AAM.L Regulatory News (AAM)

ARTEMIS VCT PLC

Half-Yearly Report (unaudited) for the six months ended 31 March 2018

This announcement contains regulated information

Chairman's statement

Performance

I am pleased to report another period of excellent performance and strong returns for shareholders. The Company's net asset value total return was 13.9% for the six months to 31 March 2018. This compares to a rise in the FTSE AIM All-Share Index of 1.6% over the same period.

Portfolio

During the six month period the Investment Manager made disposals totalling £6.7 million. The largest sale was of Yu Group which had enjoyed a period of strong share price performance. £3.1 million was sold generating a profit of £2.5 million. Of the £6.7 million of sales, gains of £5.5 million were realised.

As has been the case for previous years there have been limited investment opportunities. During the period there was one new investment made, £750,000 was invested in Pelatro, a company providing targeted marketing software which enables telecoms companies to optimise their campaign results.

Further details of the Company's investment activities are provide in the Investment Manager's review which follows on pages 6 to 8.

Dividend

The six month period to 31 March 2018 has seen further strong cash generation from disposals. During the period the Board and Investment Manager discussed the level of cash held in the Company. As a result of the lack of near term attractive investment opportunities, and in line with its objective of returning excess cash to shareholders, the Board decided to declare a special dividend of 8.00 pence per share which was paid on 11 May to shareholders on the register on 13 April.

An interim dividend of 2.0 pence per share has been declared which will be paid to shareholders on 29 June 2018, to those shareholders on the register on 8 June 2018. In aggregate these dividends will result in a total payment of £5.3 million.

Along with an annual 4.00 pence per share dividends the Company has paid special dividends of 58.00 pence per share, including the 8.00p paid to shareholders this month. Changes to the VCT regulations restricting the ability to make follow on investments and reducing the universe of companies in which VCTs may invest along with the limited investment opportunities have resulted in increasing cash balances which the Company is required to distribute. The Board, however, continues with the view that new investments will take priority over the payment of special dividends should suitable investment opportunities arise. Therefore, special dividends may not be paid in future.

Share buybacks

There were no buybacks in the six months to 31 March 2018. The Company's discount narrowed from 6.6% at the last year end to 1.0%. Should the discount widen, the Company will buy back shares within 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.

Outlook

In November 2017 the Chancellor announced his Autumn Statement, where it was widely expected that VCT regulations would be targeted. The announcements relating to VCTs were generally positive and, of most relevance to the Company, were changes to the minimum qualifying percentage which will increase to 80% (currently 70%) and the period for the disposal of qualifying holdings which will increase from 6 months to 12 months. These changes are effective from 6 April 2019 and the Board does not expect them to have any significant impact on the Company and its Investment Policy.

The first part of 2018 has been challenging for markets with rising interest rates and the risk of a trade war. However, global economic growth and earnings growth remain strong. It remains the case that the Company's well diversified portfolio of companies, which are in a strong position financially, should continue to perform well despite the uncertain market conditions.

And finally …

I look forward to providing further updates on your Company's performance in the Annual Report and Accounts published in December.

In the meantime, shareholders can keep up to date with developments between formal reports by visiting the Company's website at artemisvct.co.uk. In addition, the Board is always keen to hear from shareholders. Should you wish to, you can e-mail me at vctchairman@artemisfunds.com.

Fiona Wollocombe

Chairman

16 May 2018

Investment Manager's review

Performance

With equity markets proving more challenging over the last six months we are pleased to be able report continued growth with the Company's net asset value growing from 73.60 pence to 75.27 pence in the period. This growth was achieved despite the payment of 8.00 pence in dividends that, once added back, translates to a total return of 13.9%. Although we are pleased with this result we continue to favour longer term performance metrics and these continue to be strong with total returns over one, three and five years of 31.5%, 119.5% and 217.2% respectively. For the avoidance of doubt, these figures are after the deduction of all expenses and transaction costs.

Five largest stock contributors

Five largest stock detractors

Review

As we entered the current financial year energy supplier Yu Group was our largest holding representing 6.3% of the Company's net asset value. It was also our strongest contributor with the shares rising by over 75% in the period. We highlighted the potential for the company in our last annual report so it has been pleasing to see our confidence rewarded. Having listed on AIM two years ago 2017 marked the first full year as a public company and it was a successful one. Revenue almost trebled to £47 million and with the contracted order book for 2018 already standing at over £50 million they are well placed for continued growth, supported by a recent £12 million fundraising.

This is somewhat reminiscent of our investment in Gear4music that was our largest holding and strongest contributor a year ago. The company continues to trade exceptionally well and had another successful Christmas period in which they grew market share in both the UK and Europe as they expand their footprint. Given this underlying performance it is perhaps a surprise to see the shares sitting amongst our largest detractors. This is a good example of our wariness of over-reliance on short term performance measurement - despite the recent weakness the shares still sit almost 25% higher than they were a year ago.

ULS Technology was amongst our strongest contributors and stood as our largest holding at the period end. Technology is driving increased price transparency across a range of sectors whether it be musical equipment or property conveyancing. Despite being a leading technology platform ULS Technology still services less than 5% of the conveyancing market. We think this leaves a long runway of growth and the opportunity exists to drive the market share substantially higher as new distribution partners are added and recently signed partners mature. Whilst we were disappointed to hear of the departure of CEO Ben Thompson in early April we think he has positioned the company well for the future and the company is in good hands.

There is also change underway at the top of AB Dynamics and Omega Diagnostics. At the end of February 2018 Tim Rogers stepped down as CEO of AB Dynamics after five successful years with the business including the company's listing on AIM. A new CEO has yet to be announced but founder Tony Best remains at the helm as Executive Chairman to ensure a smooth transition. An update at the end of March confirmed trading remains strong leaving a solid foundation for the new Chief Executive as and when he arrives.

A new CEO was also announced by Omega Diagnostics in mid-December with Chief Operating Officer Colin King taking over from founder Andrew Shepherd. Recent trading has been more challenging for the company of late forcing a strategic review of operations in early April. The proposed closure of two loss-making sites is an unfortunate but necessary step although the weak balance sheet remains a cause for concern.

A strong balance sheet is, in our opinion, an invaluable resource for small companies allowing management teams the scope to invest when required and deal with any near term trading volatility. Instem plc is a good example. Additional investment, along with contract deferrals, were to blame for a difficult 2017 but having cash on the balance sheet allowed them to weather the storm and 2018 has started on a much brighter note. Fears of a profit warning were misplaced with a positive trading update well received in January alongside a large contract win. The company has, in recent years, successfully positioned itself as the leading expert in the field of electronic data submissions to the Food and Drug Administration ("FDA") in the US and this now looks likely to deliver the anticipated benefits marking a sharp reversal of fortunes for the group.

Cambridge Cognition experienced a similar pattern. The deferral of two large contracts towards the end of the year impacted profits for 2017. However with a year-end cash balance of almost £2 million the company was able to manage the shortfall and the larger of the two trials has since been signed.

Investment activity

The last few years has seen us make, on average, one new qualifying investment every six months and this rate continued in the period with our investment in Pelatro in December.

Pelatro offers targeted marketing software enabling telecoms companies to optimise their campaigns. Analysis of behavioural data, gathered directly from the customer's networks, identifies customers with similar behaviours and segments them in order to help the telecom service providers create and then deliver the most appropriate, and therefore attractive, campaigns and offers. Increasing response rates in turn drive higher revenues from the existing customer base. The company has demonstrated good commercial traction, despite limited resources, with eight customers signed to date delivering more than $3 million revenue in 2017. The fundraising will allow Pelatro to invest in increased sales and marketing to drive further growth.

The continued strong performance of the portfolio has once again led to sizable disposal proceeds as we continue to take profits and manage our exposure to individual investments. Over the last six months we made disposals totalling £6.7 million generating net realised gains of £5.5 million.

As the performance review identified, Yu Group had an exceptional six months and starting the period, as it did, as our largest holding it soon represented over 8% of the fund. We continue to like the company's proposition and long term opportunity but the share price, in our view, now more fairly reflects the company's prospects.

With a more balanced risk/reward profile a lower weighting in the fund seemed appropriate to us mirroring the approach we took with Gear4music a year ago. We sold almost three-quarters of our holding in the period generating proceeds of a little over £3 million. The value of our current holding in Yu Group still exceeds our initial investment in the company at IPO.

The bulk of the remaining sales reflected profit-taking with material sales including Advanced Medical Solutions (£0.6m), Keywords Studios (£0.6m), Judges Scientific (£0.6m), Craneware (£0.4m), AB Dynamics (£0.4m) and Abcam (£0.2m).

A profit warning from defence peer Ultra Electronics coupled with concerns over Ministry of Defence spending led us to trim our position in Cohort around the turn of the year and we also further reduced our position in ECSC plc after disappointing interim results.

Outlook

We would currently describe ourselves as cautiously optimistic. Our optimism is reinforced by our regular contact with company management teams. We feel we have a portfolio of well-managed, entrepreneurial companies with attractive growth prospects across a range of end-markets. Our caution, though, flows from the valuations some stocks trade on. Whilst we can argue the valuation case for many stocks we hold it is not universal and a number, in our view, already discount a fair degree of continued success. We will continue to manage portfolio weightings with that balance in mind.

Andy Gray

Fund Manager

16 May 2018

Responsibility statement of the Directors in respect of the Half-Yearly Financial Report

The Directors confirm that to the best of their knowledge in respect of the Half-Yearly Financial Report for the six months ended 31 March 2018:

- the condensed set of financial statements has been prepared in accordance with the Financial Reporting Standard ('FRS') 104: 'Interim Financial Reporting';

- having considered the expected cash flows and operational costs of the Company for the 18 months from the period end, the Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason the going concern basis of accounting continues to be used in the preparation of the Half-Yearly Financial Report;

- the Chairman's statement to shareholders and Investment Manager's review includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the first six months of the financial year and their impact on the financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual financial report that could do so.

The Half-Yearly Financial Report for the six months ended 31 March 2018 was approved by the Board and the above responsibility statement has been signed on its behalf by:

Fiona Wollocombe

Chairman

16 May 2018

Condensed income statement

For the six months ended 31 March 2018

Notes:

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

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

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

Condensed balance sheet

As at 31 March 2018

Condensed statement of changes in equity

For the six months ended 31 March 2018

* The aggregate of these reserves, being £11,977,000, represents the distributable reserves of the Company at 31 March 2018 (31 March 2017: £14,558,000; 30 September 2017: £10,975,000).

Condensed statement of cash flows

For the six months ended 31 March 2018

Notes to the Half-Yearly Financial Report

1. Accounting policies

The condensed financial statements for the six months to 31 March 2018 comprise the statements set out on pages 13 to 16 together with the related notes on pages 17 to 18. The financial statements have been prepared in accordance with the Company's accounting policies as set out in the Annual Financial Report for the year ended 30 September 2017 and are presented in accordance with the Companies Act 2006 (the 'Act'), FRS 104 and the requirements of the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts' ('SORP') issued by the Association of Investment Companies (the 'AIC') in November 2014 and updated in February 2018.

The financial information contained within this Half-Yearly Financial Report does not constitute statutory accounts as defined in Sections 434 to 436 of the Act. The financial information for the year ended

30 September 2017 has been extracted from the statutory accounts which have been filed with the Registrar of Companies. The Auditor's report on those accounts was not qualified and did not contain statements under sections 498(2) or (3) of the Act.

2. (Loss)/return per share

(Loss)/return per ordinary share has been calculated based on the weighted average number of ordinary shares in issue for the six months ended 31 March 2018 being 53,150,516 ordinary shares (31 March 2017: 53,254,260; 30 September 2017: 53,202,246).

3. Dividends

A special dividend for the six months ended 31 March 2018 of 8.00 pence per ordinary share (2017: 10.00 pence) has been declared and was paid on 11 May 2018 (2017: 30 June 2017) to shareholders on the register at close of business on 13 April 2018 (2017: 9 June 2017).

An interim dividend for the six months ended 31 March 2018 of 2.00 pence per ordinary share

(2017: 2.00 pence) has been declared and will be paid on 29 June 2018 (2017: 30 June 2017) to those shareholders on the register at close of business on 8 June 2018 (2017: 9 June 2017).

4. Fair value hierarchy

All investments are designated at fair value through profit or loss on initial recognition in accordance with FRS 102. The following table provides an analysis of these investments based on the fair value hierarchy as described below which reflects the reliability and significance of the information used to measure their fair value.

The disclosure is split into the following categories:

Level 1 - Investments with unadjusted quoted prices in an active market;

Level 2 - Investments whose fair value is based on inputs other than quoted prices that are either directly or indirectly observable;

Level 3 - Investments whose fair value is based on inputs that are unobservable (i.e. for which market data is unavailable).

5. Share capital

The net asset value per ordinary share has been calculated based on 53,150,516 ordinary shares in issue (31 March 2017: 53,150,516; 30 September 2017: 53,150,516).

In the six months ended 31 March 2018, no ordinary shares were bought back and cancelled (six months ended 31 March 2017: 209,301 ordinary shares were bought back and cancelled at a total cost of £142,000; year ended 30 September 2017: 209,301 ordinary shares were bought back and cancelled at a total cost of £142,000).

6. Related party transactions

There were no related party transactions during the period.

7. Transactions with the Investment Manager

The investment management fee payable to Artemis Fund Managers Limited for the six months ended 31 March 2018 was £324,000 (31 March 2017: £314,000; 30 September 2017: £625,000) of which

£321,000 (31 March 2017: £154,000; 30 September 2017: £149,000) was outstanding at the period end.

8. Principal risks and uncertainties

Pursuant to DTR 4.2.7R of the Disclosure and Transparency Rules, the principal risks faced by the Company include general market price risk, liquidity risk, regulatory risk and operational risk.

These risks, which have not materially changed since the Annual Financial Report for the year ended 30 September 2017, and the way in which they are managed, are described in more detail in the Annual Financial Report which is available on the Company's website at artemisvct.co.uk.

Copies of the Half-Yearly Financial Report will be posted to shareholders shortly and may also be obtained from the Company's website at artemisvct.co.uk.

For further information, please contact:

Artemis Fund Managers Limited

Company Secretary

0131 225 7300