16 November 2020

 

Triple Point Income VCT plc

(the "Company")

RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2020

 

The Directors of Triple Point Income VCT plc are pleased to announce the unaudited results for the six months ended 30 September 2020.

  

You may view the Interim Report in due course on the Triple Point website: www.triplepoint.co.uk. Please note that page numbers in this announcement are in reference to the Interim Report.

 

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

Triple Point Investment Management LLP   (Investment Manager)	Tel: 020 7201 8989
Ben Beaton   Belinda Thomas

The Company's LEI is 213800IXD8S5WY88L245.

 

Further information on the Company can be found on its website https://www.triplepoint.co.uk/current-vcts/triple-point-income-vct-plc/s1238/.

 

Financial Summary

 

Six months ended 30 September 2020
		C Shares	D Shares	E Shares		Total
Net assets	£'000	11,184	7,970	27,882		47,036
Net asset value per share	Pence	83.20p	58.60p	96.31p		n/a
Net profit before tax	£'000	255	182	330		767
Earnings per share	Pence	1.83p	1.09p	1.12p		n/a
Cumulative return to Shareholders (p)
Net asset value per share		83.20	58.60	96.31
Dividends paid		73.50	70.00	11.50
Net asset value plus dividends paid		156.70	128.60	107.81
Year ended 31 March 2020
		C Shares	D Shares	E Shares		Total
Net assets	£'000	11,406	8,559	29,442		49,407
Net asset value per share	Pence	84.87p	62.46p	101.69p		n/a
Net profit before tax	£'000	746	86	1,217		2,049
Earnings per share	Pence	5.29p	0.12p	4.13p		n/a
Cumulative return to Shareholders (p)
Net asset value per share		84.87	62.46	101.69
Dividends paid		70.00	65.00	5.00
Net asset value plus dividends paid		154.87	127.46	106.69
Six months ended  30 September 2019
Unaudited		C Shares	D Shares	E Shares		Total
Net assets	£'000	17,851	15,557	29,340		62,748
Net asset value per share	Pence	132.80p	113.54p	101.35p		n/a
Net profit/(loss) before tax	£'000	459	203	(333)		329
Earnings/(loss) per share	Pence	3.22p	1.20p	(1.21p)		n/a
Cumulative return to shareholders (p)
Net asset value per share		132.80	113.54	101.35
Dividends paid		20.00	15.00	-
Net asset value plus dividends paid		152.80	128.52	101.35

 

Triple Point Income VCT plc ("the Company") is a Venture Capital Trust ("VCT"). The Investment Manager is Triple Point Investment Management LLP ("TPIM" or "Triple Point"). The Company was incorporated in November 2007 and currently has three classes of issued ordinary shares:

 

·   C Ordinary Shares ("C Shares"): these are the shares issued in the Offer that closed on 27 May 2014. A total of £14 million was raised and 13,441,438 C Shares were issued.

 

·   D Ordinary Shares ("D Shares"): these are the shares issued in the Offer that closed on 30 April 2015. A total of £14.3 million was raised and 13,701,636 D Shares were issued.

 

·   E Ordinary Shares ("E Shares"): these are the shares issued in the Offer that closed on 15 May 2017. Just under £30 million was raised and 28,949,575 E Shares were issued.

 

Key Highlights

 

·      C Shares Cumulative Dividends Paid: 73.50p (A dividend of 3.50 pence per C Share was paid on 30 June 2020).

·      D Shares Cumulative Dividends Paid: 70.00p (A dividend of 5.00 pence per D Share was paid on 30 June 2020).

·      E Shares Cumulative Dividends Paid: 11.50p (A dividend of 6.50 pence per E Share was paid on 30 June 2020).

·     Total Return per C Share*: 156.70p (Total Return for the C Share Class was 156.70 pence per share, which includes cumulative dividends paid of 73.50 pence per C share).

·     Total Return per D Share*: 128.60p (Total Return for the D Share Class was 128.60 pence per share, which includes cumulative dividends paid of 70.00 pence per D share).

·     Total Return per E Share*: 107.81p (Total Return for the E Share Class was 107.81 pence per share, which includes cumulative dividends paid of 11.50 pence per E share).

 

\* Total Return is made up by current Net Asset Value plus Dividends paid to date. Total Return is defined as an Alternative Performance Measure ("APM"). Total Return, calculated by reference to the cumulative dividends paid plus net asset value (excluding tax reliefs received by shareholders), is the primary measure of performance in the VCT industry.

 

Chairman's Statement

                                                                       

I am pleased to present the Interim Report for the Company for the period ended 30 September 2020.

 

The continuing COVID-19 global pandemic has presented a wide-ranging set of challenges that span public policy, economics and renewable energy to mention a few. Each one has been, and continues to be, extraordinary in both complexity and impact.  

 

The depth and speed of the economic contraction across the developed world is unparalleled in modern times and it appears extremely optimistic to believe that by the end of 2021 we will be back to where we were at the start of the year. As I write, England has just entered a second national lockdown. The social, economic and financial impact of COVID-19 has been, and remains, immense, uncertainty over the nature and timing of recovery remains.

 

Many individual businesses and certain business sectors have required recapitalisation, with huge damage caused to fragile supply chains and with heavily dented consumer confidence. Few business models remain truly unaffected. For at least the next year, and likely longer than that, economic prospects will be heavily influenced by the nature of the recovery from the pandemic and how long-lasting the effects of the resultant recession prove to be.

 

The food system in the UK continues to be under strain and the E Share Class investment into the vertical growing solution, Perfectly Fresh Cheshire Limited ("PFC"), continues to help bridge this gap. The business has continued to operate despite the obstacles provided by the pandemic. Through this period, PFC has liaised closely with its main customer in its response to COVID-19, and I am delighted to say that it has been able to greatly support them with the product continuing to be grown, delivered on time and as requested.

 

Reflecting the severity and timing of COVID-19 measures, power demand was significantly reduced at the peak of movement restrictions across the UK, the average demand is running approximately 10% below 2019 levels. Short-term power prices have seen extreme volatility as a result of the COVID-19 pandemic and associated first lockdown. The Company's investments in both hydroelectric schemes and rooftop solar companies have been somewhat insulated from this volatility as the majority of revenues are generated from renewable incentive schemes. As a result, the valuations have been minimally affected.

 

Investment Portfolio

 

The Company's funds at 30 September 2020 are invested in a portfolio of VCT qualifying and non-qualifying quoted and unquoted investments. At 30 September 2020 the Company continues to meet the condition that at least 80% by value of the Company's investments are represented by qualifying holdings.

 

The Investment Manager's review on pages 15 to 24 gives an update on the portfolio of investments in 17 small unquoted businesses and one quoted Real Estate Investment Trust.

 

Regulation

 

Legislation introduced through the Finance Act 2018 began to apply to the Company from 1 April 2020, implementing an increase in the qualifying investment test to 80%. The Investment Manager continues to monitor this ratio closely and the Board is pleased that the Company comfortably navigated the transition period and continues to meet the new requirements.

 

In line with HMRC guidance, any new investments made by the Company are now self-assured by the Board and the Investment Manager on a case-by-case basis and always with confirmation from professional advisers that they are Qualifying Investments. Advance Assurance is sought where there is an element of uncertainty or doubt over the application of the rules.

 

The Company continued to satisfy all other tests relevant to its status as a Venture Capital Trust.

 

C Share Class

 

The C Share Class has investments in three companies in the Hydroelectric power sector, which between them own six hydroelectric schemes in the Scottish Highlands. All schemes have been successfully commissioned and continue to operate in line with expectations.

 

I am pleased to report the C Share Class has recorded a profit over the period of 1.83 pence per share. At 30 September 2020 the net asset value stood at 83.20 pence per share. Adding back the total dividends paid to date takes the total return, including the net asset value, to 156.70 pence per share.

 

The original target for the C Share Class was to return 100.00 pence per share by the end of year six, comprising the income tax rebate, four annual tax-free dividends of an average 5.00 pence per share, followed by a partial realisation of 50.00p. Thereafter an ongoing dividend of around 3.50p per annum is targeted for a further nine years and a final capital realisation of c.50 pence per share in 2029 following the sale of the Company's hydro projects. I am pleased to say that the Company is achieving this target for C Shareholders.

 

The Company has to date returned 73.50 pence per share to Shareholders: including the initial tax relief this is a return of over 100 pence per share.

 

The Board continues to monitor investment activity across the wider hydro sector and will consider on a regular basis if it is in shareholders' interests to retain or realise the portfolio on a regular basis.

 

D Share Class

 

The D Share Class has investments in five companies in the Hydroelectric power sector, which between them own six hydroelectric schemes in the Scottish Highlands. All schemes have now been commissioned and are now operating in line with expectations.

 

The original target for the D Share Class was to return 100.00 pence per share by the end of year six, comprising the income tax rebate, four annual tax-free dividends of an average 5.00 pence per share, followed by a partial realisation of 50.00p. Thereafter an ongoing dividend of around 3.50p per annum is targeted for a further nine years and a final capital realisation of c.50 pence per share in 2030 following the sale of the Company's hydro projects.

 

I am pleased to say that the Company is achieving this target for D Shareholders. The Company has to date returned 70.00 pence per share to Shareholders: including the initial tax relief this is a return of 100 pence per share.

 

The D Share Class has recorded a profit over the period of 1.09 pence per share. At 30 September 2020 the net asset value stood at 58.60 pence per share. Adding back the total dividends paid takes the total return, including the net asset value, to 128.60 pence per share.

 

The Board continues to monitor investment activity across the wider hydro sector and will consider on a regular basis if it is in shareholders' interests to retain or realise the portfolio on a regular basis.

 

E Share Class

 

The E Share Class holds a diverse portfolio of investments spanning sectors such as vertical growing and energy production from gas fired energy centres, solar and hydro. While the E Share Class is at an earlier stage in its life cycle in comparison to the C and D Share Class, the Board is pleased with its progress to date.

 

The E Share Class recorded a profit over the period of 1.12 pence per share as a result of revaluation of investments. At 30 September 2020 the net asset value stood at 96.31 pence per share.

 

The E Share Class declared a second dividend of 6.5 pence per share on 4 June 2020. This dividend was paid to Shareholders on 30 June 2020. This payment takes total dividends paid to E Shareholders to 11.5 pence per share.

 

Outlook

 

The speed and extent to which COVID-19 has changed daily life is hard to overstate. Whilst the first wave of the pandemic appeared to be behind us and movement restrictions were being clarified, uncertainty has increased, particularly in the short term as England has entered a second national lockdown. We do not yet know how quickly economies will recover or for how long governments can continue to run up such enormous deficits.

 

In June 2019, the UK parliament adopted a net zero emissions target for 2050, going further than previous legislation, which mandated 80% emission reductions by 2050. Decarbonisation of the electricity sector, primarily through renewable generation, will be critical to achieving this. The Company continues to support this target through all its Share Classes and their investments in hydroelectricity, solar and gas fired energy centres. The UK still experiences significant peaks and troughs in energy consumption. Gas fired energy centres help to solve these short-term peaks in the electricity demand profile. Natural gas neatly bridges the gap between environmentally unfriendly fossil fuels and more irregular solar and wind power.

 

The UK left the EU on 31January 2020 and then entered into the transition period. The period during which an extension could be requested expired at the end of June, suggesting that both parties now must agree on a trade deal by December 2020. There continues to be a risk that both parties may not agree a deal, though this remains uncertain. With the UK officially leaving the EU's internal energy market at the end of the year, both the UK Government and European Commission have stated that they are keen on maintaining a strong co-operation on energy policy and will establish a new energy trade deal. Given the UK focus of the Company and the sectors the Company operates within, we do not expect that Brexit will have a significant impact on the current operations of the Company.

 

If you have any questions or comments, please do not hesitate to contact Triple Point on 020 7201 8989.

 

David Frank

Chairman

16 November 2020

 

Investment Manager's Review

 

Sector Analysis

 

The unquoted investment portfolio can be analysed as follows:

 

			Electricity Generation		SME Funding
Industry Sector	Crematorium Management	Vertical Growing	Hydroelectric Power	Other Electric Power	Hydroelectric Power	Other	Quoted Investments	Total Investments
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Investments at 30 September 2020
C Shares	-	-	11,342	-	-	-	-	11,342
D Shares	-	-	10,036	-	-	-	-	10,036
E Shares	97	6,282	5,812	7,872	3,348	2,717	590	26,718
Total	97	6,282	27,190	7,872	3,348	2,717	590	48,096
Total investments %	0.20%	13.06%	56.53%	16.37%	6.96%	5.65%	1.23%	100.00%

 

C Share Class

 

Hydroelectric Power

100%

 

D Share Class

 

Hydroelectric Power

100%

 

E Share Class

Crematorium Management	1%
Vertical Growing	24%
Quoted Investments	2%
Hydroelectric Power	22%
SME Funding - Hydroelectric Power	13%
SME Funding - Other	10%
Electricity Generation - Other	28%

 

We have the pleasure in presenting our interim review of the six months ended 30 September 2020.

 

The VCT was established to fund small and medium-sized enterprises. At 30 September 2020 it had three share classes, each invested in their own portfolio. The overall portfolio comprised investments in 17 small, unquoted companies and one quoted Real Estate Investment Trust, across five sectors: crematorium management, electricity generation, vertical growing, SME funding and investment property.

 

At 30 September 2020 the Company continues to meet the condition that at least 80% of relevant funds must be invested in VCT qualifying investments within three years.

 

Review and Future Developments

 

In the six months that this Interim Report covers we have been confronted with rapidly changing data related to the social, political and increasingly financial impact of the response to the COVID-19 pandemic. The onset of significant travel restrictions and other social distancing measures, in the United Kingdom and across over 80% of the world's population, in response to managing the public health fallout from the disease, will have serious consequences for economic and financial conditions. The health and economic impacts of the pandemic have highlighted areas of structural weakness in the global economy, particularly in relation to sustainability and the vulnerability of supply chains.

 

One of the few beneficial effects of the reduction in activity caused by the COVID-19 pandemic has been the short-term reduction in carbon emissions globally and improved air quality. With a clear and pressing need for economic stimulus to drive economic recovery, there is broad political support in the EU and the UK to use recovery funds as a means to drive forward the energy transition to a future without greenhouse gas emissions.  

 

Energy Investments - Active Asset Management

 

All Share Classes within the Company remain fully invested, both the C and D Share Classes are exclusively invested across companies in the hydroelectric power sector. The E Share Class contains investments across the hydroelectric power sector, gas power sector, rooftop solar, crematorium management, vertical growing, SME funding and investment property.

 

Despite the ongoing pandemic and the change in electricity demand profile, investments across the hydroelectric power, gas power sector and rooftop solar within the C, D and E share classes continue to generate electricity with minimal disruption.

 

The companies across all Share Classes in the electricity generation sectors have been minimally affected by the COVID-19 pandemic, there have been minimal supply chain disruptions leading to no substantial delays in the sourcing of any key components for the hydroelectric, solar or gas fired energy projects. Triple Point continue to liaise with our Operation and Maintenance contractors across all companies to try and avert any potential future delays in the procurement process.

 

Triple Point continue to work actively to both increase the value of the Company's electricity generation portfolio through operational improvements in the underlying assets and to protect value where market conditions have deteriorated. This is best illustrated by fixing power prices in the near term. Other areas where hands-on asset management delivers additional shareholder value is in relation to the negotiation of major commercial contracts including the power purchase agreements for each individual site and operation and maintenance agreements.

 

Triple Point continue to seek to reduce operating costs on a project by project basis by, for example, successfully appealing business rates assessments which has delivered significant savings for investee companies.

 

C Share Class

 

The Company and the Investment Manager continue to monitor the ongoing operation and efficiency of the C Share Class investments. The C Share Class has investments in three hydroelectric companies which, between them, own six schemes in the Scottish Highlands.

 

D Share Class

 

The D Share Class has investments in five hydroelectric companies which between them own six hydroelectric schemes in the Scottish Highlands. All six schemes have been commissioned and are fully operational.

 

E Share Class

 

The E Share Class has successfully deployed its funds into various investments in a diverse range of sectors.

 

Hydroelectric Power

 

The E Share Class has investments in nine companies which own, either directly or indirectly, hydroelectric schemes in the Scottish Highlands.

 

The ten hydroelectric schemes are all "run of river" plants and each company benefits from government backed Feed-in-Tariff (FiT) payments based on output and from the sale of the electricity produced to utilities or other power companies under Power Purchase Agreements (PPAs). These contracts allowed the companies to avoid the volatility experienced in power markets during the earlier days of the pandemic.

 

Although rainfall variability is to be expected over the 40-year period of generation which our hydroelectric companies are expected to experience, overall, we continue to be pleased with the efficiency of the hydroelectric schemes owned by them. The hydroelectric companies remain highly focused on improving efficiencies and maximising output and are working alongside hydro experts to further enhance performance.

 

During the six months to 30 September 2020, the hydroelectric companies generated 5,773 MWh of electricity. Based on an average of 3.8 MWh annual use per household, the hydroelectric companies generated enough electricity to power the equivalent of 1,519 homes during the period.

 

As we highlighted in our review accompanying the Annual Report the hydroelectric companies, together with other industry members and the British Hydropower Association, had been lobbying the Scottish Government to recognise the concern on business rates in the hydro sector. As a result of this, the Tretton Review report was published in January 2020, which unfortunately found that no changes to business rates would be applied.

 

This was very disappointing news for us and the Hydro Companies. 

 

The report suggests temporary government reliefs, which do not apply equally across the sector and are not guaranteed, should continue, rather than recommending an industry-preferred permanent solution to the unfair rateable value increase in 2017 which far outstripped that faced by other businesses.

 

The British Hydropower Association, along with other industry members, continues to pursue this matter and is putting forward different ideas to the Scottish Government.

 

In the six-month period to 30 September 2020, our hydro companies have all successfully applied for and received the applicable rates relief from the Highland Council for the financial year 2020/21.

 

Crematorium Management

 

The Company has an investment in a business that provides crematory and mercury abatement services for the crematoria of a London Borough. This investment receives revenues from local authorities and has consistently generated a steady return over the years it has been held. 

 

Solar

 

After a successful review and intervention to improve performance of the Digima portfolio, all four portfolios are now performing in line with or exceeding expectations. Excellent irradiation during the period made for generation ~11% above expectations for the portfolio. Availability has mostly held stable since restrictions caused by the COVID-19 pandemic prevented maintenance from taking place.

 

Vertical Growing

 

The E Share Class has invested in Perfectly Fresh Cheshire Limited ("PFC"), a company which has constructed a pioneering vertical growing facility. Vertical Growing is the practice of producing food in an indoor growing amenity where all inputs (water, light and nutrients) meet the optimum needs of the crop. Vertical Growing facilities are designed to have a sealed environment, meaning that the product is grown in a controlled manner, with positive air pressure to prevent any contaminants entering the facility. This ensures that insects and other pests cannot access the crop, thus removing the need to use pesticides on the crop being grown. A large variety of produce can be grown including herbs and salad leaves.

 

Expert in horticulture, PFC has recently expanded their growing facilities to cater for a growing number of customers, including two of the United Kingdom's largest supermarket brands.

 

Its operations currently span over 1,100 square metres and are a pioneering example of the latest technology being harnessed to meet the growing needs of an ever-expanding population.

 

The COVID-19 pandemic has highlighted the need for greater food security, it is expected that this will continue to be an item high on the government agenda. We believe that PFC is poised to capitalise on this changing landscape while it could see an active increase in valuations across the sector.

 

Gas Power

 

The Company has an investment in Green Peak Generation Limited which has constructed a gas fired energy centre that provides a reliable and secure energy supply. The energy centre was commissioned during May 2018 and it consists of containerised gas combustion engines that generate electricity for onward sale, especially at times when there is high demand for power.

 

The energy centre utilises simple technology, provided by Rolls-Royce, which can respond rapidly to grid fluctuations to deliver a reliable and secure energy supply.

 

Gas is purchased from the National Transmission System and combusted in the engines to generate electricity. The electricity is then exported to the grid and sold under a Power Purchase Agreement. The company receives revenues from the sale of electricity and additional income from embedded benefits.

 

During the six-month period to 30 September 2020, the energy centre generated 10,340 MWh of electricity. Based on an average of 3.8 MWh annual use per household, this was enough electricity for 2,721 homes during the period.

 

Outlook

 

The economic outlook for the UK continues to remain highly uncertain. While some countries have begun to rebound as they have reopened from lockdowns, investment and realisation activity remains well below pre-COVID levels in most economies.

 

The speed of recovery will depend on many factors including how the pandemic evolves, medical interventions, policy responses, and general consumer and business sentiment. The recovery is unlikely to be linear and, for most economies, economic activity may not return to pre-COVID levels until 2022. While our portfolio companies have been affected in the short term, albeit minimally, we are of the view that there will be a negligible effect on valuations due to the nature of the Company's investments and that the majority of the portfolio are the beneficiaries of inflation-linked income through FITs or Renewable Obligation Certificates. The impact of COVID-19, and the Government's response to it, should therefore be relatively minor on these revenue streams and not materially impact the ongoing NAV of these businesses.

 

Brexit

 

The Investment Manager and the Board continue to keep the possible impact of Brexit on the Company under review. The Company's strategy of investing in small UK based businesses means that it is unlikely to be directly exposed to the terms of an exit from the EU.  We are, however, going through a period of some political and, potentially, economic uncertainty. We believe that by investing carefully, monitoring our portfolio rigorously and providing support to the businesses in which we have invested we can minimise the effects of this uncertainty.   

 

If you have any questions, please do not hesitate to call us on 020 7201 8989.

 

Ben Beaton

Partner

Triple Point Investment Management LLP

16 November 2020