TIDMHR2O
Hazel Renewable Energy VCT2 plc
LEI: 213800GQ3JQE2M214C75
Half-Yearly Report for the six months ended 31 March 2018
Performance summary
28 June 31 Mar 30 Sep 31 Mar
2018 2018 2017 2017
Pence Pence Pence
Net asset value per Ordinary Share 113.4 114.9 115.5
Net asset value per 'A' Share 0.1 0.1 0.1
Cumulative dividends * 39.5 39.5 34.5
Total Return * 153.0 154.5 150.1
Share Price - Ordinary (HR2O) 112.0p 112.0p 106.5p 103.0p
Share Price - A Shares (HR2A) 5.05p 5.05p 5.05p 5.05p
* for a holding of one Ordinary Share and A Share
CHAIRMAN'S STATEMENT
I am pleased to present the Company's Half-Yearly Report for the
six-month period ended 31 March 2018.
Investment portfolio
At the period end, the Company continued to hold a portfolio of 16
investments, which were valued at GBP30.1 million. There were no
additions to, or full disposals from, the portfolio during the period,
however two loan note investments were partially redeemed, at par,
during the period.
The Board has reviewed the investment valuations at the half-year date.
Adjustments have been made for cash that has been paid to the Company
from the investee companies, as dividends during the period. The
adjustments were equivalent to approximately a 2% reduction in fair
value. Apart from this, no changes to the valuation of the underlying
projects have been considered necessary at this time.
A large proportion of the underlying assets owned by the investee
companies are solar assets. Irradiation levels over the six-month period
have generally been lower than expected, contributing to net revenues
from all the assets over the period coming in 11.5% lower than budget.
However, as irradiation is naturally lower during the winter months and
these months are only expected to produce a small proportion of the
annual electricity generation and income, this shortfall is not
considered significant and could be made up during the summer months.
Indeed, irradiation levels since the period end have been ahead of
expectation.
Further detail on the investments is provided in the Investment
Advisor's Report.
Net asset value and results
At 31 March 2018, the net asset value ("NAV") per Ordinary Share stood
at 113.4p and the NAV per 'A' Share stood at 0.1p, producing a combined
total of 113.5p. This represents a decrease of 1.5p since 30 September
2017.
The decrease in NAV is to be expected as the running costs of the VCT
for this period, have exceeded income and gains from the portfolio.
Further detail on the performance of the investee companies is given in
the Investment Advisers Report. Total Return (total NAV plus cumulative
dividends paid to date) stands at 153.0p for a holding of one Ordinary
Share and one 'A' Share, compared to the cost for subscribers in the
original share offer, net of income tax relief, of 70.0p. This
represents an annualised tax-free return (IRR) of 6.9%, or 13.2% when
taking into account the initial tax relief.
Share Buybacks
As part of the reorganisation in 2017, the Board reviewed the Company's
share buyback policy. In the last Annual Report, the Board stated that
it aims to buy-in shares that become available in the market, at a
discount of approximately 2% to the latest published NAV. This policy is
subject to market conditions, the Company having sufficient liquidity
for dividends and other commitments and being able to comply with all
relevant regulations, in particular those relating to VCT qualifying
status.
During the period the Company purchased a total of 2,466,228 Ordinary
Shares at an average price of 112.6p per share and a total of 2,466,228
'A' Shares at an average price of 0.1p.
Fundraising
In March, the Company identified an opportunity to undertake a small
Top-up Offer for Subscription. This was launched on 14 March 2018 and
reached full capacity a few days after launch. A total of GBP1.7m was
raised by the Company, alongside the GBP2.5m raised by the sister
company, Hazel Renewable Energy VCT1 plc ("Hazel1"). 1,370,434 Ordinary
and 'A' Shares were issued during April 2018 in respect of this offer.
These new funds help to finance the running of the Company, support the
investee companies and potentially allow the Company to consider new
opportunities that may arise.
Dividends
In recent years the Company has paid its annual dividend in September.
This is not well synchronised with the cyclical pattern of income
generated by the Company's underlying investments. Most income is
produced in the July to September quarter, and is paid to the investee
companies in November. The Board has therefore decided to pay future
annual dividends in December, when most of the annual income flows have
been received.
Accordingly, no dividend is being announced at this point. The Board
expects to announce the annual dividend in November. The quantum of the
dividend will depend on the levels of income generated over the summer
months. The Company continues to target a dividend of at least 5.0p per
annum.
Outlook
Following the successful reorganisation of the Company, alongside Hazel
VCT1, the Board and the Investment Adviser are now working together on
the strategy for the future, that will seek to deliver maximum value for
Shareholders.
In addition, going forward, we will be paying particular attention to
keeping Shareholders informed of the VCT's progress. To date, Downing
LLP, as administrator, has provided the online information for the VCTs.
Gresham House is working on a new website for the VCT, to be contained
within their website. This will include all the information you will
need to keep abreast of developments in the VCTs. It is expected to be
up and running during the course of the summer. Furthermore, we will be
sending out, and posting online, updates between the Annual and
Half-Yearly Reports, to keep you fully informed.
The task of ensuring that the Company complies with the latest VCT
regulations is challenging and places significant restrictions on the
Company, which must continue to meet the VCT rules at all times, so as
to preserve the tax benefits for Shareholders.
Despite these restrictions, the Investment Adviser believes that returns
from the portfolio can continue to be maintained, and potentially
enhanced, by close monitoring of the assets, to ensure that performance
is optimised and costs are tightly controlled.
As mentioned above, the Company expects to announce its annual dividend
in November, and will notify Shareholders at that time.
Christian Yates
Chairman
INVESTMENT ADVISER'S REPORT
The Adviser reports below on the performance of the portfolio of assets
owned by Hazel Renewable Energy VCT1 ("Company") in the half-year ending
31 March 2018. This report analyses performance by the various sites in
which the Company has a stake.
Performance
The solar generation assets, that account for circa 93% of the Company's
NAV, performed 3.6% worse than forecasted during the half-year.
The entire underperformance can be explained by low irradiation
conditions and the effect of a grid level outage, covered by business
interruption insurance, at Wychwood, one of the two smallest
ground-mounted solar assets.
Macro Level Factors
Macro level factors are outside of the Company's control and these were
unfavourable overall.
The UK has been going through a period of generally low solar
irradiation conditions in the last two years, and the last six months
have also been poor in this regard. There are pyranometers installed on
all eight ground-mounted solar sites in the portfolio, and their
readings indicate weighted average (by capacity) irradiation of 2.7%
below forecast in the period.
The macro level variable that worked out in the Company's favour was
inflation. The Feed-in-Tariffs ("FiTs") and Renewable Obligation
Certificates ("ROCs") earned by the Company are adjusted in line with
Retail Price Inflation ("RPI") every April. The exact RPI level used is
that published by the Office of National Statistics in December, which
this time coincided with the peak of recent RPI releases at 4.1%. The
portfolio valuation models assume long term inflation of three percent.
This will add circa GBP100,000 to forecast portfolio revenues if all
else remains the same.
The third macro-level variable is power prices. These fluctuated
significantly during the period, however on average they were lower by
5% compared to the six-month period ending 31 March 2017. This had
little negative impact on the portfolio, as over 80% of the NAV is
concentrated in projects remunerated under the FIT regime, where in
excess of 90% of revenues are fixed.
Finally, the ROC recycle price (which has a minor effect on two of the
eight ground-mounted solar projects) rebounded from zero to the ten
percent.
Overall the net effect of the above factors was a shortfall in total
portfolio revenues of GBP389,893, resulting in total revenue from the
investee companies of GBP3,001,801 compared with a budget of
GBP3,391,694. During the period there were no material differences
between actual and budgeted costs. Solar irradiation in May has been
above average and it is hoped that over the course of the summer, income
will be made up by higher levels of irradiation.
Technical Performance of the Assets
Performance of the asset base was mixed. A straightforward way of
measuring technical performance is to adjust the figures for performance
versus the financial model, by measured irradiation versus forecast. If
the resulting number is above 100%, the asset has performed better than
irradiation conditions suggest and if the number is lower than 100%, the
asset has performed worse than irradiation conditions suggest.
On a weighted (by generation) basis, and adjusted for irradiation, the
ground-mounted solar assets performed slightly worse than forecast with
a 0.9% shortfall.
The Wychwood site experienced a 2.5-month long outage due to an outage
at the grid level, and therefore outside of the Company's control. These
types of outages are covered by business interruption insurance. The
claim for this was approved by the insurer.
The Lake Farm site had experienced an outage for the same reason last
summer. The insurance claim for that was also approved and the proceeds
were received in April.
The Lake Farm, South Marston, Priory Farm and Parsonage sites performed
better than expected given the irradiation conditions.
The Kingston site suffered an outage due to the HV cables at the site
short circuiting due to poor original installation. This was repaired
within eight days and prompted a testing process of HV cables at all
ground-mounted sites to prevent a repeat of this situation.
The Beechgrove site suffered from a problem that repeats whenever very
damp conditions are present - some of the DC connectors on the modules
are affected by moisture. This is very difficult to address in a cost
effective (without leading to an outage of long duration) manner.
Following on from the technical risk management strategy put into action
last year, the Adviser prepared a comprehensive technical study of the
asset base and reported to the Board in March.
An important area of focus was the decision criteria for preventative
maintenance capital expenditure for all the key components of the sites.
The ground-mounted sites are of high build quality and inverter failure
rates are very low, however these are expected to increase as they are
between four and seven years into the ten-year expected life of the
inverters. There are reserves in place under the debt facility
agreements to replace inverters and replacements, however the Company
seeks to not use up these reserves faster than necessary and to minimise
downtime.
Steady progress was made on reducing the number of non-performing solar
rooftop installations during the six-month period. Repairs were carried
out on all properties where housing association tenants allowed the
contractor access. These repairs are expected to increase revenues from
this group of installations by 2.5%.
The small wind fleet which accounts for circa seven percent of the Net
Asset Value continued to perform poorly, with the 95 Huaying HY-5
turbines offline. The shortfall between actual revenues and revenues
forecast at the time of the original investments in the 2001 to 2013
period was GBP192,739. The Adviser commissioned an inspection programme
to identify those assets that could be safely put back into service at a
reasonable cost and decided to set the bar at six years in terms of the
payback period of the additional investment required. With all but 12 of
the 95 turbines inspected, 60 will be repaired over the summer and
autumn months, with circa GBP160,000 earmarked for this. The
contribution to revenues, once all the repairs are completed, is
expected to be circa GBP40,000 per year.
Costs
The Adviser has been working over the past two years to reduce the cost
base as much as possible with the main area of focus being operations
and maintenance. In February, Baywa, which was appointed last year, was
given a five-year contract, thus locking in the rate negotiated last
year (which was around 60% lower than the rate that applied to the first
five years of the projects).
The Adviser also replaced Anesco with Silverstone Green Energy as the
Operations and Maintenance Contractor for the small Wychwood and
Parsonage sites. Silverstone emerged from the tender as the best option.
Recent Developments
Since the period end, a Top-Up offer was successfully completed at full
capacity. This has provided the Company with some funds that are
available for new investment, for which we continue to evaluate
potential VCT-qualifying investment opportunities. Meanwhile we will
monitor the assets vigorously with the purpose of further maximising
yield.
Gresham House Asset Management Limited
UNAUDITED BALANCE SHEET
as at 31 March 2018
31 Mar 31 Mar 30 Sep
2018 2017 2017
GBP'000 GBP'000 GBP'000
Fixed assets
Investments 30,096 30,941 31,390
Current assets
Debtors 415 484 447
Cash at bank and in hand 1,600 7 88
1,991 491 535
Creditors: amounts falling due within one year (294) (45) (68)
Net current assets 1,697 446 467
Total assets less net current assets 31,793 31,387 31,857
Creditors: amounts falling due after more than one
year (5,185) (3,045) (3,660)
Net assets 26,632 28,342 28,197
Capital and reserves
Called up share capital 62 62 62
Share premium 3,985 3,985 3,985
Funds held in respect of shares not yet allotted 1,598 - -
Treasury Shares (2,792) - -
Special reserve 9,840 11,065 9,840
Revaluation reserve 14,865 14,466 15,504
Capital reserve - realised (1,241) (1,187) (1,200)
Revenue reserve 315 (49) 6
Equity shareholders' funds 26,632 28,342 28,197
Net asset value per Ordinary Share 113.4p 115.5p 114.9p
Net asset value per 'A' Share 0.1p 0.1p 0.1p
113.5p 115.6p 115.0p
STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 March 2018
Share Shares Capital
Called up Premium not yet Treasury Special Revaluation Reserve Revenue
Share capital account allotted Shares reserve reserve -realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 30
September
2016 62 3,985 - - 11,065 14,466 (1,057) 249 28,770
Total
comprehensive
income - - - - - 992 (97) (243) 652
Transactions
with owners
Dividends paid - - - - (1,225) - - - (1,225)
Transfer
between
reserves - - - - - 46 (46) - -
As at 30
September
2017 62 3,985 - - 9,840 15,504 (1,200) 6 28,197
Total
comprehensive
income - - - - - (639) (41) 309 (371)
Fundraising
proceeds - - 1,598 - - - - 1,598
Transactions
with owners
Repurchase of
shares - - - (2,792) - - - (2,792)
As at 31 March
2018 62 3,985 1,598 (2,792) 9,840 14,865 (1,241) 315 26,632
UNAUDITED INCOME STATEMENT
for the six months ended 31 March 2018
Year
ended
Six months ended Six months ended 30 Sep
31 Mar 2018 31 Mar 2017 2017
Revenue Capital Total Revenue Capital Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 701 - 701 6 - 6 492
(Losses)/gains on investments
Unrealised - (639) (639) - - - 992
Realised - 5 5 - - - 46
701 (634) 67 6 - 6 1,530
Investment advisory fees (139) (46) (185) (215) (72) (287) (570)
Other expenses (253) - (253) (89) (58) (147) (308)
Return/(loss) on ordinary
activities before taxation 309 (680) (371) (298) (130) (428) 652
Tax on total comprehensive income and ordinary
activities - - - - - - -
Return/(loss) for the period and total comprehensive
income 309 (680) (371) (298) (130) (428) 652
Return per Ordinary Share 1.3p (2.8p) (1.5p) (1.2p) (0.6p) (1.8p) 2.6p
Return per 'A' Share - - - - - - -
The total column within the Income Statement represents the Statement of
Total Comprehensive Income of the Company prepared in accordance with
Financial Reporting Standards ("FRS 102"). The supplementary revenue and
capital return columns are prepared in accordance with the Statement of
Recommended Practice issued in November 2014 by the Association of
Investment Companies ("AIC SORP").
A Statement of Total Recognised Gains and Losses has not been prepared
as all gains and losses are recognised in the Income Statement as noted
above.
UNAUDITED STATEMENT OF CASH FLOWS
for the six months ended 31 March 2018
31 Mar 31 Mar 30 Sep
2018 2017 2017
GBP'000 GBP'000 GBP'000
(Loss)/return on ordinary activities before
taxation (371) (428) 652
Losses/(gains) on investments 634 - (1,038)
Decrease/(increase) in other debtors 32 (63) (26)
Decrease in other creditors (26) (115) (92)
Net cash inflow/(outflow) from operating
activities 269 (606) (504)
Cash flows from investing activities
Purchase of investments - - -
Sale of investments 660 - 589
Net cash inflow from investing activities 660 - 589
Net cash inflow/(outflow) before financing 929 (606) 85
Cash flows from financing activities
Equity dividends paid - - (1,225)
Fundraising proceeds 1,598 - -
Long term loans 1,526 609 1,224
Purchase of own shares (2,541) - -
Net cash inflow/(outflow) from financing
activities 583 609 (1)
Increase in cash 1,512 4 84
Cash and cash equivalents at start of period 88 3 4
Cash and cash equivalents at end of period 1,600 7 88
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 March 2018
Qualifying and
partially % of
qualifying Operating Unrealised portfolio
investments sites Sector Cost Valuation gain/(loss) in period by value
GBP'000 GBP'000 GBP'000
South
Lunar 2 Marston, Ground
Limited* Beechgrove Solar 2,976 15,360 38 51.2%
Ayshford Solar
(Holding) Ground
Limited* Ayshford Solar 1,348 2,231 (343) 7.4%
Kingston
Lunar 1 Farm, Lake Ground
Limited* Farm Solar 125 2,121 - 7.0%
Wychwood
New Energy Era Solar Ground
Limited Farm Solar 884 1,390 - 4.6%
Hewas Solar
Limited Hewas Roof Solar 1,000 1,355 - 4.5%
Vicarage Solar Parsonage Ground
Limited Farm Solar 871 1,215 - 4.0%
Tumblewind Small
Limited* Priory Farm Wind/Solar 1,326 1,138 69 3.8%
Gloucester Wind
Limited Gloucester Roof Solar 1,000 915 (38) 3.0%
Minsmere Power Small
Limited Minsmere Wind/Solar 975 729 - 2.4%
HRE Willow
Limited HRE Willow Small Wind 875 726 - 2.4%
St Columb Solar
Limited St Columb Roof Solar 650 671 (2) 2.2%
Vehicle
Chargepoint Services Limited charging 500 500 - 1.7%
Small Wind
Generation Small Wind
Limited Generation Small Wind 975 483 - 1.6%
Penhale Solar
Limited Penhale Roof Solar 825 362 (363) 1.2%
Sunhazel UK Limited Roof Solar 1 - -
14,331 29,196 (639) 97.0%
Non-qualifying
investments
AEE Renewables Ground
UK 3 Limited Lake Farm Solar 900 900 - 3.0%
900 900 - 3.0%
Total investments 15,231 30,096 100.0%
* Partially qualifying investment
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1.General information
Hazel Renewable Energy VCT2 plc ("the Company") is a Venture Capital
Trust established under the legislation introduced in the Finance Act
1995 and is domiciled in the United Kingdom and incorporated in England
and Wales.
2.Accounting policies - Basis of accounting
The unaudited half-yearly results cover the six months to 31 March 2018
and have been prepared in accordance with the accounting policies set
out in the annual accounts for the year ended 30 September 2017 which
were prepared under FRS 102 'The Financial Reporting Standard applicable
in the UK and Republic of Ireland' and in accordance with the Statement
of Recommended Practice ("SORP") "Financial Statements of Investment
Trust Companies and Venture Capital Trusts" issued by the Association of
Investment Companies ("AIC") revised November 2014.
3.All revenue and capital items in the Income Statement derive from
continuing operations.
4.The Company has only one class of business and derives its income from
investments made in shares, securities and bank deposits.
5.Net asset value per share at the period end has been calculated on
22,038,632 Ordinary Shares and 34,332,155 'A' Shares, being the number
of shares in issue at the period end, excluding Treasury Shares.
6.Return per share for the period has been calculated on 23,872,598
Ordinary Shares and 36,166,663 'A' Shares, being the weighted average
number of shares in issue during the period, excluding Treasury Shares.
7.Dividends
Period ended Year ended
31 Mar 2018 30 Sep 2017
Revenue Capital Total Total
GBP'000 GBP'000 GBP'000 GBP'000
Dividends paid
2017 Interim - Ordinary Shares -
5.0p - - - 1,225
- - - 1,225
8.Reserves
Period ended Year ended
31 Mar 2018 30 Sept 2017
GBP'000 GBP'000
Share premium reserve 3,985 3,985
Special reserve 9,840 9,840
Revaluation reserve 14,865 15,504
Funds held in respect of shares not yet
allotted 1,598 -
Treasury Shares (2,792) -
Capital reserve-realised (1,241) (1,200)
Revenue reserve 315 6
26,570 28,135
The Revenue reserve, Capital reserve - realised and Special reserve are
distributable reserves. Distributable reserves are reduced by unrealised
holding losses of GBP1,161,000, which are included in the Revaluation
reserve. Distributable reserves at 31 March 2018 were GBP7,754,000.
9.Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required
in the Company's half-year results to report on principal risks and
uncertainties facing the Company over the remainder of the financial
year.
The Board has concluded that the key risks facing the Company over the
remainder of the financial period are as follows:
(i) investment risk associated with investing in small and immature
businesses;
(ii) market risk in respect of the various assets held by the investee
companies; and
(iii) failure to maintain approval as a VCT.
In order to make VCT qualifying investments, the Company has to invest
in small businesses which are often immature. The Investment Adviser
follows a rigorous process in vetting and careful structuring of new
investments and, after an investment is made, close monitoring of the
business is conducted. The Manager also seeks to diversify the portfolio
to some extent by holding investments which operate in various sectors.
The Board is satisfied with this approach.
The Company's compliance with the VCT regulations is continually
monitored by the Administration Manager, who reports regularly to the
Board on the current position. The Company has reappointed Philip Hare &
Associates LLP, who will work closely with the Investment Adviser and
provide regular reviews and advice in this area. The Board considers
that this approach reduces the risk of a breach of the VCT regulations
to a minimal level.
10.Going concern
The Directors have reviewed the Company's financial resources at the
period end and conclude that the Company is well placed to manage its
business risks.
The Board confirms that it is satisfied that the Company has adequate
resources to continue in business for the foreseeable future. For this
reason, the Board believes that the Company continues to be a going
concern and that it is appropriate to apply the going concern basis in
preparing the financial statements.
11.The unaudited financial statements set out herein do not constitute
statutory accounts within the meaning of Section 434 of the Companies
Act 2006 and have not been delivered to the Registrar of Companies.
12.The Directors confirm that, to the best of their knowledge, the
half-yearly financial statements have been prepared in accordance with
the "Statement: Half-Yearly Financial Reports" issued by the UK
Accounting Standards Board and the Half-Yearly Report includes a fair
review of the information required by:
a)DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first six
months of the financial year and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the year; and
b)DTR 4.2.8R of the Disclosure and Transparency Rules, being related
party transactions that have taken place in the first six months of the
current financial year and that have materially affected the financial
position or performance of the entity during that period, and any
changes in the related party transactions described in the last annual
report that could do so.
13.Copies of the Half-Yearly Report will be sent to Shareholders
shortly. Further copies can be obtained from the Company's registered
office or can be downloaded from www.downing.co.uk.
This announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the information
contained therein.
Source: Hazel Renewable Energy VCT 2 plc via Globenewswire
http://www.hazelcapital.com
(END) Dow Jones Newswires
June 29, 2018 10:44 ET (14:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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