British Smaller VCT : Annual Financial Report Announcement for the year ended 31 March 2019

BRITISH SMALLER COMPANIES VCT PLC Annual Financial Report Announcement for the Year to 31 March 2019

British Smaller Companies VCT plc (the "Company") today announces its audited results for the year ended 31 March 2019.

HIGHLIGHTS

• Total Return increasing by 5.7 pence to 221.7 pence per ordinary share, an increase of 7.2 per cent over opening net asset value.
• The underlying growth in the investment portfolio was £6.5 million, an increase of 10.1 per cent.
• Realisations of investments and loan repayments generated total proceeds of £18.8 million in the year, a gain of £4.3 million over the opening carrying value and £9.6 million over cost.
• Three new investments and three follow-on investments totalling £5.7 million were completed during the year. Three further new investments and one follow-on investment totalling £7.8 million have been completed since the year end.
• Net asset value at 31 March 2019 of 74.3 pence per ordinary share (2018 79.6 pence per ordinary share).
• Total dividends paid in the year of 11.0 pence per ordinary share (2018: 5.75 pence per ordinary share). The directors are not proposing the payment of a final dividend for the year ended 31 March 2019.
• Total cumulative dividends paid since inception of 147.4 pence per ordinary share at 31 March 2019 (2018: 136.4 pence per ordinary share).
• Interim dividend for the year ending 31 March 2020 of 4.0 pence per ordinary share paid on 12 June 2019, taking cumulative dividends paid to date to 151.4 pence per ordinary share.
• Successful prospectus offer raising approximately £21.3 million. Shares were allotted in April 2019.

Chairman's Statement

I am pleased to report that your Company has made good progress during the year, with realised gains delivered on the sale of three portfolio companies in December 2018 and also net overall valuation gains across the rest of the portfolio. As a result, Total Return in the year was 5.7 pence per ordinary share, which equates to 7.2 per cent of the net asset value at 31 March 2018. Total Return is now 221.7 pence per ordinary share.

Your Company's investment portfolio delivered a strong performance over the year, generating a return of 10.1 per cent over its opening value, and new and follow-on investments totalling £5.71 million have also been completed.

Realisations in Year

Realisations and loan repayments generated total proceeds of £18.85 million which was a realised gain of £4.29 million over the opening carrying value and £9.61 million over cost. In December 2018 there were three successful realisations:

The sale of the Company's investment in GTK (Holdco) Limited generated proceeds of £3.75 million. The total return (including income) from this investment was £5.91 million, a multiple of 3.4x cost.

The sale of the Company's investment in Mangar Health Limited generated proceeds of £5.51 million. The total return (including income) from this investment was £6.59 million, a multiple of 2.7x cost.

The sale of the Company's investment in Gill Marine Holdings Limited generated proceeds of £3.80 million. The total return (including income) from this investment was £4.96 million, a multiple of 2.0x cost.

This was a very pleasing outcome for your Company, but naturally it reduces the proportion of "old" style investments in the portfolio.

Following these highly successful realisations your Company paid a special interim dividend for the year ended 31 March 2019 of 7.0 pence per ordinary share on 15 February 2019.

New Investments

During the year your Company completed new investments totalling £4.92 million:

During May 2018 £1.80 million was invested into Arcus Global Limited, a provider of cloud-based software solutions to local and national public-sector organisations. The funding will support the continued growth of the business; building resource in technology development, sales and customer services. Subsequent to the year-end your Company completed a further investment enabling Arcus to continue expanding its range of software solutions which assists the public sector via improved use of digital technologies.

In March 2019 £1.80 million was invested into Frescobol Carioca Limited, the luxury men's resort wear and lifestyle brand. The funds will be used to support the continued growth of the business, especially focussing on furthering the global customer base, and developing e-commerce opportunities.

In April 2018 your Company made an investment of £1.32 million into Hutchinson Networks Limited, a leading provider of multi-vendor IT and network solutions to clients globally. See below for further details on this company.

Follow-on investments totalling £0.79 million were made into Traveltek Group Holdings Limited, Biz2Mobile Limited and Ncam Technologies Limited respectively.

Investments made since the introduction of the new VCT rules in November 2015 made up 38 per cent of the portfolio's value at 31 March 2019.

Realisations since the year end

In April 2019 the Company sold its investment in Leengate Holdings Limited for £1.94 million.

In May 2019 Matillion Limited successfully raised $35 million to support its continued international expansion. At the same time your Company realised part of its investment for $2.75 million (£2.10 million) at an attractive valuation of $160 million. This equates to the cost of the first investment in November 2016 while retaining 4.96 per cent of the ordinary share capital.

Financial Results

The movement in Total Return1 is set out in the table below:

1. Total Return is an Alternative Performance Measure.

The increase in Total Return comprised a 5.9 pence per ordinary share uplift in the value of the investment portfolio of which 3.9 pence per ordinary share derived from realised gains. There was a 0.2 pence per ordinary share reduction in the Total Return from other items.

As part of your Board's commitment to maintaining a sustainable level of dividends, supplemented by distributing the proceeds of realisations, interim dividends of 4.0 pence per ordinary share and 7.0 pence per ordinary share in respect of the year ended 31 March 2019 were paid in the period, bringing the cumulative dividends paid to 31 March 2019 to 147.4 pence per ordinary share.

The resultant movements in net asset value ("NAV") per ordinary share and cumulative dividends paid are set out in the table below:

The charts on page 13 of the annual report show in greater detail the movement in Total Return and net asset value over time.

The investment portfolio, valued at £64.09 million at the start of the financial year, delivered a realised and unrealised return of £6.54 million, equivalent to an increase in value for shareholders of 5.9 pence per ordinary share.

The three realisations delivered a gain of £3.37 million over the opening value and a £7.88 million gain over cost.

The residual portfolio also saw a positive overall gain of £2.14 million, but this included a higher volatility of movement that is beginning to reflect the changing nature of the portfolio. Overall there were £10.91 million of valuation increases and £8.77 million of decreases. There were strong performances from ACC Aviation Group Limited, Matillion Limited, Deep-Secure Ltd and Business Collaborator Limited. These were in part offset by the impact of difficult trading conditions at Hutchinson Networks Limited (see below), Traveltek Group Holdings Limited, Ncam Technologies Limited, e2E Engineering Limited and Seven Technologies Holdings Limited. In a number of these latter cases your Company has made further investments which in many cases have been accompanied by additions and enhancements to the boards and management teams of the underlying businesses. The nature of the younger businesses, which made up 38 per cent of the portfolio at 31 March 2019, is likely to mean that this pattern will continue over the period in which your Company is invested. Overall these earlier stage investments are held at a value of £21.29 million, a 5.0 per cent increase over cost. Three of these investments are valued at cost or above (original cost of £7.46 million) and the remaining eight investments are valued at less than cost (original cost of £12.81 million).

The investment into Hutchinson Networks Limited was intended to support additional marketing and operational resources to accelerate international growth. Whilst the business did expand in the latter part of the year it suffered from contract delays impacting its cash flows. Subsequently the business was unable to raise sufficient additional funding to allow it to continue to trade; the investment was fully impaired (£1.32 million) as at 31 March 2019 and has subsequently gone into administration.

Dividends

Dividends paid in the year comprise interim dividends of 4.0 and 7.0 pence per ordinary share in respect of the financial year just ended, totalling 11.0 pence per ordinary share. This takes the cumulative dividends paid to 147.4 pence per ordinary share at 31 March 2019.

On 12 June 2019 the Company paid an interim dividend of 4.0 pence per ordinary for the year ending 31 March 2020, taking cumulative dividends paid to date to 151.4 pence per ordinary share. The Board is not proposing a final dividend for the year ended 31 March 2019.

Dividend Re-investment Scheme ("DRIS")

Your Company operates a DRIS, which gives shareholders the opportunity to re-invest any cash dividends and is open to all shareholders, including those who invested under the recent offers. The three advantages of the DRIS are:

1. the dividends remain tax free;
2. any DRIS investment attracts income tax relief at the rate of 30 per cent; and
3. the investment is made at a 5 per cent discount to the last reported net asset value.

For the financial year ended 31 March 2019 dividends totalling £3.39 million were invested in your Company by way of the DRIS.

Fundraising

On 27 November 2018 your Company launched a new share offer with British Smaller Companies VCT2 plc to raise in aggregate up to £30 million, with an over-allotment facility of £5 million. I am delighted that due to strong demand the offer closed on 11 February 2019 raising total gross proceeds for both companies of £35 million. The allotment of 28,769,702 new ordinary shares took place on 1 April 2019, subsequent to which your Company received net proceeds of £21.31 million.

Shareholder Relations

The electronic communications policy continues to be a great success, with 84 per cent of shareholders now receiving communications in this way. Documents such as the annual report are published on the website www.bscfunds.com rather than by post, saving on printing costs, as well as being more environmentally friendly.

Your Company's website www.bscfunds.com is refreshed on a regular basis and provides a comprehensive level of information in what I hope is a user-friendly format.

The Investor Workshop, which was held on 20 June 2019 at Gibson Hall, 13 Bishopsgate, London EC2N 3BA, was attended by around 200 people. Shareholders saw presentations from Friska Limited, Matillion Limited and Frescobol Carioca Limited.

Board Composition

As previously announced, after nine years on the Board Edward Buchan will be standing down as a non- executive director at the Company's next Annual General Meeting.

The Board has commenced the process of recruiting a new non-executive director and details of any appointment will be made at the appropriate time.

Regulatory Developments

As I have previously noted, the new VCT rules have restricted the level of debt instruments that can be used in new investments. The impact of this is reflected in the level of interest received which was 18 per cent lower than the previous year.

In December 2016 HMRC published a consultation on improving the advance assurance process with the major proposal being for VCTs to self-assure as much as possible and since then the Investment Adviser and other VCT advisers have worked closely with HM Treasury and HMRC to clarify HMRC's guidance. As a result your Company has decided that it will, subject to professional advice, self-assure on investments that can easily be defined as Qualifying Investments.

Post Balance Sheet Events

Your Company allotted 28,769,702 ordinary shares arising from the above fundraising on 1 April 2019, subsequent to which net proceeds of £21.31 million were received.

An interim dividend of 4.0 pence per ordinary share in respect of the year ending 31 March 2020 was paid on 12 June 2019. On the same date 2,397,364 ordinary shares were issued under the Company's DRIS.

Investments totalling £7.77 million have been made into Elucidat Limited, Wooshii Limited, Tonkotsu Limited and a follow-on investment into Arcus Global Limited. Your Company has received total proceeds of £4.67 million since the year end.

Investment Adviser Remuneration

The Board and the Investment Adviser have agreed changes to the Investment Adviser's remuneration that will benefit shareholders, including a reduced Investment Adviser Fee of 1.0 per cent on cash in excess of £15 million with effect from 1 April 2019. This will help offset the low level of interest that is earned on cash balances. Further details on this can be found below.

Performance Incentive

Following a period of successful realisations over many years the terms of a revised Performance Incentive have been agreed with the Investment Adviser, based on a combination of Total Return and minimum annual dividends, and were approved by shareholders on 7 January 2019. The agreement requires an increase of 12.6 pence per ordinary share in Total Return, increased annually by a further

5.1 pence per ordinary share, indexed for changes in RPI, before any incentive becomes payable and any payment is also dependent on annual dividends exceeding a minimum amount. No performance incentive payment will be made in respect of the year ended 31 March 2019. Further details can be found below.

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