AAM.L Regulatory News (AAM)

Artemis VCT plc (the 'Company')

Legal Entity Identifier: 549300R6443VUTMRCP48

Annual Financial Report for the year ended 30 September 2018

This announcement contains regulated information

Financial Highlights

- Net asset value return of 18.8% and share price return of 36.7%.

-  Declared special dividend of 4.00 pence per share and a second interim dividend of 2.00 pence per share.

- Total dividends declared for the year of 21.00 pence per share.

† Alternative Performance Measure

* Source: Artemis Fund Managers Limited ('Artemis').

‡ Includes declared special dividend of 4.00 pence per share and a declared second interim dividend of 2.00 pence per share in respect of the year ended 30 September 2018. These were paid on 30 November 2018.

Return for the periods ended 30 September 2018

*Source: Artemis Fund Managers Limited ('Artemis').

Strategic Report

Chairman's Statement

Performance

I am pleased to report another year of solid returns for shareholders. The Company's net asset value at 30 September 2018 was 64.40 pence. Having started the year at 73.60 pence, and with dividends paid in the year amounting to 23.00 pence, a total 13.80 pence per share of value has been generated for shareholders over the year. This is equivalent to 18.8% of the starting net asset value.

This year's performance is a continuation of returns which shareholders have enjoyed over a number of years. Shareholders' returns over three and five years have been 76.3% and 121.9% respectively. Over the five years to 30 September 2018 total dividends paid to shareholders amount to 78.00 pence per share. Over the life of the Company total dividends paid now stands at 113.20 pence per share.

Results and dividends

The return for the year was a gain of 13.80 pence per share. The latter six months of this year have seen a significant amount of cash generation from investment disposals. It remains the case that there are limited suitable opportunities to reinvest these funds and, as there are regulatory and compliance constraints for VCT companies holding cash for long periods of time, the Board decided to return a portion of these funds to shareholders at the earliest opportunity. As a result, the Board, has declared dividends in total of 21.00 pence per share for the year ended September 2018 (2017: 20.00 pence per share) throughout the year.

Shareholders will be aware that the Company has now paid special dividends for a number of years. These dividends have arisen as a result of the Investment Manager generating cash proceeds realised from the portfolio as the companies have been re-rated and profits have been taken. Changes to the VCT regulations have reduced both the type of companies VCTs can invest in and the making of further investments in existing holdings. This has resulted in the Company distributing excess cash as special dividends to maintain its VCT qualifying percentage above the required level, particularly when there are considered to be limited suitable investment opportunities in which to re-invest this excess cash.

It remains the Board's view that should suitable investment opportunities arise in the future, then new investments will take priority over special dividends. However, should the Company be in a similar position in the future, having generated significant cash balances, the Board will again consider whether these funds should be returned to shareholders through special dividends.

Deal flow

Whilst there are companies coming to the VCT sector for new capital, these are still often companies that do not meet the Investment Manager's valuation assessment or are at a stage in their business development that does not fit with our investment criteria and as such the flow of suitable deals has continued to be limited. This has resulted in a portfolio that has remained fairly consistent with the prior year with only two new qualifying investments, Pelatro and KRM22, being added. It is hoped deal flow will improve and further new investments can be added to the portfolio in the year to come.

Share buy backs

The Company's discount of 6.6% at the start of the year became a premium of 10.2% as at 30 September 2018; and currently sits at 15.9% as at signing date.

The premium/discount is monitored and any future buybacks will follow the guidelines set by the Board. Share buybacks remain subject to the Company having the necessary shareholder authorities in place and having sufficient cash available for this purpose, taking into account future cash requirements for investing activities, the payment of dividends and operating expenses.

The Board regularly reviews the buyback policy to ensure any discount of share price to the net asset value is actively managed. As detailed in the Directors' Report, the Investment Management fee of the Company is linked to the share price, which aligns to shareholders' returns.

Further details regarding the shares purchased during the year are provided in the Share capital section of the Strategic Report.

Annual General Meeting (AGM)

The AGM, the location of which alternates between Edinburgh and London, will be held on 13 February 2019, at 42 Melville Street, Edinburgh, Midlothian, EH3 7HA. The Notice of Meeting containing full details of the business to be conducted at the meeting is included in the Annual Financial Report.

The fund manager, Andy Gray, will make a short presentation at the meeting and shareholders will then have an opportunity to meet both him and the Directors. The Board would welcome your attendance at the AGM as it provides shareholders with an opportunity to ask questions of the Board and the fund manager. For those shareholders who are unable to attend, I would encourage you to make use of your proxy votes by completing and returning the form of proxy enclosed with the Annual Financial Report.

Corporate Governance

The Board is closely monitoring the proposed changes in Corporate Governance which will be effective for the Company from 2020. The Board has agreed that each of the Directors should stand for re-election on an annual basis. Accordingly resolutions for this are being proposed at the AGM.

It is the intention of the Board that, once the new VCT regulations have had a chance to work their way through the system and the post Brexit horizon begins to clear, the Board, being mindful of guidance on best governance, will undertake a strategic review of the Company, which would include succession planning for the Board.

VCT Status

The Company has complied with all VCT tests throughout the year. The Board closely monitors the VCT status and believes that the Company is well placed to move to the new 80% threshold (up from 70%) of qualifying holdings from 6 April 2019, having already been generally managed to that percentage or above. The extension in the time period to re-invest sales proceeds to twelve months will be welcomed, adding more flexibility to investment decisions and the management of cash and dividends.

Outlook

The UK economic environment, along with the results of the drawn out Brexit negotiations and the VCT legislative change announced last year, can all be relied upon to make the upcoming year an interesting one.

The process of negotiating the exit from the EU remains complex with details only just emerging. There is still a lack of clarity on what the post-Brexit environment may look like from both a business and regulatory perspective. The Board is continuing to monitor developments and, through the Investment Manager, the potential impacts on our individual investee companies. At the present time, the Board believes that the portfolio of companies remain in a strong position to weather the uncertainty and changes that may be coming their way.

Contact us

The Board is always keen to hear from shareholders. Should you wish to, you can contact me at vctchairman@artemisfunds.com. You can also find regularly updated information on the Company, including a factsheet and performance data, on the Company's website at artemisvct.co.uk.

Fiona Wollocombe

Chairman

5 December 2018

Investment Manager's Review

Performance

We are pleased to report another year of continuing strong performance with our sixth successive year of double digit returns. Although the net asset value declined from 73.60 pence to 64.40 pence in the period we also paid 23.00 pence in dividends. Once these are added back this equates to a return of 18.8%. The equivalent figures for our preferred longer term periods of three, five and ten years are 76.3%, 121.9% and 146.6% respectively.

Review

Five largest stock contributors

Our largest contributor in the period was Yu Group. As a new entrant in the provision of energy supply to small businesses, we had been impressed by the revenue growth being reported with the company seeming to go from strength to strength. We were not alone and the shares performed well rising 47% in the year as a whole, with the share price peaking higher still. That said, as we outlined in the 2018 interim report, we did sell down almost three-quarters of our holding as the valuation rose and we felt the risk / reward had altered. With hindsight we wish we had sold more. This October the company announced that an accounting review by the new finance director had revealed a number of overstatements. Rather than showing a £5 million profit as previously forecast, the company now expects to be significantly loss-making in the current financial year. The company still has a strong cash balance but it will take time to resolve the issues and rebuild credibility. Whilst hugely disappointing it is, nevertheless, a useful reminder of why we take profits from our investments on a regular basis.

Looking back through previous reports we have not written about Craneware for some time but the company has been quietly making consistent progress. We invested in Craneware at its IPO in September 2007, attracted by its long term recurring revenue stream and the opportunity to address the large US hospital market with its revenue management software. Since that time revenue has grown from $15 million to $67 million and profit before tax from $4 million to $19 million. Over the same period the shares have risen from £1.28 to £33 and shareholders have also received a modest dividend each year. A substantial opportunity still exists, although this is now more widely recognised by investors with the shares trading on over 60x earnings compared to 20x at the time of the IPO.

It is a similar story of strong execution against a consistent organic growth strategy in the case of AB Dynamics. The IPO in May 2013 raised money to fund increased capacity as the company sought to help its automotive customers develop advanced vehicle safety systems. Consistently strong year on year growth has seen revenue rise from £9 million to over £40 million today. This consistent delivery has similarly been rewarded by investors with the share price rising from 86p at IPO to £12.20 today. Again an expanding valuation has been a big driver of this, as the single digit price / earnings ratio at IPO has risen to its current level of over 30x.

Although, as the table above shows, the last twelve months have been good but it has been a rockier ride for both ClearStar and Instem over recent years.

ClearStar, a technology and service provider to the background check industry, came to market in 2014 as a profitable company. The IPO funded investment into a direct sales team but the subsequent revenue growth, whilst positive, was below expectations and failed to compensate for the extra costs, leaving the company loss-making for a number of years. We are, however, now getting closer to an inflection point as the company approaches break even. As a result, attention has started to turn to the company's strong competitive position and market opportunity.

Instem too has seen margins fall since IPO in 2010. In 2009 it boasted operating margins of 21.9%. In 2017 it reported 10.6%. That said, the business does look like it has turned a corner. The software business is successfully winning contracts and the new service business is starting to see good traction. It has only been since March that the shares have risen back above the 175p IPO price but we expect the next eight years to be more rewarding for shareholders.

Five largest stock detractors

*Sold prior to year end

Although Dods was our biggest detractor in the year we must confess to being slightly at a loss to explain why. The company has remained a large holding throughout the year which has magnified the underperformance but the 22% share price fall is hard to rationalise. The company has made solid progress and, with stability achieved, the Chairman announced she was stepping down, with the turnaround phase of the last four years now complete. With strong profitable foundations and almost £9 million of cash in the bank the company is well positioned for the next phase of its development under the new Chief Executive, Simon Presswell. We look forward to reporting on the company's progress in future years.

Proactis' underperformance is more understandable. The acquisition of Perfect Commerce was a large one and the company has struggled to digest it. Unexpected customer attrition has impacted profit expectations and, coming so soon after raising money for the deal, the share price responded badly. We do think the market over-reacted but accept that it will take time for management credibility to be restored.

The mismanagement of investors' expectations can obviously be costly, as the management team at Velocity Composites has discovered. It is even more frustrating when it diverts attention from the good progress being made operationally. Since the IPO in May 2017, the company has grown revenues by 37%; built a substantial order book; successfully opened a second site; diversified internationally and strengthened the senior management team yet; the shares are down 68% on the IPO price. They now trade on less than 0.3x sales. As we said, frustrating! Recent boardroom changes are an acknowledgement of mistakes and we are optimistic that, with a more realistic assessment of future growth, the company's strengths and market opportunity will increasingly get the attention they deserve.

In February Gama Aviation raised £48 million to accelerate the group's strategy of becoming the leading global business aviation services group. The proceeds were used to consolidate ownership of joint ventures and invest in the company's US maintenance facilities to unlock further growth. Whilst these investments position the company well for the future, they have come at a time when the company is facing tough trading conditions in Europe casting doubt on profit forecasts for the year. As was the case with Velocity Composites, expectations of future growth have, as investors feared, ultimately proved too optimistic and the company issued a profit warning post year end in October 2018.

Gear4music, under the guidance of CEO and founder Andrew Wass, has achieved phenomenal sales growth in recent years from £24 million at the time of the IPO in June 2015 to an expectation of over £100 million just four years later. The shares are off their high but still finished the period up 270% since IPO. That said, we do have concerns over the outlook for the company's gross margins which have weakened in recent periods in response to a competitive environment that we do not expect to ease. With the shares still trading on a high valuation, we decided to err on the side of caution and sell our remaining holding. We wish Andrew and his team well.

Investment activity

Whilst our list of stocks remains almost identical to previous years - with just two additions and one outright disposal - our transaction activity has been high. Our two new qualifying investments in the period were Pelatro and KRM22.

As outlined in our interim report Pelatro develop and sell software to help telecoms companies optimise their marketing campaigns. Progress since the IPO has, so far, been encouraging with contract wins and the acquisition of a complementary product set.

KRM22 intends to build a suite of risk management tools for financial services companies on a common platform. This is a more unusual investment for us in that it is a very early stage, conceptual investment and, as such, this is reflected in our smaller than usual investment of £387,000. Our interest stems from our relationship with the founder Keith Todd, who we have known for many years. Keith was Chairman of Ffastfill, a previous investment of ours that was sold to Ion Group in February 2013 at 20p per share, a healthy gain on our investment at 7p per share. The company has already completed a couple of acquisitions and we look forward to working with Keith again in the years ahead as he seeks to replicate the success enjoyed with Ffastfill.

In common with recent years, transactions were heavily weighted towards disposals as we continued to take profits from a number of our investments. In total we generated proceeds of over £13 million, with the largest being Yu Group as outlined at the half year. The total realised gains in the year were £11.1 million. With little in the way of reinvestment, the cash was largely returned to shareholders with special dividends of 19 pence per share paid during the year, in addition to payment of the regular 4 pence dividend.

For all the selling activity we made just a single outright disposal in the last twelve months, namely Gear4music, as outlined earlier. We have generally adopted a "run your winners" approach over the years but, having sold down substantially in the prior financial year, we decided in this instance to realise our gains of almost £3.5 million over our investment cost of £1.3 million in 2015.

Outlook

We expressed our confidence in the outlook for our investments at the interim stage and this sentiment is unchanged. Although individual disappointments can, and do, happen we feel confident in the companies' prospects in aggregate. As we sit here today the biggest barrier to continued performance is valuations. Operational performance has been strong and consistent but the tailwind of expanding valuation multiples has amplified the impact on the portfolio's performance. To some extent future performance has been "pulled forward" as future growth is increasingly discounted in today's prices. There is a risk that this unwinds, or at least abates. Whilst acknowledging we could have made (and indeed did make) the same observation, wrongly, for the past couple of years, we expect to continue realising gains and locking in profits on an ongoing basis.

Andy Gray

Fund manager

5 December 2018

Strategy and Business Review

Corporate strategy and operating environment

The Company is incorporated in Scotland and its business as a venture capital trust ('VCT') is to buy and sell investments with the aim of achieving the corporate policy outlined below.

Objective and investment policy

The objective of the Company is to achieve long-term capital and income growth and to generate tax free capital and income distributions. The Company's investment policy is to invest in a diversified portfolio of growth orientated companies across a broad range of industries, with a particular emphasis on companies whose shares will be traded on AIM. Investments will also be in companies whose shares are traded on ISDX and unquoted companies. The Company's portfolio is managed in order to meet the investment requirements of Section 274 of the Income Tax Act 2007 ('s274') that, inter alia, requires at least 70% of the investments to be qualifying holdings. Subject to maintaining a prudent margin of safety over the 70% level, the Company's remaining assets may be invested in cash or money market deposits, fixed interest securities, unit trusts or UK listed securities without regard to the market capitalisation of such companies.

Operating environment

The Company operates as a VCT and has to satisfy the requirements of s274 (as outlined in the objective and investment policy) on an ongoing basis. The Directors have managed, and continue to manage, the business in order to comply with the legislation applicable to VCTs so as to continue to meet these conditions. As at 30 September 2018 the Company had 99.41% of its assets in VCT qualifying holdings. Compliance is monitored through regular reports from the Investment Manager and Administrator. In addition, the Board has appointed a tax advisor to provide further independent assurance of compliance with venture capital tax legislation and to provide guidance on changes in tax legislation affecting the Company.

The Company has no employees and delegates most of its operational functions to a number of service providers.

Current and future developments

A summary of the Company's developments during the year ended 30 September 2018, together with its prospects for the future, is set out in the Chairman's Statement and the Investment Manager's Review. The Board's principal focus is the delivery of positive long-term returns for shareholders. This will be dependent on the success of the investment strategy, in the context of both economic and stock market conditions. The investment strategy, and factors that may have an influence on it, are discussed regularly by the Board and the Investment Manager. The Board regularly considers the ongoing development and strategic direction of the Company, including the effectiveness of communication with shareholders.

Key Performance Indicators ('KPIs')

The performance of the Company is reviewed regularly by the Board and it uses a number of KPIs to assess the Company's success in meeting its objective. The KPIs which have been established for this purpose are set out below.

· Net asset value performance†. The Board monitors the performance of the net asset value of the Company through regular updates from the Investment Manager on the performance of the companies in the portfolio.

· Share price performance†. The Board monitors the performance of the share price of the Company to ensure that it reflects the performance of the net asset value. The Board believes this can best be achieved by establishing a discount policy at which the Company will buyback shares.

· Dividends. The Board is aware of the attractiveness of tax-free dividends for shareholders. The Board monitors the gains realised by the Company and against this determines the dividends to be paid by the Company to shareholders, while also being mindful of retaining cash within the Company for potential future investment opportunities.

· Performance against the peer group. The Board monitors the performance of the Company against the net asset value and share price total returns from the Association of Investment Companies ('AIC') VCT AIM Quoted sector. These returns are provided below for the periods ended 30 September 2018.

Net asset value total return†

Share price total return†

Total return is capital appreciation (or depreciation) and any dividends paid by the Company which are deemed to be reinvested.

Source: AIC / Artemis

· Ongoing charges†. The Board is mindful of the ongoing costs to shareholders of running the Company and monitors operating expenses on a regular basis. Company's current ongoing charges figure is 2.4% (2017: 2.2%).

† Alternative Performance Measure

Principal risks and risk management

The Board, in conjunction with the Investment Manager, has developed a risk map which sets out the principal risks faced by the Company. It is used to monitor these risks and to review the effectiveness of the controls established to mitigate them. As a VCT, the principal risks faced by the Company relate to the nature of the individual investments and the investment activities generally.

A summary of the other key areas of risk and uncertainties are set out below, along with the controls in place to manage these which are highlighted for each risk.

- Strategic: investment objective and policy not appropriate in the current market and not favoured by investors.

The investment objective and policy of the Company is set by the Board and is subject to ongoing review and monitoring in conjunction with the Investment Manager.

- Investment: as the Company has a focus on AIM traded companies, as well as general market price risk, market liquidity in such companies can be limited and it may not always be possible to realise investment positions in their entirety at prices which the Investment Manager considers to be representative of their fair value.

The nature of the investment universe of companies can carry a higher degree of risk than investment in companies that are larger and have more established businesses. Changes in economic conditions and changes in interest rates can impact these businesses and their valuation.

Investment risk is addressed through having a diversified portfolio across a number of industrial sectors. New investments are discussed with the Board. Investment decisions made include a focus on long term market liquidity. The Board has concluded the portfolio, barring the two level 2 stocks, can be considered liquid. The Board discusses the investment portfolio and performance with the Investment Manager at each Board meeting.

- Regulatory: failure to comply with the requirements of a framework of regulation and legislation, within which the Company operates.

The Board receives regular regulatory updates from the Company Secretary and Investment Manager, and its VCT tax adviser, in order to monitor compliance with relevant regulations and legislation.

The Company, and consequently its shareholders, can benefit from certain tax reliefs extended to VCTs. The tax regulatory environment is complex and, as noted earlier, the requirements that need to be met to ensure compliance have become more restrictive. Any breaches of these regulations could result in a loss of tax benefits. Failure by the Company to meet the requirements of s274 could result in the Company becoming liable for tax on the net capital gains it generates from the sale of investments and shareholders would not be able to receive tax-free dividends.

The Board receives regular updates from the Company Secretary and Investment Manager and its VCT tax adviser in order to monitor compliance with applicable tax regulations.

Failure to comply with appropriate accounting standards could result in a reporting error or breach of regulations or legislation.

The Board receives regular regulatory updates from the Company Secretary and Investment Manager to raise awareness of any changes in accounting standards. Any changes in accounting treatment are discussed and agreed by the Board. The Company's Independent Auditor also provides an annual update on any accounting changes that affect the Company.

- Operational: disruption to, or failure of, the Investment Manager's and/or any third party service providers' systems which could result in an inability to accurately report and monitor the Company's financial position.

The Investment Manager has established a business continuity plan to facilitate continued operation in the event of a major service disruption or disaster and carries out oversight and monitoring of third party service providers.

In addition to these risks, the Board has also discussed the UK's exit from the EU, which is referred to in the Chairman's Statement.

Viability statement

In accordance with the AIC's Code of Corporate Governance (the 'AIC Code'), the Board has considered the longer term prospects for the Company. Accordingly, the period assessed is the five years to 30 September 2023.

The Directors are not expecting there to be any significant changes in the current principal risks, the adequacy of the mitigating controls in place or the overall strategy of the Company and hence consider this to be an appropriate assessment period. There are also no indications that the shareholders will not vote for the continuation of the Company in 2022.

As part of its assessment of the viability of the Company, the Board has considered each of the principal risks above and the impact on the Company's portfolio of a significant fall in UK markets. The Board has also considered the liquidity of the Company's portfolio to ensure that it will be able to meet its liabilities as they fall due. The Board has also considered the investment strategy and the future changes in VCT legislation to ensure the Company will be able to retain VCT status.

The conclusion of this review is that the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period to 30 September 2023.

Life of the Company

In accordance with the Company's Articles, the Directors are required to put forward an ordinary resolution for the continuation of the Company as a VCT every five years. The next continuation vote will be held in 2022 and thereafter at five year intervals.

Share capital

The Board monitors the activity in the Company's shares and the discount to net asset value at which they may trade. The secondary market for VCT shares remains limited and any significant sales may have an adverse effect on the Company's share price and therefore the discount. In order to address and mitigate this, the Company may make periodic purchases of its own shares within guidelines established by the Board from time to time for this purpose. The current policy is to buy back shares at approximately a 10% discount to the last published net asset value.

The Company did not buy back any shares during the financial year ended 30 September 2018 (2017: 209,301).

A resolution for the Company to continue to be authorised to buy back shares will be put to shareholders at the AGM on 13 February 2019. Approval of this resolution by shareholders will allow the Directors to continue to manage the liquidity of the Company's shares by buying back shares. Share buy backs will remain subject to the Company having the necessary shareholder authorities in place and having sufficient funds available for this purpose, taking into account the ongoing cash requirements for investment activities, the payment of dividends and operating expenses.

Directors

Each of the Directors held office throughout the year under review.

No Director has a contract of service with the Company.

Appointments to the Board will be made on merit with due regard to the benefits of diversity, including gender, skills and experience. The priority in appointing a new director is to identify the candidate with the best range of skills and experience to complement existing directors.

The Board is currently comprised of one female and two male Directors.

Modern Slavery Act 2015

The Company does not fall within the scope of the Modern Slavery Act 2015 as its turnover is less than £36 million. Therefore no slavery and human trafficking statement is included in the Annual Financial Report.

Social and environmental matters

The Company has delegated the management of the Company's investments to Artemis which, in its capacity as Investment Manager, has a Corporate Governance and Shareholder Engagement policy which sets out a number of principles that are intended to be considered in the context of its responsibility to manage investments in the financial interests of shareholders. Artemis undertakes extensive evaluation and engagement with company managements on a variety of matters such as strategy, performance, risk, dividend policy, governance and remuneration. All risks and opportunities are considered as part of the investment process in the context of enhancing the long-term value of shareholders' investments. This will include matters relating to material environmental, human rights and social considerations that may, ultimately, impact the profitability of a company or its stock market rating and hence these matters are an integral part of Artemis' thinking as institutional investors.

As the Company has delegated the investment management and administration of the Company to third party service providers, and has no fixed premises, there are no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions-producing sources under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, including those within the underlying investment portfolio.

Leverage

Leverage is defined in the Alternative Investment Fund Managers Directive ('AIFMD') as any method by which the Company can increase its exposure by borrowing cash or securities, or from leverage that is embedded in derivative positions, neither of which the Company currently uses. The Company is permitted by its Articles to borrow up to 15% of its net assets (115% under the Commitment and Gross ratios used in the AIFMD). The Company is permitted to have additional leverage of up to 100% of its net assets, which results in permitted total leverage of 215% under both ratios. The Alternative Investment Fund Manager (the 'AIFM'), Artemis, monitors leverage values on a daily basis and reviews the limits annually. No changes were made to these limits during the year ended 30 September 2018. At 30 September 2018, the Commitment ratio was 81.99% and the Gross ratio was 100%.

This Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2014.

For and on behalf of the Board

Fiona Wollocombe

Chairman

5 December 2018

Statement of Directors' Responsibilities in respect of the Annual Financial Report

Management Report

Listed companies are required by the Financial Conduct Authority's ('FCA') Disclosure Guidance and Transparency Rules (the 'Rules') to include a management report in their annual financial statements. The information required to be in the management report for the purpose of the Rules is included in the Strategic Report. Therefore no separate management report has been included.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Financial Report and the Company's Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with UK Accounting Standards, including Financial Reporting Standard ('FRS') 102 The Financial Reporting Standard applicable in the UK and the Republic of Ireland.

Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the Financial Statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether applicable UK Accounting Standards have been followed, subject to any material departures being disclosed and explained in the Financial Statements; and

· prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Financial Statements are published on a website, artemisvct.co.uk, maintained by the Company's Investment Manager, Artemis. The maintenance and integrity of the corporate and financial information relating to the Company is the responsibility of the Investment Manager. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in respect of the Annual Financial Report

We confirm that, to the best of our knowledge:

(a) the Financial Statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities and financial position of the Company as at 30 September 2018 and of the profit for the year then ended; and

(b) the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

We consider the Annual Financial Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board

Fiona Wollocombe

Chairman

5 December 2018

Financial Statements

Statement of Comprehensive Income

Year ended 30 September

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations. No operations were acquired or discontinued during the year.

The net (loss)/return for the year disclosed above represents the Company's total comprehensive income.

Statement of Financial Position

As at 30 September

These financial statements were approved by the Board of Directors and signed on its behalf on 5 December 2018.

Fiona Wollocombe

Chairman

Registered in Scotland Number: SC270952

Statement of Changes in Equity

Year ended 30 September 2018

Year ended 30 September 2017

* The aggregate of these reserves, being £9,278,000, represents the distributable reserves of the Company at 30 September 2018 (30 September 2017: £10,975,000).

Statement of Cash Flows

Year ended 30 September

Notes to the Financial Statements

1. Accounting policies

The financial statements have been prepared on a going concern basis and in accordance with UK Generally Accepted Accounting Practice ('UK GAAP'), including Financial Reporting Standard ('FRS') 102, and the Statement of Recommended Practice: Financial Statements for Investment Trust Companies and Venture Capital Trusts (the 'SORP') issued in November 2014 and updated in February 2018 by the Association of Investment Companies (the 'AIC').

The Company is not an investment company within the meaning of Section 833 of the Companies Act 2006 (the 'Act'), having revoked investment company status on 5 March 2008 in order to permit the distribution of realised capital gains. The financial statements are presented in accordance with Part 15 of the Act, and the requirements of the SORP, where the requirements of the SORP are consistent with the Act.

No significant estimates or judgements have been made in the preparation of the financial statements.

2. Return per share

Revenue loss per share is based on the net revenue loss attributable to shareholders of £93,000 and on 53,150,516 shares, being the weighted average number of shares in issue during the year (2017: £40,000 and on 53,202,246 shares).

Capital return per share is based on net capital returns attributable to shareholders of £7,431,000 and on 53,150,516 shares, being the weighted average number of shares in issue during the year (2017: £12,626,000 and on 53,202,246 shares).

Total return per share is based on the total return attributable to shareholders of £7,338,000 and on 53,150,516 shares, being the weighted average number of shares in issue during the year (2017: £12,586,000 and on 53,202,246 shares).

3. Net asset value per share

The net asset value per share is based on net assets of £34,231,000 and 53,150,516 shares, being the number of shares in issue at 30 September 2018 (2017: net assets of £39,118,000 and 53,150,516 shares in issue).

4. Transactions with the Investment Manager and related parties

The amounts paid to the Investment Manager and amounts outstanding at the year end are disclosed in the Annual Financial Report. However, the existence of an independent Board of Directors demonstrates that the Company is free to pursue its own financial and operating policies and therefore, under guidance from the AIC SORP, the Investment Manager is not considered to be a related party.

Fees payable during the year to the Directors and their interests in shares of the Company are considered to be related party transactions and are disclosed within the Directors' Remuneration Report included in the Annual Financial Report.

5. Annual Financial Report

This Annual Financial Report announcement does not constitute the Company's statutory accounts for the years ended 30 September 2018 and 30 September 2017 but is derived from those accounts. Statutory accounts for the year ended 30 September 2017 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 September 2017 and the year ended 30 September 2018 both received an audit report which was unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not include statements under Section 498 of the Act respectively. The statutory accounts for the year ended 30 September 2018 have not yet been delivered to the Registrar of Companies and will be delivered following the AGM.

The audited Annual Financial Report for the year ended 30 September 2018, will be posted to shareholders shortly. Copies may be obtained from the Company's registered office at 42 Melville Street, Edinburgh, Midlothian, EH3 7HA or at the Company's website, artemisvct.co.uk.

The Annual General Meeting of the Company will be held on Wednesday, 13 February 2019.

For further information, please contact:

Company Secretary

Tel: 0131 225 7300

Artemis Fund Managers Limited

5 December 2018