AAM.L Regulatory News (AAM)

Artemis VCT plc (the 'Company')

Legal Entity Identifier: 549300R6443VUTMRCP48

Annual Financial Report for the year ended 30 September 2019

This announcement contains regulated information

Financial Highlights

- Net asset value total return of (18.2)% and share price total return of (33.2)%.

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

- Total dividends paid and declared for the year of 12.00 pence per share.

† Alternative Performance Measure.

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

‡ Includes declared special dividend of 4.00 pence per share and a second interim dividend of 2.00 pence per share in respect of the year ended 30 September 2019. These were paid on 29 November 2019.

Return for the period ended 30 September 2019

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

Strategic Report

Chairman's Statement

Performance

The year to 30 September 2019 proved challenging. Returns have not been as strong as we might have wished with the Company's net asset value at 30 September 2019 sitting at 41.48 pence. Having started the year at 64.40 pence and with dividends paid in the year amounting to 12.00 pence, a total return of (11.01) pence per share has been borne by shareholders over the year. This is equivalent to (18.2)% of the starting net asset value.

Over the five years to 30 September 2019 total dividends paid to shareholders amount to 84.00 pence per share. Over the life of the Company total dividends paid and declared now stands at 125.20 pence per share.

Results and dividends

The net asset value total return for the year, assuming dividends re-invested, brought a loss of 18.2% versus the FTSE AIM All Share Index loss of 19.4%. Stock specific factors along with the effect on the market of the continuing political uncertainty have led to a nervous and tentative year. More details are included within your Investment Manager's Review.

The Company has now paid special dividends for a number of years. These dividends have arisen as a result of the Investment Manager's distribution of cash proceeds realised from the portfolio as the investments have appreciated and profits have been taken. VCT regulations mean excess cash needs to be distributed or re-invested within a limited timeframe. As the Investment Manager has considered that there has been a lack of suitable reinvestment opportunities, the Board has, as in previous years, continued to distribute this cash as special dividends to ensure that the Company's VCT tax status is maintained. Changes to the VCT regulations have reduced both the types of companies VCTs can invest in and the ability to invest further in existing holdings.

The Board, throughout the year, has declared dividends in total of 12.00 pence per share for the year ended 30 September 2019 (2018: 21.00 pence per share).

Deal flow

The Company has made no new qualifying investments during the twelve month period. Whilst there have been new VCT qualifying companies coming to the market, these have been found to be too immature and loss making and, as such, have not met our investment criteria. More detail on the investment activity and the performance of the investment holdings can be found in the Investment Manager's Review.

Share buybacks

The Company's premium of 10.2% at the start of the year became a discount of 9.6% as at 30 September 2019. Buybacks of the Company's shares have been carried out in line with the Company's buyback policy at a 10% discount to net asset value.

The premium/discount is monitored and all buybacks 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.

Further details regarding this are provided in the Share capital section of the Strategic Report in the Annual Financial Report.

VCT Status

The Company has complied with all VCT tests throughout the year. The Board continues to closely monitor the VCT status in light of the introduction of a new 80% threshold (up from 70%) of qualifying holdings from 1 October 2019. The qualifying percentage as at 30 September 2019 was 91.6%. The extension in the time period to distribute sales proceeds to twelve months took effect from 6 April 2019 and has given welcome flexibility.

Annual General Meeting (AGM)

The AGM, which alternates between Edinburgh and London, will be held at 11.00 a.m. on 5 February 2019, at Cassini House, 57-59 St James's Street, London, SW1A 1LD. The Notice of Meeting, containing full details of the business to be conducted at the meeting, is set out 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.

Outlook

As I have highlighted in this and prior Chairman's Statements, the new VCT regulations have resulted in a significant reduction in suitable deal flow for the Company. This situation therefore limits opportunities to continue to develop and refresh the portfolio on an ongoing basis. Our current working assumption is that there are unlikely to be any new investments made by the Company.

In addition, where realisations from the existing portfolio are made in the normal course of business, a significant proportion of these proceeds have been distributed to shareholders rather than re-invested in the portfolio. This has been necessary in order for the Company to continue to comply with the VCT regulations, but it does have the effect of reducing the Company's assets.

Against this background the Board has decided that it should formally explore options for the future of the Company. These are at an early stage and I would expect to provide shareholders with an update on these discussions in due course. In the meantime the Board will continue to ensure that the Company operates in a manner conducive to maximising returns for shareholders.

The Board and the Investment Manager continue to monitor the impact of both Brexit and the general election held on the 12th of this month.

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 artemisfunds.com/vct.

Fiona Wollocombe

Chairman

19 December 2019

Investment Manager's Review

Performance

We won't disguise the fact that this has been a disappointing year for performance. The Company's net asset value fell from 64.40 pence per share at the start of the year to 41.48 pence by 30 September. With 12 pence of dividends having been paid, this brings the capital return for the year to (17.0)%. All of the damage was done in the final calendar quarter of 2018; the portfolio delivered a marginally positive return over the remaining nine months.

We have, over the years, repeatedly stressed our preference for a longer-term perspective when assessing performance. And, over the longer term, returns have been much better. Total returns for the last three and five years are 36.9% and 72.8% respectively. Over 10 years, meanwhile, we have achieved a total return of 130.3%.

Review

Five largest stock contributors

*Sold during the year

Five largest stock detractors

The single biggest negative this year was ULS Technology. It continued to languish under the cloud of Brexit as subdued activity in the housing market made for a tough market backdrop. This was compounded by its failure to renew a customer contract in September during a re-tender. While this was disappointing, the company continues to win work elsewhere and its new DigitalMove product is receiving encouraging feedback.

Political uncertainty was also cited as a reason for the poor final quarter of Dods' financial year. In our view, its acquisition of Merit Group in June has diversified the business into a wider range of more rapidly growing markets. It also bolsters recurring revenues that are expected to increase to over half of the group's revenues.

Fulcrum Utility Services has faced difficulties on a number of fronts in the last 12 months. As we discussed in our interim report, its acquisition of Dunamis has been problematic. A change in accounting policy then delayed its full-year results by several months. Although this change did not affect cashflows, it required an unprecedented amount of analysis to restate historic balance sheets. For investors, the delay and associated uncertainty was unsettling and, coupled with a challenging construction market, the shares remained under pressure. Focus can now, once again, turn to exploiting its multi-utility capabilities. That will, however, have to happen under new leadership. The CEO stepped down in early October.

After being one of our largest positive contributors in the first half of the year Mycelx Technologies has suffered a sharp reversal of fortunes. After a strong first quarter of 2019 the business has encountered delays in contract signings. Costs are being cut, allowing it to remain profitable. Had the company not raised funds in February, the financial position could have been even worse.

Cambridge Cognition followed a similar pattern: a fundraising earlier in the year followed by a profit warning only months later. Here too, contract deferrals were to blame.

Judges Scientific was our strongest contributor over the year. Our decision not to sell our holding, which we outlined in our interim report, proved to be a good one: the shares rose by almost 50% in the second half of the year. Interim results in September revealed 27% profit growth on the back of solid growth in sales, high gross margins and tight control of costs.

While Judges Scientific's acquisition activity has been muted in recent times (its purchase of Oxford Cryosystems took place more than two years ago) it remains a central plank of its strategy. We are sure there are more deals to come and we back the management team's patient, disciplined approach.

Acquisitions are also on the agenda for AB Dynamics. Since its IPO, the company has grown organically, with sales of £8.9 million in 2012 rising to £37 million in 2018. New CEO James Routh announced an updated strategy in February with selective acquisitions being one of five key priorities. In May, the company raised £45 million to support this strategy and two acquisitions have been completed since. Both Kangaloosh and Dynamic Research are existing supply partners and, as such, are well known to the company.

We hope AB Dynamic's deals can match the success of Cohort's dealmaking. On 12 December 2018, Cohort announced the acquisition of Chess Technologies ('Chess') adding a fifth standalone business to its portfolio. Founded in 1993, Chess is a world leader in advanced integrated systems and technologies for detecting, tracking and disrupting a wide range of potential threats from air, land and sea. The announcement gave the example of their "anti-unmanned aerial vehicles defence system" - drone detection to you and me. Just a week later, Gatwick Airport was closed and hundreds of flights were cancelled after a series of drone sightings. Chess had signed a contract and had a drone-detection system operational within days.

Instem also continues to evaluate acquisition opportunities in a fragmented industry. Although no deals have been completed this year, organic growth has remained strong and the shift towards recurring sources of revenue is improving the quality of earnings.

The year also started out well for Pelatro, which integrated its acquisition of Danateq and won a series of contracts. A trading update confirmed that revenues and profits for 2018 were in line with expectations. Its full-year results in March, however, revealed a high level of unbilled revenue. This unnerved us somewhat. At the same time, the strength of its share price had made Pelatro one of the Company's top holdings. So we started to reduce our weighting. As the year progressed, we continued to see contract announcements but they were in aggregate below our own expectations and the level of visibility began to track below the level seen in the previous year. So we became increasingly uncomfortable. As our confidence waned we continued to sell and by the end of August had exited entirely.

Investment activity

We made no new qualifying investments in the last 12 months, a feature that requires, if not an excuse, then an explanation. Although we regularly assess potential investments we have found that the companies are typically too early-stage. By that we mean their revenues (if they exist at all) are modest. As such, these businesses are typically many years from becoming profitable and cash-generative. Given that the tightening of the VCT rules was intended to steer investment in this direction, this is not a surprise. In the odd exception when companies are more mature and meet our quality threshold we have found valuations have been too rich for us. This is a consequence of the volume of VCT fundraising in recent years driving up demand. We have therefore opted to stay on the sidelines. With no obligation to invest we intend to remain selective.

The lack of new investments has meant that transaction activity has focused on which stocks, - if any - we should sell. These sales typically fall into one of the following three categories:

1. Deteriorating fundamentals

2. Profit-taking on valuation grounds

3. Portfolio management

We have had examples of all three over the past year.

We have seen more of the first category - deteriorating fundamentals - than we would have liked. We addressed the events at Yu Group in our interim report six months ago. A review of the accounting policies by the new finance director led to a restatement of results and a radical reassessment of the business. Although we admire the efforts of the remaining management team, the economics of the business are too uncertain for our taste. We took advantage of strength of the share price at the time of the company's final results to exit our remaining holding at a healthy profit. The Company's total realised gain was over £2.6 million.

Velocity Composites has had a chequered history since its IPO. Although the business has developed more slowly than expected it was actually the ongoing dispute between the board of directors and the company's founders that led us to sell our holding. We put a great deal of emphasis on the importance of strong stewardship in our investment approach and the dysfunctional relationship made us deeply uncomfortable. In this case we realised a loss of £373k on our investment.

Pelatro was a relatively new investment for us. We participated in the IPO in December 2017 and again in a fundraising in August 2018. Although we consider ourselves to be long-term, patient investors we took the difficult decision, as outlined earlier, to exit our holding in full realising a gain of £302k on our £1 million investment.

The second category (profit taking) included the partial disposal of holdings in Craneware, AB Dynamics and Abcam. With strong fundamentals and large addressable markets, these companies are well regarded by investors - and by us. We are, though, conscious that their valuations leave little room for error so we have regularly booked profits over the years. A profit warning from Craneware in June served as a reminder that things can and will go wrong for even the strongest companies and that valuations here offer little margin of safety.

Keywords Studios falls somewhere in between. Shareholders with long memories may remember the issues Keywords encountered shortly after its IPO, when customer demand stalled in anticipation of a new cycle in the games console market. That was six years ago and we are nearing that point in the cycle again. To be fair, the company weathered the last bout of volatility well and recovered strongly - but its valuation today is markedly higher. As such, we feel the balance between risk and reward is less attractive this time so we have erred on the side of caution and sold our remaining shares. We would like to take this opportunity to thank CEO Andrew Day and his management team. They have delivered handsomely in that time and we wish them continued success. Our £800k investment six years ago has delivered a gain of over £4.3 million. The disposal of Keywords Studios leaves us with a portfolio comprising 25 companies.

The third category consists of disposals that we deemed necessary for risk-management purposes rather than being any reflection of our confidence in the prospects for the businesses in question. Judges Scientific and Instem both continue to perform well. Recent meetings with the respective management teams have reinforced our confidence that they remain well-placed for continued growth, both organically and via acquisition. The strength in the share prices meant that each accounted for almost 10% of the Company's assets at one point - a level we feel is too high for a balanced portfolio.

Outlook

It is now well over 12 months since making our last qualifying investment. Looking forward it is becoming increasingly apparent that our investment approach is difficult with the current VCT qualifying rules. So, we are faced with a choice. Should we compromise our investment criteria and "lower the bar"? We believe not. Investing in early stage companies is risky. An investor subscribing to a new VCT fundraising today gets upfront tax relief to compensate them for that risk, and rightly so. Indeed our shareholders bore that same risk when they invested over a decade ago. Today though our portfolio is markedly different. Comprising, in the main, profitable cash generative companies our current portfolio's maturity sits in stark contrast to the speculative nature of the new deal flow we typically see. As a result we think it is right to remain selective and prudent to assume we may not make any new investments going forward. This does though have a couple of implications.

One consequence is increased portfolio concentration. At the start of this financial year the portfolio consisted of twenty nine companies. As at 30 September 2019 this had fallen to twenty five. Two more holdings having been sold since the year end. We are comfortable with this. The portfolio remains well diversified and our portfolio is, by and large, concentrated into those companies where our conviction is highest, as it should be.

Another implication though is a smaller asset base. From 1 October 2019 we are required to have at least 80% of our total investments in qualifying holdings (up from 70%). Without the ability to re-invest proceeds we are limited to shareholder distributions in order to comply. With dividends being tax-free this is, in itself, no bad thing and is a strategy we have adopted frequently in recent years. It does though mean that over time we would expect the net asset value to continue reducing.

We would therefore draw your attention to the Chairman's Statement and the decision to formally explore options for the future of the Company. We will, in the meantime, continue to manage the portfolio in the same conservative way we have to date.

Andy Gray

Fund Manager

19 December 2019

Strategy and Business Review

This Strategic Report has been prepared in accordance with the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.

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') (as amended) that, inter alia, requires at least 80% (increased from 70% with effect from 6 April 2019) of the investments to be qualifying holdings. Subject to maintaining a prudent margin of safety over the 80% 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 2019 the Company had 91.58% 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, details of which are set out later in the report.

Current and future developments

A summary of the Company's developments during the year ended 30 September 2019, together with its prospects for the future and the Board's decision to formally explore the options available, are set out in the Chairman's Statement and the Investment Manager's Review. The Board's principal focus remains the delivery of positive 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 period ended 30 September 2019.

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: Artemis/AIC.

·; Ongoing charges†. The Board is mindful of the ongoing costs to shareholders of running the Company and monitors operating expenses on a regular basis. The Company's current ongoing charges figure is 2.7% (2018: 2.4%).

† 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 include a focus on long term market liquidity. The Board has concluded the portfolio, barring the three 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, Investment Manager, and its VCT tax adviser, to ensure ongoing 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 regulatory updates from the Company Secretary and Investment Manager to raise awareness of any changes in corporate governance and 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.

- Economic risk: In addition to the above risks, at the date of this report the outcome of the UK Government's Brexit negotiations with the European Union remain unclear. The risk for the Company is principally in relation to the potential impact of Brexit on the UK companies within the investment portfolio. The Investment Manager continues to monitor the situation and will respond to any economic fluctuations as required.

Further information on risks and uncertainties and the management of them are set out in the Directors' Report.

Other matters

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.

The Directors are not expecting there to be any significant changes in the current principal risks or the adequacy of mitigating controls in place. However, the Directors have highlighted the effect the new VCT regulations have had on deal flow and the Company's ability to re-invest realised gains; changing the strategy of the Company and its long term viability. Accordingly, the period assessed is to the next continuation vote scheduled for 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 of a ten per cent fall in UK markets along with the restricted investment opportunities as mentioned above. 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 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 the Annual General Meeting in February 2022.

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 is due to be held in 2022.

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.

During the financial year ended 30 September 2019, the Company bought back 657,000 ordinary shares (2018: Nil), representing 1.2% of share capital as at 30 September 2018.

A resolution for the Company to continue to be authorised to buy back shares will be put to shareholders at the AGM on Wednesday, 5 February 2020. 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 buybacks 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 Fund Managers Limited ('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 management 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 2019. At 30 September 2019, the Commitment ratio was 76.39% and the Gross ratio was 100.01%.

For and on behalf of the Board

Fiona Wollocombe

Chairman

19 December 2019

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

Management Report

Listed companies are required by the Financial Conduct Authority's 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, artemisfunds.com/vct, 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 2019 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

19 December 2019

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 19 December 2019.

Fiona Wollocombe

Chairman

Statement of Changes in Equity

Year ended 30 September 2019

Year ended 30 September 2018

* The aggregate of these reserves, being £6,067,000, represents the distributable reserves of the Company at 30 September 2019 (30 September 2018: £9,278,000).

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 £98,000 and on 52,926,190 shares, being the weighted average number of shares in issue during the year (2018: £93,000 and on 53,150,516 shares).

Capital loss per share is based on net capital losses attributable to shareholders of £5,731,000 and on 52,926,190 shares, being the weighted average number of shares in issue during the year (2018: returns £7,431,000 and on 53,150,516 shares).

Total loss per share is based on the total loss attributable to shareholders of £5,829,000 and on 52,926,190 shares, being the weighted average number of shares in issue during the year (2018: return £7,338,000 and on 53,150,516 shares).

3. Net asset value per share

The net asset value per share at the year end is calculated in accordance with the Company's Articles and is as follows:

The net asset value per share is based on net assets of £21,773,000 and 52,493,516 shares, being the number of shares in issue at 30 September 2019 (2018: net assets of £34,231,000 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 2019 and 30 September 2018 but is derived from those accounts. Statutory accounts for the year ended 30 September 2018 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 September 2018 and the year ended 30 September 2019 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 2019 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 2019, will be posted to shareholders shortly. Copies may be obtained from the Company's registered office at 6th Floor, Exchange Plaza, 50 Lothian Road, Edinburgh, EH3 9BY or at the Company's website, artemisfunds.com/vct

The Annual General Meeting of the Company will be held on Wednesday, 5 February 2020.

For further information, please contact:

Company Secretary

Tel: 0131 225 7300

Artemis Fund Managers Limited

19 December 2019