TIDMGV1O
RNS Number : 6250X
Gresham House Renewable EnergyVCT1
20 December 2019
GV10
GV1A
20 December 2019
Gresham House Renewable Energy VCT 1 plc
(the "VCT" or the "Company")
Final results for the year ended 30 September 2019
The VCT is pleased to announce its final results for the year
ended 30 September 2019.
The Company's Annual Report and Financial Statements for the
year ended 30 September 2019 are linked to this announcement
http://www.rns-pdf.londonstockexchange.com/rns/6250X_1-2019-12-20.pdf,
available on the Company's website at:
https://greshamhouse.com/real-assets/new-energy/gresham-house-renewable-energy-vct-1-plc/
and can be found at www.morningstar.co.uk/uk/NSM.
LEI: 213800IVQHJXUQBAAC06
SHAREHOLDER INFORMATION
SHARE PRICE
The VCT's share prices can be found on various financial
websites with the following TIDM/EPIC codes:
Ordinary Shares 'A' Shares
TIDM/EPIC codes GV10 GV1A
Latest share price
(13 December 2019) 104.0p per share 5.05p per share
SELLING SHARES
The VCT has a policy of buying Shares that become available in
the market if liquidity and regulatory constraints permit. The VCT
is not currently buying in Shares as it seeks to make new VCT
Qualifying investments. The Board reviews the buyback policy from
time to time and may make changes if it considers that to be in the
best interests of Shareholders as a whole.
The VCT is only able to make market purchases of shares, so
Shareholders will need to use a stockbroker to sell any shares.
Disposing of shares is likely to have significant tax implications,
so Shareholders are urged to contact their independent financial
adviser before making a decision. If you are considering selling
your shares or wish to buy shares in the secondary market, please
contact the VCT's Corporate Broker, Panmure Gordon (UK) Limited
("Panmure"). Panmure can be contacted as follows:
Chris Lloyd
0207 886 2716 chris.lloyd@panmure.com
Paul Nolan
0207 886 2717 paul.nolan@panmure.com
FINANCIAL CALAR
17 March 2020 Annual General Meeting
May 2020 Announcement of half yearly financial results
December 2020 Annual dividend paid
DIVIDS
Dividends will be paid by the registrar on behalf of the VCT.
Shareholders who wish to have dividends paid directly into their
bank account, rather than by cheque to their registered address,
and did not complete these details on their original application
form can complete a mandate form for this purpose. Queries relating
to dividends, shareholdings and requests for mandate forms should
be directed to the VCT's registrar, Link Asset Services, on 0871
664 0300 (calls cost 12p per minute plus network extras, lines open
9:00 a.m. to 5:30 p.m. Monday to Friday), or by writing to them at
The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. Mandate
forms can also be downloaded from Link's website (see below).
NOTIFICATION OF CHANGE OF ADDRESS
Communications with Shareholders are mailed to the registered
address held on the share register. In the event of a change of
address or other amendment this should be notified to the VCT's
registrar, Link Asset Services, under the signature of the
registered holder.
OTHER INFORMATION FOR SHAREHOLDERS
Up-to-date VCT information (including financial statements,
share prices and dividend history) is available on the Investment
Adviser's website at:
https://greshamhouse.com/real-assets/new-energy/
If you have any queries regarding your shareholding in Gresham
House Renewable Energy VCT1 plc, please contact the registrar on
the above number or visit Link's website at
www.linkassetservices.com and click on "Shareholders and Investors"
and then "Shareholder Services UK".
COMPANY INFORMATION
REGISTERED NUMBER
07378392
DIRECTORS
Gill Nott (Chairman)
Stuart Knight
Duncan Grierson
David Hunter (appointed 18 September 2019)
COMPANY SECRETARY AND REGISTERED OFFICE (UP TO 30 OCTOBER
2019)
Grant Whitehouse
6th Floor, St. Magnus House
3 Lower Thames Street
London EC3R 6HD
COMPANY SECRETARY AND REGISTERED OFFICE (FROM 30 OCTOBER 2019
ONWARDS)
JTC (UK) Limited
The Scalpel, 18th Floor
52 Lime Street
London EC3M 7AF
INVESTMENT ADVISER
Gresham House Asset Management Limited
5 Cheapside
London EC2V 6AA
Tel: 020 3837 6270
www.greshamhouse.com
ADMINISTRATION MANAGER
(UP TO 22 MAY 2019)
Downing LLP
6th Floor, St. Magnus House
3 Lower Thames Street
London EC3R 6HD
Tel: 020 7416 7780
www.downing.co.uk
ADMINISTRATION MANAGER (FROM 22 MAY 2019 ONWARDS)
JTC (UK) Limited
The Scalpel, 18th Floor
52 Lime Street
London EC3M 7AF
Tel: 020 7409 0181
www.jtcgroup.com
AUDITOR
BDO LLP
150 Aldersgate Street
London EC1A 4AB
VCT STATUS ADVISERS
Philip Hare & Associates LLP
Hamilton House
1 Temple Avenue
London EC4Y 0HA
REGISTRARS
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Tel: 0871 664 0300
(calls cost 12p per minute plus network extras, lines open
9:00 a.m. to 5:30 p.m. Monday to Friday)
www.linkassetservices.com
SOLICITORS
Dickson Minto
Broadgate Tower
20 Primrose Street
London EC2A 2EW
BANKERS
Royal Bank of Scotland plc
London Victoria Branch
119/121 Victoria Street
London SW1E 6RA
CORPORATE BROKER
Panmure Gordon (UK) Limited
One New Change
London EC4M 9AF
INVESTMENT OBJECTIVES
Gresham House Renewable Energy VCT1 plc (the "VCT", formerly
Hazel Renewable Energy VCT1 plc) is a Venture Capital Trust
established under the legislation introduced in the Finance Act
1995. The VCT's principal objectives are to:
- Invest in a portfolio of portfolio of clean technology and
environmentally sustainable investments, primarily in the UK and
the EU, that have attractive income and growth characteristics,
with investments in existing asset-backed renewable generation
projects as the core of the portfolio;
- maximise tax free capital gains and income to Shareholders
from dividends and capital distributions; and
- maintain VCT status to enable Shareholders to retain their 30%
income tax relief on investment.
The detailed investment policy adopted to achieve the investment
objectives is set out in the Strategic Report on 20 to 26.
FINANCIAL HIGHLIGHTS*
30 September 30 September
2019 2019
Pence Pence
Net asset value per Ordinary Share 117.1 120.2
Net asset value per 'A' Share 0.1 0.1
Cumulative Dividends paid 45.5 39.5
---------------------------------------- ------------ ------------
Total return per Ordinary Share and 'A'
Share 162.7 159.8
---------------------------------------- ------------ ------------
* The above financial highlights are considered to be
Alternative Performance Measures, further details on how these are
calculated have been included in the Strategic Report under the Key
Performance Indicators section.
VCT1 SHARE PRICE TOTAL RETURN
The graph below represents the VCT's performance over the
reporting periods since the VCT's Ordinary Shares and 'A' Shares
were first listed on the London Stock Exchange, and shows share
price total return (share price plus cumulative dividends paid) and
net asset value total return (net asset value plus cumulative
dividends paid) on a dividends reinvested basis.
CASH RETURNED TO SHAREHOLDERS BY DATE OF INVESTMENT
The chart below shows the cash returned to Shareholders based on
the subscription price and the income tax reclaimed on
subscription.
DIRECTORS
Gill Nott (Chairman) spent the majority of the first 27 years of
her career working in the energy sector. In 1994 she became CEO of
ProShare. Due to her work in the retail savings sector, she spent
six years on the Board of the Financial Services Authority from
1998 to 2004. Gill has held a portfolio of non-executive positions,
including roles with a number of VCTs and other closed-end funds,
over the last 15 years. She was also a board member of the AIC from
2004 until 2014. She is currently chairman of JP Morgan Russian
Securities plc, US Solar Fund, Premier Global Infrastructure Trust
plc and PGIT Securities 2020 plc.
Stuart Knight has worked in the financial sector for over twenty
years, securing the position of Principal Partner within the
FTSE100 company, St. James's Place Wealth Management. He is also
one of the founding Partners of Haibun Partners LLP, a financial
intermediary offering a diverse range of investment strategies
addressing the specific requirements of sophisticated
investors.
Duncan Grierson has more than 20 years' experience as an
entrepreneur and investor in technology. He has founded several
businesses in the sustainability sector and raised over $100m in
venture capital from investors including Goldman Sachs and
Fidelity. He is Chief Executive of Clim8, a digital platform for
investing into clean energy and a non-executive director of Moixa
Energy, a solar energy storage platform. Previously he was a
managing director of Iona Capital, a fund manager investing in
bio-energy infrastructure projects where he headed up energy tech.
Earlier in his career, he was a venture capital investor with Lake
Capital and TCVC in London, Paris, Silicon Valley and Chicago. He
originally trained as a corporate finance lawyer with Clifford
Chance in London and Frankfurt.
David Hunter qualified as a chartered accountant with PwC before
joining 3i, the FTSE100 listed private equity group where he became
Managing Director of Investment Management responsible for the
entire UK portfolio of assets. David's current interests in venture
and social investment include chairing UCLB plc - University
College London's technology spinout and licensing operation which
is market funded. David also chairs the Audit Committee of Big
Society Capital. In addition, David is a member of the board at
Paragon Asra Housing Association where he chairs the Development
Committee. In the not for profit area, David is a Trustee of both
Age UK and Motability. Past non-executive roles have included
membership of Bridges Ventures' Investment Committee and chair of
the Audit Committee of one of the Baronsmead family of listed
venture capital trusts.
INVESTMENT ADVISER
Gresham House Asset Management Limited ("GHAM") is the
Investment Adviser to Gresham House Renewable Energy VCT1 plc (the
"VCT") and Gresham House Renewable Energy VCT2 plc ("VCT2" and
together the "VCTs"). GHAM is owned by Gresham House plc, an AIM
quoted specialist alternative asset manager providing funds, direct
investments and tailored investment solutions, including
co-investment across a range of highly differentiated alternative
investment strategies. GHAM's expertise includes strategic public
equity and private assets, forestry, renewable energy, housing and
infrastructure.
Gresham House plc acquired the business of Hazel Capital LLP on
31 October 2017. As part of new arrangements within GHAM, the VCTs
sit within the Gresham House New Energy division, benefitting from
continuity of key investment executives plus the enhanced resources
of the larger group.
On 30 November 2018 Gresham House plc also acquired Livingbridge
VC LLP, which manages Baronsmead Venture Trust plc and Baronsmead
Second Venture Trust plc.
CHAIRMAN'S STATEMENT
I am pleased to present the Annual Report of Gresham House
Renewable Energy VCT1 plc for the year ended 30 September 2019.
Overall performance in the year has been good with the underlying
investment portfolio driving revenues slightly above expectations
in the year. Although solar irradiation was strong during the
summer months, some technical issues offset some of the performance
gains that might otherwise have arisen from this year's sunny
weather.
INVESTMENT PORTFOLIO
At the year end, the VCT held a portfolio of 14 investments,
which were valued at GBP29.6 million. There were no additions to
the portfolio during the year, although the VCT successfully exited
its investment in ChargePoint Services in June 2019, returning
total proceeds of GBP546,000 and demonstrating the potential for
selective small investments outside the solar and wind energy
space.
The portfolio is analysed (by value) between the different types
of assets as follows:
Ground-mounted Solar 86.0%
Rooftop Solar 9.9%
Small Wind 4.1%
The Board has reviewed the investment valuations at the year
end, with a particular focus on ensuring the discount factors
applied in the discounted cash flow models are in line with the
industry standard. A 50 basis point reduction was applied to the
discount rate used in the valuation of the assets compared with the
rate used last year, resulting in a range of discount rates from
6.0% to 6.75% used across the portfolio (2018: 6.5% to 7.25%). This
reflects the reduction noted in the risk free rate used in
valuations in the market and resulted in net unrealised gains on
the portfolio totaling GBP1.3 million.
Further detail on the investment portfolio is provided in the
Investment Adviser's Report on pages 7 to 12.
NET ASSET VALUE AND RESULTS
At 30 September 2019, the Net Asset Value ("NAV") per Ordinary
Share stood at 117.1p and the NAV per 'A' Share stood at 0.1p,
producing a combined total of 117.2p per "pair" of Shares. This
represents an increase of 2.9p (2.4%) before the deduction of
dividends. Following the dividend payment of 5.4965p per Ordinary
Share and 0.5035p per 'A' Share in December 2018, this has resulted
in an overall decrease of 3.1p (2.6%) per share.
Total dividends paid to date for a combined holding of one
Ordinary Share and one 'A' Share stand at 45.5p. Total Return (NAV
plus cumulative dividends) has increased by 1.8% in the last year
and now stands at 162.7p, compared to the cost to investors in the
initial fundraising of GBP1.00 or 70.0p net of income tax
relief.
The profit on ordinary activities after taxation for the year
was GBP808,000, comprising a revenue loss of GBP411,000 and a
capital gain of GBP1,219,000 as shown in the Income Statement on
page 40.
DIVIDS
In the prior year, the VCT began paying its annual dividend in
December as this better synchronises with the income generated by
the assets held by the portfolio companies.
On 21 November 2019, the Board declared dividends in respect of
the year ended 30 September 2019 of 5.3133p per Ordinary Share and
0.4867p per 'A' Share. These dividends will be paid on 20 December
2019 to Shareholders on the register at 29 November 2019.
FUNDRAISING AND INVESTMENT ACTIVITIES
Changes to the VCT regulations over the last few years have
created some challenges for your VCT. With effect from 1 October
2019 for this VCT, the required level of qualifying investments the
VCT must hold increased from 70% to 80%. In addition, at least 30%
of gross funds raised from 1 October 2018, for this VCT, must be
invested into qualifying assets within 12 months of the end of the
financial year in which they are raised.
The Board considered how it might best ensure that the VCT
complied with all of the qualification tests and considered that a
further fundraise, in order to invest in new qualifying
investments, would be the most appropriate course of action.
In March 2018, the VCT undertook a small top-up offer for
subscription. This offer sold out very quickly raising GBP2.5
million for the VCT and GBP1.7 million for VCT2. In view of the
level of demand a further top-up was launched in September. This
offer also sold out in short time, raising GBP3.2 million alongside
GBP4.0 million for VCT2. For your VCT, a total of 4,502,295
Ordinary and 5,159,175 'A' Shares were issued in respect of the
offers.
These new funds provide the opportunity for the VCT to make a
small number of new VCT qualifying investments and provide the VCT
with some additional flexibility that will help it to maintain the
new 80% qualification threshold. In October 2019, the VCT invested
a portion of this funding into Bio-bean Limited, a company that
recycles used coffee grounds into efficient, sustainable products
for both consumer and industrial applications.
It is envisaged that the new investments, which must meet all of
the VCT regulations including the type of business, size, age and
the risk to capital test, will be different from the assets in
which the VCT is currently invested. As stated in the top up offer
document, the Investment Adviser is looking for companies within
the clean technology space, which offer the prospect of maximising
returns for Shareholders, through them having a good management
team, an excellent business plan and significant growth potential.
The VCT may also invest in companies quoted on AIM.
SHARE BUYBACKS
The Board has decided that the VCT will not be buying in Shares
for the foreseeable future as highlighted in the Interim Results,
as the VCT seeks to make new VCT Qualifying investments under the
more stringent rules introduced in November 2017.
The Board is however aware that from time to time some
Shareholders may wish to realise part or all of their investment
and has therefore taken steps to try to ensure that there is a
liquid market in the VCT's shares.
During the first half of the financial year, the VCT purchased a
total of 264,048 Ordinary Shares at an average price of 111.7p per
Share, and a total of 264,048 'A' Shares at an average price of
0.1p. These Shares are held in treasury.
Shareholders considering selling their Shares should contact the
broker for the VCT, whose details are shown on the Shareholder
Information page.
BOARD COMPOSITION
The Board comprises four Non-executive directors with a broad
range of experience, and we continue to work closely with the Board
of the sister company, VCT2.
During the year the Board was pleased to welcome David Hunter to
the Board and as Chairman of the Audit Committee. David has
extensive VCT experience and was previously the audit committee
Chairman of Baronsmead VCT 5.
ANNUAL GENERAL MEETING
The VCT's ninth AGM will be held at The Scalpel 18th Floor, 52
Lime Street, London EC3M 7AF at 12:00 p.m. on
17 March 2020.
Three items of special business will be proposed as follows:
- one resolution seeking authority to undertake share buybacks;
and
- two resolutions seeking authority to allow the Directors to
allot shares and disapply pre-emption rights in respect of those
shares (including shares held in treasury).
OUTLOOK
The long-term outlook for the portfolio as a whole looks
positive, with returns from the installed base of assets expected
to continue to generate steady cash flows.
I look forward to meeting those investors that are able to
attend the forthcoming AGM in March. Meanwhile, I would encourage
you to take a look at the Gresham House website
(greshamhouse.com/real-assets/new-energy/) where you can find all
of the information regarding the VCT and where, from time to time,
the Investment Adviser will be publishing updates on the
performance of the VCT.
GILL NOTT
CHAIRMAN
19 December 2019
INVESTMENT ADVISER'S REPORT
PORTFOLIO HIGHLIGHTS
The portfolio of assets owned by Gresham House Renewable Energy
VCT1 plc (the "VCT", formerly Hazel Renewable Energy VCT1 plc)
continued to perform slightly ahead of expectations in the year to
30 September 2019 from a financial perspective. The VCT remains
principally invested in a diversified portfolio of well-constructed
renewable energy projects that access long-term UK
government-backed Feed-in-Tariff (FiT) and Renewable Obligation
Certificate (ROC) support mechanisms which provide revenues
predominantly linked to the Retail Price Index (RPI). In addition,
the VCT successfully divested its investment in ChargePoint
Services during the year and made a new investment in Bio-bean
Limited after the year end. The Investment Adviser continues to
seek to maximise the value of the existing portfolio whilst also
looking to source, identify and screen suitable new qualifying
investments, consistent with the original mandate of maximising
capital gains and income for Shareholders, but also complementing
the portfolio's core holdings of investments into assets that
generate renewable energy.
Portfolio revenues were 1.66% ahead of forecast for the year.
Better than expected sale prices for power generated by assets in
the portfolio was the main contributing factor for revenues beating
forecasts.
The overall picture for generation is very similar to that for
the year ending 30 September 2018, with positive solar irradiation
boosting performance for ground-mounted solar assets, but with that
effect counterbalanced by a deterioration of technical performance
both due to heat (which reduces the efficiency of solar
photovoltaic panels) and also the age of the fleet. The performance
of the roof-mounted installations fell short, as it did last year,
due primarily to difficulties in getting access to a growing
portion of the properties with faulty installations.
The total generation capacity of assets owned by the VCT is
34.9MWp (see table below).
The VCT raised GBP5.7 million of additional funds in 2018 via
two top-up offers. The VCT made a new investment using these funds
in October 2019. The VCT invested GBP0.6 million, alongside GBP0.6
million from Gresham House Renewable Energy VCT2 plc, into Bio-bean
Limited, the world's largest recycler of waste coffee grounds.
Bio-bean extracts value from waste coffee grounds by converting
them into clean burning fuels, thus avoiding the negative
environmental impact of incineration or deposition in
landfills.
The payment of an annual dividend of 5.8p (5.3133p per Ordinary
Share and 0.4867p per 'A' Share) was announced on 21 November 2019,
and this will be paid on 20 December 2019.
PORTFOLIO COMPOSITION
Portfolio Composition by Asset Type and Impact on NAV
------------------------------------------------------------------------------
Asset Type kWp Portfolio Value % of Portfolio Value
------- ---------------- ---------------------
Ground-mounted Solar (FiT) 20,291 GBP22,387,074 75.7%
------- ---------------- ---------------------
Ground-mounted Solar (ROC) 8,699 GBP3,043,689 10.3%
------- ---------------- ---------------------
Rooftop Solar 4,425 GBP2,920,601 9.9%
------- ---------------- ---------------------
Wind Assets 1,435 GBP1,220,741 4.1%
------- ---------------- ---------------------
TOTAL 34,850 GBP29,752,105 100.0%
------- ---------------- ---------------------
The 34.8MWp of renewable energy projects in the portfolio
generated 33,250,203 kilowatt-hours of electricity over the year,
sufficient to meet the annual electricity consumption of c.9,600
homes.
PORTFOLIO SUMMARY
The solar projects within the portfolio (ground and roof-mounted
installations) which comprise 33.4MWp, accounted for 97.7% of the
generation output performance. These assets performed slightly
under expectations (0.99% less) during the year (0.08% below in the
year ending 30 September 2018). The assets accounted for 95.9% of
the Investment Portfolio Value.
While overall output performance was slightly below our
expectations, generation versus forecast levels varied
significantly over the 12-month period. The financial year started
with a very sunny October, which led to an unusually dark November
to January period. From January onwards, sunshine was stronger than
forecast, with the notable exception of a very wet month in June.
The sunny months of May, July and August were hotter than usual,
which offset the impact of the good sunshine as the efficiency of
solar PV systems suffers in higher temperatures.
The eight ground-mounted solar installations, which have a total
generation capacity of 29.0MW, accounted for 87.4% of the
electricity generated, which was 0.29% below forecasts (0.33% above
in the year ending 30 September 2018). This segment accounts for
86.0% of the Investment Portfolio Value.
The roof-mounted solar asset portfolio which has capacity of
4.42MWp, accounted for 9.9% of the Investment Portfolio Value and
10.3% of the total electricity generated. This performance was 6.4%
below expectations (3.4% below in the year ending 30 September
2018).
The small wind turbines, which have total generation capacity of
1.43MWp, accounted for 4.1% of the Investment Portfolio Value and
2.3% of the total electricity generated. This segment continued to
meet expectations that were previously downgraded to account for
the Huaying HY-5 turbines which were decommissioned in spring 2017
due to mechanical problems. Some of those turbines were
recommissioned in the spring and summer this year, but the low wind
conditions over this period meant that the effect of the additional
generation was not significant.
In revenue terms, the electricity generated by the entire asset
base earned GBP11.4 million in the year which was 1.66% ahead of
forecasts. GBP11.1 million of this amount was generated by the
solar ground-mounted and rooftop assets and the remainder by the
small wind turbine portfolio.
Portfolio Revenues by Asset Type (GBP Sterling)
--------------------------------------------------- --------------- --------------------
Asset Type Forecast Revenue Actual Revenue Revenue Performance
------------------ --------------- --------------------
Ground-mounted Solar (FiT) 8,536,545 8,714,531 102.08%
------------------ --------------- --------------------
Ground-mounted Solar (ROC) 1,178,675 1,244,842 105.61%
------------------ --------------- --------------------
Rooftop Solar 1,182,138 1,141,991 96.60%
------------------ --------------- --------------------
Wind Assets 290,000 271,216 93.52%
------------------ --------------- --------------------
TOTAL 11,187,358 11,372,580 101.66%
------------------ --------------- --------------------
The portfolio benefited from higher than forecast power prices
(including the recycling component of the Renewable Obligation
Certificates (ROCs)) and irradiation, however surrendered slightly
over half of the combined benefit to lost production from the heat
effect and other technical factors, as well as lower than forecast
inflation.
A kilowatt-hour (kWh) generated by a ground-mounted solar asset
earned 34.3p on average, whereas a kWh generated by a wind turbine
earned an average of 35.5p.
By asset type, 87.4% of revenues (being 78.7% FiT, 7.2% ROC,
1.5% Export Fixed as set out in the chart below) were RPI-linked
while 9.4% came from the sale of power (Export Variable), now under
variable market rates.
The FiT-remunerated ground-mounted solar assets earn FiTs as
well as income from the sale of power in the wholesale market.
These assets accounted for 76.6% of the portfolio level income,
whereas the ROC-remunerated ground-mounted solar assets, that earn
ROCs and variable export revenues, accounted for 10.9%, and the
roof-mounted solar assets that earn FiTs and fixed export tariffs
accounted for 10.0%.
OVERALL PORTFOLIO AND OPERATIONAL REVIEW
The analysis of performance is based on three pillars, as in
prior years. The first covers macro factors including inflation,
power prices, variable components of subsidies and climactic
conditions. The second category covers technical performance, and
the third category covers costs.
MACRO
Solar irradiation was 2.6% ahead of forecasts on a
capacity-weighted basis, which was lower than the 7.3% figure
achieved the year before. Project by project, measurements varied
between 99.6% and 108.5% of forecast levels for the eight
ground-mounted solar projects in the portfolio. Each 1.0% change,
in absolute terms, in irradiation for this portfolio results in a
GBP111,000 movement in revenues.
The portfolio's revenues were helped by inflation as both FiT
and ROC payments are index-linked to the RPI. However, FiTs and
ROCs increased in price by 2.7% on 1 April 2019 versus the 3.0%
forecast level. The RPI has drifted down from these levels over
2019 and is now below the 3.0% level currently implied by the
financial markets and used in long-term forecasts. For every 1.0%
increase in inflation, in absolute terms, portfolio revenues rise
by GBP99,400.
The UK government has used various policy incentives to
encourage the development of new facilities to generate renewable
energy. The Renewables Obligation put an obligation on suppliers of
electricity to get an increasing proportion of their electricity
from renewable sources. Renewable energy generators were issued
with Renewable Obligation Certificates ("ROCs") for generating
renewable electricity. A renewable generator therefore has two
sources of income: income generated from the sale of electricity to
the wholesale market (which does not distinguish between renewable
and non-renewable energy) and income from the sale of ROCs. Feed-In
Tariffs ("FITs") was another subsidy regime, aimed at increasing
microgeneration schemes of 5 MW or smaller, which allowed schemes
to apply for either FITs or ROCs (but not both). Under the FIT,
schemes are paid for generating renewable energy and they can elect
either to sell the energy produced at market rates or they can
accept a specified export tariff.
Each project owned by the VCTs elected to the relevant FIT or
ROC regime at the time, given the prevailing incentives (which
changed based on when the system was commissioned). Each project
therefore earns a different price per kW on electricity
generated.
TECHNICAL PERFORMANCE
The ground-mounted solar asset base (FIT and ROC) achieved over
99% of its target level of generation overall. The strong solar
irradiation in the summer months was offset by the temporary but
negative effect on panel performance of the high ambient
temperatures on the surfaces of the solar panels. This effect is
expected in solar power generation but can be exacerbated by the
particular design of the plants. Designs with higher vulnerability
to heat are encountered more often for plants built in 2011 and
2012; the early years of the UK solar construction cycle. Two of
the portfolio's assets fall into this category.
Other technical factors, associated with the age of some of the
components used in the projects, also prevented the ground-mounted
solar asset base from benefiting from the good solar
irradiation.
The current focus is on replacing the old equipment and
redesigning the configuration of Kingston Farm and Lake Farm, the
two ground-mounted solar plants that are most affected by technical
issues related to the age of equipment and the design of the plants
(which were state of the art when built, but now superceded). Any
changes will be consistent with FIT and ROC rules.
It is expected that the Lenders of the debt facility will
consent to the funding of the work from the inverter maintenance
reserves under the debt facility, meaning that no additional
investment by the VCT is required.
Portfolio Technical Performance by Asset Type
-------------------------------------------------- ------------------ ----------------------
Asset Type Forecast Output (w) Actual Output (w) Technical Performance
-------------------- ------------------ ----------------------
Ground-mounted Solar (FiT) 20,632,946 20,115,980 97.49%
-------------------- ------------------ ----------------------
Ground-mounted Solar (ROC) 8,512,809 8,945,197 105.08%
-------------------- ------------------ ----------------------
Rooftop Solar 3,665,432 3,425,028 93.44%
-------------------- ------------------ ----------------------
Wind Assets 820,000 765,364 93.34%
-------------------- ------------------ ----------------------
TOTAL 33,631,187 33,251,569 98.87%
-------------------- ------------------ ----------------------
Generation of the rooftop solar portfolio was 6.6% lower than
forecast. Irradiation cannot be measured at roof-mounted solar
installations as it is not cost effective to install pyranometers.
It is therefore difficult to accurately analyse the reasons for the
shortfall. It is certain however that the biggest factor is that an
average of 6.0% of the installations were offline at the end of the
year and access to properties to conduct repairs is not being
granted by residents of the housing associations on which the
installations are located.
The small wind portfolio performed 6.7% lower than the reduced
expectations following the poor performance from the start of these
projects. Small wind accounts for 4.1% of the portfolio value. The
programme of repair progressed through the year for the Huaying
HY-5 turbines with repairs completed on almost all of the 65
turbines that will be retained (out of the original 92).
OPERATING COSTS
The third factor that determines performance is costs. The vast
majority of the cost base is fixed and/or contracted and includes
rent, business rates, and regular operations and maintenance
(O&M) costs as the major categories.
No changes to O&M arrangements were made during the year, as
the assets are maintained by O&M contractors that offer the
best value-for-money for the scope of services and incentivisation
required (for example, they include penalties for non performance,
which are incentives that are generally hard to secure in the
current market). The 10.1% lower than expected performance at
Kingston Farm will enable the charging of penalties to the O&M
Contractor, and has not been included in the figures above.
The main cost item that shows variability from year-to-year is
repair and maintenance costs. These are closely monitored and
compared with a budget that is set every year. Repair and
maintenance spend involving solar panels and inverters, the key
components of a solar project, is covered by the maintenance
reserves totalling GBP3.0 million that are in place for all the
ground-mounted solar assets and for the majority of the
roof-mounted solar assets.
In addition, there are some one-off costs that were not covered
by reserves such as meter replacements and pigeon-proofing for the
roof-mounted solar assets, and cable replacement for the
ground-mounted solar assets. These costs were within the GBP190,000
budget set for the year.
Business rates charged for the ground-mounted solar assets in
early years were challenged in 2016 with the help of a firm who was
prepared to work on a "no win no fee" basis. The challenge has been
successful, and a net rebate of GBP121,000 has been received. This
is a one-off event and no further challenges are planned.
Finally, a release of GBP193,000 was secured from the debt
facility reserves for the replacement of inverters due to falls in
module prices since the reserves were put in place.
EXITS AND NEW INVESTMENTS
The VCT successfully exited its investment in ChargePoint
Services in June. The investment was structured in the form of
GBP450,000 of senior, secured debt carrying a 9% coupon, and a
GBP55,000 equity investment. ChargePoint Services developed and
operated Electric Vehicle (EV) charging stations and had built a
substantial network of charging points across the country. It also
managed chargers owned by (EU) third parties.
The business was acquired by Engie, a French utility company,
that followed on the heels of other large energy companies such as
Shell and BP who have been acquiring EV charging stations. Through
this deal Engie will add ChargePoint Services' 900 public and
workplace EV charge points, as well as its 20,000 strong customer
base and cloud-based data and control platform.
The exit will generate a total rate of return to shareholders of
11.9% per year based on the initial purchase consideration,
received in June, rising to 13.2% per year if all future tranches
of the purchase consideration, linked to ChargePoint Services'
future performance, are received.
In October 2019, after the year end, the VCT made a new
investment of GBP615,000 into Bio-bean, the world's largest
recycler of waste coffee grounds. This investment represents 15% of
the GBP4 million funding round announced by Bio-bean in April 2019.
The VCT's investment forms the final part of that round, and values
Bio-bean at GBP7.6 million.
The investment, comprising of GBP400,000 of equity and
GBP215,000 of debt, will further enable the company to upgrade and
expand its capacity in order to improve efficiencies and execute
its business plan. Within its business plan Bio-bean is seeking to
achieve both geographical expansion into mainland Europe and to
launch new products in the flavour and fragrance market.
Bio-bean recycles used coffee grounds into efficient,
sustainable products for both consumer and industrial applications.
This includes Coffee Logs, an eco product for wood burners and
stoves that is quickly growing in consumer popularity and is
stocked by several major UK retailers. Bio-bean will now seek to
expand product output considerably by expanding and upgrading its
factory.
The investment will also help Bio-bean, which is currently
UK-based, to apply its successful model for recycling waste coffee
grounds into mainland Europe, working in co-ordination with various
international partners within Bio-bean's value chain.
There are further new investments that are currently being
evaluated in detail, with at least one of those likely to be
completed within the first half of next year.
PORTFOLIO VALUATION
The Net Asset Value of the portfolio is impacted by the
valuation of future projected cash flows generated by the assets,
as well as the cash held by the companies in the portfolio and the
cash held by the VCT. The total return, being the value of the
assets and the cash that has been distributed to Shareholders,
recognises both the value of the portfolio and the value of the
cash that the assets have generated and distributed.
This year's movements in the value of the portfolio are detailed
further below. In summary, the performance issues in some of the
assets, outlined previously, has been reflected in lower valuations
of those assets; however this reduction is partially offset by a
reduction in the discount rate used to value the assets. Last year
the assets were valued using discount rates (dependent on the
assets) of 6.50%-7.25%. This year, having seen the discount rates
used in transactions for similar assets, we have reduced the
discount rates to between 6.00% and 6.75%.
The Investment Adviser has observed that discount rates used in
the market have moved down (increasing valuations) in the last year
for all ground-mounted solar assets that benefit from renewables
subsidies, continuing a trend that became apparent the previous
year. The eight ground-mounted solar assets in the portfolio earned
86% of their revenues from fixed tariffs or certificates, and
therefore compare very favourably with assets built in subsequent
years where variable power price exposure can be much more
significant. Furthermore, the GBP3.0 million in maintenance
reserves, which at current market prices is sufficient to replace
as much as 40% of the panels and inverters, and the GBP5.2 million
of cash, albeit restricted under the debt facilities, imply lower
risk to future cashflows. The change to discount rates increased
the valuation of the assets by 4.2p per share.
The valuation was also impacted, by -2.6p per share, by a
downward adjustment to the performance expectations of two of the
oldest ground-mounted solar assets in the portfolio that have high
vulnerability to hot weather conditions, pending replacement of
equipment and redesign work. There has also been a reduction in the
cashflow forecasts of the small wind turbine fleet for reasons of
prudence, the introduction of decommissioning costs for the small
wind turbine fleet, an increase in maintenance capital expenditure
for rooftop assets to reflect the age of the portfolio, and the
fine tuning of inflation assumptions. The combined impact of these
two changes on the NAV per share was -2.4p.
30 September Share 30 September Share
of Portfolio of Portfolio
Value Value
2019 2018
('000) ('000)
------------------------------- ------------ ------------- ------------ -------------
FiT-remunerated ground-mounted
solar projects GBP22,387 75.7% GBP21,686 71.2%
ROC-remunerated ground-mounted
solar projects GBP3,044 10.3% GBP3,140 10.3%
Rooftop solar projects GBP2,920 9.9% GBP3,389 11.1%
Small wind turbines GBP1,221 4.1% GBP1,738 5.7%
ChargePoint Services - 0% GBP500 1.7%
------------------------------- ------------ ------------- ------------ -------------
TOTAL PORTFOLIO GBP29,572 100% GBP30,453 100%
------------------------------- ------------ ------------- ------------ -------------
Other net assets/liabilities GBP350 GBP(223)
------------------------------- ------------ ------------- ------------ -------------
TOTAL NAV GBP29,922 GBP30,230
------------------------------- ------------ ------------- ------------ -------------
NAV per share (Ordinary and A
combined) 117.1p 120.2p
------------------------------- ------------ ------------- ------------ -------------
Inflation as measured by the RPI has drifted below the 3.0%
level used in our long-term forecasts since May. However, inflation
expectations implied by the pricing of publicly-traded UK
Government gilts have remained above 3.0% which justifies the
approach of keeping forecasts largely the same as last year.
All other key assumptions for the revenues and operating costs
of the projects remain the same as they were last year.
During the year, landowners of four ground-mounted solar
projects were approached to discuss extending the site leases, in
order to extend the current 25-year life of these assets. There is
the potential to create additional value through the extension of
land leases beyond their current 25-year term and through upgrading
the equipment using improved technology with much better yields.
However, the fact that projects will, at that point in time, be
entirely dependent on variable power prices, with no benefits of a
subsidy, means that the value equation is very sensitive to the
level of rent that the landowners require. Thus far, all landowners
are sticking to the current rent levels, which make extensions
uneconomical for all but one project. Negotiations are ongoing, and
it is expected that, with time and more precedents in the form of
actual new agreements achieved, rent expectations will decline.
OUTLOOK
The Investment Adviser will continue to target improvements in
yield and reductions in risk across the portfolio, and to evaluate
incremental maintenance capital expenditure and replacement
decisions where these can be justified in economic terms. The
Investment Adviser is applying knowledge gained on each site to
other similar sites in the portfolio.
Another key focus will be the continued deployment of funds
raised under the top-up, for which there are advanced opportunities
in the pipeline to complete the deployment. As stated in the top-up
prospectus, asset-backed renewable energy generation investments
are no longer qualifying under current VCT rules. Consideration is
being given to companies in the clean technology space that have
already secured funding from Venture Capital firms, companies
listed on the UK's AIM market and companies that are active in key
areas of growth such as recycling and waste management, generation
asset optimisation and information services.
The investment process has been enhanced by Gresham House plc's
acquisition of the two Baronsmead VCTs previously managed by
Livingbridge VC LLP. The addition of eight specialist investment
and research professionals covering both public and private market
opportunities has provided broader coverage and increased deal flow
when investing the top-up funds. The two teams are jointly working
on a significant new investment.
GRESHAM HOUSE ASSET MANAGEMENT LIMITED
19 December 2019
REVIEW OF INVESTMENTS
PORTFOLIO OF INVESTMENTS
The following investments were held at 30 September 2019:
Valuation
movement
Qualifying and part-qualifying Cost Valuation in year % of
investments Operating sites Sector GBP'000 GBP'000 GBP'000 portfolio
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
South Marston, Ground-mounted
Lunar 2 Limited* Beechgrove solar 1,330 16,458 2,166 53.8%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Kingston Farm, Ground-mounted
Lunar 1 Limited* Lake Farm solar 125 2,635 30 8.6%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Ayshford Solar (Holding) Ground-mounted
Limited* Ayshford Farm solar 1,308 2,153 25 7.0%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Wychwood Solar Ground-mounted
New Energy Era Limited Farm solar 884 1,815 102 5.9%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Ground-mounted
Vicarage Solar Limited Parsonage Farm solar 871 1,478 47 4.8%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Gloucester Wind Limited Gloucester Wind Roof Solar 1,000 1,015 (32) 3.4%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Hewas Solar Limited Hewas Solar Roof Solar 1,000 954 (263) 3.1%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Tumblewind Limited* Priory Farm Small Wind/Solar 1,231 891 (122) 2.9%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
HRE Willow Limited HRE Willow Small Wind 875 675 (200) 2.2%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
St Columb Solar Limited St Columb Solar Roof Solar 650 588 (6) 1.9%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Minsmere Power Limited Minsmere Small Wind/Solar 975 374 (156) 1.2%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Penhale Solar Limited Penhale Solar Roof Solar 825 364 (165) 1.2%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Small Wind Generation
Limited Small Wind Generation Small Wind 975 172 (161) 0.6%
------------------------------- ---------------------- ----------------- -------- --------- --------- ----------
Ground-mounted
Lunar 3 Limited solar 1 - - 0.0%
------------------------------------------------------- ---------------- -------- --------- --------- ----------
12,050 29,572 1,265 96.6%
------------------------------------------------------------------------ -------- --------- --------- ----------
Cash at bank and in
hand 1,046 3.4%
-------------------------------------------------------------------------- -------- --------- --------- ----------
Total investments 30,618 100.0%
-------------------------------------------------------------------------- -------- --------- --------- ----------
* Part-qualifying
investment
All venture capital investments are incorporated in England and
Wales.
Gresham House Renewable Energy VCT2 plc, of which Gresham House
Asset Management Limited ("GHAM") is the Investment Adviser, holds
the same investments as above.
INVESTMENT MOVEMENTS FOR THE YEARED 30 SEPTEMBER 2019
Disposals
Cost at Valuation Additions Redemption Profit Realised
30 September at during of loan vs cost Gain
2018 GBP'000 30 September the notes/sale GBP'000 GBP'000
2018 GBP'000 year proceeds
GBP'000 GBP'000
--------------------------- ------------- ------------- --------- ----------- -------- --------
VCT Qualifying investments
Lunar 2 Limited (Note
1) 1,645 1,645 - 1,645 - -
ChargePoint Services
Limited 500 500 5 546 41 41
--------------------------- ------------- ------------- --------- ----------- -------- --------
2,145 2,145 5 2,191 41 41
--------------------------- ------------- ------------- --------- ----------- -------- --------
Non-qualifying investments
Sunhazel UK Limited 1 - - - (1) (1)
--------------------------- ------------- ------------- --------- ----------- -------- --------
Total 2,146 2,145 5 2,191 40 40
--------------------------- ------------- ------------- --------- ----------- -------- --------
The basis of valuation for the largest investments is set out on
pages 14 to 18.
Note 1: The loan note redemption proceeds of GBP1,645,000 were
not received in cash by the VCT and were instead used to repay a
long-term loan balance between the VCT and Lunar 2 Limited.
Further details of the ten largest investments (by value):
Lunar 2 Limited
Lunar 2 Limited is a holding company of FiT remunerated
ground-mounted solar farms of 5MW (Wiltshire), 4MW (near
Hawkchurch) and 0.64MW (Ilminster, Somerset).
Cost at 30/09/19: GBP1,330,000 Valuation at 30/09/19:
GBP16,458,000
Cost at 30/09/18: GBP2,976,000 Valuation at 30/09/18:
GBP15,937,000
Date of first investment: Dec 2013 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP1,330,000 Proportion of equity held: 50%
Summary financial information Turnover: GBPnil
from statutory accounts*: 30 April 2019 Operating loss:
GBP5,000
(non consolidated) Net liabilities: GBP3,726,000
Lunar 1 Limited
Lunar 1 Limited is a holding company of FiT remunerated
ground-mounted solar farms of 5MW (Wiltshire) and 0.7MW
(Oxfordshire).
Cost at 30/09/19: GBP125,000 Valuation at 30/09/19:
GBP2,635,000
Cost at 30/09/18: GBP125,000 Valuation at 30/09/18:
GBP2,605,000
Date of first investment: Dec 2013 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP125,000 Proportion of equity held: 5%
Summary financial information Turnover: GBPnil
from statutory accounts*: 30 April 2019 Operating loss:
GBP5,000
(non consolidated) Net liabilities: GBP5,461,000
Ayshford Solar (Holding) Limited
Ayshford Solar (Holding) Limited is the holding company of a ROC
remunerated ground-mounted solar farm of 5.5MW near Tiverton,
Devon.
Cost at 30/09/19: GBP1,308,000 Valuation at 30/09/19:
GBP2,153,000
Cost at 30/09/18: GBP1,308,000 Valuation at 30/09/18:
GBP2,128,000
Date of first investment: Mar 2012 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP827,000 Proportion of equity held: 50%
Loan stock: GBP481,000 Proportion of loan stock held: 48%
Summary financial information Turnover: GBP3,000
from statutory accounts*: 30 April 2019 Operating loss:
GBP34,000
(non consolidated) Net assets: GBP747,000
New Energy Era Limited
New Energy Era Limited owns a FiT remunerated solar farm of
0.7MW near Shipton-under- Wychwood, Oxfordshire.
Cost at 30/09/19: GBP884,000 Valuation at 30/09/19: GBP1,815,000
Cost at 30/09/18: GBP884,000 Valuation at 30/09/18: GBP1,713,000
Date of first investment: Nov 2011 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP884,000 Proportion of equity held: 45%
Summary financial information Turnover: GBP347,000
from statutory accounts: 30 April 2019 Operating profit: GBP214,000
Net assets: GBP2,446,000
Vicarage Solar Limited
Vicarage Solar Limited is the holding company of a FiT
remunerated solar farm of 0.7MW near Ilminster, Somerset.
Cost at 30/09/19: GBP871,000 Valuation at 30/09/19:
GBP1,478,000
Cost at 30/09/18: GBP871,000 Valuation at 30/09/18:
GBP1,431,000
Date of first investment: Mar 2012 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP871,000 Proportion of equity held: 45%
Summary financial information Turnover: GBPnil
from statutory accounts*: 30 April 2019 Operating loss:
GBPnil
(non consolidated) Net assets: GBP1,934,000
Gloucester Wind Limited
Gloucester Wind Limited owns a portfolio of FiT remunerated
roof-mounted solar assets located on residential housing stock
across the UK. The total capacity of the solar assets owned by
Gloucester Wind Limited is 1,228kW.
Cost at 30/09/19: GBP1,000,000 Valuation at 30/09/19:
GBP1,015,000
Cost at 30/09/18: GBP1,000,000 Valuation at 30/09/18:
GBP1,047,000
Date of first investment: Apr 2012 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP800,000 Proportion of equity held: 50%
Loan stock: GBP200,000 Proportion of loan stock held:50%
Summary financial information Turnover: GBP212,000
from statutory accounts: 30 April 2019 Operating profit:
GBP70,000
Net assets: GBP1,610,000
Hewas Solar Limited
Hewas Solar Limited owns a portfolio of FiT remunerated
roof-mounted solar assets located on housing stock owned by two
housing associations. The total capacity of the solar assets owned
by Hewas Solar Limited is 1,830kW.
Cost at 30/09/19: GBP1,000,000 Valuation at 30/09/19:
GBP954,000
Cost at 30/09/18: GBP1,000,000 Valuation at 30/09/18:
GBP1,217,000
Date of first investment: Aug 2011 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP1,000,000 Proportion of equity held: 50%
Summary financial information Turnover: GBP571,000
from statutory accounts: 30 April 2019 Operating profit: GBP132,000
Net assets: GBP531,000
Tumblewind Limited
Tumblewind Limited owns a portfolio of FiT remunerated wind
turbines on largely farmer-owned sites located throughout East
Anglia. The total capacity of the wind assets owned by Tumblewind
Limited is 305kW. Tumblewind also owns Priory Solar Farm Limited,
which owns a ROC remunerated solar farm of 3.2MW near
Lowestoft.
Cost at 30/09/19: GBP1,231,000 Valuation at 30/09/19:
GBP891,000
Cost at 30/09/18: GBP1,231,000 Valuation at 30/09/18:
GBP1,012,000
Date of first investment: Nov 2011 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP790,000 Proportion of equity held: 50%
Loan stock: GBP441,000 Proportion of loan stock held: 45%
Summary financial information Turnover: GBP37,000
from statutory accounts: 30 April 2019 Operating loss:
GBP66,000
Net assets: GBP911,000
HRE Willow Limited
HRE Willow Limited owns a portfolio of FiT remunerated wind
turbines on largely farmer-owned sites located throughout East
Anglia. The total capacity of the wind assets owned by HRE Willow
Limited is 515kW.
Cost at 30/09/19: GBP875,000 Valuation at 30/09/19:
GBP675,000
Cost at 30/09/18: GBP875,000 Valuation at 30/09/18:
GBP874,000
Date of first investment: Jun 2011 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP875,000 Proportion of equity held: 44%
Summary financial information Turnover: GBP117,000
from statutory accounts: 30 April 2019 Operating loss:
GBP213,000
Net assets: GBP1,348,000
St Columb Solar Limited
St Columb Solar Limited owns a portfolio of FiT remunerated
roof-mounted solar assets located on housing stock owned by two
housing associations. The total capacity of the solar assets owned
by St Columb Solar Limited is 1,021 kW.
Cost at 30/09/19: GBP650,000 Valuation at 30/09/19:
GBP588,000
Cost at 30/09/18: GBP650,000 Valuation at 30/09/18:
GBP594,000
Date of first investment: Sep 2011 Valuation method: Discounted
cash flows (business)
Investment comprises:
Ordinary shares: GBP650,000 Proportion of equity held: 50%
Summary financial information Turnover: GBP310,000
from statutory accounts: 30 April 2019 Operating profit:
GBP70,000
Net assets: GBP1,136,000
Explanatory notes
The summary financial information has been sourced from the
statutory accounts of the underlying investee companies. The net
asset/liability figures presented therefore do not approximate a
valuation.
The proportion of equity held in each investment also represents
the level of voting rights held by the VCT in respect of the
investment.
Summary of loan stock interest income Year ended Year ended
30 September 30 September
2019 2019
GBP'000 GBP'000
---------------------------------------------- -------------- --------------
Loan stock interest receivable in the period
AEE Renewables UK 3 Limited - 64
Tumblewind Limited 35 41
ChargePoint Services Limited 29 41
Minsmere Power Limited 11 10
Small Wind Generation Limited 11 10
---------------------------------------------- -------------- --------------
86 166
---------------------------------------------- -------------- --------------
STRATEGIC REPORT
The Directors present the Strategic Report for the year ended 30
September 2019. The Board have prepared this report in accordance
with the Companies Act 2006.
BUSINESS MODEL
The VCT acts as an investment company, investing in a portfolio
of businesses within the renewable energy sector and operating as a
VCT to ensure that its Shareholders can benefit from the tax
reliefs available.
BUSINESS REVIEW AND DEVELOPMENTS
The VCT's business review and developments during the year are
set out in the Chairman's Statement, Investment Adviser's Report,
and the Review of Investments.
During the year to 30 September 2019, the investments held
increased in value by GBP1,265,000 and net gains arising on
investment realisations totalled GBP40,000.
Income over expenditure for the year resulted in a net loss,
after accounting for capital expenses, of GBP497,000.
The total profit for the year was GBP808,000 (2018: GBP804,000)
and net assets at the year end were GBP29.9 million (2018: GBP30.2
million). The annual dividend for the year to 30 September 2018 was
paid on 14 December 2018. The annual dividend for the year to 30
September 2019 was announced on 21 November 2019 and will be paid
on 20 December 2019.
The Directors initially obtained provisional approval for the
VCT to act as a Venture Capital Trust from HM Revenue &
Customs. The Directors consider that the VCT has continued to
conduct its affairs in a manner such that it complies with Part 6
of the Income Tax Act 2007.
INVESTMENT ADVISORY AND ADMINISTRATION FEES
Gresham House Asset Management Limited ("Gresham House")
provides investment advisory services to the VCT, at a fee
equivalent to 1.4% of net assets for the twelve months to 6
November 2018, reducing to 1.15% thereafter. The agreement is for a
minimum term of two years, effective from 7 November 2017, with a
nine month notice period on either side thereafter.
The Board has reviewed the services to be provided by Gresham
House and has concluded that it is satisfied with the strategy,
approach and procedures which are to be implemented in providing
investment advisory services to the VCT. The Board is also of the
opinion that the allocation of the investment advisory fee between
capital and revenue of the VCT, as described in Note 2 to the
financial statements, is still appropriate.
On 22 May 2019 the Board engaged JTC (UK) Limited ("JTC") as
Administrator and Company Secretary, replacing Downing LLP. JTC
provides administration and accounting services to the VCT for a
fee of GBP40,000 (plus VAT, if applicable) per annum. It also
provides company secretarial services for a fee of GBP40,000 (plus
VAT, if applicable) per annum. The agreement, effective from 22 May
2019 shall continue in force until determined by either party, with
a six month notice period on either side.
TRAIL COMMISSION
Historically the VCT had an agreement to pay trail commission
annually to Hazel Capital LLP, in connection with the funds raised
under the Offers for subscription. This was calculated at 0.4% of
the net assets of the VCT at each year end. Out of these funds
Hazel Capital LLP was liable to pay trail commission to financial
intermediaries. The trail commission was payable to Hazel Capital
LLP until the earlier of (i) the sixth anniversary of the closing
of the Offers and (ii) the Investment Advisory Agreement being
terminated. Upon the appointment of Gresham House as Investment
Adviser on 7 November 2017, the agreement with Hazel Capital LLP
was reissued and the new Investment Manager has agreed to pay
further trail commission to Haibun Partners LLP ("Haibun") and CH1
Investment Partners LLP ("CH1") with an agreement in place
effective 11 July 2019. Payment of trail commission under this
agreement is not deemed to be a related party transaction and is
therefore not disclosed in Note 20 to the financial
statements.
Pursuant to historic financial intermediary arrangements with
Hazel Capital LLP, Haibun, of which Stuart Knight is a Designated
Member, and CH1, of which Matthew Evans (Director of Gresham House
Renewable Energy VCT2 plc) is a Designated Member, will continue to
receive trail commission from Gresham House. The trail commission
payable is equal to 0.15% of the net asset value of the Shares
issued by the VCT and its sister company, Gresham House Renewable
Energy VCT2 plc ("VCT2"), to Haibun and CH1 clients under each of
the 2010, 2012 and 2014 Offers. The amounts payable to Haibun and
CH1 by Gresham House, in aggregate across both the VCT and VCT2,
are as follows:
Year ended 30 September
2019
------------------ ---------------------------
Haibun CH1 Total
GBP GBP GBP
------------------ -------- -------- -------
2010 Offer 23,899 30,953 54,852
2012 Offer 3,092 2,193 5,285
2014 Offer 1,385 2,466 3,851
------------------ -------- -------- -------
Total 28,376 35,612 63,988
------------------ -------- -------- -------
INVESTMENT POLICY
General
The VCT's objectives are to maximise tax free capital gains and
income to Shareholders from dividends and capital distributions by
investing the VCT's funds in:
n a portfolio of clean technology and environmentally
sustainable investments, primarily in the UK and the EU, that have
attractive income and growth characteristics, with investments in
existing asset-backed renewable generation projects as the core of
the portfolio; and
n a range of non-qualifying investments, comprised from a
selection of cash deposits, fixed income funds, securities and
secured loans and which will have credit ratings of not less than A
minus (Standard & Poor's rated)/A3 (Moody's rated). In
addition, as the portfolio of VCT qualifying investments will
involve smaller start-up companies, loans could be made to these
companies to negate the need to borrow from banks and, therefore,
undermine the companies' security within the conditions imposed on
all VCTs under current and future VCT legislation applicable to the
VCT.
Investment strategy
Investee companies generally reflect the following criteria:
n a well-defined business plan and ability to demonstrate strong
demand for its products and services;
n products or services which are cash generative;
n objectives of management and Shareholders which are similarly
aligned;
n adequate capital resources or access to further resources to
achieve the targets set out in its business plan;
n high calibre management teams;
n companies where the Adviser believes there are reasonable
prospects of an exit, either through a trade sale or flotation in
the medium term; and
n a focus on small and long term renewable energy projects that
utilise proven technology.
Asset allocation
During the period the VCT was required to hold 70% of its funds
in VCT qualifying investments. At 30 September 2019, the VCT had a
significant margin over the 70% qualifying holdings requirement,
enabling it to meet the new 80% qualifying holdings requirement
which came into force for this VCT from 1 October 2019. The VCT
aims to maintain a level of up to 90% and therefore its maximum
exposure to qualifying investments will be 90%. The VCT intends to
retain the remaining funds in non-qualifying investments to fund
the annual running costs of the VCT to reduce the risk profile of
the overall portfolio of its fund and to provide investments which
can be realised to fund any follow-on investments in the investee
companies.
It is expected that the VCT shall hold at least eight
investments to provide diversification and risk protection. In
relation to the VCT, no single investment (including most loans to
investee companies) will represent more than 15% of the aggregate
net asset value of its fund save where such investment is in an
investee company which has acquired or is to acquire, whether
directly or indirectly, securities in the following companies: AEE
Renewables UK 3 Limited, AEE Renewables UK 26 Limited, South
Marston Solar Limited, Beechgrove Solar Limited, New Energy Era
Limited and Vicarage Solar Limited.
Risk diversification
The structure of the VCT's funds, and its investment strategies,
have been designed to manage risk as much as possible.
The main risk management features include:
n portfolio of investee companies - the VCT seeks to invest in
at least eight different companies, thereby reducing the potential
impact of poor performance by any individual investment;
n monitoring of investee companies - the Adviser will closely
monitor the performance of all the investments made by the VCT in
order to identify any issues and to enable necessary corrective
action to be taken; and
n the VCT will ensure that it has sufficient influence over the
management of the business of the investee companies, in
particular, through rights contained in the relevant investment
agreements and other Shareholder/constitutional documents.
In respect of the VCT's investment in Lunar 1 Limited and Lunar
2 Limited the VCT has followed the above risk diversification
strategy with regard to their investments in AEE Renewables UK 3
Limited, AEE Renewables UK 26 Limited, South Marston Solar Limited,
Beechgrove Solar Limited, New Energy Era Limited and Vicarage Solar
Limited.
Gearing
It is not intended that the VCT will borrow (other than from
investee companies). However, it will have the ability to borrow up
to 15% of its net asset value save that this limit shall not apply
to any loan monies used to facilitate the acquisition by the VCT,
whether directly or indirectly, of any shares or securities in the
following: AEE Renewables UK 3 Limited, AEE Renewables UK 26
Limited, South Marston Solar Limited, Beechgrove Solar Limited, New
Energy Era Limited and Vicarage Solar Limited.
The VCT has ensured that Lunar 1 Limited and Lunar 2 Limited has
borrowed no more than 90% of their respective net asset values to
facilitate the acquisition, whether directly or indirectly, of any
shares or securities in the following: AEE Renewables UK 3 Limited,
AEE Renewables UK 26 Limited, South Marston Solar Limited,
Beechgrove Solar Limited, New Energy Era Limited and Vicarage Solar
Limited.
The long-term creditors shown on the Balance Sheet represent
amounts owed to investee companies, which the Board expect to be
repaid in the future by way of dividends from these companies.
Following the 2018 AGM the articles of the VCT were amended such
that amounts borrowed from investee companies are now excluded from
the calculation of the 15% borrowing restriction.
As at 30 September 2019, the VCT had the ability to borrow
GBP4.5 million in accordance with the articles, and had actual
borrowings of GBPnil. As at 30 September 2018 the VCT had the
ability to borrow GBP4.5 million in accordance with the articles,
and had actual borrowings of GBPnil.
Listing rules
In accordance with the Listing Rules:
(i) the VCT may not invest more than 10%, in aggregate, of the
value of the total assets of the VCT at the time an investment is
made in other listed closed-ended investment funds except listed
closed-ended investment funds which have published investment
policies which permit them to invest no more than 15% of their
total assets in other listed closed-ended investment funds;
(ii) the VCT must not conduct any trading activity which is
significant in the context of the VCT; and
(iii) the VCT must, at all times, invest and manage its assets
in a way which is consistent with its objective of spreading
investment risk and in accordance with its published investment
policy set out in this document. This investment policy is in line
with Chapter 15 of the Listing Rules and Part 6 of the Income Tax
Act.
The Listing Rules have been complied with for the year ended 30
September 2019.
DIRECTORS AND SENIOR MANAGEMENT
The VCT has four Non-executive Directors, comprising one female
and three males. The VCT has no employees.
KEY PERFORMANCE INDICATORS
At each Board meeting, the Directors consider a number of
performance measures to assess the VCT's success in meeting its
objectives. The Board believes the VCT's key performance indicators
are Net Asset Value (NAV) Total Return and dividends per share.
These are defined as follows:
Net Asset Value Total Return: the sum of NAV per Ordinary Share,
NAV per 'A' Share and cumulative dividends paid.
Net Asset Value per Ordinary Share: The closing total net asset
position of the VCT as at the reporting date less the total par
value of all 'A' Shares in issue at the reporting date divided by
the total number of Ordinary Shares in issue at the reporting
date.
Net Asset Value per 'A' Share: Par value per 'A' Share.
Cumulative dividends paid: The gross total of all dividends paid
for both Ordinary and 'A' Shares from inception up to the reporting
date.
The VCT aims to increase NAV Total Return each year. As at 30
September 2019, NAV Total Return was 162.7p per share; representing
an increase of 1.8% (2.9p per share) since 30 September 2018 (NAV
Total Return of 159.8p) which the Directors believe meets the
objective
The VCT's dividend policy is to distribute surplus funds
generated by the underlying investments, subject to maintaining an
appropriate cash reserve within the VCTs to meet anticipated future
requirements. The VCT has an objective of paying dividends of 5p
per share per annum. In the year ended 30 September 2019, the VCT
paid a dividend of 6p per share, therefore exceeding this KPI.
The position of the VCT's Net Asset Value Total Return as at 30
September 2019 is shown on page 3. A Summary of dividends per Share
is shown on page 47.
BREXIT
There continues to be uncertainty surrounding Brexit, which has
deflated Sterling thus far, and has the potential to impose
restrictions on the free movement of people and goods. However, as
the VCT has, to date, invested solely in UK assets which generate
revenues from contracts with parties based in the UK, the Board and
Investment Adviser believe that, subject to major economic
disruption taking place, the potential impact of Brexit on the VCT
is limited.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal financial risks faced by the VCT, which include
interest rate, market price, investment valuation, credit and
liquidity risks, are summarised within Note 17 to the financial
statements.
Note 17 includes an analysis of the sensitivity of valuation of
the portfolio to changes in each of the key inputs to the valuation
model.
Other principal risks faced by the VCT have been assessed by the
Board and grouped into the key categories outlined below:
n Underperformance;
n Loss of VCT status;
n VCT Regulations;
n Regulatory and compliance;
n Operational; and
n Economic, political and other external factors.
SCHEDULE OF PRINCIPAL RISKS
The other principal risks faced by the VCT, along with the steps
taken to mitigate these risks, are shown in the table below.
Principal
Risk Context Specific risks Possible impact Mitigation
Investment The VCT holds Poor investment Reduction in The Investment Adviser
Performance investments decisions or the NAV of the has significant experience
in strategy or VCT and the in the renewable energy
unquoted UK poor monitoring, inability of sector. The Investment
businesses in management the VCT to pay Adviser also actively
the and realisation dividends. manages the portfolio,
renewable energy of investments. engaging reputable and
sector. Adverse weather experienced Operations
conditions and Maintenance (O&M)
and/or low contractors. The Board
inflation rates regularly reviews the
resulting in performance of the portfolio,
below forecast alongside the Board of
investment the sister Company.
returns.
----------------------- --------------------- --------------------- ---------------------------------
Loss of The VCT must Breach of any The loss of The VCT Qualification
VCT status maintain continued of the rules VCT status would is actively monitored
compliance with could result result in dividends by the Investment Adviser
the VCT Regulations, in the loss becoming taxable and the Administrator,
which prescribe of VCT status. and new Shareholders who liaise with the designated
a number of tests losing their VCT Status Adviser. The
and conditions. initial tax VCT Status Adviser also
relief. produces twice yearly
reports for the Board.
----------------------- --------------------- --------------------- ---------------------------------
Legislative In recent years, Increasing The VCT is not Both the Investment Adviser
the changes to difficulty able to make and the Administrator
VCT Regulations for the VCT new Qualifying closely monitor developments
have narrowed in making new investments. and attend AIC conferences.
the breadth of Qualifying The VCT may The VCT Status Adviser
permitted investments. investments. not be able also has significant experience
VCTs were established A change in to raise any in this field and works
to encourage government further funds. closely with HMRC.
private individuals policy could Further commentary on
to invest in result in a VCT Status is provided
early stage companies cessation of on page25.
that are considered tax reliefs The Investment Adviser
to be risky and or reduction engages with HMT and industry
have limited of the amount representative bodies
funding options. of tax relief to demonstrate the cost
The state provides available to benefit of VCTs to the
these investors investors which economy in terms of employment
with tax relief. would make generation and taxation
them less attractive revenue.
to investors.
----------------------- --------------------- --------------------- ---------------------------------
Regulatory As a listed entity, Any breaches Reduction in The VCT Secretary and
and the VCT is subject of relevant the NAV of the Administrator have a long
compliance to the UK Listing regulations VCT due to financial history of acting for
Rules and related could result penalties and VCTs. The Board, Investment
regulations. in suspension a suspension Adviser and Administrator
of trading of trading in also employ the services
in the VCT's its Shares, of reputable lawyers,
shares or financial also leading auditors and other advisers
penalties. to loss of VCT to ensure continued compliance
status. with its regulatory obligations.
----------------------- --------------------- --------------------- ---------------------------------
Operational The VCT relies Inferior provision Errors in The VCT, the Investment
on the of Adviser and the
Investment Adviser, these services, Shareholder Administrator engage experienced
Administration thereby leading records, incorrect and reputable service
Manager to providers, the
and other third inadequate mailings, misuse performance of which is
parties to systems of reviewed on an
provide many and controls data, non- annual basis. At the portfolio
of its services. or inefficient compliance with level, technical reviews
At the portfolio and studies are
level, this includes management key legislation, conducted on the assets
the of the loss as appropriate.
O&M contractors VCT's assets of assets, breach The Audit Committee reviews
and its of the Internal
managing the reporting legal duties Control and Corporate
various and Governance
sites. requirements. inadequate Manual on an annual basis.
Service providers, financial reporting. The Directors and the
predominantly A loss of Investor Adviser regularly
the review the service providers
and
registrar, Shareholders' the procedures and policies
hold they have in
Shareholders' personal data. place for preventing cyber
personal data attacks.
and there is
a risk of a
cyber attack
on a provider.
----------------------- --------------------- --------------------- ---------------------------------
Economic, The VCT's investments Retrospective A significant The Investment Adviser
political are heavily exposed changes to negative impact and Board members closely
and to the on monitor policy
other the Feed in Tariff regimes. performance. developments. However,
(FiT) the UK
external and Renewable Government has a general
policy of not
factors Obligation Certificate introducing retrospective
legislation.
(ROC) regimes.
The Investment Adviser
and Board regularly review
the valuation model and
its inputs.
----------------------- --------------------- --------------------- ---------------------------------
VIABILITY STATEMENT
In accordance with Provisions 33 and 36 of the 2019 AIC Code of
Corporate Governance, the Directors have carried out a robust
assessment of the emerging and principal risks facing the VCT that
would threaten its business model, future performance, solvency or
liquidity, and have assessed the prospects of the VCT over a longer
period than the 12 months required by the 'Going Concern'
provision. The Board has conducted this review for a period of five
years from the balance sheet date as developments are considered to
be reasonably foreseeable over this period. This is also the
minimum recommended holding period for new investors.
The five-year review considers the principal risks facing the
VCT, summarised on the previous page, as well as the VCT's cash
flows and VCT monitoring compliance over the period. The five-year
review also makes assumptions about new investment activity,
expenditure, dividends and Share buybacks.
The Board is satisfied that the underlying assets held by the
SPVs have been built to a sufficient quality and there are no
indications that the assets will degrade substantially over the
period. It is also considered highly unlikely that the portfolio
would suffer from such poor irradiation and severe degradation that
it would be unable to generate income over the period. Asset life,
along with the other inputs to the valuation model, are discussed
further in Note 17.
The Board also noted that the SPVs have very good debt cover and
that there are significant cash reserves at the SPV level.
The Directors believe that the VCT is well placed to manage its
business risks successfully. Based on the results, the Board
confirms that, taking into account the VCT's current position and
subject to the principal risks faced by the business, the VCT will
be able to continue in operation and meet its liabilities as they
fall due for a period of at least five years from the balance sheet
date.
DIRECTORS' REMUNERATION
It is a requirement under The Companies Act 2006 for
Shareholders to vote on the Directors' remuneration every three
years, or sooner if the VCT wants to make changes to the policy.
The Directors' remuneration policy for the three-year period from 1
October 2017 is set out on page 30.
ANNUAL RUNNING COSTS CAP
The annual running costs for the year are capped at 3.0% of net
assets; any excess will either be paid by the Investment Adviser or
refunded by way of a reduction of the Investment Adviser's fees.
Annual running costs for the year to 30 September 2019 were 1.9%
(2018: 2.2%) and therefore less than 3.0% of net assets.
PERFORMANCE INCENTIVE
The structure of the 'A' Shares, whereby Management owns one
third of the 'A' Shares in issue (known as the "Management 'A'
Shares"), acts as a Performance Incentive mechanism. 'A' Share
dividends will be increased if, at the end of each year, the hurdle
is met, which is illustrated below:
i) Shareholders who invested under the offer for subscription
receive dividends in excess of 5.0p per Ordinary Share in any one
financial period; and
ii) one Ordinary Share and one 'A' Share has a combined net asset value of at least 100.0p.
The Performance Incentive is calculated each year and is not
based on cumulative dividends paid. This fee is not paid by the
VCT.
A summary of how proceeds are allocated between Shareholders and
Management, before and after the hurdle is met, and as dividends
per Ordinary Share increase is as follows:
Hurdle criteria:
Annual dividend
per
Ordinary Share 0-5p 5-10p >10p
Combined NAV Hurdle N/A >100p >100p
-------------------- ------ ----- -----
Allocation:
Shareholders 99.97% 80% 70%
Management 0.03% 20% 30%
-------------------- ------ ----- -----
As the NAV hurdle was met and the annual dividend to be paid on
20 December 2019 will exceed the dividend hurdle, Management will
receive a Performance Incentive in respect of the year ended 30
September 2019. The Performance Incentive will be equivalent to
0.2586p per Ordinary Share, or approximately GBP66,000 (2018:
0.2528p per Ordinary Share, or approximately GBP65,000). Payment of
the performance incentive fee is not deemed to be a related party
transaction and is therefore not disclosed in Note 20 to the
financial statements.
Pursuant to historic financial intermediary arrangements with
Hazel Capital LLP, Haibun Partners LLP ("Haibun"), of which Stuart
Knight is a Designated Member, and CH1 Investment Partners LLP
("CH1"), of which Matthew Evans (Director of Gresham House
Renewable Energy VCT2 plc) is a Designated Member, will receive a
proportion of the Performance Incentive payments made to Management
by the VCT and its sister company, Gresham House Renewable Energy
VCT2 plc ("VCT2"). Haibun and CH1 will share an amount equal to
approximately 8.0% of the Performance Incentive paid to Management
in respect of the "Management 'A' Shares" issued by the VCT and
VCT2 in connection with the Ordinary Shares issued to Haibun and
CH1 clients under the 2010, 2012 and 2014 Offers. The agreements
were put in place prior to the appointment of Stuart Knight and
Matthew Evans as Directors of the VCT and VCT2 respectively.
VCT STATUS
The VCT has reappointed Philip Hare & Associates LLP
("Philip Hare") to advise it on compliance with VCT requirements,
including evaluation of investment opportunities as appropriate and
regular review of the portfolio. Although Philip Hare works closely
with the Investment Adviser, they report directly to the Board.
Compliance with the VCT regulations for the year under review is
summarised as follows:
Position at
the year ended
30 Sep 19
1. To ensure that the VCT's income in the period has
been derived wholly or mainly (70% plus) from shares
or securities; 99.9%
2. To ensure that the VCT has not retained more than
15% of its income from shares and securities; 0.0%
3. To ensure that the VCT has not made a prohibited Complied
payment to Shareholders derived from an issue of shares
since 6 April 2014;
4. To ensure that at least 70% by value of the VCT's
investments has been represented throughout the period
by shares or securities comprised in qualifying holdings
of the VCT; 84.5%
5. To ensure that at least 70% by value of the VCT's
qualifying holdings has been represented throughout
the period by holdings of eligible shares (disregarding
investments made prior to 6 April 2018 from funds raised
before 6 April 2011); 91.7%
6. To ensure that no holding in any company has at Complied
any time in the period represented more than 15% by
value of the VCT's investments at the time of investment;
7. To ensure that the VCT's ordinary capital has throughout Complied
the period been listed on a regulated European market;
8. To ensure that the VCT has not made an investment Complied
in a company which causes it to receive more than the
permitted investment from State Aid sources;
9. To ensure that since 17 November 2015, the VCT has Complied
not made an investment in a company which exceeds the
maximum permitted age requirement;
10. To ensure that since 17 November 2015, funds invested Complied
by the VCT in another company have not been used to
make a prohibited acquisition; and
11. To ensure that since 6 April 2016, the VCT has Complied
not made a prohibited non-qualifying investment.
The Directors, with the help of the Investment Adviser, actively
monitor and ensure the investee companies have less than GBP5
million state backed financing in a 12-month period listed in order
to remain compliant with the VCT regulations.
VCT Regulation changes
The Government's Autumn 2017 budget outlined further changes to
the VCT regulations resulting from the "Patient Capital Review".
The Board has assessed the impact of such changes, and considers
the following are of the greatest significance to the VCT:
-- With effect from 1 October 2019, the proportion of VCT funds
that must be held in qualifying holdings increased from 70% to 80%;
and
-- At least 30% of the proceeds of the October 2018 Share
issues, along with those of any future Share issues, must be
invested in qualifying companies within 12 months of the end of the
financial year in which they are raised.
The Boards of the VCT and VCT2 are working together, alongside
the Investment Adviser, to meet the new requirements. The Board
feels that the plans in place, as outlined in the Chairman's
Statement, mean that the VCTs are well placed to meet these
criteria in advance of their respective deadlines.
SHARE BUYBACKS
The VCT has a policy of buying Shares that become available in
the market if liquidity and regulatory constraints permit. The VCT
is not currently buying in Shares as it seeks to make new VCT
Qualifying investments. The Board reviews the buyback policy from
time to time and may make changes if it considers that to be in the
best interests of Shareholders as a whole.
During the year the VCT purchased a total of 264,048 Ordinary
Shares at an average price of 111.8p per Share, and a total of
264,048 'A' Shares at an average price of 0.1p. These Shares are
held in treasury.
A special resolution to renew the authority to repurchase Shares
is proposed for the forthcoming AGM.
GREENHOUSE EMISSIONS
Whilst as a UK quoted company the VCT is required to report on
its Greenhouse Gas (GHG) Emissions, as it outsources all of its
activities and does not have any physical assets, property,
employees or operations, it is not responsible for any direct
emissions.
During the financial year, the portfolio generated 33,251,560
kilowatt-hours (kWh) of renewable electricity. In the calendar year
2018, each kWh of electricity generated from fossil fuels in the UK
emitted 450 grams of CO2 (source: Digest of UK Energy Statistics).
This means that electricity produced by the portfolio avoided the
emission of almost 15,000 tonnes of Carbon Dioxide to atmosphere.
This is equivalent to the average car driving approximately 75
million road miles.
ENVIRONMENTAL, SOCIAL AND HUMAN RIGHTS POLICY
The VCT seeks to conduct its affairs responsibly. Where
appropriate, the Board and Investment Adviser take environmental,
social and human rights factors into consideration when making
investment decisions.
FUTURE PROSPECTS
The Board's assessment of the outlook and future strategy of the
VCT are set out in the Chairman's Statement and Investment
Adviser's Report.
By order of the Board
JTC (UK) LIMITED Registered office:
COMPANY SECRETARY The Scalpel, 18th Floor
Company number: 04301763 52 Lime Street
London EC3M 7AF
19 December 2019
REPORT OF THE DIRECTORS
The Directors present the ninth Annual Report and Accounts of
the VCT for the year ended 30 September 2019.
The Corporate Governance Report on pages 32 to 34 forms part of
this report.
SHARE CAPITAL
At the year end, the VCT had in issue 25,515,242 Ordinary Shares
and 38,512,032 'A' Shares. There are no other share classes in
issue.
All shares have voting rights; each Ordinary Share has 1,000
votes and each 'A' Share has one vote. Where there is a resolution
in respect of a variation of the rights of 'A' Shareholders or a
Takeover Offer, the voting rights of the 'A' Shares rank pari-passu
with those of Ordinary Shares.
Pursuant to the articles and subject to a special resolution,
the VCT is able to make market purchases of its own shares, up to a
maximum number of shares equivalent to 14.9% of the total number of
each class of issued shares from time to time.
At the Annual General Meeting ("AGM") that took place on 6 March
2019, the VCT was authorised to make market purchases of its
Ordinary Shares and 'A' Shares, up to a limit of 3,841,114 Ordinary
Shares and 5,777,636 'A' Shares which represented approximately
14.9% of the issued Ordinary Share capital and 'A' Share capital at
the date of the AGM. At the current date, authority remains for
883,596 Ordinary Shares and 2,722,436 'A' Shares. A resolution to
renew this authority will be put to Shareholders at the AGM taking
place on 17 March 2020.
The payment of an annual dividend of 5.8p (5.3133p per Ordinary
Share and 0.4867p per 'A' Share) was announced on 21 November, and
this will be paid on 20 December 2019.
The minimum price which may be paid for an Ordinary Share or an
'A' Share is 0.1p, exclusive of all expenses, and the maximum price
which may be paid for an Ordinary Share or an 'A' Share is an
amount, exclusive of all expenses, equal to 105% of the average of
the middle market quotations.
SUBSTANTIAL INTERESTS
As at 30 September 2019, and the date of this report, the VCT
had not been notified of any beneficial interest exceeding 3% of
the issued share capital.
RESULTS AND DIVIDS Pence Pence
per Ord per 'A'
GBP'000 Share Share
Profit for the
year 808 3.4 -
14 Dec 2018 Dividend 1,612 5.4965 0.5035
20 Dec 2019 Dividend 1,543 5.3133 0.4867
DIRECTORS
The Directors of the VCT during the year and their beneficial
interests in the issued Ordinary Shares and 'A' Shares at 30
September 2019 and at the date of this report were as follows:
As at As at As at
the 30 Sept 30 Sept
date 2019 2018
of
this report
Directors (TBC)
Gill Nott Ord 24,953 24,953 24,953
'A' 24,953 24,953 24,953
Stuart Knight Ord 330,750- 330,750- 420,000
'A' 330,750- 330,750- 420,000
Duncan Grierson Ord 16,635 -
'A' 16,635 -
David Hunter(1) Ord - - -
'A' - - -
(1) David Hunter was appointed as a Director on 18 September
2019.
Gill Nott was appointed as a Director on 1 May 2018 and became
Chairman on this date. She was subsequently re-elected at the 2018
AGM. Stuart Knight was appointed on 31 January 2017 and was
subsequently re-elected at the 2017 AGM. Duncan Grierson was
appointed as a Director on 16 July 2018 and subsequently re-elected
at the 2018 AGM, David Hunter was appointed as a Director on 18
September 2019.
In accordance with the Articles of Association, Stuart Knight
and David Hunter are required to retire at the forthcoming AGM, and
being eligible, offer themselves for re-election.
Gill Nott signed a letter of appointment with the VCT dated 30
April 2018. Duncan Grierson signed a letter of appointment with the
VCT dated 16 July 2018. Stuart Knight signed a letter of
appointment with the VCT dated 31 January 2017. David Hunter signed
a letter of appointment with the VCT dated 18 September 2019. These
agreements are for a period of three years and thereafter are
terminable on three months' notice by either side.
Each Director is required to devote such time to the affairs of
the VCT as the Board reasonably requires.
ANNUAL GENERAL MEETING
The VCT's ninth Annual General Meeting ("AGM") will be held at
The Scalpel, 18th Floor, 52 Lime Street, London EC3M 7AF at 12:00
p.m. on 17 March 2020. The Notice of the Annual General Meeting and
Form of Proxy will be circulated with this Annual Report.
AUDITOR
A resolution proposing the reappointment of BDO LLP will be
submitted at the AGM.
DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Strategic
Report, the Report of the Directors, the Directors' Remuneration
Report and the financial statements in accordance with applicable
law and regulations. They are also responsible for ensuring that
the Annual Report includes information required by the Listing
Rules of the Financial Conduct Authority.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice (United
Kingdom accounting standards and applicable law), including
Financial Reporting Standard 102, the financial reporting standard
applicable in the UK and Republic of Ireland (FRS 102). 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 VCT and of the profit or loss
of the VCT for that period.
In preparing these financial statements the Directors are
required to:
n select suitable accounting policies and then apply them consistently;
n make judgments and accounting estimates that are reasonable and prudent;
n state whether applicable UK accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
n prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the VCT will continue in
business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the VCT's
transactions, to disclose with reasonable accuracy at any time the
financial position of the VCT and to enable them to ensure that the
financial statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the VCT and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
In addition, each of the Directors considers that the Annual
Report, taken as a whole, is fair, balanced and understandable and
provides the information necessary for Shareholders to assess the
VCT's performance, business model and strategy.
DIRECTORS' STATEMENT PURSUANT TO THE DISCLOSURE AND TRANSPARENCY
RULES
Each of the Directors, whose names and functions are listed on
page 4, confirms that, to the best of each person's knowledge:
n the financial statements, which have been prepared in
accordance with UK Generally Accepted Accounting Practice and the
2014 Statement of Recommended Practice, 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the VCT; and
n that the management report, comprising the Chairman's
Statement, Investment Adviser's Report, Review of Investments,
Strategic Report, and Report of the Directors includes a fair
review of the development and performance of the business and the
position of the VCT together with a description of the principal
risks and uncertainties that it faces.
INSURANCE COVER
Directors' and Officers' liability insurance cover is held by
the VCT in respect of the Directors.
WEBSITE PUBLICATION
The Directors are responsible for ensuring the Annual Report and
the Financial Statements are made available on a website. Financial
statements are published on the website of the Investment Adviser
(https://greshamhouse.com/real-assets/new-energy/) in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The Directors' responsibility
also extends to the on-going integrity of the financial statements
contained therein.
CORPORATE GOVERNANCE
The VCT's Corporate Governance statement and compliance with,
and departures from the 2019 AIC Code of Corporate Governance which
has been endorsed by the Financial Reporting Council
(www.frc.org.uk) is shown on page34.
OTHER MATTERS
Information in respect of risk management and risk
diversification has been disclosed within the Strategic Report on
pages 23and 24.
Information in respect of greenhouse emissions which is normally
disclosed within the Report of the Directors has been disclosed
within the Strategic Report on page 26.
EVENTS AFTER THE OF THE REPORTING PERIOD
In October 2019, the VCT along with Gresham House Renewable
Energy VCT2 plc ('VCT2') entered into investment agreements with
Bio-bean Limited whereby the VCT and VCT2 would each purchase
615,384 ordinary shares in Bio-bean Limited as well as loan notes
to the value of GBP215,000 for a total consideration of GBP615,000
each.
Following the period end the VCT will pay dividends in respect
of the year ended 30 September 2019, of 5.3133p per Ordinary Share
and 0.4867p per 'A' Share. These dividends will be paid on 20
December 2019 to Shareholders on the register at 29 November
2019.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO THE AUDITOR
The Directors in office at the date of the report have
confirmed, as far as they are aware, that there is no relevant
audit information of which the Auditor is unaware. Each of the
Directors has confirmed that they have taken all the steps that
they ought to have taken as Directors in order to make themselves
aware of any relevant audit information and to establish that it
has been communicated to the Auditor.
GILL NOTT
CHAIRMAN
19 December 2019
DIRECTORS' REMUNERATION REPORT
ANNUAL STATEMENT OF THE REMUNERATION COMMITTEE
The changes to the Directors' remuneration are outlined in this
report. No major decisions regarding the remuneration policy have
been made, other than the Board changes. For this reason there were
no meetings of the Remuneration Committee in the period.
REPORT ON REMUNERATION POLICY
Below is the VCT's remuneration policy. This policy applies from
1 October 2017. Shareholders must vote on the remuneration policy
every three years, or sooner, if the VCT want to make changes to
the policy. The policy was last approved by Shareholders at the
2017 AGM.
The VCT's policy on Directors' remuneration is to seek to
remunerate Board members at a level appropriate for the time
commitment required and degree of responsibility involved and to
ensure that such remuneration is in line with general market rates.
Non-executive Directors will not be entitled to any performance
related pay or incentive.
Directors' remuneration is also subject to the VCT's Articles of
Association which provide that:
(i) The aggregate fees will not exceed GBP100,000 per annum
(excluding any Performance Incentive fees to which the Directors
may be entitled from time to time); and
(ii) The Directors shall be entitled to be repaid all reasonable
travelling, hotel and other expenses incurred by them respectively
in or about the performance of their duties as Directors.
Agreement for services
Information in respect of the Directors' agreements has been
disclosed within the Report of the Directors on page 27.
Performance Incentive
The structure of 'A' Shares, whereby Management (being staff of
the Investment Adviser) owns one third of the 'A' Shares in issue
(known as the "Management 'A' Shares"), enables a payment, by way
of a distribution of income, of the Performance Incentive to the
Management Team. As the hurdle will be exceeded following the
payment of the interim dividend on 20 December 2019, a Performance
Incentive equivalent to 0.2586p per Ordinary Share will be paid to
Management through the 'A' Share dividend.
Following the year end date, the VCT declared dividends in
respect of the year ended 30 September 2019 of 5.3133p per Ordinary
Share and 0.4867p per 'A' Share. These dividends are due to be paid
on 20 December 2019 to Shareholders on the register as at 29
November 2019.
Directors of the VCT during the year and their beneficial
interests in the issued Ordinary Shares and 'A' Shares at 30
September 2018, 30 September 2019 and at the date of this report
are disclosed within the Report of the Directors on page 27.
ANNUAL REPORT ON REMUNERATION
The Board has prepared this report in accordance with the
requirements of the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (SI2008/410) and the
Companies Act 2006.
Under the requirements of Section 497 of the Companies Act 2006,
the VCT's Auditor is required to audit certain disclosures
contained within the report. These disclosures have been
highlighted and the audit opinion thereon is contained within the
Auditor's Report on pages 35 to 39.
DIRECTORS' REMUNERATION (AUDITED)
Directors' remuneration for the VCT for the year under review
was as follows:
Year Year
Current ended ended
annual fee 30/09/19 30/09/18
GBP GBP GBP
Gill Nott(1) 25,000 30,000(6) 10,440
Stuart
Knight(2) 20,000 20,000 29,497(6)
Duncan
Grierson(3) 20,000 20,000 4,185
David Hunter(4) 22,500 801 n/a
Stephen
Hay(5) n/a n/a 40,267(7)
------- ---------- ----------
87,500 70,801 84,389
======= ========== ==========
(1) Gill Nott was appointed as a Director on 1 May 2018 and
became Chairman on the same date.
(2) Stuart Knight was appointed as a Director on 31 January
2017.
(3) Duncan Grierson was appointed as a Director on 16 July
2018.
(4) David Hunter was appointed as a Director on 18 September
2019.
(5) Stephen Hay retired as a Director on 30 April 2018.
(6) In view of the significant additional work involved in the
integration of the IA into GHAM and the share top up, the Board
agreed, during the year ended 30 September 2018, to pay a one-off
additional fee of GBP5,000 (exclusive of VAT) to Gill Nott and this
was paid during the year ended 30 September 2019.
(7) In view of the significant additional work involved in
evaluating the various options and arriving at the Gresham House
proposals, the Board agreed, during the year ended 30 September
2017, to pay one off additional fees to Stephen Hay and Stuart
Knight, of GBP25,000 (exclusive of VAT) and GBP10,000 (excluding
NI) respectively. These fees were paid during the year ended 30
September 2018.
As set out in the letter to Shareholders dated 16 October 2017,
with effect from 7 November 2017, the basic annual fees of the
Directors increased from GBP20,000 to GBP25,000 for the Chairman
and from GBP15,000 to GBP20,000 for the other Non-Executive
Directors. During the period, David Hunter was appointed Director
and Audit Committee Chair. Prior to this appointment, the Board as
a whole discussed the appropriate fee level and agreed that in
addition to the GBP20,000 per annum, in line with the remuneration
for the other Non-Executive Directors, an additional GBP2,500 per
annum should be paid to account for the responsibilities as Audit
Committee Chair. No other emoluments, pension contributions or life
assurance contributions were paid by the VCT to, or on behalf of,
any Director. The VCT does not have any share options in place.
STATEMENT OF VOTING AT AGM
At the AGM on 6 March 2019, the votes in respect of the
resolution to approve the Director's Remuneration Report were as
follows:
In favour 100%
Against nil votes
Withheld nil votes
At the 2017 AGM, when the remuneration policy was last put to a
Shareholder vote, 99.6% voted for the resolution, showing
significant shareholder support.
RELATIVE IMPORTANCE OF SP ON PAY
The difference in actual spend between 30 September 2019 and 30
September 2018 on Directors' remuneration in comparison to
distributions (dividends and share buybacks) and other significant
spending are set out in the chart below.
2019/2020 remuneration
The remuneration levels for the forthcoming year for the
Directors of Gresham House Renewable Energy VCT1 plc
are expected to be at the current annual fee level, as shown in
the table on page 30.
Performance graph
The graph below represents the VCT's performance over the
reporting periods since the VCT's Ordinary Shares and 'A' Shares
were first listed on the London Stock Exchange, and shows share
price total return and net asset value total return performance on
a dividends reinvested basis. All series are rebased to 100 at 10
January 2011, being the date the VCT's shares were listed.
The Numis Smaller Companies Index has been chosen as a
comparison as it is a publicly available broad equity index which
focuses on smaller companies and is therefore more relevant than
most other publicly available indices.
By order of the Board
Gill Nott
Chairman
19 December 2019
CORPORATE GOVERNANCE
The Board of Gresham House VCT 1 plc has considered the
Principles and Provisions of the 2019 AIC Code of Corporate
Governance (the "AIC Code"). The AIC Code addresses the Principles
and Provisions set out in the UK Corporate Governance Code (the UK
Code), as well as setting out additional Provisions on issues that
are of specific relevance to Gresham House Renewable Energy VCT 1
plc.
The Board considers that reporting against the Principles and
Provisions of the AIC Code, which has been endorsed by the
Financial Reporting Council, provides more relevant information to
shareholders.
The VCT has complied with the Principles and Provisions of the
AIC Code.
The AIC Code is available on the AIC website (www.theaic.co.uk).
It includes an explanation of how the AIC Code adapts the
Principles and Provisions set out in the UK Code to make them
relevant for investment companies.
The Board
The VCT has a Board comprising four Non-executive Directors. The
Chairman is Gill Nott. Gill Nott, Duncan Grierson and David Hunter
are independent from the Investment Adviser. Stuart Knight is not
considered independent as he is a Designated Member of Haibun
Partners LLP which receives trail commission from the Investment
Adviser. The VCT has not appointed a senior independent director.
Biographical details of all Board members (including significant
other commitments of the Chairman) are shown on page 4.
Gill Nott and Duncan Grierson were appointed to the Board on 1
May 2018 and 16 July 2018 respectively, and were subsequently
re-elected at the 2018 AGM. Stuart Knight was appointed to the
Board on 31 January 2017 and was subsequently re-elected at the
2017 AGM. David Hunter was appointed to the Board on 18 September
2019.
In accordance with the Articles of Association, Stuart Knight
and David Hunter are required to retire at the forthcoming AGM, and
being eligible, offer themselves for re-election.
Full Board meetings take place quarterly and the Board meets or
communicates more regularly to address specific issues. The Board
has a formal schedule of matters specifically reserved for its
decision which includes, but is not limited to: considering
recommendations from the Investment Adviser; making decisions
concerning the acquisition or disposal of investments; and
reviewing, annually, the terms of engagement of all third party
advisers (including the Investment Adviser and Administration
Manager).
The Board has also established procedures whereby Directors
wishing to do so in the furtherance of their duties may take
independent professional advice at the VCT's expense.
All Directors have access to the advice and services of the
Company Secretary. The Company Secretary provides the Board with
full information on the VCT's assets and liabilities and other
relevant information requested by the Chairman, in advance of each
Board meeting.
The Board has authority to make market purchases of the VCT's
own shares. This authority to purchase up to 14.9% of the VCT's
issued share capital was granted at the last AGM. A resolution will
be put to Shareholders to renew this authority at the forthcoming
AGM.
The capital structure of the VCT is disclosed in Note 14 to the
financial statements.
During the period under review, all the Directors of the VCT
were Non-executive and served on each committee of the Board. The
Chairman of the Audit Committee is David Hunter and Stuart Knight
is the Chairman of the Remuneration and Nomination Committees. The
Audit Committee normally meets twice yearly, and the Remuneration
and Nomination Committees meet as required. The Board has delegated
a number of areas of responsibility to its committees and each
committee has defined terms of reference and duties.
Audit Committee
The Audit Committee is responsible for reviewing the half-year
and annual accounts before they are presented to the Board, the
terms of appointment of the Auditor, together with their
remuneration, as well as a full review of the effectiveness of the
VCT's internal control and risk management systems.
In particular, the Committee reviews, challenges (where
appropriate) and agrees the basis for the carrying value of the
unquoted investments, as prepared by the Investment Adviser, for
presentation within the half-year and annual accounts.
The Committee also takes into consideration comments on matters
regarding valuation, revenue recognition and disclosures arising
from the Report to the Audit Committee as part of the finalisation
process for the annual accounts.
The Audit Committee met twice during the year. The Committee
reviewed the internal financial controls and concluded that they
were appropriate.
As the VCT has no staff, other than the Directors, there are no
procedures in place in respect of whistle blowing. The Audit
Committee understands that the Investment Adviser and
Administration Manager have whistle blowing procedures in
place.
External auditor
The Committee reviews and agrees the audit strategy paper,
presented by the Auditor in advance of the audit, which sets out
the key risk areas to be covered during the audit and confirms
their status on independence.
The Committee confirms that the main area of risk for the period
under review is the carrying value of investments.
The VCT's auditor did not provide any non audit services during
the period.
The Committee recognises the requirement for the tax computation
to be prepared annually and therefore appointed Lubbock Fine as tax
agent during the year ended 30 September 2019.
The Committee, after taking into consideration comments from the
Investment Adviser and Administration Manager, regarding the
effectiveness of the audit process; immediately before the
conclusion of the annual audit, will recommend to the Board either
the re-appointment or removal of the auditors.
Following assurances received from the Investment Adviser at the
completion of the audit for the year ended 30 September 2019, and
taking discussions held with the engagement Partner at BDO LLP into
consideration, the Committee has recommended they be reappointed at
the forthcoming AGM.
Board and Committee meetings
The following table sets out the Directors' attendance at the
Board and Committee meetings during the year:
Audit Nomination
Board Committee Committee
meetings meetings meetings
attended attended attended
(5 held) (2 held) (1 held)
Gill Nott 5 2 1
Stuart Knight 5 2 1
Duncan Grierson 5 2 1
David Hunter - - -
No Remuneration Committee meeting was held in the year.
Remuneration Committee
The Committee meets as and when required to review the levels of
Directors' remuneration. The Committee is also responsible for
considering the need to appoint external remuneration consultants.
Details of the specific levels of remuneration to each Director are
set out in the Directors' Remuneration Report on page 30.
The remuneration for David Hunter was considered by the Board as
a whole and was aligned to the remuneration of the rest of the
Board with an additional fee of GBP2,500 per annum for his role as
Audit Chair.
Financial reporting
The Directors' responsibilities statement for preparing the
accounts is set out in the Report of the Directors on page 28 and a
statement by the Auditor about their reporting responsibilities is
set out in the Independent Auditor's report on page 39.
Nomination Committee
The Nomination Committee's primary function is to make
recommendations to the Board on all new appointments and also to
advise generally on issues relating to Board composition and
balance. The Committee meets as and when appropriate. Before any
appointment is made by the Board, the Committee shall evaluate the
balance of skills, knowledge and experience, and consider
candidates on merit, against objective criteria, and with due
regard for the benefits of diversity on the Board.
The Committee met to discuss the Board's composition and in
particular the requirement to replace Gill Nott as Audit Chair,
given her position as Chair of the Board. During these discussions,
it was thought that an additional Board member with relevant
experience to become Audit Chair would be a positive addition to
the Board.
Taking into account the cost involved, the Committee and the
Board decided against appointing an external search consultant for
this new appointment. Instead, a long list of suitable candidates
was established by the Committee and three individuals were offered
an interview. After due care and consideration, the Committee
recommended the appointment of David Hunter who is a qualified
chartered accountant, as a Non-executive Director and Audit Chair.
This recommendation was based on his recent and relevant financial
experience, his extensive knowledge of VCTs and his experience with
early stage investing.
Relations with Shareholders
Shareholders have the opportunity to meet the Board at the AGM.
The Board is also happy to respond to any written queries made by
Shareholders during the course of the period, or to meet with major
Shareholders if so requested.
In addition to the formal business of the AGM, representatives
of the Investment Adviser and the Board are available to answer any
questions a Shareholder may have. Separate resolutions are proposed
at the AGM on each substantially separate issue. The Administration
Manager collates proxy votes and the results (together with the
proxy forms) are forwarded to the Company Secretary immediately
prior to the AGM. Proxy votes are announced at the AGM, following
each vote on a show of hands, except in the event of a poll being
called. The notice of the ninth AGM and proxy form will be
circulated with this Annual Report.
The terms of reference of the Committees and the conditions of
appointment of Non-executive Directors are available to
Shareholders on request.
Internal control
The Board has adopted an Internal Control Manual ("Manual") for
which it is responsible, which has been compiled in order to comply
with the AIC Code. The Manual is designed to provide reasonable,
but not absolute, assurance against material misstatement or loss,
which it achieves by detailing the perceived risks and controls to
mitigate them. The Board reviews the perceived risks in line with
relevant guidance on an annual basis and implements additional
controls as appropriate.
The Board is responsible for ensuring that the procedures to be
followed by the advisers and themselves are in place, and they
review the effectiveness of the Manual, based on the report from
the Audit Committee, on an annual basis to ensure that the controls
remain relevant and were in operation throughout the year.
Although the Board is ultimately responsible for safeguarding
the assets of the VCT, the Board has delegated, through written
agreements, the day-to-day operation of the VCT (including the
Financial Reporting Process) to the following advisers:
Investment Adviser Gresham House Asset Management Limited
Administration Manager JTC (UK) Limited
Anti-bribery policy
The VCT operates an anti-bribery policy to ensure that it meets
its responsibilities arising from the Bribery Act 2010. This policy
is available on request.
Going concern
The VCT's business activities, together with the factors likely
to affect its future development, performance and position are set
out in the Chairman's Statement on pages 5 and 6, the Investment
Adviser's Report on pages 7 to 12 and the Strategic Report on pages
20 to 26. The financial position of the VCT, its cash flows,
liquidity position and borrowing facilities are shown in the Cash
Flow Statement on page 43.
In addition, Notes 17 and 18 to the financial statements include
the VCT's objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its
financial instruments; and its exposures to credit risk and
liquidity risk.
The VCT has considerable financial resources at the year end and
holds a diversified portfolio of investments. As a consequence, the
Directors believe that the VCT is well placed to manage its
business risks successfully despite the current uncertain economic
outlook.
The Directors confirm that they are satisfied that the VCT has
adequate resources to continue in business for the foreseeable
future. For this reason they believe that the VCT continues to be a
going concern and that it is appropriate to apply the going concern
basis in preparing the financial statements.
Share capital
The VCT has two classes of share capital: Ordinary Shares and
'A' Shares. The rights and obligations attached to those shares,
including the power of the VCT to buy back shares and details of
any significant shareholdings, are set out on page 27 of the Report
of the Directors.
Compliance statement
The Listing Rules require the Board to report on compliance with
the AIC Code provisions throughout the accounting period. With the
exception of the limited items outlined below, the VCT has complied
throughout the accounting year ended 30 September 2019 with the
provisions set out in Section 5 to 9 of the AIC Code.
a) The VCT has no major Shareholders so Shareholders are not
given the opportunity to meet any new non-executive Directors at a
specific meeting other than the AGM. (5.2.3)
b) Due to the size of the Board and the nature of the VCT's
business, a formal performance evaluation of the Board, its
Committees, the individual Directors and the Chairman has not been
undertaken. Specific performance issues are dealt with as they
arise. Similarly, a senior independent director has not been
appointed. (6.2.14)
c) Due to the size of the Board and the nature of the VCT's
business, the Board considers it appropriate for the entire Board
to fulfil the role of the nomination and the remuneration
committee. (7.2.22, 9.2.37)
d) Due to the size of the Board and the nature of the VCT's
business, the Board considers it appropriate for the entire Board,
including the chair, to fulfil the role of the audit committee.
(8.2.29)
e) Due to the size of the VCT, the Board thought it would be
unnecessarily burdensome to establish a separate management
engagement committee to review the performance of the Investment
Adviser. (6.2.17, 7.2.26)
The Directors are not subject to annual re-election but must be
re-elected. A Director may retire at any Annual Meeting following
the Annual General Meeting at which he last retired and was
re-elected provided that he must retire from office at or before
the third Annual General Meeting following the Annual General
Meeting at which he last retired and was re-elected. (7.2.23)
JTC (UK) Limited
Company Secretary
Company number: 04301763
Registered office:
The Scalpel 18th Floor
52 Lime Street
London EC3M 7AF
19 December 2019
INDEPENT AUDITOR'S REPORT
TO THE MEMBERS OF GRESHAM HOUSE RENEWABLE ENERGY VCT1 PLC
OPINION
We have audited the financial statements of Gresham House
Renewable Energy VCT1 Plc (the 'Company') for the year ended 30
September 2019, which comprise the Income Statement, the Balance
Sheet, the Statement of Changes in Equity, the Cash Flow Statement,
and notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and
United Kingdom Accounting Standards, including Financial Reporting
Standard 102 The Financial Reporting Standard in the United Kingdom
and Republic of Ireland (United Kingdom Generally Accepted
Accounting Practice).
In our opinion the financial statements:
n give a true and fair view of the state of the Company's
affairs as at 30 September 2019 and of its profit for the year then
ended;
n have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
n have been prepared in accordance with the requirements of the
Companies Act 2006.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the company
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
CONCLUSIONS RELATING TO PRINCIPAL RISKS, GOING CONCERN AND
VIABILITY STATEMENT
We have nothing to report in respect of the following
information in the annual report, in relation to which the ISAs
(UK) require us to report to you whether we have anything material
to add or draw attention to:
n the disclosures in the annual report that describe the
principal risks and explain how they are being managed or
mitigated;
n the directors' confirmation in the annual report that they
have carried out a robust assessment of the principal risks facing
the company, including those that would threaten its business
model, future performance, solvency or liquidity; the directors'
statement in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of
accounting in preparing the financial statements and the directors'
identification of any material uncertainties to the company's
ability to continue to do so over a period of at least twelve
months from the date of approval of the financial statements;
n whether the directors' statement relating to going concern
required under the Listing Rules in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained in
the audit; or
n the directors' explanation in the annual report as to how they
have assessed the prospects of the company, over what period they
have done so and why they consider that period to be appropriate,
and their statement as to whether they have a reasonable
expectation that the company will be able to continue in operation
and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Key Audit Matter How we addressed the Key Audit Matter
Valuation of investments In respect of the equity investments
valued using discounted
100% of the underlying investment cash flow models, we performed the
portfolio is represented by following specific
unquoted equity and loan stock. procedures:
Further information is
disclosed in notes 10 and 17 to n Used spreadsheet analysis tools
the financial statements. to assess the integrity of
the valuation models and track changes
to inputs or
The valuation of investments is structure
a highly subjective accounting
estimate where there is an inherent n Agreed power price forecasts to
risk of management override arising independent reports
from the investment valuations being n For all investments we analysed
prepared by the Investment Manager, changes in significant
who is remunerated
based on the net asset value of assumptions compared with assumptions
the company. audited in previous periods and vouched
these changes to
independent evidence including available
industry data
n Challenged the appropriateness
of the selection and application
of key assumptions in the model including
the discount factor, inflation, asset
life, energy yield and power price
applied by benchmarking to available
industry data and consulting with
our internal valuations specialists
n Agreed cash and other net assets
to bank statements and
investee company management accounts
n Considered the accuracy of forecasting
by comparing previous forecasts to
actual results
For loan investments we performed
the following:
n Vouched to loan agreements and
verified the terms of the
loan
n Considered wider economic and commercial
factors that, in our opinion could
impact on the recoverability and
fair value of the loan
n Considered the carrying value of
the loan with regard to the "unit
of account" concept.
For each of the key assumptions in
the valuation models, we considered
the appropriateness of the assumption
and whether alternative reasonable
assumptions could have been applied.
We considered each assumption in
isolation as well as in conjunction
with other assumptions and the valuation
as a whole. Where appropriate, we
sensitised the valuations where other
reasonable alternative assumptions
could have been applied. We also
considered the completeness and clarity
of disclosures regarding the range
of reasonable alternative assumptions
in the financial statements.
Based on our procedures performed
we did not identify any indications
to suggest that the valuation of
the investment portfolio was materially
misstated.
------------------------------------------
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. For planning, we consider materiality to be the
magnitude by which misstatements, including omissions, could
influence the economic decisions of reasonable users that are taken
on the basis of the financial statements. Importantly,
misstatements below this level will not necessarily be evaluated as
immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the financial
statements as a whole.
The quantum of the materiality level applied during our audit is
tabulated below.
Purpose Basis and Key Quantum 2018 Quantum 2019
considerations
Materiality measure (GBP) (GBP)
Financial statement Assessing whether 2% of the value GBP580,000 GBP590,000
materiality the financial of non- current
statements as asset investments
a whole present on the basis
a true and fair that the valuation
view of the investment
portfolio is
a key driver
of the VCT's
performance.
------------------------- ----------------------- ------------ ------------
Performance materiality Lower level of Based on financial GBP435,000 GBP440,000
materiality applied statement materiality,
in performance taking into
of the audit consideration
when determining the risk and
the nature and control environment
extent of testing and history of
applied to individual prior errors
balances and (if any)
classes of transactions.
------------------------- ----------------------- ------------ ------------
Performance materiality is application of materiality at the
individual account or balance level set at an amount to reduce to
an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessment together with our assessment
of the company's overall control environment, our judgment was that
overall performance materiality for the company should be 75%
(2018: 75%).
We agreed with the Audit Committee that we would report to the
Audit Committee all audit differences in excess of GBP12,000 (2018:
GBP12,000), as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
We carried out a full scope audit. Our audit approach was
developed by obtaining an understanding of the company's activities
and the overall control environment. Based on this understanding we
assessed those aspects of the company's transactions and balances
which were most likely to give rise to a material misstatement.
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made
subjective judgements, for example in respect of the valuation of
investments which have a high level of estimation uncertainty
involved in determining the unquoted investment valuations.
How the audit was considered capable of detecting
irregularities, including fraud
We gained an understanding of the legal and regulatory framework
applicable to the company and the industry in which it operates,
and considered the risk of acts by the company which were contrary
to applicable laws and regulations, including fraud. These included
but were not limited to compliance with Companies Act 2006, the FCA
listing and DTR rules, the principles of the UK Corporate
Governance Code, industry practice represented by the SORP and
United Kingdom Generally Accepted Accounting Practice accounting
standards. We also considered the company's qualification as a VCT
under UK tax legislation as any breach of this would lead to the
company losing various deductions and exemptions from corporation
tax.
We designed audit procedures to respond to the risk, recognising
that the risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example,
forgery, misrepresentations or through collusion.
We focused on laws and regulations that could give rise to a
material misstatement in the company financial statements. Our
tests included, but were not limited to:
n agreement of the financial statement disclosures to underlying supporting documentation;
n enquiries of management;
n review of minutes of board meetings throughout the period; and
n obtaining an understanding of the control environment in
monitoring compliance with laws and regulations
There are inherent limitations in the audit procedures described
above and the further removed noncompliance with laws and
regulations is from the events and transactions reflected in the
financial statements, the less likely we would become aware of it.
As in all of our audits we also addressed the risk of management
override of internal controls, including testing journals and
evaluating whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
OTHER INFORMATION
The directors are responsible for the other information. The
other information comprises the information included in the Report
& Accounts, other than the financial statements and our
auditor's report thereon. Our opinion on the financial statements
does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
n Fair, balanced and understandable - the statement given by the
directors that they 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 performance, business model and strategy, is
materially inconsistent with our knowledge obtained in the audit;
or
n Audit committee reporting - the section describing the work of
the audit committee does not appropriately address matters
communicated by us to the audit committee; or
n Directors' statement of compliance with the UK Corporate
Governance Code - the parts of the directors' statement required
under the Listing Rules relating to the company's compliance with
the UK Corporate Governance Code containing provisions specified
for review by the auditor in accordance with Listing Rule
9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT
2006
In our opinion, the part of the directors' remuneration report
to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
n the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
n the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the company
and its environment obtained in the course of the audit, we have
not identified material misstatements in the strategic report or
the directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
n adequate accounting records have not been kept by the company,
or returns adequate for our audit have not been received from
branches not visited by us; or
n the company financial statements and the part of the
directors' remuneration report to be audited are not in agreement
with the accounting records and returns; or
n certain disclosures of directors' remuneration specified by
law are not made; or
n we have not received all the information and explanations we
require for our audit.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the company's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the company or to cease
operations, or have no realistic alternative but to do so.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL
STATEMENTS
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
OTHER MATTERS WHICH WE ARE REQUIREDTO ADDRESS
Following the recommendation of the audit committee, we were
appointed to audit the financial statements for the year ended 30
September 2011. We were reappointed by the Audit Committee in
September 2019 to audit the financial statements for the year
ending 30 September 2019 and subsequent financial periods. The
period of total uninterrupted engagement is 9 years, covering the
years ending 30 September 2011 to 30 September 2019.
The non-audit services prohibited by the FRC's Ethical Standard
were not provided to the company and we remain independent of the
company in conducting our audit.
Our audit opinion is consistent with the additional report to
the audit committee.
USE OF OUR REPORT
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
VANESSA-JAYNE BRADLEY
(SENIOR STATUTORY AUDITOR)
For and on behalf of BDO LLP, Statutory Auditor
London
United Kingdom
Date: 19 December 2019
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
INCOME STATEMENT
FOR THE YEARED 30 SEPTEMBER 2019
Year ended 30 September Year ended 30 September
2019 2018
------------------------------------- ---- ---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ---- -------- -------- -------- -------- -------- --------
Income 3 86 - 86 766 - 766
Gain on investments 10 - 1,305 1,305 - 786 786
------------------------------------- ---- -------- -------- -------- -------- -------- --------
86 1,305 1,391 766 786 1,552
Investment advisory fees 4 (260) (86) (346) (281) (93) (374)
Other expenses 5 (237) - (237) (374) - (374)
------------------------------------- ---- -------- -------- -------- -------- -------- --------
(497) (86) (583) (655) (93) (748)
------------------------------------- ---- -------- -------- -------- -------- -------- --------
Profit/(loss) on ordinary activities
before tax (411) 1,219 808 111 693 804
Tax on total comprehensive
income and ordinary activities 7 - - - - - -
------------------------------------- ---- -------- -------- -------- -------- -------- --------
Profit/(loss) for the year
and total
comprehensive income (411) 1,219 808 111 693 804
------------------------------------- ---- -------- -------- -------- -------- -------- --------
Basic and diluted earnings
per share:
Ordinary Share 9 (1.7p) 5.1p 3.4p 0.5p 3.0p 3.5p
'A' Share 9 - - - - - -
------------------------------------- ---- -------- -------- -------- -------- -------- --------
All Revenue and Capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year. The total column within the Income Statement
represents the Statement of Total Comprehensive Income of the VCT
prepared in accordance with Financial Reporting Standards ("FRS
102"). The supplementary revenue and capital return columns are
prepared in accordance with the Statement of Recommended Practice
issued in November 2014 (updated in October 2019) by the
Association of Investment Companies ("AIC SORP").
Other than revaluation movements arising on investments held at
fair value through the profit or loss, there were no differences
between the return/loss as stated above and at historical cost.
BALANCE SHEET
AS AT 30 SEPTEMBER 2019
2019 2018
-------------------------------------- ---- ------- ------- ------- -------
Note GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---- ------- ------- ------- -------
Fixed assets 10 29,572 30,453
Investments 11
Current assets
Debtors 273 242
Cash at bank and in hand 1,046 2,497
-------------------------------------- ---- ------- ------- ------- -------
1,319 2,739
Creditors: amounts falling due within
one year 12 (147) (130)
-------------------------------------- ---- ------- ------- ------- -------
Net current assets 1,172 2,609
-------------------------------------- ---- ------- ------- ------- -------
Creditors: amounts falling due after
more than one year 13 (822) (2,832)
-------------------------------------- ---- ------- ------- ------- -------
Net assets 29,922 30,230
-------------------------------------- ---- ------- ------- ------- -------
Capital and reserves
Called up Ordinary Share capital 14 28 27
Called up 'A' Share capital 14 41 39
Share premium account 15 9,541 8,187
Treasury Shares 15 (2,991) (2,695)
Funds held in respect of Shares not
yet allotted 15 - 515
Special reserve 15 7,257 8,920
Revaluation reserve 15 17,522 16,257
Capital redemption reserve 15 3 2
Capital reserve - realised 15 (1,301) (1,255)
Revenue reserve 15 (178) 233
-------------------------------------- ---- ------- ------- ------- -------
Total Shareholders' funds 29,922 30,230
-------------------------------------- ---- ------- ------- ------- -------
Basic and diluted net asset value
per share
Ordinary Share 16 117.1p 120.2p
'A' Share 16 0.1p 0.1p
-------------------------------------- ---- ------- ------- ------- -------
The financial statements of Gresham House Renewable Energy VCT1
plc on pages 40 to 56 were approved and authorised for issue by the
Board of Directors and were signed on its behalf by:
GILL NOTT
CHAIRMAN
Company number: 07378392
Date: 19 December 2019
STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 SEPTEMBER 2019
Funds
held
in respect
of
Called Shares
up Share not Capital Capital
share Premium Treasury yet Special Revaluation redemption reserve Revenue
capital Account Shares allotted Reserve reserve reserve realised reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Total
------------------ ------------- ------------- ------------- ------------- ------------- --------------- ------------- ------------- ------------- -------------
At 30 September
2017 60 3,910 - - 9,062 15,504 2 (1,195) 122 27,465
Total
comprehensive - - - - - 693 - - 111 804
Transfer of
net realised
gain
to Capital
reserve-realised - - - - - 60 - (60) - -
Transactions with owners
Repurchase
of Shares - - (2,695) - - - - - - (2,695)
Issue of Shares 6 4,277 - - (142) - - - - 4,141
Unallotted
Shares - - - 515 - - - - - 515
At 30 September
2018 66 8,187 (2,695) 515 8,920 16,257 2 (1,255) 233 30,230
------------------ ------------- ------------- ------------- ------------- ------------- --------------- ------------- ------------- ------------- -------------
Total
comprehensive - - - - - 1,219 - - (411) 808
Transfer of
net realised
gain
to Capital
reserve-realised - - - - - 46 - (46) - -
Transactions with owners
Dividend paid - - - - (1,612) - - - - (1,612)
Repurchase
of Shares - - (296) - - - 1 - - (295)
Issue of Shares 3 1,354 - - (51) - - - - 1,306
Unallotted
Shares - - - (515) - - - - - (515)
At 30 September
2019 69 9,541 (2,991) - 7,257 17,522 3 (1,301) (178) 29,922
------------------ ------------- ------------- ------------- ------------- ------------- --------------- ------------- ------------- ------------- -------------
CASH FLOW STATEMENT
FOR THE YEARED 30 SEPTEMBER 2019
Year Year
ended 30 ended 30
September September
Note 2019 GBP'000 2018 GBP'000
Cash flows from operating activities
Profit for the financial year 808
Gains on investments (1,305)
(Increase)/decrease in debtors (31)
Decrease in creditors (48)
804
(786)
(31) 201
(48) (3)
Net cash (outflow)/inflow from operating
activities (576) 216
Cash flows from investing activities
Proceeds from sale of investments/loan
note redemptions 546* 823
Investments purchased at cost (5) -
Net cash inflow from investing activities 541 823
Net cash (outflow)/inflow before financing
activities (35) 1,039
Cash flows from financing activities
Equity dividends paid 8 (1,612) -
Long term loans (300)* (694)
Issue of Shares 791(') 4,203
Funds held in respect of Shares not yet
allotted -' 515
Purchase of own shares (295) (2,695)
Net cash (outflow)/inflow from financing
activities (1,416) 1,329
Net (decrease)/increase in cash (1,451) 2,368
Cash and cash equivalents at start of year 2,497 129
Cash and cash equivalents at end of year 1,046 2,497
Cash and cash equivalents comprise
Cash at bank and in hand 1,046 2,497
Total cash and cash equivalents 1,046 2,497
* In December 2018 the loan note investment made in Lunar 2
Limited by the VCT was repaid. Instead of the VCT receiving the
cash proceeds from this repayment, the amount was instead credited
to various outstanding loans due to investee companies, including
Lunar 2 Limited, from the VCT and included within amounts falling
due after more than one year. Please refer to Note 13.
' In October 2018 the VCT issued additional shares to
participating investors. A portion of the cash proceeds for these
share subscriptions were received during the prior year and
accounted for as Funds held in respect of Shares not yet allotted
in the prior year. The remaining balance of the cash proceeds due
to the VCT for these share subscriptions was received during the
year ended 30 September 2019.
NOTES TO THE ACCOUNTS FOR THE YEARED 30 SEPTEMBER 2019
1. GENERAL INFORMATION
Gresham House Renewable Energy VCT1 plc ("the VCT") is a Venture
Capital Trust established under the legislation introduced
in the Finance Act 1995 and is domiciled in the United Kingdom
and incorporated in England and Wales.
2. ACCOUNTING POLICIES
Basis of accounting
The VCT has prepared its financial statements under FRS 102 'The
Financial Reporting Standard applicable in the UK and Republic of
Ireland' and in accordance with the Statement of Recommended
Practice "Financial Statements of Investment Trust Companies and
Venture Capital Trusts" issued by the Association of Investment
Companies ("AIC") in November 2014 and revised in October 2019
("SORP") as well as the Companies Act 2006.
The VCT implements new Financial Reporting Standards ("FRS")
issued by the Financial Reporting Council when they become
effective.
The financial statements are presented in Sterling (GBP).
Presentation of income statement
In order to better reflect the activities of a Venture Capital
Trust and in accordance with the SORP, supplementary information
which analyses the Income Statement between items of a revenue and
capital nature has been presented alongside the Income Statement.
The net revenue is the measure the Directors believe appropriate in
assessing the VCT's compliance with certain requirements set out in
Part 6 of the Income Tax Act 2007.
Investments
All investments are designated as "fair value through profit or
loss" assets due to investments being managed and performance
evaluated on a fair value basis. A financial asset is designated
within this category if it is both acquired and managed on a fair
value basis, in accordance with the VCT's documented investment
policy. The fair value of an investment upon acquisition is deemed
to be cost. Thereafter investments are measured at fair value in
accordance with the International Private Equity and Venture
Capital Valuation Guidelines ("IPEV") together with FRS 102
Sections 11 and 12.
For unquoted investments and subsequent to acquisition, fair
value is established by using the IPEV guidelines. The valuation
methodologies for unquoted entities used by the IPEV to ascertain
the fair value of an investment are as follows:
n Multiples;
n Net assets;
n Discounted cash flows or earnings (of underlying business);
n Discounted cash flows (from the investment); and
n Industry valuation benchmarks.
Effective 1 January 2019, the IPEV guidelines to establish fair
value were updated whereby the cost or price of a recent investment
are no longer considered valid valuation methodologies for
establishing the fair value of an investment. The VCT along with
its Investment Adviser may, under orderly market conditions, deem
the cost or recent price paid for an investment as an appropriate
fair value for an investment at the time of acquisition but
subsequent to recognition must reconsider the assigned fair value
based on up-to-date market conditions and performance of the
underlying investee company in order to assign a fair value in line
with the IPEV guidelines.
The methodology applied takes account of the nature, facts and
circumstances of the individual investment and uses reasonable
data, market inputs, assumptions and estimates in order to
ascertain fair value.
Gains and losses arising from changes in fair value are included
in the Income Statement for the year as a capital item and
transaction costs on acquisition or disposal of the investment are
expensed. Where an investee company has gone into receivership or
liquidation, or administration (where there is little likelihood of
recovery), the loss on the investment, although not physically
disposed of, is treated as being realised.
The investee companies held by the VCT are treated as a
portfolio of investments and are therefore measured at fair value
in accordance with Section 9 of FRS 102. The results of these
companies are not incorporated into the Income Statement except to
the extent of any income accrued. This is in accordance with the
SORP and FRS 102 Sections 14 and 15 that does not require portfolio
investments, where the interest held is greater than 20%, to be
accounted for using the equity method of accounting.
Income
Dividend income from investments is recognised when the
Shareholders' rights to receive payment have been established,
normally the ex-dividend date.
Interest income is accrued on a time apportionment basis, by
reference to the principal sum outstanding and at the effective
interest rate applicable and only where there is reasonable
certainty of collection in the foreseeable future.
Expenses
All expenses are accounted for on an accruals basis. In respect
of the analysis between revenue and capital items presented
within the Income Statement, all expenses have been presented as
revenue items except as follows:
n Expenses which are incidental to the disposal of an investment
are deducted from the disposal proceeds of the investment; and
n Expenses are split and presented partly as capital items where
a connection with the maintenance or enhancement of the value of
the investments held can be demonstrated. The VCT has adopted a
policy of charging 75% of the investment advisory fees to the
revenue account and 25% to the capital account to reflect the
Board's estimated split of investment returns which will be
achieved by the VCT over the long term.
Taxation
The tax effects on different items in the Income Statement are
allocated between capital and revenue on the same basis as the
particular item to which they relate, using the VCT's effective
rate of tax for the accounting period.
Due to the VCT's status as a Venture Capital Trust and the
continued intention to meet the conditions required to comply with
Part 6 of the Income Tax Act 2007, no provision for taxation is
required in respect of any realised or unrealised appreciation of
the VCT's investments which arises.
Deferred taxation, which is not discounted, is provided in full
on timing differences that result in an obligation at the balance
sheet date to pay more tax, or a right to pay less tax, at a future
date, at rates expected to apply when they crystallise based on
current tax rates and law. Timing differences arise from the
inclusion of items of income and expenditure in taxation
computations in periods different from those in which they are
included in the accounts.
Other debtors, other creditors and loan notes
Other debtors (including accrued income), other creditors and
loan notes (other than those held as part of the investment
portfolio as set out in Note 10) are included within the accounts
at amortised cost.
Issue costs
Issue costs in relation to the shares issued for each share
class have been deducted from the special reserve.
3. INCOME
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
Income from investments
Loan stock interest 86 166
Dividend income - 600
86 766
4. INVESTMENT ADVISORY FEES
The investment advisory fees for the year ended 30 September
2019, which were charged quarterly to the VCT, were based on 1.15%
of the net assets as at the previous quarter end.
Year ended 30 September 2019 Year ended 30 September 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment advisory fees 260 86 346 281 93 374
With effect from 7 November 2017, the Investment Advisory fee
percentage was reduced from 2.0% of net assets per annum to 1.4%,
for the period to 6 November 2018. With effect from 7 November
2018, the Investment Advisory fee has reduced further, to 1.15% of
net assets per annum.
5. OTHER EXPENSES
Year ended 30 September Year ended 30 September
2019 2018
------------------------- -------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------------- ------- ---------------- -------
Administration services 50 - 50 55 - 55
Trail commission - - - 111 - 111
Directors' remuneration 68 - 68 84 - 84
VAT and Social security
costs 4 - 4 5 - 5
Auditor's remuneration for
audit 29 - 29 25 - 25
Other 86 - 86 94 - 94
--------------------------- ---------------- ------- ---------------- -------
237 - 237 374 - 374
--------------------------- ---------------- ------- ---------------- -------
The annual running costs of the VCT for the year are subject to
a cap of 3.0% of the net assets of the VCT. During the year ended
30 September 2019, the ongoing charges for the VCT came to 1.9% of
net assets (2018: 2.2%), therefore this cap has not been breached.
The calculation of ongoing charges is based on guidelines issued by
the AIC.
6. DIRECTORS' REMUNERATION
Details of remuneration (excluding employer's NIC) are given in
the audited part of the Directors' Remuneration Report on
page 30.
The VCT had no employees during the year. Costs in respect of
the Directors are referred to in Note 5 above. No other emoluments
or pension contributions were paid by the VCT to, or on behalf of,
any Director.
7. TAX ON ORDINARY ACTIVITIES Year ended 30 Year ended
September 2019 30 September
GBP'000 2018 GBP'000
---------------------------------------------- --------------- -------------
(a) Tax charge for the year
UK corporation tax at 19% (2018: 19%) - -
---------------------------------------------- --------------- -------------
Charge for the year - -
---------------------------------------------- --------------- -------------
(b) Factors affecting tax charge for the year
Profit on ordinary activities before taxation 808 804
---------------------------------------------- --------------- -------------
Tax charge calculated on return on ordinary
activities before taxation at the applicable
rate of 19% (2018: 19%) 154 153
Effects of:
UK dividend income - (114)
Gains on investments (248) (150)
Expenses disallowed for tax purposes - 1
Excess management expenses on which deferred
tax not recognised 94 110
---------------------------------------------- --------------- -------------
Total tax charge - -
---------------------------------------------- --------------- -------------
Excess management fees, which are available to be carried
forward and set off against future taxable income, amounted to
GBP3,812,000 (2018: GBP3,401,000). The associated deferred tax
asset of GBP648,000 (2018: GBP578,000) has not been recognised due
to the fact that it is unlikely that the excess management fees
will be set off against future taxable profits in the foreseeable
future.
8. DIVIDS
Year ended 30 September 2019 Year ended 30 September 2018
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Payable
2019 Interim Ordinary - 5.3133p - 1,356 1,356 - - -
2019 Interim A - 0.4867p - 187 187 - - -
Paid
2018 Interim Ordinary - 5.4965p - - - 99 1,318 1,417
2018 Interim A - 0.5035p - - - - 195 195
- 1,543 1,543 99 1,513 1,612
The Interim 2018 dividends were paid on 14 December 2018, to
Shareholders on the register as at 23 November 2018. The Interim
2019 dividends will be paid on 20 December 2019 to Shareholders on
the register as at 29 November 2019.
9. BASIC AND DILUTED EARNINGS PER SHARE
Weighted Revenue
average number (loss)/ Capital
of shares return Pence return Pence
in issue GBP'000 per share GBP'000 per share
Year ended 30 September 2019 Ordinary Shares 23,957,228 (411)
(1.7) 1,219 5.1
'A' Shares 36,912,555 - - - -
Year ended 30 September 2018 Ordinary Shares 23,100,931 111 0.5
693 3.0
'A' Shares 35,440,770 - - - -
As the VCT has not issued any convertible securities or share
options, there is no dilutive effect on earnings per Ordinary
Share
or 'A' Share. The earnings per share disclosed therefore
represents both the basic and diluted return per Ordinary Share
or
'A' Share.
10.FIXED ASSETS - INVESTMENTS 2018 Unquoted
2019 Unquoted investments investments
GBP'000 GBP'000
--------------------------------------------- ------------------------- -------------
Opening cost at start of the year 14,196 15,886
Net unrealised gains at start of the year 16,257 15,504
--------------------------------------------- ------------------------- -------------
Opening fair value at start of the year 30,453 31,390
Movement in the year:
Purchased at cost 5 -
Disposals proceeds/redemption of loan
notes (2,191) (1,723)
Realised gains on disposals 40 33
Net unrealised gains in the income statement 1,265 753
--------------------------------------------- ------------------------- -------------
Closing fair value at year end 29,572 30,453
--------------------------------------------- ------------------------- -------------
Closing cost at year end 12,050 14,196
Net unrealised gains at year end 17,522 16,257
--------------------------------------------- ------------------------- -------------
Closing fair value at year end 29,572 30,453
--------------------------------------------- ------------------------- -------------
During the year, the VCT received GBP2,191,000 from the disposal
of investments comprising of both equity and loan notes. The cost
of these investments was GBP2,151,000 and therefore the realised
gain on disposal was GBP40,000. These investments have been
revalued and measured at fair value over time, and up until the
point of disposal any unrealised gains or losses were included in
the fair value of the investments.
The VCT has categorised its financial instruments using the fair
value hierarchy as follows:
Level 1 Reflects financial instruments quoted in an active
market;
Level 2 Reflects financial instruments that have prices that are
observable either directly or indirectly; and
Level 3 Reflects financial instruments that use valuation
techniques that are not based on observable market data (unquoted
equity investments and loan note investments).
Level 1 Level 2 Level 3 2019 Level 1 Level 2 Level 3 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
Unquoted loan notes - - 809 809 - - 2,658 2,658
Unquoted equity - - 28,763 28,763 - - 27,795 27,795
-------------------- ---------- --------------- ------------------- ------
- - 29,572 29,572 - - 30,453 30,453
-------------------- ---------- --------------- ------------------- ------
During the years ended 30 September 2019 and 30 September 2018
there were no transfers between levels. A reconciliation of fair
value for Level 3 financial instruments held at the year end is
shown below:
Unquoted loan notes Unquoted
GBP'000 equity Total
GBP'000 GBP'000
----------------------------------------- ------------------- -------- --------
Balance at 30 September 2018 2,658 27,795 30,453
Movements in the income statement:
Unrealised gains in the income statement 245 1,020 1,265
Realised gains in the income statement - 40 40
----------------------------------------- ------------------- -------- --------
245 1,060 1,305
Additions at cost - 5 5
Sales proceeds/redemption of loan notes (2,094) (97) (2,191)
----------------------------------------- ------------------- -------- --------
Balance at 30 September 2019 809 28,763 29,572
----------------------------------------- ------------------- -------- --------
FRS 102 Sections 11 and 12 require disclosure to be made of the
possible effect of changing one or more of the inputs to reasonable
possible alternative assumptions where this would result in a
significant change in the fair value of the Level 3 investments.
There is an element of judgement in the choice of assumptions for
unquoted investments and it is possible that, if different
assumptions were used, different valuations could have been
attributed to some of the VCT's investments.
Investments which are reaching maturity or have an established
level of maintainable earnings are valued on a discounted cash flow
basis. This was also the case in the prior year.
The Board and the Investment Adviser believe that the valuation
as at 30 September 2019 reflects the most appropriate assumptions
at that date, giving due regard to all information available from
each investee company. Consequently, the variation in the spread of
reasonable, possible, alternative valuations is likely to be within
the range set out in Note 17.
11. DEBTORS 2019 2018
GBP'000 GBP'000
---------------------------------------------- -------- --------
Prepayments and accrued income 273 242
---------------------------------------------- -------- --------
273 242
---------------------------------------------- -------- --------
12. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE 2019 2018
YEAR GBP'000 GBP'000
---------------------------------------------- -------- --------
Other loans* 65 -
Taxation and social security 4 4
Accruals and deferred income 78 126
---------------------------------------------- -------- --------
147 130
---------------------------------------------- -------- --------
* Other loans falling due within one year:
2019 2018
Investee company Repayment date GBP'000 GBP'000
Hewas Solar Limited 7 September 2020 65 -
65
Whilst the above loan has an applicable repayment date, the VCT
has the right to repay all or any part of the loan at any time. The
loan is interest free. In the prior year, this loan would have been
included within amounts falling due after more than one year,
please refer to Note 13.
13. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
2019 2018
GBP'000 GBP'000
Other loans 822 2,832
822 2,832
The balance of other loans is made up of amounts borrowed from
the underlying portfolio companies. An analysis of the maturity
dates of each of the loans is shown on the next page. Whilst each
loan has an applicable repayment date, the VCT has the right to
repay all or any part of the loans at any time. All loans are
interest free.
Creditors falling due after more than one year are repayable as
follows:
2019 2018
Investee company Repayment date GBP'000 GBP'000
--------------------------------- ------------------- -------- --------
HRE Willow Limited 15 June 2021 18 100
12 September 2021 68 68
23 September 2021 29 29
----------------------------------------------------- -------- --------
115 197
----------------------------------------------------- -------- --------
Minsmere Power Limited 2 August 2021 - 110
16 August 2021 - 33
12 September 2021 - 75
----------------------------------------------------- -------- --------
- 218
----------------------------------------------------- -------- --------
Hewas Solar Limited 7 September 2020* - 65
30 April 2021 66 66
----------------------------------------------------- -------- --------
66 131
----------------------------------------------------- -------- --------
St Columb Solar Limited 30 April 2021 20 20
2 February 2023 40 40
----------------------------------------------------- -------- --------
60 60
----------------------------------------------------- -------- --------
Ayshford Solar (Holding) Limited 12 September 2021 - 75
23 September 2021 31 125
13 October 2021 20 20
11 September 2022 300 300
28 September 2022 50 50
22 February 2023 180 180
----------------------------------------------------- -------- --------
581 750
----------------------------------------------------- -------- --------
Amounts repayable in up to
five years 822 1,356
------------------------------------------------------ -------- --------
Lunar 2 Limited 17 December 2043 - 1,476
--------------------------------- ------------------- -------- --------
Amounts repayable after more
than five years - 1,476
------------------------------------------------------ -------- --------
Other loans 822 2,832
------------------------------------------------------ -------- --------
On 31 December 2018 the loan note investment of GBP1,645,000
made in Lunar 2 Limited was repaid and the proceeds were used to
settle the outstanding amount in respect of the loan balance due to
Lunar 2 Limited.
On 4 January 2019 the VCT made further loan repayments of
GBP82,000 to HRE Willow Limited and GBP218,000 to Minsmere Power
Limited.
* For the current year, this loan has been included within
amounts falling due within one year, please refer to Note 12.
14. CALLED UP SHARE CAPITAL
2019 2018
GBP'000 GBP'000
Allotted, called up and fully-paid:
25,515,242 (2018: 24,694,442) Ordinary Shares
of 0.1p each 28 27
38,512,032 (2018: 37,034,352) 'A' Shares of
0.1p each 41 39
----------------------------------------------
69 66
----------------------------------------------
The VCT's capital is managed in accordance with its investment
policy as shown in the Strategic Report, in pursuit of its
principal investment objectives as stated on pages 20 to 21. There
has been no significant change in the objectives, policies or
processes for managing capital from the previous period.
The VCT has the authority to buy back shares as described in the
Report of the Directors. During the year ended 30 September 2019
the VCT repurchased 264,048 Ordinary Shares (2018: 2,361,063
Ordinary Shares) and 264,048 'A' Shares (2018: 2,360,869 'A'
Shares) at an average price, per combined holding, of 111.8p (2018:
113.7p). These shares are currently held in treasury.
During the year ended 30 September 2019 the VCT issued 1,084,848
Ordinary Shares (2018: 3,417,557 Ordinary Shares) at an average
price of 125.6p (2018: 125.3p) and 1,741,728 'A' Shares (2018:
3,417,557 'A' Shares) at an average price of 0.1p (2018: 0.1p).
The holders of Ordinary Shares and 'A' Shares shall have rights
as regards to dividends and any other distributions or a return of
capital (otherwise than on a market purchase by the VCT of any of
its shares) which shall be applied on the following basis:
1) Unless and until Ordinary Shareholders receive a dividend of
at least 5.0p per Ordinary Share, and one Ordinary Share and one
'A' Share has a combined net asset value of 100p (the Hurdle),
distributions will be made as to 99.9% to Ordinary Shares and 0.1%
to 'A' Shares;
2) After (and to the extent that) the Hurdle has been met, and
subject to point 3 below, the balance of such amounts shall be
applied as to 40% to Ordinary Shares and 60% to 'A' Shares; and
3) Any amount of a dividend which, but for the entitlement of
'A' Shares pursuant to point 2 above, would have been in excess of
10p per Ordinary Share in any year shall be applied as to 10% to
Ordinary Shares and 90% to 'A' Shares.
If, on the date on which a dividend is to be declared on the
Ordinary Shares, the amount of any dividend which would have been
payable to the 'A' Shares (the "A' Dividend Amount'), together with
any previous amounts which were not paid as a result of this clause
(the "A' Share Entitlement'), would together:
a) in aggregate be less than GBP5,000; or
b) be less than an amount being equivalent to 0.25p per 'A' Share
then the 'A' Dividend Amount shall not be declared and paid, but
shall be aggregated with any 'A' Share Entitlement and retained by
the VCT until either threshold is reached. No interest shall accrue
on any 'A' Share Entitlement.
The VCT does not have any externally imposed
capital requirements. 2019 2018
15. RESERVES GBP'000 GBP'000
------------------------------------------------- -------- --------
Share premium account 9,541 8,187
Funds held in respect of Shares not yet allotted - 515
Treasury shares (2,991) (2,695)
Special reserve 7,257 8,920
Revaluation reserve 17,522 16,257
Capital redemption reserve 3 2
Capital reserve - realised (1,301) (1,255)
Revenue reserve (178) 233
29,853 30,164
The Special reserve is available to the VCT to enable the
purchase of its own shares in the market without affecting its
ability to pay dividends. The Special reserve, Capital reserve -
realised and Revenue reserve are all distributable reserves. The
distributable reserve is reduced by unrealised holding losses of
GBP2,515,000 (2018: GBP1,658,000) which are included in the
Revaluation reserve. At 30 September 2019, distributable reserves
were GBP3,263,000 (2018: GBP6,240,000).
Share premium account
This reserve accounts for the difference between the prices at
which shares are issued and the nominal value of the shares, less
issue costs and transfers to the other distributable reserves.
Funds held in respect of Shares not yet allotted
This reserve represents cash value of Shares which were due to
be issued by the VCT as at the Balance Sheet date.
Treasury shares
This reserve represents the aggregate consideration paid for the
Shares repurchased by the VCT.
Revaluation reserve
Increases and decreases in the valuation of investments held at
the year end against cost are included in this reserve.
Capital redemption reserve
This reserve accounts for amounts by which the issued share
capital is diminished through the repurchase and cancellation of
the VCT's own shares.
Capital reserve - realised
The following are disclosed in this reserve:
n gains and losses compared to cost on the realisation of investments; and
n expenses, together with the related taxation effect, charged
in accordance with the above accounting policies
Revenue reserve
This reserve accounts for movements from the revenue column of
the Income Statement, the payment of dividends and other
non-capital realised movements.
16. BASIC AND DILUTED NET ASSET VALUE PER SHARE
Shares in issue 2019 2018
2019 2018 Net asset value Net asset value
Pence Pence
per share GBP'000 per share GBP'000
Ordinary Shares 25,515,242 24,694,442 117.1 29,884 120.2 29,678
'A' Shares 38,512,032 37,034,352 0.1 38 0.1 37
* Excluding funds held in respect of Shares not yet
allotted.
The Directors allocate the assets and liabilities of the VCT
between the Ordinary Shares and 'A' Shares such that each share
class has sufficient net assets to represent its dividend and
return of capital rights as described in Note 14.
As the VCT has not issued any convertible shares or share
options, there is no dilutive effect on net asset value per
Ordinary Share or per 'A' Share. The net asset value per share
disclosed therefore represents both the basic and diluted net asset
value per Ordinary Share and per 'A' Share.
17. FINANCIAL INSTRUMENTS
The VCT held the following categories of financial instruments
at 30 September 2019:
2019 Cost 2019 2018 2018 Value
GBP'000 Value Cost GBP'000
GBP'000 GBP'000
Assets at fair value through
profit or loss 12,050 29,572 14,196 30,453
Other financial (liabilities)/assets (68) (68) 103 103
Cash at bank 1,046 1,046 2,497 2,497
Other loans (887) (887) (2,832) (2,832)
Total 12,141 29,663 13,964 30,221
The VCT's financial instruments comprise investments held at
fair value through profit or loss, being equity and loan stock
investments in unquoted companies, loans and receivables consisting
of short term debtors, cash deposits and financial liabilities
being creditors arising from its operations. The main purpose of
these financial instruments is to generate cashflow and revenue and
capital appreciation for the VCT's operations. The VCT has no
gearing or other financial liabilities apart from short and
long-term creditors and does not use any derivatives.
The fair value of investments is determined using the detailed
accounting policy as shown in Note 2. The composition of the
investments is set out in Note 10.
The VCT's investment activities expose the VCT to a number of
risks associated with financial instruments and the sectors in
which the VCT invests. The principal financial risks arising from
the VCT's operations are:
n Market risks;
n Credit risk; and
n Liquidity risk.
The Board regularly reviews these risks and the policies in
place for managing them. There have been no significant changes to
the nature of the risks that the VCT was expected to be exposed to
over the year and there have also been no significant changes to
the policies for managing those risks during the year.
The risk management policies used by the VCT in respect of the
principal financial risks and a review of the financial instruments
held at the year end are provided below.
Market risks
As a Venture Capital Trust, the VCT is exposed to investment
risks in the form of potential losses and gains that may arise on
the investments it holds in accordance with its investment policy.
The management of these investment risks is a fundamental part of
investment activities undertaken by the Investment Adviser and
overseen by the Board. The Adviser monitors investments through
regular contact with management of investee companies, regular
review of management accounts and other financial information and
attendance at investee company board meetings. This enables the
Adviser to manage the investment risk in respect of individual
investments. Investment risk is also mitigated by holding a
diversified portfolio spread across various operating sites across
several asset classes.
The key investment risks to which the VCT is exposed are:
n Investment price risk; and
n Interest rate risk.
Investment price risk
The VCT's investments which comprise both equity and debt
financial instruments in unquoted investments are all in renewable
energy projects with predetermined expected returns. Consequently,
the investment price risk arises from uncertainty about the future
prices and valuations of financial instruments held in accordance
with the VCT's investment objectives which can be influenced by
many macro factors such as changes in interest rates, electricity
power prices and movements in inflation. It represents the
potential loss that the VCT might suffer through changes in the
fair value of unquoted investments that it holds.
At 30 September 2019, the unquoted portfolio was valued at
GBP29,572,000 (2018: GBP30,453,000). The key inputs to the
valuation model are discount rates, inflation, irradiation,
degradation, power prices and asset life. The Board has undertaken
a sensitivity analysis into the effects of fluctuations in these
inputs.
The analysis below is provided to illustrate the sensitivity of
the fair value of investments to an individual input, while all
other variables remain constant. The Board considers these changes
in inputs to be within reasonable expected ranges. This is not
intended to imply the likelihood of change or that possible changes
in value would be restricted to this range. The possible effects
are quantified below:
Change in Change
fair value in NAV
Change of per share
in investments pence
Input Base case input GBP'000
Discount rate 6.00% - 6.75% +0.5% (966) (3.8)
-0.5% 1,028 4.0
Inflation 2.90% - 3.40% +0.5% 938 3.7
-0.5% (1,023) (4.0)
Irradiation 785 - 1,270kWh/m2 +1.0% 617 2.4
-1.0% (617) (2.4)
Degradation 0.30% - 0.40% +0.1% (712) (2.8)
-0.1% 722 2.8
Power prices GBP35 - GBP75/MWh +10.0% 646 2.5
-10.0% (646) (2.5)
Asset life
The Board has also considered the potential impact of changes to
the anticipated lives of assets in the portfolio. Close to 90% of
the VCT's value is in assets refinanced by debt, and under the debt
facility agreements, substantial reserves are in place for renewing
key equipment as and when required. Furthermore, the underlying
assets have leases that are valid for the lifetime of the VCT,
which cannot be terminated early, and any extensions to the leases
would require further planning permission. Accordingly, the Board
does not consider it appropriate to disclose a sensitivity analysis
in respect of asset life.
Interest rate risk
The VCT accepts exposure to interest rate risk on floating-rate
financial assets through the effect of changes in prevailing
interest rates. The VCT receives interest on its cash deposits at a
rate agreed with its bankers. Where investments in loan stock
attract interest, this is predominately charged at fixed rates. A
summary of the interest rate profile of the VCT's investments is
shown below.
There are three categories in respect of interest which are
attributable to the financial instruments held by the VCT as
follows:
n "Fixed rate" assets represent investments with predetermined
yield targets and comprise certain loan note investments and
preference shares;
n "Floating rate" assets predominantly bear interest at rates
linked to The Bank of England base rate or LIBOR and comprise cash
at bank; and
n "No interest rate" assets do not attract interest and comprise
equity investments, certain loan note investments, loans and
receivables and other financial liabilities.
Interest rate Average 2019 2018
period until GBP'000 GBP'000
maturity
Fixed rate 8% 1,636 days 489 665
Floating rate 0% 1,046 2,497
No interest rate 28,128 27,059
29,663 30,221
The VCT monitors the level of income received from fixed and
floating rate assets and, if appropriate, may make adjustments to
the allocation between the categories, in particular, should this
be required to ensure compliance with the VCT regulations.
It is estimated that an increase of 1% in interest rates would
have increased profit before tax for the year by GBP10,000 (2018:
GBP25,000). The Bank of England base rate increased from 0.5% to
0.75% on 2 August 2018; on 19 September 2019 the Bank of England
opted to leave the base rate unchanged at 0.75%. Any potential
change in the base rate, at the current level, would have an
immaterial impact on the net assets and total return of the
VCT.
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument is unable to discharge a commitment to the VCT made
under that instrument. The VCT is exposed to credit risk through
its holdings of loan stock in investee companies, cash deposits and
debtors. Credit risk relating to loan stock in investee companies
is considered to be part of market risk as the performance of the
underlying SPVs impacts the carrying values.
The VCT's financial assets that are exposed to credit
risk are summarised as follows:
2019 2018
GBP'000 GBP'000
Investments in loan stocks 809 2,658
Cash and cash equivalents 1,046 2,497
Interest, dividends and other receivables 265 233
2,120 5,388
The Adviser manages credit risk in respect of loan stock with a
similar approach as described under "Market risks". Similarly, the
management of credit risk associated with interest, dividends and
other receivables is covered within the investment advisory
procedures. The level of security is a key means of managing credit
risk. Additionally, the risk is mitigated by the security of the
assets in the underlying investee companies.
Cash is held by the Royal Bank of Scotland plc which is an
investment grade rated financial institution. Consequently, the
Directors consider that the credit risk associated with cash
deposits is low.
There have been no changes in fair value during the year that
are directly attributable to changes in credit risk. Any balances
that are past due are disclosed further under liquidity risk.
There have been no loan investments for which the terms have
been renegotiated during the year.
Liquidity risk
Liquidity risk is the risk that the VCT encounters difficulties
in meeting obligations associated with its financial liabilities.
Liquidity risk may also arise from either the inability to sell
financial instruments when required at their fair values or from
the inability to generate cash inflows as required. As the VCT has
a relatively low level of creditors being GBP82,000 (2018:
GBP130,000) and has long term loans from investee companies (see
Note 13 for an analysis of the repayment terms), which have either
been repaid at the date of this report or are expected to be repaid
by way of future dividends from these companies, being GBP887,000
(2018: GBP2,832,000), the Board believes that the VCT's exposure to
liquidity risk is low. The VCT always holds sufficient levels of
funds as cash in order to meet expenses and other cash outflows as
they arise. For these reasons the Board believes that the VCT's
exposure to liquidity risk is minimal.
The VCT's liquidity risk is managed by the Investment Adviser in
line with guidance agreed with the Board and is reviewed by the
Board at regular intervals.
Although the VCT's investments are not held to meet the VCT's
liquidity requirements, the table below shows an analysis of the
assets, highlighting the length of time that it could take the VCT
to realise its assets if it were required to do so.
The carrying value of loan stock investments held at fair value
through the profit or loss account at 30 September 2019, as
analysed by the expected maturity date, is as follows:
Not later Between Between Between More
than 1 and 2 and 3 and than
1 year 2 years 3 years 5 years 5 years Total
As at 30 September 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
Fully performing loan stock - - - - 809 809
Past due loan stock - - - - - -
- - - - 809 809
Not later Between Between Between More
than 1 and 2 and 3 and than
1 year 2 years 3 years 5 years 5 years Total
As at 30 September 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
Fully performing loan stock - - - - 2,658 2,658
Past due loan stock - - - - - -
- - - - 2,658 2,658
18. CAPITAL MANAGEMENT
The VCT's objectives when managing capital are to safeguard the
VCT's ability to continue as a going concern, so that it can
continue to provide returns for Shareholders and to provide an
adequate return to Shareholders by allocating its capital to assets
commensurately with the level of risk.
By its nature, the VCT has an amount of capital, at least 70%
(as measured under the tax legislation; for the VCT this increases
to 80% from 1 October 2019) of which is and must be, and remain,
invested in the relatively high risk asset class of small UK
companies within three years of that capital being subscribed. The
VCT accordingly has limited scope to manage its capital structure
in the light of changes in economic conditions and the risk
characteristics of the underlying assets. Subject to this overall
constraint upon changing the capital structure, the VCT may adjust
the amount of dividends paid to Shareholders, return capital to
Shareholders, issue new shares, or sell assets if so required to
maintain a level of liquidity to remain a going concern.
As the Investment Policy implies, the Board would consider
levels of gearing. As at 30 September 2019 the VCT had loans from
investee companies of GBP887,000 (2018: GBP2,832,000). It regards
the net assets of the VCT as the VCT's capital, as the level of
liabilities are small and the management of them is not directly
related to managing the return to Shareholders. There has been no
change in this approach from the previous period.
19. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS
At 30 September 2019, the VCT had no contingencies, guarantees
or financial commitments.
20. CONTROLLING PARTY AND RELATED PARTY TRANSACTIONS
In the opinion of the Directors there is no immediate or
ultimate controlling party.
Related party transactions include Investment Advisory Fees
payable to the Investment Adviser, Gresham House Asset Management
Ltd, as disclosed in Note 4, and fees paid to the Directors along
with their shareholdings as disclosed in the Directors'
Remuneration Report.
21. SIGNIFICANT INTERESTS
Details of shareholdings in those companies where the VCT's
holding, as at 30 September 2019, represents more than 20% of the
nominal value of any class of shares issued by the portfolio
company are predominantly disclosed in the Review of Investments on
pages 14 to 19. Relevant companies which do not feature in the
Review of Investments are listed below. All of the companies named
are incorporated in England and Wales. The percentage holding in
each class of shares also reflects the percentage voting rights in
each company as a whole.
Registered Class Number Proportion Capital Profit/(loss)
office of of and reserves for the
Company shares held class held year
Minsmere Power Limited EC2V 6AA Ordinary 200,001 50% GBP345,000 (GBP70,000)
Penhale Solar Limited EC2V 6AA Ordinary 299,601 50% GBP557,000 (GBP80,000)
Small Wind Generation
Limited EC2V 6AA Ordinary 840,001 50% (GBP457,000) (GBP153,000)
Lunar 3 Limited EC2V 6AA Ordinary 100 50% GBPnil GBPnil
22. EVENTS AFTER THE OF THE REPORTING PERIOD
In October 2019, the VCT along with Gresham House Renewable
Energy VCT2 plc ('VCT2') entered into investment agreements with
Bio-bean Limited whereby the VCT and VCT2 would each purchase
615,384 ordinary shares in Bio-bean Limited as well as loan notes
to the value of GBP215,000 for a total consideration of GBP615,000
each.
Following the year end date, the VCT declared dividends in
respect of the year ended 30 September 2019 of 5.3133p per Ordinary
Share and 0.4867p per 'A' Share. These dividends are due to be paid
on 20 December 2019 to Shareholders on the register as at 29
November 2019.
There are no other significant events which require disclosure
in these financial statements
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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