TIDMGV2O
RNS Number : 4189C
Gresham House Renewable EnergyVCT2
18 June 2021
18 June 2021
GRESHAM HOUSE RENEWABLE ENERGY VCT 2 PLC
Half-Year Results
The Board of Gresham House Renewable Energy VCT 2 PLC announces
its half-year results for the six months ended 31 March 2021 (the "
Half-Yearly Report") .
The Half-Yearly Report is available on the Company's website at
https://greshamhouse.com/real-assets/new-energy-sustainable-
infrastructure/gresham-house-renewable-energy-vct-2-plc/ .
In accordance with Listing Rule 9.6.1, copies of these documents
will also be submitted to the UK Listing Authority via the National
Storage Mechanism and will be available for viewing shortly at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
For further information, please contact:
Gresham House Asset Management renewablevcts@greshamhouse.com
Investor relations Tel: 020 3837 6270
JTC (UK) Limited - Company Secretary GreshamVCTs@jtcgroup.com
Ruth Wright Tel: 0203 893 1011
LEI: 213800GQ3JQE2M214C75
SHAREHOLDER INFORMATION
PERFORMANCE SUMMARY
31 March 30 September 31 March
15 June 2021 2020 2020
2021 Pence Pence Pence
Net asset value per Ordinary
Share 91.6 105.5 104.1
--------- -------- ------------ --------
Net asset value per 'A' Share 0.1 0.1 0.1
--------- -------- ------------ --------
Cumulative dividends* 57.1 51.3 51.3
--------- -------- ------------ --------
Total Return* 148.8 156.9 155.5
--------- -------- ------------ --------
Share Price - Ordinary (GV2O) 96.0p 96.0p 101.0p 104.0p
--------- -------- ------------ --------
Share Price - A Shares (GV2A) 5.05p 5.05p 5.05p 5.05p
--------- -------- ------------ --------
* for a holding of one Ordinary Share and A Share
DIVIDS
Ordinary Shares 'A' Shares Total
2011 Final 30 March 2012 3.5 - 3.5
------------------- --------------- ---------- -----
2012 Final 28 March 2013 5.0 - 5.0
------------------- --------------- ---------- -----
2013 Special 28 February 2014 7.3 3.7 11.0
------------------- --------------- ---------- -----
2013 Final 28 March 2014 5.0 - 5.0
------------------- --------------- ---------- -----
2015 Interim 18 September 2015 5.0 - 5.0
------------------- --------------- ---------- -----
2016 Interim 16 September 2016 5.0 - 5.0
------------------- --------------- ---------- -----
2017 Interim 15 September 2017 5.0 - 5.0
------------------- --------------- ---------- -----
2018 Interim 14 December 2018 5.5 0.5 6.0
------------------- --------------- ---------- -----
2019 Interim 20 December 2019 5.3 0.5 5.8
------------------- --------------- ---------- -----
2020 Interim 31 December 2020 5.3 0.5 5.8
------------------- --------------- ---------- -----
51.9 5.2 57.1
---------------------------------- --------------- ---------- -----
The next dividend is expected to be announced in November 2021
and paid in December 2021.
CHAIRMAN'S STATEMENT
I am pleased to present the Half-Yearly Report of Gresham House
Renewable Energy VCT 2 plc ("the VCT") for the period ended 31
March 2021.
Despite the pandemic, the Board, the Investment Adviser and
other key service providers have continued to operate effectively
throughout the various levels of lockdowns over the last six
months. At the same time, the normal operation of the assets of the
VCT have been largely unaffected by the pandemic in the period.
Overall performance in the first half of the year, which has a
significantly lower contribution to annual performance than the
second half of the year, has been below forecasts due to lower than
forecast irradiation and legacy technical issues with the older
ground-mounted solar assets. These technical issues have, at the
time of writing, largely been resolved. The overall value of the
portfolio has fallen by 7.5% mainly as a result of changes in
taxation that are scheduled to be introduced from 2023, giving an
overall NAV per 'pair' of shares of 91.7p per share as at 31 March
2021.
Despite the loosening of many restrictions in the UK, the
COVID-19 pandemic continues to impact both the UK and global
economies, however current power prices are now recovering from the
historic lows experienced due to reduced demand caused by the
slowdown in economic activity. The Government has proposed the
introduction, from 2023 of a higher rate of corporation tax (from
19% currently to 25%) to help offset the considerable cost of the
government fiscal intervention undertaken to support both
individuals and business during the pandemic. It is largely this
which has adversely impacted the valuation of the VCT.
INVESTMENT PORTFOLIO
At the period end, the VCT held a portfolio of 16 investments,
which were valued at GBP28.3 million.
The portfolio is analysed (by value) between the different types
of assets as follows:
Ground-mounted Solar 81.9%
Rooftop Solar 8.9%
------
Small Wind 3.0%
------
Non-renewable assets 6.2%
------
The Board has reviewed the investment valuations at the
half-year and notes that the valuation of the renewable assets has
declined by GBP2.3 million, or 8.2%. This reduction is primarily
due to future increases in corporation tax rates reducing the cash
generated by the assets that will be available to pay to
shareholders. The valuation has also been impacted by the lower
irradiation over the period, combined with the older assets being
turned off during repairs, reducing the cash generated by the
assets in the half-year. Finally, there has been a reduction in the
long term power price forecasts that also reduces the long-term
expectations of earnings available to shareholders and therefore
the value of the assets. The assumptions which underpin the
valuation are provided by the Investment Adviser and the Board has
satisfied itself as to the calculation methodology and assumptions.
The discount rate range applied to the valuation of the assets is
consistent with the rates used as at 30 September 2020 (range of
5.5% to 6.8%).
The VCT also holds two investments that are not in renewable
energy. A follow-on investment of GBP12,500 was made into bio-bean
Limited in October 2020, in order to support the company. bio-bean
has experienced a difficult period which saw significant drops in
waste coffee grounds, its key production input, from retail coffee
outlets. However, as the economy opens up post pandemic it is
expected that the company will be able to resume its growth path.
The valuation of bio-bean has been held at cost at 31 March 2021
and a further investment of GBP67,500 is expected to be made into
bio-bean by the end of the year. Rezatec, a company which offers
surveys based on global data, has continued to grow despite the
pandemic. Overall, the non-renewable energy assets' valuation has
increased by 4.0%, or GBP0.1 million, in the six month period,
driven by non-cash interest income accumulating on the preference
shares in Rezatec. The non-renewable energy investments have been
valued in line with the International Private Equity Valuation
("IPEV") Guidelines and are held at a value of GBP1.8 million.
Further detail on the investment portfolio is provided in the
Investment Adviser's Report.
NET ASSET VALUE AND RESULTS
At 31 March 2021, the Net Asset Value ("NAV") per Ordinary Share
stood at 91.6p and the NAV per 'A' Share stood at 0.1p, producing a
combined total of 91.7p per "pair" of Shares. The movement in the
NAV per share during the half-year is detailed in the table
below:
Pence per 'pair'
of shares
NAV as at 1 October 2020 105.6
-----------------
Less payment of interim dividend on 31 December
2020 (5.8)
-----------------
Less valuation decrease (8.1)
-----------------
NAV as at 31 March 2021 91.7
-----------------
Total dividends paid to date for a combined holding of one
Ordinary Share and one 'A' Share stand at 57.1p (September 2020:
51.3p). The NAV Total Return (NAV plus cumulative dividends) has
decreased by 5.2% in the six months and now stands at 148.8p
excluding the initial 30% VCT tax relief, compared to the cost to
investors in the initial fundraising of GBP1.00 or 70.0p net of
income tax relief.
The loss on ordinary activities after taxation for the half-year
was GBP2.1 million (March 2020: GBP1.5 million), comprising a
revenue profit of GBP240,000 (March 2020: loss of GBP297,000) and a
capital loss of GBP2.3 million (March 2020: capital loss of GBP1.2
million) as shown in the Income Statement.
DIVIDS
On 3 December 2020, the Board declared dividends in respect of
the year ended 30 September 2020 of 5.3133p per Ordinary Share and
0.4867p per 'A' Share. These dividends were paid on 31 December
2020 to Shareholders on the register at 11 December 2020.
ANNUAL GENERAL MEETING (AGM) AND RESULTS OF CONTINUATION
VOTE
The VCT's tenth AGM was held on 22 March 2021 at 11.30 a.m. and
all resolutions, with the exception of Resolution 8, were passed by
way of a poll.
Resolution 8, which related to the continuation of the VCT as a
venture capital trust for a period of five years, was not passed.
In light of the continuation vote not achieving the required
majority to pass, the VCT is required to draw up proposals for
voluntary liquidation, reconstruction or other re-organisation for
consideration by the members in a General Meeting to be held within
four months of the AGM.
The Board is currently undertaking a thorough review of the
strategic options available to the VCT, monetisation opportunities
in the market for the VCT's assets and the appropriate proposals to
deliver value to Shareholders. The Board is working to devise the
best possible proposals to put to Shareholders at the upcoming
General Meeting, seeking to maximise the return to Shareholders
whilst preserving the tax position of those who participated in the
more recent fundraisings.
The General Meeting will be held on 13 July 2021 at 12.40 p.m.
at the offices of Gresham House Asset Management Limited, Octagon
Point, 5 Cheapside, London EC2V 6AA. Due to COVID-19 social
distancing guidelines, Shareholders are strongly discouraged from
attending the General Meeting in person and are encouraged to vote
via proxy in advance of the meeting.
SHARE BUYBACKS
The Board has decided that the VCT will not be buying in Shares
for the foreseeable future as highlighted in the Annual Report, as
the VCT needs to conserve such cash as it generates for the running
of the VCT and the payment of dividends.
The Board is however aware that from time to time some
Shareholders may wish to realise part or all of their investment
and has therefore taken steps to try to ensure that there is a
liquid market in the VCT's shares. Shareholders considering selling
their Shares should contact the broker for the VCT.
BOARD COMPOSITION
The Board comprises four Non-Executive Directors with a broad
range of experience, and we continue to work closely with the Board
of the sister company, VCT 1. The Board appointed Andrew Donovan as
an Non-Executive Director in December 2020, and Andrew has recently
been appointed as Audit Committee Chair on 11 May 2021.
OUTLOOK
While COVID-19 presents an unprecedented challenge to the
country and to the economy, the impact of COVID-19 on the
operational performance of the VCT's assets has been relatively
limited. The nature of the majority of investments held by the VCT,
fixed assets with long term contracts and subsidies, are not
reliant on significant human or other resources for daily
operations. This limits
the vulnerability of the portfolio's operational performance to
disruptions caused by the COVID-19 pandemic and any potential
fall-out from Brexit. The repowering of two of the VCT's assets
that had suffered significant performance declines due to age was
successfully completed after some delay due to the pandemic,
performance has now improved strongly and this has further reduced
the assets' reliance on human resources. The VCT's key direct
service providers, the Investment Adviser and the Administrator,
are all well-resourced and UK based.
The Board believes that the long-term outlook for the portfolio,
as a whole, remains positive, with returns from the installed base
of assets expected to continue to generate steady cash flows. The
market continues to value renewable energy assets, and in
particular assets with inflation-linked subsidies, highly, and this
bodes well for the process the Board is running to determine the
best path for achieving value for shareholders.
Christian Yates
Chairman
18 June 2021
INVESTMENT ADVISER'S REPORT
PORTFOLIO HIGHLIGHTS
Gresham House Renewable Energy VCT 2 plc (the "VCT") remains
principally invested in the renewable energy projects that it has
owned for nine and a half-years on average. The balance of the
portfolio are VCT qualifying venture capital investments.
93.8% of the value of the portfolio derives from assets that
generate renewable electricity. Solar power plants represent 90.8%
of total value, and 96% of total generating capacity. Wind assets
represent 3.0% of portfolio value and 4% of generating capacity.
The two venture capital investments represent 6.2% of the value of
the portfolio.
The solar assets are relatively old compared to other solar
farms across the UK. Whilst that means that they were relatively
expensive to build, as newer assets benefit from technical
improvements and significant reduction in capital expenditure over
the years, the portfolio benefits from some of the highest levels
of government incentives that were available in the early years of
the renewables sector to encourage the build out of renewable
energy generation in the UK. In the 6 month period 85% of the
renewable energy portfolio's gross revenues were government-backed
incentives (GBP2,338,840), a further 5% (GBP140,496) were from
inflation linked contracts and only 10% of gross revenues
(GBP277,236) were exposed to the market price of electricity.
During the 6-month period, initial relaxation of lock-down in
Autumn 2020 allowed some of the repairs and maintenance work,
delayed during the first lock-down's working and travel
restrictions, to be completed. This also allowed the preparation
and start of projects to repair and replace older equipment that
had suffered significant performance issues as it aged. These
projects have progressed well during the early months of 2021 and
so the Investment Adviser expects that the performance issues
experienced last summer should not recur. The works to replace
older, obsolete equipment with newer, more reliable equipment
requires that the relevant sites have to be partially or totally
switched off whilst the work is carried out. The works were
performed during the winter months when solar irradiation is lowest
and so the revenue impact of the works is minimised.
As a result of the expenditure required to combat the pandemic,
last year the Government reversed the cuts in corporation tax that
were set to apply from 1 April 2020, which would have reduced the
corporation tax rate from 19% to 17%. In the March 2021 Budget, it
was confirmed that the corporation tax rate will increase from 19%
to 25% with effect from 1 April 2023. This will obviously have a
significant and adverse impact on the post-tax cash flows available
for the portfolio to distribute to the VCT going forward.
An annual dividend of 5.8p (5.3133p per Ordinary Share and
0.4867p per A Share), GBP1.6 million
in total, was paid on 31 December 2020.
PORTFOLIO COMPOSITION
Portfolio Composition by Asset Type and Impact on NAV
The portfolio is split out by asset type as well as the type of
government incentive that supports the revenue. The Feed-in-Tariff
("FiT") provides accredited installations generation tariff, a
payment for every unit of renewable electricity generated, and an
export tariff that provides a price floor for the sale of the
electricity. The Renewables Obligation is a different support
regime that provides renewable energy generators certificates
("ROCs") for generating units of electricity. Both FIT and ROC
provide revenues that are linked to the Retail Prices Index
("RPI").
Portfolio Composition by Asset Type and Impact on NAV
31 March 2021 30 September 2020
% of % of
Value Portfolio Value Portfolio
Asset Type kWp ('000) Value ('000) Value
------ --------------------- ----------------------- --------------------- -----------------------
Ground-mounted
Solar (FiT) 20,325 GBP20,677 73.1% GBP22,580 73.8%
------ --------------------- ----------------------- --------------------- -----------------------
Ground-mounted
Solar (ROC) 8,699 GBP2,477 8.8% GBP2,440 8%
------ --------------------- ----------------------- --------------------- -----------------------
Total
ground-mounted
Solar 29,024 GBP23,154 81.9% GBP25,020 81.8%
------ --------------------- ----------------------- --------------------- -----------------------
Rooftop Solar
(FiT) 4,304 GBP2,513 8.9% GBP2,696 8.8%
------ --------------------- ----------------------- --------------------- -----------------------
Total Solar 33,328 GBP25,667 90.8% GBP27,716 90.6%
------ --------------------- ----------------------- --------------------- -----------------------
Wind Assets
(FiT) 1,275 GBP863 3.0% GBP1,188 3.9%
------ --------------------- ----------------------- --------------------- -----------------------
Total renewable
generating
assets 34,603 GBP26,530 93.8% GBP28,904 94.5%
------ --------------------- ----------------------- --------------------- -----------------------
Venture Capital
Investments N.A. GBP1,756 6.2% GBP1,689 5.5%
------ --------------------- ----------------------- --------------------- -----------------------
TOTAL 34,603 GBP28,286 100.0% GBP30,593 100.0%
------ --------------------- ----------------------- --------------------- -----------------------
The 34.6MWp of renewable energy projects in the portfolio
generated 8,097,596 kilowatt-hours of electricity over the 6 month
period, sufficient to meet the annual electricity consumption of
2,300 homes. The Investment Adviser estimates that the carbon
dioxide savings achieved by generating this output from solar and
wind versus gas-fired power, are equivalent to what 4,700 mature
trees would remove from the atmosphere.
PORTFOLIO SUMMARY
Approximately 94% of the portfolio value is derived from the
renewable generation assets, with 91% of the value coming from the
solar assets. The value of renewable energy generating assets is
determined by valuing the expected future cash flows from
generating and selling electricity. With the majority of revenues
being government backed and inflation linked, and with fixed costs,
the valuation is impacted by:
-- Renewable energy resources (solar irradiation or wind, as relevant);
-- The performance of the assets in converting the resources
into revenue (ie how the assets are performing, any outages,
etc);
-- The revenue per unit of energy generated; and
-- The costs, including interest and tax, that are deducted from
these revenues to leave the cash available to the VCT's.
Looking at the largest asset class first, the solar portfolio
performed as shown in the table below:
Forecast Revenue Actual Revenue Revenue Performance
Asset Type
Ground-mounted Solar (FIT) GBP2,420,946 GBP1,928,392 79.7%
------------------------- ------------------------- ---------------------------
Ground-mounted Solar (ROC) GBP340,440 GBP337,477 99.1%
------------------------- ------------------------- ---------------------------
Rooftop Solar GBP340,019 GBP294,415 86.6%
------------------------- ------------------------- ---------------------------
TOTAL GBP3,101,405 GBP2,560,284 82.6%
------------------------- ------------------------- ---------------------------
The most material revenue shortfall was suffered by the
Ground-mounted Solar assets that benefit from the FiT. These are
some of the oldest assets in the portfolio and, as noted at the
year end, two of these sites Kingston Farm and Lake Farm in
particular (of eight ground mounted solar FIT assets) had suffered
age related performance issues last year. Both sites had major
projects to replace failing and unreliable equipment over winter
2020/21. These sites are already showing clear improvements in both
the performance and reliability whilst removing the reliance on
overseas contractors. The Investment Adviser expects that in the
second half of the financial year, over the summer when the
majority of revenues are earned, the repairs performed on these
assets will bring performance much more reliably back up to
forecast levels.
In terms of the total shortfall, whilst the majority of the
revenue shortfall was from those two assets, it was not only
attributed to taking the assets off-line for repairs. The portfolio
also suffered a reduction in irradiation compared to plan.
Even if Kingston Farm and Lake Farm had not been taken offline,
impacting the output, the solar
irradiation was lower than budgeted so there would still have
been a revenue shortfall
as a result of less solar resources.
RENEWABLE ENERGY RESOURCES
The half-year covered by this report is the winter period. The
solar irradiation is therefore budgeted to be a low base relative
to the summer period. Over the six months the irradiation was 93%
of forecast, with October 2020 and January 2021 being particularly
low. The stronger than projected irradiation in November and
December was not sufficient to compensate.
TECHNICAL PERFORMANCE OF THE ASSETS
The revenue shortfall was a result of both lower than budgeted
irradiation but also lower technical performance in converting the
available solar irradiation into electricity.
The key variance in the technical performance is from the
ground-mounted solar (FIT) performance that was significantly
behind budget. This is largely the result of technical issues and
repowering works at Kingston Farm and Lake Farm (each solar farm
with 4.98MW capacity). Each of these assets had central inverters
that were state-of-the art when built in 2011, but which are now no
longer the best technical solution for solar farms. These inverters
suffered significant component breakdowns during the first
lock-down. The plan to repower them was therefore brought forward
and the works were carried out on both sites during the period.
These older inverters have now been replaced with newer, more
efficient and easier to maintain string inverters. The works were
carried out over the winter months to minimise the impact of
downtime.
The performance at Kingston Farm was 77% of budget, with Lake
Farm at 51%. Between them, these assets represent over 34% of
forecast generation and so this poor technical performance and the
reduction in output during the repowering has been material
overall. The Investment Adviser continues to review the performance
of ageing components on a regular basis and is working with
contractors to arrange for the replacement of the less reliable
parts across all sites as required.
Beechgrove, another ground-mounted FiT asset, used different
equipment and designs from Kingston Farm and Lake Farm and so it
has not suffered the same performance issues. However, the
Investment Adviser is preparing for repowering this site as well in
order to ensure its continuous performance.
Generation at the rooftop solar portfolio was 8% lower than
forecast. Whilst irradiation cannot be cost effectively measured
for the roof-mounted portfolio, one can assume that they also
suffered from a reduction in irradiation similar to the 7% measured
for the ground-mounted portfolio. However, the Investment Adviser
is also aware of technical performance issues at several of these
(small) sites. Access to residential properties has resumed during
the half-year although a number of properties, with known issues,
have not been visited as the residents are shielding.
The Investment Adviser continues to work with the O&M
contractors to secure access to the rooftop installations that are
underperforming, to effect repairs as soon as possible.
The small wind portfolio continued to underperform. 26 turbines
were identified as being uneconomical to repair and were handed
over to the O&M contractor. The remaining small wind assets
account for 4% of the portfolio in terms of capacity and 3% by
value.
REVENUW PER KILOWATT HOUR OF RENEWABLE ENERGY GENERATED
The UK government has used several mechanisms to encourage
investment into renewable energy generation, including the Feed in
Tariff ("FIT") and Renewables Obligation Certificate ("ROC")
support mechanisms.
The VCT's renewable assets benefit from these schemes which
provide revenues predominantly linked to the Retail Price Index
("RPI"). As the costs, and perceived risks, of building new
renewable energy generating capacity have fallen, so have the value
of the incentives offered for new installations. For example, an
asset that generates electricity from solar power that was
commissioned and accredited for the FIT before the end of July 2011
currently receives over 39 pence for every kilowatt hour (kWh) of
electricity it produces (with the added extra of a floor price
support to ensure it may also sell this power at a reasonable
price). The incentives for new capacity have fallen consistently
since the assets owned by the VCT were commissioned, and new solar
installations built today receive no such incentives and must rely
on selling power for their income.
During the 6 month period, the average spot price (day ahead)
price of power was 5.97 pence per kWh so a new asset selling power
at the spot price would earn 5.97 pence less amounts paid to Power
Purchase Agreement counterparties, whereas an older solar asset,
like some of those owned by the VCT, could earn a minimum of 3.9
pence per kWh (the export tariff under the FiT regime that asset
owners could choose to opt for in lieu of selling the power at
market rates) for exporting the power plus 39.28 pence per kWh FiT
generation revenue. The support and RPI linkage of gross revenues
is shown in the chart below.
Total Revenue GBP2,756,572 100.00%
FIT GBP2,140,430 77.65%
------------- -------
ROC GBP198,410 7.20%
------------- -------
Export Fixed GBP57,807 2.10%
------------- -------
Export Variable GBP242,698 8.80%
------------- -------
Private Wire GBP82,689 3.00%
------------- -------
Other (Variable) GBP34,538 1.25%
------------- -------
In the 6 month period, GBP2,338,840 or 85% was earned from
government backed incentives for generating renewable electricity
(GBP2,140,430 of generation revenue provided under the FIT and
GBP198,410 from ROCs). A further GBP140,496 is inflation linked,
either through the FIT export floor price for selling electricity
or contracts for the sale of electricity, taking the government
backed and RPI linked revenues to 90% of total.
OPERATING COSTS
The vast majority of the cost base is fixed and/ or contracted
and includes rent, business rates, and regular operations and
maintenance (O&M) costs as the major categories.
The main cost item that shows variability from year-to-year is
repair and maintenance costs. Repair and maintenance spend
involving solar panels and inverters, the key components of a solar
project, is covered by the maintenance reserves. These reserves
have been used to pay for the repowering of the Kingston Farm and
Lake Farm assets during the period. Other repair and maintenance
costs which have continued to be higher than initially expected
involve the small wind portfolio. The Investment Adviser is focused
on repairing those assets where there will be a positive payback,
and where not possible disposes of the turbines as cost effectively
as possible.
VENTURE CAPITAL INVESTMENTS
The VCT also holds two qualifying venture capital investments,
bio-bean Limited and Rezatec Limited.
bio-bean
The VCT has invested GBP627,500 into bio-bean by way of both
equity and debt instruments. This is valued at cost and represents
2.2% of the portfolio.
bio-bean sources waste coffee grounds from major retail coffee
chains by offering the cheapest and most sustainable avenue for
disposing of them. bio-bean then converts these into pellets for
combustion in biomass- fed energy generators or coffee logs for use
in wood burning stoves which it sells through large supermarket and
home improvement chains as well as online. Natural Coffee Extract
for use in the food industry is also produced from the waste coffee
grounds.
bio-bean has identified a new business
area - the sale of dried waste coffee grounds to industrial
applications where improved sustainability credentials are sought.
One example for this is the manufacturing of brake pads for
automotive applications.
The extended lockdowns during the period have adversely impacted
on the business as the availability of coffee grounds from retail
chains was significantly reduced.
Rezatec
The VCT has invested GBP1 million in Rezatec Limited, a software
developer that applies Artificial Intelligence based algorithms to
a range of earth observation data sources (satellite imagery, soil
data, weather data, topographic data etc.) to infrastructure
verticals. Access to the platform is sold, on a subscription-basis,
to commercial forestry operators for inventory management (analysis
of current state of forest assets) and as an ongoing monitoring
tool, to utility infrastructure owners for water pipeline,
hydroelectric dam and power transmission network risk analyses, and
to agriculture companies processing crops, for yield and logistics
optimisation.
The general world-wide move towards sustainability that is
gathering pace, is likely to assist Rezatec in its growth as its
offering enables its clients to cut the environmental footprints of
their operations and increase the yield of their assets.
Rezatec has continued to perform to expectations during the
period and so it is valued at GBP1.1 million which represents 4.0%
of the portfolio.
PORTFOLIO VALUATION
The Net Asset Value ("NAV") of the portfolio is comprised of the
valuation of future projected cash flows generated by the renewable
energy assets, as well as the cash held by the companies in the
portfolio and the cash held by the VCT and also includes the value
of the investments in bio-bean and Rezatec. The total return is the
value of the assets and the cash that has been distributed to
shareholders since launch.
This half-year's movements in the value of the portfolio are
detailed below.
-- Technical performance. As noted above, the performance of
Lake Farm and Kingston Farm assets was well below budget, largely
as a result of these assets being turned off to effect the
repowering. Going forward, these assets should be much more
reliable.
-- Power prices. Whilst only 10% of the revenue is exposed to
market prices for power, the relatively low power prices during the
period caused a reduction in value of GBP500,000.
-- Corporate tax. In the first half of the last calendar year
the corporation tax assumptions were amended from 17% back up to
19%. In this period the corporation tax assumed from 2023 onwards
increases to 25%. This is a 31% increase in the effective tax rate
and so significantly reduces the post tax earnings of the portfolio
that may then be paid to the VCT as shareholder. This reduces the
value of the portfolio by circa 6%. The Investment Adviser is
working with tax advisers to the VCT and the portfolio businesses
in order to ensure that the effects are mitigated as far as
possible.
-- Finally, cash generated by the portfolio was used to pay the
dividends of GBP1.6 million during the half-year as well as VCT
level expenses of GBP326,000. The payment of dividends means that
the NAV will fall but the total return to shareholders increases by
the same amount.
The NAV per 'pair' of shares has decreased from 105.6p at 30
September 2020, to 91.7p as a result of the above.
OUTLOOK
The Investment Adviser's immediate focus is to ensure that the
repowering of the underperforming assets has resolved the historic
performance issues. It is also reviewing all other assets to
determine the optimal timing for any other repowering/repair
works.
Wholesale prices continue to be monitored and the Investment
Advisor actively seeks to lock-in higher prices when it can, in
order to maximise revenues. Contractors are monitored to ensure
that the assets are maintained to the highest standards and costs
are controlled.
The Investment Adviser is also supporting the Board of the VCT
in its strategic review, seeking to maximise the value of the
portfolio should the assets be prepared for sale.
Gresham House Asset Management Limited
June 2021
FINANCIAL STATEMENTS
UNAUDITED INCOME STATEMENT
For the six months ended 31 March 2021
Year ended
30 September
Six months ended 31 March 2021 Six months ended 31 March 2020 2020
========= ==================================== ========================
Revenue Capital Total Revenue Capital Total Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- -------------- --------- ----------------- ----------------- --------- -------------
Income* 527 - 527 90 - 90 264
(Losses)/gains
on
investments
Unrealised - (2,280) (2,280) - (1,134) (1,134) (629)
Realised - 16 16 - - - 5
----------------- -------- -------------- --------- ----------------- ----------------- --------- -------------
527 (2,264) (1,737) 90 (1,134) (1,044) (360)
Investment
management
fees (116) (39) (155) (125) (42) (167) (324)
Other expenses (171) - (171) (262) - (262) (409)
----------------- -------- -------------- --------- ----------------- ----------------- --------- -------------
Loss on ordinary
activities
before
taxation (287) (39) (326) (297) (1,176) (1,473) (1,093)
Tax on total - - - - - - -
comprehensive
income and
ordinary
activities
----------------- -------- -------------- --------- ----------------- ----------------- --------- -------------
Loss
attributable
to equity
Shareholders 240 (2,303) (2,063) (297) (1,176) (1,473) (1,093)
----------------- -------- -------------- --------- ----------------- ----------------- --------- -------------
Earnings per
Ordinary
Share 0.9p (8.8p) (7.9p) (1.1p) (4.5p) (5.6p) (4.2p)
Earnings per 'A' - - - - - - -
Share
----------------- -------- -------------- --------- ----------------- ----------------- --------- -------------
* Income during the period is GBP527,358 '(31 March 2020
GBP89,932). The dividend income has increased during HY21 due to
cash movements from the underlying SPVs being paid as dividends in
the period whereas these were movements in loan balances in the
prior period.
The total column within the Income Statement represents the
Statement of Total Comprehensive Income of the VCT 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 (updated in October 2019) 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 BALANCE SHEET
As at 31 March 2021
31 March 31 March 30 September
2021 2020 2020
Notes GBP'000 GBP'000 GBP'000
--------------------------------------- ------- ------------- -------- ------------
Fixed assets
Investments 9 28,286 30,088 30,593
Current assets
Debtors 273 282 289
Cash at bank and in hand 51 254 54
--------------------------------------- ------- ------------- -------- ------------
324 536 343
Creditors: amounts falling due within
one year (1,464) (114) (233)
--------------------------------------- ------- ------------- -------- ------------
Net current assets (1,140) 422 110
--------------------------------------- ------- ------------- -------- ------------
Creditors: amounts falling due after
more than one year (3,174) (3,274) (3,087)
--------------------------------------- ------- ------------- -------- ------------
Net assets 23,972 27,236 27,616
--------------------------------------- ------- ------------- -------- ------------
Capital and reserves
Called up share capital 71 71 71
Share premium 8 9,734 9,734 9,734
Treasury Shares 8 (3,403) (3,403) (3,403)
Capital redemption reserve 8 1 1 1
Special reserve 8 4,813 6,394 6,394
Revaluation reserve 8 14,611 16,388 16,891
Capital reserve - realised 8 (1,456) (1,351) (1,433)
Revenue reserve 8 (399) (598) (639)
--------------------------------------- ------- ------------- -------- ------------
Equity shareholders' funds 23,972 27,236 27,616
--------------------------------------- ------- ------------- -------- ------------
Net asset value per Ordinary Share 91.6p 104.1p 105.5p
Net asset value per 'A' Share 0.1p 0.1p 0.1p
--------------------------------------- ------- ------------- -------- ------------
91.7p 104.2p 105.6p
--------------------------------------- ------- ------------- -------- ------------
UNAUDITED STATEMENT OF CHANGES IN EQUITY
For the six months ended 31 March 2021
Called Capital
up Share Capital Reserve
Share Premium redemption Treasury Special Revaluation - Revenue
capital account reserve Shares reserve reserve realised reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ---------- ------------ -------------- -------------- ---------- ------------ ------------ ---------- ------------
As at 30
September
2019 71 9,734 1 (3,403) 7,975 17,522 (1,309) (301) 30,290
Total
comprehensive
loss - - - - - (755) - (338) (1,093)
Transfer
of net
realised
gain to
Capital
reserve -
realised - - - - - 124 (124) - -
Transactions
with owners
Dividend
paid - - - - (1,581) - - - (1,581)
---------------- ---------- ------------ -------------- -------------- ---------- ------------ ------------ ---------- ------------
As at 30
September
2020 71 9,734 1 (3,403) 6,394 16,891 (1,433) (639) 27,616
---------------- ---------- ------------ -------------- -------------- ---------- ------------ ------------ ---------- ------------
Total
comprehensive
loss - - - - - (2,280) (23) 240 (2,063)
Transactions
with owners
Dividend
paid - - - - (1,581) - - - (1,581)
---------------- ---------- ------------ -------------- -------------- ---------- ------------ ------------ ---------- ------------
As at 31
March 2021 71 9,734 1 (3,403) 4,813 14,611 (1,456) (399) 23,972
---------------- ---------- ------------ -------------- -------------- ---------- ------------ ------------ ---------- ------------
UNAUDITED STATEMENT OF CASH FLOWS
For the six months ended 31 March 2021
31 March 31 March 30 September
2021 2020 2020
GBP'000 GBP'000 GBP'000
------------------------------------------ -------- -------- ------------
Cash flows from operating activities
Loss on ordinary activities before
taxation (2,063) (1,473) (1,093)
Losses/(gains) on investments 2,280 1,134 624
Decrease/(increase) in debtors 16 23 16
Increase/(Decrease) in creditors 1,319 (49) (17)
------------------------------------------ -------- -------- ------------
Net cash inflow/(outflow) from operating
activities 1,552 (365) (470)
------------------------------------------ -------- -------- ------------
Cash flows from investing activities
Investments purchased at cost (12) (1,615) (1,615)
Proceeds from sale of investments/loan
note redemptions 38 100 105
------------------------------------------ -------- -------- ------------
Net cash inflow/(outflow) from investing
activities 26 (1,515) (1,510)
------------------------------------------ -------- -------- ------------
Net cash inflow/(outflow) before
financing activities 1,578 (1,880) (1,980)
Cash flows from financing activities
Equity dividends paid (1,581) (1,581) (1,581)
Proceeds from/(repayment of) loans - 2,379 2,279
------------------------------------------ -------- -------- ------------
Net cash inflow/(outflow) from financing
activities (1,581) 798 698
------------------------------------------ -------- -------- ------------
Net decrease in cash (3) (1,082) (1,282)
Cash and cash equivalents at start
of period 54 1,336 1,336
------------------------------------------ -------- -------- ------------
Cash and cash equivalents at end
of period 51 254 54
------------------------------------------ -------- -------- ------------
Cash and cash equivalents comprise:
Cash at bank and in hand 51 254 54
------------------------------------------ -------- -------- ------------
Total cash and cash equivalents 51 254 54
------------------------------------------ -------- -------- ------------
SUMMARY OF INVESTMENT PORTFOLIO AND MOVEMENTS
For the six months ended 31 March 2021
Investment Portfolio as at 31 March 2021
Qualifying and Unrealised
partially gain/(loss) % of
qualifying Operating Cost Valuation in period portfolio
investments sites Sector GBP'000 GBP'000 GBP'000 by value
---------------- ------------------ ----------------- -------------- ----------- --------------- ---------------
South Marston,
Lunar 2 Limited* Beechgrove Ground Solar 1,331 15,326 (1,577) 54.27%
Kingston Farm,
Lunar 1 Limited* Lake Farm Ground Solar 125 2,211 (329) 7.80%
Ayshford Solar
(Holding)
Limited* Ayshford Ground Solar 1,348 1,737 7 6.13%
New Energy Era Wychwood Solar
Limited Farm Ground Solar 884 1,921 169 6.78%
Vicarage Solar
Limited Parsonage Farm Ground Solar 871 1,220 (167) 4.30%
Rezatec Limited United Kingdom Clean energy 1,000 1,128 55 3.98%
Hewas Solar
Limited Hewas Roof Solar 1,000 733 (120) 2.59%
Gloucester Wind
Limited Gloucester Roof Solar 1,000 943 (7) 3.33%
Tumblewind Small
Limited* Priory Farm Wind/Solar 1,187 739 30 2.61%
HRE Willow
Limited HRE Willow Small Wind 875 431 (249) 1.52%
bio-bean Limited Cambridgeshire Clean energy 628 628 13 2.21%
St Columb Solar
Limited St Columb Roof Solar 650 481 (42) 1.70%
Minsmere Power
Limited Minsmere Small Wind 975 293 (47) 1.03%
Penhale Solar
Limited Penhale Roof Solar 825 356 (15) 1.26%
Small Wind
Generation Small Wind
Limited Generation Small Wind 975 139 (29) 0.49%
---------------- ------------------ ----------------- -------------- ----------- --------------- ---------------
13,674 28,286 (2,308)
----------------------------------------------------- -------------- ----------- --------------- ---------------
Cash 51
------------------------------------------------------- -------------- ----------- --------------- ---------------
Total investments 28,337 100.0%
------------------------------------------------------- -------------- ----------- --------------- ---------------
Investment Disposals
Valuation
Cost at at Redemption of loan Profit
30 September 30 September Additions notes/sale proceeds vs cost Realised Gain in
2020 2020 in period in period in period period
Qualifying and GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
partially
qualifying
investments
--------------------- ------------- ------------- ---------- ------------------- ---------- --------------------
Engie EV Solutions
Limited (formerly,
ChargePoint Services
Limited)** - - - 16 16 16
Tumblewind Limited* 38 38 - 38 - -
--------------------- ------------- ------------- ---------- ------------------- ---------- --------------------
38 38 - 54 16 16
--------------------- ------------- ------------- ---------- ------------------- ---------- --------------------
* Partially qualifying investment
** Deferred consideration of GBP15,608 was received in February
2021, in relation to the sale of ChargePoint Services Limited in
June 2019.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. General information
Gresham House Renewable Energy VCT 2 plc ("the VCT") 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 2021 and have been prepared in accordance with the accounting
policies set out in the annual accounts for the year ended 30
September 2020 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") and revised in October 2019.
3. All revenue and capital items in the Income Statement derive
from continuing operations.
4. The VCT 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 26,133,036 Ordinary Shares and 39,463,845 'A' Shares,
being the number of shares in issue at the period end, excluding
Treasury Shares.
6. Return per share for the period has been calculated on
26,133,036 Ordinary Shares and 39,463,845 'A' Shares, being the
weighted average number of shares in issue during the period,
excluding Treasury Shares.
7. Dividends
Period ended 31 March 2021 Year ended 30 September
2020
Revenue Capital Total Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- --------------- ----------------- ----------------------
Dividends paid
2020 Interim Ordinary -
5.3133p - 1,389 1,389 1,389
2020 Interim A - 0.4867p - 192 192 192
-------------------------- -------- --------------- ----------------- ----------------------
- 1,581 1,581 1,581
-------------------------- -------- --------------- ----------------- ----------------------
8. Reserves
Period ended Year ended
31 March 30 September
2021 2020
GBP'000 GBP'000
---------------------------- ------------ -----------------
Share premium 9,734 9,734
Treasury Shares (3,403) (3,403)
Capital redemption reserve 1 1
Special reserve 4,813 6,394
Revaluation reserve 14,611 16,891
Capital reserve-realised (1,456) (1,433)
Revenue reserve (399) (639)
---------------------------- ------------ -----------------
23,901 27,545
---------------------------- ------------ -----------------
The Special reserve is available to the VCT to enable the
purchase of its own shares in the market without affecting its
ability to pay dividends. The Special reserve, Capital reserve -
realised and Revenue reserve are all distributable reserves. At 31
March 2021, distributable reserves were GBP2,958,000 (30 September
2020: GBP4,322,000).
9. Investments
The fair value of investments is determined using the detailed
accounting policies as referred to in note 2. The VCT has
categorised its financial instruments using the fair value
hierarchy as follows:
Level 1 Reflects financial instruments quoted in an active
market;
Level 2 Reflects financial instruments that have prices that are
observable either directly or indirectly; and
Level 3 Reflects financial instruments that use valuation
techniques that are not based on observable market data (unquoted
equity investments and loan note investments).
31 March 30 September
2021 2020
Level Level Level Level Level Level
1 2 3 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------- ------- ------- ------- -------- ------- ------- ------- ------------
Unquoted
loan notes - - 2,058 2,058 - - 2,096 2,096
Unquoted
equity - - 26,228 26,228 - - 28,497 28,497
------------- ------- ------- ------- -------- ------- ------- ------- ------------
- - 28,286 28,286 - - 30,593 30,593
------------- ------- ------- ------- -------- ------- ------- ------- ------------
Reconciliation of fair value for Level 3 financial instruments
held at the period end:
Unquoted loan notes Unquoted
GBP'000 equity Total
GBP'000 GBP'000
--------------------------- --------------------------------------------------- -------- ----------------
Balance at 30 September
2020 2,096 28,497 30,593
Movements in the income
statement:
Unrealised loss in the
income statement - (2,269) (2,269)
--------------------------- --------------------------------------------------- -------- ----------------
Purchased at cost
Sales proceeds/redemption
of loan notes (38) - (38)
--------------------------- --------------------------------------------------- -------- ----------------
Balance at 31 March 2021 2,058 26,228 28,286
--------------------------- --------------------------------------------------- -------- ----------------
10. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is
required in the VCT's half-year results to report on principal
risks and uncertainties facing the VCT over the remainder of the
financial year.
The Board has concluded that the key risks facing the VCT 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;
(iii) failure to maintain approval as a VCT; and
(iv) economic risk due to the ongoing COVID-19 pandemic.
In order to make VCT qualifying investments, the VCT has to
invest in small businesses which are often immature. The Investment
Adviser follows a rigorous process in vetting and careful
structuring of new investments and, after an investment is made,
close monitoring of the business is conducted. The Investment
Adviser 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 VCT's compliance with the VCT regulations is continually
monitored by the VCT Status Adviser, who reports regularly to the
Board on the current position. The VCT has reappointed Philip Hare
& Associates LLP as VCT Status Adviser, who will work closely
with the Investment Adviser and provide regular reviews and advice
in this area. The Board considers that this approach reduces the
risk of a breach of the VCT regulations to a minimal level.
The Board, in conjunction with the Investment Adviser, continues
to monitor the impact of the COVID-19 pandemic on the business and
its potential long-term impact on the VCT's investments. Further
detail on this is provided in note 11.
11. Going concern
In assessing the VCT as a going concern, the Directors have
considered the forecasts which reflect the proposed strategy for
portfolio investments, the current economic outlook and the results
of the continuation vote at the AGM held on 22 March 2021.
The continuation vote was not passed at the AGM, requiring the
VCT to draw up proposals for voluntary liquidation, reconstruction
or other re-organisation for consideration by the members in a
General Meeting to be held on 13 July 2021. If shareholders vote to
wind-up the VCT, the liquidation process would take longer than
twelve months from this reporting date and as this vote has not yet
occurred, there has not yet been a formal decision on the future of
the company. As such, the Board is satisfied that the VCT continues
to be a going concern as there is currently no firm indication that
the VCT will not continue in business for a period of at least
twelve months from the end of this reporting period.
Furthermore, the Directors note that the VCT is well placed to
continue to operate through the aftermath of the COVID-19 pandemic,
as the VCT has sufficient liquidity to pay its liabilities as and
when they fall due. The VCT's portfolio has a large proportion of
long-term contracted revenues and despite government restrictions
has been able to largely maintain normal commercial operations
without significant disruption.
The Board confirms that it is satisfied that the VCT has
adequate resources to continue in business for a period of at least
twelve months from the end of this reporting period. The Board
therefore believes that the VCT continues to be a going concern and
that it is appropriate to apply the going concern basis in
preparing the financial statements.
12. 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.
13. The Directors confirm that, to the best of their knowledge,
the half-yearly financial statements have been prepared in
accordance with the "Statement: Half-Yearly Financial Reports"
issued by the UK Accounting Standards Board and the Half-Yearly
Report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements, and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period, and any changes in the related party transactions
described in the last annual report that could do so.
14. Copies of the Half-Yearly Report will shortly be sent to
Shareholders who have elected this communication preference.
Further copies can be obtained from the VCT's registered office or
can be downloaded from
https://greshamhouse.com/real-assets/new-energy-sustainable-
infrastructure/gresham-house-renewable-energy-vct-2-plc/
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