TIDMBSIF
RNS Number : 8602A
Bluefield Solar Income Fund Limited
01 October 2015
1 October 2015
BLUEFIELD SOLAR INCOME FUND LIMITED
Full Year results
Annual Report and Consolidated Financial Statements for the year
from 1 July 2014 to 30 June 2015
Operational Highlights
-- The Company was the first of the solar focused funds, and
listed on the Premium Segment of the London Stock Exchange on 12
July 2013, raising GBP130 million;
-- The objective of the Company is to deliver long-term, stable
dividends growing in-line with the Retail Prices Index (RPI);
-- Successful Placement of new shares in November 2014 raised
gross proceeds of GBP131 million and the Company market
capitalisation grew to GBP306 million at 30 June 2015;
-- During the year ended 30 June 2015, the Company announced 8
acquisitions financed by total commitments of GBP139 million with
an estimated combined energy capacity of 124.3 MWp;
-- As at 30 June 2015, the Company had a total of 29 solar
assets with an estimated combined energy capacity in excess of 250
MWp;
-- All assets in the portfolio as at 30 June 2015 were
operational;
-- NAV as at 30 June 2015 was GBP288 million (30 June 2014:
GBP148 million);
-- NAV per share as at 30 June 2015 was 103.58 pence per share
(30 June 2014: 102.96 pence per share)
-- Notwithstanding the reduction in power prices during the
period, attractively priced acquisitions and strong contractual
protections give the Directors comfort that the portfolio will
achieve the target return of 7 pence per share annually, rising
with RPI.
-- The Company has announced that dividends will be paid
quarterly;
-- Total dividends of 7.25 pence per share were declared in
respect of the period ended 30 June 2015 (2014: 4.00 pence per
share).
Financial Highlights
As at 30 June 2015
Total income GBP19,539,958
Total comprehensive income before tax GBP15,150,759
Earnings per share 6.71p
First interim dividend per share (paid
5 December 2014) 3.25p
Second interim dividend per share (paid
15 May 2015) 1.00p
Third interim dividend per share (paid
21 August 2015) 1.50p
Fourth interim dividend per share (approved
30 September 2015) 1.50p
Total dividend per share for year 7.25p
NAV per share 103.58p
Total return (based on NAV increase and
dividends paid in year) 6.67%
Total return to shareholders (based on
share price and dividends paid in year) 13.04%
Chairman John Rennocks said: "Our target dividend for this
financial year was 7 pence per share and we are particularly
pleased to add an additional 0.25 pence per share. We have seen
excellent operational performance of our portfolio of plants and
higher levels of irradiation in the year. Our objective remains to
increase our target dividend by the RPI in the coming years"
A copy of the Annual Report and Audited Financial Statements has
been submitted to the National Storage Mechanism and will shortly
be available for inspection at www.morningstar.co.uk/uk/NSM. The
Annual Report and Audited Financial Statements will also shortly be
available on the Company's website at www.bluefieldsif.com where
further information on the Company can also be found.
A conference call presentation for analysts will take place at
9:30am on Thursday, 1st October 2015. The presentation will be
hosted by James Armstrong and Mike Rand of Bluefield Partners LLP,
the Investment Adviser to the Company. A PowerPoint presentation
will be provided separately in advance of the call.
To register for the call, please contact the Company's PR agent
CNC, by either email to tom.karim@cnc-communications.com or by
telephone on +44(0)20 3219 8820 / +44(0)7923 293 399.
Enquiries:
James Armstrong / Mike Rand / Giovanni Terranova
Bluefield Partners LLP - Company Investment Adviser
Tel: +44 (0)2070780020
Tod Davis / David Benda
Numis Securities Limited - Company Broker
Tel: +44 (0)2072601000
Kevin Smith
Heritage International Fund Managers Limited - Company Secretary
& Administrator
Tel: +44 (0)1481716000
Note to editors:
About Bluefield Solar Income Fund Limited (the "Company" or
"BSIF")
BSIF is a Guernsey-registered investment company focusing on
large scale agricultural and commercial and industrial solar energy
assets. It had an initial public offering of shares on the main
market of the London Stock Exchange in July 2013. It has,
currently, over 278 million shares in issue and a market cap in
excess of GBP285 million. In June 2014 it agreed a three-year
revolving credit facility with Royal Bank of Scotland, for up to
GBP50 million.
BSIF seeks to provide shareholders with an attractive return,
principally in the form of income distributions, by investing in a
diversified portfolio of solar energy assets, each located within
the UK, with a focus on utility scale assets and portfolios on
greenfield, industrial and/or commercial sites. The Company pays
quarterly distributions.
About Bluefield Partners LLP (Bluefield)
Bluefield was established in 2009 and is an investment adviser
to companies and funds investing in solar energy infrastructure. It
has a proven record in the selection, acquisition and supervision
of large scale energy and infrastructure assets in the UK and
Europe. The team has been involved in over GBP1.4 billion of solar
photovoltaic ("PV") funds and/or transactions in both the UK and
Europe since 2008, including over GBP380m in the UK since December
2011.
Bluefield has led the acquisitions, and currently advises on
over 50 UK based solar assets that are agriculturally, commercially
or industrially situated. Based in its London office, Bluefield's
partners are supported by a dedicated and highly experienced team
of investment, legal and portfolio executives.
Bluefield was appointed Investment Adviser to the Company in
June 2013.
Chairman's Statement
Introduction
I am pleased to introduce the Company's second annual report,
detailing how our business plan has been
successfully executed on behalf of our Shareholders.
Dividends
All major objectives have been achieved and we are delighted to
have delivered a covered dividend of 7.25 pence per share for the
financial year.
Our target dividend for this financial year was 7 pence per
share and we are particularly pleased to add an additional 0.25
pence per share. This reflects the underlying earnings per share of
7.72 pence, which includes funds with operating companies which
will pass up to the parent company early in the next financial
year. We have seen excellent operational performance of our
portfolio of plants and higher levels of irradiation in the year.
Our objective remains to increase our target dividend by the RPI in
the coming years.
Key Events
It has been a busy twelve months!
We undertook a well-supported equity raise in November 2014,
which has been fully committed to new investments. We have been
undertaking acquisitions throughout the year into a geographically
diversified portfolio of solar assets. In so doing we have
increased the portfolio from 12 assets to 29, and doubled both the
energy capacity and the market capitalisation of the Company. The
Company is participating in a market that is experiencing high
growth. We do not expect this high level of activity to lessen in
the coming months as solar contractors seek to install new capacity
ahead of regulatory changes in 2016.
There have been challenges, outside the control of the Company,
including a material reduction in wholesale energy prices, but this
report demonstrates, in spite of this, the quality of the portfolio
we have assembled and the robust nature of the Company's cash
flows.
Investment Strategy
The Company has built on its successful first year since IPO.
The strategy has seen the acquisition of multiple, small scale
operational assets on the sites of major water utilities using
Feed-In Tariffs, several medium to large sized projects, and the
acquisition of West Raynham, which at 50MWp is one of the biggest
solar PV plants in Europe and the biggest in the UK using the
Renewable Obligation Scheme. The Company will seek to continue its
model of funding assets through construction, a policy now adopted
by others in the sector and one that has enabled it to build a high
quality and attractively priced portfolio. The independent
valuation of our assets is a testament to this business model.
As a result of the high level of investment activity over the
past two years we are also seeing secondary assets coming to the
market. This opportunity should be viewed as complementary to our
new project builds.
In addition, a key area of focus for the Company is to review
our long term leverage and the Board is working with the Investment
Adviser to consider the optimum structure for longer term debt
within the preferred strategy of a long-term target of 25%-30% of
our net asset value, other than in exceptional circumstances.
Market Growth
The UK ground based solar market has followed a similar pattern
to other, 'early mover' solar PV markets around the world. It has
continued to grow as developers, contractors and investors become
increasingly familiar with the investment opportunity. To put this
in context the growth in the installed capacity of solar PV since
the Company's IPO has been significantly greater than most
expectations. Installed capacity across the UK has grown from
c.700MWp to an estimated 6GWp. In the period between January 2015
and the end of March, 2015, it is estimated that 2GWp of new
capacity was installed.
Post our year end, the demonstrable success of the UK solar
market has seen a significant reaction from the British Government,
and DECC has entered into a further consultation on their support
for the growth of large scale solar PV.
(MORE TO FOLLOW) Dow Jones Newswires
October 01, 2015 02:00 ET (06:00 GMT)
We expect this to have far reaching implications for the solar
industry from 2016 onwards; nonetheless there remains a very
substantial and immediate opportunity to acquire primary assets and
a growing base of secondary assets. The board is positioning the
Company to be in position to take advantage of both these market
opportunities.
Portfolio performance
The owners of the Investment Adviser have formed a separate
business to carry out comprehensive monitoring activities and this,
together with strong on going contractual protections enables the
board to be comfortable with the operations of our plants. This
initiative has supported the strong performance in the early stages
of the operations of our portfolio of plants, which is further
described in the Investment Advisers' report.
Valuation
The latest asset valuation gives a modest uplift to the NAV net
of dividends and, as before, full disclosure of the methodology and
assumptions underpinning this are detailed below. I would like to
highlight some points in this section:
1. The Company engaged Ernst & Young to carry out an
independent valuation of the portfolio. The range of discount
factors proposed in their report supported the assumptions adopted
by the Company. The portfolio valuation adopted by the Company was
below the low end of the range of proposed valuations as discussed
further below.
2. Notwithstanding that power prices have reduced by 20% from
the highs seen just after the IPO, the NAV per share has increased,
reaffirming the acquisition methodology and pricing discipline
exercised by the Company;
3. The valuation is based on a discount rate of 7.5%, which we
believe to be appropriate to reflect both the business risks we
face and the financial climate in which we operate. We believe the
assumptions we have used are in line with or more conservative than
those being adopted by others in our industry.
We have again sought to provide shareholders with detailed and
clear analysis of our projects and how we have approached valuation
at the period end. This was well received by our shareholders when
we presented the last results and we are pleased to continue a
policy of full disclosure.
The Investment Adviser
I would wish to record our recognition of the excellent support
we have received from our Investment Adviser, Bluefield Partners
LLP; ably led by James Armstrong, Mike Rand and Giovanni Terranova,
and from their expanding team; from their Investment Committee, led
by William Doughty, which carries out a thorough review of all our
projects before they are put forward to our Board for
consideration; and from their Valuation Committee led by Dr.
Anthony Williams. They have given us an excellent understanding and
analysis of the sector and the projects in which we have
invested.
The Board
I would like to make particular reference to my Board of
Directors.
John Scott, the Senior Independent Director, has brought a
wealth of financial and commercial experience to the board. Paul Le
Page, the chairman of the Audit Committee, and Laurence McNairn,
our Guernsey based directors, have brought great experience and
insight, especially in their respective key areas of audit and fund
administration. As I mentioned this has been a busy year for the
company and the diligent expertise of my board colleagues has made
a significant contribution to our success. All my colleagues are a
pleasure to work with and would be an asset to any company. I look
forward to continuing to work with them all as we continue to grow
the Company in the years ahead.
Outlook
As referenced in my last update, there are challenges ahead in
2016 when the shape of future pipelines is uncertain and the levels
of support for new installations remains unclear. Despite the
market facing considerable headwinds in the form of lower power
prices and regulatory uncertainty, your Company has delivered a
strong set of returns.
Further to this, there remains an immediate and compelling
opportunity for Bluefield and its shareholders to invest into a
competitively priced energy market where the Company is achieving
attractive infrastructure level returns with low levels of
leverage, and contracted into long dated, largely regulated and
indexed revenues. We strongly believe that the UK remains an
attractive place for infrastructure investors and that the market
continues to offer appealing risk adjusted returns.
John Rennocks
Chairman
30 September 2015
Strategic Report
Introduction
The Strategic report sets out:
STRATEGIC ISSUES
1. Company's Objectives and Strategy
2. Company's Operating Model
3. Investment Policy
4. Policies, approach and achievements adopted in respect of Corporate Social Responsibility
OPERATIONAL ISSUES
5. Operational & Financial Review for the period (including KPI)
6. Directors' Valuation of Group's Portfolio
7. Principal Risks and Uncertainties
STRATEGIC ISSUES
1. Company's Objectives and Strategy
The Company seeks to provide shareholders with an attractive
return, principally in the form of quarterly income distributions,
by investing in a portfolio of large scale UK based solar energy
infrastructure assets. The Company targeted a dividend of 7 pence
per Ordinary Share in relation to the financial period ended 30
June 2015 with the intention of this rising annually thereafter
with the RPI. Subject to maintaining a prudent level of reserves,
the Company aimed to achieve this through optimisation of asset
performance, future acquisitions and use of gearing. For the period
to 30 June 2015, the Company has declared dividends of 7.25 pence
per Ordinary Share. The Operational and Financial Review section
below provides further information relating to performance during
the period.
2. Company's Operating Model
Structure
The Company holds and manages its investments through a UK
limited company, BSIFIL, in which it is the sole shareholder.
Management
Board and Committees
The Board is responsible to shareholders for the overall
management of the Company. The Board has adopted a Schedule of
Matters Reserved for the Board which sets out the particular duties
of the Board. Such reserved powers include decisions relating to
the determination of investment policy, approval of new
investments, oversight of the Investment Adviser, approval of
changes in strategy, risk assessment, Board composition, capital
structure, statutory obligations and public disclosure, financial
reporting and entering into any material contracts by the
Company.
Through the Committees and the use of external independent
advisers, the Board manages risk and governance of the Company. The
Board consists of four independent non-executive Directors. See the
Corporate Governance Report for further details.
Investment Adviser
The Company has entered into an Investment Advisory Agreement
with the Investment Adviser. This sets out the Investment Adviser's
key responsibilities, which include identifying and recommending
suitable investments for the Company to enter into and negotiating
on behalf of the Company the terms on which such investments will
be made.
Through a Technical Services Agreement with BSIFIL the
Investment Adviser is also responsible for all issues relating to
the supervision and monitoring of existing investments (included
within the fee cap under the Investment Advisory Agreement). The
Company has appointed BSL, a company with the same ownership as the
Investment Adviser, to provide asset management services for the
Company's portfolio.
During the period the Investment Adviser has been paid a base
fee of 0.7% of NAV at 30 June 2015. Post year end, due to the
out-performance of the Company during the period, the Investment
Adviser is also entitled to a variable fee that equates to 0.1% of
NAV.
A summary of the fees paid to the Investment Adviser is given in
Note 5 of the consolidated financial statements.
Administrator
The Board has also delegated administration and company
secretarial services to the Administrator.
Further details on the responsibilities assigned to the
Investment Adviser and the Administrator can be found in the
Corporate Governance Report.
Employees and Officers of the Company
The Company does not have any employees and therefore policies
for employees are not required. The Directors of the Company are
listed above.
Investment Process
Through its record of investment in the UK solar energy market,
the Investment Adviser has developed a rigorous approach to
investment selection, appraisal and commitment. This investment
process is based upon repeat transaction experience with specialist
advisers; application of standardised terms which have been
developed and refined based upon direct experience of operating
solar assets; and through a rigorous internal approval process
prior to issuing investment recommendations to the Company. All
investment recommendations and divestments by the Investment
Adviser are subject to review and approval by the Company's
experienced Board of Directors. The Board is aware of the overall
pipeline of potential new investments. Board approval is also
required before significant due diligence and transaction costs are
incurred, and where material variations to the agreed terms of the
final transaction are required before execution of that
transaction.
Repeat transaction experience with specialist advisers
The Investment Adviser has worked with legal, technical,
insurance and accounting advisers in each of the transactions it
has executed in the UK market. This direct experience has enabled
it to develop an understanding of key areas of competence to
address specific issues; for example, identifying specific
individuals who are expert in advising on specific detailed
technical aspects of a project. Through this direct specialist
experience, the Investment Adviser is able to source relevant
expertise to address project issues both during and following a
transaction.
Application of standardised terms developed based upon direct
experience
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The Investment Adviser has developed standardised terms which
have been specifically tested by reference to real transaction and
project operational experience. Whilst contract terms are
specifically negotiated and tailored for each individual project,
solar project contracts applied by the Investment Adviser typically
have specific protections from the construction contracts regarding
recovery of revenue losses for underperformance and obligations for
correction of defects. Both such provisions have been specifically
exercised by the Investment Adviser giving it direct experience in
activating contractual protections.
Rigorous internal approval process
All investment recommendations issued to the Company, and all
investment recommendations made in relation to previous
transactions of the Investment Adviser are made following the
formalised review process described below:
(1) Investment origination and review by Managing Partners
Before incurring costs in relation to the preparation of a
transaction, a project is concept reviewed by the Investment
Adviser's Managing Partners, following which a letter of interest
or memorandum of understanding is issued and project exclusivity is
secured.
(2) Director Concept Approval
In the event that material costs are to be incurred in pursuing
a transaction, a concept paper is issued by the Investment Adviser
for review by the Directors of the Company. This concept review
fixes a project budget as well as confirming the project proposal
is in line with the Company's investment policy and strategy.
(3) Due diligence
In addition to applying its direct commercial experience in
executing solar PV project acquisitions and managing operational
solar plants, the Investment Adviser engages legal, technical and,
where required, insurance and accounting advisers to undertake
independent due diligence in respect of a project. Where specialist
expertise is required due to project specifications, the Investment
Adviser has experience in identifying relevant experts.
(4) Bluefield Partners LLP Investment Committee
Investment recommendations issued by the Investment Adviser are
made following the submission of a detailed investment paper to the
Investment Committee. The Investment Committee operates on the
basis of unanimous consent and has a record of making detailed
evaluation of project risks. The investment paper submitted to the
Investment Committee discloses all interests which the Investment
Adviser and any of its affiliates may have in the proposed
transaction.
(5) Group Board approval
Following approval by the Investment Adviser Investment
Committee, investment recommendations are issued by the Investment
Adviser to the Group for review by the boards of the Company and
BSIFIL. Both the Company and the BSIFIL board undertake detailed
review meetings with the Investment Adviser to assess the project
prior to determining any approval. Both board approvals are
required in order for a transaction to be approved. If the boards
of the Company and BSIFIL approve the relevant transaction, the
Investment Adviser is authorised to execute the transaction in
accordance with the Investment Adviser's recommendation and any
condition stipulated in the boards' approval.
(6) Closing memorandum
Prior to executing the transaction, the Investment Adviser
completes a closing memorandum confirming that the final
transaction is in accordance with the terms presented in the
investment paper to the Investment Committee; detailing any
material variations and outlining how any conditions to the
approval of the Investment Committee and/or Board approval have
been addressed. This closing memorandum is countersigned by an
appointed member of the Investment Committee prior to closing the
transaction.
Managing conflicts of interest
The Investment Adviser and any of its members, directors,
officers, employees, agents and connected persons, and any person
or company with whom they are affiliated or by whom they are
employed may be involved in other financial, investment or other
professional activities which may cause potential conflicts of
interest with the Company and its investments.
The Directors have noted that the Investment Adviser has other
clients and have satisfied themselves that the Investment Adviser
has procedures in place to address potential conflicts of interest.
The potential conflicts of interest are disclosed in the investment
recommendation for each investment.
3. Investment Policy
The Group invests in a diversified portfolio of solar energy
assets, each located within the UK, with a focus on utility scale
assets and portfolios on greenfield, industrial and/or commercial
sites. The Group targets long life solar energy infrastructure,
expected to generate stable renewable energy output over a 25 year
asset life.
Individual solar assets or portfolios of solar assets are held
within SPVs into which the Group invests through equity and/or debt
instruments. The Group seeks to obtain legal and operational
control through direct or indirect stakes of up to 100% in such
SPVs, but may participate in joint ventures or minority interests
where this approach enables the Group to gain exposure to assets
within the Company's investment policy which the Group would not
otherwise be able to acquire on a wholly-owned basis.
The Group may make use of non-recourse finance at the SPV level
to provide leverage for specific solar energy infrastructure assets
and portfolios provided at the time of entering into (or acquiring)
any new financing; total non-recourse financing within the
portfolio will not exceed 50% of the prevailing Gross Asset Value.
In addition, the Group may, at holding company level, make use of
short-term debt finance to facilitate the acquisition of
investments, but such short-term debt (when taken together with the
SPV finance noted above) will also be limited so as not to exceed
50% of the Gross Asset Value.
No single investment in a solar energy infrastructure asset
(excluding any third party funding or debt financing in such asset)
represents, on acquisition, more than 25% of the NAV. The portfolio
provides diversified exposure through the inclusion of not less
than five individual solar energy infrastructure assets.
Diversification is achieved across various factors such as grid
connection points, individual landowners and leases, providers of
key components (such as PV panels and inverters) and assets being
located across various geographical locations within the UK.
The Group aims to derive a significant portion of its targeted
return through a combination of RPI-linked FiTs and the sale of
ROCs (or any such regulatory regimes that replace them from time to
time). Both such regimes are currently underwritten by UK
Government regulation providing a level of FiTs or ROCs fixed for
20 years and each regime typically benefits from an annual RPI
escalation. The Group also intends, where appropriate, to enter
into Power Purchase Agreements with appropriate counterparties,
such as co-located industrial energy consumers or wholesale energy
purchasers.
Investment Restrictions
The Company currently complies with the investment restrictions
set out below and will continue to do so for so long as they remain
requirements of the FCA:
-- neither the Company nor any of its subsidiaries will conduct
any trading activity which is significant in the context of the
Group as a whole;
-- the Company must, at all times, invest and manage its assets
in a way which is consistent with its object of spreading
investment risk and in accordance with the published investment
policy; and
-- not more than 10% of the Gross Asset Value at the time of
investment is made will be invested in the other closed-ended
investment funds which are listed on the Official List.
Changes to Investment Policy
The Directors do not currently intend to propose any material
changes to the Company's investment policy, save in the case of
exceptional or unforeseen circumstances. As required by the Listing
Rules, any material change to the investment policy of the Company
will be made only with the approval of shareholders.
4. Policies, approach and achievements adopted in respect of CSR
The Directors and the Investment Adviser are focused on the
corporate objective of providing investors with an ethical,
socially responsible and transparently managed Company. The best
standards of governance and CSR are central to the Company's ethics
and important in ensuring the continued attractiveness of the
Company to the broad group of stakeholders with which it interacts.
Beyond the production of sustainable energy from the Company's
portfolio that is expected to save on the emission of millions of
tonnes of CO2 throughout the life of the assets, the Company will
seek to increase biodiversity at the sites by appropriate planting
and landscaping of the land it manages.
OPERATIONAL ISSUES
5. Operational & Financial Review for the period
Key Performance Indicators
The Board has identified the following indicators for assessing
the Company's annual performance in meeting its objectives:
As at 30 June As at 30 June
2015 2014
------------------------------------- -------------- ---------------
Market Capitalisation GBP305,562,903 GBP147,184,463
Share price 109.75p 102.62p
Total dividends declared in relation
to the year/period 7.25p 4.00p
NAV GBP288,390,867 GBP147,676,019
NAV per share 103.58p 102.96p
Total Return (based on NAV increase
and dividends paid in the year) 6.7% 7.0%
Total Return to shareholders (based
on share price and dividends paid
in the year) 13.0% 4.6%
------------------------------------- -------------- ---------------
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Acquisitions
During the period, the Company completed 8 acquisitions for a
total committed consideration of GBP138.6m (2014: GBP146.8m). Each
investment has been carefully selected to ensure the portfolio is
well balanced geographically, with appropriate levels of
diversification of construction and operation contractors and key
equipment.
Portfolio Performance
Of the 8 investments made during the financial year, seven were
contracted at or during the construction phase with one, Bluefield
L&P solar, purchased with a record of operation through its two
subsidiary SPVs Goshawk and Durrants.
All acquisitions of projects under construction successfully
entered operation during the year and achieved accreditation within
the targeted 1.4 ROC band. Although a number of projects commenced
operation after the contracted construction deadlines, contractual
protections enabled the Group to benefit from contractor delay
liquidated damages which fully compensated the applicable
investment vehicle for delays in generation, keeping revenues in
line with budget.
The portfolio has performed strongly during the year to 30 June
2015, with generation and revenue both ahead of expectations by
3.2% and 3.9% respectively. The Directors are particularly pleased
with this performance in light of the continuing decline in power
prices over the last 12 months.
This out-performance is analysed in greater detail within the
Investment Adviser's report where the portfolio has been reviewed
in two tranches; plants that were operational in June 2014 and
those that have been acquired or constructed during the year.
The Company's PPA strategy is to enter into short term contracts
with contracting periods staggered quarterly across the portfolio
in order to minimise the portfolio's sensitivity to similar
short-term price volatility.
Portfolio performance and power price movements are discussed in
more detail within the Investment Adviser's report under Section
3.
Summary Consolidated Statement of Comprehensive Income
Year ended Period ended
30 June 2015 30 June 2014
---------------------------------- ----------------- ----------------
Total Income GBP19,539,958 GBP12,039,100
Administrative expenses GBP3,022,085 GBP2,054,320
Transaction costs GBP571,576 GBP508,102
Finance costs GBP795,538 GBP32,633
---------------------------------- ----------------- ----------------
Total comprehensive income before GBP15,150,759 GBP9,444,045
tax
Tax - -
---------------------------------- ----------------- ----------------
Total comprehensive income GBP15,150,759 GBP9,444,045
---------------------------------- ----------------- ----------------
Earnings per share 6.71p 6.99p
Total Income for the period represents the return recognised in
the consolidated statement of comprehensive income from the
combined impacts of valuation movement and investment income
(derived from interest income and consultancy services fees paid by
the SPV investment companies to BSIFIL). The total comprehensive
income of GBP15.2m reflects the performance of the Group when
operating costs are included. Further detail on valuation movements
is given in the Report of the Investment Adviser.
Cost Analysis
A breakdown of the administrative expenses paid is provided
below. Further details of the administrative expenses can be found
in Note 5 of the consolidated financial statements.
Administrative expenses Year ended % of NAV Period ended % of NAV
30 June as at 30 June as at
2015 30 June 2014 30 June
GBP 2015 GBP 2014
------------------------- ------------ --------- ------------- ---------
Fees to Investment
Adviser (2,007,666) 0.70% (1,204,987) 0.81%
Legal and professional
fees (46,674) 0.02% (21,900) 0.01%
Administration fees (287,424) 0.10% (145,076) 0.10%
Directors' remuneration (145,599) 0.05% (150,986) 0.10%
Audit fees (61,398) 0.02% (35,000) 0.02%
Other expenses (208,543) 0.07% (127,485) 0.09%
------------------------- ------------ --------- ------------- ---------
Total recurring (2,757,304) 0.96% (1,685,434) 1.13%
Legal and professional
fees (229,260) 0.08% (319,600) 0.22%
Non-audit fees (10,661) 0.00% (25,875) 0.02%
Listing fees (8,307) 0.00% (12,018) 0.01%
Other expenses (16,553) 0.01% (11,393) 0.01%
------------------------- ------------ --------- ------------- ---------
Total non-recurring (264,781) 0.09% (368,886) 0.26%
------------------------- ------------ --------- ------------- ---------
Non-audit fees excludes GBP62,100 (2014: GBP40,000) in relation
to the placings in November 2014 which were deducted from placing
proceeds (see Note 5).
On-going charges
On-going charges is a measure of the day-to-day costs of
managing the Group. It is expressed in terms of a percentage
reduction in shareholder returns assuming markets remain static and
the investment portfolio is not traded.
The fees the Investment Adviser receives are based on the NAV,
at an effective rate of 0.70% over the year, and are in line with
the growth in the investment portfolio and do not contain any
variable fee element.
The table below reflects all costs the Company has incurred.
Year ended Period ended
30 June 2015 30 June 2014
GBP GBP
------------------------------ -------------- --------------
Annualised on-going charges* (2,764,879) (1,737,806)
------------------------------- -------------- --------------
Average NAV 217,442,315 134,673,931
------------------------------- -------------- --------------
On-going charges 1.27 % 1.29%
------------------------------- -------------- --------------
*For 2014 as the Group had only been in operation since 12 July
2013, the 2014 annualised figure of recurring administrative
expenses is based on the Cost Analysis table above.
The on-going charges ratio is calculated in accordance with the
AIC recommended methodology, which excludes non-recurring costs,
i.e. legal advice in relation to the RBS facility.
A more detailed analysis of the Group's financial performance
can be found below of the consolidated financial statements.
Group debt facility
On 11 June 2014 the Group entered into an agreement with the RBS
for the provision of an acquisition facility of up to GBP50m. The
Facility has a margin of 2.25% over LIBOR and is due to expire
on
10 June 2017.
As at the period end GBP18,900,000 (2014: GBPNil) had been drawn
down on the Facility.
6. Directors' Valuation of Group's portfolio
The Investment Adviser or an external valuer is responsible for
carrying out the fair market valuation of the Company's investments
for recommendation, review and approval by the Directors.
Valuations are carried out on a six monthly basis as at 31
December and 30 June each year and the Company has committed to
procure a review of valuations by an independent expert not less
than once every three years.
The Board elected to seek the Company's first independent
valuation as input to the 30 June 2015 Directors' Valuation
following the Directors' observation that the sector had faced
significant transition leading up to and during the financial
reporting period. More specifically, material changes to
regulation, power prices, risk free rates and investment activity
in the sector were considered to be relevant variables which
justified securing an independent assessment of market valuations.
EY were appointed by the Company to provide an independent
valuation for 30 June 2015.
As the portfolio comprises only non-market traded investments,
the external valuer has adopted valuation guidelines based upon
International Valuation Standards defined by the IVSC; application
of which is considered consistent with the requirements of
compliance with IAS 39 and IFRS 13.
In accordance with these guidelines, EY, drawing upon portfolio
input data provided by the Investment Adviser, has prepared its
valuations on the basis of discounted cash-flow methodology. EY has
provided the Directors with a discounted cash flow valuation range
supported by market data and precedent transactions.
In the light of the analysis provided in the independent
valuation, the Directors' Valuation adopted for the portfolio as at
30 June 2015 was GBP296.8m, representing a 5.83% uplift on
investment cost, derived from a combination of income generated
within the investments and revaluation uplift under discounted
cash-flow methodology.
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The Directors' Valuation is below the valuation range set out in
the independent valuation. The lower valuation utilised by the
Directors for the purpose of these Financial Statements results
from (i) application of a discount rate of 7.5%, (higher than the
midpoint discount rate implied by the independent valuation), and
(ii) a long term inflation rate of 2.5%, lower than the inflation
rate assumed by the independent valuer. The Directors have reached
their valuation following due consideration, in consultation with
the Investment Adviser, of the long term stability of assumptions
in addition to peer group analysis.
A detailed analysis of the Directors' Valuation is presented in
the Report of the Investment Adviser.
7. Principal Risks and Uncertainties
Under the FCA's Disclosure and Transparency Rules, the Directors
are required to identify those material risks to which the Group is
exposed and take appropriate steps to mitigate those risks.
The principal risks faced by the Company are:
1. Solar subsidy reduction
The increasing pressure on solar subsidies as demonstrated by
the removal of LECs (and the recent sharp fall in the proposed
level of home solar-FiT payments) has created short-term capacity
pressure for new plant. The Company has begun to mitigate this
risk, post year-end, by introducing its first roof-top solar
installation, an area which is still favoured by Government policy.
The introduction of structural gearing should enable the Company to
expand its investment universe too, by enabling the Company to
acquire plant with lower yield characteristics, yet by using an
element of low coupon debt financing, enhancing the net equity
investment yield.
2. Electricity market fluctuations
Energy price volatility has reached unprecedented levels and the
Company has sought to mitigate the impact of this volatility by
having a rolling programme of PPA contract expiries. Nonetheless,
protection against a sustained period of lower energy prices can
only be achieved by maximising exposure to regulatory revenues
through acquisition of more legacy FiT and ROC plants.
3. Generation failure
Generation output could fail to meet budgeted levels for a large
number of operational reasons such as transformers failing after
warranty expiry, for example. The Company has sought to mitigate
this risk by the appointment of BSL to co-ordinate the operation
and maintenance of the investment portfolio and through contractual
protection such as performance guarantees (See Note 20).
The Directors have also identified the following as the key
risks faced by the Company:
Risk Description Mitigation/Approach
---------------------- ----------------------------------- ------------------------------
Poor commercial This could involve missed The Board reviews the
investment decisions investment opportunities. company's investment
pipeline with the Investment
Adviser on a regular
basis.
---------------------- ----------------------------------- ------------------------------
The Company may acquire The Board reviews market
or dispose of an investment pricing comparisons
at a price that is not where relevant prior
in the best interest of to approving transactions.
shareholders.
---------------------- ----------------------------------- ------------------------------
Inadequate management Underperformance of solar BSL as Asset Manager
of plant plant versus expectations prepares a quarterly
at acquisition. operational summary
for the board that
evaluates the performance
of each plant against
budget and highlights
any issues to be addressed.
---------------------- ----------------------------------- ------------------------------
Inadequate portfolio cash The board reviews cash-flow
flow management could impact projections for each
the ability to pay dividends. investment that the
company makes and for
the entire company
on a regular basis.
---------------------- ----------------------------------- ------------------------------
This also involves the The Investment Adviser
risk of all site PPAs expiring ensures that when the
at the same time, which agreements are initially
could result in a lack put in place, the end
of income and therefore dates of the investments
a lack of funds for distribution. are staggered in order
to ensure a constant
flow of revenue. A
quarterly update on
the contracts is provided
in the Investment Adviser's
Report within the Board
Packs.
---------------------- ----------------------------------- ------------------------------
Inadequate project Delays in the completion The Board mitigates
management of the solar sites possibly the risk of not being
due to manpower, connection able to pay by ensuring
timings or missing components that all purchase/deal
could impact the Company's agreements include
income flow and its ability a "water tight" clause
to pay dividends. to ensure compensation
fees are due if the
solar sites are unfinished
by a specific date
or if the grid is not
connected by a certain
date following completion.
---------------------- ----------------------------------- ------------------------------
Risk Description Mitigation/Approach
------------------------ -------------------------------- -------------------------------
Over-reliance on The ability of the Company Through the investment
key personnel of to achieve its investment and advisory fee, the
the Investment Adviser objective depends heavily Investment Adviser
on the experience of the is incentivised to
management team associated achieve the Company's
with the Investment Adviser, investment objectives.
and more generally on the Additionally, the Board
Investment Adviser's ability has broad discretion
to attract and retain suitable to monitor the performance
staff. As a result, the of the Investment Adviser
success of the Company or to appoint a replacement.
will depend largely upon In the event that any
the ability and continuing one of the key persons,
availability of the Investment as defined in the Investment
Adviser. The death, incapacity Advisory Agreement,
or loss of the service is no longer a member
of key individuals of the or employee of the
Investment Adviser would Investment Adviser,
have a material adverse the Board can terminate
impact on the business the Investment Advisory
of the Company and the Agreement. The Board
investments made. has negotiated key
man provisions in the
Investment Advisory
Agreement that permit
early termination.
------------------------ -------------------------------- -------------------------------
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Loss of cash This involves the risk The Administrator has
of fraud, defalcation, procedures in place
credit risk default by designed to detect
the deposit counterparty and deter fraud such
or other instruments and as:
interest rate/capital value (i) "Four eyes" approach
risk. to all payments (six
eyes for matters that
require two "A" Signatories);
(ii) Authorisation
limits for payments;
and
(iii) Approval of invoices
by the Investment Adviser.
The Administrator also
has whistle blowing
procedures in place
and policies that comply
with the Anti-Bribery
legislation.
------------------------ -------------------------------- -------------------------------
Financing Risk This involves a risk that A covenant compliance
the Fund will be unable report for the portfolio
to support dividends or is provided within
repayments due to a breach the quarterly Investment
of financing covenants. Adviser's Report in
the Board Meetings.
------------------------ -------------------------------- -------------------------------
Risk Description Mitigation/Approach
--------------------- -------------------------------- ----------------------------------------------
Valuation errors Valuations of the SPV The discount factor
investments are reliant applied to the cash-flows
on large and detailed is reviewed by the Investment
financial models based Adviser to ensure that
on discounted cash-flows. it is set at the appropriate
Significant inputs such level. All papers supporting
as the discount rate, the Gross Asset Value
rate of inflation and calculation and methodology
the amount of electricity used are presented to
the solar assets are expected the Board for approval
to produce are subjective and adoption.
and certain assumptions
or methodologies applied Ongoing quarterly reconciliations
may prove to be inaccurate. are performed between
This is particularly so the SPVs and BSIF; this
in periods of volatility includes on-site visits
or when there is limited to the assets and the
transactional data for engagement of independent
solar PV generation against valuers.
which the investment valuation
can be benchmarked. Other
inputs such as the price
at which electricity and
associated benefits can
be sold are subject to
government policies and
support.
--------------------- -------------------------------- ----------------------------------------------
Dependence on the As a consequence of a The Administrator has
Administrator failure by the Administrator, employees with the right
monthly management information skills and resources
is not adequate and/or to perform as appropriate
not received in a timely Administrators. Moreover,
fashion and the financial the Company has entered
statements are filed late, into a detailed administration
and therefore could lead agreement with the Administrator
to damaging market reputation to manage this risk.
of the Company. The Administrator is
also regulated by the
GFSC and is subject
to periodic inspections
and regular compliance
reporting. The Administrator
maintains full Professional
Indemnity and Directors
& Officers insurance.
The Administrator provides
Disaster Recovery updates
to the Board triggered
by any changes or at
the request of Directors.
--------------------- -------------------------------- ----------------------------------------------
Information Security As a consequence of the The Administrator will
& Loss of Data ever expanding knowledge provide updates regarding
and ability with which its security protocols
people are able to obtain in place and also provide
and share information details of their systems
by means such as hacking protection and encryption.
or the interception of Passwords on important
emails the Board are aware or confidential documents
that increasing data security are used when they are
is essential. being sent electronically
Over reliance on emails to ensure further protection
could also result in the from interception.
loss of data as this is
not a guaranteed form
of communication.
--------------------- -------------------------------- ----------------------------------------------
Risk Description Mitigation/Approach
--------------------- ------------------------------ ---------------------------------
Counterparty failure The Company engages with The Administrator collates
various providers and information to provide
counterparties. The success a historical track record
of the business and its of the counterparties
investments will rely which give comfort to
on the appropriate parties the Board and the Investment
being engaged and their Adviser.
ability to deliver on Price comparisons are
the agreed terms. made across competitors
to ensure value for
money is obtained. The
board reviews the performance
of all key counterparties
on an annual basis.
--------------------- ------------------------------ ---------------------------------
Weaknesses or failings The Company ensures
by the counterparties that the selection process
could potentially have of the counterparties
adverse consequences for are carefully monitored
the Company in achieving and due regard given
its objectives. to their performance
and financial standing,
through collation of
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appropriate due diligence.
Further, the Company
mitigates the risk by
diversifying the counterparties
with which it engages.
The Administrator ensures
that the counterparties
provide procedures and
control documents as
well as financial statements
in an effort to mitigate
potential for contractor
bankruptcy.
--------------------- ------------------------------ ---------------------------------
Inadequate control Excessive SPV expenses The Investment Adviser
of costs could result in the possible will provide cash flow
loss of funds and inability updates for each SPV
to meet investor dividend within the Investment
payments. This could also Adviser's Report within
have a negative impact the quarterly Board
on the Company's NAV. Packs. This will include
TER calculations for
each.
--------------------- ------------------------------ ---------------------------------
Risk Description Mitigation/Approach
---------------------- ----------------------------------- ---------------------------------
Changes in regulation The Company is authorised The Company has appointed
and regulated by the GFSC the Administrator to
in Guernsey. The GFSC act as Compliance Officer.
may determine that the The Company also liaises
Company's activities should with its Administrator
be subject to increased to ensure compliance
regulation or compliance with the latest GFSC
requirements. requirements.
---------------------- ----------------------------------- ---------------------------------
The Company's activities After seeking professional
in the UK are subject regulatory and legal
to regulation under the advice, the Company
Alternative Investment was established in Guernsey
Fund Management Directive as a self-managed Alternative
("AIFMD"). Investment Fund. The
Company continues to
monitor developments
under AIFMD and its
impact on the Company.
---------------------- ----------------------------------- ---------------------------------
The Company must comply The Company liaises
with the full handbook with its Broker, Administrator
of the Main Market of and other advisers,
the London Stock Exchange. as required to ensure
compliance with the
latest full handbook
requirements.
---------------------- ----------------------------------- ---------------------------------
A change in tax legislation The Company engages
applicable to any member tax advisers to determine
of the Group or the underlying the impact on returns.
investments could result
in increased tax liabilities
for the Group and a consequential
reduction in yield or
capital to investors.
---------------------- ----------------------------------- ---------------------------------
Insider Dealing Individuals working on The risk of unauthorised
behalf of the Company insider trading is mitigated
and employees of its service by the Company through
providers potentially the maintenance of an
have access to sensitive, insider trading list.
non-public information The Investment Adviser
about the Company which and the Administrator
may be used for personal review this list and
benefit. confirm that the counterparties
are aware of their obligations.
---------------------- ----------------------------------- ---------------------------------
Risk Description Mitigation/Approach
------------------------- ------------------------------ -------------------------------
Bribery and Corruption The scale of the problem Both the Administrator
of bribery and corruption and the Investment Adviser
is significant at both circulate their written
a corporate and governmental policies to the Board
level. It creates a major for review and also
distortion of trade as provide any updates
well as undermining the to the policy as and
democratic development when they may occur.
of emerging markets. Failure The Board regularly
to comply with the UK reviews possible exposure
Bribery Act could render areas for bribery and
the Company liable to corruption.
prosecution.
------------------------- ------------------------------ -------------------------------
Unfavourable Weather Annual income generation The Company uses on
Conditions of the Company is sensitive site measurement of
to weather conditions irradiation in order
and in particular to the to measure performance
level of irradiation across against budget, and
the investment locations. its portfolio is relatively
Variability in weather dispersed across the
could result in greater south of the United
than 10% variability in Kingdom. The use of
revenue generation year solar photovoltaic technology
on year. at the sites means generation
is not dependent only
on direct irradiation
but also on predictable
daylight limiting short
term volatility when
compared to other weather
dependent electricity
generation.
------------------------- ------------------------------ -------------------------------
Unfavourable Electricity Annual income generation The Investment Adviser
Market Conditions of the Company is sensitive regularly updates the
to future power market portfolio cash-flow
pricing. A major structural model to reflect future
shift in power demand power market forecasts
or supply will impact and applies additional
the Company's ability discounts to the forecasts
to meet its dividend target. when needed. New projects
are always assessed
using the most recent
power market forecast
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data available.
------------------------- ------------------------------ -------------------------------
These inherent risks associated with investments in the solar
energy sector could result in a material adverse effect on the
Company's performance and value of Ordinary Shares.
The above risks are mitigated and managed by the Board through
continual review, policy setting and half-yearly review of the
Company's risk matrix by the Audit Committee to ensure that
procedures are in place with the intention of minimising the impact
of the above mentioned risks. The Board carried out its formal
review of the risk matrix at the Audit Committee meeting held on 20
May 2015. The Board relies on periodic reports provided by the
Investment Adviser and Administrator regarding risks that the
Company faces. When required, experts will be employed to gather
information, including tax advisers, legal advisers, and
environmental advisers.
Paul Le Page Laurence McNairn
Director Director
30 September 2015 30 September 2015
Report of the Investment Adviser
1. About Bluefield Partners LLP
Bluefield was established in 2009 and is an investment adviser
to companies and funds investing in solar energy infrastructure.
Our team has a proven record in the selection, acquisition and
supervision of large scale energy and infrastructure assets in the
UK and Europe. The team has been involved in over GBP1 billion of
solar PV funds and/or transactions since 2008 including over GBP380
million in the UK since December 2011.
Bluefield has led the acquisition of, and currently advises on,
over 50 UK based solar assets that are agriculturally, commercially
or industrially situated. Bluefield was appointed Investment
Adviser to the Company in June 2013. Based in its London office,
Bluefield's partners are supported by a dedicated and highly
experienced team of investment, legal and portfolio executives.
Bluefield's Investment Committee has collective experience of
over GBP15 billion of energy and infrastructure transactions.
2. Investment Strategy
The Company's investment policy has the flexibility to commit to
assets during the construction phase or operational phase. During
the period under review, the Investment Adviser made the strategic
decision to invest primarily in assets during the construction
phase in order to:
1. Maximise quality and scale of deal flow: the strategy
maximises the pool of assets available to the Company. The majority
of developers and contractors in the UK solar market were (and are)
unable to fund on their own balance sheets, therefore construction
funders such as Bluefield were able to select their construction
partners and assets from the widest possible pool;
2. Minimise acquisition costs: funding through the construction
phase removes a layer of financing cost provided by third party
construction funders, typically passed on to the end acquirer;
3. Minimise risk via appropriate contractual agreements:
construction funding of solar assets is low risk in nature due to
the simple and quick construction process. Risk can be further
minimised by appropriate contractual agreements. These include
making milestone payments backed, typically, by bonds, security
plant and equipment and significant cash hold backs. For example,
subsidy risk can be largely mitigated during construction in the
event that there was a delay to grid connection. Should a
contractor secure a 1.4 ROC banding as opposed to the 1.6 ROC
level, the Company had contractual protections that would have
resulted in the contract price stepping down to compensate for the
lower revenues, enabling the Company to achieve the same hurdle
return from the asset; and
4. Acquire assets using conservative assumptions: Deployment of
the proceeds of the IPO saw the Company acquire assets with
acquisition prices that are expected to enable the delivery of a 7
pence annual distribution, rising with RPI, based upon a cautious
set of assumptions.
3. Portfolio Developments
The Company's operating portfolio as at 30 June 2015 is shown
below:
Project Contractor Region ROC banding/FiT MWp
---------------------- ----------------- ---------------------------- ----------------- ------
North Beer Parabel UK Cornwall 2.0 ROCs 6.9
Pentylands Conergy Wiltshire 1.6 ROCs 19.2
Goosewillow Ikaros Solar Oxfordshire 1.6 ROCs 16.9
Hill Farm Solar Century Oxfordshire 1.6 ROCs 15.2
Hardingham Solar Century Norfolk 1.6 ROCs 14.8
Hall Farm Ikaros Solar Norfolk 1.6 ROCs 11.5
Betingau Prosolia Glamorgan 1.6 ROCs 9.9
Saxley Solar Century Hampshire 1.6 ROCs 5.9
West Raynham MAETEL/ACS Norfolk 1.4 ROCs 49.9
Elms Wirsol Energy Oxfordshire 1.4 ROCs 29.0
Hoback Solar Century Hertfordshire 1.4 ROCs 17.5
Roves Wirsol Energy Wiltshire 1.4 ROCs 12.7
Sheppey Solar Century Kent 1.4 ROCs 10.6
Capelands Juwi Renewables Devon 1.4 ROCs 8.4
Ashlawn Parabel UK Somerset 1.4 ROCs 6.7
Redlands Juwi Renewables Somerset 1.4 ROCs 6.2
Hardingham Extension Solar Century Norfolk 1.4 ROCs 5.2
Durrants REC Isle of Wight FiT 5.0
Goshawk (10x Thames
Water & 1x Adnams) British Gas Surrey/Oxfordshire/Suffolk FiT 1.2
---------------------- ----------------- ---------------------------- ----------------- ------
Total 252.7
----------------------------------------------- --------------------------------------- ------
Performance
As at 30 June 2015, the Company had an operational portfolio of
29 commissioned investments committing GBP284.6 million and
delivering an energy capacity of 252.7 MWp. Located across the
south of England and Wales, the investments are geographically
diverse, have been constructed by 10 experienced solar contractors
and contain a diverse range of proven solar technologies and
infrastructure.
Portfolio performance over the period has been assessed in two
tranches; the performance of the plants that were operational in
June 2014 and the performance of those plants acquired and
constructed during the period.
Performance of the plants owned and operational in June 2014,
excluding Betingau which is discussed in a later section, has been
strong over the 12 month period to June 2015 with both generation,
7.3%, and revenue, 5.5%, respectively ahead of budget.
Placed into context against falling power prices over the period
this out performance in revenue highlights the strong portfolio
performance and the contractual protections embedded in the project
structure.
The two operational plants acquired in October 2014, Durrants
and Goshawk, have also performed strongly with generation 8.2%
ahead and revenue 7.8% ahead of expectations.
The plants acquired and constructed in the period, namely
Ashlawn, Roves, Elms, Capelands and Redlands, have all met
expectations on revenue and generation during their initial period
of operation to 30 June 15 and in the two instances where delays in
connection occurred (Redlands and Capelands) the Company received
damages equivalent to lost revenue through the contractual
protections in place on the projects and as such there was no
overall loss in expected revenue.
The performance warranties in place on the full BSIF portfolio,
and which apply for two years from each project's provisional
acceptance date, remained in full force as at 30 June 2015 and
provide contractual entitlement to recovery of damages as a result
of operational under-performance against the contractual
performance warranty. These warranties provide significant ongoing
protections regarding non-weather related project
underperformance.
The above referenced contractual protections have been enforced
in relation to project Betingau, which experienced a serial defect
in relation to its transformers and was shut down for safety
reasons from September 2014 until February 2015. Based upon the
contractual protections full recovery was made of all lost revenues
from commissioning in March 2014 to the end of the period, June 15,
in addition to full recovery of all the costs associated with the
defect. Since the remedial work has been undertaken Betingau is
operating in line with original expectations.
When the portfolio is analysed in totality, accounting for
contributions from constructed projects in the first full month of
generation, performance against budget is 3.2% ahead and 3.9% ahead
on generation and revenue respectively.
PPA strategy
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Over the 2014/15 financial year the Company maintained its
strategy to fix the price of power sale contracts for individual
assets for periods of 12 to 18 months. Prices can be fixed up to 3
months in advance of the commencement of the fixing period.
Currently the target is to fix 25% of the portfolio within each
quarter, in order to mitigate against seasonality and short-term
events which can have an impact on the price of electricity in the
UK. The fixing period seeks to maximise potential revenues for the
Company during its current acquisition phase whilst spreading
exposure to short-term power movements across the portfolio to
avoid concentration of risk. The security of even longer term
contracts would, we believe, invariably result in the generator
sacrificing revenues for the comfort of longer term certainty,
which, on balance, the Investment Adviser believes is not the
optimal strategy for the Company at this stage. In addition,
typical long term power off-take contracts available in the energy
market provide floors but not fully fixed rates, such floors being
significantly below even the recent lower power price levels.
The PPA counterparties are selected on competitive basis but
with a clear focus on achieving diversification of counterparty
risk and creditworthiness.
Revenues and Power Price
The portfolio's revenue streams in the 2014/2015 financial year
show the sale of electricity accounts for 39% of the Company's
income. Regulated revenue from the sale of FiTs, ROCs and LECs
accounted for 61%.
Despite a drop of ca. 10% in market peak power prices recorded
over the reporting period compared to the previous 12 months, the
Company has achieved its target dividend for the year due to
out-performance on production and cost and above market power
performance from fixing strategy. The average power price achieved
through the quarterly fixing across the portfolio was GBP48.14 per
Megawatt hour ("MWh"). This compares with an average day ahead peak
price of 45.13GBP/MWh and 41.16 GBP/MWh base load calculated on an
equivalent generation profile over the same period.
Revenues and Power Price (continued)
The strong performance of the portfolio combined with the
contractual protections for the underperforming projects enabled
the company to achieve its target budget revenues despite the
backdrop of declining power prices.
The quality of the Company's portfolio and the robust nature of
revenues are to continue to underpin the Company's ability to
deliver its dividends in the coming years. This is partly due to
the majority of revenues being regulated (currently 61% but
expected to fall to 59% following termination of the LECs in the
2015 budget) and also due to the Investment Adviser having applied
a prudent power price forecast when making acquisitions.
4. Acquisitions
During the period the Company successfully completed the
acquisition of 19 additional plants through 8 acquisitions for the
total consideration of GBP139 million as set out in the table
below:
Project Contractor Region ROC banding/FiT MWp Status
--------------- --------------- --------------- ----------------- ------ ------------
Capelands Juwi Devon 1.4 ROCs 8.4 Operational
Redlands Juwi Somerset 1.4 ROCs 6.2 Operational
Durrants* REC Isle of Wight FiT 5.0 Operational
Goshawk* (10x British Gas Surrey/ FiT 1.2 Operational
Thames Water Oxfordshire/
& 1x Adnams) Suffolk
Hardingham Solar Century Norfolk 1.4 ROCs 5.2 Operational
extension
Ashlawn Parabel UK Somerset 1.4 ROCs 6.7 Operational
Rove Wirsol Wiltshire 1.4 ROCs 12.7 Operational
Elms Wirsol Oxfordshire 1.4 ROCs 29.0 Operational
West Raynham MATEL/ACS Norfolk 1.4 ROCs 49.9 Operational
Total 124.3
---------------------------------- ------------------------------ ------ ------------
*These assets were acquired together in the acquisition of
Bluefield L&P Solar Limited (see Note 19).
This expands the portfolio to 17 projects, covering 29 plants,
with a combined capacity of 252.7 MWp. Details of the acquisitions
made in the period are outlined below, all of which are 100% owned
by BSIFIL, with the exception of West Raynham, which as at 30 June
2015 was 90% owned but has a binding contract to acquire 100% of
the equity:
Capelands & Redlands, Somerset/Devon
On 25 July 2014 terms were agreed with Juwi Renewables as EPC
contractor to build two solar farms in Devon (8.4 MWp) and Somerset
(6.2 MWp) respectively. The projects became operational in March
2015 and have been accredited under the current 1.4 ROC regime. The
plants use S-Energy modules and SMA inverters and were funded
initially through the Company's GBP50 million acquisition Facility
and then latterly with the proceeds of the Placement completed in
November 2014.
Durrants, Isle of Wight
The acquisition of the 4.9 MWp plant was agreed in October 2014
as part of the purchase of Bluefield L&P Solar Limited and
included the taking over of a finance facility from Bayern LB of
GBP14.5 million. The project was acquired as an operational asset
(with a 2 year performance record) under the FiT regime. The plant
was constructed by a German contractor, REC, and uses modules from
REC and inverters from SMA and Advanced Energy. The investment was
funded through the shareholder approved issue of shares pursuant to
an October 2014 shareholder circular (see Note 19).
Goshawk, Surrey, Oxfordshire, Suffolk
The acquisition of Project Goshawk, a 1.2 MWp portfolio
consisting of 11 operating projects, was agreed in October 2014 as
part of the purchase of Bluefield L&P Solar Limited. The
projects are all registered under the FiT regime and were
constructed by British Gas. The plants use modules from Trina and
Suntech with inverters from SMA. The investment was funded through
the shareholder approved issue of shares pursuant to an October
2014 shareholder circular (see Note 19).
Hardingham Extension, Norfolk
In November 2014 terms were agreed with Solar Century as EPC
contractor to build a 5.2 MWp extension to Project Hardingham in
Norfolk. The project became operational in February 2015 and has
been accredited under the 1.4 ROC regime. The plant uses Hanwha
modules and Power One inverters and was funded with the proceeds of
the Placement completed in November 2014.
Ashlawn, Somerset
On 3 December 2014 terms were agreed with Parabel UK as EPC
contractor to build a 6.6 MWp solar farm in Somerset. The project
became operational in March 2015 and has been accredited under the
1.4 ROC regime. The plant uses Q-cell modules and Huawei inverters
and was funded with the proceeds of the Placement completed in
November 2014.
Rove, Wiltshire
On 23 December 2014 terms were agreed with Wirsol Energy as EPC
contractor to build a 12.7 MWp solar farm in Wiltshire. The project
became operational in March 2015 and has been accredited under the
1.4 ROC regime. The plant uses Astronergy modules and Advanced
Energy/Refusol string inverters and was funded with the proceeds of
the Placement completed in November 2014.
Elms, Oxfordshire
On 13 February 2015 terms were agreed with Wirsol Energy as EPC
contractor to build a 29.0 MWp solar farm in Oxfordshire. The
project became operational in March 2015 and has been accredited
under the 1.4 ROC regime. The plant uses Astronergy modules and SMA
string inverters and was funded with the proceeds of the Placement
completed in November 2014.
West Raynham, Norfolk
On 27 March 2015 terms were agreed with Trina Solar to acquire a
49.9 MWp solar farm in Norfolk. The acquisition of a 90%
shareholding was concluded on 30th June 2015 with the remaining 10%
share being under option for completion at a fixed price, and the
Company benefits from 100% of revenues generated by the plant since
its commencement of operation in March 2015; in this interim period
revenue generation exceeded expectations. The project was
constructed by MAESSA Telecomunicaciones, Ingenieria, Instalaciones
y Servicios S.A. ("MAETEL"), a subsidiary of Spanish infrastructure
multinational Grupo ACS and has been accredited under the 1.4 ROC
regime. The plant uses Trina modules and Power Electronics
inverters and has been funded with the remaining proceeds of the
Placement completed in November 2014 as well by drawings from the
RBS facility. The plant is currently the largest operational solar
PV plant in the UK.
Post year end acquisitions:
Salhouse, Norfolk
On 24 July 2015 terms were agreed with Wirsol Energy as EPC
contractor to build a 5.0 MWp solar farm in Norfolk. The project is
currently under construction and is expected to be accredited under
the 1.3 ROC regime. The plant will use REC modules and Huawei
inverters and is being funded through the RBS acquisition
facility.
Trethosa, Cornwall
On 24 July 2015 terms were agreed with Wirsol Energy as EPC
contractor to build a 4.8 MWp solar farm in Cornwall. The project
is currently under construction and is expected to be accredited
under the 1.3 ROC regime. The plant will use REC modules and Huawei
inverters and is being funded through the RBS acquisition
facility.
Projects Kite, Peregrine and Solar, Oxfordshire, Berkshire &
Northants
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On 21st August 2015 terms were agreed with private shareholders
for a 100% subsidiary of BSIFIL to acquire three solar PV portfolio
holding companies, projects Kite, Peregrine and Solar. Each project
company holds one or more operational solar PV plants located on,
and connected to, industrial sites in the UK. Purchase of 100% of
projects Kite and Peregrine completed on 21st August 2015
comprising the acquisition of 28 20-50kW plants on sites owned by
Thames Water Utilities and one 50kW plant on the site of the
Millennium Seed Bank in Wakehurst Place, part of the Kew Gardens
Trust. As Bluefield Partners LLP acted as the Investment Adviser to
the seller as well as to the Company in the transaction, and
Members or employees of Bluefield Partners LLP were both directors
of BSIFIL, the purchaser vehicle and the target companies, the
tranasaction was treated as a smaller related party transaction
under UKLA Listing Rules. On this basis a Fair and Reasonable
Opinion was sought and received from Numis Securities Limited
before signing of the transaction. The acquisition of project
Solar, a further 463kW solar PV plant in Northants has been agreed
but is pending fulfilment of certain conditions precedent prior to
completion.
Analysis of Investment Income Generation
The above described favourable performance of the portfolio has
resulted in the Company outperforming its initial targets in
respect of the income generation from its portfolio. As set out in
the table below, the Company has generated 7.72 pence per share in
the period under review, 0.72 pence per share ahead of target.
Income from Investments GBP11,005,406 See Note 4 (Investment income
GBP2.1m) and Note 10 (Interest
income GBP8.9m)
------------------------ -------------- -------------------------------------
Working Capital GBP10,163,000 Increase in working capital in
Contribution investments from GBP4.3m in 30
June 14 to GBP14.5m 30 June 15
------------------------ -------------- -------------------------------------
Total Investment GBP21,168,406
Income Generated
------------------------ -------------- -------------------------------------
Operating Costs -GBP3,817,623 See Note 5 (Admin expense GBP3.02m),
Note 7 (Finance costs GBP0.8m),
but excluding one off Transaction
costs (GBP0.6k)
------------------------ -------------- -------------------------------------
Total Income Generated GBP17,350,783
------------------------ -------------- -------------------------------------
Dividends in period Amount Pence per share Number of shares
------------------------ --------------- ---------------- -----------------
3.25p in November
2014 GBP4,900,000 3.25 150,769,230
------------------------ --------------- ---------------- -----------------
1.0p in February
2015 GBP2,784,172 1.00 278,417,224
------------------------ --------------- ---------------- -----------------
1.5p in August
2015 GBP4,176,258 1.50 278,417,224
------------------------ --------------- ---------------- -----------------
Total GBP11,860,431 5.75 278,417,224
------------------------ --------------- ---------------- -----------------
Remaining Income
Generated as at
30 June 2015 GBP5,490,352 1.97 278,417,224
------------------------ --------------- ---------------- -----------------
Total Income Generated
as at
30 June 2015 GBP17,350,783 7.72
------------------------ --------------- ---------------- -----------------
This excess income generation has been reflected in the
Director's decision to make a final interim distribution in
relation to the period bringing total distributions to 7.25 pence
per share in the period. This reflects the outperformance derived
from both positive plant performance as well as weather related
factors, while maintaining prudential reserves.
5. NAV and valuation of the Portfolio
The Investment Adviser is responsible for advising the Directors
in determining the Directors' Valuation and, when required,
carrying out the fair market valuation of the Company's
investments. As at 30 June 2015 the Directors elected to seek an
independent valuation from EY which informed the Directors'
Valuation in this period.
Valuations are carried out on a six monthly basis as at 31
December and 30 June each year and the Company has committed to
procure a review of valuations by an independent expert not less
than once every three years.
The Directors elected to procure an independent valuation for
this accounting period based upon their view that prior to and
during the accounting period the sector had faced significant
transition. More specifically, material changes to regulation,
power prices, risk free rates and investment activity in the sector
were considered to be relevant variables which justified securing
an independent assessment of market valuations.
As the portfolio comprises only non-market traded investments,
the Investment Adviser has adopted valuation guidelines based upon
the IPEV Valuation Guidelines as adopted by the European Venture
Capital Association; application of which is considered consistent
with the requirements of compliance with IAS 39 and IFRS 13.
Following the consideration of the EY valuation and consultation
with the Investment Adviser, the Directors' Valuation adopted for
the portfolio as at 30 June 2015 was GBP296.8 million compared to
GBP187.1 million as at 31 December 2014 and GBP136.1 million as at
30 June 2014.
NAV movement
The Company issued shares to the value of GBP138 million in the
period and paid total dividends of GBP10.6 million (being 2 pence
per share as second interim dividend in respect to the period
ending 30 June 2014 and 4.25 pence per share as a first and second
interim dividend in respect to the current reporting period).
Excluding these adjustment factors, the uplift in the NAV of the
Company during the period was GBP13.3 million, or 4.8%, of which
GBP8.5 million resulted from the change in fair value of
investments and GBP4.8m from the net increase in working
capital.
Whilst movements represent the impact of activity in the period
with respect to the overall NAV of the Company, within this are
items that contribute to the movement in the Directors' valuation
of the portfolio set out below.
These items are outlined below in the Portfolio valuation
movement section.
Portfolio valuation movements
The Directors' Valuation of the portfolio as at 30 June 2015 was
GBP296.8m, representing a 6.4% increase over the rebased valuation
of GBP278.9m. The Directors' Valuation compares to the EY
independent valuation range of GBP299m - GBP326m, such range which
was based upon application of a long-term RPI assumption of 3.1%
plus per annum (sourced from Oxford Economics) and a discount rate
range of 6.75% to 7.75%. The Directors, following consultation with
the Investment Adviser and a review of peer-group comparators, and
in consideration of long term as well as short term market trends,
have elected to adopt a more conservative discount rate and RPI
assumptions to those adopted in the independent valuation.
(GBPmillion) As % of
rebased
valuation
30 June 2014 Valuation 136.1
------------------------------ ------ -------------- -----------
New Investments 153.0
Cash receipts from portfolio -10.2
Rebased Valuation 278.9
------------------------------ ------ -------------- -----------
Working capital contribution 14.5 5.1%
Power Price Movement -24.1 -8.6%
Change in discount rates 7.2 2.6%
Balance of portfolio return 25.1 7.3%
30 June 2015 Valuation 296.8 6.4%
------------------------------ ------ -------------- -----------
Impact of Summer Budget 0.5 0.2%
------------------------------ ------ -------------- -----------
30 June 2015 Valuation 296.3 6.2%
------------------------------ ------ -------------- -----------
Net cash and working capital of GBP10.5 million combined with
the Directors' valuation of the investments of GBP296.8 million and
the drawings from the RBS facility of GBP18.9 million equates to
the total NAV value of GBP288.4 million.
After taking into account cash commitments and portfolio cash
distributions in the period of GBP153.0 million and -GBP10.2
million respectively, the growth over the re-based valuation of
GBP278.9 million at 30 June 2015 is 6.4%.
Each movement between the re-based valuation and the 30 June
2015 valuation is considered in turn below:
Working Capital Contribution
This increase is driven by the income built up but not
distributed to the group as at 30 June 2015.
Power Prices
The DCF analysis has been adapted to take account of changes in
energy price forecasts between the June 2014 and June 2015
valuations.
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During the period a number of power forecasters materially
reduced their wholesale power price projections. As a result, both
the power price curve and growth expectation over the 25 year asset
life have fallen and when the latest curve from a leading
forecaster was applied to the June 15 valuation of the portfolio,
the impact was a reduction in value of GBP24.1m. The independent
power forecast curve implies a solar capture PPA rate of GBP47.09
in 2015 and a constant annual growth rate of 1.43% per annum over
RPI.
The discounted cashflow for each project applies the
contractually fixed power price applicable to each solar PV asset
until the end of the fix period, and thereafter the independent
forecast price.
As per previous valuation cycles the short-term pricing within
the energy price forecast used was compared by the Investment
Adviser to PPA prices achievable in the market for its solar assets
and considered to accurately reflect the market without discount or
premium.
Change in discount rate
During the period there has been an increase in the demand for
income-producing infrastructure assets and with this an increase in
the number of market participants. As highlighted by the discount
range presented by EY in their Independent Valuation review and
supported by the experience of the Investment Adviser whilst
bidding on projects, the impact of these factors has resulted in
discount rates for the sector reducing over the period.
To accurately reflect this evolving landscape, a reduction of
0.3% in the discount rate has been applied, moving the rate from
7.8% to 7.5% and creating a positive valuation impact of GBP7.1
million.
Balance of Portfolio Return
The balance of portfolio return changes comprise:
1. Revaluation of operational assets from cost to discounted cash flow valuation;
2. Unwinding of the discount rate;
3. Adoption of revised valuation assumptions, in particular
revised O&M and performance assumptions based upon review of
warranted, expected and actual performance and the evolving market
in operation and maintenance costs.
Post Year End Events - Impact of Summer Budget
On 8 July 2015, the UK Government announced the removal of the
Climate Change Levy exemption for renewably sourced electricity
from August 2015 and a reduction in future corporation tax rates to
19% from April 2017 and 18% from April 2020.
The impact of these changes on the valuation of the portfolio as
at 30 June 2015 has been assessed and had they been effective there
would have been a reduction of GBP0.6m to the portfolio value.
Based upon assumptions made by the Investment Adviser, both the
Independent Valuation and the Directors' Valuation assumed LECs,
would only apply for 5 years from the valuation date (a shorter
period than had been assumed in previous Directors' Valuations). As
a result, the impact of the loss of LECs on the Directors'
Valuation post year end will be limited to a GBP4.1m reduction
which will be substantially offset by the application of the
reduced 18% corporation tax rate from 2020, resulting in an overall
post year end impact of only GBP0.5m on the portfolio value.
Discount Rate
In determining the discount rate to be applied for the
Directors' Valuation the Investment Adviser and the Directors took
particular note of the discount rate range and analysis provided in
the independent valuation, such range which was 6.75% to 7.75%, a
midpoint discount rate of 7.25%. In addition, consideration has
been taken to peer group discount rates stated or implied of 7.5%,
current market precedents reviewed by the Investment Adviser and a
capital asset pricing model approach to calculation of weighted
average cost of capital.
While investments with different proportions of regulatory
income, or different capital structures, may justify differentials
in discount rates to reflect different cash-flow certainty, the
assets currently held by the Group were considered to be
substantially similar in revenue profile and capital structure,
therefore not meriting any differential in discount rate. All
investments in the portfolio are located in the UK and derive
revenue from the sale of power and renewable obligation
certificates, with c.50-60% of revenue expected to be derived from
regulatory revenues linked to RPI.
Based on prevailing ten year UK gilt rates, the discount rate
adopted by Directors is based on a risk free rate of 2.0% plus a
market risk premium of 5.5%.
As such, after reviewing the analysis presented by the
Investment Adviser, the Board confirmed and have adopted the
discount rate of 7.5%, representing a reduction to the discount
rate as applied in the period to 30 June 2014 (7.8%).
The principal factors taken into consideration in determining a
discount rate of 7.5% were: (i) comparative analysis of transaction
pricing for pre- and post-construction solar assets; (ii) review of
published return targets of the listed renewable energy funds;
(iii) review of the conclusions of independent valuations of solar
assets; and (iv) the Investment Adviser's market experience in
bidding for UK solar assets under tender. In accordance with the
capital asset pricing model, the selected rate has been applied to
discount the unleveraged project cash-flows net of taxation
(exclusive of any tax shield). It is also important to note that
this discount rate has been applied on the basis of the Investment
Adviser's long term inflation assumption of 2.5%.
Valuation Sensitivities
In order to clearly analyse the impact variances in key
valuation assumptions have on the valuation of the portfolio the
following sensitivity analysis has been performed:
Discount Rate
At 30 June 2015, all of the operational investments within the
portfolio have been valued with DCF methodology on the basis of a
discount rate of 7.5%.
The analysis below shows the impact on valuation of increasing
or decreasing this rate by 0.5%.
Discount Rate -0.5% Base: 7.5% +0.5%
-------------------------------- ----------------- ----------------- -----------------
Impact on Directors' valuation +GBP12.1 million GBP296.8 million -GBP11.8 million
-------------------------------- ----------------- ----------------- -----------------
Implied change in NAV per
Ordinary Share +4.3p 103.6p -4.2p
-------------------------------- ----------------- ----------------- -----------------
Inflation Rate
Consistent with the Investment Adviser's financial analysis
presented to investors at IPO, the Company has assumed an RPI
inflation rate of 2.5% per annum flat for the full 25 year life of
the DCF.
The sensitivity table below illustrates the impact an increase
or decrease of 0.25% from the assumed annual inflation rates has on
the valuation of the portfolio.
It is notable that a number of competing infrastructure and
renewable energy funds apply a higher inflation assumption
(typically 2.75%). A like-for-like analysis with a higher inflation
rate assumption should be expected to be made on the basis of a
higher discount rate, offsetting the valuation impact of the
inflation assumption. If the Company had applied an inflation rate
of 2.75% as commonly adopted, the resulting valuation of the
Company would be GBP297.8 million or 105.8 pence per share, 2.1
pence above its current valuation.
Inflation Rate -0.25% Base: 2.5% +0.25%
-------------------------------- ---------------- ----------------- ----------------
Impact on Directors' valuation -GBP5.8 million GBP296.8 million +GBP6.0 million
-------------------------------- ---------------- ----------------- ----------------
Implied change in NAV per
Ordinary Share -2.1p 103.6p +2.1p
-------------------------------- ---------------- ----------------- ----------------
Power Price
The DCF valuation is based upon a power price forecast prepared
by a leading forecaster. The Investment Adviser reviewed a number
of power price forecast options including valuing on the basis of
zero real energy price inflation or applying forecasts provided by
alternative forecast providers.
It is notable that the forecast builds in a 'solar capture' rate
reflecting the higher proportion of solar generation in peak hours,
as well as a balancing cost discount which rises over the life of
the forecast. The CAGR implied by the power price forecast over the
25 year assumed asset life is 1.43% in real terms. When evaluating
the power forecast impact on NAV the real annual increase in power
price on a straight line basis which would give rise to an
equivalent NAV impact is 2.32%. This compares to a rate of 2.68%
applied in June 2014.
The sensitivity below considers a flat 10% movement in power
prices across the life of the projects.
Power Price -10% Base: 0% +10%
-------------------------------- ----------------- ----------------- -----------------
Impact on Directors' valuation -GBP15.3 million GBP296.8 million +GBP15.3 million
-------------------------------- ----------------- ----------------- -----------------
Implied change in NAV per
Ordinary Share -5.5p 102.5p +5.5p
-------------------------------- ----------------- ----------------- -----------------
Energy Yield
The energy yield of a solar PV asset is derived from three
factors: (i) the irradiation captured by the power plant; (ii) the
ratio at which the power plant converts irradiation to energy, the
so called 'Performance Ratio'; and (iii) the availability of the
power plant (days per year).
In determining the yield assumption the Investment Adviser has
taken due consideration of warranted performance levels under
construction contracts, technical adviser opinion on design
performance levels and actual performance of the portfolio to
date.
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It is notable that solar energy yields have relatively low
energy yield variance compared to other sectors, such as wind, due
to the proportionately lower volatility of irradiation, which is
based on largely predictable daylight hours, rather than variable
weather patterns.
The sensitivity below applies the impact of the P90/P10
scenarios on the valuation of the portfolio and movement in NAV per
share.
Energy Yield P90 (10 year) Base: (P50)
P10 (10 year)
-------------------------------- ----------------- ------------ -----------------
Impact on Directors' valuation -GBP26.1 million GBP296.8 +GBP26.0 million
million
-------------------------------- ----------------- ------------ -----------------
Implied change in NAV per
Ordinary Share -9.4p 103.6p +9.4p
-------------------------------- ----------------- ------------ -----------------
Tax rate changes at project company level
The sensitivity illustrates the effect of a 5% increase and a 5%
decrease in the prevailing tax rate of 20%, assuming in each case
that the change occurs from 1 July 2015 and remains constant over
the life of the project.
Analysing the impact of the reduced 18% tax rate from 2020, the
value of the portfolio increases by GBP3.6m
Tax Rate -5% Base (20%) +5%
-------------------------------- ---------------- ----------- ----------------
Impact on Directors' valuation +GBP9.6 million GBP296.8 -GBP9.6 million
million
-------------------------------- ---------------- ----------- ----------------
Implied change in NAV per
Ordinary Share +3.5p 102.5p -3.5p
-------------------------------- ---------------- ----------- ----------------
Operating costs at project company level
The sensitivity illustrates the effect of a 10% increase and a
10% decrease in annual operating costs for the portfolio, assuming
in each case that the change occurs from 1 July 2015 and remains
constant over the life of the project.
Operating Costs -10% Base +10%
-------------------------------- ---------------- --------- ----------------
Impact on Directors' valuation +GBP6.7 million GBP296.8 -GBP6.7 million
million
-------------------------------- ---------------- --------- ----------------
Implied change in NAV per
Ordinary Share +2.4p 103.6p -2.4p
-------------------------------- ---------------- --------- ----------------
Other Assumptions
A number of other assumptions, while not separately analysed
here, should be taken into consideration:
- Investment cash-flows are for 25 years with a zero terminal
value. Planning permission for projects is typically granted for an
initial 25 years subject to re-application at the end of the
period, but leases typically benefit from extension options, giving
rise to the potential for a longer operational life, which has not
been taken into account in the Directors' Valuation; and
- Although in June 2014 the Company secured debt financing to
fund further build-out of the Group's portfolio, the Investment
Adviser has not taken into account any potential valuation benefits
which may be derived from financial structuring in the future of
the Company.
The assumptions set out in this section will remain subject to
review by the Investment Adviser and the Directors and may give
rise to a revision of valuation approach in future reports.
The following diagram reviews the sensitivity of the closing
valuation to the key assumptions underlying the discounted
cash-flow valuation.
6. Financing
On 11 June 2014, the Group entered into an agreement with RBS
for the provision of an acquisition facility of up to GBP50
million. The Facility has a margin of 2.25% over LIBOR and is due
to expire on 10 June 2017.
A balance of GBP18,900,000 was drawn down at year-end.
7. Market Developments
The UK market has developed from a few hundred megawatts of
energy capacity two years ago, to the largest market for new
installations of large scale solar in Europe. The first quarter of
2015 alone saw an estimated 2GWp of new installed capacity,
primarily coming via large scale ground-based installations. To put
this in context, the growth in this three month period was more
than double the total installed capacity of the market in the first
three years of its existence (2010-2013). This has had a number of
impacts: first, the Investment Adviser has been able to review and
select opportunities from a large pool of primary assets; second,
the market is now seeing secondary operational assets and
portfolios coming to the market; and third, this strong growth has
resulted in a further a consultation as the Government seeks to
moderate demand. This Consultation is expected to result in a
continued high volume of transactions as the market seeks to
install new capacity prior to any changes to the regulation.
Regulation
The recent changes to the regulatory landscape have not achieved
the balanced growth across all the major investment sectors,
domestic, commercial and industrial and agriculturally situated.
Overwhelmingly, the growth has been driven by ground based
installations.
Contracts for Difference
The inaugural CfD bid process was delayed from December 2014 to
February 2015. Contracts were originally expected to be awarded in
January 2015, however the sealed bid window only closed on 4
February 2015. Only 5 solar projects were awarded CfDs for 2015 and
the rate awarded was widely considered to be uneconomic.
Rooftop
In July 2014, DECC announced its ambition to see the rooftop
solar market grow from the current low installed capacity to 11-12
GWp by 2020, creating a potential major new investment market. The
single biggest part of this market is expected to be the industrial
and commercial market, an investment area pioneered by the
Investment Adviser in the early days of the UK market. In respect
of unlocking this huge potential, DECC launched a consultation on
25 November 2014, seeking views on whether medium and large rooftop
solar installations could be moved without the loss of FiT
payments. The consultation closed on 5 January 2015, and the
results are yet to be announced. DECC also announced an amendment
to the definition of building-mounted solar under the FiT to
require that the building must use 10% of the electricity
generated. The Investment Adviser is actively supporting this
initiative and engaging with DECC.
Grace Period
At the same time as the launch of the rooftop consultation, DECC
released the results of a previous consultation on the introduction
of a grid delay grace period for projects qualifying for the RO
Scheme Obligation, with DECC deciding in favour of the introduction
of a 12 month grace period for projects greater than 5 MWp which
have a DNO confirmed connection date before 31 March 2016.
8. Regulatory Environment
The regulatory environment for new built assets in 2016 remains
uncertain as the Government again consults on how to regulate the
supply and demand of solar installations. In many ways, solar PV is
a victim of its own success having grown at a faster rate than
many, including the Government, were forecasting. And the direction
of travel is clear. The Government is seeking to reduce the amount
of large ground based solar PV farms with its current consultation,
something that could be seen as highly predictable due to the
recent growth. That said, this should not be confused with an
increased risk associated with existing capacity and retroactive
regulatory change. It remains the view of the investment adviser
that the UK remains a lower risk market in respect of regulatory
and political risk relative to most others and that the risk
weighted returns achievable today remain highly attractive to yield
investors.
Historic Trends
Latest figures released by the Department of Energy &
Climate Change (DECC) show that overall UK solar PV capacity stood
at 7,872 MW across 738,925 installations as of the end of July
2015. Installed capacity rose by 76% (3,388 MW) in the past twelve
months. The total number of installations has increased by 26.3%
(153,927) since the end of July 2014. Capacity accredited under the
Renewables Obligation stood at 3,630 MW across 13,028
installations. This represents 46% of total solar capacity, and 2%
of all installations. Capacity eligible for Feed in Tariffs (FITs,
i.e. MCS, ROO-FIT and RO to FIT transfers) stood at 3,206 MW across
723,568 installations. This represents 41% of total solar capacity,
and 98% of all installations. Other (unaccredited) solar capacity
stood at 1,037 MW, representing 13% of total solar deployment.
Future Trends
Similar to DECC's 2014 RO policy changes, the recent cuts
announced are expected to lead to a rush in installation of solar
PV plants in the lead up to deadline. According to latest figures
released in August 2014 by Solar Intelligence, the UK's pipeline of
large-scale solar farms (>250kW) has now grown to 3.3GW. This
represents new capacity expected to be fully commissioned and
accredited by 31st March 2016.
The surge of new installations presents a healthy pipeline for
the Investment Adviser to source potential acquisitions. By 31st
March 2016, it is forecast that the UK's solar PV capacity will
exceed 10GW mark. Recently, secondary operational assets and
portfolios have come to the market which historically has been
dominated by primary assets. The predicted growth of the UK's Solar
PV capacity to 10GW is also expected to contribute to a healthy
secondary market in the years to come as short term investors and
developers look to realise value by selling their portfolios.
Post-June update
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Since period end, the Company has made the following
commitments:
The Company has announced that it has entered into binding
contracts to acquire two UK-based sub-5MWp solar PV assets. The two
assets are a 4.79 MWp plant in Cornwall and a 4.98MWp plant in
Norfolk. They are being acquired for a total consideration of
GBP11.22 million, including transaction costs and working capital
and have been funded through use of the Company's acquisition
facility. Each project is eligible to qualify under either the
Renewable Obligation Certificate or Feed-in-Tariff regimes and will
not be impacted by the recently announced consultations on changes
to financial support for solar PV and changes to FIT accreditation
from DECC. The plants are expected to be grid connected in Quarter
4, 2015.
In addition, the company has also announced that it has entered
into binding contracts to acquire three solar assets: Bluefield EIS
Solar Limited, Bluefield Kite Limited and Bluefield Peregrine
Limited, which between them own and operate 28 solar PV plants. The
plants, each built and commissioned prior to the end of Q1 2012,
have over three years of operational record. The total
consideration to be paid for the Assets is GBP5.95 million and also
have been funded through use of the Company's acquisition
facility.
Bluefield Partners LLP
30 September 2015
Report of the Directors
The Directors hereby submit the annual report and consolidated
financial statements of the Group for the year ended 30 June
2015.
General Information
The Company is a non-cellular company limited by shares
incorporated in Guernsey under the Companies (Guernsey) Law, 2008
on 29 May 2013. The Company's registration number is 56708, and it
has been registered and is regulated by the GFSC as a registered
closed-ended collective investment scheme. The Company's Ordinary
Shares were admitted to the Premium Segment of the Official List
and to trading on the Main Market of the London Stock Exchange as
part of its initial public offering which completed on 12 July
2013.
Principal Activities
The principal activity of the Group is to invest in a portfolio
of large scale UK based solar energy infrastructure assets.
The Company's objective was to target a dividend of 7 pence per
Ordinary Share in respect of its second financial year ended 30
June 2015, with the intention of the dividend rising annually in
line with UK RPI thereafter.
Business Review
A review of the Group's business and its likely future
development is provided in the Chairman's Statement, Strategic
Report and in the Report of the Investment Adviser.
Listing Requirements
The Company has complied with the applicable Listing Rules
throughout the year.
Results and Dividends
The results for the period are set out in the consolidated
financial statements below.
On 8 September 2014, the Board declared a second interim
dividend of GBP2,868,534, in respect of the year ending 30 June
2014, equating to 2 pence per Ordinary Share, which was paid on 31
October 2014 to shareholders on the register on 19 September
2014.
In conjunction with the placings, as disclosed in Note 16, the
Board had considered the timing of the Company's dividends with the
objective of ensuring that any issue of new shares would not be
dilutive to the dividend attributable to existing ordinary
shareholders. As such, the Board decided to bring forward the
declaration and payment dates of the first interim dividend in
respect of the year to 30 June 2015. As a result, on 3 November
2014 the Board declared the first interim dividend of GBP4,904,809,
equating to 3.25 pence per Ordinary Share (first interim dividend
in respect of the year ending 30 June 2014: 2 pence per Ordinary
Share), which was paid on 5 December 2014 to shareholders on the
register on 14 November 2014.
On 6 May 2015, the Board declared a second interim dividend of
GBP2,784,172, in respect of the year ending 30 June 2015, equating
to 1 penny per Ordinary Share (second interim dividend in respect
of the year ending 30 June 2014: 2 pence per Ordinary Share), which
was paid on 15 May 2015 to shareholders on the register on 8 May
2015.
Post year end, on 28 July 2015, the Board declared a third
interim dividend of GBP4,176,258, in respect of year ending 30 June
2015, equating to 1.5 pence per Ordinary Share (third interim
dividend in respect of the period ending 30 June 2014: Nil), which
was paid on 21 August 2015 to shareholders on the register on 6
August 2015.
Post year end, on 30 September 2015, the Board approved a fourth
interim dividend of 1.50 pence per Ordinary Share, in respect of
year ending 30 June 2015 (fourth interim dividend in respect of the
period ending 30 June 2014: Nil), which is to be paid on 9 October
2015 to shareholders on the register on 8 October 2015.
Share Capital
Three tranches of shares were issued during the year.
On 9 October 2014, the Company issued 7,490,540 new Ordinary
Shares as partial consideration for the acquisition of Bluefield
L&P Solar Limited. These shares were issued at a price of
GBP1.03143 per Ordinary Share, raising total gross proceeds of
GBP7,725,956.
On 14 November 2014, the Company issued 120,000,000 new Ordinary
Shares following a placing subsequent to the authority granted by
the shareholders at the EGM held on 1 October 2014. These shares
were issued at a price of GBP1.025 per Ordinary Share, raising
gross proceeds of GBP123,000,000.
On 25 November 2014, the Company issued 7,500,000 new Ordinary
Shares following a placing subsequent to the authority granted by
the shareholders at the EGM held on 1 October 2014. These shares
were issued at a price of GBP1.025 per Ordinary Share, raising
gross proceeds of GBP7,687,500.
The Company has one class of Ordinary Shares. The issued nominal
value of the Ordinary Shares represents 100% of the total issued
nominal value of all share capital. Under the Company's Articles,
on a show of hands, each Shareholder present in person or by proxy
has the right to one vote at general meetings. On a poll, each
Shareholder is entitled to one vote for every share held.
Shareholders are entitled to all dividends paid by the Company
and, on a winding up, providing the Company has satisfied all of
its liabilities, the shareholders are entitled to all of the
surplus assets of the Company. The Ordinary Shares have no right to
fixed income.
Shareholdings of the Directors
The Directors of the Company and their beneficial interests in
the shares of the Company as at 30 June 2015 are detailed
below:
Director Ordinary Shares % holding at Ordinary % holding
of GBP1 each 30 June 2015 Shares of at
held 30 June GBP1 each 30 June 2014
2015 held 30 June
2014
------------------ -------------------------------- -------------- -------------- --------------
John Rennocks* 255,805 0.09 155,000 0.11
John Scott 276,176 0.10 201,176 0.14
Paul Le Page 70,000 0.03 70,000 0.05
Laurence McNairn 441,764 0.16 91,764 0.06
------------------ -------------------------------- -------------- -------------- --------------
*held jointly with spouse and daughter
There have been no changes to the Directors' shareholdings since
30 June 2015.
Directors' Authority to Buy Back Shares
The Directors believe that the most effective means of
minimising any discount to NAV which may arise on the Company's
share price is to deliver strong, consistent performance from the
Company's investment portfolio in both absolute and relative terms.
However, the Board recognises that wider market conditions and
other considerations will affect the rating of the Ordinary Shares
in the short term and the Board may seek to limit the level and
volatility of any discount to NAV at which the Ordinary Shares may
trade. The means by which this might be done could include the
Company repurchasing its Ordinary Shares. Therefore, subject to the
requirements of the Listing Rules, the Law, the Articles and other
applicable legislation, the Company may purchase Ordinary Shares in
the market in order to address any imbalance between the supply of
and demand for Ordinary Shares or to enhance the NAV of Ordinary
Shares.
In deciding whether to make any such purchases the Directors
will have regard to what they believe to be in the best interests
of shareholders and to the applicable Guernsey legal requirements
which require the Directors to be satisfied on reasonable grounds
that the Company will, immediately after any such repurchase,
satisfy a solvency test prescribed by the Law and any other
requirements in its Articles. The making and timing of any buybacks
will be at the absolute discretion of the Board and not at the
option of the shareholders. Any such repurchases would only be made
through the market for cash at a discount to NAV.
On incorporation the Company passed a written resolution
granting the Directors general authority to purchase in the market
up to 14.99% of the Ordinary Shares in issue immediately following
Admission at a price not exceeding the higher of (i) 5% above the
average mid-market values of Ordinary Shares for the five Business
Days before the purchase is made or (ii) the higher of the last
independent trade or the highest current independent bid for
Ordinary Shares. Renewal of this authority was unanimously granted
by the shareholders at the AGM held on 17 October 2014 and the
Directors intend to seek renewal of this authority from the
shareholders at the next AGM.
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Pursuant to this authority, and subject to the Law and the
discretion of the Directors, the Company may purchase Ordinary
Shares in the market on an on-going basis with a view to addressing
any imbalance between the supply of and demand for Ordinary
Shares.
Ordinary Shares purchased by the Company may be cancelled or
held as treasury shares. The Company may borrow and/or realise
investments in order to finance such Ordinary Share purchases.
The Company did not purchase any Ordinary Shares for treasury or
cancellation during the period.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of directors' and
officers' liability in relation to their acts on behalf of the
Company. Insurance is in place, having been renewed on 14 August
2015.
Substantial Shareholdings
As at 24 September 2015, the Company had been notified, in
accordance with chapter 5 of the Disclosure and Transparency Rules,
of the following substantial voting rights over 3% as shareholders
of the Company.
Shareholder Shareholding % Holding
--------------------------------------- ------------- ----------
The Bank of New York (Nominees)
Limited 38,894,945 13.97%
BNY (OCS) Nominees Limited 23,757,250 8.53%
Nutraco Nominees Limited UK REITs
Account 16,649,695 5.98%
Aurum Nominees C012471 Limited 16,196,651 5.82%
Nortrust Nominees Limited TDS Account 15,134,070 5.44%
HSBC Global Custody Nominee (UK)
Ltd 813764 Acct 11,438,923 4.11%
Nortrust Nominees Limited 10,644,759 3.82%
BNY (OCS) Nominees Limited REITs
Account 10,163,900 3.65%
HSBC Global Custody Nominee (UK)
Ltd 830952 Acct 8,669,517 3.11%
--------------------------------------- ------------- ----------
The Directors confirm that there are no securities in issue that
carry special rights with regards to the control of the Company.
There have been no changes that have been notified to the Company
with respect to the substantial shareholdings since 30 June
2015.
Independent Auditor
KPMG has been the Company's external Auditor since the Company's
incorporation. A resolution will be proposed at the forthcoming AGM
to re-appoint them as Auditor and authorise the Directors to
determine the Auditor's remuneration for the ensuing year.
The Audit Committee will periodically review the appointment of
KPMG and the Board recommends their appointment. Further
information on the work of the Auditor is set out in the Report of
the Audit Committee below.
Articles of Incorporation
The Company's Articles may be amended only by special resolution
of the shareholders.
Going Concern
At 30 June 2015, the Company had invested in 17 solar projects,
covering 29 solar plants, through the full commitment of the IPO
proceeds and the use of the additional GBP127.5 million raised
through a subsequent share issue. Further to this, all of the
seventeen solar projects were completed and were in operation by 30
June 2015. This resulted in a cash balance of GBP13,273,476 and net
assets of GBP288,390,867 as at 30 June 2015. During the period, the
Company had also entered into a GBP50 million revolving loan
facility of which GBP18,900,000 had been drawn down as at 30 June
2015 leaving GBP31,100,000 available. These resources, together
with the net income generated by the acquired projects are expected
to allow the Company to meet its liquidity needs for the payment of
operational expenses, dividends and acquisition of new solar
assets. The Company expects to continue to comply with the
covenants of its revolving loan facility.
The Directors in their consideration of going concern, have
reviewed comprehensive cash-flow forecasts prepared by the
Investment Adviser, future projects in the pipeline and the
performances of the current solar plants in operation and, at the
time of approving the consolidated financial statements, have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future and do not consider there to be any threat to the going
concern status of the Group. The Directors have concluded that it
is appropriate to adopt the going concern basis of accounting in
preparing the consolidated financial statements.
Fair, Balanced and Understandable
The Board has considered whether the Annual Report is fair,
balanced and understandable, taking into account the commentary and
tone and whether it includes the requisite information needed for
shareholders to assess the Company's business model, performance
and strategy. In addition the Board also questioned the Investment
Adviser on information included and excluded from the Annual
Report, and considered whether the narrative at the front of the
report is consistent with the financial statements. As a result of
this work, each of the Board members considers that the Annual
Report is fair, balanced and understandable and includes the
requisite information needed for shareholders to assess the
Company's business model, performance and strategy.
Financial Risks Management Policies and Procedures
Financial Risks Management Policies and Procedures are disclosed
in Note 18.
Principal Risk and Uncertainties
Principal Risk and Uncertainties are discussed in the Strategic
Report above.
Subsequent Events
On 8 July 2015 the Chancellor of the Exchequer, in the Summer
Budget, announced the removal of the exemption for renewably
sourced electricity from the Climate Change Levy from which many
renewables projects in the UK benefit by way of the sale of Levy
Exemption Certificates. This is effective from 1 August 2015. The
Budget also proposed future reductions in UK corporation tax. The
impact of these changes are discussed in the Investment Adviser's
Report.
On 28 July 2015 the Board declared a third interim dividend of
GBP4,176,258, in respect of year ending 30 June 2015, equating to
1.5 pence per Ordinary Share, which was paid on 21 August 2015 to
shareholders on the register as at 6 August 2015.
Also on 28 July 2015 the Group entered into binding contracts to
acquire two UK-based sub-5MWp solar photovoltaic assets. The two
assets are a 4.79 MWp plant in Cornwall and a 4.98MWp plant in
Norfolk. They are being acquired for a total consideration of
GBP11.22 million.
As disclosed in Note 19, related party transactions and
Directors' remuneration, on 24 August 2015 the Group entered into
binding contracts to acquire three UK-based solar photovoltaic
assets. The three assets are a 463 KWp rooftop installation in
Northamptonshire, a portfolio of 9 plants in south and west London
with a total capacity of 430 KWp and a portfolio of 19 plants in
Oxfordshire, Gloucestershire and Wakefield place with a total
capacity of 824 KWp. The total consideration committed for the
assets was GBP5.95 million.
On 30 September 2015 the Board approved a fourth interim
dividend of 1.50 pence per Ordinary Share which will be payable to
shareholders on the register as at 9 October 2015 with an
associated ex-dividend date of 8 October 2015. Payment of this
additional dividend triggers a variable fee payable to the
Investment Adviser post year end.
Annual General Meeting
The AGM of the Company will be held on 17 November 2015 at
Lefebvre Place, Lefebvre Street, St Peter Port, Guernsey. Details
of the resolutions to be proposed at the AGM, together with
explanations, will appear in the Notice of Meeting to be
distributed to shareholders together with this Annual Report.
Members of the Board will be in attendance at the AGM and will
be available to answer shareholder questions.
By order of the Board
John Rennocks
Chairman
30 September 2015
Board of Directors
John Rennocks (Chairman)
John Rennocks is a non-executive deputy chairman of Inmarsat plc
and a non-executive director of Greenko Group plc, a developer and
operator of hydro and wind power plants in India. He has broad
experience in emerging energy sources, support services and
manufacturing. Mr Rennocks previously served as a non-executive
director of Foreign & Colonial Investment Trust plc, as well as
several other public and private companies, and as Executive
Director-Finance for Smith & Nephew plc, Powergen plc and
British Steel plc/Corus Group plc. Mr Rennocks is a Fellow of the
Institute of Chartered Accountants of England and Wales.
John Scott (Senior Independent Director)
John Scott is a former investment banker who spent 20 years with
Lazard and is currently a director of several investment trusts. Mr
Scott has been Chairman of Scottish Mortgage Investment Trust PLC
since December 2009 and Chairman of Impax Environmental Markets plc
since May 2014; he has also been Chairman of Alpha Insurance
Analysts since April 2013. Until the company's sale in March 2013,
he was Deputy Chairman of Endace Ltd. of New Zealand and in
November 2012 he retired after 12 years as a non-executive director
of Miller Insurance. He has an MA in Economics from Cambridge
University and an MBA from INSEAD; he is also a Fellow of the CII
and of the CISI.
Paul Le Page (Chairman of the Audit Committee)
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Paul Le Page is a director of FRM Investment Management Guernsey
Limited, a subsidiary of Man Group plc and Man Fund Management
Guernsey Limited. He is responsible for managing hedge fund
portfolios, and is a director of a number of FRM funds. Mr Le Page
is currently Audit Committee Chairman for UK Mortgages Limited and
was formerly a Director of, and Audit Committee Chairman for,
Cazenove Absolute Equity Limited and Thames River Multi Hedge PCC
Limited. He has extensive knowledge of, and experience in, the fund
management and the hedge fund industry. Prior to joining FRM, he
was an Associate Director at Collins Stewart Asset Management from
January 1999 to July 2005, where he was responsible for managing
the firm's hedge fund portfolios and reviewing fund managers. He
joined Collins Stewart in January 1999 where he completed his MBA
in July 1999. He originally qualified as a Chartered Electrical
Engineer after a 12-year career in industrial research and
development, latterly as the Research and Development Director for
Dynex Technologies (Guernsey) Limited, having graduated from
University College London in Electrical and Electronic Engineering
in 1987.
Laurence McNairn
Laurence McNairn was appointed as a non-executive director of
the Company on 1 July 2013 and is a member of The Institute of
Chartered Accountants of Scotland. He is an executive director of
Heritage International Fund Managers Limited, the Company's
Administrator and Secretary. He joined the Heritage Group in 2006
and prior to this worked for the Baring Financial Services Group in
Guernsey from 1990.
Directors' Statement of Responsibilities
The Directors are responsible for preparing the annual report
and consolidated financial statements in accordance with applicable
law and regulations.
The Law requires the Directors to prepare financial statements
for each financial year. Under the Listing Rules, the Directors
have elected to prepare the financial statements in accordance with
IFRS. Under the 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 Group and of the profit or loss
of the Group for that period. In preparing these consolidated
financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume
that the Group will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the consolidated financial
statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time, the
financial position of the Group and enable them to ensure that the
consolidated financial statements comply with the Law. They are
also responsible for safeguarding the assets of the Group and
Company and hence for taking reasonable steps for the prevention
and detection of fraud, error and non-compliance with law and
regulations.
So far as each Director is aware, there is no relevant audit
information of which the Company's Auditor is unaware, and each
Director has taken all the steps that he ought to have taken as a
Director in order to make himself aware of any relevant audit
information and to establish that the Company's Auditor is aware of
that information. This confirmation is given and should be
interpreted in accordance with the provisions of section 249 of the
Law (as amended).
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
By order of the Board
Paul Le Page Laurence McNairn
Director Director
30 September 2015 30 September 2015
Responsibility Statement of the Directors in Respect of the
Annual Report
Each of the Directors, whose names are set out in the Report of
the Directors section of the annual report, confirms that to the
best of their knowledge that:
-- the consolidated financial statements, prepared in accordance
with IFRS, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and its
subsidiary included in the consolidation taken as a whole;
-- the Management Report (comprising Chairman's Statement,
Strategic Report and Report of the Investment Adviser) includes a
fair review of the development and performance of the business and
the position of the Company and its subsidiary included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties faced above; and
The Directors are responsible for preparing the annual report in
accordance with applicable law and regulations. Having taken advice
from the Audit Committee, the Directors consider the annual report
and consolidated financial statements, taken as a whole, as fair,
balanced and understandable and that it provides the information
necessary for shareholders to assess the Group's performance,
business model and strategy.
By order of the Board
Paul Le Page Laurence McNairn
Director Director
30 September 2015 30 September 2015
Corporate Governance Report
The Directors recognise the importance of sound corporate
governance, particularly the requirements of the AIC Code.
The Company has been a member of the AIC since 15 July 2013. The
Directors have considered the principles and recommendations of the
AIC Code by reference to the AIC Guide. The AIC Code, as explained
by the AIC Guide, provides a 'comply or explain' code of corporate
governance and addresses all the principles set out in the UK Code
as well as setting out additional principles and recommendations on
issues that are of specific relevance to investment companies such
as the Company. The Board considers that reporting against the
principles and recommendations of the AIC Code, and by reference to
the AIC Guide (which incorporates the UK Code), provides better
information to shareholders.
The GFSC issued a Guernsey Code which came into effect on 1
January 2012. The introduction to the Guernsey Code states that
"Companies which report against the UK Code or the AIC Code of
Corporate Governance are also deemed to meet this Code". Therefore,
AIC members which are Guernsey-domiciled and which report against
the AIC Code are not required to report separately against the
Guernsey Code.
The AIC Code and AIC Guide are available on the AIC's website
(www.theaic.co.uk). The UK Code is available from the FRC's website
(www.frc.org.uk).
Throughout the year ended 30 June 2015, the Company has complied
with the recommendations of the AIC Code and the provisions of the
UK Code, except to the extent highlighted below.
Provision A.2.1 of the UK Code requires a chief executive to be
appointed, however, as an investment company, the Company has no
employees and therefore has no requirement for a chief executive.
As all the Directors including the Chairman are non-executive and
independent of the Investment Adviser, the Company has not
established a nomination committee, remuneration committee or a
management engagement committee, which is not in accordance with
provisions B.2.1 and D.2.1 of the UK Code, and Principle 5 of the
AIC Code respectively. The Board is satisfied that as a whole, any
relevant issues can be properly considered by the Board. The
absence of an internal audit function is discussed in the Report of
the Audit Committee.
The Board monitors developments in corporate governance to
ensure the Board remains aligned with best practice, especially
with respect to the increased focus on diversity. The Board
acknowledges the importance of diversity, including gender (as
stated in Principle 6 of the AIC Code), for the effective
functioning of the Board and commits to supporting diversity in the
boardroom. It is the Board's on-going aspiration to have a
well-diversified representation. The Board also values diversity of
business skills and experience because Directors with diverse skill
sets, capabilities and experience gained from different
geographical and professional backgrounds enhance the Board by
bringing a wide range of perspectives to the Company. The Board is
satisfied with the current composition and functioning of its
members.
The Board
The Directors' details are listed on above which set out the
range of investment, financial and business skills and experience
represented.
John Rennocks, John Scott and Paul Le Page were appointed on 12
June 2013 and Laurence McNairn was appointed 1 July 2013. The Board
appointed John Scott as Senior Independent Director effective from
10 December 2013 to fulfil any function that is deemed
inappropriate for the Chairman to perform.
All Directors shall retire and submit themselves for election at
the next AGM of the Company, due to take place on 17 November 2015.
The Company's Articles specify that each Director shall retire and
seek re-election at each subsequent AGM of the Company at least
every three years. However, in accordance with corporate governance
best practice, all Directors are to be re-elected annually.
Any Director who is elected or re-elected at that meeting is
treated as continuing in office throughout. If he is not elected or
re-elected, he shall retain office until the end of the meeting or
(if earlier) when a resolution is passed to appoint someone in his
place or when a resolution to elect or re-elect the Director is put
to the meeting and lost.
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The Board are of the opinion that members should be re-elected
because they believe that they have the right skills and experience
to continue to serve the Company. As recommended in Principle 4 of
the AIC Code, the Board has considered the need for a policy
regarding tenure of service. However, the Board believes that any
decisions regarding tenure should consider the need for maintaining
knowledge, experience and independence, and to balance this against
the need to periodically freshen the Board composition in order to
have the appropriate mix of skills, experience, age and length of
service.
The Board intends to meet at least four times a year in Guernsey
with unscheduled meetings held where required to consider
investment related or other issues. In addition, there is regular
contact between the Board, the Investment Adviser and the
Administrator. Furthermore, the Board requires to be supplied in a
timely manner with information by the Investment Adviser, the
Company Secretary and other advisers in a form and of a quality
appropriate to enable it to discharge its duties.
The Company has adopted a share dealing code for the Board and
will seek to ensure compliance by the Board and relevant personnel
of the Investment Adviser with the terms of the share dealing
code.
Directors' Remuneration
The Chairman is entitled to an annual remuneration of GBP55,000,
with effect from 12 June 2015 (2014: GBP50,000). The other
Directors are entitled to an annual remuneration of GBP33,000, with
effect from 12 June 2015 for Paul Le Page and John Scott and with
effect from 1 July 2015 for Laurence McNairn (2014: GBP30,000).
Paul Le Page receives an additional annual fee of GBP5,500, with
effect from 12 June 2015 (2014: GBP5,000) for acting as Chairman of
the Audit Committee. The Board will review all Directors'
remuneration annually.
The remuneration earned by each Director in the past two
financial periods was as follows:
Director 2015 2014
GBP GBP
------------------ ------- -------
John Rennocks 50,260 52,603
John Scott 30,157 31,561
Paul Le Page 35,182 36,822
Laurence McNairn 30,000 30,000
------------------ ------- -------
The Directors elected to receive their Directors' fees for the
first two years through an issue of Ordinary Shares, which were
allotted and issued at the initial issue price. The value of this
non-cash consideration is equivalent to the aggregate cash payment
that otherwise would have been made to the Directors for the
provision of their services in accordance with the terms of their
respective appointment letters.
As a result, on 12 July 2013, the Company issued a total of
290,000 Ordinary Shares as part of the IPO at the issue price of
GBP1 per Ordinary Share, to the Directors in lieu of a cash payment
for Directors' fees for the first two years. The total Directors'
fees expense for the year amounted to GBP145,599 (2014: GBP150,986)
with no prepaid element at the year end (2014: 139,014). The
prepaid element of the Directors' fees, spread over two years,
completed in June 2015. In accordance with the terms of their
respective appointment letters all Directors will receive cash
payments for their services in future. Cash payment of Directors'
fees in the year totalled GBP6,585 (2014: Nil), of which GBP6,585
was outstanding at 30 June 2015 (2014: Nil).
All of the Directors are non-executive and each is considered
independent for the purposes of Chapter 15 of the Listing
Rules.
As disclosed in Note 19, John Scott and John Rennocks are
Directors of BSIFIL. To date, they have not received any fees for
their services as Directors of this wholly owned subsidiary.
In accordance with Article 22 of AIFMD, the Company shall
disclose the total amount of remuneration for the financial year,
split into fixed and variable remuneration, paid by the AIFM to its
staff, and number of beneficiaries, and, where relevant, carried
interest paid by the AIF. As the Company is categorised as an
internally managed Non-EU AIFM for the purposes of the AIFMD,
Directors' remuneration reflects this amount.
Duties and Responsibilities
The Board has overall responsibility for optimising the
Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of shareholders and
relevant stakeholders, while enhancing the value of the Company and
also ensuring the protection of investors. A summary of the Board's
responsibilities is as follows:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- investment strategy and management;
-- risk assessment and management including reporting, compliance, governance, monitoring and control; and
-- other matters having a material effect on the Company.
The Directors have access to the advice and services of the
Administrator, who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with the Law and
applicable rules and regulations of the GFSC and the LSE. Where
necessary, in carrying out their duties, the Directors may seek
independent professional advice and services at the expense of the
Company.
The Company maintains appropriate Directors' and Officers'
liability insurance in respect of legal action against its
Directors on an on-going basis.
The Board's responsibilities for the annual report are set out
in the Directors' Responsibilities Statement. The Board is also
responsible for issuing appropriate half-yearly financial reports
and other price-sensitive public reports.
The attendance record of the Directors for the year to 30 June
2015 is set out below:
Scheduled Ad-hoc Audit Committee
Board Meetings Board Meetings Meetings
Director (max 4) (max 10) (max 6)
------------------ ---------------- ---------------- ----------------
John Rennocks 4 0 5
John Scott 3 1 3
Paul Le Page 4 8 6
Laurence McNairn 3 9 4
------------------ ---------------- ---------------- ----------------
Nine unscheduled committee meetings were held during the period
to formally review and authorise each investment made by the
Company, to discuss placing of Ordinary Shares and to consider
interim dividends, amongst other items.
The Board believes that, as a whole, it comprises an appropriate
balance of skills, experience, age, knowledge and length of
service. The Board also believes that diversity of experience and
approach, including gender diversity, amongst Board members is of
great importance and it is the Company's policy to give careful
consideration to issues of Board balance when making new
appointments. With any new Director appointment to the Board,
induction training will be provided by an independent service
provider at the expense of the Company.
Performance Evaluation
In accordance with Principle 7 of the AIC Code, the Board is
required to undertake a formal and rigorous evaluation of its
performance on an annual basis. A formal evaluation of the
performance of the Board as a whole, and the Chairman, is in
progress as at the date of this report. The evaluation is being
undertaken utilising self-appraisal questionnaires and will be
followed by a detailed discussion of the outcomes which include
assessment of the Directors' continued independence.
Committees of the Board
Audit Committee
The Board established an Audit Committee in 2013. It is chaired
by Paul Le Page and at the date of this report comprised all of the
Directors set out above. The report of the role and activities of
this committee and its relationship with the Auditor is contained
in the Report of the Audit Committee. The Committee operates within
clearly defined terms of reference which are available on the
Company's website (www.bluefieldsif.com).
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Group and Company's system of
internal control and reviewing its effectiveness. Internal control
systems are designed to manage rather than eliminate the failure to
achieve business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss. The
Directors review all controls including operations, compliance and
risk management. The key procedures which have been established to
provide internal control are:
-- the Board has delegated the day-to-day operations of the
Group and Company to the Administrator and Investment Adviser;
however, it remains accountable for all of the functions it
delegates;
-- the Board clearly defines the duties and responsibilities of
the Group and Company's agents and advisers and appointments are
made by the Board after due and careful consideration. The Board
monitors the on-going performance of such agents and advisers;
-- the Board monitors the actions of the Investment Adviser at
regular Board meetings and is also given frequent updates on
developments arising from the operations and strategic direction of
the underlying investee companies; and
-- the Administrator provides administration and company secretarial services to the Company.
The Administrator maintains a system of internal control on
which it reports to the Board.
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The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Administrator and Investment Adviser, including their own internal
controls and procedures, provide sufficient assurance that a sound
system of risk management and internal control, which safeguards
shareholders' investment and the Company's assets, is maintained.
An internal audit function specific to the Company is therefore
considered unnecessary, as explained in the Report of the Audit
Committee.
The systems of control referred to above are designed to ensure
effectiveness and efficient operation, internal control and
compliance with laws and regulations. In establishing the systems
of internal control, regard is paid to the materiality of relevant
risks, the likelihood of costs being incurred and costs of control.
It follows therefore that the systems of internal control can only
provide reasonable but not absolute assurance against the risk of
material misstatement or loss.
The Company has delegated the provision of all services to
external service providers whose work is overseen by the Board at
its quarterly meetings. Each year a detailed review of performance
pursuant to their terms of engagement will be undertaken by the
Board.
Investment Advisory Agreement
In accordance with Listing Rule 15.6.2(2)R, the Directors
formally appraise the performance and resources of the Investment
Adviser.
The Investment Adviser is led by its managing partners, James
Armstrong, Mike Rand and Giovanni Terranova, who founded the
business in 2009 following their prior work together in European
solar energy. The Investment Adviser's team have a combined record,
prior to and including Bluefield Partners LLP, of investing in in
excess of GBP1 billion on solar PV projects. The managing partners
have been involved in over GBP380 million of solar PV deals in the
UK since December 2011 and over GBP1 billion of solar PV
transactions in the UK and Europe since 2008. The Investment
Adviser's non-executive team includes William Doughty, the founding
CEO of Semperian; Dr. Anthony Williams, the former chair of the
Risk Committee for the Fixed Income, Currencies & Commodities
Division, and Partner at Goldman Sachs & Co; and Jon Moulton,
the current chairman of Better Capital and former managing partner
and founder of Alchemy Partners.
In view of the resources of the Investment Adviser and the
Group's investment performance for the period, in the opinion of
the Directors, the continuing appointment of the Investment Adviser
is in the interests of the shareholders as a whole.
Dealings with Shareholders
The Board welcomes shareholders' views and places great
importance on communication with its shareholders. The Company's
AGM will provide a forum for shareholders to meet and discuss
issues with the Directors of the Company. Members of the Board will
also be available to meet with shareholders at other times, if
required. In addition, the Company maintains a website which
contains comprehensive information, including regulatory
announcements, share price information, financial reports,
investment objectives and strategy and information on the
Board.
Principal Risks and Uncertainties
Each Director is aware of the risks inherent in the Company's
business and understands the importance of identifying, evaluating
and monitoring these risks. The Board has adopted procedures and
controls that enable it to manage these risks within acceptable
limits and to meet all of its legal and regulatory obligations.
The Board considers the process for identifying, evaluating and
managing any significant risks faced by the Company on an on-going
basis and these risks are reported and discussed at Board meetings.
It ensures that effective controls are in place to mitigate these
risks and that a satisfactory compliance regime exists to ensure
all applicable local and international laws and regulations are
upheld.
The Company's principal risks and uncertainties are discussed in
detail in the Strategic Report. The Company's financial instrument
risks are discussed in Note 18 to the consolidated financial
statements.
The Company's principal risk factors are fully discussed in the
Company's Prospectus, available on the Company's website
(www.bluefieldsif.com) and should be reviewed by shareholders.
Changes in Regulation
The Board monitors and responds to changes in regulation as it
affects the Group and its policies. A number of changes to
regulation occurred during the period.
Alternative Investment Fund Management Directive
The AIFMD, which was implemented across the EU 22 July 2013 with
the transition period ending 22 July 2014, aims to harmonise the
regulation of AIFMs and imposes obligations on managers who manage
or distribute AIFs in the EU or who market shares in such funds to
EU investors.
After seeking professional regulatory and legal advice, the
Company was established in Guernsey as a self-managed Non-EU AIF.
Additionally, the Company has taken advice on and implemented
sufficient and appropriate policies and procedures that enable the
Board to fulfil its role in relation to portfolio management and
the management of risk. The Company is therefore categorised as an
internally managed Non-EU AIFM for the purposes of the AIFMD and as
such neither it nor the Investment Adviser is required to seek
authorisation under the AIFMD.
The marketing of shares in AIFs that are established outside the
EU (such as the Company) to investors in that EU member state is
prohibited unless certain conditions are met. Certain of these
conditions are outside the Company's control as they are dependent
on the regulators of the relevant third country (in this case
Guernsey) and the relevant EU member state entering into regulatory
co-operation agreements with one another.
Currently, the NPPR provides a mechanism to market Non-EU AIFs
that are not allowed to be marketed under the AIFMD domestic
marketing regimes. The Board is utilising NPPR in order to market
the Company, specifically in the UK pursuant to regulations 57, 58
and 59 of the UK Alternative Investment Fund Managers Regulations
2013. The Board is working with the Company's advisers to ensure
the necessary conditions are met, and all required notices and
disclosures are made under NPPR. Eligible AIFMs will be able to
continue to use NPPR until at least 2018, and until at least 2016
NPPR will be the sole regime available to market in the EEA.
Any regulatory changes arising from implementation of AIFMD (or
otherwise) that limit the Company's ability to market future issues
of its shares may materially adversely affect the Company's ability
to carry out its investment policy successfully and to achieve its
investment objective, which in turn may adversely affect the
Company's business, financial condition, results of operations, NAV
and/or the market price of the Ordinary Shares.
The Board, in conjunction with the Company's advisers, will
continue to monitor the development of AIFMD and its impact on the
Company.
Foreign Account Tax Compliance Act
FATCA became effective on 1 January 2013 and is being gradually
implemented internationally. The legislation is aimed at
determining the ownership of US assets in foreign accounts and
improving US Tax compliance with respect to those assets. The Board
in conjunction with the Company's service providers and advisers
have ensured the Company's compliance with FATCA's requirements to
the extent relevant to the Company.
Non-Mainstream Pooled Investment
On 1 January 2014 FCA rules relating to the restrictions on the
retail distribution of unregulated collective investment schemes
and close substitutes came into effect.
The Board has been advised that the Company would qualify as an
investment trust if it was resident in the UK, and therefore the
Board believes that the retail distribution of its shares should be
unaffected by the changes. It is the Board's intention that the
Company will make all reasonable efforts to conduct its affairs in
such a manner that its shares can be recommended by independent
financial advisers to ordinary retail investors in accordance with
the FCA's rules relating to non-mainstream investment products.
By order of the Board
Paul Le Page Laurence McNairn
Director Director
30 September 2015 30 September 2015
Report of the Audit Committee
The Audit Committee, chaired by Paul Le Page and comprising all
of the Directors set out above, operates within clearly defined
terms of reference (which are available from the Company's website)
and includes all matters indicated by Disclosure and Transparency
Rule 7.1 and the AIC Code. Appointments to the Audit Committee
shall be for a period of up to three years, extendable for one or
further three-year periods. It is also the formal forum through
which the Auditor will report to the Board of Directors.
The Audit Committee will meet no less than twice a year, and at
such other times as the Audit Committee shall require, and will
meet the Auditor at least twice a year. Any member of the Audit
Committee may request that a meeting be convened by the Company
Secretary. The Auditor may request that a meeting be convened if
they deem it necessary. Any Director who is not a member of the
Audit Committee, the Administrator and representatives of the
Investment Adviser shall be invited to attend the meetings as the
Directors deem appropriate.
The Board has taken note of the requirement that at least one
member of the Committee should have recent and relevant financial
experience and is satisfied that the Committee is properly
constituted in that respect, with two of its members who are
chartered accountants and two members with an investment
background.
Responsibilities
The main duties of the Audit Committee are:
-- monitoring the integrity of the financial statements of the
Group and any formal announcements relating to the Company's
financial performance, reviewing significant financial reporting
judgements contained in them;
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-- reporting to the Board on the appropriateness of the Board's
accounting policies and practices including critical judgement
areas;
-- reviewing the valuation of the Group's investments prepared
by the Investment Adviser or independent valuation agents, and
making a recommendation to the Board on the valuation of the
Group's investments;
-- meeting regularly with the Auditor to review their proposed
audit plan and the subsequent audit report and assess the
effectiveness of the audit process and the levels of fees paid in
respect of both audit and non-audit work;
-- making recommendations to the Board in relation to the
appointment, re-appointment or removal of the Auditor and approving
their remuneration and the terms of their engagement;
-- monitoring and reviewing annually the Auditor's independence,
objectivity, expertise, resources, qualification and non-audit
work;
-- considering annually whether there is a need for the Company
to have its own internal audit function;
-- keeping under review the effectiveness of the accounting and
internal control systems of the Company;
-- reviewing and considering the UK Code, the AIC Code, the FRC
Guidance on Audit Committees and the Company's institutional
investors' commitment to the UK Stewardship code; and
-- reviewing the risks facing the Company and monitoring the risk matrix.
The Audit Committee is required to report formally to the Board
on its findings after each meeting on all matters within its duties
and responsibilities.
The Auditor is invited to attend the Audit Committee meetings as
the Directors deem appropriate and at which they have the
opportunity to meet with the Committee without representatives of
the Investment Adviser or the Administrator being present at least
once per year.
Financial Reporting
The primary role of the Audit Committee in relation to the
financial reporting is to review with the Administrator, Investment
Adviser and the Auditor the appropriateness of the interim and
annual consolidated financial statements, concentrating on, amongst
other matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements have been
applied or there has been discussion with the Auditor;
-- whether the annual report and consolidated financial
statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Group's performance, business model and strategy; and
-- any correspondence from regulators in relation to the Group's financial reporting.
To aid its review, the Audit Committee considers reports from
the Administrator and Investment Adviser and also reports from the
Auditor on the outcomes of their half-year review and annual audit.
Like the Auditor, the Audit Committee seeks to display the
necessary professional scepticism their role requires.
Meetings
The Committee has met formally on six occasions in the year
covered by this report. The matters discussed at those meetings
were:
-- consideration and agreement of the terms of reference of the
Audit Committee for approval by the Board ;
-- review of the Group's risk matrix;
-- review of the accounting policies and format of the financial statements;
-- review and approval of the audit plan of the Auditor and
timetable for the interim and annual consolidated financial
statements;
-- review the valuation policy and methodology of the Group's
investments applied in the interim and annual consolidated
financial statements;
-- detailed review of the interim and annual report and consolidated financial statements; and
-- assessment of the effectiveness of the external audit process as described below.
During the year, the Audit Committee also held informal meetings
and discussions with the Company's corporate finance advisers to
ensure that the Company obtained maximum value for money for these
services.
The Audit Committee chairman or other members of the Audit
Committee appointed for the purpose, shall attend each AGM of the
Company, prepared to respond to any shareholder questions on the
Audit Committee's activities.
Primary Area of Judgement
The Audit Committee determined that the key risk of misstatement
of the Group's consolidated financial statements is the fair value
of the SPV investments, in the context of the high degree of
judgement involved in the assumptions and estimates underlying the
discounted cash-flow calculations.
As outlined in Note 10 of the consolidated financial statements,
the fair value of investments as at 30 June 2015 was GBP296,827,336
(2014: GBP136,120,317). Market quotations are not available for
these investments so their valuation is undertaken using a
discounted cash-flow methodology. The Directors have also
considered transactions in similar assets but as these are few in
number they have relied primarily on DCF methodology for these
valuations. Significant inputs such as the discount rate, rate of
inflation and the amount of electricity the solar assets are
expected to produce are subjective and include certain assumptions.
As a result, this requires a series of judgements to be made as
explained in Note 3 in the consolidated financial statements.
The valuation of the Company's portfolio of solar assets as at
30 June 2015 has been determined by the Board of Directors based on
work carried out by an external valuer, who is an experienced and
independent third party, as well as with guidance from the
investment adviser. As the Board has stated previously it intends
to carry out external valuations every third year. The engagement
with an external valuer has been carried out in advance of the
third anniversary of the Company's incorporation. The Audit
Committee has challenged the external valuer on the year end fair
value of investments as part of its consideration of the
consolidated financial statements.
The Audit Committee also reviewed and suggested factors that
could impact the Company's portfolio valuation and its related
sensitivities to the carrying value of the investments as required
in accordance with IPEV Valuation Guidelines.
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS
27)
As noted in the Group's consolidated financial statements for
the period from 29 May 2013 to 30 June 2014, the Group had early
adopted IFRS 10 'Consolidated Financial Statements' including the
Amendments and the Company consolidates its results with BSIFIL.
This treatment is based on an exception to the requirement for
mandatory non-consolidation under IFRS 10 for investment entities.
As the Company is an investment entity and BSIFIL is a subsidiary
providing investment services to the Company, consolidation is
required.
Monies transferred to BSIFIL from the underlying SPVs, which are
not consolidated, are accounted for on a cash basis. The current
assets and liabilities of the SPVs make up part of their overall
fair value.
On 18 December 2014, the IASB issued further amendments to IFRS
10 (Investment Entities: Applying the Consolidation Exception
Amendments) which may have a material impact on the preparation and
presentation of the Group accounts as they have clarified the scope
of the exceptions to mandatory non-consolidation. The Consolidation
Exception Amendments are mandatory for annual periods beginning on
or after 1 January 2016. The Board is currently assessing the full
impact of these and the Company continues to consolidate its
results with BSIFIL in these financial statements.
Risk Management
The Company's risk assessment process and the way in which
significant business risks are managed is a key area of focus for
the Committee. The work of the Audit Committee is driven primarily
by the Group's assessment of its principal risks and uncertainties
as set out in the Strategic Report, and it receives reports from
the Investment Adviser and Administrator on the Group's risk
evaluation process and reviews changes to significant risks
identified.
Internal Audit
The Audit Committee considers at least once a year whether or
not there is a need for an internal audit function. Currently it
does not consider there to be a need for an internal audit
function, given that there are no employees in the Company and all
outsourced functions are with parties who have their own internal
controls and procedures.
External Audit
KPMG has been the Company's external Auditor since the Company's
inception.
The Auditor is required to rotate the audit partner every five
years. The current partner is in his second year of tenure. There
are no contractual obligations restricting the choice of external
auditor and the Company will put the audit services contract out to
tender at least every ten years. In line with the FRC's
recommendations on audit tendering, this will be considered further
when the audit partner rotates every five years. Under the
Companies Law the reappointment of the external Auditor is subject
to shareholder approval at the AGM.
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The objectivity of the Auditor is reviewed by the Audit
Committee which also reviews the terms under which the external
Auditor may be appointed to perform non-audit services. The Audit
Committee reviews the scope and results of the audit, its cost
effectiveness and the independence and objectivity of the Auditor,
with particular regard to any non-audit work that the Auditor may
undertake. In order to safeguard Auditor independence and
objectivity, the Audit Committee ensures that any other advisory
and/or consulting services provided by the external Auditor does
not conflict with its statutory audit responsibilities. Advisory
and/or consulting services will generally only cover reviews of
interim financial statements, tax compliance and capital raising
work. Any non-audit services conducted by the Auditor outside of
these areas will require the consent of the Audit Committee before
being initiated.
The external Auditor may not undertake any work for the Group in
respect of the following matters: preparation of the financial
statements, provision of investment advice, taking management
decisions or advocacy work in adversarial situations.
The Committee reviews the scope and results of the audit, its
cost effectiveness and the independence and objectivity of the
Auditor, with particular regard to the level of non-audit fees.
During the year, KPMG was engaged to provide reporting accountant
services in relation to the second prospectus and a review of the
Group's interim information. Total fees paid amounted to GBP134,159
for the year ended 30 June 2015 (30 June 2014: GBP100,875) of which
GBP61,398 related to audit and audit related services to the Group
(30 June 2014: GBP35,000) and GBP72,761 in respect of non-audit
services (30 June 2014: GBP65,875).
Notwithstanding such services, most of which have arisen in
connection with the Company's share placings in November 2014, the
Audit Committee considers KPMG to be independent of the Company and
that the provision of such non-audit services is not a threat to
the objectivity and independence of the conduct of the audit as
appropriate safeguards are in place.
To fulfil its responsibility regarding the independence of the
Auditor, the Audit Committee has considered:
-- discussions with or reports from the Auditor describing its
arrangements to identify, report and manage any conflicts of
interest; and
-- the extent of non-audit services provided by the Auditor and
arrangements for ensuring the independence and objectivity and
robustness and perceptiveness of the Auditor and their handling of
key accounting and audit judgements.
To assess the effectiveness of the Auditor, the Committee has
reviewed:
-- the Auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit;
-- feedback from other service providers evaluating the performance of the audit team;
-- arrangements for ensuring independence and objectivity; and
-- robustness of the Auditor in handling key accounting and audit judgements.
The Audit Committee is satisfied with KPMG's effectiveness and
independence as Auditor having considered the degree of diligence
and professional scepticism demonstrated by them. Having carried
out the review described above and having satisfied itself that the
Auditor remains independent and effective, the Audit Committee has
recommended to the Board that KPMG be reappointed as Auditor for
the year ending 30 June 2016.
The Chairman of the Audit Committee will be available at the AGM
to answer any questions about the work of the Committee.
On behalf of the Audit Committee
Paul Le Page
Chairman of the Audit Committee
30 September 2015
Independent Auditor's Report
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF BLUEFIELD SOLAR
INCOME FUND LIMITED
Opinions and conclusions arising from our audit
Opinion on financial statements
We have audited the consolidated financial statements (the
"financial statements") of Bluefield Solar Income Limited (the
"Company") and its subsidiary (together, the 'Group') for the year
ended 30 June 2015 which comprise the consolidated statement of
financial position, the consolidated statement of comprehensive
income, the consolidated statement of changes in equity, the
consolidated statement of cash flows and the related notes. The
financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards as adopted by the European Union ('EU'). In our opinion,
the financial statements:
-- give a true and fair view of the state of the Group's affairs
as at 30 June 2015 and of its total comprehensive income for the
year ended 30 June 2015;
-- have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the EU; and
-- comply with the Companies (Guernsey) Law, 2008.
Our assessment of risks of material misstatement
The risks of material misstatement detailed in this section of
this report are those risks that we have deemed, in our
professional judgement, to have had the greatest effect on: the
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team. Our audit
procedures relating to these risks were designed in the context of
our audit of the financial statements as a whole. Our opinion on
the financial statements is not modified with respect to any of
these risks, and we do not express an opinion on these individual
risks.
In arriving at our audit opinion above on the financial
statements, the risk of material misstatement that had the greatest
effect on our audit was as follows:
Valuation of the Special Purpose Vehicle ("SPV") Investments
(GBP296,827,336)
Refer to the Report of the Audit Committee, Note 2(k)(i)
accounting policies and Note 10 disclosures
-- The risk -The Group measures its SPV investments at fair
value based on unleveraged discounted cash flows of the underlying
solar projects. The valuations are performed using forecast cash
flows generated by each solar project over a long-term period and
by selecting key assumptions such as discount rates, base energy
yield assumptions, electricity price forecasts, operating costs and
macroeconomic assumptions such as inflation and tax rates. The
valuations are adjusted for other specific assets and liabilities
of the SPVs. The Directors' commissioned an independent third party
valuation expert to validate the assumptions used in the valuation
models.
The assessment of long-term term forecasts and the selection of
appropriate assumptions surrounding uncertain future events, as set
out in the key judgments and estimates section of the financial
statements, are key judgements made by the Directors. There is a
risk that changes to forecast cash flows and the selection of
different assumptions may result in a materially different
valuation.
-- Our response - Our audit procedures with respect to the
valuation of the SPV investments included, but were not limited to,
meeting with the Investment Adviser and Directors to observe the
design and implementation of the Board's challenge and approval
process of the key assumptions made within the valuation models
which were prepared by the Investment Adviser and reported on by
the independent third party valuation expert.
With the assistance of our own valuation specialist, we
challenged the key assumptions for the discount rate, base energy
yield assumptions, electricity price forecasts, and operating
costs, which included analyzing macroeconomic data (including
inflation and tax forecasts) and observable market data to perform
benchmarking to listed peers and sensitivity tests.
For each valuation model, we assessed the key project specific
cash flow projections, focusing on changes since the previous
reporting period or from the date of acquisition for newly acquired
projects, to corroborate key contracted revenues and costs with
reference to underlying contracts, agreements, management
information and, if available, historical data.
We assessed the professional qualifications, experience and
independence of the Group's external valuation expert, in the
context of their ability to comment on the assumptions, and
considered whether their findings were consistent with the results
of the audit work we had performed.
We have considered the adequacy of the Group's disclosures in
accordance with IFRS 13 (see Note 10) including the use of
estimates and judgements in arriving at fair value and
sensitivities.
Our application of materiality and an overview of the scope of
our audit
Materiality is a term used to describe the acceptable level of
precision in financial statements. Auditing standards describe a
misstatement or an omission as "material" if it could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial statements. The auditor has to apply
judgement in identifying whether a misstatement or omission is
material and to do so the auditor identifies a monetary amount as
"materiality for the financial statements as a whole".
The materiality for the financial statements as a whole was set
at GBP8,500,000. This has been calculated using a benchmark of the
Group's net asset value (of which it represents approximately 3%)
which we believe is the most appropriate benchmark as net asset
value is considered to be one of the principal considerations for
members of the Company in assessing the financial performance of
the Group.
We agreed with the audit committee to report to it all corrected
and uncorrected misstatements we identified through our audit with
a value in excess of GBP425,000, in addition to other audit
misstatements below that threshold that we believe warranted
reporting on qualitative grounds.
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The Group audit team performed the audit of the Group as if it
was a single operating entity based on the aggregated set of
financial information for the Group. The audit was performed using
the materiality levels set out above and covered 100% of total
Group income, 100% of Group total comprehensive income before
taxation and 100% of total Group assets and liabilities.
Our assessment of materiality has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Whilst the audit process is designed to provide reasonable
assurance of identifying material misstatements or omissions it is
not guaranteed to do so. Rather we plan the audit to determine the
extent of testing needed to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements does not exceed materiality for the financial
statements as a whole. This testing requires us to conduct
significant depth of work on a broad range of assets, liabilities,
income and expense as well as devoting significant time of the most
experienced members of the audit team, in particular the
Responsible Individual, to subjective areas of the accounting and
reporting process.
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Group's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Board of Directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Matters on which we are required to report by exception
Under International Standards on Auditing [ISAs] (UK and
Ireland) we are required to report to you if, based on the
knowledge we acquired during our audit, we have identified other
information in the Annual Report that contains a material
inconsistency with either that knowledge or the financial
statements, a material misstatement of fact, or that is otherwise
misleading.
In particular, we are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors' statement
that they consider that the Annual Report and financial statements
taken as a whole is fair, balanced and understandable and provides
the information necessary for members to assess the Group's
performance, business model and strategy; or
-- the Report of the Audit Committee does not appropriately
address matters communicated by us to the audit committee.
Under the Companies (Guernsey) Law, 2008, we are required to
report to you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to the Company's
compliance with the ten provisions of the UK Corporate Governance
Code specified for our review.
We have nothing to report in respect of the above
responsibilities.
Scope of report and responsibilities
The purpose of this report and restrictions on its use by
persons other than the Company's members as a body
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008 and, in respect of any further matters on which we have agreed
to report, on terms we have agreed with the Company. Our audit work
has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditor's
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company and the Company's members, as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Statement of
Responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit, and express
an opinion on, the financial statements in accordance with
applicable law and ISAs (UK and Ireland). Those standards require
us to comply with the UK Ethical Standards for Auditors.
Neale D Jehan
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
Guernsey
30 September 2015
The maintenance and integrity of the Bluefield Solar Income Fund
Limited website is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements or
audit report since they were initially presented on the
website.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Consolidated Statement of Financial Position
As at 30 June 2015
30 June 2015 30 June 2014
Note GBP GBP
------------------------------------------------------------ ------ --------------------- -------------
ASSETS
Non-current assets
Financial assets held at fair value through profit or loss 10 296,827,336 136,120,317
Trade and other receivables 12 244,444 511,111
Total non-current assets 297,071,780 136,631,428
------------------------------------------------------------ ------ --------------------- -------------
Current assets
Trade and other receivables 12 2,880,513 608,530
Cash and cash equivalents 13 13,273,472 11,287,130
Total current assets 16,153,985 11,895,660
------------------------------------------------------------ ------ --------------------- -------------
TOTAL ASSETS 313,225,765 148,527,088
------------------------------------------------------------ ------ --------------------- -------------
LIABILITIES
Non-current liabilities
Interest bearing borrowings 7, 14 18,900,000 -
------------------------------------------------------------ ------ --------------------- -------------
Total non-current liabilities 18,900,000 -
------------------------------------------------------------ ------ --------------------- -------------
Current liabilities
Other payables and accrued expenses 14 5,934,898 851,069
Total current liabilities 5,934,898 851,069
------------------------------------------------------------ ------ --------------------- -------------
TOTAL LIABILITIES 24,834,898 851,069
------------------------------------------------------------ ------ --------------------- -------------
NET ASSETS 288,390,867 147,676,019
------------------------------------------------------------ ------ --------------------- -------------
EQUITY
Share capital 276,959,370 140,837,766
Retained reserves 11,431,497 6,838,253
TOTAL EQUITY 16 288,390,867 147,676,019
------------------------------------------------------------ ------
Number of Ordinary Shares in issue at year/period end 16 278,417,224 143,426,684
------------------------------------------------------------ ------ --------------------- -------------
Net asset value per Ordinary Share (pence) 9 103.58 102.96
------------------------------------------------------------ ------ --------------------- -------------
These consolidated financial statements were approved and
authorised for issue by the Board of Directors on 30 September 2015
and signed on their behalf by:
Paul Le Page Laurence McNairn
Director Director
30 September 2015 30 September 2015
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated Statement of Comprehensive Income
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For the year ended 30 June 2015
Year ended 29 May 2013 to
30 June 2015 30 June 2014
Note GBP GBP
-------------------------------------------------- ----- -------------- ---------------------------
Income
Investment income 4 1,901,662 1,142,237
Interest income from cash and cash equivalents 165,413 418,838
-------------------------------------------------- ----- -------------- ---------------------------
2,067,075 1,561,075
Net gains on financial assets held at fair value
through profit or loss 10 17,472,883 10,478,025
Operating income 19,539,958 12,039,100
-------------------------------------------------- ----- -------------- ---------------------------
Expenses
Administrative expenses 5 3,022,085 2,054,320
Transaction costs 6 571,576 508,102
-------------- ---------------------------
Operating expenses 3,593,661 2,562,422
-------------------------------------------------- ----- -------------- ---------------------------
Operating profit 15,946,297 9,476,678
-------------------------------------------------- ----- -------------- ---------------------------
Finance costs 7 795,538 32,633
-------------------------------------------------- ----- -------------- ---------------------------
Total comprehensive income before tax 15,150,759 9,444,045
Taxation 8 - -
Total comprehensive income for the year/period 15,150,759 9,444,045
-------------------------------------------------- ----- -------------- ---------------------------
Attributable to:
Owners of the Company 15,150,759 9,444,045
Earnings per share:
Basic and diluted (pence) 15 6.71 6.99
-------------------------------------------------- ----- -------------- ---------------------------
All items within the above statement have been derived from
continuing activities.
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated Statement of Changes in Equity
For the year ended 30 June 2015
Note Number of Share capital Retained earnings Total equity
Ordinary Shares
GBP GBP GBP
---------------------------------- ------ ----------------- -------------- ------------------ ---------------
Shareholders' equity at
1 July 2014 143,426,684 140,837,766 6,838,253 147,676,019
---------------------------------- ------ ----------------- -------------- ------------------ ---------------
Shares issued during the period:
120,000,000 Ordinary Shares
issued via placing 16 120,000,000 123,000,000 - 123,000,000
7,500,000 Ordinary Shares issued
via placing 16 7,500,000 7,687,500 - 7,687,500
Share issue costs 16 - (2,291,852) - (2,291,852)
Shares issued as consideration
for SPV investment 16,19 7,490,540 7,725,956 - 7,725,956
Dividends paid 16,17 - - (10,557,515) (10,557,515)
Total comprehensive income for
the period - - 15,150,759 15,150,759
Shareholders' equity at
30 June 2015 278,417,224 276,959,370 11,431,497 288,390,867
---------------------------------- ------ ----------------- -------------- ------------------ ---------------
For the period from incorporation on 29 May 2013 to 30 June
2014
Note Number of Share capital Retained earnings Total equity
Ordinary Shares
GBP GBP GBP
---------------------------------- ------ ----------------- -------------- -------------------- ---------------
Shareholders' equity at - - - -
29 May 2013
---------------------------------- ------ ----------------- -------------- -------------------- ---------------
Shares issued during the period:
130,000,000 Ordinary Shares
issued at IPO 16 130,000,000 130,000,000 - 130,000,000
290,000 Ordinary Shares issued at
IPO in lieu of Directors' fees 16,19 290,000 290,000 - 290,000
13,028,999 Ordinary Shares issued
via placing 16 13,028,999 13,159,289 - 13,159,289
107,685 Ordinary Shares issued
via scrip dividend 16 107,685 109,812 - 109,812
Share issue costs 16 - (2,721,335) - (2,721,335)
Dividends paid 16,17 - - (2,605,792) (2,605,792)
Total comprehensive income for
the period - - 9,444,045 9,444,045
Shareholders' equity at
30 June 2014 143,426,684 140,837,766 6,838,253 147,676,019
---------------------------------- ------ ----------------- -------------- -------------------- ---------------
The accompanying notes form an integral part of these
consolidated financial statements.
Consolidated Statement of Cash Flows
For the year ended 30 June 2015
Year ended 29 May 2013 to
30 June 2015 30 June 2014
Note GBP GBP
------------------------------------------------------------------------- ------ -------------- ---------------
Cash flows from operating activities
Total comprehensive income for the year/period 15,150,759 9,444,045
Adjustments:
Increase in trade and other receivables (2,005,316) (829,641)
Increase in other payables and accrued expenses 69,230 851,069
Net gains on financial assets held at fair value through profit or loss 10 (17,472,883) (10,478,025)
Finance expense on revolving loan facility 7 96,592 -
Net cash inflow generated from operating activities (4,161,618) (1,012,552)
------------------------------------------------------------------------- ---------------------- ---------------
Cash flows from investing activities
Purchase of financial asset at fair value through profit or loss 10 (140,101,912) (127,313,722)
Cancellation of loan by SPV 670,000 -
Receipts from SPV investments held at fair value through
profit or loss 10 8,938,331 1,671,430
Net cash used in investing activities (130,493,581) (125,642,292)
------------------------------------------------------------------------- ------ -------------- ---------------
Cash flow from financing activities
Proceeds from issue of Ordinary Shares 16 130,687,500 143,159,289
Issue costs paid 16 (2,291,852) (2,721,335)
Dividends paid 16,17 (10,557,515) (2,495,980)
Drawdown on revolving loan facility 7 38,400,000 -
Repayment of revolving loan facility - Capital 7 (19,500,000) -
Repayment of revolving loan facility - Interest 7 (96,592) -
Net cash generated from financing activities 136,641,541 137,941,974
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------------------------------------------------------------------------- ------ -------------- ---------------
Net increase in cash and cash equivalents 1,986,342 11,287,130
Cash and cash equivalents at the start of the year/period 11,287,130 -
Cash and cash equivalents at the end of the year/period 13 13,273,472 11,287,130
------------------------------------------------------------------------- ------ -------------- ---------------
The purchase of financial assets at fair value through profit
and loss excludes an accrued amount of GBP5,014,599 (see Notes 10
and 14) and GBP7,725,956 where consideration for a SPV investment
was settled in shares (see Notes 10, 16 and 19).
Proceeds from issue of Ordinary Shares excludes GBP7,725,956 in
respect of shares issued as consideration for a SPV investment (see
Notes 10, 16 and 19).
The accompanying notes form an integral part of these
consolidated financial statements.
Notes to the Consolidated Financial Statements for the year
ended 30 June 2015
1. General information
The Company is a non-cellular company limited by shares and was
incorporated in Guernsey under the Law on 29 May 2013 with
registered number 56708 as a closed-ended investment company. It is
regulated by the GFSC.
The consolidated financial statements for the year ended 30 June
2015 comprise the financial statements of the Company and its
wholly owned subsidiary, BSIFIL, as at 30 June 2015.
The investment objective of the Group is to provide shareholders
with an attractive return, principally in the form of income
distributions, by investing via SPVs into a portfolio of large
scale UK based solar energy infrastructure assets.
On 11 July 2013, the Company completed its IPO, which raised
gross proceeds of GBP130,290,000. The Company's shares were
admitted to trading on the Main Market of the LSE on 12 July 2013.
Placings during the current year have raised gross cash of
GBP130,687,500.
The Group has appointed Bluefield Partners LLP as its Investment
Adviser.
2. Accounting policies
a) Basis of preparation
The consolidated financial statements, included in this annual
report, have been prepared in accordance with IFRS and the DTRs of
the UK FCA.
These consolidated financial statements have been prepared under
the historical cost convention with the exception of financial
assets measured at fair value through profit or loss, and in
accordance with the provisions of the Companies Law.
The principal accounting policies adopted are set out below.
Standards and Interpretations in issue and not yet
effective:
New Standards Effective
date
-------------- ------------------------------------------------ ----------
IFRS 9 Financial Instruments 1 January
2018
IFRS 14 Regulatory Deferral Accounts 1 January
2016
IFRS 15 Revenue from Contracts with Customers 1 January
2017
Revised and amended standards
---------------------------------------------------------------- ----------
IFRS 10 Investment Entities: Applying the Consolidation 1 January
Exception 2016
The Group has not early adopted these standards and is currently
assessing their impact.
b) Going concern
At 30 June 2015, the Company had invested in seventeen solar
projects through the full commitment of the IPO proceeds and the
use of the additional GBP127.5 million raised through a subsequent
share issue. Further to this, all of the seventeen solar projects
were completed and were in operation by 30 June 2015. This resulted
in a cash balance of GBP13,273,472 and net assets of GBP288,390,867
as at 30 June 2015. During the period, the Company had also entered
into a GBP50 million revolving loan facility of which GBP18,900,000
had been drawn down as at 30 June 2015 leaving GBP31,100,000
available. These resources, together with the net income generated
by the acquired projects are expected to allow the Company to meet
its liquidity needs for the payment of operational expenses,
dividends and acquisition of new solar assets. The Company expects
to continue to comply with the covenants of its revolving loan
facility.
The Directors in their consideration of going concern, have
reviewed comprehensive cash-flow forecasts prepared by the
Investment Adviser, future projects in the pipeline and the
performances of the current solar plants in operation and, at the
time of approving the consolidated financial statements, have a
reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable
future and do not consider there to be any threat to the going
concern status of the Group. The Directors have concluded that it
is appropriate to adopt the going concern basis of accounting in
preparing the consolidated financial statements.
c) Accounting for subsidiaries
The Board has determined that the Company has all the elements
of control as prescribed by IFRS 10 in relation to all its
subsidiaries as the Company is effectively the sole shareholder in
all the subsidiaries, is exposed and has rights to the returns of
all subsidiaries and has the ability either directly or through the
Investment Adviser to affect the amount of its returns from all
subsidiaries.
The amendments to IFRS 10, IFRS 12 and IAS 27 were endorsed by
the EU on 20 November 2013, and had an effective date of 1 January
2014 with early adoption permitted. The Amendments introduced an
exception to the principle that controlled subsidiaries should be
consolidated. It defined an investment entity and required a parent
that is an investment entity to measure its subsidiaries at fair
value through profit or loss in accordance with IAS 39 'Financial
Instruments: Recognition and Measurement', rather than consolidate
the results of the subsidiaries on a line by line basis.
The Directors have assessed the position of the Group and are of
the opinion that the Group has all the typical characteristics of
an investment entity and the three essential criteria specified in
the standard.
The three essential criteria are such that the entity must:
-- obtain funds from one or more investors for the purpose of
providing these investors with professional investment management
services;
-- commit to its investors that its business purpose is to
invest its funds solely for returns from capital appreciation,
investment income or both; and
-- measure and evaluate the performance of substantially all of
its investments on a fair value basis.
In respect of the first essential criterion, typically an
investment entity would have several investors who pool their funds
to gain access to investment management services and investment
opportunities that they might not have had access to individually.
In accordance with the Company's Prospectus, typical investors of
the Company are generally institutional and sophisticated investors
due to the high capital costs, potential risk of capital loss,
limited liquidity of the underlying solar assets, long-term nature
of these assets and regulatory issues. The Company, being listed on
the LSE Main Market, attracts investment from a diverse group of
external shareholders.
In respect of the second criterion, consideration is also given
to the time frame of an investment. An investment entity should not
hold its investments indefinitely but should have an exit strategy
for their realisation. As the Group invests in underlying solar
assets that have an expected life of 25 years and as the solar
assets are expected to have no residual value after their 25 year
life, the Directors consider that this demonstrates a clear exit
strategy from these investments.
In respect of the third criterion, the Group measures and
evaluates the performance of all of its investments on a fair value
basis. Subsidiaries are consolidated into the consolidated
financial statements when they provide investment management
services to the Company while all other subsidiaries and
investments are held at fair value through profit or loss (see Note
2 (k)(i)).
As such, the Directors have concluded that the Group satisfies
the criteria as defined in the Amendments to be regarded as an
investment entity for the year ended 30 June 2015.
Consolidated subsidiary
The Company makes its investments in the SPVs through its
subsidiary, BSIFIL, in which it is the sole shareholder. The
Amendments require a subsidiary of an investment entity that
provides services that relate to the investment entity's activities
to be consolidated. The Board assessed the function of BSIFIL and
maintains that it provides investment related services because such
services are an extension of the operations of the Company. As such
at 30 June 2015, the Company consolidates the results of BSIFIL
which leads to BSIFIL's investments in the SPVs being represented
as financial assets held at fair value through profit or loss on
the consolidated statement of financial position date.
Where necessary, adjustments have been made to the financial
statements of BSIFIL to bring the accounting policies used into
line with those used by the Group. All intra-group transactions,
balances, income and expenses are eliminated on consolidation.
The results of BSIFIL during the year are included in the
consolidated statement of comprehensive income for the year. BSIFIL
results for the year ended 30 June 2015 have been included by
reference to management accounts drawn in line with the Group's
reporting period.
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On 18 December 2014, the IASB issued further amendments to IFRS
10 (the Consolidation Exception Amendments) which may have a
material impact on the preparation and presentation of the Group
accounts as they have clarified the scope of the exceptions to
mandatory non-consolidation. The Consolidation Exception Amendments
have been issued and are effective for annual periods beginning on
or after 1 January 2016. The Board is currently assessing the full
impact of these and the Company continues to consolidate its
results with BSIFIL in these financial statements.
Unconsolidated subsidiaries
The Group has not consolidated its equity interests in the SPVs
that invest in the solar projects. Accordingly, the Group's equity
interests in the SPVs are held for investment purposes and not as
operating vehicles and therefore it is the Group's interest in the
SPVs which constitute its investment assets, rather than each SPV's
investment in the solar project itself.
Note 11 discloses the financial support provided by the Group to
the unconsolidated SPV investments.
d) Functional and presentation currency
These consolidated financial statements are presented in
Sterling, which is the functional currency of the Company as well
as the presentation currency. The Group's funding, investments and
transactions are all denominated in Sterling.
e) Income
Consultancy services fee income is recognised on an accruals
basis.
Interest income on cash and cash equivalents is recognised on an
accruals basis using the effective interest rate method.
f) Expenses
Operating expenses are the Group's costs incurred in connection
with the on-going administrative costs and management of the
Group's investments. Operating expenses are accounted for on an
accruals basis.
Transaction costs arising from the acquisition of the Group's
investments that are recurring in nature and that would not be
recovered on the subsequent sale of the investment in an orderly
transaction (such as legal fees relating to due diligence and
technical reviews of the solar farms) are expensed in the
consolidated statement of comprehensive income. Transaction costs
that are intrinsically linked to the value of the investments (such
as legal fees relating to the contracts on the construction and
maintenance of solar assets, stamp duty fees relating to the leases
on the solar farms, insurance during construction and technical due
diligence on construction) are included in the cost of the
financial assets held at fair value through profit or loss at the
period end. All transaction costs relating to uncompleted
investment projects are expensed to the consolidated statement of
comprehensive income.
g) Finance costs
Borrowing costs are recognised in the consolidated statement of
comprehensive income in the period to which they relate on an
accruals basis using the effective interest rate method.
h) Dividends
Dividends paid are disclosed in equity. Dividends approved by
the Board prior to a year-end are disclosed as a liability.
Dividends declared but not approved will be disclosed in the notes
to the consolidated financial statements.
i) Segmental reporting
IFRS 8 'Operating Segments' requires a 'management approach',
under which segment information is presented on the same basis as
that used for internal reporting purposes.
The Board has considered the requirements of IFRS 8 'Operating
Segments', and is of the view that the Group is engaged in a single
segment of business, being investment mainly in UK solar energy
infrastructure assets via SPVs, and mainly in one geographical
area, the UK, and therefore the Group has only a single operating
segment.
The Board, as a whole, has been determined as constituting the
chief operating decision maker of the Group. The key measure of
performance used by the Board to assess the Group's performance and
to allocate resources is the total return on the Group's NAV, as
calculated under IFRS, and therefore no reconciliation is required
between the measure of profit or loss used by the Board and that
contained in these consolidated financial statements.
The Board of Directors has overall management and control of the
Group and will always act in accordance with the investment policy
and investment restrictions set out in the Company's latest
Prospectus, which cannot be radically changed without the approval
of shareholders. The Board of Directors has delegated the
day-to-day implementation of the investment strategy to its
Investment Adviser but retains responsibility to ensure that
adequate resources of the Group are directed in accordance with
their decisions. Although the Board obtains advice from the
Investment Adviser, it remains responsible for making final
decisions in line with the Company's policies and the Board's legal
responsibilities.
j) Taxation
Current tax is the expected tax payable on the taxable income
for the period, using tax rates that have been enacted or
substantively enacted by the date of the consolidated statement of
financial position.
Deferred income tax is recognised on all temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements, except
for deferred income tax assets which are recognised only to the
extent that it is probable that taxable profit will be available
against which the deductible temporary differences, carried forward
tax credit or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an
undiscounted "in use" basis at the tax rates that are expected to
apply when the related asset is realised or liability is settled,
based on tax rates and laws enacted or substantively enacted at the
reporting date and the tax system elected by the Company.
BSIFIL is registered for UK VAT purposes with HM Revenue &
Customs. Recoverable VAT is included within receivables at year
end.
k) Financial instruments
Financial assets and financial liabilities are recognised in the
Group's consolidated statement of financial position when the Group
becomes a party to the contractual provisions of the instrument.
The Group offsets financial assets and financial liabilities if the
Group has a legally enforceable legal right to offset the
recognised amounts and interests and intends to settle on a net
basis or realise the asset and liability simultaneously.
Financial assets
The classification of financial assets depends on the nature and
purpose of the financial assets and is determined at the time of
initial recognition. All financial assets are initially measured at
fair value.
The Group has not classified any of its financial assets as
'held to maturity' or as 'available for sale'. The Group's
financial assets comprise of only financial assets held at fair
value through profit or loss and cash and receivables.
i) Financial assets held at fair value through profit or loss
-- Classification
The Group has been classified as an investment entity and as
such its investments in the SPVs are held at fair value through
profit or loss and measured in accordance with the requirements of
IAS 39 (see Note 2 (c)).
-- Recognition
Investments made by the Group in the SPVs are initially
recognised at transaction price on the day the loan commitment is
drawn down. Transaction costs arising from the acquisition of the
investments in the SPVs that are recurring in nature and that would
not be expected to be recovered on a subsequent sale of the
investment are expensed to the consolidated statement of
comprehensive income. However, 'one-off' transaction costs that are
incurred by or on behalf of the SPVs in order to create future
cash-flows are intrinsically linked to the value of the investments
and as such are included in the cost of the financial assets held
at fair value through profit or loss (see Note 2 (f)).
-- Measurement
Subsequent to initial recognition, the investments in the SPVs
are measured at each subsequent reporting date at fair value. Gains
and losses resulting from the revaluation of investments in the
SPVs are recognised in the consolidated statement of comprehensive
income (see Note 10). The Group has elected to recognise all gains
and losses from financial assets held at fair value through profit
or loss as a single line in the consolidated statement of
comprehensive income. Fair value is determined on an unleveraged,
discounted cash-flow basis in accordance with the IPEV Valuation
Guidelines recognising any other assets and liabilities of the
SPV.
ii) Derecognition of financial assets
A financial asset (in whole or in part) is derecognised
either:
-- when the Group has transferred substantially all the risks and rewards of ownership; or
-- when it has neither transferred nor retained substantially
all the risks and rewards and when it no longer has control over
the assets or a portion of the asset; or
-- when the contractual right to receive cash-flow has expired.
iii) Cash and cash equivalents and other receivables
Cash and cash equivalents comprise cash on hand and short-term
deposits with an original maturity of three months or less that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value. Other receivables including
VAT recoverable are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
These financial assets are included in current assets, except for
maturities greater than twelve months after the reporting date,
which are classified as non-current assets. They are initially
recognised at fair value plus transaction costs that are directly
attributable to the acquisition, and subsequently carried at
amortised cost using the effective interest rate method, less
provision for impairment.
Financial liabilities
The classification of financial liabilities at initial
recognition depends on the purpose for which the financial
liability was issued and its characteristics.
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All financial liabilities are initially recognised at fair value
net of transaction costs incurred. All purchases of financial
liabilities are recorded on trade date, being the date on which the
Group becomes party to the contractual requirements of the
financial liability. Unless otherwise indicated the carrying
amounts of the Group's financial liabilities approximate to their
fair values.
The Group's financial liabilities consist of only financial
liabilities measured at amortised cost.
i) Financial liabilities measured at amortised cost
These include trade payables, borrowings and other short-term
monetary liabilities, which are initially recognised at fair value
and subsequently carried at amortised cost less impairment using
the effective interest rate method.
ii) Derecognition of financial liabilities
A financial liability (in whole or in part) is derecognised when
the Group has extinguished its contractual obligations, it expires
or is cancelled. Any gain or loss on derecognition is taken to the
consolidated statement of comprehensive income.
l) Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are
recognised as the proceeds received, net of direct issue costs.
Direct issue costs include those incurred in connection with the
placing and admission which include fees payable under the Placing
Agreement, legal costs and any other applicable expenses.
m) Share based payments
Directors' fees
As disclosed in Note 19, the Directors elected to receive their
Directors' fees for the first two years, from the date of their
appointment, through an issue of Ordinary Shares, which were
allotted and issued at the initial issue price. For all Directors
this two year period had completed by 30 June 2015 and Directors
are now remunerated for their services in cash.
Investment Adviser's variable fee
The Group recognises the variable fee for the services received
in a share-based payment transaction as the Group becomes liable to
the variable fee on an accruals basis. The variable fee will be
accrued in the accounting period in which the Company exceeds its
target distribution as per the Investment Advisory Agreement (see
Note 5). A corresponding increase in equity is recognised when
payment for the variable fee is made in an equity settled share
based payment transaction based on the fair value of the services
provided. The variable fee is not applicable in the Company's first
financial period.
3. Critical accounting judgements, estimates and assumptions in
applying the Group's accounting policies
The preparation of the consolidated financial statements under
IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experience and other factors that are believed to be reasonable
under the circumstances, the results of which form the basis of
making judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates.
The area involving a high degree of judgement or complexity or
area where assumptions and estimates are significant to the
consolidated financial statements has been identified as the risk
of misstatement of the valuation of the SPV investments (see Note
10). Revisions to accounting estimates are recognised in the period
in which the estimate is revised and in any future period
affected.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future period
if the revision affects both current and future periods.
Following the adoption of the Amendments, the Board has
determined, and continues to hold the view, that the Company
satisfies the criteria to be regarded as an investment entity and
that the Company, together with BSIFIL, which also serves as a
holding company for the Group's investments in the SPVs, provides
investment related services. This determination involves a degree
of judgement due to the complexity within the wider structure of
the Group and the investments in the SPVs (see Note 2 (c)). As
disclosed in Note 2 (c), the Board has determined the unit of
account to be the Group's interest in the SPV rather than the SPV's
investments in the solar projects. Additionally, as the investments
in the SPVs consist of both debt and equity investments, judgement
has been applied to the unit of account for the measurement of
these investments.
On 18 December 2014, the IASB issued further amendments to IFRS
10 (Investment Entities: Applying the Consolidation Exception)
which may have a material impact on the preparation and
presentation of the Group accounts as they have clarified the scope
of the exceptions to mandatory non-consolidation. The Consolidation
Exception Amendments are mandatory for annual periods beginning on
or after 1 January 2016. The Board is currently assessing the full
impact of these.
The Group continues to consolidate BSIFIL and holds all SPV
investments at fair value. The net assets of BSIFIL, which at 30
June 2015 principally comprise cash and working capital balances in
addition to the SPV investments, would be required to be included
in the carrying value of the financial assets held at fair value
through profit or loss. This change would not materially affect the
Group's net assets. At 30 June 2015, BSIFIL's cash and working
capital balances are not included in the fair value of the
financial assets held at fair value through profit or loss and are
presented within the Group's net assets.
4. Investment income
Year ended 29 May 2013 to
30 June 2015 30 June 2014
GBP GBP
Consultancy services fee income 1,901,662 1,142,237
During the previous period, BSIFIL entered into consultancy
agreements with each SPV for the provision of on-going ad-hoc
advisory services in the management, administration and operation
of each SPV. The consultancy services fee income is charged
according to hourly rates and agreed from time to time between
BSIFIL and each SPV.
5. Administrative expenses
Year ended 29 May 2013 to
30 June 2015 30 June 2014
GBP GBP
------------------------------------------------------------- -------------- ----------------
Investment advisory fees (including technical services fee) 2,007,666 1,204,987
Legal and professional fees 275,934 341,500
Administration fees 287,424 145,076
Directors' remuneration 145,599 150,986
Audit fees 61,398 35,000
Non-audit fees* 10,661 25,875
Broker fees 52,032 48,453
Regulatory Fees 25,511 9,589
Registrar fees 25,177 11,812
Insurance 56,891 9,214
Listing fees 18,004 26,849
Other expenses 55,788 44,979
3,022,085 2,054,320
============== ================
*Note: 2015 excludes GBP62,100 of non-audit fees in relation to
the placings in November 2014, which were deducted from the placing
proceeds. 2014 excluded GBP40,000 of non-audit fees in relation to
the IPO, which were deducted from the IPO proceeds.
Investment Advisory Agreement
The Group and the Investment Adviser have entered into an
Investment Advisory Agreement, dated 24 June 2013, pursuant to
which the Investment Adviser has been given overall responsibility
for the non-discretionary management of the Group's (and any of the
Group's SPVs) assets (including uninvested cash) in accordance with
the Group's investment policies, restrictions and guidelines. Under
the terms of the Investment Advisory Agreement, the Investment
Adviser is entitled to a combination of a base fee and variable
fee. The base fee is payable quarterly in arrears in cash, at a
rate equivalent to 1% per annum of
the NAV up to and including GBP100,000,000, 0.80% per annum of
the NAV above GBP100,000,000 and up to and including GBP200,000,000
and 0.60% per annum of the NAV above GBP200,000,000. The base fee
will be calculated on the NAV reported in the most recent quarterly
NAV calculation as at the date of payment. The variable fee is
based on the following:
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(i) if in any year (excluding the Company's first financial
year), the Company exceeds its distribution target of 7 pence per
Ordinary Share per year which will rise with the annual RPI in the
third year, the Investment Adviser will be entitled to a variable
fee equal to 30% of the excess, subject to a maximum variable fee
in any year equal to 1% of the NAV as at the end of the relevant
financial year. The variable fee shall be satisfied either by the
issue of Ordinary Shares to the Investment Adviser at an issue
price equal to the prevailing NAV per Ordinary Share; acquisition
of Ordinary Shares held in treasury; or purchase of Ordinary Shares
in the market. The Ordinary Shares issued to the Investment Adviser
will be subject to a three year lock-up period, with one-third of
the relevant shares becoming free from the lock-up on each
anniversary of their issue.
(ii) if in any year (excluding the Company's first financial
year), the Company fails to achieve its distribution target of 7
pence per Ordinary Share per year which will rise with the annual
RPI in the third year, the Investment Adviser will repay its base
fee in proportion by which the actual annual distribution per
Ordinary Share is less than the target distribution, subject to a
maximum repayment in any year equal to 35% of the base fee
calculated prior to any deduction being made. The repayment will be
split equally across the four quarters in the following financial
year and will be set off against the quarterly management fees
payable to the Investment Adviser in that following financial
year.
On 11 June 2014, BSIFIL entered into a Technical Services
Agreement with the Investment Adviser, with a retrospective
effective date of 25 June 2013 in order to delegate the provision
of the consultancy services to the Investment Adviser in its
capacity as technical adviser to the SPVs. On the same date, 11
June 2014, the Group entered into a base fee offset arrangement
agreement, whereby the aggregate technical services fee and base
fee payable (under the Investment Advisory Agreement) shall not
exceed the base fee that would otherwise have been payable to the
Investment Adviser in accordance with the Investment Advisory
Agreement had no fees been payable under Technical Services
Agreement.
In the event that the Investment Adviser becomes liable to pay
the variable fee repayment amount, the Investment Adviser shall be
liable to pay such amount regardless of whether or not the base fee
previously paid to it under the Investment Advisory Agreement had
been reduced by virtue of the application of the set off
arrangements as outlined on the base fee offset arrangement
agreement dated 11 June 2014.
The fees incurred for the period and the amount outstanding at
the period end have been disclosed in Note 19.
Administration Agreement
The Administrator has been appointed to provide day-to-day
administration and company secretarial services to the Company, as
set out in the Administration Agreement dated 24 June 2013.
Under the terms of the Administration Agreement, the
Administrator is entitled to an annual fee, at a rate equivalent to
10 basis points of NAV up to and including GBP100,000,000, 7.5
basis points of NAV above GBP100,000,000 and up to and including
GBP200,000,000 and 5 basis points of the NAV above GBP200,000,000,
subject to a minimum fee of GBP100,000 per annum. The fees are for
the administration, accounting, corporate secretarial services,
corporate governance, regulatory compliance and stock exchange
continuing obligations provided to the Company. In addition, the
Administrator will receive an annual fee of GBP5,000 and GBP2,500
for the provision of a compliance officer and money laundering
reporting officer respectively.
The Administrator will also be entitled to an investment related
transaction fee charged on a time spent basis, which is capped at a
total of GBP5,000 per investment related transaction. All
reasonable costs and expenses incurred by the Administrator in
accordance with this agreement are reimbursed to the Administrator
quarterly in arrears.
The fees incurred for the period and the amount outstanding at
the period end have been disclosed in Note 19.
6. Transaction costs
Year ended 29 May 2013 to
30 June 2015 30 June 2014
GBP GBP
----------------------------------- -------------- ----------------
Completed investment acquisitions 614,546 465,132
Other investment acquisitions (42,970) 42,970
571,576 508,102
============== ================
7. Finance costs
Year ended 29 May 2013 to
30 June 2015 30 June 2014
GBP GBP
-------------------- -------------- ----------------
Arrangement fees 266,667 22,222
Loan facility fees 432,279 10,411
Loan interest 96,592 -
-------------- ----------------
795,538 32,633
============== ================
On 11 June 2014, the Group entered into a three-year revolving
acquisition facility for up to GBP50 million with RBS, which
expires on 10 June 2017. This facility has been secured against the
Group's assets through a debenture agreement entered into as part
of the facility. This facility includes a working capital element
and will provide the Group with a flexible source of funding to
make additional acquisitions of solar energy assets in the UK. The
facility is subject to an interest rate margin over LIBOR of 2.25%
and an arrangement fee of 1.6% over the total commitment, secured
against the Group's existing assets (see Note 10). The arrangement
fee is to be amortised over the three year term of the loan
facility. The Group is required to meet certain financial
covenants, the most significant of which is maintaining a forecast
and historic interest cover ratio above 3.5:1 and a leverage ratio
of not greater than 0.35:1. At 30 June 2015, the Group had drawn
down an amount totalling GBP18,900,000 (2014: GBPNil) on this
facility.
Leverage as at 30 June 2015 is 6.15% (2014: Nil) calculated by
the commitment method and 6.43% (2014: Nil) calculated by the gross
method.
8. Taxation
The Company has obtained exempt status under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance 1989 for which it pays an
annual fee of GBP1,200 (2014: GBP600) (included within regulatory
fees).
The income from the Company's investments is not subject to any
further tax in Guernsey although the subsidiary and underlying
SPVs, as UK based entities, are subject to the current prevailing
UK corporation tax rate. The standard rate of UK corporation tax to
31 March 2014 is 23%, 21% from 1 April 2014 and is 20% from 1 April
2015. This is due to decrease to 19% in 2017 and to 18% by
2020.
At the year end, BSIFIL had taxable profits of GBP12,944,738
(2014: GBP5,056,147) which are expected to be offset against the
taxable losses of the underlying SPVs through group relief. As a
result, the tax charge for the period shown in the consolidated
statement of comprehensive income is nil.
9. Net asset value per Ordinary Share
The calculation of NAV per Ordinary Share is based on NAV of
GBP288,390,867 (2014: GBP147,676,019) and the number of shares in
issue at 30 June 2015 of 278,417,224 (2014: 143,426,684) Ordinary
Shares.
10. Financial assets held at fair value through profit or
loss
The Group's accounting policy on the measurement of these
financial assets is discussed in Note 2 (k) and below.
30 June 2015 30 June 2014
Total Total
GBP GBP
------------------------------------------------------------------------------------ -------------- --------------
Opening balance (Level 3) 136,120,317 -
Additions 152,842,467 127,313,722
Cancellation of loan by SPV (670,000) -
Change in fair value of financial assets held at fair value through profit or loss 8,534,552 8,806,595
-------------- --------------
Closing balance (Level 3) 296,827,336 136,120,317
============== ==============
As disclosed in Note 11, the fair value of the West Raynham
project is represented as 100% of the valuation less the
outstanding amount of equity and loan commitment due on 30 June
2015.
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The 'Additions' of GBP152,842,467 includes an accrued amount of
GBP5,014,599 (see Note 14) and GBP7,725,956 in respect of shares
issued as consideration for a SPV investment (see Notes 16 and
19).
Analysis of net gains on financial assets held at fair value through profit or loss
(per consolidated statement of comprehensive income)
Change in fair value of financial assets held at fair value
through profit or loss 8,534,552 8,806,595
Receipts from SPV investments held at fair value through profit or loss 8,938,331 1,671,430
17,472,883 10,478,025
=========== ===========
At 30 June 2015, GBP111,821,757 million (2014: GBP111,762,207
million) of the Group's assets have been pledged as security
against the Group's revolving loan facility (see Note 7).
Fair value measurements
IFRS 13 'Fair Value Measurement' requires disclosure of fair
value measurement by level. The level of fair value hierarchy
within the financial assets or financial liabilities is determined
on the basis of the lowest level input that is significant to the
fair value measurement. Financial assets and financial liabilities
are classified in their entirety into only one of the three
levels.
The fair value hierarchy has the following levels:
-- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
-- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the assets or
liabilities, either directly (i.e. as prices) or indirectly
(i.e. derived from prices);
-- Level 3 - inputs for assets or liabilities that are not based
on observable market data (unobservable inputs).
The determination of what constitutes 'observable' requires
significant judgement by the Group. The Group considers observable
data to be market data that is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary,
and provided by independent sources that are actively involved in
the relevant market.
The only financial instruments carried at fair value are the SPV
investments held by the Group, which are fair valued at each
reporting date. The Group's investments have been classified within
Level 3 as the SPV investments are not traded and contain
unobservable inputs (see Note 2 (k)).
Transfers during the period
There have been no transfers between levels during the year
ended 30 June 2015. Any transfers between the levels will be
accounted for on the last day of each financial period. Due to the
nature of the investments, these are always expected to be
classified as Level 3.
Valuation methodology and process
The Directors base the fair value of the investments in the SPVs
held by the Group on information received from the Investment
Adviser. Fair value is calculated on an unleveraged, discounted
cash-flow basis in accordance with the IPEV Valuation Guidelines.
The Investment Adviser produces fair value calculations on a
semi-annual basis as at 30 June and 31 December each year. However,
in every third year (commencing not later than the year ended 30
June 2016), the Board will have an external valuation performed by
an experienced independent third party. Such an external valuation
has been undertaken by an independent valuer for the year ended 30
June 2015 and considered by Directors in determining the portfolio
fair value.
The Board reviews and considers the fair value arrived at by the
valuer before incorporating into the fair value of the investments
adopted by the Group. As all the underlying solar plants are fully
operational, the discounted cash-flow technique was applied in
appraising each SPV's solar project. This method identifies the
inputs that have the most significant impact on the carrying value
of the investments which include the discount rate, electricity
price forecasts, the amount of electricity the solar assets are
expected to produce and inflation rate on related costs.
The Directors have satisfied themselves as to the Group's
valuation policy, valuation methodology, discount rates and key
assumptions applied.
The key inputs to the valuation are the discount rate, power
price forecasts and inflation rate. Original discount rates applied
when the solar assets were first purchased could change due to
factors such as a material change in long term inflation
expectations or risk-free rates; a change in risk perception of
solar assets or the regulation supporting solar assets; or a change
in the nature of capital available within the industry (for
example, large scale institutional investors with a low cost of
capital may drive the reduction in the cost of capital for solar
assets). As a result, the discount rates are subjective and an
alternative assumption may result in a different rate. Judgement is
used by the Board in arriving at the appropriate discount rate used
by the Group and its selection reflects the fact that during the
period there has been an increase in the demand for
income-producing infrastructure assets and with this an increase in
the number of market participants. As highlighted by the discount
range presented by EY in their Independent Valuation review and
supported by the experience of the Investment Adviser whilst
bidding
on projects, the impact of these factors has resulted in
discount rates for the sector reducing over the period. To
accurately reflect this evolving landscape, the Directors have
chosen to apply a reduction of 0.3% to the discount rate that has
been applied, moving the rate from 7.8% in 2014 to 7.5% in
2015.
Long term power price forecasts are obtained from a leading
power forecaster, which are reviewed and adjusted by the valuer, as
required, in order to align these with the fixed power prices which
would currently be achieved on the power purchasing agreements that
the SPVs have entered into. This curve equates to an increase in
power prices from the 2015/2016 financial year at an average
nominal rate of 2.32%, compared with our assumption on inflation of
2.5% (2014: 2.5%) per annum.
In the Independent Valuation presented by EY the valuation range
was based upon application of a long-term RPI assumption of 3.1%
per annum (sourced from Oxford Economics). However, following
consultation with the Investment Adviser a review of peer-group
comparators, and in particular in consideration of long term as
well as short term market trends, the Board elected to take a more
prudent assumption on long term inflation and decided to continue
to apply the rate of 2.5%, in line with the level used in previous
valuations presented as at 31 December 2014 and 30 June 2014.
Related revenue (for associated FiTs and ROCs benefits) and
costs (for the construction and maintenance of the solar assets)
may not stay constant in real terms over the life of the solar
assets due to inflation rates. The Group assumes an inflation rate
of 2.5%.
Long term irradiation forecasts based on a number of long term
irradiation databases utilising both ground and satellite based
measurements have been provided by a leading solar PV technical
adviser in the UK market. The Investment Adviser has relied on this
data and where applicable, the performance ratio warranted by the
contractors. Base energy yield assumptions are P50 (50% probability
of exceedence).
Each investment is subject to full UK corporate taxation at the
prevailing rate with the tax shield being limited to the applicable
capital allowances from the Group's SPV investments.
Sensitivity analysis
The table below analyses the sensitivity of the fair value of
investments to an individual input, while all other variables
remain constant. The Board considers the changes in inputs to be
within a reasonable expected range based on their understanding of
market transactions. This is not intended to imply that the
likelihood of change or that possible changes in value would be
restricted to this range.
30 June 2015 30 June 2014
------------------------------------- ----------------------------------------
Change in fair value Change in NAV Change in fair value Change in NAV
of investments per share of investments per share
Input Change in input GBP (pence) GBP (pence)
------------------- ---------------- --------------------- -------------- --------------------- -----------------
Discount rate + 0.5% (11,819,069) (4.20) (5,248,224) (3.55)
-------------------
- 0.5% 12,104,577 4.30 5,602,764 3.79
------------------- ---------------- --------------------- -------------- --------------------- -----------------
Power prices +10% 15,306,668 5.50 7,362,428 4.99
-------------------
-10% (15,317,940) (5.50) (7,363,074) (4.99)
------------------- ---------------- --------------------- -------------- --------------------- -----------------
Inflation rate + 0.25% 6,042,730 2.20 2,626,043 1.78
-------------------
- 0.25% (5,868,154) (2.11) (2,548,372) (1.73)
------------------- ---------------- --------------------- -------------- --------------------- -----------------
Energy yield 10 year P90 (26,094,579) (9.40) (11,572,695) (7.84)
-------------------
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10 year P10 26,042,683 9.40 11,560,789 7.83
------------------- ---------------- --------------------- -------------- --------------------- -----------------
Operational costs +10% (6,717,775) (2.40) (3,040,785) (2.06)
-10% 6,712,220 2.40 3,040,408 2.06
------------------- ---------------- --------------------- -------------- --------------------- -----------------
Tax Rate +5% (9,660,760) (3.50) (4,227,338) (2.86)
-5% 9,660,760 3.50 4,227,338 2.86
------------------- ---------------- --------------------- -------------- --------------------- -----------------
11. Financial support to unconsolidated SPV investments
The following table shows the SPV investments of the Group which
have not been consolidated in the preparation of these consolidated
financial statements as the Group has adopted the investment entity
exemption referred to Note 2 (c):
Project SPV Investments Date of investment Site location Ownership Interest
----------------- --------------------------------------- -------------------- --------------- -------------------
Goosewillow ISP (UK) 1 Limited 5 August 2013 Oxfordshire 100%
================= ======================================= ==================== =============== ===================
30 August 2013 /
Hardingham Hardingham Solar Limited 19 November 2014 Norfolk 100%
================= ======================================= ==================== =============== ===================
North Beer North Beer Solar Limited 10 October 2013 Cornwall 100%
================= ======================================= ==================== =============== ===================
Hill Farm HF Solar Limited 21 October 2013 Oxfordshire 100%
================= ======================================= ==================== =============== ===================
Saxley Saxley Solar Limited 19 December 2013 Hampshire 100%
================= ======================================= ==================== =============== ===================
Betingau Betingau Solar Limited 23 December 2013 Glamorgan 100%
================= ======================================= ==================== =============== ===================
Hall Farm Hall Solar Limited 24 December 2013 Norfolk 100%
================= ======================================= ==================== =============== ===================
Sheppey Sheppey Solar Limited 18 February 2014 Kent 100%
================= ======================================= ==================== =============== ===================
Pentylands Solar Power Surge Limited 4 March 2014 Wiltshire 100%
================= ======================================= ==================== =============== ===================
Hoback Hoback Solar Limited 17 June 2014 Hertfordshire 100%
================= ======================================= ==================== =============== ===================
Capelands Capelands Solar Farm Limited 25 July 2014 Somerset 100%
================= ======================================= ==================== =============== ===================
Redlands Redlands Solar Farm Limited 25 July 2014 Somerset 100%
================= ======================================= ==================== =============== ===================
L&P Solar * Bluefield L&P Solar Limited 9 October 2014 Various 100%
================= ======================================= ==================== =============== ===================
Ashlawn Ashlawn Farm Limited 3 December 2014 Somerset 100%
================= ======================================= ==================== =============== ===================
Rove Wel Solar Farm Limited 23 December 2014 Wiltshire 100%
================= ======================================= ==================== =============== ===================
Elms Wel Solar Park 2 Limited 11 February 2015 Oxfordshire 100%
================= ======================================= ==================== =============== ===================
Good Energy West Raynham Solar Park
West Raynham ** Limited 26 March 2015 Norfolk 90%
----------------- --------------------------------------- -------------------- --------------- -------------------
As at 30 June 2014 the Group did not consolidate those
investments with dates before 30 June 2014.
*See Notes 16 and 19
**As at 30 June 15, BSIFIL owned 90% of the shares of the Good
Energy West Raynham Solar Park Limited, in respect of the West
Raynham project, however the SPA signed with the seller, on 27
March 2015, contains a put option and a call option which gives
BSIFIL the right and obligation to purchase the remaining 10% of
the shares. As disclosed in Note 10, the fair value of this
investment is therefore represented as 100% of the valuation less
the outstanding amount of equity and loan commitment due on 30 June
2015.
The Group has advanced the following shareholder loans to the
SPVs, the loans are subject to an interest rate of 7% per annum,
are unsecured and repayable no later than 25 years from the date
the respective loan agreements were entered into:
As at 30 June 2015 Shareholder loan Total investment Outstanding commitment 30
Equity commitment June 2015
Project SPV GBP GBP GBP GBP
Hill Farm HF Solar Limited 1 17,249,999 17,250,000 -
Hardingham Solar
Hardingham Limited 1 22,649,999 22,650,000 -
Betingau Solar
Betingau Limited 1 11,154,999 11,155,000 12,434
ISP (UK) 1
Goosewillow Limited 10 18,909,990 18,910,000 -
Hall Solar
Hall Farm Limited 1,316,592 12,003,479 13,320,071 -
North Beer Solar
North Beer Limited 1,000 9,299,000 9,300,000 -
Saxley Solar
Saxley Limited 1 6,949,999 6,950,000 -
Sheppey Solar
Sheppey Limited 1 11,949,999 11,950,000 -
Solar Power
Pentylands Surge Limited 780,143 20,569,990 21,350,133 133
Hoback Solar
Hoback Limited 1,731,800 17,218,200 18,950,000 1,688
Bluefield L&P
L&P * Solar Limited 3,653,624 4,591,313 8,244,937 -
Capelands Solar
Capelands Farm Limited 100 8,569,900 8,570,000 -
Redlands Solar
Redlands Farm Limited 100 6,319,900 6,320,000 -
Ashlawn Farm
Ashlawn Limited 1 7,549,999 7,550,000 -
Wel Solar Farm
Rove Limited 1 13,949,999 13,950,000 -
Wel Solar Farm
Elms Limited 2 2 32,699,998 32,700,000 -
Good Energy West
Raynham Solar
West Raynham Park Limited 5,014,600 48,532,744 55,538,602 5,285,454
12,497,978 270,169,507 284,658,743 5,299,709
-------------------------------- -------------- ------------------- ------------------ --------------------------
*See Notes 16 and 19
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The Group's SPVs are committed to pay amounts equal to the loan
commitment to meet working capital requirements and payments for
the EPC contracts entered into with the contractors for the design
and construction of the solar plants. At 30 June 2015, the amounts
drawn down by the SPVs are not equal to the loan commitment due to
timing differences, which will be settled in due course. In the
period post year end BSIFIL has completed two payments for deferred
share consideration of GBP5.014m on 3 July, (see Note 14.) and
GBP1.26m on 13 August as well as a further payment of GBP2.82m due
under the EPC contract (also completed on 3 July 2015). This leaves
a final balancing payment of deferred share consideration and
outstanding costs from the transaction of GBP1.19m still to be
settled by BSIFIL and the SPV.
As at 30 June 2014 Shareholder Total investment Outstanding commitment
Equity loan commitment 30 June 2014
Project SPV GBP GBP GBP GBP
Hill Farm HF Solar Limited 1 17,249,999 17,250,000 8,715
Hardingham Solar
Hardingham Limited 1 16,949,999 16,950,000 6,286
Betingau Solar
Betingau Limited 1 11,154,999 11,155,000 6,088
ISP (UK) 1
Goosewillow Limited 10 18,909,990 18,910,000 -
Hall Solar
Hall Farm Limited 1,316,592 12,003,479 13,320,071 -
North Beer Solar
North Beer Limited 1,000 9,299,000 9,300,000 7,794
Saxley Solar
Saxley Limited 1 6,949,999 6,950,000 -
Sheppey Solar
Sheppey Limited 1 11,949,999 11,950,000 6,492
Solar Power Surge
Pentylands Limited 10 21,349,990 21,350,000 -
Hoback Solar
Hoback Limited - 18,950,000 18,950,000 18,950,000
1,317,617 144,767,454 146,085,071 18,985,375
-------------------------------- ------------------- ---------------- ---------------------- -------------------------
12. Trade and other receivables
30 June 2015 30 June 2014
GBP GBP
Non-current assets
Prepayments:
- Arrangement fees (Note 7) 244,444 511,111
------------- -------------
Current assets
-------------------------------------------------------------- ------------- -------------
Income receivable from consultancy services fee (see Note 4) 541,893 148,243
Short term loan to SPV 1,656,105 -
VAT receivable 300,057 16,728
Interest receivable 100 5,274
Trade debtors 40,175 -
Other receivables 2,681 23,887
Prepayments:
- Arrangement fees on loan facilities (Note 7) 266,667 266,667
- Directors' remuneration (see Note 19) - 139,014
- Insurance 54,609 -
- Other 18,226 8,717
------------- -------------
2,880,513 608,530
============= =============
The short term loan to SPV is in relation to a payment of VAT by
BSIFL on behalf of the West Raynham project was payable on demand
and has been repaid post year end.
BSIFIL had been engaged with HM Revenue and Customs regarding
the recovery of VAT however on 16 July 2015 HMRC confirmed that
they no longer wished to challenge BSIFIL's VAT recovery status.
There are no material past due or impaired receivable balances
outstanding at the year end.
On 12 July 2013, 290,000 Ordinary Shares were issued to the
Directors in lieu of a cash payment for Directors' fees for the
first two years. The release of this prepayment completed in June
2015 (see Note 19).
The Directors consider that the carrying amount of all
receivables approximates to their fair value.
13. Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Group and
short-term bank deposits held with maturities of up to three
months. The carrying amounts of these assets approximate their fair
value.
30 June 2015 30 June 2014
GBP GBP
Cash and cash equivalent:
* Committed 10,300,054 5,035,375
- Uncommitted 2,973,418 6,251,755
------------- -------------
13,273,472 11,287,130
============= =============
Committed cash and cash equivalents consist of amounts expected
to be utilised to meet the Group's commitments.
14. Other payables and accrued expenses
30 June 2015 30 June 2014
GBP GBP
Non-current liabilities
Interest bearing borrowings - drawdown during the period (38,400,000) -
Interest bearing borrowings - repaid during the period 19,500,000 -
(18,900,000) -
================ ===============
As disclosed in Note 7, on 11 June 2014, the Group entered into a three-year revolving acquisition
facility for up to GBP50 million with RBS, of which, GBP18,900,000 had been drawn down at
the year end.
Current liabilities
Deferred consideration - SPV investment 5,014,599 -
Investment advisory fees 573,432 322,758
Legal and professional fees 14,688 313,164
Administration fees 56,707 33,688
Audit fees 55,000 35,000
Other payables 220,472 146,459
5,934,898 851,069
================ ===============
Deferred consideration for SPV investment payable at the year
end is in relation to the West Raynham project. This was paid on 3
July 2015.
The Group has financial risk management policies in place to
ensure that all payables are paid within the agreed credit period.
The Board of Directors considers that the carrying amount of all
payables approximates to their fair value.
15. Earnings per share
Year ended 29 May 2013 to
31 June 2015 30 June 2014
------------------------------------------------------------------------------------ -------------- ----------------
Profit attributable to shareholders of the Company GBP15,150,759 GBP9,444,045
Weighted average number of Ordinary shares in issue 225,817,646 135,075,710
Basic and diluted earnings from continuing operations and profit for the
year/period (pence) 6.71 6.99
============== ================
There was no income earned or shares issued between 29 May 2013
and 11 July 2013, therefore this period was not included for the
purpose of calculating the weighted average number of shares in
respect of 2014.
There are no potentially dilutive shares in issue.
16. Share capital
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The authorised share capital of the Company is represented by an
unlimited number of Ordinary Shares of no par value which, upon
issue, the Directors may designate into such classes and
denominated in such currencies as they may determine.
Year ended
Number of Ordinary Shares 30 June 2015 29 May 2013 to 30 June 2014
Number Number
------------------------------------------------------------------ -------------- ----------------------------
Opening balance 143,426,684 -
Shares issued as consideration for SPV investment (Notes 11, 19) 7,490,540 -
Shares issued for cash 127,500,000 143,028,999
Shares issued in lieu of Directors' fees - 290,000
Share issued as a scrip dividend alternative - 107,685
Closing balance 278,417,224 143,426,684
============== ============================
Year ended
Shareholders' Equity 30 June 2015 29 May 2013 to 30 June 2014
GBP GBP
----------------------------------------------------------------- -------------- ----------------------------
Opening balance 147,676,019 -
Shares issued as consideration for SPV investment (Notes 11,19) 7,725,956 -
Shares issued for cash 130,687,500 143,159,289
Shares issued in lieu of Directors' fees - 290,000
Share issued as a scrip dividend alternative - 109,812
Share issue costs (2,291,852) (2,721,335)
Dividends paid (10,557,515) (2,605,792)
Retained earnings 15,150,759 9,444,045
Closing balance 288,390,867 147,676,019
============== ============================
On 9 October 2014, the Company issued 7,490,540 new Ordinary
Shares as partial consideration for the acquisition of Bluefield
L&P Solar Limited. These shares were issued at a price of
GBP1.03143 per Ordinary Share, raising total gross proceeds of
GBP7,725,956. The issue price for each consideration share equalled
the average mid-market price of the Ordinary Shares during the
seven dealing days up to and including the third dealing day prior
to completion of the acquisition agreement. The issuance of the
consideration shares is reflected as an increase in equity and a
corresponding increase in financial assets held at fair value
through profit or loss. This transaction had no impact on the
unaudited condensed consolidated statement of comprehensive
income.
On 14 November 2014, the Company issued 120,000,000 new Ordinary
Shares following a placing subsequent to the authority granted by
the shareholders at the EGM held on 1 October 2014. These shares
were issued at a price of GBP1.025 per Ordinary Share, raising
gross proceeds of GBP123,000,000.
On 25 November 2014, the Company issued 7,500,000 new Ordinary
Shares following a placing subsequent to the authority granted by
the shareholders at the EGM held on 1 October 2014. These shares
were issued at a price of GBP1.025 per Ordinary Share, raising
gross proceeds of GBP7,687,500.
Rights attaching to shares
The Company has a single class of Ordinary Shares which are
entitled to dividends declared by the Company. At any general
meeting of the Company each ordinary Shareholder is entitled to
have one vote for each share held. The Ordinary Shares also have
the right to receive all income attributable to those shares and
participate in distributions made and such income shall be divided
pari passu among the holders of Ordinary Shares in proportion to
the number of Ordinary Shares held by them.
Retained reserves
Retained reserves comprise of retained earnings as detailed in
the consolidated statement of changes in equity.
17. Dividends
On 8 September 2014, the Board declared a second interim
dividend of GBP2,868,534, in respect of the year ending 30 June
2014, equating to 2 pence per Ordinary Share, which was paid on 31
October 2014 to shareholders on the register on 19 September
2014.
In conjunction with the placings, as disclosed in Note 16, the
Board had considered the timing of the Company's dividends with the
objective of ensuring that any issue of new shares would not be
dilutive to the dividend attributable to existing ordinary
shareholders. As such, the Board decided to bring forward the
declaration and payment dates of the first interim dividend in
respect of the year to 30 June 2015. As a result, on 3 November
2014 the Board declared the first interim dividend of GBP4,904,809,
equating to 3.25 pence per Ordinary Share (first interim dividend
in respect of the year ending 30 June 2014: 2 pence per Ordinary
Share), which was paid on 5 December 2014 to shareholders on the
register on 14 November 2014.
On 6 May 2015, the Board declared a second interim dividend of
GBP2,784,172, in respect of the year ending 30 June 2015, equating
to 1 penny per Ordinary Share (second interim dividend in respect
of the year ending 30 June 2014: 2 pence per Ordinary Share), which
was paid on 15 May 2015 to shareholders on the register on 8 May
2015.
Post year end, on 28 July 2015, the Board declared a third
interim dividend of GBP4,176,258, in respect of year ending 30 June
2015, equating to 1.5 pence per Ordinary Share (third interim
dividend in respect of the year ending 30 June 2014: Nil), which
was paid on 21 August 2015 to shareholders on the register on 6
August 2015.
Post year end, on 30 September 2015, the Board approved a fourth
interim dividend of 1.50 pence per Ordinary Share which will be
payable to shareholders on the register as at 9 October 2015 with
an associated ex-dividend date of 8 October 2015.
18. Risk management policies and procedures
The Group is exposed to a variety of financial risks, including
market risk (including price risk, currency risk and interest rate
risk), credit risk and liquidity risk. The Investment Adviser and
the Administrator report to the Board on a quarterly basis and
provide information to the Group which allows it to monitor and
manage financial risks relating to its operations.
The Group's overall risk management programme focuses on the
unpredictability of financial markets and government energy policy
and seeks to minimise potential adverse effects on the Group's
financial performance, as referenced in the Principal Risks and
Uncertainties section in the Strategic Report.
The Board of Directors is ultimately responsible for the overall
risk management approach within the Group. The Board of Directors
has established procedures for monitoring and controlling risk. The
Group has investment guidelines that set out its overall business
strategies, its tolerance for risk and its general risk management
philosophy.
In addition, the Investment Adviser monitors and measures the
overall risk bearing capacity in relation to the aggregate risk
exposure across all risk types and activities. Further details
regarding these policies are set out below:
Market price risk
Market price risk is defined as the risk that the fair value of
future cash-flows of a financial instrument held by the Group will
fluctuate because of changes in market prices.
Market price risk will arise from changes in the inflation rate
as the electricity prices generated by the Group, although fixed
through the FiTs and ROC regimes, will be subject to annual
inflationary changes.
The Group's future SPV investments are subject to fluctuations
in the price of new solar PV equipment. The price of solar
equipment can be influenced by a number of factors, including the
price and availability of raw materials, demand for PV equipment
and any import duties that may be imposed on PV equipment. Changes
in the cost of solar PV equipment could have a material adverse
effect on the Group's ability to source projects that meet its
investment criteria and consequently its business, financial
position, results of operations and business prospects.
The valuation of future investments will be subject to the risk
that these will not achieve the expected ROC banding if a new
accreditation comes into effect in future. In order to mitigate
this risk, if the expected ROC banding is not achieved, the EPC
contract price will be reduced in order for the Company to maintain
the same internal rate of return on each project.
The Group's overall market position is monitored by the
Investment Adviser and is reviewed by the Board of Directors on an
on-going basis.
Currency risk
The Group does not have any direct currency risk exposure as all
its investments and transactions are in Sterling. The Group is
however indirectly exposed to currency risk on future investments
that will require importation of equipment.
Interest rate risk
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Interest rate risk is the risk that the value of financial
instruments, related income from the cash and cash equivalents and
interest income from the loan commitments to the SPVs will
fluctuate due to changes in market interest rates. The Company is
also exposed to interest rate risk via its floating rate credit
facility. As disclosed in Notes 7 and 14, the drawn down amount at
the year end is GBP18,900,000. If the LIBOR rate were to increase
by 1% the interest due on the amount drawn down as at 30 June 2015
would increase by GBP371,000 over the term of the facility to June
2017.
The Group's interest bearing financial assets consist of cash
and cash equivalents and the loan commitments to the SPVs. The
Group's interest rate risk is limited to interest earned on cash
balances and from the loan commitments to the SPVs. The interest
rates on the short-term bank deposits are fixed and do not
fluctuate significantly with changes in market interest rates. The
interest rate of 7% per annum applied to the shareholder loans to
the SPVs is also fixed in nature and is therefore not expected to
fluctuate significantly with changes in market interest rates (see
Note 11). Accordingly, the fair value of the financial assets held
at fair value through profit or loss as determined on an
unleveraged, discounted cash-flow basis is not expected to
fluctuate significantly with changes in market interest rates.
The following table shows the portfolio profile of the financial
assets at year end:
Total as at
30 June 2015
Interest rate GBP
---------------------- -------------- ---------------------------
Floating rate
RBSI 0.00% 204,658
RBS 0.10% 12,640,777
Fixed rate
Lloyds International 0. 25% 23,241
Lloyds 0.30% 404,796
13,273,472
===========================
Total as at
30 June 2014
Interest rate GBP
---------------------- -------------- ---------------------------
Floating rate
RBSI 0.10% 94,990
RBS 0.10% 4,080,925
Fixed rate
Lloyds International 0.50% 22,939
Lloyds 1.00% 7,088,276
11,287,130
===========================
The valuation of the SPV investments is subject to variation in
the discount rate, which are themselves subject to changes in
interest rate risk due to the discount rates applied to the
discounted cash-flow technique when valuing the investments. The
Investment Adviser reviews the discount rates bi-annually and takes
into consideration market activity to ensure appropriate discount
rates are recommended to the Board. Total exposure to interest rate
risk on the financial assets held at fair value through profit or
loss at the year end is GBP296,827,336 (2014: GBP136,120,317) (see
Note 10).
Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full when due. The Group's SPVs have entered into
turnkey EPC contracts with contractors for the design and
construction of the solar plants. Payments advanced to the
contractors in accordance with the terms of the EPC contracts are
protected through performance bonds or titles to assets for amounts
greater than any payment made. At the reporting date the Group's
SPVs held performance bonds totalling GBP18,017,385 (2014:
GBP10,969,303) with banks that have credit rating which is of
investment grade.
The Group's credit risk exposure is due to a portion of the
Group's assets being held as cash and cash equivalents and accrued
interest. The Group maintains its cash and cash equivalents and
borrowings across two different banking groups to diversify credit
risk which have all been group rated A by Fitch, and this is
subject to the Group's credit risk monitoring policies, as
mentioned above. The total exposure to credit risk arises from
default of the counterparty and the carrying amounts of financial
assets best represent the maximum credit risk exposure at the
period end date. As at 30 June 2015, the maximum credit risk
exposure in relation to cash and cash equivalents was GBP13,273,472
(2014: GBP11,287,130).
Total as at
Cash Fixed deposit Interest accrued 30 June 2015
GBP GBP GBP GBP
-------------------- -------------------------- --------------------------- -------------------- -------------------------
RBSI 204,658 - - 204,658
RBS 12,640,777 - - 12,640,777
Lloyds
International - 23,241 - 23,241
Lloyds - 404,796 100 404,896
-------------------- -------------------------- --------------------------- -------------------- -------------------------
12,845,435 428,037 100 13,273,572
Total as at
Cash Fixed deposit Interest accrued 30 June 2014
GBP GBP GBP GBP
-------------------- -------------------------- --------------------------- -------------------- -------------------------
RBSI 94,990 - - 94,990
RBS 4,080,925 - - 4,080,925
Lloyds
International - 22,939 - 22,939
Lloyds - 7,088,276 5,274 7,093,550
-------------------- -------------------------- --------------------------- -------------------- -------------------------
4,175,915 7,111,215 5,274 11,292,404
The carrying amount of these assets approximates their fair
value.
The Group also faces credit risk with the construction of solar
PV assets, as it is likely to result in reliance upon services
being delivered by one or more contractors. Whilst the performance
of contractor services will usually be guaranteed with penalties
linked to underperformance, and potentially in some cases backed by
guarantees, any such guarantees are expected to be limited in their
scope and quantum and may not always cover the full loss of profit
incurred by a project. Failure of a contractor or a change in a
contractor's financial circumstances may, among other things,
result in the relevant asset underperforming or becoming impaired
in value and there can be no assurance that such underperformance
or impairment will be fully or partially compensated by any
contractor warranty or bank guarantee.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its liabilities as they fall due. The Investment Adviser and
the Board continuously monitor forecasted and actual cash-flows
from operating, financing and investing activities.
As the Group's investments are in the SPVs, which are private
companies that are not publicly listed, the return from these
investments is dependent on the income generated or the disposal of
solar assets by the SPVs and will take time to realise.
The following table details the Group's expected maturity for
its financials assets and liabilities. These are undiscounted
contractual cash-flows:
Total as at
Less than one year Between one and five years After five years 30 June 2015
GBP GBP GBP GBP
-------------- --------------------- --------------------------- ------------------------------ --------------------
Assets
Financial
assets held
at fair
value
through
profit or
loss 27,843,142 75,647,462 359,317,158 462,807,762
Trade and
other
receivables* 2,541,011 - - 2,541,011
Cash and cash
equivalents 13,273,472 - - 13,273,472
Liabilities
Other
payables and
accrued
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expenses (5,934,898) - - (5,934,898)
Interest
bearing
loans (267,750) (19,628,438) - (19,896,188)
37,454,977 56,019,024 359,317,158 452,791,159
===================== =========================== ============================== ====================
* excluding
prepayments
At 30 June 2015, there is sufficient liquidity in the form of
cash and cash equivalents to satisfy the Group's obligations.
Between one and five Total as at
Less than one year years After five years 30 June 2014
GBP GBP GBP GBP
-------------- ------------------------------- -------------------------- --------------------------- -----------------------
Assets
Financial
assets held
at fair
value
through
profit or
loss 11,017,412 26,273,820 127,028,117 164,319,349
Trade and
other
receivables* 194,133 - - 194,133
Cash and cash
equivalents 11,287,130 - - 11,287,130
Liabilities
Other
payables and
accrued
expenses (851,069) - - (851,069)
21,647,606 26,273,820 127,028,117 174,949,543
=============================== ========================== =========================== =======================
* excluding
prepayments
Capital management policies and procedures
The Group's capital management objectives are to ensure that the
Group will be able to continue as a going concern while maximising
the capital return to equity shareholders.
In accordance with the Group's investment policy, the Group's
principal use of cash (including the proceeds of the IPO, placings
and the loan facility) is to fund the Group's projects, as well as
expenses related to the issues during the year, on-going
operational expenses and payment of dividends and other
distributions to shareholders in accordance with the Company's
dividend policy.
The Board, with the assistance of the Investment Adviser,
monitors and reviews the broad structure of the Company's capital
on an on-going basis.
The Company has no imposed capital requirements except for the
financial covenants as disclosed in
Note 7.
The capital structure of the Company consists of issued share
capital and retained earnings.
19. Related party transactions and Directors' remuneration
In the opinion of the Directors, the Company has no immediate or
ultimate controlling party.
Laurence McNairn, Director of the Company, is also a director
and indirect shareholder of the Company's Administrator, Heritage
International Fund Managers Limited.
From the total administration fees incurred during the period,
GBP278,555 (2014: GBP145,076) relates to the fees of the
Administrator, of which GBP56,707 (2014: GBP33,688) was outstanding
at the year end.
The Directors are remunerated for their services with annual
fees of GBP33,000, with effect from 12 June 2015 for Paul Le Page
and John Scott and with effect from 1 July 2015 for Laurence
McNairn (2014: GBP30,000) each, with Paul Le Page receiving an
additional annual fee of GBP5,500, with effect from 12 June 2015
(2014: GBP5,000) for acting as chairman of the Audit Committee. The
Chairman receives fees of GBP55,000 per annum, with effect from 12
June 2015 (2014: GBP50,000).
The Directors elected to receive their Directors' fees for the
first two years through an issue of Ordinary Shares, which were
allotted and issued at the initial issue price. The value of this
non-cash consideration is equivalent to the aggregate cash payment
that otherwise would have been made to the Directors for the
provision of their services in accordance with the terms of their
respective appointment letters.
As a result, on 12 July 2013, the Company issued a total of
290,000 Ordinary Shares as part of the IPO at the issue price of
GBP1 per Ordinary Share, to the Directors in lieu of a cash payment
for Directors' fees for the first two years (see Note 16).
The total Directors' fees expense for the period amounted to
GBP145,599 (2014: GBP150,986). The prepaid element of the
Directors' fees, spread over two years, completed in June 2015. In
accordance with the terms of their respective appointment letters
all Directors will receive cash payments for their services in
future. Cash payment of Directors' fees in the year totalled
GBP6,585 (2014: Nil), of which GBP6,585 was outstanding at 30 June
2015 (2014: Nil).
At 30 June 2015, the number of Ordinary Shares held by each
Director is as follows:
2015 2014
Number of Number of
Director Ordinary Shares Ordinary Shares
------------------ --------------------------------- -----------------
John Rennocks 255,805 155,000
Paul Le Page 70,000 70,000
Laurence McNairn 441,764 91,764
John Scott 276,176 201,176
--------------------------------- -----------------
1,043,745 517,940
--------------------------------- -----------------
John Scott and John Rennocks are Directors of BSIFIL. Mike Rand
and James Armstrong, who are partners of the Investment Adviser,
are also Directors of BSIFIL. To date, none of these Directors has
received any fees for their services as Directors of this wholly
owned subsidiary.
The Group's investment advisory fees for the period amounted to
GBP2,007,666 (2014: GBP1,204,987) of which GBP573,432 (2014:
GBP322,758) was outstanding at the year end.
The Group's consultancy services fee income for the period
amounted to GBP1,901,662 (2014: GBP1,142,237) of which GBP582,069
(2014: GBP148,243) was outstanding at the year end.
On 9 October 2014, BSIFIL acquired Bluefield L&P Solar
Limited. As three members of the Investment Adviser are also
Directors of BSIFIL or its subsidiaries, are indirectly key
management personnel of the Company and owned B shares in Bluefield
L&P Solar Limited, they are considered related parties, and the
transaction a related party transaction, under UK FCA Listing Rule
11 'Related Party Transactions' and IAS 24 'Related Party
Disclosures'. The three members of the Investment Adviser received
GBP1,548 cash consideration for their B shares. As holders of B
shares, they were also entitled to receive 20% of the profit
generated by the sale of Bluefield L&P Solar Limited. Their
share of this amounted to GBP353,965. In reviewing the purchase
price paid by the Company for the acquisition of Bluefield L&P
Solar Limited, the Board obtained a valuation report from BDO LLP
to confirm that the purchase price was determined on a fair and
reasonable basis.
On 20 May 2015 the Board approved the transfer of the operation
of daily management activities of the solar project companies,
currently outsourced to other external parties, to an asset
management company, Bluefield Asset Management Services Limited; a
company which has the same ownership as that of the Investment
Adviser. The Board believe that active, integrated and co-ordinated
management of the solar plants enhances the probability of the
plants exceeding expected budgeted generation and so in turn
increases the likelihood of delivering benefits in terms of the
financial return of the companies. The asset management services
cover three main areas: project operation and monitoring services,
financial management and reporting services and loan
administration. The provision of these services to SPVs is being
implemented over a period of twelve months commencing from May
2015. Fees paid to BSL in the year ended 30 June 2015 totalled
GBP58,748 (2014: Nil).
Post year end, on 21st August 2015 terms were agreed for BSIFIL
to acquire Bluefield EIS Limited, Bluefield Kite Limited and
Bluefield Peregrine Limited. On 24 August 2015, BSIFIL completed
the acquisition of Bluefield Kite Limited and Bluefield Peregrine
Limited. Bluefield EIS Limited is expected to be completed once
certain condition precedents have been addressed. As two members of
the Investment Adviser, are also Directors of BSIFIL or its
subsidiaries, are indirectly key management personnel of the
Company and owned B shares in Bluefield EIS Solar Limited,
Bluefield Kite Limited and Bluefield Peregrine Limited, they are
considered related parties, and the transaction a related party
transaction, under UK FCA Listing Rule 11 'Related Party
Transactions' and IAS 24 'Related Party Disclosures'. The two
members of the Investment Adviser received GBP8,680 cash
consideration for their ordinary shares. As holders of B shares,
they were also entitled to a carried interest in the sale of the
Ordinary shares. Their share of this amounted to GBP83,014. A Fair
and Reasonable Opinion was sought and received from Numis
Securities Limited before signing of the transaction.
20. Guarantees and other commitments
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