Hazel Ren Egy VCT1 Hazel Renewable Energy Vct 1 Plc : Final Results

 
TIDMHR1O 
 
   Hazel Renewable Energy VCT1 plc 
 
   Legal Entity Identifier: 213800IVQHJXUQBAAC06 
 
   Final results for the year ended 30 September 2017 
 
   FINANCIAL HIGHLIGHTS 
 
 
 
 
                                                Audited       Audited 
                                                Year End      Year End 
                                              30 September  30 September 
                                                  2017          2016 
                                                 Pence         Pence 
Net asset value per Ordinary Share                   116.0         118.1 
Net asset value per 'A' Share                          0.1           0.1 
Cumulative Dividends paid                             39.5          34.5 
Total return per Ordinary Share and 'A' 
 Share                                               155.6         152.7 
 
   CHAIRMAN'S STATEMENT 
 
   I present the Annual Report for Hazel Renewable Energy VCT1 plc for the 
year ended 30 September 2017, my first as Chairman of the Company. 
 
   As Shareholders will be aware, it has been a busy year for your Company. 
In recent months, the Board has agreed a reorganisation of the Company, 
with Gresham House Asset Management Limited formally taking over as 
Investment Adviser. The new arrangements bring a number of benefits 
which the Board believes will deliver enhanced value to Shareholders. We 
are looking forward to working with the new team as the Company enters 
the next stage of its life. 
 
   Investment portfolio 
 
   There were no changes to the investment portfolio during the year. At 
the year end, the Company held a portfolio of 16 investments with a 
total value of GBP31.4 million. 
 
   As usual, the Board has reviewed the investment valuations at the year 
end and made adjustments to the fair values. Despite lower than expected 
irradiation during the year which impacted the solar investments, other 
factors have offset this resulting in a net unrealised gain of 
GBP992,000. 
 
   Net asset value and results 
 
   At 30 September 2017, the Net Asset Value ("NAV") per Ordinary Share 
stood at 116.0p and the NAV per 'A' Share stood at 0.1p, producing a 
combined total of 116.1p. This represents an increase of 2.9p (2.5%) 
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 39.5p. Total 
Return (NAV plus cumulative dividends paid to date) now stands at 155.6p, 
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 
GBP703,000, comprising a revenue loss of GBP196,000 and a capital gain 
of GBP899,000 as shown in the Income Statement. 
 
   Dividends 
 
   A dividend of 5.0p per Ordinary Share paid was paid on 15 September 
2017. The Company normally pays its annual dividend in September each 
year, however the plans for the future of the Company as discussed below 
may impact this. 
 
   The Company's general dividend policy is to distribute surplus funds 
generated by the underlying investments, subject to maintaining an 
appropriate cash reserve within the Company to meet anticipated future 
requirements. 
 
   Share Buybacks 
 
   The Company has introduced a policy of buying in shares that become 
available in the market at a 2% discount to NAV. Shareholders who wish 
to sell their shares will need to do so via a stockbroker. The Company 
has engaged Panmure Gordon (UK) Limited ("Panmure") as its Corporate 
Broker. Panmure can provide guidance on the timing and likely price of 
buybacks. Contact details for Panmure can be found on the inside cover 
of the Annual Report. 
 
   No 'Ordinary' Shares or 'A' Shares were purchased during the year. 
 
   Board composition 
 
   In July, Michael Cunningham retired as a non-executive Director and 
Chairman of the Company. Michael had been Chairman's since launch 2010 
and made a substantial contribution to the development of the Company. 
He also worked to resolve the challenges faced by the Company over the 
last two years. I will miss working with him and wish him well for the 
future with his other ventures. Following Michael's resignation, I 
agreed to take over as Chairman. 
 
 
 
   The Directors are reviewing the composition of the Board and may make a 
new appointment in due course. 
 
   Investment Adviser 
 
   As mentioned above, Gresham House Asset Management Limited ("GHAM") has 
now been appointed as Investment Adviser to the Company, and our sister 
Company, Hazel Renewable Energy VCT2 plc. GHAM is part of AIM-quoted 
specialist asset manager, Gresham House plc. 
 
   GHAM acquired the business of Hazel capital LLP on 31 October 2017 so 
the Company now benefits from continuity of the key investment 
executives plus the enhanced resources of a larger group. As part of the 
new arrangements, the Board also secured a reduced advisory fee. The 
Board looks forward to working with GHAM and believes that the new 
structure can deliver enhanced returns to Shareholders in due course. 
 
   Amendment to the Articles of Association 
 
   The VCT's investments are mostly in companies which were set up to 
develop and operate renewable energy assets. In some cases, these 
companies have not yet generated enough profits to fully offset the 
set-up costs and, as a result, do not yet have distributable reserves 
even though they are now generating surplus cash.  Funds from these 
investee companies have, in some cases, been paid up the VCT by way of 
loans. In due course, it is expected that these loans will be cancelled 
by the declaration of dividends from the investee company once 
distributable reserves are available. 
 
   Article 106.1 restricts the Company from borrowing from non-group 
companies a sum in excess of 15% of the net assets of the Company. As 
currently drafted, loans from investee companies are included in this 
calculation.  The Directors believe that it was not intended that such 
loans be included within this restriction and propose to extend the 
definition of "Group" in the articles to include investee companies. 
Resolution 6 will be proposed as a special resolution at the forthcoming 
AGM seeking to make this amendment to the articles. The Board recommends 
voting in favour of this resolution to allow the Company to continue to 
have flexibility in transferring surplus cash from the investee 
companies to the Company as required. 
 
   Annual General Meeting 
 
   The Company's seventh AGM will be held at St. Magnus House, 3 Lower 
Thames Street, EC3R 6HD at 11:00 a.m. on 21 March 2018. 
 
   Two items of special business will be proposed in respect of authority 
to undertake share buybacks and to amend the Articles of Association as 
described above. 
 
   Outlook 
 
   The recent Budget by Her Majesty's Government announced a number of 
further changes to the VCT regulations. As the Company is effectively 
fully invested, the Board does not believe the new regulations will have 
an impact on returns from the existing portfolio. The new regulations do 
however place further restrictions on the types of new investments that 
VCTs are able to make in future and will have an influence on any plans 
that the Company might develop in respect of new investment activity. 
 
   The Board has also considered the potential impact of the UK leaving the 
European Union.  With almost all of the Company's funds employed in 
renewable energy assets in the UK, the Board do not consider that any 
impact of this will be significant for the Company. 
 
   In terms of the existing portfolio, over the next year, the investment 
advisory team will continue close monitoring of and, where possible, 
seek to further achieve running costs savings and improved efficiency 
from the current assets. 
 
   I look forward to updating Shareholders in my statement with the Half 
yearly report to 31 March 2018 which is expected to be published in July 
2018. 
 
   Stephen Hay 
 
   Chairman 
 
   INVESTMENT ADVISER'S REPORT 
 
   Introduction 
 
   We would like to thank the shareholders for supporting the 
reorganisation of the company and appointing Gresham House Asset 
Management Limited as Investment Adviser. We look forward to sustaining 
and enhancing the impressive investment returns that have been achieved 
since inception in 2009. We are pleased to report that the portfolio of 
assets owned by Hazel Renewable Energy VCT1 plc ("the Company") extended 
its multi-year period of solid performance in the year ending 30 
September 2017. This was achieved in spite of a significant headwind in 
the form of adverse weather conditions faced by all owners of solar 
generation assets in the UK. 
 
   The portfolio was fully invested at the beginning of the year. Although 
there were surplus proceeds from the refinancing carried out in March 
2016, the need to allow for all potential outcomes of the reorganisation 
of the Company meant that these funds were maintained in cash. 
 
   The focus in the year was to generate as much yield as possible from the 
portfolio, and to reduce risk to revenues over multiple years by 
building in resilience through a new spare parts strategy and 
negotiating better insurance terms. 
 
   Overall, the Company owns a well-diversified portfolio of assets of high 
build quality. The ground-mounted sites and the solar installations 
located on the roofs of residential properties owned by housing 
associations across the UK have performed well over the years and 
account for circa ninety percent of the cashflows and therefore the 
value. The small wind turbine portfolio and to a lesser extent the small 
portfolio solar installations located on the roofs of privately-owned 
houses and schools have performed less well over the years, although the 
latter has done better than expected in the past year. 
 
   Overall Portfolio and Operational Review 
 
   We have set out below the framework we use to analyse the performance of 

the portfolio of assets in this report. We base our analysis on three 
key factors: The first are macro level factors and include inflation, 
wholesale power prices, variable components of subsidies for renewable 
energy generation and climactic conditions. The Investment Adviser has 
no control over this set of factors. The second category covers the 
technical performance of an asset in terms of energy generation for a 
given level of macro risk factors. The third category covers costs. The 
Investment Adviser has much more control over the second and third 
categories. 
 
   Starting with macro factors, inflation, a parameter that the portfolio 
is very sensitive to (as a result of inflation-linked power subsidies) 
steadily increased through the year. RPI (Retail Price Inflation) 
increased from 2.0% to 3.9% over the year.  The substantially higher 
level is yet to be reflected in the tariffs as adjustments become 
effective in April, however this increase is a very positive development 
for the portfolio since each 1% increase in valuation, adds circa 
GBP100,000 to portfolio revenues. 
 
   Climactic conditions however were unfavourable. The amount of solar 
irradiation falling on the solar panels showed a marked decline from 
prior years. For the six ground-mounted solar power plants remunerated 
by Feed-in-Tariffs (FiTs) that account for around 70% of the value of 
the portfolio, irradiation fell 5.5% short of forecasts. Each 1% 
movement in irradiation for this portfolio results in a GBP80,000 
movement in revenues. For the two ground-mounted sites remunerated by 
Renewable Obligation Certificates (ROCs), irradiation came in line with 
forecasts due to one of the parks being located on the East Anglia coast 
which typically experiences different weather patterns than Central and 
Western England where the other parks are located. 
 
   Unlike the case with the ground-mounted sites where pyranometers are 
installed to measure irradiation, we do not have the ability to measure 
irradiation at the roof-mounted solar installations as installing 
pyranometers is not cost effective. 
 
   It is extremely difficult to forecast irradiation on a year-by-year 
basis. Conditions have been poor in the last two years and we hope that 
a reversion-to-mean effect manifests itself in the next year. 
 
   Power prices drifted down moderately throughout the year, however the 
portfolio's very low exposure to power prices (less than 5% of revenues 
are currently from variable tariffs) means that this has a very modest 
impact. 
 
   Moving on to the second category, the technical performance of the 
assets. We are pleased to report that the ground-mounted asset base that 
accounts for 77% of the portfolio value, performed in line with 
expectations despite the fact that we raised these expectations during 
the year. Performance would however have come in better had there not 
been an outage of three weeks duration at the point at which one of the 
ground-mounted sites connects to the electricity grid. We expect to be 
partially compensated for this outage through contractual terms in our 
Operations and Maintenance Agreement. 
 
   Outages that occur in the summer where energy generation is highest can 
result in a significant revenue loss and we looked at ways in which we 
can minimise the probability and magnitude of such losses. We 
renegotiated our insurance policies for the ground-mounted assets taking 
advantage of more competition and substantially better terms available 
in the insurance market, and are pleased to report that the excess 
(deductible) is now ten days as opposed to twenty-five days for 
allowable claims. We have also reviewed our spare parts strategy for 
both the ground-mounted and rooftop-mounted solar installations to 
improve the lead times of potential repairs and have ordered an 
additional stock of spare parts that have long delivery times but 
negligible obsolescence risk. 
 
   The reduced risk profile has helped us in our decision to reduce the 
discount rate for the ground-mounted solar sites remunerated by FiTs by 
25 basis points. 
 
   The roof-mounted solar asset portfolio that accounts for circa 12% of 
the overall valuation performed slightly ahead of expectations. 
Generation was 1% better than forecast. 
 
   An area of the portfolio that experienced a significant underperformance 
is the small wind portfolio. This portfolio accounts for around 10% of 
the overall value of the portfolio. We were hopeful that the small 
uplift we experienced in performance in the prior year would continue, 
however the opposite has happened. 
 
   Around a third of the portfolio consists of Chinese-made Huaying HY-5 
wind turbines, some of which experienced significant technical and 
safety issues during the high wind conditions that prevailed in 
February. Britwind, the O&M Contractor, communicated that they would be 
unable to maintain these assets in the future due to the poor technical 
quality of the turbines and lack of support from the manufacturer, which 
invalidated our insurance coverage. This combined with the safety/public 
liability implications forced us to put the turbines on mechanical 
break. 
 
   One major disadvantage of this type of distributed asset is the 
difficulty of finding qualified and experienced Operations and 
Maintenance Contractors that can perform a decent quality service at a 
cost level that makes sense. We were nevertheless able to identify an 
engineer willing to perform these services and have tasked his firm with 
visiting and examining the installations and putting back in operation 
those turbines that are safe and unlikely to necessitate major repairs. 
 
   This has resulted in our decision to recommend a further impairment to 
the value of this element of the portfolio - it is now valued at circa 
half the original investment amount. 
 
   The third factor that determines performance is costs. Most of our work 
to reduce controllable costs was done in the prior year where we 
renegotiated our O&M and insurance contracts and achieved cost 
reductions of more than 50%. We also achieved savings in bookkeeping and 
accounting costs. 
 
   This year however, we suffered the impact of a significant increase in 
business rates. The Government decided to increase business rates by 
close to three times for ground-mounted solar farms that were built in 
the 2010 to 2012 period and therefore earned very high FiTs. The impact 
on the portfolio is an increase of GBP175,000 per year in the cost base 
once the taper period of three years to moderate the impact is over. 
 
   There is the potential of further reductions in O&M costs as prices in 
the UK become more aligned with those in Continental Europe, however the 
long-term nature of our O&M contracts (a requirement under the debt 
facility agreements) mean that we will not enjoy the benefits of such a 
realignment for several years to come. 
 
   We are now working on achieving cost reductions in ancillary areas such 
as electricity imports, communications, security and monitoring, however 
we do not expect these savings to amount to more than GBP10,000 per 
annum across the portfolios. 
 
   Portfolio Valuation 
 
   As at 30 September 2017, the combined NAV and Total Return stood at 
116.1p and 155.6p respectively, an increase of 2.9p after adjusting for 
dividends paid during the year of 5.0p. This year's increase, as was the 
case last year, has come from the increase in market prices for 
renewable generation assets which we have reflected in the lower (by 25 
basis points) range we used to value the ground-mounted, FiT remunerated 
solar sites that account for circa 70% of the value of the portfolio. 
 
   In addition, our valuation assumptions incorporate a small increase in 
the generation forecast. It would be extremely unlucky for the current 
poor irradiation conditions to persist in the very long term and we have 
reduced the weighting of the current year in our forecasts. 
 
   There have been no changes to discount rates used for other assets in 
the portfolio or to inflation assumptions. Inflation has continued to 
increase during the year and RPI has come in as high as 3.9% (as opposed 
to our forecast for long term inflation of 3%) however we must take into 
account that this increase could prove to be very transient. 
 
   Similar to last year, a significant portion of the valuation (circa 
GBP10million in total with the Company's share being GBP5.0million - 
circa 18% of the valuation) is comprised of cash balances held by 
investee companies. Two thirds of this cash is held in reserves (for 
equipment replacement and debt service in the case of a significant 
breach of debt terms) that are mandatory under the debt facility 
agreements. 
 
   In the longer term the potential to capture residual value through the 
extension of leases beyond their 25-year term and upgrading the 
equipment using new technology with much better yields may arise. We 
witnessed this in another transaction relating to an asset outside the 
Company's portfolio. It is a given that subsidies will not be available 
and it is impossible to predict power prices so far out in the future 
but upgrade costs are also likely to be very low. 
 
   Other Developments 
 
   The Hazel Capital Team that has delivered market-leading performance in 
shareholder value is now proud to be part of Gresham House plc, a 
fast-growing publicly-quoted alternative asset manager. We believe these 
combined resources will be of great benefit to shareholders as they will 
have the same core investment team continuing to manage the portfolio as 
well as access to the wider Gresham House team's experience in 
alternative asset management and investor communication. On the latter 
point, Gresham House are working closely with trusted advisers, clients 
and industry experts to develop a best-in-class client portal, which 
will provide enhanced communication and high-quality reporting to 
investors. The objective is to provide all shareholders with secured 
access to the client portal during the first quarter of 2018. 
 
   Outlook 
 

   We will continue to target improvements in yield and reductions in risk 
across the portfolio, and evaluate incremental maintenance capex 
decisions that have the potential to generate high returns. 
 
   Should the opportunity occur to deploy the surplus cash proceeds held by 
investee companies as a result of the March 2016 refinancing, we will 
seek further investment opportunities such as the acquisition of small 
scale solar sites or adding energy storage to existing projects in a way 
that does not compromise the accreditation status. 
 
   Gresham House Asset Management Limited 
 
   REVIEW OF INVESTMENTS 
 
   Portfolio of investments 
 
   The following investments were held at 30 September 2017: 
 
 
 
 
                                                        Valuation 
                                                         movement      % of 
                                    Cost     Valuation   in year     portfolio 
                                  GBP'000    GBP'000     GBP'000 
Qualifying and part-qualifying 
investments 
Lunar 2 Limited*                    2,976       15,322      1,843        48.6% 
Ayshford Solar (Holding) 
 Limited*                           1,928        3,154        164        10.0% 
Lunar 1 Limited*                      125        2,121       (65)         6.7% 
New Energy Era Limited                884        1,390       (99)         4.4% 
Hewas Solar Limited                 1,000        1,355        (6)         4.3% 
Vicarage Solar Limited                871        1,215       (88)         3.9% 
Tumblewind Limited*                 1,401        1,144       (65)         3.6% 
Gloucester Wind Limited             1,000          953      (200)         3.0% 
Minsmere Power Limited                975          729      (321)         2.3% 
HRE Willow Limited                    875          726       (44)         2.3% 
Penhale Solar Limited                 825          725       (10)         2.3% 
St Columb Solar Limited               650          673       (17)         2.1% 
Chargepoint Services Limited          500          500          -         1.6% 
Small Wind Generation Limited         975          483      (100)         1.5% 
Sunhazel UK Limited                     1            -          -         0.0% 
                                   14,986       30,490        992        96.6% 
Non-qualifying investments 
AEE Renewables UK 3 Limited           900          900          -         3.0% 
                                      900          900          -         3.0% 
 
                                   15,886       31,390        992        99.6% 
 
Cash at bank and in hand                           129                    0.4% 
Total investments                               31,519                  100.0% 
 
 
   * Part-qualifying investment 
 
   All venture capital investments are incorporated in England and Wales. 
 
   Hazel Renewable Energy VCT2 plc, of which Gresham House Asset Management 
Limited ("GHAM") is the Investment Adviser, holds the same investments 
as above. 
 
 
 
   Investment movements for the year ended 30 September 2017 
 
 
 
   DISPOSALS 
 
 
 
 
                               Valuation at 30               Profit   Realised 
                      Cost      September 2016    Proceeds   vs cost    Gain 
                     GBP'000       GBP'000        GBP'000   GBP'000   GBP'000 
Qualifying and 
part-qualifying 
investments 
Ayshford Solar 
 (Holdings) 
 Limited                 552                 506       552         -        46 
                         552                 506       552         -        46 
 
Non-qualifying 
investments 
Tumblewind Limited        37                  37        37         -         - 
                          37                  37        37         -         - 
 
                         589                 543       589         -        46 
 
 
   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 (FRS 102). Under company law, the Directors must not approve 
the financial statements unless they are satisfied that they give a true 
and fair view of the state of affairs of the 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 2017 
 
 
 
 
                                                           Year ended 30 September        Year ended 30 September 
                                                                    2017                                     2016 
 
                                                         Revenue  Capital    Total    Revenue  Capital    Total 
                                                         GBP'000  GBP'000   GBP'000   GBP'000  GBP'000   GBP'000 
 
Income                                                       492        -        492    1,784        -      1,784 
 
Gain on investments                                            -    1,038      1,038        -      376        376 
                                                             492    1,038      1,530    1,784      376      2,160 
 
 
Investment advisory fees                                   (415)    (139)      (554)    (432)    (144)      (576) 
 
Other expenses                                             (273)        -      (273)    (272)     (72)      (344) 
 
 
(Loss)/(profit) on ordinary activities before tax          (196)      899        703    1,080      160      1,240 
 
Tax on total comprehensive income and ordinary 
activities                                                     -        -          -        -        -          - 
 
(Loss)/(profit) for the year and total comprehensive 
 income                                                    (196)      899        703    1,080      160      1,240 
 
Basic and diluted earnings per share: 
Ordinary Share                                            (0.8p)     3.8p       3.0p     4.4p     0.7p       5.1p 
'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 2017 
 
 
 
 
                                                                2017              2016 
                                                      GBP'000  GBP'000  GBP'000  GBP'000 
Fixed assets 
Investments                                                     31,390            30,941 
 
Current assets 
Debtors                                                   443               416 
Cash at bank and in hand                                  129                 6 
                                                          572               422 
 
Creditors: amounts falling due within one year           (71)             (157) 
 
Net current assets                                                 501               265 
Total assets less net current assets                            31,891            31,206 
 
Creditors: amounts falling due after more than one 
 year                                                 (4,426)           (3,262) 
 
Net assets                                                      27,465            27,944 
 
 
Capital and reserves 

Called up Ordinary Share capital                                    24                24 
Called up 'A' Share capital                                         36                36 
Share premium account                                            3,910             3,910 
Special reserve                                                  9,062            10,244 
Revaluation reserve                                             15,504            14,466 
Capital redemption reserve                                           2                 2 
Capital reserve - realised                                     (1,195)           (1,056) 
Revenue reserve                                                    122               318 
 
Total Shareholders' funds                                       27,465            27,944 
 
Basic and diluted net asset value per share 
Ordinary Share                                                  116.0p            118.1p 
'A' Share                                                         0.1p              0.1p 
 
   STATEMENT OF CHANGES IN EQUITY 
 
   for the year ended 30 September 2017 
 
 
 
 
                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 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 
 
Year ended 30 September 2017 
 
At 30 
 September 
 2016                60    3,910    10,244       14,466           2    (1,056)      318    27,944 
Total 
comprehensive 
income                -        -         -          992           -       (93)    (196)       703 
Transactions 
with owners 
Dividend Paid         -        -   (1,182)            -           -          -        -   (1,182) 
Transfer 
between 
Reserves              -        -         -           46           -       (46)        -         - 
At 30 
 September 
 2017                60    3,910     9,062       15,504           2    (1,195)      122    27,465 
 
   CASH FLOW STATEMENT 
 
   for the year ended 30 September 2017 
 
 
 
 
                                          Year ended          Year ended 
                                   30 September 2017   30 September 2016 
                                       GBP'000             GBP'000 
 
Net cash inflow/(outflow) from 
 operating activities                          (448)                 784 
 
Cash flows from investing 
activities 
Purchase of investments                            -             (1,057) 
Proceeds from disposal of 
 investments                                     589               1,148 
Net cash inflow from investing 
 activities                                      589                  91 
 
 
Net cash inflow before financing 
 activities                                      141                 875 
 
Cash flows from financing 
activities 
Equity Dividends paid                        (1,182)             (1,182) 
Long term loans                                1,164               1,261 
Purchase of own shares                             -             (1,004) 
Net cash outflow from financing 
 activities                                     (18)               (925) 
 
Net increase/(decrease) in cash                  123                (50) 
Cash and cash equivalents at 
 start of year                                     6                  56 
Cash and cash equivalents at end 
 of year                                         129                   6 
 
Cash and cash equivalents 
comprise 
Cash at bank and in hand                         129                   6 
Total cash and cash equivalents                  129                   6 
 
 
   NOTES TO THE ACCOUNTS 
 
   for the year ended 30 September 2017 
 
   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. 
 
   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 advisory fees to the revenue account 
and 25% to the capital account to reflect the Board's estimated split of 
investment returns which will be achieved by the 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 as set out in 
Note 10 of the annual report) 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 2017   30 September 2016 
                          GBP'000       GBP'000 
Income from investments 
Loan stock interest           185                 198 
Dividend income               307               1,586 
                              492               1,784 
 
Other income 
Bank interest                   -                   - 
                              492               1,784 
 
 
   4. Basic and diluted earnings per share 
 
 
 
 
                                                   Revenue 
                      Weighted average number      (loss)/          Capital 
                           of shares in issue       return           return 
Profit/(loss) per share is calculated on the             per              per 
following:                                     GBP'000   share  GBP'000   share 
 
Year ended 30 
 September 
 2017             Ordinary Shares  23,638,058    (195)   (0.8)      898     3.8 
 
                       'A' Shares  35,977,774      (1)       -        1       - 
 
Year ended 30 
 September 
 2016             Ordinary Shares  24,347,961    1,078     4.4      160     0.7 
 
                       'A' Shares  36,635,087        2       -        -       - 
 
 
   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            2017                      2016 
                     2017        2016      Net asset value     Net asset value 
                                            per                per 
                                           share   GBP'000    share   GBP'000 
Ordinary Shares   23,638,058  23,638,058    116.0    27,429    118.1    27,908 
'A' Shares        35,977,774  35,977,774      0.1        36      0.1        36 
 
 
   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: 
 
   - Market risks; 
 
   - Credit risk; and 
 
   - Liquidity risk. 
 
   The Board regularly reviews these risks and the policies in place for 
managing them. There have been no significant changes to the nature of 
the risks that the 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 Adviser and overseen by the Board. The 
Adviser monitors investments through regular contact with management of 
investee companies, regular review of management accounts and other 
financial information and attendance at investee company board meetings. 
This enables the Adviser to manage the investment risk in respect of 
individual investments. Investment risk is also mitigated by holding a 
diversified portfolio spread across various business sectors and asset 
classes. 
 
   The key investment risks to which the Company is exposed are: 
 
   - Investment price risk; and 
 
   - Interest rate risk 
 
   Investment price risk 
 
   The Company's investments which comprise 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 2017, the unquoted portfolio was valued at GBP31,390,000 
(2016: GBP30,941,000). 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 
inflation, 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 investments to an individual input, while all other variables 
remain constant. The Board considers these changes in inputs to be 
within reasonable expected ranges. This is not intended to imply the 
likelihood of change or that possible changes in value would be 
restricted to this range. The possible effects are quantified below. 
 
 
 
 
 
                                               Change in fair 
                                                  value of       Change in NAV 
     Input     Base case    Change in input     investments        per share 
                                                 GBP'000            pence 
 
Discount 
 rate       6.5% - 7.25%              +0.5%           (1,870)            (7.9) 
                                      -0.5%             1,985              8.4 
 
Inflation     3.0 - 3.2%              -0.5%           (2,142)            (9.1) 
                                      +0.5%             2,172              9.2 
 
 
   Power prices 
 
   The Board has considered the potential impact of changes in power prices 
in the future and have concluded than the impact of any foreseeable 
increases or decreases will not be significant to the valuation of the 
portfolio as a substantial proportion of the total income generated by 
the portfolio is derived from Feed in Tariffs and Renewable Obligation 
Certificates. 
 
 
 
   Asset life 
 
   The Board has also considered the potential impact of changes to the 
anticipated lives of assets in the portfolio. Close to ninety percent of 
the Company's value is in assets refinanced by debt, and under the debt 
facility agreements, substantial reserves are in place for renewing key 
equipment as and when required. Furthermore, the underlying assets have 
leases that are valid for the lifetime of the Company and cannot be 
terminated early. Accordingly the Board does not consider that there 
will be any significant impact to investment valuations as a result of 
asset lives varying from those currently anticipated. 
 
   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. Where Investments in loan stock attract 
interest, this is predominately charged at fixed rates. A summary of the 
interest rate profile of the Company's investments is shown below. 
 
   There are three categories in respect of interest which are attributable 
to the financial instruments held by the Company as follows: 
 
   - "Fixed rate" assets represent investments with predetermined yield 
targets and comprise certain loan note investments and preference 
shares; 
 
   - "Floating rate" assets predominantly bear interest at rates linked to 
The Bank of England base rate or LIBOR and comprise cash at bank; and 
 
   - No interest rate" assets do not attract interest and comprise equity 
investments, certain loan note investments, loans and receivables and 
other financial liabilities. 
 
 
 
 
                      Average     Average period   2017     2016 
                   interest rate  until maturity  GBP'000  GBP'000 
 
Fixed rate                  8.2%      1,810 days    2,231    2,255 
Floating rate                 0%                      129        6 
No interest rate                                   24,961   25,535 
                                                   27,321   27,796 
 
 
   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 profit before tax for the year by GBP61. The Bank of England 
base rate increased from 0.25% per annum to 0.5% per annum on 2 November 

2017. Any potential change in the base rate, at the current level, would 
have an immaterial impact on the net assets and total return of the 
Company. 
 
   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 Adviser 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 with interest, dividends and other 
receivables is covered within the investment advisory procedures. The 
level of security is a key means of managing credit risk. Additionally, 
the risk is mitigated by the security of the assets in the underlying 
investee companies. 
 
   Cash is held by the Royal Bank of Scotland plc which is an 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 GBP71,000 (2016: GBP157,000) and has long term 
loans from investee companies (see Note 13 of the annual report for an 
analysis of the repayment terms), which are expected to be repaid by 
future dividends from these companies, being GBP4,426,000 (2016: 
GBP3,262,000), 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 Adviser in 
line with guidance agreed with the Board and is reviewed by the Board at 
regular intervals. 
 
   7. Controlling party and related party transactions 
 
   In the opinion of the Directors there is no immediate or ultimate 
controlling party. 
 
   8. Events after the end of the reporting period 
 
   At the General Meeting of Hazel 2 Shareholders, at 10:45am on 7 November 
2017, held at 6th Floor, St. Magnus House, 3 Lower Thames Street, London 
EC3R 6HD, Hazel 2 Shareholders voted unanimously in favour of the 
proposals for the reorganisation of Hazel 2, as detailed in the letter 
to Shareholders dated 17 October 2017. Adoption of the Proposals by the 
Company was conditional on Hazel 2 obtaining shareholder approval for 
the Proposals, such that the two companies could continue to operate 
closely together under a joint Investment Advisory Agreement. 
 
   The particulars of the proposals are set out below: 
 
   - Gresham House Asset Management Limited ("GHAM"), a wholly owned 
subsidiary of Gresham House plc, was appointed as the Investment 
Adviser; 
 
   - the investment advisory fee percentage is reduced from 2.0% to 1.4% 
for the first year, followed by a further reduction to 1.15% thereafter; 
 
   - there will be an absolute cap on the fees charged to investee 
companies by the Investment Adviser; 
 
   - performance incentive arrangements will remain unchanged; 
 
   - the annual running costs cap will be reduced from 3.5% of net assets 
to 3.0% of net assets per annum; 
 
   - the buyback policy will be revised such that shares in the market will 
be repurchased at a discount of 2% to the latest published NAV. The 
previous policy set a discount of 5%. 
 
   - the notice period in respect of the agreement with the Investment 
Adviser will be reduced from 12 months to 9 months and Shareholder 
approval will no longer be required to initiate the notice period. The 
revised notice period cannot be activated within two years of the 
commencement date of the new Investment Advisory Agreement. 
 
   In addition to the above, the following changes, as also detailed in the 
letter to shareholders dated 17 October 2017, were agreed by the Board: 
 
   - The fees payable to Downing LLP have increased from GBP35,000 to 
GBP40,000 per annum, with effect from 1 October 2017; 
 
   - The annual fees payable to the Chairman have increased from GBP20,000 
to GBP25,000; 
 
   - The annual fees payable to the other Non-executive Directors have 
increased from GBP15,000 to GBP20,000. 
 
   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 
2017, but has been extracted from the statutory financial statements for 
the year ended 30 September 2017, which were approved by the Board of 
Directors on 9 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 2016 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 2017 will be printed and posted to shareholders 
shortly. Copies will also be available to the public at the registered 
office of the Company at 6(th) Floor, St. Magnus House, 3 Lower Thames 
Street, London EC3R 6HD 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 10, 2018 02:00 ET (07:00 GMT)

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