Half-yearly report
Hazel Renewable Energy VCT1 plc
Initial Half-Yearly Report for the period ended 31 March 2011
CHAIRMAN'S STATEMENT
I am pleased to welcome Shareholders to Hazel Renewable Energy VCT1 plc and to
present the Company's first financial report covering the period to 31 March
2011.
Share offer
The Company launched joint offers for subscription ("Offers") with Hazel
Renewable Energy VCT2 plc in October 2010. The fundraising has been a great
success, raising gross proceeds of approximately £30 M to date.
As at the 31 March period end, the Company had issued 9.3 million Ordinary and
'A' Shares under the Offers, giving net proceeds, after issue costs, of £8.9
million. The Company has issued further shares since then bringing total
Ordinary and 'A' Share issued under the Offers to 13.8 million, equivalent to
net proceeds of £13.1 million.
The Company's share capital has been structured so that investors who subscribed
under the Offers received one Ordinary Share and one 'A' Share for every £1
subscribed.
The 'A' Shares are designed as a tax-efficient mechanism to allow the payment of
a performance incentive to management should any such incentive become payable
in the future. Additional 'A' Shares have been issued to management such that,
at the close of the Offers, they will hold one third of the total 'A' Shares in
issue. The 'A' Shares are expected to have a net asset value of 0.1p per share
in the Company's initial years. This is only expected to change if and when the
performance hurdles are met and a performance incentive becomes due.
FiT review and VCT regulation changes
Shareholders are probably aware of the review of feed-in-tariffs ("FiT")
announced by the Government in February. The results of the review are expected
in July and are expected to remove large solar schemes from the FiT regime with
effect from 1 August 2011, making them unattractive investment options.
Additionally, a change to the VCT regulations has also been announced whereby
FiT businesses will no longer be qualifying investments for VCTs after the
current tax year.
Although these changes will place some restrictions on the investment
opportunities the Company might undertake, the Manager is confident that they
will not significantly affect the Company's plans. The Manager is evaluating
several large solar investments which are expected to be completed before 1
August 2011. The Manager also reports a strong pipeline of other investment
opportunities and is confident that the Company will be able to invest more than
70% of its funds in FiT businesses before 5 April 2012 when the VCT regulations
are expected to change.
For these reasons, the Board remains satisfied that the FiT review and the VCT
regulations changes will not have a major impact on the Manager's ability to
invest the Company's funds in good quality, renewable energy opportunities
within the timetables imposed by these proposed regulation changes.
Investments
The Manager is currently working on a number of VCT-Qualifying opportunities,
and has made one non-qualifying investment of £0.75 million in the period. The
investment is a short-term secured loan to a German solar developer and ensures
that the Company has exclusivity on a number of potential solar investments
which are being progressed by the investment partner.
Further details on the investment activities are given in the Investment
Manager's Report below.
Net asset value and results
As with most VCTs, the initial period tends to see the Company's running costs
exceeding the level of investment income that can be generated while funds are
being raised. As a result the Company has experienced small fall in Net asset
value per share ("NAV") over this period. The Board expects this imbalance to be
reversed as the Company's funds are employed in yielding investments.
The loss on ordinary activities after taxation for the period was £41,000,
comprising wholly of a revenue loss.
At 31 March 2011, the NAV per Ordinary Share stood at 94.0p and the NAV per 'A'
Share stood at 0.1p, producing a combined total of 94.1p, a decrease of
approximately 0.4% over the initial NAV of 94.5p (net of issue costs).
Share buybacks
As set out in the prospectus, the Company intends to operate a share buyback
policy whereby, subject to certain restrictions, it will buy in any of its own
shares that become available in the market for cancellation at a 10% discount to
NAV.
No shares were purchased in the period.
Risks and uncertainties
Under the Disclosure and Transparency Rules, the Board is required to report in
the Company's Half-Year Results on the 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)Â Â Â Â Â Â Â compliance risk of failure to maintain approval as a VCT,
(ii)Â Â Â Â Â investment risk associated with investing in small and immature
businesses.
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 also retains PricewaterhouseCoopers to provide regular
reviews and advice in this area. The Board considers that this approach reduces
the risk of a breach of the VCT regulations
In order to make VCT-qualifying investments, the Company has to invest in small
businesses which are often immature. It also has a limited period in which it
must invest the majority of its funds. The Manager has implemented a rigorous
and well-defined investment process. In addition, after an investment is made,
the Manager will closely monitor the project. The Board is satisfied that this
approach reduces the investment risk described in (ii) above as far as is
reasonably possible.
Outlook
Although the FiT Review and VCT regulation changes are likely to place some new
restrictions on investments that the Company can undertake, the success of the
Company's fundraising has brought benefits in allowing the Manager to consider
larger investments than may have otherwise been the case.
The next few months are expected to be very busy in terms of investment activity
as the Manager focuses on completing a number of larger solar investments before
the proposed FiT changes take effect. Looking further ahead, the strong pipeline
of potential opportunities in other renewable energy sectors should allow the
Company to build a well-balanced portfolio which can deliver good results for
Shareholders. I look forward to updating Shareholders in the Company's first
Annual Report for the period ended 30 September 2011.
Michael Cunningham
Chairman
INVESTMENT MANAGER'S REPORT
Investment activity since the launch of the company has focused on constructing
a pipeline of projects which meet the Company's investment criteria. Given the
attractive tariffs for large-scale solar projects, the Company's efforts had
been initially concentrated on identifying projects in this area. To this end,
the Company secured an exclusive option on a substantial pipeline of large scale
Solar PV projects mainly located in the South West.
Following the announcement of the 'Fast-track FiT Review' in February 2011 and
the launch of the consultation period in March 2011, the Company refined its
pipeline to concentrate only on those PV projects where there was certainty
around construction and accreditation before the proposed cut-off date of 1
August 2011. At the same time the Manager also looked to accelerate the
Company's investment programme in the other renewable technologies, specifically
wind.
The March Budget also imposed further challenges by adding FiT businesses (those
that receive more than 20% of their revenue from feed-in-tariffs) to the
excluded activity list from April 2012. The Manager has therefore taken steps to
ensure that all VCT qualifying investments are made within this timescale.
In the wake of these announcements, financing for many projects has fallen away
leaving many developers with a funding shortfall. This has resulted in a
supply/demand imbalance in the market place and the Manager believes that the
Company is well placed to benefit from this situation as prices for developed
projects fall. This has enabled the Company to be selective in picking projects
with attractive return profiles and where the risk of gaining accreditation
within the timeline has been suitably mitigated.
At the time of writing, the Company is expecting to announce its first two
significant investments very shortly. These will involve the deployment of circa
£6 million over the coming four months.
In summary, we are confident that at least 70% of the funds will invested in
qualifying companies by April 2012 and that the investment outlook for the
strategy remains as compelling as at the outset of the fundraising offer.
Hazel Capital LLP
UNAUDITED SUMMARISED BALANCE SHEET
as at 31 March 2011
     31 Mar 2011
     £'000
Fixed assets
Investments     750
Current assets
Debtors (including accrued income) Â Â Â Â 70
Cash at bank and in hand     8,063
-------------
     8,133
Creditors: amounts falling due within one year     (48)
-------------
Net current assets     8,085
-------------
Net assets     8,835
Capital and reserves
Called up share capital     18
Share premium     8,848
Share capital to be issued     10
Revenue reserve     (41)
-------------
Equity shareholders' funds     8,835
Net asset value per Ordinary Share     94.0
Net asset value per 'A' Share     0.1
-------------
     94.1
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the period ended 31 March 2011
     31 Mar 2011
     £'000
Issue of shares     9,382
Share issue costs     (516)
Unalloted shares     10
Total recognised losses for the period     (41)
-------------
Closing shareholders' funds     8,835
UNAUDITED INCOME STATEMENT
for the period ended 31 March 2011
 Period ended
31 Mar 2011
 Revenue  Capital  Total
 £'000  £'000  £'000
Income 18 Â - Â 18
Gains on investments - realised - Â - Â -
 - unrealised -  -  -
--------- --------- -------
 18  -  18
Investment management fees (1) Â - Â (1)
Other expenses (58) Â - Â (58)
--------- --------- -------
Return on ordinary activities before (41) Â - Â (41)
taxation
Taxation - Â - Â -
--------- --------- -------
Return attributable to equity shareholders (41) Â - Â (41)
Return per Ordinary Share (0.6p) Â - Â (0.6p)
Return per 'A' Share - Â - Â -
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 period ended 31 March 2011
      31 Mar 2011
 Note     £'000
Cash inflow from operating activities and returns on
investments 1 Â Â (63)
------------
Capital expenditure
Purchase of investments      (750)
Sale of investments      -
------------
Net cash outflow from capital expenditure      (750)
------------
Net cash outflow before financing      (813)
Financing
Proceeds from Ordinary Share issue      9,373
Proceeds from 'A' Share issue      19
Proceeds from Preference Share issue      50
Redemption of Preference Shares      (50)
Share issue costs      (516)
------------
Net cash inflow from financing      8,876
------------
Increase in cash 2 Â Â 8,063
Notes to the cash flow statement:
1Â Â Cash inflow from operating activities and returns
on investments
Return on ordinary activities before taxation      (41)
Gains on investments      -
Increase in other debtors      (70)
Increase in other creditors      48
------------
Net cash inflow from operating activities      (63)
2Â Â Analysis of net funds
Beginning of period      -
Net cash inflow      8,063
------------
End of period      8,063
SUMMARY OF INVESTMENT PORTFOLIO
as at 31 March 2011
    % of
   Unrealised portfolio
 Cost Valuation gain/(loss) by value
 £'000 £'000 £'000
Non VCT-qualifying
AEE AG Loan 750 750 - 8.5%
Cash at bank and in hand  8,063  91.5%
------------- ------------
Total investments  8,813  100.0%
All investments were additions and there were no disposals in the period ended
31 March 2011.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1.    Accounting policies
Basis of accounting
The unaudited half-yearly results cover the period to 31 March 2011 and have
been prepared under UK Generally Accepted Accounting Practice ("UK GAAP") and in
accordance with the Statement of Recommended Practice "Financial Statements of
Investment Trust Companies and Venture Capital Trusts" revised January 2009
("SORP").
Presentation of Income Statement
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 and
are measured at fair value.  A financial asset is designated within this
category if it is both acquired and managed, with a view to selling after a
period of time, in accordance with the Company's documented investment policy.
The fair value of an investment upon acquisition is deemed to be cost.
Thereafter investments are measured at fair value in accordance with the
International Private Equity and Venture Capital Valuation Guidelines ("IPEV")
together with FRS26.
In respect of unquoted instruments, fair value is established by using the IPEV.
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;
·       Earnings multiple;
·       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.
Where an investee company has gone into receivership or liquidation the loss on
the investment, although not physically disposed of, is treated as being
realised.
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 expensed.
It is not the Company's policy to exercise either significant or controlling
influence over investee companies. Therefore the results of these companies are
not incorporated into the Revenue Account except to the extent of any income
accrued.
Income
Dividend income from investments is recognised when the shareholders' rights to
receive payment has been established, normally the ex-dividend date.
Interest income is accrued on a time apportioned basis, by reference to the
principal outstanding and at the effective interest rate applicable and only
where there is reasonable certainty of collection.
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.
Expenses are split and presented partly as capital items where a connection with
the maintenance or enhancement of the value of the investments held can be
demonstrated.
The Company has adopted a policy of charging 75% of the investment management
fees to the revenue account and 25% to the capital account to reflect the
Board's estimated split of investment returns which will be achieved by the
Company over the long term.
Taxation
The tax effects on different items in the Income Statement are allocated between
capital and revenue on the same basis as the particular item to which they
relate, using the Company's effective rate of tax for the accounting period.
Due to the Company's status as a Venture Capital Trust and the continued
intention to meet the conditions required to comply with Part 6 of the Income
Tax Act 2007, no provision for taxation is required in respect of any realised
or unrealised appreciation of the Company's investments which arises.
Deferred taxation is provided in full on timing differences that result in an
obligation at the balance sheet date to pay more tax, or a right to pay less tax
at a future date, at rates expected to apply when they crystallise based on
current tax rates and law. Timing differences arise from the inclusion of items
of income and expenditure in taxation computations in periods different from
those in which they are included in the accounts. Deferred taxation is not
discounted.
Issue costs
Issue costs have been deducted from the share premium account.
2.    All revenue and capital items in the Income Statement derive from
continuing operations.
3.    The Company has only one class of business and derives its income from
investments made in shares, securities and bank deposits.
4.    Net asset value per share at the period end has been calculated on
9,382,035 Ordinary Shares and 9,382,035 'A' Shares, being the number of shares
in issue at the period end.
5.    Return per share for the period has been calculated on 6,753,086 Ordinary
Shares and 6,753,086 'A' Shares, being the weighted average number of shares in
issue during the period.
6.    Reserves
 Share premium  Shares to be
account issued Revenue reserve
 £'000  £'000  £'000
At 16 September 2010 - Â - Â -
Share issues 9,364 Â - Â -
Share issue costs (516) Â - Â -
Unallotted shares - Â 10 Â -
Retained revenue - Â - Â (41)
---------------------- -------------------- ----------------
At 31 March 2011 8,848 Â 10 Â (41)
The Revenue reserve is distributable reserves.
7.    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.
8.    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.
9.    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 Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Hazel Renewable Energy VCT 1 plc via Thomson Reuters ONE
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