REG - Gresham HouseRE VCT2 - Half Year Results & Dividend Announcement
28/06/2023 13:30
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RNS Number : 2702E Gresham House Renewable EnergyVCT2 28 June 2023
28 June 2023
Gresham House Renewable Energy VCT 2 PLC
("VCT 2", the "Company")
Half Year Results & Dividend Announcement
The Company is pleased to announce its half-year results for the period ended
31 March 2023 ("Half Year Results") along with a dividend of 16.5p per share.
Half Year Results
The Half Year Results are available on the Company's website at
https://greshamhouse.com/real-assets/new-energy/gresham-house-renewable-energy-vct-2-plc/
(https://greshamhouse.com/real-assets/new-energy/gresham-house-renewable-energy-vct-2-plc/)
and will also be available for viewing shortly at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Dividend
The Company is pleased to declare an interim dividend of 16.5p per share. This
dividend reflects the distribution of proceeds arising from the 'Completion of
Sale of Certain Solar Assets' announcement on 27 April 2023.
The dividend will be paid on 28 July 2023 to Shareholders on the register as
at the close of business on 7 July 2023. The ex-dividend date is 6 July 2023.
LEI: 213800GQ3JQE2M214C75
For further information, please contact:
Gresham House Asset Management renewablevcts@greshamhouse.com (mailto:renewablevcts@greshamhouse.com)
Investor Relations Tel: 020 3837 6270
JTC (UK) Limited GreshamVCTs@jtcgroup.com (mailto:GreshamVCTs@jtcgroup.com)
Company Secretary
Tel: 020 3846 9774
Shareholder information
Performance summary
27 June 31 March 30 September 31 March
2023 2023 2022 2022
Pence Pence Pence Pence
Net asset value per Ordinary Share 87.6 91.2 90.0
Net asset value per 'A' Share 0.1 0.1 0.1
Cumulative dividends* 59.1 57.1 57.1
Total Return* 146.8 148.4 147.2
Share Price - Ordinary (GV2O) 85.0 85.0 85.0 87.0
Share Price - A Shares (GV2A) 5.05 5.05 5.05 5.05
* for a holding of one Ordinary Share and A Share
Dividends
Ordinary Shares 'A' Shares Total
Pence Pence Pence
2011 Final 30 March 2012 3.5 - 3.5
2012 Final 28 March 2013 5.0 - 5.0
2013 Special 28 February 2014 7.3 3.7 11.0
2013 Final 28 March 2014 5.0 - 5.0
2015 Interim 18 September 2015 5.0 - 5.0
2016 Interim 16 September 2016 5.0 - 5.0
2017 Interim 15 September 2017 5.0 - 5.0
2018 Interim 14 December 2018 5.5 0.5 6.0
2019 Interim 20 December 2019 5.3 0.5 5.8
2020 Interim 31 December 2020 5.3 0.5 5.8
2022 Interim 27 January 2023 2.0 - 2.0
53.9 5.2 59.1
The next dividend is expected to be paid in July 2023. For further details,
please see the Chairman's Statement.
Dividends are paid by the registrar on behalf of the VCT. Shareholders who
wish to have dividends paid directly into their bank account and did not
complete these details on their original application form can complete a
mandate form for this purpose. Forms can be obtained from Link Asset Services.
Chairman's statement
I am pleased to present the Half-Yearly Report of Gresham House Renewable
Energy VCT2 plc (VCT) for the period ended 31 March 2023.
As reported in the Annual Report, the Board has continued to work towards the
Shareholder approved objective of realising the Company's portfolio of assets
in a manner that achieves a balance between maximising net value received from
the sale of assets and making a timely return of capital. The Board is pleased
to report that in April 2023, a sale of two ground-mounted solar sites and
approximately 1,600 commercial and residential solar installations to Downing
Renewables & Infrastructure Trust plc for a cash consideration of £12.6mn
was concluded. The sale resulted in a £0.7mn and 2.7p uplift in NAV per
'pair' of shares (before taking into account costs associated with the sale
that amounted to £0.4mn per VCT) compared with the value held at 30 September
2022. The valuation of these assets in the NAV at 31st March 2023 reflects the
consideration obtained for the sale of these assets, including funds received
at the SPV level. The Board continues to market the remaining assets in the
portfolio, and, subject to resolving the questions in relation to the security
of the grid connection at South Marston (details below), is endeavouring to
reach a conclusion in an as timely manner as possible.
In terms of the performance of the portfolio, the conclusion of extensive
remedial works carried out at several sites in the previous year has continued
to yield benefits, with technical performance across all sites matching
forecasts. Despite this, and the strong gain on the part sale of assets, the
value of the portfolio has fallen due to lower cashflows than forecast over
the last six months from the portfolio, a downgrade in inflation expectations
and longer term power price forecasts, as well as the reductions in the value
of the non-renewable assets. These falls, coupled with the payment of a 2.0p
dividend in January has resulted in a NAV per 'pair' of shares of 87.7p at
31 March 2023 compared with 91.3p per share at 30 September 2022.
Inflation has remained high throughout the six month period but expectations
for the future rate of inflation have decreased; and although wholesale power
prices have begun to fall, the portfolio will continue to benefit from high
power prices which have been locked in for one to two years at the elevated
levels of 2022. This higher income per unit of generation, subject to
technical performance and consistent weather patterns, should result in higher
cash-flows available for dividends whilst the Company holds these assets. The
higher revenue is countered, to some degree, by the debt service of the
remaining debt facility also being indexed to inflation, with an increase in
inflation resulting in higher interest charges and higher principal
repayments.
Investment portfolio
In April 2023, the sale of two ground-mounted solar sites and the rooftop
solar portfolio consisting of five assets held directly by the VCT were sold
for proceeds of £4.9mn, and represented an uplift of £0.7mn or 16.9% over
their valuation at the start of the financial year and this valuation has been
used in these accounts as the sale occurred so close to the period end.
Excluding the assets sold in April 2023, the remaining VCT portfolio consisted
of eleven investments, which were valued at £22.0mn. There have been no
follow-on investments and no further disposals during the six month period.
The VCT portfolio as at 31 March 2023 is analysed (by value) between the
different types of assets as follows:
Ground mounted solar 84.8%
Rooftop solar* 11.0%
Small wind 4.2%
Non-renewable assets** 0.0%
* The full rooftop solar portfolio was sold in April 2023
** Non-renewable assets were fully impaired at 31 March 2023
The Board has reviewed the investment valuations at the half-year and notes
that the valuation of the remaining renewable asset portfolio has decreased by
£1.4mn or 6.0%. As indicated earlier, the expectations for both the future
rate of inflation and power prices have fallen, but the portfolio also
generated less cash than expected.
The ground-mounted solar assets which account for most of the value, performed
under budget for the period, with that underperformance being due entirely to
lower than forecast irradiation. The assets in fact exhibited better than
forecast technical performance when adjusted for the level of irradiation.
Significantly higher power prices, compared to previous years, have been
locked into the VCT portfolio which will generate stronger returns from the
remaining portfolio in the near term. 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's levy on exceptional electricity
generation revenues of qualifying generating undertakings from the sale of
electricity, the Electricity Generator Levy (EGL), 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 and therefore this could reduce the fair market value at
which any disposal would be likely to take place.
As reported in the Annual Report, the Company continues to make progress to
resolve the grid connection issue at the site in South Marston. The
appropriate planning permissions have now been granted, and the effect of this
is that it largely removes the impediment to the potential sale of the asset
and others within the same debt facility, and thus should allow sale
negotiations to progress without this obstruction.
Venture Capital investments
The VCT also holds two investments outside the renewable energy space and with
a significantly higher risk profile namely bio-bean Limited and Rezatec
Limited. Disappointingly, due to sustained poor trading conditions for its
product, bio-bean entered administration in April 2023 after the period end.
Rezatec was also forced to enter administration in May 2023 after unsuccessful
capital raising and trade sale processes. Both these investments have been
recognised in full as realised losses at 31 March 2023 and represented a
£0.4mn reduction in net asset value.
Further detail on the investment portfolio is provided in the Investment
Adviser's Report.
Net asset value and results
At 31 March 2023, the Net Asset Value (NAV) per Ordinary Share stood at 87.6p
and the NAV per 'A' Share stood at 0.1p, producing a combined total of 87.7p
per 'pair' of shares. The movement in the NAV per 'pair' of shares during the
half-year is detailed in the table below:
Pence per
'pair' of
shares
NAV as at 1 October 2022 91.3
Less payment of 30 September 2022 dividend on 27 January 2023 (2.0)
Valuation increase on assets held at 31 March 2023 and sold in April 2023 2.7
Valuation decrease on assets still held (6.9)
Income less expenses 2.6
NAV as at 31 March 2023 87.7
Total dividends paid to date for a combined holding of one Ordinary Share and
one 'A' Share stand at 59.1p (September 2022: 57.1p). The NAV Total Return
(NAV plus cumulative dividends) has decreased by 1.1% in the six months and
now stands at 146.8p. Excluding the initial 30% VCT tax relief, this is
compared to the cost to investors in the initial fundraising of £1.00 or
70.0p net of income tax relief.
The loss on ordinary activities after taxation for the half-year was £435,000
(March 2022: £192,000 profit), comprising a revenue profit of £702,000
(March 2022: £307,000) and a capital loss of £1,137,000 (March 2022:
£115,000) 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.
To increase the Company's distributable reserves and facilitate future
dividend payments, the Directors obtained Shareholder approval for a reduction
of certain non-distributable reserves at the AGM held on 27 April 2023. The
implementation of such a reduction of reserves is a Court led process and has
taken some months to enact. The Board is pleased to report that Court approval
for the cancellation took place on 23 May 2023 and following the anticipated
filing of relevant accounts, sufficient distributable reserves will be
available for dividend distributions to resume in July 2023.
As a result of the partial sale of assets, the Board has declared a dividend
of 16.5 p per share payable on 28 July 2023 to Shareholders that are on the
Register of Members on 7 July 2023. The total dividends paid to date for a
combined holding of one Ordinary Share and one 'A' Share will, including the
2.0p paid January, increase to 75.6p (September 2022: 57.1p).
2023 Annual General Meeting (AGM)
The VCTs twelfth AGM was held on 27 April 2023 at 11.30 a.m. All resolutions
were passed by way of a poll.
Outlook
With a part sale of assets having been concluded in April 2023, the Board will
continue to make every effort to progress the sale of the remaining assets in
accordance with Shareholders' wishes as expressed in the Continuation Vote in
March 2021. The Board continues to believe that the Company's Managed
Wind-Down is in the Shareholders' interests, so long as the assets are sold
for a price that reflects their value. That value could be adversely affected
if interest rates continue to rise and long term power prices continue their
downward trend. However in the meantime, high power prices and high near term
inflation, and better technical performance, subject to any unforeseen events,
will generate good dividends for Shareholders in the near term.
Christian Yates
Chairman
27 June 2023
Investment Adviser's report
Portfolio highlights
Gresham House Renewable Energy VCT2 plc (VCT) remains principally invested in
the renewable energy projects that the VCT and Gresham House Renewable Energy
VCT1 plc (VCT1) have co-owned for a period of ten to twelve years, depending
on the asset, with the value of these projects now representing 100% of the
value of the portfolio. The total generation capacity of assets co-owned by
the VCT as at 31 March 2023 was 34.3MWp. Post period end, 13MWp of capacity
was sold (on 26 April 2023) such that, going forward, the VCT and VCT1 will
own 21.3MWp. Given the materiality of the sale, this report includes further
details of the sale despite it being post period end.
The sale involved two ground-mounted solar energy projects and approximately
1,600 roof-mounted solar installations that were owned jointly with VCT1. The
price achieved by the VCT was higher than the Net Asset Value reported for
FY22.
The Investment Adviser continued to manage all the assets to derive the best
possible yield, whilst also supporting the Board of the VCT and its advisers
to advance the wider sale process of the whole portfolio to a successful
conclusion.
The Investment Adviser has repeated the valuation exercise for the purpose of
determining the Net Asset Value and has provided the relevant information to
the Directors of the VCT, who determine the value of the assets. The assets
sold (post period), have been valued in the half yearly accounts at the level
of the cash proceeds to be received post period end. For the remaining assets,
the valuation presented in this half yearly report necessarily reflects the
Directors' view of the fair value of the assets which incorporates potential
costs (such as the EGL) a future acquirer may incur through holding the assets
as well as their view on the levels of the other key assumptions that
determine future operational and financial performance.
The vast majority of the remaining assets held by the VCT generate solar
power. The solar portfolio is older than over 90% of the total installed solar
capacity in the UK, but their relative age means that the assets enjoy higher
government-backed incentives than more recent solar installations.
During the half year, the total revenue from renewable energy generation for
the whole portfolio was £5.0mn (2022: £2.8mn) with 56% of this from Feed in
Tariff rates which are set by the Government. The total revenue from the
renewable assets was 3.9% behind budget primarily due to lower than forecast
solar irradiation in the period.
The downside of the relatively mature age of the VCT's solar assets is the
additional maintenance required to keep them operating effectively. Much of
the additional maintenance and upgrade works needed has been completed and the
portfolio now benefits from improved technical performance.
In terms of available energy resource, the year to date saw solar irradiation
at 3.5% below budget, with March in particular seeing much less sunshine than
in previous years.
In terms of the macroeconomic environment, the effects on the portfolio are
summarised below:
- Power prices in the market have been easing from the elevated
levels experienced in 2022, however this has had no impact on revenue
generation as the power price was fixed in 2022 when prices were high. The
value of these assets has however been negatively impacted by the latest
independent forecasts used in the valuation having lower long term price
projections than the levels assumed in the year end valuation.
- With much of the portfolio's revenue being inflation linked,
higher and more sustained inflation increases the profitability of the assets
and therefore their value.
The VCT also held two investments in what were expected to be growth
businesses; bio-bean Limited, the world's largest recycler of waste coffee
grounds, and Rezatec Limited, a climate technology company and software
developer.
Both businesses regrettably failed to overcome the challenges they had been
experiencing in the last 18 months (mainly failure to meet revenue growth
rates) and both went into administration shortly after the end of the half
year.
Portfolio composition
31 March 2023 30 September 2022
Asset type kWp Value % of Value % of
£'000 Portfolio £'000 Portfolio
value value
Ground mounted solar (FiT)* 20,325 £19,334 71.9% £20,745 74.1%
Ground mounted solar (ROC)** 8,699 £3,461 12.9% £3,262 11.7%
Total ground mounted solar 29,024 £22,795 84.8% £24,007 85.8%
Rooftop solar (FiT) 4,288 £2,947 11.0% £2,425 8.7%
Total solar 33,312 £25,742 95.8% £26,432 94.5%
Wind assets (FiT) 1,030 £1,135 4.2% £1,156 4.1%
Total renewable generating assets 34,342 £26,877 100.0% £27,588 98.6%
Venture capital investments N.A. £0 0% £392 1.4%
TOTAL 34,342 £26,877 100.0% £27,980 100.0%
* Feed in Tariff (FiT)
** Renewables Obligation Certificate (ROC)
The 34.3MWp of renewable energy projects held in the portfolio of the VCT and
VCT1 as at 31 March 2023 generated 9,188,369 kilowatt-hours of electricity
over the half year, sufficient to meet the annual electricity consumption of
circa 2,300 homes. The Investment Adviser estimates that the carbon dioxide
savings achieved by generating this output from solar and wind rather than
gas-fired power for instance, are equivalent to what circa 5,300 mature trees
would remove from the atmosphere.
Portfolio summary
The portfolio value, and all of the income, is derived from the renewable
energy generation assets.
Renewable energy revenue by asset type
The performance against budget is shown below:
Asset type Budgeted Actual % of Revenue
revenue £ revenue £ performance
Ground mounted solar (FiT) 3,482,857 3,418,424 98.2%
Ground mounted solar (ROC) 1,168,552 1,133,779 97.0%
Roof mounted solar 342,632 293,515 85.7%
Wind assets 230,981 177,670 76.9%
TOTAL 5,225,022 5,023,388 96.1%
The revenue is affected by:
- renewable energy resources (solar irradiation & wind);
- the technical performance of the assets; and
- the revenue per unit of energy generated.
The difference between budgeted and actual revenue is due to the difference
between forecast generation and actual generation as power prices and tariff
levels were known at the time of the forecast.
The ground mounted solar assets which make up the bulk of the portfolio post
sale, performed 2.1% behind budget but significantly ahead of the
corresponding period in the prior financial year.
The actual income was 42.7% above the levels in the corresponding period in
the previous financial year, and this is due to the high power prices that
were locked in during last summer.
Renewable energy resources
The portfolio is heavily weighted to solar (97% by capacity of the renewable
assets, and 96% by value of the total portfolio).
During the period, solar irradiation was 3.5% below budget.
Technical performance
The table below shows the technical performance, including the impact of the
lower irradiation, for each of the groups of assets.
Asset type Budgeted Actual % of Actual output
output kWh output kWh Technical kWh (in the
performance same period
last year)
Ground mounted solar (FiT) 5,616,431 5,512,527 98.2% 5,917,840
Ground mounted solar (ROC) 2,400,500 2,329,067 97.0% 2,441,622
Roof mounted solar 994,811 852,203 85.7% 934,415
Wind assets 642,972 494,572 76.9% 516,870
TOTAL 9,654,714 9,188,369 95.2% 9,810,747
Three of the six ground-mounted solar projects were repowered in the last two
years, and other repairs were carried out following successful warranty
claims. This has led to much improved performance across the portfolio.
South Marston (4.97MW FiT) has historically sold all its power to the Honda
plant in Swindon. The Honda plant was closed in 2021 and closure is leading to
changes in the grid connection arrangements. The Investment Adviser is working
with Honda, Panattoni (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.
Panattoni is keen to make the solar power available to their future tenants
through the existing arrangements. These arrangements will need to be
finalised before a sale of the VCT's remaining assets can be completed. The
Investment Adviser is working hard to put appropriate contracts in place to
resolve this issue, including a dedicated connection directly to Southern
Electric Power Distribution's network. 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 small wind portfolio performed 23.1% 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 full
wind resource having been overstated at the time of installation. Small wind
accounts for less than 5% of the portfolio in terms of capacity.
The entire wind portfolio is composed of R9000 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 VCT's renewable assets benefit from both FiT and ROC subsidies which
provide revenues linked to the Retail Price Index (RPI). The level of
subsidies for solar assets has fallen over recent years. For example, a solar
park that was commissioned and accredited for the FiT before the end of July
2011 currently receives over 40p per kWh of electricity it produced, with
inflation increasing that above 45p from 1 April 2023. The incentives for new
solar capacity have fallen consistently since the assets owned by the VCT were
commissioned, and new solar installations built today receive no subsidies
relying on selling power at market prices for their income.
56% of total revenues generated in the period were earned from government
backed incentives for generating renewable electricity.
The FiT and ROC income that is fixed by the government is RPI linked and not
exposed to wholesale power prices, which is a significant driver of value in
the 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. Despite government backed
revenues benefitting the portfolio at the time of low power prices, when power
prices subsequently increased significantly, the assets were entered into
fixed power price contracts of various lengths. This further reduced the risk
of variability in revenues from wholesale power price volatility. This was
beneficial when coming out of the uncertainty 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 to expire in April 2022. The power
purchase agreements (PPAs) were replaced or updated with new prices valid for
a further 1-2 years as they expired during the previous financial year.
Total (power price plus subsidies) revenues per kWh generated by the solar
assets were slightly under 50p for the year ended 30 September 2022. These
are projected to rise by over 50% in the financial years ending 30 September
2023 and 30 September 2024 as a result of fixing at attractive prices as set
out above.
The significance of the government backed incentives, although significantly
lower than in previous years given the high ROC Power Prices, is shown in the
PDF version of the Interim Report.
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.
The main variable cost item is the repair and maintenance cost. Repair and
maintenance expenditure for the remaining solar panels is covered by cash held
in the maintenance reserve totalling £0.7mn at the end of the half year. This
reserve is revalued every five years. The inverter reserve was used for the
repowering of the three ground mounted solar sites.
In the period, PSH, a new O&M contractor, was appointed for the Wychwood
and Parsonage assets to replace Silverstone which has exited the O&M
business. PSH has a strong and demonstrable track record in maintaining solar
projects and started at an opportune time, as these smaller assets are now
twelve years old, with increased technical performance risk.
Venture Capital investments
The Investment Adviser is very disappointed to report that bio-bean and
Rezatec, the two venture capital investments the VCT held, both went into
administration shortly after the end of the half year and, as a result, their
value was marked down to zero.
bio-bean had high operational leverage. It had used the proceeds of the VCT's
and other financial investors' investments to upgrade its plant so that its
margins could benefit from economies of scale that would come from a growing
supply of waste coffee grounds. The pandemic affected deliveries and its
ability to cut costs and further funding rounds were not enough to save the
company.
The VCT's other potential growth investment was in Rezatec, an integrator of
satellite based geospatial data for use in monitoring agriculture,
infrastructure and forestry assets. Rezatec's management managed to achieve
steady growth but far below the rate envisaged in the business plan. A trade
sale route was pursued last year but this process failed to generate interest
and the Directors of the company were forced to take it into administration.
Portfolio valuation
Whilst the Investment Adviser is supporting the proposed sale of the VCT's
remaining renewable assets and notes that a binding offer to purchase the
assets will be the best indication of value, consistent with prior years, the
NAV of the remaining renewable portfolio is derived from the discounted cash
flows generated by the renewable energy assets over their expected lifetimes,
as well as the cash held by the companies in the portfolio and the cash held
by the VCT.
The future cash flow projections for renewable assets are impacted by:
- Renewable energy resource. The assumptions for solar irradiation have not been
changed but will be reviewed again at the time of the full year valuation.
- Technical performance. As noted above, the repairs at Lake Farm, Kingston Farm
and Beechgrove Farm resolved their historic performance issues, and therefore
the mark-down to technical performance assumptions that was applied a year
ago, has been partially reversed.
- Power prices. Power price forecasts that were initially adversely impacted by
COVID-19 rose last year to the highest levels in the lifetime of the VCT.
The Investment Adviser was able to capitalise on advantageous power prices by
entering into new PPAs that have locked in high prices for the next 15 to 20
months. The assets continue to earn the levels forecast, but after the PPAs
expire, the revenue that the assets are expected to earn is forecast to fall
from levels expected six months ago. The Investment Adviser uses independent
forecasts for solar power capture prices published by Afry, a leading
consultant in the area.
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% tax on exceptional
revenues generated from the production of wholesale renewable electricity. The
VCT is not expected to be directly impacted by the EGL as it falls below
certain thresholds, however potential buyers, including all of the parties who
submitted offers during the recent 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.
- Asset Life. The assets are valued based on the duration of subsidies, the
lease terms and the length of 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 seeking
extensions. Running the assets for longer enhances value.
- Costs. Current 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 account for the costs of repairs to equipment
such as switchgear and transformers that may be needed in the future.
- Corporation tax. The actual corporation tax paid (increasing to 25%) 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 offset 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. A long run forecast of 3% has
been used in the calculation of the NAV.
The discount rates used to value the future cash flows have been left
unchanged and reflect the Investment Adviser's experience in the market and
evidence of third-party transactions.
Outlook
The Investment Adviser's continued focus is to maximise generation and
therefore revenues from the remaining assets, whilst supporting the Directors'
efforts to maximise the exit value for Shareholders.
Work continues to de-risk the grid connection arrangements at South Marston.
Accepting the offer from the local Distribution Network Operator for South
Marston to connect to the grid at a dedicated Point of Connection outside the
former Honda site has reduced the risk considerably.
The assets that were repaired through inverter and transformer replacements
demonstrate a sustained improvement in performance. The generation outlook is
therefore much improved. 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.
All but one of the remaining six ground mounted solar assets came out of their
fixed price PPAs during the last financial year, which coincided with the
spike in power prices. 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 for the
remaining assets over the next 1.5 years. Total revenues per kWh generated by
the solar assets are expected to rise by more than 50% in the current
financial year and the financial year ending 30 September 2024 compared to
the levels in the last financial year ended 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.
Gresham House Asset Management Limited
27 June 2023
Unaudited Income Statement
For the six months ended 31 March 2023
Six months ended 31 March 2023 Six months ended 31 March 2022 Year ended
30 September
2022
Revenue Capital Total Revenue Capital Total Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Income 1,024 - 1,024 597 - 597 712
(Losses)/gains on investments - (1,103) (1,103) - (80) (80) 512
1,024 (1,103) (79) 597 (80) 517 1,224
Investment advisory fees (103) (34) (137) (104) (35) (139) (269)
Other expenses (219) - (219) (186) - (186) (430)
(Loss)/profit on ordinary activities before taxation 702 (1,137) (435) 307 (115) 192 525
Tax on total comprehensive income and ordinary activities - - - - - - -
(Loss)/profit attributable to equity Shareholders 702 (1,137) (435) 307 (115) 192 525
Earnings per Ordinary Share 2.7p (4.3)p (1.6)p 1.2p (0.4)p 0.7p 2.0p
Earnings per 'A' Share - - - - - - -
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 July 2022) by the Association of
Investment Companies (AIC SORP).
A Statement of Total Recognised Gains and Losses has not been prepared as all
gains and losses are recognised in the Income Statement as noted above.
Unaudited Balance Sheet
As at 31 March 2023
Notes 31 March 31 March 30 September
2023 2022 2022
£'000 £'000 £'000
Current assets
Investments 9 26,877 27,388 27,980
Costs incurred on sale of VCT's assets 542 387 480
Debtors 114 178 124
Cash at bank and in hand 24 2 1
27,557 27,955 28,585
Creditors: amounts falling due within one year (2,472) (1,438) (2,542)
Net current assets 25,085 26,517 26,043
Creditors: amounts falling due after more than one year (2,162) (2,969) (2,162)
Net assets 22,923 23,548 23,881
Capital and reserves
Called up share capital 71 71 71
Share premium 8 9,734 9,734 9,734
Treasury shares 8 (3,403) (3,403) (3,403)
Capital redemption reserve 8 1 1 1
Special reserve 8 4,290 4,813 4,813
Revaluation reserve 8 16,158 14,974 16,869
Capital reserve - realised 8 (4,043) (2,282) (3,617)
Revenue reserve 8 115 (360) (587)
Equity Shareholders' funds 22,923 23,548 23,881
Net asset value per Ordinary Share 87.6p 90.0p 91.2p
Net asset value per 'A' Share 0.1p 0.1p 0.1p
87.7p 90.1p 91.3p
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: 27 June 2023
Unaudited Statement of Changes in Equity
For the six months ended 31 March 2023
Called up Share Treasury Capital Special Revaluation Capital Revenue Total
share premium shares redemption reserve reserve reserve - reserve £'000
capital £'000 £'000 reserve £'000 £'000 realised £'000
£'000 £'000 £'000
As at 30 September 2021 71 9,734 (3,403) 1 4,813 15,054 (2,247) (667) 23,356
Total comprehensive income - - - - - 1,815 (1,370) 80 525
As at 30 September 2022 71 9,734 (3,403) 1 4,813 16,869 (3, 617) (587) 23,881
Total comprehensive loss - - - - - (711) (426) 702 (435)
Transactions with owners
Dividend paid - - - - (523) - - - (523)
As at 31 March 2023 71 9,734 (3,403) 1 4,290 16,158 (4,043) 115 22,923
Unaudited Statement of Cash Flows
For the six months ended 31 March 2023
31 March 31 March 30 September
2023 2022 2022
£'000 £'000 £'000
Cash flows from operating activities
(Loss)/profit on ordinary activities before taxation (435) 192 525
Losses/(gains) on investments 1,103 80 (512)
Dividend income (998) (570) (659)
Interest income (26) (27) (54)
Interest income - written off - - 79
(Increase)/decrease in other debtors (2) 7 (2)
Increase/(decrease) in other creditors 89 (178) 83
Net cash outflow from operating activities (269) (496) (540)
Cash flows from investing activities
Purchase of investments - (68) (68)
Costs incurred on sale of VCT's assets (221) (51) (109)
Interest received 38 17 29
Dividend income received 998 570 659
Net cash inflow from investing activities 815 468 511
Net cash inflow/(outflow) before financing activities 546 (28) (29)
Cash flows from financing activities
Equity dividends paid (523) - -
Net cash outflow from financing activities (523) (28) -
Net increase/(decrease) in cash 23 (28) (29)
Cash and cash equivalents at start of period 1 30 30
Cash and cash equivalents at end of period 24 2 1
Cash and cash equivalents comprise
Cash at bank and in hand 24 2 1
Total cash and cash equivalents 24 2 1
Summary of Investment Portfolio and Movements
For the six months ended 31 March 2023
Investment portfolio as at 31 March 2023
Qualifying and partially qualifying investments Operating sites Sector Cost Valuation Valuation % of
£'000 £'000 movement portfolio
in period by value
£'000
Assets remaining post-sale in April 2023:
Lunar 2 Limited¹ South Marston, Beechgrove Ground solar 1,330 14,225 (1,046) 52.9%
Lunar 1 Limited¹ Kingston Farm, Lake Farm Ground solar 125 2,328 (76) 8.7%
New Energy Era Limited Wychwood Solar Farm Ground solar 884 1,608 (228) 6.0%
Tumblewind Limited¹,³ Priory Farm Small wind/solar 1,188 1,537 16 5.7%
Vicarage Solar Limited Parsonage Farm Ground solar 871 1,174 (62) 4.4%
HRE Willow Limited HRE Willow Small wind 875 706 (2) 2.6%
Minsmere Power Limited Minsmere Small wind/solar 975 303 (8) 1.1%
Small Wind Generation Limited Small Wind Generation Small wind 975 126 (9) 0.5%
Rezatec Limited² United Kingdom Clean energy 1,000 - (67) 0.0%
bio-bean Limited² Cambridgeshire Clean energy 695 - (325) 0.0%
Lunar 3 Limited¹ Ground solar 1 - - 0.0%
8,919 22,007 (1,807) 81.9%
Assets sold in April 20233:
Ayshford Solar (Holding) Limited1 Ayshford Ground solar 826 1,923 183 7.1%
Gloucester Wind Limited Gloucester Roof solar 1,000 941 151 3.5%
Hewas Solar Limited Hewas Roof solar 1,000 919 176 3.4%
St Columb Solar Limited St Columb Roof solar 650 653 125 2.4%
Penhale Solar Limited Penhale Roof solar 825 434 69 1.6%
4,301 4,870 704 18.0%
13,220 26,877 (1,103) 99.9%
Cash at bank and in hand 24 0.1%
Total investments 26,901 100.0%
¹ Partially qualifying investment.
² These investments were permanently impaired during the period.
£325,000 of the valuation movement in bio-bean Limited and £67,000 of the
valuation movement in Rezatec Limited have been recognised as a realised loss.
³ These assets were realised after the period end in April 2023. The
sale included solar assets held within Tumblewind Limited, however the VCT
still retains Small wind assets within Tumblewind Limited. Further details are
contained in the Chairman's Statement and note 12 - Events after the end of
the reporting period.
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.
Notes to the Unaudited Financial Statements
1. General information
Gresham House Renewable Energy VCT2 plc (the VCT) is a
Venture Capital Trust established under the legislation introduced in the
Finance Act 1995 and is domiciled in the United Kingdom and incorporated in
England and Wales.
At the General Meeting on 13 July 2021 a formal decision
was made to wind the VCT up, therefore the financial statements have since
been prepared on a non-going concern basis.
2. Accounting policies - Basis of accounting
The unaudited half-yearly results cover the six months to
31 March 2023 and have been prepared in accordance with the accounting
policies set out in the annual accounts for the year ended 30 September 2022
which were prepared under FRS 102 "The Financial Reporting Standard applicable
in the UK and Republic of Ireland" and in accordance with the Statement of
Recommended Practice (SORP) "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" issued by the Association of Investment
Companies (AIC) in November 2014 and revised in October 2019 (updated in July
2022) (SORP) as well as the Companies Act 2006.
3. All revenue and capital items in the Income Statement derive
from continuing operations.
4. The VCT has only one class of business and derives its income
from investments made in shares, securities and bank deposits.
5. Net asset value per share at the period end has been calculated
on 26,133,036 Ordinary Shares and 39,463,845 'A' Shares, being the number of
shares in issue at the period end, excluding Treasury Shares.
6. Return per share for the period has been calculated on
26,133,036 Ordinary Shares and 39,463,845 'A' Shares, being the weighted
average number of shares in issue during the period, excluding Treasury
Shares.
7. Dividends
Revenue Capital Period ended Year ended
£'000 £'000 31 March 30 September
2023 20222
Total Total
£'000 £'000
Dividends paid
2022 Ordinary - 2.0p - 523 523 -
- 523 523 -
8. Reserves
Period ended Year ended
31 March 30 September
2023 2022
£'000 £'000
Share premium 9,734 9,734
Treasury shares (3,403) (3,403)
Capital redemption reserve 1 1
Special reserve 4,290 4,813
Revaluation reserve 16,158 16,869
Capital reserve-realised (4,043) (3,617)
Revenue reserve 115 (587)
22,852 23,810
The Special reserve is available to the VCT to enable the
purchase of its own shares in the market without affecting its ability to pay
dividends. The Special reserve, Capital reserve - realised and Revenue reserve
are all distributable reserves. At 31 March 2023, distributable reserves were
£362,000 (30 September 2022: £609,000).
9. Investments
The fair value of investments is determined using the detailed accounting
policies as referred to in note 2.
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 31 March Level 1 Level 2 Level 3 30 September
2023 2022
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Unquoted loan notes - - 893 893 - 960 960 893
Unquoted equity - - 25,984 25,984 - - 27,020 27,020
- - 26,877 26,877 - - 27,980 27,980
Reconciliation of fair value for Level 3 financial instruments held at the
period end:
Unquoted Unquoted Total
loan notes equity £'000
£'000 £'000
Balance at 30 September 2022 960 27,020 27,980
Movements in the income statement:
Unrealised loss in the income statement - (711) (711)
Realised loss in the income statement (67) (325) (392)
Balance at 31 March 2023 893 25,984 26,877
10. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required in the
VCT's half-year results to report on principal risks and uncertainties facing
the VCT over the remainder of the financial year.
The Board has concluded that the key risks facing the VCT over the remainder
of the financial period are as follows:
(i) investment risk associated with investing in small and
immature businesses;
(ii) market risk in respect of the various assets held by the
investee companies;
(iii) failure to maintain approval as a VCT;
(iv) risk surrounding the sale of the VCT's solar assets; and
(v) economic risk due to several factors including the Russian
Federation's invasion of Ukraine
In order to make VCT qualifying investments, the VCT has to invest in small
businesses which are often immature. The Investment Adviser follows a rigorous
process in vetting and careful structuring of new investments and, after an
investment is made, close monitoring of the business is conducted. The
Investment Adviser also seeks to diversify the portfolio to some extent by
holding investments which operate in various sectors. The Board is satisfied
with this approach.
The VCT's compliance with the VCT regulations is continually monitored by the
VCT Status Adviser, who reports regularly to the Board on the current
position. The VCT has reappointed Philip Hare & Associates LLP as VCT
Status Adviser, who will work closely with the Investment Adviser and provide
regular reviews and advice in this area. The Board considers that this
approach reduces the risk of a breach of the VCT regulations to a minimal
level.
There is a risk that the VCT's solar assets may not be realised at their
carrying value, and the sale commissions, such as liquidation costs and other
costs associated with the realisation of the VCT's assets, may reduce cash
available for distribution to Shareholders. Furthermore, there is a risk that
the sale of the VCT's assets may prove materially more complex than
anticipated which may delay distribution of proceeds to Shareholders. To
mitigate these risks, the VCT's Board has engaged several experts in this
field to ensure that a timely and appropriate sale price is achieved. In
addition, the Board reviews quarterly cash flow forecasts, prepared by the
Investment Adviser, and has considered the impact of additional costs likely
to be incurred during the managed wind-down of the VCT.
The Board has considered the Russian Federation's invasion of Ukraine and the
impact of the increasing inflation on the VCT. 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, of which one continues after the sale of assets in April
2023, the net benefit of increased inflation is strongly positive since it
increases the inflation linked revenues more than it increases the costs. It
is however very challenging to predict the future course of inflation, with
the range of forecasts for medium to long-term inflation being very diverse.
11. Going concern
At the General Meeting on 13 July 2021 a formal decision was made to wind the
VCT up.
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.
Although the continuation vote was passed by VCT1 at the AGM, there were a
significant number of votes against this resolution and the Shareholders of
this VCT voted against continuation. This required the VCTs to draw up
proposals for voluntary liquidation, reconstruction or other re-organisation
for consideration by the members at the General Meeting held on 13 July 2021.
At this meeting the proposed special resolution was approved by Shareholders,
resulting in the VCT entering a managed wind-down and a new investment policy
replacing the existing investment policy. The Board agreed to realise the
VCT's 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 since 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.
12. Events after the end of the reporting period
In April 2023, the sale of one ground-mounted solar site and the "rooftop
solar" portfolio consisting of five VCT portfolio investments were sold by the
VCT for proceeds of £4.9mn. A further ground-mounted solar site held within
the VCT's Tumblewind investment was sold as part of this sale. The VCT however
still retains small wind assets within Tumblewind Limited. As part of the
sale, creditor loans totalling £0.7mn owed to the sold sites, were forgiven
and costs incurred on this part sale of assets amounted to £0.4mn for the
VCT.
13. The unaudited financial statements set out herein do not
constitute statutory accounts within the meaning of Section 434 of the
Companies Act 2006 and have not been delivered to the Registrar of Companies.
14. The Directors confirm that, to the best of their knowledge, the
half-yearly financial statements have been prepared in accordance with the
"Statement: Half-Yearly Financial Reports" issued by the UK Accounting
Standards Board and the Half-Yearly Report includes a fair review of the
information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements, and a description of the principal risks and uncertainties for the
remaining six months of the year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period, and any changes in
the related party transactions described in the last annual report that could
do so.
15. Copies of the Half-Yearly Report will shortly be sent to
Shareholders who have elected this communication preference. Further copies
can be obtained from the VCT's registered office or can be downloaded from
www.greshamhouse.com/real-assets/new-energy/
(http://www.greshamhouse.com/real-assets/new-energy/) .
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