18 June 2020

 

 

Gresham House Renewable Energy VCT 2 PLC

LEI: 213800GQ3JQE2M214C75

 

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 2020.

 

 

For further information, please contact:

Gresham House Asset Management Tania Hayes	t.hayes@greshamhouse.com Tel: 020 3875 9860
JTC (UK) Limited - Company Secretary Christopher Gibbons	GreshamVCTs@jtcgroup.com Tel: 44 203 846 9774

 

SHAREHOLDER INFORMATION
PERFORMANCE SUMMARY
	17 June 2020	31 March 2020 Pence	30 September 2019 Pence	31 March 2019 Pence
Net asset value per Ordinary Share		104.1	115.8	114.2
Net asset value per 'A' Share		0.1	0.1	0.1
Cumulative dividends*		51.3	45.5	45.5
Total Return*		155.5	161.4	159.8
Share Price - Ordinary (GV2O)	104.0p	104.0p	110.0p	110.0p
Share Price - A Shares (GV2A)	5.05p	5.05p	5.05p	5.05p
* for a holding of one Ordinary Share and A Share
DIVIDENDS
		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
		46.6	4.7	51.3

The next dividend is expected to be paid in December 2020 and will be announced in November 2020.

Dividends are paid by the registrar on behalf of the VCT. Shareholders who wish to have dividends paid directly into their bank account and did not complete these details on their original application form can complete a mandate form for this purpose. Forms can be obtained from Link Asset Services, whose contact details are shown on the back cover.

Shareholder information is continued on page 22.

 

CHAIRMAN'S STATEMENT

 

 

I am pleased to present the Half Yearly Report of Gresham House Renewable Energy VCT2 plc for the period ended 31 March 2020.

Overall performance in the first half of the year, which has a significantly lower contribution on annual performance than the second half of the year, has been below forecasts in generation as well as revenue terms. Solar irradiation was weak during the winter months, with the strong sunshine in March coming too late to change the overall picture. Weaker technical performance from some of the older assets in the portfolio, and a decline in electricity power prices 31% down year on year to the end of March, that accelerated with the COVID-19 pandemic, also created headwinds.

The pandemic outbreak together with the oil price war between Russia and the OPEC countries led by Saudi Arabia caused significant volatility in the financial markets with the FTSE 100 falling 25% in the three months to the end of March, the biggest quarterly contraction in London-listed share values since the aftermath of Black Monday in October 1987. Furthermore, in the first three months of this year, the UK experienced the sharpest economic contraction since the peak of the financial crisis (Q4 2008). The 5.8% single-month fall in March was the biggest on record (since 1997).

The resultant lockdown that commenced on 23 March has had minimal impact on the VCT's commercial operations given that the majority of the VCT's assets require a relatively low level of human presence.

INVESTMENT PORTFOLIO

At the period end, the VCT held a portfolio of 16 investments, which were valued at £30.1m. There were two additions to the portfolio during the period, being a new investment of £0.6m into Bio-bean in October 2019 and a new investment of £1.0m into Rezatec in January 2020.

The portfolio is analysed (by value) between the different types of assets as follows:

 

Ground-mounted Solar	82.1%
Rooftop Solar	9.1%
Small Wind	3.6%
Non-renewable	5.2%

 

The Board has reviewed the investment valuations at the half year date. The value of the portfolio has been revised downwards, due in large part to the impact of the COVID-19 pandemic on inflation expectations, power prices and UK Corporation Tax rates. The adjustments have resulted in a net revaluation decrease of £1.1m, or 3.8%, in the period to 31 March 2020. This revaluation decrease and the VCT's running costs for the half year have resulted in a decrease in the NAV of approximately

5.9p per share.

Further detail on the investment portfolio is provided in the Investment Adviser's Report on pages 5 to 12.

NET ASSET VALUE AND RESULTS

At 31 March 2020, the Net Asset Value ("NAV") per Ordinary Share stood at 104.1p and the NAV per 'A' Share stood at 0.1p, producing a combined total of 104.2p 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 2019	115.9
Less payment of interim dividend on 20 December 2019	(5.8)
Less Valuation decrease	(5.9)
NAV as at 31 March 2020	104.2

 

Total dividends paid to date for a combined holding of one Ordinary Share and one 'A' Share stand at 51.3p. Total Return (NAV plus cumulative dividends) since inception has decreased by 3.7% in the period and now stands at 155.5p, compared to the cost to investors in the initial fundraising of £1.00 or 70.0p net of income tax relief.

The loss on ordinary activities after taxation for the half year was £1,473,000, comprising a revenue loss of

£297,000 and a capital loss of £1,176,000 as shown in the Income Statement on page 13.

Updated Key Information Documents ("KIDs") are now available on the Gresham House website. The information in the KIDs is required by law to be disclosed to investors, and all figures and scenarios are calculated in accordance with the rules set by the FCA. In consequence, the risk and scenario analysis contained in these documents may therefore not represent the Board's view of likely returns on investments, particularly when the Ordinary share and A share KIDs are viewed separately.

DIVIDENDS

On 21 November 2019, the Board declared dividends in respect of the year ended 30 September 2019 of 5.3133p per Ordinary Share and 0.4867p per A Share. These dividends were paid on 20 December 2019 to Shareholders on the register at 29 November 2019.

FUNDRAISING AND INVESTMENT ACTIVITIES

The VCT did not raise any funds during the period ended 31 March 2020. As reported previously, the VCT undertook two top-up fundraisings in 2018, raising a total of £5.7m for this VCT and £5.7m for VCT1. For your VCT, a total of 4,647,144 Ordinary and 5,684,428 'A' Shares were issued in respect of the offers.

These new funds have provided the opportunity for the VCT to make a small number of new VCT qualifying investments and provide the VCT with some additional flexibility that will help it to maintain the new 80% qualification threshold. In October 2019, the VCT invested a portion of this funding into Bio-bean, a company that recycles used coffee grounds into efficient, sustainable products for both consumer and industrial applications. In January 2020, the VCT invested a further £1.0m into Rezatec, a geospatial data analytics company. Further information on these two companies is included in the Investment Adviser's Report on pages 5 to 12.

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, whose details are shown on the Shareholder Information page.

BOARD COMPOSITION

The Board comprises three non-executive directors with a broad range of experience and we continue to work closely with the Board of the sister company, Gresham House Renewable Energy VCT1 plc. 

 

ANNUAL GENERAL MEETING

The VCT's ninth AGM was due to be held on 17 March 2020. Unfortunately, due to COVID-19 the venue and facilities for the AGM were closed and the AGM was postponed.

The AGM has been rescheduled to 25 June 2020. Due to the Government's guidance that non-essential contact should be avoided, we have had to restrict access to the AGM. We would encourage you to vote through the share portal service. We welcome any questions in advance of the AGM and ask you to submit your questions through the Company Secretary at GreshamVCTs@jtc.com. Questions and answers will be included on the Gresham House Renewable VCT website.

OUTLOOK

While COVID-19 presents an unprecedented challenge to the country and economy, 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 despite the challenging environment currently faced.

The majority, by value and revenue, of the VCT's assets are ground mounted solar parks and roof- mounted solar installations. Solar farms, by their nature, require a relatively low level of human presence and we therefore expect to continue normal commercial operations without significant disruption. The impact of COVID-19, and the Government's response to it, should therefore remain relatively limited under normal operations.

Meanwhile, I would encourage you to take a look at the Gresham House website (greshamhouse.com/ real-assets/new-energy/) where you can find all of the information regarding the VCT and where, from time to time, the Investment Adviser will be publishing updates on the performance of the VCT.

 

 

CHRISTIAN YATES CHAIRMAN

17 June 2020

 

INVESTMENT ADVISER'S REPORT

 

PORTFOLIO HIGHLIGHTS

Gresham House Renewable Energy VCT2 plc (the "VCT", formerly Hazel Renewable Energy VCT2 plc) remains principally invested in a diversified portfolio of well-constructed renewable energy projects that access long-term UK government-backed Feed-in-Tariff (FiT) and Renewable Obligation Certificate (ROC) support mechanisms which provide revenues predominantly linked to the Retail Price Index (RPI). The exposure to renewable energy generation, the high proportion of income that is RPI linked and government-backed and the stable nature of the portfolio's cashflows makes the portfolio an attractive asset for the VCT.

The vast majority of the assets generate solar power. The solar assets are relatively old compared to other solar farms across the UK - the VCT's solar assets are on average 8.1 years old whereas over 90% of total solar capacity in the UK has been installed in the 8 years to December 2019. This gives them the advantage of having secured higher FiT and ROC incentives than newer assets. This means that the majority of their income comes from renewable incentive schemes rather than from selling electricity, with only 9% of revenues being variable. The downside of having older assets is that they require more maintenance to keep them operating effectively. These maintenance costs are budgeted, and in fact the portfolio has cash reserves retained to repair and replace the older equipment, such as the inverters. Work to replace some of the older equipment that is having a material impact on performance is already underway.

The COVID-19 pandemic began having a serious and unprecedented effect on the UK economy in March. This has had the following effects on the value and operations of the portfolio:

■      Power prices, which were already weakening towards the end of 2019, have fallen significantly since the new year. Third party forecasts, used to model future revenues, have been updated since December and show sustained lower power prices going on into the future. The VCT is, however, to an extent protected from this as only 9% of revenues come from wholesale power sales. We believe that this relatively low exposure to power prices for a renewable generating portfolio is a benefit that outweighs the corresponding challenges of having an older asset base that requires increased attention and maintenance.

■      Government safe working guidelines caused delays in performing repairs and Operations and Maintenance (O&M) work. The Investment Adviser ensured that the O&M contractors adhered to safe working protocols and has worked with them to mitigate the impacts of travel restrictions and safe working obligations. Since solar generating assets can perform with relatively little day to day human interaction the impact has been limited.

■      As a result of the expenditure required to combat the pandemic, the Government has reversed the cuts in Corporation Tax that were set to apply from 1 April 2020, negatively impacting on future distributable profits and cash flows from the underlying investments.

■      With the significant economic shock and the resulting Government actions to mitigate any long-term impacts, there are likely to be impacts on inflation. With much of the portfolio's revenue being inflation linked (as well as the third-party debt owed by the portfolio) any inflation changes will have an impact on net revenues going forward. With uncertainty as to what the inflation impacts will be, whether inflationary or deflationary over the medium and long term, the short-term inflation assumption has been reduced to reflect the current economic shock, with medium and long-term rates based on market-implied inflation expectations.

In summary, in relation to COVID-19 and its potential effects on the economy, the portfolio is largely insulated from the negative effects. However, to be prudent, we have addressed the potential downsides in the valuation.

During the half year, the VCT made two new investments. £615,000 was invested in October 2019 in Bio-bean Limited, the world's largest recycler of waste coffee grounds, that produces sustainable, clean fuels as well as advanced biochemicals for use in the food industry.

 

In January, £1m was invested 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 generate an information services platform to help monitor land-based assets in the forestry, agriculture and infrastructure verticals.

An annual dividend of 5.8p (5.3133p per Ordinary Share and 0.4867p per A Share) was paid on 20 December 2019.

PORTFOLIO COMPOSITION

Portfolio Composition by Asset Type and Impact on NAV

 

	31 March 2020			30 September 2019
	Value	% of Portfolio		Value	% of Portfolio
Asset Type	kWp                       ('000)	Value		('000)	Value
Ground-mounted Solar (FiT)	20,325        £22,059	73.3%		£22,387	75.4%
Ground-mounted Solar (ROC)	8,699          £2,653	8.8%		£3,179	10.7%
Total ground-mounted Solar	29,024        £24,712	82.1%		£25,566	86.1%
Rooftop Solar (FiT)	4,314          £2,723	9.1%		£2,920	9.8%
Total Solar	33,338        £27,435	91.2%		£28,486	95.9%
Wind Assets (FiT)	1,420          £1,089	3.6%		£1,221	4.1%
Total renewable generating assets	34,758        £28,524	94.8%		£29,707	100.0%
Venture Capital Investments	N.A.           £1,564	5.2%		-	0.0%
TOTAL	34,758        £30,088	100.0%		£29,707	100.0%

The 34.8MWp of renewable energy projects in the portfolio generated 9,644,365 kilowatt-hours of electricity over the half year, sufficient to meet the annual electricity consumption of c.2,800 homes.

 

PORTFOLIO SUMMARY

Total solar portfolio revenues were 8.4% behind forecast for the period. Lower than expected power prices and technical underperformance at the older ground-mounted solar assets were the main contributing factors for revenues being behind forecasts.

In revenue terms, the electricity generated by the entire asset base earned £3.2 million in the 6-month period which was 8.6% behind forecasts. £2.96 million of this amount was generated by the solar ground- mounted and rooftop assets and the remainder by the small wind turbine portfolio, as shown below.

Portfolio Revenues by Asset Type (£ Sterling)

Asset Type	Forecast Revenue	Actual Revenue	Revenue Performance
Ground-mounted Solar (FiT)	2,501,591	2,317,876	92.7%
Ground-mounted Solar (ROC)	386,125	346,790	89.8%
Total Ground-mounted Solar	2,887,716	2,664,666	92.3%
Rooftop Solar	346,017	299,151	86.5%
Total Solar	3,233,733	2,963,817	91.7%
Wind Assets	271,168	241,096	88.9%
TOTAL	3,504,901	3,204,913	91.4%

 

The most material revenue shortfall was suffered by the ground-mounted solar assets, with total revenue of £2,664,666 being 92.3% of forecast. The major components of this shortfall are (1) the reduction in power prices reducing revenue by 3% and (2) a 4% reduction in performance as a result of technical issues attributable to the age of the assets (approaching nine years for the FiT-remunerated ground- mounted solar assets). This is shown in the chart below.

 

VCT GM Solar Portfolio Revenue Analysis October 2019 - March 2020

As noted above, the reduction in availability and performance is to be expected and the Investment Adviser has projects underway to address this where the business case supports the works, using cash reserved for this purpose.

The revenue is affected 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, whether they are breaking down, etc); and

■      The revenue per unit of energy generated. These will each be explored in more detail below.

RENEWABLE ENERGY RESOURCES

The weight of the portfolio is in solar (96% by capacity and value of the renewable assets, 91% of total portfolio). The half year covered by this report has lower solar resources than the summer months. Solar irradiation was 0.22% behind forecasts and was lower than the positive 2.6% figure achieved over the previous half-year. Project by project, measurements varied between 89% and 104.6% of forecast levels for the eight ground-mounted solar projects in the portfolio. Each 1.0% change, in absolute terms, in irradiation for this portfolio results in a £111,000 movement in annual revenues.

 

TECHNICAL PERFORMANCE

The table below shows the technical performance for each of the groups of assets. The reasons for the changes are then explained.

 

Portfolio Technical Performance by Asset Type
Asset Type	Forecast Output	Actual Output	Technical Performance
Ground-mounted Solar (FiT)	5,682,898	5,346,597	94.1%
Ground-mounted Solar (ROC)	2,470,385	2,650,138	107.3%
Total Ground-mounted Solar	8,153,283	7,996,735	98.1%
Rooftop Solar	1,011,652	936,295	92.6%
Total Solar	9,164,935	8,933,030	97.5%
Wind Assets	800,060	711,336	88.9%
TOTAL	9,964,995	9,644,366	96.8%

The causes of the reduction in output of the ground-mounted performance is split out below:

 

VCT GM Solar Portfolio Technical Analysis October 2019 - March 2020

The ground-mounted solar asset base was 1.9% behind its forecast level of generation.

As solar installations age some of the key components, e.g. inverters, need to be replaced as they reach the end of their expected useful life. The older FiT assets are now approaching this stage and have experienced some loss of generation due to faults in this older equipment. The Investment Adviser reviews the performance of these components on a regular basis and is working with contractors to arrange for the renewal and replacement of these older components. The work will be funded by inverter maintenance reserves under the debt facility, meaning that no additional capital investment is required.

In addition, damp weather during the winter months can cause moisture ingress in certain components such as DC cable connectors and this has also had a slightly negative impact on the performance of the older FiT assets. The Investment Advisor is working with contractors to replace and repair affected components.

 

The Investment Adviser issued updated health and safety guidance to contractors reflecting guidelines and directives issued by the UK Government. There was a negative impact on corrective and preventative maintenance work schedules as a result of this. In addition, international travel bans prevented specialist staff from inverter manufacturers travelling to the UK to perform highly specialised work.

Some of these restrictions have been eased and contractors have been instructed to find other solutions that can be implemented without breaching health and safety policies and Government directives.

Generation of the rooftop solar portfolio was 7.4% lower than forecast. Irradiation cannot be measured at roof-mounted solar installations as it is not cost effective to install pyranometers but there is no reason to assume that the irradiation at these sites was materially below forecast and so the likely explanation is due to component or metering faults which will be addressed as soon as contractors can gain access to these sites.

The small wind portfolio performed 11.1% lower than forecast, continuing the poor performance experienced in recent years. Small wind accounts for only 4.1% of the portfolio in terms of capacity.

REVENUE PER KILOWATT HOUR OF RENEWABLE ENERGY GENERATED

The revenue comes from both government incentives put in place to encourage the installation of renewable energy generation capacity as well as the sale of electricity generated. The assets owned by the VCT are relatively old, some 9 years old, and so secured relatively higher levels of incentives (FiT and ROC) than assets that were built more recently. This means that a relatively high proportion of revenues are incentives that do not suffer from market or pricing risk and instead increase with RPI, as shown below.

By asset type, 88% of revenues (being 79% FiT, 7% ROC, 2% Export Fixed as set out in the chart below) were RPI-linked while 12% came from the sale of power (being 8% Export Variable, 3% Private Wire and 1% Other Variable) and are not RPI linked.

 

Renewable Energy VCT Portfolio - Revenue Profile October 2019 - March 2020

 

The high proportion of overall income that is RPI-linked, backed by fixed subsidies, and therefore not exposed to wholesale power prices, is a significant driver of value in this portfolio, which has been largely insulated from the very significant reduction in the wholesale price of electricity experienced since the new year (up to 40% reduction), and greatly exacerbated by the COVID-19 pandemic.

 

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 totalling £3.1 million that are in place for all the ground-mounted solar assets and for the majority of the roof-mounted solar assets. Other repair and maintenance costs were within the £95,000 budget set for the half year.

 

NEW INVESTMENTS

In October 2019, after the year end, the VCT made a new investment of £615,000 into Bio-bean Limited, the world's largest recycler of waste coffee grounds. This investment represented 15% of the £4 million funding round announced by Bio-bean in April 2019. The VCTs' investment formed the final part of that round, and valued Bio-bean at £7.6 million. The investment comprised of £400,000 of equity and

£215,000 of debt.

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.

The COVID-19 pandemic has had a negative impact on Bio-bean as the company. is dependent on the continuous supply of waste coffee grounds from major coffee retail chains. The lockdown means that these deliveries have been suspended, however, due to a large stockpile of waste coffee grounds, efforts by management to diversify supply (albeit at an increased acquisition price), robust demand for its clean fuels, and a careful approach by management with a focus on minimising cash burn, has meant that the impact on the business will not be significant should the economy largely reopen by August.

At the time of the VCT's investment, its advanced biochemicals business centred around producing Natural Coffee Extract and Natural Coffee Flavour, advanced biochemicals for use in the food chain, was at its infancy, but with significant growth projected following the investment as the products and markets are developed. Natural Coffee Extract from waste coffee grounds has successfully gone through the regulatory approval process that permits its use in the food chain, and Bio-bean has lined up a diverse range of potential customers who have shown interest. The pandemic has unfortunately meant a delay in sales as customers have had to focus on business-critical areas.

In January, the VCT invested £1m 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 and power transmission network risk analyses, and to agriculture companies processing crops, for yield and logistics optimisation.

Rezatec has won over key industry players in countries around the world that include the USA, Canada and India which have large forestry and agricultural sectors as well as infrastructure over a large physical footprint. 

 

The VCT's investment was part of a £5m round into which the Baronsmead VCTs, managed by Gresham House plc, also invested.

Rezatec, has not seen a meaningful impact on its business as a result of the COVID-19 pandemic. Its platform is designed to help its customers increase efficiency, and sales pipeline conversion does not require physical meetings. It has sufficient funding in place not to necessitate further fundraising until the end of 2021, even if pipeline conversion slows down. The management team nevertheless took the prudent approach of suspending new hiring.

 

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 new investments in Bio-bean and Rezatec. The NAV total return is the value of the net assets of the VCT 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.

The impact of the COVID-19 pandemic on Corporation Tax rates, power price forecasts and short-term inflation expectations, as well as the substantial increase in O&M costs for the small wind turbine fleet, outlined above, have been reflected in lower valuations of the renewable energy generation assets where these factors have an adverse impact on projected future cash flows.

Medium and long-term inflation expectations implied by the pricing of publicly-traded UK Government gilts have come below the 3.0% level previously used in the VCT's financial model. The Investment Adviser now assumes 2.9% from September 2022. Shorter term inflation forecasts are harder to obtain and show a greater range. The first meaningful readings of inflation from the UK and the rest of the developed world that have come in after the COVID-19 pandemic, show significantly lower levels. The Investment Adviser has therefore decided in favour of cutting its forecast of inflation (Retail Price Index) to 2.5% from 3.0% for the period 1 April 2020 to 30 September 2022.

Reflecting the 40% reduction in wholesale power prices from the peak in 2019, the forecast revenues from the sale of power have come down significantly for the two-year, short term horizon, and have fallen by between zero and ten percent for the medium and longer term. For the short term, the Investment Adviser has taken a prudent approach and used levels that assume a slower recovery than the consultants whose medium and long term power price projections are used.

Forecasts of future cash flows for the renewable energy assets now assume that the planned cut in the Corporation Tax rate to 17% has been cancelled, with Corporation Tax staying at 19% for the foreseeable future.

All other key assumptions for the revenues and operating costs of the projects remain the same as they were last year, with the exception of O&M rates for the small wind turbine fleet which have risen by between 45% and 60% from previous levels.

Another important factor is the fact that aggregate cash balances across the VCT were used to fund a 5.8p dividend, paid to shareholders in the half year, and VCT-level expenses of 1.4p. The payment of the dividend means that the NAV will fall but the total return to shareholders increases by the same amount.

The NAV has moved down from 115.9p to 104.2p as a result of the above. 

 

OUTLOOK

The Investment Adviser's immediate focus is to ensure that impact of the COVID-19 pandemic on the portfolio continues to be limited.

Wholesale power prices which have a small representation in the portfolio's revenues are outside the Investment Adviser's control, however opportunities will be sought to enter long-term power purchase agreements (contracts to sell the power) if prices spike up in a quicker than anticipated fashion.

Contractors will continue to be monitored to assess whether they are doing everything that is allowable within the rules and regulations to improve performance at the older ground-mounted sites that have suffered from a drop in technical performance as well as all the other sites that have continued to perform well. Any changes to safe working regulations will be monitored closely so that generation can be restored at the small percentage of rooftop solar installations that are offline.

The other area of continued focus is the replacement of poorly performing equipment. Arrangements will be made for the Lake Farm project to be repowered soon after work on the Kingston Farm project is complete.

The COVID-19 pandemic is likely to have a long-lasting impact. The renewable generation business, particularly assets with a high degree of government subsidies have only suffered a minor impact. In the event of a prolonged economic slump, these assets may be favoured to a higher degree than they have been to date by financial markets, particularly if the unprecedented amount of government stimulus eventually triggers inflation.

 

 

GRESHAM HOUSE ASSET MANAGEMENT LIMITED

17 June 2020

 

UNAUDITED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 31 MARCH 2020
Six months ended		Six months ended		Year ended
31 March 2020   Revenue          Capital	Total	31 March 2019   Revenue          Capital	Total	30 Sept 2019 Total
£'000              £'000	£'000	£'000              £'000	£'000	£'000
Income                                                             90                -	90	52             -	52	94
(Losses)/gains on investments                               -       (1,134)	(1,134)	-         657	657	1,305
90      (1,134)	(1,044)	52         657	709	1,399
Investment management fees                           (125)         (42)	(167)	(136)        (46)	(182)	(352)
Other expenses                                                  (262)              -	(262)	(133)            -	(133)	(249)
(Loss)/profit on ordinary activities before taxation                             (297)   (1,176)	(1,473)	(217)        611	394	798
Tax on total comprehensive
income and ordinary activities                          -                   -	-	-             -	-	-
(Loss)/profit attributable to equity Shareholders                                  (297)    (1,176)	(1,473)	(217)        611	394	798
Earnings per Ordinary Share                  (1.1p)         (4.5p)	(5.6p)	(0.9p)      2.5p	1.6p	3.2p
Earnings per 'A' Share                                   -                   -	-	-             -	-	-

 

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 2020
	Note	31 March 2020 £'000	31 March 2019 £'000	30 September 2019 £'000
Fixed assets Investments	9	30,088	29,605	29,707
Current assets Debtors		282	275	305
Cash at bank and in hand		254	1,066	1,336
		536	1,341	1,641
Creditors: amounts falling due within one year		(114)	(101)	(163)
Net current assets		422	1,242	1,478
Creditors: amounts falling due after more than one year		(3,274)	(960)	(895)
Net assets		27,236	29,885	30,290
Capital and reserves Called up share capital		71	72	71
Share premium		9,734	9,732	9,734
Treasury Shares		(3,403)	(2,792)	(3,403)
Capital redemption reserve		1	1	1
Special reserve	8	6,394	7,364	7,975
Revaluation reserve	8	16,388	16,914	17,522
Capital reserve - realised	8	(1,351)	(1,307)	(1,309)
Revenue reserve	8	(598)	(99)	(301)
Equity shareholders' funds		27,236	29,885	30,290
Net asset value per Ordinary Share Net asset value per 'A' Share		104.1p 0.1p	114.2p 0.1p	115.8p 0.1p
		104.2p	114.3p	115.9p

 

UNAUDITED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 31 MARCH 2020

 

	Called up Share capital	Share Premium account	Shares not yet allotted	Capital redemption reserve	Treasury Shares	Special reserve	Revaluation reserve	Capital Reserve - realised	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
As at 30 September 2018	68	7,531	1,035	-	(2,792)	9,724	16,257	(1,261)	118	30,680
Total comprehensive
income	-	-	-	-	-	-	1,217	-	(419)	798
Transfer of net realised
gain to Capital
reserve-realised Transactions with owners	-	-	-	-	-	-	48	(48)	-	-
Dividend paid	-	-	-	-	-	(1,668)	-	-	-	(1,668)
Repurchase of Shares	-	-	-	1	(611)	-	-	-	-	(610)
Issue of Shares	3	2,203	-	-	-	(81)	-	-	-	2,125
Unallotted Shares	-	-	(1,035)	-	-	-	-	-	-	(1,035)
As at 30 September 2019	71	9,734	-	1	(3,403)	7,975	17,522	(1,309)	(301)	30,290
Total comprehensive loss	-	-	-	-	-	-	(1,176)	-	(297)	(1,473)
Transfer of net realised
gain to Capital
reserve-realised Transactions with owners	-	-	-	-	-	-	42	(42)	-	-
Dividend paid	-	-	-	-	-	(1,581)	-	-	-	(1,581)
As at 31 March 2020	71	9,734	-	1	(3,403)	6,394	16,388	(1,351)	(598)	27,236