VH Global Sustainable Energy
Opportunities plc
(the
"Company")
Annual results for the year
ended 31 December 2023
The Board of VH Global Sustainable
Energy Opportunities plc (ticker: GSEO) is pleased to report its
annual results for the year ended 31 December 2023.
The Annual Report and Accounts for
the year ended 31 December 2023 will be made available on the
Company's website at https://www.vh-gseo.com.
Company highlights as at 31 December
2023
Financial
- Net asset value: £483.8m
- Net asset value per share: 116.46p
- Total leverage of GSEO as a percentage of NAV: 1.9%
- Total annualised NAV return since IPO (Feb 2021):
10.0%
- Dividend per share declared for FY 2023: 5.56p
- Dividend target for FY 2024: 5.68 pence per share
- Dividend coverage: 1.1x
- Total annualised NAV return for FY 2023: 14.5%
- Percentage of revenues contracted and inflation linked:
>90%
Sustainability
- Clean energy generated and injected into the grid: 844,434
MWh
- Approximate equivalent UK homes powered annually by clean
energy: 312,750
- Tonnes of carbon dioxide equivalent avoided:
122,530t
- Tonnes of sulfur oxides displaced: 19,332t
The Company's LEI is
213800RFHAOF372UU580.
For further information:
Edelman Smithfield (PR Adviser)
Ged Brumby
+44 (0)7540 412
301
Hamza Ali
+44 (0)7976
308 914
Victory Hill Capital Partners LLP (Investment
Manager)
Navin Chauhan
info@victory-hill.com
Deutsche Numis (Corporate Broker)
David Benda
+44 (0)20 7260
1000
Matt Goss
Apex
Fund and Corporate Services (UK) Limited (Company
Secretary)
ukfundscosec@apexgroup.com
About Victory Hill Capital Partners LLP
Victory Hill Capital Partners LLP
("Victory Hill") is authorised and regulated by the Financial
Conduct Authority (FRN 961570).
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 has participated in more than $200bn in
transaction values across 91 conventional and renewable
energy-related transactions in over 30 jurisdictions worldwide.
Victory Hill is the investment manager of the Company.
The Victory Hill team deploys its
experience across different financial disciplines in order to
assess investments holistically 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 of the
United Nations Principles for Responsible Investing (UN PRI), the
United Nations Global Compact (UN GC), Net Zero Asset Managers
Initiative (NZAMI), a member of the Global Impact Investing Network
(GIIN) and is a formal supporter of the Financial Stability Board's
Task-Force on Climate-related Disclosures (TCFD).
Annual General Meeting
The Company's Annual General Meeting
will be held at the offices of Victory Hill Capital Partners LLP at
4 Albemarle Street, London W1S 4GA on Wednesday, 22 May 2024 at
2.00pm.
The Notice of the Annual General
Meeting is set out in the Annual Report and Accounts for the year
ended 31 December 2023.
National Storage Mechanism
A copy of the Annual Report and
Accounts will be submitted to the National Storage Mechanism and
will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
HIGHLIGHTS
Financial (for the
full year ended 31 December 2023)
Net Asset Value as
at
31 December 2023
£483.8m
31 Dec 22: £457.2m
NAV per share as
at
31 December 2023*
116.46p
31 Dec 22: 108.20p
Total leverage of
GSEO
as a % of NAV as at 31 December 2023
1.9%
31 Dec 22: 3.0%
Dividend per share
declared for FY 2023
5.56p
31 Dec 22: 5.13p
Dividend target
for FY 2024
5.68p
31 Dec 22: 5.52p
Dividend coverage as
at
31 December 2023*
1.1x
31 Dec 22: 1.4x
Total annualised
NAV
return since IPO (Feb 2021)*
10.0%
31 Dec 22: 7.8%
Total annualised
NAV
return for FY 2023*
14.5%
31 Dec 22: 7.6%
% of revenues
contracted
and inflation-linked
>90%
31 Dec 22: >90%
Sustainability
Clean energy generated
and injected into the grid
844,434MWh
31 Dec 22: 35,117
MWh
Approximate equivalent UK homes powered
annually by clean energy
312,750
31 Dec 22: 9,000
Tonnes of carbon dioxide equivalent
avoided
122,530t
31 Dec 22: 14,349t
Tonnes of sulfur oxides
displaced
19,332t
31 Dec 22: 20,613t
CHAIR'S STATEMENT
"In the midst of all these challenges that 2023
has brought, the Company's unique strengths and market‑enduring
features enabled its cash flow generation to remain
robust"
Bernard
Bulkin
On behalf of
the Board, I am pleased to present the Company's Annual Report for
the year ended 31 December 2023.
The year under review has been defined by
macroeconomic, regulatory, and political uncertainties. Rising
interest rates, persistent inflation, and conflict in the Middle
East and Ukraine shaped the turbulent market backdrop in
2023.
However, this challenging market backdrop has
reinforced the diversification attributes of GSEO. The Company's
portfolio offers investors access to a diversity of technologies
and geographies, which provide an inbuilt hedge against
overreliance on single energy market declining trends or technology
supply chain issues. Furthermore, over 90% of the assets in the
portfolio are underpinned by inflation‑linked, private revenue
contracts providing the portfolio with high visibility of returns
supporting the progressive dividend for shareholders.
In the midst of all these challenges that 2023
has brought, the Company's unique strengths and market-enduring
features enabled its cash flow generation to remain robust, leading
to dividends being fully covered.
Financial performance
The Company has achieved robust financial
performance throughout the period under review.
This has been a year of building value in the
portfolio. The portfolio is now 58% operational and by early 2025,
this current portfolio is expected to be fully operational. As
additional assets under construction become operational, GSEO
should benefit from further capital growth and cash flow generation
from investments.
The Company's net asset value (NAV) per share
was 116.46p as at 31 December 2023, an increase of 7.6% from
the previous year. As at 31 December 2023, the Company has
achieved a 10% annualised NAV total return since IPO including
dividends, which is in line with the Company's target total
return.
Cash received from the portfolio assets by way
of distributions, which includes interest and dividends paid to VH
GSEO UK Holdings Limited ("GSEO Holdings"), the Company's holding
company, was £29.3m during the year (2022: £28.8m). The
Company's profit before tax for the year was £55.3m
(2022: £28.2m), resulting in earnings per share of 13.14p
(2022: 7.67p per share). The Company generated during the
period returns of 14.5% of opening NAV when taking into account
dividends and capital growth.
As at 31 December 2023, the Company remains
one of the lowest geared investment trusts in its sector with total
leverage at 1.9% of NAV.
The Board firmly believes the discount to NAV at
which GSEO's shares trade materially undervalues the Company. As
part of an active capital allocation policy, buybacks represent an
attractive investment opportunity and the Board announced a £10m
buyback on 15 September 2023. The Board consistently considers
the Company's capital allocation policy in relation to the discount
that GSEO shares trade on, noting that buybacks are NAV per share
accretive at wide discounts. The discount persisted post-period
which we believe is largely due to investor sentiment towards the
sector as a whole following the reversal of low interest rates. As
such, post period end, the Board extended the programme by a
further £10m to a total of £20m as it believes this to be in the
best interest of shareholders whilst also balancing the need to
maintain a strong balance sheet. As the interest rate environment
becomes clearer and rates start to fall, we expect investor
interest to return to the sector, and, specifically to GSEO, due to
the strong fundamentals and compelling long-term investment
strategy GSEO offers.
Dividend
The Company has a progressive dividend policy,
and is proud to have increased its dividend again, while remaining
fully covered. The Company announced a dividend of 1.42p per share
with respect to the period from 1 October 2023 to
31 December 2023, an increase of 2.9% vs. the prior quarter.
This brings the total dividend declared for the financial year
ending 31 December 2023 to 5.56p per share, exceeding the
dividend target of 5.52p per share.
The Company is targeting a dividend of 5.68p in
total for 2024, 2.9% higher than the dividend target for
FY2023.
Investment activity and portfolio
performance
The Company continues to focus on taking
advantage of the energy transition by investing in a diverse range
of projects across the energy value chain, including energy
infrastructure such as renewable energy, transmission and
distribution, and energy storage.
During the year under review, the Company's
investment activities and updates included:
Australian solar and battery storage
programme:
• The completion of the
construction of the first solar and storage hybrid system in
Australia, through the addition of a two hour 4.95MW battery energy
storage system ("BESS").
• The commissioning
of the solar farm component of the three New South Wales sites.
Installation works for the co-located BESS have commenced and the
sites are expected to be hybridised within the year.
Brazilian solar PV assets:
• The completion of the
tenth solar site, which brought the total operational capacity of
the Brazilian sites to 27.3 MW.
• The construction
of three of the remaining six sites is progressing well, with
commissioning expected within H1 2024. Construction of the
remaining three sites will commence upon completion of the three
sites currently under construction.
Brazilian hydro facility:
• The Brazilian
facility outperformed expectations in the period.
• Furthermore,
SUDENE (Superintendency for Development of the Northeastern Region)
tax incentives were secured for a further eight years to
2032.
United Kingdom flexible power and carbon
capture and reuse programme:
• The project successfully
won the UK's Capacity Market Auction T-4 at a price of £63/kW/year
indexed to inflation.
• Following the
issues faced by the project's incumbent EPC contractor in Q2 2023,
the Company hired a new EPC contractor to complete construction,
and the need to complete the civil works at the project site
resulted in a payment of additional premia, leading to an overall
increase in CAPEX of £16m for the project. Despite this increase,
the Investment Manager still expects returns to be in line with
original expectations, due to firmer expectations for additional
revenue streams of the project.
• My fellow Board
member Margaret and I visited the site in November 2023, and we
were highly pleased with the progress. All equipment was on site
and the works were advancing well towards the expected
commissioning of the integrated plant with CCR slated for the
summer.
United States terminal storage
programme:
• The assets
continued their strong performance since acquisition in April 2021,
through execution of the buy, expand and optimise
strategy.
Shareholder engagement and corporate
governance
The Board and the Company constantly aim to
improve the dialogue with shareholders and steps have been taken to
enhance disclosure and detail of communication, as well as support
marketability and liquidity of the shares, through active
engagement with existing and prospective investors. The Board, the
Investment Manager and the Company's broker remain available to
engage with shareholders as appropriate.
The Board and I were delighted to welcome
Daniella Carneiro to the Board of GSEO in January 2023 as an
independent non-executive Director, bringing extensive experience
advising governments and companies on how to integrate ESG
principles into business practice.
The Board was pleased to announce the
appointment of Richard Horlick as the Senior Independent Director
with effect from 1 January 2024. Richard joined the Board as a
non-executive Director in October 2020, and is the Chair of
the Management Engagement Committee and a member of the Audit,
Nomination and Remuneration Committees. Richard has had a long and
distinguished career in the investment management industry holding
executive roles in a number of global financial institutions as
well as being a seasoned board member in the closed-end listed
funds sector.
Sustainability and ESG
GSEO qualifies as an Article 9 fund under
SFDR. As at 31 December 2023, 51.2% of the Company's
investments were aligned with EU Taxonomy economic activities. The
disclosures related to TCFD, SFDR and the EU taxonomy can be found
in the full Annual Report and Accounts for the year ended 31
December 2023.
The fund is a leader in sustainable investing.
It is unique in selecting investments on sustainability criteria
which meet target returns, and diversification both in geography
and technology. Three years following the IPO of GSEO, thanks
to our shareholders, we are already making a real difference to
communities in Brazil, bringing cleaner fuel for Mexico, and
enhancing grid stability in Australia.
As a stronger focus is put on supply chain
transparency and traceability, as well as transparent reporting,
the Investment Manager has sophisticated data infrastructure tools
allowing efficient monitoring of the sustainable impact of its
investments and the ability to report accurately on metrics such as
carbon emissions avoided, renewable energy generated and life cycle
analysis.
Outlook
We are witnessing early signs that financial
markets are entering a new phase with inflation cooling and an
easing interest rate outlook. These macroeconomic green shoots,
coupled with the underlying strengths of the Company, lead the
Board to look forward to the year ahead with confidence.
GSEO is well-positioned to capitalise on these
positive developments, with a strong pipeline of investment
opportunities already identified by the Investment
Manager.
The Investment Manager is actively pursuing
activities to maximise shareholder returns, and the Board continues
to monitor the share price discount to NAV.
I and my fellow Directors would like to thank
all shareholders for their continued support.
Bernard Bulkin
Chair
4 April 2024
INVESTMENT MANAGER'S REPORT
"The Victory Hill
approach to investing relies on the belief that the energy
transition to net zero is a global phenomenon much akin to the
industrial revolution in its scale, depth and wide ranging
significance."
Richard
Lum
Market backdrop and outlook
The outlook for sustainable energy investment
remains very robust with attractive opportunities widely available,
despite the challenging macro environment in 2023.
Over 2023, we have witnessed a recovery from the
pandemic slump in economic activity, and constraints to energy
systems caused by the global energy crisis precipitated by the
invasion of Ukraine by Russia. The recovery has provided a
significant boost to the ongoing electrification of our energy
systems globally, and to investments in clean energy as a key
subset of this shift. According to the estimates of the IEA in
their World Energy Investment 2023 report, annual clean energy
investment is expected to have risen much faster than investment in
fossil fuels over the period since 2021.
The IEA estimates that full year investments in
the energy sector will account for US$2.8 trillion in 2023, of
which more than US$1.7 trillion will be invested in clean energy,
including renewable power, nuclear, grids, storage, low carbon
fuels, energy efficiency schemes and electrification. Such
investments will be bolstered by a range of factors including the
introduction of the Inflation Reduction Act in the US and improved
economics for clean energy projects.
Despite benign conditions for sustainable
energy, globally the wider infrastructure sector did get affected
by a higher interest rate environment in 2023 which impacted
reported NAVs and also added pressure on cash flows available for
distribution in investment companies with high leverage in their
portfolios. This has seen knock on effects on the investability of
some large-scale projects in the clean energy space, particularly
those backed by long term government related tariffs and
subsidies.
Inflationary pressures were indeed a major
factor in 2023, however it seems clear that we have now witnessed a
topping out of inflation with UK inflation down to 4% in
December 2023, falling from its height of 11% in
October 2022. Whilst not completely out of the system, it is
fair to say that there may be greater optimism that the
higher-for-longer mantra may be overstating the medium-term
picture. We anticipate this will likely lead to greater investor
confidence in the infrastructure space during the course of 2024,
with further capital able to be raised for deserving clean energy
projects globally.
The Approach
The Victory Hill approach to investing relies on
the belief that the energy transition to net zero is a global
phenomenon much akin to the industrial revolution in its scale,
depth and wide-ranging significance. Such a shift creates
dislocations in each energy market throughout the world. We term
this dislocation a structural demand gap in that energy market,
which we aim to fill through our asset investments, consequently
achieving a differentiated return and making an impact. During the
course of 2023, we witnessed several energy markets in which GSEO
is invested demonstrating behaviours which point to structural
demand gaps. In Australia, the first of our hybridised solar plus
battery storage assets came onstream in Q3 2023, and set about
capturing attractive pricing in peak demand hours in the evening in
South Australia.
At the heart of the Company's strategy is the
motivation to provide investors with access to long term
infrastructure cashflows underpinned by an array of diversified
technologies and geographies. This provides shareholders with
embedded downside risk protection, as well as the ability to
achieve differentiated returns by targeting structural demand gaps
in some of the world's most liberalised energy markets.
To enable this, the Company enters into
joint-venture agreements with local energy developers or operating
partners, each of whom have unique insights into local energy
markets as well as proven technical and commercial experience of
developing, constructing and operating sustainable energy projects.
Furthermore, all operating partners dedicate their professionals,
comprising a headcount of over 100 globally, to managing GSEO's
projects.
GSEO's portfolio was designed to ensure minimal
exposure to interest rates through involving no structural debt at
fund level, and minimal gearing at the assets themselves.
Currently, aggregate gearing of 1.9% at fund level (via 7.5%
gearing at our US terminal storage asset) has ensured that the
higher interest rate environmental has had no discernible impact on
our portfolio performance. Furthermore, as all of the revenue
contracts of our assets are inflation-linked, the higher
inflationary environment has flowed into higher revenues for our
assets, ensuring that our portfolio as a whole has not been
negatively impacted.
As a result of this unique approach, the higher
inflation environment was positive for the portfolio as all the
long-term contracted cashflows in the portfolio are linked to local
inflation, with no caps or collars. Such long-term revenues and the
strong cashflow generation underpin the GSEO portfolio.
GSEO's transparent valuation methodology relies
on inputs extracted from independent and publicly available
sources, such as the risk-free rate, inflation assumptions and
country risk premia, which ultimately result in accurately
reflecting the current market environment. The Company has also not
changed its asset life assumptions in its valuation of assets since
IPO.
The treasury function was also effectively
managed with interest on deposits helping mitigate any cash drag
during the period.
Performance summary
Active asset management, robust operational
performance and the persistent supply-demand imbalance in some of
the key underlying geographies were key themes throughout the year
which drove the upward NAV revision in 2023.
2023 has been a year of building value in the
portfolio. Construction challenges in Brazilian solar PV assets and
the UK flexible power plant have been overcome and despite some
higher costs suffered, future returns are expected to be in line
with the original target. This is a result of careful investment
processes and built-in contingencies, for example, performance
bonds and a well-resourced and experienced team with strong
in‑house legal and financial capability. The portfolio is now 58%
operational and by early 2025, this current vintage of investments
will be fully operational.
In Brazil the Company's operational hydro and
distributed solar sites captured a segment in the market requiring
further investment to ensure that Brazil's need for flexible power
and upgraded remote generation is best served. In the UK, we are
making headway in the construction of our first flexible gas-fired
power plant with carbon capture and reuse, ensuring that the
demands for flexible power in the UK system, as well as the
structural short supply for purified food grade CO2, can
be met.
Outlook
Moving forward into 2024, our outlook is shaped
by the consequential abatement of the higher inflationary
conditions of the last 18 months and greater policy support
for clean energy investment, combined with the continuing
occurrence of structural gaps we have already identified in
liberalised energy markets as they undertake the transition. In the
first few months of 2024, we have already witnessed greater
openness in the cross-border trade between the US and Mexico,
driven by the upcoming elections in both countries, which has had a
positive effect on volumes received by our US terminal storage
assets. We expect greater impetus to be given to opportunities for
our midstream presence in the US with the Inflation Reduction Act's
support for low-carbon fuels such as biofuels and sustainable
aviation fuels, each of which requires the buildout and repurposing
of fuels storage and transportation infrastructure.
In the UK, the 2023 winter has demonstrated the
continuing requirement for flexible forms of power generation, as
often renewable power supply at peak hours is hampered by lower
wind and solar yields, resulting in the continuing need for the
system operator to call on conventional sources of power such as
gas, and indeed coal. We foresee this trend continuing well into
other seasons in 2024, and being present for our UK investment to
harness as it comes onstream later in the year.
We firmly believe the opportunity to create
value and impact through investments in sustainable energy
infrastructure globally has not diminished over time. Indeed the
Company's pipeline of new opportunities remains robust and is only
constrained by its ability to raise further capital to deploy into
new investment programmes.
Brazilian solar PV assets:
• During the period under
review, the construction of the tenth site was completed bringing
the total operational capacity to 27.3MW. These ten sites supply
energy to creditworthy commercial and industrial energy users and
large multinational corporations with operations in Brazil. The
average length of these contracts is 20 years and linked to local
inflation.
• One of the project's EPC
contractors faced financial difficulties during the period, which
required the Company to halt delivery of two of the sites that were
initially intended to be relocated. As a result of this, a
provision had been recognised for these assets for
£4.5m.
• Together with the operating
partner, Victory Hill acted decisively in finding a replacement EPC
contractor to finalise the six remaining projects in an orderly
manner - three of which are expected to be completed in H1 2024,
bringing the portfolio total installed capacity to 40.5MW.
Construction for the last three sites will commence upon completion
of the three sites that are currently under
construction.
• The programme remains on
track to deliver returns above the Company's target total NAV
return of 10% once fully completed.
Brazilian hydro facility:
• During the period,
the operating partner, Paraty, successfully completed the full
transition of operations from the vendor, EDP, at a lower cost than
anticipated and in a shorter than expected time frame.
• The Company
successfully implemented value creation efforts and was notably
able to secure tax incentives for a further eight years, as well as
optimise operating costs.
• The Investment
Manager continues to assess the market to implement our
value-creating commercial strategy for the uncontracted volumes
from 2027 onwards. The volatility of the PPA market in Brazil
offers windows of opportunity to secure attractive terms in the
long-run. Victory Hill is seeing positive signs with recent
improvements in PPA prices that have been low due to unusual high
levels of rain in the Southeast region of the country.
• On the sustainability
front, community engagement initiatives were conducted in
preparation to obtain the International Hydropower Association
Sustainability Standard certification in 2024. Events such as fish
monitoring and a transportation study were conducted, awareness
workshops as well as environmental education events were held for
the local community and employees. The ISO 45001 health and safety
management system certification, as well as the ISO 14001
environmental management certification and ISO 9001 quality
management system certification, were successfully
renewed.
US terminal storage assets:
• The Company continued to
perform operational optimisation initiatives during the period such
as reducing overtime expenses and enhancing operational software
and equipment to automate the terminals' operations:
- Temporary workers
were contracted as permanent staff, resulting in lower overtime
worked and better labour conditions.
- New offices were
added to one of the sites to enhance management, training
operations, and safety oversight.
• The programme's
operating partner, Motus, has initiated the process to obtain ISO
45001 health and safety management system certification as well as
ISO 14001 environmental management certification on its operations,
leading to safer and improved operational practices.
Australian solar PV with battery storage
assets:
• The Australian programme
is comprised of five sites. In Q3 2023, the Company delivered on
time and on budget one of the first hybrid solar and battery energy
storage systems ("BESS") in South Australia, by adding a two hour
4.95MW BESS.
• Following the
completion of this project, the solar and storage hybrid system
captured attractive power prices in the intraday market. In
November 2023, the average captured price for BESS was over
A$200/MWh, which is 4 times higher than the average captured prices
for solar during the same period.
• The programme was
further expanded with three new assets in New South Wales (NSW).
The solar farm component of these three sites completed
commissioning post-period and became operational.
• Installation works
for the co-located BESS, on the three new assets in NSW, commenced
post-period and the sites are expected to be hybridised within the
next 12 months. It is expected that the assets will be able to
derive further value from the structural supply-demand gap
Australia is facing as it transitions to a cleaner energy
system.
UK flexible power with CCR asset:
• During the period
under review, construction continued on this asset with all
equipment already on site. Key project partners include Rolls
Royce, Mitsubishi Turboden, Climeon, Asco, Axpo and Buse
Group.
• As part of our
commercialisation strategy of securing long-term contracted cash
flows pre‑completion, the project successfully won the UK's
Capacity Market Auction T-4 at a price of
£63/kW/year indexed to inflation.
• As previously
highlighted, the incumbent EPC contractor faced financial
difficulties last year as a result of the challenging macroeconomic
conditions for the construction industry, notably high inflation,
high interest rates and supply chain disruptions. Following such
issues, Victory Hill alongside the operating partner acted quickly
to identify and hire a new EPC contractor to complete construction.
The situation with the incumbent EPC contractor has also served as
a good test of Victory Hill's joint-venture model, with local
operating partners on-the-ground able to proactively identify
potential issues and mitigate further project delays.
• The replacement
contractor needed to complete the civil works at the project site
resulting in a payment of additional premia and led to an overall
increase in CAPEX of £16m for the project. However, the Investment
Manager still expects returns to be in line with original
expectations despite this increase, due to firmer expectations for
additional revenue streams of the project.
Portfolio operational and financial
performance
The acquisition of the Brazilian hydro facility
was completed in December 2022. The period ended
31 December 2023 has seen the first full year of operations
under the Company's ownership. With the successful transition of
the asset by the operating partner, financial performance in the
period has exceeded expectations.
The first full year of operations of the
Brazilian solar PV assets is reflected in an increased generation
in the period. Energy production has however come in behind
expectation as the assets ramp up to full production.
The operational performance of the two
operational Australian sites has been impacted due to the
implementation of the BESS on the Mobilong site and substation
works on the Dunblane site which resulted in a network outage for
1 month.
The US terminal storage expansion was completed
in December 2022. The period ending 31 December 2023 saw
the first full year of operation at the expanded site. These assets
benefit from inflation‑linked availability contracts and are
situated in a key aggregation hub in South Texas for Mexico-US
cross-border product movements.
Summary of operational & financial
performance
|
31 December 2023
|
Programme:
|
Brazilian
hydro facility
|
Brazilian solar PV assets
|
Australian solar PV with battery storage
assets
|
US
terminal storage assets
|
UK
flexible power with CCR assets
|
Number
of
operational assets
|
1
|
10
|
2
|
2
|
0
|
Number of
assets under construction
|
0
|
6
|
3
|
0
|
1
|
Production/throughput
|
789,654 MWh
|
41,602 MWh
|
19,227 MWh
|
12,831,553 bbls
|
N/A
|
Revenues
(GBPm)
|
28.59
|
2.07
|
1.46
|
18.64
|
N/A
|
Average
revenue per production unit (expressed in GBP)
|
36.20
|
49.65
|
75.79
|
1.45
|
N/A
|
Note: The
production, revenues, and average revenue per production unit
reflect assets under operation as at 31 December 2023
only.
The FX rate used for revenues is as at
31 December 2023. The energy production figure for the
Brazilian solar PV assets represents the total generation that was
invoiced to the clients; it is directly related to the revenue
generated by the assets. The energy production figure for the
Brazilian hydro facility represents the total gross
generation.
Portfolio outlook
Based on the underlying free cash flow
generation of the portfolio programmes, dividend coverage is
expected to be 1.1 to 1.2 times in 2024 rising and strengthening
further in subsequent years.
At the heart of the Company's strategy is the
motivation to provide investors with access to long term
infrastructure cashflows underpinned by an array of diversified
technologies and geographies. This provides shareholders with
embedded downside risk protection, as well as the ability to
achieve differentiated returns by targeting structural demand gaps
in some of the world's most liberalised energy markets.
Revenue contracts in the portfolio have been
entered into with long tenors, often over 15 years, with
creditworthy offtakers. As demonstrated in the graph below,
contracted revenues account for over 90% of the total revenues in
the portfolio, with uncontracted revenues relating mostly to the
Australian solar and battery storage programme, where we seek to
benefit from market dynamics related to a disorderly market
transition to net zero.
Net Asset Value
The NAV of the Company increased from £457.2m at
31 December 2022 to £483.8m at 31 December 2023. The
total NAV return including reinvestment of dividends in the
financial year is 14.5%. Since IPO, the total NAV return at
31 December 2023 is 10.0%. The key NAV drivers for the period
under review were:
• A net increase in
the fair value of investments and distributions from investments of
£64.3m.
• Discount rates dropping
during the period under review, driven by lower risk-free rates,
inflation outlook, and lower Brazil country risk
premium.
Key sensitivities
The below chart illustrates the sensitivity of
the Company's NAV per share to changes in key input assumptions for
assets in operation as at the year end. In performing the
sensitivity analysis, it is assumed that potential changes occur
independently of each other with no effect on any other assumption,
and that the number of investments in the portfolio remains static
throughout the modelled life.
Discount rate
A range of discount rates are applied in
calculating the fair value of the investments, considering risk
free rates, country-specific and asset-specific risk premia and
betas. Discount rates for operational assets at 31 December
2023 are 6.9% in the US, 7.7% in Australia, 9.5% for the Brazilian
hydro facility and 9.7% for the Brazilian solar PV assets.
A 1.5% increase (decrease) in discount rates across the
portfolio decreases (increases) NAV by 10.42p (8.34p).
Inflation
The sensitivity assumes a 1% increase or
decrease in long-term inflation relative to the base case of 1.6%
for the US assets, 2.4% for the Australian assets and 3.0% for the
Brazilian assets for each year of asset life. A 1.0% increase
(decrease) in inflation rates across the portfolio increases
(decreases) NAV by 7.31p (6.25p).
Operating expense
The sensitivity assumes a 5% increase or
decrease in operating expense relative to respective contracts and
budgets for each asset. A 5% increase (decrease) in operating
expenses across the portfolio decreases (increases) NAV by 1.95p
(1.94p).
Foreign exchange
The sensitivity assumes a 10% increase or
decrease in foreign exchange movements against the sterling. The
Company seeks to manage its exposure to foreign exchange movements
by hedging short-term distributions from non-sterling investments
to maintain a healthy dividend cover but, due to long-term
inflation-linked revenues stemming from these investments, the
Company does not hedge the principal value of the investments.
A 10% increase (decrease) in foreign exchange rates across the
portfolio decreases (increases) NAV by 7.15p (8.74p).
Asset life
The sensitivity assumes a 1 year increase
or decrease in asset life relative to the base cases of
30 years for the US terminal storage assets, 25 years for
the Australian solar PV with battery storage assets, Brazilian
solar PV assets and Brazilian hydro facility. A 1 year
increase (decrease) in asset lives across the portfolio increases
(decreases) NAV by 1.18p (1.23p).
Resource sensitivity
The portfolio has little resource risk
sensitivity given the availability based nature of the US terminal
storage assets, the base load generation profile of the Brazilian
hydro facility, the UK flexible power with CCR assets, and the
addition of battery storage to the Australian solar PV assets to
mitigate solar intermittency risk.
GSEO BUSINESS MODEL &
STRATEGY
Business model at a glance
1
A unique investment model…
- We don't aim to tie
investments to sustainability; rather we start with sustainability
and look for investments
- Our investments always
meet a structural demand gap in the local energy markets
- We create value for
shareholders and a clear impact for the environment and society by
targeting assets that can be optimised and/or expanded
2
…that supports the energy transition from all
angles…
- Geography: The energy
transition is a global phenomenon that needs to be tackled
globally. GSEO invests across jurisdictions around the world,
creating a highly diversified portfolio
- Technology: GSEO's
investments go beyond just core renewables and target a diverse
range of proven sustainable energy technologies in order to play a
part in the global transition towards net zero
- Investment Stage: To
accelerate the transition, the Company focuses on both the
construction of new assets as well as the acquisition of
operational assets
3
…creating a clear environmental and social
impact…
- The UN SDGs are the
blueprint for driving GSEO's sustainability-focused investment
strategy, and creating a positive environmental and social impact
as one of the core investment decision criteria
- Auditable monitoring
framework to assess such impact
- GSEO is classified as an
Article 9 fund under the EU Sustainable Finance Disclosure
Regulation ("SFDR")
4
…while generating sustainable and attractive
financial returns
- NAV target return of 10%
unlevered and net of the Company's costs and expenses
- Consistent annual
dividend growth since IPO, supported by a progressive dividend
policy which aims at increasing dividends each year
- Portfolio revenues offer
predictability, with more than 90% of revenues
contracted
- Assets in the portfolio
have a significantly high degree of inflation linkage, protecting
real returns
GSEO joint-venture model
Joint-venture model which levers multiple local
operating partners with unique insights in local energy
markets
Key advantages
• Long-term alignment of incentives with
the Operating Partner
• Partnership with highly skilled
developers with specific insights into an energy market and
institutional execution abilities
• Access to pipeline of projects
developed by those partners
• Efficient deployment over a tangible
pipeline reducing cash drag
• No upfront development premium but
conversion of development costs in a stake in the JV
• Reduced operational risk with dedicated
on-the-ground attention to the assets enabling a thorough value
creation process
GSEO STRUCTURE & INVESTMENT
POLICY
The Company seeks 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:
i. investments that
support the pursuit and attainment of the United Nations
Sustainable Development Goals (the "SDGs") where energy and energy
infrastructure investments are a direct contributor to the
acceleration of the energy transition towards a net zero carbon
world; and
ii. investments that can be
categorised into one or more of the four investment pathways that
guide the Company's investment strategy. These investment pathways
are (1) Addressing Climate Change, (2) Energy Access, (3) Energy
Efficiency, and (4) Market Liberalisation,
and must also fall into one or a combination of
the following categories:
i. power, heat and green
gas producing assets reliant on, but not limited to, wind, solar,
biomass, natural gas and hydropower technologies;
ii. production and
refinement of fuels derived from biomass sources;
iii. energy storage infrastructure such
as containment and non‑processing facilities for liquid and gas
fuel sources, power storage utilising battery or gravity‑based
technologies;
iv. energy transportation
infrastructure such as pipelines, interconnectors and
micro‑distribution grids;
v. distributed energy
sources (heat, power, gas and steam) which are produced close to
where it will be used, rather than at a large centralised plant
elsewhere, delivered through a centralised grid infrastructure;
and/or
vi. equipment that is installed
at the premises or on site, directly connected to the premises
including, but not limited to, CHP units, CCHP plant schemes, HVAC
units, lighting equipment, biomass boilers and steam raising
boilers (including intermediate pressure (IP) steam
processors),
in each case, either already operating, in
construction or ready-to-build ("Sustainable Energy Infrastructure
Investments").
The Company looks to achieve NAV growth by
investing in higher yielding Sustainable Energy Infrastructure
Investments that are operational, in construction or
"ready-to-build" but does not invest in assets that are under
development (that is assets that do not have in place required grid
access rights, land consents, planning and regulatory consents and
commercial arrangements).
The Company acquires a mix of controlling and
non-controlling interests in Sustainable Energy Infrastructure
Investments that are held within SPEs which the Company invests
through equity and/or shareholder loan instruments. In certain
instances, the SPE may hold one or more Sustainable Energy
Infrastructure Investments of a similar type.
The Company invests in SPEs structured as joint
venture investments (JVs) or co-investments, including through
minority stakes, where this approach is the only viable approach.
Where the Company participates in a JV or a co-investment, it seeks
to secure its rights through obtaining protective provisions in
shareholders' agreements, joint venture agreements, co-investment
agreements or other transactional documents, as well as board
representation for the Investment Manager, and with the aim of
trying to ensure that the investment is managed in a manner that is
consistent with the Investment Policy.
Diversification
The Company 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 facilitate the achievement of the
SDGs.
Investment
restrictions
The Company can invest (calculated at the time
of investment) up to:
• 25% of Gross Asset
Value in any one Sustainable Energy Infrastructure
Investment;
• 40% of Gross Asset
Value in a single technology;
• 35% of Gross Asset
Value in assets that are in construction or
"ready-to-build";
• 40% of Gross Asset
Value in assets that are located in any one country;
• 30% of Gross Asset
Value in assets that are owned or operated by a single
developer;
• 10% of Gross Asset Value
in assets that are located in countries that are not members of the
EU, OECD, OECD Key Partner countries or OECD Accession countries;
and
• 10% of Gross Asset
Value in other closed-ended investment funds which are listed on
the Official List.
No investments are made in extraction projects
for fossil fuel or minerals.
Non-compliance resulting from changes in the
price or value of investments following investment will not be
considered as a breach of the investment restrictions.
The Company holds its investments through one or
more SPEs and the investment restrictions are applied on a
look-through basis.
In the event of any breach of the investment
restrictions applicable to the Company, shareholders will be
informed of the remedial actions to be taken by the Company through
an RNS announcement.
Cash
management
Whilst 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 may be invested on a
temporary basis in:
• cash or cash
equivalents, namely money market funds (as defined in the
'Guidelines on a Common Definition of European Money Market Funds'
published by the Committee of European Securities Regulators (CESR)
and adopted by the European Securities and Markets Authority
(ESMA)) and other money market instruments (including certificates
of deposit, floating rate notes and fixed rate commercial paper of
banks or other counterparties having a "single A" or higher credit
rating as determined by any internationally recognised rating
agency selected by the Board which, may or may not be registered in
the EU); and
• any "government
and public securities" as defined for the purposes of the FCA
Rules,
provided that not more than 20% of the Gross
Asset Value, calculated at the time of investment, may be so
invested, following the deployment of the Company's net issue
proceeds.
Borrowing
policy
The Company may make use of long-term limited
recourse debt for Sustainable Energy Infrastructure Investments to
provide leverage for those specific investments. Such long-term
limited recourse debt will not, in aggregate (calculated at the
time of entering into or acquiring any new long-term limited
recourse debt), exceed 60% of the prevailing Gross Asset
Value.
In addition, the Company may make use of
short-term debt, such as a revolving credit facility, to assist
with the acquisition of suitable opportunities as and when they
become available. Such short-term debt will be subject to a
separate gearing limit so as not to exceed 30% of the Gross Asset
Value at the time of entering into (or acquiring) any such
short-term debt.
In circumstances where these aforementioned
limits are exceeded as a result of gearing of one or more
Sustainable Energy Infrastructure Investments in which the Company
has a non-controlling interest, the borrowing restrictions will not
be deemed to be breached. However, in such circumstances, the
matter will be brought to the attention of the Board who will
determine the appropriate course of action.
Use of
derivatives
The Company may enter into hedging transactions
for the purposes of efficient portfolio management, which may
include (as relevant) short-term currency hedging (as described in
the last published prospectus of the Company), interest rate
hedging and power price hedging. The Company does not intend to use
hedging or derivatives for investment purposes but may from time to
time use risk management instruments such as forward contracts and
swaps (collectively "Derivatives") to protect the Company from any
fluctuations in the relative value of currencies against Pound
Sterling, as well as to hedge against interest rates and power
prices. The Derivatives must be traded by private agreements
entered into with financial institutions or reputable entities
specialising in this type of transaction and will be limited to
maturities no longer than 12 months. The Company will target
investments that provide sufficient asset-level returns to
compensate for longer term fluctuations in exchange rates.
Furthermore, asset level returns where possible will be linked to
local inflation rates.
Derivatives may be employed either at the level
of the Company, at the level of the relevant SPE or at the level of
any intermediate wholly owned subsidiary of the Company.
All hedging policies of the Company will be
reviewed by the Board and the Investment Manager on a regular basis
to ensure that the risks associated with the Company's investments
are being appropriately managed. Any derivative transactions
carried out will only be for the purpose of efficient portfolio
management and will not be carried out for speculative
purposes.
Amendment to
investment policy
As required by the Listing Rules, any material
change to the investment policy of the Company will be made only
with the approval of the FCA and shareholders, by ordinary
resolution and will be notified to HMRC. If a change to the
investment policy is material for the purposes of the AIFM Rules,
the Investment Manager will need to notify the FCA prior to the
implementation of such change and the change may not be implemented
until the period of time prescribed in the AIFM Rules has
elapsed without the FCA having objected to the change.
Status of the Company
The Company was incorporated on 30 October
2020. It is registered as a public limited company and is an
investment company within the terms of section 833 of the Companies
Act 2006. It has been approved by HMRC as an investment trust
company in accordance with sections 1158/1159 of the Corporation
Tax Act 2010. The Directors are of the opinion that the
Company has conducted its affairs in compliance with sections
1158/1159 during the year ended 31 December 2023 and intends
to continue to do so.
The Company's shares trade on the premium
segment of the Main Market of the London Stock Exchange. It is a
member of the Association of Investment Companies (the "AIC"). The
Company and the Board are governed by its Articles of Association
(the "Articles"). Any amendments to the Articles must be approved
by shareholders by way of a special resolution.
Employees, human rights, social and community
issues
The Board recognises the requirement under
Companies Act 2006 to detail information about human rights,
employees and community issues, including information about any
policies it has in relation to these matters and the effectiveness
of these policies. These requirements, which may apply to the
Company's investments, do not apply to the Company as it has no
employees, all the Directors are non-executive and it has
outsourced all its functions to third party service providers. The
Company has therefore not reported further in respect of these
provisions.
The Company is not within the scope of the
Modern Slavery Act 2015 because it has not exceeded the
turnover threshold and therefore no further disclosure is required
in this regard. The Directors are satisfied that, to the best of
their knowledge, the Company's principal suppliers comply with the
provisions of the Modern Slavery Act 2015 and maintain
adequate safeguards in keeping with the provisions of the Bribery
Act 2010 and Criminal Finances Act 2017.
Details about the Company's approach to
sustainability are set out in the full Annual Report and Accounts
for the year ended 31 December 2023.
Diversity
As at 31 December 2023, the Board comprised
three female and two male Directors.
It is the Company's aim to have an appropriate
level of diversity on the Board. The Board welcomes the
recommendations from the FTSE Women Leaders Review on gender
diversity on boards and the Parker Review about ethnic
representation on boards. The Company conformed with the gender and
ethnic diversity targets during the year under review. See the full
Annual Report and Accounts for the year ended 31 December 2023 for
further details of the Board's diversity policy and compliance with
the recommended diversity targets.
As the Company has no employees, there is
nothing further to report in respect of gender representation
within the Company.
GSEO INVESTMENTS
The case for sustainable liquid storage assets
in the US
Programme overview
In April 2021, GSEO completed the
acquisition of two operating liquid storage terminals with a total
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
sites have a useful life of at least 30 years, and the
operating partner is Motus Energy LLC, which combines the team
that built and operated the assets for the previous owner and an
established cross-border fuel exporter. Since acquisition, the
capacity of the terminal has been expanded to 895,000
barrels.
Operating partner overview
Motus Energy LLC is a US midstream
specialist company formed by a team which combines the team that
built and operated the VH liquid storage assets for the previous
owner that have 25 years' average experience in investing,
constructing and operating midstream infrastructure assets
globally. Motus support the energy transition by participating in
the decarbonising process of high sulfur fuels by facilitating its
storage to be then processed into lighter and cleaner fuels by
modern refineries in the US and by developing new midstream
infrastructure with the intention to store and distribute
transition fuels such as renewable diesel and sustainable aviation
fuel.
In conversation with Richard Lum, Victory Hill
Managing Partner and co-CIO
Q: Why did you decide to invest in these
assets and how do they contribute to support the energy
transition?
Fundamentally, this investment seeks to make a
positive sustainability impact on the Mexican fuels value chain. We
decided to invest in the US terminals as their location provides a
fuel aggregation point that facilitates the transfer of high sulfur
oil currently produced at a surplus in the Mexican fuel market. As
a result of the terminals' proximity, northbound flows are destined
for more abundant and technologically advanced refining capacity in
the United States, which can turn the "dirty" fuels from Mexican
refineries into cleaner products.
It is important to remember that Mexico still
burns high sulfur content fuels in its transportation sector and
for its energy generation industry, resulting in the creation of
significant Particulate Matter (PM) 2.5 air pollution and causing
respiratory and health problems, particularly in conurbation areas
such as Mexico City. The US terminal assets aim to reduce the
environmental and health threats that high sulfur fuels have on
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, SO2, and NO2
emissions.
Q: Since acquisition, what have you done
to create additional value?
We have expanded the storage capacity by 370,000
bbls, increased the volume throughput by adding capabilities to
offer 24/7 operations, extended existing tenants' contracts at
higher rates, optimised ancillary services revenues, reduced costs
by modernising the operations' hardware and software, improved
internal controls and procedures, and added asset-based leverage,
among other initiatives.
Q: What are the expected returns for this
programme and what is this number conditional upon
achieving?
Based on the current contractual
arrangements, we expect the returns from this project to remain in
excess of GSEO's target total NAV return. We expect to see
additional uplift by culminating the terminals expansion and
further optimising the commercial terms and operations of the
terminals.
Q: What is the future of this
asset?
First we would like to use the available land
within the terminals to add more storage capacity. We would also
like to improve the operation capabilities to speed up the loading
and unloading operations and increase the volume
throughput.
In the longer term, the tanks we hold can be
retrofitted to store greener fuels such as renewable diesel, and
sustainable aviation fuel (SAF).
Q: Are investors exposed to hydrocarbons
by having this asset in the portfolio?
No, there is no commodity exposure. The terminal
benefits from availability-based offtake agreements.
The case for flexible power with carbon capture
and reuse (CCR) in the UK
Programme overview
In the UK, we have chosen to contribute to the
energy transition by supplying reliable baseload power without
adding to carbon emissions. In 2021, GSEO completed its acquisition
of a 10MW flexible power project under construction in
Nottinghamshire, uniquely combined with carbon capture and reuse
("CCR") technology. Commissioning of the integrated plant with CCR
is expected over the summer. Since acquisition, a 15-year power
offtake and gas supply agreement was signed with Axpo and a first
batch of sparkspread hedges were secured, locking in healthy
margins for the project. In addition, a 15-year offtake agreement
for food-grade CO2 was also signed on attractive terms
with an industrial gas specialist group. Additional revenues can be
sourced from grid ancillary services such as balancing mechanism
and capacity market; and additional margin can be captured via
private wire to local industrial users. This programme is being
funded without public subsidy or government support.
Operating partner overview
Landmark Power Holdings (LMPH) was established
in 2019 by UK power industry veterans with the purpose to help to
build a circular economy, by applying new methodologies to proven
technologies in energy production. LMPH supports the transition to
net zero by supplying dispatchable, low carbon energy that enables
more renewable energy production while contributing to a circular
economy, by eliminating inefficiencies in production, ensuring that
every input is used to its maximum potential and treating all
production waste as a profitable resource. LMPH develops, builds
and operates decarbonised flexible power plants, that helps bridge
the gap between conventional and greener energy solutions by
providing essential support for increasing levels of renewable
power.
In conversation with Richard Lum, Victory Hill
Managing Partner and co-CIO
Q: Could you explain how this program
contributes to the energy transition in the UK and why such
technologies instead of wind or solar?
This flexible power and carbon capture and
re-use programme allows us to supply reliable flexible power into
the grid, solving for intermittency issues that come with renewable
power generation (such as solar and wind) in a net zero
manner.
Q: What is so unique about this
project?
The project is uniquely positioned to solve for
two issues facing the decarbonisation of industry in the UK.
Firstly, the gas fired generators are able to provide flexible
power into the grid to help firm the grid in a net zero way, as its
CO2 emissions are captured and repurposed. The provision
of flexible power services is important in the UK given the success
of renewable power penetration in the energy mix from the rollout
of wind and solar projects. This has resulted in the fact that
intermittency and grid frequency stabilisation are becoming much
more of an issue for the system operator. When the wind doesn't
blow or the sun doesn't shine, the system's supply and demand
dynamics fall out of kilter, which may result in price spikes and
the potential for curtailed supply and indeed trips on the
system.
Secondly, the captured CO2 is
scrubbed into purified food grade CO2, which can then be
commercialised via sales to the industrial gases market, where
CO2 is seen as a precious industrial commodity, used in
the food and beverage manufacturing chain. Currently, there is a
structural shortage of food grade CO2 produced locally
in the UK, as we have seen the closure of major producers of
ammonia in the country. The project therefore provides a
replacement supply, and one that is produced with a much smaller
emissions footprint than the traditional manner of
production.
Q: How could this asset be repurposed in
the future if needed?
The project utilises gas fired power generation
units, which can transition to utilising net zero biomethane fuel
sources and potentially hydrogen fuel sources in the
future.
The case for the Brazilian renewable energy
market - hydropower and distributed generation (DG) solar
plants
Programme overview
I - A Brazilian hydro facility
In 2022, GSEO acquired a 198MW run-of-river
hydropower plant from EDP Group. The facility is located in the
state of Espírito Santo, has been operational since 1974 and went
through a major repowering in 2011. The plant ownership was awarded
under a concession framework with four years remaining from
previous cycle and renewal for another 20 years thereafter.
Since it was first commissioned, the hydro facility has been
maintained and managed to a very high standard. The energy
regulator in Brazil ranks over 140 hydro plants across the country
to assess their quality of operation and has recently ranked this
facility as a top 10 hydro plant in Brazil. This facility benefits
from a portfolio of over 30 long-term inflation-linked PPAs with
creditworthy counterparts in the regulated utilities market. It
also has the potential to commercialise power with large energy
consumers in the self-consumption segment of the energy
market.
II - 16 Brazilian solar PV assets
In 2021, GSEO committed $63m to fund the
construction of remote distributed solar generation projects across
10 Brazilian states. The investments stem from long-term PPAs with
investment grade corporates such as a large multinational
telecommunication company. On average, these contracts have a
maturity over 20 years, are inflation-linked, and are not
dependent on any government subsidies. Three further sites are
expected to become operational by H1 2024, bringing the total
number of operational sites to 13. The construction of the
remaining three sites are expected to be completed by the end of
2024.
Operating partners' overview
Paraty Energia, the operating partner for the
Brazilian hydro facility, is an energy developer specialised in the
Brazilian power market, combining years of project finance
experience with strong capabilities in operations, energy trading
and regulatory advisory services. They have a team of engineers,
and traders that oversee the operation of GSEO's hydro
facility.
Energea, the operating partner of the Brazilian
solar PV assets, is a global developer of distributed solar PV
assets. Its founders have accumulated years of experience in the
solar segment, first by developing distributed generation sites in
the US for large retail players. They have entered the Brazilian
market, attracted by the unique regulatory framework enabling the
construction of distributed generation solar PV assets that can
commercialise the power at retail tariffs, with any offtaker
connected to the local utilities' networks. Energea has a team of
experienced project managers on the ground that oversee GSEO's
solar PV assets and provide O&M services.
In conversation with Eduardo Monteiro, Victory
Hill Managing Partner and co-CIO
Q: What are the attractions of investing
in the Brazilian renewable energy market?
Brazil is a growing economy that needs energy to
enable the country to fulfil its potential. Previous Brazilian
administrations have successfully implemented a robust regulatory
framework that attracts private investors who continue to fund the
expansion of Brazil's power, which is crucial in enabling the
country's economic growth. With a unique characteristic of having a
very wide and diverse hydropower network, Brazil stands out as a
market with great potential for renewable energy. Hydropower has
natural storage properties enabling intermittent sources such as
renewable energy to be efficiently added to the grid.
Q: What are the risks in Brazil and how do
you mitigate them?
As an emerging market, Brazil is more exposed to
volatile economic cycles, with potential for high inflation and
political instability. As foreign investors, we need to also
consider the volatility of the Brazilian currency versus the GBP.
We believe that these risks are largely mitigated by: i) our
focus on energy investments, as energy consumption tends to be
robust regardless of cycles, ii) inflation linkage on all offtake
contracts providing protection against high inflation and also
against depreciation of the Brazilian currency, and iii) Brazil's
long track record as a recognised democracy with strong independent
institutions.
Q: How do you expect the share of Brazil
in your total portfolio to evolve?
We are satisfied with the current share and we
will seek to maintain or reduce our exposure to Brazil as we
continue to pursue opportunities in other markets.
Q: What makes the Brazilian hydro market
so unique?
Brazil has one of the world's largest
hydrological resources and hydropower generation continues to have
systemic importance in the country's energy mix. Hydropower plants
provide a reliable and continuous source of clean energy for a
power system with a continuously growing demand and rapid
penetration of intermittent renewables. The hydropower sector in
Brazil is underpinned by a unique regulatory framework which seeks
to mitigate hydrological resource risk for individual hydropower
generators. The framework pools hydrological resources into a
nationwide consortium of eligible hydropower generators of systemic
importance. Members of the hydropower consortium benefit from the
output of the whole pool of eligible hydropower generation
irrespective of an individual member's actual production.
Therefore, the idiosyncratic risk of a single hydro plant is
mitigated by the output of the pool.
Q: Can you tell us more about the
programme of remote distributed power generation in
Brazil?
Brazil has the largest power market in Latin
America, with total installed capacity of 225 GW in 2023. The
country's size, plentiful resources and conducive policies have
made Brazil the region's main renewable energy market and one of
the top ten in the world. Brazil's renewable energy potential is
still in its infancy. With regards to distributed generation, the
Brazilian government implemented a regulatory framework favouring
smaller scale power generation assets by allowing them to directly
contract with end users that are captive to the local utilities and
pay the much higher retail tariffs. This is done via a contractual
arrangement between private parties. Distributed power plants can
be located remotely within an entire distribution network, and they
can provide full credits to end users in their energy
bills.
The case for distributed solar PV and battery
energy storage systems (BESS) in Australia
Programme overview
In 2021, GSEO committed £50m in Australia to
implement distributed solar PV and battery energy storage system
(BESS) hybrid projects with the Company's operating partner,
Birdwood Energy, a team of energy specialists with an experienced
track record of delivering renewable power generation and battery
projects globally. GSEO acquired two operating distributed solar PV
generation assets in South Australia and Queensland, totalling
17MW, and subsequently added in Q3 2023 a 2-hour BESS to hybridise
one of the assets in order to enhance its commercial potential. The
Company also acquired three ready to build sites in New South Wales
of 4.95MW each and reached mechanical completion of the sites'
solar farm component in Q3 2023. A 2-hour BESS addition to
each of the three sites is expected to be completed by Q4
2024.
Operating partner overview
Birdwood Energy is an Australian specialist
developer and manager in the renewable sector which works to scale
projects for investment, accelerate deployment and integrate
batteries, as well as investing into businesses supporting the
sector. Birdwood has developed a A$2 billion portfolio.
Birdwood was founded by energy storage and renewables experts who
over the last 25 years have built and led investments and
energy businesses across Australia, Europe, US, Asia and Africa.
Its team comprises decades of investment, technical, development,
construction and operating experience in the local market.
Distributed energy is difficult for investors to access, with lots
of small developers and companies. This sector however requires
significant investment at scale in order to achieve our net zero
targets. Distributed energy should be able to fulfil 60% of the
world's future energy supply. It will be the lowest cost, most
secure and cleanest energy system.
In conversation with Richard Lum, Victory Hill
Managing Partner and co-CIO
Q: What is so unique about the Australian
energy market and how does this represent an opportunity for GSEO
and its shareholders?
There is a structural supply/demand gap in
Australia that needs to be addressed to solve the grid's issues of
balancing supply and demand for dependable and clean power
throughout the day.
The first wave of renewable power generation in
Australia was focused on the need to achieve scale and reducing the
cost of energy production. The extent to which these have been
successfully achieved in a relatively short space of time has
conversely created additional issues for the transmission network,
including the fact that the grid is struggling to accommodate a
large volume of intermittent generation entering the system, and
consequently this has slowed the follow-on growth of renewable
energy deployment at the point when the country needs it to
increase in order to further displace coal.
As the country is going through a disruptive
transition, there is an opportunity for GSEO to capture value by
providing clean energy though distributed solar PV and BESS hybrid
assets.
Q: Why invest in c.5 MW projects and not
larger scale projects?
The portfolio is aggregating distribution
network-connected assets which represent the best value for
investment, avoiding curtailment risk from the congestion on the
already stressed high voltage network and providing further relief
in a system already stressed. The operating partner also implements
a portfolio enhancement/commercialisation strategy to take
advantage of the price volatility.
With a 2-hour BESS, the assets can take
advantage of the market volatility from time shifting of the solar
PV output as well as capturing upside through energy arbitrage and
other grid service revenues.
Q: How is the operating partner for this
asset incentivised?
For all our programmes, construction, operation
and maintenance is overseen by a specialist local operating partner
and the value creation incentives are aligned with them through a
profit share which is paid out in the event the project meets a
certain hurdle rate.
Financial KPIs
NAV per share
growth
+7.6%
Definition
NAV divided by number of shares outstanding as at 31 December
2023.
Commentary
The NAV has increased to 116.46p since 31 December 2022 (31
December 2022: 108.2p). Alternative performance per share measures
are defined in the full Annual Report and Accounts.
Dividend per share
5.56p
Definition
Aggregate dividends declared per share in respect of the financial
year.
Commentary
The Company's target was to pay a dividend of 5.52p per share in
respect of the year to 31 December 2023 (31 December 2022: 5.13p).
With the declaration of the interim dividend of 1.42p per share on
22 February 2023, the total dividend for 2023 is 5.56p per ordinary
share.
Total NAV
return for the year
14.5%
Definition
A measure of performance that includes both income and capital
returns. This takes into account capital gains and any dividends
paid out by the Company during the year.
Commentary
Total return reflects continued underlying delivery to shareholders
(31 December 2022: 7.60%). Alternative performance measures are
defined in the full Annual Report and Accounts.
Ongoing Charges
Ratio
1.4%
Definition
Annualised ongoing charges (i.e. excluding investment costs and
other irregular costs) divided by the average published undiluted
NAV in the period, calculated in accordance with AIC
guidelines.
Commentary
The Company's ongoing charge ratio was in line with the previous
year (31 December 2022: 1.30%). Alternative performance measures
are defined in the full Annual Report and Accounts.
Annualised
total NAV return since IPO (February 2021)
10.0%
Definition
A measure of performance that includes both income and capital
returns. This takes into account capital gains and any dividends
paid out by the Company since IPO in February 2021 on an annualised
basis.
Commentary
Total return reflects continued underlying delivery to shareholders
(31 December 2022: 7.8%). Alternative performance measures are
defined in the full Annual Report and Accounts.
Operational KPIs
Largest three
investment programmes as a proportion of NAV
59.8%
Definition
Value of the three largest investment programmes divided by the NAV
at period end.
Commentary
The three largest investment programmes are the US terminal storage
assets, Brazilian solar PV and the Brazilian hydro facility (31
December 2022: 54.50%).
Largest
investment programme as a proportion of NAV
24.9%
Definition
Value of largest investment programme divided by NAV at period
end.
Commentary
The largest investment programme within the Company's portfolio is
the US terminal storage assets (31 December 2022:
23.20%).
Climate-related KPIs
Total renewable
energy generated and injected into the grid
(MWh)
844,434
Definition
Underlying portfolio energy generated from renewable assets in
MWh.
Commentary
The portfolio's generation for 2023 in MWh (31 December 2022:
35,117), equivalent of the annual electricity use of approximately
312,750 (31 December 2022: 9,000) UK homes.
Total avoided
carbon emissions (tonnes CO2e)
122,530
Definition
A measure of our success in investing in projects that have a
positive environmental impact and reduce energy usage.
Commentary
The portfolio's total avoided emissions in tCO2e from
displacing fossil fuel derived electricity (31 December
2022: 14,349), equivalent to removing about 63,000
(31 December 2022: 7,000) average sized cars from UK
roads.
Weighted
average carbon intensity per $1m invested (tonnes CO2e /
$m)
42
Definition
Portfolio's exposure to carbon-intensive companies, expressed in
tonnes CO2e/$m revenue.
Commentary
The calculation covers operational scope 1 and 2 emissions (31
December 2022: 65). Emissions from assets under construction are
not factored into the calculations.
STAKEHOLDER ENGAGEMENT
Overview
This section of the annual report covers the
Board's considerations and activities in discharging their duties
under section 172 of the Companies Act 2006, in promoting the
success of the Company for the benefit of the members as a
whole.
Stakeholders are integral to the long-term
success of the Company. The Directors recognise that, both
individually and collectively as the Board, their overarching duty
is to act in good faith and in a way that is most likely to promote
the success of the Company. As set out in section 172 of the
Companies Act 2006, the Directors act for the benefit of
shareholders and in the interests of stakeholders as a whole,
having regard, amongst other matters, to:
• the likely
consequences of any decision in the long term;
• the need to foster
the Company's business relationships with suppliers, customers and
others;
• the impact of the
Company's operations on the community and the
environment;
• the desirability
of the Company maintaining a reputation for high standards of
business conduct; and
• the need to act
fairly between shareholders of the Company.
All Board discussions include consideration of
the longer-term consequences of any key decisions and their
implications for the relevant stakeholders.
Stakeholders
A company's stakeholders are normally considered
to comprise its shareholders, employees, customers, suppliers, as
well as the wider community in which the company operates and
impacts. The Company is different in that as an investment trust it
has no employees and, in terms of suppliers, it receives
professional services from a number of different providers,
principal amongst them being the Investment Manager.
Through regular engagement with its
stakeholders, the Board aims to gain a rounded and balanced
understanding of the impact of its decisions.
The Company recognises the importance of
maintaining high standards of business conduct and seeks to ensure
that these are applied in all of its business dealings and in its
engagement with stakeholders. These engagement mechanisms are kept
under review by the Directors and are discussed on a regular basis
at Board meetings to ensure that they remain effective. The
importance of stakeholders is taken into account at every Board
meeting, with discussions involving careful consideration of the
longer-term consequences of any decisions and their implications
for stakeholders. Details of how the Board seeks to understand the
needs and priorities of the Company's stakeholders and how these
are taken into account during all its discussions and as part of
its decision-making are set out below.
Key
decisions made during the year
Share buyback programme
The Board continually evaluates the optimum
capital allocation strategy for the Company balancing the need to
maintain a strong balance sheet in order to support existing
portfolio assets alongside further investment opportunities and
returning capital to shareholders via dividends or share buybacks.
In recognition of the discount at which the Company's share price
was trading relative to its NAV per share and its impact on
shareholder returns, on 15 September 2023 the Company
announced a share buyback programme (the "buyback programme") for
up to £10m. Post period end, on 22 February 2024 the Company
announced an increase in the buyback programme by an additional
£10m bringing the total buyback programme to £20m. The buyback
programme is expected to be accretive to NAV per share, as well as
offer additional liquidity for the Company's underlying shares.
Details of the shares repurchased under the buyback programme are
set out below.
Board changes
Ms Carneiro was appointed as a non-executive
Director of the Company on 18 January 2023. Details of her
appointment were included in the Company's 2022 Annual
Report.
As announced by the Company on 11 December
2023, the Board appointed Mr Horlick as the Senior Independent
Director of the Company with effect from 1 January 2024. In
line with the AIC Code of Corporate Governance, the Board considers
that this appointment would provide a sounding board for the Chair,
serve as an intermediary for the other Directors and shareholders,
and also act as an alternative engagement channel to the
shareholders and other key stakeholders.
Change of Alternative Investment Fund
Manager
During the year under review, the Board replaced
G10 Capital Limited, the AIFM of the Company since the IPO, with
Victory Hill Capital Partners LLP. Further disclosures
regarding the new AIFM Agreement with Victory Hill are included in
the full Annual Report and Accounts for the year ended 31 December
2023.
Stakeholder
|
Importance
|
How the
Company engages
|
Shareholders
|
Continued
shareholder support and engagement are critical to the existence of
the Company and the delivery of its long-term strategy. The Board
and the Investment Manager give a high priority to ensuring that
shareholders understand the Company's strategy and goals and can
monitor its performance through the robust corporate governance
processes established by the Company.
|
The Board
welcomes shareholders' views and is committed to maintaining open
and transparent channels of communications with them. The Board is
responsible for the content of communication regarding corporate
issues and for conveying its views to shareholders. It aims to
ensure that shareholders are provided with sufficient information
to understand the risk/reward balance to which they are exposed by
investing in the Company. The methods of engaging with shareholders
include:
Publications
The Annual and Interim Reports are made available on the Company's
website. These reports provide shareholders with a clear
understanding of the Company's portfolio and financial position. In
addition to the Annual and Interim Reports, the investor
presentations made by the Investment Manager and any prospectuses
and circulars issued by the Company are also available on the
Company's website. The Company provides regular updates on
portfolio acquisitions, capital raises, share buybacks and any
other relevant matter by way of market announcements.
Annual General Meeting
All shareholders are encouraged to attend and vote at the AGM and
at any general meetings of the Company, during which the Board and
the Investment Manager are available to discuss issues affecting
the Company and answer any questions. The Company values any
feedback and questions it may receive from shareholders ahead of
and during the AGM and takes action, as appropriate.
Shareholder meetings
The Investment Manager, along with the Broker, regularly meets with
the Company's shareholders to provide Company updates and to foster
regular dialogue. Feedback from all shareholder meetings and
investors' views are shared with the Board on a regular
basis.
Shareholder concerns
Shareholders wishing to communicate directly with the Board or the
Investment Manager to raise any issues or concerns, should contact
the Company Secretary at the registered office address. The Chair,
Senior Independent Director and the other Directors are available
throughout the year to meet with shareholders to understand their
views on the Company's performance and governance where they wish
to do so. Relations with shareholders are also considered as part
of the annual Board evaluation process.
Investor relations
updates
The Board regularly monitors the shareholder profile of the
Company. With the majority of shareholders being a combination of
institutional investors and private client brokers, the Board
receives regular updates on investors' views and attitudes from the
Company's Broker and the Investment Manager. The results of these
meetings are reported to the Board as part of the formal reporting
undertaken by both the Investment Manager and the Broker. The
details of substantial shareholdings in the Company are included in
the Directors' Report in the full Annual Report and Accounts for
the year ended 31 December 2023.
|
Investment
Manager
|
The
Investment Manager's performance is critical for the Company to
achieve positive and consistent long-term returns in line with its
investment objective.
|
The Board
believes that maintaining a close and constructive working
relationship with the Investment Manager is crucial to promoting
the long-term success of the Company in an effective and
responsible way. Representatives of the Investment Manager attend
Board meetings and provide reports on the current and future
activities, portfolio investments, performance, operational and
administrative matters. An open discussion regarding such matters
is encouraged, both at Board meetings and by way of ongoing
communication between the Board and the Investment Manager,
facilitating a positive environment for constructive challenge and
cooperative development of solutions. Board members are encouraged
to share their knowledge and experience with the Investment Manager
and they recognise that the long-term health of the Investment
Manager is in the interests of shareholders as a whole.
The Board,
through the Management Engagement Committee, keeps the ongoing
performance of the Investment Manager under continual review and
conducts an annual appraisal to consider its terms of engagement.
Details regarding the continuing appointment of the Investment
Manager are set out in the full Annual Report and Accounts for the
year ended 31 December 2023.
|
Other key service
providers
|
As an
investment company, all services are outsourced to third party
service providers. The Board is conscious that it is critical to
foster good working relationships with them.
|
The Board
believes that strong relationships with its other key service
providers, namely the Company Secretary, the Administrator, the
Depositary, the Broker and the Registrar, are important for the
long-term success of the Company. The Board maintains regular
contact with its key external providers and receives regular
reporting from them, both through the Board and Committee meetings,
as well as outside of the regular meeting cycle. Their advice, as
well as their needs and views, are routinely taken into
account.
Through its Management Engagement Committee, the Board formally
assesses their performance, fees and continuing appointment at
least annually to ensure that the key service providers continue to
function at an acceptable level and are appropriately remunerated
to deliver the expected level of service. The Audit Committee also
reviews and evaluates the control environment in place at each key
service provider.
|
Lenders
|
Availability of funding and liquidity are crucial to the
Company's ability to take advantage of investment opportunities as
they arise.
|
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 equity
funded allowing for efficient asset acquisition. Once assets have
been acquired and are operational, the Investment Manager, through
its extensive international network of funding partners, may seek
the most efficient debt funding on a non-recourse basis.
|
Society and the
environment
|
It is of
utmost importance to the Company that it positively impacts local
communities through its sustainable environmental initiatives,
investment in areas undergoing regeneration and local employment
practices.
|
As an
investor in sustainable energy, the Company's assets have an impact
on the environment. The Company has a Sustainability Framework
which is published on the Company's website and our approach to
sustainability is set out in the Sustainability section of the
report.
|
PRINCIPAL RISKS & UNCERTAINTIES
The Board, through delegation to the Audit
Committee, has undertaken a robust assessment and review of the
emerging and principal risks facing the Company, together with a
review of any new risks which may have arisen during the year,
including those that would threaten its business model, future
performance, solvency or liquidity. These risks are formalised
within the Company's risk matrix, which is regularly reviewed by
the Audit Committee. As part of its risk management process, the
Audit Committee seeks to identify emerging risks to ensure that
they are effectively managed as they develop and recorded in the
risk matrix.
The Directors are focussed on the risk presented
to the Company by the discount to NAV being high for reasons not
under the Company's control. Given the market conditions, the
Company has been unable to raise additional funds for investments
to drive further growth and diversification in the portfolio. At
the same time the Directors are focussed on the Investment Manager
managing the Company's liquidity. Some risks in relation to current
investments have been considered by the Directors to be relatively
low and well managed: demand, usage and throughput, and
meteorology. These have been removed from the list below this year.
A great deal of work has been completed on climate change scenarios
and more detail is given on physical and transition risks
below.
Information about the Company's internal control
and risk management procedures are detailed in the Corporate
Governance Statement in the full Annual Report and Accounts for the
year ended 31 December 2023.
The principal financial risks and the Company's
policies for managing these risks, and the policy and practice with
regard to the financial instruments, are summarised in note 12
to the financial statements.
Risk
|
Description
of Risk
|
Risk
Impact
|
Mitigation
|
1. Risks relating to the
Company
|
|
|
|
Reliance on Investment
Manager
|
The Company
relies on the Investment Manager for the achievement of its
investment objective.
|
The Company
relies on the Investment Manager for the achievement of its
investment objective.
The departure of some or all of Victory Hill's investment
professionals could prevent the Company from achieving its
investment objective.
There can be no assurance that the Directors will be able to find a
replacement manager if Victory Hill resigns.
If a successor cannot be found, the Company may not have the
resources it considers necessary to manage the Portfolio or to make
investments appropriately and, as a result there may be a material
adverse effect on the performance of the Company's NAV, revenues
and returns to shareholders.
|
The
Investment Manager consists of five managing partners supported by
five investment professionals. The total Investment Manager
personnel is 15, which includes the Investment, Finance,
Sustainability, Compliance Data Analytics and Investor Relations
teams. A collegiate approach is taken to investment management
activities with the team having a broad range of skills to support
the pursuance of the Company's investment objective.
The performance of the Company's Investment Manager is closely
monitored by the Board.
In addition, at least once a year the Management Engagement
Committee performs a formal review process to consider the ongoing
performance of the Investment Manager and makes a recommendation on
the continuing appointment of the Investment Manager to the
Board.
The initial term of the investment management agreement is 5 years
(ending in February 2026).
|
Reliance on third party
service providers
|
The Company
has no employees and the Directors have all been appointed on a
non-executive basis. Therefore, the Company is reliant upon its
third party service providers for the performance of certain
functions.
|
Service
provider control failures may result in operational and/or
reputational problems and may have an adverse effect on the
Company's NAV, revenues and returns to shareholders.
|
The
Investment Manager and the Board oversees and keeps under review
the provision of services by each of the Company's service
providers on an ongoing basis.
The Management Engagement Committee performs a formal review
process to consider the ongoing performance of its service
providers.
|
Currency
risks
|
The Company
will make investments which are based in countries whose local
currency may not be Sterling and the Company may make and/or
receive payments that are denominated in currencies other than
Sterling.
|
When
foreign currencies are translated into Sterling there could be a
material adverse effect on the Company's profitability, the NAV and
the price of the shares.
|
Investments
are held for the long-term.
The Company enters into hedging arrangements for periods up to 12
months to hedge against short-term currency movements.
Currency risk is taken into consideration at time of
investment.
The movement in NAV attributable to currency movements is disclosed
to investors each quarter with the NAV update.
|
Liquidity
risks
|
Risk that
sufficient cash funds are not in place in order to meet commitments
for investment, dividends, buy-backs of shares and ongoing fund
costs.
|
Risk that
unexpected calls are made on investments.
|
The fund is
investing in a mixture of operating and construction assets.
Operating assets have the benefit of providing cash
flows.
The Investment Manager provides an annual budget to the Board for
approval. Performance vs budget is monitored on a quarterly basis
by the Investment Manager and the Board.
The Investment Manager monitors liquidity of the Company vs
forecast investment, dividend and share buy-back commitments.
Liquidity is represented in cash, money market investments and
fixed term deposits.
The Investment Manager is exploring options for project level debt
facilities and fund level debt facilities. Until the Company is
fully deployed into a diversified pool of assets, fund level debt
facilities are limited.
At this early stage in the Company's life it has cash reserves
originating from the proceeds of equity issuances. Therefore, given
the investment pipeline, investment limits and dividend
considerations, liquidity is not constrained.
In the case of share buy-backs to manage share price discount vs.
NAV, the ultimate buy-back is subject to sufficient funds to pay
dividends, market conditions and Board discretion. Liquidity
constraints will be considered before share buy-backs are
undertaken.
|
2. Risks relating to the
portfolio investment strategy
|
|
|
|
Illiquidity of
investments
|
The
Company's investments in Sustainable Energy Infrastructure
Investments are illiquid and may be difficult to realise at a
particular time and/or at the prevailing valuation.
|
Shareholder
returns could be materially negatively impacted should the Company
be required to realise them in the near term (requirement for early
liquidity).
|
The Company
is expected to hold most of its investments on a long-term
basis.
The Investment Manager and the Board will monitor the position on a
regular basis.
|
Market
conditions
|
Market
conditions may delay or prevent the Company from making appropriate
investments that generate attractive returns.
|
The actual
return to shareholders may be materially lower than the target
total return.
|
A pipeline
of investments has been identified and is constantly being
refreshed. The senior management team at the Investment Manager
have extensive experience in executing strategies similar to that
of the Company.
The Company is invested across a number of investment programmes
and assets that generate returns in line with the fund projected
returns.
|
Concentration
risk
|
Concentration risk in relation to exposure to individual
sustainable energy infrastructure investments, technology and
geography.
|
Targeted
returns may be materially negatively impacted if those sustainable
energy infrastructure investments, geographies and/or technologies,
do not deliver the returns anticipated by Victory Hill.
|
Limits are
set out in the Investment Policy to mitigate concentration
risk.
The Company has a very broad mandate.
This risk should be mitigated as the Company increases in
size.
At the time of making investments, concentration risk is taken into
consideration.
The Investment Manager will monitor exposures and the position will
be regularly reviewed by the Board.
|
3. Risks relating to
investments
|
|
|
|
Construction
risks
|
Construction project risks associated with the risk of
inaccurate assessment of a construction opportunity, delays or
disruptions which are outside the Company's control, changes in
market conditions, and the inability of contractors to perform
their contractual commitments.
|
Failure to
complete projects in accordance with expectations could adversely
impact the Company's performance and shareholder
returns.
|
The
Investment Manager undertakes extensive due diligence on
construction opportunities and seeks to have appropriate insurances
in place to mitigate any costs relating to delays. In addition, the
Investment Manager seeks to utilise EPC contractors that can
provide single point, lump sum turnkey arrangements wherever
possible.
The Investment Manager monitors construction carefully and reports
frequently to the Board where issues with contractors arise, the
Investment Manager has the experience and expertise to identify and
contract with alternative contractors.
|
Due
diligence
|
Due
diligence may not identify all risks and liabilities in respect of
an investment.
|
Failure to
identify risks and liabilities may impact the profitability or
valuation of the investment.
|
The senior
management team at the Investment Manager have extensive experience
in executing strategies similar to that of the Company.
Where appropriate, due diligence conducted by the Investment
Manager is supplemented, for example, by independent legal, tax,
accounting, commercial and technical advisers.
|
Counterparty
risks
|
Counterparties defaulting on their contractual obligations or
suffering an insolvency event.
|
The failure
by a counterparty to make contractual payments or perform other
contractual obligations or the early termination of the relevant
contract due to the insolvency of a counterparty may have an
adverse effect on the Company's NAV, revenues and returns to
shareholders.
|
Due
diligence on counterparty risk is performed before entering into
projects and counterparty risk is monitored on a regular
basis.
|
Uninsured
loss
and damage
|
The risk
that an investment may be destroyed or suffer material damage, and
the existing insurances may not be sufficient to cover all the
losses and damages.
|
The actual
return to shareholders may be materially lower than the target
total returns.
|
An
independent insurance adviser is appointed for each project to
review project risks in conjunction with the Investment Manager and
to ensure that appropriate insurance arrangements are in place.
Insurance requirements are reviewed on an ongoing basis.
|
Curtailment
risks
|
Investments
may be subject to the risk of interruption in grid connection or
irregularities in overall power supply.
|
In such
cases, affected investments may not receive any compensation or
only limited compensation.
|
Extensive
due diligence is performed on each project before investment.
The Investment Manager constantly reviews curtailment
risks.
|
Commodity
price risks
|
The
operation and cash flows of certain investments may depend
prevailing market prices for electricity and fuel, and
particularly
natural gas.
|
The actual
return to shareholders may be materially lower than the target
total return.
|
The Company
mitigates 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.
|
ESG risks
|
Material
ESG risks may arise such as health and safety, unfair advantage,
bribery, corruption and environmental damage including climate
related risks.
|
If the
Company fails to adhere to its ESG commitments this could result in
shareholder dissatisfaction and adversely affect the reputation of
the Company.
|
ESG is
embedded in the investment cycle with a formal ESG matrix including
a minimum target ESG score required for approval of any new
investments.
Ongoing operational and construction ESG risk management is
reviewed periodically by the Investment Manager, who work closely
with service providers on ESG and impact standards
reporting.
|
4. Risks relating to the
Company's shares
|
|
|
|
Discount to
NAV
|
The share
price may not reflect the underlying NAV.
Discount management provisions being unable to be satisfied may
result in a significant share price discount to NAV.
|
Lack of
liquidity in the Company's shares could negatively impact on
shareholder returns.
|
The Board,
Broker and Investment Manager monitor the discount or premium to
NAV at which the shares trade.
The Board, Broker and Investment Manager actively consider whether
share buybacks can assist with discount management. In addition,
corporate strategies are actively considered as and when they
arise.
|
5. Risks relating to
regulation
|
|
|
|
Regulation
|
The Company
is exposed to the risk that the competent authorities may pass
legislation that might hinder or invalidate rights under existing
contracts as well as hinder or impair the obtaining of the
necessary permits or licences necessary for Sustainable Energy
Infrastructure Investments in the construction phase.
|
The actual
return to shareholders may be lower than the target total
return.
|
The Company
aims to hold a diversified portfolio of Sustainable Energy
Infrastructure Investments and so it is unlikely that all assets
will be impacted equally by a single change in legislation.
The Investment Manager ensures that contracts are not exposed to
government subsidies, thus 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 Manager monitors the position and provides regular
reports to the Board on the wider macro environment.
|
6. Operational
risks
|
|
|
|
Operation and management
risks of the portfolio assets
|
Poor
management or operational performance of an asset by the Company's
operating partners and selected operations and maintenance
providers.
|
The actual
return from single portfolio assets may be lower than the target
total return for
the asset.
|
Operating
partners operate to an annual budget and a series of key
performance indicators.
The Investment Manager monitors the performance vs. annual budget
and KPIs on a monthly and quarterly basis. On an annual basis the
Operating partners are subject to an annual performance review
across operational, ESG and financial KPIs.
The Investment Manager provides quarterly reports to the Board on
asset-level performance.
|
Valuation
risk
|
Valuation
of the portfolio of assets is based on financial projections and
estimations of future results.
|
Actual
results may vary significantly from the projections, which may
reduce the profitability of the Company leading to reduced returns
to shareholders and a fall in the Company's NAV.
|
The Company
has adopted a valuation policy which was disclosed in the Company's
prospectus.
Fair value for each investment is calculated by the Investment
Manager. However, if considered necessary and appropriate, the
Board may appoint an independent valuer.
The Investment Manager has significant experience in the valuation
of energy assets.
The Investment Manager has a valuation working group to perform and
challenge valuations. In addition, the Investment Manager's
Portfolio Risk and Valuation Committee ("PRV") reviews and
challenges valuations.
The
PRV members are functionally independent from the team performing
valuations.
The Board
reviews the valuations provided quarterly by the Investment
Manager.
As part of the annual audit, the External Auditor reviews the
valuations.
|
7. Climate-related
risks
|
|
|
|
Physical
risks
|
Longer-term
changes in climate patterns, e.g., reduction or increase in wind
levels, decrease solar optimal days in impacting renewable output
and associated earnings.
Increased occurrence of extreme weather events such as cyclones,
storms, flooding, droughts and heatwaves causing damage to assets,
disruption to feedstocks, value chain, outputs and associated
earnings.
|
These
factors could result in the reduction of output from assets leading
to reduced income stream. This risk may increase over the long term
in the absence of climate mitigation.
|
The Company
is investing in a diversified portfolio of energy transition
infrastructure by geography, technology and capability. These
investments are targeted at the energy transition to net zero. This
will provide a buffer against variable weather patterns across the
portfolio.
The Company also mitigates risk through project revenues being
contracted for the medium and long term.
At the asset level, weather conditions are monitored and many of
the renewable projects have battery storage capabilities to
optimise energy input to the grid. Meteorology and feedback due
diligence is undertaken before investment and reviewed
regularly.
All assets have crisis management and business continuity plans to
respond to disruptions. The assets are also required to have
continuous improvement management systems to build capability and
capacity in the local teams and operations.
|
|
Abrupt
disruptive climate impacts such as impacts from flooding, wildfire,
drought, extreme heat, or sudden regulatory actions increasing over
time.
|
Increase
operating expenditure to recover asset damage caused by natural
disasters and increase insurance premium for assets in high-risk
locations.
|
Throughout
the investment decision-making process, the due diligence process
accounts for climate change risk and impacts.
The Investment Manager employs an insurance specialist when making
investments and seeks to have appropriate contractual warranties,
indemnities and insurance provisions in place to mitigate any costs
relating to delays or operation disruption. Insurance requirements
are reviewed on an ongoing basis.
|
|
Uncertainty
in market signals take forms in lower-than-expected power price
reflected from imbalance in abundant intermittent power supply and
market demand as well as lower than expected volume throughput for
conventional fuel storage assets with increased demand for
alternative fuels.
|
Increase in
market volatility and abrupt and unexpected shifts in power prices
make financial forecasts less reliable on intermittent renewable
energy solutions. Reduced throughput for conventional fuels
longer-term with expected shifts to cleaner and alternative fuels
impacting existing fuel storage asset revenue flows.
|
The Company
manages this risk through its diverse portfolio of energy
transition infrastructure assets such as the battery energy storage
systems and its enduring hydro facility, as well as signing fixed
price offtaker agreements.
The Company is assessing its longer-term strategy to adapt storage
assets to accommodate alternative fuels required for hard to abate
transportation including sustainable aviation fuel, renewable
diesel, marine e-methanol and hydrogen as the market
shifts.
|
Transition
risks
|
Market
shifts such as changing customer behaviour and substitution of
existing products and services with lower emissions options or new
technologies may dampen ability to engage investors on a broader
portfolio of energy transition projects than a traditional
renewable focus including different geographies. The Investment
Manager monitors changes in climate change policy and assesses the
potential impact and mitigation strategies.
|
Increase
costs to adopt/deploy new practices to transition to lower
emissions technologies, reduction in the availability of market
capital to invest in some local energy transition
projects.
|
There is
strong public demand for support of the renewables market towards
net zero carbon emission targets.
The Company is expected to hold most of its investments on a long
term basis and the Board and Investment Manager monitor the
position on a regular basis.
The senior management team at the Investment Manager has extensive
experience in executing a wide range of strategies in the energy
sector, the team monitors market shifts and tailor investment
strategies accordingly.
|
|
Policy
shift may introduce regulation around climate change, e.g.,
increased disclosure, taxes etc.
Stakeholders' increasing concerns on business practice (e.g.,
supply chain management, workforce management and planning) need to
be addressed.
|
This could
increase
cost of doing business (e.g., higher compliance costs, increased
insurance premiums, workforce management and planning), and
result in reduction in
the availability of capital to invest in energy transition
projects.
|
The Company
is supportive of the policy aims of the Disclosure Regulation and
will comply and monitor changes.
The Investment Manager engages with partners and stakeholders on
behalf of the Company to gather data and drive action to improve
ESG management and support disclosure and policy requirements. This
includes monthly metric reporting on climate related KPIs,
including energy used and generated, mitigation actions for risks
and impacts, as well as any energy reduction projects.
The Company's investment strategy targeting the energy transition
is aligned with global policy movements on climate change which
would
limit impact.
|
GOING CONCERN AND VIABILITY
STATEMENT
Going concern
The Directors, in their consideration of going
concern, have reviewed the financial position and comprehensive
future cash flow models for the Company prepared by the Company's
Investment Manager, taking into consideration current and potential
funding sources, investment into existing and near-term projects
and the Company's working capital requirements. Furthermore, the
Directors have considered a worst case scenario in which the
Company is assumed to meet all of its remaining investment
commitments within the next 12 months, in addition to dividend
payments and ongoing operating expenses. Even in this unlikely
scenario, the Company has sufficient headroom to meet all expected
cash outflows with its existing cash balances. Based on these
forecasts and the assessment of principal risks described in this
report, that it is appropriate to prepare the financial statements
of the Company on the going concern basis.
The Directors believe that there are currently
no material uncertainties in relation to the Company's ability to
continue for a period of at least 12 months from the date of
the approval of the financial statements and, therefore, has
adopted the going concern basis in the preparation of the financial
statements.
Viability statement
In accordance with Principle 21 of the AIC Code,
the Directors have assessed the prospects of the Company over a
period longer than 12 months required by the relevant "Going
Concern" provisions. The Directors have considered the nature of
the Company's assets and liabilities, and associated cash flows,
and have determined that five years, up to 31 December 2028,
is the timescale over which the performance of the Company can be
forecast with a material degree of accuracy and therefore is the
appropriate period over which to consider the viability.
The Investment Manager has considered the
sensitivity of the financial projections to a range of key
assumptions, such as a reduction in cash flows from portfolio
companies, delays in construction, cost overruns, no debt
availability, and an inability for the Company to raise additional
equity. The results of this stress testing showed that the Company
would be able to withstand the impact of these scenarios occurring
over the five-year period.
The Directors confirm they have carried out a
robust assessment of the emerging and principal risks facing the
Company, including those that would threaten its business model,
future performance, solvency, liquidity, and dividend cover for a
five-year period. The Directors' assessment has been made with
reference to the principal risks and uncertainties and emerging
risks above and how they could impact the prospects of the
Company.
As an Investment Company, part of the Company's
objective is to produce stable dividends while preserving the
capital value of its investment portfolio. Following regular
pipeline updates from the Investment Manager, the Directors believe
that the Company is well placed to manage its business risks
successfully over both the short and long term period, the
Directors have a reasonable expectation that the Company will be
able to continue in operation and to meet its liabilities as they
fall due for a period of at least five years.
Approval of the Strategic Report
The Strategic Report was approved by the Board
of Directors and signed on its behalf by:
Bernard Bulkin
Chair
4 April 2024
EXTRACT FROM THE DIRECTORS' REPORT
Dividends
On 25 May 2023, the Company declared an
interim dividend of 1.38p per ordinary share in respect of the
period from 1 January 2023 to 31 March 2023, which was
paid on 30 June 2023 to shareholders on the register as at
2 June 2023.
On 2 August 2023, the Company declared an
interim dividend of 1.38p per ordinary share in respect of the
period from 1 April 2023 to 30 June 2023, which was paid
on 14 September 2023 to shareholders on the register as at
11 August 2023.
On 1 November 2023, the Company declared an
interim dividend of 1.38p per ordinary share in respect of the
period from 1 July 2023 to 30 September 2023, which was
paid on 8 December 2023 to shareholders on the register as at
10 November 2023. Of this amount, 1.03p per share was
designated as an interest distribution.
Post year end, on 22 February 2024, the
Company declared an interim dividend of 1.42p per ordinary share in
respect of the period from 1 October 2023 to 31 December
2023, which will be paid on 28 March 2024 to shareholders on
the register as at 29 February 2024.
Therefore, the total dividends paid by the
Company in respect of the year ended 31 December 2023 were
5.56p per ordinary share, exceeding the dividend target of 5.52p
per share.
Dividend policy
The Board expects that dividends will constitute
the principal element of the return to the holders of ordinary
shares. The Company is targeting quarterly dividend payments of at
least 1.42p or 5.68p in total per ordinary share for the financial
year ending 31 December 2023, in line with its progressive
dividend policy.
Subject to market conditions and the level of
the Company's net income, it is intended that dividends on the
shares will be payable quarterly, all in the form of interim
dividends (the Company does not intend to pay any final dividends).
Subject to satisfying the requirements for investment trust status,
the Board reserves the right to retain within a revenue reserve a
proportion of the Company's net income in any financial year, such
reserve then being available at the Board's absolute discretion for
subsequent distribution to shareholders, subject to the
requirements of the IT Regulations. The dividend policy is subject
to an annual vote at each AGM. The Company may, at the discretion
of the Board, and to the extent possible, pay all or part of any
future dividend out of capital reserves.
The Company may offer with the prior authority
of shareholders and subject to such terms and conditions as the
Board may determine, shareholders (excluding any holder of treasury
shares) the opportunity to elect to receive ordinary shares,
credited as fully paid, instead of the whole, or some part, of any
dividend. The ability to issue ordinary shares in lieu of cash
would provide the Company with the flexibility to retain cash where
to do so would benefit the Company.
The Board may designate part of each dividend
paid by the Company insofar as it represents "qualifying interest
income" received by the Company as interest distributions for UK
tax purposes. It is expected that a variable proportion of the
Company's distributions will take the form of interest
distributions. Prospective investors should note that the UK
tax treatment of the Company's distributions may vary for a
shareholder depending upon the classification of such
distributions. Prospective investors who are unsure about the tax
treatment that will apply in respect of any distributions made by
the Company should consult their own tax advisers.
Share capital structure
Issue of shares
No shares were issued during the year under
review or since the year end.
Purchase of shares
At the AGM held on 25 April 2023, the
Company was granted authority to purchase up to 14.99% of its
ordinary share capital in issue, amounting to 63,332,583 ordinary
shares. During the year ended 31 December 2023, the Company
purchased in the stock market 7,027,321 ordinary shares (with a
nominal value of £70,273.21) to be held in treasury, at a total
cost of £5,399,770. This represented 1.66% of the issued share
capital at 31 December 2022. No shares were purchased for
cancellation during the year. The share purchases were made with a
view to reducing discount volatility.
Shares held in treasury
Holding shares in treasury enables a company to
cost-effectively issue shares that might otherwise have been
cancelled. The total number of shares held in treasury as at
31 December 2023 was 7,027,321 shares (with a nominal value of
£70,273). This represents 1.66% of the issued share capital as at
the year end.
Current share capital
As at 31 December 2023, the Company's
issued share capital comprised 422,498,890 ordinary shares, each of
£0.01 nominal value, of which 7,027,321 shares were held in
treasury.
At general meetings of the Company, ordinary
shareholders are entitled to one vote on a show of hands and, on a
poll, to one vote for every ordinary share held. Shares held in
treasury do not carry voting rights.
At 4 April 2024, the total voting rights in the
Company were 409,728,422.
STATEMENT OF DIRECTORS'
RESPONSIBILITIES
The Directors are responsible for preparing the
annual report and the financial statements in accordance with UK
adopted international accounting standards and applicable law and
regulations.
Company law requires the Directors to prepare
financial statements for each financial year. Under that law, they
are required to prepare the Company financial statements in
accordance with UK adopted international accounting standards.
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the
profit or loss for the Company for that period.
In preparing these financial statements, the
Directors are required to:
• select suitable
accounting policies and then apply them consistently;
• make judgements
and accounting estimates that are reasonable and
prudent;
• state whether they have
been prepared in accordance with UK adopted international
accounting standards, subject to any material departures disclosed
and explained in the financial statements;
• prepare the financial
statements on the going concern basis unless it is inappropriate to
presume that the Company will continue in business; and
• prepare a Directors' report, a
Strategic report and Directors' remuneration report which comply
with the requirements of the Companies Act 2006.
The Directors are responsible for keeping
adequate accounting records that are sufficient to show and explain
the Company's transactions and disclose with reasonable accuracy at
any time the financial position of the Company and enable them to
ensure that the financial statements comply with the Companies
Act 2006.
They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities. The
Directors are responsible for ensuring that the annual report and
accounts, taken as a whole, are fair, balanced, and understandable
and provides the information necessary for shareholders to assess
the Group's performance, business model and strategy.
Website publication
The Directors are responsible for ensuring the
annual report and the financial statements are made available on a
website. Financial statements are published on the Company's
website in accordance with legislation in the United Kingdom
governing the preparation and dissemination of financial
statements, which may vary from legislation in other jurisdictions.
The maintenance and integrity of the Company's website is the
responsibility of the Directors and has been delegated to the
Investment Manager. The Directors' responsibility also extends to
the ongoing integrity of the financial statements contained
therein.
Directors' responsibilities pursuant to
DTR4
The Directors, to the best of their knowledge,
confirm that:
• the financial
statements have been prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit of the Company;
and
• the annual report
includes a fair review of the development and performance of the
business and the financial position of the Company, together with a
description of the principal risks and uncertainties that it
faces.
The Directors consider that the annual report
and financial statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
Approval
This Directors' responsibilities statement was
approved by the Board of Directors and signed on its behalf
by:
Bernard Bulkin
Chair
4 April 2024
NON-STATUTORY ACCOUNTS
The financial information set out
below does not constitute the Company's statutory accounts for the
year ended 31 December 2023 or the year ended 31 December 2022 but
is derived from those accounts. Statutory accounts for the period
ended 31 December 2022 have been delivered to the Registrar of
Companies and those for the year ended 31 December 2023 will be
delivered in due course. The Auditor has reported on those
accounts; their report was (i) unqualified, (ii) did not include a
reference to any matters to which the Auditor drew attention by way
of emphasis without qualifying their report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditor's report can be found in the
Company's full Annual Report and Accounts for the year ended 31
December 2023 at https://www.vh-gseo.com.
STATEMENT OF
COMPREHENSIVE INCOME
For the year ended 31 December 2023
|
|
For the
year ended
31 December 2023
|
For the
year ended
31 December 2022
|
|
Note
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Income
|
|
|
|
|
|
|
|
Gains on
investments
|
7
|
-
|
32,517
|
32,517
|
-
|
4,131
|
4,131
|
Investment
income
|
4
|
29,326
|
-
|
29,326
|
28,823
|
-
|
28,823
|
Total income and
gains
|
|
29,326
|
32,517
|
61,843
|
28,823
|
4,131
|
32,954
|
Investment
management fees
|
15
|
(4,372)
|
-
|
(4,372)
|
(3,810)
|
-
|
(3,810)
|
Other
expenses
|
5
|
(2,132)
|
-
|
(2,132)
|
(940)
|
-
|
(940)
|
Profit/(loss) for the year
before taxation
|
|
22,822
|
32,517
|
55,339
|
24,073
|
4,131
|
28,204
|
Taxation
|
6
|
-
|
-
|
-
|
-
|
-
|
-
|
Profit/(loss) for the year
after taxation
|
|
22,822
|
32,517
|
55,339
|
24,073
|
4,131
|
28,204
|
Profit and total
comprehensive income attributable to:
|
|
|
|
|
|
|
|
Equity holders of the
Company
|
|
22,822
|
32,517
|
55,339
|
24,073
|
4,131
|
28,204
|
Earnings/(loss) per share -
basic and diluted (p)
|
17
|
5.42
|
7.72
|
13.14
|
6.55
|
1.12
|
7.67
|
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 below form part of these financial
statements.
STATEMENT OF FINANCIAL
POSITION
As at 31 December 2023
|
Note
|
As at
31 December 2023
£'000
|
As at
31 December 2022
£'000
|
Non-current
assets
|
|
|
|
Investments
at fair value through profit or loss
|
7
|
369,047
|
315,133
|
Total non-current
assets
|
|
369,047
|
315,133
|
Current
assets
|
|
|
|
Cash and
cash equivalents
|
10
|
74,258
|
141,791
|
Cash
receivable
|
9
|
40,367
|
-
|
Other
receivables
|
9
|
441
|
740
|
Total current
assets
|
|
115,066
|
142,531
|
Total
assets
|
|
484,113
|
457,664
|
Current
liabilities
|
|
|
|
Accounts
payable and accrued expenses
|
11
|
(270)
|
(491)
|
Total current
liabilities
|
|
(270)
|
(491)
|
Total
liabilities
|
|
(270)
|
(491)
|
Net assets
|
18
|
483,843
|
457,173
|
Capital and
reserves
|
|
|
|
Share
capital
|
13
|
4,225
|
4,225
|
Share
premium
|
13
|
186,368
|
186,368
|
Special
distributable reserve
|
13
|
227,067
|
232,467
|
Capital
reserve
|
|
58,694
|
26,177
|
Revenue
reserve
|
|
7,489
|
7,936
|
Total capital and reserves
attributable to equity holders of the Company
|
|
483,843
|
457,173
|
Net asset value per ordinary
share (p)
|
18
|
116.46
|
108.21
|
The financial statements were approved and
authorised for issue by the Board of Directors on 4 April 2024 and
signed on its behalf by:
Bernard
Bulkin
Chair
Company Registration Number 12986255
The notes below form part of these
financial statements.
STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2023
For the
year ended 31 December 2023
|
Note
|
Share
capital
£'000
|
Share
premium
account
£'000
|
Special distributable reserve
£'000
|
Capital
reserve
£'000
|
Revenue reserve
£'000
|
Total
£'000
|
Opening
balance
|
|
4,225
|
186,368
|
232,467
|
26,177
|
7,936
|
457,173
|
Shares
bought back
|
13
|
-
|
-
|
(5,400)
|
-
|
-
|
(5,400)
|
Total comprehensive income
for the year
|
|
-
|
-
|
-
|
32,517
|
22,822
|
55,339
|
Interim dividends paid during
the year
|
14
|
-
|
-
|
-
|
-
|
(23,269)
|
(23,269)
|
Balance at 31 December
2023
|
|
4,225
|
186,368
|
227,067
|
58,694
|
7,489
|
483,843
|
For the
year ended 31 December 2022
|
Note
|
Share
capital
£'000
|
Share
premium
account
£'000
|
Special distributable reserve
£'000
|
Capital
reserve
£'000
|
Revenue reserve
£'000
|
Total
£'000
|
Opening
balance
|
|
3,116
|
67,949
|
232,467
|
22,046
|
(1,680)
|
323,898
|
Issue of
share capital
|
13
|
1,109
|
120,891
|
-
|
-
|
-
|
122,000
|
Cost of
issue of shares
|
13
|
-
|
(2,472)
|
-
|
-
|
-
|
(2,472)
|
Total comprehensive income
for the year
|
|
-
|
-
|
-
|
4,131
|
24,073
|
28,204
|
Interim dividends paid during
the year
|
|
-
|
-
|
-
|
-
|
(14,457)
|
(14,457)
|
Balance at 31 December
2022
|
|
4,225
|
186,368
|
232,467
|
26,177
|
7,936
|
457,173
|
A total of 422,498,890 ordinary shares were
issued since the Company's date of incorporation to
31 December 2023.
During the year, the Company purchased for
treasury a total of 7,027,321 ordinary shares.
The capital reserve represents the unrealised
gains or losses on the revaluation of investments. The unrealised
element of the capital reserve is not distributable.
The special distributable and revenue reserves
are distributable to shareholders of the Company.
The notes below form part of these
financial statements.
STATEMENT OF CASH
FLOWS
For the year ended 31 December 2023
|
Note
|
For the year ended
31 December 2023
£'000
|
For the year ended
31 December 2022
£'000
|
Cash flows from operating
activities
|
|
|
|
Profit
before tax
|
|
55,339
|
28,204
|
Adjustments
for:
|
|
|
|
Movement in
fair value of investments
|
7
|
(31,095)
|
(4,148)
|
Interest on
cash deposits
|
4
|
(5,865)
|
(2,310)
|
Operating result before
working capital changes
|
|
18,379
|
21,746
|
(Increase)/decrease in other receivables
|
9
|
(40,068)
|
71
|
Increase/(decrease) in accounts payable and accrued
expenses
|
11
|
(221)
|
151
|
Net cash (used in)/generated
from operating activities
|
|
(21,910)
|
21,968
|
Cash flows from investing
activities
|
|
|
|
Purchase of
investments
|
7
|
(22,819)
|
(151,367)
|
Interest on
cash deposits
|
4
|
5,865
|
2,310
|
Net cash used in investing
activities
|
|
(16,954)
|
(149,057)
|
Cash flows from financing
activities
|
|
|
|
Proceeds
from issue of shares
|
|
-
|
122,000
|
Share
buybacks
|
13
|
(5,400)
|
-
|
Payment of
share issue costs
|
|
-
|
(2,472)
|
Dividends
paid in the year
|
14
|
(23,269)
|
(14,457)
|
Net cash (used in)/generated
from financing activities
|
|
(28,669)
|
105,071
|
Net decrease in cash and cash
equivalents
|
|
(67,533)
|
(22,019)
|
Cash and
cash equivalents at beginning of the year
|
|
141,791
|
163,810
|
Cash and cash equivalents at
end of the year
|
10
|
74,258
|
141,791
|
The notes below form part of these
financial statements.
Notes to the financial statements
1. General
information
VH Global Sustainable Energy
Opportunities plc (the "Company") is a closed-ended investment
company, incorporated in England and Wales on 30 October 2020
as a public limited company 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 appointed Victory Hill Capital
Partners LLP as the Investment Manager & AIFM
pursuant to the Investment Management Agreement dated 3 May
2023.
The Company has registered, and intends to carry
on business, as an investment trust with an investment objective 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 and
OECD Accession Countries.
The financial statements comprise only the
results of the Company, as its investment in VH GSEO UK Holdings
Limited is measured at fair value through profit or loss in line
with IFRS 10 as explained in note 2.
2. Material accounting
policy information
2.1 Basis of
preparation
The financial statements have been prepared in
accordance with UK-adopted international accounting standards and
with the requirements of the Companies Act 2006 as applicable
to companies reporting under those standards.
The financial statements are prepared on the
historical cost basis, except for revaluation of certain financial
investments at fair value through profit or loss. The principal
accounting policies adopted are set out below and consistently
applied, subject to changes in accordance with any amendments in
IFRS.
The financial statements have also been
prepared, as far as is consistent with adopted 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
April 2021 by the Association of Investment Companies
(AIC).
The financial statements incorporate the
financial statements of the Company only. 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. These financial statements are presented in pounds
sterling and are rounded to the nearest thousand, unless otherwise
stated.
The preparation of financial statements in
compliance with adopted IFRS requires the use of certain critical
accounting estimates it also requires the Company's management to
exercise judgment in applying the Company's accounting policies.
The areas where significant judgments and estimates have been made
in preparing the financial statements and their effect are
disclosed in note 3.
2.2 Investment entity and basis
of non-consolidation of subsidiaries
The sole objective of the Company, through its
subsidiary GSEO Holdings, is to make investments, via individual
corporate entities. The Company typically will subscribe for equity
in or issue loans to GSEO Holdings in order for it to finance its
investments.
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.
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 notion of
an investment time frame is critical. An investment entity should
not hold its investments indefinitely but should have an exit
strategy for their realisation.
In this regard, GSEO Holdings is itself an
investment entity. Consequently, the Company need not have an exit
strategy for its investment in GSEO Holdings.
As for investments in subsidiaries, the Company
intends to hold each investment until the end of its life, at which
point the assets are expected to have no residual value. The
Directors consider that this demonstrates a clear exit strategy
from these investments. 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 and the
Directors consider that this demonstrates a clear exit strategy
from these investments.
Subsidiaries are therefore measured at fair
value through profit or loss, in accordance with IFRS 13 "Fair
Value Measurement", IFRS 10 "Consolidated Financial
Statements" and IFRS 9 "Financial Instruments".
Further detail on the significant judgements in
the basis of non-consolidation of the subsidiaries of the Company
is disclosed in note 3.
2.3 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.
The Company faces a number of risks and
uncertainties, as set out in the Strategic Report above. The
financial risk management objectives and policies of the Company,
including exposure to price risk, interest rate risk, credit risk
and liquidity risk are discussed in note 12 to the financial
statements.
The Company continues to meet day-to-day
liquidity needs through its cash resources. As at 31 December
2023, the Company had net current assets of £114.8m
(2022: £142m) and cash balances of £74.3m (2022: £141.8m)
and cash receivables of £40.4m (2022: £0), which are
sufficient to meet current obligations as they fall due. There is
no external debt at the Company as at year end.
The major cash outflows of the Company are the
payment of dividends and costs relating to the acquisition of new
assets, both of which are discretionary.
The Directors have reviewed Company forecasts
and pipeline projections which cover a period of at least
12 months from the date of approval of this report,
considering foreseeable changes in investment and the wider
pipeline, which show that the Company has sufficient financial
resources to continue in operation for at least the next
12 months from the date of approval of this report.
Furthermore, the Directors have considered a worst case scenario in
which the Company is assumed to meet all of its remaining
investment commitments within the next 12 months, in addition
to dividend payments and ongoing operating expenses. Even in this
unlikely scenario, the Company has sufficient headroom to meet all
expected cash outflows with its existing cash balances.
The Directors have considered factors relating
to the wider global macroeconomic environment in 2023, in
particular changes in inflation and interest rates. As the
Company's income is primarily inflation-linked, a rise in inflation
would have a positive impact on cashflows from operating assets and
an uplift in valuation of the investment portfolio. An increase in
interest rates may result in an increase in risk-free rates,
therefore negatively impacting valuation of investments.
Furthermore, the Company has no physical assets in Ukraine, Russia,
the Middle East or Eastern Europe and therefore, regional
geopolitical factors have an immaterial impact on the
Company.
Based on its assessment above, the Directors
have a reasonable expectation that the Company has sufficient
resources to continue in operational existence 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. Accordingly, they continue
to adopt the going concern basis in preparing the financial
statements.
2.4 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.
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 plus transaction cost except for those designated as
fair value through profit or loss, which are recognised at fair
value only. 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.
Investments held at fair value through profit
or loss
The Company accounts for its investment in its
wholly owned direct subsidiary GSEO Holdings at fair value through
profit and loss in accordance with IFRS 9. At initial
recognition, investments in sustainable energy infrastructure
projects in GSEO Holdings are measured at fair value through profit
or loss. Subsequently, gains or losses resulting from the movement
in fair value are recognised in the Statement of Comprehensive
Income at each valuation point. As both the Company and GSEO
Holdings are investment entities under IFRS, the Company includes
its investment in GSEO Holdings at fair value through profit or
loss.
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. The Company measures its investment
as a single class of financial asset at fair value in accordance
with IFRS 13 Fair Value Measurement.
Gains or losses resulting from the movement in
fair value are recognised in the statement of comprehensive income
at each valuation point and are allocated to the capital column of
the statement of comprehensive income.
Refer to note 7 for details regarding the
valuation methodology of investments.
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 statement of comprehensive
income.
Fair value is defined as the amount for which an
asset could be exchanged between knowledgeable willing parties in
an arm's length transaction. The Board will consider any observable
market transactions and will measure fair value using assumptions
that market participants would use when pricing the asset,
including any assumptions regarding risk surrounding the
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 cashflow has expired.
2.5 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 3 months or
less, that are readily convertible to a known amount of cash and
are subject to an insignificant risk of changes in
value.
2.6 Foreign currencies
Transactions entered into by the Company in a
currency other than its functional currency are recorded at the
rates ruling when the transactions occur.
Foreign currency monetary assets and liabilities
are translated to the functional currency at the exchange rate
ruling at the balance sheet date. Foreign exchange differences
arising on translation to the functional currency are recognised in
the Statement of Comprehensive Income, within other expenses or
other income. Foreign exchange differences relating to investments
held at fair value through profit or loss are shown within
gains/losses on investments within the Statement of Financial
Position.
2.7 Dividends
Dividends payable to the Company's shareholders
are recognised as distributions in the financial statements when
the Company's obligation to make payment has been
established.
2.8 Income recognition
Investment income comprises interest income on
shareholder loan investments and dividend income from GSEO
Holdings, which are recognised when the Company's entitlement to
receive payment is established. Interest income from cash deposits
is recognised in the statement of comprehensive income using the
effective interest method. Investment income and interest income
are allocated to the revenue column of the Company's statement of
comprehensive income unless such income is of a capital
nature.
Gains and losses on fair value of investments in
the income statement represent gains or losses that arise from the
movement in the fair value of the Company's investment in GSEO
Holdings. Movements in relation to the fair value of investments
are allocated to the capital column of the Company's statement of
comprehensive income at each valuation point.
2.9 Expenses
Expenses are accounted for on an accruals basis.
Expenses include AIFM, investment management fees and other
expenses which are allocated to the revenue column of the Statement
of Comprehensive Income. 100% of the investment management fees are
charged as an expense item within the Statement of Comprehensive
Income. Fees relating to the AIFM and Investment Manager are
detailed in note 15.
Share issue expenses of the Company directly
attributable to the issue and listing of shares are charged to the
share premium account.
2.10 Share capital and share
premium
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 associated or directly attributable to the
issue of new equity shares are recognised as a deduction in equity
and are charged from the share premium account. Incremental costs
include those incurred in connection with the placing and admission
which include fees payable under a placing agreement, legal costs,
and any other applicable expenses.
2.11 Taxation
Investment trusts which have approval under
Section 1158 of the Corporation Tax Act 2010 are not
liable for taxation on capital gains. The Company has successfully
applied and has been granted approval as an Investment Trust by
HMRC.
The underlying intermediate holding companies
and project companies in which the Company invests provide for and
pay taxation at the appropriate rates in the countries in which
they operate. This is taken into account when assessing the value
of the subsidiaries.
2.12 Segmental reporting
The Board of Directors, being the Chief
Operating Decision Maker (the "CODM"), is of the opinion that the
Company is engaged in a single segment of business, being
investment in Global Sustainable Energy Opportunities.
The Company has no single major customer. The
internal financial information to be used by the CODM on a
quarterly basis to allocate resources, assess performance and
manage the Company will present the business as a single segment
comprising the portfolio of investments in energy efficiency
assets.
The financial information used by the Board to
manage the Company presents the business as a single
segment.
2.13 Changes to accounting standards and
interpretations
In the current year, the Company has applied a
number of amendments to IFRS Accounting Standards issued by the
International Accounting Standards Board (IASB) that are
mandatorily effective for an accounting period that begins on or
after 1 January 2023.
The impact of these standards is not expected to
be material to the reported results and financial position of the
Company.
• IFRS 17 Insurance
Contracts (including the June 2020 and December 2021 Amendments to
IFRS 17).
The Company does not have any contracts that
meet the definition of an insurance contract under
IFRS 17.
• Amendments to IAS 1
Presentation of Financial Statements and IFRS Practice Statement 2
Making Materiality Judgements- Disclosure of Accounting
Policies
• Amendments to IAS 12
Income Taxes-Deferred Tax related to Assets and Liabilities arising
from a Single Transaction
• Amendments to IAS
12 Income Taxes- International Tax Reform-Pillar Two Model
Rules
• Amendments to IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors-Definition of
Accounting Estimates
The table below shows a number of standards and
interpretations which had been published but not yet
effective.
Description
|
Effective
Date
|
Amendments to the
following standards:
|
Periods beginning on
or after 1 January 2024
|
• IFRS 10 and IAS 28 Leases (Sale
or Contribution of Assets between an Investor and its
Associate or Joint Venture)
•
IAS 1 Presentation of Financial Statements (Classification of
Liabilities as Current or Non-Current)
•
IAS 1 Presentation of Financial Statements (Non-current
Liabilities with Covenants)
•
IAS 7 and IFRS 7 (Supplier Finance Arrangements)
•
IAS 16 (Lease Liability in a Sale and Leaseback)
|
|
The Directors do not expect that the adoption of
the Standards listed above will have a material impact on the
financial statements of the Company in future
periods.
3. Critical accounting
estimates, judgements, and assumptions
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.
The estimates and underlying assumptions
underpinning our investments are reviewed on an ongoing basis by
both the Directors and the Investment Manager. Revisions to
accounting estimates are recognised in the period in which the
estimates are revised and in any future periods
affected.
Significant estimates, judgements and
assumptions for the year are set out as follows:
Key judgement: Investment entity and basis
of non-consolidation
As detailed in note 2.2, the Directors have
concluded that the Company and its wholly owned direct subsidiary,
GSEO Holdings, meet the definition of an investment entity by
satisfying the three key conditions as set out 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.
Being investment entities, the Company's
investment in GSEO Holdings is measured at fair value as opposed to
being consolidated on a line-by-line basis, meaning their balance
sheet is included in the fair value of investments rather than in
the Company's balance sheet.
The Directors believe the treatment outlined
above provides the most relevant information to
investors.
Key estimation and uncertainty: Fair value
estimation for investments at fair value
Fair value for each investment held through GSEO
Holdings is calculated by the Investment Manager as investments are
not traded in active markets. 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. The fair value of investments that are in
construction as at year end are measured on a cost basis, as the
most appropriate proxy of their fair value.
In a DCF analysis the fair value is derived from
the present value of the investment's expected future cash flows to
the Company's intermediate holdings i.e. GSEO Holdings, from
investments in both equity (dividends) and shareholder loans
(interest and repayments). The DCF models use observable data, to
the extent practicable, and apply reasonable assumptions and
forecasts for revenues, operating costs, macro-level factors,
project specific factors and an appropriate discount rate. Changes
in assumptions about these factors could affect the reported fair
value of investments, which is detailed in note 7 which
considers the sensitivity of key modelling assumptions on the
Company's net asset value.
The Investment Manager exercises their judgement
in assessing the discount rate applied in the valuation of 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. The discount rates
are reviewed quarterly and updated, where appropriate, to reflect
changes in the market and in the project risk
characteristics.
The risk of climate change has been considered
in the valuation of investments, where applicable. Future power
prices are estimated using forecast data from third-party
specialist consultancy reports, which reflect various factors
including gas prices, carbon prices and renewables
deployment.
Short to medium term inflation assumptions used
in the valuations are based on third party forecasts. In the longer
term, an assumption is made that inflation will increase at a
long-term rate.
The estimates and assumptions that are used in
the calculation of the fair value of investments is disclosed in
note 7.
Key judgement: Equity and debt investment
in GSEO Holdings
The Company classifies its investments based on
its business model for managing those financial assets and the
contractual cash flow characteristics of the financial assets. The
portfolio of investments is managed, and performance is evaluated
on a fair value basis.
The contractual cash flows of the Company's
shareholder loans (debt investments) are solely principal and
interest, however, these are not held for the purpose of collecting
contractual cash flows. The collection of contractual cash flows is
only incidental to achieving the Company's business model's
objective.
Consequently, in applying their judgement, the
Directors have satisfied themselves that the equity and debt
investments into its direct wholly owned subsidiary, GSEO Holdings,
share the same investment characteristics and, as such, constitute
a single asset class for IFRS 7 disclosure
purposes.
4. Investment
income
|
For the
year ended
31 December 2023
|
For the
year ended
31 December 2022
|
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Interest on
cash deposits
|
5,865
|
-
|
5,865
|
2,310
|
-
|
2,310
|
Interest
income from investments
|
6,260
|
-
|
6,260
|
4,906
|
-
|
4,906
|
Dividend
income
|
17,200
|
-
|
17,200
|
21,607
|
-
|
21,607
|
Investment
income
|
29,325
|
-
|
29,325
|
28,823
|
-
|
28,823
|
5.
Operating expenses
|
For the year ended
31 December 2023
£'000
|
For the year ended
31 December 2022
£'000
|
Fees to the
Company's Auditor:
|
|
|
Statutory
audit of the year-end financial statements
|
223
|
170
|
Assurance
related services for the interim report
|
70
|
50
|
Other
non-audit services
|
84
|
48
|
Tax
advisory fees
|
14
|
10
|
AIFM
fees
|
66
|
74
|
Directors'
fees
|
345
|
220
|
Due
diligence fees
|
349
|
2
|
Administration and depositary fees
|
227
|
188
|
Professional fees
|
70
|
104
|
Other
expenses
|
684
|
74
|
Total
operating expenses
|
2,132
|
940
|
Fees with respect to the Investment Management
and AIFM services are set out in note 15.
The Company had no employees during the year.
Full detail on Directors' fees is provided in the Directors'
Remuneration Report. There were no other emoluments during the
year.
6. Taxation
a. Analysis of charge in
the year
|
For the
year ended 31 December 2023
|
For the
year ended 31 December 2022
|
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Corporation
tax
|
-
|
-
|
-
|
-
|
-
|
-
|
b. Factors affecting total
tax charge for the year
The effective UK corporation tax rate applicable
to the Company for the year is 23.52% (2022: 19%). The tax
charge differs from the charge resulting from applying the standard
rate of UK corporation tax for an investment trust
company.
|
For the
year ended 31 December 2023
|
For the
year ended 31 December 2022
|
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Revenue
£'000
|
Capital
£'000
|
Total
£'000
|
Profit for
the year before taxation
|
22,822
|
32,517
|
55,339
|
24,073
|
4,131
|
28,204
|
Corporation
tax at 23.52%
|
5,368
|
7,648
|
13,016
|
4,574
|
785
|
5,359
|
Effect
of:
|
|
|
|
|
|
|
Capital
(gains) / losses not taxable
|
-
|
(7,648)
|
(7,648)
|
-
|
(785)
|
(785)
|
Expenditure
not deductible
|
1
|
-
|
1
|
(96)
|
-
|
(96)
|
Non-taxable
UK dividends
|
(4,046)
|
-
|
(4,046)
|
(4,105)
|
-
|
(4,105)
|
Management
expenses not utilised/recognised
|
161
|
-
|
161
|
(180)
|
-
|
(180)
|
Interest
distributions
|
(1,014)
|
-
|
(1,014)
|
|
|
|
Proposed
Interest distributions
|
(470)
|
-
|
(470)
|
(193)
|
-
|
(193)
|
Total tax charge for the
year
|
-
|
-
|
-
|
-
|
-
|
-
|
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.
Additionally, the Company may utilise the
interest streaming election which allows the Company to designate
dividends wholly or partly as interest distributions for UK tax
purposes. Interest distributions are treated as tax deductions
against taxable income of the Company so that investors do not
suffer double taxation on their returns.
The financial statements do not directly include
the tax charges for the Company's intermediate holding company, as
GSEO Holdings is held at fair value. GSEO Holdings is subject to
taxation in the United Kingdom.
c. Deferred
taxation
The Company has excess management expenses of
£945,780 (2021: £262,400) that are available for offset
against future profits. A deferred tax asset of £236,445
(2021: £65,600) has not been recognised in respect of these
losses as they will be recoverable only to the extent that the
Company has sufficient future taxable profits.
The Company has not provided for deferred tax on
any capital gains or losses arising on the revaluation of
investments.
7. Investments at fair
value through profit or loss
As set out in note 2.2, the Company
designates its interest in its wholly owned direct subsidiary GSEO
Holdings as an investment 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.
The Company classifies all assets measured at
fair value as below:
Fair value hierarchy
As at
31 December 2023
|
Total
£'000
|
Quoted prices
in active markets
(level 1)
£'000
|
Significant Observable inputs
(level 2)
£'000
|
Significant unobservable inputs
(level 3)
£'000
|
Assets measured at fair
value:
|
|
|
|
|
Non-current
assets
|
|
|
|
|
Investments
held at fair value through profit or loss
|
369,047
|
-
|
-
|
369,047
|
As at
31 December 2022
|
Total
£'000
|
Quoted prices
in active
markets
(level 1)
£'000
|
Significant
observable
inputs
(level 2)
£'000
|
Significant
unobservable
inputs
(level 3)
£'000
|
Assets measured at fair
value:
|
|
|
|
|
Non-current
assets
|
|
|
|
|
Investments
held at fair value through profit or loss
|
315,133
|
-
|
-
|
315,133
|
All of the Company's investments have been
classified as Level 3 and there have been no transfers between
levels during the year ended 31 December 2023.
The movement on the level 3 unquoted investment
during the year is shown below:
|
As at
31 December 2023
£'000
|
As at
31 December 2022
£'000
|
Opening
balance at beginning of the year
|
315,133
|
159,618
|
Additions
during the year at cost
|
22,819
|
151,367
|
|
337,952
|
310,985
|
Fair value movement on
investments:
|
|
|
Change in
fair value of equity investments1
|
32,649
|
4,144
|
Interest on
loan investments2
|
(1,554)
|
4
|
Total fair
value movement on investments
|
31,095
|
4,148
|
Closing
balance
|
369,047
|
315,133
|
1 The £32,517k in the
Statement of Comprehensive Income within other expenses/income and
Statement of Changes in Equity is made up of unrealised gains of
£32,649k per this note and a realised foreign exchange loss of
£132k during the year.
2 This is the amount
related to the movement in accrued interest on shareholder
loans.
Further information on the basis of valuation is
detailed in note 3 to the financial statements.
Valuation methodology
As set out in note 2.2, the Company meets
the definition of an investment entity as described by
IFRS 10, as such the Company's investment in the GSEO Holdings
is valued at fair value.
The Company holds underlying investments in
special purpose entities (SPEs) through its equity and debt
investments in GSEO Holdings, as detailed in note 8. The
Investment Manager has carried out fair market valuations of the
SPE investments as at 31 December 2023.
IFRS 13 requires the Company to classify
its investments in a fair value hierarchy that reflects the
significance of the inputs used in making the measurements.
IFRS 13 establishes a fair value hierarchy that prioritises
the inputs to valuation techniques used to measure fair value. The
three levels of fair value hierarchy under IFRS 13 are as
follows:
Level
1: fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities
|
Level
2: fair value measurements are those derived from inputs other
than quoted prices included within Level 1 that ore observable for
the asset or liability, either directly (i.e., as prices) or
indirectly (i.e., derived from prices)
|
Level
3: fair value measurements are those derived from valuation
techniques that include inputs to the asset or liability that ore
not based on observable market data (unobservable
inputs)
|
There were no Level 1 or Level 2 assets or
liabilities during the year. There were no transfers between Level
1 and 2, Level 1 and 3 or Level 2 and 3 during the year.
The Company records the net asset value of GSEO
Holdings by calculating and aggregating the fair value of each of
the individual investments in which the Company holds an indirect
investment. Due to their nature, such investments are expected to
be classified as level 3 as they are not traded and contain
unobservable inputs. The Directors have satisfied themselves as to
the methodology used, the discount rates and key assumptions
applied, and the valuation.
The fair value of investments that are
operational as at year end are measured at fair value through
profit or loss using the DCF methodology in line with the
IFRS 13 framework for fair value measurement. As at
31 December 2023, the US terminal storage assets, two of the
five Australian solar PV with battery storage assets, the Brazilian
hydro facility and 10 of the 16 Brazilian solar PV assets are being
measured at fair value, using the DCF valuation.
Fair value of investments that are in
construction as at year end is measured on a cost basis, as the
most appropriate proxy of their fair value. At year end, the
remaining Australian solar PV with battery storage assets,
remaining Brazilian solar PV assets, and the UK flexible power with
CCR assets are in construction. The cost basis of those assets
under construction is regularly reviewed to determine if the cost
basis is the most appropriate basis of valuation as assets approach
their operational phase.
The total movement in the value of the
investments in GSEO Holdings is recorded through profit and loss in
the Statement of Comprehensive Income Statement of the
Company.
Valuation assumptions
The following economic assumptions were used in
the valuation of operating assets.
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 construction.
|
Power price
|
Power
prices are based on power price forecasts from leading market
consultants adjusted for expected deployment of energy transition
assets.
|
Energy
yield
|
Estimated
based on energy yield assessments from leading technical
consultants as well as operational performance data (where
applicable).
|
Inflation
rates
|
Long-term
inflation is based on International Monetary Fund (IMF) forecasts
for the respective jurisdiction.
|
Asset life
|
Refer to
the table below for details. 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.
|
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
|
|
|
31 December 2023
|
31 December 2022
|
Discount
rate
|
Weighted Average
|
US terminal storage
assets
|
6.91%
|
8.43%
|
|
Weighted Average
|
Australian solar PV with battery
storage assets
|
7.74%
|
8.55%
|
|
Weighted Average
|
Brazilian solar PV assets
|
9.67%
|
13.09%
|
|
Weighted Average
|
Brazilian hydro facility
|
9.54%
|
10.48%
|
Long-term
inflation1
|
United States
|
US terminal storage
assets
|
1.62%
|
2.0%
|
|
Australia
|
Australian solar PV with battery
storage assets
|
2.42%
|
2.5%
|
|
Brazil
|
Brazilian solar PV assets &
Brazilian hydro facility
|
3.03%
|
3.0%
|
Total asset
life
|
Years
|
US terminal storage
assets
|
30 years
|
30 years
|
|
Years
|
Australian solar PV with battery
storage assets
|
25 years
|
25 years
|
|
Years
|
Brazilian solar PV assets
|
25 years
|
25 years
|
|
Years
|
Brazilian hydro facility
|
25 years
|
25 years
|
Exchange
rate
|
GBP:USD
|
US terminal storage
assets
|
1:1.2732
|
1:1.210
|
|
GBP:BRL
|
Brazilian solar PV assets &
Brazilian hydro facility
|
1:6.1771
|
1:6.386
|
|
GBP:AUD
|
Australian solar PV with battery
storage assets
|
1:1.8689
|
1:1.775
|
1 Source: IMF. Inflation rates have been taken from IMF
published on 14 Oct 2023 (data is published biannually), which
provides yearly forecasted inflation up to 2028. Long-term
inflation rate refers to the 2028 projected rate. Short-term
inflation volatility of up to 2028 has been accounted for in the
valuation of operating assets.
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
and asset life.
The discount rate applied in the valuation of
the operating assets are as per the table above, which is
considered to be an appropriate base case for sensitivity analysis.
A variance of +/-1.5% is considered to be a reasonable range of
alternative assumptions for discount rate given the volatility of
discount rates used during the year.
The base case long term inflation rate
assumption depends on the geographical location for assets in
operation. These are disclosed in the table above. A variance of
+/-1% is considered to be a reasonable range of alternative
assumptions for inflation.
For assets in construction, the Company has only
sensitised the impact of foreign exchange fluctuations. A variance
of +/- 10% is considered to be a reasonable range of alternative
assumptions for foreign exchange.
The analysis below shows the sensitivity of the
investments value (and impact on NAV) to changes in key
assumptions. All sensitivity calculations have been performed on
the basis that each of the other assumptions remains constant and
unchanged.
For the annual report
As at
31 December 2023
|
Change in input
|
Changes in fair value of
investments
(£'000)
|
Change in NAV per share
(p)
|
Discount
rate - US terminal storage assets
|
-1.50%
|
22,034
|
5.30
|
|
1.50%
|
(17,339)
|
-4.17
|
Discount
rate - Australian solar PV with battery storage assets
|
-1.50%
|
1,973
|
0.47
|
|
1.50%
|
(1,616)
|
-0.39
|
Discount
rate - Brazilian solar PV assets
|
-1.50%
|
3,327
|
0.80
|
|
1.50%
|
(2,734)
|
-0.66
|
Discount
rate - Brazilian hydro facility
|
-1.50%
|
15,976
|
3.85
|
|
1.50%
|
(12,981)
|
-3.12
|
Discount rate -
All
|
-1.50%
|
43,310
|
10.42
|
|
1.50%
|
(34,670)
|
-8.34
|
As at
31 December 2023
|
Change in input
|
Changes in fair value of
investments
(£'000)
|
Change in NAV per share
(p)
|
Inflation -
US terminal storage assets
|
-1.00%
|
(10,833)
|
-2.61
|
|
1.00%
|
12,451
|
3.00
|
Inflation -
Australian solar PV with battery storage assets
|
-1.00%
|
(1,144)
|
-0.28
|
|
1.00%
|
1,458
|
0.35
|
Inflation -
Brazilian solar PV assets
|
-1.00%
|
(2,011)
|
-0.48
|
|
1.00%
|
2,295
|
0.55
|
Inflation -
Brazilian hydro facility
|
-1.00%
|
(11,997)
|
-2.89
|
|
1.00%
|
14,176
|
3.41
|
Long-term Inflation -
All
|
-1.00%
|
(25,984)
|
-6.25
|
|
1.00%
|
30,380
|
7.31
|
As at
31 December 2023
|
Change in input
|
Changes in fair value of
investments
(£'000)
|
Change in NAV per share
(p)
|
Asset life
- US terminal storage assets
|
-1 year
|
(1,888)
|
-0.45
|
|
+1 year
|
1,782
|
0.43
|
Asset life
- Australian solar PV with battery storage assets
|
-1 year
|
(333)
|
-0.08
|
|
+1 year
|
306
|
0.07
|
Asset life
- Brazilian solar PV assets
|
-1 year
|
(395)
|
-0.10
|
|
+1 year
|
370
|
0.09
|
Asset life
- Brazilian hydro facility
|
-1 year
|
(2,496)
|
-0.60
|
|
+1 year
|
2,426
|
0.58
|
Asset life -
All
|
-1 year
|
(5,112)
|
-1.23
|
|
+1 year
|
4,883
|
1.18
|
As at
31 December 2023
|
Change in input
|
Changes in fair value of
investments
(£'000)
|
Change in NAV per share
(p)
|
Operating
expenses - US terminal storage assets
|
-5.00%
|
4,224
|
1.02
|
|
5.00%
|
(4,224)
|
-1.02
|
Operating
expenses - Australian solar PV with battery storage
assets
|
-5.00%
|
275
|
0.07
|
|
5.00%
|
(266)
|
-0.06
|
Operating
expenses - Brazilian solar PV assets
|
-5.00%
|
828
|
0.20
|
|
5.00%
|
(816)
|
-0.20
|
Operating
expenses - Brazilian hydro facility
|
-5.00%
|
2,771
|
0.67
|
|
5.00%
|
(2,772)
|
-0.67
|
Operating expenses -
All
|
-5.00%
|
8,097
|
1.95
|
|
5.00%
|
(8,079)
|
-1.95
|
As at
31 December 2023
|
Change in input
|
Changes in fair value of
investments
(£'000)
|
Change in NAV per share
(p)
|
FX
(GBP:USD)
|
-10.00%
|
13,366
|
3.22
|
|
10.00%
|
(10,936)
|
-2.63
|
FX
(GBP:BRL)
|
-10.00%
|
18,787
|
4.73
|
|
10.00%
|
(15,372)
|
-3.70
|
FX
(GBP:AUD)
|
-10.00%
|
4,140
|
1.00
|
|
10.00%
|
(3,387)
|
-0.82
|
FX - All
|
-10.00%
|
36,293
|
8.74
|
|
10.00%
|
(29,694)
|
-7.15
|
The sensitivities above are assumed to be
independent of each other. Combined sensitivities are not
presented.
8. Unconsolidated
subsidiaries
The following table shows subsidiaries of the
Company. As the Company is regarded as an investment entity, these
subsidiaries have not been consolidated in the preparation of the
financial statements.
Investments
|
Place of Business
|
Ownership interests as at
31 December 2023
|
VH GSEO UK
Holdings Limited
|
United Kingdom
|
100%
|
Victory
Hill Distributed Energy Investments Limited
|
United Kingdom
|
100%
|
Victory
Hill Flexible Power Limited
|
United Kingdom
|
100%
|
Rhodesia
Power 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 Australia Investments Pty Ltd
|
Australia
|
100%
|
Victory
Hill Distributed Power Pty Ltd
|
Australia
|
100%
|
Mobilong
Solar Farm Pty Ltd
|
Australia
|
100%
|
Dunblane
Solar Pty Ltd
|
Australia
|
100%
|
Dubbo Solar
Project Pty Ltd
|
Australia
|
100%
|
Narrandera
Solar Project Pty Ltd
|
Australia
|
100%
|
Coleambally
East Solar Farm Pty Ltd
|
Australia
|
100%
|
VH
Participacoes Hidreletricas do Brasil LTDA
|
Brazil
|
98.25%
|
VH Hydro
Brasil Holding S.A.
|
Brazil
|
100%
|
Energest S.A.
|
Brazil
|
100%
|
Victory
Hill Holdings Brasil S.A.
|
Brazil
|
99.99%
|
Energea
Itaguaí I Ltda. *
|
Brazil
|
100%
|
Energea
Itaguaí II Ltda. *
|
Brazil
|
100%
|
Energea
Itaguaí III Ltda. *
|
Brazil
|
100%
|
Energea
Nova Friburgo Ltda. *
|
Brazil
|
100%
|
Energea
Itabaiana Ltda. *
|
Brazil
|
100%
|
Energea
Redenção Ltda. *
|
Brazil
|
100%
|
Energea
Itaporanga Ltda. *
|
Brazil
|
100%
|
Energea
Bataguassu Ltda. *
|
Brazil
|
100%
|
Energea
Palmas S.A. *
|
Brazil
|
100%
|
Energea
Itacarambi Ltda. *
|
Brazil
|
100%
|
Energea
Vassouras I Ltda. *
|
Brazil
|
100%
|
Energea
Seropédica Ltda. *
|
Brazil
|
100%
|
Energea
Paraíba do Sul Ltda. *
|
Brazil
|
100%
|
Energea
Taquaritinga Ltda. *
|
Brazil
|
100%
|
Energea
Nova Cruz Ltda. *
|
Brazil
|
100%
|
At 31 December 2023, the Company has one
direct subsidiary and owns 100% of GSEO Holdings. The Company owns
investments in the other entities per the table above through its
ownership of GSEO Holdings. GSEO Holdings owns 100% of Victory Hill
USA Holdings LLC, Victory Hill Australia Investments
Pty Ltd, Victory Hill Distributed Energy Investments Limited
and Victory Hill Flexible Power Limited and 98.25% of VH
Participacoes Hidreletricas do Brasil Ltda.
The Company's investments in Victory Hill
Midstream Investments LLC, Victory Hill Midstream
Energy LLC, Motus T1 LLC and Motus T2 LLC are held
through Victory Hill USA Holdings LLC. These relate to the US
terminal storage assets.
The Company's investments in Brazilian solar PV
assets are held through Victory Hill Distributed Energy Investments
Limited, which holds 99.99% of Victory Hill Holdings
Brasil S.A. The holdings of Victory Hill Holdings
Brasil S.A. are indicated by an asterisk in the list of
unconsolidated subsidiaries above.
The Company's investments in VH Hydro Brasil
Holding S.A. and Energest S.A. are held through VH
Participacoes Hidreletricas do Brasil LTDA. These relate to
the Brazilian hydro facility.
The Company's investments in Victory Hill
Distributed Power Pty Ltd, Mobilong Solar Farm Pty Ltd,
Dubbo Solar Project Pty Ltd, Narrandera Solar Project
Pty Ltd, Coleambally East Solar Farm Pty Ltd and Dunblane
Solar Pty Ltd are held through Victory Hill Australia
Investments Pty Ltd. These relate to the Australian solar PV
with battery storage assets.
The Company's investments in Rhodesia Power
Limited is held through Victory Hill Flexible Power Limited. These
relate to the UK flexible power with CCR assets.
9. Receivables
|
As at
31 December 2023
£'000
|
As at
31 December 2022
£'000
|
Other
receivables
|
93
|
96
|
Interest
receivable on cash and cash equivalents
|
317
|
270
|
Receivable
from affiliates
|
-
|
355
|
Prepayments
|
31
|
19
|
Total other
receivables
|
441
|
740
|
The Directors have analysed the expected credit
loss in respect of receivables and concluded there was no material
exposure for the year ended 31 December 2023 and
31 December 2022.
Cash of £40,367k is held on behalf of the
Company by VH GSEO UK Holdings Limited.
10. Cash and cash
equivalents
|
As at
31 December 2023
£'000
|
As at
31 December 2022
£'000
|
Cash at
bank
|
30,542
|
48,075
|
Cash on
deposit
|
43,716
|
93,716
|
Total cash at
bank1
|
74,258
|
141,791
|
1 Cash at bank includes money market investments of £26.4m
(31 December 2022: £93.7m)
11. Accounts payable and accrued
expenses
|
As at
31 December 2023
£'000
|
As at
31 December 2022
£'000
|
Accrued
expenses
|
270
|
491
|
Accounts
payable
|
-
|
-
|
Accounts payable and accrued
expenses
|
270
|
491
|
The Directors consider that the carrying amount
of other payables and accrued expenses matches their fair
value.
12. 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 Investment Manager has 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 may 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 Manager'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.
The Company invests in a portfolio of assets
through GSEO Holdings, which pays dividends in sterling to the
Company. Shareholder loan investments and interest are held and
paid in local currencies at the Company, including US$64,686,291
and A$40,290,000, representing a total of 15.0% of the Company's
NAV at year end.
Note 7 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. The Board considers that, because shareholder loan
investments bear interest at a fixed rate, they do not carry any
interest rate risk.
The Company may use borrowings for multiple
purposes, including for investment purposes. At the year 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 31 December 2023 and
31 December 2022 are summarised as below:
|
For the
year ended 31 December 2023
|
For the
year ended 31 December 2022
|
|
Interest
bearing
£'000
|
Non-interest bearing
£'000
|
Total
£'000
|
Interest
bearing
£'000
|
Non-interest bearing
£'000
|
Total
£'000
|
Cash and
cash equivalents
|
114,625
|
-
|
114,625
|
141,791
|
-
|
141,791
|
Prepayments
and other receivables
|
-
|
124
|
124
|
-
|
470
|
470
|
Interest
receivable
|
317
|
-
|
317
|
270
|
-
|
270
|
Investments
at fair value through profit or loss
|
93,347
|
275,700
|
369,047
|
89,047
|
226,086
|
315,133
|
Total
assets
|
208,289
|
275,824
|
484,113
|
231,108
|
226,556
|
457,664
|
Liabilities
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
-
|
(270)
|
(270)
|
-
|
(491)
|
(491)
|
Total
liabilities
|
-
|
(270)
|
(270)
|
-
|
(491)
|
(491)
|
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.
Price risk is limited to the fair value of
investments. Note 7 details sensitivity analysis on the impact
of changes to the inputs on the fair value of the Company's
investments and profits.
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. The Company's credit risk
exposure is minimised with its policy to enter into banking
arrangements with reputable financial institutions with a credit
rating of at least 'A/Positive' from Standard and Poor's and making
loan investments which are equity in nature. The Investment Manager
monitors the credit ratings of banks used by the Company on a
regular basis.
The table below shows the Company's maximum
exposure to credit risk:
|
As at
31 December 2023
£'000
|
As at
31 December 2022
£'000
|
Cash and
cash equivalents
|
114,625
|
141,791
|
Investments
at fair value through profit or loss
|
93,347
|
89,047
|
Other
receivables (Note 9)
|
441
|
740
|
|
208,413
|
231,578
|
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:
As at
31 December 2023
|
<3
Months
£'000
|
3-12
Months
£'000
|
1-5
Years
£'000
|
>5
Years
£'000
|
Total
£'000
|
Accounts
payable and accrued expenses
|
270
|
-
|
-
|
-
|
270
|
|
270
|
-
|
-
|
-
|
270
|
As at
31 December 2022
|
<3
Months
£'000
|
3-12
Months
£'000
|
1-5
Years
£'000
|
>5
Years
£'000
|
Total
£'000
|
Accounts
payable and accrued expenses
|
491
|
-
|
-
|
-
|
491
|
|
491
|
-
|
-
|
-
|
491
|
The Board of Directors monitors key risks faced
by the Company and has agreed policies for managing the above risks
with the Investment Manager.
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.
13. Share capital
Date
|
Issued and fully paid
|
Number of shares
|
Share
Capital
(A)
£'000
|
Share premium
(B)
£'000
|
Special Distributable Reserve
(C)
£'000
|
Total
(A+B+C)
£'000
|
Opening
balance
|
|
311,589,799
|
3,116
|
67,949
|
232,467
|
303,532
|
Ordinary
shares
|
|
110,909,091
|
1,109
|
120,891
|
-
|
122,000
|
Share issue
costs
|
|
-
|
-
|
(2,472)
|
-
|
(2,472)
|
At
31 December 2022
|
|
422,498,890
|
4,225
|
186,368
|
232,467
|
423,060
|
Opening
balance
|
|
422,498,890
|
4,225
|
186,368
|
232,467
|
423,060
|
Buyback of ordinary
shares
|
|
-
|
-
|
-
|
(5,400)
|
(5,400)
|
At
31 December 2023
|
|
422,498,890
|
4,225
|
186,368
|
227,067
|
417,660
|
During the period under review, the Company
purchased for treasury a total of 7,027,321 ordinary shares at an
aggregate cost of £5,399,769 (including stamp duty and other fees)
at an average price per ordinary share of 76.3p.
14. Dividends
The Company paid the below dividends during the
year.
Period
|
Pence per ordinary share
|
Total
dividend
|
Date paid
|
1 October 2022 - 31 December 2022
|
1.38p
|
£5.8m
|
31 March 2023
|
1 January 2023 - 31 March 2023
|
1.38p
|
£5.8m
|
30 June 2023
|
1 April 2023 to 30 June 2023
|
1.38p
|
£5.8m
|
14 September 2023
|
1 July
2023 to 30 September 2023
|
1.38p
|
£5.8m
|
8 December 2023
|
15. Transactions with AIFM,
Investment Manager and related parties
AIFM
On 3 May 2023 the Company entered into an
Alternative Investment Fund Management Agreement ("AIFM Agreement")
with Victory Hill Capital Partners LLP (the "AIFM") replacing
G10 Capital Limited. Victory Hill Capital Partners LLP is
acting as the Company's AIFM with overall responsibility for the
risk management and portfolio management of the Company, providing
alternative investment fund management services and ensuring
compliance with the requirements of the AIFM Rules, subject to the
overall supervision of the Board of Directors in accordance with
the policies set by the Directors from time to time and the
investment restrictions as set out in the AIFM
Agreement.
The AIFM Agreement provides that the Company
will pay to the AIFM a fixed monthly fee of £5,833, 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 twelve 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.
Investment Manager
The Investment Manager 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 £250m of NAV, 0.9% on NAV
in excess of £250m and up to and including £500m and 0.8% on NAV in
excess of £500m exclusive of VAT.
Furthermore, if in any fee period, the annual
fee paid to the Investment Manager exceeds:
a) £3.5m, the Investment Manager
shall apply 8% of the annual fee, subject to a maximum amount of
£400,000, to subscribe for or acquire ordinary shares of £0.01 each
in the capital of the Company.
b) £2.5m, the Investment
Manager shall apply 2% of the annual fee to be paid as a charitable
donation to O&C Limited, or other suitable registered charity
aimed at promoting sustainable energy, as selected by the
Investment Manager, provided that if, following the Investment
Manager's reasonable endeavours, a suitable charity cannot be
found, this 2% portion of the annual fee (net of any applicable
taxes) will be applied to the subscription for or acquisition of
ordinary shares.
The Investment Management Agreement may be
terminated on 12 months' written notice, provided that such
notice may not be served before 2 February 2025. The
Investment Management 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 management fees for the year
ended 31 December 2023 amounted to £4,371,947
(2022: £3,809,615) (including VAT) of which £0
(2022: £167,623) was outstanding and included in accounts
payable and accrued expenses at the end of the year.
No performance fee is payable to the Investment
Manager.
Directors
The Directors have been entitled to aggregate
annual remuneration (excluding expenses payable) as
follows:
|
For the year ended
31 December 2023
£'000
|
For the year ended
31 December 2022
£'000
|
Bernard
Bulkin OBE
|
81.5
|
70
|
Margaret
Stephens
|
58.5
|
50
|
Richard
Horlick
|
58.5
|
50
|
Louise
Kingham CBE
|
58.5
|
50
|
Daniella
Carneiro1
|
55.9
|
-
|
|
312.9
|
220
|
1 Daniella Carneiro joined the Board of Directors on
18 January 2023.
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 year
ended 31 December 2023, Directors' fees of £313,000
(2022: £220,000) were paid of which none was payable at the
year end.
The Directors held the following beneficial
interests in the ordinary shares of the Company as at
31 December 2023.
|
As at
31 December 2023
|
|
Number of ordinary shares
held
|
% of ordinary shares in
issue
|
Bernard
Bulkin OBE
|
46,362
|
0.009
|
Margaret
Stephens
|
28,181
|
0.007
|
Richard
Horlick
|
300,000
|
0.071
|
Louise
Kingham CBE
|
20,000
|
0.005
|
Daniella
Carneiro
|
-
|
-
|
Other balances with related parties
The Company entered into intercompany loan
agreements with GSEO Holdings, which entered into further
intercompany loan agreements with the following subsidiary
companies:
• Victory Hill
Flexible Power Ltd (£6,060,000) (31 December 2022:
£14,924,400)
• Victory Hill
Australia Investments Pty Ltd A$4,890,000 (31 December 2022:
A$35,400,000)
• Victory Hill USA
Holdings LLC US$1,021,290.60 (31 December 2022:
63,665,000)
As at the year-end, the Company held a
receivable from VH GSEO UK Holdings Limited of £40,366,849.32
(31 December 2022: Nil).
16. Contingent liabilities and
commitments
As at 31 December 2023, the Company had no
contingencies or commitments.
17. 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 on 1 January 2021 to 31 December 2023.
Amounts shown below are both basic and diluted measures as there
were no dilutive instruments in issue throughout the current
year.
|
For the
year ended 31 December 2023
|
For the
year ended 31 December 2022
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
Earnings
(£'000)
|
22,822
|
32,517
|
55,339
|
24,073
|
4,131
|
28,204
|
Weighted
average number of ordinary shares
|
421,086,053
|
421,086,053
|
421,086,053
|
367,500,135
|
367,500,135
|
367,500,135
|
EPS
(p)
|
5.42
|
7.72
|
13.14
|
6.55
|
1.12
|
7.67
|
18. 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 year.
|
Year ended
31 December 2023
|
Year ended
31 December 2022
|
NAV
(£'000)
|
483,843
|
457,173
|
Number of
ordinary shares
|
415,471,569*
|
422,498,890
|
NAV per
share (p)
|
116.46
|
108.21
|
* excluding the shares held in
treasury.
19. Post balance sheet
events
On 22 February 2024, the Board of Directors
announced an interim dividend of £5.8m equivalent to 1.42p per
ordinary share with respect to the period 1 October 2023 to
31 December 2023 which will be paid on 28 March
2024.
Post year end, the Company had announced
cumulative buybacks of 5,743,147 shares between 1 January 2024
and 4 April 2024.
20. Controlling
parties
There is no ultimate controlling party of the
Company.
ENDS
Neither the
contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other
website) is incorporated into, or forms part of, this
announcement.