TIDMNESF
RNS Number : 5874R
NextEnergy Solar Fund Limited
30 June 2015
30 June 2015
NextEnergy Solar Fund Limited
Final Results for period ended 31 March 2015
and Second Interim Dividend Declaration
NextEnergy Solar Fund ("NESF" or the "Company") announces its
results for the period ended 31 March 2015.
Highlights for the period
-- Investment portfolio as at 16 June 2015 (the "Date of
Preparation" of this annual report) of 16 solar Photovoltaic ("PV")
plants for a total 217MW installed capacity in operation, further
expanded after period end to c.235MW through two new
acquisitions
-- Energy generated from the portfolio amounted to 23.2GWh
(higher than budgeted by 4.8%) and revenues higher than budgeted by
1.9%
-- Successful completion of IPO and three further capital
raisings for total proceeds of GBP246.6m
-- Ability to issue a further 95.25m shares under the current
Placing Programme open until November 2015
-- Net Assets grew from GBP85.6m to GBP248.4m, a 290% increase
across the period. NAV per share increased from 100p to 103.3p over
the period
-- Reported profit for the period was GBP8.5m and earnings per share of 9.13p
-- First interim dividend of 2.625p per share for the period to
September 2014 paid in December 2014, second interim dividend for
the period ended 31 March 2015 of 2.625p, achieving target of 5.25p
for the first year
-- Targeting a 6.25p dividend distribution for the year ended 31 March 2016
-- Revolving Credit Facility of GBP31.5m secured and in the
process of being increased, in conjunction with additional
short-term financings
-- Strong pipeline of over 200MW short-term acquisition targets
and further opportunities under consideration
Financial highlights
As at 31 March 2015
Total capital raised GBP246.6m
NAV GBP248.4m
NAV per share 103.3p
Share price at 31 March 2015 103.8p
Number of shares 240.35m
Market capitalization GBP249.4m
Dividends per share paid 2.625p
First interim dividend paid GBP4.6m
Total shareholder return 6.4%
(based on dividend paid and share price)
Kevin Lyon, Chairman of NESF, commented:
"I am pleased to report an impressive performance in our maiden
financial year.
Following the Company's initial public offering on the London
Stock Exchange in April 2014, we have achieved the principal
objectives we set ourselves. These objectives centred on capital
deployment, investment track record, payment of dividends to
shareholders, operational and financial performance, and growth in
the Company's net asset value.
The Board is very pleased with the Company's overall performance
to date and we are currently confident of achieving our dividend
target of 6.25p per share for the following financial year to 31
March 2016."
Dividend Declaration
A second interim dividend of 2.625p per Ordinary Share declared
on 30 June 2015, totaling GBP6,309,187.50 for payment on 30 July
2015 to all Shareholders on the register on 10 July 2015.
Timetable
Ex-dividend date: 09 July 2015
Record date: 10 July 2015
Payment date: 30 July 2015
For further information:
NextEnergy Capital Limited 020 3239 9054
Michael Bonte-Friedheim
Aldo Beolchini
Cantor Fitzgerald Europe 020 7894 7667
Sue Inglis
Shore Capital 020 7408 4090
Bidhi Bhoma
Anita Ghanekar
Macquarie Capital (Europe)
Limited 020 3037 2000
Ken Fleming
Nick Stamp
MHP Communications 020 3128 8100
Andrew Leach / Jamie
Ricketts / Gina Bell
Notes to Editors:
NextEnergy Solar Fund (NESF)
NESF is a specialist investment company that invests in
operating solar power plants in the UK. Its objective is to secure
attractive shareholder returns through RPI-linked dividends and
long-term capital growth. The Company achieves this by acquiring
solar power plants on agricultural, industrial and commercial
sites.
NESF has raised equity proceeds of more than GBP246.6m since its
initial public offering on the main market of the London Stock
Exchange in April 2014. It also has a two-year revolving credit
facility of GBP31.5m in place.
NESF is differentiated by its access to NextEnergy Capital Group
(NEC Group), its Investment Manager, which has a strong track
record in sourcing, acquiring and managing operating solar assets.
WiseEnergy is NEC Group's specialist operating asset management
division, providing solar asset management, monitoring and other
services to over 1,200 utility-scale solar power plants with an
installed capacity in excess of 1.5 GW.
Further information on NESF, NEC Group and WiseEnergy is
available at www.nextenergysolarfund.com, www.nextenergycapital.com
and www.wise-energy.eu.
________________________
The Annual Report and Financial Statements for the period ended
31(st) March 2015 is set out below.
The Annual Report has been submitted to the National Storage
Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM.
The Annual Report will also shortly be available on the
Company's website (www.nextenergysolarfund.co.uk).
________________________
Corporate Summary
NextEnergy Solar Fund Limited (the "Company") is a closed-ended
investment company limited by shares, registered and incorporated
in Guernsey under the Companies (Guernsey) Law, 2008, as amended,
on 20 December 2013, with registration number 57739.
The Company is a Registered Closed-ended Collective Investment
Scheme regulated by the Guernsey Financial Services Commissions
(the "GFSC") pursuant to the Protection of Investors (Bailiwick of
Guernsey) Law 1987, as amended.
The Company's 240,350,000 shares in issue are admitted to the
premium listing segment of the Official List of the UKLA and are
traded on the London Stock Exchange's main market for listed
securities under the ticker "NESF".
The Company makes its investments through NextEnergy Solar
Holdings Limited (the "UK HoldCo") and underlying Special Purpose
Vehicles ("SPVs") which are ultimately wholly-owned by the Company.
The UK HoldCo was registered and incorporated in England and Wales
under the Companies Act, 2006, as amended, on 24 March 2014, with
registration number 08956168. The Company controls the investment
policy of each of the UK HoldCo and its wholly-owned SPVs to ensure
that each will act in a manner consistent with the investment
policy of the Company.
The Investment Manager during the period was NextEnergy Capital
IM Limited (the "Investment Manager"), a company incorporated in
Guernsey with registered number 57740 licensed under the Protection
of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the
"POI Law") and regulated by the GFSC. The Investment Manager has
appointed NextEnergy Capital Limited (the "Investment Adviser"), a
company incorporated in England and Wales on 23 October 2006 with
registered number 05975223, to provide investment advice, pursuant
to an Investment Advisory Agreement.
NextEnergy Capital IM Limited and NextEnergy Capital Limited are
members of the NextEnergy Capital Group, a specialist investment
and operating asset manager focused on the solar energy sector,
with a 40-strong team of which 20 are focused on the UK solar
market. Through its operating asset management division,
WiseEnergy, the NextEnergy Capital Group manages and monitors over
1,200 solar power plants (comprising an installed capacity of
approximately 1.5GWp and an estimated GBP3.0 billon asset value)
for a client base which includes leading European banks and equity
investors (including private equity funds, listed funds and
institutional investors).
Chairman's Statement
Introduction
I am pleased to report an impressive performance for the maiden
financial period to 31 March 2015.
Following the Company's initial public offering on the London
Stock Exchange on 25 April 2014, we have achieved the principal
objectives we set ourselves for our first period of existence.
These objectives centred on capital deployment, investment track
record, payment of dividends to shareholders, operational and
financial performance, and growth in the Company's net asset
value.
Capital Raising and Portfolio Growth
NextEnergy Solar Fund Limited (the "Company" or "NESF")
completed four capital raisings during the period: its IPO of 85.6m
new shares in April, a second issue of 91.0m new shares in
November, a placing of 4.0m new shares in December and a further
issue of 59.8m new shares in February. The total shares in issue
thus increased from 85.6m at the IPO to 240.4m at the period end.
This near tripling of shares in issue is testament to the quality
of the offering and the progress made by the Company and the
NextEnergy Capital Group.
The Company experienced a particularly active investment period
in deploying the capital raised. At the Date of Preparation of this
annual report, we had announced 16 separate acquisitions, of which
six were fully completed by period-end. The capital committed to
these investments amounted to approximately GBP252m, representing
102% of the total equity raised to date.
In addition to the Company's equity, the UK Holding Company,
previously defined as UK HoldCo on page 2 of the Annual Report for
the period ended 31 March 2015, a wholly-owned subsidiary of NESF,
secured a two-year revolving credit facility of up to GBP31.5m in
September, providing the Company with further financial flexibility
to grow our portfolio, and is in the process of increasing it
further in conjunction with additional short-term debt financing
transactions.
Our portfolio of solar power plants has grown rapidly since the
IPO, reaching 217MW at the 16 sites, all of which are operational.
The Investment Manager and its affiliates ensured orderly
acquisition processes were achieved and the assets built for us
were of the requisite construction quality.
Portfolio Performance, Valuation and Financial Results
Based on the Investment Manager's analysis of the individual
investments, our assets were acquired at attractive prices compared
to the market and our portfolio's operating and financial
performance was ahead of budget for the period ended 31 March 2015.
Energy generated from the portfolio amounted to 23.2GWh, 4.8% over
forecasts at acquisition of the individual assets. Total revenues
generated by the operating assets were also 1.9% over initial
forecasts, despite lower than expected revenues from the sale of
electricity. Overall, operating costs were largely in line with
expectations across the portfolio.
The Company's net assets grew from GBP85.6m on 25 April 2014 to
GBP248.3m on 31 March 2015, an almost three- fold increase. The
Company's net asset value per share increased from 100p to 103.3p
over the period, having paid a dividend of 2.625p per share in
December. The reported profit for the same period was GBP8.5m and
the earnings per share was 9.13p.
Dividends
We achieved our objective of paying our first interim dividend
of 2.625p per share during December, and expect to pay our second
dividend of the same amount in July 2015. The yearly dividend to be
paid out is the target we set ourselves at the outset of the
period. The Company is targeting a 6.25p dividend distribution for
the year ending 31 March 2016, which is expected to be paid in the
form of two interim dividend payments.
Corporate Governance Activities and Board
During the Company's first period as a listed entity the Board
and its Audit Committee were particularly active. The Board met 31
times while the Audit Committee met four times. The Board
considered a multitude of issues over the course of the period, the
majority being in relation to capital raising on behalf of the
Company, including NextEnergy Capital Group and its affiliates,
both from a qualitative perspective as well as ensuring appropriate
cost levels.
Risk Management
The Board maintains oversight of the various risks to the
Company and its business. These risks include broader macroeconomic
developments, the evolution of the UK energy markets and solar
sector as well as risks pertaining to its individual assets and the
counterparties we deal with throughout the period.
Our objective is to ensure risks are identified and understood
and that mitigating action is taken when necessary. We believe the
Company's risk controls and management protocols are very
strong.
Outlook
The Company aims to achieve further incremental growth in the
coming financial year. The UK solar industry is a fast developing
sector illustrated by our active pipeline of acquisition
opportunities, and we expect further market growth in the following
periods. The Investment Manager has identified a pipeline of over
200MW of short-term acquisition targets and is actively progressing
further opportunities.
In parallel, the equity and debt markets continue to be
supportive of our Company and the broader framework remains
positive for our sector. We will continue to pursue capital
raisings, both equity and debt, to finance the growth of our
portfolio.
Further focus will be dedicated to maximising the financial,
technical and operational performance of our existing solar power
plants and those we acquire in the future. This performance will
drive the future valuation of our portfolio.
The Board is very pleased with the Company's overall performance
to date and we are currently confident of achieving our dividend
target of 6.25p per share for the following financial year to 31
March 2016.
Kevin Lyon
Chairman of the Board of Directors
Strategic Report
Solar Energy within Renewable Energy Context
Renewable energy is defined as energy sourced from theoretically
inexhaustible sources and not derived from fossil or nuclear fuels.
The principal renewable generation sources include solar, wind,
geothermal, hydro and biomass.
The Company believes that, within renewable energy, solar
represents the most attractive risk-adjusted investment
opportunity. The low variability of solar irradiation over the
long-term, low on-going operating costs and low capital expenditure
requirements post- construction compare favourably with the
characteristics of other clean energy technologies.
In the first period of operation, the Company has made a
contribution to the reduction of greenhouse gas emissions into the
Earth's atmosphere. The amount of CO2 emissions avoided by the
Company's plants amounts to c.11,615 tonnes. This amount is
expected to increase as its portfolio achieves a full year of
operation and further projects are acquired in due course.
Market Growth
During 2013, for the first time more clean energy generation
capacity (including nuclear) was added globally to the electricity
grid than power plants that burn fossil fuels. 143GW of renewable
plants were commissioned compared to 141GW of hydrocarbon-
consuming power stations. In 2015, clean energy is forecast to
account for 164GW of new global generation capacity compared with
110GW of fossil fuel-fired capacity. This trend is expected to
continue, with renewable energy increasing its share of energy
produced as well as of new capacity added to the global grid.
The transition to cleaner energy is driven and defined by
important considerations, including the need to address climate
change, emissions of greenhouse gases into the Earth's atmosphere,
the relative rapidity in the construction of renewable energy
plants, concerns on reliance of hydrocarbon sourcing and imports,
the relative ease of constructing distributed clean generation
plant as well as the rapidly declining unit investment cost of
renewable energy installations.
Developed countries and economies in transition across the globe
continue to embrace renewable energy as a key energy source to
satisfy increased energy demand and replace obsolete power
generation plants.
During 2014, the UK added c.4.5GW of renewable energy generation
capacity. Of this total, solar power accounted for c.2.4GW of
renewable energy generation capacity bringing the totalled
installed solar capacity to c.5.3GW as at 31 December 2014. The UK
solar market is expected to continue its growth trajectory, and in
addition the Department of Energy and Climate Change ("DECC")
envisages a potential installed capacity of 20GW by 2020.
Investment Objectives and Policy
The Company's investment objective, by investing in the UK solar
sector, is to provide investors with a low-volatility, sustainable
and attractive dividend that increases in line with RPI over the
long-term. In addition, the Company seeks to provide investors with
an element of capital growth through the reinvestment of net cash
in excess of the dividends distributed to investors.
The Company's investment policy is designed to achieve the
investment objective, and is centred on investing in a diversified
portfolio of operating solar power plants located in the UK.
The Company primarily acquires utility-scale ground-based solar
plants but also may acquire rooftop installations on a selective
basis. The Company typically seeks to acquire sole ownership of
individual projects, but may enter into joint ventures or acquire
majority stakes in projects where it is in its interest to do so.
However, where the Company acquires a stake less than 100%, it will
secure controlling shareholder rights through shareholder and other
agreements. Investments will be undertaken either by way of equity
or a mix of equity and shareholder loans.
The assets acquired are expected to generate stable cash flows
over their operational lifespan and the Company will focus on
optimising their technical and financial performance while aiming
to extend their lifespan.
Corporate Group Structure
The Company is a Guernsey registered close-ended investment
entity with shares listed on the premium segment of the London
Stock Exchange. The Company's Board comprises three independent
Directors.
The Company has a 31 March financial year-end and announces
interim results in November and full year results in June. The
updated NAV is published within its quarterly fact sheet and in the
course of capital raising programmes and other key events during
the financial year.
The group structure showing the main legal entities, management
structure and contractual relationships is set out in the following
chart.
The Company's Board and Committees
The Company's Board of Directors comprises three independent,
non-executive directors (details on pages 45 to 47 of the Annual
Report for the period ended 31 March 2015). The Board's role is to
manage and monitor the Company in accordance with its terms of
reference. The Board monitors the Company's adherence to its
investment policy, the operational and financial performance of the
Company and its underlying assets, as well as the performance of
the Investment Adviser and other key service providers. In
addition, the Board has overall responsibility for the review and
approval of the Company's NAV valuations prepared by the Investment
Manager and Administrator. It also maintains the risk register,
which it monitors and updates on a regular basis. The structure of
the Board processes allows the members to test business controls
and choice of acquisitions to ensure they meet the strategy driving
the long-term dividend target.
The Board meets a minimum of four times a year for regular Board
meetings and as necessary for ad hoc meetings driven by the
Company's requirements. During the course of the period, the Board
met 31 times.
As a result of the current size and structure of the Company,
the Board has decided not to establish a Nomination, Remunerationor
Management Engagement Committee and undertakes the relevant duties
itself.
The Audit Committee, chaired by Patrick Firth, operates within
clearly defined terms of reference and comprises all of the
Directors, details of whom are noted on pages 45 to 47 of the
Annual Report for the period ended 31 March 2015. It met four times
during the period.
The Investment Manager, Investment Adviser, Developer and
Operating Asset Manager
The Company's Investment Manager is NextEnergy Capital IM
Limited. The Investment Manager has appointed NextEnergy Capital
Limited to act as Investment Adviser in relation to NESF. The
Company has also signed a project sourcing agreement with NextPower
Development Limited (the "Developer"), another unit of the
NextEnergy Capital Group. The relationship has increased the
efficiency of our transactional process reflected in the size of
the investment pipeline and is a key driver for delivering dividend
growth.
The Company has entered into an asset management framework
agreement with the Operating Asset Manager WiseEnergy (GB) Limited,
an affiliate of the NextEnergy Capital Group. Under the framework
agreement, WiseEnergy (GB) Limited enters into individual asset
management contracts with each solar power plant entity acquired by
the Company and performs a broad and defined set of asset
management activities for each entity. The collective experience of
the NextEnergy Capital Group in managing and monitoring solar PV
plants best positions the Company to implement efficiencies at both
the investment and operating asset level. The technical and
operating outperformance of the portfolio to date underlines the
benefits of this comprehensive strategic relationship.
The NextEnergy Capital Group is a privately-owned specialist
investment and asset manager focused on the solar sector. It was
formed in 2007 and has developed a unique track record in the
European solar sector. Prior to the IPO of NESF, it had developed,
financed, managed the construction and owned 14 solar projects in
the UK and Italy. In addition, its asset management activities now
cover the management and monitoring of in excess of 1,200
utility-scale solar power plants and approximately 3,000 solar
rooftop installations for a total capacity of over 1.5GW on behalf
of third-party equity investors and financing banks. Its clients
include listed solar funds (in addition to NESF), private equity,
family offices, renewable energy specialists and other equity
investors as well as some of Europe's leading lenders to and
financiers of the solar sector. The estimated value of the assets
managed and monitored by NextEnergy Capital Group amounts to c.GBP3
billion. It has developed proprietary hardware and software
products and solutions to facilitate delivery of its services to
its client base.
NextEnergy Capital Group's team comprises some 40 professionals
focused on the European solar sector. The team has a combined
investment track record of 680MW in European solar transactions and
had roles in over EUR100 billion in European energy and
infrastructure transactions.
The Company, through its contractual arrangements with the
NextEnergy Capital Group, has access to a highly experienced
investment team and to a leading asset manager in the European
solar sector and expects to leverage this expertise to secure
attractive solar power plant acquisitions and achieve best-in-class
technical, operational and financial performance from its portfolio
of operating plants. The wide range of services provided by the
NextEnergy Capital Group strategically positions the Company to
best resolve any potential technical and commercial issues that may
impact individual assets and drive best-in-class performance. This
ensures that the Company's solar PV plants are operated as
efficiently as possible to optimise their technical and financial
performances with a view to achieve and exceed the target cash flow
yield over their useful life span.
Activities of the NEC Group for NESF
Investment Manager
NextEnergy Capital IM Limited
-- Full discretion to make investments in accordance with investment policy
-- Acts as Alternative Investment Fund Manager ("AIFM") of the Company
-- Responsible for risk management and portfolio management activities
-- Only considers investment proposals advanced by the Investment Adviser
-- The Board reviews activity of the Investment Manager to
ensure adherence to the Company's investment
objective and investment policy
-- Reports to the Company's Board comprehensively on all
technical, operational and financial issues
Developer
NextPower Development Limited
-- Sources and presents investment opportunities to the Company and its advisers
-- The Company has right of first offer over all suitable
projects identified by the Developer
-- Identifies projects at all stages (pre-construction, construction and operation)
-- Structures and negotiates, in conjunction with the Investment
Adviser, project contracts
-- Project manages pre-construction and construction phase
Investment Adviser
NextEnergy Capital Limited
-- Provides investment advice and recommendations to the Investment Manager
-- Identifies, in conjunction with the Developer, investment
opportunities for the Company
-- Evaluates investment opportunities and co-ordinates external
due diligence activities
-- Negotiates all project contracts with counterparts
-- Prepares investment proposals and provides general advice and
recommendations to the Investment Manager concerning the Company's
portfolio, financing, strategy, market developments, etc.
-- Reviews performance of the Company's portfolio together with
the Operating Asset Manager
Operating Asset Manager
WiseEnergy (GB) Limited
-- Assumes asset management of solar power plants upon acquisition
-- Provides periodic technical, financial and administrative reports to the Company
-- Undertakes periodic site visits on each plant
-- Prepares technical and financial analysis of each site to
assess and identify improvement potential
-- Manages Special Purpose Vehicle's ("SPV") administrative and
financial functions and requirements
-- Ensures SPV's suppliers perform in accordance with contacts
-- Manages unexpected occurrences at plants and ensures prompt
response to any asset management requirements of the Company
Other Key Service Providers
In addition to the Investment Manager, Investment Adviser,
Developer and Operating Asset Manager, the Company has the
following key service providers:
Name Role
Ipes (Guernsey) Limited Administrator and company secretary
to the Company
PricewaterhouseCoopers Independent Auditor to the Company
CI LLP
Simmons & Simmons Legal adviser to the Group as to
LLP UK law
Mourant Ozannes Legal adviser to the Group as to
Guernsey law
Cantor Fitzgerald Broker to the Company
Shore Capital & Corporate Broker to the Company
Limited
Macquarie Bank Limited Lender to the Group via a Revolving
Credit Facility
Macquarie Capital Broker to the Company
(Europe) Limited
MHP Media and Public Relations
Capita Registrars Registrar and receiving agent to
(Guernsey) Limited the Company
Investment Outlook
The Company believes the investment outlook for UK solar remains
very attractive. It expects to secure investment opportunities from
a variety of solar sub-sectors over the course of the 2015/16
financial year. These opportunities are expected to include
recently constructed plants accredited under the 1.4 ROC regime,
projects to be built under current Feed-in Tariff ("FiT") or ROC
regimes, previously constructed projects under the 2.0 and 1.6 ROC
regimes as well as portfolios of rooftop installations either
already in operation to be constructed over the course of the
year.
At the Date of Preparation of this annual report the Investment
Manager, together with the Developer, has identified a pipeline of
206MW of short-term acquisition targets and are actively developing
further opportunities.
NESF's market standing coupled with the NextEnergy Capital
Group's market access will continue to position the Company as a
pre-eminent participant in the UK solar market.
Kevin Lyon
Chairman of the Board of Directors
Investment Manager's Report
About NextEnergy Capital
NextEnergy Capital IM Limited (the Investment Manager) and
NextEnergy Capital Limited (the Investment Adviser) are both
members of the NextEnergy Capital Group. The NextEnergy Capital
Group is a specialist investment and operating asset manager
focused on the solar energy sector, with a 40-strong team of which
20 are focused on the UK solar market. Through its operating asset
management division, WiseEnergy, the NextEnergy Capital Group
manages and monitors over 1,200 solar power plants (comprising an
installed capacity of approximately 1.5GWp and an estimated GBP3.0
billion asset value) for a client base which includes leading
European banks and equity investors (including private equity
funds, listed funds and institutional investors).
Investment Objective
The Company seeks to provide investors with a sustainable and
attractive dividend that increases in line with RPI over the long
term. In addition, the Company seeks to provide investors with an
element of capital growth through the reinvestment of net cash
generated in excess of the target dividend in accordance with the
Company's investment policy.
Investment Policy
The Company intends to achieve its investment objective by
investing exclusively in solar PV plants located in the UK.
The Company intends to continue to acquire solar PV plants that
are primarily ground-based and utility- scale and which are on
sites that may be agricultural, industrial or commercial. The
Company may also acquire portfolios of residential or commercial
building- integrated installations. The solar PV plants that will
be targeted are anticipated to generate stable cash flows over
their asset lifespan.
The Company will typically seek to acquire sole ownership of
individual solar PV plants through SPVs, but may enter into joint
ventures or acquire majority interests, subject, in each case, to
the Company maintaining a controlling interest. Where an interest
of less than 100% in a particular solar PV plant is acquired, the
Company intends to secure controlling shareholder rights through
shareholders' agreements or other legal arrangements. Investments
by the Company into solar PV plants may be either by way of equity
or a mix of equity and shareholder loans.
The Company has built up a diversified portfolio of solar PV
plants and its investment policy contains restrictions to ensure
risk diversification. No single investment (or, if an additional
stake in an existing investment is acquired, the combined value of
both the existing and the additional stake) by the Company in any
one solar PV plant will constitute, at the time of investment, more
than 30% of the Gross Asset Value. In addition, the four largest
solar PV plants will constitute, again, at the time of investment,
not more than 75% of the Gross Asset Value.
The Company will, primarily, continue to acquire operating solar
PV plants, but may also invest in solar PV plants under development
(that is, at the stage of origination, project planning or
construction) when acquired. Such assets will constitute (at the
time of investment) not more than 10% of the Gross Asset Value in
aggregate. As at period end, the Company has not invested directly
in solar PV plants under development.
The Company may also agree to forward-fund by way of a secured
loan the construction costs of solar PV plants where it retains the
right (but not the obligation) to acquire the relevant solar plant
once operational. Such forward-funding will not fall within the 10%
restriction above but will be restricted to no more than 25% of the
Gross Asset Value (at the time such arrangement is entered into) in
aggregate and will only be undertaken where supported by
appropriate security (which may include financial instruments as
well as asset-backed guarantees).
A significant proportion of the Company's income is expected to
result from the sale of the entirety of the electricity generated
by the solar PV plants within the terms of power purchase
agreements ("PPA") to be executed from time to time. These are
expected to include the monetisation of renewable obligation
certificates ("ROC"), other regulated benefits and the sale of
electricity to energy consumers and energy suppliers. Within this
context, the Investment Manager expects to conclude PPAs with
creditworthy counterparties at the appropriate time.
The Company will continue to diversify its third party
suppliers, service providers and other commercial counterparties,
such as developers, engineering and procurement contractors,
technical component manufacturers, PPA providers and landlords.
In pursuit of the Company's investment objective, the Company
may employ leverage, which will not exceed (at the time the
relevant arrangement is entered into) 50% of the Gross Asset Value
in aggregate. Such leverage will be deployed for the acquisition of
further solar PV plants in accordance with the Company's investment
policy. The Company may seek to raise leverage at any of the
Special Purpose Vehicle, Holding Company or Investment Company
level. There will be a preference for medium- to long-term
amortising debt financing.
The Company intends to invest with a view to holding its solar
PV plants until the end of their useful life. However, assets may
be disposed of or otherwise realised where the Investment Manager
determines, in its discretion, that such realisation is in the best
interest of the Company. Such circumstances may include (without
limitation) disposals for the purposes of realising or preserving
value, or of realising cash resources for reinvestment or
otherwise. The Company will seek to optimise and extend the
lifespan of its assets and may invest in their repowering and/or
integration of ancillary technologies (e.g. energy storage) on its
solar PV plants to fully utilise grid connections and balance the
electricity grid with a view to generating greater revenues. The
Company expects to re-invest any cash surplus (arising in excess of
that required to meet the Company's dividend target and ongoing
operating expenses) in further investments, thereby supporting its
long-term net asset value ("NAV").
The Company may invest cash held for working capital purposes
and pending investment or distribution in cash or near-cash
equivalents, including money market funds. The Company may (but is
not obliged to) enter into hedging arrangements in relation to
interest rates and/or power prices.
Portfolio Highlights and Performances
At the Date of Preparation of this annual report, the Company
has announced the acquisition of 16 separate solar PV plants for a
total investment value of up to c.GBP252m, representing 102% of the
equity proceeds raised to date (including the extension of the
Bilsham plant already in operation). The 16 solar PV plants amount
to an installed capacity of some 217MWp in operation.
The portfolio grew consistently during the period, with
significant activity towards the end of the Company's financial
year end which coincided with the deadline imposed to the UK solar
industry by the changing legislation on the ROC regime. At 31 March
2015, all of the 16 solar plants acquired by the Company were
operational and connected to the grid. The Company had already
completed six of the acquisitions earlier in the reporting period
and completed a further four acquisitions shortly after 31 March.
The remaining six were on track for completion during the first
quarter of the financial year ending 31 March 2016. At the Date of
Preparation of this annual report, the Company had completed a
further two acquisitions and is in the process of completing the
remaining four acquisitions.
The NextEnergy Capital Group has been actively involved in
monitoring and supervising the construction of all the solar PV
plants constructed for the Company during the period. The
completion of the acquisitions of each solar PV plant is subject to
the completion of certain conditions, mainly set in the interest of
the Company, including the plant satisfactorily passing selected
strict technical and performance tests. The details of these tests,
and whether they refer to the delivery of preliminary, intermediate
or final acceptance certificates (or PAC, IAC, FAC as they are
known) vary across the portfolio but in general terms these are
required by the Investment Manager to ensure that the Company
deploys funds only as and when the target solar PV plants
demonstrate the desired level of quality and ability to obtain and
exceed the expected technical performances.
Each of the 16 solar PV plants is demonstrating overall
satisfactory operational performance. Given the relatively recent
commissioning of most of these solar PV plants, the Investment
Manager is providing in this report the details of the actual
performances vs. expectations for only six of the total 16 solar PV
plants, namely those that have been managed and monitored for at
least four months and up to a full year. This sub- portfolio of
solar PV plants generated a total amount of electricity of 23.2GWh
showing an average over- performance of around 4.8% above the
expected generation values (despite the solar irradiation being
slightly lower than expected in the period by 0.4%) driven by the
Company's operating asset management strategy. Total revenues
generated by this sub-portfolio of monitored operating assets were
also 1.9% over forecasts at time of acquisition, despite lower than
expected revenues from sale of electricity. Overall, operating
costs were largely in line with expectations across the
portfolio.
Investment Portfolio
The Investment Manager achieved a high level of diversification
on the Company portfolio: the 16 solar PV plants are located across
13 different counties of England and Wales, the largest one
represents 16% of the total installed capacity and the four largest
solar PV plants represent together 43% of the total installed
capacity. In addition the portfolio is diversified across eight
non-connected contractors, eight different Tier 1 solar panel
manufacturers and five Tier 1 inverter manufacturers, effectively
diversifying the Company's key counterparty risks.
Below is a summary of the overall investment portfolio with
various relevant breakdown analysis:
Location Announcement ROC Status Plant Investment % of
Date Regime (2) Capacity (GBPm) Equity
Power Plant (1) (MWp) Proceeds
Higher
Hatherleigh Somerset 01-05-14 1.6 Completed 6.1 7.3 2.9%
Shacks
Barn Northants 09-05-14 2.0 Completed 6.3 8.1 3.3%
Gover Farm Cornwall 23-06-14 1.4 Completed 9.4 10.7 4.3%
Bilsham Sussex 03-07-14 1.4 Completed 15.2 18.5 7.5%
Brickyard Warwickshire 14-07-14 1.4 Completed 3.8 4.0 1.6%
Ellough Suffolk 28-07-14 1.6 Completed 14.9 19.6 7.9%
Poulshot Wiltshire 09-09-14 1.4 Completed 14.5 15.6 6.3%
Condover Shropshire 29-10-14 1.4 Completed 10.2 11.7 4.8%
Llwyndu Ceredigion 22-12-14 1.4 Operational 8.0 9.4 3.8%
Cock Hill
Farm Wiltshire 22-12-14 1.4 Operational 20.0 23.3 9.5%
Boxted Essex 31-12-14 1.4 Completed 18.8 20.5 8.3%
Langenhoe Essex 12-03-15 1.4 Completed 21.2 22.9 9.3%
Park View Devon 19-03-15 1.4 Operational 6.5 7.5 3.0%
Croydon Cambridgeshire 27-03-15 1.4 Completed 16.5 17.8 7.2%
Hawkers
Farm(3) Somerset 13-04-15 1.4 Operational 11.7 14.2 5.8%
Glebe Farm(3) Bedfordshire 13-04-15 1.4 Completed 33.7 40.5 16.4%
Total 216.8 251.6 102.0%
(1) An explanation of ROC Regime is available at
www.ofgem.gov.uk/environmental-programmes/renewables-obligation-ro
(2) As at the Date of Preparation of this annual report.
(3) Denotes solar PV plants that have been acquired by the
developer before 31 March 2015 for novation to NESF
Higher Hatherleigh
Higher Hatherleigh was NESF's first acquisition, which took
place in May 2014. The site is located near Wincanton in Somerset
and has a capacity of 6.1MWp. The site has performed well since it
became operational in April 2013 and during the period from
acquisition to 31 March 2015 the plant produced c.5.7GWh (+8.2% vs.
budget). The acquisition cost was GBP7.3m and the investment value
at period end was GBP9.0m, which is 5.7% of the portfolio value at
period end.
Higher Hatherleigh
Location Somerset
Capacity 6.1MWp
ROCs 1.6
EPC Moser Baer
Panels JA Solar
Inverter Power-One
Operational Since Apr-13
MWh Produced since
acquisition 5,707
Solar Irradiation
vs Expectations +3.4%
Energy Generation
vs Budget +8.2%
Shacks Barn
Announced shortly after the Higher Hatherleigh acquisition,
Shacks Barn, located near Silverstone in Northamptonshire, was also
acquired by the Company in May 2014. This 6.3MWp plant has been
operational since March 2013, giving the asset a 2.0 ROC
accreditation. Since acquisition to 31 March 2015, the site has
produced c.5.6GWh (+6.8% vs budget). The acquisition cost was
GBP8.2m and the investment value at period end was GBP9.7m, which
is 6.2% of the portfolio value at period end.
Shacks Barn
Location Northants
Capacity 6.3MWp
ROCs 2.0
EPC Moser Baer
Panels JA Solar
Inverter Power-One
Operational Since Mar-13
MWh Produced since
acquisition 5,558
Solar Irradiation
vs Expectations +3.8%
Energy Generation
vs Budget +6.8%
Gover Farm
Gover Farm is the Company's most south-westerly asset, located
near to Truro in Cornwall. The acquisition was announced at 9.4MWp
in June 2014. From acquisition to 31 March 2015, the plant produced
1.73GWh (+7.2% vs. budget). The acquisition cost was GBP11.1m and
the investment value at period end was GBP12.5m, which is 7.9% of
the portfolio value at period end. As part of the Company's
commitment to biodiversity, the site is being grazed by sheep to
ensure that it stays employed in food production.
Gover Farm
Location Cornwall
Capacity 9.4MWp
ROCs 1.4
EPC Moser Baer
Panels BYD
Inverter ABB
Operational Since Oct-14
MWh Produced since
acquisition 1,728
Solar Irradiation
vs Expectations +2.4%
Energy Generation
vs Budget +7.2%
Bilsham
Bilsham is located near Bognor Regis in Sussex and is very close
to the southern coast of the UK and is expected to benefit from the
combination of strong irradiance and coastal breeze keeping
operating temperatures within their optimum parameters. The plant
was delivered to the Company in two phases with an initial phase of
12.7MWp followed by an extension of 2.6MWp in March 2015. The site
produced 2.3GWh since acquisition to 31 March 2015 (+3.2% vs
budget). The acquisition cost was GBP18.9m and the investment value
at period end was GBP20.0m, which is 12.7% of the portfolio value
at period end.
Bilsham
Location Sussex
Capacity 15.2MWp
ROCs 1.4
EPC GDF Suez
Panels Renesola
Inverter ABB
Operational Since Nov-14
MWh Produced since
acquisition 2,291
Solar Irradiation
vs Expectations (3.0%)
Energy Generation
vs Budget +3.2%
Brickyard
Brickyard is a site located near Leamington Spa in Warwickshire
and has a capacity of 3.8MWp. During the winter period from 1
January to 31 March, Brickyard produced 0.5GWh (-7.0% vs budget).
This was mainly due to early technical issues that were later
resolved. Post period end the asset performance improved and is
currently above expectations. The acquisition cost was GBP4.0m and
the investment value at period end was GBP4.3m, which is 2.7% of
the portfolio value at period end.
Brickyard
Location Midlands
Capacity 3.8MWp
ROCs 1.4
EPC Moser Baer
Panels BYD
Inverter ABB
Operational Since Nov-14
MWh Produced since
acquisition 529
Solar Irradiation
vs Expectations (1.3%)
Energy Generation
vs Budget (7.0%)
Ellough
Ellough is a solar plant located on a disused airfield near
Ellough in Suffolk. The 14.9MWp site has produced 7.4GWh (-0.2% vs.
budget) from August 2014 to 31 March 2015. The plant did however
perform 13.1% above expectations from January 2015 to 31 March
2015. The acquisition cost was GBP19.6m and the investment value at
period end was GBP21.0m, which is 13.3% of the portfolio value at
period end. The site has a second phase of up to 8MWp which the
Company is currently in advanced stages of negotiation with a view
to its construction being completed in the second half of 2015.
Ellough
Location Suffolk
Capacity 14.9MWp
ROCs 1.6
EPC Lark Energy
Panels Hanwha
Inverter Free Sun
Operational Since Mar-14
MWh Produced since
acquisition 7,382
Solar Irradiation
vs Expectations (6.2%)
Energy Generation
vs Budget (0.2%)
Poulshot
The Poulshot plant is located near Trowbridge in Wiltshire and
has a capacity of 14.5MWp. The site is expected to generate in the
region of 13.6GWh per year of renewable energy. Bird and bat boxes
are being installed along the perimeter of the site to support
local avian diversity and the bat population. The acquisition cost
was GBP15.6m and the investment value at period end was GBP16.3m,
which is 10.3% of the portfolio value at period end.
Poulshot
Location Wiltshire
Capacity 14.5MWp
ROCs 1.4
EPC Moser Baer
Panels BYD
Inverter ABB
Operational Since Mar-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Condover
Condover is located near Shrewsbury in Shropshire and has a
capacity of 10.2MWp. The site is expected to generate in the region
of 9.6GWh per year of renewable energy. Condover was acquired by
the Company for GBP11.7m. The site has been installed around two
existing rocky outcrops on the site. These add an interesting
dimension to the layout and provide sheltered habitat for local
wildlife.
Condover
Location Shropshire
Capacity 10.2MWp
ROCs 1.4
EPC Zaragoza Group
Panels Canadian Solar
Inverter Free Sun
Operational Since Mar-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Llwyndu
Currently Llwyndu is the only asset owned by the Company that is
not in England. This 8.0MWp site is located in Mid-West Wales, is
expected to generate in the region of 7.7GWh per year of renewable
energy. The plant was acquired in December 2014 for GBP9.4m. It is
the most westerly plant that the company has acquired in the
mid-country sector, close to the Ceredigion coast.
Llwyndu
Location Ceredigion
Capacity 8.0MWp
ROCs 1.4
EPC Greencells
Panels BYD
Inverter Huawei
Operational Since Feb-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Cock Hill Farm
Cock Hill Farm is located near Trowbridge in Wiltshire and has a
capacity of just over 20.0MWp. The site is expected to generate in
the region of 19.0GWh per year of renewable energy. This site was
first announced in December 2014 for a transaction value of
GBP23.3m.
Cock Hill Farm
Location Wiltshire
Capacity 20.0MWp
ROCs 1.4
EPC Greencells
Panels Jinko
Inverter Huawei
Operational Since Mar-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Boxted Airfield
Boxted site is located north of Colchester in Essex on the now
disused Boxted airfield. Boxted has a capacity of 18.8MWp and was
acquired in March 2015, after it became operational. The site is
expected to generate in the region of 18.2GWh per year of renewable
energy. The acquisition cost was GBP20.5m and the investment value
at period end was GBP21.9m, which is 13.9% of the portfolio value
at period end. The site has been sympathetically installed and
benefits from wildflower seeding which has been specifically
designed to enhance the local wildlife population.
Boxted Airfield
Location Essex
Capacity 18.8MWp
ROCs 1.4
EPC Push Energy
Panels Yingli
Inverter SMA
Operational Since Mar-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Langenhoe
Located near Colchester in Essex, Langenhoe is a site of
substantial size at 21.2MWp. The site is expected to generate in
the region of 20.6GWh per year of renewable energy. The acquisition
cost was GBP22.9m and the investment value at period end was
GBP24.6m, which is 15.6% of the portfolio value at period end.
Langenhoe became operational in March 2015. The site overlooks the
Mersey estuary and has innovative wildlife enhancement measures
incorporated in to its design and operation with specific support
for both local bird and bumblebee populations. The construction
works also energised three previously off-grid properties. The site
is expected to generate in the region of 20.6GWh per year of
renewable energy.
Langenhoe
Location Essex
Capacity 21.2MWp
ROCs 1.4
EPC Push Energy
Panels Yingli
Inverter SMA
Operational Since Mar-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Park View
Park View is located near Ashburton in Devon, situated at the
top edge of a valley and is the second most southerly site owned by
the Company. This 6.5MWp site is expected to generate in the region
of 6.6GWh per year of renewable energy. The acquisition of Park
View was first announced in March 2015 for GBP7.5m.
Park View
Location Devon
Capacity 6.5MWp
ROCs 1.4
EPC Ethical
Panels Astronergy
Inverter SMA
Operational Since Mar-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Croydon
Croydon is a plant in South Cambridgeshire with a capacity of
16.5MWp. The site is expected to generate in the region of 15.4GWh
per year of renewable energy. The acquisition cost was GBP17.8m and
the investment value at period end was GBP18.5m, which is 11.7% of
the portfolio value at period end. The site also forms part of the
Company's biodiversity drive after being sown with wildflower seed
mix. The site will provide lengthy foraging seasons for bumblebees,
a vital and declining species.
Croydon
Location Cambridgeshire
Capacity 16.5MWp
ROCs 1.4
EPC Push Energy
Panels Yingli
Inverter SMA
Operational Since Mar-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Hawkers Farm
Hawkers Farm is an 11.7MWp site located near Theale in Somerset.
The site is expected to generate in the region of 11.7GWh per year
of renewable energy. This transaction was announced in April 2015
(through novation of the original agreement with the Developer) at
a value of GBP14.2m. The asset is located on a dairy farm and the
site itself is being grazed by sheep ensuring that the land stays
in food production.
Hawkers Farm
Location Somerset
Capacity 11.7MWp
ROCs 1.4
EPC Greencells
Panels Jinko
Inverter Huawei
Operational Since Mar-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Glebe Farm
Located not far from Wellingborough and partially on the old
airfield land that is now taken up by the Santa Pod Raceway, Glebe
Farm is the largest solar plant acquired by the Company (through
novation of the original purchase agreement with the Developer
without any additional cost to the Company) with a capacity of
33.7MWp. The site is expected to generate in the region of 31.6GWh
per year of renewable energy. This acquisition was completed in May
2015 for GBP40.5m.
Glebe Farm
Location Bedfordshire
Capacity 33.7MWp
ROCs 1.4
EPC Bejulo
Panels Canadian Solar
Inverter SMA
Operational Since Mar-15
MWh Produced since N/A
acquisition
Solar Irradiation N/A
vs Expectations
Energy Generation N/A
vs Budget
Current and Long-term Power Prices
During the financial year, the wholesale power market in the UK
experienced significant downward volatility which has reduced the
economic advantage derived by the portfolio's operational
over-performance. As a result of, inter alia, lower-than-average
winter temperatures, declining commodity prices and regulatory
developments, both short- and medium-term electricity prices moved
downwards. Electricity spot prices fell from GBP44.5/MWh in March
2014 to c.GBP41/MWh in March 2015 (UK baseload - day ahead). In
addition, the market consensus on long-term power prices has also
changed as reflected in the estimates produced by the Company's
appointed independent market consultant. The Investment Manager
continuously reviews multiple inputs from market contributors and
leading consultants and adjusts the Company's power price forecasts
periodically.
Since IPO in April 2014 the long-term power price forecast used
by the Company was revised downward three times (in August 2014,
December 2014 and April 2015) with a cumulative reduction of
c.16.5% compared to the assumptions employed at the beginning of
the financial year. The Company's current long-term power price
forecast implies an average growth rate of approximately 1% in real
terms between 2015 and 2035. The financial performance of the
Company and its NAV are sensitive to further positive and negative
movements in the short-, medium- and long-term power prices.
Detailed sensitivities are provided in the financial section of the
Annual Report. It is worth noting that this exposure is
significantly mitigated by the balanced mix of revenues which
comprises c.60% of regulated revenues (ROCs, LECs and embedded
benefits, mainly linked to RPI) and c.40% of sale of electricity
through PPAs.
Power Purchase Agreements
The electricity sales strategy of the Company is designed to
maximise revenues whilst mitigating the negative impact of
short-term fluctuations in the power markets. This strategy allows
for the flexibility required by the rapid growth of the portfolio,
so that the Company can build significant scale to then optimise
the PPA terms on the entire portfolio. As at 31 March 2015, the
majority of the portfolio comprised newly commissioned assets and
consequently the average duration of the PPAs was approximately 2.5
months across the portfolio before moving to the strategy
highlighted above.
NextEnergy Capital IM Limited
29 June 2015
Financial Review
Overall NESF performed very positively across the period which
was further supported by its share price trading at a premium over
NAV for the large majority of the period. Significant increases in
portfolio valuation have been driven by excellent transactional
processes and asset operational over-performance. This has been
galvanised by the speed of the capital raising and deployment
during the period ended 31 March 2015. The Investment Manager has
achieved the targets set by the Company for the first year in terms
of full year dividend. Further NAV growth and the achievement of
target dividend payments is currently expected for the next
financial year.
During the period the Company paid an interim dividend of 2.625p
per Ordinary Share totalling GBP4.6m. A second interim dividend of
2.625p per Ordinary Share totalling GBP6.3m will be paid to
shareholders in July 2015. As a result, the Company achieved its
target for total dividend distribution for the full financial
period ended 31 March 2015 of 5.25p. The operating costs of NESF
were GBP2.2m, in line with expectations. The profit before tax for
the period ended 31 March 2015 was GBP8.5m and the earnings per
share was 9.13p.
The Association of Investment Companies' ("AIC") guidance on
Investment Fund Expense Reporting (Published in April 2012)
recommended the disclosure of the Ongoing Charges Ratio in place of
the previously used Total Expense Ratio ("TER"). In line with this
guidance the Company's ongoing charge for the period ended 31 March
2015 is 1.5%. The budgeted ongoing charge for the period ending 31
March 2016 is 1.3%.
Valuation of the Portfolio
The Investment Manager is responsible for carrying out the fair
market valuation of the Company's underlying investment portfolio
which is subsequently presented to the Company's Board of Directors
for their review and approval. The valuation is carried out at
least quarterly or more often if capital increases or other
relevant events arise. The valuation principles used in such
methodology are based on a discounted cash flow methodology, and
adjusted for EVCA (European Private Equity and Venture Capital
Association) guidelines.
The Investment Manager exercises its judgement based on its
expertise in the UK solar PV market and in assessing the expected
future cash flows from each investment. Fair value for each
operating asset is derived from the present value of the
investment's expected future cash flows, using reasonable
assumptions and forecasts for revenues and operating costs, and an
appropriate discount rate. For solar PV plants not yet operational
or where the completion of the acquisition is not imminent at time
of valuation the acquisition cost is used as an appropriate
estimate of fair value.
The Board reviews the operating and financial assumptions as
well as discount rates used in the valuation of the Company's
underlying portfolio and approves them based on the recommendation
of the Investment Manager. The discount rate is reviewed and agreed
with PricewaterhouseCoopers CI Limited, as independent Auditor. The
'valuation' process comprises the analysis of multiple factors all
relevant to ascertain the fair value of the portfolio,
including:
-- Discount rates applicable for other comparable infrastructure
assets classes or regulated energy sectors
-- CAPM (Capital Asset Pricing Model) analysis and risk premia over relevant risk free rates
-- Discount rates publicly disclosed by the Company's peers in the UK solar sector
-- Discount rates implied in the price at which comparable
transactions have been announced or completed in the UK solar
sector
Based on all of the above, the Company has adopted a 7.5%
discount rate for unlevered operating solar assets which is 0.3%
lower than the value used previously, mainly due to:
-- Reduced risk free rate - the yield on 20 year UK gilt
declined from 3.3% to 2.1% between 30 April 2014 and 31 March
2015
-- Increased liquidity in the secondary market for UK solar PV
assets, with new entrants progressively using lower unlevered
equity return expectations
-- Reduced discount rates applied by the Company's listed peers
-- Reduced exposure of the Company's future revenue mix to the
wholesale power market following significant reductions in
long-term power price forecasts used by the Company since IPO
The value uplift generated by the assets valued on a DCF basis
is supported by an analysis performed by the Investment Manager
demonstrating this portfolio has been acquired at prices lower than
the market average by approximately 5%. This analysis reviewed all
publicly disclosed information related to acquisition of UK solar
assets and included adjustments for project specific ROC banding
and site irradiation based on the Investment Manager's estimates
and best knowledge. The market average prices are then compared to
each of the Company's completed acquisitions and the summary result
is then calculated as a weighted average based on the installed MWp
capacity.
Calculation of Net Asset Value
The Company's NAV is calculated on a quarterly basis based on
the valuation of the portfolio determined by the Investment Manager
and the information on other net assets provided by the
Administrator. It is then reviewed and approved by the Board of
Directors. All variables relating to the performance of the
underlying assets are reviewed and incorporated in the process of
establishing relevant drivers for the discounted cash flow
valuation. The portfolio valuation process and underlying drivers
are subject to a comprehensive review as part of the year end audit
to ensure they are a true reflection of the expected operating
environment.
NESF experienced strong NAV growth during the period ended 31
March 2015 driven by the issuance of capital and investment in
assets. As a result NAV grew by 290% over the period from GBP85.6m
as at IPO on 25 April 2014 to GBP248.4m as at 31 March 2015.
NAV per share increased to 103.3p, an increase of 3.3% over the
Company's opening NAV of 100p per share at the time of the IPO.
During the same period the Company paid a dividend of 2.625p. As a
result, total shareholders' return in the period ended 31 March
2015 was 5.9%. As the Company reports its financial results under
IFRS 10 (see note 2(c)) the change during the period in fair value
of its assets drives the profit and loss of the Company. The growth
of NAV per share in the period from 100p to 103.3p was mainly
driven by following factors:
-- The operating results of the solar PV plants owned by the
Company, which was retained at the individual SPV level
-- The cash dividend paid in December 2014 and the Company's operating costs
-- The value uplift generated by the Company completing
acquisitions on assets whose internal rate of return was higher
than the discount rate applied when valuing them on a discounted
cash flow basis, partly offset by the negative impact on valuations
due to reductions in the forecasts for long-term power prices
adopted by the Investment Manager
These factors can be viewed alongside the other drivers in the
NAV bridge chart on page 29 of the Annual Report for the period
ended 31 March 2015. The bridge reconciles the NAV movement for the
period ended 31 March 2015.
Movement (GBPm)
IPO Proceeds 85.6
Further Capital Raisings 161.0
Capital Raising Costs (2.1)
Dividends (4.6)
Portfolio Revaluation 11.1 (a)
Net fund Costs (2.6)
NAV movement 162.8
Closing Fund NAV 248.4
Portfolio at Cost 146.6
Operating Results 3.4
DCF Valuation 12.1
Reduction in Discount
Rate 4.0
Reduction in Power Price
Estimates (8.4)
Portfolio Revaluation 11.1 (a)
Final Investment Portfolio
Valuation 157.7
The opening NAV per share of 100.0p is equal to the IPO proceeds
as a result of the NextEnergy Capital Group paying for all costs
associated with the IPO (some of these costs were initially paid by
the Company and subsequently reimbursed by the Investment Adviser,
as per the related party transaction disclosed in note 15 of the
Financial Statements).
The largest driver for the movement in the NAV was the
revaluation of the Investment Portfolio which accounted for
GBP11.1m. This represented the difference between the acquisition
cost and closing fair value of the portfolio at the end of the
period. The portfolio revaluation bridge chart on page 29 of the
Annual Report for the period ended 31 March 2015 highlights the
main factors driving the portfolio revaluation and reconciles the
total revaluation for the period. The movement agrees to the net
changes in financial assets at fair value in the Statement of
Comprehensive Income on page 59 of the Annual Report for the period
ended 31 March 2015.
The Company's investment portfolio was valued at GBP157.7m
including ten solar PV assets valued through discounted cash flow
methodology. Of these, six acquisitions had already completed
during the reporting period whereas, for the other four, the most
significant contractual conditions precedent to formal completion
(mainly the agreed contractual milestones and the acceptance of the
relevant technical certificate) had been satisfied before 31 March
2015.
The investment portfolio valued through discounted cash flow
methodology does not include the other six investments in solar PV
plants for which the relevant milestones and technical tests had
not yet been accepted at the period end and as such their
completion was not deemed imminent. At the period end all of these
six solar PV plants were operational and the Investment Manager was
in the process of completing their acquisitions. Two of these
assets have completed following the end of the reporting period and
the Investment Manager expects to complete the other four
shortly.
Investment Portfolio Cost Paid 31 March 2015 Directors'
(GBP) Valuation (GBP)
Higher Hatherleigh 7,300,000 8,957,377
Shacks Barn 8,200,000 9,711,376
Gover Farm 11,100,000 12,459,841
Bilsham 18,900,000 19,993,448
Brickyard 4,125,319 4,308,890
Ellough 20,000,000 20,987,800
Poulshot 15,700,000 16,254,521
Boxted Airfield 20,550,000 21,932,788
Langenhoe 22,880,000 24,619,753
Croydon 17,835,000 18,460,754
Condover (1) - -
Llwyndu (1) - -
Cock Hill Farm (1) - -
Hawkers Farm (1) - -
Glebe Farm (1) - -
Park View (1) - -
Total Investment Portfolio 146,590,319 157,686,548
Residual Net Assets
of Holding Company 1,000,000 474,324
Total Investment in
Holding Company(2) 147,590,319 158,160,872
(1) These investments were not yet operational as at 31 March
2015.
(2) A summary of the total investment in the Holding Company is
provided in note 5 (Investments) of the Financial Statements.
Summary of Capital Raising and Capital Deployment
The Company completed four capital raisings during the period:
its IPO of 85.6m new shares in April, a second issue of 91.0m new
shares in November, a placing of 4.0m new shares in December and a
further 59.75m new shares in February. All issues since the IPO
have been completed pursuant to a 250m share issuance programme,
under which NESF has the ability to place and offer a further
95.25m new shares until 10 November 2015.
The total shares in issue thus increased from 85.6m at the IPO
to 240.4m at period end. Below is a capital deployment chart that
outlines the timing of the equity raising and speed of the capital
deployment which, in conjunction with the flexibility provided by
the Revolving Credit Facility ("RCF"), allowed the Company to
rapidly grow NAV during the period.
Share Price Development
During the period the share price increased from 100p to
103.75p. The NAV and share price chart below highlights the share
price performance during the period which predominantly traded at a
premium over NAV apart from two brief intervals, of which the one
in January was caused by speculative short-selling from an
identified hedge-fund investor.
Financing and Cash Management
On 17 September 2014 a subsidiary of the Company, NextEnergy
Solar Holdings Limited, entered into a two- year revolving credit
facility ("RCF") agreement for up to GBP31.5m. This facility can be
drawn to fund the acquisition of further UK solar power plants. It
is expected that the facility will be repaid through one of the
following: excess dividend cover, further equity issuance and/or
refinancing with a long-term debt facility.
The facility is provided by Macquarie Bank Limited. The facility
is secured against the operating solar assets of the UK Holdco,
which include the six assets already completed as at 31 March 2015.
Since its financial closing and as at the Date of Preparation of
this annual report, the Company has not drawn down the facility,
but it has relied on its availability when entering into
contractual binding commitment to acquire selected solar PV
plants.
The Company, on behalf of the UK Holdco, undertook an extensive
selection process among debt providers before signing the RCF with
Macquarie to ensure its terms are in line with or better than the
prevailing market conditions.
The Investment Manager is actively working on the extension of
the Company's current credit facility with a number of lending
counterparties to provide additional funding flexibility to acquire
further assets. Following the period end the Investment Manager has
entered into preliminary agreements subject to Credit Committee
approval and documentation, to extend the RCF in steps to over
GBP90m as appropriate. In the short-term, the Investment Manager is
also looking to enter into further acquisition facilities with
other lending counterparties to provide it with financial
flexibility to acquire additional suitable solar assets and grow
its portfolio.
The debt financing strategy of the Company is supported by
strong indications of support from equity investors for further
capital increases that are expected to enable the refinancing of
any utilisation of the acquisition facilities. Additional comfort
on the potential for refinancing comes from the evidence of robust
and increasing appetite from institutional debt capital providers
for long-term dated securities backed by solar PV assets. The
Investment Manager has received numerous indications of interest
from banks and institutional lenders for debt products of this type
that could be implemented in a relatively short period of time to
refinance the acquisition facilities.
In the mid to long-term, the Company intends to optimise the
capital structure of the Company with a view to maximise the
profitability and liquidity of the equity investment of its
shareholders, through the use of fixed rate and/or inflation linked
debt. During the period, significant debt transactions have been
announced in the UK solar market demonstrating the strong and
growing interest of institutional investors in providing long-term
debt financing to UK solar plants. This buoyant debt market is
supportive for highly geared debt strategies, which usually require
agreeing long- term PPAs of up to 15 years, a requirement that
limits the overall revenue obtainable for energy generated over
such a term. However, the Company's maximum gearing level of 50%
(loan to gross asset value ratio) allows, in the Investment
Manager's view, the Company to negotiate the optimal cost of
long-term debt without sacrificing the flexibility to maximise
revenues.
As at 31 March 2015 the closing cash balance was GBP90.2m which
has been fully committed to announced acquisitions in the process
of being completed and currently invested in cash and short-term
deposits.
Outlook
The UK solar PV market experienced an acceleration of growth
during 2014, with 2.3GW of additional capacity installed, a yearly
increase of 79%. This growth in capacity was only exceeded by
China, Japan and US during the same year, according to the
International Energy Agency, positioning the UK as the Country with
the 8th largest installed solar capacity at 5.1GWp. In addition,
the announcement of regulatory changes that will see a phase-out of
the ROC regime for solar installations larger than 5MWp and the
introduction of new auction based mechanism (Contract for
Differences) caused a further acceleration in the rate of new
installations in the quarter ended March 2015. As a result, the
updated total installed capacity of 5.7GWp, positions the UK at the
6th place in the global ranking for installed solar capacity, and
3rd in the European ranking behind Germany and Italy.
This exceptional growth represents a significant step forward in
the UK solar roadmap, which in early 2014 targeted a total solar
installed capacity by 2020 of 10-12GWp, with scenarios allowing for
up to 20GWp. The Investment Manager believes this supports the case
for a positive outlook for the UK solar sector in the next year,
given the current momentum of the solar industry, the active
project development market and the continuous appetite demonstrated
by the equity and debt capital markets for these assets.
Over the next 12 months, the Company will benefit from the
pipeline of opportunities identified by the Developer (NextPower
Development Limited part of the NextEnergy Capital Group), ranging
from large industrial scale plants in operation and benefiting from
the 1.4 ROCs regime, or under construction and benefiting from the
1.3 ROCs or FiT regimes as well as portfolios of residential and
commercial rooftops and Community Interest Projects. At the Date of
Preparation of this annual report the Investment Manager, together
with the Developer, have identified a pipeline of 206MW of
short-term acquisition targets and are actively developing further
opportunities.
The Company also has the ability to utilise its balance sheet to
finance selected project development opportunities (as per the
Company's Investment Policy). During the year ended March 2015 the
Investment Manager has reviewed a number of these development
opportunities offered by EPC contractors or other market
participants seeking to transfer their construction and financing
risks and deemed their risk/reward trade-off unattractive in view
of the March deadline representing a real cliff edge for the ROC
regime. The outlook for solar project development in the new
financial year offers instead a number of interesting development
prospects with attractive risk-adjusted return profiles that the
Investment Manager believes will support the growth and financial
return ambitions of the Company whilst maintaining a prudent
approach to project development and market risks.
In addition to these further growth opportunities, in the mid-
to long-term period the Investment Manager intends to add value to
the Company's strategy by optimising the technical and financial
performances of its portfolio and by extending the useful lifespan
of its assets. Furthermore, the Investment Manager remains fully
engaged in monitoring technological change in the energy sector.
Subsequently the Company is positioned well to incorporate the
continuing innovation in energy technology and benefit from the
associated cost reductions in solar energy generation, storage and
distribution.
Description of the Principal Risks and Uncertainties
The Company has in place risk management procedures and internal
controls to monitor and mitigate the main risks faced as well as a
process to review the effectiveness of those controls. The
Investment Manager assists the Company in regularly identifying,
assessing and mitigating those risk factors likely to impact the
financial or strategic position of the Company. The Company's Risk
Matrix is regularly reviewed on at least a semi- annual basis.
-- External and Market Risks
-- Investment Strategy
-- Investment Process and Management of Assets
-- Monitoring Process
-- Valuation Process
-- Financial and Accounting Process
-- Governance, Tax and Regulatory Compliance
Based on the Investment Manager's assessment, the main risks
faced by the Company are likely to be related to the following
areas, the other ones being unlikely or less significant:
-- Uncertainty for the future political scenario in the UK and
risk of a change in government support for new solar installations,
as well as the grandfathering of support granted to plants already
in operation, affecting the value of the Company's assets
-- Risk that further planned acquisitions do not take place,
affecting the Company's growth potential
-- Risk that the heightened competition for solar assets will
make it more difficult for the Company to continue acquiring assets
at prices lower than market average. This increased competition
will likely be fuelled by investors with aggressive financial
structures seeking lower unlevered returns than the Company for the
same solar PV assets
-- Exposure to wholesale energy market for revenues generated in
prices received for energy generated and in price forecasts by the
operating assets of the Company, and risk of further reductions in
forward price curves
Post period-end update
Since 31 March 2015, the following relevant events occurred:
-- On 2 April 2015 the Company completed the acquisition of the Poulshot solar PV plant
-- On 2 April 2015 the Company completed the acquisition of the Boxted solar PV plant
-- On 13 April 2015 the Company completed the acquisition of the Langenhoe solar PV plant
-- On 23 April 2015 the Company completed the acquisition of the Croydon solar PV plant
For these four projects, the most significant conditions
precedent to the formal completion of acquisition (mainly the
agreed contractual milestones and the acceptance of the relevant
technical certificate) had been already discharged before 31 March
2015. As a result, these four investments have been valued in the
investment portfolio through the discounted cash flow
methodology.
As at 31 March 2015, the Company had announced four other
investments that were operational but for which the relevant
contractual milestones and technical tests had not been achieved
(namely Condover, Cock Hill Farm, Llwyndu and Park View) and as
such their completion was not deemed imminent. Another two
investments were announced on 13 April 2014 (namely Glebe Farm and
Hawkers Farm that had been previously acquired by the Developer for
novation to NESF). These six investments have not been valued
through discounted cash flow methodology in the investment
portfolio. As of the date of publication of this annual report, the
Investment Manager had completed the acquisition of two of these
six investments (namely Glebe Farm and Condover) and was in the
process of completing the other four.
In addition, on 17 June 2015 the Company announced the agreement
to acquire the Wellingborough and Bowerhouse solar PV plants with a
combined capacity of 17.8MW, for a total acquisition price of
GBP22m. The investment in Wellingborough also simultaneously
exchanged and completed on 17 June 2015.
NextEnergy Capital IM Limited
29 June 2015
Corporate Governance
Introduction
As a regulated Guernsey incorporated company with a Premium
Listing on the Official List and admitted to trading on the Main
Market for Listed Securities of the London Stock Exchange, the
Company is required to comply with the principles of the UK
Corporate Governance Code dated September 2012 ("UK Code").
The Board recognises the importance of a strong corporate
governance culture that meets the requirements of the UK Listing
Authority as well as other relevant bodies such as the Guernsey
Financial Services Commission and the Association of Investment
Companies (the "AIC")
As an AIC member, the Board has also considered the principles
and recommendations of the AIC Code of Corporate Governance ("AIC
Code") by reference to the AIC Corporate Governance Guide for
Guernsey Domiciled Investment Companies ("AIC Guide"). The AIC Code
addresses all the principles set out in the UK Code, as well as
setting out additional principles and recommendations on issues of
specific relevance to the Company. The AIC Code published in
February 2013 addresses all of the principals set out in the UK
Code, and has been endorsed by the Financial Reporting Council as
ensuring investment company Boards fully meet their obligations to
the UK Code and LR 9.8.6 of the Listing Rules. Having adopted the
AIC Code with effect from Admission (25 April 2014), the Board has
therefore assessed itself, the Committees and performance of the
Directors against the parameters and principles outlined within the
AIC Code for the period ended 31 March 2015.
The Board is of the view that throughout the period from
Admission to 31 March 2015, that the Company has complied with the
recommendations of the AIC Code and the relevant provisions of the
UK Corporate Governance Code, except as set out below:
-- The role of the chief executive
-- Executive directors' remuneration
-- The appointment of a Senior Independent Director
-- The need for an internal audit function, and
-- The appointment of a Remuneration, Nomination and Management Engagement Committee
For the reasons set out in the AIC Guide, and as explained in
the UK Corporate Governance Code, the Board considers these
provisions are not currently relevant or appropriate to the
position of the Company.
Chairman
Mr Lyon was appointed to the permanent position of Chairman of
the Board on 22 January 2014. Mr Lyon is responsible for leading
the Board in all areas, including determination of strategy,
organising the Board's business and ensuring the effectiveness of
the Board and individual Directors in all aspects of their roles.
He also endeavours to produce an open culture of debate within the
Board which facilitates the ability of the Board to make objective
decisions free from the interests of the Investment Manager and
Investment Adviser.
Prior to the Chairman's appointment, a job specification was
prepared which included an assessment of the time commitment
anticipated for the role. Discussions were undertaken to ensure the
Chairman was sufficiently aware of the time needed for his role,
and agreed to upon signature of his letter of appointment. Other
significant business commitments of the Chairman were disclosed to
the Company prior to appointment to the Board, and were publicly
disclosed in the Company's Prospectus dated 18 March 2014 relating
to the Company's listing and again in the Company's Prospectus
dated 10 November 2014 relating to the Company's Placing Programme.
There have not been any subsequent changes to the Chairman's
business commitments, as stated in the Prospectus, that require to
be declared. A summary of Mr Lyon's commitments can be identified
in his biography on page 45 of the Annual Report for the period
ended 31 March 2015.
The effectiveness and independence of the Chairman is evaluated
on an annual basis as part of the Board's performance evaluation;
the Audit Committee Chairman is tasked with collating feedback and
discussing with the Chairman on behalf of the rest of the Board.
The Chairman is not subject to any relationships which may create a
conflict between his interests and those of the shareholders and
does not serve on any other investment company board managed by the
Investment Manager.
As per the Company's Articles, all Directors, including the
Chairman, must disclose any interest in a transaction that the
Board and Committees will approve. To ensure all Board decisions
are independent, the said conflicted director is not entitled to
vote in respect of any arrangement connected to the interested
party.
Board Independence and disclosure
The Board and Chairman confirm that they were selected prior to
the Company's launch and were able to assume all responsibilities
at an early stage, independent of the Investment Manager and
Investment Adviser.
The Board is composed entirely of non-executive Directors, who
meet regularly to determine the Company's strategic direction,
review its financial performance and to oversee the performance of
the Company's Investment Manager and service providers. Through the
Audit Committee they are able to ascertain the integrity of
financial information and confirm that all financial controls and
risk management systems are robust.
There is no management engagement committee appointed for the
Company as it is deemed that the size, composition and structure of
the Company would mean the process would be inefficient and
counter- productive. Therefore, the Board as a whole also fulfils
the functions of a management engagement committee and reviews and
analyses the actions, performance and judgements of the Investment
Manager and also the terms of the Investment Management Agreement.
Further to this the Board analyses and evaluates the performance of
other service providers on a regular basis. The Board will continue
to consider the need for a management engagement committee as the
needs and structure of the Company develop.
As part of the annual performance evaluation process, the
independence of each of the Directors was considered. Following the
annual performance evaluation, it was deemed that the Directors had
been proven to challenge the Investment Manager throughout the
period under review, as minuted and recorded, therefore for the
purposes of assessing compliance with the AIC Code, the Board as a
whole considers that each Director is independent of the Investment
Manager and free from any business or other relationship that could
materially interfere with the exercise of his independent
judgement. If required, the Board is able to access independent
professional advice. The Investment Manager is also requested to
declare any potential conflicts surrounding votes, share dealing
and soft commissions on an annual basis to the Board to help with
the assessment of investments.
Open communication between the Investment Manager and the Board
is facilitated by regular Board meetings, to which the Investment
Manager is invited to attend and update the Board on the current
status of the Company's investments, along with ad hoc meetings as
required.
Coming to mutual agreement on all decisions, it was agreed the
Board had acted in the best interests of the Company to the extent
that, if deemed appropriate a Director would abstain or have his
objection noted, and minuted.
Similar to the process outlined above for the appointment of the
Chairman, a job specification was prepared for each Directorship
which included an assessment of the time commitment anticipated for
the role to ensure each Director was aware of the time commitment
needed for the role. The Directors' other significant business
commitments were disclosed to the Company prior to appointment to
the Board, and were publicly disclosed in the Company's Prospectus
dated 18 March 2014 relating to the Company's listing and restated
in the Company's Prospectus dated 10 November 2014 relating to the
Company's Placing Programme. No subsequent changes have required to
be declared during the period. Each Director's commitments can be
identified in their biographies detailed on pages 45 to 47 of the
Annual Report for the period ended 31 March 2015. Details of the
skills and experience provided by each director can also be found
in their biographies, alongside identification of the role each
Director currently holds in the Company.
Given the Company's current size and the structure of the Board,
a Senior Independent Director has not been appointed.
The terms and conditions of appointment for non-executive
Directors are outlined in their letters of appointment, and are
available for inspection by any person at the Company's registered
office during normal business hours and at the AGM for fifteen
minutes prior to and during the meeting.
There is no executive director function in the Company; all
day-to-day functions are outsourced to external service
providers.
Development
The Board believes that the Company's Directors should develop
their skills and knowledge through participation at relevant
courses. The Chairman is responsible for reviewing and discussing
the training and development of each Director according to
identified needs. Upon appointment, all Directors participate in
discussions with the Chairman and other Directors to understand the
responsibilities of the Directors, in addition to the Company's
business and procedures. The Company also provides regular
opportunities for the Directors to obtain a thorough understanding
of the Company's business by regularly meeting members of the
senior management team from the Investment Manager, Investment
Adviser and other service providers, both in person and by
phone.
Balance of the Board and diversity policy
It is perceived that the Board is well-balanced, with a wide
array of skills, experience and knowledge that ensures it functions
correctly and that no single director may dominate the Board's
decisions. Having three Directors appointed ensures that during any
transition period, there are at least two Directors to provide
stability.
The Board recognises the importance of diversity and is
committed to supporting diversity in the Boardroom. At this time,
the Board had not yet developed a formal diversity policy as there
have not been any appointments to the Board to replace outgoing
Directors or to increase the size of the current Board. The Board
fully intends to develop and implement a formal diversity policy in
due course.
All Directors currently sit on the Audit Committee with no
Director holding more than one Chairmanship post.
Annual performance evaluation
The Board's balance as part of the performance evaluation is
reviewed on a regular basis as part of a performance evaluation
review. Using a pre-determined template based on the AIC Code's
provisions as a basis for review, the Board undertook an evaluation
of its performance and in addition, an evaluation focusing on
individual commitment, performance and contribution of each
director was conducted. The Chairman then met with each director to
fully understand their views of the Company's strengths and to
identify potential weaknesses. If appropriate, new members would be
proposed to resolve the perceived issues, or a resignation sought.
Following discussions and review of the Chairman's evaluation by
the other Directors, the Audit Committee Chairman reviewed the
Chairman's performance. Training and development needs are
identified as part of this process, thereby ensuring that all
Directors are able to discharge their duties effectively.
Given the Company's size and the structure of the Board, no
external facilitator or independent third party was used in the
performance evaluation.
Re-election and Board tenure
There is currently no Nominations Committee for the Company as
it is deemed that the size, composition and structure of the
Company would mean the process would be inefficient and
counter-productive. The Board therefore undertakes a thorough
process of reviewing the skill set of the individual Directors, and
proposes new, or renewal of current, appointments to the Board.
Each director was required to be re-elected by shareholders at
the first Annual General Meeting of the Company and thereafter will
be submitted for re- election not less than once in every three
year period. Any director who has served on the Board for longer
than nine years will be subject to annual re-election. Going
forward, any director that is appointed to the Board will be
required to submit themselves for re- election at the first Annual
General Meeting following their appointment and thereafter once
every three years.
It is anticipated that, should any director have served on the
Board for nine or more years, their independence would not
automatically be considered to be compromised through length of
service, but it would be closely scrutinised and the director would
be subject to annual election.
Prior to the first Annual General Meeting, the Directors
considered and approved the nomination for re- election of each
Director nominated for re-election, in the absence of such nominee,
and were pleased to be able to approve the nomination for
re-election for each director having fully considered their
contribution to the Company over the period of review. The
Directors submitting themselves for election have proven their
ability to fulfil all legal responsibilities and to provide
effective independent judgement on issues of strategy, performance,
resources and conduct. The Board therefore had no hesitation in
recommending to shareholders that each director be re-elected.
Appointment process
The appointment process for the Chairman and Directors at the
time of incorporation of the Company is described above. As no new
director has been appointed since the Company's launch and the
Board believes there is no gap that currently needs to be filled,
no appointment process has been formalised. It is anticipated,
however, that the process will be led by the independent Directors
and will involve identifying gaps and needs in the Board's
composition and balance, including diversity, then reviewing the
skill set of potential candidates. For renewal of current
appointments, all Directors except the individual in question are
entitled to vote at the meeting. Similarly, no new nominations have
been made for the role of Chairman of the Board since prior to
launch.
Board and Board Committees
Matters reserved for the Board include review of the Company's
overall strategy and business plans; approval of the Company's
interim and annual report; review and approval of any alteration to
the Company's accounting policies or practices and valuation of
investments; approval of any alteration to the Company's capital
structure; approval of dividend policy; appointments to the Board
and constitution of Board Committees; observation of relevant
legislation and regulatory requirements; and performance review of
key service providers. The Board also retains ultimate
responsibility for Committee decisions; every Committee is required
to refer to the Board, who will make the final decision.
Terms of reference containing a formal schedule of matters
reserved for the Board of Directors and its duly authorised
Committee has been approved and can be reviewed at the Company's
registered office.
The Board met 31 times during the period ended 31 March 2015,
the meeting attendance record is displayed further on in the
Corporate Governance Statement. The Company Secretary acts as the
Secretary to the Board.
As noted above, the Board fulfils the responsibilities typically
undertaken by a Management Engagement Committee and reviews the
actions and judgements of the Investment Manager and also the terms
of the Management Agreement.
The Board looks to undertake an assessment of the Investment
Manager's scope and responsibilities as outlined in the service
agreement and prospectus on a formal basis every year. Discussions
on Investment Manager performance are also conducted regularly
throughout the year by the Board. Reviews of engagements with other
service providers to ensure all parties are operating
satisfactorily are also undertaken by the Board so as to ensure the
safe and accurate management and administration of the Company's
affairs and business and that they are competitive and reasonable
for shareholders.
As detailed in the Remuneration Report, the Board also fulfils
the duties and role of a Remuneration Committee. Full details as to
how the Board fulfils those duties can be found in the Remuneration
Report on pages 52 to 53 of the Annual Report for the period ended
31 March 2015.
Audit Committee
The Board has established an Audit Committee composed of all the
independent members of the Board. The Chairman of the Board is
included as a Committee member to enable a full understanding of
the issues facing the Company, but cannot be Audit Committee
Chairman. The Audit Committee, its membership and its terms of
reference are kept under regular review by the Board, and it is
perceived all members have sufficient financial skills and
experience. Patrick Firth is Audit Committee Chairman.
The Audit Committee met four times during the period ended 31
March 2015; the meeting attendance record is displayed on page 42
of the Annual Report for the period ended 31 March 2015. The
Company Secretary acts as the Secretary to the Audit Committee.
Owing to the size and structure of the Company, there is no
internal audit function. The Audit Committee has reviewed the need
for an internal audit function, and perceived that the internal
financial and operating control systems in place within the Company
and its service providers, as evidenced by the internal control
reports provided by the Administrator, give sufficient assurance
that a sound system of internal control is maintained that
safeguards shareholders' investment and Company assets.
The Audit Committee is intended to assist the Board in
discharging its responsibilities for the integrity of the Company's
financial statements, as well as aiding the assessment of the
Company's internal control effectiveness and objectivity of the
external Auditors. Further information on the Audit Committee's
responsibilities is given in the report of the Audit Committee on
page 54 of the Annual Report for the period ended 31 March
2015.
Formal terms of reference for the Audit Committee are available
at the registered office, and are reviewed on a regular basis.
Board and Committee meeting attendance
Individual attendance at Board and Committee meetings is set out
below:
Scheduled Ad hoc Audit
Board Board(1) Committee
Kevin Lyon 4 10 4
Patrick Firth 4 22 4
Vic Holmes 4 24 4
Total Meetings for year 4 27 4
1 The ad hoc Board meetings are convened to deal with
administrative matters. In such cases, it is not always feasible,
or a necessity, for the Chairman of the Board to attend such
meetings in Guernsey, and has participated as an observer by
phone.
In addition to the scheduled quarterly and additional offshore
ad hoc meetings, the Directors and the Investment Manager have been
provided with a number of telephone and face to face investment
briefings by the Investment Adviser in order to keep the Directors
and the Investment Manager fully appraised and up to date with the
current investment status and progress.
Company Secretary
Reports and papers, containing relevant, concise and clear
information, are provided to the Board and Committees in a timely
manner to enable review and consideration prior to both scheduled
and ad hoc specific meetings. This ensures that Directors are
capable of contributing to, and validating, the development of
Company strategy and management. The regular reports also provide
information that enables scrutiny of the Company's Investment
Manager and other service providers' performance. When required,
the Board has sought further clarification of matters with the
Investment Manager and other service providers, both by means of
further reports and in-depth discussions, in order to make more
informed decisions for the Company.
Under the direction of the Chairman, the Company Secretary
facilitates the flow of information between the Board, Committees,
Investment Manager and other service providers through the
development of comprehensive, detailed meeting packs, agendas and
other media. These are circulated to the Board and other attendees
in sufficient time to review the data.
Full access to the advice and services of the Company Secretary
is available to the Board; in turn, the Company Secretary is
responsible for advising on all governance matters through the
Chairman. The Articles and schedule of matters reserved for the
Board indicate the appointment and resignation of the Company
Secretary is an item reserved for the full Board. A review of the
performance of the Company Secretary is undertaken by the Board on
a regular basis.
Financial and Business Information
An explanation of the Directors' role and responsibility in
preparing the Annual Report and Accounts for the period ended 31
March 2015 is provided in the Statement of Directors'
Responsibilities on page 48 of the Annual Report for the period
ended 31 March 2015.
For the purposes solely of the audit of the financial
statements, the Auditors have reviewed the Company's compliance
with the AIC Code's provisions, the UK Listing Authority's Listing
Rules and other applicable rules of the FCA as reported on page 44
of the Annual Report for the period ended 31 March 2015.
Further information enabling shareholders to assess the
Company's performance, business model and strategy can be sourced
in the Chairman's Statement on pages 3 to 4, the Strategic Report
on pages 6 to 10 and the Report of the Directors on pages 49 and 51
of the Annual Report for the period ended 31 March 2015.
Risk Management and Risk Control
The Board is required annually to review the effectiveness of
the Company's key internal controls such as financial, operational
and compliance controls and risk management. The controls are
designed to ensure that the risk of failure to achieve business
objectives is minimised, and are intended to provide reasonable
assurance against material misstatement or loss. Through regular
meetings and meetings of the Audit Committee, the Board seeks to
maintain full and effective control over all strategic, financial,
regulatory and operational issues. The Board maintains an
organisational and Committee structure with clearly defined lines
of responsibility and delegation of authorities.
As part of the compilation of the risk register for the Company,
appropriate consideration has been given to the relevant control
processes and that risk is considered, assessed and managed as an
integral part of the business. The Company's system of internal
control includes inter alia the overall control exercise,
procedures for the identification and evaluation of business risk,
the control procedures themselves and the review of these internal
controls by the Audit Committee on behalf of the Board. Each of
these elements that make up the Company's system of internal
financial and operating control is explained in further detail as
follows:
(i) Control environment
The Company is ultimately dependent upon the quality and
integrity of the staff and management of its Investment Manager,
its Investment Adviser and its Fund Administration and Company
Secretarial service provider, Ipes (Guernsey) Limited. In each
case, qualified and able individuals have been selected at all
levels. The staff of both the Investment Manager and Administrator,
are aware of the internal controls relevant to their activities and
are also collectively accountable for the operation of those
controls. Appropriate segregation and delegation of duties is in
place.
The Audit Committee undertakes a review of the Company's
internal financial and operating controls on a regular basis. The
Auditor of the Company, PricewaterhouseCoopers CI LLP, considers
internal control relevant to the Company's preparation and fair
presentation of the financial statements in order to design their
audit procedures, but not for the purpose of expressing an audit
opinion on the effectiveness of the Company's internal
controls.
In its role as a third-party fund administration services
provider, the Ipes Group, of which Ipes (Guernsey) Limited is a
part, produces an annual AAF 01/06 Assurance Report on the internal
control procedures in place within the Ipes Group, and this is
subject to review by the Audit Committee and the Board.
(ii) Identification and evaluation of business risks
Another key business risk is the performance of the Company's
investments. This is managed by the Investment Manager, which
undertakes regular analysis and reporting of business risks in
relation to the loan portfolio provided by the Investment Adviser,
and then proposes appropriate courses of action to the Board for
their review.
(iii) Key procedures
In addition to the above, the Audit Committee's key procedures
include a comprehensive system for reporting financial results to
the Board regularly, as well as quarterly impairment reviews of
loans (including reports on the underlying investment
performance).
Although no system of internal control can provide absolute
assurance against material misstatement or loss, the Company's
system is designed to assist the Directors in obtaining reasonable
assurance that problems are identified on a timely basis and dealt
with appropriately. The Company, given its size, does not have an
internal audit function. It is the view of the Board that the
controls in relation to the Company's operating, accounting,
compliance and IT risks performed robustly throughout the year. In
addition, all have been in full compliance with the Company's
policies and external regulations, including:
-- Investment policy, as outlined in the IPO documentation
-- Personal Account Dealing, as outlined in the Model Code
-- Whistleblowing policy
-- Anti-Bribery policy
-- Applicable FCA Regulations
-- Listing Rules, and Disclosure and Transparency Rules
-- Treatment and handling of confidential information
-- Conflicts of interest
-- Compliance policies
-- Anti-Money Laundering Regulations.
Corporate Governance Statement
There were no protected disclosures made pursuant to the
Company's whistleblowing policy, or that of service providers in
relation to the Company, during the period ended 31 March 2015.
In summary, the Board considers that the Company's existing
internal financial and operating controls, coupled with the
analysis of risks inherent in the business models of the Company
and its subsidiaries, continue to provide appropriate tools for the
Company to monitor, evaluate and mitigate its risks.
Dialogue with Shareholders
The Directors place a great deal of importance on communication
with shareholders. The Investment Manager and the brokers aim to
meet with large shareholders at least annually, together with the
Investment Adviser, and calls are undertaken on a regular basis
with shareholders. The Board also receives regular reports from the
Brokers on shareholder issues. Publications such as the Annual
Report and Financial Statements, and Quarterly Factsheets are
reviewed and approved by the Board prior to circulation, and are
widely distributed to other parties who have an interest in the
Company's performance, and are available on the Company's
website.
All Directors are available for discussions with the
shareholders, in particular the Chairman and the Audit Committee
Chairman, as and when required.
Constructive use of AGM
The Notice of AGM is sent out at least 20 working days in
advance of the meeting. All shareholders have the opportunity to
put questions to the Board or Investment Manager, either formally
at the Company's Annual General Meeting, informally following the
meeting, or in writing at any time during the year via the Company
Secretary. The Company Secretary is also available to answer
general shareholder queries at any time throughout the year.
By order of the Board
Ipes (Guernsey) Limited
Company Secretary
Biographical Information of the Directors
Kevin Lyon
(Independent Non-Executive Director and Chairman)
Mr Lyon is a qualified chartered accountant, with over 30 years
of experience in private equity and senior director positions in a
number of different companies. He spent approximately 17 years with
the 3i Group, responsible for their core private equity business
across the UK, with a team of ten directors and 40 executives. Mr
Lyon is currently chairman of Mono Global Group and also serves as
an independent director of DCK Group. He was former chairman of
Smart Metering Systems plc, Valiant Petroleum plc, RBG, Wyndeham
Press Group, Whittards of Chelsea, Julian Graves, Craneware plc,
Incline GTS and was a Non-Executive Director on Booker plc, David
Lloyd Leisure and Phase 8. He won the Institute of Directors
Scotland, Non-Executive Director of the Year Award in March 2013.
Mr Lyon graduated from Edinburgh University in 1982 and has
attended management courses at INSEAD, IESE and Ashridge. Mr Lyon
is also Chairman of Cutis Developments Ltd and a non-executive
Director of Ambrian plc (formerly East West Resources plc).
Patrick Firth
(Independent Non-Executive Director and Audit Committee
Chairman)
Mr Firth is a non-executive Director of the Company. He
qualifiedasa Chartered Accountant with KPMG Guernsey in 1991 and is
also a member of the Chartered Institute for Securities and
Investment. Patrick is a director of a number of management
companies, general partners and investment companies including
Riverstone Energy Limited, JZ Capital Partners Limited, ICG Longbow
Senior Secured UK Property Debt Investments Limited, DW Catalyst
Fund Limited. He has worked in the fund industry in Guernsey since
joining Rothschild Asset Management C.I Limited in 1992 before
moving to become Managing Director at Butterfield Fund Services
(Guernsey) Limited (subsequently Butterfield Fulcrum Group
(Guernsey) Limited), a company providing third party fund
administration services, where he worked from April 2002 until June
2009. Mr Firth is a former Chairman of the Guernsey Investment Fund
Association (GIFA) and is currently Chairman of the Guernsey
International Business Association (GIBA) Council. He is a resident
of Guernsey.
Vic Holmes
(Independent Non-Executive Director)
Mr Holmes is a Fellow Chartered Certified Accountant ("FCCA")
and a non-executive Director of the Company. He has been involved
in financial services for over 30 years. In 1986, Mr Holmes joined
the Board of Guernsey International Fund Management Limited,
Guernsey's largest fund administration company. In 1990, he was
appointed managing director of the newly established Irish based
Baring Asset Management subsidiary, providing international fund
administration services from a Dublin base. He continued in that
position until 2003, when he was appointed head of fund
administration services for the Baring Asset Management group of
companies, providing services out of London, Dublin, Guernsey, Isle
of Man and Jersey. Subsequent to the acquisition of the Baring
Asset management Financial Services Group by Northern Trust in
2005, he was appointed country head of Northern Trust's Irish
businesses and, in 2007, he returned to Guernsey to assume the
position of jurisdictional head of Northern Trust's Channel Island
businesses. Since 1986, Mr. Holmes has served on a wide range of
fund-related boards, based mainly in Guernsey and Ireland, but also
in the UK, and the Cayman Islands. Mr Holmes' current directorships
include Permira Holdings Limited, Generali Worldwide Insurance
Company Limited, Picton Property Income Limited (London listed), a
range of Ashmore funds, and a range of F&C funds. Mr Holmes was
Chairman of the GIFA Executive Committee for the period April 2013
to April 2015. He is a resident of Guernsey.
Statement of Directors' Responsibilities
The Directors are responsible for preparing financial statements
for each financial period which give a true and fair view, in
accordance with applicable laws and regulations, of the state of
affairs of the Company and of the profit and loss of the Company
for that period.
The Companies (Guernsey) Law, 2008 requires the Directors to
prepare financial statements for each financial period. The
financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS"). In preparing
the financial statements, the Directors are required to:
-- Select suitable accounting policies and apply them consistently;
-- Make judgements and estimates that are reasonable and prudent;
-- State whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- Prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The maintenance and integrity of the Company's website is the
responsibility of the Directors. Legislation in Guernsey governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
The Directors are responsible for keeping proper 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 (Guernsey) Law,
2008. 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.
Each of the Directors confirms that, to the best of their
knowledge:
-- They have complied with the above requirements in preparing the financial statements;
-- There is no relevant audit information of which the Company's auditors are unaware;
-- All Directors have taken the necessary steps that they ought
to have taken to make themselves aware of any relevant audit
information and to establish that the auditors are aware of said
information;
-- The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company; and
-- The Chairman's Statement, Report of the Directors and
Corporate Governance Statement include a fair review of the
development and the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces.
The 2012 UK Corporate Governance Code, as adopted through the
AIC Code by the Company, also requires Directors to ensure that the
Annual Report and Accounts are fair, balanced and understandable.
In order to reach a conclusion on this matter, the Board has
requested that the Audit Committee advise on whether it considers
that the Annual Report and Accounts fulfils these requirements. The
process by which the Committee has reached these conclusions is set
out in the Report of the Audit Committee on pages 54 to 57 of the
Annual Report for the period ended 31 March 2015. Furthermore, the
Board believes that the disclosures set out on pages 6 to 37 of the
Annual Report for the period ended 31 March 2015 provide the
information necessary for shareholders to assess the Company's
performance, business model and strategy.
Having taken into account all the matters considered by the
Board and brought to the attention of the Board during the period
from inception to 31 March 2015, as outlined in the Corporate
Governance Statement, Strategic Report and the Report of the Audit
Committee, the Board has concluded that the Annual Report and
Accounts for the period from inception to 31 March 2015, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy.
For NextEnergy Solar Fund Limited
Kevin Lyon
Chairman
29 June 2015
Report of the Directors
The principal activities and investment objectives of the
Company are to provide investors with a sustainable and attractive
dividend that increases in line with RPI over the long-term by
investing exclusively in a diversified portfolio of solar PV assets
that are located in the UK. The Company's principal activities and
investment objectives are detailed more fully in the Strategic
Report on pages 6 to 10 of the Annual Report for the period ended
31 March 2015.
The structure of the Company and the NEC Group, as detailed
fully on pages 7 to 10 of the Annual Report for the period ended 31
March 2015 of the Strategic Report, facilitates the efficient
holding of and management of the Company's assets to enable the
Company to pursue its principal activities and objectives.
Dividend Policy
The Company is targeting an annual dividend of 6.25p per
Ordinary Share (adjusted in direct proportion to annual variations
in RPI) in each financial year.
Distributions on the Ordinary Shares are expected to be paid
twice a year, normally in respect of the six months to 30 September
and 31 March.
There are no assurances that the Company will pay any future
dividends.
For the first long financial year ended 31 March 2015, the
Company has declared a dividend of 5.25p per Ordinary Share. On 4
November, an interim dividend of 2.625p per Ordinary Share was
declared, totalling GBP4,635,750 and paid on 17 December 2014 to
all Shareholders on the register at 5 December 2014. A second
interim dividend of 2.625p per Ordinary Share was declared on 30
June 2015, totalling GBP6,309,187.50 for payment on 30 July 2015 to
all Shareholders on the register at 10 July 2015.
Capital
As part of the Company's initial public offering (the "IPO"),
completed on 25 April 2014, 85,600,000 ordinary shares of the
Company, with an issue price of 100p per share, were admitted to
the premium segment of the UK Listing Authority's Official List and
to trading on the Main Market of the London Stock Exchange. Since
the IPO the Ordinary Shares in issue have increased to 240,350,000
as a result of further share issues made pursuant to the current
Placing Programme. The Placings and Offers for Subscription made
under the placing programme are as follows:
Date Description New Ordinary Number
Shares Issued of Shares
in Issue
Initial Public
25 April 2014 Offering 85,600,000 85,600,000
Issue of
Shares
19 November 2014 Placing 85,316,434 170,916,434
Issue of
Shares
Offer 5,683,566 176,600,000
Issue of
Shares
23 December 2014 Placing 4,000,000 180,600,000
Issue of
Shares
27 February 2015 Placing 55,356,358 235,956,358
Issue of
Shares
Offer 4,393,642 240,350,000
Revolving Credit Facility
In September 2014, the Company announced that financing
documentation had been signed for a two-year revolving credit
facility of up to GBP31.5m, provided by Macquarie Bank Limited. The
financing documentation was executed by the UK Holdco with the
Company providing security over its shares in the UK Holdco to
Macquarie Bank Limited.
The Revolving Credit Facility will provide flexibility to the
Company and will allow it to react quickly to acquire further solar
power plants from among its pipeline of opportunities.
Business Review
As at the Date of Preparation of this annual report the Company
announced the acquisition of 16 solar PV plants for a total of
217MWp and a total investment value of approximately GBP252.0m,
representing 102% of the equity proceeds raised since its IPO in
April 2014 and will utilise its revolving credit facility to
finance any amounts not covered by its available equity funding and
to fund further investment opportunities.
Full details of the Company's performance during the period
ended 31 March 2015, its position at that date and the Company's
future developments are detailed in the Chairman's Statement, the
Strategic Report and the Investment Manager's Report on pages 3 to
25 of the Annual Report for the period ended 31 March 2015.
Substantial Interests
As at the Date of Preparation of this annual report, the Company
is aware of the following material shareholdings:
% shareholding
Ordinary at 31 March
Name shares purchased 2015
Prudential plc group of companies 60,093,683 25.00
Artemis Investment Management
LLP on behalf of discretionary
funds under management 45,460,932 18.91
Investec Wealth & Investment
Limited 31,286,736 13.02
Baillie Gifford 15,937,500 6.63
Smith & Williamson 12,650,389 5.26
Directors and Directors' Interests in Shares
The Directors who have served throughout the period from
inception to 31 March 2015 were Kevin Lyon, Patrick Firth and Vic
Holmes. All Directors retired and were re-elected at the first
annual general meeting of the Company held on 19 June 2015. Going
forward each Director who has been appointed will be required to be
elected at the next annual general meeting and all Directors will
be required to submit themselves for re-election once every three
years.
Biographical details of each of the Directors are shown on pages
45 to 47 of the Annual Report for the period ended 31 March
2015.
The Directors' interests in shares are shown below:
Ordinary
Ordinary shares
shares at Ordinary at 31
Company's shares March
Name Launch purchased 2015
Kevin Lyon 60,000 - 60,000
Patrick Firth 20,000 - 20,000
Vic Holmes 10,000 - 10,000
Corporate Governance
The Corporate Governance Statement on pages 38 to 44 of the
Annual Report for the period ended 31 March 2015 sets out in detail
the Code of Corporate Governance against which the Company reports.
It also sets out the Company's compliance with the relevant
principles and any reasons for deviations from the code. Finally,
it includes details regarding the Audit Committee, its composition
and terms of reference.
Going Concern
The Company's business activities and factors likely to affect
its performance, position and prospects are set out in the
Strategic Report on pages 6 to 10 of the Annual Report for the
period ended 31 March 2015. Further to this, the Strategic Report
provides further information on the financial position of the
Company, its cash flows, liquidity and borrowing facilities.
The Board is satisfied that the Company has sufficient resources
available to be able to manage the Company's business effectively
and pursue the Company's principal activities and investment
objectives.
The Directors have a reasonable expectation that the Company has
sufficient resources available to continue as a going concern for
the foreseeable future. As such, the Directors are happy to adopt
the going concern basis of accounting in preparing these financial
statements.
Share Repurchase
No shares have been repurchased during the period. Authority to
purchase Ordinary Shares was sought and obtained at the first
Annual General Meeting of the Company held on 19 June 2015 and will
expire at the conclusion of the second Annual General Meeting of
the Company, at which point it is envisaged that the Directors will
propose to extend the authority.
Treasury Shares
Under section 315 of the Companies (Guernsey) Law, 2008 (as
amended from time to time) the Company is entitled to hold shares
acquired by market purchase as treasury shares. Up to 10% of the
issued share capital may be held in treasury and either sold in the
market or cancelled.
Whilst there are no shares currently held in treasury, and the
Board has no intention at present to acquire shares to hold in
treasury, the Board will keep this matter under review.
Independent Auditors
The Board of Directors elected to appoint PricewaterhouseCoopers
CI LLP as Auditors to the Company at the inaugural meeting of the
Company on 22 January 2014. PricewaterhouseCoopers CI LLP has
indicated their willingness to continue as Auditors.
Investment Manager and Service Providers
The Investment Manager during the period was NextEnergy Capital
IM Limited (the "Investment Manager"), incorporated in Guernsey
with registered number 57740 and regulated by the GFSC. The
Investment Manager has appointed NextEnergy Capital Limited (the
"Investment Adviser"), an English limited company which is
regulated by the Financial Conduct Authority ("FCA"), to provide
investment advice pursuant to an Investment Advisory Agreement.
The Company's brokers during the period were Cantor Fitzgerald
Europe, Macquarie Capital (Europe) Limited and Shore Capital and
Corporate Limited.
The Company's Administrator and Company Secretary during the
period was Ipes (Guernsey) Limited (the "Administrator").
Annual General Meeting
The Company's Annual General Meeting was held on 19 June, with
all resolutions passed.
General Meeting
A General Meeting has been convened for 2pm on 30 July 2015, at
the Company's registered office, for the purpose of receiving the
Annual Report and Financial Statements for the period ended 31
March 2015, together with the reports of the Directors and auditors
therein, and to re-appoint the Auditors.
The Board considers that the Resolutions are in the best
interests of the Company and its Shareholders as a whole.
Accordingly the Board unanimously recommends that Shareholders vote
in favour of the Resolutions to be proposed at the General
Meeting.
By order of the Board
Ipes (Guernsey) Limited
Company Secretary
29 June 2015
Directors' Remuneration Report
Remuneration Policy and Components
The Board endeavours to ensure the remuneration policy reflects
and supports the Company's strategic aims and objectives throughout
the period under review. It has been agreed that, as all the
Directors are independent and non-executive, a separate
Remuneration Committee would provide little extra in the way of
governance and therefore, the functions of the Remuneration
Committee will be undertaken by the full Board as detailed in the
Prospectus. Furthermore, with the Board comprising of only three
members it would prove somewhat onerous to establish a separate
Remuneration Committee. The Board will review the need for the
Company to establish a Remuneration Committee as the needs and
structure of the Board and the Company develop.
Remuneration is set by the Board with details of remuneration of
the Board as per Directors Letters of Appointment and as set out in
the Prospectus. No external remuneration consultants were appointed
during the period under review.
As per the Company's Articles of Incorporation, the Directors
shall be paid out of the funds of the Company by way of fees such
sums as shall be approved by the Company in general meeting. It is
the Company's policy to determine the level of Directors' fees,
having regard for the level of fees payable to non-executive
Directors in the industry generally, the role that individual
Directors fulfil in respect of responsibilities related to the
Board and Audit Committee and the time dedicated by each Director
to the Company's affairs. Base fees are set out below.
Base Fees Per annum (GBP)
Chairman 60,000
Audit Committee Chairman 33,000
Non-Executive Director 30,000
Total Directors' Base Fees 123,000
In accordance with the Articles of Incorporation the Board may
determine that additional remuneration may be paid, from time to
time, to any one or more Directors in the event such Director or
Directors are requested by the Board to perform extra or special
services on behalf of the Company. In accordance with this
provision and in recognition of the additional work the Directors
have done in connection with the Placing Programme, it was agreed
that each Director is entitled to receive an additional fee of
GBP5,000 on completion of the Initial Placing, and a further
additional fee of GBP5,000 on completion of the second Issue
pursuant to the Placing Programme.
As outlined in the Articles of Association, the Directors shall
also be paid all reasonable travelling, hotel and other expenses
properly incurred by them in attending and returning from meetings
of the Directors or any Committee of the Directors or general
meetings of the Company or in connection with the business of the
Company. The total amount of Directors' expenses paid for the
period from incorporation to 31 March 2015 is GBP710.44.
No amount has been set aside or accrued by the Company to
provide pension, retirement or other similar benefits for the
Directors.
No Director has any entitlement to pensions, paid bonuses or
performance fees, has been granted share options or been invited to
participate in long-term incentive plans. No loans have been taken
on behalf of a Director by the Company.
None of the Directors has a service contract with the Company.
Each of the Directors have entered into a letter of appointment
with the Company dated 22 January 2014, and was subject to election
at the first Annual General Meeting, or as determined in line with
the Company's Articles, and re-election at subsequent Annual
General Meetings in accordance with the Company's Articles and all
due regulations and provisions. The Directors do not have any
interests in contractual arrangements with the Company or its
investments during the period under review, or subsequently. Each
appointment can be terminated in accordance with the Company's
Articles and without compensation. As outlined in the letters of
appointment, each appointment can be terminated by:
(i) Resignation by the Director by giving written notice (six
months for the Chairman and three months for the remaining
Directors) to the Board;
(ii) A resolution of the Shareholders;
(iii) Disqualification from acting as Director under the Law or
Company's Articles, without notice;
(iv) Actions otherwise in accordance with the Company's
Articles
Directors' and Officers' liability insurance cover is maintained
by the Company but is not considered a benefit in kind nor
constitutes a part of the Directors' remuneration. The Company's
Articles indemnify each Director, Secretary, agent and officer of
the Company, former or present, out of assets of the Company in
relation to charges, losses, liabilities, damages and expenses
incurred during the course of their duties, in so far as the law
allows and provided that such indemnity is not available in
circumstances of fraud, wilful misconduct or negligence.
Directors' Fees
The Directors received the following fees during the period
under review, totalling GBP176,575:
Director
fee for period Additional
from 22 January remuneration
2014 to 31 paid for
March 2015 extra/special Total fee
Director (GBP) services for period
Kevin Lyon 71,500 10,000 81,500
Patrick Firth 39,325 10,000 49,325
Vic Holmes 35,750 10,000 45,750
Aggregate Fees 146,575 30,000 176,575
By order of the Board
Ipes (Guernsey) Limited
Company secretary
29 June 2015
Audit Committee Report
The Board is supported by the Audit Committee, which was
established at a meeting of the Board of Directors held on 30 June
2014 and comprises of all of the Directors during the period
following establishment. Patrick Firth is Chairman of the Audit
Committee. The Chairman of the Board is a member of the Audit
Committee, to enable his greater understanding of the issues facing
the Company. The Board has considered the composition of the Audit
Committee and is satisfied it has sufficient recent and relevant
skills and experience.
Role and Responsibilities
The primary role and responsibilities of the Audit Committee are
clearly defined in the Audit Committee's terms of reference,
available at the registered office, including:
-- Monitoring the integrity of the financial statements of the
Company and any formal announcements relating to the Company's
financial performance, and reviewing significant financial
reporting judgements contained within said statements and
announcements
-- Reviewing the Company's internal financial controls, and the
Company's internal control and risk management systems
-- Monitoring and reviewing the independence, objectivity and
effectiveness of the external Auditors, taking into consideration
relevant regulatory and professional requirements
-- Making recommendations to the Board in relation to the
appointment, re-appointment and removal of the external Auditors
and approving their remuneration and terms of engagement, which in
turn can be placed before the shareholders for their approval at
the Annual General Meeting
-- Developing and implementing the Company's policy on the
provision of non-audit services by the external Auditors, as
appropriate
-- Reviewing the arrangements in place to enable employees of
the Investment Manager or any other adviser to, in confidence,
raise concerns about possible improprieties in matters of financial
reporting or other matters insofar as they may affect the
Company
-- Providing advice to the Board on whether the annual financial
statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company's performance, business model and strategy
-- Reporting to the Board on how the Committee discharged all
relevant responsibilities at each Board meeting
The Committee met four times during the period under review;
individual attendance of Directors is outlined on page 42 of the
Annual Report for the period ended 31 March 2015. The main matters
discussed at those meetings were:
-- Establishment of the audit requirements for the Company
-- Drafting the terms of Reference for the Committee to present to the Board for consideration
-- Detailed review of the Half Year Report and Accounts and
recommendation for approval by the Board
-- Discussion of reports from the external Auditors following their interim reviews
-- Review and approval of the annual audit plan of the external Auditors
-- Review and approval of the interim review plan of the external Auditors
-- Review of the Company's key risks and internal controls
The Committee intends to assess the effectiveness and
independence of the external Auditors following the conclusion of
the period end audit process. The Committee has also reviewed and
considered the whistleblowing policy in place for the Investment
Adviser and other service providers, and is satisfied the relevant
staff can raise concerns in confidence about possible improprieties
in matters of financial reporting or other matters insofar as they
may affect the Company.
Significant Issues in Relation to the Financial Statements
Following discussions with the Investment Manager, Investment
Adviser and the external Auditors, the Committee determined that
the key risks connected with the preparation of the financial
statements of the Company related to:
-- Management override of controls - in line with the
requirements of International Standards on Auditing ("ISA") issued
by the International Auditing and Assurance Standards Board
-- Existence of investments - existence of the assets provides a
higher inherent risk given the nature of purchasing a solar farm.
There is an initial commitment to purchase while the solar farm is
under construction, however final payment is only made when the
asset is fully operational
-- Investment Valuation - valuation of the assets provides a
higher inherent risk as the valuations are based upon models which
require complex and subjective judgements or estimates for inputs
into the model
Existence of Investments
In conjunction with the Auditors, the Committee updated its
understanding and evaluated the internal controls in place for
assessing ownership and existence at the reporting date including
any significant judgements or estimates made.
The Committee has access to and reviews the key transaction
documents as well as reviewing the agreements for the commitment to
purchase new solar farms by NextEnergy Solar Holdings Limited (the
UK subsidiary of the Company, or "UK HoldCo"), with particular
focus on initial recognition of the solar farms as assets of the UK
HoldCo. This included discussion between the Investment Manager and
the Investment Adviser.
For operational assets, the Committee has reviewed transactions
and balances which support the assertions of existence and
ownership at the SPV level and also of the ownership of each SPV to
the UK HoldCo and in turn the UK HoldCo to the Company.
Investment Valuation
The Audit Committee considers in detail those assumptions that
are subject to judgement and that have a material impact on the
valuation of the assets. During this process the Audit Committee
challenges the assumptions employed by the Investment Adviser and
Investment Manager monitors the changes in these assumptions over
time. The key assumptions include but are not limited to:
-- Inflation rates and other macroeconomic factors
-- Discount rates and other valuation methodologies
-- Operating performance and costs assumptions
-- Power price assumptions
The Investment Manager discusses and agrees valuation
assumptions with the Committee and provides suitable rationale for
changes to the same.
Internal Controls and Risk Management
The Board is ultimately responsible for the Company's systems of
internal control and for reviewing its effectiveness. Under the
Committee's Terms of Reference responsibility has been delegated to
the Committee for monitoring the Company's internal financial
controls, and the Company's internal control and risk management
systems. The Committee maintains a risk matrix which is reviewed
and, where necessary, amended and updated at each meeting and
reports on any changes to the Board at the next available
opportunity for the Board's consideration.
The Internal Controls and Risk Management process is detailed
more fully in the Corporate Governance Statement on page 38 of the
Annual Report for the period ended 31 March 2015.
Review of External Audit Process Effectiveness
The Audit Committee communicated regularly with the Investment
Manager, Investment Adviser and Administrator to obtain a good
understanding of the progress and efficiency of the audit process.
Similarly, feedback in relation to the efficacy of the Investment
Manager, Investment Adviser and other service providers in
performing their relevant roles was sought from relevant involved
parties, including the audit partner and team. The external Auditor
is invited to attend the Audit Committee meetings at which the
semi-annual and annual accounts are considered, and meetings are
also held with the Auditors to meet and discuss any matters with
the Audit Committee members without the presence of the Investment
Adviser, Investment Manager or the Administrator.
As mentioned above, and as this is the Company's first set of
period end financial statements, the Audit Committee has not yet
reviewed the performance of the external Auditor. However, the
Committee intends to conduct a review of the external Auditors
following the conclusion of the period end audit process and in
doing so will look to consider:
-- The quality of service, the Auditors' specialist expertise,
the level of audit fee, identification and resolution of any areas
of accounting judgement, and quality and timeliness of papers
analysing these judgements
-- Review of the audit plan presented by the Auditors, and when
tabled, the final audit findings report
-- Meeting with the Auditors regularly to discuss the various papers and reports in detail
-- Further interviews of appropriate staff in the Investment
Manager, Investment Adviser and Administrator to receive feedback
on the effectiveness of the audit process from their
perspective
-- Compilation of a checklist with which to provide a means to
objectively assess the Auditors' performance
Subject to a formal review of the external Auditors, the
Committee has been satisfied with the Auditors' effectiveness.
Furthermore, as the Company has only gone through one period end
audit process the Committee does not feel that it would be
beneficial or necessary at this time to require the Auditors to
re--tender for the audit work.
Auditors' Tenure and Objectivity
The Company intends to develop an audit tender policy which the
Board will consider after five years from the appointment date of
the current Auditor. A review will therefore occur in the second
half of 2019, subject to regular reviews by the Board and
shareholder approval.
The Company's current Auditors, PricewaterhouseCoopers CI LLP
("PWC CI"), have acted in this capacity since the Company's
inaugural meeting on 22 January 2014. As detailed above the
Committee will review the Auditors' performance following the
conclusion of the year end audit process and will continue to do so
on a regular basis to ensure the Company receives an optimal
service. Subject to annual appointment by shareholder approval at
the Annual General Meeting, the appointment of the Auditor is
formally reviewed by the Audit Committee on an annual basis. The
Auditors are required to rotate the audit partner every five years,
and the current partner has been in place since the Company's
launch.
PWC CI will regularly update the Audit Committee on the rotation
of audit partners, staff, level of fees, details of any
relationships between the Auditors, the Company and its loan
portfolio, and also provides overall confirmation of its
independence and objectivity. There are no contractual obligations
that restrict the Company's choice of Auditors.
During the period from inception to 31 March 2015,
PricewaterhouseCoopers LLP ("PWC UK") has provided non-audit
services to the Company in relation to its initial public offering
and placing programme. The level of fees paid in respect of these
services was GBP86,000 and GBP130,000. The Committee considered the
services being provided by all PricewaterhouseCoopers member firms
and acknowledge that the level of non-audit fees exceeds those of
the audit. However, the Committee is of the opinion that it was
beneficial to the Company that PWC UK carried out the work in
relation to the IPO and placing programme in order that they could
develop their understanding of the Company and the dynamics of its
business. The audit and non-audit work carried out by PWC UK and
PWC CI was also substantially completed by separate network firms,
creating a degree of separation.
Notwithstanding the non-audit services provided, the Audit
Committee is satisfied that PWC CI is independent of the Company,
the Investment Manager and other service providers and recommends
the continuing appointment of the Auditors by the Board.
Conclusions in Respect of the Financial Statements
The production and the audit of the Company's Annual Report and
Financial Statements is a comprehensive process requiring input
from a number of different contributors. In order to reach a
conclusion on whether the Company's financial statements are fair,
balanced and understandable, as required under the UK Corporate
Governance Code dated September 2012, the Board has requested that
the Audit Committee advise on whether it considers that the Annual
Report and Financial Statements fulfils these requirements as
detailed in the Committee's terms of reference. In outlining its
advice, the Audit Committee has considered the following:
-- The comprehensive documentation that is in place outlining
the controls in place for the production of the Annual Report,
including the verification processes in place to confirm the
factual content
-- The detailed reviews undertaken at various stages of the
production process by the Investment Manager, Investment Adviser,
Administrator, Auditors and the Audit Committee that are intended
to ensure consistency and overall balance
-- Controls enforced by the Investment Manager, Investment
Adviser, Administrator and other third party service providers to
ensure complete and accurate financial records and security of the
Company's assets
-- The existence and content of a satisfactory control report
produced by the Ipes Group that has been reviewed and reported upon
by a reputable audit firm to verify the effectiveness of the
internal controls of the Administrator, such as the Audit and
Assurance Faculty (AAF) Report
As a result of the work performed, the Committee has concluded
and reported to the Board that the Annual Report for the period
from inception to 31 March 2015, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business
model and strategy. The Board's conclusions in this respect are set
out in the Statement of Directors' Responsibilities on page 48 of
the Annual Report for the period ended 31 March 2015.
Patrick Firth
Audit Committee chairman
29 June 2015
Financial Statements
Statement of Comprehensive Income
For the period ended 31 March 2015
Notes 20 December 2013
to 31 March 2015
(GBP)
Income
Net changes in fair value
of financial assets
at fair value through
profit or loss 5 10,570,553
Total net income 10,570,553
Expenditure
Management fees 14 1,210,566
Legal and professional
fees 515,130
Directors' fees 17 176,575
Administration fees 152,500
Sundry expenses 73,375
Regulatory fees 70,638
Audit fees 13 50,000
Marketing and Advertising 30,917
Insurance 14,134
Total expenses 2,293,835
Operating profit 8,276,718
Finance income 257,931
Profit and comprehensive
income for the period 8,534,649
Earnings per share - Basic
- (pence) 8 9.13p
There were no potentially dilutive instruments in issue at 31
March 2015.
All activities are derived from ongoing operations.
There is no other comprehensive income or expense apart from
those disclosed above and consequently a Statement of Other
Comprehensive Income has not been prepared.
Statement of Financial Position
As at 31 March 2015
Non-current assets Notes 31 March
2015 (GBP)
Investments 5, 11 158,160,872
Total non-current assets 158,160,872
Current assets
Cash and cash equivalents 90,217,126
Trade and other receivables 69,482
Total current assets 90,286,608
Total assets 248,447,480
Current liabilities
Trade and other payables 88,942
Total current liabilities 88,942
Net assets 248,358,538
Equity
Share Capital and Premium 7 244,459,639
Reserves 7 3,898,899
Total equity attributable to
shareholders 248,358,538
Net assets per share - (pence) 10 103.3p
The accompanying notes on pages 63 to 77 of the Annual Report
for the period ended 31 March 2015 are an integral part of these
financial statements.
The financial statements were approved and authorised for issue
by the Board of Directors on 29 June 2015, and signed on its behalf
by:
Kevin Lyon Patrick Firth
Director Director
Statement of Changes in Equity
For the period ended 31 March 2015
Share Capital Retained
and Premium earnings Total Equity
Equity Notes (GBP) (GBP) (GBP)
Shareholders' equity
at 20 December 2013 - - -
Profit and comprehensive
income for the period - 8,534,649 8,534,649
Shares issued 7 244,459,639 - 244,459,639
Dividend paid 9 - (4,635,750) (4,635,750)
Shareholders' equity
at 31 March 2015 244,459,639 3,898,899 248,358,538
Cash Flow Statement
For the period ended 31 March 2015
20 December
2013 to 31 March
Cash flow from operating activities Notes 2015 (GBP)
Profit and comprehensive income
for the period 8,534,649
Adjustments for:
Purchase of investments 5 (147,590,319)
Change in fair value of investments 5, 15 (10,570,553)
Finance income (257,931)
Operating cash flows before movements
in working capital (149,884,154)
Changes in working capital
Increase in trade receivables (69,482)
Increase in trade payables 88,942
Net cash used in operating activities (149,864,694)
Cash flows from investing activities
Finance income 257,931
Net cash generated from investing
activities 257,931
Cash flows from financing activities
Proceeds from issue of shares 7 244,459,639
Dividend paid 9 (4,635,750)
Net cash generated from investing
activities 239,823,889
Net increase in cash and cash
equivalents during period 90,217,126
Cash and cash equivalents at the
beginning of the period -
Cash and cash equivalents at the
end of the period 90,217,126
Notes to the Audited Financial Statements
For the period ended 31 March 2015
1. General Information
NextEnergy Solar Fund Limited (the "Company") was incorporated
with limited liability in Guernsey under the Companies (Guernsey)
Law, 2008, as amended, on 20 December 2013 with registered number
57739, and has been regulated by the GFSC as a registered
closed-ended investment company. The registered office and
principal place of business of the Company is 1, Royal Plaza, Royal
Avenue, St Peter Port, Guernsey, Channel Islands, GY1 2HL.
On 16 April 2014, the Company announced the results of its
initial public offering, which raised net proceeds of GBP85.6m. The
Company's ordinary shares were admitted to the premium segment of
the UK Listing Authority's Official List and to trading on the Main
Market of the London Stock Exchange as part of its initial public
offering which completed on 25 April 2014. Subsequent fund raisings
also took place on the 19 November 2014 raising GBP94.0m, 19
December 2014 raising GBP4.1m and 27 February 2015 raising
GBP60.7m, increasing total equity to GBP244.4m as at 31 March 2015.
Details can be found in note 7.
The Company seeks to provide investors with a sustainable and
attractive dividend that increases in line with retail price index
over the long-term by investing in a diversified portfolio of solar
Photovoltaic assets that are located in the UK. In addition, the
Company seeks to provide investors with an element of capital
growth through the reinvestment of net cash generated in excess of
the target dividend in accordance with the Company's investment
policy.
The Company currently makes its investments through holding
companies and Special Purpose Vehicles, which are wholly-owned by
the Company. The Company controls the investment policy of each of
the holding companies and its wholly-owned Special Purpose Vehicles
in order to ensure that each will act in a manner consistent with
the investment policy of the Company.
The Company has appointed NextEnergy Capital IM Limited as its
Investment Manager (the "Investment Manager") pursuant to the
Management Agreement dated 18 March 2014. The Investment Manager is
a Guernsey registered company, incorporated under the Companies
(Guernsey) Law, 2008, with registered number 57740 and is licensed
and regulated by the GFSC and is a member of the NEC Group. The
Investment Manager is licensed and regulated by the GFSC and will
act as the Alternative Investment Fund Manager of the Company.
The Investment Manager has appointed NextEnergy Capital Limited
as its Investment Adviser (the "Investment Adviser") pursuant to
the Investment Advisory Agreement. The Investment Adviser is a
company incorporated in England with registered number 05975223 and
is authorised and regulated by the FCA.
The financial statements are presented in pounds sterling
because that is the currency of the primary economic environment in
which the Company operates.
2. Significant accounting policies
a) Basis of accounting
The financial statements, which give a true and fair view, have
been prepared on a going concern basis in accordance with
International Financial Reporting Standards ("IFRS").
The financial statements have been prepared on the historical
cost basis, except for the revaluation of certain investments and
financial instruments. Historical cost is generally based on the
fair value of the consideration given in exchange for the assets.
The principal accounting policies adopted are set out below. These
policies have been consistently applied.
Fair value is the price that would be received on sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an
asset or liability, the Company takes into account the
characteristics of the asset or liability if market participants
would take those characteristics into account when pricing the
asset or liability at the measurement date. Fair value for
measurement and/or disclosure purposes in these financial
statements is determined on such a basis.
In addition, for financial reporting purposes, fair value
measurements are categorised into Level 1, 2 or 3 based on the
degree to which inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety which are described as follows:
-- Level 1 inputs are quoted prices in active markets for
identical assets or liabilities that the Company can access at the
measurement date
-- Level 2 inputs are inputs, other than quoted prices included
within Level 1, that are observable for the asset or liability,
either directly or indirectly
-- Level 3 inputs are unobservable inputs for the asset or liability
b) Going concern
The Directors have reviewed the current and projected financial
position of the Company making reasonable assumptions about future
performance. The key areas reviewed were:
-- Timing of future investment transactions
-- Expenditure commitments
-- Forecast income and cash flows
The Company has cash and short-term deposits as well as
projected positive income streams and an available credit facility
(see note 18) and as a consequence the Directors have, at the time
of approving the financial statements, a reasonable expectation
that the Company has adequate resources to continue in operational
existence for the foreseeable future. Accordingly they have adopted
the going concern basis of accounting in preparing the financial
statements.
c) Basis of non-consolidation
The Company has acquired SPVs through its investment in the
holding company. The Company meets the definition of an investment
entity as described by IFRS 10. Under IFRS 10 investment entities
are required to hold subsidiaries at fair value through the
Statement of Comprehensive Income rather than consolidate them. The
HoldCo is also an investment entity and as described under IFRS 10
values its investments at fair value.
Characteristics of an investment entity
Under the definition of an investment entity, as set out in the
standard, the entity should satisfy all three of the following
tests:
I. Obtains funds from one or more investors for the purpose of
providing those investors with investment management services;
and
II. Commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation,
investment income, or both (including having an exit strategy for
investments); and
III. Measure and evaluate the performance of substantially all
of its investments on a fair value basis.
In assessing whether the Company meets the definition of an
investment entity set out in IFRS 10 the Directors note that:
I. the Company has multiple investors and obtains funds from a
diverse group of shareholders who would otherwise not have access
individually to investing in solar energy infrastructure due to
high barriers to entry and capital requirements;
II. the Company's purpose is to invest funds for both investment
income and capital appreciation. The Company's investments have
indefinite lives however the underlying assets do not have an
unlimited life and therefore minimal residual value and therefore
will not be held indefinitely; and
III. the Company measures and evaluates the performance of all
of its investments on a fair value basis which is the most relevant
for investors in the Company. Management use fair value information
as a primary measurement to evaluate the performance of all of the
investments and in decision making.
The Directors are of the opinion that the Company has all the
typical characteristics of an investment entity and therefore meet
the definition set out in IFRS 10.
The Directors believe the treatment outlined above provides the
most relevant information to investors.
d) Taxation
Under the current system of taxation in Guernsey, the Company is
exempt from paying taxes on income, profit or capital gains.
Therefore, income from investments in UK solar PV plants is not
subject to any further tax in Guernsey, although these investments
are subject to tax in the UK.
e) Segmental reporting
The Chief Operating Decision Maker, which is the Board, is of
the opinion that the Company is engaged in a single segment of
business, being investment in solar power, in a single economic
environment, being the United Kingdom. The financial information
used by the Chief Operating Decision Maker to manage the Company
presents the business as a single segment.
f) Dividends
Dividends to the Company's shareholders are recognised when they
become legally payable. In the case of interim dividends, this is
when they are paid. In the case of final dividends, this is when
approved at the Annual General Meeting.
g) Income
Dividend income from financial assets at fair value through
profit or loss is recognised in the Statement of Comprehensive
Income within dividend income when the Company's right to receive
payments is established.
h) Expenses
All expenses are accounted for on an accruals basis.
i) Cash and cash equivalents
Cash and cash equivalents includes deposits held at call with
banks and other short-term deposits with original maturities of
three months or less.
j) Trade and other payables
Trade and other payables are initially recognised at fair value,
and subsequently where necessary re-measured at amortised cost
using the effective interest method.
k) Reimbursed expenses
The Investment Adviser agreed to meet all of the expenses of the
initial share issue. These expenses have been not been recognised
in the Statement of Comprehensive Income and have been reimbursed
by the Investment Adviser. See note 15 for further details.
l) Finance income
Finance income comprises interest earned on cash held on
deposit. Finance income is recognised on an accruals basis.
m) Financial instruments
Financial assets and 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 are
derecognised when the contractual rights to the cash flows from the
instrument expire or the asset is transferred and the transfer
qualifies for derecognition in accordance with IAS 39 Financial
instruments: Recognition and measurement.
Investments
Investments are recognised when the Company has control of the
asset. Control is assessed considering the purpose and design of
the investments including any options to acquire the investments
where these options are substantive. The options are assessed for
factors including the exercise price and the incentives for
exercise. Investments are designated upon initial recognition to be
accounted for at fair value through profit or loss in accordance
with IFRS 13. After initial recognition, investments at fair value
through profit or loss are measured at fair value with changes
recognised in the Statement of Comprehensive Income.
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount
reported in the Statement of Financial Position when there is a
legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously.
n) Share capital and share premium
Ordinary shares are classified as equity. Costs directly
attributable to the issue of new shares (that would have been
avoided if there had not been a new issue of new shares) are
written-off against the value of the ordinary share premium.
3. New and revised standards
The Company has early adopted Investment Entities (Amendments to
IFRS 10, IFRS 12 and IAS 27) with a date of initial application of
20 December 2013. The Directors concluded that the Company meets
the definition of an investment entity (see note 2c).
The Company has early adopted Offsetting Financial Assets and
Financial Liabilities (Amendments to IAS 32).
The following accounting Standards and Interpretations which
have not been applied in these financial statements were in issue
but not yet effective:
IFRS 9 (amendments) Financial Instruments
IFRS 11 (amendments) Joint arrangements
IFRS 14 Regulatory Deferral Accounts
IFRS 15 Revenue from Contracts
with Customers
IAS 36 (amendments) Recoverable amount disclosures
for non-financial assets
IAS 39 (amendments) Novation of derivatives
and continuation of hedge
accounting
IFRIC Interpretation 21 Levies
The Directors do not expect that the adoption of the accounting
Standards, amendments and interpretations listed above will have a
material impact on the financial statements of the Company in
future periods.
4. Critical accounting judgements and key sources of estimation
uncertainty
The Company makes estimates and assumptions that affect the
reported amounts of assets and liabilities within the next
financial year. Estimates and judgements are continually evaluated
and based on historic experience and other factors believed to be
reasonable under the circumstances.
a) Investments at fair value through profit or loss
The Company's investments are measured at fair value for
financial reporting purposes. The Board of Directors has appointed
the Investment Manager to produce investment valuations based upon
projected future cash flows. These valuations are reviewed and
approved by the Board. The investments are held through Special
Purpose Vehicles, a list of subsidiaries is included in note 6.
IFRS 13 establishes a single source of guidance for fair value
measurements and disclosures about fair value measurements. Fair
value is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The Board
bases the fair value of the investments on the information received
from the Investment Manager.
The investments at fair value through profit or loss, whose fair
values include the use of Level 3 inputs, are valued by discounting
future cash flows from investments to the Company at a discount
rate when the assets are operational. The discount rate applied in
the 31 March 2015 valuation was 7.5%. The discount rate is a
significant Level 3 input and a change in the discount applied
could have a material effect on the value of the investments.
Investments in solar PV plants that are not yet operational are
held at fair value, where the cost of the investment is used as an
appropriate approximation of fair value. There are other critical
accounting estimates discussed in note 11, Level 3 financial
instruments.
Level 3 investments amount to GBP157,686,548 and consist of 14
investments in solar PV plants, 10 of which have been valued
through discounted cash flows (please refer to page 31 of the
Annual Report for the period ended 31 March 2015) and the remaining
have been offset against the obligation for a net nil value (please
refer to note 19). Level 3 valuations are reviewed regularly by the
Investment Manager who reports to the Board of Directors on a
periodic basis. The Investment Manager considers the
appropriateness of the valuation model and inputs, as well as the
valuation result.
The Company and HoldCo under the Investment Exemption rule hold
investments at fair value. Please refer to note 2(c).
The table below sets out information about significant
unobservable inputs used at 31 March 2015 in measuring financial
instruments categorised as Level 3 in the fair value hierarchy.
Fair value Valuation Unobservable Input Sensitivity
at 31 Technique input value to change
March in significant
2015 (GBP) unobservable
Description inputs
The estimated
fair value
would increase
if the discount
rate were
Unlisted Discounted Discount lower and
investments 157,686,548 cash flow rate 7.50% vice versa.
Unlisted Investments agree to the Closing Investment Portfolio
Value as per the Investments table in note 5.
5. Investments
Level 3 investments Period ended 31 March
2015 (GBP)
Cost of Investment Portfolio 146,590,319
Unrealised gains during the
period 11,096,229
Closing Investment Portfolio
Value 157,686,548
Cost of Residual Net Assets
of Holding Company 1,000,000
Reduction in Residual Net
Assets of Holding Company (525,676)
Total Investment in Holding
Company 158,160,872
The Company owns the Investment Portfolio through its investment
in NextEnergy Solar Holdings Limited. This is comprised of the
Investment Portfolio and the Residual Net Assets of the Holding
Company. The Total Investment in the Holding Company is recorded
under Non-Current Assets in the Statement of Financial Position on
page 60 of the Annual Report for the period ended 31 March
2015.
Level 3 investments Period ended 31 March
2015 (GBP)
Unrealised gains during the
period 11,096,229
Reduction in Residual Net Assets
of Holding Company (525,676)
Net change in fair value of
financial assets at fair value
through profit and loss 10,570,533
The total change in the value of the investment in the HoldCo as
at 31 March 2015 is recorded through profit and loss in the
Statement of Comprehensive Income on page 59 of the Annual Report
for the period ended 31 March 2015.
6. Subsidiaries
The Company holds investments through subsidiary companies which
have not been consolidated as a result of the early adoption of
IFRS 10: Investment entities exemption to consolidation. Below is
the legal entity name for the HoldCo and the remaining legal
entities owned through the investment in the holding company.
Name Country Ownership
NextEnergy Solar Holding
Limited UK 100%
Name Country Ownership
NextPower Shacks Barn
Ltd UK* 100%
NextPower Higher Hatherleigh
Ltd UK* 100%
NextPower Ellough LLP UK* 100%
NESF - Ellough LTD UK* 100%
BL Solar 2 Limited UK* 100%
NextPower Gover Farm
Ltd UK* 100%
Sunglow Power Limited UK* 100%
Glorious Energy Limited UK* 100%
Push Energy (Boxted
Airfield) Ltd UK* 100%
Push Energy (Langenhoe)
Ltd UK* 100%
Push Energy (Croydon)
Ltd UK* 100%
NextPower Gover Farm
Ltd UK* 0%
SSB Condover Ltd UK* 0%
Trowbridge PV Ltd UK* 0%
ESF Llwyndu Ltd UK* 0%
*Each of these SPVs is indirectly held by the Company through
the HoldCo. The Company had indirect control of the last 4 entities
with an option to buy as at 31 March 2015.
7. Share capital and reserves
The authorised share capital is unlimited and there are
240,350,000 shares in issue. The Company shares are issued at nil
par value. The table below outlines the movement of shares in the
period.
Share Issuance Number Gross Issue Share Capital
of shares amount Costs (GBP)
raised (GBP)
(GBP)
Issued on 20 December
2013 1 1 - 1
Issued on 25 April
2014 85,600,000 85,600,000 - 85,600,000
Cancellation of founder's
share on 24 October
2014 (1) (1) - (1)
Issued on 19 November
2014 91,000,000 95,459,000 (1,399,246) 94,059,754
Issued on 19 December
2014 4,000,000 4,120,000 (43,565) 4,076,435
Issued on 27 February
2015 59,750,000 61,405,075 (681,625) 60,723,450
Total issued at 31
March 2015 240,350,000 246,584,075 (2,124,436) 244,459,639
The Company currently has one class of ordinary share in issue.
The holders of the 240,350,000 ordinary shares are entitled to
receive dividends as declared from time to time and are entitled to
one vote per share at meetings of the Company.
Retained reserves
Retained reserves comprise the retained earnings as detailed in
the Statement of Changes in Equity.
8. Earnings per share ('EPS')
EPS Period ended 31
March 2015 (GBP)
Profit and comprehensive income
for the period 8,534,649
Weighted average number of ordinary
shares 93,525,375
Earnings per ordinary share -
pence 9.13p
9. Dividends
Dividends Period ended 31 March
2015 (GBP)
Amounts recognised as distributions to equity holders
in the period:
Interim dividend for the period ended 30 September
2014 of 2.625p per share, paid 17 December 2014 4,635,750
Total 4,635,750
10. Net assets per ordinary share
NAV per share As at 31 March 2015
(GBP)
Shareholders' equity at 31 March 248,358,538
Number of shares at 31 March 240,350,000
Net assets per ordinary share
at 31 March - pence 9.13p
11. Financial risk management
Capital management
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximising the return to
shareholders. In accordance with the Company's investment policy,
the Company's principal use of cash (including the proceeds of the
IPO) has been to fund investments as well as ongoing operational
expenses.
The Board, with the assistance of the Investment Manager,
monitors and reviews the broad structure of the Company's capital
on an ongoing basis. The capital structure of the Company consists
entirely of equity (comprising issued capital, reserves and
retained earnings).
The Company is not subject to any externally imposed capital
requirements.
Financial risk management objectives
The Board, with the assistance of the Investment Manager,
monitors and manages the financial risks relating to the operations
of the Company through internal risk reports which analyse
exposures by degree and magnitude of risk. These risks include
market risk (including price risk, interest rate risk and currency
risk), credit risk and liquidity risk.
Market risk
The value of the investments held by the Company is affected by
the discount rate applied to the expected future cash flows and as
such may vary with movements in interest rates, inflation, power
prices, market prices and competition for these assets.
Interest rate risk
The Company is exposed to interest rate risk as it holds
significant cash in short-term deposits. If interest rates decrease
the finance income of the Company would decrease. The Company is
not exposed to interest rate risk on investments as all investments
are made via equity rather than loans. The Company has no loan
borrowings drawn at 31 March 2015. See note 18 for details of the
Revolving credit facility.
Currency risk
The Company operates and invests solely in the UK and therefore
is not exposed to currency risk as all assets and liabilities are
in pounds sterling, the Company's functional and presentational
currency.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in a financial loss to the
Company.
The Company does not have any significant credit risk exposure
to any single counterparty in relation to trade and other
receivables. On-going credit evaluation is performed on the
financial condition of accounts receivable. As at 31 March 2015
there were no receivables considered impaired.
At investment level, the credit risk relating to significant
counterparties is reviewed on a regular basis and potential
adjustments to the discount rate are considered to recognise
changes to these risks where applicable.
The Company maintains its cash and cash equivalents across two
separate banks to diversify credit risk. These are subject to the
Company's credit monitoring policies including the monitoring of
the credit ratings issued by recognised credit rating agencies.
Bank Cash (GBP) Short-term Total as at
fixed deposits 31 March 2015
(GBP) (GBP)
Barclays Bank
PLC 7,682,146 81,226,000 88,908,146
Lloyds Bank
PLC 1,308,980 - 1,308,980
Total 8,991,126 81,226,000 90,217,126
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Board of
Directors has established an appropriate liquidity risk management
framework for the management of the Company's short-, medium- and
long-term funding and liquidity management requirements. The
Company manages liquidity risk by maintaining adequate reserves by
monitoring forecast and actual cash flows and by matching the
maturity profiles of assets and liabilities.
The table below shows the maturity of the Company's
non-derivative financial assets and liabilities. The amounts
disclosed are contractual, undiscounted cash flows and may differ
from the actual cash flows received or paid in the future as a
result of early repayments.
Up to Between Between 1 Total (GBP)
3 months 3 and 12 and 5 years
Category (GBP) months (GBP) (GBP)
Assets
Cash and cash
equivalents 90,217,126 - - 90,217,126
Trade and other
receivables 69,482 - - 69,482
Liabilities
Trade and other
payables (88,942) - - (88,942)
Total 90,197,666 - - 90,197,666
Level 3 financial instruments
Valuation methodology
The Directors have satisfied themselves as to the methodology
used, the discount rates and key assumptions applied, and the
valuation. All operational investments are at fair value through
profit or loss and are valued using a discounted cash flow
methodology. Investments which are not yet operational are held at
fair value, where the cost of the investment is used as an
appropriate approximation of fair value.
Discount rates
The discount rates used for valuing each renewable
infrastructure investment are based on both the industry discount
rate and on the specific circumstances of each project. The risk
premium takes into account risks and opportunities associated with
the investment earnings.
The discount rates used for valuing the investments in the
Portfolio are as follows:
Period ending Weighted Average
31 March 2015 7.50%
A change to the weighted average rate of 7.5% by plus or minus
0.5% has the following effect on the valuation.
Discount rate +0.5% change Total Portfolio -0.5% change
value
Directors' valuation
(GBP) (6.3m) 157.7m 6.6m
Directors' valuation
- percentage movement (4.0%) 4.2%
Power price
NEC Group continuously reviews multiple inputs from market
contributors and leading consultants and adjust the inputs to the
power price forecast when a conservative approach is deemed most
appropriate. Current estimates imply an average rate of growth of
electricity prices of approximately 2% in real terms and a
long-term inflation rate of 2.5%.
A change in the forecast electricity price assumptions by plus
or minus 10% has the following effect on the valuation.
Total Portfolio
Power price -10% change value +10% change
Directors' valuation
(GBP) (7.3m) 157.7m 7.1m
Directors' valuation
- percentage movement (4.6%) 4.5%
Energy yield
The Portfolio's aggregate production outcome for a 10 year
period would be expected to fall somewhere between a P90 10 year
underperformance (downside case) and a P10 10 year outperformance
(upside case).
The effect of a P90 10 year underperformance and of a P10 10
year outperformance would have the following effect on the
valuation.
P90 10 Total Portfolio P10 10 year
Energy yield year underperformance value outperformance
Directors' valuation
(GBP) (8.8m) 157.7m 8.6m
Directors' valuation
- percentage movement (5.6%) 5.5%
Inflation rates
The Portfolio valuation assumes long-term inflation of 2.50% per
annum for investments (based on UK RPI). A change in the inflation
rate by plus or minus 0.5% has the following effect on the
valuation.
Total Portfolio
Inflation yield -0.5% change value +0.5% change
Directors' valuation
(GBP) (4.2m) 157.7m 4.3m
Directors' valuation
- percentage movement (2.7%) 2.7%
Operating costs
The table below shows the sensitivity of the Portfolio to
changes in operating costs by plus or minus 10% at project company
level.
Total Portfolio
Operating Costs +10% change value -10% change
Directors' valuation
(GBP) (1.9m) 157.7m 2.5m
Directors' valuation
- percentage movement (1.2%) 1.6%
Tax rates
It has been noted that the UK Government has announced a
reduction in the rate of corporation tax to 20% from 1 April 2015.
The UK corporation tax assumption for the Portfolio valuation was
20%.
12. Financial assets and liabilities not measured at fair
value
Cash and cash equivalents are Level 1 items on the fair value
hierarchy. Current assets and current liabilities are Level 2 items
on the fair value hierarchy. The carrying value of current assets
and current liabilities approximates fair value as these are
short-term items.
13. Audit fees
The analysis of the Auditor's remuneration is as follows:
Audit Fees Period ended 31 March
2015 (GBP)
Fees payable to the Auditor for
the audit of the Company's 31 March
2015 financial statements 50,000
Total audit fees 50,000
14. Management fee
The Investment Manager is entitled to receive an annual fee,
accruing daily and calculated on a sliding scale, as follows
below:
-- for The tranche of NAV up to and including GBP200m, 1% of the
Net Asset Value ("NAV") of the Company.
-- for the tranche of NAV above GBP200m and up to and including GBP300m, 0.9% of NAV.
-- for the tranche of NAV above GBP300m, 0.8% of NAV.
For the period ended 31 March 2015 the Company has incurred
GBP1,210,566 in management fees of which GBPnil was outstanding at
31 March 2015.
15. Related parties
The Investment Manager, NextEnergy Capital IM Limited, is a
related party due to having common key management personnel with
the subsidiaries of the Company. All management fee transactions
with the Investment Manager are disclosed in note 14.
The Investment Adviser, NextEnergy Capital Limited, is a related
party due to sharing common key management personnel with the
subsidiaries of the Company. There are no advisory fee transactions
between the Company and the Investment Adviser. The Investment
Adviser agreed to meet all of the expenses of the initial share
issue. Costs in relation to the share issue of GBP1,081,749 have
been incurred by the Company in the period to 31 March 2015 of
which GBP1,081,749 has been reimbursed and GBPnil was outstanding
at 31 March 2015.
The Operating Asset Manager, WiseEnergy (GB) Limited, is a
related party due to sharing common key management personnel with
the subsidiaries of the Company. Each of the operating subsidiaries
of the Company entered into an asset management agreement with
WiseEnergy (GB) Limited. The total value of recurring and one-off
services paid to the Operating Asset Manager during the reporting
period amounted to GBP167,487.
During the period the Company issued non-interest bearing loans
totaling GBP1,000,000 to NextEnergy Solar Holding Limited to
finance operating expenditure. This has been classified as an
investment in the Residual Net Assets of the Holding Company. This
has been revalued by GBP(525,676) during the period and is held on
the Statement of Financial Position at a value of GBP474,324 at 31
March 2015. A summary of the total investment in the Holding
Company is provided in note 5 (Investments) of the Financial
Statements.
The Directors of the Company and their shareholding is stated in
the Report of the Directors.
16. Controlling party
In the opinion of the Directors, on the basis of shareholdings
advised to them, the Company has no immediate nor ultimate
controlling party.
17. Remuneration of key management personnel
The remuneration of the Directors, who are the key management
personnel of the Company, was GBP176,575 for the period which
consisted solely of short-term employment benefits.
18. Revolving credit facility
On 17 September 2014 NextEnergy Solar Holding Limited, a
subsidiary of the Company, entered into a revolving credit facility
with Macquarie Bank Limited for up to GBP31.5m. As at 31 March 2015
this facility had not been drawn upon.
19. Investment Commitments
The Company has the following commitments to its investments as
at 31 March 2015.
Investment As at 31 March 2015
(GBP)
Llwyndu 9,371,232
Cock Hill Farm 23,342,018
Park View 7,521,500
Condover 11,737,465
Hawkers Farm 14,195,244
Glebe Farm 40,507,323
Total Commitments 106,674,782
In the HoldCo the above contingent commitments become payable
when their respective contractual terms are met, usually when the
asset becomes fully operational and accredited. In accordance with
policy 2(c) the group assesses control including the consideration
of the options. Once an investment is assessed as being controlled
it is included in NextEnergy Solar Fund Limited at fair value with
a corresponding obligation to pay. At period end, the amounts not
yet paid were as above. The fair value of these liabilities
approximates the fair value of the investments and have been
included in the calculation as described in note 11.
20. Events after the reporting period
Since 31 March 2015, the following relevant events occurred:
On 13 April 2015 the Company announced the agreement to acquire
the Hawkers Farm and Glebe Farm solar PV plants for a total
acquisition price of up to GBP14.2m and GBP40.5m respectively.
On 17 June 2015 the Company announced the agreement to acquire
the Wellingborough and Bowerhouse solar PV plants with a combined
capacity of 17.8MW, for a total acquisition price of GBP22m.
Wellingborough also completed on 17 June 2015.
Independent Auditors' Report to the Members of NextEnergy Solar
Fund Limited
Report on the Financial Statements
We have audited the accompanying financial statements of
NextEnergy Solar Fund Limited (the "Company") which comprise the
statement of financial position as of 31 March 2015 and the
statement of comprehensive income, the statement of changes in
equity and the cash flows statement for the period then ended and a
summary of significant accounting policies and other explanatory
information.
Directors' Responsibility for the Financial Statements
The Directors are responsible for the preparation of financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards and with the
requirements of Guernsey law. The Directors are also responsible
for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with International Standards on Auditing. Those Standards require
that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditors' judgement, including
the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal
control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements give a true and fair
view of the financial position of the Company as of 31 March 2015,
and of its financial performance and its cash flows for the period
then ended in accordance with International Financial Reporting
Standards and have been properly prepared in accordance with the
requirements of The Companies (Guernsey) Law, 2008.
Report on other Legal and Regulatory Requirements
We read the other information contained in the Annual Report and
consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
financial statements. The other information is that listed on the
contents page of the Annual Report for the period ended 31 March
2015 on the inside front cover.
In our opinion the information given in the Directors' report is
consistent with the financial statements.
This report, including the opinion, has been prepared for and
only for the Company's members as a body in accordance with Section
262 of The Companies (Guernsey) Law, 2008 and for no other purpose.
We do not, in giving this opinion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
which we are required to review under the Listing Rules:
-- the Directors' statement in relation to going concern;
-- the part of the Corporate Governance Statement relating to
the Company's compliance with the ten provisions of the UK
Corporate Governance Code specified for our review; and
-- certain elements of the report to shareholders by the Board
on Directors' remuneration.
Evelyn Brady
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
29 June 2015
This information is provided by RNS
The company news service from the London Stock Exchange
END
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