Kings Arms Yard VCT PLC : Annual Financial Report

Kings Arms Yard VCT PLC
LEI Code 213800DK8H27QY3J5R45

As required by the UK Listing Authority's Disclosure Guidance and Transparency Rules 4.1 and 6.3, Kings Arms Yard VCT PLC today makes public its information relating to the Annual Report and Financial Statements for the year ended 31 December 2017.

This announcement was approved for release by the Board of Directors on 29 March 2018.

This announcement has not been audited.

The Annual Report and Financial Statements for the year ended 31 December 2017 (which have been audited), will shortly be sent to shareholders. Copies of the full Annual Report and Financial Statements will be shown via the Albion Capital Group LLP website by clicking www.albion.capital/funds/KAY/31Dec2017.pdf.

The information contained in the Annual Report and Financial Statements will include information as required by the Disclosure Guidance and Transparency Rules, including Rule 4.1.

Financial calendar

Record date for first dividend	13 April 2018
Payment date for first dividend	30 April 2018
Annual General Meeting	11:00am on 16 May 2018
Announcement of half-yearly results for the six months ending 30 June 2018	August 2018
Payment date for second dividend (subject to Board approval)	31 October 2018

Investment policy
Kings Arms Yard VCT PLC is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.

The Company's current general investment policy is as follows:

Investment policy
It is intended to produce a regular and predictable dividend stream with an appreciation in capital value as set out below.

The Company intends to achieve its strategy by adopting an investment policy for new investments which over time will rebalance the portfolio such that approximately 50 per cent. of the portfolio comprises an asset-based portfolio of more stable, ungeared businesses, principally operating in the healthcare, environmental and leisure sectors (the "Asset-Based Portfolio"). The balance of the portfolio, other than funds retained for liquidity purposes, will be invested in a portfolio of higher growth businesses across a variety of sectors of the UK economy. These will range from more stable, income producing businesses to a limited number of higher risk technology companies (the "Growth Portfolio").

In neither category would portfolio companies normally have any external borrowing with a charge ranking ahead of the Company. Up to two-thirds of qualifying investments by cost will comprise loan stock secured with a first charge on the portfolio company's assets.

The Company's investment portfolio will thus be structured with the objective of providing a balance between income and capital growth for the longer term. The Asset-Based Portfolio is designed to provide stability and income whilst still maintaining the potential for capital growth. The Growth Portfolio is intended to provide highly diversified exposure through its portfolio of investments in unquoted UK companies.

In the November 2017 Autumn Budget, a number of changes to the legislation governing venture capital trusts were announced. Those changes have now been enacted in the Finance Act 2017-19 and further information has been provided in Guidance Notes issued by HM Revenue & Customs. Some of these changes took effect from the date upon which the Finance Act received Royal Assent and others will come into force from 6 April 2018. In future, VCTs may no longer offer secured loans to portfolio companies and to qualify for VCT tax reliefs, portfolio companies must satisfy a "risk to capital condition". This means that the portfolio company must have an objective to grow and develop over the long term and there must be a significant risk that there could be a loss of capital to the VCT of an amount exceeding the net return. The overall aim of HM Treasury is to encourage more high growth investment through VCTs rather than low risk, heavily asset backed investments.

Proposed newinvestment policy
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.

Funds held pending investment or for liquidity purposes are held as cash on deposit or similar instruments with bank or other financial institutions with high credit ratings assigned by international credit rating agencies.

Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within venture capital trust qualifying industry sectors using a mixture of securities. The maximum amount which the Company will invest in a single portfolio company is 15 per cent. of the Company's assets at cost, thus ensuring a spread of investment risk. The value of an individual investment may increase over time as a result of trading progress and it is possible that it may grow in value to a point where it represents a significantly higher proportion of total assets prior to a realisation opportunity being available.

The Company's maximum exposure in relation to gearing is restricted to the amount equal to its adjusted capital and reserves. The Directors do not currently have any intention to utilise long term gearing.

Financial highlights

21.60p	Net asset value per share as at 31 December 2017

1.25p	Basic and diluted total return per share

1.0p	Total tax free dividends per share paid in the year to 31 December 2017

0.6p	First tax free dividend per share declared for the year to 31 December 2018 payable on 30 April 2018

5.8%

Total return on opening NAV per share as at 31 December 2017

	31 December 2017 (pence per share)	31 December 2016 (pence per share)
Revenue return	0.56	0.29
Capital return	0.69	2.03
Dividends paid	1.00	1.00
Net asset value	21.60	21.41

Total shareholder return	From launch to 31 December 2010 (pence per share)	1 January 2011 to 31 December 2017 (pence per share)	From launch to 31 December 2017 (pence per share)
Subscription price per share at launch	100.00	-	100.00
Dividends paid	58.66	6.67	65.33
(Decrease)/increase in net asset value	(83.40)	5.00	(78.40)
Total shareholder return	75.26	11.67	86.93

The Directors have declared a first dividend of 0.6 pence per share for the year ending 31 December 2018, which will be paid on 30 April 2018 to shareholders on the register on 13 April 2018.

The above financial summary is for the Company, Kings Arms Yard VCT PLC only. Details of the financial performance of the various Quester, SPARK and Kings Arms Yard VCT 2 PLC companies, which have been merged into the Company, can be found on page 68 of the full Annual Report and Financial Statements.

Chairman's statement

Introduction
It had been widely anticipated that 2017 would be a watershed year for the venture capital trust sector as a result of the Patient Capital Review, which included a review on the costs and benefits of VCT, SEIS and EIS schemes.

Following an extensive and collaborative public consultation, the Autumn Budget was strongly supportive of tax advantaged investment schemes and their impact on the economy.

The underlying tax reliefs remained unchanged and we are delighted at this endorsement of the VCT industry. Nevertheless, legislation did include measures designed to direct VCT investments towards growth and technology businesses.

Legislation over recent years has shifted the emphasis away from MBOs and more mature businesses towards earlier stage companies. Albion Capital, our manager, has over the past seven years successfully balanced our current portfolio to a healthy mix between asset based investments and those focused on higher growth. Albion's long term approach has always focused on new enterprises, both asset based and higher growth, rather than management buy outs and the like.

Results and performance
We are pleased to report another year of growth and consolidation for the Company. Net asset value per share rose by 1% to 21.60p at 31 December 2017, after allowing for the payment of dividends totalling one penny per share during the year.

The Company recorded a positive total shareholder return of 1.25 pence per share, or £3.4 million for the year to 31 December 2017, driven by positive developments at a number of portfolio companies, including Grapeshot, Active Lives Care, Egress Software Technologies and Ryefield Court Care.

Portfolio
We now have a widely diversified selection of businesses in our portfolio, of which 64% are already profitable, with key investments in the healthcare, renewable energy and technology sectors. As a proportion of all invested assets, the majority of our funds are invested in businesses that are growing their annual sales and profits. We rightly qualify as a venture capital trust but this does not imply that our assets are speculative.

The divestment of the legacy portfolio continues, with a £1.4m reduction in our holding in Oxford Immunotec Global PLC and a £0.6m reduction in our holding of ErgoMed PLC alongside £2.3m received on a sale of an Albion-originated investment, Hilson Moran, for c.3x cost.

The Board has reassessed the carrying value of all portfolio investments and has reduced those wherever trading performance or market conditions made this necessary. Nevertheless, as the overall outcome shows, positive movements have significantly outweighed the setbacks.

For a detailed review of these disposals and other developments in the business please see the Strategic report below.

Dividend
In light of the continued good progress, I am pleased to announce that the Company's dividend target will now be raised by 20% to 1.20p per share per annum. Consequently, we declare a first dividend of 0.6p per share to be paid on 30 April 2018 to shareholders on the register on 13 April 2018 and anticipate that a second dividend will be paid later in the year in line with our current annual dividend target of 1.20p per share.

Manager
Albion Capital Group LLP (formerly Albion Ventures LLP), has been the Company's manager since January 2011. Before they took over, the Company had suffered several years of decline and stagnation until a point at which, in the 2010 Annual General Meeting, it had come within a few votes of being wound up; an outcome that would inevitably have led to losses for shareholders and tax bills far larger than any possible capital distribution for many.

The Board then determined to seek new managers and interviewed all potential candidates, drawing up a shortlist. In reviewing the performance over the last seven years of all the alternatives then open to us I think we can say definitively that in Albion we made the right choice.

Details of transactions that took place with the Manager during the year can be found in note 4 and principally relate to the management and incentive fees.

VCT qualifying status
As at 31 December 2017, 88% (2016: 89%) of total investments were in qualifying holdings. The Board continues to monitor this and all the VCT qualification requirements very carefully in order to ensure that qualifying investments comfortably exceed the current minimum threshold of 70% required for the Company to continue to benefit from VCT tax status.

Albion VCTs Prospectus Top Up Offers 2017/18
By 31 January 2018, the Company had raised £5.1 million from the first and second allotment of shares under the top up share offer launched on 6 September 2017. As a result of the strong demand for the Company's shares, the Board was able to announce on 5 March 2018 that subscription had reached its £8 million limit under the prospectus offer and was now closed. The next allotment will be on 5 April 2018.

Share buy-backs
It remains the Board's policy to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interest, including the maintenance of sufficient resources for investment in new and existing portfolio companies and the continued payment of dividends to shareholders. It is the Board's intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit. During 2017, the Company purchased 6,396,000 Ordinary shares at an average price of 20.24 pence per share. Further information is shown in note 14.

Annual General Meeting
The Annual General Meeting of the Company will be held at the City of London Club, 19 Old Broad Street, London, EC2N 1DS at 11.00am on 16 May 2018. Full details of the business to be conducted at the Annual General Meeting are given in the Notice of the Meeting on pages 63 and 64 of the full Annual Report and Financial Statements.

The Board welcomes your attendance at the meeting as it gives an opportunity for shareholders to ask questions of the Board and the Manager. If you are unable to attend the Annual General Meeting in person, we would encourage you to make use of your proxy votes.

Risks and uncertainties
The outlook for the UK economy continues to be the key risk affecting your Company. The Company's investment risk is mitigated through a variety of processes, including investing in a diversified portfolio in terms of sector and stage of maturity and focusing on opportunities where it is believed growth can be both resilient and sustainable.

A detailed analysis of the other risks and uncertainties facing the business is shown in the Strategic report below.

Outlook and prospects
The World has ever been an uncertain place and that remains the case today. Overall quoted equity markets have been at a very high valuation. Large fund managers have felt themselves constrained to continue dancing as long as the music played and enthusiastic amateurs have flocked in, believing as so many seem always to do that high prices are a good reason to buy.

Against this background a widely spread portfolio of relatively small, unquoted businesses without external borrowings, many of them now well established in their fields, may offer less volatility and superior value. Your Board continues to have confidence in the long term prospects of our increasingly diversified portfolio.

Robin Field
Chairman
29 March 2018

Strategic report
Kings Arms Yard VCT PLC is a Venture Capital Trust and the investment policy is intended to produce a regular and predictable dividend stream with an appreciation in capital value.

The Company's current general investment policy is as follows:

As a result of these changes, and subject to shareholder approval, the Board is now recommending an update to the Company's general investment policy, as set out below. The updated policy removes references to loan stock being secured by first charges and enables the Company to invest in a broad range of businesses.

Proposed new investment policy
The Company will invest in a broad portfolio of higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies. Allocation of assets will be determined by the investment opportunities which become available but efforts will be made to ensure that the portfolio is diversified both in terms of sector and stage of maturity of company.

Review of business and future changes
One of the key aims of the Manager has been to increase the income generated by the investment portfolio to the extent that it more than covers the ongoing investment management fee and other charges. This continues to be achieved, with total income for 2017 of £2.1m against total ongoing costs of £1.47m. The investment income generated is equivalent to a gross yield of 3.6% on the average net asset value for the year.

As outlined below, the Company has recorded significant capital uplift during the year. This is led by an uplift in realised and unrealised gains of £2.6m across the unquoted investments and £0.2m across the quoted investments. Key individual investment movements included £1.8m uplift in the valuation of our holding in Grapeshot Limited, £0.9m realised gain on the disposal of Hilson Moran Holdings Limited, £0.7m uplift in Active Lives Care Limited, £0.5m uplift in Egress Software Technologies Limited and £0.5m uplift in Ryefield Court Care Limited, partially offset by a decline in the valuation of our holding in Elateral Group Limited of £2.3m and Sift Limited of £0.3m.

Details of significant events which have occurred since the end of the financial year are listed in note 18. Details of transactions with the Manager are shown in note 4.

Results and dividends	Ordinary shares £'000
Net revenue return for the year ended 31 December 2017	1,522
Net capital gain for the year ended 31 December 2017	1,880
Total return for the year ended 31 December 2017	3,402
Dividend of 0.5 pence per share paid on 28 April 2017	(1,375)
Dividend of 0.5 pence per share paid on 31 October 2017	(1,363)
Unclaimed dividends returned to the Company	15
Transferred to reserves	679

Net assets as at 31 December 2017	62,492

Net asset value per share as at 31 December 2017 (pence)	21.60

The Company paid dividends of 1 penny per share during the year ended 31 December 2017 (2016: 1 penny per share). The Directors have declared a first dividend of 0.6 pence per share for the year ending 31 December 2018, which will be paid on 30 April 2018 to shareholders on the register on 13 April 2018.

As shown in the Income statement, investment income has increased to £2,116,000 (2016: £1,370,000) due to higher dividends received and a loan stock income increase to £1,331,000 (2016: £1,257,000). The capital gain was significantly lower for the year at £1,880,000 (2016: £4,958,000).

The total return for the year has decreased to £3,402,000 (2016: £5,677,000), equating to a total return of 1.25 pence per share (2016: 2.32 pence per share).

The Balance sheet shows that the net asset value has increased over the last year to 21.60 pence per share (2016: 21.41 pence per share) which is due to continued strong performance of the unquoted investments.

There has been a net cash inflow for the year, mainly due to fundraising amounting to £9.8 million and the disposal of fixed asset investments. This was offset by the purchase of new investments, the payment of dividends and buy back of shares.

Current portfolio sector allocation
The pie chart at the end of this announcement outlines the different sectors in which the Company's assets, at carrying value, are currently invested.

Direction of portfolio
As at 31 December 2017 the portfolio is well balanced in terms of sectors and stage of maturity. With recent changes to VCT legislation, and the proposed amendment to the Company's investment policy, future investments will be focused on higher growth businesses across a variety of sectors of the UK economy including higher risk technology companies.

Future prospects
The Company's performance record reflects the success of the strategy outlined above and has enabled the Company to maintain a predictable stream of dividend payments to shareholders. The Company's portfolio is well balanced across sectors and risk classes and the Board believes that the Company has the potential to continue to deliver attractive returns to shareholders and that a number of investments have strong prospects. Further details on the Company's outlook and prospects can be found in the Chairman's statement.

Key performance indicators
The Directors believe that the following key performance indicators, which are typical for venture capital trusts, used in their own assessment of the Company, will provide shareholders with sufficient information to assess how effectively the Company is applying its investment policy to meet its objectives. The Directors are satisfied that the results shown in the following key performance indicators give a good indication that the Company is achieving its investment objective and policy. These are:

1. Total shareholder return relative to FTSE All-Share Index total return
The graph on page 4 of the full Annual Report and Financial Statements shows the strong performance of the Company's total shareholder return against the FTSE All-Share Index total return, with dividends reinvested, from the appointment of Albion Capital Group LLP on 1 January 2011. Details on the performance of the net asset value and return per share for the year are given above.

2. Net asset value per share and total shareholder return
Total shareholder return since inception increased by 1.4% to 86.93 pence per share for the year ended 31 December 2017.

3. Dividend distributions
Dividends paid in respect of the year ended 31 December 2017 were 1 penny per share (2016: 1 penny per share), in line with the Board's dividend objective for 2017. In light of strong performance, the annual dividend target will be raised by 20% to 1.20p per share. The cumulative dividend paid since inception is 65.33 pence per share.

4. Ongoing charges
The ongoing charges ratio for the year to 31 December 2017 was 2.5% (2016: 2.5%). The ongoing charges ratio has been calculated using The Association of Investment Companies ("AIC") recommended methodology. This figure shows shareholders the total recurring annual running expenses (including investment management fees charged to capital reserve) as a percentage of the average net assets attributable to shareholders. The Directors expect the ongoing charges ratio for the year ahead to be approximately 2.5%.

VCT regulation
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. In order to maintain its status under Venture Capital Trust legislation, a VCT must comply on a continuing basis with the provisions of Section 274 of the Income Tax Act 2007, details of which are provided in the Directors' report on page 28 of the full Annual Report and Financial Statements.

The Finance Act 2017 contained a number of measures that affects all VCTs. These include:

A principles-based test for qualifying companies to ensure that investment activity focuses on higher risk opportunities;
An increase in the proportion of the portfolio invested in qualifying unquoted companies, from 70 per cent. to 80 per cent., in respect of accounting periods on or after 6 April 2019; and
VCT loan investments to be unsecured and represent no more than normal commercial terms.

The relevant tests to measure compliance have been carried out and independently reviewed for the year ended 31 December 2017. These showed that the Company has complied with all tests and continues to do so.

Investment progress
During the year, there was a very active period of new investment, with a total of £6.1 million invested in new and existing portfolio companies, predominantly in the healthcare and technology sectors. The portfolio now includes forty two investments made since 2011 and the proportion of assets still invested in the legacy portfolio of investments made before 2011 has shrunk to 24% (2016: 35%).

Cash and liquid assets at the year-end increased to £6.7 million (2016: £1.8 million), representing 11% of net asset value.

New investments were made in 6 companies and totalled £2.5 million during the year and included: a fibre optic broadband provider in central London - G.Network Communications Limited (£635,000); a women's health clinic development in central London - Women's Health (London West One) Limited (£583,000); a cloud subscription management platform for the media, sports and retail sectors - MPP Global Solutions Limited (£550,000); a developer and operator of dedicated wedding venues in the UK - Beddlestead Limited (£502,000); a predictive analytics platform to protect and detect complex financial crime - Quantexa Limited (£190,000); and a technology solution provider for the management of locum doctors for the NHS - Locum's Nest Limited (£75,000).

Follow-on investments were made in 16 portfolio companies and totalled £3.6 million during the year. The two largest being £572,000 into Egress Software Technologies Limited, an encrypted email and file transfer service provider and £550,000 into Elateral Holdings Limited, a provider of digital marketing software.

During the year, the Company sold its entire holding in Hilson Moran Holdings Limited realising proceeds of £2.3 million with a realised gain on cost of £2.0 million. The Company also sold 115,000 shares in Oxford Immunotec Global PLC with proceeds of £1.4 million and a realised gain on cost of £960,000. Other realisations can be found in the realisations table on page 21 of the full Annual Report and Financial Statements.

The policy of increasing the income generating capacity of the Company continues to bear fruit. The Company received £1,331,000 of loan stock income during the year representing a rise of 6% on the £1,257,000 loan stock income received from the portfolio during the previous year.

The pie chart at the end of this announcement outlines the different sectors in which the Company's assets, at carrying value, are currently invested.

Gearing
As defined by the Articles of Association, the Company's maximum exposure in relation to gearing is restricted to its adjusted capital and reserves, being £60,720,000 (2016: £51,680,000). As at 31 December 2017, the Company had no actual short term and long term gearing (2016: £nil). The Directors do not currently have any intention to utilise long term gearing.

Operational arrangements
The Company has delegated the investment management of the portfolio to Albion Capital Group LLP, which is authorised and regulated by the Financial Conduct Authority. Albion Capital Group LLP also provides company secretarial and other accounting and administrative support to the Company.

Management agreement
Under the Investment Management Agreement, Albion Capital Group LLP provides investment management, company secretarial and administrative services to the Company. Albion Capital Group LLP is entitled to an annual management fee of 2% of net asset value of the Company, payable quarterly in arrears, along with an annual administration fee of £50,000.

The aggregate payable for management and administration (normal running costs) are subject to an aggregate annual cap of 3% of the year end closing net asset value, for accounting periods commencing after 31 December 2011.

The Investment Management Agreement can be terminated by either party on 12 months' notice and is subject to earlier termination in the event of certain breaches or on the insolvency of either party.

The Manager is entitled to arrangement fees payable by portfolio companies (up to a maximum of 2% of the amount invested) and to fees charged for the monitoring of investments (up to a maximum of £20,000 per company per annum).

Performance incentive fee
As an incentive to maximise the return to investors, the Manager is entitled to charge an incentive fee in the event that the returns exceed minimum target levels.

The performance hurdle is equal to the greater of the Starting NAV of 20 pence per share, increased by the increase in RPI plus 2 per cent per annum from the Start Date of 1 January 2014 (calculated on a simple and not compound basis) and the highest Total Return for any earlier period after the Start Date (the 'high watermark'). An annual fee (in respect of each share in issue) of an amount equal to 15 per cent. of any excess of the Total Return (this being NAV per share plus dividends paid after the Start Date) as at the end of the relevant accounting period over the performance hurdle will be due to the Manager.

There was no management performance fee payable during the year (2016: £513,000). As at 31 December 2017, the total return of the Company since 1 January 2014 (the performance incentive fee start date) was 25.60 pence per share, compared to a performance hurdle rate of 25.63 pence per share, resulting in a shortfall of 0.03 pence per share. This amount needs to be made up in the next accounting period in order for an incentive fee to become payable.

Evaluation of the Manager
The Board has evaluated the performance of the Manager based on the returns generated by the Company from the management and sale of existing investments, the continuing achievement of the 70 per cent. (to be 80 per cent. in respect of accounting periods starting on or after 6 April 2019) qualifying investment holdings requirement for the Venture Capital Trust status, the making of new investments in accordance with the investment policy, the long term prospects of current investments, a review of the Investment Management Agreement and the services provided therein and benchmarking the performance of the Manager to other service providers.

The Board believes that it is in the interests of shareholders as a whole, and of the Company, to continue the appointment of the Manager for the forthcoming year.

Alternative Investment Fund Managers Directive ("AIFMD")
The Board has appointed Albion Capital Group LLP as the Company's AIFM as required by the AIFMD.

Share buy-back policy
It remains the Board's primary objective to maintain sufficient resources for investment in existing and new portfolio companies and for the continued payment of dividends to shareholders. The Board's policy is to buy back shares in the market, subject to the overall constraint that such purchases are in the Company's interest.

It is the Board's intention for such buy-backs to be in the region of a 5% discount to net asset value, so far as market conditions and liquidity permit.

Further details of shares bought back during the year ended 31 December 2017 can be found in note 14.

Social and community issues, employees and human rights
The Board recognises the requirement under section 414c of the Companies Act 2006 (the "Act") to detail information about social and community issues, employees and human rights; including any policies it has in relation to these matters and effectiveness of these policies. As an externally managed investment company with no employees, the Company has no policies in these matters and as such these requirements do not apply.

General Data Protection Regulation
The General Data Protection Regulation ("GDPR") is effective from 25 May 2018 with the objective of unifying data privacy requirements across the European Union. The Manager, Albion Capital Group LLP, is undertaking a data audit to identify personal data to ensure compliance with GDPR by the effective date.

Further policies
The Company has adopted a number of further policies relating to:

Environment
Global greenhouse gas emissions
Anti-bribery
Anti-facilitation of tax evasion
Diversity

and these are set out in the Directors' report on pages 28 and 29 of the full Annual Report and Financial Statements.

Risk management
The Board carries out a regular review of the risk environment in which the Company operates. The principal risks and uncertainties of the Company as identified by the Board and how they are managed are as follows:

Risk	Possible consequence	Risk management
Investment and performance risk	The risk of investment in poor quality assets, which could reduce the capital and income returns to shareholders, and could negatively impact on the Company's current and future valuations. By nature, smaller unquoted businesses, such as those that qualify for venture capital trust purposes, are more fragile than larger, long established businesses.	To reduce this risk, the Board places reliance upon the skills and expertise of the Manager and its track record over many years of making successful investments in this segment of the market. In addition, the Manager operates a formal and structured investment appraisal and review process, which includes an Investment Committee, comprising investment professionals from the Manager and at least one external investment professional. The Manager also invites and takes account of comments from non-executive Directors of the Company on matters discussed at the Investment Committee meetings. Investments are actively and regularly monitored by the Manager (investment managers normally sit on portfolio company boards), including the level of diversification in the portfolio, and the Board receives detailed reports on each investment as part of the Manager's report at quarterly board meetings.
VCT approval risk	The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status.	To reduce this risk, the Board has appointed the Manager, which has a team with significant experience in venture capital trust management, used to operating within the requirements of the venture capital trust legislation. In addition, to provide further formal reassurance, the Board has appointed Philip Hare & Associates LLP as its taxation adviser, who report quarterly to the Board to independently confirm compliance with the venture capital trust legislation, to highlight areas of risk and to inform on changes in legislation. Each investment in a new portfolio company is also pre-cleared with H.M. Revenue & Customs or our professional advisers.
Regulatory and compliance risk	The Company is listed on The London Stock Exchange and is required to comply with the rules of the UK Listing Authority, as well as with the Companies Act, Accounting Standards and other legislation. Failure to comply with these regulations could result in a delisting of the Company's shares, or other penalties under the Companies Act or from financial reporting oversight bodies.	Board members and the Manager have experience of operating at senior levels within or advising quoted companies. In addition, the Board and the Manager receive regular updates on new regulation from its auditor, lawyers and other professional bodies. The Company is subject to compliance checks through the Manager's compliance officer. The Manager reports monthly to its Board on any issues arising from compliance or regulation. These controls are also reviewed as part of the quarterly Board meetings, and also as part of the review work undertaken by the Manager's compliance officer. The report on controls is also evaluated by the internal auditors.
Operational and internal control risk	The Company relies on a number of third parties, in particular the Manager, for the provision of investment management and administrative functions. Failures in key systems and controls within the Manager's business could put assets of the Company at risk or result in reduced or inaccurate information being passed to the Board or to shareholders.	The Company and its operations are subject to a series of rigorous internal controls and review procedures exercised throughout the year. The Audit Committee reviews the Internal Audit Reports prepared by the Manager's internal auditors, PKF Littlejohn LLP. On an annual basis, the Audit Committee chairman meets with the internal audit partner to provide an opportunity to ask specific detailed questions in order to satisfy itself that the Manager has strong systems and controls in place including those in relation to business continuity and cyber security. In addition, the Board regularly reviews the performance of its key service providers, particularly the Manager, to ensure they continue to have the necessary expertise and resources to deliver the Company's investment objective and policies. The Manager and other service providers have also demonstrated to the Board that there is no undue reliance placed upon any one individual.
Economic and political risk	Changes in economic conditions, including, for example, interest rates, rates of inflation, industry conditions, competition, political and diplomatic events and other factors could substantially and adversely affect the Company's prospects in a number of ways.	The Company invests in a diversified portfolio of companies across a number of industry sectors and in addition often invests a mixture of instruments in portfolio companies and has a policy of not normally permitting any external bank borrowings within portfolio companies. At any given time, the Company has sufficient cash resources to meet its operating requirements, including share buy-backs and follow on investments.
Market value of Ordinary shares	The market value of Ordinary shares can fluctuate. The market value of an Ordinary share, as well as being affected by its net asset value and prospective net asset value, also takes into account its dividend yield and prevailing interest rates. As such, the market value of an Ordinary share may vary considerably from its underlying net asset value. The market prices of shares in quoted investment companies can, therefore, be at a discount or premium to the net asset value at different times, depending on supply and demand, market conditions, general investor sentiment and other factors. Accordingly the market price of the Ordinary shares may not fully reflect their underlying net asset value.	The Company operates a share buyback policy, which is designed to limit the discount at which the Ordinary shares trade to around 5 per cent to net asset value, by providing a purchaser through the Company in absence of market purchasers. From time to time buybacks cannot be applied, for example when the Company is subject to a close period, or if it were to exhaust any buyback authorities. New Ordinary shares are issued at sufficient premium to net asset value to cover the costs of issue and to avoid asset value dilution to existing investors.

Viability statement
In accordance with the FRC UK Corporate Governance Code published in 2016 and principle 21 of the AIC Code of Corporate Governance, the Directors have assessed the prospects of the Company over three years to 31 December 2020. The Directors believe that three years is a reasonable period in which they can assess the future of the Company to continue to operate and meet its liabilities as they fall due and is also the period used by the Board in the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board require from the Manager and the estimated timelines for finding, assessing and completing investments.

The Directors have carried out a robust assessment of the principal risks facing the Company as explained above, including those that could threaten its business model, future performance, solvency or liquidity. The Board also considered the risk management processes in place to avoid or reduce the impact of the underlying risks. The Board focused on the major factors which affect the economic, regulatory and political environment. The Board deliberated over the importance of the Manager and the processes that they have in place for dealing with the principal risks.

The Board assessed the ability of the Company to raise finance. As explained in this Strategic report the Company's income more than covers on-going expenses. The portfolio is well balanced and geared towards long term growth delivering dividends and capital growth to shareholders. In assessing the prospects of the Company, the Directors have considered the cash flow by looking at the Company's income and expenditure projections and funding pipeline over the assessment period of three years and they appear realistic.

In considering the viability of the Company, the Board took into account factors including the processes for mitigating risks, monitoring costs, managing share price discount, the Manager's compliance with the investment objective, policies and business model and the balance of the portfolio. The Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 31 December 2020.

This Strategic report of the Company for the year ended 31 December 2017 has been prepared in accordance with the requirements of section 414A of the Companies Act 2006 (the "Act"). The purpose of this report is to provide Shareholders with sufficient information to enable them to assess the extent to which the Directors have performed their duty to promote the success of the Company in accordance with section 172 of the Act.

On behalf of the Board

Robin Field
Chairman
29 March 2018

Responsibility statement

In preparing these Financial Statements for the year to 31 December 2017, the Directors of the Company, being Robin Field, Thomas Chambers and Martin Fiennes, confirm that to the best of their knowledge:

summary financial information contained in this announcement and the full Annual Report and Financial Statements for the year ended 31 December 2017 for the Company has been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (UK Accounting Standards and applicable law) and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company for the year ended 31 December 2017 as required by DTR 4.1.12R;
the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.7R (indication of important events during the year ended 31 December 2017 and description of principal risks and uncertainties that the Company faces); and
the Chairman's statement and Strategic report include a fair review of the information required by DTR 4.2.8R (disclosure of related parties transactions and changes therein).

A detailed "Statement of Directors' responsibilities" is contained on page 32 of the full Annual Report and Financial Statements.

By order of the Board

Robin Field
Chairman
29 March 2018

Income statement

		Year ended 31 December 2017			Year ended 31 December 2016
		Revenue	Capital	Total	Revenue	Capital	Total
	Note	£'000	£'000	£'000	£'000	£'000	£'000
Gains on investments	2	-	2,753	2,753	-	6,076	6,076
Investment income	3	2,116	-	2,116	1,370	-	1,370
Investment management fee	4	(291)	(873)	(1,164)	(244)	(733)	(977)
Performance incentive fee	4	-	-	-	(128)	(385)	(513)
Other expenses	5	(303)	-	(303)	(279)	-	(279)
Profit on ordinary activities before tax		1,522	1,880	3,402	719	4,958	5,677
Tax on ordinary activities	7	-	-	-	-	-	-
Profit and total comprehensive income attributable to shareholders		1,522	1,880	3,402	719	4,958	5,677
Basic and diluted return per share (pence) *	9	0.56	0.69	1.25	0.29	2.03	2.32

* excluding treasury shares

The accompanying notes form an integral part of these Financial Statements.

The total column of this Income statement represents the profit and loss account of the Company. The supplementary revenue and capital columns have been prepared in accordance with The Association of Investment Companies' Statement of Recommended Practice.

Balance sheet

		31 December 2017	31 December 2016
	Note	£'000	£'000


Fixed assets investments	10	55,815	51,601


Current assets
Trade and other receivables less than one year	12	368	476
Cash and cash equivalents		6,700	1,788
		7,068	2,264

Total assets		62,883	53,865

Payables: amounts falling due within one year
Trade and other payables less than one year	13	(391)	(855)


Total assets less current liabilities		62,492	53,010

Equity attributable to equityholders
Called up share capital	14	3,321	2,840
Share premium		23,841	14,218
Capital redemption reserve		11	11
Unrealised capital reserve		12,118	12,526
Realised capital reserve		5,720	3,432
Other distributable reserve		17,481	19,983

Total equity shareholders' funds		62,492	53,010

Basic and diluted net asset value per share (pence) *	15	21.60	21.41

* excluding treasury shares

The accompanying notes form an integral part of these Financial Statements.

The Financial Statements were approved by the Board of Directors and authorised for issue on 29 March 2018 and were signed on its behalf by:

Robin Field
Chairman

Company number: 03139019

Statement of changes in equity

	Called up share capital	Share premium	Capital redemption reserve	Unrealised capital reserve	Realised capital reserve*	Other distributable reserve*	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2017	2,840	14,218	11	12,526	3,432	19,983	53,010
Profit and total comprehensive income for the period	-	-	-	1,695	185	1,522	3,402
Transfer of previously unrealised gains on disposal of investments	-	-	-	(2,103)	2,103	-	-
Purchase of own shares for treasury	-	-	-	-	-	(1,301)	(1,301)
Issue of equity	481	9,880	-	-	-	-	10,361
Cost of issue of equity	-	(257)	-	-	-	-	(257)
Dividends paid	-	-	-	-	-	(2,723)	(2,723)
At 31 December 2017	3,321	23,841	11	12,118	5,720	17,481	62,492
At 1 January 2016	2,533	8,399	11	7,170	3,830	22,669	44,612
Profit and total comprehensive income for the period	-	-	-	5,718	(760)	719	5,677
Transfer of previously unrealised gains on disposal of investments	-	-	-	(362)	362	-	-
Purchase of own shares for treasury	-	-	-	-	-	(905)	(905)
Issue of equity	307	5,981	-	-	-	-	6,288
Cost of issue of equity	-	(162)	-	-	-	-	(162)
Dividends paid	-	-	-	-	-	(2,500)	(2,500)
At 31 December 2016	2,840	14,218	11	12,526	3,432	19,983	53,010

*These reserves amount to £23,201,000 (2016: £23,415,000) which is considered distributable.

The accompanying notes form an integral part of these Financial Statements.

Statement of cash flows

	Year ended 31 December 2017	Year ended 31 December 2016
	£'000	£'000

Cash flow from operating activities
Investment income received	1,218	902
Deposit interest received	3	32
Dividend income received	782	84
Investment management fee paid	(1,128)	(994)
Performance incentive fee paid	(513)	(242)
Other cash payments	(295)	(220)


Net cash flow from operating activities	67	(438)

Cash flow from investing activities
Purchase of fixed asset investments	(5,735)	(5,935)
Disposal of fixed asset investments	4,498	1,918

Net cash flow from investing activities	(1,237)	(4,017)

Cash flow from financing activities

Issue of share capital	9,814	5,880
Cost of issue of equity	(2)	(2)
Purchase of own shares (including costs)	(1,300)	(905)
Equity dividends paid*	(2,430)	(2,248)


Net cash flow from financing activities	6,082	2,725

Increase/(decrease) in cash and cash equivalents	4,912	(1,730)

Cash and cash equivalents at start of the year	1,788	3,518


Cash and cash equivalents at end of the year	6,700	1,788

Cash and cash equivalents comprise:
Cash at bank and in hand	6,700	1,788
Cash equivalents	-	-

Total cash and cash equivalents	6,700	1,788

* The equity dividends paid shown in the cash flow are different to the dividends disclosed in note 8 as a result of the non-cash effect of the Dividend Reinvestment Scheme.

The accompanying notes form an integral part of these Financial Statements.

Notes to the Financial Statements

1. Accounting policies

Basis of accounting
The Financial Statements have been prepared in accordance with the historical cost convention, modified to include the revaluation of investments, in accordance with applicable United Kingdom law and accounting standards, including Financial Reporting Standard 102 ("FRS 102"), and with the 2014 Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" ("SORP") issued by The Association of Investment Companies ("AIC").

The preparation of the Financial Statements requires management to make judgements and estimates that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The most critical estimates and judgements relate to the determination of carrying value of investments at fair value through profit and loss ("FVTPL"). The Company values investments by following the IPEVCV Guidelines and further detail on the valuation techniques used are outlined below.

Company information can be found on page 2 of the full Annual Report and Financial Statements.

Fixed asset investments
The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment policy, and information about the portfolio is provided internally on that basis to the Board.

In accordance with the requirements of FRS 102, those undertakings in which the Company holds more than 20% of the equity as part of an investment portfolio are not accounted for using the equity method. In these circumstances the investment is measured at FVTPL.

Upon initial recognition (using trade date accounting) investments, including loan stock, are designated by the Company as FVTPL and are included at their initial fair value, which is cost (excluding expenses incidental to the acquisition which are written off to the Income statement).

Subsequently, the investments are valued at 'fair value', which is measured as follows:

Investments listed on recognised exchanges are valued at their bid prices at the end of the accounting period or otherwise at fair value based on published price quotations;
Unquoted investments, where there is not an active market, are valued using an appropriate valuation technique in accordance with the IPEVCV Guidelines. Indicators of fair value are derived using established methodologies including earnings multiples, the level of third party offers received, prices of recent investment rounds, net assets and industry valuation benchmarks. Where the Company has an investment in an early stage enterprise, the price of a recent investment round is often the most appropriate approach to determining fair value. In situations where a period of time has elapsed since the date of the most recent transaction, consideration is given to the circumstances of the portfolio company since that date in determining fair value. This includes consideration of whether there is any evidence of deterioration or strong definable evidence of an increase in value. In the absence of these indicators, the investment in question is valued at the amount reported at the previous reporting date. Examples of events or changes that could indicate a diminution include:
- the performance and/or prospects of the underlying business are significantly below the expectations on which the investment was based;
- a significant adverse change either in the portfolio company's business or in the technological, market, economic, legal or regulatory environment in which the business operates; or
- market conditions have deteriorated, which may be indicated by a fall in the share prices of quoted businesses operating in the same or related sectors.

Investments are recognised as financial assets on legal completion of the investment contract and are de-recognised on legal completion of the sale of an investment.

Dividend income is not recognised as part of the fair value movement of an investment, but is recognised separately as investment income through the Income statement when a share becomes ex-dividend.

Receivables and payables and cash are carried at amortised cost, in accordance with FRS 102. There are no financial liabilities other than payables.

Gains and losses on investments
Gains and losses arising from changes in the fair value of the investments are included in the Income statement for the year as a capital item and are allocated to unrealised capital reserve.

Investment income
Equity income
Dividend income is included in revenue when the investment is quoted ex-dividend.

Unquoted loan stock and other preferred income
Fixed returns on non-equity shares and debt securities are recognised when the Company's right to receive payment and expect settlement is established. Where interest is rolled up and/or payable at redemption then it is recognised as income unless there is reasonable doubt as to its receipt.

Bank interest income
Interest income is recognised on an accruals basis using the rate of interest agreed with the bank.

Investment management fees and other expenses
All expenses have been accounted for on an accruals basis. Expenses are charged through the other distributable reserve except the following which are charged through the realised capital reserve:

75 per cent. of management fees are allocated to the realised capital reserve. This is in line with the Board's expectation that over the long term 75 per cent. of the Company's investment returns will be in the form of capital gains; and
expenses which are incidental to the purchase or disposal of an investment are charged through the realised capital reserve.

Performance incentive fee
Any performance incentive fee will be allocated between other distributable and realised capital reserves based upon the proportion to which the calculation of the fee is attributable to revenue and capital returns.

Taxation
Taxation is applied on a current basis in accordance with FRS 102. Current tax is tax payable (refundable) in respect of the taxable profit (tax loss) for the current period or past reporting periods using the tax rates and laws that have been enacted or substantively enacted at the financial reporting date. Taxation associated with capital expenses is applied in accordance with the SORP.

Deferred tax is provided in full on all timing differences at the reporting date. Timing differences are differences between taxable profits and total comprehensive income as stated in the financial statements that arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements. As a VCT the Company has an exemption from tax on capital gains. The Company intends to continue meeting the conditions required to obtain approval as a VCT in the foreseeable future. The Company therefore, should have no material deferred tax timing differences arising in respect of the revaluation or disposal of investments and the Company has not provided for any deferred tax.

Foreign exchange
The currency of the primary economic environment in which the Company operates (the functional currency) is pounds Sterling ("Sterling"), which is also the presentational currency of the Company. Transactions involving currencies other than Sterling are recorded at the exchange rate ruling on the transaction date. At each Balance sheet date, monetary items and non-monetary assets and liabilities that are measured at fair value, which are denominated in foreign currencies, are retranslated at the closing rates of exchange. Exchange differences arising on settlement of monetary items and from retranslating at the Balance sheet date of investments and other financial instruments measured at FVPTL, and other monetary items, are included in the Income statement. Exchange differences relating to investments and other financial instruments measured at fair value are subsequently included in the unrealised capital reserve.

Reserves
Share premium
This reserve accounts for the difference between the price paid for shares and the nominal value of the shares, less issue costs and transfers to the other distributable reserve.

Capital redemption reserve
This reserve accounts for amounts by which the issued share capital is diminished through the repurchase and cancellation of the Company's own shares.

Unrealised capital reserve
Increases and decreases in the valuation of investments held at the year-end against cost are included in this reserve.

Realised capital reserve
The following are disclosed in this reserve:

gains and losses compared to cost on the realisation of investments;
expenses, together with the related taxation effect, charged in accordance with the above policies; and
dividends paid to equity holders.

Other distributable reserve
The special reserve, treasury share reserve and the revenue reserve were combined in 2012 to form a single reserve named other distributable reserve.

This reserve accounts for movements from the revenue column of the Income statement, the payment of dividends, the buy-back of shares and other non-capital realised movements.

Dividends
Dividends by the Company are accounted for in the period in which the dividend is paid or approved at the Annual General Meeting.

Segmental reporting
The Directors are of the opinion that the Company is engaged in a single operating segment of business, being investment in smaller companies principally based in the UK.

2. Gains on investments	Year ended 31 December 2017 £'000	Year ended 31 December 2016 £'000
Unrealised gains on fixed asset investments	1,695	5,718
Realised gains on fixed asset investments	1,058	358
	2,753	6,076

3. Investment income	Year ended 31 December 2017 £'000	Year ended 31 December 2016 £'000
Income recognised on investments
Interest from loans to portfolio companies	1,331	1,257
Dividends	782	84
Bank deposit interest	3	29
	2,116	1,370

4. Investment management and performance incentive fees	Year ended 31 December 2017 £'000	Year ended 31 December 2016 £'000
Investment management fee charged to revenue	291	244
Investment management fee charged to capital	873	733
Performance incentive fee charged to revenue	-	128
Performance incentive fee charged to capital	-	385
	1,164	1,490

Further details of the Management agreement under which the investment management fee and performance incentive fee are paid is given in the Strategic report.

During the year, services with a value of £1,164,000 (2016: £977,000) and £50,000 (2016: £50,000) were purchased by the Company from Albion Capital Group LLP in respect of management and administration fees respectively. There was no performance incentive fee due during the year (2016: £513,000). At the financial year end, the amount due to Albion Capital Group LLP in respect of these services disclosed as accruals was £309,000 (2016: £786,000).

Albion Capital Group LLP is, from time to time, eligible to receive transaction fees and monitoring fees from portfolio companies. During the year ended 31 December 2017 Albion Capital Group LLP received transaction fees from 18 portfolio companies and monitoring fees from 37 portfolio companies. Kings Arms Yard's share of these fees were, transactions fees of £90,000 and monitoring fees of £143,000 (2016: transaction fees: £53,000; monitoring fees: £120,000).

Albion Capital Group LLP, its partners and staff hold 902,724 Ordinary shares in the Company.

5. Other expenses	Year ended 31 December 2017 £'000	Year ended 31 December 2016 £'000
Administrative and secretarial services to the Manager	50	50
Directors' fees (note 6)	72	72
Auditor's remuneration for statutory audit services (excluding VAT)	25	24
Other expenses	136	126
	283	272
Foreign exchange cost	20	7
	303	279

6. Directors' fees	Year ended 31 December 2017 £'000		Year ended 31 December 2016 £'000
Amount payable to Directors		66	66
National insurance		6	6
		72	72

The Company's key management personnel are the Directors. Further information regarding Directors' remuneration can be found in the Directors' remuneration report on page 38 of the full Annual Report and Financial Statements.

7. Tax on ordinary activities	Year ended 31 December 2017 £'000	Year ended 31 December 2016 £'000
UK Corporation tax payable	-	-
Reconciliation of profit on ordinary activities to taxation charge	Year ended 31 December 2017 £'000	Year ended 31 December 2016 £'000
Return on ordinary activities before taxation	3,402	5,677

Tax charge on profit at the effective UK corporation tax rate of 19.25% (2016: 20%)	655	1,135
Effects of:
Non-taxable gains	(530)	(1,215)
Non-taxable income	(151)	(17)
Unutilised management expenses	26	97
	-	-

The tax charge for the year shown in the Income statement is lower than the effective rate of corporation tax in the UK of 19.25 per cent. (2016: 20 per cent.). The differences are explained above.

The Company has excess management expenses of £10,897,000 (2016: £10,764,000) that are available for offset against future profits. A deferred tax asset of £1,852,000 (2016: £2,153,000) has not been recognised in respect of those losses as they will be recoverable only to the extent that the Company has sufficient future taxable profits.

8. Dividends	Year ended 31 December 2017 £'000	Year ended 31 December 2016 £'000
First dividend of 0.5 pence per share paid on 29 April 2016	-	1,256
Second dividend of 0.5 pence per share paid on 31 October 2016	-	1,244
First dividend of 0.5 pence per share paid on 28 April 2017	1,375	-
Second dividend of 0.5 pence per share paid on 31 October 2017	1,363	-
Unclaimed dividends returned to the Company	(15)	-
	2,723	2,500

The Directors have declared a first dividend of 0.6 pence per share for the year ending 31 December 2018, which will amount to approximately £1,772,000. This dividend will be paid on 30 April 2018 to shareholders on the register on 13 April 2018.

9. Basic and diluted return per share
	Year ended 31 December 2017			Year ended 31 December 2016
	Revenue	Capital	Total	Revenue	Capital	Total
Profit attributable to shareholders (£'000)	1,522	1,880	3,402	719	4,958	5,677
Weighted average shares in issue (excluding treasury shares)	272,042,345			244,550,634
Return attributable per equity share (pence)	0.56	0.69	1.25	0.29	2.03	2.32

The weighted average number of Ordinary shares is calculated excluding the treasury shares of 42,771,000 (2016: 36,375,000).

There are no convertible instruments, derivatives or contingent share agreements in issue so basic and diluted return per share are the same.

10. Fixed asset investments Summary of fixed asset investments	31 December 2017 £'000	31 December 2016 £'000
Investments held at fair value through profit or loss Unquoted equity	30,551	27,094
Unquoted loan stock	23,219	20,664
Quoted equity	2,045	3,843
	55,815	51,601

	31 December 2017 £'000	31 December 2016 £'000
Opening valuation	51,601	41,257
Purchases at cost	6,066	7,405
Disposal proceeds	(4,673)	(3,493)
Realised gains	1,058	358
Movement in loan stock accrued income	68	355
Movement in unrealised gains	1,695	5,718
Closing valuation	55,815	51,601
Movement in loan stock accrued income
Opening accumulated movement in loan stock accrued income	543	187
Movement in loan stock accrued income	68	355
Closing accumulated movement in loan stock accrued income	611	543
Movement in unrealised gains
Opening accumulated unrealised gains	12,514	7,158
Transfer of previously unrealised gains to realised reserve on disposal of investments	(2,103)	(362)
Movement in unrealised gains	1,695	5,718
Closing accumulated unrealised gains	12,106	12,514
Historical cost basis
Opening book cost	38,544	33,912
Purchases at cost	6,066	7,405
Sales at cost	(1,512)	(2,772)
Closing book cost	43,098	38,544

Amounts shown as cost represent the acquisition cost in the case of investments made by the Company and/or the valuation attributed to the investments acquired from other VCTs at the dates of merger, plus any subsequent acquisition cost.

Purchases and disposals detailed above may not agree to purchases and disposals in the Statement of cash flows due to restructuring of investments, conversion of convertible loan stock and settlement receivables and payables.

Unquoted investment valuation methodologies Unquoted investments are valued in accordance with the IPEVCV guidelines as follows:
Valuation Methodologies	31 December 2017 £'000	31 December 2016 £'000
Cost and price of recent investment (reviewed for impairment)	14,167	10,504
Third party valuation - Earnings multiple	12,899	11,012
Third party valuation - Discounted cash flow	11,656	11,300
Revenue multiple	8,124	6,912
Earnings multiple	6,697	7,797
Net assets	227	233
	53,770	47,758

Fair value investments had the following movements between valuation methodologies between 31 December 2016 and 31 December 2017.

Change in valuation methodology (2016 to 2017)	Value as at 31 December 2017 £'000		Explanatory Note
Revenue multiple to price of recent investment		2,267	Investment round has recently taken place
Cost and price of recent investment (reviewed for impairment) to revenue multiple		2,232	More recent information available
Cost and price of recent investment (reviewed for impairment) to earnings multiple		981	More recent information available
Earnings multiple to revenue multiple		727	More relevant valuation methodology

The valuation will be the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV Guidelines. The Directors believe that, within these parameters, the methods used are the most appropriate methods of valuation as at 31 December 2017.

FRS 102 and the SORP requires the Company to disclose the inputs to the valuation methods applied to its investments measured at fair value through profit or loss in a fair value hierarchy according to the following definitions:

The table below sets out fair value measurements using FRS 102 s11.27 fair value hierarchy. The Company has one class of assets, being at fair value through profit and loss.

Fair value hierarchy	Definition
Level 1	The unadjusted quoted price in an active market
Level 2	Inputs to valuations are from observable sources and are directly or indirectly derived from prices
Level 3	Inputs to valuations not based on observable market data

Quoted NASDAQ and LSE investments are valued according to Level 1 valuation methods. Unquoted equity, preference shares, and loan stock are all valued according to Level 3 valuation methods.

Level 3 reconciliation	31 December 2017 £'000	31 December 2016 £'000
Opening valuation	47,758	38,806
Purchases at cost	6,066	5,938
Unrealised gains	1,611	4,792
Movement in loan stock accrued income	68	355
Realised net gains on disposal	927	201
Disposal proceeds	(2,660)	(2,334)
Closing valuation	53,770	47,758

FRS 102 requires the Directors to consider the impact of changing one or more of the inputs used as part of the valuation process to reasonable possible alternative assumptions. 62 per cent. of the portfolio of investments is based on cost, recent investment price or is loan stock, and as such the Board considers that the assumptions used for their valuations are the most reasonable. The Directors believe that changes to reasonable possible alternative assumptions (by adjusting the revenue and earnings multiples) for the valuations of the remainder of the portfolio companies could result in an increase in the valuation of investments by £1,384,000 or a decrease in the valuation of investments by £1,417,000.

For valuations based on earnings and revenue multiples, the Board considers that the most significant input is the price/earnings ratio; for valuations based on third party valuations, the Board considers that the most significant inputs are price/earnings ratio, discount factors and market value per room for care homes; which have been adjusted to drive the above sensitivities.

11. Significant holdings
The principal activity of the Company is to select and hold a portfolio of investments in unquoted securities. Although the Company, through the Manager, will, in some cases, be represented on the board of the portfolio company, it will not ordinarily take a controlling interest or become involved in the management. The size and structure of companies with unquoted securities may result in certain holdings in the portfolio representing a participating interest without there being any partnership, joint venture or management consortium agreement.

The Company has interests of greater than 20% of the nominal value of any class (some of which are non-voting) of the allotted shares in the portfolio companies as at 31 December 2017 as described below. The investments listed below are held as part of an investment portfolio and therefore, as permitted by FRS 102, they are measured at fair value and are not accounted for using the equity method.

Company	Registered postcode	Profit/(loss) before tax	Net assets/(liabilities)	Number of shares held	% class and share type	% total voting rights
Academia Inc	CA 94108, USA	n/a	n/a	774,400	23.2% Preferred shares	3.2%
Active Lives Care Limited	EC2R 7AF, UK	n/a*	(178,000)	1,095,430	20.3% Ordinary shares	20.3%
Antenova Limited	EC4A 3TW, UK	n/a*	2,447,000	9,226,988	22.0% Preferred shares	28.7%
Edo Consulting Limited	BS1 3AE, UK	n/a*	(111,000)	33,671,618	38.6% Ordinary shares	38.6%
Elateral Group Limited	GU9 7XX, UK	(1,654,000)	(9,432,000)	17,430,462	37.7% Ordinary shares	37.7%
Proveca Limited	M1 4ET, UK	n/a*	(2,378,000)	40,289	35.8% D Ordinary shares	15.1%
Sift Limited	BS1 1AB, UK	2,696,000	1,578,000	33,671,618	42.1% Ordinary shares	42.1%

*The company files filleted accounts which does not disclose this information.

12. Trade and other receivables less than one year
	31 December 2017 £'000	31 December 2016 £'000
Trade and other receivables less than one year	350	459
Prepayments and accrued income	18	17
	368	476

The Directors consider that the carrying amount of receivables is not materially different to their fair value.

13. Payables: amounts falling due within one year	31 December 2017 £'000	31 December 2016 £'000
Trade payables	12	5
Accruals	367	838
Other payables	12	12
	391	855

The Directors consider that the carrying amount of payables is not materially different to their fair value.

14. Called up share capital

Allotted, called up and fully paid	£'000
283,993,804 Ordinary shares of 1 penny each at 31 December 2016	2,840
48,106,411 Ordinary shares of 1 penny each issued during the year	481
332,100,215 Ordinary shares of 1 penny each at 31 December 2017	3,321

36,375,000 Ordinary shares of 1 penny each held in treasury at 31 December 2016	(364)
6,396,000 Ordinary shares purchased during the year to be held in treasury	(64)
42,771,000 Ordinary shares of 1 penny each held in treasury at 31 December 2017	(428)

*289,329,215 Ordinary shares of 1 penny each in circulation at 31 December 2017**	2,893

*Carrying one vote each

During the year the Company purchased 6,396,000 Ordinary shares (2016: 4,912,000) representing 1.9% of the issued Ordinary share capital as at 31 December 2017, at a cost of £1,301,000 (2016: £905,000), including stamp duty, to be held in treasury. The Company holds a total of 42,771,000 Ordinary shares in treasury, representing 12.9% of the issued Ordinary share capital as at 31 December 2017.

Under the terms of the Dividend Reinvestment Scheme, Circular dated 19 April 2011, the following new Ordinary shares of nominal value 1 penny per share were allotted during the year:

Date of allotment	Number of shares allotted	Aggregate nominal value of shares (£'000)	Issue price (pence per share)	Net invested (£'000)	Opening market price on allotment date (pence per share)
28 April 2017	704,941	7	20.91	145	20.75
31 October 2017	686,439	7	21.31	145	20.75
	1,391,380	14		290

During the period from 1 January 2017 to 31 December 2017, the Company issued the following new Ordinary shares of nominal value 1 penny each under the Albion VCT Prospectus Top Up Offers 2016/2017 and Albion VCT Prospectus Top Up Offers 2017/18:

Date of allotment	Number of shares allotted	Aggregate nominal value of shares (£'000)	Issue price (pence per share)	Net consideration received (£'000)	Opening market price on allotment date (pence per share)
31 January 2017	4,249,243	42	20.90	870	19.00
31 January 2017	1,647,857	16	21.00	338	19.00
31 January 2017	12,460,938	125	21.10	2,550	19.00
28 March 2017	8,437,199	84	22.10	1,809	20.00
7 April 2017	119,403	1	21.90	25	20.00
7 April 2017	72,916	1	22.00	16	20.00
7 April 2017	1,005,627	10	22.10	216	20.00
17 November 2017	6,590,736	66	21.60	1,402	20.75
17 November 2017	2,603,125	26	21.70	554	20.75
17 November 2017	9,527,987	95	21.90	2,034	20.75
	46,715,031	467		9,814

15. Basic and diluted net asset value per share
The basic and diluted net asset value per share as at 31 December 2017 of 21.60 pence (2016: 21.41 pence) are based on net assets of £62,492,000 (2016: £53,010,000) divided by the 289,329,215 shares in issue (net of treasury shares) at that date (2016: 247,618,804).

16. Capital and financial instruments risk management
The Company's capital comprises Ordinary shares as described in note 14. The Company is permitted to buy back its own shares for cancellation or treasury purposes and this policy is described in more detail in the Chairman's statement.

The Company's financial instruments comprise equity and loan stock investments in unquoted and quoted companies, cash balances and liquid cash instruments and short term receivables and payables which arise from its operations. The main purpose of these financial instruments is to generate cash flow, revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short term payables. The Company does not use any derivatives for the management of its Balance sheet.

The principal financial instrument risks arising from the Company's operations are:

investment (or market) risk (which comprises investment price, foreign currency on investments and cash flow interest rate risk);
credit risk; and
liquidity risk.

The Board regularly reviews and agrees policies for managing each of these risks. There have been no changes in the nature of the risks that the Company has faced during the past year and there have been no changes in the objectives, policies or processes for managing risks during the past year. The key risks are summarised below.

Investment risk
As a venture capital trust, it is the Company's specific nature to evaluate and control the investment risk in its portfolio in unquoted and quoted investments, details of which are shown on pages 19 and 20 of the full Annual Report and Financial Statements. Investment risk is the exposure of the Company to the revaluation and devaluation of investments. The main driver of investment risk is the operational and financial performance of the portfolio company and the dynamics of market quoted comparators. The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment risk.

The Manager and the Board formally review investment risk (which includes market price risk), both at the time of initial investment and at quarterly Board meetings.

The Board monitors the prices at which sales of investments are made to ensure that profits to the Company are maximised and that valuations of investments retained within the portfolio appear sufficiently fair and realistic compared to prices being achieved in the market for sales of unquoted investments.

The maximum investment risk as at the Balance sheet date is the value of the fixed asset investment portfolio which is £55,815,000 (2016: £51,601,000). Fixed asset investments form 89% of the net asset value as at 31 December 2017 (2016: 97%).

More details regarding the classification of fixed asset investments are shown in note 10.

Investment price risk
Investment price risk is the risk that the fair value of future investment cash flows will fluctuate due to factors specific to an investment instrument or to a market in similar instruments. As a venture capital trust the Company invests in unquoted companies in accordance with the investment policy set out above. The management of risk within the venture capital portfolio is addressed through careful investment selection, by diversification across different industry segments, by maintaining a wide spread of holdings in terms of financing stage and by limitation of the size of individual holdings. Furthermore, new unquoted investments are often made with up to two-thirds of the investments comprising debt securities, which, owing to the structure of their yield, have a lower level of price volatility than equity. The Directors monitor the Manager's compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.

Valuations are based on the most appropriate valuation methodology for an investment within its market, with regard to the financial health of the investment and the IPEVCV guidelines. Details of the sectors in which the Company is currently invested are shown in the pie chart at the end of this announcement.

As required under FRS 102 the Board is required to illustrate by way of a sensitivity analysis the degree of exposure to market risk. The Board considers that the value of the fixed asset investment portfolio is sensitive to a 10% change based on the current economic climate. The impact of a 10% change has been selected as this is considered reasonable given the current level of volatility observed both on a historical basis and future expectations.

The sensitivity of a 10% increase or decrease in the valuation of the fixed asset investment portfolio (keeping all other variables constant) would increase or decrease the net asset value and return for the year by £5,582,000 (2016: £5,160,000).

Foreign currency risk
Foreign currency risk is the risk of exposure to movements in foreign exchange rates relative to Sterling.

The majority of the Company's assets are denominated in Sterling; however, the Company is exposed to US dollars through its investment in a US dollar denominated security. No hedging of the currency exposure is currently undertaken. The Manager monitors the Company's exposure and reports to the Board on a regular basis.

Investment and revenue received in currencies other than Sterling is converted into Sterling on or shortly after the date of investment or receipt of revenue as are any proceeds from the disposal of a foreign currency investment.

As at 31 December 2017, the Company held an investment denominated in US dollars of £743,000 (2016: £2,260,000).

During the year to 31 December 2017, Sterling appreciated by 9.36% (2016: depreciated by 16.75%) against the US dollar.

Interest rate risk
The Company is exposed to fixed and floating rate interest rate risk on its financial assets. On the basis of the Company's analysis, it is estimated that a rise of 1% in all interest rates would have increased total return before tax for the year by approximately £78,000 (2016: £31,000). Furthermore, it is considered that a fall of interest rates below current levels during the year would have been unlikely.

The weighted average effective interest rate applied to the Company's fixed rate fixed asset investments during the year was approximately 6.9% (2016: 7.3%). The weighted average period to maturity for the fixed rate fixed asset investments is approximately 5.7 years (2016: 5.6 years).

The Company's financial assets and liabilities as at 31 December 2017, denominated in Sterling, consist of the following:

	31 December 2017				31 December 2016
	Fixed rate £'000	Floating rate £'000	Non-interest bearing £'000	Total £'000	Fixed rate £'000	Floating rate £'000	Non-interest bearing £'000	Total £'000
Unquoted equity	-	-	30,551	30,551	-	-	27,094	27,094
Quoted equity	-	-	2,045	2,045	-	-	3,843	3,843
Unquoted loan stock	21,845	665	709	23,219	19,273	661	730	20,664
Receivables *	-	-	350	350	-	-	459	459
Current liabilities	-	-	(391)	(391)	-	-	(855)	(855)
Cash	-	6,700	-	6,700	-	1,788	-	1,788
Total net assets	21,845	7,365	33,264	62,474	19,273	2,449	31,271	52,993

* The receivables do not reconcile to the Balance sheet as prepayments are not included in the above table.

Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Company is exposed to credit risk through its receivables, investment in unquoted loan stock and through the holding of cash on deposit with banks.

The Manager evaluates credit risk on loan stock instruments prior to investment and as part of its ongoing monitoring of investments. In doing this, it takes into account the extent and quality of any security held. In the past loan stock may or may not have a fixed or floating charge, which may or may not have been subordinated, over the assets of the portfolio company. However, for new investments, typically loan stock instruments will have a first fixed charge or a fixed and floating charge over the assets of the portfolio company in order to mitigate the gross credit risk.

The Manager receives management accounts from portfolio companies and members of the investment management team often sit on the boards of unquoted portfolio companies; this enables the close identification, monitoring and management of investment specific credit risk.

The Manager and the Board formally review credit risk (including receivables) and other risks, both at the time of initial investment and at quarterly Board meetings.

The Company's total gross credit risk at 31 December 2017 was limited to £23,219,000 (2016: £20,664,000) of unquoted loan stock instruments (all are secured on the assets of the portfolio company), £6,700,000 (2016: £1,788,000) cash on deposit with banks and £350,000 (2016: £459,000) of other receivables.

As at the Balance sheet date, cash and liquid investments held by the Company are held with the National Westminster Bank plc, Scottish Widows Bank plc (part of Lloyds Banking Group plc), Barclays Bank plc and UBS Wealth Management AG. Credit risk on cash transactions is mitigated by transacting with counterparties that are regulated entities subject to regulatory supervision, with high credit ratings assigned by international credit-rating agencies.

The credit profile of unquoted loan stock is described under liquidity risk below.

Liquidity risk
Liquid assets are held as cash on current account, deposit or short term money market accounts or similar instruments. Under the terms of its Articles, the Company has the ability to borrow an amount equal to its adjusted capital and reserves of the latest published audited Balance sheet.

The Company has no committed borrowing facilities as at 31 December 2017 (2016: £nil) and had cash, before its current fundraising (raising £1.3 million in January 2018) of £6,700,000 (2016: £1,788,000). The Company had no investment commitments as at 31 December 2017 (2016: £nil).

There are no externally imposed capital requirements other than the minimum statutory share capital requirements for public limited companies.

The main cash outflows are for new investments, the buy-back of shares and dividend payments, which are within the control of the Company. The Manager formally reviews the cash requirements of the Company on a monthly basis, and the Board on a quarterly basis as part of its review of management accounts and forecasts. The Company's financial liabilities at 31 December 2017 are short term in nature and total £391,000 (2016: £855,000).

The carrying value of loan stock investments analysed by expected maturity dates is as follows:

	31 December 2017				31 December 2016
Redemption date	Fully performing £'000	Past due £'000	Impaired £'000	Total £'000	Fully performing£'000	Past due £'000	Impaired £'000	Total £'000
Less than one year	2,676	-	-	2,676	1,119	-	-	1,119
1-2 years	2,419	3,097	-	5,516	1,577	-	-	1,577
2-3 years	1,155	328	-	1,483	6,113	-	-	6,113
3-5 years	2,737	2,887	-	5,624	4,135	-	-	4,135
5 + years	4,921	2,999	-	7,920	5,735	1,985	-	7,720
Total	13,908	9,311	-	23,219	18,679	1,985	-	20,664

Loan stock can be past due as a result of interest or capital not being paid in accordance with contractual terms. This includes:

loan stock valued at £9,311,000 yielding an average of 11.8% which has interest past due by less than one year.

In view of the factors identified above, the Board considers that the Company is subject to low liquidity risk.

Fair values of financial assets and financial liabilities
All of the Company's financial assets and liabilities as at 31 December 2017 are stated at fair value as determined by the Directors, except for receivables, payables and cash which are held at amortised cost. There are no financial liabilities other than short term trade and other payables. The Company's financial liabilities are all non-interest bearing. It is the Directors' opinion that the book value of the financial liabilities is not materially different to the fair value and all are payable within one year and that the Company is subject to low financial risk as a result of having nil gearing and positive cash balances.

17. Commitments, contingencies and guarantees
As at 31 December 2017, the Company had no financial commitments (2016: £nil).

There were no contingent liabilities or guarantees given by the Company as at 31 December 2017 (2016: £nil).

18. Post balance sheet events
Since the year end, the Company made the following investments:

Investment of £204,000 in Koru Kids Limited;
Investment of £141,000 in Panaseer Limited; and
Investment of £125,000 in Elateral Group Limited.

Albion VCT Prospectus Top Up Offers 2017/18
On 6 September 2017 the Company announced the publication of a prospectus in relation to an offer for subscription for new Ordinary shares. A Securities Note, which forms part of the prospectus, has been sent to shareholders.

The following new Ordinary shares of nominal value 1 penny each were allotted under the Offers after 31 December 2017:

Date of allotment	Number of shares allotted	Aggregate nominal value of shares (£'000)	Issue price (pence per share)	Net consideration received £'000	Opening market price on allotment date (pence per share)
31 January 2018	5,979,493	60	21.90	1,277	21.30

As a result of the strong demand for the Company's shares the Board was able to announce on 5 March 2018 that subscription had reached its £8 million limit under the prospectus offer and is now closed.

19. Related party transactions
Other than transactions with the Manager as disclosed in note 4, there are no related party transactions or balances requiring disclosure.

20. Other Information
The information set out in this announcement does not constitute the Company's statutory accounts within the terms of section 434 of the Companies Act 2006 for the years ended 31 December 2017 and 31 December 2016, and is derived from the statutory accounts for those financial years, which have been, or in the case of the accounts for the year ended 31 December 2017, which will be, delivered to the Registrar of Companies. The Auditor reported on those accounts; the reports were unqualified and did not contain a statement under s498 (2) or (3) of the Companies Act 2006.

21. Publication
The full audited Annual Report and Financial Statements are being sent to shareholders and copies will be made available to the public at the registered office of the Company, Companies House, the National Storage Mechanism and also electronically at www.albion.capital/funds/KAY/31Dec2017.pdf.

Current portfolio sector analysis

This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Kings Arms Yard VCT PLC via Globenewswire

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