TIDMHR1O
Hazel Renewable Energy VCT1 plc
Final results for the year ended 30 September 2016
FINANCIAL HIGHLIGHTS
Audited Audited
Year End Year End
30 September 30 September
2016 2015
Pence Pence
Net asset value per Ordinary Share 118.1 117.6
Net asset value per 'A' Share 0.1 0.1
Cumulative Dividends paid 34.5 29.5
Total return per Ordinary Share and 'A'
Share 152.7 147.2
CHAIRMAN'S STATEMENT
I present the Annual Report for Hazel Renewable Energy VCT1 plc for the
year ended 30 September 2016. As Shareholders will be aware, there has
been a heavy focus in recent months on considering the future of the
Company and a general meeting took place on 19 January 2017 for
Shareholders to vote on this. The results of this meeting are discussed
below.
Although the above work has taken up a considerable amount of both the
Board's and the Investment Manager's time, it is pleasing to report that
the investment performance has continued to be satisfactory during the
year with a further small uplift in NAV per share being recorded.
Investment portfolio
There was limited investment activity during the year and, at the year
end, the Company held a portfolio of 16 investments with a total value
of GBP30.9 million.
As usual, the Board has reviewed the investment valuations at the year
end and made some minor adjustments to the fair values, resulting in a
net unrealised gain of GBP370,000.
Net asset value and results
At 30 September 2016, the Net Asset Value ("NAV") per Ordinary Share
stood at 118.1p and the NAV per 'A' Share stood at 0.1p, producing a
combined total of 118.2p. This represents an increase of 5.5p (4.7%)
over the year (after adjusting for dividends paid during the year of
5.0p per Ordinary share). Total dividends paid to date for a combined
holding of one Ordinary Share and one 'A' Share stand at 34.5p. Total
Return (NAV plus cumulative dividends paid to date) now stands at 152.7p,
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 GBP1.2
million, comprising a gain of GBP1.0 million on the revenue account and
GBP0.2 million on the capital account.
Dividends
A dividend of 5.0p per Ordinary Share paid was paid on 16 September
2016. In line with the Company's policy, subject to the developments
discussed below, it is intended that the next annual dividend will be
paid in September 2017 and is expected to be announced in May 2017.
Share Buybacks
During the year, the Company acquired a total of 898,908 'Ordinary'
Shares and 827,672 'A' Shares for cancellation at an average price of
111.0p and 0.1p per share respectively.
In view of the ongoing review in respect of the future of the Company,
the Company will not make any further purchases of shares for the time
being.
Future strategy
At the General Meeting that took place on 19 January 2017, the Company's
Shareholders voted in favour of the Company continuing as a VCT for at
least a further five years.
Shareholders will be aware that the Company has a sister VCT, Hazel
Renewable Energy VCT2 plc ("Hazel 2"), which holds identical
investments. Hazel 2 Shareholders voted against the resolution to
continue as a VCT at their General Meeting on 19 January 2017. This
presents some significant challenges for your Board.
The current structure with the two VCTs ensures that VCT status is
maintained. Were one VCT to be wound up it is possible that the VCT
status of the other Company is jeopardised. The Board are unequivocal
that VCT status must be maintained while some shareholders are still in
their initial five year holding period and would risk losing the upfront
income tax relief they earned on their investment.
The Board, along with the Hazel 2 Board, are starting to consider
options which will address the desires of Shareholders of both
Companies. The types of options that will be reviewed are, amongst other
things:
-- Seeking third party funding to buy out shareholders;
-- A partial disposal of assets to fund share buybacks; and
-- Considering VCT merger options.
As indicated in the Shareholder Circular dated 22 December 2016, the
Board will also review the management arrangement going forward. This
task will now be combined with the matters above.
The Articles of Association now require that the Hazel 2 Board put
formal proposals to their Shareholders for a winding up, reorganisation
or other reconstruction, by 19 May 2017. At the same time, I will also
communicate with Shareholders regarding the plans for the future.
Board
As the Board has only comprised two members since March 2016, the
Directors have decided to appoint Stuart Knight to join the Board as a
non-executive director with immediate effect. Stuart Knight will be well
known to a number of shareholders as being co-founding partner of Haibun
Partners LLP, a London based FCA registered wealth manager.
The existing directors believe Stuart will be a valuable addition to the
Board and will be very helpful as the Board review options for the
future of the Company.
Annual General Meeting
The Company's sixth AGM will be held at Ergon House, Horseferry Road,
London SW1P 2AL at 11.30 a.m. on 13 March 2017.
One item of special business will be proposed in respect of share
buybacks.
Outlook
Although the result of the EU referendum and plans for Brexit might have
some significant effect on the macro economic environment in the medium
and long term, the Board believes the impact on the Company will be
reasonably small. The Company is effectively fully invested in a
portfolio of projects with long term, Government backed agreements in
place. This should ensure a relatively stable outlook in terms of
expected performance of the assets. The Board will, of course, continue
to monitor developments.
The Board remains pleased with the performance of the Company to date.
The Shareholder vote by Hazel 2 Shareholders has however created a
question mark over the future of the Company. The Board will seek to
find a strategy that allows those Shareholders that wish to continue to
hold their investment and benefit from the investment portfolio to
continue to do so. Shareholders should however note that there are no
guarantees that a suitable structure can be created and it is possible
that the Board may have to ultimately recommend an orderly wind up.
I will communicate with Shareholders again as soon as there is further
news.
Michael Cunningham
Chairman
INVESTMENT MANAGER'S REPORT
Introduction
The year ended 30 September 2016 has been another good year for Hazel
Renewable Energy VCT1 plc (the Company).
The portfolio was fully invested at the beginning of the financial year,
and we had set ourselves the objectives of further improving the
operational and financial performance of the asset base, as well as
exploring and initiating new avenues for augmenting the return of the
portfolio.
We continuously seek to improve the operational performance of the asset
base by examining the performance of each installation in detail,
closely taking into account factors specific to the installation, as
well as our knowledge of the type of technical installation that is in
place. We also review the operations maintenance ("O&M") process from
the point of view of its impact on performance. For the year in question,
we have focused both on the ground-mounted solar assets that form the
majority of the asset base, as well as the small wind turbine and
roof-mounted solar system portfolios.
In terms of financial performance, our primary focus was on successfully
concluding the refinancing transaction ("Project Surya") that pooled
together the Ayshford Court and Priory Farm ground-mounted solar assets
that are remunerated under the Renewable Obligation Certificate ("ROC")
mechanism as well as the circa 1,200 roof-mounted solar installations
that are located on properties owned by housing associations in England,
Wales and Scotland and are remunerated under the Feed-in-Tariff ("FiT")
mechanism.
This transaction was finalised at the beginning of March. The terms were
very attractive, the interest rate was at 1.54% plus inflation, which is
one of the lowest refinancing interest rates we have come across in the
market.
The purpose of the refinancing was to deploy the proceeds into
investments that could yield substantially higher than the refinancing
rate as well as secure a cash buffer that could be used to fund
repurchases of the Company's shares.
We were able to deploy close to 20 percent of the net proceeds into
purchasing the interests of the minority shareholders in the special
purpose vehicle ("SPV") that owns the very well-performing Ayshford
Court asset. In May we also concluded a GBP1 million investment into
Chargepoint Services Limited, a company that develops electric vehicle
charging infrastructure.
Further investments have been on hold pending the outcome of the
continuation vote, which took place on 19 January 2017.
The refinancing transaction has aided us with our task of improving
operational performance. Such transactions involve a thorough review of
historic operational performance by technical advisers. We have used
their feedback to address minor technical issues as well as to improve
on O&M procedures and incorporate these in new contracts.
Separately, we were able to continue our successful effort to reduce
costs across the portfolio. The most notable savings have come from the
reduction of O&M costs for the 6 FiT-remunerated ground-mounted solar
assets but we have also continued to reduce non-core costs such as
bookkeeping and identify new areas with cost reduction potential such as
utility and monitoring costs.
Overall portfolio and Operational review
At the end of the year, the portfolio consisted of 16 underlying
renewable energy generation projects which are all entirely owned by the
VCTs as well as the small investment made in the year, in a company
developing electric vehicle charging infrastructure.
The eight ground-mounted solar assets that account for close to eighty
percent of the portfolio performed well in operational terms however
solar irradiation was lower than expected by between 1.7% and 5% at
seven of the eight installations. There were no significant technical
issues experienced at any of these installations.
The refinancing transaction that included the Ayshford Court and Priory
Farm assets was taken as an opportunity to bolster the O&M contracts
that were in place. Better reporting, fault response and revenue
compensation (in the event of poor performance by the Contractor) were
introduced. Issues relating to the way the Priory Farm installation
reconnects to the electricity grid in the case of significant and
sustained grid outages that had surfaced in the previous year were also
successfully resolved.
We are continuing to reap the benefits of the sophisticated monitoring
systems installed at the beginning of summer 2014 at these
installations. We have worked with the monitoring system providers to
improve the quality and reporting of the data. We have also added an
experienced renewable energy engineer to our team who has been tasked
with supervising O&M contractors more closely and proactively
identifying areas where operational performance could be further
enhanced.
Six of the eight ground-mounted assets are now only a month away from
the expiry of the O&M contracts put in place 5 years ago. We have run a
"beauty - parade" of contractors and now have an offer from the existing
contractor who can continue to perform the services at less than half
the price we have been paying. This will result in significant cost
savings of circa GBP140,000 per year.
The value of the SPVs containing the ground-mounted solar installations
has increased since the last audited NAV from 30 September 2015. This is
due to the fact that a lower discount rate (6.5% for the FiT-remunerated
assets and 6.75% for the ROC-remunerated assets) was used in the
valuation to reflect the increase in the market value of these assets.
Of the four rooftop solar portfolios that we own, the two portfolios
that are distributed across housing association rooftops in England,
Wales and Scotland and that account for circa 70% of the solar rooftop
asset base have performed better than expectations despite the poor
irradiation experienced.
These FiT-remunerated installations were also included in the
refinancing transaction, and as is the case with the ground-mounted
assets, we took advantage of the fact that the Lender conducted
intensive due diligence to improve O&M arrangements. We replaced the
Strategic Group which had commissioned the assets with Anesco, who has
emerged as the most stable and capable provider of O&M services for
roof-mounted installations. Strategic Group were reducing staffing and
were not able to commit to the requirements we had for the actual
services to be performed. Our new long-term contract with Anesco has
performance guarantees in place as well as tightened reporting
requirements.
The solar rooftop portfolio owned by Gloucester Wind Ltd (a GBP1.8
million investment), had suffered as a result of the original developer
going into administration in April 2013. We are continuing to see minor
improvements in this portfolio, however, as communicated last year, it
is unlikely this project will reach original expectations from the time
of the original investment. We are also pleased to say that there has
been no valuation impact on the portfolio as the original transaction
was well-priced.
On an overall basis the value of the solar rooftop portfolio has shown a
small increase compared to last year. This is due to the fact that a
slightly lower discount rate was used to reflect the lower hurdle rates
that apply to these assets with a high degree of revenue predictability.
The financial performance of the solar assets has been slightly weaker
than expected this year due to the lower irradiation as well as the fact
that power prices remained lower than modelled at the time of the
original investment. The exposure to power prices of the FiT-remunerated
portion of the portfolio is low, however Priory Farm, one of the two
ground-mounted solar assets remunerated under the ROC regime has
suffered from the very low prices that prevailed in the earlier part of
the year as well as the fall in the recycle value component of the ROC
value. The other asset, Ayshford Court Limited is still under a fixed
price Power Purchase Agreement and has therefore not suffered an impact.
Electricity prices had been in a long downward drift in power prices in
the wholesale market over the 2.5 year period that ended last summer.
Since then there has been a meaningful bounce due to the depreciation in
sterling as well as the upward movement in oil and gas prices. It
remains difficult to foresee whether this bounce in power prices will be
sustained. It is important to bear in mind, however, that on an overall
basis this portfolio has very low exposure to power prices.
For 'Project Lunar' (the debt structure secured on the now wholly-owned
six FiT solar projects) we continued to meet our obligations to the
lender including payment milestones, ongoing funding of reserves,
observing all covenants and other requirements. We have also
successfully completed the first interest payment process for Project
Surya.
Our small wind turbine projects held within HRE Willow Ltd, Small Wind
Generation Ltd, Tumblewind Ltd and Minsmere Power Ltd have shown some
improvement since last year. We have been working with our O&M
contractor Britwind, a division of Ecotricity, to implement a targeted
maintenance capex programme to resolve a few categories of issues that
affected circa 15 percent of the turbines in the portfolio. Each
installation was evaluated separately to decide whether the new
incremental investment in the form of maintenance capex would yield a
positive return in terms of increased yield. We have also tested the
solution proposed by Britwind on a sample of installations before giving
the go-ahead for a wider roll-out.
Despite these efforts, we stick to our conclusion that certain assets
within this segment of the portfolio are not likely to ever reach
expected performance due to poor wind conditions at the specific sites
and in some cases poor quality physical installations. We therefore
continue to reflect the same degree of impairment in the value of these
assets in this year's valuation exercise as that of last year. We will
continue to strive to rectify issues that can be rectified and continue
to see the potential for an upward adjustment in the future.
Portfolio valuation
The NAV of the portfolio has increased from 117.7p to 118.2p (and the
total return from 147.2p to 152.7p if dividends already paid are taken
into account). This year's increase has come about as a result of market
prices for renewable power generation assets rising which we have
reflected in the lower discount ranges that we have used, inter alia, as
described below.
This is the first year where we have used different discount rates for
different sets of assets. We believe this is justified due to the
diversity of the asset base. The FiT remunerated ground-mounted solar
projects have the most stable cashflows as the fixed feed-in-tariff
accounts for over ninety percent of the unit revenues. These assets have
also been operating for close to five years and this is a decent history
of predictable cashflow generation. We have therefore used the lowest
discount rate of 6.5% for these FiT based assets.
We have valued the assets grouped together under Project Surya at a
discount rate 25 basis points lower than this to reflect the mix of
rooftop solar assets with no power price exposure and the
ROC-remunerated ground-mounted solar projects where up to 30% of unit
revenues are impacted by power prices.
At the other end of the scale are the small solar rooftop portfolios
where the lease counterparts are individual homeowners and schools as
well as the small wind turbine portfolios. We have used discount rates
of 7% and 7.25% respectively for these assets.
A significant difference from last year is the degree to which this
valuation is composed of cash. In addition to the circa GBP6 million we
have in the various reserves required under the Lunar and Surya
facilities we have circa GBP5.5 million of cash that remains from the
refinancing. Under ordinary circumstances this would have been largely
reinvested however all new investment decisions have been put on hold
pending the outcome of the review by the Board following the
continuation vote.
Factors that will continue to affect the value of these assets in the
future are maturity (longer operating histories suggest higher
predictability), the number of participants in the market who have
appetite to own these assets, inflation expectations, power prices and
interest rates. The first two factors represent a favourable tailwind
for the portfolio, the assets are gaining longer operating histories and
there is a greater diversity of potential owners out there who are
comfortable owning these assets.
Inflation has also been rising and since revenues are inflation-linked,
a further increase could translate into higher valuations in the future.
This has been covered in the circular that was send out at the end of
2016.
The last two factors remain very difficult to forecast. Power prices
have bounced since the Brexit vote but they are still significantly
under the levels we saw as recent as 1.5 years ago. The future direction
will be determined by commodity prices as well as the supply/demand
balance of the UK electricity system.
Renewable generation assets such as those under the Company's ownership
tend to trade at a certain premium in relation to "risk free" interest
rates. This premium has narrowed over the years and has led to us using
lower discount rates for valuation purposes. It is difficult to predict
how this may change but it is unlikely that the premium will increase
given the increased comfort of investors in owning these assets. However,
the risk free rate is also a factor and the return of "risk free" rates
to historically normal levels could adversely affect the valuation of
the portfolio.
Outlook
Our focus for 2017 will be on continuing to improve the performance of
the operational and financial performance of the assets and thus the
overall yield of the portfolio.
We will also continue to seek opportunities for further value
enhancement through energy storage projects attached to the
ground-mounted solar projects so long as there is no impact on the
accreditation status.
The Company has recently gone through a continuation vote. Regardless of
the outcome of the vote, there will be some investors who will want to
sell their shares. We will strive to achieve the best possible value for
these investors.
As always, we are very happy to hear from our investors if they have any
questions or comments.
Ben Guest
Chief Investment Officer
Hazel Capital LLP
REVIEW OF INVESTMENTS
Portfolio of investments
The following investments were held at 30 September 2016:
Valuation
movement
Cost Valuation in year % of portfolio
GBP'000 GBP'000 GBP'000
Qualifying and
part-qualifying
investments
Lunar 2 Limited* 2,976 13,479 1,276 43.6%
Ayshford Solar (Holding)
Limited* 2,480 3,496 (75) 11.3%
Lunar 1 Limited* 125 2,186 110 7.1%
New Energy Era Limited 884 1,489 119 4.8%
Hewas Solar Limited 1,000 1,361 (387) 4.4%
Vicarage Solar Limited 871 1,303 122 4.2%
Tumblewind Limited* 1,438 1,246 82 4.0%
Gloucester Wind Limited 1,000 1,153 112 3.7%
Minsmere Power Limited 975 1,050 130 3.4%
HRE Willow Limited 875 770 (10) 2.5%
Penhale Solar Limited 825 735 (340) 2.4%
St Columb Solar Limited 650 690 (670) 2.2%
Small Wind Generation
Limited 975 583 (99) 1.9%
Chargepoint Services
Limited 500 500 - 1.6%
Sunhazel UK Limited 1 - - 0.0%
15,575 30,041 370 97.1%
Non-qualifying investments
AEE Renewables UK 3 Limited 900 900 - 2.9%
900 900 - 2.9%
16,475 30,941 370 100.%
Cash at bank and in hand 6 0.0%
Total investments 30,947 100%
* Part-qualifying investment
All venture capital investments are incorporated in England and Wales.
Hazel Renewable Energy VCT2 plc, of which Hazel Capital LLP is the
Investment Manager, holds the same investments as above.
Investment movements for the year ended 30 September 2016
ADDITIONS
Cost
GBP'000
Qualifying and part-qualifying investments
Ayshford Solar (Holding) Limited 557
Chargepoint Services Limited 500
1,057
DISPOSALS
Valuation at
30 September Profit/(Loss) Realised
Cost 2015 Proceeds vs cost Gain/(loss)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Qualifying and
part-qualifying
investments
Tumblewind
Limited 1,010 1,010 1,010 - -
Ayshford Solar
(Holding)
Limited 65 59 65 - 6
St. Columb Solar
Limited 58 58 58 - -
1,133 1,127 1,133 - 6
Non-qualifying
investments
ZW Parsonage
Limited 15 15 15 - -
15 15 15 - -
1,148 1,142 1,148 - 6
All venture capital investments are incorporated in England and Wales.
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 (FRS102). Under company law, the Directors must not approve
the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing these financial statements the Directors are required to:
*select suitable accounting policies and then apply them consistently;
*make judgments and accounting estimates that are reasonable and
prudent;
*state whether applicable UK accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements; and
*prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions, to
disclose with reasonable accuracy at any time the financial position of
the Company 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 Company 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 Company's
performance, business model and strategy.
INCOME STATEMENT
for the year ended 30 September 2016
Year ended 30 September Year ended 30 September
2016 2015
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 1,784 - 1,784 580 - 580
Gain on investments - 376 376 - 2,057 2,057
1,784 376 2,160 580 2,057 2,637
Investment management fees (432) (144) (576) (424) (141) (565)
Other expenses (272) (72) (344) (263) - (263)
Profit/(loss) on ordinary activities before tax
1,080 160 1,240 (107) 1,916 1,809
Tax on total comprehensive income and ordinary
activities - - - - - -
Profit/(loss) for the year and total comprehensive
income 1,080 160 1,240 (107) 1,916 1,809
Basic and diluted earnings per share:
Ordinary Share 4.4p 0.7p 5.1p (0.4p) 7.8p 7.4p
'A' Share - - - - - -
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 Company 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 by the Association of Investment Companies ("AIC SORP").
Other than revaluation movements arising on investments held at fair
value through the profit and loss, there were no differences between the
return/loss as stated above and at historical cost.
BALANCE SHEET
as at 30 September 2016
2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments 30,941 30,656
Current assets
Debtors 416 336
Cash at bank and in hand 6 56
422 392
Creditors: amounts falling due within one year (157) (158)
Net current assets 265 234
Total assets less net current assets 31,206 30,890
Creditors: amounts falling due after more than one
year (3,262) (2,000)
Net assets 27,944 28,890
Capital and reserves
Called up Ordinary Share capital 24 25
Called up 'A' Share capital 36 37
Share premium account 3,910 3,910
Special reserve 10,244 12,430
Revaluation reserve 14,466 14,090
Capital redemption reserve 2 -
Capital reserve - realised (1,056) (840)
Revenue reserve 318 (762)
Total Shareholders' funds 27,944 28,890
Basic and diluted net asset value per share
Ordinary Share 118.1p 117.6p
'A' Share 0.1p 0.1p
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2016
Called
up Share Capital Capital
share Premium Special Revaluation redemption reserve Revenue
capital Account Reserve reserve reserve realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30 September 2015
At 30
September
2014 62 3,910 13,657 12,127 - (793) (655) 28,308
Total
comprehensive
income - - - 1,936 - (20) (107) 1,809
Transactions
with owners
Dividend paid - - (1,227) - - - - (1,227)
Transfer
between
Reserves - - - 27 - (27) - -
At 30
September
2015 62 3,910 12,430 14,090 - (840) (762) 28,890
Year ended 30 September 2016
At 30
September
2015 62 3,910 12,430 14,090 - (840) (762) 28,890
Total
comprehensive
income - - - 370 - (210) 1,080 1,240
Transactions
with owners
Repurchase and
cancellation
of own shares (2) - (1,004) - 2 - - (1,004)
Dividend Paid - - (1,182) - - - - (1,182)
Transfer
between
Reserves - - - 6 - (6) - -
At 30
September
2016 60 3,910 10,244 14,466 2 (1,056) 318 27,944
CASH FLOW STATEMENT
for the year ended 30 September 2016
Year ended Year ended
30 September 2016 30 September 2015
GBP'000 GBP'000
Net cash outflow from operating
activities 784 (463)
Cash flows from investing
activities
Purchase of investments (1,057) -
Proceeds from disposal of
investments 1,148 1,203
Net cash inflow/(outflow) from
investing activities 91 1,203
Net cash inflow/(outflow) before
financing activities 875 740
Cash Flows from financing
activities
Equity Dividends Paid (1,182) (1,227)
Long term loans 1,261 376
Purchase of own shares (1,004) -
Net cash outflow from financing
activities (925) (851)
Net decrease in cash (50) (111)
Cash and cash equivalents at
start of year 56 167
Cash and cash equivalents at end
of year 6 56
Cash and cash equivalents
comprise
Cash at bank and in hand 6 56
Total cash and cash equivalents 6 56
NOTES TO THE ACCOUNTS
for the year ended 30 September 2016
1. General Information
Hazel Renewable Energy VCT1 plc ("the Company") 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 Company 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")
revised November 2014 ("SORP") as well as the Companies Act 2006.
The Company implements new Financial Reporting Standards ("FRS") issued
by the Financial Reporting Council when they become effective.
This is the first year in which the Financial Statements have been
prepared under FRS 102, however it has not been necessary to restate
comparatives as the treatment previously applied aligns with the
requirements of FRS 102. As a result there are no reconciling
differences between the previous financial reporting framework and the
current financial reporting framework and the comparative figures
represent the position under both current and previous financial
reporting frameworks.
The financial statements are presented in Sterling (GBP).
Presentation of income statement
In order to better reflect the activities of a VCT 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 Company'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, with a view to
selling after a period of time, in accordance with the Company'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, 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:
*Price of recent investment;
*Multiples;
*Net assets;
*Discounted cash flows or earnings (of underlying business);
*Discounted cash flows (from the investment); and
*Industry valuation benchmarks.
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.
It is not the Company's policy to exercise controlling influence over
investee companies. Therefore, 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:
*Expenses which are incidental to the disposal of an investment are
deducted from the disposal proceeds of the investment; and
*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 Company has adopted a policy
of charging 75% of the investment management 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 Company 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 Company's effective rate of tax for the
accounting period.
Due to the Company's status as a VCT 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 Company'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) 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 share premium account.
3. Income
Year ended Year ended
30 September 2016 30 September 2015
GBP'000 GBP'000
Income from investments
Loan stock interest 198 244
Dividend income 1,586 335
1,784 579
Other income
Bank interest - 1
1,784 580
4. Basic and diluted earnings per share
Weighted average number Revenue Capital
of shares in issue return/ (loss) return
Profit/(loss) per share is calculated on the per per
following: GBP'000 share GBP'000 share
Year ended
30
September
2016 Ordinary Shares 24,347,961 1,078 4.4 160 0.7
'A' Shares 36,635,087 2 - - -
Year ended
30
September
2015 Ordinary Shares 24,536,966 (107) (0.4) 1,913 7.8
'A' Shares 36,805,446 - - 3 -
As the Company 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.
5. Basic and diluted net asset value per share
Shares in issue 2016 2015
2016 2015 Net asset value Net asset value
per share GBP'000 per share GBP000
Ordinary Shares 23,638,058 24,536,966 118.1 27,908 117.6 28,853
'A' Shares 35,977,774 36,805,446 0.1 36 0.1 37
As the Company 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.
6. Principal risks
The Company's investment activities expose the Company to a number of
risks associated with financial instruments and the sectors in which the
Company invests. The principal financial risks arising from the
Company's operations are:
*Investment risks;
*Credit risk; and
*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 Company 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 Company 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 VCT, the Company 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 Manager and overseen by the Board. The
Manager 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 Manager to manage the investment risk in respect of
individual investments. Investment risk is also mitigated by holding a
diversified portfolio spread across various business sectors and asset
classes.
The key investment risks to which the Company is exposed are:
*Investment price risk
*Interest rate risk
Investment price risk
The Company's investments which comprise of 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
Company'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
Company might suffer through changes in the fair value of unquoted
investments that it holds.
At 30 September 2016, the unquoted portfolio was valued at GBP30,941,000
(2015: GBP30,656,000). The key inputs to the valuation models are
electricity power prices, inflation and discount factors. The Board
considers that the most significant of these is discount factors and has
undertaken some sensitivity analysis into the movement of these.
The analysis below is provided to illustrate the sensitivity of the fair
value of investment 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.
0.5% movement in discount rate:
Input Base case Change in input Change in fair value of investments Change in NAV per share
GBP'000 pence
Discount
rate 6.5% - 7.25% +0.5% (1,871,000) (7.9)
-0.5% 2,197,000 9.3
Interest rate risk
The Company accepts exposure to interest rate risk on floating-rate
financial assets through the effect of changes in prevailing interest
rates. The Company receives interest on its cash deposits at a rate
agreed with its bankers. Investments in loan stock attract interest
predominately at fixed rates. A summary of the interest rate profile of
the Company's investments is shown below.
There are four categories in respect of interest which are attributable
to the financial instruments held by the Company as follows:
*"Variable rate" assets represent investments with predetermined
interest rates that vary at set dates in accordance with loan note
agreements;
*"Floating rate" assets predominantly bear interest at rates linked to
The Bank of England base rate or LIBOR and comprise cash at bank; and
*"No interest rate" assets do not attract interest and comprise equity
investments, certain loan note investments, loans and receivables and
other financial liabilities.
The Company monitors the level of income received from fixed and
floating or variable 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.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument is
unable to discharge a commitment to the Company made under that
instrument. The Company is exposed to credit risk through its holdings
of loan stock in investee companies, cash deposits and debtors. Credit
risk relating to loan stock investee companies is considered to be part
of market risk.
The Manager manages credit risk in respect of loan stock with a similar
approach as described under "Investment risks" above. Similarly the
management of credit risk associated interest, dividends and other
receivables is covered within the investment management 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 A-rated
financial institution and also ultimately part-owned by the UK
Government. 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 is
directly attributable to changes in credit risk. Any balances that are
past due are disclosed further under liquidity risk.
There have been no loans for which the terms have been renegotiated
during the year.
Liquidity risk
Liquidity risk is the risk that the Company 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 Company has a relatively low
level of creditors being GBP157,000 (2015: GBP158,000) and has low loans
from investee companies being GBP3,262,000 (2015: GBP2,000,000) the
Board believes that the Company's exposure to liquidity risk is low. The
Company 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 Company's exposure to liquidity risk is minimal.
The Company's liquidity risk is managed by the Investment Manager in
line with guidance agreed with the Board and is reviewed by the Board at
regular intervals.
7. Related party transactions
In the opinion of the Directors there is no immediate or ultimate
controlling party.
During the year, Hazel Capital LLP was regarded as a related party as
Ben Guest was a director of the VCT and a controlling partner in Hazel
Capital LLP. Ben ceased to be a director from 7 March 2016 and Hazel
Capital LLP ceased to be a related party as at that date.
Hazel Capital LLP provided investment management services to the
Company. During the year ended 30 September 2016, GBP576,000 (2015:
GBP565,000) was payable to Hazel Capital LLP in respect of these
services. At the year end there was no balance owing to Hazel Capital
LLP (2015: nil).
In accordance with the prospectus and the Investment Management
agreement, Hazel Capital LLP receives trail commission of 0.4% of the
net assets of the Company at the year end, out of which it pays trail
commission to financial intermediaries. As at 30 September 2016, this
amounted to GBP112,000 (2015: GBP116,000), all of which is outstanding
and included in accruals and deferred income under Creditors.
8. Events after the end of the reporting period
On 19 January 2017, the Company held a General Meeting seeking
Shareholder approval for the Company to continue as a VCT for a further
five years. The resolution was passed by Shareholders, however the same
resolution for the sister company, Hazel Renewable Energy VCT2 plc
("Hazel 2"), was not passed by Shareholders and so now the board of
Hazel 2 is required to put proposals to Shareholders for a voluntary
liquidation, reconstruction or other reorganisation of the Company.
The boards of both companies will review options for the future and
expect to come to a conclusion in the coming months. Should this review
result in a decision to voluntary liquidate the Company, it is likely
that this would take place over a period of two to three years. The
Directors therefore believe that it remains appropriate to prepare the
accounts on a going concern basis. The financial effect of this event
cannot be determined at this time, although if a voluntary liquidation
were to take place, there might ultimately be a reduction in net asset
value as a result of realising investments at lower than the current
carrying values and costs associated in selling the Company's
investments.
ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not
constitute the Company's statutory financial statements in accordance
with section 434 Companies Act 2006 for the year ended 30 September
2016, but has been extracted from the statutory financial statements for
the year ended 30 September 2016, which were approved by the Board of
Directors on 31 January 2017 and will be delivered to the Registrar of
Companies following the Company's Annual General Meeting. The
Independent Auditor's Report on those financial statements was
unqualified and did not contain any emphasis of matter nor statements
under s498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 30 September 2015 have been
delivered to the Registrar of Companies and received an Independent
Auditor's Report which was unqualified and did not contain any emphasis
of matter nor statements under s498(2) and (3) of the Companies Act
2006.
A copy of the full annual report and financial statements for the year
ended 30 September 2016 will be printed and posted to shareholders
shortly. Copies will also be available to the public at the registered
office of the Company at Ergon House, Horseferry Road, London SW1P 2AL
and will be available for download from www.downing.co.uk.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Hazel Renewable Energy VCT 1 plc via Globenewswire
http://www.hazelcapital.com
(END) Dow Jones Newswires
January 31, 2017 12:48 ET (17:48 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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