 1 scrip. On 26 September 2002 exercise periods, against payment of the Exercise Price of € 8.00 per ordinary share. The warrants may be exercised by their holders from October 1st up to and Authorised capital of the Company including October 20th at 4.00 PM of the The updated text of the Articles of Association as on 17 September 2000 has expressly permitted the Board of Directors to increase the share capital in one or more times by a maximum amount of 117,227,566.50 EUR. (Second Exercise Period) and 2005 (Third This authorisation is granted for a period of five years, counting from publication of the Act of Capital increase of the Company on 17 November 2000, announced in the Appendix to the Belgian Official Gazette (Moniteur Belge /Belgisch Staatsblad). It can be renewed one or more times, for a maximum period of five years on each occasion. years 2003 (First Exercise Period), 2004 Exercise Period), by submitting The net proceeds of the sale of the scrips, after deduction of the expenses, costs and other charges incurred by the Company, will be distributed evenly between all the warrants that were not exercised during the Exercise Period. an Information on share ownership irrevocable exercise declaration to the The following shareholders have notified Domiciliary Bank. the Company of their interest of 5% or more in the Company: The warrant holders who at the latest on October 20th 2005 at 4.00PM have not used their right to exercise their warrants, will not be able to use their right after that day. The non-exercised warrants will be represented by scrips that will be offered for sale on Euronext Brussels as soon as possible after the closing of the Third Exercise Period and in principle on October 28th, 2005. Name and address DEXIA BANK NV Pachecolaan 44, 1000 Brussel Number of shares 431,911 % 7.97 Date declaration 20/11/00 FINANCIAL CALENDAR FINANCIAL CALENDAR Quest for Growth 2002-2003 50 SHAREHOLDERS MEETINGS: Extraordinary General Meeting: 18 September 2003 Annual General Meeting: 18 September 2003 Annual General Meeting: 16 September 2004 PUBLIC ANNOUNCEMENTS: Results Q1: ANALYST MEETINGS: PRESS CONFERENCES: 24 October 2003 Results Q2: 23 January 2004 Results Q3: 23 April 2004 Results Q4: 23 July 2004 23 October 2003 04.00 PM 22 January 2004 04.00 PM 22 April 2004 04.00 PM 22 July 2004 04.00 PM 23 October 2003 11.00 AM 22 January 2004 11.00 AM 22 April 2004 11.00 AM 22 July 2004 11.00 AM PUBLICATION NET ASSET VALUE: NAV end of: Cash! F.E.T. L’Echo QfG website Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 9-Oct 6-Nov 4-Dec 3-Jan 7-Feb 9-Mar 3-Apr 8-May 5-Jun 3-Jul 4-Oct 8-Nov 6-Dec 8-Jan 5-Feb 4-Mar 8-Apr 6-May 10-Jun 8-Jul 4-Oct 8-Nov 6-Dec 8-Jan 5-Feb 4-Mar 8-Apr 6-May 10-Jun 8-Jul 3-Oct 5-Nov 3-Dec 2-Jan 4-Feb 3-Mar 2-Apr 5-May 4-Jun 2-Jul WARRANT EXERCISE DATES: 1 October 2003 - 20 October 2003 1 October 2004 - 20 October 2004 3 October 2005 - 20 October 2005 28 October 2005 - 4 November 2005 KEY KEYINFORMATION INFORMATION 51 Dr. Jos B. Peeters, Chairman Quest Management NV, Managing Director, represented by Philip Fearnhead BVBA, Managing Director of Quest Management NV Bergendal & Co SPRL, Vice Chairman, represented by Comte Diego du Monceau de Bergendal Tacan BVBA, Vice Chairman, represented by Mr. Johan Tack Philippe Haspeslagh BVBA, Director, represented by Prof. Philippe Haspeslagh Joedheco NV, Director, represented by Mr. Leo Claeys Mr. Patrick Millecam, Director Mr. René Avonts, Director Gengest BVBA, Independent Director, represented by Mr. Rudi Mariën Prof. Koen Debackere, Independent Director Mr. John Boeckmann, Director AUDIT COMMITTEE Bergendal & Co SPRL, represented by Comte Diego du Monceau de Bergendal Tacan BVBA, represented by Mr. Johan Tack Gengest BVBA, represented by Mr. Rudi Mariën Prof. Koen Debackere ASSET MANAGER Quest Management NV, Lei 19 Bus 2, B-3000 Leuven AUDITORS Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren Burg. CV, represented by Mr Erik Clinck, Bourgetlaan 40, B-1130 Brussels DEPOSITARY BANK DEXIA BANK, Pachecolaan 44, B-1000 Brussels Share Warrant INCORPORATION June 9th, 1998 OFFICIAL LISTING September 23rd, 1998 on Euronext Brussels SECURITY NUMBER ISIN: BE0003730448 ISIN: BE0099924145 STOCK PRICE Bloomberg: QFG BB EQUITY Bloomberg: QFGW4 BB EQUITY Reuters: QUFG.BR Telekurs: 950524 COMPANY REPORTS Quarterly, the next report will be the quarterly report, to be published in October 2003. ESTIMATED NET ASSET VALUE Published every first Saturday of the month in "De Financieel Economische Tijd", in "L’Echo", "Cash!" and on the Quest for Growth website. Quest for Growth 2002-2003 BOARD OF DIRECTORS Quest for Growth 2002-2003 52 QUEST FOR GROWTH NV Privak, fixed capital investment company established under Belgian Law Lei 19, bus 3 B-3000 Leuven - Phone: +32 (0)16 28 41 28 Fax: +32 (0)16 28 41 29 Internet: http://www.questforgrowth.com E-mail: [email protected]
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