TIDMBSIF
RNS Number : 0863C
Bluefield Solar Income Fund Limited
27 September 2018
27 September 2018
Bluefield Solar Income Fund Limited
('Bluefield Solar' or the 'Company')
Full Year Results
Annual Report and Financial Statements for the year from 1 July
2017 to 30 June 2018
Operational Highlights
-- The Company delivered underlying earnings(1) , pre-debt
amortisation, of 9.67pps and, after debt service obligations
(2.24pps), and including brought forward dividend reserves
(0.30pps) has total funds available for distribution, for the
period to 30 June 2018, of 7.73pps.
-- The Company has declared total dividends of 7.43pps, in line
with its target of 7.43pps (2017: 7.25pps vs target of 7.18pps).
The dividends declared are covered by earnings in the year.
-- The Company announced 4 acquisitions, amounting to 18.8MWp,
taking the Company's total capacity to 460.3MWp.
-- As at 30 June 2018, the Company had a total of 45 large solar
assets, 39 micro solar assets and 2 roof top assets, all of which
were operational.
-- The Board has continued to value the Company's portfolio at
GBP1.29m/MWp, conservatively in line with market transactions,
which have continued to be reported at prices between GBP1.29m/MWp
and GBP1.35m/MWp.
-- The 'weighted average cost of capital' discount rate has been
reduced to 5.65% as at 30 June 2018, from 5.90% as at 31 December
2017 (30 June 2017: 6.15%). This equates to a cost of equity of
7.26% (December 2017: 7.54%, June 17: 8.07%).
-- NAV as at 30 June 2018 was GBP419m (30 June 2017: GBP409m),
equivalent to a NAV per share of 113.28 pence (30 June 2017: 110.49
pence).
-- The portfolio outperformed operational expectations by 0.7%,
delivering an aggregate Performance Ratio of 82.1% versus budget of
81.5%.
1. Underlying earnings is an alternative performance measure
employed by the Company to provide insight to the shareholders by
definitively linking the underlying financial performance of the
operational projects to the dividends declared and paid by the
Company. Further detail is provided in the Report of the Investment
Adviser, Section 3.
Financial Highlights
As at / year
ended
30 June 2018
Total operating income GBP35,996,640
Total comprehensive income GBP34,796,075
Total underlying earnings (see footnote GBP35,784,332
1 above)
Earnings per share 9.41p
Underlying EPS(2) 9.67p
Total debt amortization (pps) (2.24p)
Underlying EPS available for distribution 7.43p
Total declared dividends per share for
year 7.43p
Earnings per share brought and carried
forward (See Report of the Investment
Adviser, Section 3) 0.30p
NAV per share 113.28p
Share price at 30 June 2018 121.00p
NAV Total return(3) 9.25%
Total return to shareholders(4) 11.68%
2. Underlying EPS is calculated using underlying earnings
divided by the average number of shares calculated as described in
the Report of the Investment Adviser, Section 3.
3. Total return is based on NAV per share movement and dividends
declared in the year
4. Total return to shareholders is based on share price movement
and dividends declared in the year
Chairman John Rennocks said:
"This year has marked another very good year for Bluefield
Solar. We have delivered our target dividend of 7.43 pence per
share (pps), a 0.18pps increase on the two previous annual
distribution totals and in line with our key objective to raise
dividends by RPI from a base of 7.00pps in our first full year of
operations.
Our NAV total return for the year to June 2018 was 9.25% with
shareholder total returns surpassing this at 11.68%. In the five
years since IPO, total returns for shareholders on a NAV and share
price basis have both exceeded 50%, a commendable return for a
defensive income product in a very low interest rate
environment.
Maintaining this robust performance, we continue to optimise our
revenue streams from the existing portfolio through strong
operational management from Bluefield Services.
We have remained disciplined with regard to our acquisition
activity due to the present high transaction values evident in the
secondary market for solar assets. We look forward to the
probability that in the not too distant future that we should be
able to invest in new solar projects which deliver satisfactory
returns without support from government subsidy.
We have also focused on amortising our Aviva long term
financing, a prudent strategy which will support our longer term
income distributions. In keeping with this we have confirmed our
dividend target for the financial year ending June 2019 of 7.68
pence per share, again in line with the RPI change for July 2018,
and after the planned debt amortisation in the year."
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.
For further information:
Bluefield LLP (Company Investment Adviser) Tel: +44 (0) 20
James Armstrong / Mike Rand / Giovanni 7078 0020
Terranova www.bluefieldllp.com
Numis Securities Limited (Company Broker) Tel: +44 (0) 20
Tod Davis / David Benda 7260 1000
www.numis.com
Estera International Fund Managers (Guernsey) Tel: +44 (0) 1481
Limited 742 742
(Company Secretary & Administrator) www.estera.com
Kevin Smith
Media enquiries:
Buchanan (PR Adviser) Tel: +44 (0) 20
Henry Harrison-Topham / Henry Wilson 7466 5000
BSIF@buchanan.uk.com www.buchanan.uk.com
Notes to Editors
About Bluefield Solar
Bluefield Solar is a sterling income fund focused on acquiring
and managing UK-based solar projects to generate stable renewable
energy for periods of typically 25 years or longer. The Company's
primary objective is to deliver its Shareholders stable, long term
sterling income via quarterly dividends, which are linked to RPI.
The majority of the Group's revenue streams are regulated and
non-correlated to traditional markets. Bluefield Solar owns and
operates one of the UK's largest, diversified portfolios of solar
assets with a combined installed power capacity in excess of
460MWp.
Further information can be viewed at www.bluefieldsif.com.
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 GBP1.5 billion of solar
PV funds and/or transactions in both the UK and Europe since 2008,
including over GBP800 million in the UK since December 2011.
Bluefield has led the acquisitions of, and currently advises on
over 80 UK based solar PV 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.
Corporate Summary
Investment objective
The investment objective of the Company is to provide
shareholders with an attractive return, principally in the form of
regular income distributions, by investing in a portfolio of UK
based solar energy infrastructure assets.
Structure
The Company is a non-cellular company limited by shares
incorporated in Guernsey under the Law on 29 May 2013. The
Company's registration number is 56708, 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 following its IPO on 12 July 2013. The issued
capital during the year comprises the Company's Ordinary Shares
denominated in Sterling.
The Company has the ability to use long term and short term debt
at the holding company level as well as having long term, non
recourse debt at the SPV level.
Investment Adviser
The Investment Adviser to the Company during the year was
Bluefield Partners LLP which is authorised and regulated by the UK
FCA under the number 507508. In May 2015 BSL, a company with the
same ownership as the Investment Adviser, commenced providing asset
management services to the investment SPVs held by BSIFIL. In
August 2017 BOL, a company with the same ownership as the
Investment Adviser, commenced providing O&M services to seven
of the investment SPVs held by BSIFIL.
Chairman's Statement
Introduction
The Company has had another good year.
We have delivered an on target dividend of 7.43pps. The dividend
was covered by earnings and is net of debt amortisation. We have
also carried forward surplus earnings of 0.30pps enabling us to
start the 2018/19 financial year with healthy distributable
reserves, and we have also experienced a good start to the new
financial year in respect of irradiation.
Our dividend target for the financial year ending June, 2019 is
to increase the dividend by the June 2018 RPI number of 3.38%,
giving a full year target dividend of 7.68pps.
At the year end the Company's NAV was 113.28pps; NAV Total
Return for the period was 9.25% and Shareholder Total Return was
11.68%.
Key Events
The Company's primary focus has been on maximising revenues in
the existing portfolio through the combined activities of our
Investment Adviser, Bluefield Partners LLP, and our technical asset
management service provider, Bluefield Services Limited. The
portfolio has again delivered an above budget performance.
We have also started to significantly amortise our Aviva long
term financing, a process that goes largely unseen and unheralded
but is a prudent strategy whilst the Company has high levels of
regulated revenues. We will continue to do this in the coming
years, a process that not only lowers leverage as assets are
utilised but also enhances and protects the Company's NAV.
The year is also noteworthy in respect of what we have not done.
We elected not to expand our asset base through significant
purchases in the market due to high valuations and/or poor quality
portfolios coming onto the market, and thus had no need to raise
new equity. We made very selective acquisitions that support the
Company's return targets totalling 18.8MWp or 4% of the Company's
total portfolio by energy capacity. These acquisitions have been
funded, in the main, by our short term credit facility (RCF). In
the absence of subsidies for new build projects, we again decided
to avoid primary investments.
We also decided to keep the investment mandate unchanged and
continue with a UK only focus. This is for no other reason than we
could not see returns that would justify taking the currency,
regulatory and/or country risk for our shareholders who have
supported the growth of the Company based on its ability to deliver
stable, sterling income. This decision is always under review but
there would need to be a compelling reason to justify capital
allocations outside the UK.
Underlying Earnings and Dividend Income
The Company is a sterling income fund and, as such, we continue
to focus on annual earnings and dividends. Indeed, we believe these
tangible, quantifiable measures should be prioritised ahead of more
subjective measures that drive long term valuation.
The underlying earnings for the year were GBP35.8m or 9.67pps.
After amortising our long term leverage, the available profits,
including brought forward reserves, were GBP28.6m or 7.73pps. The
board elected to pay out the on target dividend of 7.43pps and
carry forward 0.30pps into 2018/19.
Valuation and Equity IRR
Valuation methodology remains consistent with previous reporting
periods, with the Board receiving a valuation recommendation from
the Investment Adviser, the product of a comprehensive DCF model.
This valuation is then benchmarked, on a per MegaWatt Peak (MWp)
basis, against comparable transactional activity for basis for UK
based solar assets.
In the Board's view, this is the most effective and transparent
way in which to measure the value of the Company's portfolio
because of the consistent characteristics seen in solar farms.
Whilst the proportion of regulated revenues differ depending on
the vintage of solar farm, the variance between buyers and sellers
with respect to core assumptions is often within a relatively
limited band of tolerance. Power revenue predictions are generally
provided by one or two of the leading forecasters, the technology
and infrastructure used by solar farms is homogenous (making energy
generation predictable) and the cost base for a solar farm is
similar across different assets. As the vast majority of the
installed solar capacity is in the southern half of England and
Wales even the irradiation assumptions are broadly consistent.
All of this combines to enable the Board to look across public
and private data sets and, with support from the Investment
Adviser, to accurately benchmark the valuation of the Company's
portfolio against market activity.
Following this combination of both market an DCF approach, the
Board has been able to extrapolate an average price of GBP1.29m per
MWp from transactions over the last 18 months.
Benchmarking the Company's portfolio to this GBPm per MWp
results (using our actual cost of debt) in a cost of equity
discount rate of 7.26% (7.54% in December 2017 and 8.07% in June
2017) and a WACC discount rate of 5.65% (5.90% in December 2017 and
6.15% in June 2017).
The two main changes in valuation are a reduction in the long
term power forecast, offset by a small reduction in the discount
rate.
Investment Strategy
The investment strategy for the Company is straightforward in
its objective: to buy high quality UK based solar assets that are
accretive to the Company's NAV and dividend paying capacity. In the
past financial year we acquired capacity of 18.8MWp which met these
objectives. This relative lack of acquisitions is the strongest
indictor you can have that our Investment Adviser is not seeing
assets that are priced at a level that delivers the returns
required, or are not of the requisite quality (or, increasingly,
both). It is not that there has been a lack of activity in the UK
solar market - close to 10% of the total installed capacity of
large scale solar portfolios changed hands in the year under review
and the Investment Adviser bid on in excess of 500MWp, largely
unsuccessfully. However, pricing discipline has remained and that
will benefit our Shareholders in the long term.
Non-Subsidised Solar
On the back of falling equipment costs and forecasts of rising
power prices, the unsubsidised solar PV market may be about to
arrive in the UK, as indeed it has in countries which lie further
south.
Our Investment Adviser has observed a number of times that the
solar PV industry has the ability to surprise at the speed in which
it adjusts to the prevailing market conditions. The last subsidy
for new build UK solar was granted at the end of March 2017. Since
then there has been a hiatus as the market waits for installation
costs to fall to a level where unsubsidised solar power becomes
economic in the UK (logically, in the south of England). This is
now an imminent reality, British Solar Renewables has announced
that it has won the EPC deal for the first non-subsidy industrial
solar park in the UK. The facility will have a capacity of 15MWp
and will be installed in Buckinghamshire. Our Investment Adviser is
preparing for the next wave of new capacity that we expect to see
in the short to medium term, where we can pursue our preferred
strategy of investing in solar assets through the construction
phase. But it must be stressed that the subsidy free market is not
quite there yet.
Debt Strategy
The Company has used the period to continue to amortise its
debt. The portfolio has the benefit of high levels of regulated
revenues, almost exclusively using the Renewable Obligation Scheme,
which provides index-linked income for 20 years from the point of
grid connection. It is our view that it is in Shareholders' best
interests to seek to use every year of regulated revenues to
amortise the Company's long term debt as aggressively as is
possible within the objectives of our dividend target. The year
under review saw a good example of this in practice; we paid down
GBP8.3m of debt, equivalent to 2.24pps of earnings.
Power Prices
When we did the IPO in July 2013, short term fixed price power
contracts (12 to 36 months) were being struck in excess of GBP55
per MWh. By Q1 2016, the power market for contracts of a similar
tenor were trading in the GBP30s per MWh. From this low point the
market started to recover. Today I can report that new contracts
are consistently in the GBP50s per MWh and the most recent
contracts have been struck in the GBP60s per MWh. This upturn is
only just beginning to be fed into your Company's revenue
generation. We should add the caveat that we are not forecasting
that the market is going to keep marching forward but the
Investment Adviser has prepared some interesting analysis on the
short term drivers in the UK power market, which highlights why we
have seen this rebound since 2016 and also why this recent increase
seemed to have surprised some of the independent forecasters.
Clearly, power prices are the biggest variable largely outside
our control. I say 'largely outside our control' because whilst we
cannot influence the prevailing pricing within the European and UK
gas markets we can enhance the value of the contracts that are
available to us. This means having flexibility in respect of the
tenor of the power and ROC contracts and flexibility in the choice
of the provider of the contract. We have that flexibility for in
excess of 75% of the portfolio and each year our Shareholders
benefit from this where we are able to maximise the value of the
available contracts that come on to the market.
Technical Asset Management
Bluefield Services, the Bristol based technical asset management
business that looks after all aspects of the portfolio's services,
from monitoring through to contract enforcement, has again
delivered above budget performance. As stated in earlier reports,
there is no alchemy in this - it is down to hard work, diligence
and skill. Positive, consistent engagement with the network
operators reduces downtime and by spending for example: 5,400 hours
analysing plant performance, 300 hours assessing performance
calculations at critical contractual milestones and spending in
excess of 1,750 hours at the solar farms inspecting the condition
of the equipment and status of the sites, giving our Company the
greatest chance it can to minimise planned and unplanned outages
and maximise generation.
The Past and the Future
The period to the end of June 2018 was the Company's fourth full
financial year. Since February 2014 the Company has declared total
dividends of 33.18pps, delivered NAV total return of 51% and
Shareholder total return of 54%. We have achieved these results by
consistently focusing on the fundamentals of acquisition
discipline, debt negotiation and amortisation, strong contractual
protection and technical asset management. We have also achieved
these returns in a challenging power market and by sticking to our
original mandate of investing only in UK solar assets.
Looking forward, the power markets seem more favourable and the
high performing portfolio is being optimised by the Bluefield teams
who are tasked with maximising revenues. The success of this is
measured in an unchanged dividend policy, as set out at our IPO, of
increasing the dividend in line with RPI (7.43pps for 2017/18 and a
target of 7.68pps for 2018/19).
As we enter our fifth year as a listed company you will note
that we are required by our Articles to propose a discontinuation
resolution at the forthcoming AGM. Some companies have continuation
votes whilst we have a discontinuation vote. We strongly believe
the Company should continue in its present form and recommend that
you vote against the discontinuation resolution (as indeed will all
members of the Board with their own shares).
We are now preparing ourselves for the next wave of investment,
when the non-subsidised market becomes economic in the UK and we
plan to apply our highly effective investment model for a primary
market of funding assets through construction.
John Rennocks
Chairman
26 September 2018
The Company's Investment Portfolio
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Analysis of the Company's Investment Portfolio
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Analysis of the Company's Investment Portfolio
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Analysis of the Company's Investment Portfolio
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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 CSR
OPERATIONAL ISSUES
5. Operational & Financial Review for the period (including KPIs)
6. Directors' Valuation of the Company'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 7.00pps
in relation to the financial year 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 aims to
achieve this through optimisation of asset performance, future
acquisitions and use of gearing. The Company's dividend target for
the financial year ended 30 June 2018 is 7.43pps and the Company
has declared dividends of this amount. The Operational and
Financial Review section on within the Strategic Report provides
further information relating to performance during the year.
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.
[Chart]
Management
Board and Committees
The independent 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 year the Investment Adviser has been paid a base fee
of 0.76% of NAV at 30 June 2018 and a variable fee, in respect of
2016/17, equating to 0.02% of NAV, which was settled by issue of
Ordinary Shares.
A summary of the fees paid to the Investment Adviser is given in
Note 16 of the financial statements. The fees paid to BSL, the
solar asset management business with shared ownership with the
Investment Adviser, are detailed in Note 16. The fees paid to BOL,
the O&M business with shared ownership with the Investment
Adviser, are detailed in Note 16 also.
Administrator
The Board has 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
shown below.
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.
Repeat transaction experience with specialist advisers
The Investment Adviser has worked with a range of 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 from direct
experience
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 Board. This concept review fixes a project
evaluation 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) Board approval
Following approval by the Investment Adviser Investment
Committee, investment recommendations are issued by the Investment
Adviser 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. The Board is continuously aware
of the overall pipeline of potential new investments that can lead
to choices between projects depending on available funding
facilities.
(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 completing
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 Board has 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 Company 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 Company 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 Company invests through equity and/or
debt instruments. The Company typically seeks 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 Company to gain exposure to assets
within the Company's investment policy which the Company would not
otherwise be able to acquire on a wholly-owned basis.
The Company may, at holding company level, make use of both
short term debt finance and long term structural debt to facilitate
the acquisition of investments, but such holding company level 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. The
Company may make use of non-recourse finance at the SPV level to
provide leverage for specific solar energy infrastructure assets or
portfolios provided that 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.
No single investment in a solar energy infrastructure asset
(excluding any third party funding or debt financing in such asset)
will represent, on acquisition, more than 25% of the Net Asset
Value.
The portfolio provides diversified exposure through the
investment in 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 United Kingdom.
The Company aims to derive a significant portion of its targeted
return through a combination of the sale of ROCs and FiTs (or any
such regulatory regimes that replace them from time to time). Both
such regimes are currently underwritten by UK Government policy
providing a level of ROCs or FiTs fixed for 20 years for accredited
projects and each regime currently benefits from an annual RPI
escalation. The Company also intends, where appropriate, to enter
into power purchase agreements with appropriate counterparties,
such as co-located industrial energy consumers or wholesale energy
purchasers.
The Company's investment policy has the flexibility to commit to
assets during the construction phase or the operational phase.
During the period under review, the Investment Adviser has invested
in construction phase assets and has acquired a large secondary
portfolio in order to:
1. Maximise quality and scale of deal flow: The flexibility of
the strategy maximises the pool of assets available to the Company.
The majority of developers and contractors in the UK solar market
were 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. The
maturing of the UK solar market has resulted in the Company being
offered substantial operational asset portfolios for the first
time, during the period;
2. Optimise the efficiency of the acquisitions: Funding through
the construction phase removes a layer of financing cost provided
by third party construction funders, typically passed on to the end
acquirer; likewise, when acquiring secondary assets, the Company
has selected assets based on quality, cost and attractiveness of
the financing attached to the acquisitions;
3. Minimise risk via appropriate contractual agreements: Risk
can be further minimised by appropriate contractual agreements. For
construction assets, these include making milestone payments
backed, typically, by bonds, security plant and equipment and
significant cash hold backs; and
4. Acquire assets using conservative assumptions: As can be seen
by the valuation contained in this report, the Company has acquired
assets based upon a cautious set of assumptions.
Listing Rule 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 objective 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 other closed-ended
investment funds which are listed on the Official List.
As required by the Listing Rules, any material change to the
investment policy of the Company will be made only with the prior
approval of the FCA and Shareholders.
4. Policies, approach and achievements adopted in respect of CSR
The Board 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.
The production of sustainable energy from the Company's portfolio
is expected to save the emission of millions of tonnes of CO2
throughout the life of the assets. In addition, the Company seeks
to increase biodiversity at its sites by appropriate planting and
landscaping of the land it manages, as detailed in the
Environmental, Social and Governance report shown in the Report of
the Investment Adviser, Section 8.
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
2018 2017
--------------------------------------------------- -------------- --------------------------
Market Capitalisation GBP447,559,071 GBP425,282,973
Share price 121.00p 115.00p
Total dividends per share declared
in relation to the year 7.43p 7.25p
NAV GBP418,995,484 GBP408,608,255
NAV per share 113.28p 110.49p
Total Return to shareholders (based
on share price and dividends declared
in the year) 11.68% 22.56%
--------------------------------------------------- -------------- --------------------------
Acquisitions
During the year, the Company completed four acquisitions for a
total consideration of GBP26.2m (2017: GBP44.4m). 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
Portfolio performance and power price movements are discussed
within the Investment Adviser's report under Sections 2 and 4.
The Company's PPA strategy is to enter into short term contracts
with contracting periods spread quarterly across the portfolio in
order to minimise the portfolio's sensitivity to short term price
volatility.
Summary Statement of Comprehensive Income
Year ended Year ended
30 June 2018 30 June 2017
GBP million GBP million
-------------------------------------------------------------- ------------------------- -------------------------
Total Income (Note 4 of the financial statements) 0.7 0.6
Change in fair value of assets (Note 8
of the financial statements) 35.3 64.6
Administrative expenses (Note 5 of the
financial statements) (1.2) (1.2)
Total comprehensive income before tax 34.8 64.0
Tax - -
-------------------------------------------------------------- ------------------------- -------------------------
Total comprehensive income 34.8 64.0
-------------------------------------------------------------- ------------------------- -------------------------
Earnings per share 9.41p 18.26p
Income for the period represents interest income and monitoring
fees by BSIFIL to BSIF.
The total comprehensive income before tax of GBP34.8m reflects
the performance of the Company when valuation movements and
operating costs are included. Further detail on valuation movements
of BSIFIL's portfolio is given in the Report of the Investment
Adviser.
Year to 30 June Year to 30 June
Ongoing Charges 2018 2017
The Company BSIFIL Total The Company BSIFIL Total
GBP GBP
------------------------- ------------ ---------- ------------ ------------ ---------- ------------
Fees to Investment
Adviser 310,783 2,857,938 3,168,721 355,371 2,642,082 2,997,453
Legal and professional
fees 109,723 129,941 239,664 98,606 23,440 122,046
Administration fees 294,156 - 294,156 262,226 - 262,226
Directors' remuneration 165,200 10,400 175,600 159,963 10,000 169,963
Audit fees 90,460 31,062 121,522 95,466 17,750 113,216
Other ongoing expenses 230,243 225,465 455,708 218,984 378,504 597,488
Total expenses 1,200,565 3,254,806 4,455,371 1,190,616 3,071,776 4,262,392
------------ ---------- ------------ ------------ ---------- ------------
Non-recurring expenses (10,738) (142,959) (153,697) (122,392) (224,093) (346,485)
Total ongoing expenses 1,189,827 3,111,847 4,301,674 1,068,224 2,847,683 3,915,907
------------ ---------- ------------ ------------ ---------- ------------
Average NAV 411,877,763 361,749,648
Ongoing Charges (using AIC methodology) 1.04% 1.08%
------------ ------------
Performance fee 0.00% 0.02%
------------ ------------
Ongoing charges plus performance
fee 1.04% 1.10%
------------ ------------
The ongoing charges ratio is calculated in accordance with the
AIC recommended methodology, which excludes non-recurring costs and
uses the average NAV in its calculation.
6. Directors' Valuation* of Company's portfolio
The Investment Adviser or an independent external valuer is
responsible for preparing the fair market valuation recommendations
for the Company's investments for review and approval by the
Board.
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. Such an external review of valuation was
undertaken by an independent third party for the current year and
considered by the Board in determining the portfolio fair
value.
The Directors' Valuation adopted for the portfolio as at 30 June
2018 was GBP604.2m (Note 8 of the financial statements),
representing a cumulative 10.75% uplift on investment cost, derived
from a combination of income generated within the investments and
revaluation uplift under discounted cash-flow methodology. The
Board reviews and considers the recommendations of the Investment
Adviser to form an opinion of the fair value of the Company's
investments.
A detailed analysis of the Directors' Valuation is presented in
the Report of the Investment Adviser.
* Directors' Valuation is an alternative performance measure to
show the gross value of the SPV investments held by BSIFIL,
including their holding companies. A reconciliation of the
Directors' Valuation to Financial assets at fair value through
profit and loss is shown in Note 8 of the financial statements.
7. Principal Risks and Uncertainties
Under the FCA's Disclosure Guidance and Transparency Rules, the
Board is required to identify those material risks to which the
Company is exposed and take appropriate steps to mitigate those
risks.
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.
Bluefield Solar Income Fund Limited's risk register covers four
main areas of risk:
-- Portfolio Management;
-- Operational;
-- Regulatory; and
-- External.
Each of these areas, together with the principal risks with that
category, is summarised in the table below and include commentary
on the mitigating factors. The list is a subset of a much larger
set of risks which the Board review on a regular basis.
PORTFOLIO MANAGEMENT
Risk Potential Impact Mitigation
1. Portfolio Acquisition Missed investment The Board reviews the
Risk opportunities. Company's investment
pipeline with the
Investment
Adviser on a regular
basis. The Company,
through BSIFIL, has
access to additional
debt financing under
terms of its three year
revolving credit facility
with RBS, as well as
the option to complete
a tap issuance to support
further acquisitions
if required. The closure
of the primary market
for solar assets has
led to inflation in
secondary market prices
reducing potential yield
of new purchases.
--------------------------------------- ---------------------------------------
2. Portfolio Operational Underperformance of solar BSL as asset manager
Risk 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. The
Board also receives
a monthly operations
report from BSL.
--------------------------------------- ---------------------------------------
OPERATIONAL
Risk Potential impact Mitigation
3. Valuation error Valuations of the SPV The discount factor
investments applied to the cash
are reliant on large and flows is reviewed by
detailed financial models the Investment Adviser
based on discounted cash to ensure that it is
flows. Significant inputs set at the appropriate
such as the discount rate, level. All papers supporting
rate of inflation and the the GAV calculation
amount of electricity the and methodology used
solar assets are expected are presented to the
to produce are subjective Board for approval and
and certain assumptions adoption. Ongoing quarterly
or methodologies applied reconciliations are
may prove to be inaccurate. performed between the
This is particularly so SPVs and BSIF.
in periods of volatility The Board has committed
or when there is limited to obtaining 3rd party
transactional data for valuations at least
solar PV generation against every three years. The
which the investment valuation first valuation was
can be benchmarked. Other completed in June 2015
inputs such as the price and a second in respect
at which electricity and of this year end. An
associated benefits can additional and detailed
be sold are subject to independent review of
government policies and the portfolio cash flow
support. model was carried out
as part of the long
term debt financing
procurement process.
To mitigate the impact
of power price volatility
on the Company's portfolio
valuation blended power
price curves from two
leading forecasters
are used in the portfolio
cash flow model.
------------------------------------------ ------------------------------------------
4. Depreciation The portfolio NAV will The Investment Adviser
of NAV depreciate towards the has been requested to
end of the Company's life. model how the portfolio
NAV will move with time,
producing long term
scenario planning for
the Boards' review.
The Board has authorised
the Investment Adviser
to negotiate lease extensions
on all active plants
as it deems necessary.
The Board are also seeking
to mitigate the risk
by extending the life
of the assets.
------------------------------------------ ------------------------------------------
EXTERNAL
Risk Potential impact Mitigation
5. Unfavourable Weather related risks: The Company has diversified
Weather and Climate annual income generation the locations of its
Conditions of the Company is sensitive plants across the UK.
to weather conditions and
in particular to the level
of irradiation across the
investment locations. Variability
in weather could result
in greater than 10% variability
in revenue generation year
on year.
Global warming could impact The Company uses on
supply and demand for electricity. site measurement of
irradiation in order
to measure performance
against budget, and
its portfolio is dispersed
across the south of
the UK. The use of solar
photovoltaic technology
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.
The Company and other
clean energy providers
are doing their part
to reduce the Earth's
Carbon Footprint, however
there are already damaging
long term effects which
may impact the Company.
The management of such
an outcome is largely
out of the Company's
control.
------------------------------------ -------------------------------
Risk Potential impact Mitigation
6. Unfavourable Annual income generation The Investment Adviser
Electricity Market of the Company is sensitive regularly updates the
Conditions to future power market portfolio cash flow
pricing. A major structural model to reflect future
shift in power demand or power market forecasts
supply will impact the and where appropriate
Company's ability to meet applies discounts to
its dividend target. the forecasts. New projects
The reduction of all energy are always assessed
prices may also have a using the most recent
negative effect on the power market forecast
price of all sources of data available. A rolling
energy. programme of PPA contract
expiries has been implemented
to minimise risk. Protection
against a sustained
period of low energy
prices can only be achieved
by maximising exposure
to regulatory revenues
through acquisition
of more legacy FiT and
ROC plants. Some recent
acquisitions have included
fixed power contracts
for a longer period,
reducing exposure to
short term volatility.
Long term power prices
are however beyond the
control of the Company.
A third party review
of the power strategy
adopted by the Investment
Adviser has also given
a strong independent
verification of the
strategy. The Investment
Adviser is currently
reviewing possibilities
for the private sale
of electricity to stabilise
long term revenues.
----------------------------------- -------------------------------
Risk Potential impact Mitigation
----------------------------------- -------------------------------
7. Changes in tax There may be unfavourable An independent taxation
regime tax related changes including review of the Company
restrictions on renewables, was carried out as part
or no relief on debt structuring. of the long term debt
The UK Finance Bill enacted financing procurement
in December 2017 restricts process. The Company
tax relief on borrowing makes regular debt repayments
to 30% of EBITDA. to reduce operating
leverage and with the
intention of ensuring
that debt is repaid
before regulatory revenues
expire. The Board continues
to monitor the situation
and take advice from
the Company's tax advisers
as necessary.
----------------------------------- -------------------------------
8. Changes to Government Decisions affecting the The Investment Adviser
Plans wholesale supply of electricity provides regular updates
through either i) a flooded in this regard within
market or ii) other available the quarterly Board
forms of energy sources. papers.
----------------------------------- -------------------------------
9. Political risk The decision by the UK Since announcement of
to exit the EU has elevated the EU referendum result
levels of political uncertainty there has been a weakening
and may have an adverse of Sterling's exchange
impact on the Company. rate against a number
of major currencies,
a downgrade of the UK's
credit rating and a
cut in interest rates.
The Company has been
favourably impacted
by these changes to
date. The Company has
negligible foreign currency
exposure and the reduction
in yield on gilts has
materially reduced the
cost of the long term
debt issue. There are
however other unknown
risks which may or may
not occur in the medium
and longer term and
which the Board will
monitor closely should
they arise.
----------------------------------- -------------------------------
Longer-term viability statement
Assessing the prospects of the Company
The corporate planning process is underpinned by scenarios that
encompass a wide spectrum of potential outcomes. These scenarios
are designed to explore the resilience of the Company to the
potential impact of significant risks set out below.
The scenarios are designed to be severe but plausible and take
full account of the availability and likely effectiveness of the
mitigating actions that could be taken to avoid or reduce the
impact or occurrence of the underlying risks and which would
realistically be open to management in the circumstances. In
considering the likely effectiveness of such actions, the
conclusions of the Board's regular monitoring and review of risk
and internal control systems, as discussed in the report of the
Directors, below, is taken into account.
The Board reviewed the impact of stress testing the quantifiable
risks to the Company's cash flows in the previous pages as detailed
in risk factors 1-9 and concluded that the Company, assuming
current leverage levels, would be able to continue to produce
distributable income in the event of the following scenarios:
Strategic
Report Risk
Factor
2. Plant performance degradation
of 0.8% per annum versus 0.4%
per annum
-------------------------------
2. Plant availability reduced to
95%
-------------------------------
5. P90 irradiation
-------------------------------
6. Power price set to zero
-------------------------------
The Board considers that this stress testing based assessment of
the Company's prospects is reasonable in the circumstances of the
inherent uncertainty involved. In accordance with the Articles of
Incorporation, every five years the Board is required to propose an
ordinary resolution that the Company should cease to continue as
presently constituted. The first such discontinuation vote is
scheduled to be held at the 2018 AGM. However, for the purposes of
the longer term viability statement it is assumed that no
discontinuation resolution is passed.
The period over which we confirm longer term viability
Within the context of the corporate planning framework discussed
above, the Board has assessed the prospects of the Company over a
three year period ending 30 June 2021. Whilst the Board has no
reason to believe the Company will not be viable over a longer
period, given the inherent uncertainty involved, the period over
which the Board considers it possible to form a reasonable
expectation as to the Company's longer term viability, based on the
stress testing scenario planning discussed above, is the three year
period to June 2021. This period is used for our mid term business
plans and has been selected because it presents the Board and
therefore readers of the annual report with a reasonable degree of
confidence whilst still providing an appropriate longer term
outlook.
Confirmation of longer term viability
The Board confirms that its assessment of the principal risks
facing the Company was robust.
Based upon the robust assessment of the principal risks facing
the Company and its stress testing based assessment of the
Company's prospects, the Board confirms that it has a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period to June
2021.
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 Company's 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 last formal
review of the risk matrix at the Audit Committee meeting held on 24
September 2018. 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
26 September 2018 26 September 2018
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 management team has been involved in over GBP1.5
billion of solar PV funds and/or transactions since 2008.
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. As Investment Adviser, Bluefield
takes responsibility, fully inclusive within its advisory fees, for
selection, origination and execution of investment opportunities
for the Company, having executed 49 individual SPV acquisitions on
behalf of BSIF since flotation. Due to the strong expertise of the
Investment Adviser, no additional transaction arrangement or
origination service providers are employed by the Company and no
investment transaction arrangement fees have been paid either to
the Investment Adviser or any third parties.
Bluefield's Investment Committee has collective experience of
over GBP15 billion of energy and infrastructure transactions.
2. Portfolio: Acquisitions, Performance and Value
Enhancement
Portfolio
As at 30 June 2018, the Company held an operational portfolio of
86 PV plants (consisting of 45 large scale sites, 39 micro sites
and 2 roof top sites) with a total capacity of 460.3MWp with the
portfolio displaying strong diversity through: geographical
variety, a range of proven PV technologies and infrastructure
(arising from the solar PV farms having been constructed by a
number of experienced solar contractors), and a blend of asset
sizes with capacities ranging from microsites to substantial,
utility-scale solar farms (including two plants at c.50MWp).
Acquisitions
During the 12 month period to 30 June 2018, the Investment
Advisor reviewed approximately 500MWp of opportunities, but due to
the Investment Advisors stringent acquisition criteria only 4% of
the projects assessed went on to be recommended to the BSIF
board.
As such, out of this pipeline, the Company completed 4
acquisitions with a combined capacity of 18.8MWp. All 4 plants were
constructed by IB Vogt and accredited under the 1.2 ROC Scheme.
The investment of GBP26.2m used the available funds of GBP1.9m
remaining from the October 2016 fund raise (GBP60.6m) as well as
GBP24.3m from the Company's GBP30m RCF.
The assets commenced generation in March 2017 and whilst they
were acquired in December 2017 and March 2018, the structure of the
transaction enabled the Company to still receive the benefit of the
projects' cash flows from September 2017 onwards within the fixed
acquisition price.
In keeping with the Investment Adviser's objective to deliver
value and return accretive acquisition opportunities to the
Company, securing these primary assets which were developed during
the last months of the RO Scheme, was a success for the Company as
it enabled it to lock in the benefits of the 20 year RPI indexed
support mechanism, a scheme now closed to further business.
The Investment Adviser is currently negotiating on behalf of the
Company a range of transactions as it looks to continue its policy
of securing high quality, return accretive acquisitions during the
course of the 2018/19 financial year, though its strong pricing
discipline means that its primary focus is now increasingly on the
optimisation of performance of the excellent asset base already
secured.
Performance
In the year to 3o June 2018, the portfolio, with a total
installed capacity of 460.3MWp, achieved a net PR of 82.1%, against
a forecasted net PR of 81.5% (2017: 81.3%), creating an 'asset
management uplift effect' of +0.7%.
Table 1. Summary of BSIF Portfolio Performance for 2017/18:
Actual Forecast % change Actual 2016/17
---------------------------------
Irradiation (kWh/M2)(1,2) 1,175 1,186 -0.9% 1,182
---------- ---------- --------- ---------------
Net Performance Ratio
(%)(1,2) 82.1% 81.5% +0.7% 83.4%
---------- ---------- --------- ---------------
Generation Yield (MWh/MWp)(1,2) 965 966 -0.1% 986
---------- ---------- --------- ---------------
Total unit Price -
Power + ROCs +LDs(3)
(GBP/MWh) 126.7 122.2 +3.7% 119.4
---------- ---------- --------- ---------------
Total Revenue -inc GBP122.3k GBP118.1k +3.6% GBP117.7k
LDs (GBP/MWp)
---------- ---------- --------- ---------------
Notes to table 1.
1. Excluding grid outages and significant periods of constraint
or curtailment that were outside of the Company's control (for
example, DNO-led outages and curtailments)
2. The table excludes assets with a collective capacity of 18.8
MWp, which were acquired during the reporting period and therefore
do not yet offer 12 months of performance data. The solar farms
excluded are shown in the second half of the full asset table
below.
3. Actual and forecast revenue figures include ROC recycle
estimates in line with standard forecasts
As shown in the above table, irradiation levels during the
financial year were marginally lower than forecast.
However, operational outperformance (exemplified through the net
PR being +0.7 above forecast levels) across the portfolio
substantially offset the effect of lower irradiation, resulting in
generation levels being substantially in line with budget (only
0.1% below).
Although the portfolio's net performance was higher than
expected, it was marginally lower than in the previous reporting
year. This is the result of a combination of factors: the expected
effects of degradation in the PV modules' performance (e.g. an
industry standard rate of degradation is c.-0.4%per annum), as well
as the unexpected effects of several weeks of settled snow in March
2018 and the higher than average ambient temperatures experienced
in May 2018 and June 2018. The previous year (2016/17) did not
experience any such severe weather events.
The portfolio's 'availability' (the total time the plant was
operating, as a percentage of the maximum possible) was in line
with the expected 99% level at 98.89%.
The resulting revenue per MWp for the reporting year was
GBP122.3k, which includes GBP1.7m of LDs have been recognised in
relation to 11 plants which underperformed warranted performance
levels in the year, resulting in the total revenue exceeding
expectations by 3.6%.
Figure 1. Summary of BSIF Portfolio (441.5 MWp) generation for
2017/18
[Graph]
Note: The figure excludes assets with a collective capacity of
18.8 MWp, which were acquired during the reporting period and
therefore do not yet offer 12 months of performance data.
The geographical and equipment diversity within the Company's
portfolio allows the effects of both 'Outage Risk' (whereby a
higher proportion of large capacity assets would hold increased
exposure to material losses due to curtailments and periods of
outage, as directed by a specific DNO) and 'Defect Risk' (where
over-reliance on limited equipment manufacturers could lead to
large proportions of the portfolio suffering similar defects) to be
mitigated.
This diversification, combined with the considerable efforts of
the Company's asset manager, BSL, is demonstrated by the fact that
the outages experienced by the portfolio (those events both outside
and inside the Company's control) equated to a drop against
forecast generation of only -1.39%, with the impact of outages
resulting from events directly within the control of the Company
(for example, periods when a plant, or part of a plant, were shut
to conduct essential maintenance or repairs) accounted for decrease
of only -0.21% against forecast generation.
The most significant periods of outage were recorded at The
Grange, a 5MWp site, which experienced DNO constraints from 29 June
to 12 August 2017 (although due to effective co-operation with the
DNO, it was agreed the plant would operate at 10% capacity during
this time, instead of being completely curtailed) and Elms Solar
Farm, which also suffered a planned 7 day DNO led outage during
July 2017 with a further planned 8 day outage during August 2017
successfully reduced to a single day and delayed until October
2017, achieving additional generation and revenue savings of 663MWh
and GBP66.2k respectively.
In April and May 2018, a small number of plants also suffered
unplanned DNO outages. The largest of these occurred on Hoback
Solar Farm, which lost 158.2MWh (equivalent to c.GBP33.8k of lost
revenue), Capelands Solar Farm which lost 299MWh (c.GBP64.6k) and
in June 2018, North Beer Solar Farm which lost 100.1MWh
(c.GBP23.1k) of generation.
A planned 26 day outage for the Durrants Solar Farm, located on
the Isle of Wight did not proceed in the late summer of 2017,
following a detailed consultation with the DNO which resulted in
avoiding loss of generation and revenue of 545MWh and GBP219k
respectively.
During the financial year to date, the Company has once again
exercised the strength of its contractual protections, enabling the
recovery of GBP1.7m of LDs for underperformance, revenue losses and
the rectification of equipment defects.
The ability of the Company to collect LDs in the year,
notwithstanding that the portfolio has overall performed in line
with expectations, is reflective of the fact that the Company
benefits from strong enforceable contractual protections and
warranties across its portfolio and that the Investment Advisor has
been disciplined in enforcing the Company's rights to deliver the
optimal outcome for its investors.
During the period, 12 plants completed and passed final
acceptance testing.
Final acceptance occurs following at least two years of rigorous
testing, of which these plants passed, as well as a comprehensive
audit of the site for defects by BSL, all of which have been
remedied or provided for before such acceptance is past. Following
this rigorous acceptance procedure and completion of final
acceptance, the EPC is released of its obligations (though some
warranties remain for full statute of limitations periods).
As assets pass their final acceptance dates, the plants enter
new availability and/or performance guarantees with their
respective O&M providers whilst also benefitting from
comprehensive insurance coverage with respect to damage, theft and
business interruption.
Whilst the portfolio is maturing, a significant portion (35% by
installed capacity) remains protected by performance warranties
provided by the EPC contractors (in addition to equipment
manufacturers' warranties), backed by retentions or warranty bank
bonds, applicable from each asset's provisional acceptance date.
These warranties provide a contractual entitlement to the recovery
of damages because of operational underperformance against a
contracted level of performance, or as a result of defects.
Figure 2. BSIF Portfolio Assets Under EPC Warranty ('pre-FAC')
and post-FAC, as at 30 June 2018
[Graph]
At the end of the reporting period, our operation and
maintenance subsidiary, BOL, now provides O&M contractor
services to 7 of the Company's assets. Aside from annual cost
savings of c.GBP156k for the sites already transferred, this
transition of services is expected to deliver noticeable benefits
from increased contractual service levels and, through a close
operational working relationship with the asset manager, BSL,
faster response times.
The Company's operating portfolio as at 30 June 2018 and the
electricity generated in the 2017/18 financial year is shown
below:
Table 2. BSIF Portfolio Generation for 2017/18 by Asset:
Solar Farm Asset Total Investment Installed Generation
Commitment (GBP) Capacity (MWp) to 30 June
2018 (Actual,
MW/h)
Southwick 61.0 47.9 46,101.21
------------------ ----------------------- ----------------------
West Raynham 55.9 50.0 49,227.82
------------------ ----------------------- ----------------------
Elms 32.8 28.9 26,599.79
------------------ ----------------------- ----------------------
Molehill 23.1 18.0 18,253.81
------------------ ----------------------- ----------------------
Hardingham 22.7 20.1 19,390.09
------------------ ----------------------- ----------------------
Littlebourne 22.0 17.0 16,474.82
------------------ ----------------------- ----------------------
Pentylands 21.4 19.2 18,008.95
------------------ ----------------------- ----------------------
Goose Willow 19.0 16.9 16,479.29
------------------ ----------------------- ----------------------
Hoback 19.0 17.5 16,391.85
------------------ ----------------------- ----------------------
Hill Farm 17.3 15.2 14,560.01
------------------ ----------------------- ----------------------
Pashley 15.4 11.5 12,301.24
------------------ ----------------------- ----------------------
Burnaston 14.4 4.1 3,675.78
------------------ ----------------------- ----------------------
Roves 14.0 12.7 11,874.88
------------------ ----------------------- ----------------------
Hall Farm 13.4 11.4 11,038.52
------------------ ----------------------- ----------------------
Sheppey/South Lees 12.0 10.6 10,952.48
------------------ ----------------------- ----------------------
Betingau 11.2 10.0 8,755.77
------------------ ----------------------- ----------------------
North Beer 9.3 6.9 6,595.47
------------------ ----------------------- ----------------------
Capelands 8.6 8.4 7,890.12
------------------ ----------------------- ----------------------
Ashlawn 7.6 6.6 6,607.95
------------------ ----------------------- ----------------------
Saxley 7.0 5.9 5,779.00
------------------ ----------------------- ----------------------
Durrants 6.4 5.0 5,394.60
------------------ ----------------------- ----------------------
Redlands 6.4 6.2 6,323.14
------------------ ----------------------- ----------------------
Romsey 5.8 5.0 4,942.54
------------------ ----------------------- ----------------------
Trethosa 5.8 4.8 4,674.26
------------------ ----------------------- ----------------------
Salhouse 5.6 5.0 4,881.69
------------------ ----------------------- ----------------------
Frogs Loke 5.6 5.0 4,817.51
------------------ ----------------------- ----------------------
The Grange 5.4 5.0 4,266.41
------------------ ----------------------- ----------------------
Bunns Hill 5.3 5.0 4,900.58
------------------ ----------------------- ----------------------
Folly Lane 5.3 4.8 4,596.52
------------------ ----------------------- ----------------------
Oulton 5.3 5.0 4,828.66
------------------ ----------------------- ----------------------
Rookery 5.2 5.0 4,765.46
------------------ ----------------------- ----------------------
Solar Farm Asset Total Investment Installed Generation
Commitment (GBP) Capacity (MWp) to 30 June
2018 (Actual,
MW/h)
Tollgate Farm 4.6 4.3 3,981.17
------------------ ----------------------- ------------------------
Butteriss (20 micro
sites) 2.3 0.8 615.30
------------------ ----------------------- ------------------------
Goshawk 2.0 1.1 1,150.36
------------------ ----------------------- ------------------------
Promothames (9
micro sites) 1.3 0.4 303.81
------------------ ----------------------- ------------------------
Old Stone 5.7 5.0 4,835.49
------------------ ----------------------- ------------------------
Place Barton 5.5 5.0 4,956.85
------------------ ----------------------- ------------------------
Court Farm 5.5 5.0 5,171.76
------------------ ----------------------- ------------------------
Kellingley 5.0 5.0 4,330.18
------------------ ----------------------- ------------------------
Kislingbury 5.0 5.0 4,707.22
------------------ ----------------------- ------------------------
Willows 4.6 5.0 4,605.27
------------------ ----------------------- ------------------------
Gypsum 4.4 4.5 4,216.52
------------------ ----------------------- ------------------------
Barvills 3.3 3.2 3,310.69
------------------ ----------------------- ------------------------
Langlands 3.1 2.1 2,099.27
------------------ ----------------------- ------------------------
Corby 2.3 0.5 402.47
------------------ ----------------------- ------------------------
SUB-TOTAL 523.8 441.5 426,036.58
------------------ ----------------------- ------------------------
Assets becoming Operational / Acquired during the reporting
period
--------------------------------------------------------------------------------------------
Clapton 6.3 5.0 3,667.43
------------------ ----------------------- ------------------------
Holly Farm 7.2 5.0 4,005.07
------------------ ----------------------- ------------------------
East Farm 7.2 5.0 3,950.36
------------------ ----------------------- ------------------------
Galton Manor 5.5 3.8 2,996.64
------------------ ----------------------- ------------------------
SUB-TOTAL 26.2 18.8 14,619.5
------------------ ----------------------- ------------------------
GRAND TOTAL 550.0 460.3 440,656,08
------------------ ----------------------- ------------------------
Value Enhancement Initiatives
As the Company has progressed from a focus on growth in our
asset base driven by attractive greenfield opportunities, to a
lower rate of asset growth and increased operational focus, the
Investment Adviser has enhanced its focus on initiatives that seek
to enhance and create additional value for the portfolio, through
the optimisation of both operations and revenues.
The most significant of these initiatives is a wide ranging
asset life extension programme, which seeks to allow the SPVs to
extend the available tenor of the PV plants (above 2MWp of
installed capacity) up to 40 years (with the majority of the
assets' leases and planning approvals currently envisaging an
average term of c.25 years).
This extension is achieved through direct consultation and
negotiation with each respective landowner to add options into the
lease which allow the SPV, at its discretion, to extend the lease
up to a total term of 40 years. Once lease negotiations have been
concluded, applications are made to the respective local planning
authority to extend the permitted tenure to 40 years.
During the negotiations with the landowners, the SPVs are
concurrently seeking to add further options in the leases for the
deployment of battery storage facilities, without further landowner
consent. This will allow such facilities to be rapidly deployed, at
suitable sites across the portfolio, when the commercial conditions
for doing so become attractive.
In addition to extending the tenor and inserting battery storage
optionality, each SPV is also reviewing options around future
optimisation of the plant. Examples of this include assessment of
repowering, reconfiguring, or permitting the laying of additional
conducting media (primarily cables to support the installation of
batteries). The negotiations also present an opportunity for
landowners to request variations which do not materially affect the
operation of the plants, such as rights to graze livestock on the
sites.
The decision to extend any individual asset's life term is taken
only once it has been demonstrated that, with the required planning
approval, there is a positive uplift in NPV and improvement on the
original investment criteria which was applied when the plant was
acquired or funded.
To facilitate this significant undertaking, the Investment
Advisor has assembled a highly qualified and experienced team of
third-party land agents, law firms and planning consultants. By the
end of the Reporting Period, 28 separate landowner negotiations had
commenced, resulting in 8 formal agreements. The relevant planning
applications for these plants expect to be submitted during
2018/19.
No allowance has been made within our valuation models for the
benefit of any lease extensions pending completion of planning
reviews and receipt of consent.
In addition, the Investment Adviser is actively discussing
opportunities within the UK's burgeoning long term, corporate and
direct-wire PPA market, in order to provide predictable and
reliable income streams over the long term, up to 25 years.
PPA Strategy
Over the year the Company maintained its strategy to fix the
price of power sale contracts for individual assets, not covered by
long term contracts, for periods between 12 and 36 months. The
majority of contracts are being struck for a minimum of 18 months,
which is the average required duration under the LTF agreement.
The Company has continued to implement the approach of fixing
power prices evenly throughout the year, in order to mitigate the
Company's exposure to seasonal fluctuations and short term events
which have the potential to increase volatility in the price of
electricity in the UK.
Prices are fixed up to 3 months in advance of the commencement
of the fixing period and PPA counterparties are selected on a
competitive basis but with a clear focus on achieving
diversification of counterparty risk.
The combination of the PPA renewal strategy applied during the
period, and c.95MWp of plants (some 20% of the portfolio)
benefitting from 15 year PPAs with floor prices, means the Company,
in the unlikely scenario of power prices falling to nil, has c.62%
of its revenue guaranteed over the next 15 years. The graph below
shows that as at 30 June 2018 the Company has a price confidence
level of c.90% to December 2018 and c.70% to June 2019 over its
power and subsidy revenue streams.
The Company's strategy of fixing prices over periods of 12-36
months means the portfolio retains the ability to continue to
benefit from some of the rising power price trend in recent
months.
Figure 3. % of BSIF revenues fixed as at 30 June 2018
[Graph]
The Investment Adviser's strategy to secure leverage at the
portfolio rather than asset level has enabled the Company to retain
flexibility in implementing its short term PPA strategy following
the closing of the Company's long term borrowing facility in
September 2016.
This means the Company has the flexibility to explore value
enhancing options such as negotiating corporate PPA offtake,
flexibility which would not be available if it had been required by
lenders to enter 15 year offtake contracts. The Company also
remains able to maximise potential economies of scale by taking
advantage of opportunities only available to owners who can commit
significant volumes of generating capacity.
As a result, the Company has the opportunity to regularly tender
out a large portion of its power to ensure it always achieves the
most competitive pricing and avoids the greater discounts applied
by offtakers when they are entering long term contracts. For
example, a tender of 4 x 5MWp is preferred over 4 separate tenders
of 5MWp in order to maximise value.
Revenues and Power Price
The portfolio's revenue streams in the reporting period,
excluding ROC recycle estimates, show that the sale of electricity
accounts for 39.3% of the Company's income. Regulated revenues from
the sale of FiTs and ROCs account for 60.7%.
Overall, wholesale power markets have shown improvement from the
lows experienced in Q2 2017 when concerns over supply in the UK
electricity market and uncertainty following the Brexit referendum
combined to raise PPA strike prices with particular increases from
April 2018. This rise in short term power prices has been
principally down to three key factors:
1. High gas prices
The UK's main gas storage facility (Rough) closed during 2017
which, combined with the reduction of the gas production in the
Netherlands (Groningen field's output being limited for security
reasons), pushed up gas prices. These gas market constraints come
after the dry weather of 2017 that depleted gas reserves (lower
hydro generation, placing higher demand on gas-fired) and at the
same time as rising oil prices, to which the majority of gas
contracts are indexed. Additionally, these fundamental drivers must
be seen in combination with the fact that gas-fired generation is
setting the price more often, due to increased competitiveness
versus coal as the carbon intensity of gas is lower and therefore
is less penalised by rising carbon prices (which as per point 3
below have also contributed to increasing power prices).
2. Low wind combined with high demand
Spring months are usually characterised by low wind generation
and, in May 2018, onshore wind load factors reached a 12 month low.
This coincided with a colder and longer winter, followed by a
hotter than usual spring.
3. Rising carbon prices
There has been a 42% increase since mid December 2017 as the
market appears to be anticipating that the European Commission's
reform (stability reserve mechanism to start in January 2019 aiming
at removing oversupply of allowances from the market) will balance
the market.
These factors have meant short term electricity prices have
de-coupled from recent curves released by power forecasters, who
present figures on an average weather year basis and do not
accommodate these extreme weather effects so precisely. Compounding
this deviation is also the fact that traded prices usually reflect
present views more than market fundamentals. In other words, market
prices in the short term are more representative of current market
circumstances (low wind + high demand + gas market constraints
today) than balanced market scenarios (e.g. what is the electricity
market equilibrium for an average weather in any given year).
As illustration of the points mentioned above, please see below
a chart comparing the wholesale electricity prices versus gas and
carbon over the last 18 months.
[Graph]
This upward movement has been reflected in PPA fixes completed
by the Company during the period, with 12-36 month fixed contracts
replaced in the period benefitting from an increase to the average
seasonal weighted power price previously achieved (from GBP44.07
per MWh the 12 months ending 30 June 2017, compared to GBP45.40 per
MWh to 30 June 2018). This compares to a day ahead market base load
power price of GBP45.77 per MWh for the 12 months to 30 June 2017
and GBP49.16 per MWh to 30 June 2018. As PPAs are struck on a
rolling basis the uplift in power prices is not immediately seen in
the portfolio.
Evidencing the Company's PPA strategy provides it with the
ability to benefit from rising power prices is the fact in the
period post 30 June 2018, the weighted volume average for fixes
since 30 June 18 is GBP57.69/MWh.
The impact of power prices on NAV is set out in the valuations
section.
3. Analysis of underlying earnings
The total generation and revenue earned in 2017/18 by the
Company's portfolio, split by subsidy regime, is outlined
below.
Subsidy Regime Generation PPA Revenue Regulated
(MWh) (GBPm) Revenue (GBPm)
FiT 16,217 0.9 4.6
----------- ------------ ----------------
2.0 ROC 8,695 0.4 0.9
----------- ------------ ----------------
1.6 ROC 88,995 4.0 7.0
----------- ------------ ----------------
1.4 ROC 234,015 10.6 16.2
----------- ------------ ----------------
1.3 ROC 41,981 2.0 2.7
----------- ------------ ----------------
1.2 ROC 50,753 2.3 3.0
----------- ------------ ----------------
Total 440,656 20.2 34.4
----------- ------------ ----------------
The Company includes ROC recycle assumptions within its long
term forecasts and applies a market based approach on recognition
within any current financial period, including prudent estimates
within its accounts where there is clear evidence that participants
are attaching value to ROC recycle for the current accounting
period.
In October 2017, Ofgem announced that the final value for ROC
recycle for the period April 2016 to March 2017 (CP15) was GBP4.89
per MWh (equivalent to 11.4% of CP15 ROC buyout prices). The
Company had recognised only a prudent estimate of ROC recycle in
its 30 June 2017 accounts and additional income of GBP1.6m was
received during the current reporting period.
Combined with ROC recycle revenues received during the year (due
to the ROC recycle for the period April 2016 to March 2017, being
higher than the prudent estimate built into the 30 June 2017 year
end results) of 0.43pps, the Company's total underlying earnings
for the period are 9.67pps.
After deducting amortisation of debt of 2.24pps, the Company
generated earnings available for distribution of 7.43pps, fully
covering the dividend of 7.43pps.
As result, the Company has been able to carry forward dividend
reserves of 0.30pps (2017: 0.30pps).
Underlying Portfolio Earnings
Full year Full year Full year Full year
to to to to
30 June 30 June 30 June 30 June
18 17 16 15
(GBPm) (GBPm) (GBPm) (GBPm)
Portfolio Revenue* 56.2 47.9 35.6 22.7
---------- ---------- ---------- ----------
Liquidated damages 1.7 1.3 0.9 0.8
---------- ---------- ---------- ----------
Portfolio Income 57.9 49.2 36.5 23.5
---------- ---------- ---------- ----------
Portfolio Costs -12.9 -11.4 -7.1 -0.9
---------- ---------- ---------- ----------
Project Finance Interest
Costs -0.7 -0.7 -0.7 -0.7
---------- ---------- ---------- ----------
Total Portfolio Income
Earned 44.3 37.1 28.7 21.9
---------- ---------- ---------- ----------
Group Operating Costs(#)
* -4.3 -4.2 -3.9 -3.1
---------- ---------- ---------- ----------
Group Debt Costs -4.2 -4.4 -3.2 -0.8
---------- ---------- ---------- ----------
Underlying Earnings 35.8 28.5 21.6 18.0
---------- ---------- ---------- ----------
Group Debt Repayments -8.3 -3.4 -0.7 -0.7
---------- ---------- ---------- ----------
Underlying Earnings
available for distribution 27.5 25.1 20.9 17.3
---------- ---------- ---------- ----------
Bought forward reserves 1.1 0.8 1.3 0.0
---------- ---------- ---------- ----------
Total funds available
for distribution -1 28.6 25.9 22.2 17.3
----------------------------- ---------- ---------- ---------- ----------
Target distribution*** 27.5 24.6 20.9 15.3
----------------------------- ---------- ---------- ---------- ----------
Actual Distribution
-2 27.5 24.8 21.4 16.0
---------- ---------- ---------- ----------
Underlying Earnings
carried forward
(1-2) 1.1 1.1 0.8 1.3
---------- ---------- ---------- ----------
#Includes the Company and BSIFIL
*Includes ROC recycle revenue of GBP1.6m for CP15 (April
2016-March 2017)
**Excludes one off transaction costs and the release of up-front
fees related to the Company's debt facilities
***Target distribution is based on funds required for total
target dividend for each financial period.
The table below presents the underlying earnings on a 'per
share'.
Full year Full year Full year Full year
to to to to
30 June 18 30 June 17 30 June 30 June
16 15
(GBPm) (GBPm) (GBPm) (GBPm)
Target Distribution
(RPI dividend) 27.5 24.6 20.9 15.3
------------ --------------- --------------------- ----------------------
Total funds available
for distribution
(inc reserves) 28.6 25.9 22.2 17.3
------------ --------------- --------------------- ----------------------
Average Number of
shares in year* 369,866,027 342,735,213 295,282,786 224,583,921
------------ --------------- --------------------- ----------------------
Target Dividend
(pps) 7.43 7.18 7.07 7.00
------------ --------------- --------------------- ----------------------
Total funds available
for distribution
(pps) - 1 7.73 7.55 7.55 7.71
------------ --------------- --------------------- ----------------------
Total Dividend Declared
& Paid (pps) - 2 7.43 7.25 7.25 7.25
------------ --------------- --------------------- ----------------------
Reserves carried
forward
(pps) ** - 1-2 0.30 0.30 0.30 0.46
------------ --------------- --------------------- ----------------------
*Average number of shares is calculated based on shares in issue
at the time each dividend was declared.
** Reserves carried forward are based on the shares in issue at
the corresponding year end.
4. NAV and Valuation of the Portfolio
The Investment Adviser is responsible for advising the Board in
determining the Directors' Valuation and, when required, carrying
out the fair market valuation of the Company's investments.
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. In keeping with this commitment, the
Company commissioned a benchmarking exercise with an independent
third party to support the 30 June 2018 valuation.
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 Invest Europe (formerly
known as the European Venture Capital Association), application of
which is considered consistent with the requirements of compliance
with IAS 39 and IFRS 13.
Following consultation with the Investment Adviser, the
Directors' Valuation adopted for the portfolio as at 30 June 2018
was GBP604.2m (30 June 2017, GBP573.4m and 30 June 2016,
GBP483.7m).
The table below shows a breakdown of the Directors' Valuations
over the last three financial years:
Valuation Component June 2018 June 2017 June 2016
(GBPm)
Enterprise Portfolio
DCF value (EV) 592.5 558.6 479.7
---------- ---------- ----------
Deduction of Project
Co debt -12.5 -13.2 -13.9
---------- ---------- ----------
Projects valued at
cost (amount invested) 0.0 5.0 0.0
---------- ---------- ----------
Project Net Current
Assets 24.2 23.0 17.9
---------- ---------- ----------
Directors' Valuation 604.2 573.4 483.7
---------- ---------- ----------
These items are outlined below in the portfolio valuation
movement section.
Changes to Directors' Valuation methodology
During the financial year there have been a number of
developments that have been considered in the Investment Adviser's
recommendation to the Directors' Valuation:
(i) A number of large scale operational portfolios have either
been sold or brought to market. Notable sales to 31 December 2017
include EFG Hermes' 45% stake in the 365MWp TerraForm Power
portfolio and Greencoat's 75MWp purchase of Baywa's remaining UK
portfolio, with additional sales in January 2018 including the
completion of Solarplicity's 135MWp portfolio to an undisclosed
buyer and Magnetar's 350MWp portfolio to Rockfire Capital.
Alongside these private transactions there has also been public
announcements from Foresight and Next, between May 2018 and August
2018, with respect to acquisitions of portfolios in excess of
50MWp. This activity continues to demonstrate the trend, first
identified by the Company within its 31 December 2016 Interim
Statements, of pricing for solar assets being between GBP1.29m/MWp
and GBP1.35m/MWp;
(ii) The Finance Bill received Royal Assent on 16 November 2017.
As Action 4 (Corporate Interest restrictions) of BEPS was passed
into law it confirmed, as of April 2017, that corporates would be
restricted to the higher of net interest deductions of GBP2m, 30%
of EBITDA, or its ratio of third party debt to EBITDA;
(iii) Within the period inflation rose and then fell, as RPI
achieved a 7 year peak in December 2017 at 4.1%, before falling to
3.4% by 30 June 2018. With the Bank of England completing one rate
increase of 0.25% within the period, in November 2017 and another
shortly after, in August 2018, inflation has stabilised post period
end with forecasts predicting, over the next few years for it to
move more into line with the Bank of England's stated target of
2%;
(iv) Notwithstanding some near term (1 to 2 year) upward
movements in energy price forecasts, as outlined in the PPA section
above, the latest long term forecast curves projected by our
forecasters have fallen by c.8.3% compared to June 2017; reflecting
revisions to coal closure dates, the volume of renewables and new
interconnection capacity. To avoid sensitivity to a single forecast
in a volatile market, the Investment Adviser averages data from two
leading forecasters.
Each of these factors has been considered when determining the
Directors' Valuation.
Discounting Methodology and Discount Rate
The Directors' Valuation is based upon the discounting of the
net, unlevered, project cash flows of each investment held by the
Company, through BSIFIL, irrespective of whether the investment has
project leverage or not with the result then benchmarked against
comparable market multiples.
The discount rate applied on the project cash flows is therefore
the WACC.
This approach of discounting the unlevered cash flows with a
WACC is consistent with the approach taken in every previous
Directors' Valuation and is intended to avoid asset valuations
being distorted by different debt sizing or amortisation
profiles.
Having discounted the unlevered project cash flows, to establish
a 'willing buyer - willing seller' enterprise valuation or 'EV',
project level debt (if any) is then deducted along with additions
of projects at cost and period end working capital to establish the
'Directors' Valuation' of the portfolio.
It is notable that of the 49 SPVs held by the Company, only one
(Durrants) has asset level debt (being GBP12.5m at the financial
period end).
In June 2017, as a result of increasing competition within the
UK solar market, the Board noted that a sustained trend had now
emerged with respect to the GBP/MWp for large scale portfolios. At
that time, the most notable example of which was EFG Hermes'
purchase of TerraForm's 365MW portfolio for an EV of GBP1.29m/MWp
in December 2016, of which it immediately sold down 50% to TNB.
Further developments on this transaction occurred in December 2017
when EFG sold down a further 45% (leaving it with a 5% holding) to
KWAP but despite only selling a minority stake, pricing remained
equivalent to an EV of GBP1.29m/MWp.
Since the original TerraForm transaction in December 2016, a
number of large scale portfolios, including recent purchases by the
Company's listed peers as listed above, have changed hands.
Analysis of transactions since December 2016 up to the current
date indicates all have fallen within an EV band of GBP1.29m/MWp
and GBP1.35m/MWp.
Consequently, the Board deemed it necessary, under the 'willing
buyer-willing seller' methodology, that the valuation of the
Company's portfolio be prudently benchmarked on GBP/MWp basis
against these comparable portfolio transactions.
As the period to 30 June 2018 has continued to see high levels
of competition for large scale portfolios, the Board believes it
appropriate to maintain a prudent benchmarking approach, on GBP/MWp
basis, in respect of the valuation of the BSIF portfolio.
By valuing the portfolio at an EV of GBP592.5m, and an effective
price of GBP1.29m/MWp, the Board has conservatively achieved this
aim. On this basis, the WACC discount rate of 5.90%, applied in
December 2017, has been reduced by a further 0.25% to 5.65%. This
reduction results in a drop of 0.50% compared to the WACC applied
in June 2017 of 6.15%.
The cost of equity implied by a WACC of 5.65% is 7.26% (June
2017; WACC 5.90%, Cost of Equity 8.07%).
The reduction in WACC reflects in part an increase in both short
and long term leverage as a result of GBP24.3m from the Company's
RCF, which it is expected to be carried forward into long term debt
under the conservative assumption of replacing 70% (c.GBP17m), on
maturity in September 2019, of amounts drawn under the RCF with
long term amortising debt at an interest rate of 3.50%.
Given the Investment Adviser's record of securing competitive
long term debt, as evidenced by the re-financing in September 2016
of the Company's GBP200m RCF with Aviva Investors, the Directors
are comfortable with the assumptions applied to the conversion of
such a small tranche before September 2019.
In parallel, as further detailed below, the equity discount rate
has increased.
For completeness, following Royal Assent of the Finance Bill on
16 November 2017, this discount rate now incorporates a tax shield
based on interest deductions relating to both the Company's
external and, as permitted, inter-company loans (See section below
on Impact of Finance Bill 2017 for more detail).
Commensurate with the drop in WACC, is a reduction in the equity
IRR implied by the Directors' Valuation. This has fallen, from
7.02% in December 2017, to 6.70% at the end of June 2018 (down from
7.43% in June 2017).
The equity IRR is derived from the actual impact of the
Company's amortisation profile over the tenor of its third party
debt, GBP217.5m as at 30 June 2018, taking into account both the
cost and declining leverage levels (34%, based on the Company's GAV
as at 30 June 2018 of GBP635.7m*) as well as the effect of interest
shielding on GBP80m of Eurobond notes between BSIF and BSIFIL.
The equity IRR of 6.70% is the return from the equity forecast
cash flows of the portfolio (after tax deductions) which give rise
to the same resulting NAV as the WACC methodology and is intended
to assist in outlining the relationship between a point in time
valuation of the Company's portfolio, based on the Company's
underlying valuation assumptions, and the commensurate equity
return.
The equity IRR implies that the future cash flows of the
Company, based upon the Directors' Valuation of GBP604.2m, which
includes the conservative assumption of a zero terminal value of
each asset after c25 years of operational life, are expected to
deliver a c.6.7% gross annualised return on today's NAV.
The DCF has been applied on the basis of each asset having a
terminal value of zero after an operational life of c.25 years from
commissioning. For the Company's portfolio, this equates, within
the Directors' Valuation as at 30 June 2018, to a weighted average
portfolio life of 21.7 years. The Board has elected not to adopt a
longer assumed life, even for assets with extended lease or
planning permission at this early stage in the life of the
portfolio.
Nevertheless, the Investment Adviser is carrying out an active
programme of asset life extension through planning and lease
amendments and this may justify use of a longer asset life in the
future.
Consistent with the previous financial year, the Board has
adopted an assumed RPI of 2.75% throughout the assumed asset life
(including from 2019 onwards). This inflation rate was increased in
December 2016 following a revision of market expectations with
respect to long term inflation rates.
Impact of Finance Bill 2017 - Base Erosion and Profit
Shifting
Prior to Royal Assent of the Finance Bill in November 2017,
Directors' Valuations had only incorporated the benefit of tax
shielding from long term 3rd party debt profiles.
From September 2016, this included the interest shielding from
the Company's 18 year, fully amortising finance facility of GBP187m
(at a fixed rate of 2.875% on GBP121.5m and 0.7% over RPI on
GBP65.5m) provided by Aviva Investors.
The average EBITDA interest tax shield from this long term debt
equates to 6.8% over the life, being 14.3% in 2019 and falling
thereafter with amortisation of the debt.
No net tax shielding has previously been assumed from
intercompany loans within the group.
However, following Royal Assent of the Finance Bill in November
2017 (permitting shielding up to 30% of EBITDA), the Company moved
to include interest shielding from c.GBP80m of intercompany loans
(Eurobonds) between BSIF and BSIFIL within its 31 December 2017
valuation.
The average EBITDA interest tax shield from this combination of
third party long term debt and inter-company debt equates to 17.7%
over the life, being 26% in 2019 and falling thereafter with
amortisation of the debt and remains conservative with respect to
the 30% level permitted under the fixed ratio test of the corporate
interest restriction rules.
*GAV is the aggregation to the portfolio's DCF value, project
Durrant's outstanding debt and the working capital balances from
the portfolio and BSIFIL.
Power Price
As with Directors' Valuations since 31 December 2016, the
Directors have continued to adopt an equal blend of the forecasts
from the two leading independent forecasters for the period to 30
June 2018, with the table below outlining the valuation range over
the last three valuation cycles, resulting from applying each
forecaster individually.
Forecaster Portfolio Enterprise Value (GBPm)
June December June December
2018 2017 2017 2016
----------------- -------------------- ----------------- --------------------
Leading independent
power
forecaster 1* 594.3 566.1 553.9 500.5
----------------- -------------------- ----------------- --------------------
Equal blending of
leading
independent power
forecasts 592.5 568.5 558.6 510.5
----------------- -------------------- ----------------- --------------------
Leading independent
power
forecaster 2 590.8 570.9 563.7 520.4
----------------- -------------------- ----------------- --------------------
* Forecaster used in all previous BSIF valuations
The blended forecast used within the latest Directors' Valuation
is based on forecasts released in April 2018 (forecaster 1) and
June 2018 (forecaster 2) and implies an annual growth rate over the
25 year forecast of 0.5% above the rate of inflation from a
starting point in the high GBP40s / MWh.
The DCF for each project applies the contractually fixed power
price applicable to each solar PV asset until the end of the fixed
period and, thereafter, the blended independent forecast price. As
in 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 was
considered to reflect the market without discount or premium.
Plant Performance
During the period, 12 plants completed and passed FAC
testing.
This process triggers the end of performance-related EPC
warranties and, in the context of the valuation approach, marks the
first point at which long term operational performance can be
adopted within the future cash flows of the project.
The number of projects now being valued using PR from
operational or final acceptance (this covers a minimum of 2 years
of operational data) is 19 (7 assets in June 2017) and the
Investment Adviser is pleased to confirm that the average PR for
these plants, including the effects of degradation, is 83.3%.
This represents the possibility of future valuation uplifts as
the remaining plants, c.35% of the portfolio, move through the FAC
process and switch to operational PRs over the next few years.
Consistent with the valuation approach taken in previous
periods, the Directors' Valuation does not amend long term plant
performance forecasts based upon short term performance while the
plants remain within the warranty period and subject to outstanding
contractual testing obligations.
Other Cash flow Assumptions
No material changes have been made regarding regulatory revenue
or cost assumptions.
NAV movement
In the period, the Company paid total dividends of GBP24.4m,
being 3.00pps in total for the third and fourth interim dividends
in respect of the year ended 30 June 2017 (which combined with the
earlier interim dividends, provided a total dividend in the 2016/17
financial year of 7.25pps) as well as 3.60pps in total for the
first and second interim dividends for the 2017/18 financial
year.
Over the period the Company's NAV has increased by GBP10.4m,
from GBP408.6m as at 30 June 2017, to GBP419.0m as at 30 June 2018.
Adjusting the 30 June 2017 NAV of GBP408.6m for the dividends paid
in the period (GBP24.4m) results in an uplift in the NAV of the
Company during the period of GBP34.8m.
A breakdown in the movement of the NAV (GBPm) of the Company
over the period and how this interacts with the movement in the
valuation of the portfolio is illustrated in the charts below.
In February 2018, the Company paid a first interim dividend for
the 2017/18 financial year of 1.80pps. It paid a second interim
dividend of 1.80pps in May 2018, a third interim dividend of
1.80pps in August 2018 and is expecting to pay a final, fourth
interim of 2.03pps in October 2018 to meet the Company's 2017/18
dividend target of 7.43pps.
A breakdown in the movement of the NAV (GBP million) of the
Company over the period and how this interacts with the movement in
the valuation of the portfolio is illustrated in the charts
below.
[Graph]
Directors' Valuation movement
(GBPmillion) As % of
re-based
valuation
----------------------------- --------- ----- ----- -------------- -----------
30 June 2017 Valuation 573.4
----------------------------- --------- ----- --------------------- -----------
Additions in the period(#) 26.2
----------------------------- ---------------- --------------------- -----------
Re-based Valuation 599.6
----------------------------- ---------------- --------------------- -----------
Cash receipts from portfolio (40.8) (6.8)%
Power Price Movement (24.1) (4.0)%
Tax shield update 11.5 1.9%
Decrease in discount rate (6.15%
to 5.65%) 23.1 3.8%
Balance of portfolio return 34.9 5.8%
30 June 2018 Valuation 604.2 0.7%
---------------------------------------- ------------ -------------- -----------
#Additions in the period reflects acquisition of 18.8MWp;
Clapton, Galton, Holly and East.
Each movement between the re-based valuation and the 30 June
2017 valuation is considered in turn below:
Cash receipts from the Portfolio
This movement reflects the cash payments made from the
underlying project companies up to BSIFIL and the Company to enable
the companies to settle operating costs and distribution
commitments as they fall due within the period.
Power Price Movement
The Company's two independent forecasters released updated
forecasts in April and June 2018 and these have been applied to the
Directors' Valuation. The impact of adopting an equal blend of two
independent forecasters as well as the latest power price fixes,
against power price expectations applied in the 30 June 2017
valuation, results in a decrease of GBP24.1m.
The discounted cash flow for each project applies the
contractually fixed power price applicable to each solar PV asset
until the end of the fixed period, and thereafter the equal blend
of two independent forecasters' prices.
Tax shield update
Following approval of the Finance Bill in November 2017, the
Company has increased the level of tax shielding by including
interest relief on a subset of its intercompany loans. This change
results in an average EBITDA shield of c.18%, compared to the
permitted limit of 30% of EBITDA under the fixed ratio test of the
corporate interest restriction rules.
This is a change to prior valuations where the Company had been
factoring in only the tax shield from third party loans held with
Aviva Investors (c.GBP180m at portfolio level) and Bayern
Landesbank (c.GBP13m at project level), as well as any amounts
drawn under the Company's short term RCF (GBP24.3m as at 30 June
2018).
The shielding on these third party loans equates to c.14% of
EBITDA for 2019, and c.7% across the life of the loans.
Decrease in discount rate
The reduction of the WACC from 6.15% as 30 June 2017 to 5.65% as
at 30 June 2018 reflects the continued pricing tension within the
UK solar market and results in an increase of GBP23.1m to the 30
June 2018 valuation.
Balance of Portfolio Return
The balance of portfolio return is the result of the unwinding
of the discount rate over the period, as well minor operational and
financial assumption changes.
Other Assumptions
Consistent with previous Directors' Valuations, the valuation
assumes a terminal value of zero for all projects within the
portfolio c.25 years after their commencement of operation.
There have been no material changes to assumptions regarding the
future performance or cost optimisation of the portfolio when
compared to the Directors' Valuation of 30 June 2017.
On the basis of these key assumptions, the Board believes there
remains further potential for NAV enhancement from adjustments to
plant performance (PRs), subject to operational delivery, as well
as the potential impact from extension of asset life (through
increasing lease and planning permissions).
The assumptions set out in this section will remain subject to
review by the Investment Adviser and the Board and may give rise to
a revision of valuation approach in future reports.
Reconciliation of Directors' Valuation to Balance sheet
Balance at Year End
Category 30 June 30 June 30 June 2016
2018 (GBPm) 2017 (GBPm) (GBPm)
------------------------ ------------------------ ------------------------
Directors' Valuation 604.2 573.4 483.7
------------------------ ------------------------ ------------------------
BSIFIL Working Capital 18.8 15.9 2.4
------------------------ ------------------------ ------------------------
BSIFIL 3(rd) Party Debt (204.9) (186.0) (180.4)
------------------------ ------------------------ ------------------------
Financial Assets at Fair
Value per Balance sheet 418.1 403.3 305.7
------------------------ ------------------------ ------------------------
Following the adoption of IFRS 10 and the Company's move to
presenting its results on a non-consolidated basis, rather than
consolidating its immediate subsidiary BSIFIL, the above table
serves to aid the reader in reconciling the Directors' Valuation to
the relevant line on the Statement of Financial Position.
Directors' Valuation sensitivities
Valuation sensitivities are set out in tabular form in Note 8 of
the financial statements. The following diagram reviews the
sensitivity of the EV of the portfolio to the key underlying
assumptions within the discounted cash flow valuation.
[Chart]
5. Financing
Aviva Investors Long Term Facility
The LTF is provided by Aviva Investors in two tranches. The
first is a GBP121.5m fixed rate long term facility and the second
is a GBP65.5m index-linked long term facility.
Loan Amount Tenor No Refinancing Cost Average Interest
Risk Loan Life rate exposure
at drawdown during 18
year tenor
Fixed GBP121.5m 18 years Fully amortising All in 10.6 Zero
and 3 over 18 cost of
months years sculpted 287.5bps
from drawdown to cash
flows
---------- --------------- ----------------- ---------- ------------- ---------------
Index-Linked GBP65.5m 18 years Fully amortising RPI plus 11.3 Linked to
and 3 over 18 70bps RPI
months years sculpted
from drawdown to cash
flows
---------- --------------- ----------------- ---------- ------------- ---------------
Both tranches are fully amortising over 18 years, providing
natural alignment with the average remaining life of the Company's
regulated revenues, eliminating refinancing risk as well as
insulating the Company's equity cash flows from significant
principal repayments in the final years of the facility when the
contribution of revenue from power is increased.
During the period principal repayments of GBP7.4m, combined with
indexation increases of GBP2.2m, resulted in a total outstanding
balance to Aviva as at 30 June 2018 of GBP180.6m (Fixed GBP114.9m,
Index linked GBP65.7m).
The LTF is held by the Company's wholly-owned subsidiary,
BSIFIL, and is the result of a deliberate structuring approach to
maximise both transparency and portfolio management flexibility,
whilst also delivering the lowest cost of capital in our sector (as
at 3o June 2018, the blended debt cost of the facilities was
3.1%).
Thanks to the prudent leverage (34% of GAV as at 30 June 2018),
on the Company's base case projections the average DSCR remains
close to 3 times, with the lowest point of coverage over the entire
tenor projected to be in excess of 2.5 times.
RBS Revolving Credit Facility
The Company's RCF is provided by RBS to BSIFIL and has a current
maturity date of September 2019 and a constant margin of 2.0% over
LIBOR.
As at 30 June 2018 the Company had drawn GBP24.3m, out of
GBP30m, from its RCF.
Both the new RCF and the LTF are secured upon a selection of the
Company's investment portfolio and offer the ability to substitute
reference assets.
Project level debt
In addition to the LTF and the three year RCF, the Company also
has a small project finance loan of GBP12.5m secured against
project Durrants (a 5 MWp FiT plant located on the Isle of
Wight).
This facility was provided by Bayern Landesbank and is fully
amortising with a final maturity of 2029.
6. Market Developments
The UK's total installed solar capacity reached 12.8GWp on 30
June 2018 according to the Department for Business, Energy &
Industrial Strategy (BEIS) latest data available, as of 26 July
2018.
Capacity accredited under the RO Scheme remains unchanged at
7.1GWp, representing 56% of the total solar capacity in the UK, but
only 2.4% of the number of installations. This implies a high
concentration of generation in industrial scale sites. About 26% of
all operational capacity are projects sized 50kWp to 5MWp and circa
one third are larger than 5MWp but smaller than 25MWp.
Capacity accredited under the FiT was 4.8GWp as of 30 June 2018.
This equates to about 38% of total solar capacity and 86% of all
installations.
The utility-scale primary PV market in the UK is nowhere to be
seen since the closure of the RO scheme in April 2017. Some 103MWp
of capacity was added to the grid in the first half of 2018, mainly
across sub-utility scale new plants.
With 460MWp under management, the Company continues to maintain
its strong position within the UK solar market as one of the
largest solar asset owners by December 2017, operating about 5% of
the country's utility-scale solar PV capacity.
The activity in the secondary market has slowed down
considerably in the first half of 2018. Approximately 420MWp has
exchanged hands between the beginning of January and the end of
June 2018, compared to over 800MWp in the same period in 2017.
The Company's policy is that it will acquire only assets that
are accretive to shareholders' returns.
7. Regulatory Environment
Update on Contracts for Differences
On 11 October 2017, the UK government announced new CfD rounds
to be scheduled in 2019. The total budget of up to GBP557m in
subsidies will again be restricted to offshore wind and other "less
mature technologies". This means there will be no new government
support for solar power until at least the end of the decade.
Subsidy free PV
The lack of supportive regulations means that any new projects
will have to be delivered on a subsidy free basis. The economics of
investment in solar PV continue to improve as a result of falling
equipment prices.
In continental Europe, solar power has already entered the new
era of unsubsidised project development. Countries such as Spain,
Portugal and Italy are taking the lead and a few projects have
already started operations. In the first half of 2018, at least 12
such subsidy free projects, totalling c.676MWp have been either
built or were under construction in the EU.
In the UK, over 55MWp subsidy free solar PV capacity has been
added to the grid in the first half of 2018. Out of this new
capacity, 19MWp is sub-utility scale projects and 36MWp is utility
scale. These are promising signs for the future of subsidy free
solar PV in the UK. As a result, the Company will continue to
monitor opportunities on the primary market closely.
The figure below shows historical and projected levelised cost
of electricity (LCOE) for a UK solar project based on data provided
by a leading market intelligence service. Plotted against historic
and spot and forward prices in the UK, which can act as a reference
for potential PPA prices, the Investment Adviser has observed a
much more rapid convergence of power prices to the UK solar
levelised cost of electricity compared to the same projections in
December 2017.
Figure 4: UK solar levelised cost vs power price (GBP/MWh)
[Graph]
8. Environmental, Social and Governance
As a solar energy infrastructure investor, the Investment
Adviser is conscious of the Company's environmental and social
impact. The production of renewable energy equates to a significant
amount of CO2 emissions saved, representing a sustainable and
ethical investment. However, the Investment Adviser also considers
its impact on the biodiversity and the local community surrounding
its assets.
Environmental Impact
Approximately 25 acres of land are required for every 5MWp of
installation, enough to power 1,612 homes based on a medium Typical
Domestic Consumption Value (TDVC) of 3,100 kWh of electricity for
every 5 MWp installed, this is an annual saving of 1,744 tonnes of
CO2.
Based on these figures, the portfolio capacity of 460.3MWp as at
30 June 2018 will power the equivalent of 148,368 homes and save
160,517 tonnes of CO2 in a year.
Biodiversity
During the year the Investment Adviser completed a benchmarking
study of the biodiversity enhancement measures implemented on the
Company's large scale assets. Results showed that across three
major measures; wildflower meadow creation, native tree and
hedgerow planting and creation of habitat to support local wildlife
(e.g. bat boxes, bird boxes, beehives) the majority of plants had
benefited from enhancements in at least two of these areas and that
all plants had received enhancement in at least one area.
The Investment Adviser is working towards ensuring all remaining
plants benefit from biodiversity enhancements covering at least two
of the three major measures listed above. It is important to note
that these proposed additional enhancement measures will be based
on the individual natural ecosystems and will be using indigenous
species.
In addition to this, we are looking to collaborate with local
wildlife trusts to further enhance the presence of native local
species in and around the solar parks.
Sheep Grazing
Many sites within the portfolio support sheep grazing,
demonstrating that solar farms can support farming and are also
providing a cost effective way of managing grassland in solar farms
while increasing its conservation value. Where possible the
Investment Adviser facilitates the introduction of sheep grazing on
the existing and newly acquired assets.
Community Benefits
The Investment Adviser supports community benefit schemes across
its portfolio, assisting in the support and development of the
local communities surrounding the asset sites. Over the year to 30
June 2018, the portfolio assets made donations of GBP169k to
community benefit schemes for local councils and parishes for
charitable, educational, environmental, amenity or other
appropriate purposes within the areas of the community.
Bluefield Partners LLP
26 September 2018
Report of the Directors
The Directors hereby submit the annual report and financial
statements of the Company for the year ended 30 June 2018.
General Information
The Company is a non-cellular company limited by shares
incorporated in Guernsey under the Law 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 following its IPO
which completed on 12 July 2013.
Principal Activities
The principal activity of the Company 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 7.00pps 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. The dividend target for its fifth financial year ended
30 June 2018 is 7.43pps.
Business Review
A review of the Company's business and its likely future
development is provided in the Chairman's Statement, Strategic
Report and in the Report of the Investment Adviser as shown
above.
Listing Requirements
The Company has complied with the applicable Listing Rules
throughout the year.
Results and Dividends
The results for the year are set out in the financial statements
below.
On 8 August 2017, the Board declared a third interim dividend of
GBP5,547,169, in respect of year ended 30 June 2017, equating to
1.50pps (third interim dividend in respect of the year ended 30
June 2016: 1.50pps), which was paid on 8 September 2017 to
shareholders on the register on 18 August 2017.
On 18 September 2017, the Board declared a fourth interim
dividend of GBP5,547,170, in respect of year ended 30 June 2017,
equating 1.50pps (fourth interim dividend in respect of the year
ended 30 June 2016: 1.50pps), which was paid on 27 October 2017 to
shareholders on the register on 29 September 2017.
On 8 January 2018, the Board declared a first interim dividend
of GBP6,656,603, in respect of year ended 30 June 2018, equating to
1.80pps (first interim dividend in respect of the year ended 30
June 2017: 3.25pps), which was paid on 9 February 2018 to
shareholders on the register on 19 January 2018.
On 19 April 2018, the Board declared a second interim dividend
of GBP6,657,904, in respect of year ended 30 June 2018, equating to
1.80pps (second interim dividend in respect of the year ended 30
June 2017: 1.oopps), which was paid on 18 May 2018 to shareholders
on the register as at 27 April 2018.
Share Capital
On 12 January 2018, the Company issued 72,249 new Ordinary
Shares to the Investment Adviser in respect of their variable fee
for the financial year ended 30 June 2017 at a price of
107.49pps.
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 2018 are detailed
below:
Director Ordinary Shares Ordinary Shares
of GBP1 each of GBP1 each
held 30 June % holding held 30 June % holding
2018 at 2017 at
30 June 2018 30 June 2017
------------------ ---------------- --------------- ---------------- ---------------
John Rennocks* 316,011 0.09 446,713 0.12
John Scott 452,436 0.12 367,506 0.10
Paul Le Page* 137,839 0.04 137,839 0.04
Laurence McNairn 441,764 0.12 441,764 0.12
------------------ ---------------- --------------- ---------------- ---------------
*including shares held by PCAs
Directors' Authority to Buy Back Shares
The Board believes 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 Board 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 Board 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 Board general authority to purchase in the market up
to 14.99% of the Ordinary Shares in issue immediately following
Admission. A resolution to renew such authority was passed by
shareholders at the AGM held on 29 November 2017. Therefore,
authority was granted to the Board to purchase in the market up to
14.99% of the Ordinary Shares in issue immediately following the
AGM held on 29 November 2017 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. The Board intends to seek
renewal of this authority from the shareholders at the next AGM
scheduled to be held on 30 November 2018.
Pursuant to this authority, and subject to the Law and the
discretion of the Board, the Company may purchase Ordinary Shares
in the market on an ongoing 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 12 July
2018.
Substantial Shareholdings
As at 20 September 2018, 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 49,018,609 13.25
BNY (OCS) Nominees Limited 28,821,213 7.79
Pershing International Nominees Limited
DSCLT Acct 20,413,007 5.52
Roy Nominees Limited 180571 Acct 19,599,101 5.30
Nortrust Nominees Limited TDS Acct 13,684,838 3.70
HSBC Global Custody Nominee (UK) Limited
921773 Acct 12,026,291 3.25
------------------------------------------ ------------- ----------
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
2018.
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 2018, the Company had invested in 86 solar plants,
committing GBP545.6m to SPV investments. The Company through its
direct subsidiary, BSIFIL, has access to a RCF which 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, through BSIFIL, expects to comply with the
covenants of its long term loan and RCF.
The Board in its consideration of going concern has reviewed
comprehensive cash flow forecasts prepared by the Investment
Adviser, future projects in the pipeline and the performance of the
current solar plants in operation and, at the time of approving the
financial statements, has a reasonable expectation that the Company
has adequate resources to continue in operational existence for the
foreseeable future and does not consider there to be any threat to
the going concern status of the Company.
An additional factor which the Board has considered is the
discontinuation vote which will be put to shareholders at the AGM
to be held in November 2018. The Board cannot predict what the
outcome of the discontinuation vote will be but has no present
indication that the vote will not be positive given the Company's
performance, feedback from shareholders and dividend payment
history. In making the going concern disclosure, the Board has
assumed that the Company will continue to operate beyond the
discontinuation vote in its present form.
The Board has concluded that it is appropriate to adopt the
going concern basis of accounting in preparing the financial
statements.
Internal controls review
Taking into account the information on principal risks and
uncertainties provided in the strategic report and the ongoing work
of the Audit Committee in monitoring the risk management and
internal control systems on behalf of the Board, the Directors
-- are satisfied that they have carried out a robust assessment
of the principal risks facing the Company, including those that
would threaten its business model, future performance, solvency or
liquidity; and
-- have reviewed the effectiveness of the risk management and
internal control systems and no significant failings or weaknesses
were identified.
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 15.
Principal Risk and Uncertainties
Principal Risk and Uncertainties are discussed in section 7 of
the Strategic Report above.
Subsequent Events
Post year end, on 31 July 2018, the Board declared a third
interim dividend of GBP6,657,904, in respect of year ended 30 June
2018, equating to 1.80pps (third interim dividend in respect of the
year ended 30 June 2017: 1.50pps), which was paid on 31 August 2018
to shareholders on the register on 10 August 2018.
Post year end, 0n 26 September 2018, the Board approved a fourth
interim dividend, in respect of year ended 30 June 2018, of 2.03pps
(fourth interim dividend in respect of the year ended 30 June 2017:
1.50pps), which will be payable on 26 October 2018 with an
associated ex-dividend date of 4 October 2018.
Annual General Meeting
The AGM of the Company will be held on 30 November 2018 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
26 September 2018
Board of Directors
John Rennocks (Chairman)
John Rennocks was appointed as non-executive Chairman on 12 June
2013 and is Chairman of Utilico Emerging Markets, an investor in
infrastructure and related assets in emerging markets and AFC
Energy plc, a developer and manufacturer of alkaline fuel cells. He
has broad experience in emerging energy sources, support services
and manufacturing. Mr Rennocks previously served as a non-executive
director of Greenko Group plc, a developer and operator of hydro
and wind power plants in India, a non-executive deputy chairman of
Inmarsat plc, 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 was appointed as a non-executive director of the
Company on 12 June 2013 and 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 Impax
Environmental Markets plc since May 2014 and Chairman of Alpha
Insurance Analysts since April 2013. In May 2017, he was appointed
Chairman of Jupiter Emerging and Frontiers Income Trust. In June
2017, he retired as Chairman of Scottish Mortgage Investment Trust
PLC after 8 years and, until the company's sale in March 2013, he
was Deputy Chairman of Endace Ltd. of New Zealand. 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
Chartered Insurance Institute.
Paul Le Page (Chairman of the Audit Committee)
Paul Le Page was appointed as a non-executive director of the
Company on 12 June 2013 and is a director of FRM Investment
Management Guernsey Limited, Man Fund Management Guernsey Limited
and Man Group Japan Limited which are subsidiaries of Man Group
Plc. He is responsible for managing hedge fund portfolios, and is a
director of a number of Man Group funds and companies. Mr Le Page
is currently a director of Highbridge Multi-Strategy Fund limited
and Audit Committee Chairman for UK Mortgages Limited which are
both LSE listed investment companies. He was formerly a Director
of, and Audit Committee Chairman for, Cazenove Absolute Equity
Limited and Thames River Multi Hedge PCC Limited. Prior to joining
FRM, he was employed by Collins Stewart Asset Management 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 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 a consultant to Estera
International Fund Managers (Guernsey) Limited (previously Heritage
International Fund Managers Limited), the Company's Administrator
and Secretary. He joined the Heritage Group in 2006 where, until
late 2017, he was an executive director 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 financial statements in accordance with applicable law and
regulations.
The Law requires the Directors to prepare financial statements
for each financial year. Under the Law, the Directors have elected
to prepare the financial statements in accordance with IFRS as
adopted by the EU and the DTRs of the UK FCA. The Financial
Statements are required by the Law to give a true and fair view of
the state of affairs of the Company and of the profit or loss of
the Company for that period. In preparing these financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and 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;
-- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
-- use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations, or have no
realistic alternative but to do so.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time, the
financial position of the Company and enable them to ensure that
the financial statements comply with the Law. They are responsible
for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them
to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
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.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website, and for the preparation and dissemination of
Financial Statements. 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
26 September 2018 26 September 2018
Responsibility Statement of the Directors in Respect of the
Annual Report
Each of the Directors, whose names are set out above in the
Board of Directors section of the annual report, confirms that to
the best of their knowledge that:
-- the 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;
-- the Management Report (comprising Chairman's Statement,
Strategic Report, Report of the Directors and Report of the
Investment Adviser) includes a fair review of the development and
performance of the business and the position of the Company
together with a description of the principal risks and
uncertainties faced in section 7 of the Strategic Report; 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 financial statements, taken as a
whole, as fair, balanced and understandable and that it provides
the information necessary for shareholders to assess the Company's
performance, business model and strategy.
By order of the Board
Paul Le Page Laurence McNairn
Director Director
26 September 2018 26 September 2018
Corporate Governance Report
The Board recognises 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
Board has 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, 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). The Guernsey code is available from the GFSC's
website (www.gfsc.gg).
Throughout the year ended 30 June 2018, 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 below.
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 ongoing 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' biographies are provided 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 re-election
at the next AGM of the Company, due to take place on 30 November
2018. Each Director retires and seeks re-election at each
subsequent AGM of the Company.
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.
The Board is 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 refresh the Board in order to have the
appropriate mix of skills, experience, age, length of service and
with due regard for the benefits of diversity.
The Board meets 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 which applies to
the Board and any persons discharging managerial responsibilities.
This is to ensure compliance by the Board, and relevant personnel
of the Investment Adviser, with the requirements of the recently
updated EU Market Abuse Regulations.
Directors' Remuneration
The Chairman is entitled to an annual remuneration of GBP56,900,
with effect from 1 July 2017 (2017: GBP55,000). The other Directors
are entitled to an annual remuneration of GBP34,200, with effect
from 1 July 2017 (2017: GBP33,000). Paul Le Page receives an
additional annual fee of GBP5,700 (2017: GBP5,500) 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 years was as follows:
Director 2018 2017
GBP GBP
------------------ ------- -------
John Rennocks 56,900 55,164
John Scott 34,200 33,104
Paul Le Page 39,900 38,605
Laurence McNairn 34,200 33,090
------------------ ------- -------
The total Directors' fees expense for the year amounted to
GBP165,200 (2017: GBP159,963). As disclosed in Note 16, John
Rennocks and John Scott are Directors of BSIFIL, and have received
remuneration in respect of BSIFIL.
All of the Directors are non-executive and each is considered
independent for the purposes of Chapter 15 of the Listing
Rules.
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 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 ongoing basis.
The Board's responsibilities for the annual report are set out
in the Directors' Responsibilities Statement above. 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
2018 is set out below:
Scheduled Ad-hoc Audit Committee
Board Meetings Board Meetings Meetings
Director (max 4) (max 4) (max 7)
------------------ ---------------- ---------------- ----------------
John Rennocks 4 - 6
John Scott 3 - 5
Paul Le Page 4 4 7
Laurence McNairn 4 4 7
------------------ ---------------- ---------------- ----------------
Ten ad-hoc Board Meetings were held during the period to
formally review and authorise each investment made by the Company,
to discuss the placing of Ordinary Shares and to consider interim
dividends, amongst other items.
It should be noted that Mr Rennocks and Mr Scott are ordinarily
resident in the United Kingdom and as a result are not permitted to
participate in Board Meetings from the United Kingdom in accordance
with the Article 29.2 of the Company's Articles of Incorporation.
Mr Rennocks and Mr Scott have participated in the majority of
formally scheduled meetings in Guernsey. It should be noted that Mr
Rennocks and Mr Scott actively communicate their views on any
matters to be discussed at ad-hoc Board Meetings to their fellow
Directors, Mr Le Page and Mr McNairn, ahead of such meetings.
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, took place
in early 2018. The evaluation is undertaken utilising
self-appraisal questionnaires and is followed by a detailed
discussion of the outcomes which includes an 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 below. 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 Board acknowledges that it is responsible for establishing
and maintaining the 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 Board reviews
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
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 Company's agents and advisers and appointments are made by the
Board after due and careful consideration. The Board monitors the
ongoing 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.
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 below.
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 Board formally
appraises 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
Bluefield 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 more than GBP1 billion in solar PV projects. The
management team have been involved in over GBP1.5 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
Company's investment and operational 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 ongoing
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 Section 7 of the Strategic Report. The Company's
financial instrument risks are discussed in Note 15 to the
financial statements.
The Company's principal risk factors are fully disclosed 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 they
affect the Company and its policies. A number of changes to
regulation occurred during the period.
AIFMD
AIFMD was introduced on 22 July 2014 in order 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 AIFMD and as such neither it nor the Investment Adviser is
required to seek authorisation under AIFMD.
The marketing of shares in AIFs that are established outside the
EU (such as the Company) to investors in an 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 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 for the time being.
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 objectives, 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.
FATCA and CRS
The Company is registered under FATCA and continues to comply
with FATCA and the Common Reporting Standard's requirements to the
extent relevant to the Company.
PRIIPs
The Company is in compliance with the requirements under PRIIPs
to publish a KID. The KID is available on the Company's
website.
NMPI
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 UK 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
26 September 2018 26 September 2018
Report of the Audit Committee
The Audit Committee, chaired by Paul Le Page and comprising all
of the Directors, operates within clearly defined terms of
reference (which are available from the Company's website,
www.bluefieldsif.com) and includes all matters indicated by Rule
7.1 of the UK FCA's DTRs and the AIC Code. Appointments to the
Audit Committee shall be for a period of up to three years,
extendable for one further three year period. It is also the formal
forum through which the Auditor will report to the Board of
Directors.
The Audit Committee meets no less than twice a year, and at such
other times as the Audit Committee shall require, and meets 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
Company and any formal announcements relating to the Company's
financial performance and reviewing significant financial reporting
judgements contained in them;
-- reporting to the Board on the appropriateness of the Board's
accounting policies and practices including critical judgement
areas;
-- reviewing the valuation of the Company's investments prepared
by the Investment Adviser or independent valuation agents, and
making a recommendation to the Board on the valuation of the
Company'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 Board deems 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 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 financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and
-- any correspondence from regulators in relation to the Company'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 7 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 Company'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 financial statements;
-- review of the valuation policy and methodology of the
Company's investments applied in the interim and annual financial
statements;
-- detailed review of the interim and annual report and financial statements;
-- assessment of the effectiveness of the external audit process as described below; and
-- a review of the process used to determine the viability of the Company.
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 Company's financial statements is the fair value of the SPV
investments held by the Company's subsidiary, BSIFIL, 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 8 of the financial statements, the fair
value of the BSIFIL's investments (Directors' Valuation) as at 30
June 2018 was GBP604,235,581 (2017: GBP573,361,486). 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
and used these to infer the discount rate. 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
financial statements.
The valuation of the BSIFIL's portfolio of solar assets
(Directors' Valuation) as at 30 June 2018 has been determined by
the Board based on information provided by the Investment Adviser
and an independent benchmarking exercise.
The Audit Committee also reviewed and suggested factors that
could impact BSIFIL's portfolio valuation and its related
sensitivities to the carrying value of the investments as required
in accordance with IPEV Valuation Guidelines.
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 Company's assessment of its principal risks and
uncertainties as set out in Section 7 of the Strategic Report, and
it receives reports from the Investment Adviser and Administrator
on the Company'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 consider putting 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.
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 do 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 Company
in respect of the following matters: preparation of the financial
statements; provision of investment advice; taking management
decisions; advocacy work in adversarial situations; provision of
tax and tax compliance services; promotion of, dealing in, or
underwriting the Company's shares; provision of payroll services;
design or implementation of internal control or risk management or
financial information technology systems, provision of valuation
services, provision of services related to internal audit; and
provision of certain human resources functions.
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 also engaged to provide a review of the
Company's interim information. Total fees paid amounted to
GBP107,542 for the year ended 30 June 2018 (30 June 2017:
GBP114,096) of which GBP91,500 related to audit and audit related
services to the Company (30 June 2017: GBP95,466) and GBP16,042 in
respect of non-audit services (30 June 2017: GBP18,630).
Notwithstanding such services, which have arisen in connection
with review of the interim financial statements 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.
In addition, during the year, the FRC's Audit Quality Review
Team reviewed KPMG's audit of the Company's 30 June 2017 audit as
part of their annual inspection of audit firms. This reviewed
KPMG's work performed in connection with the valuation of
investments, revenue recognition, the quality of communications
with the Audit Committee and certain matters relating to quality
control and completion. The Audit Committee received and reviewed
the final report from the FRC which indicated that there were no
significant areas of concern. Feedback received from the FRC has
been discussed with KPMG as part of the audit planning process for
2018.
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 2019.
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
26 September 2018
Independent Auditor's Report
Independent Auditor's Report to the Members of Bluefield Solar
Income Fund Limited
Our opinion is unmodified
We have audited the financial statements of Bluefield Solar
Income Fund Limited (the "Company"), which comprise the statement
of financial position as at 30 June 2018, the statements of
comprehensive income, changes in equity and cash flows for the year
then ended, and notes, comprising significant accounting policies
and other explanatory information.
In our opinion, the accompanying financial statements:
- give a true and fair view of the financial position of the
Company as at 30 June 2018, and of the Company's financial
performance and the Company's cash flows for the year then
ended;
- are prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the EU; and
- comply with the Companies (Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities are described below. We have fulfilled our ethical
responsibilities under, and are independent of the Company in
accordance with, UK ethical requirements including FRC Ethical
Standards as applied to listed entities. We believe that the audit
evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Key Audit Matters: our assessment of the risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In arriving at our
audit opinion above, the key audit matters were as follows
(unchanged from 2017):
Valuation of financial assets held at fair value through profit
or loss
GBP418,098,105 (2017: GBP403,339,287)
Refer to the Report of the Audit Committee, above, note 2 (j)
accounting policy and note 8 disclosures
The risk Our response
Basis: Our audit procedures included,
The Company's investment in its but were not limited to:
immediate subsidiary is carried Control evaluation:
at fair value through profit or We met with the Investment Advisor
loss and represents a significant and Directors of the Company to
proportion of the Company's net observe the Board's challenge
assets (2017: 99.8%; 2016: 98.7%). and approval process of the Key
The fair value of the immediate Assumptions made within the valuation
subsidiary, which reflects its model which were prepared by the
net asset value, predominantly Investment Advisor.
comprises of the fair value of Model inputs:
the special purpose vehicle solar We assessed the key project specific
project investments ("SPVs") and inputs into the cash flow projections,
the immediate subsidiary level focusing on the significant changes
debt. for existing projects since the
GBP604,235,581 of the fair value previous reporting period or from
(see note 8) comprises of the the date of acquisition for newly
SPVs for which there is no liquid acquired projects, to corroborate
market. key contracted revenues and costs
The Company measures its SPVs with reference to underlying contracts,
at fair value based on unleveraged agreements and management information.
cash flows of the underlying solar Model integrity:
projects discounted using a portfolio For a selection of data routines,
weighted average cost of capital we tested the valuation model
("WACC"). for integrity, logic and for material
The valuations are performed using formula errors.
forecast cash flows generated Benchmarking the valuation assumptions:
by each solar project over the We challenged, with the support
term of the site lease/planning of our internal valuation specialist,
consent and by selecting Key Assumptions the WACC and Key Assumptions applied
including the base energy yield in the valuation by benchmarking
assumptions, electricity price these to independent market data,
forecasts, operating costs, irradiation, including recent market transactions,
leverage and macroeconomic assumptions and using our specialist's experience
such as inflation and tax rates in valuing similar investments.
(collectively "Key Assumptions"). We further assessed the reasonableness
In determining the portfolio WACC, of the WACC by comparing this
the relevant long term government to that used by comparator companies.
bond yields, cost of debt, specific Assessing transparency:
infrastructure asset risk and We have considered the adequacy
evidence of recent market transactions of the Company's disclosures made
are considered. in accordance with IFRS 13 (see
The valuations are adjusted for note 8) including the use of estimates
other specific assets and liabilities and judgments in arriving at fair
of the SPVs. value. We assessed whether the
Risk: disclosures around the sensitivities
The valuation risk represents to changes in key assumptions
both a risk of fraud and error reflected the risks inherent in
associated with estimating the the valuation of the SPVs.
timing and amounts of long term
forecasted cash flows alongside
the selection and application
of appropriate assumptions. Changes
to long term forecasted cash flows
and/or the selection and application
of different assumptions may result
in a materially different valuation
of financial assets held at fair
value through profit or loss.
Our application of materiality and an overview of the scope of
our audit
Materiality for the financial statements as a whole was set at
GBP12,470,000, determined with reference to a benchmark of Net
Assets of GBP418,995,484, of which it represents approximately 3%
(2017: 3%).
We reported to the Audit Committee any corrected or uncorrected
identified misstatements exceeding GBP623,000, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Our audit of the Company was undertaken to the materiality level
specified above, which has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
We have nothing to report on going concern
We are required to report to you if we have anything material to
add or draw attention to in relation to the directors' statement in
note 2 (b) to the financial statements on the use of the going
concern basis of accounting with no material uncertainties that may
cast significant doubt over the Company's use of that basis for a
period of at least twelve months from the date of approval of the
financial statements. We have nothing to report in this
respect.
We have nothing to report on the other information in the Annual
Report
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does not cover
the other information and we do not express an audit opinion or any
form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial statements audit
work, the information therein is materially misstated or
inconsistent with the financial statements or our audit knowledge.
Based solely on that work we have not identified material
misstatements in the other information.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw attention
to in relation to:
-- the directors' confirmation within Directors' viability
statement (Section 7 of the Strategic Report) that they have
carried out a robust assessment of the principal risks facing the
Company, including those that would threaten its business model,
future performance, solvency or liquidity;
-- the Principal Risks disclosures describing these risks and
explaining how they are being managed or mitigated; and
-- the directors' explanation in the Directors' viability
statement (Section 7 of the Strategic Report) as to how they have
assessed the prospects of the Company, over what period they have
done so and why they consider that period to be appropriate, and
their statement as to whether they have a reasonable expectation
that the Company will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Corporate governance disclosures
We are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our financial statements 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
shareholders to assess the Company's position and performance,
business model and strategy; or
-- the section of the Annual Report describing the work of the
Audit Committee does not appropriately address matters communicated
by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the 2016 UK Corporate Governance Code specified by
the Listing Rules for our review.
We have nothing to report to you in these respects.
We have nothing to report on other matters on which we are
required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us 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.
Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out above, the
Directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error; assessing the
Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern; and using the going
concern basis of accounting unless they either intend to liquidate
the Company or to cease operations, or have no realistic
alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our
opinion in an auditor's report. Reasonable assurance is a high
level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the
FRC's website at www.frc.org.uk/auditorsresponsibilities.
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. 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.
Rachid Frihmat
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors, Guernsey
26 September 2018
Statement of Financial Position
As at 30 June 2018
30 June 2018 30 June 2017
Note GBP GBP
------------------------------------------------------------ ----- ------------- -------------
ASSETS
Non-current assets
Financial assets held at fair value through profit or loss 8 418,098,105 403,339,287
Total non-current assets 418,098,105 403,339,287
------------------------------------------------------------ ----- ------------- -------------
Current assets
Trade and other receivables 9 753,237 625,717
Cash and cash equivalents 10 501,751 4,980,341
Total current assets 1,254,988 5,606,058
------------------------------------------------------------ ----- ------------- -------------
TOTAL ASSETS 419,353,093 408,945,345
------------------------------------------------------------ ----- ------------- -------------
LIABILITIES
Current liabilities
Other payables and accrued expenses 11 357,609 337,090
Total current liabilities 357,609 337,090
------------------------------------------------------------ ----- ------------- -------------
TOTAL LIABILITIES 357,609 337,090
------------------------------------------------------------ ----- ------------- -------------
NET ASSETS 418,995,484 408,608,255
------------------------------------------------------------ ----- ------------- -------------
EQUITY
Share capital 368,012,390 367,934,730
Other reserves - 77,660
Retained earnings 50,983,094 40,595,865
----- ------------- -------------
TOTAL EQUITY 13 418,995,484 408,608,255
------------------------------------------------------------ ----- ------------- -------------
Ordinary Shares in issue at year end 13 369,883,530 369,811,281
------------------------------------------------------------ ----- ------------- -------------
Net asset value per Ordinary Share (pence) 7 113.28 110.49
------------------------------------------------------------ ----- ------------- -------------
These financial statements were approved and authorised for
issue by the Board of Directors on 26 September 2018 and signed on
their behalf by:
Paul Le Page Laurence McNairn
Director Director
26 September 2018 26 September 2018
The accompanying notes form an integral part of these financial
statements.
Statement of Comprehensive Income
For the year ended 30 June 2018
Year ended Year ended
30 June 2018 30 June 2017
Note GBP GBP
--------------------------------------------------------------- ----- ------------------------------- -------------
Income
Investment income 4 702,603 563,288
Interest income from cash and cash equivalents 2,600 15,243
--------------------------------------------------------------- ----- ------------------------------- -------------
705,203 578,531
Net gains on financial assets held at fair value through
profit or loss 8 35,291,437 64,657,803
Operating income 35,996,640 65,236,334
--------------------------------------------------------------- ----- ------------------------------- -------------
Expenses
Administrative expenses 5 1,200,565 1,190,616
------------------------------- -------------
Operating expenses 1,200,565 1,190,616
--------------------------------------------------------------- ----- ------------------------------- -------------
Operating profit 34,796,075 64,045,718
--------------------------------------------------------------- ----- ------------------------------- -------------
Profit and total comprehensive income for the year 34,796,075 64,045,718
--------------------------------------------------------------- ----- ------------------------------- -------------
Earnings per share:
Basic and diluted (pence) 12 9.41 18.26
--------------------------------------------------------------- ----- ------------------------------- -------------
All items within the above statement have been derived from
continuing activities.
The accompanying notes form an integral part of these financial
statements.
Statement of Changes in Equity
For the year ended 30 June 2018
Note Number of Share capital Other reserves Retained earnings Total equity
Ordinary Shares
GBP GBP GBP GBP
----------------------- ------ ----------------- -------------- --------------- ------------------ -------------
Shareholders' equity
at
1 July 2017 369,811,281 367,934,730 77,660 40,595,865 408,608,255
----------------------- ------ ----------------- -------------- --------------- ------------------ -------------
Shares issued during
the period:
Ordinary Shares issued
in settlement of
variable fee 13 72,249 77,660 (77,660) - -
Dividends paid 13,14 - - - (24,408,846) (24,408,846)
Total comprehensive
income for the period - - - 34,796,075 34,796,075
Shareholders' equity
at
30 June 2018 369,883,530 368,012,390 - 50,983,094 418,995,484
----------------------- ------ ----------------- -------------- --------------- ------------------ -------------
For the year ended 30 June 2017
Note Number of Share capital Other reserves Retained earnings Total equity
Ordinary Shares
GBP GBP GBP GBP
----------------------- ------ ----------------- -------------- --------------- ------------------ -------------
Shareholders' equity
at
1 July 2016 309,631,765 307,985,091 167,201 (399,754) 307,752,538
----------------------- ------ ----------------- -------------- --------------- ------------------ -------------
Shares issued during
the period:
Ordinary Shares issued
via placing 13 60,000,000 60,600,000 - - 60,600,000
Shares issue costs 13 - (817,562) - - (817,562)
Ordinary Shares issued
in settlement of
variable fee 13 179,516 167,201 (167,201) - -
Ordinary shares to be
issued in settlement
of variable fee 13 - - 77,660 - 77,660
Dividends paid 13,14 - - - (23,050,099) (23,050,099)
Total comprehensive
income for the period - - - 64,045,718 64,045,718
Shareholders' equity
at
30 June 2017 369,811,281 367,934,730 77,660 40,595,865 408,608,255
----------------------- ------ ----------------- -------------- --------------- ------------------ -------------
The accompanying notes form an integral part of these financial
statements.
Statement of Cash Flows
For the year ended 30 June 2018
Year ended Year ended
30 June 2018 30 June 2017
Note GBP GBP
--------------------------------------------------------- ----- ------------------------------ ------------------
Cash flows from operating activities
Total comprehensive income for the year 34,796,075 64,045,718
Adjustments:
Increase in trade and other receivables (127,520) (84,328)
Increase in other payables and accrued expenses 20,519 45,058
Movement in other reserves relating to Investment
Adviser shares 13 - 77,660
Net gains on financial assets held at fair value through
profit or loss 8 (35,291,437) (64,657,803)
Net cash used in operating activities (602,363) (573,695)
--------------------------------------------------------- ------------------------------------- ------------------
Cash flows from investing activities
Purchase of financial assets held at fair value through
profit or loss 8 (4,320,601) (55,500,000)
Receipts from investments held at fair value through
profit or loss 8 24,853,220 22,541,016
Net cash generated from / (used in) investing activities 20,532,619 (32,958,984)
--------------------------------------------------------- ----- ------------------------------ ------------------
Cash flow from financing activities
Proceeds from issue of Ordinary Shares 13 - 60,600,000
Issue costs paid 13 - (817,562)
Dividends paid 14 (24,408,846) (23,050,099)
Net cash (used in) / generated from financing activities (24,408,846) 36,732,339
--------------------------------------------------------- ----- ------------------------------ ------------------
Net (decrease) / increase in cash and cash equivalents (4,478,590) 3,199,660
Cash and cash equivalents at the start of the year 4,980,341 1,780,681
Cash and cash equivalents at the end of the year 10 501,751 4,980,341
--------------------------------------------------------- ----- ------------------------------ ------------------
The accompanying notes form an integral part of these financial
statements.
Notes to the Financial Statements for the year ended 30 June
2018
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 financial statements for the year ended 30 June 2018
comprise the financial statements of the Company only (see Note 2
(c)).
The investment objective of the Company 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.
The Company has appointed Bluefield Partners LLP as its
Investment Adviser.
2. Accounting policies
a) Basis of preparation
The financial statements included in this annual report have
been prepared in accordance with IFRS as adopted by the EU and the
DTRs of the UK FCA.
These 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 compliance
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 IASB effective
date
--------------------- -------------------------------------- ---------------
IFRS 9 Financial Instruments 1 January
2018
IFRS 15 Revenue from Contracts with Customers 1 January
2018
IFRS 16 Leases 1 January
2019
Revised and amended standards
------------------------------------------------------------- ---------------
IFRS 2 Share-based payment 1 January
2018
Annual Improvements* Annual improvements to IFRS Standards 1 January
2015-2017 cycle 2019
* Not yet endorsed by the EU
At the date of authorisation of these financial statements,
certain new standards, and amendments to existing standards have
been published by the IASB that are not yet effective.
The Board expects that all relevant pronouncements will be
adopted in the Company's accounting policies for the first period
beginning after the effective date of the pronouncement.
The amendments to IFRS 2 are effective for annual periods
beginning on or after 1 January 2018 and have not been applied to
these financial statements. The accounting clarifications included
in the amended IFRS 2 will not result in any changes to the
reported results or financial position of the Company.
IFRS 9 replaces IAS 39 and is effective for annual periods
beginning on or after 1 January 2018. It has not been applied to
these financial statements. The Company's financial assets comprise
of its investment in BSIFIL held at fair value and the introduction
of IFRS 9 is not expected to have a material impact on the reported
results or financial position of the Company.
As at 30 June 2018 IFRS 15 and IFRS 16 had been issued but are
not effective for this accounting period and have not been adopted
early by the Company.
As the Company's investments are held at fair value through
profit and loss and the revenue and lease contracts are held at the
SPV level, the introduction of these standards is not expected to
have a material impact on the reported results or financial
position of the Company.
b) Going concern
At 30 June 2018, the Company had invested in 86 solar plants,
committing GBP545.6m to SPV investments. The Company through its
direct subsidiary, BSIFIL, has access to a RCF which 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, through BSIFIL, expects to comply with the
covenants of its long term loan and RCF.
The Board in its consideration of going concern has reviewed
comprehensive cash flow forecasts prepared by the Investment
Adviser, future projects in the pipeline and the performance of the
current solar plants in operation and, at the time of approving the
financial statements, have a reasonable expectation that the
Company has 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 Company.
An additional factor which the Board has considered is the
discontinuation vote which will be put to shareholders at the AGM
to be held in November 2018. The Board cannot predict what the
outcome of the discontinuation vote will be but have no present
indication that the vote will not be positive given the Company's
performance, feedback from shareholders and dividend payment
history. In making the going concern disclosure, the Board has
assumed that the Company will continue to operate beyond the
discontinuation vote in its present form.
The Board has concluded that it is appropriate to adopt the
going concern basis of accounting in preparing the financial
statements.
c) Accounting for subsidiaries
The Company makes its investments in the SPVs through its
single, direct subsidiary, BSIFIL, in which it is the sole
shareholder.
In light of the December 2014 amendments to IFRS 10 (the
Consolidation Exception Amendments), which clarified the scope of
the exceptions to mandatory non-consolidation amendments, the Board
considered the investment entity status of BSIFIL and concluded
that it is, like the Company, an investment entity. As such the
Company is not permitted to consolidate BSIFIL in the preparation
of its financial statements and all subsidiaries are recognised at
fair value through profit or loss.
d) Functional and presentation currency
These financial statements are presented in Sterling, which is
the functional currency of the Company as well as the presentation
currency. The Company's funding, investments and transactions are
all denominated in Sterling.
e) Income
Monitoring 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 Company's costs incurred in
connection with the ongoing administrative costs and management of
the Company's investments. Operating expenses are accounted for on
an accruals basis.
g) Finance costs
Finance costs are recognised in the Statement of Comprehensive
Income in the period to which they relate on an accruals basis
using the effective interest rate method. Arrangement fees for
finance facilities are amortised over the expected life of the
facility.
h) Dividends
Dividends declared and approved are charged against equity. A
corresponding liability is recognised for any unpaid dividends
prior to year end. Dividends approved but not declared will be
disclosed in the notes to the 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 Company is engaged in a
single segment of business, being investment mainly in UK solar
energy infrastructure assets via its holding company and SPVs, and
mainly in one geographical area, the UK, and therefore the Company
has only a single operating segment.
The Board, as a whole, has been determined as constituting the
chief operating decision maker of the Company. The key measure of
performance used by the Board to assess the Company's performance
and to allocate resources is the total return on the Company'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 financial statements.
The Board has overall management and control of the Company 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 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 Company 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) Financial instruments
Financial assets and financial liabilities are recognised in the
Company's statement of financial position when the Company becomes
a party to the contractual provisions of the instrument. The
Company offsets financial assets and financial liabilities if the
Company 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 Company has not classified any of its financial assets as
'held to maturity' or as 'available for sale'. The Company's
financial assets comprise of only financial assets held at fair
value through profit or loss, cash and loans and receivables.
i) Financial assets held at fair value through profit or loss
-- Classification
The Company has been classified as an investment entity and as
such its investment in its subsidiary, BSIFIL, is 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 Company in BSIFIL are recognised on the
day on which monies are transferred. No transaction costs are
incurred.
-- Measurement
Subsequent to initial recognition, investment in BSIFIL is
measured at each subsequent reporting date at fair value. The
Company holds all of the shares in the subsidiary, BSIFIL, which is
a holding vehicle used to hold the Company's SPV investments. The
Directors believe it is appropriate to value this entity based on
the fair value of its portfolio of SPV investment assets held plus
its other assets and liabilities. The SPV investment assets held by
the subsidiary are valued semi-annually as described in Note 8 on a
discounted cash flow basis which is benchmarked against market
transactions.
Gains or losses, through profit or loss, are made up of BSIFIL's
profit or loss, which comprises mainly cash receipts from its SPVs,
the fair value movement of BSIFIL's SPV portfolio and cash received
in respect of Eurobond instrument interest. Further more, cash
receipts (excluding Eurobond interest) made to the Company by
BSIFIL are accounted for as a repayment of loans and not reflected
in the Company's profit and loss, apart from monitoring fees (see
Note 4).
ii) Derecognition of financial assets
A financial asset (in whole or in part) is derecognised
either:
-- when the Company 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 trade 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 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.
All financial liabilities are initially recognised at fair value
net of transaction costs incurred. All purchases of financial
liabilities are recorded on the trade date, being the date on which
the Company becomes party to the contractual requirements of the
financial liability. Unless otherwise indicated the carrying
amounts of the Company's financial liabilities approximate to their
fair values.
The Company's financial liabilities consist of only financial
liabilities measured at amortised cost.
i) Financial liabilities measured at amortised cost
These include trade payables and other short term monetary
liabilities, which are initially recognised at fair value and
subsequently carried at amortised cost using the effective interest
rate method.
ii) Derecognition of financial liabilities
A financial liability (in whole or in part) is derecognised when
the Company has extinguished its contractual obligations, it
expires or is cancelled. Any gain or loss on derecognition is taken
to profit and loss.
k) 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.
l) Share based payments
Investment Adviser's variable fee
The Company recognises the variable fee for the services
received in a share-based payment transaction as the Company
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.
3. Critical accounting judgements, estimates and assumptions in
applying the Company's accounting policies
The preparation of these 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 and/or complexity
and/or area where assumptions and estimates are significant to the
financial statements has been identified as the valuation of the
Company's investment in BSIFIL which is predominantly based on the
valuation of the portfolio of investments held by BSIFIL (see Note
8).
The estimates and underlying assumptions are reviewed on an
ongoing 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.
As disclosed in Note 8, the Board believes it is appropriate for
the Company's portfolio to be benchmarked on a GBPm / MWp basis
against comparable portfolio transactions and on this basis the
WACC discount rate of 5.90% (as applied in December 2017) has been
lowered to 5.65%. A bench marking analysis in respect of 30 June
2018 was completed by an independent third party valuer and
considered by the Board.
It is assumed that future long term debt will increase slightly.
The average EBITDA interest tax shield from a combination of third
party long term debt and intercompany Eurobond debt equates to
17.7%.
Use of a blended power forecast is unchanged as is the inflation
assumption which remains at 2.75%.
4. Investment income
Year ended Year ended
30 June 2018 30 June 2017
GBP GBP
Monitoring fee in relation to loans supplied (Note 16) 702,603 563,288
------------- -------------
702,603 563,288
============= =============
The Company provides monitoring and loan administration services
to BSIFIL for which an annual fee is charged, payable in
arrears.
5. Administrative expenses
Year ended Year ended
30 June 2018 30 June 2017
GBP GBP
---------------------------------------------- ------------- -------------
Investment advisory base fee * (see Note 16) 310,783 277,711
Investment advisory variable fee - 77,660
Legal and professional fees 93,681 79,976
Administration fees 294,156 262,226
Directors' remuneration 165,200 159,963
Audit fees 90,460 95,466
Non-audit fees 16,042 18,630
Broker fees 50,120 51,556
Regulatory Fees 42,365 37,061
Registrar fees 38,546 40,022
Insurance 8,727 7,999
Listing fees 22,021 12,454
Other expenses 68,464 69,892
1,200,565 1,190,616
============= =============
*The Investment advisory base fee is paid by both the Company
(10%) and BSIFIL (90%). The amount shown above reflects the amount
paid by the Company only. Note 16 shows the full fee paid to the
Investment Adviser.
Investment Advisory Agreement
The Company, BSIFIL 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 Company's (and any of
BSIFIL's SPVs) assets (including uninvested cash) in accordance
with the Company'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:
(i) if in any year, the Company exceeds its distribution target
(7.43pps for the year ended 30 June 2018 and increasing with the
annual RPI), 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. In any year, 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 7.00
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 16.
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 5.0 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
GBP6,000 and GBP3,000 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 16.
6. Taxation
The Company has obtained exempt status under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance 1989 for which it paid an
annual fee of GBP1,200 (2017: GBP1,200) (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 is
19%. This is due to decrease to 17% by 2020.
7. Net asset value per Ordinary Share
The calculation of NAV per Ordinary Share is based on NAV of
GBP418,995,484 (2017: GBP408,608,255) and the number of shares in
issue at 30 June 2018 of 369,883,530 (2017: 369,811,281) Ordinary
Shares.
8. Financial assets held at fair value through profit or
loss
The Company's accounting policy on the measurement of these
financial assets is discussed in Note 2(j)(i) and below.
30 June 2018 30 June 2017
Total Total
GBP GBP
------------------------------------------------------------------------------ ----------------------- -------------
Opening balance (Level 3) 403,339,287 305,722,500
Additions - funds passed to BSIFIL 4,320,601 55,500,000
Additions - acquisition of Eurobonds* 76,565,712 -
Disposal - de-recognition of loans* (76,565,712) -
Change in fair value of financial assets held at fair value through profit or
loss 10,438,217 42,116,787
----------------------- -------------
Closing balance (Level 3) 418,098,105 403,339,287
======================= =============
*Non-cash transaction: On 12 July 2017, a number of loan
facilities, totalling GBP76.6m, between the Company and BSIFIL were
de-recognised and replaced with a Eurobond instrument listed on the
TISE.
Investments at fair value through profit or loss comprise the
fair value of the SPV investment portfolio held by BSIFIL, the
Company's single direct subsidiary, which is valued semi-annually
by the Directors, and the fair value of BSIFIL's cash, working
capital and debt balances. A reconciliation of the SPV investment
portfolio value to financial assets at fair value through profit or
loss shown on the Statement of Financial Position is shown
below.
30 June 2018 30 June 2017
Total Total
GBP GBP
SPV investment portfolio, Directors'
Valuation 604,235,581 573,361,486
BSIFIL
Cash 14,687,260 14,121,967
Working capital 4,083,400 1,848,655
Debt (204,908,136) (185,992,821)
-------------- ------------------------
(186,137,476) (170,022,199)
Financial assets at fair value through
profit or loss 418,098,105 403,339,287
============== ========================
Analysis of net gains on financial assets held at fair value through profit or loss (per statement
of comprehensive income)
Year ended Year ended
30 June 2018 30 June 2017
GBP GBP
Unrealised change in fair value of financial assets held at fair value through
profit or loss 10,438,217 42,116,787
Cash receipts from non-consolidated subsidiary* 24,853,220 22,541,016
Net gains on financial assets held at fair value through profit or loss 35,291,437 64,657,803
============= =============
*Comprising of repayment of loans and Eurobond interest
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);
and
-- 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 Company. The Company 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
investments held by the Company, through BSIFIL, which are fair
valued at each reporting date. The Company's investments have been
classified within Level 3 as BSIFIL's investments are not traded
and contain unobservable inputs.
Transfers during the period
There have been no transfers between levels during the year
ended 30 June 2018. 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.
Directors' Valuation methodology and process
The same valuation methodology and process for operational solar
plants is followed in these financial statements as was applied in
the preparation of the Company's financial statements for the year
ended 30 June 2017. Solar plants under construction and not yet
operational are valued at cost and exclude acquisition costs which
are expensed in the period in which they are incurred, whilst
investments that are operational are valued on a DCF basis over the
life of the asset (typically 25 years) and, under the 'willing
buyer-willing seller' methodology, prudently benchmarked on a
GBP/MWp basis against comparable transactions for large scale
portfolios. No assets were valued at cost as at year end.
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 Company's SPV investments.
The key inputs to a DCF based approach are: the equity discount
rate, the cost of debt (influenced by interest rate, gearing level
and length of debt), power price forecasts, long term inflation
rates, irradiation forecasts, operational costs and taxation. Given
discount rates are a product of not only the factors listed
previously but also regulatory support, perceived sector risk and
competitive tensions, it is not unusual for discount rates to
change over time. Evidence of this is shown by way of the revisions
to the original discount rates applied between the first UK solar
investments and those witnessed in the past twelve months and given
the fact discount rates are subjective, there is sensitivity within
these to the interpretation of factors outlined above.
Judgement is used by the Board in determining the reduction of
the WACC from 5.90%, from 31 December 2017, to 5.65% and key
developments over the year that have impacted the adoption of this
rate are outlined below:
a. Transaction values have remained consistent at ca. GBP1.29
-1.35/MWp for large scale portfolios and which the Board have used
to determine that an effective price of GBP1.29m/MWp is an
appropriate basis for the valuation of the BSIF portfolio as at 30
June 2018;
b. Further falls in the long term power price forecasts, and
c. Clarification of BEPS legislation in the December 2017 Finance Bill.
In order to smooth the sensitivity of the valuation to forecast
timing or opinion taken by a single forecast, the Board continues
to adopt the application of a blended power curve from two leading
forecasters.
It is only the SPVs of BSIFIL, and their intermediate holding
companies, that the Directors fair value (see Note 2(j)(i)). Fair
value of operational SPVs is calculated on a discounted cash flow
basis in accordance with the IPEV Valuation Guidelines, benchmarked
on a GBP/MWp basis against large scale portfolio transactions. 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 the Board will have an external valuation
performed by an independent expert. This year the Company
commissioned a benchmarking exercise with an independent third
party for the 30 June 2018 valuation, which was considered by the
Board in determining the portfolio fair value in these financial
statements. An external valuation was previously undertaken for the
year ended 30 June 2015.
Sensitivity analysis
The table below analyses the sensitivity of the fair value of
the Directors' Valuation to an individual input, while all other
variables remain constant.
The Directors consider 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 2018 30 June 2017
------------------------------------- -------------------------------------
Change in fair value Change in fair value
of Directors' Change in NAV of Directors' Change in NAV
Valuation per share Valuation per share
Input Change in input GBPm (pence) GBPm (pence)
---------------------- ---------------- --------------------- -------------- --------------------- --------------
Discount rate (5.65%) + 0.5% (23.o) (6.22) (22.5) (6.08)
----------------------
- 0.5% 24.5 6.62 24.0 6.49
---------------------- ---------------- --------------------- -------------- --------------------- --------------
Power prices +10% 28.9 7.81 27.5 7.44
----------------------
-10% (29.0) (7.84) (27.7) (7.49)
---------------------- ---------------- --------------------- -------------- --------------------- --------------
Inflation rate
(2.75%) + 0.25% 8.4 2.27 11.9 3.22
----------------------
- 0.25% (8.1) (2.19) (11.6) (3.14)
---------------------- ---------------- --------------------- -------------- --------------------- --------------
Energy yield 10 year P90 (48.3) (13.06) (43.0) (11.63)
----------------------
10 year P10 47.9 12.95 40.0 10.82
---------------------- ---------------- --------------------- -------------- --------------------- --------------
Operational costs +10% (11.4) (3.08) (11.3) (3.06)
----------------------
-10% 10.9 2.95 9.8 2.65
---------------------- ---------------- --------------------- -------------- --------------------- --------------
Interest shield +50% 9.3 2.51 n/a n/a
----------------------
-50% (9.6) (2.60) n/a n/a
---------------------- ---------------- --------------------- -------------- --------------------- --------------
9.Trade and other receivables
30 June 2018 30 June 2017
GBP GBP
Current assets
Monitoring fees receivable 702,603 577,465
Interest receivable - 842
Other receivables 10,400 10,000
Prepayments 40,234 37,410
753,237 625,717
============= =============
There are no other material past due or impaired receivable
balances outstanding at the period end.
The Directors consider that the carrying amount of all
receivables approximates to their fair value.
10. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Company and
short term bank deposits held with maturities of up to three
months. The carrying amount of these assets as at 30 June 2018 was
GBP501,751 (2017: GBP4,980,341) and approximated their fair value.
Cash held by BSIFIL, the Company's single direct subsidiary, as at
30 June 2018 is shown in Note 8.
11. Other payables and accrued expenses
30 June 2018 30 June 2017
GBP GBP
Current liabilities
Investment advisory fees 77,379 72,634
Administration fees 70,716 66,761
Audit fees 70,800 90,000
Other payables 138,714 107,695
357,609 337,090
============= =============
The Company has financial risk management policies in place to
ensure that all payables are paid within the agreed credit period.
The Directors consider that the carrying amount of all payables
approximates to their fair value.
12. Earnings per share
Year ended Year ended
30 June 2018 30 June 2017
-------------------------------------------------------------------------------------- -------------- --------------
Profit attributable to shareholders of the Company GBP34,796,075 GBP64,045,718
Weighted average number of Ordinary shares 369,845,327 350,740,529
Basic and diluted earnings from continuing operations and profit for the year (pence) 9.41 18.26
============== ==============
For the calculation of Earnings per Share at 30 June 2017 the
estimated number of shares earned by the Investment Adviser but not
yet issued were included in the calculation of the weighted average
number of shares based upon them being issued at the end of the
year in which they were earned.
13. Share capital
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 denominate
in such currencies as they may determine.
Year ended Year ended
Number of Ordinary Shares 30 June 2018 30 June 2017
Number Number
--------------------------------------------- -------------- --------------
Opening balance 369,811,281 309,631,765
Shares issued for cash - 60,000,000
Shares issued as settlement of variable fee 72,249 179,516
Closing balance 369,883,530 369,811,281
============== ==============
Year ended Year ended
Shareholders' Equity 30 June 2018 30 June 2017
GBP GBP
--------------------------------------------------- -------------- --------------
Opening balance 408,608,255 307,752,538
Shares issued for cash - 60,600,000
Share issue costs - (817,562)
Shares to be issued as settlement of variable fee - 77,660
Dividends paid (24,408,846) (23,050,099)
Retained earnings 34,796,075 64,045,718
Closing balance 418,995,484 408,608,255
============== ==============
On 12 January 2018, the Company issued 72,249 new Ordinary
Shares to the Investment Adviser in respect of their variable fee
for the financial year ended 30 June 2017 at a price of 107.49
pps.
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 Shareholders 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.
14. Dividends
On 8 August 2017, the Board declared a third interim dividend of
GBP5,547,169, in respect of year ended 30 June 2017, equating to
1.50pps (third interim dividend in respect of the year ended 30
June 2016: 1.50pps), which was paid on 8 September 2017 to
shareholders on the register on 18 August 2017.
On 18 September 2017, the Board declared a fourth interim
dividend of GBP5,547,170, in respect of year ended 30 June 2017,
equating 1.50pps (fourth interim dividend in respect of the year
ended 30 June 2016: 1.50pps), which was paid on 27 October 2017 to
shareholders on the register on 29 September 2017.
On 8 January 2018, the Board declared a first interim dividend
of GBP6,656,603, in respect of year ended 30 June 2018, equating to
1.80pps (first interim dividend in respect of the year ended 30
June 2017: 3.25pps), which was paid on 9 February 2018 to
shareholders on the register on 19 January 2018.
On 19 April 2018, the Board declared a second interim dividend
of GBP6,657,904, in respect of year ended 30 June 2018, equating to
1.80pps (second interim dividend in respect of the year ended 30
June 2017: 1.00pps), which was paid on 18 May 2018 to shareholders
on the register as at 27 April 2018.
Post year end, on 31 July 2018, the Board declared a third
interim dividend of GBP6,657,904 in respect of year ended 30 June
2018, equating to 1.80pps (third interim dividend in respect of the
year ended 30 June 2017: 1.50pps), which was paid on 31 August 2018
to shareholders on the register on 10 August 2018.
Post year end, 0n 26 September 2018, the Board approved a fourth
interim dividend, in respect of year ended 30 June 2018, of 2.03pps
(fourth interim dividend in respect of the year ended 30 June 2017:
1.50pps), which will be payable on 26 October 2018 with an
associated ex-dividend date of 4 October 2018.
15. Risk management policies and procedures
The Company is exposed to a variety of financial risks,
including market risk (including price risk, currency risk and
interest rate risk), credit risk, liquidity risk and portfolio
operational risk. The Investment Adviser and the Administrator
report to the Board on a quarterly basis and provide information to
the Company which allows it to monitor and manage financial risks
relating to its operations.
The Company'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 Company's
financial performance, as referenced in the Principal Risks and
Uncertainties section in the Strategic Report.
The Board is ultimately responsible for the overall risk
management approach within the Company. The Board has established
procedures for monitoring and controlling risk. The Company 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 Company, in
particular through the Company's subsidiary, BSIFIL, will fluctuate
because of changes in market prices.
Market price risk will arise from changes in electricity prices
whenever PPAs expire and are renewed. The timing of these is
staggered to minimise risk.
BSIFIL's future SPV investments are subject to fluctuations in
the price of secondary assets which could have a material adverse
effect on the BSIFIL's ability to source projects that meet its
investment criteria and consequently its business, financial
position, results of operations and business prospects.
The Company's overall market position is monitored by the
Investment Adviser and is reviewed by the Board of Directors on an
ongoing basis.
Currency risk
The Company does not have any direct currency risk exposure as
all its investments and transactions are in Sterling. The Company
is however indirectly exposed to currency risk on future equipment
purchases, made through BSIFIL's SPVs, where equipment is
imported.
Interest rate risk
Interest rate risk is the risk that the value of financial
instruments and related income from the cash and cash equivalents
will fluctuate due to changes in market interest rates.
The Company is also exposed, through BSIFIL, to interest rate
risk via BSIFIL's index-linked element of its long term debt
facility (GBP65.5m at 70 bps plus RPI).
The Company's interest bearing financial assets consist of cash
and cash equivalents. The interest rates on the short term bank
deposits are fixed and do not 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 2018
Interest rate GBP
--------------- -------------- --------------
Floating rate
RBSI 0.00% 501,268
Fixed rate
Lloyds 0.10% 483
501,751
==============
Total as at
30 June 2017
Interest rate GBP
--------------- -------------- --------------
Floating rate
RBSI 0.00% 88,352
Fixed rate
Lloyds 0.10% 4,891,989
4,980,341
==============
The valuation of BSIFIL's 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 GBP604,235,581 (2017:
GBP573,361,486), the Directors' Valuation (see Note 8).
Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full when due. BSIFIL'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 BSIFIL's SPVs
held performance bonds totalling GBP19,176,312 (2017:
GBP27,091,616) with banks that have a credit rating which is of
investment grade.
The Company's credit risk exposure is due to a portion of the
Company's assets being held as cash and cash equivalents and
accrued interest. The Company maintains its cash and cash
equivalents and borrowings across two different banking groups to
diversify credit risk. 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 2018, the maximum credit risk
exposure in relation to cash and cash equivalents in the Company
was GBP501,751 (2017: GBP4,980,341). If the cash and cash
equivalents held by BSIFIL are included this increases to
GBP15,189,011 (2017: GBP19,102,308). All cash and cash equivalents
held by the Company and BSIFIL is with banks that have a credit
rating which is of investment grade.
Total as at
Cash Fixed deposit Interest accrued 30 June 2018
GBP GBP GBP GBP
-------------- --------------- -------------- ----------------- --------------
RBSI 501,268 - - 501,268
Lloyds - 483 - 483
-------------- --------------- -------------- ----------------- --------------
501,268 483 - 501,751
=============== ============== ================= ==============
Total as at
Cash Fixed deposit Interest accrued 30 June 2017
GBP GBP GBP GBP
-------------- --------------- -------------- ----------------- --------------
RBSI 88,352 - - 88,352
Lloyds - 4,891,989 842 4,892,831
-------------- --------------- -------------- ----------------- --------------
88,352 4,891,989 842 4,981,183
=============== ============== ================= ==============
The carrying amount of these assets approximates their fair
value.
Liquidity risk
Liquidity risk is the risk that the Company 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 Company's investments, through BSIFIL, 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 Company, through BSIFIL, expects to comply with the
covenants of its long term loan and revolving credit facility.
The following table details the Company'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 2018
GBP GBP GBP GBP
--------------------------------- ------------------- --------------------------- ----------------- --------------
Assets
Financial assets held at fair
value through profit or loss - - 289,840,966 289,840,966
Trade and other receivables* 713,003 - - 713,003
Cash and cash equivalents 501,751 - - 501,751
Liabilities
Other payables and accrued
expenses (357,609) - - (357,609)
857,145 - 289,840,966 290,698,111
=================== =========================== ================= ==============
*excluding prepayments
As part of the long term financing terms provided by Aviva
Investors to BSIFIL, the lender has a security package which
includes a charge over the shares in BSIFIL and its wholly owned
subsidiaries.
Total as at
Less than one year Between one and five years After five years 30 June 2017
GBP GBP GBP GBP
--------------------------------- ------------------- --------------------------- ----------------- --------------
Assets
Financial assets held at fair
value through profit or loss* - - 271,534,264 271,534,264
Trade and other receivables** 588,307 - - 588,307
Cash and cash equivalents 4,980,341 - - 4,980,341
Liabilities
Other payables and accrued
expenses (337,090) - - (337,090)
5,231,558 - 271,534,264 276,765,822
=================== =========================== ================= ==============
*the Company passes debt to BSIFIL under loan agreements; as at
the year end there is an additional amount of non-contractual cash
which is not reflected above
**excluding prepayments
Portfolio operational risk
Portfolio operational risk is defined as the risk that solar
assets perform below expectation after acquisition and revenue
received from the sale of electricity is reduced. This risk is
mitigated by BSL ensuring that operation and maintenance
contractors are compliant with their contractual obligations
including reaction times, maintenance plans and service levels.
Concentrations of risk
Concentrations of risk arise from financial instruments that
have similar characteristics and are affected similarly by changes
in economic or other conditions. The concentrations of the
Company's solar assets by geography, construction contractor and
revenue type are shown above. This analysis forms an integral part
of the financial statements.
Capital management policies and procedures
The Company's capital management objectives are to ensure that
the Company will be able to continue as a going concern while
maximising the capital return to equity shareholders.
In accordance with the Company's investment policy, the
Company's principal use of cash (including the proceeds of the IPO,
placings and the loan facility) is to fund BSIFIL's projects, as
well as expenses related to the share issues when they occur,
ongoing 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 ongoing basis.
The Company has no imposed capital requirements.
The capital structure of the Company consists of issued share
capital and retained earnings.
16. 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 a consultant to
the Company's Administrator, Estera International Fund Managers
(Guernsey) Limited (formerly Heritage International Fund Managers
Limited). Administration fees incurred during the period of
GBP294,156 (2017: GBP262,226) relate to the fees of the
Administrator, of which GBP70,716 (2017: GBP66,761) was outstanding
at the year end.
The Chairman is entitled to an annual remuneration of GBP56,900
(2017: GBP55,000). The other Directors are entitled to an annual
remuneration of GBP34,200 (2017: GBP33,000). Paul Le Page receives
an additional annual fee of GBP5,700, (2017: GBP5,500) for acting
as Chairman of the Audit Committee.
The total Directors' fees expense for the period amounted to
GBP165,200 (2017: GBP159,963) of which GBP43,900 was outstanding at
30 June 2018 (2017: GBP42,375).
At 30 June 2018, the number of Ordinary Shares held by each
Director is as follows:
2018 2017
Number of Number of
Ordinary Shares Ordinary Shares
John Rennocks* 316,011 446,713
John Scott 452,436 367,506
Paul Le Page* 137,839 137,839
Laurence McNairn 441,764 441,764
1,348,050 1,393,822
================= =================
*Including shares held by PCAs
John Scott and John Rennocks are Directors of BSIFIL and receive
an annual fee of GBP5,200 each for their services to this company
(2017: 5,000). Mike Rand and James Armstrong, who are partners of
the Investment Adviser, are also Directors of BSIFIL.
The Company and BSIFIL's investment advisory fees for the year
amounted to GBP3,168,721 (2017: GBP2,997,453) of which GBP241,822
(2017: GBP259,047) was outstanding at the year end. Included within
the investment advisory fee expense for 2017 is GBP77,660 earned in
respect of performance fees for the year ended 30 June 2017. The
Investment Adviser received the variable element of their 2017 fees
through the issue of 72,249 Ordinary Shares on 12 January 2018 (see
Note 13).
Fees paid to BSL during the period by SPVs, a company which has
the same ownership as that of the Investment Adviser totalled
GBP2,293,384 (2017: GBP2,229,749). BSL provides asset management
and other services relating to the operation of daily management
activities of the solar project companies.
Fees paid to BOL during the period by SPVs, a company which has
the same ownership as that of the Investment Adviser totalled
GBP508,138 (2017: GBPNil). BOL provides O&M and other services
relating to the operation of daily management activities of the
solar project companies.
The Company's monitoring fee income received from BSIFIL
amounted to GBP702,603 (2017: GBP563,288) of which GBP702,603 was
outstanding at the year end (2017: GBP577,466).
17. Subsequent events
Post year end, on 31 July 2018, the Board declared a third
interim dividend of GBP6,657,904, in respect of year ended 30 June
2018, equating to 1.80 pps (third interim dividend in respect of
the year ended 30 June 2017: 1.50 pps), which was paid on 31 August
2018 to shareholders on the register on 10 August 2018.
Post year end, on 26 September 2018, the Board approved a fourth
interim dividend, in respect of year ended 30 June 2018, of 2.03
pps (fourth interim dividend in respect of the year ended 30 June
2017: 1.50 pps), which will be payable on 26 October 2018 with an
associated ex-dividend date of 4 October 2018.
Glossary of Defined Terms
Administrator means Estera International Fund Managers
(Guernsey) Limited
AGM means the Annual General Meeting
AIC means the Association of Investment Companies
AIC Code means the Association of Investment Companies Code of
Corporate Governance
AIC Guide means the Association of Investment Companies
Corporate Governance Guide for Investment Companies
AIF means Alternative Investment Fund
AIFM means Alternative Investment Fund Management
AIFMD means the Alternative Investment Fund Management
Directive
Articles means the Memorandum of 29 May 2013 as amended and
Articles of Incorporation as adopted by special resolution on 7
November 2016.
Auditor means KPMG Channel Islands Limited (see KPMG)
Aviva Investors means Aviva Investors Limited
BEIS means The Department for Business, Energy and Industrial
Strategy
BEPS means Base erosion and profit shifting
Bluefield means Bluefield Partners LLP
Brexit means departure of the UK from the EU
BOL means Bluefield Operations Limited
BSL means Bluefield Asset Management Services Limited
Board means the Directors of the Company
BSIF means Bluefield Solar Income Fund Limited
BSIFIL means Bluefield SIF Investments Limited being the only
direct subsidiary of the Company
Business days means every official working day of the week,
generally Monday to Friday excluding public holidays
CAGR means Compound annual growth rate
Calculation Time means The Calculation Time as set out in the
Articles of Incorporation
CfD means Contract for Difference
Company means Bluefield Solar Income Fund Limited
Companies Law means the Companies (Guernsey) Law 2008, as
amended (see Law)
Consolidation Exception Amendments means the 18 December 2014
further amendments to IFRS 10 Investment Entities: Applying the
Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS
28)
Cost of debt means the blended cost of debt reflecting fixed and
index-linked elements
CP15 means Compliance Period 15 in respect of the RO Scheme (1
April 2016 to 31 March 2017)
CRS means Common Reporting Standard
C shares means Ordinary Shares approved for issue at no par
value in the Company
CSR means Corporate Social Responsibility
DCF means Discounted Cash Flow
Defect Risk means that there is an over-reliance on limited
equipment manufacturers which could lead to large proportions of
the portfolio suffering similar defects
Directors' Valuation means gross value of the SPV investments
held by BSIFIL, including their holding companies.
DNO means Distribution Network Operator
DSCR means debt service cover ratio
DTR means the Disclosure Guidance and Transparency Rules of the
UK's FCA
EBITDA means Earnings before interest, tax, depreciation and
amortisation
EGM means Extraordinary General Meeting
EPC means Engineering, Procurement & Construction
EU means the European Union
EV means enterprise valuation
FAC means Final Acceptance Certificate
FATCA means the Foreign Account Tax Compliance Act
Financial Statements means the audited annual financial
statements
FiT means Feed-in Tariff
GAV means Gross Asset Value on a consolidated basis including
debt held at SPV level
GFSC means the Guernsey Financial Services Commission
Group means Bluefield Solar Income Fund Limited and Bluefield
SIF Investments Limited
Guernsey Code means the Guernsey Financial Services Commission
Finance Sector Code of Corporate Governance
GWh means Gigawatt hour
GWp means Gigawatt peak
IAS means International Accounting Standard
IASB means the International Accounting Standards Board
IFRS means International Financial Reporting Standards as
adopted by the EU
Investment Adviser means Bluefield Partners LLP
IPEV Valuation Guidelines means the International Private Equity
and Venture Capital Valuation Guidelines
IPO means initial public offering
IRR means Internal Rate of Return
IVSC The International Valuation Standards Council
KID means Key Information Document
KPI means Key Performance Indicators
KPMG means KPMG Channel Islands Limited (see Auditor)
kWh means Kilowatt hour
kWp means Kilowatt peak
Law means Companies (Guernsey) Law, 2008 as amended (see
Companies Law)
LD means liquidated damages
LIBOR means London Interbank Offered Rate
Listing Rules means the set of FCA rules which must be followed
by all companies listed in the UK
Lloyds means Lloyds Bank Group plc
Lloyds International means Lloyds Bank International Limited
LCOE means Levelised Cost of Electricity: average unit cost of
electricity over the lifetime of a generating asset expressed on a
net present cost basis
LSE means London Stock Exchange plc
LTF means long term facility provided by Aviva Investors
Limited
Main Market means the main securities market of the LSE
MW means Megawatt
MWh means Megawatt hour
MWp means Megawatt peak
NAV means Net Asset Value as defined in the prospectus
NMPI means Non-mainstream Pooled Investments and Special Purpose
Vehicles and the rules around their financial promotion
NPPR means the AIFMD National Private Placement Regime
O&M means Operation and Maintenance
Official List means the Premium Segment of the UK Listing
Authority's Official List
Ordinary Shares means the issued ordinary share capital of the
Company, of which there is only one class
Outage Risk means that a higher proportion of large capacity
assets hold increased exposure to material losses due to
curtailments and periods of outage
P10 means Irradiation estimate exceeded with 10% probability
P90 means Irradiation estimate exceeded with 90% probability
PCA means Persons Closely Associated
PPA means Power Purchase Agreement
pps means pence per share
PR means performance ratio (the ratio of the actual and
theoretically possible energy outputs)
PRIIPs means Packaged Retail and Insurance-Based Investment
Products
PV means Photovoltaic
RBS means The Royal Bank of Scotland plc
RBSI means Royal Bank of Scotland International plc
RCF means Revolving Credit Facility
RO Scheme means the Renewable Obligation Scheme which is the
financial mechanism by which the UK Government incentivises the
deployment of large-scale renewable electricity generation by
placing a mandatory requirement on licensed UK electricity
suppliers to source a specified and annually increasing proportion
of the electricity they supply to customers from eligible renewable
sources, or pay a penalty
ROC means Renewable Obligation Certificates
ROC recycle means the payment received by generators from the
redistribution of the buy-out fund. Payments are made into the
buy-out fund when suppliers do not have sufficient ROCs to cover
their obligation
RPI means the Retail Price Index
SPA means Share Purchase Agreement
SPVs means the Special Purpose Vehicles which hold the Company's
investment portfolio of underlying operating assets
Sterling means the Great British pound currency
TISE means The International Stock Exchange (formerly CISE,
Channel Islands Securities Exchange)
UK means the United Kingdom of Great Britain and Northern
Ireland
UK Code means the United Kingdom Corporate Governance Code
UK FCA means the UK Financial Conduct Authority
United Nations Principles for Responsible Investment means an
approach to investing that aims to incorporate environmental,
social and governance factors into investment decisions, to better
manage risk and generate sustainable, long term returns
WACC means Weighted Average Cost of Capital
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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