REG - Gresham HouseRE VCT2 - Full Year Results
31/01/2023 07:01
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230131:nRSe2985Oa&default-theme=true
RNS Number : 2985O Gresham House Renewable EnergyVCT2 31 January 2023
31 January 2023
Gresham House Renewable Energy VCT 2 PLC
(the "VCT" or the "Company")
Full Year Results
The VCT is pleased to announce its full year results for the year ended 30
September 2022.
The Company's Annual Report and Financial Statements for the year ended 30
September 2022 will be posted to shareholders who have elected to receive hard
copies. In accordance with Listing Rule 9.6.1 copies of the document have been
submitted to the UK Listing Authority and will shortly be available to view
on the Company's corporate website
at https://greshamhouse.com/real-assets/new-energy-sustainable-infrastructure/gresham-house-renewable-energy-vct-2-plc/
(https://greshamhouse.com/real-assets/new-energy-sustainable-infrastructure/gresham-house-renewable-energy-vct-2-plc/)
and have also been submitted to the UK Listing Authority and will be
shortly available for inspection from the National Storage Mechanism
at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
- END -
Gresham House Renewable Energy VCT 2 PLC - LEI: 213800GQ3JQE2M214C75
For further information, please contact:
Gresham House Asset Management Renewablevcts@greshamhouse.com (mailto:Renewablevcts@greshamhouse.com)
Investor Relations Tel: 020 7382 0999
JTC (UK) Limited - Company Secretary GreshamVCTs@jtcgroup.com (mailto:GreshamVCTs@jtcgroup.com)
Ruth Wright
Tel: 020 3846 9774
Chairman's Statement
I am pleased to present the Annual Report of Gresham House Renewable Energy
VCT2 plc (VCT) for the year ended 30 September 2022.
The Company entered a Managed Wind-Down in the previous financial year having
adopted a New Investment Policy which had the objective of realising the
Company's investments in a manner that achieves a balance between maximising
the net value received from the sale of assets and making a timely return of
capital to Shareholders. Having initially entered exclusivity with one
interested party early in the financial year it had been anticipated that a
sale of most of the assets would be completed by the end of the financial
year. However, during the due diligence process several issues were uncovered,
many of which related to the age of the assets and that required further
remediation. These points, and both market turmoil following the Russian
Federation's invasion of Ukraine and instability within the UK Government,
resulted in a much more protracted process and required further negotiation
with the potential purchaser. Whilst many of the issues identified have been
closed off, the Board and the Investment Adviser are continuing to work
through the remaining issues and it is hopeful that a conclusion will be
reached over the course of 2023.
In terms of the performance of the portfolio, following extensive remedial
works carried out at several sites and that commenced in the prior financial
year, performance of the entire estate has improved significantly, with
performance now being in line with expectations. Despite higher irradiation
over the summer months, the significantly more favourable power purchase
agreements (PPAs) negotiated and agreed during the year as well as the
portfolio's inflation linked subsidies, the NAV per share has remained broadly
stable over the year at 91.3p per share (2021: 89.3p per share). This is
because whilst the NAV per share reflects the valuation of the portfolio at 30
September 2022, it takes into account the Electricity Generator Levy (EGL), a
45% tax. This was expected to impact the value as at the 30 September
although the exact details were not announced by the UK Government until after
the year end, and that would likely be payable by the acquirer of these assets
as well as the rise in corporation tax to 25%. It is the Board's opinion that
it is right to take into consideration the impact of the EGL given the New
Investment Policy adopted in July 2021 and delivers a NAV that reflects the
fair value of the portfolio's assets. Shareholders should take note that if,
as in previous years, a portfolio value based purely on the cashflows
generated by the assets were to be used, it would result in a value that would
be considerably higher as the Company would not be subject to the EGL. This is
because the Company's generation output falls below the threshold for the EGL,
and the revenues are within the £10mn allowance.
Should high inflation be sustained for the longer term and/or the security of
gas supply from Russia remain the key factor in European energy markets
leading to continued high power prices, it is expected that the value of these
assets will remain at a higher level and could increase. However, the assets
do have a limited market compared with newer solar assets as given their age
they can be challenging to manage, and have complex financing arrangements
which any buyer must take over.
At the year-end, Giles Clark resigned and stepped down from the Board. I thank
him for his valuable contribution. It is not the intention to replace him
given the Managed Wind-Down. Giles Clark was appointed a Director of Gresham
House Renewable Energy VCT1 Plc on 30 September 2022.
Investment portfolio
At the year end, the VCT held a portfolio of 16 investments, which were
valued at £28.0mn. One-follow on investment was made during the year,
investing an additional £67,500 into bio-bean Limited to fund the growth and
development of the business. There have been no exits during the year.
The portfolio is analysed (by value) between the different types of assets as
follows:
Ground mounted solar 85.8%
Rooftop solar 8.7%
Small wind 4.1%
Non-renewable assets 1.4%
The Board has reviewed the investment valuations at the year end and notes
that the valuation of the portfolio has increased by £0.5mn or 1.9%. As
indicated earlier, the underlying portfolio has been positively impacted by
the increase in power prices as well as increases in inflation projections as
most of the revenue that the solar farms in the Company's portfolio receive is
linked to RPI which increases profitability and therefore the valuation of the
assets.
Through the renegotiation of several PPAs, significantly higher power prices
have been locked into the portfolio which will generate stronger returns over
the next two years. On the other hand, the discount rates applied have
increased in line with recent rises in the Bank of England base rate. In
addition, the UK Government has announced a levy on revenue from the sale of
electricity, the EGL, which effectively increases the marginal rate of
taxation on electricity revenues above £75 per megawatt-hour to 70%. Whilst
the Company is below the de minimis threshold at which the EGL applies, any
future buyer of the Company's solar farms is likely to be within the scope of
the EGL, as currently proposed, and this would reduce the fair market value at
which any disposal would be likely to take place.
As referred to previously a problem has arisen in relation to the connection
of the South Marston solar farm to its off taker. This arose from the decision
of the off taker (Honda) to cease business at the site South Marston supplies
and to sell the site to a third party. It has taken considerable time and
effort to resolve the issue. Whilst the new owner of the site, a provider of
logistic facilities, says they want to use the power from South Marston they
cannot commit until they have planning permission (not yet granted ) and
customers on site. In order to resolve the uncertainty around this situation a
new grid connection has been negotiated so removing this impediment to the
potential sale of the asset and the others within the same loan structure.
Venture Capital investments
The VCT also holds two investments that are not in renewable energy. As
indicated earlier a follow-on investment of £67,500 was made into bio-bean
Limited (bio-bean) in December 2021 to fund the growth and development of the
business. However, despite demand being strong, trading performance since this
investment has been below expectations due to supply shortages. As a result,
the valuation of bio-bean has decreased by £0.4mn or 53.2%, while the
valuation of the VCT's investment into Rezatec has also decreased by £1.1mn
or 94.4% due to continued underperformance against budget and few new contract
wins.
Further detail on the investment portfolio is provided in the Investment
Adviser's Report.
Net asset value and results
At 30 September 2022, the Net Asset Value (NAV) per Ordinary Share stood at
91.2p and the NAV per 'A' Share stood at 0.1p, producing a combined total of
91.3p per "pair" of Shares. The movement in the NAV per share during the year
is detailed in the table below:
Pence per
'pair' of
shares
NAV as at 1 October 2021 89.3
Plus NAV increase 2.0
NAV as at 30 September 2022 91.3
The NAV Total Return (NAV plus cumulative dividends) has increased by 1.4% in
the last year and at the year end stands at 148.4p excluding the initial 30%
VCT tax relief, compared to the cost to investors in the initial fundraising
of £1.00 or 70.0p net of income tax relief.
The profit on ordinary activities after taxation for the year was £0.5mn
(2021: £2.7mn loss), comprising a revenue profit of £80,000 (2021: £23,000)
and a capital profit of £445,000 (2021: capital loss of £2.7mn) as shown in
the Income Statement.
Dividends
On 21 December 2022, the Board declared a dividend in respect of the year
ended 30 September 2022 of 2.0p per Ordinary Share. This dividend was paid on
27 January 2023 to Shareholders on the register at 6 January 2023. Following
the payment of this dividend, total dividends paid to date for a combined
holding of one Ordinary Share and one 'A' Share will increase to 59.1p (2021:
57.1p). This level of dividend is lower than has been paid historically in
years up to 2020 (no dividend was paid in 2021) but the Company has faced
exceptional costs in the past two financial years. These costs have mainly
been associated with the need for remediation work on the portfolio of solar
assets, which are ageing and hence needed expenditure to replace old equipment
to restore their performance levels. The Board is pleased to report that the
results of these works have been positive and that indications are that
performance levels are satisfactory and in line with expectations. In
addition, there have been costs associated with the proposed winding down of
the Company and the sale of investment assets in accordance with Shareholders
wishes as expressed in the Continuation Vote in March 2021. The improvement in
returns for Shareholders discussed in this Report are expected provide
additional resources to improve distributions to Shareholders in future should
the sale of the assets not be achieved as planned.
To increase the Company's distributable reserves and facilitate future
dividend payments, the Directors will seek shareholder approval for a
reduction of certain non-distributable reserves at the forthcoming AGM. The
implementation of such a reduction of reserves is a Court led process that is
likely to take some months. The Board intends to continue the payment of
dividends as soon as distributable reserves are increased.
2022 Annual General Meeting (AGM)
The VCT's eleventh AGM was held on 23 March 2022 at 11.30 a.m. and all
resolutions were passed by way of a poll.
2023 Annual General Meeting (AGM)
The VCT's twelfth AGM will be held at The Scalpel, 52 Lime Street, London EC3M
7AF on 21 March 2023 at 12.00 pm.
Share Buybacks
As noted in previous Reports, the Board has decided that the VCT will not be
buying in Shares for the foreseeable future. The Board will keep this under
review as required.
Outlook
As noted earlier, the Board has not been able to progress the sale of the
Company's assets as quickly as Shareholders may have expected. It would like
to reassure Shareholders that it has been making every effort to ensure that
returns are maximised at the point of sale. The Board remains optimistic that
significant progress and a conclusion can be reached in 2023.
In the meantime, the improvement in power prices and the rise in inflation has
been very beneficial for the Company's assets. The Board therefore believes
that the outlook for the portfolio, as a whole, is positive.
Christian Yates
Chairman
30 January 2023
Investment Adviser's Report
Portfolio Highlights
Gresham House Renewable Energy VCT 2 plc (VCT) remains principally invested in
the renewable energy projects that the VCT and Gresham House Renewable Energy
VCT 1 plc (VCT1) have co-owned for a period of eight to eleven years,
depending on the asset, with the value of these projects representing close to
99% of the value of the portfolio. The total generation capacity of assets
co-owned by the VCT is 34.4MW. The VCT also has two venture capital
investments.
During the year the sale process of the solar energy projects that are owned
jointly with VCT 1, was progressed but has not yet concluded. The two VCTs
had appointed EY to prepare and run the sales process in the previous
financial year. A number of parties carried out initial due diligence on the
portfolio in the autumn of 2021, and submitted non-binding offers subject to
further due diligence. One potential buyer was granted exclusivity to perform
detailed due diligence and negotiations with that party continued throughout
the financial year. The significant uncertainties in the short and longer
term, caused by a combination of macro and more portfolio-specific
circumstances including economic and political turmoil in the UK during the
summer and autumn of 2022 at the top of the UK Government, the impact on
energy markets of The Russian Federation's invasion of Ukraine, various
windfall tax structures or iterations, issues relating to remediation works,
and in particular relating to the long-term certainty of the South Marston
ground-mounted solar asset's grid connection, all prevented the sale process
from being finalised during the financial year.
The Investment Adviser, in the meantime, continued to manage the assets with
the objective of deriving the best possible yield from them, whilst also
supporting the Board of the VCT and its advisers in advancing the sale process
and evaluating the non-binding offers that were received.
The Investment Adviser has undertaken a valuation exercise for the purpose of
determining the Net Asset Value and has provided the Directors with several
valuation scenarios based on different assumptions for the key variables
governing future performance. It is the Directors of the VCT that have the
responsibility of valuing these assets. In light of the ongoing sales process,
the valuation presented in this annual report necessarily reflects the
Directors' view of the fair value of the assets which incorporates potential
costs (such as the Electricity Generator Levy (EGL)) an acquirer may incur
through holding the assets as well as their view on the levels of the
assumptions that determine future operational and financial performance.
The vast majority of the assets held by the VCT produce solar power. The solar
portfolio is older than well over 90% of the total installed solar capacity in
the UK, but this means that the VCT's solar assets have higher
government-backed incentives than most other solar installations.
During the year, the total revenue from renewable energy generation was
£13.1mn (2021: £10.5mn) and of this, £11.5mn (2021: £9.4mn) was from
government incentives and inflation-linked contracts. The total revenue from
the renewable assets was 4.4% ahead of budget due to higher irradiation and
higher power prices.
The downside of the relatively old age of the VCT's solar assets is the
additional maintenance required to keep them operating effectively. Projects
to repair or replace certain components across the three worst performing
older assets were completed during the previous financial year. Performance
since completion of those works has been encouraging, with consistently
increased output and reliability at Kingston Farm, Lake Farm and Beechgrove
Farm with new, 10-year warranties on some of the key equipment (e.g. new
inverters) and UK based technical staff available for ongoing repairs or
maintenance. Successful warranty claims at Beechgrove Farm and South Marston
led to additional remedial works that also improved performance, particularly
at Beechgrove Farm.
In terms of available resources, the year benefited from strong solar
irradiation which came in 6.7% ahead of budget. This should have resulted in
better generation performance but there were technical issues and downtime
caused by remedial works at three of the ground mounted sites (Beechgrove,
South Marston and Ayshford Court, as described below) and poorer than expected
performance of the roof mounted portfolio. These legacy issues have been
addressed through successful warranty claims and repair works.
Whilst all works had to be suspended on residential roof mounted solar
installations in the previous financial year as engineers were not permitted
to enter homes during Covid lockdowns and restrictions that carried through
into the financial year, much of these have now been carried out. Housing
Associations, the landlords of the majority of the properties, were more
cooperative in their approach in permitting access for the contractors for
remedial works.
In terms of the macroeconomic environment, the effects on the portfolio are
summarised below:
· Power prices were significantly reduced through the initial months of
the pandemic and price fixes were therefore sought in 2020 and early 2021, as
soon as Power Purchase Agreement (PPA) providers began offering above the
budgeted levels at the time. Fixing the prices under PPAs provided security of
revenues. However, the fixed prices meant that the portfolio could not then
benefit from the increases in wholesale power prices during the autumn of 2021
and the further increases experienced immediately after the Russian
Federation's invasion of Ukraine. However, these PPAs expired during the
financial year and all but one were replaced with new PPAs, with a 1-2 year
fixed term, with prices at a multiple of the previous levels.
· With much of the portfolio's revenue being inflation linked, higher
and more sustained inflation increased the profitability of the assets and
therefore their value, even though most of the cost base and the debt
facilities are also inflation-linked.
The VCT also holds newer investments in growth businesses; bio-bean Limited
(bio-bean), the world's largest recycler of waste coffee grounds, which
produces sustainable, clean fuels as well as advanced biochemicals for use in
the food industry; and Rezatec Limited (Rezatec), a climate technology company
and software developer. Rezatec applies Artificial Intelligence based
algorithms to a range of earth observation data sources (satellite imagery,
soil data, weather data, topographic data etc.) to generate an information
services platform to help monitor land-based assets in the forestry,
agriculture and infrastructure sectors.
Both businesses went through challenging times in the year. Rezatec failed to
meet the revenue growth rate in its business plan and to secure institutional
funding. This resulted in an emergency funding round subscribed to by some of
the existing investors and a drive to bring down the company's cost base. The
company's value has therefore been written down by 94.4% to £0.07mn.
bio-bean also failed to meet its revenue targets due to lower than expected
deliveries of its feedstock and less demand for its core product due to a
warmer than usual winter. Emergency funding had to be secured from some of its
existing investors and the company has now engaged an adviser to explore
options for a trade sale. It has also been written down in value to £0.3mn, a
fall of 53.2%.
Portfolio Composition
Portfolio Composition by Asset Type and Impact on Net Asset Value (NAV)
30 September 2022 30 September 2021
Asset Type kWp Value % of Portfolio Value % of Portfolio
('000) value ('000) value
Ground mounted solar (FiT)* 20,325 £20,745 74.1% £19,341 70.6%
Ground mounted solar (ROC)** 8,699 £3,262 11.7% £2,472 9.0%
Total ground mounted solar 29,024 £24,007 85.8% £21,813 79.6%
Rooftop solar (FiT) 4,297 £2,425 8.7% £2,602 9.5%
Total solar 33,321 £26,432 94.5% £24,415 89.1%
Wind assets (FiT) 1,030 £1,156 4.1% £1,171 4.3%
Total renewable generating assets 34,351 £27,588 98.6% £25,586 93.4%
Venture Capital investments N.A. £392 1.4% £1,814 6.6%
TOTAL 34,351 £27,980 100.0% £27,400 100.0%
* Feed in Tariff (FiT)
** Renewables Obligation Certificate (ROC)
The 34.4MWp of renewable energy projects in the portfolio of the VCT and VCT 1
generated 33,378,218 kilowatt-hours of electricity over the financial year,
sufficient to meet the annual electricity consumption of circa 8,442 homes.
The Investment Adviser estimates that the carbon dioxide savings achieved by
generating this output from solar and wind versus gas-fired power, are
equivalent to what circa 19,400 mature trees would remove from the atmosphere.
Portfolio Summary
Approximately 99% of the portfolio value, and all of the income for the
portfolio, is derived from the renewable energy generation assets.
Renewable energy revenue by asset type
The performance against budget is shown below:
Portfolio revenues in the FYE 30 September 2022 by Asset Type (£ Sterling)
Asset type Budgeted Actual Revenue
revenue revenue performance
Ground mounted solar (FiT) 9,510,159 9,950,021 104.6%
Ground mounted solar (ROC) 1,406,636 1,673,400 119.0%
Roof mounted solar 1,248,280 1,191,092 95.4%
Wind assets 375,675 278,776 74.2%
TOTAL 12,540,750 13,093,289 104.4%
The revenue is affected by:
· renewable energy resources (solar irradiation or wind, as relevant);
· the performance of the assets in converting the resources into
revenue (i.e. how the assets are performing, any technical issues, etc); and
· the revenue per unit of energy generated.
These themes will be expanded on below.
It is clear from the table above that the positive variance at the
ground-mounted solar farms was most material with actual revenues benefitting
from more generation as well as higher power prices. This is detailed in the
chart within the Annual Report:
VCT GM Solar Portfolio Revenue Analysis 2021/2022
The old equipment, inverters and transformers that had been causing the
reduction in output last year were replaced in the prior financial year.
Successful warranty claims against Jinko Solar who supplied the solar modules
for Beechgrove and South Marston resulted in remedial works being carried out
to the modules and associated cabling over the summer months. The positive
results of this significant remedial work became apparent in the ensuing
generation numbers.
The slight underperformance at technical level, when adjusted for the high
irradiation, was caused by the ROC-remunerated Priory Farm and Ayshford Court
assets underperforming due to poor service from the Operations &
Maintenance (O&M) contractor that substantially increased response times.
The issues at the Ayshford Court asset were addressed in the first half year
but the Priory Farm asset suffers from regular short duration outages that
require manual intervention. A new O&M contractor is in the process of
being appointed.
Overall, 88% of income was inflation linked (either through the FiT, ROC or
contracts for the sale of electricity), with the ROC assets having the highest
price exposure. Thus, they benefited more from the renewal of the PPAs at
higher prices.
These themes will be expanded on below.
Renewable energy resources
The portfolio is heavily weighted to solar (96% by capacity of the renewable
assets, and 94% of total portfolio by value).
During the year the assets benefited from better solar resources than
budgeted, with solar irradiation being 6.7% ahead for the year.
However, better solar resources do not automatically imply better generation
as the performance of solar panels is also adversely affected by heat. The
exceptionally hot weather over the summer months, particularly in July 2022,
resulted in some deterioration in technical performance.
Technical performance
The table below shows the technical performance, including the impact of the
higher irradiation, for each of the groups of assets.
Asset Type Budgeted Actual Technical (in the
output output performance same period
last year)
Ground mounted solar (FiT) 20,392,254 20,445,981 100.3% 17,303,047
Ground mounted solar (ROC) 8,316,605 8,675,945 104.3% 8,661,522
Roof mounted solar 3,574,175 3,480,607 97.4% 3,498,469
Wind assets 1,045,301 775,684 74.2% 791,970
TOTAL 33,328,335 33,378,218 100.2% 30,255,008
The ground mounted solar (FiT) assets performed ahead of budgets and
significantly ahead of the prior financial year.
The results of the successful repowering works at Kingston Farm and Lake Farm
(each with 4.98MW capacity, FiT assets) were evident with Kingston Farm
performing better than budget, even when adjusting for higher irradiation. The
figures for Lake Farm were slightly lower than budget when adjusted for
irradiation but nevertheless a significant improvement compared to the
previous year.
Beechgrove's (3.98MW, FiT) repowering works were completed just before the end
of the last financial year, however performance was held back by another
issue, namely cracking connectors at the back of its solar panels which in
turn were causing isolation faults on the system. Following a root cause
analysis, this degradation of the connectors was found to be caused by the
high salt content in the air due to the site's proximity to the sea. A
successful warranty claim against Jinko Solar, the manufacturer, resulted in
the replacement of all original connectors with ones made from an improved
polymer, which can withstand the marine environment, over the summer. The
ensuing generation data suggests that the issue has been resolved.
Overall, the replacement works are expected to have a payback of under five
years and the assets benefit from ten-year warranties from Huawei, the
inverter manufacturer who has a strong customer service team in the UK.
South Marston (4.97MW FiT) has historically sold all its power to a Honda
production plant adjacent to the site at Swindon. Honda closed down this
facility and its exit is leading to changes of contractual arrangements for
the sale of power to the businesses that will move into the site, and
potentially to the multi-part agreement governing the access to and use of the
grid connection. The Investment Adviser is working with Honda, the commercial
real estate developer that intends to acquire the site from Honda, and various
advisers to ensure the continuity of supply of power by the solar farm.
The purchaser of the site is very keen to make the solar power available to
its future tenants when they are expected to move onto the site in the second
half of 2024 and has maintained in its planning submission for the new
development that it will retain the existing infrastructure including the
switchgear through which South Marston connects to the electricity grid.
Nevertheless, South Marston's contractual rights need to be bolstered to
satisfy any buyer of the VCT's assets that there is zero risk of the project
losing its ability to export. The Investment Adviser is pursuing multiple
avenues to fully de-risk the grid connection. These include accepting a grid
connection offer from Southern Electric Power Distribution plc for a brand new
and dedicated connection outside the former Honda site, putting in place
contingent liability insurance and negotiating with the new purchaser of the
site to improve the contractual position. A provision for the cost of the new
grid connection has been made in the financial forecast that forms the basis
of the valuation in this Report.
The ground mounted solar (ROC) assets also performed ahead of budgets, similar
to the previous year. These assets were not repowered and did not suffer long
outages needed for remedial works in the prior financial year, making the
comparison more straightforward.
Ayshford Court (5.45MW, ROC) also exhibited lower than expected performance in
the first half of the financial year. This was caused by a small number of
failing solar modules taking down entire strings across several modules. The
string-based configuration of many solar plants means that a small number of
module failures can take large parts of the plant offline. The solution to
this is close monitoring and a rearrangement and redistribution of the solar
modules such that the faulty modules are grouped together, thereby minimising
the number of impacted modules. These works were carried out in March and
April 2022 and have delivered successful results. A warranty claim is also in
progress against the manufacturer.
Overall, the benefit of high irradiation was offset by heat effects, planned
outages to carry out the works and lower technical performance for some of the
assets, but generation was still above budget.
Generation of the rooftop solar portfolio was 2.6% lower than budget and
slightly below the same period last year. Irradiation cannot be measured at
roof mounted solar installations as it is not cost effective to install
pyranometers but one can assume that the irradiation at these sites was in
line with the irradiation at the ground mounted assets. The Investment Adviser
continues to work with the O&M contractors and landlords to get access to
the rooftop installations that are underperforming, in order to effect repairs
as soon as possible, and have these repairs completed in a cost-effective
manner.
The small wind portfolio performed 25.8% lower than budget, continuing the
poor performance experienced in recent years. The Investment Adviser
attributes the poor performance to the turbines' ability to capture the
resource having been overstated at the time of installation. Small wind
accounts for only 3% of the portfolio in terms of capacity.
The entire portfolio is composed of R9000 wind turbines, which have generally
performed satisfactorily and have the support of an experienced O&M
contractor with easy access to spare parts and maintenance crews.
Revenue per kilowatt hour of renewable energy generated
The UK Government has used several mechanisms to encourage investment into
renewable energy generation, including the FiT and ROC support mechanisms.
The VCT's renewable assets benefit from these schemes which provide revenues
predominantly linked to the Retail Price Index (RPI). As the solar asset class
has matured and both the costs and perceived risks of building new renewable
energy generating capacity have fallen, so have the value of the incentives
offered for new installations. For example, an asset that generates
electricity from solar power that was commissioned and accredited for the FiT
before the end of July 2011 currently receives over 40p for every kilowatt
hour (kWh) of electricity it produced (with the added extra of a floor price
support to ensure it may also sell this power at a reasonable price), with
inflation taking that above 45p from 1 April 2023. The incentives for new
capacity have fallen consistently since the assets owned by the VCT were
commissioned, and new solar installations built today receive no such
incentives and must rely on selling power at market prices for their income.
VCT Solar Portfolio, Revenue split for year 2021/2022
Of total revenues generated in the year, 81.5% was earned from government
backed incentives for generating renewable electricity. Included within export
revenue above, a further 4% is inflation linked, either through the FiT export
floor price for selling electricity or contracts for the sale of electricity,
taking the government backed or RPI linked revenues to 85% of the total.
The high proportion of income that is fixed by the government, is RPI linked
and is not exposed to wholesale power prices, a significant driver of value in
this portfolio. This enabled the portfolio to be largely insulated from the
very significant reduction in the wholesale price of electricity experienced
during the initial months of the pandemic in 2020. Whilst predictable,
government backed revenues reduce the risk, given the low power prices through
the first few months of the pandemic, when prices increased the assets entered
into fixed price contracts of various lengths to sell power. This further
reduced the risk of variability in revenues from wholesale power price
fluctuations. This was beneficial when coming out of the pandemic but it also
meant that the assets missed out on the increase in wholesale power prices
until the fixed price contracts started expiring in April 2022. The PPA
contracts were replaced or updated with new prices valid for 1-2 years as they
expired during the financial year.Total (power price sales and subsidies)
revenues per kWh generated by the solar assets were 39.4p for the year ended
30 September 2022. These are projected to rise by over 50% to 60.9p in the
financial year ending 30 September 2023 and to 64.2p in the financial year
ending 30 September 2024.
Operating costs
The majority of the cost base is fixed and/or contracted under long-term
contracts and includes rent, business rates, and regular O&M costs.
Many of these costs have also risen in line with inflation. A minority of the
leases for the ground-mounted solar assets contain clauses that require
supplemental rent to be paid to the landlords in the event of revenues
exceeding set thresholds, and these thresholds will be exceeded in the new
financial year due to high power prices.
The main cost item that shows variability from year-to-year is repair and
maintenance costs. Repair and maintenance spend involving solar panels and
inverters, the key components of a solar project, is covered by cash held in
the maintenance reserves. At the financial year end reserves totalling £1.0mn
were in place for all the ground mounted solar assets and for the majority of
the roof mounted solar assets, and additional amounts will be deposited in the
reserves in the future. These provisions were revised upwards following a
technical review that was commissioned early in the financial year looking at
historic experience of repairs.
Feedback from the sales process indicated that third parties would charge more
in the future for managing the SPVs (to account for the complexity of managing
a portfolio of this type and age and which includes leverage and a large
number of distributed, roof-mounted solar assets) than the Investment Adviser
has historically modelled to date. The Investment Adviser therefore increased
the cost assumptions used in the portfolio valuation by 100% at the time of
the half year valuation. This increase does not apply to ongoing cashflow that
the assets earn until the portfolio is sold.
Venture Capital investments
The VCT holds an investment of £0.7mn (at cost, including the £67,500
additional investment made in the year) in bio-bean, the world's largest
recycler of waste coffee grounds. bio-bean sources waste coffee grounds from
major retail coffee chains by offering the cheapest and most sustainable
avenue for disposing of them. bio-bean then converts these into coffee logs
for use in wood burning stoves as well as into pellets for combustion in
biomass-fed energy generators. It sells the logs online, through large
supermarkets and through home improvement chains. bio-bean also markets and
sells dried coffee grounds for use in a diverse set of applications including
cosmetics, bioplastics and the automotive industry.
Demand for the coffee logs (the main product) remained strong, albeit with the
temporary impact of warmer weather in the second half of last winter. However,
bio-bean was not able to benefit as much as was hoped from the surge in the
price of gas (and therefore the cost of indoor heating) that took place
following the Russian Federation's invasion of Ukraine. Its coffee logs
compete mainly against sawdust-derived heat logs rather than gas-fuelled
heating. bio-bean was also constrained, especially in the first few months of
the financial year by reduced deliveries of waste coffee grounds, its primary
feedstock.
The new, higher margin dried coffee grounds is a developing market, with first
revenues achieved during the year and a pipeline of business development
opportunities that could lead to a significantly improved profit outlook, but
have not had a meaningful impact on financial performance so far.
bio-bean required additional funding from its investors in the spring of 2022.
The VCT chose not to participate on the basis of bio- bean's vulnerability to
weather patterns, its heavy dependence on timely and low-cost feedstock
deliveries and its lack of pricing power for coffee logs, even in an
exceptional environment where energy and heating became very expensive.
bio-bean's board decided to explore an exit for Shareholders through a trade
sale, and mandated an advisory firm in September to assist. The Investment
Adviser believes a buyer will be found but recognises that there is
significant uncertainty in relation to the achievable price. The valuation of
the VCT's stake has been marked down by 52% to reflect this uncertainty.
The VCT's other growth investment, Rezatec Limited, also ran into
difficulties. Rezatec's management managed to achieve steady growth but far
from the rate envisaged in the business plan on the basis that the VCT
invested in January 2020. This, coupled with a cost base that was handled with
less prudence than the Investment Adviser would have liked, led to Rezatec
requiring a significant amount of new investment in the financial year. A
process led by KPMG failed to secure the necessary amount and management had
to approach the existing investor base for emergency funding.
The VCT decided not to participate as it was not convinced of management's
ability to deliver the original business plan and achieve a successful exit.
Investors that chose to participate did so on the basis of terms that gave
them as much protection as possible in the event of no upturn in performance.
Although, the investment by the VCT had been structured in a way that
initially provided an element of protection against slower than expected
growth and the dilution that can come with additional funding rounds, this
protection had to be in large part surrendered as a condition of the emergency
funding round.
The company has now been put up for a trade sale as it is believed that its
software, algorithms and customer base could be useful to commercial satellite
owners in monetising the value of the large amount of geospatial data they
generate.
The value of this investment has therefore been marked down to close to £nil
to reflect the Board's belief that a negative outcome is far more likely than
a positive outcome for the company.
Regardless of these regrettable developments for the two venture capital
investments, it would always have been a challenge to realise these
investments in line with the disposal of the other VCT assets. The market for
secondary stakes in private, venture capital funded companies is less liquid
than the market for renewable energy investments.
Portfolio valuation
Whilst the Investment Adviser is supporting the proposed sale of the VCT's
renewable assets and notes that a firm (i.e. binding) offer to purchase the
assets will be the best indication of value, consistent with prior years the
NAV of the renewable portfolio is imputed from the valuation of future
projected cash flows generated by the renewable energy assets, as well as the
cash held by the companies in the portfolio and the cash held by the VCT. The
NAV of the overall portfolio also includes the now marked down value of the
venture capital investments into bio-bean and Rezatec.
The future cash flow projections for renewable assets are impacted by:
· Renewable resources. Despite this year enjoying higher solar
irradiation than budgeted, the assumptions on irradiation have not been
changed.
· Technical performance. As noted above, the repairs at Lake Farm,
Kingston Farm and Beechgrove Farm largely resolved their historic performance
issues, however expectations for future generation were slightly marked down
at the half year point to assume a more prudent position. Ayshford Court,
South Marston and Priory Farm suffered technical issues that were addressed.
The O&M contractor for Ayshford Court, Priory Farm, Wychwood and Parsonage
is in the process of being replaced and this is expected to lead to better and
more timely maintenance of these assets.
· Power prices. Power price forecasts that were initially adversely
impacted by COVID-19 have now risen to the highest levels in the lifetime of
the VCT due to acceleration of demand post the COVID-19 lockdowns and
restrictions ending coinciding with the Russian Federation's invasion of
Ukraine and the ensuing disruption to European power markets. The Investment
Adviser was able to capitalise on these by entering into new PPAs that have
locked in high prices for the next one to two years.
The Investment Adviser also decided to reflect the growing proportion of solar
power in the UK energy mix in assumptions for prices the solar assets would
earn in the future. Solar power is available throughout daylight hours which
do not always cover peak price periods. A solar asset therefore has to sell a
greater (compared to a provider of "baseload" power) proportion of its power
at times in the day when prices are lower due to demand being lower and power
being more plentiful due to all the solar plants generating at the same time.
This is known as the solar capture price.
The latest generation-weighted forecasts provided by a leading market
consultant, and current offers for PPAs from purchasers for the power
generated are used to value the assets.
The UK Government responded to the cost-of-living crisis, caused in part by
high energy bills for households and businesses, by introducing the
Electricity Generator Levy (EGL) that imposes a 45% charge on exceptional
receipts generated from the production of wholesale electricity where
exceptional receipts will be defined as wholesale electricity sold at an
average price in excess of £75 per MWh over an accounting period. This does
not cover revenues earned from government subsidies such as ROCs and FiTs. The
EGL will only apply to exceptional receipts exceeding £10mn in an accounting
period. There is also a de minimis threshold of 50GWh of annual generation at
portfolio level below which the EGL is not charged. The VCT is in the
fortunate position that its portfolio falls below this level. However, almost
all potential buyers, including all of the parties who submitted offers during
the sales process, would not be exempt from the EGL and would therefore have
to account for its impact in their offer prices. The EGL will be in effect
from 1 January 2023 until 31 March 2028, and will apply to pro-rated profits
for accounting periods between those dates. The levy will be administered via
the Corporation Tax system and paid by the responsible company in a group of
companies.
· Asset Life. The assets are valued taking into account the duration of
the subsidies, the leases and the planning permissions, without assuming
extensions. It will be appropriate as the end of the lease terms get closer to
approach landowners and local planning authorities with a view to negotiating
extensions. Although power prices in the future are projected to decline from
the current high levels, falling costs of equipment and the fact that most of
the investment has already been incurred, would enable additional returns in
the longer term from such life extensions.
· Costs. Up-to-date costs for the assets are included, reflecting all
commercial negotiations, expectations for lower maintenance costs after the
older assets are repaired and the need to provision for the costs of repairs
to equipment such as switchgear and transformers that may be needed in the
future. The asset management costs going forward have been doubled from those
charged by the Investment Adviser, following feedback from the sales process.
· Corporation tax. The actual corporation tax paid will impact on the
cash available to Shareholders.
· Inflation. With most of the revenues being linked to RPI, any
increase in inflation projections increases the overall profitability, and
therefore valuation of the assets. This is countered, to some degree, by debt
service for the two debt facilities also being indexed to inflation, with an
increase in inflation resulting in higher interest charges.
It is particularly challenging to forecast the future direction of inflation.
Central Banks around the world have raised interest rates in a bid to quell
inflation. Financial markets are pricing inflation well in excess of 3% even
in the medium to long-term. A more prudent long run forecast of 3% has been
used in the calculation of the NAV.
Once the free cash projected to be generated by the assets is calculated, the
value of these cash flows has to be estimated. The Investment Adviser notes
that these cash flows are supported by a very high proportion of government
backed and index linked revenues. In the current financial market, such cash
flows are dependable and therefore valuable. With greater certainty of output
at the three large ground mounted solar assets that comprise 40% of the
installed capacity there is greater visibility on the returns on these assets.
The discount rates used reflect the Investment Adviser's experience in the
market and evidence of third-party transactions, as well as based on feedback
from other independent advisers.
The discount rates used to value the future cash flows have been increased by
1.5% for the solar asset portfolio since the end of the financial year (2021:
5.5% to 5.75%) to reflect the increase in the risk-free rate as a result of
the Bank of England raising interest rates. An increase of equal magnitude has
been applied to the wind assets.
The value of the investments in bio-bean and Rezatec has been determined using
International Private Equity Valuation Guidelines. Due to the highly dilutive
emergency funding round and the company's diminished future prospects,
Rezatec's valuation was marked down to less than 53% of investment cost to
reflect its continued, despite nearing the end of the pandemic, to variability
in feedstock supply, as well as weather patterns. The business has improved in
many respects including better margins, increased demand for its core product,
good traction in a new product, but success is highly dependent on sustained
and growing deliveries of feedstock at low prices. Bio bean's valuation has
also been marked down to reflect its continued, despite the end of the
pandemic, variability in feedstock supply, as well as weather patterns. The
business has improved in many respects including better margins, increased
demand for its core product, good traction in a new product, but success is
highly dependent on sustained and growing deliveries of feedstock at low
prices.
Overall, a £1.9mn increase in the value of the renewable generation assets
was offset by a £1.4mn reduction in the value of the venture capital
investments.
Outlook
The Investment Adviser's continued focus is to ensure that the assets operate
at or above budget whilst it supports the Directors' efforts to maximise exit
value for Shareholders.
Addressing the contractual status of the grid connection arrangement at South
Marston and de-risking the low probability (but high potential impact) loss of
this grid connection remains a key priority. In recent months, new avenues in
the form of an offer from the local Distribution Network Operator for South
Marston to connect to the grid at dedicated Point of Connection outside the
former Honda site, and contingent liability insurance have emerged. The
discussions between the parties involved, on new arrangements once the new
owner of the site is in place, have also progressed.
The repairs of the underperforming assets that were completed in the last
financial year appear, from this year's generation data, to have been
successful, as have warranty claims for the Beechgrove ground mounted solar
asset and these have provided greater visibility and reliability of revenues.
A new O&M contractor is about to be formally engaged for four of the eight
ground-mounted solar assets and this is expected to improve reliability for
those assets. The generation outlook for the portfolio has improved since the
beginning of the last financial year.
There is an observable impact of age on many of the assets that have not yet
been repowered in the portfolio. The Investment Adviser remains vigilant for
the purpose of spotting any signs of degradation early so that the impact on
availability can be managed and reduced. Further maintenance provisions have
been incorporated into the financial model to cover the risk of higher
maintenance expenditure on roof mounted assets.
The higher inflation outlook, whilst of concern from the point of view of the
wider UK and global economies, is positive for the owners of subsidised UK
renewable assets. Although most costs also rise in line with inflation, as
does the cost of servicing the two debt facilities, the net benefit of
increased inflation is strongly positive since it increases the inflation
linked revenues more than it increases the costs. The portfolio has been
enjoying the benefit of higher inflation from 1 April 2022 when subsidy levels
rose, with even higher inflation figures raising tariffs from 1 April 2023.
All but one of the eight ground mounted solar assets came out of their fixed
price PPAs during the financial year, which coincided with the spike in power
prices following the Russian Federation's invasion of Ukraine. The Investment
Adviser entered into new fixed price PPAs for one or two year durations for
each of these assets.
The combined effect of inflation and power prices locked in at high levels
should translate into significantly improved revenue and cashflow over the
next two years. Total revenues per kWh generated by the solar assets are
expected to rise to 60.9p in the new financial year and 64.2p in the financial
year ending 30 September 2024, from 39.4p in the last financial year ending 30
September 2022. Should generation stay at the same levels as in the financial
year, total revenues will increase in the same proportion, with a
corresponding impact on cashflow after debt service.
Beyond the one to two year term for the fixed power prices, it becomes very
challenging to predict the future course of inflation and power prices, with a
wide range of forecasts for medium to long-term inflation. There are plausible
future scenarios that could bring the levels of inflation as well as power
prices down substantially from current levels, which are already down from the
highest levels experienced in recent months.
The VCT is very fortunate that the EGL introduced by the UK Government with
effect from 1 January 2023 does not apply to the VCT, as the total generation
of its portfolio falls below the de minimis threshold of 50GWh per year.
However, most likely buyers of the VCT's assets already have renewable energy
portfolios and would not therefore be able to avoid paying the EGL as a result
of the de minimis. Accordingly, a fair value has been determined with the
assets valued for the purposes of the NAV as if the EGL would need to be paid.
The venture capital investments that accounted for close to 7p of the NAV have
been marked down by slightly under 6p, which is a disappointing outcome.
Whilst fortunes can turn around, the Investment Adviser is not at this time
expecting to recover the original amounts invested.
The last financial year has certainly been notable in terms of the outlook for
renewable generation in the UK and the rest of the world. In particular, the
Russian Federation's invasion of Ukraine exposed Europe and the UK's
vulnerability to energy price shocks and this is expected to add an additional
impetus to the deployment of renewable energy. The low power price and low
inflation environment changed rapidly allowing renewable asset owners to
benefit, before the impact of the EGL, from selling their power at much higher
rates, and those with subsidy-backed assets enjoying higher inflation as well.
These have been reflected in the renewable generation portfolio's valuation.
For this specific portfolio, that has had successful upgrades implemented on
many of its assets, the outlook is very positive it remains to be seen whether
this can be translated into a successful sale in 2023.
Gresham House Asset Management Limited
30 January 2023
Review of Investments
Portfolio of investments
The following investments were held at 30 September 2022:
Qualifying and part-qualifying investments Operating sites Sector Cost Valuation Valuation % of
£'000 £'000 movement portfolio
in year
£'000
Lunar 2 Limited* South Marston, Beechgrove Ground mounted solar 1,330 15,271 1,163 54.6%
Lunar 1 Limited* Kingston Farm, Lake Farm Ground mounted solar 125 2,403 185 8.6%
New Energy Era Limited Wychwood Solar Farm Ground mounted solar 884 1,835 50 6.6%
Ayshford Solar (Holding) Limited* Ayshford Farm Ground mounted solar 826 1,740 378 6.2%
Tumblewind Limited* Priory Farm Small wind/solar 1,188 1,521 410 5.4%
Vicarage Solar Limited Parsonage Farm Ground mounted solar 871 1,236 7 4.4%
Gloucester Wind Limited Gloucester Wind Roof solar 1,000 789 (68) 2.8%
Hewas Solar Limited Hewas Solar Roof solar 1,000 743 (88) 2.7%
HRE Willow Limited HRE Willow Small wind 875 709 9 2.5%
St Columb Solar Limited St Columb Solar Roof solar 650 529 (4) 1.9%
Penhale Solar Limited Penhale Solar Roof solar 825 365 (16) 1.3%
bio-bean Limited** Cambridgeshire Clean energy 695 325 (370) 1.2%
Minsmere Power Limited Minsmere Small wind/solar 975 311 (14) 1.1%
Small Wind Generation Limited Small Wind Generation Small wind 975 136 (11) 0.5%
Rezatec Limited** United Kingdom Clean energy 1,000 67 (1,119) 0.2%
Lunar 3 Limited* Ground mounted solar 1 0 0 0.0%
13,220 27,980 512 100.0%
Cash at bank and in hand 1 0.0%
Total investments 27,981 100.0%
* Part-qualifying investment
** These investments were permanently impaired during the financial year.
£370,000 of the valuation movement in bio-bean Limited and £933,000 of the
valuation movement in Rezatec Limited have been recognised as a realised loss.
All venture capital investments are incorporated in England and Wales.
Gresham House Renewable Energy VCT1 plc, of which Gresham House Asset
Management Limited (GHAM) is the Investment Adviser, holds the same
investments as above.
Investment movements for the year ended 30 September 2022
Purchases
Cost at Valuation at Additions Valuation at Realised
30 September 30 September during the 30 September loss
2021 2021 year 2022 £'000
£'000 £'000 £'000 £'000
VCT qualifying investments
bio-bean Limited 628 628 67.5 325 (370)*
Total 628 628 67.5 325 (370)
* This was recognised as a permanent impairment and as a realised loss in
the financial year.
Disposals
No investments were disposed of during the financial year.
The basis of valuation for the largest investments is set out.
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 30/09/22: £1,330,000
Cost at 30/09/21: £1,330,000
Date of first investment: Dec 2013
Valuation at 30/09/22: £15,271,000
Valuation at 30/09/21: £14,108,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £1,330,000
Proportion of equity held: 50%
Summary financial information from statutory accounts (non-consolidated): 31 March 2022
Turnover: *
Operating profit/(loss): *
Net assets: £2,880,000
*This information is not publicly available
Lunar 1 Limited
Lunar 1 Limited is a holding company of FiT remunerated ground-mounted solar
farms of two 5MW (Wiltshire) and one 0.7MW (Oxfordshire).
Cost at 30/09/22: £125,000
Cost at 30/09/21: £125,000
Date of first investment: Dec 2013
Valuation at 30/09/22: £2,403,000
Valuation at 30/09/21: £2,218,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £125,000
Proportion of equity held: 5%
Summary financial information from statutory accounts: 31 March 2022
Turnover: £nil
Operating loss: £(9,000)
Net assets: £884,000
New Energy Era Limited
New Energy Era Limited owns a FiT remunerated solar farm of 0.7MW near
Shipton-under- Wychwood, Oxfordshire.
Cost at 30/09/22: £884,000
Cost at 30/09/21: £884,000
Date of first investment: Nov 2011
Valuation at 30/09/22: £1,835,000
Valuation at 30/09/21: £1,785,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £884,000
Proportion of equity held: 45%
Summary financial information from statutory accounts: 31 March 2022
Turnover: £342,000
Operating profit: £187,000
Net assets: £2,234,000
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 30/09/22: £826,000
Cost at 30/09/21: £826,000
Date of first investment: Mar 2012
Valuation at 30/09/22: £1,740,000
Valuation at 30/09/21: £1,362,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £827,000
Proportion of equity held: 50%
Summary financial information from statutory accounts (non-consolidated): 31 March 2022
Turnover: £3,000
Operating loss: £(23,000)
Net assets: £498,000
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 160kW. Tumblewind also owns
Priory Farm Solar Farm Limited, which owns a ROC remunerated solar farm of
3.2MW near Lowestoft.
Cost at 30/09/22: £1,188,000
Cost at 30/09/21: £1,188,000
Date of first investment: Nov 2011
Valuation at 30/09/22: £1,521,000
Valuation at 30/09/21: £1,111,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £790,000
Loan stock: £398,000
Proportion of equity held: 50%
Proportion of loan stock held: 68%
Summary financial information from statutory accounts: 31 March 2022
Turnover: £52,000
Operating profit: £6,000
Net assets: £856,000
Vicarage Solar Limited
Vicarage Solar Limited is the holding company of a FiT remunerated solar farm
of 0.7MW near Ilminster, Somerset.
Cost at 30/09/22: £871,000
Cost at 30/09/21: £871,000
Date of first investment: Mar 2012
Valuation at 30/09/22: £1,236,000
Valuation at 30/09/21: £1,229,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £871,000
Proportion of equity held: 45%
Summary financial information from statutory accounts (non-consolidated): 31 March 2022
Turnover: *
Operating loss: *
Net assets: £1,944,000
* This information is not publicly available
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 1,121kW.
Cost at 30/09/22: £1,000,000
Cost at 30/09/21: £1,000,000
Date of first investment: Apr 2012
Valuation at 30/09/22: £789,000
Valuation at 30/09/21: £857,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £800,000
Loan stock: £200,000
Proportion of equity held: 50%
Proportion of loan stock held: 50%
Summary financial information from statutory accounts: 31 March 2022
Turnover: £217,000
Operating profit: £6,000
Net assets: £1,526,000
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 1,978kW.
Cost at 30/09/22: £1,000,000
Cost at 30/09/21: £1,000,000
Date of first investment: Aug 2011
Valuation at 30/09/22: £743,000
Valuation at 30/09/21: £831,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £1,000,000
Proportion of equity held: 50%
Summary financial information from statutory accounts: 31 March 2022
Turnover: £637,000
Operating profit: £181,000
Net assets: £356,000
HRE Willow Limited
HRE Willow 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 420kW.
Cost at 30/09/22: £875,000
Cost at 30/09/21: £875,000
Date of first investment: Jun 2011
Valuation at 30/09/22: £709,000
Valuation at 30/09/21: £700,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £875,000
Proportion of equity held: 44%
Summary financial information from statutory accounts: 31 March 2022
Turnover: £149,000
Operating profit: £17,000
Net assets: £1,205,000
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 838.5kW.
Cost at 30/09/22: £650,000
Cost at 30/09/21: £650,000
Date of first investment: Sep 2011
Valuation at 30/09/22: £529,000
Valuation at 30/09/21: £533,000
Valuation method: Discounted cash flows (business)
Investment comprises:
Ordinary shares: £650,000
Proportion of equity held: 50%
Summary financial information from statutory accounts: 31 March 2022
Turnover: £360,000
Operating profit: £98,000
Net assets: £948,000
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
2022 2021
£'000 £'000
Loan stock interest income in the period
bio-bean Limited - 15
Tumblewind Limited 32 32
Minsmere Power Limited 11 11
Small Wind Generation Limited 11 11
53 69
Strategic Report
The Directors present the Strategic Report for the year ended 30 September
2022. 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 and clean energy sectors 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, including an
update on the wind down process for the VCT, are set out in the Chairman's
Statement, Investment Adviser's Report, and the Review of Investments.
During the year to 30 September 2022, the renewable investments held increased
in value by £2,001,000 and the non-renewable investments held decreased in
value by £1,489,000. Investment realisations totalled £nil.
Income over expenditure for the year resulted in a net profit, after
accounting for capital expenses, of £525,000 (2021: £2,679,000 loss).
The total gain for the year was £525,000 (2021: £2,679,000 loss) and net
assets at the year-end were £23.9mn (2021: £23.4mn). A dividend of 2 pence
per Ordinary Share for the year to 30 September 2022 has been declared and was
paid on 27 January 2023.
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 1.15% of net assets. 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 4 to
the financial statements, is still appropriate.
JTC (UK) Limited (JTC) acts as Administrator and Company Secretary. JTC
provides administration and accounting services to the VCT for a fee of
£40,000 (plus VAT, if applicable) per annum. It also provides company
secretarial services for a fee of £40,000 (plus VAT, if applicable) per
annum. The agreement 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
Adviser agreed to pay further trail commission to Haibun Partners LLP (Haibun)
and CH1 Investment Partners LLP (CH1) with an agreement in place effective
from 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 21 to the financial statements.
Pursuant to historic financial intermediary arrangements with Hazel Capital
LLP, Haibun, of which Stuart Knight (Director of Gresham House Renewable
Energy VCT1 plc until his resignation on 30 September 2022) is a Designated
Member, and CH1 , of which Matthew Evans 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, VCT1, 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 2022
Haibun CH1 Total
£ £ £
2010 Offer 17,196 22,635 39,831
2012 Offer 2,435 1,580 4,015
2014 Offer 943 1,900 2,843
Total 20,574 26,115 46,689
Investment policy
General
In the previous financial year, at the General Meeting held on 13 July 2021,
99.59% of the Shareholders resolved to approve the New Investment Policy of
the Company to reflect a realisation strategy and the Company ceasing to make
any new investments. The new Investment Policy replaced the previous
Investment Policy in its entirety.
The Directors believed that being prescriptive as regards the timeframe for
realising the Company's investments could prove detrimental to the value
achieved on realisation. Therefore, it was the Board's view that the strategy
for the realisation of the Company's investments would need to be flexible and
may need to be altered to reflect changes in the circumstances of a particular
investment or in the prevailing market conditions.
Once all, or substantially all, of the Company's investments have been
realised and an initial distribution in respect thereof made, the Company
will, at an appropriate time, seek Shareholders' approval for it to be placed
into members' voluntary liquidation.
Since inception to 13 July 2021
Up to 13 July 2021, the VCT's objectives were to maximise tax free capital
gains and income to Shareholders from dividends and capital distributions by
investing the VCT's funds in:
· a portfolio of clean technology and environmentally sustainable
investments, primarily being 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
· 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, non-qualifying 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.
13 July 2021 to 30 September 2022
Following shareholder approval at the General Meeting on 13 July 2021, the New
Investment Policy of the VCT is that the Company will be managed with the
intention of realising all remaining assets in the Portfolio in a prudent
manner consistent with the principles of good investment management and with a
view to returning cash to Shareholders in an orderly manner, whilst protecting
the tax position of Shareholders.
The Company will pursue its investment objective by effecting an orderly
realisation of its assets in a manner that seeks to achieve a balance between
maximising the value received from those assets and making timely returns of
capital to Shareholders. This process might include sales of individual assets
or running off the portfolio in accordance with the existing terms of the
assets, or a combination of both.
The Company will cease to make any new investments or to undertake capital
expenditure except where, in the opinion of both the Board and the Investment
Adviser (or, where relevant, the Investment Adviser's successors):
· the investment is a follow-on investment made in connection with an
existing asset in order to comply with the Company's pre-existing obligations;
or
· failure to make the follow-on investment may result in a breach of
contract or applicable law or regulation by the Company; or
· the investment is considered necessary to protect or enhance the
value of any existing investments or to facilitate orderly disposals; or
· any cash received by the Company as part of the realisation process
prior to its distribution to Shareholders will be held by the Company as cash
on deposit and/or as cash equivalents.
Investment strategy
Investee companies generally reflect the following criteria:
· a well-defined business plan and ability to demonstrate strong demand
for its products and services;
· products or services which are cash generative;
· objectives of management and Shareholders which are similarly
aligned;
· adequate capital resources or access to further resources to achieve
the targets set out in its business plan;
· high calibre management teams;
· companies where the Investment Adviser believes there are reasonable
prospects of an exit, either through a trade sale or flotation in the medium
term; and
· a focus on small and long-term renewable energy projects that utilise
proven technology.
In the previous financial year, at the General Meeting held on 13 July 2021,
the new Investment Policy was adopted to reflect a realisation strategy and
the Company ceasing to make any new investments.
Asset allocation
During the year the VCT was required to hold 80% of its funds in VCT
qualifying investments. At 30 September 2022, the VCT had a significant margin
over the 80% qualifying holdings requirement. 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. During the Managed Wind-Down the number
of investments will decrease following the sale of the VCT's assets. 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
During the year, the structure of the VCT's funds, and its investment
strategies, have been designed to reduce risk as much as possible.
The main risk management features include:
· 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. During the Managed Wind-Down the
number of investments will decrease following the sale of the VCT's assets;
· monitoring of investee companies - the Investment 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
· 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* (#_ftn1) 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 operational asset / holding companies.**
(#_ftn2)
The VCT has ensured that Lunar 1 Limited and Lunar 2 Limited have 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, or the sale of, these companies.
As at 30 September 2022, the VCT had the ability to borrow £4.5mn in
accordance with the articles, and had actual borrowings of £nil.
The VCT has no intention to borrow any funding in the foreseeable future.
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
2022.
Directors and senior management
Up until 30 September 2022, the VCT had four Non-Executive Directors,
comprising four males. On this date, one Director retired. 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 has
identified the VCT's key performance indicators as Net Asset Value (NAV) Total
Return and dividends per share, the performance of which during the year are
in the table below:
Year ended Year ended
30 September 30 September
2022 2021
Net Asset Value Total Return 1.4% (6.7)%
Dividends per share 2.0p nil p
See Note 24 for details of the introduction of the Electricity Generator Levy.
On the basis of the scope to which this levy applies, there is no impact on
the current or future revenues received by the VCT, however the fair value of
the portfolio incorporates the potential additional costs a purchaser may
incur.
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 total net asset position of the VCT as at the reporting date is as per the
Balance Sheet, while the total number of shares in issue for both Ordinary and
'A' Shares is disclosed in Note 15.
In addition, the Board considers the VCT's performance in relation to other
VCTs.
The position of the VCT's Net Asset Value Total Return as at 30 September 2022
is shown earlier. A Summary of dividends per Share is shown on earlier. The
VCTs 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.
Principal risks and uncertainties
Schedule of principal and emerging risks
The other principal and emerging risks faced by the VCT, along with the steps
taken to mitigate these risks, are shown in the table below. These principally
apply during the period until the underlying assets are sold during the
Wind-down process.
Principal Risk Context Specific risks Possible impact Mitigation
Investment Performance The VCT holds investments in unquoted UK businesses in the renewable energy Poor investment decisions or strategy or poor monitoring, management and Reduction in the NAV of the VCT and the inability of the VCT to pay dividends. The Investment Adviser has significant experience in the renewable energy
sector. realisation of investments. sector. The Investment Adviser also actively manages the portfolio, engaging
reputable and experienced Operations and Maintenance (O&M) contractors.
Adverse weather conditions, low inflation rates and/or low power prices The assets have limited exposure to power prices, due to the use of the Feed
resulting in below forecast investment returns. in Tariff (FiT) and Renewable Obligation Certificate (ROC) regimes.
The Board regularly reviews the performance of the portfolio, alongside the
Board of the sister company.
The higher inflation outlook, whilst of concern from the point of view of the
wider UK and global economy, is positive for the owners of subsidised UK
renewable assets. Although most costs also rise in line with inflation, as
does the cost of servicing the two debt facilities, the net benefit of
increased inflation is strongly positive since it increases the inflation
linked revenues more than it increases the costs.
Loss of VCT status The VCT must maintain continued compliance with the VCT Regulations, which Breach of any of the rules could result in the loss of VCT status. The loss of VCT status would result in dividends becoming taxable and new The VCT Qualification is actively monitored by the Investment Adviser and the
prescribe a number of tests and conditions. Shareholders losing their initial tax relief. Administrator, who liaise with the designated VCT Status Adviser. The VCT
Status Adviser also produces twice yearly reports for the Board.
The VCT must maintain continued compliance with the VCT Regulations, which
prescribe a number of tests and conditions.
Legislative In recent years, the changes to VCT Regulations have narrowed the breadth of A change in government policy could result in a cessation of tax reliefs or The loss of VCT status would result in dividends becoming taxable and new Both the Investment Adviser and the Administrator closely monitor developments
permitted investments. reduction of the amount of tax relief available to investors which would make Shareholders losing their initial tax relief. and attend AIC conferences.
them less attractive to investors.
VCTs were established to encourage private individuals to invest in early The VCT Status Adviser also has significant experience in this field and works
stage companies that are considered to be risky and have limited funding closely with HMRC.
options. The state provides these investors with tax relief.
Further commentary on VCT Status is provided.
The Investment Adviser engages with HMT and industry representative bodies to
demonstrate the cost benefit of VCTs to the economy in terms of employment
generation and taxation revenue.
Regulatory and compliance As a listed entity, the VCT is subject to the UK Listing Rules and related Any breaches of relevant regulations could result in suspension of trading in Reduction in the NAV of the VCT due to financial penalties and a suspension of The VCT Secretary and Administrator have a long history of acting for VCTs.
regulations. the VCT's shares or financial penalties. trading in its Shares, also leading to loss of VCT status. The Board, Investment Adviser and Administrator also employ the services of
reputable lawyers, auditors and other advisers to ensure continued compliance
with its regulatory obligations.
Operational - VCT level The VCT relies on the Investment Adviser, Administration Manager and other Inferior provision of these services, thereby leading to inadequate systems Errors in Shareholder records, incorrect mailings, misuse of data, The VCT, the Investment Adviser and the Administrator engage experienced and
third parties to provide many of its services at the VCT level. and controls or inefficient management of the VCT's assets and its reporting non-compliance with key legislation, loss of assets, breach of legal duties reputable service providers, the performance of which is reviewed on an annual
requirements. Service providers, predominantly the Registrar, hold and inadequate financial reporting. basis.
Shareholders' personal data and there is a risk of a cyber attack on a
provider. The Directors and the Investment Adviser regularly review the service
providers and the procedures and policies they have in place for preventing
cyber attacks.
Operational - portfolio level At the portfolio level, the VCT uses third party O&M contractors managing Inferior provision of these services, thereby leading to inadequate systems Poor investment performance due to assets being offline and non-revenue The VCT, the Investment Adviser and the Administrator engage experienced and
the various sites. and controls or inefficient management of the VCT's assets. generating. reputable service providers, the performance of which is reviewed on an
ongoing basis. At the portfolio level, technical reviews and studies are
Maintenance and repairs not carried out in a timely manner. conducted on the assets as appropriate.
Repair and reconfiguration work is carried out and O&M procedures are
revised to reduce dependence on overseas contractors and specialists.
Economic, political and other external factors The VCT's investments are heavily exposed to the Feed in Tariff (FiT) and Retrospective changes to the regimes. Changes in energy prices and inflation. A significant negative impact on performance in respect of regime changes, low The Investment Adviser and Board members closely monitor policy and
Renewable Obligation Certificate (ROC) regimes. Events such as the Russian An increase in inflation results in higher interest charges for the two debt inflation and energy prices can reduce portfolio revenues. geo-political developments. However, the UK Government has a general policy of
Federation's invasion of Ukraine, inflation and climate change can also have facilities. not introducing retrospective legislation. The Investment Adviser and Board
impacts on portfolio performance. regularly review the valuation model and its inputs. Higher energy prices and
inflation can improve portfolio performance as returns are directly linked to
both factors.
Change to Energy Market regulation and policies The VCT operates within the UK Energy market which is governed by UK The current or future UK Government may decide that subsidies provided to A significant negative impact of the renewable energy generation assets The Investment Adviser continuously monitors the regulatory landscape in the
regulation and could be subject to change. renewable energy generation assets in the form of feed-in-tariffs (FiTs) and revenue reducing the cash availability of the VCT. The Chancellor announced at UK. If an action that retroactively targets these subsides it would join
renewable obligation certificates (ROCs) pose too big a burden on electricity the Autumn Statement 2022 the introduction of the Electricity Generator Levy forces with other owners of these assets and vigorously challenge such
consumers and reduce or even eliminate them retroactively. Similarly, other (EGL) effective 1 January 2023. retroactive law changes in the courts. All of the sites owned by the VCTs are
measures that achieve a similar effect such as special taxes, a cap on fully-accredited which means that there is no risk of an individual asset
applicable inflation rates, limits on generated KWhs that earn FiTs and ROCs. losing its subsidy. The EGL does not impact the VCT's portfolio given its
smaller size, but any potential acquirer may subsequently incur this levy.
Since inception to 13 July 2021
The principal financial risks faced by the VCT, which include interest rate,
market price, investment valuation, credit and liquidity risks, are summarised
within Note 18 to the financial statements.
Note 18 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:
· underperformance;
· loss of VCT status;
· VCT regulations;
· regulatory and compliance;
· operational;
· economic, political and other external factors; and
· government intervention in the renewables market.
13 July 2021 to 30 September 2022
In approving a new Investment Policy for the Company, a number of risks which
are material and currently known to the Company have been disclosed.
Additional risks and uncertainties not currently known to the Company, or that
the Company deems immaterial, may also have an adverse effect on the Company.
The main risks identified as part of the new Investment Policy of the Company
are:
Risk identified Context Mitigation
Asset diversification In a Managed Wind-Down, the value of the portfolio will be reduced as None identified.
investments are realised and concentrated in fewer holdings, and the mix of
asset exposure will be affected accordingly.
Ownership All of the VCT's main solar assets are owned 50:50 between the VCT and VCT1 The VCTs will sell their shares in each asset simultaneously, so that no VCT
and there are no rights attached to such ownership that would allow one holds more than 50% of the underlying assets.
company to force the other to sell its share in each asset.
Volatility in NAV and/or share price The VCT might experience increased volatility in its Net Asset Value and/or None identified.
its share price as a result of possible changes to the Portfolio structure
following the adoption of the new Investment Policy.
Sale of assets The VCT's assets may not be realised at their carrying value, and it is The Board has engaged several experts in this field to ensure an appropriate
possible that the VCT may not be able to realise some assets at any value. The sale price is reached. The Directors will ensure that the sale price reflects
VCT's assets' fair value is linked to estimates and assumptions about a the best available offer for the Company's assets taking into account future
variety of matters, including macroeconomic considerations, which assumptions income generation by the portfolio and the age and condition of the assets.
may prove to be incorrect and which are subject to change. A material change
of governmental, economic, fiscal, monetary or political policy, may result in
a reduction in the value of the VCT's assets on sale.
Sale of assets Sales commissions, liquidation costs, taxes and other costs associated with The Investment Adviser prepares detailed cashflow forecasts which are
the realisation of the VCT's assets together with the usual operating costs of presented to the Board quarterly. The forecasts include the additional costs
the VCT will reduce the cash available for distribution to the Shareholders. expected to be incurred during the managed wind-down of the VCT.
Sale of assets A sale of the VCT's assets may prove materially more complex than anticipated, The Board has engaged several experts in this field, to ensure against an
and the distribution of proceeds to Shareholders may be delayed by a number of extended handover period. If an extended handover period occurs then it is the
factors, including, without limitation, the ability of a liquidator to make Directors intention to ensure that the sale value obtained will ultimately be
distributions to Shareholders. in Shareholders interests.
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 three years from the
balance sheet date as developments are considered to be reasonably foreseeable
over this period. The period of review has been shortened from the prior year
due to the commencement of the Managed Wind-Down of the VCT. Following the
results of the continuation vote at the 2021 AGM and the Shareholders'
subsequent approval of the Managed Wind-Down of the Company at the 2021
General Meeting, the Board still considers that the VCT remains viable up
until the point at which its assets are fully sold, or the voluntary
liquidation completed, and as such the Board are satisfied that a three-year
viability assessment remains applicable.
In making the viability assessment, the Board has taken the following factors
into consideration:
· the nature and liquidity of the VCT's portfolio (long-term, revenue
generating fixed assets);
· the sales process currently underway to realise the VCT's renewable
assets;
· the potential impact of the Principal Risks and Uncertainties;
· maintaining VCT approval status;
· operating expenditure; and
· future dividends.
The Board is satisfied that the underlying assets held by the SPVs have been
built to a sufficient quality and there are no current indications that the
assets will degrade substantially over the period. It is also considered
highly unlikely that the renewable portfolio would suffer from such poor
irradiation and severe degradation that it would be unable to generate income
over the period. The improvement in power prices and the benefit of higher
inflation on the portfolio performance has improved the prospects for returns
materially. Asset life, along with the other inputs to the valuation model,
are discussed further in Note 2.
The Board also noted that the SPVs have very good debt cover and that there
are sufficient cash reserves at the SPV level, available to be paid up to the
VCT through dividends, reverse loans or the repayment of existing shareholder
loans, to cover debt and running costs over the review period.
The Board have assessed the VCT's ability to cover its annual running costs
under several stress scenarios evaluating the impact of receiving lower
dividends from the SPV level and the impact of higher VCT and SPV level
running costs. The Board noted that under none of these scenarios was the VCT
unable to cover its costs.
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 three years from the
balance sheet date, notwithstanding that the VCT is currently undergoing a
Managed Wind-down and may be wound up in this timeframe.
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 25 June 2020 is set out in the Remuneration Report.
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 2022 were 2.3% (2021: 2.4%) 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. The allocation to the 'A' shares of any revenue or
capital dividends declared by the VCT, 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.
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 as at 30 September 2022 was below 100p, the NAV hurdle for the year
was not met and no dividend was paid during the year, therefore there was no
Performance Incentive paid.
Pursuant to historic financial intermediary arrangements with Hazel Capital
LLP, Haibun , of which Stuart Knight (Director of Gresham House Renewable
Energy VCT1 plc until his resignation on 30 September 2022) is a Designated
Member, and CH1, of which Matthew Evans is a Designated Member, receive
approximately 8.0% of the Performance Incentive payments made to Management in
respect of the 'Management 'A' Shares' by the VCT and its sister company,
VCT1.
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 September
2022
1... To ensure that the VCT's income in the period has been derived wholly or 100.0%
mainly (70% plus) from shares or securities;
2... To ensure that the VCT has not retained more than 15% of its income from 22.4%*
shares and securities; - see note below
3... To ensure that the VCT has not made a prohibited payment to Shareholders 0.0%
derived from an issue of shares since 6 April 2014;
4... To ensure that at least 80% by value of the VCT's investments has been 84.9%
represented throughout the period by shares or securities comprised in
qualifying holdings of the VCT;
5... To ensure that at least 70% by value of the VCT's qualifying holdings has 93.4%
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);
6... To ensure that, of funds raised on or after 1 October 2018, at least 30% Complied
has been invested in qualifying holdings by the anniversary of the end of the
accounting period in which the shares were issued;
7... To ensure that no holding in any company has at any time in the period Complied
represented more than 15% by value of the VCT's investments at the time of
investment;
8... To ensure that the VCT's ordinary capital has throughout the period been Complied
listed on a regulated European market;
9... To ensure that the VCT has not made an investment in a company which Complied
causes it to receive more than the permitted investment from State
Aid sources;
10. To ensure that since 17 November 2015, the VCT has not made an investment Complied
in a company which exceeds the maximum permitted age requirement;
11. To ensure that since 17 November 2015, funds invested by the VCT in Complied
another company have not been used to make a prohibited acquisition; and
12. To ensure that since 6 April 2016, the VCT has not made a prohibited Complied
non-qualifying investment.
* As the VCT has negative revenue reserves, the Company's VCT status
adviser has confirmed that this requirement is deemed to have been met for VCT
compliance purposes.
The Directors, with the help of the Investment Adviser, actively monitor and
ensure the investee companies have less than £5mn state backed financing in a
12-month period listed in order to remain compliant with the VCT regulations.
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 needs to
conserve such cash as it generates for the managed wind-down of the VCT and
the payment of dividends.
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.
Sustainable Investing
The VCT seeks to conduct its affairs responsibly and the Investment Adviser is
encouraged to consider environmental, social and community issues, where
appropriate, when making investment decisions and the Board will continue to
monitor the Adviser's progress in these areas.
The Board is conscious of its potential impact on the environment as well as
its social and corporate governance responsibilities. The Investment Adviser
has presented its Environmental, Social and Governance (ESG) strategy to the
Board.
The VCT, whilst not having an explicit sustainable investment objective,
demonstrates clear promotion of environmental characteristics by investing in
technologies that contribute to climate change mitigation by supporting a
decarbonisation of the energy system in the UK and a net zero economy
underpinned by cheap clean electricity.
Sustainable Investing at Gresham House
Gresham House, the Investment Adviser, is committed to sustainable investment
as an integral part of its business strategy. In 2021, Gresham House further
enhanced its approach to sustainability by publishing its first Corporate
Sustainability Strategy (CSS) which supports its GH25 ambition to "become a
leader in sustainable investment, including Environmental, Social and
Governance (ESG)". The CSS details objectives and actions to ensure its
progresses against its ambition to be a leader in sustainable investment and
that ESG factors and stewardship responsibilities continue to be integrated
into the management of each asset division. More information on Gresham
House's sustainability approach and CSS can be found in its Sustainable
Investment Report.
Policies and processes
Gresham House publishes a Sustainable Investing Policy along with asset
specific policies, including the New Energy Sustainable Investment Policy,
which covers Gresham House's sustainable investment commitments, how the
investment processes meet these commitments and the application of the
Sustainable Investment Framework.
The Sustainable Investment Team assesses adherence to the commitments in the
Sustainable Investment Policies on an annual basis and provides updates on the
findings of these assessments to the Sustainability Executive Committee and
Board Sustainability Committee.
Sustainability Executive Committee
The Investment Adviser's Sustainable Investing Committee (SIC), formed at the
start of 2020, evolved in 2021 to become the Sustainability Executive
Committee (Sustainability ExCo). The aim of this evolution was to elevate
responsibility for sustainability to senior executive level, reflecting the
importance and materiality of sustainability to the business. The
Sustainability ExCo meets regularly to drive sustainability related
deliverables outlined in the CSS, as well as providing a forum to share best
practice, ideas and education. The Committee is chaired by the Director of
Sustainable Investment and has representation from the Gresham House Group
Management Committee (GMC) and heads of divisions including investment
divisions, sales, compliance and marketing.
New Energy Sustainable Investment Committee
In 2022, the New Energy division evolved its structures with regards to the
ownership and development of Sustainable Investment objectives and actions for
the division by creating a New Energy Sustainable Investment Committee
(NESIC). The purpose of the New Energy Sustainability Committee's purpose is
to provide leadership, strategic direction and implement processes to enhance
the integration of sustainability across the New Energy division, supporting
the achievement of fund-specific objectives and the CSS.
The core objectives of the NESIC include:
· To become the experts in sustainability within the New Energy
division and apply their knowledge to their areas of business.
· To be advocates for sustainable investment and innovation for the
division.
· To set and oversee the New Energy sustainability objectives and
targets at fund and divisional level, aligned to Gresham House Corporate
Sustainability Strategy.
· To ensure key sustainability related risks and opportunities are
proactively identified and managed by the division.
· To ensure that New Energy SI-related tools, processes, framework and
data remain relevant and meet commitments made in the New Energy Sustainable
Investment Policy to ensure the division is able to evidence SI contribution
and progress to external parties.
New Energy Sustainability Objectives
The NESIC developed and agreed a set of sustainability objectives for the
division applicable to all assets under management. The objectives were
determined by identifying the ESG topics deemed most material to the assets.
They were also selected to align with the core topics and objectives in the
Investment Adviser's 2025 Corporate Sustainability Strategy.
The objectives will focus future sustainability-related activities for the
division to 2025 and are detailed below. The funds will provide updates
against the objectives in future reporting.
Table 1: New Energy Sustainability Objectives
Topic 2025 Objective
G: Commitment to Sustainability Meet all relevant regulatory sustainability requirements.
G: Risk and Compliance Become a leader in the measurement and disclosure of ESG risks and outcomes.
Have a comprehensive set of ESG KPIs to support investment and asset
management decisions and regularly report these to stakeholders.
G: Marketplace Responsibility Have market-leading Sustainable Investment policies and processes and ensure
all investment activities meet commitments at a high-quality level.
G: Governance & Ethics Engage with key counterparties to increase capacity of renewable energy or
battery storage and the contribution of these assets to a low carbon economy.
E: Climate Change & Pollution Demonstrate the role of New Energy in the energy transition and understand the
carbon footprint of the full lifecycle of assets.
E: Natural Capital Fully understand natural capital impacts and dependencies and aim to
demonstrate enhancement of biodiversity for all sites.
S: Supply Chain Management Determine best-in-class suppliers to work with long-term, and encourage more
responsible supplier practices, reducing supply chain sustainability risks.
E: Waste Management Incorporate full lifecycle analysis into investment and supplier decision
making (product design, construction, operation and end-of-life use) to reduce
negative environmental and social impacts of assets.
Develop a market-leading approach to end-of-life use.
Risk and Compliance: Embedding ESG factors
As the assets within the VCTs are all well-established, the assessment of ESG
is applied as part of our asset management activities. All Operations &
Maintenance providers are required to report on various ESG factors, including
Health & Safety and Environmental risks or incidents. Any significant
incidents must be reported to us within 24 hours. Furthermore, they are also
expected to be proactive and to make recommendations for improvements.
There is work underway to expand the ESG key performance indicators (KPIs)
measured, reported, and monitored by the New Energy division for all assets
under management. This includes the VCTs. This reflects increased investor and
regulatory demand for ESG data and the Adviser's ambitions to enhance ESG data
and transparency. It is anticipated that the expanded ESG data will be used by
investment teams and asset management teams to increase their understanding of
the operational ESG performance of assets under management and to identify any
material ESG risks. It is expected that the asset management team will aim to
improve ESG metrics over time, as feasible within the context of the existing
fund mandate. Examples of expanded ESG factors to be measured include
biodiversity and supply chain-related data.
Supply Chain Management
The Investment Adviser published its first Supply Chain Policy in 2020. The
Supply Chain Policy covers material ESG topics and places obligations on
suppliers (including contractors) to ensure their own compliance, as well as
the compliance of their subcontractors, with the Policy. It also requires
suppliers to monitor and report any non-compliance to the Investment Adviser.
Since July 2021, all new supplier contracts have been updated to include
clauses specifically mandating suppliers to declare that they have not been
involved in any practices linked to modern slavery and that they will permit
on-site audits at any time should we have reason to suspect instances of
slavery and human trafficking. Any VCT suppliers with contracts due for
renewal will be obliged to update clauses relating to modern slavery within
their contract terms.
In addition, all operators of Gresham House managed renewables projects were
asked to complete a modern slavery questionnaire to assess modern slavery
related risk to the New Energy division's renewables assets in 2021. An
updated version of this questionnaire is due to be sent out after the
publication of this report to determine any material changes regarding the
risk profile associated with this topic. Responses to the questionnaire will
be reviewed and potential engagement topics for suppliers identified.
Climate Change & Pollution
Based on the renewable electricity generated by the VCT wind and solar assets,
33,378MWh, it is estimated that the fund avoided 14,419 tonnes of CO(2)1
(#_ftn3) and powered circa 8,442 homes2 (#_ftn4) during the reporting period.
As a UK quoted company the VCT is required to report on its Greenhouse Gas
(GHG) Emissions. Emissions can be broken down into three categories by the
Greenhouse Gas Protocol:
· Scope 1: all direct emissions from the activities of the VCT or under
its control.
· Scope 2: indirect emissions from electricity purchased and used by
the VCT.
· Scope 3: all other indirect emissions from activities of the VCT,
occurring from sources that it does not use or control.
The VCT does not itself produce any Scope 1 or Scope 2 carbon emissions as it
does not itself directly or indirectly create carbon emissions by generating
or purchasing electricity for its own use. The reporting of Scope 1 and 2
carbon emissions for the fund as 0 tCO(2)e is in line with industry standards
and guidance by an external consultant that supported the Adviser in the
carbon footprint measurement for all Gresham House financed emissions. The
Investment Adviser continues to consider how best to monitor and measure the
Scope 3 emissions relevant to the VCT and is working with an external carbon
consultant to progress this at time of publication.
Director's Duties
Directors must consider the long-term consequences of any decision they make.
They must also consider the interests of the various stakeholders of the VCT,
the impact the VCT has on the environment and community, and operate in a
manner which maintains their reputation for having high standards of business
conduct and fair treatment between Shareholders.
Fulfilling this duty naturally supports the VCT in its Investment Objective to
maximise tax-free capital gains and income to Shareholders and helps ensure
that all decisions are made in a responsible and sustainable way. In
accordance with the requirements of the Companies (Miscellaneous Reporting)
Regulations 2018, and the AIC Code, the information overleaf explains how the
Directors have individually and collectively discharged their duties under
section 172 of the Companies Act 2006.
Section 172
The Section 172 statement forms part of the Strategic Report.
The Directors consider that in conducting the business of the VCT over the
course of the year they have complied with Section 172(1) of the Companies Act
2006 (the Act) by fulfilling their duty to promote the success of the VCT and
to act in the way they consider, in good faith, would be most likely to
promote the success of the VCT for the benefit of its members as a whole,
whilst also considering the broad range of stakeholders who interact with and
are impacted by the VCT's business, especially with regard to major decisions.
Role of the Board
The Board, which comprised of four independent Non-Executive Directors during
the financial year and, following the Directorate change effective from 30
September 2022, comprised of three independent Non-Executive Directors at the
year end, with a broad range of skills and experience, retains responsibility
for taking all decisions relating to the VCT's principal objectives, corporate
governance and strategy, and for monitoring the performance of the VCT's
service providers.
The Board aims to ensure that the VCT operates in a transparent culture where
all parties are able to contribute to the decisions made and challenge where
necessary with the overall aim of achieving the expectations of Shareholders
and other stakeholders alike.
In discharging their section 172 duties the Directors have regard to the
likely consequences of any decisions during the managed Wind-Down process; the
need to foster the VCT's business relationships with suppliers, customers and
others; the impact of the VCT's operations on the community and environment;
and the desirability of the VCT maintaining a reputation for high standards of
business conduct, and need to act fairly as between members of the VCT.
The Board works very closely with the Investment Adviser and Company Secretary
to ensure there is visibility and openness in how the affairs of the VCT are
being conducted. The VCT co-owns all its assets with Gresham House Renewable
Energy VCT1 plc (VCT1).
The VCT is an investment vehicle, externally managed, has no employees, and is
overseen by an independent Non-Executive Board of Directors. As such the Board
considers its stakeholders to be the Shareholders, the service providers,
including the Investment Adviser, and regulatory bodies.
Following the adoption of the new Investment Policy from 13 July 2021, the
VCT's principal objective is to manage the Company with the intention of
realising all remaining assets in the portfolio in a prudent manner consistent
with the principles of good investment management and with a view to returning
to Shareholders in an orderly manner.
Key Stakeholders
Shareholders
The Board engages with the VCT's Shareholders in a variety of ways, including
annual and half-yearly reports and accounts, an AGM and information provided
on the Investment Adviser's website as well as ad hoc communications with
shareholders. The Registrar is available to help Shareholders to manage their
shareholding.
The VCT welcomes and encourages attendance and participation from Shareholders
at the AGM and values any feedback and questions it may receive from
Shareholders ahead of and during the AGM.
The Board communicates with its Shareholders through the publication of Annual
and Half-Year reports which are available on the VCT's website
(https://greshamhouse.com/real-assets/new-energy-sustainable-infrastructure/)
and sent to Shareholders.
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. During the period the Board engaged with Shareholders on
several matters, including the update on the Sale of Solar Assets. Details of
this is included in the Chairman's statement.
Investment Adviser
The Board has delegated authority for day-to-day management of the VCT to the
Investment Adviser. The Board then engages with the Adviser in setting,
approving and overseeing the execution of the business strategy and related
policies. The Investment Adviser attends Valuation Forums, Board meetings and
Audit Committee meetings to update the Directors on the performance of the
portfolio. At every Board meeting a review of financial and operational
performance, as well as legal and regulatory compliance, is undertaken. Since
the General Meeting held in the previous financial year on 13 July 2021, the
Managed Wind-Down of the Company has been reviewed at each quarterly Board
meeting and at ad hoc board meetings being held as and when required. The
Board also reviews other areas over the course of the financial year including
the VCT's business strategy; key risks; stakeholder-related matters; diversity
and inclusion; environmental matters; corporate responsibility and governance,
compliance and legal matters.
The Investment Adviser's performance is critical for the VCT to successfully
deliver its investment strategy and meet its objectives.
Service Providers
The VCT has a limited pool of service providers which include the Investment
Adviser, the Administrator, the Registrar, the Legal Advisers, the Auditor,
the Tax Adviser and the VCT Status Advisers.
These service providers are fundamental to ensuring that as a business the VCT
meets the high standards of conduct that the Board sets. The Board meets at
least annually to review the performance of the key service providers and
receives reports from them at Board and Committee meetings.
The Board has regular contact with the two main service providers: the
Investment Adviser and Administrator through quarterly Board meetings, with
the Chairman and Audit Chairman meeting more regularly. The Audit Committee
also reviews the controls of the VCT's service providers on an annual basis to
ensure that they are performing their responsibilities in line with Board
expectations and providing value for money.
Regulators/Government
The Board regularly considers how it meets regulatory and statutory
obligations and follows voluntary and best-practice guidance, including how
any governance decisions it makes impact its stakeholders both in the shorter
and in the longer-term.
The VCT engages an external adviser to report half-yearly on its compliance
with the VCT rules and a Company Secretary report is tabled quarterly at Board
meetings.
Environmental, Social and Governance (ESG)
Details on ESG are included above.
Key Board decisions and specific examples of Stakeholder consideration during the year
The Board is fully engaged in both oversight and the general strategic
direction of the VCT. During the year, the Board's main strategic discussions
focused around the below items.
Managed Wind-Down process
Following the General Meeting held during the previous financial year on 13
July 2021, the Shareholders resolved to approve the Managed Wind-Down of the
Company and associated amendments to the Company's Investment Policy. Under
the Managed-Wind Down process, the Company will be managed with the intention
of realising all assets in its Portfolio in a prudent manner consistent with
the principles of good investment management and with a view achieving fair
value for the Company's assets and subsequently returning cash to Shareholders
in an orderly manner.
The Board takes seriously its responsibilities to uphold the highest standards
of corporate governance and is open to constructive dialogue with Shareholders
and shareholder bodies.
By order of the Board
JTC (UK) Limited
Company Secretary
Company number: 04301763
Registered office:
The Scalpel, 18th Floor
52 Lime Street
London EC3M 7AF
30 January 2023
Report of the Directors
The Directors present the twelfth Annual Report and Accounts of the VCT for
the year ended 30 September 2022.
The Corporate Governance Report forms part of this report.
Share capital
At the year end, the VCT had in issue 26,133,036 Ordinary Shares and
39,463,845 '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 14.99% of the total number of each class of issued shares from
time to time.
Substantial interests
As at 30 September 2022, 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 dividends
£'000 Pence Pence
per Ord per 'A'
Share Share
Profit for the year 525 2.0 -
30 Sep 2022 Dividend 523 2.0 -
Directors
The Directors of the VCT during the year and their beneficial interests in the
issued Ordinary Shares and 'A' Shares at 30 September 2022 and at the date of
this report are detailed in the Remuneration Report.
It is the Board's policy that Directors do not have service contracts, but
each Director is provided with a letter of appointment. The Directors' letters
of appointment, are terminable on three months' notice by either side. They
are available on request at the Company's registered office during business
hours and will be available for 15 minutes prior to and during the forthcoming
AGM.
The Articles of Association require that each Director retires by rotation
every three years and being eligible, offer themselves for re-election.
Accordingly, Matthew Evans will stand for re-election in 2023.
The Directors' appointment dates and the date of their last election are shown
below:
Director Date of Most recent
original date of
appointment re-election
Christian Yates (Chairman) 28/09/2010 22/03/2021
Matthew Evans 07/11/2017 25/06/2020
Giles Clark* 31/01/2017 22/03/2021
Andrew Donovan 07/12/2020 22/03/2021
* Giles Clark resigned as a Director on 30 September 2022.
The Directors believe that the Board has an appropriate balance of skills,
experience, independence and knowledge of the Company and the sector in which
it operates to enable it to provide effective strategic leadership and proper
guidance of the Company.
The Board confirms that, following the evaluation process set out in the
Corporate Governance Statement, the performance of the Directors is, and
continues to be, effective and demonstrates commitment to the role.
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 twelfth Annual General Meeting (AGM) will be held at The Scalpel,
18th Floor, 52 Lime Street, London EC3M 7AF at 12.00 pm on 21 March 2023.
The Notice of the Annual General Meeting and Form of Proxy will be circulated
with this Annual Report.
Any change of format will be notified via the company's website and Regulatory
Information Service.
Auditor
At the 2022 AGM, the Shareholders approved the re-appointment of BDO LLP as
the auditor. Separate resolutions will be proposed at the 2023 AGM to
re-appoint BDO LLP and to authorise the Directors to determine their
remuneration.
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:
· 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 VCT will continue in business. As
explained in Note 1 to the financial statements, as last year, following the
continuation vote on 13 July 2021, the Directors do not believe the going
concern basis to be appropriate and, in consequence, these financial
statements have not been prepared on that basis.
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 position and performance,
business model and strategy.
Directors' statement pursuant to the disclosure and transparency rules
Each of the Directors, confirms that, to the best of each person's knowledge:
· the financial statements, which have been prepared in accordance with
UK Generally Accepted Accounting Practice and the 2014 Statement of
Recommended Practice (updated in April 2021), '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
· 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-sustainable-infrastructure/)
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 in the Governance
Report.
Other matters
Information in respect of risk management and risk diversification has been
disclosed within the Strategic Report.
Information in respect of greenhouse emissions which is normally disclosed
within the Report of the Directors has been disclosed within the Strategic
Report.
During the year, the VCT did not have any employees (2021: nil) and therefore
there is no comparison data available for the change in Directors'
remuneration to average change in employee remuneration.
Events after the end of the reporting period
Following the period end the VCT paid a dividend in respect of the year ended
30 September 2022, of 2p per Ordinary Share. This dividend was paid on 27
January 2023 to Shareholders on the register at 6 January 2023.
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.
For and on behalf of the Board
Christian Yates
Chairman
30 January 2023
Directors' Remuneration Report
Annual statement of the remuneration committee
The Remuneration Committee consists of each of the VCT Directors. The
Remuneration Committee assists the Board to fulfil its responsibility to
Shareholders to ensure that the remuneration policy and practices of the VCT
reward directors' fairly and responsibly, with a clear link to corporate and
individual performance, having regard to statutory and regulatory
requirements. The Remuneration 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.
During the financial year 2020/2021, in recognition of the increased oversight
responsibilities, the Remuneration Committee approved additional special
payments to the Chairman, Audit Chairman and Giles Clark (as the previous
Audit Chairman), calculated at 25% of their annual fee. The additional special
payments were split into two payment tranches. The first tranche was paid
during the 30 September 2021 financial year for the additional oversight
responsibilities relating to the 2021 financial year and the second tranche
was paid in October 2021 for additional oversight responsibilities relating to
the 2022 financial year. Neither the Chairman, the Audit Chairman or Giles
Clark voted upon their own additional special payments.
Giles Clark was the Audit Committee chairman until 10 May 2021, stepping away
from this position to manage the sales process, and Andrew Donovan was then
appointed as the chairman of the Audit Committee with effect from 11 May 2021.
Following a review of the remuneration during the financial year 2021/2022,
the Remuneration Committee recommended a 5% increase in the directors'
remuneration which was approved by the Board. These increases took effect from
1 October 2022. The changes to the Directors' remuneration are outlined in
this report.
Details of the specific levels of remuneration to each Director as well as the
fee increases are outlined in the report.
Report on remuneration policy
Below is the VCT's remuneration policy. This policy applies from 25 June 2020.
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 2020 AGM and will be presented to the
Shareholders for approval again at the 2023 AGM. There are currently no
planned changes to the remuneration policy.
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 £100,000 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.
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.
The NAV hurdle was not met for the financial year end 30 September 2022 and no
dividend was paid during the year, therefore there was no Performance
Incentive.
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.
Directors' remuneration (audited)
Directors' remuneration for the VCT for the year under review is shown in the
table below.
The basic annual fees of the Directors during the year were £26,500 for the
Chairman, £24,000 for the Audit Committee Chairman and £21,500 for the other
Non-Executive Directors. In addition, as reported above, an additional special
payment was made to the Chairman, Audit Chairman and Giles Clark in October
2021 for additional oversight responsibilities relating to the 2022
financial year.
Effective 1 October 2022, an increase of 5% will be applied to director fees.
This increase is within the limit set by the Remuneration Policy and is show
in the table below:
Current Year ended Additional Total Year ended Additional Total
Annual 30 September Special Year ended 30 September Special Year ended
Fee 2022 Payment 30 September 2021 Payment 30 September
£ fee for the 2022 fee for the 2021
£ year end fee £ year end fee
30 September £ 30 September £
2022 2021
£ £
Christian Yates 27,825 26,500 N/A 26,500 26,500 5,482 31,982
Matthew Evans 22,575 21,500 N/A 21,500 21,500 N/A 21,500
Andrew Donovan 25,200 24,000 406 24,406 18,533 1,945 20,478
Giles Clark - 21,500 630 22,130 23,020 3,019 26,039
Totals 75,600 93,500 1,036 94,536 89,553 10,446 99,999
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.
Annual Percentage Change in Directors' Remuneration
The following tables sets out the annual percentage change in Directors' fees
for the year up to 30 September 2022:
% change % change % change
for the year to for the year to for the year to
30 September 30 September 30 September
2022 2021 2020
Christian Yates 0 6 0
Matthew Evans 0 7.5 0
Andrew Donovan 0 N/A N/A
Giles Clark 0 6.7 0
Directors' Shareholding (Audited)
The Directors of the VCT during the year and their beneficial interests in the
issued Ordinary Shares and 'A' Shares at 30 September 2022 and at the date of
this report were as follows:
Directors At the date of At At
this report 30 September 2022 30 September 2021
Christian Yates Ord 27,789 27,789 27,789
'A' 2,624,185 2,624,185 2,624,185
Matthew Evans Ord - - -
'A' - - -
Giles Clark* Ord - - -
'A' - - -
Andrew Donovan Ord - - -
'A' - - -
* On 30 September 2022, Giles Clark resigned from the Board.
Statement of voting at AGM
Remuneration report
At the AGM on 23 March 2022, the votes in respect of the resolution to approve
the Director's Remuneration Report were as follows:
In favour 89.60%
Against 10.40%
Withheld nil votes
Remuneration policy
At the 2020 AGM, when the remuneration policy was last put to a Shareholder
vote, 99.78% voted for the resolution, showing significant shareholder
support.
Relative importance of spend on pay
The difference in actual spend between 30 September 2022 and 30 September 2021
on Directors' remuneration in comparison to distributions (dividends and share
buybacks) and other significant spending are set out in the chart within the
Annual Report.
2022/2023 remuneration
The remuneration levels for the forthcoming year for the Directors of the VCT
are shown in the above table.
Performance graph
The graph within the Annual Report 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
returns 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.
Matthew Evans
Remuneration Committee Chairman
30 January 2023
Corporate Governance
The Board of Gresham House Renewable Energy VCT2 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 VCT2 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.
Compliance with the Principles and Provisions of the AIC Code by the VCT is
detailed in the Governance Report.
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
At the start of the year, the VCT had a Board comprising four Non-Executive
Directors, chaired by Christian Yates. Giles Clark and Andrew Donovan were
independent from the Investment Adviser, while Matthew Evans was not
considered independent as he is a Designated Member of CH1 Investment Partners
LLP, which receives trail commission from the Investment Adviser. Christian
Yates was independent on appointment, however, he is no longer considered
independent as he has been on the Board for over 9 years. The VCT has not
appointed a Senior independent Director.
On 30 September 2022, Giles Clark resigned from the Board. Biographical
details of all Board members (including significant other commitments of the
Chairman) are shown.
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 Administrator).
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 decided that the VCT will not be buying Shares for the
foreseeable future as the VCT wishes to conserve such cash as it generates for
the managed wind-down of the VCT and the potential payment of dividends.
The capital structure of the VCT is disclosed in Note 19 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. Andrew Donovan was
the chairman of the Audit Committee and Matthew Evans 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 Committee is also responsible for reviewing the going concern assessment
and viability statement including consideration of all reasonably available
information about the future financial prospects of the VCT, the possible
outcomes of events and changes in conditions and realistic possible responses
to such events and conditions.
The Audit Committee met four times 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 Administrator 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 Committee, after taking into consideration comments from the Investment
Adviser and Administrator, 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 Auditor.
Under the Competition and Markets Authority regulations, there is a
requirement that an audit tender process be carried out every ten years and
mandatory rotation at least every twenty years. The VCT undertake an audit
tender in respect of the audit required for the year ended 30 September 2021
and, following a competitive tender process in early 2021, BDO was
re-appointed.
Board and Committee Meetings
The following table sets out the Directors' attendance at the Board and
Committee meetings during the year:
Quarterly Audit Nomination Remuneration
Board Committee Committee Committee
meetings meetings meetings meetings
attended attended attended attended
(4 held) (4 held) (1 held) (1 held)
Christian Yates 4 4 1 1
Giles Clark 4 4 1 1
Matthew Evans 4 4 1 1
Andrew Donovan 4 4 1 1
In addition the Directors attended a number of ad hoc board meetings, mainly
to discuss the managed wind-down of the VCT.
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.
During the period, the Committee recommended an increase in board remuneration
which was approved by the Board. These increases took effect from 1 October
2022. Details of the specific levels of remuneration to each Director as well
as the fee increases are set out in the Directors' Remuneration Report.
Financial reporting
The Directors' responsibilities statement for preparing the accounts is set
out in the Report of the Directors and a statement by the Auditor about their
reporting responsibilities is set out in the Independent Auditor's report.
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. Diversity includes and makes good use of differences in
knowledge and understanding of relevant diverse geographies, peoples and their
backgrounds including race or ethnic origin, sexual orientation, gender, age,
disability or religion.
During the period, the Committee carried out a rigorous board evaluation
during which it assessed the effectiveness of the Board and its committees.
The Committee found that the Board was functioning well and that all directors
contributed to the discussions at meetings. A number of topics were raised and
discussed and overall, the Board and its committees were found to be
performing satisfactorily.
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. The notice of the twelfth 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 Directors are fully informed of the internal control framework established
by the Investment Adviser and the Administrator to provide reasonable
assurance on the effectiveness of internal financial control.
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 internal controls, 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.
The Board also reviews the perceived risks faced by the VCT in line with
relevant guidance on an annual basis and implements additional controls as
appropriate.
The Board also considered the requirement for an internal audit function and
considered that this was not necessary as the internal controls and risk
management in place were adequate and effective.
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
Administrator and Company Secretary
JTC (UK) Limited
Anti-bribery policy
In order to ensure compliance with the UK Bribery Act 2010, the Directors
confirm that the VCT has zero tolerance towards bribery and a commitment to
carry out business openly, honestly and fairly.
Going concern
In assessing the VCT as a going concern, the Directors have considered the
forecasts which reflect the proposed strategy for portfolio investments and
the results of the continuation votes at the AGM and General Meeting held on
22 March 2021 and 13 July 2021 respectively. At the meeting on 13 July 2021,
the proposed special resolution was approved by Shareholders, resulting in the
VCTs entering a managed wind-down and a new investment policy replacing the
existing investment policy. The Board agreed to realise the VCTs' investments
in a manner that achieves balance between maximising the net value received
from those investments and making timely returns to Shareholders.
Given a formal decision has been made to wind the VCT up, the financial
statements have been prepared on a basis other than going concern. The Board
notes that the VCT has sufficient liquidity to pay its liabilities as and when
they fall due, during the managed wind-down, and that the VCT has adequate
resources to continue in business until the formal liquidation and wind-up
commences.
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 in 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 2022 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 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 remuneration committees. (7.2.22, 9.2.37)
d) 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)
e) 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)
f) The Directors are not subject to annual re-election but must be
re-elected every three years. 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)
By order of the Board
JTC (UK) Limited
Company Secretary
Company number: 0430176
Registered office:
The Scalpel, 18th Floor
52 Lime Street
London EC3M 7AF
30 January 2023
Income Statement
For the year ended 30 September 2022
Year ended 30 September 2022 Year ended 30 September 2021
Note Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Income 3 712 - 712 591 - 591
Gain/(loss) on investments 10 - 512 512 - (2,628) (2,628)
712 512 1,224 591 (2,628) (2,037)
Investment advisory fees 4 (202) (67) (269) (221) (74) (295)
Other expenses 5 (430) - (430) (347) - (347)
(632) (67) (699) (568) (74) (642)
Profit/(loss) on ordinary activities before tax 80 445 525 23 (2,702) (2,679)
Tax on total comprehensive income/(loss) and ordinary activities 7 - - - - - -
Profit/(loss) for the year and total comprehensive income/(loss) 80 445 525 23 (2,702) (2,679)
Basic and diluted earnings/(loss) per share:
Ordinary Share 9 0.3p 1.7p 2.0p 0.1p (10.3p) (10.2p)
'A' Share 9 - - - - - -
All Revenue and Capital items in the above statement derive from continuing
operations. No operations were 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 April 2021) 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.
The accompanying notes form an integral part of these financial statements.
Balance Sheet
As at 30 September 2022
2022 2021
Note £'000 £'000 £'000 £'000
Current assets
Investments 10 27,980 27,400
Costs incurred on sale of VCT's assets 11 480 181
Debtors 12 124 176
Cash at bank and in hand 1 30
28,585 27,787
Creditors: amounts falling due within one year 13 (2,542) (1,461)
Net current assets 26,043 26,326
Creditors: amounts falling due after more than one year 14 (2,162) (2,970)
Net assets 23,881 23,356
Capital and reserves
Called up Ordinary Share capital 15 29 29
Called up 'A' Share capital 15 42 42
Share premium account 16 9,734 9,734
Treasury Shares 16 (3,403) (3,403)
Special reserve 16 4,813 4,813
Revaluation reserve 16 16,869 15,054
Capital redemption reserve 16 1 1
Capital reserve - realised 16 (3,617) (2,247)
Revenue reserve 16 (587) (667)
Total Shareholders' funds 23,881 23,356
Basic and diluted net asset value per share
Ordinary Share 17 91.2p 89.2p
'A' Share 17 0.1p 0.1p
The financial statements of Gresham House Renewable Energy VCT2 plc were
approved and authorised for issue by the Board of Directors and were signed on
its behalf by:
Christian Yates
Chairman
Company number: 07378395
Date: 30 January 2023
The accompanying notes form an integral part of these financial statements.
Statement of Changes in Equity
For the year ended 30 September 2022
Called Share Treasury Funds Special Revaluation Capital Capital Revenue Total
up share Premium Shares held in reserve reserve redemption reserve reserve £'000
capital Account £'000 respect £'000 £'000 reserve realised £'000
£'000 £'000 of Shares £'000 £'000
not yet
allotted
£'000
At 71 9,734 (3,403) - 6,394 16,891 1 (1,433) (639) 27,616
30 September 2020
Total comprehensive loss - - - - - (2,644) - (7) (28) (2,679)
Transfer of net realised loss to Capital reserve-realised - - - - - 807 - (807) - -
Transactions with owners
Dividend paid - - - - (1,581) - - - - (1,581)
At 71 9,734 (3,403) - 4,813 15,054 1 (2,247) (667) 23,356
30 September 2021
Total comprehensive income - - - - - 1,815 - (1,370) 80 525
At 71 9,734 (3,403) - 4,813 16,869 1 (3,617) (587) 23,881
30 September 2022
The accompanying notes form an integral part of these financial statements.
Cash Flow Statement
For the year ended 30 September 2022
Note Year ended Year ended
30 September 30 September
2022 2021
£'000 £'000
Cash flows from operating activities
Profit/(loss) for the financial year 525 (2,679)
(Gain)/loss arising on the revaluation of investments 10 (512) 2,628
Dividend income (659) (522)
Interest income (54) (69)
Interest income - written off 79 -
Increase in debtors (2) (2)
Increase in creditors 83 148
Net cash outflow from operating activities (540) (496)
Cash flows from investing activities
Proceeds from sale of investments/loan note redemptions 10 - 139
Purchase of investments 10 (68) (13)
Cost incurred as part of the sale of VCT's assets 11 (109) (19)
Interest received 29 184
Dividend income received 659 315
Net cash inflow from investing activities 511 606
Net cash (outflow)/inflow before financing activities (29) 110
Cash flows from financing activities
Dividends paid - (1,581)
Proceeds from loans - 1,447
Net cash outflow from financing activities - (134)
Net decrease in cash (29) (24)
Cash and cash equivalents at start of year 30 54
Cash and cash equivalents at end of year 1 30
Cash and cash equivalents comprise
Cash at bank and in hand 1 30
Total cash and cash equivalents 1 30
The accompanying notes form an integral part of these financial statements.
Notes to the Accounts
For the year ended 30 September 2022
1. General Information
Gresham House Renewable Energy VCT2 plc (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 under
the Companies Act 2006.
Basis of preparation - financial statements prepared on a basis other than going concern
During the financial year the Shareholders of the VCT resolved to seek to sell
the VCT's assets and distribute the proceeds in due course. The VCT has
incurred some additional costs since the beginning of the Managed Wind-Down
process in July 2021 up to this year end, and post year end, related to the
sale of its assets. Should the sale of these assets fall through, the VCT will
need to pay abort costs. The Board and Investment Adviser have plans in place
to manage this scenario should this occur. At the General Meeting on 13 July
2021 a formal decision was made to wind the VCT up, therefore as last year the
Financial Statements have been prepared on a basis other than going concern
for the year ended 30 September 2022. No further adjustments are required in
respect of this. Liquidation costs cannot currently be reliably estimated but
are not considered to be material. Investments held at fair value through
profit or loss are held as current assets, there have been no further effects
noted.
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
April 2021 (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. No new FRS were
implemented during the year.
The financial statements are presented in Sterling (£).
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:
· multiples;
· net assets;
· discounted cash flows or earnings (of underlying business);
· discounted cash flows (from the investment); and
· industry valuation benchmarks.
Of the valuation methodologies above, the multiples and discounted cash flow
approaches are applied to the VCT's investments. 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 Advisor 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 on 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 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.
3. Income
Year ended Year ended
30 September 30 September
2022 2021
£'000 £'000
Income from investments
Loan stock interest 53 69
Dividend income 659 522
712 591
4. Investment advisory fees
The investment advisory fees for the year ended 30 September 2022, 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 2022 Year ended 30 September 2021*
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment advisory fees 202 67 269 221 74 295
5. Other expenses
Year ended 30 September 2022 Year ended 30 September 2021
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Administration services 96 - 96 98 - 98
Directors' remuneration 103 - 103 102 - 102
Social security costs 3 - 3 5 - 5
Auditor's remuneration for audit 48 - 48 37 - 37
Non audit services - Agreed upon procedures - - - 3 - 3
Interest written off 79 - 79 - - -
Other 101 - 101 102 - 102
430 - 430 347 - 347
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 2022, the
annual running costs came to 2.3% of net assets (2021: 2.4%), therefore this
cap has not been breached.
6. Directors' remuneration
Details of remuneration (excluding employer's NIC) are given in the audited
part of the Directors' Remuneration Report.
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 Year ended
30 September 30 September
2022 2021
£'000 £'000
(a).. Tax charge for the year
...... UK corporation tax at 19% (2021: 19%) - -
...... Charge for the year - -
(b).. Factors affecting tax charge for the year
...... Profit/(loss) on ordinary activities before taxation 525 (2,679)
...... Tax/(tax credit) calculated on loss on ordinary activities before 100 (509)
taxation at the applicable rate of 19% (2021: 19%)
...... Effects of:
...... UK dividend income (125) (99)
...... (Gains)/losses on investments (97) 500
...... Excess management expenses on which deferred tax not recognised 122 108
...... Total tax charge - -
Excess management fees, which are available to be carried forward and set off
against future taxable income, amounted to £4,485,000 (25%) (2021:
£4,697,000) (25%). The associated deferred tax asset of £1,121,000 (2021:
£1,174,000) 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. The prospective corporation tax rate of 25% is due to
be effective from 1 April 2023.
8. Dividends
No Dividends were paid during the year (2021: nil). However, a dividend in
respect of the year ended 30 September 2022 was declared and was paid to
Shareholders on the Register on 6 January 2023, on 27 January 2023.
9. Basic and diluted earnings per share
Weighted Revenue Pence Capital Pence
average number profit per share profit/ per share
of shares £'000 (loss)
in issue £'000
Year ended Ordinary Shares 26,133,036 80 0.3 445 1.7
30 September 2022
'A' Shares 39,463,845 - - - -
Year ended Ordinary Shares 26,133,036 23 0.1 (2,702) (10.3)
30 September 2021
'A' Shares 39,463,845 - - - -
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. Investments
2022 2021
Unquoted Unquoted
investments investments
£'000 £'000
Opening cost at start of the year 13,152 13,700
Unrealised gains at start of the year 14,248 16,893
Opening fair value at start of the year 27,400 30,593
Movement in the year:
Purchased at cost * 68 228
Disposals proceeds/redemption of loan notes * - (793)
Realised (losses)/gains in the income statement (1,303) 16
Unrealised gains/(losses) in the income statement 1,815 (2,644)
Closing fair value at year end 27,980 27,400
Closing cost at year end 13,220 13,152
Permanent impairment in cost of investments as at 30 September 2022 (1,303) -
Unrealised gains at year end 16,063 14,248
Closing fair value at year end 27,980 27,400
* The 2021 purchase and disposal of assets includes non-cash transactions.
During the year, the VCT received £nil (2021: £775,000) from the disposal of
investments comprising of both equity and loan notes. The cost of these
investments at the start of the year was £nil (2021: £775,000). These
investments have been revalued and measured at fair value over time, and up
until the point of disposal any realised and 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 2022 Level 1 Level 2 Level 3 2021
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Unquoted loan notes - - 960 960 - - 1,893 1,893
Unquoted equity - - 27,020 27,020 - - 25,507 25,507
- - 27,980 27,980 - - 27,400 27,400
During the years ended 30 September 2022 and 30 September 2021 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 Unquoted Total
loan notes equity £'000
£'000 £'000
Balance at 30 September 2021 1,893 25,507 27,400
Movements in the income statement:
Unrealised gains in the income statement - 1,815 1,815
Realised losses in the income statement (933) (370) (1,303)
960 26,952 27,912
Additions at cost - 68 68
Balance at 30 September 2022 960 27,020 27,980
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 2022 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 18.
11. Cost incurred on sale of VCT's assets
Since the beginning of the Managed Wind-Down in the previous financial year,
the VCT has capitalised the professional fees in relation to the sale of
assets. The costs are directly attributable to the sales process and have been
recognised as part of the asset value.
2022 2021
£'000 £'000
Cost incurred on sale of VCT's assets 480 181
480 181
12. Debtors
2022 2021
£'000 £'000
Prepayments and accrued income 124 176
124 176
13. Creditors: amounts falling due within one year
2022 2021
£'000 £'000
Other loans 1,935 1,071
Taxation and social security 3 3
Accruals and deferred income 371 387
Creditors 233 -
2,542 1,461
The balance of other loans is made up of amounts borrowed from the underlying
portfolio companies. All loans are interest free. Other loans falling due
within one year are repayable as follows:
Investee company Repayment date 2022 2021
£'000 £'000
Hewas Solar Limited n/a^ 131 131
Gloucester Wind Limited n/a^^ 100 100
Penhale Solar Limited n/a ^^ 105 105
Minsmere Power Limited n/a^^ 65 52
HRE Willow Limited n/a ^^ 336 292
St Columb Solar Limited n/a^ 60 21
Lunar 2 Limited n/a^ 768 -
n/a^^ 370 370
1,138 370
Amounts repayable within one year 1,935 1,071
^ The lender may demand full repayment of all amounts outstanding at any
time after 5 years and 1 day from the date of the initial drawdown of the
loan. The loans are interest free.
^^ The VCT and the indicated SPV's (the lender) entered into loan agreements
whereby the lender, at any time, without having to provide any reason, by one
or several demands require immediate repayment of all or any part of the Loan
and all or any accrued interest thereon. The loans are interest free.
14. Creditors: amounts falling due after more than one year
2022 2021
£'000 £'000
Other loans 2,162 2,970
2,162 2,970
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 below. All loans are interest free.
Creditors falling due after more than one year are repayable as follows:
Investee company Repayment date 2022 2021
£'000 £'000
St Columb Solar Limited 2 February 2023 - 40
Lunar 2 Limited 13 February 2023 - 768
18 December 2024 1,481 1,481
14 January 2025 356 356
1,837 2,605
Gloucester Wind Limited 14 January 2025 200 200
Penhale Solar Limited 14 January 2025 75 75
Minsmere Power Limited 14 January 2025 50 50
Amounts repayable after more than one year 2,162 2,970
15. Called up share capital
2022 2021
£'000 £'000
Allotted, called up and fully-paid:
26,133,036 (2021: 26,133,036) Ordinary Shares of 0.1p each 29 29
39,463,845 (2021: 39,463,845) 'A' Shares of 0.1p each 42 42
71 71
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 page ••. 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 2022 the VCT did not repurchase
any Ordinary Shares or any 'A' Shares.
During the year ended 30 September 2022 the VCT issued no Ordinary Shares and
no 'A' Shares.
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 £5,000; 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.
16. Reserves
2022 2021
£'000 £'000
Share premium account 9,734 9,734
Treasury shares (3,403) (3,403)
Special reserve 4,813 4,813
Revaluation reserve 16,869 15,054
Capital redemption reserve 1 1
Capital reserve - realised (3,617) (2,247)
Revenue reserve (587) (667)
23,810 23,285
The Special reserve is available to the VCT to enable the purchase of its own
shares in the market. The Special reserve, Capital reserve - realised and
Revenue reserve are all distributable reserves from which dividends could be
paid. At 30 September 2022, distributable reserves were £609,000 (2021:
£1,899,000).
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.
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:
· gains and losses compared to cost on the realisation of investments;
and
· 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 and other non-capital realised movements.
17. Basic and diluted net asset value per share
2022 2021 2022 2021
Shares in issue Net asset value Net asset value
Pence £'000 Pence £'000
per share per share
Ordinary Shares 26,133,036 26,133,036 91.2 23,842 89.2 23,317
'A' Shares 39,463,845 39,463,845 0.1 39 0.1 39
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 15.
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.
18. Financial instruments
The VCT held the following categories of financial instruments at 30 September
2022:
2022 2022 2021 2021
Cost Value Cost Value
£'000 £'000 £'000 £'000
Assets at fair value through profit or loss 13,220 27,980 13,152 27,400
Other financial (liabilities)/assets (492) (492) (221) (221)
Cash at bank 1 1 30 30
Other loans (4,097) (4,097) (4,041) (4,041)
Total 8,632 23,392 8,920 23,168
The VCT's financial instruments comprise investments held at fair value
through profit or loss, being equity and loan stock investments in unquoted
companies, capitalised costs in relation to sale of VCT's assets (Note 11),
loans and receivables consisting of short-term debtors, cash deposits and
financial liabilities being creditors arising from its operations. Other
financial liabilities and assets include operational debtors and prepaid
expenses and short-term creditors which are measured at amortised cost. 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:
· market 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 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 and since 13 July 2021, with reference
to the New 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:
· investment price risk; and
· interest rate risk.
Investment price risk
The VCT's investments which comprise both equity and debt financial
instruments in unquoted investments are concentrated 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 2022, the unquoted portfolio was valued at £27,980,000 (2021:
£27,400,000). 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:
Input Base case Change in Change in Change in
input fair value of NAV per
investments share
£'000 pence
Discount rate 7.00% - 8.25% +0.5% (648) (2.5)
-0.5% 688 2.6
Inflation 3.0% - 14.0% +1.0% 1,774 6.8
-1.0% (1,627) (6.2)
Irradiation 785 - 1,270 kWh/m(2) +1.0% 621 2.4
-1.0% (617) (2.4)
Degradation 0.30% - 0.40% +0.1% (723) (2.8)
-0.1% 737 2.8
Power prices £32 - 212/MWh +10.0% 774 3.0
-10.0% (782) (3.0)
Asset life
The Board has also considered the potential impact of changes to the
anticipated lives of assets in the portfolio. Close to ninety percent of the
VCT's value is in assets refinanced by debt, and under the debt facility
agreements, reserves are in place for renewing key equipment as and when
required. Key equipment of 3 solar sites were repowered in 2021. 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 asset life assumption is
that the asset lives are equal to the length of the relevant leases and 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:
· "Fixed rate" assets represent investments with predetermined yield
targets and comprise certain loan note investments and preference shares;
· "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.
Average Average period 2022 2021
interest rate until maturity £'000 £'000
Fixed rate 8% 2,286 days 668 533
Floating rate 0% 1 30
No interest rate 22,723 22,605
23,392 23,168
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 £10 (2021: £300). As at 30 September 2022
the Bank of England (BoE) base rate was 2.25%, the base rate having increased
from 1.75% to 2.25% on 22 September 2022. The BoE base rate further increased
by 0.75% to 3.00% on 3 November 2022 and by 0.50% on 15 December 2022 to the
current base rate of 3.50%. Any potential further change in the base rate, at
the current level, would be likely to 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:
2022 2021
£'000 £'000
Investments in loan stocks 960 1,893
Cash and cash equivalents 1 30
Interest, dividends and other receivables 115 169
1,076 2,092
The Investment 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.
Three of the VCT loan investments were extended at the same terms 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.
The VCT's creditors at year end were £607,000 (2021: £390,000) of which £
352,000 related to the costs incurred on sale of VCT's assets and has both
short-term and long-term loans from investee companies (see Note 13 for an
analysis of the repayment terms), which are expected to be repaid by way of
future dividends from, or the sale of, these companies, being £4,097,000
(2021: £4,041,000). The Board therefore 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.
The following table analyses the VCT's loan payables by contractual maturity
date:
As at 30 September 2022 Due in Due between Due after Total
less than 1 year and 5 years £'000
1 year 5 years £'000
£'000 £'000
Loans payable to investee companies 1,935 2,162 - 4,097
1,935 2,162 - 4,097
As at 30 September 2021 Due in Due between Due after Total
less than 1 year and 5 years £'000
1 year 5 years £'000
£'000 £'000
Loans payable to investee companies 1,071 2,970 - 4,041
1,071 2,970 - 4,041
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 and loss account at 30 September 2022 as analysed by the expected
maturity date is as follows:
As at 30 September 2022 Not later Between Between Between More Total
than 1 and 2 and 3 and than £'000
1 year 2 years 3 years 5 years 5 years
£'000 £'000 £'000 £'000 £'000
Fully performing loan stock 960 - - - - 960
Past due loan stock - - - - - -
960 - - - - 960
As at 30 September 2021 Not later Between Between Between More Total
than 1 and 2 and 3 and than £'000
1 year 2 years 3 years 5 years 5 years
£'000 £'000 £'000 £'000 £'000
Fully performing loan stock 1,893 - - - - 1,893
Past due loan stock - - - - - -
1,893 - - - - 1,893
19. Capital management
The VCT's objectives when managing capital are to safeguard the VCT's ability
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 80% (as measured
under the tax legislation) 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.
As the Investment Policy implies, the Board would consider levels of gearing.
As at 30 September 2022 the VCT had loans from investee companies of
£4,097,000 (2021: £4,041,000). 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.
20. Contingencies, guarantees and financial commitments
At 30 September 2022, conditional on the achieved sale price, VCT had
financial commitments towards the external advisors used for the sale of the
VCT's assets.
21. Controlling party and related party transactions
In the opinion of the Directors there is no immediate or ultimate controlling
party. For total Directors' remuneration during the year, please refer to Note
5 as well as the Directors' Remuneration Report.
22. Significant interests
Details of shareholdings in those companies where the VCT's holding, as at 30
September 2022, 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. 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.
Company Registered Class of Number Proportion of Capital and Profit/(loss)
office shares held class held reserves for the year
Penhale Solar Limited EC4A 3TW Ordinary 299,601 50% £596,000 £25,000
Minsmere Power Limited EC4A 3TW Ordinary 200,001 50% £93,000 (£13,000)
Small Wind Generation Limited EC4A 3TW Ordinary 840,001 50% (£539,000) (£27,000)
Lunar 3 Limited EC4A 3TW Ordinary 100 50% £nil £nil
Explanatory notes
The financial information, Capital and reserves and Profit/(loss), has been
sourced from the statutory accounts of the underlying investee companies. The
financial information disclosed relates to accounting year ending 31 March
2022.
23. Net debt reconciliation
1 October 2021 Cashflows 30 September
£'000 £'000 2022
£'000
Cash at bank and in hand 30 (29) 1
Other loans 4,041 56 4,097
24. Events after the end of the reporting period
The Chancellor announced at the Autumn Statement 2022 the introduction of the
Electricity Generator Levy. The EGL is an exceptional and time-limited measure
that responds to the effect that unique geopolitical events, when combined
with structural challenges within the UK market, are having on the prices
being paid for electricity in the UK.
The EGL has been introduced from 1 January 2023 and will remain in force until
April 2028, as announced at Autumn Statement.
The EGL replace the proposal for the Cost Plus Revenue Limit (CPRL) which was
announced in October 2022, powers for which were taken in the Energy Prices
Act 2022. The CPRL will not be taken forward.
The EGL is limited, through a threshold, to those groups, or stand-alone
companies, generating more than 50 Gigawatt-hours (GWh) per annum of
electricity from in scope generation assets in a qualifying period. On an
ongoing basis, the EGL does not impact the VCT, however its impact on
potential realisation proceeds has been incorporated into the valuation of the
portfolio at 30 September 2022.
No further significant events have occurred between the statement of financial
position date and the date when the financial statements have been approved,
which would require adjustments to, or disclosure in the financial statements.
* (#_ftnref1) 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.
** (#_ftnref2) 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.
1 (#_ftnref3) Assuming an "all non-renewable fuels" emissions statistic
of 440tCO2/GWh of electricity supplied, BEIS statistics. "Carbon avoided"
calculated using Renewable UK methodology
2 (#_ftnref4) Assuming an average annual household usage of 3.748 MWh,
BEIS December 2021 statistics.
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 (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR WPURGGUPWPUURecent news on Gresham House Renewable Energy VCT 2
See all newsREG - Gresham HouseRE VCT2 - Result of AGM and Update on Sale Process
AnnouncementREG - Gresham HouseRE VCT2 - Notice of AGM
AnnouncementREG - Gresham HouseRE VCT2 - Full Year Results
AnnouncementREG - Gresham HouseRE VCT2 - Statement regarding Investment Advisor
AnnouncementREG - Gresham HouseRE VCT2 - Dividend Declaration
Announcement