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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Hazel Renew 2 | LSE:HR2O | London | Ordinary Share | GB00B43GVJ82 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 110.00 | 108.00 | 112.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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Hazel Renewable Energy VCT2 plc
Half-Yearly Report for the six months ended 31 March 2017
Performance summary
31 Mar 2017 30 Sep 2016 31 Mar 2016
Pence Pence Pence
Net asset value per Ordinary Share 115.5 117.3 116.6
Net asset value per 'A' Share 0.1 0.1 0.1
Cumulative dividends per Ordinary Share 34.5 34.5 29.5
Total return per Ordinary Share and 'A'
Share 150.1 151.9 146.2
CHAIRMAN'S STATEMENT
I present the Company's half-yearly report for the six months ended 31
March 2017.
As Shareholders will be aware, a General Meeting took place in January
for Shareholders to vote on whether the Company should continue as a
Venture Capital Trust for a further five years. Shareholders voted
against the resolution and, as a result, the Board is now working on
proposals for the voluntary liquidation, reconstruction or other
reorganisation of the Company.
Investments
At the period end, the Company held a portfolio of 17 investments with a
value of GBP30.9 million which were spread across the ground mounted
solar, roof mounted solar and small wind sectors. There have been no
additions to or disposals from the portfolio during the period.
The portfolio companies have continued to perform in line with
expectations over the period under review, in some cases benefitting
from improved rates on Operations and Maintenance contracts that the
Investment Advisor has been able to negotiate. The Board has reviewed
the valuations at the period end and agreed that no adjustments to the
investment valuations were required.
Further detail on the investments is provided in the Investment
Advisor's report.
Net asset value and results
At 31 March 2017, the net asset value ("NAV") per Ordinary Share stood
at 115.5p and the NAV per 'A' Share stood at 0.1p, producing a combined
total of 115.6p. This represents a small fall of 1.8p since the 30
September 2016 year end as the VCT's running costs have exceeded income
from the assets over the winter period when solar irradiation is at its
lowest.
Total Return (total NAV plus cumulative dividends paid to date) stands
150.1p for a holding of one Ordinary Share and one 'A' Share, compared
to the cost for subscribers in the original share offer, net of income
tax relief, of 70.0p. The Directors consider this to be an excellent
result for Shareholders to date.
The loss on ordinary activities after taxation for the period as shown
in the Income Statement was GBP428,000, equivalent to 1.8p per Ordinary
Share. This loss arises as the investee companies have not paid any
dividends to the VCT during the period as a result of the seasonality of
the income for most of the assets. VCT running costs for this period
have therefore exceeded income.
Dividends
In line with the Company's policy a dividend of 5.0p per Ordinary Share
will be paid on 15 September 2017 to Shareholders on the register at 18
August 2017.
Directorate
As I mentioned in my statement in the Annual Report, Matthew Evans
joined the Board as a non-executive director on 31 January 2017. Matthew
is proving to be a very useful addition to the Board, which now
comprises three non-executive directors. The Directors believe this is
an appropriate size for the Company.
Future Strategy
As mentioned above, shareholders have voted against the Company
continuing as a Venture Capital Trust for a further five years. As your
Company has a close relationship with Hazel Renewable Energy VCT1 plc
("Hazel 1"), with which it has co-invested on all its investments, the
Board has been working with the Hazel 1 Board, seeking to develop
proposals that will best meet the requirements of all shareholders.
To this end, the Companies have appointed a consultant to run this
process and have engaged with several parties, including Hazel Capital,
the Investment Advisor, with the objective of preparing formal
proposals. The final proposals are expected to provide some Shareholders
with an option to exit from their investment while maintaining viable
vehicles for those Shareholders that wish to continue holding their
investment.
We anticipate that these proposals will be ready to present to
Shareholders in the late summer.
Share buybacks
In view of the ongoing review of future strategy, the Board has
suspended share buybacks for the time being. These may be re-introduced
when the plans for the future of the Company have become clearer.
No shares were purchased in the period.
Outlook
There are a number of differing views amongst the shareholder base of
the Company, and Hazel 1, as to what investors wish to see from the
companies and their investments in the future. The Board has been
presented with a significant challenge to structure a plan that can meet
the requirements of all Shareholders, but is working towards proposals
which it believes can be flexible enough to satisfy most Shareholders.
This process is made a little easier by the fact that the Company
continues to hold a robust portfolio of renewable energy assets which is
producing satisfactory returns and is expected to continue to do so well
into the future.
I look forward to presenting proposals to Shareholders in the coming
months.
Peter Wisher
Chairman
INVESTMENT MANAGER'S REPORT
We are pleased with the overall performance of the portfolio in the half
year ending 31 March 2017.
The portfolio consists of assets of a high build quality that are
standing the test of time well. Most of them have been inspected at
different points in time and have passed with flying colours, especially
the solar assets. The strong O&M contracts we have as well as the right
monitoring and risk management strategy we are implementing suggest that
performance will remain strong in the future.
The major assets of the portfolio have performed well during this
period. Where we have had issues these have been primarily limited to
segments of the portfolio that make a very small contribution to total
NAV. We have also been able to achieve significant cost savings
primarily through the renegotiation of Operations and Maintenance
("O&M") contracts for these assets.
There are three sets of key factors we look at to determine the overall
performance of the portfolio; macro factors (such as inflation, power
prices, ROC recycle values and climactic conditions), technical
performance and operating costs.
As investment managers, we have control over the latter two factors but
macro factors are outside our control.
Macro factors were marginally unfavourable overall in the latest period.
Inflation was higher with UK RPI increasing from 2% to 3.1%, although
the benefits of this will not be felt until next year. In terms of
weather conditions for our solar and wind assets, solar irradiation was
in line with expectations while average wind speeds were not at all
favourable.
In more detail, the ground mounted solar installations, accounting for
over 75% of the NAV, performed substantially better than the
roof-mounted solar installations which are primarily located in northern
parts of the UK and are hence more susceptible to shadowing effects in
the dark months of the year. Power prices fluctuated significantly
during the period but ended the half year at levels similar to where
they started. A spike in power prices during the period had little
positive impact on the portfolio, as over 80% of the NAV is concentrated
on projects remunerated under the Feed-in-Tariff (FIT) regime, where
over 90% of revenues are fixed. Finally, the ROC recycle price (which
affects two of our solar projects) remained at zero due to surge in
renewable energy generation capacity that has been deployed. This is
despite the commitment enshrined in the ROC regime that they should
reach 10% of the ROC buyout price.
The portfolios benefit from inflation as the electricity tariffs earned
by renewable energy generation installations are revised upwards every
April with inflation (with reference to RPI the October before). All
else being equal a 1% increase in inflation increases cash available for
distribution by c.3%. Tariffs were adjusted upwards in April by 2.51%
which means that there was no benefit accruing to the portfolio in the
last half year but we look forward to this contributing in future
periods.
In terms of technical performance, the ground mounted solar
installations performed in line with the expectations set at the time of
acquisition of the projects. For one of the sites there was an outage
in October at the point of connection to the electricity grid which is
outside the site boundary and under the exclusive control of the local
electricity network operator. This meant that although the site was
capable of generating power, it could not export this power to the grid.
All the sites are insured with business interruption insurance for this
type of event, although, in this case, the duration was less than the
minimum excess set under the policy. The impact on the portfolio was to
reduce revenues portfolio by 1.5%, all else being equal. This is the
sort of rare event over which a manager has little control.
In the period, we undertook a new risk assessment study based on our
experience to date with the purpose of identifying areas where a small
incremental investment could drastically reduce the likelihood of low
probability but high impact outages within a project's boundary. We
took into account the age of the equipment as well as the fact that some
brands of equipment are getting more difficult to source. Three areas we
identified as having a high pay-off. These are longer lead time items
such as meters and switchgear. A modest incremental investment has
resulted in sufficient spares to avoid such an event across the four
larger FiT-remunerated sites that generate around 75% of overall
portfolio revenues (but a smaller percentage of cashflow today due to
debt obligations).
Rooftop installations, which represent circa 18% of the NAV mostly
performed well. The only ongoing challenge relates to detailed
monitoring as it is not cost effective to put equipment on the c. 1,500
small installations that the portfolio owns. As a result, some of the
installations can be affected by communication problems which prevent
metering data being reported for revenue collection purposes. This is a
widespread occurrence across similar solar portfolios and its effect is
only limited to timing of revenue receipts.
The small wind turbine portfolio which accounts for 7% of the total NAV
suffered a run of sub-par performance exacerbated by poor wind
conditions. One third of the fleet consists of Huaying HY-5 turbines
which have performed poorly from the start. We had initiated a
maintenance capital expenditure programme to improve performance.
However, this has now been put on hold due to mechanical failure on two
Huaying turbines meaning that most of these turbines have been put on
mechanical break as we perform a safety review.
As to costs, we have renegotiated the O&M contracts for the four largest
FiT-remunerated ground-mounted solar assets, and now pay around half of
what we were paying last year, as well as improving contractual
provisions. A further 10% reduction will come through if we extend the
contracts beyond the one-year term, which can be done once there is
clarity on the final outcome of the continuation vote process.
We are working on achieving further cost savings through lower bills for
services such as electricity (incoming), mobile and broadband
communications and security and monitoring.
There is also scope to renegotiate some terms of the debt facility that
was put in place in December 2013. We will report on this at a future
date but, for example, as the prices of inverters and modules is now
much lower than in 2013, the reserves are now sufficient to replace most
inverters and a significant sub-set of the entire module stock across
the six sites in question.
There is the potential for a negative development on the cost side,
beyond the manager's control: there are proposals that, if finally
implemented, could increase the business rates that the FiT-remunerated
sites are paying, by increasing the rateable value, significantly. A
decision on these proposals is due in the near future.
Year over year, energy production has been at the same level as it was
during the half year to March 2016, when climactic conditions were also
slightly unfavourable. Production in this period accounts for around a
third of annual output, and even a single good month in the summer
season would be sufficient to redress the effect over the full year.
Looking into the future, the increase in inflation will impact the
portfolio positively, as will more favourable weather conditions than
those which have been experienced over the last 18 months.
Investment Strategy, Valuation and Dividends There is a substantial
amount of cash in the portfolio as only 30% of the refinancing
transaction proceeds from last year were reinvested. However the Board
has halted new investment pending the outcome of the process that began
with the continuation vote in January 2017. Share buy backs, inter alia,
would be a good use of this cash.
The portfolio is capable of generating a very attractive dividend
profile which will increase over time as inflation filters through,
operating costs are released further, cash in reserves are released and
leverage is paid off.
The government has closed all avenues that enable investors to enjoy the
regular and predictable income streams for renewable generation assets
in a tax free manner. In our view, this means that the portfolio has
scarcity value as well, in our view.
We are working with the Board to reach a solution that will allow
investors who have voted in favour of continuation to continue enjoying
increasing tax free dividends, and those investors who want to sell to
exit at an attractive price.
We look forward to the next half year and building on the progress we
achieved in the six months ended March 2017.
As a final comment, Hazel Capital has announced that it has agreed terms
for its acquisition by Gresham House plc. This is a very positive
development which will strengthen the Hazel Capital team and improve its
ability to perform its services. The transaction is expected to
complete in the third quarter of 2017.
Ben Guest
Managing Partner
Hazel Capital LLP
UNAUDITED SUMMARISED BALANCE SHEET
as at 31 March 2017
31 Mar 31 Mar 30 Sep
2017 2016 2016
GBP'000 GBP'000 GBP'000
Fixed assets
Investments 30,941 30,071 30,941
Current assets
Debtors (including accrued income) 484 452 420
Cash at bank and in hand 7 21 4
491 473 424
Creditors: amounts falling due within one year (45) (96) (161)
Net current assets/(liabilities) 446 377 263
Total assets less net current assets/(liabilities) 31,387 30,448 31,204
Creditors: amounts falling due after more than one
year (3,045) (1,730) (2,434)
Net assets 28,342 28,718 28,770
Capital and reserves
Called up share capital 62 62 62
Share premium 3,985 3,985 3,985
Special reserve 11,065 12,402 11,065
Revaluation reserve 14,466 14,096 14,466
Capital reserve - realised (1,187) (913) (1,057)
Revenue reserve (49) (914) 249
Equity shareholders' funds 28,342 28,718 28,770
Net asset value per Ordinary Share 115.5p 116.6p 117.3p
Net asset value per 'A' Share 0.1p 0.1p 0.1p
115.6p 116.7p 117.4p
STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 March 2017
Called up Share Capital
share premium Special Revaluation reserve Revenue
capital account reserve reserve - realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Six months ended 31 March 2016
At 30
September
2015 62 3,985 12,402 14,090 (841) (810) 28,888
Gains on
investments - - - 6 - - 6
Expenses
capitalised - - - - (72) - (72)
Retained
revenue - - - - - (104) (104)
At 31 March
2016 62 3,985 12,402 14,096 (913) (914) 28,718
Year ended 30 September 2016
At 30
September
2015 62 3,985 12,402 14,090 (841) (810) 28,888
Gains on
investments - - - 370 6 - 376
Expenses
capitalised - - - - (216) - (216)
Retained
revenue - - - - - 1,059 1,059
Transfer
between
reserves - - - 6 (6) - -
Repurchase
and
cancellation
of own
shares - - (111) - - - (111)
Dividend paid - - (1,226) - - - (1,226)
At 30
September
2016 62 3,985 11,065 14,466 (1,057) 249 28,770
Six months ended 31 March 2017
At 30
September
2016 62 3,985 11,065 14,466 (1,057) 249 28,770
Gains on
investments - - - - - - -
Expenses
capitalised - - - - (130) - (130)
Retained
revenue - - - - - (298) (298)
At 31 March
2017 62 3,985 11,065 14,466 (1,187) (49) 28,342
UNAUDITED INCOME STATEMENT
for the six months ended 31 March 2017
Year
ended
Six months ended Six months ended 30 Sep
31 Mar 2017 31 Mar 2016 2016
Revenue Capital Total Revenue Capital Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Income 6 - 6 267 - 267 1,784
Gains on investments - - - - 6 6 376
- - - 267 6 273 2,160
Investment management fees (215) (72) (287) (216) (72) (288) (576)
Other expenses (89) (58) (147) (155) - (155) (365)
(Loss)/return on ordinary
activities before taxation (298) (130) (428) (104) (66) (170) 1,219
Tax on total comprehensive
income and ordinary
activities - - - - - - -
(Loss)/return attributable to
equity shareholders (298) (130) (428) (104) (66) (170) 1,219
Return per Ordinary Share (1.2p) (0.6p) (1.8p) (0.4p) (0.3p) (0.7p) 4.9p
Return per 'A' Share - - - - - - -
The total column within the Income Statement represents the Statement of
Total Comprehensive Income of the Company prepared in accordance with
Financial Reporting Standards ("FRS102"). The supplementary revenue and
capital return columns are prepared in accordance with the Statement of
Recommended Practice issued in November 2014 by the Association of
Investment Companies ("AIC SORP").
A Statement of Total Recognised Gains and Losses has not been prepared
as all gains and losses are recognised in the Income Statement as noted
above.
UNAUDITED CASH FLOW STATEMENT
for the six months ended 31 March 2017
31 Mar 31 Mar 30 Sep
2017 2016 2016
GBP'000 GBP'000 GBP'000
Net cash outflow from operating activities (606) (328) 786
Cash flows from investing activities
Purchase of investments - (558) (1,057)
Sale of investments - 1,148 1,148
Net cash inflow from investing activities - 590 91
Net cash inflow/(outflow) before financing
activities (606) 262 877
Cash flows from financing activities
Equity dividends paid - - (1,226)
Long term loans 609 (257) 448
Purchase of own shares - - (111)
Net cash (outflow)/inflow from financing
activities 609 (257) (889)
Increase/(decrease) in cash 3 5 (12)
Notes to the cash flow statement:
1 Cash (outflow)/inflow from operating
activities
(Loss)/return on ordinary activities before
taxation (429) (170) 1,219
Gains on investments - (6) (376)
Increase in other debtors (62) (90) (58)
(Decrease)/increase in other creditors (115) (62) 1
Net cash outflow from operating activities (606) (328) 786
2 Analysis of net funds
Beginning of period 4 16 16
Net cash inflow/(outflow) 3 5 (12)
End of period 7 21 4
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 March 2017
% of
Unrealised portfolio
Cost Valuation gain in period by value
GBP'000 GBP'000 GBP'000
Qualifying and partially
qualifying investments
Lunar 2 Limited* 2,976 13,479 - 43.6%
Ayshford Solar (Holding)
Limited* 2,480 3,496 - 11.3%
Lunar 1 Limited* 125 2,186 - 7.1%
New Energy Era Limited 884 1,489 - 4.8%
Hewas Solar Limited 1,000 1,361 - 4.4%
Vicarage Solar Limited 871 1,303 - 4.2%
Tumblewind Limited* 1,438 1,246 - 4.0%
Gloucester Wind Limited 1,000 1,153 - 3.7%
Minsmere Power Limited 975 1,050 - 3.4%
HRE Willow Limited 875 770 - 2.5%
Penhale Solar Limited 825 735 - 2.4%
St. Columb Solar Limited 650 690 - 2.2%
Small Wind Generation Limited 975 583 - 1.9%
Chargepoint Services Limited 500 500 - 1.6%
Sunhazel UK Limited 1 - - 0.0%
15,575 30,041 - 97.1%
Non qualifying investments
AEE Renewables UK 3 Limited 900 900 - 2.9%
900 900 - 2.9%
16,475 30,941 - 100.0%
Cash at bank and in hand 7 0.0%
Total investments 30,948 100.0%
* Part-qualifying investment
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. General information
Hazel Renewable Energy VCT2 plc ("the Company") is a venture capital
trust established under the legislation introduced in the Finance Act
1995 and is domiciled in the United Kingdom and incorporated in England
and Wales.
2. Accounting policies - Basis of accounting
The unaudited half-yearly results cover the six months to 31 March 2017
and have been prepared in accordance with the accounting policies set
out in the annual accounts for the year ended 30 September 2016 which
were prepared under FRS 102 'The Financial Reporting Standard applicable
in the UK and Republic of Ireland' and in accordance with the Statement
of Recommended Practice ("SORP") "Financial Statements of Investment
Trust Companies and Venture Capital Trusts" issued by the Association of
Investment Companies ("AIC") revised November 2014.
3. All revenue and capital items in the Income Statement derive from
continuing operations.
4. The Company has only one class of business and derives its income
from investments made in shares, securities and bank deposits.
5. Net asset value per share at the period end has been calculated on
24,504,860 Ordinary Shares and 36,799,133 'A' Shares, being the number
of shares in issue at the period end.
6. Return per share for the period has been calculated on 24,504,860
Ordinary Shares and 36,799,133 'A' Shares, being the weighted average
number of shares in issue during the period.
7. Dividends
Period ended Year ended
31 Mar 2017 30 Sep 2016
Revenue Capital Total Total
GBP'000 GBP'000 GBP'000 GBP'000
Paid in period
2016 Interim Ordinary - 5.0p - - - 1,226
- - - 1,226
Forthcoming dividends
2017 Interim Ordinary - 5.0p - 1,226 1,226 -
- 1,226 1,226 -
8. Reserves
Year
Period ended ended
31 Mar 2017 30 Sept 2016
GBP'000 GBP'000
Share premium reserve 3,985 3,985
Special reserve 11,065 11,065
Revaluation reserve 14,466 14,466
Capital reserve-realised (1,187) (1,057)
Revenue reserve (49) 249
28,280 28,708
The Revenue reserve, Capital reserve - realised and Special reserve are
distributable reserves. The distributable reserve is reduced by
unrealised holding losses of GBP598,703 which are included in the
Revaluation reserve. Distributable reserves at 31 March 2017 were
GBP9,231,835.
9. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required
in the Company's half-year results to report on principal risks and
uncertainties facing the Company over the remainder of the financial
year.
The Board has concluded that the key risks facing the Company over the
remainder of the financial period are as follows:
(i) investment risk associated with investing in small and immature
businesses;
(ii) market risk in respect of the various assets held by the investee
companies; and
(iii) failure to maintain approval as a VCT.
In order to make VCT qualifying investments, the Company has to invest
in small businesses which are often immature. The Investment Manager
follows a rigorous process in vetting and careful structuring of new
investments and, after an investment is made, close monitoring of the
business is conducted. The Manager also seeks to diversify the portfolio
to some extent by holding investments which operate in various sectors.
The Board is satisfied with this approach.
The Company's compliance with the VCT regulations is continually
monitored by the Administration Manager, who reports regularly to the
Board on the current position. The Company has appointed Philip Hare &
Associates LLP, who will work closely with the Investment Manager and
provide regular reviews and advice in this area. The Board considers that this approach reduces the risk of a breach of the VCT regulations to a minimal level. 10. Going concern The Directors have reviewed the Company's financial resources at the period end and conclude that the Company is well placed to manage its business risks. The Board confirms that it is satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason, the Board believes that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements. 11. The unaudited financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. 12.The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the "Statement: Half-Yearly Financial Reports" issued by the UK Accounting Standards Board and the half-yearly financial report includes a fair review of the information required by: a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so. 13. Copies of the Half-Yearly Report will be sent to Shareholders shortly. Further copies can be obtained from the Company's registered office or can be downloaded from www.downing.co.uk. This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients. The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Hazel Renewable Energy VCT 2 plc via Globenewswire http://www.hazelcapital.com
(END) Dow Jones Newswires
June 28, 2017 12:56 ET (16:56 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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