Seneca Growth Regulatory News (HYG)

For immediate release 29 April 2019

Seneca Growth Capital VCT Plc

(formerly Hygea vct plc)

Annual Report and Financial Statements

For the year ended 31 December 2018

and

Notice of Annual General Meeting

The Directors are pleased to announce the audited results of the Company for the year ended 31 December 2018. A copy of the Annual Report and Financial Statements will be made available to shareholders shortly, and extracts are now set out below.

In addition, the Notice of Annual General Meeting ("AGM") is attached at the end of the Report and Financial Statements. The AGM will be held at the offices of Howard Kennedy LLP, No 1 London Bridge, London SE1 9BG on Monday 10 June 2019 at 11.00 am. A copy of both documents will be available on the Company's website: www.senecavct.co.uk

Financial Headlines

Financial Summary

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Enquiries:

John Hustler, Seneca Growth Capital VCT Plc at john.hustler@btconnect.com

Richard Manley, Seneca Growth Capital VCT Plc at Richard.Manley@senecapartners.co.uk

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014

Please note: page references in the extracts below refer to the page numbers in the Annual Report and Financial Statements

Chairman's Statement

I am pleased to present the 2018 Annual Report to Shareholders.

Overview

2018 has been a successful year of change for the Company. Following the initial allotment of B Shares under the Offer launched on 9 May 2018, we are delighted that Seneca was appointed as the Company's Investment Manager. Funds raised under the Offer totalled £5.5 million and five investments have already been made, details of which are set out in the Investment Manager's report. The Offer is now closed and I would like to take this opportunity of welcoming all our new B shareholders. Shareholders may have seen the recent announcement, prior to the last allotment, that the NAV at 31 March 2019 of the Ordinary shares is 51.1p per share and of the B shares is 98.9p per share.

As intimated in my last Chairman's Statement accompanying the 2017 accounts, we anticipated a liquidity event and were delighted to report that in December 2018 we sold the Company's Ordinary share portfolio holding in Hallmarq Veterinary Imaging Limited ('Hallmarq'). This realised a profit over cost of £1,807,000 and over carrying value of £894,000. As announced at the time of the realisation, it was also possible the Company would receive a small amount of further proceeds that had been deferred at completion and I am pleased to confirm that a further £37,666 was received in April 2019 and will be accounted for in the 2019 accounts. We are delighted that this realisation has allowed us to pay an interim dividend of 10p per Ordinary share and our further intentions regarding dividends are detailed below.

Details of the Ordinary share pool's remaining portfolio companies are included below and also in the Investment Manager's Report. The Net Asset Value of the Ordinary shares at 31 December 2018 has now increased to 65.1p per share and the Total Return is now 89.35p per share. As Ordinary shareholders will recall, following the raising of the minimum subscription of B shares in August 2018, the Ordinary share pool will suffer no running costs until July 2021. In addition, the Company's bank loan, which was a liability of the Ordinary share pool, has been repaid using proceeds from the Hallmarq sale and the debenture released.

Details of the B share investment made during the year along with details of the B share investments made since the year end are included in the Investment Manager's Report. The Net Asset Value of the B shares at 31 December 2018 was 99.1p and at that date no dividends had been paid in relation to the B shares. 

The Board is also encouraged that as of today's date, the Investment Manager has already invested £2.75m of the funds raised under the Offer into 5 companies. This is in line with their expectations for deploying the capital raised under the Offer and indicative of the healthy pipeline of growth capital investment opportunities which Seneca maintains as a result of not only their appointment as the Company's Investment Manager, but also as an active growth capital investor through the EIS funds which they manage. We expect to issue a prospectus for a further B share offer shortly and look forward to the Investment Manager continuing to build a portfolio of diverse growth capital investments which will be attractive to the VCT investment community.

Results and Dividends

During the year, our revenue return on ordinary activities saw a loss of 0.72p per Ordinary share and a loss of 0.45p per B share, both principally as a result of the impact of the Company's running costs. The comparative loss for 2017, which related solely to the Ordinary shares, amounted to 1.5p per share. The Company's running expenses are capped at 3% of the B share NAV until July 2021 and as a result, an amount of £18,000 was due to the Company from the Investment Manager at 31 December 2018 which will be deducted from future payments falling due to Seneca. 

The Capital return on the Ordinary share portfolio amounted to 2p per share driven by the profit generated on the disposal of our holding in Hallmarq, details of which I referred to above, net of changes to the valuations of some other Ordinary share pool investments. There is no change in the value of the B share portfolio since the first investment only completed on 31 December 2018.

During the year, the nominal value of the Ordinary shares was reduced from 50p per share to 1p per share and the majority of the balance standing to the credit of the Company's share premium account arising on the issue of B shares was reduced. Both of these transactions have given rise to a credit to the Special Distributable Reserve which may be used for the payment of dividends. Further details are included in note 14 on page 68. Your original Ordinary share certificates remain valid.

As previously stated, it is the Board's intention to distribute the majority of the proceeds generated by the Hallmarq exit to Ordinary shareholders, after repayment of the bank loan and retention of an appropriate proportion to cover small follow on investments in the existing Ordinary share portfolio and any costs attributable to the Ordinary share pool. In line with this intention, an interim dividend of 10p per Ordinary share was declared on 28 December 2018 and it is the current intention of the Board to declare a further interim dividend of 18p per Ordinary share in early May (following the filing of the Company's 2018 accounts at Companies House) for payment shortly thereafter.

In addition the Board was pleased to have declared an interim dividend of 1.5p per B share on 6 March 2019, which was paid in April 2019, reducing the NAV of a B share to 97.4p. The Board hopes to be able to continue to declare periodic dividends on the B shares as the B share investment portfolio develops.

Ordinary Share Investment Portfolio Review

The remaining Ordinary share portfolio has seen a reduction in value during the period. As at 31 December 2018 the value stood at £2.79m (having been at £3.535m at the end of the prior year excluding Hallmarq) with a large proportion of the reduction in the year resulting from the decline in the share price of AIM quoted Scancell Holdings plc ("Scancell') and Omega Diagnostics plc ("Omega") during the year. However, in the Board's opinion, the intrinsic values of both Scancell and Omega remain and we are firmly of the view that the potential upside in these assets merits their continued presence in the portfolio. 

The value of the quoted and unquoted sections of the remaining Ordinary share portfolio were roughly equal at 31 December 2018. Scancell, valued at the bid price of 9p, represented 42% of the Ordinary share portfolio as at 31 December 2018. However, by the 31 March 2019 the bid price had reduced to 5.5p and accordingly the percentage of the entire Ordinary share portfolio represented by Scancell has fallen to 30.6%. This was the primary reason for the reduction in the NAV of an Ordinary share (in addition to the dividend of 10p per share that was paid on 25 January 2019) as at 31 March 2019. Details of progress in the Ordinary share pool unquoted portfolio are included in the Investment Manager's Report but the only significant investment, based on the valuations as at 31 December 2018, is OR Productivity Limited which continues to report success in its ambitions within the hospital operating environment.

We have written down the value of Exosect Limited ('Exosect'), which was placed into Administration on 18 October 2018, to nil and reduced the value of Arecor Limited ('Arecor') following their recent fund raising at a discounted price compared to our carrying value. We continue to hold a full provision against our investment in Immunobiology Limited due to share preferences held by other investors. Whilst we are unlikely to recover any value from Exosect, we would hope that the opportunities available to both Arecor and Immunobiology have the potential to realise further value for the Ordinary share portfolio.

The Board remains confident that, overall, the remaining Ordinary share portfolio has the opportunity to realise a significant gain for shareholders but we do not see any immediate opportunities for further realisations.

B Share Investment Portfolio Review

We are delighted to report that the new B share portfolio has now made 5 investments and invested £2.75 million. This is a very positive start to the development of the B share investment portfolio and demonstrates that Seneca has access to considerable deal flow with exciting opportunities. Full details are included in their Investment Manager's report

Annual General Meeting

The Company's AGM will be held at 11.00 a.m. on Monday 10 June 2019 at the offices of Howard Kennedy LLP, 1 London Bridge, London SE1 9BG and we look forward to welcoming you to the meeting.

Following the appointment of Seneca as Investment Manager, Charles Breese has indicated that he does not wish to seek re-election to the Board at the AGM. However we are pleased that he has agreed to continue as a consultant until the end of this year in order to facilitate an orderly handover of the relationships with the remaining companies in the Ordinary share portfolio. Charles has been a member of the Company's Board since its inception in 2001 and we thank him very much for his considerable advice and input, especially the benefit of his investment experience, during that time.

The Board has reviewed my performance and has asked me to continue as Chairman. A resolution for my re-election is included in the AGM Notice. A resolution for the re-election of Richard Manley, who was appointed during the year as Seneca's representative, is also included in the AGM Notice.

The Board is currently in the process of identifying a new non-executive Director.

As the Company has now paid interim dividends in respect of both the Ordinary shares and the B shares and is required to pay a further Ordinary share dividend before 12 June 2019 in order to satisfy VCT rules following disposal of the Hallmarq investment on 13 December 2018, no resolutions are included in respect of dividends.

The Notice of the AGM includes resolutions empowering the Directors to issue further B shares and Ordinary shares which will primarily be used to facilitate the launch of another B share offer for the 2019/2020 and 2020/2021 tax years referred to above which requires authorisation for the Directors to be able to allot up to a further 25,000,000 B Shares. Including these resolutions in the AGM business will avoid the Company having to produce and send out a separate circular.

A summary of the resolutions to be proposed by the Company at its Annual General Meeting is included on page 32.

VCT Qualifying Status

Philip Hare & Associates provides the Board with advice on the ongoing compliance with HMRC rules and regulations concerning VCTs; they have confirmed that we remain within all the appropriate VCT qualifying regulations as at 31 December 2018.

Fund Administration

Our administration remains unchanged at present but, as the B share portfolio increases, much of this will migrate to Seneca's Haydock offices, to where we have already moved the Company's Registered Office. Neville Registrars ('Nevilles') will continue to maintain the Register. Our website has now changed to www.senecavct.co.uk which includes all information in respect of both share classes including Annual Reports and notices of meetings. We would remind shareholders who have not opted for electronic communications that this is more efficient and ecologically friendly than receiving paper copies by post. If you wish to take advantage of this facility, please contact Nevilles whose details are on page 75.

Resignation of Auditor

As already announced, James Cowper Kreston ("JCK"), the Company's previous auditor, have decided to withdraw from auditing Public Interest Entities (which includes VCTs) for the time being due to the increasing regulatory landscape and associated costs. As a result JCK have resigned from their role as auditor to the Company. The Company carried out a tender process for the appointment of a new auditor, and the Board, on the recommendation of the Audit Committee, appointed UHY Hacker Young LLP ("UHY") to fill the casual vacancy that had arisen. UHY have audited the Company's annual results for the year ending 31 December 2018, and shareholders will be asked to reappoint them at the AGM for the audit of the accounts for the year ending 31 December 201

Future Prospects

As I have previously indicated, we regard the prospects for the remaining Ordinary share portfolio as good but once again I need to seek shareholders' patience following the significant distributions returned (and intended to be returned) to them in 2019 whilst we await further realisation opportunities for the remaining investments in the Ordinary share portfolio. 

We are pleased with the support we have received from existing and new shareholders in respect of the B share fund raising and will be issuing our new prospectus in the near future. Seneca is confident that there remains significant demand from potential investee companies for the type of growth capital that the Company can provide from its B share pool. As such, the Board remains confident of continuing to increase the B share fund in the 2019/20 tax year and foresees being able to invest these funds profitably well within the time limits imposed on VCTs.

Your Board continues to view the future of our Company with confidence.

John Hustler

Chairman

26 April 2019

Investment Manager's Report

Seneca Partners were delighted to be formally appointed as the Company's Investment Manager on 23 August 2018 following the successful first allotment of shares under the B share offer, which was launched on 9 May 2018 to raise in aggregate up to £10m.

We are active growth capital investors and since 2012 have invested in excess of £50m of growth capital into more than 40 investee companies.

As many of the Company's B shareholders will know, Seneca are head-quartered in the North West of England and as a result of our position as active growth capital investors across the UK we maintain a strong pipeline of investment opportunities. From this pipeline of potential investments we have moved quickly to make our first investments from the Company's B share pool and started the process of building a diverse portfolio of growth capital investments which we hope will provide attractive returns for the benefit of the Company's B shareholders.

We are happy to report that a total of £5.5m was raised under the new B share offer in our first year of fundraising of which £0.5m had been invested into one investee company as at 31 December 2018.

This first investment was made into the fast growing e-commerce business, SilkFred Limited, which specialises in independent ladies' fashion brands. Seneca first invested in this business via EIS funds which we manage in March 2018 and since that time we have been impressed with the progress it has made and rate with which the business is growing. The December 2018 investment made from the Company's B share pool was part of a larger investment round totalling c.£4m and will provide the working capital the business requires to support its continued growth.

Since this first B share pool investment on 31 December 2018 we have also now completed a further 4 investments from the B share pool deploying an additional £2.25m and in all of these instances the B share pool has co-invested alongside EIS funds also managed by Seneca. This is a key feature of the B share pool's early investments and brings an ability for the B share pool to participate in larger deals into more established companies than would be possible at this point if the Company's B share pool were to invest on a standalone basis.

Our current investment portfolio is summarised in the table below with additional detail in relation to each investee company included thereafter.

We are very happy with the diverse nature of these initial 5 B share pool investee companies and as it is our intention that the B share portfolio has exposure to both private and AIM quoted companies we are also particularly pleased that we have been able to include an AIM quoted company in these initial investments.

It is our intention to launch another prospectus for a further B share offer in the 2019/2020 tax year in the near future and to continue to raise funds to support the ongoing development of the existing portfolio and to fund new investments. 

Shareholders will recall that whilst Seneca Partners are the Company's Investment Manager, responsibility for the management of the Ordinary share pool investments remain with those members of the Board who were serving at the point of Seneca's appointment on 23 August 2018. During the year to 31 December 2018 a profit over original cost of £1,807k was realised on the sale of the Ordinary share portfolio's holding in Hallmarq. A further £19k profit over cost was realised when 200,000 Scancell shares were sold for liquidity management purposes. During the year former Ordinary share pool investee company Glide was dissolved and the carrying value of the Ordinary share pool's investment in Exosect was written down to nil following the company entering administration in October 2018.

Further details in relation to both Ordinary share pool and B share pool investee companies are included below.

Investment Portfolio - Ordinary shares

Investment Portfolio - B shares

Ordinary Share Pool - Investment Portfolio - Unquoted Investments

1. OR Productivity Limited

2. Fuel 3D Technologies Limited

3. Arecor Limited

4. Insense Limited

5. Microarray Limited

6. ImmunoBiology Limited

7. Exosect Limited

Ordinary Share Pool - Investment Portfolio - AIM Quoted Investments

1. Scancell plc

2. Omega Diagnostics plc

B Share Pool - Investment Portfolio - Unquoted Investments as at 31 December 2018

1. SilkFred Limited

B Share Pool - Investment Portfolio - Additional Unquoted Investments as at 26 April 2019

1. Fabacus Holdings Limited

2. Old St Labs Limited

3. Qudini Limited

B Share Pool - Investment Portfolio - Additional Quoted Investments as at 26 April 2019

1. SkinBioTherapeutics Plc

Directors' Report

The Directors present their Report and the audited Financial Statements for the year ended 31 December 2018.

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

Review of Business Activities

The Directors are required by s417 of the Companies Act 2006 to include a Business Review to shareholders. This is set out on page 25 and forms part of the Strategic Report. The Chairman's Statement on page 10 to 13, and the Investment Manager's Report on pages 14 to 24 also form part of the Strategic Report.

The purpose of this review is to provide shareholders with a snapshot summary setting out the business objectives of the Company, the Board's strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators used to measure performance.

Directors' Shareholdings - Ordinary shares

The Directors of the Company during the period and their interests (in respect of which transactions are notifiable under Disclosure and Transparency Rule 3.1.2R) in the issued Ordinary shares of 1p (2017: nominal value 50p) are shown in the table below:

All of the Directors' shares were held beneficially. There have been no changes in the Directors' Ordinary share interests between 31 December 2018 and the date of this report.

Directors' Shareholdings - B Shares

The Directors of the Company during the period and their interests (in respect of which transactions are notifiable under Disclosure and Transparency Rule 3.1.2R) in the issued B shares of 1p are shown in the table below:

All of the Directors' shares were held beneficially. There have been no changes in the Directors' B share interests between 31 December 2018 and the date of this report.

Directors' and Officers' Liability Insurance

The Company has maintained directors' and officers' liability insurance cover on behalf of the Directors and Company Secretary. 

Whistleblowing

The Board has approved a Whistleblowing Policy for the Company, its directors and any employees, consultants and contractors, to allow them to raise concerns, in confidence, in relation to possible improprieties in matters of financial reporting and other matters.

Bribery Act

The Board has approved an Anti-Bribery Policy to ensure full compliance with the Bribery Act 2010 and to ensure that the highest standards of professional and ethical conduct are maintained.

Management

On 23 August 2018 Seneca was appointed as the Company's Investment Manager.

Whilst Seneca has been appointed as the Company's Investment Manager and will be responsible for the management of the Company's B share pool investments, responsibility for the management of the Ordinary share pool investments has been delegated to those members of the board of directors who served immediately prior to 23 August 2018.

Share Issues

During the year, the Company did not issue any Ordinary shares (2017: nil). During the year, the Company issued 4,036,370 B shares raising £4.0m (2017: nil). Subsequently an additional 1,351,294 B shares have been issued under the Offer.

Share Capital

The Company's issued Ordinary share capital as at 31 December 2018 was 8,115,376 Ordinary shares of 1p each (31 December 2017: 8,115,376 of 50p each) and 4,036,370 B shares of 1p each (31 December 2017: nil).

Directors

Biographical details of the Directors are shown on page 29.

In accordance with the Articles, John Hustler who has been a director for more than nine years will retire and offer himself for re-election at the forthcoming AGM. Richard Manley has been appointed since the last AGM and will therefore retire and offer himself for re-election at the forthcoming AGM.

The Board is satisfied that, following individual performance appraisals, both the Chairman and Richard Manley, who are retiring, continue to be effective and demonstrate commitment to their roles and therefore offer themselves for re-election with the support of the Board.

Following the appointment of Seneca as Investment Manager, Charles Breese has indicated that he does not wish to seek re-election to the Board at the AGM. However we are pleased that he has agreed to continue as a consultant until the end of this year in order to facilitate an orderly handover of the relationships with the remaining companies in the Ordinary share portfolio.

The Board is cognisant of shareholders' preference for Directors not to sit on the boards of too many listed companies ("over-boarding"). As part of their assessment as to his suitability, the Directors considered Richard Roth's other directorships at the time of his appointment, given that he also sits on the boards of the four Oxford Technology ("OT") VCTs. The Directors noted that those four funds have a common board, and there is an element of overlap in the workload across the four entities, such that the time required is less than would be necessary for four totally separate and listed companies. They also note that Seneca Growth Capital has a number of shared portfolio companies with the OT VCTs. The Board was satisfied that Richard Roth had the time to focus on the requirements of the Company, and this has proven to be the case.

International Financial Reporting Standards

As the Company is not part of a group it is not mandatory for it to comply with International Financial Reporting Standards. The Company does not anticipate that it will voluntarily adopt International Financial Reporting Standards. The Company has adopted Financial Reporting Standard 102 - The Financial Reporting Standard Applicable in the United Kingdom and Republic of Ireland.

Environmental Policy

The Company always makes a full effort to conduct its business in a manner that is responsible to the environment.

Going Concern

The Company's business activities and the factors likely to affect its future performance and position are set out in the Chairman's Statement and Investment Manager's Report on pages 10 to 13 and pages 14 to 24. Further details on the management of financial risk may be found in note 16 to the Financial Statements.

The Board receives regular reports from the Administration Manager and the Directors believe that, as no material uncertainties leading to significant doubt about going concern have been identified, it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements.

As at 31 December 2018 the Company had more than £6m of cash and in addition, the other assets of the Company consist mainly of securities, some of which are readily realisable. As such, the Company has adequate financial resources to continue in operational existence for the foreseeable future.

Substantial Shareholdings

At 31 December 2018, two disclosures of major shareholdings had been made to the Company under Disclosure and Transparency Rule 5 (Vote Holder and Issuer Notification Rules).

· James Leek has disclosed a shareholding of 4.57% (555,340 shares).

· David Blundell has disclosed a shareholding of 3.04% (369,900 shares).

Annual General Meeting

The Notice convening the 2019 Annual General Meeting ("AGM") of the Company is set out at the end of this document (and a form of proxy in relation to the meeting is enclosed separately). Part of the business of the AGM will be to consider resolutions in relation to the following matters:

Resolution 6 will seek the re-appointment of UHY Hacker Young LLP as Independent Auditor to the Company.

Resolution 8 will authorise the Directors to allot further B Ordinary shares and Ordinary shares. This would enable the Directors until the next AGM to allot up to 31,000,000 B Ordinary shares in connection with any offer(s) for subscription (and any subsequent top up offer of B Ordinary shares) and up to 405,800 Ordinary shares (for any miscellaneous offers of such shares), representing approximately 575% of the Company's issued B Ordinary share capital and approximately 5% of its issued Ordinary share capital as at 25 April 2019.

Resolution 9 will, under sections 570 of the Act, disapply pre-emption rights in respect of any allotment of the B Ordinary shares and/or Ordinary shares authorised under Resolution 8. 

Resolution 10 will authorise the Board, pursuant to the Act, to make one or more market purchases of up to 14.99% of the issued B Ordinary share capital of the Company from time to time. The price paid must not be less than 1p per B Ordinary share, nor more than 5% above the average middle market price of a B Ordinary share for the preceding five business days. Any B Ordinary shares bought back under this authority may be cancelled by the Board. 

Resolution 11 will authorise the cancellation of the share premium account of the Company. This share premium account will arise on the issue of further B Ordinary Shares pursuant to any offer for subscription. All of the share premium account at the date of the order made by the Court confirming such cancellation will be cancelled, and will be used to establish a new reserve which may be treated as distributable and which can be used, among other things, to fund the Company's buy-back of shares and the payment of future dividends. In accordance with the VCT Rules, such distributable reserves cannot, however, be utilised for such purposes until after three years from the end of the accounting period in which the relevant shares were issued.

The Directors intend to use the authorities in Resolutions 8 and 9 for the purposes of a further offer for subscription of B Ordinary Shares, though may also subsequently utilise the authorities for further offer(s) for subscription or issue of B Ordinary Shares. The Directors have no current intention to utilise the authority in relation to the Ordinary Shares. 

By Order of the Board

Craig Hunter

Company Secretary

26 April 2019 

Income Statement

There was no other Comprehensive Income recognised during the year

· The 'Total' column of the income statement and statement of comprehensive income is the profit and loss account of the Company; the supplementary revenue return and capital return columns have been prepared under guidance published by the Association of Investment Companies.

· All revenue and capital items in the above statement derive from continuing operations.

· The Company has only one class of business and derives its income from investments made in shares and securities and from bank and money market funds.

The Company has no recognised gains or losses other than the results for the year as set out above.

The accompanying notes are an integral part of the Financial Statements.

Ordinary Share Income Statement (non-statutory analysis)

B Share Income Statement (non-statutory analysis)

Statement of Changes in Equity

Refer to note 14 for details of the share restructure and capital reduction undertaken in the year.

The accompanying notes are an integral part of the Financial Statements.

Ordinary Shares - Statement of Changes in Equity

B Shares - Statement of Changes in Equity

*At fair value through profit and loss

The accompanying notes are an integral part of the Financial Statements.

The statements were approved by the Directors and authorised for issue on 26 April 2019 and are signed on their behalf by:

John Hustler

Chairman

Company No: 04221489

*At fair value through profit and loss

*At fair value through profit and loss

Statement of Cash Flows

The accompanying notes are an integral part of the Financial Statements.

Ordinary Shares Statement of Cash Flows

B Shares Statement of Cash Flows

Notes to the Financial Statements

1. Principal Accounting Policies

Basis of preparation

The Financial Statements have been prepared under the historical cost convention, except for the measurement at fair value of certain financial instruments, and in accordance with UK Generally Accepted Accounting Practice ("GAAP"), including FRS 102 and with the Companies Act 2006 and the Statement of Recommended Practice (SORP) 'Financial Statements of Investment Trust Companies and Venture Capital Trusts (revised 2014)'.

The principal accounting policies have remained materially unchanged from those set out in the Company's 2017 Annual Report and Financial Statements, apart from an addition to the policy on allocating expenses partly to capital as a result of the introduction of an investment management fee for the B shares, and clarifying the split of costs between the two share pools. A summary of the principal accounting policies is set out below.

The Company held all fixed asset investments at fair value through profit or loss. Accordingly, all interest income, fee income, expenses and gains and losses on investments are attributable to assets held at fair value through profit or loss.

The most important policies affecting the Company's financial position are those related to investment valuation and require the application of subjective and complex judgements, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. These are discussed in more detail below.

Going Concern

After reviewing the Company's forecasts and expectations, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Company therefore continues to adopt the going concern basis in preparing its Financial Statements.

Key judgements and estimates

The preparation of the Financial Statements requires the Board to make judgements and estimates regarding the application of policies affecting the reported amounts of assets, liabilities, income and expenses. Estimates and assumptions mainly relate to the fair valuation of the fixed asset investments particularly unquoted investments. Estimates are based on historical experience and other assumptions that are considered reasonable under the circumstances. The estimates and the assumptions are under continuous review with particular attention paid to the carrying value of the investments.

Investments are regularly reviewed to ensure that the fair values are appropriately stated. Unquoted investments are valued in accordance with current International Private Equity and Venture Capital Valuation (IPEV) guidelines, which can be found on their website at www.privateequityvaluation.com, although this does rely on subjective estimates such as appropriate sector earnings multiples, forecast results of investee companies, asset values of investee companies and liquidity or marketability of the investments held.

Although the Directors believe that the assumptions concerning the business environment and estimate of future cash flows are appropriate, changes in estimates and assumptions could result in changes in the stated values. This could lead to additional changes in fair value in the future.

Functional and presentational currency

The Financial Statements are presented in Sterling (£). The functional currency is also Sterling (£).

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts.

Fixed asset investments

The Company's principal financial assets are its investments and the policies in relation to those assets are set out below. 

Purchases and sales of investments are recognised in the Financial Statements at the date of the transaction (trade date).

These investments will be managed and their performance evaluated on a fair value basis and information about them is provided internally on that basis to the Board. Accordingly, as permitted by FRS 102, the investments are measured as being fair value through profit or loss on the basis that they qualify as a group of assets managed, and whose performance is evaluated, on a fair value basis in accordance with a documented investment strategy. The Company's investments are measured at subsequent reporting dates at fair value.

In the case of investments quoted on a recognised stock exchange, fair value is established by reference to the closing bid price on the relevant date or the last traded price, depending upon convention of the exchange on which the investment is quoted. In the case of AIM quoted investments this is the closing bid price. In the case of unquoted investments, fair value is established by using measures of value such as the price of recent transactions, earnings multiple, discounted cash flows and net assets. These are consistent with the IPEV guidelines.

Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - holding gains/(losses).

In the preparation of the valuations of assets the Directors are required to make judgements and estimates that are reasonable and incorporate their knowledge of the performance of the investee companies.

Fair value hierarchy

Paragraph 34.22 of FRS 102 regarding financial instruments that are measured in the balance sheet at fair value requires disclosure of fair value measurements dependent on whether the stock is quoted and the level of the accuracy in the ability to determine its fair value. The fair value measurement hierarchy is as follows:

For quoted investments:

Level 1: quoted prices in active markets for an identical asset. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets held is the bid price at the Balance Sheet date.

Level 2: where quoted prices are not available (or where a stock is normally quoted on a recognised stock exchange that no quoted price is available), the price of a recent transaction for an identical asset, providing there has been no significant change in economic circumstances or a significant lapse in time since the transaction took place. The Company holds no such investments in the current or prior year.

For investments not quoted in an active market:

Level 3: the fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable data (eg: the price of recent transactions, earnings multiple, discounted cash flows and/or net assets) where it is available and rely as little as possible on entity specific estimates.

There have been no transfers between these classifications in the year (2017: none). The change in fair value for the current and previous year is recognised through the profit and loss account.

Current asset investments

No current asset investments were held at 31 December 2018 or 31 December 2017. Should current assets be held, gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the capital reserve - gains/(losses) on disposal.

Income

Investment income includes interest earned on bank balances and from unquoted loan note securities, and dividends. Fixed returns on debt are recognised on a time apportionment basis so as to reflect the effective yield, provided it is probable that payment will be received in due course.

Expenses

All expenses are accounted for on an accruals basis. Expenses are charged wholly to revenue with the exception of the performance fee, which is charged 100% to the capital reserve. In addition, the investment management fee charged to the B shares has been split 25% revenue and 75% capital, in line with industry practice and to reflect the Board's estimated split of investment returns which will be achieved by the company's B shares over the long term. Expenses and liabilities not specific to a share class are allocated to the B share pool for a period of three years from 1 July 2018 in line with the Articles of Association.

Revenue and capital

The revenue column of the Income Statement includes all income and revenue expenses of the Company. The capital column includes gains and losses on disposal and holding gains and losses on investments, as well as those expenses that have been charged as capital costs. Gains and losses arising from changes in fair value of investments are recognised as part of the capital return within the Income Statement and allocated to the appropriate capital reserve on the basis of whether they are realised or unrealised at the balance sheet date.

Taxation

Current tax is recognised for the amount of income tax payable in respect of the taxable profit for the current or past reporting periods using the current tax rate. The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue return on the "marginal" basis as recommended in the SORP.

Deferred tax is recognised on an undiscounted basis in respect of all timing differences that have originated but not reversed at the balance sheet date, except as otherwise indicated.

Deferred tax assets are only recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Financial instruments

The Company's principal financial assets are its investments and its cash and the policies in relation to those assets are set out above. Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities. Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument.

Capital management is monitored and controlled using the internal control procedures set out on page 35 of this report. The capital being managed includes equity and fixed-interest investments, cash balances and liquid resources including debtors and creditors.

The Company does not have any externally imposed capital requirements.

Reserves

Called up equity share capital - represents the nominal value of shares that have been issued.

Share premium account - includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium.

Special distributable reserve - includes cancelled share premium and capital redemption reserves available for distribution.

Capital reserve - holding gains and losses - when the Company revalues the investments still held during the period with any gains or losses arising being credited/ charged to the Capital reserve - holding gains and losses.

Capital reserve - gains and losses on disposal - when an investment is sold any balance held on the Capital reserve - holding gains and losses is transferred to the Capital reserve - gains and losses on disposal, as a movement in reserves.

Revenue reserve - represents the aggregate value of accumulated realised profits, less losses and dividends.

Dividends Payable

Dividends payable are recognised as distributions in the Financial Statements when the Company's liability to make payment has been established. This liability is established for interim dividends when they are declared by the Board, and for final dividends when they are approved by the shareholders.

2. Income

3. Investment Management Fee for B shares

Following its appointment on 23 August 2018, Seneca has received a fee of 2% of the weighted average net asset value of the B shares (2017: n/a). Seneca will also be entitled to certain monitoring fees from investee companies and the Board reviews the amounts.

Seneca are entitled to receive a performance incentive fee in relation to the B share pool of an amount equal to 20% of the Shareholder Proceeds arising in respect of any performance period, provided that the payment of such a fee shall also be conditional upon (i) a return being generated on the B share pool for B Shareholders in respect of that performance period of more than 5% per annum (pro-rated if that period is less than a year) and (ii) that such a return calculated for the period from 23 August 2018 to the end of the relevant performance period exceeds 5% per annum.

Shareholder Proceeds are, in relation to the B shares and calculated on a per share basis in relation to the relevant share, all amounts paid by way of dividend or other distributions, share buy backs, proceeds on a sale or liquidation of the Company and any other proceeds or value received or deemed to be received by the holders of the relevant shares (excluding any income tax relief on subscription).

For a three year period with effect from 1 July 2018, expenses are capped at 3% of the weighted average net asset value of the B shares, including the management fee (but excluding any performance fee). (Following this initial period, expenses are capped at 3% of the Company's total net asset value, including the assets in the Ordinary share pool). Accordingly Seneca reduced its management fee by £42,000 in the year to 31 December 2018 (2017: n/a). 

Expenses are charged wholly to revenue with the exception of the (gross) investment management fee which has been charged 75% to the capital reserve in line with industry practice.

4. Other Expenses

All expenses were charged to the Ordinary shares for the period to 30 June 2018. In line with the offer for subscription for B shares, and following the initial allotment of B shares on 23 August 2018, all the Company's general expenses are chargeable to the B share pool for a period of three years from 1 July 2018 (subject to the cost cap discussed in note 3). Any expenditure related specifically to assets in one pool is chargeable to that pool.

5. Directors' Remuneration

Richard Manley, a director of the Investment Manager, has elected to waive his Director's fee, until the Company's operating costs are less than the expenses cost cap.

Included in the figure above for Richard Roth is £2,500 for work undertaken in relation to the setting up of the new B share structure and preparation of the offer for subscription as detailed in the Directors' Remuneration Report. Apart from this, none of the Directors received any other remuneration from the Company during the year.

Certain Directors may become entitled to receive a share of the Performance Incentive Fee related to the Ordinary share pool as detailed in the Directors' Remuneration Report on page 39 and in note 6.

The Company has no employees other than non-executive Directors. The average number of non-executive Directors in the year was three (2017: three). Richard Manley joined the Board on 23 August 2018 which increased the number of directors for the remainder of the year from 3 to 4.

6. Performance fees for Ordinary shares

The Commercial Advisory Committee took over management of the Company's investments on 30 July 2007, and at that time, a revised Performance Incentive Scheme was implemented, such that its members would be entitled to 20% of all cash returns above the initial net cost to subscribing shareholders of 80p.

On 7 October 2015, this scheme was varied such that any returns above the 31 December 2014 levels would be subject to a hurdle, and the share to the CAC reduced from 20% to 10%. The hurdle is a compound 6% per annum on any amounts below the latest hurdle still due to be paid to shareholders (i.e. in recognition of dividends paid, actual returns to shareholders will be subtracted from the compounding threshold in the year these are paid).

The Total Gross Return at 31 December 2014 on which the performance fee liability of £702,000 was calculated was 123.3p, resulting in the quoted net asset value of 114.6p. For the purposes of this note 6, Total Gross Return is defined as the total return made by the fund, before the deduction of any dividend payments or accruals and/or payments made relating to any potential (or actual) performance incentive fee.

Any dividends paid above 80p will be split 80% to shareholders and 20% to the members of the CAC as at 31 December 2014 (i.e. 25% of all dividends paid to shareholders), until shareholders have received dividends totalling 114.6p.

A performance fee may be payable on any further dividends above this level, but only if the hurdle applicable at that time has been met.

As at 31 December 2018, the Total Gross Return is 91.68p, and so 2.34p per share totalling £190,000 has been accrued (31 December 2017, 90.1p, 2.02p and £164,000).

Assuming the only dividends paid on the Ordinary shares in the year are the 10p dividend per share paid on 25 January 2019, and the 18p per share expected to be declared soon after this Annual Report has been submitted to Companies House, the Total Gross Return would need to exceed 152.9p at 31 December 2019 before any fee above £702,000 could be due, and at that time, it would be 10% of any cash payments made above this threshold. If such a performance fee is not triggered (as it has not been in this financial year) the hurdle, net of dividends paid, increments by a compound annual growth rate of 6%, applied quarterly.

7. Tax on Ordinary Activities

The corporation tax charge for the period was £nil (2017: £nil).

The current rate of tax is the small companies' rate of corporation tax at 19% (2017: 19.25 %)

The company has excess management expenses of £2,741,000 (2017: £2,619,000) to carry forward to offset against future taxable profits.

Approved VCTs are exempt from tax on capital gains within the Company. Since the Directors intend that the Company will continue to conduct its affairs so as to maintain its approval as a VCT, no current deferred tax has been provided in respect of any capital gains or losses arising on the revaluation or disposal of investments.

8. Earnings per Share