Hazel Renewable Energy VCT 1 plc : Annual Finan...

Hazel Renewable Energy VCT1 plc
Final results for the year ended 30 September 2014

FINANCIAL HIGHLIGHTS

			Audited		Audited
			Year End		Year End
			30 September 2014		30 September 2013
			Pence		Pence
Net asset value per Ordinary Share			115.2		98.8
Net asset value per 'A' Share			0.1		0.1
Cumulative Dividends paid			24.5		8.5
Total return per Ordinary Share and 'A' Share			139.8		107.4

CHAIRMAN'S STATEMENT
I am pleased to present the Company's fourth annual report. It has been an eventful and very positive year for your Company with a major refinancing, a significant new investment and a top-up fundraising all successfully completed, as well as the payment of a special dividend.

Investment portfolio
At the year end, the Company held a portfolio of 21 investments with a total value of £29.8 million.

The major event in the portfolio during the year was the £66 million refinancing of ground-mounted solar projects held by six existing portfolio companies. The transaction was undertaken along with the sister company, Hazel Renewable Energy VCT2 plc, and involved the reorganisation of those companies and the purchase of additional shares in the portfolio companies previously held by third parties. The end result is that these companies are now 100% owned by the Company and its sister company Hazel Renewable Energy VCT2 plc.

There was also one main new addition to the portfolio during the year, being the acquisition of Priory Farm, a 3.2MW ground-mounted solar project in July 2014. This was acquired by existing portfolio company, Tumblewind Limited, into which a further investment of £1,684,000 was made.

In addition to the above, there was some further portfolio activity during the year in the form of loan stock redemptions, which produced total proceeds of £2.7 million.

At the year end, the Board has again undertaken a review of all the investment valuations. The Board is generally very pleased with the performance of the underlying assets, which in most cases has been in line with or ahead of expectations. This has resulted in uplifts in value in several of the solar investments.

The investments in Lunar 1 Limited and Lunar 2 Limited have been increased by a £1.8 million and £5.2 million respectively. These uplifts have resulted from anticipated increases in future cash flows from these investments following the transaction and an adjustment of the discount rate applied to these cash flows to reflect current market conditions.

Uplifts have also been recognised in six other solar companies; Ayshford Solar (Holdings) Limited, Tumblewind Limited, Hewas Solar Limited, St Columb Solar Limited and Vicarage Solar Limited totalling £1.4 million. These uplifts in value result from continued good performance from the underlying assets and a similar adjustment to the discount rate used as above.

Overall the portfolio showed net unrealised gains over the year of £8.3 million, equivalent to 33.7p per Ordinary   Share.

Top-up share offer
The Company successfully completed a top-up offer in March 2014 with its sister company, Hazel Renewable Energy VCT2 plc. The fundraising was fully subscribed and raised gross proceeds of approximately £2.0 million for each VCT.

Net asset value and results
At 30 September 2014, the NAV per Ordinary Share stood at 115.2p and the NAV per 'A' Share stood at 0.1p, producing a combined total of 115.3p. This represents an increase of 32.4p (32.8%) over the year (after adjusting for dividends paid during the year of 16.0p per share). Total dividends paid to date for a combined holding of one Ordinary Share and one A Share stand at 24.5p. Taking into account the initial income tax relief, Shareholders who invested under the original Offer for Subscription have now already had returns of 54.5p on their original £1 investment.

The profit on ordinary activities after taxation for the year was £7,899,000, comprising a loss of £303,000 on the revenue account and profit of £8,202,000 on the capital account.

Dividends
Dividends paid during the year ended 30 September 2014 are summarised as follows:

Payment date	Type	Ords Shares	A Shares	Total
28 March 2014	Final  Y/end 30 Sept 2013	5.0p	-	5.0p
28 Feb 2014	Special  Y/end 30 Sept 2014	7.3p	3.7p	11.0p

The Board has reviewed the dividend policy and has identified a mismatch between the current policy and the Company's cash flows. This has become more significant since the refinancing transaction that took place in December 2013. A majority of the income generated by the Company's investments arises during the summer months as a result of the greater irradiation hours during that period. The Board recognises that the Manager's ability to manage the Company's cash in an efficient manner would be enhanced should the Company's annual dividend be payable at a point in the seasonal cycle after some of the income from the peak electricity generation period has been received.

The Board has therefore decided that, in future, the Company will pay its annual dividend in September each year rather than March as has been the case in previous years. The Board intends to pay the next annual dividend in September 2015. The target for dividend level remains at 5p per Ordinary Shares.

The Board acknowledges that this change of policy effectively means a delay in the payment of the final dividend for the year ended 30 September 2014 that would have otherwise been paid in March 2015. However, the Board feels that the special dividend totalling 11.0p for a combined holding of one Ordinary Share and one A Share which was paid during the financial year compensates for this delay.

The Board expect to announce the payment date of the annual dividend with the release of the Half Yearly Report in May.

Annual General Meeting
The Company's fourth AGM will be held at 2^nd Floor, 227 Shepherds Bush Road, London W6 7AS at 11.00 a.m. on 9 March 2015.

Three items of special business will be proposed at the AGM; a resolution seeking approval for the Company to be able to buy its own shares as described above and two items in connection with the authority to issue shares. Notice of the meeting is at the end of this document.

Outlook
The coming year is likely to be less eventful than the one just passed, however we expect that the Investment Manager will continue to be busy. A significant level of work is now being undertaken on improving the operational efficiency of the underlying projects and, in particular, in seeking to reduce running costs of the investee companies. Some progress has been made to date and we believe there may be opportunities for further improvements.

The portfolio still has a number of projects that could be refinanced. The Board is encouraging the Manager to explore possible opportunities which have the potential to release further value.

In conclusion, the Board is very satisfied with the developments of the last year and believes that the Company is well placed to continue to deliver attractive results for Shareholders in the future.

Michael Cunningham
Chairman

INVESTMENT MANAGER'S REPORT

Introduction
The year ending 30 September 2014 has been an important year for Hazel Renewable Energy VCT1 plc. It has been notable for the value creation resulting from the acquisition (along with the sister VCT company, Hazel Renewable Energy VCT2 plc) of the entire share capital of the six ground-mounted solar assets acquired in 2011 and 2012 and the return of much of this incremental value to Shareholders by way of a special dividend. The Company also completed a successful investment of top-up funds raised into a 3.2MW ground-mounted solar project in Norfolk, as well as working through the year with the implementation of a plan to restore the performance of the small-wind portfolio.

Overall Portfolio and Operational Review
At the end of the year, the portfolio consisted for the most part of 16 underlying projects held through 13 portfolio companies which are all either entirely or majority-owned by the Company and its sister VCT.  Another 8 companies held by the VCTs are non-operational, either as a result of having achieved exits for their assets or by virtue of being dormant.

Eleven of the twelve solar projects (eight ground-mounted and four rooftop ones) which account for close to 70% of capital invested, continued to perform in line or above expectations. The performance of Priory Farm (owned by Tumblewind Limited), the 3.2MW ground-mounted asset acquired in July, has also been pleasing with actual output being higher than modelled at the time of the acquisition. The one exception is the solar rooftop portfolio held in Gloucester Wind Ltd (a c£1m investment), which has suffered as a result of the original developer going into administration in April 2013. However, we have selected an O&M contractor at a competitive price that will seek to improve performance of the portfolio, which we are confident is possible.

Across our ground-mounted solar farms, the more sophisticated monitoring systems installed at the beginning of summer 2014 have proved to be an invaluable tool, as a result of the more timely and granular information that they provide on the performance of each asset.

On the revenue side, we encourage the investee companies to continuously search for opportunities to improve the price at which we sell the power we generate, either through renewing Power Purchase Agreements (PPAs) at better prices once those in force expire, or through direct sales to power consumers (aka direct PPAs), which is a focus for the team in 2015.  Another opportunity that the investee companies evaluated was the installation of energy storage solutions (read large batteries) on our sites in order to shift and smooth our electricity output to improve the electricity price that could be achieved.  However, for the time being this does not seem to be a cost-effective or fully reliable solution.  As the cost of batteries declines, this may well change.

From a cost perspective, in the past year we have initiated some steps in seeking to reduce the running costs of the projects. We hope to start seeing the results of this in the coming months.

Also from a cost perspective, we are confident our O&M contract costs will fall sharply once our contracts come up for renewal. We have already taken the opportunity to do this at Ayshford Court solar farm this year. Similarly when the six project Apollo project O&M contracts come up for renewal, savings from this will contribute to around a 0.4p per share dividend increase from 2017. 

For 'Project Lunar' (the debt structure secured on the now wholly-owned six FIT solar projects) we have met our obligations to the lender including payment milestones, ongoing pre-funding of reserves and observing all covenants and Conditions Subsequent to funding.  One key, near term aspect of this transaction has been the need to fund various reserves required by the lender.  Until fully funded, which will take till the end of 2018, these reserves (the largest being the Debt Service Reserve Account) reduce our cash flow from these projects.  Once funded, this effect goes away.  Of course at the end of the debt repayment in 20 years' time, the largest remaining value creator in this structure kicks in (the main one - the exceptional dividend - having already taken place) with the c£18m invested by the VCTs into these solar projects earning over £8m (16.3p per Ordinary Share) in 2034, and over £11m (22.4p per Ordinary Share) in both 2035 and 2036 according to our estimates (assuming 2% RPI on average) as a result of no more debt servicing requirements and the unwinding of all the reserves.

Our small wind turbine portfolio held within HRE Willow Ltd, Small Wind Generation Ltd, Tumblewind Ltd and Minsmere Power Ltd had been lagging in terms of performance.  The developer Windcrop Limited which had agreed to provide compensation for underperforming assets but their bankruptcy removed this protection. In the year ending 30 September 2014 we have taken important steps towards addressing the underperformance by appointing Britwind, a division of Ecotricity, as O&M Contractor with the additional role of carrying out repairs and adjustments where necessary to the physical structures.

Overall Portfolio and Operational Review
We now have access to high quality data on the performance of each individual wind turbine via an online portal and can see that these efforts are already producing results. In the next few weeks, we are aiming to restore the performance of the assets, to levels that can deliver the 10%-plus yields that had originally been modelled, assuming the wind resource performs as modelled (which is not within our control).

Portfolio Valuation
The NAV of the Company has increased from 98.9p to 115.3p for a combined holding of one Ordinary and one 'A' Share (or from 107.4p to 139.8p if dividends already paid are taken into account). This has come about primarily as result of the value created by the FIT refinancing transaction, covered in last year's report, but also as a result of market prices for renewable power generation assets rising. The assets that were initially bought targeting average hurdle rates of 9% to 11% are now valued at 6.5% to 7.5%, reflecting the larger number of participants who are keen to own these fixed-income type assets in an environment where interest rates are at historical lows. In the valuation exercise that we carried out we used a discount rate of 7.5%.

Notable Events in the Year
In July 2014, an acquisition of the 3.228MW Priory Solar Farm project remunerated under the UK ROC regime, the same regime under which the Ayshford Court solar asset is remunerated, was completed.  Tumblewind Ltd was used as the acquisition vehicle for the purpose of maximising the use of qualifying capital. The project was purchased post connection to the grid (29 March 2014) from the engineering firm that built it. We were able to purchase the asset at an attractive price as a result of having funds readily available to deploy as a result of the top-up we completed in March. The history of operations is limited but the data indicates that the asset is performing well ahead of expectations.

Outlook
The fund is now completely invested. We are pleased that the investments took place when hurdle rates were substantially higher than they are now.

Our current focus will be on improving the performance of the assets and thus the overall yield of the fund. As covered under the operational review we have several avenues to achieve this outcome.  We may also look at taking advantage of investor interest in these fixed-income type assets and historically low interest rates, to free-up capital tied up in the ground and roof-mounted solar assets that can either be returned to shareholders or re-invested into new projects that we will opportunistically source.
As always, we are very happy to hear from our investors if they have any questions or comments.

Ben Guest
Chief Investment Officer
Hazel Capital LLP

REVIEW OF INVESTMENTS
Portfolio of investments
The following investments were held at 30 September 2014:

	Cost	Valuation	Valuation movement in year	% of portfolio
	£'000	£'000	£'000
Qualifying and part-qualifying investments
Lunar 2 Limited*	2,976	9,947	5,217	33.2%
Ayshford Solar (Holding) Limited	2,247	3,065	536	10.4%
Tumblewind Limited*	2,534	2,856	322	9.5%
Lunar 1 Limited*	124	2,043	1,837	6.8%
Hewas Solar Limited	1,000	1,672	173	5.6%
St Columb Solar Limited	722	1,388	166	4.6%
New Energy Era Limited	884	1,304	(38)	4.3%
Vicarage Solar Limited	871	1,204	162	4.0%
Minsmere Power Limited	975	1,009	34	3.4%
Gloucester Wind Limited	1,000	1,000	-	3.3%
Small Wind Generation Limited	975	975	-	3.3%
Penhale Solar Limited	900	900	-	3.0%
HRE Willow Limited	875	875	-	2.9%
Owl Lodge Solar (Holding) Limited	80	249	(12)	0.8%
Higher Tregarne Solar (Holding) Limited	243	216	(7)	0.7%
Causilgey Solar (Holding) Limited	248	184	(41)	0.6%
Yonder Netherton Solar (Holding) Limited	5	-	(5)	0.0%
Sunhazel UK Limited	1	-	(1)	0.0%
	16,660	28,887	8,343	96.4%
Non-qualifying investments
AEE Renewables UK 3 Limited	900	900	-	3.0%
ZW Parsonage Limited	15	15	-	0.0%
Lime Technology Limited	100	-	-	0.0%
	1,015	915	-	3.0%
	17,675	29,802	8,343	99.4%
Cash at bank and in hand		167		0.6%
Total investments		29,969		100.0%

* Part-qualifying investment

All venture capital investments are incorporated in England and Wales.

Hazel Renewable Energy VCT2 plc, of which Hazel Capital LLP is the Investment Manager, holds the same investments as above.

Investment movements for the year ended 30 September 2014

ADDITIONS

		Cost
		£'000
Non-qualifying investments
Tumblewind Limited		1,684
		1,684

DISPOSALS

	Cost	Valuation at 30 September  2013	Proceeds	Loss vs cost	Realised gain
	£'000	£'000	£'000	£'000	£'000
Qualifying investments
Ayshford Solar (Holding) Limited	469	469	469	-	-
St. Columb Solar Limited	13	13	13	-	-
Beechgrove Solar Limited	3	3	3	-	-
	485	485	485	-	-
Non-qualifying investments
AEE Renewables UK 3 Limited	2,125	2,125	2,125	-	-
Hewas Solar Limited	125	125	125	-	-
Quiet Revolution Solar Limited	618	-	-	(618)	-
	2,868	2,250	2,250	(618)	-
	3,353	2,735	2,735	(618)	-

All venture capital investments are incorporated in England and Wales.

Directors' responsibilities
The Directors are responsible for preparing the Strategic Report, the Report of the Directors, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Conduct Authority.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements the Directors are required to:

*select suitable accounting policies and then apply them consistently;
*make judgments and accounting estimates that are reasonable and prudent;
*state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
*prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

INCOME STATEMENT
for the year ended 30 September 2014

			Year ended 30 Sept 2014				Year ended 30 Sept 2013
			Revenue	Capital	Total		Revenue	Capital	Total
			£'000	£'000	£'000		£'000	£'000	£'000
Income			366	-	366		384	-	384
Gain on investments			-	8,343	8,343		-	2,371	2,371
			366	8,343	8,709		384	2,371	2,755
Investment management fees			(388)	(129)	(517)		(314)	(104)	(418)
Other expenses			(281)	(12)	(293)		(211)	(32)	(243)
Profit/(loss) on ordinary activities before tax			(303)	8,202	7,899		(141)	2,235	2,094
Tax on ordinary activities			-	-	-		-	-	-
Profit/(loss) attributable to equity shareholders			(303)	8,202	7,899		(141)	2,235	2,094
Basic and diluted earnings per share:
Ordinary Share			(1.3p)	34.8p	33.5p		(0.6p)	9.8p	9.2p
'A' Share			-	-	-		-	-	-

All Revenue and Capital items in the above statement derive from continuing operations. The total column within the Income Statement represents the profit and loss account of the Company. No operations were acquired or discontinued during the year.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement noted above.

Other than revaluation movements arising on investments held at fair value through profit or loss, there were no differences between the profit or loss as stated above and historical cost.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

		Year ended 30 September 2014		Year ended 30 September 2013
			£'000		£'000
Opening Shareholders' funds			22,497		21,540
Proceeds from share issue			2,052		-
Share issue costs			(83)		-
Profit for the year			7,899		2,094
Dividend paid			(4,057)		(1,137)
Closing Shareholders' funds			28,308		22,497

BALANCE SHEET
as at 30 September 2014

		2014		2013
	£'000	£'000	£'000	£'000
Fixed assets
Investments		29,802		22,510
Current assets
Debtors	118		175
Cash at bank and in hand	167		490
	285		665
Creditors: amounts falling due within one year	(679)		(678)
Net current liabilities		(394)		(13)
Total Assets less net current liabilities		29,408		22,497
Creditors: amounts falling due after more than one year	(1,100)		-
Net assets		28,308		22,497
Capital and reserves
Called up Ordinary Share capital		25		23
Called up 'A' Share capital		37		34
Share premium account		3,910		1,930
Special reserve		13,657		17,730
Revaluation reserve		12,127		3,166
Capital reserve - realised		(793)		(34)
Revenue reserve		(655)		(352)
Total Shareholders' funds		28,308		22,497
Basic and diluted net asset value per share
Ordinary Share		115.2p		98.8p
'A' Share		0.1p		0.1p

CASH FLOW STATEMENT
for the year ended 30 September 2014

	Year ended 30 September 2014		Year ended 30 September 2013
		£'000		£'000
Net cash (outflow)/inflow from operating activities and returns on investments		(386)		548
Capital expenditure
Purchase of investments		(1,684)		(2,283)
Proceeds from disposal of investments		2,735		2,801
Net cash inflow from capital expenditure		1,051		518
Dividends paid		(4,057)		(1,137)
Net cash outflow before financing		(3,392)		(71)
Financing
Proceeds from Ordinary Share issue		2,049		-
Proceeds from 'A' Share issue		3		-
Long term loans		1,100
Share issue costs		(83)		-
Net cash inflow from financing		3,069		-
Decrease in cash		(323)		(71)

NOTES TO THE ACCOUNTS
for the year ended 30 September 2014

1. Accounting policies
Basis of accounting
The Company has prepared its financial statements 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").

The financial statements are prepared under the historical cost convention except for fixed asset investments which are measured at fair value.

The Company implements new Financial Reporting Standards ("FRS") issued by the Financial Reporting Council when they become effective.

Presentation of income statement
In order to better reflect the activities of a VCT and 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 due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, 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.

For unquoted investments, fair value is established by using the IPEV guidelines. 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;
*Multiples;
*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.

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 are expensed. Where an investee company has gone into receivership or liquidation, or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised.

It is not the Company's policy to exercise controlling influence over investee companies. Therefore, the results of these companies are not incorporated into the Income Statement except to the extent of any income accrued. This is in accordance with the SORP that does not require portfolio investments to be accounted for using the equity method of accounting.

Income
Dividend income from investments is recognised when the Shareholders' rights to receive payment have been established, normally the ex-dividend date.

Interest income is accrued on a time apportionment basis, by reference to the principal sum outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection in the foreseeable future.

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; and
*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 VCT 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, which is not discounted, 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.

Other debtors, other creditors and loan notes
Other debtors (including accrued income), other creditors and loan notes (other than those held as part of the investment portfolio) are included within the accounts at amortised cost.

Issue costs
Issue costs in relation to the shares issued for each share class have been deducted from the share premium account.

2. Income

Year ended 30 September 2014		Year ended 30 September 2013
	£'000		£'000
Income from investments
Loan stock interest	179		378
Dividend income	175		-
	354		378
Other income
Bank interest	12		6
	366		384

3. Basic and diluted earnings per share

	Weighted average number of shares in issue		Revenue loss	Capital return
(Loss)/profit per share is calculated on the following:			£'000	£'000
Year ended 30 September 2014	Ordinary Shares	23,559,111	(303)	8,190
	'A' Shares	35,338,664	-	12
Year ended 30 September 2013	Ordinary Shares	22,728,053	(141)	2,232
	'A' Shares	34,092,076	-	3

As the Company has not issued any convertible securities or share options, there is no dilutive effect on earnings per Ordinary Share or 'A' Share. The earnings per share disclosed therefore represents both the basic and diluted return per Ordinary Share or 'A' Share.

4. Basic and diluted net asset value per share

	Shares in issue		2014		2013
	2014	2013	Net asset value		Net asset value
			per share	£'000	per share	£000
Ordinary Shares	24,536,966	22,728,053	115.2	28,271	98.8	22,463
'A' Shares	36,805,446	34,092,076	0.1	37	0.1	34

As the Company has not issued any convertible shares or share options, there is no dilutive effect on net asset value per Ordinary Share or per 'A' Share. The net asset value per share disclosed therefore represents both the basic and diluted net asset value per Ordinary Share and per 'A' Share.

5. Principal risks
The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are:

*Investment risks;
*Credit risk; and
*Liquidity risk.

The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company was expected to be exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.

The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year end are provided below:

Investment risks
As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these Investment risks is a fundamental part of investment activities undertaken by the Investment Manager and overseen by the Board. The Manager monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.

The key investment risks to which the Company is exposed are:

*Investment price risk
*Interest rate risk

Investment price risk

The Company's investments which comprise of both equity and debt financial instruments in unquoted investments are all in renewable energy projects with predetermined expected returns. Consequently, the investment price risk arises from uncertainty about the future prices and valuations of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through changes in the fair value of unquoted investments that it holds.

 

Interest rate risk

The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.

There are four categories in respect of interest which are attributable to the financial instruments held by the Company as follows:

Interest rate risk (continued)

*"Fixed rate" assets represent investments with predetermined yield targets and comprise certain loan note investments and preference shares;
*"Variable rate" assets represent investments with predetermined interest rates that vary at set dates in accordance with loan note agreements;
*"Floating rate" assets predominantly bear interest at rates linked to The Bank of England base rate or LIBOR and comprise cash at bank; and
*"No interest rate" assets do not attract interest and comprise equity investments, certain loan note investments, loans and receivables and other financial liabilities.

The Company monitors the level of income received from fixed and floating or variable rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, cash deposits and debtors. Credit risk relating to loan stock investee companies is considered to be part of market risk.

The Manager manages credit risk in respect of loan stock with a similar approach as described under "Investment risks" above. Similarly the management of credit risk associated interest, dividends and other receivables is covered within the investment management procedures. The level of security is a key means of managing credit risk. Additionally, the risk is mitigated by the security of the assets in the underlying investee companies.

Cash is held by the Royal Bank of Scotland plc which is an A-rated financial institution and also ultimately part-owned by the UK Government. Consequently, the Directors consider that the credit risk associated with cash deposits is low.

There have been no changes in fair value during the year that is directly attributable to changes in credit risk.

Liquidity risk

Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. As the Company has a relatively low level of creditors being £155,000 (2013: £154,000) and has low loans from investee companies being £1,624,000 (2013: £524,000) the Board believes that the Company's exposure to liquidity risk is low. The Company always holds sufficient levels of funds as cash in order to meet expenses and other cash outflows as they arise. For these reasons the Board believes that the Company's exposure to liquidity risk is minimal.

The Company's liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.

6. Related party transactions
In the opinion of the Directors there is no immediate or ultimate controlling party.

Hazel Capital LLP is regarded as a related party as Ben Guest being is a director of the VCT and a controlling partner in Hazel Capital LLP.

Hazel Capital LLP acted as promoter for the Ordinary Share Top Up offer launched in March 2014.  Hazel Capital LLP received 5.5% of the gross proceeds of the offer, out of which it paid the costs of the offer including initial commissions. The fees in the year amounted to £41,250. No issue costs were due or outstanding at the year end. 

Hazel Capital LLP also provides investment management services to the Company. During the year ended 30 September 2014 £517,000 (2013: £418,000) was payable to Hazel Capital LLP in respect of these services. At the year end there was no balance owing to Hazel Capital LLP (2013: nil).

In accordance with the prospectus and the Investment Management agreement, Hazel Capital LLP receives trail commission of 0.4% of the net assets of the Company at the year end, out of which it pays trail commission to financial intermediaries. As at 30 September 2014, this amounted to £113,000 (2013: £89,000), all of which is outstanding and included in accruals and deferred income under Creditors.

ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 30 September 2014, but has been extracted from the statutory financial statements for the year ended 30 September 2014, which were approved by the Board of Directors on 26 January 2015 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s498(2) and (3) of the Companies Act 2006.

The statutory accounts for the year ended 30 September 2013 have been delivered to the Registrar of Companies and received an Independent Auditor's Report which was unqualified and did not contain any emphasis of matter nor statements under s498(2) and (3) of the Companies Act 2006.

A copy of the full annual report and financial statements for the year ended 30 September 2014 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Ergon House, Horseferry Road, London SW1P 2AL and will be available for download from www.downing.co.uk.

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Hazel Renewable Energy VCT 1 plc via Globenewswire

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