TIDMSEIT
RNS Number : 9250C
SDCL Energy Efficiency Income Tst
24 June 2021
24 June 2021
SDCL Energy Efficiency Income Trust plc
("SEEIT" or the "Company")
Announcement of Financial Results for The Year Ended 31 March
2021
SDCL Energy Efficiency Income Trust plc (LSE: SEIT) ("SEEIT" or
the "Company") announces financial results for the year ended 31
March 2021.
Highlights
-- Net Asset Value ("NAV") [1] per share of 102.5p as at 31
March 2021, up from 101.0p as at 31 March 2020 and a total NAV
return for the period of 8.0%
-- Earnings per share of 7.0p for year to 31 March 2021 (March 2020: 5.2p)
-- Profit Before Tax of GBP32.4 million for year to 31 March
2021, up from GBP11.6 million for the prior year to 31 March
2020
-- Aggregate dividends of 5.5p per share declared relating to
the year ended 31 March 2021, in line with target
-- Target dividend [2] of 5.62p per share for year to March
2022, a 2.2% increase from 31 March 2021
-- Portfolio Valuation of GBP553 million at 31 March 2021, up
73% from GBP320 million at 31 March 2020
-- Investment at fair value on balance sheet of GBP573 million
at 31 March 2021, up from GBP254 million 31 March 2020
-- Market Capitalisation of GBP758 million at 31 March 2021, up
from GBP296 million at 31 March 2020 and a total shareholder return
of 30.0% since IPO to 22 June 2021
-- Investment of approximately GBP255 million made in 7 investments during the year
-- Cash of GBP126 million at 31 March 2021 available for
investments and the fourth interim dividend payable in June
2021
-- Capital raised of GBP375 million during the financial year
from three well-supported equity issues, with proceeds deployed
into investments from the Company's pipeline
-- Carbon Savings of 654,205 tCO2 (2020: 156,000 [3] tCO2) from
Company's portfolio, which also produced 895,212 MWh of electricity
(2020: 113,000(3) MWh)
Post Year End Highlights
-- $177 million acquisition of RED-Rochester, LLC, a commercial
district energy system in the United States
Tony Roper, Chairman of SEEIT, said:
"Twelve months ago, no-one could have foreseen the effect that
the COVID-19 pandemic would have on the world, its human impact and
the repercussions for the global economy. Despite this and other
challenges that it brought about, the performance of the Company's
underlying investment portfolio of energy efficiency infrastructure
assets remained resilient, achieving growth in NAV and enabling us
to achieve our dividend targets. Capital raised in the year has
been successfully committed through a number of substantial
investments, further diversifying its portfolio. We are very
grateful for the continued support from new and existing
investors."
Jonathan Maxwell, CEO of SDCL, the Investment Manager said:
"We will continue to seek to build a diversified portfolio for
the Company and, particularly, to further diversify in terms of
technologies that are compatible with a pathway towards
decarbonisation. The sectors in which SEEIT is investing are
receiving increasing levels of interest. Governments and companies
are continually increasing their carbon reduction commitments and
therefore the demand for cost effective and low carbon energy
solutions will continue to increase."
There will be a call for analysts at 9.00am on 24 June 2021. For
details, please email SEEIT@tbcardew.com.
Notes
1 In this preliminary announcement, there are a number of
references to financial Alternative Performance Measures. For
further details on these, please see the Glossary of financial
Alternative Performance Measures ("APM")
2 The target dividend stated above is based on a projection by
the Investment Manager and should not be treated as a profit
forecast for the Company
3 Per SEEIT's ESG Report, October 2020
For Further Information
Sustainable Development Capital T: +44 (0) 20 7287 7700
LLP
Jonathan Maxwell
Eugene Kinghorn
Purvi Sapre
Keith Driver
Jefferies International Limited T: +44 (0) 20 7029 8000
Tom Yeadon
Gaudi Le Roux
Neil Winward
TB Cardew T: +44 (0) 20 7930 0777
Ed Orlebar M: +44 (0) 7738 724 630
Joe McGregor E: SEEIT@tbcardew.com
Chair's Statement
On behalf of the Board, I am pleased to present the annual
report and financial statements (the "Annual Report") for the SDCL
Energy Efficiency Income Trust ("SEEIT" or "the Company") for the
year ended 31 March 2021.
Twelve months ago, no-one could have foreseen the effect that
the COVID-19 pandemic would have on the world, its human impact and
the repercussions for the global economy. Despite this and other
challenges that it brought about, the performance of the Company's
underlying investment portfolio of energy efficiency infrastructure
assets remained resilient, achieving growth in NAV, and was
supported by Sustainable Development Capital LLP's ("SDCL" or the
"Investment Manager") strong focus on asset management and asset
enhancements.
During the past year, the Company has successfully invested
approximately GBP255 million in new investments and a further
GBP136 million after the year-end, via SEEIT Holdco Limited
("Holdco"), the Company's single subsidiary and main investment
vehicle for the group. This enabled us to deploy the GBP375 million
of equity raised from three equity issuances in the year, all of
which were very well supported by existing and new shareholders.
This has allowed the Investment Manager to diversify the portfolio
into key new markets such as district energy, electric vehicle
("EV") charging, green gas, solar and storage. We made our first
investments in Sweden and Singapore, as well as further new
investments in the UK and US.
The Board is pleased with the financial and operational
performance of the Company during the year and the role that it is
playing in climate change mitigation and delivering net zero
targets. The Company now has a large portfolio of energy efficiency
infrastructure assets that offers investors a diverse exposure to
this growing sector.
Further information on the Investment Manager's activities is
included in the Investment Manager's Report.
Financial performance
Profit before tax for the year ended 31 March 2021 was GBP32.4
million (March 2020: GBP11.6 million) and earnings per share were
7.0p (March 2020: 5.2p). The Company's net asset value ("NAV") at
31 March 2021 was GBP693.8 million (March 2020: GBP323.5 million)
and NAV per share was 102.5p (March 2020: 101.0p).
The Company's investment portfolio ("Portfolio Valuation") was
valued at GBP552.7 million at 31 March 2021, up from the Portfolio
Valuation of GBP319.0 million at 30 September 2020 and GBP319.8
million at 31 March 2020, predominantly as a result of investments
made in the second half of the year.
The Company's Ongoing Charges ratio(4) reduced to 1.13% (2020:
1.17%), reflecting the increased size of the Company's investment
portfolio. Further detail on the Company's financial performance
and the alternative performance measures of Portfolio Valuation and
Ongoing Charges can be found in Financial Review.
Investment cash inflow from the portfolio during the year ended
31 March 2021 was GBP42.1 million (2020: GBP17.1 million) on a
Portfolio Basis(4) (see Financial Review for details), delivering
1.2x cash cover for dividends paid during the year.
Total return on a NAV per share basis for the year was 8.0%,
comprising an increase in NAV from 101.0p at 31 March 2020 to
102.5p and total dividends paid during the year totalling
6.625p.
The Company's currency hedging strategy has been successful in
limiting the impact on the NAV arising from material movements in
foreign exchange rates. Further details on the Company's hedging
strategy can be found in Financial Review.
Dividends
In line with previous guidance, on 28 May 2021 the Company
announced its fourth interim dividend for the year ended 31 March
2021 of 1.375p per share, providing an aggregate dividend of 5.5p
per share declared for the year ended 31 March 2021. The Company
paid a total of GBP30.4 million in dividends during the financial
year which included the second semi-annual interim dividend for the
year ended 31 March 2020 and three quarterly interim dividends for
the year ended 31 March 2021, the Company having transitioned from
semi-annual to quarterly dividends from 1 April 2020.
After the Board and the Investment Manager reviewed the
projected investment cash flows from the current portfolio, the
Company announced in March 2021 new dividend guidance of 5.62p per
share for the year to March 2022 (an increase of 2.2% p.a.) and
progressive dividend growth thereafter. The Company intends to
continue to pay interim dividends on a quarterly basis through four
broadly equal instalments (in pence per share).
Investment activity
The Company's target geographies remain the UK, USA and Europe
plus other countries where the Company can invest on a
risk-adjusted basis to receive returns that support the Company's
objective. During the year, new investments were made in the UK,
US, Sweden and Singapore and, after period end, further investments
were sourced in the US, Vietnam (via an existing Singapore
investment vehicle) and the Republic of Ireland. Details of these
new investments are provided in the Investment Manager's
Report.
The Company has carefully targeted key markets as it continues
to build its portfolio, that include district energy, EV charging,
green gas, solar and storage. The weighted average number of
contract years remaining across the portfolio increased from 11.3
at 31 March 2020 to 13.4 as at 31 March 2021 as a result of the
longer-term horizon of investments made during the year. The
Company invested a total of GBP255 million during the financial
year and a further GBP136 million after the financial year.
The Company has entered into new, exclusive framework agreements
during the year that demonstrate its ability to unlock pipelines of
further investment opportunities from existing investments and
relationships. These include an agreement with BasePower for a
right to invest an expected GBP10 million per annum for the next
five years in onsite energy projects in the UK and a second
agreement of up to US$20 million, expected to be deployed over the
next 12 months, in energy efficiency measures developed by
SparkFund in the USA.
In August 2020 the Company conditionally committed up to GBP50
million to fund the construction of ultra-fast EV charging
stations, with an initial agreement with a charge point operator
signed in September 2020. In March 2021 an agreement was signed
with bp pulse, the UK's largest operator of public EV charging
points, and an agreement with another major charge point operator
is also well advanced. The first sites are planned to commence
construction shortly and are expected to be operational later in
2021, when they will earn revenues under long-term fixed price
contracts.
The Board is pleased with the timely deployment of capital into
these new investments during the year that are consistent with the
Company's targeted technologies and geographic markets and
demonstrate the Investment Manager's ability to source and secure
attractive investments that meet the Company's investment strategy
and objectives.
Funding
In June 2020, the Company published a new prospectus and a
12-month placing programme was put in place. The Company has
utilised the share issuance programme three times since publishing
the prospectus, raising a total of GBP375 million.
The equity raises in June 2020 (GBP105 million), October 2020
(GBP110 million) and February 2021 (GBP160 million) were strongly
supported by existing shareholders and the Board was pleased to
welcome a significant number of new shareholders. The Board would
like to thank all these shareholders for their support.
To maintain capital efficiency and support the current pipeline,
the Investment Manager has increased the revolving credit facility
("RCF") at the level of Holdco, to GBP115 million in June 2021 and
anticipates a further increase in the near term.
Portfolio and COVID-19 update
The Company's portfolio performance was resilient during the
year, with limited financial impact from the effects of the
COVID-19 pandemic. All the operational assets in the portfolio
continued to operate, despite the COVID-19 pandemic, on account of
providing key services to essential industries. Overall, to date,
the pandemic has not had a material impact on the financial
performance of the investment portfolio. The Investment Manager
continues to monitor for any new impacts resulting from the
consequences of the COVID-19 pandemic and associated governments'
policies and restrictions.
Asset specific impacts of the COVID-19 pandemic included
temporary interruption in the ability to supply and install solar
PV equipment in the Onyx portfolio (since resolved), delay in the
commissioning phase in the Huntsman Energy Centre construction
project (on-going, but expected to be resolved during the year
ending 31 March 2022), and loss of revenue due to idling of a blast
furnace at Primary Energy (since resolved).
Sustainable future
The Company invests exclusively in projects which contribute to
a greener future. The Company is dedicated to accelerating the
transition to a net zero carbon economy and delivering long-term
value for shareholders and society as a whole.
During the year, SEEIT published its first ESG report, with a
second report due later this year. The marketplace in which the
Company is investing is receiving increasing levels of interest
from policymakers and financial markets. Governments and companies
in all the Company's existing and target markets increased carbon
reduction commitments and therefore the demand for further
cost-effective and low carbon energy solutions.
During the year, the Company's portfolio achieved carbon savings
of 654,205 tCO2 (2020: 156,000 tCO2) and produced 895,212 MWh of
electricity (2020: 113,000 MWh). See Sustainability Update for
further details, including the Company and its group's contribution
to the UN Sustainable Development Goals.
Board and Governance
In October 2020, the Board appointed Emma Griffin as a fourth
independent non-executive Director of the Company. Emma brings a
wealth of experience from existing positions on the boards of both
UK FTSE100 and North American companies.
The Company seeks to maintain an open and constructive dialogue
with its shareholders, primarily via meetings with the Investment
Manager at regular intervals throughout the year. As part of good
governance, the Chair held a series of shareholder meetings (via
video due to lockdown restrictions) in 2020 to gain feedback
directly from shareholders.
The Company is a member of the Association of Investment
Companies ("AIC") and has chosen to comply with the latest AIC code
on corporate governance during the year. The Company held an Annual
General Meeting ("AGM") on 31 July 2020. 11 Resolutions were put
forward to be voted on, with all resolutions tabled being approved.
In line with corporate governance best practice, the existing
Directors offered themselves for re-election at the AGM and were
duly re-elected.
The 2021 AGM is expected to be held in Q3 2021 and, based on
current government guidance, this will likely take the form of the
minimum attendance necessary to conduct the business of the
meeting. The notice for the AGM is expected to be published in
July.
With the development of the energy efficiency sector, the Board
and Investment Manager have been considering some possible
amendments to the current Investment Policy. The Investment Manager
will consult on these in upcoming shareholder meetings, and if
feedback is positive, we will bring forward some small amendments
for shareholder approval at the forthcoming AGM following approval
by the Financial Conduct Authority ("FCA").
Key risks
The Board, its Audit & Risk Committee and the Investment
Manager monitor the risks that the Company and its investment
portfolio may face on an ongoing basis. Where relevant, mitigants
against these risks are put in place in line with the Company's
risk appetite and then adjusted over time as necessary.
The key risks to the Company have not changed from the prior
year and thus continue to be:
-- Credit and Counterparty - risks relating to default by
counterparties of energy service contracts;
-- Operational - risk of interruption to operations and/or
construction resulting in loss of expected revenue and ultimately a
reduction in value of investments; and
-- Global macroeconomic factors - rises in corporation tax,
interest rates and inflation which, if not mitigated, may result in
a reduction in value of investments.
The Board monitors the key credit risks arising within the
portfolio which relate to applicable counterparties, for which they
receive regular updates from the Investment Manager. There were no
significant matters to address in this regard during the financial
year and there were no major defaults by the Company's project
counterparties.
Global macroeconomic factors have not had a material impact on
the Company during the financial year, despite the uncertainty
brought about by COVID-19. Interest rates, inflation rates and
corporation taxes have either remained broadly within the Company's
projections or mitigation mechanisms were applied, although the
likelihood of such factors impacting the Company is now much higher
than previously.
The Company also has relatively limited exposure to
re-contracting risk. The substantial majority of projects in its
portfolio are contracted for the medium to long-term, however, the
Company's investment in the five projects involved in Primary
Energy does assume that some re-contracting is achieved. The risk
is mitigated by the fact that Primary Energy has a good track
record of re-contracting, given inter alia that it is providing a
combination of emissions control and renewable energy, providing
essential services to the operations of the project clients and at
a competitive price compared to the grid. This was again proven
when the contract for the Ironside project was extended by a
further ten years during 2020.
The Investment Manager continues to track the evolution and
value of the EU Emissions Trading Scheme ("EU ETS") and carbon
markets, which can generate at least short-term costs to some
projects, for example Oliva Spanish Cogeneration, which pays EU ETS
in respect of cogeneration and receives compensation given its
environmental attributes later via the regulatory mechanisms.
Certain projects in SEEIT's portfolio should also benefit directly
from higher carbon pricing where projects result in greater avoided
costs and reduced greenhouse gas emissions for the end user, for
example the generation of renewable energy certificates ("RECs") by
Primary Energy in the US.
Further information is provided in the Investment Manager's
Report.
Pipeline and Outlook
Despite the diversification across SEEIT's portfolio, it is
bound together by the fact that its investments seek to deliver
cost-effective, low carbon and reliable energy solutions to end
users in the built environment, in industry and in transport. The
projects involve the supply and distribution of energy or helping
to manage or reduce the demand for energy at the point of use.
The Investment Manager believes that a range of technologies
will be required to achieve carbon emission reductions over time
and that it is therefore important to maintain flexibility in terms
of which technologies to employ to address client needs and to
secure required returns on investment. The Investment Manager will
continue to seek to build a diversified portfolio for the Company
and, particularly, to further diversify in terms of technologies
that are compatible with a pathway towards decarbonisation. Beyond
combined heat and power, solar, storage and district energy, the
Investment Manager is evaluating investments in heat pumps, micro
grids, cooling, low carbon fuel for transport (including green
gases as well as well as electricity) and hydrogen.
An important feature of SEEIT's portfolio is the rights to
invest in additional pipeline opportunities from a number of its
existing project investments, often at pre-agreed rates of return.
This has created an organic source of investment opportunities
which the Investment Manager has a high degree of familiarity with
to complement the pipeline of potential new portfolio investments
identified through long-standing relationships with developers,
financial intermediaries and counterparties. The Investment Manager
remains highly selective and focused on where it can add value and
to acquire opportunities via privately negotiated transactions
where possible.
I would like to thank shareholders for their continued support
of the Company as we look to continue delivering upon our
objectives and making further investments as suitable opportunities
arise.
Tony Roper
Chair
24 June 2020
Strategic Report: The Company
The Role of Efficiency in the Energy Market
Energy efficiency solutions seek to solve a fundamental problem
in the energy markets. While energy markets are worth trillions of
dollars and energy is an essential service for society, energy
markets remain highly inefficient. Most energy is wasted somewhere
between the generation, transmission, distribution process and the
point of use. This is enormously costly and involves substantial
carbon emissions that could be avoided. It also involves
substantial risks as the energy system has historically been
designed around centralised grid systems that can fail. Indeed,
were energy efficiencies to be fully realised - and there is an
increasing number of cost-effective solutions involving efficiency
and decentralisation - in some cases we may only need a third of
the energy currently used in the energy system. This potential
offers some of the largest and most cost-effective solutions to
greenhouse gas emissions reductions, as well as higher levels of
productivity and resilience.
SEEIT's investments provide solutions to problems in the energy
markets. They include investments in decentralised energy
solutions, generating energy at, or close to, the point of use and
investment in the distribution of green and efficient energy. They
also reduce the amount of energy that users need through
conservation measures.
Users of energy
The energy system can be highly inefficient, with energy losses
on the supply side occurring all the way from the point of
generation, through the transmission and distribution system before
it reaches the end user. While up to most energy can be lost on the
supply side, further substantial losses occur on the demand side,
at the point of use.
Around 40% of energy today is used in buildings and 20% in
transport. Commercial, industrial and public sector buildings
comprise a large proportion of the demand from buildings, including
datacentres and hospitals, universities and schools, as well as the
largest industrial energy users and greenhouse gas emitters such as
steel, cement, chemicals and plastics.
The opportunity
The energy industry is increasingly focussing on the demand side
of the equation, not just on how to get more and cleaner power into
the grid, but how to get it to where it is needed most efficiently
and how to ensure that as little of it as possible is wasted when
it gets there. A previously under-served market is now attracting
more attention from the energy industry, which is extending its
focus from the supply to the demand side.
A combination of high energy prices, carbon emission reduction
targets and energy security concerns has made energy efficiency a
crucial component in the development of the modern energy economy.
Corporate energy users have been attracted to cheaper, cleaner and
more reliable energy solutions offered by decentralised energy and
energy efficiency for some time, but it is now reaching the top of
the board agenda following new compulsory disclosure requirements
and increased stakeholder focus on Corporate Social Responsibility
("CSR") and Environmental, Social or Governance ("ESG"),
underpinned by ambitious carbon emission reduction targets and a
commitment to achieve net zero over increasingly aggressive
timeframes.
Energy efficient solutions present an attractive proposition for
end user clients, offering;
-- Reduction in energy costs - avoiding or reducing the
significant generation, transmission and distribution costs
associated with a centralised grid;
-- Improved energy performance - greater efficiency due to
minimal grid losses and reduced energy intensity through employment
of efficient technology;
-- Improved reliability - reduced reliance on increasingly
constrained centralised power grids;
-- Cleaner energy - increased efficiency reduces the reliance on
existing traditional centralised generation, reducing carbon
intensity; and
-- Environmental impact - energy efficiency is widely recognised
as the most cost-effective solution in seeking to reduce greenhouse
gas emissions.
Regulatory response
In addition to encouraging renewable sources of energy onto the
grid, it is crucial to reduce inefficiency of supply and to reduce
energy demand. Governments are now focussing on energy efficiency
and decentralised energy. The European Commission's 'Green Deal'
recognises that, to achieve 2030 carbon emission reduction targets
and economic productivity, it is insufficient to focus on the
supply side alone. At the forefront of the Green Deal, the European
Commission's 'Renovation Wave' claims the largest share of budget
of all proposed solutions, targeting the retrofit of 34 million
buildings across Europe. Meanwhile, in the United States, the
Biden-Harris administration's focus on green infrastructure and the
'Climate Plan' stands out, as does the target to retrofit 4 million
public buildings with energy efficiency solutions. The UK, which is
host to the COP26 climate summit in 2021, has increased its
de-carbonisation target to a world leading 78% by 2035 and in order
to get there, energy efficiency and decentralised energy will need
to play a crucial role.
Similarly, corporate reporting and associated regulation has
developed considerably on a global scale. The Task Force on
Climate-related Financial Disclosures ("TCFD") was established by
the Financial Stability Board, an international body, to improve
climate-related corporate disclosure and allow for more informed
investment, credit and insurance underwriting decisions in the
context of carbon-related assets in the financial sector and the
financial system's exposures to climate-related risks as a whole.
The EU taxonomy regulation published in June 2020 defined six
environmental objectives to which a substantial contribution must
be provided in order for economic activities to qualify as
'sustainable' and acts as an essential reference in a number of
other forthcoming sustainable finance regulations in the EU. The
Sustainable Finance Disclosure Regulation ("SFDR"), introduced by
the European Commission from March 2021, imposes mandatory ESG
disclosure obligations for asset managers and other financial
markets participants to bring transparency in relation to
sustainability risks, the consideration of adverse sustainability
impacts in their investment processes and the provision of
sustainability related information with respect to financial
products.
The solution
Providing cheaper, cleaner and more reliable solutions to these
users' needs are one of the keys to reductions in greenhouse gas
emissions and, at the same time, economic productivity.
The technologies to deliver cheaper, cleaner and more reliable
energy solutions to the end user have become available at scale and
are increasingly cost-effective. Energy efficient lighting has
increased from a 2% market share a decade ago to over 60% market
share today. Solar and storage can now deliver cheaper and cleaner
energy from rooftops than the grid, even in less sunny countries
like the UK. Engines and turbines can be located at or close to the
point of use, running at high efficiency on low carbon fuels.
Similarly, low carbon energy for transport, including
electricity for car charging and green fuels and hydrogen for heavy
and long-distance vehicles are crucial solutions and present a
major market opportunity for SEEIT.
By investing in green energy distribution and demand reduction
solutions at the point of use, SEEIT is able to help reduce energy
wastage, while also incorporating a higher proportion of
sustainable fuel in the production of energy. This serves to reduce
or eliminate reliance on centrally generated power and avoids the
significant generation, transmission and distribution losses
associated with a centralised grid, saving money and reducing the
carbon intensity associated with large energy-users.
SEEIT invests in projects which are sustainable from
environmental, commercial and operational perspectives. Across the
portfolio the Company's projects demonstrate the benefits of energy
efficiency and decentralised energy - achieving the same level of
output with less energy - and the Investment Manager continues to
evaluate attractive investment opportunities in key target
markets.
Investment Proposition
Listed in December 2018 on the Premium segment of the Main
Market of the London Stock Exchange, SEEIT is the first investment
company of its kind in the UK focused primarily on investments in
operational energy efficiency projects located primarily in the UK,
Europe and North America.
Investment objective
The Company's investment objective is to generate an attractive
total return for investors comprising stable dividend income and
capital preservation, with the opportunity for capital growth.
Investment Policy
The Company seeks to achieve its investment objective by
investing principally in a diversified portfolio of Energy
Efficiency Projects with high quality, private and public sector
counterparties.
The contracts governing these Energy Efficiency Projects
typically entitle the Company to receive stable, predictable cash
flows over the medium to long-term in respect of predominantly
operational Energy Efficiency Equipment. The Company's returns take
the form of contractual payments by counterparties in respect of
the Energy Efficiency Equipment used by them.
Whilst the Company invests predominantly in operational
projects, the Company may under certain circumstances invest in
projects that are in a construction or development phase, subject
to applicable investment restrictions.
In respect of each type of Energy Efficiency Equipment, the
Company seeks to diversify its exposure to service providers by
contracting, where commercially practicable, with a range of
different engineers, manufacturers or other service providers.
Energy Efficiency Projects may be acquired individually or as a
portfolio from a single or a range of vendors. The Company may also
invest in Energy Efficiency Projects jointly with a co-investor.
The Company aims to achieve diversification by investing in
different energy efficiency technologies and contracting with a
wide range of counterparties.
The Company invests and manages its Energy Efficiency Projects
with the objective of assembling a high quality, diversified
portfolio.
Investment restrictions
In order to ensure a spread of investment risk, the Company has
adopted the following investment restrictions:
-- no Energy Efficiency Project investment by the Company will
represent more than 20% of Gross Asset Value, calculated at the
time of investment;
-- the aggregate maximum exposure to any Counterparty will not
exceed 20% of Gross Asset Value, calculated at the time of
investment;
-- the aggregate maximum exposure to Energy Efficiency Projects
in either a development phase or construction phase will not exceed
35% of Gross Asset Value, calculated at the time of investment,
provided that, of such aggregate amount, the aggregate maximum
exposure to Energy Efficiency Projects in a development phase will
not exceed 10% of Gross Asset Value, calculated at the time of
investment; and
-- the Company will not invest in other UK listed closed-ended investment companies.
Gearing
The Company maintains a conservative level of aggregate gearing
in the interests of capital efficiency, in order to seek to enhance
income returns, long-term capital growth and capital flexibility.
The Company's medium-term gearing target is up to 35% of NAV,
calculated at the time of borrowing (the "Structural Gearing").
The Company may also enter into borrowing facilities on a
short-term basis to finance investments ("Acquisition Finance"),
provided that the aggregate consolidated borrowing of the Company
and the Project SPVs, including any Structural Gearing, shall not
exceed 50% of NAV, calculated at the time of borrowing. The Company
intends to repay any Acquisition Finance with the proceeds of a
share issue in the short to medium-term.
Structural Gearing and Acquisition Finance are employed either
at the level of the Company, at the level of the relevant Project
SPV or at the level of any intermediate wholly owned subsidiary of
the Company, and any limits set out in this investment objective
and policy shall apply on a consolidated basis across the Company,
the Project SPVs and such intermediate holding company. Structural
Gearing and Acquisition Finance primarily comprise bank borrowings,
though small overdraft facilities may be utilised for flexibility
in corporate actions.
Use of derivatives
The Company may use derivatives for efficient portfolio
management but not for investment purposes. In particular, the
Company may engage in full or partial interest rate hedging or
otherwise seek to mitigate the risk of interest rate increases and
full or partial foreign exchange hedging to mitigate the risk of
currency fluctuation.
The Company only enters into hedging contracts and other
derivative contracts when they are available in a timely manner and
on terms acceptable to it. The Company reserves the right to
terminate any hedging arrangement in its absolute discretion.
Cash management
Whilst it is the intention of the Company to be fully or near
fully invested in normal market conditions, the Company may hold
cash on deposit with banking institutions and may invest in cash
equivalent investments, which may include short-term investments in
money market type funds and tradeable debt securities ("Cash and
Cash Equivalents").
There is no restriction on the amount of Cash and Cash
Equivalents that the Company may hold and there may be times when
it is appropriate for the Company to have a significant Cash and
Cash Equivalent position instead of being fully or near fully
invested.
Changes to the Investment Policy
The Board and the Investment Manager have been considering some
possible small amendments to and clarifications of the Investment
Policy. The Investment Manager will use upcoming shareholder
meetings to consult on proposals regarding a potential increase to
short-term gearing limits (thus enabling a larger RCF to be used
between capital raises), as well as clarifying the scope of energy
efficiency investments. If feedback is positive, a small number of
proposed changes to the Investment Policy will be tabled for
shareholder approval at the forthcoming AGM, as material changes to
the Company's Investment Policy require the prior approval by
ordinary resolution of Shareholders, following approval by the
FCA.
Business Model
The Company's group structure
The Company has been established in the UK as an investment
trust to provide an efficient manner in which shareholders can
access investment into energy efficiency infrastructure
investments.
The Company has an independent Board of Directors, has no
employees and has appointed Sustainable Development Capital LLP
("SDCL" or "Investment Manager") to manage the investments on its
behalf (See the Investment Manager's Report).
In order for the Company to achieve its investment objective, it
makes its investments via its sole direct subsidiary and main
investment vehicle, SEEIT Holdco Limited ("Holdco").
The Investment Manager controls the actions of Holdco and its
direct and indirect subsidiaries with the aim of assisting the
Company to achieve its stated objective through making new
investments via Holdco that are funded by the Company and managing
the existing investments that Holdco has directly or indirectly
invested in.
Holdco typically invests in project SPV's - special purpose
vehicles that hold assets the Holdco invests in. The SPV's normally
provide energy efficiency solutions to counterparties, often
through long-term contracts with a fixed lifespan. The SPV - and by
implication the portfolio of investments as a whole - therefore
normally has a limited lifetime over which it provides target
returns to Holdco and ultimately the Company. These SPV's are
normally structured that they can be sold in an active secondary
market for energy efficiency assets although each of the
investments will also have been assessed individually to ensure
appropriate alternative exit strategies are in place.
Sanne Group (UK) Limited ("Sanne") has been appointed by the
Company as a third-party service provider via an administration
agreement.
Investment sourcing
The Investment Manager sources investments through its
long-standing relationships with third-party developers, utility
companies, project owners, energy service companies, financial
intermediaries and directly from counterparties. Each prospective
investment is assessed against the Company's investment objectives
and Investment Policy as well as ESG screening and, if considered
potentially suitable, an initial analysis and review of the
opportunity will be undertaken. Each opportunity is scrutinised on
the basis of the investment criteria outlined below.
In selecting potential energy efficiency and distributed
generation projects, the Investment Manager employs established
criteria and portfolio construction guidelines in order to source
projects with some or all of the following characteristics:
-- operational assets installed at energy intensive and
inefficient commercial and public buildings and facilities;
-- projects utilising commercially proven technologies, with an
appropriate level of warranties and performance guarantees;
-- contracting with energy efficiency equipment vendors and
manufacturers, subcontractors and counterparties who are strong
credit counterparties;
-- passing performance risks down to engineering, procurement
and construction ("EPC") contractors, operations and maintenance
("O&M") contractors, subcontractors, energy efficiency
equipment vendors and manufacturers via warranties and
guarantees;
-- based upon measured and verifiable savings criteria as set
forth in an energy services agreement ("ESA") governing the terms
on which energy savings are apportioned between the counterparty
and the Project SPV;
-- projects based in the key target markets of the UK, Europe,
North America and selectively in Asia Pacific and other OECD
countries;
-- achieving economies of scale, either individually or through aggregation;
-- appropriate ESG characteristics and where the Investment
Manager considers that further ESG improvements can be achieved;
and
-- ability to achieve significant reductions in energy use and
consequently emissions of greenhouse gases and other
pollutants.
The above characteristics enabled the Investment Manager to
select investments for Holdco that will help deliver the Company's
investment objective. In doing so, the Investment Manager also
assesses exit strategies of individual investments, determining the
role each will play in delivering stable and predictable revenues
over defined periods. These investments are described in greater
detail in the Investment Manager's report.
Investment process
Once a potential opportunity that falls within the Company's
Investment Policy has been identified, and the Investment Manager
wishes to proceed with the investment in such project, the
Investment Manager undertakes further analysis which sets out the
investment structure, investment rationale, key environmental
benefits, risks and returns, capital expenditure budget, proposed
revenue model, necessary next steps and recommendations. The same
process takes place whether the Company is in a competitive
process, such as with the investment in Onyx, or in a bilateral
negotiation, such as with the investment in Gasnätet.
Based on the analysis, the Investment Manager determines whether
further detailed financial, legal and technical due diligence
should be carried out by the team and/or third-party firms and
advisers, or whether to proceed with further negotiation of deal
terms with the relevant counterparties. Once the decision to
proceed has been made, the Investment Manager is responsible for
further business due diligence, while the appropriate financial,
environmental, social, governance, tax, legal, technical and other
due diligence processes is conducted by third-party firms and/or
advisers.
The Investment Manager also seeks to ensure that the transaction
terms with relevant counterparties such as developers, EPC
contractors, O&M contractors, advisers, and revenue
counterparties meet with the Investment Manager's ESG criteria
(unless not applicable).
Once the detailed due diligence process has been completed, the
Investment Manager prepares an updated analysis that comprises
details of the investment opportunity, environmental
characteristics, impact on portfolio construction and development,
risks and returns, identification of any investment upside or
portfolio enhancement, investment structure based on due diligence
process and final contract terms, as a result of negotiations, as
well as a financial model used to assess risk and return, including
scenario and sensitivity analyses as appropriate.
The Investment Manager uses all material information collated on
the investment through the diligence process, along with an
analysis of the potential impact the investment would bring to the
composition of a balanced portfolio, to decide on whether to
proceed with the investment or not. The Investment Manager will, if
the proposed investment meets the agreed criteria, notify the Board
of its decision prior to committing to an investment, including the
provision of further papers as required.
Whilst this has not been a key area of focus for the Company,
where the Investment Manager intends to acquire projects from funds
related to SDCL, such as in the case of the Singapore Energy
Efficiency investment in November 2020, the Investment Manager will
approach the Board at an early stage of the investment process to
discuss any additional diligence or comfort, such as independent
valuation or audits required. The Investment Manager will not
execute an investment in any project where it constitutes a related
party transaction without prior Board approval and will only
proceed in accordance with the requirements of the FCA Listing
Rules.
Investment Manager's Report
The Investment Manager
Sustainable Development Capital LLP, the appointed Investment
Manager of the Company, is an investment firm with a proven track
record of investment in energy efficiency and decentralised energy
generation projects. Its proactive project development and
industrial expertise gives it a significant competitive advantage
in creating, originating, evaluating, financing and managing
investments, as well as securing enhanced risk-adjusted
returns.
SDCL was founded in 2007 by Jonathan Maxwell, and since 2012,
has raised four funds exclusively focused on energy efficiency with
projects in the UK, Europe, North America and Asia. The Investment
Manager is headquartered in London with offices in New York,
Dublin, Hong Kong and Singapore and has a team of over 45
people.
The Investment Manager is responsible for the active investment
management and risk management of the portfolio in accordance with
SEEIT's Investment Objective, Investment Policy and ESG policy and
principles. The Investment Manager achieves this by:
o finding and then making investment decisions on new energy
efficiency investment opportunities;
o providing strategic management of the portfolio and oversight
of project operations;
o ensuring that SEEIT's Responsible Investment Policy and set of
ESG principles are effectively applied in underlying
investments;
o managing investment and operational risks of SEEIT;
o focusing on the identification of cost and efficiency
improvements and optimisation of project value;
o maintaining a high standard of business conduct and integrity;
and
o building strong relationships with suppliers, customers,
communities and authorities among others.
Market review and outlook
The sectors in which SEEIT is investing are receiving increasing
levels of interest from both policymakers and financial markets.
Governments and companies in all of SEEIT's existing and target
markets are continually increasing their carbon reduction
commitments and therefore the demand for cost-effective and low
carbon energy solutions is increasing. Meanwhile, the costs,
inefficiencies and risks of energy systems reliant on centralised
generation and the grid continue to be exposed, with the 2021
outages in Texas, USA caused by severe winter storms recalling
memories of Superstorm Sandy on the US East Coast in 2012 and
highlight the need for greater resilience in the energy system.
COVID-19, in parallel to its far-reaching societal consequences,
reduced global economic output, energy demand and energy prices.
SEEIT's portfolio was relatively defensive, given limited exposure
to demand or energy prices and the fact that most of its clients
were deemed essential and remained operational during national
lockdowns. The pandemic led several governments to turn to energy
efficiency as a source of post-COVID recovery, economic
productivity and growth, as well as a pathway to substantially
lower both costs and greenhouse gas emissions. Energy efficiency
project investments performed notably strongly and reliably
compared to assets linked to economic growth, energy demand or
prices.
The EU taxonomy regulation and SFDR, both introduced during the
financial year, represented significant developments in the EU's
framework for sustainable energy investment, ESG disclosure and
corporate reporting. SEEIT, through its Investment Manager, is
adapting quickly to the new disclosure rules, taking steps to
categorise and monitor all the Company's underlying investments in
line with the new disclosure standards. This is part of the
Company's broader strategy for reporting on climate-related and
other ESG issues which includes working towards implementing the
full scope of the disclosure recommendations of TCFD.
Investment update
During the financial year, the Investment Manager continued to
secure new investments for the Company and actively manage the
existing portfolio of project investments.
New investments were secured for SEEIT in key markets, including
on-site solar generation, energy storage, district energy, green
gas distribution and EV charging infrastructure. The portfolio has
seen growth in existing markets, such as the United States and the
UK, as well as in new markets in Asia (Singapore) and Europe
(Sweden).
SEEIT's portfolio, supported by the Investment Manager's asset
management activities, now covers a wide range of buildings and
transport customers, including public sector (hospitals), data
centres (banking), industrial facilities (steel and agriculture),
commercial (banks and retail, including restaurants) and low carbon
fuels for transport such as EV and green gas.
While SEEIT's portfolio is diversified by various factors, it is
bound together by the fact that its investments seek to deliver
cost-effective, low carbon and reliable energy solutions to end
users in the built environment, in industry and in transport. The
projects involve the supply and distribution of energy or helping
to manage or reduce the demand for energy at the point of use.
The Investment Manager believes that a range of technologies
will be required to achieve carbon emission reductions over time
and that it is therefore important to maintain flexibility in terms
of which technologies to employ to address client needs and to
secure the required returns on investment.
The investments made by the Investment Manager during and
following the financial year ended 31 March 2021 fit well within
the Company's investment criteria, by reducing energy consumption
or related greenhouse gas emissions arising from supply,
transmission, distribution and consumption. In doing so, the
Company has been able to secure predictable long-term revenue and
the opportunity for capital growth from these investments.
Investment activity since 31 March 2020
Project Investment Close Location Amount
EV Network August 2020 UK Up to GBP50 million
=========================== ========================= ========== ========================
GET Solutions September 2020 UK GBP5 million
=========================== ========================= ========== ========================
Singapore Energy September 2020 Singapore GBP2 million
Efficiency
=========================== ========================= ========== ========================
Gasnätet October 2020 Sweden GBP107 million
=========================== ========================= ========== ========================
Onyx December 2020 (completed USA Up to US$150 million
in February 2021) initially with further
commitments over time
=========================== ========================= ========== ========================
Primary Energy portfolio December 2020 USA US$36 million
(follow on)
=========================== ========================= ========== ========================
Spark US Energy Efficiency February 2021 USA Up to US$20 million
II
=========================== ========================= ========== ========================
Investment activity since 31 March 2021
Project Investment Close Location Amount
SOGA April 2021 Vietnam US$3.6 million
=================== =========================== ========== ===============
RED April 2021 (completion in USA US$177 million
May 2021)
=================== =========================== ========== ===============
Tallaght Hospital May 2021 Ireland EUR6.5 million
=================== =========================== ========== ===============
EV Network involves a conditional commitment to fund the rollout
of EV charging stations across the UK. The Company made an initial
GBP50 million investment commitment in August 2020 to the EV
Network as its development partner in EV charging infrastructure.
The EV charging sites will be developed and funded by EV Network to
the point at which they are contracted and construction ready, at
which stage they will be acquired by the Company. The commitment,
subject to certain criteria being met, will be drawn down in
tranches to fund the implementation of projects, with the most
recent agreement signed with bp pulse, the UK's largest operator of
public EV charging points. Once operational, EV charging sites will
be contracted through 20-year, fixed price, CPI inflated Energy
Service Agreements.
GET Solutions is an investment in an initial portfolio of 15
highly efficient combined heat and power ("CHP") assets at premises
of the Intercontinental Hotel Group. The assets are designed to
provide the base-load energy generation to meet the operational
needs of the hotels, irrespective of their levels of occupancy. The
initial portfolio comprised four operating projects, two installed
projects and nine ready to build projects, all of which are now
operational. The projects have all been developed by GET Solutions,
a specialist provider of energy services that has worked with over
40,000 business clients over the last 20 years. The contractual
structure of the projects provides predictable revenues with
potential for upside for the Company in the event that certain
levels of consumption are achieved. The Company owns the project
assets that provide essential services to the buildings throughout
the 15-year life of the project contracts. There is a follow-on
pipeline of up to 51 highly efficient CHP projects in the UK hotel
sector and additional rights to invest in a substantial pipeline of
more than 100 energy efficiency installations with GET Solutions in
the UK.
Singapore Energy Efficiency is an investment in a portfolio of
six operating cooling and energy efficiency assets, including
chillers and bespoke energy-efficient air compressors that are
installed at the premises of five leading industrial counterparties
in Singapore, including subsidiaries of large multinational
institutions. The assets are leased under fixed contracts, with a
total remaining portfolio life of approximately 6 years. The
acquisition represents the Company's first energy efficiency
investment in Singapore and provides a platform from which it can
explore future opportunities in this and other attractive
jurisdictions in the region.
Gasnätet is an investment in Gasnätet and Värtan Gas Stockholm
AB ("VGSAB"). The VGSAB group owns and operates Stockholm's
established operational regulated gas distribution network, the
majority of which is sourced from locally produced biogas (c.70%),
supplying and distributing to over 50,000 residential, commercial,
industrial, transportation and real estate customers in Stockholm.
It is an essential infrastructure service that helps to reduce
pollution and greenhouse gas emissions by reducing and reusing
waste gases both at the point of production, for example at
municipal waste water treatment plants and, at the point of use,
through the displacement of natural gas in buildings and diesel in
transport. The grid is an essential component of an integrated gas
distribution system and is aligned with national and regional
strategies to attain carbon neutrality by 2040, with the Company
working towards increasing the proportion of green gas in the
network to 100% over time. Revenues, which are primarily regulated,
are predominantly based on fixed tariffs with relatively low
sensitivity to customer demand or consumption. In addition to
existing revenues, the Investment Manager has identified
opportunities for growth, for example from serving new transport
customers, as commercial and municipal vehicle fleets continue to
switch to cleaner fuels, including biogas. Furthermore, there are
opportunities for the Investment Manager to work with the in-house
management team to deliver new energy and infrastructure services
to customers by developing the network and through vertical
integration.
Onyx involved the investment in a 100% interest in four
sub-portfolios totalling over 175 MW across over 200 operational,
construction and late-stage development rooftop, carport and
'private wire' ground mounted solar PV assets. The four portfolios
provide renewable energy generated on-site directly to the end-user
and are expected to become fully operational over the next 12
months. The operational projects are contracted under long-term
power purchase agreements with predominantly investment grade
commercial and industrial counterparties, including municipalities,
universities, schools, hospitals, military housing providers,
utilities and corporates. In addition, the Company acquired a 50%
interest in Onyx's follow-on pipeline, which is projected to exceed
500MW over the next 5 years through Onyx's highly experienced and
dedicated project development and asset management team based in
New York. In addition, the Company will have a right of first
refusal to purchase pipeline portfolios at a pre-agreed rate of
return. The investment provides the Company with a substantial
initial portfolio and a scalable pipeline of opportunities in a
major growth market.
A further 15% interest in Primary Energy, a portfolio of
recycled energy and cogeneration projects located in Indiana, USA,
was acquired in December 2020, after the initial 50% interest
acquired in February 2020. The Company also agreed terms under
which it could increase its stake and further enhance returns for
shareholders. The 298MW portfolio consists of five operating
projects which generate low-cost, efficient energy with substantial
environmental benefits via three recycled energy projects, one
natural gas combined heat and power project and a 50% interest in
an industrial process efficiency project. Four of the five projects
relate to steel mills that are now owned by Cleveland-Cliffs Inc.
("Cleveland-Cliffs") following its acquisition of ArcelorMittal
USA, making Cleveland-Cliffs the largest flat-rolled steel producer
as well as the largest iron ore pellet producer in North America.
One of the five projects services Midwest Steel, a subsidiary of
United States Steel Corporation. The projects are fully integrated
into the steel mill facilities, including fuel handling and
emissions control equipment and systems that are critical for the
operations of the facilities.
A new agreement with Sparkfund was signed in February 2021
representing a follow-on investment commitment on a conditional
basis of approximately $20 million in a new portfolio of projects
achieving construction completion over the next 12 months. These
projects include energy efficiency and resiliency measures such as
lighting, heating, ventilation and air conditioning, backup
generation and building management systems and controls. The
investment follows a US$22 million investment in a portfolio of
loans, leases and subscription agreements relating to energy
systems outsourcing and energy efficiency projects with Sparkfund
in September 2019.
In April 2021, the Company invested in a 4.5 MWp portfolio of
operational commercial and industrial rooftop solar systems and
secured a 20 MWp pipeline of late-stage development and
ready-to-build assets at multiple sites in Vietnam. The investment
was made via a Singapore-based platform. The Company entered into a
partnership with Shire Oak Green Asia ("SOGA'"), an experienced
developer of renewable energy projects with a strong presence in
Vietnam, including locally based engineering capacity and asset
management services. The counterparties are multinational
corporates using Vietnam as a manufacturing hub, as well as
established large Vietnamese companies, diversified across
industries including automotive, food & beverage, garment &
textile, furniture and agricultural products. The projects will
generate on-site electricity for consumption by the counterparties,
reducing the carbon footprint of their manufacturing processes.
The Company completed the investment in RED-Rochester, LLC
("RED"), a commercial district energy system that provides
exclusive utility services to commercial and industrial customers
within the 1,200 acre Eastman Business Park, in May 2021. RED is
one of North America's largest district energy systems with 117 MW
of steam turbine generators plus boilers, chillers and other
equipment. As the exclusive provider of utility services to the
park, RED offers 16 on-site services including electricity, steam,
chilled water, wastewater, compressed air, nitrogen, lake water
treatment, industrial water distribution and high purity water
distribution. RED has over 100 commercial and industrial customers,
typically contracted on a 20-year fixed-term basis with automatic
five or ten year renewals, linked to their tenancy on the Eastman
Business Park. The contracts provide stable and predictable cash
flows with a relatively fixed cost base and substantial mitigation
against volatility in demand. Some two thirds of the value of RED's
offtake contracts are derived from investment grade or equivalent
counterparties. Since 2016, RED has delivered 40+ additional energy
efficiency projects across its operations that have resulted in
annual savings of over US$4 million and carbon savings of over 50%.
Additionally, the Investment Manager has identified a further
pipeline of potentially accretive energy efficiency initiatives
that it believes can deliver additional cost and carbon
savings.
Tallaght Hospital involves an investment in the installation of
a range of energy efficiency equipment, including LED lighting and
high efficiency CHP, providing cleaner and more efficient on-site
energy generation for the large County Dublin hospital. The
contract consists of fixed, indexed linked revenues, payable by the
hospital counterparty, monthly for 15 years once the equipment is
installed.
Portfolio construction
The Company focuses on investments that provide effective and
reliable energy solutions that typically fit into one or more of
three key categories:
-- Cleaner and more efficient supply, such as in Onyx (on-site
solar), Primary Energy (on-site cogeneration for the steel
industry) and Oliva Spanish Cogeneration (on-site cogeneration for
olive industry)
-- Green energy distribution, such as Gasnätet (Stockholm's gas
grid) and EV Network (fast EV charging)
-- Point of use / demand reduction such as Santander UK Lighting
(LED lighting) and EV Network (fast EV charging)
The Company invests with the objective of assembling a portfolio
of energy efficiency projects, diversified by:
Investment stage: whilst the Company invests predominantly in
operational energy efficiency and distributed generation projects,
the Company may under certain circumstances invest in projects that
are in construction or their development phase;
Equipment/Service providers: the Company diversifies its
exposure to equipment manufacturers, engineers and other service
providers through investing in different energy efficiency
technologies and contracting with a wide range of
counterparties;
Geography: the existing portfolio comprises projects located in
the UK, EU, Asia Pacific and the USA. In addition, the company is
actively pursuing further investments in other jurisdictions that
provide attractive risk-adjusted returns across, including the UK,
EU, North America, the Asia Pacific region and, selectively, other
OECD countries; and
Counterparty: the Company provides services to range of high
quality counterparties in both the private and public sectors,
across many industries. The majority of the portfolio by value
derives revenues from investment grade or equivalent
counterparties, and in some instances adopts significant
diversification in the number of counterparties, such as in the
case of Gasnätet's 50,000+ customers.
SEEIT's portfolio is mostly operational, consistent with its
investment objectives and with a view to generation of cash and
earnings to cover dividends. New investments during the financial
year have extended the weighted average term of projects from
approximately 11 years to approximately 13.4 years, providing
long-term visibility of cash flows.
SEEIT may invest up to 35% of its gross asset value, calculated
at the time of the investment, in development and construction
phase projects (including a 10% limit on development), subject to
relatively short construction periods and low construction risks,
i.e. projects that the Investment Manager considers can be
commissioned within a short period of time following commitment and
at low risk that the commissioning of the project will overrun
(both in terms of time and budget).
During the financial year, SEEIT's commitments to development
and construction phase projects increased from approximately 5% to
approximately 15% of gross asset value, following the acquisition
of Onyx which represented an attractive investment opportunity with
a higher proportion of non-operational stage assets. The Board
considers that this increase is consistent with the objective of
securing long-term value and organic growth for SEEIT's portfolio,
while remaining in line with the Company's risk appetite.
The Board believes that the allocation to both operational and
construction phase projects offers significant opportunity for
growth. For instance, in the case of operational projects, there is
an opportunity to expand the range of services to customers
connected to district energy networks in SEEIT's portfolio, such as
Stockholm's gas grid, Gasnätet, and SEEIT's investment at the
second largest business park in the United States, RED.
There is also an opportunity to add value to existing
investments through increased market share in some cases, for
instance by leveraging a top 10 market position in commercial and
industrial on-site solar and storage in the United States, through
SEEIT's joint venture with Blackstone, Onyx, by increasing margins
and capacity in our projects serving Spain's olive industry, Oliva
Spanish Cogeneration and by securing contract extensions, as was
achieved by Primary Energy in 2020. In other markets, SEEIT has the
opportunity to increase scale, for example through its investment
in EV charging infrastructure services via EV Network for major
clients such as bp pulse.
SEEIT has continued to diversify by geography, with further
expansion into the United States and Europe (Sweden, Ireland and
Spain) and the UK. In addition, albeit to a more limited extent,
SEEIT has established some exposure to new and high-quality markets
in Asia, primarily providing energy services to multinational
clients in locations such as Singapore and, since the year-end, in
Vietnam. This expansion provides access to a large pool of
attractive new investment opportunities for the Investment Manager
to evaluate. The Investment Manager is focused on securing value
over exposure to an individual country, although it would expect
most of the portfolio to be broadly evenly allocated as between
North America and Europe in the medium to long-term.
As SEEIT's portfolio has continued to grow, it has also
significantly diversified. For instance, it now has exposure to
some 500 individual project sites in the United States, over 500
sites in the UK and over 50,000 customers in Sweden. Its projects
provide essential, cost-effective and green energy services such as
power, heat, cooling and lighting to clients from very different
industries, from agriculture in Spain, to steel in the United
States to datacentres, banking, hospitals, transport, cooking and
food retail in the UK, Ireland and Sweden. While this
diversification by industry and geography limits exposure to market
cycles in normal market conditions, the essential services provided
by the client base led to a general continuation of operations,
even during the challenging and extraordinary market conditions
caused by the global COVID-19 pandemic. As such, while the COVID-19
crisis impacted on some of the Company's assets and hindered some
development and construction activity, the portfolio demonstrated
resilience and the crisis had limited impact on SEEIT's overall
financial performance.
Diversification by technology was also an important feature and
achievement since March 2020. SEEIT's portfolio considerably
expanded in solar and storage, in green gas distribution, in energy
recycling and energy and cooling efficiency as well as in EV
charging infrastructure.
SEEIT's portfolio has also been constructed with a prudent view
on counterparty credit risk. Approximately 65 percent of the
portfolio by value (as at June 2021) derives revenues from
investment grade or equivalent counterparties. In the cases where a
counterparty is not investment grade or equivalent, risk mitigants
are often in place, such as security packages associated with debt
investments, ownership of assets or equipment, or other forms of
guarantee. In addition, credit risk exposure can be heavily
mitigated by significant diversification of counterparties, such as
in the case of Gasnätet's 50,000+ customers. There were no material
credit defaults or events during financial year, notwithstanding
the global economic crisis, although the Board and the Investment
Manager remain focused on the economic risks associated with the
COVID-19 pandemic and its aftermath through careful asset
management by the Investment Manager and ongoing engagement with
stakeholders.
The Board and the Investment Manager continue to focus on risks
that can be identified and mitigated. As such, SEEIT's investments
have limited exposure to unmitigated power or commodity price risk.
Prices of energy services are usually fixed or pre-determined and
any fuel costs are typically passed through to the client. SEEIT's
project investments have limited, or in many cases no demand or
volume risk. A number of projects have fixed contracts consisting
of revenues with availability-based characteristics, principally
derived from making a project's assets or services available for
use and that do not depend substantially on the demand for or use
of the project. Other cases have capacity-based characteristics,
where revenues are principally derived from a contractual right of
first dispatch, whereby an off-taker agrees to pay for a volume of
output to the extent that it has demand for it. The Investment
Manager has also sought to limit exposure to regulatory risks. For
instance, in Sweden, energy services are delivered below the
regulatory cap and in Spain, the main commodity price risks are
mitigated through a regulatory regime that applies and adjusts over
the medium-term.
Acquisitions and pipeline
SEEIT's portfolio of investments increased substantially in
value during the year, from approximately GBP320 million to
approximately GBP695 million (including investments made after the
year-end).
The Investment Manager secured most of SEEIT's major investments
during the year through bilateral or private negotiations,
including large investments such as Gasnätet from iCON, the
increase in its stake in Primary Energy from Fortistar and a recent
investment, after the financial year-end, of RED from Stonepeak.
Smaller investments such as SEEIT's investment in projects with GET
Solutions, in a portfolio in Singapore and in framework agreements
such as with Sparkfund were also secured outside of competitive
auction processes. While the original framework with EV charging
infrastructure development, EV Network, was won through a
competitive process, the Investment Manager actively assisted in
bilateral negotiations of the underlying projects with charge point
operators such as bp pulse.
Investment sizes were quite diverse from approximately GBP2
million to nearly GBP140 million. While larger investments offer
the benefits of scale and underlying diversification - for example
via over 100 customers at RED, over 200 projects in Onyx and over
50,000 customers in Gasnätet - smaller investments offer value and
diversification through replication or are otherwise strategic
platforms for targeting a client, an industrial sector, a
technology, a new geography or a delivery partner.
An important feature of SEEIT's portfolio is that a number of
its existing project investments include rights to invest in
additional pipeline opportunities, often at pre-agreed rates of
return. This has created an organic pipeline that offers the
flexibility to secure value and growth where pre-agreed pricing
allows for efficient investment in projects generating robust
returns. The Investment Manager will continue to seek to secure
attractive investment opportunities for SEEIT through new
investments but will remain highly selective and focused on where
it can add value and preferably via privately negotiated
transactions. By contrast, during the financial year, the
Investment Manager withdrew or declined a large number of
investments where competitive auction prices made forecast returns
unattractive, particularly in the more established sub sectors such
as Nordic district energy and cogeneration in the United
States.
The diversification of the portfolio by energy efficient
technology, remains a priority for the Board and the Investment
Manager in assessing new investment opportunities, with careful
evaluation of technologies that fit well into the Company's
investment remit. Examples of new technologies the Investment
Manager has been exploring on a selective basis as part of its
investment strategy include heat pumps, micro grids, cooling, low
carbon fuel for transport (including green gases as well as well as
electricity) and hydrogen.
Active asset management by the Investment Manager
The Company's investment objective, is to generate an attractive
total return for investors comprising stable dividend income and
capital preservation, with the opportunity for capital growth. The
Investment Manager seeks to achieve this for the Company through
selecting investments that will contribute positively to the
investment objective. Once invested, the Investment Manager then
places a large emphasis on actively managing the portfolio of
assets, both to optimise value and to minimise risks. For instance,
during the financial year it put in place measures to improve the
cost efficiency of fuel gas by bringing in-house the management and
gas procurement in its Oliva Spanish Cogeneration portfolio in
Spain, supported the extension of one of the major contracts in the
Primary Energy portfolio and established priorities to expand
revenue streams and increase biogas content in the Gasnätet grid in
Stockholm.
SEEIT's assets are managed through a combination of coordinated
full time presence on-site, teams of professional advisers and
active day to day involvement by the SDCL management team, focused
on driving value. The SDCL team has grown from 27 individuals at
the time of SEEIT's IPO to over 45 individuals (including three
senior staff focused solely on asset management) as at June 2021,
to meet the demands of the evolving portfolio. The Investment
Manager is particularly focused on health and safety, value
enhancements, identifying and mitigating risks and developing the
skills of individuals involved in managing projects as well as
those delivering day to day services.
ESG compliance and leadership
During the year, SEEIT published its first ESG report, with a
second report due later this year. The Investment Manager has
become a signatory to the United Nations Principles for Responsible
Investment ("UNPRI") to ensure that the UN's six principles of
responsible investment are embedded in the Company's behaviours and
practices and applied to all SEEIT investments.
There have been significant developments with the EU's on-going
implementation of its framework for sustainable energy investment
during the year, notably the publication of the delegated acts for
climate change mitigation and adaptation under the Taxonomy
Regulation (2020/852), and the entry into force in the EU of the
Sustainable Finance Disclosure Regulation (2019/2088).
The Taxonomy Regulation, in particular, has focused attention on
the role of natural gas in the transition to a low-carbon economy.
Current plans for natural gas as part of the Taxonomy Regulation
have been withdrawn, pending further discussions between member
states with a target for updated plans to be published later in
2021. The EU has given positive indications that it will introduce
measures which will acknowledge the role of natural gas as an
important part of the energy mix in the pathway toward reducing the
carbon-intensity of the energy system. The net zero emissions
("NZE") case put forward in the International Energy Agency's
("IEA") recent report "Net Zero by 2050" nonetheless assumes
consumption of natural gas will reduce by 55% between 2020 and 2050
(in comparison with coal by 90% and oil by 75%) and provided also
that natural gas with carbon capture, utilisation and storage
("CCUS") becomes widely used to produce hydrogen for use as a fuel
by shipping, road transport and heavy industry.
The Investment Manager is monitoring developments closely but is
meanwhile taking steps to categorise and monitor all the Company's
project assets in line with the Taxonomy.
The Investment Manager also serves as a member of key bodies
such as the Green Finance Institute and the UK Green Building
Council. The Investment Manager considers people and employment as
well as the environment in all of its business conduct. The
Investment Manager has been advocating globally for energy
efficiency in the context of the post COVID-19 recovery planning,
as well as for its role in the energy transition and has recently
appointed a new Executive Director of Communications and
Sustainable Cities.
Following the investment in RED, SEEIT's portfolio of project
companies employ collectively over 200 full time employees.
Financing
The Investment Manager has used a combination of equity issuance
and credit facilities to make new investments. The Investment
Manager recently extending the quantum of SEEIT's RCFs to maximise
capital efficiency and may consider recommending a modest increase
in overall gearing levels to support new investments.
Financial performance
SEEIT's net asset value has been relatively stable and
resilient, notwithstanding the challenging global economic
conditions. SEEIT achieved a cash dividend cover of approx. 1.2x
for the dividends paid during the last year and earnings per share
of 7.0p per share covered the 6.6p per share of dividends paid. The
Company transitioned to quarterly dividends from 1 April 2020 and
accordingly, the Company paid an aggregate of 6.6p per share in the
financial year to make the transition to quarterly dividends. On a
pro forma basis where dividends paid are adjusted down to quarterly
equivalents and removing the impact of a transition year, cash
cover for dividends was approximately 1.3x. The Company is
targeting a dividend [4] of 5.62p per share for the year to March
2022, a 2.2% increase from 31 March 2021.
Liquidity in SEEIT's shares has significantly improved and total
assets have doubled. Total shareholder return has been c.30.0%
since inception to 22 June 2021 and total return on a NAV growth
plus dividends paid in the year was 8.0%.
Sustainability Update
Carbon reporting
During the year, the Company's portfolio produced 895,212 MWh
(2020: 113,000 MWh) of electricity and has provided carbon savings
of 654,205 tCO2 (2020: 156,000 tCO2), which has been calculated
proportional to the Company's holding of each underlying investment
and the period of the ownership.
The calculation approach in each case follows several key
principles, to maintain a consistent approach. The principles
are:
1. Where possible to capture fundamental data regarding project
performance. Examples of this data include energy generated (kWh)
and fuel consumed (kWh);
2. Use publicly available emissions factors from government
sources specific to the project location; and
3. Where a project was commissioned, or purchased, by the
Company during a reporting period, only the portion of the period
after commissioning or purchase date has been recognised.
SEEIT's Responsible Investment Policy
SEEIT's Responsible Investment Policy [5] seeks to ensure that
all investments and the associated contractors and delivery
partners apply a set of defined ESG principles, as noted below. The
Investment Manager is tasked with promoting the policy to all
service providers who are responsible for the day-to-day operations
of the projects (O&M providers) and to monitor their
performance, to ensure compliance and best practice.
SEEIT's responsible investment policy covers four focal
areas:
-- Net zero carbon transition: Aiding the transition to a net
zero carbon economy by maximising energy efficiency through SEEIT's
investment strategy and operations;
-- Environmental impacts: Minimising the environmental footprint
of SEEIT's operations through managing negative impacts, such as
waste, biodiversity loss, and emissions;
-- Governance and resilience: Securing robust governance and
business integrity, including assessing resilience to physical
climate risk and engaging on ESG with SEEIT's delivery partners;
and
-- Workplace and community: Providing safe environments for all
- for workers, contractors and members of the community who use or
come into contact with SEEIT's projects.
SEEIT has developed, in conjunction with the Investment Manager,
a set of ESG principles that build on each of the four focus areas.
The Investment Manager follows an ESG procedure that ensures
SEEIT's ESG policies and principles are reflected in its screening
and diligence process to assess all potential projects prior to a
decision to invest, and then as a framework for managing and
monitoring assets and engaging with O&M providers.
SEEIT's contribution to the UN Sustainable Development Goals
In 2015, 197 countries came together behind a common vision for
achieving a better and more sustainable future for all. This vision
is manifested in 17 interconnected global goals - the United
Nations' Sustainable Development Goals ("SDGs") - that aim to
address the world's most pressing social, environmental, and
economic challenges by 2030.
Generating positive social and environmental outcomes is
fundamental to SEEIT and how the Company and its portfolio are run.
SEEIT's ESG objectives and efforts are aligned with and support the
SDGs agenda. SDCL looked at the expected outcomes and established
practices of each individual project in SEEIT's portfolio against
the 17 SDGs and their 169 underlying targets. As at the financial
year-end this analysis showed that the Company's portfolio
contributes to 11 of the 17 SDGs, with a particular focus on two
goals: SDG 7 - Clean and affordable energy and SDG 9 - Industry,
innovation and infrastructure, and that all Company activities are
underpinned by the principles of SDG 17.
Investment Portfolio Summary
Portfolio Analysis
The below table provides a summary of the Company's total
portfolio as at 31 March 2021:
Country Project Phase Customer Industry Technology Overview
Singapore Singapore Operational Panasonic, Industrial: Energy-efficient Energy
Energy Speedytech Manufacturing air compressors efficient
Efficiency and water-cooled measures for
- SEEIPL chillers small and
1 medium-sized
businesses
--------------- --------------- -------------- --------------- ----------------- ---------------
Singapore Operational Denselight, Industrial: Energy-efficient Energy
Energy REC Solar Manufacturing air compressors efficient
Efficiency and water-cooled measures for
- SEEIPL chillers small and
3 medium-sized
businesses
--------------- --------------- -------------- --------------- ----------------- ---------------
Singapore Operational Denselight, Industrial: Energy-efficient Energy
Energy Greif Manufacturing air compressors efficient
Efficiency and water-cooled measures for
- FE EE chillers small and
medium-sized
businesses
--------------- --------------- -------------- --------------- ----------------- ---------------
Spain Oliva Operational Spanish Industrial: CHP Efficient
- Cepalo energy Food energy
market and production generation
Sedebisa including
thermal energy
for drying of
recycled waste
--------------- --------------- -------------- --------------- ----------------- ---------------
Oliva Operational Olive Industrial: Industrial Drying of
- Sedebisa byproduct Food process recycled
market and production efficiency waste for
Bipuge solutions biomass
feedstock and
olive oil
production
--------------- --------------- -------------- --------------- ----------------- ---------------
Oliva Operational Spanish Industrial: Biomass Power
- Bipuge energy Food generation
market and production from recycled
olive waste from
processing olive
plants oil production
--------------- --------------- -------------- --------------- ----------------- ---------------
Oliva Operational Spanish Industrial: CHP Efficient
- Celinares energy Food energy
market and production generation
Colinares including
thermal energy
for drying of
recycled waste
--------------- --------------- -------------- --------------- ----------------- ---------------
Oliva Operational Olive Industrial: Industrial Drying of
- Colinares byproduct Food process recycled
market and production efficiency waste for
Biolinares solutions biomass
feedstock and
olive oil
production
--------------- --------------- -------------- --------------- ----------------- ---------------
Oliva Operational Spanish Industrial: Biomass Power
- Biolinares energy Food generation
market and production from recycled
olive waste from
processing olive
plants oil production
--------------- --------------- -------------- --------------- ----------------- ---------------
Oliva Operational Spanish Industrial: CHP Efficient
- La Roda energy Food energy
market and production generation
olive including
processing thermal energy
plants for olive
processing
--------------- --------------- -------------- --------------- ----------------- ---------------
Oliva Operational Spanish Industrial: CHP Efficient
- Celvi energy Food energy
market and production generation
olive including
processing thermal energy
plants for olive
processing
--------------- --------------- -------------- --------------- ----------------- ---------------
Oliva Operational Spanish Industrial: CHP Efficient
- Cepuente energy Food energy
market and production generation
olive including
processing thermal energy
plants for olive
processing
--------------- --------------- -------------- --------------- ----------------- ---------------
Sweden Gasnätet Operational Various Retail: Green gas Regulated
(50,000+ Commercial distribution green
customers) gas
distribution
network
--------------- --------------- -------------- --------------- ----------------- ---------------
United Kingdom Moy Park Operational Moy Park Industrial: Biomass Efficient
Biomass Food boilers heating
Production
--------------- --------------- -------------- --------------- ----------------- ---------------
Santander Operational Santander Commercial: Lighting Energy
UK Lighting plc Banking and energy efficient
efficiency measures for
measures buildings with
lighting
enhancement
--------------- --------------- -------------- --------------- ----------------- ---------------
Huntsman Huntsman Industrial: Steam raising Recycling and
Energy Construction Polyurethane boilers reduction of
Centre manufacture waste gases
from chemical
manufacturing
--------------- --------------- -------------- --------------- ----------------- ---------------
Citi Riverdale Operational Citibank Datacentres: Combined Efficient
CCHP Banking Cooling, power,
Heat and heating and
Power (CCHP) cooling for
a data centre
--------------- --------------- -------------- --------------- ----------------- ---------------
Moy Park Operational Moy Park Industrial: LED lighting Efficient
Lighting Food lighting
Production
--------------- --------------- -------------- --------------- ----------------- ---------------
St Barts Operational St Healthcare: CHP Efficient
CCHP Bartholomew's Hospital power,
Hospital heating and
cooling for
a hospital
--------------- --------------- -------------- --------------- ----------------- ---------------
Supermarket Operational Tesco plc Commercial: Rooftop Onsite solar
Solar Retail solar energy
UK generation
--------------- --------------- -------------- --------------- ----------------- ---------------
Kingspan Operational Kingspan Industrial: Lighting Energy
Holywell Manufacturing and energy efficient
Solutions efficiency measures for
measures building
materials
manufacturing.
--------------- --------------- -------------- --------------- ----------------- ---------------
EV Network Development Charge point Infrastructure EV charging Rapid and
& Construction operators stations ultra-fast
EV charging
stations
--------------- --------------- -------------- --------------- ----------------- ---------------
GET Construction Hotels Hospitality CHP Efficient
& Operational sector generation
of heat and
power
--------------- --------------- -------------- --------------- ----------------- ---------------
SmartEnergy Operational Various Industrial: CHP, HVAC, Energy
Various BMS and efficient
other EE measures for
solutions small and
medium-sized
businesses
--------------- --------------- -------------- --------------- ----------------- ---------------
United States Primary Operational Cleveland Industrial: Steam turbines Energy
Energy Cliffs Steel generation
- Cokenergy production from recycling
waste gases
from steel
production
--------------- --------------- -------------- --------------- ----------------- ---------------
Primary Operational Cleveland Industrial: Steam turbines Energy
Energy Cliffs Steel generation
- Northlake production from recycling
waste gases
from steel
production
--------------- --------------- -------------- --------------- ----------------- ---------------
Primary Operational Cleveland Industrial: Steam turbines Energy
Energy Cliffs Steel generation
- Ironside production from recycling
waste gases
from steel
production
--------------- --------------- -------------- --------------- ----------------- ---------------
Primary Operational Cleveland Industrial: Industrial Energy
Energy Cliffs Steel process efficient
- PCI production efficiency process for
solutions steel
production
--------------- --------------- -------------- --------------- ----------------- ---------------
Primary Operational US Steel Industrial: CHP Efficiency
Energy Steel energy
- Portside production generation
--------------- --------------- -------------- --------------- ----------------- ---------------
Spark Operational Various (260+ Commercial: Lighting Energy
US Energy contracts) Various and energy efficiency
Efficiency efficiency measures for
measures small and
medium-sized
companies
--------------- --------------- -------------- --------------- ----------------- ---------------
Onyx - Operational Various Commercial Rooftop Onsite solar
operational & industrial: solar and energy
portfolios Various storage generation
--------------- --------------- -------------- --------------- ----------------- ---------------
Onyx - Construction Various Commercial Rooftop Onsite solar
construction & Development & industrial: solar and energy
portfolios Various storage generation
--------------- --------------- -------------- --------------- ----------------- ---------------
Onyx - Development Various Commercial Rooftop Onsite solar
development & industrial: solar and energy
Various storage generation
--------------- --------------- -------------- --------------- ----------------- ---------------
Northeastern Operational Various (6) Commercial: CHP Efficient
US CHP Various power
and heat
generation
for the public
and private
sectors
--------------- --------------- -------------- --------------- ----------------- ---------------
Company Key Performance Indicators ("KPIs")
The Company sets out below its financial, operational and
climate-related KPIs which it uses to track the performance of the
Company over time against the objectives as described in the
Strategic Report and in accordance with the reporting requirements
of the TCFD. The Board believes that the KPIs detailed below
provide shareholders with sufficient information to assess how
effectively the Company is meeting its objectives. The Board
monitors these KPIs on an ongoing basis.
Financial KPIs
KPI Definition 31 March 31 March Commentary
2021 2020
NAV has increased
compared with the
prior year, after
NAV divided by no. taking into account
NAV per share of shares outstanding dividends paid during
(pence) as at 31 March 102.5p 101.0p the year
---------------------------- --------- --------- -----------------------------
The share price has
recovered after initially
being affected by
market conditions
from the global uncertainty
Share price Closing share price around COVID-19 in
(pence) as at 31 March 112.0p 92.5p March 2020
---------------------------- --------- --------- -----------------------------
The Company met its
Aggregate dividends stated dividend target
Dividends declared per share of 5.5p per share
per share in respect of the for the year ended
(pence) financial year 5.5p 5.0p 31 March 2021
---------------------------- --------- --------- -----------------------------
Operational cash Dividends were covered
flow divided by dividends by cash flows for
Dividend cash paid to shareholders the year ended 31
cover (x) during the year 1.17x 1.55x March 2021
---------------------------- --------- --------- -----------------------------
Total return combines
the increase in NAV
and dividend distributions,
Total Return NAV growth and dividends and reflects continued
in the year paid per share in underlying delivery
(%) the year 8.0% 6.2% to shareholders
---------------------------- --------- --------- -----------------------------
Annualised ongoing
charges (i.e. excluding
investment costs
and other irregular Ongoing charges have
costs) divided by reduced on a comparative
the average published basis as economies
undiluted NAV in of scale were achieved
the period, calculated through growth in
Ongoing charges in accordance with the size of the Company's
ratio (%) AIC guidelines 1.13% 1.17% NAV
---------------------------- --------- --------- -----------------------------
Operational KPIs
KPI Definition 31 March 31 March Commentary
2021 2020
Weighted average
Weighted average number of years Increased due to new
project life assumed to be remaining investments made during
(years) in project contracts 13.4 11.3 the year
----------------------------- --------- --------- --------------------------------
Value of largest
investment divided
by the sum of all
investments held The Company continues
in the Portfolio to stay well within
together with any the limits set by
Largest investment Cash and Cash Equivalents, its Investment Policy,
as a % of calculated at period demonstrating diversification
GAV (%) end 15% 13% of the portfolio
----------------------------- --------- --------- --------------------------------
Total value of five
largest investments
divided by the sum
Largest five of all investments
investments held in the Portfolio
as a % of together with any
Portfolio Cash and Cash Equivalents,
Valuation calculated at period
(%) end 44% 43% Maintained good diversification
----------------------------- --------- --------- --------------------------------
Climate-Related KPIs
Climate-related targets
The Company seeks to measure, monitor and report climate-related
KPIs that are consistent with all relevant international standards,
both statutory and voluntary, for assessing the sustainability of
the Company's activities. As well as TCFD these include Streamlined
Energy and Carbon Reporting ("SECR") and the requirements of the
SFDR and Taxonomy Regulations as these evolve.
The Company's target is that its investments should contribute
to substantial climate change mitigation and that its performance
against the measured KPIs should be used to demonstrate if this
target has been achieved.
KPI Definition 31 March 31 March Commentary
2021 2020
Total Carbon SEEIT follows the 424,490 171,054 Absolute emissions
Emissions Greenhouse Gas Protocol tCO2 tCO2 have increased between
(Scope 1, definition of Scopes: 2020 and 2021 due
2 and 3) to increased overall
size of portfolio
* Scope 1 emissions are direct emissions from owned or (Of which (Of which
27,638 15,871
tCO2 was tCO2 was
in the in the
UK) UK)
controlled sources.
* Scope 2 emissions are indirect emissions from the
generation of purchased energy.
* Scope 3 emissions are all indirect emissions (not
included in scope 2) that occur in the value chain of
the reporting company, including both upstream and
downstream emissions.
------------------------------------------------------------------------------- -------------- -------------- -----------------------
Total Carbon Total Scope 1 and 378,527 152,442 Absolute emissions
Emissions 2 Carbon Emissions tCO2 tCO2 have increased between
(Scope 1 and 2020 and 2021 due
2) to increased overall
size of portfolio
(Of which (Of which
11,360 763 tCO2
tCO2 was was in
in the the UK)
UK)
-------------------------------------------------------------- -------------- -------------- -----------------------
Energy Underlying global 2,918,968,259 1,156,757,486 Absolute emissions
consumption energy use in kWh (Of which (Of which have increased between
used to 103,026,874 51,033,512 2020 and 2021 due
calculate was in was in to increased overall
above emissions the UK) the UK) size of portfolio
(kWh)
-------------------------------------------------------------- -------------- -------------- -----------------------
Increase in Carbon
Footprint is due to
additional data
gathering
in 2021. In 2020 no
data covering Scope
emissions was included
Total Scope 1 and in reporting.
2 Carbon Emissions Period of ownership
Carbon / Total portfolio also impacts this
Footprint value (tCO2e/GBPM) 685 478 metric.
-------------------------------------------------------------- -------------- -------------- -----------------------
Percentage of portfolio Decrease in exposure
assets by asset to carbon related
value tied to the assets reflects an
Exposure to energy and utilities overall move towards
Carbon-Related sector (excluding lower-carbon assets
Assets renewable) 83% 88% over the last year.
-------------------------------------------------------------- -------------- -------------- -----------------------
The calculation approach in each case follow several key
principles, to maintain a consistent approach. The principles
are:
1. Where possible to capture fundamental data regarding project
performance. Examples of this data include energy generated (kWh)
and fuel consumed (kWh);
2. Use publicly available emissions factors from government
sources specific to the project location;
3. Where a project was commissioned, or purchased, by SEEIT mid
way through the reporting period, only the portion of the period
after commissioning or purchase date should be recognised; and
4. Where SEEIT owns less than 100% of a project, the total
project savings should be reduced pro-rata with the ownership
percentage.
Section 172(1) Statement
The Directors fulfilled their duties under Section 172 of the
Companies Act 2006 to act in good faith and to promote the success
of the Company for the benefit of shareholders and stakeholders as
a whole.
Strategic Report: Portfolio Review
Financial Review
Financial information
In accordance with IFRS 10 the Company carries its investment in
Holdco at fair value as it meets the conditions of being an
Investment Entity (see Note 2 for details). The fair value of
Holdco includes the fair value of the underlying investments which
is described in further detail in Valuation of the Portfolio.
In order to provide shareholders with more transparency into the
Company's capacity for investment, ability to make distributions,
operating costs and gearing levels, results have been reported in
the pro forma tables below on a non-statutory "Portfolio Basis" to
include the impact if Holdco were to be consolidated on a
line-by-line basis. The Directors consider the non-statutory
Portfolio Basis to be a more helpful basis for users of the
financial statements to understand the performance and position of
the Company. This is because key balances such as cash and debt
balances carried in Holdco and all expenses incurred in Holdco,
including debt financing costs, are shown in full rather than being
netted off. The "Portfolio Basis" is presented as an alternative
performance measure.
The pro forma tables that follow show the Company's result for
the year ended 31 March 2021 compared to the pro forma balance
sheet at 31 March 2020 and the pro forma Income statement and Cash
Flow for the year to 31 March 2020.
The impact of including Holdco is shown in the Holdco
reallocation column which reconciles back to the statutory
financial statements ("IFRS") and constitute a reallocation between
line items rather than affecting NAV and Earnings - NAV per share
and Earnings per share are the same under the Portfolio Basis and
the IFRS basis.
Summary Financial Statements
Portfolio Basis Summary Income Statement
Year to 31 March 2021 Year to 31 March 2020
GBP'000 Portfolio Holdco IFRS (Company) Portfolio Holdco IFRS
Basis reallocation Basis reallocation (Company)
--------------------------- -------------------------------- --------------- --------------------------- -------------------------------- ----------
Total (3, 255
income 41,089 ) 37,834 17,054 (2,554) 14,500
Expenses
and
Finance (8, 684 (5, 429
Costs ) 3, 255 ) (5,442) 2,554 (2,888)
Profit
before
Tax 32,405 - 32,405 11,612 - 11,612
Earnings 32,405 - 32,405 11,612 - 11,612
---------- --------------------------- -------------------------------- --------------- --------------------------- -------------------------------- ----------
Earnings
per
share
(pence) 7.0 - 7.0 5.2 - 5.2
---------- --------------------------- -------------------------------- --------------- --------------------------- -------------------------------- ----------
On the Portfolio Basis, Total Income of GBP41,089k (2020:
GBP17,054k) represents the return from the portfolio recognised as
income comprising dividends, interest and valuation movements.
Further detail on the valuation movements is given in Valuation of
the Portfolio.
On an IFRS basis, Total income of GBP37,834k (2020: GBP14,500k)
comprises income received by the Company and valuation movements in
its investment (see Note 5). Both Total Income and Expenses and
Finance Costs are lower than on the Portfolio Basis, as costs
incurred by the Holdco are included by netting off within Total
Income under IFRS, not under Expenses and Finance Costs. The costs
incurred by the Holdco not included on an IFRS basis include
transaction abort costs, foreign exchange movements related to
hedging and financing expenses related to the RCF.
The increase in Total income compared to the prior year is
mainly as a result of the increase in the size of the portfolio and
thereby generating a higher amount of revenue from interest and
dividends, in addition to the movements in fair value as described
in Valuation of Portfolio. The increase in Expenses and Finance
costs is also mainly due to the growth of the size of the portfolio
with total fees accruing to the Investment Manager of GBP4,042k for
the year (2020: GBP1,973k), comprising the 0.9% p.a. management fee
of the Adjusted NAV up to GBP750m and 0.8% in excess of this
amount.
Neither the Investment Manager nor any of its affiliates
receives other fees from the Company's portfolio of
investments.
Profit before tax of GBP32,405k (2020: GBP11,612k) included net
foreign exchange losses of GBP4,590k (2020: GBP2,261k gain)
incurred by Holdco comprising a GBP22,211k loss on revaluing of
non-GBP investments for the year ended 31 March 2021 offset by
gains on hedging of GBP17,621k. The foreign exchange gains and
losses are reflected in the investment value of Holdco.
In the year, the Company and Holdco incurred GBP1,063k (2020:
GBP624k) of abort costs on unsuccessful bids, including GBP600k for
bids that were in progress (mainly legal, technical and tax due
diligence) and completed after the year-end.
On both the Portfolio Basis and IFRS basis, Earnings were
GBP32,405k (2020: GBP11,612k) and Earnings per share were 7.0p
(2020: 5.2p).
Portfolio Basis Balance Sheet
As at 31 March 2021 As at 31 March 2020
GBP'000 Portfolio Holdco IFRS (Company) Portfolio Holdco IFRS
Basis reallocation Basis reallocation (Company)
------------------------- -------------------------------- --------------- ------------------------- -------------------------------- ----------
Investments
at fair
value 552,672 19, 902 572,574 319,802 (65,707) 254,095
Working (15, 761
capital 14, 933 ) (828) (4,209) 5,465 1,256
Debt - - - (62,826) 62,826 -
Cash 126,200 (4,141) 122,059 70,763 (2,584) 68,179
Net assets
attributable
to Ordinary
Shares 693,805 - 693,805 323,530 - 323,530
-------------- ------------------------- -------------------------------- --------------- ------------------------- -------------------------------- ----------
NAV per share 102.5 - 102.5 101.0 - 101.0
-------------- ------------------------- -------------------------------- --------------- ------------------------- -------------------------------- ----------
On a Portfolio Basis, Investments at fair value are GBP552,672k
(2020: GBP319,802k), representing the Portfolio Valuation. The
increase of GBP232,870k is predominantly due to investments during
the year although further detail on the movement in Investments at
fair value is given in Valuation of the Portfolio.
On a Portfolio Basis, cash at 31 March 2021 was GBP126,200k
(2020: GBP70,763k); mainly reflecting cash from equity capital
raised and cash received from investments, net of cash used for
investments. The Company is expecting to utilise the cash balance
in paying the fourth quarterly interim dividend on 30 June 2020,
and approximately GBP100m million was utilised in May 2021 to
complete the investment in RED. On an IFRS basis, cash at 31 March
2021 was GBP122,059k (March 2020: GBP68,179) which reconciles to
the Portfolio Basis through the cash held by Holdco at this
date.
An analysis of net cash movement is shown in the cash flow
analysis below.
On an IFRS basis, Investments at fair value were GBP572,574k
(2020: GBP254,095k), reflecting the Portfolio Valuation adjusted
for cash, working capital and debt held by Holdco. A reconciliation
between the Portfolio Valuation at 31 March 2021 and Investment at
fair value shown in the financial statements is given in Note 11 to
the financial statements, the principal differences are as per the
table below.
March 2021 March 2020
GBP'000 GBP'000
Portfolio Valuation 552,672 319,802
Holdco cash 4,141 2,584
Holdco debt - (62,826)
Holdco net working capital 15,761 (5,465)
Investment at fair value (see
Note 11) 572,574 254,095
NAV per share at 31 March 2021 was 102.5p (2020: 101.0p). NAV
per share has increased by 1.5p since last year, reflecting the
earnings in the year of 7.0p, interim dividends paid during the
year of 6.6p and accretive share issues in the year of 1.1p.
Analysis of growth in NAV
NAV per share
(pence)
NAV per share at 1
April 2020 101.0
--------------
Earnings per share
to 31 March 2021 7.0
--------------
Interim dividends paid
1 (6.6)
--------------
101.4
--------------
NAV accretive share
issues 2 1.1
--------------
NAV per share at 31
March 2021 102.5
--------------
[1] Consisting of a second interim dividend of 2.5p per share
paid in June 2020 for the year ending 31 March 2020 and three
interim dividends of 1.375p per share each paid for the year ended
31 March 2021
2 Arising from issuing of shares in the Company in June 2020,
October 2020 and February 2021 at a price higher than the
prevailing NAV per share.
Portfolio Basis Cash Flow Statement
For the year ended For the year ended 31 March
31 March 2021 2020
GBP'000 Portfolio Holdco IFRS (Company) Portfolio Holdco IFRS (Company)
Basis reallocation Basis reallocation
---------------- -------------- --------------- -------------------- ---------- ---------------- ---------------
Cash from
investments 42,104 (6,099) 36,005 17,087 (13,033) 4,054
Operating and
finance costs
outflow (6,433) 1,749 (4,685) (4,028) 1,723 (2,305)
---------------- -------------- --------------- -------------------- ---------- ---------------- ---------------
Net cash inflow
before capital
movements 35,671 (4,350) 31,321 13,059 (11,310) 1,749
---------------- -------------- --------------- -------------------- ---------- ---------------- ---------------
Cost of new
investments
including
investment
costs (255,220) (61,431) (316,651) (254,312) 70,719 (183,593)
Share capital
raised net of
costs 368,003 - 368,003 222,058 - 222,058
Movement in
borrowings (64,665) 64,665 - 62,826 (62,826) -
Movement in
capitalised
debt costs and
FX hedging 2,060 (440) 1,620 (4,015) 2,395 (1,620)
Dividend paid (30,413) - (30,413) (8,422) - (8,422)
Movement in
the year 55,436 (1,556) 53,880 31,195 (1,022) 30,172
Cash at start
of the year 70,763 (2,584) 68,179 39,569 (1,562) 38,007
---------------- -------------- --------------- -------------------- ---------- ---------------- ---------------
Cash at end
of the year 126,199 (4,140) 122,059 70,763 (2,584) 68,179
---------------- -------------- --------------- -------------------- ---------- ---------------- ---------------
Cash inflows from the portfolio on a Portfolio Basis were
GBP42,104k (2020: GBP17,087k), in line with expectations. The
increase in cash received compared with the previous period
reflects the increase in the size of the portfolio.
The cost of new investments by the SEEIT group on a Portfolio
Basis of GBP255,220k (2020: GBP254,312k) includes investment
acquisition costs as described in the Valuation Movements
below.
On an IFRS basis, costs of new investments of GBP316,651k (2020:
GBP183,593k) reflects funding extended by the Company to Holdco in
the year to make portfolio investments and for repayment of the RCF
that Holdco utilised to make new investments.
Net cash flow before capital movements in the year on a
Portfolio Basis was GBP35,671k (2020: GBP13,059k) and covers
dividends paid of GBP30,413k in the year (2020: GBP8,422k) by 1.17
times. From the year beginning on 1 April 2020, the Company is
paying dividends on a quarterly basis compared to semi-annually
previously therefore the dividend cover above is for dividends paid
for the equivalent of five quarters. The pro forma dividend cover
on a full year (four quarters) basis is 1.3 times.
Share capital raised (net of costs) totalled GBP368,003k (2020:
GBP222,058k) reflecting the net proceeds of shares issued during
the year through three separate capital raisings under the share
issuance programme.
Hedging for the group is undertaken by Holdco and therefore the
Company should have no cash flows for this on an IFRS basis. Holdco
enters into forward sales to hedge foreign exchange rate exposure
in line with the Company's hedging policy set out below (see
'Foreign Exchange Hedging'). On a Portfolio Basis, there was a net
cash inflow of GBP2,060k on foreign exchange hedging in the
year.
Ongoing charges
Ongoing charges, in accordance with AIC guidance, are defined as
annualised ongoing charges (i.e. excluding investment costs and
other non-recurring items) divided by the average published
undiluted net asset value in the year. On this basis the Ongoing
charges ratio is 1.13% (2020: 1.17%) for the full year. The Ongoing
charges percentage has been calculated on the Portfolio Basis to
take into consideration the expenses of the Company and Holdco.
As expected, the Ongoing Charges ratio has reduced year on year,
benefitting from the growth in the net assets meaning the fixed
(ongoing) costs of the Company is spread across a larger base.
Group drawings and gearing levels
The Investment Manager periodically considers refinancing
options aligned to the pipeline of potential transactions and in
the interest of efficient capital management and foreign exchange
hedging. After the year-end, Holdco increased the RCF to GBP115
million and ING and Intesa Sanpaolo joined Investec as lenders. The
facility includes an uncommitted accordion of GBP90 million and has
also been extended to June 2024. It is expected that a fourth bank
will be added shortly resulting in a further increase in the
available commitments.
Foreign exchange hedging
The Company applies foreign exchange hedging through currency
hedges entered into by Holdco. The objective of the Company's
hedging strategy is to protect the value of both near-term income
and capital elements of the portfolio from a material impact on NAV
arising from movements in foreign exchange rates, and to provide
stability and predictability of Sterling cash flows.
This is achieved on an income basis by hedging forecast
investment income from non-Sterling investments for up to 24 months
through foreign exchange forward sales. On a capital basis, this is
achieved by hedging a significant portion of the portfolio value
through rolling foreign exchange forward sales. The Investment
Manager also seeks to utilise corporate debt facilities in the
local currency to reduce foreign exchange rate exposure.
As part of the Company's hedging strategy the Investment Manager
will regularly review non-Sterling exposure in the portfolio and
adjust the levels of hedging accordingly and in doing so will also
take into account the cost benefit of hedging activity.
Net foreign exchange losses in the year ended 31 March 2021 was
GBP3,600k, representing less than 1% of NAV.
Going concern
The Directors believe that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Therefore, they continue to adopt the going concern basis of
accounting in preparing the financial statements.
Valuation of the Portfolio
Introduction
The Investment Manager is responsible for carrying out the fair
market valuation of the SEEIT group's portfolio of investments (the
"Portfolio Valuation") which is presented to the Directors for
their consideration and approval. A valuation is carried out on a
six-monthly basis, as at 31 March and 30 September each year. The
Portfolio Valuation is the key component in determining the
Company's NAV.
The Company has a single investment in a directly and wholly
owned holding company (Holdco). It recognises this investment at
fair value. To derive the fair value of Holdco, the Company
determines the fair value of investments held directly or
indirectly by Holdco and adjusted for any other assets and
liabilities. The valuation methodology applied by Holdco to
determine the fair value of its investments is described below.
For non-market traded investments (being all the investments in
the current portfolio), the valuation is based on a discounted cash
flow methodology and adjusted in accordance with the IPEV
(International Private Equity and Venture Capital) valuation
guidelines where appropriate to comply with IFRS 13 and IFRS 9,
given the special nature of infrastructure investments. Where an
investment is traded in an open market, a market quote is used.
The Investment Manager exercises its judgment in assessing the
expected future cash flows from each investment based on the
project's expected life and the financial models produced for each
project company and adjusts the cash flows where necessary to take
into account key external macro-economic assumptions and specific
operating assumptions.
All the operational investments included in the valuation have
an underlying contract for energy services. The valuation is based
on the future expected cash flows derived from these contracts. For
the March 2021 valuation the assumed future cash flows match the
maturity of the underlying contract or regulatory life of the asset
except in the case of four of the assets in Primary Energy and the
assets in Oliva Spanish Cogeneration where it is assumed that
future contract extensions are achieved and hence the expected cash
flows are currently projected to extend beyond the maturity date of
the existing contract with the counterparty.
The fair value for each investment is then derived from the
application of an appropriate market discount rate (on an unlevered
basis) to reflect the perceived risk to the investment's future
cash flows and the relevant year-end foreign currency exchange rate
to give the present value of those cash flows. Where relevant,
project level debt balances are then netted off to arrive at the
valuation for each asset. The discount rate takes into account
risks associated with the financing of an investment such as
investment risks (e.g. liquidity, currency risks, market appetite),
any risks to the investment's earnings (e.g. predictability and
covenant of the income) and a thorough assessment of counterparty
credit risk, all of which may be differentiated by the phase of the
investment.
The Investment Manager uses its judgement in arriving at the
appropriate discount rate. This is based on its knowledge of the
market, taking into account intelligence gained from its bidding
activities, discussions with financial advisers in the appropriate
market, and publicly available information on relevant
transactions.
For the valuation as at 31 March 2021, the Directors
commissioned a report from a third-party valuation expert to
provide their assessment of the appropriate discount rate range for
each project (excluding small projects with an aggregate value of
less than 2% of the Portfolio Valuation) in order to further
benchmark the valuation prepared by the Investment Manager.
The valuation methodology is unchanged from the Company's IPO
and has been applied consistently in each subsequent valuation.
Portfolio valuation
The Portfolio Valuation as at 31 March 2021 was GBP552,672k, an
increase of GBP232,870k compared to the Portfolio Valuation of
GBP319,802k as at 31 March 2020 and an increase of GBP233,705k
compared to the Portfolio Valuation of GBP318,967k at 30 September
2020 - the increase is mainly a result of the investments during
the year.
Valuation movements
A breakdown of the movement in the Portfolio Valuation in the
period is set out in the table below.
Valuation Movements During the Year To 31 March 2021 (GBP'000)
Portfolio Valuation - 31 March 2020 319,802
New Investments 254,175
Cash from Investments (41,903)
----------
212,272
--------------------------------------------- ---------- ---------
Rebased Portfolio Valuation 532,074
--------------------------------------------- ---------- ---------
Changes in Macroeconomic Assumptions (23)
Changes in Foreign Exchange (22,211)
Changes in Discount Rates 11,650
Balance of Portfolio Return 31,182
----------
20,598
--------------------------------------------- ---------- ---------
Portfolio Valuation - 31 March 2021 552,672
--------------------------------------------- ---------- ---------
The opening Portfolio Valuation at 31 March 2020 was
GBP319,802k. Allowing for investments of GBP254,175k and cash
receipts from investments of GBP41,903k, the rebased Portfolio
Valuation is GBP532,074k.
Additional investments of GBP254,175k in the year include the
following:
-- a GBP4,997k investment in GET Solutions
-- a GBP1,065k investment in EV Network
-- a GBP2,139k investment in Singapore Energy Efficiency portfolio
-- a GBP31,698k investment in Primary Energy portfolio
-- a GBP110,400k investment in Gasnätet
-- a GBP457k investment in Spark US Energy Efficiency II portfolio
-- a GBP103,418k investment in Onyx
Return from the Portfolio
Each movement between the rebased valuation of GBP532,074k and
the 31 March 2021 valuation of GBP552,672k is considered in turn
below:
(i) Changes in macroeconomic assumptions:
Inflation assumptions: An adjustment was made to near-term
assumptions applied to the investments in Spain and Sweden where
there is a ramp up to reach the long-term assumption, positive and
adverse changes of approximately GBP1.8 million each resulted in a
net decrease in the valuation of GBP23k. There were no other
changes to inflation assumptions.
Tax rate assumptions: The UK corporation tax rate assumptions
were amended in line with recent UK government announcements
however as a result of utilising tax group relief within the UK
part of the group, this had negligible impact on the valuation as
at 31 March 2021. The risk of rising tax rates has been reflected
in discount rates (see '(iv) Balance of portfolio return' below for
more details).
(ii) Changes in foreign exchange rates:
The loss of GBP22,211k in the period reflects the strengthening
of GBP against US Dollar, Euro and Swedish Krona in the year or
since new investments were made. This reflects the movement in
underlying investment values and is shown before the offsetting
effect of foreign exchange hedging that is applied at the level of
Holdco in line with the overall foreign exchange strategy which
resulted in a gain of GBP17,621k. Overall foreign exchange
movements did therefore not have a significant impact on NAV in the
period with a net loss from foreign exchange hedging and movement
in the assets of GBP3,600k.
(iii) Changes in valuation discount rates:
The discount rate used for valuing each investment represents an
assessment of the rate of return at which infrastructure
investments with similar risk profiles would trade on the open
market.
During the year there were selected reductions of discount rates
that in aggregate resulted in an increase in the valuation of
GBP11,650k. The Investment Manager observed strong competition and
downwards pressure on discount rates in the US markets, notably in
onsite generation assets, and as a result lowered the discount
rates used for the investments in Primary Energy and Northeastern
US CHP. Downward pressure was also observed in the Spanish, Swedish
and UK markets and a discount reduction was applied to selected
investments in these geographies.
The Directors of the Company have received a report from a
third-party valuation expert to benchmark the discount rates used
by the Investment Manager. The Directors noted that the discount
rates used by the Investment Manager were within the ranges advised
by the third-party expert.
The weighted average discount rate for the portfolio as at 31
March 2021 was 7.0% on an unlevered basis (March 2020: 7.5% and
September 2020: 7.5%). Approximately 0.4% of the reduction in the
year resulted from new core investments acquired at an unlevered
discount rate below the prevailing weighted average, although these
investments were acquired with leverage that allows the total
return of that investment to be at or in excess of the Company's
target returns. The remaining approximately 0.1% reduction in the
year reflected a general reduction of discount rates observed for
the energy efficiency asset class.
(iv) Balance of portfolio return:
This refers to the balance of valuation movements in the year
(excluding (i) to (iii) above) and which provided an uplift of
GBP29,420k. The balance of portfolio return reflects the net
present value of the cash flows unwinding over the period at the
average prevailing portfolio discount rate and various additional
valuation adjustments described below. The balance of portfolio
return accounted for an increase above the rebased valuation of
GBP532,074k of 5.9% although it is approximately 7.3% when
adjusting for the Onyx acquisition which was a material acquisition
that occurred near the end of the year and did not contribute to
the return on account of the fair value being equal to the upfront
cost.
The valuation includes a provision of approximately GBP9 million
for EU-ETS costs in Spain where five of the projects in the Oliva
Spanish Cogeneration portfolio pays EU ETS in respect of
cogeneration and where the market has experienced significant and
sharp rises in these costs over the last few months. Under the RoRi
regime, the projects receive compensation given its environmental
attributes. The March 2021 valuation includes an assumption that
compensation is received in later years under the RoRi regime but
the Investment Manager has applied a significant provision for this
compensation falling below market expectations and the intended
make-whole spirit of the regulatory mechanism. Should no
compensation be received, it is expected to have a further
approximately GBP7m impact on the valuation.
A report was commissioned from an independent third-party
specialist technical adviser for this valuation to review the
commercial viability of useful life extensions in underlying assets
in Primary Energy. The report confirmed the viability of extending
cash flows for a further 10 years beyond the prevailing assumption
of 2044. The Investment Manager however applied a significant risk
premium above the applied discount rate for these projects when
valuing this ten-year extension.
Operational savings identified in Gasnätet of approximately GBP5
million has been materially offset by a general increase on
insurance costs across the portfolio in future years.
Impact of COVID-19 on the valuation
The Investment Manager has reviewed the impact of the COVID-19
pandemic on the portfolio during the year, and the overall impact
on the financial performance and cash flow projections has not had
a material impact on the Portfolio Valuation and NAV.
As described further in the Investment Manager's report, the
COVID-19 pandemic caused some operational and financial disruption
to certain assets, of which the key impacts are listed below:
-- It was the direct cause for the idling of a blast furnace
where the Ironside contract's revenues were impacted between April
and August 2020.
-- The construction commissioning phase of Huntsman Energy
Centre and installations of rooftop solar on Tesco sites in the UK
were delayed during the initial hard lockdown period in the UK
spring.
-- In Spain, the localised lockdowns and impact of the initial
wave of the COVID-19 pandemic caused electricity prices to drop
below our assumptions - this caused lower than expected returns in
the period which is however mitigated by the RoRi regulatory
mechanism which provides a level of downside protection through
boosted overall returns that only materialises in future years.
-- Lower than expected revenue from delivering gas to restaurant
customers in Stockholm in the Gasnätet project, which has also been
assumed to continue in the near term and therefore continue to
adversely affect near-term cash flows and valuation.
Notwithstanding these specific impacts of the COVID-19 pandemic,
and with the exception of Ironside noted above, all operational
assets continued to provide energy services throughout the period.
As a result of this, cash flows have remained good and the overall
valuation has not experienced a material impact from the COVID-19
pandemic.
Valuation assumptions
31 March 2021 30 September 31 March 2020
2020
Inflation UK (RPI) 2.75% p.a. 2.75% p.a. 2.75% p.a.
rates
UK (CPI) 2.00% p.a. 2.00% p.a. 2.00% p.a.
Spain (CPI) 1.0% to 1.4% 1.40% - 2.00% 1.40% - 2.00% p.a.
until 2023, 2.00% p.a.
p.a. long-term
Sweden 1.4% to 1.7% n/a n/a
(CPI) until 2023, 2.00%
p.a. long-term
Singapore 2.00% p.a. n/a n/a
(CPI)
USA (CPI) 2.00% p.a. 2.00% p.a. 2.00% p.a.
19% to 2023,
Tax rates UK 25% thereafter 19% 19%
Spain 25% 25% 25%
Sweden 21.4% n/a n/a
Singapore 17% n/a n/a
USA 21% Federal and 21% Federal and 21% Federal and
3-9% State rates 3-9% State rates 3-9% State rates
Foreign exchange
rates EUR/GBP 0.85 0.91 0.88
SEK/GBP 0.08 n/a n/a
SGD/GBP 0.54 n/a n/a
USD/GBP 0.73 0.77 0.80
Key sensitivities
For each of the sensitivities, it is assumed that potential
changes occur independently of each other with no effect on any
other base case assumption, and that the number of investments in
the portfolio remains static throughout the modelled life.
Discount rate sensitivity
The weighted average discount rate that is applied to each
portfolio company's forecast cash flow, is the single most
important judgement and variable for the purposes of valuing the
portfolio.
A 0.5% increase in the discount rates would result in a NAV per
share decrease of 4.1p based on the Portfolio Valuation as at 31
March 2021. A 0.5% decrease in the discount rates would result in a
NAV per share increase of 4.4p based on the Portfolio Valuation as
at 31 March 2021.
Corporation tax rate sensitivity
This sensitivity considers a 5% p.a. movement in corporation tax
rates in each country where an investment is held - for the
valuation as at 31 March 2021 this included UK, Spain, Sweden,
Singapore and USA. The profits of each portfolio company are
subject to corporation tax in the country where the project is
located.
A 5% p.a. increase in corporation tax rates would result in a
NAV per share reduction of 3.0p based on the Portfolio Valuation as
at 31 March 2021. A 5% p.a. decrease in corporation tax rates would
result in a NAV per share increase of 3.0p based on the Portfolio
Valuation as at 31 March 2021.
The sensitivity is shown on the basis that corporation tax rates
remain as the sensitised level for the remainder of any period in
which cash flow is assumed for that project and that no mitigations
that may be available are applied. Key mitigants available include
portfolio structuring changes including gearing, and the option
available to the Company to use interest streaming of dividends to
shareholders in the future, whereby a portion of the dividend
distribution is designated as interested, allowing net taxable
interest income to be reduced.
The sensitivity mainly shows the unmitigated impact of changes
in US, Swedish and Spanish tax rates. The exposure to UK
corporation tax at project level has negligible sensitivity to the
sensitised movements in UK corporation tax rates, including the
impact of the expected future tax rises announced by the UK
government, because of UK entities within the group being able to
offset aggregate profits and losses.
Inflation rate sensitivity
This sensitivity considers a 0.5% p.a. movement in long-term
inflation in the underlying investment cash flows.
A 0.5% p.a. increase in inflation rates would result in a NAV
per share increase of 0.8p based on the Portfolio Valuation as at
31 March 2021. A 0.5% p.a. decrease in inflation rates would result
in a NAV per share reduction of 0.7p based on the Portfolio
Valuation as at 31 March 2021.
The Company's portfolio includes investments that benefit from
fixed or escalating revenues that are not directly linked to
inflation. This includes the assets in Primary Energy where
periodic recontracting is assumed in the valuation. It is assumed
that the renewed revenue contracts entered into in future years
reset the revenues at such a level that it materially offsets
increases to project level costs such as O&M that is materially
inflation-linked. Within the portfolio of Oliva Spanish
Cogeneration assets there is some natural offsetting or protection
between revenues and costs for inflation increases and decreases.
The assumption in the Gasnätet project is that the regular renewals
of customer contracts (typically annually) include inflationary
increases to the tariffs charged, however it is also assumed that
this would not result in the charges being above the regulatory cap
and therefore the full inflationary increase is not passed on to
the customer each time. In the current portfolio there are several
assets with no or negligible exposure to inflation, notably the
assets in the UK and the senior debt loan investments in Spark US
Energy Efficiency I and II.
The Investment Manager aims to construct and maintain a
portfolio that generates year-on-year revenue growth on a
progressive basis. The Investment Manager does not aim to construct
and maintain a portfolio of assets with direct inflation-linked
returns, however it targets any potential portfolio downside
inflation impact to be broadly offset through revenue growth over
the medium to long-term. Should the long-term exposure increase
adversely, the Investment Manager will consider implementing
mitigant strategies that include, but are not limited to,
hedging.
Foreign exchange rate sensitivity
This sensitivity considers a 10% movement in relevant non-GBP
currencies, which in the case of the Portfolio Valuation at 31
March 2021 is US Dollar, Singapore Dollar, Swedish Krona and Euro,
from the foreign exchange rates used at 31 March 2021 - the
sensitivity is shown below pre and post mitigation from
hedging.
This sensitivity is presented after considering the effect of
hedging implemented by the Company. Using historical levels of
hedging and the Company's hedging strategy as described in
Financial Review as a guide, at an assumed level of 90% hedging, a
10% increase (strengthening of GBP) in foreign exchange rates would
result in a NAV per share reduction of 0.7p and 10% decrease
(weakening of GBP) in foreign exchange rates would result in a NAV
per share increase of 0.8p.
Without any hedging, a 10% increase (strengthening of GBP) in
foreign exchange rates would result in a NAV per share reduction of
6.8p based on the Portfolio Valuation as at 31 March 2021. A 10%
decrease (weakening of GBP) in foreign exchange rates would result
in a NAV per share increase of 7.9p based on the Portfolio
Valuation as at 31 March 2021.
Please refer to Note 3 in the Notes to the Financial Statements
for further detail.
Viability Statement
The viability assessment period
The Directors have assessed the prospects of the Company over a
five-year period to 31 March 2026. Consistent with prior years, the
Directors have determined that a five-year period is an appropriate
period over which to provide this viability statement as this
period accords with the Company's business planning exercises and
is appropriate for the investments owned by the Company and the
nature of the Company.
Assessment process
In making this statement the Directors have considered the
resilience of the Company, taking account of its current position,
the principal risks facing the business in severe but plausible
downside scenarios, and the effectiveness of any mitigating
actions.
The Company benefits from investments where the majority have
predictable long-term cash flows and a set of risks that can be
identified and assessed and would not be expected to change
materially from one period to the next. The investments are each
supported by detailed financial models and the investments that
have financing in place have done so on a non-recourse basis to the
Company. The Directors believe that the diversification within the
portfolio of predominantly operational investments helps to
withstand and mitigate for the risks it has identified that the
Company may face.
The Investment Manager prepared and the Directors reviewed
five-year cash flow projections as part of business planning,
including as part of the approval process of the Company's budget
and business plan, and to approve dividends on a quarterly basis
after reviewing medium-term cash flow projections. The projections
consider cash flows, dividend cover, Investment Policy compliance
and other key financial indicators over the period. These
projections are based on the Investment Manager's expectations of
future asset performance, income and costs, and are consistent with
the methodology applied to provide the valuation of the investments
during the year.
The Directors received updates from the Investment Manager
during the year of the actual and likely impact of COVID-19 on the
portfolio which included reports on any operational disruption to
the underlying investments and the impact on the projected cash
flows from the investments as part of the Investment Manager's
valuation updates.
The Investment Manager provided analysis on these projections at
various points through the year that considers the potential impact
of the Company's principal risks actually occurring in severe but
plausible downside scenarios.
The Audit & Risk Committee had the opportunity to review and
challenge the scenario analysis which included the potential
adverse impact of the scenarios detailed below on the Company's
projected near-term, medium and long-term cash flows and the
associated effect on ability to pay dividends, to settle ordinary
liabilities and on earnings and the NAV.
Scenarios reviewed and impact
The Investment Manager selected these scenarios on the basis
that each could be reasonably assumed as a downside but plausible
impact caused by COVID-19 affecting the Company directly or
indirectly
-- significant one-off adverse changes to foreign exchange rates
of 20%, placing immediate liquidity demands on the Company and
Holdco of approximately GBP13 million;
-- global corporation tax rate rises of 10%, resulting in a 5%
reduction in value of the Portfolio Valuation and therefore NAV of
the Company;
-- counterparty credit deterioration, resulting in an immediate
full credit default by the largest counterparty causing a loss of
future revenues and approximately 15% reduction in value of the
Portfolio Valuation and therefore NAV of the Company;
-- significant cash drag after capital raisings should GBP150m
be raised but not deployed, resulting in a decline of NAV over time
if projected dividend payments by the Company are maintained;
and
-- a significant adverse impact of a 50% increase of EU-ETS
costs in Spain, resulting in a 7% reduction in value of the
Portfolio Valuation and therefore NAV of the Company.
The Audit & Risk Committee reviewed and challenged the
Investment Manager on each of the scenarios presented, including
reviewing the likelihood of the risks of the scenarios
materialising and the potential mitigants that the Investment
Manager may apply to reduce any potential downside risk. The Audit
& Risk Committee concluded that the scenarios, each prepared
individually, demonstrated good resilience of the Company against
adverse factors impacting its portfolio. The Investment Manager
also provided the Audit & Risk Committee with a severe scenario
that calculated the extent of the loss in revenue required to
threaten the Company's solvency. The outcome of this scenario
provided comfort that the Company should remain viable over the
period assessed.
Confirmation of viability
Based on the reviews conducted throughout the year, the
Directors confirm that they have a reasonable expectation that the
Company will be able to continue in operation and meet its
liabilities as they fall due over the period to 31 March 2026.
On behalf of the Board
Tony Roper,
Chair
Directors' Responsibility Statement
The 2021 Annual Report which will be published in June 2021
contains a responsibility statement in compliance with DTR 4.1.12.
This states that on 24 June 2021, the date of the approval of the
Annual Report, the Directors confirm that to the best of their
knowledge:
-- the Company's financial statements, which have been prepared
in accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Company: and
-- the Strategic Report in the Annual Report includes a fair
review of the development and performance of the business and the
position of the Company, together with a description of the
principal risks and uncertainties that it faces.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 MARCH 2021
For the For the
year ended year ended
31 March 2021 31 March 2020
Note GBP'000 GBP'000
====================================== ===== =============== ===============
Income
Investment income 5 37,834 14,500
Total income 37,834 14,500
====================================== ===== =============== ===============
Fund expenses 6 (5,429) (2,888)
====================================== ===== =============== ===============
Operating profit 32,405 11,612
Profit for the year before tax 32,405 11,612
Tax 7 - -
====================================== ===== =============== ===============
Profit and total comprehensive
income for the
year after tax 32,405 11,612
====================================== ===== =============== ===============
Profit and total comprehensive
income for the
year attributable to:
Equity holders of the Company 32,405 11,612
====================================== ===== =============== ===============
Earnings Per Ordinary Share (pence) 8 7.0 5.2
====================================== ===== =============== ===============
The accompanying Notes are an integral part of these financial
statements.
All items in the above Statement derive from continuing
operations.
STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2021
31 March 2021 31 March 2020
Note GBP'000 GBP'000
==================================== ===== ==================== ====================
Non-current assets
Investment at fair value through
profit or loss 11 572,574 254,095
==================================== ===== ==================== ====================
572,574 254,095
Current assets
Trade and other receivables 12 401 1,840
Cash and cash equivalents 2 122,059 68,179
122,460 70,019
Current liabilities
Trade and other payables 13 (1,229) (584)
==================================== ===== ==================== ====================
Net current assets 121,231 69,435
Net assets 693,805 323,530
==================================== ===== ==================== ====================
Capital and reserves
Share capital 14 6,771 3,204
Share premium 14 584,437 219,721
Other distributable reserves 14 58,165 88,578
Retained earnings 44,432 12,027
==================================== ===== ==================== ====================
Total equity 693,805 323,530
==================================== ===== ==================== ====================
Net assets per share (pence) 10 102.5 101.0
==================================== ===== ==================== ====================
The accompanying Notes are an integral part of these financial
statements.
The financial statements for the year ended 31 March 2021 of
SDCL Energy Efficiency Income Trust plc, were approved and
authorised for issue by the Board of Directors on 24 June 2021.
Signed on behalf of the Board of Directors:
Helen Clarkson Tony Roper
Director Director
Company number: 11620959
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARED 31 MARCH 2021
Share Share Other distributable Retained
Capital Premium reserves earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================= ===== ========= ========== ==================== ========== =========
Balance at 1 April 2020 3,204 219,721 88,578 12,027 323,530
Shares issued 14 3,567 371,433 - - 375,000
Share issue costs 14 - (6,717) - - (6,717)
Dividends paid 9 - - (30,413) - (30,413)
Profit and total comprehensive
income for the year - - - 32,405 32,405
================================= ===== ========= ========== ==================== ========== =========
Balance at 31 March 2021 6,771 584,437 58,165 44,432 693,805
======================================== ========= ========== ==================== ========== =========
Share Share Other distributable Retained
Capital Premium reserves earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================= ===== ========= ========== ==================== ========== =========
Balance at 1 April 2019 1,000 - 97,000 415 98,415
Shares issued 2,204 223,876 - - 226,080
Share issue costs - (4,155) - - (4,155)
Dividends paid 9 - - (8,422) - (8,422)
Profit and total comprehensive
income for the year - - - 11,612 11,612
================================= ===== ========= ========== ==================== ========== =========
Balance at 31 March 2020 3,204 219,721 88,578 12,027 323,530
======================================== ========= ========== ==================== ========== =========
The accompanying Notes are an integral part of these financial
statements.
STATEMENT OF CASH FLOWS
FOR THE YEARED 31 MARCH 2021
For the For the
year ended year ended
31 March 2021 31 March 2020
Note GBP'000 GBP'000
=========================================== ===== ================== ================
Cash flows from operating activities
Operating profit for the year 32,405 11,612
Adjustments for:
Gain on investment at fair value
through profit or loss (15,021) (11,895)
Loan Interest Income 5 (2,684) (939)
Operating cash flows before movements
in working
capital 14,700 (1,222)
Changes in working capital
Decrease in trade and other receivables 12 1,440 161
Increase/(Decrease) in trade and
other payables 13 645 (2,342)
Net cash generated from/(used in)
operating activities 16,785 (3,403)
Cash flows from investing activities
Investment in subsidiary (316,479) (180,866)
Loan 13,021 -
principal
repayment
received
Loan
Interest
Income
Received 2,684 939
=========================================== ===== ================== ================
Net cash used in investing activities (300,774) (179,927)
Cash flows from financing activities
Proceeds from the issue of shares 14 375,000 226,080
Payment of share issue costs 9 (6,718) (3,076)
Dividends paid (30,413) (8,422)
=========================================== ===== ================== ================
Net cash generated from financing
activities 337,869 213,502
Net movement in cash and cash equivalents
during the
year 53,880 30,172
Cash and cash equivalents at the
beginning of the
year 2 68,179 38,007
=========================================== ===== ================== ================
Cash and cash equivalents at the
end of the year 2 122,059 68,179
=========================================== ===== ================== ================
The accompanying Notes are an integral part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 31 MARCH 2021
1. General Information
The Company is incorporated in England and Wales under number
11620959 pursuant to the Companies Act 2006 and is domiciled in the
United Kingdom. The Company's registered office and principal place
of business is 6(th) Floor, 125 London Wall, London, EC2Y 5AS. The
Company was incorporated on 12 October 2018 and is a Public Company
and the ultimate controlling party of the group.
The Company's ordinary shares were first 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 under the ticker
SEIT on 11 December 2018.
The Company's objective is to generate an attractive total
return for investors comprising stable dividend income and capital
preservation, with the opportunity for capital growth through the
acquiring and realising of a diverse portfolio of energy efficiency
infrastructure projects.
The Company currently makes its investments through its
principal holding company and single subsidiary, SEEIT Holdco
Limited ("Holdco"), and intermediate holding companies which are
directly owned by the Holdco. The Company controls the investment
policy of each of the Holdco and its intermediate holding companies
in order to ensure that each will act in a manner consistent with
the investment policy of the Company.
The Company has appointed Sustainable Development Capital LLP as
its Investment Manager (the "Investment Manager") pursuant to the
Investment Management Agreement dated 22 November 2018. The
Investment Manager is registered in England and Wales under number
OC330266 pursuant to the Companies Act 2006. The Investment Manager
is regulated by the FCA, number 471124.
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 information set out above does not constitute the
Company's statutory financial statements for the years ended 31
March 2021 or 2020 but is derived from those financial statements.
Statutory financial statements for 2020 have been delivered to the
registrar of companies, and those for 2021 will be delivered in due
course. The auditors have reported on those financial statements;
their reports were (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
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.
The principal accounting policies adopted are set out below and
consistently applied, subject to changes in accordance with any
amendments in IFRS.
(i) New Accounting Standards, amendments to existing Accounting
Standards and/or interpretations of existing Accounting Standards
(separately or together, "New Accounting Requirements") adopted
during the current year
There are no standards, amendments to standards or
interpretations that are effective for annual
periods beginning on 1 April 2020 that have a material effect on
the financial statements of the Company nor the value of
investments. This includes the following standards which the
Company adopted during the year
-- Amendments to References to the Conceptual Framework in IFRS Standards
-- Definition of a Business (Amendments to IFRS 3)
b) IFRS 10 - basis of consolidation and Investment entities exemption
The Company applies IFRS 10 Consolidated Financial Statements.
As in the previous period, the Directors have concluded that in
accordance with IFRS 10, the Company continues to meet the
definition of an investment entity having re-evaluated the criteria
(see below) that needs to be met. The financial statements
therefore comprise the results of the Company only and no
subsidiaries are consolidated on a line by line basis.
The Company invests its investable cash into SEEIT Holdco
Limited (the "Holdco") when a targeted investment has been approved
by the Investment Manager's Investment Committee. The sole
objective of the Holdco is to enter into several energy efficiency
projects, via individual corporate entities. The Holdco issues
equity and loans to finance the projects. Holdco also incurs
overheads and borrowings on behalf of the group. As a result, the
Directors have provided an alternative presentation of the
Company's results in the Strategic Report which includes a
consolidation of Holdco.
Under IFRS 10 investment entities are required to hold
subsidiaries at fair value through the Statement of Comprehensive
Income rather than consolidate them. There are three key conditions
to be met by the Company for it to meet the definition of an
investment entity. For each reporting period, the Directors assess
whether the Company continues to meet these conditions:
(i) The Company has obtained funds for the purpose of providing
investors with investment management services;
(ii) The business purpose of the Company, which was communicated
directly to investors, is investing solely for risk-adjusted
returns (including having an exit strategy for investments);
and
(iii) The performance of substantially all investments is
measured and evaluated on a fair value basis.
The Company is an investment company, providing investors
exposure to a diversified portfolio of energy efficiency
infrastructure projects that are managed for investment
purposes.
During the year ended 31 March 2021, the Company, via Holdco,
made significant new investments, notably in Sweden and the USA,
and as a result the size of the Company significantly increased.
These investments are described in Note 11. These investments were
made in line with the stated objective of the Company to generate
returns from capital appreciation and investment income in
accordance with the strategy that has been set by the Directors.
The Directors assessed each new investment carefully in order to
determine whether the Company as a whole still meets the definition
of an investment entity.
As part of the assessments the Directors had regard for the
nature of the underlying business and operations and the exit
strategy of each new investment and how that compared to the
already existing portfolio. The Company's exit of investments may
be at the time each asset reaches its current assumed end of
economic life. At this point it could be possible for the Company
to remain invested subject to contractual negotiations, economic
viability and investment policy of the Company at the time. The
Company is investing in a sector for which there is an active
secondary market and therefore the Company may also exit
investments at an earlier stage for profit or for portfolio
rationalisation purposes.
The assessments concluded that the new investments shared
similar characteristics to the existing investments, are in line
with the business purpose of the Company and that each has an
appropriate exit strategy. In particular, the Directors noted
that:
-- the underlying businesses and the structure of the new
investments are in keeping with the existing portfolio through the
provision of energy efficiency services to clients, or host
counterparties, predominantly through long-term contracted
agreements
-- The underlying business are set up as Special Purpose
Vehicles (SPV's) and although each SPV can have an indefinite life,
the equipment associated with providing such services have finite
lives, are capable of being upgraded or sold and the contracts can
be renewed
-- As part of the exit strategy for each new investment, the
structure of that investment is such that it could be readily made
available for sale (further information on exit strategy for new
investments can be found in Investment Manager's Report)
-- Each new investment is measured at fair value.
After assessing whether the Company meets the definition of an
investment entity set out in IFRS 10 the Directors concluded that
as a whole:
(i) the Company has multiple investors with shares issued
publicly on London Stock Exchange and obtains funds from a diverse
group of shareholders who would otherwise not have access
individually to investing in energy efficiency projects;
(ii) the Company's purpose is to invest funds for both
investment income and capital appreciation. The Holdco and its SPVs
have indefinite lives however the underlying assets have minimal
residual value because they do not have unlimited lives, are not to
be held indefinitely and have appropriate exit strategies in place;
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. The Directors 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 meets all the
typical characteristics of an investment entity and therefore meets
the definition set out in IFRS 10. The Directors believe the
treatment outlined above provides the most relevant information to
investors.
c) Going concern
The Company's business activities and performance are set out in
the Strategic Report and the Viability Statement. The Financial
Review sets out the Company's financial position, cash flows,
liquidity position and the borrowing facilities of Holdco. The
Notes to the Financial Statements also sets out the Company's
financial risk management policies.
Investment diversification and cash
The Company, through its investment in Holdco, benefits from a
portfolio of investments that have a range of long-term contracts
with a diversified set of counterparties across multiple sectors
and jurisdictions. A key risk facing the Company is that
counterparties to the investments may not be able to make their
contractual payments. The Company has prepared and the Directors
have reviewed a cash flow forecast covering the minimum period of
twelve months from the date of approval of this report, taking into
consideration potential changes in investment and trading
performance and applying a 10% reduction in revenues to test the
resilience of cash flows in the near term. The forecast
demonstrates an expectation to continue to generate positive cash
flows for the foreseeable future that as a minimum will meet
liabilities as they fall due. The Directors reviewed a severe
downside scenario where the Company would not receive any further
income from its investment for the next 12 months from signing of
the financial statements and taking into account all committed
payments for running the Company, the Company would have sufficient
cash reserves to continue as a going concern.
As at 31 March 2021, the Company's net current assets were
GBP121.2m, including cash balances of GBP122 million. Further
amounts of cash are held by the Company's direct and indirect
subsidiaries, which are sufficient to meet current obligations as
they fall due. The major cash outflows of the Company are the
payment of dividends and payments relating to the acquisition of
new assets, both which are discretionary.
Credit Facility
The Company's single subsidiary, Holdco, has a RCF that has
adequate headroom in its covenants that have been tested for
historic and forward interest cover and group loan to value limits.
As at 31 March 2021 the facility was undrawn. The Company is a
guarantor to the RCF (see Note 19) but has no other guarantees or
commitments.
COVID-19
In the year to 31 March 2021 and up to the date of this report,
the outbreak of the COVID-19 pandemic has continued to have a
negative impact on the global economy which has raised some
uncertainties and additional risks for the Company. The Directors
of the Company and the Investment Manager continue to follow
government guidelines in relation to COVID-19 pandemic in all the
jurisdictions its investments operate to ensure best practices are
followed. Although certain investments, notably projects in Oliva
Spanish Cogeneration and Primary Energy, suffered from operational
disruption due to COVID-19 which affected financial performance,
during the year ended 31 March 2021 and up to the date of approval
of the financial statements, there has not been a material impact
to the Company, its investment in Holdco and its indirect
subsidiaries to carry out its operations and receive the expected
return from its investments. Further details of the COVID-19 impact
on the operations and valuation of the investments are provided in
the Investment Manager's Report and Valuation of the Portfolio of
the Strategic Report.
The Directors do not believe there is a significant risk to the
Company from COVID-19 pandemic but along with the Investment
Manager, continues to monitor the portfolio for material impact
from the COVID-19 pandemic.
The Directors are satisfied that the Company has sufficient
resources to continue in operation for the foreseeable future, a
period of not less than 12 months from the date of approval of the
financial statements. The Directors have reviewed the Company's
financial projections and cash flow forecasts, including the
potential impact from COVID-19 and believe, based upon those
projections and forecasts and various risk mitigation measures in
place, that it is appropriate to prepare the financial statements
on a going concern basis.
d) Segmental reporting
The Chief Operating Decision Maker ("CODM") being the Board of
Directors, is of the opinion that the Company is engaged in a
single segment of business, being investment in energy efficiency
projects to generate investment returns whilst preserving capital.
The financial information used by the CODM to manage the Company
presents the business as a single segment.
e) Foreign Currency Translation
Foreign currency and presentation currency
Items included in the financial statements of the Company are
measured using the currency of the primary economic environment in
which the entity operates, the Company's functional currency. The
financial statements are presented in Pounds Sterling which is the
Company's functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into Pounds
Sterling using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income.
f) Income
Dividend income and investment income from financial assets at
fair value through profit or loss is recognised in the Statement of
Comprehensive Income within investment income when the Company's
right to receive payments is established.
Fair value gains on financial assets at fair value through
profit or loss are recognised in the Statement of Comprehensive
Income at each valuation point.
Finance income comprises interest earned on cash held on
deposit. Finance income is recognised on an accruals basis. Loan
interest income is accounted for on an accruals basis using the
effective interest method.
g) Dividends payable
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
they are approved by the shareholders at the AGM.
h) Fund Expenses
All expenses including investment management fees, transaction
costs, non-executive directors' fees are accounted for on an
accruals basis. Share issue expenses of the Company directly
attributable to the issue and listing of shares are charged to the
share premium account.
i) Acquisition costs
Acquisition costs are expensed to the Income Statement as they
are incurred.
j) Taxation
The Company is liable to UK corporation tax on its income.
Current tax is the expected tax payable on the taxable income for
the period, using tax rates that have been enacted or substantively
enacted at the date of the Statement of Financial Position. Fair
value movements and dividends received by the Company are exempt
from UK corporation tax.
k) Cash and cash equivalents
Cash and cash equivalents include deposits held at call with
banks and other short-term deposits with original maturities of
three months or less. The majority of cash is held at the Money
market fund managed by JP Morgan. It is highly liquid investment
and readily convertible to a known amount of cash. There is no
expected credit loss as the bank institutions have credit ratings
of at least BBB+ and all cash is held at call from the banks.
l) Financial instruments
Financial assets and financial liabilities are recognised in the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. Financial
assets 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 IFRS 9
Financial instruments.
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.
The Company classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value through
profit or loss; and
-- those to be measured at amortised cost.
At initial recognition, the Company measures investments in
energy efficiency projects at its transaction price net of
transaction costs that are directly attributable to the acquisition
of the financial asset. The Company subsequently measures all
investments at fair value and changes in the fair value are
recognised as gains/(losses) on investments at fair value through
profit or loss within investment income.
m) Trade and other receivables
Trade and other receivables are non-derivative financial assets
with fixed or determinable payments that not quoted in an active
market. Those includes Prepayments, VAT Receivable and other
receivables which are intercompany balances due from subsidiary.
Receivables are initially recognised at fair value. They are
subsequently measured at amortised cost, less any expected credit
loss.
The Company has assessed IFRS 9's expected credit loss model and
does not consider any impact on these financial statements.
n) Trade and other payables
Trade and other payables include accruals and other payables and
initially are recognised at fair value, and subsequently
re-measured at amortised cost using the effective interest
method.
o) Share Capital and share premium
The Company's ordinary shares are not redeemable and are
classified as equity. Incremental costs directly attributable to
the issue of ordinary shares and share options are recognised as a
deduction in equity and are charged from the share premium account.
The costs incurred in relation to the IPO and subsequent
fundraisings of the Company were charged from the share premium
account.
3. Critical accounting estimates and judgements
The preparation of financial statements in accordance with IFRS
requires the Directors to make judgements, estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
income and expense during the year. Actual results could differ
from those estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision only affects that period or in the period and future
periods if the revision affects both current and future
periods.
Judgements
Investment entity
As disclosed in Note 2, the Directors have concluded that the
Company continues to meet the definition of an investment entity as
defined in IFRS 10, IFRS 12 and IAS 27. This conclusion involved a
degree of judgement and assessment as to whether the Company met
the criteria outlined in the accounting standards.
Estimates
Investment valuations
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 indirectly through the Holdco and its
intermediate holding companies.
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.
Fair values for those investments for which a market quote is
not available, in this instance being all investments, are
determined using the income approach which discounts the expected
cash flows at the appropriate rate. The investment at fair value
through profit or loss is valued by discounting future cash flows
to the group from investments in both equity cash flows, such as
dividends and equity redemptions, and subordinated loans cash
flows, such as interest and principal repayments, at an appropriate
discount rate for the underlying asset.
The weighted average discount rate applied in the 31 March 2021
valuation was 7.0% (2020: 7.5%). The discount rate is considered
one of the most unobservable inputs through which an increase or
decrease would have a material impact on the fair value of
investment at fair value through profit or loss.
The Portfolio Valuation at 31 March 2021 includes estimates of
future cash flows that have the potential to have a material effect
on measurement of fair value. For the five assets in the Primary
Energy, estimates have been made to determine the demand for
generation by the off takers , the revenues that can be generated
from selling renewables credits and the cash flows that can be
generated through recontracting with the counterparty after the
expiry of the existing contract terms. In Oliva Spanish
Cogeneration, estimates have been included in the Portfolio
Valuation for future compensation of EU-ETS costs. The actual
compensation to be received has the potential to be materially
different to expected future cash flows, for example zero
compensation could result in an adverse impact of approximately
GBP5 million on the current estimate.
Further estimates have been made on the key macroeconomic
assumptions that are likely to have a material effect on the
measurement of fair value being inflation, corporation tax and
foreign exchange which are further described in Note 4.
4. Financial Instruments
Valuation methodology
As detailed in Note 11 and Valuation of the Portfolio, the
Company has a single investment directly wholly owned holding
company (Holdco). It recognises this investment at fair value. To
derive the fair value of Holdco, the Company determines the fair
value of investment held directly or indirectly by Holdco and
adjust for any other assets and liabilities. See Note 11 for a
reconciliation of this fair value. The valuation methodology
applied by Holdco to determine the fair value of its investments is
described below.
The Directors have satisfied themselves as to the methodology
used and the discount rates and key assumptions applied in
producing the valuations. All investments are at fair value through
profit or loss.
For non-market traded investments (being all the investments in
the current portfolio), the valuation is based on a discounted cash
flow methodology and adjusted in accordance with the IPEV
(International Private Equity and Venture Capital) valuation
guidelines where appropriate to comply with IFRS 13 and IFRS 9,
given the special nature of infrastructure investments. Where an
investment is traded in an open market, a market quote is used.
The Investment Manager exercises its judgment in assessing the
expected future cash flows from each investment based on the
project's expected life and the financial models produced for each
project company and adjusts the cash flows where necessary to take
into account key external macro-economic assumptions and specific
operating assumptions.
The fair value for each investment is then derived from the
application of an appropriate market discount rate for that
investment to reflect the perceived risk to the investment's future
cash flows and the relevant period end foreign currency exchange
rate to give the present value of those cash flows. The discount
rate takes into account risks associated with the financing of an
investment such as investment risks (e.g. liquidity, currency
risks, market appetite), any risks to the investment's earnings
(e.g. predictability and covenant of the income) and a thorough
assessment of counterparty credit risk, all of which may be
differentiated by the phase of the investment. Specific risks
related to each asset that can be attributed to the COVID-19
pandemic are assessed and where required, adjustments are made to
expected future cash flows or reflected in the asset specific
discount rate that is applied.
Fair value measurement by level
IFRS 13 requires disclosure of fair value measurement by level.
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; and
-- Level 3 inputs are unobservable inputs for the asset or liability.
The following summarises the significant methods and assumptions
used in estimating the fair values of financial instruments.
Investment at fair value through Level 1 Level 2 Level 3
profit or loss GBP'000 GBP'000 GBP'000
================================== ========== ============== =============
31 March 2021 - - 572,574
31 March 2020 - - 254,095
================================== ========== ============== =============
The Company's indirect investments have been classified as level
3 as the investments are not traded and contain unobservable
inputs. As the fair value of the Company's equity and loan
investments in the Holdco is ultimately determined by the
underlying fair values of the SPV investments or debt schedules,
the Company's sensitivity analysis of reasonably possible
alternative input assumptions is the same across all its
investments. The reconciliation of Level 3 fair value is disclosed
in Note 11.
Valuation Assumptions
31 March 2021 31 March 2020
================== =============================================== =========================
Inflation rates UK (RPI) 2.75% p.a. 2.75% p.a.
UK (CPI) 2.00% p.a. 2.00% p.a.
================== ================== ============================ =========================
Spain (CPI) 1.0% to 1.4% until 1.1% in 2020, 1.6% in
2023, 2.0% long-term 2022 and 2.0% 2023 and
thereafter
================== ================== ============================ =========================
USA (CPI) 2.00% p.a. 2.00% p.a.
================== ============================ =========================
Singapore (CPI) 2.00% p.a. n/a
================== ============================ =========================
Sweden (CPI) 1.4% to 1.7% until n/a
2023, 2.0% long-term
================== ================== ============================ =========================
Tax rates UK 19% to 2023, 25% thereafter 19%
================== ================== ============================ =========================
Spain 25% 25%
================== ============================ =========================
USA 21% Federal & 3-9% 21% Federal & 3-9% State
State rates rates
================== ============================ =========================
Singapore 17% n/a
================== ============================ =========================
Sweden 21.4% n/a
================== ================== ============================ =========================
Foreign exchange
rates USD/GBP 0.73 0.80
================== ================== ============================ =========================
EUR/GBP 0.85 0.88
================== ============================ =========================
SGD/GBP 0.54 n/a
================== ============================ =========================
SEK/GBP 0.08 n/a
================== ============================ =========================
Discount rates
The discount rates used for valuing each investment are
described in the Valuation Methodology section above.
The discount rates used for valuing the investments in the
portfolio are as follows:
31 March 2021 31 March 2020
==================================== ================== ==================
Weighted Average discount rate (on
unlevered basis) 7.0% 7.5%
Discount rates 4.5% to 10.0% 4.5% to 8.5%
==================================== ================== ==================
Sensitivities
The sensitivities below show the effect on Net asset value of a
assuming a different range for each key input assumption, in each
case applying a range that is considered to be a reasonable and
plausible outcome for the market in which the Company has
invested.
Discount rates
A change to the weighted average discount rate by plus or minus
0.5% has the following effect on the NAV.
Discount rate NAV/share -0.5% Net asset +0.5% change NAV/share
impact change value impact
=============== =========== ============= ================ ================= ==============
31 March 2021 4.4p GBP29,854k GBP693,805 (GBP27,553k) (4.1p)
=============== =========== ============= ================ ================= ==============
31 March 2020 4.1p GBP13,101k GBP323,530k (GBP12,322k) (3.8p)
=============== =========== ============= ================ ================= ==============
Inflation rates
The Portfolio Valuation assumes long-term inflation as indicated
above in the UK, USA and Spain. A change in the inflation rate by
plus or minus 0.5% has the following effect on the NAV, with all
other variables held constant.
Inflation NAV/share -0.5% NAV/share
rate impact change Net asset value +0.5% change impact
=========== ============== ================ ==================== ================= ==============
31 March
2021 (0.7p) (GBP5,069k) 693,805k GBP5,560k 0.8p
=========== ============== ================ ==================== ================= ==============
31 March
2020 1.0p GBP3,264k GBP323,530k (GBP4,242k) (1.3p)
=========== ============== ================ ==================== ================= ==============
Corporation tax rates
The Portfolio Valuation assumes tax rates based on the relevant
jurisdiction. A change in the corporation tax rate by plus or minus
5% has the following effect on the NAV, with all other variables
held constant.
Corporation NAV/share -5% NAV/share
tax rate impact change Net asset value +5% change impact
============= =========== =============== ==================== ================= ==============
31 March
2021 3.0p GBP20,025k GBP693,805k (GBP20,003k) (3.0p)
============= =========== =============== ==================== ================= ==============
31 March
2020 2.8p GBP8,812k GBP323,530k (GBP8,781k) 2.7p
============= =========== =============== ==================== ================= ==============
Foreign exchange rates
The Portfolio Valuation assumes foreign exchange rates based on
the relevant foreign exchange rates against GBP at the reporting
date. A change in the foreign exchange rate by plus or minus 10%
(GBP against Euro, Swedish Krona, Singapore Dollar and US Dollar)
has the following effect on the NAV, with all other variables held
constant. The effect is shown after the effect of current level of
hedging which reduces the impact of foreign exchange movements on
the Company's NAV.
Foreign exchange NAV/share -10% NAV/share
rate impact Change Net asset value +10% change impact
================== ============== ============ ==================== ================ ===========
31 March 2021 0.8p GBP5,342k GBP693,805k (GBP4,621k) (0.7p)
================== ============== ============ ==================== ================ ===========
31 March 2020 0.8p GBP2,618k GBP323,530k (GBP2,380k) (0.7p)
================== ============== ============ ==================== ================ ===========
5. Investment Income
Year ended Year ended
31 March 2021 31 March
GBP'000 2020
GBP'000
========================================== ================ =============
Dividend income 20,100 1,500
Gain on investment at fair value through
profit or loss (Note 11) 15,021 11,895
Interest income 2,713 1,105
================ =============
Investment income 37,834 14,500
========================================== ================ =============
Interest income is mainly in respect of coupon bearing loan
notes issued to the Company by Holdco (Note 17) but includes bank
interest of GBP29k for the year ended 31 March 2021 (March 2020:
GBP166k). The loan notes accrue interest at 6%, are unsecured and
repayable in full on 18 April 2039. Loan Interest income is
recognised on the Statement of Comprehensive Income on an accruals
basis. The gain on investment is unrealised.
Further information on Gain on investment at fair value can be
found in Valuation of the Portfolio of the Strategic Report.
6. Fund Expenses
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
============================================= ================ ================
Investment management fees (Note 17) 4,042 1,973
Non-executive directors' fees (Note 18) 156 125
Other expenses 913 610
Fees to the Company's independent auditors:
- for the audit of the statutory financial
statements 263 140
* for audit-related assurance services 55 40
Fund Expenses 5,429 2,888
============================================= ================ ================
As at 31 March 2021, the Company had no employees (31 March
2020: nil) apart from Directors in office. The Company confirms
that it has no key management personnel, apart from the Directors
disclosed. There is no other compensation apart from those
disclosed.
7. Tax
The tax for the year shown in the Statement of Comprehensive
Income is as follows .
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
Profit for the year before taxation 32,405 11,612
============================================== =============== ================
Profit for the year multiplied by the
standard rate of corporation tax of 19%
(2020: 19%) 6,157 2,206
Fair value movements (not subject to
UK taxation) (2,854) (2,260)
Dividends received (not subject to UK
taxation) (3,819) (285)
Surrendering of tax losses to unconsolidated
subsidiaries (for nil consideration) 516 339
============================================== =============== ================
Total tax charge - -
============================================== =============== ================
The corporation tax rate will increase from 19% to 25% with
effect from 1 April 2023.
8. Earnings per Ordinary Share
Year ended Year ended
31 March 2021 31 March 2020
============================================ ================ ===============
Profit for the year (GBP'000) 32,405 11,612
Weighted average number of ordinary shares
('000) 463,389 225,422
Earnings per ordinary share (pence) 7.0 5.2
============================================ ================ ===============
There is no dilutive element during the financial year and
subsequent to the financial year.
9. Dividends
Year ended Year ended
31 March 2021 31 March 2020
GBP'000 GBP'000
============================================= ==================== ===============
Amounts recognised as distributions to
equity holders during the year:
Interim dividend for the period ended 31
March 2019
of 1.0p per share - 1,713
First Interim dividend for the year ended
31 March 2020 of 2.5p per share - 6,709
Second Interim dividend for the year ended 8,010 -
31 March 2020 of 2.5p per share
First quarterly interim dividend for the 5,859 -
three-month period ended 30 June 2020 of
1.375p per share
Second quarterly interim dividend for the 7,234 -
three-month period ended 30 September 2020
of 1.375p per share
Third quarterly interim dividend for the 9,310 -
three-month period ended 31 December 2020
of 1.375p per share
============================================= ==================== ===============
All dividends have been paid out of distributable reserves.
Further information on distributable
reserves can be found in Note 14.
From the year beginning on 1 April 2020, the Company is paying
dividends on a quarterly basis compared to semi-annually
previously.
On 28 May 2021, the Company declared an interim dividend for the
three-month period ended 31 March 2021 of 1.375p per share which is
expected to result in a cash payment of approximately
GBP9.3 million on 30 June 2021.
10. Net assets per share
31 March 2021 31 March 2020
Shareholders' equity (GBP'000) 693,805 323,530
Number of ordinary shares ('000) 677,087 320,374
======================================= =============== ==============
Net assets per ordinary share (pence) 102.5 101.0
======================================= =============== ==============
11. Investment at fair value through profit or loss
The Company recognises the investment in Holdco, its single
directly owned holding company, at fair value. Holdco's fair value
includes the fair value of each of the individual project companies
and holding companies in which the Holdco holds a direct or an
indirect investment, along with the working capital of Holdco.
31 March 2021 31 March 2020
GBP'000 GBP'000
========================================== ================ ================
Brought forward investment at fair value
through profit or loss 254,095 61,334
Loan investments in year 42,000 36,200
Equity investments in year 274,479 144,666
Loan Principal repaid in year (13,021) -
Movement in fair value 15,021 11,895
Closing investment at fair value through
profit or loss 572,574 254,095
========================================== ================ ================
Movement in fair value is recognised through Investment Income
in the Statement of Comprehensive Income (see Note 5).
Of the closing investment at fair value through profit and loss
balance, GBP65,719k (March 2020: GBP36,200k) relates to loan
investment (also see Note 5) and GBP507,395k (March 2020:
GBP217,895k) relates to equity investment.
A reconciliation between the Portfolio Valuation (as described
in Valuation of the Portfolio), being the valuation of the
Investment Portfolio held by Holdco, and the Investment at fair
value through profit or loss per the Statement of Financial
Position is provided below. The principal differences are the
balances in Holdco for cash and working capital.
31 March 2021 31 March 2020
GBP'000 GBP'000
======================================== =================== ===================
Portfolio Valuation 552,672 319,802
Holdco cash 4,141 2,584
Holdco debt - (62,826)
Holdco net working capital 15,761 (5,465)
Investment at fair value per Statement
of Financial Position 572,574 254,095
======================================== =================== ===================
Acquisitions by the Company
During the year ended 31 March 2021, the Company invested
GBP316.5 million (31 March 2020: GBP180.9m) into the Holdco for new
portfolio acquisitions and repayment of debt. Of this funding,
Holdco used GBP64.2 million in June 2020 to repay drawings under
its RCF that was used to make acquisitions.
Portfolio Acquisitions, via Holdco
The Company announced the following investment activity in the
year:
-- In August 2020, the Company announced an aggregate
conditional investment commitment of up to GBP50 million to the EV
Networks project to acquire an initial 112 rapid and ultra-fast EV
charging stations across the UK. The commitment will be drawn down
in tranches, subject to meeting set criteria, with the first draw
down of capital expected to take place later this year.
-- In September 2020, an aggregate investment commitment of
GBP4.8 million was made to the GET Solutions project in relation to
acquiring a portfolio of energy efficiency projects in the UK. This
included an initial GBP1.7 million cash consideration with the
remaining amount paid in March 2021.
-- In October 2020, the Company announced the acquisition of its
first portfolio of energy efficiency projects in Singapore for a
cash consideration of approximately GBP2 million.
-- In October 2020, the Company announced the acquisition of a
100% interest in the Gasnätet project for a consideration of
approximately GBP107 million by acquiring Värtan Gas Stockholm AB,
the ultimate owner of the established, operational and regulated
gas distribution network for Stockholm, Sweden.
-- In December 2020 and January 2021, the Company invested
GBP30.6 million into Holdco to facilitate the additional investment
in PERC Midco LLC which increased the Company's ownership interest
in PERC Midco LLC to 65%.
-- In March 2021, the Company announced it had completed the
acquisition of a series of portfolios of commercial and industrial
on-site solar and energy storage projects in the United States,
together with a 50% interest in the platform that has created them,
Onyx Renewable Partners, from funds managed by Blackstone. The
initial consideration was US$120 million with incremental amounts
expected to be deployed over time. In March 2021, an additional
US$22 million was invested.
The Company announced the following portfolio acquisitions after
the year:
-- In April 2021, the Company announced it had agreed to acquire
a 100% equity interest in a commercial district energy system,
RED-Rochester, LLC for a cash consideration of approximately US$177
million.
-- In April 2021, The Company invested in a 4.5MWp portfolio of
operational commercial and industrial rooftop solar systems and a
20 MWp pipeline of late development stage and ready to build assets
at multiple sites in Vietnam for a cash consideration of
approximately US$3.6 million.
12. Trade and other receivables
31 March 2021 31 March 2020
GBP'000 GBP'000
=================================== ============== ===================
Prepayments 335 211
VAT receivable 65 9
Other receivables 1 1,620
=================================== ============== ===================
Total trade and other receivables 401 1,840
=================================== ============== ===================
13. Trade and other payables
31 March 2021 31 March 2020
GBP'000 GBP'000
================================ ================== ===================
Other payables 1,229 584
================================ ================== ===================
Total trade and other payables 1,229 584
================================ ================== ===================
14. Share capital and share premium
31 March 2021 31 March 2020
Ordinary Shares '000 '000
======================================== ============== ==============
Authorised and issued at the beginning
of the year 320,374 100,000
======================================== ============== ==============
Shares Issued - during the year 356,713 220,374
======================================== ============== ==============
Authorised and issued at the end
of year 677,087 320,374
======================================== ============== ==============
Share capital Share Premium
GBP'000 '000
=================================== ============== ==============
Total as at 31 March 2020 3,204 219,721
=================================== ============== ==============
Issue of Ordinary shares 3,567 371,433
=================================== ============== ==============
Costs of issue of Ordinary shares - (6,718)
=================================== ============== ==============
Total as at 31 March 2020 6,771 584,436
=================================== ============== ==============
In June 2020, the Company issued 105,769,231 new ordinary shares
at a price of 104p per share raising gross proceeds of GBP110m.
In October 2020, the Company issued 100,000,000 new ordinary
shares at a price of 105p per share raising gross proceeds of
GBP105m.
In February 2021, the Company issued 150,943,396 new ordinary
shares at a price of 106p per share raising gross proceeds of
GBP160m.
The Company currently has one class of ordinary share in issue.
All the holders of the ordinary shares, which total 677,087k (2020:
320,374k), are entitled to receive dividends as declared from time
to time and are entitled to one vote per share at general meetings
of the Company.
Other distributable reserves were created through the
cancellation of the Share Premium account on 12 March 2019. This
amount is capable of being applied in any manner in which the
Company's profits available for distribution, as determined in
accordance with the Companies Act 2006, are able to be applied.
Other distributable reserves and Retained Earnings are detailed
in the Statement of Changes in Shareholders' Equity.
15. Financial risk management
Financial risk management objectives
The objective of the Company's financial risk is to manage and
control risk exposure of the underlying investment portfolio held
by Holdco. The Board is responsible for overseeing the management
of financial risks, however the review and management of financials
risks is delegated to the Investment Manager. Investment Manager
monitors and manages the financial risks relating to the operations
of the Company through internal procedures and policies designed to
identify, monitor and manage the financial risks to which the
Company is exposed.
These risks include market risk (including price risk, currency
risk and interest rate risk), credit risk and liquidity risk.
Price risk
The value of the investments directly and indirectly 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.
Currency risk
Currency risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes
in foreign exchange rates. The Company receives loan interest, loan
principal and dividends from its single investment, Holdco, in
sterling. However the Company is indirectly exposed to currency
risk through its Holdco as its investments include non-sterling
investments are held in Euro, US Dollar, Singapore Dollar and
Swedish Krona.
The Company monitors its foreign exchange rate exposures using
its near-term and long-term cash flow forecasts. Its policy is to
use foreign exchange hedging to provide protection to the level of
sterling distributions that the Company aims to pay over the
medium-term, where considered appropriate. This may involve the use
of forward exchange.
Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in market interest rates.
The Company, via Holdco, invests indirectly in loans in project
companies, usually with fixed interest rate coupons. Where floating
rate debt is owned, the primary risk is that the portfolio's cash
flow will be subject to variation depending on changes to base
interest rates. The portfolio's cash flows are continually
monitored and re-forecasted to analyse the cash flow returns from
investments.
The Company's policy is to ensure that interest rates are
sufficiently hedged, when entering into material medium/long-term
borrowings, to protect the Company and portfolio companies' net
interest margins from significant fluctuations in interest rates.
This may include engaging in interest rate swaps or other rate
derivative contracts at the subsidiary level under direction of the
Company.
The Company's financial assets and financial liabilities are at
a pre-determined interest rate, as a result the Company is subject
to limited exposure to risk due to fluctuations in the prevailing
levels of market interest rates.
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 through a reduction in future expected cash receipts.
The key counterparties are the project companies in which the
Company makes indirect investments via Holdco. The projects
companies' near-term cash flows forecasts are used to monitor the
timing of cash receipts from project counterparties and are
reviewed regularly to demonstrate the projects ability to pay
interest and dividends when they fall due.
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 2021, there were no receivables considered
impaired. At an 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
various banks to diversify credit risk. These are subject to the
Company's credit monitoring policies including the monitoring of
the credit ratings issued by recognized credit rating agencies. The
Company's cash and deposits are held with counterparties that meet
strict investment rating criteria per the Company's treasury
policy.
The Company is at risk of credit loss on its loans, receivables,
cash and deposits. Underlying investments are held by Holdco at
fair value using discounted cash flows. Receivables are primarily
intercompany and taxation. While cash and cash equivalents are
subject to the impairment requirements of IFRS 9, there was no
identified credit loss.
The Company's maximum exposure to credit risk over financial
assets is the carrying value of those assets in the Statement of
Financial Position.
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 Company also ensures that Holdco have sufficient banking
facilities by continuously monitoring forecast and actual cash
flows and matching the maturity profiles of financial assets and
liabilities.
Unconsolidated project companies are subject to contractual
agreements that may impose temporary restrictions on their ability
to distribute cash. Such restrictions are not deemed significant in
the context of the overall liquidity.
Liquidity risk (continued)
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 3 and Between 1
3 months 12 months and 5 years Total
As at 31 March 2021 GBP'000 GBP'000 GBP'000 GBP'000
============================= ============== ================== ================= =============
Assets
Cash and cash equivalents 122,059 - - 122,059
Trade and other receivables 1 - - 1
Liabilities
Trade and other payables (1,229) - - (1,229)
============================= ============== ================== ================= =============
Total 120,831 - - 120,831
============================= ============== ================== ================= =============
Up to Between 3 and Between 1
3 months 12 months and 5 years Total
As at 31 March 2020 GBP'000 GBP'000 GBP'000 GBP'000
============================= ============== ================== ================= =============
Assets
Cash and cash equivalents 68,179 - - 68,179
Trade and other receivables 1,620 - - 1,620
Liabilities
Trade and other payables (584) - - (584)
============================= ============== ================== ================= =============
Total 69,215 - - 69,215
============================= ============== ================== ================= =============
Capital management
The Company manages its capital to ensure that it will be able
to continue as a going concern while maximizing 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 via Holdco 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, distributable
reserves and retained earnings).
The Company is not subject to any externally imposed capital
requirements.
16. Related undertakings
The following table shows the Company's single direct subsidiary
(SEEIT Holdco Limited) and indirect subsidiaries and related
undertakings of the Company. As the Company applies IFRS 10 and
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
(see Note 2), these entities have not been consolidated in the
preparation of these financial statements.
Shareholding at
Investment Place of Business 31 March 2021
======================================= ======================== ==================
SEEIT Holdco Limited United Kingdom 100%
EECo Kingscourt Limited United Kingdom 100%
SEEIT Europe Limited United Kingdom 100%
EECo Data Centres No. 1 Limited United Kingdom 100%
SEEIT US Limited United Kingdom 100%
EECo Biomass No 1 Limited United Kingdom 60%
EECo Evergreen Limited United Kingdom 100%
EECo Wilton No. 1 Limited United Kingdom 100%
EECo Car Parks No. 2 Limited United Kingdom 50%
SmartEnergy Finance Two Limited United Kingdom 49%
Combined Heat and Power Investments
Limited United Kingdom 100%
Energy Efficient Global UK Project
Limited United Kingdom 100%
EECo Smithfield Limited United Kingdom 100%
SDCL Solar Edge Limited United Kingdom 100%
SEEIT UK 1 Limited United Kingdom 100%
SEEIT Asia Limited United Kingdom 100%
SEEIT Europe 2 Limited United Kingdom 100%
SEEIT US Two Limited United Kingdom 100%
Zood Infrastructure Limited United Kingdom 100%
Walworth Invest S.L. Spain 100%
SDCL TG Cogen LLC USA 71%
PERC Midco LLC USA 65%
SEEIT Capital LLC USA 100%
SEEIT Capital II LLC USA 100%
SEEIT Hemisphere I LLC USA 100%
FE Energy Efficiency INV PTE. Limited Singapore 100%
SEEIPL 1 PTE. Limited Singapore 100%
SEEIPL 3 PTE. Limited Singapore 100%
SEEIT EUROPE 2 SWEDEN HOLDING AB Sweden 100%
======================================= ======================== ==================
All subsidiaries that have a place of business of the United
Kingdom are registered at 5(th) Floor, 1 Vine Street, London, W1J
0AH.
SDCL TG Cogen LLC, SEEIT Capital LLC and SEEIT Capital II LLC
are registered in Delaware, USA and their place of business is 1120
Avenue of the Americas, New York, New York 10036, USA.
PERC Midco LLC and SEEIT Hemisphere I LLC are registered in
Delaware, USA and its place of business is 1209 Orange Street,
Wilmington, Delaware, USA.
Walworth Invest S.L. is registered in Spain and its place of
business is Calle Príncipe de Vergara 112, Planta Cuarta, 28002
Madrid, Spain.
FE Energy Efficiency PTE. Limited, SEEIPL 1 PTE. Limited and
SEEIPL 3 PTE. Limited is registered in Singapore and its place of
business is 6 Eu Tong Sen Street # 11-09, The Central, Singapore
059817.
SEEIT EUROPE 2 SWEDEN HOLDING AB is registered in Sweden and its
place of business is RÅSUNDAVÄGEN 12, 16967 Solna, Stockholm
County, Sweden.
17. Related parties
The Company and Sustainable Development Capital LLP (the
"Investment Manager") have entered into the Investment Management
Agreement pursuant to which the Investment Manager has been given
responsibility, subject to the overall supervision of the Board,
for active discretionary investment management of the Company's
portfolio in accordance with the Company's investment objective and
policy.
As the entity appointed to be responsible for risk management
and portfolio management, the Investment Manager is the Company's
AIFM. The Investment Manager has full discretion under the
Investment Management Agreement to make investments in accordance
with the Company's investment policy from time to time. This
discretion is, however, subject to: (i) the Board's ability to give
instructions to the Investment Manager from time to time; and (ii)
the requirement of the Board to approve certain investments where
the Investment Manager has a conflict of interest in accordance
with the terms of the Investment Management Agreement. The
Investment Manager also has responsibility for financial
administration and investor relations, advising the Company and its
group in relation to the strategic management of the portfolio,
advising the Company in relation to any significant acquisitions or
investments and monitoring the Company's funding requirements.
Under the terms of the Investment Management Agreement, the
Investment Manager will be entitled to a fee calculated at the rate
of:
-- 0.9%, per annum of the adjusted NAV in respect of the Net
Asset Value of up to, and including, GBP750 million; and
-- 0.8%, per annum of the adjusted NAV in respect of the Net
Asset Value in excess of GBP750 million.
The management fee is calculated and accrues monthly and is
invoiced monthly in arrears. During the year ended 31 March 2021,
management fees of GBP4,042k (31 March 2020: GBP1,973k) were
incurred of which GBP919k (31 March 2020: GBP472k) was payable at
the year-end.
During the year ended 31 March 2021, GBP316.5m (31 March 2020:
GBP180.9m) of funding was provided by the Company to the Holdco for
investment acquisitions and the repayment of the RCF utilised by
Holdco. The funding of Holdco consisted of issued share capital and
coupon bearing loan notes.
During the year ended 31 March 2021, coupon bearing loan notes
of GBP42.0 million (31 March 2020: GBP36.2 million) were issued
which accrue interest at 6%. During the year ended 31 March 2021,
Holdco had repaid coupon bearing loan notes of GBP13.0 million (31
March 2020: GBPnil). In the year to 31 March 2021, GBP2,684k
interest had accrued on the loan notes (31 March 2020: GBP939k) of
which GBP1,300k is outstanding at the year-end (31 March 2020:
GBPnil).
In September 2020, the Company agreed to acquire its first
portfolio of energy efficiency projects in Singapore from Singapore
Energy Efficiency Investments Pte. Ltd, a related party of the
Investment Manager, for an equity cash consideration of GBP2
million.
All of the above transactions were undertaken on an arm's length
basis and there have been no changes in material related party
transactions since the last annual report.
18. Key management personnel transactions
The Directors of the Company, who are considered to be key
management, received fees for their services. Their fees were
GBP144k (disclosed as Non-executive directors' fees in Note 6) in
the year (31 March 2020: GBP115k).
19. Guarantees and other commitments
The Company is the guarantor of the RCF between Holdco and
Investec Bank plc.
In July 2020, Holdco increased the RCF from GBP25 million to
GBP40 million with the same maturity date of 30 June 2022.
In October 2020, Holdco entered into an agreement with Investec
to increase the RCF by GBP30 million to an aggregate GBP70 million
by adding a short-term acquisition facility repayable in March
2021. Holdco utilised approximately GBP65 million of the RCF for
the acquisition of the Gasnätet project. In February 2021, Holdco
repaid the RCF utilised for the acquisition of the Gasnätet project
in full and any outstanding interest.
20. Events after the reporting period
The Directors have evaluated subsequent events from the date of
the financial statements through to the date the financial
statements were available to be issued.
In April 2021, the Company invested, via an investment in
Holdco, in a 4.5MWp portfolio of operational commercial and
industrial rooftop solar systems and a 20 MWp pipeline of late
development stage and ready to build assets at multiple sites in
Vietnam for a cash consideration of approximately $3.6 million.
In May 2021, the Company announced the acquisition, via an
investment in Holdco, of 100% of RED, a district energy system in
North America, for a cash consideration of approximately $177
million.
On 28 May 2021, the Company declared an interim dividend for the
quarter ended 31 March 2021 of 1.375p per share which is expected
to result in a cash payment of approximately GBP9.3 million on 30
June 2021.
In June 2021, the Company committed EUR6.4 million to an
investment, via an investment in Holdco, in the new installation of
energy efficiency equipment, including CHP and LED lighting,
providing, cleaner and more efficient on-site energy generation for
the Ireland based, Tallaght Hospital.
In June 2021 the Company's single subsidiary, Holdco increased
and renewed its RCF for which the Company is a guarantor. The new
facility is for a GBP115 million and expires in June 2024.
GLOSSARY
AIC Code the AIC Code of Corporate Governance, as revised or
updated from time to time
AIFM an alternative investment fund manager, within the meaning
of the AIFM Directive
AIFM Directive 2011/61/EU of the European Parliament and of the
Council of 8 June 2011 on Alternative Investment Fund Managers and
amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC)
No 1060/2009 and (EU) No. 1095/2010; the Commission Delegated
Regulation (EU) No 231/2013 of 19 December 2012 supplementing
Directive 2011/61/EU of the European Parliament and of the Council
with regard to exemptions, general operating conditions,
depositaries, leverage, transparency and supervision
Board the Board of Directors of the Company, who have overall
responsibility for the Company
Biomass boiler a wood-fuelled heating system, which burns wood
pellets, chips or logs to provide warmth in a single room or to
power central heating and hot water boilers
BMS building management systems
CCHP combined cooling/heating and power
CHP combined heating and power
Company SDCL Energy Efficiency Income Trust plc, a limited
liability company incorporated under the Act in England and Wales
on 12 October 2018 with registered number 11620959, whose
registered office is at 6(th) Floor, 125 London Wall, London, EC2Y
5AS
Company SPV a Project SPV owned by the Company or one of its
Affiliates through which investments are made
Contractual payment the payments by the Counterparty to the
Company or relevant Project SPV under the contractual arrangements
governing an Energy Efficiency Project, whether such payments take
the form of a service charge, a fee, a loan repayment or other
forms of payments as may be appropriate from time to time
Counterparty the host of the Energy Efficiency Equipment with
whom the Company has entered into the Energy Efficiency Project,
either directly or indirectly through the use of one or more
Project SPVs
Decentralised energy is energy which is produced close to where
it will be used, rather than at a large centralised plant
elsewhere, delivered through a centralised grid infrastructure
Energy efficiency using less energy to provide the same level of
energy. Efficient energy use is achieved primarily through
implementation of a more efficient technology or process
Energy efficiency equipment the equipment that is installed at
the premises of a Counterparty or a site directly connected to the
premises of a Counterparty in connection with an Energy Efficiency
Project, including but not limited to CHP units, CCHP plant
schemes, HVAC units, lighting equipment, biomass boilers and steam
raising boilers (including IP steam processors)
Energy efficiency project has the meaning given in paragraph 3
of Part II (Industry Overview, Investment Opportunity and Seed
Portfolio) of the November 2018 Prospectus
Energy efficiency technology technologies deployed to achieve an
improvement in energy efficiency
EPC Engineering, procurement and construction
ESA an energy saving agreement governing the terms on which
energy savings are apportioned between the counterparty and the
relevant Project
GHG greenhouse gases
Holdco is SEEIT Holdco Limited, the Company's single wholly
owned subsidiary
HVAC heating, ventilation and air conditioning
Investment Manager Sustainable Development Capital LLP, a
limited liability partnership incorporated in England and Wales
under the Limited Liability Partnership Act 2000 with registered
number OC330266
Investment Portfolio is the portfolio of energy efficiency
investments held by the Company via its single wholly owned
subsidiary, SEEIT Holdco Limited
ISA individual savings account
KWh kilowatts used or generated per hour
Lighting equipment energy efficient lighting used in connection
with an Energy Efficiency Project, including but not limited to
LEDs and associated fittings
November 2018 Prospectus is the prospectus issued by the Company
on 22 November 2018
Ordinary Shares an ordinary share of GBP0.01 in the capital of
the Company issued and designated as "Ordinary Shares" of such
class (denominated in such currency) as the Directors may determine
in accordance with the Articles and having such rights and being
subject to such restrictions as are contained in the Articles
O&M Contractors operations and maintenance contractors. the
contractor appointed by the Company or the relevant Project SPV to
perform maintenance obligations in relation to the relevant Energy
Efficiency Equipment
PEP personal equity plan
RoRi the "Return on Operations" incentive payment and the
"Return on Investment" incentive payment under Spain's Royal
Decree-Law 9/2013 under which qualifying energy generation assets
are compensated, in the medium to long-term, for fluctuations in
revenues and costs against an established base case
SIPP self-invested personal pension
SDCL Group the Investment Manager and the SDCL Affiliates
Steam Raising Boiler Technology is technology through which
pressurised water is transformed into steam through the application
of heat
Glossary of financial Alternative Performance Measures
("APM")
The Company uses APM's to provide shareholders and stakeholders
with information it deems relevant to understand and assess the
Company's historic performance and its ability to deliver on the
stated investment objective.
Measure Calculation Why the Company uses
the APM
Net Asset Value ("NAV") Net assets attributable It provides a metric
to Ordinary Shares that allows for useful
by deducting gross comparison to similar
liabilities from gross companies and that
assets. allows for useful
year on year comparisons
of the Company
----------------------------- -----------------------------
NAV per share NAV divided by total This provides shareholders
shares in issue at with a metric that
the balance sheet allows for tracking
date the Company's performance
year on year
----------------------------- -----------------------------
Total Return on NAV Interim dividends This provides shareholders
basis paid and movement with a metric that
in NAV per share over allows for tracking
the course of the the Company's performance
relevant period year on year
----------------------------- -----------------------------
Total Return on share Interim dividends This provides shareholders
price basis paid and share price with a metric that
uplift per share over allows for tracking
the course of the the Company's performance
relevant period year on year
----------------------------- -----------------------------
Portfolio Basis Portfolio Basis includes See Financial Review
the impact if Holdco for detailed description
(the Company's only
direct subsidiary)
were to be consolidated
on a line-by-line
basis
----------------------------- -----------------------------
Ongoing Charges Ratio In accordance with Used a metric in the
AIC guidance, defined investment company
as annualised ongoing industry to compare
charges (i.e. excluding cost-effectiveness
investment costs and
other non-recurring
items) divided by
the average published
undiluted net asset
value in the year
----------------------------- -----------------------------
Portfolio Valuation The fair value of It provides relevant
all investments in information of the
aggregate that are value of the underlying
held directly or indirectly investments held indirectly
by Holdco by the Company from
which it is ultimately
expected to derive
its future revenues.
----------------------------- -----------------------------
Cash on Portfolio Cash at back of the To provide relevant
Basis Company and Holdco information to shareholders
of the Company's ability
for new investments,
working capital and
payment of dividends
----------------------------- -----------------------------
[1] In this preliminary announcement, there are a number of
references to financial Alternative Performance Measures. For
further details on these, please see the Glossary of financial
Alternative Performance Measures ("APM")
[2] The target dividend stated above is based on a projection by
the Investment Manager and should not be treated as a profit
forecast for the Company
[3] Per SEEIT's ESG Report, October 2020
[4] The target dividend stated above is based on a projection by
the Investment Manager and should not be treated as a profit
forecast for the Company
[5] SEEIT's Responsible Investment Policy is available at:
www.seeitplc.com/what-we-do/#ourResponsibility
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