Final Results

RNS Number : 6891M

North Atlantic Smlr Co Inv Tst PLC

12 May 2020

 

North Atlantic Smaller Companies Investment Trust plc

Annual Financial Report for the year ended 31 January 2020

NASCIT is pleased to announce its results for the year ended 31 January 2020

The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 January 2020, but has been extracted from the statutory financial statements for the year ended 31 January 2020 which were approved by the Board of Directors on 12 May 2020 and will be delivered to the Registrar of Companies in due course. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006. The statutory accounts for the year ended 31 January 2019 have been delivered to the Registrar of Companies and received an Independent Auditor's report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006. The annual financial report will be posted to shareholders later this month. Copies of the Annual Report will then be available on the Company's website  www.nascit.co.uk   and from the Company Secretary.

highlights

	31 January 2020	% change	31 January 2019	31 January 2018	31 January 2017	31 January 2016
revenue
Gross income (£'000)	12,345	6.0%	11,645	10,115	6,105	3,175
(Net Revenue after tax attributable to shareholders (£'000)	5,872	0.5%	5,840	5,138	1,295	(890)
Basic return per 5p Ordinary Share:* - Revenue	41.24	1.6%	40.58	35.62	8.97	(6.13)
- Capital	652.92	217.6%	205.57	455.29	212.95	490.70
Final Dividend per 5p Ordinary Share (declared)	30.0p		30.0p	nil	nil	nil
assets
Total assets less current liabilities (£'000)	620,723	16.8%	531,425	499,423	428,606	396,961
Net asset value ("NAV") per 5p Ordinary Share:**
Basic	4,384p	18.2%	3,710p	3,462p	2,971p	2,749p
Diluted	4,384p	18.2%	3,708p	3,458p	2,968p	2,746p
Basic adjusted†	4,505p	19.3%	3,776p	3,529p	3,036p	2,776p
Diluted adjusted†	4,505p	19.4%	3,774p	3,525p	3,033p	2,773p
Mid-market price of the 5p Ordinary Shares	3,400p	16.8%	2,910p	2,870p	2,455p	2,280p
discount to diluted net asset value	22.4%		21.5%	17.0%	17.3%	17.0%
discount to diluted adjusted net asset value	24.5%		22.9%	18.6%	19.1%	17.8%
indices and exchange rates at 31 January
Standard & Poor's 500 Composite Index	3,225.5	19.3%	2,704.1	2,823.8	2,278.9	1,940.2
Russell 2000 Index	1,614.1	7.6%	1,499.4	1,575.0	1,352.3	1,035.4
US Dollar/Sterling exchange rate	1.31830	0.2%	1.31505	1.4221	1.2581	1.4185
Standard & Poor's 500 Composite Index - Sterling adjusted	2,442.5	18.4%	2,062.8	1,989.9	1,811.7	1,362.2
Russell 2000 - Sterling adjusted	1,222.2	6.9%	1,143.8	1,109.90	1,075.1	726.9

* Please refer to note 7 for details on how the basic return per 5p Ordinary Share is calculated.

** Please refer to note 7 for details on how the net asset value per 5p Ordinary Share is calculated.

† Adjusted to reflect Oryx International Growth Fund plc ("Oryx") under the equity method of accounting, which is how the Company previously accounted for its share of Oryx, prior to the adoption of IFRS 10. This is useful to the shareholder as it shows the NAV based on valuing Oryx at NAV. See note 7.

chairman's statement

It is pleasing to note that the diluted net asset value ("NAV") rose by 18.2% which compares with a rise in the sterling adjusted S&P Composite of 18.4%. In comparison with relevant indices in the UK, where the majority of the Company's assets are located, the fund materially outperformed.

While the capital return of the Company was £93 million (2019: £30 million), the revenue account showed a profit after tax of £5,872,000 (2019: £5,840,000). The Directors have therefore declared a final dividend of 30p (2019: 30p).

During the period 165,620 shares were purchased for cancellation at a good discount to NAV. This benefits all long-term shareholders by creating an immediate uplift to NAV. At the forthcoming AGM shareholders will once again be asked to support a whitewash proposal allowing the company to continue to repurchase shares without requiring our Chief Executive and persons and companies presumed to be acting in concert with him to make a mandatory offer under Rule 9 of The Takeover Code for the company. This proposal and the background surrounding it are outlined in a separate circular being sent to shareholders. The passing of the resolution to support this proposal is crucial to the provision of good liquidity to selling shareholders, while enabling the Company to add value to the ongoing NAV by buying back its own shares. Last year the AGM approved the whitewash proposal with opposing votes, mainly from two institutions, amounting to 33.62% of votes cast (the largest shareholder being disqualified from voting). The opposing votes were cast on behalf of multiple clients of both institutions apparently on the recommendation of their ESG compliance departments. We contacted the institutions to explain the evident benefits to all shareholders of the buyback program but encountered little interest in continuing the discussion.

Many of our businesses face serious issues as a consequence of the Coronavirus outbreak. It is no consolation that the evident real risk that this disease represents highlights the irrelevance of the former Governance requirement to describe the Brexit risks to our business. Certainly the worstcase scenario of more frequent global pandemics goes some way to explain the all-time low bond yields. These rates will probably rise when the global moves towards massive fiscal stimulus ceases to be primarily financed by central banks.

The largest economic contractionary impact is likely to be felt during the containment and delay stages of the global strategy to combat the virus. Once we move into the mitigate phase, there should be some return to some normalcy and economic growth with the restoration of supply chains and consumer demand. Even if effective vaccines take time to develop, the clarification that there are a number of potential treatments will help to alleviate public alarm during the mitigation phase.

The valuation of our positions in the pharmaceutical and medical testing sectors should continue to see support, while our tendency to avoid debt-laden companies should protect extreme downside outcomes in our investments which are exposed to the ongoing decline in discretionary consumer spending.

Most importantly, our substantial holdings in cash and equivalents will protect our company going forward. It will enable our investment manager to identify and capitalise on the increasing number of attractive opportunities, both listed and unlisted, which are now appearing with the volatility and sporadic weakness in the equity markets.

Peregrine Moncreiffe Chairman

12 May 2020

investment manager's report

quoted portfolio

United Kingdom:

There was a general recovery in small cap indices during the period helped towards the end of the period by a convincing win by the Conservative party over Labour.

Corporate profits were generally favourable as increasing consumer confidence and a stable exchange rate created a favourable environment for the stock market.

The major standout success stories were Augean and Renalytix which collectively created nearly £35m of value for our shareholders during the twelve month period. Against this the holding in Goals Soccer was written off costing shareholders approximately £4m over the twelve month period as a result of fraud.

United States:

The United States portfolio remains relatively small amounting to less than £20m. However, it was encouraging to see good uplifts in both Mountain Commerce and Ambac following good operating results.

unquoted portfolio

United Kingdom:

The largest investment is Harwood Private Equity IV which has since the end of the period sold a major holding Inspecs at a good uplift which will result in a return of capital. The fund is now fully drawn down. A commitment to Harwood Private Equity V has recently been made amounting to £40m. The largest direct investment during the period was Spring Investment LP. The company provides pharmaceutical products to the NHS not dissimilar to the very successful investment we made in Quantum Pharma about two years ago. Recent results are ahead of budget.

United States:

Performance Chemicals continued to recover well after the defection of key employees and is expected to further increase profits in the current year. Sadly, the valuation on Jaguar had to be written down following the loss of a major contract with American Airlines.

A description of the Company's unquoted investments can be read in the Annual Report.

liquidity

Our cash holdings (comprising cash at banks and US treasury bills) fell significantly during the period from approximately £122m to £82m. This is due to the repurchase of company shares for redemption and a number of new investments which we believe trade at significant discount to fair value.

Since the end of the period all world markets have fallen very substantially due to the onset of the COVID-19 virus which has disastrously impacted economic activity. Many of our businesses have either had to shut down or have had operations substantially curtailed. As noted above we have entered this downturn with very substantial liquid resources. Shareholders will already be aware we have tended to invest mainly in companies with strong balance sheets. We are therefore very well placed to support our businesses where appropriate.

To date we have helped refinance Ten Entertainment so that it can now withstand a shutdown of fifteen months at a cost of less than £1m. We would expect that no more than two or three other investments will require funding with an estimated cost to the Company of no more than £5m.

Either I or a member of my team have now spoken to every major investment in the Company and Oryx (which also has comparable cash balances) and can confirm that we are confident that our business will survive this very difficult economic downturn. It is however inevitable that corporate activity will be curtailed for some time so that realisations may take longer to occur than was originally anticipated.

Notwithstanding this I anticipate that the next few months will present some good opportunities and therefore remain confident that the Company will continue to provide positive returns once a degree of normality is restored.

Christopher Mills Chief Executive & Investment Manager

12 May 2020

sector analysis of investments at fair value

as at 31 January

	Europe 31 January 2020 %	United States 31 January 2020 %	United Kingdom 31 January 2020 %	Total 31 January 2020 %	Total 31 January 2019 %
equities, convertible securities & loan stocks as a % of total portfolio valuation
Financial Services	-	-	30.7	30.7	23.5
Industrial Goods & Services	1.1	3.3	10.1	14.5	18.1
Health Care	-	-	12.5	12.5	11.5
Banks	-	1.6	7.9	9.5	7.7
Travel & Leisure	-	-	11.9	11.9	10.8
Technology & Software	-	0.9	3.5	4.4	3.0
Oil & Gas	-	2.4	-	2.4	2.9
Energy	-	-	1.3	1.3	-
Telecommunications	-	-	1.0	1.0	1.3
Insurance	-	-	1.0	1.0	1.0
Real Estate	-	-	0.2	0.2	2.1
	1.1	8.2	80.1	89.4	81.9
treasury bills	-	10.6	-	10.6	18.1
total at 31 January 2020	1.1	18.8	80.1	100.0
total at 31 January 2019	1.4	28.3	70.3		100.0

twenty largest investments

as at 31 January

		At fair value £'000
equities (including convertibles, loan stocks and related financing)
Oryx International Growth Fund Limited *	UK Listed	72,251
MJ Gleeson Group plc	UK Listed	47,900
Polar Capital Holdings plc	UK Quoted on AIM	40,880
Harwood Private Equity IV LP	UK Unquoted	37,524
Augean plc	UK Quoted on AIM	35,150
EKF Diagnostics Holdings plc	UK Quoted on AIM	32,634
Ten Entertainment Group plc	UK Listed	31,200
Stobart Group Plc	UK Listed	24,480
Renalytix AI plc	UK Quoted on AIM	21,262
Sherwood Holdings Limited	UK Unquoted	19,544
ten largest investments		362,825
Odyssean Investment Trust Plc	UK Listed	15,544
Performance Chemicals Company	US Unquoted	13,781
AssetCo plc	UK Quoted on AIM	12,238
Ergomed plc	UK Quoted on AIM	11,924
Coventbridge Group	US Unquoted	10,051
Sureserve Group plc	UK Quoted on AIM	9,696
Signature Aviation plc	UK Listed	9,318
Hargreaves Services Plc	UK Quoted on AIM	7,875
Benchmark Holdings plc	UK Quoted on AIM	7,560
Mountain Comm Bancorp Inc	US Listed	6,804
twenty largest investments		467,616
Aggregate of other investments at fair value		69,711
		537,327
US Treasury Bills		63,841
total		601,168

* incorporated in Guernsey.

All investments are valued at fair value.

strategic report

The Directors present the strategic report of the Company for the year ended 31 January 2020.

principal activity

The Company carries on business as an investment trust and its principal activity is portfolio investment.

objective

The Company's objective is to provide capital appreciation to its Shareholders through investing in a portfolio of smaller companies which are based primarily in countries bordering the North Atlantic Ocean.

strategy

In order to achieve the Company's investment objective, the Manager uses a stock specific approach in managing the Company's portolio, selecting investments that he believes will increase in value over a period of time, whether that be due to issues in the management of the businesses which he believes can be improved by Shareholder engagement and involvement or simply due to the fact that the stock is undervalued and he can see potential for improvement in value over the long term. The Company may invest in both quoted and unquoted companies. At present, the investments in the portfolio are principally in companies which are located either in the United Kingdom or the United States of America. Typically the investment portfolio will comprise between 40 and 50 securities.

investment policy

While pursuing the Company's objective, the Manager must adhere to the following:

1.  the maximum investment limit is 15% of the Company's investments in any one company at the time of the investment;

2.  gearing is limited to a maximum of 30% of net assets;

3.  the Company may invest on both sides of the Atlantic, with the weighting varying from time to time;

4.  the Company may invest in unquoted securities as and when opportunities arise and again the weighting will vary from time to time.

investment restrictions

The Company has not adopted any specific investment restrictions, and the Company's investments may be highly concentrated. However, the Manager has put in place internal limitations to control risk and to manage diversification with the aim of allowing it to operate within parameters that it believes are wide enough for it to generate target returns but which are suitable to prevent undue risk.

investment approach

The Company invests in a diversified range of companies, both quoted and unquoted, on both sides of the Atlantic in accordance with its objective and investment policy.

Christopher Mills, the Company's Chief Executive and Investment Manager, is responsible for the construction of the portfolio and details of the principal investments are set out in the Annual Report. The top twenty largest investments by current valuation are listed above.

When analysing a potential investment, the Manager will employ a number of valuation techniques depending on their relevance to the particular investment. A key consideration when deciding on a potential investment would be the sustainability and growth of long term cash flow. The Manager will consider the balance of quoted and unquoted securities in the portfolio when deciding whether to invest in an unquoted stock as he is aware that the level of risk in unquoted securities may be considered higher.

In respect of the unquoted portfolio, regular contact is maintained with the management of prospective and existing investments and rigorous financial and business analysis of these companies is undertaken. It is recognised that different types of business perform better than others depending on economic cycles and market conditions and this is taken into consideration when the Manager selects investments and is therefore reflected within the range of investments in the portfolio. The Company attempts to minimise its risk by investing in a diversified spread of investments whether that spread be geographical, industry type or quoted or unquoted companies.

borrowing and leverage

The Company does not intend to incur borrowings as part of its investment strategy.

However, in the event that it did employ leverage for working capital purposes, any such borrowings incurred will not remain outstanding for more than 60 calendar days. In each such case, leverage may be obtained on an unsecured or secured/collateralised basis. The Company is not otherwise expected to engage in borrowing or make use of leverage.

The Company's borrowing and leveraging capacity is limited to an amount equal to: 30% of the net asset value of the Company when calculated in accordance with the "commitment" method set out in the AIFMD Rules.

The calculation and disclosure of such maximum leverage limits is required in order to satisfy the requirements of the AIFMD Rules. However, the Investment Manager expects the typical leverage levels to be lower than the maximum levels stated above, and generally not to exceed 10% of the Company's net asset value. The Investment Manager will inform investors to the extent such leverage limits are exceeded in accordance with the AIFMD Rules.

The Company does not currently grant any guarantee under any leveraging arrangement. The grant of any such guarantee would be disclosed to investors in accordance with the AIFMD Rules. Save as set out herein, there are no restrictions on the Company's use of leverage, by borrowing or otherwise, other than those which may be imposed by applicable law, rule or regulation.

changes to the investment policy, Investment restrictions and investment approach

Changes to the investment policy, investment restrictions and investment approach of the Company as set out above may be made by the Directors. Changes believed by the Directors to be material will be notified to investors in advance of the change taking effect.

financial instruments

The financial instruments employed by the Company primarily comprise equity and loan stock investments, although it does hold cash and liquid instruments. Further details of the Company's risk management objectives and policies relating to the use of financial instruments can be found in note 14 to the financial statements.

delegated activities

The Company being internally managed has not delegated the provision of portfolio management and risk management functions but does rely on third party services providers to provide ancillary services to support the activities of the company.  As a result, the Company will continue to act as an internally managed AIFM of the Company for the purposes of the FCA Rules in accordance with the Investment Management Agreement.

appointment of custodian

The Company has appointed Bank of New York Mellon (BNYM) as custodian for the quoted securities deposited for safekeeping with BNYM or with any subcustodian appointed by BNYM and to hold cash in accordance with the terms of its agreement.

any conflicts of interest that may arise from such delegations

From time to time conflicts may arise between the Depositary and the delegates, for example where an appointed delegate is an affiliated group company which receives remuneration for another custodial service it provides to the Company. In the event of any potential conflict of interest which may arise during the normal course of business, the Depositary will have regard to the applicable laws.

performance

At 31 January 2020, the diluted NAV per share was 4,384p (2019: 3,708p), an increase of 18.2% during the year, compared to an increase of 18.4% during the year in the Standard & Poor's 500 Composite Index (Sterling adjusted).

Net assets attributable to equity holders at 31 January 2020 amounted to £620,723,000 compared with £531,425,000 at 31 January 2019.

The ongoing charges relating to the Company are 1.1% (2019: 1.1%), based on total expenses, excluding finance charges and non-recurring items for the year and average monthly net assets.

results and dividends

The total net return after taxation for the financial year ended 31 January 2020 amounted to £98,852,000 (2019: £35,418,000). The Board proposes to pay a final dividend of 30p per share (2019: 30p).

key performance indicators

The Directors regard the following as the main key indicators pertaining to the Company's performance:

(i)  Net asset value per Ordinary Share: the chart in the Annual Report illustrates the movement in the fully diluted net asset value per Ordinary Share over the past five years:

(ii)   Share price return: the chart in the Annual Report illustrates the movement in the share price per Ordinary Share over the past five years:

(iii)   Performance against benchmark

The performance of the Company's share price is measured against the Standard & Poor's 500 Composite Index (Sterling adjusted), the Company's benchmark. A graph comparing performance can be found in the Directors' Remuneration Report in the Annual Report.

principal risks and uncertainties

The Board has carried out a robust assessment of the emerging and principal risks facing the Company including those that would threaten the Company's business model, future performance, solvency of liquidity and reputation.

The key risks faced by the Company are set out below. The Board regularly reviews these and agrees policies for managing these risks.

· Impact of COVID-19: COVID-19 has had a material negative impact both on the valuation of the Company's assets and on the performance of most of its underlying portfolio holdings. The Company has taken steps to assess the anticipated effects on each holding, particularly in terms of financial resilience. Where appropriate, action has been taken to mitigate potential weakness.

· Performance risk: the Board is responsible for deciding the investment strategy in order to fulfil the Company's objectives and for monitoring the performance of the Manager. An inappropriate investment strategy may result in under-performance against the companies in the peer group or against the benchmark indices. The Board manages this risk by ensuring that the investments are appropriately diverse and by receiving reports from the Manager at every board meeting explaining his investment decisions and the composition and performance of the portfolio.

· Market risk: this category of risk includes currency risk, market price risk and interest rate risk. The fair value or future cash flows of a financial investment held by the Company may fluctuate because of changes in market prices. Also, the valuations of the investments in the portfolio may be subject to fluctuation due to exchange rates or general market prices. The Manager monitors these fluctuations and the markets on a daily basis; the performance of the investment portfolio against its benchmarks is also closely monitored by the Manager. The afore-mentioned graph in the Directors' Remuneration Report illustrates the Company's performance against its benchmarks over the last ten years.

· Impact of Brexit: the Board has considered whether Brexit poses a discrete risk to the Company. The Board believes that Brexit is unlikely to affect the Company's business model and is also unlikely to have a perceptible impact on the level of discount or premium at which the Company's shares trade. The Board will continue to monitor developments as they occur.

· Investments in unquoted stocks, by their nature, involve a higher degree of risk than investments in the listed market. The valuation of unquoted investments can include a significant element of estimation based on professional assumptions that is not always supported by prices from current market transactions. Recognised valuation techniques are used and recent arms' length transactions in the same or similar entities may be taken into account. Clearly the valuation of such investments is therefore a key uncertainty but the Board manages this risk by regularly reviewing the valuation principles applied by the Manager to ensure that they comply with the Company's accounting policies and with fair value principles. Harwood Capital LLP, a firm which is ultimately owned by Christopher Mills, the Company's Manager, and which provides services such as dealings, administration and compliance to the Company, operates a Valuations and Pricing Committee which meets regularly throughout the year to review and agree the valuations of the investments in the portfolio for onward submission to the Board.

· Discount volatility: the Company's shares historically trade at a discount to its underlying net asset value. The Company has a share buyback programme in place to try to narrow this discount as far as possible by cancelling shares that it repurchases. The Company repurchased 165,620 (2019: 100,000) any Ordinary Shares for cancellation during the year.

· Regulatory risk: any breach of a number of regulations applicable to the Company, the UKLA's Listing Rules and the Companies Act could lead to a number of detrimental effects on the Company as well as reputational damage. The Audit Committee monitors compliance with these regulations in close alliance with the Manager and Secretary.

· Custodial and Banking risk: there is a risk that the custodians and banks used by the Company to hold assets and cash balances could fail and the Company's assets may not be returned. Associated with this is the additional risk of fraud or theft by employees of those third parties. The Board exercises monitoring through the Manager and Harwood Capital LLP over the financial position of its custodial banks.

· Credit risk/Counterparty risk: the Company holds preference shares in some investee companies and provides other forms of debt or loan guarantees where deemed necessary. There is a risk of those counterparties being unable to meet their obligations. The financial position and performance of those investee companies are continually monitored by the Manager and actions are taken to protect the Company's investment if needed.

professional negligence

The Company covers professional liability risks set out in Article 9(7) of Directive 2011/61/EU on Alternative Investment Fund Managers (the "Directive) and article 12 and 13 of the AIFMD level 2 regulation (professional liability risks) by holding professional indemnity insurance and maintaining an amount of own funds to meet the PII capital requirement under the Directive; and comply with the qualitative requirements addressing professional liability risks.

section 172 statement

Under Section 172 of the Companies Act 2006, directors are required to promote the success of the Company for the benefit of the stakeholders. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations, 2018, the Company has to detail how this duty has been performed with regard to the matters set out in Section 172 (1) (a) to (f).

· The directors have to consider the likely consequences of their decisions in the long term taking into account the interests of the various different stakeholders of the Company.

· A company's stakeholders are normally considered to comprise of its shareholders, employees, customers and suppliers as well as the wider community in which the company operates. As the Company is an internally managed investment company it does not have any employees as its activities are outsourced. Its customers are its shareholders and details of those owning more than 3% of the Company's shares are shown in the Report of the Directors. The Company's relations with its shareholders are detailed in the Annual Report.

· The main stakeholders are therefore the Company's shareholders and a small number of key third party suppliers, principally the Investment Manager, together with the company secretary, accountants, brokers, depositary, custodian, bankers and auditors, to whom the day to day functions are delegated.

· The Board works closely with the Investment Manager to promote the long-term success of the Company as effectively and responsibly as possible and he in turn interacts directly with the investee companies. Details of the investment policy and investment approach can be found above.

· The Company has a limited impact on the environment and has no greenhouse gas emissions as indicated below. Its impact on social, community and human rights issues are detailed below, and a statement on the Modern Slavery Act is given below.

· To summarise, the directors are fully aware of their duty under Section 172 in all their deliberations, and decisions taken always take into account the interests of the key stakeholders.

viability statement

In accordance with the UK Corporate Governance Code the Board has considered the longer term prospects for the Company. The Directors have reviewed the Company over the next three years to May 2023, which is generally a reasonable investment horizon for many investment trust shareholders. This assessment took into account the Company's current position as well as its continuing investment strategy. Additional factors under review included the principal risks inherent in its management and portfolio structure, contractual arrangements and cost base.

The Directors have noted the following elements as part of its evaluation:

· the Company invests in a combination of listed and unquoted companies, the large majority of which have positive EBITDA and/or net tangible asset values which support their valuations;

· the Company holds around 14% of its portfolio in cash and US Treasury Bills which are readily realisable and intends to continue to hold liquidity comfortably in excess of any contingent liabilities, including any requirements to fund any future drawdowns resulting from private equity or put option commitments;

· the Company's expenses are relatively stable, except for the Investment Manager's fee which is positively correlated with the Company's net asset value and relative performance, giving comfort that the Company could easily cover costs in the event of a substantial decline in net asset value; and

· the Company has considered the effect of COVID-19 and, for the reasons explained in more detail in the liquidity section of the investment manager's report above, does not believe it impacts its viability.

The Directors have also assessed the Company's principal risks and uncertainties and believe that appropriate measures are in place to minimise the likelihood of their potential to impact the viability of the Company. These measures include:

· the Manager's reports on compliance with the investment objective;

· the Manager's control of counterparty and custodial risk;

· the Board's monitoring of gearing (if any), compliance with specific investment guidelines and liquidity risk; and

· monitoring the share price's discount to net asset value and the stability of the shareholder base.

Based on the results of this analysis, the Directors have concluded that there is a reasonable expectation that the Company can continue in operation and meet its liabilities as they fall due during the period to May 2023.

future prospects

The Directors are hopeful that some of the Company's investments will see corporate activity over the coming year so that the Company's net asset value should outperform its benchmark.

social, community and human rights issues

As an investment trust with no employees the Company has no direct social or community responsibilities or impact on the environment. The Company, however, takes into account the impact of environmental, social and governance factors when selecting and managing its investments within the context of its obligation to manage investments in the financial interests of its shareholders.

modern slavery act

As an investment vehicle the Company does not provide goods or services in the normal course of business. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015.

greenhouse gas emissions

The Company has no physical assets, operations, premises or employees of its own. Consequently it has no greenhouse gas emissions to report. Hampton Investment Properties Limited, a property investment and development company, in which the Company has a 70.81% holding, has effectively liquidated its property portfolio and now only owns a redevelopment site which produces no greenhouse gas emissions. The Company's only other real estate assets were held via a wholly owned subsidiary, Harwood Leeds Limited, which was sold during the year.

AIFMD

The Company is authorised under the AIFMD as a Small Registered UK Alternative Investment Fund Manager under regulation 10(1) of the Alternative Investment Fund Managers Regulations 2013 (SI 2013/1773). Small registered UK AIFMs are not authorised persons as a result of their registration as small registered UK AIFMs and are not included on the Financial Services Register in relation to this business. However, small registered UK AIFMs are not prevented from carrying on regulated activities as a result of their registration and therefore may be included on the Financial Services Register in relation to other business. For AIFMD purpose the Company is internally managed with Christopher Mills making the investment decisions in his capacity as Chief Executive. As the Company has passed the tipping point of having assets over £500 million it is now seeking approval as a full-scope UK AIFM of an internally managed AIF. The Company submitted the original application in 2018 to vary the Company's FCA permission and the FCA requested the Company to submit a full application for authorisation which is in progress.

It was noted in the last annual report that the application would be submitted for approval to have occurred by the end of quarter three 2019. This deadline was missed because the imminent FCA rule change from the approved persons regime to the senior management and certification regime (SM&CR) meant that the application had to be paused to assess the changes and make the necessary amendment to the application to accommodate the new rules on significant persons. As a result, the benefit of delaying the application meant there was no longer a regulatory requirement to register NASCIT's non-executive directors or persons carrying investment management functions under the SM&CR. The FCA rule changes has meant that additional documents had to be completed for persons performing the role of Chairman and Director.

The application has now been completed and submitted in March 2020 to the FCA for review and approval which normally takes 12 weeks.

periodic and regular disclosure

1. The following information is available to investors in the annual report:

(i)  the percentage of the Company's assets that are subject to special arrangements arising from their illiquid nature;

(ii)  any material changes to the arrangements for managing the liquidity of the Company;

(iii)  the current risk profile of the Company and the risk management systems employed by the Company to manage those risks; and

(iv)  the total amount of leverage employed by the Company if applicable.

2. Any changes to the following information will be provided by the Company to investors without undue delay (and may be provided by email) in accordance with the AIFMD Rules:

(i)  the maximum level of leverage which the Company may employ on behalf of the Company;

(ii)  the grant of or any changes to any right of re-use of collateral or any changes to any guarantee granted under any leveraging arrangement; and

(iii)  activation of liquidity management tools.

By Order of the Board

Derringtons Limited

Company Secretary

12 May 2020

report of the directors

for the year ended 31 January

The Directors present their report to Shareholders and the financial statements for the year ended 31 January 2020. Certain information that is required to be disclosed in this report has been provided in other sections of this Annual Report and accordingly, these are incorporated into this report by reference.

taxation status

In the opinion of the Directors, the Company has conducted its affairs during the period under review, and subsequently, so as to maintain its status as an investment trust for the purposes of Chapter 4 of Part 24 of the Corporation Tax Act 2010. The Company made a successful application under Regulation 5 of the Investment Trust (Approved Company) (Tax) Regulations 2011 for investment trust status to apply to all accounting periods starting on or after 1 February 2013 subject to the Company continuing to meet the eligibility conditions contained in Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements outlined in Chapter 3 of Part 2 of the Regulations.

share capital

The Company's issued share capital consisted of 14,160,000 Ordinary Shares of 5p nominal value each on 31 January 2020. Since the year end, no Ordinary Shares have been repurchased for cancellation. All shares hold equal rights with no restrictions and no shares carry special rights with regard to the control of the Company. There are no special rights attached to the shares in the event that the Company is wound up.

During the year, the Company purchased 165,620 (2019: 100,000) Ordinary Shares for £5.0m (2019: £2.9m) for cancellation to improve net asset value per Share. This comprised 1.2% (2019: 0.7%) of the issued share capital.

share valuations

On 31 January 2020, the middle market quotation and the diluted net asset value per 5p Ordinary Share were 3,400p and 4,384p respectively. The comparable figures at 31 January 2019 were 2,910p and 3,708p respectively. The only dilution to the net asset value is those share options that have been issued to certain employees of the Manager. The remaining 10,000 share options were discharged during the year (2019: 20,000 share options discharged) so there was no dilutive effect on the net asset value as at 31 January 2020.

substantial shareholders

As at 31 January 2020, and at the date of this report, the following interests in the Ordinary Shares of the Company which exceed 3% of the issued share capital had been notified to the Company:

	Number of Ordinary Shares	% of issued share capital
Christopher Mills	3,766,000	26.60
CG Asset Management	967,243	6.83
Rathbone Brothers plc	805,618	5.69
Butterfield Bank Group	691,182	4.88
Charles Stanley	457,304	3.23
Peregrine Moncreiffe	438,140	3.09

directors

The biographical details for Directors currently in office are shown in the Annual Report.

The Company's Articles of Association require that Directors should submit themselves for election at the first Annual General Meeting following their appointment and thereafter for re-election at least every three years. However, the Company is adopting the requirements of the UK Corporate Governance Code in relation to the annual re-election of directors. Therefore, in accordance with provision 18 of the UK Corporate Governance Code all of the Directors will retire at the Annual General Meeting and being eligible, offer themselves up for re-election.

directors' interests

The interests of the Directors as notified to the Company, including those of their connected persons, in the Ordinary Shares of the Company as at 31 January 2020 and 31 January 2019 were as follows:

	31 January 2020 5p Ordinary Shares	31 January 2019 5p Ordinary Shares
Peregrine Moncreiffe	438,140	417,640
Christopher Mills	3,766,000	3,666,000
Christopher Mills (non-beneficial)	355,740	355,740
Lord Howard of Rising	5,000	5,000
G Walter Loewenbaum	15,000	15,000
Sir Charles Wake	1,800	-

There have been no changes to the above interests between 31 January 2020 and the date of this report.

Details of Directors' remuneration are described in the Directors' Remuneration Report in the Annual Report.

Save as disclosed in the Report of the Directors in the Annual Report or in notes 3 and 15 to the financial statements, no Director was party to or had any interest in any contract or arrangement with the Company at any time during the year.

significant agreements

The Company is required to disclose details of any agreement that it considers to be essential to the business and the two agreements detailed below are considered by the Board to be significant.

Pursuant to the Sub Advisory, Administration and Transmission Services Agreement dated 15 June 2016, Harwood Capital LLP provides administration services to the Company. The Sub Advisory, Administration and Transmission Services Agreement continues unless thereafter terminated by either party on not less than twelve months' notice in writing or may be terminated forthwith as a result of a material breach of the agreement or the insolvency of either party. No compensation is payable on termination of the Agreement.

Pursuant to the Secondment Services Agreement between the Company, GFS and Christopher Mills and the Sub Advisory, Administration and Transmission Services Agreement between the Company and Harwood Capital LLP, Christopher Mills is responsible for the day-to-day investment decisions. The Secondment Services Agreement continues until terminated by the Company or GFS on not less than twelve months' notice.

The Board reviews the activities of the Manager. The Chief Executive carries out day-to-day investment decisions for and on behalf of the Company. As part of this review, the Board is satisfied that the continuing appointment of the Manager, on the terms agreed, is in the best interests of Shareholders. Christopher Mills has been Chief Executive of the Company since 1984 and the Board consider it is in the best interest of the Company for this arrangement to continue.

As part of this review, the Board has given consideration to the experience, skills and commitment of the Chief Executive in addition to the personnel, services and resources provided by Harwood Capital LLP. The Company's performance over the last year is described in the Chairman's Statement above.

related party transactions

Christopher Mills makes day-to-day investment decisions for the Company in his capacity as its Chief Executive and this position is distinct from his position as Chief Investment Officer of Harwood Capital LLP. Christopher Mills is a director of Growth Financial Services Limited ("GFS"). GFS is a wholly-owned subsidiary of Harwood Capital Management Limited, which is the holding company of the Harwood group of companies and is, in turn, 100% owned by Christopher Mills. Harwood Capital Management Limited is also a Designated Member of Harwood Capital LLP.

Details of the related party transactions and fees payable are disclosed in note 15 and in the Directors' Remuneration Report in the Annual Report. The Investment Management Fees are disclosed in note 3 of the financial statements. Any Performance Fee payable to GFS is disclosed in the Directors' Remuneration in the Annual Report and note 3 of the financial statements.

With the exception of the matters referred to above, during the year no Director was materially interested in any contract of significance (as defined by the UK Listing Authority Listing Rules) entered into by the Company.

institutional investors - use of voting rights

The Chief Executive, in the absence of explicit instruction from the Board, is empowered to exercise discretion in the use of the Company's voting rights in respect of investments and to then report to the Board, where appropriate, regarding decisions taken. The Board have considered whether it is appropriate to adopt a new voting policy and an investment policy with regard to social, ethical and environmental issues and concluded that it is not appropriate to change the existing arrangements.

donations

The Company does not make any political or charitable donations.

post balance sheet events

Since the end of the period all world markets have fallen substantially due to the onset of the COVID-19 virus which has disastrously impacted economic activity. These matters are considered further in the Chairman's Statement and the Investment Manager's Report above.

creditors' payment policy

It is the Company's policy to settle investment transactions according to the settlement periods operating for the relevant markets. For other creditors, it is the Company's policy to pay amounts due to them as and when they become due. All supplier invoices received by 31 January 2020 had been paid (31 January 2019 - all supplier invoices paid).

auditors

Resolutions to appoint RSM UK Audit LLP as the Company's auditors and to authorise the Board to determine their remuneration will be proposed at the forthcoming Annual General Meeting.

In the case of each of the persons who are directors at the time the report is approved so far as each director is aware, there is no relevant audit information of which the Company's auditor is unaware, and he has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

going concern

The Company's assets largely comprise readily realisable securities which can be sold to meet funding commitments if necessary and it also has sufficient cash reserves so the Directors have a reasonable expectation that the Company has adequate resources to continue in operation for the foreseeable future. They have, therefore, adopted the going concern basis in preparing these financial statements.

additional disclosures

The following further information is disclosed in accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008:

· the Company's capital structure and voting rights are summarised earlier in this report and note 11;

· details of the substantial shareholders in the Company are listed earlier in this report;

· the rules concerning the appointment and replacement of directors are contained in the Company's Articles of Association and are discussed earlier in this report;

· amendment of the Company's Articles of Association and powers to issue on a pre-emptive basis or buy back the Company's shares requires a special resolution to be passed by the Shareholders; and

· there are: no restrictions concerning the transfer of securities in the Company; no special rights with regard to control attached to securities; no agreements between holders of securities regarding their transfer known to the Company; no agreements which the Company is party to that might affect its control following a takeover bid; no agreements between the Company and its Directors concerning compensation for loss of office; and no qualifying third party indemnities in place.

By Order of the Board

Derringtons Limited

Company Secretary

Registered Office:

6 Stratton Street

Mayfair

London

W1J 8LD

Registered No: 1091347

12 May 2020

statement of directors' responsibilities in respect of the annual report and the financial statements

for the year ended 31 January

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU).

The financial statements are required by law and IFRS as adopted by the EU to present fairly the financial position and performance of the company. The Companies Act 2006 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss for that period. In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable, relevant and reliable;

· state whether they have been prepared in accordance with IFRSs as adopted by the EU;

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

responsibility statement of the directors in respect of the annual financial report

Each of the directors, whose names and functions are listed in the Annual Report confirm that to the best of each person's knowledge:

· the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and

· the Strategic Report and the Report of the Directors includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

For and on behalf of the Board

Peregrine Moncreiffe

Chairman

12 May 2020

statement of comprehensive income

for the year ended 31 January

			2020			2019
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Income	2	12,345	-	12,345	11,645	-	11,645
Net gains on investments at fair value	8	-	93,536	93,536	-	31,095	31,095
Currency exchange gains	8	-	153	153	-	271	271
total income		12,345	93,689	106,034	11,645	31,366	43,011
Expenses
Investment management fee	3	(5,410)	(709)	(6,119)	(5,091)	(1,788)	(6,879)
Other expenses	3	(1,063)	-	(1,063)	(714)	-	(714)
return before taxation		5,872	92,980	98,852	5,840	29,578	35,418
Taxation	6	-	-	-	-	-	-
return for the year		5,872	92,980	98,852	5,840	29,578	35,418
basic earnings per ordinary share	7	41.24	652.92	694.16	40.59	205.57	246.16
diluted earnings per ordinary share	7	41.24	652.92	694.16	40.53	205.27	245.8

The total column of the statement is the Statement of Comprehensive Income of the Company, prepared in accordance with IFRS, as adopted by the European Union. The supplementary revenue and capital columns are presented in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP").

All items in the above Statement derive from continuing operations. No operations were acquired or discontinued in the year.

There is no other comprehensive income, and therefore the return for the year is also the comprehensive income.

The notes form part of these financial statements.

statement of changes in equity

for the year ended 31 January

	Share capital £'000	Share options reserve £'000	Share premium account £'000	Capital reserve £'000	Capital redemption reserve £'000	Revenue reserve £'000	Total £'000
2020
31 January 2019	716	24	1,301	524,316	154	4,914	531,425
Total comprehensive income for the year	-	-	-	92,980	-	5,872	98,852
Dividend paid	-	-	-	-	-	(4,256)	(4,256)
Shares purchased for cancellation	(8)	-	-	(5,022)	8	-	(5,022)
Share options discharge	-	(24)	-	(252)	-	-	(276)
31 January 2020	708	-	1,301	612,022	162	6,530	620,723
	Share capital £'000	Share options reserve £'000	Share premium account £'000	Capital reserve £'000	Capital redemption reserve £'000	Revenue reserve £'000	Total £'000
2019
31 January 2018	721	55	1,301	498,123	149	(926)	499,423
Total comprehensive income for the year	-	-	-	29,578	-	5,840	35,418
Shares purchased for cancellation	(5)	-	-	(2,920)	5	-	(2,920)
Share options discharge	-	(31)	-	(465)	-	-	(496)
31 January 2019	716	24	1,301	524,316	154	4,914	531,425

The notes part of these financial statements.

balance sheet

as at 31 January

	Notes	31 January 2020 £'000	31 January 2019 £'000
non current assets
Investments at fair value through profit or loss	8	601,168	500,696
		601,168	500,696
current assets
Trade and other receivables	9	3,736	19,623
Cash and cash equivalents		17,805	30,669
		21,541	50,292
total assets		622,709	550,988
current liabilities
Trade and other payables	10	(1,986)	(19,563)
total liabilities		(1,986)	(19,563)
total assets less current liabilities		620,723	531,425
net assets		620,723	531,425
represented by:
Share capital	11	708	716
Share options reserve		-	24
Share premium account		1,301	1,301
Capital reserve		612,022	524,316
Capital redemption reserve		162	154
Revenue reserve		6,530	4,914
total equity attributable to equity holders of the company		620,723	531,425
net asset value per ordinary share:
Basic	7	4,384p	3,710p
Diluted	7	4,384p	3,708p

These financial statements were approved and authorised for issue by the Board of Directors on 12 May 2020 and signed on its behalf by:

The notes part of these financial statements.

Peregrine Moncreiffe, Chairman

Company Registered Number: 1091347

cash flow statement

for the year ended 31 January

	Notes	2020 £'000	2019 £'000
cash flows from operating activities
Investment income received		9,631	9,002
Deposit interest received		18	15
Investment Manager's fees paid		(7,168)	(7,686)
Share based payment - discharge of options		(276)	(496)
Other cash payments		(1,225)	(826)
cash generated from operations	12	980	9
Taxation paid		-	-
net cash inflow from operating activities		980	9
cash flows from investing activities
Purchases of investments		(290,621)	(358,127)
Sales of investments		286,006	380,966
net cash (outflow)/inflow from investing activities		(4,615)	22,839
cash flows from financing activities
Dividend paid		(4,256)	-
Repurchase of Ordinary Shares for cancellation		(5,022)	(2,920)
net cash outflow from financing activities		(9,278)	(2,920)
(decrease)/increase in cash and cash equivalents for the year		(12,913)	19,928
cash and cash equivalents at the start of the year		30,669	10,653
Revaluation of foreign currency balances		49	88
cash and cash equivalents at the end of the year	13	17,805	30,669

The notes form part of these financial statements.

notes to the financial statements

1 accounting policies

NASCIT is a listed public company incorporated and registered in England and Wales. The registered office of the Company is 6 Stratton Street, Mayfair, London W1J 8LD. The principal activity of the Company is that of an investment trust company within the meaning of sections 1158/1159 of the Corporation Tax Act 2010 and its investment approach is detailed in the Strategic Report.

a) basis of preparation

The financial statements of the Company have been prepared in accordance with IFRS as adopted by the European Union which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), and as applied in accordance with the provisions of the Companies Act 2006. The annual financial statements have also been prepared in accordance with the AIC SORP for the financial statements of investment trust companies and venture capital trusts, except to any extent where it is not consistent with the requirements of IFRS.

The functional currency of the Company is Pounds Sterling because this is the currency of the primary economic environment in which the Company operates. The financial statements are also presented in Pounds Sterling rounded to the nearest thousand, except where otherwise indicated.

b) going concern

The financial statements have been prepared on a going concern basis that approval as an investment trust company will continue to be met.

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future, being a period of at least 12 months from the date these financial statements were approved. Since the end of the period all world markets have fallen substantially due to the onset of the COVID-19 virus which has disastrously impacted economic activity. Whilst this has impacted the value of the Company's investment portfolio, the Company entered the downturn with substantial liquid resources (cash at bank and US treasury bills) of £82m at the year end. The Directors are not aware of any material uncertainties that may cast doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, debt and investment commitments. Therefore, the financial statements have been prepared on a going concern basis.

c) segmental reporting

The Directors are of the opinion that the Company is engaged in a single segment of the business, being investment business. The Company invests in small companies principally based in countries bordering the North Atlantic Ocean.

d) accounting developments

In the current year, the Company has applied a number of amendments to IFRS, issued by the IASB mandatorily effective for an accounting period that begins on or after 1 January 2019. These include annual improvements to IFRS, changes in standards, legislative and regulatory amendments, changes in disclosure and presentation requirements. The adoption of these has not had any material impact on these financial statements.

e) critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts in the Balance Sheet, the Income Statement and the disclosure of contingent assets and liabilities at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future period if the revision affects both current and future periods.

In order to value the unquoted investments, there are a number of valuation techniques that can be used. Judgement is used to determine the best methodology to obtain the most accurate valuation.

The Board of Directors has assessed the Company as meeting the definition of an investment entity within IFRS 10 Consolidated Financial Statements requirements. The Company measures the subsidiaries at fair value through profit or loss rather than consolidate the entities. The details are set out in Note 8.

Further to the above there were no accounting estimates or significant judgements in the current period that have had a material impact upon the financial statements.

f) 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. The Company classifies its investments based on their contractual cash flow characteristics and of the Company's business model for managing the assets. The business model, which is the determining feature, is such that the portfolio of investments is managed, performance and risk is evaluated on a fair value basis. Consequently, all investments are designated as at fair value through profit or loss.

All investments are designated upon initial recognition as held at fair value through profit or loss, and are measured at subsequent reporting dates at fair value, which is either the bid price or the closing price for Stock Exchange Electronic Trading Service - quotes and crosses ('SETSqx'). The Company derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. On derecognition of a financial asset, the difference between the asset's carrying amount and the sum of consideration received and receivable and the cumulative gain or loss that had been accumulated is recognised in profit or loss.

Fair values for unquoted investments, or investments for which the market is inactive, are established by using various valuation techniques in accordance with the International Private Equity and Venture Capital Valuation (the "IPEV") guidelines. These may include recent arm's length market transactions, the current fair value of another instrument which is substantially the same, discounted cash flow analysis and option pricing models. Where there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, that technique is utilised.

Gains and losses arising from changes in fair value are included in the total return as a capital item. Also included within this heading are transaction costs in relation to the purchase or sale of investments. When a sale or purchase is made under a contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date.

All investments for which a fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy levels set out in Note 14.

g) foreign currency translation

Transactions in currencies other than Pounds Sterling are recorded at the rates of exchange prevailing on the date of the transaction. Items that are denominated in foreign currencies are retranslated at the rates prevailing on the Balance Sheet date. Any gain or loss arising from a change in exchange rate subsequent to the date of the transaction is included as an exchange gain or loss in the capital reserve or the revenue account depending on whether the gain or loss is capital or revenue in nature.

h) cash and cash equivalents

Cash comprises cash in hand, overdrafts and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

For the purpose of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts when applicable.

i) other receivables and payables

Trade receivables and trade payables are measured at amortised cost and balances revalued for exchange rate movement.

j) income

Dividends receivable on quoted equity shares are taken to revenue on an ex-dividend basis. Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company's right to receive payment is established. Fixed returns on non-equity shares are recognised on a time-apportioned basis. Dividends from overseas companies are shown gross of any withholding taxes which are disclosed separately in the Statement of Comprehensive Income.

Special dividends are taken to the revenue or capital account depending on their nature. In deciding whether a dividend should be regarded as capital or revenue receipt, the Board reviews all relevant information as to the sources of the dividend on a case-by-case basis.

When the Company has elected to receive scrip dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised as income. Any excess in the value of the cash dividend is recognised in the capital column.

All other income is accounted on a time-apportioned accruals basis and is recognised in the Statement of Comprehensive Income.

k) expenses and finance costs

All expenses are accounted on an accruals basis and are allocated to wholly to revenue with the exception of the Performance Fees which are allocated wholly to capital, as the fee payable by reference to the capital performance of the Company.

Expenses incurred in shares purchased for cancellation are charged to the capital reserve through the Statement of Changes in Equity.

l) share based payments

The value of share options awarded under the 2011 Executive Share Option Scheme to the Chief Executive and employees of Harwood Capital LLP. The accounting charge is based on the fair value of each grant, measured at the grant date and is spread over the vesting period. The deemed expense over the vesting period is transferred to the Share Options Reserve.

Where the share options are discharged this is released to the Share Options Reserve.

m) taxation

The charge for taxation is based on the net revenue for the year and takes into account taxation deferred or accelerated because of temporary differences between the treatment of certain items for accounting and taxation purposes.

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes at the reporting date. Deferred tax assets are only recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of timing differences can be deducted. In line with recommendations of the SORP, the allocation method used to calculate the tax relief expenses charged to capital is the 'marginal' basis. Under this basis, if taxable income is capable of being offset entirely by expenses charged through the revenue account, then no tax relief is transferred to the capital account.

n) dividends payable to shareholders

Dividends to shareholders are recognised as a liability in the period in which they are paid or approved in general meetings and are taken to the Statement of Changes in Equity. Dividends declared and approved by the Company after the Balance Sheet date have not been recognised as a liability of the Company at the Balance Sheet date.

o) share capital and reserves

Share Capital: Represents the nominal value of equity shares.

Share Options Reserve: The expense of share based payments. The fair value of Share Options is measured at grant date and spread over the vesting period. The deemed expense is transferred to the Share Options Reserve.

Share Premium Account: The account represents the accumulated premium paid for shares issued in previous periods above their nominal value less issue expenses.

Capital Reserve: The following items are taken to this reserve:

· realised and unrealised capital and exchange gains and losses on the disposal and revaluation of investments and of foreign currency items;

· performance fee costs;

· Ordinary Shares repurchased for cancellation; and

· Exchange differences of a capital nature.

Capital Redemption reserve: The amount by which the share capital has been reduced, equivalent to the nominal value of the Ordinary Shares repurchased for cancellation.

Revenue reserves: Represents the surplus of accumulated revenue profits being the excess of income derived from holding investments less the costs associated with running the Company. This reserve may be distributed by way of dividends.

2 income

	2020 £'000	2019 £'000
income from investments
Dividend income	6,640	5,646
Unfranked investment income
- interest	3,274	2,476
- interest reinvested	2,413	3,500
	12,327	11,622
other income
Interest receivable	18	15
Net return from Subsidiary	-	7
Realised gains on income	-	1
	18	23
Total income	12,345	11,645
total income comprises
Dividends	6,640	5,646
Interest	5,705	5,991
Other income	-	8
	12,345	11,645
income from investments
Listed UK	6,640	5,646
Other unquoted	5,687	5,976
	12,327	11,622

3 expenses

a) investment management fee

(i)  Pursuant to the Secondment Services Agreement, described in the Report of the Directors above and the Directors' Remuneration Report of the Annual Report, GFS provides the services of Christopher Mills as Chief Executive of the Company, who is responsible for day-to-day investment decisions. Christopher Mills is a director of GFS. GFS is entitled to receive part of the investment management and related fees payable to GFS and Harwood Capital LLP as may be agreed between them from time to time.

(ii)  Pursuant to the terms of the Sub Advisory, Administration and Transmission Services Agreement, described above in the Report of the Directors, Harwood Capital LLP is entitled to receive a fee (the Annual Fee) in respect of each financial period equal to the difference between (a) 1% of Shareholders' Funds (as defined) on 31 January each year and (b) the amount payable to GFS referred to in note 3(i) above. This fee is payable quarterly in advance.

As set out in note 15, no formal arrangements exist to avoid double charging on investments managed or advised by the Chief Executive or Harwood Capital LLP.

(iii)  The Performance Fee, calculated annually to 31 January, is only payable if the investment portfolio, including Oryx at the adjusted price, outperforms the Sterling adjusted Standard & Poors' 500 Composite Index. It is calculated as 10% of the outperformance and paid as a percentage of Shareholders' Funds. It is limited to a maximum payment of 0.5% of Shareholders' Funds. The Performance Fee arrangements payable to GFS have been in place since 1984 when they were approved by Shareholders.

The amounts payable in the year in respect of investment management are as follows:

		2020			2019
	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000	Revenue £'000
Annual fee payable to Harwood Capital	3,246	-	3,246	3,054	-	3,054
Annual fee payable to GFS	2,164	-	2,164	2,037	-	2,037
Performance fee	-	654	654	-	1,743	1,743
Irrecoverable VAT thereon*	-	55	55	-	45	45
	5,410	709	6,119	5,091	1,788	6,879

At 31 January 2020, £270,000 was payable to Harwood Capital LLP in respect of outstanding management fees (2019: £255,000). At 31 January 2020, there was £654,000 payable to GFS in respect of outstanding performance fees (2019: £1,743,000) net of VAT.

*42% irrecoverable (2019: 13%) based on rates per latest VAT return information.

b) other expenses

	2020 £'000	2019 £'000
Auditor's remuneration - audit - RSM UK Audit LLP	58	-
Auditor's remuneration - audit - KPMG LLP	8	57
Directors' fees (see the Directors' Remuneration Report in the Annual Report)	130	130
Administration fee	279	263
Legal and Professional fees	192	67
Registrars fees	29	29
Stock Exchange related fees	35	28
Other expenses	332	140
	1,063	714

4 dividends paid

	2020 £'000	2019 £'000
Amounts relating to the year but not paid at the year end:
Final dividend for the year ended 31 January 2019 of 30p per share (2018: nil)	4,256	-
	4,256	-

The Directors have proposed a final dividend totalling £4.2m (2019: £4.3m) from revenue reserves, in respect of the year ended 31 January 2020 of 30.0p per share (2019: 30.0p), payable on 14 December 2020 to all shareholders on the register on 20 November 2020. The final dividend is subject to approval by shareholders at the Annual General Meeting.

5 share based remuneration

A list of the Options in issue are shown below;

No. of options at 1 February 2019	Year of grant	Discharged during the year	Grant of options during the year	Price	No. of Options at 31 January 2020
10,000	2011	10,000	nil	1,467.71	nil

On 14 July 2011, Christopher Mills was granted 420,000 share options under the NASCIT 2011 Executive Share Option Scheme at an exercise price of 1,467.71p per share. A further 10,000 options were granted to an eligible employee of Harwood Capital LLP. Christopher Mills discharged his share of these options on 23 October 2014. The remaining 10,000 options were exercised in September 2019.

The accounting charge is based on the fair value of each grant, at the grant date and is spread over the vesting period, being 3 years from the date of grant assuming all necessary performance criteria are met. The deemed expense is transferred to the Share options reserve. As at 31 January 2020 and 2019 there was no accounting charge as the vesting period has expired.

As at 31 January 2020, and as at the date of this report there were no options in issue.

6 taxation

	2020 Total £'000	2019 Total £'000
Withholding tax	-	-
	-	-

The current taxation charge for the year is different from the standard rate of corporation tax in the UK of 19%. The differences are explained below.

	2020 Total £'000	2019 Total £'000
Total return before taxation	98,852	35,418
Theoretical tax at UK Corporation tax rate of 19% (2019: 19%)	18,782	6,729
Effects of:
Non taxable capital return	(17,801)	(5,960)
UK and overseas dividends which are not taxable	(1,262)	(1,073)
Subsidiary return which is not taxable	-	(1)
Increase in tax losses, disallowable expenses and excess management expenses	281	305
Actual current tax charge	-	-

Factors that may affect future tax charges:

As at 31 January 2020, the Company has tax losses of £62,732,000 (2019: £60,800,000) that are available to offset future taxable revenue, comprising excess management expenses of £53,737,000 and a non-trade loan relationship deficit of £8,995,000 (2019: excess management expenses of £51,805,000 and a non-trade loan relationship deficit of £8,995,000). A deferred tax asset has not been recognised in respect of those losses as the Company is not expected to generate taxable income in the future in excess of the deductible expenses of future periods and, accordingly, it is unlikely that the Company will be able to reduce future tax liabilities through the use of those losses.

The Company is exempt from corporation tax on capital gains provided it maintains its status as an investment trust under Chapter 4 of Part 24 of the Corporation Tax Act 2010. Due to the Company's intention to continue to meet the conditions required to maintain its investment trust status, it has not provided for deferred tax on any capital gains or losses arising on the revaluation or disposal of investments.

7 return per ordinary share and net asset value per ordinary share

a) return per ordinary share:

	Net return £'000	Revenue Ordinary Shares	Per Share pence	Net return £'000	Capital Ordinary Shares	Per Share pence	Net return £'000	Total Ordinary Shares	Per Share pence
2020
Basic return per Share	5,872	14,240,620	41.24	92,980	14,240,620	652.92	98,852	14,240,620	694.16
Share options*	-	-		-	-		-	-
Diluted return per Share	5,872	14,240,620	41.24	92,980	14,240,620	652.92	98,852	14,240,620	694.16
	Net return £'000	Revenue Ordinary Shares	Per Share pence	Net return £'000	Capital Ordinary Shares	Per Share pence	Net return £'000	Total Ordinary Shares	Per Share pence
2019
Basic return per Share	5,840	14,388,359	40.59	29,578	14,388,359	205.57	35,418	14,388,359	246.16
Share options*	-	20,895		-	20,895		-	20,895
Diluted return per Share	5,840	14,409,254	40.53	29,578	14,409,254	205.27	35,418	14,409,254	245.8

Basic return per Ordinary Share has been calculated using the weighted average number of Ordinary Shares in issue during the year.

* Excess of total number of potential shares on Option Conversion over the number that could be issued at the average market price, as calculated in accordance with IAS 33: Earnings per share.

b) net asset value per ordinary share:

The net asset value per Ordinary Share calculated in accordance with the Articles of Association is as follows:

2020		Net assets £'000	Number of Ordinary Shares	Net asset value per Share
Ordinary Shares	- Basic and Diluted	620,723	14,160,000	4,384p
Ordinary Shares*	- Basic and Diluted	637,974	14,160,000	4,505p
2019		Net assets £'000	Number of Ordinary Shares	Net asset value per Share
Ordinary Shares	- Basic	531,425	14,325,620	3,710p
	- Diluted	531,572	14,335,620	3,708p
Ordinary Shares*	- Basic	540,920	14,325,620	3,776p
	- Diluted	541,067	14,335,620	3,774p

* Adjusted for Oryx using equity accounting.

The diluted net asset value per Ordinary Share for 31 January 2019, was calculated on the assumption that the outstanding 10,000 Share Options were exercised at the prevailing exercise prices, giving a total of 14,335,620 issued Ordinary Shares. There is no dilutive effect for 31 January 2020, as there were no options outstanding.

The Company has also reported an adjusted net asset value per share, in accordance with its previous method of valuing its investment in Oryx. The Company has chosen to report this net asset value per share to show the difference derived if equity accounting was used. Equity accounting permits the use of net asset value pricing for listed assets, which in the case of Oryx, is higher than its fair value as set out below:

	2020 £'000	2019 £'000
Oryx at Fair value (traded price) using IFRS 10	72,251	57,776
Oryx value using Equity Accounting	89,502	67,270
Increase in net assets using Equity Accounting	17,251	9,494

8 investments at fair value through profit or loss

a) investments at fair value through profit or loss

	2020 £'000	2019 £'000
Quoted at fair value:
United Kingdom	400,401	281,795
Overseas	19,930	15,677
Total quoted investments	420,331	297,472
Treasury bills at fair value	63,841	90,893
Unquoted and loan stock at fair value	116,996	112,331
Investments at fair value through profit or loss	601,168	500,696

2020	Listed equities £'000	AIM quoted £'000	Unlisted equities £'000	Loan stocks £'000	Treasury Bills £'000	Total £'000
analysis of investment portfolio movements
Opening bookcost as at 1 February 2019	75,357	104,344	42,670	44,728	92,899	359,998
Investment holding gains/(losses)	99,462	18,309	24,659	274	(2,006)	140,698
opening fair value as at 1 February 2019	174,819	122,653	67,329	45,002	90,893	500,696
Movements in year:
Purchases at cost	34,991	18,973	8,957	9,665	203,140	275,726
Sales - proceeds	(20,579)	(4,392)	(1,468)	(11,193)	(231,158)	(268,790)
- realised gains/(losses) on sales	11,764	(11,550)	(1,578)	(388)	371	(1,381)
Investment holding gains/(losses)	26,188	67,464	1,052	(382)	595	94,917
closing fair value as at 31 January 2020	227,183	193,148	74,292	42,704	63,841	601,168
Closing bookcost as at 31 January 2020	101,533	107,375	48,581	42,812	65,252	365,553
Investment holding gains/(losses)	125,650	85,773	25,711	(108)	(1,411)	235,615
	227,183	193,148	74,292	42,704	63,841	601,168
2019	Listed equities £'000	AIM quoted £'000	Unlisted equities £'000	Loan stocks £'000	Treasury Bills £'000	Total £'000
analysis of investment portfolio movements
Opening bookcost as at 1 February 2018	67,505	88,368	35,815	33,447	100,480	325,615
Investment holding gains/(losses)	130,168	11,856	26,756	(615)	(4,868)	163,297
opening fair value as at 1 February 2018	197,673	100,224	62,571	32,832	95,612	488,912
Movements in year:
Transfer	(2)	2	(3,584)	3,584	-	-
Purchases at cost	39,085	31,190	11,808	23,020	310,956	416,059
Sales - proceeds	(67,016)	(15,238)	(13,414)	(16,433)	(323,269)	(435,370)
- realised gains on sales	35,785	22	12,045	1,110	4,732	53,694
Investment holding (losses)/gains	(30,706)	6,453	(2,097)	889	2,862	(22,599)
closing fair value as at 31 January 2019	174,819	122,653	67,329	45,002	90,893	500,696
Closing bookcost as at 31 January 2019	75,357	104,344	42,670	44,728	92,899	359,998
Investment holding gains/(losses)	99,462	18,309	24,659	274	(2,006)	140,698
	174,819	122,653	67,329	45,002	90,893	500,696

	2020 £'000	2019 £'000
analysis of capital gains and losses
(Losses)/gains on sales	(1,381)	53,694
Unrealised gains/(losses)	94,917	(22,599)
gains on investments at fair value	93,536	31,095
	2020 £'000	2019 £'000
Exchange gains on capital items	104	183
Exchange gains on currency	49	88
exchange gains	153	271
	2020 £'000	2019 £'000
portfolio analysis
Equity shares	490,333	360,368
Preference securities	4,290	4,433
Fixed interest securities	42,704	45,002
Treasury Bills	63,841	90,893
	601,168	500,696

b) subsidiary undertakings

At 31 January 2020 the Company has the following Subsidiaries which were active during the year:

Subsidiary	Principal activity	Equity held	Country of registration
Consolidated Venture Finance Limited	Investment entity	100%	England and Wales
Hampton Investment Properties Limited	Property investment	70.81%	England and Wales
Oryx International Growth Fund Limited	Investment company	51.95%	Guernsey
Performance Chemical Company	Oil field service company	53.12%	United States of America

assessment as an investment entity

Entities that meet the definition of an investment entity within IFRS 10 Consolidated Financial Statements, are required to measure their subsidiaries at fair value through profit or loss rather than consolidate the entities. The criteria which define an investment entity are as follows:

· an entity that obtains funds from one or more investors for the purpose of providing those investors with investment services;

· an entity that commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both; and

· an entity that measures and evaluates the performance of substantially all of its investments on a fair value basis.

The Board have concluded that the Company continues to meet the characteristics of an investment entity in that it has more than one investment, it has ownership interests in the form of equity and similar interests, it has more than one investor and its investors are not related parties other than those disclosed in note 15.

c) significant holdings

At the year-end, the Company held 20% or over of the aggregate nominal value of voting equity of the following companies:

Company and address of principal business	Country of incorporation and registration	Year end	Capital and reserves £'000	Revenue reserves for the last financial year £'000	Company holding 31 January 2020 %	Company holding 31 January 2019 %
AssetCo plc Singleton Court Business Park, Wonastow Road, Monmouth, Monmouthshire NP25 5JA	England and Wales	30 September 2019	29,855	763	28.63	28.63
Consolidated Venture Finance Limited 6 Stratton Street, Mayfair, London W1J 8LD	England and Wales	31 January 2020	(746)	-	100.00	100
EKF Diagnostics Holdings plc Avon House, 19 Stanwell Road, Penarth, Cardiff CF64 2EZ	England and Wales	31 December 2018	81,380	10,299	21.58	21.58
Hampton Investment Properties Limited 6 Stratton Street, Mayfair, London W1J 8LD	England and Wales	31 December 2018	12,387	(143)	70.81	70.81
Harwood Private Equity Fund IV LP 6 Stratton Street, Mayfair, London W1J 8LD	England and Wales	31 December 2019	143,397	(136)	26.28	26.28
Oryx International Growth Fund Limited BNP Paribas House, St Julian's Avenue, St Peter Port, Guernsey GY1 1WA	Guernsey	31 March 2019	133,326	8,096	51.95	51.86
Performance Chemical Company 9105 W Interstate 20 Midland TX 79706	United States of America	30 September 2019	$754	$3,006	53.12	53.1
Trident Private Equity Fund III LP 6 Stratton Street, Mayfair, London W1J 8LD	England and Wales	31 December 2019	16,595	(132)	38.76	38.76

All the investments detailed above have not been consolidated into the financial statements due to the Company meeting the definition of an investment entity under IFRS 10 and therefore these investments are included at fair value through profit and loss.

At the year end, the Company held over 3% of the shares in the following companies which were considered to be material:

	%
Frenkel Topping Group Plc	19.99
Augean Plc	17.77
TEN Entertainment Group Plc	15.38
Odyssean Investment Trust Plc	15.18
Sureserve Group Plc	12.71
Sportech Plc	10.86
Bigblu Broadband Plc	10.42
Renalytix AI Plc	10.34
MJ Gleeson Plc	9.04
Hargreaves Services Plc	7.75
Polar Capital Holdings Plc	7.25
Mountain Commerce Bancorp	6.52
Stobart Group Plc	6.41
Ergomed Plc	5.45
Benchmark Holdings Plc	3.22

 

d) investments in US treasury bills

At 31 January 2020, the Company held US Treasury Bills with a market value of £63,841,000 (2019: £90,893,000).

e) transaction costs

During the year, the Company incurred total transaction costs of £183,000 (2019: £226,000) comprising £114,000 (2019: £68,000) and £69,000 (2019: £158,000) on purchases and sales of investments respectively. These amounts are included in gains on investments as disclosed in the Statement of Comprehensive Income.

f) material disposals of unlisted investments in the year:

	Proceeds £'000	Bookcost £'000	Gain/(loss) £'000	Carrying value at 31 January 2019 £'000
GAJV A Prefs	nil	2,187	(2,187)	nil
Harwood Leeds	9,127	9,516	(389)	9,516
Specialist Components 5% loan	2,067	2,067	nil	n/a

The information on exit strategy for the invested companies is confidential and in most cases the likely exit is a sale to a trade or financial buyer at an uplifted multiple on increased profits.

g) commitment

During the year, the Company has made a commitment to invest £40m in Harwood Private Equity V L.P. As at 31 January 2020, no monies had been advanced in relation to the commitment.

9 trade and other receivables

	2020 £'000	2019 £'000
Amounts due from brokers	1,085	17,103
Amounts owed by Subsidiary	90	89
Accrued income	825	542
Other debtors	808	959
Recoverable withholding tax	928	930
	3,736	19,623

10 trade and other payables

	2020 £'000	2019 £'000
Investment Manager's fees	270	255
Performance fees (incl. VAT)	784	2,091
Amounts due to brokers	771	16,988
Other creditors and accruals	161	229
	1,986	19,563

11 share capital

	2020 Number	2020 £'000	2019 Number	2019 £'000
- allotted, called up and fully paid:
Ordinary Shares of 5p:
Balance at beginning of year	14,325,620	716	14,425,620	721
Cancellation of shares	(165,620)	(8)	(100,000)	(5)
Balance at end of year	14,160,000	708	14,325,620	716

Since 31 January 2020, no Ordinary Shares have been purchased by the Company for cancellation. As at the date of this report, the Company's issued share capital consists of 14,160,000 Ordinary Shares of 5p nominal value each.

12 reconciliation of total return before taxation to cash generated from operations

	2020 £'000	2019 £'000
Total return before taxation	98,852	35,418
Gains on investments	(93,689)	(31,366)
Dividends and interest reinvested	(2,413)	(3,500)
Share based payment - discharge of options	(276)	(496)
Movement in provision for subsidiary	-	(7)
(Increase)/decrease in debtors and accrued income	(133)	847
(Decrease)/increase in creditors and accruals	(1,361)	(887)
Cash generated from operations	980	9

13 analysis of net cash and net debt

net cash	At 1 February 2019 £'000	Cash flow £'000	Exchange movement £'000	At 31 January 2020 £'000
Cash and cash equivalents	30,669	(12,913)	49	17,805

14 financial instruments and capital disclosures

The Company's financial risk management objectives, policies and strategy can be found in the Strategic Report in the Annual Report.

The Company's financial instruments comprise its investment portfolio, cash balances, loan stock and trade receivables and trade payables that arise directly from its operations. Note 1 above sets out the accounting policies, including criteria for recognition and the basis for measurement, applied to significant financial instruments (excluding cash at bank) which are carried at fair value. Note 1 also includes the basis on which income and expenses arising from financial assets and liabilities are recognised.

The main risks arising from the Company's financial instruments are:

(i)  market price risk, including currency risk, interest rate risk and other price risk;

(ii)  liquidity risk; and

(iii)  credit risk

The Board and Manager consider and review the risks inherent in managing the Company's assets which are detailed below.

(i) market price risk

The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks through detail and continuing analysis. The Manager assesses the exposure to market risk when making each investment decision and monitor the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

currency risk

The Company's total return and net assets can be materially affected by currency translation movements as a significant proportion of the Company's assets are denominated in currencies other than Sterling, which is the Company's functional currency. It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investment with foreign currency borrowings. The Manager seeks, when deemed appropriate, to manage exposure to currency movements on borrowings by using forward foreign currency contracts as a hedge against potential foreign currency movements. At 31 January 2020, the Company had no open forward currency contracts (2019: none).

The revenue account is subject to currency fluctuation arising on overseas income. The Company does not hedge this currency risk.

Foreign currency exposure by currency of denomination:

	31 January 2020			31 January 2019
	Overseas investments £'000	Net monetary assets £'000	Total currency exposure £'000	Overseas investments £'000	Net monetary assets £'000	Total currency exposure £'000
US Dollar	118,468	1,946	120,414	141,873	2,410	144,283
Euro	6,725	-	6,725	6,981	-	6,981
	125,193	1,946	127,139	148,854	2,410	151,264

Sensitivity analysis is based on the Company's monetary foreign currency financial instruments held at each balance sheet date. If Sterling had moved by 10% against all currencies, with all other variables constant, net assets would have moved by the amounts shown below. The analysis is shown on the same basis for 2019.

	31 January 2020		31 January 2019
	10% weakening £'000	10% strengthening £'000	10% weakening £'000	10% strengthening £'000
US Dollar	13,379	(10,947)	16,031	(13,117)
Euro	747	(611)	776	(635)
	14,126	(11,558)	16,807	(13,752)

In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the currency risk management process used to meet the Company's objectives.

interest rate risk

Interest rate movements may affect;

· the fair value of the investments in fixed interest rate securities (including unquoted loans); or

· the level of income receivable on cash deposits;

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions.

The Board reviews on a regular basis the values of the fixed interest rate securities and the unquoted loans to companies in which private equity investment is made.

Movements in interest rates would not significantly affect net assets attributable to the Company's Shareholders and total profit.

other price risk

Other price risks (i.e. changes in market prices other than those arising from currency risk or interest rate risk) may affect the value of the quoted and unquoted investments.

The Company's exposure to price risk comprises mainly movements in the value of the Company's investments. It should be noted that the prices of options tend to be more volatile than the prices of the underlying securities. As at the year-end, the spread of the Company's investment portfolio analysed by sector as set out earlier in the Report.

The Board of Directors manages the market price risks inherent in the investment portfolios by ensuring full and timely access to relevant investment information from the Manager. The Board meets regularly and at each meeting reviews investment performance. The Board monitors the Manager's compliance with the Company's objectives and is directly responsible for investment strategy and asset allocation.

When appropriate, derivative contracts are used to hedge against the exposure to price risk.

The Company's exposure to other changes in market prices at 31 January 2020 on its quoted and unquoted investments and options on investments was as follows:

	2020 £'000	2019 £'000
Financial assets at fair value through profit or loss
- Non current investments at fair value through profit or loss	601,168	500,696

As mentioned in the accounting policies note, the Private equity investments have been valued following the IPEV Valuation Guidelines. The valuation incorporates all relevant factors that market participants would consider in setting a price.

Methods applied include cost of investment, price of recent investments, net assets and earnings multiples. Any valuations in local currency are converted into sterling at the prevailing exchange rate on the valuation date.

Although the Manager believes that the estimates of fair values are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair values.

Subsequent adjustments in price are determined by the Manager's Valuation and Pricing Committee.

The table below shows how the most significant unquoted investments have been valued as at 31 January 2020.

	Method of fair value valuation	2020 fair value GBP £'000	2019 fair value GBP £'000
Harwood Private Equity Fund IV	Net Assets	37,524	31,569
Sherwood Holdings Limited 12.5% PIK Loan Notes	Cost	19,544	17,131
Performance Chemical Holdings Common Stock US$	Valuation Multiple	10,327	10,353
Performance Chemical Holdings Series A Preferred Stock US$	Cost	3,454	3,462
Harwood Leeds Property	Fair Value	-	9,516
Coventbridge Group Limited USD 9% loan	Cost	10,051	7,604
Pelsis Holding/Hamsard 3468 Ltd 8% A1 Loan Notes Euro €1	Valuation Multiple	2,677	2,780
Pelsis Holding/Hamsard 3468 Ltd 8% A2 Loan Notes Euro €1	Valuation Multiple	4,016	4,169
Pelsis Holdin/Hamsard 3468 Ltd A4 Ordinary Euro €1	Valuation Multiple	32	32
Trident Private Equity Fund LP 3 Including Rebate	Net Assets	6,418	6,339
Jaguar Holdings Limited Ordinary Shares - USD	Valuation Multiple	1,630	3,042
Jaguar Holdings Limited Preference Shares - USD	Valuation Multiple	2,162	2,167
Viking Investments LP	Net Assets	4,852	4,411
Utitec Holdings Inc US$ - Loan Stock 12.5%	Cost	3,793	3,802
GAJV Holdings, Ordinary shares	Valuation Multiple	-	-
GAJV Holdings, CD	Cost	-	1142
GAJV Holdings, Preferred	Cost	-	404
WEP II SIMCO Co-Investment US$	Net Assets	1,517	1,521
Hampton Investment Properties Ltd New	Net Assets	995	995
Spring Investment LP (Duke Street) GBP	Cost	3,500	-
Specialist Components Ltd APC Technology Ord £1	Cost	118	-
Specialist Components Ltd GBP 5% Loan Notes	Cost	2,622	-
Telos Corporation Common Stock	Fair Value	1,315	1,318
		116,547	111,757
Other investments		449	574
		116,996	112,331

the valuation techniques applied are based on the following assumptions:

Unquoted investments are usually valued by reference to the valuation multiples of similar listed companies or from transactions of similar businesses. Where appropriate discounts are then applied to those comparable multiples to reflect difference in size and liquidity. These enterprise values are then adjusted for net debt to arrive at an equity valuation. Where companies are in compliance with the loan note terms these loans are generally held at par plus accrued interest (where applicable) unless the enterprise value suggests that the debt cannot be recovered.

Further detail on the valuation of significant investments, are detailed below:

Trident Private Equity Fund III LP (TPE3) and Harwood Private Equity IV LP (HPE4)

Held at net asset value, derived from the audited financial statements of the Funds as at 31 December 2019, as the underlying investments within TPE3 and HPE4 are valued on a fair value basis. The Directors believe that the movement between the Funds' measurement dates and the reporting dates are not material. As the funds have no debts, a change of 10% in the underlying assets would have a 10% impact on the Funds' carrying value.

Performance Chemical Company - Ordinary Stock and Preferred Stock

The ordinary stock is valued using an EBITDA multiple of 7.3x to calculate an enterprise value. The preferred stock is held at cost. A reduction in the multiple by a factor of 1x would reduce the carrying value of the total investment by £1.6 million or 12%. An increase in the multiple by a factor of 1x would increase the value of the total investment by £1.6 million or 12%.

Coventbridge Group Limited - Loan

The loan is held at par plus accrued interest. The enterprise value is calculated using an EBITDA multiple of 8.3x. Neither a reduction nor an increase in the multiple by a factor of 1x would impact the carrying value of the loan.

Sherwood Holdings Limited - Loan

The loan is held at par plus accrued interest. The enterprise value is calculated using an EBITDA multiple of 15.5x. Neither a reduction nor an increase in the multiple by a factor of 1x would impact the carrying value of the loan.

Hansard 3468 Limited - Ordinary Shares and Loan notes

The ordinary shares are valued using an EBITDA multiple of 11.2x to calculate an enterprise value. The loan notes are held at par. Interest income has not been accrued in the accounts. A reduction in the multiple by a factor of 1x would reduce the carrying value of the total investment by £1.3 million or 19%. An increase in the multiple by a factor of 1x would increase the value of the total investment by £1.3 million or 19%.

The following table illustrates the sensitivity of the profit after taxation and net assets to an increase or decrease of 10% in the fair values of the Company's investments. This level of change is considered to be reasonably possible based on observation of current market conditions. The sensitivity analysis is based on the Company's equities and equity exposure through options at each Balance Sheet date, with all other variables held constant.

	2020		2019
	Increase in  fair value £'000	Decrease in fair value £'000	Increase in fair value £'000	Decrease in fair value £'000
Increase/(decrease) in net assets	60,117	(60,117)	50,070	(50,070)

 

(ii) liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

The Company invests in equities and other investments that are readily realisable. It also invests in unquoted securities, which are less readily marketable than equities. These investments are monitored by the Board on regular basis.

As at 31 January 2020, the majority of the Company's cash is held in short-term Treasury Bills, which are highly liquid. As a consequence, the Company could access in excess of £63 million based on current exchange rates, within one week.

(iii) credit risk

Other than its investment in US Treasury Bills, the Company does not have any significant exposure to credit risk arising from any one individual party. Credit risk is spread across a number of counterparties, each having an immaterial effect on the Company's cash flows, should a default happen. The Company assesses the credit worthiness of its debtors from time to time to ensure they are neither past due or impaired.

The maximum exposure of the financial assets to credit risk at the Balance Sheet date was as follows:

	2020 £'000	2019 £'000
financial assets neither past due or impaired
Fixed income securities	42,704	45,002
Preference shares	4,290	4,433
Treasury Bills	63,841	90,893
Accrued income and other debtors	3,736	19,623
Cash and cash equivalents	17,805	30,669
	132,376	190,620

The maximum credit exposure of financial assets represents the carrying amount.

There are no financial assets that are past due or impaired.

commitments giving rise to credit risk

There are no commitments giving rise to credit risk as at 31 January 2020.

fair value of financial assets

The Company measures fair values using the fair value hierarchy that reflects the significance of the inputs used in making the measurements of the relevant assets as follows:

· Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

· Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs). See note 1e) for details on how the value of level 3 investments are calculated.
The Company's main unobservable inputs are earnings multiples, recent transactions and net asset basis. The market value would be sensitive to movements in these unobservable inputs. Movements in these inputs, individually or in aggregate could have a significant effect on the market value. The effect of such a change or a reasonable possible alternative would be difficult to quantify as such data is not available.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

The Company considers observable data from investments actively traded in organised financial markets, fair value is generally determined by reference to Stock Exchange quoted market bid prices at the close of business on the Balance Sheet date, without adjustment for transaction costs necessary to realise the asset.

The table below sets out fair value measurements of financial assets in accordance with the IFRS 13 fair value hierarchy system:

financial assets at fair value through profit or loss

At 31 January 2020	Total £'000	Level 1 £'000	Level 2 £'000	Level 3 £'000
Equity investments	494,623	420,331	-	74,292
Fixed interest investments	106,545	63,841	-	42,704
Total	601,168	484,172	-	116,996
At 31 January 2019	Total £'000	Level 1 £'000	Level 2 £'000	Level 3 £'000
Equity investments	364,801	297,472	-	67,329
Fixed interest investments	135,895	90,893	-	45,002
Total	500,696	388,365	-	112,331

A reconciliation of fair value measurements in Level 3 is set out below.

level 3 financial assets at fair value through profit or loss

At 31 January 2020	Total £'000	Equity investments £'000	Fixed interest investments £'000
Opening Balance	112,331	67,329	45,002
Purchases	25,732	8,957	16,775
Sales	(19,771)	(1,468)	(18,303)
Total gains/(losses) included in gains on investments in the Statement of Comprehensive Income:
- on assets sold	(1,966)	(1,578)	(388)
- on assets held at the end of the year	670	1,052	(382)
Closing balance	116,996	74,292	42,704

capital management policies and procedures

The Company's capital management objectives are:

· to ensure that the Company will be able to continue as a going concern; and

· to maximise the income and capital return to its equity Shareholders through an appropriate balance of equity capital and debt. The policy is that gearing should not exceed 30% of net assets.

The Company's capital at 31 January comprises:

	2020 £'000	2019 £'000
Debt	-	-
Equity
Equity share capital	708	716
Retained earnings and other reserves	620,015	530,709
	620,723	531,425
Debt as a % of net assets	0.0%	0.0%

capital management policies and procedures

The Board, with the assistance of the Manager monitor and reviews the broad structure of the Company's capital on an ongoing basis. This review includes:

· the planned level of gearing, which takes account of the Manager's views on the market;

· the need to buy back equity Shares for cancellation, which takes account of the difference between the net asset value per share and the Share price (i.e. the level of share price discount or premium);

· the need for new issues of equity Shares; and

· the extent to which revenue in excess of that which is required to be distributed should be retained.

The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period.

15 related party transactions

Harwood Capital LLP is regarded as a related party of the Company due to Christopher Mills, the Company's Chief Executive and Investment Manager being a member of Harwood Capital LLP until 9 June 2015 and the ultimate beneficial owner. Harwood Capital LLP acts as Investment Manager or Investment Adviser of the following companies in which the Company has an investment and from which companies it receives fees or other incentives for its services:

	Services	2020 £'000	2019 £'000
Oryx International Growth Fund Limited	Investment Advisory	1,843	1,689
Trident Private Equity III LP	Investment Advisory	147	200
Harwood Private Equity IV LP	Investment Advisory	3,052	3,050

The amounts payable to the Manager are disclosed in note 3. The relationships between the Company, its Directors and the Manager are disclosed in the Report of the Directors in the Annual Report.

Christopher Mills is Chief Executive Officer and indirectly a member of Harwood Capital LLP. He is also a director of Oryx. GFS is a wholly-owned subsidiary of Harwood Capital Management Limited, which is the holding company of the Harwood group of companies and is, in turn, 100% owned by Christopher Mills. Harwood Capital Management Limited is also a Designated Member of Harwood Capital LLP, the Administrator of the Company.

disclosure of interests

Christopher Mills is also a director of the following companies in which the Company has an investment or may have had in the year and/or from which he may receive fees or hold shares: AssetCo plc, Augean plc, Benchmark Holdings Plc, Bigblu Broadband plc, Coventbridge Group, EKF Diagnostics Holdings Plc, Goals Soccer Centres plc, Hargreaves Services Plc, M J Gleeson Group plc, Oryx, Pelsis/Hamsard, Renalytix AI Plc, Sherwood Holdings Limited, Signature Aviation Plc, Stobart Group Plc, Sunlink Health Systems Inc, Sureserve Group plc, Ten Entertainment Group plc and Tribal Group Plc. Employees of the Manager may hold options over shares in investee companies. A total of £411,000 (2019: £306,000) in directors fees was received by Christopher Mills during the year under review.

No formal arrangements exist to avoid double charging on investments held by the Company which are also managed or advised by Christopher Mills (Chief Executive) and/or Harwood Capital LLP. Members and certain private clients of Harwood Capital LLP, and its associates (excluding Christopher Mills and his family) hold 83,924 shares in the Company (2019: 73,343).

Members, employees, institutional clients and private clients of Harwood Capital LLP may co-invest in the same investments as the Company.

From time to time Directors may co-invest in the same investments as the Company.

16 post balance sheet events

Since the end of the period all world markets have fallen substantially due to the onset of the COVID-19 virus which has disastrously impacted economic activity. These matters are considered further in the Chairman's Statement, the Investment Manager's Report and within the Board's review of principal risks earlier in the Annual Report.

 

END

 

 

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