.Ventus and Ventus 2 AGMs 2019 (VEN,VEN2)
The Ventus (VEN) and Ventus 2 (VEN2) AGMs were held on Thursday 8th August 2019, commencing at 11:30 at the offices of Howard Kennedy (the VCT’s solicitors), No. 1 London Bridge, London SE1 9BG.
For investors who are not familiar with VEN and VEN2, they are both Venture Capital Trusts (VCTs) which own (or part own) a number of wind farms and hydroelectric power generation stations in the UK. The directors of the VCTs employ Temporis (renewable energy specialists) to manage the VCT’s renewable assets. All of the assets benefit from valuable government subsidies and are highly cash generative thus allowing the VCTs to pay out large tax free dividends to shareholders twice a year.
The AGMs, were somewhat unusual this year, as there were some additional resolutions for shareholders to consider (requisitioned by a group of dissatisfied shareholders) which proposed replacing the incumbent board of directors of both VCTs. with new directors nominated by the requisitioning shareholders.
Background information regarding the reasons behind the requisitioned resolutions can be found at the links below, but in essence, the main grievances were excessive running costs and directors who have become stale with excessively long periods of tenure and who not truly independent of the manager (the latter point being a common problem with numerous other VCTs)
Requisitioning Shareholder info page:
https://www.ventusvctshareholders.com/ShareSoc blog and voting recommendations:
https://www.sharesoc.org/sharesoc-news/ ... june-2019/VEN and VEN2 director’s response to Requisitioned resolutions:
https://www.ventusvct.com/agm.php The VEN and VEN2 Annual reports and the RNS announcement released on the morning of the AGM can be found at the following links:
Ventus Annual report year ending Feb 2019
https://www.ventusvct.com/pdf/VENTUS_PROOF_4_Clean.pdfVentus2 Annual report year ending Feb 2019
https://www.ventusvct.com/pdf/Ventus2_Proof_3_Clean.pdfAGM (addition disclosures):
https://www.investegate.co.uk/ventus-vc ... 39343961I/ I would estimate that there were about 50 shareholders attending this year’s meeting which was probably more than double the turnout of previous years. Also present were the two BODs, representatives from the manager (Temporis) and the usual AGM functionaries. Unfortunately the room was definitely not large enough and there was standing room only for around 20 of the attendees (including myself).
The Chairman of VEN, David Williams (DW) kicked off the meeting at 11:30 by welcoming shareholders and outlined the running order. He proposed that we should start with a presentation from the manager followed by some Q&As, then separate out the questions and the voting for the non-contentious and the contentious resolutions (which required a Poll) for each of the VCTs. He also allocated a slot for Nick Curtis (the principle requisitioning shareholder) to address shareholders of both VCTs. Refreshments (sandwiches, crisps, wine and soft drinks) were provided for lunch after the meeting which gave shareholders a chance to talk to the Directors and the Manager, and to complete their Poll cards (if they had not already submitted proxies or if they wished to change their votes on any of the resolutions).
Once all poll cards had been collected, the results of the proxy voting for each VCT were displayed on the presentation screen at the front of the room. These did not include votes submitted in the Poll, so were only indicative of how shareholders may vote overall, but they numbers suggested that all the requisitioning shareholder resolutions were likely to be narrowly rejected. The number of proxy votes for each resolution was approximately 45% of the total shares in issue for each of the VCTs, which is much higher than for most VCT AGMs, where the % shares voting is usually in the range of 5 - 15%.
Managers Presentation Matt Ridley from Temporis gave an informative presentation on behalf of the manager, this outlined the performance since Temporis took over management in 2011, significant developments within the last year and the strategy going forward, the slide set can be found at the link below,
https://www.rns-pdf.londonstockexchange ... 19-8-8.pdfThere were some Q&As after Matt’s presentation and also a few more during and after the discussions and voting on the non-contentious resolutions.
Requisitioning shareholder PresentationIn between Q&A sessions, Nick Curtis spent 5 minutes outlining the case for the requisitioning shareholders (see
https://www.ventusvctshareholders.com/ ), Nick was asked whether he and the other prospective directors intended to retain Temporis as manager, he replied that they could not make that decision until they had conducted a thorough review of the business which they intended to commence immediately, should they be elected as directors.
Q&AsThe combined Q&As are summarised below (in no particular order), the summary is not a verbatim account, but it is my best recollection of what was said at the time.
Q: Is there anything more that can be done to increase turbine efficiency and productivity?
A: We cannot repower the wind farms with new more powerful turbines without losing the tariffs, but there are other incremental improvements that can be done, for example the existing turbines can be modified to incorporate a mechanism which alters the angle of the blades in response to wind direction and speed to optimise power output
Q; How much revenue do you derive from Tariffs and how much from the sale of electricity?
A: It is about 50% from Tariffs and 50% from sale of electricity
Q: Do we have any rollover rights with the land owners for any of our wind turbines at the end of the planned life of the turbines (after 20/25 years)?
A: Yes, about 40% of the turbines have some sort of rollover clause or preferential negotiating rights.
Q: A question for the Auditor (BDO). Did you audit include a complete audit of the performance fee calculation which is payable this year for VEN ords and both VEN and VEN2 C shares?
A: YesQ: You tendered for the Audit contract this year, yet we have ended up with BDO again. Please explain?
A: We had three candidates for the Audit tender process, all three were asked to give written and oral presentations, we were particularly impressed with the strength and depth of BDO’s submissions and we considered them to be the best of the three candidates.
Q: You are asking shareholders to approve share buybacks, are you intending to do any this year?
A: We have this resolution every year, but have only conducted a few buybacks and that was many years ago, these share buybacks did not really impact the share price or the discount to any great extent. Buybacks may prove useful when the NAV starts to decline in future years as some shareholders may want to exit at this point.Q: How much did it cost to engage with Boudicca, who were engaged by the BODs to contact shareholders in order to explain the case for voting against the requisitioned resolutions at the AGMs?
A: The cost was £38K, we considered the cost justified as this is an important issue and we wanted as many shareholders to understand the issues as possible, especially as it is the continuation vote next year for VENQ: Who paid for Boudicca, was it the BOD, the Manager or the VCTs (i.e. Shareholders)?
A: It was paid for by the VCTs.
Q: You have said you would like to work with Nick and other shareholders to understand their concerns and listen to their suggestions, does this go so far as appointing Nick to the BOD (assuming he is unsuccessful with the requisitioned resolutions)?
A: We did not get a direct answer to that one, instead we just some more waffle about working closely with Nick, so I would assume the answer was noQ: We have heard before at previous meetings that the grid connections can remain with the investee companies after the end of the agree planning permission. Does this apply to all of them?
A: Yes, all of the grid connection agreements are for 99 years (or they are perpetual), although a condition is that they have to remain in use for transmission of electricity to the grid. This was standard practice up until around 2015, when around that time the regional grid operators ceased to offer such generous long term contracts.Q: Could we use the sites for electricity storage as well as electricity generation?
A: Yes, although electricity storage is more suitable for solar farm sites as solar output tends to be less lumpy and more predictable than wind.
Q: Can you tell us us why total return for VEN is stated as 15p on P1 and 13.99p on P43? (Asked by Richard Roth, one of the prospective new directors)
A: (note the BOD immediately referred this to the manager, but were then requested to answer it themselves), Jo Dixon (Chair of the Audit committee) struggled with this for a while before Richard told her that it was an important question, as it effected the quantum of the management performance fee, which was determined using a highly unusual and bizarre methodology (the performance fee appears to be calculated from the sum of the total return and the dividend, so in effect the dividend in double counted)At this point David Williams drew shareholders attention to the RNS which was released earlier in the day (at around 09:39) which detailed hitherto undisclosed information on the management fees and the performance fee. DW said it was released at this time so help facilitate a discussion on management fees at the AGM. He acknowledged that the performance fee arrangement was not ideal, but highlighted the earlier RNS “disclosed” that the performance fee would be paid in perpetuity to the existing manager, even in the event of a change in manager (this was totally new news to me and I suspect all other shareholders in the room, and it seems to me to be the perfect poison pill to enable a manager to retain the contract indefinitely).
DW then told shareholders that this clause had not really been “disclosed” in the RNS as it had been hiding in plain sight (in the original prospectus) for a number of years post launch, he went on to say that back in 2004 the in perpetuity clause was more common practice than it is today and had it been more visible to prospective VCT investors at the time, a recurring dividend of 7p/annum would probably still have sounded attractive, irrespective of the performance fee. He also told shareholders that Temporis took over the management contract from Climate Change Capital (CCC) in 2011 without changes to the terms, although we were not really given an explanation as to why the BODs did not use the change of manager as an opportunity to change the contract, or why the performance fee terms were not modified for the C shares (issued in 2009), or the D shares (issued in 2013).
LunchAfter the meeting had finished I did manage to ask DW why they did not change the performance fee when they changed the manager. I was told that the reason they did not revise the agreement in 2011 was because at the time VEN2 was in a very poor negotiating position as it was close to insolvency and needed an urgent cash injection, also CCC were content to sell out for £500K and avoid any legal come back for the mess they had created. Temporis were happy to oblige with the cash for both VEN2 and CCC as well as taking on other obligations, in exchange for the contract without modification.
I also had an opportunity after the meeting to chat to Matt from Temporis and managed to glean a few nuggets of info: I asked if any of the wind farm operators were adjusting their NAVs to reflect a likely extended life (from 25 to 30 years), Matt said yes, some of them are now doing that. I then asked if any other operators were adjusting the NAV to reflect the possibilities of repowering and getting a further 25 years life (possibly more) out of a wind farm. Matt said he was not aware of anyone doing that. Finally I asked whether there were any time restrictions, or minimum usage requirements for retaining rights to a grid connection after a wind farm had been recommissioned. Matt opined that you would have to be supplying at least some electricity to the grid in the last 6 months in order to retain the connection.
EpilogueThe final results on the voting (proxies plus Poll voting) were announced the following day
AGM results for VEN
https://www.investegate.co.uk/ventus-vc ... 23106052I/AGM results for VEN2
https://www.investegate.co.uk/ventus-2- ... 27436061I/For VEN the voting was extremely close for all of the contentious resolutions, for example for resolution 10, to appoint Nick Curtis as director, the voting was 49.7% in favour 50.3% against. Despite the closeness in the voting, all of the incumbent directors were re-elected with narrow majorities and all the requisitioned resolutions were defeated by similar narrow margins.
For VEN2 the voting was also very close for the contentious resolutions. All of the incumbent directors were re-elected and all but one of the requisitioned resolutions was rejected by a narrow margin. One requisitioned resolution (resolution 13) to remove Paul Thomas (PT) was passed (50.1% vs 49.9%), so PT leaves the board, despite being re-elected through an earlier resolution (resolution 7).
The AGM RNS statements for both VCTs stated: T
he Board are disappointed with this outcome and will seek to reflect carefully on feedback from shareholders to understand more fully the reasons for the opposition to these resolutions. An update on the consultation process will be made in accordance with the UK Corporate Governance Code, within six months of the AGM., So shareholders have that to look forward to in the coming months
Since the AGM I have had a thorough search for the original 2004 prospectus to look for details on the management contract and performance fee. I managed to find a mini prospectus, but this contains few details about the management performance fee and this was almost certainly the document made available to investors through the online IFAs back in 2004 and it is definitely the document I referred to when I made my original investment in 2004 (through Allenbridge). It is therefore likely that there is a full prospectus out there somewhere, but I have not been able to find it. The 2013 D share full prospectus is still available
(thanks for the link Tolmers) and this does have details of the perpetual performance fee and I suspect this has been copied from the original 2004 full prospectus for the Ventus ORDs.
Ventus ORDs: Mini-prospectus (2004)
https://drive.google.com/file/d/1KI8pgR ... sp=sharingVentus D shares: Full prospectus (2013)
http://tools.morningstar.co.uk/tsweu6nq ... d=59401300.