North Atlantic Smaller Companies Investment Trust plc

Half-Yearly Report for the six months ended 31 July 2017

Registered in England and Wales number 1091347

objective of the company and financial highlights

The objective of the Company is to provide capital appreciation through investment in a portfolio of smaller companies principally based in countries bordering the North Atlantic Ocean.

*           Includes current period.

#          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 5.

†          Sterling adjusted.

chief executive's review

During the six month period to 31 July 2017, the fully diluted net asset value (with Oryx under the equity method of accounting) rose by +7.1% as compared to a rise in the sterling adjusted Standard & Poor's 500 Composite Index of +3.2%.

Income for the period amounted to a profit of £2,592,000 (31 July 2016: loss of £1,530,000). Consistent with past policy, the Directors do not propose to pay a dividend (31 July 2016: nil).

quoted portfolio

Taken as a whole, the quoted portfolio performed well during the six month period. In particular, Bioquell Plc and EKF Diagnostics plc, both rose around 50%. MJ Gleeson Group plc and Oxford Metrics ("OMG"), prior to its sale, also performed well rising by over 20% in each case with Oryx, also up over 12%. The only investment that performed notably badly was Hayward Tyler Group plc, although overall impact on the portfolio was minimal.

Two major new investments were acquired during the period and in particular a £30m holding in Polar Capital Holdings Plc. The investment rationale behind this purchase was that the share price was supported by strong fundamentals but was giving no value to the appointment of Gavin Rochussen as CEO, whose prior experience suggests that he could add significant value to the business over the next few years.

unquoted portfolio

The principal event during the period was the IPO of Ten Entertainment Plc which has added very significant value to the fund over the past two years as the IPO was in excess of 2.5x cost. Performance Chemicals Company was also written up reflecting good operating performance. Industrial Properties Limited is very close to being liquidated at a profit to the 31 January 2017 valuation, although some of this gain will be needed to offset a write down in the continuing liquidation of Hampton Investment Properties Limited.

outlook

The Company continues to be defensively positioned with very significant, albeit reduced, cash balances which obviously adversely impacted performance in the first half of the year. Generally, I continue to believe that equity markets taken as a whole are overvalued. However, a number of our investments have the potential to be harvested at premiums to their current valuation and I look forward to building the asset value over the balance of the year.

C H B Mills

Chief Executive

13 September 2017

chief executive's review (continued)

top ten investments

as at 31 July 2017

†          Incorporated in Guernsey.

*           Traded price under IFRS 10.

All investments are valued at fair value.

interim management report

investment objective

The objective of North Atlantic Smaller Companies Investment Trust PLC ("the Company") is to provide capital appreciation through investment in a portfolio of smaller companies principally based in countries bordering the North Atlantic Ocean.

material events

The Board do not consider that there were any material events during the period ended 31 July 2017.

material transactions

There were two material transactions during the period; the IPO of Ten Entertainment Plc and the purchase of shares in Polar Capital Holdings Plc. These holdings are valued respectively at £32m and £30m.

risk profile

The principal risks and uncertainties for the remaining six months of the year continue to be as described in the Annual Report for the year ended 31 January 2017 on pages 16 and 17 and pages 64 to 74. The principal risks arising from the Company's financial instruments are market price risk, including currency risk, interest rate risk and other price risk, liquidity risk and credit risk. The Directors review and agree policies with the Manager, Harwood Capital LLP, for managing these risks. The policies have remained substantially unchanged in the six months since the year end.

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 that they are neither past due or impaired.

To support its investment in unquoted companies, the Company may periodically agree to guarantee all or part of the borrowings of investee companies. Provision is made for any costs that may be incurred when the Directors consider it likely that the guarantee will crystallise.

The Company's exposure to market 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. The Manager assesses the exposure to market risk when making each investment decision and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.

The functional and presentational currency of the Company is Sterling, and therefore, the Company's principal exposure to foreign currency risk comprises investments priced in other currencies, principally US Dollars.

The Company invests in equities and other investments that are realisable.

related party transactions

These are listed in note 10 to the half yearly condensed financial statements.

By Order of the Board

Peregrine Moncreiffe

Chairman

13 September 2017

responsibility statement

The Directors confirm to the best of their knowledge that:

·      The condensed set of financial statements contained within this half yearly financial report have been prepared in accordance with International Accounting Standard ("IAS") 34 'Interim Financial Reporting' as adopted by the European Union and gives a true and fair view of the assets, liabilities, financial position and profit of the Company; and

·      The half yearly financial report includes a fair review of the information required by the FCA's Disclosure and Transparency Rule 4.2.7R being disclosure of important events that have occurred during the first six months of the financial year, their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and

·      The half yearly financial report includes a fair review of the information required by the FCA's Disclosure and Transparency Rule 4.2.8R being disclosure of related party transactions during the first six months of the financial year, how they have materially affected the financial position of the Company during the period and any changes therein.

The half yearly financial report was approved by the Board on 13 September 2017 and the above responsibility statement was signed on its behalf by:

Peregrine Moncreiffe

Chairman

13 September 2017

condensed statement of comprehensive income

The total column of the statement is the Statement of Comprehensive Income of the Company prepared in accordance with International Financial Reporting Standards ("IFRS"). The supplementary revenue and capital columns are presented for information purposes as recommended by the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC").

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

condensed statement of changes in equity

*           Following adoption of IFRS 10 amendments in the year ended 31 January 2017, these brought forward figures are Company only. See note 8b of the Annual Report for the year ended 31 January 2017 for further details.

condensed balance sheet

*           Following adoption of IFRS 10 amendments in the year ended 31 January 2017, these figures are Company only. See note 8b of the Annual Report for the year ended 31 January 2017 for further details.

condensed cash flow statement

notes

1. a) general information

North Atlantic Smaller Companies Investment Trust plc ("NASCIT") is a Company incorporated and domiciled in Great Britain and registered in England and Wales.

The Company operates as an investment trust company within the meaning of Section 833 of the Companies Act 2006 and has 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. The Company is managed in such a way to ensure that it continues 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.

b) basis of preparation

The condensed interim financial statements for the six months ended 31 July 2017 have been prepared in accordance with IAS 34 "Interim Financial Reporting". They do not include all financial information required for full annual financial statements and have been prepared using the accounting policies adopted in the audited financial statements for the year ended 31 January 2017. Those financial statements were prepared in accordance with IFRS and with the SORP for Investment Companies and Venture Capital Trusts issued by the AIC in November 2014 and updated in January 2017 with consequential amendments.

The condensed interim financial information includes the financial statements of the Company, for the six months ended 31 July 2017.

c) significant accounting policies

The accounting policies applied are consistent with those of the Annual Financial Report for the year ended 31 January 2017. Since the year end no new standards have been adopted.

d) segmental reporting

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

e) going concern

The Company has adequate financial resources and no significant investment commitments and as a consequence, the Directors believe that the Company is well placed to manage its business risks successfully. After making appropriate enquiries, the Directors have a reasonable expectation that the Company has adequate available financial resources to continue in operational existence for the foreseeable future and accordingly have concluded that it is appropriate to continue to adopt the going concern basis in preparing this half yearly financial report.

2. investment management and performance fees

A Performance Fee is only payable if the investment portfolio, including Oryx at the adjusted price, outperforms the Sterling adjusted Standard & Poor's 500 Composite Index at the end of each financial year and is limited to a maximum payment of 0.5% of Shareholders' Funds, and is allocated 100% to capital.

In accordance with the SORP for investment trust companies, an amount would be included in these financial statements for the Performance Fee that could be payable based on investment performance to 31 July 2017.

At that date, a Performance Fee of £759,000 including irrecoverable VAT has been accrued for in the accounts (31 July 2016: £nil; 31 January 2017: £nil).

notes (continued)

3. taxation

The Company has an effective tax rate of 0%. The estimated effective tax rate is 0% as investment gains are exempt from tax owing to the Company's status as an Investment Trust and there is expected to be an excess of management expenses over taxable income and thus there is no charge for corporation tax.

During the half year to 31 July 2017, the Company recognised a total charge of £4,000 (half year to 31 July 2016: £9,000, year ended 31 January 2017: £11,000), representing irrecoverable withholding tax paid on overseas investment income.

4. return per ordinary share

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

*           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.

5. net asset value per ordinary share

The basic net asset value per Ordinary Share is based on net assets of £458,768,000 (31 July 2016: £404,168,000; 31 January 2017: £428,606,000) and on 14,425,620 Ordinary Shares (31 July 2016: 14,438,520; 31 January 2017: 14,425,620) being the number of Ordinary Shares in issue at the period end.

The diluted net asset value per Ordinary Share is calculated on the assumption that all 30,000 (31 July 2016: 30,000; 31 January 2017: 30,000) Share Options in-the-money were exercised at the prevailing exercise prices, giving a total of 14,455,620 issued Ordinary Shares (31 July 2016: 14,468,520; 31 January 2017: 14,455,620).

During the period, there was no change to the Ordinary Shares in issue.

notes (continued)

5. net asset value per ordinary share (continued)

adjustment for Oryx

The Company has also reported an adjusted net asset value per share using equity accounting, 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 were to be 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.

The values of Oryx, as at each period end, are as follows:

6. share based remuneration

As at 31 July 2017 and as at the date of this report, there were a total of 30,000 options in issue with an estimated fair value of £0.4m (31 July 2016: 30,000; 31 January 2017: 30,000). 10,000 options are under the 2011 options scheme and 20,000 options are under the 2012 option scheme.

7. reconciliation of total return from ordinary activities before taxation to cash generated/(expended) from operations

notes (continued)

8. investments

financial assets at fair value through profit or loss

The Company adopted the amendment to IFRS 13, effective 1 January 2009. This requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy consists of the following three levels:

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

An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date. Quoted prices provided by external pricing services, brokers and vendors are included in Level 1, if they reflect actual and regularly occurring market transactions on an arms length basis.

·      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).

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 determination of what constitutes 'observable' requires significant judgement by the Company. 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:

six months ended 31 July 2017 (unaudited)

notes (continued)

8. investments (continued)

six months ended 31 July 2016 (unaudited)

year ended 31 January 2017 (audited)

level 3 financial assets at fair value through profit or loss

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

at 31 July 2017

notes (continued)

8. investments (continued)

unquoted at directors' estimate of fair value

Unquoted investments are valued in accordance with the International Private Equity and Venture Capital Valuation ("IPEV") Guidelines. Their valuation incorporates all factors that market participants would consider in setting a price. The primary valuation techniques employed to value the unquoted investments are earnings multiples, recent transactions and the net asset basis. Valuations in local currency are translated into Sterling at the exchange rate ruling on the Balance Sheet date.

Included within the Statement of Comprehensive Income as at 31 July 2017, is a loss of £13,588,000 relative to the movement in the fair value of the unquoted investments valued using IPEV valuation techniques.

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, transactions in the entity itself, or from transactions of similar businesses. Where appropriate, discounts are then applied to those comparable multiples to reflect differences 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, or where this is not deemed to be equal to fair value.

9. principal risk profile

The principal risks which the Company faces include exposure to:

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

(ii)         liquidity risk; and

(iii)        credit risk.

Further details of the Company's management of these risks and exposure to them is set out in Note 14 of the Company's Annual Report for the year ended 31 January 2017, as issued on 19 May 2017. There have been no changes to the management of or exposure to these risks since that date.

notes (continued)

10. related party transactions

There have been no changes to the related party arrangements or transactions as reported in the Statutory Annual Financial Report for the year ended 31 January 2017.

The Manager, Harwood Capital LLP, is regarded as a related party of the Company. The amounts payable to the Manager and Growth Financial Services Limited in respect of investment management for the six months to 31 July 2017 are as follows:

* Adjustment to 2016 VAT based on actual amount of VAT recovered in VAT return.

Shareholders should also note any payments made under share based remuneration as disclosed in note 6 to these financial statements.

11. financial information

The financial information contained in this half yearly report does not constitute full Statutory accounts as defined in Section 434 of the Companies Act 2006. The financial information for the periods ended 31 July 2017 and 31 July 2016 is not a financial year and has not been audited. The information for the financial year ended 31 January 2017 has been extracted from the latest published Financial Statements, which have been delivered to the Registrar of Companies. The Report of the Auditors on those Financial Statements contained no qualification or statement under Section 498 of the Companies Act 2006.

shareholder information

financial calendar

Announcement of results and annual report          May

Annual General Meeting                                     June

Half Yearly figures announced                             September

Half Yearly Report posted                                   September

share price

The Company's mid-market share price is quoted daily in the Financial Times appearing under "Investment Companies".

It also appears on:

SEAQ Ordinary Shares:                                     NAS

Trustnet:                                                           www.trustnet.com

net asset value

The latest net asset value of the Company can be found on the Harwood Capital LLP website:

www.harwoodcapital.co.uk

share dealing

Investors wishing to purchase more Ordinary Shares or dispose of all or part of their holding may do so through a stockbroker. Many banks also offer this service.

The Company's registrars are Capita Asset Services. In the event of any queries regarding your holding of shares, please contact the registrars on: 0871 664 0300, or by email on shareholderenquiries@capita.co.uk

Changes of name or address must be notified to the registrars in writing at:

Capita Asset Services

The Registry

34 Beckenham Road

Beckenham

Kent BR3 4TU

shareholder information (continued)

Directors

Peregrine Moncreiffe (Chairman)

Christopher Mills (Chief Executive)

Kristian Siem

Lord Howard of Rising

Enrique Foster Gittes

Manager

Harwood Capital LLP

(Authorised and regulated by the Financial Conduct Authority)

6 Stratton Street

Mayfair

London W1J 8LD

Telephone: 020 7640 3200

Financial Adviser and Stockbroker

Winterflood Investment Trusts

The Atrium Building

Cannon Bridge

25 Dowgate Hill

London EC4R 2GA

Registered Office

6 Stratton Street

Mayfair

London W1J 8LD

Telephone: 020 7640 3200

Registrars

Capita Asset Services

34 Beckenham Road

Beckenham

Kent BR3 4TU

Auditors

KPMG LLP

15 Canada Square

London E14 5GL

Company Secretary

Derringtons Limited

Hyde Park House

5 Manfred Road

London SW15 2RS