Annual / Quarterly Financial Statement • Sep 30, 2012
Annual / Quarterly Financial Statement
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both your carbon footprint and your tax bill Report & Accounts for the year ended 30 September 2012
| Year end | Date of payment | Record date | Pence per share |
|---|---|---|---|
| Proposed 2012 Final | 28 March 2013 | 1 March 2013 | 5.0p |
Dividends will be paid by the registrar on behalf of the Company. Shareholders who wish to have dividends paid directly into their bank account, rather than by cheque to their registered address, and did not complete these details on their original application form can complete a mandate form for this purpose. Queries relating to dividends, shareholdings and requests for mandate forms should be directed to the Company's registrar, Capita Registrars, on 0871 664 0324 (calls cost 10p per minute plus network extras, lines open 8:30am to 5:30pm Monday to Friday), or by writing to them at The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU. Mandate forms can also be downloaded from Capita's website (see below).
The Company's share prices can be found in various financial websites with the following TIDM/EPIC codes:
| Ordinary Shares | 'A' Shares | |
|---|---|---|
| TIDM/EPIC codes | HR1O | HR1A |
| Latest share price (14 January 2013) | 70.0p per share | 0.1p per share |
The Company operates a policy of buying its own shares for cancellation as they become available. The Company is only able to make market purchases of shares, so Shareholders will need to use a stockbroker to sell any shares. Disposing of shares is likely to have significant tax implications, so Shareholders are urged to contact their independent financial adviser before making a decision. Shareholders who wish to sell should contact Downing LLP, who will be able to provide up‐to‐date details. Downing LLP can be contacted on 020 7416 7780.
| Financial calendar | |
|---|---|
| 11 March 2013 | Annual General Meeting |
| 28 March 2013 | Payment of dividend |
| May 2013 | Announcement of half yearly financial results |
Communications with Shareholders are mailed to the registered address held on the share register. In the event of a change of address or other amendment this should be notified to the Company's registrar, Capita Registrars, under the signature of the registered holder.
Up‐to‐date Company information (including financial statements, share prices and dividend history) may be obtained from Downing's website at:
If you have any queries regarding your shareholding in Hazel Renewable Energy VCT1 plc, please contact the registrar on the above number or visit Capita's website at www.capitaregistrars.com and click on "Shareholders and employees".
| Company information | 1 |
|---|---|
| Investment objectives, financial highlights and Directors | 2 |
| Chairman's statement | 3 |
| Investment Manager's report | 5 |
| Review of investments | 7 |
| Report of the Directors | 13 |
| Directors' remuneration report | 19 |
| Corporate governance | 21 |
| Independent Auditor's report | 24 |
| Income statement | 26 |
| Reconciliation of movements in Shareholders' funds | 26 |
| Balance sheet | 27 |
| Cash flow statement | 28 |
| Notes to the accounts | 29 |
| Notice of Annual General Meeting | 41 |
| Registered number | 07378392 |
|---|---|
| Directors | Michael Cunningham (Chairman) Ben Guest Stephen Hay |
| Company Secretary and Registered Office | Grant Whitehouse 10 Lower Grosvenor Place London SW1W 0EN |
| Investment Manager | Hazel Capital LLP 59 Gloucester Place London W1U 8JH Tel: 020 3434 1010 www.hazelcapital.com |
| Administration Manager | Downing LLP 10 Lower Grosvenor Place London SW1W 0EN Tel: 020 7416 7780 www.downing.co.uk |
| Auditor | PKF (UK) LLP Farringdon Place 20 Farringdon Road London EC1M 3AP |
| VCT status advisers | PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH |
| Registrars | Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Tel: 0871 664 0324 (calls cost 10p per minute plus network extras, lines open 8:30a.m. to 5:30p.m. Monday to Friday) www.capitaregistrars.com |
| Solicitors | Howard Kennedy 19 Cavendish Square London W1A 2AW |
| Bankers | Royal Bank of Scotland London Victoria Branch 119/121 Victoria Street London SW1E 6RA |
Hazel Renewable Energy VCT1 plc is a Venture Capital Trust established under the legislation introduced in the Finance Act 1995. The Company's principal objectives are to:
The detailed investment policy adopted to achieve the investment objectives is set out in the Report of the Directors on pages 14 and 15.
| 30 September 2012 | 30 September 2011 | |
|---|---|---|
| Pence | Pence | |
| Net asset value per Ordinary Share | 94.6 | 93.4 |
| Net asset value per 'A' Share | 0.1 | 0.1 |
| Dividends paid | 3.5 | ‐ |
| Total return per Ordinary Share and 'A' Share | 98.2 | 93.5 |
Michael Cunningham (Chairman) has worked in the investment management business for over 25 years and, within Rathbones, was an investment director with responsibility for VCTs, Rathbones' EIS Portfolios and an IHT Service, which together raised over £100 million. He is also a non‐executive director of Downing Distribution VCT 1 plc, Downing Income VCT 3 plc and Hampden Underwriting Limited.
Ben Guest has a total of 19 years investment experience, 10 years of which have been spent investing in the Cleantech sector. Prior to founding Hazel Capital LLP, Ben was a co‐founder of Cantillon Capital, where he managed over \$1 billion from 2003 to 2006. Ben started his fund management career in 1994 with Lazard Asset Management and is a Chartered Financial Analyst having graduated from Imperial College, London with a BEng in Mechanical Engineering.
Stephen Hay is a self‐employed consultant specialising in financial and environmental issues. He is a former managing director of Goldman Sachs, where he worked for 20 years primarily in equities and research. He was director of Equity research in both London and Tokyo.
All the Directors are non‐executive and, with the exception of Ben Guest, are independent of the Investment Manager.
I am pleased to present the Company's second Annual Report. Good progress has been made in both investing the Company's funds and also by most of the underlying investments.
The Company successfully completed a top‐up offer during the year along with its sister company, Hazel Renewable Energy VCT2 plc. The fundraising was fully subscribed and raised gross proceeds of approximately £2.0 million for each VCT. Shares were issued under this offer at a price of £1.05 for one Ordinary Share and one 'A' Share.
The significant number of changes to the FiT regime imposed by the Government since the Company's launch have produced challenges in investing the Company's funds, however, it is now close to completing the build of its initial investment portfolio.
During the year, 14 new investments were made at a total cost of £9.6 million, along with 6 follow‐on investments with a total cost of £2.0 million. Of the new investments, the majority were in solar PV projects, although a number of small wind projects were also backed.
In general, the investee companies have progressed well. A small number have encountered initial technical issues, particularly the wind projects. The Manager has worked closely with these investee companies and potential solutions are now being implemented. Several investee companies still have funds which have not yet been employed in suitable projects. The Manager is working with these companies in assessing opportunities to employ the remaining capital.
Since the year end, three investee companies, which had commenced work in rolling out solar projects under the Renewable Obligation Certificate "ROC" regime, have accepted offers to dispose of their stakes in the projects at attractive prices. These companies have now returned some of their funds to the Company by redeeming loan stock but they continue to hold a proportion of their original capital and will seek new projects.
The Board has reviewed the valuations of the investments at the year end and made modest increases to the valuations of investments which have already established a reliable track record of electricity generation.
AEE Renewables 26 Limited has been uplifted by £344,000, St. Columb Solar Limited by £251,000, Hewas Solar Limited by £108,000, and New Energy Era Limited by £92,000. All other investments continue to be valued at levels equal to original cost.
Further details of the investment management activities during the year are included in the Investment Manager's Report on pages 5 to 6.
At 30 September 2012, the NAV per Ordinary Share stood at 94.6p and the NAV per 'A' Share stood at 0.1p, producing a combined total of 94.7p. This represents an increase of 4.7p (5.0%) over the year (after adjusting for dividends paid during the year of 3.5p per share).
The profit on ordinary activities after taxation for the period was £887,000, comprising a loss of £59,000 on the revenue account and profit of £946,000 on the capital account.
The Board is proposing a final dividend for the year of 5.0p per Ordinary Share. The dividend will be subject to Shareholder approval at the AGM on 11 March 2013 and will be paid on 28 March 2013 to Shareholders on the register at 1 March 2013.
The Company operates a share buyback policy whereby, subject to liquidity, the rules of the London Stock Exchange, the UK Listing Authority and applicable VCT legislation, it will make market purchases of its own shares that become available in the market at a price equivalent to a 10% discount to the most recently published NAV.
A special resolution to continue this policy is proposed for the forthcoming AGM.
No shares were bought back during the year.
The Company's second AGM will be held at 59 Gloucester Place, London W1U 8JH at 12:00 p.m. on 11 March 2013.
Three items of special business will be proposed at the AGM; one resolution seeking approval for the Company to be able to buy its own shares as described above and two resolutions in connection with the authority for the Directors to allot shares. Notice of the meeting is at the end of this document.
The Board is pleased with the progress made by the Manager in investing the Company's funds and in building a robust portfolio of renewable energy assets. There is still work to be done by some of the investee companies in utilising all of their capital and, in addition, the Company now has further funds to invest following the recent redemption of loan stock by three investee companies. Although the regulatory changes to the FiT and ROC regimes have potentially reduced yields from the renewable energy sector, the Manager is continuing to see attractive opportunities in which these funds can be employed.
Over the next year, the Manager's work will become more focussed on the existing portfolio. Opportunities to refinance existing projects will be explored. This may allow yields to be enhanced and further funds to be released for reinvestment.
Michael Cunningham Chairman
15 January 2013
The team at Hazel Capital is pleased to be able to report that it has continued to deploy capital resulting in total investments in excess of £20 million at the date of this report, leaving your Company almost fully invested. This being said, as the underlying project companies generate significant cashflow which, combined with the outright sale of a small number of projects at a profit, there is the need for continual redeployment of funds into new opportunities. Hazel Capital continues to find new opportunities despite the end of Feed‐in‐Tariff driven businesses as a qualifying trade for VCT purposes for incremental investments.
As many of your Company's investments mature, with many now having over a year's operating history, it is gratifying to see that the majority are performing to plan or above expectations. This is particularly true for our solar investments, which make up 78.5% of total funds deployed. Our small wind investments which represent less than 15% of funds, while also being cash‐generative, have not enjoyed the same result, partly due to light winds (annual variations in wind resource can be significant) and partly due to operational issues relating to grid voltages being higher than they ought to be. The developer is in contact with the utility company to address this issue. The developer has also identified a solution independent of the utility company which is showing promising results.
Hazel Capital's role, with the portfolio being almost fully invested, now moves from deploying funds into opportunities with good risk‐adjusted return characteristics to a manager of project companies with the goal of maximising returns. This we are doing through various efforts, including increasing energy produced, lowering costs and refinancing of equity with debt. The latter is a major project for the next 12 months during which time we will refinance as much of the portfolio as possible, providing debt markets are supportive of long term financing at attractive rates.
Most importantly, the Company is on track to generate cashflow in excess of that required to pay its next annual dividend targeted internally by Hazel Capital at the time that funds were raised.
We are also grateful for the support from new and existing Shareholders who invested in the top‐up fundraising which closed at the start of April 2012 which increased funds under management by 10% or £2.1 million.
As was the case last year, the regulatory environment has continued to prove challenging. This year the changes came from the Department for Energy and Climate Change ("DECC") and also HM Revenue and Customs ("HMRC"), and further uncertainty was introduced by the judicial review of the tariff cut. These changes directly impacted the revenue line for renewable energy generation in both Feed‐in‐Tariffs ("FiTs") and are also expected for renewable obligation certificates ("ROC"). These changes have significantly impacted the revenue levels available for large solar installation and distributed wind and solar assets alike. Despite its best efforts, the changes introduced by the DECC have not had a negative impact on any assets in the portfolio.
Furthermore, in addition to the revenue impact introduced by the DECC, separate changes introduced by HMRC also narrowed the pool of qualifying investments from which the VCT could invest. Notwithstanding these changes, the VCT has managed to navigate a path and successfully deploy capital in attractive assets. Given the VCT is rapidly approaching full investment, the regulatory landscape is expected to become less important, however, in the event that capital is released through refinancing and/or return of profits, the VCT will need to operate within this ever changing environment.
The core of the VCT portfolio is built around capital invested in six larger ground mounted solar projects. These projects were commissioned in Q4:2011 and now have a full year of operating history. Whilst the poor summer has had an impact on output, the solar projects have, as a group, performed in line with expectations and not experienced any significant operational issues.
In addition, the VCT has acquired a portfolio of roof‐ mounted solar assets during the course of the year, and, whilst FiT support has been falling, this has been mostly compensated for by reducing installation costs. These cost reductions come from falling equipment costs and more competition from project developers/installers which has led to them accepting lower margins. So, whilst available returns have certainly dropped incrementally, they still meet our hurdle rates. Going forward, it is difficult to predict how much further costs will drop and whether this will continue to keep pace with the FiT tariff digression mechanism which is designed to steadily reduce the prevailing tariff.
The tariff applicable to small wind assets has also suffered reductions, however, given the comparatively low level of wind capacity added under the FiT regime (as compared with solar), this has not suffered the same level of attention from the DECC. The VCT will shortly conclude funding a fleet of small wind turbines, which is expected to reach c.350 turbines located across the UK. Early performance of the fleet has been disappointing. This is currently the subject of further detailed technical analysis but it is not believed that this will be a long‐term performance issue. A proposed technical solution is in the process of being rolled out which is expected to address the issue.
We continue to look out for well‐priced opportunities that might supplement the existing portfolio and have acquired small portfolios of roof mounted solar assets that fit with the Company's required return profile. Conversely, the VCT has been opportunistic and divested a limited number of assets where it was felt a good valuation was available.
Future investment activity is likely to be relatively limited due to capital constraints, however, the banking market now appears to be more receptive to financing FiT assets than was previously the case. Initial discussions will be followed up with a view to releasing capital invested in the larger solar parks.
The day‐to‐day activity is now transitioning away from portfolio construction to asset management with a view to delivering expected investment returns and resulting in dividends to the Company's Shareholders. Appropriate levels of debt finance will be sought as part of this process with a view to releasing capital and enhancing equity returns.
15 January 2013
The following investments were held at 30 September 2012:
| Valuation | ||||
|---|---|---|---|---|
| movement | % of | |||
| Cost | Valuation | in period | portfolio | |
| £'000 | £'000 | £'000 | ||
| Qualifying and part‐qualifying investments | ||||
| AEE Renewables UK 3 Limited* | 3,500 | 3,500 | ‐ | 16.5% |
| AEE Renewables UK 26 Limited* | 1,795 | 2,139 | 344 | 10.1% |
| Hewas Solar Limited* | 1,362 | 1,470 | 108 | 6.9% |
| St. Columb Solar Limited* | 935 | 1,186 | 251 | 5.6% |
| South Marston Solar Limited* | 1,110 | 1,110 | ‐ | 5.3% |
| Beechgrove Solar Limited | 1,000 | 1,000 | ‐ | 4.7% |
| Gloucester Wind Limited | 1,000 | 1,000 | ‐ | 4.7% |
| Penhale Solar Limited | 1,000 | 1,000 | ‐ | 4.7% |
| New Energy Era Limited | 884 | 976 | 92 | 4.6% |
| Minsmere Power Limited | 975 | 975 | ‐ | 4.6% |
| Small Wind Generation Limited | 975 | 975 | ‐ | 4.6% |
| Tumblewind Limited | 912 | 912 | ‐ | 4.3% |
| HRE Willow Limited | 875 | 875 | ‐ | 4.1% |
| Vicarage Solar Limited | 871 | 871 | ‐ | 4.1% |
| Owl Lodge Solar (Holding) Limited | 544 | 544 | ‐ | 2.6% |
| Ayshford Solar (Holding) Limited | 451 | 451 | ‐ | 2.1% |
| Higher Tregarne Solar (Holding) Limited | 368 | 368 | ‐ | 1.7% |
| Causilgey Solar (Holding) Limited | 349 | 349 | ‐ | 1.7% |
| ZW Parsonage Limited* | 250 | 250 | ‐ | 1.2% |
| Yonder Netherton Solar (Holding) Limited | 5 | 5 | ‐ | 0.0% |
| Sunhazel UK Limited | 1 | 1 | ‐ | 0.0% |
| 19,162 | 19,957 | 795 | 94.1% | |
| Non‐qualifying investments | ||||
| Quiet Revolution Limited | 600 | 600 | ‐ | 2.8% |
| Lime Technology Limited | 100 | 100 | ‐ | 0.5% |
| 700 | 700 | ‐ | 3.3% | |
| 19,862 | 20,657 | 795 | 97.4% | |
| Cash at bank and in hand | 561 | 2.6% | ||
| Total investments | 21,218 | 100.0% |
* Part‐qualifying investment
All venture capital investments are incorporated in England and Wales.
Hazel Renewable Energy VCT2 holds the same investments as above.
| Cost | |
|---|---|
| £'000 | |
| Qualifying investments | |
| South Marston Solar Limited* | 1,110 |
| Beechgrove Solar Limited | 1,000 |
| Gloucester Wind Limted | 1,000 |
| Penhale Solar Limited | 1,000 |
| Minsmere Power Limited | 975 |
| Small Wind Generation Limited | 975 |
| Vicarage Solar Limited | 968 |
| Tumblewind Limited | 912 |
| St. Columb Solar Limited* | 685 |
| Owl Lodge Solar (Holding) Limited | 544 |
| Hewas Solar Limited* | 462 |
| Ayshford Solar (Holding) Limited | 451 |
| Higher Tregarne Solar (Holding) Limited | 368 |
| Causilgey Solar (Holding) Limited | 349 |
| ZW Parsonage Limited* | 250 |
| AEE Renewables UK 26 Limited* | 145 |
| HRE Willow Limited | 125 |
| Yonder Netherton Solar (Holding) Limited | 5 |
| Sunhazel UK Limited | 1 |
| Quiet Revolution Solar Limited | 300 |
|---|---|
| Profit | Realised | ||||
|---|---|---|---|---|---|
| Cost | Proceeds | vs cost | gain | ||
| £'000 | £'000 | £'000 | £'000 | ||
| Qualifying investments | |||||
| ZW Parsonage Limited* | 960 | 960 | ‐ | ‐ | |
| Vicarage Solar Limited | 96 | 96 | ‐ | ‐ | |
| 1,056 | 1,056 | ‐ | ‐ | ||
| Non‐qualifying investments | |||||
| South Marston Renewables Limited | 1,000 | 1,256 | 256 | 256 | |
| AEE AG | 750 | 750 | ‐ | ‐ | |
| 1,750 | 2,006 | 256 | 256 | ||
| 2,806 | 3,062 | 256 | 256 |
The basis of valuation for all investments is set out on pages 9 to 11.
All venture capital investments are incorporated in England and Wales, with the exception of AEE AG, which was incorporated in Germany.
11,625
| AEE Renewables UK 3 Limited | Cost: Date of first investment: |
£3,500,000 Jun 2011 |
Valuation at 30/09/12: Valuation at 30/09/11: Valuation method: |
£3,500,000 £3,500,000 Cost as reviewed for impairment |
|---|---|---|---|---|
| Investment comprises: | ||||
| Ordinary shares: | £100,100 | Proportion of equity held: | 19.7% | |
| Loan stock: | £899,800 | Proportion of loan stock held: | 50% | |
| Loan facility: | £2,500,000 | Proportion of loan facility held: | 50% | |
| Summary financial information from abbreviated statutory accounts: 31 December 2012 | ||||
| Net assets | £1 | |||
| AEE Renewables UK 3 Limited owns a solar farm located in Sutton Benger, Wiltshire. The project is accredited under the feed‐in tariff regime, has a total installed capacity of 5MW and the lease is held |
with a local farmer. The company has entered into a comprehensive fixed term O&M agreement.
| AEE Renewables UK 26 Limited | Cost: | £1,795,000 | Valuation at 30/09/12: | £2,139,000 |
|---|---|---|---|---|
| Date of first investment: | Jun 2011 | Valuation at 30/09/11: | £1,649,600 | |
| Valuation method: | Discounted Cash Flow | |||
| Investment comprises: | ||||
| Ordinary shares: | £1,144,600 | Proportion of equity held: | 10.2% | |
| Loan stock: | £650,000 | Proportion of loan stock held: | 50% | |
Summary financial information from statutory accounts: 30 April 2012
| £598,061 |
|---|
| (£710,631) |
| £9,096,397 |
AEE Renewables UK 26 Limited owns a solar farm located in Bradford‐on‐Avon, Wiltshire. The project is accredited under the feed‐in tariff regime, has a total installed capacity of 5MW and the lease is held with a local farmer. The company has entered into a comprehensive fixed term O&M agreement.
| Hewas Solar Limited | Cost: | £1,362,500 | Valuation at 30/09/12: | £1,470,000 |
|---|---|---|---|---|
| Date of first investment: | Aug 2011 | Valuation at 30/09/11: | £899,000 | |
| Valuation method: | Discounted Cash Flow | |||
| Investment comprises: | ||||
| Ordinary shares: | £1,000,000 | Proportion of equity held: | 50% | |
| Loan stock: | £362,500 | Proportion of loan stock held: | 50% |
Summary financial information from statutory accounts: None filed
Hewas Solar Limited owns a portfolio of roof‐mounted solar assets located on housing stock owned by a housing association. The company has financed the capital costs of installing equipment and in return will receive the feed‐in tariff income. Residents of the housing associations are able to use the electricity generated by the installations free of charge. Roof‐top installations were undertaken during November and December 2011. The company has entered into a fixed term O&M agreement with the installer, Strategic Energy Limited.
| St. Columb Solar Limited | Cost: | £935,000 | Valuation at 30/09/12: | £1,186,000 |
|---|---|---|---|---|
| Date of first investment: | Sept 2011 | Valuation at 30/09/11: | £249,999 | |
| Valuation method: | Discounted Cash Flow | |||
| Investment comprises: | ||||
| Ordinary shares: | £650,000 | Proportion of equity held: | 50% | |
| Loan stock: | £285,000 | Proportion of loan stock held: | 50% |
Summary financial information from statutory accounts: None filed
St. Columb Solar Limited owns a portfolio of roof‐mounted solar assets located on housing stock owned by housing associations. The company has financed the capital costs of installing equipment and in return will receive the feed‐in tariff income. Residents of the housing associations are able to use the electricity generated by the installations free of charge. Roof‐top installations commenced in November 2011 and the vast majority were completed before the tariff reduction became effective in March 2012. The company has entered into a fixed term O&M agreement with the installer, Strategic Energy Limited.
| South Marston Solar Limited | Cost: Date of first investment: |
£1,110,000 Nov 2011 |
Valuation at 30/09/12: Valuation at 30/09/11: Valuation method: |
£1,110,000 £n/a Cost as reviewed for |
|---|---|---|---|---|
| Investment comprises: | impairment | |||
| Ordinary shares: | £111,000 | Proportion of equity held: | 7.8% | |
| Loan stock: | £999,000 | Proportion of loan stock held: | 7.5% | |
| Summary financial information from statutory accounts: None filed |
Beechgrove Solar Limited Cost: £1,000,000 Valuation at 30/09/12: £1,000,000
South Marston Solar Limited owns a solar farm located just outside Swindon, Wiltshire. The project is accredited under the feed‐in tariff regime, has a total installed capacity of 5MW and the lease is held with a local farmer. The company has entered into a comprehensive fixed term O&M agreement.
Date of first investment: Nov 2011 Valuation at 30/09/11: £n/a
Valuation method: Cost as reviewed for
impairment
| Gloucester Wind Limited | Cost: Date of first investment: |
£999,500 Apr 2012 |
Valuation at 30/09/12: Valuation at 30/09/11: Valuation method: |
£999,500 £n/a Cost as reviewed for |
|---|---|---|---|---|
| impairment | ||||
| Investment comprises: | ||||
| Ordinary shares: | £799,600 | Proportion of equity held: | 50% | |
| Loan stock: | £199,900 | Proportion of loan stock held: | 50% |
Summary financial information from statutory accounts: None filed
Gloucester Wind Limited owns a portfolio of roof‐mounted solar assets located on residential housing stock across the UK. The company has financed the capital costs of installing equipment and in return will receive the feed‐in tariff income. Home owners are able to use the electricity generated by the installations free of charge. Roof‐top installations commenced in June 2012 and are now approaching completion. The company has entered into a fixed term O&M agreement with the installer.
| Penhale Solar Limited | Cost: Date of first investment: |
£999,500 Apr 2011 |
Valuation at 30/09/12: Valuation at 30/09/11: Valuation method: |
£999,500 £n/a Cost as reviewed for |
|---|---|---|---|---|
| impairment | ||||
| Investment comprises: | ||||
| Ordinary shares: | £799,600 | Proportion of equity held: | 50% | |
| Loan stock: | £199,900 | Proportion of loan stock held: | 50% |
Summary financial information from statutory accounts: None filed
Penhale Solar Limited owns a portfolio of roof‐mounted solar assets located on housing stock owned by a housing association located in South Wales. The company has financed the capital costs of installing equipment and in return will receive the feed‐in tariff income. Residents of the housing association are able to use the electricity generated by the installations free of charge. Roof‐top installations were undertaken in July and August 2012. In addition the company is in the process of acquiring additional roof mounted solar assets located on schools across the south of the UK. The company has entered into a fixed term O&M agreement with the installer.
| New Energy Era Limited | Cost: | £884,000 | Valuation at 30/09/12: | £976,000 |
|---|---|---|---|---|
| Date of first investment: | Nov 2011 | Valuation at 30/09/11: | £884,000 | |
| Valuation method: | Discounted Cash Flow | |||
| Investment comprises: | ||||
| Ordinary shares: | £883,700 | Proportion of equity held: | 45% | |
| Loan stock: | £n/a | Proportion of loan stock held: | n/a% | |
Summary financial information from statutory accounts: None filed
New Energy Era Limited owns a solar farm located just outside Shipton under Wychwood, Oxfordshire. The project is accredited under the feed‐in tariff regime and has a total installed capacity of c.727kWp. The lease is held with a local landowner who developed the project, and who remains a minority shareholder. The company has entered into a comprehensive fixed term O&M agreement.
| Minsmere Power Limited | Cost: Date of first investment: |
£975,000 Nov 2011 |
Valuation at 30/09/12: Valuation at 30/09/11: |
£975,000 £n/a |
|---|---|---|---|---|
| Valuation method: | Cost as reviewed for | |||
| impairment | ||||
| Investment comprises: Ordinary shares: |
£840,000 | Proportion of equity held: | 50% | |
| Loan stock: | £135,000 | Proportion of loan stock held: | 50% | |
Summary financial information from statutory accounts: None filed
Minsmere Power Limited owns a portfolio of 5kW wind turbines distributed across the East Anglia region. The company receives the feed‐in tariff generated by the wind turbines, and the landowner is able to use any electricity generated free of charge. In addition the company also acquired a small portfolio of roof mounted solar assets, these are located on a property portfolio owned by a housing association. The tenants of the housing association are able to use the generated electricity free of charge.
Note: The proportion of equity held in each investment also represents the level of voting rights held by the Company in respect of the investment.
| £'000 | |
|---|---|
| Loan stock interest receivable in the period | |
| AEE Renewables UK 3 Limited | 271 |
| AEE Renewables UK 26 Limited | 42 |
| Hewas Solar Limited | 23 |
| St. Columb Solar Limited | 11 |
| South Marston Solar Limited | ‐ |
| Beechgrove Solar Limited | ‐ |
| Gloucester Wind Limited | ‐ |
| Penhale Solar Limited | ‐ |
| New Energy Era Limited | ‐ |
| Minsmere Power Limited | 5 |
| Other | 80 |
| 432 | |
The split of the venture capital investment portfolio by commercial sector (by cost and by value at 30 September 2012) is as follows:
The allocation of the funds compared to the intended split at 30 September 2012 is summarised as follows:
| Actual portfolio split at 30 September 2012 |
Target portfolio split at 30 September 2013 |
|
|---|---|---|
| VCT qualifying investments | ||
| Loans to qualifying companies | 23% | 50% |
| Ordinary shares in qualifying companies* | 52% | 40% |
| Total | 75% | 90% |
| Non‐qualifying investments (including cash at bank) | 25% | 10% |
| Total | 100% | 100% |
* Includes investments which are due to become qualifying
The Directors present the second Annual Report and Accounts of the Company for the year ended 30 September 2012. The comparative period is from 20 October 2010 to 30 September 2011.
The Directors initially obtained provisional approval for the Company to act as a Venture Capital Trust from HM Revenue & Customs and have continued to comply with the VCT regulations.
The Directors consider that the Company has conducted its affairs in a manner to enable it to continue to comply with Part 6 of the Income Tax Act 2007.
The Company has no employees (other than the Directors).
The Company's business review and developments during the year are set out in the Chairman's Statement, Investment Manager's Report, and the Review of Investments.
At the year end, the Company had in issue 22,728,053 Ordinary Shares and 34,092,076 '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.
The Company operates a share buyback policy whereby, subject to liquidity, the rules of both the London Stock Exchange and the UK Listing Authority and applicable VCT legislation, and except in the first year after being established, it is intended that the Company will make market purchases of its own shares, up to a maximum number of shares equivalent to 14.9% of the total number of each class of issued shares from time to time.
The Board intends to operate a policy of purchasing shares in the market at a price equivalent to the Company's most recently published NAV, at the time of purchase, less a discount of at least 10%.
| Pence | Pence | ||
|---|---|---|---|
| per Ord | per 'A' | ||
| £'000 | Share | Share | |
| Profit for the period | 887 | 4.1 | ‐ |
The Board is proposing to pay a final dividend for the year ended 30 September 2012 of 5.0p per Ordinary Share, subject to Shareholder approval, payable on 28 March 2013 to Shareholders on the register at 1 March 2013.
The Directors of the Company during the year and their beneficial interests in the issued Ordinary Shares and 'A' Shares at 30 September 2012 and at the date of this report were as follows:
| As at the | As at the | ||
|---|---|---|---|
| Directors | date of | year ended | |
| this report | 30 Sept 2012 | ||
| Michael | Ord Shares | 20,800 | 20,800 |
| Cunningham | 'A' Shares | 20,800 | 20,800 |
| Ord Shares | 104,000 | 104,000 | |
| Stephen Hay | 'A' Shares | 104,000 | 104,000 |
| Ord Shares | 210,000 | 210,000 | |
| Ben Guest | 'A' Shares 10,599,322 | 10,599,322 |
In line with the Articles of Association, all the Directors are to retire at the forthcoming Annual General Meeting and, being eligible, offer themselves for re‐ election. The Board recommends that Shareholders take into consideration each Director's considerable experience in VCTs and other areas, as shown in their respective biographies on page 2, together with the results for the period to date, in order to support the resolutions to re‐appoint all three Directors.
Each of the Directors entered into a letter of appointment with the Company dated 20 October 2010. These agreements are for a period of twelve months and thereafter are terminable on three months' notice by either side. Each Director is required to devote such time to the affairs of the Company as the Board reasonably requires.
Directors' and Officers' liability insurance cover is held by the Company in respect of the Directors.
The Company's objectives are to maximise tax free capital gains and income to Shareholders from dividends and capital distributions by investing the Company's funds in:
The Company seeks to invest in companies it is believed are materially de‐risked and will provide Shareholders with a reliable source of tax free income and maximise the potential for capital preservation. Investee companies generally reflect the following criteria:
The Company will invest at least 70% of its funds in VCT qualifying investments. Initially, whilst suitable qualifying investments are being identified, the funds are held as a selection of deposits, institutional money market funds and/or short term fixed income securities. Progressively, this portfolio will be realised in order to fund investments in qualifying investments.
Although under VCT legislation the Company must have 70% of its funds invested in qualifying investments within three years, the Company intends to invest up to 90%. Accordingly, the Company's maximum exposure to qualifying investments will be 90%. The Company intends to retain the remaining funds in non‐qualifying investments to fund the annual running costs of the Company, 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 once 70% of funds raised have been invested in qualifying investments, the Company intends to hold at least eight investments to provide diversification and risk protection. In relation to the Company, no single investment (including most loans to investee companies) will represent more than 15 per cent of the aggregate net asset value of its fund.
The structure of the Company's funds, and its investment strategies, have been designed to reduce risk as much as possible.
The main risk management features include:
It is not intended that the Company will borrow. However, the Company has the ability to borrow up to 15% of its net asset value. As at 30 September 2012, this would equal £3.2 million. There are no plans to utilise this ability at the current time.
In accordance with the Listing Rules:
Hazel Capital LLP provides investment management services to the Company at a fee equivalent to 2% of net assets per annum. The agreement is for a minimum term of six years, effective from 6 December 2010, with a twelve month notice period on either side thereafter.
The Board has reviewed the services provided and conclude that it is satisfied with Hazel Capital LLP's strategy, approach and procedures in providing investment management services to the Company. The Directors have therefore agreed that the continuing appointment of Hazel Capital LLP as Investment Manager remains in the best interests of Shareholders.
For the initial part of the year, Downing Management Services Limited provided administration services to the Company for a fee of £35,000 (plus VAT, if applicable) per annum. The agreement is for a minimum term of six years, effective from 20 October 2010, with a twelve month notice period on either side thereafter. On 16 December 2011, the administration agreement was novated such that services are now carried out by Downing LLP, effective 1 June 2011. Downing LLP provides administration services to the Company on the same terms.
The annual running costs for the year are set at 3.5% of net assets; any excess will either be paid by the Investment Manager or refunded by way of a reduction of the Investment Manager's fees.
The Company's payment policy is to pay creditors within thirty days of receipt of an invoice except where other terms have been agreed. The Company did not have any trade creditors at the year end.
As a VCT, with all of its executive and administrative activities delegated to third parties, the Company does not have a policy on either environmental or social and community issues.
The structure of the 'A' Shares, whereby the Management owns one third of the 'A' Shares in issue, 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:
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:
Annual dividend per
| Ordinary Share | 0‐5p | 5‐10p | >10p |
|---|---|---|---|
| NAV | N/A | >100p | >100p |
| Hurdle | Not met | Met | Met |
| Allocation: | |||
| Shareholders | 99.97% | 80% | 70% |
| Management | 0.03% | 20% | 30% |
As the hurdle has not been met for the year ended 30 September 2012, no performance incentive is due.
The Company has an agreement to pay trail commission annually to Hazel Capital LLP, in connection to the funds raised under the offer for subscription. This is calculated at 0.4% of the net assets of the Company at each year end. Out of these funds Hazel Capital LLP is liable to pay trail commission to financial intermediaries.
The Company has retained PricewaterhouseCoopers LLP ("PwC") to advise it on compliance with VCT requirements, including evaluation of investment opportunities as appropriate and regular review of the portfolio. Although PwC works closely with the Investment Manager, 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 Sep 12 |
||
|---|---|---|
| 1. | To ensure that, by and from 1 October 2013, the Company holds at least 70% of its investments in qualifying companies; |
74.1% |
| 2. | To ensure that, by and from 1 October 2013, at least 30% (70% in the case of funds raised after 6 April 2011) of the Company's qualifying investments are held in "eligible shares"; |
69.6% |
| 3. | At least 10% of each investment in a qualifying company is held in eligible shares; |
Complied |
| 4. | No investment constitutes more than 15% of the Company's portfolio; |
Complied |
| 5. | To ensure that, by and from 1 October 2011, the Company's income for each financial year is derived wholly or mainly from shares and securities; |
91.8% |
| 6. | The Company distributes sufficient revenue dividends to ensure that not more than 15% of the income from shares and securities in any one year is retained; and |
Complied |
| 7. | Prior to 6 April 2012, a maximum unit |
size of £1 million in each VCT qualifying investment (per tax year). Complied
At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in meeting its objectives. The Board believes the Company's key performance indicators are Net Asset Value Total Return (NAV plus cumulative dividends paid to date) and dividends per share.
In addition, the Board considers the Company's performance in relation to other VCTs.
The principal financial risks faced by the Company, which include interest rate, market price, credit and liquidity risks, are summarised within note 17 to the financial statements.
The Company, as a fully listed company on the London Stock Exchange and as a Venture Capital Trust, operates in a complex regulatory environment and therefore faces a number of related risks. A breach of the VCT regulations could result in the loss of VCT status and consequent loss of tax reliefs currently available to Shareholders and the Company being subject to capital gains tax. Serious breaches of other regulations, such as the Listing Rules of the Financial Services Authority, and the Companies Act 2006, could lead to suspension from the Stock Exchange and damage to the Company's reputation.
In addition to these risks, the Company invests in a sector which is currently subject to regular government review of policy which can significantly impact on the Company's investment strategy.
The Board reviews and agrees policies for managing each of these risks. They receive quarterly reports from the Manager which monitors the compliance of these risks, and places reliance on the Manager to give updates in the intervening periods. These policies have remained unchanged since the beginning of the financial year.
As at 30 September 2012, and the date of this report, the Company had not been notified of any beneficial interest exceeding 3% of the issued share capital.
A resolution proposing the reappointment of PKF (UK) LLP will be submitted at the AGM.
The Company's second Annual General Meeting ("AGM") will be held at 59 Gloucester Place, London W1U 8JH at 12.00 p.m. on 11 March 2013. The Notice of the Annual General Meeting and Form of Proxy are at the end of this document.
The Directors are responsible for preparing 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 Services 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). 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 Company and of the profit or loss of the Company for that period.
In preparing these financial statements the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, to disclose with reasonable accuracy at any time the financial position of the Company 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 Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the areas of the Manager's and Administrator's websites maintained on behalf of the Company. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on page 2, confirms that, to the best of each person's knowledge:
The financial statements are published on www.downing.co.uk and www.hazelcapital.com.
The Company's compliance with, and departures from, the Financial Reporting Council's UK Corporate Governance Code June 2010 (www.frc.org.uk) is shown on page 23.
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.
By order of the Board
Grant Whitehouse Secretary of Hazel Renewable Energy VCT1 plc
Company number: 07378392
Registered office: 10 Lower Grosvenor Place London SW1W 0EN
15 January 2013
The Board have prepared this report in accordance with the requirements of Section 420 to 422 of the Companies Act 2006. A resolution to approve this report will be put to Shareholders at the Annual General Meeting to be held on 11 March 2013.
Under the requirements of Section 497, the Company'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 on pages 24 to 25.
Directors' remuneration is calculated in accordance with the Company's Articles of Association as follows:
Each of the Directors entered into a letter of appointment with the Company dated 20 October 2010. These agreements are for a period of twelve months and thereafter are terminable on three months' notice by either side. Each Director is required to devote such time to the affairs of the Company as the Board reasonably requires.
The structure of 'A' Shares enables a payment, by way of a distribution of income, of the performance incentive fees to the Management Team. As the hurdle has not been met, no fee is due to be paid for the year ended 30 September 2012.
Directors' remuneration for the Company for the year under review was as follows:
| Current annual fee |
Year ended 30/09/12 |
|
|---|---|---|
| £ | £ | |
| Michael Cunningham | 20,000 | 20,000 |
| Stephen Hay | 15,000 | 15,000 |
| Ben Guest | Nil | Nil |
| 35,000 | 35,000 |
No other emoluments, pension contributions or life assurance contributions were paid by the Company to, or on behalf of, any Director. The Company does not have any share options in place.
The remuneration levels for the forthcoming year for the Directors of Hazel Renewable Energy VCT1 plc are expected to be at the current annual fee levels shown in the above table.
The graph below represents the Company's performance over the reporting periods since the Company'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 Company's shares were listed.
The Company has not presented a broad equity market index within the graphs as a comparison because the Company has been unable to agree an acceptable price with an index publisher for the use of this data. The Board therefore considers it to be in the best interests of Shareholders that this information is omitted.
By order of the Board
Grant Whitehouse Company Secretary 10 Lower Grosvenor Place London SW1W 0EN
15 January 2013
The Directors support the relevant principles of the UK Corporate Governance Code issued in June 2010, being the principles of good governance and the code of best practice, as set out in the annex to the Listing Rules of the UK Listing Authority.
The Company has a Board comprising three non‐ executive Directors. The Chairman is Michael Cunningham. The Company has not appointed a senior independent director. Biographical details of all Board members (including significant other commitments of the Chairman) are shown on page 2.
In accordance with company policy all of the Directors are offering themselves for re‐election at the next AGM.
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 Manager; making decisions concerning the acquisition or disposal of investments; and reviewing, annually, the terms of engagement of all third party advisers (including the Investment Manager and Administration Manager).
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 Company'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 Company's assets and liabilities and other relevant information requested by the Chairman, in advance of each Board meeting.
As the Company has a small Board of non‐executive Directors, Michael Cunningham, Stephen Hay and Ben Guest sit on the Audit, the Remuneration, and the Nomination Committees. The Chairman of each Committee is Michael Cunningham. The Audit Committee normally meets twice yearly, and the Remuneration and Nomination Committees meet as required. All Committees have defined terms of reference and duties.
The Board has authority to make market purchases of the Company's own shares. This authority to purchase up to 14.9% of the Company's issued share capital was granted at the last AGM. A resolution will be put to Shareholders to renew this authority at the forthcoming AGM.
The capital structure of the Company is disclosed on page 13.
The Company has an Audit Committee comprising of Michael Cunningham, as Chairman, Stephen Hay and Ben Guest. This Committee has defined terms of reference and duties.
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 Company's internal control and risk management systems.
Any non‐audit services provided by the Auditor are reviewed and approved by the Committee prior to being undertaken to ensure that auditor objectivity and independence is safeguarded.
The Audit Committee met twice during the year. The Committee reviewed the internal financial controls and concluded that they were appropriate. They also considered the need for an internal audit function and concluded that, due to the size of the Company, this would not be an appropriate function.
As part of its annual review procedures, the Committee has obtained sufficient assurance from their own evaluation, the audit feedback documentation and from correspondence and discussions with the engagement partner of PKF (UK) LLP. Based on the assurance obtained, the Committee has recommended to Shareholders that PKF (UK) LLP be re‐appointed as Auditor for the forthcoming year.
As the Company has no staff, other than the Directors, there are no procedures in place in respect of C3.4 of the UK Corporate Governance Code relating to whistle blowing. The Audit Committee understands that the Investment Manager and Administration Manager have whistle blowing procedures in place.
The following table sets out the Directors' attendance at the Board and Committee meetings during the year:
| Board | Audit | |
|---|---|---|
| meetings | Committee | |
| attended | meetings | |
| (5 held) | (2 held) | |
| Michael Cunningham | 5 | 2 |
| Stephen Hay | 4 | 2 |
| Ben Guest | 5 | 2 |
No Nomination or Remuneration Committee meetings were held in the year.
The Committee meets as and when required to review the levels of Directors' remuneration. Details of the specific levels of remuneration to each Director are set out in the Directors' Remuneration Report on page 19, and this is subject to Shareholder approval.
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.
Shareholders have the opportunity to meet the Board at the AGM. The Board is also happy to respond to any written queries made by Shareholders during the course of the period, or to meet with major Shareholders if so requested.
In addition to the formal business of the AGM, representatives of the Investment Manager 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 Administration Manager collates proxy votes and the results (together with the proxy forms) are forwarded to the Company Secretary immediately prior to the AGM. In order to comply with the UK Corporate Governance Code, 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 second AGM and proxy form can be found at the end of these financial statements.
The terms of reference of the Committees and the conditions of appointment of non‐executive Directors are available to Shareholders on request.
The Directors' responsibilities statement for preparing the accounts is set out in the Report of the Directors on page 17, and a statement by the Auditor about their reporting responsibilities is set out in the independent Auditor's report on page 24.
The Board has adopted an Internal Control Manual ("Manual") for which it is responsible, which has been compiled in order to comply with the UK Corporate Governance Code. The Manual is designed to provide reasonable, but not absolute, assurance against material misstatement or loss, which it achieves by detailing the perceived risks and controls to mitigate them. The Board reviews the perceived risks in line with relevant guidance on an annual basis and implements additional controls as appropriate.
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 Manual, 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.
Although the Board is ultimately responsible for safeguarding the assets of the Company, the Board has delegated, through written agreements, the day‐ to‐day operation of the Company (including the Financial Reporting Process) to the following advisers:
| Investment Management | Hazel Capital LLP |
|---|---|
| Administration | Downing LLP |
The Company operates an anti‐bribery policy to ensure that it meets its responsibilities arising from the Bribery Act 2010. This policy can be found on the website maintained by Downing LLP at www.downing.co.uk.
The Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement on pages 3 and 4, the Investment Manager's Report on pages 5 and 6 and the Report of the Directors on pages 16 and 17. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are shown in the Cash Flow Statement on page 28 and the Report of the Directors on page 15.
In addition, note 17 to the financial statements includes the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.
The Company has considerable financial resources at the year end, and holds a diversified portfolio of investments. As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain economic outlook.
The Directors confirm that they are satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason they believe 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.
The Company has two classes of share capital: Ordinary Shares and 'A' Shares. The rights and obligations attached to those shares, including the power of the Company to buy back shares and details of any significant shareholdings, are set out on page 13 of the Report of the Directors.
The Listing Rules require the Board to report on compliance with the 52 UK Corporate Governance Code provisions throughout the accounting period. With the exception of the limited items outlined below, the Company has complied throughout the accounting period ended 30 September 2012 with the provisions set out in the UK Corporate Governance Code issued in June 2010.
a) New Directors do not receive a full, formal and tailored induction on joining the Board. Such matters are addressed on an individual basis as they arise. Also the Company 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. (B.4.1. B.4.2, E.1.1)
Grant Whitehouse Company Secretary 10 Lower Grosvenor Place London SW1W 0EN
15 January 2013
We have audited the financial statements of Hazel Renewable Energy VCT1 plc for the year ended 30 September 2012 which comprise the Income Statement, the Reconciliation of Movements in Shareholders' Funds, the Balance Sheet, the Cash Flow Statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body for our audit work, for this report, or for the opinions we have formed.
As explained more fully in the Statement of Directors' Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.
In addition, we read all the financial and non‐financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
In our opinion the financial statements:
Opinion on other matters prescribed by the Companies Act 2006 In our opinion:
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
Rhodri Whitlock (Senior statutory auditor) For and on behalf of PKF (UK) LLP, statutory auditor London, UK
15 January 2013
| Year ended 30 Sept 2012 | Period ended 30 Sept 2011 | ||||||
|---|---|---|---|---|---|---|---|
| Note | Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Income | 2 | 471 | ‐ | 471 | 139 | ‐ | 139 |
| Net gain on investments | 9 | ‐ | 1,051 | 1,051 | ‐ | ‐ | ‐ |
| 471 | 1,051 | 1,522 | 139 | ‐ | 139 | ||
| Investment management fees | 3 | (301) | (100) | (401) | (110) | (36) | (146) |
| Other expenses | 4 | (229) | (5) | (234) | (181) | (13) | (194) |
| (Loss)/profit on ordinary activities before tax |
(59) | 946 | 887 | (152) | (49) | (201) | |
| Tax on ordinary activities | 6 | ‐ | ‐ | ‐ | ‐ | ‐ | ‐ |
| (Loss)/profit attributable to equity shareholders |
(59) | 946 | 887 | (152) | (49) | (201) | |
| Basic and diluted (loss)/profit per share: Ordinary Share 'A' Share |
8 8 |
(0.3p) ‐ |
4.3p ‐ |
4.1p ‐ |
(1.2p) ‐ |
(0.4p) ‐ |
(1.6p) ‐ |
All Revenue and Capital items in the above statement derive from continuing operations. The total column within the Income Statement represents the profit and loss account of the Company. No operations were acquired or discontinued during the year.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement noted above.
Other than revaluation movements arising on investments held at fair value through profit or loss, there were no differences between the profit/loss as stated above and historical cost.
| Note | Year ended 30 September 2012 £'000 |
Period ended 30 September 2011 £'000 |
|
|---|---|---|---|
| Opening Shareholders' funds | 19,445 | ‐ | |
| Proceeds from share issue | 12 | 2,048 | 20,789 |
| Share issue costs | 12 | (113) | (1,143) |
| Profit/(loss) for the year | 887 | (201) | |
| Dividend paid | 7 | (727) | ‐ |
| Closing Shareholders' funds | 21,540 | 19,445 |
The accompanying notes form an integral part of these financial statements.
| Note | £'000 | 2012 £'000 |
£'000 | 2011 £'000 |
|
|---|---|---|---|---|---|
| Fixed assets | |||||
| Investments | 9 | 20,657 | 11,043 | ||
| Current assets | |||||
| Debtors | 10 | 451 | 81 | ||
| Cash at bank and in hand | 16 | 561 | 8,456 | ||
| 1,012 | 8,537 | ||||
| Creditors: amounts falling due within one year | 11 | (129) | (135) | ||
| Net current assets | 883 | 8,402 | |||
| Net assets | 21,540 | 19,445 | |||
| Capital and reserves | |||||
| Called up Ordinary Share capital | 12 | 23 | 21 | ||
| Called up 'A' Share capital | 12 | 34 | 31 | ||
| Share premium account | 13 | 1,930 | 19,594 | ||
| Special reserve | 13 | 18,867 | ‐ | ||
| Revaluation reserve | 13 | 795 | ‐ | ||
| Capital reserve ‐ realised | 13 | 102 | (49) | ||
| Revenue reserve | 13 | (211) | (152) | ||
| Total equity shareholders' funds | 21,540 | 19,445 | |||
| Basic and diluted net asset value per share | |||||
| Ordinary Share | 14 | 94.6p | 93.4p | ||
| 'A' Share | 14 | 0.1p | 0.1p |
The financial statements of Hazel Renewable Energy VCT1 plc on pages 26 to 40 were approved and authorised for issue by the Board of Directors on 15 January 2013 and were signed on its behalf by:
Michael Cunningham Chairman Company number: 07378392
The accompanying notes form an integral part of these financial statements.
| Note | Year ended 30 September 2012 £'000 |
Period ended 30 September 2011 £'000 |
|
|---|---|---|---|
| Net cash outflow from operating activities | 15 | (540) | (147) |
| Capital expenditure | |||
| Purchase of investments | 9 | (11,625) | (12,686) |
| Proceeds from disposal of investments | 9 | 3,062 | 1,643 |
| Net cash outflow from capital expenditure | (8,563) | (11,043) | |
| Dividends paid | 7 | (727) | ‐ |
| Net cash outflow before financing | (9,830) | (11,190) | |
| Financing | |||
| Proceeds from Ordinary Share issue | 12 | 2,047 | 20,758 |
| Proceeds from 'A' Share issue | 12 | 1 | 31 |
| Proceeds from Preference Share issue | 12 | ‐ | 50 |
| Redemption of Preference Shares | 12 | ‐ | (50) |
| Share issue costs | 12 | (113) | (1,143) |
| Net cash inflow from financing | 1,935 | 19,646 | |
| (Decrease)/increase in cash | 16 | (7,895) | 8,456 |
The accompanying notes form an integral part of these financial statements.
The Company has prepared its financial statements under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" revised January 2009 ("SORP").
The financial statements are prepared under the historical cost convention except for certain financial instruments measured at fair value.
The Company implements new Financial Reporting Standards ("FRS") issued by the Financial Reporting Council when required.
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 Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.
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, with a view to selling after a period of time, in accordance with the Company'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 FRS26.
For unquoted investments, 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:
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 period as a capital item and transaction costs on acquisition or disposal of the investment are expensed.
It is not the Company's policy to exercise controlling influence over investee companies. Therefore 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 that does not require portfolio investments to be accounted for using the equity method of accounting.
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 rate applicable and only where there is reasonable certainty of collection in the foreseeable future.
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:
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 Company'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 Company'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. Deferred taxation is not discounted.
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 9) are included within the accounts at amortised cost.
Issue costs in relation to the shares issued for each share class have been deducted from the share premium account.
| Year ended 30 September 2012 £'000 |
Period ended 30 September 2011 £'000 |
|
|---|---|---|
| Income from investments Loan stock interest |
432 | 62 |
| Other income Bank interest |
39 471 |
77 139 |
The management fee, which is charged quarterly to the Company, is based on 2% of the net assets as at the previous quarter end.
| Year ended 30 Sept 2012 | Period ended 30 Sept 2011 | ||||||
|---|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
||
| Investment management fees | 301 | 100 | 401 | 110 | 36 | 146 | |
| 4. | Other expenses | ||||||
| Year ended 30 Sept 2012 | Period ended 30 Sept 2011 | ||||||
| Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
||
| Administration services | 42 | ‐ | 42 | 30 | ‐ | 30 | |
| Trail commission | 85 | ‐ | 85 | 78 | ‐ | 78 | |
| Directors' remuneration | 35 | ‐ | 35 | 33 | ‐ | 33 | |
| Social security costs | 3 | ‐ | 3 | 3 | ‐ | 3 | |
| Auditor's remuneration for audit Auditor's remuneration for non‐ |
17 | ‐ | 17 | 12 | ‐ | 12 | |
| audit services (taxation) Incidental capital expenses |
5 | ‐ | 5 | 2 | ‐ | 2 | |
| investment additions | ‐ | 5 | 5 | ‐ | 13 | 13 | |
| Other | 42 | ‐ | 42 | 23 | ‐ | 23 | |
| 229 | 5 | 234 | 181 | 13 | 194 |
The annual running costs of the Company for the year are subject to a cap of 3.5% of net assets of the Company.
Details of remuneration (excluding employer's NIC) are given in the audited part of the Directors' Remuneration Report on page 19.
The Company had no employees (other than Directors) during the year. Costs in respect of these are referred to in note 4 above.
No other emoluments or pension contributions were paid by the Company to, or on behalf of, any Director.
| Year ended 30 September 2012 £'000 |
Period ended 30 September 2011 £'000 |
||
|---|---|---|---|
| (a) | Tax charge for the year | ||
| UK corporation tax at 25.0% | ‐ | ‐ | |
| Charge for the year | ‐ | ‐ | |
| (b) | Factors affecting tax charge for the year | ||
| Return on ordinary activities before taxation | 887 | (201) | |
| Tax charge calculated on return on ordinary activities before taxation at the | |||
| applicable rate of 25.0% | 222 | (54) | |
| Effects of: | |||
| Gains on investments | (263) | ||
| Expenses disallowed for tax purposes | 23 | 24 | |
| Losses available to carry forward | 18 | 30 | |
| Current tax charge | ‐ | ‐ |
Excess management fees, which are available to be carried forward and set off against future taxable income, amounted to £183,000. The associated deferred tax asset of £46,000 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.
| Year ended 30 Sept 2012 | Period ended 30 Sept 2011 | ||||||
|---|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
||
| Paid | |||||||
| 2011 Final – 3.5p | ‐ | 727 | 727 | ‐ | ‐ | ‐ | |
| Proposed | |||||||
| 2012 Final – 5.0p | ‐ | 1,136 | 1,136 | ‐ | ‐ | ‐ | |
| 2011 Final – 3.5p | ‐ | ‐ | ‐ | ‐ | 727 | 727 |
| (Loss)/profit per share is calculated on the following: | Weighted average number of shares in issue |
Revenue loss £'000 |
Capital return/(loss) £'000 |
|
|---|---|---|---|---|
| Year ended 30 September 2012 | Ordinary Shares | 21,748,024 | (59) | 946 |
| 'A' Shares | 32,622,032 | ‐ | ‐ | |
| Period ended 30 September 2011 | Ordinary Shares | 12,392,800 | (152) | (49) |
| 'A' Shares | 16,404,392 | ‐ | ‐ |
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per Ordinary Share or 'A' Share. The loss per share disclosed therefore represents both the basic and diluted return per Ordinary Share or 'A' Share.
| 2012 Unquoted investments £'000 |
2011 Unquoted investments £'000 |
|
|---|---|---|
| Opening cost at 1 October 2011 | 11,043 | ‐ |
| Unrealised gain as at 1 October 2011 | ‐ | ‐ |
| Opening fair value at 1 October 2011 | 11,043 | ‐ |
| Movement in the year: | ||
| Purchased at cost | 11,625 | 12,686 |
| Disposals ‐ proceeds | (3,062) | (1,643) |
| ‐ realised gains on disposals | 256 | ‐ |
| Unrealised gains in the income statement | 795 | ‐ |
| Closing fair value at 30 September 2012 | 20,657 | 11,043 |
| Closing cost at 30 September 2012 | 19,862 | 11,043 |
| Gains at 30 September 2012 | 795 | ‐ |
| Closing fair value at 30 September 2012 | 20,657 | 11,043 |
The Company 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 with inputs that are not based on observable market data (unquoted equity investments and loan note investments).
| Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
2012 £'000 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
2011 £'000 |
|
|---|---|---|---|---|---|---|---|---|
| Loan notes | ‐ | ‐ | 9,286 | 9,286 | ‐ | ‐ | 5,200 | 5,200 |
| Unquoted equity | ‐ | ‐ | 11,371 | 11,371 | ‐ | ‐ | 5,843 | 5,843 |
| ‐ | ‐ | 20,657 | 20,657 | ‐ | ‐ | 11,043 | 11,043 |
Reconciliation of fair value for Level 3 financial instruments held at the period end:
| Loan notes £'000 |
Unquoted equity £'000 |
Total £'000 |
|
|---|---|---|---|
| Balance at 30 September 2011 | 5,200 | 5,843 | 11,043 |
| Movements in the income statement: | |||
| Unrealised gains in the income statement | ‐ | 795 | 795 |
| Realised gains in the income statement | ‐ | 256 | 256 |
| 5,200 | 6,894 | 12,094 | |
| Purchases at cost | 4,836 | 6,789 | 11,625 |
| Sales proceeds | (750) | (2,312) | (3,062) |
| Balance at 30 September 2012 | 9,286 | 11,371 | 20,657 |
There is an element of judgment 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 certain of the VCT's investments. FRS 29 requires disclosure to be made if changing one or more of the assumptions used in valuing investments would result in a significant change in the fair value of the investments. The portfolio has been reviewed and both downside and upside alternative assumptions identified. These result in an overall increase of £400,000 to the value of the unquoted investments for an upside scenario and an overall decrease of £200,000 to the value of the unquoted investments for a downside scenario. Valuations are subject to fluctuations in market conditions and the sensitivity of the Company to such changes is shown on page 38.
Investments which are reaching maturity or have an established level of maintainable earnings are now valued on a Discounted cash flow basis. Additions and those investments which have not yet established an acceptable level of maintainable earnings continue to be held at cost reviewed for impairment.
The Board and the Investment Manager believe that the valuations as at 30 September 2012 reflect the most appropriate assumptions at the date, giving due regard to all information available from each investee company. Valuations are subject to fluctuations in market conditions and the sensitivity of the Company to such changes is shown within note 17.
| 2012 £'000 |
2011 £'000 |
||
|---|---|---|---|
| Prepayments and accrued income | 451 | 68 | |
| Other debtors | ‐ | 13 | |
| 451 | 81 | ||
| 11. | Creditors: amounts falling due within one year | ||
| 2012 | 2011 | ||
| £'000 | £'000 | ||
| Taxation and social security | 5 | 5 | |
| Accruals and deferred income | 122 | 122 | |
| Other creditors | 2 | 8 | |
| 129 | 135 | ||
| 12. | Called up share capital | ||
| 2012 | 2011 | ||
| £'000 | £'000 | ||
| Allotted, called up and fully‐paid: | |||
| 22,728,053 (2011: 20,778,647) Ordinary Shares of 0.1p each | 23 | 21 | |
| 34,092,076 (2011: 31,167,967) 'A' Shares of 0.1p each | 34 | 31 | |
| 57 | 52 | ||
The Company's capital is managed in accordance with its investment policy as shown in the Report of the Directors, in pursuit of its principal investment objectives as stated on pages 14 and 15.
The Company has the authority to buy back shares as described in the Report of the Directors. No shares were repurchased during the year.
Between 2 April 2012 and 5 April 2012, 1,949,406 Ordinary Shares were issued at 104.9p per share, 1,949,406 'A' Shares were issued at 0.1p per share and 974,703 Management 'A' Shares (known as the "Management 'A' Shares") were issued at 0.1p per share pursuant to the offers for subscription by way of a prospectus. The aggregate consideration for the shares was £2,048,000 which excludes issue costs of £113,000.
The holders of Ordinary Shares and 'A' Shares shall have rights as regards dividends and any other distributions or a return of capital (otherwise than on a market purchase by the Company of any of its shares) which shall be applied on the following basis:
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:
then the 'A' Dividend amount shall not be declared and paid, but shall be aggregated with any 'A' Share Entitlement and retained by the Company until either threshold is reached. No interest shall accrue on any 'A' Share Entitlement.
The Company does not have any externally imposed capital requirements.
| Special reserve £'000 |
Revaluation reserve £'000 |
Share premium account £'000 |
Capital reserve ‐ realised £'000 |
Revenue reserve £'000 |
|
|---|---|---|---|---|---|
| At 1 October 2011 | ‐ | ‐ | 19,594 | (49) | (152) |
| Issue of new shares | ‐ | ‐ | 2,043 | ‐ | ‐ |
| Share issue costs | ‐ | ‐ | (113) | ‐ | ‐ |
| Expenses capitalised | ‐ | ‐ | ‐ | (105) | ‐ |
| Gains on investments | ‐ | 795 | ‐ | 256 | ‐ |
| Loss for the year | ‐ | ‐ | ‐ | ‐ | (59) |
| Dividend paid | ‐ | ‐ | ‐ | (727) | ‐ |
| Transfer between reserves | 18,867 | ‐ | (19,594) | 727 | ‐ |
| At 30 September 2012 | 18,867 | 795 | 1,930 | 102 | (211) |
On 24 December 2011, the share premium account was cancelled following receipt of court approval. The amount standing to the share premium account has therefore been transferred to a special reserve. The Special reserve is available to the Company to enable the purchase of its own shares in the market without affecting its ability to pay dividends. The Special reserve, Capital reserve – realised and Revenue reserve are all distributable reserves. At 30 September 2012, distributable reserves were £18,758,000.
| Shares in issue | 2012 | 2011 | ||||
|---|---|---|---|---|---|---|
| 2012 | 2011 | Net asset value | Net asset value | |||
| per share | £'000 | per share | £000 | |||
| Ordinary Shares | 22,728,053 | 20,778,647 | 94.6 | 21,506 | 93.4 | 19,414 |
| 'A' Shares | 34,092,076 | 31,167,967 | 0.1 | 34 | 0.1 | 31 |
The Directors allocate the assets and liabilities of the Company 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 12.
As the Company has not issued any convertible shares or share options, there is no dilutive 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 or per 'A' Share.
| 2012 £'000 |
2011 £'000 |
||
|---|---|---|---|
| Profit/(loss) on ordinary activities before taxation | 887 | (201) | |
| Gains on investments | (1,051) | ‐ | |
| (Increase) in debtors | (370) | (81) | |
| (Decrease)/increase in creditors | (6) | 135 | |
| Net cash outflow from operating activities and returns on investments | (540) | (147) | |
| 16. | Analysis of changes in cash at bank during the year | ||
| 2012 | 2011 | ||
| £'000 | £'000 | ||
| Beginning of year | 8,456 | ‐ | |
| Net cash outflow | (7,895) | 8,456 | |
| End of year | 561 | 8,456 | |
The Company's financial instruments comprise investments held at fair value through the profit and loss, being equity and loan stock investments in unquoted companies, loans and receivables being cash deposits and short term debtors and financial liabilities being creditors arising from its operations. The main purpose of these financial instruments is to generate cashflow and revenue and capital appreciation for the Company's operations. The Company has no gearing or other financial liabilities apart from short‐term creditors and does not use any derivatives.
The fair value of investments is determined using the detailed accounting policy as shown in note 1. The composition of the investments is set out in note 9.
Loans and receivables and other financial liabilities, as set out in the balance sheet, are stated at amortised cost which the Directors consider is equivalent to fair value.
The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are:
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 Company 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 Company in respect of the principal financial risks and a review of the financial instruments held at the year end are provided below:
As a VCT, the Company is exposed to market 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 market risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager 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 Manager to manage the investment risk in respect of individual investments. Market risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.
The key market risks to which the Company is exposed are:
Market price risk arises from uncertainty about the future prices and valuations of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through changes in the fair value of unquoted investments that it holds.
At 30 September 2012, the unquoted portfolio was valued at £20,657,000 (2011: £11,043,000).
The Company's unlisted investments are all in renewable energy projects with predetermined expected returns. As a result, variations in share prices are unlikely to have a significant impact on valuations of the unquoted investments. A 10% movement in the valuations of all of the unquoted investments held by the Company would have an effect as follows:
| 10% movement in unquoted investment valuations | 2012 | 2011 | ||
|---|---|---|---|---|
| Impact on | Impact on | Impact on | Impact on | |
| net assets | NAV per share | net assets | NAV per share | |
| £'000 | pence | £'000 | pence | |
| Unquoted investments | 2,066 | 9.0p | 1,104 | 5.3p |
The sensitivity analysis for unquoted valuations above assumes that each of the sub‐categories of financial instruments (ordinary shares and loan stocks) held by the Company produces an overall movement of 10%. Shareholders should note that equal correlation between these sub‐categories is unlikely to be the case in reality, particularly in the case of loan stock instruments. Where share prices are falling, the equity instrument could fall in value before the loan stock instrument. It is not considered practical to assess the sensitivity of the loan stock instruments to market price risk in isolation.
The Company accepts exposure to interest rate risk on floating‐rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.
There are four categories in respect of interest which are attributable to the financial instruments held by the Company as follows:
| Average interest rate |
Average period until maturity |
2012 £'000 |
2011 £'000 |
|
|---|---|---|---|---|
| Fixed rate | 5.5% | 1,686 days | 7,686 | 4,150 |
| Variable rate | 7.4% | 613 days | 1,600 | 1,050 |
| Floating rate | 1.2% | 561 | 8,456 | |
| No interest rate | 11,693 | 5,789 | ||
| 21,540 | 19,445 |
The Company 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 total return before taxation for the year by £6,000. As the Bank of England base rate stood at 0.5% per annum throughout the year, it is not believed that a reduction from this level is likely.
Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors. Credit risk relating to loan stock investee companies is considered to be part of market risk.
The Company's financial assets that are exposed to credit risk are summarised as follows:
| 2012 £'000 |
2011 £'000 |
|
|---|---|---|
| Investments in loan stocks | 9,286 | 5,200 |
| Cash and cash equivalents | 561 | 8,456 |
| Interest, dividends and other receivables | 451 | 81 |
| 10,298 | 13,737 |
The Manager manages credit risk in respect of loan stock with a similar approach as described under "Market risks" above. Similarly the management of credit risk associated interest, dividends and other receivables is covered within the investment management procedures. The level of security is a key means of managing credit risk.
Cash is held by the Royal Bank of Scotland plc which is an A‐rated financial institution and also ultimately part‐ owned by the UK Government. 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.
Liquidity risk is the risk that the Company 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. As the Company has a relatively low level of creditors (£129,000) and has no borrowings the Board believes that the Company's exposure to liquidity risk is low. The Company 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 Company's exposure to liquidity risk is minimal.
The Company's liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
Although the Company's investments are not held to meet the Company's liquidity requirements, the table below shows an analysis of the assets, highlighting the length of time that it could take the Company to realise its assets if it were required to do so.
The carrying value of loan stock investments held at fair value through the profit and loss account at 30 September 2012 as analysed by the expected maturity date is as follows:
| As at 30 September 2012 | Not later than 1 year £'000 |
Between 1 and 2 years £'000 |
Between 2 and 3 years £'000 |
Between 3 and 5 years £'000 |
More than 5 years £'000 |
Total £'000 |
|---|---|---|---|---|---|---|
| Fully performing loan stock | 1,946 | ‐ | ‐ | 1,740 | 1,800 | 5,486 |
| Past due loan stock | 300 | ‐ | ‐ | 3,500 | ‐ | 3,800 |
| 2,246 | ‐ | ‐ | 5,240 | 1,800 | 9,286 |
Of the loan stock classified as "past due" above £3,800,000 relates to the principal of loan notes where, although the principal remains within the term, the investee company is not fully servicing the interest obligations under the loan note and is thus in arrears.
| Not later than 1 year £'000 |
Between 1 and 2 years £'000 |
Between 2 and 3 years £'000 |
Between 3 and 5 years £'000 |
More than 5 years £'000 |
Total £'000 |
|---|---|---|---|---|---|
| 1,400 | 300 | ‐ | 3,500 | ‐ | 5,200 |
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern, so that it can continue 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 Company has an amount of capital, at least 70% (as measured under the tax legislation) of which is and must be, and remain, invested in the relatively high risk asset class of small UK companies within three years of that capital being subscribed. The Company 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 Company 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 to remain a going concern.
Although, as the Investment Policy implies, the Board would consider levels of gearing, there are no current plans to do so. It regards the net assets of the Company as the Company'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.
At 30 September 2012, the Company had no contingencies, guarantees or financial commitments.
In the opinion of the Directors there is no immediate or ultimate controlling party.
Hazel Capital LLP also provides investment management services to the Company. Details of the agreement with Hazel Capital LLP are included within note 3. During the year ended 30 September 2012 £401,000 (2011: £146,000) was payable to Hazel Capital LLP in respect of these services. At the year end there was no balance owing to Hazel Capital LLP.
In accordance with the prospectus and the Investment Management agreement, Hazel Capital LLP receives trail commission of 0.4% of the net assets of the Company at the year end, out of which it pays trail commission to financial intermediaries. As at 30 September 2012, this amounted to £85,382 (2011: £77,781), all of which is outstanding.
Hazel Renewable Energy VCT2 plc is a company of which Hazel Capital LLP is also the Investment Manager. At the year end the Company owed Hazel Renewable Energy VCT2 plc £1,998 (2011: £7,774) in relation to interest received on cash deposits during the fundraising. This amount is included in other creditors.
NOTICE IS HEREBY GIVEN that the second Annual General Meeting of Hazel Renewable Energy VCT1 plc will be held at 59 Gloucester Place, London W1U 8JH at 12.00 p.m. on 11 March 2013 for the transaction of the following business:
As Ordinary Business, to consider and, if thought fit, pass the following resolutions which will be proposed as Ordinary Resolutions:
As Special Business, to consider and, if thought fit, pass the following resolutions:
this authority to expire at the conclusion of the Company's next Annual General Meeting, or on the expiry of 15 months following the passing of the resolution, whichever is the later (unless previously revoked, varied or extended by the Company in general meeting), but so that this authority shall allow the Company to make before the expiry of this authority offers or agreements which would or might require shares to be allotted or rights to be granted to subscribe for or to convert any security into shares in the Company after such expiry and all previous authorities given by the Directors in accordance with Section 551 of the Act be and are hereby revoked, provided that such revocation shall not have retrospective effect;
and this power, unless previously varied, revoked or renewed, shall come to an end at the conclusion of the Annual General Meeting of the Company next following the passing of this resolution or on the expiry of 15 months from the passing of the resolution, whichever is the earlier.
By order of the Board
Grant Whitehouse Company Secretary
Registered Office 10 Lower Grosvenor Place London SW1W 0EN 15 January 2013
In either case, the revocation notice must be received by Downing LLP before the Annual General Meeting or the holding of a poll subsequently thereto. If a member attempts to revoke his or her proxy appointment but the revocation is received after the time specified then, subject to Note (d) directly below, the proxy appointment will remain valid.
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