TIDMGV1O
RNS Number : 0382A
Gresham House Renewable EnergyVCT1
28 January 2022
28 January 2022
Gresham House Renewable Energy VCT 1 PLC
(the "VCT" or the "Company")
Full Year Results and Notice of AGM
The VCT is pleased to announce its full year results for the
year ended 30 September 2021.
The Company also announces that its Annual General Meeting will
be held on Wednesday, 23 March 2022 at 11.00 a.m. at the offices of
Gresham House at 80 Cheapside, London, EC2V 6EE.
The Company's Annual Report and Financial Statements for the
year ended 30 September 2021 and the formal Notice of the Annual
General Meeting will be posted to shareholders who have elected to
receive hard copies. In accordance with Listing Rule 9.6.1 copies
of the documents 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-1-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
- -
Gresham House Renewable Energy VCT 1 PLC - LEI:
213800IVQHJXUQBAAC06
For further information, please contact:
Gresham House Asset Management Renewablevcts@greshamhouse.com
Investor Relations Tel: 020 7382 0999
JTC (UK) Limited - Company Secretary GreshamVCTs@jtcgroup.com
Ruth Wright Tel: 44 203 846 9774
Chairman's Statement
I am pleased to present the Annual Report of Gresham House
Renewable Energy VCT1 plc ("the VCT") for the year ended 30
September 2021.
On 13 July 2021 the shareholders resolved to enter a Managed
Wind-Down (as defined and described in the circular to Shareholders
dated 17 June 2021 (the "Circular")), adopt the New Investment
Policy in substitution for the existing Investment Policy and, as
further set out in the Circular, the Board will subsequently
endeavour to realise the Company's investments in a manner that
achieves a balance between maximising the net value received from
those investments and making timely returns to Shareholders.
The Board has therefore commenced the managed wind-down process
and with support from the Investment Adviser, engaged advisers to
initially prepare the assets for sale and then market the assets to
appropriate investors with the objective of securing the best
returns possible for shareholders. Post year end, the Board
received three offers and has since entered into exclusivity with
one of the interested parties. It is anticipated, but not
guaranteed, that the sale will be completed during the first
quarter of 2022. The Board will then seek to distribute the
majority of the proceeds of the sale via a dividend having taken
into account the monies required for the managed wind-down
process.
In terms of portfolio performance, which flows into valuation,
assets at three sites representing 40% of capacity that had
suffered technical issues in the prior financial year had
significant rectification works completed during this financial
year. This has involved replacing old, largely obsolete or
deficient equipment with new, more reliable equipment that benefits
from new warranties. Thus, whilst the current year output was below
the long-term output budget as a result of switching sites off to
perform the work the long-term predictability of cash flows has now
improved significantly. The Board and Investment Adviser believe
that this work will be reflected in the valuation of the assets
from any buyer.
89% of revenues are earned from government backed incentives and
inflation-linked contracts and so there is relatively low exposure
to power price volatility. The portfolio has, where possible,
secured long-term power purchase agreements for the balance of
revenues and so power prices were ahead of budget.
Investment portfolio
At the year end, the VCT held a portfolio of 16 investments,
which were valued at GBP27.2 million. One follow-on investment was
made during the year, investing an additional GBP12,500 into
bio-bean to support its growth and development post pandemic. 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 79.5%
Rooftop Solar 9.5%
-----
Small Wind 4.3%
-----
Non-renewable assets 6.7%
-----
The Board has reviewed the investment valuations at the year end
and note that the valuation of the renewable assets has decreased
by GBP2.8 million or 9.8%. This is primarily due to an increase in
future tax rates, announced in the March 2021 budget, from 19% to
25% starting in Spring 2023. This increase in tax will reduce the
funds available for investors. There has also been an increase in
inflation projections, reflecting the increased inflation
experienced during the year and higher levels of market inflation
expectations. The discount rates used to value the future cash
flows and the technical assumptions have not been changed since
last year.
The VCT also holds two investments that are not in renewable
energy. bio-bean, a company that converts waste coffee grounds into
biofuel, has been valued at the price of the most recent funding
round, which is the equivalent of our investment cost, at 30
September 2021. A further investment of GBP67,500 has been made
post-year end. Rezatec, a company which offers geospatial surveys
that allow businesses to manage their ground-based assets and
critical infrastructure remotely at scale, has been valued at
GBP1.2 million at the year end. The valuation has increased by
GBP0.1 million, or 10.5%, since the previous year end, driven by
non-cash interest income accumulating on the preference share
investment. The non-renewable energy investments have been valued
in line with the International Private Equity Valuation ("IPEV")
Guidelines and are held at a total value of GBP1.8 million.
Net asset value and results
At 30 September 2021, the Net Asset Value ("NAV") per Ordinary
Share stood at 90.1p and the NAV per 'A' Share stood at 0.1p,
producing a combined total of 90.2p per "pair" of Shares (2020: NAV
per Ordinary Share of 106.7p, NAV per A Share of 0.1p and a
combined total of 106.8p). 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 2020 106.8
--------------
Less payment of interim dividend
on 31 December 2020 (5.8)
--------------
Less valuation decrease (10.8)
--------------
NAV as at 30 September 2021 90.2
--------------
Total dividends paid to date for a combined holding of one
Ordinary Share and one 'A' Share stand at 57.1p (2020: 51.3p). The
NAV Total Return (NAV plus cumulative dividends) has decreased by
6.8% in the last year and now stands at 147.3p, compared to the
cost to investors in the initial fundraising of GBP1.00 or 70.0p
net of income tax relief of 30%.
The loss on ordinary activities after taxation for the year was
GBP2.7 million (2020: loss of GBP1.1 million), comprising a revenue
profit of GBP6,000 (2020: loss of GBP358,000) and a capital loss of
GBP2.7 million (2020: capital loss of GBP754,000) as shown in the
Income Statement.
Dividends
On 3 December 2020, the Board declared dividends in respect of
the year ended 30 September 2020 of 5.3133p per Ordinary Share and
0.4867p per 'A' Share. These dividends were paid on 31 December
2020 to shareholders on the register at 11 December 2020.
2021 Annual General Meeting (AGM) and results of Continuation
Vote
The VCT's tenth AGM was held on 22 March 2021 and all
resolutions were passed by way of a poll.
Resolution 5, which related to the continuation of the VCT as a
venture capital trust for a period of five years, received
significant opposition from shareholders. Although Resolution 5 has
formally passed, the equivalent vote for VCT 2 did not achieve the
required majority to pass. As the two VCTs work closely together
and for a number of reasons (e.g. VCT compliance, structure of the
underlying companies etc) this VCT cannot stand alone. The
situation therefore required this VCT to also draw up proposals for
voluntary liquidation, reconstruction or other re-organisation for
consideration by the members in a General Meeting held on 13 July
2021.
The Board undertook a thorough review of the strategic options
available to the VCT, monetisation opportunities in the market for
the VCT's assets together with appropriate proposals to deliver
value to Shareholders. The Board's proposal sought to maximise the
return to shareholders whilst preserving the tax position of those
who participated in the most recent fundraisings. As noted above,
the resolution to effect the Managed Wind-Down was approved on 13
July 2021 and so the Board appointed corporate finance, legal and
tax advisers to support it and the Investment Adviser in effecting
an appropriate transaction. This work is ongoing and the Board
hopes to be able to provide an update on the outcome of the sale
process in due course.
2022 Annual General Meeting
The VCT's eleventh AGM will be held at 80 Cheapside, London,
EC2V 6EE at 11.00am on Wednesday, 23 March 2022.
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 wishes to conserve such cash as it generates for the
managed wind-down of the VCT and the payment of dividends.
Outlook
The nature of the majority of investments held by the VCT, i.e.
fixed assets with long term contracts and subsidies, is that they
are not reliant on significant human or other resources for daily
operations. This limits the vulnerability of the portfolio's
operational performance to factors other than solar irradiation and
the underlying technical performance of the assets. The repowering
of three of the VCT's assets that had suffered significant
performance declines due to age was successfully completed
notwithstanding some delay due to the pandemic. Performance has now
improved strongly.
Rising inflation acts as a tailwind for financial performance
through inflation-linked subsidies and also increases the price of
power that is sold on the wholesale market. This positive effect is
somewhat offset by the fact that the asset level leverage is also
indexed in line with inflation and power prices are fixed in the
short term for most of the assets, but since the assets are already
profitable an increase in inflation increases the net profits.
The Board believes that the outlook for the portfolio, as a
whole, remains positive and has improved due to the repowering, the
increase in inflation and the recent increase in the price of
power. The market continues to value renewable energy assets, and
in particular assets with inflation-linked subsidies, highly.
In conclusion and as outlined above, the sales process is
well-advanced and therefore there is a reasonable prospect that the
plan for winding up the VCT in line with the result of the
continuation vote held in July 2021 will be successful.
Gill Nott
Chairman
28 January 2022
Investment Adviser's Report
Portfolio Highlights
The VCT remains principally invested in the renewable energy
projects that it has owned for a period of seven to ten years,
depending on the asset, with the value of these projects
representing well over 90% of the value of the portfolio. The total
generation capacity of assets co-owned by the VCT is 34.4MWp. The
VCT also has two venture capital investments.
During the year the shareholders of VCT2 resolved to seek to
sell all of its assets and distribute the proceeds in due course.
As this VCT could not carry on alone and remain a VCT, this VCT
also had to put up its assets for sale.
The Investment Adviser has continued to manage the assets to
maximise the long-term value, whilst also engaging advisers to
prepare the assets for sale and market them to potential buyers. A
crucial pillar for maximising long-term value was the repowering of
three of the eight ground-mounted solar assets, which was completed
in the financial year and is discussed in further detail later in
this report.
Whilst the Investment Adviser has continued to value the assets
on a basis consistent with previous years using assumptions that
were within a market standard range (with last year's valuation
also reviewed by a leading financial adviser involved with the sale
of many renewable assets in the UK), the actual valuation achieved
on a sale may be different as any buyer will use its own models and
assumptions.
The valuation of the renewable assets held by the VCT has
declined by GBP2.8m in the year (2020: GBP0.6m decline), while the
valuation of the non-renewable assets, bio-bean and Rezatec, has
increased by GBP0.1m.
The vast majority of the assets held by the VCT generate solar
power. The solar portfolio is relatively old compared to other
solar farms across the UK - they are older than over 90% of total
solar capacity in the UK. This also means that the VCT's solar
farms have secured higher incentives than over 90% of the solar
installations in the UK.
The total revenue from renewable energy generation was
GBP10,529,683 and of this, GBP9,394,918 was from government
incentives and inflation-linked contracts. The total revenue from
the renewable assets was 90.4% of budget, stemming from lower
generation (90% of budget) largely due to the repowering works on
three of the ground-mounted solar assets, which meant that these
assets had to be taken offline to a greater degree than
anticipated. The works on one project also took place later in the
year than anticipated, thus corresponding with summer months with
higher irradiation. Although power prices were volatile in the
year, the net effect of this volatility was that power prices were
GBP358,657 ahead of budget, as the sales price was locked in at
higher rates than budgeted, as older variable price power purchase
agreements expired.
The downside of the VCT's older assets is the additional
maintenance required to keep them operating effectively. Projects
to repair or replace certain components in these older sites were
performed during the current financial year. These are amongst the
first assets to be repowered in the UK and there is not sufficient
historical precedent which made forecasting a challenge. The
budgets assumed shorter down times, based on initial feedback from
contractors, than was actually achieved during the repowering works
which meant that current year performance was behind budget.
However, the performance since the works have been completed has
been very encouraging, with increased output and reliability with
new, 10-year warranties on some of the key equipment (replacement
inverters) and UK based technical staff available for ongoing
repairs or maintenance. The improved reliability and performance
are reflected in the recent valuation of the sites that had
suffered technical issues.
In terms of available resources, solar irradiation has been
lower than projected during the year (96.8% of budget), further
exacerbating the reduced performance.
The COVID-19 pandemic began having a serious impact on the UK
economy in March 2020 and the effects on the value and operations
of the portfolio continued into 2021 albeit in a more limited
fashion than in 2020. These are summarised below:
Power prices were volatile during the financial year. Prices
were subdued at the start of the year compared to both last year
and budget, but have increased significantly since late summer 2021
due to a number of factors, including a surge in demand as the UK
started emerging from the pandemic. However, as price fixes were
sought as soon as Power Price Agreement (" PPA") providers began
offering above-budget prices, the portfolio has not been able to
benefit entirely from the increased prices, with security of
revenue preferred over speculation on market prices. Subject to
progress with the sale process, the Investment Adviser intends to
review the prices and power purchase agreements once the fixed
periods end.
Government safe working guidelines caused delays in performing
repairs and Operations and Maintenance ("O&M") work. Whilst
solar generating assets can normally perform with relatively little
day-to-day human intervention, the age of the portfolio means that
some maintenance work is necessary. The Investment Adviser ensured
that the O&M contractors adhered to safe working protocols and
worked with them to mitigate the impacts of travel restrictions and
safe working obligations.
Whilst all works had to be suspended on solar installations on
residential roof-mounted installations last year as engineers were
not permitted to enter properties during lockdown, these have, for
the most part, now resumed. Nevertheless, there continue to be some
residents who are shielding or are reticent to allow people into
their homes.
With much of the portfolio's revenue (as well as the third-party
debt owed by the portfolio) being inflation linked, higher
inflation increases the profitability of the assets and therefore
their value. With the significant economic shock and the
unprecedented scale of monetary policy responses to mitigate any
long-term impacts, we are already experiencing higher inflation
than in recent years.
The VCT also holds newer investments in two growth businesses;
bio-bean Limited, 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, a software developer that 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
verticals.
Portfolio Composition
Portfolio Composition by Asset Type and Impact on NAV
30 September 2021 30 September 2020
Value % of Portfolio Value % of Portfolio
Asset Type kWp ('000) Value ('000) Value
------- ---------- --------------- ---------- ---------------
Ground-mounted Solar (FIT)* 20,325 19,341 71.2% GBP22,580 74.2%
------- ---------- --------------- ---------- ---------------
Ground-mounted Solar (ROC)** 8,699 2,264 8.3% GBP2,276 7.5%
------- ---------- --------------- ---------- ---------------
Total ground-mounted Solar 29,024 GBP21,605 79.5% GBP24,856 81.7%
------- ---------- --------------- ---------- ---------------
Rooftop Solar (FIT) 4,304 GBP2,602 9.5% GBP2,696 8.9%
------- ---------- --------------- ---------- ---------------
Total Solar 33,328 GBP24,207 89.0% GBP27,552 90.6%
------- ---------- --------------- ---------- ---------------
Wind Assets (FIT) 1,030 GBP1,172 4.3% GBP1,188 3.9%
------- ---------- --------------- ---------- ---------------
Total renewable generating
assets 34,358 GBP25,379 93.3% GBP28,740 94.5%
------- ---------- --------------- ---------- ---------------
Venture Capital Investments N.A. GBP1,814 6.7% GBP1,688 5.5%
------- ---------- --------------- ---------- ---------------
TOTAL 34,358 GBP27,193 100.0% GBP30,428 100.0%
------- ---------- --------------- ---------- ---------------
* Feed in Tariff (FIT)
** Renewables Obligation Certificate (ROC)
The 34.4MWp of renewable energy projects in the portfolio
generated 30,255,008 kilowatt-hours of electricity over the year,
sufficient to meet the annual electricity consumption of circa
8,750 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 17,500
mature trees would remove from the atmosphere. During the year,
wind assets with a rated output of c. 375 kWp were disposed of and
residential rooftops of 10 kWp were written off as their
performance had been so low that the costs of rectification could
not be justified.
Portfolio Summary
Over 90% of the portfolio value, and over 99% of the income for
the portfolio, is derived from the renewable energy generation
assets.
Revenue by Asset Type
The performance against forecast, calculated on the same basis
as in prior years taking into account variables such as solar
irradiation patterns, historical technical performance, inflation
and power price forecasts is shown below:
Portfolio Revenues by Asset Type (GBP Sterling)
Forecast Actual Revenue
Asset Type Revenue Revenue Performance
Ground-mounted Solar
(FIT) 8,834,567 7,766,578 87.91%
------------ ------------ -------------
Ground-mounted Solar
(ROC) 1,160,811 1,267,608 109.20%
------------ ------------ -------------
Total ground-mounted
Solar 9,995,378 9,034,186 90.38%
------------ ------------ -------------
Rooftop Solar 1,226,604 1,190,845 97.08%
------------ ------------ -------------
Wind Assets 394,089 278,423 70.65%
------------ ------------ -------------
TOTAL 11,616,071 10,503,454 90.42%
------------ ------------ -------------
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.
It is clear from the table above that the variance at the
ground-mounted solar farms was most material, given the size of the
assets, accounting for GBP961,192 of the GBP1,112,617 revenue
shortfall compared to budget.
The old equipment, inverters and transformers that had been
causing the reduction in output last year were replaced during the
year. This has had a notable negative impact on output in the year
due to downtime, but should improve both the performance and
reliability of the sites whilst removing the reliance on specialist
service contractors, as well as enabling much better monitoring and
fault detection.
It is worth noting that the impact of pricing and output was not
the same across the assets. This is shown by splitting the impacts
between the FIT and ROC assets, shown below.
Ground-mounted Solar Revenues Variation of from Forecast to
Actual Revenue (GBP Sterling)
Impact Impact
of of
Forecast Price Output Actual
Asset Type Revenue changes changes Revenue
Ground-mounted
Solar (FIT) 8,834,567 280,101 (1,348,090) 7,766,578
---------- --------- ------------ ----------
Ground-mounted
Solar (ROC) 1,160,811 78,556 28,241 1,267,608
---------- --------- ------------ ----------
TOTAL 9,995,378 358,657 (1,319,849) 9,034,186
---------- --------- ------------ ----------
Overall, 89% of income is inflation linked (either through the
FIT, ROC or contracts for the sale of electricity), with those
assets having price exposure being the ROC projects. Thus, they
benefited from the increase in market pricing for power. However,
it was the high revenue FIT projects that underwent the repowering
works which suffered a significant fall in output.
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 90% of total portfolio by value).
During the year, the assets suffered from fewer solar resources
than budgeted, with solar irradiation being 96.8% of forecast for
the full year. Irradiation topped forecasts in November and
December 2020 before falling drastically in January 2021 (78%).
April 2021 was the sunniest on record (118%) but the remaining
months of the year were below forecast at between 85% and 99%.
Technical Performance
The table below shows the technical performance for each of the
groups of assets.
Portfolio Technical Performance by Asset Type (kWh)
Forecast Actual Technical
Asset Type Output Output Performance
Ground-mounted Solar
(FIT) 20,418,808 17,303,047 84.74%
------------ ------------ -------------
Ground-mounted Solar
(ROC) 8,455,799 8,661,522 102.43%
------------ ------------ -------------
Total Ground-mounted
Solar 28,874,607 25,964,569 89.92%
------------ ------------ -------------
Rooftop Solar 3,597,009 3,498,469 97.26%
------------ ------------ -------------
Total Solar 32,471,616 29,463,038 90.73%
------------ ------------ -------------
Wind Assets 1,120,979 791,970 70.65%
------------ ------------ -------------
TOTAL 33,592,595 30,255,008 90.06%
------------ ------------ -------------
The key variance in the technical performance is from the
Ground-mounted solar (FIT) assets. This is largely the result of
the repowering works at Kingston Farm and Lake Farm (each with
4.98MW capacity) as well as Beechgrove (with a 3.99MW capacity).
The central inverters at Kingston Farm and Lake Farm, which were
considered state-of-the-art at the time of installation in 2011,
suffered significant component breakdowns during the 2020
lockdowns, when irradiation was high. The service contractor was
not based in the UK and the pandemic led to significant delays in
being able to get the specialist engineers and components on site
in order to effect repairs. This significantly reduced the ability
of the plants to operate over the summer months.
In addition to this, Beechgrove began experiencing technical
issues, also resulting from defects in the original installation
and the age of the assets.
Following a market tender for the repowering of each site, a
contractor, that is also the O&M provider to these assets, was
engaged to complete the repair and replacement works for all three
sites.
The works were carried out:
at Kingston Farm from December 2020 to February 2021
at Lake Farm from February to May 2021
at Beechgrove from July to September 2021
Across the year, the performance at Kingston Farm was 89% of
budget, Lake Farm at 79% and Beechgrove at 75%. Between them, these
assets represent over 48% of forecast generation and so this poor
technical performance when compared to the budget (which did not
include sufficient allowances for the time-out whilst repairs were
being completed) has been material overall.
These repowering works are already showing a significant
improvement in performance at all three sites. The Investment
Adviser anticipates that this, coupled with much improved remote
monitoring systems and extended 10 year warranties on the
inverters, will markedly improve the performance of the portfolio
as a whole for the long term.
As reported last year, these repairs were largely paid for from
cash reserves built up for this purpose. The repowerings, including
all associated costs such as advisers' fees, cost a total of
GBP2.5m and are expected to have a payback of under five years. The
repowerings were also necessary for the sales process of the
assets, as a potential buyer would have assumed worst case
scenarios for performance had these repowerings not been completed
successfully.
Beechgrove has been suffering for some time from issues of
cracking connectors at the back of its solar panels which in turn
cause 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. The Investment Adviser has successfully lodged a warranty
claim with the manufacturer and a program is being finalised for
the blanket replacement of all original connectors with ones made
from an improved polymer which can withstand the marine
environment.
During the pandemic, the Investment Adviser issued updated
health and safety guidance to contractors reflecting guidelines and
directives issued by the UK Government. There was a negative impact
on corrective and preventative maintenance work schedules as a
result of this. Most of these restrictions have been eased and
where possible, contractors have been instructed to find other
solutions that can be implemented without breaching health and
safety policies and Government directives. With the emergence of
new COVID-19 variants such as Omicron, there remains the
possibility that restrictions could return. The Investment Adviser
remains confident that the reintroduction of such restrictions
would only have a minimal impact on the portfolio as the O&M
teams have been able to develop strategies to continue carrying out
their duties safely during previous lockdowns. Furthermore, the
repowering works have removed the portfolio's reliance on
contractors located abroad and have increased the remote monitoring
capabilities of the sites, allowing quicker and more targeted
intervention. The rooftop solar portfolio would be the most exposed
to limitations from government restrictions due to the
installations being located on domestic and school roofs. As these
account for only 9.5% of the portfolio by valuation, the impact of
such restrictions should not be fundamental.
Generation of the rooftop solar portfolio was 2.7% lower than
forecast. 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 also
materially below forecast. No access was possible to any
residential properties during the periods of lockdown, but works
resumed as soon as restrictions were lifted. The Investment Adviser
continues to work with the O&M contractors to get access to the
rooftop installations that are underperforming, to effect repairs
as soon as possible.
The small wind portfolio performed 30% lower than forecast,
continuing the poor performance experienced in recent years. Small
wind accounts for only 3.0% of the portfolio in terms of capacity.
In February, the fleet of Huaying HY5 wind turbines, which were
plagued with technical issues and had been a net cash drain, was
disposed of. The VCT continues to own the fleet of R9000 wind
turbines, which have performed better and have the support of an
experienced O&M contractor with easy access to spare parts.
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 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 close to 40 pence for every kilowatt hour (kWh)
of electricity it produces (with the added extra of a floor price
support to ensure it may also sell this power at a reasonable
price). 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 for their income. In the 9 months to the end of
September 2021 the average spot price (day ahead) of power was 9.6
pence per kWh so a new asset selling power at the spot price would
earn 9.6 pence, whereas an older solar asset, like some of those
owned by the VCT, could earn at a minimum 3.95 pence per kWh for
exporting the power (given the FIT export price floor) plus 39.75
pence per kWh FIT generation revenue.
This shows that of the total revenues of GBP10,529,683 in the
year, GBP8,948,358 or 85% was earned from government backed
incentives for generating renewable electricity (GBP8,188,105 of
generation revenue provided under the FIT and GBP760,253 from
ROCs). A further GBP446,560 is inflation linked, either through the
FIT export floor price for selling electricity or contracts for the
sale of electricity, taking the government backed and RPI linked
revenues to 89% of total.
Such a high proportion of income that is fixed by the
government, is RPI linked and is not exposed to wholesale power
prices, is a significant driver of value in this portfolio. This
has enabled it to be largely insulated from the very significant
reduction in the wholesale price of electricity experienced at the
start of the financial year. Unfortunately however, it has not yet
been able to benefit from the more recent price increases as due to
the market volatility, price fixes were sought as soon as the
market recovered and prices exceeded forecast.
The majority of the GBP358,658 price variance occurs in the
Ground-mounted Solar (ROC) plants at Ayshford Farm (5.47 MW
capacity) and Priory Farm (3.23 MW). These exceeded their projected
revenue of 14 pence per kWh, achieving 15 pence per kWh (107% of
budget). The Ground-mounted (FIT) assets earned 45p per kWh,
comfortably above their projected revenue of 43 pence per kWh.
Priory, which was the last site on a variable price and was
particularly affected in the initial phase of the pandemic when
power prices fell significantly to under 2 pence per kWh, has now
fixed its price at 4.55 pence per kWh until September 2021 and then
5.33 p/kWh until Spring 2022.
Operating Costs
The vast majority of the cost base is fixed and/or contracted
and includes rent, business rates, and regular O&M costs.
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, can be claimed from maintenance reserves put in place as
part of the debt refinancings. At year end these reserves totalled
GBP0.9 million and are in place for all the ground-mounted solar
assets and for the majority of the roof-mounted solar assets.
During the year GBP2.5 million was spent or committed on the works
at Kingston Farm, Lake Farm and Beechgrove. The other significant
maintenance cost is for the small wind portfolio that continues to
suffer performance issues. The cost of this should reduce now that
the particularly problematic turbines have been disposed of.
Growth Investments
The VCT holds an investment of GBP627,500 in bio-bean Limited,
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, which it sells online, through large supermarkets
and through home improvement chains, as well as into pellets for
combustion in biomass- fed energy generators. During the year,
bio-bean launched another product, dried coffee grounds for use in
a diverse set of applications including cosmetics, bioplastics and
the automotive industry. Natural Coffee Extract for use in the food
industry as a flavour is also produced from the waste coffee
grounds.
The COVID-19 pandemic has had a negative impact on bio-bean as
the company is dependent on the continuous supply of waste coffee
grounds from major coffee retail chains. The lockdowns meant that
these deliveries were fully suspended for a while and were at
reduced volumes afterwards. Furthermore, its projects to upgrade
its factory (reducing the marginal cost of production) were
delayed. However, due to the ongoing efforts by management to
diversify sources of supply of waste coffee grounds, robust demand
for its clean fuels (up 56% in its financial year to the end of
June 2021), the first sales of its advanced biochemical products,
further product diversification and a careful approach by
management with a focus on minimising cash burn, this has meant
that the impact on the business is not expected to be significant
in the long term. With the end of the various lockdowns, coffee
deliveries approached pre pandemic levels.
The company closed a GBP1.3m funding round in September 2021.
The VCT committed to invest GBP67,500 in this round with the funds
paid to bio-bean in December 2021. The round brought in the Low
Carbon Investment Fund in as a new investor, who required all
existing financial investors, including the VCT to co-invest
alongside to ensure the company was fully funded to execute its
business plan.
The key challenge will be to realise the investment in this
growth business in line with the disposal of the other VCT assets.
The market for secondary stakes in private, VC-funded companies is
less liquid than the market for renewable energy investments. The
Investment Adviser considers that supporting the ongoing
development and growth of bio-bean will support the ability to exit
in a positive way.
In January 2020, the VCT invested GBP1 million into Rezatec
Limited, a software developer that applies Artificial Intelligence
based algorithms to a range of earth observation data sources
(satellite imagery, soil data, weather data, topographic data etc.)
to infrastructure verticals. Access to the platform is sold, on a
subscription-basis, to commercial forestry operators for inventory
management (analysis of current state of forest assets) and as an
ongoing monitoring tool, to utility infrastructure owners for water
pipeline, hydroelectric dam and power transmission network risk
analyses, and to agriculture companies processing crops, for yield
and logistics optimisation.
Rezatec has won over key industry players in several countries,
including the USA, Canada and India which have large forestry and
agricultural sectors as well as infrastructure over a large
physical footprint. The company is continuing to grow as it proves
its product market fit and the overall demand for its services. Its
sales in North America and the dam monitoring segment have been
particularly strong, whereas the process of converting large
opportunities in India has been slower than expected.
Rezatec improved its lead generation process over the year and
this has delivered results in the form of new sales leads
generated. Management is now heavily focused on improving its sales
conversion rate and has added extra resource in that area.
Product development is a continuous process, with features,
functionality, data and the user interface improved by taking in
customer feedback as well as ideas from teams across the entire
company.
Rezatec raised GBP2m in the form of venture debt in 2021. This
investment is expected to take the company through, if the current
trajectory continues, until a larger Series B investment round
expected to be closed in the second half of 2022. The company
operates at the crossroads of the attractive information services
and Software-as-a-Service (SaaS) sectors, there are several cases
of comparable companies being acquired by larger players and is
therefore expected to attract interest in the funding round.
Portfolio Valuation
The Investment Adviser notes that a firm offer to purchase its
renewable assets will be the best indication of the value of the
portfolio. However, consistent with prior years, the Net Asset
Value ("NAV") of the renewable portfolio has been determined as at
30 September 2021 on the basis 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 value of the growth
investments into bio-bean and Rezatec. The total return over the
life of the assets to date includes the value of net assets and the
cash that has been distributed to shareholders since launch.
The future cash flow projections for renewable assets are
impacted by:
Renewable resources. Despite this year having lower solar
irradiation than budgeted, we have not changed the assumptions on
irradiation.
Technical performance. As noted above, there were significant
performance issues at three of the ground-mounted FIT solar farms.
The failed inverters were replaced and so the output is projected
to improve back to budgeted levels going forward.
Prices. Power price forecasts have been impacted by the
volatility caused by COVID-19 and so the forecasts have been
updated to reflect this.
Costs. Up-to-date operating costs for the assets are included,
reflecting all commercial negotiations and also expectations for
lower maintenance costs after the older assets are repaired.
Corporation tax. The actual corporation tax paid will impact on
the cash available to shareholders. The Chancellor proposed
increases to Corporation Tax rates from 2023 which were taken into
account in the forecasts.
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.
The useful economic lives of the assets, in turn taking into
account the length of the leases and planning permissions, as well
as the durability of the equipment.
Once the free cash projected to be generated by the assets is
calculated, the net present 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. The discount rates used reflect the Investment
Adviser's experience in the market and evidence of third party
transactions, as well as feedback from the VCT's advisers who are
marketing the portfolio for sale.
In particular, the discount rates used to value the future cash
flows have not been changed since last year and remain in the range
of 5.50% to 6.75% (2020: 5.50% to 6.75%). The technical
assumptions, including the performance ratio (the efficiency of
converting solar power into electricity), have also not been
changed since last year since the re-powering work was already
foreseen and included in projections last year. In the March 2021
budget it was announced that the rate of Corporation Tax will
increase to 25% from 19%, starting in Spring 2023. This increase in
tax will reduce the funds available for investors. There has been
an increase in inflation projections as these reflect the increased
inflation experienced during the year and higher levels of market
inflation expectations.
The valuation of the investments in bio-bean and Rezatec has
been determined using an earnings multiple approach, consistent
with International Private Equity Valuation Guidelines, and are
held at a valuation of GBP1.8 million, GBP186,000 higher than the
cost of investment.
Outlook
The Investment Adviser's continued focus is to ensure that the
assets operate at or above budget whilst supporting the ongoing
sale process. The repair of the underperforming assets from last
year has given greater visibility and reliability of revenues, and
this has flowed through into the Investment Adviser's valuation and
is expected also to be reflected in any third party valuation of
the assets.
It is very challenging to predict whether the current
inflationary surge will be sustained and continue to benefit
inflation-linked assets such as the VCT's portfolio. Potential
purchasers of the assets will have their own views on inflation and
power prices, however it is opportune that the sales process has
coincided with a period of high inflation and expectations that
high inflation will continue.
Three offers to buy the solar assets have been received since
the year end. The Board has entered into an exclusivity agreement
with one of the parties so that the party can complete the
remainder of its due diligence. The Board, with support from the
Investment Adviser as well as third party advisers, will seek to
secure the best returns possible for shareholders.
Gresham House Asset Management Limited
28 January 2022
Review of Investments
Portfolio of investments
The following investments were held at 30 September 2021:
Valuation
Qualifying and movement
part-qualifying Cost Valuation in year % of
investments Operating sites Sector GBP'000 GBP'000 GBP'000 portfolio
Ground-mounted
Lunar 2 Limited* South Marston, Beechgrove solar 1,330 14,108 (2,794) 51.8%
-------------------------- ----------------- -------- --------- --------- ----------
Kingston Farm, Lake Ground-mounted
Lunar 1 Limited* Farm solar 125 2,218 (321) 8.1%
-------------------------- ----------------- -------- --------- --------- ----------
Ground-mounted
New Energy Era Limited Wychwood Solar Farm solar 884 1,785 33 6.6%
-------------------------- ----------------- -------- --------- --------- ----------
Ayshford Solar (Holding) Ground-mounted
Limited* Ayshford Farm solar 827 1,361 152 5.0%
-------------------------- ----------------- -------- --------- --------- ----------
Ground-mounted
Vicarage Solar Limited Parsonage Farm solar 870 1,229 (158) 4.5%
-------------------------- ----------------- -------- --------- --------- ----------
Rezatec Limited United Kingdom Clean energy 1,000 1,186 113 4.4%
-------------------------- ----------------- -------- --------- --------- ----------
Tumblewind Limited* Priory Farm Small Wind/Solar 979 903 441 3.3%
-------------------------- ----------------- -------- --------- --------- ----------
Gloucester Wind
Limited Gloucester Wind Roof Solar 1,000 857 (92) 3.1%
-------------------------- ----------------- -------- --------- --------- ----------
Hewas Solar Limited Hewas Solar Roof Solar 1,000 831 (22) 3.1%
-------------------------- ----------------- -------- --------- --------- ----------
HRE Willow Limited HRE Willow Small Wind 875 700 20 2.6%
-------------------------- ----------------- -------- --------- --------- ----------
bio-bean Limited Cambridgeshire Clean energy 628 628 - 2.3%
-------------------------- ----------------- -------- --------- --------- ----------
St Columb Solar
Limited St Columb Solar Roof Solar 650 533 10 2.0%
-------------------------- ----------------- -------- --------- --------- ----------
Penhale Solar Limited Penhale Solar Roof Solar 825 382 10 1.4%
-------------------------- ----------------- -------- --------- --------- ----------
Minsmere Power Limited Minsmere Small Wind/Solar 975 325 (15) 1.2%
-------------------------- ----------------- -------- --------- --------- ----------
Small Wind Generation
Limited Small Wind Generation Small Wind 975 147 (21) 0.5%
-------------------------- ----------------- -------- --------- --------- ----------
Ground-mounted
Lunar 3 Limited* solar 1 - - 0.0%
---------------- -------- --------- --------- ----------
12,944 27,193 (2,644) 99.9%
------------------------------------------------------------------------ -------- --------- --------- ----------
Cash at bank and
in hand 31 0.1%
-------- --------- --------- ----------
Total investments 27,224 100.0%
-------- --------- --------- ----------
*Part-qualifying investment
All venture capital investments are incorporated in England and
Wales.
Gresham House Renewable Energy VCT2 plc, of which Gresham House
Asset Management Limited ("GHAM") is the Investment Adviser, holds
the same investments as above.
Investment movements for the year ended 30 September 2021
Purchases
Valuation Valuation
Cost at at Additions at
30 September 30 September during the 30 September Unrealised
2020 2020 year 2021 Gain
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT Qualifying investments
------------- ------------- ----------- -------------- ----------
bio-bean Limited** 615 615 228** 628 -
------------- ------------- ----------- -------------- ----------
Total 615 615 228 628 -
------------- ------------- ----------- -------------- ----------
Disposals
Valuation Redemption
Cost at at of loan
30 September 30 September notes/sale Profit Realised
2020 2020 proceeds vs cost Gain
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
VCT Qualifying investments
------------- ------------- ----------- --------- --------
ChargePoint Services Limited* - - 16 16 16
------------- ------------- ----------- --------- --------
bio-bean Limited 215 215 215** - -
------------- ------------- ----------- --------- --------
Ayshford 482 482 482 - -
------------- ------------- ----------- --------- --------
697 697 713 16 16
------------- ------------- ----------- --------- --------
Non-qualifying investments - - - -
------------- ------------- ----------- --------- --------
Tumblewind Limited 123 123 123 - -
------------- ------------- ----------- --------- --------
Total 123 123 123 - -
------------- ------------- ----------- --------- --------
* Deferred consideration of GBP15,610 was received in February
2021, in relation to the sale of ChargePoint Services Limited in
June 2019.
**GBP215,000 of the bio-bean loan was converted to equity in
June 2021.
The basis of valuation for the largest investments is set out
below.
Further details of the ten largest investments (by value):
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 30/09/21: GBP1,330,000
Cost at 30/09/20: GBP1,330,000
---------------------------------
Date of first investment: Dec 2013
---------------------------------
Valuation at 30/09/21: GBP14,108,000
---------------------------------
Valuation at 30/09/20: GBP16,902,000
---------------------------------
Valuation method: Discounted cash flows (business)
---------------------------------
Investment comprises:
---------------------------------
Ordinary shares: GBP1,330,000
---------------------------------
Proportion of equity
held: 50%
---------------------------------
Summary financial
information from
statutory accounts
(non-consolidated): 31 March 2021
---------------------------------
Turnover: GBPnil
---------------------------------
Operating loss: GBP19,000
---------------------------------
Net assets: GBP2,947,000
---------------------------------
Lunar 1 Limited
Lunar 1 Limited is a holding company of FiT remunerated
ground-mounted solar farms of 5MW (Wiltshire) and
0.7MW (Oxfordshire).
Cost at 30/09/21: GBP125,000
Cost at 30/09/20: GBP125,000
---------------------------------
Date of first investment: Dec 2013
---------------------------------
Valuation at 30/09/21: GBP2,218,000
---------------------------------
Valuation at 30/09/20: GBP2,539,000
---------------------------------
Valuation method: Discounted cash flows (business)
---------------------------------
Investment comprises:
---------------------------------
Ordinary shares: GBP125,000
---------------------------------
Proportion of equity
held: 5%
---------------------------------
Summary financial
information from
statutory accounts
(non-consolidated): 31 March 2021
---------------------------------
Turnover: GBPnil
---------------------------------
Operating loss: GBP5,000
---------------------------------
Net assets: GBP1,205,000
---------------------------------
New Energy Era Limited
New Energy Era Limited owns a FiT remunerated solar farm of
0.7MW near Shipton-under- Wychwood, Oxfordshire.
Cost at 30/09/21: GBP884,000
Cost at 30/09/20: GBP884,000
---------------------------------
Date of first investment: Nov 2011
---------------------------------
Valuation at 30/09/21: GBP1,785,000
---------------------------------
Valuation at 30/09/20: GBP1,752,000
---------------------------------
Valuation method: Discounted cash flows (business)
---------------------------------
Investment comprises:
---------------------------------
Ordinary shares: GBP884,000
---------------------------------
Proportion of equity
held: 45%
---------------------------------
Summary financial
information from
statutory accounts: 31 March 2021
---------------------------------
Turnover: GBP349,000
---------------------------------
Operating profit: GBP215,000
---------------------------------
Net assets: GBP2,375,000
---------------------------------
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 30/09/21: GBP827,000
Cost at 30/09/20: GBP1,308,000
---------------------------------
Date of first investment: Mar 2012
---------------------------------
Valuation at 30/09/21: GBP1,361,000
---------------------------------
Valuation at 30/09/20: GBP1,691,000
---------------------------------
Valuation method: Discounted cash flows (business)
---------------------------------
Investment comprises:
---------------------------------
Ordinary shares: GBP827,000
---------------------------------
Proportion of equity
held: 50%
---------------------------------
Summary financial
information from
statutory accounts
(non-consolidated): 31 March 2021
---------------------------------
Turnover: GBP3,000
---------------------------------
Operating loss: GBP6,000
---------------------------------
Net assets: GBP750,000
---------------------------------
Vicarage Solar Limited
Vicarage Solar Limited is the holding company of a FiT
remunerated solar farm of 0.7MW near Ilminster, Somerset.
Cost at 30/09/21: GBP871,000
Cost at 30/09/20: GBP871,000
---------------------------------
Date of first investment: Mar 2012
---------------------------------
Valuation at 30/09/21: GBP1,229,000
---------------------------------
Valuation at 30/09/20: GBP1,387,000
---------------------------------
Valuation method: Discounted cash flows (business)
---------------------------------
Investment comprises:
---------------------------------
Ordinary shares: GBP871,000
---------------------------------
Proportion of equity
held: 45%
---------------------------------
Summary financial
information from
statutory accounts
(non-consolidated): 31 March 2021
---------------------------------
Turnover: GBPnil
---------------------------------
Operating loss: GBP2,000
---------------------------------
Net assets: GBP1,945,000
---------------------------------
Rezatec Limited
Rezatec is a geospatial data analytics company which applies its
machine learning algorithms to a wide range of earth observation
data, to create a data analytics platform which customers can
access on a subscription basis.
Cost at 30/09/21: GBP1,000,000
Cost at 30/09/20: GBP1,000,000
------------------
Date of first investment: Jan 2020
------------------
Valuation at 30/09/21: GBP1,186,000
------------------
Valuation at 30/09/20: GBP1,073,000
------------------
Valuation method: Earnings multiple
------------------
Investment comprises:
------------------
Preference shares: GBP999,984
------------------
Ordinary shares: GBP16
------------------
Proportion of preference
shares held: 20%
------------------
Proportion of
equity held: 0%
------------------
Summary financial
information from
statutory accounts
(non-consolidated): 31 March 2021
------------------
Turnover: GBPn/a*
------------------
Operating profit/loss: GBPn/a*
------------------
Net assets: GBP651,000
------------------
*This information is not publicly available
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 165kWp. Tumblewind also owns Priory Farm Solar Farm
Limited, which owns a ROC remunerated solar farm of 3.2MW near
Lowestoft.
Cost at 30/09/21: GBP979,000
Cost at 30/09/20: GBP1,102,000
---------------------------------
Date of first investment: Nov 2011
---------------------------------
Valuation at 30/09/21: GBP903,000
---------------------------------
Valuation at 30/09/20: GBP585,000
---------------------------------
Valuation method: Discounted cash flows (business)
---------------------------------
Investment comprises:
---------------------------------
Ordinary shares: GBP790,000
---------------------------------
Loan stock: GBP189,000
---------------------------------
Proportion of equity
held: 50%
---------------------------------
Proportion of loan
stock held: 32%
---------------------------------
Summary financial
information from
statutory accounts: 31 March 2021
---------------------------------
Turnover: GBP52,000
---------------------------------
Operating loss: GBP57,000
---------------------------------
Net assets: GBP823,000
---------------------------------
Gloucester Wind Limited
Gloucester Wind Limited owns a portfolio of FiT remunerated
roof-mounted solar assets located on residential housing stock
across the UK. The total capacity of the solar assets owned by
Gloucester Wind Limited is 1,228kW.
Cost at 30/09/21: GBP1,000,000
Cost at 30/09/20: GBP1,000,000
---------------------------------
Date of first investment: Apr 2012
---------------------------------
Valuation at 30/09/21: GBP857,000
---------------------------------
Valuation at 30/09/20: GBP949,000
---------------------------------
Valuation method: Discounted cash flows (business)
---------------------------------
Investment comprises:
---------------------------------
Ordinary shares: GBP800,000
---------------------------------
Loan stock: GBP200,000
---------------------------------
Proportion of equity
held: 50%
---------------------------------
Proportion of loan
stock held: 50%
---------------------------------
Summary financial
information from
statutory accounts: 31 March 2021
---------------------------------
Turnover: GBP220,000
---------------------------------
Operating profit: GBP74,000
---------------------------------
Net assets: GBP1,545,000
---------------------------------
Hewas Solar Limited
Hewas Solar Limited owns a portfolio of FiT remunerated
roof-mounted solar assets located on housing stock owned by two
housing associations. The total capacity of the solar assets owned
by Hewas Solar Limited is 1,830kW.
Cost at 30/09/21: GBP1,000,000
Cost at 30/09/20: GBP1,000,000
---------------------------------
Date of first investment: Aug 2011
---------------------------------
Valuation at 30/09/21: GBP831,000
---------------------------------
Valuation at 30/09/20: GBP853,000
---------------------------------
Valuation method: Discounted cash flows (business)
---------------------------------
Investment comprises:
---------------------------------
Ordinary shares: GBP1,000,000
---------------------------------
Proportion of equity
held: 50%
---------------------------------
Summary financial
information from
statutory accounts: 31 March 2021
---------------------------------
Turnover: GBP532,000
---------------------------------
Operating profit: GBP109,000
---------------------------------
Net assets: GBP498,000
---------------------------------
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
515kW.
Cost at 30/09/21: GBP875,000
Cost at 30/09/20: GBP875,000
---------------------------------
Date of first investment: Jun 2011
---------------------------------
Valuation at 30/09/21: GBP700,000
---------------------------------
Valuation at 30/09/20: GBP680,000
---------------------------------
Valuation method: Discounted cash flows (business)
---------------------------------
Investment comprises:
---------------------------------
Ordinary shares: GBP875,000
---------------------------------
Proportion of equity
held: 44%
---------------------------------
Summary financial
information from
statutory accounts: 31 March 2021
---------------------------------
Turnover: GBP138,000
---------------------------------
Operating loss: GBP209,000
---------------------------------
Net assets: GBP1,189,000
---------------------------------
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, with the exception of Rezatec where the voting rights
held are 8.4%.
Summary of loan stock interest income
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
Loan stock interest income in the period
------------- --------------
bio-bean Limited 15 20
------------- --------------
Tumblewind Limited 17 29
------------- --------------
Minsmere Power Limited 11 11
------------- --------------
Small Wind Generation Limited 11 11
------------- --------------
54 71
------------- --------------
Strategic Report
The Directors present the Strategic Report for the year ended 30
September 2021. 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 are
set out in the Chairman's Statement, Investment Adviser's Report,
and the Review of Investments.
During the year to 30 September 2021, the renewable investments
held decreased in value by GBP2,757,000 and the non-renewable
investments held increased in value by GBP113,000. Gains arising on
investment realisations totalled GBP16,000.
Income over expenditure for the year resulted in a net loss,
after accounting for capital expenses, of GBP2,701,000.
The total loss for the year was GBP2,694,000 (2020:
GBP1,112,000) and net assets at the year-end were GBP23.0 million
(2020: GBP27.3 million). The annual dividend for the year to 30
September 2020 was paid on 31 December 2020.
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 GBP40,000 (plus VAT, if applicable) per annum.
It also provides company secretarial services for a fee of
GBP40,000 (plus VAT, if applicable) per annum. The agreement 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 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 is a Designated
Member, and CH1 of which Matthew Evans (Director of Gresham House
Renewable Energy VCT2 plc) is a Designated Member, will continue to
receive trail commission from Gresham House Asset Management
Limited. 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,
VCT2, to Haibun and CH1 clients under each of the 2010, 2012 and
2014 Offers. The amounts payable to Haibun and CH1 by Gresham House
Asset Management, in aggregate across both the VCT and VCT2, are as
follows:
Year ended 30 September 2021
Haibun CH1 Total
GBP GBP GBP
--------- ----------- --------
2010 Offer 16,720 23,008 39,728
--------- ----------- --------
2012 Offer 2,669 1,714 4,383
--------- ----------- --------
2014 Offer 944 2,198 3,142
--------- ----------- --------
Total 20,333 26,920 47,253
--------- ----------- --------
Investment policy
General
At the July 2021 General Meeting, 89.43% of the shareholders who
voted 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.
1 October 2020 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 2021
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 Manager (or, where relevant, the
Investment Manager'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.
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
1 October 2020 to 13 July 2021
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 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.
As at 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 period the VCT was required to hold 80% of its funds
in VCT qualifying investments. At 30 September 2021, 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. In
relation to the VCT, no single investment (including most loans to
investee companies) will represent more than 15% of the aggregate
net asset value of its fund save where such investment is in an
investee company which has acquired or is to acquire, whether
directly or indirectly, securities in the following companies: AEE
Renewables UK 3 Limited, AEE Renewables UK 26 Limited, South
Marston Solar Limited, Beechgrove Solar Limited, New Energy Era
Limited and Vicarage Solar Limited.
Risk Diversification
The structure of the VCT's funds, and its investment strategies,
have been designed to 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;
monitoring of investee companies - the Adviser will closely
monitor the performance of all the investments made by the VCT in
order to identify any issues and to enable necessary corrective
action to be taken; and
the VCT will ensure that it has sufficient influence over the
management of the business of the investee companies, in
particular, through rights contained in the relevant investment
agreements and other shareholder/constitutional documents.
In respect of the VCT's investment in Lunar 1 Limited and Lunar
2 Limited, the VCT has followed the above risk diversification
strategy with regard to their investments in AEE Renewables UK 3
Limited, AEE Renewables UK 26 Limited, South Marston Solar Limited,
Beechgrove Solar Limited, New Energy Era Limited and Vicarage Solar
Limited.
Gearing
It is not intended that the VCT will borrow (other than from
investee companies). However, it will have the ability to borrow up
to 15% of its net asset value* save that this limit shall not apply
to any loan monies used to facilitate the acquisition by the VCT,
whether directly or indirectly, of any shares or securities in the
operational asset/holding companies.**
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 2021, the VCT had the ability to borrow
GBP4.5 million in accordance with the articles, and had actual
borrowings of GBPnil.
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 2021.
Directors and senior management
The VCT has four Non-Executive Directors, comprising a female
and three males. The VCT has no employees.
Key performance indicators
At each Board meeting, the Directors consider a number of
performance measures to assess the VCT's success in meeting its
objectives. The Board believes the VCT's key performance indicators
are Net Asset Value (NAV) Total Return and dividends per share.
These are defined as follows:
Net Asset Value Total Return: the sum of NAV per Ordinary Share,
NAV per 'A' Share and cumulative dividends paid.
Net Asset Value per Ordinary Share: The closing total net asset
position of the VCT as at the reporting date less the total par
value of all 'A' Shares in issue at the reporting date divided by
the total number of Ordinary Shares in issue at the reporting
date.
Net Asset Value per 'A' Share: Par value per 'A' Share.
Cumulative dividends paid: The gross total of all dividends paid
for both Ordinary and 'A' Shares from inception up to the reporting
date.
The 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 2021 is shown. A Summary of dividends per Share is shown.
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.
Brexit
As the VCT has invested solely in UK assets which generate
revenues from contracts with parties based in the UK, the Board and
Manager believe that, subject to no major economic disruption
taking place, the impact of Brexit on the VCT is limited.
COVID-19
COVID-19 has presented an unprecedented challenge to the country
and the economy in 2020 and 2021. Despite this challenging
environment, the VCT's renewable assets have continued to generate
steady cashflows, and the Board and Investment Adviser believe that
COVID-19 will continue to have only a limited impact on the
VCT.
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.
Principal Context Specific risks Possible impact Mitigation
Risk
Investment The VCT holds Poor investment Reduction in The Investment Adviser
Performance investments decisions or the NAV of the has significant
in unquoted strategy or VCT and the experience
UK businesses poor monitoring, inability of in the renewable
in the renewable management and the VCT to pay energy
energy sector. realisation dividends. sector. The Investment
of investments. Adviser also actively
Adverse weather manages the portfolio,
conditions, engaging reputable and
low inflation experienced Operations
rates and/or and Maintenance (O&M)
low power prices contractors. The
due to the assets
COVID-19 pandemic have limited exposure
resulting in to power prices, due
below forecast to the use of the FIT
investment returns. and ROC regimes.
The Board regularly
reviews the
performance
of the portfolio,
alongside
the Board of the
sister
company.
----------------------- ------------------------ ------------------------ -----------------------
Loss of The VCT must Breach of any The loss of The VCT Qualification
VCT status maintain continued of the rules VCT status would is actively monitored
compliance with could result result in dividends by the Investment
the VCT Regulations, in the loss becoming taxable Adviser
which prescribe of VCT status. and new Shareholders and the Administrator,
a number of losing their who liaise with the
tests and conditions. initial tax designated VCT Status
relief. Adviser. The VCT
Status
Adviser also produces
twice yearly reports
for the Board.
----------------------- ------------------------ ------------------------ -----------------------
Legislative In recent years, A change in The loss of Both the Investment
the changes government policy VCT status would Adviser and the
to VCT Regulations could result result in dividends Administrator
have narrowed in a cessation becoming taxable closely monitor
the breadth of tax reliefs and new Shareholders developments
of permitted or reduction losing their and attend AIC
investments. of the amount initial tax conferences.
VCTs were established of tax relief relief. The VCT Status Adviser
to encourage available to also has significant
private individuals investors which experience in this
to invest in would make them field
early stage less attractive and works closely with
companies that to investors. HMRC.
are considered Further commentary on
to be risky VCT Status is provided
and have limited on below.
funding options. The Investment Adviser
The state provides engages with HMT and
these investors industry
with tax relief. representative
bodies to demonstrate
the cost benefit of
VCTs to the economy
in terms of employment
generation and
taxation
revenue.
----------------------- ------------------------ ------------------------ -----------------------
Regulatory As a listed Any breaches Reduction in The VCT Secretary and
and compliance entity, the of relevant the NAV of the Administrator have a
VCT is subject regulations VCT due to financial long history of acting
to the UK Listing could result penalties and for VCTs. The Board,
Rules and related in suspension a suspension Investment Adviser and
regulations. of trading in of trading in Administrator also
the VCT's shares its Shares, employ
or financial also leading the services of
penalties. to loss of VCT reputable
status. lawyers, auditors and
other advisers to
ensure
continued compliance
with its regulatory
obligations.
----------------------- ------------------------ ------------------------ -----------------------
Operational The VCT relies Inferior provision Errors in Shareholder The VCT, the
- VCT level on the Investment of these services, records, incorrect Investment
Adviser, for example mailings, misuse Adviser and the
Administration due to working of data, non-compliance Administrator
Manager and remotely during with key legislation, engage experienced and
other third the COVID-19 loss of assets, reputable service
parties to provide pandemic, thereby breach of legal providers,
many of its leading to inadequate duties and inadequate the performance of
services at systems and financial reporting. which
the VCT level. controls or is reviewed on an
inefficient annual
management of basis.
the VCT's assets The Directors and the
and its reporting Investment Adviser
requirements. regularly
Service providers, review the service
predominantly providers
the Registrar, and the procedures and
hold Shareholders' policies they have in
personal data place for preventing
and there is cyber attacks.
a risk of a
cyber attack
on a provider.
----------------------- ------------------------ ------------------------ -----------------------
Operational At the portfolio Inferior provision Poor investment The VCT, the
- portfolio level, the VCT of these services, performance Investment
level uses third party thereby leading due to assets Adviser and the
O&M contractors to inadequate being offline Administrator
managing the systems and and non-revenue engage experienced and
various sites. controls or generating. reputable service
inefficient providers,
management of the performance of
the VCT's assets. which
Maintenance is reviewed on an
and repairs ongoing
not carried basis. At the
out in a timely portfolio
manner as a level, technical
result of travel reviews
restrictions and studies are
and social distancing conducted
rules put in on the assets as
place due to appropriate.
the COVID-19 Repair and
pandemic. reconfiguration
work is carried out
and O&M procedures are
revised to reduce
dependence
on overseas
contractors
and specialists.
----------------------- ------------------------ ------------------------ -----------------------
Economic, The VCT's investments Retrospective A significant The Investment Adviser
political are heavily changes to the negative impact and Board members
and other exposed to the regimes. on performance. closely
external Feed in Tariff monitor policy
factors (FiT) and Renewable developments.
Obligation Certificate However, the UK
(ROC) regimes. Government
has a general policy
of not introducing
retrospective
legislation. The
Investment
Adviser and Board
regularly
review the valuation
model and its inputs.
----------------------- ------------------------ ------------------------ -----------------------
1 October 2020 - 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; and
Economic, political and other external factors.
From 13 July 2021 to 30 September 2021
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 None identified.
value of the portfolio will
be reduced as 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 The VCTs will sell their shares
assets are owned 50:50 between in each asset simultaneously,
the VCT and VCT2 and there so that no VCT holds more than
are no rights attached to such 50% of the underlying assets.
ownership that would allow
one company to force the other
to sell its share in each asset.
---------------------------------------- -------------------------------------
Volatility in The VCT might experience increased None identified.
NAV and/or share volatility in its Net Asset
price Value and/or 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 The Investment Adviser has
realised at their carrying engaged several experts in
value, and it is possible that this field to ensure an appropriate
the VCT may not be able to sale price is reached.
realise some assets at any
value. The value realisable
on a sale of the VCT's assets
is linked to estimates and
assumptions about a variety
of matters, including macroeconomic
considerations, which assumptions
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 The Investment Adviser prepares
costs, taxes and other costs detailed cashflow forecasts
associated with the realisation which are presented to the
of the VCT's assets together Board quarterly. The forecasts
with the usual operating costs include the additional costs
of the VCT will reduce the expected to be incurred during
cash available for distribution the managed wind-down of the
to the shareholders. VCT.
---------------------------------------- -------------------------------------
Sale of assets A sale of the VCT's assets The Investment Adviser has
may prove materially more complex engaged several experts in
than anticipated, and the distribution this field, to ensure against
of proceeds to shareholders an extended handover period.
may be delayed by a number
of factors, including, without
limitation, the ability of
a liquidator to make distributions
to Shareholders
---------------------------------------- -------------------------------------
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. 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 scenarios and note that under none of
these scenarios was the VCT unable to cover its costs. The VCT has
incurred some additional costs in the financial year, 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 of
GBP217,000. The Investment Adviser has plans in place to manage
this scenario should it occur.
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 later in the 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 2021 were 2.4%
(2020: 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. 'A' Share
dividends will be increased if, at the end of each year, the hurdle
is met, which is illustrated below:
i) Shareholders who invested under the offer for subscription
receive dividends in excess of 5.0p per Ordinary Share in any one
financial period; and
ii) one Ordinary Share and one 'A' Share has a combined net asset value of at least 100.0p.
The Performance Incentive is calculated each year and is not
based on cumulative dividends paid.
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 of dividend proceeds:
Shareholders 99.97% 80% 70%
------- ------ ------
Management 0.03% 20% 30%
------- ------ ------
As the NAV as at 30 September 2021 was below 100p, the NAV
hurdle for the year was not met and no dividend was paid, therefore
there was no Performance Incentive paid. The NAV hurdle was met
with respect to the year ended 30 September 2020 and the annual
dividend paid on 31 December 2020 exceeded the dividend hurdle,
therefore Management received a Performance Incentive. The
Performance Incentive was equivalent to 0.2586p per Ordinary Share,
or approximately GBP66,000.
Pursuant to historic financial intermediary arrangements with
Hazel Capital LLP, Haibun Partners LLP, of which Stuart Knight is a
Designated Member, and CH1 Investment Partners LLP, of which
Matthew Evans (Director of Gresham House Renewable Energy VCT2 plc)
is a Designated Member, would 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,
VCT2.
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
2021
1. To ensure that the VCT's income in the period
has been derived wholly or mainly (70% plus) from
shares or securities; 100.0%
--------------
2. To ensure that the VCT has not retained more
than 15% of its income from shares and securities; 1.1%
--------------
3. To ensure that the VCT has not made a prohibited
payment to shareholders derived from an issue
of shares since 6 April 2014; 0.0%
--------------
4. To ensure that at least 80% by value of the
VCT's investments has been represented throughout
the period by shares or securities comprised in
qualifying holdings of the VCT; 89.9%
--------------
5. To ensure that at least 70% by value of the
VCT's qualifying holdings has been represented
throughout the period by holdings of eligible
shares (disregarding investments made prior to
6 April 2018 from funds raised before 6 April
2011 ); 92.3%
--------------
6. To ensure that of funds raised on or after
1 October 2018, at least 30% has been invested
in qualifying holdings by the anniversary of the
end of the accounting period in which the shares
were issued; 30.0%
--------------
7. To ensure that no holding in any company has Complied
at any time in the period 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 Complied
throughout the period been listed on a regulated
European market;
--------------
9. To ensure that the VCT has not made an investment Complied
in a company which causes it to receive more than
the permitted investment from State Aid sources;
--------------
10. To ensure that since 17 November 2015, the Complied
VCT has not made an investment in a company which
exceeds the maximum permitted age requirement;
--------------
11. To ensure that since 17 November 2015, funds Complied
invested by the VCT in another company have not
been used to make a prohibited acquisition; and
--------------
12. To ensure that since 6 April 2016, the VCT Complied
has not made a prohibited non-qualifying investment.
--------------
The Directors, with the help of the Investment Adviser, actively
monitor and ensure the investee companies have less than GBP5
million state backed financing in a 12-month period listed in order
to remain compliant with the VCT regulations.
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.
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.
Sustainable Investing at Gresham House
Gresham House, the Investment Adviser, is committed to
sustainable investment as an integral part of its business
strategy. During 2020, Gresham House has taken steps to formalise
its approach to sustainability and has put in place several
policies and processes to ensure ESG factors and stewardship
responsibilities are built into the management of each asset
division.
Policies and processes
Gresham House has published its Sustainable Investing Policy
along with asset specific policies, including the New Energy
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 Gresham House Board and Management Committee assess
adherence to the commitments in the Sustainable Investment Policies
on an annual basis.
Sustainable Investing Committee
The Investment Adviser's Sustainable Investing Committee (SIC),
formed at the start of 2020, meets monthly and drive sustainability
related deliverables, whilst 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 Management Committee, each asset division, sales and
marketing.
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.
Greenhouse Emissions
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 Investment Adviser is considering how best to monitor
and measure the Scope 3 emissions relevant to the VCT.
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, at the year end, comprised of four independent
Non-Executive Directors, 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 in the
long-term; 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 is a long-term 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
Continued shareholder support is critical to the sustainability
of the VCT and delivery of the long-term strategy of the business.
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 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/gresham-house-renewable-energy-vct-1-plc/)
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 continuation vote and the respective
resolution which received opposition from the shareholders at the
2021 AGM. Details of this is included later in the report.
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 other 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.
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 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. This engagement
remained particularly important for the 2021 financial year given
the continued challenges presented by COVID-19 and the need to test
the resilience of all of the Company's operations and supply.
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 bi-annually on its
compliance with the VCT rules and a Company Secretary report is
tabled quarterly at board meetings.
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, and is closely involved in its day
to day operations. During the year, the Board's main strategic
discussions focused around the below items.
Continuation Vote
At the AGM held on 22 March 2021, the Board recommended that the
shareholders vote in favour of the VCT's continuation as a venture
capital trust for a period of five years. Resolution 5, which
related to the continuation vote, was passed however due to the
opposition received from the shareholders on Resolution 5, the
Board carried out a thorough review of the strategic options
available to the VCT, the monetisation opportunities in the market
for the Company's assets and the appropriate proposals to deliver
value to shareholders.
The shareholders of Gresham House Renewable Energy VCT2 plc did
not pass the continuation vote for Gresham House Renewable Energy
VCT2 plc and as the two VCTs work closely together, the Company
drew up proposals for the voluntary liquidation, reconstruction or
other re-organisation of the Company for consideration by the
members at a subsequent General Meeting held on 13 July 2021.
At the General Meeting, the shareholders resolved to approve the
Managed Wind-Down of the Company and associated amendments to the
Company's Investment Policy, details of which can be found above.
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 to 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.
Covid-19
During the COVID-19 pandemic the Board ensured its Service
Providers all had effectively implemented their Business Continuity
Plans and were able to work remotely in line with their internal
controls, with no impact to the service provided to the VCT.
Future Prospects
The Board's assessment of the outlook and future strategy of the
VCT are set out in the Chairman's Statement and Investment
Adviser's Report.
By order of the Board
JTC (UK) Limited
Company Secretary
Company number: 04301763
Registered office:
The Scalpel, 18th Floor
52 Lime Street
London EC3M 7AF
28 January 2022
Report of the Directors
The Directors present the eleventh Annual Report and Accounts of
the VCT for the year ended 30 September 2021.
The Corporate Governance Report below forms part of this
report.
Share capital
At the year end, the VCT had in issue 25,515,242 Ordinary Shares
and 38,512,032 'A' Shares. There are no other share classes in
issue.
All shares have voting rights; each Ordinary Share has 1,000
votes and each 'A' Share has one vote. Where there is a resolution
in respect of a variation of the rights of 'A' Shareholders or a
Takeover Offer, the voting rights of the 'A' Shares rank pari-passu
with those of Ordinary Shares.
Pursuant to the articles and subject to a special resolution,
the VCT is able to make market purchases of its own shares, up to a
maximum number of shares equivalent to 14.99% of the total number
of each class of issued shares from time to time.
At the AGM that took place on 22 March 2021, the VCT was
authorised to make market purchases of its Ordinary Shares and 'A'
Shares, up to a limit of 4,218,239 Ordinary Shares and 6,166,429
'A' Shares which represented approximately 14.99% of the issued
Ordinary Share capital and 14.99% of the issued 'A' Share capital
as at the date of the AGM.
The minimum price which may be paid for an Ordinary Share or an
'A' Share is 0.1p, exclusive of all expenses, and the maximum price
which may be paid for an Ordinary Share or an 'A' Share is an
amount, exclusive of all expenses, equal to 105% of the average of
the middle market quotations.
Substantial Interests
As at 30 September 2021, 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
Pence Pence
per Ord per 'A'
GBP'000 Share Share
Loss for the year (2,694) (10.6) -
------- --------- --------
31 Dec 2020 Dividend 1,543 5.3133 0.4867
------- --------- --------
Directors
The Directors of the VCT during the year and their beneficial
interests in the issued Ordinary Shares and 'A' Shares at 30
September 2021 and at the date of this report were as follows:
As at
the As at As at
date of 30 Sept 30 Sept
Directors this report 2021 2020
Gill Nott Ord 24,953 24,953 24,953
---- ------------- -------- --------
'A' 24,953 24,953 24,953
--------------------- ------------- -------- --------
Stuart Knight Ord 330,750 330,750 330,750
---- ------------- -------- --------
'A' 330,750 330,750 330,750
--------------------- ------------- -------- --------
Duncan Grierson Ord 16,635 16,635 16,635
---- ------------- -------- --------
'A' 16,635 16,635 16,635
--------------------- ------------- -------- --------
David Hunter Ord - - -
---- ------------- -------- --------
'A' - - -
--------------------- ------------- -------- --------
Biographical details of the Directors, all of whom are
Non-Executive, can be found below.
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, which were
refreshed during the year and 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, the Chairman and Duncan Grierson are
due to stand for re-election in 2022.
The Directors' appointment dates and the date of their last
election are shown below:
Date of Most recent
original date of
Director appointment re-election
Gill Nott (Chairman) 01/05/2018 06/03/2019
------------ ------------
Stuart Knight 31/01/2017 25/06/2020
------------ ------------
Duncan Grierson 16/07/2018 06/03/2019
------------ ------------
David Hunter 18/09/2019 25/06/2020
------------ ------------
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 in this report, 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 eleventh Annual General Meeting ("AGM") will be held
at 80 Cheapside, London, EC2V 6EE at 11:00 a.m. on Wednesday, 23
March 2022. 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.
General meeting
At the General Meeting that took place on 13 July 2021, a
special resolution was passed by the shareholders to adopt a new
Investment Policy in substitution for the previous Investment
Policy in its entirety. The new Investment Policy forms part of the
Board's recommended proposal in relation to the Managed Wind-Down
of the Company and associated amendments to the Investment
Policy.
More details about the new Investment Policy can be found on
above.
Auditor
The Independent Auditor's Report can be found below. There was a
requirement to undertake an audit tender for the year ended 30
September 2021 and BDO LLP retendered. At the 2021 AGM, the
shareholders approved the re-appointment of BDO LLP as the auditor
has indicated its willingness to continue in office with the
Company and separate resolutions will be proposed at the 2022 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, 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, whose names and functions are listed on
above, 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 2019
Statement of Recommended Practice, 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the VCT; and
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 below.
Other matters
Information in respect of risk management and risk
diversification has been disclosed within the Strategic Report
above.
Information in respect of greenhouse emissions which is normally
disclosed within the Report of the Directors has been disclosed
within the Strategic Report on above.
During the year, the VCT did not have any employees (2020: 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
bio-bean Limited closed a GBP1.3m funding round in September
2021. The VCT committed to invest GBP67,500 at that time and the
funds were paid to the company in December 2021. Three offers to
buy the solar assets were received by the VCT after the end of the
reporting period. In December 2021, the Board entered into an
exclusivity agreement with one of the parties so that the party
could complete the remainder of its due diligence. The Board, with
support from the Investment Adviser as well as third party
advisers, will seek to secure the best returns possible for
shareholders.
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
Gill Nott
Chairman
28 January 2022
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.
Following a review of the remuneration during the financial year
2019/2020, the Remuneration Committee recommended an increase in
the Directors' remuneration which was approved by the Board. These
increases took effect from 1 October 2020. The changes to the
Directors' remuneration are outlined in this report.
Recognising increased oversight responsibilities during the
financial year 2020/2021, the Remuneration Committee approved
additional special payments to the Chairman and Audit Chairman,
calculated at 25% of their annual fee. Neither the Chairman nor the
Audit Chairman voted upon their own additional special
payments.
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 GBP100,000 per annum
(excluding any Performance Incentive fees to which the Directors
may be entitled from time to time); and
(ii) The Directors shall be entitled to be repaid all reasonable
travelling, hotel and other expenses incurred by them respectively
in or about the performance of their duties as Directors.
Agreement For Services
Information in respect of the Directors' agreements has been
disclosed within the Report of the Directors.
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 2021 and no dividend was paid, 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
are shown in the table below.
Following a review of the Board's remuneration by the
Remuneration Committee, the basic annual fees of the Directors
increased to GBP26,500 for the Chairman, GBP24,000 for the Audit
Committee Chairman and GBP21,500 for the other Non-Executive
Directors, effective 1 October 2020. These increases are within the
limit set by the Remuneration Policy and the percentage increase is
also shown in the table below.
The additional special payments to the Chairman and Audit
Chairman 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, with the second tranche to be paid in October 2021
for additional oversight responsibilities relating to the 2022
financial year.
Details of the additional special payments are detailed in the
table below.
Additional
Special
Payment
Year ended Year ended for the Year ended
Current 30 Sept 30 Sept % increase year end 30 September
Annual 2021 2020 from 30 September 2021
fixed fee fee fee 2020 to 2021 fee
GBP GBP GBP 2021 GBP GBP
Gill Nott 26,500 26,500 25,000 6% 3,314 29,814
---------- ----------- ---------- ---------- ------------- -------------
Stuart Knight 21,500 21,500 20,000 8% N/A 21,500
---------- ----------- ---------- ---------- ------------- -------------
Duncan Grierson 21,500 21,500 20,000 8% N/A 21,500
---------- ----------- ---------- ---------- ------------- -------------
David Hunter 24,000 24,000 22,500 7% 3,000 27,000
---------- ----------- ---------- ---------- ------------- -------------
Totals 93,500 93,500 87,500 7% 6,314 99,814
---------- ----------- ---------- ---------- ------------- -------------
No other emoluments, pension contributions or life assurance
contributions were paid by the VCT to, or on behalf of, any
Director. The VCT does not have any share options in place.
Statement of voting at AGM
Remuneration Report
At the AGM on 22 March 2021, the votes in respect of the
resolution to approve the Director's Remuneration Report were as
follows:
In favour 97%
Against 3%
-----------
Withheld nil votes
-----------
Remuneration Policy
At the 2020 AGM, when the remuneration policy was last put to a
Shareholder vote, 100% voted for the resolution, showing
significant shareholder support.
Relative importance of spend on pay
The difference in actual spend between 30 September 2021 and 30
September 2020 on Directors' remuneration in comparison to
distributions (dividends and share buybacks) and other significant
spending are set out in the chart below.
2021/2022 remuneration
The remuneration levels for the forthcoming year for the
Directors of Gresham House Renewable Energy VCT1 plc are shown in
the above table.
Performance graph
The graph below represents the VCT's performance over the
reporting periods since the VCT's Ordinary Shares and 'A' Shares
were first listed on the London Stock Exchange, and shows share
price total return and net asset value total return performance on
a dividends reinvested basis. All series are rebased to 100 at 10
January 2011, being the date the VCT's shares were listed.
The Numis Smaller Companies Index has been chosen as a
comparison as it is a publicly available broad equity index which
focuses on smaller companies and is therefore more relevant than
most other publicly available indices.
Stuart Knight
Remuneration Committee Chairman
28 January 2022
Corporate Governance
The Board of Gresham House Renewable Energy VCT 1 plc has
considered the Principles and Provisions of the 2019 AIC Code of
Corporate Governance (the "AIC Code"). The AIC Code addresses the
Principles and Provisions set out in the UK Corporate Governance
Code (the UK Code), as well as setting out additional Provisions on
issues that are of specific relevance to Gresham House Renewable
Energy VCT 1 plc.
The Board considers that reporting against the Principles and
Provisions of the AIC Code, which has been endorsed by the
Financial Reporting Council, provides more relevant information to
Shareholders.
The VCT has complied with the Principles and Provisions of the
AIC Code.
The AIC Code is available on the AIC website (www.theaic.co.uk).
It includes an explanation of how the AIC Code adapts the
Principles and Provisions set out in the UK Code to make them
relevant for investment companies.
The Board
The VCT has a Board comprising four Non-executive Directors. The
Chairman is Gill Nott. Gill Nott, Duncan Grierson and David Hunter
are independent from the Investment Adviser. Stuart Knight is not
considered independent as he is a Designated Member of Haibun
Partners LLP which receives trail commission from the Investment
Adviser. The VCT has not appointed a senior independent director.
Biographical details of all Board members (including significant
other commitments of the Chairman) are shown above.
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 authority to make market purchases of the VCT's
own shares. This authority to purchase up to 14.99% of the VCT's
issued share capital was granted at the 2021 AGM. The Board has
decided that the VCT will not be buying Shares for the foreseeable
future as highlighted in the Interim Results, as the VCT wishes to
conserve such cash as it generates for the managed wind-down of the
VCT and the 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. The
chairman of the Audit Committee is David Hunter, Stuart Knight is
the chairman of the Remuneration Committee and Duncan Grierson is
the chairman of the Nomination Committee. 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 three 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 VCT's auditor provided agreed upon procedures to the VCT
during the financial year which involved agreeing the tax balances
included in the March valuation model to corporation tax returns.
The fees for this service were GBP2,500.
The Committee recognises the requirement for the tax computation
to be prepared annually and therefore appointed Lubbock Fine as tax
agent during the year ended 30 September 2021.
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 was required to undertake an audit tender in respect of the
audit required for the year ended 30 September 2021. 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:
Audit Nomination Remuneration
Board Committee Committee Committee
meetings meetings meetings meetings
attended attended attended attended
(14 held) (3 held) (0 held) (1 held)
--------- ---------- ---------- ------------
Gill Nott 14 3 0 1
--------- ---------- ---------- ------------
Stuart Knight 9 1 0 0
--------- ---------- ---------- ------------
Duncan Grierson 10 3 0 1
--------- ---------- ---------- ------------
David Hunter 14 3 0 1
--------- ---------- ---------- ------------
A Nomination Committee meeting was held post 30 September
2021.
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.
Following a review of the remuneration during financial year
2019/2020, the Committee recommended an increase in board
remuneration which was approved by the Board. These increases took
effect from 1 October 2020. Details of the specific levels of
remuneration to each Director as well as the fee increases are set
out in the Directors' Remuneration Report.
Recognising the increased oversight responsibilities during the
financial year 2020/2021 in relation to the managed wind down of
the VCT, the Remuneration Committee resolved to approve additional
special payments, calculated at 25% of their annual fee, to the
Chair and Audit chair. Details of this additional fees can be found
in this 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.
Post year end, 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 and safe to do so in light of
COVID-19.
In addition to the formal business of the AGM, representatives
of the Investment Adviser and the Board are available to answer any
questions a Shareholder may have. Separate resolutions are proposed
at the AGM on each substantially separate issue. The Administrator
collates proxy votes and the results (together with the proxy
forms) are forwarded to the Company Secretary immediately prior to
the AGM. Proxy votes are announced at the AGM, following each vote
on a show of hands, except in the event of a poll being called. The
notice of the tenth AGM and proxy form will be circulated with this
Annual Report.
At the 2021 AGM, Resolution 5, which related to the continuation
of the Company as a venture capital trust for a further five year
period, received opposition from Shareholders. In light of the
number of votes received against this resolution for the
continuation vote, the VCT undertook a detailed review of the
feedback received on the matter to fully understand the
Shareholders' concerns. 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.
Although Resolution 5 formally passed, the equivalent vote for
Gresham House Renewable Energy VCT 2 plc did not achieve the
required majority to pass. As the two VCTs work closely together,
the VCT devised the best possible proposals to put to Shareholders
and at a General Meeting held four months later in July 2021, the
Shareholders resolved that the VCT would enter a Managed Wind-Down
(as defined in the circular to Shareholders dated 17 June 2021) and
the new Investment Policy was adopted in substitution for the
existing Investment Policy. The Board agreed to endeavor to realise
the Company's investments in a manner that achieves a balance
between maximising the net value received from those investments
and making timely returns to Shareholders.
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.
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 VCT2 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 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 2021 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 the remuneration
committee. (7.2.22, 9.2.37)
d) Due to the size of the Board and the nature of the VCT's
business, the Board considers it appropriate for the entire Board
to be members of the remuneration committee and for the committee
to be chaired by Stuart Knight. (9.2.37)
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 chairman, to fulfil the role of the audit committee.
(8.2.29)
f) Due to the size of the VCT, the Board thought it would be
unnecessarily burdensome to establish a separate management
engagement committee to review the performance of the Investment
Adviser. (6.2.17, 7.2.26)
The Directors are not subject to annual re-election but must be
re-elected 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
28 January 2022
Income Statement
For the year ended 30 September 2021
Year ended 30 September Year ended 30 September
2021 2020
----
Revenue Capital Total Revenue Capital Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---- -------- -------- -------- -------- -------- --------
Income 3 576 - 576 256 - 256
---- -------- -------- -------- -------- -------- --------
Loss on investments 10 - (2,628) (2,628) - (624) (624)
---- -------- -------- -------- -------- -------- --------
576 (2,628) (2,052) 256 (624) (368)
---- -------- -------- -------- -------- -------- --------
Investment advisory fees 4 (218) (73) (291) (240) (80) (320)
---- -------- -------- -------- -------- -------- --------
Other expenses 5 (351) - (351) (374) (50) (424)
---- -------- -------- -------- -------- -------- --------
(569) (73) (642) (614) (130) (744)
---- -------- -------- -------- -------- -------- --------
Profit/(loss) on ordinary activities
before tax 7 (2,701) (2,694) (358) (754) (1,112)
---- -------- -------- -------- -------- -------- --------
Tax on total comprehensive
income/(loss) and ordinary
activities 7 - - - - - -
---- -------- -------- -------- -------- -------- --------
Profit/(loss) for the year
and total comprehensive income/(loss) 7 (2,701) (2,694) (358) (754) (1,112)
---- -------- -------- -------- -------- -------- --------
Basic and diluted loss per
share:
---- -------- -------- -------- -------- -------- --------
Ordinary Share 9 - (10.6) (10.6) (1.4p) (3.0p) (4.4p)
---- -------- -------- -------- -------- -------- --------
'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 October 2019) by the Association of
Investment Companies ("AIC SORP").
Other than revaluation movements arising on investments held at
fair value through the profit or loss, there were no differences
between the return/loss as stated above and at historical cost.
The accompanying notes form an integral part of these financial
statements.
Balance Sheet
As at 30 September 2021
2021 2020
Note GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ---- ------- ------- ------- -------
Fixed assets
--------------------------------------- ---- ------- ------- ------- -------
Investments 10 - - - 30,428
--------------------------------------- ---- ------- ------- ------- -------
Current assets
---- ------- ------- ------- -------
Investments 10 27,193 -
---- ------- ------- ------- -------
Costs incurred on sale of VCT's assets 11 181 -
---- ------- ------- ------- -------
Debtors 12 60 230
---- ------- ------- ------- -------
Cash at bank and in hand 31 57
---- ------- ------- ------- -------
27,465 287
---- ------- ------- ------- -------
Creditors: amounts falling due within
one year 13 (1,901) (367)
---- ------- ------- ------- -------
Net current (liabilities)/assets 25,564 (80)
---- ------- ------- ------- -------
Creditors: amounts falling due after
more than one year 14 (2,534) (3,081)
---- ------- ------- ------- -------
Net assets 23,030 27,267
---- ------- ------- ------- -------
Capital and reserves
---- ------- ------- ------- -------
Called up Ordinary Share capital 15 28 28
---- ------- ------- ------- -------
Called up 'A' Share capital 15 41 41
---- ------- ------- ------- -------
Share premium account 16 9,541 9,541
---- ------- ------- ------- -------
Treasury Shares 16 (2,991) (2,991)
---- ------- ------- ------- -------
Special reserve 16 4,171 5,714
---- ------- ------- ------- -------
Revaluation reserve 16 15,056 16,893
---- ------- ------- ------- -------
Capital redemption reserve 16 3 3
---- ------- ------- ------- -------
Capital reserve - realised 16 (2,239) (1,426)
---- ------- ------- ------- -------
Revenue reserve 16 (580) (536)
---- ------- ------- ------- -------
Total Shareholders' funds 23,030 27,267
---- ------- ------- ------- -------
Basic and diluted net asset value per
share
---- ------- ------- ------- -------
Ordinary Share 17 90.1p 106.7p
---- ------- ------- ------- -------
'A' Share 17 0.1p 0.1p
---- ------- ------- ------- -------
The financial statements of Gresham House Renewable Energy VCT1
plc were approved and authorised for issue by the Board of
Directors and were signed on its behalf by:
Gill Nott
Chairman
Company number: 07378392
Date: 28 January 2022
The accompanying notes form an integral part of these financial
statements.
Statement of Changes in Equity
For the year ended 30 September 2021
Funds
held
in
respect
Called of Capital
up Share Shares Redemp- Capital
share Premium Treasury not yet Special Revalua-tion tion reserve Revenue
capital Account Shares allotted reserve reserve reserve realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 September
2019 69 9,541 (2,991) - 7,257 17,522 3 (1,301) (178) 29,922
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
Total
comprehensive
income - - - - - (754) - - (358) (1,112)
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
Transfer of net
realised loss
to Capital
reserve-realised - - - - - 125 - (125) - -
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
Transactions with
owners
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
Dividend paid - - - - (1,543) - - - - (1,543)
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
At 30 September
2020 69 9,541 (2,991) - 5,714 16,893 3 (1,426) (536) 27,267
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
Total
comprehensive
loss - - - - - (2,644) - (6) (44) (2,694)
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
Transfer of net
realised loss
to Capital
reserve-realised* - - - - - 807 - (807) - -
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
Transactions with
owners
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
Dividend paid - - - - (1,543) - - - - (1,543)
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
At 30 September
2021 69 9,541 (2,991) - 4,171 15,056 3 (2,239) (580) 23,030
------- ------- -------- -------- ------- ------------ ------- -------- -------- --------
* The transfer relates to historic losses on Small Wind.
The accompanying notes form an integral part of these financial
statements.
Cash Flow Statement
For the year ended 30 September 2021
Year ended Year ended
30 September 30 September
2021 2020
Note GBP'000 GBP'000
Cash flows from operating activities
----- ------------- -------------
Loss for the financial year (2,694) (1,112)
------------- -------------
Losses on investments 2,628 624
------------- -------------
Dividend income (522) -
------------- -------------
Interest income (54) -
------------- -------------
Decrease in debtors 1 43
------------- -------------
Increase/(decrease) in creditors 161 (12)
------------- -------------
Net cash outflow from operating activities (480) (457)
------------- -------------
Cash flows from investing activities
----- ------------- -------------
Proceeds from sale of investments/loan note
redemptions 137 135
------------- -------------
Investments purchased at cost (13) (1,615)
------------- -------------
Cost incurred as part of the sale of VCT's
assets (19) -
------------- -------------
Interest received 223 -
------------- -------------
Dividend income received 315 -
------------- -------------
Net cash inflow/(outflow) from investing activities 643 (1,480)
------------- -------------
Net cash outflow before financing activities 163 (1,937)
------------- -------------
Cash flows from financing activities
----- ------------- -------------
Dividend paid (1,543) (1,543)
------------- -------------
Proceeds from loans 1,354 2,491
------------- -------------
Net cash (outflow)/ inflow from financing
activities (189) 948
------------- -------------
Net decrease in cash (26) (989)
------------- -------------
Cash and cash equivalents at start of year 57 1,046
------------- -------------
Cash and cash equivalents at end of year 31 57
------------- -------------
Cash and cash equivalents comprise
----- ------------- -------------
Cash at bank and in hand 31 57
------------- -------------
Total cash and cash equivalents 31 57
------------- -------------
The accompanying notes form an integral part of these financial
statements.
Notes to the Accounts
For the year ended 30 September 2021
1. General Information
Gresham House Renewable Energy VCT1 plc ("the VCT") is a Venture
Capital Trust established under the legislation introduced in the
Finance Act 1995 and is domiciled in the United Kingdom and
incorporated in England and Wales under the Companies Act 2006.
During the year the shareholders of the VCT's "twin", Gresham
House Renewable Energy VCT2 plc ("VCT2"), resolved to seek to sell
the assets and distribute the proceeds in due course. The VCT has
incurred some additional costs in the financial year, 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 of
GBP217,000. The Investment Adviser has plans in place to manage
this scenario should it occur. As the Boards of both VCT's were
unable to identify a solution whereby VCT2 could dispose of its
assets on its own, this had the result that this VCT also had to
put up its assets up for sale. At the General Meeting on 13 July
2021 a formal decision was made to wind the VCT up, therefore the
Financial statements have been prepared on a non-going concern
basis for the year ended 30 September 2021. The adjustments
required in respect of this were to transfer the investments held
at fair value through profit or loss from non-current to current
assets.
The financial information contained in this report does not
constitute statutory accounts within the meaning of Section 434 of
the Companies Act 2006. The financial information set out in this
report has been extracted from the Company's 2021 Annual Report and
Financial Statements, which have been approved by the Board of
Directors on 28 January 2022.
The Auditor has reported on 2021 accounts and their report drew
attention by way of emphasis of matter, without qualification of
their report, to the fact that the accounts had been prepared on a
basis other than that of going concern. The Auditor's report was
unqualified and did not contain a statement under sections 498(2)
or (3) of the Companies Act 2006.
The Auditor's report on the 2020 accounts (i) was unqualified;
(ii) did not include a reference to any matters to which the
Auditors drew attention by way of emphasis without qualifying their
report; and (iii) did not contain a statement under sections 498(2)
or (3) of the Companies Act 2006.
2. Accounting policies
Basis of accounting
The VCT has prepared its financial statements under FRS 102 'The
Financial Reporting Standard applicable in the UK and Republic of
Ireland' and in accordance with the Statement of Recommended
Practice "Financial Statements of Investment Trust Companies and
Venture Capital Trusts" issued by the Association of Investment
Companies ("AIC") in November 2014 and revised in October 2019
("SORP") as well as the Companies Act 2006.
The VCT implements new Financial Reporting Standards ("FRS")
issued by the Financial Reporting Council when they become
effective.
The financial statements are presented in Sterling (GBP).
Presentation of income statement
In order to better reflect the activities of a Venture Capital
Trust and in accordance with the SORP, supplementary information
which analyses the Income Statement between items of a revenue and
capital nature has been presented alongside the Income Statement.
The net revenue is the measure the Directors believe appropriate in
assessing the VCT's compliance with certain requirements set out in
Part 6 of the Income Tax Act 2007.
Investments
All investments are designated as "fair value through profit or
loss" assets due to investments being managed and performance
evaluated on a fair value basis. A financial asset is designated
within this category if it is both acquired and managed on a fair
value basis, in accordance with the VCT's documented investment
policy. The fair value of an investment upon acquisition is deemed
to be cost. Thereafter investments are measured at fair value in
accordance with the International Private Equity and Venture
Capital Valuation Guidelines ("IPEV") together with FRS 102
Sections 11 and 12.
For unquoted investments and subsequent to acquisition, fair
value is established by using the IPEV guidelines. The valuation
methodologies for unquoted entities used by the IPEV to ascertain
the fair value of an investment are as follows:
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.
2. Accounting policies (continued)
The methodology applied takes account of the nature, facts and
circumstances of the individual investment and uses reasonable
data, market inputs, assumptions and estimates in order to
ascertain fair value.
Gains and losses arising from changes in fair value are included
in the Income Statement for the year as a capital item and
transaction costs on acquisition or disposal of the investment are
expensed. Where an investee company has gone into receivership or
liquidation, or administration (where there is little likelihood of
recovery), the loss on the investment, although not physically
disposed of, is treated as being realised.
The investee companies held by the VCT are treated as a
portfolio of investments and are therefore measured at fair value
in accordance with section 9 of FRS 102. The results of these
companies are not incorporated into the Income Statement except to
the extent of any income accrued. This is in accordance with the
SORP and FRS 102 sections 14 and 15 that does not require portfolio
investments, where the interest held is greater than 20%, to be
accounted for using the equity method of accounting.
Income
Dividend income from investments is recognised when the
Shareholders' rights to receive payment have been established,
normally the
ex-dividend date.
Interest income is accrued on a time apportionment basis, by
reference to the principal sum outstanding and at the effective
interest rate applicable and only where there is reasonable
certainty of collection in the foreseeable future.
Expenses
All expenses are accounted for on an accruals basis. In respect
of the analysis between revenue and capital items presented within
the Income Statement, all expenses have been presented as revenue
items except as follows:
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 Company'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
2021 2020
GBP'000 GBP'000
Income from investments
------------- -------------
Loan stock interest 54 71
------------- -------------
Dividend income 522 185
------------- -------------
576 256
------------- -------------
4. Investment advisory fees
The investment advisory fees for the year ended 30 September
2021, 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
2021 Year ended 30 September 2020*
---------------------------- ---------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- ---------- ---------- ---------
Investment advisory fees 218 73 291 240 80 320
-------- -------- -------- ---------- ---------- ---------
5. Other expenses
Year ended 30 September
2021 Year ended 30 September 2020
---------------------------- --------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- ---------- --------- ---------
Administration services 98 - 98 138 - 138
-------- -------- -------- ---------- --------- ---------
Directors' remuneration 103 - 103 92 - 92
-------- -------- -------- ---------- --------- ---------
Social security costs 5 - 5 3 - 3
-------- -------- -------- ---------- --------- ---------
Auditor's remuneration for
audit 37 - 37 34 - 34
-------- -------- -------- ---------- --------- ---------
Non audit services - Agreed
upon procedures 3 - 3 - - -
-------- -------- -------- ---------- --------- ---------
Transactions costs - - - - 50 50
-------- -------- -------- ---------- --------- ---------
Other 105 - 105 107 - 107
-------- -------- -------- ---------- --------- ---------
351 - 351 374 50 424
-------- -------- -------- ---------- --------- ---------
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 2021, the annual running costs came to 2.4% of net
assets (2020: 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 above.
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
2021 2020
GBP'000 GBP'000
(a) Tax charge for the year
------------- -------------
UK corporation tax at 19% (2020: 19%) - -
------------- -------------
Charge for the year - -
------------- -------------
(b) Factors affecting tax charge for the year
------------- -------------
Loss on ordinary activities before taxation (2,694) (1,112)
------------- -------------
Tax credit calculated on loss on ordinary activities
before taxation at the applicable rate of 19%
(2020: 19%) (512) (211)
------------- -------------
Effects of:
------------- -------------
UK dividend income (99) (35)
------------- -------------
Losses on investments 499 118
------------- -------------
Excess management expenses on which deferred tax not
recognised 112 128
------------- -------------
Total tax charge - -
------------- -------------
Excess management fees, which are available to be carried
forward and set off against future taxable income, amounted to
GBP4,601,000 (2020: GBP4,376,000). The associated deferred tax
asset of GBP1,150,000 (2020: GBP831,000) 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.
Following the enactment of Finance Act 2021, the Corporation tax
rate will increase to 25% from 1 April 2023, which is the rate that
has been applied in the calculation of the unrecognised deferred
tax asset.
8. Dividends
Year ended 30 September
2021 Year ended 30 September 2020
---------------------------- --------------------------------
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- ---------- --------- ---------
Paid
-------- -------- -------- ---------- --------- ---------
2020 Interim Ordinary -
5.3133p - - - - 1,356 1,356
-------- -------- -------- ---------- --------- ---------
2020 Interim A - 0.4867p - - - - 187 187
-------- -------- -------- ---------- --------- ---------
- - - - 1,543 1,543
-------- -------- -------- ---------- --------- ---------
The Interim 2020 dividends were paid on 31 December 2020 to
Shareholders on the register as at 11 December 2020.
9. Basic and diluted earnings per share
Weighted Capital
average number Revenue (loss)/
of shares loss Pence return Pence
in issue GBP'000 per share GBP'000 per share
Year ended 30 September
2021 Ordinary Shares 25,515,242 7 - (2,701) (10.6)
---------------- --------------- -------- ---------- -------- ----------
'A' Shares 38,512,032 - - - -
----------------------------------------- --------------- -------- ---------- -------- ----------
Year ended 30 September
2020 Ordinary Shares 25,515,242 (358) (1.4) (754) (3.0)
---------------- --------------- -------- ---------- -------- ----------
'A' Shares 38,512,032 - - - -
----------------------------------------- --------------- -------- ---------- -------- ----------
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
2021 2020
Unquoted Unquoted
investments investments
GBP'000 GBP'000
Opening cost at start of the year 13,536 12,050
------------ ------------
Net unrealised gains at start of the year 16,892 17,522
------------ ------------
Opening fair value at start of the year 30,428 29,572
------------ ------------
Movement in the year:
------------ ------------
Purchased at cost* 228 1,615
------------ ------------
Disposals proceeds/redemption of loan notes* (835) (135)
------------ ------------
Realised gains on disposals 16 5
------------ ------------
Net unrealised losses in the income statement (2,644) (629)
------------ ------------
Closing fair value at year end 27,193 30,428
------------ ------------
Closing cost at year end 12,944 13,536
------------ ------------
Net unrealised gains at year end 14,249 16,892
------------ ------------
Closing fair value at year end 27,193 30,428
------------ ------------
*the purchases and disposals include non-cash movements.
During the year, the VCT received GBP836,000 (2020: GBP135,000)
from the disposal of investments comprising of both equity and loan
notes. The cost of these investments at the start of the year was
GBP820,000 (2020: GBP130,000). These investments have been revalued
and measured at fair value over time, and up until the point of
disposal any unrealised gains or losses were included in the fair
value of the investments.
The VCT has categorised its financial instruments using the fair
value hierarchy as follows:
Level 1 Reflects financial instruments quoted in an active
market;
Level 2 Reflects financial instruments that have prices that are
observable either directly or indirectly; and
Level 3 Reflects financial instruments that use valuation
techniques that are not based on observable market data (unquoted
equity investments and loan note investments).
Level Level Level Level Level Level
1 2 3 2021 1 2 3 2020
-------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------- ------- ------- ------- ------- ------- ------- -------
Unquoted loan notes - - 1,686 1,686 - - 1,960 1,960
------- ------- ------- ------- ------- ------- ------- -------
Unquoted equity - - 25,507 25,507 - - 28,468 28,468
------- ------- ------- ------- ------- ------- ------- -------
- - 27,193 27,193 - - 30,428 30,428
------- ------- ------- ------- ------- ------- ------- -------
During the years ended 30 September 2021 and 30 September 2020
there were no transfers between levels.
10. Investments (continued)
A reconciliation of fair value for Level 3 financial instruments
held at the year end is shown below:
Unquoted Unquoted
loan notes equity Total
GBP'000 GBP'000 GBP'000
Balance at 30 September 2020 1,960 28,468 30,428
----------- -------- --------
Movements in the income statement:
----------- -------- --------
Unrealised gains/(losses) in the income statement 330 (2,974) (2,644)
----------- -------- --------
Realised gains in the income statement - 16 16
----------- -------- --------
2,290 25,510 27,800
----------- -------- --------
Additions at cost - 228 228
----------- -------- --------
Sales proceeds/redemption of loan notes (604) (231) (835)
----------- -------- --------
Balance at 30 September 2021 1,686 25,507 27,193
----------- -------- --------
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 2021 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
During the year, the VCT 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.
2021 2020
GBP'000 GBP'000
Cost incurred on sale of VCT's assets 181 -
-------- --------
181 -
-------- --------
12. Debtors
2021 2020
GBP'000 GBP'000
Prepayments and accrued income 60 230
-------- --------
60 230
-------- --------
13. Creditors: amounts falling due within one year
2021 2020
GBP'000 GBP'000
Other loans 1,508 297
-------- --------
Taxation and social security 3 7
-------- --------
Accruals and deferred income 390 63
-------- --------
1,901 367
-------- --------
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:
2021 2020
Investee company Repayment date GBP'000 GBP'000
Hewas Solar Limited n/a^ 131 131
--------------- -------- --------
St Columb Solar Limited n/a^ 20 20
--------------- -------- --------
Ayshford Solar (Holding) Limited n/a^ - 31
--------------- -------- --------
HRE Willow Limited n/a^ 115 115
--------------- -------- --------
n/a^^ 177 -
------------------------------------------------- -------- --------
292 115
------------------------------------------------- -------- --------
Lunar 2 Limited n/a^^ 808 -
--------------- -------- --------
Gloucester Wind Limited n/a^^ 100 -
--------------- -------- --------
Penhale Solar Limited n/a ^^ 105 -
--------------- -------- --------
Minsmere Power Limited n/a^^ 52 -
--------------- -------- --------
Amounts repayable within one
year 1,508 297
-------- --------
^ 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
2021 2020
GBP'000 GBP'000
Other loans 2,534 3,081
-------- --------
2,534 3,081
-------- --------
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:
2021 2020
Investee company Repayment date GBP'000 GBP'000
St Columb Solar Limited 2 February 2023 40 40
------------------ -------- --------
Ayshford Solar (Holding)
Limited 23 September 2021 - -
------------------ -------- --------
13 October 2021 - 20
------------------------------------------------ -------- --------
11 September 2022 - 300
------------------------------------------------ -------- --------
28 September 2022 - 50
------------------------------------------------ -------- --------
22 February 2023 3 180
------------------------------------------------ -------- --------
3 550
------------------------------------------------ -------- --------
Minsmere Power Limited 14 January 2025 50 50
------------------ -------- --------
Lunar 2 Limited 18 December 2024 1,543 1,543
------------------ -------- --------
14 January 2025 473 473
------------------------------------------------ -------- --------
1 April 2025 50 50
------------------------------------------------ -------- --------
23 April 2025 100 100
------------------------------------------------ -------- --------
2,166 2,166
------------------------------------------------ -------- --------
Gloucester Wind Limited 14 January 2025 200 200
------------------ -------- --------
Penhale Solar Limited 14 January 2025 75 75
------------------ -------- --------
Amounts repayable after more
than one year 2,534 3,081
-------- --------
15. Called up share capital
2021 2020
GBP'000 GBP'000
Allotted, called up and fully-paid:
-------- --------
25,515,242 (2020: 25,515,242) Ordinary Shares of 0.1p
each 28 28
-------- --------
38,512,032 (2020: 38,512,032) 'A' Shares of 0.1p each 41 41
-------- --------
69 69
-------- --------
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 above. 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 2021
the VCT did not repurchase any Ordinary Shares or 'A' Shares .
During the year ended 30 September 2021 the VCT issued no
Ordinary 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 GBP5,000; or
b) be less than an amount being equivalent to 0.25p per 'A' Share
then the 'A' Dividend amount shall not be declared and paid, but
shall be aggregated with any 'A' Share Entitlement and retained by
the VCT until either threshold is reached. No interest shall accrue
on any 'A' Share Entitlement.
The VCT does not have any externally imposed capital
requirements.
16. Reserves
2021 2020
GBP'000 GBP'000
Share premium account 9,541 9,541
-------- --------
Treasury shares (2,991) (2,991)
-------- --------
Special reserve 4,171 5,714
-------- --------
Revaluation reserve 15,056 16,893
-------- --------
Capital redemption reserve 3 3
-------- --------
Capital reserve - realised (2,239) (1,426)
-------- --------
Revenue reserve (580) (536)
-------- --------
22,961 27,198
-------- --------
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 2021, distributable reserves were GBP1,352,000 (2020:
GBP3,752,000).
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
2021 2020 2021 2020
---------- ---------- ------------------- -------------------
Shares in issue Net asset value Net asset value
---------------------- ------------------- -------------------
Pence Pence
per share GBP'000 per share GBP'000
---------- ---------- ---------- ------- ---------- -------
Ordinary Shares 25,515,242 25,515,242 90.1p 22,991 106.7 27,229
---------- ---------- ---------- ------- ---------- -------
'A' Shares 38,512,032 38,512,032 0.1p 39 0.1 38
---------- ---------- ---------- ------- ---------- -------
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 2021:
2021 2021 2020 2020
Cost Value Cost Value
GBP'000 GBP'000 GBP'000 GBP'000
Assets at fair value through profit
or loss 12,944 27,193 13,536 30,428
-------- -------- -------- --------
Other financial liabilities (337) (337) (58) (58)
-------- -------- -------- --------
Cash at bank 31 31 57 57
-------- -------- -------- --------
Other loans (4,042) (4,042) (3,378) (3,378)
-------- -------- -------- --------
Total 8,596 22,845 10,157 27,049
-------- -------- -------- --------
The VCT's financial instruments comprise investments held at
fair value through profit or loss, being equity and loan stock
investments in unquoted companies, loans and receivables consisting
of short term debtors, cash deposits and financial liabilities
being creditors arising from its operations. 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 overleaf.
Market risks
As a Venture Capital Trust, the VCT is exposed to investment
risks in the form of potential losses and gains that may arise on
the investments it holds in accordance with its investment policy.
The management of these investment risks is a fundamental part of
investment activities undertaken by the Investment Adviser and
overseen by the Board. The Adviser monitors investments through
regular contact with management of investee companies, regular
review of management accounts and other financial information and
attendance at investee company board meetings. This enables the
Adviser to manage the investment risk in respect of individual
investments. Investment risk is also mitigated by holding a
diversified portfolio spread across various operating sites across
several asset classes.
The key investment risks to which the VCT is exposed are:
Investment price risk; and
Interest rate risk.
18. Financial instruments (continued)
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 2021, the unquoted portfolio was valued at
GBP27,193,000 (2020: GBP30,428,000). The key inputs to the
valuation model are discount rates, inflation, irradiation,
degradation, power prices and asset life. The Board has undertaken
a sensitivity analysis into the effects of fluctuations in these
inputs.
The analysis below is provided to illustrate the sensitivity of
the fair value of investments to an individual input, while all
other variables remain constant. The Board considers these changes
in inputs to be within reasonable expected ranges. This is not
intended to imply the likelihood of change or that possible changes
in value would be restricted to this range. The possible effects
are quantified below:
Change in
fair value Change in
of NAV per
Change in investments share
Input Base case input GBP'000 pence
Discount rate 5.75% - 6.75% +0.5% (818) (3.2)
------------------ --------- ------------ ---------
-0.5% 868 3.4
--------------------------------- --------- ------------ ---------
Inflation 3.1% - 4.00% +0.5% 925 3.6
------------------ --------- ------------ ---------
-0.5% (884) (3.5)
--------------------------------- --------- ------------ ---------
Irradiation 785 - 1,270kWh/m2 +1.0% 594 2.3
------------------ --------- ------------ ---------
-1.0% (594) (2.3)
--------------------------------- --------- ------------ ---------
Degradation 0.30% - 0.40% +0.1% (704) (2.8)
------------------ --------- ------------ ---------
-0.1% 714 2.8
--------------------------------- --------- ------------ ---------
Power prices GBP36 - GBP64/MWh +10.0% 703 2.8
------------------ --------- ------------ ---------
-10.0% (673) (2.6)
--------------------------------- --------- ------------ ---------
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. 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 (on average 25 years) 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.
18. Financial instruments (continued)
Average
interest Average period 2021 2020
rate until maturity GBP'000 GBP'000
Fixed rate 8% 3,522 days 459 797
--------- --------------- -------- --------
Floating rate 0% 31 57
--------- --------------- -------- --------
No interest rate 22,355 26,195
--------- --------------- -------- --------
22,845 27,049
--------- --------------- -------- --------
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 GBP310 (2020:
GBP570). As at 30 September 2021 the Bank of England base rate was
0.1%, the base rate increased from 0.1% to 0.25% on 15 December
2021. Any potential change in the base rate, at the current level,
would have an immaterial impact on the net assets and total return
of the VCT.
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument is unable to discharge a commitment to the VCT made
under that instrument. The VCT is exposed to credit risk through
its holdings of loan stock in investee companies, cash deposits and
debtors. Credit risk relating to loan stock in investee companies
is considered to be part of market risk as the performance of the
underlying SPVs impacts the carrying values.
The VCT's financial assets that are exposed to credit risk are
summarised as follows:
2021 2020
GBP'000 GBP'000
Investments in loan stocks 1,686 1,960
-------- --------
Cash and cash equivalents 31 57
-------- --------
Interest, dividends and other receivables 54 225
-------- --------
1,771 2,242
-------- --------
The Adviser manages credit risk in respect of loan stock with a
similar approach as described under "Market risks". Similarly, the
management of credit risk associated with interest, dividends and
other receivables is covered within the investment advisory
procedures. The level of security is a key means of managing credit
risk. Additionally, the risk is mitigated by the security of the
assets in the underlying investee companies.
Cash is held by the Royal Bank of Scotland plc which is an
investment grade rated financial institution. Consequently, the
Directors consider that the credit risk associated with cash
deposits is low.
There have been no changes in fair value during the year that
are directly attributable to changes in credit risk. Any balances
that are past due are disclosed further under liquidity risk.
There have been no loan investments for which the terms have
been renegotiated during the year.
Liquidity risk
Liquidity risk is the risk that the VCT encounters difficulties
in meeting obligations associated with its financial liabilities.
Liquidity risk may also arise from either the inability to sell
financial instruments when required at their fair values or from
the inability to generate cash inflows as required.
The VCT has a relatively low level of creditors being GBP390,000
(2020: GBP63,000) and has both short-term and long-term loans from
investee companies (see Notes 13 and 14 for an analysis of the
repayment terms), which have either been repaid at the date of this
report or are expected to be repaid by way of future dividends
from, or the sale of, these companies, being GBP4,042,000 (2020:
GBP3,378,000). 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.
18. Financial instruments (continued)
The following table analyses the VCT's loan payables by
contractual maturity date:
Due in Due between
less than 1 year and Due after
1 year 5 years 5 years Total
As at 30 September 2021 GBP'000 GBP'000 GBP'000 GBP'000
Loans payable to investee companies 1,508 2,534 - 4,042
---------- ----------- --------- --------
1,508 2,534 - 4,042
---------- ----------- --------- --------
Due in Due between
less than 1 year and Due after
1 year 5 years 5 years Total
As at 30 September 2020 GBP'000 GBP'000 GBP'000 GBP'000
Loans payable to investee companies 297 590 2,491 3,378
---------- ----------- --------- --------
297 590 2,491 3,378
---------- ----------- --------- --------
Although the VCT's investments are not held to meet the VCT's
liquidity requirements, the table below shows an analysis of the
assets, highlighting the length of time that it could take the VCT
to realise its assets if it were required to do so.
The carrying value of loan stock investments held at fair value
through the profit or loss account at 30 September 2021 as analysed
by the expected maturity date is as follows:
Not later Between Between Between More
than 1 and 2 and 3 and than
1 year 2 years 3 years 5 years 5 years Total
As at 30 September 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fully performing loan stock 1,686 - - - - 1,686
--------- -------- -------- -------- -------- --------
Past due loan stock - - - - - -
--------- -------- -------- -------- -------- --------
1,686 - - - - 1,686
--------- -------- -------- -------- -------- --------
Not later Between Between Between More
than 1 and 2 and 3 and than
1 year 2 years 3 years 5 years 5 years Total
As at 30 September 2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Fully performing loan stock - - - 1,100 860 1,960
--------- -------- -------- -------- -------- --------
Past due loan stock - - - - - -
--------- -------- -------- -------- -------- --------
- - - 1,100 860 1,960
--------- -------- -------- -------- -------- --------
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; and for the VCT effective 1
October 2019) of which is and must be, and remain, invested in the
relatively high risk asset class of small UK companies within three
years of that capital being subscribed. The VCT accordingly has
limited scope to manage its capital structure in the light of
changes in economic conditions and the risk characteristics of the
underlying assets. Subject to this overall constraint upon changing
the capital structure, the VCT may adjust the amount of dividends
paid to Shareholders, return capital to Shareholders, issue new
shares, or sell assets if so required to maintain a level of
liquidity.
As the Investment Policy implies, the Board would consider
levels of gearing. As at 30 September 2021 the VCT had loans from
investee companies of GBP4,042,000 (2020: GBP3,378,000). 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 2021, the VCT had no contingencies or guarantees
(2020: None). At the year end, the VCT had financial commitments
towards the external advisors used for the sale of the VCT's assets
of GBP161,000 (2020: none). As at the date of this report, these
commitments had increased to GBP217,000.
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 above.
22. Significant interests
Details of shareholdings in those companies where the VCT's
holding, as at 30 September 2021, 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
above. 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.
Proportion
Registered Class of Number of Capital and Profit/(loss)
Company office shares held class held reserves for the year
St Columb Solar Limited EC4A 3TW Ordinary 649,999 50% GBP990,000 (GBP110,000)
----------- --------- ------- ----------- ------------ -------------
Penhale Solar Limited EC4A 3TW Ordinary 299,601 50% GBP570,000 GBP25,000
----------- --------- ------- ----------- ------------ -------------
Minsmere Power Limited EC4A 3TW Ordinary 200,001 50% GBP105,000 (GBP86,000)
----------- --------- ------- ----------- ------------ -------------
Small Wind Generation Limited EC4A 3TW Ordinary 840,001 50% (GBP512,000) (GBP27,000)
----------- --------- ------- ----------- ------------ -------------
Lunar 3 Limited EC4A 3TW Ordinary 100 50% GBPnil GBPnil
----------- --------- ------- ----------- ------------ -------------
Explanatory notes
The financial information, Capital and reserves and Profit/(loss
for the year), has been sourced from the statutory accounts of the
underlying investee companies. The financial information disclosed
relates to accounting year ending 31 March 2021.
23. Net debt reconciliation
Other
1 October non-cash 30 September
2020 Cashflows changes 2021
GBP'000 GBP'000 GBP'000 GBP'000
Cash at bank and in hand 57 (26) - 31
--------- --------- --------- ------------
Other loans 3,378 1,354 (690) 4,042
--------- --------- --------- ------------
Non-cash movements relate to other loans.
24. Events after the end of the reporting period
bio-bean Limited closed a GBP1.3m funding round in September
2021.The VCT committed to invest GBP67,500 at that time and the
funds were paid to the company in December 2021.
Three offers to buy the solar assets were received by the VCT
after the end of the reporting period. In December 2021, the Board
entered into an exclusivity agreement with one of the parties so
that the party could complete the remainder of its due diligence.
The Board, with support from the Investment Adviser as well as
third party advisers, will seek to secure the best returns possible
for shareholders.
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END
FR FLFVDLFITFIF
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January 28, 2022 12:41 ET (17:41 GMT)
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