Hazel Ren Egy VCT1 Hazel Renewable Energy Vct 1 Plc : Annual Financial Report

 
TIDMHR1O 
 
   Hazel Renewable Energy VCT1 plc 
 
   Final results for the year ended 30 September 2016 
 
   FINANCIAL HIGHLIGHTS 
 
 
 
 
                                                Audited       Audited 
                                                Year End      Year End 
                                              30 September  30 September 
                                                  2016          2015 
                                                 Pence         Pence 
Net asset value per Ordinary Share                   118.1         117.6 
Net asset value per 'A' Share                          0.1           0.1 
Cumulative Dividends paid                             34.5          29.5 
Total return per Ordinary Share and 'A' 
 Share                                               152.7         147.2 
 
 
   CHAIRMAN'S STATEMENT 
 
   I present the Annual Report for Hazel Renewable Energy VCT1 plc for the 
year ended 30 September 2016. As Shareholders will be aware, there has 
been a heavy focus in recent months on considering the future of the 
Company and a general meeting took place on 19 January 2017 for 
Shareholders to vote on this.  The results of this meeting are discussed 
below. 
 
   Although the above work has taken up a considerable amount of both the 
Board's and the Investment Manager's time, it is pleasing to report that 
the investment performance has continued to be satisfactory during the 
year with a further small uplift in NAV per share being recorded. 
 
   Investment portfolio 
 
   There was limited investment activity during the year and, at the year 
end, the Company held a portfolio of 16 investments with a total value 
of GBP30.9 million. 
 
   As usual, the Board has reviewed the investment valuations at the year 
end and made some minor adjustments to the fair values, resulting in a 
net unrealised gain of GBP370,000. 
 
   Net asset value and results 
 
   At 30 September 2016, the Net Asset Value ("NAV") per Ordinary Share 
stood at 118.1p and the NAV per 'A' Share stood at 0.1p, producing a 
combined total of 118.2p. This represents an increase of 5.5p (4.7%) 
over the year (after adjusting for dividends paid during the year of 
5.0p per Ordinary share). Total dividends paid to date for a combined 
holding of one Ordinary Share and one 'A' Share stand at 34.5p. Total 
Return (NAV plus cumulative dividends paid to date) now stands at 152.7p, 
compared to the cost to investors in the initial fundraising of GBP1.00 
or 70.0p net of income tax relief. 
 
   The profit on ordinary activities after taxation for the year was GBP1.2 
million, comprising a gain of GBP1.0 million on the revenue account and 
GBP0.2 million on the capital account. 
 
   Dividends 
 
   A dividend of 5.0p per Ordinary Share paid was paid on 16 September 
2016. In line with the Company's policy, subject to the developments 
discussed below, it is intended that the next annual dividend will be 
paid in September 2017 and is expected to be announced in May 2017. 
 
   Share Buybacks 
 
   During the year, the Company acquired a total of 898,908 'Ordinary' 
Shares and 827,672 'A' Shares for cancellation at an average price of 
111.0p and 0.1p per share respectively. 
 
   In view of the ongoing review in respect of the future of the Company, 
the Company will not make any further purchases of shares for the time 
being. 
 
   Future strategy 
 
   At the General Meeting that took place on 19 January 2017, the Company's 
Shareholders voted in favour of the Company continuing as a VCT for at 
least a further five years. 
 
   Shareholders will be aware that the Company has a sister VCT, Hazel 
Renewable Energy VCT2 plc ("Hazel 2"), which holds identical 
investments. Hazel 2 Shareholders voted against the resolution to 
continue as a VCT at their General Meeting on 19 January 2017. This 
presents some significant challenges for your Board. 
 
   The current structure with the two VCTs ensures that VCT status is 
maintained. Were one VCT to be wound up it is possible that the VCT 
status of the other Company is jeopardised. The Board are unequivocal 
that VCT status must be maintained while some shareholders are still in 
their initial five year holding period and would risk losing the upfront 
income tax relief they earned on their investment. 
 
   The Board, along with the Hazel 2 Board, are starting to consider 
options which will address the desires of Shareholders of both 
Companies. The types of options that will be reviewed are, amongst other 
things: 
 
 
   -- Seeking third party funding to buy out shareholders; 
 
   -- A partial disposal of assets to fund share buybacks; and 
 
   -- Considering VCT merger options. 
 
 
   As indicated in the Shareholder Circular dated 22 December 2016, the 
Board will also review the management arrangement going forward. This 
task will now be combined with the matters above. 
 
   The Articles of Association now require that the Hazel 2 Board put 
formal proposals to their Shareholders for a winding up, reorganisation 
or other reconstruction, by 19 May 2017. At the same time, I will also 
communicate with Shareholders regarding the plans for the future. 
 
   Board 
 
   As the Board has only comprised two members since March 2016, the 
Directors have decided to appoint Stuart Knight to join the Board as a 
non-executive director with immediate effect. Stuart Knight will be well 
known to a number of shareholders as being co-founding partner of Haibun 
Partners LLP, a London based FCA registered wealth manager. 
 
   The existing directors believe Stuart will be a valuable addition to the 
Board and will be very helpful as the Board review options for the 
future of the Company. 
 
   Annual General Meeting 
 
   The Company's sixth AGM will be held at Ergon House, Horseferry Road, 
London SW1P 2AL at 11.30 a.m. on 13 March 2017. 
 
   One item of special business will be proposed in respect of share 
buybacks. 
 
   Outlook 
 
   Although the result of the EU referendum and plans for Brexit might have 
some significant effect on the macro economic environment in the medium 
and long term, the Board believes the impact on the Company will be 
reasonably small. The Company is effectively fully invested in a 
portfolio of projects with long term, Government backed agreements in 
place. This should ensure a relatively stable outlook in terms of 
expected performance of the assets.  The Board will, of course, continue 
to monitor developments. 
 
   The Board remains pleased with the performance of the Company to date. 
The Shareholder vote by Hazel 2 Shareholders has however created a 
question mark over the future of the Company. The Board will seek to 
find a strategy that allows those Shareholders that wish to continue to 
hold their investment and benefit from the investment portfolio to 
continue to do so.  Shareholders should however note that there are no 
guarantees that a suitable structure can be created and it is possible 
that the Board may have to ultimately recommend an orderly wind up. 
 
   I will communicate with Shareholders again as soon as there is further 
news. 
 
   Michael Cunningham 
 
   Chairman 
 
   INVESTMENT MANAGER'S REPORT 
 
   Introduction 
 
   The year ended 30 September 2016 has been another good year for Hazel 
Renewable Energy VCT1 plc (the Company). 
 
   The portfolio was fully invested at the beginning of the financial year, 
and we had set ourselves the objectives of further improving the 
operational and financial performance of the asset base, as well as 
exploring and initiating new avenues for augmenting the return of the 
portfolio. 
 
   We continuously seek to improve the operational performance of the asset 
base by examining the performance of each installation in detail, 
closely taking into account factors specific to the installation, as 
well as our knowledge of the type of technical installation that is in 
place. We also review the operations maintenance ("O&M") process from 
the point of view of its impact on performance. For the year in question, 
we have focused both on the ground-mounted solar assets that form the 
majority of the asset base, as well as the small wind turbine and 
roof-mounted solar system portfolios. 
 
   In terms of financial performance, our primary focus was on successfully 
concluding the refinancing transaction ("Project Surya") that pooled 
together the Ayshford Court and Priory Farm ground-mounted solar assets 
that are remunerated under the Renewable Obligation Certificate ("ROC") 
mechanism as well as the circa 1,200 roof-mounted solar installations 
that are located on properties owned by housing associations in England, 
Wales and Scotland and are remunerated under the Feed-in-Tariff ("FiT") 
mechanism. 
 
   This transaction was finalised at the beginning of March. The terms were 
very attractive, the interest rate was at 1.54% plus inflation, which is 
one of the lowest refinancing interest rates we have come across in the 
market. 
 
   The purpose of the refinancing was to deploy the proceeds into 
investments that could yield substantially higher than the refinancing 
rate as well as secure a cash buffer that could be used to fund 
repurchases of the Company's shares. 
 
   We were able to deploy close to 20 percent of the net proceeds into 
purchasing the interests of the minority shareholders in the special 
purpose vehicle ("SPV") that owns the very well-performing Ayshford 
Court asset. In May we also concluded a GBP1 million investment into 
Chargepoint Services Limited, a company that develops electric vehicle 
charging infrastructure. 
 
   Further investments have been on hold pending the outcome of the 
continuation vote, which took place on 19 January 2017. 
 
   The refinancing transaction has aided us with our task of improving 
operational performance. Such transactions involve a thorough review of 
historic operational performance by technical advisers. We have used 
their feedback to address minor technical issues as well as to improve 
on O&M procedures and incorporate these in new contracts. 
 

   Separately, we were able to continue our successful effort to reduce 
costs across the portfolio. The most notable savings have come from the 
reduction of O&M costs for the 6 FiT-remunerated ground-mounted solar 
assets but we have also continued to reduce non-core costs such as 
bookkeeping and identify new areas with cost reduction potential such as 
utility and monitoring costs. 
 
   Overall portfolio and Operational review 
 
   At the end of the year, the portfolio consisted of 16 underlying 
renewable energy generation projects which are all entirely owned by the 
VCTs as well as the small investment made in the year, in a company 
developing electric vehicle charging infrastructure. 
 
   The eight ground-mounted solar assets that account for close to eighty 
percent of the portfolio performed well in operational terms however 
solar irradiation was lower than expected by between 1.7% and 5% at 
seven of the eight installations. There were no significant technical 
issues experienced at any of these installations. 
 
   The refinancing transaction that included the Ayshford Court and Priory 
Farm assets was taken as an opportunity to bolster the O&M contracts 
that were in place. Better reporting, fault response and revenue 
compensation (in the event of poor performance by the Contractor) were 
introduced. Issues relating to the way the Priory Farm installation 
reconnects to the electricity grid in the case of significant and 
sustained grid outages that had surfaced in the previous year were also 
successfully resolved. 
 
   We are continuing to reap the benefits of the sophisticated monitoring 
systems installed at the beginning of summer 2014 at these 
installations. We have worked with the monitoring system providers to 
improve the quality and reporting of the data. We have also added an 
experienced renewable energy engineer to our team who has been tasked 
with supervising O&M contractors more closely and proactively 
identifying areas where operational performance could be further 
enhanced. 
 
   Six of the eight ground-mounted assets are now only a month away from 
the expiry of the O&M contracts put in place 5 years ago. We have run a 
"beauty - parade" of contractors and now have an offer from the existing 
contractor who can continue to perform the services at less than half 
the price we have been paying. This will result in significant cost 
savings of circa GBP140,000 per year. 
 
   The value of the SPVs containing the ground-mounted solar installations 
has increased since the last audited NAV from 30 September 2015. This is 
due to the fact that a lower discount rate (6.5% for the FiT-remunerated 
assets and 6.75% for the ROC-remunerated assets) was used in the 
valuation to reflect the increase in the market value of these assets. 
 
   Of the four rooftop solar portfolios that we own, the two portfolios 
that are distributed across housing association rooftops in England, 
Wales and Scotland and that account for circa 70% of the solar rooftop 
asset base have performed better than expectations despite the poor 
irradiation experienced. 
 
   These FiT-remunerated installations were also included in the 
refinancing transaction, and as is the case with the ground-mounted 
assets, we took advantage of the fact that the Lender conducted 
intensive due diligence to improve O&M arrangements. We replaced the 
Strategic Group which had commissioned the assets with Anesco, who has 
emerged as the most stable and capable provider of O&M services for 
roof-mounted installations. Strategic Group were reducing staffing and 
were not able to commit to the requirements we had for the actual 
services to be performed. Our new long-term contract with Anesco has 
performance guarantees in place as well as tightened reporting 
requirements. 
 
   The solar rooftop portfolio owned by Gloucester Wind Ltd (a GBP1.8 
million investment), had suffered as a result of the original developer 
going into administration in April 2013.  We are continuing to see minor 
improvements in this portfolio, however, as communicated last year, it 
is unlikely this project will reach original expectations from the time 
of the original investment.  We are also pleased to say that there has 
been no valuation impact on the portfolio as the original transaction 
was well-priced. 
 
   On an overall basis the value of the solar rooftop portfolio has shown a 
small increase compared to last year. This is due to the fact that a 
slightly lower discount rate was used to reflect the lower hurdle rates 
that apply to these assets with a high degree of revenue predictability. 
 
   The financial performance of the solar assets has been slightly weaker 
than expected this year due to the lower irradiation as well as the fact 
that power prices remained lower than modelled at the time of the 
original investment. The exposure to power prices of the FiT-remunerated 
portion of the portfolio is low, however Priory Farm, one of the two 
ground-mounted solar assets remunerated under the ROC regime has 
suffered from the very low prices that prevailed in the earlier part of 
the year as well as the fall in the recycle value component of the ROC 
value. The other asset, Ayshford Court Limited is still under a fixed 
price Power Purchase Agreement and has therefore not suffered an impact. 
 
   Electricity prices had been in a long downward drift in power prices in 
the wholesale market over the 2.5 year period that ended last summer. 
Since then there has been a meaningful bounce due to the depreciation in 
sterling as well as the upward movement in oil and gas prices. It 
remains difficult to foresee whether this bounce in power prices will be 
sustained.  It is important to bear in mind, however, that on an overall 
basis this portfolio has very low exposure to power prices. 
 
   For 'Project Lunar' (the debt structure secured on the now wholly-owned 
six FiT solar projects) we continued to meet our obligations to the 
lender including payment milestones, ongoing funding of reserves, 
observing all covenants and other requirements. We have also 
successfully completed the first interest payment process for Project 
Surya. 
 
   Our small wind turbine projects held within HRE Willow Ltd, Small Wind 
Generation Ltd, Tumblewind Ltd and Minsmere Power Ltd have shown some 
improvement since last year. We have been working with our O&M 
contractor Britwind, a division of Ecotricity, to implement a targeted 
maintenance capex programme to resolve a few categories of issues that 
affected circa 15 percent of the turbines in the portfolio. Each 
installation was evaluated separately to decide whether the new 
incremental investment in the form of maintenance capex would yield a 
positive return in terms of increased yield. We have also tested the 
solution proposed by Britwind on a sample of installations before giving 
the go-ahead for a wider roll-out. 
 
   Despite these efforts, we stick to our conclusion that certain assets 
within this segment of the portfolio are not likely to ever reach 
expected performance due to poor wind conditions at the specific sites 
and in some cases poor quality physical installations. We therefore 
continue to reflect the same degree of impairment in the value of these 
assets in this year's valuation exercise as that of last year. We will 
continue to strive to rectify issues that can be rectified and continue 
to see the potential for an upward adjustment in the future. 
 
   Portfolio valuation 
 
   The NAV of the portfolio has increased from 117.7p to 118.2p (and the 
total return from 147.2p to 152.7p if dividends already paid are taken 
into account). This year's increase has come about as a result of market 
prices for renewable power generation assets rising which we have 
reflected in the lower discount ranges that we have used, inter alia, as 
described below. 
 
   This is the first year where we have used different discount rates for 
different sets of assets. We believe this is justified due to the 
diversity of the asset base. The FiT remunerated ground-mounted solar 
projects have the most stable cashflows as the fixed feed-in-tariff 
accounts for over ninety percent of the unit revenues. These assets have 
also been operating for close to five years and this is a decent history 
of predictable cashflow generation. We have therefore used the lowest 
discount rate of 6.5% for these FiT based assets. 
 
   We have valued the assets grouped together under Project Surya at a 
discount rate 25 basis points lower than this to reflect the mix of 
rooftop solar assets with no power price exposure and the 
ROC-remunerated ground-mounted solar projects where up to 30% of unit 
revenues are impacted by power prices. 
 
   At the other end of the scale are the small solar rooftop portfolios 
where the lease counterparts are individual homeowners and schools as 
well as the small wind turbine portfolios. We have used discount rates 
of 7% and 7.25% respectively for these assets. 
 
   A significant difference from last year is the degree to which this 
valuation is composed of cash. In addition to the circa GBP6 million we 
have in the various reserves required under the Lunar and Surya 
facilities we have circa GBP5.5 million of cash that remains from the 
refinancing. Under ordinary circumstances this would have been largely 
reinvested however all new investment decisions have been put on hold 
pending the outcome of the review by the Board following the 
continuation vote. 
 
   Factors that will continue to affect the value of these assets in the 
future are maturity (longer operating histories suggest higher 
predictability), the number of participants in the market who have 
appetite to own these assets, inflation expectations, power prices and 
interest rates. The first two factors represent a favourable tailwind 
for the portfolio, the assets are gaining longer operating histories and 
there is a greater diversity of potential owners out there who are 
comfortable owning these assets. 
 
   Inflation has also been rising and since revenues are inflation-linked, 

a further increase could translate into higher valuations in the future. 
This has been covered in the circular that was send out at the end of 
2016. 
 
   The last two factors remain very difficult to forecast. Power prices 
have bounced since the Brexit vote but they are still significantly 
under the levels we saw as recent as 1.5 years ago. The future direction 
will be determined by commodity prices as well as the supply/demand 
balance of the UK electricity system. 
 
   Renewable generation assets such as those under the Company's ownership 
tend to trade at a certain premium in relation to "risk free" interest 
rates. This premium has narrowed over the years and has led to us using 
lower discount rates for valuation purposes. It is difficult to predict 
how this may change but it is unlikely that the premium will increase 
given the increased comfort of investors in owning these assets. However, 
the risk free rate is also a factor and the return of "risk free" rates 
to historically normal levels could adversely affect the valuation of 
the portfolio. 
 
   Outlook 
 
   Our focus for 2017 will be on continuing to improve the performance of 
the operational and financial performance of the assets and thus the 
overall yield of the portfolio. 
 
   We will also continue to seek opportunities for further value 
enhancement through energy storage projects attached to the 
ground-mounted solar projects so long as there is no impact on the 
accreditation status. 
 
   The Company has recently gone through a continuation vote. Regardless of 
the outcome of the vote, there will be some investors who will want to 
sell their shares. We will strive to achieve the best possible value for 
these investors. 
 
   As always, we are very happy to hear from our investors if they have any 
questions or comments. 
 
   Ben Guest 
 
   Chief Investment Officer 
 
   Hazel Capital LLP 
 
   REVIEW OF INVESTMENTS 
 
   Portfolio of investments 
 
   The following investments were held at 30 September 2016: 
 
 
 
 
                                                   Valuation 
                                                    movement 
                               Cost     Valuation   in year     % of portfolio 
                             GBP'000    GBP'000     GBP'000 
Qualifying and 
part-qualifying 
investments 
Lunar 2 Limited*               2,976       13,479      1,276             43.6% 
Ayshford Solar (Holding) 
 Limited*                      2,480        3,496       (75)             11.3% 
Lunar 1 Limited*                 125        2,186        110              7.1% 
New Energy Era Limited           884        1,489        119              4.8% 
Hewas Solar Limited            1,000        1,361      (387)              4.4% 
Vicarage Solar Limited           871        1,303        122              4.2% 
Tumblewind Limited*            1,438        1,246         82              4.0% 
Gloucester Wind Limited        1,000        1,153        112              3.7% 
Minsmere Power Limited           975        1,050        130              3.4% 
HRE Willow Limited               875          770       (10)              2.5% 
Penhale Solar Limited            825          735      (340)              2.4% 
St Columb Solar Limited          650          690      (670)              2.2% 
Small Wind Generation 
 Limited                         975          583       (99)              1.9% 
Chargepoint Services 
 Limited                         500          500          -              1.6% 
Sunhazel UK Limited                1            -          -              0.0% 
                              15,575       30,041        370             97.1% 
Non-qualifying investments 
AEE Renewables UK 3 Limited      900          900          -              2.9% 
                                 900          900          -              2.9% 
 
                              16,475       30,941        370             100.% 
 
Cash at bank and in hand                        6                         0.0% 
Total investments                          30,947                         100% 
 
 
   * Part-qualifying investment 
 
   All venture capital investments are incorporated in England and Wales. 
 
   Hazel Renewable Energy VCT2 plc, of which Hazel Capital LLP is the 
Investment Manager, holds the same investments as above. 
 
   Investment movements for the year ended 30 September 2016 
 
   ADDITIONS 
 
 
 
 
                                              Cost 
                                             GBP'000 
Qualifying and part-qualifying investments 
Ayshford Solar (Holding) Limited                 557 
Chargepoint Services Limited                     500 
                                               1,057 
 
 
   DISPOSALS 
 
 
 
 
                           Valuation at 
                           30 September            Profit/(Loss)    Realised 
                   Cost        2015      Proceeds     vs cost      Gain/(loss) 
                  GBP'000    GBP'000     GBP'000      GBP'000       GBP'000 
Qualifying and 
part-qualifying 
investments 
Tumblewind 
 Limited            1,010         1,010     1,010              -             - 
Ayshford Solar 
 (Holding) 
 Limited               65            59        65              -             6 
St. Columb Solar 
 Limited               58            58        58              -             - 
                    1,133         1,127     1,133              -             6 
 
Non-qualifying 
investments 
ZW Parsonage 
 Limited               15            15        15              -             - 
                       15            15        15              -             - 
 
                    1,148         1,142     1,148              -             6 
 
 
   All venture capital investments are incorporated in England and Wales. 
 
   Directors' responsibilities 
 
   The Directors are responsible for preparing the Strategic Report, the 
Report of the Directors, the Directors' Remuneration Report and the 
financial statements in accordance with applicable law and regulations. 
They are also responsible for ensuring that the Annual Report includes 
information required by the Listing Rules of the Financial Conduct 
Authority. 
 
   Company law requires the Directors to prepare financial statements for 
each financial year. Under that law the Directors have elected to 
prepare the financial statements in accordance with United Kingdom 
Generally Accepted Accounting Practice (United Kingdom accounting 
standards and applicable law), including Financial Reporting Standard 
102, the financial reporting standard applicable in the UK and Republic 
of Ireland (FRS102). 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: 
 
   *select suitable accounting policies and then apply them consistently; 
 
   *make judgments and accounting estimates that are reasonable and 
prudent; 
 
   *state whether applicable UK accounting standards have been followed, 
subject to any material departures disclosed and explained in the 
financial statements; and 
 
   *prepare the financial statements on the going concern basis unless it 
is inappropriate to presume that the Company will continue in business. 
 
   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. 
 
   In addition, each of the Directors considers that the Annual Report, 
taken as a whole, is fair, balanced and understandable and provides the 
information necessary for shareholders to assess the Company's 
performance, business model and strategy. 
 
   INCOME STATEMENT 
 
   for the year ended 30 September 2016 
 
 
 
 
                                                         Year ended 30 September      Year ended 30 September 
                                                                  2016                         2015 
 
                                                       Revenue  Capital    Total    Revenue  Capital    Total 
                                                       GBP'000  GBP'000   GBP'000   GBP'000  GBP'000   GBP'000 
 
Income                                                   1,784        -      1,784      580        -        580 
 
Gain on investments                                          -      376        376        -    2,057      2,057 
                                                         1,784      376      2,160      580    2,057      2,637 
 
 
Investment management fees                               (432)    (144)      (576)    (424)    (141)      (565) 
 
Other expenses                                           (272)     (72)      (344)    (263)        -      (263) 
 
Profit/(loss) on ordinary activities before tax 
                                                         1,080      160      1,240    (107)    1,916      1,809 
 
Tax on total comprehensive income and ordinary 
 activities                                                  -        -          -        -        -          - 
 
Profit/(loss) for the year and total comprehensive 
 income                                                  1,080      160      1,240    (107)    1,916      1,809 
 
Basic and diluted earnings per share: 
Ordinary Share                                            4.4p     0.7p       5.1p   (0.4p)     7.8p       7.4p 
'A' Share                                                    -        -          -        -        -          - 
 
 
   All Revenue and Capital items in the above statement derive from 

continuing operations. No operations were acquired or discontinued 
during the year. The total column within the Income Statement represents 
the Statement of Total Comprehensive Income of the Company prepared in 
accordance with Financial Reporting Standards ("FRS 102"). The 
supplementary revenue and capital return columns are prepared in 
accordance with the Statement of Recommended Practice issued in November 
2014 by the Association of Investment Companies ("AIC SORP"). 
 
   Other than revaluation movements arising on investments held at fair 
value through the profit and loss, there were no differences between the 
return/loss as stated above and at historical cost. 
 
   BALANCE SHEET 
 
   as at 30 September 2016 
 
 
 
 
                                                                2016              2015 
                                                      GBP'000  GBP'000  GBP'000  GBP'000 
Fixed assets 
Investments                                                     30,941            30,656 
 
Current assets 
Debtors                                                   416               336 
Cash at bank and in hand                                    6                56 
                                                          422               392 
 
Creditors: amounts falling due within one year          (157)             (158) 
 
Net current assets                                                 265               234 
Total assets less net current assets                            31,206            30,890 
 
Creditors: amounts falling due after more than one 
 year                                                 (3,262)           (2,000) 
 
Net assets                                                      27,944            28,890 
 
 
Capital and reserves 
Called up Ordinary Share capital                                    24                25 
Called up 'A' Share capital                                         36                37 
Share premium account                                            3,910             3,910 
Special reserve                                                 10,244            12,430 
Revaluation reserve                                             14,466            14,090 
Capital redemption reserve                                           2                 - 
Capital reserve - realised                                     (1,056)             (840) 
Revenue reserve                                                    318             (762) 
 
Total Shareholders' funds                                       27,944            28,890 
 
Basic and diluted net asset value per share 
Ordinary Share                                                  118.1p            117.6p 
'A' Share                                                         0.1p              0.1p 
 
   STATEMENT OF CHANGES IN EQUITY 
 
   for the year ended 30 September 2016 
 
 
 
 
                Called 
                  up      Share                           Capital     Capital 
                 share   Premium  Special   Revaluation  redemption   reserve   Revenue 
                capital  Account  Reserve     reserve     reserve     realised  reserve   Total 
                GBP'000  GBP'000  GBP'000     GBP'000     GBP'000     GBP'000   GBP'000  GBP'000 
 
Year ended 30 September 2015 
 
At 30 
 September 
 2014                62    3,910    13,657       12,127           -      (793)    (655)    28,308 
Total 
 comprehensive 
 income               -        -         -        1,936           -       (20)    (107)     1,809 
Transactions 
with owners 
Dividend paid         -        -   (1,227)            -           -          -        -   (1,227) 
Transfer 
 between 
 Reserves             -        -         -           27           -       (27)        -         - 
At 30 
 September 
 2015                62    3,910    12,430       14,090           -      (840)    (762)    28,890 
 
Year ended 30 September 2016 
 
 
At 30 
 September 
 2015                62    3,910    12,430       14,090           -      (840)    (762)    28,890 
Total 
comprehensive 
income                -        -         -          370           -      (210)    1,080     1,240 
Transactions 
with owners 
Repurchase and 
cancellation 
of own shares       (2)        -   (1,004)            -           2          -        -   (1,004) 
Dividend Paid         -        -   (1,182)            -           -          -        -   (1,182) 
Transfer 
between 
Reserves              -        -         -            6           -        (6)        -         - 
At 30 
 September 
 2016                60    3,910    10,244       14,466           2    (1,056)      318    27,944 
 
   CASH FLOW STATEMENT 
 
   for the year ended 30 September 2016 
 
 
 
 
                                          Year ended          Year ended 
                                   30 September 2016   30 September 2015 
                                       GBP'000             GBP'000 
 
Net cash outflow from operating 
 activities                                      784               (463) 
 
Cash flows from investing 
activities 
Purchase of investments                      (1,057)                   - 
Proceeds from disposal of 
 investments                                   1,148               1,203 
Net cash inflow/(outflow) from 
 investing activities                             91               1,203 
 
 
Net cash inflow/(outflow) before 
 financing activities                            875                 740 
 
Cash Flows from financing 
activities 
Equity Dividends Paid                        (1,182)             (1,227) 
Long term loans                                1,261                 376 
Purchase of own shares                       (1,004)                   - 
Net cash outflow from financing 
 activities                                    (925)               (851) 
 
Net decrease in cash                            (50)               (111) 
Cash and cash equivalents at 
 start of year                                    56                 167 
Cash and cash equivalents at end 
 of year                                           6                  56 
 
Cash and cash equivalents 
comprise 
Cash at bank and in hand                           6                  56 
Total cash and cash equivalents                    6                  56 
 
 
   NOTES TO THE ACCOUNTS 
 
   for the year ended 30 September 2016 
 
   1. General Information 
 
   Hazel Renewable Energy VCT1 plc ("the Company") is a venture capital 
trust established under the legislation introduced in the Finance Act 
1995 and is domiciled in the United Kingdom and incorporated in England 
and Wales. 
 
   2. Accounting policies 
 
   Basis of accounting 
 
   The Company has prepared its financial statements under FRS 102 'The 
Financial Reporting Standard applicable in the UK and Republic of 
Ireland' and in accordance with the Statement of Recommended Practice 
"Financial Statements of Investment Trust Companies and Venture Capital 
Trusts" issued by the Association of Investment Companies ("AIC") 
revised November 2014 ("SORP") as well as the Companies Act 2006. 
 
   The Company implements new Financial Reporting Standards ("FRS") issued 
by the Financial Reporting Council when they become effective. 
 
   This is the first year in which the Financial Statements have been 
prepared under FRS 102, however it has not been necessary to restate 
comparatives as the treatment previously applied aligns with the 
requirements of FRS 102. As a result there are no reconciling 
differences between the previous financial reporting framework and the 
current financial reporting framework and the comparative figures 
represent the position under both current and previous financial 
reporting frameworks. 
 
   The financial statements are presented in Sterling (GBP). 
 
   Presentation of income statement 
 
   In order to better reflect the activities of a VCT 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. 
 
   Investments 
 
   All investments are designated as "fair value through profit or loss" 
assets due to investments being managed and performance evaluated on a 
fair value basis. A financial asset is designated within this category 
if it is both acquired and managed on a fair value basis, 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 FRS 102 
Sections 11 and 12. 
 
   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: 
 
   *Price of recent investment; 
 
   *Multiples; 
 
   *Net assets; 
 
   *Discounted cash flows or earnings (of underlying business); 
 
   *Discounted cash flows (from the investment); and 
 
   *Industry valuation benchmarks. 
 
   The methodology applied takes account of the nature, facts and 
circumstances of the individual investment and uses reasonable data, 
market inputs, assumptions and estimates in order to ascertain fair 
value. 
 
   Gains and losses arising from changes in fair value are included in the 
Income Statement for the year as a capital item and transaction costs on 
acquisition or disposal of the investment are expensed. Where an 
investee company has gone into receivership or liquidation, or 
administration (where there is little likelihood of recovery), the loss 
on the investment, although not physically disposed of, is treated as 
being realised. 
 

   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 and FRS 102 sections 
14 and 15 that does not require portfolio investments, where the 
interest held is greater than 20%, to be accounted for using the equity 
method of accounting. 
 
   Income 
 
   Dividend income from investments is recognised when the Shareholders' 
rights to receive payment have been established, normally the 
ex-dividend date. 
 
   Interest income is accrued on a time apportionment basis, by reference 
to the principal sum outstanding and at the effective interest rate 
applicable and only where there is reasonable certainty of collection in 
the foreseeable future. 
 
   Expenses 
 
   All expenses are accounted for on an accruals basis. In respect of the 
analysis between revenue and capital items presented within the Income 
Statement, all expenses have been presented as revenue items except as 
follows: 
 
   *Expenses which are incidental to the disposal of an investment are 
deducted from the disposal proceeds of the investment; and 
 
   *Expenses are split and presented partly as capital items where a 
connection with the maintenance or enhancement of the value of the 
investments held can be demonstrated. The Company has adopted a policy 
of charging 75% of the investment management fees to the revenue account 
and 25% to the capital account to reflect the Board's estimated split of 
investment returns which will be achieved by the Company over the long 
term. 
 
   Taxation 
 
   The tax effects on different items in the Income Statement are allocated 
between capital and revenue on the same basis as the particular item to 
which they relate, using the Company's effective rate of tax for the 
accounting period. 
 
   Due to the Company's status as a VCT 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. 
 
   Other debtors, other creditors and loan notes 
 
   Other debtors (including accrued income), other creditors and loan notes 
(other than those held as part of the investment portfolio) are included 
within the accounts at amortised cost. 
 
   Issue costs 
 
   Issue costs in relation to the shares issued for each share class have 
been deducted from the share premium account. 
 
   3. Income 
 
 
 
 
                       Year ended          Year ended 
                30 September 2016   30 September 2015 
                          GBP'000       GBP'000 
Income from investments 
Loan stock interest           198                 244 
Dividend income             1,586                 335 
                            1,784                 579 
 
Other income 
Bank interest                   -                   1 
                            1,784                 580 
 
 
   4. Basic and diluted earnings per share 
 
 
 
 
                     Weighted average number      Revenue               Capital 
                          of shares in issue   return/ (loss)            return 
Profit/(loss) per share is calculated on the                     per              per 
following:                                        GBP'000       share   GBP'000  share 
 
Year ended 
30 
September 
2016           Ordinary Shares    24,347,961        1,078         4.4      160     0.7 
 
                    'A' Shares    36,635,087                2        -        -      - 
 
Year ended 
30 
September 
2015           Ordinary Shares    24,536,966            (107)    (0.4)    1,913    7.8 
 
                    'A' Shares    36,805,446                -        -        3      - 
 
 
   As the Company has not issued any convertible securities or share 
options, there is no dilutive effect on earnings per Ordinary Share or 
'A' Share. The earnings per share disclosed therefore represents both 
the basic and diluted return per Ordinary Share or 'A' Share. 
 
   5. Basic and diluted net asset value per share 
 
 
 
 
                    Shares in issue             2016                      2015 
                    2016        2015      Net asset value      Net asset value 
                                         per share  GBP'000  per share  GBP000 
Ordinary Shares  23,638,058  24,536,966      118.1   27,908      117.6  28,853 
'A' Shares       35,977,774  36,805,446        0.1       36        0.1      37 
 
 
   As the Company has not issued any convertible shares or share options, 
there is no dilutive effect on net asset value per Ordinary Share or per 
'A' Share. The net asset value per share disclosed therefore represents 
both the basic and diluted net asset value per Ordinary Share and per 
'A' Share. 
 
   6. Principal risks 
 
   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: 
 
   *Investment risks; 
 
   *Credit risk; and 
 
   *Liquidity risk. 
 
   The Board regularly reviews these risks and the policies in place for 
managing them. There have been no significant changes to the nature of 
the risks that the 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: 
 
   Market risks 
 
   As a VCT, the Company is exposed to investment risks in the form of 
potential losses and gains that may arise on the investments it holds in 
accordance with its investment policy. The management of these 
investment risks is a fundamental part of investment activities 
undertaken by the Investment 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. Investment risk is also mitigated by holding a 
diversified portfolio spread across various business sectors and asset 
classes. 
 
   The key investment risks to which the Company is exposed are: 
 
   *Investment price risk 
 
   *Interest rate risk 
 
 
 
   Investment price risk 
 
   The Company's investments which comprise of both equity and debt 
financial instruments in unquoted investments are all in renewable 
energy projects with predetermined expected returns. Consequently, the 
investment price risk arises from uncertainty about the future prices 
and valuations of financial instruments held in accordance with the 
Company's investment objectives which can be influenced by many macro 
factors such as changes in interest rates, electricity power prices and 
movements in inflation. It represents the potential loss that the 
Company might suffer through changes in the fair value of unquoted 
investments that it holds. 
 
   At 30 September 2016, the unquoted portfolio was valued at GBP30,941,000 
(2015: GBP30,656,000). The key inputs to the valuation models are 
electricity power prices, inflation and discount factors. The Board 
considers that the most significant of these is discount factors and has 
undertaken some sensitivity analysis into the movement of these. 
 
   The analysis below is provided to illustrate the sensitivity of the fair 
value of investment to an individual input, while all other variables 
remain constant. The Board considers these changes in inputs to be 
within reasonable expected ranges. This is not intended to imply the 
likelihood of change or that possible changes in value would be 
restricted to this range. The possible effects are quantified below. 
 
   0.5% movement in discount rate: 
 
 
 
 
 
  Input       Base case    Change in input    Change in fair value of investments    Change in NAV per share 
                                                           GBP'000                           pence 
 
Discount 
 rate      6.5% - 7.25%              +0.5%                            (1,871,000)                      (7.9) 
                                     -0.5%                              2,197,000                        9.3 
 
 
 
 
   Interest rate risk 
 
   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: 
 
   *"Variable rate" assets represent investments with predetermined 
interest rates that vary at set dates in accordance with loan note 
agreements; 
 
   *"Floating rate" assets predominantly bear interest at rates linked to 
The Bank of England base rate or LIBOR and comprise cash at bank; and 
 
   *"No interest rate" assets do not attract interest and comprise equity 

investments, certain loan note investments, loans and receivables and 
other financial liabilities. 
 
   The Company monitors the level of income received from fixed and 
floating or variable 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. 
 
   Credit risk 
 
   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 Manager manages credit risk in respect of loan stock with a similar 
approach as described under "Investment 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. Additionally, 
the risk is mitigated by the security of the assets in the underlying 
investee companies. 
 
   Cash is held by the Royal Bank of Scotland plc which is an 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 is 
directly attributable to changes in credit risk. Any balances that are 
past due are disclosed further under liquidity risk. 
 
   There have been no loans for which the terms have been renegotiated 
during the year. 
 
   Liquidity 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 being GBP157,000 (2015: GBP158,000) and has low loans 
from investee companies being GBP3,262,000 (2015: GBP2,000,000) 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. 
 
   7. Related party transactions 
 
   In the opinion of the Directors there is no immediate or ultimate 
controlling party. 
 
   During the year, Hazel Capital LLP was regarded as a related party as 
Ben Guest was a director of the VCT and a controlling partner in Hazel 
Capital LLP. Ben ceased to be a director from 7 March 2016 and Hazel 
Capital LLP ceased to be a related party as at that date. 
 
   Hazel Capital LLP provided investment management services to the 
Company. During the year ended 30 September 2016, GBP576,000 (2015: 
GBP565,000) was payable to Hazel Capital LLP in respect of these 
services. At the year end there was no balance owing to Hazel Capital 
LLP (2015: nil). 
 
   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 2016, this 
amounted to GBP112,000 (2015: GBP116,000), all of which is outstanding 
and included in accruals and deferred income under Creditors. 
 
   8. Events after the end of the reporting period 
 
   On 19 January 2017, the Company held a General Meeting seeking 
Shareholder approval for the Company to continue as a VCT for a further 
five years. The resolution was passed by Shareholders, however the same 
resolution for the sister company, Hazel Renewable Energy VCT2 plc 
("Hazel 2"), was not passed by Shareholders and so now the board of 
Hazel 2 is required to put proposals to Shareholders for a voluntary 
liquidation, reconstruction or other reorganisation of the Company. 
 
   The boards of both companies will review options for the future and 
expect to come to a conclusion in the coming months. Should this review 
result in a decision to voluntary liquidate the Company, it is likely 
that this would take place over a period of two to three years. The 
Directors therefore believe that it remains appropriate to prepare the 
accounts on a going concern basis. The financial effect of this event 
cannot be determined at this time, although if a voluntary liquidation 
were to take place, there might ultimately be a reduction in net asset 
value as a result of realising investments at lower than the current 
carrying values and costs associated in selling the Company's 
investments. 
 
   ANNOUNCEMENT BASED ON AUDITED ACCOUNTS 
 
   The financial information set out in this announcement does not 
constitute the Company's statutory financial statements in accordance 
with section 434 Companies Act 2006 for the year ended 30 September 
2016, but has been extracted from the statutory financial statements for 
the year ended 30 September 2016, which were approved by the Board of 
Directors on 31 January 2017 and will be delivered to the Registrar of 
Companies following the Company's Annual General Meeting. The 
Independent Auditor's Report on those financial statements was 
unqualified and did not contain any emphasis of matter nor statements 
under s498(2) and (3) of the Companies Act 2006. 
 
   The statutory accounts for the year ended 30 September 2015 have been 
delivered to the Registrar of Companies and received an Independent 
Auditor's Report which was unqualified and did not contain any emphasis 
of matter nor statements under s498(2) and (3) of the Companies Act 
2006. 
 
   A copy of the full annual report and financial statements for the year 
ended 30 September 2016 will be printed and posted to shareholders 
shortly. Copies will also be available to the public at the registered 
office of the Company at Ergon House, Horseferry Road, London SW1P 2AL 
and will be available for download from www.downing.co.uk. 
 
   This announcement is distributed by Nasdaq Corporate Solutions on behalf 
of Nasdaq Corporate Solutions clients. 
 
   The issuer of this announcement warrants that they are solely 
responsible for the content, accuracy and originality of the information 
contained therein. 
 
   Source: Hazel Renewable Energy VCT 1 plc via Globenewswire 
 
 
  http://www.hazelcapital.com 
 

(END) Dow Jones Newswires

January 31, 2017 12:48 ET (17:48 GMT)

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