TIDMGSEO
RNS Number : 4787L
VH Global Sustainable Energy Oppt.
13 September 2021
VH Global Sustainable Energy Opportunities plc (the
"Company")
Interim results for the period ended 30 June 2021
The Board of VH Global Sustainable Energy Opportunities plc
(ticker: GSEO) is pleased to report its maiden interim results for
the period from incorporation on 30 October 2020 to 30 June
2021.
The interim report will be made available on the Company's
website at https://www.vh-gseo.com
A copy of the interim report will be submitted to the National
Storage Mechanism and will shortly be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Company's LEI is 213800RFHAOF372UU580.
For further information, please contact:
Edelman Smithfield (PR Adviser)
Ged Brumby / Andrew McLagan
Tel: + 44 (0)7540 412301 / +44 (0)7817 998161
Email: victoryhill@edelmansmithfield.com
Numis Securities Limited (Corporate Broker)
David Benda / Matt Goss / Tod Davis
Tel: +44 (0)20 7260 1000
G10 Capital Limited (AIFM)
Mohammed Rahman / Paul Cowland
Tel: + 44 (0)20 7397 5450
Apex Fund and Corporate Services (UK) Limited (Company
Secretary)
Anthony Lee
Tel: +44 7435 829323
Victory Hill Capital Advisors LLP
Navin Chauhan
info@victory-hill.com
About Victory Hill Capital Advisors LLP
Victory Hill Capital Advisors LLP (FRN 938594) is an Appointed
Representative of G10 Capital Limited, which is authorised and
regulated by the Financial Conduct Authority (FRN 648953).
Victory Hill is based in London and was founded in May 2020 by
an experienced team of energy financiers that have spun-out of a
large established global project finance banking group. The team
have an established track record built over six years while working
together in their previous roles and participating in over $37.1bn
in sustainable energy project transaction values, generating over
24.2 per cent. equity returns. In addition, the team has also
participated in more than $200bn in transaction values across 91
conventional and renewable energy-related transactions in over 30
jurisdictions worldwide, throughout their individual careers. The
average experience per individual is 22 years of relevant energy
finance experience. Victory Hill Capital Advisors LLP is the
investment adviser entity of the Victory Hill group.
The Victory Hill team deploys its experience across different
financial disciplines in order to holistically assess investments
from multiple points of view. The firm pursues operational
stability and well-designed corporate governance to generate
sustainable positive returns for investors. It focuses on
supporting and accelerating the Energy Transition and the
attainment of the UN Sustainable Development Goals.
Victory Hill is a signatory to the United Nations Principles for
Responsible Investing (UN PRI) and the United Nations Global
Compact (UN GC), and is a formal supporter of the Financial
Stability Board's Task-Force on Climate-related Disclosures
(TFCD).
Interim Report and Accounts
For the period from incorporation on 30 October 2020 to 30 June
2021
Overview
About the Company
VH Global Sustainable Energy Opportunities plc ('GSEO' or 'the
Company') is a closed ended investment company.
The Company's investment objective is to seek to generate stable
returns, principally in the form of income distributions, by
investing in a diversified portfolio of global sustainable energy
infrastructure assets, predominantly in countries that are members
of the EU, OECD, OECD Key Partner Countries or OECD Accession
Countries .
The Company's investment policy states that it aims to achieve
diversification principally by making a range of sustainable energy
infrastructure investments across a number of distinct geographies
and a mix of proven technologies that align with the UN Sustainable
Development Goals ('SDGs') where the investments are a direct
contributor to the acceleration of the energy transition towards a
net-zero carbon world.
The Company's investment in proven technologies will include
exposure to power generation (renewable and conventional), biomass,
transmission, distribution, storage and waste-to-energy. These
investments will be operational, in construction or
'ready-to-build' but will not include assets that are under
development or in pre-consent stage.
No investment will be made in extraction projects involving
either fossil fuels or minerals.
Highlights
GBP242.6m
raised through successful IPO
$63m
acquisition of two Texas gulf coast terminal storage sites
GBP50m
committed to acquire a portfolio of solar generation assets in
Australia
$63m
committed to fund the construction of 18 remote distribution
solar generation projects in Brazil
GBP78m
committed to acquire two Flexible Power plants with carbon
capture and re-use systems in the United Kingdom
-- Successful IPO raising GBP242.6m in February 2021 and listing
on the premium segment of the London Stock Exchange ('LSE')
-- Awarded the Green Economy Mark by the LSE
-- During the reporting period, the Company committed capital to 20 projects:
- The Company reported its commitment of US$63m (GBP46m) to fund
the construction of 18 remote distributed solar generation projects
across ten Brazilian states with a total capacity of 75MW. Since
announcing its commitment in Brazil, to date the Company has
successfully completed the acquisition of the first two tranches
totalling US$24m (GBP17.5m). Of this, US$20m (GBP15m) was deployed
after the reporting date.
- Post period end the Company committed:
- GBP50m to acquire a portfolio of distributed solar generation
assets with plans to build battery storage capacity in Australia.
The initial deployment tranche of GBP15m involves the acquisition
of two operating solar photovoltaic ('PV') sites, totalling 17MW
DC, in South Australia and Queensland.
- GBP78m to fund two Flexible Power plants which bring together
high-efficiency gas-fired turbine technology with carbon capture
systems to provide a clean and flexible electricity solution for
the United Kingdom. The combined capacity will be 45MW.
--
-- Approximately 92% of the net proceeds raised at IPO have been committed to date.
-- There is currently no leverage at either the Company or underlying project level.
Summary Financial Information
As at
30 June
2021
------------------------------ ----------
Ordinary share price (p) 99.7
NAV per ordinary share (p) 96.7
Ordinary share price premium
to NAV 3.1%
Net assets (GBPm) 234.5
2 February
2021- 30
June 2021
------------------------------ ----------
Dividends per ordinary share
(p)(1) 0.0
Ongoing charges(2) 1.6%
NAV total return per ordinary
share(3) (1.3%)
Total shareholder return per
ordinary share(4) (0.3%)
1 Dividends paid/payable and declared relating to the
period.
2 Calculation based on average NAV over the period and regular
recurring annual operating costs of the Company, can be found
below.
3 Opening NAV at IPO after launch expenses: GBP0.98 per ordinary
share. Calculation includes dividends.
4 Total returns based on ordinary share price plus dividends
paid for the period. Opening share price at IPO: GBP1.00.
Details of the above Alternative Performance Measures (APM) have
been included below.
INVESTMENT CASE
We Start With Sustainability and Look For Investments
1. Strategy
-- Target direct investments in energy infrastructure assets that support the UN SDGs
-- Focus on middle market developers when investing
-- Target investments that support a long-term investment strategy and generate stable income
-- Investing in EU and OECD jurisdictions(1) whilst being technologically diverse
2. Pathways addressing the UN Sustainable Development Goals
-- Addressing climate change
-- Energy access
-- Energy efficiency
-- Market liberalisation
3. Highly experienced and multi-disciplinary asset management
team
-- Average of 22 years dedicated to energy finance and the energy industry
-- Team worked together for more than five years
-- Established track record of over $37.1bn in transaction values, generating returns of 24.2% 2
4. Targeting income yield and capital growth
-- Premium-listed UK investment trust
-- IPO raised in early-February 2021 of GBP243m
-- Targeting 1p dividend in year 1, and 5p from year 2 with a progressive dividend policy
-- Target return on capital of 10% net (unlevered)3
-- Large pipeline of c. GBP1bn of projects
1 Can include OECD Accession and Key Partner Countries. Should
risk and reward be acceptable, the portfolio could include up to
10% of Gross Asset Value ('GAV') tolerance for investments in
non-OECD member jurisdictions.
2 The figures stated are the track record of the Victory Hill
team but not of the Investment Adviser or any of its affiliates.
The transactions reflected are publicly available transactions
completed between 2014-2020. The returns are based on public
information with actual data being used where available and
estimations. Past performance is not necessarily indicative of
future results, and there can be no assurance that the Company will
achieve comparable results.
3 This is a target and is based on current market conditions as
at the date of this report only and not a profit forecast. There
can be no assurance that this target will be met or that VH Global
Sustainable Energy Opportunities plc ('VH GSEO') will make any
distributions at all. This target return should not be taken as an
indication of the Fund's expected or actual current or future
return.
BOARD OF DIRECTORS
Providing Experienced and Focused Leadership
BERNARD BULKIN, PHD, OBE
CHAIR AND INDEPENT NON-EXECUTIVE DIRECTOR
Over 35 years in the energy industry. Experienced Board Member
and Chairman. Currently board director of ATN International, a
NASDAQ-listed company, and member of the board of energy group ARQ
Ltd. Business and commercial roles including chief scientist of BP,
former member of the UK Sustainable Development Commission and
Chair of The Office of Renewable Energy of UK Government.
Margaret Stephens
CHAIR OF THE AUDIT AND RISK COMMITTEE AND INDEPENT NON-EXECUTIVE
DIRECTOR
28 year career with KPMG, 16 years as a partner focused on
infrastructure and international M&A. Currently Chair of Audit
of the Nuclear Liabilities Fund, member of advisory committee for
The Infrastructure Forum and NED of AVI Japan Opportunity Trust
plc. Previously a non-executive board member and Chair of the audit
and risk committee at the Department for Exiting the EU.
LOUISE KINGHAM, OBE
INDEPENT NON-EXECUTIVE DIRECTOR
Over 28 years in the energy industry. She is currently BP's UK
head of country and senior vice president for Europe. Prior to
this, Louise was CEO of the Energy Institute. She is current
non-executive board member of the Energy Saving Trust and Chair of
its charitable Foundation. She is also an Ambassador for the
POWERful Women initiative and chair of BITC's Climate Action
leadership team.
RICHARD HORLICK
CHAIR OF THE MANAGEMENT ENGAGEMENT COMMITTEE AND INDEPENT
NON-EXECUTIVE DIRECTOR
Over 35 years in the investment management industry. Chair of
CCLA Investment Management and Chair of BH Macro plc. Former roles
at Newton Investment Management, Fidelity International, including
CEO of Fidelity Management Trust Company and board member, global
head of investments at Schroders, and co-founder of Spencer House
Capital Management.
Management team
Victory Hill Capital Advisors LLP - Investment Adviser
Anthony Catachanas
Chief Executive Officer
17 years in private equity and investment banking. Worked for
Mizuho Financial Group, Goldman Sachs, Credit Suisse Securities,
ABN Amro Bank, the European Central Bank and the European
Parliament.
Michael Egan, CA, CFA
Chief Financial Officer
21 years of principal M&A, investment banking, restructuring
and structured finance. Worked for Steinhoff International, Lehman
Brothers and KPMG.
Richard Lum
Co-Chief Investment Officer
27 years in natural resource structured finance and banking.
Worked at Mizuho Financial Group, Standard Chartered Bank, West LB
Markets and Bayern LB.
Eduardo Monteiro
Co-Chief Investment Officer
21 years in M&A and corporate finance advisory. Worked for
Mizuho Financial Group, Société Générale, ABN Amro Bank and JP
Morgan CIB.
Lawrence Bucknell
General Counsel
26 years as legal counsel in investment banking, structured
finance and asset management. Worked for Mizuho Financial Group,
Henderson Global, F&C and Fladgate Fielder LLP.
TEAM TRACK RECORDS
Our Energy Transaction Experience
The Victory Hill team members have previously banked and
invested in energy transactions across the globe.
Mergers and Acquisitions, Corporate Finance
42
Number of transactions
$88.8bn
Total deal value
In over 12 jurisdictions globally/across industry/buy and sell
mandates/various participants
Project Finance
38
Number of transactions
$77.6bn
Total deal value
In over 20 jurisdictions globally/across industry/act as MLA,
bookrunner and technical bank/over 80%
of transactions focused on sustainable energy
Capital Markets
11
Number of transactions
$41.4bn
Total deal value
In over seven jurisdictions globally/rights issues, IPOs, bonds
and hybrid issuance/originated, executed and placed securities
Distressed and Workout Situations
3
Number of transactions
$3.7bn
Total deal value
Principal in all transactions/disposed of distressed
assets/invested assets in stress or distress/acquisitions through
creditors in possession
Over $37.1bn in sustainable energy transactions generating
investment returns of 24.2%(1)
Track Record Number of Deals Breakdown by Sector
Transmission - 15%
Renewable power generation - 61%
Storage - 8%
Processing - 8%
Transportation - 8%
Track Record Number of Deals Breakdown by Geography
MENA - 7%
North America - 8%
Asia - 8%
Europe - 54%
UK - 23%
1 The figures stated are the track record of the Victory Hill
team but not of the Investment Adviser or any of its affiliates.
The team operated together, focused on the energy sector as part of
Mizuho Financial Group between 2014-2020. The track record above
reflects the time the team have spent together at that institution.
The transactions reflected are publicly available transactions
completed during that time. The returns are based on public
information with actual data being used where available and
estimations. Past performance is not necessarily indicative of
future results, and there can be no assurance that the Company will
achieve comparable results.
Strategic Report
Chairman's Statement
I am pleased to be publishing our first interim report for 2021
covering the period to 30 June 2021.
Enabling the Energy Transition
"The global energy infrastructure is huge, built over more than
a century. Transforming it from its fossil fuel core requires many
things, including behaviour change and efficiency gains, but
certainly at the centre are large capital projects aligned to the
UN Sustainable Development Goals. These projects span a range of
commercially mature technologies, as well as diverse geographies.
Improving access to clean and reliable energy is fundamental to the
new model of global development."
Initial Public Offering
On 2 February this year, VH Global Sustainable Energy
Opportunities successfully raised GBP242.6m and listed on the
premium segment of the London Stock Exchange. I am delighted by the
support we received from our new shareholders and look forward to
delivering them stable returns whilst making an impact around the
world as we transition to a net-zero carbon future.
Deployment
Our investment strategy seeks to take advantage of the energy
transition by investing in a diverse portfolio of energy assets.
Diversification is a key part of the strategy. The Company's
ability to invest in OECD countries and OECD partner countries
allows us to take advantage of reduced correlation in energy and
power prices. Alongside the ability to invest in a range of
technologies, this broad geographical scope also diversifies the
influence of weather patterns, and prevents reliance on any single
regulatory regime. We also aim to minimise concentration risk via
investing across a large number of projects.
The Company has continued to convert its global pipeline of
investments that were highlighted as 'Enhanced Pipeline' assets in
the IPO Prospectus. This pipeline has been complemented by a new
Australian generation and battery storage programme. The pipeline
has continued to grow based on the strong origination capabilities
of the Investment Adviser.
During the five-month period to 30 June 2021, the Company
completed two operating storage terminal acquisitions in the United
States and committed to the construction of a programme of 18
distributed solar projects across Brazil.
In addition, post reporting period end, the Company committed a
further GBP50m to acquire a portfolio of distributed solar
generation assets in Australia with plans to build embedded battery
storage capacity; and GBP78m to fund two Flexible Power plants
which bring together high-efficiency gas-fired turbine technology
with carbon capture systems in the United Kingdom with a combined
capacity of 45MW.
I am very pleased to report that, as at the date of publication
of this report, the Company has committed 92% of the net IPO
proceeds.
Dividend
As outlined in the IPO Prospectus the Company is targeting an
initial annualised dividend yield of a minimum of 1p by reference
to the IPO price of GBP1.00 in respect of the financial period from
IPO on 2 February 2021 to 31 December 2021, rising to a target
annualised dividend yield of 5% by reference to the IPO price in
respect of the financial year to 31 December 2022. Thereafter, the
Company intends to adopt a progressive dividend policy.
COVID-19
During the COVID-19 pandemic, we have taken all possible steps
to support and protect employees, contractors and all affected
project stakeholders. We are privileged in that the nature of our
work has allowed those assets that are operating to continue
uninterrupted.
During the pandemic, lockdowns have led to large changes in the
way businesses function. In spite of this, the Board has been able
to meet virtually to consider investments and corporate governance,
whilst the Investment Adviser, AIFM, Administrator and other key
service providers have been able to operate effectively with staff
working from home using secure IT systems.
Shareholder Engagement
The Company aims to communicate through all available mediums
and maintain an open dialogue with investors regarding its
strategic objectives, both financial and operational, and how they
are executed.
During the reporting period since IPO, the Company engaged, via
its Investment Adviser, with shareholders through meetings, market
announcements and diverse written materials.
The Board plans to engage actively with shareholders going
forward and remain at their disposal.
Environmental, Social and Governance
Sustainability is central to all activities undertaken by the
Company and the Investment Adviser, and we recognise that investing
responsibly is critical to our performance and growth over the
longer term.
Our goal is to make a positive impact as we deploy capital into
sustainable energy projects around the world, and ensure that
environmental, social and governance ('ESG') criteria are
incorporated into all of our investment decisions. This is
reflected across our investment philosophy and approach, including
the selection of our investment adviser, Victory Hill Capital
Advisors LLP ('Victory Hill'), who is dedicated to the energy
transition and in doing so developed a sustainable development
culture at the firm level. As a signatory to the UN Principles for
Responsible Investments, Victory Hill has integrated ESG risks as
well as opportunity assessments across every single stage of its
investment process in sustainable assets around the world,
reflecting the sustainable culture of both Victory Hill and the
Company.
The Board recognises that impact investing is also becoming
increasingly important for investors so we will be aiming to report
in a transparent way, making it easier for investors to assess and
quantify the positive impact that GSEO is having on communities
around the world and the environment more broadly. Furthermore, we
intend to adopt reporting standards as they are developed and
adopted by the industry, such as those being developed by the Task
Force on Climate-related Financial Disclosures ('TCFD') and
Sustainable Finance Disclosure Regulation ('SFDR').
Outlook
As economies around the world move towards a net-zero carbon
future, the Company is well positioned to be a leader in driving
the energy transition and make a positive impact on the environment
as well as local communities around the globe.
The Board is pleased with the Company's two acquisitions
completed since IPO to the end of the reporting period.
Furthermore, the Board looks forward to further opportunities to
acquire assets which complement and enhance value to the existing
portfolio, whilst still maintaining a disciplined investment
approach. The Board believes the Company is on track to deliver for
shareholders the returns and yield as set out by the Company
Prospectus. The investments made post the reporting period are
notable examples of the Investment Adviser's global capabilities
and discipline in that regard.
On behalf of the Board, I would like to thank shareholders for
their support since the IPO and we look forward to delivering yield
and growth whilst driving a high positive impact on the environment
and society.
BERNARD BULKIN, PHD, OBE
CHAIRman
10 September 2021
"The VH GSEO team, at Investment Adviser and Board level, has
the vision and experience to play a significant role in this
transformation. We have an established and growing pipeline of
projects to advance these ambitious goals, while being fully
committed to delivering economic returns for our investors. Join us
on this exciting journey."
Investment ADVISER's Report
Victory Hill is based in London and was founded in May 2020 by
an experienced team of energy financiers that have spun out of a
large established global project finance banking group. The team
have an established track record built over five years while
working together within the bank and have participated in over
US$37.1bn in sustainable energy project transaction values,
generating over 24.2% equity returns. In addition, the team has
also participated in more than US$200bn in transactions values
across 91 conventional and renewable energy-related transactions in
over 30 jurisdictions worldwide, throughout their individual
careers. The average experience per individual is 22 years of
directly relevant energy finance experience.
Victory Hill supports investors by identifying certain energy
market dislocations, structural gaps, arbitrage opportunities and
trends. The team deploys its experience across a multitude of
financial disciplines to assess investments holistically and from
different perspectives. The firm pursues operational stability and
corporate governance to generate sustainable positive returns for
its investors. It focuses on supporting and accelerating the energy
transition and the attainment of the UN SDGs.
Victory Hill is a signatory to the UN Principles for Responsible
Investing ('UN PRI') and the UN Global Compact ('UN GC'), and is a
formal supporter of the Financial Stability Board's TCFD.
The Victory Hill group's activities are entirely focused on
energy and energy-related investments, across infrastructure and
private equity investment solutions.
Strategy/Investment Policy
The Company will seek to achieve its investment objective by
making sustainable energy infrastructure investments across the EU
and OECD group of nations predominantly, including but not limited
to OECD Key Partner Countries and OECD Accession Countries. The
Company's investments in global sustainable energy infrastructure
must be investments in sustainable energy infrastructure that
support the attainment and pursuit of the UN SDGs where energy and
energy infrastructure investments are a direct contributor to the
acceleration of the energy transition towards a net-zero carbon
world.
The Company's investment policy can be found in its prospectus
published in January 2021.
Sustainable Development Goals
GSEO seeks to deliver investments in the energy sector that
support the global sustainability agenda as interpreted by the UN
and recognised by the International Energy Agency.
The SDGs are the blueprint for the Company's
sustainability-focused investment strategy. The 17 SDGs were
adopted by all UN Member States in 2015, and together they address
the global challenges we face, including those related to poverty,
inequality, climate change, environmental degradation, peace and
justice.
According to the International Energy Agency (the 'IEA'), the
SDGs that are directly impacted by energy are: the achievement of
universal access to energy (SDG 7), the reduction of the severe
health impacts of air pollution (part of SDG 3) and tackling
climate change (SDG 13).
Three further SDGs have been identified by Victory Hill as
having a connection with the impact of capital investment in
developing sustainable energy globally. These are related to the
promotion of decent working environments and economic growth,
industry, innovation and infrastructure as well as partnerships for
the goals (SDGs 8, 9, 17).
Together, these goals translate to the need for the global
community to invest its attention, talent, and resources to help
solve the challenges posed by sustainability. An important way to
achieve this is to harness private capital participation with the
support of public policy. These are the six 'core' SDGs of the GSEO
investment strategy.
The Energy Transition
Victory Hill has distilled these six core SDGs into four
investment 'pathways', which constitute its investment themes.
Pathway 1 - Addressing Climate Change
The issue of Addressing Climate Change constitutes just one of
the 17 SDGs, albeit it is clearly the challenge of our time. A key
part of this challenge is the global community's ability to reduce
greenhouse gas ('GHG') emissions in key facets of global economies,
and the daily lives of people.
The most obvious objective here is to reduce the impact of GHGs
through investing in renewable energy technologies and fuel
sources. As such, the Company will invest a large portion of its
deployable capital into a pipeline of renewable energy
infrastructure involved in power generation, energy storage, and
alternative fuel sources.
Pathway 2 - Energy Access
Energy is vital for our quality of life but unfortunately not
all people in the global community can afford the costs or even
have access to it. According to the UN, 800m people are without
electricity or power, and 2.6bn people have no access to clean
fuels for cooking.
Ensuring that growth in access to energy, which also adheres to
other SDGs such as Climate Change, is a key challenge for
governments, investors and businesses alike. There is an
acknowledgement that a level of pragmatism is required in meeting
SDG policies. Traditional non-renewable energy sources are likely
to continue playing a role in the energy mix of world
economies.
Pathway 3 - Energy Efficiency
Energy efficiency means using less energy to perform the same
task and, by doing so, eliminating energy waste. It therefore
results in several significant benefits. Energy efficiency reduces
GHGs, and reduces demand for energy imports into domestic markets,
thereby lowering the cost of energy to households, businesses and
the economy overall.
Energy efficiency may also be achieved at the grid and national
levels through investment in some of the following areas, which the
Company may consider as part of its investment focus:
(i) Power interconnectors;
(ii) Grid resilience and frequency response; and
(iii) Investment in ageing grid systems which were developed as
one-way transmission systems.
Pathway 4 - Market Liberalisation
SDG 7 speaks of ensuring universal access to affordable,
reliable and modern energy supply. The liberalisation of energy
markets is the first stage in the development and modernisation
process of an energy market.
Broadly speaking, energy market liberalisation aims to:
(i) Facilitate the reduction of state-ownership of key energy
infrastructure and sources of energy production and supply;
(ii) Allow for competition and choice across the energy value
chain;
(iii) Facilitate the participation of private investors and
capital;
(iv) Favour consumers as competition helps drive down household
energy costs; and
(v) Attract new investment into the energy sector which improves
resilience, efficiency and access.
These markets typically also experience high growth from the
point of liberalisation, and this usually helps create new domestic
energy market participants that have the potential to capture
significant market share. Victory Hill believes that market
liberalisation may occur in both developed and developing
economies.
Leverage
The Company does not make use of structural debt in order to
achieve its yield and total return targets. To date the portfolio
has been fully equity funded allowing for efficient asset
acquisition. Once assets have been acquired and are operational,
Victory Hill, through its extensive international network of
funding partners, seeks the most efficient debt funding on a
non-recourse basis. The leverage is therefore held at asset level
only.
Cash Management
It is the intention of the Company to be fully or near fully
invested in normal market conditions. Uninvested cash or surplus
capital or assets are invested on a temporary basis into money
market funds and related short-maturity instruments with at least a
single A or higher credit rating.
Victory Hill constantly reviews the options available to the
Company in order to maximise yield for investors. In the current
low interest rate environment, short-term deposits with banks have
provided the highest risk-adjusted yield for cash, while
maintaining flexibility to invest as the Company deploys
capital.
Portfolio Update
The Company completed its IPO on 2 February 2021. During the
period under review, the Company announced two acquisitions of
operating assets and entered into a programme of 18 greenfield
projects.
On 20 April 2021, the Company made its first investment,
acquiring 100% of two terminal storage sites on the Texas gulf
coast. The acquisitions were made for a total cash consideration of
US$63m (GBP46m).
On 28 May 2021, the Company committed to fund the construction
of 18 remote distributed solar generation projects across 10
Brazilian states with a total capacity of 75MW for a total cash
consideration of US$63m (GBP46m). At balance sheet date, four
investments had been executed with an additional seven investments
executed post period end.
New Investments Since Period End
On 2 August 2021, the Company announced a commitment of GBP50m
to acquire a portfolio of distributed solar generation assets with
plans to build embedded battery storage capacity in Australia. The
initial deployment tranche of GBP15m involves the acquisition of
two operating solar PV sites, totalling 17MW, in South Australia
and Queensland and the expansion of those sites with battery
storage.
On 9 September 2021, the Company committed GBP78m to fund two
Flexible Power plants in the United Kingdom, which bring together
high-efficiency gas-fired turbine technology and carbon capture and
re-use systems. The plants are aimed at providing a clean and
flexible electricity solution that will help firm the grid as more
offshore wind comes online in the coming decade. The combined
capacity will be 45MW.
These two additional commitments since period end bring the
total commitments of the fund to 92% of net IPO proceeds.
Operational Performance
During the period under review, the majority of the commercial
contracts for the two Texas gulf coast terminal storage assets were
fully renegotiated on improved terms resulting in the performance
of the assets trading ahead of plan.
To date, 11 of the 18 projects have been funded in Brazil for a
total deployment of US$24m (GBP17.5m), of which US$4m (GBP3m) was
deployed before the end of the reporting period. The projects are
expected to be fully commissioned and operational from Q1 2022. The
remaining commitment of US$39m (GBP28.5m) is expected to be
deployed by the end of Q4 2021 and due to be commissioned and
operational by Q2 2022.
Key Risks
The principal risks faced by the Company are set out in the
Principal Risks and Risk Management section, including the
mitigants identified by the Company, the AIFM and the Investment
Adviser. The Company, the AIFM and the Investment Adviser consider
these risks on a regular basis and detailed reviews are held to
consider the risks and mitigants available to the Company.
Our Portfolio Update
-- Portfolio investments
-- Post reporting period investments
Terminal storage assets on the Texas gulf coast
Brazilian solar PV assets
UK Flexible Power with carbon capture and reuse
Australian renewable power generation and battery storage
investment
Geographic Split as % of Total Committed Capital
Brazil - 50%
United States - 50%
Technology Split as % of Total Committed Capital
Solar PV - 50%
Liquid Storage - 50%
Revenue Mix as % of Total Committed Capital
Fixed price PPA - 50%
Availability - 50%
Portfolio as dated 30 June 2021
Market Outlook
"It is unequivocal that human influence has warmed the
atmosphere, ocean and land. Widespread and rapid changes in the
atmosphere, ocean, cryosphere and biosphere have occurred...
... Global surface temperature will continue to increase until
at least the mid-century under all emissions scenarios considered.
Global warming of 1.5degC and 2degC will be exceeded during the
21st century unless deep reductions in CO2 and other greenhouse gas
emissions occur in the coming decades..."
Working Group I contribution to the Sixth Assessment Report of
the IPCC.
The Opportunity Set
The global opportunity set remains vast. In August 2021, the
United Nations Intergovernmental Panel on Climate Change (IPCC)
released a detailed report about the current trajectory on climate
which provided for grim reading for policymakers. More action is
required to avoid the catastrophic scenario of accelerated growth
in GHG emissions. Strong policies to support private capital
investments in sustainable energy, combined with more government
spending in energy systems directly and related infrastructure, is
going to be the focus of the attention of the global community.
Reversal of policies to deal with climate change will become less
and less tolerated. More incentives and a broader shift in the
energy mix will be crucial and will create even more investment
opportunities.
Portfolio Effects of GSEO's Diversification Strategy
With operating assets acquired in the USA and Australia,
exposure to AUD and USD as well as to inflation and regulatory
policies in these countries will drive portfolio NAV until assets
become operational in other countries where the Company's capital
has been deployed.
Given the low volatility of GBP:AUD and GBP:USD, currency
movements should not have significant impact on the NAV.
Inflationary impacts will also be very limited or non-existent
given inflation linkage in all revenue contracts on these assets.
Finally, with zero reliance on government incentives, these assets
are unlikely to suffer the negative impact of any policy changes
aimed at reducing subsidy-reliance for renewable power generation.
Victory Hill's plan to add storage capacity on the Australian
assets is expected to have minimal interruption on income
generation during the expansion and construction phases.
Meanwhile construction is under way in Brazil and in the United
Kingdom. In Brazil the portfolio of solar PV projects provides some
GBP:BRL currency exposure as well as some Brazilian energy
regulatory policy risk. The BRL will remain volatile and portfolio
returns are designed to provide a cushion against possible negative
shocks of currency movements, while the cost under the Engineering,
Procurement and Construction ('EPC') contracts have been locked in
BRL. The Brazilian regulatory agencies continue to support
renewable power projects as a means to enabling economic recovery
post COVID-19. Other alternative energy sources are not nearly as
attractive as renewable energy, given the energy market conditions
favour renewable power generation thanks to a predominance of hydro
power as a main baseload power source.
Lastly, the short cycle nature of the construction of these
assets and broad distribution across 18 sites in different parts of
the country provides investors with good diversification benefits
and insulation from any idiosyncratic risks. Key to ensuring
construction is met during the agreed timelines, the developer was
able to secure very early on in the course of 2020 and early 2021,
all component parts from overseas manufacturers which it was able
to warehouse in Brazil. This 'early supply order' strategy helped
significantly mitigate any potential delays in global supply
chains, particularly coming out of Asia.
In the United Kingdom, the currency effect is mitigated by the
fact that all feedstock and offtake arrangements are denominated in
Sterling. A large part of the portfolio commitment remains exposed
to the one of the world's most advanced and indeed diverse energy
markets, where structural demand remains strong. Construction
timeline for these very relevant Flexible Power assets for the UK
market is expected to be 12-18 months. All construction contracts
provide single-point full-indemnities with established parties
which mitigate construction risks.
Global Energy Markets Outlook
Our view on the Brazilian energy market and its attraction for
investment remains positive, particularly within the distributed
energy space. The energy system has been subject to a long and
well-supported series of privatisations over the last two decades,
and a process of unbundling the previously central functions of
generation, transmission and supply has been implemented
successfully, with significant private sector participation. The
continuing need for energy underpins our view of favourable
demand-side dynamics in Brazil. Supply of energy is bifurcated
between a regulated market undertaken by regional distribution
companies that source generation and provide supply to captive end
users, as well as an unregulated, energy-only market, with
suppliers and buyers of energy setting price on supply/demand
factors. Given the historic need for regional distribution
companies in the regulated market to pass on the costs of upgrading
power generation, transmission and distribution to consumers, we
see a high likelihood that the practice of sponsored remote
distributed generation will continue to be promoted in the medium
term. We see renewable power generation in particular as being
uniquely positioned to provide a lasting solution to mitigating
higher energy costs for
consumers.
In Australia, the Company's exposure offers the greatest
potential to seek revenue optimisation through participation in an
energy market that has historically been dominated by coal fired
power generation, but is now transitioning towards renewable power.
The majority of states comprising the National Electricity Market
in Australia, operate under an energy-only supply framework, with
each type of generation technology, whether coal, wind, solar or
gas receiving different weighted average payments for the energy
they produce and to a large extent their ability to provide power
supply dependably in order to balance the system. Yet renewable
power generation has been systematically curtailed by the deep
discounts experienced for solar power supply during the day, when
irradiation is at its highest, which contrasts materially with
prices paid when consumption peaks in early mornings and evenings
when irradiation is at its lowest. When coupled with the dependency
issues that intermittent power sources typically experience, this
puts significant strain on single solar generators that do not
benefit from storage capability. Absent the introduction of grid
firming facilities such as battery storage facilities built at
scale in the Australian market, we believe these inherent
supply/demand factors, and the corresponding duck curve in nodal
pricing will continue to be prevalent in the medium term. Our
strategy is to combine investment in battery storage technology
co-located with renewable power generators to provide the optimum
solution in accessing long term offtakes with commercial and
industrial enterprises, whilst also participating in energy
arbitrage activities to capture market power price upside
opportunities.
In Mexico, demand for exporting poor quality fuel oils into the
North American market for further refinement remains unabated and
will provide a consistent source of capacity revenue potential for
our liquid storage terminal investments on the southern border of
Texas with Mexico. Under the most recent leadership of President
Andres Obrador, increasing legislation and regulations have been
introduced to entrench the position of state energy participants,
often at the cost of private sector incentivisation. Nevertheless,
the underlying fuels value chain in Mexico remains largely
unaffected by state investment in the means to produce transition
fuels locally. As such, we believe the demand-side dynamic for US
border fuels storage capacity remains buoyant in the medium
term.
In the United Kingdom, with the advent of government efforts to
promote more offshore wind capacity and with the increasing power
price volatility associated with adding more intermittent renewable
power sources to the grid, balancing solutions are required. In one
of the world's most mature and diverse energy markets, firming the
grid by providing Flexible Power has never been more important.
There are significant technology and storage capacity gaps in the
global energy industry today, that are not and cannot be met with
battery storage alone. Additional Flexible Power generation
involving less pollutive natural gas and biogas sources will become
indispensable in the next few years as the country eliminates
completely its reliance on coal and other emitting forms of
generation. Yet, finding a way to create a net-zero footprint using
natural gas power will be the key. Unlike a typical gas peaker, our
Flexible Power projects are able to run baseload and at the same
time capture ancillary revenues stemming from capacity markets that
peakers are able to capture very efficiently. The dispatch profile
of these plants is unique, as is the combination of technologies
that allow for higher efficiency and, when coupled with carbon
capture and re-use, they are also truly efficient in terms of
emissions. The Company's portfolio will therefore benefit from
strong structural demand for this programme of assets which will
not easily be matched or replaced in the next decade.
Case study: Terminal Storage Assets on the Texas Gulf Coast
ESG/Sustainability
- SDG 3: Good health and well-being
- SDG 11: Sustainable cities and communities
Transaction
In April 2021, the Company completed its acquisition of 100% of
the equity interests in two operating liquid storage terminals with
a combined capacity of 525,000 barrels in the Port of Brownsville
on the Texas gulf coast for a total purchase price of US$63m.
The Port of Brownsville remains a strategic location in the
United States - Mexico energy trade corridor. It is the only
self-managed Port Authority in the United States and benefits from
a Free Trade Area, significant rail, water and road access. The
port itself allows MR class vessels to dock in its deep-water
channel.
High Impact Value
The project will reduce the environmental and health threats
that high sulfur fuels have on the natural habitat and human health
by reducing the availability of high sulfur fuel oil for domestic
consumption in Mexico and displacing it with cleaner less pollutive
products, reducing PM2.5, SO(2) , CO(2) , and NO(2) emissions.
Sulfur dioxide (SO(2) ) is a scope 3 emission and is a component
part of PM2.5 ambient air pollution. According to a study conducted
by the European Society of Cardiology ('ESC') published in March
2020, air pollution accounts for more deaths than HIV/AIDS, tobacco
and malaria and, according to Bloomberg, accounts for more human
deaths than COVID-19. In Mexico, vehicles are burning fuel oil that
has a very high sulfur content, resulting in the creation of
significant PM2.5 air pollution and causing health problems,
particularly in highly populated areas such as Mexico City. The
same fuel is also being used in power generation close to large,
populated areas where the power is being consumed.
A notable way to help resolve both social and environmental
problems is to displace those fuels in power generation and
transportation. The Texas liquid storage terminal assets provide an
aggregation point and facilitate the transfer of high sulfur fuel
oil currently produced at a surplus in the Mexican fuel market. As
a result of the terminal's proximity, northbound flows are destined
for greater and more efficient refining capacity in the United
States. Once refined, the PM2.5 contribution of the fuels is
reduced materially to levels experienced in Europe and the United
States. The terminals also serve a southbound export of cleaner
fuels back into the Mexican fuel market in order to displace usage
of highly emitting fuels.
The reduction in pollutants achieved by the asset can be linked
to individual SDGs and demonstrate the contributions it makes
towards sustainable development, specifically goals 3 and 11.
The asset has a useful life of 35 years (of which 31 years are
remaining).
Case study: Brazilian Solar PV Assets
ESG/Sustainability:
- SDG 7: Affordable and clean energy
- SDG 9: Industry innovation and infrastructure
Transaction
Brazil is a Key Partner of the OECD and one of the world's
fastest growing energy markets since its liberalisation in 1998. In
May 2021, the Company committed US$63m to fund the construction of
18 remote distributed solar generation projects across ten
Brazilian states for a total capacity of 75MW. The programme of
remote distributed power generation projects is one of the fastest
growing segments of the Brazilian power market. These projects are
not dependent on any government subsidies and benefit from
corporate PPA arrangements.
High Impact Value
Since the energy market liberalisation in 1998, each state is
generally bound by a single, private utility distribution company
that generates and distributes power to consumers across its
network. While some of these state grid networks are
interconnected, the vast majority are not and are self-contained.
The Brazilian government incentivises these private state-level
utilities to expand their investment in energy infrastructure,
growing the network coverage across the country. The infrastructure
build costs are typically passed on to consumers, resulting in high
energy prices. Remote distributed power generation schemes in
Brazil allow a commercial and industrial ('C&I') consumer or
consortium of consumers to commit to offtake the power of a
generation asset anywhere on the state grid network. As long as the
power is fed into the network and contributes to balancing supply
and demand for the utility company that manages it, the utility
company allows the consumer to claim back a discount on their
usually high energy bills.
At Victory Hill, we recognise the value of the continued
expansion of the grid system across Brazil, allowing for more
remote locations and consumers to have access to clean sources of
energy. At the same time, it supports affordability for the C&I
consumer to select the source of energy that it consumes and gain
access to discounts, making it more affordable. This approach is in
line with one of the Company's themes and, of course, Addressing
Climate Change.
The impact of this asset is material from both a sustainability
and financial perspective. The aim of this investment is to support
and accelerate the growth of a sustainable energy system in Brazil
by improving and securing localised access to clean energy and
helping to lower Brazilian energy prices. These investments are
expected to exceed the Company's target annual dividend yield of 5%
and total return of 10% stemming from long-term PPAs with
investment grade corporates such as a large multinational
telecommunications company (accounting for 50% of the portfolio of
18 projects) as well as other Brazilian conglomerates. On average,
these contracts have a maturity exceeding 20 years and are
inflation-linked.
The Company has completed two out of the three phases of
deployment. The net result of this is that the total funds deployed
under this commitment are US$24m across 11 projects totalling 30MW.
The remaining US$39m will be deployed by Q4 2021 across Rio de
Janeiro, Minas Gerais, Bahia and Sao Paulo to build seven solar
projects. The projects are expected to be operational in less than
six months from investment.
Whilst the asset contributes towards a number of SDGs, it has a
material impact on SDGs 7 and 9.
Sustainability
Environmental, Social AND Governance
At Victory Hill, we believe in high impact value investments
that resolve fundamental local needs for societies and the
environment by addressing imbalances and structural gaps in energy
markets around the world.
At a glance
-- Environmental performance
- Brazilian Solar PV Assets(1)
- 145,452MWh renewable energy generated
- Asset will avoid 30,884 tCO2e per year
- This is equivalent to 39,000 UK homes being powered by
renewable energy and 1,470,658 trees planted
- Terminal storage assets on the Texas gulf coast(2)
- Total annual savings (tonnes per annum)(3)
- Nitrogen oxides (NOx): 182t
- NOx is the major precursor to formation of ground level ozone.
Inhalation of excess NOx causes and worsens a variety of
respiratory conditions, with prolonged exposure potentially leading
to irreversible damage to the respiratory system and death.
- Sulphur oxides (SOx): 18,492t
- SOx emissions are harmful to both the environment and human
health. Gaseous SOx emissions also harm trees by damaging foliage
and decreasing growth. Effects on human health are largely on the
respiratory system and can be lethal.
- PM10: 941t
- PM 2.5: 701t
- Particulate matter is emitted as a product of combustion but
also formed as a result of atmospheric reactions of chemicals such
as NOx and SOx. PM is particularly damaging to the human health as
the particles are inhaled deep into the lungs and can enter the
bloodstream affecting heart and lung performance, which itself can
lead to premature death.
- Carbon monoxide: 192t
- Air with a high concentration of carbon monoxide reduces the
amount of oxygen that can be transported around the body to
critical organs such as the brain and the heart.
-- Social performance
- Company level impact across US and Brazilian projects:
- Number of jobs added: 77
- Number of employees who received professional training: 24
- Number of incidents reported: 0
-- Governance
- GSEO benefits both from a diverse and independent Board of
Directors and AIFM.
We don't aim to tie investments to sustainability, we start with
sustainability and look for investments.
1 These are construction assets, therefore, this is forecasted
data based on the completion of 18 remote distributed solar
generation projects across ten Brazilian states for a total
capacity of 75MW.
2 This is for the period 20 April 2021 to 30 June 2021.
3 Total annual savings are forecasted based on operational data
for the period 20 April 2021 to 30 June 2021.
With a mission to disrupt the sustainable energy investment
market, Victory Hill challenges mainstream thinking, establishing
its perspective on the energy mix needed to achieve an orderly
transition to a net-zero carbon future.
Today's drive towards electrification and reliance on power
markets presents a once-in-a-generation opportunity to provide
investors global diversification. VH Global Sustainable Energy
Opportunities plc is truly diversified across technologies and
jurisdictions, whilst adhering to the UN SDGs.
Energy is present in everyday life and as such plays a central
role in the pursuit of the SDGs. GSEO sees the transformations
required by the SDGs as a long-lasting investment opportunity for
players in the energy markets.
For example, as the world pursues the energy transition away
from fossil fuels, imbalances are emerging in various energy
systems that require intelligent and informed investment in
infrastructure led by private capital. The investment opportunities
aimed at addressing these imbalances are what the Company will
focus on pursuing.
As the realities of climate change dawn on global leaders,
initiatives to avert this calamity are proliferating in every
geography. One of the most urgent ones, the displacement of coal
and other hydrocarbons from the energy mix, requires a completely
different energy infrastructure.
Sustainability does not mean addressing climate change alone.
Energy can have other harmful impacts on people's lives beyond the
effects of global warming. Decades ago, developed countries have
made the required investments to reduce sulfur in the air that was
being emitted by engines powered by basic petroleum-derived fuels.
Some countries, however, have not been able to avert sulfur
emissions from their transportation fleets and even power
generation. Infrastructure that can help these countries address
basic health requirements represent an attractive and sustainable
investment opportunity as well.
As the drive to achieve adherence to the SDGs remains
relentless, Victory Hill believes the market backdrop in which GSEO
will operate will offer plenty of attractive and high impact,
sustainable investment opportunities.
London Stock Exchange Green Economy Mark
VH Global Sustainable Energy Opportunities plc was awarded the
Green Economy Mark when it listed on the Main Market of the London
Stock Exchange.
The LSE's Green Economy classification identifies those
companies and funds listed on the Main Market and AIM that generate
between 50% and 100% of total annual revenues from products and
services that contribute to the global green economy.
The 50%+ threshold for the Green Economy Mark recognises
businesses that have a material revenue contribution from the Green
Economy. In this way it includes but also looks beyond 'pure-play'
green or clean technology companies to highlight those of all
sizes, across all industries, driving the transition to a
sustainable, low carbon economy.
TCFD
The TCFD was established to develop voluntary, consistent
climate-related financial risk disclosures for use by companies in
providing information to investors, lenders, insurers, and other
stakeholders. The TCFD recommends that all organisations provide
climate related disclosures in their annual report and accounts,
providing a framework to help companies assess the risks and
opportunities associated with climate change. Victory Hill is a
supporter of the TCFD initiative.
EU Taxonomy for Sustainable Finance
The EU Taxonomy is a classification system for sustainable
activities designed to help investors identify 'green'
environmentally friendly activities. This is aimed at demonstrating
investments that make a substantial contribution to climate change
mitigation or adaptation, while avoiding significant harm to other
environmental objectives and complying with minimum safeguarding
standards. Where relevant, the Company will seek to report on its
alignment with the EU Taxonomy framework in its annual
sustainability report.
SFDR
The Sustainable Finance Disclosure Regulation ('SFDR') came into
force in December 2019, with key disclosure requirements applicable
from 10 March 2021. The SFDR is a key initiative under the EU's
Action Plan for financing sustainable growth that was launched in
2018.
The SFDR imposes new disclosure requirements in relation to
sustainability, to enable investors to make more informed
investment choices based on environmental, social and governance
factors ('ESG factors').
Victory Hill recognises the importance of regular and
transparent reporting. Sustainability reporting promotes better
risk management, operational efficiency and ensures that we are
accountable to the Company's shareholders.
Sustainability Related Disclosures
In alignment with SFDR, Victory Hill makes the following
disclosures.
Victory Hill recognises the importance of ESG issues and is:
1. A signatory to the UN PRI
2. A signatory to the UN GC
3. Committed to being an active member of 'GRESB' a global ESG
benchmarking framework for real assets, reporting on annual basis
as assets become operational; and
4. A supporter of the TCFD.
Sustainability-linked Remuneration
Under Article 5, Integration of sustainability risk in
remuneration policies, Victory Hill's staff are fully aligned with
its sustainable development culture and will be set sustainability
objectives reflective of their roles as part of their annual
performance objectives when assessing any variable remuneration to
be awarded.
Investment Adviser Statement
1. Through the very nature of the business, ESG considerations
are integrated into Victory Hill's investment process as outlined
in the Sustainability Policy (available upon request).
2. Victory Hill is committed to upholding best reporting
practices on sustainability and promoting transparency on its
sustainability performance.
3. We understand both the entity level disclosures that fall
within the scope of the regulation, such as the importance of
considering adverse impacts of investment decisions on
sustainability factors, and financial product disclosures. As the
industry requirements under SFDR become clear pending final
guidance from the European Commission, Victory Hill will be
reviewing these and intends to be fully compliant. This is likely
to be from 2022.
4. Victory Hill welcomes this move to greater transparency for
investors in sustainable products and helping to identify
greenwashing.
Mapping GSEO's Contribution to the UN Sustainable Development
Goals and Investment Process
GSEO has appointed an external ESG and sustainability assurance
firm which is based in the UK and dedicated to the energy sector,
and in particular energy infrastructure. Working with an
independent consultant in this way reinforces the firm's commitment
to providing the Company's investors with a sustainable energy
infrastructure investment portfolio, that does not breach the
investment strategy's focus and philosophy.
The Company has developed an SDG and Impact Assessment Framework
with the ESG and sustainability assurance group, which is
delineated into two scopes - ex-ante and ex-post investment, and
which the external firm will assess each investment against. Their
assessment is however not limited to just this criterion.
The ex-ante sustainability assessment includes, but is not
limited to, assessing each investment opportunity against the EU
Green Taxonomy Framework and the asset's compliance against the six
specified core SDGs (3, 7, 8, 9, 13, and 17), and a confirmation
that they are not materially breaching any of the other 11
SDGs.
The ex-post sustainability impact assessment includes, but is
not limited to, the aggregation of reported data required from
developers to demonstrate the Company's compliance with SDGs and
quantify sustainability impacts the investment has made by
reporting a series of selected metrics. The assessment will also
include the asset's continuing compliance against the six specified
SDGs and confirmation that they are not materially breaching any of
the other 11 SDGs.
The UN Sustainable Development Goals themselves set out high
level ambitions for governments and organisations to work towards
in creating a more sustainable future. Beneath each goal will be
specific targets and indicators which set out what individual
organisations may be aiming to achieve and how these might be
assessed.
SDG SDG Target
--------------------------- ---------------------------------------
SDG 3: Good Health and Health and safety matters are
Well-Being reported to the Board on a quarterly
basis. Developers and operators
and maintenance contractors are
required to have appropriate
health and safety procedures
in place and these are monitored
monthly.
--------------------------- ---------------------------------------
SDG 7: Affordable and GSEO supports increasing the
Clean Energy share of sustainable and renewable
energy in the global energy mix.
The multi-disciplinary and experienced
team have profound localised
insight to be able to execute
globally. Given the Company's
investment philosophy of working
with mid-market developers and
creating partnerships, it allows
these developers to continue
to originate assets and obtain
capital to build out more renewable
projects globally.
--------------------------- ---------------------------------------
SDG 8: Decent Work and Provide full and productive employment
Economic Growth and decent work for all: initiative
to provide jobs to local people,
increase social mobility as well
as training to improve productivity
and skills. Extensive health
and safety measures ensures employees
are not exposed to risk.
--------------------------- ---------------------------------------
SDG 9: Industry, Innovation GSEO is responsible for a quality,
and Infrastructure reliable, sustainable and resilient
portfolio which makes renewable
energy more affordable for all
and supports increased renewable
penetration. Where possible,
GSEO seeks to upgrade its assets
to improve their efficiency and
longevity, and the best, often
innovative, O&M techniques to
enhance asset productivity.
--------------------------- ---------------------------------------
SDG 13: Climate Action GSEO invests in renewable energy
assets which provide clean power
and displace carbon emissions
which would have otherwise been
generated from carbon intense
sources such as fossil fuels.
GSEO also seeks to maintain our
natural environment and promote
environmental and management
procedures which support climate
change mitigation efforts.
--------------------------- ---------------------------------------
SDG 17: Partnerships for Encourage and promote effective
the Goals partnerships, building on the
experience and resourcing strategies
of partnerships: developing community
benefit strategy and knowledge
shared with key counterparties
drawing insights from investors
and marketplace research.
--------------------------- ---------------------------------------
Looking Ahead
We plan to provide investors with a sustainability report on
portfolio activities. An update on the various ESG factors that we
will report on include the following three categories:
1. Environmental impacts such as biodiversity; climate change;
and energy, water and waste consumption;
2. Social impacts including health and safety; diversity and
inclusion; and stakeholder engagement; and
3. Governance impacts such as operational resilience;
anti-bribery and corruption; and corporate policies.
All the above impact sources will be reflected in the annual
sustainability report for each investment that the Company makes
within the context of its investment strategy. Each will be linked
to specific investments and the relevant UN SDGs that they impact
the most.
Victory Hill monitors, on an ongoing basis, that each project
remains in compliance with the relevant UN SDGs and the impact that
the portfolio investment has made. This includes aggregation of
data at Company level in order to understand better the overall
portfolio-level impact as well. The data is collected from each
portfolio Special Purpose Vehicle ('SPV') and development partners
or project stakeholders through monthly reporting templates.
On an annual basis, this information collected by Victory Hill
is assessed by Victory Hill, as well as by an independent
sustainability assurance and certification consultant, which will
produce the Company's SDG impact metrics to publish in its Annual
Financial Reports, as well as a separate dedicated annual
sustainability report. In instances where the Company has assets or
projects that are located in the EU, we plan to specifically assess
compliance with the EU Taxonomy framework as well.
Investment Adviser Statement
Victory Hill is committed to responsible investing globally and
incorporates best practice approaches at all stages of the
investment life cycle. We believe that our responsible investment
practices represent an important part of our fiduciary
responsibilities and our ability to deliver attractive
risk-adjusted returns to the Company's shareholders over the long
term.
Victory Hill's asset management activities are focused around
both value preservation and sustainable value creation, reflecting
investors' long-term investment horizon. Responsible investment
practices and comprehensive consideration for ESG factors at all
stages of the investment life cycle are a critical aspect of this
long-term approach. ESG issues present opportunities as well as
risks and are therefore integrated into both value preservation and
value creation initiatives.
Victory Hill recognises that the infrastructure investments the
Company makes and that are managed on behalf of our investors can
have a material impact on the environment and the societies and
stakeholders associated with those assets. We are committed to
conducting our business in a manner that protects the environment,
health and safety of our employees, customers and the global
communities in which we operate. We operate on the principle that
we can make quality business decisions while conserving and
enhancing resources for future generations.
Principal risks and risk management
A Robust Framework is in Place
The Company's Prospectus issued in January 2021 details of the
risks faced by the Company.
Whilst it is not possible to eliminate all risks that may be
faced by the Company, a robust framework has been put in place
which enables the Audit Committee and the Board to identify and
assess principal and emerging risks. The Audit Committee regularly
reviews a risk register which contains details of key risks
together with controls which have been put in place to mitigate
those risks and encompasses a scoring methodology to assess the
impact of each risk, probability of occurrence and residual risk
after taking into consideration the control processes in place to
mitigate the risks. The AIFM, the Investment Adviser, the Company
and the Administrator provide input on the risk register, as
appropriate, and these service providers have control frameworks in
place to mitigate risks relevant to the services they are
providing.
The following section sets out the principal risks and
uncertainties faced by the Company together with the potential
impact of the risks and summarises the controls put in place to
mitigate those risks. Whilst COVID-19 has not been included as a
principal risk in the table below, the Board has assessed the
impact of COVID-19 on the Company and is confident that the Company
has appropriate procedures in place to mitigate operational risks
associated with COVID-19. The Board has the ability to meet
virtually and has engaged service providers that are able to
perform their roles remotely.
Risk Description of Risk Risk Impact Mitigation
-------------------------- -------------------------- -------------------------- --------------------------
1. Risks relating to the Company
--------------------------------------------------------------------------------------------------------------------
Reliance on Investment The Company relies on the The departure of some key The Investment Adviser
Adviser Investment Adviser for the individuals or all of consists of five managing
achievement of its Victory Hill's investment partners supported by four
investment objective. professionals could investment professionals.
prevent the Company from A collegiate approach is
achieving its investment taken to investment
objective. advisory activities with
There can be no assurance the team having a broad
that the Directors will be range of skills to support
able to find a replacement the pursuit of the
adviser if Company's investment
Victory Hill resigns. objective.
If a successor cannot be The performance of the
found, the Company may not Company's Investment
have the resources it Adviser is closely
considers necessary monitored by the Board.
to manage the Portfolio or In addition, at least once
to make investments a year the management
appropriately and, as engagement committee
result there may be a performs a formal review
material adverse effect on process to consider the
the performance of the ongoing performance of the
Company's NAV, revenues Investment Adviser and
and returns to makes a recommendation
shareholders. on the continuing
appointment of the
Investment Adviser to the
Board.
The initial term of the
investment advisory
agreement is five years.
-------------------------- -------------------------- -------------------------- --------------------------
Reliance on third party The Company has no Service provider control The Board oversees and
service providers employees and the failures may result in keeps under review the
Directors have all been operational and/or provision of services by
appointed on a reputational problems and each of the Company's
non-executive may have an adverse effect service providers on an
basis. Therefore, the on the Company's NAV, ongoing basis.
Company is reliant upon revenues and returns to The management engagement
its third party service shareholders. committee performs a
providers for the formal review process to
performance consider the ongoing
of certain functions. performance of its service
providers.
-------------------------- -------------------------- -------------------------- --------------------------
Currency risk The Company will make When foreign currencies Investments are held for
investments which are are translated into the long term.
based in countries whose Sterling there could be a The Company intends to
local currency may not material adverse effect enter into hedging
be Sterling and the on the Company's arrangements for periods
Company may make and/or profitability, the NAV and up to 12 months to hedge
receive payments that are the price of the shares. against short-term
denominated in currencies currency movements.
other than Sterling. Currency risk is taken
into consideration at time
of investment and is
included in the Investment
Adviser's assessment of
minimum hurdle rate from
investments.
-------------------------- -------------------------- -------------------------- --------------------------
2. Risks relating to the portfolio investment strategy
--------------------------------------------------------------------------------------------------------------------
Illiquidity of investments The Company's investments Shareholder returns could The Company is expected to
in sustainable energy be materially negatively hold most of its
infrastructure investments impacted should the investments on a long-term
are illiquid and Company be required basis.
may be difficult to to realise them in the The Investment Adviser and
realise at a particular near term (requirement for the Board will monitor the
time and/or at the early liquidity). position on a regular
prevailing valuation. basis.
-------------------------- -------------------------- -------------------------- --------------------------
3. Risks relating to making investments
--------------------------------------------------------------------------------------------------------------------
Construction risk Construction project risks Failure to complete The Investment Adviser
associated with the risk projects in accordance monitors construction
of inaccurate assessment with expectations could carefully and reports
of a construction adversely impact the frequently to the Board
opportunity, delays or Company's and AIFM.
disruptions which are performance and The Investment Adviser
outside the Company's shareholder returns. undertakes extensive due
control, changes in market diligence on construction
conditions, and the opportunities and
inability of contractors seeks to have appropriate
to perform their insurances in place to
contractual commitments. mitigate any costs
relating to delays. In
addition, the Investment
Adviser seeks to utilise
EPC contractors that can
provide single
point, lump sum turnkey
arrangements wherever
possible.
-------------------------- -------------------------- -------------------------- --------------------------
Due diligence Due diligence may not Failure to identify risks The senior management team
identify all risks and and liabilities may impact at the Investment Adviser
liabilities in respect of the profitability or have extensive experience
an investment. valuation of the in executing
investment. strategies similar to that
of the Company.
Where appropriate, due
diligence conducted by the
Investment Adviser may be
supplemented,
for example, by
independent legal, tax and
technical advisers.
-------------------------- -------------------------- -------------------------- --------------------------
Demand, usage and Residual demand, usage and The actual return to The Investment Adviser
throughput risks throughput risk can affect shareholders may be performs extensive due
the performance of materially lower than the diligence on the project
infrastructure target total return. economics vs. alternative
investments. energy options before
entering into a project.
Furthermore, project
revenues are largely
contracted
for the medium to long
term.
The Investment Adviser
constantly reviews
assumptions made regarding
the demand, usage and
throughput vs. actual
results.
-------------------------- -------------------------- -------------------------- --------------------------
Meteorology risks Dependency on meteorology, The actual return to The Investment Adviser
meteorology forecasts and shareholders may be performs extensive due
other feedstocks may have materially lower than the diligence on meteorology
a negative target total return. and other feedstocks
impact on the performance before entering into a
of the Company's project.
investments. The Investment Adviser
regularly reviews
meteorology and feedstock
factors and will action
any potential remedies.
-------------------------- -------------------------- -------------------------- --------------------------
Counterparty risks Counterparties defaulting The failure by a Due diligence on
on their contractual counterparty to make counterparty risk is
obligations or suffering contractual payments or performed before entering
an insolvency event. perform other contractual into projects and
obligations counterparty
or the early termination risk is monitored on a
of the relevant contract regular basis.
due to the insolvency of a
counterparty
may have an adverse effect
on the Company's NAV,
revenues and returns to
shareholders.
-------------------------- -------------------------- -------------------------- --------------------------
Uninsured loss and damage The risk that an The actual return to An independent insurance
investment may be shareholders may be adviser is appointed for
destroyed or suffer materially lower than the each project to review
material damage, and the target total returns. project risks in
existing insurances conjunction with the
may not be sufficient to Investment Adviser and to
cover all the losses and ensure that appropriate
damages. insurance arrangements
are in place.
Insurance requirements are
reviewed on an ongoing
basis.
-------------------------- -------------------------- -------------------------- --------------------------
Curtailment risk Investments may be subject In such cases, affected Extensive due diligence is
to the risk of investments may not performed on each project
interruption in grid receive any compensation before investment.
connection or or only limited
irregularities compensation. The Investment Adviser
in overall power supply. constantly reviews
curtailment risks.
-------------------------- -------------------------- -------------------------- --------------------------
Commodity price risk The operation and cash The actual return to The Company intends to
flows of certain shareholders mitigate these risks by
investments may depend may be materially lower entering into (i) hedging
upon prevailing market than the arrangements; (ii)
prices target total return. extendable short, medium
for electricity and fuel, and long-term contracts;
and particularly natural and (iii) fixed price or
gas. availability based
asset-level commercial
contracts.
-------------------------- -------------------------- -------------------------- --------------------------
4. Risks relating to the Company's shares
--------------------------------------------------------------------------------------------------------------------
Discount to NAV The share price may not Lack of liquidity in the The Board, Broker and
reflect the underlying Company's shares could Investment Adviser monitor
NAV. negatively impact on the discount or premium to
Discount management shareholder returns. NAV at which the
provisions being unable to shares trade.
be satisfied may result in
a significant share
price discount to NAV.
-------------------------- -------------------------- -------------------------- --------------------------
5. Risks relating to regulation
--------------------------------------------------------------------------------------------------------------------
Regulation The Company is exposed to The actual return to The Company aims to hold a
the risk that the shareholders may be lower diversified portfolio of
competent authorities may than the target total sustainable energy
pass legislation that return. infrastructure investments
might hinder or invalidate and so it is unlikely that
rights under existing all assets will be
contracts as well as impacted equally by a
hinder or impair the single change in
obtaining of the necessary legislation.
permits or licences The Investment Adviser
necessary for sustainable ensures that contracts are
energy infrastructure not exposed to government
investments in the subsidies, thus
construction phase. mitigating exposure to
policy risks linked to
contract pricing.
There is also strong
public demand for support
of the renewables market
to hit 'net-zero'
carbon emission targets.
The Investment Adviser
monitors the position and
provides regular reports
to the Board on
the wider macro
environment.
-------------------------- -------------------------- -------------------------- --------------------------
6. Operational risks
----------------------------------------------------------------------------------------------------------------------
Operation and management Poor management or The actual return from Operating partners operate
risks of the portfolio operational performance of single portfolio assets to an annual budget and a
assets an asset by the Company's may be lower than the series of key performance
operating partners target total return for indicators.
and selected operations the asset. The Investment Adviser
and maintenance providers. monitors the position and
provides regular reports
to the Board on
asset-level performance.
-------------------------- -------------------------- -------------------------- --------------------------
Valuation risk Valuation of the portfolio Actual results may vary The Company has adopted a
of assets is based on significantly from the valuation policy which was
financial projections and projections, which may disclosed in the Company's
estimations of reduce the profitability prospectus.
future results. of the Company leading to
reduced returns to Fair value for each
Shareholders and a fall in investment is calculated
the Company's NAV. by the Investment Adviser.
However, if considered
necessary and appropriate,
the Board may appoint an
independent valuer.
The Investment Adviser has
significant experience in
the valuation of energy
assets..
The Investment Adviser has
an independent valuation
committee to perform and
challenge valuations.
In addition, the
Investment Adviser
partnership committee
reviews and challenges
valuations.
The Board and AIFM review
the valuations provided
quarterly by the
Investment Adviser.
As part of the annual
audit, the Auditor reviews
the valuations.
-------------------------- -------------------------- -------------------------- --------------------------
Governance
Directors' responsibility statement
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements has been prepared in
accordance with IAS 34 as adopted by the European Union; and
- the interim management report, comprising the Chairman's
Statement, the Investment Adviser's Report, the Statement of
Principal Risks and Risk Management together with the condensed
financial statements include a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8 of the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority namely:
- an indication of important events that have occurred during
the period and their impact on the condensed financial statements
and a description of the principal risks and uncertainties for the
remaining six months of the financial period; and
- disclosure of any material related party transactions in the
period, which are included in note 16 to the financial
statements.
For and on behalf of the Board
BERNARD BULKIN
CHAIRMAN
10 September 2021
Financial Statements
INDEPENT REVIEW REPORT
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the interim financial report for the
period from 30 October 2020 to 30 June 2021 which comprises the
Condensed Statement of Comprehensive Income, Condensed Statement of
Financial Position, Condensed Statement of Changes in Shareholder's
Equity, Condensed Statement of Cash Flows and the related Notes to
the Financial Statements. We have read the other information
contained in the interim financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
Directors' Responsibilities
The interim financial report is the responsibility of and has
been approved by the directors. The directors are responsible for
preparing the interim financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in Note 2, the annual financial statements of the
Company will be prepared in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006. The condensed set of financial statements
included in this interim financial report has been prepared in
accordance with the International Accounting Standard 34, "Interim
Financial Reporting" as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the period ended 30 June 2021
is not prepared, in all material respects, in accordance with the
International Accounting Standard 34, as adopted by the European
Union and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Use of Our Report
Our report has been prepared in accordance with the terms of our
engagement to assist the Company in meeting its responsibilities in
respect of interim financial reporting in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority and for no other purpose. No person is
entitled to rely on this report unless such a person is a person
entitled to rely upon this report by virtue of and for the purpose
of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such
liability.
BDO LLP
Chartered Accountants
UK
10 September 2021
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Condensed statement of comprehensive income (unaudited)
Revenue Capital Total
Note GBP'000 GBP'000 GBP'000
------------------------------------------------- ---- -------- -------- --------
Income
Gains/(losses) on investments 6 - (1,910) (1,910)
Investment income 60 - 60
------------------------------------------------- ---- -------- -------- --------
Total income 60 (1,910) (1,850)
Investment advisory fees 4 (973) - (973)
Other expenses 4 (572) - (572)
------------------------------------------------- ---- -------- -------- --------
Total expenses (1,545) - (1,545)
Losses for the period before tax (1,485) (1,910) (3,395)
Taxation - - -
------------------------------------------------- ---- -------- -------- --------
Total comprehensive income/(loss) for the period 5 (1,485) (1,910) (3,395)
------------------------------------------------- ---- -------- -------- --------
Earnings/(loss) per share - basic and diluted
(pence per share)(1) 18 (1.00) (1.29) (2.29)
------------------------------------------------- ---- -------- -------- --------
1 Based on the weighted average number of ordinary shares in
issue since the Company's incorporation on 30 October 2020 to 30
June 2021.
The total column of the Statement of Comprehensive Income is the
profit and loss account of the Company. The supplementary revenue
return and capital columns have been prepared in accordance with
the Association of Investment Companies Statement of Recommended
Practice ('AIC SORP').
All revenue and capital items in the above statement derive from
continuing operations.
The above Statement of Comprehensive Income includes all
recognised gains and losses.
The notes form part of these financial statements.
Condensed statement of financial position (unaudited)
As at
30 June
2021
Note GBP'000
---------------------------------------------------------- ---- --------
Non-current assets
Investments at fair value through profit or loss 6 50,198
---------------------------------------------------------- ---- --------
Total non-current assets 50,198
---------------------------------------------------------- ---- --------
Current assets
Prepayments and other receivables 8 514
Cash and cash equivalents 9 184,388
---------------------------------------------------------- ---- --------
Total current assets 184,902
---------------------------------------------------------- ---- --------
Total assets 235,100
---------------------------------------------------------- ---- --------
Current liabilities
Accounts payable and accrued expenses 10 (569)
---------------------------------------------------------- ---- --------
Total current liabilities (569)
---------------------------------------------------------- ---- --------
Total liabilities (569)
---------------------------------------------------------- ---- --------
Net assets 19 234,531
---------------------------------------------------------- ---- --------
Capital and reserves
Share capital 2,426
Special distributable reserve 235,500
Capital reserve (1,910)
Revenue reserve (1,485)
---------------------------------------------------------- ---- --------
Total capital and reserves attributable to equity holders
of the Company 234,531
---------------------------------------------------------- ---- --------
The financial statements were approved and authorised for issue
by the Board of Directors on 10 September 2021 and signed on their
behalf by:
BERNARD BULKIN
CHAIRMAN
Company Registration Number 12986255
The notes form part of these financial statements.
Condensed statement of changes in shareholders' equity
(unaudited)
Share Special
Share premium distributable Capital Revenue
capital account reserve reserve reserve Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Comprehensive income for the
period
Total comprehensive income/(loss)
for the period - - - (1,910) (1,485) (3,395)
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Total comprehensive income
for the period - - - (1,910) (1,485) (3,395)
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Transaction with owners
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Shares issued 12,13 2,426 240,198 - - - 242,624
Share issue costs 13 - (4,698) - - - (4,698)
Transfer to special distributable
reserve 13,14 - (235,500) 235,500 - - -
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Total transactions with owners 2,426 - 235,500 - - 237,926
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
Balance at 30 June 2021 2,426 - 235,500 (1,910) (1,485) 234,531
---------------------------------- ----- -------- --------- -------------- -------- -------- --------
242,624,281 ordinary shares were issued in the period under
review.
The notes form part of these financial statements.
Condensed statement of cash flows (unaudited)
For the
period
30 October
2020 to
30 June
2021
Note GBP'000
--------------------------------------------------------------- ---- -----------
Cash flows from operating activities
Loss before tax (3,395)
Less: Change in fair value of investments and foreign exchange
movement 6 (736)
--------------------------------------------------------------- ---- -----------
Operating result before working capital changes (4,131)
--------------------------------------------------------------- ---- -----------
Increase in prepayments and other receivables (498)
Increase in interest receivables (16)
Increase in accounts payable and accrued expenses 569
--------------------------------------------------------------- ---- -----------
Net cash flow used in operating activities (4,076)
Cash flows from investing activities
Purchase of investments (49,462)
--------------------------------------------------------------- ---- -----------
Net cash used in investing activities (49,462)
Cash flows from financing activities
Proceeds from issue of shares 242,624
Share issue costs (4,698)
--------------------------------------------------------------- ---- -----------
Net cash generated from financing activities 237,926
--------------------------------------------------------------- ---- -----------
Net increase in cash and cash equivalents 184,388
Cash and cash equivalents at beginning of the period -
--------------------------------------------------------------- ---- -----------
Cash and cash equivalents at end of the period 9 184,388
--------------------------------------------------------------- ---- -----------
The notes form part of these financial statements.
Notes to the financial statements
1. General Information
VH Global Sustainable Energy Opportunities plc ('GSEO' or the
'Company') is a closed-ended investment company, incorporated in
England and Wales on 30 October 2020 and registered as a public
company limited under the Companies Act 2006 with registered number
12986255. The Company commenced operations on 2 February 2021 when
its shares commenced trading on the London Stock Exchange.
The Company has registered, and intends to carry on business, as
an investment trust with an investment objective to seek to
generate stable returns, principally in the form of income
distributions, by investing in a diversified portfolio of global
sustainable energy infrastructure assets, predominantly in
countries that are members of the EU, OECD, OECD Key Partner
Countries or OECD Accession Countries.
2. Basis of Preparation of Financial Statements
The interim financial statements included in this report have
been prepared in accordance with IAS 34 Interim Financial
Reporting. The financial statements have been prepared on the
historical cost basis, as modified for the measurement of certain
financial instruments at fair value through profit or loss. The
principal accounting policies are set out in note 3.
These interim financial statements are unaudited.
These financial statements are presented in Pounds Sterling and
are rounded to the nearest thousand, unless otherwise stated.
As this is the Company's first accounting period, annual
statutory financial statements have not yet been filed with the
Registrar of Companies. The Company will prepare its first
statutory financial statements in accordance with the requirements
of the Companies Act 2006 and with International Financial
Reporting Standards ('IFRS') adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
The financial statements have also been prepared, as far as is
consistent with IFRS and relevant and applicable to the Company in
accordance with the Statement of Recommended Practice: Financial
Statements of Investment Trust Companies and Venture Capital Trusts
('SORP') issued in October 2019 by the Association of Investment
Companies ('AIC').
Comparative information is not required as this is the first
period of operations.
2.1 Investment entity and basis of non-consolidation of
subsidiaries
The Directors have concluded that the Company has all the
elements of control as prescribed by IFRS 10 'Consolidated
Financial Statements' in relation to all its subsidiaries and that
the Company satisfies the three essential criteria to be regarded
as an investment entity as defined in IFRS 10.
Under IFRS 10, investment entities are required to hold
subsidiaries at fair value rather than consolidate them on a
line-by-line basis. There are three key conditions to be met by the
Company for it to meet the definition of an investment entity. The
three essential criteria are that the entity must:
1. Obtain funds from one or more investors for the purpose of
providing these investors with professional investment management
services;
2. Commit to its investors that its business purpose is to
invest its funds solely for returns from capital appreciation,
investment income or both; and
3. Measure and evaluate the performance of substantially all of
its investments on a fair value basis.
In satisfying the second criteria, the Company intends to hold
each investment until the end of its life. However, the Company may
choose to sell its interest in an investment before the end of its
project life if an attractive offer is received from a potential
purchaser.
Further detail on the significant judgements in valuing the
Company's investments is disclosed in note 2.3.
2.2 Going concern
The Directors have reviewed the financial position of the
Company and its future cash flow requirements, taking into
consideration current and potential funding sources, investment
into existing and near term projects and the Company's working
capital requirements.
Based on its assessment, the Directors have a reasonable
expectation that the Company has sufficient resources to continue
in operation for at least 12 months from the date of the approval
of these financial statements. The Directors are not aware of any
material uncertainties that may cast significant doubt upon the
Company's ability to continue as a going concern. Therefore, the
financial statements have been prepared on the going concern
basis.
The Board has considered the impact of COVID-19 and Brexit on
the Company's operations and does not consider that either has a
material impact on the Company's ability to continue as a going
concern.
2.3 Significant accounting judgements and estimates
The preparation of financial statements requires the Directors
of the Company to make judgements, estimates and assumptions that
affect the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of the asset or liability in the future. Estimates
and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimates are revised and in any future periods affected.
The estimates and associated assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities are outlined below:
Investment entity
As detailed above, the Directors have concluded that the Company
meets the definition of an investment entity as defined in IFRS 10.
This assessment involves an element of judgement as to whether the
Company continues to meet the criteria outlined in the accounting
standards.
Investments held at fair value through profit or loss
Fair value for each investment is calculated by the Investment
Adviser. Fair value for operational sustainable energy
infrastructure investments will typically be derived from a
discounted cash flow ('DCF') methodology and the results will be
benchmarked against appropriate multiples and key performance
indicators, where available for the relevant sector/industry. For
sustainable energy infrastructure investments that are not yet
operational at the time of valuation, the price of recent
investment may be used as an appropriate estimate of fair value
initially, but it is likely that a DCF will provide a better
estimate of fair value as the asset moves closer to operation.
In a DCF analysis the fair value is derived from the present
value of the investment's expected future cash flows to the
Company, using reasonable assumptions and forecasts for revenues,
operating costs, macro-level factors, project specific factors and
an appropriate discount rate. The AIFM and the Investment Adviser
exercise their judgement in assessing the discount rate for each
investment. This is based on knowledge of the market, taking into
account market intelligence gained from publicly available
information, bidding activities, discussions with financial
advisers, consultants, accountants and lawyers.
2.4 Changes to accounting standards and interpretations
At the date of authorisation of the financial statements, there
were a number of standards and interpretations which were in issue
but not yet effective. The Company has assessed the impact of these
amendments and has determined that the application of these
amendments and interpretations in current and future periods will
not have a significant impact on its financial statements.
Effective
Description Date
----------------------------------------------------------------- ---------
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest 1 January
Rate Benchmark Reform - Phase 2 2021
----------------------------------------------------------------- ---------
Amendments to IFRS 3 Business Combinations; IAS 16 Property,
Plant and Equipment; IAS 37 Provisions, Contingent Liabilities 1 January
and Contingent Assets 2022
----------------------------------------------------------------- ---------
Annual Improvements to IFRS (2018-2020 Cycle) - IFRS 1, IFRS 1 January
9, Illustrative Examples accompanying IFRS 16, IAS 41 2022
----------------------------------------------------------------- ---------
Amendments to IAS 1: Classification of Liabilities as Current 1 January
or Non-current 2023
----------------------------------------------------------------- ---------
3. Summary of Significant Accounting Policies
The principal accounting policies applied in the presentation of
these financial statements are set out below.
3.1 Presentation and functional currency
The primary objective of the Company is to generate returns in
Sterling. The Company's performance is measured in Sterling terms
and its ordinary shares are issued in Sterling. Therefore, the
Company has adopted Sterling as the presentation and functional
currency for its financial statements.
3.2 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.
3.3 Financial assets
The classification of financial assets at initial recognition
depends on the purpose for which the financial asset was acquired
and its characteristics.
All financial assets are initially recognised at fair value. All
purchases of financial assets are recorded at the date on which the
Company became party to the contractual requirements of the
financial asset.
The Company's financial assets principally comprise of
investments held at fair value through profit or loss and at
amortised cost.
3.4 Investments held at fair value through profit or loss
Investments are designated upon initial recognition as held at
fair value through profit or loss. Gains or losses resulting from
the movement in fair value are recognised in the profit or loss at
each valuation point. As shareholder loan investments form part of
a managed portfolio of assets whose performance is evaluated on a
fair value basis, loan investments are designated at fair value in
line with equity investments.
Gains or losses resulting from the movement in fair value are
recognised in profit or loss at each valuation point and are
allocated to the capital column of the profit or loss.
Financial assets are recognised/derecognised at the date of the
purchase/disposal. Investments are initially recognised at cost,
being the fair value of consideration given.
Transaction costs are recognised as incurred and allocated to
the capital column of the profit or loss.
Fair value is defined as the amount for which an asset could be
exchanged between knowledgeable willing parties in an arm's length
transaction.
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 or 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.
3.5 Financial assets at amortised cost
Impairment provisions for financial assets at amortised cost are
recognised based on a forward-looking expected credit loss model.
All financial assets assessed under this model are immaterial to
the financial statements.
3.6 Financial liabilities
Financial liabilities are classified according to the substance
of the contractual agreements entered into and are recorded on the
date on which the Company becomes party to the contractual
requirements of the financial liability.
All loans and borrowings are initially recognised at cost, being
fair value of the consideration received, less issue costs where
applicable. After initial recognition, all interest-bearing loans
and borrowings are subsequently measured at amortised cost using
the effective interest rate method. Loan balances as at the year
end have not been discounted to reflect amortised cost, as the
amounts are not materially different from the outstanding
balances.
The Company's other financial liabilities measured at amortised
cost include trade and other payables and other short-term monetary
liabilities which are initially recognised at fair value and
subsequently measured at amortised cost using the effective
interest rate method.
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 the profit or loss.
3.7 Fair value hierarchy
In accordance with IFRS 13, the Company recognises sustainable
energy infrastructure investments at fair value through profit or
loss at each balance sheet date in accordance with IFRS 13 which
recognises a variety of fair value inputs depending upon the nature
of the investment. Specifically:
Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3: Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Company determines whether
transfers have occurred between levels in the hierarchy by
reassessing categorisation at the end of each reporting period.
3.8 Finance expenses
Borrowing costs are recognised in the profit or loss in the
period to which they relate on an accruals basis and are allocated
to the revenue column of the profit or loss.
3.9 Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held
on call with banks and other short-term highly liquid deposits with
original maturities 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.
3.10 Foreign currencies
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
reporting date are translated at the foreign exchange rate ruling
at that date. Foreign exchange differences arising on translation
are recognised in profit or loss.
3.11 Dividends
Dividends payable are recognised as distributions in the
financial statements when the Company's obligation to make payment
has been established.
3.12 Income recognition
Dividend income and interest income on shareholder loan
investments are recognised when the Company's entitlement to
receive payment is established. Other income is accounted for on an
accruals basis using the effective interest rate method.
Gains or losses resulting from the movement in fair value of the
Company's investments held at fair value through profit or loss are
allocated to the capital column of the Company's profit or
loss.
3.13 Expenses
Expenses are accounted for on an accruals basis. All expenses
other than those directly attributable to investments and share
issue expenses are allocated to the revenue column of the profit or
loss.
Share issue expenses of the Company directly attributable to the
issue and listing of shares are charged to the share premium
account.
3.14 Share capital
Financial instruments issued by the Company are treated as
equity if the holder has only a residual interest in the assets of
the Company after the deduction of all liabilities. The Company's
ordinary shares are classified as equity instruments. Costs
attributable to the issue of new shares are shown in share premium
as a deduction from proceeds.
3.15 Taxation
Current tax is the expected tax payable on the taxable income
for the period, using tax rates that have been enacted or
substantively enacted at the date of the statement of financial
position.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit. Deferred tax
liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised.
Deferred tax assets and liabilities are not recognised if the
temporary differences arise from goodwill or from the initial
recognition of other assets and liabilities in a transaction that
affects neither the tax profit or the accounting profit. Deferred
tax liabilities are recognised for taxable temporary differences
arising on investments, except where the Company is able to control
the timing of the reversal of the difference and it is probable
that the temporary difference will not reverse in the foreseeable
future. Deferred tax is calculated at the tax rates that are
expected to apply in the period when the liability is settled or
the asset is realised. Deferred tax is charged or credited to the
profit or loss except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt
with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off tax assets against tax
liabilitie s and when they relate to income taxes levied by the
same taxation authority and the Company intends to settle its
current tax assets and liabilities on a net basis. Deferred tax
assets and liabilities are not discounted.
3.16 Segmental reporting
The Board of Directors, being the Chief Operating Decision
Maker, is of the opinion that the Company is engaged in a single
segment of business, being investment in global sustainable energy
opportunities. The financial information used by the Board to
manage the Company presents the business as a single segment.
4. Other Expenses
30 October
2020 to
30 June
2021 GBP'000
------------------------ -------------
Auditor's fee 78
Tax advisory fees 84
AIFM fees 36
Investment Adviser fees 973
Director's fee 91
Other expenses 283
------------------------ -------------
Total other expenses 1,545
------------------------ -------------
Fees payable to the auditor of the Company consist of initial
accounts audit fees of GBP60,000 (excluding VAT) and fees for the
review of the Interim Report of GBP5,000 (excluding VAT), together
with GBP13,000 of applicable VAT.
5. Taxation
(a) Analysis of charge in the period
For the period from
30 October 2020 to
30 June 2021
----------------------------
Revenue Capital Total
GBP'000 GBP'000 GBP'000
--------------- -------- -------- --------
Corporation tax - - -
Taxation - - -
--------------- -------- -------- --------
(b) Factors affecting total tax charge for the period
The effective UK corporation tax rate applicable to the Company
for the period is 19%. The tax charge differs from the charge
resulting from applying the standard rate of UK corporation tax for
an investment trust company.
The differences are explained below:
For the period from
30 October 2020 to
30 June 2021
----------------------------
Revenue Capital Total
GBP'000 GBP'000 GBP'000
------------------------------------------------------ -------- -------- --------
Losses on ordinary activities before taxation (1,485) (1,910) (3,395)
------------------------------------------------------ -------- -------- --------
Corporation tax at 19% (282) (363) (645)
Effect of:
Losses on investments held at fair value not taxable - 290 290
Movement in management expenses not utilised/deferred
tax not recognised 282 - 282
Foreign exchange losses - 73 73
------------------------------------------------------ -------- -------- --------
Total tax charge for the period - - -
------------------------------------------------------ -------- -------- --------
Investment companies which have been approved by HM Revenue
& Customs under section 1158 of the Corporation Tax Act 2010
are exempt from tax on capital gains. The Directors are of the
opinion that the Company has complied with the requirements for
maintaining investment trust status for the purposes of section
1158 of the Corporation Tax Act 2010. The Company has not provided
for deferred tax on any capital gains or losses arising on the
revaluation of investments.
(c) Deferred taxation
The Company has unutilised excess management expenses of
GBP1,485,000. No deferred tax asset has been recognised in respect
of these expenses. The March 2021 Budget announced a further
increase to the main rate of corporation tax to 25% from 1 April
2023. This rate has been substantively enacted at the balance sheet
date. The unrecognised deferred tax asset at 30 June 2021 of
GBP282,150 has been calculated using the current corporation tax
rate of 19%.
6. Investments
The Company classifies all assets measured at fair value as
below:
Fair value hierarchy
Quoted
prices
in active Significant Significant
markets observable unobservable
(Level inputs (Level inputs (Level
As at 30 June 2021 Total 1) 2) 3)
Assets measured at fair value: GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- -------- ---------- -------------- --------------
Non-current assets
Investments held at fair value through
profit or loss 50,198 - - 50,198
--------------------------------------- -------- ---------- -------------- --------------
All of the Company's investments have been classified as Level 3
and there have been no transfers between levels during the period
ended 30 June 2021.
The movement on the Level 3 unquoted investment during the
period is shown below:
As at
30 June
2021
GBP'000
--------------------------------------- --------
Opening balance -
Additions during the period at cost 49,462
Transaction costs 2,646
--------------------------------------- --------
52,108
Gains/(losses) on investments:
Transaction costs (2,646)
Change in fair value of investments(1) 1,121
Foreign exchange movement (385)
--------------------------------------- --------
Per Statement of Comprehensive Income (1,910)
--------------------------------------- --------
Closing balance 50,198
--------------------------------------- --------
1 Includes interest on loan receivable by the Company amounting
to GBP419,000.
Further information on the basis of valuation is detailed in
note 2.3 to the financial statements.
Valuation methodology
The Company owns 100% of its subsidiary VH GSEO UK Holdings
Limited ('VH GSEO UK'). The Company meets the definition of an
investment entity as described by IFRS 10, as such the Company's
investment in the VH GSEO UK is valued at fair value.
The Company acquired underlying investments in special purpose
vehicles ('SPVs') through its investment in VH GSEO UK. The
Investment Adviser has carried out fair market valuations of the
SPV investments as at 30 June 2021, reviewed by the AIFM, and the
Directors have satisfied themselves as to the methodology used, the
discount rates and key assumptions applied, and the valuation. All
SPV investments are at fair value through profit or loss and are
valued using the IFRS 13 framework for fair value measurement. The
following economic assumptions were used in the valuation of the
SPVs.
Valuation assumptions
Discount rates The discount rate used in the valuations is derived according
to internationally recognised methods.
Typical components of the discount rate are risk free rates,
country-specific and asset-specific risk premia. The latter
comprise the risks inherent to the respective asset class
as well as specific premia for other risks such as development
and construction.
------------------- -------------------------------------------------------------------
Power price Power prices will be based on power price forecasts from
leading market consultants. During the period under review,
there were no operating power generation assets.
------------------- -------------------------------------------------------------------
Energy yield Estimated based on energy yield assessments from leading
technical consultants as well as operational performance
data (where applicable). During the period under review
there were no operating power generation assets.
------------------- -------------------------------------------------------------------
Inflation rates Long-term inflation is based on central bank targets for
the respective jurisdiction.
------------------- -------------------------------------------------------------------
Asset life In general, an operating life of 35 years for terminal storage
assets and 25 years for solar PV is assumed. In individual
cases a longer operating life may be assumed where the contractual
set-up supports such assumption.
------------------- -------------------------------------------------------------------
Operating expenses The operating expenses are primarily based on the respective
contracts and budgets. Operating expenses are primarily
fixed expenses.
------------------- -------------------------------------------------------------------
Taxation rates The underlying country-specific tax rates are derived from
leading tax consulting firms.
------------------- -------------------------------------------------------------------
Capital expenditure Based on the contractual arrangements (e.g., EPC agreement),
where applicable.
------------------- -------------------------------------------------------------------
Key assumptions
30 June 2021
--------------------- ----------------- ------------
Discount rate Weighted average 7%
--------------------- ----------------- ------------
Long-term inflation United States 2%
--------------------- ----------------- ------------
Remaining asset life Terminal storage 30 years
--------------------- ----------------- ------------
Solar PV 25 years
--------------------- ----------------- ------------
Exchange rates GBP:USD 1.387
--------------------- ----------------- ------------
GBP:BRL 6.95
--------------------------------------- ------------
Valuation sensitivity
The key sensitivities in the DCF valuation are considered to be
the discount rate used in the DCF valuation and long-term
assumptions in relation to inflation, operating expenses, asset
life and where relevant power prices and energy yield.
The blended discount rate as at 30 June 2021 is 7%, which is
considered to be an appropriate base case for sensitivity analysis.
A variance of +/- 0.5% is considered to be a reasonable range of
alternative assumptions for discount rate.
The base case long-term inflation rate assumption is 2% for the
United States assets. A variance of +/- 0.5% is considered to be a
reasonable range of alternative assumptions for inflation.
The Texas Gulf Coast terminal storage assets were acquired in
April 2021. Given the short period between acquisition date and
period end, the acquisition price was taken into consideration for
the fair value of these assets.
The base case asset life for the terminal storage assets is 30
years. The sensitivity below assumes that asset life may be one
year shorter or longer than the base case.
The Brazilian solar assets are in construction as at 30 June
2021. Therefore until commencement of operations, the cost basis is
considered to be the most appropriate measure of valuation. There
are no indications at 30 June 2021 that the cost basis should be
impaired. Therefore only BRL:GBP sensitivity is shown in the table
below for these assets.
Change in Change in
Change fair value NAV per
in of investments share
Base case input (GBP'000) cent
------------------- --------- ------- --------------- ---------
Discount rate 7% -0.50% 2,850 0.01
------------------- --------- ------- --------------- ---------
0.50% (2,616) (0.01)
------------------- --------- ------- --------------- ---------
Inflation 2% -0.50% (2,320) (0.01)
------------------- --------- ------- --------------- ---------
0.50% 2,517 0.01
------------------- --------- ------- --------------- ---------
Asset life 30 years -1 year (642) 0.00
------------------- --------- ------- --------------- ---------
+1 year 600 0.00
------------------- --------- ------- --------------- ---------
Operating expenses -5% 2,135 0.01
------------------- --------- ------- --------------- ---------
5% (2,126) (0.01)
------------------- --------- ------- --------------- ---------
FX (GBP:USD) 1.387 -10% 5,681 0.02
------------------- --------- ------- --------------- ---------
10% (4,648) (0.02)
------------------- --------- ------- --------------- ---------
FX (GBP:BRL) 6.95 -10% 356 0.00
------------------- --------- ------- --------------- ---------
10% (291) 0.00
------------------- --------- ------- --------------- ---------
7. Unconsolidated Subsidiaries
Ownership
interests
as at 30
Investment Place of business June 2021
------------------------------------------------- ------------------ ----------
VH GSEO UK Holdings Limited United Kingdom 100%
Victory Hill Distributed Energy Investments
Limited United Kingdom 100%
Victory Hill USA Holdings LLC United States 100%
Victory Hill Midstream Investments LLC United States 100%
Victory Hill Midstream Energy LLC United States 100%
Motus T1 LLC United States 100%
Motus T2 LLC United States 100%
Victory Hill Holdings Brasil S.A. Brazil 100%
Energea Itaguaí I Aluguel De Equipamentos
E Manutençao LTDA Brazil 100%
Energea Itaguaí II Aluguel De Equipamentos
E Manutençao LTDA Brazil 100%
Energea Itaguaí III Aluguel De Equipamentos
E Manutençao LTDA Brazil 100%
Energea Nova Friburgo LTDA Brazil 100%
Victory Hill Australia Investments Pty Ltd Australia 100%
Victory Hill Distributed Power Pty Ltd Australia 100%
------------------------------------------------- ------------------ ----------
The above includes ordinary share interests in unconsolidated
subsidiaries held either directly by the Company or indirectly via
its holding in VH GSEO UK Holdings Limited.
8. Prepayments and Other Receivables
As at
30 June
2021
GBP'000
---------------------------------- --------
Other receivables 498
Prepayments 16
---------------------------------- --------
Prepayments and other receivables 514
---------------------------------- --------
The Directors have analysed the expected credit loss in respect
of receivables and concluded there was no material exposure for the
period ended 30 June 2021.
9. Cash Reserves
As at
30 June
2021
GBP'000
------------------- --------
Cash at bank 52,672
Cash on deposit 131,716
------------------- --------
Total cash at bank 184,388
------------------- --------
Cash on deposit consists of funds held in a 32 day notice
deposit account with Barclays Bank plc.
10. Accounts Payable and Accrued Expenses
As at
30 June
2021
GBP'000
-------------------------------------- --------
Accrued expenses 345
Other payables 224
-------------------------------------- --------
Accounts payable and accrued expenses 569
-------------------------------------- --------
The Directors consider that the carrying amount of trade and
other payables matches their fair value.
11. Financial Risk Management
The Company's activities expose it to a variety of financial
risks: market risk (including currency risk, interest rate risk and
price risk), credit risk and liquidity risk.
The AIFM and the Investment Adviser have risk management
procedures and processes in place which enable them to monitor the
risks of the Company. The objective in managing risk is the
creation and protection of shareholder income and value. Risk is
inherent in the Company's activities, but it is managed through a
process of ongoing identification, impact assessment, and
monitoring and subject to risk limits and other controls.
The principal financial risks facing the Company in the
management of its portfolio are as follows:
Currency risk
The Company make investments which are based in countries whose
local currency may not be Sterling and the Company and its
investments may make and/or receive payments that are denominated
in currencies other than Sterling. Therefore, when foreign
currencies are translated into Sterling there could be a material
adverse effect on the Company's profitability and its net asset
value.
The Company's investments are held for the long term and the
Company intends to enter into hedging arrangements for periods less
than 12 months to hedge against short-term currency movements.
Currency risk is taken into consideration at time of investment and
included in the Investment Adviser's assessment of minimum hurdle
rate from investments. Hedging policies of the Company will be
reviewed on a regular basis to ensure that the risks associated
with the Company's investments are being appropriately managed.
Note 6 details sensitivity analysis on the impact of changes to
the inputs on the fair value of the Company's investments.
Interest rate risk
The Company's interest rate risk on its financial assets is
limited to interest earned on cash or cash equivalents and any loan
investments, which yield interest at fixed rates.
The Company may use borrowings for multiple purposes, including
for investment purposes. At the period end the Company held no
borrowings. Interest rate risk will be taken into consideration
when taking out any such borrowings.
The Company's interest and non-interest bearing assets and
liabilities as at 30 June 2021 are summarised as below:
Interest Non-interest
bearing bearing Total
Assets GBP'000 GBP'000 GBP'000
------------------------------------------------- -------- ------------ ---------
Cash and cash equivalents 184,388 - 184,388
Prepayments and other receivables - 498 498
Interest receivable 16 - 16
Investments at fair value through profit or loss - 50,198 50,198
------------------------------------------------- -------- ------------ ---------
Total assets 184,404 50,696 235,100
------------------------------------------------- -------- ------------ ---------
Liabilities
Accounts payable and accrued expenses - (569) (569)
------------------------------------------------- -------- ------------ ---------
Total liabilities - (569) (569)
------------------------------------------------- -------- ------------ ---------
Price risk
The operation and cash flows of certain investments will depend,
in substantial part, upon prevailing market prices for electricity
and fuel, and particularly natural gas. The Company intends to
mitigate these risks by entering into (i) hedging arrangements;
(ii) extendable short, medium and long-term contracts; and (iii)
fixed price or availability based asset-level commercial contracts,
and ensuring that market risk is combined with non-market risk
exposures.
Note 6 details sensitivity analysis on the impact of changes to
the inputs on the fair value of the Company's investments.
Credit risk
Credit risk is the risk that a counterparty will cause financial
loss to the Company by failing to meet a commitment it has entered
into with the Company.
It is the Company's policy to enter into banking arrangements
with reputable financial institutions. The Investment Adviser
monitors the credit ratings of banks used by the Company on a
regular basis.
The table below shows the Company's exposure to credit risk:
As at
30 June 2021
GBP'000
-------------------------- -------------
Cash and cash equivalents 184,388
-------------------------- -------------
184,388
-------------------------- -------------
The substantial majority of cash held at the period end was held
with Barclays Bank plc which has a current Standard and Poor's
short-term credit rating of A-1.
Liquidity risk
The Company manages its liquidity and funding risks by
considering cash flow forecasts and ensuring sufficient cash
balances are held within the Company to meet future needs. Prudent
liquidity risk management implies maintaining sufficient cash and
marketable securities, the availability of financing through
appropriate and adequate credit lines, and the ability of
counterparties to settle obligations. The Company ensures, through
forecasting of capital requirements, that adequate cash is
available.
The following table details the Company's liquidity analysis in
respect of its financial liabilities on contractual undiscounted
payments:
< 3 months 3-12 months 1-5 years > 5 years Total
As at 30 June 2021 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---------- ----------- --------- --------- --------
Accounts payable and accrued expenses 569 - - - 569
-------------------------------------- ---------- ----------- --------- --------- --------
569 - - - 569
-------------------------------------- ---------- ----------- --------- --------- --------
The Board of Directors monitors key risks faced by the Company
and has agreed policies for managing the above risks with the AIFM
and/or the Investment Adviser.
Capital management
The Company considers its capital to comprise ordinary share
capital, distributable reserves and retained earnings.
The Company's primary capital management objectives are to
ensure the sustainability of its capital to support continuing
operations, meet its financial obligations and allow for growth
opportunities. Generally, acquisitions are anticipated to be funded
with a combination of cash, debt and equity.
12. Share Capital
Special As at
Share Share distributable 30 June
Number capital premium reserve 2021
Date Issued and fully paid of shares GBP'000 GBP'000 GBP'000 GBP'000
-------------- ---------------------------------- ----------- -------- --------- -------------- --------
30 October
2020 Ordinary shares 1 - - - -
2 February
2021 Ordinary shares 242,624,280 2,426 240,198 - 242,624
2 February
2021 Share issue costs - - (4,698) - (4,698)
Transfer to special distributable
13 April 2021 reserve - - (235,500) 235,500 -
-------------- ---------------------------------- ----------- -------- --------- -------------- --------
30 June 2021 242,624,281 2,426 - 235,500 237,926
-------------------------------------------------- ----------- -------- --------- -------------- --------
The Company was incorporated on 30 October 2020 when the issued
share capital of the Company was GBP0.01 represented by one
ordinary share and GBP50,000 represented by 50,000 management
shares of nominal value of GBP1.00 each, which were subscribed for
by VHCA. On 2 February 2021, the Company issued a further
242,624,280 ordinary shares and on that date 242,624,281 ordinary
shares were admitted to trading on the London Stock Exchange. The
management shares were redeemed at par on 2 February 2021.
The ordinary shares are denominated in Sterling. The ordinary
shares were offered under the initial issue at the price of 100p
per ordinary share.
The holders of the ordinary shares shall be entitled to receive,
and to participate in, any dividends which the Company has declared
from time to time proportionate to the amounts paid or credited as
paid in relation to the ordinary shares that they hold.
The ordinary shares carry the right to receive notice of, attend
and vote at General Meetings and on a poll, with one vote for each
ordinary share held.
On a winding-up, provided the Company has satisfied all its
liabilities and subject to the rights conferred on any other class
of shares in issue at that time to participate in the winding-up,
the holders of ordinary shares shall be entitled to all the surplus
assets of the Company.
There are no restrictions on the free transferability of the
ordinary shares, subject to compliance with applicable securities
laws.
13. Share Premium Account
As at
30 June 2021
GBP'000
---------------------------------------------------- -------------
Share premium arising on ordinary shares issued 240,198
Share issue costs (4,698)
Transfer to special distributable reserve (note 13) (235,500)
---------------------------------------------------- -------------
Balance at end of period -
---------------------------------------------------- -------------
In order to increase distributable reserves available for the
payment of future dividends, the Company resolved on 5 January 2021
that, conditional upon admission and the approval of the Court, the
amount standing to the credit of the share premium account of the
Company immediately following completion of the issue be cancelled
and transferred to a special distributable reserve. Subsequently,
following approval by the Court and registration of the
cancellation with the Registrar of Companies, an amount of
GBP235,499,532 was transferred to a special distributable reserve
with effect from 13 April 2021.
14. Special Distributable Reserve
As at
30 June 2021
GBP'000
---------------------------------------------- -------------
Balance at beginning of period -
Transfer from share premium account (note 12) 235,500
---------------------------------------------- -------------
Balance at end of period 235,500
---------------------------------------------- -------------
15. Dividends
The Directors have not declared or paid any dividends at the
date of approval of these financial statements.
16. Related Party Transactions
AIFM
On 5 January 2021, the Company entered into the AIFM Agreement
with G10 Capital Limited (the 'AIFM') under which the AIFM has been
appointed to act as the Company's alternative investment fund
manager with overall responsibility for the risk management and
portfolio management of the Company, providing alternative
investment fund manager services and ensuring compliance with the
requirements of the AIFM Rules, subject to the overall supervision
of the Directors in accordance with the policies laid down by the
Directors from time to time and the investment restrictions
referred to in the AIFM Agreement.
The AIFM Agreement provides that the Company will pay to the
AIFM a fixed monthly fee of GBP5,000, exclusive of VAT. The Company
will also reimburse the AIFM for reasonable expenses properly
incurred by the AIFM in the performance of its obligations under
the AIFM Agreement.
The AIFM Agreement may be terminated by the Company or the AIFM
giving not less than six months' written notice. The AIFM Agreement
may be terminated with immediate effect on the occurrence of
certain events, including insolvency or in the event of a material
and continuing breach.
The AIFM fees for the period amounted to GBP35,784 and no amount
was outstanding at the period end.
Investment Adviser
On 5 January 2021, the Company and the AIFM entered into an
Investment Advisory Agreement with VHCA. Under the Investment
Advisory Agreement, the AIFM and the Company have appointed Victory
Hill as Investment Adviser to the Company and the AIFM.
Under the terms of the Investment Advisory Agreement, the
Investment Adviser will: (i) seek out and evaluate investment
opportunities; (ii) recommend the manner in which investments
should be made, retained and realised; (iii) advise the Company and
the AIFM in relation to acquisitions and disposals of assets; (iv)
provide asset valuations to assist the Administrator in the
calculation of the quarterly NAV; and (v) provide operational,
monitoring and asset management services.
The Investment Adviser is entitled to receive from the Company
an annual fee to be calculated as percentages of the Company's net
assets 1% on the first GBP250m of NAV, 0.9% on NAV in excess of
GBP250m and up to and including GBP500m and 0.8% on NAV in excess
of GBP500m exclusive of VAT.
The Investment Advisory Agreement may be terminated on 12
months' written notice, provided that such notice may not be served
before 2 February 2025. The Investment Advisory Agreement may be
terminated with immediate effect on the occurrence of certain
events, including insolvency or in the event of a material and
continuing breach.
The investment advisory fees for the period amounted to
GBP972,849 of which GBP198,236 was outstanding and included in
accounts payable and accrued expenses at the end of the period.
Directors
With effect from the admission of the Company's shares to
trading on the London Stock Exchange on 2 February 2021, the
Directors have been entitled to aggregate annual remuneration
(excluding expenses) payable and benefits in kind granted as
follows:
Fees
GBP'000
------------------- --------
Bernard Bulkin OBE 70
Margaret Stephens 50
Richard Horlick 50
Louise Kingham OBE 50
------------------- --------
220
------------------- --------
The Directors are not eligible for bonuses, pension benefits,
share options, long-term incentive schemes or other benefits. There
is no amount set aside or accrued by the Company in respect of
contingent or deferred compensation payments or any benefits in
kind payable to the Directors. During the period ended 30 June
2021, Directors fees of GBP91,201 were paid, of which none were
payable at the period end.
As detailed in the Prospectus, the Directors subscribed for the
below ordinary shares at 100p per share during the Company's IPO
and have therefore held (and continue to hold) beneficial interests
in these shares since admission.
Number of % of ordinary
ordinary shares
shares held in issue
------------------- ------------ -------------
Bernard Bulkin OBE 10,000 0.0041
Margaret Stephens 10,000 0.0041
Richard Horlick 10,000 0.0041
Louise Kingham OBE 5,000 0.0021
------------------- ------------ -------------
The above Directors were appointed on 30 October 2020 and 6
November 2020. Bernard Bulkin, Richard Horlick and Louise Kingham
were appointed as Directors on incorporation of the Company, and
Margaret Stephens appointed as Director on 6 November 2020.
Other balances with related parties
As disclosed in note 10 an amount of GBP224,000 was payable to a
related party at the period end, being an amount payable to Victory
Hill Midstream Energy LLC.
17. Contingent Liabilities and Commitments
At 30 June 2021 the Company had no contingent liabilities.
On 28 May 2021, the Company announced a US$63m commitment to
fund the construction of 18 remote distributed solar generation
projects across ten Brazilian states.
18. Earnings Per Share
Earnings per share ('EPS') is calculated by dividing profit for
the period attributable to ordinary equity holders of the Company
by the weighted average number of ordinary shares in issue since
the Company's incorporation on 30 October 2020 to 30 June 2021.
Amounts shown below are both basic and diluted measures as there
were no dilutive instruments in issue throughout the current
period.
Revenue Capital Total
------------------------------------------- ----------- ----------- -----------
Earnings (GBP'000) (1,485) (1,910) (3,395)
Weighted average number of ordinary shares 147,771,167 147,771,167 147,771,167
------------------------------------------- ----------- ----------- -----------
EPS (p) (1.00) (1.29) (2.29)
------------------------------------------- ----------- ----------- -----------
In addition to the above, the Board considers it appropriate to
disclose an additional EPS figure calculated by dividing profit for
the period attributable to ordinary equity holders of the Company
by the weighted average number of ordinary shares in issue since
the Company commenced its operations on 2 February 2021 to 30 June
2021. The Board believes this provides a more relevant measure of
the Company's performance.
Revenue Capital Total
------------------------------------------- ----------- ----------- -----------
Earnings (GBP'000) (1,485) (1,910) (3,395)
Weighted average number of ordinary shares 242,624,281 242,624,281 242,624,281
------------------------------------------- ----------- ----------- -----------
EPS (p) (0.61) (0.79) (1.40)
------------------------------------------- ----------- ----------- -----------
19. Net Asset Value Per Share
Net asset value per share is calculated by dividing the net
assets attributable to ordinary equity holders of the Company by
the number of ordinary shares outstanding at the reporting date.
Amounts shown below are both basic and diluted measures as there
were no dilutive instruments in issue throughout the current or
comparative periods.
Period ended
30 June 2021
-------------------------- -------------
NAV (GBP'000) 234,531
Number of ordinary shares 242,624,281
NAV per share (p) 0.967
-------------------------- -------------
20. Post Balance Sheet Events
Since the period end the following significant events have taken
place.
On 13 July 2021, the Company acquired its second US$20m project
development tranche in Brazil. The capital investment will be used
to fund seven distributed solar generation projects, which will
provide over 26MW of energy to a multinational telecommunications
company. This tranche forms part of a larger US$63m commitment by
GSEO, initially announced on 28 May 2021 to fund the construction
of 18 remote distributed generation projects across ten Brazilian
states, aiming to generate a total capacity of 75MW.
On 2 August 2021, the Company announced a commitment of GBP50m
to acquire a portfolio of distributed solar generation assets with
plans to build embedded battery storage capacity. The commitment
will be split into two deployment tranches the first of which will
be for GBP15m. The first tranche involves the acquisition of two
operating solar PV sites, totalling 17MW DC, in South Australia and
Queensland, where there are opportunities to support the energy
transition utilising energy storage.
On 9 September 2021, the Company committed to GBP78m to fund two
Flexible Power plants in the United Kingdom, which bring together
high-efficiency gas-fired turbine technology and carbon capture and
reuse systems. The plants are aimed at providing a clean and
flexible electricity solution that will help firm the grid as more
offshore wind comes online in the coming decade. The combined
capacity will be 45MW.
21. Controlling Parties
There is no ultimate controlling party of the Company.
Alternative Performance Measures
Alternative Performance Measures ('APMs') are often used to
describe the performance of investment companies although they are
not specifically defined under IFRS. Calculations for APMs used by
the Company are shown below.
Ongoing Charges
A measure expressed as a percentage of average net assets, of
the regular, recurring annual costs of running an investment
company, calculated in accordance with the AIC methodology.
Period ended 30 June 2021 GBP'000
---------------------------------------------------------- ---- -------
Average NAV a 236,577
---------------------------------------------------------- ----- -------
Recurring costs in period from commencement of operations
on 2 February 2021 to 30 June 2021 1,545
----------------------------------------------------------------- -------
Recurring costs (annualised) b 3,810
---------------------------------------------------------- ----- -------
Ongoing charges b/a 1.6%
---------------------------------------------------------- ----- -------
Premium
The amount, expressed as a percentage, by which the share price
is more than the NAV per share.
As at 30 June 2021
----------------------- -------- -----
NAV per ordinary share a 96.7p
----------------------- --------- -----
Ordinary share price b 99.7p
----------------------- --------- -----
Premium (b-a)/a 3.1%
----------------------- --------- -----
Total Return
A measure of performance that includes both income and capital
returns. This takes into account capital gains and reinvestment of
any dividends paid out by the Company, with reinvestment on
ex-dividend date.
Share
Period ended 30 June 2021 NAV price
---------------------------------------------- -------- ------ ------
Opening as at commencement of operations on 2
February 2021 a 100.0p 100.0p
---------------------------------------------- --------- ------ ------
Closing as at 30 June 2021 b 96.7p 99.7p
---------------------------------------------- --------- ------ ------
Dividend adjustment factor c 1 1
---------------------------------------------- --------- ------ ------
Adjusted closing (d = b x c) d 96.7p 99.7p
---------------------------------------------- --------- ------ ------
Total return (d-a)/a -3.3% -0.3%
---------------------------------------------- --------- ------ ------
n/a = not applicable
Glossary
AIC Association of Investment Companies
--------------------------- --------------------------------------------------------
AIFM Alternative Investment Fund Manager, G10 Capital
Limited
--------------------------- --------------------------------------------------------
Annual General Meeting A meeting held once a year which shareholders can
or AGM attend and where they can vote on resolutions to
be put forward at the meeting and ask directors
questions about the company in which they are invested
--------------------------- --------------------------------------------------------
Company VH Global Sustainable Energy Opportunities plc
--------------------------- --------------------------------------------------------
Decentralised energy Energy which is produced close to where it will
be used, rather than at a large centralised plant
elsewhere, delivered through a centralised grid
infrastructure
--------------------------- --------------------------------------------------------
Discount The amount, expressed as a percentage, by which
the share price is less than the net asset value
per share
--------------------------- --------------------------------------------------------
Dividend Income receivable from an investment in shares
--------------------------- --------------------------------------------------------
EPC Engineering, procurement and construction
--------------------------- --------------------------------------------------------
ESG Environmental, social and governance
--------------------------- --------------------------------------------------------
EU European Union
--------------------------- --------------------------------------------------------
Ex-dividend date The date from which you are not entitled to receive
a dividend which has been declared and is due to
be paid to shareholders
--------------------------- --------------------------------------------------------
Financial Conduct Authority The independent body that regulates the financial
or FCA services industry in the UK
--------------------------- --------------------------------------------------------
FiT Feed-in Tariff
--------------------------- --------------------------------------------------------
GAV Gross Asset Value
--------------------------- --------------------------------------------------------
Gearing A way to magnify income and capital returns, but
which can also magnify losses
--------------------------- --------------------------------------------------------
GHG Green House Gases
--------------------------- --------------------------------------------------------
Investment Adviser / Victory Hill Capital Advisors LLP
Victory Hill
--------------------------- --------------------------------------------------------
Investment Company A company formed to invest in a diversified portfolio
of assets
--------------------------- --------------------------------------------------------
Investment Trust An investment company which is based in the UK and
which meets certain tax conditions which enables
it to be exempt from UK corporation tax on its capital
gains. The Company is an investment trust
--------------------------- --------------------------------------------------------
IPO Initial Public Offering
--------------------------- --------------------------------------------------------
MW Megawatt
--------------------------- --------------------------------------------------------
MWh Megawatt Hour
--------------------------- --------------------------------------------------------
NAV per ordinary share NAV divided by the number of ordinary shares in
issue (excluding any shares held in treasury)
--------------------------- --------------------------------------------------------
Net asset value or NAV An investment company's assets less its liabilities
--------------------------- --------------------------------------------------------
OECD Organisation for Economic Co-operation and Development
--------------------------- --------------------------------------------------------
Ongoing charge The 'ongoing charges' ratio is an indicator of the
costs incurred in the day-to-day management of the
Company, expressed as a percentage of average net
assets. This ratio calculation is based on Association
of Investment Companies ('AIC') recommended methodology
--------------------------- --------------------------------------------------------
Ordinary shares The Company's ordinary shares in issue
--------------------------- --------------------------------------------------------
O&M Operation and Maintenance
--------------------------- --------------------------------------------------------
PPA Power Purchase Agreement
--------------------------- --------------------------------------------------------
Premium The amount, expressed as a percentage, by which
the share price is more than the net asset value
per share
--------------------------- --------------------------------------------------------
PV Photovoltaic
--------------------------- --------------------------------------------------------
ROC Renewable Obligation Certificates
--------------------------- --------------------------------------------------------
SDG Sustainable Development Goals
--------------------------- --------------------------------------------------------
SFDR Sustainable Finance Disclosure Regulation
--------------------------- --------------------------------------------------------
Share price The price of a share as determined by a relevant
stock market
--------------------------- --------------------------------------------------------
SPV Special Purpose Vehicle
--------------------------- --------------------------------------------------------
TCFD Task Force on Climate-Related Financial Disclosures
--------------------------- --------------------------------------------------------
Total return Total return statistics enable the investor to make
performance comparisons between investment trusts
with different dividend policies. The total return
measures the combined effect of any dividends paid,
together with the rise or fall in the share price
or NAV. This is calculated by the movement in the
share price or NAV plus the dividends paid by the
Company assuming these are reinvested in the Company
at the prevailing NAV/share price
--------------------------- --------------------------------------------------------
WACC Weighted Average Cost of Capital
--------------------------- --------------------------------------------------------
Key Company Information
The Board of Directors Bernard Bulkin OBE (Non-Executive Chairman)
Louise Kingham OBE (Non-Executive Director)
Margaret Stephens (Non-Executive Director)
Richard Horlick (Non-Executive Director)
Registered Office 6th Floor
Bastion House
140 London Wall
London
EC2Y 5DN
AIFM G10 Capital Limited
4th Floor
3 More London Riverside
London
SE1 2AQ
Investment Adviser Victory Hill Capital Advisors LLP
Park House
116 Park Street
London
W1K 6SS
Corporate Broker Numis Securities Limited
45 Gresham Street
London
EC2V 7BF
Eversheds Sutherland (International)
Legal Adviser to the Company LLP
One Wood Street
London
EC2V 7WS
Apex Fund and Corporate Services (UK)
Administrator and Company Secretary Limited
6th Floor
Bastion House
140 London Wall
London
EC2Y 5DN
Depositary Apex Depositary (UK) Limited
6th Floor
Bastion House
140 London Wall
London
EC2Y 5DN
Auditor BDO LLP
55 Baker Street
London
W1U 7EU
END
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