WHAT IS AN EIS?

Whilst I am sure that I am going over old ground an EIS (Enterprise Investment Scheme) is a piece of legislation that allows certain types of UK trading companies (either already established or brand new) that pass strict HMRC defined criteria to issue and attract share capital that conveys some very attractive tax benefits on shareholders.

The benefits include but are not limited to the following:

a) Income Tax “reducer relief” at 30% (50% in the case of a Seed EIS company).       

b) Exemption from assessment to Capital Gains Tax (CGT) where gains are made after 3 years of holding shares.

c) The ability to defer CGT liabilities and to claw back CGT already paid to HMRC.  

d) Exemption from assessment to IHT after 2 years.

An EIS status company is ideally suited to high growth sectors where the exemption from assessment to CGT is exponentially attractive to investors. For example one where the return to shareholders is not only based on the profitable trading activities of the company but also on a likely exit through a management buyout, trade sale or flotation. 

WHY ARE EIS STATUS COMPANIES SUCH COMPELLING INVESTMENT OPPORTUNITIES?

Detailed fundamental analysis strongly validates that it is the combination of the discounting effect of the tax reducer relief, the grossing up effect of a net gain and the potential for very significant gains/outperformance which can create real wealth with a multiple return on capital that may otherwise take the main markets a decade to achieve. 

WHAT IS SILVATHERM ENERGY? 

SilvaTherm (“Silva” meaning wood and “Therm” meaning a unit of energy) http://www.silvatherm.com/ is the first in a planned series of EIS status shares offers to raise capital to invest into the production of environmentally positive energy and fuels produced from renewable sources such as wet biomass which otherwise would be expensively placed into landfill.

The trade of SilvaTherm Energy is fundamentally simple and can be explained in three stages:

a) SilvaTherm is paid to take and burn low grade waste wood which otherwise would probably be dumped into land fill at not insignificant cost.

b) SilvaTherm burns the low grade waste wood to dry wet wood biomass to an optimum moisture level.  

c) SilvaTherm sells the dried wood biomass for a significant premium above its wet price.

WHY WOULD MY CLIENTS WANT TO GAIN EXPOSURE TO THE RENEWABLE ENERGY SECTOR THROUGH SILVATHERM ENERGY? 

Simply put the realistic potential for significant capital growth through a low risk but proven business model. The following is based on actual events that occurred in March 2014. Mr Client is a hard working successful individual. He, like all of us, wishes to pay as little tax as he can reasonably achieve whilst also making his net after tax income and capital work hard for him so that he can reach the nirvana in life of “having enough money so that he does need to worry about money”. Both he and his Financial Adviser know that it is easier to achieve fiscal nirvana by buying assets at a discount, selling them at a premium and paying as little tax as possible regardless of the form of the tax.

Mr Client was attracted to the SilvaTherm Energy offer because of the fundamentally simple nature of its trade. As a property developer Mr Client can also see the economic merits of installing wood burning heating and cooling technology in future building projects. Mr Client’s Financial Adviser is of course significantly more analytical and was also impressed by the holistic technical qualities of the offer: 

a) The professional advisers to the offer are PWC (for advance assurance which was granted in February), Howard Kennedy FSI (for the offer document) and Reyker Securities (as subscription receiving agent).

b) All of the drying technology being used by SilvaTherm Energy is proven and manufactured to high technical standards by substantial and proven market partners.

c) The trade of SilvaTherm Energy qualifies for the RHI (Renewable Heat Incentive) which gives an index linked payment from the Government to the business for the production which is guaranteed for up to 20 years (details can be found at https://www.gov.uk/government/speeches/increased-support-for-renewable-heat).

d) The trade of SilvaTherm Energy is in a growth sector as evidenced by the Government setting a target of generating 15% its gross energy production from renewable sources.  

e) Fair and attractive financial terms with no annual management charge, a flat 9% charge to capital and a targeted annual return of between 20%-25% p.a tax free.

f) Company management have a broad and balanced portfolio of skills in biomass and financial management.

g) SilvaTherm Energy is fully expected to be part of a portfolio of EIS companies in the same sector which should enhance the exit value through a pooled sale.

h) SilvaTherm Energy has already issued 70% of its issued share capital of 4.0 million fully paid £1 Ordinary Shares and has attracted.

Mr Client at the advice of his Financial Adviser then purchased £200,000 of shares.

For more information email us your details to Simon.Conder@silvatherm.com or ring on 020 7398 5684.