TIDMVEN TIDMVENC TIDMV
RNS Number : 9908X
Ventus VCT plc
07 May 2021
MULTIPLE NON MATERIAL TEXT AMMENTS
A number of non material typographical changes have been made to
the 'QUESTIONS PURSUANT TO THE CIRCULAR' announcement released on
07 May 2021 at 15:35 under RNS No 9769X
The changes are identified with an asterisk (*).
The full amended text is shown below.
-------------------------------------------------------------------
VENTUS VCT PLC & VENTUS 2 VCT PLC (THE "COMPANIES") -
QUESTIONS RAISED BY SHAREHOLDERS PURSUANT TO THE CIRCULAR DATED 13
APRIL 2021:
QUESTION 1
Why is the Ventus expense ratio so much higher than for an
infrastructure fund? (The total TER for Greencoat appears to be
less than the investment manager fee for Temporis and yet there
must be less work if there is no asset renewal or purchase
programme). There is no reference in the circular to investigating
other options around a low cost management of the funds that would
capture the value of the life extensions and repowering.
ANSWER 1
These questions have been considered carefully by the Boards
over the last 2 years and have been answered extensively in
previous releases.
The Companies have significant fixed costs, including those that
are incurred to fulfil their requirement to be listed on the London
Stock Exchange that are relatively constant irrespective of size.
The last reported NAV for Ventus VCT plc was GBP34.2m. By
comparison, Greencoat UK Wind plc is 65 times larger with an NAV of
GBP2,229.9m.
The Boards have negotiated a lower investment management fee and
reduced other fund level costs where possible.
As detailed in in the 31 July 2020 RNS, the Boards also
carefully reviewed the possibility of reducing costs by directly
managing the assets before entering into the contract extension
with Temporis Capital Limited ("Temporis"). Some of the reasons set
out in that RNS as to why the Boards determined that the extended
Investment Management Agreement term was a better outcome for
Shareholders are stated again below:
- The savings of self-management relative to the extended term
are estimated to have a present value equivalent to approximately
1% of NAV in the next 5 years.
- These potential savings are small relative to the wide range
of risks that the Companies are exposed to.
- Temporis provide a resilient resourced service with access to
an experienced team of over 20 people across four different
functional areas, whereas self-management would be dependent on the
performance and availability of a small number of individuals.
- Self-management would increase uncertainty. There is no
precedent for self-management of a comparable VCT. The Companies
own shares in a number of investee companies that do not have
executive management teams and the Investment Manager is involved
continuously in their operation.
- Temporis continues to perform well in its role as Investment Manager.
QUESTION 2
Could you please provide a sensitivity with a 10% and 20%
increase and decrease in the price of power for the continuation
and sale scenarios.
ANSWER 2
In the estimated continuation case presented in the Circular, a
10% increase in forecast power prices would increase the annual
return to Shareholders to approximately 4% to the next continuation
vote.
It is not possible to identify specifically what impact changes
in forecast power prices would have on the sales process, as there
are many other variables involved. The Investment Manager's Report
contained within the unaudited interim financial statements for the
period ended 31 August 2020 for each Company showed the effect of
both 10% and 20% increases and decreases in forecast power prices
on the NAVs.
The same text also stated that "in the last 10 years, power
prices and discount rates have both fallen, continually setting new
lows. This can perhaps be explained by investors believing that
lower power price forecasts have lower embedded risk, and therefore
they are prepared to value the forecast revenues at lower discount
rates. Equally, the fall in discount rates could be, at least in
part, attributed to the fall in interest rates over the same period
to near zero today."
The Boards note that forecast power prices and interest rates
are volatile, but that potential buyers are currently prepared to
take constructive views of these inputs. As stated in the Circular
"the secondary market for the assets owned by the Companies......is
in the opinion of the Boards, the Investment Manager and several
financial advisers, currently considered to be very favourable for
sellers of assets similar to those owned by the Companies."
QUESTION 3
Could the Boards please give examples of the "larger
infrastructure funds" in Part I section 4 (page 10) of the Circular
(accepting that no recommendation is expressed or implied)?
ANSWER 3
The larger listed renewable energy focused companies which could
be considered to fit this description are Greencoat UK Wind plc,
JLEN Environmental Assets Group Ltd and The Renewable
Infrastructure Group plc.
QUESTION 4
You indicate that the alternative strategy would merely be a
deferment for 5 years of an asset sale, but surely another
alternative is to keep going for much longer at much reduced costs
capturing the value from repowering and life extensions. Why has
this scenario not been presented to shareholders?
The 5 year timeframe for the continuation scenario is presented
as the Companies' Articles require another continuation vote to be
held in 2025. As explained in the Circular, the combination of
falling NAVs due to the limited life of the assets and the amount
of fixed costs the Companies incur will cause the Total Expense
Ratio ("TER") - being the Companies' total costs as a percentage of
the Companies' NAV - to increase in the future. As noted in the
Circular this will erode Shareholder returns and impact the benefit
of the tax free dividend stream, further strengthening the
rationale that this is the optimal time to sell the assets. The
Circular states that the TER will rise from around 2.3% of the
Companies' NAVs in the near term to in excess of 3.0% in the long
term.
The response to Question 1 addresses the question of cost
reduction.
The estimated NAV uplift from increasing the wind asset
operational lives to 30 years is included within the 2025
continuation scenario included in the Circular. Equally, the strong
secondary market for assets suggests it can be inferred that the
potential for future value creation from asset life extension is
included in transaction prices.*
QUESTION 5
Can you please set out the implications (and specifically how
much would be payable) on the performance fee under the 2 scenarios
of continuation for the coming 5 years / and wind up at a range of
prices including the base case you have presented to shareholders?
It seems to me that a sale at hopefully the levels you envisage
will trigger a large performance fee payout to the manager in this
single year as there will be one-off super-increase in Earnings,
whereas Earnings' increases are likely to be spread over a number
of years in alternative scenarios, with either no performance fee,
or a significantly reduced one, payable. (See my rationale for this
at the foot of the email, and if these assumptions are not valid,
please explain why).
ANSWER 5
The estimated returns and proceeds in the continuation and sale
scenarios included in the Circular are presented net of estimated
incentive fees due to the Investment Manager.
In arriving at the decision to propose the sale of the assets
and discontinuance of the Companies the Boards have focused on
outcomes for all Shareholders rather than transaction paths based
on fees payable to the Investment Manager.
An incentive fee is payable in any year in which earnings exceed
7p after the cumulative 60p hurdle is met. Therefore, an incentive
fee will be payable in any year in which there is a significant
increase in the NAV. An increase in the NAV may occur from the
realisation of assets, or from changes in the assumptions that are
used to calculate the NAV.
The financial statements for the year ended 29 February 2020
state "The key assumptions that have a significant impact on
discounted cash flow valuations for these assets are the discount
rate, the inflation rate, the price at which the power and
associated benefits can be sold, the amount of electricity the
investee companies' generating assets are expected to produce, the
length of the operating life of the assets and operating costs."
The Companies' valuation policy (based on The International Private
Equity and Venture Capital Valuation Guidelines) requires the
consideration of observable market inputs into determining the
appropriate assumptions to use, and these are then reviewed and
verified by the auditors.
In accordance with the Companies' valuation policy to consider
comparable valuation inputs observed in the market, the Boards
expect the NAVs to increase in the year ending 28 February 2021 and
therefore the Boards expect an incentive fee will become due in
that financial year, irrespective of whether a transaction takes
place. The Boards expect the financial statements for the period
ended 28 February 2021 to be published in early June 2021 and these
financial statements are still currently subject to an ongoing
audit and Board approval process. *
In the event that the portfolio is sold in the year ending 28
February 2022, a further incentive fee may or may not become
payable, depending on the final value achieved and the date of the
sale(s).
QUESTION 6
The 2 Gresham House renewable VCTs have been forced into an
asset sale process by the shareholders of one of the two funds. Do
you think this has any implications for the Ventus funds? Is there
any merit in any joint marketing of the assets (assuming
shareholders approve that direction) as it may be more attractive
to larger infrastructure funds? Or is the opposite the case with a
"swamping" of the market?
ANSWER 6
Each Company's proposed resolution is conditional on the other
Company's resolution also passing, therefore there is no risk of
the adverse scenario of one Company voting to sell while the other
Company votes to continue.
EY are mandated to sell the assets of both Companies at once,
subject to Shareholder approval. The assets of the Companies are
small relative to the size of secondary market, and there is no
risk that the sale of all the assets could have a swamping
effect.
Market Abuse Regulation
The information contained within this announcement is deemed by
the Companies to constitute inside information as stipulated under
the UK version of Market Abuse Regulation (EU) No. 596/2014. Upon
the publication of this announcement, this inside information is
now considered to be in the public domain.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
MSCUBVNRAWUVRAR
(END) Dow Jones Newswires
May 07, 2021 13:02 ET (17:02 GMT)
Ventus Vct (LSE:VEN)
Historical Stock Chart
From Sep 2024 to Oct 2024
Ventus Vct (LSE:VEN)
Historical Stock Chart
From Oct 2023 to Oct 2024