HR2O Hazel Renew 2

 
TIDMHR2O 
 
   Hazel Renewable Energy VCT2 plc 
 
   Final results for the year ended 30 September 2015 
 
   FINANCIAL HIGHLIGHTS 
 
 
 
 
                                                Audited       Audited 
                                                Year End      Year End 
                                              30 September  30 September 
                                                  2015          2014 
                                                 Pence         Pence 
Net asset value per Ordinary Share                   117.3         115.0 
Net asset value per 'A' Share                          0.1           0.1 
Cumulative Dividends paid                             29.5          24.5 
Total return per Ordinary Share and 'A' 
 Share                                               146.9         139.6 
 
   CHAIRMAN'S STATEMENT 
 
   I am pleased to present the Company's Annual Report for the year ended 
30 September 2015. The year has been one of steady progress within the 
portfolio. Investment activity has been mostly limited to a small number 
of partial redemptions and winding up of investee companies that are no 
longer being used. Since the year end the Company is expected to 
complete another refinancing which has the potential to further increase 
the yield from the existing portfolio. 
 
   Investment portfolio 
 
   At the year end, the Company held a portfolio of 16 investments with a 
total value of GBP30.7 million. 
 
   There were five full realisations during the year, primarily from 
investments that had ceased to undertake any activities and were being 
wound up. There were also partial loan stock redemptions from four 
investments. Total proceeds were GBP1.2 million and realised gains on 
the year were GBP121,000. 
 
   Within the existing portfolio progress has generally been good, with the 
Manager achieving administration cost savings on many of the solar 
projects, while producing reliable energy generation performances.  The 
wind turbine portfolio has not performed so well and has warranted a 
provision against its carrying value. 
 
   In reviewing the investment valuations at the year end, the Board has 
made a number of adjustment resulting in a net unrealised gain of GBP1.5 
million. 
 
   Net asset value and results 
 
   At 30 September 2015, the Net Asset Value ("NAV") per Ordinary Share 
stood at 117.3p and the NAV per 'A' Share stood at 0.1p, producing a 
combined total of 117.4p. This represents an increase of 7.3p (6.3%) 
over the year (after adjusting for dividends paid during the year of 
5.0p per Ordinary share). Total dividends paid to date for a combined 
holding of one Ordinary Share and one 'A' Share stand at 29.5p. Total 
Return (NAV plus cumulative dividends paid to date) now stands at 146.9p, 
compared to the cost to investors in the initial fundraising of GBP1.00 
or 70.0p net of income tax relief. 
 
   The profit on ordinary activities after taxation for the year was GBP1.8 
million, comprising a loss of GBP125,000 on the revenue account and 
surplus of GBP1.9 million on the capital account. 
 
   Dividends 
 
   A dividend of 5.0p per Ordinary Share paid was paid on 18 September 
2015. In line with the Company's policy, it is intended that the next 
annual dividend will be paid in September 2016 and will be announced in 
May 2016. 
 
   Future strategy 
 
   Given that the Company's original fundraising was launched slightly over 
five years ago, the articles specify that a resolution is put to 
Shareholders at the forthcoming AGM for the Company to continue as a 
VCT. 
 
   The Board has spent some time discussing future strategy with the 
Manager and considered a number of possible options in which the Company 
could move forward. Options such as winding up, divesting and 
reinvesting into new assets and changing the structure of the investment 
vehicle were considered. 
 
   The process highlighted the fact the Company holds a robust portfolio of 
renewable energy assets which cannot be rebuilt from scratch and which 
have a financing structure in place that will allow the payment of 
gently increasing dividends over a long timeframe. 
 
   With the incentives schemes for new renewable energy projects now 
dramatically reduced and such schemes also now effectively prohibited 
from being held as qualifying investments by VCTs, the Board believes 
that the existing portfolio offers Shareholders a reliable, tax-free 
income stream with the possibility of further capital growth and the 
prospect of steadily increasing dividends. Accordingly the Board plans 
to operate the existing portfolio in this manner over the next 5-10 
years, although will review strategy at regular intervals. 
 
   The board recognises that a small number of Shareholders may wish to 
exit once the initial holding period passes and has introduced a share 
buyback policy of buying in any shares that become available in the 
market at approximately a 5% discount to the latest published NAV. In 
future, the Board intends to publish NAVs for each quarter end. 
 
   Fundraising plans 
 
   While the opportunity for further investment by VCTs into renewable 
energy projects benefitting from Government incentives has now passed, 
the Manager is seeing interesting dealflow in other cleantech 
opportunities, such as electrical storage solutions both in the UK and 
overseas. 
 
   The Manager believes that there is sufficient good quality dealflow to 
be able to build a new investment portfolio from scratch which can 
provide an attractive returns in a related but different area to the 
existing portfolio. Accordingly, proposals are being drawn up for a new 
fundraising in a new share class. 
 
   The new funds will be maintained and managed separately from the 
existing investments but will allow the fixed running costs of the VCT 
to be spread over a greater asset base, reducing the burden on all 
shareholders. 
 
   Corporate broker appointment 
 
   In order to ensure an orderly market in the Company's shares, the 
Company has engaged Panmure Gordon UK Limited to act as the Corporate 
Broker to the Company. Any Shareholders wishing to sell their shares 
should contact Panmure Gordon whose details are noted on the Shareholder 
Information page. 
 
   Annual General Meeting 
 
   The Company's fifth AGM will be held at 2(nd) Floor, 227 Shepherds Bush 
Road, London W6 7AS at 2.05 p.m. on 7 March 2016. 
 
   Two 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 one to amend the Articles of Association as 
described below. 
 
   In view of the future strategy and planned fundraising, the Board has 
decided to seek Shareholder approval by resolution 9 at the forthcoming 
AGM to amend the Articles of Association to remove the requirement for a 
regular continuation vote to be put to Shareholders in future. The Board 
believes this gives more flexibility in implementing future plans and 
will avoid potential issues in fundraising where no guarantee can be 
given that Shareholders will be able to hold their shares for the 
minimum holding period. 
 
   Notice of the meeting is at the end of this document. 
 
   Outlook 
 
   The Board is very satisfied with the performance of the Company to date 
and believes it is well placed to continue to deliver solid results to 
Shareholders for years to come. The second major refinancing which is 
expected to complete shortly should improve the prospects for an 
increasing yield from the current portfolio. 
 
   The proposals for the new fundraising in a new share class will have a 
relatively small impact on existing Shareholdings other than in reducing 
running costs, although there could be possible benefits in co-investing 
with the new share pool if suitable and attractive opportunities arise 
and surplus funds are available. The new fundraising will also, of 
course, provide an opportunity for existing Shareholders to make a new 
VCT investment with a team that has delivered excellent results since 
first entering this market some five years ago. 
 
   I look forward to reporting on developments in my statement with the 
half year report to 31 March 2016. 
 
   Peter Wisher 
 
   Chairman 
 
   INVESTMENT MANAGER'S REPORT 
 
   Introduction 
 
   The year ended 30 September 2015 has been another good year for Hazel 
Renewable Energy VCT2 plc (the Company). As the portfolio was fully 
invested at the beginning of this financial year, the focus has been on 
further improving the operational and financial performance of the asset 
base as well as exploring and initiating new avenues for augmenting the 
return of the portfolio. The improvement in operational performance is a 
process that was initiated in the previous financial year, starting with 
the small-wind portfolio. This was extended this year to cover other 
areas of the portfolio such as the roof-mounted solar assets. 
 
   In terms of financial performance, we have sought to extend the benefits 
gained from the previous financial year's refinancing and concurrent 
acquisition of the entire share capital of the six ground-mounted solar 
assets commissioned in 2011 and 2012.  We have done this by pooling 
together an additional group of the portfolio's solar assets in order to 
refinance them with low cost debt and to use the proceeds to invest in 
projects offering a substantially higher return. This transaction 
commenced at the beginning of September and is expected to complete 
shortly. 
 
   Separately, across the board, there was also a successful effort to 
reduce non-core costs across the portfolio such as audit and bookkeeping 
costs. 
 
   Overall Portfolio and Operational Review 
 
   At the end of the year, as at the end of the previous 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 VCTs.  The dormant companies that featured in last 
year's report were all closed down. 
 

January 29, 2016 08:02 ET (13:02 GMT)

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: 
 
   *"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 are 
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 GBP160,000 (2014: GBP158,000) and has low loans 
from investee companies being GBP1,986,000 (2014: GBP1,624,000) 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 Bozkurt Aydinoglu is 
a director of the VCT and a controlling partner in Hazel Capital LLP. 
 
   Hazel Capital LLP also provides investment management services to the 
Company. During the year ended 30 September 2015, GBP565,000 (2014: 
GBP517,000) was payable to Hazel Capital LLP in respect of these 
services. At the year end there was no balance owing to Hazel Capital 
LLP (2014: 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 2015, this 
amounted to GBP114,000 (2014: GBP113,000), 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 
2015, but has been extracted from the statutory financial statements for 
the year ended 30 September 2015, which were approved by the Board of 
Directors on 28 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 2014 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 2015 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. 
 
   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 2 plc via Globenewswire 
 
   HUG#1982277 
 
 
  http://www.hazelcapital.com 
 

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